ITO, Bangalore V. M/s Evolving Systems Networks India Pvt. Ltd., Bangalore

ITA 419/BANG/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1541 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 11-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 92C; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI. O.P. MEENA, ACCOUNTANT MEMBER IT(TP)A 419/BANG/2016 ASST. YEAR : 2011 12 INCOME TAX OFFICER, WARD 2 (1) (4), ROOM NO. 207, 2 ND FLOOR, BMTC BUILDING, KORAMANGALA, BANGALORE 560 095. VS. M/S. EVOLVING SYSTEMS NETWORKS INDIA PVT. LTD., GURUDAS HERITAGE, 3 RD FLOOR, 59/2, 100 FT. RING ROAD, BANASHANKARI II STAGE, BENGALURU 560 070. PAN NO : AABCE2761N APPELLANT RESPONDENT & IT(TP)A 461/BANG/2016 ASST. YEAR : 2011 12 M/S. EVOLVING SYSTEMS NETWORKS INDIA PVT. LTD., GURUDAS HERITAGE, 3 RD FLOOR, 59/2, 100 FT. RING ROAD, BANASHANKARI II STAGE, BENGALURU 560 070. PAN NO : AABCE2761N VS. INCOME TAX OFFICER, WARD 2 (1) (4), ROOM NO. 207, 2 ND FLOOR, BMTC BUILDING, KORAMANGALA, BANGALORE 560 095. APPELLANT RESPONDENT APPELLANT BY : MR. MUZAFFAR HUSSAIN CIT DR RESPONDENT BY : SHRI. PADAMCHAND KHINCHA, CA DATE OF HEARING : 21-01-2020 DATE OF PRONOUNCEMENT : 20-04-2020 PAGE 2 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 ORDER PER BEENA PILLAI, JUDICIAL MEMBER : PRESENT CROSS APPEALS HAVE BEEN FILED BY ASSESSEE A S WELL AS REVENUE AGAINST ORDER DATED 13/01/16 PASSED BY LD. ITO WARD 2(1)(4), BANGALORE, UNDER SECTION 144C(13) OF THE A CT, FOR ASSESSMENT YEAR 201112 ON FOLLOWING GROUNDS OF APP EAL: IT(TP) A NO. 461/B/2016 (AS APPEAL) PAGE 3 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 PAGE 4 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 IT(TP) A NO. 419/B/2016 (REVENUE APPEAL) PAGE 5 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 PAGE 6 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 PAGE 7 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 PAGE 8 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 PAGE 9 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A PRIVATE LIMITED COMPANY AND FILED ITS RETURN OF INCOME ON 30/11/11 DECLARING TOTAL INCOME AT NIL AFTER CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT, AMOUNTING T O RS.2,92,53,281/-. RETURN WAS PROCESSED UNDER SECTI ON 143 (1) OF THE ACT AND NOTICES UNDER SECTION 143 (2) AND 142 ( 1) WAS ISSUED TO ASSESSEE. ASSESSEE WAS CALLED UPON TO FILE BOOKS OF ACCOUNTS AND OTHER DETAILS. IN RESPONSE TO STATUTORY NOTICES REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD. AO AND FILED REQUIS ITE DETAILS AS CALLED FOR. 3. LD. AO OBSERVED THAT ASSESSEE HAD INTERNATIONAL TRA NSACTION WITH ITS ASSOCIATED ENTERPRISES EXCEEDING RS.15 CRO RES, AND ACCORDINGLY CASE WAS REFERRED TO TRANSFER PRICING O FFICER FOR DETERMINING ARMS LENGTH PRICE OF THE TRANSACTION. UPON RECEIPT OF REFERENCE, LD. TPO ISSUED NOTICE TO ASSESSEE, CALLI NG UPON TO FILE ECONOMIC DETAILS OF INTERNATIONAL TRANSACTION IN FO RM 3 CEB. LD. PAGE 10 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 TPO OBSERVED THAT ASSESSEE HAD FOLLOWING INTERNATIO NAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISE: INTERNATIONAL TRANSACTIONS AMOUNT (IN RUPEES) SOFTWARE DEVELOPMENT SERVICES 19,12,66,671/- RECOVERY OF TRAVEL EXPENSES 61,68,117/- CROSS CHARGES OF EXPENSES 77,19,182/- TOTAL 20,51,53,970/- 4. LD.TPO OBSERVED THAT, ASSESSEE USED TNMM AS MOST APPROPRIATE METHOD WITH PLI AS OP/OC TO DETERMINED ITS MARGIN AT 16.01% FOR SOFTWARE DEVELOPMENT SERVICES. IT W AS NOTED THAT IN TP DOCUMENTATION ANALYSIS WAS CARRIED OUT BY USI NG FOLLOWING 12 COMPARABLES WITH AVERAGE MARGIN OF 14.43%. SL. NO. COMPARABLES MARGIN 1. ACROPETAL TECHNOLOGIES LTD., 24.74% 2. ALL INDIA TECHNOLOGIES LTD., 27.91% 3. MYM TECHNOLOGIES LTD., 5.21% 4. CG-VAK SOFTWARE & EXPORTS LTD., 3.94% 5. PERSISTENT SYSTEMS & SOLUTIONS LTD., 17.88% 6. R S SOFTWARE (INDIA) LTD., 12.51% 7. SPRY RESOURCES INDIA PVT. LTD., 22.71% 8. SYNETAIROS TECHNOLOGIES LTD., 24.88% 9. SYNFOSYS BUSINESS SOLUTIONS LTD., 14.91% 10. SOFSCRIPT SYSTEMS & SERVICES LTD., 9.35% 11. VAMA INDUSTRIES LTD., 9.87% 12. ONTRAC SYSTEMS LTD., 0.06% AVERAGE MARGIN 14.34% ASSESSEE, THUS HELD TRANSACTION WITH AE UNDER THIS SEGMENT TO BE AT ARMS LENGTH PRICE. PAGE 11 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 5. LD.TPO REJECTED ECONOMIC ANALYSIS UNDERTAKEN BY ASS ESSEE AND CONDUCTED FRESH ECONOMIC SEARCH BY APPLYING VAR IOUS FILTERS AND SELECTED FOLLOWING 13 FRESH COMPARABLES WITH OP ERATING MARGIN OF 23.19%. SL. NO. COMPARABLES MARGINS 1 ACROPETAL TECHNOLOGIES LTD., 35.78% 2 E ZEST SOLUTIONS 25.99% 3 E-INFOCHIPS LTD., 63.35% 4 EVOKE TECHNOLOGIES PVT. LTD., 15.00% 5 ICRA TECHNO ANALYTICS LTD., 29.92% 6 INFOSYS LTD., 50.62% 7 LARSEN & TOUBRO INFOTECH LTD., 27.02% 8 MINDTREE LTD., (SEG.) 16.24% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD., 28.27% 10 PERSISTENT SYSTEMS LTD., 28.69% 11 R S SOFTWARE (INDIA) LTD., 23.26% 12 SASKEN COMMUNICATION TECHNOLOGIES LTD., 31.67% 13 TATA ELXSI LTD., (SEG.) 26.04% AVERAGE MARGIN 30.91% 6. LD.TPO THUS PROPOSED ADJUSTMENT OF RS.2,48,70,043/- IN RESPECT OF SOFTWARE SERVICE SEGMENT. IT IS SUBMITT ED THAT LD.TPO PROVIDED ADJUSTMENT OF (-)6.28% TOWARDS WORKING CAP ITAL. LD.TPO REJECTED SUBMISSION OF ASSESSEE TO CONSIDER ADJUSTMENT OF ALP IF ANY, TO BE LIMITED TO LOWER END OF 5% RANGE AS PER PROVISO TO SECTION 92C (2) OF THE ACT. LD.AO SUBSEQUENTLY G RANTED PAGE 12 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 WORKING CAPITAL ADJUSTMENT, POST DRP DIRECTIONS AND HENCE NOT ALLEGED BEFORE THIS TRIBUNAL. 7. AGGRIEVED BY ADJUSTMENT PROPOSED BY LD.TPO, ASSESSE E RAISED OBJECTIONS BEFORE DRP. DRP REJECTED 9 COMPA RABLES SELECTED BY LD. TPO AND RESTRICTED TO 4 COMPARABLES WITH AVERAGE MARGIN OF 19.94% AS UNDER: SL. NO. COMPARABLES MARGIN ADOPTED 1 PERSISTENT SYSTEMS & SOLUTIONS LTD., 28.27% 2 E ZHEST SOLUTIONS 25.99% 3 SASKEN COMMUNICATION TECHNOLOGIES LTD., 31.67% 4 PERSISTANT SYSTEMS LTD., 28.69% BASED UPON DRP DIRECTIONS, LD.AO PASSED FINAL ASSES SMENT ORDER MAKING ADDITION. AGGRIEVED BY ORDER OF LD.AO, REVENUE IS IN APPEAL A ND ASSESSEE FILED CROSS OBJECTION BEFORE US. 8. IN REVENUES APPEAL, GROUNDS RAISED PERTAINS TO APP LICATION OF ON-SITE REVENUE FILTER SELECTIVELY TO REJECT F EW COMPARABLES AND EXCLUDING E-INFOCHIPS LTD., ON THE GROUND OF HA VING SERVICE INCOME LESS THAN 75% OF SALES, WHICH IS ALLEGED TO BE CONTRARY TO OBSERVATIONS OF LD.TPO. 9. IN CROSS OBJECTION FILED BY ASSESSEE IT IS OBSERVED THAT ASSESSEE SEEKS EXCLUSION/INCLUSION OF FOLLOWING COM PARABLES ON THE BASIS OF FUNCTIONAL DISSIMILARITIES/SIMILARITIE S, BEING: PAGE 13 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 PERSISTENT SYSTEMS AND SOLUTIONS LTD; PERSISTENT SYSTEMS LTD; SASKEN COMMUNICATION TECHNOLOGIES LTD; E ZHEST SOLUTIONS AND SEEKS INCLUSION OF: R.S.SOFTWARE SYSTEMS LTD., EVOKE TECHNOLOGIES LTD., MINDTREE LTD., ADDITIONAL GROUNDS RAISED BY ASSESSEE AS WELL AS RE VENUE: FOLLOWING ARE THE ADDITIONAL GROUND RAISED BY ASSES SEE, VIDE APPLICATION DATED 14/02/17 AND 16/11/17 AND REVENUE . ADDITIONAL GROUND RAISED BY REVENUE: PAGE 14 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 ADDITIONAL GROUND RAISED BY ASSESSEE: APPLICATION DATED 14/02/17: 1 THE LOWER AUTHORITIES HAVE ERRED IN ADOPTING PERSIS TENT SYSTEMS & SOLUTIONS LIMITED AND PERSISTENT SYSTEMS LIMITED AS COMPARABL E EVEN THOUGH THEY ARE FUNCTIONALLY DIFFERENT. 2 THE LOWER AUTHORITIES HAVE ERRED IN ADOPTING PERSIS TENT SYSTEMS LIMITED AND SASKEN COMMUNICATION TECHNOLOGIES LIMITED AS COMPAR ABLE EVEN THOUGH THEY HAVE TURNOVER TEN TIMES HIGHER THAN THE TURNOVER OF THE APPELLANT. APPLICATION DATED 16/11/17 1. THE HONORABLE DISPUTE RESOLUTION PANEL HAS ERRED IN REJECTING EVOKE TECHNOLOGIES PRIVATE LIMITED AS COMPARABLE EVEN THO UGH IT IS FUNCTIONALLY SIMILAR. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE AND LAW APPL ICABLE, EVOKE TECHNOLOGIES PRIVATE LIMITED SHOULD BE CONSIDERED A ND INCLUDED IN THE LIST OF COMPARABLES. 10. ASSESSEE VIDE APPLICATION DATED 14/02/17 AND 16/11/ 17 AND REVENUE RAISED ADDITIONAL GROUNDS, BY SUBMITTIN G THAT INADVERTENTLY THESE COMPARABLES WERE NOT RAISED AT THE TIME OF FILING OF ORIGINAL APPEAL. PLACING RELIANCE UPON D ECISION OF HONBLE SUPREME COURT IN CASE OF NTPC LTD., VS CIT REPORTED IN 229 ITR 383 AND JUTE CORPORATION OF INDIA VS CIT REPORTED IN 53 TAXMAN 85, SUBMITTED THAT COMPARABLES SPECIFIED IN ADDITIONAL GROUNDS MAY BE ADMITTED. WE HAVE PERUSED DETAILS RELIED UPON BY BOTH SIDES 10.1. IN OUR CONSIDERED OPINION COMPARABLES ALLEGED IN ADDITIONAL GROUNDS RAISED BY BOTH SIDES ARISES OUT OF THE RECORDS AND WAS SUBJECT MATTER OF CONSIDERATION BEFORE DRP. CONSIDERING PAGE 15 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 INADVERTENT OMISSION ON BEHALF OF ASSESSEE AND REVE NUE IN RAISING THESE GROUNDS BEFORE THIS TRIBUNAL , WE ALLOW ADMIT ADDITIONAL GROUNDS RAISED BEFORE US. ACCORDINGLY, ADDITIONAL GROUNDS RAISED BY ASSESSEE VIDE APPLICATION DATED 14/02/17 AND 16/11/17 AND ADDITIO NAL GROUND RAISED BY REVENUE REPRODUCED HEREINABOVE STA NDS ALLOWED. 11. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED BY ASSESSEE, RIS K ASSUMED AND ASSETS OWNED IN PROVISION OF SOFTWARE D EVELOPMENT SERVICES. FUNCTIONS PERFORMED: A. SOFTWARE ENGINEERING FUNCTION SOFTWARE ENGINEERING FUNCTION INCLUDES DEVELOPMENT OF THE PRODUCT AND QUALITY ASSURANCE. THESE FUNCTIONS ARE PERFORMED COLLABORATIVELY BY VARIETY OF PEOPLE (PRO GRAM MANAGERS, DEVELOPERS, TESTERS, DESIGNERS & PROGRAMM ERS) WITH VARIED SKILL SETS. B. SOFTWARE ENGINEERING FUNCTION THE DEVELOPMENT TEAM AT EVOLVING SYSTEMS INDIA AS P ER THE INSTRUCTIONS, GUIDANCE AND SPECIFICATIONS PROVIDED BY THE AES FOR THE PRODUCT, INITIATES THE DEVELOPMENT PROC ESS. C. QUALITY ASSURANCE (TESTING) EVOLVING SYSTEMS INDIA IS RESPONSIBLE FOR ENSURING THAT ALL THE SOFTWARE DEVELOPED IS FREE OF ERROR AND CONFORM S TO PAGE 16 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 DESIGN SPECIFICATIONS. IF ANY ERRORS ARE FOUND, TH EN THEY HAVE TO BE REPORTED TO THE DEVELOPMENT TEAM FOR COR RECTIVE ACTION. SUBSEQUENTLY THE SOFTWARE IS READY FOR EXP ORT TO THE AES. THE SERVICES ARE REVIEWED BY THE AES AND IN CASE OF ERRORS, IT IS SENT BACK TO EVOLVING SYSTEMS INDIA FOR RECTIFIC ATION. D. SOFTWARE MAINTENANCE AND SUPPORT FUNCTION IN ORDER TO FOCUS ON PROVIDING CUSTOMER SATISFACTIO N, THE ENTERPRISE MUST ENGAGE RESOURCES TO PROVIDE THE END -USER WITH SUPPORT IN USING THE PRODUCT EFFECTIVELY. THE SUPPORT FUNCTION INCLUDES TECHNICAL SUPPORT, DOCUMENTATION, IT INTEGRATION/CONFIGURATION MANAGEMENT. E. TECHNICAL SUPPORT ALL CUSTOMER NEEDS AND QUERIES ARE MANAGED BY THE A ES EVOLVING SYSTEMS INDIA ASSISTS THE AES IN RESOLVING BUG FIXES, WHICH INCLUDES SERVICE PACKS (I.E GENERIC PA CKS FOR ALL RELEASES) OR HOT FIXES (CUSTOMER SPECIFIC). F. DOCUMENTATION ALL SOFTWARE PRODUCTS REQUIRE COMPREHENSIVE DOCUMEN TATION IN ORDER FOR THEM TO BE USED EFFECTIVELY. THIS INV OLVES CREATING THE USER TOOLS SUCH AS THE USER MANUAL AND THE ON- LINE HELP FOR PRODUCTS. EVOLVING SYSTEMS INDIA PRO VIDES WRITE-UP FOR THE SERVICES PERFORMED TO THE DOCUMENT ATION TEAM IN USA. IT PROVIDES KNOWLEDGE TRANSFER SLIDE S TO EVOLVING SYSTEMS UK FOR THE SERVICES RENDERED. PAGE 17 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 ASSETS EMPLOYED ASSESSEE POSES THE NECESSARY ASSETS AND INFRASTRUCT URE AS ITS OFFSHORE SOFTWARE DEVELOPMENT FACILITIES FOR PERFOR MING ITS FUNCTION IT DOES NOT OWN ANY INTANGIBLES IN RESPECT OF ANY SOFTWARE DEVELOPMENT ACTIVITIES CARRIED ON BY IT. RISKS ASSUMED IT HAS BEEN SUBMITTED THAT ASSESSEE DOES NOT BEAR A NY MARKET RISKS SINCE IT RENDERS SERVICES EXCLUSIVELY TO ITS ASSOCIATED ENTERPRISES IT DOES NOT CARRY OUT ANY R&D ACTIVITIE S AND THEREFORE DOES NOT ASSUME ANY SUCH RISK, IT DOES NOT UNDERTAK E ANY CREDIT RISK AS IT RENDERS SERVICES ONLY TO AE. ALL WHAT AS SESSEE ASSUMES IS PRODUCT RISK WHICH IS DIRECTLY TO THE ASSOCIATED ENTERPRISES AND FOREIGN EXCHANGE RISK, AS REMUNERATION RECEIVED BY ASSESSEE IS IN FOREIGN EXCHANGE. IN TP STUDY ASSESSEE HAS BEEN CATEGORIZED TO PERFOR M ROUTINE AND NORMAL FUNCTIONS UNDERTAKING LIMITED/BEAR MINIMAL R ISK AS A SOFTWARE SERVICE PROVIDER IN INDIA. IT ALSO UNDERST ATES MINIMUM RISK WITH RESPECT TO TRANSACTION WITH ASSOCIATED EN TERPRISES, WHICH IS AN ADMITTED POSITION. WITH AFORESTATED FAR ANALYSIS, COMPARABLES SOUGHT B Y REVENUE AS WELL AS ASSESSEE FOR INCLUSION/EXCLUSION SHALL B E ANALYSED AS UNDER. WE FIRST TAKE UP APPEAL FILED BY REVENUE IN ITA NO.419/BANG/2016. PAGE 18 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 12 LD.CIT DR SUBMITTED THAT GROUND NO.1 (I)-(IV) IS IN RESPECT OF APPLYING ON-SITE REVENUE FILTER SELECTIVELY ON FOLLOWING COMPARABLES BY DRP: RS SOFTWARE PVT. LTD., ACROPETAL TECHNOLOGIES LTD., L&T INFOTECH LTD., 12.1 LD.CIT DR SUBMITTED THAT, DRP APPLIED ON-SITE REVEN UE FILTER SELECTIVELY INSTEAD OF APPLYING ON ALL COMPA RABLES. IT HAS BEEN ARGUED THAT APPLICATION OF A FILTER DETERMINES WHAT SET OF COMPARABLES WOULD BE DISPLAYED ON THE DATABASE, WHE RE SEARCH IS CARRIED. APPLICATION OF FILTER TO SHORTLIST COMP ANIES UNDER A PARTICULAR SEGMENT IS THE SECOND STEP IN TRANSFER P RICING ANALYSIS. SHE PAYMENT CLAY ARGUED THAT, ONCE COMPARABLES ARE SHORTLISTED BY TPO, DRP SUO MOTO APPLIED ON-SITE REVENUE FILTER AND EXCLUDED 3 COMPARABLES, WHICH IS NOT AS PER PROCEDU RES LAID DOWN UNDER LAW. SHE SUBMITTED THAT ON-SITE REVENUE FILTER APPLIED BY DRP, NEITHER APPLIED BY ASSESSEE IN TRAN SFER PRICING STUDY NOR CONSIDERED BY LD.TPO, WHILE CONDUCTING AN ALYSIS UNDER SECTION 92CA OF THE ACT. 12.2 PLACING RELIANCE UPON DECISION OF THIS TRIBUNAL IN CASE OF ACIT VS BROADCOM COMMUNICATION TECHNOLOGIES PVT. LT D. , REPORTED IN (2017) 88 TAXMANN.COM 309 , SHE SUBMITTED THAT NEW FILTER SUO MOTO CANNOT BE APPLIED BY DRP SELECTIVELY, BUT SHOULD B E APPLIED TO ALL COMPARABLES. PAGE 19 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 IN SUPPORT, RELIANCE IS PLACED ON DECISIONS OF DELHI TRIBUNAL IN CASE OF DCIT VS VERTEX CUSTOMER SERVICES IN ITA NO.5228/DEL/2018 VIDE ORDER DATED 06/11/17 AND AIRC OM INTERNATIONAL INDIA PVT. LTD., IN ITA NO. 04/04/03/ DEL/2012 WIDE ORDER DATED 19/05/17. IT IS ALSO SUBMITTED THAT RS SOFTWARE INDIA LTD REJECTED BY DRP WAS ACCEPTABLE TO ASSESSE E AS WELL AS LD.TPO. LD.CIT DR SUBMITTED THAT, ENTIRE ANALYSIS NEEDS TO BE REVISITED BASED UPON NEW FILTER THAT HAS BEEN APPLI ED BY DRP AND THEREFORE NEEDS TO BE SET ASIDE TO LD.TPO. 13 ON THE CONTRARY, LD.AR SUBMITTED THAT ISSUE OF SUO MOTO APPLICATION OF ON-SITE REVENUE FILTER BY DRP HAS BEEN ADDRESSED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PRIVATE LIMITED VS ACIT IN ITA(TP)A NO.156/BANG/2016 FOR ASSESSMENT YEAR 2011-12 VIDE ORDER DATED 21/12/18 . SHE FURTHER SUBMITTED THAT ASSESSEE DO NOT HAVE ANY OBJECTION O F RS SOFTWARE INDIA PVT. LTD., TO BE INCLUDED AS THEY ARE FUNCTIO NALLY SIMILAR. 14 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. 14.1. MAIN GRIEVANCE OF REVENUE IS IN RESPECT OF ON-SITE REVENUE FILTER APPLIED BY DRP SUO MOTO SELECTIVELY, ON CERTAIN COMPARABLES, AND EXCLUDING THEM. ON THIS, WE AGREE WITH CONTENTION RAISED BY LD. CIT DR THAT A FILTER CANNO T BE APPLIED ONCE TP ANALYSIS HAS BEEN CONCLUDED BY LD.TPO HOWEV ER ON PERUSAL OF OBSERVATIONS RECORDED BY DRP, ACROPETAL TECHNOLOGIES LTD., L &T INFOTECH LTD., HAS BEEN EXCLUDED FOR FUN CTIONAL PAGE 20 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 DISSIMILARITIES AND THAT SEGMENTAL INFORMATION NOT BEING AVAILABLE. DRP ALSO OBSERVED THAT, THESE COMPARABLE S CANNOT BE CONSIDERED COMPARABLE WITH CONTRACT SERVICE PROVIDE R LIKE ASSESSEE. THEREFORE, IN OUR CONSIDERED OPINION, TH ESE GROUNDS RAISED BY REVENUE BECOMES ACADEMIC. 14.2. DECISIONS RELIED UPON BY LD.CIT DR OF DELHI TRIBUNA L IN CASE OF DCIT VS VERTEX CUSTOMER SERVICES IN ITA NO.5228/DEL/2018 (SUPRA) AND AIRCOM INTERNATIONAL I NDIA PVT. LTD., (SUPRA) DOES NOT DEAL WITH ON-SITE REVENUE FILTER AS HAS BE EN ADMITTED BY LD. CIT DR. 15. ON MERITS, LD.CIT DR REGARDING FUNCTIONAL SIMILARIT IES/ DISSIMILARITIES OF THESE COMPANIES WITH ASSESSEE, R ELIED UPON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CA SE OF MERCEDES- BENZ RESEARCH AND DEVELOPMENT INDIA PRIVATE LIMITED VS ACIT REPORTED IN (2018) 90 TAXMANN.COM 300, AND SUBMITTED THAT, THESE COMPARABLES WERE SENT BACK TO LD.TPO FOR RE-E XAMINATION. SHE THUS SUBMITTED THAT, VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL IN MERCEDES-BENZ RESEARCH AND DEVELOPMENT INDIA PVT LTD. VS ACIT (SUPRA) MAY BE FOLLOWED. 16 WE HAVE PERUSED VIEW OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF MERCEDES-BENZ RESEARCH AND DEVELOPMENT INDIA PVT. L TD (SUPRA) IN RESPECT OF M/S. ACCROPATEL TECHNOLOGIES LTD., AND M/S L&T INFOTECH LTD.,. IT IS OBSERVED THAT THESE COMPARABLES WERE SENT BACK TO LD.TPO BY OBSERVING AS UNDER: PAGE 21 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 13. ACROPETAL TECHNOLOGIES LTD. ('ACROPETAL') .. 13.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND C AREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRON OUNCEMENTS CITED. WE FIND THAT THE DRP HAS OBSERVED THAT THIS COMPANY, 'ACROP ETAL', OPERATES IN THREE SEGMENTS AND THE SEGMENTAL RESULTS ARE AVAILABLE; W HILE ON THE CONTRARY THE ASSESSEE CONTENDS THAT 'ACROPETAL' OPERATES IN FOUR SEGMENTS. FURTHER, IT IS SEEN THAT EVEN THOUGH THE ASSESSEE HAS RAISED THE O THER ISSUES BEFORE THE DRP, AS LAID OUT IN PARA 13.1 OF THIS ORDER, THE DR P HAS NOT RENDERED ANY FINDING THEREON. WE FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF AMD INDIA (P.) LTD. (SUPRA) RELIED ON BY THE ASS ESSEE HAS EXCLUDED 'ACROPETAL' ON THE GROUND THAT IT FAILS THE SERVICE INCOME FILTER OF 75%; A GROUND APPARENTLY NOT PUT FORTH BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. 13.3.2 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CAS E, AS DISCUSSED ABOVE; THAT THE DRP HAS NOT RENDERED FINDINGS ON SO ME OF THE ISSUES RAISED BY THE ASSESSEE BEFORE IT AND THERE IS A CONTRADICTION IN THE NUMBER OF SEGMENTS THAT THIS COMPANY 'ACROPETAL' OPERATES IN, WE ARE O F THE OPINION THAT IT IS NECESSARY TO REMAND THE ISSUE OF COMPARABILITY OF T HIS COMPANY BACK TO THE FILE OF THE DRP FOR EXAMINING AND ADJUDICATION OF T HE ISSUES RAISED BY THE ASSESSEE, AFTER AFFORDING THE ASSESSEE ADEQUATE OPP ORTUNITY OF BEING HEARD IN THE MATTER AND TO FILE DETAILS /SUBMISSIONS IN THIS REGARD, WHICH SHALL BE DULY CONSIDERED. WE HOLD AND DIRECT ACCORDINGLY. . 16.2 DURING PROCEEDINGS BEFORE US, THE LEARNED AUTHORIS ED REPRESENTATIVE FOR THE ASSESSEE STATED THAT THE ASSESSEE DOES NOT WISH TO PRESS THE GROUND RELATED TO EXCLUSION OF SASKEN COMMUNICATION TECHNO LOGIES LIMITED, THEREFORE, THIS GROUND IS DISMISSED AS NOT PRESSED AND CONSEQU ENTLY SASKEN COMMUNICATION TECHNOLOGIES LTD. IS RETAINED IN THE FINAL LIST OF COMPARABLES. 16.3 ACCORDING TO THE LEARNED AUTHORISED REPRESENTATIVE , THE OTHER TWO COMPANIES WERE CHOSEN AS COMPARABLES BY THE ASSESSE E IN ITS TP STUDY ITSELF. THE LEARNED AUTHORISED REPRESENTATIVE HOWEVER SUBMI TS THAT THE ASSESSEE SEEKS EXCLUSION OF L & T INFOTECH LIMITED AND PERSI STENT SYSTEMS LIMITED, DUE TO MORE DETAILS BEING NOW AVAILABLE IN THE PUBLIC D OMAIN WHICH RENDER THESE TWO COMPANIES AS NOT COMPARABLE TO THE ASSESSEE AND THEREFORE PRAYS THAT THEY BE EXCLUDED FROM THE LIST OF COMPARABLE COMPAN IES. 16.4 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIV E FOR REVENUE OBJECTED TO THE ADMISSION OF THIS ADDITIONAL GROUND STATING THAT WHEN THE ASSESSEE ITSELF HAS SELECTED THESE TWO COMPANIES, T HE AUTHORITIES BELOW HAD NO OCCASION TO CONSIDER THE OBJECTIONS NOW RAISED B Y THE ASSESSEE BEFORE THE TRIBUNAL. 16.5 AFTER HAVING HEARD BOTH PARTIES AND PERUSED AND CO NSIDERED THE MATERIAL ON RECORD, WE FIND THAT THE FUNCTIONAL COM PARABILITY OF THESE TWO PAGE 22 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 COMPANIES I.E. (I) L & T INFOTECH LIMITED AND (II) SASKEN COMMUNICATION TECHNOLOGIES LIMITED HAVE BEEN CONSIDERED BY BENCHE S OF THIS TRIBUNAL IN VARIOUS CASES, INCLUDING THOSE CITED BY THE LD.AR. BY WAY OF THIS ADDITIONAL GROUND, THE ASSESSEE IS RAISING OBJECTIONS TO THE I NCLUSION OF THESE COMPANIES ON THE ISSUE OF FUNCTIONAL DISSIMILARITY AND OTHER GROUNDS. IN OUR CONSIDERED VIEW, THE ASSESSEE CANNOT BE PRECLUDED FROM RAISING AN OBJECTION AGAINST INCLUSION OF A COMPANY EVEN IF THE SAID COMPANY WAS SELECTED BY THE ASSESSEE IN ITS TP STUDY. THIS VIEW WAS TAKEN BY TH E SPECIAL BENCH OF ITAT, CHANDIGARH IN THE CASE OF DY. CIT V. QUARK SYSTEMS (P.) LTD. [2010] 38 SOT 307 . AS PER THE PRINCIPLES LAID DOWN IN THE AFORESAID DECISION OF THE SPECIAL BENCH (SUPRA), WE ADMIT THIS ADDITIONAL GROUND RAIS ED BY THE ASSESSEE SEEKING EXCLUSION OF THESE TWO COMPANIES (I) L & T INFOTECH LIMITED (II) SASKEN COMMUNICATION TECHNOLOGIES LIMITED WITHOUT COMMENTI NG ON THE MERITS OF THE CASE AND REMIT THE MATTER OF THEIR COMPARABILITY AN ALYSIS TO THE FILE OF THE TPO/A.O. FOR EXAMINATION OF THE ASSESSEE'S CLAIM AN D TO ADJUDICATE THEREON AFTER PROVIDING THE ASSESSEE ADEQUATE OPPORTUNITY O F BEING HEARD, WHICH SHALL BE DULY CONSIDERED. WE HOLD AND DIRECT ACCORDINGLY. 17 ON PERUSAL OF AFORESTATED OBSERVATIONS BY COORDINAT E BENCH OF THIS TRIBUNAL , IT IS VERY CLEAR THAT COMPARABLES WERE REMANDED FOR THE REASON THAT, IN CASE OF ACROPETAL, DRP REND ERED FINDING THAT SEGMENTAL DETAILS WERE AVAILABLE, WHICH WAS CO NTRARY TO MATERIALS PLACED ON RECORD. IN CASE OF L & T, COORD INATE BENCH SENT BACK COMPARABLE FOR REASON THAT FINANCIAL DETA ILS WHICH WERE INITIALLY NOT AVAILABLE ON PUBLIC DOMAIN WAS SUBSEQ UENTLY AVAILABLE FOR CONSIDERATION. 17.1 IN THE FACTS OF PRESENT CASE THERE IS NO SUCH DISP UTE BETWEEN PARTIES AND OBSERVATIONS REGARDING FINANCIA LS OF THESE COMPANIES BY DRP ARE CONCURRENT WITH ANNUAL REPORTS PLACED IN PAPER BOOK FILED BEFORE US. THUS, IN OUR CONSIDERED OPINION, THESE COMPARABLES CANNOT BE HELD TO BE FUNCTIONALLY SIMIL AR WITH OF ASSESSEE, WHO IS A CONTRACT SERVICE PROVIDER, WORKI NG ON A COST- PLUS BUSINESS MODEL. PAGE 23 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 IT IS OBSERVED THAT RS SOFTWARE (INDIA) LTD, HAS BE EN EXCLUDED BY DRP ON APPLICATION OF ON-SITE REVENUE FILTER. BOTH PARTIES DO NOT HAVE OBJECTION FOR INCLUSION OF THIS COMPANY. WE ARE THEREFORE OF THE VIEW THAT THIS COMPANY SHOU LD BE INCLUDED IN THE LIST OF COMPARABLES. ACCORDINGLY, LD. TPO IS DIRECTED TO CONSIDER THIS C OMPARABLE IN THE LIST. ACCORDINGLY, GROUND NO. 1 RAISED BY REVENUE STANDS PARTLY ALLOWED. 18. GROUND NO.2 IS AGAINST EXCLUDING M/S. E-INFOCHIPS, BY DRP AS COMPARABLE ON THE GROUND THAT IT FAILS SERVICE I NCOME FILTER. LD. CIT DR SUBMITTED THAT LD. TPO WHILE ANALYSING C OMPARABLES OBSERVED THAT, THIS COMPANY HAS REVENUE FROM SOFTWA RE DEVELOPMENT UP TO 88%, WHEREAS DRP OBSERVES THAT RE VENUE EARNED BY THIS COMPANY IS LESS THAN 75%, AND THEREF ORE CANNOT BE INCLUDED. SHE SUBMITTED THAT BASIS OF DRP TO HOL D THAT REVENUE IS LESS THAN 75% HAS NOT BEEN DEMONSTRATED AND THEREFORE NEEDS TO BE RECONSIDERED. 18.1. LD.AR PLACED RELIANCE UPON DECISION OF COORDINATE B ENCH OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT LTD. VS ACIT (SUPRA) WHEREIN, M/S. E-INFOCHIPS LTD., IS EXCLUDED FOR FAI LING IN SERVICE INCOME FILTER. 19. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 19.1. IT IS OBSERVED THAT THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT LTD. VS ACIT (SUPRA) EXCLUDED E-INFOCHIPS LTD., BY FOLLOWING VIEW TAKEN BY THIS TRIBUNAL IN CASE OF COMSCOP NETWORK (INDIA) PAGE 24 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 PVT. LTD., VS ITO IN IT (TP) A/BANG/2016 DATED 22/0 2/17 WHEREIN, THIS COMPANY WAS EXCLUDED FOR REASON THAT, THERE IS NO SEGMENTAL INFORMATION REGARDING DIVERSE FUNCTIONS PERFORMED B Y THIS COMPANY AND THAT THERE WAS MAJOR FLUCTUATION IN ITS PROFITS, WHICH INFLUENCED TURNOVER OF THIS COMPANY. FURTHER IT IS OBSERVED THAT IN CASE OF DCIT VS M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATIONS PVT. LTD., IN ITA NO. 502/BANG/2016 FOR ASSESSMENT YEAR 2011-12 VIDE ORDER DATED 06/04/18 DEALT WITH IDENTICAL OBJECTION RAISED BY LD.CIT DR BEFORE AS UNDER: 24. AS FAR AS GROUND NO. 4 RAISED BY REVENUE IS CO NCERNED, THE SAID GROUND OF APPEAL IS WEAK AND ANY EVENT COMPARABILITY OF CO MPANIES THAT WERE EXCLUDED BY THE DRP WERE ON VALID GROUNDS CONTEMPLA TED BY THE RELEVANT STATUTORY PROVISIONS OF THE ACT AND RULES. AS FAR A S GROUND NO. 5 IN REVENUES APPEAL IS CONCERNED, THE REVENUE SEEKS TO CHALLENGE THE EXCLUSION OF AE INFOTECH LTD. ON THE GROUND THAT IT FAILED DIRECT S OFTWARE SERVICE INCOME FILTER AT 75%. AT THE OUTSET, THE ASSESSEE SUBMITS THAT E INFOTECH LTD WAS EXCLUDED BY THE DRP ON THE GROUND THAT: (I) NO SEGMENTAL INF ORMATION IS REGARDING ITS DIVERSE FUNCTIONS IS AVAILABLE; (II) IT FAILED THE SOFTWARE SERVICE INCOME FILTER AND 75%; (III) THERE WERE MAJOR FLUCTUATIONS IN PRO FIT AND TURNOVER EVERY YEARS WHICH SEEMS TO BE INFLUENCED BY EXTRAORDINARY/PECUL IAR CIRCUMSTANCES; AND (IV) THERE IS A PRESENCE OF INVENTORY (PAGE 10 AND 11 OF THE DRPS DIRECTIONS). THE REVENUE, IN ITS APPEAL HAS CHALLENGED ITS EXCLU SION ONLY ON THE 2 ND GROUND. IN OTHER WORDS, THE REVENUE HAS NOT CHALLENGED ITS EXCLUSION ON THE OTHER GROUNDS STATED HEREINABOVE AND THUS ITS EXCLUSION O N THESE GROUNDS HAVE ATTAINED FINALITY AND CANNOT BE DISTURBED BY THIS H ONBLE TRIBUNAL. EVEN OTHERWISE, WE ARE OF THE VIEW THAT THE DRP RIGHTLY ARRIVED AT THE FINDING THAT COMPANIES SOFTWARE DEVELOPMENT SERVICE REVENUE FOR FY 2010-11 WAS LESS PAGE 25 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 THAN 75% OF ITS TOTAL OPERATING REVENUE FOR THE YEA R. THUS, THE ABOVE ACTION OF THE DRP IN REJECTING THE ABOVE COMPANIES CORRECT. 19.2. FROM THE ABOVE, IT IS OBSERVED BY THIS TRIBUNAL CONSISTENTLY IN VARIOUS DECISIONS FOR AY:2011-12 HELD THAT THIS COMPANY DOES NOT SATISFY SERVICE INCOME FILTER BEING 7.5%. WE T HEREFORE, DO NOT SEE ANY REASON TO SET ASIDE THIS COMPANY TO LD.TPO. 19.3. IN THE FACTS BEFORE US, REVENUE IS CHALLENGING EXCL USION OF THIS COMPARABLE AS DRP RECORDED FINDING IN RESPECT OF SERVICE INCOME BEING LESS THAN 75%. OTHER FACTUAL DISSIMILA RITIES CONSIDERED BY DRP REGARDING EXTRAORDINARY EVENT AND NO SEGMENTAL INFORMATION AVAILABLE, HAS NOT BEEN CHALL ENGED BEFORE US. 19.4. THEREFORE, RESPECTFULLY FOLLOWING VIEW TAKEN BY CO ORDINATE BENCH OF THIS TRIBUNAL IN DCIT VS M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATIONS PVT. LTD., (SUPRA) , WE DIRECT LD. TPO TO EXCLUDE THIS COMPANY. ACCORDINGLY, THIS GROUND AND ADDITIONAL GROUND RAIS ED BY REVENUE STANDS DISMISSED. 20. GROUND NO. 3-4 RAISED BY REVENUE SEEKS INCLUSION OF ICRA TECHNO ANALYTICS LTD., AND M/S INFOSYS TECHNOLOGIES LTD. A. M/S. INFOSYS TECHNOLOGIES LTD., REGARDING M/S INFOSYS TECHNOLOGIES LTD, LD.CIT DR R EFERRED TO OBSERVATIONS OF AUTHORITIES BELOW. WHEREAS, LD.AR PLACED RELIANCE UPON ORDER OF DRP. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. PAGE 26 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 THIS COMPANY HAS BEEN INCLUDED BY LD.TPO WHICH IS O BJECTED BY ASSESSEE DUE TO VERY HIGH TURNOVER, WHICH IS MORE T HAN 200 CRORES. IT HAS BEEN SUBMITTED BY LD.AR THAT THIS CO MPANY DURING YEAR ENDING 31/03/10 HAD TURNOVER OF ABOUT RS.21,14 0 CRORES, WHICH IS MUCH HIGHER THAN THAT OF ASSESSEE. FURTHER HE SUBMITTED THAT THIS COMPANY IS A JOINT AND SOFTWARE DEVELOPMENT SPACE WHILE ASSESSEE IS A SMALL CAPTIVE SERVICE PRO VIDER, PROVIDING EXCLUSIVE SERVICES ONLY TO ITS AES. IT IS ALSO BEE N SUBMITTED BY LD.AR THAT THIS COMPANY HAS HEAVY R&D EXPENSES AND THUS HAS INTANGIBLES ASSOCIATED WITH IT. IT IS OBSERVED THAT THIS COMPANY PROVIDES SOLUTIONS THAT SPAN ENTIRE SOFTWARE RUN LIFE-CYCLE ENCOMPASSING TECHNIC AL CONSULTING, DESIGN, DEVELOPED MEANT, RE-ENGINEERING, MAINTENANC E, SYSTEMS INTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION, TESTING AND INFRASTRUCTURE MANAGEMENT SERVICES. WITH SUCH DIVER SIFIED ACTIVITIES CARRIED ON BY THIS COMPANY, IT IS NOT AP PROPRIATE TO COMPARED IT WITH A ONE-TO-ONE SERVICE PROVIDER LIKE ASSESSEE. IT IS OBSERVED THAT IN CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD., REPORTED IN (2015) 58 TAXMANN.COM 167 DELHI BENCHES OF THIS TRIBUNAL AFTER ANALYSING VARIOUS ASPECTS TOOK A VIEW THAT, THIS COMPANY IS NOT A FIT COMPARABLE FOR CAPTIVE SERVICE PROVIDER. THE SAID VIEW HAS BEEN UPHELD BY HONBLE DELHI HIGH COURT WHEREIN, HONBLE COURT UPHOLDING THE VIEW TAKEN BY THIS TRIBUNAL , OBSERVED THAT COMPANY HAVING BRAND VALUE AS WELL AS INTANGIB LE ASSETS CANNOT BE COMPARED WITH AN ORDINARY ENTITY WHO PROV IDE CAPTIVE SERVICES. PAGE 27 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 RESPECTFULLY FOLLOWING THE ABOVE, WE DIRECT LD. TPO TO EXCLUDE THIS COMPANY FROM THE FINALIST. B. ICRA TECHNO ANALYTICS LTD: IT HAS BEEN SUBMITTED THAT, THIS COMPARABLE HAS BEE N INCLUDED BY LD.TPO AND HAS BEEN OBJECTED BY ASSESSEE FOR THE REASON THAT IT IS ENGAGED IN DIVERSE RANGE OF IT SOLUTIONS SERV ICES. LD.CIT DR SUBMITTED THAT OBSERVATIONS OF DRP ARE CONTRARY TO OBSERVATIONS OF LD.TPO. HE SUBMITTED THAT, THIS COMPANY IS PROVI DING TECHNOLOGY SOLUTIONS IN CERTAIN PARTICULAR DOMAIN W HICH DOES NOT RENDER THE SERVICES TO BE DIFFERENT. ON THE CONTRARY, LD.AR SUBMITTED THAT, THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT AND HIGH END ITES SEGMENT, OF WHICH NO DETAILS ARE AVAILABLE. LD.AR SUBMITTED THAT THIS CO MPANY PROVIDES SERVICES AMONGST OTHERS, WIDE ARRAY OF IT SOLUTIONS LIKE BUSINESS ANALYTICS, IT ENGINEERING AND BUSINESS PROCESS OUTS OURCING ETC. LD.AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY D ISSIMILAR WITH THAT OF ASSESSEE AND THAT THE SERVICE SEGMENT CONSIDERED BY LD.TPO CONTAINS REVENUERS FROM ALL OTHER BUSINESS A CTIVITIES SUCH AS ENGINEERING SERVICES, WEB DEVELOPMENT AND HOSTIN G, BUSINESS ANALYTICS AND BPO SERVICES PERFORMED BY THIS COMPAN Y. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. FROM ANNUAL REPORT PLACED IN PAPER BOOK, IT IS OBSE RVED THAT THIS COMPANY DERIVES ITS REVENUE FROM SERVICES CONSISTIN G OF REVENUES EARNED FROM SOFTWARE DEVELOPMENT AND HOSTING WHICH IS RECOGNIZED TO THE EXTENT OF SERVICE PERFORMED. IN PROFIT AND LOSS ACCOUNT, IT IS OBSERVED THAT INCOME HAS BEEN RECEIV ED FROM PAGE 28 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 SERVICES AND SALES, WITHOUT THERE BEING BIFURCATION IN ORDER TO UNDERSTAND COMPONENT OF INCOME EARNED BY THIS COMPA NY FROM SOFTWARE DEVELOPMENT EXCLUSIVELY. THUS, IT IS AMPL Y CLEAR THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES O F SOFTWARE DEVELOPMENT FOR WHICH SEGMENTAL REPORTING HAS NOT B EEN PROVIDED. WE DRAW SUPPORT FOR EXCLUSION OF THIS CO MPANY FROM THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF DCIT VS ELECTRONICS FOR IMAGING INDIA PVT. LTD., (SUPRA) AND CIT VS BROADCOM INDIA RESEARCH (P) LTD., (SUPRA) FOR EXCLUSION OF THIS COMPANY. RESPECTFULLY FOLLOWING THE ABOVE, WE DIRECT LD.TPO TO EXCLUDE THIS COMPANY FROM THE FINALIST. 21. GROUND NO. 5 IS RAISED BY REVENUE SEEKING INCLUSION OF M/S TATA ELXSI LTD. 21.1. IT HAS BEEN SUBMITTED THAT DRP EXCLUDED THIS COMPAR ABLE AS IT CONSISTS OF EMBEDDED PRODUCT DESIGN, INDUSTRI AL DESIGN AND VISUAL COMPUTING LABS WHICH ARE NOT COMPARABLE TO A SOFTWARE SERVICE PROVIDER LIKE ASSESSEE. HE SUBMITTED THAT M ERELY BECAUSE COORDINATE BENCH OF THIS TRIBUNAL IN TELECORDIA TECHNOLOGIES INDIA PVT. LTD., ITA NO.7821/MUM/2011 EXCLUDED THIS COMPARABLE, CANNOT LEAD TO ITS EXCLUSION IN THE PRESENT FACTS. 21.2. ON THE CONTRARY LD.AR PLACED RELIANCE UPON OBSERVAT IONS OF DRP. 21.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. LD.CIT.DR OBJECTED FOR ITS EXCLUSION ON THE GROUND THAT DRP DID NOT VERIFY FUNCTIONAL SIMILARITIES/DISSIMILARITIES OF THIS PAGE 29 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 COMPARABLE WITH THAT OF ASSESSEE. FROM ANNUAL REPOR T OF THIS COMPANY PLACED IN THE PAPER BOOK, WE NOTE THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGN SERVICES AN D NOT A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. THE DETAILS IN ANNUAL REPORT SHOW SEGMENT SOFTWARE DEVELOPMENT SERVICE-RE LATED DESIGN SERVICES ONLY. FURTHER IT IS OBSERVED THAT IN THE D ECISION REFERRED TO BY DRP TELECORDIA TECHNOLOGIES INDIA PVT. LTD (SUPRA) THIS COMPARABLE HAS BEEN EXCLUDED BY OBSERVING AS UNDER: . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSES SEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRE SENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN P ROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARM S LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST O F COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPORT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLU SION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACC ORDINGLY. RESPECTIVE FOLLOWING THE SAME WE DIRECT LD. AO/TPO TO EXCLUDE THIS COMPANY FROM FINAL LIST. 22. GROUND NO.6 THIS GROUND HAS BEEN RAISED IN RESPECT OF EXCLUDING COMMUNICATION TRAVEL EXPENDITURE FROM BOTH EXPORT T URNOVER AND TOTAL TURNOVER. PAGE 30 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 22.1. AT THE OUTSET, BOTH PARTIES SUBMITTED THAT, THE ISS UE IS NOW SQUARELY COVERED WITH THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF TATA ELXSI LTD., VS CIT , REPORTED IN (2012) 349 ITR 98 , WHEREIN HONBLE COURT HELD THAT, WHAT IS REDUCED FROM EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURN OVER. IT IS OBSERVED THAT LD. CIT (A) GRANTED RELIEF TO ASSESSE E FOLLOWING THE AFORESTATED VIEW EXPRESSED BY HONBLE KARNATAKA HIGH COURT . WE DO NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY L D. CIT (A) AND THE SAME IS UPHELD. ACCORDINGLY, THIS GROUND RAISED BY REVENUE STANDS D ISMISSED. IN THE RESULT APPEAL FILED BY REVENUE STANDS PARTLY ALLOWED. ASSESSEES APPEAL: 23. GROUND NO. 1 RAISED BY ASSESSEE IS GENERAL IN N ATURE THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 24. GROUND NO. 2-8 IS RAISED CHALLENGING VARIOUS COMPARABLES BEING INCLUDED/EXCLUDED BY LD.AO/TPO. ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS WHICH HAS BEEN ADMITTED AND REPR ODUCED HEREIN MY ABOVE. ALL THESE GROUNDS ARE TAKEN UP TOG ETHER. 24.1. COMPARABLES ALLEGED FOR EXCLUSION A. PERSISTENT SYSTEMS AND SOLUTIONS LTD., THIS COMPARABLE HAS BEEN INCLUDED BY LD.TPO, THOUGH IT HAS BEEN OBJECTED BY ASSESSEE FOR FUNCTIONAL DISSIMILAR ITIES. IT HAS BEEN SUBMITTED THAT SEGMENTAL INFORMATION IN RESPEC T OF THIS COMPANY IS NOT AVAILABLE IN THE ANNUAL REPORT. LD. CIT DR PLACED RELIANCE UPON ORDERS OF AUTHORITI ES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF THE RECORDS PLACED BEFORE US. PAGE 31 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 FROM ANNUAL REPORT OF THIS COMPANY IS PLACED IN PAP ER BOOK, WE FIND THAT THIS COMPANY EARNED INCOME FROM SALE OF S OFTWARE SERVICES AND PRODUCTS AND NO SEGMENTAL DETAILS ARE AVAILABLE IN RESPECT OF SINGH. IT IS ALSO OBSERVED THAT INCOME G ENERATED UNDER BOTH THESE SEGMENTS CUMULATIVELY AMOUNTS TO TUNE OF 6.67 CRORES AND IN SCHEDULE 11, ENTIRE REVENUE HAS BEEN SHOWN U NDER ONE SEGMENT. THEREFORE, IN OUR CONSIDERED OPINION, IN ABSENCE OF SEGMENTAL DETAILS, WE CANNOT APPRECIATE THE VIEW TAKEN BY AUT HORITIES BELOW. ACCORDINGLY, WE DIRECT LD. TPO TO EXCLUDE THIS COMP ANY FROM THE FINAL LIST. B. PERSISTENT SYSTEMS LTD., THIS COMPANY HAS BEEN INCLUDED BY LD.TPO AND ASSESS EE OBJECTS TO THE SAME AS THIS COMPANY IS ENGAGED IN RENDERING OUTSOURCED PRODUCT DEVELOPMENT, AS AGAINST SOFTWARE DEVELOPMEN T SERVICES. IT HAS BEEN SUBMITTED THAT THIS IS NOT FUNCTIONALLY SIMILAR WITH THAT OF ASSESSEE. LD.CIT DR ON THE CONTRARY SUPPORTED VIEW OF AUTHORI TIES BELOW AND OPPOSED EXCLUSION. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF THE RECORDS PLACED BEFORE US. IT IS OBSERVED IN SCHEDULE 15 OF ANNUAL REPORT OF T HIS COMPANY PLACED IN PAPER BOOK WHEREIN, FORMING PART OF PROFI T AND LOSS ACCOUNT THAT INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS, HOWEVER THERE IS NO SEPARATE SEGMENTAL INFORMATION IN RESPECT OF THESE 2 SEGMENTS. THUS, IT IS CLEAR THAT THIS COMPA NY IS EARNING REVENUE FROM ACTIVITIES WHICH INCLUDES LICENSING OF PRODUCTS, PAGE 32 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 ROYALTY ON SALE OF PRODUCTS AS WELL AS INCOME FROM MAINTENANCE CONTRACTS ETC. WHICH COULD NOT BE CONSIDERED FUNCTI ONALLY SIMILAR WITH THAT OF ASSESSEE HOLDERS ONLY CARRYING OUT SOF TWARE DEVELOPMENT SERVICE AT THE BEHEST OF ITS AES ON A CAPTIVE BASIS. SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL IN CAS E OF DCIT VS ELECTRONICS FOR IMAGING INDIA PVT. LTD., (SUPRA). RESPECTFULLY FOLLOWING THE SAME WE DIRECT LD.AO/TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST. C. SASKEN COMMUNICATIONS TECHNOLOGIES LTD., ASSESSEE SEEK EXCLUSION OF THIS COMPARABLE FOR THE REASON THAT IT IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND HAS INVENTORY IS AN INTANGIBLE ASSET. HE SUBMITTED THA T DURING THE YEAR UNDER CONSIDERATION REVENUE FROM SOFTWARE PROD UCTS IS MORE AND IT LAUNCHED A NEW PRODUCT CALLED VYAPAR SEVA. LD.AR SUBMITTED THAT THIS COMPANY HAS SIGNIFICANT INTANGI BLES AND INVENTORIES AND THEREFORE SHOULD BE REJECTED TO BE COMPARED WITH A CAPTIVE SERVICE PROVIDER LIKE ASSESSEE. IN SUPPOR T OF HIS CONTENTIONS HE PLACED RELIANCE UPON DECISION OF THI S TRIBUNAL IN CASE OF COMSCOPE NETWORKS (I) PVT. LTD., VS ITO IN IT(TP)A NO.166 & 181/B/2016, VIDE ORDER DATED 22/02/2017. ON THE CONTRARY LD.CIT DR PLACED RELIANCE UPON ORDE RS PASSED BY AUTHORITIES BELOW. SHE SUBMITTED THAT THOUGH THE RE IS REVENUE FROM 3 SEPARATE SEGMENTS, HOWEVER SEGMENTAL INFORMA TION IS AVAILABLE. HE SUBMITTED THAT PRODUCT LAUNCHED IS F OR A FUTURE PERIOD AND HAS NOT GENERATED ANY REVENUE DURING THE YEAR UNDER CONSIDERATION AND THAT HERE IS NO IMPACT OF THIS LA UNCH ON THE PAGE 33 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 FINANCIALS OF THIS COMPANY FOR THE YEAR UNDER CONSI DERATION. IN ALL FAIRNESS IT WAS SUBMITTED THAT ISSUE MAY BE SET ASI DE TO LD.AO/TPO FOR VERIFICATION OF THE SAME. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE. FROM ANNUAL REPORT OF THIS COMPANY, IT IS OBSERVED THAT SEGMENTAL DETAILS HAVE BEEN PROVIDED, AND ALL DETAI LS RELEVANT FOR COMPUTING MARGIN OF THIS COMPARABLE ARE AVAILABLE. WE ARE THEREFORE UNABLE TO APPRECIATE ARGUMENTS ADVANCED B Y LD.AR REGARDING SEGMENTAL DETAILS NOT AVAILABLE. FURTHER IT IS OBSERVED THAT LD.TPO CONSIDERED THE CONSOLIDATED FIGURE APPE ARING IN PROFIT AND LOSS ACCOUNT, INSTEAD OF CONSIDERING SEG MENTAL PROFITS FROM SOFTWARE SERVICES OF THIS COMPANY. WE THEREFO RE SET ASIDE THIS COMPARABLE TO LD.AO/TPO TO VERIFY RELEVANT OBS ERVATIONS RECORDED HEREIN ABOVE AND TO RECOMPUTE MARGINS OF T HIS COMPARABLE. ACCORDINGLY, THIS COMPARABLE IS SET ASIDE TO LD.AO/ TPO. COMPARABLES ALLEGED FOR INCLUSION A) EVOKE TECHNOLOGIES LTD AND MINDTREE LTD., IT HAS BEEN SUBMITTED BY LD.AR THAT THIS COMPARABLE WAS SUO- MOTO REJECTED BY DRP EVEN THOUGH, WAS SELECTED BY LD.TP O. ASSESSEE DID NOT OBJECT TO ITS INCLUSION EITHER BEF ORE DRP IT HAS BEEN SUBMITTED THAT DRP WHILE PASSING DIRECTION, EX CLUDED THIS COMPARABLE ON ITS OWN. IT HAS BEEN SUBMITTED BY LD. AR THAT BASIS FOR EXCLUSION OF THESE COMPARABLES BY DRP IS NOT CORRECT, AS PAGE 34 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 ASSESSEE IS FOLLOWING TRANSACTIONAL NET MARGIN METH OD (TNMM) THEREFORE, CERTAIN EXPENSES CANNOT BE SELECTIVELY I DENTIFIED FOR EXCLUSION. IT HAS BEEN SUBMITTED THAT OVERALL EFFEC T NEEDS TO BE CONSIDERED. IN SUPPORT, LD.AR PLACED RELIANCE ON DE CISION OF CO- ORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF SUMI MOTHERSON INNOVATIVE ENGINEERING LTD. IN ITA NO.155 & 1816/DE L/2011 (PARA 5.4(III)) . LD. CIT - DR ON THE CONTRARY, RELIED ON VIEW OF AUT HORITIES BELOW. WE HAVE PERUSED SUBMISSION ADVANCED BY BOTH SIDES, IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED THAT DRP EXCLUDED THIS COMPARABLE DU E TO LOW MARGIN DURING THE YEAR. ON ONE HAND, DRP NOTES THAT THERE HAS TO BE ABNORMALITIES OR CIRCUMSTANCES, WHICH INFUSED LOW MARGIN FOR PURPOSES OF EXCLUSION, ON THE OTHER HAND, DRP I N CASE OF THIS COMPARABLE FAILS TO ANALYSE ABNORMALITIES OR CIRCUM STANCES THAT LED TO LOW MARGIN AT 8.11%. WE THEREFORE, DO NOT AP PRECIATE EXCLUSION OF THIS COMPARABLE, AS IT IS WITHOUT ANY BASIS. WE ALSO NOTE THAT ASSESSEE FOLLOWED TNMM AS MOST APPROPRIAT E METHOD THAT SUBSUMES EXPENSES. WE THEREFORE, SET ASIDE THI S COMPARABLE BACK TO DRP TO CARRY OUT COMPARABILITY ANALYSIS WIT H ASSESSEE A PER LAW, KEEPING IN MIND THE MAM ADOPTED BY ASSESSE E WHICH HAS NOT BEEN DISPUTED BY AUTHORITIES BELOW. ACCORDINGLY, THIS COMPARABLE IS SENT BACK TO LD. AO /TPO FOR PROPER VERIFICATION. PAGE 35 OF 35 IT(TP)A 419/BANG/2016 & IT(TP)A 461/BANG/2016 A. Y : 2011 12 ACCORDINGLY, THESE GROUNDS AS WELL AS ADDITIONAL GR OUNDS RAISED BY ASSESSEE STANDS ALLOWED AS INDICATED BELO W. GROUND NO. 9 RAISED BY ASSESSEE IS CONSEQUENTIAL AND THEREFORE DO NOT REQUIRE ADJUDICATION. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED AND REVENUES APPEAL STANDS PARTLY ALLOWED AS INDICATED ABOVE. THIS ORDER IS PRONOUNCED BY LISTING THE CASE ON TH E NOTICE BOARD OF TRIBUNAL UNDER PROVISO TO RULE 34(4) OF IN COME TAX APPELLATE TRIBUNAL RULES 1963. SD/- SD/- (O. P. MEENA) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 20 TH APRIL, 2020. /MK/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL. BANGALORE.