Toluna India Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 5645/DEL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7428 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 21-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH K VERMA
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Related party transaction; Transfer pricing; International transaction; Wholly owned subsidiary; Bad and doubtful debts
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI DELHI BENCHES : I : NEW DELHI DELHI BENCHES : I : NEW DELHI DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI GEORGE GEORGE K. , JM BEFORE SHRI R.S. SYAL, AM AND SHRI GEORGE GEORGE K. , JM BEFORE SHRI R.S. SYAL, AM AND SHRI GEORGE GEORGE K. , JM BEFORE SHRI R.S. SYAL, AM AND SHRI GEORGE GEORGE K. , JM ITA NO.5645/DEL/2011 ITA NO.5645/DEL/2011 ITA NO.5645/DEL/2011 ITA NO.5645/DEL/2011 ASSESSMENT YEAR : 2007 ASSESSMENT YEAR : 2007 ASSESSMENT YEAR : 2007 ASSESSMENT YEAR : 2007- -- -08 0808 08 TOLUNA INDIA PVT. LTD. (FORMERLY KNOWN AS GREENFIELD ONLINE PVT. LTD.), 1 ST FLOOR, UNITECH TRADE CENTRE, SUSHANT LOK PHASE-I, GURGAON PAN : AACCG0003G VS. ACIT, CIRCLE 12(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI TANEJA C.A. & SHRI ROHIT TIWARI, CA DEPARTMENT BY : SHRI YOGESH K. VERMA, CIT, DR ORDER ORDER ORDER ORDER PER R. PER R. PER R. PER R. S. SYAL, AM: S. SYAL, AM: S. SYAL, AM: S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE ASSESSING OFFICER ON 24.10.2011 U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HERE INAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEA R 2007-08. ITA NO.5645/DEL/2011 2 2. THE ASSESSEE IS AGGRIEVED ONLY AGAINST THE INCLU SION OF CERTAIN COMPANIES IN THE LIST OF COMPARABLES, WHICH , IN HIS OPINION, ARE FUNCTIONALLY INCOMPARABLE AND ALSO BEC AUSE OF DIFFERENCES IN THE ASSETS EMPLOYED AND RISKS ASSUME D. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE WAS INCORPORATED IN INDIA IN THE YEAR 2003 AS A WHO LLY OWNED SUBSIDIARY OF GREENFIELD ONLINE INC., USA (GREENFIE LD US), THE ULTIMATE PARENT ENTITY OF THE GREENFIELD GROUP. TH E ASSESSEE IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND PROVIDING RELATED SERVICES TO THE GREENFIELD GROUP. CERTAIN INTERNAT IONAL TRANSACTIONS WERE REPORTED IN THE REQUISITE FORM. THE ASSESSEE IS COMPENSATED ON A TIME COST OR FIXED PRICE BASIS FOR THE PROJECTS ASSIGNED. GREENFIELD US IS PROVIDING END TO END IN FORMATION TECHNOLOGY SERVICES WHICH INCLUDE THE PROVISION OF CONSULTING AND SYSTEMS INTEGRATION SERVICES TO MANAGING IT AND BUS INESS FUNCTIONS ON BEHALF OF ITS CUSTOMERS. THE DISPUTE RAISED IN THE PRESENT APPEAL IS IN RELATION TO THE INTERNATIONAL TRANSACTIONS OF RECEIPT OF REVENUE AMOUNTING TO ` 17,81,69,412/- FR OM GREENFIELD US, STATED TO BE TOWARDS THE PROVISION OF CONTRACT IT SERVICES. THE ASSESSEE BENCHMARKED ITS INTERNATIONAL TRANSACT IONS BY USING ITA NO.5645/DEL/2011 3 TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH THE PRO FIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT/OPERATING COST. THE ASSESSEE WAS COMPENSATED BY ITS AE AT A MARK-UP OF 15% ON CO STS INCURRED BY IT. THE ASSESSEE CLAIMED THAT IT DID NOT OWN AN Y INTANGIBLES, CONDUCTED NO RESEARCH AND DEVELOPMENT ACTIVITIES AN D, HENCE, DID NOT CARRY OUT ANY RISK RELATED ACTIVITIES. CER TAIN COMPARABLES WERE CHOSEN BY THE ASSESSEE WITH THEIR FINANCIAL RE SULTS FOR THE PERIOD ENDING BETWEEN 1.4.2004 TO 15.02.2007. ON T HE BASIS OF CERTAIN FILTERS ADOPTED BY THE ASSESSEE, IT WAS CLA IMED THAT ITS INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH PRI CE (ALP). THE TRANSFER PRICING OFFICER (TPO) CONSIDERED EACH AND EVERY COMPARABLE ADOPTED BY THE ASSESSEE AND FINALLY CAME TO THE CONCLUSION THAT OUT OF 13 COMPARABLES CHOSEN BY THE ASSESSEE, ONLY TWO VIZ., SIP TECHNOLOGIES AND EXPORTS LTD. AN D BODH TREE CONSULTING LTD., WERE OF SUITABLE COMPARISON. THE TPO ALSO REJECTED THE ASSESSEES ADOPTION OF MULTIPLE YEAR D ATA. HE OPINED THAT ONLY THE DATA FOR THE RELEVANT FINANCIAL YEAR, BEING 1.4.2006 TO 31.3.2007, WAS REQUIRED TO BE CONSIDERED. A FR ESH SEARCH WAS UNDERTAKEN BY THE TPO. AFTER DUE NOTICE TO THE ASS ESSEE ON ALL SUCH CHOSEN COMPARABLE COMPANIES AND SEEKING COMMEN TS OF ITA NO.5645/DEL/2011 4 THE ASSESSEE ON THEIR INCLUSION, THE TPO SHORTLISTE D THE FOLLOWING 26 COMPANIES AS COMPARABLE:- 1. ACCEL TRANSMATIC LIMITED (SOFTWARE SERVICES SEGM ENT) 2. AVANI CIMCON TECHNOLOGIES LIMITED 3. CELESTIAL LABS LIMITED 4. DATAMATICS LIMITED 5. E-ZEST SOLUTIONS LIMITED 6. FLEXTRONICS SOFTWARE SYSTEMS LIMITED (PRODUCTS A ND SERVICES SEGMENT) 7. GEOMETRIC LIMITED (SEGMENTAL) 8. HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED 9. IGATE GLOBAL SOLUTIONS LIMITED 10. INFOSYS TECHNOLOGIES LIMITED 11. ISHIR INFOTECH LIMITED 12. KALS INFORMATION SYSTEMS LIMITED (SEGMENTAL) 13. LGS GLOBAL LIMITED (LANCO GLOBAL SOLUTIONS LIM ITED) 14. LUCID SOFTWARE LIMITED 15. MEDIASOFT SOLUTIONS LIMITED 16. MEGASOFT LIMITED (CONSULTING/BLUE ALLEY DIVISIO N) ITA NO.5645/DEL/2011 5 17. MINDTREE LIMITED 18. PERSISTENT SYSTEMS LIMITED 19. QUINTEGRA SOLUTIONS LIMITED 20. R S SOFTWARE (INDIA) LIMITED 21. R SYSTEMS INTERNATIONAL LTD. (SEGMENTAL) 22. SASKEN COMMUNICATION TECHNOLOGIES LIMITED (SEGM ENTAL) 23. SIP TECHNOLOGIES & EXPORTS LIMITED 24. TATA ELXSI LTD. (SOFTWARE DEVELOPMENT AND SERVI CES SEGMENT) 25. THIRDWARE SOLUTIONS LIMITED (SEGMENTAL) 26. WIPRO LIMITED (IT SERVICES SEGMENT). 4. ARITHMETIC MEAN OF OP/OC OF SUCH COMPARABLE COMP ANIES WAS COMPUTED AT 25%. A NEGATIVE WORKING CAPITAL AD JUSTMENT AT (-) 0.13% WAS WORKED OUT TO COMPUTE ADJUSTED ARITHM ETICAL MEAN OF COMPARABLES AT 25.13%. THIS LED TO THE TRANSFER PRICING ADJUSTMENT OF ` 1,55,78,623/-. THE ASSESSEE OBJECT ED TO THE DRAFT ORDER PASSED BY THE AO PROPOSING ADDITION ON ACCOUN T OF SUCH TRANSFER PRICING ADJUSTMENT BEFORE THE DISPUTE RESO LUTION PANEL (DRP), BUT WITHOUT SUCCESS. THE ASSESSING OFFICER MADE THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT TO THE TUNE OF ITA NO.5645/DEL/2011 6 RS.1.55 CRORE VIDE THE IMPUGNED ORDER, AGAINST WHIC H THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS THE ASSESSEE HAS OB JECTED TO THE INCLUSION OF COMPANIES CHOSEN BY THE TPO AS COMPARA BLE LARGELY ON FUNCTIONAL ANALYSIS, IT BECOMES SINE QUA NON FIRST TO ANALYZE THE FUNCTIONAL PROFILE OF THE ASSESSEE WITH A VIEW TO DETERMINE THE FUNCTIONALITY OF THE ASSESSEE SO AS TO DECIDE WHETH ER THE COMPANIES CHOSEN BY THE TPO ARE COMPARABLE OR NOT. 6. IT CAN BE SEEN FROM PAGE 2 OF THE TPOS ORD ER, WHEREIN THE BUSINESS PROFILE OF THE ASSESSEE HAS BEEN DISCUSSED , THAT THE ASSESSEE RENDERED SOFTWARE DEVELOPMENT AND RELATED SERVICES TO GREENFIELD GROUP. FOR THE SAKE OF COMPLETENESS AND TO PRECISELY ASCERTAIN THE ASSESSEES CORRECT FUNCTIONAL PROFILE , WE REFER TO THE COPY OF THE ASSESSEES TRANSFER PRICING STUDY REPOR T WHICH HAS BEEN PLACED AT PAGES 1-48 OF THE PAPER BOOK. GREEN FIELD GROUP IS A LEADING PROVIDER OF INTERNET SERVICE SOLUTIONS. P ARA 1.2.4 OF THE TP STUDY REPORT PRESENTS THAT GREENFIELD US OWNS VI RTUALLY ALL THE VALUABLE INTELLECTUAL PROPERTY RIGHTS AND OTHER COM MERCIAL OR ITA NO.5645/DEL/2011 7 MARKETING INTANGIBLES AND IS INVOLVED IN COMPLEX WE B BASED OPERATIONS. GREENFIELD US BEARS ALL SIGNIFICANT BU SINESS AND ENTREPRENEURIAL RISKS OF THE PRODUCT ACCEPTABILITY AND PERFORMANCE IN THE MARKET AND GREENFIELD INDIA DOES NOT OWN ANY INTEREST IN ANY OF THESE INTANGIBLES. PARA 4.2.1 O F THE TP STUDY REPORT STATES THAT GREENFIELD US IS A LEADING ONLIN E MARKET RESEARCH SERVICE COMPANY. IT PROVIDES CONSUMERS AN OPPORTUNITY TO PARTICIPATE IN SURVEYS AND GIVE THEIR OPINION AB OUT VARIOUS PRODUCTS AND SERVICES OFFERED BY COMPANIES. IT SERV ES THE DATA COLLECTION AND INFRASTRUCTURE NEEDS OF MARKET RESEA RCH AND ADVERTISEMENT COMPANIES. IT OFFERS SERVICE SOLUTIO NS EXCLUSIVELY USING INTERNET BASED METHODS WHICH ARE CUSTOMIZED T O ITS CLIENTS NEEDS. SUMMARY OF FUNCTIONS PERFORMED BY THE GREEN FIELD US IS GIVEN IN PARA 4.2.6 OF THE TP STUDY REPORT, WHICH I S AS UNDER:- - MARKETING AND SALES TO BUILD THE GREENFIELD BRAN D AND REACH THE TOP END MARKET RESEARCH COMPANIES; - MAINTAINING A LARGE, VARIED PANEL GROUP THAT IS A T RUE REPRESENTATIVE SAMPLE OF THE SOCIETY; - CONTINUOUS EXPANSION OF THE PANEL GROUP THROUGH PAN EL RECRUITMENT; ITA NO.5645/DEL/2011 8 - MAINTAINING A NETWORK OF AFFILIATES TO ENABLE EFFEC TIVE PANEL RECRUITMENT; - MAINTAINING A STRONG SET UP OF SERVERS TO HOST THE SURVEYS. 7. THE ASSESSEE SERVES GREENFIELD US THROUGH ITS FO LLOWING FUNCTIONAL DIVISIONS, THE DETAILS OF WHICH ARE AVAI LABLE IN PARAS 4.2.8 TO 4.2.16 OF THE TP STUDY REPORT. RELEVANT PA RTS OF SUCH PARAS ARE AS UNDER :- (A) SURVEY PROGRAMMING SURVEY PROGRAMMING IS THE FIRST STEP IN DELIVERY PROCESS. ALL THE QUESTI ONNAIRES PROVIDED BY THE CLIENT IN WORD FORMAT ARE CONVERTED INTO WEB FORMS IN THIS PROCESS. GREENFIELD INDIA PROGRAM S THE SURVEYS IN HYPER TEXT MARKUP LANGUAGE (HTML). T HE QUESTIONNAIRES INVOLVE DATA VALIDATION, QUOTA CHECK ING, QUOTE STOPS, ETC. AS PART OF CODING. USUALLY TEMPL ATES ARE USED TO START WITH. DIFFERENT TEMPLATES ARE FO R DIFFERENT TYPES OF SURVEYS OR FOR SPECIFIC CLIENTS. USE OF TEMPLATES EASES THE PROCESS OF CREATING THE SURVEY .. (B) SAMPLING ONCE THE SURVEY IS PROGRAMMED AND CLEARED BY THE CLIENT AS GOOD TO LAUNCH, SAMPLING T EAM TAKES OVER. THEY LAUNCH THE SURVEY ON THE WEBSITE. THEN IDENTIFY THE RIGHT GROUP OF PANELISTS BASED ON CRITERIA GIVEN BY THE CLIENT. AN E-MAIL INVITATION IS SENT TO THE PANELISTS, GIVING THEM THE UNIQUE WEB LINK T O THE SURVEY. THE E-MAIL INVITATION ALSO TALKS OF THE PA YOUT THAT WILL BE GIVEN FOR TAKING PART IN THIS SURVEY. ONCE THE SURVEY IS LIVE, THE SAMPLING TEAM MONITORS THE PROG RESS OF COMPLETES RECEIVED FOR EACH SURVEY. THEY ALSO S END REMINDERS OR NEW INVITES BASED ON THE RESULTS BEING ACHIEVED FROM THE HOSTING OF SURVEY. ONCE THE REQU IRED NUMBER OF COMPLETES ARE RECEIVED, THE SURVEY IS CLO SED AND HANDED OVER FOR DATA PROCESSING. ITA NO.5645/DEL/2011 9 (C) DATA PROCESSING DATA PROCESSING IS THE NEXT STEP. IN THIS STEP, THE TEAMS PREPARE THE DATA FOR PRESENTATION TO THE CLIENT. THE DATA IS CLEANED AN D RE- FORMATTED SO THAT CLIENT CAN ANALYZE IT. THE OUTPU T FORMAT DEPENDS ON THE REQUIREMENTS SPECIFIED BY THE CLIENT. TO VERIFY THAT THE DATA IS ACCURATE, A SAN ITY CHECK IS DONE BY GENERATING VARIOUS KINDS OF REPORTS. TH E REPORTS ARE CALLED MARGINALS AND FREQUENCIES.. (D) SOFTWARE DEVELOPMENT THIS GROUP WITHIN GREENFIELD INDIA FOCUSES ON DEVELOPMENT/ENHANCEMENT OF SOFTWARE PROJECTS THAT RELATE TO BUSINESS AUTOMA TION, INCREASE IN EFFICIENCY AND MAKING THE BUSINESS EASI ER FOR SPECIFIC FUNCTIONS PERFORMED BY GREENFIELD INDIA. THEY ALSO CONTRIBUTE TO WEB-SITE RE-DESIGN, ENHANCEMENT, IMAGE-MAKEOVERS, ETC. THE SOFTWARE ARE WEB BASED DEVELOPMENTS USING MICROSOFT TECHNOLOGIES..SINCE GREENFIELD US IS AN ONLINE DATA COLLECTION COMPANY, ALL THE DATA IS COLLECTED ONLINE ON MS-SQL SERVER DATAB ASES. THE DBS (DATABASE PROGRAMMER) HELP IN MAINTAINING THE DATABASE AND RUNNING ANY REPORTING BASED ON TH E DATA. (E) PROJECT MANAGEMENT SUPPORT CURRENTLY, GREENFIELD INDIA EMPLOYS 13 PROJECT MANAGERS WHICH PROVIDE SUPPORT TO A LARGE TEAM OF PROJECT MANAGERS AT GREENFIELD US IN THEIR CLIENT SERVICING FUNCTIONS, INCLUDING MANAGING THE PROJECTS WHEN THE MAIN PROJECT MANAGER IS AWAY ON LEAVE, ETC. (F) HELP DESK - WHILE PANELISTS ARE TAKING PART IN THE SURVEY, THEY HAVE SOME QUESTIONS THAT NEED TO B E ANSWERED. HELPDESK TEAM IS DEDICATED TO SUPPORTING PANELISTS AND THEIR QUERIES. (G) QUALITY - GREENFIELD PUTS A LOT OF IMPORTANCE ON QUALITY OF DELIVERABLES. WE FOLLOW SIX SIGMA METHODOLOGY TO ELIMINATE ALL PROCESS RELATED PROBLEMS.. ITA NO.5645/DEL/2011 10 8. AN OVERVIEW OF THE ABOVE FUNCTIONAL DIVISIONS OF THE ASSESSEE INDICATES THAT THE FIRST THREE AND SIXTH DIVISIONS DEAL WITH ONLINE SERVICES RENDERED TO ITS AE; THE FOURTH DIVISION IS FOR SOFTWARE DEVELOPMENT PROJECTS CONTRIBUTING TOWARDS WEBSITE R EDESIGN ENHANCEMENT AND IMAGE MAKEOVERS, ETC.; THE FIFTH DI VISION IS FOR PROVIDING SUPPORT TO THE PROJECTS MANAGERS AND GREE NFIELD US IN THEIR CLIENT SERVING FUNCTIONS INCLUDING MANAGING T HE PROJECTS; AND THE LAST DIVISION IS FOR QUALITY MAINTENANCE. HERE , IT IS PERTINENT TO MENTION THAT ALL THE ABOVE DIVISIONS OF THE ASSESSE E SERVE ONLY ITS AE ON THE COST PLUS BASIS. AFTER ANALYZING THE WOR K DONE BY VARIOUS DIVISIONS, THERE REMAINS NO DOUBT ABOUT THE NATURE OF WORK DONE BY THE ASSESSEE, WHICH IS OBVIOUSLY NOT O NLY OF SOFTWARE SERVICE PROVIDER BUT ALSO THAT OF A SOFTWA RE DEVELOPER (FOURTH DIVISION ABOVE), THOUGH IP RIGHTS IN SUCH DEVELOPED SOFTWARE DO NOT VEST IN THE ASSESSEE BUT WITH ITS A E. THE LD. AR VEHEMENTLY ARGUED THAT THE ASSESSEE IS ONLY A SOFTW ARE SERVICE PROVIDER AND NOT A SOFTWARE DEVELOPER AND THIS FACT HAS ALSO BEEN ACKNOWLEDGED BY THE TPO. HE ARGUED THAT A SOFTWARE PRODUCT COMPANY CANNOT BE COMPARED WITH A PURE SOFTWARE SER VICE PROVIDER. A SOFTWARE PRODUCT COMPANY HAS TO ASSUME ALL THE ITA NO.5645/DEL/2011 11 COSTS/RISKS FROM THE CONCEPTUAL STAGE, PASSING THRO UGH DEVELOPMENT STAGE CULMINATING INTO THE SUCCESSFUL C OMPLETION STAGE OF THE SOFTWARE PRODUCT FINALLY DEVELOPED. TH E INTELLECTUAL PROPERTY RIGHTS OF SUCH ULTIMATE PRODUCT ORDINARILY VEST IN THE SOFTWARE PRODUCT COMPANY. THE SOFTWARE SERVICE PROV IDER SIMPLY PLAYS SOME ROLE ASSIGNED TO HIM IN THE ENTIRE PROCE SS, WHO DOES NOT ACQUIRE ANY INTELLECTUAL PROPERTY RIGHTS OF THE WORK DONE BY HIM. 9. WE DO NOT AGREE WITH THIS VIEW CANVASSED BY THE LD. AR IN VIEW OF THE DISCUSSION MADE ABOVE ABOUT THE FUNCTIO NAL DIVISIONS OF THE ASSESSEE, WHICH MAKES IT VIVID THAT THE ASSE SSEE IS BOTH A SOFTWARE SERVICE PROVIDER AND ALSO A SOFTWARE DEVEL OPER. THE TPO HAS NOWHERE ACKNOWLEDGED IN HIS ORDER, AS ARGUED BY THE LD. AR, THAT THE ASSESSEE IS ONLY A SOFTWARE SERVICE PROVID ER. WHILE DISCUSSING THE BUSINESS PROFILE OF THE COMPANY IN P ARA 2.2 OF HIS ORDER, THE TPO HAS MENTIONED IN NO UNCERTAIN TERMS THAT THE ASSESSEE : IS IN THE BUSINESS OF PROVIDING SOFTWAR E DEVELOPMENT AND RELATED SERVICES TO GREENFIELD GROUP. AS REGARDS THE SUBMISSION ABOUT DIFFERENCE BETWEEN A SOFTWARE SERV ICE PROVIDER AND A SOFTWARE PRODUCT COMPANY, WE AGREE, IN PRINCI PLE, THAT A ITA NO.5645/DEL/2011 12 SOFTWARE PRODUCT COMPANY CANNOT BE COMPARED WITH A SIMPLE SOFTWARE SERVICE PROVIDER. IT HAS BEEN NOTICED SUPRA THAT THE ASSESSEE IS NOT ONLY A SOFTWARE SERVICE PROVIDER BU T ALSO A SOFTWARE DEVELOPER. TO CONTEND THAT ALL THE SOFTWAR E PRODUCT COMPANIES ARE PER SE INCOMPARABLE TO THE ASSESSEE, IS NOT FULLY CORRECT. BEFORE REACHING ANY DECISION AS TO COMPARA BILITY OR OTHERWISE OF A SOFTWARE PRODUCT COMPANY WITH THE AS SESSEE, IT IS PARAMOUNT TO SEE THE NATURE OF SOFTWARE PRODUCT OF THAT COMPANY AND ITS USER. IF IT IS SUCH A SOFTWARE PRODUCT WHO SE LICENSE IS GIVEN TO OUTSIDERS FOR COMMERCIAL USE AND INCOME IS EARNED BY THE COMPANY FROM ITS COMMERCIAL EXPLOITATION, THEN IT WOULD MEAN THAT SUCH A PRODUCT MUST HAVE BEEN DEVELOPED A FTER INTENSIVE RESEARCH AND DEVELOPMENT AND THE OWNER OF SUCH A PRODUCT WILL BE HOLDING ITS I.P. RIGHTS ALSO. SUCH A SOFTWARE PRODUCT COMPANY CANNOT BE COMPARED WITH THE ASSESSEE COMPAN Y, WHICH IS ALSO IN TO SOFTWARE DEVELOPMENT, BUT THE SOFTWAR E PRODUCTS PRODUCED BY IT ARE NOT MEANT FOR COMMERCIAL USE TO OTHERS AND NEITHER THE ASSESSEE IS HOLDING ANY I.P. RIGHTS OF SUCH PRODUCTS. BUT WHERE A COMPANY IS ENGAGED INTO SOFTWARE PRODUC T DEVELOPMENT ON CONTRACT BASIS, WHETHER FOR ITS AES OR OUTSIDERS, ITA NO.5645/DEL/2011 13 WITHOUT HAVING ANY INTELLECTUAL PROPERTY RIGHTS IN THE PRODUCTS, THEN SUCH A COMPANY CANNOT BE EXCLUDED FROM THE LIS T OF THE ASSESSEES COMPARABLES. AT THIS STAGE, IT IS PERTIN ENT TO MENTION THAT THE ASSESSEE IS DOING BOTH - PROVIDING SOFTWAR E SERVICE AND ALSO SOFTWARE DEVELOPMENT - FOR ITS AES AT COST PLU S 15% MARKUP. ON A SPECIFIC QUERY, THE LD. AR CANDIDLY ACCEPTED T HAT THERE IS NO BIFURCATION AVAILABLE OF THE ASSESSEES REVENUES FR OM THESE TWO AREAS. SINCE INCOME FROM PROVIDING SOFTWARE SERVIC ES AND SOFTWARE DEVELOPMENT IS IN A COMMON POOL AND THE PLI OF OP/OC IN BOTH OF THEM IS 15%, WE HOLD THAT THE COMPANIES ENGAGED EITHER IN SOFTWARE DEVELOPMENT OR PROVIDING SOFT WARE SERVICE OR DOING BOTH, ARE FUNCTIONALLY COMPARABLE TO THE ASSE SSEE. IN THIS OVERALL SEGMENT, ONLY THE COMPANIES ENGAGED AS NON- CONTRACT SOFTWARE DEVELOPERS, HAVING INTELLECTUAL PROPERTY R IGHTS OVER THE PRODUCTS DEVELOPED BY THEM, WOULD BE FUNCTIONALLY D IFFERENT. 10. HAVING SEEN THE FUNCTIONAL PROFILE OF THE ASSES SEE COMPANY AND FORMED THE BASIS FOR THE TESTING THE FUNCTIONAL COMPARABILITY OF THE COMPANIES CHOSEN BY THE TPO, WE WOULD LIKE TO DEAL WITH TWO CONTENTIONS RAISED BY THE LD. AR, WHICH ARE GE RMANE TO ALL OR MOST OF THE COMPANIES CHOSEN BY THE TPO AS COMPARAB LE. ITA NO.5645/DEL/2011 14 11. FIRST POINT ARGUED BY THE LD. AR WAS THAT THE TPO IN SELECTING SEVERAL COMPANIES AS COMPARABLES, GOT INFORMATION D IRECTLY FROM SUCH COMPANIES U/S 133(6), WHICH WAS NOT MADE AVAIL ABLE TO THE ASSESSEE. ON THAT SCORE, IT WAS CONTENDED THAT SUC H COMPANIES BE DECLARED AS NOT COMPARABLE. THIS ARGUMENT WAS C OUNTERED BY THE LD. DR BY PUTTING FORTH THAT EACH AND EVERY DOC UMENT COLLECTED BY THE TPO FROM SUCH COMPANIES WAS DULY M ADE AVAILABLE TO THE ASSESSEE. 12. WE DO NOT FIND ANY MERIT IN THIS CONTENTION R AISED ON BEHALF OF THE ASSESSEE. IT CAN BE SEEN FROM THE ORDER OF T HE TPO THAT BEFORE INCLUDING ANY COMPANY IN THE LIST OF COMPARA BLES, HE GAVE A SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING IT AS COMPARABLE VIDE HIS OFFICE LETTERS, INTER ALIA, THE ONE DATED 26.8.2010 AND ALSO FORWARDED SOFT COPIES OF THE DATA SO COLLECTED . IT WAS THEN, THAT HE CALLED UPON THE ASSESSEE TO EXPLAIN ITS STA ND. THE ASSESSEE MADE DETAILED SUBMISSIONS BEFORE THE TPO AGAINST THE COMPARABILITY OF SUCH COMPANIES VIDE ITS LETTERS DA TED 3/14.9.2010 RUNNING INTO MORE THAN 100 PAGES, COPIE S OF WHICH ARE AVAILABLE IN THE PAPER BOOK. THROUGH THESE LETT ERS, THE ASSESSEE OBJECTED TO TREATING SUCH COMPANIES AS COM PARABLE ITA NO.5645/DEL/2011 15 GIVING SPECIFIC REASONS. IT IS SELF EVIDENT THAT TH E ASSESSEE COULD TRY TO DISTINGUISH SUCH COMPANIES ONLY ON THE PERUS AL OF THE DATA OF SUCH COMPANIES SUPPLIED BY THE TPO. ALL THE OBJE CTIONS TAKEN BY THE ASSESSEE HAVE ALSO BEEN INCORPORATED IN THE ORDER OF THE TPO. WE FAIL TO UNDERSTAND AS TO HOW THE LD. AR CAN RAISE SUCH A PLEA IN THE CIRCUMSTANCES AS ARE PRESENTLY OBTAININ G IN THIS CASE, THAT HE WAS NOT CONFRONTED WITH THE MATERIAL USED A GAINST HIM. WHEN THE LD. AR PRESSED SUCH OBJECTION BEYOND A POI NT, THE BENCH DIRECTED HIM TO PLACE ON RECORD THE COPIES OF THE NOTICES/LETTERS WRITTEN BY THE TPO AND ALSO OTHER M ATERIAL SUPPLIED INCLUDING SOFT COPIES, TO DEMONSTRATE THAT WHICH MA TERIAL WAS NOT SUPPLIED TO IT. THERE WAS NO COMPLIANCE FROM THE SI DE OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, IT IS M ANIFEST THAT SUCH OBJECTION HAS NO SUBSTANCE AND THE SAME DESERVES TO BE AND IS HEREBY REPELLED. 13. SECOND POINT ARGUED BY THE LD. AR COMMON TO M ANY COMPANIES IN THE LIST OF COMPARABLES WAS THAT CERTA IN BENCHES OF THE TRIBUNAL HAVE HELD SOME OF SUCH COMPANIES TO BE NOT COMPARABLE. IN THAT VIEW OF THE MATTER, IT WAS ARG UED THAT THOSE ITA NO.5645/DEL/2011 16 COMPANIES BE AUTOMATICALLY DECLARED AS NOT COMPARAB LE AND, HENCE, EXCLUDED FROM THE LIST OF COMPARABLES DRAWN BY THE TPO. 14. WE AGAIN EXPRESS OUR RESERVATIONS IN ACCEPTIN G THIS TOO BROAD PROPOSITION. IT IS AXIOMATIC THAT IF COMPANY A IS FUNCTIONALLY DIFFERENT FROM COMPANY B, THEN, SUCH COMPANY CANNOT BE CONSIDERED AS COMPARABLE. TWO COMPANIES C AN BE CONSIDERED AS COMPARABLE WHEN BOTH ARE DISCHARGING THE OVERALL SIMILAR FUNCTIONS, THOUGH THERE MAY BE SOME MINOR D IFFERENCES IN SUCH FUNCTIONS, NOT MARRING THE OTHERWISE COMPARABI LITY. NOTWITHSTANDING THE FUNCTIONAL SIMILARITY, MANY A T IMES A COMPANY CEASES TO BE COMPARABLE BECAUSE OF THE FAIL URE OF CERTAIN FILTERS. TO CITE AN EXAMPLE, IF COMPANY A , THOUGH FUNCTIONALLY SIMILAR TO COMPANY B, BUT HAS RELATE D PARTY TRANSACTIONS (RPT) BREACHING A PARTICULAR LEVEL, TH EN, SUCH COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO COMPA NY A IN THE YEAR IN WHICH THE RPT BREACH SUCH LEVEL. IF, H OWEVER, IN THE SUBSEQUENT YEAR, THE RELATED PARTY TRANSACTIONS FAL L BELOW THAT BARRIER, THEN SUCH COMPANY WOULD AGAIN BECOME COMPA RABLE. TO PUT IT SIMPLY, IF COMPANY A HAS BEEN HELD TO BE INCOMPARABLE VIS-A-VIS COMPANY B, THEN IT IS NOT ESSENTIAL TH AT COMPANY A ITA NO.5645/DEL/2011 17 WOULD BE INCOMPARABLE TO COMPANY C ALSO. WHAT IS RELEVANT TO CONSIDER IS, FIRSTLY, THE FUNCTIONAL PROFILE OF COM PANY A VIS-A-VIS COMPANY C. IF BOTH ARE FUNCTIONALLY SIMILAR, THEN NOTWITHSTANDING THE FACT THAT COMPANY A WAS HELD TO BE INCOMPARAB LE TO COMPANY B, IT WOULD STILL BE COMPARABLE TO COMPAN Y C. DESPITE THE FACT THAT COMPANY A IS FUNCTIONALLY SIMILAR T O COMPANY B, IT MAY STILL HAVE BEEN DECLARED AS INCOMPARABLE TO COM PANY B BECAUSE OF FAILING SOME FILTER. IF COMPANY A PAS SES THE SAME FILTER VIS-A-VIS COMPANY C, THEN COMPANY A WILL FIND ITS PLACE IN THE LIST OF COMPARABLES OF COMPANY C, DESPITE THE FACT THAT IT WAS HELD TO BE INCOMPARABLE TO COMPANY B. THE CR UX OF THE MATTER IS THAT THE MERE FACT THAT COMPANY A HAS B EEN HELD TO BE NOT COMPARABLE IN A JUDICIAL ORDER PASSED IN THE CA SE OF COMPANY B, IT CANNOT BE SAID THAT COMPANY A WOULD AUT OMATICALLY CEASE TO BE COMPARABLE TO ALL THE CASES TO FOLLOW. NOT ONLY COMPANY A HELD TO BE INCOMPARABLE TO COMPANY B CAN BE COMPARABLE TO COMPANY C, BUT COMPANY X HELD TO BE COMPARABLE TO COMPANY Y CAN ALSO BE INCOMPARABLE TO COMPANY Z, DEPENDING UPON THE FUNCTIONAL PROFILE AND THE APPLICABILITY OR OTHERWISE OF THE RELATED FILTERS. THERE CAN BE NO H ARD AND FAST RULE ITA NO.5645/DEL/2011 18 THAT IF A PARTICULAR COMPANY HAS BEEN HELD TO BE NO T COMPARABLE IN THE CASE OF ANOTHER COMPANY, THEN SUCH FORMER CO MPANY WOULD ALSO CEASE TO BE COMPARABLE TO THE ASSESSEE COMPANY ALSO. THE COMPARABILITY OF EACH COMPANY NEEDS TO BE ASCERTAIN ED ONLY AFTER MATCHING THE FUNCTIONAL PROFILE AND THE APPLICABLE FILTERS OF THE OTHER COMPANY. ERGO, THIS CONTENTION RAISED ON BE HALF OF THE ASSESSEE CANNOT BE ACCEPTED. 15. WITH THE ABOVE PARAMETERS AND THE FACTUAL MA TRIX, WE WILL DISTINCTLY EXAMINE THE COMPANIES CHOSEN BY THE TPO TO ASCERTAIN IF THEY ARE REALLY COMPARABLE. ACCEL TRANSMATIC LIMITED (SOFTWARE SERVICES SEGMENT ) : 16.1. THE TPO NOTICED THAT THIS COMPANY WAS FINDI NG PLACE IN THE ACCEPT/REJECT MATRIX OF THE TAX PAYER, BUT WAS REJE CTED IN THE TP DOCUMENTS BY STATING THAT IT FAILED THE FILTER OF A DVERTISING, MARKETING AND DISTRIBUTION EXPENSES TO SALES AT LES S THAN 3%. AS THE DATA OF THE SOFTWARE SERVICES SEGMENT OF THIS C OMPANY WAS AVAILABLE, THE TPO PROPOSED TO INCLUDE IT IN THE LI ST OF COMPARABLES. THE ASSESSEE OBJECTED TO THE INCLUSIO N OF THIS COMPANY ON TWO ISSUES, NAMELY, THE RELATED PARTY TR ANSACTIONS ITA NO.5645/DEL/2011 19 WERE MORE THAN 10% AND THE ADVERTISEMENT EXPENSES W ERE MORE THAN 3% OF SALES. AFTER REJECTING SUCH OBJECTIONS, THE TPO INCLUDED THE SOFTWARE SERVICE SEGMENT OF THIS COMPANY IN THE LIST OF COMPARABLES. THE ASSESSEES OBJECTIONS BEFORE THE D RP ALSO MET WITH FAILURE BEFORE THE DRP. 16.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSES SEE ITSELF CONSIDERED THIS COMPANY AS FUNCTIONALLY COMPARABLE BY INCLUDING IT IN THE ACCEPT/REJECT MATRIX, BUT, REJECTED IT ON THE GROUND THAT ADVERTISEMENT EXPENSES WERE MORE THAN 3%. IT IS IM PORTANT TO MENTION THAT THE TPO HAS TAKEN THE FIGURES OF THIS COMPANYS SOFTWARE SERVICES SEGMENT ALONE, WHICH IS ADMITTEDL Y AKIN TO THAT OF THE ASSESSEE AND THAT THE ADVERTISEMENT, MARKETI NG AND DISTRIBUTION SPEND IN THIS SEGMENT IS LESS THAN 3%, BEING THE FILTER APPLIED BY THE ASSESSEE. 16.3. IN SO FAR AS THE OTHER OBJECTION OF THE PE RCENTAGE OF RELATED PARTY TRANSACTIONS IS CONCERNED, THE LD. AR RELIED ON TWO TRIBUNAL ORDERS IN WHICH FILTER OF 15% RPT HAS BEEN ACCEPTED. ON THE CONTRARY, WE FIND THE PREDOMINANT VIEW OF THE T RIBUNAL ACROSS ITA NO.5645/DEL/2011 20 THE COUNTRY IN SEVERAL CASES INCLUDING ACTIS ADVISO RS PVT. LTD. VS. DCIT [(2012) 20 ITR (TRIB.) 138 (DEL)], STREAM INTE RNATIONAL PVT. LTD. VS. ADIT (IT) [(2013) 141 ITD 492 (MUM) [AUTHO RED BY THE AM OF THIS ORDER] AND AGILENT TECHNOLOGIES INTERNATION AL PVT. LTD. VS. ACIT [(2013) 36 CCH 187 (DEL) (TRIB.)], IS THAT A C OMPANY HAVING MORE THAN 25% OF RELATED PARTY TRANSACTIONS IS CONS IDERED AS CONTROLLED. IN OTHER WORDS, IF THE RELATED PARTY TR ANSACTIONS IN A COMPANY ARE LESS THAN 25%, THEN, IT CANNOT BE CONSI DERED AS CONTROLLED AND HENCE QUALIFIES TO BE COMPARABLE, IF IT IS OTHERWISE SO. 16.4. SINCE BOTH THE OBJECTIONS TAKEN BY THE ASSES SEE AGAINST THE INCLUSION OF THIS COMPANY ARE NOT SUSTAINABLE, WE U PHOLD THE INCLUSION OF THE SOFTWARE SERVICE SEGMENT OF ACCEL TRANSMATIC LIMITED IN THE LIST OF COMPARABLES. THE ASSESSEE FA ILS. AVANI CIMCON TECHNOLOGIES LIMITED: 17.1. THE TPO FOUND THIS COMPANY TO BE ENGAGED IN S OFTWARE DEVELOPMENT. NOTICE U/S 133(6) WAS ISSUED TO THE C OMPANY TO GET COMPLETE INFORMATION. ACCORDING TO THE TPO, TH IS COMPANY QUALIFIED ALL THE FILTERS. THE ASSESSEE ARGUED BEF ORE THE TPO THAT ITA NO.5645/DEL/2011 21 THIS COMPANY WAS INTO SOFTWARE PRODUCTS AND THE SEG MENTAL RESULTS WERE NOT AVAILABLE. THE TPO REJECTED SUCH CONTENTION BY RELYING ON THE SPECIFIC INFORMATION COLLECTED FROM THE COMPANY U/S 133(6) WHICH DIVULGED THAT THIS COMPANY WAS A PUREL Y SOFTWARE DEVELOPMENT COMPANY ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT AND CONSULTING IT SERVICES TO ITS CLIEN TS. THIS COMPANY WAS CONCENTRATING ON INTERNET ENABLED BUSIN ESS INFORMATION SYSTEMS IN A WIDE RANGE OF INDUSTRIES. RESULTANTLY, THIS COMPANY WAS INCLUDED IN THE LIST OF COMPARABLE S. 17.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE DESC RIPTION OF BUSINESS ACTIVITY OF THIS COMPANY AS REPRODUCED ON INTERNAL PAGE 90 OF THE TPOS ORDER, THAT IT IS A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. IN THE ABSENCE OF ANY OTHER SPEC IFIC OBJECTION AGAINST THIS COMPANY, WE ARE OF THE CONSIDERED OPIN ION THAT THIS COMPANY HAS BEEN RIGHTLY INCLUDED BY THE TPO IN THE LIST OF COMPARABLES. THE ASSESSEE FAILS. ITA NO.5645/DEL/2011 22 CELESTIAL LABS LIMITED: 18.1. THE TPO INCLUDED THIS COMPANY IN THE LIST O F COMPARABLES BY OBSERVING THAT IT WAS RENDERING MAINLY SOFTWARE DEVELOPMENT SERVICES. 18.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUA L ACCOUNTS OF THIS COMPANY, A COPY OF WHICH IS AVAILABLE ON PAGE 41 OF THE PAPER BOOK, THAT IT IS ENGAGED MAINLY IN THE DEVELO PING THE SOFTWARE PRODUCTS IN THE SHAPE OF TOOLS ETC., WHICH ARE PROTECTED USING THE PATENT. THIS COMPANY DEVELOPED A TOOL, C ELSUITE TO DRUG DISCOVERY IN FINDING THE LEAD MOLECULES FOR DR UG DISCOVERY. AS THIS COMPANY IS ENGAGED IN DEVELOPING SOFTWARE T OOLS AFTER ENOUGH RESEARCH AND DEVELOPMENT ACTIVITY AND THE TO OLS SO PRODUCED BY IT ARE ITS INTELLECTUAL PROPERTY, IT C ANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE WHICH IS, ALSO ALBEIT IN SOFTWARE DEVELOPMENT, BUT IS DOING IT ON CONTRACT BASIS WITHOUT HAVING ANY I.P. RIGHTS IN THE SOFTWARE DEVELOPED BY IT. IT IS FURTHER RELEVANT TO NOTE THAT THIS COMPANY HAS BEEN HELD TO BE NOT COMPARABLE BY THE DISPUTE RESOLUTION PANEL (DRP) IN ITS ITA NO.5645/DEL/2011 23 DIRECTIONS FOR A SUBSEQUENT YEAR, A COPY OF WHICH I S AVAILABLE ON RECORD. THUS THIS COMPANY CANT BE CONSIDERED AS F UNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE. WE, THEREFORE, DIR ECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. THE ASSE SSEE SUCCEEDS. DATAMATICS LIMITED : 19. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSIO N OF THIS COMPANY IN THE LIST OF COMPARABLES. E-ZEST SOLUTIONS LIMITED : 20.1. THE ANNUAL REPORT OF THIS COMPANY WAS AVAILAB LE, BUT, THE FUNCTIONALITY WAS NOT CLEAR. NOTICE U/S 133(6) WAS ISSUED BY THE TPO. ON RECEIPT OF REPLY FROM THE COMPANY, IT WAS NOTICED THAT IT WAS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND, H ENCE, QUALIFIED ALL THE FILTERS APPLIED BY THE TPO. AFT ER CONSIDERING THE OBJECTIONS OF THE ASSESSEE, THE TPO HELD IT TO BE I NCLUDIBLE IN THE LIST OF COMPARABLES. THE DRP UPHELD THE DRAFT ORDER ON THIS COUNT. 20.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THIS COMPANY T O BE ITA NO.5645/DEL/2011 24 COMPARABLE TO THAT OF THE ASSESSEE COMPANY, BECAUSE IT IS ALSO ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES TO OUTSIDERS. THE LD. AR NEEDLESSLY TRIED TO DISTINGUISH THIS COM PANY BY CONTENDING THAT THE SERVICES RENDERED BY IT WERE DI FFERENT FROM THAT OF THE ASSESSEE. WE DO NOT FIND ANY FORCE IN THIS SUBMISSION. THE COMPARABILITY OF A COMPANY IS TESTED ON VARIOUS PARAMETERS AND A VIEW IS TAKEN AS TO ITS COMPARABILITY OR OTHE RWISE BY CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTA NCES. SIMPLY BECAUSE THE NATURE OF SOFTWARE DEVELOPMENT SERVICES PROVIDED BY A COMPANY IS DIFFERENT FROM THOSE PROVIDED BY THE A SSESSEE, THE SAME DOES NOT BECOME INCOMPARABLE. HERE IS A CASE IN WHICH THIS COMPANY IS ALSO PROVIDING SOFTWARE DEVELOPMENT SERVICES AS IS DONE BY THE ASSESSEE ON CONTRACT BASIS FOR OTHER S WITHOUT HAVING ANY INTELLECTUAL PROPERTY RIGHTS IN THEM. A SMALL VARIATION IN THE NATURE OF SERVICES DOES NOT MAKE A COMPANY I NCOMPARABLE. IT IS NOT A CASE THAT THE TPO HAS CONSIDERED A COMP ANY RENDERING MANAGERIAL OR ENGINEERING SERVICES AND TREATED IT A S COMPARABLE TO THE ASSESSEE RENDERING SOFTWARE DEVELOPMENT SERV ICES. MERELY BECAUSE THE NATURE OF SERVICE RENDERED BY THIS COMP ANY WITHIN THE OVERALL SOFTWARE DEVELOPMENT SERVICES, IS NOT I DENTICAL, WILL ITA NO.5645/DEL/2011 25 NOT MAKE IT INCOMPARABLE, WHEN IT IS OTHERWISE SIMI LAR TO THAT OF THE ASSESSEE ON ALL OTHER SCORES. AS SUCH, WE HOLD THAT THIS COMPANY WAS RIGHTLY INCLUDED BY THE TPO IN THE LIST OF COMPARABLES. THE ASSESSEE FAILS. FLEXTRONICS SOFTWARE SYSTEMS LIMITED (PRODUCTS AND SERVICES SEGMENT) : 21.1. THIS COMPANY WAS FINDING PLACE IN THE ACCEP T/REJECT MATRIX OF THE ASSESSEE, BUT WAS REJECTED IN THE TP STUDY REPORT BECAUSE IT FAILED R&D SPEND FILTER. THE TPO NOTICED THAT THE PRODUCTS AND SERVICE SEGMENT OF THIS COMPANY WAS COMPARABLE TO THAT OF THE ASSESSEE. AS THE PRODUCT REVENUE WAS ` 92.1 CR ORE OUT OF THE TOTAL PRODUCT AND SERVICE SEGMENT REVENUE OF ` 847. 2 CRORE, THE TPO HELD THIS COMPANY TO BE COMPARABLE. THE ASSESS EES OBJECTION THAT THIS COMPANY HAD INCURRED HUGE R & D EXPENSES AND, HENCE, SHOULD BE IGNORED, DID NOT FIND FAVOUR WITH THE TPO. THE DRP APPROVED THE VIEW TAKEN BY THE AUTHORITIES BELOW ON THE COMPARABILITY OF THIS CASE. 21.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THIS COMPANY T O BE NOT ITA NO.5645/DEL/2011 26 COMPARABLE TO THAT OF THE ASSESSEE. THE REASON FOR OUR THIS DECISION IS THAT THE TPO HAS TAKEN SEGMENTAL DATA O F `PRODUCT AND SERVICE SEGMENT OF THIS COMPANY WHICH HAS PRODUCT REVENUE OF ` 92.1 CRORE. IN CONTRAST TO IT, THE INSTANT ASSESSE E IS NOT SELLING ANY SOFTWARE PRODUCTS, BUT, IS DOING THE JOB ASSIGN ED TO IT ON COST PLUS BASIS. THE CONTENTION OF THE LD. DR THAT SINC E THE MAJORITY OF THE REVENUE FROM `PRODUCT AND SERVICES SEGMENT WAS FROM THE SERVICES SEGMENT AND, HENCE, THIS COMPANY SHOULD BE CONSIDERED AS COMPARABLE, IS BEREFT OF ANY FORCE. WHEN FIGURE S OF PRODUCTS AND SERVICES ARE COMBINED, IT CANNOT BE ASCERTAINED AS TO HOW MUCH CONTRIBUTION WAS MADE BY THE PRODUCT DIVISION OR THE SERVICE DIVISION TO THE OVERALL REVENUE OF THE PROD UCT AND SERVICES SEGMENT. AS THE ASSESSEE IS ADMITTEDLY NOT ENGAGED IN SELLING ITS SOFTWARE PRODUCTS, SUCH A COMPANY CANNOT BE CONSIDE RED AS COMPARABLE. IT CAN BE SEEN FROM THE ANNUAL REPORT O F THIS COMPANY, A COPY OF WHICH IS AVAILABLE ON PAGE 88 OF THE PAPER BOOK, THAT IT CONSOLIDATED ITS EXISTING PRODUCT POR TFOLIO AND TOOK STEPS TO EXPAND INTO FURTHER TECHNOLOGIES BY INCREA SING THE MOMENTUM IN KEY INITIATIVES IN WIMAX, IMS, SIP & ISS /ESS DOMAINS. THIS COMPANY HAS ITS OWN PRODUCTS SUCH AS ASN, ITA NO.5645/DEL/2011 27 WIMAX, GATEWAY PRODUCT WITH ASN LIGHT. IT IS FURTHER RELEVANT TO NOTE THAT THE YEAR ENDING OF THIS COMPANY IS NOT CO INCIDING WITH THAT OF THE ASSESSEE AND IT IS NOT KNOWN AS TO HOW THE TPO HAS ADOPTED THE RELEVANT FIGURES FOR COMPARISON. IN VI EW OF THE FOREGOING DISCUSSION, WE HOLD THIS COMPANY TO BE NO T COMPARABLE AND DIRECT ITS EXCLUSION FROM THE LIST OF COMPARABL ES. THE ASSESSEE SUCCEEDS. GEOMETRIC LIMITED (SEGMENTAL): 22. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSIO N OF THIS COMPANY IN THE LIST OF COMPARABLES. HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED: 23.1. THE TPO NOTICED FROM THE ANNUAL ACCOUNTS OF THIS COMPANY THAT IT WAS ENGAGED IN THE SOFTWARE DEVELOPMENT SER VICES AND ALSO QUALIFIED EMPLOYEE COST FILTER. THE ASSESSEE OBJECTED TO ITS INCLUSION BY, INTER ALIA , CONTENDING THAT THE PLI OF THIS COMPANY WAS INCORRECTLY WORKED OUT BY THE TPO. CORRECTING THIS MISTAKE IN CALCULATION PART, THE TPO HELD THIS COMPANY TO BE C OMPARABLE AND DETERMINED ITS REVISED PLI AT 36.63%. THE DRP UPHE LD THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S. ITA NO.5645/DEL/2011 28 23.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUA L ACCOUNTS OF THIS COMPANY THAT IT IS ENGAGED IN RENDERING ITES B PO SERVICES, APPLICATION MANAGEMENT SERVICES, OFFSHORE DELIVERY, PROJECT MANAGEMENT SERVICES, PUBLIC SECTOR SERVICES, MARITI ME PRACTICE AND EXECUTIVE EDUCATION INFORMATION SYSTEMS, ETC. FROM THE ABOVE NARRATION OF THE NATURE OF SERVICES RENDERED BY THIS COMPANY, IT CAN BE SEEN THAT THE SAME IS NOT AT ALL COMPARABLE TO THAT OF THE ASSESSEE. IT CAN FURTHER BE NOTICED THA T THE TPO HAS TAKEN THE FIGURES OF THIS COMPANY WHICH REPRESENT ` INCOME FROM SOFTWARE SALES AND SERVICES. OBVIOUSLY, THE ASSES SEE IS NOT ENGAGED IN SOFTWARE SALES. IN VIEW OF OUR ABOVE DI SCUSSION WHILE DEALING WITH THE COMPARABILITY OF FLEXTRONICS SOFTW ARE SYSTEMS LIMITED, WE ARE SATISFIED THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE AND IS, HENCE, DIRECTED TO BE EXCLUDE D FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. IGATE GLOBAL SOLUTIONS LIMITED : 24. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES. ITA NO.5645/DEL/2011 29 INFOSYS TECHNOLOGIES LIMITED : 25. FROM THE NATURE OF SERVICES RENDERED BY THE ASSESSEE TO ITS AE ON A COST PLUS BASIS WITHOUT HAVING ANY INTANGIB LE ASSETS OR RETAINING ANY INTELLECTUAL PROPERTY IN THE WORK DON E BY IT, WE FIND THAT INFOSYS TECHNOLOGIES LTD., WHICH IS A GIANT CO MPANY IN TERMS OF RISK PROFILE, SCALE, NATURE OF SERVICES, REVENUE OWNERSHIP OF BRANDED/PROPRIETARY PRODUCTS, ONSITE AND OFFSHORE S ERVICES, ETC., CANNOT BE COMPARED WITH THE ASSESSEE. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. [(2013) 219 TAXMAN 26 (DEL)] IN WHICH INFOSYS LTD. HAS BEEN HELD TO BE NOT COMPARABLE TO A COMPANY THAT WAS ENGAGED IN THE BUS INESS OF DEVELOPMENT OF SOFTWARE FOR PARENT COMPANY. WE, TH EREFORE, DIRECT THE EXCLUSION OF THIS CASE FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. ISHIR INFOTECH LIMITED : 26.1. THE AO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES BY OBSERVING THAT IT QUALIFIED 25% EMPLOYEE COST FILTE R AND ALL OTHER FILTERS ON THE BASIS OF INFORMATION RECEIVED U/S 13 3(6). THE ITA NO.5645/DEL/2011 30 ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY BY CONTENDING THAT ITS RELATED PARTY TRANSACTIONS WERE MORE THAN 15% AND EMPLOYEES COST WAS ONLY 4%. THE TPO REJECTED BOTH THE CONTENTIONS BY NOTICING THAT THE EMPLOYEES COST WAS , IN FACT, MORE THAN 25% AS WAS APPARENT FROM THE INFORMATION RECEIVED U/S 133(6) AND, FURTHER, THE RPTS ALSO DID NOT EXCE ED 25%. 26.2. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND THIS COMPANY TO BE COMP ARABLE TO THAT OF THE ASSESSEE. THE ASSESSEES OBJECTION THA T EMPLOYEE COST OF THIS COMPANY WAS 4% ONLY, IS NOT CORRECT BE CAUSE OF THE EXERCISE CARRIED OUT BY THE TPO INDICATING THAT THE EMPLOYEES COST WAS MORE THAN 25%. THE LD. DR HAS TAKEN US TH ROUGH THE ANNUAL ACCOUNTS OF THIS COMPANY WHICH SHOW THAT SOM E PART OF THE EMPLOYEES COST WAS ALSO INCLUDED IN ADMINISTRA TIVE EXPENSES APART FROM DIRECT ESTABLISHMENT EXPENSES. IT CAN BE SEEN THAT THE COMPANY HAS INCLUDED PROFESSIONAL FEE S OF ` 3.41 CRORE ALONG WITH DIRECTORS SALARY, ETC., UNDER THE HEAD ADMINISTRATIVE EXPENSES. WHEN THIS OBJECTION WAS TAKEN BY THE ASSESSEE BEFORE THE TPO THAT THE EMPLOYEE COST WAS ONLY 4% VIEWING ONLY THE ESTABLISHMENT EXPENSES IN ISOLAT ION WITHOUT ITA NO.5645/DEL/2011 31 CONSIDERING THE EMPLOYEE COST INCLUDED UNDER THE HE AD ADMINISTRATIVE EXPENSES, THE TPO CORRECTED THE PO SITION BY OBSERVING THAT THE EMPLOYEE COST WAS MORE THAN 25% BY IMPLIEDLY INCLUDING THE PERSONNEL COST INCLUDED UND ER THE HEAD ADMINISTRATIVE EXPENSES. THE ASSESSEE DID NOT CH ALLENGE THE TPOS CALCULATION BEFORE THE DRP ON THIS ISSUE. AS SUCH, IT BECOMES APPARENT THAT THERE IS NO MERIT IN THIS OBJ ECTION AGAIN TAKEN UP BEFORE US WHICH HAS ALREADY BEEN SUCCESSFU LLY DEALT WITH BY THE TPO. INSOFAR AS THE ASSESSEES OBJECTION AB OUT THE RELATED PARTY TRANSACTIONS IS CONCERNED, WE HAVE DISCUSSED THIS ISSUE THOROUGHLY WHILE DEALING WITH THE COMPARABLE CASE O F ACCEL TRANSMATICS LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT FILTER OF 25% OF RPT IS GOOD ENOUGH TO MAKE A CONTROLLED TRAN SACTION AND THUS EXPUNGING IT FROM THE LIST OF COMPARABLES, WHI CH CAN ONLY BE UNCONTROLLED TRANSACTIONS. THE LD. AR FAILED TO PO INT OUT ANY FUNCTIONAL DIFFERENCE OF THIS COMPANY VIS-A-VIS THE ASSESSEE. AS SUCH, WE APPROVE THE VIEW TAKEN BY THE TPO IN INCLU DING THIS CASE IN THE LIST OF COMPARABLES. THE ASSESSEE FAILS. ITA NO.5645/DEL/2011 32 KALS INFORMATION SYSTEMS LIMITED (SEGMENTAL): 27.1. THE TPO OBSERVED THAT THIS COMPANY WAS ENGA GED IN SOFTWARE DEVELOPMENT AND TRAINING. AS THE SOFTWARE PRODUCTS CONSTITUTED ONLY 3% OF ITS REVENUE AND TRAINING REV ENUE CONSTITUTED 8.56%, THE TPO HELD THAT THIS SEGMENT O F KALS INFORMATION SYSTEMS LIMITED WAS RIGHTLY INCLUDIBLE. 27.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS AN ADMITTED POSI TION THAT THE TPO ADOPTED SOFTWARE DEVELOPMENT SEGMENT OF THIS CO MPANY BY NOTICING THAT THIS SEGMENT ALSO INCLUDED REVENUES F ROM SOFTWARE PRODUCTS AND TRAINING. IN VIEW OF THE FACT THAT TH E ASSESSEE IS NOT ENGAGED IN IMPARTING ANY TRAINING ON COMMERCIAL BAS IS OR SELLING ITS SOFTWARE PRODUCTS, WE HOLD THAT THE FINANCIALS OF THIS COMPANY UNDER THIS SEGMENT CANNOT BE COMPARED WITH THE ASSE SSEE. THE CONTRIBUTION BY THE SALE OF SOFTWARE PRODUCTS OR TR AINING TO THE OVERALL REVENUE OF THIS SEGMENT CANNOT BE PRECISELY ASCERTAINED TO DETERMINE THE QUESTION OF ITS COMPARABILITY. AS SUCH, THIS CASE IS DIRECTED TO BE EXCLUDED. THE ASSESSEE SUCCEEDS. ITA NO.5645/DEL/2011 33 LGS GLOBAL LIMITED (LANCO GLOBAL SOLUTIONS LIMITED) : 28. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSIO N OF THIS COMPANY IN THE LIST OF COMPARABLES. LUCID SOFTWARE LIMITED : 29.1. THE TPO NOTICED THAT THIS COMPANY WAS A PURE SOFTWARE DEVELOPMENT SERVICES COMPANY AND DID NOT HAVE ANY R ELATED PARTY TRANSACTIONS. ON BEING CALLED UPON TO EXPLAIN AS TO WHY THIS COMPANY BE NOT TREATED AS COMPARABLE, THE ASSESSEE REPLIED THAT LUCID SOFTWARE LIMITED HAS DEVELOPED `MUULAM SOFTW ARE, THE DETAILS OF WHICH WERE COLLECTED FROM THE WEBSITE OF LUCID SOFTWARE ITSELF. IN VIEW OF SUCH DETAILS, IT WAS CONTENDED THAT THIS COMPANY WAS A SOFTWARE PRODUCT COMPANY HAVING INTELLECTUAL PROPERTY RIGHTS. REJECTING THE ASSESSEES OBJECTIONS, THE T PO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES. 29.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT CAN BE SEEN THAT TH E ASSESSEE CATEGORICALLY OBJECTED BEFORE THE TPO TO THE EFFECT THAT THIS COMPANY WAS MAINLY INTO SOFTWARE PRODUCT BUSINESS H AVING LICENSE OF SUCH PRODUCTS. THE TPO IGNORED THE ASSE SSEES ITA NO.5645/DEL/2011 34 SUBMISSIONS DESPITE THE FACT THAT SUFFICIENT MATERI AL TAKEN FROM THE WEBSITE OF THIS COMPANY WAS PLACED BEFORE HIM I N SUPPORT OF THE CONTENTION. IT CAN BE SEEN FROM PAGE 192 OF THE PAPER BOOK, BEING NOTES TO THE BALANCE SHEET OF LUCID SOFTWARE LTD., THAT THIS COMPANY DEVELOPED SOFTWARE PRODUCTS IN-HOUSE. THE EXPENDITURE SO INCURRED ON PRODUCT DEVELOPMENT HAS BEEN DULY CA PITALIZED BY LUCID SOFTWARE LTD. THESE FACTS AMPLY BRING OUT TH AT LUCID SOFTWARE LTD. CANNOT BE CONSIDERED AS COMPARABLE. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS CASE FROM T HE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. MEDIASOFT SOLUTIONS LIMITED : 30. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES. MEGASOFT LIMITED (CONSULTING/BLUE ALLEY DIVISION ): 31.1. THE TPO, ON PERUSAL OF DATA OF THIS COMPANY AVAILABLE IN THE PROWESS AND ALSO ON CONSIDERATION OF INFORMATIO N RECEIVED U/S 133(6) OBSERVED THAT THIS COMPANY WAS ENGAGED IN SO FTWARE DEVELOPMENT SERVICES UNDER ITS CONSULTING DIVISION. THE ASSESSEE OBJECTED TO ITS INCLUSION BEFORE THE TPO ON THE GRO UND THAT THERE ITA NO.5645/DEL/2011 35 WAS RESTRUCTURING INASMUCH AS THERE WAS ACQUISITION OF SOME OTHER COMPANIES DURING THE YEAR. NOT CONVINCED WIT H THE ASSESSEES OBJECTION, THE TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES. 31.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE DIREC TORS REPORT OF THIS COMPANY, A COPY OF WHICH IS AVAILABLE ON PAGE 193 OF THE PAPER BOOK, THAT THE FINANCIAL RESULTS FOR THE YEAR INCLUDE THE BUSINESS PERFORMANCE OF VISUAL SOFT TECHNOLOGIES LT D. W.E.F. 1 ST OCTOBER, 2006 CONSEQUENT TO THE AMALGAMATION. THE MUMBAI BENCH OF THE TRIBUNAL IN PETRO ARALDITE (P) LTD. VS. DCIT [(2013) 154 TTJ (MUM) 176] HAS HELD THAT A COMPANY CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF EXCEPTIONAL FIN ANCIAL RESULTS DUE TO MERGERS/DEMERGERS ETC. SINCE THE FINANCIAL RESULTS OF MEGASOFT LTD. HAVE THE IMPACT OF THE MERGER OF VISU AL SOFTWARE TECHNOLOGIES LTD., W.E.F. 1 ST OCTOBER, 2006, OBVIOUSLY, THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. ACCORD INGLY, THIS COMPANY IS DIRECTED TO BE EXCLUDED. THE ASSESSEE S UCCEEDS. ITA NO.5645/DEL/2011 36 MINDTREE LIMITED : 32. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSIO N OF THIS COMPANY IN THE LIST OF COMPARABLES. PERSISTENT SYSTEMS LIMITED : 33. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE HOLD THAT THIS COMP ANY ALSO CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF MERGE R OF ANOTHER COMPANY INTO IT, WHICH FACT IS EVIDENT FROM PAGE 196 OF THE PAPER BOOK. IT CAN BE SEEN THAT A SUBSIDIARY CO MPANY WAS MERGED INTO THIS COMPANY PURSUANT TO JUDGMENT OF HO NBLE BOMBAY HIGH COURT W.E.F. 1.4.06. BECAUSE OF THE ME RGER OF SUBSIDIARY INTO THIS COMPANY, WE HOLD THAT THE FINA NCIAL POSITION OF THIS COMPANY CANNOT BE CONSTRUED AS NORMAL CAPABLE OF A GOOD COMPARISON. FOLLOWING THE MUMBAI BENCH DECISION IN PETRO ARALDITE (P) LTD. (SUPRA) , WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS . ITA NO.5645/DEL/2011 37 QUINTEGRA SOLUTIONS LIMITEDA : 34. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSIO N OF THIS COMPANY IN THE LIST OF COMPARABLES. R S SOFTWARE (INDIA) LIMITED : 35. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSI ON OF THIS COMPANY IN THE LIST OF COMPARABLES. R SYSTEMS INTERNATIONAL LTD. (SEGMENTAL) : 36.1. THE TPO INCLUDED THIS COMPANY IN THE LIST O F COMPARABLES AND DETERMINED ITS OP/OC AT 15.07%. THE LD. AR HAS NO OBJECTION TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COM PARABLES. HIS ONLY OBJECTION WAS CONFINED TO THE CALCULATION OF O P/OC AT 15.07%. HE CONTENDED THAT THE TPO ERRED IN EXCLUDI NG THE AMOUNT OF `PROVISION FOR DOUBTFUL DEBTS FROM OPERA TING COSTS. 36.2. WE ARE NOT AGREEABLE WITH THE CONTENTION AD VANCED ON BEHALF OF THE ASSESSEE FOR THE REASONS SET OUT BY T HE TPO ON THIS ISSUE AT PAGE 126 OF HIS ORDER. IT HAS BEEN MENTIO NED THAT THE PROVISION FOR DOUBTFUL DEBTS/ADVANCES WAS EXCLUDED BECAUSE THESE WERE NOT RECURRING FOR THE LAST THREE YEARS A ND WERE ALSO ITA NO.5645/DEL/2011 38 NOT AT CONSISTENT LEVEL. WE FAIL TO APPRECIATE AS TO HOW A `PROVISION FOR DOUBTFUL DEBTS CAN BE CONSIDERED AS A PART OF OPERATING COST UNLESS IT IS SHOWN THAT THE ACTUAL E XPENDITURE ON ACCOUNT OF BAD DEBTS WAS EQUAL TO SUCH AMOUNT OF PR OVISION. NOTHING OF THIS SORT HAS BEEN PROVED ON BEHALF OF T HE ASSESSEE. AS SUCH, WE HOLD THAT THE TPO WAS JUSTIFIED IN EXCL UDING THE `PROVISION FOR DOUBTFUL DEBTS/ADVANCES FROM TOTAL OPERATING COST. THIS CONTENTION RAISED ON BEHALF OF THE ASSESSEE IS REPELLED. RESULTANTLY, THIS COMPANY IS HELD TO BE RIGHTLY INC LUDED IN THE LIST OF COMPARABLES WITH THE CORRECT PERCENTAGE OF OP/OC AT 15.07%. THE ASSESSEE FAILS. SASKEN COMMUNICATION TECHNOLOGIES LIMITED (SEGMENTA L) : 37. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS COMP ANY ACQUIRED BOTNIA HITEC OYOY, FINLAND AND ITS TWO WHOLLY OWNED SUBSIDIARY COMPANIES DURING THE YEAR, WHICH FACT IS APPARENT F ROM THE DIRECTORS REPORT OF THIS COMPANY AVAILABLE AT PAGE 202 OF THE PAPER BOOK. FOLLOWING THE MUMBAI BENCH DECISION IN PETRO ITA NO.5645/DEL/2011 39 ARALDITE (P) LTD.(SUPRA) , WE ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. SIP TECHNOLOGIES & EXPORTS LIMITED : 38. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSI ON OF THIS COMPANY IN THE LIST OF COMPARABLES. TATA ELXSI LTD. (SOFTWARE DEVELOPMENT AND SERVICES SEGMENT) : 39.1. THE TPO INCLUDED THIS COMPANY IN THE LIST O F COMPARABLES BY NOTICING THAT ITS SOFTWARE DEVELOPMENT AND SERV ICES SEGMENT MATCHED WITH THE ASSESSEE. ON BEING CALLED UPON TO EXPLAIN AS TO WHY THIS COMPANY BE NOT INCLUDED IN THE LIST OF COM PARABLES, THE ASSESSEE STATED THAT THE NATURE OF ACTIVITY DONE BY THIS COMPANY WAS DIFFERENT INASMUCH AS IT WAS ENGAGED IN R&D ACT IVITIES ALSO WHICH RESULTED IN CREATION OF INTELLECTUAL PROPERTY . NOT CONVINCED WITH THE ASSESSEES SUBMISSIONS, THE TPO INCLUDED T HIS SEGMENT OF THE COMPANY IN THE LIST OF COMPARABLES. 39.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND FROM PAGE NO.206 OF THE PAPER BOOK, WHICH IS ANNEXURE TO THE DIRECTORS REPORT OF THIS COMPANY, THAT ITA NO.5645/DEL/2011 40 THE NATURE OF ITS ACTIVITY IS QUITE DISTINCT FROM T HAT OF THE ASSESSEE. IT CAN BE SEEN THAT THIS COMPANY IS INTO DEVELOPMENT OF HARDWARE AND SOFTWARE FOR EMBEDDED PRODUCTS SUCH AS MULTI- MEDIA AND SOME OTHER ELECTRONICS, ETC. APART FROM THAT, THIS COMPANY IS ALSO ENGAGED IN MAKING SOME PROGRAMMES DEVELOPING TECHNOLOGY INTELLECTUAL PROPERTY. AS TH E NATURE OF ACTIVITY CARRIED OUT BY THE ASSESSEE IN QUESTION IS NOWHERE CLOSE TO THAT OF TATA ELXSI LTD., WE HOLD THAT THIS COMPA NY CANNOT BE INCLUDED IN THE LIST OF COMPARABLES. ACCORDINGLY, THIS COMPANY IS DIRECTED TO BE EXCLUDED. THE ASSESSEE SUCCEEDS. THIRDWARE SOLUTIONS LIMITED (SEGMENTAL) : 40. THE ASSESSEE HAS NO OBJECTION TO THE INCLUSI ON OF THIS COMPANY IN THE LIST OF COMPARABLES. WIPRO LIMITED (IT SERVICES SEGMENT) : 41. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE HAVE ABSOLUTELY NO DOUBT IN OUR MIND THAT THIS COMPANY CANNOT BE CONSIDERED AS COMP ARABLE TO THE ASSESSEE INASMUCH AS IT IS A GIANT COMPANY IN T ERMS OF PARAMETERS DISCUSSED ABOVE WHILE DEALING WITH THE C ASE OF ITA NO.5645/DEL/2011 41 INFOSYS LTD. THE HONBLE DELHI HIGH COURT IN THE C ASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) HAS UPHELD THE EXCLUSION OF THIS COMPANY ALSO FROM THE LIST OF COMPARABLES ON T HE BASIS OF CERTAIN PARAMETERS, WHICH ARE FULLY APPLICABLE TO THE INSTANT ASSESSEE AS WELL. IT IS, THEREFORE, DIRECTED TO EXC LUDE THIS COMPANY FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS . 42. IN VIEW OF THE FOREGOING DISCUSSION, WE SET A SIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF ALP OF THE ASSESSEES INTERN ATIONAL TRANSACTIONS IN CONSONANCE WITH THE DIRECTIONS GIVE N HEREINABOVE IN THE MATTER OF INCLUSION OR EXCLUSION OF THE 26 C OMPARABLES COMPANIES TAKEN BY THE TPO AS COMPARABLES. 43. APART FROM ASSAILING THE INCLUSION OR OTHERWI SE OF THE ABOVE REFERRED 26 COMPANIES, NO ARGUMENT WAS ADVANCED BY THE LD. AR ON ANY OTHER ISSUE RAISED THROUGH SOME OTHER GROUND S. THESE GROUNDS, THEREFORE, STAND DISMISSED. IT IMPLIES TH AT THE VIEW TAKEN BY THE TPO AS APPROVED BY THE DRP ON ALL OTHE R ISSUES IN THE COMPUTATION OF ALP IS FINAL AND DOES NOT REQUIR E ANY INTERFERENCE. ITA NO.5645/DEL/2011 42 44. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.08.201 4. SD/- SD/- [GEORGE GEORGE K.] [GEORGE GEORGE K.] [GEORGE GEORGE K.] [GEORGE GEORGE K.] [R.S. SYAL] [R.S. SYAL] [R.S. SYAL] [R.S. SYAL] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATED: 26 TH AUGUST, 2014. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI. DATE 1. DRAFT DICTATED ON 21.8.14 2. DRAFT PLACED BEFORE THE AUTHOR 22.8.14 3. APPROVED DRAFT COMES TO THE SR.PS/PS 4. FILE SENT TO THE BENCH CLERK 5. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 6. DATE ON WHICH FILE GOES TO THE AR 7. DATE OF DISPATCH OF ORDER. *