M/s Ariba Technologies India Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 441/BANG/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8661 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 29-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Revenue expenditure
• Section: 92C; 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE S HRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I.T . (T.P) A. NO. 441 /BANG/201 2 (ASSESSMENT YEAR : 200 7 - 08 ) M/S. ARIBA TECHNOLOGIES INDIA PVT. LTD., RMZ I CON, NO.51, PALACE ROAD, BANGALORE - 560 0 52 . APPELLANT. VS. INCOME TAX OFFICER , WARD 11(1), BANGALORE. .. RESPONDENT. I.T. (T.P) A. NO.442/BANG/2012 (ASSESSMENT YEAR : 2007 - 08) (BY REVENUE) ASSESSEE BY : SHRI P.K. PRASAD, C.A. R E VENUE BY : SHRI P.K. SRIHARI, ADDL.CIT (D.R) DATE OF H EARING : 3.12.2015. DATE OF P RONOUNCEMENT : 02.02. 201 6 . O R D E R PER SHRI VIJAYPAL RAO, J .M . : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 31.12.2012 OF C OMMISSIONER OF INCOME TAX (APPEALS ) - IV, BANGALORE FOR THE ASSESSMENT YEAR 2007 - 08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL : 2 IT(T.P)A NOS.441 & 442/BANG/2012 THE GROUNDS TAKEN BY THE APPELLANT ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1. THAT THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) IV, BANGALORE ( CIT (APPEALS) ), TO THE EXTENT PREJUDICIAL TO THE APPELLANT, IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. THAT THE LEARNED CIT (APPEALS) ERRED IN UPHOLDING THE REJECTION OF TRANSFER PRICING ( TP ) DOCUMENTATION BY THE LEARNED TRANSFER PRIC ING OFFICER ( TPO )/ ASSESSING OFFICER ( AO ) AND IN MAKING AN ADJUSTMENT TO THE TRANSFER PRICE OF THE APPELLANT IN RESPECT OF ITS SOFTWARE DEVELOPMENT SERVICES BY RS. 76,95,410 AND IN THE INFORMATION TECHNOLOGY ENABLED SERVICES BY RS. 20,31,990. 3. THAT ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) ERRED IN; (A) UPHOLDING THE REJECTION OF COMPARABILITY ANALYSIS OF THE APPELLANT IN THE TP DOCUMENTATION AND ACCEPTING THE COMPARABILITY ANALYSIS PERFORMED BY THE LEARNED TPO IN THE TP OR DER. (B) PERFORMING HIS OWN COMPARABILITY ANALYSIS BY MODIFYING SOME OF THE FILTERS APPLIED BY THE LEARNED TPO IN THE TP ORDER, WITHOUT PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT. (C) ARBITRARILY ARRIVING AT A SET OF COMPANIES AS COMPARABLE TO THE SO FTWARE DEVELOPMENT AND INFORMATION TECHNOLOGY ENABLED SERVICES OF THE APPELLANT, ON REJECTING COMPANIES THAT ARE OTHERWISE FUNCTIONALLY COMPARABLE TO THE APPELLANT AND ON INCLUSION OF COMPANIES THAT OTHERWISE FAIL THE TEST OF COMPARABILITY. (D) REJECTING THE S EGMENTAL COMPANIES IN THE INFORMATION TECHNOLOGY ENABLED SERVICES SEGMENT ONLY FOR THE REASON THAT THE SOFTWARE DEVELOPMENT SERVICE SEGMENT OF THESE COMPANIES WERE NOT COMPARABLE TO THAT OF THE APPELLANT. 3 IT(T.P)A NOS.441 & 442/BANG/2012 (E) DISREGARDING APPLICATION OF MULTIPLE YEAR/ PRIOR YE AR DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FINANCIAL YEAR 2006 - 07) DATA FOR COMPANIES SHOULD BE USED FOR COMPARABILITY. (F) UPHOLDING THE LEARNED TPO S APPROACH OF USING DATA AS AT THE TIME OF ASSESSMENT PROCEE DINGS, INSTEAD OF THAT AVAILABLE AS ON THE DATE OF PREPARING THE TP DOCUMENTATION FOR COMPARABLE COMPANIES WHILE DETERMINING THE ARM S LENGTH PRICE. (G) UPHOLDING THE APPROACH ADOPTED BY THE LEARNED TPO OF COLLECTING SELECTIVE INFORMATION OF THE COMPANIES BY E XERCISING POWER GRANTED TO HIM UNDER SECTION 133(6) OF THE INCOME TAX ACT, 1961 ( ACT ) THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DOMAIN. (H) NOT PROVIDING ANY ADJUSTMENT TOWARDS THE DIFFERENCE IN THE RISK PROFILE BETWEEN THE APPELLANT AND THE ENTR EPRENEURIAL COMPANIES SELECTED AS COMPARABLES WHILE DETERMINING THE ARM S LENGTH PRICE. 4. CONSEQUENT TO THE ABOVE ADJUSTMENT, THE LEARNED CIT (APPEALS) ERRED IN DIRECTING THE LEARNED AO TO LEVY INTEREST UNDER SECTION 234B OF THE ACT. 2. THE ASSESSEE IS A SUBSIDIARY OF ARIBA TECHNOLOGIES , NETHERLAND B.V. WHICH IS IN TURN SUBSIDIARY OF ARIBA INC US. THE BUSINESS OF THE ASSESSEE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT AND INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) TO ITS ASSOCIATE ENTERPRISE ON A C OST PLUS BASIS. THUS THE ASSESSEE IS PROVIDING SERVICES IN TWO SEGMENTS I.E. SOFTWARE DEVELOPMENT SERVICES AND ITES. THE FINANCIAL RESULTS REPORTED BY THE ASSESSEE ARE AS UNDER : - 4 IT(T.P)A NOS.441 & 442/BANG/2012 DESCRIPTION SOFTWARE DEVELOPMENT SERVICES IT ENABLES SERVICES (RS.) AM OUNT (RS.) OPERATING REVENUE RS. 18,28,00,964/ - 8,66,47,650/ - 26,94,48,614/ - OPERATING COST RS. 16,10,69,406/ - 7,30,18,028/ - 23,40,87,434/ - OPERATING PROFIT (PBIT) RS. 2,17,31,558/ - 3,53,61,181/ - 3,53,61,180/ - OPERATING PROFIT TO COST RATIO 13% 19% 3. T HE ASSESSEE HAS REPORTED INTERNATIONAL TRANSACTIONS IN THESE TWO SEGMENTS AS UN DER : - 1. CONTRACT SOFTWARE DEVELOPMENT SERVICES RS. 18,28,00,964/ - READJUSTMENT DONE BY TPO 2. IT ENABLED SERVICES RS. 8,66,47,650/ - READJUSTMENT DONE BY TPO 4. TH E A SSESSEE IN ITS T.P. ANALYSIS HAS BENCH MARKED ITS INTERNATIONAL TRANSACTIONS BY ADOPTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD (MAM) AND OPERATING PROF IT TO TOTAL COST (OP/TC) AS PRO F IT LEVEL I NDICATOR (PLI). 5 IT(T.P)A NOS.441 & 442/BANG/2012 FIRST WE WILL TAKE UP THE SOFTWARE DEVELOPMENT SERVICES SEGMENT. 5. THE ASSESSEE SELECTED 18 COMPARABLES FOR BENCH MARKING ITS INTERNATIONAL TRANSACTIONS AND ARRIVED AT MEAN MARGIN OF 11.3 0 % AS UNDER : SL. NO COMPARABLE COMPANY WITHOUT ADJS. MARKUP ON TOTAL COST 1. BODHTREE CONSULTING LIMITED (SEG) 18% 2. F C S SOFTWARE SOLUTIONS LTD. 14% 3. GOLDSTONE TECHNOLOGIES LTD. 3% 4. LARSEN & TOUBRO INFOTECH LTD. 11% 5. MELSTAR INFORMATION TECHNOLOGIES LTD. 0% 6. ORIENT INFORMATION TECHNOLOGY LTD - 6% 7. POWERSOFT GLOBA L SOLUTIONS LTD 19% 8. SIP TECHNOLOGIES & EXPORTS LTD 25% 9. SONATA SOFTWARE LTD. 9% 10. SYNETAIROS TECHNOLOGIES LIMITED 11% 11. TRIDENT INFO - TECH CORPN.LTD 66% 12. VJIL CONSULTING LTD 7% 13. AKSHAY SOFTWARE 7% 6 IT(T.P)A NOS.441 & 442/BANG/2012 SL. NO COMPARABLE COMPANY WITHOUT ADJS. MARKUP ON TOTAL COST TECHNOLOGIES LTD. 14. CAMBRIDGE TECHNO LOGY ENTERPRISES LTD. 21% 15. I C R A TECHNO ANALYTICS LTD. 15% 16 MINDTREE CONSULTING LIMITED 11% 17 COMPUTECH INTERNATIONAL LIMITED 7% 18 KARUTURI NETWORKS 4% 6. THUS THE ASSESSEE CLAIMED ITS INTERNATIONAL TRANSACTIONS IN SOFTWARE DEVEL OPMENT SERVICES SEGMENT AT ARM S LENGTH HAVING OPERA TING PROFIT AT 13%. THE TPO REJECTED THE TP ANALYSIS OF THE ASSES SEE ON VARIOUS GROUNDS INCLUDING THE ASSESSEE HAS USED MULTIPLE YEAR DATA INSTEAD OF CURRENT YEAR. THE TPO CARRIED A FRESH SEARCH AND SE LECTED 26 COMPARABLES. THE SET OF COMPARABLES SELECTED BY THE TPO ARE AS UNDER : SL. NO . COMPARABLE COMPANY NAME OP TO TOTAL COST % AS PER TP ORDER(AFTER WC) 1. ACCEL TRANSMATIC LTD (SEG) 19.16 7 IT(T.P)A NOS.441 & 442/BANG/2012 SL. NO . COMPARABLE COMPANY NAME OP TO TOTAL COST % AS PER TP ORDER(AFTER WC) 2. AVANI CIN CO M TECHNOLOGIES LTD 50.12 3. CELESTIAL LAB S LTD 53.20% 4. DATAMATICS LTD - 1.48 5. E - ZEST SOLUTIONS LTD 35.05 6. FLEXTRONICS SOFTWARE SYSTEMS LTD 24.08 7. GEOMETRIC LTD (SEG) 8.71 8. HELIOS & MATHESON INFORMATION TECHNOLOGY 33.43 9. I GATE GLOBAL SOLUTIONS LTD 4.72 10. INFOSYS TECHNOLOGIES L TD 37.95 11. ISHIRINFOTECH LTD 29.42 12. KALS INFORMATION SYSTEMS LTD (SEG.) 22.47 13. LGS GLOBAL LTD (LANCO GLOBAL SOLUTIONS LTD) 14.22 14. LUCID SOFTWARE LTD 16.11 15. MEDIASOFT SOLUTIONS LTD 0.70 16. MEGASOFT LTD (SEG) 50.26 17. MINDTREE CONSULTI NG LTD 14.43 18. PERSISTENT SYSTEMS LTD 22.47 19. QUINTEGRA SOLUTIONS LTD 8.33 8 IT(T.P)A NOS.441 & 442/BANG/2012 SL. NO . COMPARABLE COMPANY NAME OP TO TOTAL COST % AS PER TP ORDER(AFTER WC) 20. R S SOFTWARE (INDIA) LTD 12.21 21. R SYSTEMS INTERNATIONAL (SEG) 12.32 22. SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG) 20.13 23. S I P TECHNOLOGIES & EXPORTS LTD. 9.79 24. TATA ELXSI LTD (SEG) 25.20 25. THIRDWARE SOLUTIONS LTD 20.57 26. WIPRO LTD 33.48 AS IT IS CLEAR FROM THE SET OF COMPARABLES SELECTED BY THE ASSESSEE AND TPO ONLY TWO COMPARABLES ARE COMMON WHICH ARE MENTIONED AT SL. NOS. 19 & 23 OF THE TPO S LIS T. THE TPO HAS ARRIVED AT THE AM OF THE COMPARABLES AFTER WORKING CAPITAL ADJUSTMENT AT 22.19% IN COMPARISON TO THE ASSESSEE'S OPERATING MARGIN AT 13%. THUS THE TPO PROPOSED TO MAKE AN UPWARD ADJUSTMENT OF RS.1,39,53,888. THE ASSESSING OFFICER MADE TH E CORRESPONDING ADDITION ON ACCOUNT OF TP ADJUSTMENT AS PROPOSED BY THE TPO WHILE PASSING THE ASSESSMENT ORDER. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS) AND RAISED THE OBJECTIONS AGAINST THE COMPANIES 9 IT(T.P)A NOS.441 & 442/BANG/2012 SELECTED B Y THE TPO AS COMPARABLE IN RESPECT OF TH E INTERNATIONAL TRANSACTIONS PERTAIN TO SOFTWARE DEVELOPMENT SERVICES SEGMENT. THE CIT (APPEALS) EXCLUDED 23 COMPANIES FROM THE SET OF COMPARABLE COMPANIES SELECTED BY THE TPO AND RETAIN ONLY 3 COMPANIES WHICH ARE AS UNDER : - SL.NO. COMPANY NAME OP TO TOTAL COST % (BEFORE WORKING CAPITAL ADJUSTMENT) OP TO TOTAL COST % (AFTER WORKING CAPITAL ADJUSTMENT) 1. E - ZEST SOLUTIONS LTD. 36.12 35.0535.05 2. KALS INFORMATION SYSTEMS LTD. (SEG.) 30.55 22.47 3. LUCID SOFTWARE LTD. 19.37 16.11 MEAN MARGINAFTER WORKING CAPITAL ADJUSTMENT 73.63/3 24.54 7. THUS THE CIT (APPEALS) HAS DELETED / EXCLUDED ALL THE COMPANIES SELECTED BY THE TPO AGAINST WHICH THE ASSESSEE RAISED OBJECTIONS EXCEPT KALS INFORMATION SYSTEMS (SEG.) AND LUCID SOFTWARE LTD. THE ASSESSEE DID NOT RAISED ANY OBJECTIONS AGAINST EJUST SOLUTIONS. ACCORDINGLY THE CIT (APPEALS) RECOMPUTED THE MEAN MARGIN OF THREE COMPANIES AFTER WORKING CAPITAL ADJUSTMENT AT 24.54% AND CONFIRMED THE TP ADJUSTMENT TO THE EXTE NT OF 77, 410 AS AGAINST THE ORIGINAL 1,39, 53, 888. T HE CIT (APPEALS) GRANTED PART RELIEF TO THE ASSESSEE IN RESPECT OF THE TP ADJUSTMENT IN SOFTWARE DEVELOPMENT SERVICES 10 IT(T.P)A NOS.441 & 442/BANG/2012 SEGMENT. WHILE REJECTING THE 23 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES, T HE CIT (APPEALS) APPLIED FILTER OF 0% REVENUE FROM RELATED PARTY T RANSACTIONS (RPT). THEREFORE, THE REVENUE AS WELL AS THE ASSESSEE ARE AGGRIEVED BY THE IMPUGNED ORDER OF THE CIT (APPEALS) AND FILED THE RESPECTIVE APPEALS BEFORE THE TRIBUNAL. 8. FIRST WE WILL DEAL WITH THE ISSUE OF ADOPTING FILTER OF 0% REVENUE FROM RPT WHEREBY THE CIT (APPEALS) HAS EXCLUDED AS MANY AS 23 COMPARABLES FROM THE LIST SELECTED BY THE TPO. 9. WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE AS WELL AS LEARNED DEPAR TMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE TPO HAS APPLIED THE FILTER OF 25% RPT WHEREAS THE ASSESSEE HAS CONTENDED THAT THE FILTER OF REVENUE FROM RPT SHOULD BE APPLIED AT 15% INSTEAD OF 25% APPLIED BY THE TPO. THE LEARN ED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THERE IS NO STANDARD RULE FOR APPLYING THE FILTER OF 15% REGARDING THE RPT. IT IS PERTINENT TO NOTE THAT T HE ALP AS PER THE PROVISIONS OF THE TP HAS TO BE DETERMINED BY CONSIDERING UNCONTROLLED COMPARABLE PRICES AND THEREFORE ONLY UNRELATED PRICES HAVE TO BE TAKEN INTO ACCOUNT TO BENCH MARKED INTERNATIONAL TRANSACTIONS. HOWEVER, 0% RPT OF THE COMPARABLE PRICE IS AN IMPOSSIBLE SITUATION AND THEREFORE A REASONABLE TOLERANCE RANGE FROM REVENUE FROM RPT CAN B E CONSIDERED FOR SELECTING UNCONTROLLED COMPARABLES. THERE IS 11 IT(T.P)A NOS.441 & 442/BANG/2012 NO DISPUTE THAT THERE CANNOT BE A SINGLE CRITERIA/PARAMETER TO BE APPLIED AS A GENERAL RULE IN ALL THE CASES. THE TOLERANCE RANGE VARIES FROM CASE TO CASE AND DEPENDING UPON THE AVAILABILITY O F COMPARABLES FOR A PARTICULAR CASE. THUS IF THE COMPARABLES OF AN INTERNATIONAL TRANSACTIONS ARE EASILY AVAILABLE IN SUFFICIENT NUMBER THEN THIS TOLERANCE RANGE OF RPT SHOULD BE RESTRICTED TO MINIMUM. THOUGH THERE IS NO SPECIFIED RANGE IN THE PROVISIO NS OF ACT OR RULES, HOWEVER, IN DUE COURSE OF DISCUSSION AND ADJUDICATION OF THIS ISSUE IN A SERIES OF DECISIONS OF THIS TRIBUNAL, A COMMONLY ACCEPTED TOLERANCE RANGE OF 5% TO 25% OF TOTAL REVENUE FROM RPT HAS BEEN CONSIDERED AS REASONABLE DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. IN THE CASE OF THE ASSESSEE BEFORE US, THE ASSESSEE ITSELF HAS SELECTED 18 COMPARABLES AND THE TPO/A.O. SELECTED 26 COMPARABLES. THEREFORE, THE AVAILABILITY OF THE COMPARABLES OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IS NOT A DIFFICULT TASK. THUS , WHEN A GOOD NUMBER OF COMPARABLES ARE AVAILABLE THEN THE RPT CANNOT BE ALLOWED TO THE EXTREME LIMIT OF 25% OF REVENUE. ACCORDINGLY, IN ORDER TO DETERMINE THE ALP CONSIDERING BY CONSIDERING THE UNCONTROLLED C OMPARABLE TRANSACTIONS, IT SHOULD BE KEPT IN MIND THAT THE UNCONTROLLED TRANSACTIONS SHOULD BE LEAST INFLUENCED BY THE CONTROLLED AND RELATED PRICES. T HIS TRIBUNAL IN THE SERIES OF DECISIONS HAS TAKEN A VIEW THAT WHEN GOOD NUMBER OF COMPARABLES ARE AVAILA BLE, THEN THE THRESHOLD LIMIT OF RPT SHALL NOT BE MORE THAN 15% OF TOTAL REVENUE. I N VIEW OF THE FACTS 12 IT(T.P)A NOS.441 & 442/BANG/2012 AND CIRCUMSTANCES OF THE CASE WHEN GOOD NUMBER OF COMPARABLES AVAILABLE, THEN WE ARE OF THE CONSIDERED OPINION THAT THE RPT FILTER OF 15% IS PROPER IN T HE CASE OF THE ASSESSEE. CONSEQUENTLY, THE IMPUGNED ORDER OF THE CIT (APPEALS) WHEREBY APPLIED FILTER OF 0% RPT IS SET ASIDE. HENCE WE DIRECT THE ASSESSING OFFICER/TPO TO APPLY THE RPT FILTER OF 15% AND THEN SELECT THE COMPARABLES. 10. NOW WE WILL TAKE UP THE FUNCTIONAL COMPARABILITY OF THE OTHER COMPANIES SELECTED BY THE TPO/A.O. 10.1.1 ACCEL TRANSMATIC LTD. (SEG.) : THIS COMPANY WAS SELECTED BY THE TPO FOR DETERMINING THE ALP. THOUGH THE ASSESSEE HAS NOT CONTESTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BY THE TPO HOWEVER, THIS COMPANY WAS EXCLUDED BY THE CIT (APPEALS) BY APPLYING 0% RPT FILTER. IN VIEW OF OUR FINDING ON THE ISSUE OF RPT FILTER, WE FIND THAT THE ASSESSEE HAS CLAIMED THAT THIS COMPANY IS HAVING 19.29% OF REVENUE FROM RPT. ON THE OTHER HAND AS IT IS CLEAR FROM THE DETAILS REPRODUCED BY THE CIT (APPEALS) IN PARA 2.10 OF THE IMPUGNED ORDER THAT THE RPT REVENUE IS 6.2% OF THE SALES. THEREFORE, THERE ARE CONTRADICTORY CLAIMS ON BEHALF OF THE PARTIES. THE LEARNED AU THORISED REPRESENTATIVE OF THE ASSESSEE HAS FURTHER CONTENDED THAT THIS COMPANY IS ENGAGED IN THE PRODUCT MANUFACTURING ACTIVITY AND HAS SHOWN MANUFACTURING EXPENDITURE IN THE BOOKS OF ACCOUNTS WHICH IS 7.88 % OF TOTAL EXPENDITURE. HE HAS REFERRED TO THE RELEVANT PART OF THE ANNUAL REPORT AND SUBMITTED THAT THIS 13 IT(T.P)A NOS.441 & 442/BANG/2012 COMPANY IS ENGAGED IN THE BUSINESS OF DIVERSIFIED ACTI VITIES LIKE TRANSMATIC SYSTEM, ACCEL IT A CADEMY AND A CCEL A NIMATION S TUDIO. FURTHER, THERE IS AN EXTRA ORDINARY EVENT WHEN THIS COMPANY HI VED OF ITS DIVISION TO A SUBSIDIARY AND THIS COMPANY HAS STARTED ITS ANIMATION DIVISION . THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS COMPANY IS OTHERWISE NOT COMPARABLE WITH THAT OF THE ASSESSEE. HE HAS POINTED OUT THAT THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES. HE HAS ALSO RELIED UPON THE FOLLOWING DECISIONS : - CASES PERTAINING TO ASSTT. YEAR : 2007 08 CASES PERTAINING TO OTHER ASSTT. YEARS TRILOGY E BUSINESS SOFTWARE ITA NO. 1054/ BANG /2011 (AY 2007 - 08) M/S. ARIBA TECHNOLOGIES INDIA PRIVATE LIMITED (IT (TP) NO. 1179/BANG/2010) (AY 2006 - 07), BEARING POINT BUSINESS CONSULTING PRIVATE LTD. (ITA NO. 1124/BANG/2011, TS - 758 - ITAT - 2012(BANG) - TP, ITAT BANG ALORE)(AY 2007 - 08) FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. [IT(TP)A NO.1086/BANG/2011, AY 2007 - 08] M/S. HUAWEI TECHNOLOGIES INDIA PRIVATE LIMITED (IT(TP) A. NO.583/BANG/2012) (AY 2007 - 08) CSR INDIA PVT. LTD. {ITA NO. 1119/BANG/2011, AY 2007 - 0 8) 14 IT(T.P)A NOS.441 & 442/BANG/2012 10.1.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE CIT (APPEALS) HAS NOT EXAMINED THE FUNCTIONAL COMPARABILITY OF THIS COMPANY AND REJECTED THE SAME / EXCLUDED THE SAME BY APPLYING 0% RPT FILTER. HE HAS REL IED UPON THE FINDING OF THE TPO AND SUBMITTED THAT THE TPO HAS EXAMINED THE FUNCTIONAL COMPARABILITY OF THIS COMPANY AND THE ASSESSEE DID NOT DISPUTE BEFORE THE TPO OR BEFORE THE CIT (APPEALS). 10.1.3 WE HAVE CONSIDERED THE RIVAL SUBMIS SIONS AS WELL AS R ELEVANT MATERIAL AVAILABLE ON RECORD. THEREFORE, THIS COMPANY CANNOT BE EXCLUDED FROM THE LIST OF COMPARABLES. THERE IS NO DISPUTE THAT THE ASSESSEE DID NOT OBJECT THIS COMPANY AS COMPARABLE BY THE TPO. EVEN BEFORE THE CIT (APPEALS) THE ASSESSEE DID NOT R AISE ANY OBJECTION FOR INCLUSION OF THIS COMPANY. HOWEVER, THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY BY APPLYING 0% RPT FILTER. THUS THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) ON THE ISSUE OF APPLYING 0% RPT FILTER. AS REGARDS THE FUNC TIONAL COMPARABILITY OF THIS COMPANY, THIS ISSUE DOES NOT EMANATE AS THE ASSESSEE DID NOT RAISE ANY OBJECTION AGAINST THE COMPARABILITY OF THIS COMPANY. FURTHER THE ASSESSEE HAS NOT FILED ANY ADDITIONAL GROUND FOR EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. WE FIND THAT THE REVENUE FROM RPT OF THIS COMPANY IS 6.40% AND THEREFORE IT IS MUCH BELOW THE THRESHOLD OF 15% AS DISCUSSED IN THE FOREGOING PARAGRAPHS. THUS IN THE ABSENCE OF ANY OBJECTIONS ON THE FUNCTIONAL COMPARABILITY OF THIS COMPAN Y BY THE 15 IT(T.P)A NOS.441 & 442/BANG/2012 ASSESSEE EITHER BEFORE THE AUTHORITIES BELOW OR BEFORE US BY WAY OF ADDITIONAL GROUND, WE RESTORE THIS COMPANY TO THE LIST OF COMPARABLES. 10.2.1 AVANI CINCOM TECHNOLOGIES LTD. : - THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND OF FUNCTIONAL DIS - SIMILARITY. THE CIT (APPEALS) INSTEAD OF DECIDING THE FUNCTION AL DIS - SIMILARITY HAS EXCLUDED THIS COMPANY BY APPLYING THE RPT FILTER AT 0%. 10.2.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE DEVELOPMENT SERVICES AND IT SERVICES TRAVEL SOLUTIONS, INSURANCE SOLUTIONS, RELATION SHIP MANAGEMENT, ETC. THERE IS NO SEGMENTAL DATA AVAILABLE IN RESPECT OF SOFTWARE DEVELOPMEN T SERVICES. THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS : CASES PERTAINING TO ASSTT. YEAR TRILOGY E BUSINESS SOFTWARE ITA NO. 1054/ BANG /201 1 (AY 2007 - 08) BEARING POINT BUSINESS CONSULTING PRIVATE LTD. (ITA NO. 1124/BANG/2011, TS - 758 - ITAT - 2012(BANG) - TP, ITAT BANGALORE)(AY 2007 - 08) CSR INDIA PVT. LTD. {ITA NO. 1119/BANG/2011, [2013] 31 TAXMANN.COM 265 (BANGALORE - TRIB.), [TS - 68 - ITAT - 2013(BAN G) - TP]}, ITAT BANGALORE(AY 2007 - 08) M/S. HUAWEI TECHNOLOGIES INDIA PRIVATE LIMITED (IT(TP) A. NO.583/BANG/2012) (AY 2007 - 08) EMC DATA STORAGE SYSTEMS (INDIA) PVT. LTD. (IT(TP) A NO. 973/BANG/2010) (AY 2007 - 08) 16 IT(T.P)A NOS.441 & 442/BANG/2012 10.2.3 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE FINDING OF THE TPO AND SUBMITTED THAT THE TPO FOUND THIS COMPANY IS ENGAGED IN THE SIMILAR BUSINESS ACTIVITY AS OF THE ASSESSEE AND THEREFORE IT IS A GOOD COMPARABLE. 10.2.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS REL EVANT MATERIAL ON RECORD. T HE LEARNED AUTHORISED REPRESENTATIVE HAS CONTENDED THAT THIS COMPANY IS ENGA G ED IN THE DIVERSIFIED ACTIVITY WHICH ARE DIS - SIMIALR TO THE ASSESSEE. HE HAS ASSERTED THAT THIS COMPANY IS ENGAGED IN THE S OFTWARE DEVELOPMENT AND IT SERVICES AND THERE IS NO SEGMENTAL DATA AVAILABLE FOR SOFTWARE DEVELOPMENT. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON VARIOUS DECISIONS. AFTER GOING THROUGH THE A NNUAL R EPORT OF THIS COMPANY AS WELL AS THE AUDITOR S REPO RT, WE FIND THAT THIS COMPANY IS A SOFTWARE SERVICE PROVIDER AND DOES NOT REQUIRE TO HOLD INVENTORIES AS CLEARLY REPORTED BY THE AUDITOR OF THE ASSESSEE . FURTHER THIS COMPANY HAS RECEIVED THE REVENUE OF RS.3,54,77,523 AS EARNING IN FOREIGN EXCHANGE OF SO FTWARE EXPORT SERVICES. FROM THE PROFIT AND LOSS ACCOUNT, THIS COMPANY HAS REPORTED ONLY ONE SOURCE OF INCOME FRO M OPERATIONS AND THAT IS EXPORT IN FOREIGN CURRENCY. APART FR O M THIS REVENUE, ONLY A MINOR AMOUNT HAS BEEN SHOWN FROM THE INTEREST IN THE PROF IT AND LOSS ACCOUNT. FURTHER, WE FIND THAT THERE IS NO O THER REVENUE GENERATING SOURCE DURING THE YEAR UNDER CONSIDERATION. THEREFORE, WE FIND FROM THE ANNUAL REPORT OF THE 17 IT(T.P)A NOS.441 & 442/BANG/2012 COMPANY, THERE IS ONE SEGMENT I.E. SOFTWARE EXPORTS. THUS THE CONTENTION OF THE ASSESSEE IS THAT THIS COMPANY IS IN THE DIVERSIFIED ACTIVIT Y IS NOT FOU ND SUPPORT FROM THE RECORD AND THEREFORE IT IS CONTRARY TO THE RECORD. THE DECISIONS RELIED UPON BY THE ASSESSEE ALSO DOES NOT GIVE ANY FINDING OF FACT ON FUNCTIONAL DISSIMILARITY BUT THE EARLIER ORDER OF THE TRIBUNAL IN SOME OTHER CASES HAS BEEN FOLLOWED IN THESE DECISIONS. THERE IS NO I NDEPENDENT FINDING BY ANALYSING THE FACTS ON RECORD IN THESE DECISIONS . T HEREFORE WHEN WE ANALYSE THE RELEVANT RECORD AND DETAILS AS GIVEN IN THE ANN UAL REPORT, PROFIT AND LOSS ACCOUNT AND AUDITOR S REPORT, WE FIND THAT THIS COMPANY HAS EARNED REVENUE FROM ONLY ONE SOURCE WHICH IS SOFTWARE EXPORTS IN FOREIGN CURRENCY. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE OBJECTIONS RAISED BY THE ASSESSEE IN TH IS APPEAL. AS REGARDS THE HIGH PROFITS, THE SAME ITSELF IS NOT A GROUND FOR EXCLUSION OF THIS COMPANY OR TREATING THE SAME AS NOT COMPARABLE UNTIL AND UNLESS ANY EXTRA ORDINARY EVENT OCCUR ED DURING THE YEAR WHICH HAS RESULT ED ABNORMAL PROFIT. THEREFORE, ONLY THE EXTRA ORDINARY EVENT WHICH COULD HAVE RESULTED IN ABNORMAL RESULTS OR INCOME OF THE COMPARABLE COMPANY CAN BE CONSIDERED AS A REASON FOR EXCLUSION BUT IF THE COMPANY IS EARNING COMPARABLY HIGH PROFITS FROM ITS NORMAL BUSINESS ACTIVITY, THEN THE SA ME ITSELF IS NOT A GROUND FOR EXCLUSION, IF OTHERWISE COMPARABLE TO THAT OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT (APPEALS) EXCLUDING THIS COMPANY ON THE GROUND OF RELATED PARTY FILTER AT 0% 18 IT(T.P)A NOS.441 & 442/BANG/2012 AND RESTORE THE ORDER OF THE TPO/A.O. ON FUNCTIONAL COMPARABILITY OF THIS COMPANY. 10.3 CELESTIAL LAB S LIMITED : AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT COMPANY. IN THIS REGARD, THE FOLLOWING SUBMISSIO NS WERE MADE: - IN THE DIRECTOR S REPORT (PAGE 20 OF PB - IL), IT IS STATED THAT THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR IN - HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2AB) OF THE INCOME TAX ACT. AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER DEFERRED REVENUE EXPENDITURE (PAGE 31 OF PB - II), IT IS MENTIONED THAT, EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT OF NEW PRODUCTS HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AND THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQU ALLY YEARLY INSTALLMENTS FROM THE YEAR IN WHICH IT IS INCURRED. AN AMOUNT OF RS. 11,692,020/ - HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT AS DEFERRED REVENUE EXPENDITURE (PAGE 30 OF PB - II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS CO MPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF THIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFTWARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. FURTHER REFERENCE WAS ALSO MADE TO THE D ECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PRIVATE LTD. V. ADDL. CIT ITA 19 IT(T.P)A NOS.441 & 442/BANG/2012 NO.6623/MUM/2011 (FOR AY 2007 - 08) IN WHICH THE COMPARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RESEARCH SEGMENT WAS EXAMINED . 10.3.1 IT WAS SUBMI TTED BY LD A R OF THE ASSESSEE THAT THIS COMPANY IS OWNER OF IPR, IT HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECULE TO TREAT CANCER. THUS THIS COMPANY CANNOT BE CONSIDER ED AS A COMPARABLE OF ASSESSEE FOR THE REASON THAT THIS COMPANY HAS DIVERSE BUSINESS AND THIS COMPANY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJECTED AS A COMPARABLE BEING FUNCTIONALLY DIFFERENT. 10.3.2 ON THE OTHER HAND LD D R HAS RELIED UPON THE ORDER OF THE TPO A ND SUBMITTED THAT THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEVELOPMENT COMPANY AND THEREFORE THE MAIN ACTIVITY IS SIMILAR TO THAT OF ASSESSEE. 10.3.3 W E HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELLAS RELEVANT MATERIAL ON RECORD. THE BUSINESS ACTIV ITIES OF THIS COMPANY HAS BEEN EXAMINED AND ANALYSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PRIVATE LTD. V. ADDL. CIT (SUPRA) WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER: THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAGE - 389 OF T HE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS REPORT WHICH READS AS FOLLOWS: THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TOOL CELSUITE TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FOR DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER T HE COPY IF SIC (OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND TECHNOLOGY NEW DELHI) BASED ON OUR INSILICO EXPERTISE (APPLYING BIO - INFORMATICS TOOLS). THE COMPANY HAS 20 IT(T.P)A NOS.441 & 442/BANG/2012 DEVELOPED A MOLECULE TO TREAT LEUCODERMA AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE RESPONSE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDURES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTMENT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY HAS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKET INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN INDIA AND OVERSEAS. THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVEL OP NEW CANDIDATES DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY WILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA PRADESH. ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALSO IN THE F IELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF THE I PR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO - INFORMATICS TOOLS FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMPT MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING A DJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. BESIDES THE ABOVE, THE ASSESSEE HAS POINT OUT TO SEVERAL REFERENCES IN THE ANNUAL REPORT FOR 31.3.2007 HIGH LIGHTING THE FACT THAT THIS COMPANY WAS DEVELOPS BIOTECHNOLOGY PRODUCTS AND PROVIDES RELATED SOFTWARE DEVELOPMENT SERVICES. 21 IT(T.P)A NOS.441 & 442/BANG/2012 HAVING REGARD TO THE ABOVE FACTS AND CIRCUMSTANCES AS WELL AS THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEV A PHARMA PRIVATE LTD. V. ADDL. CIT (SUPRA) W E ARE OF THE VIEW THAT THIS COMPANY WAS BASICALLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS AND THEREFORE , THIS COMPANY CANNOT NOT BE CONSIDERED AS GOOD COMPARABLE OF ASSESSEE . 10. 4 DATAMATRICS LTD. : THIS COMPANY IS NOT DISPUTED OR CONTESTED BY ANY OF THE PARTIES THOUGH THE CIT (APPEALS) HAS DELETED THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND OF RELATED PARTY TRANSACTIONS. WE FIND THAT THE REVENUE FROM RPT OF THIS COMPANY IS 13.1% AND THEREFORE IT IS MUCH BELOW THE THRESHOLD OF 15% AS DISCUSSED IN THE FOREGOING PARAGRAPHS. THUS IN THE ABSENCE OF ANY OBJECTIONS ON THE FUNCTIONAL COMPARABILITY OF THIS COMPANY BY THE ASSESSEE EITHER BEFORE THE AUTHORITIES BELOW OR B EFORE US BY WAY OF ADDITIONAL GROUND, WE RESTORE THIS COMPANY TO THE LIST OF COMPARABLES. 10.5 E - ZEST SOLUTIONS L TD . : THIS COMPANY IS NOT DISPUTED OR CONTESTED BY THE ASSESSEE, THE CIT (APPEALS) HAS ALSO FOUND THAT IT IS A COMPARABLE, ACCORDINGLY , THERE IS NO SPECIFIC FINDING IS CALLED FOR ON THIS COMPANY. 10.6 .1 FLEXTRONICS SOFTWARE LTD. (SEG.) : THE ASSESSEE OBJECTED AGAINST THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUNDS THAT IT FAILS THE R&D FILTER AS WELL AS HA VING DIVERSIFIED SEGMENTS. THE CIT (APPEALS) EXCLUDED THIS COMPANY ON THE GROUND OF RPT. BEFORE US, THE LEARNED 22 IT(T.P)A NOS.441 & 442/BANG/2012 AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE R&D ACTIVITIES GIVING RAISE TO INTELLECTUAL PROPER TY RIGHTS (IPR). THEREFORE THIS COMPANY IS DIS - SIMILAR TO THAT OF THE ASSESSEE. HE HAS RELIED UPON THE FOLLOWING D ECISIONS : CASES PERTAINING TO ASSTT. YEAR DE SHAW INDIA SOFTWARE PVT LTD (ITA NO. 2071/HYD/2011, [TS - 348 - ITAT - 2013(HYD) - TP], ITAT HYDERA BAD) - THIS TRIBUNAL RULING HAS BEEN UPHELD BY THE HIGH COURT FOR THE STATE OF TELANGANA AND ANDHRA PRADESH - ITTA NO. 433 OF 2014 DATED 22 JULY 2014. MOTOROLA SOLUTIONS INDIA PVT LTD (ITA NO. 5637/DEL/2011, [TS - 240 - ITAT - 2014(DEL) - TP], ITAT DELHI) 10.6.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDERS OF THE TPO AND SUBMITTED THAT THIS COMPANY IS SIMILAR TO THAT OF THE ASSESSEE A ND THIS IS A GOOD COMPARABLE FOR DETERMINING THE ALP OF INTERNATIONAL TRANSACTIO NS. 10.6.3 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD, WE FIND THAT THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN THE CASE OF DE SHAW INDIA SOFTWARE PVT. LTD (SUPRA). THE HYD ERABAD BENCH OF THIS TRIBUNAL HAS DISCUSSED THE COMPARABILITY OF THIS COMPANY IN PARA 27 AT PAGE 13 OF THE ORDER AS UNDER : - 27. FLEXTRONICS SOFTWARE LTD. AND THIRDWARE SOFTWARE SOLUTIONS LTD. : THE ASSESSEE HAS OBJECTED TO THESE TWO COMPANIES TO BE TREATED AS COMPARABLE MAINLY ON THE GROUND THAT BOTH THESE COMPANIES ARE INTO PRODUCT DEVELOPMENT. WE FIND THAT IN CASE OF 23 IT(T.P)A NOS.441 & 442/BANG/2012 INTOTO SOFTWARE INDIA PVTG. LTD. (SUPRA) THE CO - ORDINATE BENCH OF THIS TRIBUNAL HAVING FOUND THAT THESE TWO COMPANIES ARE FUNCTIONA LLY DIFFERENT AS THEY ARE INTO PRODUCT DEVELOPMENT HAS DIRECTED EXCLUDING THESE COMPANIES FOR COMPARABILITY ANALYSIS. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL INCASE OF M/S. INTOTO SOFTWARE INDIA PVT. LTD. (SUPRA) WE A LSO DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE BOTH THESE COMPANIES. IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE FINDING OF THE TRIBUNAL IN CASE OF DE SHAW INDIA SOFTWARE PVT. LTD. HAS BEEN UPHELD BY THE HON'BLE HIGH COURT . BY FOLLOWING THE DECISION OF THE COORDINATE BENCH AT HYDERABAD AS WELL AS HON'BLE HIGH COURT, WE DIRECT THE TPO/A.O. TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES FOR DETERMINING THE ALP. 10.7.1 GEOMETRIC LTD. (SEG.) : THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMP ANY BEFORE THE TPO. THE CIT (APPEALS) EXCLUDED THIS COMPANY FROM THE SET OF COMPARABLES ON THE GROUND OF RPT FILTER. 10.7.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT THE R ELATED P ARTY RE VENUE IS 19.98% OF TOTAL SALE OF THIS COMPANY. THEREFORE, THIS COMPANY FAILS THE FILTER OF THRESHOLD LIMIT OF 15% RPT. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE CIT (APPEALS) TO EXCLUDE THIS COMPANY FROM THE LIST OF CO MPARABLES. 10.8 HELIOS & MATHESON INFORMATION TECHNOLOGY AND I GATE GLOBAL SOL UTIONS LTD. : THE ASSESSEE DID NOT OBJECT TO THE INCLUSION OF THESE TWO COMPANIES BEFORE CIT (APPEALS) OR EVEN BEFORE THIS TRIBUNAL. THE REVENUE IS AGGRIEVED 24 IT(T.P)A NOS.441 & 442/BANG/2012 ONLY ON ACCOUNT OF APPLYING THE 0% RPT FILTER BY THE CIT (APPEALS). IN VIEW OF OUR FINDING OF TOLERANCE RANGE OF RPT, THESE TWO COMPANIES ARE RESTORED TO THE LIST OF COMPARABLES OF TPO. 10.9.1 INFOSYS TECHNOLOGIES LTD. : THE ASSESSEE OBJECTED TO THIS COMPA NY BEFORE THE TPO ON THE GROUND OF BRAND VALUE HAVING TANGIBLES, RESEARCH AND DEVELOPMENT EXPENSES, SOFTWARE PRODUCTS, ETC. THE CIT (APPEALS) DELETED THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND OF RPT. 10.9.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY OWNS BRANDS AND INTANGIBLES AND ALSO HAVING DIVERSIFIED OPERATIONS AS REPORTED IN THE ANNUAL REPORT OF THIS COMPANY, THIS COMPANY EARNS FROM SOFTWARE PRODUCTS AND NO SEPARATE SEGMEN TAL DATA ARE REPORTED. THEREFORE, IN THE ABSENCE OF SEGMENTAL DATA AVAILABLE, THIS COMPANY CANNOT BE CONSIDERED AS GOOD COMPARABLE OF THE ASSESSEE. THIS COMPANY ALSO IS ENGAGED IN THE ACTIVITIES OF R & D. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS : CASES PERTAINING TO ASST. YEAR 2007 - 08 CASES PERTAINING TO OTHER ASST. YEARS TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. VS. DCIT ITA NO.1054/BANG/2012 (A.Y. 2007 - 08) ARIBA TECHNOLOGIES INDIA PVT. LTD. VS. ITO IT(TP)A NO.1179/ BANG/2010. CSR INDIA PVT. LTD. (A.Y 2007 - 08) ITA NO.1119/BANG/2011. AGNITY INDIA TECHNOLOGIES PVT. LTD. ITA NO.3856(DEL)/2010) ITAT, DELHI. THIS RULING HAS BEEN UPHELD BY THE HIGHCOURT (ITA NO.1204/2011, DATED JULY 2013). SCALE OF OPERATION, BRAND VALUE, ETC. 25 IT(T.P)A NOS.441 & 442/BANG/2012 10.9.3 ON THE OTHER HAND, THE LEARNED D.R. HAS RELIED UPON THE FINDINGS OF THE TPO AND SUBMITTED THAT THIS COMPANY IS IN BUSINESS OF SOFTWARE DEVELOPMENT SERVICES AND THEREFORE EXCEPT FOR MINOR VARIATIONS, THIS COMPANY IS COMPARABLE WITH THE ASSESSEE. 10.9.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS - SIMILAR AND DI FFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE WE ARE INCLINED TO AGREE WITH THE ARGUMENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWAR E PRODUCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE DELHI BENCH OF THIS TRIBUNAL IN CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856(DEL)/2010 (A.Y. 2006 - 07) AND THE FINDING OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT THAT THIS COMPANY CANNOT BE COMPARED WITH AN ORDINARY ENTITY BECAUSE OF THE SCALE OF OPERATIONS AND BRAND VALUE. IN THIS VIE W OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. ACCORDINGLY WE DIRECT THE TPO/A.O TO EXCLUDE 26 IT(T.P)A NOS.441 & 442/BANG/2012 THIS COMPANY FROM THE LIST OF COMPARABLES FOR DETERMINING THE ALP. IT IS ORDERED ACCORDINGLY. 10.10.1 ISHIR INFOTECH LTD. : THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY ON THE GROUND OF RPT AT 22%. THE CIT (APPEALS) EXCLUDED FROM THE LIST OF COMPARABLES BY APPLYING THE FILTER OF RPT. 10.10.2 WE HAVE HEARD THE LEARNED AUTHORISED RE PRESENTATIVE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. A T THE OUTSET WE NOTE THAT THE RPT REVENUE EARNED BY THIS COMPANY IS 21.97% AS STATED BY THE TPO AS WELL AS BY THE CIT (APPEALS). IN VIEW OF OUR FINDING ON THIS ISSUE THE RPT OF THIS COMPANY EXCEEDS THE THRESHOLD LIMIT OF 15%. A CCORDINGLY THIS COMPANY F AILS THE RPT FILTER AND IS DIRECTED TO EXCLUDE FROM THE LIST OF COMPARABLES. 10.11.1 KALS INFORMATION SYSTEMS LTD. (SEG.) : THE ASSESSEE O BJECTED THE INCLUSION OF THIS COMPANY ON THE GROUND OF FUNCTIONAL DIS - SIMILARITY AND ABSENCE 27 IT(T.P)A NOS.441 & 442/BANG/2012 OF SEGMENTAL DATA. THE CIT (APPEALS) UPHELD THE FUNCTIONAL COMPARABILITY OF THIS COMPANY AND INCLUSION OF THIS COMPANY AS COMPARABLE BY THE TPO. 10.11.2 BEF ORE US, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS THIS COMPANY IS A SOFTWARE PRODUCT COMPANY. HE HAS REFERRED TO ANNUAL REPORT OF THIS COMPANY AND PARTICULARLY THE BALANCE SHEE T AND PROFIT & LOSS ACCOUNT AND SUBMITTED THAT THIS COMPANY HAS SHOWN INVENTORIES IN THE FINANCIAL ACCOUNTS AND ALSO SHOWN THE REVENUE EARNED FROM THE SALES, SERVICES AND TRAINING. HE FURTHER SUBMITTED THAT THERE IS NO SEGMENTATION OF REVENUE AVAILABLE. HE HAS RELIED UPON THE FOLLOWING DECISIONS : CASES PERTAINING TO ASSTT. YEAR : 2007 08 ITA NO. 1124/BANG/2011, TS - 758 - ITAT - 2012(BANG) - TP, ITAT BANGALORE)(AY - 2007 - 08) TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011, ITAT BANGALORE) PTC SOFTWARE (INDIA) PVT. LTD. (ITA NO. 1605/PN/2011, TS - 149 - ITAT - 2013(PUN) - TP, ITAT PUNE)(AY 2007 - 08) CSR INDIA PVT. LTD. {ITA NO. 1119/BANG/2011, [2013] 31 TAXMANN.COM 265 (BANGALORE - TRIB.), [TS - 68 - ITAT - 2013(BANG) - TP]}, ITAT BANGALORE(AY 2007 - 08) M /S. HUAWEI TECHNOLOGIES INDIA PRIVATE LIMITED (IT(TP) A. NO.583/BANG/2012) (AY 2007 - 08) ARIBA TECHNOLOGIES INDIA PRIVATE LIMITED IT TP A NO. 1179/BANG 2010 10.11.3 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE FUNCTIONAL 28 IT(T.P)A NOS.441 & 442/BANG/2012 COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE TPO AS WELL AS BY THE CIT (APPEALS) AND THEREFORE THIS COMPANY IS FOUND A S A GOOD COMPARABLE. 10.11.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 WHEREIN THE TRIBUNAL HAS HELD IN PARAS 12 AND 13 AS UNDER : 12. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ON THE AFORESAID COMPARABLE COMPANIES IN THE CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT.LTD.(SUPRA): (D) KALS INFORMATION SYSTEMS LTD. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED IN PROVIDING TRAINING. IT WAS ALSO SUBMITTE D THAT AS PER THE ANNUAL REPOT, THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS Q 45,93,351. THE SAME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REFERENCE WAS MA DE TO THE PUNE BENCH TRIBUNAL S DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006 - 07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPAN IES. THE RELEVANT EXTRACT ARE AS 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 FUNCTIONALLY 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 DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE 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 ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAV E NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. 29 IT(T.P)A NOS.441 & 442/BANG/2012 BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATI ON SYSTEMS LIMITED SHOULD BE REJECTED AS A COMPARABLE. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMATION WHICH 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 HIGHLIGHTED 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 THE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE. (E) ACCEL TRANSMATIC LTD. 48. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF THE ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMENT SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECISION OF CAPGEMINI INDIA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP ACCEPTED THE CONTENTION OF THE ASSESSEE THAT ACCEL TRANSMATIC SHOULD BE REJECTED AS COMPARABLE. THE RELEVANT OBSERVATIONS OF DRP AS EXTRACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. THE ASSESSEE SUBMITTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 2005 - 06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITIES OF THE COMPANY WERE AS UNDER. (I) TRANSMATIC SYSTEM - DES IGN, DEVELOPMENT AND MANUFACTURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, TICKET VENDING SYSTEM (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENTRE FOR EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOLOGIES, OUTSOURCED PRODUCT DEVELOPMENT (III ) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS) - TRAINING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYSTEM MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ER ECTION, GAME ASSET DEVELOPMENT. 4.3 ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH THE ASSESSEE THAT THE COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF A CCEL IT AND ACCEL ANIMATION SERVICES FOR 30 IT(T.P)A NOS.441 & 442/BANG/2012 2D AND 3D ANIMATION AND THEREFORE ASSESSEE S CLAIM THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. DRP THEREFORE DIRECTED THE ASSESSING OFFICER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST OF COMP ARABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THIS COMPANY HAS RELATED PARTY TRANSACTIONS WHICH IS MORE THAN THE PERMITTED LEVEL AND THEREFORE SHOULD NOT BE TAKEN FOR COMPARABILITY PURPOSES. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT IF THE ABOVE COMPANY SHOULD NOT BE CONSIDERED AS COMPARABLE. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE TPO. 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE PLEA OF THE ASSE SSEE THAT THE AFORESAID COMPANY SHOULD NOT BE TREATED AS COMPARABLES WAS CONSIDERED BY THE TRIBUNAL IN CAPGEMINI INDIA LTD (SUPRA) WHERE THE ASSESSEE WAS SOFTWARE DEVELOPER. THE TRIBUNAL, IN THE SAID DECISION REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSE E, HAS ACCEPTED THAT THIS COMPANY WAS NOT COMPARABLE IN THE CASE OF THE ASSESSEES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPTING THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED AS COMP ARABLES. 13. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE AFORESAID COMPANIES WERE CONSIDERED AS COMPARABLE IS IDENTICAL IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT.LTD. (SUPRA). RESPECFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE IN THE CASE OF TRIIOLOGY E - BUSINESS SOFTWARE INDIA PVT.LTD.(SUPRA), WE DIRECT THAT KALS INFOSYSTEMS LTD. AND ACCEL TRANSMATIC LTD. BE EXCLUDED FROM THE LIST OF 20 COMPARABLE ARRIVED AT BY THE TPO. 10.11.5 WE FURTHER NOTE THAT THE FUNCTIONAL COMPARABILITY OF THIS COMPANY WITH THAT A SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL IN THE SAID CASE AS WELL AS IN OTHER CASES CITED SUPRA. ACCORDINGLY, BY FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL AND IN VI EW OF THE FACT THAT THE NATURE OF FUNCTIONS AND BUSINESS WHICH IS THE SOURCE OF REVENUE OF THIS COMPANY IS SOFTWARE PRODUCTS AND THEREFORE THIS COMPANY CANNOT BE A GOOD COMPARABLE FOR DETERMINING THE ALP. 31 IT(T.P)A NOS.441 & 442/BANG/2012 ACCORDINGLY, WE DIRECT THE A.O./TPO TO EXCLUDE TH IS COMPANY FROM THE LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINING THE ALP. 10.12 LGS GLOBAL LTD. : THE ASSESSEE DID NOT OBJECT FOR THE INCLUSION OF THIS COMPANY EITHER BEFORE THE TPO OR BEFORE THIS TRIBUNAL. THE CIT (APPEALS) HAS EXCL UDED THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND OF RPT FILTER APPLIED AT 0%. IN VIEW OF OUR FINDING ON THE TOLERANCE RANGE OF RPT IN THE CASE OF ASSESSEE AT 15%, WE RESTORE THIS COMPANY TO THE LIST OF COMPARABLES FOR DETERMINING THE ALP. A CCORDINGLY, THE IMPUGNED ORDER OF THE CIT (APPEALS) IS SET ASIDE TO THE EXTENT OF EXCLUSION OF THIS COMPANY AND THE ORDER OF THE TPO IS RESTORED. 10.13.1 LUCID SOFTWARE LTD. : THE ASSESSEE OBJECTED THE INCLUSION OF THIS C OMPANY IN THE LIST OF COMPAR ABLES ON THE GROUND OF FUNCTIONAL DIS - SIMILARITY. THE CIT (APPEALS) HAS CONFIRMED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES AND REJECTED THE CONTENTION OF THE ASSESSEE. 10.13.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE HA S SUBMITTED THAT THIS COMPANY IS A SOFTWARE PRODUCT COMPANY. THE COMPANY HAS DEBITED THE EXPENDITURE TO THE PROFIT AND LOSS ACCOUNT AS WORK IN PROGRESS. FURTHER, THIS COMPANY HAS EMPLOYED ABOUT 30% OF TOTAL CAPITAL IN PRODUCT DEVELOPMENT EXPENDITURE AS PER THE BALANCE SHEET. THE LEARNED AUTHORISED REPRESENTATIVE HAS POINTED OUT THAT THE TRI BUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT 32 IT(T.P)A NOS.441 & 442/BANG/2012 YEAR 2006 - 07 HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES. HE HAS RELIED UPON THE FOLLOWING DECISIONS : C ASES PERTAINING TO ASSTT. YEAR : 2007 08 CASES PERTAINING TO OTHER ASSTT. YEARS CSR INDIA PVT. LTD. {ITA NO. 1119/BANG/2011, [2013] 31 TAXMANN.COM 265 (BANGALORE - TRIB.), [TS - 68 - ITAT - 2013(BANG) - TP]}, ITAT BANGALORE(AY 2007 - 08) M/S. ARIBA TECHNOLOGIES IN DIA PRIVATE LIMTED (IT (TP) NO. 1179/BANG/2010) (AY 2006 - 07) DE SHAW INDIA SOFTWARE PVT LTD (ITA NO. 2071/HYD/2011, [TS - 348 - ITAT - 2013(HYD) - TP], ITAT HYDERABAD) - THIS TRIBUNAL RULING HAS BEEN UPHELD BY THE HIGH COURT FOR THE STATE OF TELANGANA AND ANDHRA PRADESH - ITTA NO. 433 OF 2014 DATED 22 JULY 2014 M/S. HUAWEI TECHNOLOGIES INDIA PRIVATE LIMITED (IT(TP) A. NO.583/BANG/2012) (AY 2007 - 08) 10.13.3 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE FUNCTIONAL COM PARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE TPO AS WELL AS BY THE CIT (APPEALS) AND IT WAS FOUND THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 10.13.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE FUNCTIONAL COMPARABILITY OF 33 IT(T.P)A NOS.441 & 442/BANG/2012 THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 WHEREIN THE TR IBUNAL HAS HELD IN PARAS 14 & 15 ARE AS UNDER : 14. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE COMPARABLE COMPANY CHOSEN BY THE TPO VIZ., LUCID SOFTWARE LIMITED, HAS TO BE EXCLUDED AS FUNCTIONALLY NOT COMPARABLE WITH THAT OF TH E ASSESSEE IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES INDIA PRIVATE LTD. IN ITA NO.7821/MUM/2011 , WHICH WAS FOLLOWED BY THE ITAT BANGALORE BENCH IN THE CASE OF LOGICA PRIVATE LTD. ITA NO.1129/BANG/2011 FOR AY 07 - 08, WHEREIN IT WAS HELD AS UNDER: - 7.2 LUCID SOFTWARE LIMITED IT HAS BEEN SUBMITTED BEFORE US THAT THIS COMPANY, BESIDES DOING SOFTWARE DEVELOPMENT SERVICES, IS ALSO INVOLVED IN DEVELOPMENT OF SOFTWARE PRODUCT. THE LEARNED AR HAS TRIED TO DIS TINGUISH BY POINTING OUT THAT PRODUCT DEVELOPMENT EXPENDITURE IN THIS CASE IS AROUND 39% OF THE CAPITAL EMPLOYED BY THE SAID COMPANY, AND, THEREFORE, SUCH A COMPANY CANNOT BE CONSIDERED AS TESTED PARTY. EVEN AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6), THE COMPANY HAS DESCRIBED ITS BUSINESS AS SOFTWARE DEVELOPMENT COMPANY OR PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. THIS INFORMATION ITSELF IS VERY VAGUE AS THE SEGMENTAL DETAILS OF OPERATING REVENUE HAS NOT BEEN MADE AVAILA BLE TO EXAMINE HOW MUCH IS THE RATIO OF SALE FROM SOFTWARE PRODUCT AND SALE OF SOFTWARE SERVICE AND DEVELOPMENT. LOOKING TO THE FACT THAT IT HAS DEVELOPED A SOFTWARE PRODUCT NAMED AS MUULAM WHICH IS USED FOR CIVIL ENGINEERING STRUCTURES AND THE PRODUCT D EVELOPMENT EXPENDITURE ITSELF IS SUBSTANTIAL VIS - A - VIS THE CAPITAL EMPLOYED BY THE SAID COMPANY, THIS CRITERIA FOR BEING TAKEN AS COMPARABLE PARTY, GETS VITIATED. FOR THE PURPOSE OF COMPARABILITY ANALYSIS, IT IS ESSENTIAL THAT THE CHARACTERISTICS AND THE F UNCTIONS ARE BY AND LARGE SIMILAR AS THAT OF THE ASSESSEE COMPANY AND T.P. ANALYSIS/STUDY CAN BE MADE WITH FEWEST AND MOST RELIABLE ADJUSTMENT. IF A COMPANY HAS EMPLOYED HEAVY CAPITAL IN DEVELOPMENT OF A PRODUCT THEN PROFITABILITY IN THE SALE OF PRODUCT WO ULD BE ENTIRELY DIFFERENT FROM THE COMPANY, WHO IS INVOLVED IN SERVICE SECTOR. THEREFORE, THIS COMPANY CANNOT BE TREATED AS HAVING SAME FUNCTION AND PROFITABILITY RATIO. IN OUR VIEW, DUE TO NON - AVAILABILITY OF FULL INFORMATION ABOUT THE SEGMENTAL DETAILS AS TO HOW MUCH IS THE SALE OF PRODUCT AND HOW MUCH IS FROM THE SERVICES, THEREFORE, THIS ENTITY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS FOR DETERMINING ARMS LENGTH PRICE IN THE CASE OF THE ASSESSEE. 34 IT(T.P)A NOS.441 & 442/BANG/2012 15. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE AFORESAID COMPANIES WERE CONSIDERED AS COMPARABLE IS IDENTICAL IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF LOGICA PRIVATE LTD., (SUPRA). RESPEC T FULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE IN THE CASE OF LOGICA PVT. LTD..(SUPRA), WE DIRECT THAT THE COMPANY VIZ., LUCID SOFTWARE BE EXCLUDED FROM THE LIST OF 20 COMPARABLE ARRIVED AT BY THE TPO. SIMILAR VIEW HAS BEEN TAKEN BY THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE OTHER CASES CITED SUPRA. ACCORDINGLY, FO LLOWING THE EAR LIER ORDERS OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 AS WELL AS IN THE OTHER CASES, WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES TO DETERMINE THE ALP. 10.14 MEDIASOFT SOLUT IONS LTD. : THE ASSESSEE DID NOT OBJECT THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES . HOWEVER, THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES ON FUNCTIONAL DIS - SIMILARITY. SINCE NEITHER THE ASSESSEE NOR THE REVEN UE CONTESTED AGAINST THE EXCLUSION OR INCLUSION OF THIS COMPANY, THEREFORE, NO SPECIFIC FINDING IS REQUIRED IN RESPECT OF THIS COMPANY AND THE FINDING OF THE CIT (APPEALS) IS UPHELD. 10.15.1 MEGASOFT LTD. : THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY ON THE GROUND OF FUNCTIONAL DIS - SIMILARITY AS WELL AS DIFFERENT FINANCIAL YEAR FOLLOWED BY THIS COMPANY. THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY ON THE GROUND OF RP{T AS WELL AS FUNCTIONAL DIS - SIMI LARITY . 35 IT(T.P)A NOS.441 & 442/BANG/2012 10.15.2 BEFORE US, TH E LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THERE IS AN EXTRA ORDINARY EVENT DURING THE YEAR UNDER CONSIDERATION AS THERE IS AN AMALGAMATION OF THIS COMP ANY. FURTHER THIS COMPANY FOLLOWS A DIFFERENT FINANCIAL YEAR ENDING AND THEREFORE, THE FIN ANCIAL RESULTS ARE NOT CONTEMPORANEOUS AND C A NNOT BE COMPARED WITH ASSESSEE . IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS : CASES PERTAINING TO ASSTT. YEAR : 2007 08 TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054 /BANG/2011, ITAT BANGALORE). HUAWEI TECHNOLOGIES INDIA PVT. LTD. (ITA NO. 583/BANG/2012, AY 2207 - 08) 10.15.3 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE ALLEGED EXTRA ORDINARY EVENT HAS NOT AFFECTED THE BUSIN ESS MODEL OR FUNCTIONS OF THIS COMPANY, THEREFORE, THE SAME ITSELF CANNOT BE A REASON FOR EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. HE HAS RELIED UPON THE ORDER OF THE TPO. 10.15.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT THE OUTS ET, WE NOTE THAT THE COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). IN THE SUBSEQUENT DECISION IN THE CASE OF HUAWEI TECHNOLOGIES 36 IT(T.P)A NOS.441 & 442/BANG/2012 INDIA PVT. L TD. (SUP R A), THE TRIBUNAL HAS AGAIN EXAMINED THE FUNCTIONAL COMPARABILITY OF THIS COMPANY IN PARAS 26 & 27 AS UNDER : - 26. AS FAR AS SL.NO.24 VIZ., MEGASOFT LTD. OF THE LIST OF COMPARABLES CHOSEN BY THE TPO GIVEN IN THE CHART AT PARA - 12 OF THIS ORDER I S CONCERNED, THIS TRIBUNAL IN THE CASE OF TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAD HELD THAT ONLY SEGMENTAL DATA SHOULD BE TAKEN FOR THE PURPOSE OF COMPARISON. FOLLOWING ARE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL: - 37. THE NEXT PLEA OF THE ASSESSEE IS THAT IF AT ALL THIS COMPANY IS CONSIDERED AS A COMPARABLE THEN THE SEGMENTAL MARGIN OF 23.11% (WHICH IS THE MARGIN FOR SOFTWARE SERVICE SEGMENT) ALONE SHOULD BE CONSIDERED FOR COMPARABILITY. ON THE ABOVE SUBMISSION, WE FIND THAT THE TPO C ONSIDERED THE SEGMENTAL MARGIN (SOFTWARE SERVICE SEGMENT) IN THE CASE OF GEOMETRIC, KALS INFO SYSTEMS, R SYSTEMS, SASKEN COMMUNICATION AND TATA ELXSI. BEFORE DRP THE ASSESSEE POINTED OUT THAT THE SEGMENTAL MARGIN OF 23.11% ALONE SHOULD BE TAKEN FOR COMPAR ABILITY. THE DRP HAS NOT GIVEN ANY SPECIFIC FINDING ON THE ABOVE PLEA OF THE ASSESSEE. PERUSAL OF THE ORDER OF THE TPO SHOWS THAT THE TPO RELIED ON INFORMATION WHICH WAS GIVEN BY THIS COMPANY IN WHICH THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ., BLUEALLY DIVISION AND XIUS - BCGI DIVISION. XIUS - BCGI DIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE (DEVELOPING SOFTWARE). THIS COMPANY DEVELOPS PACKAGED PRODUCTS FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. THESE PRODUCTS ARE SOLD AS PACKAGE D PRODUCTS TO CUSTOMERS. WHILE IMPLEMENTING THESE STANDARDIZED PRODUCTS, CUSTOMERS MAY REQUEST THE COMPANY TO CUSTOMIZE PRODUCTS OR RECONFIGURE PRODUCTS TO FIT INTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES UP THE JOB OF CUSTOMIZING THE PAC KAGED SOFTWARE. THE COMPANY ALSO EXPLAINED THAT 30 TO 40% OF THE PRODUCT SOFTWARE (SOFTWARE DEVELOPED) WOULD CONSTITUTE PACKAGED PRODUCT AND AROUND 50% TO 60% WOULD CONSTITUTE CUSTOMIZED CAPABILITIES AND EXPENSES RELATED TO TRAVELLING, BOARDING AND LODGIN G EXPENSE. BASED ON THE ABOVE REPLY, THE TPO PROCEEDED TO HOLD THAT THE COMPARABLE COMPANY WAS MAINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO SOFTWARE DEVELOPMENT) INTERNALLY AND THAT THE PORTION OF THE REVENUE FROM DEVELOPMEN T OF SOFTWARE SOLD AND USED FOR CUSTOMIZATION WAS LESS THAN 25% OF THE OVERALL REVENUES. THE TPO THEREFORE HELD THAT LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE THE 37 IT(T.P)A NOS.441 & 442/BANG/2012 COMPARABLE SATISFIED TPO S FILTER OF MORE THA N 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. HAVING DRAWN THE ABOVE CONCLUSION, THE TPO DID NOT BOTHER TO QUANTIFY THE REVENUES WHICH CAN BE ATTRIBUTED TO SOFTWARE PRODUCT DEVELOPMENT AND SOFTWARE DEVELOPMENT SERVICE BUT ADOPTED THE MARGIN OF THI S COMPANY AT THE ENTITY LEVEL. IN TERMS OF RULE 10B(3)(B) OF THE RULES, AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERP RISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET; OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFE CTS OF SUCH DIFFERENCES. 38. NEITHER THE TPO NOR THE DRP HAVE NOTICED THAT THERE IS BOUND TO BE A DIFFERENCE BETWEEN THE ASSESSEE AND MEGASOFT AND THE PROFIT ARISING TO THE MEGASOFT AS A RESULT OF THE EXISTENCE OF THE SOFTWARE PRODUCT SEGMENT AND NO FINDI NG HAS BEEN GIVEN THAT REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. FOR THIS REASON, WE ARE INCLINED TO HOLD THAT THE PROFIT MARGIN OF 23.11% WHICH IS THE MARGIN OF THE SOFTWARE SERVICE SEGMENT BE TAK EN FOR COMPARABILITY. IN VIEW OF THE ABOVE CONCLUSION, WE DO NOT WISH TO GO INTO THE QUESTION AS TO WHETHER LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPO S FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. 27. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNAL, SEGMENTAL MARGINS IN SO FAR AS IT RELATES TO PROVIDING SOFTWARE SERVICES BY MEGASOFT ALONE SHOULD BE TAKEN FOR THE PURPOSE OF COMPARISON. IN VIEW OF THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL, WE HOLD THAT THE SEGMENTAL MARGINS OF THIS COMPANY RELATING TO PROVIDING SOFTWARE SERVICES ARE COMPARABLE TO THE ASSESSEE'S SOFTWARE DEVELOPMENT SERVICE SEGMENT AND 38 IT(T.P)A NOS.441 & 442/BANG/2012 THEREFORE WE DIREC T THE A.O. / TPO TO C ONSIDER ONLY SEGMENTAL DATA RELATING TO PROVIDING SOFTWARE SERVICES OF THIS COMPANY I.E. MEGASOFT LTD. 1 0.16 MINDTREE CONSULTING LTD. : THE ASSESSEE HAS NOT OBJECTED TO THIS COMPANY TO BE INCLUDED IN THE LIST OF COMPARABLES. THE CIT (APPEALS) HAS E XCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND OF ON - SITE REVENUE FILTER. SINCE NEITHER THE ASSESSEE NOR THE R EVENUE HAS SERIOUSLY OBJECTED T O THE INCLUSION OR EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES, THEREFORE, NO SPECIF IC FINDING IS REQUIRED IN RESPECT OF THIS COMPANY. THE ORDER OF THE CIT (APPEALS) IS UPHELD ON THIS ISSUE. 10.17 PERSISTENT SYSTEMS LTD. : NEITHER T HE ASSESSEE NOR THE REVENUE HAS CONTESTED THE INCLUSION OF THIS COMPANY, THEREFORE, NO SPECIFIC FINDI NG IS REQUIRED. 10.18 QUINTEGRA SOLUTIONS LTD., R.S. SOFTWARE (INDIA) LTD. AND R.S. INTERNATIONAL (SEG.) : THE ASSESSEE HAS NOT CONTESTED IN RESPECT OF THESE COMPANIES . IN CASE OF PERSISTENT SYSTEMS LTD., THE CIT (APPEALS) HAS EXCLUDED THIS COMP ANY BY APPLYING 0% RPT FILTER . I N VIEW OF OUR FINDING ON THIS ISSUE, THIS COMPANY IS RESTORED BACK TO THE LIST OF COMPARABLES AS THE ASSESSEE HAS NOT RAISED ANY OBJECTION FOR IN CLUSION OF THIS COMPANY. IN CASE OF QUINTEGRA SOLUTIONS LTD., THE CIT (APPE ALS) HAS EXCLUDED THIS COMPANY ON THE GROUND OF ON - SITE REVENUE FILTER. THE ASSESSEE HAS NOT RAISED ANY OBJECTION AGAINST THE 39 IT(T.P)A NOS.441 & 442/BANG/2012 EXCLUSION OR INCLUSION OF THIS COMPANY. HOWEVER, THE REVENUE HAS NOT CONTESTED SERIOUS LY AGAINST THIS COMPANY, THEREFORE, NO SPEC IFIC ADJUDICATION IS REQUIRED ON THIS COMPARABLE. INCASE OF R S SOFTWARE (INDIA) LTD., THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY ON RPT SALE FILTE R. SIMILARLY, IN CASE OF R SYSTEMS INTERNATIONAL, THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY ON RPT FILTER AS WELL AS FUNCTIONAL DIS - SIMILARITY. THE ASSESSEE HAS NOT OBJECTED FOR THE EXCLUSION OR INCLUSION OF THIS COMPANY, THEREFORE, IN THE ABSENCE OF ANY SPECIFIC OBJECTION BY ANY OF THE PARTIES IN RESPECT OF RS SOFTWARE INDIA LTD., WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (APPEALS) . A S REGARDS R SYSTEMS INTERNATIONAL, THE REVENUE HAS RAISED THIS ISSUE IN THE APPEAL, THOUGH THE ASSESSEE HAS NOT OBJECTED EITHER FOR EXCLUSION OR INCLUSION, ACCORDINGLY, THIS IS COMPANY RESTORED TO THE LIST OF THE COMPARABLES. 10.19 SASKEN COMMUNICATION TECHNOLOGIES LTD. & SIP TECHNOLOGIES & EXPORTS LTD. : N EITHER THE ASSESSEE NOR THE REVENUE HAS RAISED ANY SPECIFIC OBJECTIONS AGAINST THE INCLUSION OR EXCLUSION OF THESE COMPANIES. ACCORDINGLY, NO SPECIFIC ADJUDICATION IS REQUIRED IN RESPECT OF THESE TWO COMPANIES. THE ORDER OF THE CIT (APPEALS) IS UPHELD FOR THESE TWO COMPANIES. 10.20 .1 TATA ELXSI LTD. (SEG.) : THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND OF R&D FILTER AS WELL AS 40 IT(T.P)A NOS.441 & 442/BANG/2012 FUNCTIONAL DIS - SIMILARITY. THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY ON ALL THREE GROUNDS OF RPT FILTER AS WELL AS FUNCTIONAL DIS - SIMILARITY. 10.20.2 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES INCLUDING EMBEDDED PRODUCT DESIGN SERVICES, INDUSTRIAL DESIGN AND ENGINEERING, ANIMATION AND VISUAL EFFECTS, AND SYSTEM INTEGRATION SERVICES. THIS COMPANY IS HAVING UNIQUE IP PORTFOLIO COMPR ISING RE - USABLE SOFTWARE COMPONENTS AND READY - TO - DEPLOY PRODUCT FRAMEWORKS. FURTHER THIS COMPANY IS ENGAGED IN R&D ACTIVITIES RESULTING IN CERTAIN IPRS. HE HAS FURTHER SUBMITTED THAT THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 20 06 - 07 . HE HAS RELIED UPON THE FOLLOWING DECISIONS : CASES PERTAINING TO ASSTT. YEAR : 2007 - 08 CASES PERTAINING TO OTHER ASSTT. YEARS SYSTECH INTEGRATORS INDIA PVT LTD (ITA NO. 1283/BANG/2012, [TS - 8 2 - ITAT - 2014(BANG) - TP], [2014] 44 TAXMANN.COM 324 (BANG - TRIB), [2014] 31 ITR(T) 697 (BANG - TRIB), (ITAT BANGALORE). ARIBA TECHNOLOGIES INDIA PRIVATE LIMITED VS ITO IT(TP)A NO. - 1179/BANG/2010. 3DPLM SOFTWARE SOLUTIONS LTD. (SUCCESSOR TO DELMIA SOLUTIONS PVT LTD) (IT(TP) A NO.1303/BANG/2012, [TS - 359 - ITAT - 2013(BANG) - TP], (2014) 42 TAXMANN.COM 333, ITAT 41 IT(T.P)A NOS.441 & 442/BANG/2012 (BANGALORE) (AY 2008 - 09) 10.20.3 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDER OF THE TPO AND SUBMITTED THAT TH E PREDOMINANT ACTIVITY OF THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES AND THEREFORE THIS COMPANY IS FUNCTIONALLY COMPARABLE. 10.20.4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD, WE NOTE THAT THIS COMPANY IS NOT IN T HE ACTIVITY OF PURE SOFTWARE DEVELOPMENT SERVICES BUT ENGAGED IN THE DIVERSIFIED PRODUCT DEVELOPME NT WHICH INCLUDES MULTI MEDIA AND I MAGING PROCESS. FURTHER THIS COMPANY IS ALSO ENGAGED IN THE ACTIVITIES SUCH AS HARDWARE DESIGN, ENGINEERING DESIGN AND MUTU AL COMPUTING. THEREFORE IN VIEW OF THE DIVERSIFIED ACTIVITIES AS MENTIONED ABOVE, WE FIND THAT THIS COMPANY IS NOT COMPARABLE WITH THE SOFTWARE DEVELOPMENT SERVICES P ROVIDER LIKE ASSESSEE. IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEE' S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 IN PARAS 17 & 18 AS UNDER : 17. AS FAR AS COMPARABLE COMPANY CHOSEN BY THE TPO VIZ., TATA ELXSI LTD., IS CONCERNED, THE COMPARABILITY OF THE AFORESAID COMPANY WITH THAT OF THE SOFTWARE SERVICE PROVIDER SUCH A S THE ASSESSEE WAS CONSIDERED BY THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF LOGICA PVT. LTD. IT (TP) 1129/BANG/2011 AY 07 - 08) WHEREIN ON THE COMPARABILITY OF THE AFORESAID COMPANY, THE TRIBUNAL HELD AS FOLLOWS: - 14. AS FAR AS COMPARABLE AT SL.NO.6 & 24 ARE CONCERNED, THE COMPARABILITY OF THE AFORESAID TWO COMPANIES WITH THAT OF THE SOFTWARE SERVICE PROVIDER WAS CONSIDERED BY THE MUMBAI 42 IT(T.P)A NOS.441 & 442/BANG/2012 BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES INDIA PRIVATE LTD. (SUPRA) WHEREIN ON THE AFORESAID TWO COMPANIES, THE TRIBUNAL HELD AS FOLLOWS: - 7.7. TATA ELXSI LIMITED.: FROM THE FACTS AND MATERIAL ON RECORD AND SUBMISSIONS MADE BY THE LEARNED AR, IT IS SEEN THAT THE TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES, WHICH IS E NTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AR THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENT AL DETAILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PARTIES. 15. IN VIEW OF THE ABOVE, THE LD. COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT COMPARABLE COMPANY AT SL.NO.6 VIZ., FLEXTRONICS SOFTWARE SY STEMS PVT. LTD. SHOULD BE TAKEN AS A COMPARABLE, WHILE COMPARABLE AT SL.NO.24 VIZ., TATA ELXSI LTD. SHOULD BE REJECTED AS A COMPARABLE. 18. IN VIEW OF THE AFORESAID DECISION, WE HOLD THAT TATA ELXSI HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLE CH OSEN BY THE TPO. IN VIEW OF THE ABOVE FACTS, WE DIRECT THE A.O/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 10.21 .1 THIRDWARE SOLUTIONS LTD. : THIS COMPANY WAS SELECTED BY THE TPO AND INCLUDED IN THE LIST OF COMPARABLES FOR THE P URPOSE OF COMPUTING THE ALP. THE ASSESSEE DID NOT CONTEST INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BEFORE THE TPO AS WELL AS BEFORE THE CIT (APPEALS). HOWEVER, THE CIT(A) EXCLUDED THE COMPANY FROM THE LIST OF COMPARABLES. ASSESSEE IS SEEKING EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS FUNCTIONALLY DIS - SIMILAR TO THE ASSESSEE. 43 IT(T.P)A NOS.441 & 442/BANG/2012 10.21.2 WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERE D THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT WHEN THE ASSESSEE DID NOT RAISE ANY OBJECTION AGAINST THE INCLUSION OF THIS COMPANY BY THE TPO EITHER IN THE PROCEEDINGS BEFORE THE TPO OR BEFORE THE CIT (APPEALS), THEN, WITHOUT SEEKING THE LEAVE OF THE TRIBUNAL TO RAISE A NEW PLEA/GROUND, THE ASSESSEE CANNOT BE PERMITTED TO RAISE THIS ISSUE IN THE PRESENT APPEAL. SINCE THERE IS NO FINDING OF THE AUTHORITIES BELOW ON THE FUNCTIONAL COMPARABILITY OF THIS COMPANY AS THE ASSESSEE DID NOT RAISE ANY OBJECTION, THEREFORE, IN THE ABSENCE OF ADDITIONAL GROUND RAISED BY THE ASSESSEE AND FURTHER IN THE ABSENCE OF ANY LEAVE OF THE TRIBUNAL TO RAISE SUCH GROUND, THIS OBJECTION OF THE ASSESSEE IS REJECTED. SINCE THIS COMPANY WAS EXCLUDED BY THE CIT (APP EALS) ON THE GROUND OF 0% RPT FILTER. THEREFORE, IN VIEW OF OUR FINDING ON THE PROPER RPT FILTER AT 15%, THIS COMPANY HAVING ONLY 9.9% RPT, IS RETORED TO THE LIST OF COMPARABLES. 10.22 .1 WIPRO LTD. : THIS COMPANY WAS SELECTED BY THE TPO AND INCL UDED IN THE LIST OF COMPARABLES. THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY ON THE GROUND OF FUNCTIONAL DIS - SIMILARITY. THE CIT (APPEALS) EXCLUDED THIS COMPANY ON 0% RPT FILTER AS WELL AS FUNCTIONAL DIS - SIMILARITY. 10.22.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THIS COMPANY CANNOT BE COMPARED WITH THE ASSESSEE AS IT HAS 44 IT(T.P)A NOS.441 & 442/BANG/2012 MADE SIGNIFICANT INVESTMENT IN THE BUSINESS ACQUISITION. HE HAS REFERRED THE RELEVANT PART OF THE ANNUAL REPORT AND SUBMITTED THA T THIS COMPANY HAS REPORTED A HUGE INVESTMENT IN ACQUISITION OF THE BUSINESS. THIS COMPANY IS ALSO ENGAGED IN THE BUSINESS OF INNOVATION, TECHNOLOGY INNOVATION, PROCESS INNOVATION AND DELIVERY INNOVATION. IT ALSO EARNS ABOUT 8% OF ITS REVENUE FROM INNOV ATION ACTIVITY AND ALSO HAVING MORE THAN 13 ENGINEERING PATENTS, ENTERPRISES, BUSINESS AND QUALITY. THIS COMPANY HAS 55 CENTRES OF EXCELLENCE AND 30 INNOVATION PRODUCTS. IT HAS ALSO SET UP A HANDSET MOBILE TESTED LAB AND ENGAGED IN R&D ACTIVITY. THUS THI S COMPANY CANNOT BE COMPARED WITH THE ASSESSEE. HE HAS RELIED UPON THE FOLLOWING DECISION : CASES PERTAINING TO ASSTT. YEAR : 2007 - 08 SYSTECH INTEGRATORS INDIA PVT LTD (ITA NO. 1283/BANG/2012, [TS - 82 - ITAT - 2014(BANG) - TP], [2014] 44 TAXMANN.COM 324 (BA NG - TRIB), [2014] 31 ITR(T) 697 (BANG - TRIB), (ITAT BANGALORE) 10.22.3 ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT WHEN THE TPO HAS CONSIDERED ITES SEGMENT OF THIS SEGMENT THAN THE OTHER ACTIVITY OF THIS COMPANY ARE NOT RELEVANT FOR DETERMINING THE ALP. THUS HE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE SIMILAR ACTIVITIES AND THEREFORE IS A GOOD COMPARABLE. HE HAS RELIED UPON THE ORDER OF THE TPO. 45 IT(T.P)A NOS.441 & 442/BANG/2012 10.23.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE R ELEVANT MATERIAL ON RECORD. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND THAT IT FAILS THE R&D FILTER AS WELL AS THE FUNCTIONAL DIS - SIMILARITY. THE CIT (APPEALS) EXCLUDED THIS COMPANY FROM THE LIST OF CO MPARABLES AS IT WAS FOUND FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. THERE IS NO DISPUTE THAT THIS COMPANY IS HAVING SIGNIFICANT INVESTMENT IN ACQUIRING NEW BUSINESS AND ALSO ENGAGED IN THE R&D ACTIVITIES. THEREFORE THIS COMPANY IS HAVING HUGE BRAND VALUE AS WELL AS BARGAINING POWER IN COMPARISON TO THE OTHER COMPANIES WHO ARE ENGAGED IN THE SOFTWARE SERVICES PROVIDING ACTIVITY. THE COMPARABILITY OF THIS COMPANY WAS ALSO CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNOLOGY PVT. LTD. AND THE HON'BLE HIGH COURT WHILE CONFIRMING THE FINDING OF THE TRIBUNAL HAS OBSERVED THAT SINCE THIS COMPANY IS HAVING THE BRAND VALUE AND BARGAINING POWER , THEREFORE, CANNOT BE COMPARED WITH THE COMPANIES WHICH ARE NOT HAVING BRAND VALUE AND WORKI NG ONLY AS CAPTIVE SERVICE PROVIDER. THUS IN VIEW OF THE FACT THAT THIS COMPANY IS HAVING VARIOUS PATENTS ACROSS PRODUCT ENGINEERING, ENTERPRISE BUSINESS AND QUALITY, THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE OF THE ASSESSEE FOR THE PURPOSE O F DETERMINING THE ALP. HENCE WE DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 46 IT(T.P)A NOS.441 & 442/BANG/2012 10.23.5 SINCE WE HAVE DIRECTED THE INCLUSION AND EXCLUSION OF CERTAIN COMPANIES FROM THE LIST OF COMPARABLES, THEREFORE, THE TPO IS DIRECTED TO RECOMPUTE THE ALP ON THE BASIS OF THE REMAINING COMPARABLES AND ALSO CONSIDER THE BENEFIT OF TOLERANCE RANGE OF +5% TO - 5% AS PER THE PROVISO T O SECTION 92C. I T E S (SEGMENT) 11. AS IT HAS BEEN MENTIONED IN THE FOREGOING PARAGRAPHS THAT THE ASSESSEE IS ENGAGED IN PROVIDING SERVICES TO ITS PARENT COMPANY UNDER TWO SEGMENTS I.E. SOFTWARE DEVELOPMENT SERVICES AND INFORMATION TECHNOLOGY ENABLED SERVICES WITH RESPECT TO PRODUCTS OF ARIBA BASED ON THE AGREEMENT FOR SOFTWARE DEVELOPMENT SERVICE S AND ITES RESPECTIVELY. THE ASSESSEE OPERATING MARGIN IN ITES IS 19%. TO BENCH MARK ITS IN TERNATIONAL TRANSACTIONS IN ITES SEGMENT THE ASSESSEE HAS SELECTED 12 COMPARABLES AS UNDER : - SL. NO COMPARABLE COMPANY WITHOUT ADJS. MARK UP ON TOTAL COST (AFT ER WC) % 1. ACE SOFTWARE EXPORTS LTD. - 8.12 2. ASK ME INFO HUBS LTD. 3.98 3. C S SOFTWARE ENTERPRISE LTD. 15.83 4. COSMIC GLOBAL LTD. 9.64 5. MAPLE ESOLUTIONS LTD. 29.16 6. ADITYA BIRLA MINACS WORLWIDE LTD (EARLIER 10.32 47 IT(T.P)A NOS.441 & 442/BANG/2012 SL. NO COMPARABLE COMPANY WITHOUT ADJS. MARK UP ON TOTAL COST (AFT ER WC) % TRANSWORKS INFORMATION SERVICES LTD. ) 7. TRITON CORP LTD. 25.07 8. GALAXY COMMERCIAL LTD 11.47 9. C M C LTD 30.78 10. DATAMATICSSOFTWORLD PVT. LTD 3.85 11. GOLDSTONE TELESERVICES LTD - 67.94 12. NATIONAL SECURITIES DEPOSITORY LTD 29.17 MEAN MARGIN 7.77% THE ASSESSEE HAS COMPUT ED THE MEAN MARGIN OF THESE COMPARABLES BEING OP/ TC AT 7.77 % AND CLAIMED THAT THE ASSESSEE'S INTERNATIONAL TRANSACTION IS AT ARM S LENGTH HAV ING MARGIN OF 19%. THE TPO REJECTED THE 9 OF THE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TRANSFER PRICING AN ALYSIS EXCEPT THE FOUR COMPANIES WHICH ARE AT S.NOS.4, 5, 6 & 7 AS UNDER : - COMPARABLE COMPANY WITHOUT ADJS. MARK UP ON TOTAL COST (AFTER WC) % COSMIC GLOBAL LTD. 9.64 MAPLE ESOLUTIONS LTD. 29.16 ADITYA BIRLA MINACS WORLWIDE LTD (EARLIER TRANSWORKS IN FORMATION SERVICES LTD.) 10.32 TRITON CORP LTD. 25.07 48 IT(T.P)A NOS.441 & 442/BANG/2012 BEFORE THE TPO/A.O., THE ASSESSEE HAS ALSO SUBMITTED THE ADDITIONAL COMPARABLES AS UNDER : - SL. NO. COMPARABLE COMPANY WITHOUT ADJS. MARK UP ON TOTAL COST (AFTER WC) % 1. CAMEO CORPORATE SER VICES LTD. -- 2. SPARSH BPO SERVICES LTD. -- 3. NITTANY OUTSOURCING SERVICES LTD. -- OUT OF THESE ADDITIONAL COMPARABLES SUBMITTED BY THE ASSESSEE, THE TPO ACCEPTED THE ONLY ONE NAMELY N ITTANY OUTSOURCING SERVICES PVT. L TD. THE TPO CARRIED OUT FRESH S EARCH AND SELECTED 27 COMPANIES IN THE SET OF COMPARABLES INCLUSIVE OF THREE IN THE ORIGINAL SET OF COMPARABLES SELECTED BY THE ASSESSEE AND ONE FROM THE ADDITIONAL COMPARABLES SUBMITTED BEFORE THE TPO BY THE ASSESSEE. THE SET OF COMPARABLES SELECTED BY THE TPO ARE AS UNDER : - SL.NO. COMPARABLE COMPANY NAME OP TO TOTAL COST % AS PER TP ORDER OP TO TOTAL COST % AFTER EXCLUSIONS OF COMPARABLES AS URGED BEFORE ITAT. 1. ACCENTIA TECHNOLOGIES LIMITED 25.43 25.43 49 IT(T.P)A NOS.441 & 442/BANG/2012 2. ADITYA BIRLA MINACS WORLDWIDE LIMITED ( TRANSWORKS INFORMATION SERVICES LTD) 10.37 10.37 3. ALLSEC TECHNOLOGIES LIMITED 24.99 24.99 4. APEX KNOWLEDGE SOLUTIONS LIMITED 12.38 12.38 5. APOLLO HEALTH STREET LIMITED - 22.62 - 22.62 6. ASIT C MEHTA FINANCIAL SERVICES LIMITED 22.08 22.08 7. BODHTRE E CONSULTING LTD. (SEG) 28.86 0.00 8. CALIBER POINT BUSINESS SOLUTIONS LTD 19.51 0.00 9. COSMIC GLOBAL LTD (TULSYAN TECHNOLOGIES LTD) 10.70 10.70 10. DATAMATICS FINANCIAL SERVICES LIMITED (SEG) 3.66 3.66 11. ECLERX SERVICES LTD. 85.22 0.00 12. FLEXTRO NICS SOFTWARE SYSTEMS LIMITED (SEG) 5.42 0.00 13. GENESYS INTERNATIONAL CORPORATION LTD 7.90 7.90 14. HCL COMNET 43.28 0.00 15. ICRA TECHNO ANALYTICS LTD (SEG) 10.78 10.78 16. INFORMED TECHNOLOGIES LTD 34.07 0.00 17. INFOSYS BPO LTD 27.90 0.00 50 IT(T.P)A NOS.441 & 442/BANG/2012 18. ISERVICES INDIA LTD 47.80 47.80 19. MAPLE E SOLUTIONS LIMITED 29.48 29.48 20. MOLD - TEK TECHNOLOGIES LTD 114.25 0.00 21. R SYSTEMS INTERNATIONAL LIMITED (SEG) 17.63 17.63 22. SPANCO LIMITED (SEG) 18.94 18.94 23. TRITON CORP LIMITED 26.93 26.93 24. VIS HAL INFORMATION TECHNOLOGIES 41.57 0.00 25. WIPRO LTD (SEG) 29.42 0.00 26. NITTANY OUTSOURCING SERVICES PVT LTD. 9.87 9.87 27. ACCURATE DATA CONVERTERS LTD 47.37 47.37 ARITHMETIC MEAN MARK UP OF COMPARABLES AFTER WORKING CAPITAL ADJUSTMENT OF 0.24% AS DETERMINED BY THE TPO 26.92 17.49 ASSESSEE'S MARGIN 18.66 THUS THE TPO HAS ARRIVED AT ARITHMETIC MEAN (AM) OF THE COMPARABLES AFTER WORKING CAPITAL ADJUSTMENT OF O.24% AT 26.92% IN COMPARISON TO THE ASSESSEE'S MARGIN TAKEN BY THE TPO AT 18.66%. 12. TH ERE IS NO DISPUTE REGARDING MOST APPROPRIATE METHOD (MAM) BEING TNMM AND OP/TC AS PLI AND ACCORDINGLY THE TPO PROPOSED AN UPWARD 51 IT(T.P)A NOS.441 & 442/BANG/2012 ADJUSTMENT ON ACCOUNT OF ALP OF RS.59,91,335. ON APPEAL, THE CIT (APPEALS) HAS EXCLUDED 19 COMPARABLES OUT OF 27 COMPARABLES S ELECTED BY THE TPO. THE CIT (APPEALS) HAS APPLIED 0% RPT FILTER AND THEREBY EXCLUDED 18 COMPARABLES F R O M THE SET OF COMPARABLES. ANOTHER COMPARABLE BEING FLEXTRONICS SOFTWARE SEGMENT WAS EXCLUDED BY THE CIT (APPEALS) ON THE GROUND THAT THIS COMPANY FAILS R&D FILTER WHICH IS MORE THAN 3.88% OF THE SALE AND FURTHER THIS COMPANY IS ENGAGED IN THE DIVERSIFIED SEGMENT I.E. ;PRODUCT AND SERVICES. THUS OUT OF THE 19 EXCLUDED BY THE CIT (APPEALS) 18 WERE EXCLUDED ON THE GROUND OF 0% RPT FILTER. 13. AS REGARDS TH E EXCLUSION OF THE 18 COMPARABLES ON THE GR OUND OF RPT FILTER, WE HAVE ALRE A DY DISCUSSED THIS ISSUE WHILE DEALING WITH SOFTWARE DEVELOPMENT SERVICES SEGMENT AND THEREFORE IN VIEW OF OUR FINDING THAT 15% RPT IS APPROPRIATE IN THE CASE OF THE ASSESSEE. THE COMPANIES WHICH ARE INCLUDED IN THE SET OF COMPARABLES AND HAVING UPTO 15% REVENUE FROM RPT ARE REQUIRED TO BE EXAMINED ON OTHER GROUNDS INCLUDING FUNCTIONAL COMPARABILITY. THE CIT (APPEALS) HAS RETAINED 8 COMPARABLES WHICH ARE AS UNDER : - SL.NO. COMP ANY NAME OP TO TOTAL COST % (BEFORE WORKING CAPITAL ADJUSTMENT) OP TO TOTAL COST % (AFTER WORKING CAPITAL ADJUSTMENT) 1. ACCENTIA TECHNOLOGIES LTD. (SEG.) 30.61 25.43 2. APEX KNOWLEDGE SOLUTIONS PVT. LTD. 12.83 12.38 52 IT(T.P)A NOS.441 & 442/BANG/2012 3. BODHTREE CONSULTING LTD. (SEG.) 2 9.58 28.86 4. COSMIC GLOBAL LTD. 12.40 10.70 5. ISERVICES INDIA PVT. LTD. 49.47 47.80 6. MAPLE ESOLUTIONS LTD. 34.05 29.48 7. TRITON CORP LTD. 34.93 26.93 8. VISHAL INFORMATION TECHNOLOGIES LTD. 51,19 41.57 14. ACCORDINGLY, THE MEAN MARGIN WAS REWOR KED BY THE CIT(A) AFTER CAPITAL ADJUSTMENT AT 27.89%. THUS BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) AND FILED CROSS APPEALS . 15. WE SHALL DEAL WITH EACH AND EVERY COMPARABLE WHICH HAS BEEN CHALLENGED BY TH E ASSESSEE AND EXCLUSION OF SOME OF THE COMPARABLES HAS BEEN CHALLENGED BY THE REVENUE ONE BY ONE AS UNDER : (I) ACCENTIA T ECHNOLOGIES LIMITED : INCLUSIVE OF THIS COMPANY IS IN THE LIST OF COMPARABLES HAS NOT BEEN CONTESTED BY THE ASSESSEE EITHER BEFORE THE TPO OR BEFORE THE CIT (APPEALS) OR EVEN BEFORE THIS TRIBUNAL. THEREFORE THERE IS NO DISPUTE REGARDING THE COMPARABILITY OF THIS COMPANY FOR THE PURPOSE OF ALP. ACCORDINGLY, NO ADJUDICATION IS REQUIRED ON THIS COMPARABLE. (II) ADITYA BIRLA : THIS COMPANY WAS PART OF T.P. ANALYSIS OF THE ASSESSEE AND ALSO SELECTED BY THE TPO/A.O. THE ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES. HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY ON THE GROUND OF 0% RPT FILTER. IN VIEW OF OUR FINDING OF PROPER 53 IT(T.P)A NOS.441 & 442/BANG/2012 RPT TOLERANCE RANGE AT 15%, THIS COMPANY IS RESTORED BACK TO THE SET OF COMPARABLES HAVING ONLY 4.24 % OF RPT. (III) ALLSEC TECHNOLOG IES LTD . : THIS COMPANY WAS SELECTED BY THE TPO/A.O BUT WAS NOT OBJECT ED BY THE ASSESSEE EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT(A) AND E VEN NOT BEFORE THIS TRIBUNAL. HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY BY APPLYING 0% RPT FILTER. IN VIEW OF OUR FINDING OF PROPER RPT TOLERANCE RANGE AT 15%, THIS COMPANY IS R ESTORED BACK TO THE SET OF COMPARABLES HAVING ONLY 11.90 % OF RPT. (IV) APEX KNOWLEDGE SOLUTION LTD. : THIS COMPANY WAS SELE CTED BY THE TPO/A.O AND THE ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES . E VEN BEFORE T HE CIT (APPEALS) AS WELL AS BEFORE THIS TRIBUNAL, THE ASSESSEE HAS NOT CONTESTED AGAINST THE INCLUSION OF THIS COMPANY. THE CIT (APPEALS) HAS RETAINED THIS COMPANY AS A GOOD COMPARABLE. THEREFORE NO SPECIFIC ADJUDICATION OR FINDING WAS SOUGHT IN RESPECT OF THIS COMPANY EITHER BY THE ASSESSEE OR BY THE REVENUE. (V) APOLLO HEALTH STREET LTD. : THIS COMPANY WAS SELECTED BY THE TPO/A.O THOUGH THE ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT (APPEALS). HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY ON TURNOVER FILTER. WE FIND THAT THE RPT REVENUE OF THIS COMPANY 54 IT(T.P)A NOS.441 & 442/BANG/2012 IS 17.77%. THEREFORE THIS COMPANY FAILS RPT FILTER OF 15% AND ACCORDINGLY, WE UPHELD THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPA RABLES. (VI) ASIT C MEHTA FINANCIAL SERVICES LTD. : THIS COMPANY WAS SELECTED BY THE TPO/A.O THOUGH THE ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT (APPEALS). HOWEVER, THE CIT (APPEALS) EXCLUDED T HIS COMPANY ON TURNOVER FILTER. WE FIND THAT THE RPT REVENUE OF THIS COMPANY IS 15.76%. THEREFORE THIS COMPANY FAILS RPT FILTER OF 15% AND ACCORDINGLY, WE UPHELD THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. (VII) BODHTREE CONSULTING LTD (SEG.) : THIS COMPANY WAS SELECTED BY THE TPO/A.O. HOWEVER, THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABL E ON THE GROUND THAT THERE IS EXTRA - ORDINARY PROFIT AS WELL AS EXTRA - ORDINARY EVENT IN THIS COMPANY DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE ASSESSEE ALSO CONTENDED THAT THE RPT REVENUE OF THIS COMPANY IS AT 38.54% AND THEREFORE THIS COMPANY FAILS THE RPT FILTER. THE CIT (APPEALS) RETAINED THIS COMPANY IN THE LIST OF COMPARABLES. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS REITERATED ITS CONTENTION AND SUBMITTED THAT THERE IS AN EXTRA - ORDINARY PROFIT OF THIS COMPANY DURING THE YEAR AND FURTHER THE RPT FAILS THE FILTER APPLIED BY THE TPO/A.O AS WELL AS CIT (APPEALS). HE HAS REFER RED DRAFT ORDER DT.9.12.2010 AND 55 IT(T.P)A NOS.441 & 442/BANG/2012 SUBMITTED THAT THE A.O./TPO HAS REPRODUCED THE PARTICULARS REGARDING RPT WHICH SHOW THAT DURING THE F.Y. 2006 - 07, RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THIS COMPANY HAS RPT TO THE EXTENT OF 38.54% OF REVENUE . THUS THIS COMPANY CANNOT BE CONSIDERED AS UNCONTROLLED COMPARABLE COMPANY. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE TPO/A.O AS WELL AS CIT (APPEALS) EXAMINED THE RECORDS OF THIS COMPANY AND DID NOT FIND THE OB JECTION RAISED BY THE ASSESSEE AS ACCEPTABLE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE OBJECTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY HAS REPORTED ABNORMAL PROFITS DURING THE YEAR. WE FIND THAT HIGH PROFIT MARGIN ALONE CANNOT BE A GROUND FOR INCLUSION OR EXCLUSION OF ANY COMPANY / ENTITY IN THE LIST OF COMPARABLES. HOWEVER, IF THE HIGH PROFIT MARGIN IS DUE TO SOME ABNORMAL CIRCUMSTANCES OR EVENT, THEN, THE SAID COMPANY/ENTITY CANNOT BE CONSIDERED AS GOOD COMPARABLE DUE TO THE REASON OF ABNORMAL EVENT OR CIRCUMSTANCES RESULTING HIGH PROFIT MARGIN. THEREFORE, IN THE ABSENCE OF ANY ABNORMA L/EXTRAORDINARY EVENT OR CI RCUMSTANCES LEADING TO HIGH PROFIT MARGIN THIS OBJECTION OF THE LEARNED AUTHORISED REPRESENTATIVE IS NOT ACCEPTABLE AND HENCE REJECTED. EVEN OTHERWISE, THE PROFIT MARGIN AT 29.58% CANNOT BE CONSIDERED AS AN ABNORMAL WHEN THE ASSESSEE ITSELF HAS REPORTED THE MARGIN AT 19% WHICH IS 56 IT(T.P)A NOS.441 & 442/BANG/2012 MODIFIED TO 18.66%. WE FURTHER NOTE THAT EVEN IN THE CASE OF ESSENTIAL TECHNOLOGIES LTD. THE PROFIT MARGIN BEFORE WORKING CAPITAL WAS CONSIDERED AT RS.30.61% AND THE ASSESSEE HAS ACCEPTED THE SAID COMPANYAS A GOOD COMPARABLE. THEREFORE, THIS OBJECTION OF THE ASSESSEE IS WITHOUT ANY MERIT OR SUBSTANCE AND DESERVES REJECTION. AS REGARDS THE RPT AT 38.54%, WE FIND THAT THE ASSESSEE RAISED THIS OBJECTION BEFORE THE TPO/A.O AND IT HAS NOT BEEN SPECIFICALLY DEALT WITH BY THE AUTHOR ITIES BELOW. FURTHER, FROM THE ANNUAL REPORT OF THIS COMPANY, WE FIND THAT THE OBJECTION RAISED BY THE ASSESSEE PERTAINS TO THE ADVANCES GIVEN BY THIS COMPANY TO THE ASSOCIATED ENTERPRIES (AES) AND REPORTED THAT THE SAME WAS TAKEN AS RPT. THE ADVANCE TO THE AES DOES NOT PERTAIN TO THE ITES SEGMENT AND FURTHER IT IS NOT A OPERATIONAL TRADING ACTIVITY OF THE SAID COMPANY TO BE CONSIDERED AS RPT FOR THE PURPOSE OF UNCONTROLLED COMPARABLE PRICE. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE OBJECTIONS OF THE ASSESSEE, EVEN ON THE GROUND OF RPT. (VIII) CALIBER PAINT BUSINESS SOLUTIONS : THIS COMPANY WAS SELECTED BY THE TPO/A.O. HOWEVER, THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND THAT IT HAS 23% REVEN UE FROM RPT AND FURTHER THIS COMPAY IS ENGAGED IN R&D ACTIVITY AND ALSO FUNCTIONALLY DIFFERENT. THE CIT (APPEALS) EXCLUDED THIS COMPANY ON THE GROUND OF 0% RPT FILTER AS THIS COMPANY WAS STATED TO HAVE 13.69% RPT. 57 IT(T.P)A NOS.441 & 442/BANG/2012 BEFORE US, THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY FAILS THE RPT FILTER OF MORE THAN 15% AS THIS COMPANY HAS SHOWN/REPORTED 23% RPT. THEREFORE, THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. ON THE OTHER HAND, THE LEARNED DEPAR TMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE CIT (APPEALS) AS WELL AS THE TPO/A.O HAS REPORTED ONLY 13.69% RPT AND THEREFORE THIS COMPANY DOES NOT FAIL THE FILTER OF 15% RPT. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATE RIAL ON RECORD. WE NOTE THAT THE TPO/A.O AS WELL AS THE CIT (APPEALS) HAS MENTIONED THE RPT OF THIS COMPANY AT 13.69%. THEREFORE THE CLAIM OF HAVING MORE THAN 15% RPT IS DISPUTED BY THE REVENUE. WE FURTHER NOTE THAT TH ERELEVNAT RECORD HAS NOT BEEN PROD UCED BEFORE US TO SHOW THAT THE COMPANY HAS EARNED THE REVENUE OF MORE THAN 15% FROM RPT AS CLAIMED BY THE ASSESSEE AS 23% . IN THE ABSENCE OF RELEVANT RECORD, EVEN THE ISSUE OF FUNCTIONAL COMPARABILITY CANNOT BE DECIDED. ACCORDINGLY, IN VIEW OF THE FACT S AND CIRCUMSTANCES OF THE CASE WHEN THE RELEVANT RECORD HAS NOT BEEN PRODUCED BEFORE US IN SUPPORT OF THE RIVAL C LAIMS OF THE PARTIES THE COMPARABILITY OF THIS COMPANY IS SET ASIDE TO THE RECORD OF THE A.O./TPO FOR CONSIDERING THE OBJECTION OF THE ASSES SEE REGARDING RPT AS WELL AS FUNCTIONAL DIS - SIMILARITY ON ACCOUNT OF R&D ACTIVITY AS WELL AS OTHER FUNCTIONS OF THIS COMPANY. 58 IT(T.P)A NOS.441 & 442/BANG/2012 (IX) CALIBER POINT BUSINESS SOLUTIONS LTD. (SEG.) : THIS COMPANY WAS PART OF THE T.P. ANALYSIS OF THE ASSESSEE AND ALSO S ELECTED BY THE TPO/A.O. THE CIT (APPEALS) HAS ALSO RETAINED THIS COMPANY AS A GOOD COMPARABLE. THE ASSESSEE DID NOT OBJECT AGAINST THIS COMPANY. ACCORDINGLY, THE COMPARABILITY OF THIS COMPANY IS NOT IN DISPUTE BEFORE THIS TRIBUNAL. (X) DATAMATICS FINANCIAL SERVICES LTD. (SEG.) : THIS COMPANY WAS SELECTED BY THE TPO/A.O BUT WAS NOT OBJECTED BY THE ASSESSEE EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT(A), EVEN NOT BEFORE THIS TRIBUNAL. HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY BY APPLYING 0 % RPT FILTER. IN VIEW OF OUR FINDING OF PROPER RPT TOLERANCE RANGE AT 15 %, THIS COMPANY IS RESTORED BACK TO THE SET OF COMPARABLES HAVING ONLY 7.88% RPT. (XI) ECLERX SERVICES LTD. : THIS COMPANY WAS INCLUDED BY THE TPO IN THE LIST OF COMPARABLE. TH E ASSESSEE OB JECTED TO THIS COMPANY ON THE GROUND OF FUNCTIONAL DIS - SIMILARITY. THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY ON THE GROUND OF RPT THAT THIS COMPANY IS HAVING ONLY 9.12% RPT. THER EFORE IN VIEW OF OUR FINDING ON RPT FILTER, THE COMPAR ABILI TY OF THIS COMPANY HAS TO BE DECIDED ON BASIS OF FUNCTIONAL SIMILARITY OR DIS - SIMILARITY. THE LD. AR SUBMITTED THAT THIS COMPANY IS RENDERING SERVICES LIKE ENGINEERING, DESIGNING SERVICES WHICH REQUIRES HIGHLY SKILLED EMPLOYEES. THUS, T HIS COMPANY CANNOT BE SELECTED AS COMPARABLE BECAUSE THEIR FUNCTIONS ARE DIFFERENT. HE HAS RELIED UPON THE DECISION OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA ) (P) LTD V/S ACIT 147 ITD 83 AND SUBMITTED THAT THIS COM PANY IS RENDERING HIGHLY SKILLED SERVICES 59 IT(T.P)A NOS.441 & 442/BANG/2012 AND CANNOT BE COMPARED WITH THE SERVICE OF ITES AND ACCORDINGLY, THIS COMPANY SHOULD BE DELETED FROM THE SET OF COMPARABLES ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUB MITTED THAT THE TPO HAS CONSIDERED THE FUNCTIONAL COMPARABILITY AT THE TIME OF SELECTING THIS COMPANY . WE HAVE CONSIDERED THE RIVAL SUBMISSION S AND RELEVANT RECORD. AT THE OU T SET, WE NOTE THAT THE COMPARABILITY OF M/S ECLERX SERVICES LTD. HAS BEEN EXAM INED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA ) (P) LTD (SUPRA) IN PARA 82 AND 83 AS UNDER : 82. IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCERNED, THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM OF ANNUAL REPORT FOR FINANCIAL YEAR 2007 - 08 PLACED AT PAGE 166 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY PROVIDES DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORLD AND IS RECOGNIZED AS EXPERTS IN C HOSEN MARKETS - FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE PROVIDING COMPLETE BUSINESS SOLUTIONS BY COMBINING PEOPLE, PROCESS IMPROVEMENT AND AUTOMATION. IT IS CLAIMED TO HAVE EMPLOYED OVER 1500 DOMAIN SPECIALISTS WORKING FOR THE CL IENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT COMPANY WITH INDUSTRY SPECIALIZED SERVICES FOR MEETING COMPLEX CLIENT NEEDS, DATA ANALYTICS KPO SERVICE PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS - FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE ENGAGED IN PROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST, BUT HELP THE CLIENTS INCREASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. M/S ECLERX SERVICES PVT. LTD . IS ALS O CLAIMED TO HAVE A SCALABLE DELIVERY MODEL AND SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCESS OUTSOURCING AND MANAGEMENT SERVICE S ALONG WITH A MULTITUDE OF DATA AGGREGATION, MINING AND MAINTENANCE SERVICES. IT IS 60 IT(T.P)A NOS.441 & 442/BANG/2012 CLAIMED THAT THE COMPANY HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY, ALLOWING C USTOMERS TO BENEFIT FROM FURTHER COST SAVING AND OUTPUT GAINS WITH BETTER CONTROL OVER QUALITY. KEEPING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES PVT. LTD . AND ITS FUNCTIONAL PROFILE, WE ARE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGED IN PROVIDING HIGH - END SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW - END SERVICES TO THE GROUP CONCERNS. 83. FOR THE RE ASONS GIVEN ABOVE, WE ARE OF THE VIEW THAT IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPANY FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES PVT.LTD. AND MOLD - TEC TECHNOLOGIES LTD., IT IS DIFFICULT TO FIND OUT ANY RELA TIVELY EQUAL DEGREE OF COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. WE, THEREFORE, DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST O F 10 COMPARABLES FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTION OF THE DRP. AS DISCUSSED BY THE SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA ) (P) LTD (SUPRA), THIS COMPANY PROVIDES DATA ANALYSIS AND DATA PROCESS SOLUTION AND IS RECOGNI SED AS EXPERTS IN CHOSEN MARKET FINANCIAL SERVIC ES, RETAIL AND MANUFACTURING. IT WAS FOUND TO HAVE BEING PROVIDING COMPLETE BUSINESS SOLUTIONS. THE NATURE AND DIFFERENT FIELD OF SERVICES PROVIDED BY THIS COMPANY CLEARLY SHOW THAT IT IS NOT FUNCTIONALLY COMPARABLE WITH THE SOFTWARE DEVELOPMENT SERVICES. ACCORDINGLY, WE DIRECT THE TPO/AO TO EXCLUDE THIS COMPANY FROM THE SET OF COMPARABLES. (XII) FLEXTRONICS SOFTWARE : THIS COMPANY WAS SELECTED BY THE TPO/A.O. HOWEVER, THE ASSESSEE OBJECTED THE INC LUSION OF THIS COMPANY IN THE LIST OF 61 IT(T.P)A NOS.441 & 442/BANG/2012 COMPARABLE AS IT FAILS R&D FILTER AND ALSO HAVING ITES SEGMENT. THE CIT (APPEALS) EXCLUDED THIS COMPANY BY ACCEPTING THE CONTENTION OF THE ASSESSEE ON R&D FILTER AS WELL AS ITES SEGMENT. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS LEARNED AUTHORISED REPRESENTATIVE . LD. D R HAS RELIED UPON THE ORDER OF THE TPO/A.O AND SUBMITTED THAT THE TPO HAS EXAMINED THE THE FUNCTIONAL SIMILARITY OF THIS COMP ANY. AT THE OUTSET, WE NOTE THAT THE FUNCTIONAL C OMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN A NUMBER OF DECISIONS. THE LEARNED AUTHORISED REPRESENTATIVE HAS RELIED UPON THE DECISION OF THE HYDERABA D BENCHES OF TRIBUNAL DT.2 7.11.2013 IN CASE OF DE SHAW INDIA SOFTWARE PVT. LTD. VS. ACIT ITA NO.2071 /HYD/2011 WHEREIN THE TRIBUNAL HAS HELD IN PARA 27 AS UNDER : - 27. FLEXTRONICS SOFTWARE LTD. AND THIRDWARE SOFTWARE SOLUTIONS LTD. : THE ASSESSEE HAS OBJECTED TO THESE TWO COMPANIES TO BE TREATED AS COMPARABLE MAINLY ON THE GROUND T HAT BOTH THESE COMPANIES ARE INTO PRODUCT DEVELOPMENT. WE FIND THAT IN CASE OF INTOTO SOFTWARE INDIA PVTG. LTD. (SUPRA) THE CO - ORDINATE BENCH OF THIS TRIBUNAL HAVING FOUND THAT THESE TWO COMPANIES ARE FUNCTIONALLY DIFFERENT AS THEY ARE INTO PRODUCT DEVELO PMENT HAS DIRECTED EXCLUDING THESE COMPANIES FOR COMPARABILITY ANALYSIS. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL INCASE OF M/S. INTOTO SOFTWARE INDIA PVT. LTD. (SUPRA) WE ALSO DIRECT THE ASSESSING OFFICER / TPO TO EXC LUDE BOTH THESE COMPANIES. THUS IT IS FOUND BY THE TRIBUNAL IN A SERIES OF DECISIONS THAT THIS COMPANY IS INTO PRODUCT DEVELOPMENT WHICH IS NOT COMPARABLE WITH THE ASSESSEE OF PURE ITES 62 IT(T.P)A NOS.441 & 442/BANG/2012 SEGMENT. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN T HE ORDER OF THE CIT (APPEALS) IN EXCLUDING THIS COMPANY. (XIII) GEN E SYS INTERNATIONAL CORPORATION LTD. : THIS COMPANY WAS SELECTED BY THE TPO/A.O BUT WAS NOT OBJECTED BY THE ASSESSEE EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT(A) EVEN NOT BEFORE T HIS TRIBUNAL. HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY BY APPLYING 0% RPT FILTER. IN VIEW OF OUR FINDING OF PROPER RPT TOLERANCE RANGE THIS COMPANY HAVING 5.84% RPT IS RESTORED BACK TO THE SET OF COMPARABLES. (XIV) HCL COM NET : THIS COMPA NY WAS SELECTED BY THE TPO/A.O THOUGH THE ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT (APPEALS). HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY ON RPT FILTER. WE FIND THAT THE RPT REVENUE OF THI S COMPANY IS 21.52%. THEREFORE THIS COMPANY FAILS RPT FILTER OF 15% AND ACCORDINGLY, WE UPHELD THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. (XV) I C R A TECHNO ANALYTICS LTD. (SEG.) : THIS COMPANY WAS SELECTED BY THE TPO/A.O BUT WAS NOT OBJECTED BY THE ASSESSEE EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT(A) EVEN NOT BEFORE THIS TRIBUNAL. HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY BY APPLYING 0% RPT FILTER. IN VIEW OF OUR FINDING OF PROPER RPT TOLERANCE RANGE THIS COMPANY HAVING RPT AT 1.85% IS RESTORED BACK TO THE SET OF COMPARABLES. 63 IT(T.P)A NOS.441 & 442/BANG/2012 (XVI) INFO RMED TECHNOLOG IES LTD . : THIS COMPANY WAS SELECTED BY THE TPO/A.O AND THE ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT (APPEALS ). HOWEVER, THE CIT (APPEALS) E XCLUDED THIS COMPANY ON RPT FILTER. WE FIND THAT THE RPT REVENUE OF THIS COMPANY IS 15.93%. THEREFORE THIS COMPANY FAILS RPT FILTER OF 15% AND ACCORDINGLY, WE UPHELD THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LES. (XVII) INFOSYS BP O LTD. : THIS COMPANY WAS SELECTED BY THE TPO AND INCLUDED IN THE LIST OF COMPARABLES. THE ASSESSEE OBJECTED AGAINST INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES BEFORE THE CIT (APPEALS) ON THE GROUND OF FUNCTIONAL D IS - SIMILARITY. THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY ON THE GROUND OF 0% RPT FILTER. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAD OPPOSED INCLUSION OF THIS COMPARABLE BEFORE THE TPO ON THE GROUND THAT THIS COMPANY HAS SUBSTANTIAL INTANGIBLE ASSETS, PROFITS EARNED PREDOMINANTLY DUE TO BRAND VALUE AND HAS LARGE FOCUS ON R&D APART FROM SUBSTANTIAL SELLING AND MARKETING EXPENSES. THIS COMPANY HAS A FINANCE BPO AND THERE IS NO SUB - SEGMEN T IN THE ITES SEGMENT. THE LEARNED AUTHORISED REPRESENTATIVE HAS REFERRED TO THE ANNUAL REPORT OF THIS COMPANY AND SUBMITTED THAT THIS COMPANY HAS BRANDS AND INTANGIBLES HAVING DIVERSIFIED 64 IT(T.P)A NOS.441 & 442/BANG/2012 OPERATIONS AT LARGE SCALE. FURTHER THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF MIXED PRODUCTS LIKE FINACLE. THIS COMPANY IS CARRYING OUT A LARGE SCALE R&D ACTIVITIES AND THEREFORE CANNOT BE CONSIDERED AS A GOOD COMPARABLE WITH THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE HAS RELIED UPON THE FOLLOWING DECISION S : - CASES PERTAINING TO ASSTT. YEAR : 2006 - 07 CASES PERTAINING TO OTHER ASSTT. YEARS CYPRESS SEMICONDUCTOR TECHNOLOGY INDIA PRIVATE LIMITED IT (TP) A NO 1167/BANG 2010 TRIOLOGY E BUSINESS SOFTWARE INDIA PVT. LTD VS. DCIT ITA NO. 1054/BANG/2012 (AY : 2007 - 08) AGNITY INDIA TECHNOLOGIES PVT LTD ITA NO. 3856(DEL ITAT)/2010 (AY 2006 - 07) 24/7CUSTOMER.COM VS DCIT (AY : 2004 - 05) ITA NO.227/BANG/2010 AGNITY INDIA TECHNOLOGIES P. LTD. (ITA NO. 1204/2011)(DEL HC) ADAPTEC INDIA PRIVATE LIMITED (AY : 2007 - 08) ITA NO. 1801/HYD/09. MISYS SOFTWARE SOLUTIONS INDIA PRIVATE LIMITED IT(TP) A NO.1425/BANG/2010 TURNOVER MERCEDES BENZ R & D INDIA PVT. LTD. (AY : 2007 - 08) ITA NO. 1222/BANG/2011. VERISIGN SERVICES INDIA PRIVATE LIMITED IT(TP)A NO 1404 BANG 2010 TU RNOVER CSR INDIA PVT. LTD. (AY : 2007 - 08) ITA NO. 1119/BANG/2011, [2013] THOUGHTWORKS TECHNOLOGIES (INDIA)PRIVATE LIMITED - IT(TP)A NO.1326/BANG/2010 - TURNOVER WITNESS SYSTEMS SOFTWARE INDIA PVT LTD (AY : 2007 - 08) ITA NO. 1366/BANG/2011. FOR CASES INVOL VING JOINT OPERATION, LARGE INTANGIBLES, HIGH BRAND VALUE, RISK BEARING & HIGH PROFIT MARGIN CASES AGNITY INDIA TECHNOLOGIES PVT LTD ITA NO. 3856(DEL)/2010], ITAT DELHI' THIS RULING HAS BEEN UPHELD BY THE HIGH COURT 65 IT(T.P)A NOS.441 & 442/BANG/2012 (ITA NO. 1204/2011, DATED JULY 2013) . SCALE OF OPERATION, BRAND VALUE ETC. NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. [ITA NO. 1612/HYD/2010.] MOTOROLA INDIA ELECTRONICS PRIVATE LIMITED VS. ACIT ITA NO. 1274 & 1413/BANG/2008. LOGICA PVT. LTD. VS ACIT (ITA NO. 1129/BANG/ 2011 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDERS OF THE TPO AND SUBMITTED THAT WHEN THIS COMPANY IS IN THE BUSINESS OF ITES THEN IT IS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. THE ASSESSEE DID NO T OBJECT THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BEFORE THE TPO. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE CONTENTION OF THE LD. A.R. OF THE ASSESSEE IS THAT IF AT ALL THIS COMPANY IS CO NSIDERED AS A COMPARABLE THEN THE SEGMENTAL MARGIN OF 23.11% (WHICH IS THE MARGIN FOR SOFTWARE SERVICE SEGMENT) ALONE SHOULD BE CONSIDERED FOR COMPARABILITY. ON THE ABOVE SUBMISSION, WE FIND THAT THE TPO CONSIDERED THE SEGMENTAL MARGIN (SOFTWARE SERVICE SEGMENT) IN THE CASE OF GEOMETRIC, KALS INFO SYSTEMS, R SYSTEMS, SASKEN COMMUNICATION AND TATA ELXSI. BEFORE DRP THE ASSESSEE POINTED OUT THAT THE SEGMENTAL MARGIN OF 23.11% ALONE SHOULD BE TAKEN FOR COMPARABILITY. THE DRP HAS NOT GIVEN ANY SPECIFIC FIND ING ON THE ABOVE PLEA OF THE ASSESSEE. PERUSAL OF THE ORDER OF THE TPO SHOWS THAT THE TPO RELIED ON INFORMATION WHICH WAS GIVEN BY THIS COMPANY IN WHICH THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ., BLUEALLY DIVISION AND XIUS - BCGI DIVISION. XIUS - BCGI DIVISION DOES THE BUSINESS OF 66 IT(T.P)A NOS.441 & 442/BANG/2012 PRODUCT SOFTWARE (DEVELOPING SOFTWARE). THIS COMPANY DEVELOPS PACKAGED PRODUCTS FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. THESE PRODUCTS ARE SOLD AS PACKAGED PRODUCTS TO CUSTOMERS. WHILE IMPLEMENTING THES E STANDARDIZED PRODUCTS, CUSTOMERS MAY REQUEST THE COMPANY TO CUSTOMIZE PRODUCTS OR RECONFIGURE PRODUCTS TO FIT INTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES UP THE JOB OF CUSTOMIZING THE PACKAGED SOFTWARE. THE COMPANY ALSO EXPLAINED THAT 30 TO 40% OF THE PRODUCT SOFTWARE (SOFTWARE DEVELOPED) WOULD CONSTITUTE PACKAGED PRODUCT AND AROUND 50% TO 60% WOULD CONSTITUTE CUSTOMIZED CAPABILITIES AND EXPENSES RELATED TO TRAVELLING, BOARDING AND LODGING EXPENSE. BASED ON THE ABOVE REPLY, THE TPO PRO CEEDED TO HOLD THAT THE COMPARABLE COMPANY WAS MAINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO SOFTWARE DEVELOPMENT) INTERNALLY AND THAT THE PORTION OF THE REVENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUSTOMIZATION WAS LESS THAN 25% OF THE OVERALL REVENUES. THE TPO THEREFORE HELD THAT LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPO S FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVI CES. HAVING DRAWN THE ABOVE CONCLUSION, THE TPO DID NOT BOTHER TO QUANTIFY THE REVENUES WHICH CAN BE ATTRIBUTED TO SOFTWARE PRODUCT DEVELOPMENT AND SOFTWARE DEVELOPMENT SERVICE BUT ADOPTED THE MARGIN OF THIS COMPANY AT THE ENTITY LEVEL. IN TERMS OF RULE 10B(3)(B) OF THE RULES, AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF ( I ) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET; OR ( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. 67 IT(T.P)A NOS.441 & 442/BANG/2012 NEITHER THE TPO NOR THE DRP HAVE NOTICED THAT THERE IS BOUND TO BE A DIFFERENCE BETWEEN THE ASSESSEE AND MEGASOFT AND THE PROFIT ARISING TO THE MEGASOFT AS A RESULT OF THE EXISTENCE OF THE SOFTWARE PRODUCT SEGMENT AND NO FINDING HAS BEEN GIVEN THAT REASONABLY ACCURATE ADJUSTMENT S CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. FOR THIS REASON, WE ARE INCLINED TO HOLD THAT THE PROFIT MARGIN OF 23.11% WHICH IS THE MARGIN OF THE SOFTWARE SERVICE SEGMENT BE TAKEN FOR COMPARABILITY. IN VIEW OF THE ABOVE CONCLUSIO N, WE DO NOT WISH TO GO INTO THE QUESTION AS TO WHETHER LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPO S FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. THUS IT WAS FOUND THAT THIS COMPANY IS FUNCTIONALLY DIS - SIMILAR TO THE ITES SERVICE PROVIDER COMPANY AS IT PROVIDES END TO END SOLUTIONS IN TECHNICAL CONSULTANCY, DESIGN, DEVELOPMENT, RE - ENGINEERING, MAINTENANCE, SYSTEM 68 IT(T.P)A NOS.441 & 442/BANG/2012 INTEGRATION AND IMPLEMENTATION. THIS COMPANY ALSO GENERATES REVENUE FROM THE SOFTWARE PRODUCTS AND HAS HUGE INTANGIBLE ASSETS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE, THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THAT OF THE ASSESSEE. ACCORDINGLY, WE DIREC T THE A.O./TPO TO EXCLUDE THIS COMPANY. A SIMILAR VIEW HAS BEEN TAKEN BY THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASES RELIED UPON BY THE ASSESSEE AND CITED SUPRA. (XVIII) I SERVICES INDIA LTD. : THIS COMPANY WAS SELECTED BY THE TPO/A.O AN D ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES . E VEN BEFORE THE CIT (APPEALS) AS WELL AS BEFORE THIS TRIBUNAL, THE ASSESSEE HAS NOT CONTESTED AGAINST THE INCLUSION OF THIS COMPANY. THE CIT (APPEALS) HAS RETAINED THIS C OMPANY AS A GOOD COMPARABLE. THEREFORE NO SPECIFIC ADJUDICATION OR FINDING WAS SOUGHT IN RESPECT OF THIS COMPANY EITHER BY THE ASSESSEE OR BY THE REVENUE. (XIX) MAPLE E SOLUTIONSLTD. : THIS COMPANY WAS SELE CTED BY THE TPO/A.O AND ASSESSEE DID NOT C ONTEST THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES . E VEN BEFORE THE CIT (APPEALS) AS WELL AS BEFORE THIS TRIBUNAL, THE ASSESSEE HAS NOT CONTESTED AGAINST THE INCLUSION OF THIS COMPANY. THE CIT (APPEALS) HAS RETAINED THIS COMPANY AS A GOOD COM PARABLE. THEREFORE NO 69 IT(T.P)A NOS.441 & 442/BANG/2012 SPECIFIC ADJUDICATION OR FINDING WAS SOUGHT IN RESPECT OF THIS COMPANY EITHER BY THE ASSESSEE OR BY THE REVENUE. (XX) MOLD TEK TECHNOLOG IES LTD. (SEG.) : THIS COMPANY WAS SELECTED BY THE TPO AND INCLUDED IN THE LIST OF COMPARABL ES. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BEFORE THE TPO AS WELL AS BEFORE THE CIT (APPEALS) ON THE GROUND OF FUNCTIONAL DISSIMILARITY AND SUPER NORMAL GROWTH. THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY FORM T HE LIST OF COMPARABLES BY APPLYING 0% RPT AS WELL AS ON FUNCTIONAL DISSIMILARITY. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS INTO ENGINEERING SERVICES BEING IN THE NATURE OF PRODUCING DESIGN, DR AWINGS, DETAILED STRUCTURE OF ENGINEERING DRAWINGS USING 2D AND 3D SOFTWARE. THESE SERVICES ARE HIGH END IN NATURE AND CANNOT BE COMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THERE IS ALSO SUPER NORMAL GROWTH OF 200% IN THIS S EGMENT. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS : - CASES PERTAINING TO ASSTT. YEAR MARKET TOOLS RESEARCH PVT. LTD. (ITA NO. 2066/HYD/2011. CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT LTD. KNOAH SOLUTIONS PVT LTD (ITA N O.1407/HYD/2013 70 IT(T.P)A NOS.441 & 442/BANG/2012 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THIS COMPANY IS IN ITES AND THE CIT (APPEALS) HAS EXCLUDED THIS COMPANY BY HOLDING THAT THIS COMPANY IS A KPO AND NOT A BPO. HOWEVER, MERE NOMENCLATU RE OF KPO AND BPO CANNOT BE A GROUND FOR INCLUSION OR EXCLUSION OF A COMPANY IN THIS LIST OF COMPARABLES WITHOUT EXAMINING THE ACTUAL FUNCTIONS PERFORMED BY THE COMPANY. WE HAVE HEARD THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD. WE F IND THAT THIS COMPANY IS PROVIDING HIGHLY TECHNICAL AND SPECIALIZED ENGINEERING SERVICES. THE FUNCTIONAL COMPARABILITY HAS BEEN EXAMINED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBLE SOLUTION VS. ACIT 147 ITD 83 AND IT WAS HELD THAT THI S COMPANY CANNOT BE COMPARED WITH AN ORDINARY ITES. THE ASSESSEE BEFORE US IS PROVIDING ONLY BACK OFFICE SUPPORT TO THE PARENT COMPANY. THEREFORE, MOLD - TEK TECHNOLOGY IS ENGAGED IN PRODUCING DESIGN, DRAWING AND STRUCTURAL ENGINEERING DRAWINGS OF 2D AND 3 D SOFTWARE CANNOT BE COMPARED WITH THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (APPEA LS) IN TREATING THIS COMPANY FUNCTIONALLY DIFFERENT. A SIMILAR VIEW HAS BEEN TAKEN BY THE CO - ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE RELIED UPON BY THE ASSESSEE. (XXI) R SYSTEMS INTERNATIONAL LTD. (SEG.) : THIS COMPANY WAS SELECTED BY THE TPO/A.O BUT WAS NOT OBJECTED BY THE ASSESSEE EITHER BEFORE THE TPO/A.O 71 IT(T.P)A NOS.441 & 442/BANG/2012 OR BEFORE THE CIT(A) EVEN NOT BEFORE THIS TRIBUNAL. HOW EVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY BY APPLYING 0% RPT FILTER. IN VIEW OF OUR FINDING OF PROPER RPT TOLERANCE RANGE AT 15%, THIS COMPANY HAVING 0.58 % OF RPT IS RESTORED BACK TO THE SET OF COMPARABLES. (XXII) SPANCO SYSTEMS LTD. : THIS COMPA NY WAS SELECTED BY THE TPO/A.O BUT WAS NOT OBJECTED BY THE ASSESSEE EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT(A) EVEN NOT BEFORE THIS TRIBUNAL. HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY BY APPLYING 0% RPT FILTER. IN VIEW OF OUR FINDING OF PROPER RPT TOLERANCE RANGE AT 15%, THIS COMPANY HAVING ONLY 5.03 % OF RPT IS RESTORED BACK TO THE SET OF COMPARABLES. (XXIII) TRITON CORP LTD. : THIS COMPANY WAS SELE CTED BY THE TPO/A.O AND THE ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY IN T HE LIST OF COMPARABLES . E VEN BEFORE THE CIT (APPEALS) AS WELL AS BEFORE THIS TRIBUNAL, THE ASSESSEE HAS NOT CONTESTED AGAINST THE INCLUSION OF THIS COMPANY. THE CIT (APPEALS) HAS RETAINED THIS COMPANY AS A GOOD COMPARABLE. THEREFORE NO SPECIFIC ADJUDICAT ION OR FINDING WAS SOUGHT IN RESPECT OF THIS COMPANY EITHER BY THE ASSESSEE OR BY THE REVENUE. (XXIV) VISHAL INFORMATION TECHNOLOG IES LTD. : THIS COMPANY WAS SELECTED BY THE TPO AND INCLUDED IN THE LIST OF COMPARABLES. THE ASSESSEE OBJECTED AGAINST T HE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND THAT IT FAILS 72 IT(T.P)A NOS.441 & 442/BANG/2012 R&D FILTER AS WELL AS FUNCTIONA L DISSIMILARITY. THE ASSESSEE HA S ALSO CONTESTED THE INCLUSION OF THIS COMPANY BEFORE THE CIT (APPEALS). HOWEVER, THE CIT (APPEALS) HAS RET AINED THIS COMPANY IN THE LIST OF COMPARABLES. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AS THIS COMPANY IS ENGAGED IN PROVIDING SERVICES BY WAY OF OUTSO URCING SERVICES TO THE THIRD PA RTY VENDORS. HE HAS REFERRED THE RELEVANT PART OF THE ANNUAL REPORT AND SUBMITTED THAT THE JOB WORK EXPENDITURE IS SIGNIFICANT WHICH SHOWS THAT THIS COMPANY IS OUTSOURCING THE SERVICES TO THIRD PARTY AND THEREFORE THIS COMP ANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE. THE LEARNED AUTHORISED REPRESENTATIVE HAS FURTHER POINTED OUT THAT FOR THE ASSESSMENT YEAR 2006 - 07, THIS TRIBUNAL HAS HELD THAT THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE. HE HAS ALSO RELIED UPON THE DECISIONS AS UNDER : ZAVATA INDIA PRIVATE LIMITED (ITA NO. 1781/HYD/2011, TS - 156 - ITAT - 2013(HYD) - TP, ITAT HYDERABAD) CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT LTD - ITA NO 1961 - AY 2007 - 08. COGNIZANT TECHNOLOGY SERVICES PVT. LTD. [ITA NOS. 2106/HYD/201 1 (AY 2007 - 08) AND 1864/HYD/2012 (AY 2008 - 09), TS - 140 - ITAT - 2013(HYD) - TP] AVINEON INDIA PVT LTD [ITA NO. 1989/HYD/2011, (TS - 308 - ITAT - 2013(HYD) - TP)], ITAT HYDERABAD) 73 IT(T.P)A NOS.441 & 442/BANG/2012 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT AS FAR AS THE FUNCTIONS OF THIS COMPANY IS CONCERNED, IT IS VERY MUCH SIMILAR TO THAT OF THE ASSESSEE IN PROVIDING ITES SERVICES. WE HAVE HEARD THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD. WE FIND THAT SALARY AND WAGES EXPENDITURE OF THIS COMPANY IS VERY MINIMAL AT 2.3% OF TOTAL REVENUE WHICH SHOWS THAT THIS COMPANY OUTSOURCES THE SERVICES TO THIRD PARTIES. THIS FACT IS ALSO REFLECTED IN THE ANNUAL REPORT AND PROFIT AND LOSS ACCOUNT WHERE IN THE JOB WORK EXPENDITURE IS SUBSTANTIAL UNDER THE HEAD DATA ENTRY CHARGES AND VENDOR PAYMENT. THEREFORE, TH ERE IS NO DISPUTE AS REGARDS THE BUSINESS MODEL OF THIS COMPANY IS NOT DIFFERENT FROM THE ASSESSMENT YEAR 2006 - 07 AND 2007 - 08 . RATHER THE OUTSO URCING SERVICE CHARGES ARE INCREASED DURING THE YEAR TO RS.13,12,00,000 FROM RS.11,49,00,000 IN THE EARLIER YEAR. THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006 - 07 HAS HELD IN PARAS 24 TO 25 AS UNDER : 24. WE HAVE CONSIDERED THE RI VAL SUBMISSIONS. AS FAR AS COMPARABLE COMPANIES CHOSEN BY THE TPO AT S.NO.1,3,6,7 & 8 VIZ., MAPLE ESOLUTION LTD., DATAMATICS FINANCIAL SERVICES LTD., VISHAL INFORMATION TECHNOLOGICAL SERVICES LTD., ASIT C.MEHTA FINANCIAL SERVICES LTD., AND GOLD STONE INFR ATECH LTD., IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO, WE FIND THAT THE HYDERBAD BENCH OF THE ITAT IN THE CASE OF HSBC ELECTRONIC DATA PROCESSING INDIA LTD. VS. ACIT, ITA NO.1624/HYD/2010 BY ORDER DARTED 28.6.2013 CONSIDERED COMPARABILITY OF TH ESE COMPANIES IN THE CASE OF A COMPANY ENGAGED IN RENDERING IT ENABLED SERVICES TO ITS AE SIMILAR TO THAT OF THE ASSESSEE IN THE PRESENT CASE. THE TRIBUNAL HELD THAT 74 IT(T.P)A NOS.441 & 442/BANG/2012 THE AFORESAID COMPANIES ARE NOT COMPARABLE. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL. '8. THE FIRST OBJECTION IS WITH REFERENCE TO SELECTION OF COMPARABLE DATA BY THE TPO WITH REFERENCE TO THE FOLLOWING FIVE COMPANIES - (A) VISHAL INFORMATION TECHNOLOGIES LTD. (B) GOLDSTONE INFRATECH LTD. (C) DATAMATIC FINANCIAL SERVICES LTD.(SEG) (D) MAPLE E - SOLUTIONS LTD. (E) NUCLEUS NETSOFT & GIS(INDIA) LTD. (NOW KNOWN AS (ASIT C. MEHTA FINANCIAL SERVICES LTD.) VISHAL INFORMATION TECHNOLOGIES LTD. 9. THE ASSESSEE S OBJECTION WITH REFERENCE TO INCLUSION OF THIS COMPARABLE IS ON THE REASON THAT THE COMPANY IS FUNCTIONALLY DIFFERENT, ALSO DOES NOT SATISFY THE FILTERS SUCH AS EMPLOYEE COST AND ON - SITE REVENUE FILTER. IT WAS SUBMITTED THAT EMPLOYEE COST FORMS A MAJOR PORTION OF THE TOTAL COST OF BPO SERVICES AND IN THE ASSESSEE S CASE EM PLOYEE COST IS 62% OF THE TOTAL COST, WHEREAS IN THE SELECTED COMPANY THE EMPLOYEE COST IS LESS THAN 2%, WHICH INDICATES THAT MOST OF THE WORK WAS OUTSOURCED AND THE OUT - SOURCING COST WAS AT 88.64% OF THE OPERATING COST. IT WAS FURTHER SUBMITTED THAT THE I TAT BANGALORE IN THE CASE OF FIRST ADVANTAGE OFF - SHORE SERVICES (ITA NO.1252/BANG/2010) HAS DIRECTED TO USE EMPLOYEE TURNOVER FILTER IN A CONSISTENT MANNER FOR SELECTION OF COMPARABLES AND IN THE CASE OF MAERSK GLOBAL SERVICES CENTRE (INDIA) PVT. LTD. (14 ITR(TRIB) 541) THE MUMBAI BENCH OF THE TRIBUNAL HAS ANALYSED AND REJECTED THIS COMPANY AS COMPARABLE FOR THE REASON THAT IT HAS OUTSOURCED A CONSIDERABLE PORTION OF IT S BUSINESS AND IS FUNCTIONALLY DIFFERENT. MOREOVER, IT WAS ALSO SUBMITTED THAT THE DRP I N THE LATER YEAR OF 2008 - 09 VIDE ITS ORDER DATED 3.8.2012 HAS REJECTED THIS COMPANY AS A COMPARABLE (NAME CHANGED TO CORAL HUB LTD.), VIDE PARA 18 OF THE ORDER, WHEREIN ULTIMATELY, IT WAS DECIDED THAT THERE IS MAJOR DIFFERENCE IN FUNCTIONALITY AND THE BUSI NESS MODEL AND THE DRP BENCH WAS OF THE VIEW THAT CORAL HUB (FORMERLY KNOWN AS VISHAL INFORMATION TECHNOLOGY LTD.) WAS NOT A SUITABLE COMPARABLE AND NEEDS TO BE DROPPED FROM THE FINAL SET OF COMPARABLES. BASED ON THE ABOVE SUBMISSIONS, IT WAS SUBMITTED THA T THIS COMPANY CANNOT BE USED AS A COMPARABLE AND HAS TO BE EXCLUDED. 9.1. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER RELIED ON THE ORDERS OF THE TPO. 75 IT(T.P)A NOS.441 & 442/BANG/2012 9.2. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE FIND CONSIDERABLE FORCE IN THE CONTENTIONS ADVA NCED BY THE LEARNED COUNSEL. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT MOST OF THE COST INCURRED BY THE COMPANY TAKEN AS COMPARABLE IS OUTSOURCING COST, AS CAN BE SEEN FROM THE ANNUAL REPORT PLACED IN THE PAPER - BOOK AND ITAT, MUMBAI IN THE CASE O F MAERSK GLOBAL SERVICE CENTRE (SUPRA) HAS ANALYSED AND REJECTED THIS COMPANY AS COMPARABLE, DUE TO THE REASON THAT IT HAS OUTSOURCED A CONSIDERABLE PORTION OF ITS BUSINESS AND IT IS FUNCTIONALLY DIFFERENT. THIS FACTOR WAS ALSO APPROVED BY THE DRP IN ASSES SEE S OWN CASE IN THE LATER YEAR, AS CAN BE SEEN FROM THE COPY OF THE ORDER PLACED ON RECORD, FOR ASSESSMENT YEAR 2008 - 09. IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. XXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 14. IN VIEW OF THE FOREGOING DISCUSSION, WE AGREE WITH THE ASSESSEE S OBJECTION THAT THE ABOVE FIVE COMPARABLES SHOULD BE EXCLUDED. 25. THE FACTS AND CIRCUMSTANCES AND THE ASSESSMENT YEAR FOR WHICH THE AFORESAID CO MPANIES WERE NOT CONSIDERED AS COMPARABLE ARE IDENTICAL TO THE CASE DECIDED BY THE HYDERBAD BENCH OF ITAT AND THAT OF THE CASE OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE HYDERBAD BENCH OF ITAT, WE DIRECT THE TPO TO EXCLUDE THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE WHILE ARRIVING AT THE ARITHMETIC MEAN OF COMPARABLE. THE RELEVANT GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. IN VIEW OF THE ABOVE FACTS AS WELL AS THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSM ENT YEAR 2006 - 07, WE DIRECT THE A.O/TPO TO EXCLUDE THIS COMPANY FORM THE LIST OF COMPARABLES. (XXV) WIPRO LIMITED (SEG.) : THIS COMPANY WAS SELECTED BY THE TPO AND INCLUDED IN THE LIST OF COMPARABLES. THE ASSESSEE OBJECTED THE INCLUSION OF THIS 76 IT(T.P)A NOS.441 & 442/BANG/2012 COMPA NY ON THE GROUND OF FUNCTIONAL DIS - SIMILARITY. THE CIT (APPEALS) EXCLUDED THIS COMPANY ON 0% RPT FILTER AS WELL AS FUNCTIONAL DIS - SIMILARITY. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THIS COMPANY CANNOT BE COM PARED WITH THE ASSESSEE AS IT HAS MADE SIGNIFICANT INVESTMENT IN THE BUSINESS ACQUISITION. HE HAS REFERRED THE RELEVANT PART OF THE ANNUAL REPORT AND SUBMITTED THAT THIS COMPANY HAS REPORTED A HUGE INVESTMENT IN ACQUISITION OF THE BUSINESS. THIS COMPANY IS ALSO ENGAGED IN THE BUSINESS OF INNOVATION, TECHNOLOGY INNOVATION, PROCESS INNOVATION AND DELIVERY INNOVATION. IT ALSO EARNS ABOUT 8% FROM INNOVATION ACTIVITY AND ALSO HAVING MORE THAN 13 ENGINEERING PATENTS, ENTERPRISES, BUSINESS AND QUALITY. THIS C OMPANY HAS 55 CENTRES OF EXCELLENCE AND 30 INNOVATION PRODUCTS. IT HAS ALSO SET UP A HANDSET MOBILE TESTED LAB AND ENGAGED IN R&D ACTIVITY. THUS THIS COMPANY CANNOT BE COMPARED WITH THE ASSESSEE. HE HAS RELIED UPON THE FOLLOWING DECISIONS : MARKET TOOL S RESEARCH PVT. LTD. (ITA NO. 2066/HYD/2011) INTOTO SOFTWARE INDIA PVT. LTD. [ITA.NO.1196/HYD/2010 (AY 2005 - 06), ITA.NO.1197/HYD/2010 (AY 2005 - 06), ITA.NO.2102/HYD/2011 (AY 2007 - 08), TS - 141 - ITAT - 2013(HYD) - TP, ITAT . ON THE OTHER HAND, LEARNED DEPAR TMENTAL REPRESENTATIVE HAS SUBMITTED THAT WHEN THE TPO HAS CONSIDERED ITES SEGMENT OF THIS COMPANY THAN THE OTHER 77 IT(T.P)A NOS.441 & 442/BANG/2012 ACTIVITY OF THIS COMPANY ARE NOT RELEVANT FOR DETERMINING THE ALP. THUS HE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE SIMILAR ACTIVIT IES AND THEREFORE IS A GOOD COMPARABLE. HE HAS RELIED UPON THE ORDER OF THE TPO. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD. THOUGH THE TPO HAS CONSIDERED ONLY SEGMENTAL DATA RELATING TO ITES SERVICES, HOWEVER, TH ERE IS NO DENIAL THAT THIS COMPANY IS HAVING SIGNIFICAN T INVESTMENT IN THE BUSINESS ACQUISITION AS WELL AS ENGAGED IN THE INNOVATION ACTIVITIES OF VARIOUS FIELDS INCLUDING TECHNOLOGY INNOVATION, PROCESS INNOVATION AND DELIVERY INNOVATION. THIS COMPANY IS ALSO HAVING A HUGE BRAND VALUE AND THEREFORE HAS A BARGAINING POWER IN COMPARISON TO THE OTHER COMPANIES WHO WERE ENGAGED IN THE BACK OFFICE SUPPORT SERVICES. THIS COMPANY IS ALSO MAINTAINING 55 CENTRES OF EXCELLENCE AND 30 INNOVATION PROJECTS. THEREF ORE THIS COMPANY IS ALSO ENGAGED IN THE R&D ACTIVITIES AND GETTING THE BENEFIT OF THE INNOVATION AND R&D. IN VIEW OF THE ABOVE FACTS, THIS COMPANY CANNOT BE TREATED AS A GOOD COMPARABLE FOR THE ASSESSEE WHICH IS PROVIDING BACK OFFICE SUPPORT SERVICES TO I TS PARENT COMPANY WITHOUT EARNING ANY BENEFIT OF THE INNOVATION AND R&D. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE CIT (APPEALS) ON FUNCTIONAL DIS - SIMILARITY OF THIS COMPANY. (XXVI) NITTANY OUTSOURCING SERVICES PV T. LTD. : THIS COMPANY WAS SELE CTED BY THE TPO/A.O AND ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY IN 78 IT(T.P)A NOS.441 & 442/BANG/2012 THE LIST OF COMPARABLES . E VEN BEFORE THE CIT (APPEALS) AS WELL AS BEFORE THIS TRIBUNAL, THE ASSESSEE HAS NOT CONTESTED AGAINST THE INCLUSIO N OF THIS COMPANY. THE CIT (APPEALS) HAS RETAINED THIS COMPANY AS A GOOD COMPARABLE. THEREFORE NO SPECIFIC ADJUDICATION OR FINDING WAS SOUGHT IN RESPECT OF THIS COMPANY EITHER BY THE ASSESSEE OR BY THE REVENUE. (XXVII) ACCURATE DATA CONVERTERS LTD . : : THIS COMPANY WAS SELE CTED BY THE TPO/A.O AND ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES . E VEN BEFORE THE CIT (APPEALS) AS WELL AS BEFORE THIS TRIBUNAL, THE ASSESSEE HAS NOT CONTESTED AGAINST THE INCLUSION O F THIS COMPANY. THE CIT (APPEALS) HAS RETAINED THIS COMPANY AS A GOOD COMPARABLE. THEREFORE NO SPECIFIC ADJUDICATION OR FINDING WAS SOUGHT IN RESPECT OF THIS COMPANY EITHER BY THE ASSESSEE OR BY THE REVENUE. 16. SINCE WE HAVE DIRECTED THE TPO TO EXCLUDE SOME OF THE COMPANIES FROM THE LIST OF COMPARABLES AS WELL AS RESTORED SOME OF THE COMPANIES TO THE LIST OF COMPARABLES WHICH WERE EXCLUDED BY THE CIT (APPEALS), THEREFORE, THE TPO/A.O. IS DIRECTED TO RECOMPUTE THE ALP AFTER EXCLUSION AND INCL USION OF THE 79 IT(T.P)A NOS.441 & 442/BANG/2012 COMPARABLE COMPANIES AS DIRECTED ABOVE. NEEDLESS TO SAY THE BENEFIT OF TOLERANCE RANGE OF +/ - 5% AS PER THE PROVISO TO SECTION 92C BE CONSIDERED. 17. IN THE RESULT, BOTH THE APPEALS OF REVENUE AND ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND FEB., 201 6 . SD/ - ( INTURI RAMA RAO ) ACCOUNTANT MEMBER SD/ - ( VIJ AYPAL RAO ) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE