Appeal Details
Counselvise Citation
[2015] 120 COUNSELVISE.COM (IT) 9767 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 2 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-06-2015
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Assessment Year
2008-2009
Appeal Filed On
03-04-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT(TP)A NO.437/BANG/2013 ASSESSMENT YEAR : 2008-09 AMD INDIA PRIVATE LTD., PLOT NO.102 & 103, EXPORT PROMOTION INDUSTRIAL PARK, WHITEFIELD, BANGALORE 560 066. PAN: AAECA 6756C VS. THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. APPELLANT RESPONDENT IT(TP)A NO.457/BANG/2013 ASSESSMENT YEAR : 2008-09 THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. VS. AMD INDIA PRIVATE LTD., BANGALORE 560 066. PAN: AAECA 6756C APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, CA RESPONDENT BY : SHRI T.S.N. MURTHY, CIT-III(DR) DATE OF HEARING : 08.06.2015 DATE OF PRONOUNCEMENT : 23.06.2015 IT(TP)A NOS.437 & 457/BANG/2015 PAGE 2 OF 54 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THESE ARE APPEALS BY THE REVENUE AND ASSESSEE DIR ECTED AGAINST THE ORDER DATED 30.1.2013 OF THE CIT(APPEALS)-IV, B ENGALURU FOR THE ASSESSMENT YEAR 2008-09. 2. IN THE APPEAL BY THE REVENUE, GROUNDS NO. 1 TO 8 READ AS FOLLOWS:- 1. THE ORDER OF THE LD. CIT(APPEALS), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SIZ E AND TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TR EATING A COMPANY AS A COMPARABLE AND ACCORDINGLY IN EXCLUDIN G M/S FLEXTRONICS LTD., IGATE GLOBAL SOLUTIONS LTD., INFO SYS TECHNOLOGIES LTD., MINDTREE LTD., PERSISTENT SYSTEM S LTD., SASKEN COMMUNICATION TECHNOLOGIES LTD., TATA ELXSI LTD. AND WIPRO LIMITED AS COMPARABLES. 3. THE LEARNED CIT(A) IN THE FACTS AND CIRCUMSTANCE S OF THE CASE ERRED IN EXCLUDING THE COMPARABLE COMPANY M/S CELESTIAL BIOLABS LTD. ON THE BASIS OF HIGH PROFIT MARGIN. 4. THE LD. CIT(A) ERRED IN REJECTING THE DIMINISHIN G REVENUE FILTER USED BY THE TPO TO EXCLUDE COMPANIES THAT DO NOT REFLECT THE NORMAL INDUSTRY TREND. 5. THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT TH E DIFFERENT YEAR ENDING FILTER APPLIED BY THE TPO IS NECESSARY TO EXCLUDE COMPANIES WHICH DO NOT HAVE THE SAME OR COMPARABLE FINANCIAL CYCLE AS THE TESTED PARTY. 6. THE LD. ERRED IN REJECTING THE EMPLOYEE COST FIL TER APPLIED BY THE TPO TO SELECT COMPANIES WHICH ARE PREDOMINAN TLY INTO SOFTWARE DEVELOPMENT SERVICES AND THEREBY INCLUDING M/S INDUS NETWORKS LTD. AS A COMPARABLE. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 3 OF 54 7. THE LEARNED CIT(A) IN THE FACTS AND CIRCUMSTANCE S OF THE CASE ERRED IN HOLDING THAT M/S. AVANI CINCOM TECHNO LOGIES CAN BE TAKEN AS A COMPARABLE. 8. THE LEARNED CIT(A) IN THE FACTS AND CIRCUMSTANCE S OF THE CASE ERRED IN HOLDING THAT M/S KALS INFORMATIONS SY STEMS LTD. BEING FUNCTIONALLY DIFFERENT, CANNOT BE TAKEN AS CO MPARABLE IGNORING THE FACT THAT IT QUALIFIES ALL THE QUANTIT ATIVE AND QUALITATIVE FILTERS APPLIED BY THE TPO. 3. IN THE APPEAL FILED BY THE ASSESSEE, THERE ARE A BOUT 8 GROUNDS RAISED IN THE GROUNDS OF APPEAL. GROUNDS NO. 1 TO 7 ARE WITH REFERENCE TO THE ADDITION MADE BY THE TPO TO THE TOTAL INCOME OF THE ASSESSEE, CONSEQUENT TO DETERMINATION OF ALP OF AN INTERNATIO NAL TRANSACTION CARRIED OUT BY THE ASSESSEE WITH ITS AE UNDER THE PROVISION S OF 92 OF THE INCOME- TAX ACT, 1961 [THE ACT]. GROUND NO.8 IS WITH REG ARD TO CHARGING OF INTEREST U/S.234B OF THE ACT. THESE GROUNDS READ AS FOLLOWS : 1 ASSESSMENT AND REFERENCE TO TRANSFER PRICING OFF ICER ARE BAD IN LAW A) THE ORDER ISSUED BY THE INCOME-TAX OFFICER - WAR D 11(1) [AO] UNDER SECTION 143(3) R.W.S. 92CA OF THE INCO ME-TAX ACT, 1961 [THE ACT] AND THE ORDER PASSED BY .THE COMMI SSIONER OF INCOME-TAX (APPEALS)-IV, BANGALORE [THE CIT(A)] U NDER SECTION 250 OF THE ACT, ARE BAD IN LAW AND ON FACTS AND IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. B) THE AO HAS ERRED IN MAKING A REFERENCE TO THE AD DITIONAL COMMISSIONER OF INCOME-TAX, (TRANSFER PRICING) - I, BANGALORE [TPO], INTER ALIA, SINCE AMD INDIA PRIVATE LIMITE D [AMD INDIA OR THE APPELLANT] HAS SATISFIED ALL THE CO NDITIONS AS LAID OUT IN SECTION 92C(3) OF THE ACT. ACCORDINGLY, THE ORDER PASSED BY THE TPO IS WITHOUT JURISDICTION. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 4 OF 54 C) THE ORDER PASSED BY THE LD. CIT(A) AND AO IS WIT HOUT JURISDICTION, INTER ALIA, INSOFAR AS IT PURPORTS TO GIVE EFFECT TO AN INVALID ORDER OF THE TPO. D) THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO/TPO IN NOT DEMONSTRATING THAT THE MOTIVE OF THE APPELLA NT WAS TO SHIFT PROFITS OUTSIDE OF INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INTERNATIONAL TRANSACTIONS, WHICH IS A PRE-REQUISIT E CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT. 2 DETERMINATION OF ARMS LENGTH PRICE A) THE LD. CIT(A) AND AO/TPO ERRED IN REJECTING THE VALUE OF INTERNATIONAL TRANSACTIONS AS RECORDED IN THE BOOKS OF ACCOUNTS, AS THE ARMS LENGTH PRICE. B) THE LD. CIT(A) AND AO/TPO ERRED IN DETERMINING A NEW ARMS LENGTH PRICE IN SUBSTITUTION OF THE ARMS LEN GTH PRICE AS DETERMINED BY THE APPELLANT. 3 THE FRESH COMPARABLE SEARCH UNDERTAKEN BY THE TP O IS BAD IN LAW THE LD. CIT(A) ERRED IN LAW IN HOLDING THAT THE FRE SH COMPARABILITY ANALYSIS USING NON CONTEMPORANEOUS DA TA CONDUCTED BY THE TPO AND FURTHER SUBSTITUTING THE A PPELLANTS ANALYSIS WITH FRESH BENCHMARKING ANALYSIS ON HIS OW N CONJECTURES AND SURMISES. THUS, THE APPELLANT PRAYS THAT THE FR ESH BENCHMARKING ANALYSIS CONDUCTED BY THE TPO IS LIABL E TO BE QUASHED. 4 COMPARABILITY ANALYSIS ADOPTED BY THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE A) THE AO/TPO GROSSLY ERRED ON FACTS AND THE CIT(A) ERRED IN CONFIRMING THE BENCHMARKING OF TRANSACTIONS OF SOFT WARE DEVELOPMENT SERVICES OF THE APPELLANT WITH COMPANIE S OPERATING AS FULL FLEDGED ENTREPRENEURS WITHOUT CONSIDERING T HE DIFFERENCES IN THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RIS K UNDERTAKEN BY THE APPELLANT VIS--VIS COMPARABLE COMPANIES. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 5 OF 54 B) THE AO/TPO ERRED IN LAW IN APPLYING ARBITRARY FI LTERS TO ARRIVE AT A FRESH SET OF COMPANIES AS COMPARABLE TO THE AP PELLANT, WITHOUT ESTABLISHING FUNCTIONAL COMPARABILITY AND T HE LD.CIT(A) ALSO ERRED IN CONFIRMING THE SAME. C) THE AO/TPO ERRED ON FACTS IN ARBITRARILY REJECTI NG COMPANIES HAVING ONSITE REVENUES MORE THAN 75% OF TOTAL SALES AND THE LD.CIT(A) ALSO ERRED IN CONFIRMING THE SAME. D) THE AO/TPO GROSSLY ERRED IN LAW IN DEVIATING FRO M THE UNCONTROLLED PARTY TRANSACTION DEFINITION AS PER TH E INCOME-TAX RULES AND ARBITRARILY APPLYING A 25% RELATED PARTY CRITERIA IN ACCEPTING / REJECTING COMPARABLES AND THE LD.CIT(A) ALSO ERRED IN CONFIRMING THE SAME. E) THE AO/TPO GROSSLY ERRED ON FACTS IN ARBITRARILY REJECTING COMPANIES HAVING SOFTWARE DEVELOPMENT REVENUE LESS THAN 75% OF TOTAL OPERATING REVENUE AND APPLYING INCONSISTEN TLY SUCH FILTER, WITHOUT CONSIDERING THE SPECIFIC SEGMENTAL RESULTS AND THE LD.CIT(A) ALSO ERRED IN CONFIRMING THE SAME. F) THE AO/TPO ERRED ON FACTS IN ARBITRARILY REJECTI NG COMPANIES HAVING EXPORT REVENUES LESS THAN 25% OF TOTAL SALES AND THE LD.CIT(A) ALSO ERRED IN CONFIRMING THE SAME. G) THE AO/TPO ALSO ERRED ON FACTS IN ARBITRARILY RE JECTING COMPANIES BASED ON THEIR FINANCIAL RESULTS WITHOUT CONSIDERING THE FUNCTIONAL COMPARABILITY AND THE LD.CIT(A) ALSO ERRED IN CONFIRMING THE SAME. H) THE AO/TPO ERRED ON FACTS AND IN LAW IN CONSIDER ING A SET OF SECRET DATA, I.E. DATA WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN, IN ARRIVING AT A FRESH SET OF COMPANIES USING HIS P OWER UNDER SECTION 133(6) OF THE ACT, WHICH IS GROSSLY UNJUSTI FIED. THE LD.CIT(A) ALSO ERRED IN CONFIRMING THE SAME I) THE AO/TPO CHERRY PICKED COMPARABLE COMPANIES BY WAY OF (A) A NON-METHODICAL SEARCH PROCESS, AND (B) EXERCI SING NON- UNIFORMITY IN THE APPLICATION OF FILTERS AND THE LD .CIT(A) ALSO ERRED IN CONFIRMING THE SAME. J) WITHOUT PREJUDICE TO THE ABOVE, THE AO ERRED IN INCORRECTLY COMPUTING MARGINS OF THE COMPARABLE COMPANIES AND A CCORDINGLY IT(TP)A NOS.437 & 457/BANG/2015 PAGE 6 OF 54 ERRED IN COMPUTING THE ADJUSTMENT MADE TO THE TOTAL INCOME OF THE APPELLANT WHILE GIVING EFFECT TO THE ORDER OF THE L D. CIT(A). 5 ERRONEOUS DATA USED BY THE AO/TPO A) THE AO/TPO HAS ERRED IN LAW AND THE CIT(A) FURTH ER ERRED IN CONFIRMING USE OF DATA, WHICH WAS NOT CONTEMPORANEO US AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING THE TRANSFER PRICING STUDY BY THE APPELL ANT. B) THE AO/TPO ERRED IN LAW AND THE CIT(A) FURTHER E RRED IN CONFIRMING NON-APPLICATION OF MULTIPLE-YEAR DATA WH ILE COMPUTING THE MARGIN OF ALLEGED COMPARABLE COMPANIE S. 6 NON-ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES, BY THE AO/TPO THE AO/TPO ERRED IN LAW AND ON FACTS IN NOT ALLOWIN G APPROPRIATE ADJUSTMENTS UNDER RULE L0B TO ACCOUNT F OR, INTER ALIA, DIFFERENCES IN (A) ACCOUNTING PRACTICES, (B) DEPREC IATION ADJUSTMENTS, (C) MARKETING EXPENDITURE ADJUSTMENT, (D) RESEARCH AND DEVELOPMENT EXPENDITURE ADJUSTMENT AND (E) RISK PROFILE BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES. THE LD. CIT(A) ERRED IN CONFIRMING THE FINDINGS OF THE TPO/ AO AND NOT COMMENTING ON THE DEPRECIATION ADJUSTMENT CLAIMED B Y THE APPELLANT. 7 VARIATION OF 5% FROM THE ARITHMETIC MEAN THE AO/TPO ERRED IN LAW AND THE LD. CIT(A) ERRED IN NOT GRANTING THE VARIATION AS PER THE PROVISO TO SECTIO N 92C(2) OF THE ACT. 8 INTEREST UNDER SECTION 234B OF THE ACT ON THE FACTS, AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE LEARNED A O ON THE SPECIFIC GROUND TAKEN IN APPEAL THAT THE LEARNED AO HAD ERRED IN LEVYING INTEREST UNDER SECTION 234B. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 7 OF 54 4. THE ASSESSEE HAS ALSO FILED AN ADDITIONAL GROUND OF APPEAL WHICH READS AS FOLLOWS:- 1. THE LOWER AUTHORITIES HAVE ERRED IN SELECTING Q UINTEGRA SOLUTIONS LTD, BODHTREE LTD, THIRDWARE SOLUTIONS LT D AND LUCID SOFTWARE LTD AS COMPARABLES DESPITE THEM BEING FUNC TIONALLY DIFFERENT FROM THE APPELLANT. 5. IN THE APPLICATION FOR ADMISSION OF ADDITIONAL G ROUND, THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DID NOT OBJECT TO T HE AFORESAID COMPANIES BEING CHOSEN AS COMPARABLE BEFORE THE TPO. HOWEVER, THE FUNCTIONAL PROFILE OF THESE COMPANIES WERE CONSIDERED WHICH CA ME AT A LATER POINT OF TIME AND IT HAS BEEN HELD THAT THESE COMPANIES ARE NOT COMPARABLE FUNCTIONALLY OR OTHERWISE WITH A SOFTWARE SERVICE P ROVIDER COMPANY SUCH AS THE ASSESSEE. HENCE THE ASSESSEE HAS RAISED THE AF ORESAID ADDITIONAL GROUND AND PRAYED FOR ADMISSION OF THE SAME. THE A SSESSEE HAS SUBMITTED THAT ALL FACTS ARE ALREADY AVAILABLE ON R ECORD AND IT IS A QUESTION OF APPLYING THE DECISIONS RENDERED IN CASES OF COMP ANIES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES. 6. WE HAVE CONSIDERED THE REQUEST FOR ADMISSION OF ADDITIONAL GROUND AND ARE OF THE VIEW THAT PLEA OF THE ASSESSEE DESER VES TO BE ACCEPTED, AS IT HAS BEEN HELD BY THE CHANDIGARH SPECIAL BENCH OF TH E TRIBUNAL IN QUARK SYSTEMS PVT. LTD., 38 SOT 307 (SB) (CHD) THAT THE TAXPAYER CAN REJECT A COMPANY SELECTED BY IT IN ITS TP STUDY AS NOT BEING COMPARABLE, EVEN IF SUCH A PLEA IS RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE SPECIAL IT(TP)A NOS.437 & 457/BANG/2015 PAGE 8 OF 54 BENCH FURTHER HELD THAT THE TAXPAYER IS NOT ESTOPPED FROM POINTING OUT THAT A PARTICULAR COMPANY CANNOT BE TAKEN AS A COMPARABL E, EVEN THOUGH THE TAXPAYER HAS CHOSEN THE SAID COMPANY AS A COMPARABL E. KEEPING IN MIND THE AFORESAID DECISION OF THE SPECIAL BENCH, WE ADM IT THE ADDITIONAL GROUND FOR ADJUDICATION. 7. SINCE THE GROUNDS RAISED BY THE REVENUE AND ASSE SSEE ARE COMMON, WE DEEM IT APPROPRIATE TO DISPOSE OF THESE GROUNDS TOGETHER. THE FACTS MATERIAL FOR ADJUDICATION OF THESE GROUND S ARE AS FOLLOWS. 8. AMD INDIA PRIVATE LIMITED [AMD IPL OR THE AP PELLANT OR ASSESSEE] WAS INCORPORATED ON MARCH 15, 2004 AND IS A SUBSIDIARY OF ADVANCED MICRO DEVICES INC., USA [AMD US]. AMD IP L IS A UNIT REGISTERED UNDER THE SOFTWARE TECHNOLOGY PARK OF IN DIA SCHEME AND IS ENGAGED IN THE PROVISION OF SOFTWARE DEVELOPMENT SE RVICES TO ITS ASSOCIATED ENTERPRISE [AE]. AMD IPL IS A CAPTIVE SERVICE PROVIDER AND IS BEING REMUNERATED AT COST PLUS AN ARMS LENGTH MAR K-UP BASIS. 9. DURING THE PREVIOUS YEAR RELEVANT TO AY 2008-09 , AMD IPL HAD, INTER ALIA, RENDERED SOFTWARE DEVELOPMENT SERVICES AMOUNTING TO RS. 669,498,745 TO AMD US. THE APPELLANT HAD CONDUCTE D A TRANSFER PRICING STUDY [TP STUDY] IN TERMS OF SECTION 92D OF THE A CT. IN THE TP STUDY, IN RESPECT OF ITS SOFTWARE DEVELOPMENT SERVICES THE AP PELLANT ARRIVED AT A SET OF 20 COMPARABLE COMPANIES, HAVING AN AVERAGE NET C OST PLUS MARGIN OF 14.53% AS AGAINST THAT OF 11.01% OF THE APPELLANT. SINCE THE APPELLANTS IT(TP)A NOS.437 & 457/BANG/2015 PAGE 9 OF 54 MARGIN WAS IN THE 5% (AS PROVIDED IN THE SECOND PRO VISO TO SECTION 92C(2) OF THE ACT) RANGE OF THE ARITHMETICAL MEAN OF THE C OMPARABLES, THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT WERE CL AIMED BY THE ASSESSEE TO BE AT ARMS LENGTH. 10. THE FINANCIAL RESULTS OF THE ASSESSEE IN ITS SO FTWARE DEVELOPMENT SERVICES SEGMENT WERE AS FOLLOWS:- DESCRIPTION AMOUNT (RS.) OPERATING REVENUES 669498745 OPERATING EXPENDITURE (*) 603081554 OPERATING PROFIT 66417191 OP/TC 11.01% 11. FURTHER TO THE ABOVE, THE TPO ISSUED A SHOW-CAU SE NOTICE DATED 14 OCTOBER 2011, PROPOSING TO: A) REJECT 11 OUT OF 20 COMPARABLE COMPANIES IDENTI FIED BY THE APPELLANT IN THE TP STUDY; B) SELECT 17 NEW COMPANIES AND PROPOSED TO COMPARE THE SAME WITH THE APPELLANT; C) DETERMINE THE ARMS LENGTH MARGIN OF 32.07% (WO RKING CAPITAL ADJUSTMENT NOT PROVIDED); AND D) PROPOSED A TRANSFER PRICING ADJUSTMENT TO THE I NTERNATIONAL TRANSACTIONS TO THE TUNE OF RS 126,991,063. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 10 OF 54 12. IN RESPONSE TO THE ABOVE, THE APPELLANT MADE DE TAILED SUBMISSIONS ON 27 OCTOBER 2011, PLACING ON RECORD, ALL LEGAL AN D FACTUAL ARGUMENTS BEFORE THE TPO. 13. THE TPO PASSED AN ORDER UNDER SECTION 92CA OF T HE ACT, ON 28 OCTOBER 2011, DETERMINING THE MEAN MARGIN OF THE CO MPARABLES AT 22.64% (AFTER WORKING CAPITAL ADJUSTMENT OF 1.01%) THEREBY PROPOSING A TRANSFER PRICING ADJUSTMENT OF RS.70,120,473. 14. SUBSEQUENTLY, THE AO ISSUED A DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH 144C, DATED 19 DECEMBER 20 11, PROPOSING A TRANSFER PRICING ADJUSTMENT OF RS. 70,120,473 AND D ISALLOWANCE OF EXCESS CLAIM UNDER SECTION 10A OF THE ACT OF RS. 970,832, THEREBY PROPOSING TO DETERMINE THE TAXABLE INCOME OF THE APPELLANT AT RS . 71,091,305. THE DRAFT ASSESSMENT ORDER WAS SERVED TO THE APPELLANT ON 22 DECEMBER 2011. 15. THE APPELLANT FILED A LETTER DATED 1. JANUARY 2 012, REQUESTING THE AO TO PASS THE FINAL ASSESSMENT ORDER AS THE APPELL ANT DID NOT WISH TO FILE OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL. AC CORDINGLY, THE AO ISSUED THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT READ WITH 144C OF THE ACT, ON 9 FEBRUARY 2012. THE SAME WAS S ERVED ON THE APPELLANT ON 18 FEBRUARY, 2012. 16. THE COMPARABLE COMPANIES CHOSEN BY THE TPO AND THE DETERMINATION OF ALP WERE AS FOLLOWS:- IT(TP)A NOS.437 & 457/BANG/2015 PAGE 11 OF 54 SL. NO NAME OF COMPANY OP / TC % 1 AVANI CINCOM TECHNOLOGIES LTD. 25.62 2 BODHTREE CONSULTING LTD. 18.72 3 CELESTIAL BIOLABS 87.94 4 E-ZEST SOLUTIONS LTD. 29.81 5 FLEXITRONICS (ARICENT) 7.86 6 IGATE GLOBAL SOLUTION LTD. 13.99 7 INFOSYS 40.37 8 KALS INFORMATION SYSTEMS LTD. (SEG.) 41.94 9 LGS GLOBAL LTD. 27.52 10 MINDTREE LTD. (SEG) 16.41 11 PERSISTENT SYSTEMS LTD. 20.31 12 QUINTEGRA SOLUTION LTD. 21.74 13 R SYSTEMS INTERNATIONAL (SEG) 15.30 14 R S SOFTWARE (INDIA) LTD. 7.41 15 SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 7.5 8 16 TALA ELXSI (SEG) 18.97 17 THIRDWARE SOLUTION LTD. 19.35 18 WIPRO LTD. (SEG) 28.45 19 SOFTSOL INDIA LTD. 17.89 20 LUCID SOFTWARE LTD. 16.50 ARITHMETIC MEAN 23.65 23.6 COMPUTATION OF ARMS LENGTH PRICE : THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. BASED ON THIS, THE ARMS LENGTH PRICE OF THE SOFTWARE SERVICES RENDERED BY THE TAXPAYER TO ITS A E IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI 23.65% LESS: WORKING CAPITAL ADJUSTMENT(ANNEXURE-C) 1.01% ADJ.ARITHMETIC MEAN PLI 22.64% IT(TP)A NOS.437 & 457/BANG/2015 PAGE 12 OF 54 ARMS LENGTH PRICE : OPERATING COST RS.603091554 * ARMS LENGTH MARGIN 22.64% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) AT 122.64% OF OPERATING COST RS.739610218 * EXCLUDING EXCHANGE LOSS, FINANCIAL EXPENSES 23.7 PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRIC E : THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATE D ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE (ALP) AT 122.64% OF OPERATING COST RS. 739619218 PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS RS. 669498745 SHORTFALL BEING ADJUSTMENT U/S.92CA RS.3,43,55,770 THE ABOVE SHORTFALL OF RS.3,43,55,770/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA. 17. AGGRIEVED BY THE AFORESAID ORDER OF THE AO, TH E ASSESSEE FILED APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) A CCEPTED SOME OF THE CONTENTIONS PUT FORTH BY THE ASSESSEE WITH REGARD T O THE APPLICATION OF TURNOVER FILTER, HIGH PROFIT MARGIN, ETC. AND EXCLU DED 10 OF THE COMPARABLES CHOSEN BY THE TPO. AS A RESULT OF SUCH EXCLUSION, THE FOLLOWING COMPANIES ALONE WERE RETAINED FOR THE PURPOSE OF DETERMINING THE PROFIT MARGIN (ARITHMETIC MEAN):- IT(TP)A NOS.437 & 457/BANG/2015 PAGE 13 OF 54 SL. NO NAME OF COMPANY OP ON COST AS PER OGE TO CIT(A) ORDER ADJUSTED MARGIN 1 BODHTREE CONSULTING LTD. 19.14% 20.15% 2 E-ZEST SOLUTIONS LTD. 28.97% 29.22% 3 LGS GLOBAL LTD. 26.66% 25.93% 4 QUINTEGRA SOLUTION LTD. 23.06% 20.35% 5 R S SOFTWARE (INDIA) LTD. 6.46% 7.73% 6 R SYSTEMS INTERNATIONAL LTD. (SEG.) 16.87% 15.02% 7 THIRDWARE SOLUTION LTD. 21.92% 20.11% 8 SOFTSOL INDIA LTD. 15.16% 13.22% 9 LUCID SOFTWARE LTD. 16.88% 16.79% 10 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 33.67% 30.35% AVERAGE 20.88% 19.89% 18. IT CAN BE SEEN FROM THE AFORESAID CHART THAT H ELIOS & MATHESON INFORMATION TECHNOLOGY LTD. WAS RETAINED AS COMPARA BLE BY THE CIT(APPEALS), THOUGH THE TPO DID NOT INCLUDE THIS C OMPANY AS A COMPARABLE IN THE FINAL LIST OF COMPARABLES. IN PA RA 98 OF THE CIT(APPEALS) ORDER, THE REASON GIVEN FOR INCLUDING THIS COMPANY AS A COMPARABLE IS THAT THIS COMPANY QUALIFIES THE EMPLOYEE-COST FILTER. AC CORDING TO THE CIT(A), FOR A COMPANY TO BE CONSIDERED AS A COMPARABLE COMPANY WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER COMPANY, THE EMPLOYEE- COST SHOULD NOT BE LESS THAN 25% OF THE SALES OF THE COMPANY. THIS FI LTER IS AN ACCEPTED FILTER IN THE CASE OF COMPANIES ENGAGED IN SOFTWARE DEVELO PMENT SERVICES. THE CIT(A) DID NOT APPLY THIS FILTER BECAUSE THE APPLIC ATION OF THIS FILTER DOES NOT SERVE ANY USEFUL PURPOSE SINCE THE OTHER FILTERS LI KE TURNOVER AND FUNCTIONALITY ARE ALSO APPLIED IN THE CASE OF ASSES SEE. IT CAN THUS BE SEEN THAT THE EMPLOYEE COST FILTER IN THE CASE OF HELIOS & MATHESON INFORMATION IT(TP)A NOS.437 & 457/BANG/2015 PAGE 14 OF 54 TECHNOLOGY LTD. WAS LESS THAN 25% OF THE SALES. IF THIS FILTER IS HELD TO BE A VALID FILTER, THEN THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 19. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS) ACC EPTING THE COMPARABLE COMPANIES CHOSEN BY THE TPO, THE REVENUE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. AGGRIEVED BY THE ORDER OF CIT(APPEALS) NOT ACCEPTING CERTAIN COMPARABLE COMPANIES CHOSEN BY TH E TPO AND ALSO SEEKING INCLUSION OF TWO COMPANIES CHOSEN BY THE AS SESSEE VIZ., BIRLA TECHNOLOGIES LTD. AND INDIUM SOFTWARE (INDIA) LTD., THE ASSESSEE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 20. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNS EL FOR THE ASSESSEE AND THE LD. DR. THE LD. DR BESIDES RELYING ON THE ORDER OF CIT(A) IN SUPPORT OF THE GROUNDS OF APPEAL RAISED BY THE ASSE SSEE IN ITS APPEAL, RELIED ON THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL SO FAR AS IT RELATES TO APPEAL BY THE REVENUE. 21. THE LD. COUNSEL FOR THE ASSESSEE FILED BEFORE US A CHART SHOWING AS TO HOW COMPANIES RETAINED BY THE CIT(A) HAVE TO BE ACCEPTED AND ALSO SHOWING AS TO HOW SOME OF THE COMPARABLE COMPANIES INCLUDED BY THE CIT(A) ARE VALIDLY EXCLUDED BASED ON THE DECISIONS RENDERED BY THE TRIBUNAL IN SEVERAL CASES. WE SHALL DEAL WITH THIS ARGUMENT BY TAKING UP INDIVIDUAL COMPANIES CHOSEN BY THE TPO AND EXCLUDED BY THE CIT(APPEALS). IT(TP)A NOS.437 & 457/BANG/2015 PAGE 15 OF 54 16. (1) AVANI CINCOM TECHNOLOGIES LTD. (2) KALS INFORMATION SYSTEMS LTD. (3) CELESTIAL LABS LTD. THE COMPARABILITY OF THESE COMPANIES WITH A SOFTW ARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE WAS CONSIDERE D IN SEVERAL DECISIONS OF THE ITAT. THESE HAVE BEEN LISTED IN THE CHART F ILED BY THE ASSESSEE BEFORE US. WE, HOWEVER, FIND THAT MAKING A REFEREN CE TO ALL THOSE DECISIONS WILL NOT BE OF ANY HELP AND MAKING A REFERENCE TO O NE SUCH DECISION WOULD BE SUFFICIENT. IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. V. DCIT, IT(TP)A NO.1303/BANG/2012 FOR A.Y. 2008-09, ORDER D ATED 28.11.2013 , THIS TRIBUNAL HAS HELD AS UNDER ON CHOOSING THIS COMPANY AS A COMPARABLE:- 7.0 AVANI CINCOM TECHNOLOGIES LTD. 7.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPA RABLE. THE ASSESSEE OBJECTS TO THE INCLUSION OF THIS COMPA NY AS A COMPARABLE ON THE GROUND THAT THIS COMPANY IS NOT F UNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE P RODUCTS WHEREAS THE ASSESSEE OFFERS SOFTWARE DEVELOPMENT SERVICES T O ITS AES. THE TPO HAD REJECTED THE OBJECTIONS OF THE ASSESSE E ON THE GROUND THAT THIS COMPARABLE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER, JUST LIKE THE ASSESSEE, AN D HENCE SELECTED THIS COMPANY AS A COMPARABLE. FOR THIS PURPOSE, TH E TPO HAD RELIED ON INFORMATION SUBMITTED BY THIS COMPANY IN RESPONSE TO ENQUIRIES CARRIED OUT UNDER SECTION 133(6) OF THE A CT FOR COLLECTING INFORMATION ABOUT THE COMPANY DIRECTLY. 7.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E REITERATED THE ASSESSEE'S OBJECTIONS FOR THE INCLUS ION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON TH E GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS. IT IS ALSO SUBMIT TED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND THE ANNUAL REPORT AVAILABLE IN THE PUBLIC DOMAIN IS NOT COMPLETE. IT WAS FURTHER CONTENDED THAT THE INFORMATION OBTAINED BY THE TPO IT(TP)A NOS.437 & 457/BANG/2015 PAGE 16 OF 54 UNDER SECTION 133(6) OF THE ACT, ON THE BASIS OF WH ICH THE TPO INCLUDED THIS COMPANY IN THE FINAL LIST OF COMPARAB LE COMPANIES, HAS NOT BEEN SHARED WITH THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE P LACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS : I) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V DC IT (ITA NO.1054/BANG/2011) II) TELECORDIA TECHNOLOGIES INDIA PVT LTD V ACIT ( ITA NO.7821/MUM/2011) IT WAS ALSO SUBMITTED THAT THIS COMPANY HAS BEEN HE LD TO BE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE BY A CO -ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013. 7.3 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER S UBMITTED THAT THE FACTS PERTAINING TO THIS COMPANY HAS NOT C HANGED FROM THE EARLIER YEAR (I.E. ASSESSMENT YEAR 2007-08) TO THE PERIOD UNDER CONSIDERATION (I.E. ASSESSMENT YEAR 2008-09). IN S UPPORT OF THIS CONTENTION, IT WAS SUBMITTED THAT :- (I) THE EXTRACT FROM THE WEBSITE OF THE COMPANY CLE ARLY INDICATES THAT IT IS PRIMARILY ENGAGED IN DEVELOPMENT OF SOFT WARE PRODUCTS. THE EXTRACT MENTIONS THAT THIS COMPANY OFFERS CUSTO MISED SOLUTIONS AND SERVICES IN DIFFERENT AREAS; (II) THE WEBSITE OF THIS COMPANY EVIDENCES THAT TH IS COMPANY DEVELOPS AND SELLS CUSTOMIZABLE SOFTWARE SOLUTIONS LIKE DX CHANGE, CARMA, ETC. 7.4 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT A CO-ORDINATE BENCH OF THE TRIBUNAL IN ITS ORDER IN C URRAM SOFTWARE INTERNATIONAL PVT. LTD., IN ITS ORDER IN ITA NO.128 0/BANG/2012 DT.31.7.2013 HAS REMANDED THE MATTER BACK TO THE FI LE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILIT Y OF THIS COMPANY AFRESH, BY MAKING THE FOLLOWING OBSERVATION S AT PARAS 9.5.2 AND 9.5.3 THEREOF :- 9.5.2 AS REGARDS THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE, WE ARE UNABLE TO AGREE T HAT THIS COMPANY HAS TO BE DELETED FROM THE LIST OF COMPARABLES ONLY BECAUSE IT HAS BEEN DELETED FROM T HE IT(TP)A NOS.437 & 457/BANG/2015 PAGE 17 OF 54 SET OF COMPARABLES IN THE CASE OF TRILOGY E-BUSINES S SOFTWARE INDIA PVT. LTD. (SUPRA). NO DOUBT THIS CO MPANY HAS BEEN DELETED AS A COMPARABLE IN THE CASE OF TRI LOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AND THI S CAN BE A GOOD GUIDANCE TO DECIDE ON THE COMPARABILITY I N THE CASE ON HAND ALSO. THIS ALONE, HOWEVER, WILL NOT S UFFICE FOR THE FOLLOWING REASONS :- (I) THE ASSESSEE NEEDS TO DEMONSTRATE THAT THE FAR ANALYSIS AND OTHER RELEVANT FACTS OF THE TRILOGY CA SE ARE EQUALLY APPLICABLE TO THE FACTS OF THE ASSESSEE'S C ASE ALSO. UNLESS THE FACTS AND THE FAR ANALYSIS OF TRILOGY CA SE IS COMPARABLE TO THAT OF THE ASSESSEE IN THE CASE ON H AND, COMPARISON BETWEEN THE TWO IS NOT TENABLE. (II) AFTER DEMONSTRATING THE SIMILARITY AND THE COMPARABILITY BETWEEN THE ASSESSEE AND THE TRILOGY CASE, THE ASSESSEE ALSO NEEDS TO DEMONSTRATE THAT THE FAC TS APPLICABLE TO THE ASSESSMENT YEAR 2007-08, THE YEAR FOR WHICH THE DECISION IN CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED ARE A LSO APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.5.3 IT IS A WELL SETTLED PRINCIPLE THAT THE A SSESSEE IS REQUIRED TO PERFORM FAR ANALYSIS FOR EACH YEAR AND IT IS QUITE POSSIBLE THAT THE FAR ANALYSIS CAN BE DIFFERE NT FOR EACH OF THE YEARS. THAT BEING SO, THE PRINCIPLE AP PLICABLE TO ONE PARTICULAR YEAR CANNOT BE EXTRAPOLATED AUTOMATICALLY AND MADE APPLICABLE TO SUBSEQUENT YEA RS. TO DO THAT, IT IS NECESSARY TO FIRST ESTABLISH THAT THE FACTS AND ATTENDANT FACTORS HAVE REMAINED THE SAME SO THA T THE FACTORS OF COMPARABILITY ARE THE SAME. VIEWED IN THAT CONTEXT, THE ASSESSEE HAS NOT DISCHARGED THE O NUS UPON IT TO ESTABLISH THAT THE DECISION RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUP RA) CAN BE APPLIED TO THE FACTS OF THE CASE AND THAT TO O OF AN EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08. THE AS SESSEE, IN OUR VIEW, HAS NOT DEMONSTRATED THAT THE FACTS OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE IDENTICAL TO THE FACTS OF THE CASE ON HAND AND THAT THE PROFILE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDER ATION IS SIMILAR TO THAT OF THE EARLIER ASSESSMENT YEAR 2007 -08. IN VIEW OF FACTS AS DISCUSSED ABOVE, WE DEEM IT FIT TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY CONSIDERING THE ABOVE OBSERVATION S. THE TPO IS DIRECTED TO MAKE AVAILABLE TO THE ASSESS EE IT(TP)A NOS.437 & 457/BANG/2015 PAGE 18 OF 54 INFORMATION OBTAINED UNDER SECTION 133(6) OF THE AC T AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEIN G HEARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER, WH ICH SHALL BE DULY CONSIDERED BEFORE PASSING ORDERS THER EON. IT IS ORDERED ACCORDINGLY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO NOT BY ANY FAR ANALYSIS OR AS PER THE SEARCH PROCESS CONDUCTED BY THE TPO, BUT ONLY AS AN ADDITIONAL COMPARABLE FOR THE REASON THAT IT WAS SELECTED AS A COMPARABLE IN THE EARLIER YEAR I.E. A SSESSMENT YEAR 2007-08 ON THE BASIS OF INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT. IN THIS REGARD, THE LEARNED AUT HORISED REPRESENTATIVE TOOK US THROUGH THE RELEVANT PORTION S OF THE TP ORDER UNDER SECTION 92CA OF THE ACT AND THE SHOW CA USE NOTICES FOR BOTH THE EARLIER YEAR I.E. ASSESSMENT YEAR 200 7-08 AND FOR THIS YEAR AND CONTENDED THAT THE SELECTION OF THIS COMPANY AS A COMPARABLE VIOLATES THE PRINCIPLE ENUNCIATED IN CUR RAM SOFTWARE INTERNATIONAL PVT. LTD. (SUPRA) THAT A COMPANY CAN BE SELECTED AS A COMPARABLE ONLY ON THE BASIS OF FAR ANALYSIS CONDUC TED FOR THAT YEAR AND THEREFORE PLEADED FOR ITS EXCLUSION. THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT HE HA S BROUGHT ON RECORD SUFFICIENT EVIDENCE TO SHOW THAT THE FUNCTIO NAL PROFILE OF THIS COMPANY REMAINS UNCHANGED FROM THE EARLIER YEA R AND HENCE THE FINDINGS RENDERED BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 -08 (SUPRA) AND IN OTHER CASES LIKE TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE APPLICABLE TO THE YEAR UNDER CONSI DERATION AS WELL. 7.5 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE ORDER OF THE TPO / DRP FOR INCLUSION OF THIS COMPANY AVANI CINCOM TECHNOLOGIES LTD. IN THE FINAL SET OF COMPARABLES. 7.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULL Y CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFORMATION OBTAIN ED UNDER SECTION 133(6) OF THE ACT. IN THESE CIRCUMSTANCES, IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY FURNISHED THE INFORM ATION SO GATHERED TO THE ASSESSEE AND TAKEN ITS SUBMISSIONS THEREON INTO CONSIDERATION BEFORE DECIDING TO INCLUDE THIS COMPA NY IN ITS FINAL IT(TP)A NOS.437 & 457/BANG/2015 PAGE 19 OF 54 LIST OF COMPARABLES. NON-FURNISHING THE INFORMATIO N OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASSESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARABLE. 7.6.2 WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTENT ION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMPARABLE ONL Y ON THE GROUND THAT THIS COMPANY WAS SELECTED IN THE EARLIE R YEAR. EVEN IN THE EARLIER YEAR, IT IS SEEN THAT THIS COMPANY WAS NOT SELECTED ON THE BASIS ON ANY SEARCH PROCESS CARRIED OUT BY THE TPO BUT ONLY ON THE BASIS OF INFORMATION COLLECTED UNDER SECTION 133(6) OF THE ACT. APART FROM PLACING RELIANCE ON THE JUDICIAL D ECISION CITED ABOVE, INCLUDING THE ASSESSEE'S OWN CASE FOR ASSESS MENT YEAR 2007-08, THE ASSESSEE HAS BROUGHT ON RECORD EVIDENC E THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT F ROM THE ASSESSEE AND HENCE IS NOT COMPARABLE. THEREFORE TH E FINDING EXCLUDING IT FROM THE LIST OF COMPARABLES RENDERED IN THE IMMEDIATELY PRECEDING YEAR IS APPLICABLE IN THIS YE AR ALSO. SINCE THE FUNCTIONAL PROFILE AND OTHER PARAMETERS BY THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR UNDER CONS IDERATION WHICH FACT HAS BEEN DEMONSTRATED BY THE ASSESSEE, F OLLOWING THE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUN AL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013, AND IN THE CASE OF T RILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG /2011), WE DIRECT THE A.O./TPO TO OMIT THIS COMPANY FROM THE L IST OF COMPARABLES. .. 9. CELESTIAL BIOLABS LTD. 9.1 THIS COMPARABLE WAS SELECTED BY THE TPO FOR INC LUSION IN THE FINAL LIST OF COMPARABLES. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LI ST OF COMPARABLES FOR THE REASONS THAT IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AND THAT IT FAILS THE EMPLOYEE COST FI LTER. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS RAISED BY THE ASSESSEE BY STATING THAT THE OBJECTIONS OF FUNCTIONAL DISSIMILA RITY HAS BEEN DEALT WITH IN DETAIL IN THE T.P. ORDER FOR ASSESSME NT YEAR 2007- 08. AS REGARDS THE OBJECTION RAISED IN RESPECT OF THE EMPLOYEE COST FILTER ISSUE, THE TPO REJECTED THE OBJECTIONS BY OBSERVING IT(TP)A NOS.437 & 457/BANG/2015 PAGE 20 OF 54 THAT THE EMPLOYEE COST FILTER IS ONLY A TRIGGER TO KNOW THE FUNCTIONALITY OF THE COMPANY. 9.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE, AS THE COMPANY IS INTO BIO-INFORMATICS SOFTWARE PRODUC T / SERVICES AND THE SEGMENTAL BREAK UP IS NOT PROVIDED. IT WAS SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF PRODUCTS IN THE FIELD OF BIO-TECHNOLOGY, PHARMACEUTICALS, ETC. AND THEREFORE IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE; (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY INCOMPARABLE TO SOFTWARE SERVICE PROVIDERS BY THE DECISION OF TH E CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 (SUPRA); (III) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AT PARA 43 THEREOF HAD OBSERVED ABOUT THIS COMPANY THA T .. AS EXPLAINED EARLIER, IT IS A DIVERSIFIED COM PANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WITH THE ASSESSEE. THERE HAS BEEN NO ATTEMPT TO IDENTIFY, 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 ADJUSTMENTS, THE TPO HAS RENDER ED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS R EGARD. (IV) THE REJECTION / EXCLUSION OF THIS COMPANY AS A COMPARABLE FOR ASSESSMENT YEAR 2007-08 FOR SOFTWARE SERVICE PR OVIDERS HAS BEEN UPHELD BY THE CO-ORDINATE BENCHES OF THIS TRIB UNAL IN THE CASES OF LG SOFT INDIA PVT. LTD. IN ITA NO.112/BANG /2011, CSR INDIA PVT. LTD. IN IT(TP)A NO.1119/BANG/2011 AND BY THE ITAT, DELHI BENCH IN THE CASE OF TRANSWITCH INDIA PVT. LT D. IN ITA NO.6083/DEL/2010. (V) THE FACTS PERTAINING TO THIS COMPANY HAS N OT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF IT(TP)A NOS.437 & 457/BANG/2015 PAGE 21 OF 54 COMPARABILITY IN THE INSTANT CASE AND HENCE OUGHT T O BE REJECTED. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE HAS ALS O REFERRED TO AND QUOTED FROM VARIOUS PARTS OF THE ANNUAL REPORT OF T HE COMPANY. 9.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISIONS CITED AND RELIED ON BY THE ASSES SEE ARE FOR ASSESSMENT YEAR 2007-08 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WHILE IT IS TR UE THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE WERE WITH RESPECT TO THE IMMEDIATELY PREVIOUS ASSESSMENT YEAR, AND THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THIS YEAR AS WELL, THE SAME PARITY OF REASONING IS APPLICABLE TO THE TPO AS WELL WHO SEEMS TO HAVE SELECTED THIS COMPANY AS A C OMPARABLE BASED ON THE REASONING GIVEN IN THE TPOS ORDER FOR THE EARLIER YEAR. IT IS EVIDENTLY CLEAR FROM THIS, THAT THE TP O HAS NOT CARRIED OUT ANY INDEPENDENT FAR ANALYSIS FOR THIS COMPANY F OR THIS YEAR VIZ. ASSESSMENT YEAR 2008-09. TO THAT EXTENT, IN O UR CONSIDERED VIEW, THE SELECTION PROCESS ADOPTED BY THE TPO FOR INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES IS DEFECTIV E AND SUFFERS FROM SERIOUS INFIRMITY. 9.4.2 APART FROM RELYING ON THE AFORE CITED JUDICI AL DECISIONS IN THE MATTER (SUPRA), THE ASSESSEE HAS BROUGHT ON REC ORD SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS- SIMILAR AND DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND AND IS THEREFORE NOT COMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN THE CITED DECISIONS FOR THE EARLIER YEARS I.E. ASSE SSMENT YEAR 2007-08 IS APPLICABLE FOR THIS YEAR ALSO. WE AGREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT THIS COMPANY IS FU NCTIONALLY DIFFERENT FROM THE ASSESSEE. IT HAS ALSO BEEN SO H ELD BY CO- ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AS WELL AS IN THE C ASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) . IN VIEW OF THE FACT THAT THE FUNCTIONAL PROFILE OF AND OTHER P ARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDE RATION, WHICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESS EE, FOLLOWING THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIB UNAL IN THE IT(TP)A NOS.437 & 457/BANG/2015 PAGE 22 OF 54 ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 AND TRILOGY E-BUSINESS SOFTWARE IN DIA PVT. LTD. IN ITA NO.1054/BANG/2011, WE HOLD THAT THIS CO MPANY OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. THE A.O./TPO ARE ACCORDINGLY DIRECTED. 10. KALS INFORMATION SYSTEMS LTD. 10.1 THIS IS A COMPARABLE SELECTED BY THE TPO. BEF ORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON GROUNDS OF FUNCTIONAL DIFFERENCES AND THAT THE SEGMENTAL DETAILS HAVE NOT BEEN PROVID ED IN THE ANNUAL REPORT OF THE COMPANY WITH RESPECT TO SOFTWA RE SERVICES REVENUE AND SOFTWARE PRODUCTS REVENUE. THE TPO, HO WEVER, REJECTED THE OBJECTIONS OF THE ASSESSEE OBSERVING T HAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTES ONLY 4.24% OF TOT AL REVENUES AND THE REVENUE FROM SOFTWARE DEVELOPMENT SERVICES CONSTITUTES MORE THAN 75% OF THE TOTAL OPERATING REVENUES FOR T HE F.Y. 2007- 08 AND QUALIFIES AS A COMPARABLE BY THE SERVICE INC OME FILTER. 10.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE TO THE ASSESSEE AND OUGHT TO BE REJECTED / EXCLUDED FROM T HE LIST OF COMPARABLES FOR THE FOLLOWING REASONS :- (I) THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE SOFTWARE ACTIVITY OF THE ASSESSEE AS IT IS INTO SOFTWARE PRO DUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONA LLY NOT COMPARABLE TO SOFTWARE SERVICE PROVIDERS FOR ASSESS MENT YEAR 2007-08 BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N THE ASSESSEE'S OWN CASE. THIS COMPANY HAS BEEN HELD TO BE DIFFERENT FROM A SOFTWARE DEVELOPMENT COMPANY IN THE DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. V DCIT IN ITA NO.1386/PN/2010. (III) THE REJECTION OF THIS COMPANY AS A COMPAR ABLE HAS BEEN UPHELD BY CO-ORDINATE BENCHES OF THE TRIBUNAL IN TH E CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011). LG SOFT INDIA PVT. LTD. (IT (TP) A NO.112/BANG/2011 ) IT(TP)A NOS.437 & 457/BANG/2015 PAGE 23 OF 54 CSR INDIA PVT. LTD. (IT (TP) A NO.1119/BANG/2011) A ND TRANSWITCH INDIA PVT. LTD. (IA NO.6083/DEL/2010) (IV) THE FACTS PERTAINING TO THIS COMPANY HAS N OT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPARABILITY IN THE CASE ON HAND AND HENCE OUGHT T O BE EXCLUDED FROM THE LIST OF COMPARABLES. IN SUPPORT OF THIS C ONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTIO N TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY. (V) THIS COMPANY IS ENGAGED NOT ONLY IN THE DEVELOP MENT OF SOFTWARE PRODUCTS BUT ALSO IN THE PROVISION OF TRAI NING SERVICES AS CAN BE SEEN FROM THE WEBSITE AND THE ANNUAL REPORT OF THE COMPANY FOR THE YEAR ENDED 31.3.2008. (VI) THIS COMPANY HAS TWO SEGMENTS; NAMELY, A) APPLICATION SOFTWARE SEGMENT WHICH INCLUDES SOFTWARE PRODUCT REVENUES FROM TWO PRODUCTS I.E. VIRTUAL INSURE AND LA-VISION AND B) THE TRAINING SEGMENT WHICH DOES NOT HAVE ANY PRODUCT REVENUES. 10.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE CONTENDED THAT THE DECISION OF THE CO-ORDINATE BENC H OF THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED WITH RESPECT TO F.Y.2006- 07 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOU LD CONTINUE TO BE APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. A.Y. 2008-09. TO THIS, THE COUNTER ARGUMENT OF THE LEARNED AUTHOR ISED REPRESENTATIVE IS THAT THE FUNCTIONAL PROFILE OF TH IS COMPANY CONTINUES TO REMAIN THE SAME FOR THE YEAR UNDER CON SIDERATION ALSO AND THE SAME IS EVIDENT FROM THE DETAILS CULLE D OUT FROM THE ANNUAL REPORT AND QUOTED ABOVE (SUPRA). 10.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAR EFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND FROM TH E RECORD THAT THE TPO HAS DRAWN CONCLUSIONS AS TO THE COMPARABILI TY OF THIS COMPANY TO THE ASSESSEE BASED ON INFORMATION OBTAIN ED U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT IN THE PUBLIC DOMAIN OUGHT NOT TO HAVE BEEN USED BY THE TP O, MORE SO WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF T HE COMPANY, IT(TP)A NOS.437 & 457/BANG/2015 PAGE 24 OF 54 AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTA TIVE. WE ALSO FIND THAT THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AND IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAVE HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE SERVICE PROVIDER. APAR T FROM RELYING OF THE ABOVE CITED DECISIONS OF CO-ORDINATE BENCHE S OF THE TRIBUNAL (SUPRA), THE ASSESSEE HAS ALSO BROUGHT ON RECORD EVIDENCE FROM VARIOUS PORTIONS OF THE COMPANYS ANN UAL REPORT TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS- SIMILAR AND DIFFERENT FORM THE ASSESSEE AND THAT SINCE THE FIND INGS RENDERED IN THE DECISIONS OF THE CO-ORDINATE BENCHES OF THE TRI BUNAL FOR ASSESSMENT YEAR 2007-08 (CITED SUPRA) ARE APPLICABL E FOR THIS YEAR I.E. ASSESSMENT YEAR 2008-09 ALSO, THIS COMPAN Y OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN THIS VIE W OF THE MATTER, WE HOLD THAT THIS COMPANY I.E. KALS INFORMATION SYS TEMS LTD., IS TO BE OMITTED FORM THE LIST OF COMPARABLE COMPAN IES. IT IS ORDERED ACCORDINGLY. 17. RESPECTFULLY FOLLOWING THE AFORESAID DECISION R ENDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL, WE DIRECT EXCLUS ION OF THE AFORESAID THREE COMPANIES FROM THE LIST OF COMPARABLE COMPANIES. 18. BODHTREE CONSULTING LTD. : AS FAR AS THIS COMPANY IS CONCERNED, THE MUMBAI TRIBUNAL IN THE CASE OF NETHAWK NETWORKS INDIA (P.) LTD. V. ITO, ITA NO.7633/MUM/2012 FOR A.Y. 2008-09, ORDER DATED 6.11.2013 , HELD THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER. FOLLOWING WERE THE RELEVANT OBSE RVATIONS OF THE TRIBUNAL IN THIS REGARD:- IT(TP)A NOS.437 & 457/BANG/2015 PAGE 25 OF 54 C. BODHTREE CONSULTING LIMITED 21. ON THIS COMPARABLE, CASE OF THE ASSESSEE IS THA T THE COMPANY IS NOT A GOOD COMPARABLE IN VIEW OF THE SO FTWARE PRODUCTS PRODUCED BY THE COMPANY. AS SUCH, NO SEG MENTAL DATA IS ADEQUATELY AVAILABLE TOO. 22. ON THE OTHER HAND, LD DR FILED A COPY OF THE F INANCIAL STATEMENT AND ARGUED VEHEMENTLY STATING THAT THIS C OMPANY IS NOT ENGAGED IN THE SOFTWARE PRODUCTS. IN THIS REGARD, L D DR RELIED ON THE NOTE NO.3, RELATING TO THE RELATING TO THE REVE NUE RECOMMENDATION IN SCHEDULE 12, NOTE NO.5 RELATING T O THE SEGMENTAL INFORMATION ETC TO MENTION THAT THE COMPA NY IS ENGAGED IN THE SOFTWARE DEVELOPMENT ONLY. HOWEVER, THE ASSESSEE ARGUED VEHEMENTLY STATING THAT THIS COMPAN Y IS ENGAGED IN THE SOFTWARE BASED PRODUCTS. FURTHER, LD COUNSEL MENTIONED THAT THE SAID COMPANY WAS ALREADY EXAMINED AND WAS HELD AS PRODUCT BASED COMPANY BY THE TPO IN THE TP STUDY OF OTHER CASE AND THE TPO CANNOT TAKE DIFFERENT STAND IN THIS CAS E. IN THIS REGARD, WE HAVE PERUSED THE PARA 29 OF THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. WILLS PROCESSING SERVICES (I) P LTD (SUPRA) WHEREIN IT WAS MENTIONED THAT THE TPO DESCRIBED THI S COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE PRODUCTS, NOT T HE SOFTWARE DEVELOPMENT SERVICES. RELEVANT PORTIONS FROM THE SA ID PARA 29 OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HERE UNDER: 29.1 THE ID SR COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE PRODUC TS. HE HAS REFERRED THE TPO ORDER AND SUBMITTED THAT IN THE PROFILE OF THE COMPARABLES SELECTED BY THE TPO ITSE LF HAS MENTIONED THE BUSINESS OF THE ASSESSEE IS IN SOFTWA RE PRODUCTS. THE ID AR HAS REFERRED THE OBJECTIONS RAI SED BY THE ASSESSEE BEFORE THE TPO AT PAGE 286 OF THE PAPE R BOOK AND SUBMITTED THAT THE ASSESSEE BROUGHT THIS F ACT THAT THIS COMPANY IS ENGAGED IN PROVIDING OPEN AND END TO END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOFTWARE, USING THE LATEST TECHNOLOG IES. FURTHER, THE COMPANY HAS IDENTIFIED ONLY ONE SEGMEN T I.E SOFTWARE DEVELOPMENT. THEREFORE, THE ID AR HAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE AND CONSEQUENTLY SHOUL D BE EXCLUDED FROM THE COMPARABLES. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 26 OF 54 29.2 ON THE OTHER HAND, THE ID DR HAS FILED THE INFORMATION COLLECTED U/S 133(6) OF THE I T ACT AND SUBMITTED THAT AS PER THIS INFORMATION, THIS COMPAN Y HAS REVENUE FROM ITES ACTIVITY TO THE EXTENT OF RS. 2,94,85,528/-. THEREFORE, THIS COMPANY IS A GOOD COMPARABLE HAVING FUNCTIONAL SIMILARITY. 29.3 ** ** ** 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL AS THE RELEVANT MATERIAL ON RECORD. THE DETAILS FILED BY THE ID DR BEFORE US HAS BEEN OBTAINED BY THE TPO AT HYDERA BAD AND NOT BY THE TPO OF THE ASSESSEE IN THE PRESENT C ASE. IT IS STATED IN THE LETTER DATED 5.2.2010 WRITTEN BY T HE CHARTERED ACCOUNTANT OF BODHTREE CONSULTING LTD TO THE TPO HYDERABAD THAT THE COMPANY IS PROVIDING DATA CLEANING SERVICES TO CLIENTS FOR WHOM IT HAD DEVELO PED THE SOFTWARE APPLICATION ......... 23. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT BODHTREE CONSULTING LIMITED IS NOT ENGAGED IN THE SOFTWARE D EVELOPMENT SERVICES AND THERE IS NO SEGMENTAL DATA COMPARABLE. THEREFORE, THE FAR ANALYSIS GOES AGAINST THE TPO/AO. ACCORDING LY, WE DISMISS THE ARGUMENT OF THE LD DR IN THIS REGARD. E X CONSEQUENTI, THE AO/TPO IS DIRECTED TO EXCLUDE THE SAME FROM THE LIST OF FINAL COMPARABLES FOR WORKING OUT THE A RITHMETIC MEAN. 19. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE ITAT MUMBAI BENCH OF THE TRIBUNAL, WE HOLD THAT THE AFORESAID C OMPANY BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 20. (1) E-ZEST SOLUTIONS LTD. (2) QUINTEGRA SOLUTIONS LTD. AS FAR AS THESE COMPANIES ARE CONCERNED, THIS TRIB UNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS PVT. LTD. (SUPRA) HELD AS FOLLOWS:- IT(TP)A NOS.437 & 457/BANG/2015 PAGE 27 OF 54 14. E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS F UNCTIONALLY DIFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUND THAT AS PER TH E INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SER VICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FR OM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY D IFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISE D REPRESENTATIVE THAT THIS COMPANY IS ENGAGED IN E-B USINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SE RVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SERVIC ES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERV ICES, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIG H END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCI NG (KPO) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPAN Y HAS NOT PROVIDED SEGMENTAL DATA IN ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE AN NUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DESCRIPTIV E INFORMATION ON THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COMPANYS WEBSITE WHIC H SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONA L PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESE NTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOP MENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERV ICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVE LOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO-ORDI NATE BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961(HYD)/2011 DT.23.11.2012 AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLU TIONS LTD., OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BY THE TPO. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 28 OF 54 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN TH E LIST OF COMPARABLES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SECTION 13 3(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVIC ES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER THE SERVIC ES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOP MENT SERVICES PERFORMED BY THE ASSESSEE. FROM THE DETAILS ON REC ORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMEN T SERVICES, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., IS RENDERING PR ODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BE EN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q INFORMATION SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KP O SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-ZEST SOLUT IONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O. / TPO IS ACCORDINGLY DIRECTED. 18. QUINTEGRA SOLUTIONS LTD. 18.1 THIS CASE WAS SELECTED BY THE TPO AS A COMPARA BLE. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUS ION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUND THA T THIS COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THAT THE RE WERE PECULIAR ECONOMIC CIRCUMSTANCES IN THE FORM OF ACQU ISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE 'S OBJECTIONS HOLDING THAT THIS COMPANY QUALIFIES ALL THE FILTERS APPLIED BY THE TPO. ON THE ISSUE OF ACQUISITIONS, THE TPO REJECTE D THE ASSESSEE'S OBJECTIONS OBSERVING THAT THE ASSESSEE H AS NOT ADDUCED ANY EVIDENCE AS TO HOW THIS EVENT HAD ANY INFLUENCE ON THE PRICING OR THE MARGIN EARNED. 18.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCLUS ION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONALLY DIF FERENT AND ALSO THAT THERE ARE OTHER FACTORS FOR WHICH THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. IT WAS SUBMITTED THAT, IT(TP)A NOS.437 & 457/BANG/2015 PAGE 29 OF 54 (I) QUINTEGRA SOLUTIONS LTD., THE COMPANY UNDER CONSIDERATION, IS ENGAGED IN PRODUCT ENGINEERING SE RVICES AND NOT IN PURELY SOFTWARE DEVELOPMENT SERVICES. T HE ANNUAL REPORT OF THIS COMPANY ALSO STATES THAT IT I S ENGAGED IN PREPARATORY SOFTWARE PRODUCTS AND IS THEREFORE NOT SIMILAR TO THE ASSESSEE IN THE CASE O N HAND. (II) IN ITS ANNUAL REPORT, THE SERVICES RENDERE D BY THE COMPANY ARE DESCRIBED AS UNDER : LEVERAGING ITS PROVEN GLOBAL MODEL, QUINTEGRA PROVIDES A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTING, MAINTENANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEMENT SERVICES) , PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVI CES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. (III) THIS COMPANY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATI ON OF INTELLECTUAL PROPRIETARY RIGHTS (IPRS) AS CAN BE EV IDENCED FROM THE STATEMENTS MADE IN THE ANNUAL REPORT OF TH E COMPANY FOR THE PERIOD UNDER CONSIDERATION, WHICH I S AS UNDER : QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELLECTUAL PROPERTY. ACCORDINGLY, SOME OF THE PR ODUCTS DEVELOPED BY THE COMPANY HAVE BEEN COVERED BY THE PATENT RIGHTS. THE COMPANY HAS ALSO APPLIED FOR TRADE MARK REGISTRATION FOR ONE OF ITS PRODUCTS, VI Z. INVESTOR PROTECTION INDEX FUND (IPIF). THESE MEASU RES WILL HELP THE COMPANY ENHANCE ITS PRODUCTS VALUE AN D ALSO MITIGATE RISKS. (IV) THE TPO HAS APPLIED THE FILTER OF EXCLUDIN G COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES. QUINTEGRA FAILS THE TPOS OWN FILTER SINCE THERE HA VE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FROM THE COMPANYS ANNUAL REPORT FOR F.Y. 2007-08, THE PERIO D UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE SUBMISSIONS MADE ABOVE, IT IS CLEAR THAT INT ER ALIA, THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BEING FUNCTIO NALLY DIFFERENT AND POSSESSING ITS OWN INTANGIBLES / IPRS , IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE C ASE ON HAND IT(TP)A NOS.437 & 457/BANG/2015 PAGE 30 OF 54 AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION. 18.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE SET OF COMPARABLES TO THE ASSESSEE FOR THE PERIOD U NDER CONSIDERATION. 18.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT THIS COMPANY I.E. QU INTEGRA SOLUTIONS LTD. IS ENGAGED IN PRODUCT ENGINEERING SE RVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND H AS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. HAVING APPLIED FOR TRADE MARK REGISTRATION OF ITS PRODUCTS , IT EVIDENCES THE FACT THAT THIS COMPANY OWNS INTANGIBLE ASSETS. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER .COM PVT. LTD. (ITA NO.227/BANG/2010 DT.9.11.2012) HAS HELD T HAT IF A COMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS, THEN IT CANNOT BE CONSIDERED AS A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGIBLES AND REQUIRES TO BE OMITTED FORM THE LIS T OF COMPARABLES, AS IN THE CASE ON HAND. 18.5 WE ALSO FIND FROM THE ANNUAL REPORT OF QU INTEGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUISITIONS MA DE BY IT IN THE PERIOD UNDER CONSIDERATION. IT IS SETTLED PRINCIPL E THAT WHERE EXTRAORDINARY EVENTS HAVE TAKEN PLACE, WHICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPANY, THEN THAT COMPANY SHALL BE REMOVED FROM THE LIST OF COMPARABLES. 18.6 RESPECTFULLY FOLLOWING THE DECISION OF TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER. COM PVT. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CAS E ON HAND SINCE IT IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCT S AND OWNS ITS OWN INTANGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 31 OF 54 21. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DIRECT THE AO THAT THE AFORESAID COMPANIES BE EXCLU DED FROM THE LIST OF COMPARABLES. 22. (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. (2) IGATE GLOBAL SYSTEMS LTD. (3) INFOSYS TECHNOLOGIES LTD. (4) MINDTREE LTD. (SEG.) (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) ALL THESE COMPANIES HAVE BEEN EXCLUDED FROM THE LI ST OF COMPARABLES ON THE GROUND THAT THESE COMPANIES HAVE A TURNOVER FILTER ABOVE RS.200 CRORES AND CANNOT BE COMPARED WITH THE ASSESSEE, WHOSE TURNOVER IS ONLY RS.66.94 CRORES. 23. FOR THE SAKE OF REFERENCE, WE MAY REFER TO THE DECISION OF THIS BENCH IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V. DCIT , ITA NO.1054/BANG/2011 DATED 23.11.2012 , THE RELEVANT OBSERVATIONS THEREIN ARE AS FOLLOWS:- (1) TURNOVER FILTER 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE TPO HAS APPLIED A LOWER TURNOVER FILTER OF RS. 1 CRORE, BUT HAS NOT CHOSEN TO APPLY ANY UPPER TURNOVER LIMIT. IN THIS REGARD, IT WAS SUBMITTED BY HIM THAT UNDER RULE 10B(3) TO THE INCO ME-TAX RULES, IT WAS NECESSARY FOR COMPARING AN UNCONTROLLED TRAN SACTION WITH AN INTERNATIONAL TRANSACTION THAT THERE SHOULD NOT BE ANY DIFFERENCE BETWEEN THE TRANSACTIONS COMPARED OR THE ENTERPRISES ENTERING INTO SUCH TRANSACTION, WHICH ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID OR PROFIT ARISING FROM SUCH TRANSACTION IN THE OPEN MARKET. FURTHER IT IS ALSO NECESSARY TO SEE IT(TP)A NOS.437 & 457/BANG/2015 PAGE 32 OF 54 THAT WHEREVER THERE ARE SOME DIFFERENCES SUCH DIFFE RENCES SHOULD BE CAPABLE OF REASONABLE ACCURATE ADJUSTMENT IN MON ETARY TERMS TO ELIMINATE THE EFFECT OF SUCH DIFFERENCES. IT WA S HIS SUBMISSION THAT SIZE WAS AN IMPORTANT FACET OF THE COMPARABILI TY EXERCISE. IT WAS SUBMITTED THAT SIGNIFICANT DIFFERENCES IN SIZE OF THE COMPANIES WOULD IMPACT COMPARABILITY. IN THIS REGA RD OUR ATTENTION WAS DRAWN TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT CHANDIGARH BENCH IN THE CASE OF DCIT V. QUARK SYSTEMS PVT. LTD. 38 SOT 207 , WHEREIN THE SPECIAL BENCH HAD LAID DOWN THAT IT IS IMPROPER TO PROCEED ON THE BASIS OF LOWE R LIMIT OF 1 CRORE TURNOVER WITH NO HIGHER LIMIT ON TURNOVER, AS THE SAME WAS NOT REASONABLE CLASSIFICATION. SEVERAL OTHER DECIS IONS WERE REFERRED TO IN THIS REGARD LAYING DOWN IDENTICAL PR OPOSITION. WE ARE NOT REFERRING TO THOSE DECISIONS AS THE DECISIO N OF THE SPECIAL BENCH ON THIS ASPECT WOULD HOLD THE FIELD. REFEREN CE WAS ALSO MADE TO THE OECD TP GUIDELINES, 2010 WHEREIN IT HAS BEEN OBSERVED AS FOLLOWS:- SIZE CRITERIA IN TERMS OF SALES, ASSETS OR NUMBER OF EMPLOYEES: THE SIZE OF THE TRANSACTION IN ABSOLUTE VALUE OR IN PROPORTION TO THE ACTIVITIES OF THE PAR TIES MIGHT AFFECT THE RELATIVE COMPETITIVE POSITIONS OF THE BUYER AND SELLER AND THEREFORE COMPARABILITY. 12. THE ICAI TP GUIDELINES NOTE ON THIS ASPECT LAY DOWN IN PARA 15.4 THAT A TRANSACTION ENTERED INTO BY A RS. 1,000 CRORE COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENT ERED INTO BY A RS. 10 CRORE COMPANY. THE TWO MOST OBVIOUS REASON S ARE THE SIZE OF THE TWO COMPANIES AND THE RELATIVE ECONOMIE S OF SCALE UNDER WHICH THEY OPERATE. THE FACT THAT THEY OPERA TE IN THE SAME MARKET MAY NOT MAKE THEM COMPARABLE ENTERPRISES. T HE RELEVANT EXTRACT IS AS FOLLOWS [ON RULE 10B(3)]: CLAUSE (I) LAYS DOWN THAT IF THE DIFFERENCES ARE NOT MATERIAL, THE TRANSACTIONS WOULD BE COMPARABLE. THESE DIFFERENCES COULD EITHER BE WITH REFERENCE TO THE TRANSACTION OR WITH REFERENCE TO THE ENTERPRISE. FOR INSTANCE, A TRANSACTION ENTERED INTO BY A RS 1,000 CRORE COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENTERED INTO BY A RS 10 CRORE COMPANY. THE TWO MOST OBVIOUS REASONS ARE THE SIZE OF THE TWO COMPANIES AND THE RELATIVE ECONOMIES OF SCALE UNDER WHICH THEY OPERATE. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 33 OF 54 13. IT WAS FURTHER SUBMITTED THAT THE TPOS RANGE ( RS. 1 CRORE TO INFINITY) HAS RESULTED IN SELECTION OF COMPANIES LIKE INFOSYS WHICH IS 277 TIMES BIGGER THAN THE ASSESSEE (TURNOV ER OF RS. 13,149 CRORES AS COMPARED TO RS. 47.47 CRORES OF AS SESSEE). IT WAS SUBMITTED THAT AN APPROPRIATE TURNOVER RANGE S HOULD BE APPLIED IN SELECTING COMPARABLE UNCONTROLLED COMPAN IES. 14. REFERENCE WAS MADE TO THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010 , WHEREIN RELYING ON DUN AND BRADSTREETS ANALYSIS, THE TURNO VER OF RS. 1 CRORE TO RS. 200 CRORES WAS HELD TO BE PROPER. THE FOLLOWING RELEVANT OBSERVATIONS WERE BROUGHT TO OUR NOTICE:- 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND ALSO THE JUDIC IAL PRECEDENTS ON THE ISSUE, WE FIND THAT THE TPO HIMSELF HAS REJECTED THE COMPANIES WHICH .IRE (SIC) MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT THERE IS A LIMIT FOR THE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITUATION, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSIDERED. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE IN A POSITION TO BARGAIN THE PRICE AND ALS O ATTRACT MORE CUSTOMERS. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES WHO ARE ABLE TO GIVE BETTER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCING PROFIT MARGIN. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNAL, WHEN COMPANIES WHICH ARC LOSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN THE SUPER PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUDED. FOR THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER, WE FIND THAT A REASONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCENARIO INTO CONSIDERATION, WE FEEL THAT THE CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME, WE HOLD THAT THE TURNOVER FILTER IS VERY IMPORTANT AND THE COMPANIES IT(TP)A NOS.437 & 457/BANG/2015 PAGE 34 OF 54 HAVING A TURNOVER OF RS.1.00 CRORE TO 200 CRORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THAT RANGE HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200.00 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY. 15. IT WAS BROUGHT TO OUR NOTICE THAT THE ABOVE PRO POSITION HAS ALSO BEEN FOLLOWED BY THE HONOURABLE BANGALORE ITAT IN THE FOLLOWING CASES: 1. M/S KODIAK NETWORKS (INDIA) PRIVATE LIMITED VS. ACIT (ITA NO.1413/BANG/2010) 2. M/S GENESIS MICROCHIP (I) PRIVATE LIMITED VS. D CIT (ITA NO.1254/BANG/20L0). 3. ELECTRONIC FOR IMAGING INDIA PRIVATE LIMITED (I TA NO. 1171/BANG/2010). IT WAS FINALLY SUBMITTED THAT COMPANIES HAVING TURN OVER MORE THAN RS. 200 CRORES OUGHT TO BE REJECTED AS NOT COM PARABLE WITH THE ASSESSEE. 16. THE LD. DR, ON THE OTHER HAND POINTED OUT THAT EVEN THE ASSESSEE IN ITS OWN TP STUDY HAS TAKEN COMPANIES HA VING TURNOVER OF MORE THAN RS. 200 CRORES AS COMPARABLES . IN THESE CIRCUMSTANCES, IT WAS SUBMITTED BY HIM THAT THE ASS ESSEE CANNOT HAVE ANY GRIEVANCE IN THIS REGARD. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE PROVISIONS OF THE ACT AND THE RULES THAT ARE RELEVANT FOR DECI DING THE ISSUE HAVE TO BE FIRST SEEN. SEC.92. OF THE ACT PROVIDES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. SEC.92-B PROVIDES THAT INTERNATIONAL TRANSACTION MEANS A TRANSACTION BET WEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON- RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR L ENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTER PRISES, AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN T WO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORT IONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED O R TO BE IT(TP)A NOS.437 & 457/BANG/2015 PAGE 35 OF 54 INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERP RISES. SEC.92- A DEFINES WHAT IS AN ASSOCIATED ENTERPRISE. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE TRANSACTION BETWEEN TH E ASSESSEE AND ITS AE WAS AN INTERNATIONAL TRANSACTION ATTRACTING THE PROVISIONS OF SEC.92 OF THE ACT. SEC.92C PROVIDES THE MANNER OF COMPUTATION OF ARMS LENGTH PRICE IN AN INTERNATION AL TRANSACTION AND IT PROVIDES:- (1) THAT THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY AN Y OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE, NAMELY : ( A ) COMPARABLE UNCONTROLLED PRICE METHOD; ( B ) RESALE PRICE METHOD; ( C ) COST PLUS METHOD; ( D ) PROFIT SPLIT METHOD; ( E ) TRANSACTIONAL NET MARGIN METHOD; ( F ) SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB- SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARM S LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN DOES NOT EXCEED FIVE PER CENT OF THE LATTER, THE PR ICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BE EN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 36 OF 54 (3) WHERE DURING THE COURSE OF ANY PROCEEDING FOR T HE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION, OF THE OPINION THAT ( A ) THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRANSACTION HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2); OR ( B ) ANY INFORMATION AND DOCUMENT RELATING TO AN INTERNATIONAL TRANSACTION HAVE NOT BEEN KEPT AND MAINTAINED BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB-SECTION (1) OF SECTION 92D AND THE RULES MADE IN THIS BEHALF; OR ( C ) THE INFORMATION OR DATA USED IN COMPUTATION OF TH E ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR ( D ) THE ASSESSEE HAS FAILED TO FURNISH, WITHIN THE SPECIFIED TIME, ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FURNISH BY A NOTICE ISSUED UNDER SUB-SECTION (3) OF SECTION 92D, THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNAT IONAL TRANSACTION IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM: 18. RULE 10B OF THE IT RULES, 1962 PRESCRIBES RULES FOR DETERMINATION OF ARMS LENGTH PRICE UNDER SECTION 9 2C:- 10B. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SE CTION 92C, THE ARMS LENGTH PRICE IN RELATION TO AN INTER NATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLO WING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY : (A). TO (D).. ( E ) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE IT(TP)A NOS.437 & 457/BANG/2015 PAGE 37 OF 54 EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB- CLAUSE ( II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB-CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION. (2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARABI LITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRAN SACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ( B ) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND IT(TP)A NOS.437 & 457/BANG/2015 PAGE 38 OF 54 BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. (3) 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. (4) THE DATA TO BE USED IN ANALYSING THE COMPARABIL ITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH TH E INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO : PROVIDED THAT DATA RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY ALS O BE CONSIDERED IF SUCH DATA REVEALS FACTS WHICH COULD H AVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICE S IN RELATION TO THE TRANSACTIONS BEING COMPARED. 19. A READING OF THE PROVISIONS OF RULE 10B(2) OF T HE RULES SHOWS THAT UNCONTROLLED TRANSACTION HAS TO BE COMPA RED WITH INTERNATIONAL TRANSACTION HAVING REGARD TO THE FACT ORS SET OUT IT(TP)A NOS.437 & 457/BANG/2015 PAGE 39 OF 54 THEREIN. BEFORE US THERE IS NO DISPUTE THAT THE TN MM IS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF THE I NTERNATIONAL TRANSACTION. THE DISPUTES ARE WITH REGARD TO THE C OMPARABILITY OF THE COMPARABLE RELIED UPON BY THE TPO. 20. IN THIS REGARD WE FIND THAT THE PROVISIONS OF LAW POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE CLE ARLY LAY DOWN THE PRINCIPLE THAT THE TURNOVER FILTER IS AN IMPORTANT CRITERIA IN CHOOSING THE COMPARABLES. THE ASSESSEES TURNOVER I S RS. 47,46,66,638. IT WOULD THEREFORE FALL WITHIN THE C ATEGORY OF COMPANIES IN THE RANGE OF TURNOVER BETWEEN 1 CRORE AND 200 CRORES (AS LAID DOWN IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010) . THUS, COMPANIES HAVING TURNOVER OF MORE THAN 200 CRORES H AVE TO BE ELIMINATED FROM THE LIST OF COMPARABLES AS LAID DOW N IN SEVERAL DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE AS SESSEE. APPLYING THOSE TESTS, THE FOLLOWING COMPANIES WILL HAVE TO BE EXCLUDED FROM THE LIST OF 26 COMPARABLES DRAWN BY T HE TPO VIZ., TURNOVER RS. (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. 848.66 CR ORES (2) IGATE GLOBAL SOLUTIONS LTD. 747.27 CRORES (3) MINDTREE LTD. 590.39 CRORES (4) PERSISTENT SYSTEMS LTD. 293.74 CRORES (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 343.57 CRORES (6) TATA ELXSI LTD. 262.58 CRORES (7) WIPRO LTD. 961.09 CRORES. (8) INFOSYS TECHNOLOGIES LTD. 13149 CRORES. 24. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT THE AFORESAID COMPANIES BE EXCLUDED FROM THE LIST OF CO MPARABLES. 25. TATA ELXSI LTD. : COMPARABILITY OF THIS COMPANY WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) AND IT WAS HELD AS UNDER:- IT(TP)A NOS.437 & 457/BANG/2015 PAGE 40 OF 54 13. TATA ELXSI LTD. 13.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIGNIFICANT R&D ACTIVITY , BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTI ON PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET O F COMPARABLES. 13.2 BEFORE US IT WAS REITERATED BY THE LEARNED AUT HORISED REPRESENTATIVE THAT THIS COMPANY IS NOT FUNCTIONALL Y COMPARABLE TO THE ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIO NS UNDER SOFTWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY A) PRODUCT DESIGN, (B) INNOVATION DESIGN ENGINEERING AND (C) V ISUAL COMPUTING LABS AS IS REFLECTED IN THE ANNUAL REPORT OF THE COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE SUB MITTED THAT, (I) THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES PVT. LTD. (SUPRA) HAS HELD THAT TATA ELXSI LTD. IS NOT A FUNCTIONALLY COMPARABLE FOR A SOFTWARE DEVELOPMENT SERVICE PROVIDER. (II) THE FACTS PERTAINING TO TATA ELXSI LTD. HAVE NOT CHANGED FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. (III) TATA ELXSI LTD. IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER. IN THE ANNUAL REPORT OF THIS COMPANY THE DESCRIPTION OF THE SEGMENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT TO SOFTWARE SERVICES PROVIDED BY THE ASSESSEE. (IV) TATA ELXSI LTD. INVESTS SUBSTANTIAL FUNDS IN R ESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS RESULTED IN TH E EMBEDDED PRODUCT DESIGN SERVICES SEGMENT OF THE COMPANY TO CREATE A PORTFOLIO OF REUSABLE SOFTWARE IT(TP)A NOS.437 & 457/BANG/2015 PAGE 41 OF 54 COMPONENTS, READY TO DEPLOY FRAMEWORKS, LICENSABLE IPS AND PRODUCTS. THE LEARNED AUTHORISED REPRESENTATIVE PLEADS T HAT IN VIEW OF THE ABOVE REASONS, TATA ELXSI LTD. IS CLEARLY FUNCT IONALLY DIFFERENT / DIS-SIMILAR FROM THE ASSESSEE AND THEREFORE OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. 13.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND OF THE TPO IN INCLUDING THIS CO MPANY IN THE LIST OF COMPARABLES. 13.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAIL S ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPM ENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGM ENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AN D ARE NOT SIMILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 13.5 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEV ELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONAL LY COMPARABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVID ED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAV E BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DET AILS 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 T HESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT F OR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LE NGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 42 OF 54 AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPORT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO AS SESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPAN Y IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 26. WIPRO LTD. : AS FAR AS THIS COMPANY IS CONCERNED, THIS TRIBU NAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) HELD THAT THIS COMPANY IS NOT COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE. THE RELEVANT OBSERVATIONS ARE AS FOLLOWS :- 12. WIPRO LTD. 12.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON SEVERAL GROUN DS LIKE FUNCTIONAL DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESS EE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 12.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE CONTENDED THAT THIS COMPANY I.E. WIPRO LTD ., IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE FOR THE FOL LOWING REASONS:- (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN T HE NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES, OWNS IPRS AND HAS BEEN GRANTED 40 REGISTERED PATENTS AND HAS 62 PENDING APPLICATIONS AND ITS ANNUAL REPORT CONFIRMS THAT IT OWNS PATENTS AND INTANGIBLES. (II) THE ITAT, DELHI OBSERVATION IN THE CASE OF AG NITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856(DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIANT COMPANY AND A MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER IT(TP)A NOS.437 & 457/BANG/2015 PAGE 43 OF 54 PROFITS, CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LIMITED RISK; (III) THE CO-ORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (IT A NO.7821/MUM/2011) HAS HELD THAT WIPRO LTD. IS NOT FUNCTIONALLY COMPARABLE TO A SOFTWARE SERVICE PROVIDER. (IV) THIS COMPANY HAS ACQUIRED NEW COMPANIES PURSU ANT TO A SCHEME OF AMALGAMATION IN THE LAST TWO YEARS. (V) WIPRO LTD. IS ENGAGED IN BOTH SOFTWARE DEVELO PMENT AND PRODUCT DEVELOPMENT SERVICES. NO INFORMATION IS AVAILABLE ON THE SEGMENTAL BIFURCATION OF REVENU E FROM SALE OF PRODUCTS AND SOFTWARE SERVICES. (VI) THE TPO HAS ADOPTED CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGINS, WHICH IS IN CONTRADICTION TO THE TPOS OWN FILTER OF REJECTING COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 12.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 12.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUS ED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT I N THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS C OMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPA NY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMEN T SERVICES. THERE IS NO INFORMATION ON THE SEGMENTAL BIFURCATIO N OF REVENUE FROM SALE OF PRODUCT AND SOFTWARE SERVICES. THE TP O APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWAR E DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FIL TER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALY SIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISO N. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 44 OF 54 12.5 WE ALSO FIND THAT THIS COMPANY OWNS INTELLECTU AL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDI NG APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNING IN TANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PR OVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSE E IN THE CASE ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING TH E AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I .E. 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE HOLD THAT THIS C OMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSE E. WE, THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 27. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT THAT WIPRO LTD. BE EXCLUDED FROM THE LIST OF COMPARABLE COMPAN IES. 28. (1) THIRDWARE SOLUTIONS LTD. (2) LUCID SOFTWARE LTD. COMPARABILITY OF THESE COMPANIES WITH A SOFTWARE DE VELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE WAS CONSIDERED BY THI S TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) AND IT WAS HELD AS UNDER:- 15. THIRDWARE SOLUTIONS LTD. (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESS EE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COM PARABLES ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CR ORES. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINESS OF PRODUCT DEVELOPM ENT AND TRADING IN SOFTWARE AND GIVING LICENSES FOR USE OF SOFTWARE . IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THA T :- IT(TP)A NOS.437 & 457/BANG/2015 PAGE 45 OF 54 (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMEN T AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD . (2008-TII-04-ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVIDERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE A BOVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIB UNAL (SUPRA), THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF C OMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN P RODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LO SS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVEL OPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY T HE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCO ME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABL E FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASS ESSEE IS RENDERING SOFTWARE DEVELOPMENT SERVICES. IN THIS FA CTUAL VIEW OF THE MATTER AND FOLLOWING THE AFORE CITED DECISION O F THE PUNE TRIBUNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE OM ITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERAT ION IN THE CASE ON HAND. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 46 OF 54 16. LUCID SOFTWARE LTD. 16.1 THIS COMPANY WAS SELECTED AS A COMPARABLE B Y THE TPO. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSI ON OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS INTO SOFTWARE PRODUCT DEVELOPMENT AND THEREFORE FUNCTIONALLY DIFF ERENT FROM THE ASSESSEE. IN THIS REGARD, THE LEARNED AUTHORIS ED REPRESENTATIVE SUBMITTED THAT (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY DIFFERENT AND THEREFORE NOT COMPARABLE TO SOFTWARE SERVICE PROVIDERS BY THE ORDER OF A CO-ORDINATE BEN CH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), FOLLOWING THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011). (III) THE REJECTION OF THIS COMPANY AS A COMPARABLE TO SOFTWARE SERVICE PROVIDERS HAS BEEN UPHELD BY THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASES O F LG SOFT INDIA PVT. LTD. (ITA NO.1121/BANG/2011) AND CSR INDIA PVT. LTD. [ IT(TP)A NO.1119/BANG/2011 ] AND BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TRANSWITCH INDIA PVT. LTD. (ITA NO.6083/DEL/2010). (IV) THE FACTUAL POSITION AND CIRCUMSTANCES PERTAIN ING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09 AND THEREFORE ON THIS BASIS, THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE IN THE CASE ON HAND. (V) THE RELEVANT PORTION OF THE ANNUAL REPORT OF TH IS COMPANY EVIDENCES THAT IT IS IN THE BUSINESS OF PRODUCT DEVELOPMENT. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 47 OF 54 THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE FACTUAL POSITION AS LAID OUT ABOVE AND THE D ECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE 'S OWN CASE FOR ASSESSMENT YEAR 2007-08 AND OTHER CASES CITED ABOVE , IT IS CLEAR THAT THIS COMPANY BEING INTO PRODUCT DEVELOPMENT CA NNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE C ASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER AND THEREFORE TH IS COMPANY I.E. LUCID SOFTWARE LTD., OUGHT TO BE OMITTED FROM THE L IST OF COMPARABLES. 16.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION AND FINDING OF THE TPO IN INCL UDING THIS COMPANY IN THE LIST OF COMPARABLES. 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LUCID SOFTW ARE LTD., IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS WHE REAS THE ASSESSEE, IN THE CASE ON HAND, IS IN THE BUSINESS O F PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE ALSO FIND THAT, CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), LG SOFT INDIA PVT. LTD. (SUPRA), CSR INDIA PVT. LTD. ( SUPRA); THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNO LOGIES INDIA PVT. LTD. (SUPRA) AND THE DELHI ITAT IN THE C ASE OF TRANSWITCH INDIA PVT. LTD. (SUPRA) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGAGED IN THE SOFTWARE PRODUCT DEVELOP MENT AND NOT SOFTWARE DEVELOPMENT SERVICES, IT IS FUNCTIONAL LY DIFFERENT AND DIS-SIMILAR AND IS THEREFORE TO BE OMITTED FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICE PROVID ERS. THE ASSESSEE HAS ALSO BROUGHT ON RECORD DETAILS TO DEMO NSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO T HIS COMPANY HAVE NOT CHANGED MATERIALLY FROM THE EARLIER YEAR I .E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. IN THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUN AL AND OF THE ITAT, MUMBAI AND DELHI BENCHES (SUPRA), WE DIRECT T HAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 48 OF 54 29. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT THAT THE AFORESAID COMPANIES BE EXCLUDED FROM THE LIST OF CO MPARABLE COMPANIES. 30. PERSISTENT TECHNOLOGIES LTD. : AS FAR AS THIS COMPANY IS CONCERNED, THIS BENCH IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) HELD THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE. FOLLOWING A RE THE RELEVANT OBSERVATIONS:- 17. PERSISTENT SYSTEMS LTD. 17.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMP ANY AS A COMPARABLE FOR THE REASONS THAT THIS COMPANY BEING ENGAGED IN SOFTWARE PRODUCT DESIGNING AND ANALYTIC SERVICES, I T IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL R ESULTS ARE NOT AVAILABLE. THE TPO REJECTED THE ASSESSEE'S OBJECT IONS ON THE GROUND THAT AS PER THE ANNUAL REPORT FOR THE COMPAN Y FOR FINANCIAL YEAR 2007-08, IT IS MAINLY A SOFTWARE DEV ELOPMENT COMPANY AND AS PER THE DETAILS FURNISHED IN REPLY T O THE NOTICE UNDER SECTION 133(6) OF THE ACT, SOFTWARE DEVELOPME NT CONSTITUTES 96% OF ITS REVENUES. IN THIS VIEW OF THE MATTER, T HE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSISTENT SYSTE MS LTD., IN THE LIST OF COMPARABLES AS IT QUALIFIED THE FUNCTIONALI TY CRITERION. 17.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INC LUSION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPAN Y IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE ARE SEVE RAL OTHER FACTORS ON WHICH THIS COMPANY CANNOT BE TAKEN AS A COMPARAB LE. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMI TTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING SERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS I S THE ASSESSEE IN THE CASE ON HAND. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 49 OF 54 (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPANY FOR F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOMINANTLY ENGAGED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPENDENT SOFTWARE VENDORS AND ENTERPRISES. (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPANY I S IN THE BUSINESS OF PRODUCT DESIGN SERVICES. (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORD IA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) WHILE DISCUSSI NG THE COMPARABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFTWARE LTD. HAD RENDERED A FINDING THAT IN THE ABSENCE OF SEGMENTAL INFORMATION, A COMPANY BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS. THI S PRINCIPLE IS SQUARELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INTO PRODUC T DEVELOPMENT AND PRODUCT DESIGN SERVICES AND FOR WHICH THE SEGMENTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. BE OMITTED FROM THE LIST OF COMPARABLES. 17.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COM PANY IN THE LIST OF COMPARABLES. 17.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN S ERVICES WHILE THE ASSESSEE IS A SOFTWARE DEVELOPMENT SERVIC ES PROVIDER. WE FIND THAT, AS SUBMITTED BY THE ASSESSEE, THE SEG MENTAL DETAILS ARE NOT GIVEN SEPARATELY. THEREFORE, FOLLOWING THE PRINCIPLE ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL I N THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) THA T IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMATION A COMPAN Y CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, WE H OLD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OM ITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERA TION. IT IS ORDERED ACCORDINGLY. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 50 OF 54 31. IN VIEW OF THE AFORESAID DECISION, WE DIRECT TH AT PERSISTENT TECHNOLOGIES BE EXCLUDED FROM THE LIST OF COMPARABL ES. 32. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. : THIS COMPANY WAS A COMPARABLE INCLUDED BY THE CIT(APPEALS) IN TH E IMPUGNED ORDER. THE APPLICATION OF EMPLOYEE COST FILTER OF 25% OF T HE SALE IS AN ACCEPTED FILTER. IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES, ITA NO.1086/BANG/2011, THIS TRIBUNAL HAS HELD THAT THE AFORESAID FILTER IS A VALID FILTER AND HAS TO BE ACCEPTED FOR CHOOSING COMPARAB LES. IN THE LIGHT OF THE AFORESAID DECISION AND IN VIEW OF THE ADMITTED FACT UAL POSITION THAT THE EMPLOYEE COST IN THE CASE OF THIS COMPANY WAS LESS THAN 25% OF ITS SALES, THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF CO MPARABLES. WE HOLD AND DIRECT ACCORDINGLY. INCLUSION OF TWO COMPARABLES CHOSEN BY THE ASSESSEE 33. BIRLA TECHNOLOGIES LTD.: THE TPO REJECTED THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT HAS ZERO EXPORT TU RNOVER. THIS WAS CONFIRMED BY THE CIT(A). IT HAS BEEN POINTED OUT B EFORE US THAT EXPORT REVENUE OF THIS COMPANY IS 88.97% OF ITS TURNOVER A ND THEREFORE IT PASSES THE EXPORT REVENUE FILTER OF 25% OF THE TURNOVER AN D HAS TO BE SELECTED AS A COMPARABLE. OUR ATTENTION WAS DRAWN TO THE DECISIO N OF THIS TRIBUNAL IN THE CASE OF IBM INDIA PVT. LTD. V. JCT, 2014 46 TAXMAN.COM 129 (BANG. TRIB) , WHEREIN IT WAS HELD THAT THIS COMPANY PASSES THE EX PORT REVENUE FILTER AND IT(TP)A NOS.437 & 457/BANG/2015 PAGE 51 OF 54 HAS TO BE REGARDED AS A COMPARABLE. FOLLOWING WERE THE RELEVANT OBSERVATIONS:- 1. M/S BIRLA TECHNOLOGIES: THE REASON ASSIGNED B Y THE TPO FOR EXCLUDING THIS COMPANY AS COMPARABLE WAS THAT T HE EXPORTS SALES WERE LESS THAN 25%. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PAGE S -689 TO 698 AND PAGE 317 OF T.P. PAPER BOOK, WHICH IS A COMPILATION OF THE ANNUAL REPORTS OF VARIOUS COMPAN IES FILED BY THE ASSESSEE. PERUSAL OF PAGE-698 SHOWS THAT TOTAL INCOME FROM SOFTWARE SERVICES/LICENCE FEE OF ASSESS EE WAS RS.24,12,30,696/-. IT IS ALSO CLEAR FROM THE DIREC TORS REPORT THAT THE ENTIRE INCOME WERE DERIVED FROM EXPORTS. IT THUS, APPEARS THAT THE REASON ASSIGNED BY THE TPO FOR REJ ECTING THIS COMPANY AS COMPARABLE WHICH WAS FOR THE REASON S THAT THE COMPANY HAS EXPORT SALES OF LESS THAN 25% OF TH E TOTAL SALES IS ON AN ERRONEOUS BASIS. WE THEREFORE, HOLD THAT THIS COMPANY SHOULD BE TAKEN AS A COMPARABLE AS THERE IS NO OTHER BASIS FOR REJECTING THIS COMPANY AS COMPARABL E ASSIGNED BY THE TPO. 34. INDIUM SOFTWARE (INDIA) LTD. : THIS COMPANY WAS ALSO REJECTED BY THE TPO AND THE CIT(A) CONFIRMED THE SAME ON THE GROUND THAT THIS COMPANY FAILS THE EXPORT REVENUE FILTER. IT HAS BEEN POINT ED OUT BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE THAT EXPORT TURNOVER FILTE R OF THIS COMPANY WAS 37.77% OF ITS TOTAL TURNOVER AND THEREFORE THIS COM PANY PASSES THE EXPORT REVENUE FILTER OF MORE THAN 25% OF THE TURNOVER AND HAS TO BE REGARDED AS A COMPARABLE. 35. WE THEREFORE ARE OF THE VIEW THAT IT WOULD BE JUST AND PROPER TO DIRECT THE TPO TO CONSIDER THE AFORESAID CLAIM OF T HE ASSESSEE AND IF FOUND CORRECT, TO INCLUDE THE ABOVE TWO COMPANIES AS A CO MPARABLE. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 52 OF 54 36. NOW, WE SHALL DEAL WITH THE SPECIFIC GROUNDS R AISED BY THE REVENUE. AS FAR AS GROUND NO.2 IS CONCERNED, WE HAVE ALREADY GIVEN REASONS AS TO WHY SIZE AND TURNOVER WAS A RELEVANT CRITERION FOR CHOOSING COMPANIES AS A COMPARABLE. THE DECISIONS REFERRED TO WHILE DECIDI NG THE RELEVANT FILTER HAVE TAKEN THE VIEW THAT TURNOVER AND SIZE IS A REL EVANT CRITERION FOR DECIDING THE COMPARABLES. ACCORDINGLY, THIS OBJECT ION OF THE REVENUE IS FOUND TO BE WITHOUT ANY MERIT. 37. AS FAR AS GROUND NO.3 IS CONCERNED, THIS COMPA NY WAS EXCLUDED AS FUNCTIONALLY NOT COMPARABLE IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) AND THEREFORE IT IS NOT NECESSARY TO GO INTO THE G RIEVANCE PROJECTED BY THE REVENUE IN THIS REGARD. 38. AS FAR AS GROUND NOS.4 & 5 ARE CONCERNED, THE GRIEVANCE OF THE REVENUE IS MISCONCEIVED AS THE CIT(APPEALS) DID NOT APPLY ANY OF THE NORMS AS STATED IN THESE GROUNDS. 39. AS REGARDS GROUND NO.6, WE HAVE ALREADY HELD, FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES (SUPRA) THAT 25% EMPLOYEE COST TO SALES IS A VALID FILTER AND THEREFORE GROUND NO.6 RAISED BY THE REVENUE IS WITHOUT ANY SU BSTANCE. 40. AS FAR AS GROUND NOS.7 & 8 ARE CONCERNED, WE H AVE ALREADY EXCLUDED THESE COMPANIES FOLLOWING THE DECISION OF THE TRIBUNAL WHEREIN THESE COMPANIES WERE HELD TO BE NOT COMPARABLE. TH E GRIEVANCE PROJECTED IT(TP)A NOS.437 & 457/BANG/2015 PAGE 53 OF 54 BY THE REVENUE IS THEREFORE HELD TO BE WITHOUT ANY MERIT. THE TPO IS DIRECTED TO EXCLUDE THE COMPANIES DIRECTED TO BE EX CLUDED IN THIS ORDER AND COMPUTE THE ALP AND ALLOW + / - 5% VARIATION AS PRO VIDED IN THE SECOND PROVISO TO SECTION 92C OF THE ACT. 41. ALL OTHER GRIEVANCES PROJECTED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL NOS. 1 TO 7, OTHER THAN THOSE DECIDED IN THI S ORDER, ARE LEFT OPEN FOR CONSIDERATION, AS THE DECISIONS RENDERED IN THIS OR DER WOULD BRING THE PRINCE CHARGED BY THE ASSESSEE IN THE INTERNATIONAL TRANSACTION WITHIN + / - 5% RANGE OF THE ARITHMETIC MEAN OF COMPARABLES ULTI MATELY RETAINED AS GIVEN BY THE ASSESSEE IN PAGE 12 OF THE WRITTEN SUB MISSIONS FILED BEFORE US. 42. THUS GROUNDS NOS.1 TO 8 RAISED BY THE REVENUE ARE DISMISSED, WHILE GROUND NOS. 1 TO 7 OF THE ASSESSEES APPEAL A RE TREATED AS PARTLY ALLOWED. 43. IN GROUNDS NO. 9 TO 11, THE REVENUE HAS PROJEC TED ITS GRIEVANCE WITH REGARD TO EXCLUDING THE LEASE LINE EXPENSES FR OM THE TOTAL TURNOVER AS WELL AS THE EXPORT TURNOVER, FOLLOWING THE DECISION OF THE CIT V. TATA ELXSI LTD., 349 ITR 98 (KARN) . 44. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE DECISION OF HON'BLE HIGH COURT OF KARNATAKA IN TATA ELXSI (SUPRA) HAS NOT ATTAINED FINALITY AND A SLP BY THE DEPARTMENT IS PENDING BEFORE THE HON'B LE SUPREME COURT. IT(TP)A NOS.437 & 457/BANG/2015 PAGE 54 OF 54 WE ARE OF THE VIEW THAT AS OF TODAY, LAW DECLARED B Y THE HON'BLE HIGH COURT OF KARNATAKA WHICH IS THE JURISDICTIONAL HIGH COURT IS BINDING ON US. WE THEREFORE HOLD THAT THE ORDER OF CIT(A) DOES NOT CA LL FOR ANY INTERFERENCE AND ACCORDINGLY THE SAME IS CONFIRMED. 45. IN THE RESULT, THE APPEAL BY THE REVENUE IS DI SMISSED, WHILE THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JUNE, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 23 RD JUNE, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.
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