Cypress Semiconductor Technology India Private Limited, Bangalore V. DCIT, Bangalore

ITA 356/BANG/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7588 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 03-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T SURYANARAYANA SHRI C H
• Keywords: Business income; Transfer pricing

Judgement Text

IT(TP)A.356 & 313/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.356/BANG/2016 (ASSESSMENT YEAR : 2011-12) CYPRESS SEMICONDUCTOR TECHNOLOGY INDIA P. LTD, NO.65/2, BAGMANE TECH PARK, BLOCK C, BAGMANE LAUREL, C. B. RAMAN NAGAR, BENGALURU 560 093 .. APPELLANT PAN : AABCC2470Q V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -2(1)(1), BENGALURU .. RESPONDENT I.T(TP).A NO.356/BANG/2016 (ASSESSMENT YEAR : 2011-12) (BY THE REVENUE) ASSESSEE BY : SHRI. T. SURYANARAYANA, ADVOCATE REVENUE BY : SHRI. C. H. SUNDAR RAO, CIT-DR-I HEARD ON : 19.07.2018 PRONOUNCED ON : 31.07.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE RE VENUE AGAINST THE ORDER OF THE ACIT, CIRCLE -2(1)(1), BEN GALURU, DT.28.12.2015, PASSED U/S.143(3) R.W.S.144C OF THE ACT, IN PURSUANCE TO THE DIRECTIONS OF THE DRP, FOR THE ASS ESSMENT YEAR 2011-12. IT(TP)A.356 & 313/BANG/2016 PAGE - 2 02. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : IT(TP)A.356 & 313/BANG/2016 PAGE - 3 03. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : THE ASSESSEE BEFORE US URGED ONLY GROUND NOS.8, 9, 10 AND 14. THE REMAINING GROUNDS HAVE NOT BEEN PRESSED BY THE AR O F THE ASSESSEE. 04. BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES IN THE DESIGNING OF C YPRESS RANGE OF PRODUCTS. THE ASSESSEE PROVIDES SERVICES TO ITS PARENT COMPANY IN THE DESIGNING AND DEVELOPMENT OF INTEGRATED CIRC UITS, SOFTWARE AND COMPUTER AIDED DESIGN TOOLS. DURING THE PREVIO US YEAR IT(TP)A.356 & 313/BANG/2016 PAGE - 4 RELEVANT TO THE ASSESSMENT YEAR (`AY' FOR SHORT) 20 1112, THE ASSESSEE PROVIDED SWD SERVICES TO ITS AES AT A PRIC E OF RS.1,49,91,75,237/- TOWARDS WHICH THE TPO MADE AN A DJUSTMENT OF RS.20,08,18,017/-. INITIALLY, A DRAFT ASSESSMEN T ORDER DATED 27.03.2015 CAME TO BE PASSED BY THE ASSESSING OFFIC ER (`AO' FOR SHORT) IN WHICH, INTER ALIA, THE AFORESAID TP ADJUSTMENT WAS PROPOSED TO BE INCORPORATED . THE NET MARGIN ON COST EARNED BY THE ASSESSEE IS AS UNDER : OPERATING INCOME RS.149,91,75,237/ - OPERATING COST RS.136,89,75,080/ - OPERATING PROFIT (OP. INCOME OP. COST) RS. 13,02,00,157/ - OPERATING/NET MARGIN (OP/TC) 9.51% THE ASSESSEE HAD SELECTED SIXTEEN COMPARABLES IN IT S TP STUDY, AS UNDER : SI. NO. NAME OF THE COMPANY AVERAGE NPI 1 AKSHAY SOFTWARE TECHNOLOGIES LTD. 4 2 BELLS SOFTECH LTD. 5 3 FCS SOFTWARE SOLUTIONS LTD. 30 4 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 16 5 LGS GLOBAL LTD. 15 6 MINDTREE LTD 21 7 OMNI AXS SOFTWARE LTD. 2 8 PERSISTENT SYSTEMS & SOLUTIONS LTD 20 9 QUINNOX CONSULTANCY SERVICES LTD. 14 10 RELIANCE INFOSOLUTIONS PVT. LTD. 9 11 SPRY RESOURCES INDIA PVT. LTD. 28 12 CCE SOFTWARE PVT. LTD. 15 13 ALLIED DIGITAL SERVICES LTD. 13 14 OCTANT INDUSTRIES LTD. 1 15 TECHPROCESS SOLUTIONS LTD. 10 16 MAXIMAA SYSTEMS LTD. 5 ,,-- ARITHMETICAL MEAN 13% HOWEVER THE TPO HAD REJECTED 14 COMPARABLES AND RET AINED ONLY TWO COMPARABLES, NAMELY, MINDTREE LTD AND PERSISTEN T SYSTEMS & IT(TP)A.356 & 313/BANG/2016 PAGE - 5 SOLUTIONS LTD., AND HAD ALSO BROUGHT IN ANOTHER ELE VEN COMPARABLES. THUS THE FINAL LIST OF COMPARABLES, AS PER THE TPO WERE AS UNDER : SI. NO. NAME OF THE COMPANY 1 ACROPETAL TECHNOLOGIES LTD. (SEG) 2 E - ZEST SOLUTIONS LTD. 3 E - INFOCHIPS LTD. 4 EVOKE TECHNOLOGIES PVT. LTD. 5 ICRA TECHNO ANALYTICS LTD. 6 INFOSYS LTD. 7 LARSEN & TOUBRO INFOTECH LTD. 8 MINDTREE LTD. (SEG) 9 PERSISTENT SYSTEMS & SOLUTIONS LTD. 10 PERSISTENT SYSTEMS LTD. 11 R S SOFTWARE (INDIA) LTD. 12 SASKEN COMMUNICATION TECHNOLOGIES LTD. 13 TATA ELXSI LTD. (SEG) THE TPO HAS WORKED OUT THE ADJUSTED MEAN MARGIN OF THE COMPARABLES AT 24.18% AND THEREAFTER HAD MADE THE ADJUSTMENT OF ALP AT RS.20,08,18,017/-. IT WAS THE CASE OF THE ASSESSEE BEFORE US THAT AFTER THE DIRECTION ISSUED BY THE DRP, FOUR COMPARABLES R EMAINED, AS UNDER : SI. NO. NAME OF THE COMPANY MARK- UP ON TOTAL COSTS (WC- UNADJ) (IN %) MARK- UP ON TOTAL COSTS (WC ADJ) (IN %) 1. E - ZEST SOLUTIONS LTD. 21.03 19.16 2. PERSISTENT SYSTEMS & SOLUTIONS LTD. 22.12 21.36 3. PERSISTENT SYSTEMS LTD. 22.84 21.80 4. SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.13 24.68 ARITHMETICAL MEAN 22.53 21.75 IT(TP)A.356 & 313/BANG/2016 PAGE - 6 IT WAS THE CONTENTION OF THE ASSESSEE BEFORE US THA T THE ASSESSEE IS SEEKING EXCLUSION OF PERSISTENT SYSTEMS & SOLUTIONS LTD, PERSISTENT SYSTEMS LTD AND SASKEN COMMUNICATION TECHNOLOGIES L TD, AS THESE COMPANIES ARE NOT FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. BESIDES THAT THE ASSESSEE IS SEEKING INCLUSION OF T HE FOLLOWING COMPARABLES: 1.R. S. SOFTWARE P. LTD, 2.MINDTREE LTD AND 3. EVOKE TECHNOLOGIES P. LTD .IT WAS THE CASE OF THE ASSESSEE THAT THE DRP HAD WRONGLY EXCLUDED THESE COMPARABLES AFTER AP PLYING THE ON-SITE FILTER. THESE COMPANIES ARE R. S. SOFTWARE P. LTD, MINDTREE LTD AND EVOKE TECHNOLOGIES P. LTD. PERSISTENT SYSTEMS LTD : 05. THE ASSESSEE IS SEEKING EXCLUSION OF PERSISTENT SYSTEMS LTD, IT WAS SUBMITTED BY THE ASSESSEE THAT THAT THIS COM PANY IS FUNCTIONALLY DISSIMILAR TO IT AS IT INVESTS IN INTE LLECTUAL PROPERTY LED SOLUTIONS AND ALSO HAS A DEDICATED TEAM FOR RES EARCH AND IP DEVELOPMENT. IT ALSO OWNS SEVERAL IPS SUCH AS CHEML MS, VIEWMOR ETC. DURING THE RELEVANT FINANCIAL YEAR 201 0-11, THE COMPANY DERIVED 8.8% OF ITS TOTAL REVENUE FROM ACTI VITIES RELATED TO SUCH IPS, AND THE RELEVANT EXTRACT FROM ITS ANNUAL REPORT IS PRODUCED AT PAGES 102-105 OF THE PAPER BO OK. EVEN OTHERWISE, THE ASSESSEE SUBMITS THAT THIS COMPANY I S FUNCTIONALLY DISSIMILAR TO IT AS IT IS ENGAGED IN R ENDERING IT SERVICES AND IN THE DEVELOPMENT OF SOFTWARE PRODUCT S WITHOUT THERE BEING SEPARATE SEGMENTAL INFORMATION DISCLOSE D IN ITS IT(TP)A.356 & 313/BANG/2016 PAGE - 7 ANNUAL REPORT FOR SUCH ACTIVITIES. THE ASSESSEE PLA CES RELIANCE ON THE DECISIONS OF THIS HON'BLE TRIBUNAL IN APPLIED MATERIALS INDIA PVT. LTD. V. ACIT [TS-815-1TAT-2016(BANG)-TP AT PARAS 9.2.1 TO 9.2.4 ON PAGES 18-22] AND COMMSCOPE NETWORKS (1) PVT. LTD. V. ITO [TS-161-ITAT-2017(BANG)-TP AT PARA 9 ON PAGES 16-17] WHERE, IN THE CASES OF ASSESSEES SIMIL AR TO THE ASSESSEE HEREIN, THE SAID COMPANY WAS DIRECTED TO B E EXCLUDED FOR THE SAME ASSESSMENT YEAR. WITHOUT PREJUDICE AND IN ANY EVENT, AS PER ITS ANNU AL REPORT, THE RATIO OF THE RPTS OF PERSISTENT SYSTEMS LTD. TO ITS TOTAL SALES FOR FY 2010-11 AMOUNTS TO 15.42% AND, THEREFORE, IT OUGHT TO STAND REJECTED FOR THAT REASON. SASKEN COMMUNICATION TECHNOLOGIES LTD. THE ASSESSEE SEEKS REJECTION OF SASKEN COMMUNICATION TECHNOLOGIE S LTD. (`SASKEN' FOR SHORT) FOR THE REASON THAT IT IS ENGA GED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS, AS IT HAS INVENTO RIES, INTANGIBLE ASSETS AND ALSO BECAUSE IT HAS HIGH EXPE NDITURE ON R&D AND IS, THEREFORE, NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. FURTHER, AS CAN BE SEEN FROM THE RELEVANT EXTRACTS OF ITS ANNUAL REPORT FOR FY 2010-11, ITS REVENUES FROM SOF TWARE SERVICES INCLUDE NETWORK ENGINEERING SERVICES AND I T IS THUS FUNCTIONALLY INCOMPARABLE TO THE ASSESSEE ON THIS G ROUND ALSO. IN ADDITION, THE ASSESSEE SUBMITS THAT SASKEN HAS H IGH EXPENDITURE ON R&D ACTIVITIES AND IS, THEREFORE, NO T FUNCTIONALLY COMPARABLE TO THE ASSESSEE. THE ASSESSEE SUBMITS TH AT AS PER ITS ANNUAL REPORT, SASKEN DERIVES REVENUE FROM SOFTWARE PRODUCTS IT(TP)A.356 & 313/BANG/2016 PAGE - 8 AND, WHAT IS MORE, EVEN LAUNCHED A NEW PRODUCT CALL ED VYPAARSEWA DURING FY 2010-11. ALSO, AS SASKEN HAS SIGNIFICANT INTANGIBLES AND INVENTORIES. THUS, SINC E SASKEN HAS DIVERSE FUNCTIONS AND SEGMENTAL DETAILS ARE NOT GIV EN SEPARATELY FOR THE VARIED ACTIVITIES IT IS ENGAGED IN, IT OUGH T TO STAND EXCLUDED FROM THE FINAL LIST OF COMPARABLES. THE ASSESSEE PLACES RELIANCE ON THE DECISION OF THI S HON'BLE TRIBUNAL IN COMMSCOPE NETWORKS (1) PVT. LTD. V. ITO [TS-161- ITAT-2017(BANG)-TP AT PARA 9 ON PAGES 16-17] WHERE, THE SAID COMPANY WAS DIRECTED TO BE EXCLUDED. PERSISTENT SYSTEMS AND SOLUTIONS LTD.: THE ASSESSEE SUBMITS THAT THIS COMPANY IS FUNCTIONA LLY DISSIMILAR TO IT AS IT IS ENGAGED IN DIVERSIFIED AC TIVITIES, BEING THE RENDERING OF SOFTWARE SERVICES AND LICENSING AND RO YALTY OF SOFTWARE PRODUCTS, WITHOUT THERE BEING SEPARATE SEG MENTAL DETAILS FOR THE AFORESAID DIVERSE ACTIVITIES. DURING THE FI NANCIAL YEAR 2010-11, THIS COMPANY ALSO RECORDED AN ABNORMAL INC REASE IN ITS TURNOVER OF 183.97% AS AGAINST THE INDUSTRY TREND O F 19%. IT IS SUBMITTED THAT THIS EXTRAORDINARY INCREASE IN ITS T URNOVER WAS OCCASIONED BY CERTAIN PECULIAR ECONOMIC CIRCUMSTANC ES, I.E. THE INCREASED FUNDING RECEIVED BY IT FROM ITS HOLDING C OMPANY, VIZ. PERSISTENT SYSTEMS LIMITED, FOR WHICH NO ADJUSTMENT CAN BE MADE TO ITS MARGIN TO ELIMINATE THE MATERIAL EFFECT S THEREOF AND, THEREFORE, THE SAD COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. THE RELEVANT EXTRACTS OF ITS ANNUA L REPORT ARE AVAILABLE AT PAGE NOS. 112-114 OF THE PAPERBOOK. TH E ASSESSEE IT(TP)A.356 & 313/BANG/2016 PAGE - 9 PLACES RELIANCE ON THE DECISIONS OF THIS HON'BLE TR IBUNAL IN APPLIED MATERIALS INDIA PVT. LTD. V. ACTT [TS-815-1TAT- 2016(BANG)-TP AT PARAS 9.2.1 TO 9.2.4 ON PAGES 18-2 2] AND COMMSCOPE NETWORKS (I) PVT. LTD. V. ITO [TS-161-ITAT- 2017(BANG)-TP AT PARA 9 ON PAGES 16-17] WHERE, IN T HE CASES OF ASSESSEES SIMILAR TO THE ASSESSEE HEREIN, THE SAID COMPANY WAS DIRECTED TO BE EXCLUDED FOR THE SAME ASSESSMENT YEA R. 06. ON THE OTHER HAND THE LD. DR RELIED UPON THE OR DERS PASSED BY THE LOWER AUTHORITIES, IN SUPPORT OF HIS PLEA TH AT THESE THREE COMPANIES SHOULD NOT BE EXCLUDED FROM THE LIST OF C OMPARABLES. 07. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE RELIES UPON THE DECISION O F THIS TRIBUNAL IN THE MATTER OF APPLIED MATERIALS INDIA P. LTD V. ACI T (73 TAXMANN.COM 160), WHEREIN THE TRIBUNAL AFTER THOROU GHLY EXAMINING THE FUNCTIONAL PROFILE OF THE COMPANY HAD DELETED THESE THREE COMPARABLES, NAMELY, PERSISTENT SYSTEMS LTD, PERSISTENT SYSTEMS AND SOLUTIONS LTD AND SASKEN COMMUNICATION TECHNOLOGIES LTD, TO THE FOLLOWING EFFECT : (4) PERSISTENT SYSTEMS LTD. 24. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE RAISED OB JECTIONS AGAINST SELECTION OF THIS COMPANY ON THE GROUND THAT THIS C OMPANY IS FUNCTIONALLY NOT COMPARABLE AS ENGAGED IN THE PRODU CT DEVELOPMENT. THE SEGMENTAL INFORMATION FOR SERVICES AND PRODUCT IS NOT AVAILABLE. FURTHER, THE ASSESSEE HAS ALSO POINTED OUT THAT THE RE WAS AN ACQUISITION AND RESTRUCTURING DURING THE YEAR UNDER CONSIDERATION. 25. THE DRP HAS NOTED THE FACT THAT THIS COMPANY HA S REPORTED THE ENTIRE RECEIPT FROM SALES AND SOFTWARE SERVICES AND PRODUCT. THEREFORE, NO SEGMENTAL INFORMATION WAS FOUND TO BE AVAILABLE FOR IT(TP)A.356 & 313/BANG/2016 PAGE - 10 SALE OF SOFTWARE SERVICES AND PRODUCT. FURTHER, THE DRP HAS NOTED THAT AS PER NOTE 1 OF SCHEDULE 15, THIS COMPANY IS PREDOMINANTLY ENGAGED IN OUTSOURCE SOFTWARE DEVELOPMENT SERVICE. APART FROM THE REVENUE FROM SOFTWARE SERVICES, IT ALSO EARNS INCOM E FROM LICENCE OF PRODUCTS, ROYALTY ON SALE OF PRODUCTS, INCOME FROM MAINTENANCE CONTRACT, ETC. THESE FACTS RECORDED BY THE DRP HAS NOT BEEN DISPUTED BEFORE US. 26. THEREFORE, WHEN THIS COMPANY IS ENGAGED IN DIVE RSIFIED ACTIVITIES AND EARNING REVENUE FROM VARIOUS ACTIVITIES INCLUDI NG LICENCING OF PRODUCTS, ROYALTY ON SALE OF PRODUCTS AS WELL AS IN COME FROM MAINTENANCE CONTRACT, ETC., THE SAME CANNOT BE CONS IDERED AS FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. FURTHER, THIS COMPANY ALSO EARNS INCOME FROM OUTSOURCE PRODUCT DEVELOPMEN T. IN THE ABSENCE OF ANY SEGMENTAL DATA OF THIS COMPANY, WE D O NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY CANNOT BE COMPARED WITH THE ASSESSEE AND THE SAME I S DIRECTED TO BE EXCLUDED FROM THE SET OF COMPARABLES. (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 27. THE ASSESSEE RAISED OBJECTION THAT THIS COMPANY HAS REVENUE FROM SOFTWARE SERVICES, SOFTWARE PRODUCTS AND OTHER SERVICES. THE DRP HAS COME TO THE CONCLUSION THAT THIS COMPANY EA RNED REVENUE FROM 3 SEGMENTS. HOWEVER, NO SEGMENTAL INFORMATION IS AVAILABLE. ACCORDINGLY, THE DRP DIRECTED THE AO TO EXCLUDE THI S COMPANY FROM THE COMPARABLES. 28. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP HAS REPRODUCED THE BREAK-UP OF REVENUE IN THE IMPUGNED ORDER AS UNDER:- AMOUNT IN RS. LAKHS YEAR ENDED MARCH 31, 2010 YEAR ENDED M ARCH 31, 2019 SOFTWARE SERVICES 37,736.22 40,531.20 SOFTWARE PRODUCTS 2,041.00 6,146.43 OTHER SERVICES 372.77 1,297.05 TOTAL REVENUES 40,150.89 47,974.68 29. THUS, THERE IS NO DISPUTE THAT THIS COMPANY EAR NS REVENUE FROM 3 SEGMENTS. HOWEVER, THE SEGMENTAL OPERATING MARGINS ARE NOT IT(TP)A.356 & 313/BANG/2016 PAGE - 11 AVAILABLE. THEREFORE, IN THE ABSENCE OF SEGMENTAL R ELEVANT DATA AND PARTICULARLY OPERATING MARGINS, THIS COMPOSITE DATA CANNOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE FOR SOFT WARE DEVELOPMENT SERVICES SEGMENT. ACCORDINGLY, WE DO NO T FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP. PERSISTENT SYSTEMS AND SOLUTIONS LTD.: THE ASSESSEE SUBMITS THAT THIS COMPANY IS FUNCTIONA LLY DISSIMILAR TO IT AS IT IS ENGAGED IN DIVERSIFIED ACTIVITIES, BEIN G THE RENDERING OF SOFTWARE SERVICES AND LICENSING AND ROYALTY OF SOFT WARE PRODUCTS, WITHOUT THERE BEING SEPARATE SEGMENTAL DE TAILS FOR THE AFORESAID DIVERSE ACTIVITIES. DURING THE FINANCIAL YEAR 2010-11, THIS COMPANY ALSO RECORDED AN ABNORMAL INCREASE IN ITS T URNOVER OF 18397% AS AGAINST THE INDUSTRY TREND OF 19%. IT IS SUBMITTED THAT THIS EXTRAORDINARY INCREASE IN ITS TURNOVER WA S OCCASIONED BY CERTAIN PECULIAR ECONOMIC CIRCUMSTANCES, I.E. TH E INCREASED FUNDING RECEIVED BY IT FROM ITS HOLDING COMPANY, VI Z. PERSISTENT SYSTEMS LIMITED, FOR WHICH NO ADJUSTMENT CAN BE MAD E TO ITS MARGIN TO ELIMINATE THE MATERIAL EFFECTS THEREOF AND, THER EFORE, THE SAD COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. THE RELEVANT EXTRACTS OF ITS ANNUAL REPORT ARE AVAI LABLE AT PAGE NOS. 112-114 OF THE PAPERBOOK. THE ASSESSEE PLACES RELIA NCE ON THE DECISIONS OF THIS HON'BLE TRIBUNAL IN APPLIED MATER IALS INDIA PVT. LTD. V. ACIT [TS-815-ITAT-2016(BANG)TP AT PARAS 9.2 .1 TO 9.2.4 ON PAGES 18-22] AND COMMSCOPE NETWORKS (I) PVT. LTD . V. ITO [TS-161-ITAT-2017(BANG)-TP AT PARA 9 ON PAGES 16-17 ] WHERE, IN THE CASES OF ASSESSEES SIMILAR TO THE ASSESSEE H EREIN, THE SAID COMPANY WAS DIRECTED TO BE EXCLUDED FOR THE SAME AS SESSMENT YEAR. FURTHER WE ALSO NOTICE THAT THE TRIBUNAL IN ITS DEC ISION IN THE MATTER OF DCIT V. ELECTRONICS FOR IMAGING P LTD [85 TAXMA NN.COM 124] AT PARA 9 HAD DEALT WITH THE ISSUE OF E-INFOCHIPS LTD, AS WELL AS SASKEN COMMUNICATION TECHNOLOGIES LTD. AFTER RELYING UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE MATTER OF SAXO I NDIA P. LTD [67 TAXMANN.COM 155] HAD DELETED THE INCLUSION OF SASKE N COMMUNICATION TECHNOLOGIES LTD AND E-INFOCHIPS LIMITED : IT(TP)A.356 & 313/BANG/2016 PAGE - 12 9. THE FUNCTIONAL COMPARABILITY OF THESE TWO COMPANIE S HAVE BEEN EXAMINED BY THE DELHI BENCH OF ITAT IN THE CASE OF SAXO INDIA (P.) LTD. (SUPRA) IN PARAS 10.1 TO 10.2 AND 15.1 TO 15.2 AS UNDER: ' (I) E-INFOCHIPS LIMITED: 10.1 THE TRANSFER PRICING OFFICER INCLUDED THIS COM PANY IN THE LIST OF COMPARABLES. ON BEING CALLED UPON TO EXPLAI N AS TO WHY IT SHOULD NOT BE CONSIDERED AS A COMPARABLE, THE ASSES SEE CONTENDED THAT THERE WAS FUNCTIONAL DISSIMILARITY INASMUCH AS THIS COMPANY WAS ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES AND ALSO PRODUCTS. THE TRANSFER PRICING OFFICER OBS ERVED THAT THE REVENUES OF THIS COMPANY FROM PRODUCTS WAS ONLY 15% OF TOTAL REVENUE AND HENCE THE SAME QUALIFIED TO BE ELIGIBLE FOR COMPARISON. THE DRP DID NOT ALLOW ANY RELIEF. 10.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ANNUA L REPORT OF THIS COMPANY IS AVAILABLE IN THE PAPER BOOK WITH ITS PRO FIT AND LOSS ACCOUNT AT PAGE 1025. SCHEDULE OF INCOME INDICATES ITS OPERATING REVENUE FROM SOFTWARE DEVELOPMENT, HARDWARE MAINTEN ANCE, INFORMATION TECHNOLOGY, CONSULTANCY ETC. REVENUE FR OM HARDWARE MAINTENANCE STANDS AT RS. 3.92 CRORE, WHICH HAS BEE N CONSIDERED BY THE TRANSFER PRICING OFFICER HIMSELF AS SALE OF PRODUCTS. SUCH SALE OF PRODUCTS CONSTITUTES 15% OF TOTAL REVENUE. THERE IS NO SEGMENTAL INFORMATION AVAILABLE AS REGARDS THE REVE NUE FROM SALE OF PRODUCTS AND REVENUE FROM SOFTWARE DEVELOPMENT S EGMENT. AS THE ASSESSEE IS SIMPLY ENGAGED IN RENDERING SOFTWAR E DEVELOPMENT SERVICES AND THERE IS NO SALE OF ANY SOFTWARE PRODU CTS, THIS COMPANY, IN OUR CONSIDERED OPINION, CEASES TO BE CO MPARABLE. IT IS OBVIOUS THAT FROM THE COMMON POOL OF INCOME FROM BOTH THE STREAMS OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES, ONE CANNOT DEDUCE THE REVENUE FROM SOFTWARE SERVICES AND NO ON E KNOWS THE IMPACT OF REVENUE FROM PRODUCTS ON THE OVERALL KITT Y OF PROFIT, WHICH MAY BE SIGNIFICANT. SINCE NO SEGMENTAL DATA O F THIS COMPANY IS AVAILABLE INDICATING OPERATING PROFIT FR OM SOFTWARE DEVELOPMENT SERVICES, WE ORDER TO EXCLUDE THIS COMP ANY FROM THE LIST OF COMPARABLES.' (VI) SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 15.1 THE TPO INCLUDED THIS COMPANY IN THE SET OF COMPARA BLES DESPITE THE ASSESSEE'S OBJECTION THAT IT WAS FUNCTI ONALLY DIFFERENT AND ALSO HAD PRODUCT PORTFOLIO. IT(TP)A.356 & 313/BANG/2016 PAGE - 13 15.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND FR OM PAGE 58 OF THE TPO'S ORDER THAT HE HAS RECOGNIZED SALE O F SOFTWARE PRODUCTS TO THE TUNE OF RS.37 CRORE AND ODD. THOUGH THE BREAK-UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PROD UCTS IS AVAILABLE, BUT, THE BREAK-UP OF OPERATING COSTS AND NET OPERATING REVENUES FROM THESE TWO SEGMENTS HAVE NOT BEEN GIVE N. IT IS FURTHER OBSERVED THAT THE TPO HAS TAKEN ENTITY LEVE L FIGURES FOR THE PURPOSES OF MAKING COMPARISON. SINCE SUCH ENTIT Y LEVEL FIGURES CONTAIN REVENUE FROM BOTH SOFTWARE SERVICES AND SOFTWARE PRODUCTS, AS AGAINST THE ASSESSEE ONLY PROVIDING SO FTWARE SERVICES, WE ARE DISINCLINED TO TREAT THIS COMPANY AS COMPARABLE. THE ASSESSEE'S CONTENTION IS ACCEPTED ON THIS ISSUE . 08. IN VIEW OF THE ABOVE, WE ARE IN AGREEMENT WITH THE CONTENTION RAISED BY THE LD AR. AS WE FIND THAT THE FUNCTION AL PROFILE OF THE ASSESSEE COMPANY IS SIMILAR TO THAT OF APPLIED MATE RIALS INDIA P. LTD (SUPRA), AS THAT OF ELECTRONICS FOR IMAGING P. LTD (SUPRA) AND NO DISTINGUISHING FEATURE WAS POINTED OUT BY THE LD. D R EITHER IN FACTS OR IN LAW, THEREFORE FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE HEREBY DIRECT THE EXCLUSION OF THREE COMPANIES N AMELY, PERSISTENT SYSTEMS LTD, PERSISTENT SYSTEMS AND SOLU TIONS LTD AND SASKEN COMMUNICATION TECHNOLOGIES LTD. 09. THE NEXT GROUND NO.10 RAISED BY THE ASSESSEE BE FORE US IS WITH RESPECT TO INCLUSION OF R S SOFTWARE (INDIA) LTD, M INDTREE LTD AND EVOKE TECHNOLOGIES LTD. IN THIS REGARD IT WAS THE CONTENTION OF THE ASSESSEE THAT MINDTREE WAS A COMPARABLE SELECTED BY THE ASSESSEE, WHICH WAS ACCEPTED BY THE TPO. HOWEVER THE DRP HAS REJECTED THIS COMPARABLE AFTER APPLYING THE ON-SITE FILTER. IT WAS ALSO THE CONTENTION OF THE ASSESSEE BEFORE US THAT R S SOFTW ARE (INDIA) LTD, MINDTREE LTD AND EVOKE TECHNOLOGIES LTD WERE SELECT ED BY THE TPO AND WERE ACCEPTED BY THE ASSESSEE. IT WAS ALSO POINTED OUT BY IT(TP)A.356 & 313/BANG/2016 PAGE - 14 THE ASSESSEE BEFORE US THAT THE REVENUE IS IN APPEA L FOR INCLUSION OF R S SOFTWARE (INDIA) LTD. R S SOFTWARE (INDIA) 10. WITH RESPECT TO R S SOFTWARE (INDIA) LTD, WE DO NOT FIND ANY REASON TO EXCLUDE THIS COMPARABLE WHEN THIS COMPARA BLE IS SOUGHT TO BE INCLUDED BY BOTH THE ASSESSEE AS WELL AS THE REVENUE AS A GOOD COMPARABLE. THEREFORE CONSIDERING THE PROFILE OF R S SOFTWARE (INDIA) LTD, WE DIRECT THE INCLUSION OF THIS COMPAR ABLE. MINDTREE LTD AND EVOKE TECHNOLOGIES 11. NOW WE ARE LEFT WITH MINDTREE LTD AND EVOKE TEC HNOLOGIES LTD. THE ASSESSEE HAS SUBMITTED THAT THESE COMPARA BLES WERE CONSIDERED BY THE COORDINATE BENCH IN THE MATTER OF APPLIED MATERIALS APPLIED MATERIALS INDIA P. LTD (SUPRA), ( PARA 21 TO 21.2) AS UNDER : 21. THE REVENUE IS ALSO SEEKING INCLUSION OF THE FO LLOWING COMPANIES WHICH WERE REJECTED BY THE DRP. I) EVOKE TECHNOLOGY P. LTD II) MINDTREE LTD (SEG) III) R S SOFTWARE INDIA P LTD 21.1 AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT T HE ASSESSEE HAS NO OBJECTIONS IF THESE THREE COMPANIES ARE REST ORED TO THE SET OF COMPARABLES AS THE ASSESSEE DID NOT RAISE AN Y OBJECTION BEFORE THE DRP BUT THE DRP REJECTED THIS COMPANY SU O MOTO. 21.2 IN VIEW OF THE FACT THAT BOTH THE REVENUE AS W ELL AS THE ASSESSEE ARE SEEKING INCLUSION OF THESE COMPANIES I N THE SET OF IT(TP)A.356 & 313/BANG/2016 PAGE - 15 COMPARABLES, WE SET ASIDE THE DIRECTIONS OF THE DRP QUA THESE COMPARABLES AND RESTORE THESE THREE COMPANIES TO TH E SET OF COMPARABLES. ALSO IN THE SUBSEQUENT DECISION IN ELECTRONICS FOR IMAGING P. LTD (SUPRA) IT WAS HELD AS UNDER : 4. ON THE OTHER HAND, THE ASSESSEE IS SUPPORTING THE EXCLUSION MADE BY THE DRP IN RESPECT OF 7 COMPANIES AND FURTH ER SEEKING EXCLUSION OF 3 COMPANIES WHICH WERE ACCEPTED BY THE DRP. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS NO OBJ ECTION IF THE THREE COMPANIES WHICH WERE REJECTED BY THE DRP ON R ESTORED BACK TO THE SET OF COMPARABLES. THESE THREE COMPANIES AR E AS UNDER (I) EVOKE TECHNOLOGIES PVT. LTD. (II) MINDTREE LIMITED (SEG.) (III) R S SOFTWARE (INDIA) LIMITED. WE NOTE THAT THE ASSESSEE DID NOT RAISE ANY OBJECTI ON AGAINST TWO COMPANIES VIZ. EVOKE TECHNOLOGIES PVT. LTD. AND R.S . SOFTWARE (INDIA) LIMITED BEFORE THE DRP. HOWEVER, THE DRP RE JECTED THESE TWO COMPANIES ON ITS OWN. NOW THE ASSESSEE HAS NO O BJECTION IF THESE TWO COMPANIES ARE RESTORED TO THE SET OF COMP ARABLES. FURTHER THE ASSESSEE IS ALSO NOT RAISING ANY OBJECT ION IN RESPECT OF THE COMPANY MINDTREE LIMITED IF THE SAME IS RESTORE D TO THE SET OF COMPARABLES. HENCE IN VIEW OF THE SUBMISSION OF LD. AR THESE THREE COMPANIES NAMELY EVOKE TECHNOLOGIES PVT. LTD. , MINDTREE LIMITED (SEG) & R S SOFTWARE (INDIA) LIMITED ARE RE STORED TO THE SET OF COMPARABLES AND TO THAT EXTENT THE GROUNDS O F THE REVENUE'S APPEAL ARE ALLOWED. 