MSC Software Corporation India Pvt. Ltd., Pune V. ACIT, Circle 11(2), Pune

ITA 46/PUN/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6930 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 04-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDEEP GARG
• Keywords: Related party transaction; Transfer pricing; International transaction; Initiation of penalty proceedings; Difference of opinion; Revised return
• Section: 143(3); 234B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , ' , % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURV EDI, AM . / ITA NO.46/PUN/2013 ' ' / ASSESSMENT YEAR : 2008-09 MSC SOFTWARE CORPORATION INDIA PVT. LTD., 6 TH FLOOR, AMAR APEX BUILDING, NEAR BANER TELEPHONE EXCHANGE, BANER, PUNE - 411045 . APPELLANT PAN: AAECM0862H VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 11(2), PUNE . RESPONDENT / APPELLANT BY : SHRI RAJENDRA AGIWAL / RESPONDENT BY : SHRI SANDEEP GARG, CIT DATE OF HEARING : 12.01.2017 / DATE OF PRONOUNCEMENT: 22.03.2017 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF ACIT, CIRCLE 11(2), PUNE, DATED 29.10.2012 RELATING TO ASSESSMENT YEAR 2008-09 PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1 961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW , THE HON'BLE DRP AND CONSEQUENTIALLY THE LEARNED ASSESSING OFFICER HAVE: 1 . GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJ USTMENT OF RS.2,70,62,939 ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 2 ERRED IN MAKING TRANSFER PRICING ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT IN THE NATURE OF PROV ISION OF SOFTWARE DEVELOPMENT SERVICES AND PAYMENT FOR REIMBURSEMENT OF CERTAIN EXPENSES AND NOT ACCEPTING THE COMPARABILITY ANALYSIS DOCUME NTED IN THE TRANSFER PRICING STUDY REPORT FOR BENCHMARKING ANALYSIS. I GROUNDS OF APPEAL IN RESPECT OF TRANSFER PRICING ADJUSTMENT RELATING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES 2. REJECTING THE TRANSFER PRICING DOCUMENTATION AND NOT CONSIDERING THE COMPARABILITY ANALYSIS AS DOCUMENTED IN THE TRANSFE R PRICING STUDY REPORT ERRED IN REJECTING THE TRANSFER PRICING DOCUMENTATI ON MAINTAINED BY THE APPELLANT AND ALSO NOT CONSIDERING THE DATA PROVIDE D IN THE TRANSFER PRICING STUDY REPORT FOR BENCHMARKING ANALYSIS . 3. USE OF DIFFERENT TURNOVER FILTER FOR IDENTIFICATION OF COMPARABLE COMPANIES AND APPLYING THE MODIFIED RANGE ON COST B ASE INSTEAD OF TURNOVER BASE. ERRED IN APPLYING TURNOVER FILTER OF INR 1 CRORE TO INR 200 CRORES AS A COMPARABLE SELECTION CRITERIA (I.E. USING A TURNOVE R FILTER OF INR 1 TO 200 CRORES) AS AGAINST THE TURNOVER FILTER OF UPTO INR 100 CRORES APPLIED BY THE APPELLANT FOR IDENTIFYING THE COMPARABLE COMPANIES (APPELLANT'S TURNOVER BEING INR 14 . 37 CRORES) . FURTHER, ERRED IN INAPPROPRIATELY CONSIDERING THE A BOVE RANGE ON COST BASIS INSTEAD OF TURNOVER BASIS (I.E. COMPANIES HAVING CO ST IN THE RANGE OF INR 1 CRORE TO INR 200 ' CRORES HAVE BEEN CONSIDERED FOR ANALYSIS) RESULTING IN COMPANIES HAVING TURNOVER EVEN HIGHER THAN INR 200 CRORES BEING TAKEN AS COMPARABLE (I.E . HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD IDENTIFIED AS COMPARABLE EVEN THOUGH THE TURNOVER O F THE SAID COMPANY IS INR 213 . 37 CRORES) 4. SELECTING INAPPROPRIATE QUALITATIVE FILTERS AND APP LYING CERTAIN FILTERS ON SELECTIVE BASIS ERRED IN SELECTING FOLLOWING INAPPROPRIATE QUALITAT IVE FILTERS , APPLYING CERTAIN FILTERS ON SELECTIVE BASIS FOR REJECTING/ACCEPTING CERTAIN COMPANIES SUCH AS: - USE OF SINGLE YEAR DATA FOR COMPARABILITY ANALYSIS (AS OPPOSED TO THREE YEARS DATA USED IN THE TRANSFER PRICING STUDY REPOR T); - REJECTION OF COMPANIES WITH LESS THAN 75% EARNINGS FROM EXPORTS ; - REJECTION OF LOSS MAKING COMPANIES; - REJECTION OF COMPANIES WITH PECULIAR CIRCUMSTANCES AND - USE OF DIMINISHING REVENUE FILTER 5. REJECTION OF CERTAIN COMPARABLE COMPANIES IDENTIFIE D BY THE APPELLANT IN THE TRANSFER PRICING STUDY REPORT ERRED IN REJECTING CERTAIN COMPARABLE COMPANIES FRO M THE COMPARABLE SET IDENTIFIED BY THE APPELLANT IN RESPECT OF INTERNATI ONAL TRANSACTION PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES. ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 3 6. SELECTING CERTAIN ADDITIONAL COMPANIES AS COMPAR ABLE FOR FY 2007-08 ERRED IN SELECTING CERTAIN ADDITIONAL COMPANIES AS COMPARABLE TO THE APPELLANT IN RESPECT OF INTERNATIONAL TRANSACTION R ELATING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES. 7. SELECTING COMPANIES HAVING SUPER NORMAL PROFITS ERRED IN SELECTING COMPANIES HAVING SUPERNORMAL PRO FITS AS COMPARABLE TO THE APPELLANT . 8. FOLLOWING INCONSISTENT APPROACH FOR REJECTING / SELECTING COMPANIES AS COMPARABLE ERRED IN ADOPTING AN INCONSISTENT APPROACH WHILE AP PLYING THE FUNCTIONAL COMPARABILITY CRITERIA FOR REJECTING / ACCEPTING CO MPANIES AS COMPARABLE. 9. ADJUSTMENT FOR DIFFERENCES ON ACCOUNT OF FUNCTIONAL AND RISK PROFILE OF COMPARABLE COMPANIES VIS-A-VIS THE APPELLANT ERRED IN COMPARING FULL-FLEDGED RISK BEARING ENTITI ES WITH THE APPELLANT'S CAPTIVE OPERATIONS WITHOUT MAKING ANY RISK ADJUSTME NT FOR DIFFERENCES BETWEEN THE FUNCTIONAL AND RISK PROFILE OF COMPARAB LE COMPANIES VIS-A-VIS T HE RISK PROFILE OF THE APPELLANT . 10. APPLICABILITY OF +/-5% RANGE ERRED IN APPLYING THE AMENDED PROVISO TO SECTION 92 C(2) OF THE ACT AND ACCORDINGLY, MAKING THE TRANSFER PRICING ADJUSTMENT FROM THE ARM'S LENGTH PRICE WITHOUT GIVING THE BENEFIT OF THE OPTION AVAI LABLE TO THE APPELLANT UNDER ERSTWHILE PROVISO TO SECTION 92C(2) OF THE AC T OF ADOPTING AS ARM ' S LENGTH PRICE , A PRICE WHICH VARIES B Y NOT MORE THAN 5 PER CENT FROM THE ARM ' S LENGTH PR I CE . II. GROUNDS OF APPEAL IN RESPECT OF INTERNATIONAL TRANSACTIONS RELATING TO PAYMENT FOR MEETING EXPENSES, TRAVEL COST, STAY COS T, ETC 11. ADJUSTMENT ON ACCOUNT OF PAYMENT FOR REIMBURSE MENT OF CERTAIN EXPENSES ERRED IN MAKING TRANSFER PRICING ADJUSTMENT BY DISA LLOWING GENUINE OPERATING EXPENSES OF THE APPELLANT TO THE AMOUNT O F INR 14,88 , 134 PERTAIN I NG TO PAYMENT FOR MEETING EXPENSES , TRA V EL COST, STAY COST, ETC AND VALUING ABOVE EXPENSES AS NIL BY WRONGLY CONCLUDING THAT SUCH EXPENSES INCURRED REPRESENTS EXPENDITURE FOR SHAREHOLDERS AC TIVITY. III. OTHER GROUNDS OF APPEAL 12. INITIATION OF PENALTY PROCEEDINGS UNDER SEC 271 (1)(C) OF THE ACT ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271(1)(C) WITHOUT CONSIDERING THE FACT THAT TRANSFER PRICING ADJUSTME NTS HAS BEEN MADE ON ACCOUNT OF DIFFERENCE OF OPINION PERTAINING TO SELE CTION CRITERIA ADOPTED FOR IDENTIFYING THE COMPARABLE COMPANIES, INTERPRETATIO N OF PROVISIONS OF LAW, ETC AND NOT DUE TO CONCEALMENT OF OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 13. ERRONEOUS LEVY OF INTEREST UNDER SECTION 234B O F THE ACT ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 4 ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT TO THE EXTENT ADDITION IS MADE TO THE TOTAL INCOME OF THE APPELLA NT ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS RELATED MATTERS WITHOUT CONSIDE RING THE FACT THAT SHORTFALL IN ADVANCE TAX RESULTED DUE TO THE PROPOS ED ADDITIONS TO TOTAL INCOME, WHICH ARE UNANTICIPATED IN NATURE. 3. BRIEFLY, IN THE FACTS OF THE CASE, ORIGINAL RETU RN OF INCOME WAS FILED ON 15.10.2008 DECLARING TOTAL INCOME OF RS.39,54,550/- . THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME DECLARING TOTAL INCO ME OF RS.42,18,320/- ON 31.03.2010. THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY. SINCE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SOFTWARE DE VELOPMENT, THE ASSESSING OFFICER MADE REFERENCE UNDER SECTION 92CA(1) OF THE ACT FOR DETERMINATION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WI TH ASSOCIATE ENTERPRISES. THE ASSESSEE HAD APPLIED TNNM METHOD FOR BENCHMARKING T HE INTERNATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE DEVELOPMENT S ERVICES AT RS.14,37,01,094/-. THE TRANSFER PRICING OFFICER (IN SHORT THE TPO) A GREED THAT THE TNNM METHOD WAS MOST APPROPRIATE METHOD. THE ASSESSEE HAD SELE CTED 12 COMPANIES AS COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRAN SACTIONS BY ADOPTING WEIGHTED AVERAGE MARGIN OF EARLIER TWO YEARS. THE TPO DIRECTED THE ASSESSEE TO APPLY THE DATA OF CONTEMPORANEOUS PERIOD AND REVISE D PLI OF THE COMPARABLES WAS FILED BY THE ASSESSEE. THE ARITHMETIC MEAN OF PLI OF COMPARABLES WORKED OUT AT (-) 6.53% AS AGAINST PLI OF THE ASSESSEE AT 3.53%. THE TPO NOTED THAT AS AGAINST ITS TURNOVER OF RS.14.37 CRORES, THE ASSESS EE HAD APPLIED UPPER TURNOVER OF RS.100 CRORES BUT THE MAJORITY OF COMPARABLES SE LECTED BY THE ASSESSEE WERE HIGHLY LOSS MAKING COMPANIES. THE TPO WAS OF THE V IEW THAT THE ASSESSEE HAD APPLIED SUBJECTIVE APPROACH WHILE SELECTING THE COM PARABLES. ON GOING THROUGH ACCEPT / REJECT MATRIX ADOPTED BY THE ASSESSEE, THE TPO DETECTED CERTAIN DEFECTS IN THE APPROACH FOLLOWED BY THE ASSESSEE. THE TPO ALSO NOTED THAT IN CERTAIN CASES THE ASSESSEE HAD SELECTED COMPANIES WHICH WER E ACTUALLY NOT SUITABLE AS COMPARABLE AND IN SOME CASES, THE ASSESSEE HAD OMIT TED TO SELECT CERTAIN CASES WHICH WERE MORE SUITABLE AFTER APPROPRIATE FAR ANAL YSIS. IN THIS REGARD, SHOW ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 5 CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. THE FIRST FILTER APPLIED BY THE TPO WAS TO EXCLUDE THE COMPANIES WITH LESS THAN 75% EARNING FROM EXPORTS. SECONDLY, THE COMPANIES WITH DIFFERENT ACCOUNTING YEAR WERE REJEC TED. THE THIRD FILTER WAS THE COMPANIES WITH INCOME FROM SOFTWARE DEVELOPMENT SER VICES HAVING 75% OF OPERATING REVENUE OR SEGMENTAL REVENUE WERE SELECTE D. THE COMPANIES WHICH WERE PERSISTENTLY LOSS MAKING WERE ALSO REJECTED AN D COMPANIES WITH LESS THAN 25%, RELATED PARTY TRANSACTIONS WERE SELECTED. CER TAIN COMPANIES WITH PECULIAR CIRCUMSTANCES WERE ALSO REJECTED. THE TPO NOTED TH AT THE ASSESSEE HAD APPLIED TURNOVER FILTER OF RS.25 CRORES TO RS.100 CRORES, W HEREAS THE TURNOVER OF ASSESSEE IN SW SEGMENT WAS RS.178 CRORES. AFTER CONSIDERING THE EXPLANATION OF ASSESSEE, THE TPO WAS OF THE VIEW THAT THE TURNOVER RANGE OF RS.1 TO RS.200 CRORES WAS ACCEPTABLE IN ASSESSEES CASE. THE PLI WAS TO BE DETERMINED WITH RESPECT TO OPERATING COST AND NOT THE SALES. THE S UPER PROFIT MAKING COMPANIES WERE TO BE REJECTED. HOWEVER, THE COMPANIES WHICH WERE SELECTED BY THE ASSESSEE IN THE TP REPORT BUT WERE SOUGHT TO BE REJ ECTED BEING SUPER PROFIT COMPANIES, WAS NOT ACCEPTED BY THE TPO AND THE CONT ENTIONS OF ASSESSEE WERE REJECTED. THEREAFTER, THE TPO CONSIDERED THE COMPA NIES SELECTED BY THE ASSESSEE AND THE COMPARABLES SELECTED BY HIM AND FI NALLY SELECTED EIGHT COMPANIES TO BE COMPARABLE AND AFTER ALLOWING THE W ORKING CAPITAL ADJUSTMENT AS PROVIDED BY THE ASSESSEE, THE ARITHMETIC MEAN OF PL I WAS WORKED OUT AT 31.92% AND AFTER WORKING CAPITAL ADJUSTMENT AT 27.32%. TH E TPO ALSO VERIFIED THE WORKING PLI SUBMITTED BY THE ASSESSEE AND EXTRAORDI NARY EXPENSES ON ACCOUNT OF RENT PAID FOR PREMATURE TERMINATION OF LEAVE AND LI CENSE AGREEMENT WAS EXCLUDED WHILE WORKING PLI. SIMILARLY, MISCELLANEOUS INCOME WAS FOUND TO BE INCLUDED IN THE OPERATING INCOME AND FRINGE BENEFIT TAX WAS HEL D TO BE CONSIDERED FOR THE SAID WORKING. THE PLI OF ASSESSEE WAS THUS, RE-WOR KED AND REVISED TO 4.12% BY APPLYING THE INDICATOR OF OPERATING PROFIT / OPERAT ING COST. IN VIEW THEREOF, THE TPO PROPOSED AN ADJUSTMENT OF RS.3,21,60,400/-. THE AS SESSEE SOUGHT RISK ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 6 ADJUSTMENT WHICH WAS NOT ALLOWED TO THE ASSESSEE. FURTHER, THE TPO OBSERVED THAT EXPENDITURE OF RS.14,88,134/- WAS REIMBURSED T O THE SINGAPORE COMPANY FOR BUSINESS MEETINGS. SINCE THE ASSESSEE HAD NOT ONLY BORNE THE EXPENSES ON TRAVEL, ETC. FOR ITS EMPLOYEES BUT ALSO BORNE THE E XPENSES ON ORGANIZING SUCH MEETINGS BY THE GROUP, THE TPO WAS OF THE VIEW THAT THE SAME CANNOT BE CONSIDERED AT ARM'S LENGTH AND SUM OF RS.14,88,134/ - WAS PROPOSED AS AN ADJUSTMENT. THE ASSESSING OFFICER ISSUED DRAFT ASS ESSMENT ORDER TO THE ASSESSEE IN THIS REGARD, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS TO THE DISPUTE RESOLUTION PANEL (IN SHORT DRP). THE DRP IN ITS DIRECTIONS UNDER SECTION 144C(5) OF THE ACT VIDE ORDER DATED 27.08.2 012 ISSUED CERTAIN DIRECTIONS, AS PER WHICH, REVISED WORKING OF ADJUSTMENT HAD TO BE MADE UNDER SECTION 92CA(3) OF THE ACT. ACCORDINGLY, THE TPO EXCLUDED FCS SOFTWARE SOLUTIONS LTD. FROM THE FINAL SET OF COMPARABLES HAVING FUNCTIONAL LY DIFFERENT AND ALSO FOLLOW THE DIRECTIONS OF DRP IN REDUCING THE INTRA SERVICES GR OUP COST OF RS.14,88,134/- FROM THE OPERATING COST. SINCE THE TPO HAD TREATED ARM' S LENGTH PRICE OF GROUP COMPANY AT NIL, THE REVISED PLI WORKING OF THE ASSE SSEE WAS THUS, RE-COMPUTED BY THE TPO AND THE PLI INDICATOR I.E. OP/OC WAS DET ERMINED AT 5.25%. FURTHER, FOLLOWING THE DIRECTIONS OF DRP, REVISED MARGINS OF FINAL SET OF COMPARABLES WAS WORKED OUT WHICH COMPRISED OF SEVEN COMPANIES AS CO MPARABLE AND THE ARITHMETIC MEAN OF MARGINS AFTER WORKING CAPITAL AD JUSTMENT WORKED OUT TO 23.90%. THE TPO THUS, PROPOSED AN ADJUSTMENT OVER OPERATING INCOME AT RS.2,55,74,805/- ON ACCOUNT OF SOFTWARE DEVELOPMENT SERVICES AND RS.14,88,134/- ON ACCOUNT OF COST ALLOCATION. THE REVISED TOTAL ADJUSTMENT AS PER DIRECTIONS OF DRP WAS RS.2,70,62,939/- WHICH WAS AD DED TO THE INCOME OF THE ASSESSEE. 4. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF A SSESSING OFFICER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT. ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 7 5. THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE A SSESSEE BEING GENERAL, ARE DISMISSED. 6. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THE APPLICATION OF TURNOVER FILTER OF RS.1 TO RS.200 CR ORES AS COMPARABLES SELECTION CRITERIA, AS AGAINST THE TURNOVER FILTER UP TO RS.1 00 CRORES APPLIED BY THE ASSESSEE FOR IDENTIFYING THE COMPARABLE COMPANIES. THE FIRS T PART OF THE ISSUE RAISED BY WAY OF GROUND OF APPEAL NO.3 IS AGAINST THE APPLICA TION OF TURNOVER FILTER OF RS.1 TO RS.200 CRORES AND NOT RS.100 CRORES AS APPLIED BY T HE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE FIRST LIMB OF GROUND OF APPEAL NO.3 IS NOT PRESSED, HENCE, THE SA ME IS DISMISSED AS NOT PRESSED. 7. NOW, COMING TO THE SECOND LIMB OF GROUND OF APPE AL NO.3. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF ASSESSING OFFICER / TP O IN CONSIDERING THE TURNOVER RANGE ON COST BASIS INSTEAD OF TURNOVER BASIS AND H ENCE, THE INCLUSION OF HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD., WHICH WAS IDENTIFIED AS COMPARABLE EVEN THOUGH ITS TOTAL TURNOVER WAS RS.213.37 CRORES . THE GRIEVANCE OF ASSESSEE IN CONSIDERING THE TURNOVER RANGE ON COST BASIS MER ITS TO BE ALLOWED. VARIOUS BENCHES OF THE TRIBUNAL INCLUDING THE PUNE BENCH OF TRIBUNAL IN SERIES OF CASES HAVE HELD THAT THE TURNOVER BASIS IS TO BE ADOPTED RANGE FOR THE SELECTION OF COMPANIES. THE TOTAL TURNOVER OF THE ASSESSEE WAS RS.14.37 CRORES, AS AGAINST WHICH WE HOLD THAT THE TURNOVER FILTER OF RS.1 TO R S.200 CRORES MERITS TO BE APPLIED. SINCE THE TURNOVER OF HELIOS AND MATHESON INFORMATI ON TECHNOLOGY LTD. WAS MORE THAN RS.200 CRORES I.E. RS.213.39 CRORES, THEN THE SAME MERITS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. ACCORDINGLY, W E HOLD SO. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, PARTLY ALLOWED . ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 8 8. THE ISSUE RAISED BY WAY OF GROUND OF APPEAL NO.4 IS AGAINST SELECTION OF QUALITATIVE FILTERS AND APPLYING CERTAIN FILTERS ON SELECTIVE BASIS FOR REJECTING / ACCEPTING CERTAIN COMPANIES AS COMPARABLES. THE LE ARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TH E GROUNDS OF APPEAL NO.4 TO 8 ARE AGAINST SELECTION / REJECTION OF COMPANIES WHIL E BENCHMARKING THE INTERNATIONAL TRANSACTIONS. THE TPO IN THE FINAL A NALYSIS HAD SELECTED EIGHT COMPANIES AS COMPARABLE AND ALLOWED WORKING CAPITAL ADJUSTMENT AND COMPUTED THE ARITHMETIC MEAN OF COMPARABLES AT 27.32%. PURS UANT TO THE DIRECTIONS OF THE DRP, REVISED FINAL LIST OF COMPARABLES WAS AS UNDER :- SR. NO. NAME OF THE COMPARABLE OP/TC WORKING CAPITAL ADJUST ED IN THE CASE OF ASSESSEE 1 BODHTREE CONSULTING LTD. 19.14 15.68 2 E-INFOCHIPS LTD. 30.32 25.37 3 EZEST SOLUTIONS LTD. 28.58 26.78 4 GOLDSTONE TECHNOLOGIES 27.03 19.88 5 HELIOS AND MATHESON INFORMATION TECH 36.05 30.59 6 KALS INFORMATION SYSTEM 30.92 26.91 7 LGS GLOBAL LTD. 26.26 22.06 ARITHMETIC MEAN 28.33 23.90 9. THE ASSESSEE POINTS OUT THAT GOLDSTONE TECHNOLOG IES WAS APPLIED BY THE ASSESSEE AND ACCEPTED BY THE TPO, HENCE, THERE IS N O DISPUTE ABOUT THE SAID CONCERN. HOWEVER, THE ASSESSEE IS AGGRIEVED BY INC LUSION OF ALL THE OTHER CONCERNS AS COMPARABLE. FURTHER, THE ASSESSEE IS A LSO AGGRIEVED BY THE ORDER OF TPO IN NOT INCLUDING THE FOLLOWING CONCERNS AS COMP ARABLE:- SR NO. NAME OF THE COMPANY 1 AKSHAY SOFTWARE TECHNOLOGIES LTD. 2 INDIUM SOFTWARE (INDIA) LTD. 3 MAARS SOFTWARE INTERNATIONAL LTD. 4 QUINTEGRA SOLUTIONS LTD. 5 S I P TECHNOLOGIES AND EXPORTS LTD. 6 R S SOFTWARE (INDIA) LTD. 10. FIRST, WE SHALL TAKE UP THE OBJECTIONS OF ASSES SEE AND THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE IN RESPECT OF ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 9 COMPANIES WHICH WERE FINALLY SELECTED BY THE ASSESS ING OFFICER / TPO / DRP IN THE FINAL SET OF COMPARABLES. THE FIRST CONCERN IS BODHREE CONSULTING LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN MERITS TO EXCLUDED FROM THE FINAL LIST OF C OMPARABLES AS THE SAID CONCERN WAS PRODUCT COMPANY AND WAS ALSO ENGAGED IN ITES SE GMENT. FURTHER, THERE WAS RE-STRUCTURING DURING THE YEAR AND THE YEAR UND ER CONSIDERATION WAS AN EXCEPTIONAL YEAR. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN ENGINEERING AND PRODUCT DEVELOPMENT, WHICH WAS MORE AKIN TO ITES SEGMENT. WHERE THE ASSESSEE WAS PROVIDING MIXED SET OF SERVICES I.E. PRODUCT AND EN GINEERING SERVICES, THEN THE SAME IS COMPARABLE TO BODHTREE CONSULTING LTD. REL IANCE PLACED UPON BY THE ASSESSEE ON THE RATIO LAID DOWN BY THE PUNE BENCH O F TRIBUNAL IN JOHN DEERE INDIA PVT. LTD. VS. ACIT IN ITA NO.2236/PN/2012, RE LATING TO ASSESSMENT YEAR 2008-09, VIDE ORDER DATED 18.11.2015, IT WAS HELD T O BE DISTINGUISHABLE SINCE BODHTREE CONSULTING LTD. WAS NOT PROVIDING DATA CLE ANING SERVICES AND HENCE THE DATA REFERRED TO DOES NOT PERTAIN TO THE ASSESSMENT CONCERNED. 12. ON PERUSAL OF RECORD, WE FIND THAT THE CONCERN BODHTREE CONSULTING LTD. WAS CONSIDERED BY THE TPO TO BE FUNCTIONALLY COMPAR ABLE DESPITE THE SUBMISSIONS OF ASSESSEE THAT IT WAS FUNCTIONALLY DI FFERENT, WHEREIN THE SAID CONCERN WAS ALSO ENGAGED IN SOFTWARE PRODUCTS. SIN CE NO SEGMENTAL DETAILS WERE AVAILABLE AND THE CONCERN BODHTREE CONSULTING LTD. BEING SOFTWARE PRODUCT DEVELOPMENT COMPANY AS WELL AS PROVIDING SERVICES, CAN THE SAME BE HELD TO BE FUNCTIONALLY COMPARABLE WITH THE ASSESSEE WHICH IS PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERPRISES. WHILE BENCHMARKING ANY INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESS EE, ENDEAVOUR SHOULD BE MADE TO COMPARE THE RESULTS SHOWN BY THE ASSESSEE W ITH SUCH CONCERNS WHICH ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 10 ARE FUNCTIONALLY COMPARABLE. WHERE THE MARGINS OF CONCERNS PICKED UP ARE FROM DIFFERENT SEGMENTS OF OPERATION I.E. SOFTWARE DEVEL OPMENT PRODUCT AS WELL AS ITES SERVICES AND IN THE ABSENCE OF ANY SEGMENTAL DETAIL S AVAILABLE, THEN SUCH CONCERN CANNOT BE TREATED AS COMPARABLE. ANOTHER A SPECT IS THE YEAR OF OPERATION BEING AN EXCEPTION YEAR, WHEREIN BODHTREE CONSULTING LTD. HAD UNDERTAKEN MAJOR BUSINESS RE-STRUCTURING I.E. HIRIN G OF E-PAPER BUSINESS TO ANOTHER CONCERN. WE FIND THAT THE PUNE BENCH OF TRIBUNAL IN JOHN DEERE INDIA PVT. LTD. VS. ACIT (SUPRA) HAD HELD THAT THE SAID CONCERN TO BE NOT COMPARABLE TO THE ASSESSEE THEREIN, WHICH WAS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES. FOLLOWING THE SAME WE HOLD THAT BODHTREE CONSULTING LTD. IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 13. NOW, COMING TO THE NEXT CONCERN E-INFOCHIPS LTD . THE PLEA OF THE ASSESSEE IN THIS REGARD WAS THAT THE SAID CONCERN W AS A PRODUCT COMPANY AND ALSO IN ITES SEGMENT. OUR ATTENTION WAS DRAWN TO T HE FINANCIAL STATEMENTS FOR THE YEAR UNDER CONSIDERATION PLACED AT PAGES 618, 619, 625 AND 630 OF THE PAPER BOOK AND THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THERE WAS DECREASE IN INVENTORIES IN THE CASE OF E- INFOCHIPS LTD. ESTABLISHING THE CONTENTION OF ASSESSEE THAT IT WAS PRODUCT COMPANY. HE STRESSED THAT WHERE THE COMPARABLE WAS NOT PURELY A SOFTWARE DEVELOPMENT CO MPANY, THE RESULTS OF SUCH CONCERN COULD NOT BE COMPARED WITH THE ASSESSEE WHI CH WAS PURELY ENGAGED IN THE SOFTWARE DEVELOPMENT. THE SECOND ISSUE OF IT B EING A SUPER PROFIT MAKING COMPANY WAS NOT PRESSED DURING THE COURSE OF HEARIN G. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT THE CONCERN WAS ENGAGED IN E MBEDDED SOFTWARE DEVELOPMENT SERVICES. HE FURTHER POINTED OUT THAT THE QUANTUM OF HARDWARE SALE HAD TO BE SEEN. SINCE THE ASSESSEE AND ALSO THE AS SESSING OFFICER / TPO HAD SELECTED THE COMPANIES WITH EXPORT FILTER OF 75% TU RNOVER, THEN THE CONCERN E- ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 11 INFOCHIPS LTD. IS TO BE INCLUDED IN THE FINAL SET O F COMPARABLES. HE REFERRED TO THE DECISION OF HONBLE HIGH COURT OF GUJARAT IN THE CA SE OF ALLSCRIPTS (INDIA) (P.) LTD. (2016) 72 TAXMANN.COM 305 (GUJ) HAD REVERSED THE DE CISION OF TRIBUNAL TO EXCLUDE E-INFOCHIPS BANGALORE LTD. HE STRESSED THA T WHERE THE ASSESSEE WAS ALSO ENGAGED IN SALE OF SOFTWARE PRODUCTS AND ITES, THEN THE ASSESSEE WAS FUNCTIONALLY COMPARABLE TO E-INFOCHIPS LTD. 15. WE HAVE HEARD THE RIVAL CONTENTIONS. THE ASSES SEE WHILE CARRYING OUT ITS TRANSFER PRICING ANALYSIS HAD APPLIED CERTAIN FILTE RS TO SELECT THE CONCERNS BY APPLYING THE FILTER OF ACCEPT / REJECT MATRIX, THE CONCERNS WHICH THEY DO NOT HAVE SIGNIFICANT (LESS THAN 25%) FOREIGN EXCHANGE EARNIN G WERE HELD TO BE REASON FOR REJECTION OF COMPANIES AS COMPARABLE. THE PERUSAL OF FINANCIAL REPORTING OF THE CONCERN E-INFOCHIPS LTD. AT PAGE 625 OF THE PAPER B OOK REFLECTS THAT THE INCOME FROM SOFTWARE SERVICES AT RS.21.03 CRORES WITH CONS ULTING SERVICES AT RS.2.16 CRORES AND HARDWARE SALES WERE AT RS.82.61 LAKHS. T HE CONSULTANCY SERVICES WERE LINKED TO THE SOFTWARE SERVICES PROVIDED BY TH E ASSESSEE AND THE HARDWARE SALES UNDERTAKEN BY THE SAID CONCERN WERE LESS THAN 4% OF THE TOTAL TURNOVER. WHERE THE ASSESSEE HAD ITSELF APPLIED THE TURNOVER FILTER OF 75% OF THE SALES FOR SOFTWARE DEVELOPMENT SERVICES, THEN THE SAID CONCER N QUALIFIES THE FILTER AS IT WAS PREDOMINANTLY PROVIDING SOFTWARE DEVELOPMENT SERVIC ES. THE NEXT OBJECTION OF THE ASSESSEE THAT E-INFOCHIPS LTD. WAS ENGAGED IN S ALE OF SOFTWARE PRODUCTS AND ITES THUS HAS NO REASONING ONCE TURNOVER OF PRODUCT S IS LESS THAN 4% OF TOTAL TURNOVER. FURTHER, THE HONBLE HIGH COURT OF GUJAR AT HAS SET ASIDE THE ISSUE OF EXCLUSION OF E-INFOCHIPS BANGALORE LTD. ON THE GROU ND THAT IT WAS NOT CLEAR AS TO WHETHER THE SAID CONCERN WAS ENGAGED IN ANY SERVICE S OTHER THAN SOFTWARE DEVELOPMENT SERVICES. HOWEVER IN THE PRESENT CASE, FINANCIAL DETAILS ARE AVAILABLE AND APPLYING THE FILTERS ADOPTED BY ASSES SEE, WE HOLD THAT E-INFOCHIPS BANGALORE LTD. IS TO BE INCLUDED IN FINAL SET OF CO MPARABLES. ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 12 16. THE NEXT CONCERN AGAINST INCLUSION OF WHICH THE ASSESSEE IS AGGRIEVED IS E-ZEST SOLUTIONS LTD. WHICH WAS ENGAGED IN SOFTWARE SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS. THE ASSESSEE PLEADED THAT NO SE PARATE REVENUE BREAKUP WAS AVAILABLE FOR PROVISION OF SERVICES AND SALE OF SOF TWARE AND HENCE, THE SAID CONCERN BEING ENGAGED IN DIVERSIFIED BUSINESS AND A LSO BEING ENGAGED IN ITES SUCH AS PRODUCTS ENGINEERING SERVICES, CONSULTING S ERVICES, ENTERPRISES SOLUTIONS, BPO / KPO SERVICES, ETC., THE SAME IS TO BE EXCLUDE D. RELIANCE WAS PLACED ON THE DECISION OF PUNE BENCH OF TRIBUNAL IN JOHN DEER E INDIA PVT. LTD. VS. ACIT (SUPRA). 17. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE FOR THE REVENUE POINTED OUT THAT WHERE THE ASSESSEE IS ALSO PROVIDING MIXED BAG OF SERVICES, SO IT CANNOT BE PLEADED THAT IT IS NOT CO MPARABLE BEING PROVIDING MIXED SERVICES. 18. ON PERUSAL OF RECORD AND THE ORDER OF TRIBUNAL IN JOHN DEERE INDIA PVT. LTD. VS. ACIT (SUPRA), WE FIND THAT THE CONCERN E-ZEST S OLUTIONS LTD. IS A PRODUCT COMPANY AND IS ENGAGED IN BOTH THE PROVISION OF SOF TWARE SERVICES AND SALE OF SOFTWARE SERVICES. ON THE OTHER HAND ASSESSEE IS E NGAGED IN SOFTWARE DEVELOPMENT SERVICES WHERE THE SEGMENTAL DETAILS AR E NOT AVAILABLE, ACCORDINGLY, E-ZEST SOLUTIONS LTD. IS FUNCTIONALLY NOT COMPARABL E. ACCORDINGLY, WE HOLD THAT THE SAID CONCERN IS TO BE EXCLUDED FROM THE FINAL SET O F COMPARABLES. 19. THE NEXT CONCERN IS KALS INFORMATION SYSTEMS LT D., WHEREIN THE PLEA OF ASSESSEE IS THAT THE SAME IS PRODUCT COMPANY AS IN THE CASE OF E-ZEST SOLUTIONS LTD. AND THE SAME IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 13 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ALSO STATED THAT THE SAME ARGUMENTS AS IN THE CASE OF E-ZEST SOLUTIO NS LTD. ARE RAISED AGAINST EXCLUSION OF KALS INFORMATION SYSTEMS LTD. 21. WE FIND THAT THE CONCERN KALS INFORMATION SYSTE MS LTD. IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE AS IT IS ENGAGED IN SOFT WARE SERVICES AS WELL AS SOFTWARE PRODUCTS AND HAS REPORTED INVENTORY AND WO RK IN PROGRESS IN ANNUAL REPORT. REFERENCE IS MADE TO PAGES 719 AND 720 OF THE PAPER BOOK. EVEN THE WEBSITE OF KALS INFORMATION SYSTEMS LTD. STATES THA T THE COMPANY HAS DEVELOPED TWO PRODUCTS I.E. VIRTUAL INSURE AND LA-VISION. SI NCE THE REVENUE BREAKUP IS NOT AVAILABLE, THEN THE MARGINS OF SAID CONCERN CANNOT BE APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESS EE OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERPRISES. SIMILAR PROPOSITION HAS BEEN LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN JOHN DEE RE INDIA PVT. LTD. VS. ACIT (SUPRA). FURTHER THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PTC SOFTWARE (I) PVT. LTD. IN INCOME TAX APPEAL NO.732 OF 2014 JUDGEMENT DATED 26-09-2016 HAS HELD THAT KALS INFORMATION SYSTEMS L TD. WAS ENGAGED IN SOFTWARE PRODUCTS NOT COMPARABLE TO CONCERN PROVIDING SOFTWA RE SERVICES. APPLYING THE SAME, WE HOLD THAT THE SAID CONCERN IS TO BE EXCLUD ED FROM THE FINAL LIST OF COMPARABLES. 22. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE WHILE PUTTING FORWARD ITS SUBMISSIONS POINTED OUT THAT THE ISSUE OF EXCLUSION OF LANCO GLOBAL SYSTEMS LTD. FROM THE FINAL LIST OF COMPARABLES IS NOT PRESSED AND HENCE, THE SAME MAY BE INCLUDED IN THE FINAL LIST OF COMPARABL ES. ACCORDINGLY, WE HOLD SO. THUS, THE MARGINS OF FOLLOWING CONCERNS ARE TO BE A PPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF ASSESSEE:- A) GOLDSTONE TECHNOLOGIES B) E-INFOCHIPS LTD. C) LANCO GLOBAL SYSTEMS LTD. ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 14 23. NOW, COMING TO THE SECOND ARGUMENT OF THE ASSES SEE I.E. EXCLUSION OF CONCERNS WHICH WERE SELECTED BY THE ASSESSEE IN ITS TP ANALYSIS. THE FIRST CONCERN IS AKSHAY SOFTWARE TECHNOLOGIES LTD., WHICH AS PER THE ASSESSEE IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. HOWEVER, THE SAID CONCERN IS ENGAGED IN ON-SITE DEVELOPMENT AND HENCE, THE MARGINS OF SA ID CONCERN ARE NOT COMPARABLE TO THE ASSESSEE WHICH IS OFF-SITE DEVELO PER. THE PUNE BENCH OF TRIBUNAL IN TIBCO SOFTWARE (INDIA) PVT. LTD. VS. DC IT IN ITA NO.2536/PN/2012 RELATING TO ASSESSMENT YEAR 2008-09, ORDER DATED 11 .02.2015 HAD HELD THAT BOTH AKSHAY SOFTWARE TECHNOLOGIES LTD. AND MAARS SOFTWAR E INTERNATIONAL LTD. WERE TO BE REJECTED BEING ON-SITE DEVELOPERS WHILE COMPARIN G THE MARGINS WITH OFF-SITE DEVELOPERS. THE SAID PROPOSITION WAS AGAIN APPLIED BY THE PUNE BENCH OF TRIBUNAL IN BMC SOFTWARE INDIA PVT. LTD. VS. DCIT I N ITA NO.1425/PN/2010, RELATING TO ASSESSMENT YEAR 2006-07, ORDER DATED 16 .03.2016. APPLYING THE SAID PRINCIPLE, WE HOLD THAT AKSHAY SOFTWARE TECHNOLOGIE S LTD. IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES AS DONE BY THE TPO. APPLYING THE SAID PRINCIPLE, WE FURTHER HOLD THAT THE CONCERN AT SERIAL NO.3 I.E. M AARS SOFTWARE INTERNATIONAL LTD. BEING ON-SITE DEVELOPER IS ALSO TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. SIMILARLY, THE CONCERN AT SERIAL NO.6 I.E. R S SOFT WARE (INDIA) LTD. IS ON-SITE DEVELOPER AND THE SAME IS TO BE EXCLUDED FROM THE F INAL LIST OF COMPARABLES. 24. NOW, COMING TO THE CONCERN AT SERIAL NO.2 I.E. INDIUM SOFTWARE (INDIA) LTD. THE SAID CONCERN WAS PICKED UP BY THE ASSESSEE AS C OMPARABLE. HOWEVER, THE SAME WAS REJECTED BY THE TPO AND EXCLUDED FROM THE FINAL LIST OF COMPARABLES ON TWO GROUNDS; FIRST THE COMPANY WAS LOSS MAKING COMP ANY AND SECONDLY, THE EXPORT TURNOVER OF THE SAID CONCERN WAS LESS THAN 7 5% OF THE OPERATING REVENUE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE SAID ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 15 CONCERN WAS NOT PERSISTENT LOSS MAKING AND FOLLOWIN G THE DECISIONS OF VARIOUS BENCHES OF TRIBUNAL, THE SAME SHOULD BE INCLUDED IN THE FINAL SET OF COMPARABLES. 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, STRONGLY OBJECTED TO ITS INCLUSION AS THE FIL TER APPLIED BY THE ASSESSEE THAT THE CONCERN WITH EXPORT TURNOVER LESS THAN 75% SHOU LD BE EXCLUDED, HAS BEEN APPLIED BY THE TPO ALSO. HE POINTED OUT THAT THE S AID CONCERN WAS EXCLUDED ON TWO ACCOUNTS I.E. IT WAS LOSS MAKING COMPANY AND IT FAILED IN EXPORT TURNOVER FILTER. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE BANGALORE BENCH OF TRIBUNAL IN TRILOGY E-BUSINESS SOFTWARE INDIA (P.) LTD. VS. DCIT (2013) 29 TAXMANN.COM 310 (BANGALORE TRIB.), WHEREIN IT WAS HELD THAT THE SAID CONCERN INDIUM SOFTWARE ( INDIA) LTD. TO BE NOT COMPARABLE TO THE CONCERN ENGAGED IN SOFTWARE DEVEL OPMENT SERVICES. 26. ON PERUSAL OF RECORD AND AFTER CONSIDERING THE SUBMISSIONS MADE BY BOTH THE LEARNED AUTHORIZED REPRESENTATIVES, WE HOLD THA T SINCE THE CONCERN INDIUM SOFTWARE (INDIA) LTD. DOES NOT FULFILL THE EXPORT F ILTER WHICH HAS BEEN APPLIED BY THE ASSESSEE ITSELF, THAT THE CONCERN WHOSE SOFTWARE DE VELOPMENT SERVICES WERE GREATER THAN 75% ARE TO BE INCLUDED AS COMPARABLE, THEN INDIUM SOFTWARE (INDIA) LTD. IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPA RABLES. THE SAID FILTER IS TO BE APPLIED FIRST BEFORE APPLYING THE NEXT FILTER AS WH ETHER IT IS PERSISTENT LOSS MAKING CONCERN OR NOT. RELIANCE PLACED UPON BY THE LEARNE D AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON SERIES OF DECISIONS OF DIFFEREN T BENCHES OF TRIBUNAL IS ON THE ISSUE OF LOSS MAKING CONCERN AND PERSISTENT LOSS MA KING CONCERN. WE DO NOT MAKE ANY REFERENCE TO THE SAID DECISIONS AS WE ARE DECIDING THE ISSUE ON PRELIMINARY GROUND OF NOT FULFILLING THE EXPORT TUR NOVER FILTER. ACCORDINGLY, WE UPHOLD THE ORDER OF TPO. ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 16 27. THE NEXT CONCERN IS AT SERIAL NO.4 QUINTEGRA SO LUTIONS LTD., WHICH WAS REJECTED ON THE GROUND THAT THE SAID CONCERN HAD TA NGIBLES. 28. WE FIND THAT THE ISSUE OF EXCLUSION OF THE SAID CONCERN, WHICH HAVING INTANGIBLES HAS ALREADY BEEN DECIDED BY THE PUNE BE NCH OF TRIBUNAL IN BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD. VS. ACIT, RELATIN G TO ASSESSMENT YEAR 2008-09 REPORTED IN (2015) 56 TAXMANN.COM 386 (PUNE TRIB. ) AND THE SAME IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. 29. NOW, COMING TO THE LAST CONCERN S I P TECHNOLOG IES AND EXPORTS LTD., WHICH THE ASSESSEE WANTS TO BE INCLUDED IN THE FINA L SET OF COMPARABLES. THE SAID CONCERN WAS REJECTED ON THE GROUND THAT IT WAS LOSS MAKING AND HAD SHOWN LOSS OF (-) 33.20%; THE PROFITS OF THE COMPANY WERE DIMI NISHING FROM YEAR TO YEAR. 30. THE CONTENTION OF THE ASSESSEE WAS THAT IN CASE THE SAID CONCERN IS TO BE EXCLUDED, THEN SUPER PROFIT COMPANIES ALSO SHOULD B E EXCLUDED. 31. WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE SI NCE THE ASSESSEE IS CAPTIVE SERVICE PROVIDER AND IS BEING REIMBURSED ON COST PL US BASIS, HENCE, THE SAID LOSS MAKING CONCERN DECLARING OPERATING LOSS OF (-) 33.2 0% MERITS TO BE EXCLUDED. ACCORDINGLY, WE HOLD THAT IT IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE MA RGINS OF COMPARABLES AND MAKE SUITABLE ADJUSTMENTS, IF ANY, TO THE INTERNATI ONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. 32. THE GROUND OF APPEAL NO.9 RAISED BY THE ASSESSE E IS AGAINST NON- ALLOWANCE OF RISK ADJUSTMENT. 33. THE ASSESSEE IS CAPTIVE SERVICE PROVIDER TO ITS ASSOCIATED ENTERPRISES AND CLAIMS TO BE RISK FREE AND HENCE DESIRES RISK ADJUS TMENT IN THE MARGINS OF ITS ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 17 FINALLY SELECTED COMPARABLES. WE HAVE ALREADY DECI DED SIMILAR ISSUE IN HONEYWELL TURBO TECHNOLOGIES (INDIA) PVT. LTD. VS. DCIT IN ITA NO.2584/PUN/2012 ORDER DATED 10-02-2017 WHEREIN IT WAS HELD AS UNDER : 32. UNDER THE TP PROVISIONS, WHERE IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS RISK MITIGATING ENTITY, WHEREIN ALL THE RISKS AR E TAKEN CARE OF BY THE ASSOCIATE ENTERPRISES, THEN ADJUSTMENT ON ACCOUNT OF DIFFEREN CE IN THE RISK PROFILE OF COMPARABLE COMPANIES MERITS TO BE ALLOWED WHILE BEN CHMARKING THE INTERNATIONAL TRANSACTION OF ASSESSEE. THE BANGALORE BENCH OF TRI BUNAL IN THE CASE OF PHILIPS SOFTWARE CENTRE PVT. LTD. VS. ACIT REPORTED IN 26 S OT 226 HAS UPHELD THAT THE ADJUSTMENT OF RISK TO BE COMPUTED AS DIFFERENCE BET WEEN THE PLR AND THE RISK FREE RATE OF TURN. THE ASSESSEE PREPARED A SUMMARY COMPUTATION CONSIDERING THE AFORESAID RULE, WHICH READS AS UNDER:- 33. FURTHER, THE DELHI BENCH OF TRIBUNAL IN THE CA SE OF SONY INDIA PV T. LTD. REPORTED IN 114 ITD 448 HAS ALLOWED 20% RISK ADJUST MENT CONSIDERING THE FACT THAT IT MAY NOT BE POSSIBLE TO QUANTIFY RISK ADJUSTMENTS . THE ASSESSEE APPLYING THE SAID RATIO IN THE CASE OF SONY INDIA PVT. LTD. (SUP RA) HAS WORKED OUT THE RISK ADJUSTMENT ON THE OPERATING MARGINS OF COMPARABLES TO BE ALLOWED WHEN COMPUTED @ 20%. 34. FOLLOWING THE SAID RATIO, WE DIRECT THE ASSESSI NG OFFICER TO ALLOW THE RISK ADJUSTMENT AND RE-COMPUTE THE MARGINS OF COMPARABLE S BY APPLYING THE RATIO LAID DOWN BY DELHI BENCH OF TRIBUNAL IN THE CASE OF SONY INDIA PVT. LTD. (SUPRA) AND COMPUTE THE TP ADJUSTMENT, IF ANY, IN THE HANDS OF ASSESSEE. 35. THE GROUND OF APPEAL NO.10 RAISED BY THE ASSESS EE IS AGAINST APPLICABILITY OF +/- 5% AND THE BENEFIT CAN BE ALLOWED IF THE ADJ USTMENT IS WITHIN SUCH RANGE AND HENCE, NO ADJUSTMENT IS TO BE MADE IN CASE IT I S NOT MORE THAN 5% FROM THE ARM'S LENGTH PRICE. WE HOLD SO. 36. ANOTHER GROUND OF APPEAL, I.E. GROUND OF APPEAL NO.11 WHICH IS BEING RAISED BY THE ASSESSEE IS IN RELATION TO THE INTERN ATIONAL TRANSACTIONS OF PAYMENT MADE FOR MEETING EXPENSES, TRAVEL COST, STAY COST, ETC. 37. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT THE SAID EXPENDITURE WAS PART OF OPERATING COST AND WAS RECOVERED @ 7%. THE FACTUAL ASPECTS OF THIS ISSUE ARE NOT CLEAR AND THE ASSESSING OFFICER/TRANSFER ITA NO.46/PUN/2013 MSC SOFTWARE CORPORATION INDIA PVT. LTD. 18 PRICING OFFICER IS DIRECTED TO REDECIDE THE SAME AF TER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE HOLD SO . 38. THE GROUND OF APPEAL NO.12 AGAINST INITIATING P ENALTY PROCEEDINGS IS PREMATURE AND HENCE, THE SAME IS REJECTED. 39. THE GROUND OF APPEAL NO.13 AGAINST LEVY OF INTE REST UNDER SECTION 234B OF THE ACT IS CONSEQUENTIAL AND HENCE, THE SAME IS DIS MISSED. 40. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 22 ND DAY OF MARCH, 2017. SD/- SD/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 22 ND MARCH, 2017 GCVSR ) *+, -, / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT ; THE RESPONDENT; THE DIT ( I T ), PUNE ; THE DRP , PUNE ; THE DR A , ITAT, PUNE; / BY ORDER, ! ' // TRUE COPY // / ASSISTANT REGISTRAR, & , / ITAT, PUNE