CashEdge India (P) Ltd., New Delhi V. ITO, New Delhi

ITA 5848/DEL/2012

• Counselvise Citation: 584820114 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 30-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 20-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH KUMAR VERMA
• Keywords: Transfer pricing; International transaction; Question of law
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I , NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 5848/DEL/2012 ASSESSMENT YEAR : 2008-09 CASH EDGE INDIA PVT. LTD., VS. ITO, WARD 3(2), 30, NIZAMUDDIN EAST, NEW DELHI NEW DELHI 110 013 GIR / PAN:AACCC2816K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SACHIT JOLLY, ADV. MRS. ROOHINA DUA, AR RESPONDENT BY : SHRI YOGESH KUMAR VERMA, CIT DR ORDER PER T.S. KAPOOR, AM: THIS APPEAL IS FIELD BY THE ASSESSEE AGAINST THE O RDER OF THE ASSESSING OFFICER PASSED ON 30.10.2012 U/S 143(3) READ WITH S ECTION 144C OF THE ACT. THE ASSESSEE HAS RAISED VARIOUS GROUNDS OF APPEAL. HOWEVER MAINLY, ASSESSEE IS AGGRIEVED ON TWO ISSUES ONE OF WHICH RE LATES TO DENIAL OF EXEMPTION U/S 10A OF THE ACT IN RESPECT OF GURGAON AND CHENNAI UNITS AND THE 2 ND GRIEVANCE OF THE ASSESSEE IS WITH RESPECT TO ADJUS TMENT IN THE TRANSFER PRICING MADE BY THE TPO. 2. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT GROUN DS NO.1 TO 2.15 RAISED BY THE ASSESSEE ARE SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE VIDE TRIBUNAL ORDER DATED 15,03,2013 IN I.T.A.NO. NOS. 5585 AND 5 847 FOR THE ASSESSMENT YEAR 2005-06 AND 2007-08 IN THE CASE OF ASSESSEE IT SELF. IN THIS RESPECT, OUR ITA NO.5848/DEL/12 2 ATTENTION WAS INVITED TO THE RELEVANT FINDINGS AS C ONTAINED IN THE TRIBUNAL ORDER VIDE PARA 6 TO 6.6. LD. A.R. FURTHER SUBMITT ED THAT THE HON'BLE HIGH COURT HAS ALREADY DISMISSED THE APPEAL OF THE REVEN UE AGAINST THE SAID TRIBUNAL ORDER VIDE ORDER DATED 18.07.2014 IN I.T.A .NO. 285 AND 286 AND IN THIS RESPECT, HE PLACED A COPY OF THE HON'BLE HIGH DELHI COURT ORDER. 3. AS REGARDS THE OTHER ISSUE OF TRANSFER PRICING A DDITION, THE LD. A.R. INVITED OUR ATTENTION TO GROUNDS RAISED BY IT AS CO NTAINED IN PARA 3 TO 3.12. IN THIS RESPECT, THE LD. A.R. SUBMITTED THAT THIS G ROUND NO.3 IS GENERAL IN NATURE AND HE WILL NOT BE PRESSING GROUNDS NO.3.2, 3.7, 3.8 AND 3.11. AS REGARDS GROUND NO.3.3, THE LD. A.R. SUBMITTED THAT THIS GROUND IS AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2006-07, THEREFORE, IT NEEDS TO BE DISMISSED. LD. A.R. SUBMITTED THAT IN REST OF THE GROUNDS THE GRIE VANCE OF THE ASSESSEE IS ON FOUR COUNTS THE FIRST OF WHICH IS THE TURNOVER FILT ER. IT WAS SUBMITTED THAT TPO HAS CHOSEN TO TAKE LOWER FILTER WITH RESPECT TO TURNOVER AND DID NOT INCLUDE COMPANIES HAVING TURNOVER OF LESS THAN RS.1 CRORE WHEREAS ON THE OTHER HAND, HE HAS NOT CAPPED UPPER FILTER. LD. A. R. SUBMITTED THAT THE APPELLANT HAD OPERATING REVENUE OF ONLY RS.23.46 CR ORES AGAINST OPERATING EXPENSES OF RS.21.13 CRORES AND THEREBY PROVIDING T HE PROFITABILITY OF RS.11.05 % OF OPERATING EXPENSES WHEREAS THE TURNOV ER OF COMPARABLES WAS UP TO RS.15000 CRORES AND IN THIS RESPECT OUR ATTEN TION WAS INVITED TO PAGE 5 OF THE SYNOPSIS TO HIGHLIGHT THE TURNOVER OF COMPAR ABLES. THE LD. A.R. SUBMITTED THAT TPO HAD APPLIED LOWER FILTER OF RS.1 CRORES BUT FAILED TO APPLY UPPER FILTER OF 200 CRORES WHICH WAS NOT JUSTIFIED AS IN A SERIES OF JUDICIAL ORDERS, IT HAS BEEN HELD THAT UPPER FILTER TURNOVER FILTER UP TO RS.200 CRORES SHOULD BE APPLIED TO SELECT THE COMPARABLES AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO A DECISION OF HON'BLE DELHI HIGH COU RT IN THE CASE OF CIT VS ITA NO.5848/DEL/12 3 AGNITY INDIA TECHNOLOGIES PVT. LTD. IN I.T.A.NO. 12 04/2011 WHEREIN THE HON'BLE COURT HAD CONFIRMED THE ORDER OF THE TRIBUN AL WHEREIN HON'BLE TRIBUNAL HAD EXCLUDED THE COMPARABLES WITH HIGH TUR NOVER LIKE INFOSYS FOR BENCHMARKING INTERNATIONAL TRANSACTIONS ENTERED INT O BY A CAPTIVE SERVICE PROVIDER. IT WAS FURTHER SUBMITTED THAT FOLLOWING THIS DECISION THE TRIBUNAL, IN THE CASE OF ATRENTA INDIA PVT. LTD. IN I.T.A.NO. 5493/DEL/2013 HAS ALSO EXCLUDED THE INFOSYS AS COMPARABLE. THE LD. A.R. S UBMITTED THAT 9 COMPARABLES SELECTED BY TPO WERE HAVING TURNOVER RA NGING FROM RS.89 CROES TO 15000 CRORES WHICH INCLUDED THE GIANTS LIK E INFOSYS, WIPRO, IGATE AND FLEXTRONICS ETC. IT WAS SUBMITTED THAT THE ASS ESSEE WAS HAVING SMALL TURNOVER OF RS.23 CRORES AND, THEREFORE, WAS NOT CO MPARABLE WITH THE GIANTS. TO FURTHER SUPPORT HIS ARGUMENTS, LD. A.R. INVITED OUR ATTENTION TO VARIOUS CASE LAWS DECIDED BY VARIOUS BENCHES OF THE TRIBUNA L WHEREIN APPLICATION OF UPPER FILTER OF RS.200 CRORES WAS UPHELD. OUR SPEC IFIC ATTENTION WAS INVITED TO LIST OF SUCH CASES AS NOTED ON PAGE 4 OF HIS SYN OPSIS. 3.1 THE SECOND LIMB OF ARGUMENTS OF LD. A.R. RELATE D TO THE ACTION OF TPO WHEREIN HE APPLIED EMPLOYEE COST FILTER. IT WAS SUBMITTED THAT TPO HAD EXCLUDED CERTAIN COMPANIES AS COMPARABLES BY APPLYI NG EMPLOYEE COST FILTER AND HAD EXCLUDED THOSE COMPANIES WHICH HAD EMPLOYEE COST OF LESS THAN 25% OF TOTAL COST. THE GROUND FOR ADOPTING SUCH A FILTER WAS THAT A SERVICE COMPANY MUST NECESSARILY HAVE STRONG EMPLOYEE BASE AND, THEREFORE, WAS NECESSARILY TO BE A HIGH EMPLOYEE COST COMPANY. IN THIS RESPECT, LD. A.R. ARGUED THAT IT IS NOT NECESSARY FOR A COMPANY TO IT SELF HIRE PERSONNEL AS THEIR EMPLOYEES TO RENDER SERVICES AND ON THE CONTRARY A COMPANY MAY ENTER INTO AN AGREEMENT WITH AN INDEPENDENT CONTRACTOR FOR SUP PLY OF PERSONNEL AND IN THAT CASE, THE EXPENSES INCURRED FOR CONTRACTING EM PLOYEES WOULD BE ITA NO.5848/DEL/12 4 DEPICTED IN THE P & L ACCOUNT AS ADMINISTRATIVE COS TS AND NOT AS EMPLOYEE COST AND, THEREFORE, IT WAS SUBMITTED THAT SUCH A F ILTER CAN NEVER BE APPLIED. TO SUPPORT HIS ARGUMENTS, LD. A.R. INVITED OUR ATTE NTION TO ORDER DATED 15.01.2013 OF HYDERABAD BENCH OF ITAT IN I.T.A.NO. 645/2009 WHEREIN THE TRIBUNAL HAD UPHELD THE ACTION O LD. CIT(A) IN DECI DING THE APPLICATION OF THIS FILTER. IN VIEW OF THE ABOVE, IT WAS ARGUED T HAT TPO MAY BE DIRECTED TO INCLUDE ALL COMPANIES WHICH HAVE BEEN EXCLUDED ON T HE BASIS OF THIS FILTER FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL T RANSACTIONS. 4. THE 3 RD ARGUMENT TAKEN BY THE LD. A.R. IS WITH RESPECT TO INCLUSION OF 4 COMPARABLES NAMELY M/S. AVANI SINCOM TECHNOLOGIES , KALS INFORMATION SYSTEM, BODHTREE CONSULTING LTD. AND LGS GLOBAL LTD . LD. A.R. SUBMITTED THAT M/S. AVANI CINCOM TECHNOLOGIES AND KALS INFORM ATION SYSTEM ARE ALSO ENGAGED IN THE DEVELOPMENT AND SALE OF PRODUCTS AND THEREFORE, WAS NOT COMPARABLE WITH THE ASSESSEE AS ASSESSEE WAS NOT IN TO DEVELOPMENT AND SALE OF PRODUCTS BUT WAS ONLY A CONSULTING SERVICE PROVI DER. LD. A.R. RELIED UPON A NUMBER OF CASE LAWS WHEREIN THE ABOVE SAID COMPAN IES WERE FOUND TO BE FUNCTIONALLY DIFFERENT IN VIEW OF THEIR INVOLVEMENT OF PRODUCT DEVELOPMENT AND THEIR SALE. OUR SPECIFIC ATTENTION WAS INVITED TO PAGE 6 & 7 OF SYNOPSIS WHERE THE FOLLOWING CASE LAWS WERE MENTIONED. I) CINCON SYSTEMS INDIA PVT. LTD. VS ACIT, II) WITNESS SYSTEMS SOFTWARE INDIA(P) LTD. VS DCIT 34 TAXMAN.COM 183. III) L G SOFT INDIA PVT. LTD. VS DCIT IT(TP)A NO.1 121.BANG/11 IV) BEARING POINT BUSINESS CONSULTING P. LTD. VS D CIT I.T.A.NO. 1124/BANG/11 DT. 21.12.2012. ITA NO.5848/DEL/12 5 V) TRILOGY E BUSINESS SYSTEM INDIA VS. DCIT IN I.T .A.NO. 1054/ BANG/11 VI) LOGICA P. LTD. VS ACIT 36 TAXMAN. COM 374 VII) TELACORDIA TECHNOLOGIES PVT. LTD. VS ACIT 137 ITD 0 1 4.1 IT WAS SUBMITTED THAT IN ALL ABOVE CASES, THE T WO COMPANIES WERE EXCLUDED AS COMPARABLES BECAUSE OF THEIR INVOLVEMEN T IN PRODUCT DEVELOPMENT SERVICES. IT WAS SUBMITTED THAT ASSESS EE IS ONLY A CAPTIVE SERVICE PROVIDER AND IS THEREFORE, NOT COMPARABLE W ITH THE ABOVE. 5. AS REGARDS GLOBAL LTD., IT WAS SUBMITTED THAT WH ILE APPLYING THE FILTER THE SAID COMPANY DID NOT FIGURE IN THE RESULT. HOW EVER, TPO AT HIS OWN IN AN ARBITRARY MANNER IN THE NOTICE U/S 133(6) OF THE ACT TO THE SAID COMPANY CALLED FOR THE DETAILS OF FINANCIAL RESULTS. WHERE AS, ON THE OTHER HAND, A COMPANY, WHICH FORMED PART OF SEARCH RESULTS, I.E. ARMAN SOFTWARE PVT. LTD., WAS NOT SELECTED. IT WAS ARGUED THAT ACTION OF TPO IS ARBITRARY WHEREIN HE PICKED UP ONLY HIGH MARGIN COMPANIES LEFT LOWER MARGIN COMPANIES WHICH IS CONTRARY TO THE PRINCIPLES OF TAX ADMINIST RATION AND TAX RECOVERY. IT WAS SUBMITTED THAT TAX OFFICER MUST NOT ACT IN A PR EJUDICIAL MANNER AND MUST HOLD THE SCALES EVENLY BETWEEN COLLECTION OF R EVENUE AND THE INTEREST OF THE TAX-PAYER. IT WAS SUBMITTED THAT IF LGS GLOBAL IS TO BE INCLUDED THEN AARMAN SOFTWARE (P) LTD. SHOULD ALSO HAVE BEEN INCL UDED OR OTHERWISE IT SHOULD HAVE BEEN EXCLUDED. AS REGARDS THE BOTHTREE CONSULTING LTD. IT WAS SUBMITTED THAT THE TRIBUNAL IN I.T.A.NO. 5293 IN TH E CASE OF ATRENTA INDIA PVT. LTD. HAD SET ASIDE THE ISSUE OF COMPARABILITY OF ABOVE COMPANY TO THE OFFICE OF THE ASSESSING OFFICER ON THE GROUND THAT IT WAS NOT CLEAR FROM ANNUAL REPORT OF THE SAID COMPANY AS TO WHETHER IT WAS INTO THE BUSINESS OF ITA NO.5848/DEL/12 6 SOFTWARE DEVELOPMENT SERVICES AND WHETHER IT WAS EN GAGED IN THE BUSINESS OF I T ENABLED SERVICES. 5.1 MAKING FOURTH ARGUMENT LD. A.R. SUBMITTED THAT FINANCE AND BANK CHARGES FORM PART OF OPERATING EXPENSES AND THEREFO RE ASSESSING OFFICERS ACTION IN EXCLUDING THE SAME WHILE COMPUTING THE MA RGIN OF COMPARABLE WAS NOT JUSTIFIED. IN THIS RESPECT RELIANCE WAS PLACED IN THE CASE OF POLARTECH INDIA (P) LTD. VS ACIT 1156 TJ 659 WHEREIN DRP ITSE LF UPHELD THE ACTION OF TPO IN INCLUDING FINANCE AND BANK CHARGES IN OPERAT ING EXPENSE WHILE COMPUTING THE MARGINS. LD. A.R. FURTHER SUBMITTED T HAT THE ABOVE PROPOSITION IS ALSO SUPPORTED BY THE FACT THAT EVEN IN THE SAFE HARBOUR RULES DATED 18.09.2013, THE FINANCE AND BANK CHARGES HAVE NOT BEEN EXCLUDED FROM THE LIST OF OPERATING EXPENSES EVEN THOUGH INT EREST AND FOREIGN EXCHANGE GAIN / LOSS HAS SPECIFICALLY BEEN EXCLUDED FROM THE LIST OF OPERATING EXPENSES. 6. LD. D.R. IN RESPECT OF DEDUCTION U/S 10A HAS REL IED UPON THE ORDERS OF AUTHORITIES BELOW. ARGUING UPON THE TRANSFER PRICI NG ISSUE, LD. D.R. SUBMITTED THAT CONSIDERING OBJECTIONS OF THE ASSESS EE, DRP HAD ALREADY DIRECTED THE EXCLUSION OF ONE COMPARABLE. AS REGAR DS THE ARGUMENT OF THE LD. A.R. REGARDING APPLICATION OF LOWER FILTER OF R S.1 CRORE, LD. D.R. SUBMITTED THAT LOWER TURNOVER FILTER IS APPLIED IN VIEW OF THE FACT THAT FINANCIAL RESULTS OF THE ASSESSEES HAVING TURNOVER OF LESS THAN RS.1 CRORES ARE VOLATILE AND ARE NOT RELIABLE. THE PLEA OF THE LD. A.R. REGARDING UPPER CAP IS TOTALLY MISCONCEIVED. IT WAS SUBMITTED THAT IN MAN Y CASES TPOS HAVE REPEATEDLY DEMONSTRATED THAT THE TURNOVER AND PROFI TABILITY HAVE NO CORRELATION OF STATISTICAL SIGNIFICANCE. REGARDING RELIANCE TO THE CASE LAW OF CINCOM SYSTEMS IN I.T.A.NO. 761/D/2012, THE LD. D.R . SUBMITTED THAT THE ITA NO.5848/DEL/12 7 FINDINGS OF THE TRIBUNAL WERE NOT BASED ON THIS ASP ECT AND ONLY REMOTE REFERENCE TO TURNOVER WAS MADE. REFERRING TO THE J UDGEMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF AGNITY AS RELIED UP ON BY THE LD. A.R., LD. D.R. SUBMITTED THAT THE HON'BLE HIGH COURT HAS NOT UPHELD THE TURNOVER FILTER BAND AS THE ASSESSEE HAS TRIED TO MAKE IT APPEAR. IT WAS SUBMITTED THAT THE BENCH HAD FOLLOWED THE CONCEPT OF GIANT ENTITY VERS US PYGMIES AND HAVE NOWHERE UPHELD THE TURNOVER BAND AS PROPOUNDED BY L D. A.R. THEREFORE, HE SUBMITTED THAT THIS CONTENTION OF LD. A.R. THAT ALL COMPARABLES HAVING TURNOVER IN EXCESS OF RS.200 CRORES ARE TO BE ESSEN TIALLY EXCLUDED, IS FALLACIOUS AND NOT AS PER INTENT OF THE LAW. ONLY THE FUNCTIONAL COMPARABILITY IS THE KEY AND THE STARK ECONOMIC ADV ANTAGE CONFERRED UPON THE GIANT SIZED ENTITIES MAY ALSO BE A FACTOR BUT S HEER TURNOVERS CANNOT BE BOUND IN SUCH STRAITJACKET VERSION OF TURNOVER BAND S. LD. D.R. TRIED TO EXPLAIN THE SITUATION BY HYPOTHETICALLY ASSUMING TH AT IF A TURNOVER FILTER OF RS.1 TO RS.200 CRORES IS APPLIED THEN WHAT WOULD BE THE SCENARIO IN A CASE WHERE AN ENTITY HAVING TURNOVER OF RS.150 CRORES AN D THERE ARE COMPARABLES WITH RS.220 CRORES TURNOVER AND RS.10 CRORES TURNOV ER. THEREFORE, IT WAS PRAYED THAT NO CAP FILTER CAN BE APPLIED AS THEY WI LL CREATE HAVOC IN WORKING OUT ALP. HE SUBMITTED THAT A LOWER THRESHOLD OF RS .1 CRORES HAS ENTIRELY DIFFERENT LOGIC WHICH IS NOT TO CREATE A TURNOVER B AND. IN THIS RESPECT, RELIANCE WAS PLACED IN THE CASE LAW OF NET HAWK NET WORKS INDIA P. LTD. VS ITO IN I.T.A.NO. 7633/M/2012. IN VIEW OF THE ABOV E CASE LAW, IT WAS SUBMITTED THAT CAPPING OF TURNOVER AS SOUGHT BY THE ASSESSEE IS NOT TENABLE IN LAW. 7. AS REGARDS THE ARGUMENT OF LD. A.R. REGARDING EM PLOYEE COST FILTER, LD. D.R. SUBMITTED THAT THIS LOGIC HAS REPEATEDLY B EEN REJECTED BY VARIOUS ITA NO.5848/DEL/12 8 BENCHES OF ITAT AND, THEREFORE, IT WAS ARGUED THAT APPLICATION OF THIS FILTER IS VALID AND DESERVES TO BE UPHELD. RELIANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING CASE LAWS AS STATED IN THE WRITTEN SYNOPS IS AT PAGE 6. I) CAPITAL I Q INFORMATIN SYSTEMS (I) P.LTD. I.T.A. NO. 1961/HYD/2011 II) WILLS PROCESSING SERVICES (I) P. LTD. I.T.A.NO. 4547/MUM/2012 III) MAERSK GLOBAL SERVICE CENTRE (I) P.LTD. I.T.A. NO. 3774/DEL/2011 IV) ITO VS M/S. NEXTLINK INDIA P. LTD. I.T.A.NO. 45 4/BANG/2011 V) NOMURA FIN SERVICES P. LTD. I.T.A.NO. 7046/DEL/2 012 VI) COGNIZANT TECHNOLOGY SERVICES P. LTD., I.T.A.NO . 2106 & 1864/HYD/2011 VII) ZAVATA INDIA P. LTD. I.T.A.NO. 1781/HYD/2011 VIII) MARKET TOOLS RESEARCH PVT. LTD., I.T.A.NO. 20 66/HYD/2011 8. REPLYING TO THE ARGUMENT OF LD. A.R. REGARDING E XCLUSION OF 4 COMPARABLES, NAMELY M/S. AVANI SINCON TECHNOLOGIES, KALS INFORMATION SYSTEM, BOTHTREE CONSULTING LTD. AND LGS GLOBAL LTD . LD. D.R. SUBMITTED THAT IN RESPECT OF AVANI SINCON TECHNOLOGIES, THE T PO HAS USED SEGMENTAL DATA AND HAD OBTAINED INFORMATION U/S 133(6) TO FIN D OUT COMPARABILITY. MOREOVER, IT WAS SUBMITTED THAT AVANI SINCON TECHNO LOGIES HAS TERMED ITSELF IS PURELY SOFTWARE DEVELOPER. AS REGARDS KA LS INFORMATION SYSTEM, LD. D.R. SUBMITTED THAT THE ASSESSEE ITSELF HAD ACCEPTE D KALS INFORMATION SYSTEMS LTD. AS COMPARABLE AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO PAGE 48 OF TPOS ORDER. AS REGARDS LGS GLOBAL LTD ., AND ARMAN SOFTWARE THE LD. D.R. SUBMITTED THAT TPO AT PAGE 66 -75 HAS CLEARLY DEALT WITH THESE COMPARABLES. IN VIEW OF THE ABOVE ARGUM ENTS, IT WAS SUBMITTED THAT NO CHERRY PICKING WAS DONE BY TPO AND RATHER H E HAS GONE BY THE INFORMATION AVAILABLE AS PER ANNUAL REPORT. AS REG ARDS RELIANCE PLACED BY ITA NO.5848/DEL/12 9 LD. A.R. ON SAFE HARBOUR RULE, LD. D.R. SUBMITTED T HAT SHELTER CAN ONLY BE TAKEN ON FULFILLMENT OF CERTAIN CONDITIONS. REGARD ING FINANCIAL AND BANK CHARGES, LD. D.R. SUBMITTED THAT THEY DO NOT DIREC TLY CONSTITUTE OPERATING EXPENSES. 9. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. IN RESPECT OF THE ISSUE REGARDING DEDUC TION U/S 10A, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE WITH THE ORDER OF HON'BLE HIGH COURT IN THE CASE OF ASSESSEE ITSELF W HEREIN, THE HON'BLE HIGH COURT HAD DISMISSED THE APPEAL OF THE REVENUE BY OB SERVING AS UNDER: IN RESPECT OF THE ASSESSMENT YEAR 2005-06, THE CONT ENTION OF THE REVENUE IS THAT THE UNIT AT GURGAON HAD NOT COMMENC ED COMMERCIAL PRODUCTION IN THE ASSESSMENT YEAR 2005-06. IT IS HI GHLIGHTED THAT THE AGREEMENT BETWEEN THE ASSESSEE AND THE SOFTWARE TEC HNOLOGY PARK OF INDIA (STPI) WAS EXECUTED ON 31 ST MARCH, 2005 I.E. ON THE LAST DAY OF THE FINANCIAL YEAR AND INVOICES WORTH RS. 1.93 CROR ES WERE ISSUED ON THE SAME DATE. SECONDLY, IT IS STATED THAT THE ASSE SSEE HAS FAILED TO FURNISH COMMENCEMENT INTIMATION WITHIN ONE MONTH TO STPI AS PER STPI'S LETTER DATED 31 ST MARCH, 2005 SUBSEQUENT CONFIRMATION TO STPI BY THE RESPONDENT-ASSESSEE DATED 10LH DECEMBER, 200 7, WOULD IMPLY THAT THE RESPONDENT-ASSESSEE SHOULD BE DENIED BENEF IT UNDER SECTION L0A OF THE ACT. WITH REGARD TO THE FIRST CONTENTION, WE FIND THAT T HE APPELLANT-REVENUE HAS OSCILLATED. THE ASSESSING OFFICER AND COMMISSIO NER OF INCOME TAX (APPEALS) HAVE HELD THAT THE ASSESSEE HAD NOT S TARTED COMMERCIAL PRODUCTION IN THE YEAR ENDING 3L.03.2005, BUT, THE ASSESSING OFFICER HAD ALSO OBSERVED THAT THE ASSESSEE HAS STARTED PRO DUCTION EVEN PRIOR TO 15.03.2005, WHEN THE STPI APPROVED THE PROPOSAL. APART FROM THE AFORESAID CONTRADICTORY FACTUAL ASSERTION IN THE AS SESSMENT ORDER, THE TRIBUNAL HAS RECORDED FINDING OF FACT THAT THE ASSE SSEE HAD MADE AND ISSUED INVOICES ON 31.03.2005. CATEGORICAL FACTUAL FINDING IS THAT THE ASSESSEE SATISFIED THE REQUIREMENT OF COMMENCEMENT OF PRODUCTION STIPULATED IN SECTION L0A OF THE ACT. WE SHALL EXAM INE, WHETHER THE SAID FACTUAL FINDING REQUIRES INTERFERENCE. ITA NO.5848/DEL/12 10 COMMISSIONER OF INCOME TAX (APPEALS) HAS NOTICED TH AT THE ASSESSEE WAS INCORPORATED SOMETIMES IN DECEMBER 2003 AND HAD APPLIED FOR STPI APPROVAL ON 14.12.2004. SUBSEQUENTLY, LETTER D ATED 15.03.2005 WAS ISSUED BY STPI, GRANTING APPROVAL AND STIPULATI NG THAT THE ASSESSEE SHOULD COMMENCE PRODUCTION WITHIN THREE YE ARS. THEREAFTER, THE LEGAL FORMALITY WAS COMPLETED WHEN AGREEMENT DA TED 31.03.2005 WAS EXECUTED BETWEEN STPI AND THE ASSESSEE. THE ASS ESSEE COULD NOT PLACE ON RECORD THE COPY OF THE LETTER WRITTEN BY T HEM, INFORMING STPI ABOUT COMMENCEMENT OF PRODUCTION, BUT, THERE WAS EV IDENCE IN THE FORM OF REPORTS FOR THE MONTHS OF JANUARY, FEBRUARY AND APRIL, 2006, WHICH WERE EXAMINED AND REFERRED BY THE _ TRIBUNAL. THE DATE OF COMMENCEMENT OF PRODUCTION AS RECORDED THEREIN WAS 01.04.2004. THUS, CONFIRMING THAT THE DATE OF COMMENCEMENT OF C OMMERCIAL PRODUCTION WAS BEFORE 31.03.2005. SUBSEQUENTLY, THE ASSESSEE HAD ALSO WRITTEN LETTER DATED 10.12.2007, INTIMATING TH E DATE OF COMMENCEMENT OF PRODUCTION, WHICH WAS ACCEPTED BY T HE STPI. THE TRIBUNAL HAS RIGHTLY OBSERVED THAT INTIMATION TO ST PI WAS A MERE MINISTERIAL REQUIREMENT AND NOT A PRECONDITION FOR REGISTRATION, WHICH WAS GRANTED EARLIER. NO BENEFIT OR ADVANTAGE WAS OB TAINED BY THE ASSESSEE BY WRONGLY CLAIMING AND RAISING THE INVOIC ES ON 31.03.2005. EVEN IF THEY HAD RAISED THE INVOICES IN THE NEXT FI NANCIAL YEAR, BENEFIT OF SECTION 10A WOULD HAVE BEEN AVAILABLE ON THE INV OICE AMOUNT. IT IS ACCEPTED THAT BENEFIT OF SECTION 10A WAS GRANTED IN THE ASSESSMENT ORDER IN THE NEXT ASSESSMENT YEAR. IT IS INTERESTING TO NOTE THAT THE DISPUTE RESOLUTI ON PANEL FOR THE ASSESSMENT YEAR 2006-07 HAD ACCEPTED THE ASSESSEE'S CLAIMS UNDER SECTION 10A OF THE ACT. WE HAVE NOTICED THE REASONI NG GIVEN BY THE DISPUTE RESOLUTION PANEL FOR THE ASSESSMENT YEAR 20 07-08 BUT DO NOT FIND JUSTIFICATION OR GOOD CAUSE/REASON TO DEVIATE FROM THE FIRST FINDING AND OPINION GIVEN BY DISPUTE RESOLUTION PANEL IN TH E EARLIER YEAR. FINDING OF THE TRIBUNAL THAT THE ASSESSEE HAS COMME NCED PRODUCTION ON OR BEFORE 31.03.2005, WE DO NOT THINK, THAT CAN BE REGARDED AS PERVERSE OR AN INCORRECT FINDING. EVEN ON THE QUESTION OF CHANGE OF RESIDENCE, THE IS SUE WAS EXAMINED FACTUALLY AND IT WAS NOTICED THAT THE LOCATION OF T HE UNIT HAD CHANGED ITA NO.5848/DEL/12 11 FROM 6TH FLOOR, ENKAY TOWER, VANIJYA NIKUNJ, UDYOG VIHAR, PHASE-V, GURGAON TO 276, PHASE IV, UDYOG VIHAR AFTER 31.03.2 005. THE STPI HAD RENEWED AND GRANTED FURTHER REGISTRATION TO THE RESPONDENT- ASSESSEE'S UNIT EVEN AFTER THE CHANGE AND SHIFTING TO THE NEW LOCATION. IN RESPECT OF THE CHENNAI UNIT, WITH REGARD TO THE ASSESSMENT YEAR 2007 -08, THE CONTENTION OF THE REVENUE IS THAT THI S UNIT WAS FORMED AND HAD COMMENCED OPERATIONS/PRODUCTION IN JANUARY, 2004 AND REGISTRATION UNDER THE STPI WAS GRANTED ON 27.03.20 06. IT IS CLEAR FROM THE AFORESAID (ACTS THAT THE RESPO NDENT-ASSESSEE HAD ENJOYED STPI REGISTRATION DURING THE ENTIRE FINANCI AL YEAR ENDING 31.03.2007. THE ONLY QUESTION IS WHETHER, THE ASSES SEE SHOULD BE DENIED BENEFIT OF SECTION 10A OF THE ACT AS THE UNI T AT CHENNAI WAS FORMED AND HAD COMMENCED PRODUCTION IN THE YEAR 200 4 BUT REGISTRATION WAS GRANTED ON 27.03.2006. THE ISSUE I S COVERED AGAINST THE APPELLANT/REVENUE BY A DECISION DATED 04.02.201 4 IN ITA NO. 54212013, THE COMMISSIONER OF INCOME TAX TAX- VS. M /S. QUANTUM CODERS LTD. THE SAID JUDGMENT TAKES NOTE OF THE JUD GMENT OF THE KAMATAKA HIGH COURT IN ITA NO. 32312010, COMMISSION ER OF INCOME TAX VS. M/S. EXPERT OUTSOURCE PVT .. LTD., (2013) 3 58ITR 518 (KARN) AND THE DECISION OF IT AT, CHENNAI BENCH IN NAGESH CHUNDUR VS. ASSISTANT COMMISSIONER OF INCOME TAX, ITA 83/MDS/20 11 DATED 01.06.2011. LEARNED COUNSEL FOR THE RESPONDENT-ASSE SSEE HAS DRAWN OUR ATTENTION TO THE DECISION OF THE MADRAS HIGH. COURT IN NAGESH CHUNDUR VS. COMMISSIONER OF INCOME TAX AND COMMISSIONER OF INCO ME TAX VS. NAGESH CHUNDUR, (2013) 358 ITR 521 (MAD), WHEREIN T HE VIEW TAKEN BY THE TRIBUNAL HAS BEEN AFFIRMED. THIS IS IN CONSO NANCE WITH THE VIEW EXPRESSED BY THE DIVISION BENCH OF THIS COURT IN M/ S. QUANTUM CODERS LTD. (SUPRA). ON THIS ASPECT, THEREFORE, THE ANSWER BEING CLEAR AND ALREADY ADJUDICATED, NO SUBSTANTIAL QUESTION OF LAW ARISES. THE APPEALS ARE ACCORDINGLY DISMISSED. ITA NO.5848/DEL/12 12 9.1 THEREFORE, FOLLOWING THE ABOVE WE ALSO HOLD THE ISSUE IN FAVOUR OF THE ASSESSEE AND IN VIEW OF THIS, GROUNDS NO.1, 2 2.1 5 ARE DECIDED IN FAVOUR OF THE ASSESSEE. 10. AS REGARDS THE DETERMINATION OF ARMS LENGTH PRI CES THE FIRST CONTENTION RAISED BY THE LD. A.R. IS REGARDING APPLICATION OF UPPER FILTER UP TO RS.200 CRORES AS THE ASSESSEE WAS A MID SIZED COMPANY HAVI NG A TURNOVER OF RS.23 CRORES ONLY. THE ASSESSING OFFICER HAD SELECTED CO MPARABLE WHICH HAD TURNOVER RANGING FROM RS.89 CRORES TO RS.15000 CROR ES AND COMPARABLES SELECTED BY TPO DOES NOT MATCH WITH THE ASSESSEE CO MPANY AS THE TURNOVER OF COMPARABLE WAS RS.781 CRORES, 15648 CRORES, RS.5 72 CRORES, RS.409 CRORES ETC. WHICH IS EXORBITANT WHEN COMPARED WITH THE TURNOVER OF THE ASSESSEE, WHICH IS MERE RS.23 CRORES. THE COMPARIS ON OF A SMALL ASSESSEE WITH GIANT SIZED COMPANIES HAVING HUGE TURNOVER WIL L DEFINITELY NOT SERVE THE PURPOSE OF SELECTING APPROPRIATE COMPARABLES. HON'BLE HIGH COURT VIDE ORDER DATED 10.07.2013 IN THE CASE OF AGNITY INDIA HAS CONFIRMED THE FINDINGS OF THE TRIBUNAL WHEREBY THE TRIBUNAL ON TH E ISSUE OF COMPARABLES HAD HELD AS UNDER: 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS MADE BEFORE US. WE FIND THAT THERE IS NO DISPUTE ON THE ISSUE THAT COST PLUS METHOD IS THE MOST APPROPRIATE METHOD FOR VALUING C ONTROLLED- INTERNATIONAL- TRANSACTIONS IN THIS CASE. THE ASSES SEE HAD SELECTED 23 COMPARABLES AND ADJUSTMENT WAS MADE TOWARDS WORKING CAPITAL. ON THIS BASIS THE MEAN OF THE COMPARABLES WAS WORKED O UT 10% AGAINST THE MARGIN OF 17% SHOWN BY THE ASSESSEE. TI1E DETAI LS OF THIS WORKING ARE AS UNDER:- --------------------------------------------------- ------------------------------------------------ COMPANY NAME-PROWESS, CAPITALINE & DATABASE WORK ING SEGMENTAL CAPITAL ADJUSTED OP/TC ITA NO.5848/DEL/12 13 --------------------------------------------------- ----------------------------------------------- E STAR INFOTECH LTD. PROWESS 15% GOLDSTONE TECHNOLOGIES LTD. ; PROWESS 8% LARSEN & TUBRO INFOTECH LTD. PROWESS 9% MELSTAR INFORFMATION TECHNOLOGIES LTD. PROWESS 4 % NETVISTA INFORMATION TECHNOLOGY LTD. PROWESS 15% ORIENT INFORMATION TECHNOLOGY LTD. PROWESS 17% PENTAMEDIA GRAPHICS LTD. PROWESS 12% SAT YAM COMPUTER SERVIOCES LTD. PROWESS 29% SHREE TULSI ONLINE. COM LTD. PROWESS -10% SUN BEAM INFOTECH LTD. (HIT KIT) PROWESS 7% TRANSWORLD INFOTECH LTD. PROWESS 30% VJIL CONSULTING LTD. PROWESS 2% VMF SOFT TECH LTD. PROWESS 1% AKSHAY SOFTWARE TECHNOLOGIES LTD. CAPITALINE 10 % KALE TRAVEL TECHNOLOGIES LTD. CAPITALINE 6% PENTAGON GLOBAL SOLUTIONS LTD. CAPITALINE 2% SYSTERNLOGIC SOLUTIONS LTD. CAPITALINE 24% POWERSOFT GLOBAL SOLUTIONS LTD. CAPITALINE 24% ADVANCED MICRONIC DEVICES LTD.(INFORMATION SEG-P 7% TECHNOLOGY) TATA INFOTECH LTD. SEG-P 10% 5.1 IN THE PROCEEDINGS BEFORE THE TPO, THE NUMBER O F COMPARABLE CASES WAS REDUCED TO 20. HE INCLUDED THE CASE OF IN FOSYS TECHNOLOGIES LTD. AND EXCLUDED SOME CASE FOR THE REASONS MENTION ED EARLIER. NO ADJUSTMENT WAS MADE ON ACCOUNT OF WORKING CAPITAL T HE MEAN WAS WORKED' AT 27.08% AGAINST THE MARGIN OF 17% DECLARE D BY THE ASSESSEE. 5.2 VARIOUS ARGUMENTS, AS STATED EARLIER, WERE. TA KEN BEFORE THE DRP WHICH INTER-ALIA INCLUDED REJECTION OF COMPARABLE C ASES; APPLICATION OF ARBITRARY FILTER OF WAGE TO SALES RATIO; IGNORIN G THAT THE ASSESSEE IS A LIMITED RISK COMPANY; INCLUSION OF INFOSYS TECHNO LOGIES LTD.; AND INCLUSION OF SAT YAM COMPUTERS' SERVICES LTD. IN. S PITE OF THE. FACT THAT ITS DATA IS NOT RELIABLE AS PUBLICLY KNOWN. ON THE BASIS OF THESE. ARGUMENTS, THE DRP EXCLUDED THE CASE OF SAT YAM COM PUTERS SERVICES LTD., THEREBY REDUCING THE ARM'S LENGTH MARGIN TO 2 5.6%. IT IS ARGUED THAT THE CASE OF THE ASSESSEE IS NOT COMPARABLE WIT H INFOSYS TECHNOLOGIES LTD., THE REASON BEING THAT THE LATTER IS GIANT IN THE AREA OF DEVELOPMENT OF SOFTWARE AND IT ASSUMES ALL RISKS , LEADING TO HIGHER PROFIT. ON THE OTHER HAND, THE ASSESSEE IS A CAPTIV E UNIT OF ITS PARENT COMPANY IN THE USA AND IT ASSUMES ONLY LIMITED CURR ENCY RISK. ITA NO.5848/DEL/12 14 HAVING CONSIDERED THESE POINTS, WE ARE OF THE VIEW THAT THE CASE OF AFORESAID INFOSYS AND THE ASSESSEE ARE NOT COMPARAB LE AT ALL AS SEEN FROM THE FINANCIAL DATA ETC. OF THE TWO COMPANIES M ENTIONED EARLIER IN THIS ORDER. THEREFORE, WE ARE OF THE VIEW THAT THIS CASE IS REQUIRED B EXCLUDED. ONCE THAT IS DONE, IT IS THE ACCEPTED POS ITION OF BOTH THE PARTIES THAT THE RESULTS OF THE ASSESSEE ARE IN LIN E WITH THE MEAN MARGIN OF COMPARABLE CASES EVEN IF NO ADJUSTMENT IS MADE ON ACCOUNT OF CAPITAL ETC. THEREFORE, IT IS HELD THAT NO ADJUS TMENT WAS REQUIRED TO BE MADE TO THE RESULTS DECLARED BY THE ASSESSEE COM PANY. 11. THE ISSUE OF CAPPING OF UPPER FILTER UP TO RS.2 00 CRORES HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN VARIOUS CASE L AWS AS RELIED UPON BY THE LD. A.R. WHICH ARE LISTED AT PAGE 4 OF THE SYNOPSIS FILED BY THE LD. A.R. TO QUOTE FINDING OUT OF A FEW OF THEM, WE QUOTE THE FI NDINGS IN THE CASE OF 24/7 CUSTOMER.COM (P) LTD. VS DCIT 158 TTJ (BLORE) 94, THE TRIBUNAL VIDE PARA 14.3 HAS HELD AS UNDER: WE HAVE HEARD BOTH PARTIES, CAREFULLY CONSIDERED T HE SUBMISSIONS MADE, JUDICIAL DECISION RELIED ON THE MATERIAL ON RECORD. THE TRIBUNAL IN THE ASSESSEE OF GENYSYS INTEGRATING SYS TEMS (INDIA) (P) LTD. (SUPRA) HELD THAT ONLY COMPANIES WITHIN THE TU RNOVER RANGE OF RS.1 CRORE TO RS.200 CRORES SHOULD BE TAKEN INTO CO NSIDERATION FOR THE TRANSFER PRICING STUDY. WE ARE OF THE CONSIDERED V IEW THAT THE CITED CASE SQUARELY APPLIES TO THE ASSESSEES CASE AS THE TURNOVER OF THE ASSESSEE BEING APPROXIMATELY RS.66 CRORES FALLS, WI THIN THE RANGE OF RS.1 CRORE TO RS.200 CRORES. THEREFORE, RESPECTFUL LY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GENYSYS INTEGRATING SYSTEMS (INDIA) (P) LTD. (SUPRA , WE DIRECTS THE ASSESSING OFFICER/TPO THAT ONLY THOSE COMPANIES HAV ING A TURNOVER OF RS.1 CRORE TO RS.200 CRORES BE TAKEN AS COMPARABLE COMPANIES AND TO CONSEQUENTLY EXCLUDE WIPRO BPO LTD. WHICH HAS A TUR NOVER OF RS.322 CRORES IN THE RELEVANT PERIOD. 12. SIMILARLY, IN THE CASE OF L G SOFT INDIA PVT. L TD. VS DCIT IN I.T.A.NO. 1121/BANG/2011, THE TRIBUNAL HAS HELD AS UNDER: ITA NO.5848/DEL/12 15 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIALS ON RECORD. BEFORE WE PROCEED TO CONSIDER THE ISSUES, I T IS TO BE MENTIONED THE LINE OF BUSINESS OF THE PRESENT CASE AND THAT O F TRILOGY E-BUSINESS SOFTWARE INDIA (P.) LTD. (SUPRA), TELECORDIA TECHNO LOGIES INDIA (P.) LTD. (SUPRA) AND CSR INDIA (P.) LTD. (SUPRA) ARE SI MILAR, NAMELY, DEVELOPMENT OF SOFTWARE AND THE SIZE TURNOVER RANGE WAS ALSO SIMILAR TO THAT OF THE ASSESSEE'S IN THE INSTANT CASE. FURT HER, THE ASSESSMENT YEAR 2007-08 WAS SUBJECT MATTER OF CONSIDERATION IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA (P.) LTD. (SUPRA) ,- TELECORDIA TECHNOLOGIES INDIA (P.) LTD. (SUPRA) AND CSR INDIA (P.) LTD. (SUPRA) AND THE CORNPARABLES SELECTED BY THE TPO IN THOSE C ASES ARE IDENTICAL TO THAT OF THE PRESENT CASE. THEREFORE, THE FINDING RECORDED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA (P.) LTD. (SUP RA), TELECORDIA TECHNOLOGIES INDIA (P.) LTD. (SUPRA) AND CSR INDIA (P.) LID. (SUPRA) WILL HOLD GOOD IN -THIS CASE ALSO. WE SHALL NOW PRO CEED TO DISPOSE OFF OF THE ISSUES RAISED BY THE ASSESSEE AS UNDER: TURNOVER FILTER: 3.6.1 THE TPO HAD, WHILE SELECTING THE ABOVE 26 COM PARABLES, APPLIED A LOWER TURNOVER FILTER OF RS.1 CRORE, BUT, PREFERRED NOT TO APPLY ANY UPPER TURNOVER LIMIT. THE SIZE OF THE COM PARABLE IS AN IMPORTANT FACTOR IN COMPARABILITY. THE ICAI TP GUID ANCE NOTE HAS OBSERVED THAT THE TRANSACTION ENTERED INTO BY A RS. 1000 CRORES' COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENT ERED INTO BY RS.10 CRORES COMPANY AND THE TWO MAST OBVIOUS REASO NS ARE THE SIZE OF THE TWO COMPANIES AND RELATED ECONOMIES OF SCALE UNDER WHICH THEY OPERATE. THE TPO'S RANGE HAD RESULTED IN SELECTION OF COMPANIES AS COMPARABLE SUCH AS INFOSYS TECHNOLOGIES LIMITED WHI CH WAS 150 TIMES BIGGER THAN THAT OF THE ASSESSEE. THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) (P.) LTD. (SUPRA) - RELYING ON DUN AND BRADSTREET'S ANALYSIS HAD HELD THAT TURNOVER RANGE OF RS.1 CRORE TO RS.200 CRORES IS AP PROPRIATE. THE SAID PROPOSITION HAS BEEN FOLLOWED BY THE EARLIER BENCHE S OF THIS TRIBUNAL IN THE FOLLOWING CASES: (I) KODIAK NETWORKS (I) (P.) LTD. V. ASSTT. CIT [2 012]18 TAXMANN.COM 32/51 SOT 191 (BANG,); ITA NO.5848/DEL/12 16 (II) GENESIS MICROCHIP (I) (P.) LTD. V. DY. CIT [2 012] 20 TAXMANN.COM 237/135 ITD 533 (BANG.); (III) ELECTRONIC FOR IMAGING INDIA (P.) LTD. [IT A PPEAL NO. 1171/BANG.L201 0; & TRILOGY E-BUSINESS SOFTWARE IND IA (P.) LTD. (SUPRA) . 3.6.2 IN THE CASE OF GENESIS MICROCHIP (1) (P.) LTD . (SUPRA), RELYING ON DUN & BRADSTREET ANALYSIS HAD OBSERVED AS UNDER: '9 WE FIND THAT THE TPO HIMSELF HAS REJECTED THE C OMPANIES WHICH ARE MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT T HERE IS A LIMIT FOR THE LOWER END FOR IDENTIFYING THE COMPARABLES. IN S UCH A SITUATION, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSIDERED? WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WO ULD BE IN A POSITION TO BARGAIN THE PRICE AND ALSO ATTRACT MORE CUSTOMERS. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES W HO ARE ABLE TO GIVE BETTER OUTPUT. A SMALL COMPANY MAY NOT HAVE TH ESE BENEFITS AND, THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCI NG PROFIT MARGIN. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNA L, WHEN COMPANIES WHICH ARE LOSS MAKING COMPANIES SHOULD ALSO BE EXCL UDED. FOR THE PURPOSE OR CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR .TURNOVER, WE FIND THAT A REASONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET IS 'MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME, WE HOLD THAT THE TURNOVER FILTER IS VERY IMPO RTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1 CRORE TO RS.200 CRORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEI NG IN THAT RANGE HAVING TURNOVER OF 8.15 CRORES THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY.' 3.6.3 THE ABOVE VIEW HAS BEEN FOLLOWED IN THE CASE OF TRILOGY E BUSINESS SOFTWARE INDIA (P) LTD. (SUPRA) AND THE RE LEVANT PORTION OF THE FINDING IS EXTRACTED AS UNDER: '20. IN THIS REG ARD, WE FIND THAT THE PROVISIONS OF LAW POINTED OUT BY THE LEARNED COUNSE L FOR THE ASSESSEE AS WELL AS THE DECISIONS REFERRED TO BY THE ID. COU NSEL FOR THE ASSESSEE CLEARLY LAY DOWN THE PRINCIPLE THAT THE TURNOVER FI LTER IS AN IMPORTANT ITA NO.5848/DEL/12 17 CRITERIA IN CHOOSING THE COMPARABLES. THE ASSESSEE' S TURNOVER IS RS.47,46,66,638/-. IT WOULD, THEREFORE, FALL WITHIN THE CATEGORY OF COMPANIES IN THE RANGE OF TURNOVER BETWEEN 1 CRORE AND 200 CRORES (AS LAID DOWN IN THE CASE OF GENESIS INTEGRATING SY STEMS (INDIA) PVT. LTD VS. DCIT IN ITA.NO.1231/BANG/20 I 0). THUS, COM PANIES HAVING TURNOVER OF MORE THAN 200 CRORES HAVE TO BE ELIMINA TED FROM THE LIST OF COMPARABLES AS LAID DOWN IN SEVERAL DECISIONS RE FERRED TO BY THE ID. COUNSEL FOR THE ASSESSEE. APPLYING THOSE TESTS, THE FOLLOWING COMPANIES WILL HAVE TO BE EXCLUDED FROM THE LIST OF 26 COMPARABLES DRAWN BY THE TPO, VIZ.,: TURNOVER (RS) (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. 848.66 CR ORES (2) IGATE GLOBAL SOLUTIONS LTD 747.27 CRORES (3) MINDTREE LIMITED 590.39 CRORES (4) PERSISTENT SYSTEMS LIMITED 293.74 CRORES (5) SASKEN COMMUNICATION TECHNOLOGIES LIMITED 34 3.57 CRORES (6) TATA ELXSI LTD 262.58 CRORES (7) WIPRO LTD. 961.09 CRORES (8) INFOSYS TECHNOLOGIES LTD. 13149.00 CRORES' 3.6.4 IN VIEW OF THE ABOVE SAID REASONING AND THE F INDINGS OF THE BENCHES OF THIS TRIBUNAL (SUPRA), THE FOLLOWING EIG HT COMPANIES WILL HAVE TO BE ELIMINATED FROM THE LIST OF COMPARABLES SELECTED BY THE TPO, NAMELY: (I) FLEXTRONICS SOFTWARE SYSTEMS LTD. (2) IGATE GLOBAL SOLUTIONS LTD (3) MINDTREE LIMITED (4) PERSISTENT SYSTEMS LIMITED (5) SASKEN COMMUNICATION TECHNOLOGIES LIMITED (6) TATA ELXSI LTD (7) WIPRO LTD (8) INFOSYS TECHNOLOGIES LTD IT IS ORDERED ACCORDINGLY. 13. SIMILAR IS THE POSITION IN ALL THE CASES RELIED UPON BY LD. A.R., THEREFORE, WE DO NOT SEE ANY HESITATION IN HOLDING THAT COMPANY HAVING ITA NO.5848/DEL/12 18 TURNOVER OF MORE THAN RS.200 CROES CANNOT BE SELECT ED AS COMPARABLE FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICING. 14. AS REGARDS THE ISSUE RAISED BY THE LD. A.R. REG ARDING THE APPLICATION OF FILTER RELATING TO EMPLOYEE COST FILTER, WE ARE NOT IN AGREEMENT WITH THE ARGUMENTS OF THE LD. A.R. AS WE ARE OF THE FIRM OPI NION THAT A SERVICE PROVIDER COMPANY HAS NECESSARILY TO BE A HEAVY EMPL OYEE COSTS COMPANY. THE ARGUMENT OF LD. A.R. THAT A COMPANY MIGHT TAKE EMPLOYEES ON CONTRACT BASIS, DO NOT HOLD ANY FORCE AS THE ARGUMENT IS BAS ED ONLY ON ASSUMPTIONS. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE ARGUMEN TS OF THE LD. A.R. 15. AS REGARDS THE ARGUMENT OF LD. A.R. REGARDING E XCLUSION OF LGS GLOBAL LTD., AVANI CINCON, KALS INFORMATION SYSTEMS AND BOTHTREE CONSULTANTS, WE ARE OF THE OPINION THAT THE COMPANY HAVING SIMILAR FUNCTIONS CAN ONLY BE COMPARED WITH THE ASSESSEE AND AS PER V ARIOUS DECISIONS OF THE TRIBUNAL AS RELIED UPON BY THE LD. A.R., THESE COMP ANIES WERE INTO DEVELOPMENT OF THE PRODUCT ALSO IN ADDITION TO THE BUSINESS OF PROVIDING SERVICES. 16. LD. D.R. HAD ARGUED THAT THE TPO HAD TAKEN SEGM ENTAL FIGURES ONLY TO MAKE THE COMPARISON. THEREFORE, WE HOLD THAT THIS ISSUE CAN BE EXAMINED BY THE ASSESSING OFFICER AFRESH TO ASCERTAIN AS TO WHE THER SEGMENTAL DATA RELATING TO THE PROVISION OF SERVICES WERE USED OR CONSOLIDATED RESULTS WERE USED FOR MAKING COMPARISON. 17. AS REGARDS THE LAST ARGUMENT OF THE LD. A.R. RE GARDING INCLUSION OF FINANCE AND BANK CHARGES IN OPERATING EXPENSES WHIL E COMPUTING THE MARGIN AND COMPARABLES, WE ARE IN AGREEMENT WITH THE ARGUM ENT OF THE LD. A.R. THAT FINANCE AND BANK CHARGES FORM PART OF OPERATIN G EXPENSES AND NEED TO BE INCLUDED WHILE CALCULATING MARGIN OF COMPARABLES . ITA NO.5848/DEL/12 19 18. THEREFORE, IN VIEW OF THE FACTS AND CIRCUMSTANC ES OF THE PRESENT CASE AND IN VIEW OF THE DISCUSSIONS MADE ABOVE AND IN VI EW OF VARIOUS JUDICIAL PRONOUNCEMENTS, WE DIRECT THE ASSESSING OFFICER TO RE-ADJUDICATE THE ISSUE OF ARMS LENGTH PRICING AND DETERMINE THE SAME BY EX CLUDING THE COMPARABLES HAVING TURNOVER OF MORE THAN RS.200 CRORES. THE AS SESSING OFFICER WILL ALSO TAKE INTO ACCOUNT THE BANK AND FINANCE CHARGES AS P ART OF OPERATING EXPENSES OF COMPARABLES FOR ARRIVING AT THE MARGIN. SIMILAR LY, ASSESSING OFFICER WILL ONLY TAKE SEGMENTAL RESULTS RELATING TO SERVICES ON LY FOR COMPARING THE COMPANIES M/S. KALS INFORMATION SYSTEMS, AVANI CINC ON, LGS GLOBAL LTD. AND BOTHTREE CONSULTING SYSTEMS AS THE CONSOLIDATED RESULTS OF THESE COMPANIES CANNOT BE COMPARED WITH THE ASSESSEE, AS ASSESSEE IS ADMITTEDLY INTO SERVICE PROVIDING ACTIVITIES. IT IS FURTHER D IRECTED THAT IF SEGMENTAL RESULTS OF THE ABOVE COMPANIES RELATING TO SIMILAR SERVICES AS BEING PROVIDED BY ASSESSEE ARE NOT AVAILABLE, THEN THESE COMPANIES WILL HAVE TO BE EXCLUDED AS COMPARABLES AS HELD IN VARIOUS JUDICIAL PRONOUNC EMENTS RELIED UPON BY LD. A.R.. 19. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE A SSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 20. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEP., 2014. SD./- SD./- ( DIVA SINGH ) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 12 TH SEP., 2014 SP ITA NO.5848/DEL/12 20 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).