Cerner Healthcare Solutions Private Limited, Bangalore V. ITO, Bangalore

ITA 44/BANG/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8647 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 16-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: CHAVALI S. NARAYAN
• Keywords: Transfer pricing; International transaction; TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 10AA; 133(6); 192; 13

Judgement Text

IT(TP)A.69 & 44/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T(TP).A NO.44/BANG/2015 (ASSESSMENT YEAR : 2010-11) CERNER HEALTHCARE SOLUTIONS P LTD, GROUND FLOOR, WING B, BLOCK H2, MOUNTAIN ASH, MANYATA EMBASSY BUSINESS PARK, OUTER RING ROAD, NAGAWARA, BENGALURU 560 045 .. APPELLANT PAN : AACCC3795R V. INCOME TAX OFFICER, WARD 11(1), BENGALURU .. RESPONDENT I.T (TP).A NO.69/BANG/2015 (ASSESSMENT YEAR : 2010-11) INCOME TAX OFFICER, WARD 11(1), BENGALURU .. APPELLANT V. CERNER HEALTHCARE SOLUTIONS P LTD, GROUND FLOOR, WING B, BLOCK H2, MOUNTAIN ASH, MANYATA EMBASSY BUSINESS PARK, OUTER RING ROAD, NAGAWARA, BENGALURU 560 045 .. RES PONDENT ASSESSEE BY : SHRI.CHAVALI S. NARAYAN, CA REVENUE BY : SHRI. KAMALADHAR, STANDING COUNSEL HEARD ON : 20.10.2016 PRONOUNCED ON : 16.01.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER DT.12.11.2014 OF THE CIT (A) IV, BENGALURU, FOR THE ASSESSMENT YEAR 2010-11. IT(TP)A.69 & 44/BANG/2015 PAGE - 2 2. CERNER HEALTHCARE SOLUTIONS PRIVATE LIMITED, THE ASSESSEE , IS A CAPTIVE SERVICE PROVIDER ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENT ERPRISE ('AE') AT COST PLUS 15% MARK-UP. DURING THE YEAR, I TS INTERNATIONAL TRANSACTION ON PROVISION OF SOFTWARE DEVELOPMENT SERVICES WAS AT RS.84,73,05,146/-. THE ASSESSEE UNDERTOOK A TRANSFER PRICING ('TP') ST UDY, ON A SET OF 15 COMPARABLES WITH WEIGHTED AVERAGE OPERATING PROF IT/OPERATING COST OF 14.64% FOR SOFTWARE DEVELOPMENT SERVICES. THE MARGI N WAS ARRIVED TAKING THE AVERAGE OF THREE YEAR DATA. THE ASSESSEE'S NET MARGIN OF 15.35 PERCENT WAS HIGHER THAN THE ARM'S LENGTH MARGIN OF COMPARABLE COMPANIES. HOWEVER, THE TPO ON HIS TP STUDY , REJECTED ASSESS EES 10 COMPARABLES , RETAINED 5 OF THEM. IN THE TP PROCEEDINGS, THE TPO USED SINGLE YEAR DATA AND MODIFIED CERTAIN FILTER S UNDERTOOK A RESTRICTED WORKING CAPITAL ADJUSTMENT OF 1.98% (ACTUAL WORKING CAPITAL ADJUSTMENT IS 6.54%) COMPUTED THE OPERATING MARGINS OF COMPARABLE COMP ANIES BY CONSIDERING FOREIGN EXCHANGE GAIN/LOSSES AS NON-OPERATING IN NA TURE. THE FINAL SET OF 11 COMPARABLES SELECTED BY THE TPO AND ITS OPERATING MARGIN ARE AS UNDER : SL.NO NAME OF THE COMPANY OPERATING MARGIN I ICRA TECHNO ANALYTICS LIMITED (SEGMENTAL) 24.94% 2 INFOSYS TECHNOLOGIES LIMITED 44.98% 3 KALS INFORMATION SYSTEMS LIMITED (SEGMENTAL) 34.4 1% 4 LARSEN &TOUBRO INFOTECH LIMITED 19.33% 5 MINDTREE LIMITED (SEGMENTAL) 14.83% 6 PERSISTENT SYSTEMS & SOLUTIONS LTD 15.38% 7 PERSISTENT SYSTEMS LIMITED 30.35% 8 R S SOFTWARE (INDIA) LIMITED 10.29% 9 SASKEN COMMUNICATION TECHNOLOGIES LIMITED 17.36% IT(TP)A.69 & 44/BANG/2015 PAGE - 3 10 TATA ELXSI LIMITED (SEGMENTAL) 20.93% 11 THINKSOFT GLOBAL SERVICES LIMITED 17.05% ARITHMETIC MEAN 22.71% LESS: WORKING CAPITAL ADJUSTMENT 1.98% ADJUSTED ARITHMETIC MEAN 20.73% 03. ON THE CORPORATE TAX FRONT, THE AO FOUND THAT THE ASSESSEE PAID RS.3,47,42,280/- TOWARDS REIMBURSEMENT OF SALARIES, COMMUNICATION EXPENSES, PURCHASE OF FIXED ASSETS AND OTHER MISCELLANEOUS EX PENSES TO CERNER CORPORATION , USA . THE AO REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY SUCH PAYMENTS BE NOT TREATED AS FEE FOR TECHNICAL SERVIC ES AND WHY TDS WAS NOT MADE ON SUCH PAYMENTS. AFTER CONSIDERING ASSESSEES REPLY, RELEVANT DOCUMENTS AND OTHER MATERIALS, THE AO HELD THAT THE ASSESSEE IS A SUBSIDIARY OF CERNER CORPORATION , USA AND IS ENGAGED IN SOFTWARE DEVELOPMENT. IT REQUIRED TECHNICAL KNOWLEDGE,EXPERIENCE & SKILL IN ORDER TO CARRY ON ITS BUSINESS WHICH WAS MET BY CERNER CORPORATION , USA BY DEPUTING ITS EMPLOYEES WHO POSSESSED THE NECESSARY TECHNICAL KNOWLEDGE, EXPERIENCE & SKI LL. THEY HAVE IMPARTED THE KNOWLEDGE & SKILL TO THE MEMBERS OF ASSESSEE WHICH FALLS WITHIN THE MEANING OF TECHNICAL TRAINING AS CONTEMPLATED IN THE MOU & DTA A AND HENCE THE AO HELD THAT THE REIMBURSEMENT AMOUNT IS CHARGEABLE TO TAX. SINCE THE ASSESSEE HAS DEDUCTED TDS U/S192 AT RS.83,97,648/-, THE AO DISAL LOWED THE BALANCE SUM AT RS.2,59,96,977/-U/S40(A)(I). FURTHER, THE AO HELD THAT DATA COMMUNICATION, VOICE COMMUNICATION AND CELL PHONE EXPENSES INCURRE D IN FOREIGN CURRENCY IS ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA AND HENCE IT SHOULD BE EXCLUDED FROM THE EXPORT TURN OVER WHILE COMPUTING DEDUCTIONS U/S 10A & 10AA, RESPECTIVELY. IT(TP)A.69 & 44/BANG/2015 PAGE - 4 04. ON AN APPEAL, THE CIT(A)-IV, BANGALURE , INTERA AL IA, UPHELD THE TURNOVER FILTER OF 1 TO 200 CRORES AND REJECTED 5 COMPANIES HAVING TURNOVER GREATER THAN RS. 200 CROR ES VIZ INFOSYS LTD, LARSEN & TOUBRO INFOTECH LTD, MINDTREE LTD (SEG) , PERSISTENT SYSTEM LTD, SASKEN COMMUNICATION TECHNOLOGIES AND TATA ELXSI LT D(SEG) AND DIRECTED THE TPO TO EXCLUDE THEM AS COMPARABLE; DIRECTED THE TPO TO RECTIFY THE ERROR IN THE MAR GIN COMPUTATION OF KALS INFORMATION SYSTEMS LIMITED AND ERRORS IN COMPUTATI ON OF RECEIVABLE AND PAYABLES OF COMPARABLE COMPANIES FOR THE PURPOS E OF WORKING CAPITAL COMPUTATION; AND DIRECTED THE TPO TO ACCEPT THE CLAIM OF THE ASSESSE E WITH RESPECT TO FOREIGN EXCHANGE GAIN/LOSES AS PART OPERATING REV ENUE FOR COMPUTATION OF OPERATING MARGINS OF THE ASSESSEE AND COMPARABLE S. RELYING ON THE JURISDICTIONAL HIGH COURT DECISION I N CIT V TATA ELXSI 349 ITR 198, THE CIT(A) HELD THAT WHILE COMPUTING DEDUC TIONS U/S 10A & 10AA, RESPECTIVELY, DATA COMMUNICATION, VOICE COMMU NICATION AND CELL PHONE EXPENSES INCURRED IN FOREIGN CURRENCY SHOUL D BE EXCLUDED FROM THE EXPORT TURN OVER AS WELL FROM TOTAL TURNOVER . FOLLOWING HIS DECISION RENDERED IN AY 2009-10, THE CIT(A) UPHELD THE ADDITION MADE U/S40(A)(I). 05. AGGRIEVED THE ASSESSEE FILED THE APPEAL IN IT (TP)A44/B/2015 WITH THE FOLLOWING GROUNDS : IT(TP)A.69 & 44/BANG/2015 PAGE - 5 IT(TP)A.69 & 44/BANG/2015 PAGE - 6 IT(TP)A.69 & 44/BANG/2015 PAGE - 7 IT(TP)A.69 & 44/BANG/2015 PAGE - 8 06. THE REVENUE FILED ITS APPEAL IN IT (TP) A69/B/2015 WITH THE FOLLOWING GROUNDS : GROUNDS OF APPEAL ON TRANSFER PRICING ISSUES IT(TP)A.69 & 44/BANG/2015 PAGE - 9 07. THE AR SUBMITTED THAT THE AO HAS NOT MADE ANY D ISALLOWANCES ON REIMBURSEMENT OF SALARIES AT RS 8,397,648 UNDER SEC TION 40(A)(I) ON THE GROUND THAT THE ASSESSEE HAS WITHHELD AND DEPOSITED TAXES ON SALARY UNDER SECTION 192. HOWEVER, THE CIT (A) HAS WRONGLY ADJUD ICATED ON REIMBURSEMENT OF SALARIES, WHICH WAS NOT THE SUBJECT MATTER OF AP PEAL BEFORE THE CIT (A) . SINCE THE CIT (A) HAS WRONGLY ADJUDICATED ON THE MA TTER, WHICH WAS NEVER THE SUBJECT MATTER OF APPEAL BEFORE HIM, THE CIT(A) ORD ER HAS TO BE QUASHED. FURTHER, IT WAS SUBMITTED THAT THE AO HAS HELD THAT THE REIMBURSEMENT OF EXPENSES (OTHER THAN SALARIES) IS SUBJECT TO WITHHO LDING OF TAXES UNDER SECTION 195. THE CIT (A) HAS NOT ADJUDICATED ON THE REIMBUR SEMENT OF EXPENSES THOUGH THERE WAS A SPECIFIC GROUND OF APPEAL RAISED BEFORE HIM . FURTHER, THE CIT (A) HAS NOT ADJUDICATED ON THE FOLLOWING GROUND S RAISED IN THE APPEAL FILED BEFORE HIM : - THE AO HAS ERRED IN LAW AND IN FACTS BY HOLDING T HAT THERE IS NO OBLIGATION TO REIMBURSE TO CERNER CORPORATION EXPEN SES (IN THE NATURE OF COMMUNICATION AND OTHER MISCELLANEOUS EXPENSES) THA T HAD BEEN INCURRED ON BEHALF OF THE ASSESSEE. - THE AO HAS ERRED BY CONCLUDING THAT THE ABOVE EXP ENSES ARE SUBJECT TO WITHHOLDING TAXES AND HENCE DISALLOWED UNDER SEC TION 40(A)(I) OF THE ACT. - THE AO HAS ERRED BY TREATING THE EXPENSES AS FTS WITHOUT ANALYSING THE TAXABILITY OF EACH EXPENSE INDIVIDUALLY - THE AO HAS ERRED IN COMPUTING THE DEDUCTION ALLOW ED UNDER SECTION 10A AND 10AA BY NOT CONSIDERING THE INCREASED AMOUN T OF PROFIT AFTER DISALLOWANCE UNDER 40(A)(I). 08. THE A R FURTHER SUBMITTED THAT FOR THE SIMILAR ISSUES, IN THE ASSESSEE'S OWN CASE, THE HON'BLE ITAT FOR AY 2006-07 [ITA NO .627(BANG)/ 2011] HAS HELD THAT REIMBURSEMENT OF EXPENSES IS NOT LIABLE TO TAX . THUS, THE AR SUBMITTED THAT THE CIT (A) HAS COMMITTED JUDICIAL IMPROPRIETY AND ALSO ERRED IN LAW IN IT(TP)A.69 & 44/BANG/2015 PAGE - 10 REFUSING TO FOLLOW THE ORDER PASSED BY THE APPELLAT E TRIBUNAL ON SAME ISSUES IN THE ASSESSEE'S OWN CASE FOR AY 2006-07. 09. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GO NE THROUGH RELEVANT DOCUMENTS. IT IS CLEAR THAT THE AO HAS NOT MADE ANY DISALLOWANCES ON REIMBURSEMENT OF SALARIES AT RS 8,397,648 UNDER SEC TION 40(A)(I) ON THE GROUND THAT THE ASSESSEE HAS DEDUCTED AND DEPOSITED TAXES ON SALARY U/S 192 AND HENCE HE ADDED THE BALANCE SUM AT RS.2,59,96,977/- ONLY U/S 40(A)(I). IT APPEARS THAT THE CIT (A), WITHOUT CONSIDERING THE FACTS , THE GROUNDS OF APPEAL BEFORE HIM AND WITHOUT PROPERLY APPLYING HIS MIND WITH REFERENCE TO THE RATIOS LAID IN THE DECISION OF THIS TRIBUNAL IN ITA NO.627 (BANG)/ 2011 IN THE ASSESSEES CASE FOR AY 2006-07 WHICH WAS BROUGHT TO HIS NOTICE , HAS EXTRACTED HIS EARLIER YEAR ORDER AND CONCLUDED THE MATTER THAT MY DECIS ION TAKEN IS HEREBY FOLLOWED AND THE ACTION OF THE AO IS UPHELD WHICH RESULTED IN THE ABOVE IMPROPRIETY. IN THE FACTS AND CIRCUMSTANCES, THE MATTERS CONNECTED IN THE ASSESSEES APPEAL GROUNDS NOS 2 TO 8 INCLUDING THE SUB-GROUNDS MENTI ONED BELOW GROUND NO 8 ARE SET ASIDE TO THE CIT (A). THE CIT (A) WOULD DECIDE THEM AFRESH AFTER AFFORDING DUE OPPORTUNITY TO THE ASSESSEE. ASSESSEES APPEAL GROUNDS NOS 2 TO 8 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 10. ON THE TP MATTERS, THE AR SUBMITTED THAT THE FO LLOWING COMPARABLES ARE TO BE REJECTED AS THEY ARE FUNCTIONALLY DIFFERENT FROM IT AND THEIR TURN OVER IS MORE THAN 10 TIMES OF ITS TURNOVER. THE GIST OF HIS ARGU MENTS AND THE CASES RELIED ON, ARE AS UNDER: IT(TP)A.69 & 44/BANG/2015 PAGE - 11 1. INFOSYS TECHNOLOGIES LTD IS FUNCTIONALLY DIFFERE NT, IT OWNS SIGNIFICANT INTANGIBLES AND INTELLECTUAL PROPERTY. DIFFERENCES IN RISK LEVELS ASSUMED AND HAS HUGE REVENUE FROM SOFTWARE PRODUCTS. CASE LAWS : ELECTRONICS FOR IMAGING INDIA P LTD AY 2010-11IN IT (TP)A NO. 212/BANG/2015 & CO NO 94/ BANG/2015 DT 24.02.2016 , IKANOS COMMUNICATIONS INDIA LTD ,AY 2010-11 IN IT (TP)A NO . 137/BANG/2015 & CO NO 109/ BANG/2015 DT 10.11.2015, FINSERV INDIA A Y . 2009-10 ITA NO 1822/DEL/2014 ETC 2. LARSEN & TOUBRO INFOTECH LTD IS FUNCTIONALLY DIF FERENT, IT OWNS SIGNIFICANT INTANGIBLES ASSETS AND ALSO HAS HUGE BRAND VALUE. O FFERS BUSINESS ANALYTICS AND SYSTEM INTEGRATION SERVICES, SOFTWARE PRODUCTS AND ITS SEGMENTAL BREAKUP NOT AVAILABLE. CASE LAWS : PEGASYSTEMS WORLDWIDE INDIA P LTD AY 2 010-11 ITA NO 1758/HYD/2014 & 1936/HYD/2014 ETC 11. FURTHER, THE AR SUBMITTED THAT THE FOLLOWING CO MPARABLES ARE TO BE REJECTED AS THEY ARE FUNCTIONALLY DIFFERENT BASED O N THE JUDICIAL PRECEDENTS. THE GIST OF HIS ARGUMENTS AND THE CASES RELIED ON, ARE AS UNDER : 1. ICRA TECHNO ANALYTICS LTD (SEG) IS FUNCTIONALLY DIFFERENT, ENGAGED IN HOST OF OTHER SERVICES SUCH AS ENGINEERING, WEB DEVELOPMENT , HOSTING, BUSINESS PROCESS OUTSOURCING SERVICES AS WELL AS BUSINESS ANALYTICS. SEGMENTAL INFORMATION NOT AVAILABLE CASE LAWS : ELECTRONICS FOR IMAGING INDIA P LTD, I KANOS COMMUNICATIONS ETC. 2. KALS INFORMATION SYSTEMS LTD IS FUNCTIONALLY DIF FERENT , ITS REVENUE CONSISTS OF REVENUE FROM SALE OF SOFTWARE PRODUCTS . ITS SEGMEN TAL BREAK UP IS NOT AVAILABLE. CASE LAWS : M/S. M/S. MERCEDES BENZ RESEARCH & DEV ELOPMENT INDIA P LTD, ELECTRONICS FOR IMAGING INDIA P LTD, IKANOS COMMUN ICATIONS ETC. 3. PERSISTENT SYSTEMS LTD IS FUNCTIONALLY DIFFERENT AS IT IS PROVIDING PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES. EARNS REVE NUE FROM LICENSING AND SALE OF PRODUCTS AND SERVICES. ITS SEGMENTAL BREAKUP IS NOT AVAILABLE. CASE LAWS : ELECTRONICS FOR IMAGING INDIA P LTD , EQUANT SOLUTIONS INDIA P LTD ETC 4. TATA ELXSI LTD IS FUNCTIONALLY DIFFERENT, THE 'S OFTWARE DEVELOPMENT & SERVICES' SEGMENT INCLUDES VARIOUS DIVERSIFIED SERVICES SUCH AS PRODUCT DESIGNING, INDUSTRIAL IT(TP)A.69 & 44/BANG/2015 PAGE - 12 DESIGN AND ENGINEERING, VISUAL COMPUTING LAB SERVIC ES AND THE SUB-SEGMENT BREAKUP OF THE SAME IS NOT AVAILABLE. CASE LAWS : M/S. MERCEDES BENZ RESEARCH & DEVELOPM ENT INDIA P LTD , A Y 2020-11 IN IT(TP)A NO 291/BANG/2015 & 427/BANG/2015 ,ELECTRONICS FOR IMAGING INDIA P LTD ETC 5. SASKEN COMMUNICATION TECHNOLOGIES LTD IS FUNCTIO NALLY DIFFERENT. ITS REVENUE CONSISTS REVENUE FROM SALE OF SOFTWARE PROD UCTS. SEGMENTAL BREAK UP IS NOT AVAILABLE. FURTHER, THE COMPANY UNDERGONE RE STRUCTURING DURING THE YEAR HENCE NOT COMPARABLE FOR THE YEAR. CASE LAWS : ELECTRONICS FOR IMAGING INDIA P LTD , ION TRADING INDIA P LTD ETC. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GO NE THROUGH RELEVANT MATERIALS. THE RELEVANT PORTION OF THE ORDER FROM T HE CASE OF ELECTRONICS FOR INDIA IMAGING INDIA P LTD AY 2010-11IN IT (TP)A NO. 212/B ANG/2015 & CO NO 94/ BANG/2015 DT 24.02.2016 IS EXTRACTED AS UNDER : 2. THE ASSESSEE CHALLENGED THE ACTION OF THE TPO BEFORE THE DRP AND RAISED OBJECTIONS AGAINST SOME OF THE COMPARABLES S ELECTED BY THE TPO. THE DRP IN ITS DIRECTIONS REJECTED 8 OUT OF 1 1 COMPARABLES SELECTED BY THE TPO. THUS, THE REVENUE IS AGGRIEVE D BY THE DIRECTIONS OF THE DRP INSOFAR AS THE COMPARABLES ARE DIRECTED TO BE EXCLUDED FROM THE SET OF COMPARABLES. 3. WE SHALL DEAL WITH EACH COMPARABLE WHICH HAS BEE N DISPUTED BY THE REVENUE ONE BY ONE AS UNDER:- (1) ICRA TECHNO ANALYTICS LTD. (SEG) 4. AT THE OUTSET, WE NOTE THAT APART FROM HAVING TH E RELATED PARTY REVENUE AT 20.94% OF THE TOTAL REVENUE, THIS COMPAN Y WAS ALSO FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH SOFTWARE DEV ELOPMENT SERVICES SEGMENT OF THE ASSESSEE. THE DRP HAS GIVEN ITS FIN DING AT PAGES 13 TO 14 AS UNDER:- HAVING HEARD THE CONTENTION, ON PERUSAL OF THE AN NUAL REPORT, IT IS NOTICED BY US THAT THE SEGMENTAL INFORMATION IS AVAILABLE FOR TWO SEGMENTS I.E., SERVICES AND SALES. HOWEVER, IT IS EVIDENT FROM THE ANNUAL REPORT THAT THE SERVICE SEGMENT COM PRISES OF SOFTWARE DEVELOPMENT, SOFTWARE CONSULTANCY, ENGINEE RING IT(TP)A.69 & 44/BANG/2015 PAGE - 13 SERVICES, WEB DEVELOPMENT, WEB HOSTING, ETC. FOR WH ICH NO SEGMENTAL INFORMATION IS AVAILABLE AND THEREFORE, T HE OBJECTION OF THE ASSESSEE IS FOUND ACCEPTABLE. ACCORDINGLY, ASS ESSING OFFICER IS DIRECTED TO EXCLUDE THE ABOVE COMPANY FROM THE C OMPARABLES. 5. W E FIND THAT THE FACTS RECORDED BY THE DRP IN RESPEC T OF BUSINESS ACTIVITY OF THIS COMPANY ARE NOT IN DISPUTE. THERE FORE, WHEN THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES OF SOF TWARE DEVELOPMENT AND CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPM ENT & HOSTING AND SUBSTANTIALLY DIVERSIFIED ITSELF INTO DOMAIN OF BUSINESS ANALYSIS AND BUSINESS PROCESS OUTSOURCING, THEN THE SAME CANNOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE W HO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AE. 6. IN VIEW OF THE ABOVE FACTS, WE DO NOT FIND ANY E RROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY IS FUNCTI ONALLY NOT COMPARABLE WITH THAT OF A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. (2) INFOSYS LTD. 2. THE ASSESSEE OBJECTED AGAINST THE SELECTION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY HAS A BIG NAME AND BRA ND VALUE AND THEREFORE IT HAS A BARGAINING POWER. IT ALSO CONTE NDED THAT THE TURNOVER OF THIS COMPANY IS RS.21,140 CRORES, WHICH IS 442 TIME S HIGHER THAN THE ASSESSEE. 3. THE DRP ACCEPTED THE OBJECTIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF AGNITY INDIA PVT. LTD. V. ITO [2015] 58 TAXMANN.COM 167 (DELHI TRIB), DIRECTED THE TPO TO EXCLUDE THIS COMPANY FROM THE L IST OF COMPARABLES. 4. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT IN THE CASE OF AGNITY INDIA PVT. LTD. (SUPRA), THE DELHI BENCH OF THE TRIBUNAL HAS C ONSIDERED THE COMPARABILITY OF THIS COMPANY AND THE FINDINGS OF T HE DELHI BENCH OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE HONBLE DELHI HI GH COURT. THE HONBLE DELHI HIGH COURT HAS OBSERVED THAT THIS COM PANY HAVING BRAND VALUE AS WELL AS INTANGIBLE ASSETS CANNOT BE COMPAR ED WITH AN ORDINARY ENTITY PROVIDE CAPTIVE SERVICE. WE FURTHER NOTE T HAT THIS COMPANY PROVIDES END TO END BUSINESS SOLUTIONS THAT LEVERAGE CUTTING EDGE TECHNOLOGY THEREBY ENABLING CLIENTS TO ENHANCE BUSINESS PERFOR MANCE. THIS COMPANY ALSO PROVIDES SOLUTIONS THAT SPAN THE ENTIRE SOFTWA RE LIFECYCLE ENCOMPASSING TECHNICAL CONSULTING, DESIGN, DEVELOPM ENT, RE-ENGINEERING, MAINTENANCE, SYSTEMS INTEGRATION, PACKAGE EVALUATIO N AND IMPLEMENTATION, TESTING AND INFRASTRUCTURE MANAGEME NT SERVICE. IN ADDITION, THE COMPANY OFFERS SOFTWARE PRODUCT FOR B ANKING INDUSTRY. THUS, THIS COMPANY IS ENGAGED IN DIVERSIFIED SERVICES INC LUDING DESIGN AS WELL AS TECHNICAL CONSULTANCY, CONSULTING, RE-ENGINEERING, MAINTENANCE, SYSTEMS INTEGRATION AS WELL AS PRODUCTS FOR BANKING INDUSTR Y. 5. IN VIEW OF THE ABOVE FACTS THAT INFOSYS LTD. HAVING A HUGE BRAND VALUE AND INTANGIBLES AS WELL AS HAVING BARGAINING POWER, THE SAME CANNOT BE COMPARED WITH THE ASSESSEE WHO IS PROVIDI NG SERVICES TO ITS AE. IT(TP)A.69 & 44/BANG/2015 PAGE - 14 (3) KALS INFORMATION SYSTEMS LTD. 6. THE ASSESSEE RAISED OBJECTIONS AGAINST THIS COMPANY ON THE GROUND THAT THIS COMPANY IS ENGAGED IN THE DEVELOPM ENT OF SOFTWARE AND SOFTWARE PRODUCTS. FURTHER, THIS COMPANY CONSISTS OF STPI UNIT AND ALSO HAVING A TRAINING CENTRE ENGAGED IN TRAINING OF SOF TWARE PROFESSIONALS ON ONLINE PRODUCTS. THUS, WHEN THIS COMPANY IS HAVING REVENUE FROM SOFTWARE SERVICES AS WELL AS SOFTWARE PRODUCT, THE SAME CANNOT BE CONSIDERED AS COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICE PROVIDING COMPANY. 7. THE DRP HAS DIRECTED THE AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES BY TAKING NOTE OF THE FACT THAT THERE WERE INVENTORIES IN THE BOOKS OF ACCOUNTS OF THIS COMPANY WHICH SHOWS T HAT THIS COMPANY IS IN THE SOFTWARE PRODUCT BUSINESS. FURTHER, BY FOLL OWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA LTD. V. DCIT, ITA NO.1054/BANG/2011 DATED 23.11.2012, THIS COMPANY WA S FOUND TO BE NOT COMPARABLE WITH THAT OF THE ASSESSEE. 8. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE LD. DR HAS NOT DI SPUTED THE FACT THAT COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN A SERIES OF DECISIONS INCLUDING IN THE CASE OF TRILOG Y E-BUSINESS SOFTWARE INDIA LTD. (SUPRA). WE FURTHER NOTE THAT IN THE BA LANCE SHEET OF THIS COMPANY AS ON 31.3.2010, THERE ARE INVENTORIES OF R S.60,47,977. THEREFORE, WHEN THIS COMPANY IS IN THE BUSINESS OF SOFTWARE PRODUCTS, THE SAME CANNOT BE COMPARED WITH A PURE SOFTWARE DEVELO PMENT SERVICES PROVIDER. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED FINDINGS OF THE DRP. (4) PERSISTENT SYSTEMS LTD. 9. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE RAISED O BJECTIONS AGAINST SELECTION OF THIS COMPANY ON THE GROUND THAT THIS C OMPANY IS FUNCTIONALLY NOT COMPARABLE AS ENGAGED IN THE PRODUCT DEVELOPMEN T. THE SEGMENTAL INFORMATION FOR SERVICES AND PRODUCT IS NOT AVAILAB LE. FURTHER, THE ASSESSEE HAS ALSO POINTED OUT THAT THERE WAS AN ACQ UISITION AND RESTRUCTURING DURING THE YEAR UNDER CONSIDERATION. 10. THE DRP HAS NOTED THE FACT THAT THIS COMPANY HAS RE PORTED THE ENTIRE RECEIPT FROM SALES AND SOFTWARE SERVICES AND PRODUCT. THEREFORE, NO SEGMENTAL INFORMATION WAS FOUND TO BE AVAILABLE FOR SALE OF SOFTWARE SERVICES AND PRODUCT. FURTHER, THE DRP HAS NOTED T HAT AS PER NOTE 1 OF SCHEDULE 15, THIS COMPANY IS PREDOMINANTLY ENGAGED IN OUTSOURCE SOFTWARE DEVELOPMENT SERVICE. APART FROM THE REVEN UE FROM SOFTWARE SERVICES, IT ALSO EARNS INCOME FROM LICENCE OF PROD UCTS, ROYALTY ON SALE OF PRODUCTS, INCOME FROM MAINTENANCE CONTRACT, ETC. T HESE FACTS RECORDED BY THE DRP HAS NOT BEEN DISPUTED BEFORE US. 11. THEREFORE, WHEN THIS COMPANY IS ENGAGED IN DIVERSIF IED ACTIVITIES AND EARNING REVENUE FROM VARIOUS ACTIVITIES INCLUDI NG LICENCING OF PRODUCTS, IT(TP)A.69 & 44/BANG/2015 PAGE - 15 ROYALTY ON SALE OF PRODUCTS AS WELL AS INCOME FROM MAINTENANCE CONTRACT, ETC., THE SAME CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. FURTHER, THIS COMPANY ALSO EARNS INCOME FROM OUTSOURCE PRODUCT DEVELOPMENT. IN THE ABSENCE OF ANY SEGMENT AL DATA OF THIS COMPANY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY CANNOT BE COMPARED WITH THE ASSES SEE AND THE SAME IS DIRECTED TO BE EXCLUDED FROM THE SET OF COMPARABLES . (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 12. THE ASSESSEE RAISED OBJECTION THAT THIS COMPANY HAS REVENUE FROM SOFTWARE SERVICES, SOFTWARE PRODUCTS AND OTHER SERVICES. THE DRP HAS COME TO THE CONCLUSION THAT THIS COMPANY EARNED REVENUE FROM 3 SEGMENTS. HOWEVER, NO SEGMENTAL INFORMATION IS AVA ILABLE. ACCORDINGLY, THE DRP DIRECTED THE AO TO EXCLUDE THIS COMPANY FRO M THE COMPARABLES. 13. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE DRP HAS REPRODUCE D THE BREAK-UP OF REVENUE IN THE IMPUGNED ORDER AS UNDER:- AMOUNT IN RS. LAKHS ___________________________________________________ __________ YEAR ENDED YEAR ENDED MARCH 31, 2010 MARCH 31, 2019 ___________________________________________________ __________ SOFTWARE SERVICES 37,736.22 40,531.20 SOFTWARE PRODUCTS 2,041.00 6,146.43 OTHER SERVICES 372.77 1,297.05 TOTAL REVENUES 40,150.89 47,974.68 ___________________________________________________ __________ 14. THUS, THERE IS NO DISPUTE THAT THIS COMPANY EARNS R EVENUE FROM 3 SEGMENTS. HOWEVER, THE SEGMENTAL OPERATING MARGINS ARE NOT AV AILABLE. THEREFORE, IN THE ABSENCE OF SEGMENTAL RELEVANT DATA AND PARTICULARLY OPERATING MARGINS, THIS COMPOSITE DATA CANNOT BE CONSIDERED AS COMPARABLE W ITH THE ASSESSEE FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT. ACCORDINGLY, WE DO N OT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP. (6) TATA ELXSI LTD. 15. THE ASSESSEE HAS RAISED OBJECTIONS AGAINST THIS COM PANY ON THE GROUND THAT THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. THOUGH THE TPO HAS CONSIDERED THE SOFTWARE DEVELOPMENT AND SERVICE S SEGMENT OF THIS COMPANY AS COMPARABLE TO THAT OF ASSESSEE, HOWEVER, THE ASSESSEE CONTENDED THAT EVEN WITHIN THE SOFTWARE SEGMENT, TH IS COMPANY IS ENGAGED IN DIVERSE ACTIVITIES. THE ASSESSEE PLACED RELIANCE O N THE INFORMATION IN THE ANNUAL REPORT UNDER THE DIRECTORS REPORT AND SUBMIT TED BEFORE THE DRP THAT EVEN UNDER THE SOFTWARE DEVELOPMENT SERVICES SEGMEN T, THIS COMPANY IS ENGAGED IN VARIOUS DIVERSIFIED ACTIVITIES INCLUDING PRODUCT DESIGN SERVICE, IT(TP)A.69 & 44/BANG/2015 PAGE - 16 INNOVATION DESIGN, ENGINEERING SERVICE, VISUAL COMP UTING LABS, ETC. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF MU MBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT, 137 ITD 1 (MUM). 16. THE DRP FOUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH ASSESSEE COMPANY AS IT IS ENGAGED IN DIVERSIFIED AC TIVITIES EVEN IN THE SOFTWARE DEVELOPMENT SERVICES. THE DRP HAS FOLLOWE D THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORD IA TECHNOLOGIES PVT. LTD. (SUPRA). 17. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS COMPANY EVEN IN THE SOFTWARE DEVELOPMENT SEGMENT IS ENGAGED IN DIVERSIFIED ACTIV ITIES OF PRODUCT DESIGN SERVICES, INNOVATION DESIGN, ENGINEERING SERVICES, VISUAL COMPUTING LABS, ETC. WE FURTHER NOTE THAT IN THE CASE OF TELCORDIA TECHN OLOGIES PVT. LTD. (SUPRA), THE MUMBAI BENCH OF THE TRIBUNAL VIDE ITS ORDER DAT ED 11.5.2012 IN PARA 9.7 HAS HELD AS UNDER:- 7.7 FROM THE FACTS AND MATERIAL ON RECORD AND SUB MISSIONS MADE BY THE LEARNED AR, IT IS SEEN THAT THE TATA ELXSI IS ENGA GED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARN ED AR THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COM PANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOV E. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT R ATIO FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO T REAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LE NGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARA BLE PARTIES. 18. NO CONTRARY VIEW HAS BEEN BROUGHT TO OUR NOTICE REG ARDING COMPARABILITY OF THIS COMPANY WITH THAT OF A PURE SOFTWARE DEVELOPME NT SERVICE PROVIDER. ACCORDINGLY, IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE DRP. 12. THE RELEVANT PORTION OF THE ORDER FROM THE CASE OF PEGASYSTEMS WORLDWIDE INDIA P LTD AY 2010-11 ITA NO 1758/HYD/2014 & 1936/ HYD/2014 DT 16.10.2015 IS EXTRACTED AS UNDER : L&T INFOTECH LTD: 14. ASSESSEE HAS OBJECTED BEFORE TPO THAT THE DEPA RTMENT IN EARLIER YEARS IS REJECTING THIS COMPARABLE AS IT HAS REVENUE FROM SO FTWARE SERVICES AND PRODUCTS AND SEGMENTAL INFORMATION WAS NOT AVAILABLE. FURTH ER, COMPANY DID NOT RESPOND TO THE NOTICE ISSUED U/S. 133(6) AND CHALLENGED THE SAID NOTICE BEFORE THE HON'BLE BOMBAY HIGH COURT. IT WAS FURTHER OBJECTED TO ON THE REASON THAT IT(TP)A.69 & 44/BANG/2015 PAGE - 17 COMPANY HAD LESS MARGIN IN EARLIER YEAR AND THEREFO RE, REJECTED BY THE DEPARTMENT, HOWEVER, MARGIN IS HIGH IN THIS YEAR, T HE DEPARTMENT PROPOSED IT AS A COMPARABLE AND THERE IS NO CONSISTENCY. THESE OB JECTIONS WERE REJECTED BY TPO VIDE HIS ANALYSIS IN PAGE 40 OF THE ORDER AND F ROM THE EARNINGS IN FOREIGN EXCHANGE REPORTED, TPO CONSIDERED THE COMPANY AS IN VOLVED IN SOFTWARE DEVELOPMENT SERVICES. THE SAME OBJECTIONS WERE REI TERATED BEFORE DRP, BUT DRP REJECTED. 14.1. IT WAS THE SUBMISSION OF THE LD. COUNSEL THA T DRP AT HYDERABAD IN THE CASE OF M/S. SUMTOTAL SYSTEMS INDIA PVT. LTD., [PAN : AABCC9379C] FOR THE SAME ASSESSMENT YEAR HAS EXCLUDED THE SAME BY STATING AS UNDER: WE HAVE GONE THROUGH THE SUBMISSIONS OF THE ASSES SEE, INTERNATIONAL TRANSACTIONS INVOLVED, TP DOCUMENTATION OF THE ASSE SSEE, THE MOST APPROPRIATE METHOD ADOPTED BY TPO AFTER REJECTING THE T P DOCUM ENTATION OF THE ASSESSEE, THE FILTERS USED BY TPO AND ALSO VERIFIED THE FINAN CIALS OF THE COMPARABLES WITH REFERENCE TO THE NOTES ON ACCOUNTS & WEBSITE NOTES. WE NOTICED THAT CERTAIN NOTES ON ACCOUNTS MADE IN CERTAIN CASES DO NOT DO N OT MATCH WITH THAT OF THE FINANCIALS REPORTED. WE ALSO NOTICED THAT MEANING OF THE WORDS USED IN THE NOTES ON ACCOUNTS ARE NOT DEFINED. BASED ON CERTAI N ITAT DECISIONS, THE EARLIER DIRECTIONS OF THIS PANEL AND OTHER PANELS, THE HUGE TURNOVERS INVOLVED , HUGE BRAND VALUE, THEIR PREDOMINANT PRESENCE IN THE MARK ET, IN VIEW O F INCOMPLETE DETAILS ETC., THIS PANEL IS OF THE VIEW THAT THE FO LLOWING COMPARABLES SELECTED BY TPO SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPA RABLES CHOSEN BY TPO IN THE ALP COMPUTATION. I)INFOSYS TECHNOLOGIES LTD., II)L&T INFOTECH LTD., WE DIRECT TPO TO EXCLUDE THE ABOVE REFERRED COMPARA BLES FROM THE LIST OF FINAL COMPARABLES CHOSEN BY TPO IN THE ALP COMPUTATION AN D RE-COMPUTE THE ALP ACCORDINGLY. 14.2. IT WAS THE SUBMISSION THAT ONCE DRP HAS ACCE PTED THE OBJECTIONS OF ASSESSEE WHEREAS IN ASSESSEES CASE DRP DID NOT EXC LUDE L&T INFOTECH WHILE EXCLUDING INFOSYS TECHNOLOGIES LTD., IT WAS THE SUB MISSION THAT SIMILAR FACTS EXIST FOR BOTH THE COMPANIES AND DRP HAS EXCLUDED ONLY IN FOSYS TECHNOLOGIES AND NOT L&T INFOTECH LTD., 14.3. AFTER CONSIDERING THE OBJECTIONS OF ASSESSEE AND PERUSING THE ORDER OF DRP IN THE CASE OF M/S. SUMTOTAL SYSTEMS INDIA PVT. LTD., (SUPRA), AS EXTRACTED ABOVE, WE ARE OF THE OPINION THAT THIS COMPANY CANN OT BE SELECTED AS COMPARABLE BY THE SAME REASONS WHICH DRP IN THE ABO VE REFERRED CASE IT(TP)A.69 & 44/BANG/2015 PAGE - 18 ACCEPTED. MOREOVER, THERE ARE NO SEGMENTAL DETAILS AND AS SEEN FROM THE ANNUAL REPORT, REVENUES ARE REPORTED FROM SOFTWARE DEVELOP MENT SERVICES AND PRODUCTS, HOW MUCH IS FROM SERVICES AND HOW MUCH IS FROM PROD UCTS COULD NOT BE ANALYSED. EVEN THOUGH TPO CONSIDERED THE SOFTWARE EXPORTS REPORTED IN EARNING IN FOREIGN CURRENCY AS THAT OF SOFTWARE DEVELOPMENT SERVICES, WE ARE NOT SURE WHETHER THE SOFTWARE EXPORTS REPORTED THEREIN EXCLU SIVELY PERTAIN TO SERVICES OR PRODUCTS. AS THERE ARE NO SEGMENTAL DETAILS, IT IS VERY DIFFICULT TO ANALYSE WHETHER THE INCOMES EARNED BY THE SAID COMPANY DO R EALLY PERTAIN TO THE SIMILAR SERVICES RENDERED BY ASSESSEE. AS ALSO SEEN FROM T HE INCOME SCHEDULES, ENGINEERING SERVICES REPORTED IN EARLIER YEAR WERE NOT THERE IN THIS YEAR, THEREFORE, IT IS VERY DIFFICULT TO ANALYSE WHETHER THE COMPANY IS FUNCTIONALLY SIMILAR OR NOT? KEEPING IN VIEW OF THE ABOVE DIFFI CULTIES IN ANALYZING THE DATA AND CONSIDERING THE REASONS GIVEN BY DRP IN THE CAS E OF M/S. SUMTOTAL SYSTEMS INDIA PVT. LTD., (SUPRA), WE ARE OF THE OPINION THA T L&T INFOTECH LTD., CANNOT BE SELECTED AS A COMPARABLE COMPANY. AO/TPO IS DIRECT ED TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. GROUND NO.4 IS ALLOW ED FOR STATISTICAL PURPOSES. .. .. 22. GROUND NO.2 PERTAINS TO REJECTION OF INFOSYS T ECHNOLOGIES LTD., FROM THE LIST OF COMPARABLES BY DRP. WE HAVE ALREADY CONSIDERED THE OPINION OF DRP WHICH IS CONSISTENT NOT ONLY IN ASSESSEES CASE BUT ALSO IN THE CASE OF M/S. SUMTOTAL SYSTEMS INDIA PVT. LTD., (SUPRA), EXTRACTED ABOVE W HILE CONSIDERING THE EXCLUSION OF L&T INFOTECH LTD. SINCE DRPS DECISION IS CONSISTENT WITH THE STAND TAKEN BY THE REVENUE IN OTHER CASES AND ALSO BY THE ITAT IN A NUMBER OF CASES ON REASON OF TURNOVER, BRAND EQUITY, FUNCTIONAL DIS SIMILARITY, WE ARE OF THE OPINION THAT DRP IS CORRECT IN EXCLUDING THE ABOVE COMPANY FROM THE LIST OF COMPARABLES. THEREFORE, THERE IS NO MERIT IN THE R EVENUES GROUND AND THE SAME IS REJECTED. 13. WE FIND THAT THE CIT (A) ACCEPTED THE ASSESSEE S PLEA BY FOLLOWING THE DECISIONS OF THIS TRIBUNAL IN GENISYS INTEGRATING SYSTEM V DCIT 15 ITR TRIB 475, KODIAK NETWORKS V ACIT 15 ITR TRIB 610, TRILO GY E-BUSINESS SOFTWARE INDIA V DCIT 23 ITR TRIB 464 AND HELD THAT THOSE C OMPANIES WHICH ARE WITHIN THE TURNOVER RANGE OF RS ONE CRORE TO RS TWO HUNDRE D CRORE ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE TP STUDY AND HENCE DIRECTED THE TPO TO EXCLUDE INFOSYS LTD, LARSEN & TOUBRO INFOTECH LTD, MINDTREE LTD (SEG) , PERSISTENT SYSTEM LTD, SASKEN COMMUNICATION TECHNOLOGIES AND T ATA ELXSI LTD(SEG) AGAINST WHICH THE REVENUE FILED APPEALS. HOWEVER, FROM THE DECISIONS EXTRACTED , SUPRA , THE ASSESSEE HAS MADE OUT A CAS E FOR THE EXCLUSION OF ICRA TECHNO ANALYTICS LTD. (SEG), INFOSYS TECHNOLOGIES L TD., KALS INFORMATION SYSTEMS LTD, PERSISTENT SYSTEMS LTD, SASKEN COMMUNI CATION TECHNOLOGIES LTD, IT(TP)A.69 & 44/BANG/2015 PAGE - 19 TATA ELXSI LTD AND L&T INFOTECH LTD. FOLLOWING T HEM, WE DIRECT THE TPO TO EXCLUDE THEM FROM THE LIST OF COMPARABLES. TO THAT EXTENT, THE ASSESSEES APPEAL GROUNDS ARE ALLOWED AND THE REVENUES APPEAL GROUNDS ARE DISMISSED. WITH REGARD TO THE COMPARABLE MINDTREE LTD (SEG), S INCE THE ASSESSEE HAS NOT OPPOSED THE REVENUES APPEAL, THE REVENUES APPEAL ON THAT COMPARABLE IS TREATED AS ALLOWED. 14. THE NEXT ISSUE THAT THE AR SUBMITTED THAT THE T PO HAS CONSIDERED FOREIGN EXCHANGE FLUCTUATIONS AS NON-OPERATING IN NATURE. I TS FOREIGN EXCHANGE GAIN SHOULD BE CONSIDERED AS OPERATING IN NATURE. THE CI T (A) HAS, INTER ALIA, DIRECTED THE TPO TO ACCEPT THE ASSESSEES CLAIM, ON WHICH, THE REVENUE IS ON APPEAL. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THIS ISSUE IS REMITTED BACK TO THE TPO TO EXAMINE WHETHER THE FOREIGN EXCHANGE LOSS / GAIN IS OUT OF CURRENT YEARSS TRANSACTIONS OR NOT. IF THAT GAIN/ LOSS AR ISES OUT OF CURRENT YEARS TRANSACTIONS, THEN, IT SHOULD BE TREATED AS OPERATI NG IN NATURE. TO THAT EXTENT REVENUES CLAIM IS ALLOWED. 15. THE NEXT ISSUE IS THAT THE AR SUBMITTED THAT TH E TPO HAS RESTRICTED THE WORKING CAPITAL ADJUSTMENT TO 1.98% AND RELIED ON THE DECISION OF THIS TRIBUNAL IN MOONG CONTROLS INDIA P LTD ITA 551/BANG/2015 AY 2010 DT 27.11.2015, WHEREIN THIS TRIBUNAL DIRECTED THE TPO TO ALLOW ACT UAL ADJUSTMENT TOWARDS THE DIFFERENCES IN THE OF WORKING CAPITAL POSITION BETW EEN THE ASSESSEE AND THE ENTREPRENEURIAL COMPANIES SELECTED AS COMPARABLE. W E DIRECT THE TPO TO FOLLOW THIS DECISION. TO THIS EXTENT, THE ASSESSEES APPEAL GROUND IS A LLOWED. 16. THE NEXT ISSUE IS REVENUES APPEAL AGAINST THE DECISION OF THE CIT(A), WHO HELD THAT WHILE COMPUTING DEDUCTIONS U/S 10A & 10AA, RESPECTIVELY, DATA COMMUNICATION, VOICE COMMUNICATION AND CELL PHONE E XPENSES INCURRED IN FOREIGN CURRENCY SHOULD BE EXCLUDED FROM THE EXPOR T TURN OVER AS WELL FROM TOTAL TURNOVER ON THE BASIS OF THE JURISDICTIONAL HIGH COURT DECISION IN CIT V TATA ELXSI 349 ITR 98. WE HEARD RIVAL CONTENTIONS. WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE CIT(A) AND HENCE UPHOLD IT. TO THAT EXTENT, THE REVENUES APPEAL GROUNDS ARE DISMISSED. IT(TP)A.69 & 44/BANG/2015 PAGE - 20 17. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED /TREATED AS ALLOWED AND THE REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DAY OF JANUARY, 2017. SD/- SD/- (SUNIL KUMAR YADAV) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR