Aircom International (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6402/DEL/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5179 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 07-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Revenue expenditure
• Section: 92C; 143(3); 133(6); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.6402/DEL/2012 ASSESSMENT YEAR : 2008-09 AIRCOM INTERNATIONAL (INDIA) PVT. LTD., M-12, BALRAMA HOUSE, KARAMPURA COMMERCIAL COMPLEX, NEW DELHI. PAN: AADCA0915A VS. DCIT, CIRCLE-1(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESHWAR RAO, ADVOCATE DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 31.07.2017 DATE OF PRONOUNCEMENT : 02.08.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (A O) U/S 143(3) READ ITA NO.6402/DEL/2012 2 WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HERE INAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2008- 09. 2. THE FIRST ISSUE ASSAILED BEFORE US IS THE ADDITI ON OF RS.37,28,9290/- MADE BY THE ASSESSING OFFICER IN RELATION TO THE IN TERNATIONAL TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A 100% SUBSIDIARY OF AIRCOM INTERNATIONAL LTD., UK., WHIC H IS ENGAGED IN THE BUSINESS OF SOFTWARE SOLUTIONS AND CONSULTANCY S ERVICES IN THE AREA OF TELECOMMUNICATION INDUSTRY. THE ASSESSEE, AN IN DIAN COMPANY, REPORTED CERTAIN INTERNATIONAL TRANSACTIONS IN FORM NO.3CEB. FOR THE PURPOSES OF TRANSFER PRICING ANALYSIS, THE ASSESSEE DIVIDED ITS BUSINESS INTO THREE BROADER CATEGORIES, VIZ., (I) SOFTWARE D EVELOPMENT; (II) SOFTWARE DEPLOYMENT, TRAINING, CONSULTANCY AND EQUI PMENT RENTAL; AND (III) SUPPORT SERVICES WHICH INCLUDE LICENCE FE E PAID AND SUPPORT AND MAINTENANCE FEES PAID. IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES, THE ASSESSEE USED TRANSACTIONAL NET MAR GIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH PROFIT L EVEL INDICATOR ITA NO.6402/DEL/2012 3 (PLI) OF OPERATING PROFIT TO TOTAL COST (OP/TC). T HE ASSESSEE COMPUTED ITS OWN PLI AT 9.81% AS AGAINST THAT OF CO MPARABLES AT 12.06% AND CLAIMED THAT THE INTERNATIONAL TRANSACTI ON OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES, TRANSACTED AT RS.5, 45,05,847/-, WAS AT ARMS LENGTH PRICE (ALP). THE ASSESSING OFFICER (AO ) MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINI NG THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. THE TPO D ID NOT DISPUTE THE CATEGORY-WISE ACCOUNTS DRAWN UP BY THE ASSESSEE IN THE ABOVE REFERRED THREE SEGMENTS AND WENT ON TO ANALYZE THE SAME. AS REGARDS THE INTERNATIONAL TRANSACTIONS RELATING TO SOFTWARE DE VELOPMENT SERVICES, THE TPO OBSERVED THAT THE ASSESSEE DEVELOPED SOME S OFTWARE TO BE USED AS INPUT FOR THE PRODUCT ENTERPRISE SUITE SOLD/LI CENSED BY THE AIRCOM GROUP WORLDWIDE. THE ASSESSEE WAS BEING REM UNERATED ON COST PLUS 10% MARK-UP. AS AGAINST THE ASSESSEES SELECT ION OF 25 COMPANIES AS COMPARABLE, THE TPO, APPLYING CERTAIN FILTERS, R ESTRICTED THE NUMBER OF COMPARABLE COMPANIES TO 19. THEIR AVERAGE OP/TC WA S COMPUTED AT 26.21% WHICH, AFTER CARRYING OUT WORKING CAPITAL AD JUSTMENT, WAS REVISED TO 27.98%. BY APPLYING THIS AS ARMS LENGT H MARGIN, THE TPO ITA NO.6402/DEL/2012 4 WORKED OUT THE ALP OF THE `SOFTWARE DEVELOPMENT SER VICES RENDERED BY THE ASSESSEE AT RS.6.00 CRORE AND ODD. SINCE THE A SSESSEE DECLARED THE VALUE OF INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE SERVICES AT RS.4.69 CRORE, THE TPO WORKED OUT THE SHORTFALL, BE ING, THE AMOUNT OF TRANSFER PRICING ADJUSTMENT AT RS.55,25,459/-. THE ASSESSEE ASSAILED THE TPOS DETERMINATION OF THE ALP BEFORE THE DISPUTE R ESOLUTION PANEL (DRP). ONE COMPANY WAS EXCLUDED BY THE DRP. THE T PO, IN HIS ORDER GIVING EFFECT TO THE DIRECTION OF THE DRP, COMPUTED AVERAGE ADJUSTED OP/TC OF THE REMAINING 18 COMPANIES AT 24.15%. TREA TING THE SAME AS A BENCHMARK, HE WORKED OUT TRANSFER PRICING ADJUSTMEN T AMOUNTING TO RS.37,28,929/- IN THE SEGMENT OF SOFTWARE DEVELOPM ENT SERVICES. THE ASSESSING OFFICER, IN HIS FINAL ASSESSMENT ORDER, MADE AN ADDITION FOR THIS SUM, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE AS REGARDS THE APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD OR THE PLI FOR THE INTERNATIONAL TRANSACTION OF `PROVISION OF SOFTWARE DEVELOPMENT S ERVICES. SIMILARLY, ITA NO.6402/DEL/2012 5 THERE IS NO DISPUTE ABOUT THE ASSESSEES CALCULATIO N OF ITS OWN MARGIN FROM THE INTERNATIONAL TRANSACTION. THE ASSESSEE H AS RESTRICTED ITS CHALLENGE BEFORE US ONLY TO THE INCLUSION AND EXCLU SION OF SOME COMPANIES FROM THE FINAL TALLY OF COMPARABLES. 5. BEFORE PROCEEDING TO CONSIDER THE COMPARABIL ITY OR OTHERWISE OF THE COMPANIES CHALLENGED BEFORE US, IT IS SINE QUA NON TO CONSIDER THE NATURE OF WORK PERFORMED BY THE ASSESSEE UNDER THIS SEGMEN T. ON A SPECIFIC QUERY, IT WAS SUBMITTED BY THE LD. AR THAT NO SPECI FIC AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE FOR TH E PROVISION OF SOFTWARE DEVELOPMENT SERVICES. MAKING A REFERENCE TO THE TRANSFER PRICING STUDY REPORT, THE LD. AR BROUGHT TO OUR NOT ICE THAT AIRCOM WAS ESTABLISHED IN 1995 IN UK BY A GROUP OF LEADING CEL LULAR COMMUNICATION SPECIALISTS TO SATISFY THE DEMANDS OF NETWORK OPERA TORS AND INFRASTRUCTURE SUPPLIERS FOR EXPERT MOBILE NETWORK ENGINEERING SER VICES AND SOFTWARE TOOLS. AIRCOM GROUP PROVIDES SOLUTIONS FOR THREE KE Y AREAS VIZ., CONSULTING, SOFTWARE AND TRAINING. AIRCOM `ENTERP RISE SUITE IS A PC BASED SOLUTION FOR ALL ASPECTS OF NETWORK ENGINE ERING. IT INCLUDES ITA NO.6402/DEL/2012 6 TOOLS FOR RADIO PLANNING, BACKHAUL/CORE PLANNING AN D PERFORMANCE ENGINEERING AND CONFIGURATION MANAGEMENT. ENTERPRI SE SUITE OFFERS THE ADVANTAGE OF SEAMLESS WORKING MANAGEMENT BETWEE N DISCIPLINES THROUGHOUT THE ORGANIZATION AND AVOIDS THE DATA TRA NSFER PROBLEMS. THE ASSESSEE DEVELOPS SOFTWARE AS PER THE REQUIREMENTS OF AIRCOM, UK. SOFTWARE DEVELOPED BY THE ASSESSEE ACT AS INPUTS FO R THE ENTERPRISE SUITE OF PRODUCTS WHICH ARE SOLD/LICENSED BY THE AI RCOM GROUP WORLD- WIDE. AS PER THE TRANSFER PRICING STUDY REPORT, TH E FUNCTIONS PERFORMED BY THE ASSESSEE INCLUDE DESIGN OF THE SOFTWARE AND ITS DEVELOPMENT. WITH THE ABOVE GENERAL BACKDROP OF THE NATURE OF AC TIVITIES CARRIED OUT BY THE ASSESSEE UNDER THE PROVISIONS OF SOFTWARE D EVELOPMENT SERVICES SEGMENT, LET US SEE THE COMPARABILITY OR OTHERWISE OF THE COMPANIES ASSAILED BEFORE US. 6. AT THIS JUNCTURE, WE WOULD LIKE TO DEAL WITH THE PRELIMINARY OBJECTION TAKEN UP BY THE LD. DR. IT WAS SUBMITTED THAT SOME OF THE COMPANIES NOW CHALLENGED WERE IN FACT CHOSEN BY THE ASSESSEE ITSELF AS COMPARABLE. HAVING DONE SO, IT WAS CONTENDED THAT THE ASSESSEE CANNOT ITA NO.6402/DEL/2012 7 NOW TURN AROUND AND SEEK EXCLUSION OF THESE COMPANI ES BEFORE THE TRIBUNAL. 7. WE ARE DISINCLINED TO SUSTAIN THE PRELIMINARY OBJECTION TAKEN BY THE LD. DR THAT THE ASSESSEE SHOULD BE PROHIBITED F ROM TAKING A STAND CONTRARY TO THE ONE WHICH WAS TAKEN AT THE STAGE OF THE TP STUDY OR DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO. IT GOES WITHOUT SAYING THAT THE OBJECT OF ASSESSMENT IS TO DETERMINE THE I NCOME IN RESPECT OF WHICH THE ASSESSEE IS RIGHTLY CHARGEABLE TO TAX. AS THE INCOME NOT ORIGINALLY OFFERED FOR TAXATION, IF OTHERWISE CHARG EABLE, IS REQUIRED TO BE INCLUDED IN THE TOTAL INCOME, IN THE SAME BREATH, A NY INCOME WRONGLY INCLUDED IN THE TOTAL INCOME, WHICH IS OTHERWISE NO T CHARGEABLE, SHOULD BE EXCLUDED. THERE CAN BE NO ESTOPPEL AGAINST THE P ROVISIONS OF THE ACT. EXTENDING THIS PROPOSITION FURTHER TO THE CONTEXT O F THE TRANSFER PRICING, IF THE ASSESSEE FAILS TO REPORT AN OTHERWISE COMPAR ABLE CASE, THEN THE TPO IS OBLIGED TO INCLUDE IT IN THE LIST OF COMPARA BLES, AND IN THE SAME MANNER, IF THE ASSESSEE WRONGLY REPORTED AN INCOMPA RABLE CASE AS COMPARABLE IN ITS TP STUDY AND THEN LATER ON CLAIMS THAT IT SHOULD BE ITA NO.6402/DEL/2012 8 EXCLUDED THEN, THERE SHOULD BE NOTHING TO FORBID TH E ASSESSEE FROM CLAIMING SO, PROVIDED THE COMPANY SO ORIGINALLY RE PORTED AS COMPARABLE IS, IN FACT, NOT COMPARABLE. SIMPLY BECAUSE A COMP ANY WAS WRONGLY CHOSEN BY THE ASSESSEE AS COMPARABLE, CANNOT TIE HI S HANDS IN CONTENDING BEFORE THE TRIBUNAL THAT A PARTICULAR COMPANY WAS W RONGLY CONSIDERED AS COMPARABLE WHICH IS, IN FACT, NOT. THERE IS NO DIF FERENCE IN THE SITUATION WHERE THE ASSESSEE CLAIMS THAT A WRONG COMPANY INAD VERTENTLY INCLUDED FOR THE PURPOSE OF COMPARISON SHOULD BE EXCLUDED AN D THE SITUATION IN WHICH THE REVENUE DOES NOT ACCEPT A PARTICULAR COMP ANY CHOSEN BY THE ASSESSEE AS COMPARABLE. THE UNDERLYING OBJECT OF T HE ENTIRE EXERCISE IS TO DETERMINE THE ARMS LENGTH PRICE OF AN INTERNATI ONAL TRANSACTION. SIMPLY BECAUSE A COMPANY WAS WRONGLY CONSIDERED BY THE ASSESSEE AS COMPARABLE, CANNOT, ACT AS A DETERRENT FROM CHALLEN GING THE FACT THAT THIS COMPANY IS, IN FACT, NOT COMPARABLE. THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. QUARK SYSTEMS PVT. LTD. (2010) 132 TTJ (CH D) (SB) 1 HAS HELD THAT A CASE WHICH WAS INCLUDED BY THE ASSESSEE AND ALSO BY THE TPO IN THE LIST OF COMPARABLES AT THE TIME OF COMPUTING ALP, CAN BE EXCLUDED BY THE TRIBUNAL, IF THE ASSESSEE PROVES TH AT THE SAME WAS ITA NO.6402/DEL/2012 9 WRONGLY INCLUDED. SIMILAR VIEW HAS BEEN UPHELD BY T HE HON'BLE DELHI HIGH COURT IN XCHANGING TECHNOLOGY SERVICES INDIA PVT LTD [TS-446 - HC-2016(DEL)-TP]. THE HONBLE BOMBAY HIGH COURT IN TATA POWER SOLAR SYSTEMS LTD [TS-1007-HC-2016(BOM)-TP] AND THE HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. MERCER CONSULTING (INDIA) P. LTD. (2017) 390 ITR 615 (P&H) HAVE ALSO APPROVED SIMILAR VIEW. IN VIEW OF THE FOREGOING DISCUSSION, WE DO NOT FIND AN Y SUBSTANCE IN THE PRELIMINARY OBJECTION TAKEN BY THE LD. DR. 8. AT THIS STAGE, IT IS ALSO ESSENTIAL TO DEAL WI TH A SUBMISSION ADVANCED BY THE LD. AR, WHICH IS COMMON TO MOST OF THE COMPA NIES UNDER CHALLENGE, TO THE EFFECT THAT CERTAIN BENCHES OF TH E TRIBUNAL IN OTHER CASES HAVE HELD THEM TO BE NOT COMPARABLE. IN THAT VIEW OF THE MATTER, IT WAS URGED THAT THOSE COMPANIES, BEING EX FACIE INCOMPARABLE, BE EXCLUDED FROM THE LIST OF COMPARABLES DRAWN BY THE TPO. 9. WE EXPRESS OUR RESERVATIONS IN ACCEPTING SUCH A BROAD PROPOSITION. IT IS AXIOMATIC THAT IF COMPANY A IS FUNCTIONALLY DI FFERENT FROM COMPANY B, THEN, SUCH A COMPANY CANNOT BE CONSIDERED AS C OMPARABLE. TWO ITA NO.6402/DEL/2012 10 COMPANIES CAN BE TREATED AS COMPARABLE WHEN BOTH AR E DISCHARGING OVERALL SIMILAR FUNCTIONS, THOUGH THERE MAY BE SOME MINOR DIFFERENCES IN SUCH FUNCTIONS, NOT MARRING THE OTHERWISE COMPARABI LITY. NOTWITHSTANDING THE FUNCTIONAL SIMILARITY, MANY A T IMES A COMPANY CEASES TO BE COMPARABLE BECAUSE OF OTHER REASONS AS WELL. TO CITE AN EXAMPLE, IF COMPANY A, THOUGH FUNCTIONALLY SIMILA R TO COMPANY B, BUT HAS RELATED PARTY TRANSACTIONS (RPTS) BREACHING A PARTICULAR LEVEL, THEN, SUCH COMPANY CANNOT BE CONSIDERED AS COMPARAB LE TO COMPANY A IN THE YEAR IN WHICH THE RPTS BREACH SUCH A LEVEL. IF, HOWEVER, IN THE SUBSEQUENT YEAR, THE RELATED PARTY TRANSACTIONS FAL L BELOW THAT BARRIER, THEN SUCH COMPANY WOULD AGAIN BECOME COMPARABLE. IN THE LIKE MANNER, A COMPANY MIGHT HAVE BEEN TREATED AS NON-COMPARABLE DUE TO THE TPO ADOPTING ITS ENTITY LEVEL RESULTS FOR COMPARISON WI TH THE SEGMENTAL RESULTS OF THE CASE BEFORE HIM, BUT IN A LATER CAS E, THE TPO MAY TAKE ONLY THE RELATED SEGMENT RESULTS. IN SUCH A LATER C ASE, THE COMPANY TREATED AS NON-COMPARABLE TO THE FIRST COMPANY MAY BECOME COMPARABLE TO THE SECOND COMPANY. TO PUT IT SIMPLY, IF COMPANY A HAS BEEN HELD TO BE INCOMPARABLE VIS-A-VIS COMPANY B, THEN IT IS NOT ESSENTIAL THAT ITA NO.6402/DEL/2012 11 COMPANY A WOULD BE INCOMPARABLE TO COMPANY C AL SO. WHAT IS RELEVANT TO CONSIDER IS, FIRSTLY, THE FUNCTIONAL PR OFILE OF COMPANY A VIS- A-VIS COMPANY C. IF BOTH ARE FUNCTIONALLY SIMILAR, THE N NOTWITHSTANDING THE FACT THAT COMPANY A WAS HELD TO BE INCOMPARAB LE TO COMPANY B, IT MAY STILL BE COMPARABLE TO COMPANY C. DESPITE THE FACT THAT COMPANY A IS FUNCTIONALLY SIMILAR TO COMPANY B, IT STILL MIGHT HAVE BEEN DECLARED AS INCOMPARABLE TO COMPANY B BECAUS E OF OTHER RELEVANT REASONS. IF COMPANY A PASSES THE SAME REASONS VIS-A-VIS COMPANY C, THEN COMPANY A WILL FIND ITS PLACE IN THE LIST OF COMPARABLES OF COMPANY C, NOTWITHSTANDING THE FACT THAT IT WAS HELD TO BE INCOMPARABLE TO COMPANY B. THE CRUX OF THE MATTER IS THAT THE MERE FACT THAT COMPANY A HAS BEEN HELD TO BE NOT COMPA RABLE IN A JUDICIAL ORDER PASSED IN THE CASE OF COMPANY B, DOES NOT PER SE MAKE IT INCOMPARABLE IN ALL THE SUBSEQUENT CASES TO FOLLOW. NOT ONLY COMPANY A HELD TO BE INCOMPARABLE TO COMPANY B CAN BE C OMPARABLE TO COMPANY C, BUT COMPANY X HELD TO BE COMPARABLE TO COMPANY Y CAN ALSO BE INCOMPARABLE TO COMPANY Z, DEPENDING UPON THE FUNCTIONAL PROFILE AND THE APPLICABILITY OR OTHERWI SE OF THE RELATED ITA NO.6402/DEL/2012 12 FACTORS. THUS, IT IS CLEARLY DEDUCTIBLE THAT IF A PARTICULAR COMPANY HAS BEEN HELD TO BE NOT COMPARABLE IN THE CASE OF ANOTH ER COMPANY, THEN SUCH FORMER COMPANY MAY NOT ALWAYS BE NON-COMPARABL E TO THE ASSESSEE COMPANY ALSO. THE COMPARABILITY OF EACH CO MPANY NEEDS TO BE ASCERTAINED ONLY AFTER MATCHING THE FUNCTIONAL PROF ILE AND THE RELEVANT REASONS OF THE OTHER COMPANY. ERGO, THIS PRELIMINAR Y CONTENTION RAISED ON BEHALF OF THE ASSESSEE IS REJECTED AS DEVOID OF MERITS. 10. WE WOULD ALSO DEAL WITH ANOTHER PRELIMINARY LEG AL CONTENTION RAISED BY THE LD. AR. IT WAS SUBMITTED THAT THE TPO , DURING THE COURSE OF PROCEEDINGS BEFORE HIM, RECEIVED INFORMATION U/S 13 3(6) OF THE ACT FROM VARIOUS COMPANIES. RELYING ON SUCH INFORMATION, TH E TPO MADE CERTAIN INCLUSIONS/EXCLUSIONS FROM THE LIST OF COMPARABLES WHICH, IN THE OPINION OF THE LD. AR, WAS NOT WARRANTED. HE STATED THAT T HE TPO SHOULD NOT HAVE COLLECTED INFORMATION U/S 133(6) OR USED THE S AME AGAINST THE ASSESSEE IN DECIDING THE COMPARABILITY OR OTHERWISE OF THE COMPANIES BEFORE HIM. THIS WAS STRONGLY OPPOSED BY THE LD. D R. ITA NO.6402/DEL/2012 13 11. WE ARE NOT CONVINCED WITH THE ARGUMENT OF THE L D. AR FOR PROHIBITING THE TPO FROM COLLECTING ANY INFORMATION U/S 133(6) FOR THE PURPOSE OF DETERMINING THE COMPARABILITY AND THEN U SING THE SAME. SECTION 92(1) OF THE ACT PROVIDES THAT ANY INCOME A RISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. SECTION 92C EMPOWERS THE ASSESSING OF FICER TO DETERMINE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSAC TIONS. SUB-SECTION (3) PROVIDES THAT THE AO MAY PROCEED TO DETERMINE THE ALP OF AN INTERNATIONAL TRANSACTION, WHERE HE ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS IN HIS POSSESSION, IS OF THE OPINION T HAT THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRANSACTI ON IS NOT AT ARMS LENGTH PRICE ETC. SECTION 92CA PROVIDES THAT THE ASSESSING OFFICER MAY REFER THE DETERMINATION OF ALP IN RELATION TO THE I NTERNATIONAL TRANSACTIONS TO THE TRANSFER PRICING OFFICER (TPO). SUB-SECTION (3) OF SECTION 92CA PROVIDES THAT THE TPO SHALL PASS ORDER DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIALS WHICH HE HAS GATHERED. SUB-SECTION (7) OF SECTION 92CA EXPLICITLY PROVIDES THAT: THE TRANSFER PRICING OFFICER MAY, FOR THE ITA NO.6402/DEL/2012 14 PURPOSES OF DETERMINING THE ARMS LENGTH PRICE UNDE R THIS SECTION, EXERCISE ALL OR ANY OF THE POWERS SPECIFIED IN .. SUB-SECTION (6) OF SECTION 133 .. . IN VIEW OF THE CLEAR-CUT PROVISION ENSHRINED UN DER SUB-SECTION (7) EMPOWERING THE TPO TO COLLECT INFOR MATION, INTER ALIA, U/S 133(6) OF THE ACT READ IN CONJUNCTION WITH SUB- SECTION (3) OF SECTION 92CA, THERE REMAINS NO DOUBT WHATSOEVER THAT THE TP O IS FULLY EMPOWERED TO SEEK INFORMATION U/S 133(6) OF THE ACT FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. THERE IS NO EM BARGO ON HIS POWERS IN COLLECTING INFORMATION FROM THE RELEVANT COMPANI ES FOR SEEING IF THEY ARE REALLY COMPARABLE/INCOMPARABLE. IN OUR CONSID ERED OPINION, IT IS NOT THE PREROGATIVE, BUT, THE DUTY OF THE TPO TO COLLEC T VITAL MISSING INFORMATION NECESSARY FOR DETERMINING THE COMPARABI LITY OF THE COMPANIES CONSIDERED OR TO BE CONSIDERED AS COMPARA BLE WITH THE ASSESSEE COMPANY. IT IS POSSIBLE THAT SOMETIMES IM PORTANT INFORMATION CONCERNING THE EXACT FUNCTIONAL PROFILE OR THAT OF A RELEVANT SEGMENT MAY NOT BE AVAILABLE IN THE DATABASE OR MAY NOT EMANATE FROM THE ANNUAL REPORT AVAILABLE IN THE PUBLIC DOMAIN AND SUCH MISS ING INFORMATION IS ESSENTIAL. SIMILARLY, THERE MAY BE A LACK OF PROP ER DISCLOSURE OF THE ITA NO.6402/DEL/2012 15 RELATED PARTY TRANSACTIONS OR ANY OTHER INFORMATION NECESSARY FOR DETERMINING THE COMPARABILITY. SOME OTHERWISE COMP ARABLE COMPANIES MAY HAVE A DIFFERENT FINANCIAL YEAR ENDING AND SOME TIMES IT BECOMES ESSENTIAL TO OBTAIN THE DATA FOR THE YEAR MATCHING WITH THE ASSESSEE. SIMILARLY, THERE MAY BE SEVERAL OTHER SITUATIONS WA RRANTING COLLECTION OF INFORMATION FROM THE COMPANIES U/S 133(6) OF THE AC T. THE INFORMATION SO COLLECTED CAN ALWAYS BE LAWFULLY USED FOR OR AGA INST THE ASSESSEE PROVIDED THE ASSESSEE IS CONFRONTED WITH SUCH INFOR MATION AND HAS BEEN GIVEN OPPORTUNITY OF EXPLAINING ITS STAND ON THE SA ME. IF THE INFORMATION SO COLLECTED BY THE TPO U/S 133(6) OF THE ACT HAS B EEN CONFRONTED AND THE ASSESSEE GIVEN AN OPPORTUNITY TO EXPLAIN ITS PO SITION QUA SUCH INFORMATION, THERE CAN BE NO FETTER ON THE POWERS OF THE TPO TO VALIDLY TAKE COGNIZANCE OF THE SAME. THE INFORMATION FOR T HE RELEVANT YEAR, AVAILABLE AS SUCH IN THE PUBLIC DOMAIN OR SO COLLEC TED, IS ALWAYS MORE AUTHENTIC THAN THE INFORMATION AVAILABLE ON THE WEB SITE OF THE COMPARABLE COMPANY, WHICH IS NORMALLY TAKEN DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO. SUCH INFORMATION ON TH E WEBSITE IS ORDINARILY GERMANE TO THE DATE WHEN IT IS TAKEN, WH ICH IS NORMALLY AFTER A ITA NO.6402/DEL/2012 16 PERIOD OF FEW YEARS FROM THE END OF THE RELEVANT AS SESSMENT YEAR. IN CONTRAST TO THAT, THE INFORMATION COLLECTED BY THE TPO U/S 133(6) OF THE ACT IS FOR THE YEAR IN QUESTION, WHICH IS AUTHENTIC AND RELIABLE. 12. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND FROM PAGE 135 OF THE TPOS ORDER THAT: THE COPIES OF NOTICE U/S 133(6) ISSUED TO THE COMPANIES AS WELL AS THE COPY OF THE REPLIES RECEIV ED FROM THE COMPANIES WERE, IN FACT, GIVEN TO THE TAX PAYER IN A SOFT COPY FOR ITS COMMENTS. NOT ONLY THAT, THE DECISION OF THE TPO B ASED ON THE INFORMATION COLLECTED WAS ALSO COMMUNICATED TO THE ASSESSEE VIDE HIS SHOW CAUSE NOTICE. UNDER THESE CIRCUMSTANCES, WE F AIL TO COUNTENANCE THE CONTENTION OF THE LD. AR FOR NOT RELYING ON SUC H INFORMATION AS OBTAINED BY THE TPO U/S 133(6) OF THE ACT. THE CONT ENTION RAISED BY THE LD. AR IN THIS REGARD IS, THEREFORE, JETTISONED. 13. NOW WE ESPOUSE THE CHALLENGED COMPANIES IN SERIATIM FOR CONSIDERATION AS TO THEIR COMPARABILITY OR OTHERWIS E. FOR THE SAKE OF CONVENIENCE, THE COMPANIES HAVE BEEN DIVIDED INTO T WO PARTS, VIZ., FIRST, THE COMPANIES WHOSE INCLUSION HAS BEEN CHALLENGED AND SECOND, THE ITA NO.6402/DEL/2012 17 COMPANIES WHOSE EXCLUSION HAS BEEN ASSAILED. FIRST LY, WE ARE TAKING UP THE COMPANIES, WHICH IN THE OPINION OF THE ASSESSE E, HAVE BEEN WRONGLY REMOVED. (I) AVANI CINCOM TECHNOLOGIES 14.1. THE TPO CONSIDERED THIS COMPANY AS COMPARABL E AS IT WAS NOT FIGURING IN THE ACCEPT/REJECT MATRIX OF THE ASS ESSEES TRANSFER PRICING STUDY. THE TPO NOTICED THAT IT IS A SOFTWARE DEVEL OPMENT AND CONSULTING COMPANY. INFORMATION U/S 133(6) WAS CALLED FOR WHI CH WAS CONFRONTED TO THE ASSESSEE. THE ASSESSEE CONTENDED, INTER ALIA, THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR. REJECTING THE ASSESSEES CONTENTION, THE TPO INCLUDED IT IN THE FINAL LIST OF COMPARABLES, AGAIN ST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 14.2. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT THIS COMPANY, IN RESP ONSE TO NOTICE U/S 133(6), REPLIED TO THE TPO AS UNDER:- 5. CUSTOMIZATION OF SOFTWARE: WE ARE PURE SOFTWAR E DEVELOPMENT SERVICE PROVIDER SO POINT NO.6 IS NIL OR NOT APPLIC ABLE. ITA NO.6402/DEL/2012 18 SOFTWARE DEVELOPMENT PROCESS: WE ARE PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER AND SOFTWARE DESCRIPTION IS ATTACH ED AS PER EXHIBIT 3. DESCRIPTION OF BUSINESS ACTIVITY: AVANI CIMCON TECH NOLOGIES IS IN PROVIDING SOFTWARE DEVELOPMENT AND CONSULTING IT SERVICES TO OUR INTERNATIONAL CLIENTS. WE UTILIZE PROVEN TECHNOLOG IES TO ENABLE CUSTOMERS BUSINESS SYSTEMS. THIS TECHNOLOGY FOCUS HAS GIVEN US THE OPPORTUNITY TO BECOME PROFICIENT ON A WIDE VARIETY OF INDUSTRY LEADING TOOLS AS WELL AS GAINING EXPERIENCE WITH MO ST DATABASE PLATFORMS. WE ARE CONCENTRATING ON INTERNET ENABLE D BUSINESS INFORMATION SYSTEMS IN A WIDE RANGE OF INDUSTRIES. 14.3. THE ABOVE EXTRACTION HAS BEEN REPRODUCED FR OM PAGE 83 OF THE TPOS ORDER. THIS COMPANY CLEARLY DESCRIBED ITS BU SINESS ACTIVITY AS: PROVIDING SOFTWARE DEVELOPMENT AND CONSULTING IT S ERVICES TO ITS INTERNATIONAL CLIENTS. IT IS OBVIOUS FROM THE REPLY TENDERED BY THIS COMPANY THAT IT IS ENGAGED IN PROVIDING SOFTWARE DE VELOPMENT AND ALSO CONSULTING IT SERVICES. IN OPPOSITION, THE ASSESS EE COMPANY IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES ALONE AN D IS NOT RENDERING CONSULTING IT SERVICES. THE EFFECT OF THE REVENUE F ROM CONSULTING IT SERVICES IN THE OVERALL FINANCIALS OF THE COMPANY I S NOT AVAILABLE. AS THIS COMPANY IS ALSO PROVIDING CONSULTING IT SERVICES, W HICH IS AN ESSENTIAL INGREDIENT OF ITS REVENUES FROM SOFTWARE DEVELOPME NT SERVICES, WE CANNOT TREAT IT AS COMPARABLE WITH THE ASSESSEE COM PANY, WHICH IS NOT ITA NO.6402/DEL/2012 19 PROVIDING ANY CONSULTING IT SERVICES. THE SAME IS, THEREFORE, DIRECTED TO BE EXCLUDED. (II) BODHTREE CONSULTING LTD. 15.1. THIS COMPANY WAS OFFERED AS COMPARABLE BY TH E ASSESSEE ITSELF. AS SUCH, THERE WAS NO OCCASION FOR THE TPO TO CONTROVERT ITS FUNCTIONAL SIMILARITY. THE ASSESSEE HAS CHALLENGED FOR THE FIRST TIME BEFORE US THAT BODHTREE CONSULTING LTD. IS NOT COMP ARABLE AND WAS WRONGLY INCLUDED IN THE LIST OF COMPARABLES. 15.2. WE FIND FROM THE ANNUAL REPORT OF THIS CO MPANY THAT IT: HAS ONLY ONE SEGMENT, NAMELY, SOFTWARE DEVELOPMENT. BE ING A SOFTWARE SOLUTIONS COMPANY, WHICH IS ENGAGED IN PROVIDING OP EN AND END-TO-END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEV ELOPMENT OF SOLUTIONS, USING THE LATEST TECHNOLOGIES. THUS, IT CAN BE SEEN THAT THIS COMPANY IS PROVIDING END-TO-END SOLUTIONS AND ALSO CONSULTANCY WHICH IS NOT THE CASE WITH THE ASSESSEE COMPANY. ANOTHER RELEVANT FACTOR TO BE NOTICED IS PAGE 1254 OF THE PAPER BOOK, WHICH DIVU LGES THE SIGNIFICANT ITA NO.6402/DEL/2012 20 ACCOUNTING POLICIES OF THIS COMPANY. UNDER THE HEA D REVENUE RECOGNITION, IT HAS BEEN MENTIONED THAT: REVENUE FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOP ED AND BILLED TO CLIENTS. AS AGAINST THIS, THE SCHEDULE FORMING PA RT OF THE ACCOUNTS OF THE ASSESSEE COMPANY PROVIDES FOR REVENUE RECOGNITI ON IN THE TERMS : REVENUE FROM SOFTWARE DEVELOPED IS RECOGNIZED OVER THE CONTRACTED PERIOD OF DEVELOPMENT ON COST PLUS BASIS. IT CAN BE SEEN THAT THERE IS A LOT OF DIFFERENCE IN THE REVENUE AND RECOGNITION MO DELS OF THE ASSESSEE WAS WELL AS BODHTREE CONSULTING LTD. THIS FACTOR, IN ADDITION TO THE FUNCTIONAL DISSIMILARITY AS DISCUSSED ABOVE, MAKES THIS COMPANY NON- COMPARABLE WITH THE ASSESSEE COMPANY. WE, THEREFOR E, ORDER TO EXCLUDE IT FROM THE LIST OF COMPARABLES. (III) E-ZEST SOLUTIONS LTD . 16.1. THIS COMPARABLE WAS INCLUDED BY THE TPO IN HI S FINAL SET OF COMPARABLES. ON THE BASIS OF INFORMATION RECEIVED IN RESPONSE TO NOTICE U/S 133(6), THE TPO FOUND THAT THIS COMPANY TO BE E NGAGED IN SOFTWARE DEVELOPMENT SERVICES AND QUALIFYING ALL THE FILTERS APPLIED BY HIM. THE ITA NO.6402/DEL/2012 21 ASSESSEE OBJECTED TO ITS INCLUSION ON THE BASIS OF FUNCTIONAL DIFFERENCES. NOT SATISFIED, THE TPO CONSIDERED IT AS COMPARABLE. NOW, THE ASSESSEE IS BEFORE US CHALLENGING THE INCLUSION OF THIS COMPANY . WHILE BRIEFLY DEALING WITH THE FUNCTIONAL PROFILE OF THE ASSESSEE SUPRA , WE HAVE NOTICED THAT `ENTERPRISE SUITE IS A PC BASED SOLU TION FOR ALL ASPECTS OF NETWORK ENGINEERING INCLUDING TOOLS FOR RADIO PL ANNING, BACKHAUL CORE PLANNING AND PERFORMANCE ENGINEERING AND CONFIGURAT ION MANAGEMENT. IT IS NOT DISPUTED THAT THE ENTEPRISE SUITE IS A VE RY COMPLEX SOFTWARE SOLUTION. THE SOFTWARE DEVELOPED BY THE ASSESSEE, AFTER DESIGNING, ACTS AS AN INPUT FOR THE ENTERPRISE SUITE WHICH IS SOLD/ LICENSED BY THE AIRCOM GROUP. THUS, IT BECOMES PALPABLE THAT THE A SSESSEE IS ENGAGED IN PROVIDING HIGH END TECHNICAL SERVICES, WHICH ARE AK IN TO THE KPO SERVICES. THE CONTENTION OF THE LD. AR THAT THE ASS ESSEE IS INVOLVED IN RENDERING BPO AND NOT KPO SERVICES IS CLEARLY UNSUS TAINABLE FOR THE NATURE OF WORK CARRIED OUT BY IT AS DISCUSSED HEREI NABOVE. COMING TO THE ANNUAL ACCOUNTS OF E-ZEST SOLUTIONS LTD., WHOSE COPY HAS BEEN PROVIDED BY THE ASSESSEE FROM PAGES 1292 ONWARDS OF THE PAPER BOOK, IT IS FOUND TO BE ENGAGED IN PROVIDING COMPUTER SOFTW ARE DEVELOPMENT ITA NO.6402/DEL/2012 22 SERVICES. RELIANCE OF THE LD. AR ON THE DECISION D ATED 05.03.2015 OF NXP SEMICONDUCTORS INDIA PVT. LTD. VS. DCIT [IT (TP ) A NO.1560/BLORE/2012) IS MISCONCEIVED. IT RATHER SUPPORTS THE CASE OF THE REVENUE. THE BANGALORE TRIBUNAL ON PAGE 29 OF ITS ORDER HAS HELD THIS COMPANY AS NOT COMPARABLE VIS--VIS THE ASSESSEE IN THAT CASE ON THE GROUND THAT E-ZEST SOLUTIONS IS RENDERING PRODUCT D EVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER TH E CATEGORY OF KPO SERVICES. AS THE ASSESSEE IN THAT CASE WAS A BPO S ERVICE PROVIDER, THE TRIBUNAL HELD E-ZEST SOLUTIONS LTD., TO BE NON-COMP ARABLE. WHEN WE EXAMINE THE FACTUAL MATRIX OBTAINING BEFORE US, IT BECOMES PATENT THAT THE ASSESSEE IS ALSO FALLING UNDER THE CATEGORY OF KPO SERVICE PROVIDERS. UNDER THESE CIRCUMSTANCES, WE APPROVE THE INCLUSION OF E-ZEST SOLUTIONS LTD. IN THE LIST OF COMPARABLES BY THE TPO. (IV) INFOSYS TECHNOLOGIES LTD . 17.1. THE TPO NOTICED THAT THIS COMPANY WAS FINDI NG PLACE IN THE ACCEPT/REJECT MATRIX BUT WAS REJECTED IN THE TP DOC UMENTATION BY CLAIMING THAT IT FAILED FUNCTIONAL AREA COMPARABILI TY. THE TPO FOUND ITA NO.6402/DEL/2012 23 THIS COMPANY TO BE INTO SOFTWARE DEVELOPMENT SERVIC ES QUALIFYING ALL THE FILTERS APPLIED BY HIM. THE ASSESSEE RAISED CERTAI N OBJECTIONS AGAINST THE INCLUSION OF THIS COMPANY, BUT WITHOUT ANY SUCCESS. THE TPO COMPUTED OPERATING PROFIT MARGIN OF THIS COMPANY AT 40.41% A ND INCLUDED IT IN THE FINAL LIST OF COMPARABLES. THE ASSESSEE IS AGGRIEV ED AGAINST SUCH INCLUSION. 17.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN THAT T HE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES BY REJECTIN G THE ASSESSEES CONTENTIONS. THE ASSESSEE IS PROVIDING AND ASSIGNI NG SOFTWARE SERVICES TO ITS AE ALONE WITHOUT ACQUIRING ANY INTELLECTUAL PROPERTY RIGHTS IN THE WORK DONE BY IT IN THE DEVELOPMENT OF SOFTWARE. TH E HONBLE DELHI HIGH COURT IN CIT VS. AGNITY INDIA TECHNOLOGIES (P) LTD. (2013) 2 19 TAXMANN 26 (DEL) CONSIDERED THE GIANTNESS OF INFOSYS LTD., IN TERMS OF RISK PROFILE, NATURE OF SERVICES, NUMBER OF EMPLOYE ES, OWNERSHIP OF BRANDED PRODUCTS AND BRAND RELATED PROFITS, ETC. IN COMPARISON WITH SUCH FACTORS PREVAILING IN THE CASE OF AGNITY INDIA TECH NOLOGIES PVT. LTD., ITA NO.6402/DEL/2012 24 BEING, A CAPTIVE UNIT PROVIDING SOFTWARE DEVELOPMEN T SERVICES WITHOUT HAVING ANY IP RIGHTS IN THE WORK DONE BY IT. AFTER MAKING COMPARISON OF VARIOUS FACTORS AS ENUMERATED ABOVE, THE HONBLE DE LHI HIGH COURT HELD INFOSYS LTD. TO BE NON-COMPARABLE WITH AGNITY INDIA TECHNOLOGIES PVT. LTD. THE FACTS OF THE INSTANT CASE ARE SIMILAR TO T HE EXTENT THAT THE EXTANT ASSESSEE IS ALSO NOT OWNING ANY BRANDED PRODUCTS AN D HAVING NO EXPENDITURE ON R&D ETC. WHEN WE CONSIDER ALL THE A BOVE FACTORS IN A HOLISTIC MANNER, THERE REMAINS ABSOLUTELY NO DOUBT THAT INFOSYS TECHNOLOGIES LTD. IS NOT COMPARABLE WITH THE ASSESS EE COMPANY. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN AGNITY INDIA (SUPRA) , WE HOLD THAT INFOSYS TECHNOLOGIES LTD., CANNOT BE TREATED AS COMPARABLE WITH THE ASSESSEE C OMPANY. THIS COMPANY IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. (V) KALS INFORMATION SYSTEMS LTD. (SEG.) 18.1. THIS COMPANY WAS OFFERED BY THE ASSESSEE. HOWEVER, DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO, THE ASSES SEE OBJECTED TO ITS ITA NO.6402/DEL/2012 25 INCLUSION. THE ASSESSEE SUBMITTED THAT IT IS PRIMAR ILY A SOFTWARE PRODUCT COMPANY. FOR THIS PROPOSITION, THE ASSESSEE RELIED ON THE WEBSITE OF THE COMPANY. THE TPO CALLED FOR INFORMATION U/S 133(6) OF THE ACT FROM THIS COMPANY, WHICH WAS REPLIED AS UNDER:- PARA 3 OF YOUR LETTER: THE CORE OF OUR BUSINESS MAY BE CLASSIFIED AS THAT OF PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. IN ESSENCE WE GET PR OJECT (SOFTWARE DEVELOPMENT) ORDERS FROM OUR CLIENTS DRAWN FROM VAR IOUS VERTICALS SUCH AS INSURANCE, TELECOM, MANUFACTURING, ETC. WE EXEC UTE THE PROJECT THROUGH THE ENTIRE SDLC (SOFTWARE DEVELOPMENT LIFE CYCLE) IN MOST CASES I.E., STARTING FROM DESIGN TO DELIVERY, TES TING AND TRAINING. IN SOME INSTANCES ESPECIALLY IN THE INSURANCE VERTICAL WE USE READY MADE OBJECT LIBRARIES (CODE THAT IS ALREADY WRITTEN) AND BUILD CUSTOMIZED PORTIONS ON THE TOP OF THAT. THE USE OF READY MADE OBJECT LIBRARIES IS ONLY TO THE TUNE OF ABOUT (3.4 TO 6.96)% IN THE YEA R2007-08 TO 2008-09. THESE APART WE HAVE A SMALL AMOUNT OF REVENUE FROM DOMESTIC LANGUAGE ACTIVITIES CONTRIBUTING BETWEEN 4.24% TO 7 .01% IN THE YEAR 2007-08 TO 2008-09. 18.2. ON THE BASIS OF THE ABOVE, THE TPO CAME TO HOLD THAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTE ONLY 4.24 % OF ITS REVENUES. THUS THE REVENUES FROM SOFTWARE DEVELOPME NT SERVICES CONSTITUTE MORE THAN 75% OF THE TOTAL OPERATING RE VENUE AND HENCE IT QUALIFIES TO BE INCLUDED IN THE LIST OF COMPARAB LES. ITA NO.6402/DEL/2012 26 18.3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AN D PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ENTIRE PREMISE OF THE TPOS INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S IS THAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTE ONLY 4.24% OF ITS REVENUE. THIS INFERENCE HAS BEEN DRAWN ON THE BASIS OF THE INFORM ATION SUPPLIED BY THIS COMPANY STATING: THE USE OF READYMADE OBJECT LABORATORIES IS ONLY TO THE TUNE OF ABOUT (3.4 TO 6.96) % IN THE YEAR 20 07-08 TO 2008-09 . WE FAIL TO COMPREHEND AS TO HOW THE ABOVE LINE CONV EYS THAT THE SOFTWARE PRODUCTS REVENUE STANDS AT 4.24%. WHAT H AS BEEN WRITTEN IS THAT THE COMPANYS USE OF THE READYMADE OBJECT LABO RATORIES IS ONLY TO THE TUNE OF MAXIMUM 4.24%. BY NO IMAGINATION THIS CAN BE CONSTRUED AS REVENUES FROM SOFTWARE PRODUCTS. WHEN WE PERUSE THE ANNUAL REPORT OF THIS COMPANY, WHICH IS AVAILABLE IN THE PAPER BO OK, IT CAN BE SEEN THAT THERE IS NO SUCH MENTION OF SOFTWARE PRODUCTS REVEN UE LIMITED TO 4.24%. ON THE CONTRARY, IT HAS BEEN MENTIONED IN THE NOTES TO THE FINANCIAL STATEMENT THAT: THE COMPANY IS ENGAGED IN DEVELOPM ENT OF SOFTWARE AND SOFTWARE PRODUCTS SINCE ITS INCEPTION. THE COMPAN Y CONSISTING OF STPI UNIT IS ENGAGED IN SOFTWARE PRODUCTS AND DEVELOPMEN T OF SOFTWARE AND IS ITA NO.6402/DEL/2012 27 ALSO UNDERTAKING TRAINING ACTIVITY OF SOFTWARE PRO FESSIONALS ON ONLINE PROJECTS. NOT ONLY THE REVENUES OF THE SEGMENT CONS IDERED BY THE TPO ALSO INCLUDE THE REVENUE FROM SOFTWARE PRODUCTS, BU T ALSO FROM TRAINING IMPARTED ON COMMERCIAL BASIS. IT IS CLEAR THAT THE ASSESSEE IS NOT PROVIDING ANY TRAINING UNDER THIS SEGMENT, WHICH HA S BEEN RATHER INCLUDED BY THE ASSESSEE IN THE SECOND CATEGORY OF THE ASSESSEES BUSINESS, NAMELY, SOFTWARE DEPLOYMENT, TRAINING, C ONSULTANCY AND EQUIPMENT RENTAL. SINCE THE ASSESSEES ACTIVITY U NDER THIS SEGMENT DOES NOT INCLUDE ANY REVENUE FROM TRAINING, BUT THE REVENUE OF KALS INFORMATION SYSTEMS LTD., FOR THE PURPOSE OF COMPAR ISON INCLUDES INCOME FROM TRAINING, THIS COMPANY CEASES TO BE COM PARABLE WITH THE ASSESSEES SEGMENT OF `SOFTWARE DEVELOPMENT SERVIC ES. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE ASSESSEES OW N CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEARS 2006-07 AND 2007-08. RESPECTFULLY FOLLOWING THE PRECEDENTS, WE HOLD THAT KALS INFORMATION SYSTEMS LTD. (SEG.) SHOULD BE EXPUNGED FROM THE SET OF COMPARABLES. ITA NO.6402/DEL/2012 28 (VI) PERSISTENT SYSTEMS LTD . 19.1. THE TPO OBSERVED THIS COMPANY TO BE ENGAGED I N SOFTWARE DEVELOPMENT SERVICES WITH PREDOMINANT REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. HE CALLED FOR SOME INFORMATI ON U/S 133(6) OF THE ACT FROM THIS COMPANY REGARDING BREAK UP OF SOFTWAR E PRODUCTS AND SOFTWARE DEVELOPMENT SERVICES. ON CONSIDERATION O F SUCH INFORMATION, HE OBSERVED THAT 95.1% OF THE TOTAL REVENUE OF TH IS COMPANY WAS FROM SOFTWARE DEVELOPMENT SERVICES AND THE REMAINING AMO UNT FROM SOFTWARE PRODUCTS. AFTER CONSIDERING THE ASSESSEES OBJECTI ONS, THE TPO INCLUDED IT IN THE LIST OF COMPARABLES. THE ASSESSEE IS AGG RIEVED AGAINST THE CONSIDERATION OF THIS COMPANY AS COMPARABLE. 19.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM THE INFORM ATION SUPPLIED BY THIS COMPANY U/S 133(6) OF THE ACT, A PART OF WHICH HAS BEEN REPRODUCED IN THE TPOS ORDER, THAT THIS COMPANY HAS DEVELOPED A FEW OF ITS OWN PRODUCTS IN THE AREA OF IDENTITY MANAGEMENT CONNECT ORS. REVENUE FROM PRODUCT LICENCES STANDS AT RS.288.93 MILLION AS AGA INST THE REVENUE FROM ITA NO.6402/DEL/2012 29 SOFTWARE DEVELOPMENT SERVICES AT RS.4829.57 MILLION S. THOUGH THIS COMPANY IS MORE ENGAGED IN SOFTWARE DEVELOPMENT SER VICES, BUT, AT THE SAME TIME IS ALSO A SOFTWARE PRODUCT COMPANY, WHICH IS EVIDENT FROM THE INFORMATION SUPPLIED BY IT TO THE TPO. THUS, THE T OTAL REVENUE OF THE COMPANY ON ENTITY LEVEL ALSO, INTER ALIA, INCLUDES REVENUE FROM PRODUCT LICENCES. THERE IS NO INFORMATION AVAILABLE FROM T HE ANNUAL REPORT OF THIS COMPANY OR THE DATA COLLECTED BY THE TPO U/S 1 33(6) OF THE ACT TO DIVULGE THE AMOUNT OF REVENUE FROM SOFTWARE DEVELOP MENT SERVICES ALONE TO THE EXCLUSION OF REVENUE FROM PRODUCT LICE NCES. IN SUCH CIRCUMSTANCES, IT IS NOT POSSIBLE TO ASCERTAIN THE IMPACT OF SUCH REVENUE ON THE TOTAL REVENUE OF THIS COMPANY. AS THE ASSE SSEE IS NOT ENGAGED IN THE SALE OF ANY SOFTWARE PRODUCTS, THIS COMPANY ON ENTITY LEVEL, CANNOT BE CONSIDERED AS COMPARABLE. THE DELHI BENCH OF TH E TRIBUNAL IN THE CASE OF TOLUNA INDIA PVT. LTD. VS. ACIT (ITA NO.5645/DEL/20 11 , VIDE ITS ORDER DATED 26.8.2014 HAS HELD PERSISTENT SYSTEMS LTD. TO BE INCOMPARABLE WITH TOLUNA INDIA PVT. LTD., ALSO A CO MPANY ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS RELA TED PARTIES ALONE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN LEAR AUTOMOTIVE INDIA ITA NO.6402/DEL/2012 30 PVT. LTD. VS. ACIT (ITA NO.5612/DEL/2011) VIDE ITS ORDER DATED 22.12.2014. THE LD. DR COULD NOT POINT OUT ANY DIS TINGUISHING FEATURE IN THE FACTUAL MATRIX OF THE ASSESSEE IN QUESTION AND TOLUNA INDIA PVT. LTD., AND LEAR AUTOMOTIVE INDIA PVT. LTD. RESPECTFULLY FO LLOWING THE PRECEDENTS, WE ORDER FOR THE EXCLUSION OF THIS COMP ANY FROM THE LIST OF COMPARABLES. (VII) QUINTEGRA SOLUTIONS LTD . 20.1. THE ASSESSEE INITIALLY TREATED THIS COMPAN Y AS COMPARABLE IN ITS TP DOCUMENTATION. THE TPO OBTAINED INFORMATION FRO M THIS COMPANY WHICH TRANSPIRED THAT IT WAS INTO SOFTWARE DEVELOPM ENT SERVICES. THE ASSESSEE OBJECTED TO THE SAME BY CONTENDING THAT IT HAD CERTAIN PECULIAR ECONOMIC CIRCUMSTANCES. NOT CONVINCED WITH THE ASSE SSEES SUBMISSIONS AND CONSIDERING THE INFORMATION OBTAINED FROM THIS COMPANY U/S 133(6) OF THE ACT, THE TPO TREATED IT AS COMPARABLE. THE ASSESSEE IS AGGRIEVED. 20.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT HAS COPYRIGHTS INCLUDED IN ITS SCHEDULE OF FIX ED ASSETS WITH THE ITA NO.6402/DEL/2012 31 CLOSING WRITTEN DOWN VALUE AT RS.2.71 CRORE. THIS C OMPANY HAS ITS OWN SOFTWARE WITH THE CLOSING BALANCE OF RS.2.70 CRORE. SUCH SOFTWARE ARE ALSO APPEARING IN THE SCHEDULE OF FIXED ASSETS OF T HIS COMPANY ON STANDALONE BASIS. THIS SHOWS THAT THIS COMPANY IS UTILIZING ITS SOFTWARE FOR RENDERING SOFTWARE DEVELOPMENT SERVICES. IN CO NTRAST, THE ASSESSEE IN QUESTION IS NOT HAVING ANY SOFTWARE TO BE USED IN R ENDERING SOFTWARE DEVELOPMENT SERVICES. IT IS, THEREFORE, HELD THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE NOT ONLY BECAUSE OF USING ITS OWN SOFTWARE, BUT ALSO HAVING COPYRIGHTS WORTH RS.2.71 CRORE TO B E USED IN ITS BUSINESS. THESE CRUCIAL FACTORS ARE ABSENT IN THE ASSESSEES CASE. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS COMPANY. (VIII) SOFTSOL INDIA LTD . 21.1 THIS COMPANY WAS FINDING PLACE IN THE ASSES SEES ACCEPT/REJECT MATRIX, BUT, WAS REJECTED IN THE TP DOCUMENTATION B Y MENTIONING THAT IT WAS FUNCTIONALLY DIFFERENT. NOTICE U/S 133(6) WAS ISSUED. IN RESPONSE TO THAT THE COMPANY STATED THAT IT WAS INTO ONLY ONE S EGMENT OF SOFTWARE DEVELOPMENT SERVICES. APART FROM CHALLENGING THE F UNCTIONAL PROFILE OF ITA NO.6402/DEL/2012 32 THIS COMPANY, THE ASSESSEE ALSO CONTENDED THAT THE CALCULATION DONE BY THE TPO WAS ERRONEOUS. THE TPO REJECTED SUCH SUBMI SSIONS AND TREATED THIS COMPANY AS COMPARABLE. 21.2. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT THIS COMPANY HAS SPEC IFICALLY STATED BEFORE THE TPO THAT IT WAS IN TO ONLY ONE SEGMENT, I.E., SOFTWARE DEVELOPMENT SERVICES. FROM THE FINANCIALS OF THIS COMPANY AVA ILABLE IN THE PAPER BOOK, IT CAN BE SEEN THAT THERE IS NO OTHER INCOME EXCEPT FROM SOFTWARE DEVELOPMENT. NOTE NO.15 TO ITS ANNUAL ACCOUNTS CLEA RLY STATES THAT: THERE ARE NO SEPARATE REPORTABLE SEGMENTS AS PER T HE ACCOUNTING STANDARD-17. IN VIEW OF THE FACT THAT THIS COMPANY IS ENGAGED IN PURE SOFTWARE DEVELOPMENT SERVICES, IT HAS TO BE CONSIDE RED AS COMPARABLE. THE TPOS ACTION IN TREATING THIS COMPANY AS COMPAR ABLE IS, THEREFORE, UPHELD. HOWEVER, WE SEND THE MATTER BACK TO THE TP O FOR EXAMINING THE ASSESSEES CONTENTION ABOUT THE ERRONEOUS CALCU LATION OF MARGINS. ITA NO.6402/DEL/2012 33 (IX) TATA ELXSI (SEG.) 22.1. THIS COMPANY WAS REJECTED BY THE ASSESSEE IN ITS TP DOCUMENTS BY CLAIMING IT TO BE `FUNCTIONALLY DIFFERENT. THE TPO OBSERVED FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT HAS TWO SEGME NTS, NAMELY, SOFTWARE DEVELOPMENT AND SERVICES SEGMENT AND SY STEMS INTEGRATION AND SUPPORT SEGMENT. NOTICING THE SEGMENTAL DETAIL S, THE TPO CONSIDERED `SOFTWARE DEVELOPMENT AND SERVICE SEGMEN T AS COMPARABLE. THE ASSESSEES OBJECTIONS AGAINST THE INCOMPARABILI TY WERE SET ASIDE. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DRP A S WELL. 22.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AN D PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE TPO HAS ADOPTE D SOFTWARE DEVELOPMENT AND SERVICES SEGMENT WHICH, IN TURN, CONSISTS OF THREE SUB-SEGMENTS, NAMELY, PRODUCT DESIGN SERVICES (DESI GN AND DEVELOPMENT OF HARDWARE AND SOFTWARE), INNOVATION DESIGN AND EN GINEERING (MECHANICAL DESIGN WITH A FOCUS ON INDUSTRIAL DESIG N) AND VISUAL COMPUTING LABS (ANIMATION AND VISUAL EFFECTS). SIN CE THIS COMPANY OFFERS INTEGRATED HARDWARE AND PACKAGED SOFTWARE SO LUTIONS, THE SAME ITA NO.6402/DEL/2012 34 CANNOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSE E COMPANY, WHICH IS SIMPLY PROVIDING SOFTWARE RELATED SERVICES. TH E TRIBUNAL IN TOLUNA INDIA PVT. LTD. VS. ACIT (2014) 151 ITD 177 (DELHI ) AND MOTOROLA SOLUTIONS INDIA PVT. LTD. (SUPRA) , BOTH OF WHICH WERE RENDERING SOFTWARE DEVELOPMENT SERVICES, HAS TREATED THIS COMPANY AS F UNCTIONALLY NOT COMPARABLE. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. (X) THIRDWARE SOLUTIONS LTD. 23.1. THE TPO TREATED THIS COMPANY AS COMPARAB LE. THE DRP REFUSED TO ACCEPT THE ASSESSEES CONTENTION FOR THE REMOVAL OF THIS COMPANY FROM THE LIST OF COMPARABLES. 23.2. WE HAVE PERUSED THE ANNUAL REPORT OF THIS C OMPANY WHICH IS AVAILABLE IN THE PAPER BOOK. THE PROFIT & LOSS ACC OUNT OF THIS COMPANY SHOWS `SALES & OTHER INCOME. BIFURCATION OF SALE S IS AVAILABLE AS PER SCHEDULE 12, WHICH COMPRISES OF `SALE OF LICENC E AMOUNTING TO RS.39.16 LAC, `SOFTWARE SERVICES AMOUNTING TO RS. 7.67 CRORE, `EXPORT ITA NO.6402/DEL/2012 35 FROM SEZ UNIT AMOUNTING TO RS.26.39 CRORE, `EXPOR T FROM STPI UNIT AMOUNTING TO RS.16.88 CRORE AND `REVENUE FROM SUBSC RIPTION AMOUNTING TO RS.92.93 LAC. THESE FIGURES INDICATE THAT APART FROM THE REVENUE FROM `SOFTWARE SERVICES WHICH IS ONLY TO THE TUNE OF RS.7.67 CRORE, THIS COMPANY EARNED TOTAL GROSS REVENUE FROM `SALES TO THE TUNE OF RS.52.27 CRORE INCLUDING FROM EXPORT FROM SEZ/ST PI UNITS. WHEN WE CONSIDER THE FIGURES OF THIS COMPANY ON AN ENTITY L EVEL AS HAVE BEEN ADOPTED BY THE TPO FOR COMPARISON, IT BECOMES VIVID THAT IT CEASES TO BE COMPARABLE WITH THE ASSESSEES `SOFTWARE DEVELOPMEN T SERVICES SEGMENT. THE REASON HARDLY NEEDS ANY HIGHLIGHTING, BEING THE INCOME OF THIS COMPANY ALSO LARGELY INCLUDING REVENUES FROM E XPORTS FROM SEZ/STPI UNITS APART FROM SALE OF LICENCE. THESE DISTINGUISHING FEATURES MAKE THIS COMPANY AS NON-COMPARABLE. WE, THEREFORE, ORDER FOR THE REMOVAL OF THIS COMPANY FROM THE LIST OF CO MPARABLES. (XI) WIPRO LTD. (SEG.) 24.1. THE ASSESSEE REJECTED THIS COMPANY IN ITS TP DOCUMENT BY TREATING IT AS FUNCTIONALLY DIFFERENT. THE TPO OBS ERVED THAT THE IT ITA NO.6402/DEL/2012 36 SERVICES SEGMENT OF THIS COMPANY ON STANDALONE BASI S WAS COMPARABLE WITH THE ASSESSEE COMPANY. HE SOUGHT SOME INFORMAT ION FROM THIS COMPANY U/S 133(6) OF THE ACT AND, THEREAFTER, CAME TO THE CONCLUSION THAT ITS IT SERVICES SEGMENT WAS COMPARABLE WITH TH E ASSESSEE. IN DOING SO, HE REJECTED THE ASSESSEES CONTENTION ABOUT FUN CTIONAL DISSIMILARITY, BRAND VALUE AND SIZE ETC. THE DRP UPHELD THE FINDI NG OF THE AO/TPO IN TREATING IT AS A CORRECT COMPARABLE. THE ASSESSEE I S AGGRIEVED. 24.2. WE HAVE HEARD THE RIVAL SUBMISSIONS THE PER USED THE RELEVANT MATERIAL ON RECORD. IT CAN BE OBSERVED FROM THE TP OS ORDER ITSELF THAT THE FACTS AND CIRCUMSTANCES OF WIPRO LTD., ARE SOME WHAT SIMILAR TO INFOSYS TECHNOLOGIES LTD., INASMUCH AS HE HAS PROCE EDED TO REJECT THE ASSESSEES OBJECTIONS BY RELYING ON THE REASONING G IVEN BY HIM FOR THE INCLUSION OF INFOSYS LTD., WHICH WE HAVE HELD TO BE INCOMPARABLE IN AN EARLIER PARA. IT IS FURTHER OBSERVED THAT WIPRO LI MITED (SEG.) WAS CONSIDERED AS COMPARABLE BY THE TPO IN THE CASE OF TOLUNA INDIA (SUPRA) AND LEAR AUTOMOTIVE (SUPRA) . THE TRIBUNAL, IN BOTH THE CASES, HAS HELD WIPRO LTD. (SEG.) AS NOT COMPARABLE. THIS COMPANY IS ITA NO.6402/DEL/2012 37 OPERATING AS A FULL-FLEDGED RISK TAKING ENTITY; ENG AGED IN PROVIDING TECHNOLOGY INFRASTRUCTURE SERVICES, TESTING SERVICE S, PACKAGE IMPLEMENTATION HAVING MORE THAN 82,000 EMPLOYEES. IT HAS ITS OWN R&D CENTRE. IT INCURRED AROUND 11% OF NET SALES AS EXPENDITURE ON RESEARCH AND DEVELOPMENT. NONE OF THE ABOVE FACTOR S MATCH WITH THE ASSESSEE COMPANY. RESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS, WE HOLD THAT THIS COMPANY IS NOT COMPARABLE. 24.3. THERE IS ANOTHER REASON FOR HOLDING THIS C OMPANY AS INCOMPARABLE. IT CAN BE SEEN THAT THERE WAS A MERGE R OF WIPRO INFRASTRUCTURE ENGINEERING LTD., WIPRO HEALTHCARE I T LTD., QUANTECH GLOBAL SERVICES LTD., WITH THIS COMPANY DURING THE YEAR IN QUESTION. THIS MERGER WAS APPROVED BY THE HONBLE KARNATAKA H IGH COURT AND THE HONBLE AP HIGH COURT DURING THE FINANCIAL YEAR 200 7-08. THE MUMBAI BENCH OF THE TRIBUNAL IN PETRO ARANDITE (P) LTD. VS. DCIT (2013) 154 TTJ (MUM) 176 HAS HELD THAT A COMPANY CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF FINANCIAL RESULTS DISTORTED D UE TO MERGERS AND DEMERGERS, ETC. SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE ITA NO.6402/DEL/2012 38 TRIBUNAL IN THE CASE OF TOLUNA INDIA PVT. LTD. (SUPRA) . AS THERE WERE AMALGAMATIONS IN WIPRO LTD. DURING THE FINANCIAL YE AR IN QUESTION, THIS FACT ALSO MAKES IT INCOMPARABLE WITH THE ASSESSEE C OMPANY. IN VIEW OF THE FOREGOING REASONS, WE DIRECT TO EXCLUDE WIPRO L IMITED (SEG.) FROM THE LIST OF COMPARABLES. 25. NOW, WE TAKE UP FOR CONSIDERATION SOME OF TH E COMPANIES, WHICH THE ASSESSEE CLAIMS AS COMPARABLE, BUT SUCH COMPANI ES CAME TO BE EXCLUDED BY THE TPO. (I) ARMAN SOFTWARE PVT. LTD. 26.1. THE TPO DID NOT CONSIDER THIS COMPANY AS CO MPARABLE BY OBSERVING THAT THE RPT INFORMATION WAS NOT AVAILABL E. THE ASSESSEE IS AGGRIEVED AGAINST THE EXCLUSION OF THIS COMPANY FRO M THE LIST OF COMPARABLES. 26.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED THE RELEVANT MATERIAL ON RECORD. IN OUR CONSIDERED OPINION, THE REASONING ADDUCED BY THE TPO IS NOT CORRECT. HE HAS REJECTED THIS COMPA NY BY NOTICING THAT THERE WERE NO EXPORT SALES IN THIS YEAR. HE, THERE FORE, INFERRED THAT THE ITA NO.6402/DEL/2012 39 REVENUE PERTAINED TO THE EARLIER YEARS. THIS CONTE NTION IS UNFOUNDED WHEN WE EXAMINE THE FINANCIAL STATEMENTS OF THIS CO MPANY FOR THE YEAR UNDER CONSIDERATION. PAGE 2281 OF THE PAPER BOOK I S THE PROFIT & LOSS ACCOUNT OF THIS COMPANY. THERE ARE BOTH REVENUE AN D EXPENSES FROM SOFTWARE DEVELOPMENT. ON THE ONE HAND, THE COMPANY HAS SHOWN INCOME FROM OPERATIONS AT RS.1.55 CRORE AND, ON THE OTHER HAND, THERE ARE SOFTWARE DEVELOPMENT COST AMOUNTING TO RS.1.18 CRORE. THIS SHOWS THAT THE COMPANY IS HAVING SALE PROCEEDS RELATING T O THE YEAR IN QUESTION. AS THE TPO HAS NOT CONTROVERTED THE FUNCTIONAL SIMI LARITY, WE DIRECT THIS COMPANY TO BE TREATED AS COMPARABLE. (II) AKSHAY SOFTWARE TECHNOLOGIES LTD . 27.1. THE TPO EXCLUDED THIS COMPANY FROM THE LIS T OF COMPARABLES ON THE PREMISE THAT RPT INFORMATION WAS NOT AVAILABLE. HE FURTHER REJECTED THE ASSESSEES CONTENTION THAT THE FINANCIAL DATA O F THIS COMPANY WAS NOT AVAILABLE AT THE TIME OF PREPARATION OF DOCUMENTATI ONS. THE ASSESSEE IS AGGRIEVED BY THIS EXCLUSION. ITA NO.6402/DEL/2012 40 27.2. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL ACCOUNTS OF THIS CO MPANY, WHOSE COPY HAS BEEN PLACED ON RECORD, THAT IT IS INTO SALE OF PRODUCTS. THIS FACT IS BORNE OUT FROM THE TOTAL OF SALES WHICH INCLUDE SA LE OF PRODUCTS. IN VIEW OF THE REASONS GIVEN ABOVE WHILE ALLOWING THE EXCLUSION ON THE GROUND OF FUNCTIONAL DISSIMILARITY BECAUSE OF SUCH COMPANIES ALSO ENGAGED IN SOFTWARE PRODUCTS, WE HOLD THAT THE TPO WAS RIGHT IN NOT TREATING THIS COMPANY AS COMPARABLE. (III) NIHAR INFO GLOBAL LTD . 28.1. THE TPO EXCLUDED THIS COMPANY ON THE GROUN D THAT IT WAS ALSO A PRODUCT COMPANY. 28.2. WE HAVE GONE THROUGH THE ANNUAL REPORT OF THIS COMPANY FOR THE YEAR UNDER CONSIDERATION. PAGE 2351 OF THE PAPER B OOK CLEARLY RECORDS UNDER SCHEDULE-M[3(I)] THAT: INCOME FROM SOFTWARE PRODUCTS IS RECOGNIZED ON THE BASIS OF THE SALE TO THE CLIENTS. SINCE THIS COMPANY IS ALSO ENGAGED IN THE SALE OF PRODUCTS, WE HOLD THAT THIS COMPANY WAS ITA NO.6402/DEL/2012 41 RIGHTLY NOT INCLUDED IN THE LIST OF COMPARABLES. TH E ASSESSEE FAILS ON THIS COUNT. (IV) VMF SOFTTECH LTD. 29.1. THE TPO DID NOT CONSIDER THIS COMPANY AS C OMPARABLE BECAUSE OF ITS OUTSOURCING THE WORK TO BE RENDERED TO ITS C LIENTS. THIS IS EVIDENT FROM THE ANNUAL ACCOUNTS OF THIS COMPANY. THE LD. AR WAS FAIR ENOUGH TO CONCEDE THIS COMPANY AS NOT COMPARABLE, WHICH IS ALSO SUBCONTRACTING THE WORK. WE, THEREFORE, APPROVE TH E VIEW TAKEN BY THE TPO IN THIS REGARD. 30. THE NEXT ISSUE RAISED IN THIS APPEAL IS AG AINST THE TRANSFER PRICING ADJUSTMENT IN RELATION TO INTRA-GROUP SERVICES. TH E ASSESSEE PAID A SUM OF RS.126.63 LAC AND ODD AS MANAGEMENT FEES, WHICH WAS CLAIMED AS PAYMENT TO AES ON COST TO COST BASIS. ON BEING CAL LED UPON TO FURNISH THE DETAILS OF SUCH EXPENSES, THE ASSESSEE SUBMITTE D THAT THIS INCLUDE IT CHARGES; GENERAL MANAGEMENT, FINANCE, LEGAL & CONSU LTING SUPPORT; AND SALES AND MARKETING & TRAINING SUPPORT. THE TP O EXAMINED THE ABOVE CATEGORIES OF SERVICES CLAIMED TO HAVE BEEN A VAILED BY THE ITA NO.6402/DEL/2012 42 ASSESSEE AND OBSERVED THAT THE SERVICES WERE EITHER NOT RECEIVED OR WERE DUPLICATE IN NATURE. THAT IS HOW, HE DETERMINED NI L ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT TO AES AMOUNTI NG TO RS.1,26,63,787/- THE ASSESSEE IS AGGRIEVED AGAINST THE ADDITION THUS MADE BY THE ASSESSING OFFICER IN HIS FINAL ORDER ON THIS SCORE. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A ND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS FOUND THAT SIMIL AR ISSUE WAS RAISED IN THE ASSESSEES APPEAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. VIDE ORDER DATED 27.07.2017 PASSED IN ITA NO.5743/D EL/2011, WE HAVE RESTORED SUCH ISSUE TO THE FILE OF THE ASSESSING OF FICER/TPO FOR A FRESH DECISION. FOLLOWING THE VIEW TAKEN FOR THE IMMEDIA TELY PRECEDING ASSESSMENT YEAR, WE DIRECT THE ASSESSING OFFICER/TP O TO DECIDE THIS ISSUE AFRESH IN CONSONANCE WITH THE VIEW TO BE TAKE N PURSUANT TO THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007- 08. 32. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER O N THE ISSUE OF TWO ADDITIONS TOWARDS TRANSFER PRICING ADJUSTMENTS AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR FRESH DETERMINATION OF THE A LP OF THESE ITA NO.6402/DEL/2012 43 INTERNATIONAL TRANSACTIONS IN CONSONANCE WITH OUR A BOVE DIRECTIONS. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REA SONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. 33. THE LAST ISSUE RAISED IN THIS APPEAL IS AGAIN ST THE ADDITION OF RS.1,12,50,337/- MADE BY THE ASSESSING OFFICER TOWA RDS LICENCE EXPENSES. THE FACTUAL MATRIX OF THIS ISSUE IS THAT THE ASSESSEE DEBITED A SUM OF RS.172.51 LAC IN ITS PROFIT & LOSS ACCOUNT A S LICENCE EXPENSES. ON BEING REQUIRED TO FURNISH THE DETAILS OF SUCH EX PENSES, THE ASSESSEE SUBMITTED THAT AS PER THE AGREEMENT WITH ITS AE, TH E ITP CHARGES WERE TO BE PAID BY THE SUBSIDIARY TO THE PARENT COMPANY @ 4 5% OF THE TOTAL SALE VALUE OF SOFTWARE AND SUPPORT AND MAINTENANCE CHARG ES. TREATING THIS AMOUNT PAID BY THE ASSESSEE TO ITS AE AS AN INTANGI BLE ASSET, THE ASSESSING OFFICER ALLOWED DEPRECIATION @ 25% AND MA DE ADDITION FOR THE REMAINING SUM OF RS.112.50 LAC, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 34. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT AIRCOM, UK, OFFERS SOLUTION FOR ITA NO.6402/DEL/2012 44 NETWORK ENGINEERING REQUIREMENTS WITH ITS SOFTWARE, NAMELY, `ENTERPRISE SUITE, WHICH IS A SOLUTION FOR ALL ASP ECTS OF NETWORK ENGINEERING. APART FROM DIRECTLY LICENSING ENTERPR ISE SUITE BY AIRCOM, UK, THE ASSESSEE ALSO SELLS THE SOFTWARE IN THE DOMESTIC MARKET SINCE THE INTELLECTUAL PROPERTY RIGHTS RELATING TO ENTERPRISE SUITE VEST IN AIRCOM, UK, THE ASSESSEE ENTERED INTO CONTRACT W ITH AIRCOM, UK TO SELL THIS PRODUCT DIRECTLY IN THE DOMESTIC MARKET. AS A QUID PRO QUO , THE ASSESSEE AGREED TO SHARE A PERCENTAGE OF SALE PRICE TO AIRCOM, UK. CLAUSE (1) OF THE AGREEMENT PROVIDES THAT: ITP CHA RGES TO BE PAID BY THE SUBSIDIARY TO THE PARENT COMPANY @ 45% OF THE T OTAL SALE VALUE OF SOFTWARE AND SUPPORT AND MAINTENANCE CHARGE. PURSU ANT TO THIS AGREEMENT, THE ASSESSEE RAISED INVOICES ON CERTAIN CUSTOMERS IN INDIA. THE INVOICE VALUE WAS SHOWN AS ITS INCOME AND THE A MOUNT PAID TO ITS AE WAS SHOWN AS LICENCE FEE EXPENDITURE IN ITS ANN UAL ACCOUNTS. WE ARE AT LOSS TO APPRECIATE AS TO HOW THE ASSESSEE CA N BE SAID TO HAVE CREATED AN `INTANGIBLE ASSET BY PAYING THE LICENCE FEE TO ITS AE IN RESPECT OF SALES MADE. SUCH PAYMENT @ 45% OF THE INVOICE VALUE WAS THE OBLIGATION OF THE ASSESSEE AB INITIO WITHOUT WHICH IT COULD NOT HAVE ITA NO.6402/DEL/2012 45 PROCURED THE LICNENCE OF ENTERPRISE SUITE FOR SALE IN INDIA. THIS AMOUNT CAN BE LOOSELY CHARACTERIZED AS COST OF GOOD S TRANSFERRED TO THE CUSTOMERS IN INDIA, WHICH HAS NECESSARILY TO BE AL LOWED AS A REVENUE EXPENDITURE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRI BUNAL IN ITS ORDER FOR THE IMMEDIATELY PRECEDING YEAR. WE, THEREFORE, OVE RTURN THE IMPUGNED ORDER ON THIS SCORE AND DIRECT THE DELETION OF ADDI TION OF RS.112.50 LAC AND ODD MADE BY THE ASSESSING OFFICER. 35. IN THE RESULT, THE APPEAL IS PARTLY ALLOWE D. THE ORDER PRONOUNCED IN THE OPEN COURT ON 02.08.20 17. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 02 ND AUGUST, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.