D E Shaw India Software P. Ltd., Hyderabad V. ACIT, Hyderabad

ITA 434/HYD/2007

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7630 (ITAT-HYDERABAD)
• Duration Of Justice: 7 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: H SRINIVASULU
• Keywords: Transfer pricing; International transaction

Judgement Text

1 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICAL MEMBER ITA.NO.434/HYD/2007 ASSESSMENT YEAR 2003-2004 M/S. D.E. SHAW INDIA SOFTWARE (P) LTD., HYDERABAD. PAN AAACD7214J VS. ACIT, CIRCLE 1(2) HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.486/HYD/2007 ASSESSMENT YEAR 2003-2004 DCIT, CIRCLE 1(2) HYDERABAD. VS. M/S. D.E. SHAW INDIA SOFTWARE (P) LTD., HYDERABAD. PAN AAACD7214J (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. H. SRINIVASULU FOR REVENUE : MR. P. SOMASEKHAR REDDY DATE OF HEARING : 05.08.2014 DATE OF PRONOUNCEMENT : 13.10.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE CROSS-APPEALS BY ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-III, HYDER ABAD DATED 31.01.2007 WITH REFERENCE TO T.P. ADJUSTMENTS MADE BY AO/TPO IN THE ASSESSMENT ORDER DATED 27.02.2006. 2 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. 2. BRIEFLY STATED, ASSESSEE IS A SOFTWARE COMPANY AND 100% EXPORT ORIENTED UNIT SET-UP TO PROVIDE COMPUTE R SOFTWARE/SERVICES TO ITS PARENT COMPANY D.E. SHAW I NDIA SOFTWARE P. LTD., USA AND ACTS AS CAPTIVE SOFTWARE DEVELOPMENT SERVICE PROVIDER TO ITS AE. DURING FINA NCIAL YEAR 2002-03, IT PROVIDED VARIOUS SERVICES TO ITS AE FOR WHICH AN AMOUNT OF RS.11,73,72,986 WAS SHOWN TO HAVE BEEN RE CEIVED. ASSESSEE SELECTED TNMM METHOD FOR ITS T.P. STUDY AN D STATED THAT ITS PROFIT MARGIN ON COST WAS WITHIN ARMS LENG TH. WHILE DOING SO, IT EXCLUDED AMOUNT OF RS.29,44,130 REPRES ENTING IRRECOVERABLE AMOUNT OF EXPENSES RECEIVABLE FROM M/ S. JUNO ONLINE SERVICES P. LTD., FOR COMPUTING OPERATING PR OFIT MARGIN. ASSESSEE ARRIVED AT THE PROFIT MARGIN AT 12% ON TOT AL COST. TPO HOWEVER, DID NOT ACCEPT THIS CONTENTION. WHILE RE-D ETERMINING THE COST INCURRED BY ASSESSEE, TPO ALSO MADE A DETA ILED ANALYSIS OF VARIOUS COMPARABLES AND SELECTED SEVEN COMPARABLES WHOSE ARITHMETIC MEAN OF PROFIT CAME AT 17.27%/ AFTER GIVING 0.5% ADJUSTMENT TO TAKE INTO ACCOUNT T HE DIFFERENCES, THE AVERAGE PROFIT MARGIN OF 16.77 WAS ADOPTED BY THE TPO TO ARRIVE AT THE ALP AND PROPOSED AN AMOUNT OF RS.77,86,574 AS AN ADDITION VIDE HIS ORDER DATED 20 TH FEBRUARY, 2006. FOLLOWING THE SAME, A.O. ADDED THE AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. IN VIEW OF PROVIS IONS CONTAINED IN SECTION 92C(4) PROVISO, DEDUCTION AT 1 0A WAS NOT ALLOWED ON THIS ADDITION. 3. BEING AGGRIEVED, ASSESSEE HAS TAKEN-UP THE MATT ER BEFORE THE LD. CIT(A). LD. CIT(A) WHILE CONSIDERING THE RISK ADJUSTMENT, ENHANCED RISK ADJUSTMENT TO 1% AS AGAIN ST 0.5% GIVEN BY A.O. AND DIRECTED THE A.O. TO EXCLUDE THRE E COMPARABLES NAMELY M/S. SAARC NET AND M/S. ZIGMA 3 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. SOFTWARE FOR HAVING LOW PROFIT MARGINS. EVEN THOUGH ASSESSEE CONTENDED THAT M/S. E-STAR INFOTECH AND M/S. ZEN TECHNOLOGIES LTD., ARE NOT COMPARABLE, LD. CIT(A) H OWEVER, DIRECTED THE A.O. TO EXCLUDE ONLY M/S. ZEN TECHNOLO GIES LTD., ON THE REASON OF ABNORMAL HIGH PROFIT MARGIN, BEYON D NORMAL RANGE OF PROFIT OF SOFTWARE COMPANIES IN FINANCIAL YEAR 2002- 03. HE ACCORDINGLY, RE-DETERMINED THE PROFIT MARGIN AT 15.40% SUSTAINED AN ADDITION OF RS.63,18,14. 4. ASSESSEE IS AGGRIEVED ON (A) RISK ADJUSTMENTS ( B) INCLUSION OF OPERATING EXPENSES OF JUNE ONLINE AND NOT CONSIDERING PROFIT RANGE OF +/- 5%. DURING THE PRE SENT PROCEEDINGS, IT RAISED AN ADDITIONAL GROUND ON INCO RRECT COMPUTATION OF MARGIN OF M/S. E-STAR INFOTECH. REVE NUE IS AGGRIEVED ON EXCLUSION OF ZEN TECHNOLOGIES LTD., AN D INCREASING THE RISK ALLOWANCE FROM 0.5% TO 1%. 5. WE HAVE HEARD THE LD. COUNSEL AND LD. D.R. AND PERUSED THE PAPER BOOK PLACED ON RECORD AND CASE LA W PAPER BOOK SUPPORTING VARIOUS CONTENTIONS. IN THE COURSE OF ARGUMENTS, LD. COUNSEL DID NOT PRESS GROUND NO.2 PE RTAINING TO ASSESSEES T.P. STUDY AND ALSO GROUNDS NO. 6, 7 AND 8 PERTAINING TO NOT GIVING AN OPPORTUNITY BY A.O. WHI LE ACCEPTING THE ORDER OF TPO. GROUND NO. 10 IS GENERAL IN NATUR E. THE ISSUES ARE DECIDED AS UNDER. RISK ADJUSTMENT : 6. AS BRIEFLY STATED ABOVE, A.O. HAS ALLOWED 0.5% RISK ADJUSTMENT FOR VARIOUS DIFFERENCES WHILE TAKING THE COMPARABILITY ANALYSIS WHICH THE LD. CIT(A) INCREAS ED TO 1%. ON CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY REASON 4 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. TO DIFFER FROM THE FINDING OF THE LD. CIT(A). IN FA CT, THE COORDINATE BENCH IN ASSESSEES CASE FOR A.Y. 2007-0 8 IN ITA.NO.2071/HYD/2011 DATED 27.11.2013 CONSIDERED SI MILAR FACTS IN THAT ORDER AND CONFIRMED RISK ADJUSTMENT A T 1%. EVEN THOUGH IT WAS STATED IN THAT ORDER THAT IT SHOULD N OT ACT AS A PRECEDENT TO BE APPLIED UNIFORMLY, CONSIDERING THE FACTS OF THE CASE AND THE FACT THAT LD. CIT(A) HAS ANALYSED THE ISSUE CORRECTLY, WE UPHOLD THE RISK ADJUSTMENT AT 1%. ACC ORDINGLY, BOTH ASSESSEES GROUND NO.3 AND REVENUE GROUND NO.3 ARE REJECTED. INCLUSION OF DOMESTIC EXPENDITURE AS OPERATING EXPENDITURE : 7. AS BRIEFLY STATED EARLIER, ASSESSEE WHILE ARRIV ING AT THE PROFIT MARGIN HAS EXCLUDED AMOUNT OF RS.29,44,1 30 REPRESENTING IRRECOVERABLE AMOUNT OF EXPENSES RECEI VABLE FROM M/S. JUNE ONLINE SERVICES P. LTD., IT WAS THE SUBMI SSION BEFORE THE TPO THAT ASSESSEE HAD A COST REIMBURSEME NT AGREEMENT WITH M/S. JUNE ONLINE SERVICE DEVELOPMENT P. LTD., WHO IS SHARING PREMISES FOR WHICH CERTAIN COSTS ARE COMMONLY SPENT BY ASSESSEE BUT BEING REIMBURSED BY THE SAID COMPANY. IT HAS PLACED THE AGREEMENT BEFORE THE TPO. IT WAS SUBMITTED BY ASSESSEE THAT IT HAS INCURRED TOTAL COST OF RS.3 8,78,574 TOWARDS ELECTRICITY, GENERATOR EXPENSES, REPAIRS AN D MAINTENANCE, TELEPHONE, SECURITY, PEST CONTROL AND COFFEE, TEA ETC., EXPENSES ON BEHALF OF M/S. JUNO ONLINE AND HA S RECOVERED ONLY AN AMOUNT OF RS.9,34,444. THE BALANC E AMOUNT OF RS.29,44,130 WAS NOT RECOVERED AND THEREFORE, TH E OPERATING COST INCURRED ON BEHALF OF JUNO ONLINE CANNOT BE CO NSIDERED AS OPERATING COST FOR THE SERVICES RENDERED TO A.E. , SINCE IT IS A DOMESTIC EXPENDITURE NOT CONNECTED WITH ASSESSEES ACTIVITY. 5 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. TPO, HOWEVER, DID NOT ACCEPT THE CONTENTION ON THE REASON THAT (A) THAT ASSESSEE HAS NOT TAKEN ANY STEPS TO RECOVE R THE AMOUNT (B) THAT THE AMOUNT HAS NOT BEEN CHARGED TO P & L ACCOUNT AND (C) ON VERIFICATION FROM STATEMENTS OF JUNO ONLINE SERVICES, THERE IS NO SUCH CLAIM OF EXPENSES PAYABL E TO ASSESSEE COMPANY. ACCORDINGLY, TPO DID NOT ALLOW T HE REDUCTION OF THE EXPENSES THEREBY, EFFECTING ASSESS EES PROFIT MARGIN. LD. CIT(A) ALSO VIDE PARA 7.2 OF THE ORDER AGREED THAT THE A.O. HAD CORRECTLY EXCLUDED THE AMOUNT AND ACCO RDINGLY, REJECTED ASSESSEES CONTENTIONS. 8. ON PERUSAL OF THE LEDGER ACCOUNTS PLACED IN THE PAPER BOOK AT PAGE73 AND RECOVERIES AT PAGE 158 OF PAPER BOOK AND PERUSING THE NATURE OF EXPENDITURE AND THE CASE LAW ON THE ISSUE, WE ARE OF THE OPINION THAT BOTH TPO AND LD. CIT(A) ERRED IN NOT CONSIDERING ASSESSEES GENUINE CLAIM. IN FACT, AS SEEN FROM THE P & L ACCOUNT ASSESSEES TOTAL EXPENS ES WERE AT RS.9,34,58,220 AGAINST WHICH, ASSESSEE HAS RECOVERE D RS.9,34,444 STATED TO BE FROM JUNO ONLINE, THEREBY, REDUCING THE EXPENSES TO RS.9,25,23,76. THIS IS THE AMOUNT W HICH THE TPO HAS TAKEN FOR CONSIDERING THE OPERATING EXPENSE S. THEREFORE, ASSESSEES CONTENTION THAT PART OF THE E XPENDITURE WAS RECOVERED FROM M/S. JUNO ONLINE HAS TO BE ACCEP TED. NOT ONLY THAT IN THE PREVIOUS YEAR RELEVANT FOR A.Y. 20 01-02 ASSESSEE HAS RECOVERED EXPENSES TO AN EXTENT OF RS. 67,34,915 FOR THE WHOLE YEAR FROM M/S. JUNO ONLINE. IT IS STA TED THAT DURING THE YEAR ASSESSEE HAS PROVIDED SERVICES ONLY UP TO SEPTEMBER, 2002. WHEN THE PROBLEMS AROSE, ASSESSEE STOPPED INCURRING THE EXPENDITURE. THEREFORE, ASSESSEES CO NTENTIONS ARE PRIMA FACIE ACCEPTABLE, THAT THIS MUCH OF THE E XPENDITURE CANNOT BE CONSIDERED AS OPERATING EXPENSES WHILE AR RIVING AT 6 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. THE PLI. THE CASE LAW ON THE ISSUE ALSO SUPPORTS AS SESSEES CONTENTION THAT DOMESTIC TRANSACTION WITH NON-AE CA NNOT BE CONSIDERED AS OPERATING EXPENDITURE IN RELATION TO INTERNATIONAL TRANSACTIONS WITH AE, AS DECIDED BY C OORDINATE BENCH IN THE CASE OF FORE SOFT LTD., 142 TTJ 358 AN D HSBC ELECTRONIC DATA PROCESSING INDIA LTD., ITA.NO.76/HY D/2008. IN PRINCIPLE, ASSESSEES CONTENTIONS ARE ACCEPTABLE. 9. HOWEVER, AS SEEN FROM THE LEDGER ACCOUNT, COPIE S OF WHICH WERE PLACED FROM PAGES 74 TO 90, ENTIRE CO ST INCURRED FROM APRIL, 2002 TO DECEMBER/JANUARY, 2003 UNDER VA RIOUS HEADS HAVE BEEN TRANSFERRED TO JUNO ONLINE RECOVERI ES. THE LEDGER ACCOUNT INDICATES THE TOTAL AMOUNT SPENT UND ER VARIOUS HEADS IS EQUIVALENT TO THE AMOUNT TRANSFERRED TO JU NO ONLINE. WHAT IS THE GROSS EXPENDITURE INCURRED BY ASSESSEE COULD NOT BE VERIFIED. FOR EXAMPLE, UNDER THE HEAD ELECTRIC ITY AND GENERATOR EXPENSES, THE LEDGER ACCOUNT OF POWER EX PENSES PLACED AT PAGE 79 INDICATES EXPENDITURE FROM 8 TH APRIL, 2002 TO 9 TH JANUARY, 2003 TO THE EXTENT OF RS.29,93,214. THE E NTIRE AMOUNT HAS BEEN SHOWN TOWARDS JUNO ONLINE RECOVERY. LIKEWISE, GENERATOR CHARGES AT PAGE 80 FROM 11 TH APRIL, 2002 TO 16 TH JANUARY, 2003 WERE SHOWN TO HAVE BEEN PAID TO SUNI L SERVICE STATION AMOUNTING TO RS.78,806 AND THE ENTI RE AMOUNT HAS BEEN SHOWN TO BE RECOVERED FROM JUNO ONLINE. TO TAL GENERATOR EXPENSES/POWER CHARGES WERE NOT PLACED BE FORE US SO AS TO EXAMINE WHETHER 50% OF THE EXPENDITURE WAS ONLY CHARGED TO JUNO RECOVERIES AND NOT 100%. THEREFORE, IN ORDER TO EXAMINE THE NATURE AND EXTENT OF EXPENDITURE AND THE VOUCHERS THEREIN, THE ISSUE IS RESTORED TO THE FILE OF A.O. WHO SHOULD EXAMINE THE NATURE OF EXPENDITURE AND IF THI S EXPENDITURE WAS SPENT ON BEHALF OF JUNO ONLINE, THE N THE 7 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. EXPENDITURE NOT RECOVERED FROM THE SAID COMPANY HAS TO BE EXCLUDED. THEREFORE, FOR ACTUAL VERIFICATION OF THE EXPENDITURE INVOLVED THEREIN, THE MATTER IS RESTORED TO THE A.O . WHO SHOULD EXAMINE THE EXPENDITURE AND ALLOW ASSESSEES CONTEN TIONS ACCORDINGLY. WITH THESE DIRECTIONS, GROUND NO.4 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. OPTION OF +/- 5%: 10. GROUND NO.5 PERTAINS TO ALLOWING THE OPTION OF +/- 5%. THE LD. CIT(A) REJECTED THIS CONTENTION ON THE REASON THAT CLAIM IS NOT MADE BEFORE THE TPO/A.O. WE ARE OF THE OPINION THAT THERE IS NO NEED TO MAKE ANY CLAIM OF THE STAT UTORY PROVISION. IN CASE ALP DETERMINED AFTER DUE