SYBASE SOFTWARE (INDIA) P. LTD, MUMBAI V. ASST CIT 10(1), MUMBAI

ITA 5668/MUM/2011

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8740 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 25-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 08-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARPIT AGGARWAL
• Keywords: Business income; Transfer pricing; International transaction; Retrospective amendment; Wholly owned subsidiary
• Section: 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI PAWAN SINGH, JM ITA NO S . 5668/MUM/2011 & 7434 /MUM/ 2010 (ASSESSMENT YEAR S : 2005 - 06 & 2006 - 07 ) SYBASE SOFTWARE (INDIA) PRIVATE LIMITED 4 TH FLOOR, PLATINA C - 29, G - BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400 098 VS. ASST. CIT - 10(1), MUMBAI PAN/GIR NO. AAHCS 5015 K ( ASSESSEE ) : ( RE VENUE ) & ITA NO. 6087 /MUM/ 2011 (ASSESSMENT YEAR: 2005 - 06 ) ASST. CIT - 10(1), MUMBAI VS. SYBASE SOFTWARE (INDIA) PRIVATE LIMITED 6 TH FLOOR, VAIBHAV CHAMBERS, BANDRA (E), MUMBAI - 400 0 51 PAN/GIR NO. AAHCS 5015 K ( RE VENUE ) : ( ASSESSEE ) ASSESSEE BY : SHRI DHANESH BAFNA & SHRI ARPIT AGGARWAL RE VENUE BY : SHRI KIRAN UNAVEKAR DATE OF HEARING : 27.09.2018 DATE OF PRONOUNCEMENT : 20.12 .2018 O R D E R PER SHAMIM YAHYA, A. M.: TH ESE ARE APPEAL S BY THE ASSESSEE FOR ASSESSMENT YEAR (A.YS.) 2005 - 06 AND 2006 - 07 AND CROSS APPEAL BY THE REVENUE FOR A.Y. 2005 - 06, AGAINST THE RESPECTIVE ORDERS OF THE DISPUTE RESOLUTION PANEL (DRP FOR SHORT) AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , MUMBAI (LD.CIT(A) FOR SH ORT). 2. SINCE THE ISSUES ARE COMMON AND CONNECTED AND THE APPEALS WERE HEARD TOGETHER, THESE HAVE BEEN CONSOLIDATED AND DISPOSED OF BY THIS COMMON ORDER. 2 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED ASSESSEES APPEAL: 3. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN A.Y. 2005 - 06 READS AS UNDER: GROUND FOR TRANSFER PRICING ADJUSTMENT OF RS. 50 , 98 , 815/ - A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ('CIT(A)') ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER / TRANSFER PRICING OFFICER BY ASCERTAINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF SOFTWARE RESEARCH AND DEVELOPMENT SERVICES RENDERED T O ASSOCIATED ENTERPRISES AT RS. 8,91,10,200/ - INSTEA D OF RS. 8,40,11,385 / - AS DETERMINED BY THE APPELLANT. B) HE FURTHER ERRED IN: FAILING TO APPRECIATE THAT IN THE APPELLANT'S CASE NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT WERE SATISFIED; DISREGARDING THE APPELLANT'S CONTEMPORANEO US TRANSFER PRICING (TP') DOCUMENTATION AND CONDUCTING HIS OWN COMPARABILITY ANALYSIS WHICH IS NOT IN ACCORDANCE WITH CONTEMPORANEOUS DOCUMENTATION REQUIREMENT UNDER INDIAN TP REGULATIONS; APPLYING FINANCIAL DATA OF ONLY THE CURRENT YEAR (FY 2004 - 05) OF TH E COMPARABLE COMPANIES TO BE USED FOR BENCHMARKING THE APPELLANT'S INTERNATIONAL TRANSACTIONS PERTAINING TO SOFTWARE RESEARCH AND DEVELOPMENT SERVICES; ACCEPTING COMPANIES / SEGMENTS WHICH WERE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT'S SOFTWARE RESEAR CH AND DEVELOPMENT SERVICE SEGMENT IN THE FINAL SET OF COMPARABLES AND DISREGARDING THE APPELLANT'S CONTENTIONS; AND NOT GRANTING A RISK ADJUSTMENT TO THE APPELLANT TO ACCOUNT FOR THE DIFFERENCES IN THE RISK PROFILE OF THE COMPARABLES VIS - A - VIS THE APPELLA NT. C) IT IS PRAYED THAT IT BE HELD THAT THE AFORESAID INTERNATIONAL TRANSACTION WAS AT ARM'S LENGTH AND AC CORDINGLY THE ADJUSTMENT OF RS. 50,98,815/ - BE DELETED. 4. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN A.Y. 2006 - 07 READS AS UNDER: 1. GROUND FOR TRANSFER PRICING ADJUSTMENT OF RS. 1.14.16.621/ - ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN CONCLUDING THE ASSESSMENT BY UPHOLDING THE ACTION OF THE TRANSFER PRICING OFFICER (TPO') IN DETERMINING THE ARM'S LENGTH PRICE O F THE INTERNATIONAL TRANSACTION OF SOFTWARE RESEARCH AND DEVELOPMENT SERVICES RENDERED TO ASSOCIATED ENTERPRISES AT RS. 19,21,15,806 INSTEAD OF RS. 18,06,99,185 AS DETERMINED BY THE APPELLANT BY: A. FAILING TO APPRECIATE THAT IN THE APPELLANT'S CASE NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT WERE SATISFIED; B. DISREGARDING THE APPELLANT'S CONTEMPORANEOUS TRANSFER PRICING (TP 1 ) DOCUMENTATION AND CONDUCTING HIS OWN COMPARABILITY ANALYSIS (AND IN THIS REGARD, OBTAINING FINANCIAL DATA O F CERTAIN COMPANIES USING POWERS UNDER SECTION 133(6) OF THE ACT) WHICH IS NOT IN ACCORDANCE WITH CONTEMPORANEOUS DOCUMENTATION REQUIREMENT UNDER INDIAN TP 3 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED REGULATIONS; C. APPLYING FINANCIAL DATA OF ONLY THE CURRENT YEAR (FY 2005 - 06) OF THE COMPARABLE C OMPANIES TO BE USED FOR BENCHMARKING THE APPELLANT'S INTERNATIONAL TRANSACTIONS PERTAINING TO SOFTWARE RESEARCH AND DEVELOPMENT SERVICES; D. NOT GRANTING A RISK ADJUSTMENT TO THE APPELLANT TO ACCOUNT FOR THE DIFFERENCES IN THE RISK PROFILE OF THE COMPAR ABLES VIS - A - VIS THE APPELLANT; AND E. DENYING THE (+/ - ) 5% RANGE BENEFIT AVAILABLE UNDER PROVISO TO SECTION 92C(2) OF THE ACT. IT IS PRAYED THAT IT BE HELD THAT THE AFORESAID INTERNATIONAL TRANSACTION WAS AT ARM'S LENGTH AND ACCORDINGLY, THE AO BE DIREC TED TO DELETE THE ADJUSTMENT OF RS. 1,14,16,621. 2. GROUND FOR DISALLOWANCE OF EXPENSE OF RS. 45.94.573/ - ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN DISALLOWING A SUM OF RS.45,94,573 BASED ON THE INFORMATION GATHERED UNDER SECTION 133(6) OF THE ACT. IT IS PRAYED THAT THE AFORESAID DISALLOWANCE OF RS.45,94,573 BE DELETED. 3. GROUND FOR ADVANCE TAX/ CREDIT OF TDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN NOT GRANTING THE CREDIT FOR THE TAX DEDUCTED AT SOURCE AND THE ADVANCE TAX PAID BY THE APPELLANT DESPITE THE FACT THAT THE ORIGINALS THEREOF WERE FILED WITH THE RETURN OF INCOME. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO GRANT THE CREDIT FOR THE TAX DEDUCTED AT SOURCE AND ADVANCE TAX PAID BY THE APPELLA NT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234C OF THE ACT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DELETE INTEREST LEVIED UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT, 19 61. REVENUES APPEAL FOR A.Y. 2005 - 06 : 5. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) ERRED IN RESTRICTING THE ADJUSTMENT TO RS.97,88,825/ - AND ALLOWED RELIEF OF RS.5,77,578/ - TO THE APPELLANT AND ALSO ERRED IN WRONGLY ACCEPTING A FRESH GROUND OF COMPARABILITY NOT TAKEN EARLIER BEFORE TPO AND GIVEN RELIEF TO THE ASSESSEE, IN CLEAR CUT VIOLATION OF RULE 46A AND THUS UNLAWFUL. 2. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) ERRED THE DISALLOWANCE OF ADJUSTMENT FOR THE DIFFERENCE BETWEEN THE LEVEL OF RISK BORE BY THE COMPARABLE AND THE APPELLANT, IGNORING FACTS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING RELIEF OF RS. 46,90,010/ - BY APPLYING THE MARGINS OF +/ - 5% RANGE, AS THE TOLERANCE THRESHOLD OF +/ - 5% CANNOT BE INTERPRETED AS SOME SORT OF STANDARD DEDUCTION IN THE VIEW THAT EVEN THE TRAN SFER PRICING PROVISION DO NOT REFER TO IT AS STANDARD DEDUCTION. 4 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED 4. THE APPELLANT PRAYS THAT THE ORDER OF C1T (A) IN THE ABOVE GROUND THE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. BRIEF FACTS OF THE CASE FOR A.Y. 2005 - 06 ARE AS UNDER: THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF SYBASE INC. ('AE'). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PROVIDED SOFTWARE RESEARCH AND DEVELOPMENT SERVICES TO ITS AE. T HE ASSESSEE CHOSE 'TRANSACTIONAL NET MARGIN METHOD' ('TNMM') AS 'MOST AP PROPRIATE METHOD' ('MAM') TO BENCHMARK THE IMPUGNED INTERNATIONAL TRANSACTION AND SELECTED 'OPERATING PROFIT / OPERATING CAST' AS 'PROFIT LEVEL INDICATOR'. T HE ASSESSEE EARNED A MARGIN OF 12% ON TOTAL COST. T HE ASSESSEE CHOSE A SET OF 87 COMPARABLES AND AR RIVED AT AN ARITHMETIC MEAN OF 13.08%. SINCE, THE ASSESSEES MARGIN I.E. 12% WAS WITHIN THE RANGE OF +/ - 5% OF THE ARITHMETIC MEAN, IT WAS CONCLUDED THAT THE IMPUGNED INTERNATIONAL TRANSACTION WAS AT ARM'S LENGTH. 7. THE TPO REJECTED 1 9 COM PARABLES CHOSEN BY THE ASSESSEE AND INTRODUCED I N NEW COMPARABLES . THE FINAL SET OF TPO'S 19 COMPARABLE IS AS FOLLOWS: SR. NO. PARTICULARS OP/TC (%) 1 BODHTREE CONSULTING LTD 23 - 97 2 AKSHAY SOFTWARE TECH LTD. 7 - 77 3 LANCO GLOBAL SYSTEMS LTD 10.97 4 GEBBS I NFOTECHLTD. 14.84 5 VJIL CONSULTING LTD. (1.21) 6 SASKEN COMMUNICATION TECH. LTD 14.42 7 L&T INFOTECH LTD 11.67 8 VISUALSOFT TECHNOLOGIES LTD. 23 - 52 9 SASKEN NETWORKS LTD 16.69 10 EXENSYS SOFTWARE SOLUTIONS LTD 64.67 11 THIRDWARE SOLUTIONS LTD 66.14 5 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED 12 TATA ELXSI LTD 24 - 35 13 FOUR SOFT LTD. 26.72 14 FLEXTRONICS SOFTWARE SYSTEMS LTD 32.19 15 COMPULINK SYSTEMS LTD. 39.10 16 INFOSYS TECHNOLOGIES LTD 43.72 17 SANKHYA INFOTECH LTD. 21.74 18 SATYAM COMPUTER SERV ICES 29.68 19 GEOMETRIC SOFTWARE LTD 19.70 MEAN 25.82 ACCORDINGLY, THE TPO MADE AN UPWARD ADJUSTMENT OF RS. 1,03,66,403 / - . 8. THE LD. CIT(A) EXCLUDED FOUR COMPATIBLES NAMELY INFASYS TECHNOLOGIES LTD., SANKHYA IN FOTECH LTD., SATYAM COMPUTER SERV ICES LTD. AND GEOMETRIC SOFTWARE SOLUTION CO. LTD. THE CIT(A) ALSO GRANTED STANDARD DEDUCTION OF 5% IN VIEW OF THE PROVISO TO SECTION 9 2C(2) OF THE ACT. RESULTANTLY, THE ADJUSTMENT WAS REDUCED TO RS. 50,98,815 / - . 9. AGAINST THE ABOVE ORDER, THE ASSESSEE AND THE REVENUE ARE IN CROSS APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT OUT OF THE ABOVE COMPARABLES, THERE IS NO DISPUTE REGARDING TH E ITEM NOS. 1 TO 9 BY EITHER OF THE PARTIES. AS REGARDS THE ITEM NOS. 10 TO 15, THE SAME IS BEING DISPUTED BY THE ASSESSEE. AS REGARDS THE ITEM NOS. 16 TO 19 IS CONCERNED, THE SAME IS BEING CONTESTED BY THE REVENUE. THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE AS REGARDS TO THE ABOVE COMPARABLES WHICH ARE CONTESTED AS UNDER: 6 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED SR. NO. NAME OF COMPARABLE COMPANY APPELLANTS CONTENTION 1 BODHTREE CONSULTING LTD. NOT CONTESTED 2 AKSHAY SOFTWARE TECH LTD. NOT CONTESTED 3 LANCO GLOBAL SYSTEMS LTD. NOT CONTESTED 4 GEBBS INFOTECH LTD. NOT CONTESTED 5 VJIL CONSULTING LTD NOT CONTESTED 6 SASKEN COMMUNICATION TECH. L TD . NOT CONTESTED 7 L & T INFOTECH LTD. NOT CONTESTED 8 VISUALSOFT TECHNOLOGIES LTD. NOT CONTESTED 9 SASKEN NETWORKS LTD. NOT CONTESTED 10 EXE NSYS SOFTWARE SOLUTIONS LTD THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF AMALGAMATION AND FUNCTIONAL DISSIMILARITY: M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 34L/MUM/20I I) (MURNBAI TRIBUNAL) (A.Y. 2005 - 06); DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO.130 2/HYD/20 10 ) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD, (IT TP) NO. 29/BANG/20IA) (BANG) (AY 2005 - 06); CNO IT SERVICES (INDIA) (P.) LTD. VS. DCIT (ITA NO.1280 /HYD/20 10 ) (HYD) (AY 2005 - 06). 11 THIRDWARE SOLUTIONS LTD THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF FUNCTIONAL DISSIMILARITY: M/S, C.A. INDIA TECHNO LOGIES PVT. LTD. VS. ACIT (ITA N O. 34 1 /MUM/2 011 ) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO.1302 /HYD/2 010 ) (HYD.) (AY 2005 - 06); DCIT VS . TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/20 1 2) (BANG) (AY 2005 - 06); CNO IT SE RV ICES (INDIA) (P.) LTD. VS. DCIT (ITA NO. 1280 /HYD/20 10 ) (HYD) (AY 2005 - 06). 12 TATA ELXSI LTD THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF FUNCTIONAL DISSIMILARITY: DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA XO. I302/HYD/20 10 ) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/20 1 2) (BANG) (AY 2005 - 06). 7 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED 13 FOUR SOFT LTD. THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF FUNCTIONAL DISSIMILARITY : M/S. C.A. INDIA TECHNO LOGIES PVT. LTD. VS. ACIT (ITA N O. 34 1 /MUM/20 11 ) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); INTOTO SOFTWARE INDIA (P.) LTD. VS. ACIT (ITA NO. 1196 &11 97/HYD/20 10 AND 2 10 2/HYD/2OI2) (HYD.) (AY 2005 - 06 & 2007 - 08) (APPROVED BY AP HC) DE SH AW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA N O. 1 302/HYD/20 10 ) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD, (IT (TP) NO. 29/BANG/20 1 2) (BANG) (AY 2005 - 06); CNO IT SE RV ICES (INDIA) (P.) LTD. VS. DCIT (ITA NO.1280/ HYD/20 10 ) (HYD) (AY 2005 - 06). 14 FLEXTRONICS SOFTWARE SYSTEMS LTD THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SE RV ICE PROVIDER, ON ACCOUNT OF FUNCTIONAL DISSIMILARITY: M/S. C.A. INDIA TECHNOLOGIES PVT . LTD. VS. ACIT (ITA NO. 341/ MUM/20 11) (MUMBAI TRIBUNAL) (AY 2005 - 06 ); INTOTO SOFTWARE INDIA (P.) LTD V S. AC IT (ITA NO. 1196 & 119 7/HYD/2 010 AND 2102 HYD 2012) (HYD.) (ASSESSMENT YEAR 2005 - 06 & 2007 - 08) (APPROVED BY AP HC) DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO. 1302 / H YD/2010) (HY D.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/2012) (BANG) (A.Y. 20 05 - 06); CNO IT SERVICES (INDIA) (P.) LTD. VS. DCIT (ITA NO. 1280/HYD./2010) (HYD.) (AY 2005 - 06). 15 COMPULINK SYSTEMS LTD. THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF FUNCTIONAL DISSIMILARITY, IN THE CASE OF M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 34I/MUM/2OLI) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06). FURTHER, RELIANCE IS ALSO PLACED ON THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF INTOTO SOFTWARE INDIA (P.) LTD. VS. ACI T (ITA NO. 233 OF 2014) WHEREIN IT HAS BEEN HELD THAT IN THE ABSENCE OF AVAILABILITY OF SEGMENTAL DETAILS OF SOFTWARE DEVELOPMENT SERVICE AND SOFTWARE PRODUCT, A COMPANY CANNOT BE TAKEN AS COMPARABLE. 16 INFOSYS TECHNOLOGIES LTD. THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF FUNCTIONAL DISSIMILARITY: CIT VS. AGNITY INDIA TECHNOLOGIES P. LTD. (ITA NO. 1204 OF 2011) (DEL. HC); M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 34 1 /M UM/2OII) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); INTOTO SOFTWARE INDIA (P.) LTD. VS. ACIT (ITA NO. 1196 & H97/HYD/20 10 AND 210 2/HYD/2 012 ) (HYD.) (AY 2005 - 06 & 2007 - 08) (APPROVED BY AP HC) DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO. 1 302/HYD/20 IO) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/2OI2) (BANG) (AY 2005 - 06); CNO IT SERVICES (INDIA) (P.) LTD. VS. DCIT (ITA NO. 1280 /HYD/20IO) (HYD) (AY2005 - 06). 8 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED 17 SANKHYA INFOTECH LTD. THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF FUNCTIONAL DISSIMILARITY: M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 341/MUM/2011) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO. 1302/HYD/20IO) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 2G/BANG/2012) (BANG) (AY 2005 - 06); ACIT VS. SYMBOL TECHNOLOGIES INDIA (P.) LTD. (IT (TP) NO.2 96 & 391/BANG/2012)(A.Y.2005 - 06) 18 SATYAM COMPUTER SERVICES THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF UNRELIABLE FINANCIAL STATEMENTS: M/S.C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 34 1 /MUM/2 011 ) (MUMBAI TRIBUNAL)(A.Y. 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/2 01 2) (BANG) (AY 2005 - 06); ACIT VS. SYMBOL TECHNOLOGIES INDIA (P.) LTD. (IT (TP) NO. 296 &39 1 /BANG/2 012 ) (A.Y. 2005 - 06). 19 GEOMETRIC SOFTWARE LTD. THIS COMPANY HAVE BEEN HELD TO BE INCOMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, ON ACCOUNT OF FUNCTIONAL DISSIMILARITY: M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 341/MUM/2OII) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); SAP LABS INDIA (P.) LTD. VS. ACIT (2011) (44 SOT 156); FURTHER, RELIANCE IS ALSO PLACED ON THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF INTOTO SOFTWARE INDIA (P.) LTD. VS. ACIT (ITA NO.233 OF 2014) WHEREIN IT BAS BEEN HELD THAT IN THE ABSENCE OF AVAILABILITY OF SEGMENTAL DETAILS OF SOFTWARE DEVELOPMENT SERVICE AND SOFTWARE PRODUCT, A COMPANY CANNOT BE TAKEN AS COMPARAB LE. ARITHMETIC MEAN MARGIN OF COMPARABLES APPELLANTS MARGIN APPELLANTS MARGIN FITS INTO THE +/ - 5% RANGE AS PROVIDED UNDER SECTION 92C(2) OF THE ACT. HENCE, TRANSACTIONS ARE ARMS LENGTH. 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (LD. DR FOR SHORT) RELIED UPON THE ORDERS OF THE TPO. 10. WE DEAL WITH THE DISPUTED COMPARABLES AS UNDER: I. EXENSYS SOFTWARE SOLUTIONS LTD. (ESSL): THIS COMPARABLE HAS BEEN THE SUBJECT MATTER OF AMALGAMATION WITH HOLOOL INDIA LTD. WITH RETROSPECTIVE EFFECT. THE DIRECTORS IN THE PERFORMANCE R EVIEW HAD CLAIMED HIGHER INCOME FOR THE YEAR WAS POSSIBLE BECAUSE OF THE AMALGAMATION. FURTHERMORE, ESSL ACQUIRED BRAND VALUE (INTANGIBLE) OF 9 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED RS.5 CRORES DURING THE YEAR UNDER CONSIDERATION. THE COMPANY HAS ALSO BEEN FOUND TO BE FUNCTIONALLY DIFFERENT INASMUCH AS IT IS DEVELOPING AND SEL LING SOFTWARE PRODUCTS ALSO. IN THE FOLLOWING CASE LAWS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE, ESSL HAD BEEN EXCLUDED FROM THE LIST OF THE COMPARABLES : M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 34L/MUM/20II) (MURNBAI TRIBUNAL) (A.Y. 2005 - 06); DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO.1302/HYD/20 10 ) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD, (IT TP) NO. 29/BANG/20IA) (BANG) (AY 2005 - 06); HENCE, WE ARE OF THE OPINI ON THAT ESSL DESERVES TO BE EXCLUDED FROM THE LIST OF THE COMPARABLES ON ACCOUNT OF EX - PARTNER EVENT OF THE AMALGAMATION AND FUNCTIONALLY DISSIMILARITY. II. THIRDWARE SOLUTION LTD.: THIS COMPARABLE HAS BEEN HELD BY TRIBUNAL TO BE FUNCTIONALLY DIFFERENT FROM A SOFTWARE DEVELOPMENT SERVICE PROVIDER IN THE CASES AS UNDER: M/S, C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 341/MUM/2011) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO.1302/HYD/2010) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/2012) (BANG) (AY 2005 - 06); CNO IT SERVICES (INDIA) (P.) LTD. VS. DCIT (ITA NO. 1280/HYD/2010) (HYD) (AY 2005 - 06). IN THE C ASE LAWS REFERRED BY THE LD. COUNSEL OF THE ASSESSEE IT HAS BEEN FOUND THAT UNDER SALES THE COMPANY HAS REPORTED EXPORT AT RS.14.74 CRORES. NO FURTHER DETAILS ABOUT THIS IS AVAILABLE. IN THE NOTES TO THE ACCOUNTS IT HAS BEEN MENTIONED THAT THE COMPANY IS E NGAGED INTO TRADING AND DEVELOPMENT OF SOFTWARE. THE PRODUCTION OF THE SALE OF DEVELOPED AND TRADED SOFTWARE CANNOT BE EXPRESSED IN GENERIC TERMS. SALES INCLUDES SALE OF LICENSING AMOUNTING TO RS.2.72 CRORES (WHICH IS IN THE NATURE OF TRADE) AND REVENUE FR OM SOFTWARE OF RS.3.59 CRORES WHICH WORKS AT RS.29. 61% OF THE TOTAL SALES. NO SEGMENTAL IN THE FINANCIALS ARE AVAILABLE. ACCORDINGLY, WE HOLD THAT THIS IS NOT A VALID COMPARABLE. 10 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED III. TATA ELXSI LTD. (SOFTWARE DEVELOPMENT SEGMENT) : THIS COMPANY HAS BEEN EXCL UDED IN FOLLOWING SEVERAL ITAT DECISIONS AS IT IS FOUND TO BE FUNCTIONALLY DIFFERENT FROM A SOFTWARE DEVELOPMENT SERVICE PROVIDER : DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA XO. 1 302/HYD/2010) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/2012) (BANG) (AY 2005 - 06). ON ACCOUNT OF FOLLOWING DIFFERENTIATING FUNCTIONS: FUNCT IONALLY DIFFERENT THE COMPANY'S SOFTWARE DEVELOPMENT AND SERVICES DIVISION CONSTITUTES OF PRODUCT DESIGN SERVICES (DESIGN & DEVELOPMENT OF HARDWARE AND SOFTWARE), DESIGN ENGINEERING SERVICES (MECHANICAL DESIGN WITH A FOCUS ON INDUSTRIAL DESIGN) AND THE VISUAL COMPUTING LABS DI VISION (ANIMATION AND SPECIAL EFFECTS). PRODUCT DESIGN SERVICES: THE COMPANY OFFERS A WIDE VARIETY OF SPECIALIZED TECHNOLOGIES RANGING FROM AUTOMOTIVE SYSTEMS, VLSI DESIGN, EM B EDDED SYSTEMS, NETWORKING, DIGITAL SIGNAL PROCESSING, SYSTEMS. MULTIMEDIA AND STORAGE DESIGN ENGINEERING SERVICES: THE COMPANY OFFERS AUTOMOTIVE STYLING, AESTHETIC AND ENGINEERING DESIGN OF CONSUMER PRODUCTS, PACKAGING DESIGN OF FMCG GOODS ETC. VISUAL COMPUTING LABS: THE COMPANY OFFERS SERVICES IN THE AREAS OF 3D ' ANIMATION, DIGITAL SPECIAL EFFECTS FOR LIVE - ACTION FILMS AND GAMES DEVELOPMENT SERVICES FOR THE TELEVISION, FILM AND MOBILE PHONE MARKETS IN THE DOMESTIC AND INTERNATIONAL MARKETS. DUE TO THE ABOVE REASONS, THE ITATS DECISIONS REFERRED BY THE LD. COUN SEL OF THE ASSESSEE HAS FOUND THIS TO BE INCOMPARABLE. ACCORDINGLY, WE DIRECT EXCLUSION OF THIS COMPARABLE. IV. FOURSOFT LTD.: THIS COMPARABLE HAS BEEN EXCLUDED BY FOLLOWING SEVERAL ITAT DECISIONS AS IT IS FOUND TO BE FUNCTIONALLY DIFFERENT FROM A SOFTWARE DEVELOPMENT SERVICE PROVIDER : M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 341/MUM/2011) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); INTOTO SOFTWARE INDIA (P.) LTD. VS. ACIT (ITA NO. 1196 &1197/HYD/2010 AND 2102/HYD/2OI2) (HYD.) (AY 2005 - 06 & 2 007 - 08) (APPROVED BY AP HC) 11 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO.1302/HYD/2010) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD, (IT (TP) NO. 29/BANG/201 2) (BANG) (AY 2005 - 06); CNO IT SERVICES (INDIA) (P.) LTD. VS. DCIT (ITA NO.1280/HYD/2010) (HYD) (AY 2005 - 06). FOLLOWING DISTINGUISHING FEATURES ARE OBSERVED: DIRECTORS REPORT - IT HAS BEEN STATED THAT THE 'FOUR - SOFT IS A TECHNOLOGY COMPANY THAT DEVELOPS INNOVATIVE SOFTWARE PRODUCTS, AND PROVIDE IT CONSULTANCY SERVICES TO THE LOGISTICS AND SUPPLY CHAIN MANAGEMENT MARKETPLACE USING ADVANCED WEB TECHNOLOGIES THAT WERE EARLIER NOT POSSIBLE WITH CONVENTION AL TECHNOLOGY OF LEGACY AND CLIENT - SERVER SYSTEMS. ' THE COMPANY OWNS PRODUCTS - 48 ETRANS AND 4 S ELOG, FOR WHICH UPGRADES HAVE ALSO BEEN RELEASED DURING THIS YEAR. MANAGEMENT DISCUSSION ANALYSIS - THE COMPANY HAS DEVELOPED PRODUCTS BEING WORLD'S FIRST WEB - CENTRIC ENTERPRISE APPLICATION FOR TRANSPORTATION, LOGISTICS AND SUPPLY CHAIN PROCESS MANAGEMENT. THE COMPANY IS THE ONLY PLAYER WHICH PROVIDE THE WCB - CCNTRIC ENTERPRISE APPLICATIONS IN THIS DOMAIN. THE COMPANY'S REVENUES ARC PRINCIPALLY FROM LICENSE SALES OF PRODUCTS. SALES INCLUDE SALE OF LICENSE AMOUNTING TO RS. 2.57 CR. (16.14%), NO SEGMENTAL PROVIDED IN THE FINANCIALS. IN THE BACKGROUND OF THE AFORESAID PRECEDENT AND DISCUSSION, WE DIRECT THE EXCLUSION OF THIS COMPARABLE. V. FLEXTRONIES LTD. (PRODUCT AND SERVICE SEGMENT) - TPO'S COMPARABLE : THIS COMPARABLE HAS BEEN HELD TO BE INCOMPARABLE TO SOFTWARE DEVELOPMENT SERVICE PRO VIDER IN SEVERAL ITAT DECISIONS AS REFERRED BY THE LD. COUNSEL OF THE ASSESSEE AS ABOVE , THE SAME READS AS UNDER: M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 341/MUM/2011) (MUMBAI TRIBUNAL) (AY 2005 - 06); INTOTO SOFTWARE INDIA (P.) LTD VS. ACIT (ITA NO. 1196 & 1197/HYD/2010 AND 2102 HYD 2012) (HYD.) (ASSESSMENT YEAR 2005 - 06 & 2007 - 08) (APPROVED BY AP HC) DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO. 1302/HYD/2010) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOG Y CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/2012) (BANG) (A.Y. 2005 - 06); 12 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED CNO IT SERVICES (INDIA) (P.) LTD. VS. DCIT (ITA NO. 1280/HYD./2010) (HYD.) (AY 2005 - 06). [ THE DISTINGUISHING FEATURES OBSERVED ARE AS UNDER: DIRECTORS REPORT: THE COMPANY IS AN END - TO - END PROVIDER OF COMMUNICATION PRODUCTS, SE RV ICES AND SOLUTIONS TO NETWORK EQUIPMENT PROVIDERS. THE COMPANY HAS HYBRID BUSINESS MODEL OF SUPPLYING PRODUCTS AND SE RVIC ES TO ITS CUSTOMER. PRODUCTS: THE COMPANY INTRODUCED CERTAIN PRODUCTS DURING THE YE AR NAMELY, OSA APPLICATION SERVER, IMS CLIENT FRAMEWO RK, IP PHONE TOOLKIT, NEXGEN SS7 PLATFORM, GSNLITE SOLUTION. EXPENDITURE ON R&D - 26.30 CR (5.5% OF THE TURNOVER) SALES INCLUDE PRODUCT SALE AMOUNTING TO RS. 70.83 CR. WHICH AMOUNTS TO 15% OF TOTAL SALES AND REVENUE FROM BPO SE RVIC ES WHICH AMOUNTS TO 4% OF TOTAL SALES. FURTHER, IN THE 'SEGMENT REPORTING', THE COMPANY HAS REPORTED 'PRODUCT & SERVICES' AS ONE SEGMENT WITHOUT BIFURCATING SEGMENT RE SULTS OF PRODUCTS AND SERVICES. IN THE BACKGROUND OF THE ABOVE, WE DIRECT EXCLUSION OF THE ABOVE COMPARABLE FROM THE LIST OF THE COMPARABLES. VI. COMPULINK SYSTEMS LTD.: THIS COMPANY HAS BEEN HELD TO BE INCOMPARABLE TO SOFTWARE DEVELOPMENT SERVICE PROVIDER ON ACCOUNT OF FUNCTIONALLY DISSIMILARITY IN THE CASE OF M/S. C. A. INDIA TECHNOLOGIES PVT. LTD. (SUPRA). FURTHERMORE, THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE O F CIT VS. INTO SOFTWARE INDIA PRIVATE LTD. (ITA NO.233/2014) HAS HELD THAT IN THE ABSENCE OF AVAILABILITY OF SEGMENTAL DETAILS OF SOFTWARE DEVELOPMENT SERVICE PROVIDER, THE COMPANY CANNOT BE TAKEN AS COMPARABLE. THE DISTINGUISHING FEATURES OBSERVED IN THIS REGARD ARE AS UNDER: INCOME FROM OPERATION - THE COMPANY HAS SHOWN REVENUE FROM SERVICES AND PRODUCTS. NO SEGMENTALS ARE PROVIDED IN THE FINANCIALS. THIS COMPANY IS ENGAGED INTO PROVIDING SOFTWARE DEVELOPMENT SERVICES, PROJECT MANAGEMENT TRAINING, AND C ONSULTANCY SE RV ICES. FURTHER, THE REVENUE OF THE COMPANY IS ALSO FROM SOFTWA RE LICENSE. NO SEGMENTALS ARE PROV IDED IN THE FINANCIALS. ACCORDINGLY, WE DIRECT THAT THIS COMPARABLE SHOULD BE EXCLUDED. 13 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED VII. INFOSYS TECHNOLOGIES LTD. : THIS COMPARABLE HAS BEEN HELD TO BE INCOMPARABLE OF THE SOFTWARE DEVELOPMENT SERVICE PROVIDER ON ACCOUNT OF FUNCTIONALLY DISSIMILARITY IN SEVERAL ITAT DECISIONS CITED BY THE LD. COUNSEL OF THE ASSESSEE. THE DECISIONS READS AS UNDER: CIT VS. AGNITY INDIA TECHNOLOGIES P. LTD. (ITA NO. 1204 OF 2011) (DEL. HC); M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 341/MUM/2OII) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); INTOTO SOFTWARE INDIA (P.) LTD. VS. ACIT (ITA NO. 1196 & H97/HYD/2010 AND 2102/ HYD/2012) (HYD.) (AY 2005 - 06 & 2007 - 08) (APPROVED BY AP HC) DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO. 1302/HYD/20IO) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/2OI2) (BANG) (AY 2005 - 06 ); CNO IT SERVICES (INDIA) (P.) LTD. VS. DCIT (ITA NO.1280 /HYD/20IO) (HYD) (AY2005 - 06). THE KEY DIFFERENCE BETWEEN THIS COMPARABLE AND ASSESSEE ARE SUBMITTED AS UNDER: PARTICULAR INFOSYS TECHNOLOGIES LTD. APPELLANT RISK PROFILE OPERATE AS FULL - FLEDGED RISK TAKING ENTREPRENEURS UNDER THIS SEGMENT , THE COMPANY OPERATE AT MINIMAL RISKS AS THE 100% SERVICES ARE PROVIDED TO AES. REVENUE 6859.66 CRS (PAGE 189 OF THE PB) 8.40 CRS EXPENDITURE ON ADVERTISING/ SALES PROMOTION, BRAND BUILDING, 35 - 67 CRS (PAGE 191 OF THE PB) - OTHERS MARKET LEADER & ELEMENT OF BRAND VALUE ASSOCIATED WITH THEM DOES NOT OWN ANY BRAND 14 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED THE COMPANY OWNS PRODUCTS AND LEVERAGES ON ITS PREMIUM BANKING SOLUTION - 'FINACLE'. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) EXCLUDING THIS COMPARABLE. VIII. SANKHYA INFOTECH LTD.: THIS COMPANY HAS BEEN HELD TO BE INCOMPARABLE OF THE SOFTWARE DEVELOPMENT SERVICE PROVIDER ON ACCOUNT OF FUNCTIONALLY DISSIMILARITY IN SEVERAL ITAT DECISIONS CITED BY THE LD. COUNSEL OF THE ASSESSEE AS ABOVE. THE SAID DECISIONS READS AS UNDER: M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 341/MUM/2011) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); DE SHAW INDIA SOFTWARE (P.) LTD. VS. ACIT (ITA NO. 1302/HYD/20IO) (HYD.) (AY 2005 - 06); DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 2G/BANG/2012) (BANG) (AY 2005 - 06); ACIT VS. SYMBOL TECHNOLOGIES INDIA (P.) LTD. (IT (TP) NO.296 & 391/BANG/2012)(A.Y.2005 - 06) THE DISTINGUISHING FEATURES OBSERVED IN THIS REGARD ARE AS UNDER: DIRECTOR'S REPORT: THE COMPANY ALSO DE VELOPS SOFTWARE PRODUCTS. THEY HAVE .STATED THAT THEY HAVE APPOINTED HIGH PROFILE SPECIALIST TO DEVELOP PRODUCTS. NO SEGMENTAL DETAILS ARE AVAILABLE IN FINANCIALS WITH RESPECT TO SOFTWARE DEVELOPMENT SE RV ICES. OWNS INTANGIBLES (SOFTWARE PRODUCTS NAMELY SILICON LMS AND SILICON ATHENA AMOUNTING TO RS. 6.79 CR. - 86% OF TOTAL FIXED ASSETS. NOTES TO ACCOUNTS - ACTIVITIES: THE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE PRODUCTS & SERVICES AND TRAINING. ACCORDINGLY, WE UPHOLD THE LD. CIT( A)S ORDER EXCLUDING THIS COMPARABLE. IX. SATYAM COMPUTERS LTD. : THIS COMPANY HAS BEEN HELD TO BE INCOMPARABLE OF THE SOFTWARE DEVELOPMENT SERVICE PROVIDER ON ACCOUNT OF UNRELIABLE FINANCIAL STATE MENT AND FRAUDULENT ACTIVITY IN SEVERAL ITAT DECISIONS AS REFERRED BY THE LD. COUNSEL OF THE ASSESSEE. THE SAME READS AS UNDER: M/S.C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO.341/MUM/2011) (MUMBAI TRIBUNAL)(A.Y. 2005 - 06); 15 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED DCIT VS. TEXTRON GLOBAL TECHNOLOGY CENTRE (P.) LTD. (IT (TP) NO. 29/BANG/2012) (BANG) (AY 2005 - 06); ACIT VS. SYMBOL TECHNOLOGIES INDIA (P.) LTD. (IT (TP) NO. 296 &391/BANG/2012) (A.Y. 2005 - 06). ACCORDINGLY, WE UPHOLD THE EXCLUSION OF THIS COMPARABLE. X. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD.: THIS COMPANY HAS BEEN HELD TO BE INCOMPARABLE OF THE SOFTWARE DEVELOPMENT SERVICE PROVIDER ON ACCOUNT OF FUNCTIONALLY DISSIMILARITY IN SEVERAL ITAT DECISIONS CITED BY THE LD. COUNSEL OF THE ASSESSEE AS ABOVE. THE SAM E READS AS UNDER: M/S. C.A. INDIA TECHNOLOGIES PVT. LTD. VS. ACIT (ITA NO. 341/MUM/2OII) (MUMBAI TRIBUNAL) (A.Y. 2005 - 06); SAP LABS INDIA (P.) LTD. VS. ACIT (2011) (44 SOT 156); FURTHER, RELIANCE IS ALSO PLACED ON THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF INTOTO SOFTWARE INDIA (P.) LTD. VS. ACIT (ITA NO.233 OF 2014) FURTHERMORE, THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. INTO SOFTWARE INDIA PRIVATE LTD. (SUPRA) HAS HELD THAT IN THE ABSENCE OF AVAILABILIT Y OF SEGMENTAL DETAILS OF SOFTWARE DEVELOPMENT SERVICE PROVIDER AND SERVICE PRODUCT, THE COMPANY CANNOT BE TAKEN AS COMPARABLE. 11. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE DIRECT THE A.O. TO RECOMPUTE THE MARGIN AS PER OUR ABOVE DISCUSSION AND DECIDE AS PER LAW . 12. HENCE, WE PARTLY ALLOW THE ASSESSEES APPEAL AND THE REVENUES APPEAL STANDS DISMISSED FOR A.Y. 2005 - 06. 13. BRIEF FACTS OF THE CASE FOR A.Y. 2006 - 07 ARE AS UNDER: THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF SYBA SE INC. ('AE'). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PROVIDED SOFTWARE RESEARCH AND DEVELOPMENT SERVICES TO ITS AE. THE ASSESSEE CHOSE 'TRANSACTIONAL NET MARGIN METHOD' ('TNMM') AS 'MOST APPROPRIATE METHOD' ('MAM') TO BENCHMARK THE IMPUGNE D INTERNATIONAL 16 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED TRANSACTION A ND SELECTED 'OPERATING PROFIT/ OPERATING COST' AS 'PROFIT LEVEL INDICATOR'. THE ASSESSEE EARNED A MARGIN OF 12.46% ON TOTAL COST. THE ASSESSEE CHOSE A SET OF 44 COMPARABLES AND ARRIVED AT AN ARITHMETIC MEAN OF 10.87%. SINCE, THE ASSESSEES MARGIN I.E. 12.46% WAS WITHIN THE RANGE OF +/=5% O F THE ARITHMETIC MEAN, IT WAS CONCLUDED THAT THE IMPUGNED INTERNATIONAL TRANSACTION WAS AT ARM'S LENGTH. 14. THE TPO REJECTED 42 COMPARABLES CHOSEN BY THE ASSESSEE AND INTRODUCED 12 NEW COMPARA BLES. THE FINAL SET OF TPO'S 14 COMPARABLE IS AS FOLLOWS: SR. NO. PARTICULARS OP/TC (%) 1 MINDTREE LTD. 11.07 2 PERSISTENT SYSTEMS PVT. LTD. 21.30 3 LUCID SOFTWARE LTD. 3 - 01 4 MEDIASOFT SOLUTIONS PVT. LTD. 1. 73 5 BODHTREE CONSULTING LTD. 11 . 65 6 AZTCCHSOFT LTD. 16.27 7 SASKEN COMMUNICATION TECHNOLOGIES LTD. 13.90 8 R S SOFTWARE (INDIA) LTD. 12.73 9 GEOMETRIC LTD. (EARLIER KNOWN AS GEOMETRIC SOFTWARE SOLUTIONS CO. LTD.) 6.70 10 ACCEL TRANSMATIC LTD. 44.07 11 KALS INFORMATION SYSTEMS LTD. 39 . 75 12 TATA ELXSI LTD. 27.65 13 FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) 27.24 14 INFOSYS TECHNOLOGIES LTD. 36 . 72 MEAN 19.56 ACCORDINGLY, THE TPO MADE AN UPWARD ADJUSTMENT OF RS. 1,14,16, 62 1 / - . 15. THE DRP CONFIRMED THE TPO'S ACTION IN TOTO. 17 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED 16. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 1 7 . THE LD. COUNSEL OF THE ASSESSEE PRAYED FOR EXCLUSION OF FOLLOWING COMPARABLES: SR. NO. PARTICULARS REMARKS 1. INFOSYS TECHNOLOGIES LTD. CONTENTIONS SIMILAR TO AY 2005 - 06 2. TATA ELXSI LTD. (SOFTWARE DEVELOPMENT SEGMENT) CONTENTIONS SIMILAR TO AY 2005 - 06 3 . FLEXTRONICS LTD. (PRODUCT AND SERVICE SEGMENT) CONTENTIONS SIMILAR TO AY 2005 - 06 4 . GEOMETRIC LTD. CONTENTIONS SIMILAR TO AY 2005 - 06 5 . KALS INFORMATION SYSTEMS LTD. (APPLICATION SOFTWARE) NEW COMPARABLE. THE COMPANY IS ENGAGED IN PROVIDIN G & SOFTWARE SERVICES AND SOFTWARE PRODUCTS AND SINCE, THE SEGMENTALS ARE NOT AVAILABLE, THE SAME CANNOT BE TAKEN AS COMPARABLE. 6. ACCEL TRANSMATIC LTD NEW COMPARABLE. THE COMPANY IS ENGAGED IN PROVIDING SOFTWARE SERVICES AND SOFTWARE PRODUCTS AND SINCE, THE SEGMENTALS ARE NOT AVAILABLE, THE SAME CANNOT BE TAKEN AS COMPARABLE. 1 8 . FURTHER SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE WITH REGARD TO THE ABOVE COMPARABLES ARE AS UNDER: KALS INFORMATION SYSTEMS LT D . 39.75% THE COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS SINCE ITS INCEPTION. THE COMPANY CONSISTING OF STPI UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND A TRAINING CENTRE ENGAGED IN TRAINING OF SOFTWARE PROFESSIONALS ON ONLINE PROJECTS. THE COMPANY DERIVES ITS REVENUE PRIMARILY FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS. THE APPELLANT PLACES RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PTC SOFTWARE (I) PVT LTD WHEREIN THE BOMBAY HIGH COURT HAS EXCLUDED KALS INFORMATION SYSTEMS LTD. BY APPROVING THE PROPOSITION THAT THE PRODUCT CO MPANY CANNOT BE COMPARED WITH THE COMPANY INVOLVED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES. FURTHER, THE APPELLANT PLACES RELIANCE ON THE DECISION WHEREIN THIS COMPARABLE HAS BEEN EXCLUDED BY THE HON'BLE TRIBUNAL AS IT IS FOUND TO BE 18 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED FUNCTIONALLY DIFFER ENT. THE RELEVANT EXTRACTS OF THE ORDER OF THE TRIBUNAL IS REPRODUCED AS UNDER: 1. GOLDMAN SACHS SERVICES (P) LTD. VS. DCIT (ITA NO. 1423/BANG/2010) (A.Y. 2006 - 07) 2. HEWLETT PACKARD INDIA SOFTWARE OPERATION (P) LTD. VS. ACIT (ITA NO. 1456/BANG/2010) ( A.Y. 2006 - 06) ACCEL TRANSMATIE LTD - 44.07% THIS COMPANY IS ENGAGED IN DEVELOPING OF SOFTWARE PRODUCTS. IN MANAGEMENT DISCUSSION, IT HAS BEEN STATED THAT THE FOCUS OF THE DIVISION CONTINUES TO BE ON PRODUCT AND SOLUTION INTERFACING FOR UTILITIES, BANKING FINANCIALS, E - GOVERNANCE. SERVICES PROVIDED BY THE COMPANY IS FUNCT IONALLY DIFFERENT TO THE APPELLANT: I. TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFACTURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, TICKET VENDING SYSTEM II. USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENTRE FOR EMBEDDED SOFTWARE, NET WORK SYST EM, IMAGING TECHNOLOGIES, OUTSOURCED PRODUCT DEVELOPMENT III. ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS) - TRAINING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYSTEM MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO IV. ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEVELOPMENT. THE APPELLANT PLACES RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PTC SOFTWARE (I) PVT LTD WHEREIN THE BOMBAY HIGH COURT HAS APPROVED THAT THE PRODUCT COMPANY CANNOT BE COMPARED WITH THE COMPANY INVOLVED IN PROVIDING SOFTWARE DEVELOPMENT SENDEES. FURTHER, THE APPELLANT PLACES RELIANCE ON THE DECISION WHEREIN THIS COMPARABLE HAS BEEN EXCLUDED BY THE HON'BLE TRIBUNAL AS IT IS FOUND TO BE F UNCTIONALLY DIFFERENT. THE RELEVANT EXTRACTS OF THE ORDER OF THE TRIBUNAL IS REPRODUCED AS UNDER: 1. GOLDMAN SACHS SERVICES (P) LTD. VS. DCIT (ITA NO. 1423/BANG/ 2010 ) (AY 2006 - 07) 2. HEWLETT PACKARD INDIA SOFTWARE OPERATION (P) LTD. VS. ACIT (ITA NO. 14 56/BANG/2010) (A.Y. 2006 - 06) 1 9 . UPON HEARING BOTH THE COUNSEL AND PERUSING THE RECORDS. WE FIND THAT AS REGARDS THE ASSESSEES REQUEST FOR EXCLUSION OF ITEMS MENTIONED IN SR. NOS. 1 TO 4, WE HAVE ALREADY DIRECTED FOR EXCLUSION OF THE SAME IN THE YEAR FOR A.Y. 2005 - 06 AS MENTIONED ABOVE. AS REGARDS THE OTHER TWO COMPARABLES, I.E., KALS INFORMATION SYSTEMS LTD. AND 19 SYBASE SOFTWARE (INDIA) PRIVATE LIMITED ACCEL TRANSMATIC LTD. , TH E LD. COUNSEL OF THE ASSESSEE HAS CITED SEVERAL CASE LAWS IN WHICH THEY WERE HELD TO BE NOT COMPARABLE A S THEY WERE ENGAGED IN SOFTWARE SERVICES AND SOFTWARE PRODUCT AND THE SEGMENTAL DETAILS WERE NOT AVAILABLE. 20. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE DIRECT FOR EXCLUSION OF THE ABOVE FROM THE LIST OF THE COMPARABLE S. THE A.O. IS DIRECTED TO MAKE THE COMPUTATION OF THE MARGINS AFRESH KEEPING IN MIND OUR DIRECTIONS HEREIN ABOVE AND DECIDE AS PER LAW. 21. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AS ABOVE FOR A.Y. 200 6 - 0 7 . ORDER PRONOUNCED IN THE OPEN COURT ON 2 0 . 1 2 . 2 0 1 8 S D / - S D / - ( PAWAN SINGH ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 2 0 . 1 2 . 2 0 1 8 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI