Shipnet Software Solutions India Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 3404/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4728 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 28-02-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 19-12-2016
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Keywords: Depreciation; Transfer pricing; International transaction; Working capital adjustments; Capital expenditure
• Section: 143(3); 133(6)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , '.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.3404/MDS/2016 * * /ASSESSMENT YEAR: 2012-13 M/S.SHIPNET SOFTWARE SOLUTIONS INDIA PVT. LTD., NO.2/4, MOUNT TOWERS, MOUNT POONAMALLEE ROAD, MANAPAKKA, CHENNAI-600 089. VS. THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), CHENNAI-600 034. [PAN: AALCS 8600 A] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.VIKRAM VIJAYARAGHAVAN, ADV. ./- 0 /RESPONDENT BY : MR.PATHLAVATH PEERYA, CIT 0 /DATE OF HEARING : 28.02.2017 0 /DATE OF PRONOUNCEMENT : 28.04.2017 / O R D E R PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER PASSED U/S 143(3) R.W.S.144C(13) DATED 25.10.2016 BY THE DY. C OMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI FOR THE AY 2012-13 AND RAISED THE FOLLOWING GROUNDS: ITA NO.3404/MDS/2016 :- 2 -: GROUNDS OF APPEAL : 1. THE ORDER OF THE LEARNED AO READ WITH THE DIRECTIONS OF THE DRP ARE ERRONEOUS IN LAW AND OPPOSED TO FACTS AND CIRCUMSTANCES OF THE CASE. ERRONEOUS COMPARABILITY ANALYSIS CARRIED OUT BY LTP O/HONBLE DRP 2. NON-EXCLUSION OF COMPARABLES WHOSE TURNOVER EXCEEDE D 500 CRORES 2.1 THE LTPO/HONBLE DRP OUGHT TO HAVE APPRECIATED THAT THE TOTAL TURNOVER OF THE APPELLANT WAS ONLY RS.22.32 CRORES IN THE FINANCIAL YEAR 2011-12 AND OUGHT TO HAVE HELD THAT THE FOLLOWING COMPANIES ARE NOT COMP ARABLE AS THEIR TURNOVER WAS IN EXCESS OF RS.500 CRORES. I. MINDTREE LIMITED {SEGMENTAL} (1255.8 CR) II. LARSEN & TURBO INFOTECH LTD (2959.5 CR) III. PERSISTENT SYSTEMS LTD (810.36 CR) 2.2 THE HONBLE DRP OUGHT TO HAVE APPRECIATED THAT EVEN THE SAFE HARBOUR RULES ARE TREATING COMPANIES WITH TURNOVER OF RS.500 CRORES A S A SEPARATE CLASS. 3. COMPANIES HAVING DIVERSE ACTIVITIES AND HENCE NOT C OMPARABLE WITH THE APPELLANT. THE LTPO/HONBLE DRP OUGHT TO HAVE APPRECIATED THAT THE FOLLOWING COMPANIES HAVING REGARD TO THE DIVERSE NATURE OF FUNCTIONS COULD NOT BE COMPARED TO THE APPELLANT WHICH RENDERS SIMPLE SOFTWARE CODING SERVICES TO ITS ASSO CIATED ENTERPRISE. I. THIRDWARE SOLUTIONS LIMITED II. ACROPETAL TECHNOLOGIES LIMITED III. SPRY LIMITED 4. COMPARABLES ACCEPTED BY THE LEARNED TPO BUT EXCLUDED BY THE HONBLE DRP THE HONBLE DRP ERRED IN INCORRECT REASONING AND IN CONSISTENT POSITIONS IN REGARD TO THEIR OWN POSITIONS ELSEWHERE IN THE ORDER AND EXCL UDING THE FOLLOWING COMPARABLES WHICH HAVE BEEN ACCEPTED BY THE LEARNED TPO AND THE APPELLANT. I. SANKHYA INFOTECH II. KALS INFORMATION SYSTEMS LIMITED III. GOLDSTONE TECHNOLOGIES LIMITED 5. NON-ACCEPTANCE OF THE FOLLOWING COMPARABLES TAKEN B Y THE APPELLANT. THE HONBLE DRP ERRED IN CONFIRMING THE EXCLUSION O F THE FOLLOWING COMPARABLES WHICH WERE REJECTED BY THE TPO I. CG-VAK II. AVANI CIMCON TECHNOLOGIES NON-PROVISION OF ADJUSTMENTS CLAIMED BY THE APPELLA NT 6. NON-PROVISION OF WORKING CAPITAL ADJUSTMENT THE HONBLE DRP HAS FAILED TO PROVIDE WORKING CAPIT AL ADJUSTMENT TO THE MARGINS OF THE COMPARABLE COMPANYS UNCONTROLLED TRANSACTIONS. 7. DEPRECIATION ADJUSTMENT NOT PROVIDED BY HONBLE DRP THE HONBLE DRP ERRED IN NOT PROVIDING THE ADJUSTME NTS SOUGHT BY APPELLANT TO THE PLI FOR DEPRECIATION CHARGED IN EXCESS OF SCHEDULE XIV OF COMPANIES ACT 1956. ITA NO.3404/MDS/2016 :- 3 -: 8. UNUTILIZED CAPACITY ADJUSTMENT: THE HONBLE DRP ERRED IN NOT PROVIDING THE ADJUSTME NTS SOUGHT BY APPELLANT FOR ITS UNOCCUPIED CAPACITY DURING RELEVANT FINANCIAL YEAR. 9. OTHER ADJUSTMENTS NOT PROVIDED BY THE HONBLE DRP 9.1 NON-ACCEPTANCE OF JUSTIFICATION BASED ON RETURN ON NET WORTH: THE HONBLE DRP ERRED IN NOT GIVING ADJUSTMENT TO PLI OF APPLICANT FOR DIFFERENCES IN RETURN ON NET WORTH OF COMPARABLE COMPANIES. 9.2 NON-ACCEPTANCE OF ADOPTING CPM (GROSS PROFIT MARGIN ) AS A SUPPLEMENTARY METHOD: THE HONBLE DRP ERRED IN NOT ACCEPTING THE JUSTIFIC ATION OF ALP BY CPM AS A SUPPLEMENTARY METHOD OF JUSTIFICATION. 9.3 NON-PROVISION OF RISK ADJUSTMENT: THE HONBLE DRP E RRED IN NOT PROVIDING FOR RISK ADJUSTMENT AS SOUGHT BY THE APPELLANT. 10. ISSUES FOR RECTIFICATION (WITHOUT PREJUDICE) THE LEARNED TPO ERRED IN FINALIZING THE ORDER WHILE GIVING EFFECT TO THE DIRECTIONS OF THE HONBLE DRP 10.1 NON-INCLUSION OF SASKEN LIMITED BY THE TPO WHILE GIV ING EFFECT TO THE DRP DIRECTIONS. 10.2 ERRONEOUS COMPUTATION OF PLI OF CTIL LIMITED AS CON TAINED IN THE TPOS ORDER. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GROUN DS AT THE TIME OF HEARING FOR THESE AND OTHER REASON TO BE ADDUCED AT THE TIME OF HEARI NG THE APPELLANTS FAVORABLE ORDER. 2.0 SHIPNET SOFTWARE SERVICES INDIA PVT. LTD. (HEREIN A FTER REFERRED TO AS THE ASSESSEE OR SSSIPL) IS A SUBSIDIARY OF THE ISS GROUP AND ITS NOMINEES SINCE 2007 AND ENGAGED IN DESIGN AND DEVELOPMENT OF THE SOFTWARE USED IN RENDERING THE SERVICES TO THE SHIPPING INDUSTRY BY THE SHIPNET AND ISS GROUP. SHIPNET HAS BEEN PROMOTING THE INTEGRATED SO LUTION AS THE KEY VALUE FOR BUYING THE SHIPNET PRODUCTS. 3.0. DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2012- 13, THE ASSESSEE HAS ENTERED INTO THE INTERNATIONAL TRANSACTION WITH THE AE FOR AN AMOUNT OF RS.22.52 CR. AS UNDER: ITA NO.3404/MDS/2016 :- 4 -: SL. NO. NAME OF THE ASSOCIATED ENTERPRISE DESCRIPTION OF THE TRANSACTIONS AMOUNT (IN RS) 1 JSS GROUP HOLDINGS SOFTWARE DEVELOPMENT SERVICES 7,16,13,370 2 SHLPNET AS, NORWA 15,16,33,240 3 ISS GROUP HOLDINGS, UK MISCELLANEOUS EXPENSES 3,11,454 4 INCHCAPE SHIPPING SERVICES (DUBAI) LLC, UAE REIMBURSEMENT OF EXPENSES 62,821 5 INCHCAPE SHIPPING SERVICES (UK) LIMITED 3,59,305 6 ISS UK HUB OFFICE, UK 6,37,081 7 SHIPNET ASIA PTE LTD, SINGAPORE 1,06,800 8 SHIPNET AS-NORWAY 3,46,889 9 ISS SHIPPING INDIA PVT. LTD 1,47,943 10 INCHCAPE SHIPPING SERVICES INDIA PRIVATE LIMITED 3,376 TOTAL RS.22,52,22,278 4.0 THE AO HAS REFERRED THE INTERNATIONAL TRANSACTION T O THE TPO FOR DETERMINING THE ALP OF INTERNATIONAL TRANSACTION: THE ASSESSEE HAS ADOPTED THE TNMM AS MOST APPROPRIA TE METHOD AND CONDUCTED THE TP STUDY AND HELD THE INTERNATION AL TRANSACTIONS OF THE ASSESSEE WITH AE ARE AT ARMS LENGTH PRICE. 4.1 FUNCTIONS PERFORMED BY M/S. SHIPNET SOFTWARE SERV ICES INDIA PRIVATE LIMITED AND ITS AES ARE DESCRIBED AS UNDER: ISS DEVELOPMENT CENTRE (IDC): SL.NO. SHIPNET SOFTWARE SERVICES AE 1 -- REQUIREMENT GATHERING (MAJOR INVOLVEMENT) 2 ANALYSIS (MINIMAL INVOLVEMENT) ANALYSIS (MAJOR IN VOLVEMENT) 3 DESIGNING & ARCHITECTURE (MINIMAL) DESIGNING & ARCHITECTURE (SOME EXTENT) 4 CODING (MAJOR) -- 5 TESTING (SOME EXTENT) TESTING (SOME EXTENT) 6 -- IMPLEMENTATION (MAJOR) 7 MAINTENANCE (MAJOR) -- 8 SUPPORT (MAJOR) SUPPORT (SOME EXTENT) 9 IT INFRASTRUCTURE (MINIMAL) IT INFRASTRUCTURE (MA JOR) ITA NO.3404/MDS/2016 :- 5 -: THE ASSESSEE COMPANY PERFORMED ALL THE FUNCTIONS OF A CONTRACT SERVICE PROVIDER. 4.2 THE ASSETS AND THE RISKS ASSUMED BY THE ASSESSEE : COMPUTER SYSTEM, OFFICE EQUIPMENT, FURNITUR E & FITTING, MOTOR VEHIDE AND SOFTWARE ARE USED IN DEVELOPMENT OF SOFT WARE BY ASSESSEE COMPANY. LIMITED PRODUCT DEVELOPMENT RISK, ATTRITION RISK AND FOREIGN EXCHANGE RISK ARE CARRIED BY THE ASSESS EE COMPANY. 4.3 THE ASSESSEE HAS ADOPTED ITSELF AS THE TESTED PART Y AND HAS CARRIED OUT AN ECONOMIC ANALYSIS WHICH IS SUMMARIZED AS UND ER: NATURE OF INTERNATIONAL TRANSACTION AMOUNT (IN RS.) MAM PLI MARGIN OF TAXPAYER MARGIN OF COMPARABIES PROVISION OF SOFTWARE DEVELOPMENT AND SERVICES 22,52,2,278 TNMM OP/OC 4.56% 10.98% TOTAL 22,52,22,278 4.4 ADOPTING TNMM AS MOST APPROPRIATE METHOD THE ASSES SEE HAS SHORT- LISTED 7 COMPARABLE COMPANIES AFTER APPLYING CERTAI N FILTERS IN ACE TP V 6.3 DATABASE. THE AVERAGE MARGIN OF THE COMPARABLE COMPANIES AFTER ADJUSTMENT WAS 4.56%, AS AGAINST THIS, THE ASSESSEE HAS DETERMINED ITS OWN MARGIN (OP/OC) @ 10.98% AFTER PROVIDING ADJUSTM ENT FOR EXCESS DEPRECIATION AND OTHER ECONOMIC ADJUSTMENTS. BASED ON THE TP STUDY MADE ABOVE, THE TAXPAYER HELD THAT THE TRANSACTION WAS WITHIN ARMS LENGTH PRICE. ITA NO.3404/MDS/2016 :- 6 -: 5.0 THE TRANSFER PRICING OFFICER (IN SHORT TPO) EXAM INED THE TP STUDY OF THE ASSESSEE AND BEING NOT SATISFIED WITH THE AL P COMPUTED BY THE ASSESSEE, REJECTED THE TP STUDY OF THE ASSESSEE AND MADE INDEPENDENT SEARCH PROCESS AND SELECTED THE SEPARATE SET OF COM PARABLES AND ISSUED SHOW CAUSE NOTICE FOR ADOPTING THE COMPARABLES SELE CTED BY THE TPO AND CALLED FOR THE OBJECTIONS OF THE ASSESSEE. THE ASS ESSEE FILED OBJECTIONS AND AFTER CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE, THE ASSESSING OFFICER (IN SHORT AO) SELECTED THE FINAL LIST OF COMPARABLES AS UNDER: NAME OF THE COMPANY MARGIN (OP/OC) EVOKE TECHNOLOGIES LTD 11.71 MINDTREE LTD 15.01 R S SOFTWARE INDIA LTD 15.31 LARSEN & TOUBRO INFOTECH 23.82 PERSISTENT SYSTEMS LTD 24.59 THIRDWARE SOLUTIONS LTD 28.18 GOLDSTONE TECHNOLOGIES LTD 10.88 CTIL UMITED 15.83 ACROPETAL TECHNOLOGIES LTD 10.87 SPRY RESOURCES P LTD 25.18 NDS INFOTECH LTD 3.56 SANKHYA INFOTECH 5.59 KALS INFORMATION 7.05 AVERAGE 15.20 AVERAGE MEAN OF THE COMPARABLE COMPANIES WAS WORKE D OUT TO 15.20%. THE ASSESSEE HAS CLAIMED ECONOMIC ADJUSTME NT TOWARDS UNUTILIZED PREMISES AMOUNTING TO RS.1,41,92,554/-, ADJUSTMENT TOWARDS DEPRECIATION AND WORKING CAPITAL. AFTER CAREFUL STU DY OF THE OBJECTIONS RAISED BY THE ASSESSEE, THE TPO REJECTED THE OBJECT IONS OF THE ASSESSEE AND CALCULATED THE PLI OF THE ASSESSEE @8.35% AS AG AINST THE AVERAGE MEAN MARGIN OF COMPARABLES @15.20% AND ACCORDINGLY DETERMINED THE ALP OF INTERNATIONAL TRANSACTION AT RS.23.73 CR. AG AINST THE OPERATING ITA NO.3404/MDS/2016 :- 7 -: REVENUE OF THE ASSESSEE AT RS.22.32 CR. AND SUGGEST ED FOR UPWARD ADJUSTMENT OF RS.1.41 CRORES AS UNDER: 8. PLI CALCULATION: THE PLI CALCULATION OF THE ASSESSEE IS AS FOLLOWS: DESCRIPTION (RS. IN CR.) OPERATING REVENUE 22.32 OPERATING COST 20.60 OPERATING PROFIT 1.72 OP/OC (%) 8.35% ALP CALCULATION: VALUE OF THE AE TRANSACTION = RS.22.32 CR. MARGIN OF THE ASSESSEE COMPANY = 8.35% MARGIN OF THE COMPARABLE COMPANY = 15.20% IF COST MARKUP (%) SALES (%) 100 8.35 108.35 100 15.2 115.2 ALP OF THE TRANSACTION = RS.22,32 CR X 115.2/108.35 = RS.23.73 CR. 5% MARGIN OF ASSESSEES TRANSACTION OF 22.32 CR = RS.21.20 CR. TO RS.23.45 CR 6.0 AGGRIEVED BY THE ORDER OF THE TPO, THE ASSESSEE WE NT ON APPEAL BEFORE THE DISPUTE RESOLUTION PANEL (IN SHORT DRP ) AND THE DRP HAS DIRECTED TO REMOVE THE M/S.SANKHYA INFOTECH, M/S.KA LS INFORMATION SYSTEMS AND M/S.GOLDSTONE TECHNOLOGIES LTD., FROM T HE LIST OF COMPARABLES. THE DRP ALSO REJECTED THE ECONOMIC AD JUSTMENTS RELATING TO ADJUSTMENT SOUGHT BY THE ASSESSEE IN RESPECT OF UNO CCUPIED CAPACITY, WORKING CAPITAL AND DEPRECIATION. THE AO HAS PASSE D THE ASSESSMENT ORDER AS PER THE DIRECTIONS OF THE DRP U/S.143 R.W. S.144C AND MADE UPWARD ADJUSTMENT OF RS.1,30,00,000/- IN THE ASSESS MENT ORDER AGAINST WHICH THE ASSESSEE IS ON APPEAL BEFORE US. ITA NO.3404/MDS/2016 :- 8 -: 7.0 GROUND NO.1 IS GENERAL IN NATURE WHICH DOES NOT RE QUIRE SPECIFIC ADJUDICATION. 8.0 GROUND NO.2 IS RELATED TO THE EXCLUSION OF COMPARA BLE CASES WHOSE TURNOVER IS VERY HIGH. THE TPO HAS SELECTED THE FO LLOWING COMPARABLES FOR ARRIVING THE MARGIN: MINDTREE (IT SERVICES SEGMENT) - TURNOVER - 1,255.8 CR. L&T INFOTECH LTD. - TURNOVER - 2,959.50 CR. PERSISTENCE SYSTEMS LTD. - TURNOVER - 810.36 CR. THE LEARNED AUTHORIZED REPRESENTATIVE (IN SHORT L D.AR) ARGUED THAT THE ABOVE THREE COMPARABLES SELECTED BY THE TP O ARE WITH THE TURNOVER OF MORE THAN RS.800 CR., WHEREAS THE ASSES SEES TURNOVER WAS RS.22.32 CR. WHICH IS VERY SMALL AMOUNT AND UNCOMPA RABLE. THE HUGE TURNOVER IS ONE OF THE VITAL FACTORS TO DETERMINE T HE MARGINS. BOTH THE TPO AND THE DRP HAVE NOT CONSIDERED THE IMPORTANT A ND VITAL FACTOR REGARDING THE TURNOVER. THEREFORE, THE LEARNED AR (IN SHORT LD.AR) ARGUED THAT THE ABOVE THREE COMPANIES SHOULD BE EXC LUDED FROM THE LIST OF THE COMPARABLES. ON THE OTHER HAND, THE LD.DR ARGU ED THAT THE ASSESSEE HAS ADOPTED THE TNMM AS MOST APPROPRIATE METHOD AND TNMM NEUTRALIZES THE DEFICIENCIES OF TURNOVER FILTER. THEREFORE, TH E LD.DR VEHEMENTLY OPPOSED THE EXCLUSION OF THE ABOVE COMPARABLES FROM THE LIST OF COMPARABLES. 8.1 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. ITA NO.3404/MDS/2016 :- 9 -: ADMITTEDLY, THE TURNOVER OF THE ASSESSEE COMPANIES IS RS.22 CRRORES AND THE TURNOVER OF THE COMPARABLE COMPANIES SELECT ED BY THE TPO/AO WAS MORE THAN RS.800 CR. THE LD DRP CONSIDERED THE ISSUE OF HIGH TURNOVER AND RELIED ON THE DECISION OF ITAT BANGALO RE BENCH IN THE CASE OF SOCIETY GENERAL GLOBAL SOLUTION CENTRE (P) LTD V. D CIT (2016) 69 TAXMANN.COM 336 AND SYMANTEC SOFTWARE SOLUTIONS (P) LTD V ACIT (2011) 11 TAXMANN.COM 264(MUM) AND HELD THAT THE ASSESSEE HAS NOT MADE OUT A CASE AS TO HOW THE HIGH TURNOVER HAS IMPACTED THE MARGINS AND ACCORDINGLY REJECTED THE ASSESSEES OBJECTION TO EXCLUDE THE ABOVE THREE COMPANIES FROM THE LIST OF COMPARABLES. AS PER RULE 10B, FOR SELECTION OF A COMPARABLE, TURNOVER AND BRAND VALUE ARE NOT THE CR ITERIA. THE CRITERIA IS FUNCTIONS, ASSETS AND RISKS INVOLVED. THE LD.TPO IN HER ORDER OBSERVED THAT THE COMPANIES HAVE BEEN IDENTIFIED AS COMPARAB LE COMPANIES ON THE BASIS OF FAR AND NO SERIOUS FAR BASED DIVERGENCES H AVE BEEN BROUGHT BY THE ASSESSEE. THE ASSESSEE IS IN THE SERVICE SECTO R WHERE FIXED COSTS ARE NOMINAL AND COST OF SERVICE IS PROPORTIONATE TO THE SERVICES RENDERED BY THE ASSESSEE. THE LD. AR RELIED ON HONBLE BOMBAY H IGH COURT DECISION IN TAX APPEAL NO.18 OF 2015 CIT V. M/S.PENTAIR WATER I NDIA PVT. LTD., WHEREIN IT WAS HELD THAT THE TURNOVER IS OBVIOUSLY A RELEVANT FACTOR TO CONSIDER THE COMPARABLE. IN THE CASE OF M/S PENTAIR WATER INDIA PVT. LTD, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URE OF FIBRE GLASS PRESSURE VESSEL USED FOR WATER TREATMENT, SWIMMING POOL EQUIPMENT AND THE AY INVOLVED IS AY 2007-08 AND THE ASSESSEE IS E NGAGED IN SERVICE SECTOR AND THE AY INVOLVED IS 2012-13. THE MANUFACT URING INDUSTRY IS ITA NO.3404/MDS/2016 :- 10 -: CAPITAL INTENSIVE FOR WHICH THE VOLUMES AND TURNOVE R OF THE BUSINESS IS A RELEVANT FACTOR TO MEET THE HUGE CAPITAL INVESTMENT AND SERVICE CHARGES. WHEREAS THE ASSESSEE COMPANY IS ENGAGED IN THE SERV ICE SECTOR FOR WHICH THE COST OF SERVICE IS PROPORTIONATE TO THE SERVICE S RENDERED BY THE ASSESSEE. THE LD.DR BROUGHT TO OUR NOTICE DURING TH E COURSE OF APPEAL HEARING THAT THE HONBLE BOMBAY HIGH COURT HAS NOT CONSIDERED RULE 10B(2) IN THE CASE LAW RELIED UP ON BY THE ASSESSEE . THE LD.AR DID NOT CONTROVERT THE SUBMISSION MADE BY THE DR IN RESPECT OF RULE 10B(2). THEREFORE THE CASE LAW RELIED UPON BY THE ASSESSEE NOT APPLICABLE IN ASSESSEES CASE. THOUGH TURNOVER IS A RELEVANT FACT OR THE ASSESSEE HAS TO MAKE OUT CASE THAT THE HUGE TURNOVER HAS MATERIALLY IMPACTED THE MARGINS OF THE COMPANY. IN THE INSTANT CASE THE ASS ESSEE HAS NOT DEMONSTRATED THAT THE HIGH OR LOW TURNOVER HAS INFL UENCED THE OPERATING MARGIN OF THE ASSEESSEE COMPANY. THE LD.DRP OBSERVE D THAT OPERATING MARGIN HAS NO DIRECT RELATION BETWEEN THE TURNOVER AND THE MARGIN. IN TNMM METHOD MERELY BECAUSE OF HIGH TURNOVER THE COM PARABLES CANNOT BE EXCLUDED UNLESS THE ASSESSEE DEMONSTRATES THAT T HE TURNOVER HAS MATERIALLY IMPACTED THE MARGINS IN RELEVANT ASSESSM ENT YEAR. ACCORDINGLY WE REJECT THE ASSESSEES CONTENTION TO EXCLUDE THE ABOVE COMPANIES AS COMPARABLES ON THE BASIS OF TURNOVER FILTER. 8.2 NEXT CONTENTION OF THE ASSESSEE IS TO EXCLUDE TH E ABOVE THREE COMPARABLES ON FUNCTIONAL DIFFERENCES. THIS ISSUE H AS BEEN CONSIDERED BY THE DRP IN ITS ORDER DATED 31/08/2016 IN DETAIL IN PARA NO.4.3 TO 4.5 OF ITS ITA NO.3404/MDS/2016 :- 11 -: DIRECTION. FOR THE SAKE OF CONVENIENCE WE EXTRACT T HE RELEVANT PARAGRAPHS OF THE DRP DIRECTIONS. 4.3 AS REGARDS ASSESSEES CLAIM THAT M/S.MINDTREE IS FUNCTIONALLY DIFFERENT, FROM THE ANNUAL REPORT OF THIS COMPANY IT IS EVIDENT THAT IT IS OPE RATING IN TWO SEGMENTS AND SEGMENTAL DETAILS ARE AVAILABLE AND THE SAME HAVE BEEN USED B Y THE TPO. IN FACT, THE ASSESSEE HAS WRONGLY MIXED UP THE FUNCTIONS OF GROUP COMPANIES O F M/S.MINDTREE WITH THAT OF THE COMPANY ITSELF TO ARRIVE AT ITS CONCLUSION OF FUNCT IONAL DIFFERENCE. CONSIDERING ABOVE, THE OBJECTION OF THE ASSESSEE IN RELATION TO THIS COMPA RABLE IS NOT ACCEPTED. 4.4 THE ASSESSEE HAS ALSO OBJECTED TO INCLUSION OF M/S.L&T INFOTECH AS COMPARABLE BY CLAIMING THAT THE SAME IS INVOLVED IN OTHER SEGMENT S OF BUSINESS AND THAT SEGMENTAL DETAILS ARE NOT AVAILABLE. HOWEVER, ON EXAMINING TH E ANNUAL REPORT OF THE COMPANY IT IS OBSERVED THAT THERE IS SOME RESALE OF PRODUCTS, HOW EVER THE COST OF BOUGHT OUT ITEMS FOR RESALE IS ONLY RS.22.82 CRORE AS AGAINST TOTAL OPER ATING EXPENDITURE OF RS.2358.85 CRORE I.E. A MEAGRE 0.97%. THUS THE EFFECT OF SUCH SALE WOULD HARDLY BE THERE IN THE CASE OF THIS COMPARABLE. AS REGARDS ASSESSEES RELIANCE ON INFOR MATION FROM THE WEBSITE FOR SHOWING DIFFERENT FUNCTIONS PERFORMED BY THE COMPANY, THE S AME IS MISPLACED AS THE SAME REPRESENT THE STATE OF AFFAIRS AT THE TIME WHEN WEB SITE IS ACCESSED AND NOT THE PAST YEARS. FURTHER THE DETAILS IN THE WEBSITE ARE ONLY INDICAT IVE OF THE FUNCTIONS WHICH THE COMPANY IS READY TO PERFORM BUT MAY NOT HAVE BEEN NECESSARILY PERFORMED BY IT IN SOME EARLIER YEARS. SO THE ANNUAL REPORT AND NOT THE WEBSITE NEEDS TO B E RELIED UPON FOR THE ACTUAL FUNCTIONS PERFORMED BY THE COMPANY. THE OBJECTIONS OF THE ASS ESSEE HAVE ALSO BEEN DEALT IN DETAIL BY THE TPO IN HIS ORDER, WHICH CANNOT BE FAULTED WIT H. CONSIDERING ABOVE, THE OBJECTION OF THE ASSESSEE IN RELATION TO THIS COMPARABLE IS NOT ACCEPTED. 4.5 AS REGARDS ASSESSEES CLAIM THAT PERSISTENT SYS TEMS LTD IS IN SOFTWARE PRODUCT DEVELOPMENT, IT IS OBSERVED THAT THE COMPANY IS DEV ELOPING SOFTWARE FOR ITS CUSTOMERS WHOM TURN ARE IN BUSINESS OF SOFTWARE PRODUCT DEVEL OPMENT AND OUTSOURCING THE WORK OF ONWARD DEVELOPMENT TO THIS COMPANY. THUS THE ASSESS EE HAS WRONGLY INFERRED THAT THE M/S.PERSISTENT SYSTEMS LTD., ITSELF IS IN SOFTWARE P RODUCT DEVELOPMENT. IN FACT, THE ASSESSEE ITSELF IS SIMILARLY PLACED AS IT IS DEVELO PING SOFTWARE FOR ITS AE, WHICH IN TURN IS FINALLY USING IT IN ITS SOFTWARE PRODUCTS. CONSIDER ING ABOVE, THE OBJECTION OF THE ASSESSEE IS NOT ACCEPTED. 8.3 BOTH TPO AND THE DRP HAVE CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE WITH REGARD TO FUNCTIONAL DIFFERENCES REJE CTED THE ASSESSEES OBJECTIONS AS DISCUSSED ABOVE. NO FRESH MATERIAL HA S BEEN BROUGHT BY THE LD.AR BEFORE US TO CONTROVERT THE FINDINGS OF THE L OWER AUTHORITIES. THEREFORE, WE DO NOT INCLINE TO INTERFERE WITH THE DIRECTIONS OF THE DRP AND THE TPO AND ACCORDINGLY WE REJECT THE ASSESSEES CO NTENTION TO EXCLUDE THE ABOVE THREE COMPARABLES FROM THE LIST OF COMPAR ABLES AND DISMISS THE ASSESSEE GROUND ON THIS ISSUE. ITA NO.3404/MDS/2016 :- 12 -: 9.0 GROUND NO.3 IS RELATED TO THE EXCLUSION OF THE COM PANIES HAVING DIVERSE ACTIVITIES AS UNDER: 1. THIRDWARE SOLUTIONS LTD. 2. ACROPETAL TECHNOLOGIES LTD. 3. SPRY RESOURCES PVT. LTD., 9.1 DURING THE APPEAL, HEARING THE LD.AR ARGUED THAT A LL THE ABOVE THREE COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPA RABLES DUE TO FUNCTIONAL DISSIMILARITY AND DIVERSE ACTIVITIES. T HE LD.AR SUBMITTED THE FUNCTIONAL DISSIMILARITIES OF THE ABOVE COMPANIES I NDEPENDENTLY COMPANY- WISE. THE ASSESSEE COMPANY IS ENGAGED IN THE FUNCT IONS AS PER THE FUNCTIONAL PROFILE DESIGNING, ARCHITECTURE, TESTING , IMPLEMENTATION, SUPPORT AND IT INFRASTRUCTURE WHICH ARE MAJOR FUNCTIONS OF THE ASSESSEE COMPANY. AS PER THE TP DOCUMENT, THE ASSESSEE COMPANY PROVID ES SOFTWARE DESIGN, DEVELOPMENT, SUPPORT MAINTENANCE DATA PROCESSING SE RVICES TO ITS PARENT COMPANY. WHEREAS THE FUNCTIONS OF THE COMPARABLE C OMPANIES SELECTED BY THE TPO IN THE CASE OF THE ABOVE THREE COMPANIES ARE NOT SIMILAR TO THAT OF THE ASSESSEE COMPANY AND HAVING DIVERSE NAT URE FUNCTIONS. THE OBJECTIONS RAISED BY THE LD.AR FOR EACH COMPANY HAS BEEN EXAMINED BY US AND THE DECISION OF THIS TRIBUNAL IS AS UNDER: 9.2 M/S.THIRDWARE SOLUTIONS LTD: THE TPO HAS SELECTED THE M/S.THIRD WARE SOLUTIONS LTD., WITH 28.18% OF PLI AND RS.105.68 CR. TURNOVER AS COMPARA BLE. THE LD.AR OBJECTED FOR SELECTION OF THIS COMPARABLE. ACCORDI NG TO THE LD.AR, THE ASSESSEES COMPANY IS ENGAGED IN DEVELOPMENT, CONSU LTING AND RELATED ITA NO.3404/MDS/2016 :- 13 -: SPACE, MAJOR ALLIANCES SUCH AS SALESFORCE, ORACLE, BIRST, SAP, INFORMATICA AND CXO, COCKPIT. ACCORDING TO THE LD.AR, THE COMP ANIES ARE FUNCTIONALLY DISSIMILAR WHICH REQUIRED TO BE EXCLUDED FROM THE L IST OF COMPARABLES. THE ASSESSEE RAISED THE OBJECTIONS BEFORE THE TPO AS W ELL AS THE DRP AND BROUGHT OUT THE FUNCTIONAL DISSIMILARITY OF THE COM PARABLE COMPANY AS DISCUSSED ABOVE. THE TPO AS WELL AS DRP HAVE SUMMA RILY REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE. THE HONBLE BANG ALORE BENCH IN M/S.SAP LABS INDIA PVT. LTD., REPORTED IN IT(TP)A N O.1006/BANG/2011 DATED 30.06.2016 CONSIDERED THE ISSUE ON FUNCTIONAL DISSIMILARITY AND DIRECTED TO EXCLUDE THE COMPANY WITH FUNCTIONAL DIS SIMILARITY FROM THE LIST OF COMPARABLES. 9.3 THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE TPO AND DRP AND THE LOWER AUTHORITIES DISMISSED THE ASS ESSEES OBJECTION STATING THAT ALLIENCES DO NOT DETERMINE THE FUNCTIO NALITY OF THE COMPANY. HOWEVER THE FACT WITH REGARD TO THE FUNCTIONAL DISS IMILARITY HOW THE FUNCTIONS OF THE ASSESSEE COMPANY ARE NOT SIMILAR H AS NOT BEEN DEMONSTRATED BY THE LD AR AND WAS NOT VERIFIED BY T HE LOWER AUTHORITIES. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E ISSUE SHOULD BE REMITTED BACK TO THE FILE OF THE AO FOR FURTHER VER IFICATION OF THE FUNCTIONS OF THE COMPARABLE COMPANY WITH THE TESTED PARTY AND DECIDE THE ISSUE AFRESH ON MERITS. ACCORDINGLY, THIS ISSUE IS REMIT TED BACK TO THE FILE OF THE AO. ITA NO.3404/MDS/2016 :- 14 -: 9.4 M/S.ACROPETAL TECHNOLOGIES LTD: THE LD.AR ARGUED THAT M/S.ACROPETAL TECHNOLOGIES L TD., IS ENGAGED IN PRODUCT DEVELOPMENT, WHEREAS THE ASSESSEE COMPAN Y IS ONLY SOFTWARE SERVICES PROVIDER. THE COMPARABLE COMPANY ALSO HAV ING SIGNIFICANT INTANGIBLES. THE LD.AR OF THE ASSESSEE HAS INVITED OUR ATTENTION TO PAGE NO.108 OF PAPER BOOK WHEREIN INTANGIBLES ARE REPORT ED IN THE FINANCIAL STATEMENT AT RS.19.05 CR. THE LD.AR ALSO INVITED O UR ATTENTION TO PAGE NO.171 OF PAPER BOOK WHERE SEGMENTAL INFORMATION IN CLUDES ENGINEERING DESIGN, INFORMATION TECHNOLOGY AND HEALTH CARE. TH E LD.AR ARGUED THAT THE COMPANY IS DISSIMILAR IN FUNCTIONS AS WELL AS N ON COMPARABLE ON ASSETS DECLARED BY THE COMPANY. ACCORDING TO THE LD.AR, T HE FAR ANALYSIS OF THE COMPANY IS COMPLETELY DIFFERENT FROM THAT OF THE AS SESSEE COMPANY, THE LD.AR RELIED ON THE DECISION OF ITAT BANGALORE C BENCH IN THE CASE OF M/S.SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. V . ITO REPORTED IN (2013) 38 TAXMANN.COM 55. (BANGALORE-TRIB.) THE HO NBLE ITAT BANGALORE GIVEN A RULING THAT THIS COMPANY COULD NO T BE SELECTED AS COMPARABLE IN VIEW OF FUNCTIONAL DISSIMILARITY. WE REPRODUCE HERE UNDER THE RELEVANT PART OF THE DECISION OF THE HONBLE IT AT IN RESPECT OF M/S.ACROPETAL TECHNOLOGIES LTD. IN THE CASE OF M/S. SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD., AS UNDER: M/S.ACROPETAL TECHNOLOGIES LTD. (SEQ.) ON A PERUSAL OF NOTES TO ACCOUNTS WHICH GIVES SEGMEN TAL REVENUE OF THIS COMPANY, IT IS CLEAR THAT THE MAJOR SOURCE OF INCOME FOR THI S COMPANY IS FROM PROVIDING ENGINEERING DESIGN SERVICE AND INFORMATION TECHNOLO GY SERVICES. THE FUNCTIONS PERFORMED BY THE ENGINEERING DESIGN SERVICES SEGMEN T OF THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES/BPO FUNCTIONS PE RFORMED BY THE ASSESSEE. ITA NO.3404/MDS/2016 :- 15 -: THE PERFORMANCE OF ENGINEERING DESIGN SERVICES IS R EGARDED AS PROVIDING HIGH END SERVICES AMONG THE BPO WHICH REQUIRES HIGH SKILL WHE REAS THE SERVICES PERFORMED BY THE ASSESSEE ARE ROUTINE LOW END ITES- FUNCTIONS . THEREFORE, THIS COMPANY COULD NOT HAVE BEEN SELECTE D AS A COMPARABLE, ESPECIALLY WHEN IT PERFORMS ENGINEERING DESIGN SERVICES WHICH ONLY A KNOWLEDGE PROCESS OUTSOURCING [KPO] WOULD DO AND NOT A BUSINESS PROCESS OUTSOURCING [BPOJ. RESPECTFULLY FOLLOWING THE DECISION OF ITA T BANGALORE, WE DIRECT THE AO/TPO TO EXCLUDE THE M/S.ACROPETAL TECHNOLOGIES LT D., FROM THE LIST OF COMPARABLES. 9.5 M/S.SPRY RESOURCES PVT. LTD: THE TPO SELECTED M/S.SPRY RESOURCES LTD., AS COMPA RABLE TO THE ASSESSEE COMPANY. THE ASSESSEE OBJECTED BEFORE THE TPO AND THE DRP. BOTH DRP AND TPO HAVE REJECTED THE ASSESSEES OBJEC TION TO EXCLUDE SPRY RESOURCES LTD. AS A COMPARABLE. THE LD.AR SUBMITTE D THAT THE COMPANY IS MAINLY ENGAGED IN THE GOVERNMENT PROJECTS AND IN GOVERNMENT PROJECTS THE MARGINS ARE VERY HIGH. FURTHER THE LD AR ALSO O BJECTED RELYING NOTE GIVEN ON REVENUE RECOGNITION. ON THE OTHER HAND, T HE LD.DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 9.6 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED ON RECORD. THE ASSESSEE HAS RAISED OBJECTION OF REVENUE RECOG NITION AS PER THE NOTE ON REVENUE RECOGNITION. THIS ISSUE HAS BEEN DE ALT IN THE DRP ORDER AS UNDER: 4.11 THE OBJECTION OF THE ASSESSEE REGARDING SPRY R ESOURCES INDIA PVT. LTD. THAT AS PER REVENUE RECOGNITION METHOD, IT IS IN PRODUCT DEVELO PMENT AND ITS, PROJECTS ARE RELATED TO E- ITA NO.3404/MDS/2016 :- 16 -: GOVERNANCE. THE OBJECTIONS OF THE ASSESSEE HAVE SUI TABLY BEEN DEALT BY THE TPO IN HER ORDER. REVENUE RECOGNITION STATEMENT IN ANNUAL REPO RT IS A GENERAL STATEMENT, WHICH SPECIFIES THE TREATMENT, IF A PARTICULAR TYPE OF RE VENUE IS THERE IN THE CASE OF THE COMPANY. THIS DOES NOT MEAN THAT THE COMPANY HAS ACTUALLY EA RNED REVENUE FROM THAT STREAM. SO THIS ARGUMENT OF THE ASSESSEE DOES NOT HAVE ANY MER IT. THOUGH THE ASSESSEE HAS RAISED OBJECTIONS FOR REVE NUE RECOGNITION, WE HAVE NOT COME ACROSS ANY OBJECTIONABLE METHODS W HICH HAVE MATERIAL IMPACT ON MARGINS OR INCONSISTENCIES IN THE NOTE OF REVENUE RECOGNITION. THE LD.AR OF THE ASSESSEE DID NOT BRING ANY FUNCTIO NAL DISSIMILARITY, ASSETS DEPLOYED AND THE IMPACT OF MARGINS IN RELATION TO N OTE ON REVENUE RECONGNITION. THE TURNOVER IS ALSO COMPARABLE TO T HE TESTED PARTY. MERELY BECAUSE OF THE ASSESSEE IS ENGAGED IN THE GOVERNMEN T PROJECTS, THE COMPANY CANNOT BE EXCLUDED FROM THE LIST OF COMPARA BLES. THE ASSESSEES ARGUMENT THAT IN GOVERNMENT PROJECTS MARGINS ARE VE RY HIGH IS NOT WELL FOUNDED .THE LD.AR HAS NOT BROUGHT ON RECORD ANY EV IDENCE TO ESTABLISH THAT THE ASSESSEES MARGINS ARE LESS AND THE MARGIN S IN GOVERNMENT PROJECTS ARE VERY HIGH. THEREFORE, THE OBJECTION OF THE ASSESSEE TO EXCLUDE M/S.SPRY RESOURCES LTD., FROM THE LIST OF C OMPARABLES IS REJECTED AND THE DECISION OF THE AO/TPO/DRP IS UPHELD. 10.0 GROUND NO.4 IS RELATED TO THE EXCLUSION OF THE FOL LOWING COMPARABLES SUO MOTO BY THE DRP: M/S.SANKHYA INFOTECH LTD. KALS INFORMATION SYSTEMS GOLDSTONE TECHNOLOGIES LTD. THE LD.AR SUBMITTED THAT THE ABOVE THREE COMPANIES WERE SELECTED BY THE TPO HOLDING THAT THE COMPANIES ARE FUNCTIONA LLY COMPARABLE BUT ITA NO.3404/MDS/2016 :- 17 -: THE DRP HAS REMOVED THE ABOVE COMPANIES FROM THE LI ST OF COMPARABLES ON ITS OWN ACCORD. SINCE THE FUNCTIONS OF THE COMP ANIES AND THE TURNOVER OF THE COMPANY ARE COMPARABLE, THE SAME SHOULD BE I NCLUDED IN THE LIST OF COMPARABLES. 10.1 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US AND DEAL WITH THE COMPANIES REMOVED BY TH E DRP INDEPENDENTLY AS UNDER: 10.2 M/S.SANKYA INFOTECH LTD: THE DRP HAS FOUND FROM THE ANNUAL REPORT OF THE CO MPANY THAT IT IS ENGAGED IN-HOUSE RESEARCH AND DEVELOPMENT CENTRE IN VOLVED IN THE DEVELOPMENT ACTIVITIES OF NEW PRODUCTS IN THE FIELD OF SIMULATION AND TRAINING. DURING THE YEAR THE COMPANY HAS DEBITED A N AMOUNT OF RS.4.94 CRORES AS R&D EXPENDITURE AND OF THIS RS.4.83 CRORE S WAS EMPLOYEE COST. THAT THE COMPANY IS IN RESEARCH AND DEVELOPMENT AND THUS DEVELOPING ITS OWN INTANGIBLES ALSO BECOMES EVIDENT FROM THE FACT THAT INTANGIBLE FIXED ASSETS ARE ONLY RS.78.27 LAKHS AGAINST INTANGIBLE A SSETS OF RS.42.46 CR. THESE INTANGIBLES INCLUDE LEARNING MANAGEMENT PRODU CTS, TRAINING MANAGEMENT PRODUCTS, SIMULATOR PRODUCTS, KNOWLEDGE BASED CONTENTS ETC., AS AGAINST THE NORMAL INTANGIBLE SOFTWARE PUR CHASE IN CASE OF ROUTINE SOFTWARE DEVELOPER. FROM THE ABOVE INFORMATION IT I S CLEAR THAT THE COMPANY IS IN TECHNICAL TRAINING AND R&D IN ADDITIO N TO SOFTWARE DEVELOPMENT. COMPLETE SEGMENTAL DATA RELATING TO RE VENUE FROM EACH ITA NO.3404/MDS/2016 :- 18 -: SEGMENT AND THE EXPENSES ARE NOT AVAILABLE. DRP WAS OF THE VIEW THAT THE COMPANY IS FUNCTIONALLY DISSIMILAR AND THE FACTS WE RE CONFRONTED WITH THE ASSESSEE DURING THE HEARING BY THE DRP. THE ASSESSE E FAILED CONTROVERT THE ABOVE FINDINGS OF THE DRP, HENCE THE DRP HAS DI RECTED THE AO/TPO TO EXCLUDE M/S.SANKHYA INFOTECH LTD., FROM THE LIST OF COMPARABLES. THE LD.AR WHILE ARGUING FOR EXCLUSION OF COMPARABLE IN THE CASE OF M/S.ACROPETAL TECHNOLOGIES LTD., ASSIGNED THE REASO NING OF SIGNIFICANT INTANGIBLES AND FUNCTIONAL DISSIMILARITY. M/S.SANKY A INFOTECH ALSO HAVING SIGNIFICANT INTANGIBLES AND FUNCTIONALLY DISSIMILAR AS OBSERVED BY THE DRP IN ITS DIRECTIONS. THE LD.AR DID NOT BRING ANY EVI DENCE TO CONTROVERT THE FINDINGS OF THE DRP. ON THE SIMILAR FACTS AND CIRCU MSTANCES WE HAVE DIRECTED TO EXCLUDE M/S.ACROPETAL TECHNOLOGIES LTD. , FROM THE LIST OF COMPARABLES. FOLLOWING THE CONSISTENCY WE HOLD THAT THE LD.DRP HAS RIGHTLY DIRECTED THE AO/TPO TO EXCLUDE M/S.SANKHYA INFOTECH FROM THE LIST OF COMPARABLES AND THE ASSESSEES APPEAL ON THIS IS SUE IS DISMISSED, 10.3 M/S.KALS INFORMATION SYSTEMS: THE DRP WHILE EXAMINING THE ANNUAL ACCOUNTS OB SERVED THAT THE COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE A ND SOFTWARE PRODUCTS. THE COMPANY IS ALSO HAVING A TRAINING CEN TRE ENGAGED IN TRAINING SOFTWARE PROFESSIONALS ONLINE PROJECTS. OUT OF THE TOTAL REVENUE OF RS.2.73 CR THE TRANSLATION AND INTERPRETATION FEE W AS RS.51.67 LAKHS. AND NO SEGMENTAL INFORMATION RELATED TO SOFTWARE PRODUC TS TRAINING INCOME, TRANSLATION AND INTERPRETATION FEE IS AVAILABLE. T HE TRANSLATION AND ITA NO.3404/MDS/2016 :- 19 -: INTERPRETATION FEE RECEIVED BY THE COMPARABLE COMPA NY IS FUNCTIONALLY DISSIMILAR FROM THE TESTED PARTY AND THERE WAS NO S EGMENTAL INFORMATION WITH REGARD TO THE SOFTWARE PRODUCTS, TRAINING INCO ME, TRANSLATION FEE IS AVAILABLE. THE LD.AR EXCEPT STATING THAT THE M/S.K ALS INFORMATION SYSTEMS IS FUNCTIONALLY COMPARABLE COMPANY, NO EVID ENCE WAS PLACED BEFORE THE DRP TO CONTROVERT THE FINDINGS, HENCE DR P HAS REMOVED M/S.KALS AS COMPARABLE THOUGH IT WAS SELECTED BY TH E TPO. NO OTHER DETAILS WERE FURNISHED CONTROVERTING THE FINDINGS G IVEN BY THE DRP BY THE LD.A.R. FROM THE FINDINGS OF THE DRP IT IS ESTABLIS HED THAT THE COMPANY IS FUNCTIONALLY NOT COMPARABLE AND WE DO NOT FIND AN Y INFIRMITY IN THE DIRECTION OF THE DRP AND THE SAME IS UPHELD. 10.4 M/S.GOLDSTONE TECHNOLOGIES LTD: WITH RESPECT TO THE M/S.GOLD STONE TECHNOLO GIES LTD., ALSO THE DRP OBSERVED THAT THE FUNCTIONS OF THE COMPANY WERE DIS SIMILAR AND IT IS ONLY ENGAGED IN THE IT SEGMENT NOT IN SOFTWARE DEVELOPME NT. THE FINDINGS OF THE DRP ARE MADE AVAILABLE IN PARA NO. 4.14 TO 4.16 WHICH ARE EXTRACTED HEREUNDER FOR THE SAKE OF CONVENIENCE: 4.14 WHILE EXAMINING THE ANNUAL REPORT (PAGE 11 OF THE REPORT) OF M/S. GOLDSTONE TECHNOLOGIES LTD, THIS WAS OBSERVED BY THE PANEL TH AT THE COMPANY IS NOT ENGAGED AT ALL IN THE DEVELOPMENT OF SOFTWARE. THE REPORT OF THE COMP ANY READS AS FOLLOWS: ONE AREA WHERE GOLDSTONE HAS SUCCEEDED IS WITH THE BUSINESS INTELLIGENCE (BI) PLATFORM, WHICH IS A TOP DRIVER FOR THE ORGANIZATIONS IN 2 012-2013. BI IS A STRONG DECISION MAKING PLATFORM AND SHOWS A POSITIVE GROWTH CURVE IN INTER ACTIVE VISUALIZATION, PREDICTIVE ANALYSIS DASHBOARDS AND ONLINE ANALYTICAL PROCESSING WITH HI GHEST EASE OF USE. GOLDSTONE HAS A LONG HISTORY AND MANY GREAT RESOURCES WITHIN THE BI SEGM ENT. OUR CURRENT BI PRACTICE IS GEARED TO PROVIDE A NEXT GENERATION FEATURE RICH, LOW COST SOLUTION THAT CAN BE DEPLOYED BY BOTH SMBS AS WELL AS LARGE ENTERPRISES WHICH DO NOT WAN T TO MAKE CAPEX INVESTMENTS. ANOTHER GROWTH ARE WITHIN MOBILITY SOLUTIONS. THE EVOLUTION OF TODAY S MOBILE WORKFORCE IS ITA NO.3404/MDS/2016 :- 20 -: COMPLICATING THE MOBILE DECISION FOR MANY COMPANIES , WITH NEW CHALLENGES IN RISK, COST CONTAINMENT; MANAGEMENT, ROLLOUT LOGISTICS, SEALABI LITY AND SECURITY. A GOLDSTONE MOBILITY ROADMAP DRIVING TANGIBLE ROI. OUR ROADMAP IS A CUSTO M EXPLORATION OF CLIENTS CURRENT BUSINESS PROCESSES AND MOBILE, STRATEGY. THIS ENGA GEMENT INCLUDES DETAILED RECOMMENDATIONS FOR USING MOBILE TECHNOLOGY TO OPTI MIZE THE ENTIRE INFRASTRUCTURE FOR APPLICATIONS, PLATFORMS, DEVISES, CARRIERS, WIRELES S, VOICE AND MANAGEMENT PROCESS. 4.15 THUS THE COMPANY IS OPERATING TOTALLY IN THE I TES SEGMENT AND NOT IN SOFTWARE DEVELOPMENT. DURING HEARINGS ON 30.08.2016, THE ASS ESSEE WAS CONFRONTED WITH THIS ASPECT BY THE PANEL. IN ITS REPLY, THE ASSESSEE ONLY STATE D THAT THE COMPANY IS FUNCTIONALLY SIMILAR AND SO IT SHOULD NOT BE EXCLUDED. THUS ASSESSEE FAI LED TO CONTROVERT THE ABOVE FINDINGS OF PANLEL. IN THE CASE OF M/S.TRILOGY E-BUSINESS SOFTWA RE VS. THE DEPUTY COMMISSIONER OF INCOME TAX ITA NO.1054/BANG/2011 ASSESSMENT YEAR: 200 7-08, THE BANGALORE BENCH OF ITAT DECIDED AS FOLLOWS: 72. WITH REGARD TO GOLDSTONE TECHNOLOGY LTD., THE SAME WAS REJECTED AS A COMPARABLE BY THE TPO FOR THE REASON THAT IT WAS ENGAGED IN IT ENA BLED SERVICES. IT IS THE CLAIM OF THE ASSESSEE THAT IN THE COMPANYS ANNUAL REPORT, FLOW OF REVENUE IN THIS COMPANY IS FROM SOFTWARE DEVELOPMENT BOTH, ONSITE AND OFFSHORE OPER ATIONS. ON THE ABOVE, WE FIND THAT THIS COMPANY HAS CLARIFIED IN RESPONSE TO NOTICE OF THE U/S. 133(6) OF THE ACT THAT IT IS NOT IN THE BUSINESS OF SOFTWARE DEVELOPMENT BUT IN ITES. T HE ALTERNATIVE PLEA OF THE ASSESSEE IS THAT IT SHOULD BE ALLOWED OPPORTUNITY TO CROSS EXAM INE THIS COMPANY ON ITS REPLY TO THE NOTICE OF TPO U/S.133(6) OF THE ACT. WE HAVE SEEN THE OBJECTIONS OF THE ASSESSEE WHICH IS BASED ONLY ON A READING OF THE ANNUAL REPORT AND TH E CLAIM OF THE ASSESSEE IS NOT ON SOUND BASIS AND IS PURELY ON SURMISES. WE ARE OF THE VIEW THAT THE REJECTION BY THE TPO OF THIS COMPANY AS A COMPARABLE IS ON SOUND BASIS AND THE S AME IS UPHELD. 4.16 THE FUNCTIONAL PROFILE OF THIS COMPANY REMAINS THE SAME DURING THE YEAR UNDER CONSIDERATION. CONSIDERING ABOVE, THIS COMPANY SHOU LD NOT HAVE BEEN TAKEN AS A COMPARABLE BY THE TPO. SO THE TPO IS DIRECTED TO EXCL UDE THIS COMPANY FROM THE LIST OF COMPARABLES. THE LD.AR OF THE ASSESSEE FAILED TO REBUT THE FIND INGS OF THE DRP. THE DRP RELIED ON THE DECISION OF ITAT BANGALORE IN M/S. TRILOGY E- BUSINESS SOFTWARE V. DCIT ITAT NO.1054/BANG/2011 AY 2007-08. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE W ITH THE DIRECTIONS OF THE DRP AND THE SAME IS UPHELD. 11.0 GROUND NO.5 IS RELATED TO THE INCLUSION OF THE FOL LOWING COMPARABLE SELECTED BY THE ASSESSEE WHICH WERE REJECTED BY THE TPO: CG-VAK SOFTWARE EXPORTS AVANI CIMCON TECHNOLOGIES ITA NO.3404/MDS/2016 :- 21 -: 11.1 M/S.CG-VAK SOFTWARE SYSTEMS LTD.: BOTH TPO & DRP HAVE REJECTED THE ASSESSEES REQUES T FOR INCLUSION OF THE ABOVE TWO COMPANIES AS COMPARABLES. THE ASSE SSEE RELIED ON THE DECISION OF TIBCO SOFTWARE INDIA PVT. LTD. V. DCIT IN ITA NO.2536 (PN) OF 2012 AND ARGUED THAT PERSISTENCE LOSS MAKING COMPAN Y IS NOT A REASON FOR EXCLUSION OF THE COMPARABLE COMPANIES. WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD AND GONE THROUGH THE DECISION OF CO-ORDINATE BENCH IN THE CASE LAW CITED SUPRA. THE HONBLE ITAT IN THE CASE OF TIBCO SOFTWARE INDIA PVT. LTD. V. DCIT IN ITA NO.2536 (PN) OF 2012 [2015] 56 TAXMANN.COM 91 (PUNE-TRIB.) DIRECTED THE AO/TPO/DRP TO INCLUDE COM PARABLE COMPANY HOLDING THAT THE UNCONTROLLED TRANSACTION, IF IT A REFLECTS LOSS WOULD BE NORMAL INCIDENCE OF BUSINESS LOSS UNLESS ANY PECULI ARITY OR ANY ABNORMAL SITUATION OF UNCONTROLLED TRANSACTION IS BROUGHT ON RECORD, FOR READY REFERENCE WE EXTRACT THE GIST OF THE DECISION FROM THE ORDER OF THE HONBLE COORDINATE BENCH AS UNDER: COMPARABLE CG- VAK SOFTWARE SYSTEMS LTD. THE SAID CONCERN HAS BEEN EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT HAS INCURRED A LOSS, WHEREAS ASSESSEES BUS INESS MODEL IS COST PLUS MARK UP. [PARA 26] THE POINT SOUGHT TO BE MADE OUT BY THE TPO IS QUITE MIS-PLACED HAVING REGARD TO THE PURPOSE AND IMPORT OF THE COMPARABILITY ANALYSI S OF THE INTERNATIONAL TRANSACTION BEING UNDERTAKEN FOR DETERMINING ITS AR MS LENGTH PRICE. OSTENSIBLY, THE WHOLE OBJECTIVE OF THE TRANSFER PRICING PROCEEDING IS THAT THE CONTOURS OF AN UN- CONTROLLED TRANSACTION SHALL REFLECT A MEASURE OF A RMS LENGTH PRICE OF THE TESTED INTERNATIONAL TRANSACTION. THE UN-CONTROLLED TRANSA CTION, IF IT REFLECTS A LOSS, WOULD NOT NORMALLY BE EXCLUDIBLE UNLESS ANY PECULIARITY I N SUCH UN-CONTROLLED TRANSACTION IS BROUGHT OUT. FOR INSTANCE, THE UN-CONTROLLED TRA NSACTION IS OF AN ENTITY WHICH IS CONSISTENTLY LOSS MAKING OR THAT THE LOSS HAS ARISE N IN THE UN-CONTROLLED TRANSACTION ON ACCOUNT OF AN ABNORMAL FACT-SITUATION, ETC. IN S UCH SITUATIONS, OSTENSIBLY, THE UN-CONTROLLED TRANSACTION WOULD NOT REFLECT A NORMA L BUSINESS SITUATION. IN THE PRESENT CASE, THE COMPARABLE IN QUESTION HAS INCURR ED A LOSS; NOTABLY, INCURRENCE OF ITA NO.3404/MDS/2016 :- 22 -: LOSS IN BUSINESS OPERATIONS IS A NORMAL INCIDENT OF BUSINESS AND THERE IS NOTHING TO SUGGEST IN THE PRESENT CASE THAT IT HAS BEEN INCURR ED IN ANY ABNORMAL SITUATION. IT IS ALSO NOT THE CASE THE REVENUE THAT THE SAID CONC ERN IS A CONSISTENTLY LOSS MAKING CONCERN. THEREFORE, THE SAID CONCERN CANNOT BE EXCL UDED MERELY BECAUSE OF INCURRENCE OF LOSS IN RELEVANT YEAR, ESPECIALLY WHE N THE SAID LOSS HAS NOT BEEN ESTABLISHED TO BE AN ABNORMAL BUSINESS CONDITION AN D MORE SO IN THE CONTEXT THAT THE SAID CONCERN IS NOT DENIED TO BE FUNCTIONALLY C OMPARABLE TO THE ASSESSEE. THEREFORE, ON THIS ASPECT, THE PLEA OF THE ASSESSEE FOR INCLUDING THE SAID CONCERN IN THE FINAL SET OF COMPARABLES IN ORDER TO DETERMINE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION IS UPHELD. [PARA 29]. FROM THE DECISION OF THE HONBLE ITAT, IT IS ALSO OBSERVED THAT THE HONBLE ITAT DIRECTED TO INCLUDE THE COMPANY IN THE LIST OF COMPARABLES FOR THE REASONS THAT THE COMPANY IS NOT MAKING CONSISTE NT LOSSES. IN THE CASE OF COMPARABLE COMPANY, THE COMPANY IS MAKING PERSIS TENT LOSSES RIGHT FROM 2008-09 ONWARDS. THE ASSESSEE IN ITS TRANSFER DOCUMENT IN PAGE NO.267 OF PAPER BOOK HAS EXCLUDED THE COMPANIES MAK ING PERSISTENT LOSSESS FROM THE LIST OF COMPARABLES. WHEN THE ASS ESSEE HIMSELF HAS ACCEPTED THAT COMPANIES MAKING PERSISTENT LOSSES A S NOT GOOD COMPARABLES IN ITS TRANSFER DOCUMENTATION, WE DO NO T FIND ANY REASON TO DISPUTE WITH THE ASSESSEES STAND AND TO INCLUDE TH E SAME AS COMPARABLE SINCE THE COMPANY IS INCURRING PERSISTENT LOSSES. THEREFORE, THE ASSESSEES REQUEST TO INCLUDE M/S.CG-VAK SOFTWARE S YSTEMS LTD., IN THE LIST OF COMPARABLES IS REJECTED. 11.2 M/S.AVANI CIMCON TECHNOLOGIES LTD.: THE ASSESSEES REQUESTED FOR INCLUSION OF M/S.AVAN I CIMCON TECHNOLOGIES LTD., WHICH WAS SELECTED BY THE ASSESS EE AS COMPARABLES. THE TPO EXCLUDED THE COMPANY FROM THE LIST OF COMPA RABLES SINCE THE COMPANY IS ENGAGED IN PRODUCTS SUCH AS DEXCHANGE AN D FINANCIALS DOES ITA NO.3404/MDS/2016 :- 23 -: NOT GIVE SEGMENTAL DATA OF SOFTWARE DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. HENCE THE TPO WAS OF THE VIEW THAT ENTIRE OPERATIONAL RESULT OF THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE AND ACCORDINGLY REJECTED THE ASSESSEES REQUEST. THE LD.AR ARGUED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE LOW END SOFTWARE SERVICES AND COMPARABLE COMPANY IS ALSO ENGAGED IN SOFTWARE DEVELOPMENT SER VICES AS EVIDENCED FROM THE ANNUAL REPORT. NEITHER THE TPO NOR THE DRP HAS GONE IN TO THE DETAILS AS TO WHY THE COMPANY SHOULD NOT BE TAKEN A S COMPARABLE AND HOW THE COMPANY IS FUNCTIONALLY NOT COMPARABLE. THE REFORE, WE ARE OF THE CONSIDERED OPINION THAT THE CASE SHOULD BE REMITTED BACK TO THE FILE OF THE AO/TPO TO VERIFY THE FUNCTIONAL SIMILARITY AND DECI DE THE ISSUE AFRESH ON MERITS. ACCORDINGLY, THE INCLUSION OF AVANI CIMCON AS COMPARABLE IS REMITTED BACK TO THE FILE OF THE AO TO DECIDE THE I SSUE A FRESH ON MERITS. 12.0 IN GROUND NO.2 TO 5 WE HAVE DIRECTED THE AO/TPO TO EXCLUDE SOME COMPARABLES AND TO INCLUDE SOME COMPANIES IN THE LI ST OF COMPARABLES. AO IS FREE TO SELECT NEW COMPARABLES ON FUNCTIONAL SIMILARITIES AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO DETERMINE THE ALP. WE DIRECT THE AO TO MAKE A FRESH SEARCH PROCESS AND SELECT THE NEW COMP ARABLES IF NECESSARY AND DETERMINE THE ALP AFRESH. IN THE LIGHT OF THE ABOVE DISCUSSION, THE ENTIRE I SSUE OF SELECTION OF COMPARABLES IS SET-ASIDE TO THE FILE OF THE AO. ITA NO.3404/MDS/2016 :- 24 -: 13.0 GROUND NO.6 IS RELATED TO THE WORKING CAPITAL ADJU STMENT: THE DRP HAS REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE FOR GIVING WORKING CAPITAL ADJUSTMENT SINCE THERE WAS N O NEGATIVE WORKING CAPITAL AND THE ASSESSEE COULD NOT DEMONSTRATE THE MATERIAL IMPACT ON THE MARGINS FOR ADJUSTMENT OF WORKING CAPITAL. THE LD. DRP ALSO RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S.MOBIS INDIA LTD., IN ITA NO.2112/MDS/2011 AY 2007-08. THE ISSUE IS SET-ASID E TO THE FILE OF THE AO TO EXAMINE THE FACTS WITH RELEVANCE TO THE OBSER VATIONS MADE BY THIS TRIBUNAL, IN THE CASE CITED SUPRA WITH THE FACTS OF THE ASSESSEES CASE. APART FROM THE ABOVE, THE ASSESSEE IS REQUIRED TO F URNISH THE PRICING MODEL OF THE AE AS WELL AS THE TESTED PARTY TO VERI FY WHETHER THE WORKING CAPITAL MARGIN OF INTEREST IS INCLUDED IN THE SALES PRICE OF THE PRODUCT. THE AO IS DIRECTED TO EXAMINE THE ABOVE ISSUES AND ALLO W THE SUITABLE WORKING CAPITAL ADJUSTMENT WHILE DETERMINING THE ALP. 14.0 GROUND NO.7 IS RELATED TO DEPRECIATION ADJUSTMENT CHARGED IN EXCESS OF SCHEDULE-4 OF COMPANIES ACT: THE DRP HAS REJECTED THE ASSESSEES REQUEST FOR AD JUSTMENT OF EXCESS DEPRECIATION PLACING RELIANCE ON THE DECISIO N OF LASON INDIA PVT. LTD. V. ACIT [2012] 50 SOT 583/19.TAXMANN.COM 323 ( CHENNAI). THE TRIBUNAL REJECTED THE CLAIM OF THE ASSESSEE WITH TH E FOLLOWING OBSERVATIONS: THE ASSESSEE PROVIDED DEPRECIATION ON ASSETS UNDER SLM AT THE RATES HIGHER THAN THOSE PROVIDED IN SCHEDULE XIV, WHEREAS THE COMPARABLES P ROVIDED FOR DEPRECIATION AS PER INCOME TAX RULES ON WRITTEN DOWN VALUE METHOD THE A SSESSEE CLAIMED BEFORE THE TRIBUNAL THAT IF DEPRECIATION OF THE ASSESSEE IS ALSO BROUGH T TO THE W.D.V. METHOD, THEN ITS OPERATING ITA NO.3404/MDS/2016 :- 25 -: PROFIT WOULD BE MORE. THE TRIBUNAL REJECTED THIS CL AIM OF THE ASSESSEE. SO FOLLOWING THE DECISION OF JURISDICTIONAL BENCH THE OBJECTION OF T HE ASSESSEE CANNOT BE ACCEPTED. SINCE THE DRP HAS REJECTED THE ASSESSEES REQUEST FOR ADJUSTMENT OF DEPRECIATION PLACING RELIANCE ON THE DECISION OF TH IS TRIBUNAL WE DO NOT FIND ANY ERROR IN THE DIRECTION OF THE DRP AND THE SAME IS UPHELD. THE ASSESSEES APPEAL ON THIS GROUND IS DISMISSED. 15.0 GROUND NO.8 UNUTILIZED CAPACITY ADJUSTMENT: THE ASSESSEE CLAIMED UNUTILIZED CAPACITY ADJUSTMEN T OF PREMISES RENT OF RS.1,41,92,551/-. THE ASSESSEE SUBMITTED T HAT THE COMPANY HAS TAKEN LEASE OF TWO FLOORS IN THE PREMISES OCCUPIED BY IT. THE COMPANY WAS ESTABLISHED AS A START UP IN 2008 BY ITS OVERSE AS HOLDING THE COMPANY WITH A CERTAIN EXPECTED LEVEL OF FULL OCCUPANCY FOR BOTH THE 3 RD FLOOR & THE 4 FLOOR. HOWEVER, THE ASSESSEE COULD NOT RECRUIT EM PLOYEES FOR SUBSTANTIAL CAPACITY AND THE NON RECOVERY OF THE COSTS ASSOCIAT ED WITH THE VACANT CAPACITY SHOULD BE LEGITIMATELY BORNE BY THE ASSESS EE AND HENCE ADJUSTMENT FOR THE SAME IS WARRANTED UPON ANALYSING THE NO. OF SEATS THAT WERE VACANT DURING THE AY 12-13, IT WAS OBSERVED TH AT THERE WAS AN UTILIZED CAPACITY TO THE EXTENT OF 46.54%... THE UN UTILIZED CAPACITY REPRESENTS COST INCURRED FOR WHICH NO COMMENSURATIO N OF REVENUE THAT WAS EARNED. 15.1 THE ASSESSEE RAISED OBJECTION BEFORE THE DRP AND T HE DRP HAS REJECTED THE ASSESSEES CLAIM DISTINGUISHING THE RE LIANCE PLACED BY THE ASSESSEE ON VARIOUS CASE LAWS AS UNDER: ITA NO.3404/MDS/2016 :- 26 -: 6.1 THIS WAS SUBMITTED BY THE ASSESSEE THAT THE TPO FAILED TO APPRECIATE THE FACT THAT 46.54% OF THE TOTAL SEATS WERE COMPLETELY UNOCCUPIE D AND THE EXPENDITURE INCURRED FOR THAT PART OF THE CAPACITY WAS UNABSORBED AND WOULD NOT HAVE EARNED ANY INCOME. ASSESSEE RELIED UPON DECISIONS IN CASE OF ARISTON THERMO IND IA LIMITED .VS. DCIT ITA NO.1455/PN/2010-ITAT, PUNE FOR THE SAME. 6.2 THE SUBMISSIONS OF THE ASSESSEE HAVE DULY BEEN CONSIDERED. THE ASSESSEE HAS RELIED ON SOME DECISIONS AS REFERRED SUPRA. IN THE CASE OF AR ISION THERMO INDIA LIMITED (SUPRA) IT WAS INITIAL YEAR OF OPERATION FOR THE ASSESSEE. SO THE FACTS WERE DIFFERENT AND ASSESSEES RELIANCE ON SAME IS MISPLACED. THE ISSUE HAS BEEN DISCUSSED IN DETAIL BY THE TPO IN PARA 7.3.1 OF HIS ORDER. ASSESSEE WAS ASKED TO PROVIDE DETAILS, W HICH IT FAILED TO DO. ASSESSEE IS A CAPTIVE SERVICE PROVIDER AND GETTING REMUNERATED ON COST PL US BASIS. IT HAS NOT SHOWN THAT IT COULD NOT CLAIM PART OF THE EXPENDITURE (DUE TO UNDERUTIL IZATION OF CAPACITY) FROM AE. IT COULD NOT SHOW THAT IT WAS PROVIDING SERVICES TO ANY INDEPEND ENT PARTY APART FROM AE. THE ASSESSEE HAS NOT CONTROVERTED THE FINDINGS OF THE TPO. THE AS SESSEES CLAIM THAT IT TRIED TO LET OUT THE PREMISES WOULD NOT CHANGE THE POSITION. DURING HEARINGS BEFORE THIS PANEL, THE ASSESSEE WAS ASKED TO PROVIDE THE DETAILS OF CAPACI TY UTILIZATION OF OTHER COMPARABLES, HOWEVER IT COULD NOT PROVIDE ANY DATA FOR THE SAME ALSO. SINCE ASSESSEE HAS NOT PROVIDED ANY DATA TO SHOW THAT THE OTHER COMPARABLES WERE WO RKING AT 100% CAPACITY OF ALL THEIR RESOURCES AND ONLY IT WAS AT DISADVANTAGE DUE TO UN DERUTILIZATION OF CAPACITY, SO IN ABSENCE OF SIMILAR COMPARABLES, ADJUSTMENT CANNOT BE CONSID ERED IN THE CASE OF THE ASSESSEE. UNDER SIMILAR CIRCUMSTANCES, THE ISSUE WAS DECIDED IN FAVOUR OF REVENUE IN ITO V. CRM SERVICES INDIA (P) LTD. [2011] 14 TAXMANN.COM 96 (DEL HI). CONSIDERING ABOVE, THE OBJECTION OF THE ASSESSEE CANNOT BE ACCEPTED. 15.2 THE ASSESSEE NOT A START UP COMPANY AND IT HAS COM MENCED ITS OPERATIONS WAY BACK IN 2008. THE ADJUSTMENTS RELATI NG TO UNUTILISED CAPACITY ARE ALLOWED IN THE CASE OF START UP COMPAN IES TO COVER THE INITIAL DEFICIENCIES AND THE FINANCIAL IMPLICATIONS. SINCE THE COMPANY IS ESTABLISHED IN 2008 AND THE LD.AR DID NOT PLACE ANY MATERIAL WITH REGARD TO THE OBSERVATIONS MADE BY THE DRP WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE AND THE ASSESSEES APPEA L ON THIS GROUND IS DISMISSED. 16.0 GROUND NO.9 IS RELATED TO THE ADJUSTMENT NOT PROVI DED BY THE LD.DRP IN RESPECT OF RETURN ON NET WORTH, NON ADOPT ION OF CPM AS SUPPLEMENTARY METHOD, NON PROVISION OF RISK MANAGEM ENT WERE VEHEMENTLY ARGUED BY THE LD.AR BUT NO MATERIAL PLAC ED BEFORE US TO ITA NO.3404/MDS/2016 :- 27 -: CONTROVERT THE OBSERVATIONS OF THE DRP/TPO. THEREFO RE, THIS GROUND OF APPEAL IS DISMISSED. 17.0 GROUND NO.10 IS RELATED TO THE ISSUE FOR RECTIFICA TION: THESE ISSUES ARE DISCUSSED IN DETAIL BY THE DRP. T HE ASSESSEE RAISED ISSUES FOR RECTIFICATION AGAINST THE ORDER PASSED U /S.154. THE APPEAL AGAINST THE ORDER U/S.154 IS A SEPARATE APPEAL WHIC H CANNOT BE DECIDED IN THIS APPEAL. THE LD.AR ALSO HAS NOT BROUGHT ON RECO RD ANY EVIDENCE TO CONTROVERT THE OBSERVATIONS MADE BY DRP. THEREFORE, THIS GROUND IS DISMISSED. 18.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 28 TH APRIL, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF