DCIT, V. M/s Aci Worldwide Solutions Pvt. Ltd.,

ITA 477/BANG/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9302 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-08-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 04-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction

Judgement Text

IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T(TP).A NO.477/BANG/2013 (ASSESSMENT YEARS : 2005-06) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -11(1), BENGALURU ..ASSESSEE V. M/S. ACI WORLDWIDE SOLUTIONS P. LTD, SALARPURIA CAMBRIDGE MALL, NO.9, ULSOOR, BENGALURU 560 008 ..RESPONDENT PAN : AAACV7566R CROSS OBJECTION NO.153/BANG/2015 (IN I.T(TP).A NO.477/BANG/2013) (ASSESSMENT YEARS : 2005-06) (BY THE ASSESSEE) ASSESSEE BY : SHRI. PADAM CHAND KHINCHA, CA REVENUE BY : SHRI. H. ANANDA, JCIT HEARD ON : 04.08.2016 PRONOUNCED ON : .10.2016 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THESE APPEAL AND CROSS OBJECTION FILED BY THE REVEN UE AND ASSESSEE, RESPECTIVELY, ARE AGAINST THE ORDER OF TH E CIT (A) -5, BENGALURU, DT.31.01.2013, FOR THE ASSESSMENT YEAR 2005-06. IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 2 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. DURI NG THE YEAR UNDER CONSIDERATION, IT WAS A SUBSIDIARY OF VI SUAL WEB SOLUTIONS, INC, A COMPANY INCORPORATED UNDER THE LA WS OF THE STATE OF NEW JERSEY, USA. ON FEBRUARY 07, 2007, VISUAL WE B GROUP WAS TAKEN OVER BY ACI WORLDWIDE GROUP GLOBALLY. ACCORDI NGLY, THE ASSESSEE'S NAME WAS CHANGED FROM VISUAL WEB SOLUTIO NS PRIVATE LIMITED TO ACI WORLDWIDE SOLUTIONS PRIVATE LIMITED. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. IT EXPORTS THE ENTIRE SOFTWARE TO ITS PARENT COMPANY. IT FILED A RETURN ON 31.10.2005, DECLARING A INCOME OF RS 9,60,890/- AFT ER SETTING OFF THE CARRIED FORWARD LOSS OF RS. 33,48,560/. 03. THE ASSESSEE'S INTERNATIONAL TRANSACTIONS WITH ITS AE CONSISTED OF SOFTWARE DEVELOPMENT TO THE TUNE OF RS . 6,56,40,185/. IT HAD FILED AN AUDIT REPORT CERTIFYING THAT THE PR ICES CHARGED IN THE INTERNATIONAL TRANSACTION WITH ITS AE WERE AT ARM'S LENGTH, USING PROWESS DATABASE SELECTED 16 COMPANIES AS COMPARABL ES WITH DATA RELATING TO FYS 2003-04 AND 2004-05 ADOPTED THE C OST PLUS METHOD (CPM) AS THE MOST APPROPRIATE METHOD. IT ALSO MADE AN ADJ USTMENT FOR DIFFERENCES IN MARKETING AND FINANCE FUNCTION I N THE PROCESS OF ARRIVING AT THE ALP. IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 3 04. HOWEVER, THE TPO REJECTED THE CPM METHOD ADOPTED BY THE ASSESSEE AND ADOPTED THE TRANSACTIONAL NET MAR GIN METHOD (TNMM) TO CARRY OUT A NEW TP ANALYSIS WITH 17 COMPA NIES AS COMPARABLES AND COMPUTED THE AVERAGE NET PROFIT MA RGIN OF THE COMPARABLES AT 26.59%. AFTER PROVIDING FOR A WORKIN G CAPITAL ADJUSTMENT OF 1.20%, THE NET MEAN MARGIN WAS TAKEN AT 25.39%. BASED ON THIS MARGIN, THE TPO DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTION AT RS.7,53,15,927/- AND T HE TP ADJUSTMENT AT RS 96,75,742/- IN THE ORDER PASSED UNDER SECTIO N 92CA ON 24.10.2008. ON AN APPEAL, THE CIT(A) ALTHOUGH UPHEL D THE TP STUDY MADE BY THE TPO, HOWEVER, DIRECTED THE TPO TO EXCLU DE IGATE SOLUTION LTD., L&T INFOTECH LTD., SATYAM COMPUTERS LTD., M/S INFOSYS TECHNOLOGY LTD. & M/S FLEXTRONICS SOFTWARE SYSTEMS LTD FROM THE COMPARABLES BASED ON THE SIZE, TURNOVER AND BRAND OF THOSE COMPANIES, EXCLUDE EXENSYS SOFTWARE SOLUTIONS LTD AND THIRDWARE SOLUTIONS LTD FROM THE COMPARABLES BASED ON ABNORMAL PROFIT , EXCLUDE M/S TATA ELXSI LTD FROM THE COMPARABLES BEI NG FUNCTIONALLY DIFFERENT AND INCLUDE M/S BODHTREE CONSULTING LTD AS A COMPARABLE IN THE SEGMENT. AGGRIEVED, THE REVE NUE FILED THIS APPEAL AND THE ASSESSEE FILED THE CROSS OBJECTION. THE GROUNDS OF REVENUES APPEAL ARE EXTRACTED AS UNDER : IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 4 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FA R AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOS ED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SI ZE, TURNOVER AND BRAND OF THE COMPANY ARE DECIDING FACTORS FOR T REATING A COMPANY AS A COMPARABLE, AND ACCORDINGLY ERRED IN EXCLUDING IGATE SOLUTION LTD., L&T INFOTECH LTD., S ATYAM COMPUTERS LTD., MIS INFOSYS TECHNOLOGY LTD., M/S FLEXTRONICS SOFTWARE SYSTEMS LTD., AS A COMPARABLE IN THE SEGME NT. 3. THE LD.CIT(A) ERRED IN REJECTING COMPANIES ON T HE BASIS OF ABNORMAL PROFIT AND EXCLUDING THE COMPARABLE COMPAN IES EXENSYS SOFTWARE SOLUTIONS LTD AND THIRDWARE SOLUT IONS LTD WITHOUT DEFINING WHAT CONSTITUTES ABNORMAL PROFIT F ILTER AND HOW THE SAME IS DETERMINED. 4. THE CIT(A), IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, ERRED IN HOLDING THAT M/S BODHTREE CONSULTING LTD, CANNOT BE TAKEN AS COMPARABLE, WITHOUT APPRECIATING THE FACT THAT THE COMPANY QUALIFIES ALL THE QUANTITATIVE FILTERS APPL IED BY THE TPO IN SELECTION OF THIS COMPANY AS A COMPARABLE. 5. THE CIT(A), IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, ERRED IN HOLDING THAT M/S TATA ELXSI LTD, CANNOT BE TAKEN AS A COMPARABLE, BEING FUNCTIONALLY DIFFERENT WITHOUT APPRECIATING THE FACT THAT IT SATISFIES ALL THE QUA LITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 6. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE O RDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICE R BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 5 05.THE EFFECTIVE GROUNDS OF CROSS OBJECTIONS ARE EX TRACTED AS UNDER: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IV [CIT (A)], TO THE EXTENT PREJUDICIAL TO THE RE SPONDENT IS BAD IN LAW. 5. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTI ON OF THE ASSESSING OFFICER AND TRANSFER PRICING OFFICER IN: A. ADOPTING UNJUSTIFIABLE AND INAPPROPRIATE FILTERS WHILE SELECTING COMPARABLES UNDER TNMM; B. ADOPTING COMPANIES AS COMPARABLES EVEN THOUGH TH EY ARE NOT COMPARABLES IN TERMS OF FUNCTIONS PERFORMED, RISKS ASSUMED, ASSETS UTILIZED ETC. C. ADOPTING COMPANIES LIKE FOURSOFT LTD, GEOMETRIC SOFTWARE SOLUTIONS COMPANY AND SANKHYA INFOTECH LTD . AS COMPARABLES EVEN THOUGH THEY ARE NOT COMPARABLE IN TERMS OF FUNCTIONS PERFORMED, RISKS ASSUMED, ASSETS UTILI ZED, ETC. D. ADOPTING FOURSOFT LTD. AND GEOMETRIC SOFTWARE SO LUTIONS AS COMPARABLES EVEN THOUGH THEY ARE NOT COMPARABLES AS THEIR RELATED PARTY TRANSACTIONS ARE MORE THAN 15% OF OPE RATING REVENUE. 6. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE A CTION OF THE ASSESSING OFFICER AND TRANSFER PRICING OFFICER IN: A. NOT MAKING APPROPRIATE ADJUSTMENTS FOR QUALITATIVE AND QUANTITATIVE DIFFERENCE BETWEEN THE BUSINESS OF THE RESPONDENT AND THOSE OF THE COMPARABLE COMPANIES; A ND B. NOT APPRECIATING THAT THE RESPONDENT IS INSULATED F ROM CERTAIN RISKS, AS AGAINST COMPARABLES, WHICH ASSUME THESE RISKS AND THEREFORE HAVE TO BE CREDITED WITH A RISK PREMIUM ON THIS ACCOUNT. 7. THE CIT (A) AFTER GOING THROUGH THE DISCLOSURES AVAILABLE IN THE WEBSITE WWW.BODHTREE.COM , ITS REPLY U/S133(6) AND NON- AVAILABILITY OF BREAK UP OF SEGMENTAL REVENUE ,INTE R ALIA, HELD IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 6 THAT BODHTREE CONSULTING LTD IS FUNCTIONALLY DIFF ERENT FROM THE ASSESSEE AND IT FAILS THE FUNCTIONALITY FILTER SET BY THE TPO. 7.1 ON EXENSYS SOFTWARE SOLUTIONS LTD AND THIRDWARE SOLUTIONS LTD, THE CIT(A) HELD THAT SINCE THESE COMPANIES HAD ABNORMALLY HIGH PROFIT MARGINS IE ABOVE 50%, HE DIRECTED THE TPO TO EXCLUDE THEM AS COMPARABLES. 7.2 BEFORE THE CIT(A), THE ASSESSEE PLEADED THAT SA NKHYA INFOTECH LTD IS NOT A COMPARABLE AS IT IS ENGAGED IN THE BUS INESS OF ELEARNING APPLICATION PRACTICES, IT HAD BEEN FOCUSING ON DEVE LOPMENT OF NICHE PRODUCTS FOR THE TRANSPORT AND AVIATION INDUSTRY ET C. HOWEVER, THE CIT(A) DID NOT FIND ANY MERIT IN SUCH CONTENTION. 7.3 IN RESPECT OF GEOMETRIC SOFTWARE SOLUTIONS LTD, THE ASSESSEE PLEADED BEFORE THE CIT(A) THAT THIS COMPANY SPECIAL IZES IN PRODUCT LIFE MANAGEMENT SOLUTIONS FOR MECHANICAL DESIGN, MA NUFACTURING AND INDUSTRIAL MARKETS ETC, THE COMPANY HAD SOFTWARE PR ODUCTS AND SERVICES BUT NO SEGMENTAL INFORMATION WAS AVAILABLE ON THE SOFTWARE SERVICES, EVEN IF THE ONSITE FILTER IS HAD TO BE AP PLIED THERE WAS NO INFORMATION PERTAINING TO THE SPLIT BETWEEN ONSITE AND OFFSHORE REVENUES IN ITS ANNUAL REPORT ETC AND HENCE IT IS N OT A COMPARABLE HOWEVER, THE CIT(A) DID NOT FIND ANY MERIT IN SUCH CONTENTION. 7.4 WITH REGARD TO TATA ELXSI LTD, THE CIT(A) RELYI NG ON THE HONBLE MUMBAI ITAT DECISION OF TELCORDIA TECHNOLOGIES HELD THAT THE RANGE OF ACTIVITIES OF THAT COMPANY IS SUBSTANTIALLY AND SIGNIFICANTLY DIFFERENT FROM THIS ASSSESSEE AND HENCE DIRECTED THE AO TO EX CLUDE IT FROM THE COMPARABLES. 06. BEFORE US, THE AR PLEADED THAT THE COMPARABLES BODHTREE CONSULTING LTD, EXENSYS SOFTWARE SOLUTIONS LTD , THIRDWARE SOL UTIONS LTD, SANKHYA INFOTECH LTD, FOURSOFT LTD, TATA ELXSI LTD HAVE TO BE REJECTED AS THEY ARE FUNCTIONALLY DIFFERENT . IN THIS REGARD, HE RELIED ON A HOST OF THE DECISIONS. A IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 7 FEW ARE LISTED BELOW : NETHAWK NETWORKS INDIA PRIVATE LTD VS ITO TS-303-IT AT-2013 AY 2008-09 M/S. CISCO SYSTEMS (INDIA) PVT LTD VS. DCIT TS-246- ITAT- 2014(BANG)-TP AY 2009-10 M/S MINDTECK INDIA LTD VS. DCIT TS-291-ITAT-2014(BA NG) . TP AY 2009-10 DCIT V KODIAK NETWORKS INDIA PVT. LTD IT(TP)A NO. 5 32/ BANG/ 2013 AY 2005-06. ITO VS. VENDIO TECHNOLOGIES INDIA PVT LTD TS . 333-ITAT-2014(BANG)-TP AY 2005-06. ITO VS. SUNQUEST INFORMATION SYSTEMS (INDIA) PRIVAT E LIMITED IS - 299-ITT-2015 (BANG)-TP AY 2005-06. 6.1 FURTHER, THE AR HAS PLEADED THAT THE COMPARABLE S EXENSYS SOFTWARE SOLUTIONS LTD HAS TO BE REJECTED AS THERE IS AN EX CEPTIONAL EVENT OF MERGER, SANKHYA INFOTECH LTD HAS TO BE REJECTED AS IT FAIL S ONSITE REVENUE FILTER, FOURSOFT LTD HAS TO BE REJECTED AS ITS RPT IS GRE ATER THAN 15% OF TURNOVER & FURTHER IT FAILS ONSITE REVENUE FILTER ALSO . GEOME TRIC SOFTWARE SOLUTIONS LTD HAS TO BE REJECTED AS THE RPT IS GREATER THAN 15% O F THE TURNOVER AND FURNISHED A COPY OF RPT COMPUTATION SHOWING IT AT 2 1.29% . IN THIS REGARD, HE RELIED ON A HOST OF THE DECISIONS. A FEW ARE LIS TED BELOW : I ITO VS. SUNQUEST INFORMATION SYSTEMS (INDIA) PRI VATE LIMITED IS - 299-ITT-2015 (BANG)-TP AY 2005-06 II. M/S HELLOSOFT INDIA PVT. LTD. HA NO.645/H YD/09 AY 2005-06 III M/S IVY COMPTECH PVT. LTD. [2014] 43 TAXMANN.COM 183 (HYDERABAD - TRIB.) AY 2005-06 IV ITO VS. VENDIO TECHNOLOGIES INDIA PVT LTD TS-333 -ITAT-2014(BANG)- TP AY 2005-06 V. M/S 24/7 CUSTOMER.COM PVT LTD [2012] 28 TAXMANN.COM 258 (BANG.) IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 8 7. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS. THIS TRIB UNAL IN THE CASE OF THE DCIT V KODIAK NETWORKS INDIA PVT. LTD I T(TP)A NO. 532/ BANG/ 2013 AY 2005-06, EXAMINED THE BODHTREE CONSUL TING LTDS ACCOUNTS AND, INTER ALIA, FOUND THAT THAT COMPANY H AD ERRATIC MARGINS AND GROWTH OVER THE YEARS, ITS MARGINS ARE CONSISTE NTLY CHANGING , ITS REVENUE RECOGNITION POLICY IS NOT PROPER, ITS GROWT H RATE IS OVER THE YEARS IS FLUCTUATING TO EXTREMES ETC THESE CIRCUMS TANCES ARE PECULIAR IN NATURE AND FURTHER REQUIRE ANALYSIS WITHOUT WHIC H THIS COMPANY SHOULD BE REJECTED AS A COMPARABLE . 7.1 ON EXENSYS SOFTWARE SOLUTIONS LTD, THIS TRI BUNAL IN THE ABOVE CASE , FOUND THAT THAT COMPANY OPERATES ATLEAST IN 3 BUSINESS SEGMENTS VIZ PROVISIONS OF SOFTWARE SERVICES, BPO S ERVICES AND HAS DEVELOPED ITS OWN SOFTWARE PRODUCTS LIKE EXENSYS FI NANCIALS , EXENSYS SITE ETC WHILE THAT ASSESSEE LIKE THIS ASSESSEE IS A MERE SOFTWARE SERVICE PROVIDER TO ITS AE AND ON SUCH FACTS HELD T HAT EXENSYS SOFTWARE SOLUTIONS LTD IS FUNCTIONALLY DIFFERENT A ND HENCE DIRECTED THE TPO TO EXCLUDE IT FROM THE LIST OF COMPARABLE A ND TREATED THE ABNORMAL PROFITS ISSUE AS AN ACADEMIC IN NATURE. 7.2 IN RESPECT OF THIRDWARE SOLUTIONS LTD , THE C IT(A) DIRECTED TO EXCLUDE THIS COMPANY AS IT HAD HIGH PROFIT MARGINS OF 66.09% WITHOUT IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 9 THE ASSESSEE DEMONSTRATING THAT SUCH PROFITS WERE ABNORMALLY HIGH DUE TO ANY EXTRAORDINARY EVENT OR REASON AND HENCE , RELYING ON THE RATIO OF 24/7 CUSTOMER.COM PVT LTD IN ITA NO 227/ B ANG/2010 DT 09.11.2012 , THIS TRIBUNAL REVERSED THE ORDER OF T HE CIT(A) BUT HELD THAT SINCE THE ASSESSEES CLAIM THAT IT IS FUNCTIO NALLY DIFFERENT FROM IT HAS NOT BEEN EXAMINED BY THE CIT(A), IT DIRECTED THE CIT(A) TO EXAMINE THIS CLAIM FOR EXCLUSION AFTER AFFORDING T HE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 7.3 IN RESPECT OF SANKHYA INFOTECH LTD , THIS TRIBU NAL IN THE CASE OF THE ITO V M/S SUNQUEST INFORMATION SYSTEMS (INDIA) P LTD, IN IT(TP)A NO. 1032/ BANG/ 2011, AY 2005-06, AFTER EXAMINING THE ACTIVITIES OF SANKHYA INFOTECH LTD AND THE DECISION OF THE DELHI TRIBUNAL IN ITO V COLT TECHNOLOGY SERVICES INDIA P LTD IN ITA NO.6091 /DEL/ 2011, AY 2005-06 WHEREIN IT WAS HELD THAT SANKHYA INFOTECH L TD IS NOT COMPARABLE TO COLT TECHNOLOGY SERVICES INDIA P LTD WHICH WAS IN THE BUSINESS OF SOFTWARE DEVELOPMENT, HELD THAT IT CAN NOT BE A COMPARABLE WITH M/S SUNQUEST INFORMATION SYSTEMS ( INDIA) P LTD WHICH IS SOFTWARE DEVELOPMENT COMPANY . THIS ASSESS EE IS ALSO IN SOFTWARE DEVELOPMENT. 7.4 IN RESPECT OF FOURSOFT LTD, THIS TRIBUNAL IN TH E CASE OF THE ITO V IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 10 M/S SUNQUEST INFORMATION SYSTEMS (INDIA) P LTD, IN IT(TP)A NO. 1032/ BANG/ 2011, AY 2005-06, AFTER EXAMINING THE HYDERA BAD TRIBUNAL DECISION, INTER ALIA, FOUND THAT THIS COMPANY IS IN THE PRODUCT DEVELOPMENT AND OWNS PRODUCTS NAMELY 4SETRANS ETC, HAVING IP RIGHTS AND HENCE IS NOT A COMPARABLE. 7.5 IN RESPECT OF GEOMETRIC SOFTWARE SOLUTIONS LTD, THE ASSESSEE HAS NOT CHALLENGED THE FINDING OF THE TPO ON THE GR OUND OF THE RPT. HENCE FOLLOWING THIS TRIBUNAL DECISION IN ITO VS. V ENDIO TECHNOLOGIES INDIA PVT LTD TS . 333-ITAT-2014(BANG)-TP AY 2005-06, THIS ISSUE IS SE T ASIDE TO THE TPO FOR FRESH EXAMINATION AND DECISION AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 7.6 IN RESPECT OF TATA ELXSI LTD, THIS TRIBUNAL IN ITO VS. VENDIO TECHNOLOGIES INDIA PVT LTD IT (TP)A NO 1374/BANG/20 11 AY 2005- 06,AFTER REFERRING TO THE HONBLE MUMBAI ITAT DECIS ION TELCORDIA TECHNOLOGIES, INTER ALIA, HELD THAT THE RANGE OF A CTIVITIES OF THAT COMPANY IS SUBSTANTIALLY AND SIGNIFICANTLY DIFFEREN T FROM THIS ASSSESSEE AND HENCE DIRECTED THE TPO TO EXCLUDE IT FROM THE COMPARABLES. 08. FOLLOWING THE ABOVE DECISIONS OF THE TRIBUNA L, WE HOLD THAT BODHTREE CONSULTING LTD, EXENSYS SOFTWARE SOLUTIONS LTD, SANKHYA IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 11 INFOTECH LTD, FOURSOFT LTD AND TATA ELXSI LTD SHOUL D BE EXCLUDED AS A COMPARABLE FROM THE LIST OF COMPARABLE. THUS, THE R EVENUES APPEAL GROUNDS NO 3 IN PART, NO 4 & NO 5 ARE TREATED AS D ISMISSED. THE ISSUES IN RESPECT OF THIRDWARE SOLUTIONS LTD AND GE OMETRIC SOFTWARE SOLUTIONS LTD ARE SET ASIDE TO THE CIT(A) AND THE TPO, RESPECTIVELY, AS DISCUSSED ABOVE. TO THIS EXTENT, THE REVENUES A ND ASSESSEES APPEAL ARE TREATED AS ALLOWED FOR STATISTICAL PURPO SES. 09. IN RESPECT OF THE FIVE COMPARABLES, VIZ IGATE G LOBAL SOLUTIONS LTD, FLEXTRONICS SOFTWARE SYSTEMS LTD, LARSEN INFOTECH LTD. , SATYAM COMPUTER SERVICES LTD AND INFOSYS LTD IT IS SUBMIT TED THAT THEY FAIL UPPER TURNOVER FILTER OF RS. 200 CRORES AND SHOULD BE RE JECTED AS COMPARABLES IN VIEW OF A HOST OF DECISIONS. FURTHER, IT WAS SUBMIT TED THAT FLEXTRONICS SOFTWARE SYSTEMS LTD , SATYAM COMPUTER SERVICES LTD & INFOSYS LTD ARE TO BE REJECTED AS THEY ARE FUNCTIONALLY DIFFERENT. BESIDES SATYAM COMPUTER SERVICES LTD HAS TO BE REJECTED AS THE FINANCIALS O F THAT COMPANY IS NOT RELIABLE AND INFOSYS LTD HAS TO BE REJECTED AS IT I S HAS HIGH BRAND VALUE ETC RELYING ON THE FOLLOWING DECISIONS. I M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD V DCIT ITA NO. 1231 /BANG/2010 II M/S KODIAK NETWORKS (INDIA) PRIVATE LIMITED VS. ACIT (ITA NO.1413/BANG/2010) : [201 2]18 TAXMANN.COM 32 (BANG) III M/S GENESIS MICROCHIP (I) PRIVATE LIMITED VS. D CIT (ITA NO.1254/BANG/2010): [2012] 20 TAXMANN.COM 237 (BANG) IV M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PRIVATE L TD. V. DCIT -ITA IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 12 NO.1054/BANG/2011 DATED 23.11.2012: [2013] 29 TAXMANN.COM 310 (BANG) V M/S BEARING POINT BUSINESS CONSULTING PVT. LTD VS . DCIT -ITA NO. 1124/BANG/2011: [2013] 33 TAXMANN.COM 92 (BANG) VI M/S CSR INDIA PVT. LTD VS. ITO - IT(TP)A NO.1119 /BANG/2011: [2013] 31 TAXMANN.COM 265(BANG) VII M/S. MERCEDES BENZ RESEARCH FT DEVELOPMENT INDIA PVT LTD VS. DCIT- IT(TP)A NO. 1222/BANG/201 1: TS-108-ITAT-2013-BANG- TP VIII LG SOFT INDIA PRIVATE LIMITED TS-64-ITAT-2013 IX I.P. UNITY COMMUNICATIONS PVT LTD VS ITO [TS-2 92-ITAT-2014(BANG)- TP] X EMC DATA STORAGE SYSTEMS (INDIA) PVT LTD VS DCIT [TS-276-ITAT- 2014(BANG)-TP] XI HUAWEI TECHNOLOGIES (I) P. LTD VS ITO [TS-270-IT AT-2014(BANG)-TP] XII ITO VS. SUNQUEST INFORMATION SYSTEMS (INDIA) PR IVATE LIMITED TS -299- ITAT-201 5 (BANG)-TP AY 2005-06. 9.1 IN THIS REGARD, THE CIT (A) ALSO PLACED RELIANCE ON THE DECISIONS OF THE HON'BLE JURISDICTIONAL BENCH OF ITAT IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) LTD. V . DCIT [2012] 53 SOT 159 (BANG) WHEREIN IT HAS BEEN HELD THAT WHEN THERE IS A LIMIT FOR THE LOWER END FOR IDENTIFYING COMPARABLES, THERE IS NO REASON WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO, AS SIZE MATTERS IN BUSINESS, ETC., ALTHOUGH THIS TRIBUNAL IN ITS LATER DECISION IN THE CASE OF ACIT V. M/S. MCAFEE SOFTWARE (INDIA) P. LTD IN IT(TP)A NO.04/BAN G.2012, DT.18.03.2016, FOR THE ASSESSMENT YEAR 2005-06, HEL D THAT THE TURNOVER OF M/S. MCAFEE WAS ABOUT RS.63 CRORES, TUR NOVER OF IGATE GLOBAL SOLUTIONS LTD (SEG) WAS ABOUT RS.405 CRORES AND THAT OF L & T INFOTECH LTD WAS ABOUT 562 CRORES, WHICH WAS WITHIN THE RANGE OF TEN TIMES THE UPPER LIMIT AND HENCE RETAINED IGATE GLOB AL SOLUTIONS LTD IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 13 (SEG) AND L & T INFOTECH LTD AS COMPARABLES. IN TH E PRESENT CASE, THE ASSESSEES TURNOVER IS ONLY RS.6.56 CRORES. TH IS IS BEYOND THE RANGE OF TEN TIMES THE UPPER LIMIT. IN VIEW OF THE SAME THE TPO IS DIRECTED TO EXCLUDE IGATE GLOBAL SOLUTIONS LTD (SEG ) AND L & T INFOTECH LTD FROM THE LIST OF COMPARABLES. 9.2 IN THE SAME DECISION, THE COORDINATE BENCH OF T HIS TRIBUNAL HAS BY FOLLOWING THE DECISION OF THE COORDINATE BENCH O F THE TRIBUNAL IN ITO V. M/S. SUNQUEST INFORMATION SYSTEMS (INDIA) P. LTD IN IT(TP)A NO.1302/BAMG/2011, DT.11.06.2015, HELD THAT M/S. FL EXTRONICS SOFTWARE SYSTEMS LTD IS FUNCTIONALLY DIFFERENT AND DIRECTED THE TPO TO EXCLUDE THE SAME. FOLLOWING THE SAME, WE DIRECT TH E TPO TO EXCLUDE FLEXTRONICS SOFTWARE SYSTEMS LTD, FROM THE LIST OF COMPARABLES. 9.3 REJECTION OF THE COMPARABILITY OF M/S. SATHYAM COMPUTERS LTD, ON THE BASIS OF NON-RELIABILITY OF FINANCIAL DATA A ND THE REJECTION OF M/S. INFOSYS TECHNOLOGY LTD ON THE BASIS OF FUNCTIO NAL DISSIMILARITY, HAVING HIGH TURNOVER AND BRAND NAME ETC, IN ACCORDA NCE WITH THE DECISIONS RELIED ON BY THE LD. AR IS FOUND IN ORDER AND ACCORDINGLY THE TPO IS DIRECTED TO EXCLUDE THEM FROM THE LIST OF CO MPARABLES. 9.4 THUS, THE REVENUES APPEAL GROUND NO 2 IS TREAT ED AS DISMISSED AND THE ASSESSEES CORRESPONDING APPEAL GROUNDS ARE TREATED AS ALLOWED. IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 14 10. IN THE RESULT, THE REVENUES APPEAL AND THE CRO SS OBJECTION FILED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF OCTOBER, 2016. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (S. JA YARAMAN) JUDICIAL MEMBER ACCOU NTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR IT(TP)A.477/BANG/2013 & CO.153/BANG/2015 PAGE - 15