Emptoris Technologies India Pvt. Ltd., Pune V. DCIT, Circle 1(2), Pune

ITA 436/PUN/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2580 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 15-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIVYA BAJPAI
• Keywords: Capital asset; Transfer pricing; International transaction; Services rendered outside India; Initiation of penalty proceedings; Wholly owned subsidiary
• Section: 143(3); 234B; 133(6); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 436 /PN/201 3 / ASSESSMENT YEAR : 200 8 - 0 9 EMPTORIS TECHNOLOGIES INDIA PVT. LTD., OFFICE NO.101, FIRST LEVEL, BUILDING NO.6, COMMER CE ZONE , YERAWADA, SAMRAT ASHOK PATH, OPP. AIRPORT ROAD, PUNE 4110 06 . / APPELLANT PAN: AABCC3721G VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE . / RESPONDENT / APPELLANT BY : S HRI NIKHIL PATHAK / RESPONDENT BY : SMT. DIVYA BAJPAI / DATE OF HEARING : 14 . 12 .2015 / DATE OF PRONOUNCEMENT: 29 . 0 2 .201 6 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF DY. CIT , CIRCLE - 1(2) , PUNE, DATED 2 7 . 11 .201 2 RELATING TO ASSESSMENT YE AR 20 08 - 09 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1.1 THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN A DDITION OF RS.1,62,50,500 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE WITH RESPECT TO TRANSACTION OF RENDERING SERVICES ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 2 1.2 THE LEARNED ASSESSING O FFICER ERRED IN ENHANCING THE VALUE OF THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT COMPANY BY RS.1,62,50,500/ - BY REJECTING THE BENCHMARKING ANALYSIS CONDUCTED BY THE APPELLANT COMPANY. 2.1 THE LEARNED ASSESSING OFFICER (AO) / DISPUTE RESOLUTION PANE L (DRP) ERRED IN REJECTING SOME OF THE COMPANIES CONSIDERED AS COMPARABLE BY THE APPELLANT COMPANY WITHOUT GIVING SUFFICIENT REASONS FOR SUCH REJECTION. 2.2 THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT THE ACTIVITIES OF THE ABOVE COMPANIES CARRIED ON DURING THE SAID PREVIOUS YEAR WERE COMPARABLE TO THE APPELLANT COMPANY AND SUCH COMPANIES SHOULD NOT BE REJECTED FOR FUNCTIONAL DIFFERENCES 2.3 THE LEARNED AO / DRP ERRED IN REJECTING SOME OF THE COMPANIES CONSIDERED AS COM PARABLE BY THE APPELLANT COMPANY BY APPLYING THE RPT CRITERION AND BY NOT APPRECIATING THAT SUCH COMPANIES DID NOT HAVE SUBSTANTIAL TRANSACTIONS EXCEEDING THE THRESHOLD OF 25% WITH THE RELATED PARTIES DURING THE RELEVANT PREVIOUS YEAR AND THE RPT TRANSACTIONS WERE PRIMARILY IN THE NATURE OF INVESTMENTS. 3.1 THE LEARNED A O / DRP ERRED IN CONSIDERING ADDITIONAL SIX COMPANIES TO THE FINAL LIST OF COMPARABLE COMPANIES. 3.2 THE LEARNED A O / DRP ERRED IN NOT APPRECIATING THAT SOME OF THE SAID SIX COMPANIES ADDITIONALLY INCLUDED AS CO MPARABLE WERE MAINLY 'PRODUCT COMPANIES' ENGAGED IN DEVELOPMENT AND SALE OF PRODUCTS ON THEIR OWN AND WERE NOT COMPARABLE TO THE APPELLANT COMPANY WHICH WAS A 'SERVICES COMPANY' (I.E. COMPANY ENGAGED IN SOFTWARE RELATED SERVICES). COMPANY ENGAGED IN SOFTWARE RELATED SERVICES). 3.3 THE LEARNED A O / DR P ERRED IN NOT APPRECIATING THAT SOME OF THE SAID SIX COMPANIES WERE NOT COMPARABLE TO THE APPELLANT COMPANY IN TERMS OF SIZE AND SCALE AS THE TURNOVER OF SUCH COMPANIES WAS SUBSTANTIALLY HIGHER. 3.4 THE LEARNED A O / DRP ERRED IN NOT APPRECIATING THAT SO ME OF THE SIX COMPANIES ADDITIONALLY INCLUDED AS COMPARABLE WERE ENGAGED IN TOTALLY DIFFERENT ACTIVITIES SUCH AS E - MAPPING ACTIVITIES, ACTIVITIES RELATED TO MEDIA, TV, SET - TOP BOXES AND MOVIE RIGHTS, DESIGNING AND ENGINEERING ACTIVITIES ETC AND WERE NOT FU NCTIONALLY COMPARABLE TO THE APPELLANT COMPANY . 3.5 THE LEARNED A O / DRP ERRED IN RELYING ON SEGMENTAL RESULTS OF SOME COMPANIES ADDITIONALLY INCLUDED AS COMPARABLES BY NOT APPRECIATING THAT WHEN DIRECT COMPARABLES WERE AVAILABLE, IT WAS NOT NECESSARY TO CONSIDER SEGMENTAL RESULTS AS IN SUCH SEGMENTAL RESULTS GENERALLY COMMON EXPENSES ARE NOT CORRECTLY ALLOCATED AND ALSO CERTAIN ASSETS AND LIABILITIES ARE NOT IDENTIFIABLE BETWEEN BUSINESS SEGMENTS . 3.6 THE LEARNED A O / DRP ERRED IN NOT APPRECIATING TH AT SOME OF THE COMPANIES ADDITIONALLY INCLUDED IN THE LIST OF COMPARABLES SHOWED FLUCTUATING OPERATING MARGINS IN THE EARLIER 2 - 3 YEARS AND THEREFORE THE OPERATING RESULTS OF SUCH COMPANIES COULD NOT BE RELIED UPON AND CONSIDERED FOR THE PURPOSES OF COMP ARISON. 3.7 THE LEARNED A O / DRP ERRED IN NOT APPRECIATING THAT SOME OF THE ABOVE SIX COMPANIES ADDITIONALLY INCLUDED AS COMPARABLE HAVE SHOWN MORE THAN ORDINARY PROFITS (EXCEEDING 30%) AND IT ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 3 IS NOT APPROPRIATE TO COMPARE SUCH COMPANIES HAVING HIGHER TH AN ORDINARY PROFITS WITH COST PROTECTED CAPTIVE SERVICE PROVIDER ENTITY (LIKE THE APPELLANT COMPANY) WHICH CANNOT BE EXPECTED TO MAKE SUCH MARGINS ESPECIALLY IN VIEW OF LOWER RISKS BORNE BY SUCH ENTITIES. 3.8 THE LEARNED A O / DRP ERRED IN NOT FOLLOWING T HE RATIO OF VARIOUS JUDGEMENTS RELIED UPON BY THE APPELLANT COMPANY. 4. THE LEARNED A O / DRP ERRED IN NOT ALLOWING ADJUSTMENT OF BASIC ADMINISTRATIVE EXPENSES WHICH WERE INCURRED BY THE APPELLANT COMPANY TO MAINTAIN CORPORATE IDENTITY OF THE COMPANY AN D EXPENSES OF SUPPORT STAFF, EXPENSES INCURRED FOR TRAINING OF EMPLOYEES WHILE CALCULATING OPERATING PROFITS FROM AS WELL AS OPERATING COSTS RELATED TO THE INTERNATIONAL TRANSACTION OF EXPORT OF SERVICES AND ERRED IN NOT APPRECIATING THAT SUCH EXPENSES DID NOT FORM PART OF THE 'SERVICE PROVIDER COSTS' AS PER THE TERMS OF THE INTER - COMPANY SERVICES AGREEMENT. 5.1 THE LEARNED A O / DRP ERRED IN HOLDING THAT THE APPELLANT COMPANY HAD NOT DISCHARGED ITS ONUS TO FILE REQUISITE INFORMATION PERTAINING TO ITS C LAIM OF RISK ADJUSTMENT. 5.2 THE LEARNED A O / DRP ERRED IN NOT APPRECIATING THAT THE APPELLANT COMPANY HAD ALREADY SUBMITTED THAT IT WAS NOT REQUIRED TO BEAR RISKS SUCH AS MARKETING RISK, R & D RISK, REVENUE RECOVERY RISK AS WELL AS WARRANTY RISK ETC WHI CH ARE BORNE BY THE COMPARABLE COMPANIES. FURTHER THE APPELLANT COMPANY HAD ALSO FURNISHED SUITABLE WORKING FOR APPROPRIATE RISK ADJUSTMENT IN ITS SUBMISSION BY GIVING THE DETAILS OF MARKET RETURNS, RETURNS FROM RISK - FREE GOVERNMENT SECURITIES AND ALSO HAD SUBMITTED THE WORKING OF RISK ADJUSTMENT BY APPLYING THE HAD SUBMITTED THE WORKING OF RISK ADJUSTMENT BY APPLYING THE CAPITAL ASSET PRICING MODEL (CAPM). 5.3 THE LEARNED A O / DRP ERRED IN HOLDING THAT THE APPELLANT COMPANY HAD ASSUMED MORE CRITICAL RISKS AS COMPARED TO THE ASSOCIATED ENTERPRISE AND WAS ENTITLED FOR HIGHER REMUNERATION . 5.4 THE LEARNED A O / DRP ERRED IN NOT FOLLOWING THE RATIO OF VARIOUS JUDGEMENTS RELIED UPON BY THE APPELLANT COMPANY AND ERRED IN NOT GRANTING SUITABLE RISK ADJUSTMENT. 6.1 THE LEARNED AO ERRED IN NOT GRANTING WORKING CAPITA L ADJUSTMENT TO THE APPELLANT COMPANY AS PER THE WORKING SUBMITTED BY THE APPELLANT COMPANY. 6.2 THE LEARNED AO ERRED IN NOT GIVING THE APPELLANT COMPANY ANY OPPORTUNITY OF HEARING BEFORE REJECTING THE WORKING SUBMITTED BY THE APPELLANT COMPANY. 6.3 THE LEARNED AO ERRED IN CONSIDERING BPLR AS THE RATE FOR WORKING OUT THE WORKING CAPITAL ADJUSTMENT INSTEAD OF THE PRIME LENDING RATE OR THE BASE RATE AS RELIED UPON BY THE APPELLANT COMPANY AND ERRED IN NOT PROVIDING A COPY OF RELEVANT WORKING TO THE APPE LLANT COMPANY. 7.1 THE LEARNED AO / DRP ERRED IN NOT GRANTING THE BENEFIT OF ADJUSTMENT OF + / - 5% AS PROVIDED IN SECTION 92C(2) OF THE INCOME TAX ACT, 1961. 7.2 THE LEARNED AO / DRP ERRED IN NOT FOLLOWING THE RATIO OF VARIOUS JUDGEMENTS RELIED UPON BY THE APPELLANT COMPANY . ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 4 8. THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT IN THE CASE OF THE APPELLANT COMPANY, SUCH A HIGH MARGIN WAS NOT AT ALL COMPARABLE AS THE APPELLANT COMPANY - IS ENGAGED IN RENDERING LOW - END SOFTWARE DEVELOPMENT AND SUPP ORT SERVICES; - IS NOT AT ALL INVOLVED IN BASIC PRODUCT DESIGNING AND ARCHITECTURE; - HAD STARTED OPERATIONS ONLY 2 - 3 YEARS AGO AND WAS IN THE PROCESS OF STABILIZING ITS OPERATIONS AND GROWTH WITH A LOT OF STAFF ON BENCH DURING THE FINANCIAL YEAR 2007 - 08 - DOES NOT BEAR ANY RISK AND ALSO DOES NOT OWN ANY INTANGIBLES, AND IS NOT REQUIRED TO UNDERTAKE SOME FUNCTIONS SUCH AS MARKETING ETC WHICH ANY NORMAL BUSINESS ENTITY WOULD UNDERTAKE; 9. THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT FOR THE P URPOSES OF BENCH - MARKING, PROFIT AFTER TAX SHOULD HAVE BEEN CONSIDERED AND TAX COST SHOULD HAVE BEEN CONSIDERED AS A PART OF OPERATING COSTS AS THE APPELLANT COMPANY WAS ELIGIBLE TO CLAIM BENEFIT OF DEDUCTION U/S. 10 A AND THE BASIC NATURE OF SUCH BENEFITS / INCENTIVES IS TO HELP THE SOFTWARE COMPANIES COMPETE GLOBALLY . 10.1 THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT THE APPELLANT COMPANY WAS ELIGIBLE TO CLAIM TAX HOLIDAY U / S. 10 A AND HAD NO REASON TO MANIPULATE THE VALUE OF ITS INTERNATIONAL TRAN SACTIONS AS THERE WAS NO BENEFIT IN SHIFTING PROFITS OUTSIDE INDIA. 10.2 FURTHER THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT THE EFFECTIVE 10.2 FURTHER THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT THE EFFECTIVE TAX RATE IN USA WAS HIGHER THAN THE APPLICABLE TAX RATE IN INDIA AND THE ORGANIZATION OF THE ASSOCIATED ENT ERPRISE OF THE APPELLANT COMPANY WAS SIGNIFICANTLY STRONGER AND SUBSTANTIALLY LARGER AS COMPARED TO THE APPELLANT COMPANY. FURTHER THE ASSOCIATED ENTERPRISE HAD INCURRED OPERATING LOSSES DURING THE YEAR UNDER CONSIDERATION. 11 THE LD. AO HAS ERRED IN LAW AND ON FACTS IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 12 THE LD. AO HAS ERRED IN LAW AND ON FACTS IN LEVYING INTEREST UNDER SECTION 234C OF THE ACT GIVEN THE FACT THAT NO INTEREST IS LEVIABLE AS PER RETURNED INCOME. 13 ON THE FACTS AND IN TH E CIRCUM STANCES OF THE CASE, THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 14 THE APPELLANT SUBMITS THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT COMPANY CRAVE S LEAVE TO ADD TO, ALTER, AMEND, MODIFY AND/ OR DELETE ANY OR ALL OF THE GROUNDS OF APPEAL, EITHER BEFORE OR DURING THE HEARING OF THE APPEAL. 3. THE ASSESSEE HAS FILED SEVERAL GROUNDS OF APPEAL, BUT ALL RELATING TO THE ISSUE OF TRANSFER PRICING ADJUSTME NT MADE BY THE ASSESSING OFFICER AND DISPUTE RESOLUTION PANEL (DRP) ON ACCOUNT OF ARM'S LENGTH PRICE WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 5 ENTERPRISES TOTALING RS. 1,62,50,500/ - . THE ASSESSEE HAS ALS O RAISED THE CONSEQUENTIAL ISSUE OF CHARGING OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT VIDE GROUNDS OF APPEAL NO.11 AND 12. FURTHER, THE ASSESSEE IS AGGRIEVED BY INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT VIDE GROUND OF APPEAL NO.13. THE SAID ISSUE IS PREMATURE AND HENCE, THE GROUND OF APPEAL NO.13 RAISED BY THE ASSESSEE IS DISMISSED. THE GROUND OF APPEAL NO.14 RAISED BY THE ASSESSEE IS GENERAL AND HENCE, THE SAME IS ALSO DISMISSED. 4. NOW, WE PROCEED TO ADDRESS THE FI RST ISSUE OF TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF ASSESSEE. THE ASSESSEE , A REGISTERED STPI UNIT , FOR THE YEAR UNDER CONSIDERATION WAS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERPRISES. A REFERENCE WAS MADE UNDER SECTION 92CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO) FOR THE COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION S ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE TPO NOTED THAT THE INTERNATIONAL TRANSAC TION UNDERTAKEN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, AS PER TP REPORT AND FORM NO.3CEB WAS AUTOMATED DATABASE CREATION AND BUILDING SOFTWARE PRODUCTS TO THE TUNE OF RS. 20,85,85,805/ - . FOR BENCHMARKING THE SAID INTERNATIONAL TRANSACTION , TH E ASSESSEE HAD ADOPTED TNMM METHOD AS MOST APPROPRIATE METHOD . F OR THE PURPOSE OF ANALYSIS OF INTERNATIONAL TRANSACTION , ENTITY LEVEL OPERATING PROFIT OVER OPERATING COST I.E. OP O VE R OC WAS TAKEN AS PROFIT LEVEL INDICATOR (PLI) BY THE ASSESSEE. A SET OF 15 EXTERNAL COMPARABLES WERE TAKEN AND THE AVERAGE OPERATING MARGINS WAS ADOPTED AS PLI FOR THE SET OF COMPARABLES. THE PLI IN THE CASE OF ASSESSEE COMPANY WAS COMPUTED AT 13.46% AND THE MEAN PLI OF THE COMPARABLES WERE WORKED OUT AT 5.81%. THE ASSESSEE CLAIMED THAT ITS INTERNATIONAL TRANSACTION RELATING TO IT ENABLED SERVICES PROVIDED TO ITS ASSOCIATE ENTERPRISES WAS AT ARMS LENGTH. THE TPO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO PROVIDE SEARCH CRITERIA ON THE DETAILS OF FUNCTIONAL COMPARABILITY O F THE SELECTED COMPANIES. IN REPLY, THE ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 6 ASSESSEE FURNISHED SUBMISSIONS FROM DATE TO DATE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE TOGETHER WITH THE FACTS OF THE CASE, THE TPO WAS OF THE VIEW THAT THE COMPANIES SELECTED BY THE ASSESSEE WE RE NOT COMPARABLE AND TABULATED THE DETAILS IN RESPECT OF EACH OF THE COMPANIES A S PROVIDED AT PAGES 24 TO 27 OF THE ORDER OF TPO WITH FINAL COMMENTS OF THE TPO. THE PERUSAL OF THE SAID DETAILS REFLECT THAT THE TPO ONLY ACCEPTED SOME OF THE COMPANIES AND AFTER I NCLUDING THE COMPANIES SELECTED BY HIM, WHICH IN TURN, WERE SHOW CAUSED TO THE ASSESSEE, THE FINAL SET OF COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS WERE ZERO DOWN ED TO 12 COMPANIES AS ENLISTED UNDER PARA 10 OF TPOS ORDER . THE ARITHMETIC MEAN OF THE MARGINS OF FINAL SET OF COMPARABLES I.E. OP OVER OC WORKED OUT AT 25.47% AS COMPARED TO 13.46% WORKED OUT BY THE ASSESSEE IN RESPECT OF ITS INTERNATIONAL TRANSACTION . S O IN THIS REGARD, ADJUSTMENT OVER OPERATING INCOME WAS PROPOSED TO BE RS. 2 ,29,68,091/ - . FURTHER, THE ASSESSEE HAD ASKED FOR RISK ADJUSTMENT ON ACCOUNT OF VARIOUS FACTORS. HOWEVER, AFTER CONSIDERING THE DETAILS INCLUDING THE TRANSFER PRICING REPORT OF THE ASSESSEE, AFTER CONSIDERING THE DETAILS INCLUDING THE TRANSFER PRICING REPORT OF THE ASSESSEE, THE TPO VIDE PARA 15 OBSERVED THAT THE ASSESSEE WAS RISK BEARIN G ENTITY, WHICH HAD BORNE MOST OF THE RISKS RELEVANT TO ITS BUSINESS AND IT WAS WRONGLY CONTENDED IN THE TRANSFER PRICING REPORT THAT THE ASSESSEE WAS RISK FREE ENTITY. FURTHER, THE TPO NOTED FROM THE TRANSFER PRICING REPORT THAT THE AUDITOR HAD NOT CARRI ED OUT THE RISK ANALYSIS OF EACH COMPARABLES AND HAD NOT COMPARED RISK MATRIX OF COMPARABLES WITH THE RISK MATRIX OF THE ASSESSEE TO POINT OUT THE DIFFEREN CE BETWEEN RISK MATRIX OF THE ASSESSEE AND COMPARABLES. IN VIEW THEREOF, THE TPO WAS OF THE VIEW THA T THERE WAS NO DIFFERENCE IN THE RISK PROFILE SHOWN BY THE ASSESSEE AND THE COMPARABLES, HENCE, THERE WAS NO REQUIREMENT OF ANY ADJUSTMENT ON ACCOUNT OF RISK ADJUSTMENT. FURTHER, THE WORKING CAPITAL ADJUSTMENT ASKED FOR BY THE ASSESSEE WAS ALSO NOT ALLOWE D TO THE ASSESSEE. FURTHER, IN ADDITION, THE ASSESSEE HAD REQUESTED THAT THE SAFETY HARBOR BENEFIT OF +/ - 5% RANGE AS PER SECTION 92C(2) OF THE ACT MAY BE GIVEN TO IT, WHICH WAS ALSO REJECTED IN VIEW OF VARIOUS DECISIONS OF THE TRIBUNAL IN THIS REGARD. A CCORDINGLY, ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 7 THE TPO PROPOSED AN ADJUSTMENT OF RS. 2,29,68,091/ - ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES . THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER PROPOSED THE SAID ADJUSTMENT, AGAINST WHICH THE ASSESSEE FILED THE OBJECTIONS BEFORE THE DRP , WHO IN TURN, GAVE DIRECTIONS AGAINST THE OBJECTIONS FILED BY THE ASSESSEE AS PER ITS ORDER. THE ASSESSING OFFICER IN THE FINAL ORDER OF ASSESSMENT PASSED UNDER SECTION 143(3) R.W. S. 144C(13) OF THE ACT EXCLUDED FCS SOFTWARE SOLUTION LTD. FROM THE FINAL SET OF COMPARABLES AND ALSO ALLOWED WORKING CAPITAL ADJUSTMENT. IN THIS REGARD, REFERENCE AGAIN WAS MADE TO THE TPO, WHO IN TURN, FURNISHED ITS REPLY AND PROPOSED AN ADJUSTMENT OF R S. 1,62,50,500/ - . THE SAID ADJUSTMENT WAS ADOPTED BY THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT IN THE HANDS OF ASSESSEE, AGAINST WHICH THE ASSESSEE IS IN APPEAL. 5. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN THE FIN AL ANALYSIS, THE MARGINS OF 11 COMPANIES WERE SELECTED AS FINAL SET OF COMPARABLES FOR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD, PO INTED OUT THAT THE ASSESSEE WAS 100% SUBSIDIARY OF EMPTORIS INC AND WAS ALSO 100% CAPTIVE SERVICE PROVIDER TO ITS ASSOCIATE ENTERPRISES. THE TOTAL TURNOVER OF THE ASSESSEE WAS RS.20.85 CRORES AND THE ASSESSEE HAD APPLIED TNMM METHOD AS MOST APPROPRIATE ME THOD FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS VIS - - VIS THE SET OF COMPARABLES PICKED UP BY IT. IN THE FIRST ROUND, THE ASSESSEE HAD SELECTED 15 COMPANIES, WH ICH HAD MARGINS OF 5.81% ON ACCOUNT OF OP / OC. THE TPO HAD REJECTED 9 COMPANIES OUT OF 15 COMPANIES AND HENCE, ONLY CONSIDERED 6 COMPANIES SELECTED BY THE ASSESSEE, BUT INCLUDED 7 NEW COMPANIES. THE DRP HAD DIRECTED THE TPO TO EXCLUDE FCS SOFTWARE SOLUTIONS LTD. AND DRP ALSO CONFIRMED THE REJECTION OF 9 COMPANIES AS MADE BY THE TPO. HENCE, TH E DRP CONFIRMED 1 1 COMPANIES IN ALL , WHOSE AVERAGE MEAN WAS 22.84%, OUT OF WHICH WORKING CAPITAL ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 8 ADJUSTMENT WAS DIRECTED TO BE ALLOWED BY THE DRP AT 1%. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER REFERRED TO THE ORDER OF DRP AT PAGES 2 AND 5 TO ESTABLISH THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT, SUPPORT AND MAINTENANCE RELATED TO DOCUMENTATION AND TESTING SERVICES. IN OTHER WORDS, THE ASSESSEE WAS A SOFTWARE DEVELOPMENT COMPANY. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION THAT THE FINAL SET OF COMPARABLES SELECTED BY THE TPO IN THE SECOND ROUND AND THE TPO HAD INCLUDED CERTAIN COMPANIES, WHICH WERE NOT ENGAGED IN SOFTWARE DEVELOPMENT. HE FURTHER STRESSED THAT O UT OF BALANCE 1 1 COMPANIES, THE ASSESSEE WAS OBJECTING TO INCLUSION OF MARGINS OF 5 OF THE COMPANIES AND IN RESPECT OF BALANCE, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IT HAD NO OBJECTIONS IF THE MARGINS OF THE SAID COMPANIE S WERE ADOPTED FOR F INALLY COMPARING THE MARGINS OF THE SAID COMPARABLES WITH THE MARGINS OF TESTED PART Y IN ORDER TO WORK OUT ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. THE FIRST OBJECTION WAS ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. THE FIRST OBJECTION WAS TO THE INCLUSION OF KALS INFOR MATION SYSTEMS LTD., THEN EZEST SOLUTIONS LTD. AND BODHTREE CONSLUTING LTD. OUR ATTENTION WAS DRAWN TO THE ORDER OF PUNE BENCH OF TRIBUNAL IN BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD. VS. ACIT , RELATING TO ASSESSMENT YEAR 2008 - 09 REPORTED IN (2015) 56 TA XMANN.COM 386 (PUNE TRIB.) , COPY OF WHICH IS PLACED IN PAPER BOOK. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE YEAR UNDER APPEAL WAS ALSO ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL HAD ALSO TAKEN SAME VIEW AND THE SAME MAY BE ADOPTED FOR EXCLUDING KALS INFORMATION SYSTEMS LTD., THEN EZEST SOLUTIONS LTD. AND BODHTREE CONSLUTING LTD. IN RESPECT OF GEN E SYS INTERNATIONAL CORPORATION LTD. , THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE FUNCTIONS WERE TOTALLY DIFFERENT AND BEFORE THE DRP, THE OBJECTIONS WERE RAISED, BUT THE SAME HAVE NOT BEEN DEALT UPON. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE FUNCTIONS OF THE SAID COMPANY AND POINTED OUT THAT IT WAS PROVIDING HIGH END P ROJECT MAPPING ACTIVITIES ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 9 EMPLOYING SCI ENTISTS, ETC. AND ITS FUNCTIONS WERE NOT COMPARABLE TO THE ACTIVITIES OF THE ASSESSEE COMPANY. HE FURTHER POINTED OUT THAT THE SAID COMPANY WAS SELECTED AS COMPARABLE BY THE TPO ON THE BASIS OF TURNOVER. REFERENCE W AS MADE TO THE ORDER OF TPO IN THIS REGARD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE MADE REFERENCE TO VARIOUS DECISIONS OF HYDERABAD AND BANGALORE BENCHES OF TRIBUNAL AND POINTED OUT THAT THE SAID COMPARABLE WAS REJECTED IN VIEW OF THE SAID COMPANY BEING FUNCTIONALLY DIFFERENT. SIMILAR PROPOSITION WAS RAISED IN RESPECT OF GOLDSTONE TECHNOLOGIES LTD. , WHEREIN THE SAID COMPANY WAS ALSO SELECTED ON THE BASIS OF TURNOVER . I N RESPECT OF WORKING CAPITAL ADJUSTMENT, WHICH WAS DIRECTED TO BE ALLOW ED BY THE DRP , T HE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TPO DID NOT FOLLOW OECD GUIDELINES. OUR ATTENTION WAS DRAWN TO THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE PRECEDING YEAR, UNDER WHICH THE DIRECTIONS HAVE BEEN GIVEN IN THIS REGARD. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF TPO AND DRP. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAS RAISED MULTIPLE GROUND S OF APPEAL AGAINST THE ADDITION OF RS.1,62,50,500/ - MADE TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES WHILE PROVIDING SOFTWARE DEVELOPMENT SERVICES IN THE FIELD OF AUTOMATED DATABASE CREATION AND B UILDING SOFTWARE PRODUCTS TO THE TUNE OF RS.20,85,85,805/ - . THE ASSESSEE WAS ENGAGED IN CARRYING OUT SOFTWARE DEVELOPMENT, SUPPORT AND MAINTENANCE, RELATED DOCUMENTATION, AND TESTING AND RELATIVE SERVICES. THE ABOVE SAID SERVICES WERE PROVIDED TO ITS ASS OCIATE ENTERPRISE M/S. EMPTORIS INC. THE ASSESSEE WAS 100% SUBSIDIARY OF ITS ASSOCIATE ENTERPRISE AND WAS ALSO 100% CAPTIVE SERVICE PROVIDER TO ITS ASSOCIATE ENTERPRISES. THE TOTAL TURNOVER OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS RS.20.85 CR ORES AND HAD ADOPTED TNMM METHOD AS MOST ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 10 APPROPRIATE METHOD FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS PROVIDED TO ITS ASSOCIATE ENTERPRISES. THE TPO HAD ALSO APPLIED THE TNM METHOD TO DETERMINE THE MARGINS OF THE COMPARABLES AND AFTER SELECTING NEW SET OF COMPARABLE S AND AFTER REJECTING SOME OF THE COMPARABLES SELECTED BY THE ASSESSEE, HAD COMPUTED THE PLI OF THE COMPARABLES AT 25 . 47 % AS AGAINST THE PLI OF THE ASSESSEE AT 1 3 . 4 6%. THE TPO, THUS, PROPOSED AN ADJUSTMENT OF RS. 2 , 29 , 68 , 091 / - ON ACCOUNT O F ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE DRP REVISED THE DETERMINATION OF ADJUSTMENT TO BE MADE UNDER SECTION 92CA(3) OF THE ACT AND SUBSEQUENTLY THE ASSESSING OFFICER RE - WORKED THE ADJUSTMENT AT RS. 1 , 62 , 50 , 500 / - , AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE, AGAINST WHICH ASSESSEE IS IN APPEAL. THE TPO HAD SELECTED THE FOLLOWING SET OF COMPARABLES : - SR.NO. NAME OF THE COMPANY TPO 1 BINARY SE MANTICS LTD. 15.48% 2 CHAKKILAM I NFOTECH LTD. 7.36% 3 GENESYS INTERNATIONAL CORPORATION LTD. 48.12% 3 GENESYS INTERNATIONAL CORPORATION LTD. 48.12% 4 ICRA TECHNO ANALYTICS LTD. 7.69% 5 IKF TECHNO ANALYTICS LTD. 11.72% 6 POWERSOFT GLOBAL SOLUTIONS LTD. 14.56% 7 VALUEMART INFO TECHNOLOGIES LTD. 26.13% 8 BODHTREE CONSULTING LTD. 19. 14% 9 EZEST SOLUTIONS LTD. 28.58% 10 FCS SOFTWARE SOLUTION LTD. 57.02 11 GOLDSTONE TECHNOLOGIES LTD. 27.06% 12 KALS INFORMATION SYSTEMS LTD. ((APPLICATION SOFTWARE SEG) 41.94% LGS GLOBAL LTD. 26.33% TOTAL 331.13 ARITHMETIC MEAN 25.47 8. THE DRP ACCEPTED THE OBJECTION OF THE ASSESSEE IN RESPECT OF FCS SOFTWARE SOLUTIONS LTD. AND THE SAME WAS NOT ADOPTED AS A COMPARABLE IN THE FINAL DETERMINATION OF ARITHMETIC MEAN OF MARGINS OF COMPARABLES AFTER WORKING CAPITAL ADJUSTMENT WORKED OUT TO 22.84% AND ADDITION OF RS.1,62,50,500/ - WAS MADE IN THE HANDS OF ASSESSEE. 9 . BEFORE US, THE FIRST PLEA OF THE ASSESSEE WAS THAT THE TPO HAD ERRED IN INCLUDING (I) KALS INFORMATION SYSTEMS LTD. , (II) EZEST SOLUTIONS LTD. AND (III) ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 11 BODHTREE CONSULTING LTD. THE CA SE OF THE ASSESSEE BEFORE US WAS THAT THE SAID COMPANIES SELECTED BY THE TPO WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WERE NOT TO BE INCLUDED IN VIEW OF THE PUNE BENCH OF TRIBUNAL IN BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD. VS. A CIT (SUPRA). 10. THE ASSESSEE WAS PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERPRISES AND THE CLAIM OF THE ASSESSEE BEFORE US WAS THAT THE CONCERN KALS INFORMATION SYSTEMS LTD. WAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES SINCE THE S AID CONCERN WAS NOT ONLY INVOLVED IN THE ACTIVITY OF PROVIDING SOFTWARE DEVELOPMENT SERVICES BUT WAS ALSO ENGAGED IN SELLING OF SOFTWARE PRODUCTS. 11. WE FIND THAT PUNE BENCH OF TRIBUNAL IN BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD. VS. ACIT (SUPRA) I.E . A CONCERN WHICH WAS ENGAGED IN THE ACTIVITY OF PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERPRISES IN UK HAD ALSO VIDE PARA 18 HELD THAT THE CONCERN M/S. KALS INFORMATION SYSTEMS LTD. WAS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES AS IT WAS FUNCTIONALLY DISSIMILAR. THE RELEVANT PARA 18 READS AS UNDER: - 18. THIRDLY, ASSESSEE HAS CONTENDED THAT THE CONCERN M/S. KALS INFORMATION SYSTEMS LTD. BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. ON THIS ASPECT ALSO, THE CASE SET UP BY THE A SSESSEE IS THAT THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) FULLY COVERS THE CONTROVERSY. IN THE CASE OF SYMPHONY SERVICES (SUPRA), M/S. KALS INFORMATION SYSTEMS LTD. WAS EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND THAT THE SAID CONCERN WAS INVOLVED NOT ONLY IN THE ACTIVITY OF PROVIDING OF SOFTWARE DEVELOPMENT SERVICES BUT ALSO IN SELLING OF SOFTWARE PRODUCTS. SYMPHONY SERVICES PUNE PVT. LTD. WAS ONLY ENGAGED IN PROVIDING SOFTWARE SERVICES . IN THE CASE OF SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) AS WELL AS IN THE PRESENT CASE ALSO, THE TPO DID NOT ACCEPT THE PLEA FOR EXCLUSION OF KALS INFORMATION SYSTEM LTD. PRIMARILY ON THE GROUND THAT THE FINANCIAL STATEMENTS OF THE SAID CONCERN DID NOT REFLECT ANY SALE OF SOFTWARE PRODUCTS. QUITE CLEARLY THE STAND OF THE REVENUE IN THE PRESENT CASE AS WELL IN THE CASE OF SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) IS SIMILAR. IT IS ALSO QUITE CLEAR THAT THE NATURE OF SERVICE BEING RENDERED BY THE ASSESSEE AND SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) ARE SIMILAR, NAMELY RENDERING OF SOFTWARE DEVELOPMENT SERVICES TO ITS AFFILIATES. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL IN CASE OF SYMPHONY SERVICES DATED 30 - 04 - 2014 (SUPRA) BRINGS OUT THE SALI ENT FEATURES OF THE CONTROVERSY : 13. THE SECOND POINT RAISED BY THE ASSESSEE IS WITH REGARD TO THE ADOPTION OF KALS INFORMATION SYSTEMS LIMITED AS A COMPARABLE CONCERN WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. BEFORE THE TPO, AS SESSEE SUBMITTED THAT THE SAID CONCERN BE EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. THE RELEVANT ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 12 DISCUSSION IN THIS REGARD IS CONTAINED IN PARA 6.1 OF THE ORDER OF THE TPO. THE PLEA OF THE ASSESSEE WAS THAT THE SAID CO NCERN WAS ENGAGED IN SELLING OF SOFTWARE PRODUCTS, NAMELY, VIRTUAL INSURE, LA. VISION, CMSS, E - DMS AND ERP 'SHINE', ETC., WHICH ARE ALL SPECIALISED SOFTWARE PRODUCTS DEVELOPED FOR THE RESPECTIVE SECTORS. FOR THE INSTANCE, VIRTUAL INSURE WAS SAID TO BE A WE B BASED SOLUTION THAT WAS USEFUL IN THE INSURANCE SECTOR; LA VISION WAS AN E - COMMERCE BASED APPLICATION IN THE FIELD OF INTRA - ORGANIZATIONAL COMMUNICATIONS, ETC.; AND, CMSS WAS A SOFTWARE FOR CONSULTANTS/AGENTS TO MANAGE THEIR CUSTOMERS PRE AND POST SALES. ON THIS BASIS, IT WAS SOUGHT TO BE MADE OUT THAT THE ASSESSEE WAS FUNCTIONALLY DIFFERENT INASMUCH IT WAS ENGAGED IN THE PROVISION OF SOFTWARE DEVELOPMENT AND OTHER RELATED SERVICES TO ITS ASSOCIATED ENTERPRISES AS WELL AS TO THE NON - ASSOCIATED ENTERPRISES AND, WAS NOT INVOLVED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. THE TPO DID NOT ACCEPT THE PLEA OF THE ASSESSEE FOR THE REASON THAT THE ANNUAL REPORT OF THE SAID CONCERN DID NOT REFLECT ABOUT SALE OF SOFTWARE PRODUCTS AFTER DEVELOPMENT AND THEREFORE, ACCORDING TO HIM, IT WAS NOT FUNCTIONALLY DIFFERENT. 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY POINTED OUT THAT THE PLEA OF THE ASSESSEE HAS BEEN REJECTED BY THE INCOME - TAX AUTHORITIES WITHOUT ANY JUSTIFIABLE REASONS, AS EVEN ON TH E BASIS OF THE INFORMATION AVAILABLE IN THE PUBLIC DOMAIN IT IS QUITE EVIDENT THAT KALS INFORMATION SYSTEM LIMITED WAS A CONCERN WHICH WAS DEVELOPING AND SELLING SOFTWARE PRODUCTS, WHICH WAS AN ACTIVITY QUITE DISTINCT FROM THE ACTIVITY OF SOFTWARE DEVELOPM ENT UNDERTAKEN BY THE ASSESSEE. IN THE COURSE OF HEARING, THE LEARNED COUNSEL HAS FURNISHED THE PRINTS OUT FROM THE ANNUAL REPORT OF KALS INFORMATION SYSTEMS LTD. WHEREIN VARIOUS SOFTWARE PRODUCTS SOLD BY THE SAID CONCERN HAVE BEEN DETAILED, WHICH ACCORDIN G TO HIM, SUPPORTS THE PLEA OF THE ASSESSEE THAT THE SAID CONCERN WAS FUNCTIONALLY DIFFERENT. APART THEREFROM, THE LEARNED COUNSEL HAS REFERRED TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN COUNSEL HAS REFERRED TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. VS. DCIT VIDE ITA NO.1 386/PN/2010 DATED 30.11.2011, WHICH WAS ALSO A CONCERN ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES FOR ITS PARENT COMPANY. THE ACTION OF THE TPO OF SELECTING KALS INFORMATION SYSTEMS LIMITED AS A COMPARABLE CONCERN WHILE APPLYING THE TNM METHOD WAS REJECTED BY THE TRIBUNAL ON THE BASIS THAT THE SAID CONCERN WAS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SALE, WHICH WAS FUNCTIONALLY DISSIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES UNDERTAKEN BY THE BINDVIEW INDIA PVT. LTD. (SUPRA). THE LEARNED COU NSEL POINTED OUT THAT THE SAID DECISION IS FULLY APPLICABLE TO THE FACTS OF THE PRESENT CASE INASMUCH AS SIMILAR FUNCTIONS WERE UNDERTAKEN BY BINDVIEW INDIA PVT. LTD. AND THEREFORE KALS INFORMATION SYSTEMS LIMITED IS LIABLE TO BE EXCLUDED FROM THE LISTS OF COMPARABLES. 15. A REFERENCE HAS ALSO BEEN MADE TO THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT VIDE IT(TP)A NO.1303/BANG/2012 DATED 28.11.2013 WHEREIN ALSO THE SAID CONCERN, NAMELY, KALS IN FORMATION SYSTEMS LIMITED WAS NOT CONSIDERED AS A COMPARABLE ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. THE LEARNED COUNSEL POINTED OUT THAT M/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WAS ALSO A CONCERN ENGAGED IN THE PROVISION OF SOFTWARE DEVELOPMENT AND OT HER RELATED SERVICES, WHICH IS SIMILAR TO THE FUNCTIONS UNDERTAKEN BY THE ASSESSEE. IT WAS POINTED OUT THAT THE FUNCTIONS OF KALS INFORMATION SYSTEMS LIMITED CONSIDERED BY THE BANGALORE BENCH OF THE TRIBUNAL IS FOR THE SAME ASSESSMENT YEAR AS IS IN THE PRE SENT CASE AND THEREFORE THE SAID DECISION ALSO SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. 16. THE LEARNED CIT - DR HAS DEFENDED THE POSITION OF THE TPO BY RELYING ON THE DISCUSSION IN THE ORDER OF THE TPO, WHICH WE HAVE ALREADY ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 13 ADVERTED TO IN THE EAR LIER PART OF THIS ORDER, AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE PRECEDENTS BY WAY OF THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) AND THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) RELIED UPON BY THE ASSESSEE SQUARELY COVER THE CONTROVERSY RELATING TO KALS INFORMATION SYSTEMS LIMITED. IN THE AFORESAID TWO PRECEDEN TS, THE SAID CONCERN HAS BEEN SOUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) HAS CONSIDERED THE FUNCTIONS UNDERTAKEN BY THE SAID CONCERN DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US, AND IT HAS BEEN FOUND THAT THE SAID CONCERN WAS ENGAGED IN THE BUSINESS OF DEVELOPING AND SELLING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A S OFTWARE SERVICE PROVIDER. THERE IS NO DISPUTE TO THE FACT POSITION THAT THE APPELLANT BEFORE US HAS UNDERTAKEN MAINLY SOFTWARE DEVELOPMENT SERVICES FOR ITS ASSOCIATED ENTERPRISES AND THE NON - ASSOCIATED ENTERPRISES AND THAT SUCH ACTIVITY IS QUITE DISTINCT F ROM THE DEVELOPING AND SELLING OF SOFTWARE PRODUCTS. THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) HAS ALSO FOUND THE SAID CONCERN TO BE FUNCTIONALLY DISSIMILAR FROM A CONCERN WHICH WAS ENGAGED IN THE BUSINESS OF SOFTWARE D EVELOPMENT SERVICES, WHICH IS THE CASE BEFORE US. THOUGH, THE DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) RELATES TO THE ASSESSMENT YEAR 2006 - 07 WHEREAS THE PRESENT CASE OF THE ASSESSEE IS FOR ASSESSMENT YEAR 2008 - 09 YET THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ACTIVITIES CARRIED OUT BY KALS INFORMATION SYSTEMS LIMITED IN THE CURRENT ASSESSMENT YEAR ARE DIFFERENT FROM THOSE NOTED BY THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2006 - 0 7. 18. CONSIDERING THE AFORESAID DISCUSSION, IN OUR VIEW, THE CONCERN I.E. KALS INFORMATION SYSTEMS LIMITED IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF BENCHMARKING INTERNATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE DEVELOPM ENT SERVICES. WE HOLD SO. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 12. THE SECOND OBJECTION RAISED BY THE ASSESSEE WAS AGAINST INCLUSION OF EZEST SOLUTIONS LTD. THIS CONCERN WAS ALSO EXCLUDED BY THE TRIBUNAL IN BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD. VS. ACIT (SUPRA) FOR THE PROPOSITION THAT THE SAID CONCERN WAS IN THE BUSINESS OF PROVIDING E - BUSINESS SERVICES, WHICH WERE IN THE NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES (IT E S) AND NOT COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 15. THE SECOND CONCERN WHICH IS LIABLE TO BE EXCLUDED AS PER THE ASSESSEE IS E - ZEST SOLUTIONS LTD. ON THIS ASPECT, THE CLAIM OF THE ASSESSEE IS THAT THE SAID CONCERN WAS NOT INCLUDIBLE AS A COMPARABLE CONC ERN FOR THE REASON THAT THE SAID CONCERN WAS ALSO IN THE BUSINESS OF PROVIDING E - BUSINESS SERVICES WHICH ARE MORE IN THE NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND NOT COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESSEE. BEFORE THE TPO , ASSESSEE HAD ALSO POINTED OUT THAT THE SAID CONCERN WAS ALSO UNDERTAKING SALE OF ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 14 SOFTWARE PRODUCTS WHICH WAS QUITE DISTINCT FROM THE ACTIVITY OF THE ASSESSEE WHICH WAS MERELY PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISES. IT WAS ALSO POINTED OUT THAT THERE WAS NO SEGMENTAL DATA RELATING TO THE SEGMENT OF SOFTWARE DEVELOPMENT SERVICE AVAILABLE IN THE CONTEXT OF THE SAID CONCERN. THUS, AS PER ASSESSEE FOR ALL THE ABOVE REASONS, THE SAID CONCERN BE EXCLUDED FROM THE FINAL SET OF COM PARABLES. THE AFORESAID ARGUMENTS OF THE ASSESSEE DID NOT FOUND FAVOUR WITH THE INCOME - TAX AUTHORITIES. AS PER THE REVENUE, A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE SAID CONCERN DID NOT REVEAL THAT IT WAS INVOLVED IN THE ACTIVITY OF DEVELOPMENT AN D SALE OF SOFTWARE PRODUCTS ALSO. 16. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE SAID CONCERN WAS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AND IN THIS CONTEXT, HE RELIED UPON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY SERVICES PUNE PVT. LTD. VIDE ITA NO.257/PN/2013 DATED 30 - 04 - 2014 FOR A.Y. 2008 - 09. RELEVANT DISCUSSION IN THE ORDER OF SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) WITH RESPECT TO E - ZEST SOLUTIONS LTD. READS AS UNDER : 19. THE LAST POINT R AISED BY THE ASSESSEE IS TO EXCLUDE E - ZEST SOLUTIONS LIMITED FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF PROVIDING OF SOFTWARE DEVELOPMENT SERVICES TO THE ASSOCIATED ENTERPRISES. ON THIS ASPECT, THE PLEA OF THE ASSESSEE BEFORE THE TPO WAS THAT THE SAID CONCERN IS FUNCTIONALLY DISSIMILAR BECAUSE IT IS ENGAGED IN PROVIDING SERVICES WHICH INCLUDE E - BUSINESS SERVICES, WHICH ARE MORE IN THE NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND NOT COMPAR ABLE TO THE FUNCTIONS PERFORMED BY THE ASSESSEE. IT WAS ALSO POINTED OUT TO THE TPO THAT THE E - BUSINESS CONSULTANCY AND TECHNOLOGY CONSULTANCY SERVICES BEING PROVIDED BY THE SAID CONCERN DO NOT PERTAIN TO SOFTWARE DEVELOPMENT SERVICES BUT ARE ITES SERVICES . ASSESSEE ALSO SUBMITTED BEFORE THE TPO THAT THE SAID CONCERN DOES NOT PROVIDE ANY SEGMENTAL DATA AND BEING A HIGHLY DIVERSIFIED COMPANY, IT IS NOT POSSIBLE TO SEGREGATE DATA RELATING TO HIGHLY DIVERSIFIED COMPANY, IT IS NOT POSSIBLE TO SEGREGATE DATA RELATING TO THE SEGMENT OF SOFTWARE DEVELOPMENT SERVICES BEING UNDERTAKEN BY THE SAID CONCERN. 20. THE TPO HAS CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AS PER HIS DISCUSSION IN PARA 16.3 OF THE ORDER. THE TPO REFERRED TO THE PROFIT & LOSS ACCOUNT OF THE CONCERN AND NOTED THAT IT WAS A TYPICAL SOFTWARE DEVELOPING COMPANY AND REJECTED THE PLEA OF THE ASSESSEE FOR EXCLUDING THE SAME FOR THE LIST OF THE COMPARABLES. 21 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID CONCERN WAS FUNCTIONALLY DISSIMILAR AND ITS SERVICES CAN BE CONSIDERED AS KNOWLEDGE PROCESS OUTSO URCING (KPO), WHICH IS QUITE DISTINCT FROM THAT OF THE ASSESSEE. IT IS FURTHER POINTED OUT THAT THE SAID DISTINCTION HAS BEEN APPRECIATED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHEREBY THE SAID CONCERN H AS BEEN HELD TO BE FUNCTIONALLY DISSIMILAR TO A CONCERN WHICH WAS UNDERTAKING FUNCTIONS SIMILAR TO THOSE PERFORMED BY THE ASSESSEE. ACCORDINGLY, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN ORDER TO JUSTIFY THE EXCLUSI ON OF THE SAID CONCERN FROM THE LIST OF COMPARABLES. 22. ON THE OTHER HAND, THE LEARNED CIT - DR HAS REFERRED TO THE ARGUMENT SETUP BY THE TPO IN HIS ORDER WHICH WE HAVE ALREADY ADVERTED TO IN THE EARLIER PARAGRAPHS OF THIS ORDER AND IS NOT BEING REPEATED FO R THE SAKE OF BREVITY. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CONTEXT, WE FIND THAT BEFORE THE TPO RELIED UPON THE INFORMATION AVAILABLE ON THE WEBSITE OF THE SAID CONCERN AND SUBMITTED THAT THE SAID CONCERN WAS ENGAGED IN E - BUSINE SS CONSULTANCY SERVICES, CONSISTING OF WEB STRATEGY ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 15 SERVICES, ITES SERVICES, AND IN TECHNOLOGY CONSULTANCY SERVICES INCLUDING PORTAL DEVELOPMENT SERVICES, ETC.. IT IS SOUGHT TO BE EXPLAINED THAT SUCH KIND OF SERVICES ARE ITES SERVICES WHICH ARE UNDERSTOOD AS KPO SERVICES. IT WAS ALSO POINTED OUT THAT THE SAID CONCERN HAS NOT PROVIDED ANY SEGMENTAL DATA IN ITS ANNUAL REPORT. BEFORE US, IT IS SOUGHT TO BE CONTENDED THAT THE KPO SERVICES ARE NOT COMPARABLE TO THE SOFTWARE DEVELOPMENT SERVICES BEING RENDERED BY THE ASSESSEE AND THEREFORE CONCERNS WHICH RENDER KPO SERVICES CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE TO THE CONCERNS WHO RENDER SOFTWARE DEVELOPMENT SERVICES. FOR THE SAID PROPOSITION, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE BANGALORE BEN CH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHICH HAS INDEED BEEN RENDERED IN THE CONTEXT OF THE SAME COMPARABLE, WHICH IS THE SUBJECT - MATTER OF CONSIDERATION BEFORE US, I.E. E - ZEST SOLUTIONS LIMITED. 24. WE FIND THAT THE FACTUA L ASSERTIONS MADE BY THE ASSESSEE BEFORE THE TPO AS WELL AS BEFORE US WITH REGARD TO THE FUNCTIONS BEING PERFORMED BY E - ZEST SOLUTIONS LIMITED HAVE NOT BEEN CONTROVERTED BY THE REVENUE. OSTENSIBLY, E - ZEST SOLUTIONS LIMITED IS RENDERING PRODUCT DEVELOPMENT SERVICES AND TECHNOLOGY SERVICES, AND THE LATTER FALLS IN THE CATEGORY OF KPO SERVICES AND THE SAME HAVE NOT BEEN HELD BY THE BANGALORE BENCH OF THE TRIBUNAL TO BE SIMILAR TO A CONCERN ENGAGED IN RENDERING OF SOFTWARE DEVELOPMENT SERVICES, AS IS THE ASSESS EE BEFORE US. FOLLOWING THE RATIO OF THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WE HOLD THAT E - ZEST SOLUTIONS LIMITED IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER C ONSIDERATION. WE HOLD SO. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 17. NOTABLY, SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) WAS ALSO A CONCERN 17. NOTABLY, SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) WAS ALSO A CONCERN WHICH WAS ENGAGED IN PROVISION OF SOFTWARE DEVELOPMENT AND RELATED SERVICES TO ITS ASSOCIATED ENTERPRISES ON COST PLUS MARKUP BASIS. THE TRIBUNAL VIDE ITS ORDER DATED 30 - 04 - 2014 (SUPRA) CONSIDERED THE INCLUSION OF E - ZEST SOLUTIONS LTD. FOR THE PURPOSE OF COMPARABILITY ANALYSIS OF THE TRANSACTION OF DEVELOPMENT SERVICES FOR THE VERY SAME ASSESSMENT YEAR, I.E. 2008 - 09, WHICH IS ALSO THE YEAR BEFORE US. FOLLOWING THE AFORESAID DISCUSSION WHICH SQUARELY COVERS THE CONTROVERSY IN THE PRESENT CASE, WE DIRECT THAT E - ZEST SOLUTIONS BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 13. THE THIRD COMPARABLE WHICH WAS DIRECTED T O BE EXCLUDED FROM THE FINAL SET OF COMPARABLES BY THE TRIBUNAL IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD. VS. ACIT (SUPRA) WAS BODHTREE CONSULTING LTD. THE TRIBUNAL NOTED THAT THE SAID CONCERN WAS ENGAGED IN THE PRODUCT ENGINEERING AND CON TENT ENGINEERING SERVICES , WHICH WE RE IN THE NATURE OF IT E S SERVICES AND WERE NOT COMPARABLE TO THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE. ANOTHER ASPECT NOTED BY THE TRIBUNAL WAS THAT THE SAID CONCERN OPERATES UNDER DIFFERENT PRICING MODEL I.E. FIXED PRI CE METHOD, WHICH IN TURN, RESULTED IN FLUCTUATION OF MARGINS OVER THE YEARS. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 16 20. THE NEXT POINT RAISED BY THE ASSESSEE IS FOR EXCLUSION OF BODHTREE CONSULTING LTD., FROM THE FINAL SET OF COMPARABLES. THE MAIN PLEA OF THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. IT IS ALSO POINTED OUT THAT THE SAID CONCERN IS ENGAGED IN PRODUCT ENGINEERIN G AND CONTENT ENGINEERING SERVICES WHICH ARE IN THE NATURE OF ITES SERVICES, AND ARE NOT COMPARABLE WITH THE ASSESSEES ACTIVITIES. AT THE TIME OF HEARING, IT WAS ALSO POINTED OUT THAT THE SAID CONCERN OPERATES UNDER A DIFFERENT PRICING MODEL, I.E. FIXED PRICE PROJECT METHOD, WHEREBY REVENUES FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOPED AND BILLED TO THE CLIENTS. IT HAS BEEN EXPLAINED THAT IN SUCH A SITUATION, EXPENDITURE FOR DEVELOPING SOFTWARE WOULD BE BILLED IN AN EARLIER YEAR BU T THE INCOME WOULD BE RECOGNIZED IN A SUBSEQUENT YEAR. THIS BUSINESS MODEL RESULTS IN FLUCTUATION IN MARGINS OVER THE YEARS. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF QLOGIC (INDIA) PRIVATE LIMITED VS. DCIT (ITA NO.227/PN/2014) FOR ASSESSMENT YEAR 2009 - 10 DATED 21.10.2014 HAS EXCLUDED THE SAID CONCERN FROM THE LIST OF COMPARABLES IN A SIMILAR SITUATION BY FOLLOWING THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MINDTECK (INDIA) LTD., VIDE I.T.(TP).A.NO.70/BANG/2014 DATED 21 - 08 - 2014. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. VIDE ITA NO.7633/M/2012 DATED 06 - 11 - 2013 FOR ASSESSMENT YEAR 2008 - 09 HAS ALSO BEEN RELIED UPON FOR EXCLUDIN G THE SAID CONCERN FROM THE FINAL SET OF COMPARABLES. 21. ON THE OTHER HAND THE LD. CIT - DR APPEARING FOR THE REVENUE HAS DEFENDED THE INCLUSION OF BODHTREE CONSULTING LTD., BY REFERRING TO THE DISCUSSION IN PARA 14.1 OF THE ORDER OF TPO. AS PER THE TPO, THE MATERIAL ON RECORD DOES NOT JUSTIFY THE ASSERTIONS OF THE ASSESSEE THAT THE SAID CONCERN WAS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. THE LD. CIT - DR HAS OPPOSED THE PLEA OF THE ASSESSEE BY REFERRING TO THE STAND OF THE TPO AS CONTAINED IN HIS ORDER. 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS WITH RESPECT TO 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS WITH RESPECT TO BODHTREE CONSULTING LIMITED. THE PLEA OF THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN THE SALE OF SOFTWARE PRODUCTS, APART FROM CONSIDERING SOFTWARE SERVICES, AND T HAT NO SEGMENTAL DATA IS AVAILABLE IN THIS CONTEXT; THUS, IT IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEES ACTIVITIES. IN THIS REGARD, WE HAVE PERUSED THE DISCUSSION MADE BY OUR COORDINATE BENCH IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) WHEREIN THE SAID CONCERN HAS BEEN FOUND TO BE NOT EXCLUSIVELY ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES. THE RELEVANT DISCUSSION IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) IS AS UNDER : C. BODHTREE CONSULTING LIMITED 21. ON T HIS COMPARABLE, CASE OF THE ASSESSEE IS THAT THE COMPANY IS NOT A GOOD COMPARABLE IN VIEW OF THE SOFTWARE PRODUCTS PRODUCED BY THE COMPANY. AS SUCH, NO SEGMENTAL DATA IS ADEQUATELY AVAILABLE TOO. ACCORDINGLY, WE DISMISS THE ARGUMENT OF THE LD. DR IN THIS REGARD. EX CONSEQUENTI, THE AO/TPO IS DIRECTED TO EXCLUDE THE SAME FROM THE LIST OF FINAL COMPARABLES FOR WORKING OUT THE ARITHMETIC MEAN. 22. ON THE OTHER HAND, LD DR FILED A COPY OF THE FINANCIAL STATEMENT AND ARGUED VEHEMENTLY STATING THAT THIS COMPA NY IS NOT ENGAGED IN THE SOFTWARE PRODUCTS. IN THIS REGARD, LD DR RELIED ON THE NOTE NO.3, RELATING TO THE RELATING TO THE REVENUE RECOMMENDATION IN SCHEDULE 12, NOTE NO.5 RELATING TO THE SEGMENTAL INFORMATION ETC TO MENTION THAT THE COMPANY IS ENGAGED IN THE SOFTWARE DEVELOPMENT ONLY. HOWEVER, THE ASSESSEE ARGUED VEHEMENTLY STATING THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE BASED PRODUCTS. FURTHER, LD COUNSEL MENTIONED THAT THE SAID COMPANY WAS ALREADY EXAMINED AND WAS HELD AS PRODUCT BASED COMPANY BY TH E TPO IN THE TP STUDY OF OTHER CASE AND THE TPO CANNOT TAKE DIFFERENT ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 17 STAND IN THIS CASE. IN THIS REGARD, WE HAVE PERUSED THE PARA 29 OF THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. WILLS PROCESSING SERVICES (I) P LTD (SUPRA) WHEREIN IT WAS MENTIONED THAT THE TPO DESCRIBED THIS COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE PRODUCTS, NOT THE SOFTWARE DEVELOPMENT SERVICES. RELEVANT PORTIONS FROM THE SAID PARA 29 OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HERE UNDER: '29.1 THE ID SR COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE PRODUCTS. HE HAS REFERRED THE TPO ORDER AND SUBMITTED THAT IN THE PROFILE OF THE COMPARABLES SELECTED BY THE TPO ITSELF HAS MENTIONED THE BUSINESS OF THE ASSESSEE IS IN SOFTWARE PRODUCTS. THE ID AR HAS REFERRED THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE TPO AT PAGE 286 OF THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE BROUGHT THIS FACT THAT THIS COMPANY IS ENGAGED IN PROVIDING OPEN AND END TO END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOFTWARE, USING THE LATEST TECHNOLOGIES. FURTHER, THE COMPANY HAS IDENTIFIED ONLY ONE SEGMENT I.E SOFTWARE DEVELOPMENT. THEREFORE, THE ID AR HAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE AND CONSEQUENTLY S HOULD BE EXCLUDED FROM THE COMPARABLES. 29.2 ON THE OTHER HAND, THE ID DR HAS FILED THE INFORMATION COLLECTED U/S 133(6) OF THE I T ACT AND SUBMITTED THAT AS PER THIS INFORMATION, THIS COMPANY HAS REVENUE FROM ITES ACTIVITY TO THE EXTENT OF RS. 2,94,85,528 / - . THEREFORE, THIS COMPANY IS A GOOD COMPARABLE HAVING FUNCTIONAL SIMILARITY. 29.3......... 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE DETAILS FILED BY THE ID DR BEFORE US HAS BEEN OBTAINED BY THE TPO AT HYDERABAD AND NOT BY THE TPO OF THE ASSESSEE IN THE PRESENT CASE. IT IS STATED IN THE LETTER DATED 5.2.2010 WRITTEN BY THE CHARTERED ACCOUNTANT OF BODHTREE CONSULTING LTD TO THE TPO HYDERABAD CHARTERED ACCOUNTANT OF BODHTREE CONSULTING LTD TO THE TPO HYDERABAD THAT THE COMPANY IS PROVIDING DATA CLEANING SERVICES TO CLIENTS FOR WHOM IT HAD DEVELOPED THE SOFTWARE APPLICATION.........' 23. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT BODHTREE CONSULTING LIMITED IS NOT ENGAGED IN THE SOFTWARE DEVELOPMENT SERVICES AND THERE IS NO SEGMENTAL DATA COMPARABLE. THEREFORE, THE FA R ANALYSIS GOES AGAINST THE TPO/AO. 23. THERE IS NO MATERIAL PLACED BEFORE US WHICH WOULD REQUIRE US TO DEVIATE FROM THE CONCLUSION DRAWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) IN THE CONTEXT OF THE E XCLUSION OF BODHTREE CONSULTING LTD. FROM THE FINAL SET OF COMPARABLES. MOREOVER, THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF MINDTECK INDIA LTD. (SUPRA) ALSO CONSIDERED THE EFFICACY OF INCLUSION OF BODHTREE CONSULTING LTD. ON THE BASIS OF COMPARAB ILITY ANALYSIS IN THE CASE OF AN ASSESSEE WHICH WAS ENGAGED IN SIMILAR ACTIVITIES AS THE APPELLANT BEFORE US. THE FOLLOWING DISCUSSION IN THE CASE OF MINDTECK INDIA LTD. (SUPRA) IS WORTHY OF NOTICE : I. BODHTREE CONSULTING LTD. : AS FAR AS THIS COMPA NY IS CONCERNED, THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THIS COMPANY MADE EXTRA ORDINARY PROFITS DURING THE PREVIOUS YEAR. OUR ATTENTION WAS DRAWN TO THE FACT THAT THE OPERATING PROFIT/OPERATING COST OF THIS COMPANY JUMPED FROM 17 % FOR F.Y. 2007 - 08 TO 56% IN F.Y. 2008 - 09. IT DIPPED IN F.Y.2009 - 10 TO 40% AND IN F.Y.2010 - 11 IT BECAME ( - ) 2% AND 5% IN F.Y.2011 - 12 AND FINALLY TOUCHED ( - ) 9% IN F.Y.2012 - 13. OUR ATTENTION WAS DRAWN TO THE FACT THAT THE SPECIAL BENCH OF THE TRIBUNAL, MU MBAI, IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) P. LTD., IN ITA NO.7466/M/2012, DT.07 - 03 - 2014 FOR A.Y. 2008 - 09 HAD AN OCCASION TO CONSIDER THE QUESTION AS TO WHETHER ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 18 COMPANIES HAVING ABNORMAL PROFITS SHOULD BE EXCLUDED AS A COMPARABLE. THE SPECIAL BENC H TOOK THE VIEW THAT IT HAS TO BE SHOWN THAT THE HIGH PROFIT MARGIN DOES NOT REFLECT THE NORMAL BUSINESS CONDITIONS AND ONLY IN SUCH CIRCUMSTANCES, HIGH PROFIT MARGIN COMPANIES CAN BE EXCLUDED. OUR ATTENTION WAS DRAWN TO THE DRPS OBSERVATION IN ITS ORDE R ON THE ISSUE WHICH IS AS FOLLOWS : BODHTREE : THE ASSESSEE HAS OBJECTED TO SELECTION OF THIS ENTITY ON THE BASIS OF THE FOLLOWING OBJECTIONS : THE ENTITY HAS FLUCTUATING MARGINS. THE COMPANY IS MORE OF A PRODUCT COMPANY RATHER THAN SOFTWARE SERVICE COM PANY. THE PANEL HAS CONSIDERED THE OBJECTIONS OF THE ASSESSEE. INSOFAR AS THE CONTENTION REGARDING THE REJECTION OF THIS ENTITY ON THE BASIS OF FLUCTUATING MARGIN IS CONCERNED. IN ORDER TO APPRECIATE THE COMPATIBILITY OR OTHERWISE OF THIS ENTITY, IT IS I MPORTANT TO FIRST NOTE THAT THE INDIAN SOFTWARE INDUSTRY USES TWO DIFFERENT MODELS FOR REVENUE RECOGNITION. THE FIRST IS THE TIME AND MATERIAL (T&M) CONTRACTS MODEL IN WHICH CUSTOMER ARE BILLED ON THE BASIS OF HOURS WORKED BY THE EMPLOYEES OF SUPPLIER SOF TWARE COMPANIES. HOURLY RATES ARE AGREED ON BY BOTH PARTIES AND ARE APPLIED TO THE TOTAL HOURS WORKED TO ARRIVE AT THE REVENUE THAT IS TO BE RECOGNIZED. THE SECOND IS THE FIXED PRICE PROJECT MODEL, THE TOTAL CONTRACT PRICE IS AGREED UPON BETWEEN THE PART IES. BILLING MAY BE DONE EITHER AT THE END OF THE CONTRACT OR OVER THE PERIOD OF THE CONTRACT ON THE BASIS OF THE AGREED MILESTONE FOR BILLING. IN THIS RESPECT, THE BASIS OF REVENUE RECOGNITION BY THIS ENTITY CAN BE SEEN FROM THE ANNUAL REPORT AS BELOW : 3. REVENUE RECOGNITION : REVENUE FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOPED AND BILLED TO CLIENTS. FROM PERUSAL OF THE ABOVE, IT IS SEEN THAT THIS ENTITY IS ENGAGED IN BUILDING REVENUES THROUGH FIXED PRICE PRODUCT MODE. AS IS A NATURAL COROLLARY IN SUCH TYPE OF REVENUE RECOGNITION, SOME PART OF THE EXPENDITURE MAY BE BOOKED IN ONE YEAR FOR WHICH THE REVENUE MAY HAVE BEEN RECOGNIZED IN THE EARLIER OR SUBSEQUENT YEAR. THEREFORE, IT IS BUT NATURAL THAT THERE IS SOME FLUCTUATION IN THE PROFITABILITY MARGIN OF SUCH ENTITY. MERELY BECAUSE OF SUCH FLUCTUATION, AN ENTITY ENGAGED IN THE DEVELOPMENT OF SOFTWARE, BEING FUNCTIONALLY COMPARABLE TO THE ASSESSEE, CANNOT BE REJECTED ONLY ON THIS GROUND. 14. THE LEARNED COUNSEL FOR THE ASSES SEE DREW OUR ATTENTION TO THE FACT THAT BODHTREE CONSULTING ADMITTEDLY FOLLOWS A FIXED PRICE PROJECT MODEL WHEREBY REVENUES FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE AND BILLED TO CLIENTS. IN SUCH BUSINESS MODEL EXPENDITURE FOR DEVELOPING SOFTWARE WOULD BE BILLED IN AN EARLIER YEAR BUT THE REVENUE WOULD BE RECOGNIZED IN A SUBSEQUENT YEAR. IT WAS HIS SUBMISSION THAT THIS FACT IS RECOGNIZED BY THE DRP IN ITS ORDER. ACCORDING TO HIM THIS CIRCUMSTANCE WOULD BE SUFFICIENT TO SHOW THAT THE MARG IN REFLECTED OF THIS COMPANY DOES NOT REFLECT THE NORMAL BUSINESS CONDITION. 15. THE LEARNED DR PLACED RELIANCE ON THE REASON GIVEN BY THE DRP IN ITS ORDER. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MAER SK GLOBAL CENTRES (SUPRA) HAD AN OCCASION TO DEAL WITH THE QUESTION AS TO WHETHER HIGHER PROFIT MARGIN MAKING COMPANIES SHOULD BE EXCLUDED AS A COMPARABLE. THE SPECIAL BENCH AFTER CONSIDERING SEVERAL ASPECTS HELD IN PARA 88 OF ITS ORDER THAT THE POTENTIAL COMPARABLE COMPANIES CANNOT BE EXCLUDED MERELY ON THE GROUND THAT THEIR PROFIT IS ABNORMALLY HIGH. THE SPECIAL BENCH HELD THAT IN SUCH CASES IT WOULD REQUIRE FURTHER INVESTIGATION TO ASCERTAIN THE REASON FOR UNUSUALLY HIGH PROFIT AND IN ORDER TO ESTABLIS H WHETHER THE ENTITIES WITH SUCH HIGH PROFITS CAN BE TAKEN AS ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 19 COMPARABLE OR NOT. IN THE LIGHT OF THE AFORESAID DECISION OF THE SPECIAL BENCH AND IN VIEW OF THE ADMITTED POSITION THAT THE ASSESSEE FOLLOWS FIXED PRICE PROJECT MODEL WHERE REVENUES FROM SOFTW ARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOPED AND BILLED TO CLIENTS, THERE IS A POSSIBILITY OF THE EXPENDITURE IN RELATION TO THE REVENUE BEING BOOKED IN THE EARLIER YEAR. THE RESULTS OF BODHTREE FROM F.Y.2003 TO 2008 EXCLUDING F.Y.2007 AS GIV EN BY THE LEARNED COUNSEL FOR THE ASSESSEE WERE ALSO PERUSED. PERUSAL OF THE SAME SHOWS, THAT THERE HAS BEEN A CONSISTENT CHANGE IN THE OPERATING MARGINS. THE CHART FILED BY THE ASSESSEE IN THIS REGARD IS GIVEN AS AN ANNEXURE TO THIS ORDER. IT APPEARS T O US THAT THE REVENUE RECOGNITIONS METHOD FOLLOWED BY THE ASSESSEE IS THE REASON FOR THE DRASTIC VARIATION IN THE PROFIT MARGINS OF THIS COMPANY. IN THE GIVEN CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT WOULD BE SAFE TO EXCLUDE BODHTREE CONSULTING FROM THE FINAL LIST OF COMPARABLES CHOSEN BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 24. THOUGH THE AFORESAID DISCUSSION BY THE BANGALORE BENCH OF THE TRIBUNAL IS IN RELATION TO THE ASSESSMENT YEAR 2009 - 10, BUT THE INFERENCES DRAWN WITH REGARD TO THE VARIA TIONS IN THE PROFIT MARGINS OF THE SAID CONCERN FOR DIFFERENT YEARS IS RELEVANT IN THE PRESENT CONTEXT ALSO. FURTHERMORE, THE TRIBUNAL ALSO ANALYSED AND FOUND THAT THE SAID CONCERN WAS FOLLOWING FIXED PRICE PROJECT METHOD WHEREBY REVENUE FROM SOFTWARE DEV ELOPMENT SERVICES WAS BEING RECOGNIZED BASED ON THE SOFTWARE DEVELOPED AND BILLED TO THE CLIENTS. IN SUCH A BUSINESS MODEL, THE POSSIBILITY OF THE EXPENDITURE NOT BEING BOOKED ON THE BASIS OF THE MATCHING PRINCIPLE CANNOT BE RULED OUT, WHICH WOULD IMPART FLUCTUATION IN THE MARGINS OVER THE YEARS. IN CONTRAST, IN THE PRESENT CASE, THE REVENUE IS BEING RECOGNIZED BASED ON THE COST PLUS MARKUP BASIS. CLEARLY, THE REVENUE RECOGNITION MODEL OF BODHTREE CONSULTING LTD. IS QUITE DIFFERENT FROM THE MODEL BEING P URSUED BY ASSESSEE AND SUCH DISTINCTION PREVAILED WITH THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF MINDTECK INDIA LTD. (SUPRA) TO EXCLUDE BODHTREE CONSULTING LTD. FROM THE LIST OF COMPARABLES. CONSIDERING SUCH DIFFERENCE, IN OUR VIEW, ASSESSEE IS J USTIFIED IN ASSERTING THAT THE SAID CONCERN BE EXCLUDED FROM THE LIST OF COMPARABLES. WE HOLD SO. EXCLUDED FROM THE LIST OF COMPARABLES. WE HOLD SO. 14. ADMITTEDLY, THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD. VS. ACIT (SUPRA) , W HERE BOTH THE ASS ESSEE AND BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD . WERE E NGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES. HOWEVER, THE TPO HAD SELECTED THE COMPANIES WHICH WERE FUNCTIONALLY DISSIMILAR TO THE ASSESSEE BEFORE US I.E. ALL THE THREE COMPANIES I.E. (I) KA LS INFORMATION SYSTEMS LTD., (II) EZEST SOLUTIONS LTD. AND (III) BODHTREE CONSULTING LTD. WERE ENGAGED IN IT E S SERVICES AND HENCE, THE SAME BEING FUNCTIONALLY DISSIMILAR, SHOULD BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. ACCORDINGLY, WE HOLD SO. 15. NOW, COMING TO THE NEXT CONCERN I.E. GENESYS INTERNATIONAL CORPORATION LTD. AS PER THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, THE SAID COMPANY WAS ALSO FUNCTIONALLY DISSIMILAR AS IT WAS PROVIDING HIGH END PROJECT MAPPING ACTIVITIES EMPLOYING SCIENTISTS, ETC. AND WAS NOT IN THE FIELD OF PROVIDING ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 20 SOFTWARE DEVELOPMENT SERVICES. THE HYDERABAD BENCH OF TRIBUNAL IN HYUNDAI MOTORS INDIA ENGINEERING (P.) LTD. VS. ITO (2014) 44 TAXMANN.COM 34 (HYDERABAD TRIB.) HAD CONSIDERED THE PROFILE OF THE SAID CONCERN AND HAS GIVING A FINDING THAT THE COMPANY WAS ENGAGED IN PROVIDING GEOGRAPHICAL INFORMATION SERVICES COMPRISING OF PHOTOGRAMMETRY, REMOTE SENSING CARTOGRAPHY, DATA CONVERSION RELATED COMPUTED BASED SERVICES AND OTHER RELATED SERVICES. FURTHER, T HE BUSINESS OF THE SAID CONCERN REQUIRED SKILLED MANPOWER AND SCI ENTISTS, CIVIL ENGINEERS, ETC. AND THE CONCERN WAS ALSO CARRYING OUT RESEARCH AND DEVELOPMENT SERVICES AND OW NED INTANGIBLES. IN VIEW THEREOF, THE TRIBUNAL HELD THAT THE SAID COMPANY IS TO B E EXCLUDED FROM THE FINAL LIST OF COMPARABLES. THE TRIBUNAL FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY BANGALORE BENCH OF TRIBUNAL IN SYMPHONY MARKETING SOLUTIONS INDIA (P.) LTD. VS. ITO (2013) 38 TAXMANN.COM 55 (BANGALORE TRIB.) . THE YEAR BEFOR E THE HYDERABAD BENCH OF TRIBUNAL AND THE BANGALORE BENCH OF TRIBUNAL WAS ASSESSMENT YEAR 2008 - 09 . THE ASSESSEE IS IN APPEAL BEFORE US ALSO AGAINST THE ORDER PASSED RELATING TO ASSESSMENT YEAR APPEAL BEFORE US ALSO AGAINST THE ORDER PASSED RELATING TO ASSESSMENT YEAR 2008 - 09 . FOLLOWING THE SAME PARITY OF REASONING, WHERE THE CO NCERN SELECTED BY THE TPO WAS NOT FUNCTIONALLY SIMILAR TO THE ASSESSEE, THE SAID CONCERN IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES AND ACCORDINGLY, WE DIRECT SO. 16. NOW, COMING TO THE OBJECTIONS RAISED BY THE ASSESSEE WITH REGARD TO INCLUSION OF CONCERN GOLDSTONE TECHNOLOGIES LTD. 17. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BEFORE THE DRP , IT WAS POINTED OUT THAT THE SAID CONCERN GOLDSTONE TECHNOLOGIES LTD. WAS ENGAGED IN THE ACTIVITIES RELATED TO MEDIA & IP TV AND FURTHER, THE COMPANY HAD CARRIED INVENTORY OF SET TOP BOXES AND MOVIE RIGHTS IN ITS BALANCE SHEET FOR THE PREVIOUS YEAR. IN ADDITION, THE SAID COMPANY HAD SOME INCOME FROM SALE OF INDUSTRIAL MATERIAL. LOOKING AT THE SERVICES PROVIDED BY THE SAID CONC ERN, IT IS CLEAR THAT THE SAME ARE FUNCTIONALLY DISSIMILAR TO THE SERVICES PROVIDED BY THE ASSESSEE AND THERE IS NO MERIT IN COMPARING THE RESULTS OF THE ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 21 SAID CONCERN WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE GOLDSTONE TECHNOLOGIES LTD. 18. NOW, COMING TO THE NEXT PLEA OF THE ASSESSEE WITH REGARD TO WORKING CAPITAL ADJUSTMENT. 19. THE CLAIM OF THE ASSESSEE BEFORE US WAS THAT THOUGH THE DRP HAD DIRECTED THE TPO TO ALLOW WORKIN G CAPITAL ADJUSTMENT, BUT THE SAME WAS NOT ALLOWED AS PER OECD GUIDELINES. HOWEVER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007 - 08 HAVE GIVEN DIRECTIONS FOR A LLOWING WORKING CAPITAL ADJUSTMENT AS PER OECD GUIDELINES. THE RELEVANT FINDINGS OF THE TRIBUNAL VIDE PARA 11, WHICH READ AS UNDER: - 11. ON PERUSAL OF THE RECORD AND IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ON ACCOUNT OF PECULIAR CIRCU MSTANCES UNDER WHICH THE ASSESSEE IS OF THE CASE, ON ACCOUNT OF PECULIAR CIRCU MSTANCES UNDER WHICH THE ASSESSEE IS CARRYING ON ITS BUSINESS I.E. PROVIDING SERVICES TO ITS ASSOCIATE ENTERPRISES ONLY WITH MARK - UP OF 10% ON THE COST AND WHERE THERE IS NO ADVERSITY ON ACCOUNT OF WORKING CAPITAL, THEN SUCH WORKING CAPITAL ADJUSTMENT IS T O BE MADE IN THE HANDS OF THE COMPANIES, WHICH ARE PICKED UP AS COMPARABLES TO BRING THE SAME TO THE LEVEL OF THE ASSESSEE, WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THUS, AN ENDEAVOUR IS TO BE MADE TO BRING THE RESUL TS OF COMPARABLES AT PAR WITH THE RESULTS OF THE TESTED PARTY AS IF THE SAME ARE WORKING IN THE SAME ENVIRONMENT. IN THE CASE OF THE ASSESSEE, WHERE IT IS BENEFITED ON ACCOUNT OF ITS TRANSACTIONS ENTIRELY WITH ITS ASSOCIATE ENTERPRISES ON THE BASIS OF AN AGREEMENT, UNDER WHICH IT IS ENTITLED TO A MARK - UP OF 10% ON COST, WORKING CAPITAL ADJUSTMENT ON SUCH ACCOUNT MERITS TO BE ALLOWED TO THE ASSESSEE. THE OECD HAS PROVIDED GUIDELINES FOR SUCH WORKING CAPITAL ADJUSTMENT AND THE SAID GUIDELINES ARE ONE OF THE ACCEPTED MODES OF COMPUTING WORKING CAPITAL ADJUSTMENT. IN VIEW THEREOF, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE WORKING CAPITAL ADJUSTMENT, WHICH IN TURN IS TO BE COMPUTED AS PER THE OECD GUIDELINES. THE ASSESSEE HAS FILED THE COMPUTATION OF WORKI NG CAPITAL ADJUSTMENT TO THE RESULTS OF THE COMPARABLES BEFORE US AND THE SAME WERE ALSO FILED BEFORE THE ASSESSING OFFICER AND SOME ADJUSTMENT HAS BEEN ALLOWED ON ACCOUNT OF WORKING CAPITAL ADJUSTMENT BY THE ASSESSING OFFICER, WHILE GIVING EFFECT TO THE O RDER OF CIT(A). HOWEVER, THE ERRORS POINTED OUT BY THE ASSESSEE VIDE DIFFERENT COMMUNICATIONS TO THE ASSESSING OFFICER / TPO AND THE CONCERNED COMMISSIONER, HAVE NOT BEEN CARRIED OUT TILL DATE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO COMPLETE THE EXERCISE OF WORKING CAPITAL ADJUSTMENT TO BE ALLOWED TO THE ASSESSEE WITHIN A PERIOD OF 45 DAYS FROM THE DATE OF THIS ORDER, AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. UPHOLDING THE ORDER OF CIT(A) WITH REGARD TO THE ALLOWABILITY OF WORKING CAPITAL ADJUSTMENT, WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. IN VIEW OF THE CONCESSION OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT IN CASE THE WORKING CAPITAL ADJUSTMENT IS ALLOWED TO IT, THEN THE MARGINS SHOWN BY THE ASSESSEE IN RESPECT OF INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES WAS WITHIN +/ - 5% OF THE MARGINS SHOWN BY THE LIST OF COMPARABLES, WE DO NOT ADJUDICATE THE ISSUES RAISED IN THE APPEAL FILED BY THE ASSESSEE. ITA NO . 436 /PN/201 3 EMPTORIS TECHNOLOGIES INDIA PVT. LTD. 22 20. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE WORKING CAPITAL ADJUSTMENT IN THE HANDS OF ASSESSEE IN LINE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ASSESSMENT YEAR 2007 - 08. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 2 1 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF FEBRUARY , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 29 TH FEBRUARY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2 . THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE DRP, PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, P UNE