Hewlett-Packard (India) Software Operation Private Limited, Bangalore V. DCIT, Bangalore

ITA 668/BANG/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6198 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-03-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Revenue expenditure; TDS; Set aside
• Section: 43B

Judgement Text

IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : B, BANGALORE BEFORE SHRI B.R.BASKARAN ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDICAL MEMBER SL. NO . ITA/IT(TP)A NO. ASSESSM ENT. YEAR APPELLANT RESPONDENT 1 IT(TP)A NO.668(B)/2016 2011 - 12 M/S HEWLETT PACKARD INDIA SOFTWARE OPERATION PVT.LTD., BANGALORE DCIT, CIRCLE - 3(1)(2), BANGALORE 2 IT(TP)A NO . 58 3(B)/201 6 2011 - 12 DCIT, CIRCLE - 3(1)(2), BANGALORE M/S HEWLETT PACKARD INDIA SOFTWARE OPERATION PVT.LTD., BANGALORE REVENUE BY : MISS. NEERA MALHOTRA, CIT APPELLANT BY SHRI SHARATH RAO, C A DATE OF HEARING : 2 5 - 07 - 2019 DATE OF PRONOUNCEMENT : 02 - 08 - 2019 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : PRESENT APPEALS HAS BEEN FILED BY ASSESSEE AS WELL AS REVENUE AGAINST FINAL ASSESSMENT ORDER PASSED BY LD.DCIT CIRCLE 3 (1) (2) UNDER SECTION143 (3) READ WITH SECTION 144C OF THE ACT ON FOLLOWING GROUNDS OF APPEAL: ITA NO. 583/BA N G/2016 (AY: 2011 - 12) I) THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ARE OPPOSED TO LAW AND FACTS OF THE CASE IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHETHER TH E HON'BLE DRP IS CORRECT IN HOLD ING THAT THE, M/S RS SOFTWARE PVT. LTD., M S . ACROPETAL IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 2 TE CHNOLOGIES LTD AND M/.12CLINFOTECLILTSJ. CANNOT BE TAKEN AS COMPARABLE, WHEN IT SATISFIES ALL THE QUALITATIVE AND QUANTITATIVE FILTERS ADOPTED BY THE TPO. II) WHETHER THE HON'BLE DRP IS RIGHT IN APPLYING 'ONSITE REVENUE FILTER' WITHOUT APPRECIATING THE FACT THAT THE FUNCTION CARRIED OUT IS 'SOFTWARE DEVELOPMENT' IRRESPECTIVE OF WHETHER ONSITE OR OFFSHORE. III) WHETHER THE HON'BLE DRP IN CORRECT IN EXCLUDING M/S RS SOFTWARE PVT. LTD. AND M/S ACROPETAL TECHNOLOGIES AND M/S L&T INFOTECH LTD ON THE GROUND THAT THEY HA VE SIGNIFICANT ONSITE REVENUE WITHOUT APPRECIATING THE FACT THAT ONSITE DEVELOPMENT OF SOFTWARE ENTAILS MORE COST AND THEREBY RESULTS IN LOWER PROFIT MARGINS. IV) WHETHER THE HON'BLE DRP WAS RIGHT IN SEEKING EXACT COMPARABILITY WHILE SEARCHING FOR & CO MPARABLE COMPANIES OF THE ASSESSEE UNDER TNMM METHOD WHEREAS REQUIREMENT OF LAW AND INTERNATIONAL JURISPRUDENCE REQUIRE SEEKING SIMILAR COMPARABLE COMPANIES. V) WHETHER THE HON'BLE DRP HAS ERRED ON FACT IN DELETING M/S E - INFOCHIPS AS A COMPARABLE ON THE GROUN D THAT IT FAILS THE FILTER OF SERVICE INCOME LESS THAN 75% OF THE SALES, WHEN THE SAID COMPANY HAS SERVICE INCOME BEING 100% OF THE SALES. VI) WHETHER HON'BLE DRP ERRED IN FACT IN REJECTING THE COMPANY/S INFOSYS TECHNOLOGIES LTD., AS A COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT WHEN THE PRIMARY SOURCE OF INCOME OF THE COMPARABLE IS FROM PROVISION OF SOFTWARE DEVELOPMENT SERVICES. VII) WHETHER WHILE SEEKING THE EXACT COMPARABILITY AS MENTIONED ABOVE THE DRP WAS RIGHT IN FACT AND IN LAW IN IMPOSIN G CONDITION BEYOND LAW WHEREAS THE REQUIREMENT OF LAW IS TO ACKNOWLEDGE ONLY THOSE DIFFERENCES THAT ARE LIKELY TO MATERIALLY AFFECT THE MARGIN. VII) WHETHER THE HON'BLE DRP IS CORRECT IN FACT AND LAW IN DISREGARDING THE POSITION OF LAW THAT THERE COULD BE DIFFERENCES BETWEEN THE ENTERPRISES COMPARED UNDER THE TNMM METHOD THAT ARE NOT LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR THE PROFITS ACCRUING TO SUCH EN TERPRISES? VIII) WHETHER THE HON'BLE DRP WAS RIGHT IN FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS M/S EXIDE INDUSTRIES LTD . IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 3 IX) WHETHER THE HONBLE DRP WAS CORRECT ON HOLDING THAT THE LIABILITY TOWARDS LEAVE ENCASHMENT WAS A BUSI NESS LIABILITY. X) WHETHER THE HON'BLE DRP WAS RIGHT IN FOLLOWING THE RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF CIT VS M/S BHARAT EARTH MOVERS LTD BY CONSIDERING THE LIABILITY TOWARDS LEAVE ENCASHMENT AS BEING BUSINESS LIABILITY. XI) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED XII) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. ITA NO. 668/B ANG) /2016 (AY: 2011 - 12) THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ARE OPPOSED TO LAW AND FACTS OF THE CASE I) IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHETHER THE HON'BLE DRP IS CORRECT IN HOL D ING THAT THE, M/S RS SOFTWARE PVT. LTD., M S . ACROPETAL TECHNOLOGIES LTD AND M/S. E - INFOCHIPS LTD., . CANNOT BE TAKEN AS COMPARABLE, WHEN IT SATISFIES ALL THE QUALITATIVE AND QUANTITATIVE FILTERS ADOPTED BY THE TPO. II) WHETHER THE HON'BLE DRP IS RIGHT IN APPLYING 'ONSITE REVENUE FIL TER' WITHOUT APPRECIATING THE FACT THAT THE FUNCTION CARRIED OUT IS 'SOFTWARE DEVELOPMENT' IRRESPECTIVE OF WHETHER ONSITE OR OFFSHORE. III) WHETHER THE HON'BLE DRP IN CORRECT IN EXCLUDING M/S RS SOFTWARE PVT. LTD. AND M/S ACROPETAL TECHNOLOGIES AND M/S L&T INFO TECH LTD ON THE GROUND THAT THEY HAVE SIGNIFICANT ONSITE REVENUE WITHOUT APPRECIATING THE FACT THAT ONSITE DEVELOPMENT OF SOFTWARE ENTAILS MORE COST AND THEREBY RESULTS IN LOWER PROFIT MARGINS. IV) WHETHER THE HON'BLE DRP WAS RIGHT IN SEEKING EXACT COMPARABILITY WHILE SEARCHING FOR &IMPARABLE COMPANIES OF THE ASSESSEE UNDER TNMM METHOD WHEREAS REQUIREMENT OF LAW AND INTERNATIONAL JURISPRUDENCE REQUIRE SEEKING SIMILAR COMPARABLE COMPANIES. V) WHETHER THE HON'BLE DRP HAS ER RED ON FACT IN DELETING M/S E - INFOCHIPS AS A COMPARABLE ON THE GROUND THAT IT FAILS THE FILTER OF SERVICE INCOME LESS THAN 75% OF THE SALES, WHEN THE SAID COMPANY HAS SERVICE INCOME BEING 100% OF THE SALES. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 4 VI) WHETHER HON'BLE DRP ERRED IN FACT IN REJECTING TH E COMPANY/S INFOSYS TECHNOLOGIES LTD. AS A COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT WHEN THE PRIMARY SOURCE OF INCOME OF THE COMPARABLE IS FROM PROVISION OF SOFTWARE DEVELOPMENT SERVICES. VII) WHETHER WHILE SEEKING THE EXACT COMPARABILITY AS MENTIONED ABOVE THE DRP WAS RIGHT IN FACT AND IN LAW IN IMPOSING CONDITION BEYOND LAW WHEREAS THE REQUIREMENT OF LAW IS TO ACKNOWLEDGE ONLY THOSE DIFFERENCES THAT ARE LIKELY TO MATERIALLY AFFECT THE MARGIN. VII) WHETHER THE HON'BLE DRP IS CORRECT IN FACT A ND LAW IN DISREGARDING THE POSITION OF LAW THAT THERE COULD BE DIFFERENCES BETWEEN THE ENTERPRISES COMPARED UNDER THE TNMM METHOD THAT ARE NOT LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR THE PROFITS ACCRUING TO SUCH ENTERPRISES? VIII) WHETHER THE HO N'BLE DRP WAS RIGHT IN FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS M/S EXIDE INDUSTRIES LTD . IX) WHETHER THE HONBLE DRP WAS CORRECT IN HOLDING THAT THE LIABILITY TOWARDS LEAVE ENCASHMENT WAS A BUSINESS LIABILITY. X) WHETHER THE HON'BLE DRP WAS RIGHT IN FOLLOWING THE RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF CIT VS M/S BHARAT EARTH MOVERS LTD BY CONSIDERING THE LIABILITY TOWARDS LEAVE ENCASHMENT AS BEING BUSINESS LIABILITY. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED IN INDIA, AND IS WHOLLY OWNED SUBSIDIARY OF COMPAQ C OMPUTER HOLDINGS LIMITED, MAURITIUS WHICH IS ULTIMATELY HELD BY HEWLE TT PACKARD COMPANY, USA. FOR YEAR U NDER CONSIDERATION , ASSESSEE FILED RETURN OF INCOME DECLAR ING TOTAL INCOME OF RS.24,28,31, 616/ - . IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 5 THE RETURN WAS PROCESSED UNDER SECTION 143 (1) AND SELECTED FOR SCRUTINY. LD.AO OBSERVED THAT , ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS AE , AND THEREFORE REFER ENCE WAS MADE TO T RANSFER PRI C ING OFFICER . U PON RECEIPT OF REFERENCE, LD.TPO ISSUED NOTICE TO ASSESSEE CALLING UPON TO FILE ECONOMIC DETAILS REGARDING INTERNATIONAL TRANSACTION IN FORM 3 CEB. REPRESENTATIVES OF ASSESSEE APPEARED BEFORE LD.TPO AND FILED REQUISITE DETAILS AS CALLED FOR. 2.1 LD.TPO OBSERVED THAT ASSESSEE IS PRIMARILY A SOFTWARE DEVELOPMENT COMPANY A N D PROVIDES RESEARCH AND DEVELOPMENT SERVICES TO HP AND ITS AFFILIATE. F UNCT IONS ANALYSED BY LD. TPO FROM TRANSFER PRI C ING STUDY REPORT FILED BY ASSESSEE IS THAT: 2.2 . ASSESSEE OFFERS WIDE RANGE OF PROFESSIONAL SOFTWARE DEVELOPMENT SERVICES THROUGH FOLLOWING SERVICES: SERVICES IN RELATION TO ERROR FIXING OR MAINTENANCE OF SPECIFIC FEATURES IN SOFTWARE AND USED IN PRODUCTS OF HP ASSISTANCE IN RELATION TO SOFTWARE DEVELOPMENT IN CERTAIN SOFTWARE FEATURE ENHANCEMENT AND DEVELOPMENT FOR PRODUCTS OF HP RENDERING SERVICES IN THE FIELDS OF E - COMMERCE, E SOLUTIONS, E - SERVICES, INTERNET SECURITY AND MANAGEMENT. 2.3. LD.TPO OBSERVED THAT A SSESSEE USED TNMM AS MOST APPROPRIATE METHOD FOR DETERMINING ALP OF INTERNATIONAL TRANSACTION, WITH OP/OC AS PLI AND COMPUTED ITS MARGIN AT 8.67% AS COMPARED TO FOLLOWING 1 7 COMPARABLES SELECTED HAVING AVERAGE MARGIN OF 8.07% AND THUS TREATED THE TRANSACTI ON WITH AE TO BE AT ARMS LENGTH PRICE. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 6 SL.NO. NAME OF THE COMPARABLES 1., BELLS SOFTCH LTD. 2 CG VAK SOFTWARE & EXPORTS LTD. 3 GOLDSTONE TECHNOLOGIES LTD 4 KLG SYSTEL LTD. 5 INTERTECH COMMUNICATIONS LTD 6 LARSEN & TOUBRO INFOTECH LTD 7 LGS GLOBAL LTD. 8 MASCON GLOBAL LTD 9 MINDTREE LTD. 10 ONTRACK SYSTMS LTD 11 ONWARD TECHNOLOGIES LTD. 12 POWERSOFT GLOBAL SOLUTION LTD 13 R S SOFTWARE (INDIA) LTD., 14 R SYSTEMS INTERNATIONAL LTD. 15 SONATA SOFTWARE 16 TATA ELXSI LTD. 17 TECHPROCESS SOLUTIONS LTD. 2. 4. L D.TPO SUBSEQUENTLY APPLIED VARIO US FILTERS AND SELECTED FOLLOWING 13 COMPARABLES WHICH INCLUDED 9 NEW COMPARABLES AND FO U R COMPANIES SELECTED BY ASSESSEE. SL.NO. NAME PLI 1 ACROPETL TECHNOLOGIES LTD(SEG.) 31.98% 2 E - ZEST SOLUTIONS (FROM CAPITALINE) 21.03% 3 E - INFOCHIPS LTD 56.44% 4 EVOKE (FROM CAPITALINE) 8.11% 5 ICRA TECHNO ANALYTICS LTD.IN 000) 24.83% 6 INFOSYS LTD 43.39 7 LARSEN & TOUBRO INFOTECH LTD., 19.83% 8 MINDTREE LTD.(SEG.) 10.66% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD., 22.12% IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 7 10 PERRSISTENT SYSTEMS LTD. 22.84% 11 R S SOFTWARE (INDIA) LTD., 16.37% 12 SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.13% 13 TATA ELXSI LTD. (SEG.) 20.91% 2.5. LD.TPO DETERMINED MARGIN OF 13 COMPARABLES AT 23.19%, THEREBY PROPOSING TRANSFER P RI C ING ADJUSTMENT AT RS.1,05,12,85,621/ - . 3 . AGGRIEVED BY PROPOSED ADJUSTMENT, ASSESSEE RAISED OBJECTIONS BEFORE DRP. DRP ON CONSIDERI NG SUBMISSIONS ADVANCED BY ASSESSEE FINA LISED FOLLOWING COMPARABLES: SL.NO COMPARABLES 1 PERSISTENT SYSTEMS & SOLUTIONS LTD., 2 PERSISTENT SYSTEMS LTD. 3 MINDTREE LTD.(SEG.) 4 SASKEN COMMUNICATI O N TECHNOLOGIES PVT.LTD. DRP ALSO REJECTED RISK ADJUSTMENT TO ASSESSEE. 3 .1 IN RESPECT OF WORKING CAPITAL ADJUSTMENT, DRP DIRECTED LD. AO/TPO TO COMPUTE IT IN RESPECT OF COMPARABLES RETRAINED , WITHOUT PUTTING ANY RESTRICTIONS. IN DOING SO , DRP PLACED RELIANCE UPON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF RAMBLES CH IP TECHNOLOGIES (INDIA) PVT.LTD IN ITA (TP) A NO. 23/BANG/2015. DRP FURTHER DIRECTED LD.AO/TPO TO CORRECT/RECTIFY MISTAKES IN COMPUTATION OF WORKING CAPITAL OF COMPARABLE COMPANIES. 4. ON RECEIPT OF DRP DIRECTIONS , LD.AO WHILE PASS ED FINAL ASSESSMENT ORDER MADE ADDITION OF RS.1,03,10,10,532/ - ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 8 4.1. AS REGARDS CORPORATE TAX ADDITIONS, LD.AO DISALLOWED SOFTWARE EXPENSES CLAIMED BY ASSESSEE , AMOUNTING TO RS.59,51,640/ - , DISALLOWED WRITE OFF OF PROVISION OF ELECTRICITY DEPOSITS AMOUNTING TO RS.63,33,294/ - AND DISALLOWED PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS.5,62,13,302/ - . 5 . AGGRIEVED BY ADDITIONS MADE BY LD.AO, REVENUE AS WELL AS ASS ESSEE IS IN APPEAL BEFORE US NOW. 5 .1 IN REVENUES APPEAL, GROUNDS RAISED PERTAINS TO APPLICATION OF ON - SITE REVENUE FILTER SELECTIVELY TO FEW COMPARABLES FOR REJECTING EXCLUDING E - INFOCHIPS LTD., ON THE GROUND OF HAVING SERVICE INCOME LESS THAN 75% OF T HE SALES WHICH IS ALLEGED TO BE CONTRARY TO OBSERVATIONS OF LD.TPO. 5.2. REVENUE ALSO CHALLENGED DISALLOWANCE MADE BY LD.AO ON ACCOUNT OF SOFTWARE EXPENDITURE, PROVISION FOR LEAVE ENCASHMENT AND WRITE OFF OF PROVISION FOR ELECTRICITY DEPOSITS BEING DELETED BY LD. CIT (A) 5.3. IN CROSS APPEAL FILED BY ASSESSEE , IT IS OBSERVED THAT ASSESSEE IS CHALLENGING INCLUSION OF THREE COMPARABLES ON THE BASIS OF FUNCTIONAL DISSIMILARITIES, BEING ; PERSISTENT SYSTEMS AND SOLUTIONS LTD; PERSISTENT SYSTEMS LTD; IT HAS BEEN SUBMITTED BY LD.AR THAT ASSESSEE DO NOT WISH TO PRESS C G - VAK SOFTWARE AND EXPORTS LTD, R SYSTEMS INTERNATIONAL LTD, MASCON GLOBAL LTD, AKSHAY SOFTWARE TECHNOLOGIES LTD, THINK SOFT GLOBAL SERVICES LTD, EVOKE TECHNOLOGIES LTD, RS SOFTWARE (INDIA) LTD, TATA ELXI LTD, FOR EXCLUSION. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 9 5.4 . GROUND NO. 4.1.: IT IS FURTHER SUBMITTED THAT GROUND RELATING TO OPERATING MARGINS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AS OPERATING REVENUE HAS BEEN GRANTED BY LD.AO SUBSEQUENTLY AND THEREFORE THIS GRO UND BECOMES INFRUCTUOUS. 5.5. IT HAS BEEN SUBMITTED BY LD.AR THAT ASSESSEE DO NOT WISH TO PRESS GROUND NO. 5.2 WHICH IS RELATING TO RISK ADJUSTMENT DENIED BY LD.AO. 5.6. IT HAS BEEN SUBMITTED BY LD.AR THAT ASSESSEE DO NOT WISH TO PRESS G ROUND NO. 8 5.8. ADDITIONAL GR OUND A SSESSEE RAISED A DDITIONAL GROUNDS V IDE APPLICATION DATED 06/12/17 , BY SUBMITTING THAT INADVERTENTLY THESE COMPARABLES WERE NOT RAISED AT THE TIME OF FILING OF ORIGINAL APPEAL. PLACING RELIANCE UPON DECISION OF HONBLE SUPREME COURT IN CASE OF NTPC LTD VS CIT REPORTED IN 229 ITR 383 AND JUTE CORPORATION OF INDIA VS CIT REPORTED IN 53 TAXMAN 85, SUBMITTED THAT COMPARABLES SPECIFIED IN ADDITIONAL GROUNDS MAY BE ADMITTED. LD.CIT DR, THOUGH OPPOSED ADMISSION OF ADDITIONAL GROUND, COULD NOT CONTROVER T SUBMISSIONS ADVANCE BY LD.AR. WE HAVE PERUSED DETAILS RELIED UPON BY BOTH SIDES IN OUR CONSIDERED OPINION THE COMPARABLES ALLEGED IN ADDITIONAL GROUND ARISES OUT OF THE RECORDS AND WAS OBJECTED BEFORE DRP FOR ITS EXCLU SION/INCLUSION. CONSIDERING INADVER TENT MISTAKE ON BEHALF OF ASSESSEE IN RAIS ING THESE GROUND S BE FORE THIS TRIBUNAL, WE ALLOW ADDITIONAL GROUND RAISED NOW. ACCORDINGLY ADDITIONAL GROUND RAISED BY ASSESSEE WIDE APPLICATION DATED 6/12/2017 STANDS ALLOWED. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 10 6 . GROUNDS NOT PRESSED BY LD.AR GROUND NO. 3.2 I N ASSESSEES APPEAL, EXCEPT LGS GLOBAL LTD., REMAINING COMPARABLES FOR INCLUSION ARE NOT PRESSED, G ROUND NO. 3.3 AND GROUND NO. 5.2 ARE NOT PRESSED. AMONGST CORPORATE GROUNDS, ASSESSEE DO NOT WISH TO PRESS G ROUND NO. 6.7 AND G ROUND NO. 8 A S NOT PRESSED. AMONGST A DDITIONAL G ROUNDS, ASSESSEE ALLEGED EXCLUSION OF SASKEN COMMUNICATIONS TECHNOLOGIES PVT LTD. ASSESSEE HAS ALSO ALLEGED CORRECTION OF ARITHMETICAL ERRORS IN COMPUTING MARGIN S OF M/S TATA ELXI LTD AND M/S L & T INFOTECH LTD. WHICH HAS BEEN NOT PRESSED BY THE L D.AR. ACCORDINGLY THESE GROUNDS STANDS DISMISSED. 7. EFFECTIVE GROUNDS ARGUED BY LD.AR THUS, EFFECTIVE GROUNDS IN ASSESSEES APPEAL ARE, G ROUND NO. 3.1 , LGS GLOBAL LTD IN GROUND NO.3.2 , GROUND NO.3.3 PARTLY GROUND NO. 5.1 , GROUND NO.6.1 - 6.6 AND GROUND NO.7 , AND IN ADDITIONAL GROUND RAISED ON 6/12/2017 INCLUSION ALLEGED BY ASSESSEE IN RESPECT OF FCS SOFTWARE SOLUTIONS LTD WE SHALL FIRST TAKE UP REVENUES APPEAL IN ITA NO. 583/BANG/2016 8. GROUND NO. (I) (V) SHE SUBMITTED THAT DRP APPLIED ON - SITE REVENUE FILTER SELECTIVELY, INSTEAD OF APPLYING IN RESPECT OF ALL COMPARABLES. IT HAS BEEN ARGUED BY HER THAT APPLICATION OF A FILTER DETERMINES WHAT SET OF COMPARABLES WOULD BE DISPLAYED ON DATABASE, ON WHICH SEARCH IS CARRIED OU T. APPLICATION OF FILTER TO SHORTLIST COMPANIES UNDER A PARTICULAR SEGMENT IS 1 ST STEP TO CONDUCT TRANSFER PRICING IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 11 ANALYSIS. SHE VEHEMENTLY ARGUED THAT, ONCE COMPARABLES ARE SHORTLISTED BY LD.TPO, DRP CANNOT SUO MOTO APPLY ON - SITE REVENUE FILTER SUBSEQUE NTLY AND EXCLUDE COMPARABLES, WHICH IS NOT AS PER PROCEDURES LAID DOWN UNDER LAW. SHE SUBMITTED THAT ON - SITE REVENUE FILTER APPLIED BY DRP SUBSEQUENTLY, NEITHER BEEN APPLIED BY ASSESSEE IN TRANSFER PRISING STUDY, NOR BEEN CONSIDERED BY LD.TPO, WHILE COND UCTING ANALYSIS UNDER SECTION 92CA OF THE ACT. 8.1. PLACING RELIANCE UPON DECISION OF THIS TRIBUNAL IN CASE OF ACIT VS BROADCOM COMMUNICATION TECHNOLOGIES PVT. LTD. , REPORTED IN (2017) 88 TAXMANN.COM 309 , SHE SUBMITTED THAT NEW FILTER SUO MOTO CANNOT BE AP PLIED BY DRP SELECTIVELY, BUT SHOULD BE APPLIED TO ALL COMPARABLES. SHE FURTHER SUBMITTED THAT RS SOFTWARE INDIA LTD., REJECTED BY DRP WAS ACCEPTABLE TO ASSESSEE AS WELL AS LD.TPO. 8.2. IN SUPPORT OF AFORESTATED VIEW RELIANCE WAS ALSO PLACED ON DECISIONS OF DELHI TRIBUNAL IN CASE OF DCIT VS VERTEX C USTOMER S ERVICES IN ITA NO.5228/DEL/2018 VIDE ORDER DATED 06/11/17 AND AIRCOM INTERNATIONAL INDIA PVT. LTD., IN ITA NO. 04/04/03/DEL/2012 WIDE ORDER DATED 19/05/17 . IT HAS THUS BEEN CONTENDED BY HER THAT ENTIRE ANALYSIS NEEDS TO BE REVISITED BASED UPON NEW FILTER, APPLIED BY DRP AND THEREFORE NEEDS TO BE SET - ASIDE TO LD.TPO. 8.4. ON THE CONTRARY LD.AR SUBMITTED THAT ISSUE OF SUO MOTO APPLICATION OF ON - SITE REVENUE FILTER BY DRP HAS BEEN ADDRESSED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT.LTD VS ACIT IN ITA(TP)A NO.156/BANG/2016 FOR ASSESSMENT IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 12 YEAR 2011 - 12 V IDE ORDER DATED 21/12/18 . HE FURTHER SUBMITTED THAT, ASSESSEE DO NOT HAVE ANY OBJECTION FOR RS SOFTWARE INDIA PVT. LTD., TO BE INCLUDED. 8.5. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. MAIN GRIEVANCE OF REVENUE IS IN RESPECT OF CHERRY PICKING ON - SITE REVENUE FILTER BY DRP SUO MOTO , AND SELECTIVELY APPLYING ON CERTAIN COMPARABLES, THEREBY EXCLUDING THEM. WE AGREE WITH CONTENTION RAISED BY LD.CIT DR THAT NO NEW FILTER CAN BE APPLIED SUBSEQUENT TO LD.TPO COMPLETING TP ANALYSIS. HOWEVER, ON PERUSAL OF OBSERVATIONS BY DRP TO EXCLUDE ACROPETAL TECHNOLOGIES LTD., L&T INFOTECH LTD., PRIMARILY ON FUNCTIONAL DISSIMILARITIES AND ABSENCE OF SEGMENTAL INFORMATION. DRP ALSO OBSERVED THAT THESE COMPARABLES ARE NOT A CONTRACT SERVI CE PROVIDER LIKE ASSESSEE( PARA8,18 OF DRP ORDER). THERE FORE, IN OUR CONSIDERED OPINION, THESE GROUNDS RAISED BY REVENUE BECOMES ACADEMIC 8.6. DECISIONS RELIED UPON BY LD.CIT DR OF DELHI TRIBUNAL IN CASE OF DCIT VS VERTEX CUSTOMER SERVICES IN ITA NO.5228/DEL/2018 (SUPRA) AND AIRCOM INTERNATIONAL INDIA PVT. LTD. , (SUPRA) DOES NOT DEAL WITH ON - SITE REVENUE FILTER AS HAS BEEN SUBMITTED BY LD.CIT DR. 8.7. ON MERITS, LD.CIT DR RELIED UPON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF MERCEDES - BENZ R ESEARCH AND DEVELOPMENT INDIA PVT LT D ., VS ACIT REPORTED IN (2018) 90 TAXMANN.COM 300 AND SUBMITTED THAT THESE COMPARABLES WERE SENT BACK TO LD.TPO FOR RE - EXAMINATION. SHE THUS SUBMITTED IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 13 THAT, VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL IN MERCEDES - BENZ R ESEARCH AND DEVELOPMENT INDIA PVT. LT D ., VS ACIT (SUPRA) MAY BE FOLLOWED. 8.8. WE HAVE PERUSED VIEW OF COORDINATE BENCH OF THIS T RIBUNAL IN CASE OF MERCEDES - BENZ R ESEARCH AND D EVELOPMENT INDIA PVT. LT D ., (SUPRA) IN RESPECT OF ACCROPATEL TECHNOLOGIES LTD AND L&T INFOTECH LTD. IT IS OBSERVED THAT THE SE COMPARABLES WERE SENT BACK TO LD.TPO BY OBSERVING AS UNDER: ACROPETAL TECHNOLOGIES LTD. ('ACROPETAL') .. 13.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED. WE FIND THAT THE DRP HAS OBSERVED THAT THIS COMPANY, 'ACROPETAL', OPERATES IN THREE SEGMENTS AND THE SEGMENTAL RESULTS ARE AVAILABLE; WHILE ON THE CONTRARY THE ASSESSEE CONTENDS THAT 'ACROPETAL' OPERATES IN FOUR SEGMENTS. FURTHER, IT IS SEEN THAT EVEN THOU GH THE ASSESSEE HAS RAISED THE OTHER ISSUES BEFORE THE DRP, AS LAID OUT IN PARA 13.1 OF THIS ORDER, THE DRP HAS NOT RENDERED ANY FINDING THEREON. WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF AMD INDIA (P.) LTD. ( SUPRA ) RELIED ON BY THE ASSESSEE HAS EXCLUDED 'ACROPETAL' ON THE GROUND THAT IT FAILS THE SERVICE INCOME FILTER OF 75%; A GROUND APPARENTLY NOT PUT FORTH BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. 13.3.2 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, A S DISCUSSED ABOVE; THAT THE DRP HAS NOT RENDERED FINDINGS ON SOME OF THE ISSUES RAISED BY THE ASSESSEE BEFORE IT AND THERE IS A CONTRADICTION IN THE NUMBER OF SEGMENTS THAT THIS COMPANY 'ACROPETAL' OPERATES IN, WE ARE OF THE OPINION THAT IT IS NECESSARY TO REMAND THE ISSUE OF COMPARABILITY OF THIS COMPANY BACK TO THE FILE OF THE DRP FOR EXAMINING AND ADJUDICATION OF THE ISSUES RAISED BY THE ASSESSEE, AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER AND TO FILE DETAILS /SUBMISSI ONS IN THIS REGARD, WHICH SHALL BE DULY CONSIDERED. WE HOLD AND DIRECT ACCORDINGLY. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 14 . 16.2 DURING PROCEEDINGS BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE STATED THAT THE ASSESSEE DOES NOT WISH TO PRESS THE GROUND RELATED TO EX CLUSION OF SASKEN COMMUNICATION TECHNOLOGIES LIMITED; THEREFORE THIS GROUND IS DISMISSED AS NOT PRESSED AND CONSEQUENTLY SASKEN COMMUNICATION TECHNOLOGIES LTD. IS RETAINED IN THE FINAL LIST OF COMPARABLES. 16.3 ACCORDING TO THE LEARNED AUTHORISED REPRESENT ATIVE, THE OTHER TWO COMPANIES WERE CHOSEN AS COMPARABLES BY THE ASSESSEE IN ITS TP STUDY ITSELF. THE LEARNED AUTHORISED REPRESENTATIVE HOWEVER SUBMITS THAT THE ASSESSEE SEEKS EXCLUSION OF L & T INFOTECH LIMITED AND PERSISTENT SYSTEMS LIMITED, DUE TO MORE DETAILS BEING NOW AVAILABLE IN THE PUBLIC DOMAIN WHICH RENDER THESE TWO COMPANIES AS NOT COMPARABLE TO THE ASSESSEE AND THEREFORE PRAYS THAT THEY BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 16.4 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE FO R REVENUE OBJECTED TO THE ADMISSION OF THIS ADDITIONAL GROUND STATING THAT WHEN THE ASSESSEE ITSELF HAS SELECTED THESE TWO COMPANIES, THE AUTHORITIES BELOW HAD NO OCCASION TO CONSIDER THE OBJECTIONS NOW RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL. 16.5 AFTE R HAVING HEARD BOTH PARTIES AND PERUSED AND CONSIDERED THE MATERIAL ON RECORD, WE FIND THAT THE FUNCTIONAL COMPARABILITY OF THESE TWO COMPANIES I.E. (I) L & T INFOTECH LIMITED AND (II) SASKEN COMMUNICATION TECHNOLOGIES LIMITED HAVE BEEN CONSIDERED BY BENCH ES OF THIS TRIBUNAL IN VARIOUS CASES, INCLUDING THOSE CITED BY THE LD.AR. BY WAY OF THIS ADDITIONAL GROUND, THE ASSESSEE IS RAISING OBJECTIONS TO THE INCLUSION OF THESE COMPANIES ON THE ISSUE OF FUNCTIONAL DISSIMILARITY AND OTHER GROUNDS. IN OUR CONSIDERED VIEW, THE ASSESSEE CANNOT BE PRECLUDED FROM RAISING AN OBJECTION AGAINST INCLUSION OF A COMPANY EVEN IF THE SAID COMPANY WAS SELECTED BY THE ASSESSEE IN ITS TP STUDY. THIS VIEW WAS TAKEN BY THE SPECIAL BENCH OF ITAT, CHANDIGARH IN THE CASE OF DY. CIT V. Q UARK SYSTEMS (P.) LTD. [2010] 38 SOT 307 . AS PER THE PRINCIPLES LAID DOWN IN THE AFORESAID DECISION OF THE SPECIAL BENCH (SUPRA), WE ADMIT THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE SEEKING EXCLUSION OF THESE TWO COMPANIES (I) L & T INFOTECH LIMITED (II) SASKEN COMMUNICATION TECHNOLOGIES LIMIT ED WITHOUT IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 15 COMMENTING ON THE MERITS OF THE CASE AND REMIT THE MATTER OF THEIR COMPARABILITY ANALYSIS TO THE FILE OF THE TPO/A.O. FOR EXAMINATION OF THE ASSESSEE'S CLAIM AND TO ADJUDICATE THEREON AFTER PROVIDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HE ARD, WHICH SHALL BE DULY CONSIDERED. WE HOLD AND DIRECT ACCORDINGLY. 8.9. ON PERUSAL OF AFORESTATED OBSERVATIONS BY COORDINATE BENCH OF THIS TRIBUNAL , IT IS CLEAR THAT, COMPARABLES WERE REMANDED FOR THE REASON THAT IN CASE OF ACCROPATEL, DRP RENDERED FIND ING THAT SEGMENTAL DETAILS BEING AVAILABLE WAS CONTRARY TO MATERIALS, PLACED ON RECORD. AND IN CASE OF L & T, COORDINATE BENCH SENT BACK COMPARABLE FOR REASON THAT FINANCIAL DETAILS WHICH WERE UNAVAILABLE ON PUBLIC DOMAIN WAS SUBSEQUENTLY AVAILABLE FOR CON SIDERATION. 8.10. BUT, IN THE FACTS OF PRESENT CASE, THERE IS NO SUCH DISPUTE BETWEEN PARTIES, AND FINDINGS OF DRP ARE CONCURRENT WITH ANNUAL REPORTS PLACED IN PAPER BOOK FILED BEFORE US. THUS, IN OUR CONSIDERED OPINION, THESE COMPARABLES ARE NOT FUNCTION ALLY SIMILAR WITH THAT OF ASSESSEE, WHO IS A CONTRACT SERVICE PROVIDER, WORKING ON A COST PLUS BUSINESS MODEL. 8.11. IT IS OBSERVED THAT RS SOFTWARE (INDIA) LTD, WAS EXCLUDED BY DRP BY APPLYING ON - SITE REVENUE FILTER. BOTH PARTIES DO NOT HAVE OBJECTION F OR INCLUSION OF THIS COMPANY. WE ARE THEREFORE OF THE VIEW THAT, THIS COMPANY SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. ACCORDINGLY , LD. TPO IS DIRECTED TO CONSIDER THIS COMPARABLE IN THE LIST. ACCORDINGLY, GROUND NO. (I) (V) STANDS PARTLY ALLOWED. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 16 9. GROUND NO. (VI) IS IN RESPECT OF EXCLUDING M/S.E - INFOCHIPS, BY DRP AS COMPARABLE ON THE GROUND THAT IT FAILS SERVICE INCOME FILTER. LD.CIT DR SUBMITTED THAT TPO WHILE ANALYSING COMPARABLES OBSERVED THAT THIS COMPANY HAS REVENUE FROM SOFTWARE DEVELOPMENT UP TO 88% AND THEREFORE INCLUDED, WHEREAS DRP OBSERVES THAT REVENUE EARNED BY THIS COMPANY IS LESS THAN 75% AND THUS EXCLUDED. SHE SUBMITTED THAT, BASIS OF DETERMINING REVENUE BY DRP BEING LESS THAN 75% HAS NOT BEEN DEMONSTRATED AND THEREFORE NEEDS TO BE RECONSIDERED. 9.1. LD.AR, ON THE OTHER HAND PLACED RELIANCE UPON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT LTD. VS ACIT (SUPRA) WHEREIN, E - INFOCHIPS LTD WAS EXCLUDED FOR FAILING SERVICE INCOME FILTER. 9.2. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED THAT, THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT LTD. VS ACIT (SUPRA) EXCLUDED E - INFOCHIPS LTD., BY FOLLOWING VIEW TAKEN BY THIS TRIBUNAL IN CASE OF COMSCOP NETWORK (INDIA) PVT. LTD., VS ITO IN IT (TP) A/BANG/2016 DATED 22/02/17 WHEREIN, THIS COMPANY WAS EXCLUDED FOR REASON THAT THERE IS NO SEGMENTAL INFORMATION REGARDING DIVERSE FUNCTIONS PERFORMED BY THIS COMPANY, AND THAT THERE WAS MAJOR FLUCTUATION IN ITS PROFITS , WHICH INFLUENCED TURNOVER OF THIS COMPANY. FURTHER IT IS OBSERVED THAT IN CASE OF DCIT VS M /S CGI INFORMATION SYSTEMS AND M ANAGEMENT C ONSULTATIONS PVT.LTD., IN ITA NO.502/ B ANG/2016 FOR ASSESSMENT YEAR 2011 - 12 VIDE ORDER IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 17 DATED 06/04/18 DEALT WITH IDENTICA L OBJECTION RAISED BY LD. CIT DR BEFORE AS UNDER: 24. AS FAR AS GROUND NO. 4 RAISED BY REVENUE IS CONCERNED, THE SAID GROUND OF APPEAL IS WEAK AND ANY EVENT COMPARABILITY OF COMPANIES THAT WERE EXCLUDED BY THE DRP WERE ON VALID GROUNDS CONTEMPLATED BY THE RELEVANT STATUTORY PROVISIONS OF THE ACT AND RULES. AS FAR AS GROUND NO. 5 IN REVENUES APPEAL IS CONCERNED, THE REVENUE SEEKS TO CHALLENGE THE EXCLUSION OF AE INFOTECH LTD. ON THE GROUND THAT IT FAILED DIRECT SOFTWARE SERVICE INCOME FILTER AT 75%. AT THE OUTSET, THE ASSESSEE SUBMITS THAT E INFOTECH LTD WAS EXCLUDED BY THE DRP ON THE GROUND THAT: (I) NO SEGMENTAL INFORMATION IS REGARDING ITS DIVERSE FUNCTIONS IS AVAILABLE; (II) IT FAILED THE SOFTWARE SERVICE INCOME FILTER AND 75%; (III) THERE WERE MAJOR FL UCTUATIONS IN PROFIT AND TURNOVER EVERY YEARS WHICH SEEMS TO BE INFLUENCED BY EXTRAORDINARY/PECULIAR CIRCUMSTANCES; AND (IV) THERE IS A PRESENCE OF INVENTORY (PAGE 10 AND 11 OF THE DRPS DIRECTIONS). THE REVENUE, IN ITS APPEAL HAS CHALLENGED ITS EXCLUSION ONLY ON THE 2 ND GROUND. IN OTHER WORDS, THE REVENUE HAS NOT CHALLENGED ITS EXCLUSION ON THE OTHER GROUNDS STATED HEREINABOVE AND THUS ITS EXCLUSION ON THESE GROUNDS HAVE ATTAINED FINALITY AND CANNOT BE DISTURBED BY THIS HONBLE TRIBUNAL. EVEN OTHERWISE, WE ARE OF THE VIEW THAT THE DRP RIGHTLY ARRIVED AT THE FINDING THAT COMPANIES SOFTWARE DEVELOPMENT SERVICE REVENUE FOR FY 2010 - 11 WAS LESS THAN 75% OF ITS TOTAL OPERATING REVENUE FOR THE YEAR. THUS THE ABOVE ACTION OF THE DRP IN REJECTING THE ABOVE COMPANIES CORRECT. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 18 9.3. IN THE FACTS BEFORE US, REVENUE IS CHALLENGING EXCLUSION OF THIS COMPARABLE AS DRP RECORDED FINDING IN RESPECT OF SERVICE INCOME BEING LESS THAN 75%. OTHER ISSUES CONSIDERED BY DRP IN RESPECT OF EXTRAORDINARY EVENT AND NO SEGMENTAL INFORMATION IS AVAILABLE HAS NOT BEEN CHALLENGED BEFORE US (PAGE 11 OF DRP ORDER). RESPECTFULLY FOLLOWING THE VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL IN DCIT VS M/ S. CGI INFO RMATION SYSTEMS AND MANAGEMENT C ONSULTATIONS PVT.LTD (SUPRA) , WE DIRECT LD. TPO TO EXCLUDE THIS COMPANY. ACCORDINGLY GROUND (VI) RAISED BY REVENUE STANDS DISMISSED. 10. GROUND NO.(VII) RAISED BY REVENUE IS IN RESPECT OF REJECTING M/S INFOSYS TECHNOLOGIES LTD., AS COMPARABLE BY DRP. LD. CIT DR PLACED RELIANCE UPON THE ORDER OF LD. TPO. WHEREAS LD. AR PLACED RELIANCE UPON ORDER OF DRP. 10.1. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. THIS COMPANY HAS BEEN INCLUDED BY LD.TPO WHICH IS OBJECTED BY ASSESSEE DUE TO VERY HIGH TURNOVER, W HICH IS MORE THAN 200 CRORES. IT HAS BEEN SUBMITTED BY LD.COUNSEL THAT THIS COMPANY FOR DURING YEAR ENDING 31/03/10 HAD TURNOVER OF ABOUT RS.21,140 CRORES, WHICH IS MUCH HIGHER THAN THAT OF ASSESSEE. FURTHER SHE SUBMITTED THAT THIS COMPANY IS A JOINT AND S OFTWARE DEVELOPMENT SPACE WHILE ASSESSEE IS A SMALL CAPTIVE SERVICE PROVIDER, PROVIDING EXCLUSIVE SERVICES ONLY TO ITS AES. IT IS ALSO BEEN SUBMITTED BY LD.C OUNSEL THAT THIS COMPANY HAS HEAVY R&D EXPENSES AND THUS HAS INTANGIBLES ASSOCIATED WITH IT. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 19 10.2. IT IS OBSERVED THAT THIS COMPANY PROVIDES SOLUTIONS THAT SPAN ENTIRE SOFTWARE RUN LIFE - CYCLE ENCOMPASSING TECHNICAL CONSULTING, DESIGN, DEVELOPED MEANT, RE - ENGINEERING, MAINTENANCE, SYSTEMS INTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION, TESTING AND I NFRASTRUCTURE MANAGEMENT SERVICES. WITH SUCH DIVERSIFIED ACTIVITIES CARRIED ON THIS COMPANY, IT IS NOT APPROPRIATE TO COMPARED IT WITH A ONE - TO - ONE SERVICE PROVIDER LIKE ASSESSEE. 10.3. IT IS OBSERVED THAT IN CASE OF AGNITY INDIA TECHNOLOGIES PVT LTD REPOR TED IN (2015) 58 TAXMANN.COM 167 DELHI BENCHES OF THIS TRIBUNAL AFTER ANALYSING VARIOUS ASPECTS TOOK A VIEW THAT THIS COMPANY IS NOT A FIT COMPARABLE FOR A CAPTIVE SERVICE PROVIDER . THE SAID VIEW HAS BEEN UPHELD BY HONBLE DELHI HIGH COURT WHEREIN, HONBL E COURT UPHOLDING THE VIEW TAKEN BY THE TRIBUNAL, OBSERVED THAT COMPANY HAVING BRAND VALUE AS WELL AS INTANGIBLE ASSETS CANNOT BE COMPARED WITH AN ORDINARY ENTITY WHO PROVIDE CAPTIVE SERVICES. RESPECTFULLY FOLLOWING THE DECISIONS RELIED UPON AND CITED HERE INABOVE, WE DIRECT LD. TPO TO EXCLUDE THIS COMPANY FROM THE FINALIST. ACCORDINGLY GROUND(VII) RAISED BY REVENUE STANDS DISMISSED. 11. GROUND NO. (VIII) AND (XII) (XIII) HAS BEEN SUBMITTED TO BE GENERAL IN NATURE HENCE DO NOT REQUIRE ADJUDICATION. 12. GROUND NO. (IX) RAISED BY REVENUE IS AGAINST DELETING DISALLOWANCE MADE ON ACCOUNT OF LEAVE ENCASHMENT. 13. LD. CIT DR PL ACED RELIANCE UPON ORDER OF LD. AO/TPO. LD. AR PLACED RELIANCE UPON THE DECISION OF DRP IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 20 13.1. W E HAVE PERUSED SUBMISSIONS ADVANCED BY BO TH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. IT IS OBSERVED THAT COORDINATE BENCH OF THIS T RIBUNAL IN CASE OF G LOBAL E - BUSINESS OPERATIONS PVT. LTD VS DCIT IN ITA (TP) A NO. 1092/BA ENTRY/2011 V IDE ORDER DATED 16/01/17 FOR ASSESSMENT YEAR 2007 - 0 8 CONSIDERED IDENTICAL ISSUE WHEREIN IT HAS BEEN OBSERVED AS UNDER: 10. BEFORE US, THE AR SUBMITTED THAT ORIGINALLY, UNDER SECTION 40 3B CERTAIN PAYMENTS WERE HELD ALLOWABLE ONLY ON ACTUAL PAYMENT. SECTION 40 3B WAS AMENDED BY INSERTING CLAUSE (F CLAUSE) TO DISALLOW THE LIABILITY TOWARDS LEAVE ENCASHMENT ON DUE BASIS. NO REASONS FOR SUCH AMEND MENT WAS DISCLOSED. UNDER CHALLENGE WAS MADE BEFORE HONBLE CALCUTTA HIGH COURT IN EXIDE INDUSTRIES LTD AND OTHERS VS UOI AND OTHERS REPORTED IN 292 ITR 470) IT STRUCK DOWN SECTION 4 3B (F) BEING ARBITRARY, UNCONSTITUTIONAL AND THE HORSE THE APEX COURT DECISION IN CASE OF BHARAT EARTH MOVERS LTD (2000) 245 ITR 428 AS THE AMENDMENT DID NOT DISCLOSE THE REASONS WHICH WOULD BE CONSISTENT WITH THE PROVISIONS OF THE CONSTITUTION AND THE LAW S OF THE LAND AND NOT FOR THE SOLE OBJECT OF NULLIFYING THE APEX COURT DECISION. ON SLP INTO 2889/2008, THE SC ON 08/05/09 HELD THAT; PENDING HEARING THE FINAL DISPOSAL OF THE CIVIL APPEAL, DEPARTMENT ASSESSED TRAINED FROM RECOVERING PENALTY AND INT EREST WHICH IS ACCRUED TILL DATE. IT IS MADE CLEAR THAT AS FAR AS OUTSTANDING INTEREST DEMAND AS O N DATE IS CONCERNED IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APPEAL OF DEPARTMENT IS ALLOWED. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 21 WE FURTHER MAKE IT CLEAR THAT TH E ASSESSEE WOULD DURING THE PENDENCY OF THE CIVIL APPEAL, PAID TAX AS THE SECTION 43B (F) IS ON STATUTE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CAKE CLAIM IN ITS RETURNS. ON THE BASIS OF AFORESTATED OBSERVATIONS, WE SET ASIDE THIS ISSUE B ACK TO LD.AO, TO DISPOSE OF THIS ISSUE BASED ON THE OUTCOME OF HONBLE SUPREME COURT S DECISION. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY REVENUE STANDS PARTLY ALLOWED. ITA NO. 668/BA NG/2016 14. IT HAS BEEN SUBMITTED THAT GROUND NO. 1 - 3 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 15. GROUND NO. 3.1, 3.2, 3.3, 3.4 AND ADDITIONAL GROUND FILED ON 06/12/17 CONTAINS CERTAIN COMPARABLES WHICH HAS BEEN ALLEGED BY ASSE SSEE FOR EXCLUSION AND INCLUSION AS UNDER: COMPARABLES ALLEGED FOR EXCLUSION PERSISTENT SYSTEMS AND SOLUTIONS LTD PERSISTENT SYSTEMS LTD COMPARABLES ALLEGED FOR INCLUSION LGS GLOBAL LTD EVOKE TECHNOLOGIES LTD MINDTREE LTD FCS SOFTWARE SOLUTIONS LTD IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 22 16. BEFORE CARRYING OUT COMPATIBILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED, ASSETS OWNED AND RISK ASSUMED BY ASSESSEE UNDER THIS SEGMENT. FUNCTIONS: ASSESSEE OFFERS WIDE RANGE OF PROFESSIONAL SOFTWARE DEVELOPMENT SERVICES THROUGH FOLL OWING SERVICES: 1. SERVICES IN RELATION TO ERROR FIXING OR MAINTENANCE OF SPECIFIC FEATURES IN SOFTWARE AND USED IN PRODUCTS OF HP 2. ASSISTANCE IN RELATION TO THE SOFTWARE DEVELOPMENT IN CERTAIN SOFTWARE FEATURE ENHANCEMENT AND DEVELOPMENT FOR THE PRODUCTS OF HP RENDERING SERVICES IN FIELDS OF E - COMMERCE, E SOLUTIONS, E - SERVICES, INTERNET SECURITY AND MANAGEMENT. ASSETS EMPLOYED ASSESSEE PERFORM SOFTWARE DEVELOPMENT SUPPORT ACTIVITY ON BEHALF OF ITS AE AS PER THE SPECIFICATIONS. THEREFORE ALL INCIDENTAL INTELLE CTUAL PROPERTY PRODUCT DEVELOPED OR CREATED BY ASSESSEE IN THE COURSE OF ITS PROVISION OF SOFTWARE DEVELOPMENT SERVICES SUPPORT ARE OWNED BY AE. OTHER THAN THESE ASSESSEE OWNS ROUTINE TANGIBLE ASSETS LIKE FURNITURE FIXTURES, COMPUTERS, LAND AND BUILDING ET C RISKS ASSUMED ASSESSEE BEARS LIMITED RISK, IN TERMS OF FOREIGN EXCHANGE AND GOVERNMENT POLICY RISKS ALL OTHER RISKS ARE BONE BY AE. THUS ASSESSEE HAS BEEN CATEGORISED AS A LOW RISK BEARING CONTRACT SERVICE PROVIDER. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 23 BASED UPON THE ABOVE, WE SHALL ANALYSE THE COMPARABLES ALLEGED FOR EXCLUSION/INCLUSION BY ASSESSEE. 17. COMPARABLES ALLEGED FOR EXCLUSION A) PERSISTENT SYSTEMS AND SOLUTIONS LTD T HIS COMPARABLE HAS BEEN INCLUDED BY LD. TPO THOUGH IT HAS BEEN OBJECTED BY ASSESSEE ON FUNCTIONAL DISSIMILARITIES. IT HAS BEEN SUBMITTED THAT SEGMENTAL INFORMATION IS IN RESPECT OF THIS COMPANY IS NOT AVAILABLE IN THE ANNUAL REPORT. LD. CIT DR PLACED RELIANCE UPON THE ORDERS OF AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSION S ADVANCED BY B OTH SIDES IN LIGHT OF THE RECORDS PLACED BEFORE US. ANNUAL REPORT OF THIS COMPANY IS PLACED AT PAGE 1222 TO - 1279 OF PAPER BOOK VOLUME 3. WE FIND THAT THIS COMPANY EARNED INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS AND NO SEGMENTAL DETAILS ARE AVAIL ABLE IN RESPECT OF SINGH. IT IS ALSO OBSERVED THAT INCOME GENERATED UNDER BOTH THESE SEGMENTS CUMULATIVELY AMOUNTS TO TUNE OF 6.67 CRORES AND IN SCHEDULE 11 , ENTIRE REVENUE HAS BEEN SHOWN UNDER ONE SEGMENT. THEREFORE IN OUR CONSIDERED OPINION , IN THE ABSEN CE OF SEGMENTAL DETAILS WE CANNOT APPRECIATE THE VIEW TAKEN BY AUTHORITIES BELOW. ACCORDINGLY WE DIRECT LD. TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST. B) PERSISTENT SYSTEMS LTD THIS COMPANY HAS BEEN INCLUDED BY LD.TPO AND ASSESSEE OBJECTS TO THE SAME AS THIS COMPANY IS ENGAGED IN RENDERING OUTSOURCED PRODUCT DEVELOP MEANT , AS AGAINST SOFTWARE DEVELOPMENT SERVICES. IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 24 IT HAS BEEN SUBMITTED THAT THIS IS NOT FUNCTIONALLY SIMILAR WITH THAT OF ASSESSEE. LD.CIT DR ON THE CONTRARY SUPPORTED VIEW OF AUTHORITIES BELOW AND OPPOSED EXCLUSION. WE HAVE PERUSED SUBMISSION S ADVANCED BY BOTH SIDES IN LIGHT OF THE RECORDS PLACED BEFORE US. IT IS OBSERVED THAT ANNUAL REPORT OF THIS COMPANY IS PLACED AT 1280 - 1471 OF PAPER BOOK WHEREIN, SCHEDULE 15 FORMING PART OF PROFIT AN D LOSS ACCOUNT SHOWS INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS, HOWEVER THERE IS NO SEPARATE SEGMENTAL INFORMATION IN RESPECT OF THESE 2 SEGMENTS. THUS IT IS CLEAR THAT THIS COMPANY IS EARNING REVENUE FROM ACTIVITIES WHICH INCLUDES LICENSING OF PR ODUCTS, ROYALTY ON SALE OF PRODUCTS AS WELL AS INCOME FROM MAINTENANCE CONTRACTS ETC WHICH COULD NOT BE CONSIDERED FUNCTIONALLY SIMILAR WITH THAT OF ASSESSEE HOLDERS ONLY CARRYING OUT SOFTWARE DEVELOPMENT SERVICE AT THE BEHEST OF ITS AES ON A CAPTIVE BASI S. SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL IN CASE OF DCIT VS ELECTRONICS FOR IMAGING INDIA PVT.LTD (SUPRA). RESPECTFULLY FOLLOWING THE SAME WE DIRECT LD.AO/TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST. 18. COMPARABLES ALLEGED FOR INCLUSION A) EVOKE TECHNOLOGIES LTD AND MINDTREE LTD IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 25 IT HAS BEEN SUBMITTED BY BOTH PARTIES THAT THIS COMPANY WAS DIRECTED BY DRP TO BE EXCLUDED. LD.AR SUBMITTED THAT LD.TPO/AO INCLUDED IT WHILE COMPUTING MARGIN OF COMPARABLES. WE THEREFORE DIRECT LD.AO/TPO TO FOLLOW D IRECTIONS OF DRP AND EXCLUDE THE SAME. B) FCS SOFTWARE SOLUTIONS LTD., AND LGS GLOBAL LTD AT THE OUTSET, IT HAS BEEN SUBMITTED BY BOTH SIDES THAT FCS SOFTWARE SOLUTIONS LTD., AND LGS GLOBAL LTD HAS NOT BEEN CONSIDERED BY DRP. ACCORDINGLY BOTH PARTIED HAVE NO OBJECTION IN SETTING ASIDE THESE COMPARABLES BACK TO DRP FOR COMPARABILITY ANALYSIS TO BE CARRIED OUT WITH ASSESSEE. BASED UPON THE ABOVE SUBMISSIONS, WE SET ASIDE THESE COMPARABLES TO DRP. NEEDLESS TO SAY THAT ASSESSEE MAY BE GRANTED PROPER OPPORTUNITY OF BEING REPRESENTED. ACCORDINGLY WE SET ASIDE THESE COMPARABLES BACK TO LD. AO/TPO FOR VERIFICATION ON THE BASIS OF DETAILS AVAILABLE/SUBMITTED BY ASSESSEE. 19. GROUND NO. 6 - 7 ARE IN RESPECT OF DISALLOWANCE OF SOFTWARE EXPENDITURE AND ELECTRICITY DEPOSIT S BY LD. AEO. IT HAS BEEN SUBMITTED THAT DETAILS FILED BY ASSESSEE HAS NOT BEEN PROPERLY VERIFIED BY LD.AO IN RESPECT OF THE ASSESSEES CLAIM. LD. AR SUBMITTED THAT ASSESSEE HAS SUBSTANTIAL AND CORROBORATED OF EVIDENCES TO ESTABLISH THAT SOFTWARE PURCHASED , DID NOT PROVIDE ANY ENDURING BENEFIT TO ASSESSEE , AND THEREFORE HAS TO BE TREATED AS REVENUE EXPENDITURE. IN RESPECT OF ELECTRICITY DEPOSITS, ASSESSEE SUBMITTED THAT THESE WERE ACTUAL RIGHT OF DEPOSITS CLAIMED FOR WHICH PROVISION WAS CREATED IN EARLIER YEARS. LD. AR IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 26 SUBMITTED THAT ASSESSEE HAS BEEN CLAIMING A RIGHT OF AS DEDUCTION SINCE A Y 2011 - 12. ON PERUSAL OF THE ORDERS PASSED BY AUTHORITIES BELOW IT IS OBSERVED THAT THESE DETAILS RELIED UPON BY LD. AR HAS NOT BEEN VERIFIED BY LD.AO. WE THEREFORE DIREC T LD. AO TO REVISIT THESE ISSUES HAVING REGARDS TO THE EVIDENCES FILED BY ASSESSEE AND TO CONSIDER THE CLAIM OF ASSESSEE AS PER LAW. ACCORDINGLY THESE GROUNDS RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT APPEAL FILED BY AS SESSEE STANDS PARTLY ALLOWED AS DISCUSSED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 07 - 08 - 2019 SD/ - SD/ - (B.R.BASKARAN) (BEENA PIL LAI) ACCOUNTANT MEMBE R JUDICIAL MEMBER DATED: 7 TH AUGUST, 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 IT(TP)A NO.668/B/2016 & IT(TP)A NO.583/B/2016 27