ANALYSI S IS WITHIN +/- 5% RANGE AS PROVIDED IN THE PROVISO TO SECTION 92C(2) OF THE I.T. ACT. A.O./TPO IS BOUND TO GIVE THE BENEFIT TO THE ASSESSEE. THERE IS NO NEED TO MAKE ANY SEPARATE CLA IM. SINCE ASSESSEE HAS SHOWN ALP WITHIN THE RANGE, THERE IS N O REQUIREMENT OF MAKING A CLAIM IN ITS T.P. STUDY, WE ARE OF THE OPINION THAT THE LD. CIT(A) ERRED IN OBSERVING THAT ASSESSEE HAS NOT MADE THE CLAIM BEFORE THE TPO. HOWEVER, THI S ASPECT WILL COME INTO CONSIDERATION ONLY AFTER DETERMINING THE ALP BY A.O. CONSEQUENT TO THE ORDERS OF THE LD. CIT(A)/ITA T IN ASSESSEES OWN CASE IN THIS YEAR. TPO/A.O. IS DIREC TED TO KEEP THIS STATUTORY PROVISION IN MIND WHILE ARRIVING AT THE ADDITION, IF ANY, REQUIRED. HOWEVER, WE MAKE IT CLEAR THAT TH IS +/- 5% IS NOT A STANDARD DEDUCTION BUT IF ALP SO DETERMINED I S WITHIN THE RANGE OF THIS +/- 5% FROM ASSESSEES MARGIN, TH EN THE BENEFIT AS PROVIDED IN PROVISO SHOULD BE GIVEN TO A SSESSEE. WITH THESE OBSERVATIONS, GROUND NO.5 OF THE ASSESSE E IS ALLOWED. 8 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. ADDITIONAL GROUND : 11. ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND IN THE COURSE OF PRESENT PROCEEDINGS. THE LD. CIT(A) ERRED IN ACCEPTING THE INCORRECT MA RGIN OF THE E.STAR INFOTECH LIMITED, ONE OF THE COMPARABLE COMPANY, AS COMPUTED BY A.O./TPOS IN DETERMINING T HE ARMS LENGTH PRICE. 12. THE RELEVANT FACTS ARE ALREADY ON RECORD AND HENCE, THE GROUND IS ALLOWED TO BE RAISED BEFORE US AFTER CONSIDERING THE LD. D.R. OBJECTIONS. IT WAS THE CON TENTION THAT EVEN THOUGH ASSESSEE HAS OBJECTED TO THE INCLUSION OF E-STAR INFOTECH LIMITED AS ONE OF THE COMPARABLE COMPANY, THE OBJECTION WAS REJECTED BY THE LD. CIT(A). HOWEVER, IT IS THE OBJECTION OF THE ASSESSEE THAT THE MARGIN ADOPTED B Y TPO AT 32.82% IS NOT CORRECT. IT WAS THE SUBMISSION THAT T HIS OBJECTION WAS RAISED BEFORE THE LD. CIT(A) BUT HAS NOT BEEN ADJUDICATED, THEREFORE, RAISED AS AN ADDITIONAL GRO UND BEFORE US. AFTER CONSIDERING THE ORDERS OF THE TPO AND THE ANNUAL REPORT OF THE SAID E.STAR INFOTECH LIMITED PLACED O N RECORD BY ASSESSEE, WE ARE OF THE OPINION THAT THE MARGIN COM PUTATION REQUIRES RE-EXAMINATION BY THE TPO/A.O. IN FACT, IN PAGE 121 OF THE TPO ORDER, LEARNED TPO MENTIONS MARGIN ON SA LES OF E.STAR AT 27.24% AND MARGIN ON COST AT 32.82%. HOWE VER, THE BASIS FOR ARRIVING AT THOSE FIGURES ARE NOT AVAILAB LE. AS SEEN FROM THE DETAILS FILED BY ASSESSEE, OPERATING COST WAS ARRIVED AT RS.19.04 CRORES AND OPERATING PROFIT AT RS.4.81 CRO RES THEREBY, OP/OC AT 25.28%. SINCE, THERE IS A SUBSTANTIAL VARI ATION BETWEEN THE MARGIN COMPUTED BY ASSESSEE VIS--VIS COMPUTATION BY TPO, WE ARE OF THE OPINION THAT THIS ASPECT REQUIRES RE-EXAMINATION BY TPO/A.O. THE TPO/A.O. SH OULD 9 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. EXAMINE HOW THE MARGIN ON COST WAS ARRIVED AT AND G IVE AN OPPORTUNITY TO ASSESSEE TO FILE ITS OBJECTIONS AND THEN ARRIVE AT THE CORRECT MARGIN ON COST, SO AS TO INCLUDE THE SA ME IN ARRIVING AT THE ALP. NEEDLESS TO SAY, THAT ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO EXPLAIN THE WORKING. ACCORD INGLY, ADDITIONAL GROUND OF THE ASSESSEE IS CONSIDERED ALL OWED FOR STATISTICAL PURPOSES. ITA.NO.486/HYD/2007 REVENUE APPEAL 13. REVENUE IN ITS APPEAL IN GROUND NO.2 HAS OBJEC TED TO THE EXCLUSION OF M/S. ZEN TECHNOLOGIES LTD., FRO M THE LIST OF COMPARABLES CONSIDERED BY CIT(A). IT WAS THE ASSESS EES OBJECTION BEFORE TPO/CIT(A) THAT THE SAID COMPANY W AS A PRODUCT COMPANY AND NOT COMPARABLE AND THE OBJECTIO NS WERE RECORDED BY LD. CIT(A) CORRECTLY IN PARA 6 OF THE O RDER. HOWEVER, WHILE CONSIDERING THE COMPARABLES IN PARA 6.4 OF HIS ORDER, HE HAS EXCLUDED THE COMPANY ON THE REASON OF BEING ABNORMALLY HIGH PROFIT MARGIN. EVEN THOUGH THIS IS ONE OF THE VALID REASON, WHAT WE NOTICED, AFTER CONSIDERING TH E RIVAL CONTENTIONS IS THAT THE COMPANY IS NOT FUNCTIONALLY COMPARABLE AS THE SAID COMPANY IS IN MANUFACTURING/PRODUCT SER VICE AND IS ALSO INVOLVED IN RESEARCH AND DEVELOPMENT. ITS E MPLOYEE COST WAS ONLY 3%. IT IS ALSO EVIDENCED THAT COMPANY PAID EXCISE DUTY/VAT. IN VIEW OF THIS, ASSESSEES OBJECTION THA T IT IS FUNCTIONALLY DIFFERENT IS TO BE ACCEPTED. WHATEVER MAY BE THE REASON, WE ARE OF THE OPINION THAT LD. CIT(A) HAS C ORRECTLY EXCLUDED THE SAME FROM THE LIST OF COMPARABLES. THE REFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE SAID OR DER EVEN THOUGH FOR DIFFERENT REASONS. REVENUE GROUND NO.2 I S ACCORDINGLY REJECTED. 10 ITA.NO.434 & 486/HYD/2007 M/S. D.E. SHAW INDIA SOFTWARE P. LTD., HYDERABAD. 14. GROUND NO.3 PERTAINS TO ALLOWING RISK ADJUSTME NT AT 1% AS AGAINST 0.5% ALLOWED BY TPO AND WAS ALREAD Y CONSIDERED IN ASSESSEES APPEAL. ACCORDINGLY, GROUN D NO.3 OF THE REVENUE IS REJECTED. 15. IN THE RESULT, ITA.NO.434/HYD/2007 OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND ITA.NO.486/HYD /2007 OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.10.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 13 TH OCTOBER, 2014 VBP/- COPY TO 1. M/S. D.E. SHAW INDIA SOFTWARE P. LTD., 6-3-879 & 879B, 3 RD FLOOR, GPR BUILDINGS, BEGUMPET, HYDERABAD-016. 2. ACIT, CIRCLE 1(2), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3. COMMISSIONER OF INCOME TAX (APPEALS)-III, HYDERA BAD 4. CHIEF COMMISSIONER OF INCOME TAX-II, HYDERABAD 5. D.R. A BENCH, ITAT, HYDERABAD.