Nokia Siemens Networks India Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 5837/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8018 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 03-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT MOHAN GOVIL
• Keywords: Related party transaction; Transfer pricing; International transaction; Bad and doubtful debts
• Section: 92C; 143(3); 244A; 92F; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5837 /DEL./2011 (ASSESSMENT YEAR : 2007-08) NOKIA SIEMENS NETWORKS INDIA PVT. LTD., VS. ACIT, C IRCLE 13 (1), 7 TH FLOOR, BUILDING NO.9A, NEW DELHI. DLF CYBER CITY, SECTOR 25A, GURGAON 122 002 (HARYANA). (PAN : AABCS9839H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA, ADVOCATE AND MS. MANASVINI BAJPAI, ADVOCATE REVENUE BY : SHRI AMIT MOHAN GOVIL, CIT DR DATE OF HEARING : 03.05.2016 DATE OF ORDER : 18.05.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, NOKIA SIEMENS NETWORKS INDIA PVT. LTD. (FORMERLY SIEMENS PUBLIC COMMUNICATION NETWORKS PVT . LTD.), (HEREINAFTER REFERRED TO AS THE ASSESSEE), BY FIL ING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.10.2011 PASSED BY THE AO/DRP/TPO QUA THE ASSESSMENT YEAR 20 07-08 ON THE GROUNDS INTER ALIA THAT :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER OF ASSESSMENT FRAMED BY THE LEAR NED ASSISTANT ITA NO.5837/DEL./2011 2 COMMISSIONER OF INCOME-TAX, CIRCLE 13(1), NEW DELHI (HEREINAFTER REFERRED TO AS 'THE LEARNED AO') PURSUANT TO THE DI RECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL - II (HEREINAFTER REFERRED TO AS 'THE HON'BLE DRP') UNDER SECTION 143(3) READ WITH S ECTION 144C OF THE INCOME-TAX ACT, 1961 (,ACT'), IS A VITIATED ORD ER HAVING BEEN PASSED IN VIOLATION OF PRINCIPLES OF NATURAL JUSTIC E AND IS OTHERWISE ARBITRARY AND IS THUS BAD IN LAW AND IS VOID AB-INI TIO. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO / DRP HAS ERRED IN MAKING AN ADDITIO N OF RS. 171,224,237 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE OF THE INTERNA TIONAL TRANSACTION ENTERED BY THE APPELLANT WITH ITS ASSOCIATED ENTERP RISES. 3. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED TRANSFER PRICING OFFICER (TPO') / AO IGNORED THE FACT THAT THE APPELLANT IS ENTITLED TO A TAX HOLIDA Y UNDER SECTION 10A OF THE ACT ON ITS PROFITS EARNED FROM THE PROVISION OF SOFTWARE SERVICES TO ASSOCIATED ENTERPRISES AND THEREFORE DO ES NOT HAVE AN ULTERIOR MOTIVE OF SHIFTING PROFITS OUTSIDE INDIA. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / AO HAS ERRED IN REJECTING THE COM PARABLES SELECTED BY THE APPELLANT AND IN CONDUCTING A FRESH SEARCH AND SELECTING A NEW SET OF COM PARABLES FOR THE DETERMI NATION OF THE ALP OF THE SOFTWARE SERVICES TRANSACTION. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / AO HAS ERRED IN (A) (A) REJECTING THE DATA USED BY THE APPELLANT WHICH WAS AVAILABLE TO IT AT THE RELEVANT TIME AND PROCEEDING TO USE TH E DATA WHICH WAS AVAILABLE ONLY AT THE TIME OF TP AUDIT AN D (B) USING DATA FOR A SINGLE YEAR INSTEAD OF MULTIPL E YEAR DATA. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / AO HAS ERRED BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT ON UNTENABLE GROUNDS SUCH AS: A. TURNOVER < RS. 1 CRORE AS A COMPARABILITY CRITE RION AND REJECTED THE TURNOVER FILTER OF RS. 50 CRORE TO RS. 250 CRORE APPLIED BY THE APPELLANT; B. DIFFERENCE IN ACCOUNTING YEAR; C. EMPLOYEE COST LESS THAN 25 PERCENT OF THE TOTAL REVENUES; ITA NO.5837/DEL./2011 3 D. ONSITE REVENUES MORE THAN 75 PERCENT OF THE EXPO RT REVENUES; E. MISCONCEIVED DIFFERENCE IN ECONOMIC PERFORMANCE. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / AO HAS ERRED IN EXERCISING HIS PO WERS UNDER SECTION 133(6) OF THE ACT TO OBTAIN INFORMATION WHI CH WAS NOT AVAILABLE IN PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / AO HAS ERRED BY SELECTING CERTAIN COMPANIES WHICH ARE EARNING SUPER NORMAL PROFITS AS COMPARABL E TO THE APPELLANT AND ADDING CERTAIN COMPANIES IN THE FINAL SET OF COMPARABLES ON AN ADHOC BASIS. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO/ AO HAS ERRED BY NOT MAKING SUITABL E ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF T HE APPELLANT VIS-A- VIS THE COMPARABLES. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO/ AO HAS ERRED IN NOT PROVIDING THE BENEFIT OF THE ARM'S LENGTH RANGE AS PROVIDED UNDER PROVISO TO SEC TION 92C OF ACT FOR PURPOSES OF COMPUTING THE ARM'S LENGTH PRICE UN DER SECTION 92F OF THE ACT. 11. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED IN HOLDING THAT WAIVE R OF DEFERRED SALES TAX LOAN AMOUNTING TO RS.2,48,88,643 REPRESEN TS REMISSION OF TRADING LIABILITY, LIABLE TO TAXATION UNDER THE PRO VISIONS OF SECTION 41 (1)(A) OF THE ACT. 11.1 WITHOUT PREJUDICE, BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE D RP / LEARNED AO HAS ERRED IN NOT FOLLOWING THE RATIO OF SPECIAL BENCH DECISION IN THE CASE OF SULZER INDIA LIMITED (133 TTJ 385). 11.2 WITHOUT PREJUDICE, BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A O HAS ERRED IN NOT APPRECIATING THAT WAIVER OF DEFERRED S ALES TAX LOAN WAS IN FACT SETTLED AS PER THE PROVISIONS OF R ULE 127 A OF THE WEST BENGAL SALES TAX RULES, 1995 WHICH PROV IDES FOR SETTLEMENT OF SUCH LOAN AT EQUIVALENT TO NET PR ESENT VALUE AND ACCORDINGLY NO BENEFIT ARISES TO THE APPE LLANT UPON WAIVER OF SUCH LOAN. ITA NO.5837/DEL./2011 4 11.3 WITHOUT PREJUDICE, BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A O HAS ERRED IN NOT APPRECIATING THAT THE PROVISIONS OF BO MBAY SALES TAX ACT ARE SIMILAR TO THE PROVISIONS OF WEST BENGAL SALES TAX ACT, IN AS MUCH AS BOTH THE LEGISLATIONS PROVIDES FOR THE SETTLEMENT OF DEFERRED SALES TAX LOAN AT OR EQUIVALENT TO NET PRESENT VALUE. 12. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE DRP/ LEARNED AO HAS ERRED, IN APPO RTIONING CERTAIN EXPENSES THAT ARE SPECIFICALLY INCURRED IN RESPECT OF NON- STP UNIT TO THE STP UNIT OF THE APPELLANT, THEREBY REDUCING THE DEDUCTION AVAILABLE TO THE SAID STP UNIT BY AN AMOU NT OF RS.65,03,158. 13. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED IN NOT ALLOWING DEDUC TION FOR PROVISIONS UTILIZED / RELEASED BACK DURING ASSESSME NT YEAR 2007- 08, DESPITE OF A SPECIFIC DIRECTION BY THE HON'BLE ORP IN THIS REGARD. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE ARID IN LAW, THE LEARNED AO HAS ERRED IN LEVYING CONSEQUENTIAL I NTEREST UNDER SECTION 234D OF THE ACT. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN WITHDRAWING THE INTERES T UNDER SECTION 244A OF THE ACT. 16. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE ARID IN LAW, THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROC EEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. 2. ASSESSING OFFICER IN CONSONANCE WITH THE ORDER P ASSED BY TPO/DRP MADE ADJUSTMENT ON ARMS LENGTH PRICE (ALP) TO THE TUNE OF RS.17,12,24,237/- AND ASSESSED THE TOTAL IN COME AT RS.70,79,59,500/-. 3. BRIEFLY STATED THE FACTS OF THIS CASE ARE : THE ASSESSEE COMPANY IS A 99.9% SUBSIDIARY OF M/S. SIEMENS INDIA LIMITED WHICH IS A SUBSIDIARY OF SIEMENS AG, GERMANY, WHICH IS INTO THE ITA NO.5837/DEL./2011 5 BUSINESS OF MANUFACTURING AND TRADING OF TELECOMMUN ICATION NETWORK EQUIPMENTS AND NETWORK DESIGN. IT IS ALSO PROVIDING SUPPORT SERVICES TO MAJOR TELECOM AND IT SERVICE PR OVIDERS AND TELECOM RELATED SOFTWARE. DURING THE YEAR UNDER AS SESSMENT, THE ASSESSEE COMPANY ENTERED INTO INTERNATIONAL TRANSAC TIONS IN THE NATURE OF PROVISION OF SOFTWARE SERVICES, PURCHASE OF RAW MATERIALS, EXPORT OF FINISHED GOODS, COMMISSION INCOME, ETC. DURING THE YEAR UNDER ASSESSMENT, ONLY SOFTWARE SEGMENT OF THE ASSE SSEE COMPANY IS IN DISPUTE WHEREAS THERE IS NO DISPUTE QUA THE T ELECOM SEGMENT. 4. ASSESSEE COMPANY AS A TESTED PARTY HAS BEEN CHAR ACTERIZED AS PROVIDER OF SOFTWARE AND DEVELOPMENT SERVICES TO ITS AES WHICH HAS USED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD FOR ITS BENCHMARKING OF INTERNAT IONAL TRANSACTION. SEARCH FOR UNCONTROLLED COMPARABLES W AS MADE USING PROWESS AND CAPITALING DATABASE BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. ASSESSEE COMPANY TAKEN 11 COMPARABL ES FOR ITS TP STUDY. TPO BY APPLYING THE FILTERS REJECTED ALL TH E COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE EXCEPT PERSISTENT SYSTEMS LTD. TPO HAS SELECTED 26 COMPANIES AS COMPARABLES DULY D ETAILED AT PARA 15.2.1 OF HIS ORDER. THE ASSESSEE COMPANY COM PUTED ITS PROFIT LEVEL INDICATOR (PLI) AT 16.71% ON COST WHEREAS TPO COMPUTED ITA NO.5837/DEL./2011 6 THE SAME AT 21.11% ON COST ON THE BASIS OF REPLY FI LED BY THE ASSESSEE COMPANY. 5. ASSESSEE COMPANY IS PRIMARILY ENGAGED IN MANUFA CTURING OF TELECOMMUNICATION EQUIPMENT AND SOFTWARE DEVELOPMEN T SERVICES. TPO CONCLUDED THAT AVERAGE EXPORT REVENUE OF 26 SEL ECTED COMPARABLES IS AT 93.55% OF THEIR TOTAL REVENUE AND THE 26 SELECTED COMPARABLES HAVE AVERAGE RELATED PARTY TRANSACTIONS AT 4.87% OF THEIR TOTAL REVENUE. TPO ALSO OBSERVED ON THE BASI S OF FAR ANALYSIS OF THE TAXPAYER VIS--VIS THE COMPARABLES THAT THE TAXPAYER INCURS 61% OF ITS REVENUE ON EMPLOYEE COSTS WHEREAS 26 SELECTED COMPARABLES HAVE AVERAGE EMPLOYEE COST AT 51.46% OF THEIR TOTAL REVENUE. TPO, ON THE BASIS OF TP ANALYSIS, INITIAL LY DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTIONS FOR PROVIDING RESEARCH AND DEVELOPMENT SERVICES AT RS.1,59,95,73,695/- INSTEAD OF RS.1,38,90,75,786/- CHARGED BY THE ASSESSEE IN ITS INTERNATIONAL TRANSACTION RESULTED INTO ADJUSTMENT TO THE EXTENT OF RS.20,14,97,909/-. HOWEVER, SUBSEQUENTLY TPO IN CO MPLIANCE TO THE DIRECTIONS ISSUED BY THE DRP PASSED SUPPLEMENTA RY ORDER AND MADE FINAL TP ADJUSTMENT AT RS.17,12,24,237/-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE DRP ON TH E BASIS OF WHICH ASSESSMENT ORDER HAS BEEN PASSED. FEELING AG GRIEVED, THE ITA NO.5837/DEL./2011 7 ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. AS PER PROFILE OF THE ASSESSEE COMPANY NARRATED BY THE TPO IN PARA 2.2 OF THE TPO ORDER, ASSESSEE COMPANY IS I NTO THE BUSINESS OF MANUFACTURING AND TRADING OF TELECOMMUNICATION N ETWORK EQUIPMENTS AND NETWORK DESIGNS, INSTALLATION AND IT ALSO PROVIDES SUPPORT SERVICES TO MAJOR TELECOM AND IP SECTORS PR OVIDERS. ASSESSEE COMPANY ALSO DEVELOPS TELECOM RELATED SOFT WARE. 9. ASSESSEE COMPANY FILED THE TP STUDY OF SELECTING ITSELF AS A TESTED PARTY. ASSESSEE COMPANY CHARACTERIZED ITSEL F AS A PROVIDER OF SOFTWARE AND DEVELOPMENT SERVICES TO ITS ASSOCIA TED ENTERPRISES (AES) AND SELECTED TNMM AS THE MOST APPROPRIATE MET HOD AND THE SEARCH FOR THE UNCONTROLLED COMPARABLES WAS MADE US ING PROWESS AND CAPITALING DATABASE. ASSESSEE COMPANY APPLIED EIGHT FILTERS IN THE SEARCH OF NINE COMPARABLES DULY DETAILED IN PAR A 10 OF THE TP REPORT, OUT OF WHICH THREE COMPARABLES HAVE BEEN RE JECTED BY THE TPO. TPO, AFTER THOROUGHLY EXAMINING 82 COMPANIES, PROPOSED TO ITA NO.5837/DEL./2011 8 CHOOSE 26 COMPANIES IN THE FINAL SET OF COMPARABLES HAVING OPERATING PROFIT / TOTAL COST (OP/TC) AT 25.14% AS UNDER :- SL. NO. COMPANY NAME SALES (RS. CR.) OP TO TOTAL COST % PRODUCT SALES (RS. / % OF SALES) RPT (RS. CR.) % OF RPT OVER SALES EXPORT (RS.CR.) % OF EXPORTS OVER SALES ONSITE REVEN- UES R & D (RS. CR.) % OF R &D OVER SALES MKTG. (RS. CR.) % OF MKTG. OVER SALES % OF SALARY/ SALES DATA BASE 1. ACCEL TRANSMATIC LTD. (SEG.) 9.68 21.11% 0 0.6 6.20% 9.43 97.42% 3.28% 0 0.00% 0.04 0.41% 37.90% P (SEG ,) 2. AVANI CIMCON TECHNOLOGIES LTD. 3.55 52.59% 0 0.07 1.97% 100 100% 0 0 0.00% 0.05 1. 41% 41.78% P 3. CELESTIAL LABS LTD. 14.13 58.35% 0.51/ 3.61% 0 0.00% 13.23 93.63% 0 2.52 17.83% 0.94 6.65% 25.69 % P 4. DATAMATICS LTD. 54.51 1.38% 0 7.16 13.14% 53.53 98.20% 23.00% 0 0.00% 0.14 0.26% 61.59% P 5. E-ZEST SOLUTIONS LTD. 6.26 36.12% 0 0 0.00% 6.14 98.08% 0 0 0.00% 0.07 1. 12% 61.50% P 6. FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) 848.66 25.31% 9.21/ 1.08% 44.21 5.21% 807.75 95.18% 22.00% 3.88 0.46% 7.02 0. 83% 46.31% P (SEG .) 7. GEOMETRIC LTD. (SEG.) 158.38 10.71% 0 31.64 19.98% 134.71 85.05% 21.66% 0 %0.00 3.18 2.01% 60.86% 8. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 178.63 36.63% 0 5.24 2.93% 101.86 57.02% 73.00% 0 0 .00% 6.28 3.52% 35.67% P 9. IGATE GLOBAL SOLUTION LTD. 747.27 7.49% 0 39.64 5.30% 747.27 100% 54.00% 0 0.0 0% 4.51 0.60% 69.74% P (EF) 10. INFOSYS TECHNOLOGIES LTD. 13149 40.30% 538/ 4.1% 664 5.05% 12939 98.40% 51.70% 167 1.27% 719 5.47% 4 5.84% P 11. ISHIR INFOTECH LTD. 7.42 30.12% 0 1.63 21.97% 7.08 95.42% 0 0 0.00% 0.5 7 7.68% 48.25% P 12. KALS INFORMATION SYSTEMS LTD. (SEG.) 2.00 30.55% 106/ 3% 0 0.00% 2 100% 0 0 0.00% 0.08 4.00% 36.62% C (EF) 13. LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS LTD.) 45.39 15.75% 0 1.22 2.69% 43.75 96.39% 56.14% 0 0.0 0% 0.83 1.83% 64.00% P 14. LUCID SOFTWARE LTD. 1.70 19.37% 0 0 0.00% 1.69 99.41% 0 0 0.00% 0.3 17. 65% 41.17% P (EE) ITA NO.5837/DEL./2011 9 15. MEDIASOFT SOLUTIONS LTD. 1.85 3.66% 0 0 0.00% 1.84 99.46% 0 0 0.00% 0.03 1.6 2% 69.19% P 16. MEGASOFT LTD. 139.33 60.23% 26.47/ 19% 10.21 7.33% 134.36 96.43% 56.00% 0 0.00% 2.2 1.58% 37.87% P 17. MINDTREE LTD. 590.35 16.90% 0 0 0.00% 553.44 93 .75% 36.18% 0 0.00% 2.75 0.47% 55.27% P 18. PERSISTENT SYSTEMS LTD. 293.75 24.52% 2.16/ 0.73% 28.55 9.72% 282.06 96.02% 4.83% 2.71 0.92% 2.35 0.8 0% 54.95% P 19. QUINTEGRA SOLUTIONS LTD. 62.72 12.56% 0 0 0.00% 59.91 95.52% 48.52% 0.39 0.6 2% 2.02 3.22% 66.68% P 20. R S SOFTWARE LTD. 101.04 13.47% 0 0.85 0.84% 97.17 96.17% 68.77% 0 %0 .00 1.83 1.81% 64.62% P 21. R SYSTEMS INTERNATIONAL LTD. (SEG.) 112.01 15.07% 2.68/ 2.39% 12.77 11.40% 105.36 94.06% 8.55% 0.63 0.56% 0.93 0. 83% 56.32% P 22. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) 343.57 22.16% 0 3.94 1.15% 262.66 76.45% 21.43% 0 0 .00% 32.26 6.48% 57.03% P 23. SIP TECHNOLOGIES & EXPORTS LTD. 3.80 13.90% 0 0 0.00% 3.8 100% 30.96% 0 0.00% 0.04 1.05% 39.92% P 24. TATA ELXSI LTD. (SEG.) 262.58 26.51% 0 3.34 1.27% 252.57 96.19% 22.90% 10. 91 4.15% 2.63 1.00% 54.35% P 25. THIRDWARE SOLUTIONS LTD. 36.08 25.12% 0 3.60 9.90% 27.44 76.05% 7.98% 0 0.00 % 0.07 0.19% 62.64% P 26. WIPRO LTD. (SEG.) 9616.09 33.65% 0 58.26 0.61% 98% 54.70% 817.36 8.5 0% 427.4 4.44% 42.13% C 25.14% 10. THE SEGMENTAL DETAIL PERTAINING TO THE SOFTWARE DEVELOPMENT SERVICES, WHICH ARE IN QUESTION, IS DETAILED BY THE TPO AS UNDER :- DESCRIPTION SOFTWARE DEVELOPMENT TELECOM NET SALES 1398075786 6245232150 OPERA TING EXPENSES 1292375935 5769787646 OPERATING PROFIT 105699851 475444504 OP ON COST 8.17% OP ON SALES 7.61% 11. UNDISPUTEDLY, ASSESSEE COMPANY ENTERED INTO INT ERNATIONAL TRANSACTIONS AS PER REPORT UNDER SECTION 92CE AS UN DER :- PROVISION OF SOFTWARE SERVICES RS.138,40,62,575/- PURCHASE OF RAW MATERIALS, COMPONENTS ETC. RS.147, 52,30,169/- ITA NO.5837/DEL./2011 10 EXPORT OF FINISHED GOODS RS.8,97,30,310/- IMPORT OF FIXED ASSETS RS.2,34,86,131/- ROYALTY RS.3,82,68,828/- PURCHASE OF SOFTWARE RS.42,93,294/- COMMISSION INCOME RS.16,93,62,494/- COMMISSION CHARGES RS.1,59,65,014/- TRAINING CHARGES RS.41,90,100/- REIMBURSEMENT OF EXPENSES PAID RS.7,41,61,364/- 12. THE ALP OF AFORESAID INTERNATIONAL TRANSACTIONS IS TO BE DETERMINED. ASSESSEE COMPANY HAS EARNED AN OPERATI NG PROFIT MARGIN OF 8.24% ON SALES OF TELECOM EQUIPMENT MANUF ACTURING SEGMENT AND 8.7% OPERATING PROFIT MARGIN TO COST RA TIO ON SOFTWARE DEVELOPMENT SEGMENT. 13. FOLLOWING COMPARABLES COMPANIES SELECTED BY THE TPO IN HIS TRANSFER PRICING STUDY, THOUGH INITIALLY DISPUT ED BY THE LD. AR FOR THE ASSESSEE FOR INCLUSION IN THE FINAL LIST OF COMPARABLES, BUT, DURING THE COURSE OF ARGUMENT, THE LD. AR FOR THE A SSESSEE HAS FAIRLY CONCEDED THAT ALL THESE COMPANIES ARE VALID COMPARABLES FOR BENCHMARKING OF INTERNATIONAL TRANSACTIONS :- (I) GEOMETRIC LIMITED (SEGMENTAL) (II) HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED (III) I GATE GLOBAL SOLUTIONS LIMITED (IV) MEDIASOFT SOLUTIONS LIMITED ITA NO.5837/DEL./2011 11 (V) MINDTREE LIMITED (VI) QUINTEGRA SOLUTIONS LIMITED (VII) R S SOFTWARE (INDIA) LTD. (VIII) SASKEN COMMUNICATION TECHNOLOGIES LTD. (IX) SIP TECHNOLOGIES & EXPORTS LTD. (X) DATAMATICS LIMITED COMPARABLE COMPANIES SOUGHT TO BE EXCLUDED BY THE ASSESSEE COMPANY FOR BENCHMARKING OF ITS INTERNATIONAL TRANSACTION : 14. LD. AR FOR THE ASSESSEE CONTENDED THAT IN ORDER TO MAKE CORRECT TP ADJUSTMENT, HE IS PRESSING FOR THE EXCLU SION OF ONLY NINE COMPARABLES, VIZ., (I) CELESTIAL LABS LTD., (I I) FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.), (III) INFOSYS TECHNOL OGIES LTD., (IV) KALS INFORMATION SYSTEMS LTD. (SEG.), (V) LUCID SOF TWARE LTD., (VI) MEGASOFT LTD., (VII) PERSISTENT SYSTEMS LTD., (VIII) TATA ELXSI LTD. (SEG.) & (IX) WIPRO LTD. (SEG.). SO, TO ARRIV E AT THE LOGICAL CONCLUSION, WE WOULD LIKE TO EXAMINE AFORESAID COMP ARABLES CHOSEN BY THE TPO AND DISPUTED BY THE ASSESSEE COMP ANY FOR BENCHMARKING OF INTERNATIONAL TRANSACTION IN THE LI GHT OF THE FUNCTIONAL PROFILE AND ANNUAL REPORTS. ITA NO.5837/DEL./2011 12 (I) CELESTIAL LABS LIMITED : 15. THIS COMPARABLE HAS BEEN SELECTED BY THE TPO AN D OPPOSED TO BE INCLUDED IN THE SET OF COMPARABLES BY THE ASS ESSEE COMPANY ON THE GROUNDS INTER ALIA THAT IT DOES NOT QUALIFY THE EMPLOYEES COST FILTER AS ITS EMPLOYEES COST IS LESS THAN 25% OF TH E TOTAL COST I.E. 23.73% AND THIS COMPANY IS PROVIDING CLINICAL RESEA RCH SOFTWARE PRODUCTS/SERVICES AS WELL AS BIO-INFORMATICS SERVIC ES AND AS SUCH, ENGAGED IN PRODUCT DEVELOPMENT AND SALES OF DEVELOP ED PRODUCT; THAT THIS COMPANY HAS EARNED SUPER-NORMAL PROFIT AT 54.55%. 16. LD. AR FOR THE ASSESSEE BY RELYING ON THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH I, NEW DELHI IN ITA NO.5645/DEL/2011 AY 2007-08 IN CASE ENTITLED TO LUNA INDIA PVT. LTD. VS. ACIT, CIRCLE 12 (1), NEW DELHI (HEREINAFTER TOLUNA) CONTENDED TO EXCLUDE THIS COMPARABLE FROM THE FINAL SET OF COMPARABLES. UNDISPUTEDLY, TOLUNA IS ALSO INTO THE BUSINESS OF SOFTWARE DEVELOPMENT AND PROVIDING RELATED SERVI CES TO THE GREEENFIELD GROUP, ITS AE. THE COORDINATE BENC H IN THE JUDGMENT TOLUNA (SUPRA), ORDERED TO EXCLUDE THIS COMPARABLE COMPANY BY MAKING FOLLOWING OBSERVATIONS :- 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 DEVELOPING T HE SOFTWARE PRODUCTS IN THE SHAPE OF TOOLS ETC., WHICH ARE PROT ECTED USING THE PATENT. THIS COMPANY DEVELOPED A TOOL, CELSUITE T O DRUG ITA NO.5837/DEL./2011 13 DISCOVERY IN FINDING THE LEAD MOLECULES FOR DRUG DI SCOVERY. AS THIS COMPANY IS ENGAGED IN DEVELOPING SOFTWARE TOOLS AFT ER ENOUGH RESEARCH AND DEVELOPMENT ACTIVITY AND THE TOOLS SO PRODUCED BY IT ARE ITS INTELLECTUAL PROPERTY, IT CANNOT BE CONSIDE RED AS COMPARABLE TO THE ASSESSEE WHICH IS, ALSO ALBEIT IN SOFTWARE D EVELOPMENT, 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 D ISPUTE RESOLUTION PANEL (DRP) IN ITS DIRECTIONS FOR A SUBS EQUENT YEAR, A COPY OF WHICH IS AVAILABLE ON RECORD. THUS THIS COM PANY CANT BE CONSIDERED AS FUNCTIONALLY SIMILAR TO THAT OF THE A SSESSEE. WE, THEREFORE, DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. 17. KEEPING IN VIEW THE FACTS THAT THIS COMPARABLE COMPANY DOES NOT QUALIFY THE EMPLOYEE COST FILTER, ADOPTED BY THE TPO; IT IS FUNCTIONALLY DIS-SIMILAR, WHICH IS THOUGH IN SOFTWA RE DEVELOPMENT, BUT IS DOING THE SAME ON CONTRACT BASIS AND IT IS E ARNING SUPER- NORMAL PROFIT; THAT THIS COMPANY HAS BEEN HELD TO B E INCOMPARABLE FOR SUBSEQUENT YEAR BY THE DRP AND BY FOLLOWING THE ORDER PASSED BY THE COORDINATE BENCH, WE HEREBY ORDER TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. (II) FLEXTRONICS SOFTWARE SYSTEMS LTD. : 18. ASSESSEE, DURING THE TP PROCEEDINGS, OPPOSED TH E INCLUSION OF THIS COMPARABLE ON GROUND OF FUNCTIONAL DIS-SIMI LARITY BUT THE TPO BY RECORDING HIS FINDING AT PAGES 80 TO 82 OF T HE TP ORDER SELECTED IT AS A FINAL COMPARABLE ON THE GROUND THA T IT PASSES ALL THE NECESSARY FILTERS. TPO REJECTED THE ARGUMENT ADDRE SSED BY THE ASSESSEE THAT THIS COMPANY IS DRIVING REVENUE FROM BOTH PRODUCT ITA NO.5837/DEL./2011 14 AND SOFTWARE SERVICES ON THE GROUND THAT AS PER DET AIL OF PRODUCT REVENUE, THE PRODUCT REVENUE WAS OF RS.92.1 CRORES OUT OF THE PRODUCT AND SERVICES SEGMENT REVENUE OF RS.847.2 CR ORES I.E 10.87% OF THE SEGMENTAL REVENUE AND THAT THE SUB-SE GMENTAL RESULT HAVE NOT BEEN FILED BY THE ASSESSEE COMPANY. TPO A LSO RECORDED THAT THE SOFTWARE DEVELOPMENT SEGMENT REVENUE IN TH AT SEGMENT IS MORE THAN 75% I.E. 89.13% AND AS SUCH, QUALIFIES FO R 75% REVENUE FROM THE SERVICE SEGMENT. 19. LD. AR FOR THE ASSESSEE TO SUPPORT HIS ARGUMENT FOR EXCLUSION OF THIS COMPANY RELIED UPON TOLUNA (SUPRA) AND AVAYA INDIA PRIVATE LIMITED VS. ACIT IN ITA NO.5528/DEL/2011. FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY IS UNDISPUTEDLY SIMILAR TO TOLUNA (SUPRA) AND AVAYA INDIA PRIVATE LIMITED (SUPRA) RATHER TOLUNA (SUPRA) HAS BEEN FOLLOWED BY THE COORDINATE BENCH IN AVAYA INDIA PRIVATE LIMITED (SUPRA). COORDINATE BENCH IN TOLUNA (SUPRA) ORDERED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES B Y MAKING FOLLOWING OBSERVATIONS :- 21.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THIS COMPANY T O BE NOT COMPARABLE TO THAT OF THE ASSESSEE. THE REASON FOR OUR THIS DECISION IS THAT THE TPO HAS TAKEN SEGMENTAL DATA OF `PRODUC T AND SERVICE SEGMENT OF THIS COMPANY WHICH HAS PRODUCT REVENUE OF RS.92.1 CRORE. IN CONTRAST TO IT, THE INSTANT ASSESSEE IS N OT SELLING ANY SOFTWARE PRODUCTS, BUT, IS DOING THE JOB ASSIGNED T O IT ON COST PLUS BASIS. THE CONTENTION OF THE LD. DR THAT SINCE THE MAJORITY OF THE ITA NO.5837/DEL./2011 15 REVENUE FROM `PRODUCT AND SERVICES SEGMENT WAS FRO M THE SERVICES SEGMENT AND, HENCE, THIS COMPANY SHOULD BE CONSIDERED AS COMPARABLE, IS BEREFT OF ANY FORCE. WHEN FIGURES OF PRODUCTS AND SERVICES ARE COMBINED, IT CANNOT BE ASCERTAINED AS TO HOW MUCH CONTRIBUTION WAS MADE BY THE PRODUCT DIVISION OR TH E SERVICE DIVISION TO THE OVERALL REVENUE OF THE PRODUCT 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 PAPE R BOOK, THAT IT CONSOLIDATED ITS EXISTING PRODUCT PORTFOLIO AND TOO K STEPS TO EXPAND INTO FURTHER TECHNOLOGIES BY INCREASING THE MOMENTU M IN KEY INITIATIVES IN WIMAX, IMS, SIP & ISS/ESS DOMAINS. T HIS COMPANY HAS ITS OWN PRODUCTS SUCH AS ASN, WIMAX, GA TEWAY PRODUCT WITH ASN LIGHT. IT IS FURTHER RELEVANT TO N OTE THAT THE YEAR ENDING OF THIS COMPANY IS NOT COINCIDING WITH THAT OF THE ASSESSEE AND IT IS NOT KNOWN AS TO HOW THE TPO HAS ADOPTED T HE RELEVANT FIGURES FOR COMPARISON. IN VIEW OF THE FOREGOING DI SCUSSION, WE HOLD THIS COMPANY TO BE NOT COMPARABLE AND DIRECT I TS EXCLUSION FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS . 20. KEEPING IN VIEW THE FACT THAT THE ASSESSEE COMP ANY IS NOT SELLING ANY SOFTWARE PRODUCT AND WHEN FIGURE OF PRO DUCT AND SERVICES ARE EXAMINED INTO TOTALITY, IT IS DIFFICUL T TO ASCERTAIN AS TO HOW MUCH CONTRIBUTION HAS BEEN MADE BY THE PRODUCT DIVISION OR THE SERVICE DIVISION TO THE OVERALL REVENUE OF THE PRODUCT AND SERVICE SEGMENT. SO, WHEN THE ASSESSEE COMPANY IS UNDISPUTEDLY NOT INTO SELLING SOFTWARE PRODUCT SUCH COMPANY CANN OT BE CONSIDERED AS A COMPARABLE. SO, WE ARE OF THE CONS IDERED VIEW THAT THIS COMPANY CANNOT FIND PLACE IN THE FINAL LIST OF COMPARABLES FOR TRANSFER PRICING. ITA NO.5837/DEL./2011 16 (III) ACCEL TRANSMATIC LIMITED (SEGMENTAL) 21. DURING TP STUDY, ASSESSEE OPPOSED INCLUSION OF THIS COMPARABLE ON THE GROUND OF HAVING TURNOVER OF LESS THAN RS.50 CRORES AND RS.250 CRORES. ASSESSEE ALSO OPPOSED TH E INCLUSION OF THIS COMPARABLE COMPANY BEING FUNCTIONALLY DIS-SIMI LAR. HOWEVER, TPO INCLUDED THE SAME ON THE GROUND THAT NO REASON HAS BEEN GIVEN BY THE ASSESSEE FOR FUNCTIONAL DIS-SIMILARITY AND ITS DATA BEING AVAILABLE IN PROWESS DATABASE ALONG WITH THE ANNUAL REPORT FOR THE YEAR 2006-07, IT QUALIFIES ALL THE FILTERS AND KEPT THE SAME IN THE FINAL LIST OF COMPARABLES. 22. HOWEVER, THE LD. AR FOR THE ASSESSEE BY RELYING UPON THE DECISIONS OF (I) AOL ONLINE INDIA PVT. LTD. ITA NO.1036/BANG/2011; (II) NMS COMMUNICATIONS PVT. LTD . ITA NO.1541/BANG/2012; (III) M/S. NTT DATA INDIA ENTERP RISES APPLICATION SERVICES PVT. LTD. ITA NO.2190/HYD/20 11; (IV) HEWLETT PACKARD (INDIA) GLOBALSOFT P. LTD. IT(TP) A.NO.1031/BANG/2011; (V) TRILOGY E-BUSINESS SOFTWAR E INDIA P. LTD. ITA NO.1054/BANG/2011; (VI) CAPGEMINI INDIA (P) LTD. VS. AD.CIT ITA NO.7729/MUM/2010; (VII) M/S. CYPRESS SEMICONDUCTOR TECHNOLOGY INDIA PVT. LTD. VS. DCIT ITA NO.1167/BANG/2010; (VIII) M/S. CYPRESS SEMICONDUCTO R TECHNOLOGY INDIA PVT. LTD. VS. DCIT ITA NO.1002/B ANG/2011; ITA NO.5837/DEL./2011 17 (IX) INTOTO SOFTWARE INDIA PVT. LTD. ITA NO.1196/ DEL/2010; (X) HCL EAI SERVICES LTD. ITA NO.1348/BANG/2011; SOUG HT THE EXCLUSION OF THIS COMPANY ON THE SAME GROUND AS SET OUT BEFORE THE TPO. 23. HOWEVER, ON THE OTHER HAND, THE LD. DR PROTECTE D THIS COMPANY AS COMPARABLE BY RELYING UPON TOLUNA (SUPRA). PERUSAL OF THE ANNUAL REPORT AT PAGE 283 APPARENTLY GOES TO PROVE THAT THIS COMPARABLE COMPANY HAS FOUR DIVISIONS, NA MELY, TRANSMATIC SYSTEMS, USHUS TECHNOLOGIES, ACCEL ANIMA TIONS STUDIOS AND ACCEL IT ACADEMY. LD. DRP REJECTED THE ARGUMENT ADDRESSED BY THE ASSESSEE COMPANY BY MAKING THE FOL LOWING OBSERVATIONS :- 48. ACCEL TRANSMATIC LIMITED: IT IS ARGUED THAT THE INFORMATION OF THIS COMPANY IS UNRELIABLE AND IT ALSO FAILS EMPLOY EE COST FILTER AS PER THE INFORMATION AVAILABLE IN PUBLIC DOMAIN. WE FIND NO FORCE IN THIS ARGUMENT OF THE TAXPAYER. IT SEEMS THAT BEFORE THE TPO NO OBJECTION WAS RAISED BY THE TAXPAYER AGAINST ITS SE LECTION. THE TAXPAYER IN ITS REPLY DATED 08.07.2010 DID NOT OFFE R ANY COMMENTS AGAINST THIS COMPARABLE (PAGE 53 OF THE TPO'S ORDER ). AS REGARDS THE ONSITE FILTER, ON THE BASIS OF INFORMATION RECE IVED U/S 133(6) THIS COMPANY PASSES THIS FILTER. SIMILARLY, THERE IS NO FORCE IN THE ARGUMENT OF THE TAXPAYER THAT THE EMPLOYEE COST IS LESS THAN 25% OF THE SALES. ON PAGE 55 THE TPO HAS GIVEN THE SEGM ENTAL DETAILS OF THIS COMPANY WHERE FROM IT CAN BE SEEN THAT THE EMP LOYEE COST IS MORE THAN 25% OF THE SALES. IN ANY CASE, AS DISCUSS ED ABOVE EMPLOYEE COST FILTER IS ONLY A TRIGGER AND NOT A CO NCLUSIVE FILTER. THE SELECTION OF THIS COMPARABLE BY THE TPO IS THER EFORE UPHELD. 24. WHEN THE ISSUE OF FUNCTIONAL DIS-SIMILARITY AND DIFFERENT MODEL OF REVENUE RECOGNITION IS EXAMINED KEEPING IN VIEW THE FUNCTIONAL AND BUSINESS PROFILE OF ASSESSEE COMPANY VIS--VIS ITA NO.5837/DEL./2011 18 ACCEL TRANSMATIC LIMITED (SUPRA), BOTH ARE IN THE BUSINESS OF MANUFACTURING AND TRADING OF TELECOMMUNICATION NETW ORK AND NETWORK DESIGN AND THE ASSESSEE COMPANY DURING THE YEAR UNDER ASSESSMENT HAS ALSO UNDERTAKEN INTERNATIONAL TRANSA CTIONS WHICH WERE IN THE NATURE OF PROFESSION OF SOFTWARE SERVIC ES, PURCHASES OF RAW MATERIAL, EXPORT OF FINISHED GOODS, COMMISSION INCOME, ETC. DURING THE COURSE OF ARGUMENT, THE LD. AR FOR THE A SSESSEE FAIRLY CONCEDED THAT WHEN EXAMINED IN TOTALITY THIS COMPAN Y IS A VALID COMPARABLE. SO IN VIEW OF THE MATTER, WE ARE OF TH E CONSIDERED VIEW THAT THIS COMPANY HAS BEEN RIGHTLY INCLUDED IN THE FINAL LIST OF COMPARABLE BY THE LD. TPO/DRP. (IV) AVANI CIMCON TECHNOLOGIES LIMITED 25. THIS COMPARABLE COMPANY IS OPPOSED TO BE INCLUD ED IN THE LIST OF FINAL COMPARABLES BY THE ASSESSEE ON THE GR OUND THAT THIS IS EARNING SUPER-PROFIT AND DURING THE FINANCIAL YEAR 2006-07, THE TURNOVER OF THE COMPANY WAS LESS THAN RS.50 CRORES AND DOES NOT QUALIFY SPECIFIC TURNOVER FILTER APPLIED BY THE ASS ESSEE. HOWEVER, TPO RETAINED THIS COMPANY IN THE FINAL LIST OF COMP ARABLES BY MAKING FOLLOWING OBSERVATIONS :- 14.4.2 AVANI CIMCON TECHNOLOGIES LTD (OP/TC FOR THE FY 2006-07 - 52.59%,) THIS COMPANY WAS NOR FINDING PLACE IN THE ACCEPT / REJECT MATRIX OF THE TAXPAYER. HOWEVER, THE DATA OF THE COMPANY IS A VAILABLE IN ITA NO.5837/DEL./2011 19 PROWESS DATABASE. AS PER THE INFORMATION AVAILABLE IN THE PUBLIC DOMAIN, IT IS A SOFTWARE DEVELOPMENT AND CONSULTING COMPANY. BASED IN INDIA WITH OFFICES IN U.S, ACTL HAS A VARI ED CLIENT BASE IN AUSTRALIA, U.S, UK, AFRICA AND THE EUROPEAN UNIO N. 'WITH MAJOR FOCUS ON THE TRAVEL AND INSURANCE INDUSTRY. THE ANN UAL REPORT OF THE COMPANY WAS NOT AVAILABLE. RPT INFORMATION WAS ALSO NOT AVAILABLE. THUS 133(6) NOTICE WAS ISSUED TO THE COM PANY TO GET COMPLETE INFORMATION. AS PER THE REPLY RECEIVED FRO M THE COMPANY, IT QUALIFIES ALL THE FILTERS APPLIED BY TH E TPO, AS IT QUALIFIES ALL THE FILLERS APPLIED BY THE TPO, THE S AME WAS PROPOSED AS A COMPARABLE VIDES THIS OFFICE LETTER D ATED 31-05-2010. THE TAXPAYER IN ITS REPLY DATED 08-07-2010 OBJECTED TO IT AS UNDER : ' 8.1 AVANI CIMCON TECHNOLOGIES LTD. (AVANI) THE ASSESSEE SUBMITS THAT AVANI IS EARNING SUPER PR OFITS AND SUCH COMPANIES SHOULD BE REJECTED WHILE ARRIVING AT ARM S LENGTH PRICE. THE ASSESSEE WISHES TO BRING TO YOUR OFFICE'S NOTIC E THE FOLLOWING JUDICIAL DECISIONS: E-GAIN COMMUNICATION PVT. LTD. (ITA NO.1885/PN/ 200 7) RULING OF THE HONBLE PUNE ITAT IN THE CASE OF E-GA IN COMMUNICATION PVT. LTD. (SUPRA) WHILE REVIEWING THE COMPARABILITY ANALYSIS OF SOME COMPANIES: 'A CURSORY LOOK AT THE CHART ILL THE ASSESSMENT ORD ER OF 20 COMPATIBLES WOULD REVEAL THAT THE MARGIN OF PROFIT SHOWN BY THIRDWARE SOLUTIONS LTD. AND WTI ADVANCED TECHNOLOG Y IS EXTRAORDINARY AT 67.65 PER CENT AND 54.72 PER CENT RESPECTIVELY. THEREFORE, IT WAS NECESSARY FOR THE TAX AUTHORITIES TO EXAMINE WHETHER THESE ENTITIES HAVE RIGHTLY BEEN TAKEN AS C OMPARABLES FOR APPLICATION OF MOST APPROPRIATE METHOD .'. QUARK SYSTEMS PRIVATE LIMITED (SUPRA) RULING OF THE HONBLE CHANDIGARH ITAT, SPECIAL BENC H IN THE CASE OF QUARK SYSTEMS PRIVATE LIMITED (SUPRA) WHILE REVI EWING THE COMPARABILITY ANALYSIS OR SUPER PROFIT COMPANIES: EVEN IF THE TAX PAYER OR ITS COUNSEL HAD TAKEN DATAMATICS AS COMPARABLE IN ITS IP AUDIT, THE TAXPA YER IS ENTITLED TO POINT OUT TO THE TRIBUNAL THAT ABOVE ENTERPRISE HAS WRONGLY BEEN TAKEN AS COMPARABLE. IN FACT THERE ARE VAST DIFFERENCES BETWEEN TESTED PARTY AND DATAMATICS. T HE CASE OF DATAMATICS IS LIKE THAT OF 'IMERCIUS TECHNOLOGIES' REPRESENTING EXTREME POSITIONS. IF IMERCIOUS TECHNOLOGIES HAS SU FFERED HEAVY LOSSES AND, THEREFORE IT IS NOT TREATED AS COMPARAB LE BY THE TAX AUTHORITIES, THEY ALSO HAVE TO CONSIDER THAT DATAMA TICS HAS EARNED EXTRAORDINARY PROFIT AND HAS A HUGE TURNOVER.' ITA NO.5837/DEL./2011 20 (EMPHASIS SUPPLIED) WITHOUT PREJUDICE TO THE ABOVE, WE ALSO WISH TO SUB MIT THAT AT DURING FY 2006-07, THE TURNOVER OF THE COMPANY WAS LESS THAN RS.50 CRORE. ACCORDINGLY, THE COMPANY DOES NOT SATI SFY THE TURNOVER FILTER APPLIED BY THE ASSESSEE (AS MENTION ED ILL SECTION 6.3 ABOVE) AND IS HENCE REJECTED. THE TAXPAYER DID NOT GIVE THE BASIS ON WHICH IT CAM E TO THE CONCLUSION THAT 52.59% ON COST IS EXTRA ORDINARY. T HE HIGHER PROFIT OF THE COMPANY IS MAINLY ATTRIBUTABLE TO HIGHER COM PONENT OF OFFSHORE WORK. IN FACT, THE COMPANY GENERATES 100% OF ITS REVENUES FROM OFFSHORE OPERATIONS SIMILAR TO THE TA XPAYER. THE MARGINS OF THE OTHER COMPANIES ARE LOWER, APART FRO M OTHER REASONS, THE ONSITE REVENUES DRAGGED DOWN THEIR MAR GINS. SO, THE ARGUMENT OF THE TAXPAYER THAT THE COMPANY EARNED SU PER PROFITS IS WITHOUT ANY BASIS AND ALSO THE TAXPAYER DID NOT BRI NG OUT ANY SPECIAL OR PECULIAR ECONOMIC CIRCUMSTANCES UNDER WH ICH THE COMPANY GENERATED THESE PROFITS. THE COMPANY'S' HIG HER MARGINS ARE DUE TO THE FACT THAT OFFSHORE - MARGINS ARE HIG HER THAN THE ONSITE MARGINS, REGARDING THE TURNOVER RANGE FILTER APPLIED BY THE TAXPAYER, AS PER THE DISCUSSIONS HELD AS ABOVE THE TPO REJECTED THIS FILTER. THUS THE COMPANY IS CONSIDERED AS A COMPARABLE. 26. THE ISSUE OF FUNCTIONAL DIS-SIMILARITY HAS BEEN DEALT WITH BY THE COORDINATE BENCH IN CASE OF TOLUNA (SUPRA) WHILE MAKING FOLLOWING OBSERVATIONS :- 17.1. THE TPO FOUND THIS COMPANY TO BE ENGAGED IN SOFTWARE DEVELOPMENT. NOTICE U/S 133(6) WAS ISSUED TO THE CO MPANY TO GET COMPLETE INFORMATION. ACCORDING TO THE TPO, THIS CO MPANY QUALIFIED ALL THE FILTERS. THE ASSESSEE ARGUED BEFO RE THE TPO THAT THIS COMPANY WAS INTO SOFTWARE PRODUCTS AND THE SEG MENTAL RESULTS WERE NOT AVAILABLE. THE TPO REJECTED SUCH CONTENTIO N BY RELYING ON THE SPECIFIC INFORMATION COLLECTED FROM THE COMP ANY U/S 133(6) WHICH DIVULGED THAT THIS COMPANY WAS A PURELY SOFTW ARE DEVELOPMENT COMPANY ENGAGED IN PROVIDING SOFTWARE D EVELOPMENT AND CONSULTING IT SERVICES TO ITS CLIENTS. THIS COM PANY WAS CONCENTRATING ON INTERNET ENABLED BUSINESS INFORMAT ION SYSTEMS IN A WIDE RANGE OF INDUSTRIES. RESULTANTLY, THIS COMPA NY WAS INCLUDED IN THE LIST OF COMPARABLES. 17.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE DESCR IPTION OF ITA NO.5837/DEL./2011 21 BUSINESS ACTIVITY OF THIS COMPANY AS REPRODUCED ON INTERNAL PAGE 90 OF THE TPOS ORDER, THAT IT IS A PURE SOFTWARE D EVELOPMENT SERVICE PROVIDER. IN THE ABSENCE OF ANY OTHER SPECI FIC 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. 27. DURING THE COURSE OF ARGUMENT, THE LD. AR FOR T HE ASSESSEE HAS FAILED TO STICK TO THE ARGUMENT EARLIER ADDRESS ED BEFORE LD. TPO/DRP THAT THIS COMPANY HAS INSUFFICIENT SEGMENTA L INFORMATION. SO, IN VIEW OF THE SEGMENTAL INFORMAT ION AVAILABLE IN THE ANNUAL REPORT AS WELL AS FINDING RETURNED BY TH E COORDINATE BENCH IN TOLUNA (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THIS COMPANY QUALIFIES TO BE RETAINED AS A VALID CO MPARABLE FOR TRANSFER PRICING ADJUSTMENT. (V) E-ZEST SOLUTIONS LIMITED : 28. ASSESSEE SOUGHT TO EXCLUDE THIS COMPANY FROM TH E LIST OF COMPARABLES ON THE GROUNDS INTER ALIA THAT IT IS FU NCTIONALLY DIS- SIMILAR; THAT IT HAS DIFFERENT REVENUE MODEL RECOGN ITION AND THIS COMPANY HAS BEEN REJECTED BY LD. DRP IN ASSESSEES OWN CASE IN AY 2011-12. HOWEVER, COORDINATE BENCH IN TOLUNA (SUPRA) EXAMINED THIS COMPANY AS A COMPARABLE FOR TP ADJUST MENT WITH A COMPANY WHICH IS ENGAGED IN RENDERING SOFTWARE DEVE LOPMENT SERVICES AND CAME TO THE CONCLUSION THAT THE TPO HA S RIGHTLY ITA NO.5837/DEL./2011 22 INCLUDED THIS COMPANY AS COMPARABLE AND OPERATING P ART OF THE FINDINGS RETURNED BY THE COORDINATE BENCH ARE AS UN DER :- 20.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THIS COMPANY T O BE 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 S UBMISSION. THE COMPARABILITY OF A COMPANY IS TESTED ON VARIOUS PAR AMETERS AND A VIEW IS TAKEN AS TO ITS COMPARABILITY OR OTHERWISE BY CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES. SIMPLY BECAUSE THE NATURE OF SOFTWARE DEVELOPMENT SERVICES PROVIDED BY A COMPANY IS DIFFERENT FROM THOSE PROVIDED BY THE ASSESSEE, THE SAME DOES NOT BECOME INCOMPARABLE. HERE IS A CASE IN WHICH THIS C OMPANY IS ALSO PROVIDING SOFTWARE DEVELOPMENT SERVICES AS IS DONE BY THE ASSESSEE ON CONTRACT BASIS FOR OTHERS WITHOUT HAVING ANY INT ELLECTUAL PROPERTY RIGHTS IN THEM. A SMALL VARIATION IN THE N ATURE OF SERVICES DOES NOT MAKE A COMPANY INCOMPARABLE. IT IS NOT A C ASE THAT THE TPO HAS CONSIDERED A COMPANY RENDERING MANAGERIAL O R ENGINEERING SERVICES AND TREATED IT AS COMPARABLE T O THE ASSESSEE RENDERING SOFTWARE DEVELOPMENT SERVICES. MERELY BEC AUSE THE NATURE OF SERVICE RENDERED BY THIS COMPANY WITHIN T HE OVERALL SOFTWARE DEVELOPMENT SERVICES, IS NOT IDENTICAL, WI LL NOT MAKE IT INCOMPARABLE, WHEN IT IS OTHERWISE SIMILAR TO THAT OF THE ASSESSEE ON ALL OTHER SCORES. AS SUCH, WE HOLD THAT THIS COM PANY WAS RIGHTLY INCLUDED BY THE TPO IN THE LIST OF COMPARABLES. THE ASSESSEE FAILS. 29. SO, IN VIEW OF THE FINDINGS RETURNED BY THE COO RDINATE BENCH, COMPREHENSIVE ORDER PASSED BY THE LD. TPO SHOWING S EGMENTAL DETAIL AND THE FACT THAT THIS COMPANY IS FUNCTIONAL LY SIMILAR VIS-- VIS ASSESSEE COMPANY, WE ARE OF THE CONSIDERED VIEW THAT THIS COMPANY IS A VALID COMPARABLE FOR TRANSFER PRICING ADJUSTMENT IN THIS CASE. ITA NO.5837/DEL./2011 23 (VI) INFOSYS TECHNOLOGIES LIMITED : 30. ASSESSEE OPPOSED THE INCLUSION OF THIS COMPANY IN THE FINAL LIST OF COMPARABLE ON THE GROUNDS INTER ALIA THAT T HIS IS FUNCTIONALLY DIS-SIMILAR; THAT IT HAS LARGE SCALE OF OPERATION V IS--VIS ASSESSEE COMPANY; THAT IT HAS A BRAND IMPACT TO DETERMINE TH E PREMIUM PRICING; THAT IT HAS A DIFFERENT MODEL OF REVENUE R ECOGNITION AND THIS COMPARABLE COMPANY HAS BEEN REJECTED IN ASSESSEES OWN CASE IN AY 2011-12 IN CASE OF TOLUNA (SUPRA). MOREOVER, THIS COMPARABLE COMPANY HAS BEEN REJECTED BY THE TPO IN ASSESSEES OWN CASE IN AY 2011-12. 31. COORDINATE BENCH IN THE CASE CITED AS TOLUNA (SUPRA) EXAMINED COMPARABILITY OF THE ASSESSEE COMPANY VIS- -VIS TOLUNA (SUPRA) WHICH IS UNDISPUTEDLY DIS-SIMILAR TO ASSES SEE COMPANY AND FOUND THE SAME TO BE NOT A VALID COMPAR ABLE BY RETURNING FOLLOWING FINDINGS :- 25. FROM THE NATURE OF SERVICES RENDERED BY THE AS SESSEE 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 F ORTIFIED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N 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 BUSINESS OF DE VELOPMENT OF SOFTWARE FOR PARENT COMPANY. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS CASE FROM THE LIST OF COMPARABLES. THE ASSESSE E SUCCEEDS. ITA NO.5837/DEL./2011 24 32. KEEPING IN VIEW THE FINDINGS RETURNED BY THE CO ORDINATE BENCH THAT A GIANT COMPANY IN TERMS OF RISK PROFILE , SCALE, NATURE OF SERVICES, REVENUE OWNERSHIP OF BRANDED/PROPRIETARY PRODUCTS, ONSITE AND OFFSHORE SERVICES, ETC. MAKE IT INCOMPAR ABLE WITH THE ASSESSEE COMPANY FOR BENCHMARKING, WE ARE ALSO OF T HE CONSIDERED VIEW THAT THIS COMPANY CANNOT BE A VALID COMPARABLE TO THE ASSESSEE COMPANY, HENCE, HEREBY DIRECTED TO BE EXCL UDED. (VII) ISHIR INFOTECH LIMITED : 33. THIS COMPANY WAS NOT IN THE ACCEPT / REJECT MAT RIX OF TAXPAYER BUT THE SAME HAS BEEN RETAINED BY THE TPO IN THE FINAL LIST OF COMPARABLE DESPITE RAISING OBJECTIONS BY THE ASS ESSEE THAT ASSESSEE FAILED TO COMPLY WITH 25% EMPLOYEE COST FI LTER. 34. LD. DRP ALSO RETAINED THIS COMPANY AS A COMPARA BLE BY REJECTING THE OBJECTIONS RAISED BY THE ASSESSEE BY RETURNING FOLLOWING FINDINGS :- 65. ISHIR INFOTECH LIMITED: THE TAXPAYER HAS OBJECTED ON THE GROUND OF UNRELIABLE INFORMATION AND EMPLOYEE COST FILTER. WE FIND NO MERIT IN BOTH THE OBJECTIONS. ITS OBJECTION AGAI NST 133(6) INFORMATION HAS BEEN REJECTED. AS REGARDS EMPLOYEE COST FILTER THE TPQ HAS DISCUSSED THIS ISSUE ON PAGE 86 OF THE ORDE R WHICH CLEARLY SHOWS THAT THE EMPLOYEE COST IS 48.32%. THE OBJECTI ON REGARDING INCLUSION OF PROFESSIONAL FEES AS PART OF EMPLOYEE COST HAS ALSO BEEN DISCUSSED BY THE TPQ ON PAGE 86/87 OF THE ORDE R. IN VIEW OF THE REASONS GIVEN BY THE TPA WE FIND NO FORCE IN TH E TAXPAYER'S OBJECTIONS. ITA NO.5837/DEL./2011 25 35. COORDINATE BENCH IN THE CASE CITED AS TOLUNA (SUPRA) EXAMINED THIS COMPANY TO BE TAKEN AS A VALID COMPAR ABLE VIS--VIS ASSESSEE COMPANY, WHICH IS UNDISPUTEDLY SIMILARLY S ITUATED AS ASSESSEE COMPANY AND DIRECTED TO RETAIN THIS COMPAN Y AS A VALID COMPARABLE BY RETURNING FOLLOWING FINDINGS :- 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 THAT EMPL OYEE COST OF THIS COMPANY WAS 4% ONLY, IS NOT CORRECT BECAUSE OF THE EXERCISE CARRIED OUT BY THE TPO INDICATING THAT THE EMPLOYEE S COST WAS MORE THAN 25%. THE LD. DR HAS TAKEN US THROUGH THE ANNUAL ACCOUNTS OF THIS COMPANY WHICH SHOW THAT SOME PART OF THE EMPLOYEES COST WAS ALSO INCLUDED IN ADMINISTRATIVE EXPENSES APART FROM DIRECT ESTABLISHMENT EXPENSES. IT CAN B E SEEN THAT THE COMPANY HAS INCLUDED PROFESSIONAL FEES OF RS.3.41 C RORE ALONG WITH DIRECTORS SALARY, ETC., UNDER THE HEAD ADMIN ISTRATIVE EXPENSES. WHEN THIS OBJECTION WAS TAKEN BY THE ASS ESSEE BEFORE THE TPO THAT THE EMPLOYEE COST WAS ONLY 4% VIEWING ONLY THE ESTABLISHMENT EXPENSES IN ISOLATION WITHOUT CONSI DERING THE EMPLOYEE COST INCLUDED UNDER THE HEAD ADMINISTRATI VE EXPENSES, THE TPO CORRECTED THE POSITION BY OBSERVING THAT TH E EMPLOYEE COST WAS MORE THAN 25% BY IMPLIEDLY INCLUDING THE PERSON NEL COST INCLUDED UNDER THE HEAD ADMINISTRATIVE EXPENSES. THE ASSESSEE DID NOT CHALLENGE THE TPOS CALCULATION BEFORE THE DRP ON THIS ISSUE. AS SUCH, IT BECOMES APPARENT THAT THERE IS N O MERIT IN THIS OBJECTION AGAIN TAKEN UP BEFORE US WHICH HAS ALREAD Y BEEN SUCCESSFULLY DEALT WITH BY THE TPO. INSOFAR AS THE ASSESSEES OBJECTION ABOUT THE RELATED PARTY TRANSACTIONS IS C ONCERNED, WE HAVE DISCUSSED THIS ISSUE THOROUGHLY WHILE DEALING WITH THE COMPARABLE CASE OF ACCEL TRANSMATICS LTD. (SUPRA) I N WHICH IT HAS BEEN HELD THAT FILTER OF 25% OF RPT IS GOOD ENOUGH TO MAKE A CONTROLLED TRANSACTION AND THUS EXPUNGING IT FROM T HE LIST OF COMPARABLES, WHICH CAN ONLY BE UNCONTROLLED TRANSAC TIONS. THE LD. AR FAILED TO POINT OUT ANY FUNCTIONAL DIFFERENCE OF THIS COMPANY VIS-A-VIS THE ASSESSEE. AS SUCH, WE APPROVE THE VIE W TAKEN BY THE TPO IN INCLUDING THIS CASE IN THE LIST OF COMPARABL ES. THE ASSESSEE FAILS. 36. SO, KEEPING IN VIEW THE FINDINGS RETURNED BY TH E COORDINATE BENCH AND THE ANNUAL REPORT AVAILABLE ON THE FILE, THE SOLE OBJECTION ITA NO.5837/DEL./2011 26 RAISED BY THE ASSESSEE COMPANY THAT IN THIS COMPANY , EMPLOYEES COST IS LESS THAN 25% OF THE REVENUE IS APPARENTLY NOT SUSTAINABLE AS THE SAME WAS MORE THAN 25% AND FUNCTIONAL DISSIMILA RITIES VIS-- VIS ASSESSEE COMPANY HAVE ALSO NOT BEEN BROUGHT ON RECORD. SO, WE HEREBY DIRECT TO RETAIN THIS COMPARABLE COMPANY AS A VALID COMPARABLE. (VIII) KALS INFORMATION SYSTEMS LIMITED (SEGMENTAL) 37. ASSESSEE OPPOSED THE INCLUSION OF THIS COMPANY IN THE FINAL SET OF COMPARABLES FOR TRANSFER PRICING ADJUSTMENT ON THE GROUND THAT THIS COMPANY IS DRIVING REVENUE FROM BOTH PROD UCT AND SOFTWARE SERVICES AND SUCH IS FUNCTIONALLY DIS-SIMI LAR AND RELIED UPON THE CASE OF TOLUNA (SUPRA). 38. THE COORDINATE BENCH IN THE JUDGMENT (SUPRA) DI RECTED TO EXCLUDE THIS COMPANY AS COMPARABLE BY RETURNING FOL LOWING GROUNDS :- 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 COMPAN Y BY NOTICING THAT THIS SEGMENT ALSO INCLUDED REVENUES F ROM SOFTWARE PRODUCTS AND TRAINING. IN VIEW OF THE FACT THAT THE 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 SUC H, THIS CASE IS DIRECTED TO BE EXCLUDED. THE ASSESSEE SUCCEEDS. ITA NO.5837/DEL./2011 27 39. PERUSAL OF THE ANNUAL REPORT OF THIS COMPANY AV AILABLE ON FILE GOES TO PROVE THAT SOFTWARE DEVELOPMENT SEGMENT OF THIS COMPANY ALSO INCLUDES REVENUES FROM SOFTWARE AND TRAINING W HEREAS ASSESSEE COMPANY IS NOT ENGAGED IN IMPARTING ANY TRAINING OR SELLING ITS SOFTWARE PRODUCT TO ATTRACT REVENUE. SO, THE FINAN CES OF THIS COMPANY ARE NOT COMPARABLE WITH THE ASSESSEE COMPAN Y. IN VIEW OF THE MATTER, WE HEREBY DIRECT THAT THIS COMPANY I S NOT A VALID COMPARABLE. (IX) LGS GLOBAL LIMITED (LANCO GLOBAL SOLUTION LIMITED) 40. THIS COMPANY HAVING 15.75% OP/TC HAS BEEN SELEC TED BY THE TPO AS A COMPARABLE COMPANY AS IT QUALIFIES ALL THE FILTERS APPLIED BY THE TPO. DURING THE TP PROCEEDINGS, THE ASSESSEE HAS NOT RAISED ANY OBJECTION FOR INCLUSION OF THIS COMP ANY VIDE ITS LETTER DATED 08.07.2010. HOWEVER, BEFORE LD. DRP, ASSESSE E RAISED THE SOLE OBJECTION THAT THIS COMPANY WAS CHERRY PICKED WHICH WAS NOT PART OF THE SEARCH LIST. HOWEVER, THIS IS A VAGUE AND AMBIGUOUS OBJECTION AND IS NOT SUSTAINABLE IN THE LIGHT OF TH E FACT THAT THE FUNCTIONAL COMPARABILITY IS NOT IN DISPUTE AND ITS FINANCIAL DATA IS AVAILABLE IN THE PUBLIC DOMAIN AND HAS BEEN CONSIDE RED AS A VALID COMPARABLE BY THE TPO IN HIS TP STUDY. SO, WE FIND NO GROUND TO ITA NO.5837/DEL./2011 28 INTERFERE INTO THE FINDINGS RETURNED BY THE LD. TPO /DRP TO RETAIN THIS COMPANY AS A VALID COMPARABLE FOR TP ADJUSTMEN T. (X) LUCID SOFTWARE LIMITED : 41. THIS COMPANY IS NOT IN THE ACCEPT/REJECT MATRIX OF SEARCH PROCESS CONDUCTED BY THE ASSESSEE. ASSESSEE OPPOSE D INCLUSION OF THIS COMPANY ON TWO GROUNDS ONE : THAT IT IS FUNC TIONALLY DIS- SIMILAR AS IT IS DERIVING REVENUE BOTH FROM PRODUCT DEVELOPMENT AS WELL AS SOFTWARE SERVICES; TWO : THAT IT HAS INSUFF ICIENT SEGMENTAL INFORMATION AND RELIED UPON THE CASE OF TOLUNA (SUPRA). 42. COORDINATE BENCH IN THE JUDGMENT OF TOLUNA (SUPRA) DIRECTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BY RETURNING THE FOLLOWING FINDINGS :- 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 ASSESSEES SU BMISSIONS DESPITE THE FACT THAT SUFFICIENT MATERIAL TAKEN FRO M THE WEBSITE OF THIS COMPANY WAS PLACED BEFORE HIM IN SUPPORT OF TH E CONTENTION. IT CAN BE SEEN FROM PAGE 192 OF THE PAPER BOOK, BEI NG NOTES TO THE BALANCE SHEET OF LUCID SOFTWARE LTD., THAT THIS COM PANY DEVELOPED SOFTWARE PRODUCTS IN-HOUSE. THE EXPENDITURE SO INCU RRED ON PRODUCT DEVELOPMENT HAS BEEN DULY CAPITALIZED BY LU CID SOFTWARE LTD. THESE FACTS AMPLY BRING OUT THAT LUCID SOFTWAR E LTD. CANNOT BE CONSIDERED AS COMPARABLE. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS CASE FROM THE LIST OF COMPARABLES. THE ASSESSE E SUCCEEDS. 43. PERUSAL OF THE FINDINGS RETURNED BY THE TPO/DRP APPARENTLY GOES TO PROVE THAT THE SAME ARE FACTUALLY INCORRECT BECAUSE FROM THE BALANCE SHEET OF THIS COMPANY AVAILABLE ON THE FILE , IT IS PROVED THAT ITA NO.5837/DEL./2011 29 THIS COMPANY IS DEVELOPING SOFTWARE PRODUCT IN-HOUS E AND THE EXPENDITURE INCURRED ON PRODUCT DEVELOPMENT HAS BEE N DULY CAPITALIZED BY THIS COMPANY. WHEREAS TPO HAS STATE D THAT THIS COMPANY DOES NOT HAVE ANY REVENUE BY WAY OF SALE OF PRODUCT/LICENCE. SO, BY RESPECTFULLY FOLLOWING THE FINDINGS RETURNED BY THE COORDINATE BENCH, WE HEREBY DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES FOR TP ADJUSTM ENT. (XI) MEGASOFT LIMITED : 44. THIS COMPANY WAS NOT IN THE ACCEPT/REJECT MATRI X OF SEARCH PROCESS IN THE TP STUDY. IT HAS OP/TC FOR THE FINA NCIAL YEAR 2006- 07 AT 60.23%. TPO RETAINED THIS COMPANY AS A COMPA RABLE DESPITE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS IN TER ALIA THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR BEING INTO THE SALE OF SOFTWARE PRODUCT ALONG WITH PROVISION OF SOFTWARE DEVELOPMEN T SERVICES; THAT THE INFORMATION PROVIDED BY THE COMPANY U/S 1 33(6) OF THE ACT IS NOT RELIABLE NOR IT IS AVAILABLE IN THE PUBL IC DOMAIN AND AGAIN RELIED UPON THE CASE OF TOLUNA (SUPRA). THE COORDINATE BENCH TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE FOR COMPARABILITY WITH TOLUNA (SUPRA), A SIMILARLY SITUATED COMPANY AS THAT OF THE ASSESSEE, RETURNED THE FOLLO WING FINDINGS :- 31.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE DIRECTORS REP ORT OF THIS ITA NO.5837/DEL./2011 30 COMPANY, A COPY OF WHICH IS AVAILABLE ON PAGE 193 O F THE PAPER BOOK, THAT THE FINANCIAL RESULTS FOR THE YEAR INCLU DE THE BUSINESS PERFORMANCE OF VISUAL SOFT TECHNOLOGIES LTD. W.E.F. 1 ST OCTOBER, 2006 CONSEQUENT TO THE AMALGAMATION. THE MUMBAI BEN CH OF THE TRIBUNAL IN PETRO ARALDITE (P) LTD. VS. DCIT [(2013 ) 154 TTJ (MUM) 176] HAS HELD THAT A COMPANY CANNOT BE CONSID ERED AS COMPARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULTS DUE TO MERGERS/DEMERGERS ETC. SINCE THE FINANCIAL RESULTS OF MEGASOFT LTD. HAVE THE IMPACT OF THE MERGER OF VISUAL SOFTWARE TE CHNOLOGIES LTD., W.E.F. 1 ST OCTOBER, 2006, OBVIOUSLY, THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. ACCORDINGLY, THIS COMPANY IS DIRECTED TO BE EXCLUDED. THE ASSESSEE SUCCEEDS. 45. THIS COMPANY IS APPARENTLY NOT QUALIFIED TO BE KEPT IN THE LIST OF COMPARABLES ON THE GROUND THAT DUE TO AMALG AMATION, FINANCIAL RESULTS OF THIS COMPANY INCLUDE BUSINESS PERFORMANCE OF VISUAL TECHNOLOGY LIMITED AMALGAMATED W.E.F. 01.10. 2006 FOR THE DETAILED REASONS RECORDED BY THE COORDINATE BENCH, SO, BY FOLLOWING THE AFORESAID DECISION, WE HEREBY DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. (XII) PERSISTENT SYSTEM LIMITED : 46. THIS COMPANY IS NOT IN THE SELECT LIST OF THE A SSESSEE IN TP STUDY. HOWEVER, TPO KEPT THIS COMPANY IN THE FINAL LIST OF COMPARABLE BY STATING THAT THE TAXPAYER HAS NOT RAI SED ANY OBJECTION FOR INCLUSION OF THIS COMPANY AS COMPARAB LE. ASSESSEE OPPOSED THIS COMPANY AS COMPARABLE ON THE GROUNDS I NTER ALIA THAT THIS COMPANY IS INTO THE SOFTWARE PRODUCT DEVELOPME NT AS WELL AS SOFTWARE SERVICES PROVIDER AND AS SUCH, IS FUNCTION ALLY DIS-SIMILAR AND ITS DATA / INFORMATION IS NOT AVAILABLE IN THE PUBLIC DOMAIN AND ITA NO.5837/DEL./2011 31 RELIED UPON THE CASE OF TOLUNA (SUPRA). HOWEVER, THIS COMPANY HAS BEEN EXCLUDED AS COMPARABLE BY THE COORDINATE B ENCH IN TOLUNA (SUPRA) ON GROUND OF MERGER OF THE SUBSIDIARY COMP ANY INTO THIS COMPANY BY RETURNING THE FOLLOWING FINDIN GS :- 33. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD, WE HOLD THAT THIS COMP ANY ALSO CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF MERGER OF AN OTHER COMPANY INTO IT, WHICH FACT IS EVIDENT FROM PAGE 19 6 OF THE PAPER BOOK. IT CAN BE SEEN THAT A SUBSIDIARY COMPANY WAS MERGED INTO THIS COMPANY PURSUANT TO JUDGMENT OF HONBLE BOMBAY HIGH COURT W.E.F. 1.4.06. BECAUSE OF THE MERGER OF SUBSI DIARY INTO THIS COMPANY, WE HOLD THAT THE FINANCIAL POSITION OF THI S COMPANY CANNOT BE CONSTRUED AS NORMAL CAPABLE OF A GOOD COM PARISON. FOLLOWING THE MUMBAI BENCH DECISION IN PETRO ARALDI TE (P) LTD. (SUPRA), WE DIRECT THE EXCLUSION OF THIS COMPANY FR OM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. 47. FOLLOWING THE DECISION RENDERED BY THE COORDINA TE BENCH IN THE CASE OF TOLUNA (SUPRA), WE HEREBY DIRECT TO EXCLUDE THIS COMPANY FORM THE FINAL LIST OF COMPARABLE ON GROUND OF MERGER WHICH HAS IMPACTED THE FINANCIAL RESULT OF THIS COM PANY NECESSARY FOR COMPARISON FOR TRANSFER PRICING ADJUSTMENT. (XIII) R SYSTEMS INTERNATIONAL LIMITED (SEGMENTAL) 48. THIS COMPANY HAS BEEN SELECTED AS A COMPARABLE BY THE TPO HAVING OP/TC FOR THE FINANCIAL YEAR 2006-07 AT 15.0 7% DESPITE OBJECTIONS RAISED BY THE ASSESSEE THAT THIS COMPANY IS DERIVING REVENUE FROM BOTH PRODUCT AND SOFTWARE SERVICES AND AS SUCH IS FUNCTIONALLY DIS-SIMILAR. HOWEVER, ON THE OTHER HA ND, LD. DR ITA NO.5837/DEL./2011 32 CONTENDED THAT THIS COMPANY IS A VALID COMPARABLE W ITH CORRECT PERCENTAGE OF OP/OC AT 15.07% AND RELIED UPON THE C ASE OF TOLUNA (SUPRA). 49. COORDINATE BENCH EXAMINED THE COMPARABILITY OF THIS COMPANY WITH TOLUNA (SUPRA), A SIMILAR SITUATED COMPANY AS ASSESSEE IN THIS CASE, AND RETAINED THE SAME AS VAL ID COMPARABLE BY RETURNING FOLLOWING FINDINGS :- 36.2. WE ARE NOT AGREEABLE WITH THE CONTENTION ADV ANCED 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 MENTION ED THAT THE PROVISION FOR DOUBTFUL DEBTS/ADVANCES WAS EXCLUDED BECAUSE THESE WERE NOT RECURRING FOR THE LAST THREE YEARS AND WER E ALSO NOT AT CONSISTENT LEVEL. WE FAIL TO APPRECIATE AS TO HOW A `PROVISION FOR DOUBTFUL DEBTS CAN BE CONSIDERED AS A PART OF OPER ATING COST UNLESS IT IS SHOWN THAT THE ACTUAL EXPENDITURE ON ACCOUNT OF BAD DEBTS WAS EQUAL TO SUCH AMOUNT OF PROVISION. NOTHING OF THIS SORT HAS BEEN PROVED ON BEHALF OF THE ASSESSEE. AS SUCH, WE HOLD THAT THE TPO WAS JUSTIFIED IN EXCLUDING THE `PROVISION FOR DOUBT FUL DEBTS/ADVANCES FROM TOTAL OPERATING COST. THIS CON TENTION RAISED ON BEHALF OF THE ASSESSEE IS REPELLED. RESULTANTLY, THIS COMPANY IS HELD TO BE RIGHTLY INCLUDED IN THE LIST OF COMPARAB LES WITH THE CORRECT PERCENTAGE OF OP/OC AT 15.07%. THE ASSESSEE FAILS. 50. SO, BY FOLLOWING THE FINDINGS RETURNED BY THE C OORDINATE BENCH AS WELL AS THE FACT THAT THE FUNCTIONAL DIS-S IMILARITY RAISED BY THE ASSESSEE HAS NOT BEEN EXPLAINED, WE HEREBY ORDE R TO RETAIN THIS COMPANY AS A VALID COMPARABLE. (XIV) TATA ELXSI LIMITED (SEGMENTAL) 51. TPO RETAINED THIS COMPANY AS A COMPARABLE DESPI TE OBJECTIONS RAISED BY THE ASSESSEE THAT IT IS FUNCTI ONALLY SIMILAR ITA NO.5837/DEL./2011 33 BEING INTO THE SOFTWARE PRODUCT AND ITE SERVICES; T HAT THIS COMPANY HAS DIFFERENT MODEL OF REVENUE RECOGNITION AND RELIED UPON THE CASE OF TOLUNA (SUPRA). 52. COORDINATE BENCH IN THE JUDGMENT CITED AS (XXII ) DIRECTED TO EXCLUDE THIS COMPANY TO BE EXCLUDED FROM THE LIST O F COMPARABLE BY RETURNING FOLLOWING FINDINGS :- 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 THE NATURE OF ITS ACTIVITY IS QUITE DISTINCT FROM T HAT OF THE ASSESSEE. IT CAN BE SEEN THAT THIS COMPANY IS INTO DEVELOPMEN T OF HARDWARE AND SOFTWARE FOR EMBEDDED PRODUCTS SUCH AS MULTI-ME DIA AND SOME OTHER ELECTRONICS, ETC. APART FROM THAT, THIS COMPA NY IS ALSO ENGAGED IN MAKING SOME PROGRAMMES DEVELOPING TECHNO LOGY INTELLECTUAL PROPERTY. AS THE NATURE OF ACTIVITY CA RRIED OUT BY THE ASSESSEE IN QUESTION IS NOWHERE CLOSE TO THAT OF TA TA ELXSI LTD., WE HOLD THAT THIS COMPANY CANNOT BE INCLUDED IN THE LI ST OF COMPARABLES. ACCORDINGLY, THIS COMPANY IS DIRECTED TO BE EXCLUDED. THE ASSESSEE SUCCEEDS. 53. KEEPING IN VIEW THE FACT THAT THIS COMPARABLE C OMPANY IS DEVELOPING HARDWARE AND SOFTWARE FOR EMBEDDED PRODU CTS, SUCH AS, MULTI-MEDIA AND SOME OTHER ELECTRONICS ETC. AND IS ALSO MAKING SOME PROGRAMMES DEVELOPING TECHNOLOGY IN THE FORM O F INTELLECTUAL PROPERTY. SO, THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY VIS--VIS COMPARABLE COMPANY IS DIS-SIMILAR AND MAKES IT INCOMPARABLE FOR TRANSFER PRICING. SO, WE HEREBY D IRECT TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. ITA NO.5837/DEL./2011 34 (XV) THIRDWARE SOLUTIONS LIMITED : 54. THIS IS TPOS OWN COMPARABLE FINDING PLACE IN T HE FINAL LIST OF COMPARABLES DESPITE OBJECTIONS RAISED BY THE ASS ESSEE INTER ALIA THAT THIS COMPANY IS NOT A SOFTWARE SERVICE PROVIDE R AND THAT TPO/DRP HAVE USED UNAUDITED SEGMENTAL DATA RELATING TO SOFTWARE DEVELOPMENT PROFIT SEGMENT BY THE ASSESSEE COMPANY IN RESPONSE TO THE NOTICE U/S 133(6) OF THE ACT. 55. HOWEVER, UNDISPUTEDLY THE LD. TPO HAS USED SEGM ENTAL DATA OF THIS COMPARABLE COMPANY RELATING TO SOFTWARE DEV ELOPMENT PROFIT SEGMENT PROVIDED TO HIM U/S 133 (6) OF THE A CT, WHICH CANNOT BE DOUBTED WITHOUT ANY COGENT MATERIAL BROUG HT ON RECORD BY THE ASSESSEE COMPANY. ON THE BASIS OF SEGMENTAL DATA, THE LD. TPO COMPUTED THE OP/TC OF THIS COMPARABLE COMPANY A T 25.12% WHICH IS OTHERWISE NOT DISPUTED BY THE ASSESSEE COM PANY. PROFIT & LOSS ACCOUNT OF THIS COMPARABLE COMPANY APPARENTLY PROVES THE PROFITABILITY OF SOFTWARE DEVELOPMENT SERVICES SEGM ENT. SEGMENTAL DATA OBTAINED BY THE TPO THOUGH NOT AUDITED BUT TO CONTROVERT THIS DATA, THE ASSESSEE HAD NOT PRODUCED ANY MATERIAL ON RECORD AND AS SUCH, WE ARE OF THE CONSIDERED OPINION THAT THIS CO MPANY IS A VALID COMPARABLE FOR TP ADJUSTMENT IN THIS CASE. ITA NO.5837/DEL./2011 35 (XVI) WIPRO LIMITED : 56. LD. TPO SELECTED THIS COMPANY AS A VALID COMPAR ABLE BY COMPUTED ITS OP/TC AT 33.65% DESPITE RAISING OF REJ ECTION BY THE ASSESSEE COMPANY ON GROUND OF FUNCTIONAL DIS-SIMILA RITY AND ON GROUND OF HUGE SCALE OF BUSINESS VIS--VIS ASSESSEE . LD. AR FOR THE ASSESSEE BY RELYING UPON THE CASE OF TOLUNA (SUPRA) CONTENDED THAT THIS COMPARABLE COMPANY HAS BEEN EXCLUDED BY T HE TRIBUNAL IT BEING A GIANT COMPANY. THE COORDINATE BENCH ORDERE D TO EXCLUDE THIS COMPANY AS A COMPARABLE FOR TP ADJUSTMENT WITH TOLUNA (SUPRA), WHICH IS A SIMILARLY SITUATED COMPANY AS I N THE CASE OF ASSESSEE BY RETURNING FOLLOWING FINDINGS :- 41. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING 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 TERMS OF PARAMETERS DISCUSSED ABOVE WHILE DEALING WITH THE CASE OF INFO SYS LTD. THE HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY INDI A TECHNOLOGIES PVT. LTD. (SUPRA) HAS UPHELD THE EXCLU SION OF THIS COMPANY ALSO FROM THE LIST OF COMPARABLES ON THE BA SIS OF CERTAIN PARAMETERS, WHICH ARE FULLY APPLICABLE TO THE INSTA NT ASSESSEE AS WELL. IT IS, THEREFORE, DIRECTED TO EXCLUDE THIS CO MPANY FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. 57. SINCE THE COMPARABLE COMPANY IS INTO DIVERSIFIE D BUSINESS OPERATION LIKE APPLICATION, DEVELOPMENT AND MAINTEN ANCE, R&D SERVICES, INFRASTRUCTURE OUTSOURCING, TESTING SERVI CES, IMPLEMENTATION SERVICES AND BPO SERVICES AND IT IS ALSO A GIANT COMPANY VIS--VIS ASSESSEE COMPANY HAVING TURNOVER OF ITA NO.5837/DEL./2011 36 RS.9616.09 CRORES VIS--VIS RS.140 CRORES IN CASE O F THE ASSESSEE, IT CANNOT BE KEPT AS A VALID COMPARABLE FOR CORRECT TR ANSFER PRICING ADJUSTMENT. SO, WE HEREBY ORDER TO EXCLUDE THIS CO MPANY FROM THE FINAL LIST OF COMPARABLES. 58. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE I MPUGNED ORDER IS SET ASIDE AND THE CASE IS RESTORED TO THE LD. TPO/AO FOR REDETERMINATION OF ALP OF INTERNATIONAL TRANSACTION S UNDERTAKEN BY THE ASSESSEE DURING THE YEAR UNDER ASSESSMENT IN TH E LIGHT OF THE DIRECTIONS GIVEN HEREINBEFORE. COMPARABLE COMPANIES SOUGHT TO BE INCLUDED BY THE ASSESSEE FOR BENCHMARKING ITS INTERNTAIONAL TRANSACITON : (I) GOLDSTONE TECHNOLOGIES LIMITED : 59. THIS IS ASSESSEES OWN COMPARABLE WHICH HAS BEE N REJECTED BY THE TPO ON THE GROUNDS INTER ALIA THAT THE ASSES SEE HAS NOT TAKEN INTO ACCOUNT THE DATA PERTAINING TO FINANCIAL YEAR 2006-07; THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE EXPORT EARNINGS AS WELL AS ONSITE REVENUES AS THE SAME WAS NOT AVAILABLE OR CLEAR FRO M THE ANNUAL REPORT; THAT THIS COMPARABLE COMPANY IS INTO IT ENA BLED SERVICES AND NOT INTO SOFTWARE DEVELOPMENT SERVICES AND AS S UCH IS FUNCTIONALLY DIS-SIMILAR. ITA NO.5837/DEL./2011 37 60. FROM THE FINDINGS RETURNED BY THE LD. TPO AT PA GE 33 OF THE TP ORDER, IT IS APPARENTLY CLEAR THAT THE TPO HAS R EJECTED THIS COMPARABLE CHOSEN BY THE ASSESSEE ON THE GROUND THA T THE ASSESSEE HAS FAILED TO CLARIFY ON EXPORT EARNING AS WELL AS ONSITE REVENUES AS THE SAME WAS NOT AVAILABLE AND CLEAR FROM THE ANNUA L REPORT. BUT, IN TP PROCEEDINGS, HE HAS NOT PREFERRED TO REFER TH E ANNUAL REPORT TO ARRIVE AT THE CONCLUSION DRAWN IN THIS CASE. WHEN SEGMENTAL DATA IS AVAILABLE IN THE ANNUAL REPORT AT PAGE 1268 OF THE PAPER BOOK-4, WHEREIN IT IS CATEGORICALLY MENTIONED THAT, TO LEV ERAGE THE COMPANYS STRENGTH AND GROWING OPPORTUNITIES IN IT AND ITES INDUSTRY, YOUR COMPANY PLANS TO FORAY INTO BUSINESS INTELLIGENCE WHICH IS HAVING GOOD BUSINESS POTENTIAL APART FROM THE EXISTING SOFTWARE DEVELOPMENT AND TECHNICAL SUPPORT SERVICES , IT APPEARS THAT THE TPO, WITHOUT GOING INTO THE ANNUAL REPORT, HAS REJECTED THIS COMPARABLE. AS SUCH, THE TPO IS DIRE CTED TO CONSIDER THIS COMPARABLE FOR TP ADJUSTMENT AFTER VERIFYING T HE COMPLETE SEGMENTAL DATA AVAILABLE IN THE PUBLIC DOMAIN. (II) MAARS SOFTWARE INTERNATIONAL LIMITED : 61. AGAIN THIS IS ASSESSEES COMPARABLE HAVING OP/T C AT MINUS 11.68%. TPO AGAIN REJECTED THIS COMPARABLE ON THE GROUNDS INTER ALIA THAT FROM THE DATA OBTAINED U/S 133 (6) FROM T HE COMPANY, IT IS ITA NO.5837/DEL./2011 38 PROVED THAT THIS COMPARABLE COMPANY IS NOT INTO THE SOFTWARE DEVELOPMENT SERVICES AND ALL ITS EXPORT REVENUE ARE GENERATED FROM BRANCH LOCATED OUTSIDE INDIA AND AS SUCH, IT FAILS ONSITE REVENUE FILTERS AND IS FUNCTIONALLY DIS-SIMILAR. 62. HOWEVER, PERUSAL OF THE PROFIT & LOSS ACCOUNT A VAILABLE AT PAGE 1319 OF THE ANNUAL REPORT SHOWS THAT INCOME FR OM SOFTWARE DEVELOPMENT, TRAINING AND PRODUCT HAS BEEN CATEGORI CALLY SHOWN AT RS.34,93,27,750/- AND SEGMENTAL DATA IS AVAILABLE. SO, THE FINDINGS OF THE TPO THAT THIS COMPARABLE COMPANY IS NOT INTO SOFTWARE DEVELOPMENT SERVICES ARE FACTUALLY INCORRECT. SO, WHEN THE ANNUAL REPORT OF THIS COMPARABLE COMPANY IS AVAILABLE IN T HE PUBLIC DOMAIN THE TPO IS DIRECTED TO CONSIDER THIS COMPANY AS COMPARABLE FOR TP ADJUSTMENT. GROUND NO.12 : 63. LD. AR CHALLENGING THE IMPUGNED ORDER CONTENDED THAT LD. DRP/AO HAVE ERRED IN APPORTIONING CERTAIN EXPENSES THAT ARE SPECIFICALLY INCURRED IN RESPECT OF THE NON-STP UNI TS TO THE STP UNITS OF THE ASSESSEE AND THEREBY REDUCING THE DEDU CTION AVAILABLE TO THE SAID STP UNITS BY AN AMOUNT OF RS.65,03,158/ -. 64. PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE A O FOR APPORTIONMENT OF CERTAIN EXPENSES GOES TO PROVE THA T HE HAS APPORTIONED THE SAME BY CONSIDERING THE LETTER DATE D DECEMBER 22, ITA NO.5837/DEL./2011 39 2010 FILED BY THE ASSESSEE THAT NO EXPENDITURE EXC EPT FOR AN AMOUNT OF RS.33,45,506/- THAT HAS BEEN ALLOCATED TO THE STP UNIT OF THE ASSESSEE COMPANY, IN RESPECT OF WHICH TAX HOLID AY U/S 10A HAS BEEN CLAIMED AND THE ASSESSEE HAS NOT SUBMITTED DE TAIL OF ANY OTHER EXPENSES INCURRED BY THE HEAD OFFICE AND EQUA TED TO THE 10A UNIT. AO FURTHER OBSERVED THAT THE CONTENTION OF T HE ASSESSEE THAT NO OTHER EXPENDITURE HAS BEEN INCURRED, CANNOT BE A CCEPTED. SO, THE FINDINGS RETURNED BY OF THE AO ARE COMPREHENSIV E BASED UPON THE MATERIAL RELIED UPON BY THE ASSESSEE. 65. THEN LD. DRP REJECTED THE ARGUMENT ADDRESSED BY THE ASSESSEE BY RETURNING FOLLOWING FINDINGS :- 134. IT IS SUBMITTED BEFORE US THAT THE ASSESSEE'S STP UNIT IN BANGALORE HAS SEPARATELY MAINTAINED ITS ADMINISTRATIVE, HR AND OTHER SUPPORT FUNCTIONS. SEP ARATE EMPLOYEES, BANK ACCOUNT AND OFFICE INFRASTRUCTURE W AS MAINTAINED BY THE ASSESSEE IN RESPECT OF THIS STP U NIT. THEREFORE, MOST OF THE COSTS / EXPENSES INCURRED BY THE ASSESSEE WERE DIRECTLY RELATABLE TO THE STP UNIT AN D WERE DIRECTLY CHARGED TO THE PROFIT AND LOSS ACCOUNT OF THE STP UNIT (AT ACTUALS). THE REMUNERATION OF THE DIRECTOR WHO WAS LOOKING AFTER STP UNIT AT BANGALORE WAS PROVIDE D AT ACTUALS. THE REMUNERATION OF OTHER DIRECTORS NEED N OT BE APPORTIONED TO STP UNIT. 135. THE REMUNERATION PAID TO MANAGING DIRECTOR AN D DIRECTORS ARE AS FOLLOWS : NAME DESIGNA -TION SALARY (RS.) ROLES & RESPONSIBILITY MICHAEL KUEHNER MANAGI NG DIRECTOR 32,689,06 3 TECHNICAL HEAD FOR TELECOM DIVISION ITA NO.5837/DEL./2011 40 J. MEYER SEIPP DIRECTOR 17,545,09 1 COMMERCIAL HEAD FOR TELECOM DIVISION D.K. GHOSH DIRECTOR 7,814,390 COMMUNICATIO N & MARKETING HEAD FOR TELECOM DIVISION MS. GERLINDE STURM DIRECTOR 14,891,34 9 COMMERCIAL HEAD FOR TELECOM DIVISION (SUCCESSOR OF J MEYER SEIPP) M. GRENZHAEUSER DIRECTOR SCS DIVISION 2,423,142 TECHNICAL / COMMERCIAL HEAD FOR R&D CENTER 136. IN VIEW OF THE ABOVE FACTS, IT IS SUBMITTED TH AT THE APPORTIONMENT OF MANAGERIAL REMUNERATION AMOUNTING TO RS.75,363,035 IS UNWARRANTED. THE AMOUNT OF RS.72,939,893 DOES NOT REQUIRE TO BE APPORTIONED TO THE STP UNITS AS THE SAME IS IN RESPECT OF DIRECTORS OF THE COMPANY IN CHARGE OF TELECOM DIVISIONS (NON STP BUSINESS) OF THE ASSESSEE AND RS.2,423,142 BEING TH E MANAGERIAL REMUNERATION IN RESPECT OF STP UNITS HAS ALREADY BEEN APPORTIONED BETWEEN THE TWO STP UNITS AND THEREFORE, NO FURTHER ALLOCATION IS WARRANTED IN TH IS REGARD. 137. THE APPORTIONMENT OF AUDIT FEE HAS NOT BEEN OBJECTED BY THE ASSESSEE. THE APPORTIONMENT OF DIRE CTORS REMUNERATION IS DISPUTED BEFORE US. WE ARE OF THE V IEW THAT THE MANAGING DIRECTOR, MICHAEL KUEHNER, IS OVE RALL IN CHARGE OF THE COMPANY, THEREFORE HIS REMUNERATIO N HAS TO BE APPORTIONED BETWEEN STP AND NON-STP UNITS. TH E REMUNERATION PAID TO J. MEYER SEIPP AND MS. GERLIND E STURM ARE HIGHER SO, THEIR RESPONSIBILITIES ARE ALS O HIGHER. IT CANNOT BE SAID THAT THEY ARE NOT LOOKING AFTER T HE BUSINESS OF STP UNIT. WE ARE OF THE VIEW THAT THE APPORTIONMENT HAS RIGHTLY BEEN DONE BY THE AO. WE CONFIRM THE ORDER OF THE AO AS DIRECTORS ARE POLICY MAKERS OF THE COMPANY AND THEY RUN THE COMPANY ITA NO.5837/DEL./2011 41 COLLECTIVELY. THEY ARE COLLECTIVELY RESPONSIBLE TO THE COMPANY AS THE P.M. & CABINET COLLEAGUES ARE COLLECTIVELY RESPONSIBLE TO THE LOK SABHA. 66. WE ARE OF THE CONSIDERED VIEW THAT THE AO HAS CORRECTLY MADE THE APPORTIONMENT BETWEEN STP AND STP UNITS AN D AS SUCH, THERE IS NO SCOPE IN INTERFERING THE FINDINGS RETUR NED BY THE AO/DRP. HENCE, GROUND NO.12 IS DETERMINED AGAINST ASSESSEE. 68. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE P RESENT APPEAL IS HEREBY PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 18 TH DAY OF MAY, 2016. SD/- SD/- (R.S. SYAL) (KULDIP SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 18 TH DAY OF MAY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.