12. IN OUR VIEW, THE PROFILE OF THESE COMPANIES ARE FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE AND THESE COMP ANIES QUALIFIED THE TEST APPLIED BY THE TPO AND UPHELD BY THE DRP. THEREFORE IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO EXCLUDE THESE COMPARABLES NAMELY MINDTREE LTD AND EVOKE TECHNOLOG IES FROM THE LIST OF COMPARABLES. IT(TP)A.356 & 313/BANG/2016 PAGE - 16 13. THE LAST GROUND RAISED BY THE ASSESSEE IS WITH RESPECT TO WORKING CAPITAL ADJUSTMENT. AS THE TPO HAS RESTRIC TED THE WORKING CAPITAL ADJUSTMENT TO 1.63% WITHOUT ANY LEGAL BASI S OR IRRATIONALLY, IT WAS THE CONTENTION OF THE ASSESSEE THAT IN VIEW OF THE RULE 10B(3) , THE TPO IS DUTY BOUND TO GIVE ADJUSTMENT BASED ON THE DIFFERENCE IN ECONOMY, GEOGRAPHICAL CONDITION, COMPARED WITH T HAT OF THE ASSESSEE. IN VIEW OF THE ABOVE, WORKING CAPITAL AD JUSTMENT ON ACTUAL BASIS IS REQUIRED TO BE GIVEN WITHOUT ANY CA P. AN IDENTICAL ISSUE WAS ALSO RAISED IN THE MATTER OF VMWARE SOFTW ARE INDIA P. LTD (SUPRA), WHEREIN THE TRIBUNAL HELD AS UNDER AT PAR A 34 AND 35 OF THE ORDER : 34. THE NEXT ISSUE RAISED BY THE ASSESSEE IS REGARD ING RESTRICTION OF WORKING CAPITAL ADJUSTMENT BENEFIT T O 1.71%. 35. WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTA TIVE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE TP O WHILE COMPUTING THE WORKING CAPITAL ADJUSTMENT HAS RESTRI CTED THE BENEFIT TO 1.71% INSTEAD CONSIDERING THE ACTUAL FIG URE IN RESPECT OF EACH AND EVERY COMPARABLE COMPANIES. WE FIND THAT THERE IS NO PROVISION UNDER FAR ANALYSIS TO RE STRICT THE WORKING CAPITAL ADJUSTMENT BENEFIT ARBITRARILY. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ARM EMBEDDED TECHNOLOGIES P VT. LTD V. DCIT (SUPRA) IN PARAS 24 & 25 AS UNDER : IT(TP)A.356 & 313/BANG/2016 PAGE - 17 IT(TP)A.356 & 313/BANG/2016 PAGE - 18 ACCORDINGLY, WE DIRECT THE AO/ TPO TO RECOMPUTE THE WORKING CAPITAL ADJUSTMENT BY TAKING THE ACTUAL DATA WITHOUT PUTTIN G ANY UPPER LIMIT. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE TPO BE DIRECTED TO GRANT THE WORKING CAPITAL ADJUSTMENT BASED ON THE A CTUAL INSTEAD OF PUTTING A CAP OF 1.63%. 14. THE LD. DR RELIES UPON THE ORDER PASSED BY THE LOWER AUTHORITIES. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW A S TAKEN BY THE COORDINATE BENCH IN VM WARE SOFTWARE INDIA P. LTD ( SUPRA). THEREFORE FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE DIRECT THE TPO TO GIVE THE WORKING CAPITAL ADJUSTMENT AFTE R ARRIVING AT THE FINAL LIST OF COMPARABLES. REVENUES APPEAL : 16. GROUND 2 OF THE REVENUES APPEAL DEAL WITH THE EXCLUSION OF R S SOFTWARE, ACROPETAL TECHNOLOGIES LTD & L & T IN FOTECH LTD, DONE BY THE DRP BY APPLYING ON-SITE FILTER. THE LD. DR SUBMITTED THAT THESE COMPANIES ARE REQUI RED TO BE INCLUDED AND WERE WRONGLY EXCLUDED BY THE DRP. IT(TP)A.356 & 313/BANG/2016 PAGE - 19 17. ON THE OTHER HAND THE LD. AR HAS SUBMITTED THAT THE ACTION OF THE DRP FOR APPLYING THE ON-SITE FILTER WAS WITHOUT SATISFYING THE THRESHOLD LIMIT AS IT IS CONTRARY TO THE SPIRIT OF TP STUDY. FURTHER IT WAS SUBMITTED THAT MERELY HOLDING THAT THE COMPANY IS PREDOMINANTLY ENGAGED IN ON-SITE DEVELOPMENT OF SOF TWARE IS ARBITRARY AND BASELESS. HE HAS ALSO DRAWN OUR ATTE NTION TO THE DECISION OF THE COORDINATE BENCH IN THE MATTER OF A PPLIED MATERIALS INDIA (SUPRA), WHEREIN AT PARA 16.1 TO 16.4 AND PAR A 19 AS WELL AS IN THE MATTER OF COMMSCOPE NETWORKS (1) PVT. LTD (SUPRA) AT PARA 9, THE TRIBUNAL AFTER CONSIDERING THE PROFILE OF THIS COMPANY HAD REJECTED THE GROUND OF THE REVENUE BY OBSERVING AS UNDER : ACROPETAL TECHNOLOGIES LTD (SEG) : 16.1 THE DRP REJECTED THIS COMPANY ON THE GROUND O F EMPLOYEE COST FILTER. THE LD. DR HAS SUBMITTED THA T THE TPO HAS APPLIED THE EMPLOYEE COST FILTER AND THIS COMPANY SATISFIES THE SAME. 16.2 ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE IF THE ASSESSEE HAS SUBMITTED THAT T HE TOTAL EMPLOYEE COST OF THIS COMPANY IS 11.51 OF THE TOTAL OPERATING REVENUE THEREFORE IT FAILS THE EMPLOYEE C OST FILTER OF 25%. FURTHER HE HAS POINTED OUT THAT THI S COMPANY ALSO FAILS THE SOFTWARE DEVELOPMENT SERVICE S REVENUE FILTER OF 75%. HE HAS REFERRED THE DETAILS AT PAGE NOS.39 AND 53 OF THE ANNUAL REPORT AND SUBMITTED TH AT THE INCOME FROM SOFTWARE DEVELOPMENT IS RS.81.40 CRORES OUT OF TOTAL REVENUE OF RS.141 CRORES. THEREFORE THIS COMPANY FAILS THIS FILTER. 16.3 IN A REJOINDER THE LD. DR HAS SUBMITTED THAT T HE TPO HAS CONSIDERED ONLY INFORMATION TECHNOLOGY TRANSACTIONS SEGMENT AND THEREFORE IT SATISFIES SOF TWARE IT(TP)A.356 & 313/BANG/2016 PAGE - 20 DEVELOPMENT SERVICES INCOME FILTER AS WELL AS EMPLO YEE COST FILTER. 16.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS THE RELEVANT MATERIAL ON RECORD. AS PER THE SEG MENTAL REPORTING AT PAGE 53 OF THE ANNUAL REPORT THE INCOM E FROM INFORMATION TECHNOLOGY SERVICES IS RS.81.40 CR ORES OUT OF THE TOTAL INCOME OF RS.141 CRORES. THEREFOR E THE REVENUE FROM INFORMATION TECHNOLOGY TRANSACTIONS SERVICES IS LESS THAN 75% AND CONSEQUENTLY THIS COM PANY DOES NOT SATISFY THE FILTER OF INFORMATION TECHNOLO GY REVENUE APPLIED BY THE TPO ITSELF. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE DRP FOR THIS ISSUE. L&T INFOTECH LTD. 19. WE HAVE HEARD THE LEARNED D.R. AS WELL AS LEARN ED D.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP REJECTED THIS COMPANY BY RECORDING THE FACTS AT PAGE 15 AS U NDER : ON PERUSAL OF SCHEDULE TO THE NOTES OF THE ACCOUNTS . IT IS NOTICED BY US THAT EXPENSES INCURRED IN FOREIGN CUR RENCY ARE 938.94 CRORE (48.84%), OUT OF THE TOTAL EXPENSE S OF RS.1920.46 CRORE DEBITED IN PROFIT AND LOSS ACCOUNT , THESE EXPENSES INCLUDE THE SUB CONTRACTING EXPENSES TO THE EXTENT OF RS.118.01 CRORE, WHICH INDICATES THAT THE COMPANY HAS THE ON-SITE REVENUE OF ABOUT 50%, IT IS ALSO NOTICED BY US THAT IN THE PROFIT AND LOSS ACCOUNT, THE REVENUE HAS BEEN SHOWN FROM SOFTWARE DEVELOPMENT SERVICES AND PRODUCTS, IN THE SEGMENTING ACCOUNT IT IS MENTIONED THAT THE SEGMENT REVENUE INCLUDE SALES DI RECTLY IDENTIFIABLE WITH/ALLOCABLE TO THE SEGMENT. IN SCHE DULE 18. THE REVENUE HAVE BEEN SHOWN FROM 3 SEGMENTS I.E. FINANCIAL SERVICES, MANUFACTURING AND TELECOM. HOWE VER, IN PARAGRAPH 23, IT IS MENTIONED THAT THE COMPANY I S MAINLY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPM ENT. THE ASSESSING OFFICE? HAS CONSIDERED ENTIRE REVENUE FROM 3 SEGMENTS FROM THE SOFTWARE DEVELOPMENT SERVICES. OUT OF THE SOFTWARE DEVELOPMENT EXPENSES OF RS. 1,488.30 . ERORE DEBITED IN PROFIT AND LOSS ACCOUNT, SALARY TO OVERSEAS STAFF IS RS. 1200.28 CRORE WHICH ALSO I NDICATES IT(TP)A.356 & 313/BANG/2016 PAGE - 21 THAT THE COMPANY IS PREDOMINANTLY ENGAGED IN DEVELOPMENT OF SOFTWARE ON-SITE. IN VIEW OF THE ABO VE DIFFERENCES, IN OUR VIEW THE ABOVE COMPANY CANNOT B E RETAINED AS COMPARABLE, THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO EXCLUDE THE ABOVE COMPANY F ROM COMPARABLE. PARA 9 OF COMMSCOPE NETWORKS (INDIA) P. LTD : 9. NOW WE DECIDE ABOUT THE REMAINING 6 COMPARABLES EXCLUDED BY ` DRP AND 4 COMPARABLES RETAINED BY DRP BUT FOR WHICH THE ASSESSEE IS SEEKING EXCLUSION. OUT OF THESE 6 COMPARABLES EXCLUDED BY DRP, ONE COMPARABLE ICRA TECHNO ANALYTICS LTD. IS HAVING RPT IN EXCESS OF 15 % AND THEREFORE, FOR THIS REASON ALONE, THIS COMPARABLE H AS TO BE EXCLUDED ALTHOUGH DRP HAS EXCLUDED IT FOR A DIFFERE NT REASON THAT IT IS HAVING VARIOUS ACTIVITIES AND SEGMENTAL DATA ARE NOT AVAILABLE. WE UPHOLD ITS EXCLUSION OR. ACCOUNT OF RPT FILTER. EXCLUSION OF ACROPETAL TECHNOLOGIES LTD. (S EG) IS COYE'RE0 IN FAVOUR OF THE ASSESSEE BY THE SAME TRIB UNAL ORDER RENDERED IN THE CASE OF *APPLIED MATERIALS INDIA PV T. LTD. VS. ACIT (SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD ITS EXCLUSION. EXCLUSION OF 1) E ZEST SOLUTIONS L TD., 2) INFOSYS LTD., 3) LARSEN & TOUBRO INFOTECH LTD., 4) PERSISTENT SYSTEMS & SOLUTIONS LTD., 5) PERSISTENT SYSTEMS LTD ., 6) SASKEN COMMUNICATION TECHNOLOGIES LTD. AND 7) TATA ELXSI L TD. ARE ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE SAME TRIBU NAL ORDER RENDERED IN THE CASE OF APPLIED MATERIALS INDIA PVT . LTD. VS. ACIT (SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE U PHOLD THE EXCLUSION OF THESE SEVEN COMPARABLES ALSO. EXCLUSIO N OF E INFOCHIPS LTD. IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER RENDERED IN THE CASE OF SAXO INDIA PVT. LTD. VS. ACIT IN ITA NO. 6148/DE1/2015 DATED 05.02.2016 PARA 10.1 & 10.2 AVAILABLE AT PAGES 221 TO 223. RESPECTFULLY FOLLOWI NG THE SAME, WE UPHOLD ITS EXCLUSION. IN THIS MANNER, WE UPHOLD THE EXCHISION OF SIX COMPARABLES EXCLUDED BY DRP OUT OF 9 COMPARABLES EXCLUDED BY DRP AND EXCLUDE 4 COMPARABL ES RETAINED BY DRP AND WE HAVE ALREADY HELD THAT OUT O F 9 COMPARABLES EXCLUDED BY DRP, 3 HAVE TO COME BACK BE ING 1) EVOKE TECHNOLOGIES PVT. LTD., 2) MINDTREE LTD. (SEG ) AND 3) R S SOFTWARE (INDIA) LTD. NOW, WE DECIDE ABOUT LGS GLOB AL LTD. AS PER THE TRIBUNAL ORDER RENDERED IN THE CASE OF APPL IED MATERIALS INDIA PVT. LTD VS. ACIT (SUPRA), THIS IS A GOOD COM PARABLE AND IT(TP)A.356 & 313/BANG/2016 PAGE - 22 THEREFORE, WE DIRECT THE A.O. AND TPO TO INCLUDE TH IS COMPARABLE. SO, THERE SHOULD BE 4 COMPARABLES IN TH E FINAL LIST OF COMPARABLE PAD ON THE BASIS OF THAT, THE AO/TPO SHOULD WORK OUT THE ALP. IT MAY BE POINTED OUT THAT THE TRIBUNAL IN THE ABOV E TWO DECISIONS HAS EXAMINED THE PROFILE OF THE COMPARABL ES NAMELY, ACROPETAL TECHNOLOGIES LTD & L & T INFOTECH LTD, AN D CAME TO THE CONCLUSION THAT THESE COMPANIES ARE FUNCTIONALLY DI SSIMILAR WITH THAT OF THE ASSESSEE AS THESE TWO COMPARABLES ARE I NVOLVED IN MULTIFARIOUS ACTIVITIES AND IN THE ABSENCE OF SEGME NTAL INFORMATION, EMPLOYEE COST AND SALES, IT WAS NOT POSSIBLE TO COM E TO THE CONCLUSION THAT THESE ARE PREDOMINANTLY SOFTWARE CO MPANIES. FURTHER IT WAS THE CASE OF THE ASSESSEE BEFORE US T HAT THESE COMPANIES ARE OWNING THE BRAND AND ALSO MARKETING T ANGIBLE AND INTANGIBLE PROPERTIES WHICH IS CLEAR FROM THEIR FIN ANCIALS. AFTER CONSIDERING THE TOTALITY OF THE FACTS, THE TRIBUNAL IN THE ABOVE MATTER HAS EXCLUDED THESE COMPARABLES. THE FACTS AND THE YEAR UNDER CONSIDERATION CONTINUE TO BE THE SAME AS IN THE PRE SENT CASE. THEREFORE, WE DO NOT FIND ANY REASON TO TAKE A DIFF ERENT VIEW AS TAKEN BY THE COORDINATE BENCH IN APPLIED MATERIALS INDIA (SUPRA). FOLLOWING THE SAME, WE REJECT THE GROUND OF REVENUE WITH RESPECT TO INCLUSION OF ACROPETAL TECHNOLOGIES LTD & L & T INFOTECH LTD IN THE LIST OF COMPARABLES. 18. WITH REGARD TO R S SOFTWARE, AS BOTH ASSESSEE A ND REVENUE ARE SEEKING THE INCLUSION OF THIS COMPANY IN THE LI ST OF COMPARABLES, WE ALLOW THIS GROUND OF THE REVENUE FOR INCLUSION I N THE FINAL LIST OF COMPARABLES. IT(TP)A.356 & 313/BANG/2016 PAGE - 23 E-INFOCHIPS LTD 19. THE NEXT GROUND RAISED BY THE ASSESSEE AND REVE NUE IS WITH RESPECT TO EXCLUSION OF E-INFOCHIPS LTD, ON THE GRO UND THAT IT FAILED THE SOFTWARE SERVICE INCOME FILTER AT 75% AND THAT IT IS FUNCTIONALLY DIFFERENT. 20. THE LD. AR SUBMITTED THAT THERE WAS A MAJOR FLU CTUATION IN THE PROFIT AND TURNOVER OF THIS COMPANY AND THEREFO RE, IF WE APPLY THE FILTER AS APPLIED BY THE TPO, THIS COMPANY IS R EQUIRED TO BE EXCLUDED. HE HAD ALSO DRAWN OUR ATTENTION TO THE O RDER PASSED BY THE COORDINATE BENCH IN THE MATTER OF ELECTRONICS F OR IMAGING INDIA LTD (SUPRA), WHERE THE COORDINATE BENCH RELYING UPO N THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE MATTER OF SA XO INDIA P. LTD, HAD HELD AS UNDER : 9. THE FUNCTIONAL COMPARABILITY OF THESE TWO COMPANIE S HAVE BEEN EXAMINED BY THE DELHI BENCH OF ITAT IN TH E CASE OF SAXO INDIA (P.) LTD. (SUPRA) IN PARAS 10.1 TO 10.2 AND 15.1 TO 15.2 AS UNDER: ' (I) E-INFOCHIPS LIMITED: 10.1 THE TRANSFER PRICING OFFICER INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES. ON BEING CALLED UPON TO EXPLAIN AS TO WHY IT SHOULD NOT BE CONSIDER ED AS A COMPARABLE, THE ASSESSEE CONTENDED THAT THERE WAS FUNCTIONAL DISSIMILARITY INASMUCH AS THIS COMPA NY WAS ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES AND ALSO PRODUCTS. THE TRANSFER PRICING OFFICER OBSERVED THAT THE REVENUES OF THIS COMPANY IT(TP)A.356 & 313/BANG/2016 PAGE - 24 FROM PRODUCTS WAS ONLY 15% OF TOTAL REVENUE AND HENCE THE SAME QUALIFIED TO BE ELIGIBLE FOR COMPARI SON. THE DRP DID NOT ALLOW ANY RELIEF. 10.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND T HAT THE ANNUAL REPORT OF THIS COMPANY IS AVAILABLE IN T HE PAPER BOOK WITH ITS PROFIT AND LOSS ACCOUNT AT PAGE 1025. SCHEDULE OF INCOME INDICATES ITS OPERATING REVENUE FROM SOFTWARE DEVELOPMENT, HARDWARE MAINTENANCE, INFORMATION TECHNOLOGY, CONSULTANCY ET C. REVENUE FROM HARDWARE MAINTENANCE STANDS AT RS. 3.92 CRORE, WHICH HAS BEEN CONSIDERED BY THE TRANSF ER PRICING OFFICER HIMSELF AS SALE OF PRODUCTS. SUCH S ALE OF PRODUCTS CONSTITUTES 15% OF TOTAL REVENUE. THERE IS NO SEGMENTAL INFORMATION AVAILABLE AS REGARDS THE REVENUE FROM SALE OF PRODUCTS AND REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT. AS THE ASSESSEE IS SIMPLY ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES AND THERE IS NO SALE OF ANY SOFTWARE PRODU CTS, THIS COMPANY, IN OUR CONSIDERED OPINION, CEASES TO BE COMPARABLE. IT IS OBVIOUS THAT FROM THE COMMON POOL OF INCOME FROM BOTH THE STREAMS OF SOFTWARE PRODUCT S AND SOFTWARE SERVICES, ONE CANNOT DEDUCE THE REVENU E FROM SOFTWARE SERVICES AND NO ONE KNOWS THE IMPACT OF REVENUE FROM PRODUCTS ON THE OVERALL KITTY OF PROFI T, WHICH MAY BE SIGNIFICANT. SINCE NO SEGMENTAL DATA O F THIS COMPANY IS AVAILABLE INDICATING OPERATING PROF IT IT(TP)A.356 & 313/BANG/2016 PAGE - 25 FROM SOFTWARE DEVELOPMENT SERVICES, WE ORDER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES.' IN VIEW OF THE ABOVE, FOLLOWING THE DECISIONS OF TH E COORDINATE BENCH (SUPRA), WE DIRECT THE EXCLUSION OF E-INFOCHI PS LTD. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF JULY, 2018. SD/- SD/- (JASON P. BOAZ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 31.07.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.