JCIT, New Delhi V. M/s. Steria India Pvt. Ltd., Noida

ITA 511/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3288 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 01-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3); 10B; 201; 144C; 64; 43; 48; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DLEHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 512 & 511/DEL/2016 ASSESSMENT YEARS: 2010-11 & 2011-12 JCIT, SPCL. RANGE-8, VS. STERIA INDIA PVT. LTD., NEW DELHI. SEA VIEW SPECIAL ECLONOMIC ZONE, BUILDING-4, PLOT 20-21, SECTOR 135, GAUTAM BUDH NAGAR, NOIDA. PAN : AAACX0385L (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ANUPAM KANT GARG, CIT/DR RESPONDENT BY: SH. NEERAJ JAIN, ADVOCATE & SH. RAMITKATYAL, ADVOCATE DATE OF HEARING: 19/10/2020 DATE OF ORDER : 17/11/2020 ORDER PER K. NARASIMHA CHARY, J.M. CHALLENGING THE FINAL ASSESSMENT ORDERS DATED 30.11 .2015 U/S. 143(3) READ WITH SECTION 144C AND DIRECTIONS OF DRP DATED 20.10.2015 IN THE CASE OF M/S. STERIA INDIA PVT. LTD. (THE ASSE SSEE), REVENUE FILED THESE APPEALS FOR ASSESSMENT YEARS 2010-11 AND 2011 -12. SINCE IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE APPEALS, WE DEEM IT JUST AND CONVENIENT TO DISPOSE OF THESE APPEALS BY WAY OF THIS COMMON O RDER. 2. BRIEF FACTS OF THE CASE, AS COULD BE CULLED OUT FROM THE RECORD ARE THAT, THE ASSESSEE IS A SUBSIDIARY OF STERIA UK COR PORATE LTD., UK, AN I.T. SERVICE COMPANY IN THE UNITED KINGDOM. THE ASSESSEE PROVIDES BOTH 2 SOFTWARE AND ITES SERVICES TO ITS ASSOCIATED ENTERP RISES. FOR THE ASSESSMENT YEARS UNDER CONSIDERATION, THE ASSESSEE REPORTED INTERNATIONAL TRANSACTIONS INTER-ALIA ON ACCOUNT OF PROVISION OF IT ENABLED SERVICES AND SOFTWARE SERVICES. 3. DURING THE FINANCIAL YEARRELEVANT FOR AY 2010-11 , THE ASSESSEE ENTERED INTO THE INTERNATIONAL TRANSACTION OF PROVI SION OF IT ENABLED SERVICES AMOUNTING TO RS. 1,298,559,298 WITH ITS AS SOCIATED ENTERPRISES. ASSESSEE CONSIDERED THE FOREX FLUCTUATION AS OPERAT ING INCOME/EXPENSE THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS SELE CTED AS THE MOST APPROPRIATE METHOD FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTION OF ITES, AND ON THAT SCORE THE OP/OC OF THE ASSESSEE WAS 18.10% WHEREAS THE AVERAGE OP/OC OF THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE WAS 11.79%. ASSESSEE, ACC ORDINGLY, TREATED THATTHE INTERNATIONAL TRANSACTION OF PROVISION OF I T ENABLED SERVICES WAS AT ARMS LENGTH PRICE. 4. LD. TPO, HOWEVER, COMPUTED THE OPERATING MARGIN OF THE ASSESSEE AT 1.90% CONSIDERING FOREX FLUCTUATION AS NON-OPERA TING INCOME/EXPENSE, AND AFTER CONDUCTING A FRESH SEARCH FOR COMPARABLE COMPANIES, LD. TPO ARRIVED AT THE FOLLOWING SET OF COMPARABLES: S. NO. COMPANY NAME (ADJUSTED OP/OC) (%) 1. ACCENTIA TECHNOLOGIES 42.94% 2. COSMIC GLOBAL LTD. 22.94% 3. E4E HEALTHCARE 34.23% 3 4. FORTUNE INFOTECH LTD 24.09% 5. I_GATE GLOBAL LTD 26.79% 6. INFOSYS BPO LTD. 32.87% 7. JINDAL INTELLICOM LTD. 17.60% 8. OMEGA HEATLHCARE 17.43% 9. TCS E SERVE INTERNATIONAL LTD 58.08% 10. TCS E SERVE LTD 67.92% 11. MICROLAND LTD. 0.38% ARITHMETIC MEAN 31.39% 5. LD. TPO, ACCORDINGLY, PROPOSED AN ADJUSTMENT OF RS. 37,57,42,930 ON ACCOUNT OF THE DIFFERENCE IN THE ARMS LENGTH PRI CE OF THE INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICE SEGM ENT. 6. ASSESSEE FILED OBJECTIONS BEFORE THE LD. DRP AND PRAYED FOR EXCLUSION OF CERTAIN COMPANIES FROM THE LIST OF COM PARABLES. LD. DRP, AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE, VIDE ORDER DATED 20.10.2015, DIRECTED THE TPO TO CONSIDE R FOREX FLUCTUATION AS OPERATING INCOME/EXPENSE AND TO EXCLUDE THE FOLL OWING COMPANIES FROM THE SET OF COMPARABLES: A) INFOSYS BPO LTD. B) TCS E-SERVE LTD. C) TCS E-SERVE INTERNATIONAL LTD D) ACCENTIA TECHNOLOGIES LTD. 7. PURSUANT TO THE DIRECTIONS OF THE LD. DRP, LD. A SSESSING OFFICER PASSED THE FINAL ASSESSMENT ORDER CONSIDERING THE F OLLOWING COMPANIES AS COMPARABLES: 4 S. NO. COMPANY NAME (ADJUSTED OP/OC FOREX AS OPERATING) (%) 1. COSMIC GLOBAL LTD. 22.94% 2. E4E HEALTHCARE 35.87% 3. FORTUNE INFOTECH LTD 20.91% 4. I_GATE GLOBAL LTD 20.46% 5. JINDAL INTELLICOM LTD. 18.17% 6. OMEGA HEATLHCARE 17.43% 7. MICROLAND LTD. 0.38% ARITHMETIC MEAN 19.45% TRANSFER PRICING ADJUSTMENT WAS ACCORDINGLY REDUCED TO RS 22,35,90,000. 8. THE REVENUE IS, THEREFORE, IN APPEAL IN ITA NO. 512/DEL/2016 CHALLENGING THIS ADJUSTMENT IN APPEALS BEFORE US AN D DURING THE COURSE OF ARGUMENTS LD. DR CONTENDED THAT THE LD. DRP ERRED I N EXCLUDING THE INFOSYS BPO LTD.; TCS E-SERVE LTD.; TCS E-SERVE INT ERNATIONAL LTD; AND ACCENTIA TECHNOLOGIES LTD. FROM THE LIST OF COMPARA BLES. 9. SO ALSO, DURING THE FINANCIAL YEARRELEVANT FOR T HE AY 2011-12, THE ASSESSEE ENTERED INTO THE INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES AMOUNTING TO RS. 136,32,59,529 WIT H ITS ASSOCIATED ENTERPRISES. ASSESSEE TREATED THE FOREX FLUCTUATION AS OPERATING INCOME/EXPENSE AND APPLIED THE TRANSACTIONAL NET MA RGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR THE PURPO SE OF BENCHMARKING THE INTERNATIONAL TRANSACTION OF ITES, ON APPLICATION OF WHICH, THE OP/OC OF THE ASSESSEE WAS 15.37% WHEREAS THE AVERAGE OP/OC OF THE COMPARABLE COMPANIES AT 17.13%, AND, T HEREFORE, 5 ACCORDING TO THE ASSESSEE, THEIR PROFIT LEVEL INDIC ATOR LIES WITHIN THE ARMS LENGTH RANGE OF (+/-) 5%OF THE INTERNATIONAL TRANSA CTION OF PROVISION OF IT ENABLED SERVICES, AND CONSEQUENTLY WAS CONSIDERED T O UNDERTAKEN AT ARMS LENGTH PRICE. LD. TPO, HOWEVER, COMPUTED THE O PERATING MARGIN OF THE ASSESSEE AT 6.02% CONSIDERING FOREX FLUCTUATION AS NON-OPERATING INCOME/EXPENSE, AND AFTER CONDUCTING A FRESH SEARCH FOR COMPARABLE COMPANIES, LD. TPO ARRIVED AT THE FOLLOWING SET OF COMPARABLES: S. NO. COMPANY NAME ADJUSTEDOP/OC(%) 1. ACCENTIA TECHNOLOGIES LTD. 28.17 % 2 . E4E HEALTHCARE BUSINESS SERVICES PVT LTD. 12.79 % 3 . ECLERX SERVICES LTD. 57.62 % 4. ICRA TECHNO ANALYTICS LIMITED 25.07 % 5. INFOSYS BPO LTD. 20.61 % 6. JINDAL TELECOM LTD. 15.82 % 7. MICROGENETIC SYSTEMS LTD -0.14 % 8. TCS E-SERVE LTD. 71.05 % 9 . ACROPETAL TECHNOLOGIES LTD.(SEG.) 13.06 % AVERAGE 27.12 % 10. LD. TPO ACCORDINGLY PROPOSED AN ADJUSTMENT OF R S. 27,13,56,000 IN THE IMPUGNED ORDER, ON ACCOUNT OF THE DIFFERENCE IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICE SEGMENT. 6 11. WHEN THE ASSESSEE FILED OBJECTIONS DISPUTING TH E PROPOSED UPWARD ADJUSTMENT ON THE GROUND THAT CERTAIN COMPAN IES WERE TO BE EXCLUDED, FOR THIS YEAR ALSO LD. DRP, VIDE ORDER DA TED 20.10.2015, DIRECTED THE TPO TO TO CONSIDER FOREX FLUCTUATION AS OPERATI NG INCOME/EXPENSE, AND ALSO TO EXCLUDE ICRA TECHNO ANALYTICS LTD.; TCS E-SERVE LTD.; ECLERX SERVICES LTD; AND ACCENTIA TECHNOLOGIES LTD. FROM T HE FINAL SET OF COMPARABLES IN RESPECT OF THE INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICE SEGMENT. POST THE DIRECTIONS OF THE LD DRP, LD. TPO CONSIDERED THE FOLLOWING COMPANIES, S. NO. COMPANY NAME WC ADJUSTED MARGIN/COST 1. E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. 16.60 % 2. INFOSYS BPO LTD. 21.30 % 3. JINDAL INTELLICOM LTD. 15.90 % 4 . MICROGENETIC SYSTEMS LTD. - 0.64 % 5 . ACROPETAL TECHNOLOGIES LTD. (SEG) 13.07 % 13.25 % AND REDUCED THE ADJUSTMENT TO RS 9,30,02,000. 12. AGGRIEVED BY SUCH REDUCTION IN THE ADJUSTMENT P ROPOSED BY THE LD. TPO, REVENUE PREFERRED APPEAL IN ITA NO. 511/DE L/2016 AND DURING THE COURSE OF ARGUMENTS LD. DR CONTENDED THAT THE L D. DRP ERRED IN EXCLUDING THE ICRA TECHNO ANALYTICS LTD.; TCS E-SER VE LTD.; ECLERX SERVICES 7 LTD; AND ACCENTIA TECHNOLOGIES LTD. FROM THE FINAL LIST OF COMPARABLES IN RESPECT OF THE INTERNATIONAL TRANSACTION OF PROVISION OF IT EN ABLED SERVICE SEGMENT. 13. VIDE GROUND NO 3 IN THE APPEALS FOR BOTH THE YE ARS, REVENUE CHALLENGED THE ORDER OF LD. DRP IN DIRECTING THAT F OREX FLUCTUATIONS AND PROVISION FOR DOUBTFUL DEBT SHOULD BE CONSIDERED PA RT OF OPERATING MARGIN CALCULATION. WE, THEREFORE, BEFORE PROCEEDI NG TO DECIDE THE COMPARABILITY OF THE ENTITIES DIRECTED TO BE EXCLUD ED BY THE LD. DRP IN THE ITES SEGMENT, DEAL WITH THE ISSUE OF FOREX FLUCTUAT IONS AND PROVISION FOR DOUBTFUL DEBT. 14. AT THE OUTSET, AS STATED ABOVE, ASSESSEE HAS CO NSIDERED FOREX AS OPERATING IN NATURE. THE LD. TPO REJECTED, BUT ACCE PTED BY THE LD. DRP. ACCORDING TO THE REVENUE, THE AMOUNT OF FOREX LOSS /GAIN AND HEDGING COST/PREMIUM WILL VARY DEPENDING UPON THE RISK MANA GEMENT POLICY OF EACH COMPANY, E.G., SOME OF THE COMPANIES DO NOT HE DGE THEMSELVES WHILE OTHERS MAY HEDGE THEIR FOREX EXPOSURE WHOLLY/ PARTIALLY, I.E., SOMEONE MAY HEDGE ITS THREE MONTHS RECEIVABLES/PAYA BLES OR 50% OF 6 MONTHS RECEIVABLES/PAYABLES AND SO ON AND SO FORTH; THAT THE RISK MANAGEMENT POLICY OF EACH COMPANY IS ITS INTERNAL M ATTER AND IT HAS GOT NOTHING TO DO WITH TRANSACTIONS ENTERED BY IT WITH ITS AES; THAT THERE IS A WIDE VARIATION BETWEEN THE PROFITS AND EARNED DEPEN DING UPON WHETHER THE ENTERPRISE HAS HEDGED IT FOREX EXPOSURE; THAT A S FAR AS THE CONSIDERATION OF PROVISION FOR DOUBTFUL DEBT AND PR OVISIONS WRITTEN BACK ITS OPERATING IS CONCERNED, PROVISION FOR DOUBTFUL DEBT IS IN THE NATURE OF UNASCERTAINED LIABILITY AS IT IS MADE OF ESTIMATE B ASIS AND AT THE TIME OF PROVISION, ACCOUNTS OF DEBTORS HAVE NOT WITH A CERT AIN AMOUNT; THAT, 8 THEREFORE, THE EXPENSE IS STILL UNCERTAIN AND AD HO C EXPENSE; THAT THE CREATION OF PROVISION IS DEPENDENT ON THE RISK PERC EPTION OF THE BUSINESS OPERATION BY THE MANAGEMENT; THAT FOR THE SAME RISK SOME COMPARABLE MAY CREATE PROVISION AT THE RATE OF X% WHILE ANOTHE R COMPARABLE MAY CREATE THE PROVISION AT Y%; THAT THE SALES PRICE IS ADJUSTED TO INCLUDE THE EFFECT OF SUCH PROVISIONS; THAT DIFFERENT RISK PERC EPTION WOULD LEAD TO DIFFERENT QUANTUM OF PROVISIONS LEADING TO INACCURA TE COMPARABILITY, INCASE SUCH PROVISIONS ARE TREATED AS OPERATING; TH AT SAFE HARBOUR RULES PROVIDE FOR TREATMENT OF UNASCERTAINED LIABILITY TO BE TREATED AS NON- OPERATIONAL; AND THAT TO ELIMINATE UNCERTAINTY AND BE IN LINE WITH SAFE HARBOUR RULES, THIS ITEM IS REQUIRED TO BE TREATED AS NON-OPERATIONAL; THAT THE SAME TREATMENT IS BEING GIVEN TO ITEM IS T HE ASSESSEES CASE AND, THEREFORE, NO PREJUDICE IS CAUSED TO THE ASSESSEE, WHICH POSITION IS IN ACCORDANCE WITH THE SAFE HARBOR RULES. 15. WITH REFERENCE TO THE REQUEST OF THE ASSESSEE T O TREAT THE FOREX GAIN /LOSS AS AN OPERATING IN NATURE, IT IS SUBMITT ED THAT AS FAR AS THE CONSIDERATION OF FOREIGN EXCHANGE FLUCTUATION AS OP ERATING IS CONCERNED. FOREIGN EXCHANGE GAIN/LOSS IS NOT DEPENDENT UPON TH E OPERATIONS CARRIED OUT BY THE COMPANY, BUT IS A RESULT OF VARIOUS EXTR ANEOUS FACTORS; THAT THE FOREIGN EXCHANGE FLUCTUATION HAS NOTHING TO DO WITH THE BUSINESS OPERATIONS OF THE ASSESSEE; THAT THE FOREIGN EXCHAN GE FLUCTUATIONS ARE DETERMINED BY THE MARKETS, RBI, MACRO ECONOMIC COND ITIONS, WORLD MARKETS ETC; AND THAT, THEREFORE, THE GAIN OR LOSS ON FOREIGN EXCHANGE FLUCTUATIONS IS NOT CONSIDERED PART OF OPERATING RE VENUES OR INCOME. 16. THOUGH THE LD. AR PLACED RELIANCE ON VARIOUS DE CISIONS IN SUPPORT OF HIS ARGUMENT THAT FOREX FLUCTUATION HAS TO BE HE LD TO BE IN THE NATURE 9 OF OPERATING INCOME/EXPENSES, HE SPECIFICALLY BROUG HT TO OUR NOTICE THE DECISION OF THE TRIBUNAL IN APPELLANTS OWN CASE FO R AY 2015-16. A COPY OF THE ORDER DATED 01.05.2020IN THE CASE OF M/S STE RIA INDIA LTD. VS ACIT IN ITA NO. 6687/DEL/2019 IS PRODUCED BEFORE US. 17. WE HAVE GONE THROUGH THE ORDER IN ITA NO. 6687/ DEL/2019 AND FIND THAT THE TRIBUNAL DEALT WITH THIS ASPECT AS UN DER: 5.6 WITH RESPECT TO THE ITES SEGMENT, IT IS THE PLE A OF THE LD. AUTHORIZED REPRESENTATIVE THAT FOREIGN EXCHANGE FLUCTUATION SH OULD BE TREATED IS AN OPERATING ITEM. IN THIS REGARD RELIANCE HAS BEEN PL ACED ON THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS. BC MANAGEMENT SERVICES PVT. LTD. IN APPEAL NO.1064/2017 AND PR. C IT VS. AMERIPRISE INDIA PVT. LTD. IN APPEAL NO.206/2016. THE HONBLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS. AMERIPRISE INDIA PVT. LTD. (SUPRA) HAS HELD THAT IN RESPECT OF FOREIGN EXCHANGE GAINS EARNED BY THE ASS ESSEE WHICH IS IN RELATION TO TRADING ITEMS AND EMANATING FROM INTERN ATIONAL TRANSACTIONS, DIRECT VALUE DERIVED FROM IT CANNOT BE TREATED AS N ON-OPERATING LOSSES AND GAINS. SIMILAR VIEW WAS TAKEN BY THE HONBLE DE LHI HIGH COURT IN THE CASE OF PR. CIT VS. CASHEDGE INDIA PVT. LTD. IN APP EAL NO.279/2016 AS WELL AS IN CASE OF PR. CIT VS. BC MANAGEMENT SERVIC ES PVT. LTD. (SUPRA). THEREFORE, WE AGREE WITH THE CONTENTIONS OF THE AR THAT FOREIGN EXCHANGE FLUCTUATIONS GAINS/LOSSES SHOULD BE TREATE D AS OPERATING ITEM IF THE SAME ARE IN RELATION TO THE TRADING ITEMS EM ANATING FROM THE INTERNATIONAL TRANSACTIONS. IT ONLY REMAINS TO BE V ERIFIED AS TO WHETHER THE FOREIGN EXCHANGE FLUCTUATIONS INCURRED BY THE A SSESSEE RELATE TO THE TRADING ITEMS EMANATING FROM THE INTERNATIONAL TRAN SACTIONS OR NOT. THEREFORE, FOR THE LIMITED PURPOSES OF VERIFYING TH AT THE FOREIGN EXCHANGE FLUCTUATIONS OF THE ASSESSEE RELATE TO THE TRADING ACTIVITIES OF THE ASSESSEE, THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER/LD. TPO TO VERIFY THE SAME AND IF IT IS FOUND THAT THE FOREIGN EXCHANGE FLUCTUATION RELATE TO TRADING WITH THE ASSOCIATE EN TERPRISES THE ASSESSING OFFICER/LD. TPO IS DIRECTED TO TREAT THE SAME AS OP ERATING ITEM. THUS, THIS ISSUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 18. SINCE THE TRIBUNAL DEALT WITH THIS ISSUE IN ASS ESSEES OWN CASE FOR THE AY 2015-16 WITH THE ABOVE OBSERVATIONS AND NO C HANGE OF CIRCUMSTANCES ARE BROUGHT TO OUR NOTICE TO TAKE ANY DIFFERENT VIEW, WHILE 10 RESPECTFULLY FOLLOWING THE ABOVE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE, WE RESTORE THE ISSUE TO THE FILE OF THE L D AO/LD TPO TO COMPLY WITH THE ABOVE DIRECTIONS IN RESPECT OF THE AY 2010 -11 AND 2011-12 ALSO. 19. AFTER THE ISSUE RELATING TO THE FOREX FLUCTUATI ON, WHAT REMAINS TO BE DECIDED IS THE COMPARABILITY OF THE ENTITIES UND ER CHALLENGE. FROM THE ARGUMENTS ON EITHER, REFERRED TO ABOVE, IT CLEAR TH AT THE REVENUE IS CHALLENGING THE EXCLUSION OF INFOSYS BPO LTD., AND TCS E-SERVE INTERNATIONAL LTD FOR THE AY 2010-11; ICRA TECHNO A NALYTICS LTD. AND ECLERX SERVICES FOR THE AY 2011-12 AND TCS E-SERVE LTD. AND ACCENTIA TECHNOLOGIES LTD. FOR BOTH THE AYS. IN RESPECT OF T HE INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICE SEGM ENT. NOW WE SHALL DEAL WITH COMPARABILITY OF THESE COMPANIES SELECTED BY THE TPO AND REJECTED BY THE DRP FOR ADJUSTMENT FOR BOTH THE YEA RS IN IT ENABLES SERVICES ARE DISCUSSED HEREUNDER: 20. FUNCTIONAL PROFILE OF THE ASSESSEE AS DESCRIBED IN THE TRANSFER PRICING DOCUMENTATION, IN RESPECT OF THE ITES SEGME NT, SHOWS THAT THE ASSESSEE BEING A SUBSIDIARY OF STERIA UK CORPORATE LIMITED, A SOFTWARE SERVICE COMPANY IN THE UNITED KINGDOM (UK), PROVI DES IT ENABLED SERVICES (ITES) TO THE CLIENTS OF ITS ASSOCIATED EN TERPRISES; THAT THE MARKETING FUNCTION INCLUDING CLIENT ACQUISITION IS PERFORMED BY THE ASSOCIATED ENTERPRISE AND THE ASSESSEE PERFORMS ITE S ACTIVITY IN RELATION TO WORK OUTSOURCED /SUB-CONTRACTED BY THE ASSOCIATE D ENTERPRISE TO THE ASSESSEE; THAT IT PROVIDES BACK OFFICE PROCESS OUTS OURCING AND INBOUND AND OUTBOUND VOICE-BASED SERVICES; AND THAT THE DEL IVERY CENTERS OF THE ASSESSEE ARE LOCATED IN NOIDA, CHENNAI AND PUNE, FR OM WHERE STERIA INDIA DELIVERS WORK ON BEHALF OF SETERIA UK FOR CLIENTS. 11 1. INFOSYS BPO LTD. 21. IT COULD BE SEEN FROM THE RECORD THAT INFOSYS B PO LTD IS A PART OF THE INFOSYS GROUP, A GIANT IN THE FIELD OF IT SERVI CES; THAT ACCORDING TO THE INFORMATION AT PAGE 150 OF THE PAPER BOOK CONTAININ G THE ANNUAL REPORT OF THIS COMPANY IN RESPECT OF THE ITES SEGMENT, IT IS STATED THAT THE COMPANY PROVIDES BUSINESS PROCESS MANAGEMENT SERVIC ES TO ORGANIZATIONS THAT OUTSOURCE THEIR BUSINESS PROCESS ES, THE INFORMATION AT PAGE 118 SHOWS THAT THE COMPANY LEVERAGES INFOSYS T ECHNOLOGIES CLIENT RELATIONSHIP TO CROSS SELL SERVICES, WHEREAS AT PAG E 157 THEREOF, IT IS REPORTED THAT THE PARENT COMPANY NAMELY INFOSYS TEC HNOLOGIES LTD HAS ISSUED PERFORMANCE GUARANTEE ON BEHALF OF THE COMPA NY. 22. ACCORDING TO THE LD. TPO THE BRAND VALUE MAY NO T AFFECT THE PROFITABILITY OF A COMPANY AND A BRAND MAY GENERATE REVENUE, BUT THERE IS A COST ASSOCIATED WITH DEVELOPMENT OF SUCH BRAND , AND THAT THE SUPERNORMAL PROFIT AND HIGH REVENUE IS NOT A CRITER IA FOR SELECTION OF COMPARABLE COMPANIES. REASON FOR THE LD. DRP TO DIR ECT THE LD. TPO TO EXCLUDE THE COMPANY IS THAT IT IS A GIANT IN THE IN DUSTRY AND ENJOYS THE BENEFITS ASSOCIATED WITH SUCH SIZE. 23. ON THIS, ASPECT, LEARNED DR INVITED OUR ATTENTI ON TO CERTAIN EXTRACTS OF ANNUAL REPORT OF THIS COMPARABLE, WHERE IN, IN RESPECT OF THE SEGMENT REPORTING AT PAGE NO 56 OF THE ANNUAL REPOR T, IT WAS STATED THAT THE COMPANY'S OPERATIONS PRIMARILY RELATE TO PROVID ING BUSINESS PROCESS MANAGEMENT SERVICES TO ORGANIZATIONS THAT OUTSOURCE THEIR BUSINESS PROCESSES, AND THE SERVICES OFFERED ARE CONTACT CEN TRE, DATA 12 CAPTURE/MANAGEMENT, HUMAN RESOURCE SERVICES, TECHNI CAL SUPPORT, EQUITY RESEARCH, FIXED INCOME RESEARCH, FINANCIAL ANALYSIS, MARKET RESEARCH &ANALYSIS, RETAIL ANALYTICS, LEGAL RESEAR CH, LITIGATION, STRATEGY CONSULTING SERVICE LIN. HE, THEREFORE, SUBMITTED T HAT THE ASSESSEES ARGUMENT IN RESPECT OF FUNCTIONALLY DIFFERENT IS NO T ACCEPTABLE . 24. LD. DR FURTHER SUBMITTED THAT THIS COMPARABLE W AS PROPOSED BY THE ASSESSEE ITSELF IN TP DOCUMENTATION. ACCORDING TO HIM, THOUGH THE DRP BY RELYING ON THE JUDGMENT OF HONBLE HIGH COUR T OF DELHI IN THE CASE OF AGINITY INDIA LTD HAS OBSERVED THAT THE COURT HA D DIRECTED EXCLUSION OF INDUSTRY GIANT IN VIEW OF THE ECONOMIC ADVANTAGE CO NFERRED TO THEM ON ACCOUNT OF SHEER SIZE AND ENORMITY, FACT REMAINS TH AT THE TURNOVER OF THE COMPARABLE IS RS. 1120 CRORE WHILE THE TURNOVER OF THE ASSESSEE COMPANY IS 169 CRORE FOR ITES SEGMENT AND A TOTAL TURNOVER OF RS. 577 CRS. AND THAT THERE IS NO DISPROPORTIONATE DIFFERENCE IN THE SIZE OF THE ASSESSEE AND THE COMPARABLE. FURTHER ACCORDING TO HIM, IN THE CASE O F AGINITY, THE HONBLE HIGH COURT WAS EXAMINING THE COMPARABILITY OF INFOS YS TECHNOLOGIES LTD AND IN THAT CONTEXT, THE FOLLOWING TABLE WAS REPROD UCED IN THE ORDER:- BASIC PARTICULARS INFOSYS TECHNOLOGIES LTD AGINITY INDIA RISK PROFILE OPERATE AS FULL FLEDGED RISK TAKING ENTERPRISES OPERATE AT MINIMAL RISKS AS THE 100% SERVICES ARE PROVIDED TO AES. NAME OF THE SERVICES DIVERSIFIED CONSULTING, APPLICATION DESIGN DEVELOPMENT RE-ENGINEERING AND MAINTENANCE SYSTEM INTEGRATION PACKAGE EVALUATION AND IMPLEMENTATION CONTRACT SOFTWARE DEVELOPMENT SERVICES 13 AND BUSINESS PROCESS MANAGEMENT ETC. ( REFER PAGE 117 OF THE PAPER BOOK) REVENUE RS. 9.028 CRORES RS. 16.09 CRORES OWNERSHIP OF BRANDED/PROPRIETARY [PRODUCTS DEVELOPS/OWNS PROPRIETARY PRODUCTS LIKE FINACLE INFOSYS ACTIVE DESK, INFOSYS IPROWE, INFOSYS MCONNENT, ALSO, THE COMPANY DERIVERS SUBSTANTIAL PORTION OF ITS PROPRIETARY PRODUCTS ( INCLUDING ITS FLAGSHIP BANKING PRODUCT SUITE FINACLE) ONSITE VS OFFSHORE AS MUCH AS HALF OF THE SOFTWARE DEVELOPMENT SERVICES RENDERED BY INFOSYS ARE ONSITE (I.E. SERVICES PERFORMED AT THE CUSTOMERS LOCATION OVERSEAS). AND OFFSHORE(50.20%)( REFER PAGE 117 OF THE PAPER BOOK THAN HALF OF ITS SERVICE, INCOME FROM ONSITE SERVICES) THE APPELLANT PROVIDES ONLY OFFSHORE SERVICES( I.E. REMOTELY FROM INDIA) EXPENDITURE ON ADVERTISING/SALES PROMOTION AND BRAND BUILDING RS. 61 CRORES RS. NIL ( AS THE 100% SERVICES ARE PROVIDE TO AES) EXPENDITURE ON RESEARCH & DEVELOPMENT RS. 102CRORES RS. NIL OTHER 100% OFFSHORE( FROM INDIA) 25. HE FURTHER SUBMITTED THAT THE DIFFERENCE IN RIS K PROFILE APPLIES TO EVEN THOSE COMPARABLES SELECTED BY THE ASSESSEE; TH AT INFOSYS BPO LTD IS NOT ENGAGED IN CARRYING OUT DIFFERENT KIND OF ACTIV ITIES; THAT THERE IS NOT MUCH DIFFERENCE IN THE TURNOVER OF THE ASSESSEE AND THE COMPARABLES AS WAS IN THAT CASE; THAT THE HONBLE DELHI HIGH COURT ON THE ISSUE OF SUPER 14 NORMAL PROFITS AND TURNOVER, IN CASE OF CHRYS CAPIT AQL INVESTMENT ADVISORS(INDIA) PVT. LTD REJECTED THE TAXPAYERS ARG UMENTS BY HOLDING THAT ONCE THE COMPARABLES ARE FOUND TO FUNCTIONALLY SIMI LAR TO THE ASSESSEE, THEY WOULD BE REQUIRED TO BE INCLUDED AS COMPARABLE , NOTWITHSTANDING THEIR HIGH PROFIT MARGINS OR TURNOVER; THAT IN CASE OF INFOSYS BPO LTD. THERE ARE NO PROPRIETY PRODUCTS AS WERE IN THE CASE OF INFOSYS TECHNOLOGIES LTD.; THAT THE TPO HAS ALSO MENTIONED THAT THE INTANGIBLE EXPENDITURE INCURRED WAS ONLY 0.06% OF REVENUE; AND THAT, THEREFORE, IT IS SEEN THAT THE FACT OF INFOSYS BPO LTD ARE DIFFERENT FROM INFOSYS TECHNOLOGIES LTD . HE, THEREFORE, SUBMITTED THAT TH E ARGUMENT OF THE ASSESSEE IS NOT TENABLE. 26. PER CONTRA, LD. AR SUBMITTED THAT A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2015-16 IN I TA NO. 6687/DEL/2019, CONSIDERED ALL THE CONTENTIONS ON BEHALF OF THE REV ENUE AND REJECTED THIS COMPANY ON ACCOUNT OF BRAND PRESENCE. FURTHER RELIA NCE IN THIS REGARD WAS ALSO PLACED ON THE DECISION OF THE HONBLE DELH I HIGH COURT IN THE CASE OF NEW RIVER SOFTWARE SERVICES PVT LTD IN ITA NO 924/2016, WHEREIN THE HONBLE COURT RELYING ON THE DECISIONS IN THE C ASE OF PENTAIR WATER INDIA PVT LTD AND AGNITY TECHNOLOGIES PVT LTD. (ITA NO.124/2011), APPROVED THE EXCLUSION OF INFOSYS BPO LTD FROM THE LIST OF COMPARABLE COMPANIES. 27. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. IN THE CASE OF PR CIT VS ORACL E (OFSS) BPO SERVICES PVT LTD IN ITA NO 124/2018, THE HONBLE JURISDICTIO NAL HIGH COURT UPHELD THE EXCLUSION OF AN ENTITY ON THE BASIS OF SIGNIFIC ANT BRAND PRESENCE AND BRAND VALUE OF AN ENTITY HAS A SIGNIFICANT ROLE IN THE ABILITY TO GARNER 15 PROFITS AND NEGOTIATE CONTRACTS AND SUCH A DECISION OF THE HONBLE HIGH COURT HAS BEEN UPHELD BY THE HONBLE SUPREME COURT IN SLP (CC) NO. 32469/2018. IN THE CASE OF AVAYA INDIA PVT LTD (ITA NO. 532/2019) TOO THE HONBLE DELHI HIGH COURT REJECTED COMPANIES HAVING HIGH BRAND VALUE AS COMPARABLE TO CAPTIVE SERVICE PROVIDER. 28. THOUGH THE LD. AR PLACED RELIANCE ON SEVERAL DE CISIONS OF THE HONBLE DELHI HIGH COURT, NAMELY, IN PR. CIT VS SYM PHONY MARKETING SOLUTIONS (ITA NO 414/2018, PR. CIT VS M/S. SANVIH INFO GROUP PVT. LTD (ITA NO. 420/2019) AND PR. CIT VS EVALUESERVE SEZ ( GURGAON) PVT LTD (241/2018), AND THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS ENGINEERING INDIA PVT LT D VS ITO (ITA NO 1850/HYD/2012) WHEREIN THE EXCLUSION OF INFOSYS BPO AS COMPARABLE TO A CAPTIVE SERVICE PROVIDER WAS DIRECTED, THE FACT REM AINS THAT IN ASSESSEES OWN CASE FOR AY 2015-16 IN ITA NO. 6687/DEL/2019, THE TRIBUNAL CONSIDERED ALL THE CONTENTIONS ON BEHALF OF THE REV ENUE AND REJECTED THIS COMPANY ON ACCOUNT OF BRAND PRESENCE. 29. NO CHANGE OF FACTS AND CIRCUMSTANCES FROM THOSE INVOLVED FOR THE AY 2015-16 TO THE ASSESSMENT YEAR UNDER CONSIDERATI ON ARE BROUGHT TO OUR NOTICE. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON NOT TO FOLLOW THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2015-16 AND ALSO THE CONSISTENT VIEW TAKEN BY THE H ONBLE JURISDICTIONAL HIGH COURT IN THE DECISIONS REFERRED TO ABOVE. WE, THEREFORE, IN THE LIGHT OF THESE FACTS, ACCEPT THE FINDING OF THE LD. DRP I N EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLES. 2. TCS E SERVE INTERNATIONAL LTD. 16 30. INFORMATION GIVEN AT PAGE 336 OF THE ANNUAL REPORT PAPER BOOK IN RESPECT OF ITES SEGMENT FOR THE RELEVANT YEAR, SHOWS THE BROA D RANGE OF PROCESS MANAGEMENT SERVICES RENDERED BY THIS COMPAN Y TO VARIOUS INDUSTRIES AND THAT THIS COMPANY IS A PART OF TATA GROUP AND IS BACKED BY TCSS SCALE AND LARGE CLIENT BASE. SO ALSO THE INFO RMATION AT PAGE 336 OF THE ANNUAL REPORT PAPER BOOK SPEAKS THAT THE ASSOCI ATION WITH TATA GROUP HAS ENHANCED THE COMPANYS SERVICES OFFERINGS AND AS A RESULT THE COMPANY HAS STARTED SERVING NEW CLIENTS DURING THE YEAR UNDER CONSIDERATION. LD. TPO WITH REFERENCE TO THE CONTE NTS OF THE ANNUAL REPORT OBSERVED THAT THE COMPANY IS ENGAGED IN PROV ISION OF BPO SERVICES TO BANKING AND FINANCIAL INDUSTRY AND TOURISM AND H OSPITALITY, AND THEREFORE, THE COMPANY IS FUNCTIONALLY COMPARABLE T O THE ASSESSEE. ACCORDING TO THE LD. DRP, THE COMPANY NEEDS TO BE E XCLUDED ON ACCOUNT OF DIFFERENCE IN FAR PROFILE. 31. LD. DR SUBMITTED THAT IN THE ECONOMIC ANALYSIS BETWEEN INFOSYS BPO LIMITED AND TCS E-SERVE IT COULD BE SEEN THAT T HERE IS NO DISPROPORTIONATE DIFFERENCE IN THE SIZE OF THE ASSE SSEE AND THE COMPARABLE, AND FURTHER THAT THE ANALYSIS MADE IN T HE CASE OF INFOSYS BPO LIMITED MAY APPLY TO THIS COMPARABLE ALSO TO PR OVE THAT THE SIZE AND BRAND DOES NOT IMPACT THE PROFITABILITY OF THE COMP ARABLE. 32. LD. AR, HOWEVER, SUBMITTED THAT THIS COMPANY EX PLOITS THE BRAND TATA AND THEREFORE, ENJOYS THE GOODWILL AND RECOG NITION ASSOCIATED WITH THE SAID BRAND LEADING TO HIGHER VOLUME OF BUS INESS AND/OR PREMIUM PRICING, AND AS PER THE INFORMATION GIVEN AT PAGE N O. 8 OF THE ANNUAL REPORT THE COMPANY ACKNOWLEDGES THAT BACKED BY TCS SCALE AND LARGE CLIENT BASE THE COMPANY HAS ENHANCED ITS SERVICE OF FERINGS AND HAS ALSO 17 STARTED SERVICING NEW CLIENTS DURING THE RELEVANT Y EAR. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS EVALUESERVE SEZ (GURGAON) PVT. LTD (ITA 241/2018), AVAYA INDIA PVT LTD (ITA NO. 532/2019), PCIT VS B.C. MANAGEMENT SERVICE S (P.) LTD (ITA NO. 1064 & 1083 OF 2017) AND PR. CIT VS ORACLE (OFSS) B PO SERVICES PVT LTD (ITA NO 124/2018)AND THE DECISION OF A COORDINATE B ENCH OF THIS TRIBUNAL IN SMART CUBE INDIA PVT LTD. (ITA NO. 1178/DEL/2019 ) AND ALSO THE APPELLANTS OWN CASE FOR AY 2015-16 (ITA NO. 6687/D EL/2019). 33. WE HAVE CONSIDERED THE CONTENTIONS OF THE PARTI ES IN THE LIGHT OF THE CASE LAW CITED BY THE LD. AR. IN PCIT VS EVALU ESERVE SEZ (GURGAON) PVT. LTD (ITA 241/2018), THE HONBLE DELHI HIGH COU RT WHILE UPHOLDING THE FINDING OF THE ITAT HELD THAT THERE IS A CLOSE CONN ECTION BETWEEN FUNCTIONAL SIMILARITY BETWEEN TCS E-SERVE INTERNATI ONAL LTD AND TATA CONSULTANCY SERVICE LTD WHICH WAS HIGH BRAND VALUE AND THAT DISTINGUISHED IT AND MARKED IT OUT FOR EXCLUSION. I N THE CASE OF AVAYA INDIA PVT LTD (ITA NO. 532/2019) ALSO THE HONBLE HIGH CO URT REJECTED TCS E SERVE INTERNATIONAL LTD ON ACCOUNT OF HIGH BRAND VA LUE AS COMPARABLE TO CAPTIVE SERVICE PROVIDER. IN THE CASE OF PR. CIT VS ORACLE (OFSS) BPO SERVICES PVT LTD (ITA NO 124/2018), HONBLE DELHI H IGH COURT HELD THAT COMPANIES HAVING SIGNIFICANT BRAND PRESENCE CANNOT BE REGARDED AS APPROPRIATE COMPARABLE FOR THE PURPOSE OF BENCHMARK ING THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY A CAPTIVE SERVICE PROVIDER, AND SUCH A DECISION OF THE HONBLE HIGH COURT IS UPHELD BY THE HONBLE SUPREME COURT IN SLP (CC) NO. 32469/2018. FURTHER, THE HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS B.C. MANAGEMENT S ERVICES (P.) LTD (ITA NO. 1064 & 1083 OF 2017)FOR AY 2011-12,UPHELD THE I TAT FINDING OF 18 EXCLUSION OF THE COMPANY ON ACCOUNT OF THE BRAND VA LUE ASSOCIATED WITH TCS CONSULTANCY REFLECTED/ IMPACTED TCS E-SERVE PROFITABILITY IN A VERY POSITIVE MANNER. 34. APART FROM THAT, A COORDINATE BENCH OF THIS TRI BUNAL IN APPELLANTS OWN CASE FOR AY 2015-16 (ITA NO. 6687/DEL/2019) REJ ECTED INFOSYS BPO LTD. ON ACCOUNT OF BRAND PRESENCE. THERE IS NO EXPL ANATION AS WHY THE DECISIONS OF HONBLE HIGH COURT AND THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE SHOULD NOT BE FOLLOWED THIS YEA R ALSO. WE THEREFORE, AGREE WITH THE LD. DRP THAT TCS E-SERVE INTERNATION AL LTD. TOO DESERVES TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE COMPA NIES. 3. TCS E SERVE LTD. 35. AS COULD BE FOUND FROM PAGE 295 OF THE ANNUAL R EPORT PAPER BOOK IN RESPECT OF ITES SEGMENT, THE PROFILE OF THIS COM PANY IS THAT THE COMPANY IS ENGAGED IN PROVIDING TECHNICAL SERVICES SUCH AS SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE AN D DATA CENTRE MANAGEMENT ACTIVITIES. ACCORDING TO THE LD. TPO, TH E COMPANY PROVIDES A BROAD RANGE OF SERVICES TO CATER TO THE PROCESS MAN AGEMENT REQUIREMENTS FOR DELIVERY OF WIDE RANGE OF FINANCIA L PRODUCTS AND ENTERPRISE SUPPORT FUNCTIONS WHICH INCLUDE FINANCIA L INFORMATION PROCESSING CUSTOMER CONTACT SERVICES AND FUNCTIONAL TESTING SERVICES, AND THAT THE COMPANY IS ENGAGED IN BUSINESS PROCESS OUT SOURCING (TRANSACTION PROCESSING SERVICES). LD. TPO, ACCORDI NGLY HELD THIS COMPANY AS A COMPARABLE. LD. DRP, HOWEVER, HELD THAT THE CO MPANY NEEDS TO BE EXCLUDED ON ACCOUNT OF DIFFERENCE IN FAR PROFILE. 19 36. ON THE ISSUE OF FUNCTIONAL DISSIMILARITY, LD. D R SUBMITTED THAT, A PERUSAL OF THE ANNUAL REPORT OF THE COMPANY SHOWS T HAT THIS COMPANY ALONG WITH ITS SUBSIDIARY COMPANIES I.E. TCS E-SER VE INTERNATIONAL LTD. AND TCS E-SERVE AMERICA, INC., (COLLECTIVELY REFERR ED TO AS TCS E-SERVE) MAINTAINED ITS LEADERSHIP POSITION IN PROVIDING INF ORMATION TECHNOLOGY ENABLES SERVICES (ITES) OR BUSINESS PROCESS OUTSOUR CING SERVICES (BPO) IN THE BANKING AND FINANCIAL SERVICES INDUSTRY DOMAIN (BFSI) WITH CITY GROUP ENTITIES BEING ITS LARGEST CUSTOMERS SINCE 1998; TH AT THE SERVICES OFFERED BY THIS COMPANY ARE IN THE NATURE OF IT ENABLED SER VICES ONLY; THAT THE TECHNICAL SERVICES WHICH ASSESSEE IS REFERRING HERE IS ACTUALLY SERVICES PROVIDED BY THE COMPANY TO ITS CUSTOMERS UNDER IND USTRY VERTICAL WHICH IS ACTUALLY BPO SERVICES ONLY; AND THAT, THEREFORE, NON AVAILABILITY OF SEGMENTAL DATA HAS NO RELEVANCE IN THIS CASE AND TH IS COMPARABLE MAY BE TAKEN AS ENTITY LEVEL. 37. HE FURTHER SUBMITTED THAT THE TURNOVER OF THE C OMPARABLE IS RS.1440 CRS WHILE THE TURNOVER OF THE COMPANY IS 16 9 CRS FOR ITES SEGMENT AND A TOTAL TURNOVER OF RS. 577 CRS., AS SU CH THERE IS NO DISPROPORTIONATE DIFFERENCE IN THE SIZE OF THE ASSE SSEE AND THE COMPARABLE; THAT THE ANALYSIS MADE IN THE CASE OF I NFOSYS BPO LIMITED MAY APPLY TO THIS COMPARABLE ALSO; AND THEREFORE, A SSESSEES ARGUMENT FOR EXCLUDING THE COMPARABLE TCS E-SERVE LTDBY REL YING ON THE JUDGMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF AGILI TY INDIA LTD. WHEREIN THE COURT HAD DIRECTED EXCLUSION OF INDUSTRY GIANT IN V IEW OF THE ECONOMIC ADVANTAGE CONFERRED TO THEM ON ACCOUNT OF SHEER SIZ E AND ENORMITY, IS UNTENABLE. 20 38. HIS FURTHER CONTENTION IS THAT THIS COMPANY OWN ED SIGNIFICANT INTANGIBLES AND BRAND VALUE BUT THE ARGUMENT THAT B RAND HAS HELPED IN BETTER MARGINS IS ALSO NOT CORRECT; THAT THE BRAND NAME MAY HAVE HELPED TCS E-SERVE IN INCREASING ITS NUMBER OF CLIENTS & R ETENTION OF EXISTING CLIENTS AND THUS AN INCREASE IN ITS MARKET SHARE, B UT IT HAS NOT NECESSARILY RESULTED IN BETTER PROFIT MARGINS, BECAUSE BRAND MA Y BRING MORE REVENUES BUT NOT NECESSARILY HIGHER MARGINS, WHEREA S CONVERSELY SOME COMPANIES DESPITE HAVING BRAND NAME HAVE EARNED LOW ER MARGINS. FURTHER ACCORDING TO HIM, ANY BRAND COMES WITH A CO ST I.E. HUGE EXPENSES ARE REQUIRED TO BE INCURRED TO BUILD BRAND VALUE, W HICH SHOWS THAT A BRAND MAY GENERATE REVENUE BUT WITH A COST COMPENSA TING ANY EXTRA BENEFIT, IF ANY DERIVED FROM SUCH EFFORT. HE PLACED RELIANCE ON THE DECISION OF THE VISAKHAPATNAM BENCH OF TRIBUNAL IN THE CASE OF LG POLYMERS INDIA PVT. LTD. (2011-TII-97-ITAT-VIZAG-TP ) WHEREIN IT WAS HELD THAT BRAND NAME IS ONLY ONE OF THE FACTORS BUT NOT THE ONLY FACTOR WHICH AFFECTS PROFITABILITY, AND SEVERAL OTHER FACTORS GO INTO THE PROFITABILITY OF A CONCERN. HE SUBMITS THAT IN THIS CASE, THE ASSESSEE HAS ALSO FAILED TO ESTABLISH THAT THE PAYMENT OF TATA BRAND EQUITY AND OWNERSHIP OF INTANGIBLES IS LEADING TO HIGH PROFIT MARGIN EARNED BY THE COMPANY AND THESE KINDS OF INTANGIBLES ARE AVAILABLE IN ALMOST ALL THE COMPARABLES. 39 . PER CONTRA, WHILE SUPPORTING THE FINDINGS OF THE LD . DRP, LD. AR ARGUED THAT THIS COMPANY IS NOT FUNCTIONALLY SIMILA R TO THE ASSESSEE SINCE IT IS ENGAGED IN PROVIDING TECHNICAL SERVICES SUCH AS SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE AND DATA CE NTRE MANAGEMENT ACTIVITIES WHICH SERVICES ARE NOT COMPARABLE WITH R OUTINE TRANSACTION PROCESSING SERVICES PROVIDED BY THE ASSESSEE. FURTH ER, ACCORDING TO HIM, 21 THIS COMPANY EXPLOITS THE BRAND TATA AND THEREFOR E, ENJOYS THE GOODWILL AND RECOGNITION ASSOCIATED WITH THE SAID B RAND LEADING TO HIGHER VOLUME OF BUSINESS AND/OR PREMIUM PRICING. COMPANIE S OWNING/EXPLOITING INTANGIBLES SUCH AS BRAND ETC CAN NOT BE COMPARED WITH A ROUTINE CAPTIVE SERVICE PROVIDER SUCH AS THE APPELLANT. 40. HE PLACED RELIANCE ON THE DECISION OF THE HONB LE DELHI HIGH COURT IN PCIT VS B.C. MANAGEMENT SERVICES (P.) LTD (ITA N O. 1064 & 1083 OF 2017), PCIT VS EVALUESERVE SEZ (GURGAON) PVT. LTD (ITA 241/2018), AVAYA INDIA PVT LTD (ITA NO. 532/2019 AND PR. CIT VS ORAC LE (OFSS) BPO SERVICES PVT LTD (ITA NO 124/2018) IN SUPPORT OF HIS CONTENT ION THAT TCS E-SERVE LTD. TOO, DESERVES TO BE EXCLUDED FROM THE FINAL LI ST OF COMPARABLE COMPANIES ON ACCOUNT OF ASSOCIATION WITH BRAND TATA COMPANY. HE ALSO PLACED RELIANCE ON A DECISION OF THE COORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF SMART CUBE INDIA PVT LTD. IN ITA NO. 1 178/DEL/2019 AND ALSO IN APPELLANTS OWN CASE FOR AY 2015-16 IN ITA NO. 6 687/DEL/2019. 41. IN THE CASE OF PCIT VS B.C. MANAGEMENT SERVICES (P.) LTD (ITA NO. 1064 & 1083 OF 2017) HONBLE DELHI HIGH COURT UPHEL D THE ITAT FINDING OF EXCLUSION OF THE COMPANY ON ACCOUNT OF THE BRAND VA LUE ASSOCIATED WITH TCS CONSULTANCY WHICH IMPACTED TCS E-SERVE PROFITAB ILITY IN A VERY POSITIVE MANNER. HONBLE DELHI HIGH COURT IN THE CA SE OF PCIT VS EVALUESERVE SEZ (GURGAON) PVT. LTD (ITA 241/2018)UP HELD THE ITAT FINDING THAT THERE IS A CLOSE CONNECTION BETWEEN FUNCTIONAL SIMILARITY BETWEEN TCS E-SERVE AND TATA CONSULTANCY SERVICE LTD WHICH WAS HIGH BRAND VALUE THAT DISTINGUISHED IT AND MARKED IT OUT FOR E XCLUSION. FURTHER, IN THE CASE OF AVAYA INDIA PVT LTD (ITA NO. 532/2019) TOO HONBLE HIGH COURT REJECTED TCS E SERVE LTD ON ACCOUNT OF HIGH BRAND V ALUE AS COMPARABLE TO 22 CAPTIVE SERVICE PROVIDER. SO ALSO, IN THE CASE OFPR . CIT VS ORACLE (OFSS) BPO SERVICES PVT LTD (ITA NO 124/2018)HONBLE JURIS DICTIONAL HIGH COURT HELD THAT COMPANIES HAVING SIGNIFICANT BRAND PRESEN CE CANNOT BE REGARDED AS APPROPRIATE COMPARABLE FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY A CAPT IVE SERVICE PROVIDER AND THE SAID DECISION IS UPHELD BY THE HONBLE SUPR EME COURT IN SLP (CC) NO. 32469/2018. 42. THIS COMPANY WAS DIRECTED TO BE EXCLUDED BY THE HONBLE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SMART CUBE IND IA PVT LTD. (ITA NO. 1178/DEL/2019) ON ACCOUNT OF ITS ASSOCIATION WITH T HE BRAND NAME OF TATAS. PERTINENTLY, A COORDINATE BENCH OF THIS TR IBUNAL IN THE APPELLANTS OWN CASE FOR AY 2015-16 (ITA NO. 6687/DEL/2019) REJ ECTED INFOSYS BPO LTD. WHICH STANDS ON THE SAME FOOTING OF TCS E-SERV E LTD. ON ACCOUNT OF BRAND PRESENCE. IN THIS SET OF FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE DECISIONS OF THE HONBLE HIGH COURT ARE APPLICA BLE TO THE FACTS OF THIS CASE FOR THIS YEAR ON ALL FOURS AND RENDERS THIS CO MPANY NON COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE EXCLUSI ON OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR BOT H THE AYS 2010-11 AND 2011-12 ON ACCOUNT OF ASSOCIATION WITH BRAND TATA. 4. ACCENTIA TECHNOLOGIES LTD. 43. ACCORDING TO THE INFORMATION FURNISHED IN THE A NNUAL REPORT ACCENTIA TECHNOLOGIES LTD. IS ENGAGED IN PROVIDING ITES SERVICES AS WELL AS PROVISION OF SOFTWARE SERVICES AND IN PROVIDING MED ICAL TRANSCRIPTION AND MEDICAL CODING SERVICES AS WELL AS LEGAL PROCESS O UTSOURCING SERVICES. LD. TPO HELD THAT THE COMPANY HAS NOT GENERATED ANY REV ENUE FROM SALE OF 23 COMPUTER SOFTWARE AND SINCE THE COMPANY IS ENGAGED IN PROVISION OF MEDICAL TRANSCRIPTION ACTIVITY IT IS ACCEPTABLE AS A COMPARABLE WHILE APPLYING TNMM WHICH REQUIRES BROAD COMPARABILITY. L D. DRP, HOWEVER, HELD OTHERWISE AND REJECTED THIS COMPANY ON ACCOUNT OF MERGER DURING THE YEAR. 44. LD. DR BROUGHT TO OUR NOTICE THE RELEVANT EXTRA CTS OF THE TPO ORDER WHEREIN THE LD. TPO OBSERVED THAT THE ASSESSEE HAS ARGUED THAT THE COMPANY IS FUNCTIONALLY DIFFERENT AS IT OPERATES IN THE SEGMENT OF 'HEALTHCARE RECEIVABLE MANAGEMENT', BUT PROFIT AND LOSS ACCOUNT OF THE COMPANY SHOWS THAT ITS INCOME IS FROM THREE SOURCES LIKE 'MEDICAL TRANSCRIPTION', 'BILLING AND COLLECTIONS' AND 'INCO ME FROM CODING' AND THAT THE MAIN ACTIVITIES OF THE ACCENTIA IS MEDICAL TRANSCRIPTION, WHICH IS DIFFERENT FROM THE ACTIVITY OF THE TAXPAYER. LD. TP O OBSERVED THAT ASSESSEE HAS RAISED THE ISSUE OF FUNCTIONAL DISSIMI LARITY WHILE TAKING NOTE OF THE SUBMISSION ON BEHALF OF THE ASSESSEE THAT A CCENTIA HAS AMALGAMATED WITH ASSCENT INFOSERVE PRIVATE LIMITED, AND THE RESULTING FIGURES ARE NOT COMPARABLE TO THOSE OF THE PREVIOUS YEAR OF THE COMPANY ITSELF BESIDES THE COMPANY HAS SIGNIFICANT INTANGIB LES IN THE FORM OF GOODWILL AND IS ALSO ENGAGED IN DEVELOPMENT OF PROP RIETARY SOFTWARE PRODUCTS. LD. DR SUBMITTED THAT ON A PERUSAL OF TH E ANNUAL REPORT OF THIS COMPANY, LD. TPO FOUND THAT THE COMPANY IS INTO HEA LTHCARE RECEIVABLE CYCLE MANAGEMENT PREDOMINANTLY WHICH IS IN ITES, OF WHICH HEALTH RECEIVABLE CYCLE MANAGEMENT IS A TERM ENCOMPASSING MEDICAL TRANSCRIPTION, CODING AND BILLING AND COLLECTION AN D IT IS ONE COMPLETE SEGMENT EARNING INCOME THROUGH VARIOUS SUB-SEGMENTS WHICH IN A WAY ARE CLOSELY RELATED TO EACH OTHER AND COMPLEMENT EA CH OTHER. LD. TPO 24 OBSERVED THAT MEDICAL TRANSCRIPTION IS DEFINED AS T RANSCRIBING OR CONVERTING VOICE RECORDED REPORTS AS DICTATED BY PH YSICIANS AND/OR OTHER HEALTH CARE PROFESSIONALS TO TEXT FORMAT; THAT MEDI CAL CODING IS DEFINED AS ASSIGNING CODES TO DIAGNOSIS AND PROCEDURE WHICH HE LP IN FINANCIAL REIMBURSEMENTS FROM INSURANCE COMPANIES AND OTHERS; THAT MEDICAL BILLING IS A BILLING ON INSURANCE COMPANIES BY HOSP ITALS FOR AND ON BEHALF OF THE PATIENTS MEDICAL CARE EXPENSES; THAT ALL TH ESE SERVICES ARE INTER- LINKED AND ARE JUST EXTENSIONS OF THE WORK DONE IN THE MEDICAL TRANSCRIPTION SEGMENT; THAT MEDICAL TRANSCRIPTION F ROM WHICH ACCENTIA EARNS MAXIMUM REVENUE IS AN ITES SERVICE; WHEREAS T HE TAXPAYER HAS DEFINED ONLY ONE SEGMENT IE., HEALTH CARE RECEIVABL E MANAGEMENT. LD. TPO MAINTAINED THAT THERE IS NO DISTINCTION BETWEEN THE TRANSCRIPTION SERVICES AND CODING SERVICES, AND, EVEN IF A DISTIN CTION IS MADE BETWEEN THE TRANSCRIPTION SERVICES AND CODING SERVICES, IT IS CLEAR THAT MORE THAN 86 % OF THE RECEIPT IS FROM ITES SERVICES AND A SMA LL PORTION (12.56%) IS FROM THE CODING ACTIVITY. 45. WHILE DRAWING OUR ATTENTION TO THE MARGINS OF A CCENTIA FROM FY 2007-08 TO F.Y 2009-10, LD. DR SUBMITTED THAT THE M ERGER HAS NOT SIGNIFICANTLY INFLUENCED THE BUSINESS OF ACCENTIA. 46. WITH REFERENCE TO THE WEBSITE OF THE COMPANY WH ERE ASSESSEE CONTENDS THAT IT IS DEVELOPING PROPRIETARY SOFTWARE PRODUCTS, LD TPO OBSERVED THAT THERE IS NO REFERENCE OF THE SAME IN THE ANNUAL REPORT RELEVANT TO THE PERIOD UNDER CONSIDERATION AND THE COMPANY HAS SHOWN ITS REVENUES DURING THE YEAR TO ACCRUE FROM MEDICAL TRANSCRIPTION, BILLING & CODING AND INCOME FROM CODING. NO REVENUES ARE G ENERATED FROM SALE OF SUCH SOFTWARE. 25 47. LD. TPO REJECTED THE ARGUMENT OF THE ASSESSEE T HAT THE COMPANY IS DIFFERENT BECAUSE OF PRESENCE OF GOODWILL IN ITS FI XED ASSETS, STATING THAT THE RATIO OF SUCH INTANGIBLES TO ITS TURNOVER IS AR OUND 5% ONLY, WHICH IS NOT MATERIAL ENOUGH FOR INFLUENCING THE PRICING OR THE PROFITABILITY OF THE COMPANY AND THIS COMPANY IS HAVING CONSISTENT PROFI TS OVER THE YEARS AND EVEN THE ACQUISITION OF GOODWILL DURING THE YEA R DID NOT HAVE MUCH EFFECT ON THE PRICING OR THE PERFORMANCE OF THE COM PANY, CONTRARY TO WHICH, THE PROFITABILITY HAS ONLY DECREASED IN THE F.Y 2009-10 AS COMPARED TO FY 2008-09. 48. PER CONTRA, IN RESPECT OF PROVISION OF SOFTWARE SERVICES, IT IS THE SUBMISSION OF THE LD. AR, THAT THE COMPANY APART FR OM PROVIDING ITES SERVICES IS ALSO ENGAGED IN PROVISION OF SOFTWARE S ERVICES AND SEGMENTAL PROFITABILITY STATEMENT W.R.T INCOME FOR ITES SERVI CES IS NOT AVAILABLE, AND, THEREFORE, THIS COMPANY CANNOT BE REGARDED AS COMPA RABLE FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTI ON OF PROVISION OF ITES SERVICES UNDERTAKEN BY THE ASSESSEE . HE FURTHER SUBMITTED THAT IN THE ANNUAL REPORT IT IS STATED THAT THE COMPANY IS ENGAGED IN PROVIDING MEDICAL TRANSCRIPTION AND MEDICAL CODING SERVICES A ND SINCE THE COMPANY IS PROVIDING IT AS WELL AS ITES SERVICES, I T CANNOT BE REGARDED AS A COMPARABLE TO THE ASSESSEE FOR BENCHMARKING THE I TES SEGMENT. HE FURTHER SUBMITTED THAT AS PER THE INFORMATION FURNI SHED IN THE ANNUAL REPORT WITHIN THE DOMAIN OF IT ENABLED SERVICES, TH E COMPANY INTER-ALIA PROVIDES LEGAL PROCESS OUTSOURCING SERVICES AND THE REFORE, CANNOT BE REGARDED AS COMPARABLE TO THE ASSESSEE, ENGAGED IN PROVISION OF ROUTINE TRANSACTION 26 49. NEXT SUBMISSION OF THE LD. AR IS THAT DURING TH E YEAR THE COMPANY WAS AMALGAMATED WITH ASSCENT INFOSERVE PVT. LTD. (S UBSIDIARY OF THE ACCENTIA) AS APPROVED BY THE HONBLE HIGH COURT VID E ORDER DATED 25.04.2009 AND THE FINANCIAL RESULTS OF THE COMPANY FOR THE YEAR ENDING 31.03.2010 ARE INCLUSIVE OF THE FIGURES OF THE AMAL GAMATING COMPANY. YET ANOTHER CONTENTION ON BEHALF OF THE ASSESSEE IS THA T THE COMPANY OWNS SIGNIFICANT INTANGIBLE ASSETS IN THE FORM OF GOODWI LL AMOUNTING TO RS. 219,449,287/-. 50. RELIANCE IS PLACED ON THE DECISIONS OF THE HON BLE DELHI HIGH COURT IN THE CASE OF EVALUESERVE SEZ (GURGAON) PVT LTD (I TA NO 241/2018) (FOR AY 2010-11), AND THE DECISIONS OF THE COORDINATE BE NCHES OF THIS TRIBUNAL IN SMART CUBE INDIA PVT LTD (ITA NO. 6078/DEL/2015) , COGNIZANT TECHNOLOGY SERVICES PVT. LTD. VS. ACIT (ITA NO. 210 6 & 1864/HYD/2011) AND ACIT VS. NIT LTD. [ITA NO. 1844/DEL/2009]. 51. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS ON BEHALF OF EITHER SIDE. FROM THE MATERIAL PAPERS ON RECORD, WE NOTIC E THAT IN RESPECT OF THE ARGUMENT OF THE ASSESSEE THAT ACCENTIA HAS UNDE RTAKEN EXTRA- ORDINARY EVENTS NAMELY, AMALGAMATION WITH ASSCENT I NFOSERVE PRIVATE LIMITED DURING THE YEAR, LD. TPO OBSERVED THAT THE ACQUISITIONS ARE MADE BY COMPANIES TO BENEFIT FROM EACH OTHER'S STRENGTHS , BUT THE ACQUISITIONS IN THEMSELVES DO NOT BECOME EXTRAORDINARY EVENTS, E XCEPT WHEN THE COMPANY'S FUNCTIONS CHANGE SUBSTANTIALLY AFTER AN A CQUISITION THE SAME MAY BECOME NON-COMPARABLE; ALSO THAT WHEN THE ACQUI SITIONS HAVE ABNORMAL IMPACT ON NORMAL OPERATIONS OF THE BUSINES S, IT WILL BE CONSIDERED A PECULIAR CIRCUMSTANCE. ACCORDING TO TH E LD. TPO, ASSESSEE FAILED TO POINT OUT HOW ACQUISITION HAS AFFECTED TH E OPERATIONS OF THE 27 COMPANY. HOWEVER, THERE IS NO DENIAL OF THE FACT O F AMALGAMATION TAKING PLACE DURING THE YEAR. AS A MATTER OF FACT, IT IS NOT CLINCHED BEFORE US THAT THE ACQUISITIONS HAVE NO OR INSIGNIFICANT IMPACT ON NORMAL OPERATIONS OF THE BUSINESS. SO ALSO, THERE IS NO DENIAL OF THE F ACT THAT M/S. ACCENTIA TECHNOLOGIES LTD. OWNS SIGNIFICANT INTANGIBLE ASSET S IN FORM OF GOODWILL ETC., IT ALSO OWNS PROPRIETARY SOFTWARE PRODUCTS AN D THOUGH IT IS ENGAGED IN THE MEDICAL TRANSCRIPTION AND DEVELOPMENT OF SOF TWARE PRODUCTS BUT THE SEGMENTAL PROFITABILITY IS NOT AVAILABLE IN THE FINANCIAL STATEMENTS. THESE ASPECTS WERE CONSIDERED BY THE HONBLE JURISD ICTIONAL HIGH COURT AND A COORDINATE BENCH OF THIS TRIBUNAL IN VARIOUS CASES IN THE CONTEXT OF M/S. ACCENTIA TECHNOLOGIES LTD. TO HOLD THAT THOSE ARE SIGNIFICANT FACTS RENDERING M/S. ACCENTIA TECHNOLOGIES LTD. UNCOMPARA BLE WITH THE COMPANIES LIKE ASSESSEE. 52. HONBLE DELHI HIGH COURT IN THE CASE OF EVALUES ERVE SEZ (GURGAON) PVT LTD (ITA NO 241/2018) (FOR AY 2010-11) UPHELD T HE EXCLUSION OF ACCENTIA TECHNOLOGIES LTD. ON THE BASIS THAT SEGMEN TAL ACCOUNTS ARE NOT AVAILABLE. FINDING WITH REGARD TO EXCLUSION OF THIS COMPANY IS THAT, - 6. THE ITAT NOTED THAT M/S. ACCENTIA TECHNOLOGIES L TD. WAS MAINLY PERFORMING MEDICAL TRANSCRIPTION SERVICES. IT WAS O F THE OPINION THAT ITS SERVICE WAS SIMILAR TO THE ONE THAT THE ASSESSEE WA S ENGAGED IN. HOWEVER, IT ALSO NOTED THAT THERE WAS NO SEGMENTED DATA AND ON THAT ACCOUNT, DIRECTED THE EXCLUSION OF THAT ENTITY FROM THE LIST OF COMPARABLES. XXX XXX 7. ALL THE REASONS GIVEN BY THE ITAT, IN THE OPINIO N OF THE COURT, ARE JUSTIFIED AND SUPPORTED BY THE JUDGMENT IN B.C. MAN AGEMENT (SUPRA) 28 53. IN THE CASE OF ACIT VS. NIT LTD. [ITA NO. 1844/ DEL/2009], A COORDINATE BENCH OF THIS TRIBUNAL, WHILE PROVIDING A LIST OF FILTERS TO BE APPLIED DURING BENCHMARKING OF A TRANSACTION, HAS H ELD THAT: WHILE MAKING AFRESH TRANSFER PRICING ORDER, THE TP O SHALL TAKE INTO ACCOUNT THE ANNUAL REPORTS OR DATABASE OF THE AFORE SAID COMPANIES NOW SUBMITTED BEFORE US AND SHALL ALSO DECIDE THE POINT AS TO WHETHER ALL THE COMPARABLES SELECTED BY THE ASSESSEE ARE PROPER COM PARABLES FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE AFTER CON SIDERING THE FOLLOWING FACTORS AS PER LAW: (I) WHETHER THE COMPANIES HAVE LARGE VOLUME OF RELA TED PARTY TRANSACTIONS. (II) WHETHER COMPANIES HAVE ABNORMALLY HIGH PROFITS OR LOSSES. (III) WHETHER COMPANIES HAVE GONE FOR BUSINESS RE-S TRUCTURING. (IV) WHETHER COMPANIES HAVE SHOWN HIGH GROWTH. (V) WHETHER COMPANIES ARE HAVING HIGH TURNOVER. (VI) WHETHER COMPANIES ARE HAVING LARGER INVENTORY. (VII) WHETHER COMPANIES ARE HAVING HIGH MARKETING E XPENSES. 54. THIS COMPANY WAS ALSO DIRECTED TO BE EXCLUDED BY BY A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SMART CUBE IN DIA PVT LTD (ITA NO. 6078/DEL/2015) ON THE BASIS THAT IT IS ENGAGED IN P ROVISION OF MEDICAL TRANSCRIPTION SERVICES AND SALE OF SOFTWARE AND THE REFORE CANNOT BE REGARDED AS COMPARABLE TO A ITES SERVICE PROVIDER. IT IS PERTINENT TO NOTE THAT THESE OBSERVATIONS ARE IN RESPECT OF THE AY 20 11-12. WE FIND IT NECESSARY AND CONVENIENT TO EXTRACT THE RELEVANT OB SERVATIONS OF THE TRIBUNAL: 46. NOW WE TAKE UP THE ISSUE OF SELECTION OF VARIOU S COMPARABLE COMPANIES. WITH RESPECT TO ACCENTIA TECHNOLOGIES LT D., IT IS SEEN THAT IT PROVIDES SERVICE TO HEALTHCARE INDUSTRY IN THE NATU RE OF MEDICAL TRANSCRIPTION, MEDICAL CODING ETC. AND REVENUES EA RNING FROM THOSE FIELDS ARE MORE THAN 75%. BEFORE US, LEARNED AR HAS POINTED TO THE FACT THAT IT OWNS SIGNIFICANT INTANGIBLE ASSETS IN FORM OF GOODWILL ETC. AMOUNTING TO RS.21.94 CRORES AND IT ALSO OWNS PROPR IETARY SOFTWARE PRODUCTS. FURTHER, HE HAS ALSO POINTED OUT TO THE F ACT THAT THOUGH IT IS ENGAGED IN THE MEDICAL TRANSCRIPTION AND DEVELOPMEN T OF SOFTWARE PRODUCTS BUT THE SEGMENTAL PROFITABILITY IS NOT AVA ILABLE IN THE FINANCIAL 29 STATEMENTS. THE AFORESAID CONTENTIONS OF THE LEARN ED AR HAVE NOT BEEN CONTROVERTED BY THE REVENUE. WE FIND THAT THE DELHI BENCH OF TRIBUNAL IN THE CASE OF E-VALUESERVE SEZ (GURGAON) P. LTD. FOR AY 2011-12 HAD REJECTED IT TO BE A COMPARABLE COMPANY TO AN ITES S ERVICE FOR THE REASON THAT IT IS ENGAGED IN THE BUSINESS OF MEDICAL TRANS CRIPTION, MEDICAL CODING AND BILLING. THE ORDER OF THE TRIBUNAL HAS A LSO BEEN UPHELD BY THE HONBLE HIGH COURT. SIMILAR VIEW HAS ALSO BEEN TAKE N BY THE TRIBUNAL IN OTHER CASES. WE ARE THEREFORE OF THE VIEW THAT ACCE NTIA TECHNOLOGIES LTD CANNOT BE CONSIDERED TO BE A COMPARABLE TO ASSESSEE . IN VIEW OF THESE FACTS, WE DIRECT THE AO TO EXCLUDE IT ON ACCOUNT OF FUNCTIONAL DISSIMILARITY. 55. IN THE CASE OF COGNIZANT TECHNOLOGY SERVICES P VT. LTD. VS. ACIT (ITA NO. 2106 & 1864/HYD/2011), HYDERABAD BENCH OF THE T RIBUNAL DIRECTED TO EXCLUDE THE COMPANIES HAVING EXTRA-ORDINARY EVEN T LIKE MERGERS/ACQUISITIONS WHICH WILL HAVE AN EFFECT ON T HE PROFITABILITY OF THE COMPANY IN THE FINANCIAL YEAR IN WHICH EVENT TAKES PLACE. IN THE CASE OF GLOBAL LOGIC INDIA LTD. VS DCIT (ITA NO. 4740/DEL/2 018) A COORDINATE BENCH OF THIS TRIBUNAL REJECTED A COMPANY ON ACCOUN T OF RESTRUCTURING ACTIVITY DURING THE YEAR. 56. THE OBSERVATIONS OF THE HONBLE DELHI HIGH COU RT IN THE CASE OF EVALUESERVE SEZ (GURGAON) PVT LTD (ITA NO 241/2018) (FOR AY 2010-11) AND A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SMART CUBE INDIA PVT LTD (ITA NO. 6078/DEL/2015) FOR THE AY 2011-12 GO UNDISPUTED CLINCH THE ISSUE. IN THE LIGHT OF THESE OBSERVATIONS OF TH E HIGHER FORA, OBSERVATIONS OF THE LD. DRP IN RESPECT OF M/S. ACC ENTIA TECHNOLOGIES LTD. CANNOT BE FOUND FAULT WITH. WE, THEREFORE, UP HOLD THE FINDINGS OF THE LD. DRP AS TO THE EXCLUSION OF THIS COMPARABLE IN THE FINAL LIST OF COMPARABLES FOR BOTH THE YEARS UNDER CONSIDERATION. 5. ICRA TECHNO ANALYTICS LTD 30 57. ASSESSEE ARGUED FOR THE EXCLUSION OF THIS COMPA NY ON THE GROUND OF FUNCTIONALLY DISSIMILARITY, COMPANYS ENGAGEMENT IN PROVISION OF KPO SERVICES AND SALE OF SOFTWARE PRODUCTS. ACCORDING TO THE ASSESSEE THIS ENTITY IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES. LD. TPO EXAMINED THIS CONTENTION AND FOUND NOT TO BE ACCEPT ABLE ON THE GROUND THAT THE SERVICES OFFERED BY THIS COMPANY ARE BROAD LY VERY MUCH SIMILAR TO THAT OF ASSESSEE. IN THIS REGARD LD. DR PLACED R ELIANCE ON THE CBDT NOTIFICATION SO 2810(E) DATED 19.9.2013, AND SUBMIT TED THAT THIS NOTIFICATION GAVE A DETAILED LIST OF PRODUCTS OR SE RVICES AND THAT ASSESSEES FUNCTIONS AND THIS COMPARABLE COMPANY FUNCTIONS FAL LS UNDER ONE SEGMENT ONLY. 58. LD. AR SUBMITTED THAT THIS COMPANY IS FUNCTIONA LLY DIFFERENT, ENGAGED IN PROVISION OF KPO SERVICES AND SALE OF SO FTWARE PRODUCTS. HE SUBMITTED THAT THE COMPANY IS ENGAGED IN PROVISION OF KPO SERVICES SUCH AS BUSINESS INTELLIGENCE AND ANALYTICS AND ALSO TRA DES IN COMPUTED SOFTWARE AND ON THAT GROUND, IT CANNOT BE REGARDED AS AN APPROPRIATE COMPARABLE FOR BENCHMARKING THE TRANSACTION OF ROUT INE BPO SERVICES PROVIDED BY THEASSESSEE. WITH REFERENCE TO THE CON TENTS OF THE ANNUAL REPORT, HE DEMONSTRATES THAT THE REVENUE OF THE COM PANY COMPRISES OF SOFTWARE DEVELOPMENT & CONSULTANCY, LICENSING & SUB -LICENSING FEE, ANNUAL MAINTENANCE CHARGES FOR SOFTWARE SUPPORT, WE B DEVELOPMENT AND HOSTING. HE THEREFORE, SUBMITTED THAT THIS COMPANY CANNOT BE REGARDED AS AN APPROPRIATE COMPARABLE FOR BENCHMARKING THE I NTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES. 31 59. HE PLACED RELIANCE ON THE DECISION OF THE HONB LE DELHI HIGH COURT IN THE CASE OF B.C. MANAGEMENT SERVICES PVT LTD 302 CTR 167 AND THE DECISIONS OF THE TRIBUNAL IN SMART CUBE INDIA PVT L TD VS ACIT (ITA NO. 6078/DEL/2015) FOR THE AY 2011-12, NI SYSTEMS INDI A PVT LTD (ITA NO. 155/BANG/2017), AND CSG SYSTEMS INTERNATIONAL (INDI A) PVT LTD (ITA NO. 2026/BANG/2017). 60. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THESE SUBMISSIONS MADE ON EITHER SIDE. THE COMPANY WAS DIRECTED TO B E EXCLUDED BYIN THE CASE OF B.C. MANAGEMENT SERVICES PVT LTD 302 CTR 16 7 WHEREIN THE EXCLUSION OF COMPARABLE ICRA TECHNO ANALYTICS LTD . WAS ON THE BASIS THAT IT HAD ENGAGED ITSELF IN PROCESSING AND PROVID ING SOFTWARE DEVELOPMENT AND CONSULTANCY AND ENGINEERING SERVICE S/WEB DEVELOPMENT SERVICES AND THE REASONS FOR EXECUTION WERE FUNCTIONAL DIS- SIMILARITIES AND THAT SEGMENTAL DATA WERE UNAVAILAB LE. AGAIN THE FINDINGS OF THE ITAT ARE REASONABLE AND BASED ON RECORD. THE THIRD COMPARABLE THAT THE AO/TPO EXCLUDED IS TCS E-SERVE. THE ITAT O BSERVED THAT THOUGH THERE IS A CLOSE FUNCTIONAL SIMILARITY BETWEEN THAT ENTITY AND THE ASSESSEE, HOWEVER, THERE IS A CLOSE CONNECTION BETW EEN TCS E-SERVE AND TATA CONSULTANCY SERVICE LTD. WHICH WAS HIGH BRAND VALUE; THAT DISTINGUISHED IT AND MARKED IT OUT FOR EXCLUSION. T HE ITAT RECORDED THAT THE BRAND VALUE ASSOCIATED WITH TCS CONSULTANCY REF LECTED IMPACTED TCS E-SERVE PROFITABILITY IN A VERY POSITIVE MANNER. TH IS INFERENCE TOO IN THE OPINION OF COURT, CANNOT BE TERMED AS UNREASONABLE. THE RATIONALE FOR EXCLUSION IS THEREFORE UPHELD. THE ASSESSEE WAS AGG RIEVED BY THE INCLUSION OF ACCENTIA A SOFTWARE DEVELOPMENT COMPAN Y. THE REVENUE IS AGGRIEVED BY THE EXCLUSION OF ACCENTIA FROM THE TP ANALYSIS. THE DRP HAD 32 DIRECTED ITS DELETION. WE OBSERVE THAT THE ITAT HAS NOTICED THE UNAVAILABILITY OF THE SEGMENTAL DATA SO FAR AS THES E COMPARABLES ARE CONCERNED. FURTHERMORE, THE FUNCTIONALITY OF THIS E NTITY WAS CONCERNED, IT IS DIFFERENT FROM THAT OF THE ASSESSEE; ACCENTIA WA S ENGAGED IN KPO SERVICES IN THE HEALTHCARE SECTOR. 61. IN RESPECT OF THIS ICRA TECHNO ANALYTICS LTD, O BSERVATIONS OF THE COORDINATE BENCH IN SMART CUBE INDIA PVT LTD VS ACI T (ITA NO. 6078/DEL/2015) FOR AY 2011-12 HELD THAT THE COMPANY IS ENGAGED IN THE BUSINESS OFSOFTWARE DEVELOPMENT AND CONSULTANCY, EN GINEERING SERVICES ASWELL AS BUSINESS ANALYTICS AND DUE TO NON AVAILAB ILITY OF SEGMENTAL DATA, IT IS NOT A GOOD COMPARABLE WITH THE ASSESSEES WHO ARE MERELY CAPTIVE SERVICE PROVIDERS. RELEVANT OBSERVATIONS ARE AS FO LLOWS: 48. AS FAR AS THE LD ARS PLEA OF EXCLUSION OF ICRA TECHNO ANALYTICS LTD AS A COMPARABLE COMPANY IS CONCERNED, LEARNED AR HAS P OINTED THAT IT IS ENGAGED IN A DIVERSE SET OF ACTIVITIES. AS PER ITS ANNUAL REPORT, THE COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVE LOPMENT AND CONSULTANCY, ENGINEERING SERVICES AS WELL AS BUSINE SS ANALYTICS. THE AFORESAID CONTENTIONS OF THE LD AR HAS NOT BEEN CON TROVERTED BY REVENUE. WE FIND THAT THE CO ORDINATE BENCH OF TRIB UNAL IN THE CASE OF B. C. MANAGEMENT SERVICES (P.) LTD. (SUPRA) FOR AY 201 1-12 HAS HELD IT TO BE NOT A COMPARABLE ON ACCOUNT OF FUNCTIONAL DISSIMILA RITY AND ON ACCOUNT OF NON AVAILABILITY OF SEGMENTAL DATA. AGAINST THE ORDER OF TRIBUNAL, THE MATTER WAS CARRIED BY THE REVENUE BEFORE THE DELHI HIGH COURT. HONBLE DELHI HIGH COURT DISMISSED THE APPEAL OF REVENUE [( 2018) 89 TAXMANN.COM 68 (DEL)]. BEFORE US, LD DR HAS NOT PLA CED ANY CONTRARY BINDING DECISION TO SUPPORT THE ACTION OF AO/TPO. I N VIEW OF THESE FACTS, WE DIRECT THE AO/TPO TO EXCLUDE ICRA TECHNO ANALYTI CS LTD ON ACCOUNT OF FUNCTIONAL DISSIMILARITY. 62 . ICRA TECHNO ANALYTICS LTD WAS CONSIDERED FOR AY 201 1-12 BY THE BANGALORE BENCH OF TRIBUNAL INNI SYSTEMS INDIA PVT LTD (ITA NO. 155/BANG/2017) AND AFTER CONSIDERING THE SIMILAR AR GUMENTS AS ARE RAISED 33 IN THIS CASE, IT WAS EXCLUDED ON THE GROUND THAT TH IS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES OF SOFTWARE DEVELOPMENT F OR WHICH SEGMENTAL REPORTING HAS NOT BEEN PROVIDED. IT WAS OBSERVED TH AT THIS COMPANY DERIVES ITS REVENUE FROM SERVICES CONSISTING OF REV ENUES EARNED FROM SOFTWARE DEVELOPMENT AND CONSULTANCY, LICENSING AND SUBLICENSING FEES, WEB DEVELOPMENT AND HOSTING WHICH IS RECOGNISED TO THE EXTENT OF SERVICE PERFORMED; THAT IN PROFIT AND LOSS ACCOUNT, IT IS OBSERVED THAT INCOME HAS BEEN RECEIVED FROM SERVICES AND SALES, W ITHOUT THERE BEING BIFURCATION IN ORDER TO UNDERSTAND COMPONENT OF INC OME EARNED BY THIS COMPANY FROM SOFTWARE DEVELOPMENT EXCLUSIVELY; AND THAT IT IS AMPLY CLEAR THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED A CTIVITIES OF SOFTWARE DEVELOPMENT FOR WHICH SEGMENTAL REPORTING HAS NOT B EEN PROVIDED. 63. YET ANOTHER INSTANCE WHERE THIS COMPANY FALLEN FOR JUDICIAL SCRUTINY IS IN THE CASE OF CSG SYSTEMS INTERNATIONA L (INDIA) PVT LTD (ITA NO. 2026/BANG/2017) WHEREIN AFTER CONSIDERING THE P ROFILE OF THIS ENTITY, THE TRIBUNAL FOUND THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES OF SOFTWARE DEVELOPMENT AND CONSULTANCY, ENGINEERIN G SERVICES, WEB DEVELOPMENT & HOSTING AND SUBSTANTIALLY DIVERSIFIED ITSELF INTO DOMAIN OF BUSINESS ANALYSIS AND BUSINESS PROCESS OUTSOURCING, AND THEREFORE, THIS CANNOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH THAT OF ASSESSEE WHO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS A ES. ON THIS BASIS, IT WAS HELD THAT ICRA TECHNO ANALYTICS LTD. IS NOT A G OOD COMPARABLE. 64. A PERUSAL OF THE PROFILE OF THE ASSESSEE, ICRA TECHNO ANALYTICS LTD IN THE LIGHT OF THE DECISIONS SUPRA MAKES IT CLEAR THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES OF SOFTWARE DEVEL OPMENT, DERIVES ITS REVENUE FROM SERVICES CONSISTING OF REVENUES EARNED FROM SOFTWARE 34 DEVELOPMENT AND CONSULTANCY, LICENSING AND SUBLICEN SING FEES, WEB DEVELOPMENT AND HOSTING WHICH IS RECOGNIZED TO THE EXTENT OF SERVICE PERFORMED, FOR WHICH SEGMENTAL REPORTING IS NOT AVA ILABLE; THAT IN PROFIT AND LOSS ACCOUNT, INCOME HAS BEEN RECEIVED FROM SER VICES AND SALES, WITHOUT THERE BEING BIFURCATION IN ORDER TO UNDERST AND COMPONENT OF INCOME EARNED BY THIS COMPANY FROM SOFTWARE DEVELOP MENT EXCLUSIVELY. IT FURTHER MAKES IT CLEAR THAT SINCE THIS COMPANY I S ENGAGED IN DIVERSIFIED ACTIVITIES OF SOFTWARE DEVELOPMENT FOR WHICH SEGMEN TAL REPORTING ARE AVAILABLE, THIS COMPANY IS NOT A GOOD COMPARABLE WI TH THE COMPANIES WHICH ARE CAPTIVE SERVICE PROVIDERS LIKE THE ASSESS EE. HENCE, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. DRP IN EX CLUDING THIS COMPARABLE. 6. ECLERX SERVICES LTD. 65. ASSESSEES CONTENTION FOR REJECTION OF THIS COMPANY WAS BASED ON THE FUNCTIONAL DISSIMILARITY AND ITS ENGAGEMENT IN PROVISION OF KPO SERVICES. ANNUAL REPORT OF THIS COMPANY REVEALS THA T THE COMPANYS INCOME FROM OPERATIONS CONSIST OF REVENUE FROM DATA ANALYTICS SERVICES AND PROCESS SOLUTIONS WHICH COMPRISES OF BOTH TIME/ UNIT PRICE AND FIXED FEE BASED SERVICE CONTRACTS. IN RESPECT OF THE SEGM ENTAL REPORTING, THE ANNUAL REPORT SAYS THAT THE COMPANY OPERATES UNDER A SINGLE PRIMARY SEGMENT I.E. DATA ANALYTICS AND PROCESS OUTSOURCING SERVICES. SINCE THE COMPANY IS ENGAGED IN PROVIDING ANALYTICS SERVICES WHICH ARE THE SAME AS BEING PROVIDED BY THE ASSESSEE, THIS COMPANY IS BEI NG CONSIDERED AS COMPARABLE. 35 66. ACCORDING TO THE REVENUE, AS FAR AS THE ISSUE O F FUNCTIONAL COMPARABILITY IS CONCERNED, THE ASSESSEE AND ECLERX SERVICES LTD. ARE IN ITES SERVICES AND AS PER THE NOTIFICATION OF CBDT D T 26.9.2010, THE VARIOUS PRODUCTS OR SERVICES ARE NOTIFIED IN THE CATEGORY O F ITES, ONE OF WHICH FALLS UNDER THE CATEGORY OF ITES, THEN THERE IS NO SUB CLASSIFICATION OF SEGMENT AND CONSEQUENTLY THERE CANT BE ANY FURTHER DIFFERENTIATION ON THE BASIS OF KPO OR BPO; THAT UNDER FUNCTIONAL SIM ILARITY UNDER TNMM NEITHER TAXPAYER NOT TPO HAS DISTINGUISHED BETWEEN VARIOUS SERVICE LINES AND VERTICALS, AND THEREFORE, IT DOES NOT MATTER SO LONG THE SERVICES OF THE COMPANY ARE ITES SERVICES. 67. LD. DR SUBMITTED THAT SIMILAR ISSUE WAS CONSIDE RED BY THE HONBLE MUMBAI TRIBUNAL IN THE CASES OF VODAFONE INDIA SERV ICES PVT LTD IN [2013]36 TAXMAN.COM 127 AND WILLIS PROCESSING SERVI CES INDIA PVT LTD [2013] 30 TAXMANN.COM 350 IN WHICH THE SAME ARGUMEN TS WERE REJECTED. IN THE LIGHT OF THE DECISION IN WILLIS PROCESSING S ERVICES INDIA PVT LTD [2013] 30 TAXMANN.COM 350, HE SUBMITTED THAT IT HA S BEEN HELD THEREIN THAT ECLERX SERVICES LTD. PROVIDES DATA PROCESSING AND DATA ANALYTICAL SERVICES WHICH IS SIMILAR TO THE SERVICES OF THE A SSESSEE AND THEREFORE, IT CANNOT BE SAID THAT THE BUSINESS ACTIVITY OF THE AS SESSEE AND THIS COMPANY ARE MATERIALLY AND SUBSTANTIALLY DIFFERENT, WHICH CANNOT BE COMPARED, SPECIFICALLY WHEN SERVICES OF BOTH ARE IN THE NATURE OF ITES . 68. WITH REFERENCE TO THE DECISION IN THE CASE OF V ODAFONE INDIA SERVICES (P.) LTD. (SUPRA), HE SUBMITTED THAT IT HA S BEEN HELD THAT KPO WAS A TERM GIVEN TO A BRANCH OF BPO IN WHICH APART OF P ROCESSING DATA, KNOWLEDGE IS ALSO APPLIED. KPO COULD NOT BE EXCLUDE D FROM THE COMPARABILITY LIST SINCE ITES / BPO SERVICES COULD NOT BE BIFURCATED IN HIGH 36 END AND LOW-END SERVICES. HE ALSO SUBMITTED THAT C ERTAIN EXTRACTS OF THE ANNUAL REPORT MAKE IT CLEAR THAT THE ENTITY IS ENGA GED IN DATA PROCESSING ACTIVITIES, WHICH ARE CONSIDERED TO BE ITES SERVICE S EVEN IF THE CONTENTION OF THE ASSESSEE REGARDING SAFE HARBOR RULE DEFINITI ON IS CONSIDERED. HE, THEREFORE, PRAYED TO REJECT THE OBJECTION OF THE AS SESSEE AND REVERSE THE FINDINGOF THE LD. DRP IN RESPECT OF THIS COMPARABLE . 69. ASSESSEES PRAYER FOR REJECTION OF THIS COMPANY IS AGAIN BASED ON FUNCTIONAL DISSIMILARITY AND THAT IT IS ENGAGED IN PROVISION OF KPO SERVICES. LD. AR SUBMITTED THAT PAGE NO 6 OF ANNUAL REPORT OF ECLERX SERVICES LTD. REVEALS THAT THIS COMPANY IS ENGAGED IN THE BUSINES S OF PROVIDING KNOWLEDGE PROCESS OUTSOURCING (KPO) SERVICES, NAM ELY, PROVIDING DATA ANALYTICS, SEARCH ENGINE ANALYTICS, COMPETITIVE INT ELLIGENCE, CHANNEL ANALYTICS, ETC. MAKING IT CLEAR THAT THE SPECIFIC C HARACTERISTICS OF KPO SERVICES RENDERED BY ECLERX SERVICES AND CHARACTERI STICS OF ITES SERVICES RENDERED BY THE ASSESSEE ARE NOT SIMILAR AND DO NOT SATISFY THE TEST OF COMPARABILITY AS PROVIDED IN CLAUSE (A) OF SUB RULE (2) OF RULE 10B OF THE RULES. 70. HE PLACED RELIANCE ON THE DECISIONS OF THE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (ITA NO. 102/2015), PCIT VS. EVALUESERVE SEZ (GURGAON) PVT L TD (ITA NO 241/2018), PCIT VS B.C. MANAGEMENT SERVICES (P.) LTD (ITA NO. 1064 & 1083 OF 2017) FOR AY 2011-12 IN SUPPORT OF HIS REQUEST FOR EXCLUS ION OF THIS COMPANY ON ACCOUNT OF HIGH VALUE FINANCIAL SERVICES RELATING T O CONSULTANCY BUSINESS AND SOLUTION TESTING BESIDES THE WEB CONTENT MANAGE MENT MERCHANDISING EXECUTION, WEB ANALYTICS, ETC. WHICH REFLECT FUNCTIONAL 37 DISSIMILARITY AND ABSENCE OF SEGMENTAL DATA LED TO ITS EXCLUSION AS A COMPARABLE. 71. THERE IS NO DISPUTE AS TO THE FUNCTIONAL PROFIL E OF THE ASSESSEE AND THAT OF THE ECLERX SERVICES LTD. HOWEVER, THE DISP UTE IS WHETHER WITH THE GIVEN FUNCTIONAL PROFILE, THE ECLERX SERVICES LTD. IS A GOOD COMPARABLE TO THE ASSESSEE. IN THE CASE OF PCIT VS B.C. MANAGEME NT SERVICES (P.) LTD (ITA NO. 1064 & 1083 OF 2017) FOR AY 2011-12HONBLE DELHI HIGH COURT UPHELD THE FINDING OF THE TRIBUNAL FOR EXCLUSION OF THE COMPANY ON ACCOUNT OF HIGH VALUE FINANCIAL SERVICES RELATING T O CONSULTANCY BUSINESS AND SOLUTION TESTING BESIDES THE WEB CONTENT MANAGE MENT MERCHANDISING EXECUTION, WEB ANALYTICS, ETC., AND T HIS FUNCTIONAL DISSIMILARITY AND ABSENCE OF SEGMENTAL DATA LED TO ITS EXCLUSION AS A COMPARABLE. 72. IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. VS . CIT (ITA NO. 102/2015) THE HONBLE HIGH COURT HELD THAT ECLERX S ERVICES LTD, IS INTO KPO SERVICES AND DRAWING A CLEAR DISTINCTION BETWEE N THE BPO AND KPO COMPANIES IT WAS HELD THAT THIS COMPANY SHALL BE EX CLUDED FROM THE FINAL SET OF COMPARABLE COMPANIES AS ENGAGED IN PROVIDING KPO SERVICES.IN PCIT VS. EVALUESERVE SEZ (GURGAON) PVT LTD (ITA NO 241/2018) HONBLE JURISDICTIONAL HIGH COURT APPROVED THE FINDING OF T HE TRIBUNAL THAT ECLERX SERVICES LTD. IS PROVIDING KPO SERVICES AND UPHELDT HE FINDING OF ITAT FOR EXCLUSION OF THE SAID COMPANY IN AY 2010-11 ON ACCO UNT OF BEING A KPO COMPANY. 73. QUITE A GOOD NUMBER OF DECISIONS OF THE TRIBUNA L, NAMELY, MAERSK GLOBAL CENTRES PVT. LTD. VS. ACIT (ITA NO. 7466/MUM /2012) SPECIAL 38 BENCH; HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD . VS DCIT (ITA. NO. 247/HYD/2014); MINDCREST (INDIA) PVT. LTD. VS DCIT (ITA NO. 7289/MUM/2012); C3I SUPPORT SERVICES PRIVATE LIMITE D VS. DCIT (ITA NO. 435/HYD/2014); PAREXEL INTERNATIONAL (INDIA) PRIVAT E LIMITED (ITA NO. 144/HYD/2014); UNITED HEALTH GROUP INFORMATION SERV ICES LTD. VS. ACIT (ITA NO. 6312/DEL/2012); CAPITAL IQ INFORMATION SYS TEMS (INDIA) PVT. LTD. VS ACIT (ITA NO. 124/HYD/2014) ; AVINEON INDIA PVT . LTD. VS DCIT (ITA NO. 1989/HYD/2011), TO NAME A FEW, ARE BROUGHT TO OUR N OTICE IN SUPPORT OF THE CONTENTION OF THE ASSESSEE THAT ECLERX SERVICES LTD PROVIDES KPO SERVICES AND IT WAS ALSO DIRECTED TO BE EXCLUDED FR OM THE LIST OF COMPARABLES ON THAT BASIS. 74. ON A PERUSAL OF ALL THESE DECISIONS IN THE LIGH T OF THE PROFILES OF THE ASSESSEE AND ECLERX SERVICES LTD. IN JUXTAPOSITION, THE IRRESISTIBLE INFERENCE IS THAT ECLERX SERVICES LTD IS PROVIDING KPO SERVICES AND ON THAT GROUND, IT IS NOT A GOOD COMPARABLE TO THE ASSESSEE WHO IS A CAPTIVE SERVICE PROVIDER TO ITS AES. WE, THEREFORE, FIND TH AT THE FINDING OF THE LD. DRP IS PROPER AND DOES NOT INVITE ANY INTERFERENCE BY THIS TRIBUNAL. 75. THIS BRINGS OUR DISCUSSION TO AN END IN RESPECT OF THE SUSTAINABILITY OF THE EXCLUSION OF COMPARABLES BY THE LD. DRP IN T HE SEGMENT OF ITES. WE SHALL NOW PROCEED TO DEAL WITH A SIMILAR QUESTIO N IN RESPECT OF SOFTWARE SERVICES SEGMENT. 76. DURING THE FINANCIAL YEAR RELEVANT FOR THE AY 2 010-11, ASSESSEE ENTERED INTO THE INTERNATIONAL TRANSACTION OF PROVI SION OF SOFTWARE DEVELOPMENT SERVICES WITH ITS ASSOCIATED ENTERPRISE AMOUNTING TO RS. 3,31,67,83,807.THE FUNCTIONAL PROFILE OF THE COMPAN Y AS COULD BE 39 GATHERED FROM PAGE 60 OF THE PAPERBOOK IS THAT THE SOFTWARE SERVICES ARE PROVIDED BY THE ASSESSEE IN RELATION TO END CUSTOME R CONTRACTS ENTERED INTO BY THE ASSOCIATED ENTERPRISES. PART EXECUTION OF CONTRACTS IS SUB CONTRACTED BY THE ASSOCIATED ENTERPRISE TO THE ASSE SSEE. IT IS STATED THAT THE MARKETING FUNCTION AND CLIENT ACQUISITION IS PE RFORMED BY THE ASSOCIATED ENTERPRISE AND THE ASSESSEE IS RESPONSIB LE FOR EXECUTION OF CONTRACTS. CONSIDERING FOREX FLUCTUATION AS NON-OPE RATING INCOME/EXPENSE, ASSESSEE COMPUTED ITS OPERATING MAR GIN AT 4.47% AND BY SELECTING THE TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD FOR THE PURPOSE OF BENCHMARKING THE AFORESAID INTERNATIONAL TRANSACTION, ASSESSEE COMPUTED THE AV ERAGE OP/OC OF THE COMPARABLE COMPANIES AT 11.43%. SINCE THE OP/OC OF THE ASSESSEE AT 12.48% WAS HIGHER THAN THE AVERAGE OP/OC OF THE COM PARABLE COMPANIES AT 11.43%, ASSESSEE CONCLUDED THAT THE IN TERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SE RVICES IS TO BE CONSIDERED AT ARMS LENGTH PRICE. LD. TPO, HOWEVER, CONSIDERED FOREX FLUCTUATION AS NON-OPERATING INCOME/EXPENSE AND COM PUTED THE OPERATING MARGIN OF THE ASSESSEE AT 4.47%. LD. TPO CONDUCTED A FRESH SEARCH FOR COMPARABLE COMPANIES AND SELECTED THE FO LLOWING COMPANIES AS COMPARABLE: S. NO. COMPANY NAME ADJUSTED OP/OC(%) 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 3.19 2. EINFOCHIPS BANGALORE LTD 69.75 3. EVOKE TECHNOLOGIES PVT. LTD 23.28 40 4. E-ZEST SOLUTIONS LTD 18.42 5. INFINITE DATA SYSTEMS PVT. LTD 88.34 6. INFOSYS LTD. 50.00 7 . LARSEN & TOUBRO INFOTECH LTD. 24.58 8. LGS GLOBAL LTD 12.06 9. MINDTREE LTD. 19.10 10. PERSISTENT SYSTEMS LTD. 32.45 11. RS SOFTWARE (INDA) LTD 14.78 12. SASKEN COMMUNICATION 22.47 13. TATA ELXSI LTD. 21.64 14 . THINKSOFT GLOBAL SERVICES LTD 18.22 15. THIRDWARE SOLUTION LTD 42.65 16. WIPRO TECHNOLOGY SERVICES LTD. 74.28 AVERAGE 33.45 77. CONSEQUENTLY, LD. TPO, PROPOSED AN ADJUSTMENT OF RS. 93,53,35,000/- ON ACCOUNT OF THE DIFFERENCE IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTW ARE DEVELOPMENT SERVICES AND DRAFT ASSESSMENT ORDER WAS PASSED ACCO RDINGLY. WHEN THE ASSESSEE, AGGRIEVED BY THE SAID ACTION OF THE UPWAR D ADJUSTMENT, FILED OBJECTIONS BEFORE THE LD. DRP, BY ORDER DATED 20.1 0.2015, LD. DRP DIRECTED THE TPO TO EXCLUDE FOUR COMPANIES, PERSIST ENT SYSTEMS LTD.; INFOSYS TECHNOLOGIES LTD.; INFINITE DATA SYSTEMS LT D; AND WIPRO TECHNOLOGIES SERVICES LTD FROM THE SET OF COMPARABL ES. FOLLOWING THE SAID DIRECTIONS, LD. TPO RECOMPUTED THE ADJUSTMENT AND REDUCED THE SAME TO RS 75,47,44,000/-. 41 78. CHALLENGING THE DIRECTIONS OF THE DRP, REVENUE IS IN APPEAL, AND DURING THE COURSE OF ARGUMENTS, LD. DR PRAYED THE I NCLUSION OF PERSISTENT SYSTEMS LTD.; INFOSYS TECHNOLOGIES LTD.; INFINITE D ATA SYSTEMS LTD; AND WIPRO TECHNOLOGIES SERVICES LTD IN THE LIST OF COMP ARABLES REJECTED BY THE DRP FOR ADJUSTMENT IN SOFTWARE SEGMENT. 79. SO ALSO, DURING THE FINANCIAL YEAR RELEVANT FOR AY 2011-12, THE ASSESSEE ENTERED INTO THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES WITH ITS ASSOCIATED E NTERPRISE AMOUNTING TO RS. 3,276,026,399/-. BY CONSIDERING THE FORX FL UCTUATION AS NON- OPERATING, ASSESSEE CALCULATED THEIR OPERATING MARG IN AT 6.23%. SELECTING THE TNMM AS THE MOST APPROPRIATE METHOD, ASSESSEE C OMPUTED THE AVERAGE OP/OC OF THE COMPARABLE COMPANIES AT 13.60% , AND SINCE THE OP/OC OF THE ASSESSEE AT 15.37% WAS HIGHER THAN THE AVERAGE OP/OC OF THE COMPARABLE COMPANIES AT 13.60%, ASSESSEE CONCLU DED THAT THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES WAS CONSIDERED TO BE UNDERTAKEN AT ARMS LENGTH PRI CE. THE TPO HOWEVER, CONSIDERED THE FORX FLUCTUATION AS NON-OPE RATING AND CALCULATED THE OPERATING MARGIN OF THE ASSESSEE AT 6.23%. LD. TPO CONDUCTED FRESH SURVEY, ADDED CERTAIN COMPARABLES A ND REACHED THE FOLLOWING COMPANIES AS COMPARABLE TO THE ASSESSEE I N SOFTWARE SEGMENT. S. NO COMPANY ADJUSTED OP/OC (%) 1. AKSHAY SOFTWARE TECH LTD. 3.42 % 2. E INFOCHIPS LIMITED 55.21 % 3. EVOKE TECHNOLOGIES PVT LTD 10.02 % 42 S. NO COMPANY ADJUSTED OP/OC (%) 4. E- ZEST SOLUTIONS LIMITED 37.98 % 5. INFOSYS LIMITED 44.90 % 6. LARSEN & TURBO INFOTECH LTD. 21.01 % 7 . LGS GLOBAL LTD. 13.37 % 8. PERSISTENT SYSTEMS AND SOLUTIONS LIMITED 22.59 % 9. PERSISTENT SYSTEMS LTD. 23.89 % 10. R S SOFTWARE (INDIA) LTD. 17.86 % 11. SASKEN COMMUNICATION TECH LTD. 26.46 % 12. WIPRO TECHNOLOGY SERVICES LIMITED 55.16 % 13. CELSTREAM TECHNOLOGIES 15.06 % 14. ACROPETAL TECHNOLOGIES LTD. (SEGMENTAL) 21.13 % 15 . MINDTREE LTD. (SEGMENTAL) 11.01 % 16. SANKHYA INFOTECH LIMITED (SEGMENTAL) 23.92 % 17. TATA ELXSI LIMITED 13.13 % 18. THIRDWARE SOLUTIONS LTD. 19.33 % 19. ZYLOG SYSTEMS LIMITED 27.35 % AVERAGE 24.41 % ON THIS BASIS, LD. TPO MADE AN ADJUSTMENT OF RS. 56 ,05,77,000 ON ACCOUNT OF THE DIFFERENCE IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION 43 OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES, AND A DRAFT ASSESSMENT ORDER WAS PROPOSED ON THE SAME LINES. 80. AGGRIEVED BY SAID PROPOSED ADJUSTMENT, ASSESSEE FILED OBJECTIONS AND THE LD. DRP VIDE ORDER DATED 20.10.2015 HELD TH AT DRP DIRECTED THE TPO TO CONSIDER THE FOREX FLUCTUATION AS OPERATING IN NATURE DIRECTED THE TPO TO EXCLUDE PERSISTENT SYSTEMS LTD.; INFOSYS TEC HNOLOGIES LTD.; E INFOCHIPS LTD; WIPRO TECHNOLOGIES SERVICES LTD; E Z EST SOLUTIONS; AND ACROPETAL TECHNOLOGIES LTD. FROM THE SET OF COMPARA BLES. LD. DRP ALSO DIRECTED THE TPO TO INCLUDE THINKSOFT GLOBAL SERVIC ES LTD. IN THE FINAL SET OF COMPARABLES. WHILE GIVING EFFECT TO THE DIRECTIO NS OF THE LD. DRP, LD. TPO REDUCED THE ADJUSTMENT TO RS 29,90,52,000/-. 81. REVENUE, THEREFORE, CHALLENGES THE EXCLUSION OF PERSISTENT SYSTEMS LTD.; INFOSYS TECHNOLOGIES LTD.; E INFOCHIPS LTD; W IPRO TECHNOLOGIES SERVICES LTD; E ZEST SOLUTIONS; AND ACROPETAL TECHN OLOGIES LTD. FROM AND THE INCLUSION OF THINKSOFT GLOBAL SERVICES LTD. IN THE SET OF COMPARABLES. 82. IT IS, THEREFORE, CLEAR THAT THE ENTIRE DISPUTE IN RESPECT OF SOFTWARE SEGMENT REVOLVES AROUND EXCLUSION OF INFINITE DATA SYSTEMS PVT. LTD FOR THE AY 2010-11, E INFOCHIPS LIMITED, E- ZEST SOLUTI ONS LIMITED AND ACROPETAL TECHNOLOGIES LTD. FOR THE AY 2011-12, AND INFOSYS LTD., PERSISTENT SYSTEMS LTD., AND WIPRO TECHNOLOGY SERVI CES LTD. FOR BOTH THE YEARS, AND INCLUSION OF THINKSOFT GLOBAL SERVICES L TD. FOR AY2011-12. NOW WE SHALL PROCEED TO DEAL WITH THE QUESTION OF COMPA RABILITY OF THESE ENTITIES WITH THE ASSESSEE. 1. INFINITE DATA SYSTEMS 44 83. ANNUAL REPORT OF THIS COMPANY DESCRIBES THE PRO FILE OF THIS COMPANY STATING THAT THE COMPANY IS ENGAGED IN PROV IDING A DIVERSE SET OF SERVICES WHICH INTER-ALIA INCLUDE TECHNICAL CONS ULTING AND INFRASTRUCTURE MANAGEMENT SERVICES, AND ACCORDING TO THE NOTE ON R EVENUE RECOGNITION THE COMPANY DERIVES ITS REVENUE PRIMARILY FROM TECH NICAL SUPPORT AND INFRASTRUCTURE MANAGEMENT SERVICES. 84. ACCORDING TO THE TPO EVEN THOUGH THIS COMPANY I S PROVIDING SERVICES TO A SINGLE CUSTOMER, IT IS NOT A RELATED PARTY AND THE ASSESSEE IS ALSO PROVIDING SERVICES TO A SINGLE CUSTOMER ITS AS SOCIATED ENTERPRISES AND THAT THE TECHNICAL SERVICES RENDERED BY THIS COMPAN Y ARE IN THE NATURE OF SOFTWARE SERVICES. THE DRP REJECTED THIS COMPANY O N ACCOUNT OF FUNCTIONAL DISSIMILARITY. 85. ON THE ASPECT OF FUNCTIONALLY DISSIMILARITY, LD . DR SUBMITTED THAT ON PERUSAL OF THE ANNUAL REPORT OF THE COMPANY IT I S SEEN THAT THIS COMPANY IS PROVIDING THE SERVICES LIKE TECHNICAL CO NSULTING, DESIGN AND DEVELOPMENT OF SOFTWARE, MAINTENANCE, SYSTEM INTEGR ATION, IMPLEMENTATION, TESTING AND INFRASTRUCTURE MANAGEME NT SERVICE, AND THESE SERVICES, EXCEPT INFRASTRUCTURE MANAGEMENT SE RVICES, ARE ALSO REFERRED AS TECHNICAL SUPPORT SERVICES IN REVENUE RECOGNITION PORTION AND AS SOFTWARE TECHNICAL CONSULTANCY SERVICES IN SEGMENT REPORTING PORTION OF THE ANNUAL REPORT. FURTHER, AS PER COMP ANY WEBSITE, COMPANY IS PROVIDING IT SERVICES, APPLICATION SERVICES, IT INFRASTRUCTURE SERVICES, PRODUCT ENGINEERING SOLUTIONS, MOBILITY & MESSAGING SOLUTIONS & PLATFORMS, AND ALL THE SERVICES ARE REFERRED PRIM ARILY AS IT SERVICES. HE, THEREFORE, SUBMITTED THAT THIS COMPANY IS FUNCTIONA LLY SIMILAR TO THE ASSESSEE. FURTHER ACCORDING TO HIM, THIS COMPANY HA VE EXCEPTIONAL SALES 45 GROWTH IN BUSINESS OPERATION OVER THE LAST FOUR YEA RS I.E. 908% GROWTH RATE IN SALES OVER PREVIOUS YEAR, WHICH BELIES THE ARGUMENT OF THE ASSESSEE. HE ARGUED THAT SINCE THE COMPANY SALES F OR F.Y. 2008-09 WERE 4.74 CR. AND FOR F.Y. 2009-10, IT WAS 38.31 CR. AND , THEREFORE, THE ACTUAL COMPANY SALES GROWTH WAS ONLY OF RS. 33.57 CR. (38. 31 4.74), WHICH IS A VERY NORMAL GROWTH PATTERN FOR A SOFTWARE DEVELOPME NT COMPANY AND PERCENTAGE (%) GROWTH IN SALES IS NOT PRESENTING TR UE AND LOGICAL GROWTH PATTERN IN THIS CASE. HE SUBMITS THAT IN VARIOUS CASES, THE JUDICIAL AUTHORITIES HELD THAT A COMPARABLE CANNOT BE ELIMIN ATED JUST BECAUSE IT IS A LOSS MAKING UNIT AND SIMILARLY A HIGHER PROFIT MA KING COMPANY OR HIGHER SALES GROWTH COMPANY CANNOT ALSO BE AUTOMATICALLY E LIMINATED JUST BECAUSE THE COMPARABLE COMPANY EARNED HIGHER PROFIT S THAN THE AVERAGE OR HAVING EXCEPTIONAL SALES GROWTH. ACCORDING TO H IM, AS PER THE ANNUAL REPORT OF THE COMPANY, THE COMPANY WAS NOT HAVING A NY PECULIAR ACTIVITIES DURING THE YEAR UNDER CONSIDERATION AND THE COMPANY SALES GROWTH IS RESULT OF COMPANY STRATEGY AND ITS SELF E FFORTS. BASING ON ALL THESE, HE ARGUED THAT IN COMPARABILITY ANALYSIS, LO SS/HIGHER GROWTH OR SO CALLED HIGHER MARGIN IS NOT A DETERMINING FACTOR UN LESS THERE ARE ANY PECULIAR ECONOMIC CIRCUMSTANCES IN A CASE MAKING IT FUNCTIONALLY NOT COMPARABLE; THAT INTERESTINGLY IN FAVOUR OF LOSS MA KING COMPANIES IT IS GENERALLY ARGUED THAT SUCH COMPANIES SHOULD NOT BE REJECTED SIMPLY BECAUSE THEY HAVE INCURRED LOSSES IN A SINGLE YEAR AS LOSS MAKING COMPANIES IS AS MUCH PART OF INDUSTRY AS ARE PROFIT MAKING COMPANIES AND THE DEPARTMENT AGREES WITH THE AFORESAID CONTEN TION, BUT AT THE SAME TIME THE LOGIC IS REQUIRED TO BE APPLIED TO TH E CASE HAVING EXCEPTIONAL GROWTH ALSO. 46 86. NEXT CONTENTION OF THE LD. DR IS THAT THE TURNO VER/ PRINCIPLES OF ECONOMIES OF SCALE ETC, HAVE NO RELEVANCE MORE PART ICULARLY WHEN TNMM HAS BEEN SELECTED AS THE MOST APPROPRIATE METHOD AN D AS PER THE ACT/ RULES/ UN GUIDELINES/ OECD GUIDELINES, ONLY THOSE C OMPARABILITY FACTORS ARE TO BE CONSIDERED WHICH HAVE EFFECT ON PRICES AN D PROFITS. BOTH UN & OECD GUIDELINES MENTION ECONOMIES OF SCALE AS COM PARABILITY FACTORS. HOWEVER IN THIS INDUSTRY TURNOVER DOES NOT PLAY ANY SIGNIFICANT ROLE AS FAR AS THE MARGINS ARE CONCERNED. THERE IS NO LINKAGE W HATSOEVER BETWEEN THE SALES AND THE MARGINS. HE PLACED RELIANCE ON TH E DECISION OF THE TRIBUNAL IN THE CASE OF M/S ST MICROELECTRONICS IND IA LTD. [2011-TII-63- ITAT-DEL-TP] AND M/S SYMANTEC SOFTWARE SOLUTIONS PV T. LTD. (2011-TII-60- ITAT-MUM-TP) WHERE IT WAS HELD THAT TURNOVER IS NOT A COMPARABILITY FACTOR UNLESS IT IS PROVED THAT IT ACTUALLY AFFECTS PRICES, COST OR PROFIT ARISING FROM INTERNATIONAL TRANSACTIONS. HE SUBMITT ED THAT ON THE APPLICATION OF TNMM METHOD, SALES GROWTH IS NOT REL EVANT AND THIS POSITION IS IN CONFORMITY WITH THE RELEVANT OECD GU IDELINES WHICH SUGGEST THAT BROAD COMPARABILITY OF FUNCTIONS SHOULD BE DON E FOR TNMM. 87. NEXTLY, HE ARGUED ON THE ISSUE OF HIGH RELATED PARTY TRANSACTIONS THAT THE ASSESSEE HAS STATED THAT THE COMPANY IS P ROVIDING SERVICES TO ONE SOLE CUSTOMER, NAMELY, FUJITSU SERVICES LTD. BU T A PERUSAL OF RECORD REVEALS THAT FUJITSU SERVICES LTD IS A UNRELATED EN TITY AND THE ASSESSEE COMPANY IS ALSO PROVIDING SERVICES PRIMARILY TO ONE CUSTOMER, I.E. ITS AE, AND TO THAT EXTENT THE COMPANY IS COMPARABLE TO THE ASSESSEE COMPANY. 88. SUBMISSIONS OF ASSESSEE IN SUPPORT OF EXCLUSION OF THIS COMPANY ARE THREE-FOLD, NAMELY, HIGH RELATED PARTY TRANSACT IONS, EXTRA-ORDINARY YEAR OF OPERATION AND FUNCTIONAL DISSIMILARITY. LD. AR INVITED OUR 47 ATTENTION TO THE ANNUAL REPORT OF THIS COMPANY FOR FINANCIAL YEAR 2008-09, WHEREIN IT IS INFORMED THAT THE COMPANY WAS FORMED TO EXECUTE THE CONTRACT ENTERED INTO BY THE PARENT COMPANY WITH FU JITSU SERVICE LTD. AND SUBMITTED THAT FUJITSU SERVICE LTD. IS AN ASSOC IATED ENTERPRISE OF INFINITE DATA SYSTEMS LTD IN TERMS OF SECTION 92B(2 ) OF THE ACT. HE, THEREFORE, ARGUES THAT SINCE THE COMPANY HAS PROVID ED THE ENTIRE SERVICES TO FUJITSU SERVICES LTD., INFINITE DATA SY STEMS CANNOT BE REGARDED AS AN UNCONTROLLED COMPARABLE FOR THE PURPOSE OF BE NCHMARKING ANALYSIS. 89. HIS NEXT CONTENTION IS THAT THE COMPANY IS NOT COMPARABLE TO THE ASSESSEE BECAUSE OF THE INCOMPARABLE FINANCIAL RESU LTS ARISING OUT OF THE EXCEPTIONAL CIRCUMSTANCES IN THE FINANCIAL YEAR END ING ON 31 ST MARCH, 2010 AND SUCCEEDING FINANCIAL YEARS RESULTING IN TH E COMPANY EARNING ABNORMAL PROFITS DURING THE FINANCIAL YEAR 2009-10 AND SUCCEEDING FINANCIAL YEARS. HE FURTHER SUBMITTED THAT DURING THE YEAR ENDING MARCH 31, 2010, THE TURNOVER OF THE COMPANY INCREASED BY 708%, I.E. FROM RS. 47,407,301 TO RS. 383,160,901 IN THE PRECEDING YEAR , INCREASING THE OPERATING PROFIT MARGIN FROM 28.35% TO 88.25%. IT IS BROUGHT TO OUR NOTICE THAT THE TPO HAS ALSO REJECTED COMPANIES INC URRING PERSISTENT LOSSES AS WELL AS COMPANIES HAVING EXCEPTIONAL YEAR OF OPERATIONS AND ALSO NOTED THAT THE SOFTWARE INDUSTRY IS GROWING AT 20% AND THEREFORE, INFINITE DATA SYSTEMS WHICH HAS GROWN MULTIFOLD (A GROWTH OF 708% IN THE REVENUE) CANNOT BE REGARDED AS COMPARABLE FOR T HE PURPOSE OF BENCHMARKING ANALYSIS. BASING ON THIS, IT IS SUBMIT TED THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE, NOT BEING REPRESENTING THE NORMAL INDUSTRY TREND AND OPERATIN G IN A DIFFERENT MARKET CONDITION. 48 90. ON THE ASPECT OF THIS COMPANY BEING FUNCTIONALL Y DIFFERENT FROM THE ASSESSEE, LD. AR SUBMITTED THAT THE COMPANY IS ENGAGED IN PROVIDING A DIVERSE SET OF SERVICES WHICH INTER-ALIA INCLUDE TECHNICAL CONSULTING AND INFRASTRUCTURE MANAGEMENT SERVICES; THAT THE NOTE O N REVENUE RECOGNITION STATES THAT THE COMPANY DERIVES ITS REV ENUE PRIMARILY FROM TECHNICAL SUPPORT AND INFRASTRUCTURE MANAGEMENT SER VICES; AND THAT, THEREFORE, THIS COMPANY CANNOT BE REGARDED AS COMPA RABLE TO THE ASSESSEE, ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES. 91. HE PLACED RELIANCE ON KAPLAN INDIA PVT LTD. VS ITO (ITA NO 1481/DEL/2015), LABVANTAGE SOLUTIONS VS DCIT (ITA N O. 599/KOL/2015), FREESCALE SEMICONDUCTOR INDIA VS DCIT (ITA NO. 1263 /DEL/2015 AND LIME LABS INDIA PVT LTD VS ITO (ITA NO. 1703/DEL/2015) I N SUPPORT OF HIS CONTENTIONS. 92. WE HAVE GONE THROUGH THE PROFILE OF BOTH THE AS SESSEE AND THE COMPARABLE COMPANY, IN THE LIGHTOF THE DECIDED CASE S TOUCHING THE ASPECT OF COMPARABILITY. IN LABVANTAGE SOLUTIONS V S DCIT (ITA NO. 599/KOL/2015), THE PROFILE OF INFINITE DATA SYSTEMS PVT LTD (MERGED) FOR THE AY 2009-10 AND 2010-11 IS SUCCINCTLY DELINEATED IN THE FOLLOWING LINES: WE FIND THAT THIS COMPANY HAD REPORTED NCP OF 88.25 % . IT IS NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN SOFTWARE DE VELOPMENT. HENCE COMPARABLE SHOULD ALSO BE IN THE COMPANIES ENGAGED IN THE SIMILAR SECTOR. WE FIND THAT THIS COMPANY IS HAVING A DIFFE RENT BUSINESS MODEL AND ENGAGED IN PROVIDING ENTIRE GAMUT OF SOLUTIONS COMPRISING OF TECHNICAL CONSULTING, DESIGN AND DEVELOPMENT OF SOF TWARE, MAINTENANCE, SYSTEM INTEGRATION, IMPLEMENTATION, TESTING AND INF RASTRUCTURE MANAGEMENT SERVICES. WE FIND FROM THE PAPER BOOK TH AT THE REVENUE IS PRIMARILY DERIVED FROM TECHNICAL SUPPORT AND INFRAS TRUCTURE MANAGEMENT SERVICES. WE FIND THAT INFINITE DATA SYS TEMS PVT LTD COMMENCED ITS OPERATIONS ON 1ST JANUARY 2009 AND AS PER SEGMENT 49 REPORTING DISCLOSURE, THE COMPANY'S OPERATIONS PRED OMINANTLY RELATE TO PROVIDING SOFTWARE TECHNICAL CONSULTANCY SERVICES T O ITS SOLE CUSTOMER FUJITSU SERVICES LIMITED. FURTHER, AS PER THE ANNUA L REPORT OF 2009, AT PAGE 1, IT IS STATED THAT THE HOLDING COMPANY M/S I NFINITE COMPUTER SOLUTIONS (INDIA) LIMITED SIGNED AN AGREEMENT (BUIL D, OPERATE AND TRANSFER - BOT MODEL) WITH FUJITSU SERVICES LIMITED TO SET UP GLOBAL DELIVERY CENTERS IN INDIA TO PROVIDE OFFSHORE DELIV ERY CAPABILITIES TO FUJITSU & FUJITSU'S ASSOCIATED COMPANIES. WE FIND TH AT THESE FACTS HAVE ALSO BEEN ACKNOWLEDGED BY THE LD TPO AT PAGE 77 OF HIS ORDER. THE LD AR STATED THAT IT WOULD BE WORTHWHILE TO NOTE THAT INF INITE DATA SYSTEMS PVT LTD COMPLETED ITS THREE YEARS CONTRACT WITH FUJITSU , POST WHICH, THE BUSINESS WAS TRANSFERRED TO FUJITSU AND THUS THE CO MPANY HAS BEEN MERGED WITH ITS HOLDING COMPANY - INFINITE ITA NO. 599, 1051 & 617/KOL/2015 LABVANTAGE SOLUTION PVT. LTD. AY 2009- 10 & 2010-11 COMPUTER SOLUTIONS (INDIA) LTD DURING THE FINANCIAL YEAR 2011-12. WE ARE INCLINED TO AGREE WITH THE SUBMISSIONS OF THE LD AR THAT THIS COMPARABLE INFINITE DATA SYSTEMS PVT LTD WAS CREATED FOR PURPO SES OF TRANSFER OF BUSINESS. HENCE THE NATURE OF SERVICES AND BUSINESS MODEL OF ASSESSEE COMPANY AND COMPARABLE COMPANY ARE ENTIRELY DIFFERE NT. APART FROM THIS, WE ALSO FIND THAT THERE EXIST ABNORMAL CIRCUM STANCES IN THE SAID COMPARABLE. DURING THE LAST 3 YEARS, VARIATIONS IN MARGINS EARNED SHOW AN ABNORMAL CIRCUMSTANCES LEADING TO HUGE FLUCTUATI ONS AND SUPERNORMAL PROFIT , THE MARGIN EARNED BY INFINITE IS 88.25% WHICH IS ABNORMALLY HIGH. IT WAS ARGUED THAT SUCH COMPANIES WHICH ARE MAKING MORE THAN TWICE THE ARITHMETICAL MEAN MARGIN AS COM PUTED BY THE LD TPO SHOULD NOT BE CONSIDERED AS COMPARABLE. THE LD AR REFERRED TO PAGE 591 OF THE PAPER BOOK WHERE THE DETAILS OF THE FLUC TUATION IN THE REVENUE, PROFIT AND MARGINS HAS BEEN PROVIDED. IT I S TRUE THAT WHERE COMPANY IN WHICH EXTRAORDINARY EVENTS HAD TAKEN PLA CE DURING THE YEAR LIKE MAJOR ACQUISITIONS WHICH HAD IMPACT ON PROFITS OF COMPANY, IT COULD NOT BE SELECTED AS COMPARABLE TO ASSESSEE ENGAGED I N SOFTWARE DEVELOPMENT. 93. INKAPLAN INDIA PVT LTD. VS ITO (ITA NO 1481/DEL /2015), A COORDINATE BENCH OF THIS TRIBUNAL CONSIDERED THE PR OFILE OF THIS COMPANY WITH REFERENCE TO THE INFORMATION FURNISHED IN THE ANNUAL REPORT AND FOUND THAT INFINITE DATA SYSTEMS PRIVATE LIMITED PR OVIDES SOLUTIONS THAT ENCOMPASS TECHNICAL CONSULTING, DESIGN AND DEVELOPM ENT OF SOFTWARE, MAINTENANCE, SYSTEM INTEGRATION, IMPLEMENTATION, TE STING AND 50 INFRASTRUCTURE MANAGEMENT SERVICES BESIDES PROVIDIN G SOFTWARE TECHNICAL CONSULTANCY SERVICES. A COORDINATE BENCH OF THIS TR IBUNAL CONSIDERED THIS COMPARABLE FOR THE AY 2010-11 IN FREESCALE SEMICOND UCTOR INDIA VS DCIT (ITA NO. 1263/DEL/2015) AND RECORDED THAT, - 12. . COMPARABLE COMPANY IS PROVIDING SERVICES OF TECHNICAL CONSULTING, DESIGN AND DEVELOPMENT OF SOFTWARE, MAI NTENANCE SYSTEM INTEGRATION, IMPLEMENTATION, TESTING AND INFRASTRUC TURE MANAGEMENT SERVICES. THESE SERVICES EXCEPT INFRASTRUCTURE MANA GEMENT SERVICES HAVE ALSO BEEN REFERRED TO A TECHNICAL SUPPORT SERVICES IN REVENUE RECOGNITION PORTION AND HAS A SOFTWARE TECHNICAL CONSULTANCY SE RVICES IN SEGMENT REPORTING PORTION OF THE ANNUAL REPORT. ACCORDING T O THE ASSESSEE ALL THE SERVICES ARE IN THE NATURE OF THE SOFTWARE DEVELOPM ENT SERVICES. THE LD. TRANSFER PRICING OFFICER AS WELL AS THE LD. DRP PAN EL HAS REJECTED THE OBJECTION OF THE ASSESSEE STATING THAT THIS IS FUNC TIONALLY COMPARABLE WITH THE ASSESSEE. ASSESSEE NEITHER DESIGN AND DEVE LOP A SOFTWARE BUT IS PROVIDING A LOW END CHIP SERVICES WHERE INFRASTRUCT URE AND ARCHITECT EVERYTHING IS PROVIDED BY THE GROUP COMPANY. IT DOE S NOT HAVE ANY RESEARCH AND DEVELOPMENT ACTIVITIES WHEREAS IN THE CASE OF THE COMPARABLE COMPANY IT PROVIDES THAT SERVICES TO FUJ ITSU SERVICES LTD AND ALSO MAINTAINS AND DESIGN AND DEVELOP A SOFTWARE. I N VIEW OF THIS THIS COMPARABLE COMPANY CANNOT BE SAID TO BE IN THE SAME FUNCTIONS AS IT IS PERFORMED BY THE ASSESSEE. 94. INFINITE DATA SYSTEMS PRIVATE LTD IS REJECTED T O BE A GOOD COMPARABLE FOR THE AY 2010-11 TO THE ASSESSEE WHO P ROVIDES CAPTIVE SOFTWARE SERVICES TO ITS AES, IN LIME LABS INDIA PV T LTD VS ITO (ITA NO. 1703/DEL/2015) BY OBSERVING THAT:- 13. THIS IS TPO'S COMPARABLE. THE TAXPAYER SOUGHT E XCLUSION OF INFINITE ON TWO GROUNDS - ONE, IT IS FUNCTIONALLY DIFFERENT; AND TWO, INFINITE IS EARNING ABNORMAL PROFIT TO THE TUNE OF 1496%. PERUS AL OF ANNUAL REPORT OF INFINITE, AVAILABLE AT PAGE 56 OF THE PAPER BOOK , SHOWS THAT INFINITE IS A GLOBAL SERVICE PROVIDER OF APPLICATION MANAGEMENT O UTSOURCING, REMOTE INFRASTRUCTURE MANAGEMENT SERVICES, R&D AND INTELLECTUAL PROPERTY LEVERAGED SOLUTIONS AND RELATED IT SERVICE S. FURTHERMORE, WHEN WE EXAMINE REVENUE RECOGNITION OF INFINITE IT SHOWS THAT PRIMARILY IT DERIVES ITS REVENUE FROM TECHNICAL SUPPORT AND I NFRASTRUCTURE MANAGEMENT SERVICES WHEREAS THE TAXPAYER IS DRIVING ITS REVENUE FROM SOFTWARE DEVELOPMENT SUPPORT SERVICES. INFINITE IS ALSO INTO RENDERING 51 TECHNICAL CONSULTATION, DESIGN & DEVELOPMENT OF SOF TWARE, MAINTENANCE SYSTEM INTEGRATION, IMPLEMENTATION, TESTING & INFRA STRUCTURE, MANAGEMENT SERVICES AND ITS SEGMENTAL INFORMATION I S NOT AVAILABLE, WHEREAS THE TAXPAYER IS INTO PROVIDING ROUTINE SOFT WARE DEVELOPMENT SUPPORT SERVICES TO ITS AE. 14. THE TAXPAYER PLACED RELIANCE ON DECISION RENDER ED BY COORDINATE BENCH OF THE TRIBUNAL IN DCIT VS. EXCHANGING TECHNO LOGY SERVICES INDIA LTD. (ITA NO.121/DEL/2015) WHEREIN INFINITE W AS ORDERED TO BE EXCLUDED BEING NOT A VALID COMPARABLE VIS--VIS EXC HANGING TECHNOLOGY WHICH WAS A ROUTINE SOFTWARE DEVELOPMENT SUPPORT SE RVICES PROVIDER. 15. FURTHERMORE, IT IS BROUGHT ON RECORD BY THE TAX PAYER THAT THE PROFITABILITY OF INFINITE IS INCREASED BY 1496% AS COMPARED TO THE PRECEDING YEAR DESPITE THE FACT THAT FOR COMPUTATIO N OF OP/OC, FOREIGN EXCHANGE LOSS HAS BEEN EXCLUDED FROM OC. SO, WE ARE OF THE CONSIDERED VIEW THAT SUPER-NORMAL PROFIT TO THE TUNE OF 1496% CERTAINLY AFFECTS OP/OC BUT, IN THIS CASE, EVEN FOREIGN EXCHANGE LOSS HAS BEEN EXCLUDED FROM THE OC BY THE TPO AND AS SUCH, IT MAKES THE IN FINITE NOT A VALID COMPARABLE VIS--VIS THE TAXPAYER. SO, WE ARE OF TH E CONSIDERED VIEW THAT BECAUSE OF FUNCTIONAL DISSIMILARITY OF INFINIT E VIS--VIS THE TAXPAYER AND EARNING SUPER- NORMAL PROFIT BY 1496% AS COMPAR ED TO PRECEDING YEARS MAKES INFINITE AS INVALID COMPARABLE. SO, WE DIRECT THE AO/ TPO TO EXCLUDE INFINITE FROM THE FINAL SET OF COMPARABLES. 95. FURTHER, A COORDINATE BENCH OF THIS TRIBUNAL UN DER SIMILAR CIRCUMSTANCES IN THE CASE OF SAXO INDIA PVT. LTD. V S. ACIT (ITA NO. 6148/DEL/2015) DIRECTED TO EXCLUDE THE COMPANIES HA VING UNDERTAKEN SIGNIFICANT RELATED PARTY TRANSACTIONS UNDER SECTIO N 92B(2) OF THE ACT DURING THE YEAR, WHICH FINDING IN RESPECT OF SUCH C OMPANY WAS NOT CHALLENGED BY THE REVENUE IN APPEAL BEFORE THE HON BLE DELHI HIGH COURT WHILE PREFERRING APPEAL IN ITA NO. 682/2016.IN THE CASE OF NEC TECHNOLOGIES INDIA PVT LTD (ITA NO. 6283/DEL/2015) ALSO A COORDINATE BENCH REJECTED A COMPANY ON THE BASIS THAT IT WAS P ROVIDING SERVICES TO AN ASSOCIATED ENTERPRISE IN TERMS OF SECTION 92B(2) OF THE ACT. IN THE CASE OF SAPIENT CORPORATION PVT LTD VS DCIT (ITA NO 5263 /DEL/2010) IT WAS 52 HELD THAT IN CASES WHERE LOSS MAKING COMPANIES ARE BEING REJECTED, IN ORDER TO PERFORM AN OBJECTIVE AND UNBIASED BENCHMAR KING ANALYSIS IT IS IMPERATIVE THAT HIGH PROFIT COMPANIES SHOULD ALSO B E REJECTED. 96. THERE IS NO DISPUTE IN RESPECT OF THE VOLUME OF RELATED PARTY TRANSACTIONS, EXTRA-ORDINARY YEAR OF OPERATION AND FUNCTIONAL PROFILE OF THE ASSESSEE AS SPOKEN BY THE ASSESSEE AND INFINITE DATA SYSTEMS PVT LTD AS DELINEATED FROM THE JUDICIAL FINDINGS. THE DISC USSION IN THE DECISIONS RELIED UPON BY THE ASSESSEE, ON THE BUSINESS MODEL AND THE FUNCTIONAL PROFILE OF INFINITE DATA SYSTEMS PVT LTD SPEAKS VOL UMES ON THE COMPARABILITY OF THIS ENTITY WITH ANY OTHER CAPTIVE SOFTWARE DEVELOPMENT SERVICE PROVIDER LIKE THE ASSESSEE AND RENDERS IT I NCOMPARABLE WITH THE ASSESSEE. WE THEREFORE, UPHOLD THE FINDINGS OF THE LD. DRP ON THIS ASPECT. 2. E-INFOCHIPS LTD. 97. NEXT COMPARABLE IN DISPUTE IS E-INFOCHIPS LTD. ASSESSEE PRAYED FOR ITS EXCLUSION FROM THE SET OF COMPARABLES ON THE GR OUND THAT IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY. FUNCTIONAL PROFILE OF THIS COMPANY, AS SUBMITTED BY THE LD. DR IS THAT EI NFOCHIPS LIMITED (E- INFOCHIPS) IS AN IP DESIGN SERVICES COMPANY, ENGAGE S IN PROVIDING ASIC/CHIP/SOC, EMBEDDED SYSTEM, AND SOFTWARE SERVIC ES AND SOLUTIONS; THIS COMPANY OFFERS SOFTWARE DEVELOPMENT SERVICES, SUCH AS PRODUCT LIFECYCLE MANAGEMENT, APPLICATION DEVELOPMENT, MAIN TENANCE AND SUPPORT, RE-ENGINEERING/MIGRATION, QUALITY ASSURANC E AND TESTING, CRM/PACKAGE IMPLEMENTATION, AND BUSINESS INTELLIGEN CE; AND EMBEDDED SYSTEM DESIGN SERVICES, INCLUDING TURNKEY PRODUCT D EVELOPMENT, BOARD DESIGN, BSP AND RTOS DESIGN, CODECS/STACKS DESIGN, SUSTENANCE ENGINEERING, AND PRODUCT REENGINEERING. THE COMPANY ALSO PROVIDES 53 CHIP/ASIC/SOC DESIGN AND VERIFICATION SERVICES AND SOLUTIONS THROUGH VERIFICATION METHODOLOGIES AND HARDWARE VERIFICATIO N LANGUAGES, PHYSICAL DESIGN AND VERIFICATION; ASIC PROTOTYPING ON FPGA, POST-SILICON VALIDATION, SYSTEM-LEVEL VALIDATION, FPGA BASED SYSTEM DESIGN S ERVICES, AND INDUSTRY- STANDARD DESIGN AND VERIFICATION IP DEVELOPMENT. TH E COMPANY OPERATES IN INDIA, GERMANY, CANADA, THE UNITED KINGDOM, AND THE UNITED STATES. E- INFOCHIPS IS HEADQUARTERED IN AHMADABAD, INDIA. LD. DR, THEREFORE PLEADED THAT THE ASSESSEE AND THIS COMPANY ARE FUNC TIONALLY SIMILAR INASMUCH AS TNMM REQUIRES BROAD SIMILARITY BUT NOT IDENTICAL FUNCTIONAL PROFILE FOR THE SELECTION OF COMPARABLE. 98. PER CONTRA, ACCORDING TO THE LD. AR THIS COMPAN Y IS ENGAGED IN 3 BUSINESS SEGMENTS, NAMELY, SOFTWARE DEVELOPMENT, IT ES AND PRODUCTS, BUT THE SEGMENTAL DATA IS NOT AVAILABLE IN THE ANNU AL REPORT OF THE COMPANY AND ON THAT SCORE THIS COMPANY CANNOT BE RE GARDED AS AN APPROPRIATE COMPARABLE FOR BENCHMARKING THE INTERNA TIONAL TRANSACTION OF SOFTWARE SERVICES UNDERTAKEN BY THE ASSESSEE. LD . AR PLACED RELIANCE ON THE DECISIONS IN ALCATEL LUCENT INDIA PVT LTD (I TA NO 6856/DEL/2015) ( AY 2011-12),CADENCE DESIGN SYSTEMS (I) PVT LTD VS A CIT (ITA NO. 6315/DEL/2015) AND ACIT VS MOBILEUM (INDIA) PVT LTD (ITA NO. 945/MUM/2016) TO SAY THAT WHEN SEGMENTAL INFORMATIO N IS NOT AVAILABLE, COMPARABILITY CANNOT BE RESORTED TO. 99. FROM THE CONTENTIONS OF THE PARTIES, IT IS CLEA R THAT THE BONE OF CONTENTION IS ONLY IN RESPECT OF AVAILABILITY OR NO N-AVAILABILITY OF SEGMENTAL DATA OF E-INFOCHIPS LTD. IT IS ONLY A MA TTER OF FACT TO BE DEMONSTRATED WITH REFERENCE TO THE ANNUAL REPORT FO R THE AY 2011-12 FOR WHICH YEAR THIS DISPUTE IS CONCERNED. HOWEVER, UNF ORTUNATELY NO 54 ATTEMPT IS MADE TO ESTABLISH THIS FACT WITH REFEREN CE TO THE FINANCIALS/ANNUAL REPORT OF THIS COMPANY. NO SUCH MATERIAL IS PRODUCED. ONLY RELIANCE ON THE DECISIONS WHERE THIS COMPARABL E IS DISCUSSED IS MADE. THOUGH THE DISCUSSION ON THIS COMPARABLE IN ALCATEL LUCENT INDIA PVT LTD (ITA NO 6856/DEL/2015) ( AY 2011-12) ANDCADENCE DESIGN SYSTEMS (I) PVT LTD VS ACIT (ITA NO. 6315/DEL/2015) DOES NO T CLINCH THE ISSUE, TRIBUNAL RECORDED IN ACIT VS MOBILEUM (INDIA) PVT L TD (ITA NO. 945/MUM/2016) THAT ON PERUSAL OF THE FINANCIALS, IT WAS FOUND THAT THE QUANTUM OF THE ITES AND OTHER SERVICES IS MORE THAN 25%, HOWEVER, SEGMENTAL DATA IS NOT AVAILABLE AND SO RECORDED IN CADENCE DESIGN SYSTEMS (I) PVT LTD (SUPRA). 100. BE THAT AS IT MAY, IT IS NOTICED BY ADJUDICATO RY AUTHORITY IN MOBILEUM (INDIA) PVT LTD (SUPRA) THAT FOR THE AY 20 11-12, THOUGH THE E- INFOCHIPS LTD WAS DOING DIVERSIFIED BUSINESS, NO SE GMENTAL INFORMATION WAS AVAILABLE AND THAT WAS THE GROUND FOR EXCLUDING THE SAME FROM THE SET OF COMPARABLES IN THE SOFTWARE DEVELOPMENT SEGM ENT. THESE CIRCUMSTANCES JUSTIFY THE FINDINGS OF THE LD. DRP A ND WE CONFIRM THE SAME. 3. E ZEST SOLUTIONS 101. AS COULD BE GATHERED FROM THE ANNUAL REPORT, T HIS COMPANY'S ACTIVITIES PREDOMINANTLY REVOLVE AROUND COMPUTER SO FTWARE DEVELOPMENT SERVICES, CONSIDERING THE NATURE OF COM PANY'S BUSINESS AND OPERATIONS, THERE IS ONLY ONE REPORTABLE SEGMENT - BUSINESS AND/OR GEOGRAPHICAL IN ACCORDANCE WITH THE REQUIREMENTS OF THE ACCOUNTING STANDARD 17 -SEGMENT REPORTING/1 NOTIFIED IN THE CO MPANIES (ACCOUNTING STANDARDS) RULES 2006.', AND AS PER THE FURTHER INF ORMATION FURNISHED IN 55 THE ANNUAL REPORT E-ZEST IS AN SEI-CMMI LEVEL-3 & . ISO 9001:2008 CERTIFIED PRODUCT ENGINEERING AND SOFTWARE DEVELOPM ENT COMPANY, HAVING SPECIAL EXPERTISE IN EMERGING TECHNOLOGIES S UCH AS CLOUD, SCIAS, BUSINESS INTELLIGENCE AND MOBILITY. 102. ASSESSEES RESISTANCE TO INCLUDE THIS COMPANY IN THE FINAL SET OF COMPARABLES IS BASED ON THE GROUND THAT THIS COMPAN Y IS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS AND CANNO T BE REGARDED AS AN APPROPRIATE COMPARABLE FOR BENCHMARKING THE INTE RNATIONAL TRANSACTION OF PROVISION OF SOFTWARE SERVICES UNDER TAKEN BY THE ASSESSEE AND IS HAVING EXPERTISE IN EMERGING TECHNOLOGIES SU CH AS CLOUD COMPUTING, BUSINESS INTELLIGENCE, MOBILITY ETC., TH EREFORE, IT RENDERS THE COMPANY AND IN APPROPRIATE COMPARABLE FOR BENCHMARK ING THE ROUTINE SOFTWARE SERVICES RENDERED BY THE ASSESSEE. LD. TPO NOTED THAT THE ASSESSEE CANVASSED THE BROADER PORTFOLIO OF SERVICE S (DIVERSIFIED SERVICES) AS THE BASIS FOR THE NON-COMPARABILITY OF THIS COMP ANY. 103. LD. TPO, HOWEVER, OBSERVED THAT IT IS POSSIBLE THAT THIS COMPANY IS PROVIDING SPECIALISED SERVICES WITHIN THE FIELD OF SOFTWARE DEVELOPMENT SERVICES, BUT THE DIESEL SERVICES WHICH ARE BEING P ROVIDED TO THE SOFTWARE PRODUCT DEVELOPERS AND COMPANIES NOT EARNING REVENU E IS FROM THE DEVELOPMENT OF PRODUCTS FOR ITS OWN USE AND, THEREF ORE, THIS ENTITY IS DEVELOPING SOFTWARE FOR CLIENTS AND NOT SELLING PRO DUCTS. ON THIS SCORE, LD. TPO REJECTED THE CONTENTION OF THE ASSESSEE THA T THIS ENTITY IS NOT A GOOD COMPARABLE WITH THE ASSESSEE. 56 104. LD. DRP, HOWEVER, DID NOT AGREE WITH THE FINDI NGS OF THE LD. TPO AND HELD THAT THE FAR OF THIS COMPANY IS DIFFERENT FROM THE ASSESSEE AND, THEREFORE, THIS ENTITY NEEDS TO BE EXCLUDED FROM TH E LIST OF COMPARABLES. 105. LD. DR HEAVILY RELIED ON THE REASONING AND FIN DINGS OF THE LD. TPO IN RESPECT OF THIS COMPANY. HE PLACED RELIANCE ON THE DECISIONS IN CADENCE DESIGN SYSTEMS (I) PVT LTD VS ACIT (ITA NO. 6315/DEL/2015), ACIT VS MOBILEUM (INDIA) PVT LTD (ITA NO. 945/MUM/2016) AND CLEAR 2 PAY INDIA PVT LTD VS ITO (ITA NO. 2788/DEL/2017) (AY 20 11-12). 106. INSOFAR AS THE PROFILE OF E ZEST SOLUTIONS IS CONCERNED, IT IS A MATTER OF RECORD AND BORNE BY THE ANNUAL REPORT OF THE COM PANY. FURTHER IT IS NOTED IN THE DECISIONS RELIED UPON, THAT E ZEST SOLUTIONSIS ENGAGED INTO DIVERSIFIED RANGE OF SOFTWARE ACTIVITIES AND ITS AN NUAL REPORT SHOWS THAT THIS COMPANY IS AN SEI-CMMI LEVEL III AND ISO 9001: 2008 CERTIFIED PRODUCT ENGINEERING AND SOFTWARE DEVELOPMENT COMPANY, HAVIN G SPECIAL EXPERTISE IN EMERGING TECHNOLOGIES SUCH AS CLOUD, S AAS, BUSINESS INTELLIGENCE AND MOBILITY, AND PREDICATE IT HAS BEE N SERVING CLIENTS IN MORE THAN EIGHT INDUSTRIES ACROSS THE GLOBE WITH OV ER 2000 SOFTWARE PROFESSIONALS ON-BOARD. THE PRODUCT ENGINEERING SER VICES/OUTSOURCED PRODUCT DEVELOPMENT SERVICES OF THIS COMPANY INCLUD E THE PRODUCT DESIGN AND DEVELOPMENT, PRODUCT FEATURE ENHANCEMENT , PRODUCT PLATFORM MIGRATION, SOFTWARE PRODUCT TESTING, PRODU CT MAINTENANCE AND SUPPORT, PRODUCT RELEASE AND LICENSE MANAGEMENT, SA AS/SOA SERVICES, WEB 2.0 SERVICES ETC ; ENTERPRISE APPLICATION DEVEL OPMENT SERVICES INCLUDE CUSTOMER RELATIONSHIP MANAGEMENT, ENTERPRIS E RESOURCE PLANNING, BUSINESS INTELLIGENCE, KNOWLEDGE MANAGEME NT, ENTERPRISE APPLICATION INTEGRATION, CONSULTING ETC; ID SERVICE S INCLUDE GLOBAL ON- 57 SITE/OFFSHORE SOFTWARE DEVELOPMENT, CUSTOM SOFTWARE DEVELOPMENT/BESPOKE SOFTWARE DEVELOPMENT, INDEPENDE NT SOFTWARE TESTING, RIA/AJAX APPLICATION DEVELOPMENT ETC AND T ECHNOLOGY EXPERTISE OF THIS COMPANY INCLUDES THE TECHNOLOGY COMPETENCY CENTERS IN RELATION TO MICROSOFT COMPETENCY CENTRE, SUN JAVA COMPETENCY CENTRE, OPEN SOURCE COMPETENCY CENTRE, CLOUD COMPUTING PRACTICE, MOBILITY PRACTICE AND BI PRACTICE. 107. BY NO STRETCH OF IMAGINATION CAN ANYONE SAY TH AT THE E-ZEST SOLUTIONS LTD WHICH IS RENDERING PRODUCT DEVELOPMEN T SERVICES AND HIGH- END TECHNICAL SERVICES WHICH COME UNDER THE CATEGOR Y OF KPO SERVICES WOULD BE COMPARABLE WITH A CAPTIVE SOFTWARE DEVELOP MENT COMPANY LIKE THE ASSESSEE AND ON THE GROUND IS NOT COMPARABLE WI TH A COMPANY WHICH IS INTO SOFTWARE DEVELOPMENT SERVICES. WE CONSEQUE NTLY FIND THAT THE LD. DRP IS JUSTIFIED IN EXCLUDING THIS COMPANY FROM THE FINAL SET OF COMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACT ION OF SOFTWARE DEVELOPMENT. 4. ACROPETAL TECHNOLOGIES LTD 108. AS COULD BE FOUND FROM THE ANNUAL REPORT OF AC ROPETAL TECHNOLOGIES LTD, THIS COMPANY IS INTO THE ENGINEER ING DESIGN SERVICE, INFORMATION TECHNOLOGY SERVICE, AND HEALTHCARE AND THIS COMPANY EMPLOYEES COST IS LESS THAN 25% OF THE TOTAL COST A ND ALSO THAT THIS COMPANY IS ENGAGED IN SIGNIFICANT R&D ACTIVITIES AN D INCURRING SIGNIFICANT ADVERTISEMENT, MARKETING AND PROMOTION EXPENSES AS A PERCENTAGE OF SALE. 58 109. ASSESSEE OBJECTED ITS INCLUSION IN THE COMPARA BLES ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY AND THE COMPANY BEING E NGAGED IN SIGNIFICANT R&D ACTIVITIES ALSO. LD. TPO OBSERVED THAT THE ASSE SSEE HAD NOT PROVIDED THE DATA FOR CARRYING OUT WORKING CAPITAL PRESUMABL Y SINCE THE ADJUSTMENT IS ADVERSE IN ITS CASE, BUT FOR CARRYING OUT THE ADJUSTMENT THE AVERAGE WORKING CAPITAL IS CALCULATED AND THE SAME IS ALLOCATED TO IT SEGMENT IN THE RATIO OF THE TURNOVER. LD. DRP IN TH EIR ORDER OBSERVED THAT THIS COMPANY NEEDS TO BE EXCLUDED DUE TO A DIFFEREN T FAR. 110. LD. DR PLACED RELIANCE ON THE OBSERVATIONS OF THE LD. TPO AND WHILE INVITING OUR ATTENTION TO THE ORDER OF THE LD. TPO SUBMITTE D THAT THE INCLUSION OF THIS ENTITY IS JUSTIFIED; WHEREAS IT IS THE CONTENTION OF THE LD. AR THAT COMPANY IS ENGAGED IN DEVELOPMENT AND S ALE OF SOFTWARE PRODUCTS; THAT THE EMPLOYEE COST OF THIS COMPANY OF RS 13.51 CRORES WHICH CONSTITUTES ONLY 9.53% OF THE TURNOVER OF THI S COMPANY OF 141.66 CRORES, THAT THE COMPANY DOES NOT SATISFY THE FILTE RS APPLIED BY THE TPO AND THEREFORE, DESERVES TO BE EXCLUDED FROM THE LIS T OF COMPARABLE COMPANIES. HE FURTHER SUBMITTED THAT FROM SCHEDULE 9 OF THE ANNUAL REPORT OF THIS COMPANY IT IS CLEAR THAT THE COMPANY HAS OUTSOURCED SIGNIFICANT PORTION OF ITS BUSINESS AND HAS PAID AN AMOUNT OF RS 55.77 CRORE TO OUTSIDE TECHNICAL SUB-CONTRACTORS. SINCE T HIS COMPANY HAS OUTSOURCED A MAJOR PART OF ITS BUSINESS, IT CANNOT , THEREFORE, BE REGARDED AS AN APPROPRIATE COMPARABLE FOR THE PURPOSE OF BEN CHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 111. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT O F THE SUBMISSIONS MADE ON EITHER SIDE. IN THE CASE OF RAMPGREEN SOLUT IONS PVT. LTD. VS. CIT (ITA NO. 102/2015) THE HONBLE DELHI HIGH COURT HEL D THAT COMPANIES 59 OUTSOURCING SIGNIFICANT PORTION OF THEIR BUSINESS C ANNOT BE REGARDED AS APPROPRIATE COMPARABLE. FURTHER THIS COMPANY WAS DI RECTED TO BE EXCLUDED AS COMPARABLE BY A COORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF OMNIGLOBE INFORMATION TECHNOLOGY (ITA NO 13 80/DEL/2016) AS COMPARABLE FOR AY 2011-12 TO THE COMPANIES LIKE ASS ESSEE WHO DO NOT OUTSOURCE THE SIGNIFICANT PORTION OF THEIR BUSINESS . SIMILAR EXCLUSION WAS MADE BY THE BANGALORE BENCH O F THE TRIBUNAL IN THE CASE OF ACIT VS. FLEXTRONICS TECHNOLOGIES (INDIA) ( P.) LTD. (2019) 101 TAXMANN.COM 348. 112. WE HAVE ALSO GONE THROUGH THE OBSERVATIONS OF THE TRIBUNAL IN RESPECT OF THE ACROPETAL TECHNOLOGIES LTD, WHEREIN THE ARGUMENTS SIMILAR TO THE ONES ADVANCED IN THIS MATTER ARE CONSIDERED AND THIS COMPARABLE IS EXCLUDED. ALL THESE ADDITIONS HAVE APPLICATION T O THE FACTS INVOLVED IN THIS CASE FOR THIS ASSESSMENT YEAR, IN SUCH DECISIO NS WE HOLD THAT ACROPETAL TECHNOLOGIES LTD IS NOT A PROPER COMPARAB LE TO THE ASSESSEE AND ITS EXCLUSION BY THE LD. DRP CANNOT BE FOUND FA ULT WITH. SUCH AN EXCLUSION IS ACCORDINGLY CONFIRMED. 5. AND 6. INFOSYS TECHNOLOGIES LTD. AND WIPRO TECHN OLOGIES SERVICES LTD 113. COMING TO THE OBJECTION OF THE ASSESSEE TO INCLUDE INFOSYS TECHNOLOGIES LTD. AND WIPRO TECHNOLOGIES SERVICES L TD. AND WIPRO TECHNOLOGIES SERVICES LTD IN THE FINAL LIST OF COMP ARABLES, SUCH OBJECTIONS ARE SIMILAR AND ARE BASED ONOWNERSHIP OF INTANGIBLE S/BRAND. NO DOUBT,THESE TWO COMPANIESOWNED SIGNIFICANT INTANGIB LES AND BRAND VALUE. LD. TPO, HOWEVER, REJECTED THE SUBMISSION ON BEHALF OF THE ASSESSEE THAT BRAND HAS HELPED IN BETTER MARGINS IS NOT CORRECT, STATING 60 THAT THE BRAND NAME MAY HAVE HELPED INFOSYS TECHNOL OGIES LTD. AND WIPRO TECHNOLOGIES SERVICES LTD IN INCREASING ITS N UMBER OF CLIENTS & RETENTION OF EXISTING CLIENTS AND THUS AN INCREASE IN ITS MARKET SHARE, BUT IT HAS NOT NECESSARILY RESULTED IN BETTER PROFIT MA RGINS. ACCORDING TO LD. TPO BRAND MAY BRING MORE REVENUES BUT NOT NECESSARI LY HIGHER MARGINS; THAT CONVERSELY SOME COMPANIES DESPITE HAVING BRAND NAME HAVE EARNED LOWER MARGINS. FURTHER, LD. TPO CONTENDED THAT, ANY BRAND COMES WITH A COST I.E. HUGE EXPENSES ARE REQUIRED TO BE INCURRED TO BUILD BRAND VALUE, THAT, THEREFORE, A BRAND MAY GENERATE REVENUE BUT W ITH A COST COMPENSATING ANY EXTRA BENEFIT, IF ANY DERIVED FROM SUCH EFFORT. LD. DR SUBMITTED THAT THE ITAT, VIZAG IN THE CASE OF LG PO LYMERS INDIA PVT. LTD. (2011-TII-97-ITAT-VIZAG-TP) HAS HELD THAT BRAND NAM E IS ONLY ONE OF THE FACTORS BUT NOT THE ONLY FACTOR WHICH AFFECTS PROFI TABILITY, SEVERAL OTHER FACTORS GO INTO THE PROFITABILITY OF A CONCERN. HE THEREFORE SUBMITS THAT SINCE THE ASSESSEE HAS ALSO FAILED TO ESTABLISH THA T THE PAYMENT OF TATA BRAND EQUITY AND OWNERSHIP OF INTANGIBLES IS LEADIN G TO HIGH PROFIT MARGIN EARNED BY THE COMPANY AND THESE KINDS OF INTANGIBLE S ARE AVAILABLE IN ALMOST ALL THE COMPARABLES. 114. PER CONTRA, IN RESPECT OF THE OWNERSHIP OF IN TANGIBLES/BRAND, LD. ARSUBMITTED THAT THE COMPANY OWNS AND EXPLOITS A VA LUABLE TRADE MARK NAMELY INFOSYS AND THEREFORE, CANNOT BE REGARDED AS AN APPROPRIATE COMPARABLE FOR THE PURPOSE OF BENCHMARKING THE INTE RNATIONAL TRANSACTIONS UNDERTAKEN BY A CAPTIVE SERVICE PROVID ER; THAT COMPANIES OWNING/EXPLOITING VALUABLE INTANGIBLES SUCH AS PATE NTS, BRAND ETC CANNOT BE COMPARED WITH A ROUTINE CAPTIVE SERVICE PROVIDER SUCH AS THE ASSESSEE; THAT COMPANIES OWNING AND EXPLOITING VALU ABLE INTANGIBLES SUCH 61 AS PATENTS, BRANDS ETC. ENJOYS SIGNIFICANT COMPETIT IVE ADVANTAGE IN THE FORM OF PREMIUM PRICING AND/OR HIGHER VOLUME OF BUS INESS LEADING TO HIGHER PROFITABILITY. HE FURTHER SUBMITTED THAT ABN ORMAL MARGINS ARE USUALLY A RESULT OF ABNORMAL CIRCUMSTANCES OR AVAIL ABILITY OF INTANGIBLE ASSET AS A DISTINCT ADVANTAGE TO THE COMPANY WHICH IS NOT AVAILABLE TO ITS COMPETITORS OPERATING IN THE SAME INDUSTRY AND THAT THE ASSESSEE DOES NOT OWN SUCH SIMILAR INTANGIBLE ASSETS TO ENABLE IT TO EARN HIGHER MARGINS. 115. IT IS AN UNDENIABLE FACT THAT INFOSYS LTD IS I NTER-ALIA ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. THE SOFT WARE PRODUCTS DEVELOPED BY THE COMPANY INCLUDES FINACLE TM, FINAC LE CORE BANKING SOLUTION.IN THE CASE OF AGNITY INDIA TECHNOLOGIES P VT. LTD VS. ITO (ITA NO. 3856/DEL/2010), WHEREIN IT WAS HELD AS UNDER: IT IS ARGUED THAT THE CASE OF THE ASSESSEE IS NOT COMPARABLE WITH INFOSYS TECHNOLOGIES LTD., THE REASON BEING THAT TH E LATTER IS GIANT IN THE AREA OF DEVELOPMENT OF SOFTWARE AND IT ASSUMES ALL RISKS, LEADING TO HIGHER PROFIT. ON THE OTHER HAND, THE ASSESSEE IS A CAPTIVE UNIT OF ITS PARENT COMPANY IN THE USA AND IT ASSUMES ONLY LIMIT ED CURRENCY RISK. HAVING CONSIDERED THESE POINTS, WE ARE OF THE VIEW THAT THE CASE OF AFORESAID INFOSYS AND THE ASSESSEE ARE NOT COMPARAB LE AT ALL AS SEEN FROM THE FINANCIAL DATA ETC. OF THE TWO COMPANIES M ENTIONED EARLIER IN THIS ORDER APPEAL FILED BY THE REVENUE WAS DISMISSED BY THE HO NBLE DELHI HIGH COURT IN ITA NO. 1204/2011. 116. HONBLE DELHI HIGH COURT IN THE CASE OF PCIT V S. NEW RIVER SOFTWARE SERVICES (P.) LTD.IT APPEAL NO. 924 OF 201 6 FOLLOWING THE DECISION IN CASE OF AGNITY (SUPRA) UPHELD THE EXCLU SION OF INFOSYS BPO LTD. FROM THE SET OF COMPARABLE COMPANIES ON THIS S CORE. 117. APART FROM THAT A COORDINATE BENCH OF THIS TRI BUNAL IN THE 62 APPELLANTS OWN CASE OF AY 2015-16 (ITA NO 6687/DEL /2019) REJECTED INFOSYS BPO LTD. ON THE BASIS THAT THE COMPANY ENJO YS THE BENEFITS ASSOCIATED WITH BRAND INFOSYS. ACCORDINGLY, IT IS S UBMITTED THAT INFOSYS LTD. TOO, CANNOT BE REGARDED AS AN APPROPRIATE COMP ARABLE FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTI ONS UNDERTAKEN BY THE APPELLANT. NO CHANGE IN THE FACTS AND CIRCUMSTANCES FROM THOSE INVOLVED IN THE ASSESSMENT YEAR 2015-16 TO THE PRESENT ASSESSMENT Y EAR ARE BROUGHT TO OUR NOTICE AND THERE IS NO REASON AS TO WHY A DIFFE RENT CONCLUSION COULD BE REACHED FOR THIS ASSESSMENT YEAR. WHILE RESPECTF ULLY FOLLOWING THE VIEW TAKEN IN ASSESSEES OWN CASE FOR THE ASSESSMEN T YEAR 2015-16, WE HOLD THAT INFOSYS TECHNOLOGIES LTD. AND WIPRO TECHN OLOGIES SERVICES LTDARE NOT AT ALL A PROPER COMPARABLE WITH THE ASSE SSEE AND THEIR EXCLUSION BY THE LD. DRP IS JUSTIFIED. WE DECLINED TO INTERFERE WITH THE SAME. 7. PERSISTENT SYSTEMS LTD 118. PERSISTENT SYSTEMS PVT. LTD IS PREDOMINANTLY I N OUTSOURCED PRODUCT DEVELOPMENT SERVICES FOR INDEPENDENT SOFTWARE VENDO RS AND ENTERPRISES. OPD SERVICES INCLUDE RESEARCH, ENGINEERING SERVICES SUCH AS DEVELOPMENT, TESTING QUALITY ASSURANCE, PERFORMANCE TUNING, USABILITY ENGINEERING, PORTING, DOCUMENTATION SERVICES, DEPLO YMENT, SERVICES INCLUDING ON-SITE PROFESSIONAL SERVICES, PRE-SALES AND AFTER SERVICES INCLUDING SUPPORT MAINTENANCE ETC 119. STATING THAT THIS COMPANY IS FUNCTIONALLY DISS IMILAR AND IS ENGAGED IN THE SALE OF SOFTWARE PRODUCTS ASSESSEE PRAYED TO EXCLUDE THIS COMPANY 63 FROM THE FINAL LIST OF COMPARABLES. LD. DR SUBMITS THAT THE TPO HAS DISCUSSED IN GREAT DETAIL ABOUT THE CONTENTION OF T HE ASSESSEE REGARDING THE ENTITY BEING ENGAGED ON DEVELOPMENT OF SOFTWARE PRODUCTS, AND CONCLUDED THAT THE ENTITY HAD PRODUCT REVENUE ONLY TO THE EXTENT OF 7.2%. BASING ON THIS THE LD. TPO CONCLUDED THAT THE ENTITY WAS A SOFTWARE SERVICE PROVIDER. LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS CONSIDERED ITSELF THIS COMPANY AS A COMPARABLE IN T HE TRANSFER PRICING STUDY REPORT . 120. LD. DR FURTHER SUBMITTED THAT THE COMPANY WAS CONSIDERED AS A COMPARABLE BY THE ASSESSEE ITSELF IN ITS OWN TP REP ORT. AT THAT TIME THERE WAS NO REASON TO CONSIDER THIS ENTITY AS A NON COMP ARABLE. HOWEVER, THE ASSESSEE HAS OBJECTED TO INCLUSION OF THIS ENTITY, OSTENSIBLY BECAUSE THE ENTITY HAS A HIGH MARGIN. 121. PER CONTRA IT IS THE SUBMISSION ON BEHALF OF T HE ASSESSEE THATPERSISTENT SYSTEMS LTD. IS ENGAGED IN THE BUSIN ESS OF DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS AND THEREFORE, CANNOT BE REGARDED AS COMPARABLE TO THE ASSESSEE, A CAPTIVE SOFTWARE SERV ICE PROVIDER. IT IS FURTHER SUBMITTED THAT IN TERMS OF BUSINESS DESCRIP TION GIVEN IN THE ANNUAL REPORT OF THIS COMPANY, IT IS STATED THAT TH E COMPANY SPECIALIZES IN SOFTWARE PRODUCTS, SERVICES AND TECHNOLOGY INNOV ATIONS. LD. AR LASTLY SUBMITTED THAT THE SEGMENTAL PROFITABILITY OF THIS COMPANY FROM PROVISION OF SOFTWARE SERVICES IS NOT AVAILABLE IN THE ANNUAL REPORT AND ACCORDINGLY, PERSISTENT SYSTEMS LTD CANNOT BE REGAR DED AS AN APPROPRIATE COMPARABLE FOR THE PURPOSE OF BENCHMARKING ANALYSIS . LD. AR PLACED RELIANCE ON VARIOUS DECISIONS IN SUPPORT OF HIS CON TENTIONS. 64 122. WE HAVE GONE THROUGH THE MATERIAL PLACED BEFOR E US IN SUPPORT OF RESPECTIVE CONTENTIONS. IT IS SUBMITTED ON BEHALF O F THE ASSESSEE THAT THE COMPANIES LIKE SAXO INDIA PVT. LTD., CASH EDGE INDI A (PVT.) LTD. ,PYRAMID IT CONSULTING PRIVATE, EQUANT SOLUTIONS INDIA PVT. LTD ANDNEC TECHNOLOGIES INDIA PVT LTD ARE ON THE SAME FOOTING AS THAT OF TH E ASSESSEE AND THE FUNCTIONS PERFORMED, ASSETS DEPLOYED AND RISK UNDER TAKEN BY THESE COMPANIES IS IDENTICAL TO THE ASSESSEE. IN THE CASE OF THESE COMPANIES, IN SAXO INDIA PVT. LTD. VS. ACIT (ITA NO. 6148/DEL/201 5), ASH EDGE INDIA (PVT.) LTD. VS. ITO (ITA NO. 64/DEL/2015), PYRAMID IT CONS ULTING PRIVATE VS. ITO (ITA NO. 5401/DEL/2012), EQUANT SOLUTIONS INDIA PVT . LTD. VS. DCIT (ITA NO. 1202/DEL/2015), ANDNEC TECHNOLOGIES INDIA PVT L TD (ITA NO 6283/DEL/2015) RESPECTIVELY THE COORDINATE BENCH OF THIS TRIBUNAL CONSIDERED THE COMPARABILITY OF THESE ENTITIES WITH PERSISTENT SYSTEMS LTD, AND REJECTED THE PERSISTENT SYSTEMS LTD AS A G OOD COMPARABLE. 123. ON A CAREFUL CONSIDERATION OF THESE DECISIONS, WE FIND THAT THERE IS NO DISPUTE THAT THE FUNCTIONS PERFORMED BY PERSISTE NT SYSTEMS PVT. LTD INCLUDE OUTSOURCING OF PRODUCT DEVELOPMENT SERVICES FOR INDEPENDENT SOFTWARE VENDORS AND ENTERPRISES, AND SUCH OPD SERV ICES INCLUDE RESEARCH, ENGINEERING SERVICES SUCH AS DEVELOPMENT, TESTING QUALITY ASSURANCE, PERFORMANCE TUNING, USABILITY ENGINEERIN G, PORTING, DOCUMENTATION SERVICES, DEPLOYMENT, SERVICES INCLUD ING ON-SITE PROFESSIONAL SERVICES, PRE-SALES AND AFTER SERVICES INCLUDING SUPPORT MAINTENANCE ETC WHICH ARE NOWHERE COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESSEE. FURTHER, THERE IS NO DIS PUTE THAT THE SEGMENTAL PROFITABILITY OF PERSISTENT SYSTEMS PVT. LTD FROM PROVISION OF SOFTWARE SERVICES IS NOT AVAILABLE. AS A MATTER OF FACTON THESE TWO 65 GROUNDS, NAMELY, FUNCTIONAL DISSIMILARITY AND NON-A VAILABILITY OF SEGMENTAL FIGURES IS A GOOD GROUND TO REJECT THIS E NTITY FROM THE LIST OF COMPARABLES AND, THEREFORE, WE FIND EVERY JUSTIFICA TION FOR THE LD. DRP IN THEIR CONCLUSION. WE ACCORDINGLY UPHOLD THE SAME. THINKSOFT GLOBAL SERVICES LTD. 124. ACCORDING TO THE ANNUAL REPORT, THINKSOFT GLOB AL SERVICES LTD. IS ENGAGED IN PROVISION OF SOFTWARE VERIFICATION AND V ALIDATION SERVICES WHICH IS A SUBSET OF SOFTWARE SERVICES; THAT SOFTWA RE VALIDATION IS A PART OF SOFTWARE DEVELOPMENT LIFE CYCLE AND THE SKILLS REQU IRED FOR SOFTWARE VALIDATION AND SIMILAR TO THOSE REQUIRED FOR SOFTWA RE DEVELOPMENT; AND THAT AS PER THE WEBSITE SOFTWARETESTINGMENTOR.COM ( A COMPREHENSIVE WEBSITE FOR SOFTWARE TESTING) A SOFTWARE TESTER REQ UIRES KNOWLEDGE OF REQUIREMENT ANALYSIS, DESIGN AND CODING. 125. ACCORDING TO THE ASSESSEE THINKSOFT GLOBAL SOL UTIONS LTD., BEING A COMPANY ENGAGED IN PROVISION OF SOFTWARE VALIDATION SERVICES IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE, ENGAGED IN PROVISION OF SOFTWARE SERVICES.LD. TPO , HOWEVER, REJECTED THINK SOFT GLOBAL SERVICES LTD. ON THE BASIS THAT IT IS ENGAGED IN PROVISION O F SOFTWARE VALIDATION AND VERIFICATION SERVICES AND THEREFORE CANNOT BE REGAR DED AS AN APPROPRIATE COMPARABLE TO THE ASSESSEE. LD. DRP, HOWEVER HELD T HAT THE COMPANY IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THEREFO RE OUGHT TO HAVE BEEN INCLUDED IN THE FINAL SET OF COMPARABLE COMPAN IES. 126. LD. DR PLACING RELIANCE ON THE FINDINGS OF THE LD. TPO; WHEREAS LD. AR SUBMITTED THAT THE DRP RIGHTLY DIRECTED THE TPO TO INCLUDE THINKSOFT GLOBAL SERVICES LTD. IN THE FINAL SET OF COMPARABLE COMPANIES FOR THE 66 REASONS OF FUNCTIONAL COMPARABILITY. LD. AR PLACED RELIANCE ON THE DECISIONS IN THE CASE OF ST ERICSSON INDIA PRIVATE LIMITED, MARVEL INDIA PRIVATE LIMITED AND CADENCE DESIGN SYSTEMS, SIMILAR LY PLACED COMPANIES. 127. ON A PERUSAL OF THE DECISIONS IN THE CASES OF SIMILARLY PLACED COMPANIES AND RELIED UPON BY THE ASSESSEE, WE FIND THAT IN ST ERICSSON INDIA PVT LTD (ITA NO. 6247/DEL/2015) FOR AY 2011-1 2 A COORDINATE BENCH OF THISTRIBUNAL WHILE REJECTING SIMILAR CONTENTION OF THE TPO HELD THAT THINKSOFT GLOBAL SOLUTIONS LTD IS FUNCTIONALLY COMP ARABLE TO A SOFTWARE SERVICE PROVIDER. SIMILAR IS THE FINDING IN THE CAS ES OF ACIT VS MARVEL INDIA PVT LTD (IT(TP) A NO. 384&471/BANG/2016) FOR AY 201 1-12 ANDCADENCE DESIGN SYSTEMS (I) PVT LTD VS ACIT (ITA NO. 6315/DE L/2015). NO SPECIFIC PARAMETER IS BROUGHT TO OUR NOTICE TO RENDER THE TH INKSOFT GLOBAL SERVICES LTD IS NOT COMPARABLE TO A SOFTWARE SERVIC E PROVIDER. IN THE CIRCUMSTANCES WHILE FOLLOWING THE RATIO OF THE DECI SIONS RELIED UPON BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2011-12, WE FI ND THAT THINKSOFT GLOBAL SERVICES LTD IS A COMPARABLE TO THE SOFTWARE SERVICE PROVIDER. FINDINGS OF THE LD. DRP ARE THEREFORE, UPHELD. 128. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DAY OF NOVEMBER, 2020. SD/- SD/- ( N.K. BILLAIYA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17/11/2020 AKS