Aircom International (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4403/DEL/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3084 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 01-05-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 14-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI S.V. MEHROTRA, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4403/DEL/2012 ASSESSMENT YEAR : 2006-07 AIRCOM INTERNATIONAL (INDIA) PVT. LTD., M-12, BALRAMA HOUSE, KARAMPURA COMMERCIAL COMPLEX, NEW DELHI. PAN: AADCA0915A VS. DCIT, CIRCLE-1(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESWAR RAO, ADVOCATE DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 01.05.2017 DATE OF PRONOUNCEMENT : 19.05.2017 ORDER PER S.V. MEHROTRA, VP: THE ASSESSEE HAS FILED THIS APPEAL ON 14 TH AUGUST, 2012 AGAINST THE ASSESSMENT ORDER DATED 30 TH DECEMBER, 2011. AS PER THE REPORT OF THE ITA NO.4403/DEL/2012 2 REGISTRY, THE APPEAL IS TIME BARRED BY 148 DAYS. T HE ASSESSEE HAS FILED A CONDONATION PETITION DATED 13 TH AUGUST, 2012, WHEREIN IT IS, INTER ALIA, STATED THAT THE ASSESSMENT ORDER WAS RECEIVED BY TH E ASSESSEE ON 19 TH JANUARY, 2012. HOWEVER, THOUGH THE ASSESSEE WAS NO T AGREEABLE TO THE ADDITIONS PROPOSED IN THE ASSESSMENT ORDER, BUT, IN ORDER TO AVOID THE COST OF LONG DRAWN LITIGATION, THE ASSESSEE WAS INI TIALLY ADVISED NOT TO PURSUE THE MATTER FURTHER. HOWEVER, SUBSEQUENTLY, THE ASSESSEE HAS BEEN ADVISED THAT NOT FILING AN APPEAL BEFORE THE TRIBUN AL MAY PREJUDICE ITS TAX RELATED CASES ON SIMILAR MATTERS PENDING ADJUDI CATION BEFORE DIFFERENT FORUMS WITHIN THE INDIAN DISPUTE RESOLUTI ON CHAIN. THE ASSESSEE HAS ALSO FILED AN AFFIDAVIT OF MR. CHANDRA SEKHAR MISHRA OF THE ASSESSEE COMPANY BEING THE AUTHORIZED REPRESENTATIV E OF THE ASSESSEE. THE LD. COUNSEL SUBMITTED THAT SAME ISSUE IS PERMEA TING THROUGH ALL THE YEARS. AT INITIAL STAGE THIRD PARTY DATA WAS NOT A VAILABLE TO COME TO ANY CONCLUSION AND, THEREFORE, IN LARGER INTERESTS OF J USTICE DELAY MAY BE CONDONED. THE LD. COUNSEL RELIED ON THE DECISION O F THE HON'BLE BOMBAY HIGH COURT IN PRIMA PAPER AND ENGINEERING (P) LTD. VS. CIT ITA NO.4403/DEL/2012 3 (2014) 41 TAXMANN.COM 240 , WHEREIN IN PARA 8 AND 9, IT HAS BEEN OBSERVED AS UNDER:- 8. IN STATE OF WEST BENGAL (SUPRA), THE SUPREME COURTH AS HELD THAT IT IS NOT POSSIBLE TO LAY DOWN PRECISELY AS TO WHATFACTS CON STITUTE SUFFICIENT CAUS E UNDER SECTION 5 OF THE LIMITATION ACT. BUT IT MAY BE SAFELY STATED THAT DELAY IN FILING AN APPEAL SHOULD NOT HAVE BEEN FOR REASONS WHICH INDICATE THE PARTY'S NEGLIGENCE IN NOT TAKING NECESSARY STEPS, WHICH HE COULD HAVE OR SHOULD HAVE TAKEN. HERE AGAIN, WHAT WILL BE SUCH NECESSARY STEPS WILL DEPEND UPON THE CIRCUMSTANCES OF THE CASE. ANY OBSERVATION OF AN ILLUSTRATIVE CIRCUMSTANCE OR FACT, WILL ONLY TEND TO BE A CURB ON THE FREE EXERCISE OF THE JUDICIAL MIND BY THE COURT IN DETERMINING WHETHER THE FACTS AND CIRCUMSTANCES OF A PARTICULAR CASE AMOUNT TO 'SUFFICIENT CAUSE' OR NOT. IT IS NEEDLES S TO EMPHASISE THAT COURTS HAVE TO USE THEIR JUDICIAL D ISCRETION IN THE MATTER SOUNDLY IN THE INTEREST OF JUSTICE. THE WOR DS SUFFICIENT CAUSE SHOULD RECEIVE A LIBERAL CONSTRUCTION SO AS TO ADVANCE SUBSTANTIAL JUSTICE WHEN NO NEGLIGENCE OR INACTION WERE IMPUTABLE TO THE APPELLANT. 9. HAVING REGARD TO THE FOLLOWING FACTS: (I)APPELLANT'S APPEAL RAISING THE SAME QUESTION FO R THE EARLIER ASSESSMENT YEAR HAS BEEN ADMITTED. (II) THE DECISION OF THE SPECIAL BENCH OF THE TRI BUNAL, WHICH HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE IMPUGNED ORDER, HAS NOT BEEN APPROVED BY THE MADRA S HIGH COURT IN VELAYUDHASWAMY SPINNING MILLS PVT.LT D. VS. ASST.CIT, (2010) 231 CTR (MAD) 368 AND (III) THE DELAY IN FILING THE APPEAL HAS BEEN CAU SED ON ACCOUNT OF WHAT APPEARS TO BE NEGLIGENCE ON THE PA RT OF THE STAFF OF THE APPELL ANT'S CONSULTANT, WE ARE OF THE VIEW THAT INTERESTS OF JUSTICE WOULD BE SERVED IF DELAY IN FILING THE APPEAL IS CONDONED, SUBJECT TO THE C ONDITION THAT THE ITA NO.4403/DEL/2012 4 APPELLANT SHALL PAY COSTS QUANTIFIED AT RS.10,000/ TO THE RESPONDENT , WHICH SHALL BE PAID WITHIN ONE MONTH FROM TODAY. 2. LD. DR SUBMITTED THAT REASONS GIVEN AS SUFFICIEN T CAUSE FOR DELAY IN FILING THE APPEAL ARE NOT SUCH WHICH WERE BEYOND THE CONTROL OF THE ASSESSEE. HE SUBMITTED THAT DELAY CANNOT BE CONDONE D IN ANTICIPATION OF BENEFITS. IN THIS REGARD, HE RELIED ON THE DECISIO N IN THE CASE OF CHIEF POST MASTER GENERAL VS. LIVING MEDIA INDIA LTD . THE LD. DR FURTHER RELIED ON THE DECISION IN THE CASE OF J.V. ADVANI AND CO. PVT. LTD. VS. CIT 72 ITR 397 AND SUBMITTED THAT EVERY DAY DELAY HAS TO BE EXPLA INED. 3. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE CASE RECORD. THE ISSUE IS ADJUSTMENT I N REGARD TO INTERNATIONAL TRANSACTION RELATED TO SOFTWARE DEVEL OPMENT SEGMENT OF THE ASSESSEE. VARIOUS COMPARABLES HAVE BEEN TAKEN INTO CONSIDERATION FOR DETERMINING THE ARMS LENGTH PRICE (ALP). THEREFOR E, IT CANNOT BE DENIED THAT THIS ISSUE PERMEATES THROUGH ALL THE YE ARS AND, THEREFORE, IF IN ONE YEAR ON ACCOUNT OF WRONG ADVICE OF THE COUNSEL APPEAL IS NOT PREFERRED IN TIME, THEN, THE ADVERSE FINDING FOR TH AT YEAR SHOULD NOT PREJUDICE THE ASSESSEES CLAIM FOR OTHER YEARS. UN DER SUCH ITA NO.4403/DEL/2012 5 CIRCUMSTANCES, IT WOULD BE IN THE INTEREST OF JUSTI CE TO CONDONE THE DELAY IN FILING THE APPEAL. WE, ACCORDINGLY, CONDONE THE DELAY IN FILING THE APPEAL. 4. THE BRIEF FACTS OF THE CASE ARE THAT IN THE RELE VANT ASSESSMENT YEAR THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF SOFTWARE SOLUTIONS AND CONSULTANCY SERVICES IN THE AREA OF TELECOMMUNI CATION INDUSTRY. THE ASSESSEE IS A 100% SUBSIDIARY OF AIRCOM INTERNA TIONAL, UK. IT HAD FILED ITS RETURN OF INCOME DECLARING AN INCOME OF R S.1,01,82,082/- ON 8 TH DECEMBER, 2006. THE INTERNATIONAL TRANSACTION REPO RTED IN FORM NO.3CEB, INTER ALIA , INCLUDED SOFTWARE DEVELOPMENT OF RS.281,86,213/-. THE LD. TPO, AFTER ADOPTING VARIOUS FILTERS, CONSID ERED THE FOLLOWING FIVE COMPARABLES:- I) EINFOCHIPS BANGALORE LIMITED II) APEX ADVANCED TECHNOLOGY PRIVATE LIMITED III) APEX KNOWLEDGE SOLUTIONS PRIVATE LIMITED IV) SYNETAIROS TECHNOLOGIES LIMITED V) SANKHYA INFOTECH LIMITED ITA NO.4403/DEL/2012 6 5. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, TH E LD. TPO REJECTED ALL THE OBJECTIONS OF THE ASSESSEE ON THIS COUNT. IN REGARD TO FOUR COMPARABLES, IT EXCLUDED APEX KNOWLEDGE SOLUTIONS P RIVATE LIMITED. AS REGARDS THE ASSESSEES CLAIM OF WORKING CAPITAL ADJUSTMENT, THE SAME WAS REJECTED OBSERVING THAT THE ASSESSEE HAD NOT FU RNISHED ANY COMPUTATION OF WORKING CAPITAL ADJUSTMENT AND THE Q UANTUM OF WORKING CAPITAL ADJUSTMENT HAD NOT BEEN DETERMINED BY IT. ACCORDINGLY, THE LD. TPO MADE ADJUSTMENT OF RS.64,80,621/-. THE LD. DRP VIDE ITS ORDER DATED 31 ST MAY, 2010, WHICH WAS AMENDED VIDE ORDER DATED 22 ND DECEMBER, 2011 U/S 144C(5), POINTED OUT THAT THE CO MPARABLES THAT HAD BEEN CHOSEN BY THE TPO HAD BEEN FOUND TO FAIL THE F ILTERS THAT HAD BEEN APPLIED BY HIM. THE LD. DRP DETERMINED THE AVERAGE MARGIN AT 18.99% IN REGARD TO THE FOLLOWING COMPARABLES:- SL.NO. NAME OP/TC (%) 1. KALS INFORMATION SYSTEMS LTD. 42.15 2. LANCO GLOBAL SYSTEMS LTD. 5.94 3. QUINTEGRA SOLUTIONS LTD. 14.23 4. SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 13.63 AVERAGE 18.99 ITA NO.4403/DEL/2012 7 6. ACCORDINGLY, ADJUSTMENT WAS DETERMINED AT RS.24, 48,270/-. AS REGARDS THE WORKING CAPITAL ADJUSTMENT, LD. DRP CON FIRMED THE TPOS ACTION, INTER ALIA , OBSERVING AS UNDER:- AS HAS BEEN BROUGHT OUT, THE ISSUE OF WORKING CAPI TAL WILL BE RELEVANT WHEN THERE IS A SITUATION OF INVENTORY REMAINING TI ED UP OR RECEIVABLES BEING HELD UP. FRANKLY SPEAKING THESE SITUATIONS M AY NOT BE SO RELEVANT TO THE SERVICE INDUSTRY. THE ASSESSEE, AS ALSO THE COMPARABLES USED, SHALL LAUNCH INTO A PROJECT ONLY WHEN THEY HA VE BEEN AWARDED A CONTRACT. IT IS NOT AS IF THESE PARTIES HAVE MANUFA CTURED GOODS THAT AWAIT BUYERS. THIS BEING THE CASE, THERE IS A SERIO US QUESTION ON THE VERY NEED FOR A WORKING CAPITAL ADJUSTMENT IN THE S ERVICE INDUSTRY. A WORKING CAPITAL ADJUSTMENT WILL BE REQUIRED ONLY WH EN THE VARYING LEVELS OF THE WORKING CAPITAL DEPLOYED IS ACTUALLY MAKING A DIFFERENCE TO THE MARGINS EARNED BY THE ASSESSEE AND THE COMPA RABLES. THIS IS ACTUALLY AT THE HEART OF EVERY COMPARABILITY ADJUST MENT. THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THAT THE DIFFERENC E IN THE WORKING CAPITAL DEPLOYED IS MAKING A DIFFERENCE IN THE MARG IN EARNED BY THE ASSESSEE AND THE COMPARABLES IN THIS YEAR. 7. THE ASSESSEE HAS ASSAILED THE FINAL ASSESSMENT O RDER PRIMARILY ON TWO COUNTS. FIRSTLY, THE ASSESSEE IS AGGRIEVED BY INCLUSION OF KALS INFORMATION SYSTEMS LTD., IN THE LIST OF COMPARABLE S FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION RELATING TO SO FTWARE DEVELOPMENT SEGMENT. THE SECOND GRIEVANCE OF THE ASSESSEE IS O N ACCOUNT OF NON- GRANT OF WORKING CAPITAL ADJUSTMENT. AS REGARDS TH E FIRST ISSUE, THE LD. COUNSEL REFERRED TO THE ANNUAL REPORT OF KALS INFOR MATION SYSTEMS LTD., ITA NO.4403/DEL/2012 8 CONTAINED AT PAGES 238 TO 259 OF THE PAPER BOOK AND SPECIFICALLY REFERRED TO PAGE 255, WHEREIN THE SCHEDULE NO.22 - NOTES TO THE FINANCIAL STATEMENTS IS CONTAINED, WHEREIN SIGNIFICANT ACCO UNTING POLICIES HAVE BEEN GIVEN. IN THE REVENUE RECOGNITION, IT HAS BEE N OBSERVED AS UNDER:- REVENUE RECOGNITION: THE COMPANY DERIVES ITS REVE NUES PRIMARILY FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS. REVE NUE FROM TIME AND MATERIAL CONTRACT IS RECOGNIZED ON THE BASIS OF SOF TWARE DEVELOPED AND BILLED IN ACCORDANCE WITH THE TERMS OF THE CONTRACT . REVENUE FROM THE FIXED PRICE CONTRACT IS RECOGNIZED ON THE COMPLETIO N OF MILESTONES IN CONTRACTS, UNDER THE PERCENTAGE OF COMPLETION METHO D. INCOME FROM TRAINING IS RECOGNISED ON TIME PROPORTION BASIS. 8. THE LD. COUNSEL FURTHER REFERRED TO THE FINANCIA L STATEMENTS OF THE ASSESSEE CONTAINED FROM PAGE 1 TO 17 OF THE PAPER B OOK AND POINTED OUT THAT THE ASSESSEE DOES NOT HAVE ANY REVENUE FROM PR ODUCTS CTR. LD. DR REFERRED TO THE ANNUAL REPORT OF KALS INFORMATIO N SYSTEMS LTD., PLACED AT PAGE 258 OF THE PAPER BOOK, WHEREIN GENER IC NAMES OF THREE PRINCIPAL PRODUCTS/SERVICES OF THE COMPANY IS GIVEN IN WHICH IT IS STATED AS UNDER:- ITEM CODE NO. : N.A. PRODUCT DESCRIPTION : SOFTWARE DEVELOPMENT & CONSUL TANCY ITEM CODE NO. : N.A. PRODUCT DESCRIPTION : EDUCATIONAL SERVICES ITA NO.4403/DEL/2012 9 9. WITH REFERENCE TO THESE DETAILS, LD. CIT, DR SUB MITTED THAT IT IS INCONCEIVABLE TO CONSIDER ANY PRODUCT BEING THERE W ITHOUT CODE NUMBER. HE POINTED OUT THAT CODE NO. IS NECESSARY FOR PRODU CTS. THEREFORE, IT IS WRONG TO SUGGEST THAT KALS INFORMATION SYSTEMS WAS DEALING IN PRODUCTS. TO FURTHER BUTTRESS HIS STATEMENTS, LD. DR REFERRED TO PAGE 254, WHEREIN THE SCHEDULE RELATING TO SOFTWARE DEVE LOPMENT EXPENDITURE IS CONTAINED TO DEMONSTRATE THAT NO PRODUCT RELATED EXPENSES WERE DEBITED TO PROFIT & LOSS ACCOUNT. HE REFERRED TO SC HEDULE 15 RELATING TO SALES, SERVICES AND TRAINING AND POINTED OUT THAT N O SOFTWARE PRODUCT IS MENTIONED THERE. LD. CIT, DR FURTHER REFERRED TO P AGE 256, WHEREIN THE SIGNIFICANT ACCOUNTING POLICIES ARE CONTAINED IN WH ICH AT PARA 6, IT HAS BEEN POINTED OUT AS UNDER:- THE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPM ENT OF COMPUTER SOFTWARE AND OTHER RELATED SERVICES. THE PRODUCTIO N AND SALE OF SUCH SOFTWARE IS NOT CAPABLE OF BEING EXPRESSED IN ANY G ENERIC UNIT AND HENCE IT IS NOT POSSIBLE TO GIVE THE QUANTITATIVE DETAILS OF THE SALES AND INFORMATION AS REQUIRED UNDER PARAGRAPHS 3, 4C AND 4D OF PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956. ITA NO.4403/DEL/2012 10 10. WITH REFERENCE TO THE ABOVE STATEMENT IN THE FI NANCIAL STATEMENT, LD. DR SUBMITTED THAT EXCLUSION OF KALS INFORMATION SYSTEMS LTD., ON THE GROUND OF DEALING IN PRODUCTS IS NOT JUSTIFIED. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE LD. COUNSEL HA S RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF ITS CONTENTION TH AT KALS INFORMATION SYSTEMS LTD., IS NOT TO BE INCLUDED IN THE SET OF C OMPARABLES:- I) TOLUNA INDIA (P) LTD. VS. ACIT (ITA NO.5645/DEL/201 1, ORDER DATED 26 TH AUGUST, 2014; II) CINCOM SYSTEMS INDIA P. LTD. VS. ACIT (ITA NO.761/D EL/2012, ORDER DATED 31 ST MAY, 2013); III) TELELOGIC INDIA (P) LTD. VS. DCIT (ITA NO.166/MUM/2 011, ORDER DATED 18 TH MAY, 2015). 12. IN THE CASE OF TOLUNA INDIA (P) LTD., THE TRIBU NAL HAS NOTICED THAT THE ASSESSEE RENDERED SOFTWARE DEVELOPMENT AND RELA TED SERVICES TO GREENFIELD GROUP. IN THAT CONTEXT, THE TRIBUNAL DIR ECTED FOR EXCLUSION OF KALS INFORMATION SYSTEMS LTD., OBSERVING AS UNDER:- ITA NO.4403/DEL/2012 11 KALS INFORMATION SYSTEMS LIMITED (SEGMENTAL ): 27.1. THE TPO OBSERVED THAT THIS COMPANY WAS ENGAGE D IN SOFTWARE DEVELOPMENT AND TRAINING. AS THE SOFTWARE PRODUCTS CONSTITUTED ONLY 3% OF ITS REVENUE AND TRAINING REVENUE CONSTITUTED 8.56%, THE TPO HELD THAT THIS SEGMENT OF KALS INFORMATION SYSTEMS LIMIT ED WAS RIGHTLY INCLUDIBLE. 27.2. AFTER CONSIDERING THE RIVAL SUBMI SSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS AN ADMITTED POSITION THAT THE TPO ADOPTED SOFTWARE DEVELOPMENT SEGMENT OF THIS COMPAN Y BY NOTICING THAT THIS SEGMENT ALSO INCLUDED REVENUES FROM SOFTW ARE PRODUCTS AND TRAINING. IN VIEW OF THE FACT THAT THE ASSESSEE IS NOT ENGAGED IN IMPARTING ANY TRAINING ON COMMERCIAL BASIS OR SELLI NG ITS SOFTWARE PRODUCTS, WE HOLD THAT THE FINANCIALS OF THIS COMPA NY UNDER THIS SEGMENT CANNOT BE COMPARED WITH THE ASSESSEE. THE C ONTRIBUTION BY THE SALE OF SOFTWARE PRODUCTS OR TRAINING TO THE OV ERALL REVENUE OF THIS SEGMENT CANNOT BE PRECISELY ASCERTAINED TO DETERMIN E THE QUESTION OF ITS COMPARABILITY. AS SUCH, THIS CASE IS DIRECTED T O BE EXCLUDED. THE ASSESSEE SUCCEEDS. 13. THIS DECISION HAS BEEN RENDERED FOR ASSESSMENT YEAR 2007-08. 14. IN CINCOM SYSTEMS INDIA P. LTD. (SUPRA), THE TR IBUNAL HAS OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF DEVELOPMENT AND SUPPORT OF COMPUTER SOFTWARE FOR ITS PARENT COM PANY. IN THAT CONTEXT, THE TRIBUNAL DIRECTED FOR EXCLUSION OF KAL S INFORMATION SYSTEMS LTD., RELYING ON THE DECISION IN THE CASE OF BIND V IEW INDIA PVT. LTD. VS. DCIT ITA NO.4403/DEL/2012 12 9.2. IN THE CASE OF BIND VIEW INDIA P. LTD. VS DCI T PUNE. ITA NO 1386/PN/10 FOR SAME ASSTT YEAR 2006-07, THE ITAT HA S HELD THAT KALS ACTIVITIES ARE DIFFERENT HENCE NEED TO BE EXCLUDED: '16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARABLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJEC TED TO ITS INCLUSION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT C OMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPM ENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS SUBMITT ED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDING OF I T EN ABLED 9 SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWA RE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINA L SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS.' 9.3. A BOVE BIND VIEW CASE HAS BEEN FOLLOWED IN THE CASE OF TRILOGY EBUSINESS SOFTWARE INDIA (P.) LTD. VS DCIT [2013] 29 TAXMANN.COM 310 , ITA NO 105 4/2011; THE BANGALORE BENCH OF ITAT HAS HELD: '46. AS FAR AS TH IS COMPANY IS CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT T HE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOVE, IT WAS ALSO POINTED OU T THAT THIS COMPANY IS ENGAGED IN PROVIDING TRAINING. IT WAS ALSO SUBMI TTED THAT AS PER THE ANNUAL REPOT, THE SALARY COST DEBITED UNDER THE SOF TWARE DEVELOPMENT EXPENDITURE WAS RS. 45,93,351. THE SAME WAS LESS TH AN 25% OF THE SOFTWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNAL'S DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA (P.) LTD. V. DY. CIT [ITA NO 1386/PN/10, DATED 30-11-2011] WHEREIN KALS AS COMPA RABLE WAS REJECTED FOR AY 2006-07 ON ACCOUNT OF IT BEING FUNC TIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE A S FOLLOWS: '16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARABLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIO NALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DE VELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT 10 COMPAR ABLE TO SOFTWARE ITA NO.4403/DEL/2012 13 DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGA GED IN PROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIAB LE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPE CT, ASSESSEE SUCCEEDS.' BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOU LD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATI ON TO THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAI NED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMATION WHIC H WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPANY AS HI GHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF T HE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE.' 15. THE DECISION IN THE CASE OF DHL EXPRESS (INDIA) (P) LTD. VS. ACIT (2011) 11 TAXMANN.COM 40 (MUM.) WAS ALSO CITED AS U NDER:- 10.1. IN THE CASE OF DHL EXPRESS (INDIA) (P.) LTD. V. ACIT [2011] 11 TAXMANN.COM 40 (MUM.) MUMBAI TRIBUNAL HELD THAT THO UGH SEGMENTED RESULTS ARE NOW REQUIRED TO BE PUBLISHED IN INDIA, BUT STILL IT IS A COMMON EXPERIENCE THAT IN MANY SUCH RESULTS CERTAIN EXPEND ITURES, PARTICULARLY EXPENDITURE ON ACCOUNT OF INTEREST AND HEAD OFFICE, ARE GENERALLY NOT ALLOCATED AND SHOWN IN THE PUBLISHED RESULTS AS SEP ARATE EXPENDITURE. THEREFORE, THE TPO WAS CORRECT THAT WHEN DIRECT COM PARABLES WERE AVAILABLE THERE WAS NO NEED TO CONSIDER THE SEGMENT ED RESULTS OF TCI. IT IS ONLY THE OPERATING PROFIT WHICH CAN BE CONSIDERE D. IT IS IMPORTANT TO NOTE THAT IN THIS CASE IT WAS THE DEPARTMENTS CONT ENTION THAT SEGMENTED ITA NO.4403/DEL/2012 14 RESULTS SHOULD NOT BE CONSIDERED WHEN DIRECT COMPAR ABLE ARE AVAILABLE. AS IN ASSESSEES THE DIRECT COMPARABLE ARE AVAILABL E, HENCE KALS INFORMATION SYSTEMS LTD SHOULD NOT BE TAKEN AS COMP ARABLE. 16. THE TRIBUNAL NOTICED THAT KALS INFORMATION SYST EMS LTD., CONSISTED OF AN STPI UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND TRAINING CENTRES ENGAGED IN T RAINING OF SOFTWARE PROFESSIONAL FOR ONLINE PROJECTS. FURTHER, IN TELE LOGIC INDIA (P) LTD., THE TRIBUNAL, INTER ALIA, OBSERVED THAT THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE AND MAINTENANCE OF DATA FOR SOFTWARE FOR ITS PARENT COMPANY IN ASSESSMENT YEAR 2006-07 AND DIRECTED FOR EXCLUSION OF KALS INFORMATION SYSTEMS LTD., INTER ALIA , OBSERVING THAT THE COMPANY HAD REVENUES FROM SOFTWARE PRODUCT S AS WELL AS SOFTWARE DEVELOPMENT. THE LD. CIT, DR REFERRED TO THE DECISION IN AGNITY INDIA TECHNOLOGIES (P) LTD. TS-573/ITAT/2016 /TP FOR THE PROPOSITION THAT EACH YEAR IS TO BE CONSIDERED SEPA RATELY AND THE DECISIONS SHOULD NOT BE FOLLOWED WITHOUT PROPER VER IFICATION. HE SUBMITTED THAT THE MATTER MAY BE RESTORED TO FIND O UT IF PRODUCT REVENUE IS THERE OR NOT IN THE CASE OF KALS INFORMATION. W E ARE CONSTRAINED TO ITA NO.4403/DEL/2012 15 OBSERVE THAT THIS PLEA OF LD. CIT, DR CANNOT BE ACC EPTED, PARTICULARLY, WHEN THE DECISIONS HAVE BEEN RENDERED BY THE TRIBUN AL FOR ASSESSMENT YEAR 2006-07 AND 2007-08 WITH REFERENCE TO THE ANNU AL REPORT OF KALS INFORMATION. THE REVENUE RECOGNITION STATEMENT NOT ED ON PAGE 255 OF THE PAPER BOOK CLEARLY HOLDS THAT KALS INFORMATION WAS DEALING IN PRODUCTS ALSO. THIS IS ALSO EVIDENT FROM PAGE 254, WHEREIN THE DETAILS OF SOFTWARE DEVELOPMENT EXPENDITURE HAVE BEEN GIVEN WH ICH, INTER ALIA, INCLUDES SOFTWARE CONSUMPTION FROM INVENTORY. ONCE INVENTORY WAS THERE, IT CANNOT BE SAID THAT KALS INFORMATION SYST EMS LTD., WAS NOT HAVING ANY REVENUE FROM PRODUCTS. THE LD. DR HAS S UBMITTED THAT THE PRINCIPAL ITEMS MENTIONED ON PAGE 258 DO NOT CONTAI N ANY ITEM CODE NUMBER. HOWEVER, THIS INFORMATION IS ONLY WITH REF ERENCE TO PRINCIPAL PRODUCTS AND NOT WITH REFERENCE TO THE ENTIRE SPECT RUM OF PRODUCTS/SERVICES DEALT BY THE COMPANY. CONSISTENT WITH THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, WE DIRECT FOR THE EXCLUSION OF THIS COMPANY. THE SECOND ISSUE IS REG ARDING DENIAL OF WORKING CAPITAL ADJUSTMENT. THE REASON FOR DENIAL IS THAT THE ASSESSEE HAD NOT SUBMITTED THE DETAILS AS HAS BEEN OBSERVED BY LD. TPO IN PARA ITA NO.4403/DEL/2012 16 7.1 OF HIS ORDER. THE LD. COUNSEL REFERRED TO PAGE 140 OF THE PAPER BOOK AND POINTED OUT THAT THE ASSESSEE HAD MADE SUBMISSI ONS IN THIS REGARD BEFORE THE LD. DRP IN REGARD TO ALL THE FOUR COMPAR ABLES SELECTED BY LD. DRP. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF LD. TPO TO CONSIDER THE INFORMATION FURNISHED BY THE ASSESSEE IN REGARD TO ITS CLAIM FOR WORKING CAPITAL ADJUSTMENT. 17. IN THE RESULT, THIS ISSUE IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 19.05.201 7. SD/- SD/- [KULDIP SINGH] [S.V. MEHROTRA] JUDICIAL MEMBER VICE PRESIDENT DATED, 19 TH MAY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.