DCIT, Bangalore V. M/s British Engines (I) Pvt. Ltd., Bangalore

ITA 810/BANG/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7670 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 27-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; International transaction; Avoidance of tax; Revenue expenditure
• Section: 92E; 10B

Judgement Text

IT(TP)A.615 & CO.151/BANG/2013 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.615/BANG/2013 (ASSESSMENT YEAR : 2008-09) INCOME-TAX OFFICER, WARD 12(1), BENGALURU .. APPELLANT V. M/S. RADISYS INDIA P. LTD, FORMERLY CONTINUOUS COMPUTING INDIA P. LTD, 6 TH FLOOR, ELECTRA, B-WING, EXORA BUSINESS PARK, PREST IGE TECH PARK, MARATHAHALLI, SARJAPUR OUTER RING ROAD, BENGALURU 560 103 .. RESPONDENT PAN : AAACC3169M CROSS OBJECTION NO.151/BANG/2013 (IN I.T(TP).A NO.615/BANG/2013) (ASSESSMENT YEAR : 2008-09) (BY THE ASSESSEE) ASSESSEE BY : SHRI. MAHAVEER C. JAIN, CA REVENUE BY : DR SHANKAR PRASAD, JCIT HEARD ON : 08.08.2017 PRONOUNCED ON : 24.08.2017 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE APPEAL AND CROSS OBJECTION FILED BY THE REVENUE AND THE ASSESSEE RESPECTIVELY, AGAINST THE ORDER OF THE CIT (A)-V, IT(TP)A.615 & CO.151/BANG/2013 PAGE - 2 DT.30.11.2012, FOR THE ASSESSMENT YEAR 2008-09, ON THE FOLLOWING GROUNDS : IT(TP)A.615 & CO.151/BANG/2013 PAGE - 3 THE ASSESSEE HAS RAISED THE FOLLOWING GROUND IN ITS CROSS OBJECTION : THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND ALSO I N ITS CROSS OBJECTION, AS UNDER : THE ASSESSEE HAS MADE THE FOLLOWING PRAYER IN CONNE CTION WITH RAISING THE ADDITIONAL GROUND IN ITS CROSS OBJECTION : IT(TP)A.615 & CO.151/BANG/2013 PAGE - 4 WE HAVE HEARD THE RIVAL CONTENTION OF THE PARTIES A ND PERUSED THE RECORD, IN OUR VIEW THE ASSESSEE HAD GIVEN THE COGENT REASONS FOR NOT FILING THE ADDITIONAL GROUND AT THE TIME OF FILING THE CROSS O BJECTION IN RESPONSE TO THE APPEAL FILED BY THE REVENUE. IN VIEW OF THE REASONS GIVEN BY THE ASSESSEE IN THE APPLICATION FOR ADDITIONAL GROUNDS WE ALLOW THE ADDITIONAL GROUNDS TO BE TAKEN IN THE CROSS APPEAL. WE SHALL BE DEALING WITH THE ASSESSEE CROSS OBJECTI ON AS WELL AS THE APPEAL OF THE REVENUE IN THE FOLLOWING PARAGRAPHS. IT(TP)A.615 & CO.151/BANG/2013 PAGE - 5 REVENUES APPEAL IN IT(TP)A NO.615/BANG/2013 A. Y . 2008-09 : 02. GROUND NO.1 IS GENERAL NEEDING NO ADJUDICATION. 03. IN GROUND NO.2, THE REVENUE IS AGGRIEVED WITH T HE DIRECTION OF THE CIT (A) TO EXCLUDE THE REIMBURSEMENT OF EXPENSE S INCURRED IN FOREIGN CURRENCY BOTH FROM THE EXPORT TURNOVER AS W ELL AS FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DE DUCTION U/S.10A. 04. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN RESPECT OF THIS GROUND, WE FIND THAT TH E CIT (A) HAD FOLLOWED THE JUDGMENT OF HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF TATA ELXSI LTD V. CIT [349 ITR 98], IN DIRE CTING EXCLUSION OF ITEMS WHICH ARE DEDUCTED FROM EXPORT TURNOVER ALSO TO BE DEDUCTED FROM THE TOTAL TURNOVER ALSO FOR WORKING OUT THE DE DUCTION U/S.10A OF THE ACT. JUST FOR A REASON THAT APPEAL HAS BEEN FI LED BY THE REVENUE AGAINST THE JUDGMENT OF JURISDICTIONAL HIGH COURT W OULD NOT BE A REASON NOT TO FOLLOW THE JURISDICTIONAL HIGH COURT S JUDGMENT. WE DO NOT FIND ANY LACUNAE IN THE ORDER OF CIT (A). IT(TP)A.615 & CO.151/BANG/2013 PAGE - 6 04. IN GROUND NO.3 REVENUE IS CHALLENGING THE ORDE R OF THE CIT (A) FOR EXCLUDING THE FOLLOWING COMPARABLES, ON THE BAS IS OF SIZE AND TURNOVER OF THE COMPANIES : 1. M/S. FLEXTRONICS LTD 2. M/S. IGATE GLOBAL SOLUTIONS LTD 3. M/S. INFOSYS TECHNOLOGIES LTD 4. M/S. MINDTREE LTD, 5. M/S. PERSISTENT SYSTEMS LTD, 6. M/S. SASKEN COMMUNICATION TECHNOLOGIES LTD, 7. M/S. TATA ELXSI LTD, AND 8. M/S. WIPRO LTD. 05. THE LD. DR HAS DRAWN OUR ATTENTION TO PARAS 67 TO 70 OF CIT (A), WHEREIN IT HAS BEEN HELD AS UNDER : IT(TP)A.615 & CO.151/BANG/2013 PAGE - 7 IT(TP)A.615 & CO.151/BANG/2013 PAGE - 8 06. IN OUR VIEW, THE ISSUE IS REQUIRED TO BE REMAND ED BACK IN VIEW OF THE FINDINGS OF THE HONBLE DELHI HIGH COURT IN THE MATTER OF CHRYSCAPITAL INVESTMENT ADVISERS INDIA P. LTD V. DC IT [(2015) 56 TAXMANN.COM 417], WHEREIN IT HAS BEEN HELD AS UNDER : 32 . NOW, THE SEQUITUR OF RULE 10B (2) AND (3) IS THAT IF THE COMPARABLE ENTITY OR ENTITY'S TRANSACTIONS BROADLY CONFORM TO THE ASSESSEE'S FUNCTIONING, IT HAS TO ENTER INTO THE MATRIX AND BE APPROPRIATEL Y CONSIDERED. THE CRUCIAL EXPRESSION GIVING INSIGHT INTO WHAT WAS INTENDED BY THE PROVISION CAN BE SEEN BY THE USE OF THE EXPRESSION: 'NONE OF THE DIF FERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENT ERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT T HE PRICE OR COST CHARGED OR PAID IN, .. SUCH TRANSACTIONS IN THE OPEN MARKET'. THE OTHER EXERCISE WHICH THE TPO HAS TO NECESSARILY PERFORM IS THAT IF THERE ARE SOME DIFFERENCES, AN ATTEMPT TO 'ADJUST' THEM TO 'ELIMINATE THE MATERIAL EFFECTS' SHOULD BE MADE: '( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO EL IMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES.' 33 . SUCH BEING THE CASE, IT IS CLEAR THAT EXCLUSION O F SOME COMPANIES WHOSE FUNCTIONS ARE BROADLY SIMILAR AND WHOSE PROFILE - I N RESPECT OF THE ACTIVITY IN QUESTION CAN BE VIEWED INDEPENDENTLY FROM OTHER ACT IVITIES-CANNOT BE SUBJECT TO A PER SE STANDARD OF LOSS MAKING COMPANY OR AN 'ABNORMAL' PROFIT MAKING CONCERN OR HUGE OR 'MEGA' TURNOVER COMPANY. AS EXPLAINED EARLIER, RULE 10B (2) GUIDES THE SIX METHODS OUTLINED IN CLA USES (A) TO (F) OF RULE 10B(1), WHILE JUDGING COMPARABILITY. RULE 10B (3) O N THE OTHER HAND, INDICATES THE APPROACH TO BE ADOPTED WHERE DIFFEREN CES AND DISSIMILARITIES ARE APPARENT. THEREFORE, THE MERE CIRCUMSTANCE OF A COMPANY - OTHERWISE CONFORMING TO THE STIPULATIONS IN RULE 10B (2) IN A LL DETAILS, PRESENTING A IT(TP)A.615 & CO.151/BANG/2013 PAGE - 9 PECULIAR FEATURE - SUCH AS A HUGE PROFIT OR A HUGE TURNOVER, IPSO FACTO DOES NOT LEAD TO ITS EXCLUSION. THE TPO, FIRST, HAS TO B E SATISFIED THAT SUCH DIFFERENCES DO NOT 'MATERIALLY AFFECT THE PRICE...O R COST'; SECONDLY, AN ATTEMPT TO MAKE REASONABLE ADJUSTMENT TO ELIMINATE THE MATERIAL EFFECT OF SUCH DIFFERENCES HAS TO BE MADE. 34 . THE COURT IS ALSO AWARE OF THE FACTORS MENTIONED IN RULE 10B (2), I.E CHARACTERISTICS OF THE SERVICE PROVIDED, FUNCTIONS PERFORMED TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE R ISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS; CONTRACTUAL TERMS OF THE TRANSACTIONS INDICATING HOW THE RESPONSIBILITIES, RISKS AND BENE FITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND THE GOVERNMENT ORDERS IN FORCE; COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITI ON AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. THESE ELEMENTS COM PREHEND THE SIMILARITIES AND DISSIMILARITIES; CLAUSE (F) OF RULE 10C(2) SPEC IFICALLY PROVIDES THAT 'THE EXTENT TO WHICH RELIABLE AND ACCURATE ADJUSTMENTS C AN BE MADE TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION AND THE COMPARABLE UNCONTROLLE D TRANSACTION OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACT IONS AND THE NATURE, EXTENT AND RELIABILITY OF ASSUMPTIONS REQUIRED TO B E MADE IN APPLICATION OF A METHOD' HAVE TO BE TAKEN INTO CONSIDERATION BY THE TPO. 35 . AS REGARDS THE RELEVANCE OF MULTIPLE YEAR DATA FO R TRANSFER PRICING DETERMINATION, THIS COURT IS OF THE OPINION THAT TH E GENERAL RULE AS PRESCRIBED IN RULE 10B(4) MANDATES THE TAX AUTHORITIES TO TAKE INTO ACCOUNT ONLY THE RELEVANT ASSESSMENT YEAR'S DATA. THE PROVISO TO RUL E 10B(4) PERMITS DATA RELATING TO TWO YEARS PRIOR TO THE RELEVANT ASSESSM ENT YEAR TO BE TAKEN INTO IT(TP)A.615 & CO.151/BANG/2013 PAGE - 10 ACCOUNT IN THE EVENT THAT THEY HAVE AN INFLUENCE ON THE DETERMINATION OF PRICE. HOWEVER, IN SUCH INSTANCES, THE ONUS LIES UP ON THE ASSESSEE TO ESTABLISH THE RELEVANCE OF SUCH DATA. THE LANGUAGE OF RULE 10B(4) DOES NOT LEAVE ANY SCOPE FOR AMBIGUITY ON THIS ISSUE. THIS C OURT NOTICES THAT THIS VERY GROUND- I.E APPLICABILITY OF PREVIOUS YEARS' D ATA FOR REACHING OUT COMPARABLES, WAS SOUGHT TO BE URGED IN MARUBENI INDIA (P.) LTD. V. DIT [2013] 354 ITR 638/215 TAXMAN 122 (MAG.)/33 TAXMANN .COM 100 (DELHI) BUT DELIBERATELY LEFT MOOT, BECAUSE THE ASSESSEE H AD GIVEN IT UP BEFORE THE TRIBUNAL. THE TPO IN HIS ORDER DATED 03. 10.2011 HAS COMPREHENSIVELY EXAMINED THE AUTHORITIES ON THIS IS SUE AND RIGHTLY HELD THAT ORDINARILY, THE REVENUE HAS TO CONSIDER ONLY THE RE LEVANT ASSESSMENT YEAR'S DATA UNDER RULE 10B(4) AND THAT DATA FROM EARLIER P ERIOD MAY ALSO BE CONSIDERED IF 'IT REVEALS CERTAIN FACTS WHICH HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TRANSACTION BEING CONSIDERED'. THE ASSESSEE HAS PLACED SIGNIFICANT RE LIANCE ON THE OECD GUIDELINES TO CONTEND THE ADMISSIBILITY OF PREVIOUS YEAR'S DATA FOR TRANSFER PRICING DETERMINATION. HOWEVER, FOR REASONS GIVEN I N THE PARAGRAPHS BELOW, THIS COURT IS OF THE OPINION THAT THE OECD GUIDELIN ES HAVE NO BEARING ON THIS ISSUE. 36 . THIS COURT HOLDS THAT IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS INCORRECT, BOTH IN ITS RELIANCE PLACED UPON PREVIOU S YEARS' DATA AS WELL AS THE MANNER OF SUCH RELIANCE. FIRST, THE ASSESSEE'S JUST IFICATION FOR RELYING ON SUCH DATA IS THE VOLATILITY IN THE COMPARABLES' PRO FIT MARGINS AND THE CONSEQUENT INABILITY TO TRANSACT AT A CONSISTENT AL P. HOWEVER, THIS IS NOT WARRANTED HEREIN. WHILST THERE MAY BE A WIDE FLUCTU ATION IN THE PROFIT MARGINS OF COMPARABLES FROM YEAR-TO-YEAR, THIS BY I TSELF DOES NOT JUSTIFY THE NEED TO TAKE INTO ACCOUNT PREVIOUS YEARS' PROFIT MA RGINS. THE TRANSFER PRICING MECHANISM PROVIDED IN THE ACT AND THE RULES PRESCRIBES THAT WHILE DETERMINING THE ALP, THE ARITHMETIC MEAN OF ALL COM PARABLES IS TO BE IT(TP)A.615 & CO.151/BANG/2013 PAGE - 11 ADOPTED. THIS IS TO OFFSET THE CONSEQUENCE OF ANY E XTREME MARGINS THAT COMPARABLES MAY HAVE AND ARRIVE AT A BALANCED PRICE . SIMILARLY, THE WIDE FLUCTUATIONS IN PROFIT MARGINS OF THE SAME ENTITY O N A YEAR-TO-YEAR BASIS WOULD BE OFFSET BY TAKING THE ARITHMETIC MEAN OF AL L COMPARABLES FOR THE ASSESSMENT YEAR IN QUESTION. IN ANY CASE, IN THE EV ENT THAT THE VOLATILITY IS ON ACCOUNT OF A MATERIALLY DIFFERENT ASPECT INCAPABLE OF BEING ACCOUNTED FOR, THE ANALYSIS UNDER WOULD RULE 10B(3) WOULD EXCLUDE SUCH AN ENTITY FROM BEING CONSIDERED AS A COMPARABLE. SECONDLY, AS REGA RDS THE MANNER OF USING PREVIOUS YEARS' DATA, THE ASSESSEE HAS TAKEN THE AR ITHMETIC MEAN OF THE COMPARABLES' PROFIT MARGINS FOR THE ASSESSMENT YEAR IN QUESTION AND TWO PREVIOUS YEARS. THIS COURT DISAGREES. THE PROVISO T O RULE 10B(4), READ WITH THE SUB-RULE, ITSELF INDICATES THAT THE PURPOSE FOR WHICH PREVIOUS YEARS' DATA MAY BE CONSIDERED IS - ANALYSING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION. IT D OES NOT PRESCRIBE THAT ONCE AN UNCONTROLLED TRANSACTION HAS BEEN HELD TO BE A ' COMPARABLE', IN ORDER TO OBVIATE AN APPARENT VOLATILITY IN THE DATA, THE ARI THMETIC MEAN OF THREE YEARS (THE ASSESSMENT YEAR IN QUESTION AND TWO PREVIOUS Y EARS') MAY BE TAKEN. THAT WOULD AMOUNT TO ASSIGNING EQUAL WEIGHT TO THE DATA FOR EACH OF THE THREE YEARS, WHICH IS AGAINST THE MANDATE OF RULE 1 0B(4). THE USE OF THE WORD 'SHALL' IN RULE 10B(4) AND, NOTICEABLY, 'MAY' IN THE PROVISO, IMPLIES THAT THE RELEVANT ASSESSMENT YEAR'S DATA IS OF PRIM ARY CONSIDERATION, AS OPPOSED TO PREVIOUS YEARS' DATA. 43 . THE FINAL QUESTION THAT ARISES FOR THIS COURT'S D ETERMINATION IN THE PRESENT APPEAL IS THE ASSESSEE'S CLAIM FOR DEDUCTIO N UNDER SECTION 36(1)(II) OF THE ACT IN RESPECT OF THE BONUS PAID BY IT TO IT S TWO SHAREHOLDERS - ASHISH DHAWAN AND KUNAL SHROFF. THE LOWER AUTHORITIES DENI ED SUCH CLAIM, HOLDING THAT THE BONUS WAS PAID TO THE SHAREHOLDERS IN LIEU OF DIVIDEND WITH THE OBJECTIVE OF AVOIDING TAX. SUCH INFERENCE WAS D RAWN FROM TWO FACTS: (A) THE BONUS PAID WAS IN PROPORTION OF THEIR SHAREHOLD ING IN THE ASSESSEE IT(TP)A.615 & CO.151/BANG/2013 PAGE - 12 COMPANY, I.E. 2:1; AND (B) NO DIVIDEND HAD BEEN DEC LARED BY THE ASSESSEE. HOWEVER, A PERUSAL OF AN EXCERPT FROM THE DRP'S ORD ER DATED 21.09.2012 QUOTED BY THE AO IN HIS ORDER DATED 19.10.2012 CONT RADICTS BOTH THESE FACTS: (A) BONUS WAS NOT PAID IN THE RATIO OF 2:1 AND (B) THE ASSESSEE HAD DECLARED INTERIM DIVIDEND OF RS. 5,47,47,000/-. FURTHER, THE BONUSES PAID TO THE TWO SHAREHOLDER-DIRECTORS IN THE PRECEDING TWO FINANCIA L YEARS WERE IN THE RATIO OF 60-65%:40-35%, EVEN THOUGH THEIR SHAREHOLDING WA S 1:1. THE BALANCE SHEET OF THE ASSESSEE PLACED ON RECORD ALSO INDICAT ES THAT THE TWO SHAREHOLDERS ALSO HOLD DIRECTORIAL POSITIONS IN THE ASSESSEE. THEREFORE, THE ASSESSEE'S CONTENTION THAT THE BONUS WAS PAID TO TH E SHAREHOLDERS IN THEIR MANAGERIAL CAPACITY, LIKE IN THE CASE OF OTHER MANA GERS, CANNOT BE QUESTIONED MERELY ON THE BASIS OF A SPECULATION BY THE REVENUE THAT SUCH PAYMENT WAS TO AVOID TAX. IN SUCH CIRCUMSTANCES, TH E DEDUCTION UNDER SECTION 36(1)(II) IN RESPECT OF PAYMENT OF BONUS TO THE TWO SHAREHOLDER- DIRECTORS IS ALLOWED. THE ASSESSEE HAS RELIED UPON A NUMBER OF JUDICIAL PRONOUNCEMENTS TO SUPPORT ITS CONTENTION. HOWEVER, WE DO NOT CONSIDER IT NECESSARY TO DISCUSS THOSE DECISIONS FOR RULING IN ITS FAVOUR. THEREFORE, THIS QUESTION IS ANSWERED IN FAVOUR OF THE ASSESSEE. 44 . IN LIGHT OF THE ABOVE FINDINGS, THIS COURT CONCLU DES AS FOLLOWS: A . THE MERE FACT THAT AN ENTITY MAKES HIGH/EXTREMELY H IGH PROFITS/LOSSES DOES NOT, IPSO FACTO, LEAD TO ITS EXCLUSION FROM TH E LIST OF COMPARABLES FOR THE PURPOSES OF DETERMINATION OF ALP. IN SUCH CIRCU MSTANCES, AN ENQUIRY UNDER RULE 10B(3) OUGHT TO BE CARRIED OUT, TO DETERMINE AS TO WHETHER THE MATERIAL DIFFERENCES BETWEEN THE ASSESSEE AND T HE SAID ENTITY CAN BE ELIMINATED. UNLESS SUCH DIFFERENCES CANNOT BE ELIMI NATED, THE ENTITY SHOULD BE INCLUDED AS A COMPARABLE. B . WHILE DETERMINING THE COMPARABILITY OF TRANSACTIONS, MULTIPLE YEAR DATA CAN ONLY BE INCLUDED IN THE MANNER PROVIDED IN RULE 10B(4). AS A GENERAL RULE, IT IS NOT OPEN TO THE ASSESSEE TO REL Y UPON PREVIOUS YEAR'S DATA. IT(TP)A.615 & CO.151/BANG/2013 PAGE - 13 C . AS REGARDS KHANDWALA SECURITIES AND BRESCON , THE MATTER IS REMITTED TO THE DRP TO CARRY OUT THE ANALYSIS UNDER RULE 10B(3) AND DETERMINE WHETHER THE MATERIAL DIFFERENCES ARISING OUT OF THE IR EXCEPTIONALLY HIGH PROFITS CAN BE ELIMINATED. IF NOT, THE SAID ENTITIE S CANNOT BE INCLUDED AS COMPARABLES. F OR KEYNOTE, FIRSTLY, ENQUIRY IS TO BE CARRIED OUT B Y THE DRP, PRECEDING THE ANALYSIS UNDER RULE 10B(3), AS T O ITS FUNCTIONAL SIMILARITY WITH THE ASSESSEE; THEREAFTER, THE EXERC ISE OF DETERMINING IF THERE ARE MATERIAL DIFFERENCES ON ACCOUNT OF EXCEPT IONALLY HIGH PROFITS WHICH ARE CAPABLE OF ELIMINATION HAS TO BE CARRIED OUT. D . THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 36(1)(II) OF THE ACT, IN RESPECT OF THE BONUSES PAID TO ITS SHAREHOL DER- EMPLOYEES IS ALLOWED. 07. THE TRIBUNAL HAS BEEN FOLLOWING THE ORDER OF TH E HONBLE DELHI HIGH COURT IN CHRYSCAPITAL INVESTMENT ADVISERS INDI A P. LTD (SUPRA), IN ITS OTHER DECISIONS. IN VIEW THEREOF, GROUND NO .3 IS REMANDED BACK TO THE TPO / AO WITH A DIRECTION TO DECIDE THE ISSU E IN THE LIGHT OF THE JUDGMENT IN CHRYSCAPITAL INVESTMENT ADVISERS INDIA P. LTD (SUPRA) AND FIND OUT THE WHETHER THE TURNOVER OR SIZE OF T HE COMPARABLE HAS AFFECTED THE PRICE /MARGIN OF THE COMPARABLES. IT IS ORDERED ACCORDINGLY. 08. IN GROUND NO.4, THE REVENUE IS AGGRIEVED WITH T HE ACTION OF THE CIT (A) IN DELETING M/S. CELESTIAL BIOLABS LTD, AS A COMPARABLE, ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT. IT(TP)A.615 & CO.151/BANG/2013 PAGE - 14 09. THE LD. DR HAS SUBMITTED THAT IT WAS HELD BY TH E CIT (A) THAT CELESTIAL BIOLABS LTD, IS NOT COMPARABLE WITH THAT OF THE ASSESSEE. THE LD. DR HAS DRAWN OUR ATTENTION TO PARAS 83 AND 84 O F THE CIT (A)S ORDER, WHICH READ AS UNDER : 84. CONSIDERING THAT CELESTIAL BIOLABS LTD. IS THUS A PRODUCT, R&D, AND BIOTECHNOLOGY COMPANY, I HOLD THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT AND FAILS THE FUNCTION ALITY FILTER SET BY THE TPO. THEREFORE, I DIRECT THE AO TO EXCLUDE THIS CO MPANY FROM THE FINAL SET OF COMPARABLES. 10. ON THE OTHER HAND, THE LD. AR HAS DRAWN OUR ATT ENTION TO PAGES 494 TO 497 OF THE PAPER BOOK WHERE THIS COMPARABLE HAS BEEN EXCLUDED BY THE TRIBUNAL VIDE ITS ORDER PASSED IN A SSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR 2007-08 TO THE FOLL OWING EFFECT : IT(TP)A.615 & CO.151/BANG/2013 PAGE - 15 (C) CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT C OMPANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- IN THE DIRECTORS REPORT (PAGE 20 OF PB-IL), IT IS STATED THAT THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR I N-HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2A B) OF THE INCOME TAX ACT. AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER DEFERRED REVENUE EXPENDITURE (PAGE 31 OF PB-II), IT IS MENT IONED THAT, EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT O F NEW PRODUCTS HAS BEEN TREATED AS DEFERRED REVENUE EXPEN DITURE AND THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARL Y INSTALLMENTS FROM THE YEAR IN WHICH IT IS INCURRED. AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT AS DEFERRED REVENUE EXPENDITURE (PAG E 30 OF PB- II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFT WARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISIO N OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PR IVATE LTD. V. ADDL. CIT ITA NO.6623/MUM/2011 (FOR AY 2007-08) I N WHICH THE COMPARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RE SEARCH SEGMENT. THE RELEVANT EXTRACT OF DISCUSSION REGARDING THIS C OMPANY IS AS FOLLOWS: THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAG E-389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS R EPORT WHICH READS AS FOLLOWS: IT(TP)A.615 & CO.151/BANG/2013 PAGE - 16 THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TOO L CELSUITE TO DRUG DISCOVERY IN, FINDING THE LEAD M OLECULES FOR DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDE R THE COPY IF SIC (OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPA RTMENT OF SCIENCE AND TECHNOLOGY NEW DELHI) BASED ON OUR INSI LICO EXPERTISE (APPLYING BIO-INFORMATICS TOOLS). THE COMPANY HAS D EVELOPED A MOLECULE TO TREAT LEUCODERMA AND MULTIPLE CANCER AN D PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HA VE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE RESPONSE IS VERY FAVO RABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDURES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTMENT OF MICROBIO LOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOL OGY AREA, THE COMPANY HAS SIGNED THE TECHNOLOGY TRANSFER AGREEMEN T WITH IMTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION ) TO MANUFACTURE AND MARKET INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN INDIA AND OVERSEAS. THE COMPAN Y IS PLANNING TO SET UP A BIOTECHNOLOGY FACILITY TO MANUFACTURE I NDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUDE THE RESEA RCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELO P NEW CANDIDATES DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARM A AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY W ILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA PRADESH. ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE C ONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWAR E DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF TH E IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MO LECULE TO TREAT CANCER USING BIO-INFORMATICS TOOLS FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDE RED AS COMPARABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMPT MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTI ONAL COMPARABILITY IT(TP)A.615 & CO.151/BANG/2013 PAGE - 17 CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCE SS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS NO T QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE AB OVE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS INTO RESEARC H IN PHARMACEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT TH IS COMPANY IS OWNER OF IPR, IT HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECULE TO TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS COMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASON THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEVER, FROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEV ELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJ ECTED AS A COMPARABLE BEING FUNCTIONALLY DIFFERENT. 45.FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANSP IRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06-07 THIS COMPANY W AS CLASSIFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING T O THE TPO IN AY 07-08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWA RE DEVELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROWESS DATABASE AS WELL AS IN THE ANNUAL REPORT OF THIS COMPANY. THE TPO HAS REL IED ON THE RESPONSE FROM THIS COMPANY TO A NOTICE U/S.133(6) O F THE ACT IN WHICH IT HAS SAID THAT IT IS IN THE BUSINESS OF PRO VIDING SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE IN REPLY TO THE PROPOSAL OF THE AO TO TREAT THIS AS A COMPARABLE HAS POINTED OUT TH AT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOI NFORMATICS SERVICES AND THAT THE SEGMENTAL DATA FOR EACH ACTIV ITY IS NOT AVAILABLE AND THEREFORE THIS COMPANY SHOULD NOT BE TREATED AS COMPARABLE. BESIDES THE ABOVE, THE ASSESSEE HAS PO INT OUT TO SEVERAL REFERENCES IN THE ANNUAL REPORT FOR 31.3.20 07 HIGHLIGHTING THE FACT THAT THIS COMPANY WAS DEVELOPS BIOTECHNOLO GY PRODUCTS AND PROVIDES RELATED SOFTWARE DEVELOPMENT SERVICES. TH E TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS CO MPANY. THE TPO IT(TP)A.615 & CO.151/BANG/2013 PAGE - 18 ALSO CALLED FOR DESCRIPTION OF SOFTWARE DEVELOPMENT PROCESS. IN RESPONSE TO THE REQUEST OF THE TPO THIS COMPANY IN ITS REPLY DATED 29.3.2010 HAS GIVEN DETAILS OF EMPLOYEES WORKING IN SOFTWARE DEVELOPMENT BUT IT IS NOT CLEAR AS TO WHETHER ANY S EGMENTAL DATA WAS GIVEN OR NOT. BESIDES THE ABOVE THERE IS NO OT HER DETAIL IN THE TPOS ORDER AS TO THE NATURE OF SOFTWARE DEVELOPMEN T SERVICES PERFORMED BY THE ASSESSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLIC ISSUE OF SHARES AND IN THAT CONNECTION ISSUE D DRAFT RED HERRING PROSPECTUS (DRHP) IN WHICH THE BUSINESS OF THIS COMPANY WAS EXPLAINED AS TO CLINICAL RESEARCH. THE TPO WA NTED TO KNOW AS TO WHETHER THE PRIMARY BUSINESS OF THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES AS INDICATED IN THE ANNUAL REP ORT FOR FY 06-07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCT S AND OTHER PRODUCTS AS STATED IN THE DRHP. THERE IS NO REFERE NCE TO ANY REPLY BY CELESTIAL LABS TO THE ABOVE CLARIFICATION OF THE TPO. THE TPO WITHOUT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BU SINESS MENTIONED IN THE DRHP ARE THE SERVICES OR BUSINESSE S THAT WOULD BE STARTED BY UTILIZING THE FUNDS GARNERED THOUGH T HE INITIAL PUBLIC OFFER (IPO) AND THUS IN NO WAY CONNECTED WITH BUSIN ESS OPERATIONS OF THE COMPANY DURING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISSIONS MADE BY THE ASSESSEE AND T HE FACT THAT THIS COMPANY WAS BASICALLY/ADMITTEDLY IN CLINICAL RESEAR CH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS, THE RE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT THIS COMPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERV ICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY OUGHT NOT TO HAVE BEEN CONSIDERED AS COMPARABLE. 11. FOLLOWING THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL (SUPRA), WE WERE OF THE OPINION THAT THIS COMPANY M/S. CELE STIAL BIOLABS LTD, SHOULD NOT HAVE BEEN DELETED FROM THE LIST OF COMPA RABLES. THERE IS NO CHANGE IN FACT AND CIRCUMSTANCE OF THE CASE FOR THE PRESENT YEAR AND IT(TP)A.615 & CO.151/BANG/2013 PAGE - 19 THEREFORE WERE BOUND TO FOLLOW THE ORDER OF THE CO ORDINATE BENCH PASSED FOR THE EARLIER YEAR. ACCORDINGLY THE GROUND OF THE REVENUE IS REQUIRED T O BE DISMISSED. 12. IN GROUND NOS.5 AND 6, THE REVENUE IS AGGRIEVED AGAINST THE INCLUSION OF M/S. SAKSOFT LTD AND EXCLUSION OF M/S. AVANI CIMCON TECHNOLOGIES LTD FROM THE LIST OF COMPARABLES. 13. RELYING ON THE EARLIER ORDER OF THE TRIBUNAL AT PARAS 87, 88 FOR M/S. SAKSOFT LTD AND PARAS 96 AND 97 FOR M/S. AVANI CIMCON TECHNOLOGIES, OF CIT (A), THE LD. DR HAS SUBMITTED THAT THESE COMPANIES ARE TO BE EXCLUDED AS THE CIT (A) HAS WRO NGLY INCLUDED M/S. SAKSOFT LTD, AND WRONGLY EXCLUDED M/S. AVANI C IMCON TECHNOLOGIES LTD, ON THE BASIS THAT THESE COMPANIES ARE NOT FUNCTIONALLY COMPARABLE. 14. THE LD. AR HAS DRAWN OUR ATTENTION TO PARA 10 O F THE EARLIER ORDER OF THE TRIBUNAL (SUPRA), IN ASSESSEES OWN CA SE FOR AY 2007-08, WHEREIN AVANI CIMCON TECHNOLOGIES LTD, WAS DECIDED AS UNDER : 19. THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD., WHILE CONSIDERING THE ISSUE OF IMPROPER S ELECTION OF COMPARABLES HAS HELD AS UNDER: IT(TP)A.615 & CO.151/BANG/2013 PAGE - 20 (B) AVANI CIMCON TECHNOLOGIES LTD. 39. AS FAR AS THIS COMPANY IS CONCERNED, THE PLEA OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE. BASED ON THE INFORMATION AVAILABLE IN THE COMPANYS WEBSITE, WHICH REVEALS THAT THIS COMPANY HAS DEVELOPED A SOFTWARE PRODUCT BY NAME DXCHANGE, IT WAS SUBMITTED THAT THIS COMPANY WOUL D HAVE REVENUE FROM SOFTWARE PRODUCT SALES APART FROM RENDERING OF SOFTWARE SERVICES AND THEREFORE IS FUNCTIONALLY DIFFERENT FROM THE AS SESSEE. IT WAS FURTHER SUBMITTED THAT THE MUMBAI BENCH OF THE TRIBUNAL TO THE DECISION IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT ITA NO.7821/MUM/2011 WHEREIN THE TRIBUNAL ACCEPTED THE ASSESSEES CONTENTION THAT THIS COMPANY HAS REVENUE FROM SOFTW ARE PRODUCT AND OBSERVED THAT IN THE ABSENCE OF SEGMENTAL DETAILS, AVANI CINCOM CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE WHO WAS RENDERING SOFTWARE DEVELOPMENT SERVICES ONLY AND IT WAS HELD AS FOLLOWS:- 7.8 AVANI CINCOM TECHNOLOGIES LTD. (AVANI CINCOM ) : HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPE RATING INCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE NOT BEEN PROVIDED SO AS TO SEE WHETHER THE PROFIT RATIO OF THIS COMPANY CAN BE TAKEN INTO CONSIDERATION FOR COMPARING THE CASE THAT OF ASSESS EE. IN ABSENCE OF ANY KIND OF DETAILS PROVIDED BY THE TPO, WE ARE UNA BLE TO PERSUADE OURSELVES TO INCLUDE IT AS COMPARABLE PARTY. LEARNE D CIT DR HAS PROVIDED A COPY OF PROFIT LOSS ACCOUNT WHICH SHOWS THAT MAINLY ITS EARNING IS FROM SOFTWARE EXPORTS, HOWEVER, THE DETA ILS OF PERCENTAGE OF EXPORT OF PRODUCTS OR SERVICES HAVE NOT BEEN GIV EN. WE, THEREFORE, REJECT THIS COMPANY ALSO FROM TAKING INT O CONSIDERATION FOR COMPARABILITY ANALYSIS. IT WAS ALSO HIGHLIGHTED THAT THE MARGIN OF THIS COM PANY AT 52.59% WHICH REPRESENTS ABNORMAL CIRCUMSTANCES AND PROFITS . THE FOLLOWING FIGURES WERE PLACED BEFORE US:- IT(TP)A.615 & CO.151/BANG/2013 PAGE - 21 PARTICULARS FYS 05-06 06-07 07-08 08-09 OPERATING REVENUE21761611 35477523 29342809 2803985 1 OPERATING EXPNS. 16417661 23249646 23359186 311089 49 OPERATING PROFIT 5343950 12227877 5983623 (3069098 ) OPERATING MARGIN 32.55% 52.59% 25.62% - 9 .87% 40. IT WAS SUBMITTED THAT THIS COMPANY HAS MADE UN USUALLY HIGH PROFIT DURING THE FINANCIAL YEAR 06-07. THE OPERAT ING REVENUES INCREASED 63.03% WHICH INDICATES THAT IT WAS AN EXT RAORDINARY YEAR FOR THIS COMPANY. EVEN THE GROWTH OF SOFTWARE INDU STRY FOR THE PREVIOUS YEAR AS PER NASSCOM WAS 32%. THE GROWTH R ATE OF THIS COMPANY WAS DOUBLE THE INDUSTRY AVERAGE. IN VIEW O F THE ABOVE, IT WAS ARGUED THAT THIS COMPANY OUGHT TO HAVE BEEN REJ ECTED AS A COMPARABLE. 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. THE REASONS GIVEN BY THE ASSESSEE FOR EXCLUDING THIS COMPANY AS COMPARABLE ARE FOUND TO BE ACCEPTAB LE. THE DECISION OF ITAT (MUMBAI) IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT (SUPRA) ALSO SUPPORTS THE PLEA OF THE ASSESSEE. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE TO REJECT THIS COMPANY AS A COMPARABLE. FOLLOWING THE ORDER OF THE COORDINATE BENCH OF THIS TRIBUNAL, IN ABOUT NOTED CASE WAS FOR THE ASSESSMENT YEAR UNDER CONSID ERATION WE HEREBY DIRECTS DELETION OF M/S. AVANI CIMCON TECHNOLOGIES LTD, FROM THE LIST IT(TP)A.615 & CO.151/BANG/2013 PAGE - 22 OF COMPARABLES. IN THE RESULT THE APPEAL OF THE REV ENUE IS REQUIRED TO BE DISMISSED ON THIS GROUND OF INCLUSION OF THE M/S . AVANI CIMCON TECHNOLOGIES LTD . 15. WITH RESPECT TO THE OTHER 2 COMPANIES NAMELY SA KSOFT LTD, AND ANOTHER THE LD. DR HAS DRAWN OUR ATTENTION TO PARA 87 TO 89 OF THE ORDER OF THE CIT (A), TO THE FOLLOWING EFFECT : IT(TP)A.615 & CO.151/BANG/2013 PAGE - 23 16. ON THE OTHER HAND, THE LD. AR HAS DRAWN OUR ATT ENTION TO PAGE 134 OF THE PAPER BOOK, WHICH IS THE REPLY OF M/S. S AKSOFT LTD, WHEREIN AT PARA 4 IT HAS BEEN STATED AS UNDER : 4. WE WISH TO STATE THAT OUR COMPANY OPERATIONS PR IMARILY RELATING TO PROVIDING INFORMATION TECHNOLOGY (IT) SERVICES. ACCORDINGLY, THE GROUP OPERATES IN A SINGLE SEGMENT WHICH REPRESENTS THE PRIMARY SEGMENT AND THEREFORE THE DETAILS SOUGH T UNDER POINT NO.4 OF YOUR ABOVE CITED LETTER WOULD NOT APPLY TO US. ON THE BASIS OF THE ABOVE, IT WAS SUBMITTED BY THE LD. AR FOR THE ASSESSEE, THAT SAKSOFT LTD IS A SOFTWARE PRODUCT DE VELOPMENT COMPANY AS IS DISCERNIBLE FROM THE REPLY (SUPRA). THEREFOR E, THE SAID COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE AS THE ASSESSEE COMPANY IS PRIMARILY RELATED TO IT SERVICES. IT WA S SUBMITTED THAT THIS COMPANY WAS REQUIRED TO BE EXCLUDED. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE CIT (A) HAS DELETED THE COMPANY FROM T HE LIST OF COMPARABLES ON THE BASIS OF RPT FILTER, CONSIDERING IT TO BE 16%. RECENTLY THIS TRIBUNAL IN THE MATTER OF ACI WORLDWI DE SOLUTIONS P. LTD (IT(TP)A.262/BANG/2015, DT.26.07.2017, HAS EXTE NSIVELY DEALT WITH THE ISSUE OF RPT FILTER, TO THE FOLLOWING EFFE CT : IT(TP)A.615 & CO.151/BANG/2013 PAGE - 24 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. WE WOULD LIKE TO BRING ON RECORD THAT THE ASSESSEE HAS NOT RAISED THE OBJECTION WITH REGARD TO RPT EITHER AT THE STAGE OF TPO OR BEFORE THE DRP. THEREFORE, THE DRP DID NOT HAVE THE OCCASION TO EXAMINE THE RPT OF L & T LTD, WITH ITS OTHER RELATED PARTIES. NONETHELESS, THE TRIBUNAL IN ITS ORDER IN ELECTRONICS FOR IMAGING INDIA LTD (SUPRA), HAS NOT DISPUTED THAT RP T OF L & T LTD WAS 18.66% AND THEREFORE, IN PARA 65 OF THE ORD ER HAS DIRECTED TO APPLY 15% OF RPT IN RESPECT OF ALL COMP ARABLES. 12. FURTHER WE NOTICE BENGALURU ITAT IN A RECENT DECIS ION IN THE MATTER OF SUNGARD SOLUTIONS (INDIA) P. LTD [IT(TP)A .1041, 1379, 1106/BANG/2011, DT.28.04.2017] HAS HELD IN PARA 5 AS UNDER: 5. RPT FILTER OF 0%:- WE HAVE HEARD THE LD. AR AS W ELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE TPO APPLIED THE FILTER OF 25% OF RPT WHILE SELECTING THE COMPAR ABLES. WHEREAS THE CIT(A) HAS APPLIED A FILTER OF 0% RPT. WE FIND THAT 0% RELATED PARTY TRANSACTION IS A IMPOSSIBLE SITUATION AND THE REFORE IF THE SAID FILTER IS APPLIED THEN THE COMPARABLE COMPANIES WIL L NOT BE AVAILABLE FOR DETERMINING THE ARMS LENGTH PRICE. THUS TO AVOI D THIS PRACTICAL DIFFICULTY OF SELECTING THE COMPARABLE COMPANIES TH IS TRIBUNAL IN A SERIES OF DECISIONS HAVE TAKEN A VIEW THAT A TOLERA NCE RANGE OF RELATED PARTY TRANSACTION CAN BE CONSIDERED FROM 5% TO 25% DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE PARTICULARLY THE AVAILABILITY OF THE COMPARABLE COM PANIES. IN IT(TP)A.615 & CO.151/BANG/2013 PAGE - 25 ORDINARY CIRCUMSTANCES WHEN THERE IS NO DIFFICULTY OF SELECTING THE COMPARABLE COMPANIES THE TOLERANCE RANGE OF 15% OF RELATED PARTY IS CONSIDERED TO BE PROPER. ONLY IN EXTREME AND EXC EPTIONAL CIRCUMSTANCES WHEN THE COMPARABLE COMPANIES ARE NOT EASILY AVAILABLE OR FOUND THEN THIS TOLERANCE RANGE IS REL AXED UP TO 25%. THEREFORE IN THE CASE OF THE ASSESSEE WHERE NEITHER THE TPO NOR THE ASSESSEE HAS MADE OUT A CASE OF EXCEPTIONAL DIFFICU LTY IN SEARCHING THE COMPARABLE COMPANIES THEN THE NORMAL TOLERANCE RANGE OF 15% SHALL BE TAKEN AS PROPER. HENCE WE SET ASIDE THE OR DER OF THE CIT(A) QUA THIS ISSUE OF RELATED PARTY TRANSACTION FILTER AND ALSO MODIFY THE ORDER OF THE TPO ON THIS ISSUE AND HOLD THAT 15% TO LERANCE RANGE OF RELATED PARTY IS REASONABLE AND PROPER IN THE CASE OF THE ASSESSEE. 13. IN OUR VIEW, THE RPT HAS NO WHERE BEEN DEFINED IN THE IT ACT OR IN THE RULES. THE DELHI TRIBUNAL, WHILE DEC IDING THE RPT FILTER OF 25% HAS RELIED UPON THE DEFINITION OF ASS OCIATE ENTERPRISES, WHICH IN VIEW OF THE TRIBUNAL WAS AKIN TO RPT ( RELATED PARTY TRANSACTION) AND FURTHER RELIED UPON THE DEFINITION OF INTERESTED PERSON GIVEN U/S.40A(2)(B) OF THE ACT. THE TRANSFER PRICING CHAPTER WAS INTRODUCED UNDER THE ACT, FOR T HE PURPOSE OF PREVENTING THE FISCAL EVASION OR AVOIDANCE OF TAX A ND IS A COMPLETE CODE IN ITSELF . AS PER RULE 10B(2), THE FAR (FUNCTIONS, ASSETS AND RISK ASSUMED) ANALYSIS IS TO CARRIED OUT FOR COMPARABLE COMPANY VIZ A VIZ THE TESTED COMPA NY. IF THE FAR OF THE TESTED PARTY AS WELL AS THE COMPARABLE C OMPANY ARE COMPARABLE, THEN ONLY THE ALP OF THE TESTED PARTY I S REQUIRED TO BE DETERMINED IN RELATION TO THE INTERNATIONAL TRAN SACTIONS. HOWEVER, FOR THE PURPOSE OF FINDING A SUITABLE COMP ARABLE EFFORTS SHOULD BE MADE BY THE TPO TO IRON-OUT OR MINIMISE T HE DIFFERENCES IF ANY BETWEEN THE COMPARABLE AND TESTE D PARTY. IT IS IT(TP)A.615 & CO.151/BANG/2013 PAGE - 26 AN ADMITTED POSITION, IN SOME CASE, THAT IF THE TRA NSACTION IS BETWEEN THE TWO RELATED PARTIES, THEN THE PRICES CA N BE CONTROLLED AND THE TRANSACTION WILL LOSE ITS CHARACTER OF BEIN G AN UNCONTROLLED TRANSACTION. 14. AN ASSOCIATED ENTERPRISE IS DEFINED U/S.92A U NDER THE INCOME-TAX ACT, 1961, AS UNDER : (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 9 2, 92B, 92C, 92D, 92E AND 92F, ASSOCIATED ENTERPRISE, IN RELATION TO ANOTHER ENTERPRISE, MEANS AN ENTERPRISE (A) WHICH PARTICIPATES, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN THE MANAGEMENT OR CONTROL OR CAP ITAL OF THE OTHER ENTERPRISE ; OR (B) IN RESPECT OF WHICH ONE OR MORE PERSONS WHO PAR TICIPATE, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN ITS MANAG EMENT OR CONTROL OR CAPITAL, ARE THE SAME PERSONS WHO PARTICIPATE, DIRECTLY OR I NDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN THE MANAGEMENT OR CONTROL O R CAPITAL OF THE OTHER ENTERPRISE. (2) FOR THE PURPOSES OF SUB-SECTION (1), TWO ENTERP RISES SHALL BE DEEMED TO BE ASSOCIATED ENTERPRISES IF, AT ANY TIME DURING THE P REVIOUS YEAR, (A) ONE ENTERPRISE HOLDS, DIRECTLY OR INDIRECTLY, S HARES CARRYING NOT LESS THAN TWENTY-SIX PER CENT. OF THE VOTING POWER IN THE OTH ER ENTERPRISE ; OR (B) ANY PERSON OR ENTERPRISE HOLDS, DIRECTLY OR IND IRECTLY, SHARES CARRYING NOT LESS THAN TWENTY-SIX PER CENT. OF THE VOTING POWER IN EA CH OF SUCH ENTERPRISES ; OR (C) A LOAN ADVANCED BY ONE ENTERPRISE TO THE OTHER ENTERPRISE CONSTITUTES NOT LESS THAN FIFTY-ONE PER CENT. OF THE BOOK VALUE OF THE T OTAL ASSETS OF THE OTHER ENTERPRISE ; OR (D) ONE ENTERPRISE GUARANTEES NOT LESS THAN TEN PER CENT. OF THE TOTAL BORROWINGS OF THE OTHER ENTERPRISE ; OR (E) MORE THAN HALF OF THE BOARD OF DIRECTORS OR MEM BERS OF THE GOVERNING BOARD, OR ONE OR MORE EXECUTIVE DIRECTORS OR EXECUTIVE MEM BERS OF THE GOVERNING BOARD OF ONE ENTERPRISE, ARE APPOINTED BY THE OTHER ENTER PRISE ; OR (F) MORE THAN HALF OF THE DIRECTORS OR MEMBERS OF T HE GOVERNING BOARD, OR ONE OR MORE OF THE EXECUTIVE DIRECTORS OR MEMBERS OF THE G OVERNING BOARD, OF EACH OF THE TWO ENTERPRISES ARE APPOINTED BY THE SAME PERSO N OR PERSONS ; OR (G) THE MANUFACTURE OR PROCESSING OF GOODS OR ARTIC LES OR BUSINESS CARRIED OUT BY ONE ENTERPRISE IS WHOLLY DEPENDENT ON THE USE OF KN OW-HOW, PATENTS, COPYRIGHTS, TRADE-MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSI NESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, OR ANY DATA, DOCUMENTATION, DRAWING OR SPECIFICATION RELATING TO IT(TP)A.615 & CO.151/BANG/2013 PAGE - 27 ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMUL A OR PROCESS, OF WHICH THE OTHER ENTERPRISE IS THE OWNER OR IN RESPECT OF WHIC H THE OTHER ENTERPRISE HAS EXCLUSIVE RIGHTS ; OR (H) NINETY PER CENT. OR MORE OF THE RAW MATERIALS A ND CONSUMABLES REQUIRED FOR THE MANUFACTURE OR PROCESSING OF GOODS OR ARTICLES CARRIED OUT BY ONE ENTERPRISE, ARE SUPPLIED BY THE OTHER ENTERPRISE, OR BY PERSONS SPECIFIED BY THE OTHER ENTERPRISE, AND THE PRICES AND OTHER CONDITIONS REL ATING TO THE SUPPLY ARE INFLUENCED BY SUCH OTHER ENTERPRISE ; OR (I) THE GOODS OR ARTICLES MANUFACTURED OR PROCESSED BY ONE ENTERPRISE, ARE SOLD TO THE OTHER ENTERPRISE OR TO PERSONS SPECIFIED BY THE OTHER ENTERPRISE, AND THE PRICES AND OTHER CONDITIONS RELATING THERETO ARE IN FLUENCED BY SUCH OTHER ENTERPRISE ; OR (J) WHERE ONE ENTERPRISE IS CONTROLLED BY AN INDIVI DUAL, THE OTHER ENTERPRISE IS ALSO CONTROLLED BY SUCH INDIVIDUAL OR HIS RELATIVE OR JO INTLY BY SUCH INDIVIDUAL AND RELATIVE OF SUCH INDIVIDUAL ; OR (K) WHERE ONE ENTERPRISE IS CONTROLLED BY A HINDU U NDIVIDED FAMILY, THE OTHER ENTERPRISE IS CONTROLLED BY A MEMBER OF SUCH HINDU UNDIVIDED FAMILY, OR BY A RELATIVE OF A MEMBER OF SUCH HINDU UNDIVIDED FAMILY , OR JOINTLY BY SUCH MEMBER AND HIS RELATIVE ; OR (L) WHERE ONE ENTERPRISE IS A FIRM, ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS, THE OTHER ENTERPRISE HOLDS NOT LESS THAN TEN PER CE NT. INTEREST IN SUCH FIRM, ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS ; OR (M) THERE EXISTS BETWEEN THE TWO ENTERPRISES, ANY R ELATIONSHIP OF MUTUAL INTEREST, AS MAY BE PRESCRIBED. 15. WHEREAS THE RELATED PARTY IS DEFINED U/S.2(7 6) OF THE COMPANIES ACT, 2013, AS UNDER : (76) 'RELATED PARTY', WITH REFERENCE TO A COMPANY, MEANS- (I) A DIRECTOR OR HIS RELATIVE ; (II) A KEY MANAGERIAL PERSONNEL OR HIS RELATIVE ; (III) A FIRM, IN WHICH A DIRECTOR, MANAGER OR HIS R ELATIVE IS A PARTNER ; (IV) A PRIVATE COMPANY IN WHICH A DIRECTOR OR MANAG ER IS A MEMBER OR DIRECTOR ; (V) A PUBLIC COMPANY IN WHICH A DIRECTOR OR MANAGER IS A DIRECTOR OR HOLDS ALONG WITH HIS RELATIVES, MORE THAN TWO PER CENT. OF ITS PAID-UP SHARE CAPITAL ; (VI) ANY BODY CORPORATE WHOSE BOARD OF DIRECTORS, M ANAGING DIRECTOR OR MANAGER IS ACCUSTOMED TO ACT IN ACCORDANCE WITH THE ADVICE, DIRECTIONS OR INSTRUCTIONS OF A DIRECTOR OR MANAGER ; IT(TP)A.615 & CO.151/BANG/2013 PAGE - 28 (VII) ANY PERSON ON WHOSE ADVICE, DIRECTIONS OR INS TRUCTIONS A DIRECTOR OR MANAGER IS ACCUSTOMED TO ACT : PROVIDED THAT NOTHING IN SUB-CLAUSES (VI) AND (VII) SHALL APPLY TO THE ADVICE, DIRECTIONS OR INSTRUCTIONS GIVEN IN A PROFESSIONAL CAPACITY ; (VIII) ANY COMPANY WHICH IS- (A) A HOLDING, SUBSIDIARY OR AN ASSOCIATE COMPANY O F SUCH COMPANY ; OR (B) A SUBSIDIARY OF A HOLDING COMPANY TO WHICH IT I S ALSO A SUBSIDIARY ; (IX) SUCH OTHER PERSON AS MAY BE PRESCRIBED ; 16. THE TERM RELATIVE REFERRED IN THE DEFINITION OF THE TERM RELATED PARTY IS DEFINED IN SECTION 2(77) OF THE COMPANIES ACT, 2013, AS UNDER : (77) ''RELATIVE'', WITH REFERENCE TO ANY PERSON, ME ANS ANY ONE WHO IS RELATED TO ANOTHER, IF- (I) THEY ARE MEMBERS OF A HINDU UNDIVIDED FAMILY ; (II) THEY ARE HUSBAND AND WIFE ; OR (III) ONE PERSON IS RELATED TO THE OTHER IN SUCH MA NNER AS MAY BE PRESCRIBED ; ON A PERUSAL OF THE ABOVE DEFINITIONS, THE TWO ENTE RPRISES ARE CONSIDERED TO BE ASSOCIATED ENTERPRISES IF ONE ENTE RPRISE HOLDS MORE THAN 26% OF THE SHARES IN THE OTHER OR ONE ENTERPRI SE GUARANTEES NOT LESS THAN 10% OF THE TOTAL BORROWINGS OF THE OTHER ENTERPRISE, OR THERE IS A COMMONALITY OF THE BOARD MEMBERS OR BOARD OF D IRECTORS. THUS THE CONCEPT OF AN ASSOCIATED ENTERPRISE WAS BROUGHT IN TO ADDRESS THE MANAGEMENT CONTROL OF ONE ENTERPRISE WITH THAT OF T HE OTHER ENTERPRISE WITH WHOM THE INTERNATIONAL TRANSACTIONS ARE BEING ENTERED, WHEREAS THE TERM RELATED PARTY TRANSACTIONS IS OF WIDER I MPORT AND IT IS WORKING ON TRANSACTION LEVEL INSTEAD OF MANAGING CO NTROL LEVEL UNDER THE COMPANIES ACT, 2013, RELATED PARTY TRANS ACTION REQUIRES THE MANDATORY DISCLOSURE IN THE FINANCIAL STATEMENTS OF THE IT(TP)A.615 & CO.151/BANG/2013 PAGE - 29 COMPANY. THEREFORE IN OUR VIEW THE SAME PARAMET ERS OF 26% OF SHARE HOLDING SHOULD NOT BE APPLIED FOR ELIMINATIN G THE RPT I.E FIXING THE RPT AS 25%. THEREFORE, KEEPING THE ABOVE SAID IN MIND, FOR MANY YEARS, THE RPT FILTER HAD BEEN ADOPTED BY THE TPOS TO EXCLUDE THE OTHERWISE COMPARABLE COMPANY FROM THE LIST OF COMPARABLES, IF THE RPT WAS FOUND TO BE MORE THAN 25%. THEORETICALLY, 0% RPT F ILTER ADOPTED BY THE DRP IS CORRECT, BUT WITH A VIEW TO APPRECIATE T HE PRACTICAL DIFFICULTIES IN FINDING OUT THE COMPARABLE, THE RPT FILTER WAS RELAXED IN SOME MATTERS BY THE TRIBUNAL TO THE EXTENT OF 25 % AND IN SOME MATTERS, IT WAS RELAXED UP TO 15%. IN OUR VIEW, A BALANCED VIEW IS REQUIRED TO BE ADOPTED AND WHEN SUFFICIENT NUMBER O F COMPARABLES ARE AVAILABLE, THEN THE RPT FILTER SHOULD BE ADOPTED AT 15% OTHERWISE IT CAN BE RELAXED FOR 25% . RECENTLY, THERE IS A CHAN GE IN LAW ( CBDT ISSUED IN RULES ON MULTIYEAR DATA AND RANGE CONCEPT AFTER PASSING OF FINANCE ACT 2014 ) WHICH REQUIRES THAT THERE SHOUL D BE A MINIMUM OF SIX COMPARABLES AVAILABLE FOR THE PURPOSE OF DETERM INING THE ALP. THOUGH THE SAID AMENDMENT IS PROSPECTIVE NATURE, B UT TAKING CLUE FROM THE WISDOM OF THE LEGISLATURE, WE DEEM IT APPR OPRIATE IF MORE THAN SIX COMPARABLES ARE AVAILABLE, THEN 15% RPT FI LTER SHOULD BE APPLIED, BUT IF THE COMPARABLES AFTER APPLYING THE 15% RPT FILTER IS LESS THAN SIX, THEN THE RPT FILTER SHOULD BE BROUGH T UP FROM 15% TO 25 %. IN THE PRESENT CASE, AS MOST OF THE COMPARABLES TAK EN BY THE TPO WERE DIRECTED TO BE DELETED BY THE TRIBUNAL, THEREF ORE NUMBER OF COMPARABLES AVAILABLE AFTER GIVING EFFECT TO THE OR DER OF THE TRIBUNAL WOULD BE LESS THAN 6, THEREFORE WE DIRECT THE TPO TO APPLY RPT FILTER OF 25% ON ALL COMPARABLE INSTEAD O F 15% AND FIND OUT THE FRESH COMPARABLES, WHICH ARE OTHERWISE FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. IT(TP)A.615 & CO.151/BANG/2013 PAGE - 30 18. IN VIEW OF THE ABOVE, WE DIRECT THE TPO TO DELE TE SAKSOFT LTD, FROM THE LIST OF COMPARABLES. HOWEVER, IT IS MADE CLEAR THAT IF AFTER FINAL ANALYSIS AND CONCLUSION, THE COMPARABLES WERE FOUND TO BE LESS THAN SIX IN NUMBER, THEN THE TPO / AO MAY APPLY THE RPT FILTER OF 25% AS MENTIONED BY US IN THE ABOVE ORDER. THE ISS UE OF COMPARABILITY OF SAKSOFT LTD, AS BEING A COMPANY IN VOLVED INTO PRODUCE DEVELOPMENT, IN OUR VIEW IS FARFETCHED AND WITHOUT ANY BASIS. AS THE CIT (A) HAS DEALT WITH THE ISSUE IN PARA 89 AND HAS NOTED THAT THIS COMPANY HAS NOT DERIVED ANY REVENUE FROM THE S ALE OF PRODUCTS DURING THE YEAR UNDER CONSIDERATION, THEREFORE, THI S CONTENTION OF THE LD. AR IS REJECTED. KALS INFORMATION LTD 19. IN RESPECT OF KALS INFORMATION LTD, THE LD. DR HAS DRAWN OUR ATTENTION TO PARA 100 OF THE ORDER OF THE CIT (A), WHERE THE OPERATING MARGIN HAS BEEN COMPUTED AS UNDER : IT(TP)A.615 & CO.151/BANG/2013 PAGE - 31 25. ON THE BASIS OF THIS, IT WAS SUBMITTED THAT THE FIGURES TAKEN BY THE CIT (A) WHILE DETERMINING THE OPERATING MARGIN IN THE IT SEGMENT AT 30.92% IS ERRONEOUS AND FOR THAT PURPOSE, HE REL IED UPON PAGE.129 OF THE PAPER BOOK TO SHOW THAT THE FIGURES TAKEN AT SL NO.13 OPERATING PROFIT / OPERATING COST IS MENTIONED AS 41.94% AND AT PAGE 357, THE PROFIT / LOSS BEFORE TAX AND INTEREST FOR EACH APP LICATION FILTER IS MENTIONED AS RS.60,69,175.2 AND THE APPLICATION SOF TWARE HAS BEEN MENTIONED AS RS.45,00,515.72. THESE FIGURES MENTIO NED IN PARA 100 MISMATCHES WITH THE FIGURES AT PAGES 129 AND 357. ON THE BASIS OF THE ABOVE, IT WAS SUBMITTED THAT THE CIT (A) HAD ERRED IN CONCLUDING THAT OPERATING MARGIN AT 32.17%, WHEREAS IT SHOULD BE 40 .94%. IT(TP)A.615 & CO.151/BANG/2013 PAGE - 32 26. ON THE OTHER HAND, THE LD. AR HAS FAILED TO JUS TIFY THE FIGURE OF 30.92%. 27. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS ON RECORD. WE HAD ENQUIRED FROM THE LD. AR THE BAS IS FOR ARRIVING AT THE FIGURE OF 30.92%. AS THE ASSESSEE WAS NOT ABLE TO CATEGORICALLY ANSWER, THEREFORE, WE DEEM IT APPROPRIATE TO REMAND THIS ISSUE OF CALCULATION OF OPERATING MARGIN OF KALS INFORMATION SYSTEMS LTD, TO THE FILE OF THE CIT (A) FOR ADJUDICATING IT AFRESH. 28. THE LD. AR HAS AT THIS POINT OF TIME PRESSED TH E ADDITIONAL GROUND FILED BY HIM IN THE CROSS APPEAL AND SUBMIT TED THAT KALS INFORMATION SYSTEMS LTD, HAS TO BE EXCLUDED AS NOT COMPARABLE WITH THAT OF THE ASSESSEE. IT WAS SUBMITTED THAT AS PER THE ANNUAL REPORT, KALS INFORMATION SYSTEMS LTD, IS INTO PRODUCT DEVEL OPMENT AND IS GETTING REVENUE FROM THE TRAINING / BRAND NAME. 29. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THA T ON THE BASIS OF THE FINANCIALS AND THE REVENUE RECOGNITION MENTIONE D IN THE ANNUAL REPORT, NO REVENUE IS EARNED BY KALS INFORMATION SY STEMS LTD, FROM THE PRODUCT SALES. REVENUE EARNED FROM TRAINING IS A MINISCULE FIGURE IT(TP)A.615 & CO.151/BANG/2013 PAGE - 33 AT 6.56%. WE NOTICE THAT IN THE ORDER IN PARA 99, THE CIT (A) HAS MENTIONED THAT INCOME FROM THE PRODUCE DEVELOPMENT AS 21% OF THE SOFTWARE REVENUE. 30. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN PARA 99 OF THE ORDER, THE CIT (A) HAS M ENTIONED THAT THE REVENUE RECEIVED FROM THE SOFTWARE PRODUCT IS INDIC ATED AS 21% OF THE SOFTWARE REVENUE. HOWEVER, BOTH PARTIES HAVE FAILE D TO GIVE SUBSTANTIAL REPLY AS TO HOW THIS FIGURE OF 21% HAS BEEN ARRIVED BY THE ASSESSEE WITH RESPECT TO PRODUCT DEVELOPMENT, AS NO SEGMENTAL INFORMATION WAS POINTED OUT FROM THE ANNUAL REPORT OF THE COMPARABLE. IN VIEW OF THE ABOVE, WE THEREFORE, DE EM IT APPROPRIATE TO REMAND THE MATTER TO THE FILE OF THE CIT (A) TO REAPPRECIATE THE FACTS AND DECIDE THE ISSUE OF INCLUSION / EXCLUSION OF KA LS INFORMATION SYSTEMS LTD, AFRESH AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE PARTIES. NEEDLESS TO SAY WHILE UNDERTAKING THIS EX ERCISE, THE CIT (A) SHALL CONSIDER THE FUNCTIONAL PROFILE AND THE REVEN UE MODEL OF THE COMPARABLE, AS WELL AS THE ASSESSEE. IT(TP)A.615 & CO.151/BANG/2013 PAGE - 34 31. IN THE ADDITIONAL GROUND OF THE CROSS APPEAL B Y THE ASSESSEE, ONE MORE GROUND FOR EXCLUSION OF INFOSYS LTD AND WIPRO LTD, HAS BEEN RAISED BY THE LD. AR. IN OUR VIEW, THIS GROUND NEE DS NO FRESH ADJUDICATION AS WE HAVE ALREADY ADJUDICATED THIS IS SUE IN THE GROUND OF THE REVENUE WHEREBY WHILE DEALING WITH THE TURNOVER / SIZE OF THE COMPARABLE THEREBY WE HAVE REMANDED BACK THE MATTER TO THE FILE OF THE TPO / AO TO EXAMINE THE ISSUE OF TURNOVER, HIGH MARGIN ETC., IN THE LIGHT OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE MATTER OF CHRYSCAPITAL INVESTMENT ADVISERS INDIA P. LTD (SUPRA). IN VIEW OF THE ABOVE, THE CROSS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 32. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED AND THE CROSS APPEAL OF THE ASSESSEE IS ALSO PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THE 24TH DAY OF AUGUST, 2017. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER BENGALURU DATED : 24.08.2017 MCN* IT(TP)A.615 & CO.151/BANG/2013 PAGE - 35 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY