ITO, Bangalore V. M/s Interwoven Software Services (India) Pvt. Ltd., Bangalore

ITA 461/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95180 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 26-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 92C; 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI S.K.YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER IT (TP) A NO.461 (BANG) 2015 (ASSESSMENT YEAR 2010-11) THE INCOME TAX OFFICER, WARD-3(1) (4) BANGALORE APPELLANT VS M/S INTERWOVEN SOFTWARE SERVICES (INDIA.) PVT. LTD, C/O AUTONOMY SOFTWARE ASIA (P) LTD., 2 ND FLOOR, HIBISCUS, VRINDAVAN TECH VILLAGE, MARATHAHALLI OUTER RING ROAD, DEVARABEESANAHALLI, BANGALORE -560 037 PAN NO.AAACI4421N RESPONDENT AND IT (TP) A NO.535 (B)/2015 (ASSESSMENT YEAR 2010-11) (BY ASSESSEE) REVENUE BY : MS. NEERA MALHOT RA, CIT ASSESSEE BY : SHRI SHARATH RAO, CA, MS. VYDEHI, C A & SHRI ANKUR PAI DHUNGAT, CA DATE OF HEARING : 25-07-2016 DATE OF PRONOUNCEMENT: : 26-08-2016 O R D E R PER SHRI A.K.GARODIA, AM THESE ARE CROSS APPEALS FILED BY THE REVENUE AND AS SESSEE AND THESE ARE DIRECTED AGAINST THE ASSESSMENT ORDER DAT ED 30-01-2015 IT(TP)A NO.461(B)2015 & 535/B/2015 2 PASSED BY THE AO U/S 143(3) R.W.S. 144C OF THE IT A CT, 1961, AS PER THE DIRECTION OF DRP. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEA L ARE AS UNDER; 1. THE DIR E CT I O N S OF TH E D I S P UT E RESO LUT IO N PANEL ARE OPPOSED TO LAW AND F A C T S OF THE CAS E. 2. O N T HE F A CT S A N D IN TH E C I RCUMSTA N CES OF THE CASE, TH E DI S PUT E R ESO LUTIO N PAN E L E RR E D BY APPL Y IN G N EW FILT E R S I . E. 2 5 % E MP L OYEE C OS T F I LT E R , O NS IT E FILTER & 75 % E X PORT F I L T ER IN ITES S E GM E NT & SOFT W A RE S E G MEN T , WIT HO UT APPREC I ATING THE FACT TH AT THE D I RECTI ON A CTUA L L Y A M O UN T S TO SET T I N G ASI D E OF THE DRAFT ORD E R , WHICH IS B E YOND THE MANDATE G IV EN TO D R P VI D E PROVISIONS BY SECTION 144C(8). 3. ON THE FACTS AND IN TH E CIRCUMSTANC E S O F TH E CAS E , TH E DISPUTE R E S O LUTIO N PANEL ERRED IN DIRECTING TH E TPO I AO T O E X C LUD E THE C O M P A RA B LES M/ S ICRA TECHNO ANALYTICS LTD.; M /S K ALS INFORMATION SYSTEMS LT D.; M/S IN F O S Y S LTD .; M/S PERSISTENT SY STE M LTD.; M / S SUNDARAM BU S I NESS SERVIC E S LTD.: M / S HCCA BUSINESS S E RVICES PVT . LTD . ; M /S K ILLICK AG E NCI E S & MARKET I NG L TD. , M A I NLY ON BASIS OF OTHER CAS E S FOR OTHER FYS, W ITHOUT C O N S I D ERING THE FACTS D I SCU S SE D BY THE TPO FOR SELECTION OF TH E COMPARABL E S I N TH E C A SE OF ASSE S SEE, WITHOUT APPRECIATING THE FACT THAT TH E S E AR E QUALIFYI N G TH E Q U A LITAT IV E A ND Q U ANTITATI V E FILT E RS APPL IE D BY THE TPO. 4. ON THE FACTS AND IN THE CIRCUMSTANC E S OF THE CASE , THE D I S PUTE RESOLU T IO N PANEL ERR E D IN DIRECTING TH E TPO I AO TO E X CLUDE THE COMP ARABLES M/S T A TA EL X SI LTD., WITHOUT APPRECIATING THE FACT THAT THE SELECT ION OF C OMPARABLE S I N A CASE DEPENDS ON ASSESSEE SPECIFIC FAR ANALYS I S AND TH IS I S F UNC T IO N AL LY COMPA R ABLE IT(TP)A NO.461(B)2015 & 535/B/2015 3 COMPANY WHICH QUAL I FIES ALL THE QUA L ITATIVE AND QUAN TI T ATIVE FILTER S APPLI E D BY THE TPO. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE DISPUTE RESOLUTION PANEL ERRED IN DIRECTING THE TPO/AO TO E X CLUDE THE COMPARABLES M/S ECLER X LTD., WITHOUT APPRECIATING THE FACT THAT THE REJECTION OR SELECTION OF COMPARABLES IN A CASE ON THE BASIS OF I TS A PPROPRIATEN E SS/INAPPROPRIATENESS IN SOME OTHER CASE I S NOT POSSIBLE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AS PER THE DIRECTIONS OF THE DISPUTE RESOLUTION PAN EL, WHETHER WOR KI NG CAPITAL ADJUSTM E NT CAN BE MADE ON THE BASIS OF ADVANCE RECEIVED FROM AES IN ABSENCE O F DEBTORS AND INVENTORY IN THE CASE OF ASSESSEE FOR CALCULATING THE COST OF WORKING CAPITAL BUILT IN TH E PROFIT MARGIN. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA S E THE DISPUTE RESOLUTION PANEL IS NOT JUSTIFIED IN DI RECTING THE TPO TO ADJUST THE PROFIT MARGIN OF THE ASSESSEE FOR THE ENTIRE AMOUNT OF ADVANCES RECEIVED F ROM AE ON THE GROUND THAT THERE IS TIME VALUE FOR MONEY. 8. FOR THESE AND OTHE R GROUNDS THAT MAY B E URGED AT THE TIME OF HEARING, I T I S PRAYED THAT THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL IN SO FAR AS IT : RELATES TO THE ABOV E GROUNDS MAY BE REV E RSED . 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND AND / OR DELETE ANY OF TH E GROUNDS MENTIONED ABOVE . 3. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER; BASED ON THE FACTS AND C I RCUMSTANCES OF THE CASE , INTERWOVE N SOFTWARE SERV I CES I ND I A P RI VA T E LIM I TED IT(TP)A NO.461(B)2015 & 535/B/2015 4 ( HEREINAFTER R EFERRED TO AS ' T HE APPELLANT ', ' I NTERWOVEN ' O R ' T HE COMPAN Y ' ) CR A V ES L EAVE TO PREFE R AN APPEAL UNDER SECTION 253 ( 1 )( D ) OF T HE INCOME-TAX ACT , 1 96 1 ( ' TH E ACT ') O N T H E F O LL OW I NG G R OUNDS : 1. THE FINAL ASSESSMENT ORDER DATED JAN U ARY 30 , 20 1 5 , PASSED B Y TH E L EA R NED I NCOME-TAX OFF I CER WARD 3 ( 1 ) ( 4 ) , BANGALORE ( ' LEARNED AO ' ) UNDE R SEC TI ON 1 4 3( 3 ) R EAD W I T H SECT I ON 144C ( 5 ) OF THE INCOME - TAX ACT , 1 961 ( 'T HE ACT ' ) I S NOT I N ACCO R DANCE W I TH THE L AW AND I S CO NTR A R Y TO T HE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE . 2 . TRANSFER PR I C I NG ORDER PASSED I S E RR O N EO U S AND BAD I N L AW AND ON F ACTS 2.1 THE HONORAB L E DRP HAS E RR ED IN L AW AND ON FACTS I N UPHOLD I NG THE PART I AL AD JU ST M ENT TO THE A R M ' S LENGTH PRICE MADE BY THE LEARNED AO / LEARNED DEPUTY COMMISS I ONE R OF INCOME - TAX , (T RANSFE R PR I CING ) - IV (' LEARNED TPO ' ) , BASED ON THE ORDER , PURPORTED L Y UNDER SECT I O N 92CA OF THE AC T , PASSED BY THE LEARNED TPO . 3. REJECT I ON OF THE T R ANSFE R PR I CING DOCUMENTATION OF THE APPE L LAN T 3.1 THE HONORABLE DRP AND THE LEARNED TPO HAS ERRED IN LAW AND ON FAC T S I N R E J ECTING THE TRANSFE R P RI CING ( ' TP ' ) DOCUMENTATION WH I CH HAS BEEN PREPARED BY THE APPELLANT IN THE MANNE R AS CON T EMP L ATED UNDE R THE RE L EVANT PROVISIONS OF THE ACT AND THE INCOME-TA X R UL ES , 1 962 ( ' THE RU L ES ' ) . 3.2 T HE HONORABLE DRP HAS ER R ED I N LAW AND ON FACTS I N UPHOLD I NG THE L EARNED TPO ' S FINDING THAT TH ERE ARE DEFECTS I N THE APPELLANT ' S DETERMINATION OF ARM ' S LENGTH PRICE AND I N HOLD I NG THAT THE TR ANSFE R PR I CING STUDY UNDERTAKEN BY THE APPELLANT IS ' U NRE L IABLE OR I NCOR R ECT ' , UNDER SECTION 92C ( 3 ) OF THE ACT . IT(TP)A NO.461(B)2015 & 535/B/2015 5 3.3 PURSUANT TO THE ABOVE GROUNDS , THE HONO R ABLE DRP AND THE LEARNED TPO HAVE ERRED IN LAW AND ON FACTS IN UNDERTAKING A NEW SEARCH AND ARRIVING AT A FRESH SE T OF COMPARABLE COMPANIES FOR BENCHMARKING THE TRANSACTIONS . 4 . USE OF MULTIPLE YEAR DATA THE HONORABLE DRP AND LEARNED TPO HAVE ERRED IN LAW AND ON FACTS I N REJECTING THE USE OF MULTIPLE YEAR DATA , WITHOUT CONSIDERING THAT THE PAST YEAR DATA HAD AN I NFLUENCE ON THE DETERMINATION OF ARM ' S LENGTH PRICE AND THAT THE APPELLANT HAD CONSIDERED CONTEMPORANEOUS DATA AVAILABLE AT THE TIME WHEN IT CARRIED OUT THE BENCHMARKING STUDY HAVING REGARD TO THE STATUTORY REQUIREMENT TO MAINTAIN THE TRANSFER PR I CING DOCUMENTATION BY THE SPECIFIED DATE . 5 . FILTERS AND QUANTITATIVE CRITERIA APPLIED BY THE APPELLANT 5.1 WITHOUT PREJUDICE TO THE ABOVE , THE HONORABLE DRP AND THE LEARNED TPO HAVE ERRED I N LAW IN ADOPTING/M O DIFYING THE ADDITIONAL FILTERS FOR CONDUCTING TP ANALYSIS , WITHOUT APPREC I ATING THE TP DOCUMENTATION PREPARED BY THE APPELLANT . 5 . 2 . THE HONORABLE DRP , HAS ERRED IN LAW AND ON FACTS , I N UPHOLDING THE I NCLUS I ON OF ADDIT I ONAL COMPARABLE COMPANIES I NCLUDING THE FOLLOWING COMPARABLE COMPAN I ES SELECTED BY THE LEARNED TPO WITHOUT CONSIDERING THE DETAILED SUBMISS I ONS OF THE APPELLANT : IT(TP)A NO.461(B)2015 & 535/B/2015 6 IT ENABLED SERVICES MARKETING SUPPORT SERVICES ACCENTIA TECH LIMITED AS I AN BUSINESS EXHIB I TION AND CONFERENCE LTD., INFORMED TECHNOLOG I ES LTD ICC INTERNATIONAL AGENCIES LTD 5.3 THE HONORABLE DRP HAS ERRED IN LAW BY SUO-MO T O EXCLUD I NG SUNDA R AM BUSINESS SERVICES LI MI T ED FROM THE SE T OF THE COMPARABLE COMPAN I ES OF THE IT ENABLED SERVICES SEGMENT SELECTED B Y THE LEARNED TPO , ON ACCOUNT OF FA I LURE OF SUO-MOTO MOD I FIED EXPORT F I LTER . 5.4 T H E HONORABLE DRP HAS ERRED IN LAW BY SUO-MOTO EXCLUD I NG M I CROLAND LIMITED AS A COMPARABLE CO M PA NY SELECTED BY THE LEARNED TPO ON ACCOUNT OF FA IL URE O F ONE OR MORE FILTERS HOWEVE R THE SAME PASSES THE FILTE R S ADOPTED BY THE L EARNED AO / TPO . FURTHER , THE HONORABLE DRP HAS E R RED IN LAW AND FACTS BY NOT CONSIDER I NG THE SEGMENTA L R ES U LTS OF THE COMPARABLE COMPANIES AND HAS R E J EC TE D THE SAID COMPARABLE COMPANIES BY APPLYING SERV I CE INCOME F I LTER AT THE COMPANY LEVEL . 5.5 THE LD.AO/TPO HAS ERRED IN NOT PROVIDING ANY DETAILS ABOUT THE BENCHMARKING ANALYSIS INCLUDING T HE SEARCH MATRIX, KEY WORDS FOR THE SEARCH OR THE PROC ESS ADOPTED FOR SELECTION OF THE COMPARABLE COMPANIES FOR MARKETING SUPPORT SERVICE SEGMENT . THE LEARNED TPO HAS THUS RESORTED TO CHERRY PICKING OF COMPARABLE COMPANIES FOR MARKETING SUPPORT SERVICE RENDERED AN D THE HON'BLE DRP HAS ERRED IN ENDORSING THE SAME APPROACH . 6 . RISK ADJUSTMENT AND WORKING CAPITAL ADJUSTMENT IT(TP)A NO.461(B)2015 & 535/B/2015 7 6. 1 THE HONORABLE DRP AND THE LEARNED AO/ TPO HAVE ERRED IN NOT APPREC I ATING THAT THE APPELLANT , BEING A CAPTIVE SERVICE PROVIDER OPERATED AT LOWER RISK LEV ELS AS COMPARED TO COMPARABLE . COMPANIES , WHICH CARRY HIGHER RISKS AND ACCORDINGLY ERRED IN NOT GRANTING APPROPRIATE RISK ADJUSTMENTS TO THE MARGINS OF THE COM PARABLES . 6.2 THE HONORABLE DRP HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE LEARNED TPO ' S ACTION OF INCORRECT APPLICATION OF THE PRINCIPLES OF WORKING CAPITAL FO RMULA PRESCRIBED BY THE ORGANIZATION FOR ECONOMIC CO- OPERATION AND DEVELOPMENT ( ' OECD ' ) AND THE UNITED NATIONS PRACTICE MANUAL FOR DEVELOPING COUNTRIES MODEL CONVENTION TO CARRY OUT WORKING CAPITAL ADJUSTMENT TO THE OPERATING PROFIT MARGINS OF THE COMPARABLE COMPANIES . 6.3 THE HONORABLE DRP HAS ERRED IN NOT DIRECTING THE LEARNED AOITPO TO RECTIFY THE ERRORS MADE IN COMPUT ING THE WORKING CAPITAL ADJUSTMENT . CORPORATE TAX MATTERS 6.4 THE HONORABLE DRP / LEARNED AO HAS ERRED , IN LAW AND ON FACTS , IN GRANT I NG CREDIT UNDER SECTION 115JAA OF THE ACT AMOUNTING TO RS 6 , 023 , 724 AFTER COMPUTING SURCHARGE AND EDUCATION CESS ON THE TAX PAYABLE . 6.5 THE HONORABLE DRP / LEARNED AO HAS ERRED , IN LAW AND ON FACTS IN NOT INCLUDING SURCHARGE AND EDUCATI ON CESS AS PART OF THE CREDIT UNDER SECTION 115JAA OF THE ACT . 6.6 THE LEARNED AO HAS ERRED ON FACTS , IN HOLDING THAT IT(TP)A NO.461(B)2015 & 535/B/2015 8 THE APPELLANT WAS GRANTED A REFUND OF RS 2 , 356 , 520 , WHEREAS THE ACTUAL REFUND GRANTED WAS RS 1 , 663 , 079 . 6.7 THE LEARNED AO HAS ERRED, IN LAW AND ON FACTS , IN UPHOLDING THE LEVY OF INTEREST UNDER SECTION 234B A ND 234D OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS, AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. EAC H OF THE ABOVE OBJECTIONS IS INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS PREFERRED BY THE APPELLANT. 4. THE LD. AR OF THE ASSESSEE SUBMITTED A CHART IN RES PECT OF ITS THREE SEGMENTS. IN THE SOFTWARE DEVELOPMENT SEGMEN T OUT OF 11 COMPARABLES, THESE COMPARABLES WERE REJECTED BY THE DRP AGAINST WHICH THE REVENUE IS IN APPEAL. THESE SIX COMPARABLES AR E 1) M/S ICRA TECHNO ANALYTIC LTD(SEG.) 2) M/S INFOSYS LTD., 3) M/S KALS INFORMATION SYSTEMS LTD., (SEG.) 4) M/S PERSISTENT SYSTEMS LTD., 5) M/S R.S.SOFTWARE (INDIA) LTD., 6) M/S TATA ELXSI LTD., 5. HE SUBMITTED THAT ALL THESE COMPARABLES ARE TO B E REJECTED AS PER THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S ELECTRONICS FOR IMAGING INDIA (P)LTD., IN IT(TP)A NO.212(BANG)/2015 . HE SUBMITTED THAT PARA-14 TO 33 OF THIS TRIBUNAL ORDER ARE RELEVANT F OR DECIDING THE ISSUE REGARDING THESE SIX COMPARABLES. 6. IN RESPECT OF ITES (SEG.), HE SUBMITTED THAT OUT OF 10 IT(TP)A NO.461(B)2015 & 535/B/2015 9 COMPARABLES SELECTED BY THE TPO, FIVE COMPARABLES W ERE REJECTED BY THE DRP OUT OF WHICH, FOR ONE COMPARABLE, APPEAL IS FIL ED BY THE REVENUE I.E. M/S INFOSYS BPO AND FOR ONE COMPARABLE I.E. M/S SUN DARAM BUSINESS SERVICES LTD., THE REVENUE AND THE ASSESEEE BOTH AR E IN APPEAL FOR ITS INCLUSION AND THE REVENUE IS ALSO IN APPEAL FOR INC LUSION OF THREE MORE COMPARABLES I.E. M/S ACROPETAL TECH. LTD., (SEG.), 2) M/S E-CLERX SERVICES LTD., AND 3) M/S ICRA ONLINE LTD., (SEG.) LEARNED AR SUBMITTED THAT M/S ICRA ONLINE LTD., (SEG.) (SUPRA ) WAS EXCLUDED BY THE DRP BY APPLYING THE EXPORT REVENUE FILTER OF 75 % AND THE ASSESSEE HAS NO OBJECTION IF THE ORDER OF DRP IS REVERSED RE GARDING THIS COMPARABLE COMPANY. 7. REGARDING M/S ACROPETAL TECH. LTD., (SEG.), HE S UBMITTED THAT THIS COMPARABLE HAS BEEN REJECTED BY DRP ON THIS BA SIS HAT THIS COMPANY FAILS EMPLOYEE COST FILTER OF 25%. HE SUPP ORTED THE ORDER OF DRP REGARDING THIS COMPARABLE. 8. REGARDING M/S E-CLERX SERVICES LTD., HE PLACED R ELIANCE ON THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN TH E CASE OF M/S RAMPGREEN SOLUTIONS (P)LTD., AS REPORTED IN 377 ITR 533(DEL.) AND IT WAS ALSO POINTED OUT THAT PARA-37 OF THE JUDGMENT I S RELEVANT. 9. REGARDING M/S SUNDARAM BUSINESS SERVICES LTD., HE SUBMITTED THAT THIS COMPANY IS HAVING NEGATIVE MARG IN AS PER TPO ALSO OF 10.65% AND THEREFORE, HE HAS NO OBJECTION IF THI S COMPARABLE IS REINSTATED BY ALLOWING THE APPEAL OF REVENUE ON THI S ISSUE. 10. REGARDING ASSESSEES APPEAL IN RESPECT OF M/S INFORMED TECH. IT(TP)A NO.461(B)2015 & 535/B/2015 10 INDIA LTD., HE SUBMITTED THAT THE ASSESSEE IS NOT P RESSING FOR EXCLUSION OF THIS COMPANY. 11. REGARDING M/S ACCENTIA TECH. LTD., HE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE T RIBUNAL ORDER RENDERED IN THE CASE OF M/S NOVO NORDISK INDIA PVT. LTD., I N IT(TP)A NO.146(BANG)/2015 AND HE POINTED OUT THAT PARA-30 T O 33 OF THE TRIBUNAL ORDER ARE RELEVANT. 12. HE FURTHER SUBMITTED THAT THE ASSESSEE IS REQUE STING FOR INCLUSION OF ONE COMPARABLE I.E. M/S MICROLAND LTD. AND HE SUBMITTED THAT THIS COMPANY HAD PROFITS IN THE EARLIER TWO YE ARS AND INCURRED A LOSS ONLY IN THE FINANCIAL YEAR 2009-10 AND THEREFO RE, THIS COMPANY IS NOT INCURRING PERSISTENT LOSSES AND THEREFORE, THIS SHOULD NOT BE EXCLUDED. HE HAS DRAWN OUR ATTENTION TO PARA-983,9 89 & 990 OF THE PAPER BOOK CONTAINING ANNUAL REPORT OF THIS COMPANY . 13. REGARDING THE THIRD SEGMENT I.E. MARKETING SUPP ORT SERVICES SEGMENT, HE SUBMITTED THAT OUT OF ADDITIONAL FIVE C OMPARABLES, THE DRP HAS DIRECTED FOR EXCLUSION OF TWO COMPARABLES FOR W HICH THE REVENUE IS IN APPEAL AND THE ISSUE REGARDING BOTH THESE COMPAR ABLES IS COVERED IN FAVOUR OF ASSESSEE BY THE TRIBUNAL ORDER RENDERED I N THE CASE OF M/S ELECTRONICS FOR IMAGING INDIA (P)LTD. (SUPRA). HE FURTHER SUBMITTED THAT THE ASSESSEE IS SEEKING EXCLUSION OF TWO COMPARABLE S I.E. M/S ASIAN BUSINESS EXHIBITION & CONFERENCE LTD. AND 2) M/S I CC INTERNATIONAL AGENCIES LTD. FOR THE FIRST COMPANY I.E. M/S ASIAN BUSINESS EXHIBITION & CONFERENCE LTD., HE SUBMITTED THAT THIS COMPANY I S ALSO COVERED BY IT(TP)A NO.461(B)2015 & 535/B/2015 11 THE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF M/S ELECTRONICS FOR IMAGING INDIA (P)LTD. (SUPRA). 14. REGARDING THE SECOND COMPANY I.E. M/S ICC INTER NATIONAL AGENCIES LTD., HE HAS DRAWN OUR ATTENTION TO PAGE-1 105 TO 1104 OF THE PAPER BOOK CONTAINING THE ANNUAL REPORT OF THE COMP ANY. 15. THE LD. DR OF THE REVENUE SUPPORTED THE ORDER OF THE TPO. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE D ECIDE THE ISSUE IN DISPUTE SEGMENT WISE. FIRST SEGMENT IS S OFTWARE DEVELOPMENT SEGMENT. THE TURNOVER OF THE ASSESSEE FOR THIS SEG MENT IS RS. 20.56 CRORES AND OP/OC PERCENTAGE OF THIS SEGMENT IS 15% AS NOTED BY THE TPO ON PAGE-2 OF HIS ORDER. THE TPO HAS SELECTED 1 1 COMPARABLES FOR THIS SEGMENT AND OUT OF IT, SIX COMPARABLES ARE REJ ECTED BY THE DRP FOR WHICH THE REVENUE IS IN APPEAL BEFORE US. OUT OF T HESE SIX COMPARABLES REJECTED BY THE DRP, THE ISSUE IN RESPECT OF FIVE C OMPARABLES IS COVERED BY THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S E LECTRONICS FOR IMAGING INDIA (P)LTD. (SUPRA). THESE FIVE COMPARAB LES ARE 1) M/S ICRA TECHNO ANALYTIC LTD(SEG.) 2) M/S INFOSYS LTD., 3) M/S KALS INFORMATION SYSTEMS LTD., (SEG.) 4) M/S PERSISTENT SYSTEMS LTD., 5) M/S TATA ELXSI LTD., 17. THE LD DR OF THE REVENUE COULD NOT POINT OUT AN Y DIFFERENCE IN FACTS IN THE PRESENT CASE AND IN THE CASE OF M/S EL ECTRONICS FOR IMAGING INDIA (P)LTD. (SUPRA). THEREFORE, RESPECTFULLY FOLL OWING THIS TRIBUNAL ORDER, WE HOLD THAT THESE FIVE COMPANIES WERE RIGHT LY EXCLUDED BY THE IT(TP)A NO.461(B)2015 & 535/B/2015 12 DRP FROM THE LIST OF FINAL COMPARABLES. 18. REGARDING SIXTH COMPANY I.E. M/S R.S.SOFTWARE ( INDIA) LTD., IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE IN THE CHART FURNISHED BEFORE US THAT THE IN THE ARGUMENT BEFORE DRP ON P AGE-239 OF THE PAPER BOOK WAS TO RE-CONSIDER THE MARGIN OF THIS COMPANY AT 9.58% BUT THE DRP SUO-MOTO EXCLUDED THIS COMPANY. WE FIND THAT O N PAGE-14 OF ITS ORDER, IT IS NOTED BY THE DRP THAT AS PER THE NOTE H TO SCHEDULE-15 IN REGARD TO REVENUE RECOGNITION THAT THE COMPANY IN A DDITION TO SOFTWARE SERVICES ALSO EARNS INCOME FROM LICENSING OF PRODUC TS, ROYALTY ON SALE OF PRODUCTS, INCOME FROM MAINTENANCE CONTRACT ETC., I T IS ALSO NOTED BY THE DRP THAT THERE IS NO SEGMENT INFORMATION AVAILA BLE FOR SALE OF SOFTWARE SERVICES AND PRODUCT. IN THE LIGHT OF THES E FACTS, IT WAS HELD BY DRP THAT THIS COMPANY SHOULD BE EXCLUDED FROM THE L IST OF FINAL COMPARABLES. UNDER THESE FACTS, WE FIND NO INFIRMI TY IN THE ORDER OF THE DRP FOR DIRECTING EXCLUSION OF THIS COMPARABLE. ACC ORDINGLY, APPEAL OF THE REVENUE IN RESPECT OF THIS SEGMENT I.E. SOFTWAR E DEVELOPMENT SEGMENT IS DISMISSED. 19. NOW WE TAKE UP THE SECOND SEGMENT I.E. ITES SEG MENT. IN THIS SEGMENT, THE TPO HAS ADOPTED10 COMPARABLES OUT OF WHICH DRP HAS REJECTED 4 COMPARABLES FOR WHICH THE REVENUE IS IN APPEAL BEFORE US AND THE ASSESSEE IS IN APPEAL FOR EXCLUSION OF ONE COMPARABLE I.E. M/S ACENTIA TECHNOLOGIES LTD., AND INCLUSION OF ONE COM PARABLE I.E. M/S MICROLAND LTD., AND THE ASSESSEE HAS NOT PRESSED IT S GROUND REGARDING EXCLUSION OF M/S INFORMED TECHNOLOGIES LTD., IT(TP)A NO.461(B)2015 & 535/B/2015 13 20. REGARDING REVENUES APPEAL FOR THIS SEGMENT, WE FIND THAT ONE COMPARABLE M/S ACENTIA TECHNOLOGIES LTD.(SEG.) HAS BEEN REJECTED BY THE DRP ON THIS BASIS THAT THIS COMPANY FAILS EMPLO YEES COST FILTER OF 25%. AS PER PAGE-21 OF ITS ORDER, THE DRP HAS NOT ED THAT IT IS NOTICED FROM THE P&L ACCOUNT OF THIS COMPANY THAT OUT OF TH E TOTAL EXPENSES OF RS.87.26 CRORES, THE EXPENSES OF 58.85 CRORES WAS I NCURRED ON ONSITE DEVELOPMENT OF SOFTWARE WHICH WORKS OUT TO 64% OF T HE TOTAL EXPENSES WHICH MAKES IT CLEAR THAT THE COMPANY IS PREDOMINAN TLY ENGAGED IN PROVIDING SERVICES ONSITE AND THEREFORE, NOT COMPAR ABLE WITH THE ASSESSEE. THE DRP HAS ALSO STATED THAT THIS COMPANY IS ALSO FAILING THE EMPLOYEES COST FILTER OF 25% BUT THE PREDOMINANT RE ASON FOR EXCLUSION OF THIS COMPANY WAS THIS THAT THIS COMPANY IS PREDOMIN ANTLY ENGAGED IN PROVIDING SERVICE ONSITE. FOR THIS REASONING OF TH E DRP THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PROVIDING SERVI CES ONSITE, WE DECLINE TO INTERFERE WITH THE ORDER OF DRP REGARDIN G EXCLUSION OF THIS COMPANY. 21. REGARDING THE REVENUES APPEAL FOR EXCLUSION OF SECOND COMPANY I.E. M/S ECLERX SERVICES LTD., WE FIND THA T THE ISSUE FOR EXCLUSION OF THIS COMPANY IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT RENDERED I N THE CASE OF M/S RAMPGREEN SOLUTIONS (P) LTD., (SUPRA) AND SINCE THE LD., DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS , WE DECLINE TO INTERFERE WITH THE ORDER OF THE DRP REGARDING EXCLU SION OF THIS COMPANY BY RESPECTFULLY FOLLOWING THIS JUDGMENT OF THE HON BLE DELHI HIGH COURT. IT(TP)A NO.461(B)2015 & 535/B/2015 14 22. THE THIRD COMPANY FOR WHICH EXCLUSION WAS DIREC TED BY THE DRP AND THE REVENUE IS IN APPEAL IS FOR M/S ICRA ON LINE LTD (SEG.). EXCLUSION OF THIS COMPANY WAS DIRECTED BY DRP BY AP PLYING EXPORT REVENUE FILTER OF 75% AND IT WAS SUBMITTED BY THE L D. AR OF THE ASSESSEE BEFORE US THAT HE HAS NO OBJECTION IF THIS FILTER O F 75% EXPORT IS NOT APPLIED. ACCORDINGLY, WE REVERSE THE ORDER OF THE D RP REGARDING EXCLUSION OF THIS COMPANY AND DIRECT THE AO/TPO TO INCLUDE THIS COMPANY I.E. M/S ICRA ONLINE LTD (SEG.)AS A GOOD CO MPARABLE. 23. THE NEXT COMPANY FOR WHICH EXCLUSION WAS DIRECT ED BY THE DRP AND THE REVENUE IS IN APPEAL..IS M/S SUNDARAM B USINESS SERVICES LTD. REGARDING THIS COMPARABLE, WE FIND THAT THIS I S NOTED BY THE DRP ON PAGE-24 OF ITS ORDER THAT ONLY 36.91% OF THE TURNOV ER IS FROM EXPORTS AND THEREFORE, THIS COMPANY IS FAILING 75% EXPORT E ARNING FILTER SINCE BOTH SIDES AGREED THAT THIS FILTER I.E. 75% EXPORT EARNING FILTER SHOULD NOT BE APPLIED, WE REVERSE THE ORDER OF DRP ON THIS COM PARABLE AND HOLD THAT THIS COMPARABLE COMPANY I.E. M/S SUNDARAM BUSI NESS SERVICES LTD., SHOULD BE REINSTATED AS A COMPARABLE. ACCORD INGLY, THE APPEAL OF THE REVENUE REGARDING THIS SEGMENT IS PARTLY ALLOWE D. 24. REGARDING THIS SEGMENT I.E. ITES, THE ASSESSEE IS SEEKING EXCLUSION OF ONE COMPARABLE I.E. M/S ACENTIA TECHNO LOGIES LTD., AND IT HAS BEEN STATED THAT THIS ISSUE REGARDING THIS COMP ANY IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER RENDER ED IN THE CASE OF M/S NOVO NORDISK INDIA PVT. LTD., (SUPRA). SINCE THE LD . DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS, BY RES PECTFULLY FOLLOWING THIS IT(TP)A NO.461(B)2015 & 535/B/2015 15 TRIBUNAL ORDER, WE HOLD THAT THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. 25. REGARDING THIS SEGMENT, THE ASSESSEE HAS ALSO R AISED A GROUND FOR EXCLUSION OF M/S INFORMED TECHNOLOGIES LTD. BUT IN COURSE OF HEARING BEFORE US, IT WAS SUBMITTED BY THE LD. AR OF THE AS SESSEE THAT THIS GROUND IS NOT PRESSED AND ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS REJECTED AS NOT PRESSED. 26. FOR THIS SEGMENT, THE ASSESSEE IS SEEKING EXCLU SION OF ONE COMPARABLE I.E. M/S MICROLAND LTD. AND IT HAS BEEN STATED BEFORE US THAT THE TPO HAS INITIALLY INCLUDED THIS COMPANY IN SHOW CAUSE NOTICE BUT LATER, HE DID NOT INCLUDE THE SAME IN THE LIST OF FINAL COMPARABLE AND THE CLAIM OF THE ASSESSEE WAS REJECTED BY DRP ALSO BUT THIS COMPANY SHOULD BE INCLUDED IN THE LIST OF FINAL COMPARABLES . WE FIND THAT IT IS NOTED BY THE DRP ON PAGE-125 OF ITS ORDER THAT FROM THE PERUSAL OF THE ANNUAL REPORT OF THIS COMPANY I.E. M/S MICROLAND LT D., IT IS SEEN THAT OUT OF TOTAL REVENUE OF RS.135.00 CRORES, THE REVEN UE FROM ITES IS ONLY RS.31.73 CRORES WHICH IS AROUND 23% OF REVENUE AND HENCE THIS COMPANY IS NOT PREDOMINANTLY ENGAGED IN ITES AND TH EREFORE, CANNOT BE CONSIDERED AS A GOOD COMPARABLE. NOTHING IS STATED BY THE LD. AR OF THE ASSESSEE REGARDING THIS OBJECTION OF THE DRP IN RES PECT OF THIS COMPARABLE. HENCE, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE. ACCORDINGLY, THE APPEAL OF THE ASSESSEE REGARDING I TES IS ALSO PARTLY ALLOWED. 27. THE THIRD SEGMENT IS MARKET SUPPORT SERVICES SE GMENT. IN THIS IT(TP)A NO.461(B)2015 & 535/B/2015 16 SEGMENT, THERE IS APPEAL OF REVENUE AGAINST EXCLUSI ON OF TWO COMPARABLES I.E. A) HCCA BUSINESS SERVICE PVT. LTD. , AND B) M/S KILLICK AGENCIES AND MARKETING LTD. AND AS PER THE CHART OF THE ASSESSEE, THE ISSUES REGARDING BOTH THESE COMPARABLES IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S ELECTRONICS FOR IMAGING INDIA (P)LTD.,(SUPRA) AND SINCE THE LD. DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS, WE DEC LINE TO INTERFERE WITH THE ORDER OF THE DRP IN RESPECT OF EXCLUSION OF BO TH THESE COMPANIES BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER. 28. FOR THIS SEGMENT, THE ASSESSEE IS SEEKING EXCLU SION OF TWO COMPARABLES I.E. M/S ACENTIA TECHNOLOGIES LTD., AND M/S ICC INTERNATIONAL AGENCIES LTD., THE CLAIM OF ASSESSE E REGARDING EXCLUSION OF M/S ACENTIA TECHNOLOGIES LTD. IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF M/S ELECTRONICS FOR IMAGING INDIA (P)LTD.,(SUPRA) AND R ESPECTFULLY FOLLOWING THE SAME TRIBUNAL ORDER, WE DIRECT THE AO/TPO TO EX CLUDE THIS COMPANY FROM THE LIST OF FINAL COMPARABLE BECAUSE THE LD. D R OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS. 29. REGARDING EXCLUSION OF SECOND COMPANY, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT I.E. M/S ICC IN TERNATIONAL AGENCIES LTD., (SUPRA) THIS IS THE CLAIM OF THE ASSESSEE THA T ANNUAL REPORT OF THIS COMPANY AVAILABLE ON PAGE-1100 & 1104 OF THE PAPER BOOK. AS PER THE SAME, WE FIND THAT THIS COMPANY IS DERIVING INCOME FROM TRADING ACTIVITY AND ALSO MAINTAINING INVENTORIES. BOTH THESE ARGUME NTS ARE SUPPORTED IT(TP)A NO.461(B)2015 & 535/B/2015 17 BY ANNUAL REPORT OF THIS COMPANY AVAILABLE ON PAGE- 1100 & 1104 OF THE PAPER BOOK. SINCE THE ASSESSEE IS NOT ENGAGED IN T RADING ACTIVITY, IN OUR CONSIDERED OPINION, THIS COMPANY CANNOT BE CONSIDER ED AS GOOD COMPARABLE IN THE PRESENT CASE AND HENCE, WE DIRECT THE AO/TPO TO EXCLUDE HIS COMPANY FROM THE LIST OF FINAL COMPARAB LE. 30. IN THE COMBINED RESULT, THE APPEAL OF THE ASSES SEE AND REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (SUNIL KUMAR YADAV) SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : 26.08.2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE IT(TP)A NO.461(B)2015 & 535/B/2015 18 1. DATE OF DICTATION 2. , , DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. !' # . $ %# / $ %# # & DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. ''() & * + DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. * . %# / # . . %# # + DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 * !', + DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. ! !', ' , - ) IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. .% / 0 + DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. * 1'2 / 34 & 5 + DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. 0 6 / + DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. * 7 & 0 8 + THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. !) * 9() & 0 9() /#5 . + THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. * 9() + DATE OF DESPATCH OF ORDER .