M/s LAM Research (India) Private Limited , Bangalore V. The Deputy Commissioner of Income Tax Circle-4(1)(2), Bangalore

ITA 458/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2576 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-04-2021
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Transfer pricing; International transaction; Question of law; Revenue expenditure; Set aside
• Section: 92C; 143(3); 234B; 133(6); 143(1); 144C; 143(2); 64; 73; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.458/BANG/2019 ASSESSMENT YEAR : 2007-08 LAM RESEARCH (INDIA) PVT. LTD., (FORMERLY KNOWN AS NOVELLUS SYSTEMS (INDIA) PVT. LTD., MARUTI INFOTECH CENTER, 2 ND FLOOR, A BLOCK, 11/01 & 12/01, AMARJYOTHI LAYOUT, INTERMEDITE RING ROAD, BENGALURU-560 071. PAN AABCN 2063 Q VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-4(1)(1), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI DARPANKIRPALANI, ADVOCATE REVENUE BY : SHRI MUZAFFAR HUSSAIN, CIT(DR) DATE OF HEARING : 05-04-2021 DATE OF PRONOUNCEMENT : 23-06-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN FILED BY ASSES SEE AGAINST THE FINAL ASSESSMENT ORDER DATED 27/12/2018, PASSED BY THE LD.DCIT CIRCLE- (1)(1), BANGALORE, FOR ASSESSMENT Y EAR 2006-07, ON FOLLOWING REVISED GROUNDS OF APPEAL: PAGE 2 OF 26 ITA NO.458/BANG/2019 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, LAM RESEARCH (INDIA) PRIVATE LIMITED (HEREINAFTER REFER RED TO AS APPELLANT'), RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAIN ST THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER [HERE INAFTER REFERRED TO AS THE LEARNED AO] UNDER SECTION 143(3) READ WITH SECT ION 144C OF THE INCOME-TAX ACT, 1961 (THE ACT') ON THE FOLLOWING GR OUNDS. 1. THE IMPUGNED ORDER OF THE LEARNED AO PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRIP, ERRED IN ASSESSING THE TOTAL INCO ME AT RS. 1,44,71,721 AS AGAINST THE RETURNED INCOME OF RS. 29,240; 2. THE LEARNED AO I TRANSFER PRICING OFFICER (TPO' ) AND THE HONBLE DRP HAVE ERRED, IN MAKING AN ADDITION OF RS 1,31,78,142 TO THE TOTAL INCOME OF THE APPELLANT ON PRETEXT THAT PRICE CHARGED WAS LOWER THAN ARM'S LENGTH PRICE DETERMINED FOR PROVISION OF SOFTWARE D EVELOPMENT SERVICES TRANSACTION RENDERED BY APPELLANT TO ITS AE(S); 3. THE LEARNED AO / TPO AND THE HON'BLE DRIP HAVE ERRED, IN LAW AND IN FACTS, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UN DERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962 (THE RULES'), AND IN CONDUCT ING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE ('ALP') IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACT ION, AND HOLDING THAT THE APPELLANT'S INTERNATIONAL TRANSACTION IS N OT AT ARM'S LENGTH; 4. THE LEARNED AO / TPO AND THE HON'BLE DRIP HAVE E RRED, IN LAW AND IN FACTS, BY DETERMINING THE ARM'S LENGTH MARGIN/ P RICE USING ONLY FY 2006-07 DATA THOUGH THE SAME WAS NOT AVAILABLE TO T HE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMEN TATION REQUIREMENTS; 5. THE LEARNED AO / TPO AND HON'BLE DRIP HAVE ERRED , IN LAW AND IN FACTS, BY EXERCISING HIS POWERS UNDER SECTION 133(6 ) OF THE ACT TO OBTAIN INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAI N AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES; 6. THE LEARNED AO / TPO AND THE HON'BLE DRIP HAVE E RRED, IN LAW AND FACTS BY REJECTING CERTAIN COMPARABLE COMPANIES CON SIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS BY APPLYING DIFFERENT QUANTITATIVE AND QUALITATIVE FILTERS: A) THE LEARNED AO / TPO AND THE HON'BLE DRP HAVE ER RED, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPE LLANT FOR HAVING DIFFERENT ACCOUNTING YEAR (I.E. COMPANIES HAVING AC COUNTING YEAR OTHER THAN MARCH 31 OR COMPANIES WHOSE FINANCIAL STATEMEN TS WERE FOR A PERIOD OTHER THAN 12 MONTHS); B) THE LEARNED AO I TPO AND THE HON'BLE DRP HAVE ER RED, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPE LLANT USING EMPLOYEE COST GREATER THAN 25% OF THE TOTAL REVENUE S AS A COMPARABILITY CRITERION; C) THE LEARNED AO / TPO AND THE HON'BLE DRP HAVE ER RED, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPE LLANT USING EXPORT EARNINGS GREATER THAN 75% OF THE SALES AS A COMPARA BILITY CRITERION; PAGE 3 OF 26 ITA NO.458/BANG/2019 D) THE LEARNED AO / TPO AND THE HONBLE DRP HAVE ERR ED, IN APPLYING ONLY THE LOWER CAP ON THE TURNOVER FILTER OF RS.1 C RORE AND NOT APPLYING ANY UPPER CAP FOR THE COMPARABILITY CRITERION; I. THE LEARNED AO/ TPO AND THE HON'BLE DRIP HAS THE REFORE ERRED IN LAW AND IN FACTS, IN CONSIDERING THE FOLLOWING A S COMPARABLE COMPANIES: A) FLEXTRONICS SOFTWARE SYSTEMS LIMITED (SEG.) B) INFOSYS TECHNOLOGIES LTD. C) TATA ELXSI LTD. (SEG.) D) WIPRO LTD. (SEG.) E) PERSISTENT SYSTEMS LTD. F) SASKEN COMMUNICATIONS TECHNOLOGIES LIMITED G) IGATE GLOBAL SOLUTIONS LIMITED H) MINDTREE LIMITED 7. THE LEARNED AO/ TPO AND THE HON'BLE DRP HAVE ERR ED, IN LAW AND IN FACTS, BY ACCEPTING / REJECTING COMPANIES BASED ON UNREASONABLE COMPARABILITY CRITERIA; 7.1 THE LEARNED AO/DRPITPO HAS FAILED TO APPRECIATE THE FACT THAT THE FOLLOWING COMPANIES ARE NOT FUNCTIONALLY COMPARABLE TO THE SOFTWARE DEVELOPMENT SEGMENT OF APPELLANT, THEREFORE HAS ERR ED IN LAW AND IN FACTS IN CONSIDERING THEM AS COMPARABLE COMPANIES: A)ACCEL TRANSMATIC LIMITED (SEG) B) AVANI CIMCON TECHNOLOGIES LIMITED C) CELESTIAL LABS LIMITED D) E-ZEST SOLUTIONS LIMITED E) FLEXTRONICS SOFTWARE SYSTEMS LIMITED (SEG.) F) ISHIR INFOTECH LIMITED G) KALS INFORMATION SYSTEMS LIMITED (SEG) H) LUCID SOFTWARE LIMITED I) TATA ELXSI LIMITED SE J) THIRDWARE SOLUTIONS LIMITED K) WIPRO LIMITED (SEG) 7.2 WITHOUT PREJUDICE TO TRANSFER PRICING DOCUMENTA TION, THE LEARNED AO/DRP/TPO HAS FAILED TO APPRECIATE THE FACT THAT T HE FOLLOWING COMPANIES ARE NOT FUNCTIONALLY COMPARABLE TO THE SO FTWARE DEVELOPMENT SEGMENT OF APPELLANT, THEREFORE, THE LEARNED AO/DRP /TPO HAS ERRED IN LAW AND IN FACTS BY CONSIDERING THEM AS COMPARABLE COMPANIES: A) HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED B)1NFOSYS TECHNOLOGIES LIMITED 8. THE LEARNED AO/DRP/TPO AND THE HON'BLE DRP HAVE ERRED IN WRONGLY COMPUTING THE OPERATING PROFIT MARGIN OF TH E COMPARABLE COMPANIES IDENTIFIED IN THE TIP ORDER; 9. THE LEARNED AG / TPO AND THE HON'BLE DRP HAVE ER RED IN NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE PAGE 4 OF 26 ITA NO.458/BANG/2019 APPELLANT VIS--VIS THE COMPARABLES, WHILE CONDUCTI NG COMPARABILITY ANALYSIS; 10. THE LEARNED AO/TPO AND THE HON'BLE DRP ERRED IN COMPUTING THE ARM'S LENGTH PRICE WITHOUT GIVING THE BENEFIT OF +/ - 5 PERCENT UNDER THE PROVISO TO SECTION 920 OF THE ACT. GENERAL GROUNDS 11. THE LEARNED AG HAS ERRED IN LEVYING INTEREST OF RS.68,60,778 UNDER SECTION 234B OF THE ACT AND RS. 2,45,722 UNDER SECT ION 2340 OF THE ACT; 12. THE LEARNED AG HAS ERRED, IN LAW AND IN FACTS, BY INITIATING PENALTY PROCEEDINGS U/S 271(1 )(C) OF THE ACT. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'B LE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE FILED ITS RETURN OF INCOME FOR YEAR UNDER CONSIDERATION ON 30/10/2007 DECLARING INCOME OF RS. 29,420/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) AND T HE CASE WAS SELECTED FOR SCRUTINY. SUBSEQUENTLY NOTICE UNDER SE CTION 143(2) OF THE ACT WAS ISSUED, IN RESPONSE TO WHICH, REPRESENT ATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR THE LD.AO ON PERUSAL OF THE DETAILS FILE D OBSERVED THAT ASSESSEE HAD INTERNATIONAL TRANSACTION WITH ASSOCIA TED ENTERPRISES EXCEEDING RS. 5 CRORES. THE CASE WAS AC CORDINGLY REFERRED TO THE TRANSFER PRICING OFFICER TO COMPUTE THE ARMS LENGTH PRICE OF THE TRANSACTION AS PER SECTION 92C OF THE ACT. 3.ON RECEIPT OF REFERENCE, THE LD. TPO CALLED UPON ASSESSEE TO FILE THE ECONOMIC DETAILS OF THE TRANSACTION ENTERED INT O BY ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. FROM THE DETAILS F ILED, THE LD. PAGE 5 OF 26 ITA NO.458/BANG/2019 TPO OBSERVED THAT, ASSESSEE HAD FOLLOWING INTERNATI ONAL TRANSACTION: SOFTWARE DEVELOPMENT SERVICES RS.12,67,55,785 /- FIXED ASSET LOAN RS. 5,87,883/- INTEREST PAYABLE ON LOAN RS. 4,67,183/- REIMBURSEMENT OF EXPENSES (RECEIVED) RS.8,35,368/- 3. ASSESSEE USED TNMM AS MOST APPROPRIATE METHOD AN D OP/OC AS THE PLI. IT COMPUTED ITS MARGIN AT 10.51%. LD.TPO OBSERVED THAT ASSESSEE SELECTED 28 COMPARABLES WITH AN AVERAGE MARGIN OF 14.53%. AS MARGIN WAS BETWEEN 5% RANGE TH E ASSESSEE HELD ITS TRANSACTION TO BE AT ARMS LENGTH. THE LD.T PO REJECTED THE TRANSFER PRICING ANALYSIS CARRIED BY ASSESSEE AS A CCORDING TO LD.AO IT SUFFERED CERTAIN DEFECTS. APPLYING VARIOUS FILTERS LD.AO REJECTED THE COMPARABLES SELECTED BY ASSESSEE. THE LD.TPO UNDERTOOK FRESH SEARCH AND SELECTED SET OF FOLLOWI NG 26 COMPARABLES WITH AVERAGE MARGIN OF 25.14%: SL. NO. COMPARABLES MARGIN MARGIN 1. ALLSEC TRANSMATIC LTD (SEG) 18.91% 2. AVANI CINCOM TECHNOLOGIES LTD 49.97% 3. CELESTIAL LABS LTD 53.06% 4. DATAMATICS LTD -1.81% 5. E-ZEST SOLUTIONS LTD 34.85% 6. FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) 23.85% 7. GEOMETRIC LTD (SEG) 8.42% 8. HELLO AND MATHESON INFORMATION TECHNOLOGY LTD 33.23% 9. IGATE GLOBAL SOLUTIONS LTD 4.42% 10. INFOSYS TECHNOLOGIES LTD 37.76% PAGE 6 OF 26 ITA NO.458/BANG/2019 11 ISHIER INFOTECH LTD 29.20% 12. KALS INFORMATION SYSTEMS LTD 22.22% 13. LGS GLOBAL LTD 13.95% 14. LUCID SOFTWARE LTD 15.84% 15. MEDIASOFT SOLUTIONS LTD 0.39% 16. MEGASOFT LTD 0.12% 17. MINDTREE LTD (TP STUDY COMPARABLE) 4.16% 18. PERSISTENT SYSTEMS LTD 2.23% 19. QTINTENGRA SOLUTIONS LTD 8.04% 20. RS SOFTWARE INDIA LTD 1.93% 21. R SYSTEMS INTERNATIONAL LTD (SEG) 2.04% 22. SASKENCOMMUNICATIONS TECHNOLOGIES LTD (SEG) 9. 88% 23. SIP TECHNOLOGIES AND EXPORTS LTD (TP STUDY COMPARABLE) 9.50% 24. TATA ELXSI LTD (SEG.) 4.96% 25. THIRDWARE SOLUTIONS LTD 0.32% 26. WIPRO LTD 3.27% AVERAGE MARGIN 21.95% 4. THE LD.TPO THUS PROPOSED ADJUSTMENT BEING SHORTF ALL AT RS.1,44,85,721/-. 5. ON RECEIPT OF DRAFT ASSESSMENT ORDER, THE LD.AO ALSO DISALLOWED THE TELLY/INTERNET CHARGES INCURRED ON D ELIVERY OF SOFTWARE ABROAD, TRAVELLING EXPENSES MADE IN FOREIG N CURRENCY ETC FROM EXPORT TURNOVER, THEREBY REDUCING THE DEDUCTIO N CLAIMED BY ASSESSEE UNDER SECTION 10A AT RS.12,64,165/- . 6. AGAINST THE DRAFT ASSESSMENT ORDER, ASSESSEE FIL ED OBJECTIONS BEFORE DRP. THE DRP PASSED ITS DIRECTION BASED ON W HICH ASSESSMENT ORDER UNDER SECTION 143 (3) READ WITH SE C.144C OF THE ACT, WAS PASSED ON 19/09/2011, DETERMINING THE INCO ME IN THE PAGE 7 OF 26 ITA NO.458/BANG/2019 HANDS OF ASSESSEE FOR YEAR UNDER CONSIDERATION AT RS.1,57,79,300/-. AGGRIEVED BY THE ORDER OF THE LD. AO, ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL IN ITA (TP) A NO. 1087/B/2011 DATED 12/07/2017. THIS TRIBUNAL SET ASIDE THE ENTIRE TRANSFER PRISING ISSUE TO THE DRP, FOR COMPARING FUNCTIONAL SIMILARITY/DISSIMILARITY WITH THE COMPARABLES SELEC TED BY THE LD.TPO BASED ON THE FAR ANALYSIS, AND ALSO TO PASS AN ORDER IN ACCORDANCE WITH LAW, LAID DOWN BY THE HONBLE HIGH COURT AND THIS TRIBUNAL . 7. BASED ON THE DIRECTIONS OF THIS TRIBUNAL , THE DRP GAVE ITS DIRECTION ON 20/12/2018 AND CONSEQUENT TO THE DRP D IRECTIONS, THE LD. AO PASSED IMPUGNED ORDER WHEREIN THE INCOME ASSESSED WAS REVISED TO RS.1,44,71,721/-. 8. AGGRIEVED BY THE ORDER OF THE LD.AO, ASSESSEE IS IN APPEAL BEFORE US NOW. 9. THIS IS THE 2 ND ROUND OF APPEAL BEFORE THIS TRIBUNAL. AT THE OUTSET, THE LD.AR SUBMITTED THAT, ASSESSEE W ISH TO ONLY ARGUE GROUNDS 6 (D), 7 (7.1)-(7.2). IT IS SUBMITTED THAT, APART FROM THESE GROUNDS, NO OTHER GROUNDS ARE PRESSED FOR ARG UMENTS. ACCORDINGLY, WE ARE RESTRICTING OUR OPINION, ONLY I N RESPECT OF THE GROUNDS ARGUED BY THE LD.AR AS REFERRED TO HEREIN A BOVE. IT IS SUBMITTED THAT, IN THESE GROUNDS, ASSESSEE SE EKS EXCLUSION/INCLUSION OF COMPARABLES SELECTED BY THE LD. TPO IN THE FINAL LIST. PAGE 8 OF 26 ITA NO.458/BANG/2019 10. BEFORE WE UNDERTAKE THE COMPARABILITY ANALYSIS IT IS SINE QUA NON TO UNDERSTAND THE FUNCTIONS, ASSETS AND RISK ASSUM ED BY ASSESSEE UNDER THIS SEGMENT AS OBSERVED BY THE LD T PO. 10.1 FUNCTIONS AS PER THE TAXPAYER, THERE IS NO CHANGE IN THE FUN CTIONAL PROFILE OF THE TAXPAYER DURING THE FY 2006-07. THE TAXPAYER BEING A SOFTWARE DEVELOPMENT COMPANY, PERFORMS SOFTWARE D EVELOPMENT SERVICES ON A CONTRACT BASIS TO ITS AE, NOVELLUS US . 10.2 ASSETS AS IS COMMON IN THE CASE OF SOFTWARE SERVICE PROVI DER COMPANIES, THE TECHNICAL MANPOWER EMPLOYED AND TRAI NED BY A COMPANY IS ITS MOST IMPORTANT ASSET. ASSESSEE ALSO DEPLOYS WELL QUALIFIED WORKFORCE IN ITS BUSINESS. BESIDES THAT, ASSESSEE ALSO OWNS COMPUTERS ETC., WHICH ARE ESSENTIAL TO THE BUS INESS OF A SOFTWARE DEVELOPMENT COMPANY. THE ASSET PROFILE OF THE COMPANY IS GIVEN AS UNDER IN THE TP REPORT SL NO TYPE OF ASSETS NET BLOCK VALUE (RS.) AS ON 31.3.07 1 COMPUTERS 53 , 02 , 465 2 OFFICE EQUIPMENT 50 , 81 , 436 3 FURNITURE & FIXTURE 36 , 73 , 214 4 VEHICLES 1 , 50 , 206 5 LEASEHOLD IMPROVEMENTS 62 , 09 , 772 TOTAL 2 , 04 , 17 , 093 PAGE 9 OF 26 ITA NO.458/BANG/2019 10.3 RISKS IT IS CLAIMED BY ASSESSEE THAT, BEING A CAPTIVE SE RVICE PROVIDER AND BEING COMPENSATED AT COST PLUS 10%, TH E ASSESSEE DOES NOT BEAR THE RISKS LIKE MARKET RISK, FINANCIAL RISK, CREDIT & COLLECTION RISK AND SERVICE LIABILITY RISKS WHICH A RE NORMAL IN THE CASE OF INDEPENDENT ENTREPRENEURS. THE RISK PROFILE OF THE TAXPAYER VIS-A-VIS OTHER COMPARABLES HAS BEEN DEALT WITH IN LATER PART OF THIS ORDER UNDER THE HEAD 'RISK ADJUSTMENT' . 10.4 THE LD.TPO THUS OBSERVED THAT THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER COMPENSATED AT COST +10% AND DOES NOT BEAR ANY RISKS ASSOCIATED WITH IT SERVICES RENDERED TO T HE ASSOCIATED ENTERPRISES. BASED ON THE ABOVE WE SHALL UNDERTAKE THE COMPARABI LITY ANALYSIS OF FOLLOWING COMPARABLES WITH THAT OF ASSE SSEE: 11. IT HAS BEEN SUBMITTED BY THE LD.AR THAT ALL THE COMPARABLES ALLEGED BY THE ASSESSEE FOR INCLUSION/EXCLUSION HAS BEEN CONSIDERED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S MPHASIS LTD. VS ACIT IN IT(TP)A NO.14/B/2012 BY ORD ER DATED 19/05/2017 FOR ASSESSMENT YEAR 2007-08 AND M/S NET APP INDIA PVT LTD VS DCIT IN IT(TP)A NO.593/B/2012 AND IT(TP) A NO.687/B/2012 FOR ASSESSMENT YEAR 2007-08 BY ORDER DATED 27/02/2020. 12. WE HAVE PERUSED THESE DECISIONS AND OBSERVED TH AT THEY HAVE ALSO BEEN CATEGORISED AS A CAPTIVE SERVICE PRO VIDER RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENT ERPRISES WITH PAGE 10 OF 26 ITA NO.458/BANG/2019 MINIMUM OR NO RISK. UNDER SUCH CIRCUMSTANCES THE COMPARABILITY ANALYSIS CARRIED OUT BY COORDINATE BE NCH OF THIS TRIBUNAL IN THESE DECISIONS COULD BE APPLIED IN THE PRESENT FACTS OF THE CASE: GROUND 6 (D): 13. IN THIS GROUND ASSESSEE SEEKS EXCLUSION OF 8 CO MPARABLES ON TURNOVER FILTER. 13.1 IT HAS BEEN SUBMITTED BY THE LD.AR THAT LD.TPO WHILE APPLYING THE TURNOVER FILTER FAILED TO APPLY THE UP PER TURNOVER LIMIT OF RS.200 CRORES. HE THUS SUBMITTED THAT, FOL LOWING COMPARABLES HAVE MORE THAN 200 CRORES TURNOVER AND THEREFORE DESERVES TO BE EXCLUDED: FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG) INFOSYS TECHNOLOGIES LTD. TATA ELXSI LTD. (SEG) WIPRO LTD. (SEG) PERSISTENT SYSTEMS LTD. SASKEN COMMUNICATIONS TECHNOLOGIES LTD. IGATE GLOBAL SOLUTIONS LTD. MINDTREE LTD. 13.2 ON THE CONTRARY LEARN CIT DR RELIED ON ORDERS PASSED BY AUTHORITIES BELOW. 13.3 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. IT HAS BEEN SUBMITTED THAT, THESE COMPARABLES WERE CONSIDERED FOR EXCLUSION ON FAILING TURNOVER FILTER IN ASSESSE ES OWN CASE BY PAGE 11 OF 26 ITA NO.458/BANG/2019 COORDINATE BENCH OF THIS TRIBUNAL FOR ASSESSMENT YE AR 2013-14 IN ITA NO.2490/B/2017 BY ORDER DATED 3/2/2021. 14. ONE OF THE ARGUMENTS BY THE ASSESSEE BEFORE THE LD.TPO AS WELL AS DRP WAS THAT THESE COMPANIES HAD TURNOVER WHICH WAS IN EXCESS OF RS. 200 CRORES AND THEREFORE THESE COMPANIES CANNOT BE REGARDED AS A COMPARABLE IN THE CASE OF THE ASSESSEE WHOSE TURNOV ER WAS ONLY RS. 18 CRORES. THE LD.TPO AS WELL AS DRP TOOK THE VIEW THA T THE FUNCTIONAL COMPARABILITY OF THE COMPANIES WERE ALONE TO BE SEE N AND TURNOVER WAS NOT AN IMPORTANT CRITERION. IN GROUND NO. 5(IV), TH E ASSESSEE HAS CHALLENGED THE ORDER OF DRP IN HOLDING THAT HIGHER TURNOVER IS NOT A RELEVANT CRITERION FOR DISREGARDING A COMPANY, WHEN IT IS FUNCTIONALLY FOUND TO BE COMPARABLE. THE QUESTION BOILS DOWN ON APPLICATION OF TURNOVER FILTER IN CHOOSING COMPARABLE COMPANIES. A S FAR AS EXCLUDING THE COMPANIES ON THE BASIS OF TURNOVER IS CONCERNED, TH E ISSUE HAS BEEN SETTLED IN SEVERAL DECISIONS OF THE TRIBUNAL AND HA S BEEN ELABORATELY DISCUSSED BY THIS TRIBUNAL IN THE CASE OF AUTODESK INDIA (P.) LTD. V. DY. CIT [2018] 96 TAXMANN.COM 263. THIS TRIBUNAL IN CAS E OF AUTODESK INDIA (P.) LTD. V. DY. CIT (SUPRA) DECISION AFTER REVIEW OF ENTIRE CASE LAWS ON THE SUBJECT, CONSIDERED THE QUESTION, WHETHER COMPANIES HAVING TURNOVER MORE THAN 200 CRORES TO 500 CRORES HAS TO BE REGARD ED AS ONE CATEGORY AND THOSE COMPANIES CANNOT BE REGARDED AS COMPARABL ES WITH COMPANIES HAVING TURNOVER OF LESS THAN 200 CRORES, THE TRIBUN AL HELD AS FOLLOWS: '17.7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SUBSTANTIAL QUESTION OF LAW (QUESTION NO. 1 TO 3) WHICH WAS FRAMED BY TH E HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISO RS (INDIA) PVT. LTD., (SUPRA) WAS AS TO WHETHER COMPARABLE CAN BE REJECTE D ON THE GROUND THAT THEY HAVE EXCEPTIONALLY HIGH PROFIT MARGINS OR FLUC TUATION PROFIT MARGINS, AS COMPARED TO THE ASSESSEE IN TRANSFER PRICING ANA LYSIS. THEREFORE AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE AS SESSEE THE OBSERVATIONS OF THE HON'BLE HIGH COURT, IN SO FAR A S IT REFERS TO TURNOVER, WERE IN THE NATURE OF OBITER DICTUM. JUDICIAL DISCI PLINE REQUIRES THAT THE TRIBUNAL SHOULD FOLLOW THE DECISION OF A NON-JURISD ICTION HIGH COURT, EVEN THOUGH THE SAID DECISION IS OF A NON-JURISDICTIONAL HIGH COURT. WE HOWEVER FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PENTAIR WATER INDIA PUT. LTD. TAX APPEAL NO. 18 OF 2015 JUD GMENT DATED 16-9- 2015 HAS TAKEN THE VIEW THAT TURNOVER IS A RELEVANT CRITERION FOR CHOOSING COMPANIES AS COMPARABLE COMPANIES IN DETERMINATION OF ALP IN TRANSFER PRICING CASES. THERE IS NO DECISION OF THE JURISDIC TIONAL HIGH COURT ON THIS ISSUE. IN THE CIRCUMSTANCES, FOLLOWING THE PRINCIPL E THAT WHERE TWO VIEWS ARE AVAILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO T HE ASSESSEE HAS TO BE ADOPTED, WE RESPECTFULLY FOLLOW THE VIEW OF THE HON BLE BOMBAY HIGH COURT ON THE ISSUE. RESPECTFULLY FOLLOWING THE AFOR ESAID DECISION, WE UPHOLD THE ORDER OF THE DRP EXCLUDING 5 COMPANIES F ROM THE LIST OF PAGE 12 OF 26 ITA NO.458/BANG/2019 COMPARABLE COMPANIES CHOSEN BY THE TPO ON THE BASIS THAT THE 5 COMPANIES TURNOVER WAS MUCH HIGHER COMPARED TO THAT THE ASSESSEE. 17.8 IN VIEW OF THE ABOVE CONCLUSION, THERE MAY NOT BE ANY NECESSITY TO EXAMINE AS TO WHETHER THE DECISION RENDERED IN THE CASE OF GENISYS INTEGRATING (SUPRA) BY THE ITAT BANGALORE BENCH SHO ULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WERE ADVANCED ON THE CORR ECTNESS OF THE DECISIONS RENDERED BY THE ITAT MUMBAI AND BANGALORE BENCHES TAKING A VIEW CONTRARY TO THAT TAKEN IN THE CASE OF GENISYS INTEGRATING (SUPRA), WE PROCEED TO EXAMINE THE SAID ISSUE ALSO. ON THIS ISS UE, THE FIRST ASPECT WHICH WE NOTICE IS THAT THE DECISION RENDERED IN TH E CASE OF GENISYS INTEGRATING (SUPRA) WAS THE EARLIEST DECISION RENDE RED ON THE ISSUE OF COMPARABILITY OF COMPANIES ON THE BASIS OF TURNOVER IN TRANSFER PRICING CASES. THE DECISION WAS RENDERED AS EARLY AS 5-8-20 11. THE DECISIONS RENDERED BY THE ITAT MUMBAI BENCHES CITED BY THE LE ARNED DR BEFORE US IN THE CASE OF WILLIS PROCESSING SERVICES (SUPRA) A ND CAPEGEMINI INDIA PVT. LTD. (SUPRA) ARE TO BE REGARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING COORDINATE BENCH DECISION. IN THIS REGARD THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS REN DERED IN THE CASE OF M/S.NTT DATA (SUPRA), SOCIETE GENERALE GLOBAL SOLUT IONS (SUPRA) AND LSI TECHNOLOGIES (SUPRA) WERE RENDERED LATER IN POINT O F TIME. THOSE DECISIONS FOLLOW THE RATIO LAID DOWN IN WILLIS PROCESSING SER VICES (SUPRA) AND HAVE TO BE REGARDED AS PER INCURIUM. THESE THREE DECISIO NS ALSO PLACE RELIANCE ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CHRISCAPITAL INVESTMENT (SUPRA). WE HAVE ALREADY HELD THAT THE D ECISION RENDERED IN THE CASE OF CHRISCAPITAL INVESTMENT (SUPRA) IS OBIT ER DICTA AND THAT THE RATIO DECIDENDI LAID DOWN BY THE HON BIE BOMBAY HIG H COURT IN THE CASE OF PENTAIR (SUPRA) WHICH IS FAVOURABLE TO THE ASSES SEE HAS TO BE FOLLOWED. THEREFORE, THE DECISIONS CITED BY THE LEARNED DR BE FORE US CANNOT BE THE BASIS TO HOLD THAT HIGH TURNOVER IS NOT RELEVANT CR ITERIA FOR DECIDING ON COMPARABILITY OF COMPANIES IN DETERMINATION OF ALP UNDER THE TRANSFER PRICING REGULATIONS UNDER THE ACT. FOR THE REASONS GIVEN ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) ON THE ISSUE OF APPLICATION OF TURNOVER FILTER AND HIS ACTION IN EXCLUDING COMPANIES BY FOLLOWING THE RATI O LAID DOWN IN THE CASE OF GENISYS INTEGRATING (SUPRA).' 15. IN THE LIGHT OF THE AFORESAID DECISION OF THE TRIBUNAL, COMPARABLES SOUGHT FOR EXCLUSION IN GROUND NO.6.1 RAISED BY THE ASSESSEE IS ALLOWED. 13.4 IN THE LIGHT OF THE ABOVE, WE UPHOLD EXCLUSIO N OF THESE COMPARABLES RAISED BY ASSESSEE IN GROUND NO. 6 (D). ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED. GROUND NO. 7 (7.1) PAGE 13 OF 26 ITA NO.458/BANG/2019 14. IN THIS GROUND, ASSESSEE SEEKS EXCLUSION OF FOL LOWING COMPARABLES ON FUNCTIONAL DISSIMILARITIES: ACCEL TRANSMATIC LTD. (SEG) AVANI CINCOM TECHNOLOGIES LTD. CELESTIAL LABS LTD. E-ZEST SOLUTIONS LTD. ISHIR INFOTECH LTD. KALS INFORMATION SYSTEMS LTD. (SEG) LUCID SOFTWARE LTD. THIRDWARE SOLUTIONS LTD. IT HAS BEEN SUBMITTED THAT IDENTICAL SET OF 26 COMP ARABLES WERE SELECTED BY THE LD.TPO FOR THE VERY SAME ASSESSMENT YEAR IN CASE OF M/S.TEKTRONIX INDIA PVT.LTD VS DCIT IN IT(TP)A NO.673/B/2017 . THIS TRIBUNAL OBSERVED AS UNDER: 5.2 WE NOTE THAT IDENTICAL SET OF 26 COMPARABLES WERE SELECTED BY LD.TPO FOR VERY SAME ASSESSMENT YEAR IN CASE OF MER ITOR LVS INDIA (P)LTD., BY THIS TRIBUNAL REPORTED IN (2015) 64 TAXMANN.COM 136 AND FIRST ADVANTAGE OFFSHORE SERVICES PVT LTD V S DCIT IN ITA (TP) NO. 1086/B/2011. WE ALSO NOTE THAT ASSESSEE B EFORE US AND MERITOR LVS, FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD., RENDERS SOFTWARE DEVELOPMENT SERVICES TO ASSOCIATED ENTERPR ISES UNDER A CONTRACT SERVICES PROVIDER FOR VERY SAME ASSESSMENT YEAR. THIS TRIBUNAL IN THESE DECISIONS HAVE HELD FOLLOWING CO MPANIES TO BE NOT COMPARABLE FOR YEAR UNDER CONSIDERATION ON IDEN TICAL FUNCTIONS WHICH IS RISKS MITIGATED BEING A CONTRACT SERVICE P ROVIDER LIKE ASSESSEE. WE REFER TO OBSERVATION MADE BY THIS (TR IBUNAL) IN THE CASE OF (MERITOR LVS, INDIA PVT. LTD. (SUPRA)) IN R ESPECT OF FOLLOWING COMPARABLES. CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT COMPANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- PAGE 14 OF 26 ITA NO.458/BANG/2019 IN THE DIRECTOR'S REPORT (PAGE 20 OF PB- IL), IT IS STATED THAT 'THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR I N- HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2AB) OF THE INCOME TAX ACT.' AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER 'DEFERRED REVENUE EXPENDITURE' (PAGE 31 OF PB- II), IT IS MENTIONED THAT, 'EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT OF NEW PRODUCT S HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AND THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARLY INSTALLMENTS FROM THE YEAR IN WHICH IT IS INCURRED.' AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT AS 'DEFERRED REVENUE EXPENDITURE' (PAGE 30 OF PB-II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFT WARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PRIVATE LTD. V. ADDL. CIT - ITA NO.6623/MUM/2011 (FOR AY 2007-08) IN WHICH THE COMP ARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RESEARCH SEGMENT. THE RE LEVANT EXTRACT OF DISCUSSION REGARDING THIS COMPANY IS AS FOLLOWS: 'THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAG E-389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS REPORT WHICH READS AS FOLLOWS: 'THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TO OL 'CELSUITE' TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FOR D RUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF SIC ( OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND T ECHNOLOGY NEW DELHI) BASED ON OUR INSILICO EXPERTISE (APPLYING BI O-INFORMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERM A AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE RESPON SE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDUR ES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTMENT OF MIC ROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOL OGY AREA, THE COMPANY HAS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH I MTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MA NUFACTURE AND MARKET INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALK ALINE PROTEASE IN INDIA AND OVERSEAS. THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FA CILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NEW CANDIDATES' DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROP OSED FACILITY WILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA P RADESH.' PAGE 15 OF 26 ITA NO.458/BANG/2019 ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE AS SESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE DISCOVERY OF NEW DRUGS. M OREOVER THE COMPANY ALSO IS OWNER OF THE IPR. THERE IS HOWEVER A REFERE NCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO-INFORMATICS TOOL S FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIE R IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPA RABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMP T MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MAR GINS SO THAT THE DIFFERENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMI NATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THE REFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD.' 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE ABO VE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS INTO RESEARCH IN PHARMA CEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT THIS COMPANY IS OWNER OF IPR, I T HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECULE T O TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS C OMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASO N THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEVER, F ROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJECTED AS A C OMPARABLE BEING FUNCTIONALLY DIFFERENT. 45. FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANS PIRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06-07 THIS COMPANY WAS CLASS IFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN AY 07-08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEVELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROWESS DATABASE AS WELL AS IN THE A NNUAL REPORT OF THIS COMPANY. THE TPO HAS RELIED ON THE RESPONSE FROM TH IS COMPANY TO A NOTICE U/S.133(6) OF THE ACT IN WHICH IT HAS SAID T HAT IT IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. THE ASS ESSEE IN REPLY TO THE PROPOSAL OF THE AO TO TREAT THIS AS A COMPARABLE HA S POINTED OUT THAT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOINFORMATICS SERVICES AND THAT THE SEGMENTAL DATA FOR EACH ACTIV ITY IS NOT AVAILABLE AND THEREFORE THIS COMPANY SHOULD NOT BE TREATED AS COM PARABLE. BESIDES THE ABOVE, THE ASSESSEE HAS POINT OUT TO SEVERAL REFERE NCES IN THE ANNUAL REPORT FOR 31.3.2007 HIGHLIGHTING THE FACT THAT THI S COMPANY WAS DEVELOPS BIOTECHNOLOGY PRODUCTS AND PROVIDES RELATED SOFTWAR E DEVELOPMENT SERVICES. THE TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS COMPANY. THE TPO ALSO CALLED FOR DESCRIPTION OF SOF TWARE DEVELOPMENT PROCESS. IN RESPONSE TO THE REQUEST OF THE TPO THIS COMPANY IN ITS REPLY DATED 29.3.2010 HAS GIVEN DETAILS OF EMPLOYEES WORK ING IN SOFTWARE DEVELOPMENT BUT IT IS NOT CLEAR AS TO WHETHER ANY S EGMENTAL DATA WAS PAGE 16 OF 26 ITA NO.458/BANG/2019 GIVEN OR NOT. BESIDES THE ABOVE THERE IS NO OTHER D ETAIL IN THE TPO'S ORDER AS TO THE NATURE OF SOFTWARE DEVELOPMENT SERVICES P ERFORMED BY THE ASSESSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLIC ISSUE OF SHARES AND IN THAT CONNECTION ISSUED DRAFT RED HERRING PROSPEC TUS (DRHP) IN WHICH THE BUSINESS OF THIS COMPANY WAS EXPLAINED AS TO CL INICAL RESEARCH. THE TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BUSINE SS OF THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES AS INDICATED IN TH E ANNUAL REPORT FOR FY 06-07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO P RODUCTS AND OTHER PRODUCTS AS STATED IN THE DRHP. THERE IS NO REFEREN CE TO ANY REPLY BY CELESTIAL LABS TO THE ABOVE CLARIFICATION OF THE TP O. THE TPO WITHOUT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BUSINESS MENTI ONED IN THE DRHP ARE THE SERVICES OR BUSINESSES THAT WOULD BE STARTE D BY UTILIZING THE FUNDS GARNERED THOUGH THE INITIAL PUBLIC OFFER (IPO) AND THUS IN NO WAY CONNECTED WITH BUSINESS OPERATIONS OF THE COMPANY D URING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISSION S MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICALLY/ADMITT EDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS, THERE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT THIS CO MPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERV ICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY O UGHT NOT TO HAVE BEEN CONSIDERED AS COMPARABLE.' 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 INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY D IFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISE D BY THE ASSESSEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS EN GAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPA RABLES ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS ENGAGED IN 'E- BUSINESS CONSULTING SERVICES', CONSISTING OF WEB ST RATEGY SERVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SERVIC ES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERVICES, TH E LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIGH END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING ('KPO') SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPANY HAS NOT PROVIDED SEGMENTAL DATA I N ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DES CRIPTIVE INFORMATION ON THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COMPANY'S WEBSITE WHICH SH OULD BE CONSIDERED PAGE 17 OF 26 ITA NO.458/BANG/2019 WHILE EVALUATING THE COMPANY'S FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT KPO SERV ICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND THE REFORE COMPANIES RENDERING KPO SERVICES OUGHT NOT TO BE CONSIDERED A S COMPARABLE TO SOFTWARE DEVELOPMENT COMPANIES AND RELIED ON THE DE CISION OF THE CO- ORDINATE BENCH IN THE CASE OF CAPITAL IQ INFORMATIO N SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961(HYD)/2011 DT.23.11.2012 AND PRA YED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLUTIO NS 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 COMPARABLE S BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLYCONSIDERED THE MATERIAL ON RECORD. IT IS S EEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF CO MPARBALES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS R EPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT TH E TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GIVE A FIND ING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO T HE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. FRO M THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOF TWARE DEVELOPMENT SERVICES, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., IS RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BEEN HELD BY T HE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I- Q INFORMATI ONSYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT COMPARABLE TO SOFT WARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWIN G THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-Z EST SOLUTIONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O./TPO IS ACCORDINGLY DIREC TED.' KALS INFORMATION SYSTEMS LTD. '46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTE NTION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH S OFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOVE, IT WAS AL SO POINTED OUT THAT THIS COMPANY IS ENGAGED IN PROVIDING TRAINING. IT W AS ALSO SUBMITTED THAT AS PER THE ANNUAL REPOT, THE SALARY COST DEBITED UN DER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS Q 45,93,351. THE SAME W AS LESS THAN 25% OF THE SOFTWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNAL'S DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABL E WAS REJECTED FOR AY 2006-07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOLLOWS: PAGE 18 OF 26 ITA NO.458/BANG/2019 '16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIO NALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVEL OPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFT WARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HA S SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDIN G OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPM ENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACT UALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCC EEDS.' BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS DR AWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTIC E U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFER RED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PU RELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE.' THIRDWARE SOLUTIONS LTD. (SEGMENT): '15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN TH E LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED T O THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND TH AT ITS TURNOVER WAS IN EXCESS OF RS. 500 CRORES. BEFORE US, THE ASSESSEE H AS OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE R EASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINES S OF PRODUCT DEVELOPMENT AND TRADING IN SOFTWARE AND GIVING LICE NSES FOR USE OF SOFTWARE. IN THIS REGARD, THE LEARNED AUTHORISED RE PRESENTATIVE SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT 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 ACC OUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPME NT SERVICES. PAGE 19 OF 26 ITA NO.458/BANG/2019 (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (200 8-TII-04- ITAT-PUNE- TP), THE TRIBUNAL HAS DIRECTED THAT THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVID ERS, 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 AB OVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA), T HIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY 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 PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, TH E SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT B Y THE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRE CTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMEN T SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFT WARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FO LLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA), WE DIRECT TH AT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND.' 5.3 ISHIR INFOTECH LTD THIS COMPARABLE WAS INCLUDED BY LD.TPO AND OBJECTED BY ASSESSEE FOR ITS FUNCTIONAL DISSIMILARITIES. IT HA S BEEN SUBMITTED THAT, INFORMATION OF OBTAINED UNDER 133 (6) BY LD.A O IS PLACED AT PAGE 1061-1064 OF PAPER BOOK WHEREIN THIS COMPANY I S INVOLVED IN DIVERSIFIED ACTIVITIES LIKE APPLICATION DEVELOPMENT AND MAINTENANCE,, TESTING SERVICES, WEB DEVELOPMENT SER VICES, INTERNET BASED APPLICATION, E-COMMERCE APPLICATION, CONSULTI NG SERVICES. IT IS ALSO BEEN SUBMITTED THAT ALL THESE SERVICES HAVE BEEN CATEGORISED UNDER ONE SINGLE AHEAD OF SOFTWARE DEVE LOPMENT SERVICES 5.4 LD.AR SUBMITTED THAT, THIS TRIBUNAL IN CASE MERIT OR LVS INDIA (P)LTD., BY THIS TRIBUNAL REPORTED IN (2015) 64 TAX MANN.COM 136 PAGE 20 OF 26 ITA NO.458/BANG/2019 FOR AY: 2007-08 HELD THAT, THIS COMPANY IS NOT COMP ARABLE IN CASE OF CAPTIVE SOFTWARE DEVELOPMENT SERVICES PROVIDER L IKE ASSESSEE. 5.5 THE LD.DR HOWEVER OBJECTED TO THE EXCLUSION OF TH IS COMPANY FROM THE LIST OF COMPARABLES. 5.6 ON A CAREFUL PERUSAL OF MATERIAL ON RECORD, AND T HE REPLY RECEIVED FROM THIS COMPANY UNDER SECTION 133 (6) WE FIND THAT THIS COMPANY IS INVOLVED IN VARIOUS ACTIVITIES AS COMPAR ED TO CAPTIVE SOFTWARE SERVICE PROVIDER LIKE ASSESSEE. IT IS ALSO OBSERVED THAT IN THE CASE OF MERITOR LVS INDIA PVT LTD (SUPRA) LD.TP O USED VERY SAME 26 COMPARABLES FOR COMPUTING ARMS LENGTH MARG IN OF SOFTWARE DEVELOPMENT SERVICE SEGMENT DIRECT. THIS T RIBUNAL AFTER CONSIDERING THE FUNCTIONS PERFORMED BY THIS COMPANY WAS OF THE OPINION THAT IT IS NOT COMPARABLE TO OURS CAPTIVE S OFTWARE DEVELOPMENT SERVICE PROVIDER. FOR COMING TO THIS PR EPOSITION THIS TRIBUNAL RELIED UPON DECISION OF THIS TRIBUNAL IN C ASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT LTD VS DCIT IN ITA (TP) NO. 1086/B/2011 FOR ASSESSMENT YEAR 2007-08. FURTHER IN CASE OF M/S NETAPP INDIA PVT.LTD VS DCIT (SUPRA) THIS TRIBUNAL IN CASE OF LUCID SOFTWARE LTD. OBSERVED AS UNDER: LUCID SOFTWARE LTD THIS COMPARABLE WAS INCLUDED BY LD.TPO AND OBJECTED BY ASSESSEE FOR ITS FUNCTIONAL DISSIMILARITIES. IT HAS BEEN SUBMITTED THAT, THIS COMPANY IS INVOLVED IN R & D WITH LEADIN G SCIENTIFIC INSTITUTIONS. LD.COUNSEL SUBMITTED THAT, THIS TRIBUNAL IN THE CAS E OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD., VS. DCIT IT( TP)A NO. 1 0861BANG1201 1 FOR AY: 2007 - 08 HELD THAT, THIS CO MPANY IS NOT COMPARABLE IN CASE OF SOFTWARE DEVELOPMENT SERV ICES PROVIDER. THE NATURE OF SERVICES RENDERED BY ASSESS EE IN PRESENT APPEAL AND THE ASSESSEE IN CASE OF FIRST AD VANTAGE OFFSHORE SERVICES PVT. LTD., (SUPRA) ARE ONE AND TH E SAME. THIS FACT WOULD BE CLEAR FROM THE FACT THAT VERY SAME 26 COMPANIES WERE CHOSEN AS COMPARABLES IN CASE OF THE ASSESSEE AS WELL AS IN CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PUT. L TD., (SUPRA). LD.COUNSEL SUBMITTED THAT, THIS COMPANY IS TO BE EX CLUDED FROM THE LIST OF COMPARABLES ON THE BASIS OF FINDING OF THIS TRIBUNAL IN CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PUT. L TD., (SUPRA). HE SUBMITTED THAT, FACTS OF THE CASE BEFORE US ARE SIMILAR AND, PAGE 21 OF 26 ITA NO.458/BANG/2019 THEREFORE, THE SAID DECISION IS APPLICABLE TO THE A SSESSEE'S CASE ALSO. THE LD.DR HOWEVER OBJECTED TO THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. ON A CAREFUL PERUSAL OF MATERIAL ON RECORD, WE FIND THAT THIS TRIBUNAL IN CASE OF FIRST ADVANTAGE OFFSHORE SERVIC ES PVT. LTD., A. Y: 2007 - 08 (SUPRA) TOOK NOTE OF DISSIMILARITIE S BETWEEN ASSESSEE THEREIN AND LUCID SOFTWARE LTD.,. AS OBSERVED THEREIN, THIS COM PANY WAS INVOLVED IN DEVELOPMENT OF SOFTWARE AS COMPARED TO CAPTIVE SOFTWARE SERVICE PROVIDER. AS THE FACTS OF THE CASE BEFORE US ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE HOLD THAT THESE 2 COMPANIES ARE ALSO TO B E EXCLUDE RESPECTFULLY FOLLOWING THE DECISION OF THIS TRIBUNA L REFERRED TO ABOVE, WE DIRECT THE LD. AO/TPO TO EXCLUDE THIS COM PANY FROM FINAL LIST OF COMPARABLE. 14.1 THERE IS NOTHING ON RECORD BROUGHT BY AUTHORIT IES BELOW THAT THE FACTUAL OBSERVATION BY THIS TRIBUNAL IN THE ABOVE DECISIONS ARE INCORRECT. IN ALL THE ABOVE COMPARABL ES, IT HAS BEEN OBSERVED THAT, IT CANNOT BE USED AS COMPARABLES TO DETERMINED THE ALP OF RISK MITIGATED CONTRACT SERVICE PROVIDER LIKE THAT OF ASSESSEE BEFORE US. ACCORDINGLY, RESPECTFULLY FOLLOWING THE ABOVE OBSE RVATIONS OF THIS TRIBUNAL WE DIRECT EXCLUSION OF THE COMPARABLES CONSIDERED HEREIN ABOVE FOR FUNCTIONAL DISSIMILARITIES. 15. IN RESPECT OF HELIOS & MATHESON INFORMATION TEC HNOLOGY LTD., WHICH HAS BEEN CONSIDERED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S EMPHASIS LTD. VS ACIT (SUPRA) AS UNDER: 3. M/S HELIOS & MATHESON INFORMATION TECHNOLOGIES LTD WAS PAGE 22 OF 26 ITA NO.458/BANG/2019 DIRECTED TO BE EXCLUDED BY THE CO-ORDINATE BENCH IN MIS NXP SEMICONDUCTORS INDIA PVTLTD.(SUPRA) VIDE PARAGRAPH 28, WHICH IS REPRODUCED HERE UNDER: 28. AS FAR AS. COMPARABLE CHOSEN BY THE TPO AT S1.N O.8 OF THE FINAL LIST OF COMPARABLE VIZ,, M/S.HELIOS & MATHESON INFORMATI ON TECHNOLOGY LTD., WE FIND THAT THE SAID COMPANY HAS BEEN HELD TO BE N OT COMPARABLE WITH A SOFTWARE SERVICE PROVIDER LIKE THE ASSESSEE BY TH E JTA T PUNE BENCH IN THE CASE OF FTC SOFTWARE 'INDIA)PVT.LTD JTA. NO. ] 6051PN/201 I (ASSTT. YEAR: 2007-08) ORDER DATED 30.4.2013. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL: '76 THE NEXT POINT MADE OUT BY THE ASSESSEE IS WITH REGARD TO THE INCLUSION OF ITEMS AT (9) AND (II) NAMELY HELLOS & MATHESON INFORMATION TECHNOLOGY LTD., AND KALS INFORMATION SOLUTIONS LTD . (SEG) THE PRIMARY PLEA RAISED BY THE ASSESSEE TO ASSAIL THE INCLUSION OF THE AFORESAID TWO COMPANIES FROM THE LIST OF COMPARABLES IS TO BE EFF ECT THAT THEY ARE FUNCTIONALLY INCOMPARABLE AND THEREFORE, ARE LIABLE TO BE EXCLUDED. IN SUN AND SUBSTANCE, THE PLEA SET UP B% THE THE AFORE SAID CONCERNS ARE ENGAGED IN DEVELOPMENT & AND SALE OF SOFTWARE PRODU CTS WHICH IS FUNCTIONALLY FROM THE SERVICES UNDERTAKEN BY THE AS SESSEE IN ITS IT- SERVICES SEGMENT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE ORD ER OF THE T?O, THE REASON ADVANCED FOR INCLUDING K4LS INFORMATION SYST EMS LTD., IS TO THE EFFECT THAT THE SAID CONCERN '.S APPLICATION SOFTWA RE SEGMENT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE WHICH CAN BE CONSIDE RED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCERN IS ENGAGE D IN TWO SEGMENTS NAMELY APPLICATION SOFTWARE SEGMENT AND TRAINING. A S PER THE TPO, THE APPLICATION SOFTWARE SEGMENT IS FUNCTIONALLY COMPAR ABLE TO THE ASSESSEE AS THE SAID CONCERN IS ENGAGED IN SOFTWARE SERVICES . THE STAND OF THE ASSESSEE IS THAT A PERUSAL OF THE ANNUAL REPORT OF THE SAID CONCERN FOR P. Y. 2006-07 REVEALS THAT THE APPLICATION SOFTWARE SE GMENT IS ENGAGED IN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND SOFTT WARE SERVICES. THE ASSESSEE POINTED OUT THIS TO THE TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH IS PLACED IN THE PAPER BOOK AT PAGE 420.3 TO 420.4. THE ASSESSEE FURTHER POINTED OUT THAT THERE WAS NO BIFURCATION A VAILABLE BETWEEN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND THE BUSIN ESS OF SOFTWARE SERVICES, AND THEREFORE, IT WAS NOT APPROPRIATE TO ADOPT THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN FOR THE PURPO SES OF COMPARABILITY WITH THE ASSESSEE'S SERVICES SEGMENT. THE TPO HOWE VER, NOTICED THAT THOUGH THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN MAY BE ENGAGED IN SELLING OF SOME OF THE SOFTWARE PRODUCTS WHICH ARE DEVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT INTO TRADI NG OF SOFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHASES DEBITED IN THE PROFIT & LOSS ACCOUNT. THOUGH THE TI'O AGREED THAT THE QUANTUM OF REVENUE FROM SALE PAGE 23 OF 26 ITA NO.458/BANG/2019 OF PRODUCTS WAS NOT AVAILABLE AS PER THE FINANCIAL STATEMENTS OF THE SAID CONCERNS BUT AS THE BASIC FUNCTION OF THE SAID CONC ERN WAS SOFTWARE DEVELOPMENT, IT WAS INCLUDIBLE AS IT WAS FUNCTIONAL LY COMPARABLE TO THE ASSESSEE 'S SEGMENT OF ITES SERVICES. 18. BEFORE US, APART FROM REITERATING HE POINTS RAI SED BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITTED THAT IN THE IMR N4IAZELY PRECEEDING ASSESSMENT YEAR OF 2006-071 THE SAID CONCERN WAS EV ALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPARABLE. F OR THE SAID PURPOSE, OUR REFERENCE HAS BEEN INVITED TO PAGES 42 1 TO 542 OF THE PAPER BOOK, WHICH IS THE CONY OF THE TRANSFER PRICING STU DY UNDERTAKEN BY THE ASSESSEE FOR THE A. Y. 2006-07, AND IN PARTICUL AR, ATTENTION WAS INVITED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAKEN BY THE ASSESSEE REFLECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONALLY INCOMPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITION HAS BEEN ACCEPTED BY THE TPO IN THE EARLIER A. Y. 2 006-07 AND THEREFORE, THERE WAS NO JUSTIFICATION FOR THE TPO TO CONSIDER THE SAID CONCERN AS FUNCTIONALLY COMPARABLE IN THE INSTANT ASSESSMENT Y EAR. 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY THE ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDENT THAT THE SAID CON CERN HAS NOT BEEN FOUND TO BE FUNCTIONALLY COMPARABLE WITH THE ASSESS EE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN THE PR ESENT YEAR ALSO, ON THE BASIS OF THE ANNUAL REPORT, REFERRED TO IN THE WRITTEN SUBMISSIONS ADDRESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HA S CORRECTLY ASSERTED OUT THAT THE SAID CONCERN WAS INTER QUA ENGAGED IN SALE OF SOFTWARE PRODUCTS, WHICH WAS QUITE DISTINCT FROM THE ACTIVIT Y UNDERTAKEN BY THE ASSESSEE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHER IS THERE ANY ARGUMENT PUT FORTH BY THE REVENUE AND NOR IS THERE ANY DISCUSSION EMERGING FROM THE ORDERS OF THE LOWER AU THORITIES AS TO IN WHAT MANNER THE FUNCTIONAL PROFILE OF THE SAID CONC ERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HAVING REGARD TO THE FACTUAL ASPECTS BROUGHT OUT BY THE AS SESSEE, IT IS CORRECTLY ASSERTED THAT THE APPLICATION SOFTWARE SEGMENT OF T HE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEE 'S SEGMENT OF IT SERVICE S. 20. WITH REGARD TO THE INCLUSION OF HELLOS & MATHES ON INFORMATION TECHNOLOGY LTD, THE ASSESSEE HAS RAISED SIMILAR ARG UMENTS AS IN THE CASE OF Y-4-LS INFORMATION SOLUTIONS LTD. (SEG). WE HAVE PERUSED THE RELEVANT PARA OF THE ORDER OF THE TPO I.E., 6.3.21, IN TERMS OF WHICH THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE CONC ERN. THE ASSESSEE POINTED OUT THAT AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO FOR A. Y. 2006-07 THE SAID CONCERN WAS FOUND FUNCTIONALLY INCOMPARABLE BY THE ASSESSEE IN ITS TR ANSFER PRICING STUDY AND THE SAID POSITION WAS NOT DISTURBED BY THE TPO. THE RELEVANT PORTION OF THE TRANSFER PRICING STUDY, PLACED AT PAGE 432 O F THE PAPER BOOK HAS BEEN POINTED OUR IN SUPPORT. CONSIDERED IN THE AFOR ESAID LIGHT, ON THE BASIS OF THE DISCUSSION IN RELATION TO KALS INFORMA TION SOLUTIONS LTD. IN PAGE 24 OF 26 ITA NO.458/BANG/2019 THE INSTANT CASE ALSO WE FIND THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES.' 29. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE, WE DIRECT THE A O/TPO TO EXCLUDE THE AFORESAID COMP ANY FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF DET ERMINING ALP. WE THEREFORE, DIRECT EXCLUSION OF M/S HELIOS & MATH ESON. INFORMATION TECHNOLOGY LTD ALSO FROM THE LIST OF COMPARABLES. 16. THERE IS NOTHING ON RECORD BROUGHT BY AUTHORITI ES BELOW THAT THE FACTUAL OBSERVATION BY THIS TRIBUNAL IN THE ABOVE DECISIONS ARE INCORRECT. IN ALL THE ABOVE COMPARABL ES, IT HAS BEEN OBSERVED THAT, IT CANNOT BE USED AS COMPARABLES TO DETERMINED THE ALP OF RISK MITIGATED CONTRACT SERVICE PROVIDER LIKE THAT OF ASSESSEE BEFORE US. ACCORDINGLY, RESPECTFULLY FOLLOWING THE ABOVE OBSE RVATIONS OF THIS TRIBUNAL WE DIRECT EXCLUSION OF THE COMPARABLES CONSIDERED HEREIN ABOVE FOR FUNCTIONAL DISSIMILARITIES. ACCORDINGLY, THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JUNE, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 23RD JUNE, 2021. /VMS/ PAGE 25 OF 26 ITA NO.458/BANG/2019 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 26 OF 26 ITA NO.458/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -6-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -6-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -6-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -6-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -6-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -6-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -6-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS