M/s. Eaton Technologies Private Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 519/PUN/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8489 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-08-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 23-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMOL KAMAT
• Assessee Lawyers: S S TOMAR
• Keywords: Related party transaction; Transfer pricing; Principle of natural justice; International transaction; Question of law; TDS
• Section: 92C; 10B; 205; 264; 43; 72; 13; 22; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S.SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM . / I TA NO. 519 /PUN/20 15 / ASSESSMENT YEAR : 2010 - 11 M/S. EATON TECHNOLOGIES PRIVATE LIMITED 145, OFF. MUMBAI - PUNE ROAD, PIMPRI, PUNE - 411 018 PAN : AABCE4323Q ....... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(2), PUNE. / RESPONDENT A SSESSEE BY : SHRI VISHAL KALRA & SHRI S.S TOMAR REVENUE BY : SHRI AMOL KAMAT / DATE OF HEARING : 11 .0 8 .2021 /12.08.2021 / DATE OF PRONOUNCEMENT : 16 . 0 8 .2021 / ORDER PER PARTHA SARATHI CHAUDHU RY, JM: THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE DIRECTIONS OF THE LD. DISPUTE RESOLUTION PANEL (DRP), PUNE DATED 24.12.2014 PASSED U/S.144C(5) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2010 - 11 AS PER THE FOLLOWING GROUNDS OF APPEAL ON RECORD : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ TRANSFER PRICING OFFICER ('TPO') HAVE ERRED IN MAKING AN UPWARD ADJUSTMENT OF RS.1,87,58,681 IN RESPECT OF THE 2 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 INTERNATIONAL TRANSACTIONS PERTAINING TO INFORMATION TECHNOLOGY ('IT'), INFORMATION TECHNOLOGY ENABLED SERVICES ('ITES') AND BUSINESS SUPPORT SER VICE ('BSS') SEGMENTS, PURSUANT TO THE DIRECTIONS OF THE DRP, ALLEGING THAT THE SAME WERE NOT AT ARM'S LENGTH, AND CONSEQUENTLY, COMPLETING THE ASSESSMENT AT RS.16,09,84,540 AS AGAINST THE RETURNED I NCOME OF RS.14,22,25,857. 2. THAT ON THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME - TAX RULES, 1962 ('RULES') FOR DETERMINATION OF THE ARM'S LENGTH PRICE ('ALP') OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO IT, ITES AND B SS SEGMENTS. WITHOUT PREJUDICE, THE AO/DRP/TPO ALSO ERRED IN REJECTING THE FRESH SEARCH CONDUCTED BY THE APPELLANT, USING CURRENT SINGLE YEAR DATA. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN REJECTING / ARBITRARILY MODIFYING THE SEARCH PROCESS AND FILTERS ADOPTED BY THE APPELLANT FOR THE PURPOSE OF BENCHMARKING ITS INTERNATIONAL TRANSACTIONS PERTAINING TO IT, ITES AND BSS SEGMENTS. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO ERRED IN MAKING AN UPWARD TP ADJUST MENT OF RS.1,49,86,139, IN RESPECT OF THE INTERNATIONAL TRANSACTION PERTAINING TO IT SEGMENT ALLEGING THE SAME TO BE NOT AT ARMS LENGTH IN TERMS OF THE PROVISIONS OF SECTION 92C OF THE ACT READ WITH RULE 10D OF THE INCOME TAX RULES, 1962 (THE RULES). 5 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAVE ERRED IN ARBITRARILY REJECTING CERTAIN FUNCTIONALLY COMPARABLE COMPANIES/ SEGMENTS SELECTED BY THE APPELLANT FOR THE PURPOSE OF BENCHMARKING ITS INTERNATIONAL TRANSACTIONS PE RTAINING TO IT SEGMENT AND FURTHER ERRED IN ARBITRARY SELECTING FUNCTIONALLY INCOMPARABLE COMPANIES/ SEGMENTS ON THE BASIS OF ARBITRARY SEARCH FILTERS AND INCORRECT APPRECIATION OF FUNCTIONAL, ASSET AND RISK PROFILE OF THE APPELLANT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN MAKING AN UPWARD TP ADJUSTMENT OF RS.23,38,531, IN RESPECT OF THE INTERNATIONAL TRANSACTION PERTAINING TO ITES SEGMENT ALLEGING THE SAME TO BE NOT AT ARM'S LENGTH IN TERMS OF THE PROVISIONS OF SECTION 92C OF THE ACT, READ WITH RULE 10D OF THE RULES. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAVE ERRED IN ARBITRARILY REJECTING CERTAIN FUNCTIONALLY COMPARABLE COMPANIES/ SEGMENTS SELECTED BY THE APPELLANT F OR THE PURPOSE OF BENCHMARKING ITS INTERNATIONAL TRANSACTIONS PERTAINING TO ITES SEGMENT AND FURTHER ERRED IN ARBITRARY SELECTING FUNCTIONALLY INCOMPARABLE COMPANIES /SEGMENTS ON THE BASIS OF ARBITRARY SEARCH FILTERS AND INCORRECT APPRECIATION OF FUNCTIONA L, ASSET AND RISK PROFILE OF THE APPELLANT. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN MAKING AN UPWARD TP ADJUSTMENT OF RS.14,34,011, IN RESPECT OF THE INTERNATIONAL TRANSACTION PERTAINING TO BSS SEGMENT, PURS UANT TO THE DIRECTIONS OF THE DRP ALLEGING THE SAME TO BE NOT AT ARM'S LENGTH IN TERMS OF THE 3 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 PROVISIONS OF SECTION 92C OF THE ACT READ WITH RULE 10D OF THE RULES. 9. THAT ON THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN LAW, T HE AO /DRP /TPO ERRED IN ARB ITRARILY SELECTING/ RETAINING FUTURE CAPITAL INVESTMENT ADVISORS LIMITED AND FUTURE CAPITAL HOLDINGS LTD . (INVESTMENT ADVISORY SEGMENT) FOR BENCHMARKING THE BSS SEGMENT, WITHOUT APPRECIATING THAT THEY HAD RE - ALIGNED (SOLD) THEIR BUSINESS OPERATIONS AND ACCORDINGLY FAILED THE PECULIAR CIRCUMSTANCES FILTER APPLIED BY THE AO / TPO. 10. WITHOUT PREJUDICE AND NOT WITHSTANDING TO THE ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO ERRED IN COMPUTING THE OPERATING MARGINS OF THE APPELLANTS IT, ITES AND BSS SEGMENTS. THE AO/TPO, IN SPITE OF SPECIFIC DIRECTIONS OF THE DRP, FURTHER ERRED IN INC ORRECTLY COMPUTING PROFIT MARGIN OF THE FOLLOWING COMPANIES SELECTED AS COMPARABLES FOR IT, ITES AND BSS SEGMENTS : GOLDSTONE TECHNOLOGIES LIMITED AND THIRDWARE LIMITED FOR IT SEGMENT COSMIC GLOBAL LIMITED FOR ITES SEGMENT FUTURE CAPITAL INVESTMENT ADVISORS LIMITED FOR BSS SEGMENT. 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN NOT PROVIDING APPROPRIATE ECONOMIC ADJUSTMENTS AS REQUIRED UNDER RULE 10B (1)(III) OF THE RULES. 12. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/ TPO HAVE ERRED IN IGNORING THE PROVISIONS OF RULE 10B(4) OF THE RULES AND JUDICIAL PRONOUNCEMENTS, WHICH ADVOCATE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE ALP. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/ TPO ERRED IN NOT PROVIDING THE APPELLANT THE BENEFIT OF 5% RANGE AS PROVIDED BY THE PROVISO TO SECTION 92C(2) OF THE ACT. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, T HE AO HAS ERRED IN NOT GIVING FULL CREDIT FOR ADVANCE TAX AMOUNTING TO RS.88,53,478 AND SELF - ASSESSMENT TAX AMOUNTING TO RS.1,88,55,880 WHILE DETERMINING THE TOTAL TAX LIABILITY OF THE APPELLANT. EACH OF THE ABOVE GROUNDS IS INDEPENDENT AND WITHOUT PREJU DICE TO THE OTHER GROUNDS OF APPEAL PREFERRED BY THE APPELLANT. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT THE TIME BEFORE OR AT THE TIME OF HEARING, OF THE APPEAL. 2. GROUND NO.1 AND 2 ARE GENERAL IN NATURE AND HENCE, NO ADJUDICATION IS REQUIRED. 4 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 3. THAT AS REGARDS THE FACTS INVOLVED IN THIS CASE, AT THE VERY OUTSET, THE LD. AR SUBMITTED THAT PRIOR TO THIS ASSESSMENT YEAR 2010 - 11, FOR THE ASSESSMENT YEAR 2009 - 10 IN ASSESSEES OWN CASE T HE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IS THERE IN ITA NO.400/PUN/2014 DATED 06.03.2019 WHEREIN ALSO, VARIOUS SEGMENTS OF THE ASSESSEE CO MPANY WERE ADJUDICATED NAMELY, IT SEGMENT, ITES SEGMENT, BSS SEGMENT AND MSS SEGMENT. P RIMARILY THE DISPUTE IS WITH REGARD TO THE COMPARABLES ONLY IN THIS CASE. THE TPO HAD ELABORATELY D ISCUSSED THE FUNCTIONS OF THE ASSESSEE COMPANY FROM PAGE 6 ONWARDS OF HIS ORDER. DURING THE ASSESSMENT YEAR 2010 - 11, EATON TECHNOLOGIES PRIVATE LIMITED (ETPL) WAS INTER ALIA ENGAGED IN PROVIDING FOLLOWING SERVICES TO EATON CORPORATION AND VARIOUS EATON G RO UP COMPANIES : INFORMATION TECHNOLOGY ( IT) SERVICES; INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) IN THE FORM OF - I NTERNATIONAL SHARED S ERVICE CENTRE (ISSC) - HUMAN RESOURCE TECHNOLOGIES SUPPORT SERVICES (HRTSS) AND - TALENT ACQUISITION SOURCING SERVICES (TAS) BUSINESS SUPPORT SERVICES 3. 1 THAT WITH REGARD TO IT SEGMENT, THE ASSESSEE WANTS EXCLUSION OF THE FOLLOWING COMPANIES AS COMPARABLES : A. KALS INFORMATION SYSTEMS LTD. B. ACROPETAL TECHNOLOGIES LTD. C. THIRDWARE SOLUTIONS LTD. D. GOLDSTONE TECHNOLOGIES LTD. 5 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 EXCLUSION OF THE COMPAN IES ON INFORMATION TECHNOLOGY SEGMENT (A) KALS INFORMATION SYSTEMS LTD. 4. THE CONTENTION OF THE ASSESSEE IS THAT KALS INFORMATION SYSTEMS LTD. WAS ENGAGED IN SELLING OF SOFTWARE PRODUCTS WHICH IS DIFFERENT FROM THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE NAMELY RENDERING OF SOFTWARE SERVICES TO ITS HOLDING COMPANY. 5. THAT BEFORE THE TRANSFER PRICING OFFICER (TPO), THE OBJECTIONS RAISED BY THE ASSESSEE WER E: (I) T HE COMPANY IS ENGAGED IN TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS. FURTHER, NO SEPARATE REVENUE BREAK UP IS AVAILABLE FOR SALE OF SERVICES AND SALE OF PRODUCTS. (II) ERROR IN SEGMENTAL REPORTING - INCONSISTEN CY IN THE PROFIT NUMBER AS REPORTED IN THE PROFIT AND LOSS ACCOUNT AS WELL AS SEGMENTAL REPORTING. 5.1 THE TPO IN HIS FINDINGS HAS OBSERVED THAT THERE IS NO EVIDENCE ON RECORD TO SHOW THAT KALS INFORMATION SYSTEMS LTD. HA S ACTUALLY EARNED ANY REVENUE FRO M SALE OF SUCH SOFTWARE PRODUCTS. THE TPO WAS ALSO OPINED THAT MANY SOFTWARE SERVICE PROVIDER COMPANIES CALL THEIR SERVICES AS A PRODUCT BUT BECAUSE OF SUCH CLAIMS THEY DO NOT CEASE TO BE A SERVICE PROVIDER. KALS INFORMATION SYSTEMS LTD. WAS, THEREFORE, HELD TO BE FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE COMPANY. 6. THE LD. DRP AT PARA 3.1 HAS DISCUSSED THIS ISSUE AND GIVEN THEIR FINDINGS AT PARA 3.1.5 ONWARDS. THE LD. DRP OBSERVED AT PARA 3.1.5 THAT THE JURISDICTIONAL TRIBUNAL HAS EXCLUDED KALS INFORMATION SYSTEMS LTD. ON THE GROUND THAT IT IS A SOFTWARE PRODUCT COMPAN Y AND THEREFORE, IT CANNOT BE COMPARED WITH THE SOFTWARE SERVICE COMPANY. THEREAFTER, THE LD. DRP AT PARA 3.1.14 TRIED TO ANALYZE THE QUESTION WHETHER THE DIFFERENCE BETWEEN THE IT 6 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 PRODUCT COMPANIES AND IT SOFTWARE SERVICE COMPANIES IS SO WIDE SO AS TO J USTIFY EXCLUSION OF IT SOFTWARE PRODUCT COMPANIES FOR DECIDING THE ARMS LENGTH MARGIN OF THE IT SERVICE COMPANIES. THEREAFTER, THE LD. DRP HAD CONSIDERED THE RESEARCH PAPER PUBLISHED BY ASSOCIATE PROFESSORS AT THE INDIAN INSTITUTE OF MANAGEMENT, BANGALORE ON SOFTWARE PRODUCT DEVELOPMENT IN INDIA AND CONSIDERED THEIR FINDINGS THAT SOFTW ARE PRODUCTS ARE NOTHING BUT STANDARD SOFTWARE PROGRAMME WHICH AT TIMES INVOLVES SOME DEGREE OF CUSTOMIZATION AS WELL. ACCORDINGLY, THERE IS NO MAJOR FUNCTIONAL DIFFERE NCE BETWEEN IT SOFTWARE SERVICE PROVIDER COMPANY AND IT PRODUCT COMPANY. THE LD. DRP FURTHER HELD THAT THEY DO NOT FIND ANY PATENTS OR ANY OTHER INTELLECTUAL PROPERTY RIGHTS IN THE KALS INFORMATION SYSTEMS LTDS BALANCE SHEET SUGGESTING THAT EITHER IT HAS NOT DEVELOPED ANY PRODUCTS DURING THE YEAR OR IT HAS DEVELOPED PRODUCTS FOR OTHERS OR IT DOES NOT DIFFERENTIATE BETWEEN PRODUCTS AND SOFTWARE. HOWEVER, KALS INFORMATION SYSTEMS LTD. HAS WORKED AS A SOFTWARE DEVELOPER AND HENCE, IS COMPARABLE WITH THAT OF T HE ASSESSEE COMPANY. 7. THE LD. AR TOOK US T HROUGH THE ANNUAL REPORT OF KALS INFORMATION SYSTEMS LTD. ANNEXED AT PAGE S 1 TO 28 OF THE PAPER BOOK AND SUBMITTED THAT THIS COMPANY IS PRIMARILY ENGAGED IN SOFTWARE PRODUCTS AND DEVELOPMENT OF SOFTWARE PRODUCTS WHEREAS, THE ASSESSE IS A SOFTWARE SERVICE COMPANY. THAT FURTHER, IN ASSESSEES OWN CASE FOR PREVIOUS ASSESSMENT YEAR I.E.2009 - 10 IN M/S. EATON TECHNOLOGIES PRIVATE LIMITED VS. DCIT, ITA NO. 400/PUN/2 014 , T HE PUNE BENCH OF THE TRIBUNAL FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PTC SOFTWARE INDIA (PVT.) LTD. IN ITA NO.732 OF 2014 (BOMBAY HIGH COURT) WHEREIN, IT HA D BEEN HELD BY THE HONBLE JURISDICTIONAL HIGH COURT THAT ON ACCOUNT OF FUNCTIONALLY NOT COMPARABLE, KALS INFORMATION SYSTEMS LTD. SHOULD BE EXCLUDED FROM THE LIST 7 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 OF COMPARABLE COMPANIES. THE PUNE BENCH OF THE TRIBUNAL IN THE SAID CASE HAS HELD AS FOLLOWS : 5.1 ... THAT ON PERUSAL OF THE ORDER OF THE HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PTC SOFTWARE INDIA (PVT.) LTD. (SUPRA.) WHEREIN THE HON'BLE HIGH COURT HAS HELD AS UNDER: (A) M/S. KALS INFORMATION SOLUTIONS LTD. (KALS LTD.) AND HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. (HELIOS & MATHESON LTD.) WERE INCLUDED BY THE TPO IN HIS COMPARABILITY ANALYSIS . THE GRIEVANCE OF THE RESPONDENT ASSESSEE BEFORE THE TRIBUNAL WAS THAT BOTH ARE FUNCTIONALLY DIFFERENT FROM THE RESPONDENT ASSESSEE AND, THEREFORE COULD NOT BE USED AS COMPARABLES. THE RESPONDENT ASSESSEE POINTED OUT THAT KALS LTD AND HELIOS & MATHESON LTD. ARE ENGAGED IN THE BUSINESS OF SELLING OF SOFTWARE PRODUCTS WHILE THE RESPONDENT ASSESSEE RENDERS SOFTWARE SERVICES TO ITS HOLDING COMPANY. (B) THE TRIBUNAL IN THE IMPUGNED ORDER REC ORDS THAT FOR THE PRECEDING ASSESSMENT YEAR I.E. A.Y. 2006 - 07, THE TPO HAD FOUND THAT KALS LTD. AND HELIOS & MATHESON LTD. WERE FUNCTIONALLY NOT COMPARABLE WITH THE RESPONDENT ASSESSEE. IN THE SUBJECT ASSESSMENT YEAR ALSO, ON THE BASIS OF ANNUAL REPORT, I T WAS NOTED THAT THE KALS WAS ENGAGED IN SELLING OF SOFTWARE PRODUCTS WHICH IS DIFFERENT FROM THE ACTIVITY UNDERTAKEN BY THE RESPONDENT ASSESSEE, NAMELY, RENDERING OF SOFTWARE SERVICE TO ITS HOLDING COMPANY. FURTHER, THE IMPUGNED ORDER ALSO RECORDS THAT NO ATTEMPT WAS EVEN MADE BY THE REVENUE BEFORE IT TO BRING ON RECORD ANY CHANGE IN THE NATURE OF ACTIVITIES CARRIED OUT BY KALS LTD. AND HELIOS & MATHESON LTD. IN THE SUBJECT ASSESSMENT YEAR, MAKING THEM FUNCTIONALLY COMPARABLE TO THE RESPONDENT ASSESSEE. IN THE AFORESAID FACTS, THE TRIBUNAL RENDERED A FINDING OF FACT THAT KALS LTD. AND HELIOS & MATHESON LTD. ARE NOT COMPARABLE WITH THE RESPONDENT ASSESSEE. (C) EVEN BEFORE US, NO SUBMISSIONS WERE ADVANCED JUSTIFYING THE ORDER OF THE ASSESSING OFFICER THAT T HE SERVICES RENDERED BY KALS LTD. AND HELIOS & MATHESON LTD. ARE COMPARABLE FOR THE SUBJECT ASSESSMENT YEAR WITH THAT OF THE RESPONDENT ASSESSEE. (D) IN THE ABOVE VIEW, AS THE FINDINGS OF THE TRIBUNAL BEING ONE OF THE FACT WHICH HAS NOT BEEN SHOWN TO BE PERVERSE, THE QUESTION AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. THE HON'BLE BOMBAY HIGH COURT UPHELD THE FINDINGS OF TRIBUNAL WHEREIN KALS LTD. IS FUNCTIONALLY NOT COMPARABLE AND THEREFORE, HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 5.2 IN VIEW OF THE MATTER AND FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT, KALS INFORMATION SYSTEMS LTD. CANNOT BE TREATED AS COMPARABLE COMPANY AND THE TPO IS DIRECTED TO EXCLUDE KALS FROM FINAL LIST OF COMPARABLE COMPANIES WITH REGARD TO IT SEGMENT. 8 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 8. THE LD. DR PLACED STRONG RELIANCE ON THE FINDINGS OF THE L D. DRP BUT PRIMARILY AGREED THAT ON THE SAME SET OF FACTS AND CIRCUMSTANCES FOR THIS YEAR ALSO AS COMPARED WITH ASSESSMENT YEAR 2009 - 10 WHEREIN THE P UNE B ENCH OF THE T RIBUNAL IN ASSESSEE S OWN CASE ( SUPR A. ) HAD RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PTC SOFTWARE INDIA (PVT.) LTD. (SUPRA.) AND THE SAME DECISION MAY BE APPLIED IN RESPECT OF THE ASSESSEE. 8.1 H AVING HEARD THE PARTIES HEREIN, WE FIND THAT THE FACTS AND CIRCUMSTANCES IN THE ASSESSMENT YEAR UNDER CONSIDERATION ARE ABSOLUTELY IDENTICAL WITH REGARD TO THE PREVIOUS ASSESSMENT YEAR I.E.2009 - 10 AND TH EREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE H ON BLE B OMBAY H IGH C OURT IN THE CASE OF THE CI T V S. PTC S OFTWARE I ND IA (P VT. ) L TD. ( SUPRA. ) WHICH WAS RELIED ON BY THE P UNE B ENCH OF THE T RIBUNAL IN ASSESSEE S OWN CASE ( SUPRA. ) , WE DIRECT THE TPO TO EXCLUDE KALS INFORMATION SYSTEMS LTD. FROM THE FINAL LIST OF COMPARABLES COMPANIES WITH REGARD TO IT SEGMENT. THUS, T HIS PART OF THE GROUND IS ALLOWED. (B) ACROPETAL TECHNOLOGIES L T D : 9. THE ASSESSEE HAD SUBMITTED THAT ACROPETAL TECHNOLOGIES LTD. HAS SIGNIFICANT ONSITE DEVELOPMENT EXPENSES (APPROX. 55% OF THE TOTAL OPERATING COST) WHICH IS INDICATIVE OF THE FACT THAT IT HAS ALSO SIGNIFICANT ONSITE REVENUE. ACCORDINGLY, CONSIDERING THE ONSI TE REVENUE FILTER APPLIED BY THE TPO, THIS COMPARABLE SHOULD BE REJECTED. 10. THE TPO HAS CONSIDERED THE ANNUAL REPORT OF THIS COMPANY AND OBSERVED THAT IT IS AN INDIAN BASED SOFTWARE SERVICE PROVIDER PRIMARILY DELIVERING SOFTWARE VALIDATION AND VERIFICA TION SERVICES TO THE BANKING AND FINANCIAL SERVICES INDUSTRY WORLDWIDE. THE TPO HAD ALSO CONSIDERED THE 9 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 SEGMENTAL FIGURES AND HAS INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES. 11. THE LD. DRP ON THE ISSUE HAS GIVEN THEIR FINDINGS FROM PARA 3.3.6 O NWARDS. THE DRP ON THIS ISSUE HAS HELD AND OBSERVED AS FOLLOWS: THE ASSESSEE HAS NOT ESTABLISHED THAT HIGHER AMD EXPENDITURE BY ACROPETAL HAS LED TO ITS INCREASED PROFITABILITY. IN SOFTWARE SECTOR, THERE IS NO LINKAGE BETWEEN AMD EXPENDITURE AND PROFITAB ILITY AS SEEN FROM THE NUMBER OF ADVERTISEMENTS SEEN IN ELECTRONIC MEDIA AND PRINT MEDIA FROM THE IT SECTOR COMPANIES. FURTHER, THE ASSESSEE IS GETTING ALL ITS BUSINESS FROM AES AND WORKS AS A CAPTIVE SERVICE PROVIDER, IT DOES NOT NEED TO SPEND ON AMP. EVE N IF THIS FILTER IS APPROPRIATE, THERE IS NO BASIS FOR CONSIDERING THRESHOLD OF 3% TO CONCLUDE THAT ONLY AMP EXPENDITURE ABOVE THIS THRESHOLD CREATES INTANGIBLES. ACCORDINGLY, DIRECTED THE AO TO ACCEPT INFORMATION TECHNOLOGY SERVICE SEGMENT COMPARABLE WITH THE ASSESSEE BY ALLOCATING NON - ALLOCABLE EXPENSES, IF ANY, TO THE VARIOUS SEGMENTS IN PROPORTION TO TURNOVER TO TOTAL TURNOVER. 12. THE LD. AR SUBMITTED THAT THIS COMPANY HAS BEEN EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND OF PROVIDING ONSITE SERVICE IN THE CASE OF JOHN DEERE INDIA (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX, ITA NOS.518 & 575/PUN/2015 DATED 25 TH APRIL, 2019 . THIS DECISION HAS ALSO BEEN REPORTED IN WWW.TAXMANN.COM AS (2019) 107 TAXMANN.COM 446 (PUNE - TRIB). THAT ON THE ISSUE OF ACROPETAL TECHNOLOGIES LTD., THE PUNE BENCH OF THE TRIBUNAL HAS HELD AS FOLLOWS: 12. HAVING HEARD BOTH THE SIDES AND GONE THRO UGH THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ANNUAL REPORT OF THIS COMPANY IS AVAILABLE AT PAGE 353 ONWARDS OF THE PAPER BOOK. INFORMATION REGARDING SEGMENTAL REPORTING HAS BEEN GIVEN AT PAGES 376 AND 377 OF THE PAPER BOOK. THERE ARE ONLY THREE SE GMENTS, NAMELY, (A) ENGINEERING DESIGN SERVICES, (B) INFORMATION TECHNOLOGY SERVICES AND (C) HEALTH CARE. PURSUANT TO THE DIRECTION OF THE DRP, THE TPO HAS INCLUDED ONLY INFORMATION TECHNOLOGY SERVICES SEGMENT IN THE FINAL SET OF COMPARABLES. DIRECTORS RE PORT OF THIS COMPANY RECORDS THAT THE COMPANY IS UNIQUELY PLACED WITH READYMADE SOFTWARE PRODUCTS TO CATER TO THE NEEDS OF HOSPITALS AND HEALTHCARE CENTRES BOTH IN INDIA AND ABROAD ESPECIALLY IN THE USA. PROFIT AND LOSS ACCOUNT OF THIS COMPANY APPEARS AT PAGE 367 OF THE PAPER BOOK, WHICH 10 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 RECORDS `DECREASE IN INVENTORIES BY (RS.1,50,80,060/ - ) UNDER THE HEAD EXPENDITURE. BALANCE SHEET OF THIS COMPANY ALSO HAS A FIGURE OF `INVENTORIES. APART FROM THIS COMPANY BEING ENGAGED IN SOFTWARE PRODUCTS ALSO, IT I S PERTINENT TO NOTE THAT IT HAS RENDERED ON - SITE SERVICES OF A GREATER MAGNITUDE. IT CAN BE SEEN FROM EXPENSES OF RS.55,85,57,169/ - INCURRED UNDER THE HEAD EMPLOYEE RELATED AND ON - SITE DEVELOPMENT CHARGES, THIS COMPANY INCURRED ON - SITE DEVELOPMENT EXPEN SES AT RS.42,32,55,491/ - , WHICH TRANSPIRES THAT EMPLOYEES RELATED COSTS INCURRED BY THE COMPANY ON ON - SITE DEVELOPMENT IS ROUGHLY AT 75% OF TOTAL EMPLOYEES RELATED COSTS. AS AGAINST THIS, THE ASSESSEE IS NOT ENGAGED IN RENDERING ANY ON - SITE SERVICES. A CO MPANY ENGAGED IN PROVIDING ON - SITE SERVICES CANNOT BE COMPARED WITH A COMPANY PROVIDING SIMILAR SERVICES FROM ITS OWN PREMISES (IN - HOUSE) DUE TO SEVERAL SIGNIFICANT DIFFERENCES IN OPERATING COSTS AND ALSO THE REVENUES APART FROM VITAL DIFFERENCES IN THE LE VEL OF ASSETS EMPLOYED AND RISKS UNDERTAKEN. IN VIEW OF THE FOREGOING, WE ARE SATISFIED THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE AS IT IS NOT ONLY ENGAGED IN THE BUSINESS OF SOFTWARE PRODUCTS BUT IS ALSO PROVIDING ON - SITE SERVICES, WHICH MAKE I T DISTINGUISHABLE FROM THE ASSESSEE COMPANY. WE, THEREFORE, ORDER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 13. THE LD. DR HAS RELIED ON THE FINDINGS OF THE LD. DRP BUT PRINCIPALLY AGREED THAT ON THE SIMILAR SET OF FACTS AND CIR CUMSTANCES PREVAILING IN ASSESSMENT YEAR 2010 - 11 WHICH IS ALSO SAME IN ASSESSMENT YEAR INVOLVED IN THE CASE OF JOHN DEERE INDIA (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA.) AND THEREFORE, THE SAID DECISION MAY BE FOLLOWED. 14. THAT ON ANALYZING THE LEGAL PROPOSITION AND THE FACTS INVOLVED IN THE ASSESSMENT YEAR 2010 - 11, FOLLOWING THE SAME PARITY OF REASONING GIVEN IN THE CASE OF JOHN DEERE INDIA (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA.), WE DIRECT THE TPO TO EXCLUDE ACROPETAL TECHN OLOGIES LTD. FROM THE LIST OF COMPARABLES. THUS, THIS PART OF THE GROUND IS ALLOWED. (C) THIRDWARE SOLUTIONS LTD. 15. THE TPO HAS INCLUDED THIRDWARE SOLUTIONS LTD. AS COMPARABLE SUBMITTING THAT UNDER SEGMENTAL RESULTS IN THE ANNUAL REPORT OF THIS COMPANY, IT CAN BE SEEN THAT THE COMPANYS OPERATION COMPRISES OF SOFTWARE DEVELOPMENT, IMPLEMENTATION AND SUPPORT SERVICES. THUS IT IS CLEAR THAT THIS COMPANY IS SOFTWARE DEVELOPMENT COMPANY . SECONDLY, THE SALE OF LICENSE 11 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 REVENUE IS ONLY 3% AS COMPARED TO THE TOTAL REVENUE OF THIS COMPANY AND HENCE, THIS COMPANY IS CONSIDERED AS COMPARABLE. 16. THE ASSESSEE SUBMITTED BEFORE THE LD. DRP THAT THIRDWARE SOLUTIONS LTD. IS FUNCTIONALLY NON COMPARABLE. THE COMPANY IS ENGAGED IN SOFTWARE PRODUCTS, TRADING OF LICENSED PRODUCTS AND SUBSCRIPTION. THE COMPANY IS ALSO ENGAGED IN DEVELOPING SOFTWARE PRODUCTS LIKE PAPA AND SEGMENTAL DATA NOT AVAILABLE ON THE BASIS OF DIFFERENT BUSINESS/SERVICES. THE LD. DRP AT PARA 3.4.3 OF ITS FINDINGS HELD THAT THIRDWARE SOLUTIONS LTD. AND THE ASSESSEE BOTH ARE INVOLVED IN THE SOFTWARE DEVELOPMENT AND THEREFORE, IT IS COMPARABLE WITH THE ASSESSEE. THE LD. DRP AT PARA 3.4.7 HAS OBSERVED THAT IN RESPECT OF COMPARABILITY OF KALS INFORMATION SYSTEMS LTD., IT HAS ALREADY OBSERVED THAT THE DIFFERENCE BETWEEN SOFTWARE SERVICE AND SOFTWARE PRODUCT IS NOT SUBSTANTIAL ENOUGH TO JUSTIFY COMPANYS EXCLUSION. THE LD. DRP, THEREFORE, CONFIRMED THE DECISION OF THE TPO IN INCLUDING THIS COMPANY IN THE FINAL SET OF COMPARABLES. 17. THE LD. AR OF THE A SSESSEE TOOK US TO THE NOTES ON ACCOUNT IN RESPECT OF THIRDWARE SOLUTIONS LTD. AT PAGE 107 OF THE PAPER BOOK, PARA 3 IN THE COLUMN - QUANTITATIVE DETAILS WHEREIN IT HAS BEEN MENTIONED THAT THE COMPANY IS ENGAGED IN IMPLEMENTATION AND CONSULTING SERVICES OF S OFTWARE BASED ON ERP AND BUSINESS INTELLIGENCE. THE IMPLEMENTATION AND CONSULTING SERVICES OF DEVELOPED AND TRADED SOFTWARE CANNOT BE EXPRESSED IN ANY GENERIC UNIT. HENCE, IT IS NOT POSSIBLE TO GIVE QUANTITATIVE DETAILS OF SALES AND CERTAIN INFORMATION AS REQUIRED UND ER P ARAGRAPH 3, 4 C , 4 D OF PART II OF SCHEDULE VI O F THE COMPANIES ACT, 1956. 17.1 THE LD. AR FURTHER SUBMITTED THAT THIS COMPANY HAS BEEN EXCLUDED FROM THE FINAL SET OF COMPARABLES IN THE CASE OF JOHN DEERE INDIA (P) LTD. VS. ACIT (SUPRA.) FOR THE ASSESSMENT YEAR 2010 - 11. THERE A LSO, THE PUNE BENCH 12 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 OF THE TRIBUNAL HAS OBSERVED THAT THERE IS NO BIFURCATION OF OPERATING PROFIT FROM SOFTWARE SERVICES AND OTHERS INCLUDING SALE OF LICENCE AND REVENUE FROM SUBSCRIPTION ETC. THE TRIBUNAL ALSO OBSERVED THAT THE COMPANY HAS SEGMENTS ONLY O N GEOGRAPHICAL BASIS AND NOT ON FUNCTIONAL LEVEL. THE RELEVANT PARA OF THE SAID ORDER IS EXTRACTED HEREIN BELOW : 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE ANNUAL REPORT OF THIS COMPANY IS AVAILABLE AT P AGE 415 ONWARDS OF THE PAPER BOOK. PROFIT AND LOSS ACCOUNT OF THIS COMPANY SHOWS `SALES OF RS.67,56,06,505/ - . BREAK - UP OF SUCH SALE HAS BEEN GIVEN IN SCHEDULE 12, WHICH RECORDS `EXPORT FROM SEZ UNITS RS.47,58,40,447/ - ; `EXPORT FROM STPI UNITS RS.11, 20,90,633; `REVENUE FROM SUBSCRIPTION RS.1,53,13,736/ - ; `SALE OF LICENCE RS.1,51,38,618/ - ; AND `SOFTWARE SERVICES RS.5,72,23,072/ - . THIS COMPANY HAS SEGMENTS ONLY ON GEOGRAPHICAL BASIS AND NOT ON FUNCTIONAL LEVEL. AS SUCH, THERE IS NO BIFURCATION OF OPERATING PROFIT FROM SOFTWARE SERVICES AND OTHERS INCLUDING SALE OF LICENCE AND REVENUE FROM SUBSCRIPTION ETC. EVEN THE FIRST TWO MAJOR ITEMS OF `EXPORTS FROM SEZ UNITS AND `EXPORT FROM STPI UNITS DO NOT SHOW AS TO WHETHER THESE WERE EXPORTS OF SOFTW ARE PRODUCTS OR SOFTWARE SERVICES. IN THE ABSENCE OF THE AVAILABILITY OF ANY CONCRETE INFORMATION IN RESPECT OF SOFTWARE SERVICES, WE FAIL TO COMPREHEND AS TO HOW THIS COMPANY, ALSO HAVING SOFTWARE PRODUCTS IN ITS PORTFOLIO, CAN BE CONSTRUED AS COMPARABLE. THE SAME IS ACCORDINGLY DIRECTED TO BE EXCLUDED. 18. THE LD. DR RELIED ON THE FINDINGS OF THE LD. DRP BUT PRINCIPALLY AGREED THAT THE FACTS AND CIRCUMSTANCES INVOLVED IN THE INSTANT CASE IN HAND AND FACTS INVOLVED IN THE ABOVE REFERRED DECISION IN THE CASE OF JOHN DEERE INDIA (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA.) FOR THE ASSESSMENT YEAR 2010 - 11 ARE ABSOLUTELY SIMILAR. THAT ON HEARING THE PARTIES, THEREFORE, FOLLOWING THE SAME PARITY OF REASONING IN THE GIVEN SET OF FACTS AND CIRCUMSTANCES, WE DIRECT THE T PO TO EXCLUDE THIRDWARE SOLUTIONS LTD FROM THE FINAL LIST OF COMPARABLES. THUS, THIS PART OF THE GROUND IS ALLOWED. (D) GOLDSTONE TECHNOLOGIES LTD. 19. AT THE VERY OUTSET, WITH REGARD TO THIS COMPANY, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER/ TPO HAS NOT FOLLOWED THE DIRECTIONS GIVEN BY THE 13 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 LD. DRP AT PARA 8.3 OF ITS ORDER. THE RELEVANT PARA 8.3 IS EXTRACTED HEREIN BELOW: 8.3 WE HAVE CAREF ULLY CONSIDERED THE ASSESSEES ARGUMENTS. WE DIRECT THE LEARNED AO TO EXAMINE THE COMPUTATION OF THE MARGINS FURNISHED BY THE ASSESSEE AND IF NECESSARY, RE - COMPUTE THE SAME. IN CASE OF ANY DISPUTE IN CONSIDERING ANY PARTICULAR ITEM OF INCOME OR EXPENDITURE AS EITHER OPERATING OR NON - OPERATING, THE LEARNED AO IS DIRECTED TO FOLLOW THE PRINCIPLES LAID DOWN IN THE SAFE HARBOUR RULES RELEASED BY THE CBDT VIDE NOTIFICATION DATED 18.09.2013. AS FAR AS COMPUTATION OF THE SEGMENTAL MARGIN IS CONCERNED, THE LEARNE D AO IS DIRECTED TO ALLOCATE UNALLOCATED EXPENSES TO EACH SEGMENT IN PROPORTION TO THE SEGMENTAL TURNOVER TO TOTAL TURNOVER AS IN TRANSFER PRICING, BROAD COMPARISON SHOULD BE DONE BY APPROXIMATION WHEN COMPARISON ON THE BASIS OF EXACT DATA IS NOT POSSIBLE . THE LD. AR, THEREFORE, SUBMITTED THAT IN RESPECT OF THIS COMPANY, THE ASSESSING OFFICER/TPO MAY BE DIRECTED THAT THE AFORESAID DIRECTIONS OF THE LD. DRP GIVEN AT PARA 8.3 OF ITS ORDER MAY BE FOLLOWED. 20. THE LD. DR CONCEDED TO THESE SUBMI SSIONS OF THE LD. AR OF THE ASSESSEE. 21. HAVING HEARD THE PARTIES HEREIN, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED VIEW THAT THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER/TPO. IT IS HEREBY DIRECTED THAT THE ASSESSING OF FICER/TPO SHOULD FOLLOW THE DIRECTIONS OF THE LD. DRP AS CONTAINED AT PARA 8.3 OF LD. DRPS ORDER. THUS, THIS PART OF THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. EXCLUSION OF COMPARABLES ON IT ES SEGMENT 22 . NOW COMING TO THE NEXT SEGMENT I.E. ITES SEGMENT. THE ASSESSEE WANTS EXCLUSION OF CERTAIN COMPARABLES. THE TPO AT PAGE 10 ONWARDS OF ITS ORDER HAS DISCUSSED THE FUNCTION OF ETPL IN ITES SEGMENT. WHEN WE LOOK AT THE FINAL ORDER OF THE ASSESSING OFFICER AT PAGE 67, THERE ARE FINALLY 9 COMPARABLES SELECTE D. OUT OF WHICH, THE ASSESSEE H AS DISPUTED 3 COMPARABLES IN THIS ITES SEGMENT. 14 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 (I) ACCENTIA TECHNOLOGIES LTD. : 23. THE ASSESSEE SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT. THIS COMPANY IS DOING KPO, MEDICAL TRANSCRIPTION, HIGH END SOFTWARE SERVICES AND LEGAL PROCESS OUTSOURCING, INTELLECTUAL PROPERTY RIGHTS. THE TPO OBSERVED THAT NATURE OF THIS COMPANY IS HEALTHCARE BPO SERVICES WHICH IS ADMITTED BY THE ASSESSEE IN ITS SUBMISSION. THUS, THE COMPANY IS ENGAGED IN BPO SERVICES. THE DRP HAD CONFIRMED IN THE TP PROCEEDINGS FOR A.Y. 2009 - 10 I.E. THE PREVIOUS ASSESSMENT YEAR THAT ACCENTIA TECHNOLOGIES LTD. IS C OMPARAB LE WITH THE ASSESSEES ENGAGED IT ENABLED SERVICES. THEREFO RE, THE CLAIM OF THE ASSESSEE WAS REJECTED. THE ASSESSEE HAS NOT DEMONSTRATED AS TO HOW THE IPR HAS AFFECTED THE MARGINS OF THE COMPARABLE. THE DRP HAS DEAL T WITH THIS ISSUE IN PARA 5.5 OF ITS ORDER. THE DRP OBSERVED THAT THE ASSESSEE BASED ON INFORMATION AVAILABLE ON THE WEBSITE HAS STATED THAT THIS COMPANY IS IN TO PRODUCT DEVELOPMENT, IT IS A KPO COMPANY AND HAS GOODWILL OR IPRS IN THE BALANCE SHEET, THEREFORE, NOT COMPARABLE TO THAT OF THE ASSESSEE. THE DRP AT PARA 5.5.6 HAS OBSERVED THAT THOUGH THE ASSESSEE HAS STATED THAT T HIS COM PANY IS FUNCTIONALLY DIFFERENT , H OWEVER, AS PER OBSERVATION OF THE DRP, THE FUNCTIONAL DIFFERENCE FOR TNMM IS NOT SO LARGE ENOUGH TO JUSTIFY EXCLUSION. THIS IS BECAUSE, BOTH THE COMPANIES I.E. ASSESSEE AND ACCENTIA ARE IN TO ITES AND ECONOMICALLY AS WELL AS ACCORDING TO THE SAFE HARBOUR RULES, ALL ITES COMPANIES ARE EXPECTED TO EARN SIMILAR NET MARGIN. THEREFORE, THE DRP CONFIRMED THIS COMPANY AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. 24 . THE LD. AR AT THE TIME OF HEARING TOOK US THROUGH THE ANNUAL REPORT ANNEXED AT PAGE S 133 TO 244 IN THE PAPER BOOK WHEREIN AT PAGE 205 THE BALANCE SHEET HAS BEEN GIVE N AND AT PAGE 206 P&L ACCOUNT HAS BEEN ANNEXED . WITH THESE FINANCIAL STATEMENTS, THE LD. AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT WITH THAT OF THE ASSESSEE. FURTHER, THE LD. 15 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 AR PLACED RELIANCE ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SCHLUMBERGER INDIA TECHNOLOGY C ENTRE (P.) LTD. VS. DY. DIRECTOR OF INCOME TAX (2018) 90 TAXMANN.COM 19 (PUNE - TRIB.) WHEREIN AT RELEVANT PAGE 170 OF THE CASE LAWS COMPILATION, THE TRIBUNAL HAS HELD THAT THE ACCENTIA TECHNOLOGIES LTD. IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE AND ASS ESSING OFFICER WAS DIRECTED TO EXCLUDE THE SAID COMPANY FROM THE FINAL SET OF COMPARABLES. THE RELEVANT PARA IS EXTRACTED AS FOLLOWS: - 29. THE NEXT CONCERN IS ACCENTIA TECHNOLOGIES LTD., WHICH HAS BEEN INCLUDED BY THE ASSESSING OFFICER IN THE FINAL LIST OF COMPARABLES AND THE ASSESSEE WANTS THE SAME TO BE EXCLUDED BEING NOT FUNCTIONALLY COMPARABLE. THE FIRST OBJECTION IS THAT THE SAID CONCERN WAS NOT FUNCTIONALLY COMPARABLE AND THE SECOND OBJECTION WAS EXTRAORDINARY FINANCIAL EVENT DURING THE YEAR. 30. SIMILAR ISSUE AROSE BEFORE THE PUNE BENCH OF TRIBUNAL IN APTARA TECHNOLOGIES (P.) LTD. (SUPRA), WHEREIN WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2010 - 11, IT WAS DIRECTED TO BE EXCLUDED OBSERVING AS UNDER: '15.. FURTHER, SIMILAR PROPOSITION HAS BEEN LAID DOWN BY DIFFERENT BENCHES OF TRIBUNAL WHILE DECIDING THE APPEALS RELATING TO ASSESSMENT YEAR 2010 - 11 AND IT HAS BEEN HELD THAT BECAUSE OF EXTRAORDINARY EVENTS DURING THE YEAR, THE CONCERN ACCENTIA TECHNOLOGIES LTD. WAS NOT COMPARABLE TO THE ENTITIES ENGAGED IN ITES. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT ACCENTIA TECHNOLOGIES LTD. IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES.' 31. THE SAID CONCERN WAS ALSO DIRECTED TO BE EXCLUDED FOR THE EXTRAORDINARY EVENT OF MERGER OF SOME OTHE R EQUITY WITH THE ASSESSEE BY THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF PR. CIT V. XCHANGING TECHNOLOGY SERVICES INDIA (P.) LTD. [IT APPEAL NO.813 OF 2015]. FURTHER, THE SAID CONCERN IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS ENGAGED IN T RANSCRIPTION, HOARDING AND BILLING AS WELL AS SOFTWARE AND HARDWARE INTEGRATION CAPABILITIES TO LARGER HOSPITALS. SUCH WAS THE DECLARATION BY ACCENTIA TECHNOLOGIES LTD. IN ITS ANNUAL REPORT, COPY OF WHICH IS PLACED AT PAGE 19 OF PAPER BOOK. THE ASSESSEE IS ONLY ENGAGED IN PROVIDING TECHNICAL SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES AND HENCE, THE CONCERN ACCENTIA TECHNOLOGIES LTD. IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE SAID CONCERN F ROM THE FINAL SET OF COMPARABLES. 25 . THE TRIBUNAL HAD OBSERVED THAT THE SAID CONCERN WAS ALSO DIRECTED TO BE EXCLUDED FOR EXTRAORDINARY EVENT OF MERGER OF SOME OTHER EQUITY WITH THE ASSESSEE BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF PR.CIT VS. 16 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 XCHANGING TECHNOLOGY SERVICES INDIA (P.) LTD. [IT APPEAL NO.813 OF 2015] (DELHI - HC) . FURTHER, THE SAID CONCERN IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS ENGAGED IN THE TRANSCRIPTION, HOARDING AND BILLING AS WELL AS SOFTWARE AND HARDWARE INTE GRATION CAPABILITIES TO LARGER HOSPITALS. 26 . THE LD. DR RELIED ON FINDING OF THE DRP BUT PRINCIPALLY AGREED THAT ON THE SIMILAR SET OF FACTS AND CIRCUMSTANCES THE FINDINGS OF THE PUNE TRIBUNAL (SUPRA) IS APPLICABLE IN RESPECT OF THIS COMPANY. 27 . HAVING HEARD THE PARTIES HEREIN AND RESPECTFULLY FOLLOWING THE DECISION OF THE PUNE TRIBUNAL (SUPRA) WITH SIMILAR PARITY OF REASONING AS PER THE SIMILAR SET OF FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY FROM THE FINAL SE T OF COMPARABLES IN RESPECT OF THE ASSESSEE FOR ITES SEGMENT. THUS, THIS PART OF GROUND IS ALLOWED. (II) INFORMED TECHNOLOGIES LTD. : 28. THE TPO HAS DISCUSSED THIS COMPANY AT PAGE 51 OF HI S ORDER WHEREIN THE ASSESSEE HAS OBJECTED TO THE SELECTION OF THIS COMPARABLE IN ITES SEGMENT. THE ASSESSEE HAS CONTENDED THIS COMPANY SH OULD NOT BE SELECTED AS COMPARABLE BECAUSE IN THIS CASE THE AMD/SALE S RATIO EXCEEDS 3 % . THIS WAS HOWEVER SELECTED AS COMPARABLE BY THE TPO . T HAT BEFORE T HE DRP ALSO SIMILAR ARGUMENT W ERE TAKEN BY THE ASSESSEE. THE DRP AT PARA 5.7.1 OF ITS ORDER OBSERVED THAT WHILE DECIDING THE COMPARABILITY OF ACROPETAL TECHNOLOGIES IT HA D BEEN HELD THAT FILTER AMD/SALES IS NOT APPROPRIATE FOR THE CAPTIVE COMPANIES ENGAGED IN THE IT/ITES. THEREFORE, INFORMED TECHNOLOGIES WAS TREATED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE UPHOLDING THE SELECTION OF COMPARABLE BY THE TPO. 17 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 29 . THE LD. AR REITERATING THE SUBMISSIONS MADE BEFORE THE SUBORDINATE AUTHORITIES TOOK US THROUGH THE ANNUAL REPORT OF THE SAID COMPANY ANNEXED AT PAGE S 247 TO 294 IN THE PAPER BOOK AND AT PAGE 252 REVIEW OF THE COMPANIES HAS BEEN DEALT WITH. THAT AT PAGE 263 BALANCE SHEET AND AT PAGE 264 P&L ACCOUNT HAS BEEN ANNEXED. THEREAFTER AT PAGE 270 OF THE PAPER BOOK AT SCHEDULE 17 CLAUSE K THERE IS A SEGMENT REPORTING AND IT IS STATED THEREIN THIS COMPANY IS PRINCIPALLY ENGAGED IN THE BUSINESS OF BUSINESS PROCESS OUTSOUR CING WHICH IS THE ONLY REPORTABLE SEGMENT AS PER ACCOUNTING STANDARD 17 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON SEGMENT REPORTING. THE LD. AR FURTHER RELIED ON THE DECISION OF THE PUNE TRIBUNAL IN THE CASE OF VISHAY COMPONENTS (P.) LT D. VS. ACIT (2017) 83 TAXMANN.COM 319 (PUNE - TRIB.) AND THEREIN AT PARA 40 THE TRIBUNAL HAS UPHELD THE ACTION OF THE TPO IN CORRECTLY EXCLUDING INFORMED TECHNOLOGIES INDIA LTD. THE RELEVANT PARA S ARE EXTRACTED AS FOLLOWS : - 40. NOW, COMING TO THE LAST TW O CONCERNS I.E. ADITYA BIRLA MINACS WORLDWIDE LTD. AND INFORMED TECHNOLOGIES INDIA LTD., WHEREIN INFORMED TECHNOLOGIES INDIA LTD. IS PROVIDING KPO SERVICES. 41. IN RESPECT OF ADITYA BIRLA MINACS WORLDWIDE LTD., THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS REFERRED TO THE FINANCIAL STATEMENTS OF THE SAID CONCERN AND POINTED OUT THAT THE BUSINESS OVER VIEW TALKS OF THE KPO BUSINESS CARRIED ON BY THE SAID CONCERN THOUGH THE DRP SAYS THAT IT IS A BPO BUT THE DIRECTORS REPORT SHOWS DIFFERENT FUNC TIONS. 42. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, POINTED OUT THAT THE SAID CONCERN WAS MULTI TASKING BUT IT WAS ACCEPTED AS COMPARABLE IN THE LAST YEAR WHICH WAS OBJECTED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE SAID CONCERN WAS ACCEPTED AS COMPARABLE IN ASSESSMENT YEAR 2009 - 10 IN MERCER CONSULTING (INDIA) PVT. LTD. (SUPRA). FURTHER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE FINANCIAL DATA FOR ASSESSMENT YEAR 2009 - 10 IN RESPECT OF ADITYA BIRLA MINACS WORLDWIDE LTD. ARE NOT AVAILABLE. 43. WE HAVE ALREADY HELD IN THE PARAS HEREINABOVE AND FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE HIGH COURT OF DELHI IN RAMPGREEN SOLUTIONS (P.) LTD. (SUPRA) THAT THE CONCERNS WHICH ARE ENGAGED IN PROVIDING KPO SERVICES ARE NOT FUNCTIONALLY COMPARABLE TO THE CONCERNS WHICH ARE PROVIDING BPO SERVICES AND HAVE DIRECTED THE TPO TO EXCLUDE THE SAME. APPL YING THE SAID RATIO, WE HOLD THAT THE TPO HAS CORRECTLY EXCLUDED ADITYA BIRLA MINACS WORLDWIDE LTD. AND INFORMED TECHNOLOGIES 18 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 INDIA LTD. FROM THE FINAL LIST OF COMPARABLES. IN VIEW THEREOF, THE GROUNDS OF APPEAL NO.12, 14 TO 16 ARE PARTLY ALLOWED. 30 . TH E LD. DR ALSO THOUGH RELYING ON THE DRP FINDINGS PRINCIPALLY AGREED ON THE EXCLUSION OF THIS COMPANY AS DECIDED BY THE PUNE TRIBUNAL (SUPRA). 31 . HAVING HEARD THE PARTIES HEREIN AND CONSIDERING THE DECISION OF PUNE TRIBUNAL (SUPRA), WE DIRECT THE ASSESSIN G OFFICER/TPO TO EXCLUDE INFORMED TECHNOLOGIES INDIA LTD. FROM THE FINAL LIST OF COMPARABLES IN ITES SEGMENT IN RESPECT OF THE ASSESSEE. (III) JEEVAN SOFTECH LTD. (SEG) : 32. IN RESPECT OF THIS COMPANY ALSO, THE ASSESSEE HAS CONTENDED THAT THE SAID C OMPANY SHOULD NOT BE SELECTED AS COMPARABLES BECAUSE THE AMD/SALES RATIO EXCEEDS 3%. THE ARGUMENT OF THE ASSESSEE DID NOT GO WELL WITH THE TPO NOR WITH THE DRP AND THIS COMPANY WAS INCLUDED IN THE FINAL LIST OF COMPARABLE COMPANIES. 33 . THE LD. AR DEMONS TRATED HIS CONTENTION REITERATING THE SUBMISSIONS MADE BEFORE THE SUBORDINATE AUTHORITIES AND ALSO REFERRING TO THE ANNUAL REPORT OF THE SAID COMPANY ANNEXED AT PAGE S 295 TO 332 IN THE PAPER BOOK. THE LD. AR ALSO REFERRED TO THE TRIBUNAL S ORDER IN THE CASE OF DCIT VS. BNY MELLON INTERNATIONAL OPERATIONS (INDIA) (P.) LTD. (2017) 87 TAXMANN.COM 130 (PUNE - TRIB.) FOR A.Y. 2010 - 11 WHEREIN THE TRIBUNAL HAD REFERRED TO ANOTHER OF ITS DECISION IN THE CASE OF APTARA TECHNOLOGIES (P.) LTD. VS. ACIT (2016) 72 TAXMANN.COM 352 (PUNE - TRIB.) . WITH THE SIMILAR PARITY OF REASONING, THE TRIBUNAL IN BNY MELLON INTERNATIONAL OPERATIONS (INDIA) (P.) LTD. (SUPRA) AT PARA 16 DIRECTED THE ASSESSING OFFICER/TPO TO WORK OUT CORRECT MARGIN OF THE SAID CONCERN AND THEN DETERMINE AVERAGE M ARGIN OF COMPARABLES AND APPLY 19 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 THE SAME. IT WAS SUBMITTED BY THE LD. AR THAT THE SIMILAR DIRECTION MAY BE FOLLOWED BEING THE SAME ASSESSMENT YEAR 2010 - 11 BY THE ASSESSING OFFICER/TPO AND MATTER MAY BE REMANDED BACK FOR THIS EXERCISE TO THE ASSESSING OFFIC ER/TPO FOLLOWING THE DIRECTION OF THE PUNE TRIBUNAL (SUPRA). 34 . THE LD. DR CONCEDED TO THE SUBMISSION S PUT FORTH BY THE LD. AR OF THE ASSESSEE. 35 . WE ARE OF THE CONSIDERED VIEW TAKING THE TOTALITY OF FACTS AND CIRCUMSTANCES IN RESPECT OF THIS COMPARABLE THAT THE MATTER NEEDS TO BE RESTORED TO THE ASSESSING OFFICER/TPO AND THAT HE SHALL FOLLOW THE DIRECTIONS AS CONTAINED THEREIN IN THE ABOVE REFERRED CASE LAWS (SUP RA). THIS PART OF THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. EXCLUSION OF COMPARABLES ON BSS SEGMENT : 36 . THE NEXT SEGMENT IS BSS SEGMENT AND THE TPO AT PAGE 26 OF HIS ORDER HAS DISCUSSED THE FUNCTION OF THE ETPLS BUSINESS SEGMENT AND THE ASSESSING OFFICER AT PAGE 8 HAS GIVEN THE FIN AL LIST OF COMPARABLES IN RESPECT OF THE BUSINESS SUPPORT SEGMENT OUT OF WHICH THE ASSESSEE IS CONTESTING FUTURE CAPIT AL INVESTMENT ADVISORS LIMITED ON THE GROUND OF MARGIN CORRECTION AND THE ASSESSEE IS ALSO CONTESTING FOR EXCLUSION OF ANOTHER COMPANY I.E. FU TURE CAPITAL HOLDINGS LIMITED. FUTURE CAPITAL HOLDINGS LIMITED : 37 . THAT WITH REGARD TO THE EXCLUSION OF FUTURE CAPITAL HOLDINGS LIMITED, THE TPO HAS DISCUSSED THE ISSUE AT PAGE S 56, 57 OF HIS ORDER AND THE DRP HAS DISCUSSED THE ISSUE AT PAGE 42 AT PARA 7 ONWARDS OF ITS ORDER . T HAT BEFORE BOTH THE AUTHORITIES THE ASSESSEE HAD SUBMITTED THAT THE SAID COMPANY DURING FINANCIAL YEAR 2009 - 10 HAVE ENTERED INTO AN AGREEMENT WITH EVERSTONE 20 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 INVESTMENTS ADVISORS PVT. LTD. FOR REALIGNING THEIR INVESTMENT ADVISORY ACT IVITY WITH THE SAID COMPANY. THE ASSESSEE CLAIMED THAT THE REALIGNMENT OF BUSINESS ACTIVITY IS A PECULIAR EVENT AND THEREFORE APPLYING ONE OF THE FILTER USED BY THE TPO I.E. PECULIAR ECONOMIC CIRCUMSTANCES, THESE COMPANIES SHOULD BE REJECTED. 38 . THAT, H OWEVER FOR THE FIRST TIME BEFORE US THE LD. AR HAS TAKEN A FRESH PLEA OF RELATED PARTY TRANSACTIONS (RPT). 39 . THE LD. DR SUBMITTED THAT THIS PLEA WAS NEVER TAKEN BEFORE THE SUBORDINATE AUTHORITIES WHEREIN THE ONLY CONTENTION WAS WITH REGARD TO THE REALIG NMENT OF BUSINESS ACTIVITY OF COMPANY A PECULIAR EVENT AND WITH THE TPO APPLYING THE FILER OF PECULIAR ECONOMIC CIRCUMSTANCES, THIS COMPANY SHOULD BE REJECTED BUT NOW THE ASSESSEE IS COMING UP WITH NEW PLEA OF RELATED PARTY TRANSACTIONS WHICH NEEDS TO BE F ACTUALLY VERIFIED AT THE LEVEL OF THE ASSESSING OFFICER/TPO. 40 . HAVING HEARD THE PARTIES HEREIN, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED VIEW THAT THE SUBMISSION PUT FORTH BY THE LD. DR FOR FACTUAL VERIFICATION OF RPT TRANSACTIONS IS A CORRECT ANALYSI S AND HENCE WE REMAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR VERIFICATION OF RPT TRANSACTIONS AND THEREAFTER, DECIDING COMPARABILITY WITH RESPECT TO THE ASSESSEE COMPANY IN THIS BSS SEGMENT. THUS, THIS PART OF GROUND IS ALLOWED FOR STATISTIC AL PURPOSES. FUTURE CAPITAL INVESTMENT ADVISORS LIMITED : 41. IN THIS COMPARABLE, THE ASSESSEE DISPUTES THE MARGIN ADOPTED. THE LD. AR REFERRING TO THE DRP ORDER AT PARA 8.3 OF THE SAME SUBMITTED THAT FOR MARGIN DETERMINATION THE DIRECTION GIVEN BY THE LD. DRP MAY BE FOLLOWED BY 21 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 THE ASSESSING OFFICER/TPO AND THE MATTER MAY BE REMANDED BACK ACCORDINGLY. 42 . THE LD. DR CONCEDED TO THIS LIMITED SUBMISSION RAISED BY THE ASSE SSEE. 43 . HAVING HEARD THE PARTIES HEREIN, WE ARE OF THE CONSIDERED VIEW THAT THE DRP HAS ALREADY GIVEN SPECIFIC DIRECTIONS AT THE SAID P ARA 8.3 OF ITS ORDER IN DETERMINATION OF MARGIN AND HENCE THE MATTER IS REMANDED TO THE FILE OF THE ASSESSING OFFICER/T PO TO FOLLOW THE SAID DIRECTION S AND TAKE A DECISION AS PER LAW WHILE COMPLYING WITH THE PRINCIPLE S OF NATURAL JUSTICE. THIS PART OF THE GROUND IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 44 . IN THE COMBINED RESULT, APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRO NOUNCED ON 16 TH DAY OF AUGUST , 20 2 1 . S D/ - S D/ - R.S.SYAL PARTHA SARATHI CHAUDHURY VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 16 TH AUGUST , 202 1 . SB /S UJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) - 13, PUNE. 4. THE PR. CIT - 5, PUNE. 5. , , , / DR, ITAT, C BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // T RUE C OPY // / PRIVATE SECRETARY , / ITAT, PUNE . 22 ITA NO. 519/PUN/2015 A.Y. 2010 - 11 DATE 1 DRAFT DICTATED ON 11 .0 8 .2021 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 16 .08 .202 1 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER