LIONBRIDGE TECHNOLOGIES P.LTD, NAVI MUMBAI V. ITO 8(2)(2), MUMBAI

ITA 7415/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2453 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 12-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV; SSH N K CHAND
• Assessee Lawyers: SSH AJAY VOHRA; NK JAIN
• Keywords: Related party transaction; Business income; Transfer pricing; International transaction; Rule of consistency; Application of stay; Additional evidence
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH K, MUMBAI . BEFORE SH. A.D. JAIN, JUDICIAL MEMBERAND SH. N.K. BILLAIYA, ACCOUNTANT MEMBER I.T.A. NO. 668/MUM/2014 ASSESSMENT YEAR: 2009-10 PAN:AABCT3380Q M/S. LIONBRIDGE TECHNOLOGIES PVT. LTD. VS. INCOME TAX OFFICER, UNIT NO.301 TO 304, RELIABLE TECH 8(2)(2), M.K. RO AD, 3 RD FLOOR, GUT 31, MUMBAI. AIROLI, NAVI MUMBAI. (APPELLANT) (RESPONDENT) I.T.A. NO. 1375/MUM/2014 ASSESSMENT YEAR: 2009-10 PAN:AABCT3380Q INCOME TAX OFFICER, VS. M/S. LIONBRIDGE TECHNOLOGIE S PVT. LTD. 8(2)(2), M.K. ROAD, UNIT NO.301 TO 304, RELIABLE T ECH 3 RD FLOOR, MUMBAI. AIROLI, NAVI MUMBAI. ASSESSEE BY: S/SH. AJAY VOHRA. SR.ADVOCATE & N.K. JAIN, ADVOCATE RESPONDENT BY:S/SH. N.K.CHAND, CIT(DR) & JITENDRA YADAV I.T.A. NO.7415/MUM/2014 ASSESSMENT YEAR: 2010-11 M/S. LIONBRIDGE TECHNOLOGIES PVT. LTD. VS. INCOME TAX OFFICER, MUMBAI 8(2)(2), M.K. ROAD, MUMBAI (APPELLANT) (RESPONDENT) I.T.A. NO. 290/MUM/2015 ASSESSMENT YEAR: 2010-11 INCOME TAX OFFICER, VS. M/S. LIONBRIDGE TECHNOLOGIE S PVT. LTD. 8(2)(2), M.K. ROAD, UNIT NO.301 TO 304, RELIABLE T ECH 3 RD FLOOR, MUMBAI. AIROLI, NAVI MUMBAI. S.A.NO.376/MUM/2014 ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 2 (ARISING OUT OF I.T.A. NO.7415/MUM/2014) ASSESSMENT YEAR: 2010-11 M/S. LIONBRIDGE TECHNOLOGIES PVT. LTD. VS. INCO ME TAX OFFICER, MUMBAI 8(2)(2), M.K. ROAD, MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY: SH. AJIT JAIN, ADV. RESPONDENT BY:S/SH. N.K.CHAND, CIT(DR) & JITENDRA YADAV DATE OF HEARING : 15/07/2015 & 16/07/2015 DATE OF PRONOUNCEMENT: 18/ 11/2015 ORDER PER A.D. JAIN, JM: THESE ARE CROSS APPEALS TWO BY THE ASSESSEE AND TWO BY THE DEPARTMENT ARE DIRECTED AGAINST THE SEPARATE ORDERS EACH DATED 01.10.2013 & 20.09.2014, PASSED BY THE LD. DRP, FOR THE ASSESS MENT YEARS 2009-10 & 2010-11. THE ASSESSEE HAS ALSO FILED STAY APPLICATI ON. ITA NO.668/MUM/2014 2. THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMEN T YEAR 2009-10, TAKING THE FOLLOWING GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DIS PUTE RESOLUTION PANEL (DRP), THE LEARNED ASSESSING OFFICER (AO) AND THE LEARNED TRANSFER PRICING OFFICER (TPO) ON THE FOLLOWING GROUNDS MAKING AN ADJUSTMENT OF INR 31, 28,41,221/- TO THE ARMS LENG TH PRICE (ALP) IN RESPECT OF RECOMPUTING 10A DEDUCTION, THEREBY DETER MINING THE TOTAL INCOME OF THE APPELLANT AT INR 36,62,68,380/- AS AG AINST THE RETURNED INCOME OF INR 23,91,580/-BY THE APPELLANT. THE ASSESSMENT ORDER PASSED IN THE CASE OF YOUR APP ELLANT FOR ASSESSMENT YEAR (AY) 2009-10 IS FOLLOWING DRPS D IRECTIONS AND THIS APPEAL IS DIRECTED AGAINST THE SAID ORDER. TRANSFER PRICING GROUNDS ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 3 GROUND NO.1: TREATING FOREIGN EXCHANGE AS NON-OPERATING IN NATUR E FOR THE COMPUTATION OF PROFIT LEVEL INDICATOR (PLI) 1. 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP HAS ERRED IN EXCLUDING THE AMOUNT OF FOREIGN EXCHAN GE GAIN AMOUNTING TO INR 15,99,29,779 FROM THE OPERATING RE VENUE OF THE APPELLANT AND TREATING THE SAME AS NON-OPERATING. 1.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP HAS ERRED IN ENHANCING THE ORDER IGNORING THE FACT THAT TPO HIMSELF HAS AGREED THE TREATMENT OF FOREIGN EXCHANGE AS OPE RATING IN NATURE IN ITS ORDER ON THE PRINCIPLE OF CONSISTENCY . IN THE EARLIER ASSESSMENT YEARS FOREIGN EXCHANGE LOSS WAS ALSO TRE ATED AS OPERATING IN NATURE, THEREBY DENIED CONSISTENT TREA TMENT OF FOREIGN EXCHANGE GAIN/LOSS TO THE APPELLANT. 1.3 THE APPELLANT PRAYS THAT THE FOREIGN EXCHANGE GAIN AMOUNTING TO INR 15,99,29,779 BE TREATED AS OPERATING IN NATU RE FOR THE COMPUTATION OF PROFIT LEVEL INDICATOR (PLI) AND THE CONSEQUENTIAL UPWARD ADJUSTMENT BE DELETED. GROUND NO.2: SYSTEMATIC EXCLUSION OF COMPARABLE COM PANIES IDENTIFIED BY THE APPELLANT. 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP HAVE ERRED IN SELECTIVELY EXCLUDING COMPUTECH INTER NATIONAL LTD. A COMPARABLE COMPANY IDENTIFIED BY THE APPELLANT, HAV ING NEGATIVE OPERATING MARGIN, FROM THE FINANL SET OF COMPARABLE COMPANIES STATING THAT THE COMPANY IS NOT COMPARABLE IN THE A BSENCE OF SEGMENTAL INFORMATION WITHOUT APPRECIATING THAT THE ANNUAL REPORT OF THE RELEVANT YEAR CONTAINS THE SEGMENTAL INFORMA TION AND ONLY THE RELEVANT SEGMENT HAS BEEN CONSIDERED COMPARABLE BY THE APPELLANT AND WAS ALSO PROVIDED DURING THE DRP HEAR ING. 2.2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE TPO AND DRP HAVE ERRED IN SELECTIVELY EXCLUDING KAASHYA P TECHNOLOGIES LTD. AND SIP TECHNOLOGIES & EXPORTS L TD., AN IDENTIFIED COMPARABLE COMPANIES BY THE APPELLANT FR OM THE FINAL SET OF COMPARABLE COMPANIES STATING THAT THE SAID COMPANIES ARE NOT COMPARABLE ON THE GROUND OF DIMIN ISHING REVENUE, WITHOUT ESTABLISHING THAT THE REVENUE OF T HE SAID COMPANIES ARE ACTUALLY DIMINISHING OVER A PERIOD OF TIME. 2.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW, THE TPO AND DRP HAVE ERRED IN EXCLUDING R SYSTEMS INTERNATI ONAL LTD. AND ROITA INDIA LTD., IDENTIFIED BY THE APPELLANT FROM THE FINAL SET OF COMPARABLE COMPANIES STATING THAT THE SAID COMPANIE S ARE NOT ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 4 COMPARABLE ON THE GROUND THAT THEY HAVE A DIFFEREN T FINANCIAL YEAR ENDING. 2.4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW, THE DRP HAVE ERRED IN REJECTING THE OBJECTIONS RAISED BY TH E APPELLANT IN RELATION TO REJECTION OF COMPARABLE COMPANIES IN PA SSING THE ORDER UNDER SECTION 92CA OF THE ACT. 2.5 THE APPELLANT PRAYS THAT THE SYSTEMATIC EXCLUSI ON OF THE ABOVE COMPARABLES BE STRUCK DOWN AND THE CONSEQUENTIAL UP WARD ADJUSTMENT BE DELETED. THE APPELLANT PRAYS TO INCLU DE THE ABOVE COMPANIES IN THE FINAL COMPARABLE SET. GROUND NO.3: SYSTEMATIC INCLUSION OF ADDITIONAL COM PARABLE COMPANIES WHICH ARE FUNCTIONALLY DIFFERENT, NOT FUL FILLING FILTERS APPLIED, ARE HAVING HIGH TURNOVER AND ARE HAVING HI GHER MARGINS. 3.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW, THE TPO AND DRP HAVE ERRED IN SELECTIVELY INCLUDING GENEYSY S INTERNATIONAL CORPORATION LTD., IN THE FINAL SET OF COMPARABLE CO MPANIES AND FALLING TO FOLLOW THE ORDER OF THE DRP IN THE APPELLANTS OW N CASE FOR AY 2008-09 WITHOUT APPRECIATING THAT THE SAID COMPANY IS FUNCTIONALLY DIFFERENT COMPARED TO THE APPELLANT. 3.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE TPO AND DRP HAVE ERRED IN SELECTIVELY INCLUDING INFOSYS TECHNOLOGIES LIMITED IN THE FINAL SET OF COMPARABLE COMPANIES WI THOUT APPRECIATING THE FACTS THAT THE SAID COMPANY IS FAILING THE FILT ER APPLIED BY THE TPO FOR SOFTWARE DEVELOPMENT INCOME BEING GREATER THAN 75% OF TOTAL OPERATING INCOME, IS ALSO FUNCTIONALLY DIFFERENT IN MANY PARAMETERS AND THE TURNOVER OF THE SAID COMPANY IS FAR GREATER THAN THE TURNOVER OF THE APPELLANT. 3.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE TPO AND DRP HAVE ERRED IN INCLUDING KALS INFORMATION SY STEMS LTD. AND PERSISTENT SYSTEMS LTD. IN THE FINAL SET OF COMPARA BLE COMPANIES WITHOUT APPRECIATING THAT THE SAID COMPANIES ARE FU NCTIONALLY DIFFERENT COMPARED TO THE APPELLANT. 3.4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE TPO AND DRP HAVE ERRED IN INCLUDING INFOSYS TECHNOLOGIE S LIMITED, IGATE GLOBAL SOLUTIONS LTD., MINDTREE LTD. AND PERSISTENT SYSTEMS LTD. IN THE FINAL SET OF COMPARABLE COMPANIES WITHOUT APPRE CIATING THAT THE TURNOVER OF THE SAID COMPANIES IS FAR GREATER THAN THE TURNOVER OF THE APPELLANT. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 5 3.5 AGGRIEVED BY THE SYSTEMATIC INCLUSION OF THE AB OVE MENTIONED COMPANIES AND NON CONSIDERATION OF YOUR APPELLANTS SUBMISSIONS. YOUR APPELLANT HUMBLY PRAYS THAT THE SYSTEMATIC INC LUSION OF THE ABOVE COMPANIES BE STRUCK DOWN AND THE CONSEQUENTIA L UPWARD ADJUSTMENT BE DELETED. THE APPELLANT PRAYS TO EXCLU DE THE ABOVE COMPANIES FROM THE FINAL COMPARABLE SET. GROUND NO.4: INCLUSION OF PASS THROUGH COST IN THE COST BASE AT THE TIME OF CALCULATING THE PLI OF THE APPELLANT 4.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE TPO AND THE DRP HAS ERRED IN IGNORING THE FACT THAT THE OUTSOURCING THIRD PARTY SERVICE COST OF INR 7,95,55,035/- IS A PASS THROUGH COST AND NO VALUE ADDITION IS CREATED BY THE APPELL ANT ON SUCH SERVICES. IT IS A PURE REIMBURSEMENT OF COSTS AND A CCORDINGLY THE SAME SHOULD NOT BE CONSIDERED IN THE COST BASE AT THE TIME OF CALCULATING THE PLI OF THE APPELLANT. 4.2. THE APPELLANT PRAYS THAT THE PASS THROUGH COST AMOU NTING TO INR 7,95,,035/- BE EXCLUDED FROM THE COST BASE AT T HE TIME OF CALCULATING THE PLI OF THE APPELLANT AND THE CONSEQ UENTIAL UPWARD ADJUSTMENT BE DELETED. GROUND NO.5: REJECTING OF USE OF MULTIPLE YEAR 5.1 NOTWITHSTANDING THE AFOREMENTIONED GROUNDS, THE TPO AND DRP HAVE ERRED IN REJECTING USE OF MULTIPLE YEAR DA TA TO JUSTIFY THE ALP. 5.2. THE APPELLANT PRAYS THAT THE TRANSFER PRICING DOCUMENTATION MAINTAINED BY THE APPELLANT BE ACCEPTED. GROUND NO.6: NO WORKING CAPITAL RISK ADJUSTMENT GRA NTED 6.1. NOTWITHSTANDING THE AFOREMENTIONED GROUNDS, T HE TPO AND DRP HAS ERRED IN NOT MAKING A FURTHER DOWNWARD MARG IN ADJUSTMENT TO CONSIDER WORKING RISK DIFFERENTIALS B ETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES. 6.2 THE APPELLANT PRAYS THAT THE WORKING CAPITAL R ISK ADJUSTMENT BE GRANTED TO THE APPELLANT. GROUND NO.7: GRANTING OF BENEFIT OF +7-5 PER CENT R ANGE TO THE APPELLANT. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 6 7.1. THE APPELLANT PRAYS THAT THE BENEFIT OF +7-5 P ER CENT RANGE BE GRANTED TO THE APPELLANT AS ENVISAGED BY THE PROVIS IONS OF SECTION 92C(2) OF THE ACT. GROUND NO.8: NON-APPLICABILITY OF THE PROVISIONS OF CHAPTER X OF THE ACT TO THE APPELLANT. 8.1. THE TPO AND DRP HAS ERRED IN NOT APPLYING THE PROVI SIONS OF CHAPTER X OF THE ACT ALTHOUGH THE APPELLANT IS AVAI LING THE RELIEF UNDER SECTION 10A OF THE ACT. 8.2 THE APPELLANT PRAYS THAT THE PROVISIONS OF CHAP TER X OF THE ACT BE MADE APPLICABLE TO THE APPELLANT. CORPORATE-TAX GROUNDS GROUND NO.9: EXCLUSION OF UNREALIZED FOREIGN EXCHA NGE FOR DETERMINING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 9.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE AO AND THE DRP HAVE ERRED IN CONCLUDING THAT UN REALIZED FOREIGN EXCHANGE GAIN, RELATING TO THE ACTIVITY OF EXPORT, AMOUNTING TO INR 3,75,69,434/- IS NOT DERIVED FROM THE ACTIVITY OF E XPORT AND THEREFORE NOT ENTITLED FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 9.2. THE APPELLANT PRAYS THAT THE UNREALIZED FOREIG N EXCHANGE GAIN BE INCLUDED IN THE PROFITS OF THE UNDERTAKING AND T HE RELIEF UNDER SECTION 10A OF THE ACT BE RECOMPUTED ACCORDINGLY. GROUND NO.10: EXCLUSION OF REALIZE FOREIGN EXCHANGE GAIN FROM EXPORT TURNOVER HOWEVER INCLUDED IN TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 10.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND DRP HAS ERRED IN INCLUDING REALIZED FOREIGN EXCHANGE GAIN AMOUNTING TO INR 9,68,96,182/- ONLY I N TOTAL TURNOVER AND NOT IN EXPORT TURNOVER. 10.2 THE APPELLANT PRAYS THAT THE FOREIGN EXCHANGE GAIN BE EXCLUDED FROM THE TOTAL TURNOVER OF THE APPELLANT AND THE RE LIEF UNDER SECTION 10A OF THE ACT BE RECOMPUTED ACCORDINGLY. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 7 10.3 WITHOUT PREJUDICE TO THE ABOVE, EVEN IF ACCEPT ING THE GROUND OF TPO AND DRP TO CONSIDER REALIZED FOREIGN EXCHANGE G AIN TO BE CONSIDERED AS PART OF TOTAL TURNOVER THE ASSESSEE P RAYS THAT A SIMILAR ADJUSTMENT BE MADE TO THE EXPORT TURNOVER FOR COMPU TING DEDUCTION UNDER SECTION 10A OF THE ACT. GROUND NO.11 : LEVY OF INTEREST BY AO 11.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE AO ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234D OF THE ACT. THE APPELLANT PRAYS THAT THE INTEREST LEVIED BE DEL ETED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS, AT ANY TIME BEFORE OR AT T HE TIME OF HEARING OF THE APPEAL. EACH OF THE ABOVE GROUNDS IS INDEPEN DENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS PREFERRED BY THE APP ELLANT. 3. OUT OF THE ORIGINAL TP GROUNDS, I.E., GROUND NOS . 1 TO 8, GROUND NOS.1 TO 4 HAVE BEEN AMENDED BY FILING THE FOLLOWING MODI FIED GROUNDS: 1. THAT THE TPO/DRP ERRED ON FACTS AND IN LAW IN NOT C ONSIDERING FOREIGN EXCHANGE GAINS AMOUNTING TO RS.15,99,29,779 AS PART OF THE OPERATING INCOME FOR COMPUTATION OF OPERATING P ROFIT MARGIN OF THE APPELLANT FOR UNDERTAKING BENCHMARKING ANALYSIS APPLYING TNMM. (ORIGINAL GROUND OF APPEAL NOS.1,1.1 TO 1.3) 2. THAT THE TPO/DRP ERRED ON FACTS AND IN LAW IN CONSI DERING FOLLOWING COMPANIES IN THE FINAL SET OF COMPARABLE COMPANIES ALLEGEDLY HOLDING THEM TO BE FUNCTIONALLY COMPARABL E TO THE APPELLANT: (I) 3D PLM SOFTWARE SOLUTIONS LTD., (ADDL). GOA NO 2 TO 6) (II) BODHTREE CONSULTING LTD., (ADDL). GOA NOS 2 TO 6) (III) COSMIC GLOBAL LTD. (ADDL. GOA NOS 2 TO 6) (IV) GENESYS INTERNATIONAL CORPORATION LTD. (ADDL. GOA N O.3.1) (V) INFOSYS LTD. (ADDL. GOA NO.3.2) ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 8 3. THAT THE TPO/DRP ERRED ON FACTS AND IN LAW IN REJEC TING COMPUTECH INTERNATIONAL LTD., SATISFYING ALL THE FI LTERS, IN THE FINAL SET OF COMPARABLE COMPANIES ALLEGEDLY ON THE GROUND THAT SEGMENTAL INFORMATION OF THE SAID COMPANY IS NOT AV AILABLE. (ORIGINAL GROUND OF APPEAL NO.2.1) 4. THAT THE TPO/DRP ERRED ON FACTS AND IN LAW IN NOT E XCLUDING THE PASS THROUGH COST OF RS.7,95,55,035 ON TRANSLATION WORK OUTSOURCED TO THIRD PARTIES FROM THE TOTAL OPERATIN G COST FOR DETERMINING THE OPERATING PROFIT MARGIN FOR THE PUR POSE OF UNDERTAKING BENCHMARKING ANALYSIS APPLYING TNMM. (ORIGINAL GROUND OF APPEAL NO.4, 4.1 TO 4.2) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR VARY, ANY OF THE AFORESAID GROUNDS OF APPEAL BEFORE OR AT THE TIME O F HEARING OF THE APPEAL AND CONSIDER EACH OF THE GROUNDS AS WITHOUT PREJUDICE TO THE OTHER GROUNDS OF APPEAL. 4. THE FOLLOWING ADDITIONAL GROUNDS HAVE ALSO BEEN TAKEN BY THE ASSESSEE: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/TPO OUGHT TO HAVE ALLOWED APPROPRIATE RISK ADJU STMENT TO ESTABLISH COMPARABILITY CONSIDERING THAT THE APPLIC ANT IS A LOW- RISK-BEARING CAPTIVE SERVICE PROVIDER AS OPPOSED TO THE COMPARABLE COMPANIES WHO WERE INDEPENDENT SERVICE P ROVIDER. 1.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE DRP ERRED IN REJECTING THE CONTENTION OF T HE APPLICANT REGARDING RISK ADJUSTMENT WITHOUT GIVING THE APPLIC ANT AN OPPORTUNITY TO PROVIDE WORKINGS TO SUPPORT THE CLAI M OF RISK ADJUSTMENT. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/TPO OUGHT TO HAVE EXCLUDED THE FOLLOWING COMPAN IES FROM THE SET OF COMPARABLE COMPANIES FOR THE PURPOS E OF BENCHMARKING ANALYSIS: A) COSMIC GLOBAL LTD. B)BODHTREE CONSULTING LTD. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 9 C)3D PLM SOFTWARE SOLUTIONS LTD. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, BODHTREE CONSULTING LTD. AND 3D PLM SOFTWARE SOLUTI ONS LTD. OUGHT TO BE EXCLUDED FROM THE FINAL SET OF COMPARAB LES ON ACCOUNT OF SUPER NORMAL PROFITS EARNED BY BOTH THE COMPANIES AND ALSO CONSIDERING SPECIFIC FUNCTIONAL CHARACTERI STIC IN COMPARISON TO THE APPLICANT WHICH IS A LOW END CAPT IVE SERVICE PROVIDER. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/TPO OUGHT TO HAVE EXCLUDED BODHTREE CONSULTING LTD. AND COSMIC GLOBAL LTD. FROM THE FINAL SET OF COMPAR ABLE COMPANIES ON ACCOUNT OF THE FACT THAT THE YEAR UNDE R CONSIDERATION IS THE EXCEPTIONAL YEAR OF OPERATION OF BOTH THE COMPANIES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/TPO OUGHT TO HAVE EXCLUDED COSMIC GLOBAL LTD. O N ACCOUNT OF NON-AVAILABILITY OF INFORMATION REGARDIN G RELATED PARTY TRANSACTIONS AND THEREBY, NOT SATISFYING THE FILTER OF RELATED PARTY TRANSACTIONS APPLIED BY THE TPO HIMSE LF. 6 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE DRP/TPO OUGHT TO HAVE EXCLUDED 3D PLM SOFTWARE SOLU TIONS LTD. ON ACCOUNT OF SUBSTANTIAL RELATED PARTY TRANSA CTIONS AND THEREBY NO QUALIFYING THE FILTER APPLIED BY THE TPO . 5. MODIFIED GROUND NO.2 IS REGARDING FIVE COMPANIE S CONSIDERED, ACCORDING TO THE ASSESSEE, WRONGLY BY THE TPO/DRP, AS COMPANIES COMPARABLE TO THE ASSESSEE. THESE COMPARABLES ARE A LSO THE SUBJECT MATTER OF ADDITIONAL GROUND NOS. 2 TO 6. 6. AN APPLICATION FOR ADDITIONAL EVIDENCE HAS BEEN FILED, SEEKING TO PLACE ON RECORD THE FOLLOWING DOCUMENTS: ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 10 1. AUDITED FINANCIAL STATEMENT OF 3D PLM SOFTWARE SOLU TIONS LTD. FOR THE FINANCIAL YEAR 2008-09- REFER PAGE 940 OF PAPER BOO K. 2. AUDITED FINANCIAL STATEMENTS OF GENESYS INTERNATION AL CORPORATION LTD. FOR THE FINANCIAL YEAR 2006-07-REFER PAGE 975 OF PAPER BOOK. 3. DRP ORDER IN THE CASE OF THE APPELLANT FOR THE ASSE SSMENT YEAR 2008- 09-REFER PAGE 1063 OF PAPER BOOK. 4. TPO ORDER IN THE CASE OF THE APPELLANT FOR THE ASSE SSMENT YEAR 2008- 09-REFER PAGE 1077 OF PAPER BOOK. 7. APROPOS ADDITIONAL GROUNDS 2 TO 6/MODIFIED GROUN D NO.2 AND THE ADDITIONAL EVIDENCE SOUGHT TO BE FILED ON BEHALF OF THE ASSESSEE, IT HAS BEEN CONTENDED THAT UNDISPUTEDLY, THESE COMPANIES WERE T AKEN AS COMPARABLES BY THE ASSESSEE ITSELF IN ITS TP STUDY. THEREFORE, THE SE COMPANIES CAN NOW BE TAKEN AND ARE BEING SOUGHT TO BE CONSIDERED. IT HA S BEEN CONTENDED THAT THE LEGAL POSITION IN THIS REGARD IS THAT THERE IS NO E STOPPEL IN INCOME-TAX PROCEEDINGS AND THE ASSESSEE CAN MAKE A CLAIM, NOTW ITHSTANDING THAT THE SAME WAS NOT MADE IN THE RETURN OF INCOME. OF THE F IVE COMPARABLES TAKEN IN THE MODIFIED GROUND, THE ASSESSEE CONTENDS THAT THR EE COMPARABLE COMPANIES, I.E., 3D PLM SOFTWARE SOLUTIONS LIMITED, BODHTREE CONSULTING LIMITED AND COSMIC GLOBAL LTD., WERE UNDOUBTEDLY TAKEN BY THE ASSESSEE ITSELF IN ITS TRANSFER PRICING DOCUMENTATION FOR BE NCH-MARKING. THE TPO/DRP CONSIDERED THEM AS COMPANIES COMPARABLE T O THE ASSESSEE- COMPANY, HOLDING THEM TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE COMPANY. HOWEVER, EVEN NOW, THEY CAN BE REJECTED FO R DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 11 DEVELOPMENT SERVICES, AS IS BEING SOUGHT FOR. IN TH IS REGARD, RELIANCE IS SOUGHT TO BE PLACED ON THE FOLLOWING CASE LAWS: I) CIT VS. C.PARAKH & CO. (INDIA ) LTD., 29 ITR 661 (SC) II) CIT VS. V.M.R.P. FIRM, 56 ITR 67 (SC) III) NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 383(SC) IV) CIT VS. ENRON EXPAT SERVICES IND., 327 ITR 626 (U TTRAKHAND) V) R.B.JESSA RAM FATEH CHAND VS. CIT, 81 ITR 409 (AL L.) VI) PANDIT SEHO NATH PRASAD SHARMA VS. CIT, 66 ITR 64 7 (DEL.) VII) CIT VS. BHARAT GENERAL REINSURANCE CO. LTD. , 81 ITR 303 (DEL). VIII) DCIT VS. QUARK SYSTEMS PVT. LTD., ITA NO.S 100 & 115/CHD/2009 (SB) [APPROVED BY THE HONBLE P & H CO URT). IX) HONEYWELL AUTOATION INDIA PVT. LTD. VS. DCIT, (I TA NO.4/PN/08). X) SAPIENT CORPORATION PVT. LTD. VS. DCIT ( ITA NO. 5263/DEL/2010) XI) DCIT VS. BP INDIA SERVICES PVT. LTD. ( ITA NO. 4425/MUM/2010). SO FAR AS REGARDS THE ADDITIONAL EVIDENCE, IT HAS A LSO BEEN CONTENDED THAT THIS ADDITIONAL EVIDENCE IS, EVEN OTHERWISE, AVAILABLE IN THE PUBLIC DOMAIN. 8. ON THE OTHER HAND, THE LD. DR HAS OPPOSED THE RE QUEST OF ADMISSION OF THE ADDITIONAL GROUNDS AND THE ADDITIONAL EVIDENCE, MAINLY CONTENDING THAT ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 12 SINCE THE ASSESSEE HAD ITSELF TAKEN THESE COMPANIES AS COMPARABLES IN ITS TP DOCUMENTATION, IT CANNOT NOW SEEK TO WITHDRAW THESE COMPANIES AS COMPARABLES. IT HAS BEEN CONTENDED THAT WITHOUT PRE JUDICE, IN CASE THE ADDITIONAL GROUNDS ARE ADMITTED, THE MATTER MAY BE RESTORED TO THE FILE OF THE TPO. SO FAR AS REGARDS THE ADDITIONAL EVIDENCE, IT HAS BEEN SUBMITTED THAT NO REASON HAS BEEN GIVEN AS TO WHY THE ASSESSEE CO ULD NOT PRODUCE THE SAME BEFORE THE AUTHORITIES BELOW. IN THE ALTERNATI VE, IT HAS BEEN CONTENDED THAT IN CASE THE ADDITIONAL EVIDENCE IS ADMITTED, A GAIN, THE MATTER SHOULD BE RESTORED TO THE FILE OF THE TPO/DRP FOR RECONSIDERA TION. 9. IN THIS REGARD, IT IS SEEN THAT IT REMAINS UNDIS PUTED THAT THESE COMPANIES WERE CHOSEN AS COMPARABLES BY THE ASSESS EE ITSELF IN ITS TP DOCUMENTATION. HOWEVER, IN QUARK SYSTEMS PVT. LIMI TED (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL, A SIMILAR CONTENTION , AS NOW RAISED BY THE DEPARTMENT, HAD BEEN RAISED, THAT SINCE ONE OF THE COMPARABLES WAS THE CHOICE OF THE ASSESSEE AND NO OBJECTION TO ITS INCL USION WAS TAKEN BEFORE THE AUTHORITIES BELOW, SUCH REQUEST AT THE SECOND APPEL LATE STAGE WAS NOT SUSTAINABLE. REJECTING THIS CONTENTION, THE SPECIAL BENCH OF THE TRIBUNAL HELD THAT EVEN IF THE COMPARABLE HAD BEEN TAKEN BY THE ASSESSEE IN ITS TRANSFER PRICING AUDIT, THE ASSESSEE WAS ENTITLED T O POINT OUT TO THE TRIBUNAL THAT THE COMPANY HAD BEEN TAKEN WRONGLY AS A COMPAR ABLE. IT WAS HELD THAT ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 13 THE TRIBUNAL IS A FACT FINDING BODY AND, THEREFORE, IT HAS TO TAKE INTO ACCOUNT ALL THE RELEVANT MATERIAL AND DETERMINE THE QUESTIO N AS PER THE STATUTORY REGULATIONS; THAT THE ASSESSEE IS NOT ESTOPPED FRO M POINTING OUT A MISTAKE IN THE ASSESSMENT, THOUGH SUCH MISTAKE MAY BE THE RESU LT OF EVIDENCE ADDUCED BY THE ASSESSEE ITSELF; THAT WHEN SUBSTANTIAL JUSTI CE AND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED, FOR THE OTHER SIDE CANNO T CLAIM TO HAVE A VESTED RIGHT IN INJUSTICE BEING DONE DUE TO SOME MISTAKE ON ITS PART. QUARK SYSTEMS PVT. LIMITED (SUPRA), WAS APPROVED BY THE HONBLE PUNJAB & HARYANA HIGH COURT. THIS DECISION OF THE SPECIAL BE NCH HAS SINCE BEEN FOLLOWED, INTER-ALIA, IN DCIT VS. BP INDIA SERVIC ES PVT. LTD. (SUPRA). 10. IN VIEW OF THE ABOVE, THE ADDITIONAL GROUNDS AR E ADMITTED. THE REQUEST FOR ADDITIONAL EVIDENCE IS ACCEPTED TOO, P ARTICULARLY KEEPING IN VIEW THAT THIS EVIDENCE IS ALSO AVAILABLE EVEN OTHERWISE IN THE PUBLIC DOMAIN. 11. CONCERNING MODIFIED GROUND NO.1, THE ASSESSEE CONTENDS THAT THE TPO/DRP ERRED IN NOT CONSIDERING FOREIGN EXCHANGE GAINS AMOUNTING TO RS.15,99,29,770/- AS PART OF THE OPERATING INCOME O F THE ASSESSEE FOR COMPUTATION OF THE OPERATING PROFIT MARGIN OF THE ASSESSEE FOR UNDERTAKING BENCH-MARKING ANALYSIS APPLYING TNMM. IN THIS REGAR D, IT HAS BEEN CONTENDED THAT OPERATING PROFIT INCLUDES WITHIN I TS SCOPE, THE PROFIT EARNED ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 14 FROM THE NORMAL OPERATIONAL ACTIVITY OF AN ENTERPRI SE AND ONLY EXTRANEOUS TRANSACTION AND EXPENSES OF PURELY FINANCIAL NATUR E ARE REQUIRED TO BE EXCLUDED THEREFROM. IT HAS BEEN SUBMITTED THAT THE LD. DRP ERRED IN UPHOLDING THE TPOS FINDING THAT THE FOREIGN EXCHAN GE GAIN/LOSS IS NEITHER A CONSIDERATION, NOR CAN IT BE CONSIDERED TO NEGOTIA TE OR DETERMINE THE PRICE OF THE PRODUCT OR SERVICE, SINCE IT IS UNCERTAIN AND I NDEFINITE AND CAN FLUCTUATE EITHER DIRECTION. AS PER THE ASSESSEE, IN ITS CASE, AS WELL AS IN THE CASE OF THE COMPARABLE COMPANIES, THE EXCHANGE GAIN/LOSS IS ON THE TRADING ACCOUNT AND IS OF OPERATING NATURE AND, THEREFORE, IT NEEDS TO BE CONSIDERED AS PART OF THE NET PROFIT MARGIN. IN THIS REGARD, RELIANCE HAS BEE N PLACED ON THE FOLLOWING CASE LAWS: 1) RENAISSANCE JEWELLERY (P) LTD, 101 ITD 380. 2) CHANGEPON TECHNOLOGIES (P) LTD. VS. ACIT, 119 TTJ 18 3) PRIYANKA GEMS VS. ACIT, 94 TTJ 557 4) DISCOVER INDIA TOURS (P) LTD., 104 TTJ 298 (D EL.) 5. DCIT VS. THINK 3 DESIGNS INDIA (P) LTD. 6. THINK 3 DESIGNS INDIA (P) LTD. VS. DCIT, ITA NOS. 692 TO 694(BANG)/2010 (BANG. ITAT). 7. K. UTTAMLAL EXPORTS LTD. VS. DCIT, 133 TAXMAN 248 (MUM.) 8. MOHINDRA IMPEX VS. ACIT, 121 TAXMAN 326 (DE L.) 9. ITO VS. BANYAN CHEMICALS (P) LTD., 310 ITR 384 ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 15 10. LIVINGSTONES JEWELLERY (P) LTD., 31 SOT 323 11. DCIT VS. ACCENTURES SERVICES (P) LTD. ITA NO.4 540/M/08 (MUM. ITAT) 12. SUJATA GROVER, 74 TTJ 347 (DEL.) 13. DEUTSCHE BANK A.G. VS. DCIT, 86 ITD 431 14. BESTOBELL (INDIA) LTD, 117 ITR 789 (CAL.) 15. KHANDELWAL BROTHERS PVT. LTD. V. CIT, 117 ITR 452 (CAL. 16. CIT VS. OIL INDIA LTD. 143 ITR 848 (CAL.) 17. CIT VS. MARTIN AND HARRIS P. LTD. 154 ITR 460 (CAL.) 18. OIL AND NATURAL GAS CORPN. LTD. VS. DCIT, (20 03) 261 ITR 1 (SB) (DELHI ITAT) 19. DCIT VS. SONY INDIA PVT. LTD.. 114 ITD 446 [ AFFIRMED UP TO THE HONBLE SUPREME COURT, AS REP ORTED AT 312 ITR 254 (SC)] 20. SUMIT DIAMOND INDIA P. LTD. VS. ACIT, ITA NO.7148/MUM/2012). 21. M/S. TECHBOOKS INTERNATIONAL PVT. LTD. V. ACIT , ITA NO.722/DEL/2014 22. WESTFALIA SEPARATOR INDIA PVT. LTD VS. ACIT, ITA NOS.4446/DEL/2007 & 4447/DEL/2007). 23. CISCO SYSTEMS (INDIA) LTD. VS. DCIT, [IT (TP) A. NO.271/BANG/2014] 24. FOUR SOFT LIMITED, ( ITA NO.1495/HYD/10) 25. M/S. MERCENDEX BENZ RESEARCH & DEVELOPMENT IND IA PVT. LTD. VS. DCIT, ( ITA NO.1222/BANG/2011) ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 16 26. M/S. PREMIER EXPLORATION SERVICES PVT. LTD. VS . ITO ( ITA NO.5293/DEL/2012 27. S. NARENDERA VS. ACIT 28. RUSABH DIAMONDS VS. ACIT ( ITA NO.7215/MUM/20 12) 29. TRILOGY E-BUSINESS SOFTWARE INDIA (P) LTD. VS. DCIT (ITA NO.1054/BANG/2011). 30. M/S. SAP LABS INDIA PVT. LTD. VS. ACIT, 44 SO T 156 31. M/S. MINDTECH (INDIA) LTD., ( ITA NO.70/BANG /2014) 12. IT HAS BEEN CONTENDED THAT AFTER CONSIDERING FO REIGN EXCHANGE GAIN AS ITS OPERATING INCOME, THE OPERATING PROFIT MARGIN O F THE ASSESSEE WORKS OUT TO 11.85% AND THE SAME IS REQUIRED TO BE CONSIDERED FO R THE PURPOSE OF BENCH- MARKING ANALYSIS. 13. ON THE OTHER HAND, THE DEPARTMENT HAS CONTENDE D THAT AS AGAINST GROUND TAKEN, THE ORDER OF THE LD. DRP WHICH EXCLUD ES FOREIGN EXCHANGE GAIN/LOSS FROM THE AMBIT OF OPERATING INCOME SHOULD BE UPHELD. IT WAS FURTHER CONTENDED THAT HOWEVER, WITHOUT PREJUDICE, IN CASE, FOREIGN EXCHANGE GAIN, IS TO BE TREATED AS OPERATING INCO ME, THE TRUE EFFECT OF THE RATIO OF THE JUDGMENT IN THE CASE OF TECHBOOK INT ERNATIONAL, (SUPRA) OF THE TRIBUNAL BE GIVEN. ATTENTION IN THIS REGARD WAS DRA WN TO PARA 4.6 OF THIS DECISION, AS PER WHICH, WHEN THE FOREIGN EXCHANGE G AIN DIRECTLY EMANATES ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 17 FROM THE CONSIDERATION RECEIVED FOR RENDERING OF SE RVICES BY THE ASSESSEE TO ITS AE, THE FOREIGN EXCHANGE GAIN FLUCTUATES AND I T OUGHT NOT TO BE CONSIDERED AS AN ITEM OF NON-OPERATING REVENUE, AND THAT THE SAME IS ALSO EQUALLY TRUE FOR THE FOREIGN EXCHANGE LOSS, WHICH N EEDS TO BE CONSIDERED AS PART OF OPERATING COST FROM THE TRANSACTIONS OF REV ENUE NATURE. 14. IT IS FURTHER CONTENDED ON BEHALF OF THE DEPART MENT THAT THOUGH COMPLETE DETAILS OF THE FOREIGN EXCHANGE OF RS.15.9 9 CRORES WERE SUBMITTED BY THE AO TO THE ASSESSEE, THEY WERE NOT FILED BEF ORE THE TPO, DUE TO WHICH, THE TPO DID NOT HAVE THE BENEFIT OF THE DETAILS OF FOREIGN EXCHANGE GAIN AND ITS VARIOUS COMPONENTS; THAT THERE ARE 3 COMPONENT S OF THE NET FOREIGN EXCHANGE GAIN OF RS.15.99 CRORES: (1) UNREALISED EXCHANGE GAIN ON ACCOUNT OF SUNDRY DEBTORS RS.14,54,16,911 (2) REALIZED EXCHANGE LOSS RELATED TO SUNDRY CREDIT ORS RS. 1,09,51,295 (3) EXCHANGE GAIN RELATED TO OTHER REVENUE ITEMS RS . 2,54,64,153 ACCORDING TO THE LD. DR, A DIFFERENT TREATMENT IS T O BE GIVEN TO EACH OF THE ABOVE COMPONENTS OF THE ASSESSEES NET FOREIGN EXCH ANGE GAIN OF RS.15.99 CRORES, AS PER THE REQUIREMENT OF TECHBOOK INTERNA TIONAL (SUPRA). IT IS CONTENDED THAT IN ACCORDANCE WITH TECHBOOK INTERNA TIONAL (SUPRA), THE EXCHANGE GAIN RELATED TO SUNDRY DEBTORS WILL GO TO INCREASE THE OPERATING COST; AND THAT THE EXCHANGE GAIN RELATING TO OTHER REVENUE ITEMS NEED NOT TO ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 18 BE CONSIDERED, IN THE ABSENCE OF THE DETAILS. IT IS SUBMITTED THAT THE EXCHANGE GAIN RELATING TO OTHER REVENUE ITEMS MAY BE RELATE D TO BUSINESS INCOME, BUT IT CANNOT BE TREATED AS OPERATING RECEIPT; IT MAY B E ON ACCOUNT OF REINSTATEMENT OF INTEREST RECEIVABLE ON ACCOUNT OF FOREIGN EXCHANGE CURRENCY; THAT INTEREST IS NOT TREATED AS OPERATING INCOME OR EXPENSE FOR THE PURPOSE OF COMPUTATION OF THE PLI; THAT ON THE OTHE R HAND, WITHOUT PREJUDICE, IF IT IS TO BE SO CONSIDERED, IT WILL GO TO INCREAS E THE OPERATING REVENUE AND NOT COST. IT HAS BEEN URGED THAT HERE, THE DENOMIN ATOR IN THE COMPUTATION OF THE PLI (OP/OC) IS THE OPERATING COST OR THE TOTA L COST; AND THAT, THEREFORE, NECESSARY DIRECTION BE ISSUED FOR COMPUTATION OF TH E ASSESSEES PLI ACCORDINGLY, SINCE THE TPO COULD NOT MAKE THE NECES SARY ADJUSTMENT IN THE WORKING OF THE PLI, IN THE ABSENCE OF DETAILS. 15. IN THIS REGARD, WE FIND THE CONTENTION OF THE L D. DR TO BE CORRECT. IT REMAINS UNDISPUTED THAT TECHBOOK INTERNATIONAL ( SUPRA), RENDERED BY THE DELHI BENCH OF THE TRIBUNAL, IS THE APPLICABLE DECI SION. IT IS ALSO PATENT ON RECORD THAT THE CONCERNED DETAILS WERE NOT MADE AVA ILABLE TO THE TPO, THOUGH THEY WERE FURNISHED BEFORE THE AO. ACCORDING LY, WE REMIT THIS MATTER TO THE FILE OF THE TPO, TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN TECH BOOK INTERNATIONAL ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 19 (SUPRA), ON CALLING FOR NECESSARY DETAILS FROM THE ASSESSEE, BY AFFORDING DUE AND ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE . 16. AS SUCH, MODIFIED GROUND NO.1 IS TREATED AS ALL OWED, FOR STATISTICAL PURPOSES. 17. TURNING TO GROUND NO.2 OF THE MODIFIED GROUNDS OF APPEAL, ACCORDING TO THE ASSESSEE, THE TPO/DRP ERRED IN CON SIDERING THE FOLLOWING COMPANIES AS COMPANIES COMPARABLE TO THE ASSESSEE, HOLDING THEM TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE: I) 3D PLM SOFTWARE SOLUTIONS LTD. II) BODHTREE CONSULTING LTD. III) COSMIC GLOBAL LTD. IV) GENESYS INTERNATIONAL CORPORATION LTD. V) INFOSYS LTD. 18. APROPOS THE FIRST COMPANY, I.E., 3D PLM SOFTWAR E SOLUTIONS LTD., THIS COMPANY WAS TAKEN AS A COMPARABLE BY THE ASSESSEE IN ITS TP STUDY. ITS OP/OC PERCENTAGE IS 69.93. THE CONTENTION OF THE AS SESSEE IS THAT SINCE THE RELATED PARTY TRANSACTIONS (RPT) OF 3D PLM IS MORE THAN 25%, IT DOES NOT SATISFY THE FILTER APPLIED BY THE TPO. IN THIS REG ARD, THE ASSESSEE HAS SOUGHT TO RELY ON THE DECISION OF THE DELHI BENCH OF THE T RIBUNAL IN THE CASE OF GLOBAL LOGIC INDIA PVT. LTD. VS. DCIT, RENDERED I N ITA NO.5110/DEL/2010. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 20 19. HERE, IT IS SEEN, THAT AS PER THE RECORD, THE RELATED PARTY TRANSACTIONS TO SALES RATIO OF 3D PLM IS AS FOLLOWS: RELATED PARTY TRANSACTION INR (RS.) SALES TO PARTIES HAVING SUBSTANTIAL INTEREST 50,17, 16,704 SALES TO PARTIES EXERCISING SIGNIFICANT INFLUENCE 8 6,22,71,870 RENT & EXPENSE TOWARDS LEASED PREMISES 1,17,58110 REIMBURSEMENT OF EXPENSES 4,74,52,425 OTHER EXPENSES 1,78,683 TOTAL 1,42,33,77,792 SALES 1,36,39,88,574 20. THESE FACTS HAVE NOT BEEN DISPUTED ON BEHALF O F THE DEPARTMENT. IT HAS ONLY BEEN SUBMITTED AS FOLLOWS: AS REGARDS RPT OF COMPARABLE 3D PLM, IT IS SUBMITTE D THAT THERE CAN BE NO SITUATION WHERE RPT EXCEEDS 100%. THE TPO HAS APPLIED RPT FILTER OF 25%. IT IS SUBMITTED THAT 3D PLM MAY NOT BE EXCLUDED ON FUNCTIONAL COMPARABILITY. THE SAME MAY BE DECIDE D SUBJECT TO VERIFICATION OF RPT. 21. AS REGARDS THE RPT OF 3D PLM, IT IS SUBMITTED T HAT THERE CANNOT BE ANY SITUATION WHERE RELATED PARTY TRANSACTION EXCEE DS ONE HUNDRED PERCENT THE TPO HAS APPLIED RELATED PARTY TRANSACTION FILT ER OF 25%. IT IS SUBMITTED THAT 3D PLM MAY NOT BE EXCLUDED ON FUNCTIONAL COMP ARABILITY. THE SAME MAY BE DECIDED SUBJECT TO VERIFICATION OF RELATED P ARTY TRANSACTIONS. 22. THE CONTENTION OF THE DEPARTMENT IS FOUND TO B E JUSTIFIED. ACCORDINGLY, THE TPO IS DIRECTED TO VERIFY THE REL ATED PARTY TRANSACTIONS OF ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 21 3D PLM AND IF THE CONTENTION OF THE ASSESSEE, THAT THE RPT OF 3D PLM IS MORE THAN 25%, IS FOUND TO BE CORRECT, 3D PLM SOFTW ARE SOLUTIONS LTD. WILL BE EXCLUDED FROM THE FINAL SET OF COMPANIES C OMPARABLE TO THE ASSESSEE, IN ACCORDANCE WITH GLOBAL LOGIC INDIA PVT. LTD. ( SUPRA). THE TPO SHALL ALSO KEEP IN MIND THE ASSESSEES CONTENTION THAT 3 D PLM IS A SOFTWARE PRODUCT COMPANY, FOR WHICH REASON ALSO IT IS NOT CO MPARABLE TO THE ASSESSEE. 23. APROPOS BODHTREE CONSULTING LTD., WHICH WAS ALS O TAKEN AS A COMPARABLE BY THE ASSESSEE ITSELF IN ITS TP STUDY, THE ASSESSEES OBJECTION AGAINST ITS INCLUSION FOR THE FINAL SET OF COMPARAB LE COMPANIES IS THAT IT IS A SOFTWARE PRODUCT MANUFACTURING COMPANY, WHICH IS T HE ASSESSEE IS NOT AND, THEREFORE, IT IS NOT FUNCTIONALLY COMPARABLE TO TH E ASSESSEE. IN THIS REGARD, IT HAS BEEN CONTENDED THAT BODHTREE CONSULTING LTD. HA S BEEN EXCLUDED FROM THE SET OF COMPARABLE COMPANIES BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASES OF NETHAWK NETWORKS PVT. LTD. (ITA NO. 7633/M/2012) AND WILLS PROCESSING SERVICES (I) P. LTD. ( ITA NO.4 547/M/2012) (COPIES OF WHICH DECISIONS HAVE BEEN PLACED ON RECORD) AND THA T FOLLOWING THESE DECISIONS, THE BANGALORE BENCH OF THE TRIBUNAL, IN THE CASE OF CISCO SYSTEMS PVT. LTD., FOR A.Y. 2009-10, DIRECTED CISC O TO BE EXCLUDED FROM THE SET OF COMPARABLES. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 22 24. THE LD. DRS OBJECTION IN THIS REGARD IS THAT T HE ASSESSEE IS ALSO A PRODUCT MANUFACTURING COMPANY AND, THEREFORE, BODHT REE CONSULTING LTD., OUGHT NOT TO BE EXCLUDED FROM THE FINAL SET OF COMP ARABLES. 24(A) IN THE DEPARTMENTS WRITTEN SUBMISSION AT PAG E 4, PARA 3.2.3, AS ALSO BY WAY OF HIS ORAL ARGUMENTS, THE LD. DR HAS SOUGHT TO PLACE RELIANCE ON THE ASSESSEES TRANSFER PRICING REPORT ( TPR), AS PER W HICH, ACCORDING TO THE LD. DR, THE ASSESSEE IS INTO APPLICATION DEVELOPMENT, WHICH INCLUDES, INTER- ALIA, PRODUCT RELEASE. THEREFORE, ACCORDING TO TH E LD. DR, THE ASSESSEE IS A PRODUCT MANUFACTURING COMPANY. THIS, HOWEVER, HAS BEEN EMPHATICALLY DENIED ON BEHALF OF THE ASSESSEE. IT HAS BEEN CONTE NDED THAT THE TPR IS, IN FACT, BEING GROSSLY MIS-CONSTRUED AND MIS-READ IN AS MUCH AS PRODUCT RELEASE DOES NOT, IN ANY MANNER, HAVE ANY EQUIVAL ENCE WHATSOEVER WITH PRODUCT MANUFACTURE. AS A MATTER OF FACT, ACCORDI NG TO THE LD. COUNSEL FOR THE ASSESSEE, IF THE TPR IS CORRECTLY CONSTRUED, IT REFERS TO THE PRODUCT RELEASE ONLY IN THE CONTEXT OF APPLICATION DEVEL OPMENT , SOFTWARE DEVELOPMENT BEING THE SOLE BUSINESS ACTIVITY OF TH E ASSESSEE. 24(B) HERE ALSO, THE ARGUMENT OF THE LD. DR IS FOUN D TO BE MISPLACED. HE HAS SOUGHT TO DEVELOP THIS ARGUMENT OUT OF PARA 3. 2.2 OF THE TPR OF THE ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 23 ASSESSEE, AS CONTAINED AT PAGE 72 OF THE ASSESSEES PAPER BOOK FOR AY 2009- 10. IT WOULD BE APT TO REPRODUCE THE RELEVANT PORT ION THEREOF: APPLICATION DEVELOPMENT INCLUDES TESTING, APPLICAT ION BUILDING, QUALITY ASSURANCE, PROGRAM ASSEMBLY AND PRODUCT REL EASE. A PLAIN READING OF THE ABOVE SENTENCE BELIES THE DE PARTMENTS CONTENTION . READING THIS SENTENCE AS IT IS SHOWS THAT IT CONCE RN THE COMPONENTS OF APPLICATION DEVELOPMENT ONLY AND PRODUCT RELEAS E IS BUT ONE SUCH COMPONENT. IN THE ABSENCE OF ANY EVIDENCE TO THE CO NTRARY, EITHER IN THE TPR, OR ELSEWHERE IN THE RECORD, THIS ARGUMENT OF THE LD. DR IS UNSUSTAINABLE AND IS REJECTED. 25. BESIDES, THE TPOS ORDER DOES NOT RECORD ANY FI NDING THAT THE ASSESSEE IS A PRODUCT MANUFACTURING COMPANY. RATHER, THE ASS ESSEE WAS FOUND TO BE IN THE CALLING OF LOCALIZATION AND SOFTWARE SERVICES, AS RECORDED BY THE TPO IN PARA 5.1 OF HIS ORDER. THIS FINDING OF THE TPO WAS CONFIRMED BY THE LD. DRP. THE DEPARTMENT CANNOT NOW BE ALLOWED TO SET UP A NEW CASE, AS IS SOUGHT TO BE DONE. EVEN OTHERWISE, THE CASE SOUGHT TO BE NOW SET UP AT THIS STAGE, I.E., THAT THE ASSESSEE MANUFACTURING COMPA NY IS A PRODUCT COMPANY, IS FACTUALLY INCORRECT. 26. ON THE BASIS OF THE ABOVE, IT IS CORRECT THAT B ODHTREE CONSULTING LTD., BEING A SOFTWARE PRODUCT MANUFACTURER, IS NOT COMPA RABLE TO THE ASSESSEE ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 24 COMPANY. MOREOVER, IT HAS BEEN EXCLUDED IN NETHAWK NETWORKS PVT. LTD., ( SUPRA), WILLS PROCESSING SERVICES (I) PVT. LTD. (SUPRA) AND CISCO SYSTEMS PVT. LTD. (SUPRA). ACCORDINGLY, HERE ALSO, IT IS ORDERED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 27. SO FAR AS REGARDS GENESYS INTERNATIONAL CORPORA TION LTD., THIS COMPANY WAS NOT INCLUDED BY THE ASSESSEE IN ITS TR ANSFER PRICING STUDY. RATHER, IT WAS THE TPO WHO CONSIDERED IT IN THE SET OF COMPARABLES. THE ASSESSEES OBJECTION AGAINST SUCH INCLUSION OF GEN ESYS INTERNATIONAL CORPORATION LTD. IN SET OF COMPARABLE IS THAT GENES YS IS ENGAGED IN THE BUSINESS OF PROVIDING GEOSPATIAL INFORMATION SYSTEM OR GIS SERVICES, WHICH COMPRISES OF PHOTOGRAMMETRIC REMOTE SENSING, CARTOGRAPHY, DATA CONVERSION RELATED COMPUTER BASED SERVICES AND OTHE R RELATED COMPUTER BASED SERVICES AND THAT, THEREFORE, THIS COMPANY I S ALSO FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE COMPANY. MOREOVER, IT I S EARNING SUPER NORMAL PROFITS AND IS IN AN EXCEPTIONAL YEAR OF OPERATION. FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEES CASE, THIS COMPANY WAS EXCLUD ED BY THE DRP, WHICH ACTION HAS WRONGLY BEEN SOUGHT TO BE DISTINGUISHED FOR THE YEAR UNDER CONSIDERATION, THOUGH THERE ARE NO FEATURES DISTING UISHING THE FACTS FOR THE YEAR UNDER CONSIDERATION FROM THOSE OF A.Y. 2008-09 . ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 25 28. THE DEPARTMENT OBJECTS THAT THE ADDITIONAL GROU NDS RELATE TO THREE COMPARABLES AND THE REASONS ARE GIVEN IN THE TABLE BELOW: SR.NO. NAME OF THE COMPANIES REASONS 1 COSMIC GLOBAL LTD. ABNORMAL PROFIT MARGIN ON ACCO UNT OF THE EXCEPTIONAL CIRCUMSTANCES IN THE FINANCIAL YEAR ENDING ON 31 ST MARCH, 2009. 2 BODHTREE CONSULTING LTD; ABNORMAL PROFIT MARGIN O N ACCOUNT OF SPECIFIC FUNCTIONAL DIFFERENCE VIZ. COMPANY IS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. 3 3D PLM SOFTWARE SOLUTIONS LTD. ABNORMAL PROFIT MARGIN ON ACCOUNT OF SPECIFIC FUNCTIONAL DIFFERENCE VIZ. A SOFTWARE PRODUCT COMPANY, AND HIGH RELATED PARTY TRANSACTIONS 29. IT HAS BEEN CONTENDED THAT AS PER THE ASSESSEE, SUPER NORMAL PROFITS WERE EARNED BY GENESYS INTERNATIONAL CORPORATION L TD., DURING THE YEAR AND NOT IN ANY OTHER YEAR; THAT THIS IS NOT RELEVANT, SINCE YEAR TO YEAR VOLATILITY IS NOT A CONSIDERATION FOR DETERMINING ALP; THAT THE ASSESSE SEEKS TO MAKE A COMPARISON WITH THE GROWTH IN THE SOFTWARE INDUSTRY AND ALSO THE RISE IN THE PROFITABILITY OF THE INDUSTRY; THAT HOWEVER, THE TP CALCULATIONS UNDER CHAPTER X OF THE ACT DO NOT MANDATE BENCHMARKING ON THE BAS IS OF INDUSTRY AVERAGE; THAT FURTHER, THE ASSESSEE HAS ALSO NOT CHOSEN ANY CRITERION TO ALIGN RESULTS OF INDUSTRY AVERAGES IN ITS TP STUDY REPORT; THAT ALS O, THIS ISSUE WAS NEVER BEFORE THE TPO/DRP; THAT THE SOME OF THE COMPARABLE S HAVE OUTPERFORMED ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 26 IN TERMS OF PERCENTAGE OF OPERATING PROFITS; THAT THE ASSESSEE HAS APPLIED THIS CRITERION SELECTIVELY TO THE COMPARABLES WHICH ARE SHOWING HIGHER GAIN AND THIS CRITERION HAS NOT BEEN APPLIED TO THE OTHER CO MPARABLES, BASED ON WHICH, THE TPO HAS DETERMINED THE ALP, WHERE THE PLI OR T HE OPERATING MARGINS ARE FAR BELOW THAT OF THE INDUSTRY AVERAGE, AS IN THE CASES OF GOLD STONE TECHNOLOGIES, R.S. SOFTWARE, INTERTECH COMMUNIC ATIONS LTD. AND MINDTREE LIMITED; AND THAT THERE ARE NUMEROUS FA CTORS AFFECTING PROFIT AND TURNOVER IS ONLY ONE SUCH FACTOR. RELIANCE HAS BEE N PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHR YSCAPITAL INVESTMENT ADVISORS (I) PVT. LTD., (2015) 56 TAXMAN.COM 417 ( DEL), AS PER WHICH, WIDE FLUCTUATIONS IN PROFITS MARGINS OF THE SAME EN TITY ON AN YEAR TO YEAR BASIS WOULD BE OFFSET BY TAKING THE ARITHMETIC MEA NS OF ALL THE COMPARABLES IN THE ASSESSMENT YEAR IN QUESTION. IT HAS BEEN CON TENDED THAT, THEREFORE, GENESYS CANNOT BE EXCLUDED AS A COMPARABLE, PARTICU LARLY WHEN THE ASSESSEE HAS ITSELF SELECTED ROLTA INDIA LTD., WHICH IS AT PARITY WITH GENESYS AS A COMPARABLE. WHEREAS GENESYS IS INVOLVED IN GEOSPATI AL INFORMATION SYSTEM, M/S. ROLTA INDIA LTD., AS PER ITS PROFILE GIVEN BY THE ASSESSEE ITSELF, IS A PROVIDER AND DEVELOPER OF DIGITAL MAP BASED G EOSPATIAL INFORMATION SYSTEM AND, THUS, IT IS EXACTLY SIMILAR TO GENESY S. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 27 30. HERE ALSO, THE WORK PROFILE OF THE COMPARABLE S OUGHT TO BE EXCLUDED, I.E., GENESYS, IS ENTIRELY DIFFERENT FROM THAT OF T HE ASSESSEE. GENESYS IS ENGAGED IN THE BUSINESS OF PROVIDING GEOSPATIAL IN FORMATION SYSTEM SERVICES, WHICH IS NOT AT ALL THE CALLING OF THE A SSESSEE. TO REITERATE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROV IDING LOW AND CONTRACT SOFTWARE DEVELOPMENT SERVICES TO ITS AE. THEREFORE, ON THIS VERY BASIS, GENESYS NEEDS TO BE EXCLUDED FROM THE SET OF COMPAR ABLES. IT IS NOTEWORTHY THAT THIS COMPANY WAS EXCLUDED BY THE LD. DRP IN TH E ASSESSEES CASE FOR AY 2008-09. HOWEVER, WHILE UPHOLDING THE INCLUSION THI S WAS OF GENESYS IN THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION , THE LD. DRP HAS NOT POINTED OUT ANY DISTINGUISHING FEATURES OR FACTS DI FFERENT FROM THOSE IN AY 2008-09. MOREOVER, REFERENCE BY THE LD. DR TO M/S. ROLTA INDIA LTD., AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE, HAS R ATHER AIDED THE CAUSE OF THE ASSESSEE, IN ASMUCH AS M/S. ROLTA INDIA LTD. IS AL SO INTO GIS SERVICES AND THOUGH INITIALLY INCLUDED, IT WAS ULTIMATELY EXCLU DED FROM THE SET OF COMPARABLES. 31. THE ASSESSEE HAS SOUGHT TO EXCLUDE COSMIC GLOBA L LTD. AND INFOSYS LTD. FROM THE FINAL SET UP OF COMPARABLES. HOWEVER, IT IS SEEN THAT IF THE FOREX GAIN AND THE FIRST THREE COMPARABLES, I.E., 3 D PLM, BODHTREE CONSULTING LTD. AND GENESYS INTERNATIONAL CORPORATI ON LTD. ARE EXCLUDED, ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 28 THE OP/OC OF THE REMAINING NINE COMPARABLE COMPANI ES, AS TAKEN BY THE TPO, WORKS OUT AT 19.56%, AS AGAINST THE ASSESSEE S OP/OC OF 18.15%, WHICH FALLS WITHIN THE +/- 5% RANGE, AS PROVIDED I N THE PROVISO TO SECTION 92C(1) OF THE ACT. THEREFORE, WE FIND NO NEED TO GO INTO THE MERITS OF THE COMPARABILITY OF THE REMAINING TWO COMPANIES, I.E., COSMIC GLOBAL LTD. AND INFOSYS LTD. , AND WE ARE NOT DOING SO. 32. HENCE, THE ADJUSTMENT MADE BY THE TPO, AS CONFI RMED BY THE LD. DRP, IS DELETED, SUBJECT TO THE VERIFICATION TO BE MADE BY THE TPO, AS DIRECTED BY US HEREINBEFORE. 33. ACCORDINGLY, GROUND NO.2 OF THE MODIFIED GROUND S OF APPEAL IS PARTLY ACCEPTED., AS ABOVE. 34. IN VIEW OF OUR DISCUSSION OF AND DECISION ON GR OUND NO.2 OF THE MODIFIED GROUNDS OF APPEAL, GROUND NOS. 3, 4 & 6 ( OF THE ORIGINAL GROUNDS OF APPEAL) ARE ALSO NOT REQUIRED TO BE GONE INTO AND WE ARE NOT DOING SO. 35. NOW, TURNING TO THE REMAINING EFFECTIVE GROUND S IN THE ORIGINAL GROUNDS OF APPEAL, THE LD. COUNSEL FOR THE ASSESSE E HAS CHOSEN NOT TO PRESS GROUND NOS. 5, 7 & 8. GROUND NOS. 5, 7 & 8 ARE, THE REFORE, REJECTED AS NOT PRESSED. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 29 36. GROUND NO.9 OF THE ORIGINAL GROUNDS PERTAINS T O THE CORORATE-TAX ISSUE. IT CHALLENGES THE EXCLUSION OF UNREALIZED FO REX GAIN FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, FOR COMPUTING DEDU CTION U/S 10A OF THE ACT. AS PER THE RECORD, DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE EARNED NET FOREIGN EXCHANGE GAIN OF RS.15,99,29,779/-, AS FOLLOWS: NATURE OF LOSS AMOUNT IN (RS) EXCHANGE GAIN RELATED TO SUNDRY DEBTORS REALISED GAIN 10,41,77,395 UNREALISED GAIN 4,12,39,516 TOTAL EXCHANGE GAIN RELATED TO SUNDRY CREDITORS 14,54,16,911 EXCHANGE GAIN RELATED TO SUNDRY CREDITORS REALISED GAIN (72,81,213) UNREALISED GAIN (36,70,082) TOTAL EXCHANGE GAIN RELATED TO SUNDRY CREDITORS (1,09,51,295) EXCHANGE GAIN RELATED OTHER REVENUE ITEM 2,54,64,163 15,99,29,779 37. THIS AMOUNT WAS CREDITED TO THE PROFIT & LOSS A CCOUNT AND WAS OFFERED FOR TAX AS BUSINESS INCOME. HOWEVER, THE AO DISALLO WED AN AMOUNT OF ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 30 RS.3,75,69,434/- REPRESENTING UNREALIZED FOREIGN EX CHANGE GAIN ARISING ON ACCOUNT OF REINSTATEMENT OF DEBTORS AND CREDITORS O UTSTANDING AT THE END OF THE RELEVANT FINANCIAL YEAR. THE AO OBSERVED THAT M ERE REINSTATEMENT OF BOOKS OF ACCOUNT CANNOT BE TREATED AS PROFIT OF THE UNDERTAKING OR EXPORT TURNOVER FROM THE EXPORT ACTIVITY ELIGIBLE FOR DEDU CTION U/S 10A OF THE ACT. THIS ACTION OF THE AO WAS UPHELD BY THE LD. DRP. 38. AS PER THE ASSESSEE, THIS ISSUE IS COVERED IN ITS FAVOUR BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS . WOODWARD GOVERNOR INDIA (P.) LTD., 312 ITR 254 (SC). THIS HAS NOT BE EN DISPUTED BY THE LD. DR AND NO DECISION CONTRARY TO WOODWARD GOVERNOR INDI A (P) LTD. (SUPRA), HAS BEEN BROUGHT TO OUR NOTICE. 39. THEREFORE, IN ACCORDANCE WITH WOODWARD GOVERNO R INDIA (P) LTD. (SUPRA), THE NET FOREIGN EXCHANGE FLUCTUATION GAIN BOOKED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS DIRECTED TO BE INCLUDED IN THE EXPORT TURNOVER FOR COMPUTING DEDUCTION U/S 10A OF THE ACT. ACCORDINGLY , GROUND NO.9 OF THE ORIGINAL GROUNDS OF APPEAL IS ACCEPTED. 40. AS PER GROUND NO.10 OF THE ORIGINAL GROUNDS OF APPEAL, REALIZED FOREX GAIN NEEDS TO BE INCLUDED IN BOTH, THE EXPORT TURNOVER AND THE TOTAL TURNOVER, FOR COMPUTING DEDUCTION U/S 10A OF THE AC T. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 31 41. HERE, THE AO INCLUDED FOREIGN EXCHANGE GAIN AMO UNTING TO RS.9,68,96,182/- IN THE ASSESSEES TOTAL TURNOVER, BUT DID NOT INCLUDED IT IN THE ASSESSEES EXPORT TURNOVER. THE LD. DRP CONFIRM ED THIS. 42. THE ASSESSEE CONTENDS THAT THE FOREIGN EXCHANGE GAIN EARNED BY IT HAS NEVER BEEN INCLUDED IN THE EXPORT TURNOVER, SINCE I T HAS BEEN ACCOUNTED FOR SEPARATELY UNDER THE HEAD FOREIGN EXCHANGE CAPITAL GAIN, WHICH FACT HAS BEEN ACKNOWLEDGED IN THE ASSESSMENT ORDER ITSELF. 43. IT HAS BEEN CONTENDED THAT IT HAS BEEN REPEATED LY JUDICIALLY HELD THAT FOR THE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT , THE TOTAL TURNOVER IN THE DENOMINATOR AND THE EXPORT TURNOVER IN THE NUME RATOR HAVE TO BE READ IN THE SAME MANNER. FOR THIS RELIANCE HAS BEEN PLACED ON THE FOLLOWING CASE LAWS: I) CIT VS. GEM PLUS JEWELLERY INDIA LTD., 330 IT R 175 (BOM.) II) M/S. MICROCHIOP TECHNOLOGY DESIGNS (INDIA) PVT . LTD., ITA NO.1161/BANG/2007 (BANG.) III) M/S. ALTERNATIVE FOOD PROCESS P. LTD. VS. ITO, IT A NO.52/BANG/2008 (BANG.) IV) M/S. GOODRICH AEROSPACE SERVICES P. LTD. VS. DCIT , ITA NO.58/BANG/2008 (BANG.) V) M/S. HEWIETT PACKARD GLOBAL SOFT LTD. IT NO.333/B ANG/208 (BANG) VI) ACIT VS. INFOSYS TECHNOLOGIES LTD., 172 TAXMAN 13 4 (BANG) VII) ITO VS. SERVIO GLOBAL SOLUTIONS LTD., 117 TTJ 380 ( CHENNAI) VIII) I-GATE GLOBAL SOLUTIONS LTD. VS. ACIT, 112 TTJ 10 02 (BANG) IX) TATA ELXSI LTD., 115 TTJ 423 (BANG) AFFIRMED BY KARNATAKA HIGH COURT IN CIT VS. TATA ELXSI LTD.: ITA NO.70/20 09, DECIDED ON 30.8.2011. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 32 X) NOUS INFOSYSTEMS (P) LTD. VS. ITO, ITA NO.1042/BA NG/07 (BANG.) XI) MPHASIS LTD. VS. ACIT, ITA NO.884/BANG/07 (BANG). XII) PATNI TELECOM (P) LTD. V. ITO, 22 SOT 26 (HYD.) XIII) DCIT VS. SOFTSOL INDIA LTD., 22 SOT 271 (HYD) XIV) CIT VS. SITEL OPERATING CORPN. INDIA LTD., IT NO. 153 OF 2011 (KAR HC) XV) DCIT VS. BINARY SEMANTICS LTD., 109 TTJ 556 XVI) ITO VS. SAK SOFT LIMITED, 313 ITR (AT) 353 (CHENN AI ITAT) 44. HERE ALSO, THE DEPARTMENT HAS REMAINED UNABLE T O EFFECTIVELY CONTROVERT THE ASSESSEES CONTENTION. IN GEM PLUS JEWELLERY INDIA LTD. (SUPRA), UNDER SIMILAR CIRCUMSTANCES, IT HAS BEEN H ELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVER, IF AN IT EM IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FR OM THE TOTAL TURNOVER TO MAINTAIN PARITY BETWEEN THE NUMERATOR AND THE DENOM INATOR WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. NO DECISI ON TO THE CONTRARY HAS BEEN BROUGHT TO OUR NOTICE. ALL OTHER CASE LAWS CI TED ON BEHALF OF THE ASSESSEE ALSO REITERATE THAT FOR COMPUTATION OF DED UCTION U/S 10A OF THE ACT, THE TOTAL TURNOVER IN THE DENOMINATOR AND THE EXPOR T TURNOVER IN THE NUMERATOR HAVE TO BE READ IN THE SAME MANNER. THERE FORE, THE ASSESSEE IS CORRECT IN CONTENDING THAT AN EQUIVALENT AMOUNT OF FOREIGN EXCHANGE GAIN ATTRIBUTABLE TO THE DELIVERY OF GOODS OUTSIDE INDIA , AS INCLUDED IN THE TOTAL TURNOVER BY THE AO, IS ALSO ENTITLED TO BE INCLUDED IN THE EXPORT TURNOVER FOR ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 33 PROPER COMPUTATION OF THE DEDUCTION U/S 10A OF THE ACT. THIS CONTENTION BY WAY OF GROUND NO.10 OF THE ORIGINAL GROUNDS IS ACCE PTED. 45. GROUND NO.11 OF THE ORIGINAL GROUNDS OF APPEAL IS CONSEQUENTIAL. 46. ACCORDINGLY, ITA NO.668/MUM/2014 IS PARTLY ALLO WED. ITA NO.1375/MUM/2014 47. THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESSM ENT YEAR 2009-10. THE DEPARTMENTS CHALLENGE IN THIS APPEAL IS TO THE EXP ENDITURE INCURRED IN FOREIGN EXCHANGE, AS EXCLUDIBLE FROM THE TOTAL TURN OVER, FOR THE PURPOSES OF COMPUTING DEDUCTION 10A, WHEREAS THE AO AND THE LD. DRP EXCLUDED IT ONLY FROM THE EXPORT TURNOVER. 48. THIS ISSUE, IT IS SEEN, HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE BY THE LD. DRP, RELYING ON THE DECISION OF THE HONBLE JUR ISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY IN DIA LTD., (SUPRA). 49. THE DEPARTMENT CONTENDS THAT IT HAS NOT ACCEPTE D THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA) AND AN APPEAL THERE AGAINST IS PENDING BEF ORE THE HONBLE SUPREME COURT. 50. HERE, WE FIND THAT IT IS THE DECISION OF THE HO NBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLE RY INDIA LTD. (SUPRA), WHICH HOLDS THE FIELD, THE OPERATION WHEREOF HAS N OT BEEN SHOWN TO HAVE ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 34 BEEN STAYED ON APPEAL. THE LD. DRP FOLLOWED THIS DE CISION IN FAVOUR OF THE ASSESSEE. THEREFORE, THE APPEAL OF THE DEPARTMENT A GAINST THE DECISION OF THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN GEM PL US JEWELLERY INDIA LTD. (SUPRA), NOTWITHSTANDING, THE ORDER OF THE LD . DRP IS CONFIRMED. 51. ACCORDINGLY, ITA NO.1375/MUM/2012 IS DISMISSED. ITA NO.7415/MUMBAI/2014 52 THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2010-11 AGAINST THE ORDER DATED 26 TH SEPT., 2014, PASSED BY THE LD. DRP. THE ASSESSEE H AS TAKEN THE FOLLOWING GROUNDS: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED AO ERRED IN D ETERMINING THE TOTAL INCOME OF THE APPELLANT AT RS.17,61,98,340 AS AGAIN ST THE RETURNED INCOME OF RS.8,98,670 FLED BY THE APPELLANT. THE GR OUNDS OF THE APPELLANT AGAINST THE ACTION OF THE AO ARE AS FOLLO WS: 1. THE ASSESSMENT ORDER DATED NOVEMBER14, 2014, PAS SED BY THE AO UNDER SECTION 143(3) READ WITH SECTION 144C OF T HE ACT IS NOT IN ACCORDANCE WITH THE LAW AND IS CONTRARY TO THE FACT S AND CIRCUMSTANCES OF THE PRESENT CASE. TRANSFER PRICING RELATED GROUNDS 2. THE AO HAS ERRED IN LAW AND ON FACTS IN MAKING A N ADJUSTMENT OF RS.12,72,63,996 TO THE ARMS LENGTH PRICE (ALP ) DETERMINED BY THE APPELLANT IN RESPECT OF THE INTERNATIONAL TRANS ACTIONS IN CONNECTION WITH IT AND ITES ACTIVITY UNDERTAKEN BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES (AE) . IN DOING SO, THE AO HAS ERRED IN LAW AND IN FACTS AD FOLLOWS: 2.1. REJECTING THE TRANSFER PRICING ANALYSIS UNDERT AKEN AND THE COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT. 2.2. NOT COMPUTING ALP IN RESPECT OF THE INTERNATIO NAL TRANSACTIONS AS COMPUTED BY THE APPELLANT AND IN IGNORING THE PR OVISIONS OF RULE 10B(4) OF THE I.T.RULES, 1962 WHICH AUTHORIZES USAGE OF ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 35 MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE ALP UNDER SECTION92F OF THE AC T. 2.3. REJECTING THE OBJECTIONS RAISED BY THE APPELLA NT IN RELATION TO SELECTION/REJECTION OF FILTERS. 2.4. REJECTING THE OBJECTIONS RAISED BY THE APPELLA NT IN RELATION TO SELECTION/REJECTION OF COMPANIES WHILE DETERMINING THE ARMS LENGTH PRICE. 2.5. ERRONEOUSLY RECOMPUTING THE PROFIT LEVEL INDIC ATOR OF THE APPELLANT. 2.6. FAILING TO GRANT THE BENEFIT OF +/- 5 PERCENT RANGE AS ENVISAGED BY THE PROVISIONS OF SECTION 92C(2) OF THE ACT. CORPORATE TAX RELATED GROUNDS. 3. THE AO HAS ERRED IN LAW AND IN FACTS IN DISALLOWING THE FOREIGN EXCHANGE LOSS OF RS.4,80,35,675 ON ACCOUNT OF THE S AME BEING NEITHER ACCRUED NOR AN ACTUAL LOSS. 4. THE AO HAS ERRED IN LAW AND IN FACTS IN PROPOSING TO LEVY INTEREST U/S 234B OF THE ACT. 53. THE FOLLOWING ADDITIONAL GROUND HAS ALSO BEEN SOUGHT TO BE TAKEN : BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED AO ERRED IN DETERMINING THE TOTAL INCOME OF THE APPELLANT AT RS .17,61,98,340 AS AGAINST THE RETURNED INCOME OF RS.8,98,670 FLED BY THE APPELLANT. THE GROUNDS OF THE APPELLANT AGAINST THE ACTION OF THE AO ARE AS FOLLOWS: CORPORATE TAX RELATED GROUND 1. THAT THE HONBLE DRP AND THE AO HAVE ERRED IN N OT CONSIDERING THE DISALLOWANCE OF FOREIGN EXCHANGE LO SS OF RS.2,98,03,522 FOR THE PURPOSE OF RE-COMPUTATION OF PROFITS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. 54. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE HAS STATED AT THE BAR THAT THE ADDITIONAL GROUND IS NOT PRESSED. REJECTED AS N OT PRESSED. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 36 55. GROUND NO.1 IS GENERAL IN NATURE. 56. GROUND NO.2 CHALLENGES THE ADJUSTMENT OF RS.12, 72,63,996/- TO THE ARMS LENGTH PRICE DETERMINED BY THE ASSESSEE IN RE SPECT OF INTERNATIONAL TRANSACTIONS IN CONNECTION WITH IT AND ITES ACTIVIT Y UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE (AE). 57. THE TAXING AUTHORITY SELECTED/REJECTED CERTAIN COMPARABLES. THE TPO COMPUTED 12.10% AS THE ASSESSEES OPERATING PRO FIT MARGIN (OP/TC). AS AGAINST THIS, THE ASSESSEE TOOK 18 COMPARABLES I N ITS TPR, AS FOLLOWS: SR.NO. COMPANY NAME WEIGHTED AVERAGE 1. 3D PLM SOFTWARE SOLUTIONS LTD. 45.28% 2. A S M TECHLOLOGIES LTD. 13.68% 3. BODHTREE CONSULTING LTD. 41.22% 4. CALIFORNIA SOFTWARE CO. LTD. 3.98% 5. COSMIC GLOBAL LTD. 31.98% 6. GOLDSTON TECHNOLOGIES LTD. -1.38% 7. INDUS NETWORKS LTD. 3.00% 8. INTERTEC COMMUNICATION LTD. 7.00% 9. KAASHYAP TECHNOLOGIES LTD. 18.66% 10. MINDTECH (INDIA) LTD. 0.77% ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 37 11. R.S.SOFTWARE (INDIA ) LTD. 8.34% 12 R SYSTEMS INTERNATIONAL LTD. 18.49% 13. S Q L STAR INTERNATIONAL LTD. 7.20% 14. SAGARSOFT (INDIA) LTD. -8.12% 15 SYNETAIROS TECHNOLOGIES LTD. 20.91% 16. ZYLOG SYSTEMS (INDIA ) LTD. -0.01% 17. CORE PROJECTS & TECHNOLOGIES LTD. (SEG) 36.03% 18. ROLTAIONDIA LTD. (SEG) 12.45% AVERAGE (ARITHMETIC MAN) 14.42% 58. AS PER THE RECORD, DURING THE TP PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO SUBMIT THE UPDATED OP/TC FOR THE COMPAR ABLE COMPANIES USING DATA FOR THE ASSESSMENT YEAR 2009-10 ONLY. THIS WA S SUBMITTED BY THE ASSESSEE AS FOLLOWS: SR.NO. COMPANY NAME NCP 1. 3D PLM SOFTWARE SOLUTIONS LTD. 44.11% 2. A S M TECHLOLOGIES LTD. 13.44% 3. BODHTREE CONSULTING LTD. 29.47% 4. CALIFORNIA SOFTWARE CO. LTD. 19.62%% ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 38 5. COSMIC GLOBAL LTD. 18.27% 6. GOLDSTON TECHNOLOGIES LTD. 3.13% 7. INDUS NETWORKS LTD. 2.59% 8. INTERTEC COMMUNICATION LTD. 11.38% 9. KAASHYAP TECHNOLOGIES LTD. 6.48% 10. MINDTECH (INDIA) LTD. -1.60% 11. R.S.SOFTWARE (INDIA ) LTD. 10.27% 12 R SYSTEMS INTERNATIONAL LTD. 20.85% 13. S Q L STAR INTERNATIONAL LTD. -14.31% 14. SAGARSOFT (INDIA) LTD. 11.85% 15 SYNETAIROS TECHNOLOGIES LTD. 19.00% 16. ZYLOG SYSTEMS (INDIA ) LTD. 6.55% 17. CORE PROJECTS & TECHNOLOGIES LTD. (SEG) 63.23% 18. ROLTAIONDIA LTD. (SEG) 14.75% AVERAGE (ARITHMETIC MAN) 16.61% 59. AS EVIDENT, THE ARITHMETIC MEAN OF THE OPERATIN G PROFIT MARGIN OF THESE COMPARABLE COMPANIES WAS 15.51%. AS SUCH, ACCORDING TO THE ASSESSEE, THE ASSESSEES OP/TC FELL WITHIN PERMITTED AL RANGE OF +/-5% AS PROVIDED BY ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 39 THE PROVISO TO SECTION 92C(2) OF THE ACT, REQUIRING NO ADJUSTMENT AS PER THE ASSESSEE. 60. HOWEVER, THE TPO FINALLY SELECTED SEVEN COMPARA BLES, AS FOLLOWS: SR.NO. COMPARABLE COMPANIES NCP 1. COSMIC GLOBAL LTD 16.59% 2. RS SOFTWARE (INDIA ) LTD. 10.27% 3. IGATE GLOBAL SOLUTIONS LTD. 19.19% 4. INFOSYS TECHNOLOGIES LTD. 45.47% 5. KALS INFORMATION SYSTEMS LTD. SEGMENTAL 34.41% 6. MINDTREE LTD. 22.83% 7. PERSISTENT SYSTEMS LTD. 30.56% ARITHM,ETIC MEAN 25.62% 61. OF THE ABOVE, SEVEN COMPARABLES, INFOSYS TECHNO LOLGIES LTD., KALS INFORMATION SYSTEMS LTD., AND PERSISTENT SYSTEMS LT D. ARE THE COMPANIES INTRODUCED BY THE TPO, THOUGH NOT TAKEN AS COMPARAB LES BY THE ASSESSEE. THE TPO, THUS, ARRIVED AT AN AVERAGE PROFIT MARGIN OF 25.62%. 62. ON THE BASIS OF THE ABOVE, THE TPO MADE ADDITI ON ON ACCOUNT OF TP ADJUSTMENT AMOUNTING TO RS.12.72 CRORES. THE DRP UP HELD THIS ADDITION, BRINGING THE ASSESSEE NOW BEFORE US. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 40 63. THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF T HE DRP IN CONFIRMING THE TPOS ACTION OF SELECTING THE ABOVE SAID THREE COMPANIES, I.E., PERSISTENT, INFOSYS AND KALS, AS COMPANIES COMPARAB LE TO THE ASSESSEE. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS C ONTENDED THAT THE SERVICES RENDERED BY THE ASSESSEE INCLUDE PROVIDING LOW-END SOFTWARE DEVELOPMENT AND RELATED SERVICES, I.E., INFORMATION TECHNOLOGY (IT) AND INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND EXPORT THERE OF TO ITS ASSOCIATED ENTERPRISES. THE ASSESSEE OFFERS A RANGE OF SERVICE S, SUCH AS SOFTWARE DEVELOPMENT SERVICES & APPLICATION MAINTENANCE, TES TING SERVICES, LOCALIZATION SERVICES. IT HAS BEEN CONTENDED THAT S O, THE THREE COMPANIES HAVE WRONGLY BEEN TAKEN AS COMPARABLES, SINCE THE ASSESS EE IS NOT INTO SOFTWARE PRODUCT MANUFACTURING. 64. APROPOS PERSISTENT SYSTEMS LTD., IT HAS BEEN CO NTENDED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THE ASS ESSEE; THAT ON PERUSAL OF THE ANNUAL REPORT, IT IS OBSERVED THAT THE COMPANY IS ENGAGED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES; THAT FURTHER , THE COMPANY DERIVES ITS REVENUES PRIMARILY FROM THE SALE OF SOFTWARE SERVI CES AND SOFTWARE PRODUCTS; THAT AS PER THE COMPANYS WEBSITE, IT IS A GLOBAL COMPANY SPECIALIZING IN SOFTWARE PRODUCT AND TECHNOLOGY INNOVATION; AND THA T THE COMPANY UTILIZES ITS PRODUCT ENGINEERING PROCESSES TO DEVELOP BEST-I N/CLASS SOLUTIONS FOR ITS ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 41 CUSTOMERS WHO ARE PLAYERS IN THE TECHNOLOGY, TELECO MMUNICATION, LIFE SCIENCE, HEALTHCARE, BANKING AND CONSUMER PRODUCTS SECTORS. 65. SO FAR AS REGARDS THE INFOSYS TECHNOLOGIES LTD. , IT HAS BEEN CONTENDED THAT FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE; THAT ON PERUSAL OF THE ANNUAL REPORT, IT IS OBSERVED THAT IT PROVIDES END TO END BUSINESS SOLUTIONS THAT LEVERAGE CUTTING-EDGE TECHNOLOGY, THEREBY ENAB LING CLIENTS TO ENHANCE BUSINESS PERFORMANCE; THAT FURTHER, INFOSYS ALSO PR OVIDES SOLUTIONS THAT SPAN THE ENTIRE SOFTWARE LIFECYCLE ENCOMPASSING TECHNICA L CONSULTING, DESIGN, DEVELOPMENT, RE-ENGINEERING, MAINTENANCE, SYSTEMS I NTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION, TESTING AND INFRASTR UCTURE MANAGEMENT SERVICES; AND THAT ADDITIONALLY, INFOSYS ALSO OFFER S SOFTWARE PRODUCTS FOR THE BANKING INDUSTRY. 66. CONCERNING KALS INFORMATION SYSTEM LTD., IT H AS BEEN SUBMITTED THAT ON PERUSAL OF THE ANNUAL REPORT, THE COMPANY CONSIS TS OF AN STPL UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRO DUCTS AND A TRAINING CENTRE ENGAGED IN TRAINING OF SOFTWARE PROFESSIONAL ONLINE PROJECTS; THAT THE COMPANY DERIVES ITS REVENUES PRIMARILY FROM SOFTWA RE SERVICES AND SOFTWARE PRODUCTS; THAT SOME OF THE PRODUCTS SOLD BY THE COM PANY ARE SHINE ERP SOFTWARE, DOCUFLO, DAC4CAST, CMSS, LA VISION VIRTUA L INSURE ETC.; AND THAT ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 42 SINCE KALS LTD. DOES NOT REPORT SEPARATE SEGMENTAL INFORMATION FOR THE DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS, IT C ANNOT BE CONSIDERED AS A COMPARABLE. 67. ON THE OTHER HAND, THE LD. DR HAS SOUGHT TO PLA CE RELIANCE ON THE ASSESSEES TRANSFER PRICING REPORT ( TPR), AS PER W HICH, ACCORDING TO THE LD. DR, THE ASSESSEE IS INTO APPLICATION DEVELOPMENT, WHICH INCLUDES, INTER- ALIA, PRODUCT RELEASE. THEREFORE, ACCORDING TO TH E LD. DR, THE ASSESSEE IS A PRODUCT MANUFACTURING COMPANY. THIS, HOWEVER, HAS BEEN EMPHATICALLY DENIED ON BEHALF OF THE ASSESSEE. IT HAS BEEN CONTE NDED THAT THE TPR IS, IN FACT, BEING GROSSLY MIS-CONSTRUED AND MIS-READ, IN AS MUCH AS PRODUCT RELEASE DOES NOT, IN ANY MANNER, HAVE ANY EQUIVAL ENCE WHATSOEVER WITH PRODUCT MANUFACTURE. AS A MATTER OF FACT, ACCORDI NG TO THE LD. COUNSEL FOR THE ASSESSEE, IF THE TPR IS CORRECTLY CONSTRUED, IT REFERS TO PRODUCT RELEASE ONLY IN THE CONTEXT OF APPLICATION DEVELOPMENT , SOFTWARE DEVELOPMENT BEING THE SOLE BUSINESS ACTIVITY OF THE ASSESSEE. 68. REFERRING TO PAGE 72 OF THE APB, IT WAS POINTED OUT THAT AS DECLARED BY THE ASSESSEE ITSELF, LB INDIA HAS TWO DEVELOPME NT CENTRES IN MUMBAI AND CHENNAI EMPLOYING MORE THAN 1200 PROFESSIONALS. TH E SERVICES RENDERED BY LB INDIA INCLUDE LOW-END, ROUTINE DEVELOPMENT AND MAINTENANCE OF CONTENT APPLICATION AS WELL AS TESTING TO ENSURE TH E QUALITY, INTEROPERABILITY, ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 43 USABILITY AND PERFORMANCE OF THE CLIENTS SOFTWARE, HARDWARE CONSUMER TECHNOLOGY PRODUCTS, WEB-SITES AND CONTENT. LB INDI A HAS AN INTEGRATED MODEL FOR SERVICE DELIVERY THAT ENABLES IT TO OFFE R A RANGE OF OPTIONS INCLUDING LOW-END, ROUTINE, SOFTWARE DEVELOPMENT A ND APPLICATION MAINTENANCE, LOCALIZATION AND TRANSLATION, TESTING SERVICE, ETC., TO THE LIONBRIDGE GROUP AND ALSO TO INDEPENDENT CUSTOMERS. 69. IT WAS FURTHER POINTED OUT THAT GLOBAL DEVELOPM ENT AND TESTING (GDT) THROUGH ITS GDT SOLUTIONS, LB INDIA PROVIDES APPLICATON-OUTSOURCING SERVICES, INCLUDING NEW LOW-END, ROUTINE, SOFTWARE DEVELOPMENT, MAINTENANCE AND USER SUPPORT. APPLICATION DEVELOPME NT INCLUDES TESTING, APPLICATIONS BUILDING, QUALITY ASSURANCE, PROGRAM ASSEMBLY AND PRODUCT RELEASE. APPLICATION MAINTENANCE INCLUDES MINOR MOD IFICATIONS CHANGES, MAINTENANCE OF ALREADY EXISTING LOW-END, ROUTINE, S OFTWARE DEPENDING UPON THE CUSTOMERS REQUIREMENTS. LIONBRIDGES TESTING SERVICES INCLUDE PRODUCT CERTIFICATION AND COMPETITIVE ANALYSIS. LIONBRIDGE PROVIDES ITS GDT SERVICES IN A COST EFFICIENT AND BLENDED ON SITE AND OFFSHOR E MODEL. 70. IT WAS ALSO POINTED OUT THAT CONTENT DEVELOPMEN T CONSISTS OF CONTINUOUS UPDATING AND OTHER ONGOING MANAGEMENT OF THE CLIENTS LOCALIZED LOW-END, ROUTINE, SOFTWARE PRODUCTS AND MULTILINGUA L WEB CONTENT. BY UTILIZING THE LB US AND LI TECHNOLOGY AND INTEGRAT ING THE LB US AND LI ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 44 PROCESSES AND INFRASTRUCTURE WITH THE CLIENT CONTEN T MANAGEMENT PROCESSES AND TECHNOLOGY. LB INDIA IS ABLE TO MANAGE THE CONT ENT DEVELOPMENT IN A SEMI-AUTOMATED MANNER FOR LARGE VOLUMES OF CONTENT. EXAMPLES OF CLIENT CONTENT REQUIRING THESE TYPES OF SERVICES INCLUDE ONLINE SUPPORT SITE MAINTAINED IN MULTIPLE LANGUAGES, LEARNING PROGRAMS AND MARKETING PRODUCT DATABASES ALL OF WHICH ARE FREQUENTLY UPDATED TO RE FLECT THE LATEST PRODUCTS AND TERMINOLOGIES. 71. IT HAS BEEN ARGUED THAT THE SERVICES RENDERED BY THE ASSESSEE GIVE RISE TO INTELLECTUAL PROPERTIES RIGHTS, WHICH RIGHTS ARE VESTED WITH THE ASSESSEES AE IN IRELAND. IT HAS BEEN CONTENDED THAT THE ASSES SEE ITSELF, IN ITS TP STUDY, HAS CHOSEN THESE COMPARABLES HAVING THE PROFILE ID ENTICAL WITH ITSELF. 72. WITH REGARD TO KALS, IT HAS BEEN CONTENDED THAT THIS WAS ALSO THE TPOS COMPARABLE FOR AY 2009-10. ITS MARGIN IS 23%. IT WAS NOT CONTESTED FOR AY 2009-10 AND IT IS NOT COMPREHENSIBLE AS TO HOW, IN THESE FACTS, IT IS NOT A COMPARABLE FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE IS ALSO RENDERING A MIXTURE OF HIGH-END SERVICES AND RE LEASE OF PRODUCTS. THEREFORE, ACCORDING TO THE LD. DR, KALS IS DEFINITELY COM PARABLE TO THE ASSESSEE. MOREOVER, SINCE IT WAS ACCEPTED LAST YEAR, THE ASSE SSEE CANNOT CHERRY-PICK FOR THE YEAR UNDER CONSIDERATION. BESIDES, THERE A RE FOUR COMPANIES TAKEN AS COMPARABLES WHICH ARE PRODUCT MANUFACTURING COMPANI ES, I.E., 3 D PLM ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 45 SOFTWARE SOLUTIONS, R SYSTEMS INTERNATIONAL LTD., G OLDSTONE TECHNOLOGIES LTD., AND ZYLOG SYSTEMS (INDIA ) LTD. SO, ACCORDING TO THE LD. DR, THE ASSESSEE SELECTS AND THEN DETRACTS FROM THESE COMPA RABLES FOR THESE REASONS, WHICH ARE NOT PERMISSIBLE IN LAW. 73. IN THIS REGARD, IT IS SEEN THAT THE ASSESSEE C ANNOT BE FAULTED WITH IN CONTENDING THAT SINCE THE ASSESSEE IS NOT INTO SOFT WARE PRODUCTS MANUFACTURE, IT CANNOT BE COMPARED WITH COMPANIES WHICH ARE NOT INTO THIS ACTIVITY. LIKE CAN BE COMPARED ONLY WITH LIKE, AS IS WELL SETTLED . WE HAVE ALSO HELD SO IN THE ASSESSEES OWN CASE FOR THE AY 2009-10 WHILE DE ALING WITH ITA NO.668/M/2014 (SUPRA) THAT KALS IS INTO PRODUCT MAN UFACTURING SERVICES ( AS PER APB-291), WHEREAS THE ASSESSEE IS ONLY PROVIDI NG SERVICES. COMPLETE SEGMENTAL DATA REGARDING SOFTWARE IS AVAILABLE AT APB 292 WHICH IS, AS FOLLOWS: YEAR ENDED 31.3.2010 31.3.2009 1. SEGMENT REVENUE APPLICATION SOFTWARE TRAINING NET SALES/INCOME FROM OPERATIONS 21692935 1352209 23045144 20533880 870807 21404686 ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 46 2. SEGMENT RESULTS PROFIT/LOSS BEFORE TAX AND INTEREST FROM EACH SEGMENT APPLICATION SOFTWARE TRAINING TOTAL PROFIT INTEREST OTHER INCOME INVESTMENT WRITTEN OFF PRIOR PERIOD OF INCOME TOTAL PROFIT BEFORE TAX 5553647 -140594 5413057 - 2103759 - ------------------ 5373695 6064571 -145053 4614040 - 2784259 - ------------------ 4586475 3. OTHER INFORMATION SEGMENT ASSETS ( NET OF LIABILITIES) APPLICATION SOFTWARE TRAINING & INVESTMENTS TOTAL 27185317 27147046 54332363 17752290 30407835 48160125 4. SALES OVERSEAS APPLICATION SOFTWARE DOMESTIC TRAINING TRANSLATION & INTERPRETATION 21692935 267961 1084248 20533880 704683 166123 SO, IT IS NOT POSSIBLE TO MAKE A COMPARISON. 74. IN THIS REGARD, THE DRP HAS HELD AS FOLLOWS: 2.2 BEFORE US THE ARS OBJECTED TO SELECTION OF 3 F RESH COMPARABLE BY THE TPO AS ERRONEOUS INCLUSION. TWO OUT OF THREE COMPARABLES VIZ. M/S. INFOSYS TECHNOLOGIES LTD. AND M/S. KALS INFOSY S LTD. WERE REJECTED BY THE TPO IN THE PREVIOUS YEAR AS WELL, W HICH WAS AGITATED BEFORE THE PREDECESSOR DRO. AFTER A DETAILED DISCU SSION THE PANEL HAD UPHELD THE ACTION OF THE AO IN CONSIDERING THES E TWO COMPARABLE. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 47 SINCE THE FACTS AND THE CIRCUMSTANCES ARE IDENTICAL THIS PANEL UPHELD THE ACTION OF THE AO IN INCLUDING THESE TWO COMPARA BLE, THEREFORE NO INTERFERENCE IS CALLED FOR. APROPOS KALS, THE DRP, FOR THE YEAR UNDER CONSIDERA TION, FOLLOWED THE DRPS ORDER FOR THE ASSESSMENT YEAR 2009-10, WHICH READS THUS: KALS INFORMATION SYSTEMS LTD. HAS REVENUE FROM BOT H SOFTWARE DEVELOPMENT AND NOT SOFTWARE PRODUCTS. AS SUCH THE SAME IS SAID TO BE FUNCTIONALITY NOT COMPARABLE WITH THE ASSESSEE. TH IS COMPANY IS INTO THE BUSINESS OF SOFTWARE DEVELOPMENT AND TRAINING. SEGMENTAL RESULTS ARE AVAILABLE. THERE CANNOT BE DISPUTE IF SEGMENTA L RESULTS OF SOFTWARE SEGMENT ARE USED FOR COMPARISON. TPO IS DI RECTED TO DETERMINE THE MEAN PROFITABILITY ON THE BASIS OF SE GMENTAL RESULTS OF SOFTWARE DEVELOPMENT OF THIS COMPANY FOR COMPARISON AND DETERMINATION OF MEAN PLI. SO, FOR THE AY 2009-10, SEGMENTAL DATA REGARDING P RODUCTS MANUFACTURED AND SERVICES RENDERED WAS AVAILABLE. 75. THUS, FOR THE ASSESSMENT YEAR 2009-10, AS PER T HE DRP, SEGMENTAL RESULTS OF SOFTWARE DEVELOPMENT WERE AVAILABLE. IT WAS, THEREFORE, THAT THE TPO WAS DIRECTED BY THE DRP TO MAKE A COMPARISON CO NSIDERING SEGMENTAL RESULTS OF THE SOFTWARE DEVELOPMENT SEGMENT OF KAL S AND TO THEREBY DETERMINE THE MEAN PLI OF THE COMPARABLES. 76. SUCH FINDING OF THE DRP FOR AY 2009-10 STANDS FINAL. THIS IS DUE TO THE FACT THAT COMPARABILITY ONLY WITH THREE COMPAN IES, I.E. 3D PLM, BODHTREE AND GENESYS SERVED THE ASSESSEES PURPOSE FOR THAT YEAR AND ON OUR CALL, THE ASSESSEE WAS NOT REQUIRED TO GO INTO THE OTHER COMPARABLES. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 48 77. HOWEVER, THE SAID FINALITY OF THE DRP ORDER IN AY 2009-10 REGARDING KALS CANNOT BE TAKEN IN ANY MANNER DETRIMENTAL TO THE ASSESSEE QUA THE YEAR UNDER CONSIDERATION. IT IS TRITE THAT EACH YE AR IS INDEPENDENT AND FACTS ARE TO BE VIEWED AND DECIDED FOR EACH YEAR SEPARAT ELY. 78. SO, WE HAVE TO CONSIDER THE COMPARABILITY OR OT HERWISE OF KALS WITH THE ASSESSEE REGARDING THE YEAR UNDER CONSIDERATIO N SEPARATELY AND NOW WE ARE PROCEEDING TO DO SO. 79. IN THIS REGARD, IT IS SEEN THAT THE AUDITED FIN ANCIALS OF KALS FOR AY 2010-11 ARE AT APB 271 298. AT APB 291, IS SCHED ULE NO. 14, I.E., NOTES TO THE FINANCIAL STATEMENTS. IN PARA -1 THEREOF, I T IS STATED AS FOLLOWS: THE COMPANY WAS INCORPORATED UNDER THE COMPANIES AC T, 1956 AS A PRIVATE LIMITED COMPANY IN THE YEAR 1993. SUBSEQUEN TLY THE COMPANY WAS CONVERTED INTO A PUBLIC LIMITED COMPANY IN THE YEAR 2000. THE COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND S OFTWARE PRODUCTS SINCE ITS INCEPTION. THE COMPANY CONSISTIN G OF STPL UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PR ODUCTS AND A TRAINING CENTRE ENGAGED IN TRAINING OF SOFTWARE PRO FESSIONALS ON ONLINE PROJECTS. 80. THIS CLEARLY SHOWS THAT KALS IS INTO DEVELOPME NT OF SOFTWARE AND SOFTWARE PRODUCTS. 81. THE SEGMENTAL INFORMATION OF KALS IS AVAILABLE AT APB 293, AS FOLLOWS: YEAR ENDED 31.3.2010 31.3.2009 1. SEGMENT REVENUE ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 49 APPLICATION SOFTWARE TRAINING NET SALES/INCOME FROM OPERATIONS 21692935 1352209 23045144 20533880 870807 21404686 2. SEGMENT RESULTS PROFIT/LOSS BEFORE TAX AND INTEREST FROM EACH SEGMENT APPLICATION SOFTWARE TRAINING TOTAL PROFIT INTEREST OTHER INCOME INVESTMENT WRITTEN OFF PRIOR PERIOD OF INCOME TOTAL PROFIT BEFORE TAX 5553647 -140594 5413057 - 2103759 - ------------------ 5373695 6064571 -145053 4614040 - 2784259 - ------------------ 4586475 3. OTHER INFORMATION SEGMENT ASSETS ( NET OF LIABILITIES) APPLICATION SOFTWARE TRAINING & INVESTMENTS TOTAL 27185317 27147046 54332363 17752290 30407835 48160125 4. SALES OVERSEAS APPLICATION SOFTWARE DOMESTIC TRAINING TRANSLATION & INTERPRETATION 21692935 267961 1084248 20533880 704683 166123 82. FROM THE ABOVE, IT IS EVIDENT THAT SEGMENTAL IN FORMATION OF KALS REGARDING ITS SOFTWARE DEVELOPMENT SEGMENT IS NOT AVAILABLE. THEREFORE, COMPARISON OF THE ASSESSEE, WHO IS INTO SOFTWARE DE VELOPMENT ONLY, WITH THE SOFTWARE DEVELOPMENT SEGMENT OF KALS IS NOT POSSIB LE. THEREFORE, FINDING ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 50 THE FUNCTIONALITY OF KALS INCOMPARRABLE WITH THE A SSESSEE, WE REJECT THIS COMPANY AS A COMPARABLE. WE HOLD THAT THE DRP HAS ERRED IN CONFIRMING THE TPOS ACTION INCLUDING KALS AS A COMPARABLE. 83. APROPOS PERSISTENT SYSTEMS LTD., IT IS AN OFFSH ORE SOFTWARE PRODUCT DEVELOPMENT COMPANY, AS AVAILABLE AT APB 305. IN THIS REGARD, THE ASSESSEE HAS CONTENDED THAT THE COMPANY DERIVES ITS REVENUES PRIMARILY FROM SALE OF SOFTWARE SERVICES AND SOFTWARE PRODUCTS. IT WAS FUR THER SUBMITTED THAT THIS COMPANY IS A GLOBAL COMPANY SPECIALIZING IN SOFTWA RE PRODUCT AND TECHNOLOGY INNOVATION. THE COMPANY UTILIZES ITS PRO DUCT ENGINEERING PROCESSES TO DEVELOP BEST-IN-CLASS SOLUTIONS FOR IT S CUSTOMERS WHO ARE PLAYERS IN THE TECHNOLOGY, TELECOMMUNICATION, LIFE SCIENCE, HEALTHCARE, BANKING AND CONSUMER PRODUCTS SECTORS. 84. ON THE OTHER HAND, THE LD. DR, AGAIN, LIKE IN T HE CASE OF KALS, STATES THE ASSESSEE TO BE A PRODUCT MANUFACTURING COMPANY. 85. HOWEVER, WHILE DEALING WITH KALS, WE HAVE REJE CTED THIS COMPANY AS A COMPARABLE. LIKE-WISE, WE HOLD THAT PERSISTENT SYSTEMS LTD., HAS ALSO NOT BEEN CORRECTLY CHOSEN AS ACOMPARABLE. THIS COM PARABLE IS ALSO REJECTED. 86. COMING TO INFOSYS TECHNOLOGIES LTD.. THE ASSE SSEES CONTENTION IS THAT IT PROVIDES END-TO-END BUSINESS SOLUTIONS THAT LEVERAGE CUTTING-EDGE TECHNOLOGY, THEREBY ENABLING CLIENTS TO ENHANCE BUS INESS PERFORMANCE. IT ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 51 WAS FURTHER CONTENDED THAT INFOSYS ALSO PROVIDES SO LUTIONS THAT SPAN THE ENTIRE SOFTWARE LIFECYCLE ENCOMPASSING TECHNICAL CO NSULTING, DESIGN, DEVELOPMENT, RE-ENGINEERING, MAINTENANCE, SYSTEMS I NTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION, TESTING AND INFRASTR UCTURE MANAGEMENT SERVICES. THIS COMPANY ALSO OFFERS SOFTWARE PRODUCT S FOR THE BANKING INDUSTRY. 87. IT HAS BEEN CONTENDED THAT (AS AVAILABLE AT APB 452 IN PARA 4 & 7 AND AT APB 461 IN PARA 5 ) 4. FINACLE: FINACLE FROM INFOSYS PARTNERS WITH BANKS ACROSS THE GLOBE TO POWER THEIR INNOVATION AGENDA, ENABLING T HEM TO DIFFERENTIATE THEIR PRODUCTS AND SERVICES, ENHANCE CUSTOMER EXPERIENCE AND ACHIEVE GREATER OPERATIONAL EFFICIEN CY. FINACLE SOLUTIONS ADDRESS WORLD-WIDE BANKING NEEDS SUCH AS CORE BANKING, WEALTH MANAGEMENT. CUSTOMER RELATIONSHIP MANAGER (C RM). ISLAMIC BANKING AND TREASURY REQUIREMENTS OF RETAIL CORPORA TE AND UNIVERSAL BANKING. FINACLE SOLUTIONS ALSO EMPOWER BANKS WITH MULTIPLE SALES, SERVICE AND MARKETING CHANNELS INCLUDING E-BANKING, MOBILE BANKING AND CALL CENTERS. RECENTLY FINACLE HAS LAUNCHED A S LEW OF INNOVATIVE OFFERINGS INCLUDING FINACLE ADVISOR,. FINACLE TREAU SRY-IN-A-BOX. FINACLE CORE BANKING FOR RURAL REGIONAL BANKS AND FINACLE FINANCIAL INCLUSION SOLUTIONS. THESE OFFERINGS MAKE FINACLE A STRONG INNOVATION FACILITATOR ENABLING BANKS TO ACCELERATE GROWTH WHI LE MAXIMIZING VALUE FROM THEIR LARGE-SCALE BUSINESS TRANSFORMATIO N. FINACLE IS THE CHOSEN SOLUTION IN OVER 130 BANKS AC ROSS 65 COUNTRIES HELPING THEM SERVE MORE THAN 30,000 BRANCHES. THESE INCLUDE OVER 2,000 BRANCHES OF REGIONAL RURAL BANKS IN INDIA WHI CH ARE LEADING THE FINANCIAL INCLUSION INITIATIVE IN THE COUNTRY INDEP ENDENT REPORTS BY RENOWNED RESEARCH FIRMS HAVE POSITIONED FINACLE AMO NG THE LEADERS IN THE GLOBAL EVALUATION OF RETAIL CORE BANKING SOL UTION VENDORS. FINACLE IS ONE OF THE MOST SCALABLE CORE BANKING SO LUTIONS IN THE WORLD WITH AN UNPARALLELED PERFORMANCE BENCHMARK OF 104 MILLION EFFECTIVE TRANSACTIONS PER HOUR (29,010 ETPS). ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 52 7. BRANDING: WE BELIEVE THAT THE INFOSYS BRAND IS ONE OF THE MOST IMPORTANT INTANGIBLE ASPECTS THAT WE OWN. DURING TH IS FISCAL YEAR, WE HAVE BEEN APPRECIATED BY THE FOLLOWING BODIES AS A RECOGNITION OF HOW WE APPEAR AND CONDUCT BUSINESS. RANKED AS THE MOST ADMIRED COMPANY IN INDIA ACCORDI NG TO THE WALL STREET JOURNAL SURVEY. RANKED AMONG THE 50 MOST RESPECTED COMPANIES IN THE WORLD BY REPUTATION INSTITUTES GLOBAL REPUTATION PULSE 2 009. RANKED AMONG THE TOP 25 COMPANIES IN BUSINESS WEEK S INFOTECH 100. RANKED AMONG THE TOP 25 COMPANIES IN THE WORLD FOR DEVELOPING LEADERS BY FORTUNE/HEWITT. RANKED AS THE BEST COMPANY TO WORK FOR IN INDIA FOR BUSINESS TODAYS NINTH SURVEY OF BEST COMPANIES TO WORK FOR . INDUSTRY ANALYSIS RATES AS HIGHLY IN REPORTS ON OU R KEY SERVICES AND MARKETS. THE SERVICES FOR WHICH WE WERE RATED HIGHL Y INCLUDE, SERVICE ORIENTED ARCHITECTURE, ORACLE SERVICE PROVIDERS. C OMPREHENSIVE FINANCE AND ACCOUNTING BUSINESS PROCESS OUTSOURCIN G, AND ALSO FOR THE FINACLE PRODUCT SUITE. WE HAD OVER A MILLION VISITS TO OUR BLOGS ON BUSIN ESS AND TECHNOLOGY RELATED TOPICS ON OUR WEBSITE WWWINFOSYS.COM DURING THE YEAR. OUR EMPLOYEES CONTRIBUTED AND PUBLISHED SEVERAL THOUGHT LEADERSHIP ARTICLES ACROSS VARIOUS INDUSTRY FOR A AND PUBLICAT IONS. WE LEVERAGED SOCIAL MEDIA PLATFORMS AND ENGAGED WITH OUR STAKEHO LDERS AND INVESTORS ON YOU TUBE, SLIDE SHARE. TWITTER AND FA CEBOOK. LEADING GLOBAL PUBLICATIONS WROTE ABOUT US, OUR LE ADERSHIP, OUR TALENT AND OUR PERFORMANCE. WE CONTINUED TO HAVE LE ADERSHIP PRESENCE AT PREMIER INDUSTRY EVENTS LIKE ORACLE OP EN WORLD AND SAPPHIRE. OUR ANNUAL CLIENT EVENTS IN THE U.S. AND EUROPE WERE WELL ATTENDED AND HIGHLY APPRECIATED. AT THE WORLD ECONO MIC FORUM IN DAVOS, SWITZERLAND, OUR LUNCH PANEL DISCUSSION WITN ESSED A (FULL AUDIENCE AND THE EVENING GET-TOGETHER HOSTED BY US WAS ATTENDED BY SOME OF THE MOST INFLUENTIAL AND POWERFUL GLOBAL BU SINESS LEADERS. 5. OUR END TO END SOLUTIONS: WE COMPLEMENT OUR INDU STRY EXPENSE WITH SPECIALIZED SUPPORT FOR OUR CLIENTS. WE ALSO L EVERAGE THE EXPENSE OF OUR VARIOUS CENTERS OF EXCELLENCE AND OUR SOFTWA RE ENGINEERING GROUP AND TECHNOLOGY LAB TO CREATE CUSTOMIZED SOLUT IONS FOR OUR ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 53 CLIENTS. IN ADDITION, WE CONTINUALLY EVALUATE AND TRAIN OUR PROFESSIONALS IN NEW TECHNOLOGIES AND METHODOLOGIES . FINALLY, WE ENSURE THE INTEGRITY OF OUR SERVICE DELIVERY BY UTI LIZING A SCALABLE AND SECURE INFRASTRUCTURE. WE GENERALLY ASSUME FULL PROJECT MANAGEMENT RESPONS IBILITY IN EACH OF OUR SOLUTION OFFERINGS. WE STRICTLY ADHERE TO O UR SFI-CMM LEVEL 5 INTERNAL QUALITY AND PROJECT MANAGEMENT PROCESSES. OUR PROJECT DELIVERY FOCUS IS SUPPLEMENTED BY A ROBUST KNOWLEDG E MANAGEMENT SYSTEM THAT ENABLES US TO LEVERAGE EXISTING SOLUTIO NS ACROSS OUR COMPANY. WE USE IN-HOUSE TOOLS FOR PROJECT MANAGEME NT AND SOFTWARE LIFECYCLE SUPPORT. WE BELIEVE THAT OUR PRO CESS, METHODOLOGIES, KNOWLEDGE MANAGEMENT SYSTEMS AND TOO LS REDUCE THE OVERALL COST TO THE CLIENT, MITIGATE RISKS, ENHANCE THE QUALITY OF OUR OFFERINGS AND ALLOW CLIENTS TO IMPROVE TIME TO MAR KET FOR THEIR SOLUTIONS. REVENUES ATTRIBUTABLE TO CUSTOM APPLICAT ION DEVELOPMENT, MAINTENANCE AND PRODUCTION SUPPORT, PRODUCT ENGINEE RING, PACKAGE- ENABLED CONSULTING AND IMPLEMENTATION AND TECHNOL OGY CONSULTING SERVICES REPRESENTED A MAJORITY OF OUR TOTAL REVENU ES IN FISCAL 2010. 88. INFOSYS IS INTO CUSTOMIZED SOLUTIONS, WHICH IS NOT THE CALLING OF THE ASSESSEE. IT HAS BEEN POINTED OUT THAT AS PER APB 4 64, INFOSYS IS INTO SOFTWARE SERVICES AND PRODUCTS, ONSITE AND OFFSHOR E. IT HAS BEEN CONTENDED THAT THE ASSESSEE IS NOT DOING ANY ONSITE BUSINES S. IT HAS BEEN SUBMITTED THAT AS PER APB 464 [PARA 1(B)], INFOSYS IS EARNIN G REVENUE FROM SOFTWARE PRODUCTS. IT HAS FURTHER BEEN POINTED OUT THAT AS PER THE COMPANYS OVER- VIEW (APB 478 PARA -1), INFOSYS PROVIDES END TO E ND BUSINESS SOLUTIONS THAT LEVERAGE CUTTING-EDGE TECHNOLOGY, THEREBY ENAB LING ITS CLIENTS TO ENHANCE BUSINESS PERFORMANCE. THE COMPANY PROVIDES SOLUTIONS THAT SPAN THE ENTIRE SOFTWARE LIFECYCLE ENCOMPASSING TECHNICA L CONSULTING, DESIGN, ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 54 DEVELOPMENT, RE-ENGINEERING, MAINTENANCE, SYSTEMS I NTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION, TESTING AND INFRASTR UCTURE MANAGEMENT SERVICES. IN ADDITION, THE COMPANY OFFERS SOFTWARE PRODUCTS FOR THE BANKING INDUSTRY. 89. IT HAS ALSO BEEN POINTED OUT AS PER APB 454, PA RA 20, INFOSYS HAS A STRENGTH OF 92,688 EMPLOYEES. IT HAS FURTHER BEEN P OINTED OUT THAT PER CONTRA, THE ASSESSEE COMPANY HAS A TEAM OF APPROXIMATELY 46 00 EMPLOYEES ONLY, OUT OF WHOM, 1600 ARE PROFESSIONALS. IT HAS BEEN CO NTENDED THAT IN THE CASE OF AGNITY INDIA TECHNOLOGIES P. LTD., ITA/1204/1 1 (HC DELHI), INFOSYS HAS BEEN REJECTED AS A COMPARABLE. 90. ON THE OTHER HAND, THE LD. DR HAS ADOPTED THE S AME ARGUMENT AS IN THE CASE OF KALS. 91. IN THIS REGARD, IT IS SEEN THAT THE DRP, FOR TH E AY 2009-10, OBSERVED, WITH REGARD TO INFOSYS, AS FOLLOWS: 4.3.3. INFOSYS TECHNOLOGIES LIMITED IS SAID TO BE A LARGE COMPANY AND NOT COMPARABLE WITH THE ASSESSEE COMPAN Y FOR THE REASON THAT IT OPERATES AS FULL-FLEDGED RISK TAKIN G ENTERPRISES, HAVING DIVERSIFIED ACTIVITIES LIKE CONSULTING APPLICATION DESIGN, DEVELOPMENT, RE-ENGINEERING AND MAINTENANCE SYSTEM INTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION AND BUSINESS PROCESS MANAGEMENT, ETC., HIGH TURNOVER EXCEEDING RS.20,000 CRORES, HA VING LARGE NUMBERS OF PATENTED PRODUCTS, SPENDS ABOUT RS.276 CRORES IN R & D, AND HAS ABOUT 50% ONSITE DEVELOPMENT REVENUE. FURTHER RELIA NCE IS ALSO PLACED ON THE JUDGMENT OF DELHI HIGH COURT IN CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PRIVATE LIMITED ( ITA NO.1204/20 11) WHEREIN IT WAS CONCLUDED THAT INFOSYS IS NOT COMPARABLE SINCE IT IS A LARGE AND ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 55 BIGGER COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWA RE AND THE PROFITS EARNED BY IT CANNOT BE BENCHMARKED WITH THE ASSESSE E. HOWEVER, AS PER RULE 10B(2), TURNOVER IS NOT AN VALID FILTER. THERE IS NO RELATIONSHIP BETWEEN TURNOVER AND MARGIN OF A COMPA NY. THE ASSESSEE HAS NOT DEMONSTRATED, HOW THE TURNOVER AFFECTS, THE MARGIN. THEREFORE, THE TURNOVER IS NOT REGARDED AS A VALID FILTER AND THE OBJECTION OF ASSESSEE IS DISMISSED. THE OTHER GROUN DS OF OBJECTION ARE ALSO NOT SUSTAINABLE. DECISIVE FACTORS FOR DETERMIN ING THE INCLUSION FOR EXCLUSION OF A COMPARABLE ARE PRESCRIBED IN RULE 10 B(2). THE REASONS FOR EXCLUSION ARGUED BY THE ASSESSEE DONT FIND PLA CE IN THE RULES PRESCRIBED. ITAT MUMBAI IN CASE OF WILLS PROCESSIN G IN ITA NO.4429/MUM/2012 IN ORDER DATED 01.03.2012 HAS HELD IN PARA 47.5 THAT THERE IS NO RELATIONSHIP BETWEEN TURNOVER AND MARGIN OF AN ENTITY. THE TURNOVER IS NOT A CRITERIA PRESCRIBED UNDER RUL E 10B(2) FOR SELECTING THE COMPARABLE. FURTHER INFOSYS BPO LTD. HAS BEEN HELD IN WILLS PROCESSING CASE AS A VALID COMPARABLE. THE AC TIVITIES OF INFOSYS ARE SIMILAR TO THOSE OF THE ASSESSEE. VARIOUS OBJEC TIONS TAKEN BY THE ASSESSEE ARE NOT TENABLE IN VIEW OF THE SPECIFIC PR OVISIONS OF RULE 10B(2). HENCE, THE OBJECTION AGAINST INFOSYS IS HER EBY REJECTED. 92. SO, FOR AY 2009-10, THE DRP HELD THAT INFOSYS C OULD NOT BE EXCLUDED ON THE BASIS OF THE TURNOVER. BUT FOR THE YEAR UND ER CONSIDERATION, IT IS SEEN THAT THE ASSESSEES CHALLENGE TO INFOSYS IS NOT O N THIS BASIS. THE ASSESSEES CONTENTION IS THAT INFOSYS IS FUNCTIONALLY DIFFEREN T FROM THE ASSESSEE, AS ABOVE. 93. THIS GRIEVANCE OF THE ASSESSEE IS ALSO FOUND TO BE CORRECT. INFOSYS HAS NOT BEEN SHOWN TO BE AT PARITY WITH THE ASSESSEE, ON THE BASIS OF FUNCTIONALITY. ITS FUNCTIONALITY IS ENTIRELY DIFFER ENT FROM THAT OF THE ASSESSEE, AS SEEN IN THE PRECEDING PARAGRAPHS. THEREFORE, WE REJECT INFOSYS AS A COMPARABLE. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 56 94. THEREFORE, GROUND NO.2 IS ACCEPTED, AS INDICATE D. 95. IN VIEW OF THE ABOVE, THE FINAL SET OF COMPANIE S COMPARABLE TO THE ASSESSEE WOULD BE AS FOLLOW: SR.NO. NAME OF THE COMPANY NCP(%) 1. COSMIC GLOBAL LTD 16.59% 2. I-GATE GLOBAL SOLUTIONS LTD. 19.19% 3. MINDTREE LTD. 22.83% 4. R.S. SOFTWARE (INDIA) LTD. 10.27% ARITHMETIC MEAN 17.22% APPELLANTS MARGIN (COMPUTED BY TPO) 12.10% 96. APROPOS CORPORATE TAX RELATED GROUNDS, AS PER G ROUND NO.3, THE AO ERRED IN DISALLOWING THE FOREIGN EXCHANGE LOSS OF RS.4,80,35,675/- ON ACCOUNT OF THE SAME BEING NEITHER ACCRUED NOR AN AC TUAL LOSS. 97. AS PER THE ASSESSEE, THIS ISSUE HAS BEEN DECIDE D IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE BY THE MUMBAI BENCH OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2009-10. 98. THIS CONTENTION OF THE ASSESSEE IS FOUND TO BE CORRECT. AT APB 563 TO 581 IS A COPY OF THE ORDER OF THE MUMBAI TRIBUN AL IN THE ASSESSEES OWN CASE FOR AY 2009-10. ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 57 99. WITH REGARD TO THE ASSESSEE, IT HAS BEEN HELD A S FOLLOWS: 10.1 IN THE DRAFT ASSESSMENT ORDER, THE AO HAS PRO POSED DISALLOWANCE OF FOREIGN EXCHANGE LOSS ON THE GROUND THAT LOSS IS ONLY CONTINGENT AND NOT ALLOWABLE U/S 37(1). THE CONTENT ION OF THE ASSESSEE BEFORE US WAS THAT RELYING ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR (I) PVT. LTD. (SUP RA), THE SAME SHOULD BE ALLOWED OR IN ALTERNATIVE THE PROFIT ELIG IBLE FOR DEDUCTION TAX U/S 10A SHOULD BE INCREASED BY THE CORRESPONDIN G AMOUNT OF SUCH DISALLOWANCE. 10.2. WE HAVE CONSIDERED RIVAL CONTENTIONS. IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F GEM PLUS (SUPRA), WE DIRECT THE AO TO ALLOW THE CLAIM OF DED UCTION U/S 10A ON THE PROFIT OF BUSINESS AS INCREASED BY THE DISALLOW ANCE MADE ON ACCOUNT OF FOREIGN EXCHANGE LOSS. WE DIRECT ACCORD INGLY. 100. FURTHER, FOR THE ASSESSMENT YEAR 2009-10 ALSO, WE HAVE FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT, IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD., 312 ITR 254 (SC), (SUPRA). 101. IN VIEW OF THE ABOVE, GROUND NO.3 IS ACCEPTED. 102. GROUND NO. 4 IS CONSEQUENTIAL. ITA NO. 290/MUM/2014 FOR THE AY 2010-11 103. THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESS MENT YEAR 2010-11. THE ISSUE IN DISPUTE RAISED BY THE DEPARTMENT IN THE PR ESENT APPEAL IS SIMILAR TO THE ISSUE ALREADY ADJUDICATED BY US IN THE REVENUE S APPEAL FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO.1375MUM/2014, HER EINABOVE. SINCE THE FACTS AND CIRCUMSTANCES OF THE GROUND RAISED BY THE REVENUE ARE EXACTLY ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 58 SIMILAR TO THE GROUND TAKEN BY THE REVENUE IN ITA NO.1375/M/2014, ON THE SAME BASIS AS FOR AY 2009-10, THE GROUND RAISED BY THE REVENUE IS DISMISSED. ACCORDINGLY, THE APPEAL IN ITA NO.260/M/ 2014 IS DISMISSED. SA NO.376/M/2014 (ARISING OUT OF ITA NO.7415/MUM/20 14) FOR THE A.Y.2010-11. 104. SINCE WE HAVE DECIDED THE APPEAL OF THE ASSESS EE, THE STAY APPLICATION FILED BY THE ASSESSEE HAS BECOME INFRUC TUOUS AND THE SAME IS DISMISSED AS INFRUCTUOUS. 105. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NO.668/MUM/2014 & ITA NO.7415/M/2014 ARE PARTLY ALLOWED, THE APPEALS OF THE REVENUE IN ITA NO.1375/MUM/2014 & ITA NO.290/M/2014 ARE DISMISSED AND S.A. NO.376/M/2014 IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2015. SD/- SD/- (N.K. BILLAIYA) (A.D. JAIN) ACCOUNTANT MEMEBR JUDICIAL MEMBER /SKR/ DATED: /10/2015 COPY OF THE ORDER, FORWARDED TO : 1. THE ASSESSE :M/S. LIONBRIDGE TECHNOLOGIES PVT. LTD. , MUMBAI. 2. THE ITO, 8 (2)(2), MUMBAI 3. THE CIT(A), MUMBAI 4. THE CIT, MUMBAI 5. THE SR DR ITAT, MMBAI TRUE COPY BY ORDER ITA NO.668(ASR)/2014 ITA NO.1375/MUM/2014 59 (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL