DCIT, Bangalore V. M/s Broadcom Communication Technologies Pvt. Ltd., Bangalore

ITA 482/BANG/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4001 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 17-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 143(3); 143(2); 13; 22; 92CA; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.482/BANG/2016 ASSESSMENT YEAR : 2011-12 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(2), BENGALURU. VS. M/S LSI INDIA RESEARCH & DEVELOPMENT PVT. LTD., (EARLIER KNOWN AS M/S BROADCOM COMMUNICATIONS TECH PVT. LTD.,) S1, WIPRO ELECTRONIC CITY, SPECIAL ECONOMIC ZONE, DODDATHOGUR VILLAGE, BEGUR HOBLI, ELECTRONIC CITY, BENGALURU-560 100. PAN AACCB 8136 B. APPELLANT RESPONDENT CO NO.7/BANG/2017 ASSESSMENT YEAR : 2011-12 THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(1)(2), BENGALURU. VS. M/S LSI INDIA RESEARCH & DEVELOPMENT PVT. LTD., (EARLIER KNOWN AS M/S BROADCOM COMMUNICATIONS TECH PVT. LTD.,) S1, WIPRO ELECTRONIC CITY, SPECIAL ECONOMIC ZONE, DODDATHOGUR VILLAGE, BEGUR HOBLI, ELECTRONIC CITY, BENGALURU-560 100. PAN AACCB 8136 B. APPELLANT RESPONDENT PAGE 2 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 REVENUE BY : SHRI MUZAFFAR HUSSAIN, CIT (DR) ASSESSEE BY : SHRI SHARATH RAO, C.A DATE OF HEARING : 19-10-2020 DATE OF PRONOUNCEMENT : 29-10-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT CROSS APPEALS HAS BEEN FILED BY REVENUE AS WELL AS ASSESSEE AGAINST FINAL ASSESSMENT ORDER UNDER SE CTION 143(3) READ WITH SECTION 144C(13) OF THE ACT, DATED 18/01/ 2016 PASSED BY LD.DCIT CIRCLE 1(1)(2) ON FOLLOWING GROUNDS OF A PPEAL: ITA NO. 482/B/2016 (REVENUE APPEAL) 1. THE ORDER OF THE DISPUTE RESOLUTION PANEL IS OPP OSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. SOFTWARE DEVELOPMENT SERVICES SEGMENT 2. THE DRP ERRED IN DIRECTING THE AO/TPO TO EXCLUDE M/S. ACROPETAL TECHNOLOGIES LTD. AND M/S. LARSEN & TOUBRO INFOTECH LTD. FROM THE LIST OF COMPARABLES, HOLDING THEM TO BE FUNCTIONALLY DISSIM ILAR AS THEY ARE HAVING SIGNIFICANT ONSITE REVENUES, THEREBY SEEKING EXACT COMPARABILITY WHILE SEARCHING FOR COMPARABLE COMPANIES OF THE ASSESSEE UNDER TNMM METHOD, WHEREAS REQUIREMENT OF LAW AND INTERNATIONAL JURISP RUDENCE REQUIRE SEEKING SIMILAR COMPARABLE COMPANIES. ALSO, THE NAT URE OF ACTIVITY, I.E. SOFTWARE DEVELOPMENT REMAINS THE SAME, IRRESPECTIVE OF THE COMPANY ENGAGED IN PROVIDING ONSITE OFFSHORE SERVICES. 3. THE DRP ERRED IN DIRECTING THE AO TO EXCLUDE M/S . LARSEN & TOUBRO INFOTECH LTD.. AND MIS. ACROPETAL TECHNOLOGIES LTD, . ON THE GROUND THAT THEY HAVE SIGNIFICANT ONSITE REVENUE, WITHOUT APPRE CIATING THE FACT THAT ONSITE DEVELOPMENTS OF SOFTWARE ENTAILS MORE COST A ND THEREBY RESULTS IN POWER PROFIT MARGINS. 4. THE DRP ERRED IN DIRECTING THE AO TO EXCLUDE M/S . ACROPETAL TECHNOLOGIES LTD., FROM THE LIST OF FINAL COMPARABL E ALSO FOR THE REASON THAT CLEAR SEGMENTAL INFORMATION OF THE EMPLOYEE COST WA S NOT AVAILABLE. WITHOUT APPRECIATING THAT PROPER SEGMENTAL INFORMAT ION WAS AVAILABLE ON PROWESS DATABASE AS WELL AUDITED FINIALS. PAGE 3 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 5. THE DRP ERRED IN DIRECTING TO EXCLUDE E-INFOCHIP S LTD, FROM THE LIST OF COMPARABLES HOLDING THESE NO SEGMENTAL INFORMATION IS AVAILABLE AND THAT IT FAILS 75% SERVICES REVENUE FILTER BY NOT ACKNOWL EDGING THE FACT THAT ENTIRE REVENUE OF THE COMPANY COMES PROVISION OF SERVICES, AND SERVICES INCOME BEING 100% OF ITS SALES, THE COMPANY QUALIFIES THE FILTER. 6. THE I)RP ERRED IN DIRECTING EXCLUSION OF M/S. IC RA TECHNO ANALYTICS LTD., FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS INTO DIVERSIFIED ACTIVITY AND NO SEGMENTAL DATA IS AVAILABLE, WITHOUT APPRECI ATING THAT THE BASIC FACTION OF THE COMPANY IS DEVELOPING SOFTWARE TALO NS IN THOSE AND OTHER VERTICALS. THE COMPANY'S BUSINESS OF ANALYSIS OF ST ATISTICAL DATA OF ITS CLIENTS BEFORE PROVIDING SOFTWARE SOLUTIONS DOES NO RENDER THE SERVICES TO BE FUNCTIONALLY INCOMPARABLE. 7. THE DRP ERRED DIRECTING TO EXCLUDE MIS. E-ZEST S OLUTIONS LTD. FROM THE LIST OF COMPARABLES HOLDING IT TO BE FUNCTIONALLY U NCOMPARABLE, THEREBY BY SEEKING EXACT COMPARABILITY BY IMPOSING CONDITION B EYOND LAW WHEREAS REQUIREMENT OF LAW IS TO ACKNOWLEDGE ONLY THOSE DIF FERENCES THAT ARE LIKELY TO MATERIALLY AFFECT THE MARGIN, THE DRP THOUGHT TO HAVE APPRECIATED THAT THE COMPARABLE AFFECT THE QUALIFIED ALL THE QUALITA TIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO AND IN A COMPUTER SOFTWA RE SERVICES, IF CONSIDERED AS A SECTOR OF BUSINESS, THE 15 DIFFEREN T LINES PREVAILING IN THE BUSINESS CAN NOT BE CONSIDERED FUNCTIONALLY DIFFERE NT FROM EACH OTHER. 8. THE DRP ERRED IN DIRECTING EXCLUSION OF M/S. INF OSYS TECHNOLOGIES LTD., FROM THE LIST OF COMPANIES HOLDING IT TO BE FUNCTIO NAL INCOMPARABLE, WITHOUT APPRECIATING THAT THE PRIMARY SOURCE OF INCOME OF T HE COMPARABLE IS FROM PROVISION OF SOFTWARE DEVELOPMENT SERVICES. ALSO TH E DRP ERRED IN IMPOSING A CONDITION BEYOND LAW IN SEEKING EXACT COMPARABILI TY THAT ARE LIKELY TO MATERIALLY AFFECT THE MARGIN, 9. THE DRP ERRED IN DIRECTING THE POSITION OF LAW T HAT THERE COULD BE DIFFERENCES BETWEEN THE ENTERPRISES COMPARED UNDER TNMM METHOD THAT ARE NOT LIKELY TO MATERIALLY AFFECT THE PRICE OR CO ST CHARGED OR THE PROFITS ACCRUING TO SUCH ENTERPRISES. 10. THE DRP ERRED IN DIRECTING THE AO TO EXCLUDE M/ S. TATA ELXSI LTD. FROM THE LIST OF COMPARABLES, HOLDING IT TO BE FUNCTIONA LLY UNCOMPARABLE, WITHOUT APPRECIATING THE THAT FACT THE COMPARABLE QUALIFIED ALL THE QUALITATIVE AND QUANTITATIVE FILTER APPLIED BY THE TPO AND IT IS A SIMILAR COMPARABLE COMPANY AND MOREOVER, THE REQUIREMENT OF LAW AND IN TERNATIONAL JURISPRUDENCE REQUIRE SEEKING SIMILAR COMPARABLE CO MPANY AND MOREOVER, THE REQUIREMENT OF LAW AND INTERNATIONAL JURISPRUDE NCE REQUIRE SEEKING SIMILAR COMPARABLE COMPANIES WHILE SEARCHING FOR CO MPARABLE COMPANIES UNDER TNMM. THE DRY HAS ALSO NOT APPRECIATED THAT T HERE HAVE BEEN NO PROJECTS IN VISUAL COMPUTING LABS DURING THE RELEVA NT PREVIOUS YEAR. CORPORATE ISSUE:- 11. THE DRP ERRED IN DIRECTING THE AO TO FOLLOW THE RATIO LAID DOWN BY THE HONBLE COURT IN THE CASE OF TATA ELXSI LIMITED 349 ITR 98 AND EXCLUDE TRAVEL AND CONVEYANCE EXPENSES AS WELL AS EXPENDITU RE ON REPAIRS AND PAGE 4 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 MAINTENANCE, FROM THE TOTAL TURNOVER ALSO, WHILE CO MPUTING THE DEDUCTION U/S 10 A OF THE L.T ACT, WITHOUT APPRECIATING THE F ACT THAT THERE IS NO PROVISION IN SECTION 1 OA THAT A SUCH EXPENSES SHOU LD BE REDUCED FROM THE TOTAL TURNOVER ALSO, AS CLAUSE (IV) OF THE EXPLANAT ION TO SECTION I OA PROVIDES THAT THAT SUCH EXPENSES ARE TO BE REDUCED ONLY FROM THE EXPORT TURNOVER. CO NO. 7/B/2017 (BY ASSESSEE) 1 THE DIRECTIONS DATED DECEMBER 28, 2015 PASSED BY THE HONORABLE DISPUTE RESOLUTION PANEL ('DRP') IN SO FAR AS IT RE LATES TO THE FOLLOWING GROUND ARE OPPOSED TO LAW AND FACTS OF THE CASE. 2 THE HONORABLE DRP AND THE LEARNED ASSESSING OFFIC ER ('AO') HAVE ERRED IN UPHOLDING THE ACTION OF THE TRANSFER PRICING OFF ICER ('TPO') IN REJECTING THE TRANSFER PRICING ('TP') DOCUMENTATION MAINTAINE D AND THE DETAILED BENCHMARKING ANALYSIS CONDUCTED BY THE CROSS-OBJECT OR; 3 THE HONORABLE DRP AND LEARNED TPO HAVE ERRED IN L AW AND ON FACTS IN REJECTING THE USE OF MULTIPLE YEAR DATA, WITHOUT CO NSIDERING THAT THE PAST YEAR DATA HAD AN INFLUENCE ON THE DETERMINATION OF ARM'S LENGTH PRICE AND THAT THE CROSS-OBJECTOR HAD CONSIDERED CONTEMPORANE OUS DATA AVAILABLE AT THE TIME WHEN IT CARRIED OUT THE BENCHMARKING ST UDY HAVING REGARD TO THE STATUTORY REQUIREMENT TO MAINTAIN THE TP DOCUME NTATION BY THE SPECIFIED DATE; 4 THE HONORABLE DRP AND THE TPO HAVE ERRED IN LAW A ND ON FACTS IN UNDERTAKING A NEW SEARCH AND ARRIVING AT A FRESH SE T OF COMPARABLES. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY AND HAS FILED RETURN OF IN COME FOR YEAR UNDER CONSIDERATION ON 30/09/2011 SHOWING TOTA L INCOME OF RS.7,65,881/- AFTER CLAIMING DEDUCTION UNDER SECTIO N 10 A TO THE EXTENT OF RS.3,36,39,775/-. THE CASE WAS SELECTED F OR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED TO ASSES SEE ALONG WITH NOTICE UNDER SECTION 142(1). IN RESPONSE TO ST ATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED DETAILS THAT WERE EXAMINED. LD.AO OBSERVED TH AT DURING THE YEAR, ASSESSEE HAD INTERNATIONAL TRANSACTION EXCEED ING RS.15 CRORES. ACCORDINGLY REFERENCE WAS MADE TO THE TRANS FER PRICING OFFICER FOR DETERMINING ARMS LENGTH PRICE OF INTERN ATIONAL TRANSACTION AS PER PROVISIONS OF SECTION 92CA OF TH E ACT. PAGE 5 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 3. ON RECEIPT OF REFERENCE UNDER SECTION 92CA, LD.T PO CALLED FOR ECONOMIC DETAILS OF INTERNATIONAL TRANSACTION B ETWEEN ASSESSEE AND ITS AE IN FORM 3 CEB. IT IS NOTED BY U S THAT, ASSESSEE WAS ERSTWHILE KNOWN AS M/S.BROADCOM COMMUNICATIONS TECHNOLOGIES PVT.LTD., WHICH GOT SUB SEQUENTLY MERGED WITH LSI INDIA RESEARCH AND DEVELOPMENT PVT. LTD. 4. LD.TPO OBSERVED THAT, ASSESSEE HAD FOLLOWING INT ERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISE SL. NO. TYPE OF TRANSACTION AMOUNT (RS) 1 PURCHASE OF EQUIPMENTS 3,62,95,456/- 2 PROVISION FOR SWD SERVICES 44,58,74,482/- 5. LD.TPO NOTED THAT ASSESSEE HAS COMPUTED ITS MARG IN AT 13%. IT WAS NOTED THAT ASSESSEE USED FOLLOWING 9 CO MPARABLES FOR SOFTWARE DEVELOPMENT SERVICES RENDERED BY IT AND AP PLIED TNMM AS MOST APPROPRIATE METHOD TO COMPUTE ARMS LENGTH O F THE INTERNATIONAL TRANSACTION BY USING OP/OC AS PLI. AS SESSEE HAD COMPUTED THE MARGIN OF COMPARABLE AT 10.22%, THEREB Y HOLDING THE TRANSACTION TO BE AT ARMS LENGTH. NAME OF COMPANY MARGIN AKSHAY SOFTWARE TECHNOLOGIES LTD. M/S.CG-VAK SOFTWARE & EXPORTS LTD EVOKE TECHNOLOGIES PVT.LTD HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. LGS GLOBAL LTD M/S.LGS GLOBAL LTD. M/S.MELSTAR INFORMATION TECNOLOGY LTD. RS SYSTEMS INTERNATIONAL LTD RS SOFTWARE (I) LTD M/S.SASKEN CMMUNICATION TECHNOLOGY LTD MEAN 12% PAGE 6 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 6. LD.TPO THOUGH AGREED WITH MOST APPROPRIATE METHO D, HOWEVER, WAS OF THE OPINION THAT, TP STUDY FILED BY ASSESSEE WAS UNRELIABLE. LD.TPO THEREAFTER APPLIED CERTAIN FILTE RS AND SELECTED FOLLOWING 13 COMPARABLES. SL.NO COMPANY NAME NET MARGIN AS PER TP ORDER 1 ACROPETAL TECHNOLOGIES LTD. 31.98% 2 E ZEST SOLUTIONS 21.03% 3 E-INFOCHIPS LTD 56.44% 4 EVOKE 8.11% 5 ICRA TECHNO ANALYTICS LTD. 24.83% 6 INFOSYS LTD 43.39% 7 LARSEN & TOUBRO INFOTECH LTD 19.83% 8 MINDTREE LTD.(SEG.) 10.66% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD. 22.12% 10 PERSISTENT SYSTEMS LTD. 22.84% 11 R S SOFTWARE (INDIA)LTD. 16.37% 12 SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.13% 13 TATA ELXSI LTD.(SEG.) 20.91% AVERAGE 24.82% 7. IT IS SUBMITTED THAT, LD.TPO PROVIDED ADJUSTMENT RESTRICTING IT TO 1.63% TOWARDS WORKING CAPITAL. LD.TPO ALSO RE JECTED RISK ADJUSTMENT IN THE HANDS OF ASSESSEE AS NO DETAILS W ERE PROVIDED BY ASSESSEE TO ELIMINATE SUCH MATERIAL EFFECT OR DI FFERENCES. LD.TPO THUS COMPUTED PROPOSED ADJUSTMENT BEING SHOR TFALL OF RS.4,72,58,655/- IN THE HANDS OF ASSESSEE. PAGE 7 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 8. LD.AO WHILE PASSING DRAFT ASSESSMENT ORDER, NOTI CED THAT ASSESSEE HAS DEDUCTED SUM OF RS.73,75,224/- TOWARDS EXPENDITURE INCURRED IN FOREIGN CURRENCY ON TRAVEL AND RS.1,60,25,123/- AS EXPENDITURE TOWARDS REPAIRS AND MAINTENANCE WAS EXCLUDED WHILE COMPUTING EXPORT TUR NOVER FOR PURPOSES OF DEDUCTION UNDER SECTION 10A OF THE ACT. 9. AGGRIEVED BY ADDITIONS MADE BY LD.AO/TPO, ASSESS EE RAISED OBJECTIONS BEFORE DRP. 10. DRP REJECTED 10 COMPARABLES SELECTED BY LD.TPO AND RESTRICTED TO 4 COMPARABLES WITH AVERAGE MARGIN OF 19.94% AS UNDER: SL.NO COMPANY NAME NET MARGIN AS PER TP ORDER 1 PERSISTENT SYSTEMS & SOLUTIONS LTD. 22.12% 2 PERSISTENT SYSTEMS LTD 22.84% 4. MINDTREE LTD 10.68% 3 SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.13% AVERAGE 19.94% 11. DRP ALLOWED WORKING CAPITAL TO BE COMPUTED AS P ER ACTUAL FOLLOWING DECISION OF THIS TRIBUNAL IN CASE OF M/S.RAMBUS CHIP TECHNOLOGIES (I) PVT.LTD., IN IT(TP)A NO.23/BANG/20 15. DRP ALSO DIRECTED TO RECTIFY THE ARITHMETICAL MISTAKE IF ANY IN COMPUTATION OF ADJUSTMENT IN RESPECT OF COMPARABLES RETAINED. 12. DRP FURTHER ALLOWED SUM OF RS.73,75,224/- TOWAR DS EXPENDITURE INCURRED IN FOREIGN CURRENCY ON TRAVEL AND RS.1,60,25,123/- AS EXPENDITURE TOWARDS REPAIRS AND PAGE 8 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 MAINTENANCE, WHILE COMPUTING EXPORT TURNOVER AND TO TAL TURNOVER FOR PURPOSES OF DEDUCTION UNDER SECTION 10 A OF THE ACT BY FOLLOWING DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF TATA ELXSI REPORTED IN [2012] 17 TAXMANN.COM 100. DRP ALSO HELD THAT LOSSES SUFFERED BY NON-ELIGIBLE UNITS CANNOT B E SET OFF AGAINST THE ELIGIBLE PROFIT BY FOLLOWING DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS YUKOGAVA INDIA LTD REPORTED IN (2012) 21 TAXMANN.COM 154 . 13. ON RECEIPT OF DRP DIRECTIONS, LD.AO PASSED FINA L ASSESSMENT ORDER BY MAKING, TRANSFER PRICING ADDITI ON AS PER PROPOSED ADJUSTMENT BY LD.TP O. 14. AGGRIEVED BY ORDER OF LD.AO, REVENUE IS IN APPE AL BEFORE US. ASSESSEE FILED CROSS OBJECTION AGAINST THE APPEAL F ILED BY REVENUE. IN REVENUES APPEAL, GROUNDS RAISED PERTAIN TO APPL ICATION OF ON- SITE REVENUE FILTER AND SELECTIVELY REJECTING CERT AIN COMPARABLES. IT HAS ALSO BEEN ALLEDGED THAT DRP EXCLUDED E-INFOC HIPS LTD., ON THE GROUND OF HAVING SERVICE INCOME LESS THAN 75% O F SALES, WHICH IS ALLEGED TO BE CONTRARY TO OBSERVATIONS OF LD.TPO. IT IS ALSO ALLEGED THAT CERTAIN COMPARABLES HAVE BEEN EXC LUDED FUNCTIONAL INCOMPARABILITY. REVENUE ALLEGED EXCLUSI ON OF FOLLOWING COMPARABLES: M/S.ACROPETAL TECHNOLOGIES LTD. M/S.L&T INFOTECH LTD. E-INFOCHIPS LTD. ICRA TECHNO ANALYTICS LTD. E ZHEST SOLUTIONS LTD. PAGE 9 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 INFOSYS TECHNOLOGIES LTD. M/S.TATA ELXI LTD. 15. OTHER ISSUES ALLEGED BY REVENUE IS IN RESPECT O F CORPORATE TAX ISSUE CHALLENGING EXCLUSION OF COMMUNICATION EX PENSES FOR EXPORT TURNOVER AND TOTAL TURNOVER FOR PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 10A AND ACCEPTING ASSESSEE CLAIM OF NOT CONSIDERING LOSSS FROM NON-ELIGIBLE UNIT WHILE COMP UTING DEDUCTION U/S.10 OF THE ACT. 16. IN CROSS APPEAL FILED BY ASSESSEE IT IS OBSERVE D THAT ASSESSEE CHALLENGES EXCLUSION OF 3 COMPARABLES IN GROUND NO. 5 ON THE BASIS OF FUNCTIONAL DISSIMILARITIES, BEING; LGS GLOBAL LTD. R SYSTEMS INTERNATIONAL LTD. AKSHAY SOFTWARE TECHNOLOGIES LTD. 17. ASSESSEE CHALLENGES EXCLUSION OF 2 COMPARABLES IN GROUND NO.6 FOR STATING THAT IT FAILS EMPLOYEE FILTER: HELLIOS AND MATHESON TECHNOLOGY LTD. CG-VAK SOFTWARE & EXPORTS LTD. 18. ASSESSEE CHALLENGES INCLUSION OF 2 COMPARABLES IN GROUND NO.8 FOR STATING THAT IT FAILS EMPLOYEE FILTER: PERSISTENT SYSTEMS AND SOLUTIONS LTD; PERSISTENT SYSTEMS LTD; 19. APART FROM THE ABOVE REFERRED COMPARABLES, LD.A R HAS NOT PRESSED UPON AND ARGUED ANY OTHER ISSUES RAISED IN THE GROUND OF APPEAL. ACCORDINGLY WE ARE RESTRICTING OUR OBSER VATION IN PAGE 10 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 RESPECT OF SELECTED COMPARABLES REFER TO HEREIN ABO VE ALLEGED BY ASSESSEE FOR INCLUSION/EXCLUSION. 20. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS, IT S SINE QUA NON TO UNDERSTAND THE FAR OF ASSESSEE UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT. TRANSFER PRICING STUD Y REPORT IS PLACED AT PAGE 97-229 OF PAPER BOOK. FUNCTIONS: 21. ASSESSEE IS SUBMITTED TO BE PRIMARILY ENGAGED I N THE DEVELOPMENT OF VLSI, SOFTWARE, EMBEDDED SOFTWARE AN D HARDWARE DESIGN SOLUTIONS TO SUPPORT BROADBAND WIRELESS ACCE SS. THE COMPANY PROVIDES EMBEDDED SOFTWARE AND HARDWARE DES IGN SOLUTIONS A ARE INCORPORATED IN THE CHIPSETS MANUFA CTURED BY ITS ASSOCIATED ENTERPRISES. THESE COMPRISE: PHYSICAL LAYER ALGORITHM DEVELOPMENT AND IMPLEMENTA TION MEDIA ACCESS CONTROLLER (MAC) ALGORITHM DEVELOPMENT AND IMPLEMENTATION DESIGN, IMPLEMENTATION, AND INTEGRATION OF PROTOCOL STACKS THAT WILL ENABLE COMMUNICATION ACCORDING TO THE STA NDARDS APPROVED AND AUTHORIZED BY THE INTERNATIONAL COMMUN ITY. 22. THE ASSESSEES PRODUCT OFFERING IS TO ENABLE TH E MANUFACTURE OF A POINT-TO-POINT AND POINT TO MULTI-POINT BROADB AND COMMUNICATION SYSTEM. 23. ASSESSEE HAS ENTERED INTO AN INTER-COMPANY AGRE EMENT FOR PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO ITS A SSOCIATED ENTERPRISES. FOR THE PROVISION OF SAID SERVICES, BC TPL IS COMPENSATED ON A COST PLUS BASIS. PAGE 11 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 ASSETS OWNED: 24. IT HAS BEEN SUBMITTED THAT ASSESSEE OWNS ROUTIN E TANGIBLE ASSETS LIKE, FURNITURE, FIXTURES, COMPUTERS ETC. I T IS ALSO SUBMITTED THAT IT DOES NOT POSSESS NOR DOES IT DEVE LOP ANY NON- ROUTINE VALUABLE INTANGIBLES. RISK ASSUMED: 25. ASSESSEE DOES NOT BARE ANY CONTRACT AND SERVICE LIABILITY RISK AS IT RENDER SERVICES SOLELY TO AE. IT HAS BE EN SUBMITTED THAT ASSESSEE IS COMPENSATED ON A COST PLUS BASIS AND IS THEREFORE INSULATED FROM THE RISK OF UNDER UTILISATION OF CAP ACITY. IT IS ALSO SUBMITTED THAT FOREIGN EXCHANGE FLUCTUATION ON RISK IS ALSO VESTS WITH AE. CHARACTERISATION 26. BASED ON THE ABOVE, IT CAN BE CONCLUDED THAT AS SESSEE IS BEARING SUBSTANTIALLY LESS THAN NORMAL RISKS, AS IT PERFORMS LIMITED FUNCTIONS WITH GUIDANCE PROVIDED BY AE. WE FIRST TAKE UP APPEAL FILED BY REVENUE IN ITA NO.482BANG/2016 GROUND NO. 2 -4: 27. LD.CIT.DR SUBMITTED THAT, DRP APPLIED APPLYING ON-SITE REVENUE FILTER SELECTIVELY RESPECT OF FOLLOWING CO MPARABLES: ACROPETAL TECHNOLOGIES LTD L&T INFOTECH LTD., 28. HE SUBMITTED THAT, DRP SUO-MOTO APPLIED ON-SITE REVENUE FILTER SELECTIVELY. IT WAS ARGUED THAT APPLICATION OF A FILTER DETERMINES, KIND OF COMPARABLES DISPLAYED ON DATABA SE, WHERE PAGE 12 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 SEARCH IS CARRIED. APPLICATION OF FILTER TO SHORTLI ST COMPANIES UNDER PARTICULAR SEGMENT IS THE SECOND STEP IN TRAN SFER PRICING ANALYSIS. IT WAS ARGUED THAT, ONCE COMPARABLES ARE SHORTLISTED BY LD.TPO, DRP SUO MOTO CANNOT APPLY ANY FILTER TO EXCLUDE ANY PARTICULAR COMPARABLES. LD.CIT.DR SUBMITTED THAT, D RP APPLIED ON-SITE REVENUE FILTER AND EXCLUDED 3 COMPARABLES , WHICH IS NOT CONSIDERED BY TPO. HE SUBMITTED THAT ON-SITE REVEN UE FILTER APPLIED BY DRP, NEITHER APPLIED BY ASSESSEE IN TRAN SFER PRICING STUDY NOR CONSIDERED BY LD.TPO, WHILE CONDUCTING AN ALYSIS UNDER SECTION 92CA OF THE ACT. 29. IT IS CONTENDED BY LD.CIT.DR THAT, ENTIRE ANALY SIS NEEDS TO BE REVISITED BASED ON NEW FILTER APPLIED BY DRP AND THEREFORE NEEDS TO BE REMANDED TO LD.TPO. 30. ON THE CONTRARY, LD.AR SUBMITTED THAT, ISSUE OF SUO MOTO APPLICATION OF ON-SITE REVENUE FILTER BY DRP HAS BEEN ADDRESSED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF E LECTRONICS FOR IMAGING INDIA PVT. LTD., VS. DCIT FOR ASSESSMENT YEAR 2011-12 REPORTED IN [2017] 85 TAXMANN.COM 124 . HE FURTHER SUBMITTED THAT ASSESSEE DO NOT HAVE ANY OBJECTION OF RS SOFTW ARE INDIA PVT. LTD., TO BE INCLUDED. 31. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN THE LIGHT OF RECORDS PLACED BEFORE US. 32. MAIN GRIEVANCE OF REVENUE IS IN RESPECT OF ON-S ITE REVENUE FILTER APPLIED BY DRP SUO MOTO SELECTIVELY, ON CERTAIN COMPARABLES, AND EXCLUDING THEM. ON THIS, WE AGREE WITH CONTENTION RAISED BY LD.CIT.DR THAT A FILTER CANNOT BE APPLIED PAGE 13 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 ONCE TP ANALYSIS HAS BEEN CONCLUDED BY LD.TPO HOWEV ER, ON PERUSAL OF OBSERVATIONS RECORDED BY DRP, ACROPETAL TECHNOLOGIES LTD., L&T INFOTECH LTD., WAS PRIMARILY EXCLUDED ON BASIS OF FUNCTIONAL DISSIMILARITIES AND THAT SEGMENTAL INFOR MATION NOT BEING AVAILABLE. DRP FURTHER OBSERVED THAT THESE CO MPARABLES CANNOT BE CONSIDERED AS COMPARABLE WITH LOW RISK BE ARING CONTRACT SERVICE PROVIDER LIKE ASSESSEE. FURTHER, LD.AR RELIED ON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF E LECTRONICS FOR IMAGING INDIA PVT. LTD., VS. DCIT FOR ASSESSMENT YEAR 2011-12 REPORTED IN [2017] 85 TAXMANN.COM 124 , WHEREIN THESE COMPARABLES HAVE BEEN HELD TO BE FUNCTIONALLY DIFFE RENT WITH A CONTRACT SERVICE PROVIDER LIKE ASSESSEE. 33. AT THIS JUNCTURE, WE NOTE THAT APPLICATION OF SUO MOTO ON SITE REVENUE FILTER HAS BEEN CONSIDERED BY THIS TRIBUNAL FOR SAME ASSESSMENT YEAR IN FOLLOWING CASES, WHERE DRP EXCLU DED SAME COMPARABLES. WE ALSO NOT THAT, DRP THEREIN EXCLUDED SAME SET OF COMPARABLES, BASED ON IDENTICAL OBSERVATIONS: DCIT VS. CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTATION (P.) LTD REPORTED IN [2018] 93 TAXMANN .COM 9 DCIT VS HERBALIFE INTERNATIONAL INDIA (P.) LTD REPO RTED IN [2019] 111 TAXMANN.COM 244 HP DECISION 34. WE NOTE THAT UNDER SIMILAR CIRCUMSTANCES THIS TRIBUNAL IN CASE OF DCIT VS CGI INFORMATION SYSTEMS (SUPRA) OBSERVED AS UNDER: PAGE 14 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 19. ACROPETAL TECHNOLOGIES LIMITED - AS FAR AS EXCLUSI ON OF THIS COMPANY AS A COMPARABLE COMPANY IS CONCERNED, IT IS SEEN FROM THE DIRECTIONS OF THE DRP AT PARAGRAPH 2.7 AT PAGE-9, T HAT THIS COMPANY WAS EXCLUDED ON THE GROUNDS THAT: (I) THE SEGMENTAL INFORMATION CONTAINING THE BREAK-UP OF ITS EXPORT SALES AND EMP LOYEE COSTS, WAS NOT AVAILABLE AND IT WAS NOT POSSIBLE TO ASCERTAIN IF I T PASSED THE EXPORT EARNINGS AND/OR EMPLOYEE COSTS FILTERS; AND (II) A SUBSTANTIAL PORTION OF ITS SOFTWARE DEVELOPMENT ACTIVITIES HAVE BEEN OUTSO URCED ON SUB- CONTRACT AND IT COULD, THEREFORE, NOT BE RETAINED A S A COMPARABLE. THE DRP IN DIRECTING EXCLUSION OF THIS COMPANY FOLLOWED DECISION OF HYDERBAD BENCH OF ITAT IN THE CASE OF CAPITAL IQ IN FORMATION SYSTEMS (INDIA) (P.) LTD. V. DY. CIT (INTERNATIONAL TAXATIO N) [2013] 32 TAXMANN.COM 21/57 SOT 14 (URO) (HYD. - TRIB.) . THE DRP ALSO OBSERVED THAT THIS COMPANY WAS PREDOMINANTLY DOING ON-SITE DEVELOPMENT OF SOFTWARE AND THEREFORE CANNOT BE COM PARED WITH A COMPANY WHICH DEVELOPS SOFTWARE OFF-SHORE. ONE OF T HE FILTERS APPLIED BY THE TPO WAS THAT COMPANIES WHERE EMPLOYEE COSTS ARE LESS THAN 25% OF TURNOVER CANNOT BE REGARDED AS COMPARABLE. I N THE ABSENCE OF SEGMENTAL INFORMATION, IT WAS NOT POSSIBLE TO ASCER TAIN AS TO WHETHER THIS COMPANY PASSES THE TEST ADOPTED BY THE TPO HIM SELF FOR COMPARISON. THE LEARNED DR SUBMITTED THAT THE REQUI RED DATA CAN BE CULLED OUT FROM THE INFORMATION AVAILABLE IN THE PU BLIC DOMAIN OR BY RESORTING TO A PROCESS OF CALLING FOR INFORMATION F ROM THIS COMPANY U/S.133(6) OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE HON'BLE DELHI HIGH COUR T REJECTED A SIMILAR ARGUMENT BY THE REVENUE IN THE CASE OF PR. CIT V. S AXO INDIA (P.) LTD. [2016] 74 TAXMANN.COM 88/243 TAXMAN 411/397 ITR 160 . IN THE CIRCUMSTANCES, THIS COMPANY WAS RIGHTLY HELD BY THE DRP TO BE NOT COMPARABLE. WE ARE OF THE VIEW THAT ONCE A COMPANY BECOMES NOT COMPARABLE FOR THE REASON THAT SEGMENTAL INFORMATIO N TO APPLY FILTERS, WE NEED NOT CONSIDER ANY OTHER ASPECT OF COMPARABIL ITY. THE LEARNED COUNSEL FOR THE ASSESSEE MADE SUBMISSIONS BEFORE US THAT THIS COMPANY WAS RIGHTLY DIRECTED TO BE EXCLUDED BY THE DRP ON THE ABOVE BASIS AND FURTHER CONTENDED THAT EVEN OTHERWISE, TH IS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. AS ALREADY STATED, WE DO NOT WISH TO GO INTO THIS ASPECT AS THIS COMPANY GOES OU T OF COMPARABILITY ON OTHER REASONS. 20. L & T INFOTECH LTD.- THIS COMPANY WAS DIRECTED TO BE EXCLUDED BY THE DRP FOR THE FOLLOWING REASONS: (I) 48.84% OF IT S TOTAL EXPENSES ARE INCURRED IN FOREIGN CURRENCY, WHICH INCLUDES SUBSTA NTIAL EXPENSES ON SUB-CONTRACTING, INDICATING THAT THE COMPANY HAS HI GH ONSITE REVENUE; (II) THE TPO HAS CONSIDERED THE ENTIRE REVENUE FROM ITS 3 SEGMENTS, VIZ. FINANCIAL SERVICES, MANUFACTURING AND TELECOM AS WA S DISCLOSED IN ITS ANNUAL REPORT FOR FY 2010-11, FOR THE PURPOSES OF C OMPARABILITY TO THE PAGE 15 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 ASSESSEE'S SOFTWARE DEVELOPMENT SERVICES; AND (III) PREDOMINANTLY ENGAGED IN THE ONSITE DEVELOPMENT OF SOFTWARE IN FY 2010-11. THE LEARNED DR SUBMITTED BEFORE US THAT THE ASSESSEE'S PROFILE ALSO IS SIMILAR TO THE PROFILE OF L & T INFOTECH LTD. AND T HEREFORE THIS COMPANY SHOULD BE INCLUDED AS COMPARABLE COMPANY. HE ALSO S UBMITTED THAT WHAT IS THE QUANTUM OF ON-SITE REVENUE HAS NOT BEEN SPELT OUT BY THE DRP. IN THIS REGARD IT WAS ARGUED BY HIM THAT ON-SI TE REVENUE BEYOND 25% OF THE TOTAL REVENUE OF THE COMPANY WOULD BE BE YOND THE TOLERANCE LEVEL AND WITHOUT A FINDING THAT ON-SITE REVENUE IS MORE THAN 25% OF THE TOTAL REVENUE, THIS COMPANY OUGHT NOT TO HAVE BEEN EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. WE AGREE WITH THE SUB MISSION OF THE LEARNED DR THAT FOR APPLICATION OF ON-SITE REVENUE FILTER, THE DRP OUGHT TO HAVE GIVEN A FINDING REGARDING THE QUANTUM OF REVEN UE FROM ON-SITE SOFTWARE DEVELOPMENT. NEVERTHELESS, THIS COMPANY GO ES OUT OF COMPARABILITY ON THE GROUND THAT THE PROFIT MARGINS ADOPTED BY THE TPO WAS FROM 3 DIVISIONS OF THE ASSESSEE. WE ALSO FIND, AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THIS COMPANY WAS H ELD TO BE FUNCTIONALLY NOT COMPARABLE AS IT IS A MARKET LEADE R AND THUS ENJOYS SIGNIFICANT BENEFITS ON ACCOUNT OF OWNERSHIP OF MAR KETING INTANGIBLES AND INTELLECTUAL PROPERTY RIGHTS. ALSO, IN ADDITION TO THE ABOVE, THE COMPANY OWNS PROPRIETARY SOFTWARE PRODUCTS WHICH AR E DEVELOPED IN- HOUSE. ACCORDINGLY, THE ASSESSEE SUBMITS THAT THE C OMPANY IS A PRODUCT COMPANY HAVING SIGNIFICANT INTANGIBLES AND IS THUS NOT COMPARABLE TO CAPTIVE SOFTWARE SERVICE PROVIDERS SU CH AS THE ASSESSEE. IN THIS REGARD THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE DECISIONS OF THIS HON'BLE TRIBUNAL IN APPLIE D MATERIALS (INDIA) (P.) LTD. V. ACIT [APPEAL NO. 17 (BANG.) OF 2016] AT PAR A 19 ON PAGES 35-36] AND COMMSCOPE NETWORKS (I) (P.) LTD. V. ITO [IT (TP ) APPEAL NO. 166 (BANG.) OF 2016] AT PARA 9 ON PAGES 16-17] WHERE TH E EXCLUSION OF THE SAID COMPANY FROM THE LIST OF COMPARABLES IN SIMILA R CIRCUMSTANCES WAS UPHELD BY THIS HON'BLE TRIBUNAL. WE THEREFORE DO NO T FIND ANY GROUNDS TO INTERFERE WITH THE DIRECTIONS OF THE DRP ON EXCL USION OF THIS COMPANY. 35. FURTHER, LD.AR ALLEGED THAT, ACROPETAL AND L&T INFOTECH ARE FUNCTIONALLY NOT SIMILAR WITH A CONTRACT SERVICE PR OVIDER LIKE ASSESSEE. THIS OBSERVATION COULD NOT BE DISLODGED B Y LD.CIT.DR. WE ALSO NOTE THAT, ACROPETAL TECHNOLOGIES HAS BEEN HELD TO BE INTO PRODUCTS AND THAT L&T INFOTECH LTD HAS OBSERVE D THAT RPT IS AT 18.66% WHICH IS BEYOND THE MARGINAL LIMIT OF 15% FOR YEAR UNDER CONSIDERATION, BY THIS TRIBUNAL , IN CASE OF ELECTRONICS FOR PAGE 16 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 IMAGING INDIA PVT.LTD (SUPRA) . WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY DRP AS THESE COMPARA BLES ARE EVEN OTHERWISE FUNCTIONALLY NOT SIMILAR WITH ASSESSEE. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, WE DIRECT EXCLUSION OF ACROPETAL TECHNOLOGIES AND L&T INFOTEC H LTD. 36. GROUND NO.5 IS AGAINST EXCLUDING M/S.E-INFOCHIPS, BY DRP ON THE GROUND THAT IT FAILS SERVICE INCOME FILTER. 37. LD.CIT DR SUBMITTED THAT LD.TPO WHILE ANALYSING COMPARABLES OBSERVED THAT, THIS COMPANY HAS REVENUE FROM SOFTWARE DEVELOPMENT UP TO 88%. SUBMITTED THAT PER CONTRA, DRP OBSERVES THAT REVENUE EARNED BY THIS COMPANY IS LES S THAN 75%, AND THEREFORE CANNOT BE INCLUDED. SHE SUBMITTED THA T BASIS OF DRP TO HOLD THAT REVENUE IS LESS THAN 75% HAS NOT B EEN DEMONSTRATED AND THEREFORE NEEDS TO BE RECONSIDERED . 38. LD.AR PLACED RELIANCE UPON DECISION OF COORDINA TE BENCH OF THIS TRIBUNAL IN CASE OF ELECTRONICS FOR IMAGING INDIA PVT.LTD (SUPRA) WHEREIN, E- INFOCHIPS LTD IS EXCLUDED FOR FAILING IN SERVICE INCOME FILTER. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 39. IT IS OBSERVED THAT THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT LTD. VS ACIT (SUPRA) EXCLUDED E- INFOCHIPS LTD., BY FOLLOWING VIEW TAKEN BY THIS TRIBUNAL IN CASE OF COMSCOP NETWORK (INDIA) PVT.LTD. LIMITED VS ITO IN IT (TP) A/BANG/2016 DATE D 22/02/17 WHEREIN, THIS COMPANY WAS EXCLUDED FOR REASON THAT, THERE IS NO SEGMENTAL INFORMATION REGARDING DIVERSE FUNCTIONS P ERFORMED BY THIS COMPANY AND THAT THERE WAS MAJOR FLUCTUATION I N ITS PROFITS, PAGE 17 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 WHICH INFLUENCED TURNOVER OF THIS COMPANY. WE ALSO NOTE THAT THIS TRIBUNAL IN CASE OF DCIT VS CGI INFORMATION SYSTEMS (SUPRA) HAD ENCOUNTERED WITH AN IDENTICAL SITUATION FOR YEA R UNDER CONSIDERATION. THIS TRIBUNAL OBSERVED AS UNDER: 24. AS FAR AS GROUND NO. 4 RAISED BY REVENUE IS CONCER NED, THE SAID GROUND OF APPEAL IS WEAK AND ANY EVENT COMPARABILIT Y OF COMPANIES THAT WERE EXCLUDED BY THE DRP WERE ON VALID GROUNDS CONTEMPLATED BY THE RELEVANT STATUTORY PROVISIONS OF THE ACT AND RULES. AS FAR AS GROUND NO. 5 IN REVENUES APPEAL IS CONCERNED, THE REVENUE SEEKS TO CHALLENGE THE EXCLUSION OF AE INFOTECH LTD. ON THE GROUND THAT IT FAILED DIRECT SOFTWARE SERVICE INCOME FILTER AT 75%. AT TH E OUTSET, THE ASSESSEE SUBMITS THAT E INFOTECH LTD WAS EXCLUDED B Y THE DRP ON THE GROUND THAT: (I) NO SEGMENTAL INFORMATION IS REGARD ING ITS DIVERSE FUNCTIONS IS AVAILABLE; (II) IT FAILED THE SOFTWARE SERVICE INCOME FILTER AND 75%; (III) THERE WERE MAJOR FLUCTUATIONS IN PRO FIT AND TURNOVER EVERY YEARS WHICH SEEMS TO BE INFLUENCED BY EXTRAOR DINARY/PECULIAR CIRCUMSTANCES; AND (IV) THERE IS A PRESENCE OF INVE NTORY (PAGE 10 AND 11 OF THE DRPS DIRECTIONS). THE REVENUE, IN ITS AP PEAL HAS CHALLENGED ITS EXCLUSION ONLY ON THE 2 ND GROUND. IN OTHER WORDS, THE REVENUE HAS NOT CHALLENGED ITS EXCLUSION ON THE OTHER GROUNDS S TATED HEREINABOVE AND THUS ITS EXCLUSION ON THESE GROUNDS HAVE ATTAIN ED FINALITY AND CANNOT BE DISTURBED BY THIS HONBLE TRIBUNAL. EVEN OTHERWISE, WE ARE OF THE VIEW THAT THE DRP RIGHTLY ARRIVED AT THE FIN DING THAT COMPANIES SOFTWARE DEVELOPMENT SERVICE REVENUE FOR FY 2010-11 WAS LESS THAN 75% OF ITS TOTAL OPERATING REVENUE FOR THE YEAR. TH US THE ABOVE ACTION OF THE DRP IN REJECTING THE ABOVE COMPANIES CORRECT . 40. FROM THE ABOVE, IT IS OBSERVED BY THIS TRIBUNAL CONSISTENTLY IN VARIOUS DECISIONS FOR A.Y: 2011-12 HELD THAT, TH IS COMPANY DOES NOT SATISFY SERVICE INCOME FILTER BEING 75%. WE THEREFORE, DO NOT SEE ANY REASON TO SET ASIDE THIS COMPANY TO LD. TPO. THEREFORE, RESPECTFULLY FOLLOWING VIEW TAKEN BY COO RDINATE BENCH OF THIS TRIBUNAL IN DCIT VS M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATIONS PVT.LTD. (SUPRA) , WE DIRECT LD. TPO TO EXCLUDE THIS COMPANY. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DI SMISSED. PAGE 18 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 GROUND 6-10: 41. ICRA TECHNO ANALYTICS LTD., E-ZHEST SOLUTIONS L TD., M/S.INFOSYS TECHNOLOGIES LTD. AND M/S.TATA ELXSI LT D. IT HAS BEEN SUBMITTED BY LD.CIT.DR THAT, DRP ERRED IN DIRECTING EXCLUSION OF ICRA TECHNO ANALYTICS LTD ON THE GROUND THAT IT IS INTO DIVERSIFIED ACTIVITY AND NO SEGMENTAL DETAILS ARE AVAILABLE. IN RESPECT OF E-ZHEST SOLUTIONS LTD., M/S.INFISYS TECHNOLOGIES LTD. AND M/S.TATA ELXSI LTD., LD.CIT DR SUBMITTED THAT DRP EXCLUDED THEM FOR FUNCTIONALLY NOT COMPARABLE. HE S UBMITTED SUPPORTING ORDER OF LD.TPO THAT THEY ARE PREDOMINAN TLY INTO SOFTWARE DEVELOPMENT. 42. LD.CIT.DR THUS SUBMITTED THAT, THESE COMPARABLE S ARE INTO SWD AND IS FUNCTIONALLY SIMILAR WITH ASSESSEE AND D ESERVES TO BE INCLUDED. 43. ON THE CONTRARY, LD.AR RELIED ON DECISIONS OF C OORDINATE BENCH OF THIS TRIBUNAL IN CASE OF APPLIED MATERIAL INDIA PVT.LTD REPORTED IN TS-815-ITAT-2015 , AND GT NEXUS SOFTWARE PVT.LTD., VS. DICT IN IT(TP)A NOS.31&409/BANG/2016 DATED 18/4/2017 FOR SAME ASSESSMENT YEARS, WHICH IS FOLLOWED IN PLE THORA OF OTHER DECISIONS OF THIS TRIBUNAL FOR EXCLUSION OF THESE COMPARABLES. HE SUBMITTED THAT ALL THESE COMPARABLES HAVE BEEN EXCL UDED FROM DCIT VS. LSI INDIA RESEARCH PVT.LTD REPORTED IN (2017) 83 TAXMANN.COM 357 FOR ASSESSMENT YEAR 2011-12, BEING THE TRANSFEREE COMPANY AS UNDER: 9. NOW WE DECIDE ABOUT THE REMAINING SIX COMPARABLES EXCLUDED BY THE DRP AND OTHER FOUR COMPARABLES RETAINED BY THE DRP FOR WHICH THE ASSESSEE IS SEEKING EXCLUSION. WE FIND THAT OUT OF THESE SIX CO MPARABLES EXCLUDED BY THE PAGE 19 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 DRP, ONE COMPARABLE I.E. ICRA TECHNO ANALYTICS LTD. IS HAVING RPT IN EXCESS OF 15% AND THEREFORE, FOR THIS REASON ALONE THIS CO MPANY HAS TO BE EXCLUDED ALTHOUGH, THE DRP HAS EXCLUDED IT FOR A DIFFERENT R EASON THAT IT IS HAVING VARIOUS ACTIVITIES AND THE SEGMENTAL DATA ARE NOT A VAILABLE. WE HOLD THIS EXCLUSION ON ACCOUNT OF RPT FILTER. IN FACT, WE FIN D THAT PARA-8 & 9 OF THE TRIBUNAL ORDER RENDERED IN THE CASE COMMSCOPE NETWO RKS (INDIA) (P.) LTD. (SUPRA) IS RELEVANT IN RESPECT OF INCLUSION/EX CLUSION OF NINE COMPANIES DIRECTED TO BE EXCLUDED BY DRP AND ALSO IN RESPECT OF EXCLUSION OF FOUR COMPANIES WHICH WERE RETAINED BY DRP BUT IT WAS THE CONTENTION OF THE ASSESSEE FOR EXCLUSION THEREOF. WE THEREFORE, RE-PR ODUCE PARA-8 & 9 OF THE TRIBUNAL ORDER FOR THE SAKE OF READY REFERENCE; '8. WE DECIDE THE ISSUE OF VARIOUS EXCLUSIONS AND INCLU SIONS IN THESE CROSS APPEALS. REGARDING INCLUSION OF 3 COMPARABLES OUT OF 9 COMPARABLES EXCLUDED BY DRP, WE FIND THAT WHEN BOTH SIDES ARE SEEKING INCLUSION OF THESE 3 COMPARABLES BEING 1 (E VOKE TECHNOLOGIES PVT LTD., 2) MINDTREE LTD. (SEG) AND 3) R S SOFTWAR E (INDIA) LTD. AND THEIR INCLUSION IS PROPER AS PER THE TRIBUNAL ORDER RENDERED IN THE CASE OF APPLIED MATERIALS INDIA PVT. LTD. V. ACIT AS REP ORTED IN TS-815- ITAT - 2016, WE REVERSE THE ORDER; OF DRP; ABOUT EXCLUSION OF THESE 3 '' COMPARABLES AND 'DIRECT THE AO/TPO TO INCLUDE THESE THREE IN FINAL LIST OF COMPARABLES. 9. NOW WE DECIDE ABOUT THE REMAINING 6 COMPARABLES EXC LUDED BY DRP AND 4 COMPARABLES RETAINED BY DRP BUT FOR WHICH THE ASSESSEE IS SEEKING EXCLUSION. OUT OF THESE 6 COMPARABLES EXCLU DED BY DRP, ONE COMPARABLE ICRA TECHNO ANALYTICS LTD. IS HAVING RPT IN EXCESS OF 15% AND THEREFORE, FOR THIS REASON ALONE, THIS COMP ARABLE HAS TO BE EXCLUDED ALTHOUGH DRP HAS EXCLUDED IT FOR A DIFFERE NT REASON THAT IT IS HAVING VARIOUS ACTIVITIES AND SEGMENTAL DATA ARE NO T AVAILABLE. WE UPHOLD ITS EXCLUSION ON ACCOUNT OF RPT FILTER . EXCLUSION OF ACROPETAL TECHNOLOGIES LTD. (SEG) IS COVERED IN FAVOUR OF THE ASSESSEE BY THE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF APPLIED MATERIALS INDIA PVT. LTD. V. ACIT (SUPRA ). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD ITS EXCLUSION. EXCLUSION OF 1) E - ZEST SOLUTIONS LTD., 2) INFOSYS LTD., 3) LARSEN & TOUBRO INFOTECH LTD., 4) PERSISTENT SYSTEM S & SOLUTIONS LTD., 5) PERSISTENT SYSTEMS LTD., 6) SASKEN COMMUNICATION TECHNOLOGIES LTD. AND 7) TATA EBCSI LTD. ARE ALSO COVERED IN FAV OUR OF THE ASSESSE E BY THE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF APPLIED MATERIALS INDIA PVT. LTD. V. ACIT (SUPRA ). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE EXCLUSION OF THESE SEVEN COMPARABLES ALS O. EXCLUSION OF E - INFOCHIPS LTD. IS COVERED IN FAVOUR OF THE AS SESSEE BY THE TRIBUNAL ORDER RENDERED IN THE CASE OF SAXO INDIA PVT. LTD. V. ACIT IN ITA NO, 6148/DEL/2015 DATED 05.02.2016 PARA 10.1 & 10.2 AVA ILABLE AT PAGES 221 TO 223. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD ITS PAGE 20 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 EXCLUSION. IN THIS MANNER, WE UPHOLD THE EXCLUSION OF SIX COMPARABLES EXCLUDED BY DRP OUT OF 9 COMPARABLES EXCLUDED BY DR P AND EXCLUDE 4 COMPARABLES RETAINED BY DRP AND WE HAVE ALREADY H ELD THAT OUT OF 9 COMPARABLES EXCLUDED BY DRP, 3 HAVE TO COME BACK BEING 1.) EVOKE TECHNOLOGIES PVT, LTD., 2) MINDTREE LTD. (SEG) AND 3) R S SOFTWARE (INDIA) LTD. NOW, WE DECIDE ABOUT LGS GLOBAL LTD. A S PER THE TRIBUNAL ORDER RENDERED IN THE CASE OF APPLIED MATERIALS INDIA PVT. LTD. V. ACIT (SUPRA ), THIS IS A GOOD COMPARABLE AND THEREFORE, WE DIRECT THE A.O. AND TPO TO INCLUDE THIS COMPARABLE. SO, THERE SHOUL D BE 4 COMPARABLES IN THE FINAL LIST OF COMPARABLE AN D ON THE BASIS OF THAT, THE AO/TPO SHOULD WORK OUT THE ALP'. 10. AS PER THE ABOVE TWO PARAS, REPRODUCED FROM THE OR DER OF THE TRIBUNAL RENDERED IN THE CASE COMMSCOPE NETWORKS (INDIA) (P. ) LTD. (SUPRA), WE FIND THAT IN THAT CASE, THE TRIBUNAL HELD THAT OUT OF 9 COMPARABLES EXCLUDED BY DRP, 3 HAVE TO COME BACK BEING 1) EVOKE TECHNOLOGIE S PVT. LTD., 2) MINDTREE LTD. (SEG) AND 3) R S SOFTWARE (INDIA) LTD. OUT OF REMAINING 10 COMPARABLE COMPANIES SELECTED BY TPO, THE TRIBUNAL IN THAT CAS E EXCLUDED. 9 COMPANIES BEING 1) ICRA TECHNO ANALYTICS LTD., 2) ACROPETAL T ECHNOLOGIES LTD. (SEG), 3) E - ZEST SOLUTIONS LTD., 4) INFOSYS LTD., 5) LARSEN & TOUBRO INFOTECH LTD., 6) PERSISTENT SYSTEMS & SOLUTIONS LTD., 7) PERSISTENT SYSTEMS LTD., 8) SASKEN COMMUNICATION TECHNOLOGIES LTD, AND 9) TATA ELXSI L TD. HENCE, IN THAT CASE, ONLY FOUR COMPANIES WERE LEFT IN THE FINAL LIST OF COMPARABLES BEING J) 1) EVOKE TECHNOLOGIES PVT. LTD., 2) MINDTREE LTD. (SEG) AND 3) R S SOFTWARE (INDIA) LTD. AND 4) LARSEN & TOUBRO INFOTECH LTD. 44. FROM THE ABOVE, IT IS OBSERVED THAT ICRA TECHNO ANALYTICS LTD., E-ZHEST SOLUTIONS LTD., M/S.INFOSYS TECHNOLOG IES LTD. AND M/S.TATA ELXSI LTD., HAVE BEEN CONSISTENTLY EXCLUDED BY THIS TRIBUNAL IN CASE OF A CAPTIVE SERVICE PROVIDER LIKE ASSESSEE . FURTHER LD.CIT DR COULD NOT ESTABLISH ANYTHING CONT RARY TO OBSERVATIONS OF THIS TRIBUNAL REPRODUCED HEREINABOVE. 45. RESPECTFULLY FOLLOWING AFORESTATED VIEW, WE DO NOT FIND ANY INFIRMITY IN EXCLUSION OF THESE COMPARABLES BY DRP. ACCORDINGLY THESE GROUNDS RAISED BY REVENUE STANDS DISMISSED. PAGE 21 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 46. GROUND NO.11 HAS BEEN CHALLENGED BY REVENUE FOR EXCLUDING COMMUNICATION EXPENSES FOR COMPUTING TOTA L TURNOVER AND EXPORT TURNOVER AND EXCLUDING LOSS EARNED FROM NON-ELIGIBLE UNIT FOR PURPOSES OF 10 A DEDUCTION. 47. WE NOTE THAT DRP BY FOLLOWING DECISION OF HON'BLE KARNATAKA HIGH COURT, IN THE CASE OF CIT V. TATA ELXSI LTD. REPORTED IN [2012] 17 TAXMANN.COM 100 HELD THAT, IF ANY EXPENDITURE IS EXCLUDED FROM EXPORT TURNOVER, THEN THE SAME NEEDS TO BE EXCLUDED FROM TOTAL TURNOVER AS WELL, A CCORDINGLY, DIRECTING LD.AO TO EXCLUDE EXPENSES DEDUCTED FROM E XPORT TURNOVER FROM TOTAL TURNOVER FOR COMPUTING DEDUCTIO N U/S 10A OF THE INCOME-TAX ACT, 1961. 48. FURTHER IN RESPECT OF EXCLUSION OF LOSS EARNED FROM NON- ELIGIBLE UNIT FOR COMPUTING PROFITS OF ELIGIBLE UNI T UNDER SECTION 10 A, DRP RELIED ON DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF AND CIT V. YOKOGAVA INDIA LTD. REPORTED IN [2012] 21 TAXMANN.COM 154 49. WE DO NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY DRP AS IT IS SUPPORTED BY RATIOS HELD BY HONBLE JURISDICTIONAL HIGH COURT . THERE IS NOTHING ON RECORD BROUGHT BY REVENUE TO ES TABLISH ANY DISTINGUISHING FACTORS TO DEVIATE FROM THE RATIO OF HONBLE JURISDICTIONAL HIGH COURT . ACCORDINGLY THESE GROUNDS RAISED BY REVENUE STANDS DISMISSED. IN THE RESULT APPEAL FILED BY REVENUE STANDS DISMIS SED. PAGE 22 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 50. SINCE REVENUES APPEAL IS DISMISSED, CROSS OBJE CTION FILED BY ASSESSEE BECOMES INFRUCTUOUS. IN THE RESULT, CROSS OBJECTION FILED BY ASSESSEE AL SO STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCT, 2020 SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 29 TH OCT, 2020. /VMS/ 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 23 OF 23 IT(TP)A NO.482/BANG/2016 CO NO.7/BANG/2017 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -10-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -10-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -10-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -10-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -10-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -10-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -10-2020 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