M/s Alcatel-Lucent India Ltd., Gurgaon V. DCIT, New Delhi

ITA 6856/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7429 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 29-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 30-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: HIMANSHU S SINHA
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 92D; 10B; 37; 154

Judgement Text

ITA NO. 6856/D/15 PAGE 1 OF 50 ALCATEL-LUCENT INDIA LTD. IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 6856/DEL/2015 ( ASSESSMENT YEAR: 2011-12) ALCATEL - LUCENT INDIA LTD. DLF CYBER GREENS, 14 AND 15 TH FLOOR TOWER C, PHASE-III, DLF CITY, GURGAON. AACCA8667N VS DCIT CIRCLE 2(1), NEW DELHI. ASSESSEE BY SH. HIMANSHU S. SINHA, ADV. REVENUE BY SH. AMRENDRA KUMAR, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 READ WITH DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL (DRP) U/S 144C (13) OF THE INCOME TAX ACT, 1961 (IN BRIEF THE ACT). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY INCORPORATED UNDER THE INDIAN COMPANIES ACT, 1956 AND WAS INCORPORATED IN DATE OF HEARING 24.05.2016 DATE OF PRONOUNCEMENT 24.08.2016 ITA NO. 6856/D/15 PAGE 2 OF 50 ALCATEL-LUCENT INDIA LTD. 1992 AND IS ENGAGED IN THE BUSINESS OF DISTRIBUTION AND SALE OF DIGITAL SWITCHING EQUIPMENT, CELLULAR EXCHANGE EQUIPMENT AN D OTHER TELECOMMUNICATION EQUIPMENT AND ALSO PROVIDES RELAT ED SERVICES. THE ASSESSEE ALSO PROVIDES CONTRACT SOFTWARE DEVELOPMEN T (CSD) SERVICES AND TECHNICAL SUPPORT SERVICES (TSS) TO ITS ASSOCIATED ENTERPRISES (AES). VIDE HIGH COURT ORDER ISSUED IN NOVEMBER, 2008 ALCATEL L UCENT TECHNOLOGIES INDIA PRIVATE LIMITED (FORMERLY LUCENT TECHNOLOGIES INDIA PRIVATE LIMITED), LUCENT TECHNOLOGIES HINDUSTAN PRIVATE LIMITED AND ALCATEL DEVELOPMENT I NDIA PRIVATE LIMITED WERE MARGED WITH ALIL. THE MERGER WAS EFFECTIVE WITH RETROSPEC TIVE EFFECT FROM APRIL 1, 2007. THE INTERNATIONAL TRANSACTIONS ENTERED INTO, BY THE ASS ESSEE ARE TABULATED BELOW. THE TABLE ALSO PROVIDES THE TRANSFER PRICING APPROACH OF THE ASSES SEE FOLLOWED BY THE ASSESSEE IN BENCHMARKING ITS INTERNATIONAL TRANSACTIONS. THE TABLE PROVIDES THE VALUES OF THE INTERNATIONAL TRANSACTIONS, THE MOST APPROPRIATE ME THOD (MAM) ADOPTED BY THE ASSESSEE, THE PROFIT LEVEL INDICATORS (PLI) USED BY THE ASSES SEE - S.NO. NATURE OF TRANSACTION AMOUNT (IN INR) 1. PURCHASE OF TELECOM EQUIPMENT/COMPONENTS 3,695,3 39.350 2. PURCHASE OF CAPITAL GOODS 442,124,800 3. RECEIPT OF TECHNICAL SERVICES 493,803,543 4. RECEIPT OF TRAINING SERVICES 28,581,092 5. SERVICE REVENUE 389,604,691 6. PROVISION OF CONTRACT SOFTWARE DEVELOPMENT SERVI CES 7,274,905,626 7. PAYMENT FOR DEPUTED EMPLOYEES 112,961,710 8. REIMBURSEMENT OF EXPENSES (RECEIVED) 44,455,170 9. REIMBURSEMENT OF EXPENSES (PAID) 9,782,132 10. INTEREST ON LOAN 5,379,000 3. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESS EE HAD ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AES ITA NO. 6856/D/15 PAGE 3 OF 50 ALCATEL-LUCENT INDIA LTD. PARTICULARS MOST APPROPRIATE METHOD PROFIT LEVEL INDICATOR (PLI) MARGIN EARNED BY THE APPELLANT NO. OF COMPARABLES CONSIDERED AVERAGE MARGIN CSD SERVICES TRANSACTIONAL NET MARGIN METHOD OPERATING PROFIT/TOTAL COST (OP/TC) 7.71% 13 12.18% 7.68% 4 7.28% 4. DURING THE COURSE OF TRANSFER PRICING ASSESSMENT PROCEEDINGS, THE TRANSFER PRICING OFFICER (TPO) WHILE ACCEPTING ALL OTHER INTERNATIONAL TRANSACTIONS TO BE AT ARMS LENGTH, REJECTED THE EC ONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE FOR ITS CSD SERVICES SEGMENT AND TS S SEGMENT. THE TPO PROCEEDED TO UNDERTAKE A FRESH ANALYSIS, WHEREIN HE APPLIED CERTAIN NEW QUANTITATIVE FILTERS TO EXCLUDE CERTAIN COMPANIES S ELECTED BY THE ASSESSEE AND INCLUDED CERTAIN ADDITIONAL COMPANIES. THE TPO ALS O REJECTED THE ASSESSEES CLAIM FOR WORKING CAPITAL AND RISK ADJUSTMENT. A S UMMARY OF THE ADJUSTMENTS PROPOSED BY THE TPO IN BOTH THE SEGMENT S IS AS PER THE CHART BELOW: PARTICULARS PLI USED MARGIN EARNED BY THE APPELLANT ARMS LENGTH MARGIN DETERMINED BY TPO ADJUSTMENT PROPOSED BY THE TPO (IN INR CRORES) CSD SERVICES OP/TC 7.71% 26.72% 128.51 TSS OP/OPERATING REVENUE (OR) 7.13% 19.49% 9.52 TOTAL 138.03 ITA NO. 6856/D/15 PAGE 4 OF 50 ALCATEL-LUCENT INDIA LTD. 5. IN RESPECT OF CSD SERVICES THE TP ADJUSTMENT PRO POSED BY THE TPO AMOUNTED TO RS. 1,28,51,47,579/- . THE TPO INCLUDE D 14 COMPANIES IN THE CSD SERVICES SEGMENT WHICH ARE AS PER THE FOLLOWING CHART: S.NO. COMPANY NAME OP/TC 1. ACROPETAL TECHNOLOGIES LIMITED (IT SEGMENT) 36.6 9% 2. AKSHAY SOFTWARE TECHNOLOGIES LIMITED 0.16% 3. E-INFOCHIPS LIMITED 56.44% 4. INFOSYS LIMITED 43.53% 5. LARSEN & TOUBRO INFOTECH LIMITED 18.40% 6. MINDTREE LIMITED (SEGMENT) 10.74% 7. PERSISTENT SYSTEMS AND SOLUTIONS LTD. (MERGED) 2 2.12% 8. PERSISTENT SYSTEMS LTD. 23.08% 9. R S SOFTWARE (INDIA) LTD. 16.20% 10. SANKHYA INFOTECH LIMITED (SEGMENTAL) 26.20% 11. SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.36% 12. TATA ELXSI LGTD. (SEGMENT) 13.00% 13. WIPRO TECHNOLOGIES LIMITED 54.42% 14. ZYLOG SYSTEMS LTD. 28.74% AVERAGE 26.72% 6. THE HONBLE DRP DIRECTED THE TPO TO EXCLUDE ACRO PETAL TECHNOLOGIES LTD. AND WIPRO TECHNOLOGIES LTD. FROM THE FINAL SET AND ALSO DIRECTED TO INCLUDE OCTANT INDUSTRIES LTD. IN THE FINAL SET OF COMPARABLES. HOWEVER, THE TPO FAILED TO EXCLUDE WIPRO TECHNOLOGIES LTD. FROM THE FINAL SET AND MADE A REVISED TRANSFER PRICING ADJUSTMENT OF RS. 111,47,8 5,326/- IN THE FINAL SET OF COMPANIES AS PER THE FOLLOWING TABLE: S.NO. COMPANY NAME OP/TC 1. OCTANT INDUSTRIES LIMITED 1.48% 2. AKSHAY SOFTWARE TECHNOLOGIES LIMITED 0.16% 3. E-INFOCHIPS LIMITED 56.44% 4. INFOSYS LIMITED 43.53% 5. LARSEN & TOUBRO INFOTECH LIMITED 18.40% 6. MINDTREE LIMITED (SEGMENT) 10.74% 7. PERSISTENT SYSTEMS AND SOLUTIONS LTD. (MERGED) 2 2.12% 8. PERSISTENT SYSTEMS LTD. 23.08% ITA NO. 6856/D/15 PAGE 5 OF 50 ALCATEL-LUCENT INDIA LTD. 9. R S SOFTWARE (INDIA) LTD. 16.20% 10. SANKHYA INFOTECH LIMITED (SEGMENTAL) 26.20% 11. SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.36% 12. TATA ELXSI LGTD. (SEGMENT) 13.00% 13. WIPRO TECHNOLOGIES LIMITED 54.42% 14. ZYLOG SYSTEMS LTD. 28.74% AVERAGE 24.20% 7. NOW, THE ASSESSEE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW: 1. THE ORDER PASSED BY THE LD. AO IS BAD IN LAW AND VO ID AB-INITIO. 2. THE REFERENCE MADE BY THE LD. AO SUFFERS FROM JURIS DICTIONAL ERROR AS THE LD. AO HAS NOT RECORDED ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONC LUSION THAT IT WAS EXPEDIENT AND NECESSARY TO REFER THE MATTE R TO THE LD. ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRI CING 1(3), NEW DELHI (LD. TPO) FOR COMPUTATION OF THE ARMS LENGTH PRICE (ALP), AS IS REQUIRED UNDER SECTION 92CA(1) OF THE ACT. 3. THE HONBLE DISPUTE RESOLUTION PANEL 1 (HONBLE DRP) HAS ERRED IN RELYING ON THE ORDER ISSUED BY THE LD. TPO /LD. AO HOLDING THAT THE APPELLANTS INTERNATIONAL TRANSACT IONS PERTAINING TO PROVISION OF CONTRACT SOFTWARE DEVELOPMENT (CSD ) AND TECHNICAL SUPPORT SERVICES (TSS) ENTERED INTO WIT H THE ASSOCIATED ENTERPRISES (AES) DO NOT SATISFY THE A RMS LENGTH PRINCIPLE AND UPHOLDING THE CONTENTIONS OF THE LD. TPO /AO AND THE TP ADJUSTMENTS MADE BY THE LD. TPO/AO AMOUNTING TO INR 1,11,47,85,326/- AND INR 9,51,65,037/- PERTAINING T O CSD ITA NO. 6856/D/15 PAGE 6 OF 50 ALCATEL-LUCENT INDIA LTD. SERVICES SEGMENT AND TSS SEGMENT, RESPECTIVELY AND IN DOING SO, HAS GROSSLY ERRED IN: 3.1 NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OU T IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRESENT CASE . 3.2 DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE CONTEMPORANEOUS TP DOCUMENTATION MAINTAINED BY IT I N TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE IN COME TAX RULES, 1962 (THE RULES) AS WELL AS THE FRESH SEAR CH RESULTS (SUBMITTED BY THE APPELLANT USING CURRENT YEAR DATA ON A WITHOUT PREJUDICE BASIS); AND IN PARTICULAR MODIFYING/REJEC TING THE QUANTITATIVE FILTERS APPLIED BY THE APPELLANT FOR B ENCHMARKING THE CSD SERVICES SEGMENT AND TSS SEGMENT; 3.3 DISREGARDING MULTIPLE YEAR/PRIOR YEARS DATA AS USE D BY THE APPELLANT IN THE CONTEMPORANEOUS TP DOCUMENTATION A ND HOLDING THAT CURRENT YEAR (I.E. FY 2010-11) DATA FO R COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION FOR THE CSD SERVICES SEGMENT AND T SS SEGMENT; 3.4 UPHOLDING THE INCORRECT APPROACH ADOPTED BY THE LD. TPO OF UNDERTAKING A FRESH COMPARABILITY ANALYSIS WITHOUT PROVIDING ANY BASIS FOR ADDITIONAL/REVISED FILTERS OR BY ADOPTING ECONOMICALLY AND COMMERCIALLY INAPPROPRIATE FILTERS WHILE DETERM INING THE ALP FOR THE APPELLANTS CSD SERVICES SEGMENT AND TS S SEGMENT. 3.5 INCORRECTLY EXCLUDING CERTAIN COMPANIES THAT WERE S ELECTED BY THE APPELLANT IN ITS TP DOCUMENTATION/FRESH SEARCH IN I TS CSD ITA NO. 6856/D/15 PAGE 7 OF 50 ALCATEL-LUCENT INDIA LTD. SERVICES SEGMENT AND TSS SEGMENT WHICH WERE FUNCTIO NALLY COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS P ERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED BY THE APPELLANT IN THE AFOREMENTIONED SEGMENTS. 3.6 INCORRECTLY INCLUDING CERTAIN COMPANIES THAT WERE P RIMARILY ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS THEREBY OWNING SIGNIFICANT INTANGIBLES OR ENGAGED IN DIVERSIFIED B USINESS OPERATIONS WITH NO SEGMENTAL INFORMATION AVAILABLE IN THEIR ANNUAL REPORTS AND/OR HAVING HIGHLY VOLATILE MARGIN S, IN THE FINAL COMPARABLE SET FOR DETERMINING THE ALP FOR THE APPE LLANTS CSD SERVICES SEGMENT. 3.7 INCORRECTLY INCLUDING CERTAIN COMPANIES THAT WERE P RIMARILY ENGAGED IN HIGH END CONSULTANCY AND ENGINEERING SER VICES, IN THE FINAL COMPARABLE SET FOR DETERMINING THE ALP FOR TH E APPELLANTS TSS SEGMENT; 3.8 ARBITRARILY INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL SET OF COMPANIES FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT IN ITS CSD SERVICES SEGMENT AND TS S SEGMENT WITHOUT ANALYZING THE CONTRASTING DIFFERENCE IN FUN CTIONS UNDERTAKEN, ASSETS EMPLOYED AND RISKS ASSUMED BY TH E SAID COMPANIES AS COMPARED TO THE APPELLANTS FUNCTIONAL PROFILE IN THE AFOREMENTIONED SEGMENTS, THUS DEMONSTRATING AND INTENTION TO ARRIVE AT A PRE-FORMULATED OPINION WITHOUT COMPL ETE AND ADEQUATE APPLICATION OF MIND WITH THE SINGLE-MINDED INTENTION OF MAKING ADDITIONS TO THE RETURNED INCOME OF THE APPE LLANT; ITA NO. 6856/D/15 PAGE 8 OF 50 ALCATEL-LUCENT INDIA LTD. 3.9 RESORTING TO ARBITRARY REJECTION OF LOW-PROFIT/LOSS MAKING COMPANIES IN THE CSD SERVICES SEGMENT AND TSS SEGME NT BASED ON ERRONEOUS AND INCONSISTENT REASONS; 3.10 DISREGARDING THE FACT THAT THE LD. TPO HAD ACCEPTED THE APPELLANTS COMPARABILITY ANALYSIS ADOPTED FOR BOTH CSD SERVICES SEGMENT AND TSS SEGMENT IN THE IMMEDIATE P RECEDING YEAR I.E. AY 2010-11 AND IN DOING SO, HAS ALSO SPEC IFICALLY ERRED IN: 3.10.1 DISREGARDING THE FACT THAT M/S INFOSYS LIMITED (SEL ECTED BY THE LD. TPO AS A COMPARABLE FOR BENCHMARKING THE APPELLANTS CSD SERVICES SEGMENT) HAS BEEN REJECTED BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI IN THE APPELLANTS OWN CASE IN AY 2006-07; 3.10.2 DISREGARDING THE FACT THAT M/S MAHINDRA CONSULTING ENGINEERS LIMITED (SELECTED BY THE LD. TPO AS A COM PARABLE FOR BENCHMARKING THE APPELLANTS TSS SEGMENT) HAS B EEN REJECTED BY THE HONBLE DRP IN THE APPELLANTS OWN CASE IN THE IMMEDIATE PRECEDING YEAR I.E. AY 2010-11; 3.11 REJECTING APPELLANTS CLAIM FOR A WORKING CAPITAL A ND RISK ADJUSTMENT IN THE CSD SERVICES SEGMENT AND TSS SEGM ENT WITHOUT PROVIDING ANY COGENT BASIS AND WITHOUT GIVI NG ANY CONSIDERATION TO THE FACT THAT THE CLAIM FOR WORKIN G CAPITAL ADJUSTMENT HAD BEEN ALLOWED BY THE HONBLE DRP IN T HE APPELLANTS CASE IN THE IMMEDIATE PRECEDING YEAR I. E. AY 2010- 11; ITA NO. 6856/D/15 PAGE 9 OF 50 ALCATEL-LUCENT INDIA LTD. 3.12 DISREGARDING THE CLAIM MADE BY THE APPELLANT (ON A WITHOUT PREJUDICE BASIS) REQUESTING FOR A PROPORTIONATE TP ADJUSTMENT UNDER THE TSS SEGMENT; AND 4. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AS WELL AS THE LD. TPO/AO HAVE ERRED IN DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UN DERTAKING THE AFOREMENTIONED TP ADJUSTMENTS. 5. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DIRECTIONS ISSUED BY THE HONBLE DRP ARE FLAWED AS THEY INCLUDE CERTAIN PRIMA-FACIE MISTAKES/ERRORS APPARENT FROM R ECORD FOR WHICH, THE APPELLANT HAS FILED A RECTIFICATION APPL ICATION U/S 154 OF THE ACT BEFORE THE HONBLE DRP AND THE SAME IS P ENDING ADJUDICATION. 6. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER ISSUED BY THE LD. TPO FOR GIVING EFFECT TO TH E DIRECTIONS OF THE HONBLE DRP IS INCOMPLETE FOR WHICH, THE APPELL ANT HAS FILED A RECTIFICATION APPLICATION U/S 154 OF THE ACT BEFO RE THE LD. TPO AS THE LD. TPO WHILE ISSUING THE AFOREMENTIONED ORD ER, HAS GROSSLY ERRED IN: 6.1 NOT COMPLETELY FOLLOWING THE DIRECTIONS OF THE HONBLE DRP WHEREIN IT HAD ISSUED SPECIFIC DIRECTIONS TO EXCLUD E M/S WIPRO TECHNOLOGIES LIMITED (SELECTED BY THE LD. TPO AS A COMPARABLE FOR BENCHMARKING THE APPELLANTS CSD SERVICES SEGME NT) AFTER VERIFYING THE APPELLANTS CLAIM THAT THE SAID COMPA NY NEITHER APPEARS IN THE TP DOCUMENTATION ACCEPT REJECT MAT RIX SUBMITTED BY THE APPELLANT BEFORE THE LD. TPO NOR I TS FINANCIAL ITA NO. 6856/D/15 PAGE 10 OF 50 ALCATEL-LUCENT INDIA LTD. DATA FOR THE CAPTIONED AY WAS AVAILABLE IN THE PUBL IC DOMAIN. HOWEVER, THE LD. TPO IN HIS ORDER ISSUED FOR GIVING EFFECT TO THE DIRECTIONS OF THE HONBLE DRP, HAS NOT DISCUSSED AN YTHING ABOUT THE SAID DIRECTION. 7. THAT ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY ADEQ UATE SATISFACTION FOR ITS INITIATION. CORPORATE TAX GROUNDS 1. THAT BASED ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO HAS ERRED IN HOLDING THAT LIQUIDATED DAM AGES OF INR 2,34,58,106/- PAID BY THE APPELLANT PURSUANT TO BRE ACH OF ITS CONTRACTUAL ARRANGEMENTS ARE PENAL IN NATURE AND AR E THUS, NOT ALLOWABLE U/S 37 OF THE ACT. 2. THAT THE LD. AO HAS ERRED ON FACTS AND CIRCUMSTANCE S OF THE CASE IN OBSERVING THAT THE APPELLANT HAS NOT PRODUCED ANY S UPPORTING DOCUMENTS/EVIDENCES AND COPIES OF AGREEMENTS IN SUP PORT OF CLAIM OF DEDUCTION OF LIQUIDATED DAMAGES. THE LD. AO DID NOT APPRECIATE THAT THE COPIES OF SUPPORTING DOCUMENTS/AGREEMENTS WERE ALREADY FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 3. THAT THE LD. AO HAS ERRED ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW IN SUMMARILY REJECTING THE APPELLAN TS ARGUMENTS AND NOT CONSIDERING THE BINDING JUDICIAL PRECEDENTS WHICH SQUARELY APPLIES TO THE FACTS OF THE APPELLANTS CASE. 4. THAT ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE ITA NO. 6856/D/15 PAGE 11 OF 50 ALCATEL-LUCENT INDIA LTD. ACT MECHANICALLY AND WITHOUT RECORDING ANY ADEQUATE SATISFACTION FOR ITS INITIATION. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DE LETE, RESCIND, FORGO OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL EITH ER BEFORE OR DURING THE HEARING BEFORE THE HONBLE TRIBUNAL. FU RTHER, THE AFORESAID GROUNDS ARE MUTUALLY EXCLUSIVE AND WITHOU T PREJUDICE TO EACH OTHER. 8. THE LD. AR, AT THE OUTSET SUBMITTED THAT GROUND NO. 5 REGARDING RECTIFICATION U/S 154 IS NO LONGER RELEVANT AS THE ASSESSEES RECTIFICATION APPLICATION HAS ALREADY BEEN DISPOSED OF. HENCE, T HIS GROUND IS DISMISSED AS BEING INFRUCTUOUS. 9. THE LD. AR SUBMITTED THAT IN EFFECT GROUND NOS. 3.5, 3.6, 3.7, 3.10.1, 3.10.12, 3.11, 3.12 AND 6 WILL BE ARGUED BEFORE THE BENCH. 10. ON GROUND NO. 3.5 THE LD. AR SUBMITTED THAT THE ASSESSEES CONTENTIONS IN RESPECT OF TP DOCUMENTATION COMPARABLE COMPANIES IN THE CSD SERVICES SEGMENT WHICH WERE INCORRECTLY REJECTED BY THE TPO ARE AS UNDER: 10.01 ALLIED DIGITAL SERVICES LTD . AS PER THE TPO THE SAID COMPARABLE FAILS THE EXPORT FILTER. HOWEVER, IT IS THE ASSESSEES C ONTENTION THAT FOR THE PURPOSE OF COMPARABILITY, IT IS ESSENTIAL TO CONSIDER THE F UNCTIONAL COMPARABILITY RATHER ITA NO. 6856/D/15 PAGE 12 OF 50 ALCATEL-LUCENT INDIA LTD. THAN THE CUSTOMERS GEOGRAPHICAL LOCATION. THE LD. AR SUBMITTED THAT THE USE OF THE FILTER IS OBJECTED TO ON THE GROUND THAT WHE THER THE TAX PAYER EARNS ITS REVENUE FROM THE DOMESTIC MARKET OR FROM THE OVERSE AS, ITS FUNCTION REMAINS THE SAME. THE LD. AR FURTHER SUBMITTED THAT A COMPANY PROVIDING SOFTW ARE SERVICES WILL CHARGE THE SAME RATE FROM A CLIENT THAT IS LOCATED IN INDI A OR OVERSEAS. THE LD. AR DREW OUR ATTENTION TO RULE 10B AND SUBMITTED THAT S INCE BY APPLYING THIS FILTER THE PROFITABILITY IS BEING MATERIALLY AFFECTED, THE SAME SHOULD NOT BE APPLIED. 10.02 HELIOS AND MATHESON INFORMATION TECHNOLOGIES LTD . AS PER THE TPO THIS COMPARABLE FAILS THE DIFFERENT FINANCIAL YEAR ENDING FILTER. HOWEVER, IT IS THE ASSESSEES CONTENTION THAT THE COMPANY FILES QU ARTERLY FINANCIAL STATEMENTS WITH THE STOCK EXCHANGE WHICH WERE AVAILABLE IN THE PUBLIC DOMAIN AND THE DETAILS FOR THE YEAR ENDING 31/03/2011 CAN BE OBTAI NED BY CONSOLIDATING THE QUARTERLY STATEMENTS. THE LD. AR SUBMITTED THAT TH E TPO HAS REJECTED THIS COMPARABLE ON THE GROUND THAT IT HAS A DIFFERENT YE AR ENDING. HOWEVER, THIS PROBLEM CAN BE OVERCOME BY APPORTIONING THE DATA FR OM PRECEDING OR SUBSEQUENT PERIOD SO AS TO MAKE THE DATA EQUIVALENT TO THE FINANCIAL YEAR AVAILABLE FOR COMPARISON WITH THE INTERNATIONAL TRA NSACTION. IT WAS FURTHER SUBMITTED THAT LISTED COMPANIES FILE QUARTERLY AUDI TED STATEMENTS AND HENCE, COLLECTION AND COMPILATION OF DATA WAS NOT AN IMPOS SIBLE TASK. ITA NO. 6856/D/15 PAGE 13 OF 50 ALCATEL-LUCENT INDIA LTD. 10.03 THE LD. AR SUBMITTED THAT THE ASSESSEE HAS CO NDUCTED A FRESH SEARCH BASED ON SINGLE YEAR DATA AND OTHER QUANTITATIVE FI LTERS FOR IDENTIFYING COMPARABLE COMPANIES ENGAGED IN PROVIDING SIMILAR C SD SERVICES AS RENDERED BY THE ASSESSEE WHICH WAS SUBMITTED BEFORE THE HONBLE DRP. HOWEVER, THE DRP HAS NOT ADJUDICATED ON THE ISSUE. HE DREW OUR ATTENTION TO ANNEXURE 1 TO THE SYNOPSIS WHICH CONTAINS THE SEARC H PROCESS ADOPTED FOR CONDUCTING A FRESH SEARCH USING FINANCIAL DATA FOR AY 2011-12. THE LD. AR SUBMITTED THAT BOTH THESE COMPARABLES MAY BE SENT B ACK TO THE TPO FOR VERIFYING THE EXPORT TURNOVER AS WELL AS THE QUARTE RLY DATA. 10.1 ON GROUND NO. 3.6 THE LD. AR ARGUED AT LENGTH ON THE DIFFERENT COMPARABLES BEING OBJECTED TO BY THE ASSESSEE AND T HE LD. CIT DR ALSO PUT FORTH HIS ARGUMENTS AND OBJECTIONS AS UNDER: (I) WIPRO TECHNOLOGIES LTD. THE LD. AR SUBMITTED THAT THE HONBLE DRP HAD DIRECTED THE TPO TO REJECT THE COMPARABLE F OR NON AVAILABILITY OF THE DATA BUT THE TPO FAILED TO GIVE EFFECT TO THE DIRECTIONS OF THE HONBLE DRP. THE LD. AR SUBMITTE D THAT WIPRO TECHNOLOGIES LTD. DOES NOT APPEAR IN THE TP DOCUMEN TATION ACCEPT REJECT MATRIX SUBMITTED BY THE ASSESSEE VI DE ITS SUBMISSION DATED 29/09/2014. IT WAS FURTHER SUBMIT TED THAT THE ITA NO. 6856/D/15 PAGE 14 OF 50 ALCATEL-LUCENT INDIA LTD. FINANCIAL DETAILS OF THE COMPANY WERE ALSO NOT AVAI LABLE IN THE PUBLIC DOMAIN. THE LD. CIT DR RELIED ON THE ORDER OF THE AUTHORIT IES BELOW ON THIS COMPARABLE. (II) E-INFOCHIPS LTD. THE LD. AR SUBMITTED THAT THE TPO IS OF THE VIEW THAT THE ACTIVITIES OF THIS COMPANY ARE FUNCTI ONALLY SIMILAR TO THE ASSESSEES CSD SERVICES. HOWEVER, E-INFOCHIPS IS ENGAGED IN DIVERSIFIED SERVICES LIKE IT ENABLED SERVICES, DEVE LOPMENT OF SOFTWARE PRODUCTS AND SOLUTIONS FOR PRODUCT DESIGN AND DEVELOPMENT, QUALITY ASSISTANCE AND CERTIFICATION, REENGINEERING, SUSTENANCE AND VOLUME PRODUCTION, SOFTWARE CONSULTI NG AND MANUFACTURING EVM AND VDB ELECTRONIC BOARD ETC. TH E LD. AR FURTHER SUBMITTED THAT THE SCHEDULE PERTAINING TO T HE INCOME STATEMENT OF E-INFOCHIPS FOR AY 2011-12 SHOWS THAT THE COMPANY HAS A VARIED REVENUE MIX I.E. IT EARNS REVENUE FROM SOFTWARE DEVELOPMENT, HARDWARE MAINTENANCE AND INFORMATION TECHNOLOGY CONSULTANCY SERVICES. IT WAS FURTHER SU BMITTED THAT NO SEGMENTAL INFORMATION WAS AVAILABLE IN THE ANNUA L REPORT OF THE COMPANY AS REGARDS THE REVENUE FROM SALE OF PRODUCT S AND ITA NO. 6856/D/15 PAGE 15 OF 50 ALCATEL-LUCENT INDIA LTD. REVENUE FROM SOFTWARE DEVELOPMENTS AND HENCE, ONE C ANNOT BE DEDUCE REVENUE FROM SOFTWARE SERVICES AND THE IMPAC T OF THE REVENUE FROM THE SOFTWARE PRODUCTS ON OVERALL PROFI T FROM THE COMMON POOL OF INCOME FROM BOTH THE STREAMS OF SOFT WARE PRODUCTS AND SOFTWARE SERVICES. THE LD. AR ALSO SU BMITTED THAT DURING THE RELEVANT ASSESSMENT YEAR E-INFOCHIPS HAD A SIGNIFICANT AMP/SALES RATIO OF 15.74% WHEREAS THE ASSESSEE COMP ANY DID NOT UNDERTAKE ANY AMP EXPENDITURE. THE LD. AR ALSO SUBMITTED THAT E-INFOCHIPS HAD AN ABNORMAL GROWTH RATE OF 96% AND ALSO A VOLATILE OP/TC MARGIN TREND WHICH COULD BE ATTRIBUT ED TO THE FACT THAT E-INFOCHIPS WAS PRE-DOMINANTLY A CONSULTING AN D ENGINEERING COMPANY WITH A STRONG FOCUS ON PROVIDING HIGH AND C ONSULTING SERVICES. THE LD. AR ALSO SUBMITTED THAT OVER THE PAST THREE YEARS INCLUDING AY 2011-12, THERE HAS BEEN AN INCREASED F OCUS BY E- INFOCHIPS ON RENDERING CONSULTING SERVICES. THE LD . AR RELIED ON THE DECISION RENDERED BY THE ITAT DELHI BENCH IN SA XO INDIA PRIVATE LIMITED (ITA NO. 6148/DEL/2015), WHEREIN TH E ITAT DELHI BENCH HAS HELD THAT E-INFOCHIPS IS TO BE REJE CTED AS A COMPARABLE ON THE GROUND THAT IT EARNS INCOME FROM SOFTWARE PRODUCTS AND SERVICES AND NO SEGMENTAL DATA IS AVAI LABLE. FOR THE ITA NO. 6856/D/15 PAGE 16 OF 50 ALCATEL-LUCENT INDIA LTD. PROPOSITION THAT NON AVAILABILITY OF SEGMENTAL INFO RMATION IN CASE OF DIVERSIFIED OPERATIONS RENDERS A COMPANY NOT COM PARABLE, THE LD. AR RELIED ON THE FOLLOWING DECISIONS TELCORDI A TECHNOLOGIES INDIA P. LTD. (ITA NO. 7821/MUM/2011), TRILOGY E-BU SINESS SOFTWARE INDIA PVT. LTD. VS. DCIT (ITA NO. 1054/BAN G/2011), TRANSWITCH INDIA P. LTD. VS. DCIT [ITA NO. 948/BANG /2011, TS- 105-ITAT-2012(BANG)-TP], FIRST ADVANTAGE OFFSHORE S ERVICES PVT. LTD. (ITA NO. 1252(BANG)/2010), CSR INDIA (P) LTD. VS. ITO [IT(TP)A (REFERENCE NO. NO. 1119/BANG/2011)], INTOT O SOFTWARE INDIA PVT. LIMITED, HYDERABAD (ITA NO. 233 OF 2014) . THE LD. AR RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. IN ITA NO. 233 OF 2014 FOR THE PREPOSITION THAT SOFTWARE PRODUCT COMPANIES OWNING INTANGIBLES CANNOT BE COMP ARED WITH A SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE LD. AR ALSO RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF RAMPGREEN SOLUTIONS P. LTD. IN ITA NO. 102/2015 FOR THE PREPOSITION THAT FUNCTIONALLY DIFFERENT COMPANY CAN NOT BE CONSIDERED AS COMPARABLE COMPANY. ITA NO. 6856/D/15 PAGE 17 OF 50 ALCATEL-LUCENT INDIA LTD. THE LD. CIT DR SUBMITTED THAT ON THE FACTS OF THE A SSESSEES CASE THE DECISION RELIED UPON BY THE ASSESSEE IN THE CAS E OF SAXCO INDIA PVT. LIMITED (SUPRA) WAS NOT APPLICABLE AS EVEN IN E-INFOCHIPS THERE IS NO PRODUCT AND THE COMPANY PRIMARILY DEALT IN PROVISION OF SERVICES AND HENCE, THE COMPANY WAS A GOOD COMPA RABLE. (III) INFOSYS LIMITED THE LD. AR SUBMITTED THAT THE TPO HAS HELD THAT INFOSYS IS AN INDEPENDENT COMPANY AND IS EXPECTED T O COME UP WITH SOFTWARE DEVELOPMENT VENTURES THAT IT CAN MARKET TO INDEPENDENT CLIENTS WHICH DOES NOT SHAKE ITS CLASSIFICATION AS A SOFTWARE SERVICE PROVIDER. THE LD. AR SUBMITTED THAT INFOSYS IS ENG AGED IN PROVIDING SOFTWARE CONSULTING AND PRODUCTS, APPLICATION DESIG N, DEVELOPMENT, REENGINEERING AND MAINTENANCE, SYSTEM INTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION AND BUSINESS PROCESS MANAGEMENT ETC. THE LD. AR ALSO SUBMITTED THAT INFOSYS HAD A SIGNIFICANT TURNOVER OF RS. 25385 CRORES WHICH WAS APPROXIMATEL Y 35 TIMES THE ASSESSEES TURNOVER OF RS. 728 CRORES. IT WAS FURT HER SUBMITTED THAT INFOSYS DEVELOPED/OWNS PROPRIETARY PRODUCTS LIKE FI NACLE, INFOSYS ACTICE DESK, INFOSYS IPROWE AND INFOSYS MCONNECT AN D OWNS SIGNIFICANT INTANGIBLES. IT WAS FURTHER SUBMITTED THAT INFOSYS HAD SIGNIFICANT R&D EXPENDITURE OF RS. 527 CRORES AND A DVERTISING/SALES ITA NO. 6856/D/15 PAGE 18 OF 50 ALCATEL-LUCENT INDIA LTD. PROMOTION AND BRAND BUILDING EXPENDITURE OF RS. 84 CRORES, WHEREAS THE ASSESSEE DOES NOT UNDERTAKE ANY R&D AND AMP EXP ENDITURE. THE LD. AR ALSO SUBMITTED THAT INFOSYS HAS BEEN REJ ECTED AS A COMPARABLE BY THE ITAT IN THE CASE OF ASSESSEES PR EDECESSOR COMPANY ALCATEL LUCENT TECHNOLOGIES INDIA P. LTD. FOR AY 2003- 04 AND 2004-05. THE LD. AR ALSO RELIED ON THE FOLL OWING DECISIONS FOR THE PREPOSITION THAT COMPANIES WITH HIGH TURNOV ER HAVE TO BE REJECTED DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S AGNITY INDIA TECHNOLOGIES P. LTD. (ITA NO. 1204 /2011), AGNITY INDIA TECHNOLOGIES VS. INCOME-TAX OFFICER- ITA NO. 3856(DEL)/2010, TELCORDIA (SUPRA), SONATA SOFTWARE LIMITED (ITA NO. 3514/MUM/2010), MERITOR LVS INDIA (P) LIMITED, ITA NO. 405 & 523/B/11 ITAT BANGALORE, CAPITAL IQ INFORMATION S YSTEMS (INDIA) PVT. LIMITED ITA NO. 1961/HYD./2011. THE LD. CIT DR SUBMITTED THAT SEGMENTAL DATA WAS AV AILABLE IN THE CASE OF INFOSYS AND IT WAS ALSO FUNCTIONALLY SIMILA R TO THE ASSESSEE COMPANY AND HENCE, IT WAS AN ACCEPTABLE COMPARABLE. (IV) LARSEN AND TURBRO INFOTECH LTD. THE LD. AR SUBMITTED THAT THE TPO HAS HELD THAT THE COMPANY IS DOMINANTLY WORKING IN SOFTWARE ITA NO. 6856/D/15 PAGE 19 OF 50 ALCATEL-LUCENT INDIA LTD. DEVELOPMENT ACTIVITIES. THE LD. AR SUBMITTED THAT L&T OPERATES IN SOFTWARE DEVELOPMENT SERVICES AND EARNS REVENUE FRO M LICENSING OF PRODUCTS AS WOULD BE EVIDENT FROM THE PROFIT AND LO SS ACCOUNT OF THE ANNUAL REPORT. THE LD. AR ALSO POINTED OUT THAT TH E ANNUAL REPORT SHOWS THAT L&T INCURRED COST IN BUYING ITEMS FOR RE SALE AMOUNTING TO RS. 25.55 CRORES THIS YEAR WHICH IS A SIGNIFICAN T VALUE. THE LD. AR ALSO DREW ATTENTION TO THE FIXED ASSETS SCHEDULE AS CONTAINED IN THE ANNUAL REPORT AND POINTED OUT THAT THE COMPANY OWN SIGNIFICANT INTANGIBLES. THE LD. AR RELIED ON THE DECISION OF THE ITAT DELHI BENCH IN SAXO INDIA P. LTD. (ITA NO. 6148/DEL/2015) , WHEREIN THE ITAT HAS HELD THAT L&T CANNOT BE TAKEN AS A COMPARA BLE TO A SOFTWARE DEVELOPMENT COMPANY. THE LD. AR ALSO RELI ED ON THE DECISION OF THE HONBLE HIGH COURT OF ANDHRA PRADES H IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO. 233 OF 2014), WHEREIN IT HAS BEEN HELD THAT SOFTWARE PRODU CT COMPANIES OWNING INTANGIBLES COULD NOT BE COMPARED WITH THE S OFTWARE DEVELOPMENT SERVICES PROVIDER. THE LD. AR DREW ATT ENTION TO THE ANNUAL REPORT OF L&T, WHEREIN IT HAS BEEN MENTIONED THAT IT IS THE COMPANYS STRATEGY TO LEVERAGE ON THE WELL KNOWN L& T BRAND AND CREATE A MARKET INTANGIBLE OF ITS OWN. FOR THE PRO POSITION THAT NON ITA NO. 6856/D/15 PAGE 20 OF 50 ALCATEL-LUCENT INDIA LTD. AVAILABILITY OF SEGMENTAL INFORMATION IN CASE OF DI VERSIFIED OPERATIONS RENDERS A COMPANY NOT COMPARABLE, THE LD. AR RELIED ON THE FOLLOWING DECISIONS TELCORDIA TECHNOLOGIES INDIA P. LTD. (ITA NO. 7821/MUM/2011), TRILOGY E-BUSINESS SOFTWARE INDIA P VT. LTD. VS. DCIT (ITA NO. 1054/BANG/2011), TRANSWITCH INDIA P. LTD. VS. DCIT [ITA NO. 948/BANG/2011, TS-105-ITAT-2012(BANG)-TP], FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. (ITA NO. 1252 (BANG)/2010), CSR INDIA (P) LTD. VS. ITO [IT(TP)A (REFERENCE NO. NO. 1119/BANG/2011)], INTOTO SOFTWARE INDIA PVT. LIMITE D, HYDERABAD (ITA NO. 233 OF 2014). THE LD. CIT DR SUBMITTED THAT L&T ALSO DEALS ONLY I N SERVICES AND THERE WERE NO PRODUCTS AND THE IMPACT OF ACQUISITIO N ON THE MARGINS IS ONLY MINISCULE AND HENCE, THE COMPANY CANNOT BE REJECTED AS A COMPARABLE. (V) PERSISTENT SYSTEMS AND SOLUTIONS LIMITED THE LD. AR SUBMITTED THAT PERSISTENT SYSTEMS AND SOLUTIONS LIMITED IS A WHOLLY OWNED SUBSIDIARY OF PERSISTENT SYSTEMS LTD.. THIS COMPAN Y IS ENGAGED IN DIVERSIFIED SERVICES SUCH AS SOFTWARE CONSULTANCY, SOFTWARE PRODUCT DEVELOPMENT AND SYSTEM INTEGRATION SERVICES UNLIKE THE ASSESSEE WHO ITA NO. 6856/D/15 PAGE 21 OF 50 ALCATEL-LUCENT INDIA LTD. IS ONLY INVOLVED IN CSD ACTIVITIES. IT WAS FURTHER SUBMITTED THAT THIS COMPANY IS A PART OF SPECIAL ECONOMIC ZONE AND IS E NTITLED TO VARIOUS INCENTIVES PROVIDED BY THE GOVERNMENT. IT WAS ALSO SUBMITTED THAT SEGMENTAL ACCOUNTS IN RESPECT OF VAR IOUS SEGMENTS HAVE NOT BEEN DISCLOSED IN THE ACCOUNTS/ANNUAL REPO RT OF THIS COMPANY, WHEREIN THE REVENUES AND EXPENSES HAVE BEE N PRESENTED IN A CONSOLIDATED FORM. THE LD. AR ALSO REFERRED TO N OTES ON ACCOUNTS FOR REVENUE RECOGNITION AND SUBMITTED THAT THIS COM PANY IS ENGAGED IN (A) SOFTWARE DEVELOPMENT, (B) LICENSING OF PRODU CTS, (C ) SALE OF SOFTWARE PRODUCTS AND (D) MAINTENANCE CONTRACTS. T HE LD. AR ALSO RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO. 233 OF 2014), WHEREIN IT HAS BEEN HELD THA T SOFTWARE PRODUCT COMPANIES OWNING INTANGIBLES COULD NOT BE C OMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE LD. CIT DR SUBMITTED THAT IN THIS CASE IN THE A NNUAL REPORT/NOTES ON ACCOUNTS IT HAS BEEN MENTIONED THAT REVENUE IS R EALIZED FROM PRODUCTS AND SERVICES, WHEREAS THE INCOME SCHEDULE DOES NOT REFLECT ANY REVENUE FROM PRODUCTS AND HENCE, IT CAN BE SAFE LY ASSUME THAT ITA NO. 6856/D/15 PAGE 22 OF 50 ALCATEL-LUCENT INDIA LTD. THIS COMPANY DOES NOT HAVE ANY REVENUE FROM PRODUCT AND AS SUCH, THIS COMPANY IS IN ACCEPTABLE COMPARABLE. (VI) PERSISTENT SYSTEMS LIMITED THE LD. AR SUBMITTED THAT THE TPO HAS OBSERVED THAT THIS COMPANYS INCOME FROM SALE OF SO FTWARE PRODUCTS IS ONLY 8.8% OF THE TOTAL REVENUE. THE LD. AR SUBM ITTED THAT THIS COMPANY IS ENGAGED INTO DIVERSIFIED SERVICES INCLUD ING INTELLECTUAL PROPERTY LED SOFTWARE SOLUTIONS AND SOFTWARE PRODUC TS FOCUSING ON CLOUD COMPUTING, BUSINESS INTELLIGENCE AND ANALYTIC S ETC. AND OWNS SIGNIFICANT INTANGIBLES. THE LD. AR REFERRED TO TH E PROFIT AND LOSS ACCOUNT OF THE COMPANY AND SUBMITTED THAT IT SHOWS THAT THE COMPANY HAD REVENUE STREAMS FROM SOFTWARE SERVICES AND PROD UCTS. HE FURTHER POINTED OUT THAT THE REVENUES AND EXPENSES HAVE BEE N SHOWN IN A CONSOLIDATED MANNER AND NO SEGMENTED DISCLOSURE HAS BEEN MADE. HE FURTHER POINTED OUT TO THE RELEVANT PAGES IN THE ANNUAL REPORT, WHEREIN IT HAS BEEN STATED THAT THIS COMPANY HAS AC QUIRED OWNERSHIP OF INTANGIBLES OF AROUND 50 CRORES. THE LD. AR SUB MITTED THAT SINCE THE COMPANY IS ENGAGED BOTH IN RENDERING SOFTWARE D EVELOPMENT SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS, IN A BSENCE OF SEGMENTAL DETAILS, THIS COMPANY COULD NOT BE SELECTED AS A CO MPARABLE. THE LD. AR ALSO SUBMITTED THAT THIS COMPANY HAS MADE SIGNIF ICANT ITA NO. 6856/D/15 PAGE 23 OF 50 ALCATEL-LUCENT INDIA LTD. ACQUISITIONS DURING THE YEAR THEREBY FAILING TPOS PECULIAR ECONOMIC CIRCUMSTANCES FILTER. THE LD. AR SUBMITTED THAT TH IS COMPANY HAS BEEN REJECTED ON THE GROUND THAT IT EARNS INCOME FR OM SOFTWARE PRODUCTS AND SERVICES AND THAT NO SEGMENTAL DATA IS AVAILABLE IN THE FOLLOWING CASES SAXO INDIA PRIVATE LIMITED (ITA N O. 6148/DEL/2015), CIENA INDIA PVT. LTD. (ITA NO. 3324 /DEL/2013), PLANET ONLINE PVT. LTD. (ITA NO. 464 AND 608/HYD./2 014), 3D PLM SOFTWARE SOLUTIONS LTD. (ITA NO. 1303/BANG/2012). T HE LD. AR ALSO RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO. 233 OF 2014), WHEREIN IT HAS BEEN HELD THA T SOFTWARE PRODUCT COMPANIES OWNING INTANGIBLES COULD NOT BE C OMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE LD. AR ALSO SUBMITTED THAT COMPANIES FACING AN EXTRA ORDINARY E VENT, HAVING VOLATILE MARGINS AND HAVING NO SEGMENTAL INFORMATIO N CANNOT BE SELECTED AS A COMPARABLE. HE RELIED ON THE FOLLOWI NG DECISIONS IN SUPPORT OF HIS ARGUMENT ZAVATA INDIA PRIVATE LIMI TED, HYDERBAD VS. DCIT (ITA NO. 1781/HYD./2011), SYMPHONY MARKETING S OLUTIONS INDIA PVT. LTD. VS. ITO (ITA NO. 1316/BANG/2012), N TT DATA INDIA ENTERPRISE VS. ACIT (ITA NO. 1612/HYD./2010), CAPIT AL IQ ITA NO. 6856/D/15 PAGE 24 OF 50 ALCATEL-LUCENT INDIA LTD. INFORMATION SYSTEMS (INDIA) PVT. LTD. VS. DCIT (ITA NO. 1961/HYD./2011), PETRO ARALDITE PRIVATE LIMITED VS. DCIT (ITA NO. 6217/MUM/2012). THE LD. CIT DR SUBMITTED THAT FROM THE PERUSAL OF T HE ANNUAL REPORT REVENUE FROM PRODUCT IS NOT EVIDENT AND HENCE, THE COMPANY SHOULD REMAIN IN THE LIST OF COMPARABLES. THE LD. CIT DR FURTHER SUBMITTED THAT IN THIS CASE THE IP IS RELATED TO SERVICES ONL Y AND SIMPLY ON THE BASIS OF STATEMENT IN THE ANNUAL REPORT A COMPANY S HOULD NOT BE DISCARDED AS A COMPARABLE. (VII) SANKHYA INFOTECH LIMITED(SERVICE SEGMENT) THE LD. AR SUBMITTED THAT IT IS THE TPOS OBSERVATION THAT SEGMENTAL DAT A IN THE ANNUAL REPORT DULY PROVIDES RESULTS OF OPERATIONS FROM SER VICES. THE LD. AR SUBMITTED THAT THIS COMPANY IS A LEADING SIMULATION AND TRAINING SOLUTIONS PROVIDER WHICH PROVIDES END TO END SIMULA TION SOLUTIONS. HE FURTHER SUBMITTED THAT THIS COMPANY ALSO DEVELOP S CUSTOMIZABLE PRODUCTS FOR TRAINING PURPOSES. HE ALSO SUBMITTED THAT THIS COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS LIKE SILICON THEREBY OWNING SIGNIFICANT INTANGIBLES. HE POINTED OUT TO THE FIXED ASSET SCHEDULE IN THE ANNUAL REPORT AND SUBMITTED THAT TH IS COMPANY OWNS ITA NO. 6856/D/15 PAGE 25 OF 50 ALCATEL-LUCENT INDIA LTD. VARIOUS SOFTWARE PRODUCTS LIKE LEARNING MANAGEMENT PRODUCTS, TRAINING MANAGEMENT PRODUCTS, SIMULATOR PRODUCTS, K NOWLEDGE BASED CONTENT, OPTIMIZATION PRODUCTS, ETC. HE FURTHER SU BMITTED THAT THE SCHEDULE PERTAINING TO SEGMENT REPORTING IN THE ANN UAL REPORT, TO WHICH THE TPO HAS ALSO REFERRED TO, IS INCOMPLETE B ECAUSE DEPRECIATION AND INTEREST HAVE NOT BEEN SPECIFICALL Y ALLOCATED TO ANY SPECIFIC SEGMENT AS THE UNDERLINE SERVICES ARE USED INTERCHANGEABLY. THUS, THIS SEGMENTAL INFORMATION IS INCOMPLETE AND CANNOT BE CONSIDERED FOR COMPARABILITY PURPOSES. THE LD. AR FURTHER SUBMITTED THAT THIS COMPANY HAD A SIGNIFICANT R&D E XPENDITURE OF 7.5% AND AMP EXPENDITURE OF 5.15% AND ALSO HAD A VO LATILE OP/TC MARGIN. THE LD. AR FURTHER SUBMITTED THAT SANKHYA INFOTECH LIMITED HAS BEEN REJECTED ON THE GROUND THAT IT OWN S SOFTWARE PRODUCTS IN THE FOLLOWING CASES COLT TECHNOLOGY S ERVICES INDIA PRIVATE LIMITED [(TS-774-ITAT-2012(DEL)], INTEGRATE D DECISIONS & SYSTEMS INDIA (PRIVATE) LIMITED [(TS-629-ITAT-2011( JPR)], NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PRIVATE LIMITED [IT-293- ITAT-2013(HYD-TP), ADAPTECH INDIA (PRIVATE) LIMITED (ITA NO. 481/HYD./2011), SUNQUEST INFORMATION SYSTEMS (TS-29 9-ITAT- 2015(BANG)-TP). FOR THE PROPOSITION THAT NON AVAIL ABILITY OF ITA NO. 6856/D/15 PAGE 26 OF 50 ALCATEL-LUCENT INDIA LTD. SEGMENTAL INFORMATION IN CASE OF DIVERSIFIED OPERAT IONS RENDERS A COMPANY NOT COMPARABLE, THE LD. AR RELIED ON THE FO LLOWING DECISIONS TELCORDIA TECHNOLOGIES INDIA P. LTD. (I TA NO. 7821/MUM/2011), TRILOGY E-BUSINESS SOFTWARE INDIA P VT. LTD. VS. DCIT (ITA NO. 1054/BANG/2011), TRANSWITCH INDIA P. LTD. VS. DCIT [ITA NO. 948/BANG/2011, TS-105-ITAT-2012(BANG)-TP], FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. (ITA NO. 1252 (BANG)/2010), CSR INDIA (P) LTD. VS. ITO [IT(TP)A (REFERENCE NO. NO. 1119/BANG/2011)], INTOTO SOFTWARE INDIA PVT. LIMITE D, HYDERABAD (ITA NO. 233 OF 2014). THE LD. CIT DR SUBMITTED THAT THE ASSESSEE CANNOT B E GIVEN THE LIBERTY TO PICK AND CHOOSE CASE LAWS AND RELIANCE S HOULD BE PLACED ON ANNUAL REPORTS RATHER THAN JUDICIAL PRECEDENTS WHER E THE ANNUAL REPORTS GIVE SEGMENTAL DATA. HE SUBMITTED THAT IN THIS CASE THE SEGMENTAL DATA WAS VERY MUCH AVAILABLE IN THE ANNUA L REPORT AND THE SAME SHOULD NOT BE IGNORED AND ACCORDINGLY, THIS CO MPANY CANNOT BE REJECTED AS A COMPARABLE. (VIII) SASKEN COMMUNICATION TECHNOLOGIES LIMITED THE LD. AR SUBMITTED THAT THE TPO HAS CONTENDED THAT THIS COMP ANYS INCOME ITA NO. 6856/D/15 PAGE 27 OF 50 ALCATEL-LUCENT INDIA LTD. FROM SALE OF SOFTWARE PRODUCTS IS ONLY 9.4% OF THE TOTAL REVENUE. HOWEVER, IN ABSENCE OF ANY SEGMENTAL DETAILS PERTAI NING TO THE CORRESPONDING COSTS, SASKEN SHOULD NOT HAVE BEEN SE LECTED AS A COMPARABLE. LD. AR FURTHER SUBMITTED THAT THIS COM PANY IS A PROVIDER OF TELE COMMUNICATION SOFTWARE SERVICES AN D SOLUTIONS TO NETWORK EQUIPMENT MANUFACTURERS, MOBILE TERMINAL VE NDORS AND SEMI-CONDUCTOR COMPANIES. THE COMPANY ALSO DELIVER S HIGH END TO END IT SOLUTIONS AND PROVIDES FULL PHONE INTEGRATIO N, IP LED OFFERINGS IN MULTI MEDIA AND OFFERINGS FOR THE ANDROID MARKET S. THIS COMPANY ALSO PARTNERS WITH SEMI CONDUCTOR COMPANIES TO PROV IDE TURN KEY AND END TO END SOLUTIONS RANGING FROM CHIP DESIGN TO OT HER SERVICES. THE LD. AR DREW OUR ATTENTION TO THE ANNUAL REPORT AND POINTED OUT THAT THE ENTITY LEVEL FIGURES OF THE COMPANY CONTAIN REV ENUE FROM BOTH SOFTWARE SERVICES AS WELL AS SOFTWARE PRODUCTS, WHE REAS THE ASSESSEE ONLY PROVIDES SOFTWARE SERVICES. THE LD. AR FURTHE R POINTED OUT THAT THE BREAK UP OF REVENUE BETWEEN THE TWO SEGMENTS IS ALTHOUGH AVAILABLE IN THE ANNUAL REPORT BUT DETAILS REGARDIN G EXPENDITURE AND PROFITABILITY OF THE TWO SEGMENTS HAVE NOT BEEN DIS CLOSED. THE LD. AR ALSO POINTED OUT THAT THIS COMPANY OWNS SIGNIFIC ANT INTANGIBLES AND ALSO HAS A VOLATILE OP/TC MARGIN. THE LD. AR F URTHER SUBMITTED ITA NO. 6856/D/15 PAGE 28 OF 50 ALCATEL-LUCENT INDIA LTD. THAT SASKEN HAS BEEN REJECTED ON THE GROUND THAT IT OWNED IPRS AND HAS BRANDED PRODUCTS IN THE FOLLOWING CASES FREES CALE SEMICONDUCTOR INDIA PRIVATE LIMITED (ITA NO. 5865/D EL/2012), MOTOROLA SOLUTIONS INDIA PRIVATE LIMITED (ITA NO. 5 637/DEL/2011). THE LD. CIT DR SUBMITTED THAT IN THIS CASE ALSO THE SEGMENTAL DATA WAS VERY MUCH AVAILABLE AND THE TPO HAS ERRED IN TA KING THE DATA AT ENTITY LEVEL. (IX) ZYLOG SYSTEMS LIMITED THE LD. AR SUBMITTED THAT THE TPO HAS OBSERVED THAT AS PER THE ANNUAL REPORT OF THE COMPA NY THIS COMPANY PASSES THE SERVICE INCOME FILTER AND HENCE, CAN BE USED AS A COMPARABLE. THE LD. AR FURTHER SUBMITTED THAT THIS COMPANY DERIVES REVENUE FROM CONSULTANCY SERVICES, PROJECT AND E GO VERNANCE PROJECTS WITH A FOCUS ON SOFTWARE DEVELOPMENT, SOLU TIONS AND MOBILE TECHNOLOGIES. IT WAS FURTHER SUBMITTED THAT THIS C OMPANYS PRODUCTS AND SOLUTIONS SEGMENT COVERS THE LICENSE FEE FOR PA RTICULAR CUSTOMIZED SOLUTIONS PROVIDED TOGETHER WITH THE NEC ESSARY INTEGRATION WORK CARRIED OUT. THE LD. AR FURTHER S UBMITTED THAT THIS SEGMENT TYPICALLY CARRIES SUPERIOR PROFIT MARGIN ON ACCOUNT OF LEVEL OF INNOVATION, DESIGN WORK, CUSTOMIZATION, ETC. TH US, IT IS ITA NO. 6856/D/15 PAGE 29 OF 50 ALCATEL-LUCENT INDIA LTD. ABUNDANTLY CLEAR THAT ZYLOG HAS IN -HOUSE DEVELOPED INTANGIBLES THEREBY RENDERING ITS BUSINESS MODEL COMPLETELY DIF FERENT FROM THAT OF THE ASSESSEE. THE LD. AR FURTHER POINTED OUT TO THE ANNUAL REPORT AND SUBMITTED THAT THE SAME SHOWS CONSOLIDATED REVE NUES AND EXPENSES OF SOFTWARE SERVICES AND PRODUCTS. THE LD . AR FURTHER SUBMITTED THAT SIGNIFICANT INTANGIBLE IS OWNED BY T HE COMPANY AS WOULD BE EVIDENT FROM THE FIXED ASSET SCHEDULE AS A PPEARING IN THE ANNUAL REPORT. IT WAS ALSO SUBMITTED THAT THE COMP ANY HAD MADE ACQUISITIONS DURING THE YEAR AS WOULD BE EVIDENT FR OM THE ANNUAL REPORT. THE LD. AR FURTHER SUBMITTED THAT THIS COM PANY HAS SIGNIFICANT R&D ACTIVITIES AND ALSO A SIGNIFICANT A MP EXPENDITURE OF 5.28%. THE LD. AR POINTED OUT TO THE FIXED ASSET S CHEDULE AND SUBMITTED THAT IT INCLUDES PRODUCT DEVELOPMENT COST S AMOUNTING TO 18.75 CRORES (AT NET BOOK VALUE) AND HENCE, THIS GO ES ON TO PROVE THE FACT THAT THIS COMPANY IS A SOFTWARE PRODUCT DEVELO PMENT COMPANY. THE LD. AR FURTHER SUBMITTED THAT THIS COMPANY HAD A VOLATILE OP/TC MARGIN TREND. THE LD. AR ALSO SUBMITTED THAT ZYLOG HAS BEEN CONSIDERED AS INCOMPARABLE IN SAXO INDIA PRIVATE LI MITED (ITA NO. 6148/DEL/2015). THE LD. AR ALSO RELIED ON THE DEC ISION OF THE HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT II ITA NO. 6856/D/15 PAGE 30 OF 50 ALCATEL-LUCENT INDIA LTD. HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO . 233 OF 2014), WHEREIN IT HAS BEEN HELD THAT SOFTWARE PRODUCT COMP ANIES OWNING INTANGIBLES COULD NOT BE COMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE LD. AR ALSO RELIED ON THE D ECISION OF THE HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO . 233 OF 2014), WHEREIN IT HAS BEEN HELD THAT SOFTWARE PRODUCT COMP ANIES OWNING INTANGIBLES COULD NOT BE COMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE LD. CIT DR SUBMITTED THAT IN THIS CASE IT IS VE RY MUCH EVIDENT THAT THERE IS NO REVENUE FROM PRODUCTS AND THE ENTI RE REVENUE WAS FROM PROVISION OF SERVICES. THE LD. DR EMPHASIZED THAT SUBSTANCE SHOULD PREVAIL OVER FORM. HE POINTED OUT THAT THE PRODUCT DEVELOPMENT COST COULD RELATE TO E GOVERNANCE PROJE CTS AND HENCE, FOR THAT REASON ONLY, THE COMPANY CANNOT BE EXCLUDE D AS A COMPARABLE. FURTHER SUBMITTED THAT THE ACQUISITION DOES NOT HAVE ANY EFFECT ON PROFITS AND HENCE, THIS ALSO CANNOT BE A REASON FOR EXCLUSION FROM THE LIST OF COMPARABLES. 10.2 ON GROUND NO. 3.11, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD CLAIMED WORKING CAPITAL ADJUSTMENT IN THE TRANSFER PRICING STUDY AND THE CALCULATIONS ITA NO. 6856/D/15 PAGE 31 OF 50 ALCATEL-LUCENT INDIA LTD. THEREOF WERE SUBMITTED BOTH BEFORE THE TPO AS WELL AS THE HONBLE DRP. HOWEVER, BOTH THE TPO AS WELL AS THE HONBLE DRP HA VE REJECTED THE ASSESSEES CLAIM FOR WORKING CAPITAL ADJUSTMENT. T HE LD. AR SUBMITTED THAT THE HONBLE DRP HAS ALLOWED WORKING CAPITAL ADJUSTM ENT IN THE ASSESSEES OWN CASE IN AY 2010-11. LD. AR ALSO SUBMITTED THAT THE CLAIM OF WORKING CAPITAL ADJUSTMENT HAS NOW BEEN SETTLED IN FAVOUR O F THE ASSESSES IN DEMAG CRANES & COMPONENTS (INDIA) PVT. LIMITED IN ITA NO. 120/PN/2011, CASH EDGE INDIA PVT. LIMITED IN ITA NO. 5365/DEL/2010 AN D VODAFONE INDIA SERVICES PVT. LIMITED IN ITA NO. 7140/MUM/2012. ON THE ISSUE OF CLAIM FOR RISK ADJUSTMENT, THE LD. AR SUBMITTED THAT THE CLAI M HAD BEEN MADE BOTH BEFORE THE TPO AS WELL AS THE HONBLE DRP. HOWEVER , BOTH HAVE DENIED THE ASSESSEES CLAIM. THE LD. AR FURTHER SUBMITTED THA T WHILE ESTIMATING THE RETURN FOR UNCONTROLLED COMPANY, THERE IS A NEED TO GIVE AN APPROPRIATE ADJUSTMENT PERTAINING TO MARKET/SYSTEMATIC RISK FAC ED. UNCONTROLLED COMPARABLE COMPANIES OPERATE UNDER UNCONTROLLED CON DITIONS BEARING CERTAIN RISKS DURING THE COURSE OF ITS OPERATIONS. THEREFO RE, SUCH COMPARABLE UNCONTROLLED COMPANIES EARN A RISK PREMIUM WHICH IS NOT EARNED BY A CAPTIVE SOFTWARE DEVELOPMENT PROVIDER SIMILAR TO THE ASSESS EE WHICH IS A RISK AVERSE AND, THEREFORE, THE PROFITS OF THE CAPTIVE UNIT WOU LD BE LESS THAN RISK TAKING COMPANIES AND HENCE, AN ADJUSTMENT IN THIS REGARD I S REQUIRED. THE LD. AR ITA NO. 6856/D/15 PAGE 32 OF 50 ALCATEL-LUCENT INDIA LTD. PLACED RELIANCE ON MOTOROLA SOLUTIONS INDIA P. LIMI TED IN ITA NO. 5637/DEL/2011, INTELLINET TECHNOLOGIES INDIA P. LIM ITED IN ITA NO. 1237/BANG/2010 AND BEARING POINT BUSINESS CONSULTIN G PVT. LIMITED IN ITA NO. 1124/BANG/2011 IN SUPPORT OF ASSESSEES CLAIM F OR RISK ADJUSTMENT. 10.2.1 THE LD. CIT DR SUBMITTED THAT THE ASSESSEE HAS FAILED TO JUSTIFY ITS CLAIM FOR WORKING CAPITAL ADJUSTMENT AND NOTHIN G HAD BEEN DEMONSTRATED BY THE ASSESSEE TO SUPPORT ITS CLAIM FOR THE WORKIN G CAPITAL ADJUSTMENT. THE LD. CIT DR FURTHER SUBMITTED THAT THE TPO HAD ALREA DY GIVEN DUE CONSIDERATION TO THIS ASPECT AND THE ISSUE NEEDED N O FURTHER ADJUSTMENT. THE LD. CIT DR RELIED ON THE CASE OF AMERIPRISE IN ITA NO. 2575/DEL/2014 TO SUPPORT THE CONTENTION THAT WORKING CAPITAL ADJUSTM ENT NEED NOT BE GRANTED ON THE FACTS OF THIS CASE. ON THE ISSUE OF RISK ADJUS TMENT, THE LD. CIT DR SUBMITTED THAT LEVEL OF RISK VARIES FROM COMPANY TO COMPANY AND THE ASSESSEE COULD NOT SUBSTANTIATE THE RISK FACTOR AND HENCE, T HE CLAIM WAS NOT TENABLE. THE LD. CIT DR RELIED ON THE CASE OF ION TRADING P. LTD. VS. ITO IN ITA NO. 1035/DEL/2015 AND ACTS GLOBAL SERVICES P. LTD. VS. ITO IN ITA NO. 30/DEL/2015 FOR THE PREPOSITION THAT NO RISK ADJUST MENT OUGHT TO BE GIVEN. 10.3 ON THE GROUND RELATING TO THE ISSUE OF TRANSFE R PRICING ADJUSTMENTS MADE IN RESPECT OF TECHNICAL SUPPORT SERVICES(TSS) SEGMENT, IT WAS THE ITA NO. 6856/D/15 PAGE 33 OF 50 ALCATEL-LUCENT INDIA LTD. SUBMISSION OF THE LD. AR THAT UNDER THIS SEGMENT TH E ASSESSEE PROVIDED TECHNICAL SUPPORT SERVICE WITH RESPECT TO TELECOM E QUIPMENT SOLD TO CUSTOMERS IN INDIA. THESE SERVICES PRIMARILY INCLUDE REPAIRS AND MAINTENANCE SERVICES, AFTER SALES SUPPORT SERVICES, INSTALLATION AND COMM ISSIONING SERVICES, TROUBLE REPORT HANDLING SERVICES, ETC. THE LD. AR SUBMITTE D THAT THE ASSESSEE PRIMARILY FUNCTIONED AS A SUPPORT SERVICE PROVIDER AND EARNED AN OP/TC MARGIN OF 7.68%. HOWEVER, THE TPO ARRIVED AT AN AV ERAGE OF 19.49% (OP/TC) AND MADE AN ADJUSTMENT OF RS. 951,65,037/- TO THE TSS SEGMENT BY USING THE FOLLOWING FOUR COMPARABLES S.NO. COMPANY NAME OP/TC 1. CONSULTING ENGINEERS LIMITED 13.75 2. TELECOMMUNICATION CONSULTANTS INDIA LIMITED (CONSULTANCY AND SERVICE CONTRACT SEGMENT) 10.87 3. WAPCOS LIMITED 30.55 4. MAHINDRA CONSULTING ENGINEERS LIMITED 22.79 AVERAGE 19.49% 10.3.1 THE LD. AR REFERRED TO GROUND NO. 3.5 OF TH E APPEAL AND SUBMITTED THAT THE ASSESSEES CONTENTIONS IN RESPEC T OF KIRLOSKAR CONSULTANTS LIMITED WHICH WAS SELECTED BY THE ASSESSEE AS A COM PARABLE IN THE TSS SEGMENT WAS INCORRECTLY REJECTED BY THE TPO ON THE GROUND THAT IT FAILED THE RPT FILTER OF 25%. THE LD. AR SUBMITTED THAT THE T OTAL RPT BY SALES RATIO IS ONLY 11.79% WHICH IS BELOW THE RPT THRESHOLD OF 25% AND HENCE, THIS COMPARABLE OUGHT TO BE INCLUDED. THE LD. AR FURTHE R SUBMITTED THAT ITA NO. 6856/D/15 PAGE 34 OF 50 ALCATEL-LUCENT INDIA LTD. KIRLOSKAR WAS SELECTED AS A COMPARABLE BY THE HONB LE DRP IN AY 2010-11. THE LD. AR ALSO RAISED HIS OBJECTIONS TO TWO COMPAR ABLES WHICH WERE SELECTED BY THE TPO BUT ARE NOT BEING ACCEPTED BY T HE ASSESSEE. THE ARGUMENTS OF THE LD. AR WERE AS UNDER: (I) WATER AND POWER CONSULTANCY SERVICES LIMITED (WAPCOS) - THE LD. AR SUBMITTED THAT THE TPO HAS HELD THAT UNDER THE A PPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD, THE DIFFERENCE IN FUNCTIONAL PROFILE GETS EVENED OUT AND AS SUCH THE COMPANY CAN BE CONSIDERED AS A COMPARABLE. THE LD. AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR AS IT IS ENGAGED IN RENDERING CONSULTANC Y SERVICES IN WATER RESOURCES, POWER AND INFRASTRUCTURE AND INCLUDES PR ELIMINARY INVESTIGATIONS, FEASIBILITY STUDIES, FIELD STUDIES, ENGINEERING DESIGN, DRAWINGS AND TENDERING PROCESS, PROJECT MANAGEMENT OPERATIONS AND MAINTENANCE AND INSTITUTIONAL/HUMAN RESOURCE DEVELO PMENT. THE LD. AR ALSO SUBMITTED WAPCOS IS A GOVERNMENT OF INDIA U NDERTAKING WITH AN ABNORMALLY HIGH MARGIN OF 30.55%. THE LD. AR SUBMITTED THAT WAPCOS HAS BEEN REJECTED AS A COMPARABLE IN THE FOL LOWING CASES NORTEL NETWORKS INDIA PVT. LTD. VS. ACIT (ITA NO. 4 765/DEL/2011 & 427/DEL/2013), HENNES AND MAURITZ INDIA PVT. LTD. V S. DCIT (ITA NO. 4704/DEL/2012), MCI COM INDIA PVT. LTD. (NOW KNOWN AS VERIZON ITA NO. 6856/D/15 PAGE 35 OF 50 ALCATEL-LUCENT INDIA LTD. INDIA P. LTD.) (ITA NO. 4187/DEL/2010), YUM! RESTAU RANTS (INDIA) LTD. VS. ITO (ITA NO. 6168/DEL/2012), ACTIS ADVISERS P. LTD. VS. ACIT (ITA NO. 6390/DEL/2012), SHELL INDIA MARKETS PVT. L TD. (ITA NO. 193/MUM/2013). THE LD. AR FURTHER SUBMITTED THAT A GOVERNMENT COMPANY CANNOT BE TAKEN AS A COMPARABLE TO A COMPAN Y HAVING A PROFIT MOTIVE AND HE RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS SUBMISSION M/S THYSSENKRUPP INDUSTRIES INDIA P. L TD. (ITA NO. 6460/MUM/2012), M/S AVAYA INDIA P. LIMITED (ITA NO. 5150/DEL/2010). THE LD. AR ALSO RELIED ON THE DECI SION OF RAMPGREEN SOLUTIONS P. LTD. IN ITA NO. 102/2015, WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD THAT FUNCTIONALLY DIFFERENT COMPANY CANNOT BE CONSIDERED AS COMPARABLE COMPANY. (II) MAHINDRA CONSULTING ENGINEERS LIMITED THE LD. AR SUBMITTED THAT THE TPO HAS HELD THAT UNDER THE APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD, THE DIFFERENCE IN FUNCTIONAL PR OFILE GETS EVENED OUT AND AS SUCH THE COMPANY CAN BE CONSIDERED AS A COMP ARABLE. HE FURTHER SUBMITTED THAT THIS COMPANY IS ENGAGED IN T HE PROVISION OF TECHNICAL CONSULTANCY IN MULTI DISCIPLINARY PROJECT S WHICH INCLUDES DESIGNING, ENGINEERING, PROCUREMENT, CONSTRUCTION, MONITORING AND SUPERVISION, INFRASTRUCTURE CONSULTING SERVICES AND INTEGRATED PROJECT ITA NO. 6856/D/15 PAGE 36 OF 50 ALCATEL-LUCENT INDIA LTD. MANAGEMENT SERVICES. HE ALSO SUBMITTED THAT THIS C OMPANY HAS BEEN REJECTED AS A COMPARABLE BY THE HONBLE DRP IN ASSE SSEES OWN CASE FOR AY 2010-11 AGAINST WHICH THE DEPARTMENT HAS NOT PREFERRED ANY APPEAL. THE LD. AR ALSO SUBMITTED THAT MAHINDRA CO NSULTING HAS BEEN REJECTED AS A COMPARABLE IN ROLLS ROYCE INDIA P. LT D. IN ITA NO. 6636/DEL/2015. THE LD. AR ALSO RELIED ON THE DECIS ION OF RAMPGREEN SOLUTIONS P. LTD. IN ITA NO. 102/2015, WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD THAT FUNCTIONALLY DIFFERENT COMPANY CANNOT BE CONSIDERED AS COMPARABLE COMPANY. 10.3.2 THE LD. CIT DR RELIED ON THE TPOS ORDER ON THE GROUNDS RELATING TO THE TSS SEGMENT. 10.4 ON GROUND NO. 3.12, THE LD. AR SUBMITTED THAT RPT ON INCOME SIDE IS 50.59%, WHEREAS THE RPT ON COST SIDE WAS 69 .04%. IT WAS SUBMITTED THAT THE TPO HAS NOT MADE PROPORTIONATE ADJUSTMENT TO THE EXTENT APPLICABLE TO THE ASSESSEES AE COST IN THE TOTAL COST BASED OF T SS SEGMENT AND, THEREFORE, THE CLAIM OF PROPORTIONATE ADJUSTMENT ALSO NEEDS TO BE ALLOWED FOR THE TSS SEGMENT. THE LD. AR RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN FIRE STONE INTERNATIONAL (TS-401-HC-2015(B OM.)-TP), WHEREIN THE HONBLE BOMBAY HIGH COURT HAS DELETED THE TP ADJUST MENT BY HOLDING THAT ITA NO. 6856/D/15 PAGE 37 OF 50 ALCATEL-LUCENT INDIA LTD. THE SAME SHOULD BE CALCULATED ONLY ON INTERNATIONAL TRANSACTIONS AND NOT ON THE ENTIRE TURNOVER. THE LD. AR ALSO RELIED ON THE FOLLOWING DECISIONS IN THIS REGARD T TWO INTERNATIONAL P. LTD. AND TARA JEWEL S EXPORTS P. LTD. AND TARA ULTIMO P. LTD. (ITA NO. 5644, 5645 & 5646/MUM/2008) (AY 2004-05), IL JIN ELECTRONICS INDIA P. LD. VS. ACIT (36 SOT 227), SMCC CONSTRUCTION INDIA LTD. VS. ACIT [2011] 44 SOT 63 (DEL.), ACIT V S. SUPER DIAMONDS [2012] 53 SOT 243 (MUM.) AND DCIT VS. TWINKLE DIAMO NDS [2012] 53 SOT 243 (MUM.). 10.4.1 THE LD. CIT DR PLACED RELIANCE ON THE TPOS ORDER. 10.5 ON THE CORPORATE TAX GROUNDS 1, 2 AND 3 THE L D. AR SUBMITTED THAT IN THE DRAFT ASSESSMENT ORDER THE LIQUIDATED D AMAGES WERE DISALLOWED ON THE GROUND THAT THEY WERE IN THE NATURE OF PENALTY/ FINE. HE DREW ATTENTION TO PAGE 16 OF THE ORDER OF THE HONBLE DRP FOR AY 2011 -12 THAT THE HONBLE DRP FOLLOWING ITS EARLIER DECISION FOR AY 2010-11 H AD DIRECTED THE AO TO VERIFY THE CORRECTNESS OF AN ALLOW THE CLAIM OF THE TAX PAYER IN THIS REGARD IN THIS YEAR ALSO. THE LD. AR SUBMITTED THAT THE AO H AS NOT GIVEN EFFECT TO THE DIRECTIONS OF THE HONBLE DRP ON THIS ISSUE AND PRA YED THAT SUITABLE DIRECTIONS MAY BE GIVEN IN THIS REGARD. ITA NO. 6856/D/15 PAGE 38 OF 50 ALCATEL-LUCENT INDIA LTD. 10.5.1 THE LD. CIT DR SUBMITTED THAT WHETHER THE L IQUIDATED DAMAGES HAVE CRYSTALLIZED OR NOT NEED TO BE VERIFIED AND HE NCE, THE ISSUE SHOULD BE RESTORED TO THE FILE OF THE TPO FOR PROPER VERIFICA TION. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. AS FAR AS THE ISSUE OF EXCLUDING ALLIED DI GITAL SERVICES LTD. FROM THE LIST OF COMPARABLES IS CONCERNED, IT IS SEEN THAT T HIS HAS BEEN EXCLUDED ON THE GROUND THAT THE SAME FAILS THE EXPORT FILTER. THE ASSESSEE HAS OBJECTED THAT FUNCTIONAL COMPARABILITY IS ESSENTIAL RATHER THAN G EOGRAPHICAL LOCATION. THE TPO HAS HELD THAT GEOGRAPHICAL LOCATION PLAYS AN IM PORTANT PART IN DETERMINING THE PRICE AND HENCE, COMPARABILITY ADJU STMENTS NEED TO BE MADE WHEN PRICES THAT ARE BEING COMPARED ARE FROM DIFFER ENT GEOGRAPHICAL REGIONS. THE ASSESSEE HAS ALSO OBJECTED TO THE QUANTUM OF TU RNOVER AS TAKEN BY THE TPO FOR APPLYING THE EXPORT FILTER. SIMILARLY, AS FAR AS THE TPOS REJECTION OF THE COMPARABLE HELIOS AND MATHESON INFORMATION TECH NOLOGIES LTD. IS CONCERNED IT IS SEEN THAT IT HAS BEEN REJECTED ON T HE GROUND THAT THE FINANCIAL YEAR OF THIS COMPANY ENDS ON A DIFFERENT DATE. IT IS SEEN THAT THE ASSESSEE HAD FILED RESULTS OF A FRESH SEARCH BASED ON SINGLE YEA R DATA AND ALSO OTHER QUANTITATIVE FILTERS WERE IDENTIFYING COMPARABLE CO MPANIES ENGAGED IN PROVIDING SIMILAR CSD SERVICES AS RENDERED BY THE A SSESSEE. ITA NO. 6856/D/15 PAGE 39 OF 50 ALCATEL-LUCENT INDIA LTD. 11.01 IT IS OUR CONSIDERED OPINION THAT AS NO SPEC IFIC FINDING HAS BEEN GIVEN BY THE HONBLE DRP BUT HAS BEEN DEALT IN A GE NERAL MANNER AND THE FRESH COMPARABLES SELECTED HAVE ALSO NOT BEEN CONSI DERED, IT WILL BE APPROPRIATE IF THESE TWO COMPARABLES ARE RESTORED T O THE FILE OF THE TPO FOR RE- EXAMINATION FOR THE PURPOSE CHECKING THE EXPORT TUR NOVER AS WELL AS THE QUARTERLY DATA. HENCE, GROUND NO. 3.5 IS TREATED A S ALLOWED FOR STATISTICAL PURPOSES. 11.1 AS FAR AS GROUND NO. 3.6 OF THE ASSESSES APP EAL IS CONCERNED, THE COMPARABLES ARE BEING TAKEN UP ONE BY ONE AS UNDER (I) WIPRO TECHNOLOGIES LTD. IT IS SEEN THAT THE HONBLE DRP HAD DIRECTED THE TPO TO REJECT THE COMPARABLE FOR NON A VAILABILITY OF THE DATA BUT THE TPO FAILED TO GIVE EFFECT TO THE D IRECTIONS OF THE HONBLE DRP. WE DIRECT THE TPO TO GIVE EFFECT TO T HE DIRECTIONS OF THE HONBLE DRP IN THIS REGARD AND EXCLUDE THIS COMPARABLE. (II) E-INFOCHIPS LTD. THE LD. AR HAS SUBMITTED THAT E-INFOCHIPS IS ENGAGED IN DIVERSIFIED SERVICES LIKE IT ENABLED SER VICES, DEVELOPMENT OF SOFTWARE PRODUCTS AND SOLUTIONS FOR PRODUCT DESIGN AND DEVELOPMENT, QUALITY ASSISTANCE AND CERT IFICATION, REENGINEERING, SUSTENANCE AND VOLUME PRODUCTION, SO FTWARE ITA NO. 6856/D/15 PAGE 40 OF 50 ALCATEL-LUCENT INDIA LTD. CONSULTING AND MANUFACTURING EVM AND VDB ELECTRONIC BOARD ETC AND IS FUNCTIONALLY DISSIMILAR. THE LD. AR HAS RELIED ON THE DECISION RENDERED BY THE ITAT DELHI BENCH IN SAXO I NDIA PRIVATE LIMITED (ITA NO. 6148/DEL/2015), WHEREIN THE ITAT D ELHI BENCH HAS HELD THAT E-INFOCHIPS IS TO BE REJECTED A S A COMPARABLE ON THE GROUND THAT IT EARNS INCOME FROM SOFTWARE PR ODUCTS AND SERVICES AND NO SEGMENTAL DATA IS AVAILABLE. WE DO FIND FROM THE FAR ANALYSIS THAT ASSESSEE COMPANY IS FUNCTIONALLY DISSIMILAR TO E- INFOCHIPS AND HENCE FINDING SUPPORT FROM THE DEC ISION RENDERED BY THE ITAT DELHI BENCH IN SAXO INDIA PRIVATE LIMIT ED (ITA NO. 6148/DEL/2015), WE DIRECT THE TPO TO EXCLUDE THIS C OMPARABLE. (III) INFOSYS LIMITED THE LD. AR HAS SUBMITTED THAT INFOSYS IS ENGAGED IN PROVIDING SOFTWARE CONSULTING AND PRODUC TS, APPLICATION DESIGN, DEVELOPMENT, REENGINEERING AND MAINTENANCE, SYSTEM INTEGRATION, PACKAGE EVALUATION AND IMPLEMEN TATION AND BUSINESS PROCESS MANAGEMENT ETC. AND HENCE IS FUNCT IONALLY DISSIMILAR. THE LD. AR HAS ALSO SUBMITTED THAT INFO SYS HAD A SIGNIFICANT TURNOVER OF RS. 25385 CRORES WHICH WAS APPROXIMATELY 35 TIMES THE ASSESSEES TURNOVER OF RS. 728 CRORES. IT WAS FURTHER SUBMITTED THAT INFOSYS DEVELOPED/OWNS PROPRIETARY P RODUCTS LIKE ITA NO. 6856/D/15 PAGE 41 OF 50 ALCATEL-LUCENT INDIA LTD. FINACLE, INFOSYS ACTICE DESK, INFOSYS IPROWE AND IN FOSYS MCONNECT AND OWNS SIGNIFICANT INTANGIBLES. IT WAS FURTHER SUBMITTED THAT INFOSYS HAD SIGNIFICANT R&D EXPENDIT URE OF RS. 527 CRORES AND ADVERTISING/SALES PROMOTION AND BRAN D BUILDING EXPENDITURE OF RS. 84 CRORES, WHEREAS THE ASSESSEE DOES NOT UNDERTAKE ANY R&D AND AMP EXPENDITURE. WE FIND THA T INFOSYS HAS BEEN REJECTED AS A COMPARABLE BY THE ITAT IN TH E CASE OF ASSESSEES PREDECESSOR COMPANY ALCATEL LUCENT TEC HNOLOGIES INDIA P. LTD. FOR AY 2003-04 AND 2004-05 IN ITA NO. 2297/DEL/2008 AND 2298/DEL/2008. THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S AGNITY INDIA TECHNOLOGIES P. LTD. (ITA NO. 1204/2011) HAS HELD THAT COMPANIES WITH HIGH TU RNOVER HAVE TO BE REJECTED. RESPECTFULLY FOLLOWING THE RATIO, W E DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMP ARABLES. (IV)LARSEN AND TURBRO INFOTECH LTD. THE LD. AR HAS SUBMITTED THAT L&T OPERATES IN SOFTWARE DEVELOPMENT SERVICES AND E ARNS REVENUE FROM LICENSING OF PRODUCTS AND HENCE IS FUNCTIONALL Y DISSIMILAR. THE ITAT DELHI BENCH IN SAXO INDIA P. LTD. (ITA NO. 6148/DEL/2015), HAS HELD THAT L&T CANNOT BE TAKEN A S A COMPARABLE TO A SOFTWARE DEVELOPMENT COMPANY. THE HONBLE ITA NO. 6856/D/15 PAGE 42 OF 50 ALCATEL-LUCENT INDIA LTD. HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO. 233 OF 2014) , HAS HELD THAT SOFTWARE PRODUCT COMPANIES OWNING INTANGIBLES COULD NOT BE COMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PRO VIDER. RESPECTFULLY FOLLOWING THE RATIO OF THESE DECISIONS , WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLE. (V) PERSISTENT SYSTEMS AND SOLUTIONS LIMITED THE LD. AR SUBMITTED THAT PERSISTENT SYSTEMS AND SOLUTIONS LIM ITED IS ENGAGED IN DIVERSIFIED SERVICES SUCH AS SOFTWARE CO NSULTANCY, SOFTWARE PRODUCT DEVELOPMENT AND SYSTEM INTEGRATION SERVICES UNLIKE THE ASSESSEE WHO IS ONLY INVOLVED IN CSD ACT IVITIES AND IS HENCE FUNCTIONALLY DIFFERENT. IT IS SEEN THAT AP ART FROM FUNCTIONAL DISSIMILARITY, THIS COMPANY ALSO OWN INT ANGIBLES WHICH IS NOT SO IN THE CASE OF THE ASSESSEE. RELYIN G ON THE DECISION OF THE HONBLE HIGH COURT OF ANDHRA PRADES H IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO. 233 OF 2014), WHEREIN IT HAS BEEN HELD THA T SOFTWARE PRODUCT COMPANIES OWNING INTANGIBLES COULD NOT BE C OMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDER, WE DIRECT THE ITA NO. 6856/D/15 PAGE 43 OF 50 ALCATEL-LUCENT INDIA LTD. TPO TO EXCLUDE THIS COMPANY FROM THE FINAL SET OF COMPARABLES. (VI) PERSISTENT SYSTEMS LIMITED THE LD. AR HAS SUBMITTED THAT THIS COMPANY IS ENGAGED INTO DIVERSIFIED SERVICES INCLUD ING INTELLECTUAL PROPERTY LED SOFTWARE SOLUTIONS AND SO FTWARE PRODUCTS FOCUSING ON CLOUD COMPUTING, BUSINESS INTE LLIGENCE AND ANALYTICS ETC AND IS HENCE FUNCTIONALLY DISSIMI LAR. THE COMPANY ALSO OWNS SIGNIFICANT INTANGIBLES. A PERUS AL OF THE PROFIT AND LOSS ACCOUNT OF THE COMPANY THAT THE COM PANY HAD REVENUE STREAMS FROM SOFTWARE SERVICES AND PRODUCTS . IT IS SEEN THAT THE REVENUES AND EXPENSES HAVE BEEN SHOWN IN A CONSOLIDATED MANNER AND NO SEGMENTED DISCLOSURE HAS BEEN MADE. IT IS ALSO SEEN THAT THAT THIS COMPANY HAS A CQUIRED OWNERSHIP OF INTANGIBLES OF AROUND 50 CRORES. SINC E THE COMPANY IS ENGAGED BOTH IN RENDERING SOFTWARE DEVEL OPMENT SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS, IN A BSENCE OF SEGMENTAL DETAILS, THIS COMPANY COULD NOT BE SELECT ED AS A COMPARABLE. IT IS SEEN THAT THIS COMPANY HAS BEEN REJECTED ON THE GROUND THAT IT EARNS INCOME FROM SOFTWARE PRODU CTS AND SERVICES AND THAT NO SEGMENTAL DATA IS AVAILABLE IN THE ITA NO. 6856/D/15 PAGE 44 OF 50 ALCATEL-LUCENT INDIA LTD. FOLLOWING CASES SAXO INDIA PRIVATE LIMITED (ITA N O. 6148/DEL/2015), CIENA INDIA PVT. LTD. (ITA NO. 3324/DEL/2013), PLANET ONLINE PVT. LTD. (ITA NO. 46 4 AND 608/HYD./2014), 3D PLM SOFTWARE SOLUTIONS LTD. (ITA NO. 1303/BANG/2012). THE HONBLE HIGH COURT OF ANDHRA P RADESH IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO. 233 OF 2014), HAS HELD THAT SOFTWARE PRODUCT COMPANIES OWNING INTANGIBLES COULD NOT BE COMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDER. FURTHER, CO MPANIES FACING AN EXTRA ORDINARY EVENT, HAVING VOLATILE MAR GINS AND HAVING NO SEGMENTAL INFORMATION CANNOT BE SELECTED AS A COMPARABLE AS HAS BEEN HELD IN ZAVATA INDIA PRIVA TE LIMITED, HYDERBAD VS. DCIT (ITA NO. 1781/HYD./2011), SYMPHON Y MARKETING SOLUTIONS INDIA PVT. LTD. VS. ITO (ITA NO . 1316/BANG/2012), NTT DATA INDIA ENTERPRISE VS. ACIT (ITA NO. 1612/HYD./2010), CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. VS. DCIT (ITA NO. 1961/HYD./2011), PETRO ARALDITE PRIVATE LIMITED VS. DCIT (ITA NO. 6217/MUM/2012). RESPECTFULLY FOLLOWING THESE JUDICIAL PRECEDENTS, T HE TPO IS DIRECTED TO EXCLUDE THIS COMPANY FROM THE FINAL SET . ITA NO. 6856/D/15 PAGE 45 OF 50 ALCATEL-LUCENT INDIA LTD. (VII) SANKHYA INFOTECH LIMITED(SERVICE SEGMENT) IT IS SEEN THAT THIS COMPANY IS A LEADING SIMULATION AND TRAINING S OLUTIONS PROVIDER WHICH PROVIDES END TO END SIMULATION SOLUT IONS. THIS COMPANY ALSO DEVELOPS CUSTOMIZABLE PRODUCTS FOR TRA INING PURPOSES. IT IS FURTHER SEEN THAT THE SCHEDULE PER TAINING TO SEGMENT REPORTING IN THE ANNUAL REPORT, TO WHICH TH E TPO HAS ALSO REFERRED TO, IS INCOMPLETE BECAUSE DEPRECIATIO N AND INTEREST HAVE NOT BEEN SPECIFICALLY ALLOCATED TO AN Y SPECIFIC SEGMENT AS THE UNDERLINE SERVICES ARE USED INTERCHA NGEABLY. THUS, THIS SEGMENTAL INFORMATION IS INCOMPLETE AND CANNOT BE CONSIDERED FOR COMPARABILITY PURPOSES. IT IS ALSO SEEN THAT SANKHYA INFOTECH LIMITED HAS BEEN REJECTED ON THE G ROUND THAT IT OWNS SOFTWARE PRODUCTS IN THE FOLLOWING CASES COLT TECHNOLOGY SERVICES INDIA PRIVATE LIMITED [(TS-774- ITAT- 2012(DEL)], INTEGRATED DECISIONS & SYSTEMS INDIA (P RIVATE) LIMITED [(TS-629-ITAT-2011(JPR)], NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PRIVATE LIMITED [IT -293- ITAT-2013(HYD-TP), ADAPTECH INDIA (PRIVATE) LIMITED (ITA NO. 481/HYD./2011), SUNQUEST INFORMATION SYSTEMS (T S-299- ITAT-2015(BANG)-TP). FURTHER, NON AVAILABILITY OF SEGMENTAL ITA NO. 6856/D/15 PAGE 46 OF 50 ALCATEL-LUCENT INDIA LTD. INFORMATION IN CASE OF DIVERSIFIED OPERATIONS RENDE RS A COMPANY NOT COMPARABLE, HAS BEEN HELD IN THE FOLLOW ING DECISIONS TELCORDIA TECHNOLOGIES INDIA P. LTD. (I TA NO. 7821/MUM/2011), TRILOGY E-BUSINESS SOFTWARE INDIA P VT. LTD. VS. DCIT (ITA NO. 1054/BANG/2011), TRANSWITCH INDIA P. LTD. VS. DCIT [ITA NO. 948/BANG/2011, TS-105-ITAT- 2012(BANG)-TP], FIRST ADVANTAGE OFFSHORE SERVICES P VT. LTD. (ITA NO. 1252(BANG)/2010), CSR INDIA (P) LTD. VS. I TO [IT(TP)A (REFERENCE NO. NO. 1119/BANG/2011)], INTOT O SOFTWARE INDIA PVT. LIMITED, HYDERABAD (ITA NO. 233 OF 2014). RESPECTFULLY FOLLOWING THESE JUDICIAL PRECE DENTS, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE FIN AL SET OF COMPARABLES. (VIII) SASKEN COMMUNICATION TECHNOLOGIES LIMITED IT IS SEEN THAT THIS COMPANY IS A PROVIDER OF TELECOMMUNICATION SOF TWARE SERVICES AND SOLUTIONS TO NETWORK EQUIPMENT MANUFAC TURERS, MOBILE TERMINAL VENDORS AND SEMI-CONDUCTOR COMPANIE S. THE COMPANY ALSO DELIVERS HIGH END TO END IT SOLUTIONS AND PROVIDES FULL PHONE INTEGRATION, IP LED OFFERINGS I N MULTI-MEDIA AND OFFERINGS FOR THE ANDROID MARKETS. THIS COMPAN Y ALSO ITA NO. 6856/D/15 PAGE 47 OF 50 ALCATEL-LUCENT INDIA LTD. PARTNERS WITH SEMI CONDUCTOR COMPANIES TO PROVIDE T URN-KEY AND END TO END SOLUTIONS RANGING FROM CHIP DESIGN T O OTHER SERVICES. HENCE THE COMPANY IS FUNCTIONALLY DISSIMI LAR. IT IS SEEN THAT SASKEN HAS BEEN REJECTED ON THE GROUND TH AT IT OWNED IPRS AND HAS BRANDED PRODUCTS IN THE FOLLOWING CASE S FREESCALE SEMICONDUCTOR INDIA PRIVATE LIMITED (ITA NO. 5865/DEL/2012), MOTOROLA SOLUTIONS INDIA PRIVATE LI MITED (ITA NO. 5637/DEL/2011). THE LD. CIT DR HAS SUBMITT ED THAT IN THIS CASE ALSO THE SEGMENTAL DATA WAS VERY MUCH AVAILABLE AND THE TPO HAS ERRED IN TAKING THE DATA AT ENTITY LEVEL. HENCE, ON AN OVERALL CONSIDERATION OF THE FACTS, WE RESTOR E THE ISSUE OF THE INCLUSION OF THIS COMPANY TO THE FILE OF TPO FO R FRESH ADJUDICATION AFTER THOROUGHLY EXAMINING ALL THE ASP ECTS IN THIS REGARD. (IX) ZYLOG SYSTEMS LIMITED THIS COMPANY DERIVES REVENUE FROM CONSULTANCY SERVICES, PROJECT AND E GOVERNANCE PROJ ECTS WITH A FOCUS ON SOFTWARE DEVELOPMENT, SOLUTIONS AND MOBILE TECHNOLOGIES. THIS COMPANYS PRODUCTS AND SOLUTION S SEGMENT COVERS THE LICENSE FEE FOR PARTICULAR CUSTOMIZED SO LUTIONS PROVIDED TOGETHER WITH THE NECESSARY INTEGRATION WO RK CARRIED ITA NO. 6856/D/15 PAGE 48 OF 50 ALCATEL-LUCENT INDIA LTD. OUT. IT IS SEEN THAT THAT ZYLOG HAS IN -HOUSE DEVE LOPED INTANGIBLES THEREBY RENDERING ITS BUSINESS MODEL CO MPLETELY DIFFERENT FROM THAT OF THE ASSESSEE. ZYLOG HAS BEE N CONSIDERED AS INCOMPARABLE IN SAXO INDIA PRIVATE LIMITED (ITA NO. 6148/DEL/2015). THE HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT II HYDERABAD VS. INTOTO SOFTWARE INDIA P. LTD. (ITA NO. 233 OF 2014), HAS HELD THAT SOFTWARE PRODUCT COMPANIES OWNING INTANGIBLES COULD NOT BE COMPARED WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDER. RESPECTFUL LY FOLLOWING THESE JUDICIAL PRECEDENTS, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF INTANGIBLES. 11.2 IT IS ALSO SEEN THAT IN THE FINAL SET OF COMP ARABLES AS FRESHLY SUBMITTED BY THE ASSESSEE, THE ASSESSEE HAS INCLUDED TWO COMP ARABLES VIZ. THINK SOFT GLOBAL SERVICES LTD. AND EVOKE TECHNOLOGIES LTD. T HE RESULTS OF THE FRESH SEARCH ARE ALSO AVAILABLE ON RECORD. HOWEVER, A PE RUSAL OF THE ORDER OF THE HONBLE DRP REVEALS THAT IT HAS NOT SPECIFICALLY AD JUDICATED ON THESE TWO COMPARABLES. IT WILL BE APPROPRIATE IF THESE TWO C OMPARABLES ARE ALSO CONSIDERED BY THE TPO AND ACCORDINGLY, THESE TWO CO MPARABLES ARE ALSO REMITTED TO THE FILE OF THE TPO FOR ADJUDICATION. ITA NO. 6856/D/15 PAGE 49 OF 50 ALCATEL-LUCENT INDIA LTD. 11.3 AS FAR AS THE ASSESSEES GROUND FOR WORKING CA PITAL ADJUSTMENT AND RISK ADJUSTMENT IS CONCERNED, IT IS SEEN THAT THE ASSESS EE HAS SUBMITTED A CLAIM BASED ON A COMPUTATION WHICH IS BASED AT PAGE 393 O F THE PAPER BOOK. IT IS ALSO A FACT ON RECORD THAT THE HONBLE DRP HAS ALLO WED THE ASSESSEES CLAIM FOR WORKING CAPITAL ADJUSTMENT IN ASSESSEES OWN CA SE IN AY 2010-11. THE LD. CIT DR ALSO AGREED TO THE PREPOSITION THAT THE ISSUE MAY BE RESTORED TO THE FILE OF THE TPO FOR RE-EXAMINATION. ON THE ISSUE O F RISK ADJUSTMENT IT WAS THE LD. AR SUBMISSION THAT THE ISSUE MAY BE RESTORED FO R OBTAINING EXPERT ASSISTANCE. THE LD. AR ALSO REFERRED TO THE CAPITA L ASSET PRICING METHOD (CAPM) COMPUTATION SUBMITTED BEFORE THE HONBLE DRP AND SUBMITTED THAT THE HONBLE DRP HAS NOT CONSIDERED THE COMPUTATION AT ALL. ON OVERALL FACTUAL MATRIX OF THE ISSUE, IT IS OUR CONSIDERED O PINION THAT BOTH THESE ISSUES REQUIRED RESTORATION TO THE FILE OF THE TPO FOR REC ONSIDERATION AND RE- EXAMINATION AND IT IS ORDERED ACCORDINGLY. 11.4 COMING TO THE COMPARABLES IN THE TSS SEGMENT IT IS SEEN THAT WAPCOS AS WELL AS MAHINDRA CONSULTING ENGINEERS LTD . HAVE BEEN OBJECTED TO BY THE ASSESSEE ON THE GROUND OF BEING FUNCTIONA LLY DISSIMILAR. THESE TWO COMPANIES ARE ALSO RESTORED TO THE FILE OF THE TPO FOR VERIFICATION OF THE ASSESSEES CLAIM IN THIS REGARD. ITA NO. 6856/D/15 PAGE 50 OF 50 ALCATEL-LUCENT INDIA LTD. 11.5 AS FAR AS THE CORPORATE TAX GROUNDS RELATING TO LIQUIDATED DAMAGES ARE CONCERNED, IT IS UNDISPUTED THAT THE DRP HAS AC CEPTED THE ASSESSEES PLEA IN AY 2010-11 AND HAD RESTORED THE MATTER TO THE FI LE OF THE AO TO VERIFY THE CORRECTNESS OF THE CLAIM. ON SIMILAR LINES THIS IS SUE IN THIS YEAR IS ALSO REMITTED TO THE FILE OF THE AO FOR THE LIMITED PURP OSE OF VERIFYING THE ASSESSEES CLAIM THAT THE LIQUIDATED DAMAGES HAVE C RYSTALLIZED IN THIS YEAR. 12. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.08.2016 SD/- SD/- (S.V. MEHROTRA) (SUDHANSHU SRIVAS TAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24/08/2016 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI