DCIT, V. M/s Analog Dvices India pvt. Ltd.,

ITA 619/BANG/2013

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0012 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-12-2019
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Wholly owned subsidiary; TDS; Set aside
• Section: 92C; 92D; 92B; 234B; 133(6); 143(1); 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : B, BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDICAL MEMBER IT(TP)A NO.619(BANG)/2013 (ASSESSMENT YEAR : 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(1), BANGALORE APPELLANT VS M/S ANALOG DEVICES INDIA PVT. LTD., RMZ INFINITY NO.3, LEVEL-6, TOWER-D, OLD MARAS ROAD, BANGALORE-560 016. PAN NO.AABCA1873F RESPONDENT AND C.O.NO.155(B)/2015 (IN IT(TP)A NO.619(B)/2013 (ASSESSMENT YEAR : 2005-06) (BY ASSESSEE) APPELLANT BY : SHRI K.N. DHANDPANI, ADDL.CIT REVENUE BY : SHRI DARPAN KIRPALANI, CA DATE OF HEARING : 10-12-2019 DATE OF PRONOUNCEMENT : 20-12-2019 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : PRESENT APPEAL AS WELL AS CROSS OBJECTION HAS BEEN FILED BY REVENUE AND ASSESSEE AGAINST ORDER DATED 28/02/13 PASSED BY LD. CIT (A)-4, BANGALORE FOR ASSESSMENT YEAR 2005-06 ON FOLLOWING GROUNDS OF APPEAL: GROUNDS FOR THE ASSESSMENT YEAR 2005-06 (BY REVENUE) IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 2 1.THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SIZE AID TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TREATING A COMPANY AS A COMPARABLE, AND ACCORDINGLY ERRED IN EXCLUDING IGATE GLOBAL SOLUTIONS LTD , M/S L&T INFOTECH LTD . SATYAM COMPUTERS LTD , INFOSYS TECHNOLOGIES LTD M/S. FLEXTRONICS SOFTWARE SYSTEMS LTD AS COMPARABLES IN THE SEGMENT. 3.THE LD. CIT (A) ERRED IN REJECTING COMPANIES ON THE BASIS OF ABNORMAL PROFIT WITHOUT DEFINING WHAT CONSTITUTES ABNORMAL PROFIT FILTER AND HOW THE SAME IS DETERMINED AND CONSEQUENTLY ERRED IN EXCLUDING THE COMPARABLE COMPANIES EXENSYS SOFTWARE SOLUTIONS LTD AND THIRDWARE SOLUTIONS LTD. 4. THE LEARNED CIT (A) ERRED IN REJECTING THE DIMINISHING REVENUE FILTER USED BY THE TPO TO EXCLUDE COMPANIES THAT DO NOT REFLECT THE NORMAL INDUSTRY TREND. 5.THE HONORABLE CIT(A) ERRED IN COMPUTATION OF THE MARGINS OF M/S QUINTEGRA SOLUTIONS LTD, BY DETERMINING THE SAME AS AVERAGE OF MARGINS OF 6.85% AND 10.68% FOR FY ENDED 30/09/2004 AND 30/09/2005 RESPECTIVELY, WITHOUT APPRECIATING THE FACT THAT AN AVERAGE CANNOT REPRESENT THE ARM'S LENGTH MARGIN OF ANY COMPARABLE COMPANY FOR THE PURPOSES OF ARM'S LENGTH MARGIN DETERMINATION 6.THE HONORABLE CIT(A) ERRED IN COMPUTATION OF THE MARGINS OF M/S QUINTEGRA SOLUTIONS LTD, BY DETERMINING THE SAME AS AVERAGE OF MARGINS OF 6.85% AND 10.68% FOR FY ENDED 30/09/2004 AND 30/09/2005 RESPECTIVELY. WITHOUT APPRECIATING THE FACT THE SAME IS CONTRADICTORY TO CIT(A)'S OWN DECISION WHO HAS UPHELD THE REJECTION BY THE TPO OF MULTIPLE YEAR'S DATA AND USE OF ONLY CURRENT YEAR'S DATA FOR THE PURPOSE OF TP ANALYSIS. 7.THE HON'BLE CIT (A) HAS ERRED IN HOLDING THAT, THE DIFFERENT ACCOUNTING YEAR FILTER, WAS AN INAPPROPRIATE FILTER FOR THE PURPOSES OF COMPARABILITY ANALYSIS. 8.THE LEARNED C1T (A), ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, ERRED IN HOLDING THAT M/S TATA ELXSI LD., CAN NOT BE TAKEN AS A COMPARABLE. BEING FUNCTIONALLY DIFFERENT WITHOUT APPRECIATING THE FACT THAT IT SATISFIES ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 9.THE LEARNED CIT (A), ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. ERRED IN HOLDING THAT M/S. BODHTREE CONSULTING IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 3 LTD.. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD.CAN NOT BE TAKEN AS COMPARABLES, WITHOUT APPRECIATING THE FACT THAT THE COMPANIES QUALIFY ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO IN SELECTION OF THESE COMPANIES AS COMPARABLES. 10.THE LEARNED CIT (A) HAS ERRED IN DIRECTING INCLUSION OF THE M/S. VJIL CONSULTING LTD., REJECTING THE TPO'S CONCLUSION THAT THE COMPANY DOES NOT SATISFY THE QUALITATIVE FILTERS APPLIED FOR THE PURPOSE OF COMPARABILITY ANALYSIS WITHOUT APPRECIATING THE FACT THAT IT IS AN INAPPROPRIATE COMPARABLE FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE. 11.THE ORDER OF THE LD. CIT(A) IN SO FAR AS IT SIS PREJUDICIAL TO THE REVENUE IS OPPOSED TO LAW AND CIRCUMSTANCES OF THE CASE. 12.THE CIT (A) WAS NOT JUSTIFIED IN DIRECTING THE AO TO RECOMPUTE THE DEDUCTION ALLOWABLE U/S 10A OF THE I.T.ACT AFTER REDUCING THE DATA LINK CHARGES OF RS. 51,80,140/- FROM THE TOTAL TURNOVER ALSO. 13.THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT THERE IS NO PROVISION IS SECTION 10A WHICH REQUIRES THE CONCERNED EXPENSES, WHICH ARE REQUIRED TO BE REDUCED FROM THE EXPORT TURNOVER AS PER CLAUSE (IV) OF THE EXPLANATION TO SECTION 10A TO BE REDUCED FROM THE TOTAL TURNOVER ALSO. 14.THE LD. CIT (A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE JURISDICTION HIGH COURT DECISION RELIED UPON BY HIM HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEALS HAVE BEEN FILED BEFORE HON'BLE SUPREME COURT WHICH IS STILL PENDING. 15.FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 16.THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. GROUNDS RAISED BY ASSESSEE IN ITS CO NO.155(B)/2015 (AY: 2005-06) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FACTS, BY NOT ACCEPTING THE RESPONDENT'S PLEA IN ENTIRETY AND CONFIRMING WITH THE LEARNED AO/TPO ON NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE RESPONDENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962 AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACTION AND HOLDING THAT THE RESPONDENT'S INTERNATIONAL TRANSACTION IS NOT AT ARM'S LENGTH. IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 4 2. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FACTS, IN NOT ACCEPTING THE RESPONDENT'S PLEA AND CONFIRMING WITH THE LEARNED AO/TPO BY DETERMINING THE ARM'S LENGTH MARGIN/ PRICE USING FINANCIAL YEAR 2004-2005 DATA WHICH WAS NOT AVAILABLE TO THE RESPONDENT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS, BY REJECTING THE RESPONDENT'S PLEA AND CONFIRMING WITH THE AO/TPO'S ACTION OF MODIFYING THE NIL 'FOREIGN EXCHANGE EARNINGS' FILTER ADOPTED BY THE RESPONDENT TO ACCEPT ONLY THOSE COMPANIES WHOSE EXPORT REVENUES CONTRIBUTED AT LEAST 25% OF ITS TOTAL REVENUES. FURTHER, IN-CASE OF A PARTICULAR COMPANY, THE LEARNED TPO ERRED IN LAW AND IN FACTS, BY DISREGARDING THE FACTUAL INFORMATION AVAILABLE IN THE PROFIT & LOSS ACCOUNT AND REJECTING IT USING THE EXPORT EARNING FILTER. 4. THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, BY NOT ACCEPTING THE RESPONDENT'S PLEA AND REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE RESPONDENT WHERE CONSOLIDATED RESULTS HAD BEEN USED FOR ANALYSIS. THE APPELLANT HAD CONSIDERED THE CONSOLIDATED RESULTS IN ONLY THOSE CASES WHERE THE INCOME OF THE INDIAN COMPANY CONSTITUTED MORE THAN 75% OF THE CONSOLIDATED COMPANY-WIDE/ SEGMENTAL REVENUES. 5. THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, BY NOT ACCEPTING THE RESPONDENT'S PLEA THAT `ONSITE REVENUES GREATER THAN 75% OF THE REVENUES' SHOULD NOT BE USED AS A COMPARABILITY CRITERION. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY ACCEPTING AND REJECTING CERTAIN COMPANIES AS BEING COMPARABLE USING UNREASONABLE COMPARABILITY CRITERIA. 7.THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY NOT ACCEPTING THE APPELLANT'S PLEA AND CONFIRMING WITH THE TPO'S ACTION OF EXERCISING HIS POWERS UNDER SECTION 133(6) OF THE ACT TO OBTAIN SELECTIVE INFORMATION WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES. 8.THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE RESPONDENT VIS--VIS THE COMPARABLES. 9.THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS BY NOT CONSIDERING THAT THE ADJUSTMENT TO THE ARM'S LENGTH PRICE, IF ANY, SHOULD BE LIMITED TO THE LOWER END OF THE 5 PERCENT RANGE AS THE APPELLANT HAS THE RIGHT TO EXERCISE THIS OPTION UNDER THE PROVISO TO SECTION 92C OF THE ACT. 10.THE LEARNED CIT(A) ERRED IN CONFIRMING THE IMPOSITION OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT; IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 5 THE RESPONDENT SUBMITS THAT EACH OF THE ABOVE GROUNDS IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, AMEND OR DELETE ONE OR MORE OF THE ABOVE GROUNDS OF CROSS-OBJECTIONS AT ANY TIME BEFORE, OR AT THE TIME OF, HEARING OF THE APPEAL, SO AS TO ENABLE THE APPELLATE TRIBUNAL TO DECIDE THIS RESPONSE ACCORDING TO LAW. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE IS A COMPANY AND WHOLLY OWNED SUBSIDIARY OF M/S ANALOG GROUP ENGAGED IN PROVIDING TECHNICAL, PROJECT MANAGEMENT, MARKETING AND SALES SUPPORT SERVICES. FOR YEAR UNDER CONSIDERATION ASSESSEE FILED RETURN OF INCOME ON 31/10/05 DECLARING TOTAL INCOME OF RS.3,13,75,410/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED ALONG WITH QUESTIONNAIRE AND NOTICE UNDER SECTION 143(1) OF THE ACT. IN RESPONSE TO STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR. DURING ASSESSMENT PROCEEDINGS, LD.AO OBSERVED THAT ASSESSEE HAD INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES. ACCORDINGLY, REFERENCE WAS MADE UNDER SECTION 92CA TO LD.TPO FOR DETERMINATION OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 2.1 ON RECEIPT OF REFERENCE, LD.TPO CALLED FOR DETAILS IN RESPECT OF INTERNATIONAL TRANSACTION ENTERED INTO BY ASSESSEE WITH ITS AE IN FORM 3 CEB. LD.TPO OBSERVED THAT ASSESSEE HAD FOLLOWING INTERNATIONAL TRANSACTION WITH ITS AE: INTERNATIONAL TRANSACTIONS TYPE AMOUNT(RS.) SOFTWARE DEVELOPMENT RECEIPTS 47,69,97,648 PROJECT MANAGEMENT RECEIPTS 2,48,96,481 MARKETING & SALES SUPPORT RECEIPTS 1,88,91,195 IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 6 ONLY DISPUTED TRANSACTION BY LD.TPO IS IN RESPECT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AGAINST WHICH ASSESSEE HAS REPORTED TO HAVE RECEIVED SUM OF RS.47,69,97,648/-. LD.TPO OBSERVED THAT ASSESSEE SELECTED TNMM AS MOST APPROPRIATE METHOD AND COMPUTED ITS MARGIN AT 10.92% BY USING OP/OC FOR SOFTWARE DEVELOPMENT SEGMENT. ASSESSEE USED 45 COMPARABLES, WITH AVERAGE MARGIN OF 9.97% AND THEREBY HELD TRANSACTION TO BE AT ARMS LENGTH. 2.2 LD.AO UPON APPLYING VARIOUS FILTERS HELD THAT ASSESSEE HAS NOT DONE COMPARABILITY STUDY BASED ON CONTEMPORANEOUS DATA. HE THUS SHORTLISTED 17 COMPANIES WHICH INCLUDED 10 COMPARABLES SELECTED BY ASSESSEE WITH AVERAGE MARGIN OF 26.59%. LD.TPO THUS PROPOSED ADJUSTMENT TO SOFTWARE SERVICE SEGMENT OF RS.5,13,43,473/-. 3. AGGRIEVED BY PROPOSED ADJUSTMENT, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT (A). 3.1 LD.CIT, WHILE DECIDING GROUNDS RELATING TO COMPARABLES, DIRECTED FOLLOWING COMPARABLES TO BE EXCLUDED FROM FINAL LIST. HE SUBMITTED THAT, FOLLOWING COMPARABLES HAVE BEEN REJECTED BY LD.CIT (A), AGAINST WHICH REVENUE IS IN APPEAL. FOR HAVING HIGH TURNOVER: FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) IGATE GLOBAL SOLUTIONS LTD INFOSYS TECHNOLOGIES LTD L&T INFOTECH LTD SATYAM COMPUTERS LTD FOR ABNORMAL HIGH PROFIT THIRDWARE SOLUTIONS LTD. EXENSYS SOFTWARE SOLUTIONS LTD IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 7 FUNCTIONALLY DISSIMILAR: TATA ELXI LTD., FAILS QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY LD.TPO BODHTREE CONSULTING LTD., GEOMETRIC SOFTWARE SOLUTIONS COMPANY LTD., REVENUE ALSO SEEKS EXCLUSION OF; VIJIL CONSULTING LTD., ON FUNCTIONAL SIMILARITY. IN CROSS OBJECTION FILED BY ASSESSEE, ASSESSEE SEEKS TO EXCLUDE FOLLOWING COMPARABLES: FOUR SOFT LTD; SANKHYA INFOTECH LTD., 3.2. AT THE OUTSET, BOTH PARTIES SUBMITTED THAT COMPARABLES ALLEGED FOR INCLUSION BY REVENUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN CASE OF DCIT VS EMC SOFTWARE AND SERVICES (INDIA) PVT.LTD., IN ITA(TP)A NO.875/BANG/2013 ALONG WITH CO NO. 175/BANG/2018 FOR ASSESSMENT YEAR 2005-06 VIDE ORDER DATED. IT HAS BEEN SUBMITTED THAT GROUNDS RAISED BY REVENUE IN CASE OF DCIT VS EMC SOFTWARE AND SERVICES (INDIA) PVT.LTD., (SUPRA) AND PRESENT CASE ARE IDENTICAL. 4. IN OUR CONSIDERED OPINION, COMPARABILITY IS TO BE CARRIED OUT ON BROAD OBJECT OF BENCHMARKING INTERNATIONAL TRANSACTION AND ACCORDING TO LAW LAID DOWN UNDER SECTION 92B OF THE ACT, READ WITH RULE 10B(2) INCOME TAX RULES, 1963. COMPARABLES MUST BE SIMILAR IN MATERIAL ASPECTS AND MUST BE COMPARED ON THE BASIS OF PRODUCTS/SERVICES, CHARACTERISTICS, FUNCTIONS UNDERTAKEN, ASSETS USED AND RISK ASSUMED. MERELY BECAUSE CERTAIN COMPARABLES HAS BEEN UPHELD FOR ITS EXCLUSION/INCLUSION BY VARIOUS DECISIONS, DOES NOT IPSO FACTO LEAD TO EXCLUSION/INCLUSION IN A GIVEN SET OF FACTS. IN OUR CONSIDERED OPINION, EXCLUSION/INCLUSION OF ANY COMPARABLES MUST BE STRICTLY ANALYSED ON IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 8 BASIS OF FAR, IN ACCORDANCE WITH RULE 10 B (2). WE ALSO ARE OF OPINION THAT COMPARABLES SELECTED MUST BE FOR RELEVANT YEAR WHICH IS TO BE COMPARED AND UNLESS CONTEMPORANEOUS DATA AS SECTION 92D READ WITH RULE 10 D (4), IS NOT AVAILABLE FOR RELEVANT YEAR, MULTIPLE YEAR DATA SHOULD NOT BE USED. 5. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED BY ASSESSEE, RISKS ASSUMED AND ASSETS OWNED DURING THE YEAR UNDER CONSIDERATION. TRANSFER PRICING STUDY FOR YEAR UNDER CONSIDERATION HAS BEEN PLACED AT PAGE 39-132 OF PAPER BOOK WHEREIN ASSESSEE HELD ITSELF TO BE PROVIDING TECHNICAL SERVICES WHICH INCLUDES IC DESIGNING AND SOFTWARE SERVICES. LD.TPO RECORDED THAT ASSESSEE DESCRIBED SERVICES RENDERED BY ASSESSEE TO BE ROUTINE SOFTWARE DEVELOPMENT SERVICES. FUNCTIONS: ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH ITS ASSOCIATED ENTERPRISE FOR PROVIDING TECHNICAL SERVICES FOR DEVELOPMENT OF SOFTWARE APPLICATIONS TO BE DESIGNED ON CUSTOM MICROELECTRONIC CIRCUITS AND IS RESPONSIBLE TO EVALUATE THE PROTOTYPES. IT HAS BEEN RECORDED BY LD.TPO THAT SOFTWARE DESIGNS DEVELOPED BY ASSESSEE ARE TO BE EXPORTED TO ITS AE AND THEREAFTER AE OR ITS AFFILIATES SHALL UNDERTAKE FABRICATION, ASSEMBLY, PRODUCTION, TESTING AND SHIPMENT OF IC TO THE CUSTOMERS. FURTHER LD.TPO NOTES THAT ASSESSEE HAS BEEN ASSIGNED WITH THE RIGHT TO USE ALL INVENTIONS, IMPROVEMENTS, DEVELOPMENTS, TRADE SECRETS EXCEPT RABBI THE AE IN PERFORMANCE OF SERVICES. AND ASSESSEE SHALL BE REMUNERATED WITH AT 10% MARKUP ON MONTHLY BASIS PRICE. ASSETS OWNED: IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 9 ASSESSEE OWNS ROUTINE ASSETS LIKE OFFICE SPACES, COMPUTERS, ETC ALL THE INTANGIBLES IN RESPECT OF DEVELOPMENT OF SOFTWARE IS OWNED BY THE ASSOCIATED ENTERPRISES. RISKS ASSUMED: LD.TPO NOTES THAT MARKET RISK, SERVICE LIABILITY RISK, CUSTOMER CREDIT RISK AND ALL RISK ASSOCIATED WITH THE FAILURE/SUCCESS OF IC DESIGNING AND SOFTWARE DEVELOPMENT IS UNDERTAKEN BY THE AES. BASED UPON ABOVE FAR ANALYSIS, WE SHALL ANALYSE COMPATIBILITY OF ASSESSEE WITH COMPARABLES UNDER OBJECTION FOR EXCLUSION/INCLUSION. ITA NO. 619/B/13 (REVENUES APPEAL) 6. GROUND NO. 1, 11, 15-16 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ADJUDICATION. 6.1 GROUND NO. 2 THIS GROUND HAS BEEN RAISED BY REVENUE AGAINST EXCLUSION OF CERTAIN COMPARABLES BY LD.CIT (A) DUE TO HIGH TURNOVER. IT HAS BEEN SUBMITTED THAT TURNOVER FILTER IS AN APPROPRIATE FILTER AS OBSERVED BY VARIOUS DECISIONS OF THIS TRIBUNAL . HOWEVER, LD.AR ALLEGED THAT THESE COMPARABLES ARE TO BE EXCLUDED EVEN ON FUNCTIONAL DISSIMILARITIES AS ASSESSEE IS A CAPTIVE SERVICE PROVIDER CATERING ONLY TO ITS AE ON COST PLUS BASIS. LD.AR FILED BEFORE US CHARTS PERTAINING TO COMPARABLES ALLEGED BY REVENUE AND ASSESSEE FOR INCLUSION/EXCLUSION RESPECTIVELY. IN THE CHART LD. AR REFERRED TO PAPER BOOK-II (PART 2), WHEREIN PAGES OF ANNUAL REPORTS PERTAINING TO ALLEGED COMPARABLES BY REVENUE AND ASSESSEE ARE MENTIONED. WE HAVE CHECKED OUR RECORDS AS WELL AS THE RECORDS FILED BY ASSESSEE WITH THE REGISTRY AND LD. CIT DR. WE NOTE THAT THERE IS NO SUCH PAPER BOOK THAT IS FORMING PART OF ANY OF RECORDS. WE ARE THEREFORE REFERRING TO THE EXTRACTS OF ANNUAL REPORTS IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 10 THAT FORMS PART OF VARIOUS WRITTEN SUBMISSIONS FILED BY ASSESSEE BEFORE AUTHORITY IS BELOW WHICH IS PLACED IN PAPER BOOK I (PART 2 OF 2) FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) THIS COMPARABLE HAS BEEN EXCLUDED BY LD.CIT(A) DUE TO HIGH TURNOVER OF ABOUT RS.457.45 CRORES. IT HAS FURTHER BEEN SUBMITTED BY LD.AR THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERENT WITH THAT OF ASSESSEE. IT HAS BEEN SUBMITTED THAT THIS COMPANY IS ENGAGED IN END TO END PROVIDER OF COMMUNICATION PRODUCTS, SERVICES AND SOLUTIONS TO NETWORK EQUIPMENT PROVIDERS, HANDSET MANUFACTURERS, SERVICE PROVIDERS AND BUSINESS PROCESS OUTSOURCING SECTORS. AT PAGE 693 IN PAPER BOOK I (PART 2 OF 2) EXTRACT OF SCHEDULE O BEING NOTES TO FINANCIAL STATEMENTS OF THIS COMPANY ARE PLACED, WHEREIN THIS COMPANY IS SAID TO HAVE ACQUIRED 52,49,719 FULLY PAID-UP EQUITY SHARES OF RS. 5 EACH, BEING APPROXIMATELY 15.42% OF PAID-UP CAPITAL OF THE COMPANY FROM PUBLIC AS PER CEB (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATION 1997. INFOSYS TECHNOLOGIES LTD THIS COMPARABLE HAS BEEN EXCLUDED BY LD.CIT(A) DUE TO HIGH TURNOVER OF ABOUT RS.6859.66 CRORES. IT HAS FURTHER BEEN SUBMITTED BY LD.AR THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERENT WITH THAT OF ASSESSEE. HE SUBMITTED THAT THIS COMPARABLE IS DEALING IN BOTH SERVICES AND PRODUCTS HAD IS INVOLVED IN HUGE RESEARCH AND DEVELOPMENT ACTIVITIES. LD.AR SUBMITTED THAT, THIS COMPARABLE OWNS HUGE RISKS AND SUBSTANTIAL INTANGIBLES THEREBY MAKING IT VERY DIFFERENT FROM A CAPTIVE SERVICE PROVIDER WHO CATERS ONLY TO ITS AE, ON COST PLUS BASIS WITH NO RISK AT ALL AND NO INTANGIBLES. IGATE GLOBAL SOLUTIONS LTD: IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 11 THIS COMPARABLE HAS BEEN EXCLUDED BY LD.CIT(A) DUE TO HIGH TURNOVER OF ABOUT RS.406.14 CRORES. IT HAS FURTHER BEEN SUBMITTED BY LD.AR THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERENT WITH THAT OF ASSESSEE. SATYAM COMPUTERS SERVICES LTD THIS COMPARABLE HAS BEEN EXCLUDED BY LD.CIT(A) DUE TO HIGH TURNOVER OF ABOUT RS.3464.23 CRORES. IT HAS FURTHER BEEN SUBMITTED BY LD.AR THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERENT WITH THAT OF ASSESSEE. FURTHER AT PAGE 547 OF IN PAPER BOOK I (PART 2 OF 2) IT HAS BEEN SUBMITTED THAT THIS COMPANY WAS FOUND TO BE FALSIFYING ITS ACCOUNTS, PRESENTING INFLATED FINANCIAL STATEMENTS AND THEREFORE DESERVES TO BE EXCLUDED L&T INFOTECH LTD. THIS COMPARABLE HAS BEEN EXCLUDED BY LD.CIT(A) DUE TO HIGH TURNOVER OF ABOUT RS.562.45 CRORES. IT HAS FURTHER BEEN SUBMITTED BY LD.AR THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERENT WITH THAT OF ASSESSEE. THERE IS NOTHING ON RECORD THAT HAS BEEN PLACED BY REVENUE TO ESTABLISH AFORESTATED OBSERVATIONS OF LD. CIT(A) TO BE CONTRARY, EXCEPT FOR SUBMITTING THAT THIS COMPANY WAS EXCLUDED FOR HAVING HIGH TURNOVER. 6.2. ON THE CONTRARY LD.SR.DR PLACED RELIANCE UPON ORDERS PASSED BY LD.AO IN SUPPORT OF HIS CONTENTIONS. 6.2. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. APPLICATION OF TURNOVER FILTER HAS BEEN UPHELD BY THIS TRIBUNAL IN SEVERAL DECISIONS INCLUDING GENESIS INTEGRATING SYSTEMS INDIA PVT. LTD. VS DCIT REPORTED IN [2012] 20 TAXMANN.COM 715. THIS TRIBUNAL IN CASE IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 12 OF GENESIS INTEGRATING SYSTEMS INDIA PVT.LTD., (SUPRA) OBSERVED AS UNDER: FOR THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER, A REASONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCENARIO INTO CONSIDERATION, THE CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME, IT IS HELD THAT THE TURNOVER FILTER IS VERY IMPORTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1.00 CRORE TO 200 CRORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THAT RANGE HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200.00 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY IT IS OBSERVED THAT COMPARABLES SOUGHT TO BE EXCLUDED ARE 100 % SOFTWARE DEVELOPMENT COMPANIES, HAVING HIGH TURNOVER AND THEREFORE RESPECTFULLY FOLLOWING AFORESTATED VIEW IN CASE OF GENESIS INTEGRATING SYSTEMS INDIA PVT. LTD., VS DCIT (SUPRA) THESE COMPARABLES ARE TO BE EXCLUDED ON BOTH THE COUNTS OF FUNCTIONALLY NOT BEING SIMILAR WITH THAT OF ASSESSEE AND ALSO BECAUSE THEY HAVE A HIGH TURNOVER OF MORE THAN 200 CRORE. IT IS SUBMITTED THAT SUBSEQUENTLY THIS TRIBUNAL IN CASE OF YODLEE INFOTECH PVT. LTD VS ITO IN IT(TP)A NO. 108/BANG/2014 FOR ASSESSMENT YEAR 2009-10, VIDE ORDER DATED 12/12/14, EXCLUDED THESE COMPANIES FOLLOWING GENESIS INTEGRATING SYSTEMS INDI PVT.LTD VS.DCIT(SUPRA). RELIANCE HAS BEEN PLACED ON DECISION OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT.LTD. VS DCIT REPORTED IN (2018) 96 TAXMANN.COM 263 FOLLOWED SIMILAR VIEW TO EXCLUDE IDENTICAL COMPARABLES BY APPLYING TURNOVER FILTER, WHEREIN ALL THE DECISIONS RELIED UPON BY LD. IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 13 CIT DR HAS BEEN CONSIDERED AND DEALT WITH. FURTHER IN RESPECT OF EACH COMPARABLES ALLEGED FOR IT INCLUSION BY REVENUE, WE ALSO FIND THAT THEY ARE NOT SIMILAR IN TERMS OF RISKS AND ASSETS OWNED. IT IS ALSO OBSERVED THAT IN SOME COMPARABLES SEGMENTAL INFORMATION ARE NOT AVAILABLE. THEREFORE, CONSIDERING THE TOTALITY OF FACTS, WE UPHOLD EXCLUSION OF FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), IGATE GLOBAL SOLUTIONS, INFOSYS TECHNOLOGIES LTD, L&T INFOTECH LTD., AND SUCH THEM COMPUTERS SERVICES LTD BY LD.CIT (A) FROM FINAL LIST. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DISMISSED. 7. GROUND NO. 3 THIS GROUND HAS BEEN RAISED BY REVENUE IS LD. CIT (A) REJECTED 2 COMPARABLES FOR HAVING ABNORMAL PROFITS. EXENSYS SOFTWARE SOLUTIONS LTD: IT HAS BEEN RECORDED BY LD.CIT (A) THAT THIS COMPARABLE HAS UNDERWENT AMALGAMATION WITH M/S HOLOOL INDIA LTD. IT HAS BEEN SUBMITTED THAT THIS COMPANY IS ENGAGED IN MULTIPLE ACTIVITIES INCLUDING SOFTWARE PRODUCTS, SOFTWARE SERVICES AND BPO SERVICES. IT HAS BEEN SUBMITTED THAT DUE TO EXTRAORDINARY EVENT OF AMALGAMATION OF THIS COMPANY, THERE IS AN ABNORMAL INCREASE IN PROFITS. LD.AR HAS SUBMITTED THAT THIS COMPANY CANNOT BE FUNCTIONALLY COMPARED WITH THAT OF ASSESSEE. THIRIDWARE SOLUTIONS LTD LD.CIT (A) HAS EXCLUDED THIS COMPARABLE AS IT IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND SALE OF SOFTWARE PRODUCTS FOR WHICH NO SEGMENTAL DETAILS ARE AVAILABLE. LD.AR PLACING RELIANCE ON WRITTEN IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 14 SUBMISSION OF ASSESSEE FILED BEFORE LD.TPO SUBMITTED THAT VARIOUS DETAILS WERE CALLED FOR UNDER SECTION 133 (6) ACCORDING TO WHICH THIS COMPANY WAS ENGAGED IN IMPLEMENTATION AND CUSTOMER SERVICES WHICH INCLUDES TRAINING, CUSTOMISED DEVELOPMENT AND HELP DESK SERVICES FOR ERP SOFTWARE AND BI SALUTES AND PRODUCTS. LD.AR SUBMITTED THAT THIS COMPANY IS A DISTRIBUTOR AND OTHER SERVICES ARE MERELY ANCILLARY TO ITS DISTRIBUTION ACTIVITY. HE THUS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT SIMILAR IN ACTIVITIES CARRIED ON BY ASSESSEE. 7.1. ON THE CONTRARY LD.SR.DR SUBMITTED THAT THESE COMPANIES ARE FUNCTIONALLY SIMILAR WITH RESPECT TO THE SOFTWARE SERVICE PROVIDED BY ASSESSEE IN THE PRESENT CASE. IN SUPPORT HE PLACED RELIANCE UPON THE VIEW OF LD. AO. 7.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. AS REGARDS COMPANY EXENYS SOFTWARE IS CONCERNED, PAGE 430 OF PAPER BOOK I (PART 2 OF 2), ASSESSEE REFERS TO SCHEDULED FOR OF INCOME STATEMENT WHEREIN COMPANY HAS VALUED ITS BRAND AT RS. 5 CRORES WHICH INDICATES THAT THIS COMPANY OWNS HUGE INTANGIBLES. ALSO THAT THIS COMPANY HAD AN EXCEPTIONAL YEAR OF OPERATION DUE TO AMALGAMATION WITH HOLOOL INDIA LTD. THUS IN OUR OPINION THIS COMPARABLE NEEDS TO BE EXCLUDED. AS REGARDS THIRDWARE SOLUTIONS LTD IS CONCERNED, P&L ACCOUNT AS WELL AS SCHEDULES TO P&L ACCOUNT ARE PLACED AT PAGE 675-676 OF PAPER BOOK I (PART 2 OF 2) BEING PART OF WRITTEN SUBMISSION BEFORE LD. CIT (A) BY ASSESSEE. IT IS OBSERVED THAT THIS COMPANY EARNED REVENUE FROM SOFTWARE SERVICES AMOUNTING TO RS. 8, 06, 02, 781/-. AS COMPLETE ANNUAL REPORT OF THIS COMPANY HAS NOT BEEN PLACED BEFORE US, WE ARE IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 15 UNABLE TO ASCERTAINED THE NATURE OF SUCH SOFTWARE SERVICES PROVIDED BY THIS COMPANY. WE THEREFORE SET ASIDE THIS COMPARABLE TO LD.TPO. LD.TPO SHALL CALL FOR INFORMATION UNDER SECTION 133 (6) FROM THIS COMPANY REGARDING THE NATURE OF SOFTWARE SERVICES PROVIDED DURING THE RELEVANT PERIOD. LD. TPO HAS ALSO DIRECTED TO ANALYSE THE RISK IS ASSUMED AND THE ASSETS OWNED FOR RENDERING SUCH SERVICES. IN THE EVENT IT IS FOUND THAT THE SERVICES RENDERED BY THIS COMPANY ARE SIMILAR IN NATURE AND FUNCTION WITH THAT OF ASSESSEE, THE SAME MAY BE CONSIDERED IN THE FINAL LIST. NEEDLESS TO SAY THAT ASSESSEE SHALL BE GRANTED PROPER OPPORTUNITY OF REPRESENTATION BEFORE LD. AO/TPO. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO. 5-6 THIS GROUND HAS BEEN RAISED BY REVENUE FOR CORRECTING MARGINS OF M/S QUINTENGRA SOLUTIONS LTD. BOTH PARTIES AGREE THAT LD.CIT HAS TAKEN MARGIN OF THIS COMPARABLE TO BE AT 8.77 HAS AGAINST 37.78. WE DIRECT LD.TPO TO VERIFY THE SAME BY CALLING FOR INFORMATION FROM THIS COMPANY UNDER SECTION 133 (6) OF THE ACT. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND.NO.8 TATA ELXI LTD (SEG.): IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 16 THIS COMPARABLE HAS BEEN EXCLUDED BY LD.CIT(A) DUE TO HIGH TURNOVER. IT HAS FURTHER BEEN SUBMITTED BY LD.AR THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERENT WITH THAT OF ASSESSEE. LD.AR SUBMITTED THAT THIS COMPANY IS ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTS IN CREATION OF INTELLECTUAL PROPERTY RIGHTS. LD.CIT DR SUPPORTED OBSERVATIONS OF AUTHORITIES BELOW AND PRAYED FOR ITS INCLUSION. 9.1 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. IT IS OBSERVED THAT THIS COMPARABLE CATERS BASICALLY IN PROVIDING SOFTWARE DEVELOPMENT SERVICES WHEREIN, HUGE INTANGIBLES ARE GENERATED OWNED BY THIS COMPARABLE. IT IS ALSO OBSERVED THAT THIS COMPARABLE IS A GROUP CONCERN OF TATA, WHICH MAKES IT TO BE ECONOMICALLY DIFFERENT WITH THAT OF ASSESSEES WHO UNDERTAKES LIMITED RISKS AND PROVIDES TECHNICAL ASSISTANCE TO ITS AES IN PRODUCTS DEVELOPED FOR AE. WE DO NOT FIND THIS COMPARABLE TO BE FUNCTIONALLY SIMILAR IN ANY MANNER WHATSOEVER WITH THAT OF ASSESSEE. ACCORDINGLY WE UPHOLD EXCLUSION OF THIS COMPARABLE FROM THE FINAL LIST. 10. GROUND NO. 9 THIS GROUND HAS BEEN RAISED BY REVENUE AS LD. CIT (A) EXCLUDED TWO COMPARABLES BEING BODHTREE CONSULTING LTD AND GEOMETRIC SOFTWARE SOLUTIONS LTD ON GROUND THAT THEY DO NOT SATISFY THE QUALITATIVE AS WELL AS QUANTITATIVE FILTERS APPLIED BY LD.TPO. BODHTREE CONSULTING LTD LD. CIT(A) EXCLUDED THIS COMPARABLE BY OBSERVING THAT THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND OFFERS PRODUCT SOLUTIONS IN THE IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 17 AREAS OF DATA QUALITY, BUSINESS INTELLIGENCE AND LIFE SCIENCES TO REPUTED CUSTOMER BASE WORLDWIDE AND ITS PRODUCTS INCLUDE SPEND DATA MANAGEMENT SOLUTIONS, MULTI-INDUSTRY DATA AND ANOMALY, DATA CLEANSING AND INTEGRATION SOFTWARE, PATENTS ASSET MANAGEMENT EXCEPT ETC. IT HAS BEEN OBSERVED BY LD. CIT (A) THAT THIS COMPANY DOES NOT HAVE BREAKUP OF SEGMENTAL REVENUES AND IT ALSO FAILS FUNCTIONAL TESTS SET BY LD.TPO. CIT(A) THUS HELD THIS COMPANY TO BE FUNCTIONALLY NOT SIMILAR WITH THAT OF ASSESSEE THAT IS A CAPTIVE SERVICE PROVIDER CATERING ONLY TO ITS AE ON A COST +10% BUSINESS MODEL. GEOMETRIC SOFTWARE SOLUTIONS LTD LD.CIT(A) OBSERVED THAT THIS COMPANY WAS FUNCTIONALLY NOT COMPARABLE AS IT WAS PREDOMINANTLY AND ENGINEERING COMPANY AND NOT A SOFTWARE SERVICE COMPANY. LD.CIT (A) FROM ANNUAL REPORT OBSERVED THAT IT IS SPECIALISED IN PRODUCT TRIAL LIFE-CYCLE MANAGEMENT SERVICES FOR MECHANICAL DESIGN, MANUFACTURING AND INDUSTRIAL MARKETS. IT IS ALSO BEEN SUBMITTED THAT THERE IS NO SEGMENTAL BREAKUP AVAILABLE IN RESPECT OF VARIOUS SERVICES RENDERED BY THIS COMPANY. IT WAS ON THE BASIS OF SUCH FUNCTIONAL VARIANTS THAT LD. CIT (A) EXCLUDED THIS COMPARABLE. 10.1. ON THE CONTRARY, LD.SR.DR PLACED RELIANCE ON ORDERS OF AUTHORITIES BELOW. 10.2. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 10.3. AT PAGE 543-544 OF PAPER BOOK I (PART 2 OF 2), FROM SUBMISSIONS MADE BY ASSESSEE, WOULD WE OBSERVE THAT THESE COMPANIES ARE FUNCTIONALLY NOT SIMILAR WITH THAT OF ASSESSEE. IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 18 IT IS OBSERVED THAT BOTH THE TREE WAS ORIGINALLY ACCEPTED BY ASSESSEE BUT SUBSEQUENTLY CONTESTED AS THIS COMPANY IS INVOLVED IN PROVIDING E PAPER SOLUTIONS WHICH IS FUNCTIONALLY DIFFERENT TO THAT OF ASSESSEE. IN RESPECT OF GEOMETRIC SOFTWARE SOLUTIONS, IT IS OBSERVED THAT THIS COMPANY IS INVOLVED IN ADDITIONAL PRODUCT LINES DURING THE YEAR UNDER CONSIDERATION AND IS ENGAGED IN COMPONENT TECHNOLOGY, DEVELOPMENT OF CAD/CAM/CAE PRODUCT MANAGEMENT AND COLLABORATIVE ENGINEERING. IT HAS THUS CATEGORISED ITSELF TO BE A PRODUCT BASED COMPANY THOUGH IT PROVIDES SOFTWARE SERVICES. HOWEVER NO SEGMENTAL INFORMATION IS AVAILABLE. UNDER SUCH CIRCUMSTANCES WE DO NOT FIND ANY REASON TO INTERFERE WITH THE VIEW TAKEN BY LD.CIT(A), AS BOTH THE COMPARABLES ARE FUNCTIONALLY WAY APART FROM FUNCTIONS PERFORMED BY ASSESSEE FOR YEAR UNDER CONSIDERATION. ACCORDINGLY WE DISMISS THIS GROUND RAISED BY REVENUE. 11.GROUND NO. 10 THIS GROUND HAS BEEN RAISED SEEKING EXCLUSION OF M/SVIJIL CONSULTING LTD. 11.1 LD.CIT (A) DIRECTED THIS COMPARABLE TO BE INCLUDED. WHILE DOING SO, IT WAS OBSERVED BY HIM THAT LD.TPO AFTER PROPOSING THIS COMPARABLE IN THE SHOW CAUSE NOTICE, REJECTED THE SAME WITHOUT ANY REASON. IT HAS BEEN SUBMITTED THAT LD.TPO HAD CALLED FOR VARIOUS DETAILS/INFORMATION IS UNDER SECTION 133 (6) IN RESPECT OF THIS COMPARABLE WHICH WAS NOT COMMUNICATED TO ASSESSEE. UNDER SUCH CIRCUMSTANCES IN OUR OPINION THIS ISSUE NEEDS TO BE RE- EXAMINED BY LD.TPO REGARDING FUNCTIONAL SIMILARITIES. NEEDLESS TO SAY THAT DETAILS OBTAINED BY THE LD.TPO UNDER SECTION 133(6) SHOULD BE IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 19 PROVIDED TO ASSESSEE AND PROPER OPPORTUNITY AS PER LAW MUST BE GRANTED. LD.TPO SHALL THEN CARRY OUT FAR ANALYSIS AS PER LAW. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 12. GROUND NO.12-14 THESE GROUNDS HAS BEEN RAISED BY REVENUE, IN RESPECT OF EXCLUSION OF TELECOMMUNICATION EXPENSES WHILE COMPUTING DEDUCTION UNDER SECTION 10 A OF THE ACT, UPHELD BY LD. CIT (A). 12.1 LD.AR PLACED RELIANCE UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS TATA ELXSI LTD REPORTED IN 349 ITR 98 AND SUBMITTED THAT THIS ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE. 12.2. ON THE CONTRARY, LD.CIT DR PLACED RELIANCE UPON ORDER PASSED BY LD.AO. 12.3 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. IT IS OBSERVED THAT, HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS TATA ELXSI LTD(SUPRA) ON IDENTICAL ISSUE HELD THAT TELECOMMUNICATION EXPENSES IS TO BE INCLUDED WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT, AS IT IS DIRECTLY LINKED WITH EARNING OF INCOME. LD CIT DR HAS NOT BROUGHT BEFORE US ANY CONTRADICTORY/DISTINGUISHABLE FACTS IN RESPECT OF PRESENT CASE BEFORE US. RESPECTFULLY FOLLOWING HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS TATA ELXSI LTD(SUPRA), WE DIRECT LD.AO TO INCLUDE TELECOMMUNICATION EXPENSES WHILE COMPUTING EXEMPT INCOME U/S10A OF THE ACT. ACCORDINGLY THE GROUNDS RAISED BY REVENUE STANDS DISMISSED. IN THE RESULT APPEAL FILED BY REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 20 CO/155/B/2015 (FILED BY ASSESSEE) 13. ASSESSEE BY WAY OF CROSS OBJECTION SEEKS EXCLUSION OF FOLLOWING 2 COMPARABLES: FOUR SOFT LIMITED SANKEY INFOTECH LTD 13.1. IT HAS BEEN SUBMITTED BY LD.AR THAT BOTH THESE COMPARABLES ARE FUNCTIONALLY NOT SIMILAR WITH THAT OF ASSESSEE AS THESE ARE ENGAGED IN BUSINESS OF DEVELOPMENT OF SOFTWARE PRODUCT AND TRAINING. PAGE 695 OF PAPER BOOK I (PART 2 OF 2) IS EXTRACT OF DIRECTORS REPORT OF SANKHYA INFOTECH, WHEREIN IT HAS BEEN SUBMITTED THAT THE COMPANY WAS ENGAGED IN VERY HIGH PROFILE SPECIALIST CONSULTANTS FOR DEVELOPMENT OF VERY CRITICAL PROJECTS AND PRODUCTS. IT HAS ALSO BEEN SUBMITTED THAT THERE IS NO SEGMENTAL INFORMATION AVAILABLE IN THE ANNUAL REPORTS. LD.AR SUBMITTED THAT FOUR SOFT LIMITED UNDERTAKES SIGNIFICANT R&D ACTIVITIES WITH RESPECT TO PRODUCT DEVELOPMENT AND THIS COMPANY IS A KNOWLEDGE-BASED PRODUCT COMPANY OWNING HUGE INTELLECTUAL PROPERTY. FURTHER, IT IS OBSERVED THAT LD.CIT(A), WHILE UPHOLDING INCLUSION OF THESE COMPARABLES DID NOT UNDERTAKEN COMPARABILITY ANALYSIS THOUGH, IT IS RECORDED THAT THESE COMPARABLES ARE PRODUCT BASED COMPANIES. LD.CIT(A) CANNOT ADOPT DIFFERENT PARAMETER, FOR INCLUSION OF THESE COMPARABLES EVEN THOUGH KNOWING THAT THESE ARE PRODUCT BASED COMPANIES. WE THEREFORE, DIRECT EXCLUSION OF THESE COMPARABLES. ACCORDINGLY, THESE GROUNDS RAISED BY ASSESSEE IN THE CROSS OBJECTION STANDS ALLOWED. IT(TP)A NO619(B)/2013 & CO NO.155(B)/2015 21 OTHER GROUNDS RAISED IN CROSS OBJECTION ARE IN SUPPORT OF THE ORDER PASSED BY LD.CIT(A) AND THE SAME IS UPHELD. IN THE RESULT CROSS OBJECTION FILED BY ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 20 TH DECEMBER, 2019. SD/- SD/- (A.K.GARODIA) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20-12-2019 *AM COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.GUARD FILE BY ORDER ASST. REGISTRAR