John Deere India Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 827/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0575 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 24-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR CHAWARE
• Keywords: Related party transaction; Business income; Transfer pricing; International transaction; Question of law
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 43B; 271(1)(b); 139; 92; 40(a)(ia); 133(6); 43; 13; 22

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.827/PN/2014 % % / ASSESSMENT YEAR : 2009-10 JOHN DEERE INDIA PVT. LTD., CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE 411 028 PAN : AAACJ4233B . / APPELLANT V/S D CIT, CIRCLE - 1 1 (1), PUNE . / RESPONDENT / APPELLANT BY : SHRI NIKHIL PATHAK / RESPONDENT BY : SHRI ANIL KUMAR CHAWARE / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27-02-2014 PASSED BY THE AO U/S.143(3) R.W .S. 144C(13) OF THE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 2009-10. 2. THE FIRST GROUND RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF DEDUCTION U/S.35D OF THE I.T. ACT AMOUNTING TO RS.37,60,272/-. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEAR ING DID NOT PRESS THIS GROUND FOR WHICH THE LD. DEPARTMENTAL / DATE OF HEARING :08.08.2016 / DATE OF PRONOUNCEMENT:27.10.2016 2 ITA 827/PN/2014 REPRESENTATIVE HAS NO OBJECTION. ACCORDINGLY, THIS GROUN D IS DISMISSED AS NOT PRESSED. 4. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND S OF APPEAL NO.3 TO 3.2 FOR WHICH THE LD. DEPARTMENTAL REPRESE NTATIVE HAS NO OBJECTION. ACCORDINGLY, THE ABOVE GROUNDS ARE D ISMISSED AS NOT PRESSED. 5. GROUNDS OF APPEAL NO.2, 3.3 AND 3.4 BY THE ASSESSEE RE AD AS UNDER : 2. THE LD. DRP ERRED IN RESTRICTING THE CLAIM OF DE DUCTION U/S.10A TO RS.274,503,805/- AS AGAINST THE CLAIM OF RS.3 36,351,781/- MADE BY THE ASSESSEE. 3.3 THE LD. AO ERRED IN HOLDING THAT THE DEDUCTION U/S.10A WAS NOT ALLOWABLE IN RESPECT OF THE DISALLOWANCE MADE U/S. 40(A)(IA) AND 43B. 3.4 THE LD. AO FAILED TO APPRECIATE THAT THE AMOUNT DISALLOWED U/S.40(A)(IA) AND 43B RESULTED IN HIGHER BUSINESS INCOME OF THE ASSESSEE COMPANY AND HENCE, THE DEDUCTION U/S.10A OUGHT TO HAVE BEEN GRANTED. 6. FACTS OF THE CASE, IN BRIEF, ARE THAT IN COMPUTATION OF INCOME THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.33,63,51,781/- U/S .10A OF THE I.T. ACT. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS CERTAIN DIS ALLOWANCE U/S.40(A)(IA) AND 43B AS PER THE PROVISIONS OF THE I.T. ACT. HOWEVER, THE ASSESSEE HAS ALSO CLAIMED DEDUCTION U/S.10A FOR THE PROFIT OF STPI UNIT OFFICE FOR DISALLOWANCE UNDER THE ABOVE SECTIONS. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE AO RECOMPUTED THE DEDUCTION U/S.10A ON ACCOUNT OF DISALLOWANCE U/S.40(A)(IA) AND 43B. THE DRP UPHELD THE ACTION OF THE AO. THE AO IN THE ORDER PASSED ALLOWED DEDUCTION OF 3 ITA 827/PN/2014 RS.27,45,03,805/- U/S. 10A OF THE I.T. ACT FOR WHICH THE ASS ESSEE IS IN APPEAL BEFORE US. 7. AFTER HEARING BOTH THE SIDES, WE FIND THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN TH E IMMEDIATELY PRECEDING ASSESSMENT YEAR. WE FIND THE TRIBUNA L FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 AT PARA 17 OF THE ORDER HAS DECIDED THE ISSUE AND DIRECTED THE AO TO ALLOW DEDUCTION U/S.10A TO THE ASSESS EE ON ACCOUNT OF DISALLOWANCE MADE UNDER THE PROVISIONS OF SECTIO N 40(A)(IA) AND 43B. THE RELEVANT OBSERVATION OF THE TRIBUNAL R EADS AS UNDER: 17. THE SECOND GROUND IN THE APPEAL RELATES TO DEDUC TION U/S. 10A IN RESPECT OF DISALLOWANCE MADE U/S.40(A)(IA) AND 43B OF THE ACT. THE LD. COUNSEL HAS SUBMITTED THAT SIMILAR ISSUE HAS BEEN ADJU DICATED IN FAVOUR OF THE ASSESSEE BY THE CO-ORDINATE BENCH OF TRIB UNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2007-08. A COPY OF THE ORDER OF TRIBUNAL IN ITA NO. 1319/PN/2011 FOR ASSESSMENT YEA R 2007-08 DECIDED ON 10-10-2014 HAS BEEN PLACED ON RECORD. WE FIND THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS IDENTICAL TO THE O NE RAISED IN ASSESSMENT YEAR 2007-08. THE CO-ORDINATE BENCH OF THE T RIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. G EM PLUS JEWELLERY INDIA PVT. LTD. REPORTED AS 330 ITR 175 (B OM). THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL ARE AS UNDER: 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE DRP A ND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY QUESTION TO BE DECIDED IN THE IMPUGNED GROUNDS IS THE ALLOWABILITY O F DEDUCTION U/S/10A ON THE INCOME DUE TO DISALLOWANCE U/S.40(A)(IA ) AND 43B. IT IS THE CASE OF THE ASSESSING OFFICER THAT NO DEDUCTION U /S.10A IS ALLOWABLE ON THE INCOME INCREASED DUE TO DISALLOWANCE U/S.40(A)(IA) AND 43B. IT IS THE CASE OF THE ASSESSEE THAT IN VIEW OF T HE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLU S JEWELLERY INDIA PVT. LTD. (SUPRA) INCREASED INCOME OWING TO DI SALLOWANCE U/S.40(A)(IA) AND 43B HAS TO BE TAKEN INTO CONSIDERATI ON FOR CALCULATION OF DEDUCTION U/S.10A. 14.1 THE HONBLE BOMBAY HIGH COURT WHILE DECIDING A N IDENTICAL ISSUE FOR COMPUTATION OF DEDUCTION U/S.10A WHERE DISALL OWANCE WAS MADE U/S.43B HAS OBSERVED AS UNDER : 4 ITA 827/PN/2014 FOR THE PURPOSES OF THE APPEAL IT IS NECESSARY TO REF ER TO THE ADMITTED POSITION WHICH IS THAT THE ASSESSEE HAD DEPOSITED BOTH THE EMPLOYER'S AND THE EMPLOYEES' CONTRIBUTION TOWARDS PF AND ESIC, THOUGH BEYOND THE DUE DATE INCLUDING THE GRACE PERI OD. THE AO ADDED THESE PAYMENTS TO THE TOTAL INCOME OF THE ASSESSEE AND MADE AN ADDITION IN THE AMOUNT OF RS. 71.59 LACS. HOWEVER, FOR THE DEDUCTION UNDER S. 10A, THE ADDITION MADE ON ACCOUNT OF THE EMPLOYEES' CONTRIBUTION WAS IGNORED IN CALCULATING TH E PROFITS ELIGIBLE FOR DEDUCTION ON THE GROUND THAT THESE RECE IPTS WERE NOT GENERATED OUT OF THE MANUFACTURING ACTIVITY OF THE ASSESSEE COMPANY. BY REASON OF THE JUDGMENT OF THE SUPREME COURT IN CI T VS. ALOM EXTRUSIONS LTD. (2009) 227 CTR (SC) 417 : (2009) 32 ( SC) DTR 49 : (2009) 319 ITR 306 (SC) THE EMPLOYER'S CONTRIBUTION WAS LIABLE TO BE ALLOWED, SINCE IT WAS DEPOSITED BY THE DUE DATE FOR TH E FILING OF THE RETURN. THE PECULIAR POSITION, HOWEVER, AS IT OBTAINS IN THE PRESENT CASE ARISES OUT OF THE FACT THAT THE DISALLOWANCE WHICH WAS EFFECTED BY THE AO HAS NOT, THE COURT IS INFORMED, BEEN CHALLE NGED BY THE ASSESSEE. AS A MATTER OF FACT THE QUESTION OF LAW WHICH I S FORMULATED BY THE REVENUE PROCEEDS ON THE BASIS THAT THE ASSESSED INC OME WAS ENHANCED DUE TO THE DISALLOWANCE OF THE EMPLOYER'S AS WELL AS THE EMPLOYEES' CONTRIBUTION TOWARDS PF/ESIC AND THE ONLY QUESTION WHICH IS CANVASSED ON BEHALF OF THE REVENUE IS WHETHER ON THAT BASIS THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE AO TO GRA NT THE EXEMPTION UNDER S. 10A. ON THIS POSITION, IN THE PRESENT CASE IT CANNOT BE DISPUTED THAT THE NET CONSEQUENCE OF THE DISALLOWANCE OF THE EMPLOYER'S AND THE EMPLOYEES CONTRIBUTION IS THAT THE BUSINESS PROFITS HAVE TO THAT EXTENT BEEN ENHANCED. THERE WAS, AS WE HAVE ALREADY NOTED, AN ADD BACK BY THE AO TO THE INCOME. ALL PROFITS OF THE UNIT OF THE ASSESSEE HAVE BEEN DERIVED FROM MANUFACTURI NG ACTIVITY. THE SALARIES PAID BY THE ASSESSEE, IT HAS NOT BEEN DISPUTED , RELATE TO THE MANUFACTURING ACTIVITY. THE DISALLOWANCE OF THE PF/ESIC PAYMENTS HAS BEEN MADE BECAUSE OF THE STATUTORY PROVISIO NSS. 43B IN THE CASE OF THE EMPLOYER'S CONTRIBUTION AND S. 36(V ) R/W S. 2(24)(X) IN THE CASE OF THE EMPLOYEES CONTRIBUTION W HICH HAS BEEN DEEMED TO BE THE INCOME OF THE ASSESSEE. THE PLAIN CON SEQUENCE OF THE DISALLOWANCE AND THE ADD BACK THAT HAS BEEN MADE BY THE AO IS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE. THE CON TENTION OF THE REVENUE THAT IN COMPUTING THE DEDUCTION UNDER S. 10A THE ADDITION MADE ON ACCOUNT OF THE DISALLOWANCE OF THE PF/ESIC PAYMENTS OUGHT TO BE IGNORED CANNOT BE ACCEPTED. NO STATUTORY PROVISION TO THAT EFFECT HAVING BEEN MADE, THE PLAIN CONSEQUENCE OF THE DISALLOWANCE MADE BY THE AO MUST FOLLOW. THE SECON D QUESTION SHALL ACCORDINGLY STAND ANSWERED AGAINST THE REVENUE AN D IN FAVOUR OF THE ASSESSEE. 14.2 RESPECTFULLY FOLLOWING THE DECISION OF THE JURISD ICTIONAL HIGH COURT CITED (SUPRA) WE HOLD THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN RESTRICTING THE DEDUCTION U/S.10A ON ACCOUNT OF DI SALLOWANCE U/S.40(A)(IA) AND 43B. GROUNDS OF APPEAL NO.4 AND 4.1 BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 17.1 THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF TRIBUNAL IN ASSESSEES OWN CASE WITH RESPECT TO DISALLOWAN CE U/S. 10A. WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT V IEW AS THERE IS NO MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE. 5 ITA 827/PN/2014 ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ACC EPTED. THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION U/S. 10A TO THE ASSESSEE IN THE AFORESAID TERMS. 8. SINCE THE FACTS OF THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY THE TRIBUNA L IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESS MENT YEAR, FOLLOWING THE REASONINGS GIVEN THEREIN AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ORD ER OF THE TRIBUNAL, WE DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESS EE. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 9. GROUNDS OF APPEAL NO.4 TO 12 BY THE ASSESSEE RELATE T O ADDITION OF RS.32,87,25,130/- U/S.92CA OF THE I.T. ACT. 10. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 28-10-2009 DECLARING TOTAL INCOME OF RS.1,26,81,606/-. A REFERENCE U/S.92CA(1) OF THE I.T. ACT, 19 61 WAS MADE BY THE AO ON 18-11-2010 FOR COMPUTATION OF TH E ALP OF THE INTERNATIONAL TRANSACTIONS DETAILED IN THE AUDIT REPOR T FILED IN FORM 3CEB. ACCORDINGLY, THE TPO ISSUED A NOTICE U/S.92CA (2) OF THE I.T. ACT AND ASKED THE ASSESSEE TO FURNISHED THE DETAILS. 11. THE TPO OBSERVED FROM THE VARIOUS DETAILS FURNISHED B Y THE ASSESSEE THAT IT IS ENGAGED IN PROVIDING SOFTWARE DEVELOP MENT SERVICES AND SALES SUPPORT SERVICES TO DEERE AND CO., US A WHICH IS A COMPANY BASED AT ONE JOHN DEERE PLACE, MOINE, ILLIONIS 61265, USA. JDIPL IS ENGAGED IN SOFTWARE DEVELOPMENT SERVIC ES, ITES AND SALES SUPPORT SERVICES TO JOHN DEERE GROUP E NTITIES. JDIPL CAN BE CLASSIFIED AS CAPTIVE SOFTWARE DEVELOPMENT SE RVICE PROVIDER AND A SALES SUPPORT SERVICE PROVIDER. FOR THE PURPOSES OF 6 ITA 827/PN/2014 BENCHMARKING ITS INTERNATIONAL TRANSACTIONS, THE ASSESSEE HAS FOLLOWED TNMM WITH EXTERNAL COMPARABLES AND WITH OPERATING PROFIT OVER TOTAL COST AS PLI. HE FURTHER NOTED THAT TH E INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE D URING THE FINANCIAL YEAR 2008-09 ARE AS FOLLOWS : SR. NO. DESCRIPTION AMOUNT IN RS. METHOD USED 1 PROVISION OF SOFTWARE DEVELOPMENT SERVICE TO DEERE & CO. 99,69,35,770 TNMM 2 PROVISION OF DESIGN ENGINEERING TRANSLATION AND AUTHORING SERVICES TO DEERE & CO. 126,28,39,729 TNMM 3 PROVISION OF DEVELOPMENT MAINTENANCE AND TESTING OF EMBEDDED SYSTEM SOFTWARE SERVICES TO PHOENIX INTERNATION 15,46,96,996 4 PROVISION OF BUSINESS SUPPORT SERVICE (I.E. PROVISION OF REGIONAL SUPPLY MAINTENANCE SERVICES GATEWAY) TO DEERE & CO. 6,78,82,112 TNMM 5 REIMBURSEMENT OF EXPENSES INCURRED BY AES ON BEHALF OF JDIPL 43,19,39,988 REIMBURSEMENT OF EXPENSES 6 REIMBURSEMENT OF EXPENSES INCURRED BY JDIPL ON BEHALF OF AES 10,34,16,525 REIMBURSEMENT OF EXPENSES TOTAL 301,77,11,120 12. WHILE THE ASSESSEE HAS SELECTED TNMM FOR THE FIRST 4 IT EMS, HOWEVER, THE TPO NOTED THAT NO METHOD HAS BEEN SELECT ED BY THE ASSESSEE FOR REIMBURSEMENT OF EXPENSES INCURRED BY JDIPL ON BEHALF OF AES. HE OBSERVED THAT IN TNMM ANALYSIS, THE OPE RATING PROFITS EARNED BY COMPARABLES HAVE BEEN COMPUTED ON OP ERATING COST. FOR BENCHMARKING THE INTERNATIONAL TRANSACTION, THE ASSESSEE HAS IDENTIFIED COMPARABLE COMPANIES ON THE BASIS OF FAR ANALYSIS, I.E. FUNCTION PERFORMED, RISK ASSUMED AND ASSET UTILISED. THE ASSESSEE HAS REFERRED PROWESS AND CAPITALIN E PLUS DATABASE TO GET THE INFORMATION OF THE COMPARABLE COMPAN IES. IT IS FURTHER MENTIONED IN THE TP STUDY REPORT THAT ASSESS EE HAS SELECTED 21 COMPARABLES FOR BENCHMARKING THE SOFTWARE 7 ITA 827/PN/2014 DEVELOPMENT SERVICE TRANSACTION. AVERAGE PLI OF THE COMP ARABLE IS ARRIVED AT 14.13% WHEREAS THE PLI OF THE ASSESSEE IS 11.06%. 13. SIMILARLY, IN RESPECT OF DESIGN ENGINEERING SERVICES 14 COMPARABLE COMPANIES ARE SELECTED FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS AND ARRIVED AT AVERAGE PLI OF THE COMPARABLES AT 18.55% WHEREAS THE PLI OF THE ASSESSEE IS 13.07%. IN RESPECT OF BUSINESS SUPPORT SERVICES 17 COMP ARABLE COMPANIES HAVE BEEN SELECTED FOR BENCHMARKING THE INTERN ATIONAL TRANSACTIONS TO ARRIVE AT AVERAGE PLI OF THE COMPARAB LES AT 14.05% WHEREAS THE PLI OF THE ASSESSEE IS 12.68%. IT WAS ACC ORDINGLY CLAIMED IN THE TP STUDY REPORT THAT THE TRANSACTIONS ME NTIONED ARE AT ARMS LENGTH PRICE. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE TPO , ON THE BASIS OF THE TP STUDY REPORT AND OTHER INFORMATION FURNISHED WITH THE INTERNATIONAL TRANSACTIONS, WAS OF THE OPINION THAT THE INTERNATIONAL TRANSACTIONS IN RESPECT OF SOFTWARE DEVELOPME NT SERVICES AND DESIGN ENGINEERING SERVICES ARE NOT AT ALP. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE ASKING THE ASSESSE E TO JUSTIFY ITS TP STUDY REPORT. THE ASSESSEE IN RESPONSE TO THE SAME RAISED THE FOLLOWING OBJECTIONS : 1. USE OF CONTEMPORANEOUS DATA 2. USE OF SINGLE YEAR DATA, IS NOT APPROPRIATE 3. REJECTION OF TP DOCUMENTATION 4. ADDITIONAL/MODIFIED FILTERS ARE NOT APPROPRIATE 5. REJECTION OF CERTAIN COMPARABLE OF SOFTWARE DEVE LOPMENT SELECTED BY THE ASSESSEE 6. CERTAIN COMPANIES CONSIDERED AS COMPARABLE BY DRP BUT NOT CONSIDERED BY TPO 7. ACCEPTANCE OF CERTAIN NON COMPARABLE COMPANIES 8. THE CORRECT COMPUTATION OF PLI MARGIN OF COMPAR ABLE SOFTWARE DEVELOPMENT SERVICE 9. REJECTION OF CERTAIN COMPARABLE COMPANIES IN RESP ECT OF ITES SELECTED BY THE ASSESSEE 8 ITA 827/PN/2014 10. ACCEPTANCE OF CERTAIN COMPARABLE COMPANIES BY TP O IN RESPECT OF ITES 11. COMPUTATION OF REVISED MARGIN 12. NON INCLUSION OF FORTUNE INFOTECH LTD. AS COMPARA BLE 13. REJECTION OF SUPER NORMAL PROFIT COMPANIES 14. ADJUSTMENT IN THE DIFFERENCE IN THE LEVEL OF WOR KING CAPITAL EMPLOYED 15. ADJUSTMENT FOR DIFFERENCE IN THE RICK ASSUMED BY T HE ASSESSEE, VIS-AVIS COMPARABLE COMPANIES 16. APPLICATION OF ARMS LENGTH RANGE (+5/-5%) 15. AFTER CONSIDERING THE VARIOUS OBJECTIONS RAISED BY THE ASSESSEE THE TPO REJECTED 15 COMPANIES OUT OF THE 21 COMPANIES SELECTED BY THE ASSESSEE IN RESPECT OF SOFTWARE DIVISION A ND INTRODUCED 3 NEW COMPANIES AS COMPARABLE ENTITIES AND FIN ALLY SELECTED THE 9 COMPANIES AS COMPARABLE ENTITIES. SIMILARLY, IN CASE OF DESIGN ENGINEERING SERVICES OUT OF THE 12 COMPANIE S INITIALLY SELECTED BY THE ASSESSEE AS COMPARABLES THE TPO REJECTED 6 COMPANIES AND INTRODUCED 2 NEW COMPARABLES. AFTER ALLO WING THE WORKING CAPITAL ADJUSTMENT THE TPO COMPUTED THE MA RGIN OF 9 COMPARABLES IN THE SOFTWARE DIVISION AT 27.80%. FOR THE DE SIGN ENGINEERING DIVISION HE COMPUTED THE MARGINS OF COMPARABLES AT 27.80% IN RESPECT OF THE 8 COMPANIES, THE DETAILS OF WHICH ARE AS UNDER : FOR SOFTWARE DEVELOPMENT SERVICES : SR. NO. NAME OF THE COMPARABLE PLI MARGIN (OP/OC) AFTER ALLOWING WORKING CAPITAL ADJUSTMENT 1 KALS INFORMATION TECHNOLOGY SYSTEM LTD. (SEG.) 41.91% 38.80 2 GOLDSTONE TECHNOLOGIES LTD. 4.16% 8.98 3 THIRDWARE SOLUTIONS LTD. 21.90% 20.01 4 INFOSYS TECHNOLOGIES LTD. 40.39% 39.60 5 BODHTREE CONSULTING LTD. 62.29% 62.33 6 PERSISTENT SYSTEMS PVT. LTD. 16.18% 17.37 7 LANCO GLOBAL SYSTEMS LTD. 20.51% 16.62 8 SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.22& 26.12 9 LARSEN & TOUBRO INFOTECH LTD. 17.54% 20.34 ARITHMETIC MEAN 27.68% (249.10/9) 27.80% (250.17/9) 9 ITA 827/PN/2014 FOR ITES SR. NO. NAME OF THE COMPARABLE PLI MARGIN (OP/OC) AFTER ALLOWING WORKING CAPITAL ADJUSTMENT 1 INFORMED TECHNOLOGIES LTD. 22.95 24.33 2 R SYSTEMS LTD. 16.94 16.40 3 E4E HEALTH SOLUTIONS LTD. 32.22 30.83 4 MICROGENETICS SYSTEMS LTD. 1.28 0.77 5 COSMIC GLOBAL LTD. 40.66 39.58 6 CORAL HUBS (VISHAL INFORMATION TECHNOLOGIES LTD.) 36.93 37.06 7 TATA ELXSI LTD. 18.53 18.53 8 GENESYS INTERNATIONAL CORPORATION LTD. 58.45 54.88 ARITHMETIC MEAN 28.50% (227.96/8) 27.80% (222.38/8) 16. THE ASSESSEE APPROACHED THE DRP, WHO UPHELD THE SELE CTION OF MOST OF THE COMPANIES IN THE CASE OF SOFTWARE DIVISION A S SELECTED BY THE TPO. HOWEVER, THE DRP DIRECTED THE TPO TO CONSIDER THE REJECTION OF MINDTREE LTD. AND VERIFICATION OF FACTS IN RESPECT OF QUINTEGRA SOLUTIONS LTD., R.S. SOFTWARE (INDIA) LTD . AND ZYLOG SYSTEMS LTD. SIMILARLY, IN THE CASE OF DESIGN ENGINEERIN G DIVISION WHILE DRP UPHELD THE SELECTION OF MOST OF THE COMPARABLES AS PER THE TPO, HOWEVER, IT DIRECTED THE TPO TO EXCLUDE INFORMED TECHNOLOGIES LTD. FROM THE LIST OF COMPARAB LES AS RATIO OF EXPORTS TO TOTAL REVENUE IS ONLY 52.04%. IN THE FINAL ASSESSMENT ORDER, THE AO ACCEPTED MINDTREE LTD. AND R.S . SOFTWARE (INDIA) PVT. LTD. AS COMPARABLES AND REJECTED Q UINTEGRA SOLUTIONS LTD. AND ZYLOG SYSTEMS LTD. AS COMPARABLE ON FUNCTIONAL GROUNDS IN THE SOFTWARE DIVISION. SIMILARLY, ON THE BASIS OF THE DIRECTION OF THE DRP, THE TPO EXCLUDED INFORME D TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES AS RATIO OF EX PORTS TO TOTAL REVENUE IS ONLY 52.04%. ACCORDINGLY, IN THE FINAL ASSESSMENT ORDER THE AO SELECTED THE FOLLOWING 11 COMPAN IES IN THE CASE OF SOFTWARE DIVISION AND 7 COMPANIES IN THE CASE OF 10 ITA 827/PN/2014 DESIGN ENGINEERING DIVISION AND DETERMINED THE PLI AT 26.10 % IN THE SOFTWARE DIVISION AND 28.29% IN THE DESIGN ENGINEERING DIVISION, THE DETAILS OF WHICH ARE UNDER : I. SOFTWARE DIVISION : SR.NO. NAME OF THE COMPARABLE WORKING CAPITAL ADJUSTED MARGIN 1 KALS INFORMATION TECHNOLOGY LTD. 38.80 2 GOLDSTONE TECHNOLOGIES LTD. 8.98 3 THIRDWARE SOLUTIONS LTD. 20.01 4 INFOSYS TECHNOLOGIES LTD. 39.60 5 BODHTREE CONSULTING LTD. 62.33 6 PERSISTENT SYSTEMS PVT. LTD. 17.37 7 LANCO GLOBAL SYSTEMS LTD. 16.62 8 SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 26.12 9 LARSEN & TOUBRO INFOTECH LTD. 20.34 10 MINDTREE LTD. 27.00 11 R.S. SOFTWARE LTD. 9.92 ARITHMETIC MEAN 26.10% II. DESIGN ENGINEERING DIVISION : SR.NO. NAME OF THE COMPARABLE WORKING CAPITAL ADJUSTED MARGIN 1 R SYSTEMS LTD. 16.40 2 E4E HEALTH SOLUTIONS LTD. 30.83 3 MICROGENETICS SYSTEMS LTD. 0.77 4 COSMIC GLOBAL LTD. 39.58 5 CORAL HUBS (VISHAL INFORMATION TECHNOLOGIES LTD.) 37.06 6 TATA ELXSI LTD. 18.53 7 GENESYS INTERNATIONAL CORPORATION LTD. 54.88 ARITHMETIC MEAN 28.29% 17. AGGRIEVED WITH SUCH ORDER OF THE AO/TPO THE ASSESSE E IS IN APPEAL BEFORE US. 18. SO FAR AS THE SOFTWARE DIVISION IS CONCERNED THE LD. CO UNSEL FOR THE ASSESSEE OBJECTED TO THE REJECTION OF CERTAIN C OMPANIES AND INCLUSION OF CERTAIN NEW COMPANIES AS COMPARABLE. SO FAR AS THE REJECTION OF INFOSYS TECHNOLOGIES LTD. IS CONCERNED HE SUB MITTED THAT THE TURNOVER OF INFOSYS TECHNOLOGIES LTD. IS ABOUT 11 ITA 827/PN/2014 RS.20,000 CRORES WHEREAS THE TURNOVER OF THE ASSESSEE IS ABOUT RS.100 CRORES. CONSIDERING THE SIZE, FUNCTION AND ASSETS EMPLOYED, INFOSYS TECHNOLOGIES LTD. CANNOT BE CONSIDERED A S A COMPARABLE ENTITY WITH THAT OF THE ASSESSEE COMPANY. H E SUBMITTED THAT THIS COMPANY WAS ALSO CONSIDERED AS COMP ARABLE ENTITY IN ITS OWN CASE FOR A.Y. 2007-08 AND 2008-09 BY TH E TPO. HOWEVER, THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 200 7-08, A COPY OF WHICH IS PLACED AT PAGES 1 TO 54 OF THE PAPER BO OK, AT PARA 34 OF THE ORDER HAS REJECTED THE SAID COMPANY AS A CO MPARABLE ENTITY ON THE GROUND THAT IT IS FUNCTIONALLY NOT COMPARAB LE. REFERRING TO THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09, COPY OF WHICH IS PLACED AT PAGES 55 TO 101 O F THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PARA 20.4 OF THE ORDER AND SUBMITTED THAT THE SAID COMPANY HAS BEEN REJECTED AS A COMPARABLE ENTITY IN AS SESSEES OWN CASE. HE ACCORDINGLY SUBMITTED THAT INFOSYS TECHNO LOGIES LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 19. AS REGARDS KALS INFORMATION TECHNOLOGY SYSTEM LTD. IS CONCERNED THE LD. COUNSEL FOR THE ASSESSEE DREW THE AT TENTION OF THE BENCH TO PAGES 39 AND 40 OF THE ORDER OF THE TPO AND SUBMITTED THAT THE TPO ADDED THIS COMPANY AS COMPARAB LE BECAUSE THERE IS NOTHING MENTIONED AT ALL ABOUT THE SALE OF PRODUCTS OR DEVELOPMENT OF PRODUCTS IN THE PROFIT AND LOS S ACCOUNT OF THE COMPANY. THE R&D EXPENDITURE OF THE COM PANY IS ZERO. FURTHER, IT WAS INCLUDED IN THE LAST YEAR. REFERRIN G TO THE ORDER OF THE DRP HE SUBMITTED THAT THE DRP OBSERVED T HAT SIMILAR OBJECTION RAISED ONLY IN A.Y. 2008-09 WERE NOT ACCEPTED BY THE PANEL. THE CONTENTION OF THE ASSESSEE THAT THERE IS DIS CREPANCY IN 12 ITA 827/PN/2014 THE SEGMENTAL DATA OF KALS INFORMATION TECHNOLOGY SYSTEM LTD. FOR WHICH THE SAME CANNOT BE RELIED UPON WAS REJECTED B Y THE DRP. IT HAS ALSO REJECTED THE CLAIM OF THE ASSESSEE TH AT KALS INFORMATION TECHNOLOGY SYSTEM LTD. HAS EARNED SUPER NOR MAL PROFIT FOR WHICH IT SHOULD BE REJECTED. 20. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY WAS ALSO CONSIDERED BY THE TPO AS COMPARABLE E NTITY IN ITS OWN CASE FOR A.Y. 2007-08 AND 2008-09. REFERRING TO THE COPY OF THE ORDER OF THE TRIBUNAL FOR A.Y. 2007-08, COPY OF WHICH IS PLACED AT PAGES 1 TO 54 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO PARA 37 TO 37.3 OF THE ORDER AND SUBMITTE D THAT THE TRIBUNAL HAS DIRECTED THE TPO/AO TO EXCLUDE KALS INFORMAT ION TECHNOLOGY SYSTEM LTD. FROM THE LIST OF COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY NOT COMPARABLE. REFERRING TO THE CO PY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008 -09, A COPY OF WHICH IS PLACED AT PAGES 55 TO 101 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PARA 20.5 OF THE ORDER SUBMITTED THAT THE TRIBUNAL FOLLOWING THE ORDER OF THE TRIBUN AL FOR A.Y. 2007-08 HAS DIRECTED THE TPO TO EXCLUDE KALS INFORMA TION TECHNOLOGY SYSTEM LTD. AS COMPARABLE FROM THE LIST OF COMPARABLES. HE ACCORDINGLY SUBMITTED THAT IN VIEW OF TH E CONSISTENT DECISION OF THE TRIBUNAL FOR A.Y. 2007-08 AND 200 8-09 KALS INFORMATION TECHNOLOGY SYSTEM LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 21. SO FAR AS BODHTREE CONSULTING LTD. IS CONCERNED THE L D. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE 43 OF THE ORD ER OF THE TPO DREW THE ATTENTION OF THE BENCH TO THE REASONS GIV EN BY THE 13 ITA 827/PN/2014 TPO FOR INCLUSION OF THE SAME. HE SUBMITTED THAT THE TPO REJECTED THE VARIOUS CONTENTIONS OF THE ASSESSEE ON TH E GROUND THAT DURING TP PROCEEDINGS FOR A.Y.2008-09 THIS COMPANY W AS CONSIDERED AS COMPARABLE IN THE CASE OF THE ASSESSEE B Y THE DRP AND SINCE THERE IS NO MATERIAL CHANGE IN THE BUSINESS MO DULE OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HE RE TAINED BODHTREE CONSULTING LTD. AS COMPARABLE. 22. REFERRING TO THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR A.Y. 2008-09, A COPY OF WHICH IS PLACED AT PAGES 55 TO 101 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW T HE ATTENTION OF THE BENCH TO PARA 20.1 OF THE ORDER AND SU BMITTED THAT AFTER THOROUGHLY CONSIDERING THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE THE TRIBUNAL HAS HELD THAT BODHTREE CO NSULTING LTD. IS NOT FUNCTIONALLY COMPARABLE TO THE SERVICES RENDER ED BY THE ASSESSEE AND ACCORDINGLY DIRECTED THE AO TO EXCLUDE TH E SAID COMPANY FROM THE LIST OF FINAL SET OF COMPARABLES. HE ACCOR DINGLY SUBMITTED THAT IN VIEW OF THE DECISION OF THE TRIBUNAL IN A SSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR B ODHTREE CONSULTING LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 23. SO FAR AS AZTEC SOFT LTD. IS CONCERNED THE LD. COUNSE L FOR THE ASSESSEE REFERRED TO PAGE 32 OF THE ORDER OF THE T PO AND SUBMITTED THAT THIS COMPANY HAS BEEN EXCLUDED ON THE G ROUND THAT IT HAS RELATED PARTY TRANSACTIONS OF MORE THAN 25% . REFERRING TO THE ORDER OF THE DRP HE SUBMITTED THAT THE DRP HELD THE ACTION OF THE AO FOR REJECTING THE SAME ON RELATED PARTY TRAN SACTION FILTER IS CORRECT AND REJECTED THE CONTENTION OF THE ASSESSEE . HE SUBMITTED THAT WHILE COMPUTING THE PERCENTAGE OF RELATED PARTY 14 ITA 827/PN/2014 TRANSACTIONS THE TPO AND THE DRP ARE CONSIDERING THE R ELATED PARTY REVENUE AND EXPENDITURE IN NUMERATOR WHILE ONLY REVENUE IN DENOMINATOR. THIS WORKING IS NOT CORRECT. HE SUBMITTED T HAT THE CORRECT WORKING SHOULD BE COMPUTED BY CONSIDERING THE R EVENUE AND EXPENSES IN NUMERATOR AND DENOMINATOR. 24. REFERRING TO PAGE 112 OF THE PAPER BOOK HE SUBMITTED THAT IF IT IS COMPUTED PROPERLY THEN RELATED PARTY TRANSACTIONS OF AZTEC SOFT LTD. IS LESS THAN 25% AND THEREFORE REJECTION OF SAID COMPANY IS NOT JUSTIFIED. HE SUBMITTED THAT SIMILAR ISSUE HAD COME UP IN ASSESSEES OWN CASE FOR A.Y. 2008-09. THE SAID COMPANY WAS REJECTED ON RELATED PARTY TRANSACTIONS FILTER. HOWEVER, T HE TRIBUNAL AT PARA 21.1 OF THE ORDER HAS DISCUSSED THE ISSU E AND ACCEPTED THAT THIS COMPANY IS A COMPARABLE COMPANY AN D ACCORDINGLY DIRECTED THE TPO/AO TO INCLUDE THE SAME IN T HE LIST OF COMPARABLES. 25. SO FAR AS SIP TECHNOLOGIES LTD. IS CONCERNED THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PA GE 36 OF THE ORDER OF TPO AND SUBMITTED THAT THE TPO DID NOT CONSIDE R THIS COMPANY AS COMPARABLE ON THE BASIS OF THE ORDER OF THE DRP FOR A.Y. 2008-09 AND THAT IT IS A LOSS MAKING COMPANY AND HAS DIMINISHING REVENUE. HE SUBMITTED THAT THE SAID COMPANY HAS BEEN ACCEPTED BY THE TRIBUNAL AS COMPARABLE ENTITY FOR A.Y. 2008- 09 ON THE GROUND THAT IT IS NOT A PERSISTENT LOSS MAKING ENTITY. HE SUBMITTED THAT THE COMPANY HAS A PROFIT OF RS.6 CRORES IN A.Y. 2007-08, LOSS OF RS.1 CRORE IN A.Y. 2008-09 AND LOSS OF R S.1.83 CRORES IN A.Y. 2009-10. SINCE IT HAS PROFIT OF RS.6 CRORES I N A.Y. 2007-08 IT CANNOT BE SAID THAT IT IS A PERSISTENT LOSS MA KING 15 ITA 827/PN/2014 COMPANY SINCE IN ONE YEAR IT HAS EARNED PROFIT AND FOR TH E OTHER TWO YEARS IT HAS LOSS. HE SUBMITTED THAT ALTHOUGH THIS W AS SUBMITTED BEFORE THE DRP, HOWEVER, THE DRP HAS REJECTED THE SAME. SINCE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR HAS ACCEPTED SIP TECHNOLOGIES LTD. AS A COMPARABLE, THEREFORE, THE SAME SH OULD BE CONSIDERED AS A COMPARABLE COMPANY. 26. SO FAR AS PERSISTENT SYSTEMS PVT. LTD. IS CONCERNED H E SUBMITTED THAT THE ERROR IS ONLY ON ACCOUNT OF CALCULATIO N OF OPERATING PROFIT. REFERRING TO PAGE 136 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CORRECT OP ERATING MARGIN OF PERSISTENT SYSTEMS PVT. LTD. IS 12.52% PRIOR TO WORKING CAPITAL ADJUSTMENT WHEREAS THE TPO HAS CONSIDERED THE SAME AT 16.18%. THEREFORE, THE OPERATING PROFIT SHOULD BE CONSIDERE D CORRECTLY. 27. SO FAR AS DESIGN ENGINEERING DIVISION IS CONCERNED THE L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TURNOVER O F THE DESIGN ENGINEERING DIVISION OF THE ASSESSEE COMPANY IS RS.143,01,92,449/- ON WHICH THE ASSESSEE HAS EARNED OPER ATING PROFIT AT 13.07%. THE AO MADE ADDITION OF RS.19,25,66,724/- BY REJECTING 6 COMPARABLES AND CONSIDERING 2 NEW COMPARABLE COMPANIES. THE DRP HAS EXCLUDED 1 COMPANY AND THEREFOR E THERE ARE TOTAL 7 COMPANIES IN THE FINAL LIST OF COMPARABLES. THE OPERATING MARGIN OF THE FINAL SET OF COMPARABLES AS PER TH E AO COMES TO 28% AS AGAINST 13% DECLARED BY THE ASSESSEE. 28. SO FAR AS INCLUSION OF CORAL HUBS (EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD.) BY THE TPO AS A COMPARABLE IS 16 ITA 827/PN/2014 CONCERNED THE LD. COUNSEL FOR THE ASSESSEE DREW THE AT TENTION OF THE BENCH TO PAGE 52 OF THE ORDER OF THE TPO AND SUBM ITTED THAT THE TPO INCLUDED THE SAME ON THE GROUND THAT IT WAS ALS O SELECTED BY THE TPO AS A COMPARABLE FOR A.Y. 2008-09. HE SUBMITTE D THAT CORAL HUBS IS ENGAGED IN E-PUBLISHING WHICH ITSELF INDICATES TH AT THE BUSINESS MODEL OF THE SAID COMPANY IS NOT COMPARABLE WITH THAT OF THE ASSESSEE COMPANY. REFERRING TO PARA 24.1 OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 HE SUBMITTED THAT THE TRIBUNAL HAS REJECTED THIS COMPANY A S COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY NOT COMP ARABLE WITH THE ASSESSEE COMPANY. HE ACCORDINGLY SUBMITTED TH AT IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THIS COMPANY SHO ULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 29. AS REGARDS GENESYS INTERNATIONAL CORPORATION LTD. IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE TPO CONSIDERED THIS COMPANY AS A COMPARABLE ON THE GRO UND THAT IT WAS SELECTED AS COMPARABLE IN A.Y. 2008-09. HE SUBMITTE D THAT GENESYS INTERNATIONAL CORPORATION LTD. IS ENGAGED IN TH E BUSINESS OF GEOSPATIAL SERVICES AND HENCE IT CANNOT BE COMPARED W ITH THAT OF THE ASSESSEE COMPANY. REFERRING TO PARA 24.2 OF THE ORDER OF THE TRIBUNAL FOR A.Y. 2008-09 HE SUBMITTED THAT THIS COMP ANY WAS REJECTED ON THE GROUND THAT IT IS FUNCTIONALLY NOT C OMPARABLE WITH THAT OF THE ASSESSEE COMPANY. HE ACCORDINGLY SUBMITTED THAT THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 30. SO FAR AS COSMIC GLOBAL LTD. IS CONCERNED, HE SUBMITTED THAT ALTHOUGH THIS COMPANY WAS SELECTED BY THE ASSESSE E ITSELF, 17 ITA 827/PN/2014 HOWEVER, THE SAID COMPANY IS NOT FUNCTIONALLY COMPARABLE. REFERRING TO PARA 24.3 OF THE ORDER OF THE TRIBUNAL IN ASS ESSEES OWN CASE FOR A.Y. 2008-09 HE SUBMITTED THAT THIS COMPANY WAS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THE SAID COMPANY IS NOT FUNCTIONALLY COMPARABLE. HE ACCORDINGLY SUBMITTED THAT THIS COMPANY SHOULD BE EXCLUD ED FROM THE LIST OF COMPARABLES FOR A.Y. 2009-10. 31. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE TPO/AO. SO FAR AS KALS INFORMATION TECHNOLOGY SYSTEM LTD. IS CONCERNED, THE LD. DEPARTMENTAL REPRESENTATIVE DREW THE ATTENTION OF THE B ENCH TO PAGE 184 OF THE PAPER BOOK AND SUBMITTED THAT THE INCO ME IS FROM SOFTWARE DEVELOPMENT ONLY. SIMILARLY EXPENDITURE ON R&D I S NIL. SEGMENTAL RESULTS ARE AVAILABLE, THEREFORE, THE TPO HAS RIGH TLY CONSIDERED KALS INFORMATION TECHNOLOGY SYSTEM LTD. AS A COMPARABLE COMPANY. 32. SO FAR AS BODHTREE CONSULTING LTD. IS CONCERNED HE SUBMITTED THAT IT IS A SOFTWARE DEVELOPMENT COMPANY AND FUNCTIONALLY COMPARABLE. THEREFORE, THE TPO/DRP HAS RIGHTL Y CONSIDERED THE SAME COMPANY AS COMPARABLE COMPANY. RE FERRING TO THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DLPM LTD. HE SUBMITTED THAT THE TRIBUNAL HAS ACCEPT ED THE BODHTREE CONSULTING LTD. AS A COMPARABLE COMPANY. THEREFO RE, BODHTREE CONSULTING LTD SHOULD BE CONSIDERED AS COMPARA BLE COMPANY. 33. SO FAR AS VARIOUS OTHER COMPARABLES ARE CONCERNED H E HEAVILY RELIED ON THE ORDER OF THE TPO/DRP. 18 ITA 827/PN/2014 34. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDER REFER RING TO PAGE 185 OF THE PAPER BOOK SUBMITTED THAT IN THE CASE OF KALS INFORMATION SYSTEM LTD. UNDER THE HEAD REVENUE RECOGN ITION IT HAS BEEN MENTIONED THAT THE COMPANY DERIVES ITS REVENU ES PRIMARILY FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS. REFERRING TO PAGE 183 OF THE PAPER BOOK HE SUBMITTED TH AT THE COMPANY HAS INVENTORY OF RS.71.48 LAKHS UNDER THE HEAD SOFTWARE DEVELOPMENT. THEREFORE, THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE COMPANY WITH THAT OF THE ASS ESSEE COMPANY. 35. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY THE BOTH THE SIDES, PERUSED THE ORDERS OF THE AO/TPO/DRP AND TH E PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO T HE FACT THAT THE ASSESSEE COMPANY DURING THE IMPUGNED ASSESS MENT YEAR HAS PROVIDED 3 TYPES OF SERVICES TO ITS AES NAMELY (A) SO FTWARE DEVELOPMENT SERVICES, (B) DESIGN ENGINEERING, TRANSLATION AN D AUTHORING SERVICES, DEVELOPMENT MAINTENANCE AND TESTING OF EMBEDDED SYSTEMS SOFTWARE SERVICES AND (C) BUSINESS SUPP ORT SERVICES. DETAILS OF THE ABOVE TRANSACTIONS HAVE ALREADY BEEN GIVEN AT PARA 11 OF THIS ORDER AND THE ASSESSEE IN ALL TH E TRANSACTIONS HAVE ADOPTED TNMM AS THE MOST APPROPRIAT E METHOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION EN TERED INTO BY IT. WE FIND THE TPO DURING THE TP PROCEEDINGS HE LD THAT THE INTERNATIONAL TRANSACTIONS IN RESPECT OF SOFTWARE DEVE LOPMENT SERVICE AND DESIGN ENGINEERING SERVICE ARE NOT AT ALP. 19 ITA 827/PN/2014 36. SO FAR AS THE SOFTWARE DIVISION IS CONCERNED, WE FIND THE TOTAL TURNOVER OF THE SAID DIVISION IS RS.100,56,06,168/-. THE ASSESSEE COMPANY HAD INITIALLY SELECTED 21 COMPANIES AS COMPARABLE OUT OF WHICH THE TPO REJECTED 15 COMPANIES. AFTER INTRODUCING 3 NEW COMPANIES AS COMPARABLE ENTITY, THE TPO SELECTED 9 COMPANIES AS COMPARABLE ENTITIES. AFTER ALLOWING ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL THE TPO COMPUT ED THE MARGINS OF THE COMPARABLES AT 27.80%. WE FIND THE DRP WHILE UPHOLDING THE SELECTION OF MOST OF THE COMPANIES, HOWEVER, DIRECTED THE TPO TO RECONSIDER THE REJECTION OF MINDTRE E CONSULTING LTD, RE-VERIFICATION OF FACTS IN CASE OF QUINTEGRA SOLUTIONS LTD., R.S. SOFTWARE LTD. AND ZYLOG SYSTEMS LTD. WE FIND IN THE FINAL ASSESSMENT ORDER THE AO ACCEPTED MINDTREE CONSULTING LTD. AND R.S. SOFTWARE LTD. AS COMPARABLE AND REJECTED QUINTEGRA SOLUTIONS AND ZYLOG SYSTEMS LTD. AS COMPARABLES ON FUNCTIONAL GROUND. ACCORDINGLY, THE AO IN THE FINAL ASSESSMENT ORDER SELECTED 11 COMPANIES AS COMPARAB LES COMPANIES WHOSE ARITHMETIC MEAN IS 26.10% THE DETAILS OF WHICH ARE ALREADY GIVEN AT PARA 16 OF THIS ORDER. ACCORDINGLY , THE AO MADE ADDITION OF RS.13,61,58,406/- IN THE SOFTWARE DIVISION. 37. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSE E THAT THE AO/TPO/DRP ARE NOT CORRECT IN REJECTING CERTAIN CO MPANIES AND INTRODUCING CERTAIN NEW COMPANIES. IT IS THE SUBMISSI ON OF THE LD. COUNSEL FOR THE ASSESSEE THAT INFOSYS TECHNOLOGIE S LTD., KALS INFORMATION TECHNOLOGY SYSTEM LTD., BODHTREE CONSULTIN G LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES WHILE A ZTEC SOFT LTD. AND SIP TECHNOLOGIES AND EXPORTS LTD. SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. FURTHER, IT IS ALSO HIS 20 ITA 827/PN/2014 SUBMISSION THAT THERE IS SOME CALCULATION ERROR OF OPERATIN G PROFIT IN THE CASE OF PERSISTENT SYSTEMS PVT. LTD. 38. WE FIND SOME FORCE IN THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. SO FAR AS INFOSYS TECHNOLOGIES LTD. IS CONCERNED, WE FIND THE TPO CONSIDERED THIS COMPANY AS A COMPARABLE COMPANY ON THE GROUND THAT THE ASSESSEE IT SELF IN ITS TP STUDY REPORT HAS SELECTED THIS COMPANY AS A COMPAR ABLE COMPANY. WHEN THE ASSESSEE APPROACHED THE DRP FOR EX CLUSION OF THE AFORESAID COMPANY THE DRP REJECTED THE OBJECTION OF THE ASSESSEE ON THE GROUND THAT THE SAID IS AN AFTERTHOUGH T AND CANNOT BE ENTERTAINED AT THIS STAGE. WE FIND IDENTICAL ISS UE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A .Y. 2007- 08 WHERE THE TPO HAD CONSIDERED THIS COMPANY AS A COM PARABLE COMPANY AND THE DRP HAD REJECTED THE CONTENTION OF TH E ASSESSEE TO EXCLUDE THE SAME. THE TRIBUNAL AT PARA 34 OF THE ORDER DIRECTED THE TPO/AO TO EXCLUDE INFOSYS TECHNOLOGIES LTD. FROM TH E LIST OF COMPARABLES. WE FIND FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE THE TRIBUNAL IN A.Y. 2008-09 HAS DISC USSED THE ISSUE AND DIRECTED THE TPO/AO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER : 20.4 INFOSYS TECHNOLOGIES LTD. : THE ASSESSEE HAS SOUGHT EX CLUSION OF THE SAID COMPANY FROM THE LIST OF COMPARABLES ON ACCOU NT OF DISPARITY IN SCALE OF WORK AND TURNOVER. THE LD. COUN SEL POINTED OUT THAT THE SAID COMPANY WAS EXCLUDED FROM THE LIST OF CO MPARABLE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08. THE COORDINATE BENCH HAD EXCLUDED THE AFORESAID COMP ARABLE ON ACCOUNT OF HUGE DISPARITY BETWEEN THE TURNOVER OF I NFOSYS TECHNOLOGIES LTD. AND THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS AS UNDER: 34. NOW COMING TO THE MERIT OF EACH CASE, WE FIND T HE ASSESSEE IN ITS TP STUDY REPORT HAS INCLUDED INFOSYS TECHNOLOGIES LTD., AS COMPARABLE. FROM THE VARIOUS DET AILS FURNISHED BY THE ASSESSEE, WE FIND THE TPO IN ITS ORDER F OR A.Y. 21 ITA 827/PN/2014 2006-07 IN ASSESSEES OWN CASE HAS HELD THAT INFOSYS IS NOT A COMPARABLE COMPANY WITH THAT OF THE ASSESSEE COMPANY BECAUSE OF HUGE DISPARITY BETWEEN THE TURNOVER OF INF OSYS TECHNOLOGIES LTD. WITH THAT OF THE ASSESSEE COMPANY. 34.1 WE FIND THE HONBLE DELHI HIGH COURT IN THE CA SE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD., (SUPRA) HAS H ELD THAT INFOSYS TECHNOLOGIES LTD., CANNOT BE CONSIDERED AS A COMPARABLE ENTITY WITH THAT OF SMALLER COMPANIES. IN VARIOUS OTHER JUDICIAL DECISIONS IT HAS BEEN HELD THAT CONSIDER ING HUGE DIFFERENCE IN REVENUES, ASSETS AND RISKS ASSUMED BY INFOSY S AND OTHER SMALLER COMPANIES, INFOSYS TECHNOLOGIES LTD., CANNOT BE CONSIDERED AS COMPARABLE ENTITY WITH SMALLE R COMPANIES. IN THIS VIEW OF THE MATTER AND CONSIDERING THE FACT THAT THE TPO IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR HAS EXCLUDED INFOSYS AS A COMPARABLE, THEREFORE, WE DIRECT THE AO/TPO TO EXCL UDE INFOSYS FROM THE LIST OF COMPARABLES. IN THE PERIOD RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, THE TURNOVER OF THE SOFTWARE DIVISION OF THE ASSESSEE IS RS.73.5 CRORES, WHEREAS, INFOSYS HAS HUGE TURNOVER OF RS.15,648 CRORES. THUS, DUE TO SUBSTANTIAL DISPARITY IN SCALE OF OPERATION, THERE CANN OT BE ANY COMPARISON BETWEEN THE TWO COMPANIES. INFOSYS TECHNOLOG IES LTD. WAS REJECTED AS COMPARABLE IN ASSESSMENT YEAR 2007-08 FOR THE SIMILAR REASONS. WE DIRECT THE TPO/ASSESSING OFFICER TO EX CLUDE THE SAME FROM THE LIST OF COMPARABLE ENTITY IN THE IMPUGN ED ASSESSMENT YEAR AS WELL. 39. SINCE IN THE IMPUGNED ASSESSMENT YEAR THE TURNOVER OF INFOSYS TECHNOLOGIES LTD. IS ABOUT RS.20,000/- CRORES AS A GAINST THE TURNOVER OF THE ASSESSEE COMPANY AT RS.100/- CROR ES, THEREFORE, IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 2007-08 AS WELL AS FOR A.Y. 2008-09 INFOSYS TECHNOLOGIES LTD. CANNOT BE CONSIDERED AS A COMPARABLE C OMPANY DUE TO SUBSTANTIAL DISPARITY IN THE SCALE OF OPERATION. WE THEREFORE DIRECT THE TPO/AO TO EXCLUDE THE SAME FROM TH E LIST OF COMPARABLES FOR THE IMPUGNED ASSESSMENT YEAR. 40. SO FAR AS KALS INFORMATION SYSTEM LTD. IS CONCERNED WE FIND IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE T HAT THE SAID COMPANY IS FUNCTIONALLY DIFFERENT. THE TPO ADDED THE SA ME COMPANY AS COMPARABLE ON THE GROUND THAT IT WAS INCLUDE D IN THE 22 ITA 827/PN/2014 LIST OF COMPARABLES IN THE PRECEDING ASSESSMENT YEAR ALSO. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES BY RELY ING ON VARIOUS DECISIONS. WE FIND IN A.Y. 2008-09 ALSO THE TRIBUNAL FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 HAS DIRECTED THE TPO/AO TO EXCLUDE THIS COMPAN Y AS COMPARABLE BY OBSERVING AS UNDER : 20.5 KALS INFORMATION SYSTEM : THE ASSESSEE HAS OBJECTED TO INCLUSION OF THE SAID COMPANY IN THE LIST OF COMPARABL E ON THE GROUND OF DIFFERENCE IN FUNCTIONALITY. THE TRIBUNAL IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 EXCLUDED THE SAID COMPANY F ROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DIFFEREN CE. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS AS UNDER: 37. SO FAR AS THE FRESH ADDITION OF 2 COMPANIES, NAME LY KALS INFORMATION SYSTEM LTD., AND COMPUCOM SOFTWARE LTD., ARE CONCERNED, WE FIND THE PUNE BENCH OF THE TRIBUNAL I N THE CASE OF BINDVIEW INDIA PVT. LTD., HAS OBSERVED AS UNDER : 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARABLE S BY THE TPO IS REGARDING INCLUSION OF KALS' INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THA T FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH REF ERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCT S AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BO OK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. 37.1 SIMILARLY, WE FIND THE PUNE BENCH OF THE TRIBU NAL IN THE CASE OF PTC SOFTWARE LTD., (SUPRA) HAS OBSERVED AS UNDE R : 16. THE NEXT POINT MADE OUT BY THE ASSESSEE IS WITH REG ARD TO THE INCLUSION OF ITEMS AT (9) AND (11) NAMELY HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., AND KALS INFOR MATION SOLUTIONS LTD. (SEG). THE PRIMARY PLEA RAISED BY THE ASSESSEE TO ASSAIL THE INCLUSION OF THE AFORESAID TWO COMPANIES F ROM THE LIST OF COMPARABLES IS TO BE EFFECT THAT THEY ARE FUNC TIONALLY INCOMPARABLE AND THEREFORE, ARE LIABLE TO BE EXCLUD ED. IN SUM AND SUBSTANCE, THE PLEA SET UP BY THE ASSESSEE IS THAT BOTH THE AFORESAID CONCERNS ARE ENGAGED IN DEVELOPMENT AND SALE OF 23 ITA 827/PN/2014 SOFTWARE PRODUCTS WHICH IS FUNCTIONALLY DIFFERENT FROM THE SERVICES UNDERTAKEN BY THE ASSESSEE IN ITS IT-SERVICES SEGMENT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE ORDER O F THE TPO, THE REASON ADVANCED FOR INCLUDING KALS INFORMATION S YSTEMS LTD., IS TO THE EFFECT THAT THE SAID CONCERN'S APPLIC ATION SOFTWARE SEGMENT IS ENGAGED IN THE DEVELOPMENT OF SOFTW ARE WHICH CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCERN IS ENGAGED IN TWO SEGMENTS NAMELY APPLICATION SOFTWARE SEGMENT AND TRAINING. AS P ER THE TPO, THE APPLICATION SOFTWARE SEGMENT IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS THE SAID CONCERN IS ENGAGED IN SOFTWARE SERVICES. THE STAND OF THE ASSESSEE IS THAT A PERUS AL OF THE ANNUAL REPORT OF THE SAID CONCERN FOR F. Y. 2 006-07 REVEALS THAT THE APPLICATION SOFTWARE SEGMENT IS ENGAGE D IN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES. THE ASSESSEE POINTED OUT THIS TO THE TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH IS PLACED IN THE PAPE R BOOK AT PAGE 420.3 TO 420.4. THE ASSESSEE FURTHER POINT ED OUT THAT THERE WAS NO BIFURCATION AVAILABLE BETWEEN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND THE BUSINESS OF SOFTWARE SERVICES, AND THEREFORE, IT WAS NOT APPROPRIATE TO ADO PT THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN FOR THE PURPOSES OF COMPARABILITY WITH THE ASSESSEE'S IT-SERVICES SEGMENT. THE TPO HOWEVER, NOTICED THAT THOUGH THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN MAY BE ENGAGED IN SELLING OF SOME OF THE SOFTWARE PRODUCTS WHI CH ARE DEVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT IN TO TRADING OF SOFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHASES DEBITED IN THE PROFIT & LOSS ACCOUNT. THOUGH THE TPO AGREED THAT THE QUANTUM OF REVENUE FROM SALE OF PRODUCTS WAS NOT AVAILABLE AS PER THE FINANCIAL STATEME NTS OF THE SAID CONCERN, BUT AS THE BASIC FUNCTION OF THE SAID CONCERN WAS SOFTWARE DEVELOPMENT, IT WAS INCLUDIBLE AS IT WAS FUNCTIONALLY COMPARABLE TO THE ASSESSEE'S SEGMENT OF I T- SERVICES. 18. BEFORE US, APART FROM REITERATING THE POINTS RAISE D BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITTED THAT I N THE IMMEDIATELY PRECEEDING ASSESSMENT YEAR OF 2006-07, THE SAID CONCERN WAS EVALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPARABLE. FOR THE SAID PURPOSE, OUR REFERENCE HAS BEEN INVITED TO PAGES 421 TO 542 OF THE PAPER BOOK, WHICH IS THE COPY OF THE TRANSFER PRICING STUDY UNDERTAKEN BY THE ASSESSEE FOR THE A.Y. 2006-07, AND IN PARTICULAR, ATTENTION WAS INVITED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAKEN BY THE ASSESSEE REFLECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONALLY INCO MPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITI ON HAS BEEN ACCEPTED BY THE TPO IN THE EARLIER A.Y. 2006-0 7 AND THEREFORE, THERE WAS NO JUSTIFICATION FOR THE TPO TO CONSIDER THE SAID CONCERN AS FUNCTIONALLY COMPARABLE IN THE I NSTANT ASSESSMENT YEAR. 24 ITA 827/PN/2014 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY TH E ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDENT THAT THE SAI D CONCERN HAS NOT BEEN FOUND TO BE FUNCTIONALLY COMPARABLE WIT H THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN THE PRESENT YEAR ALSO, ON THE BASIS OF THE ANNUAL REPO RT, REFERRED TO IN THE WRITTEN SUBMISSIONS ADDRESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HAS CORRECTLY ASSERTED OUT THAT THE SAID CONCERN WAS INTER ALIA ENGAGED IN SALE OF SOFTWARE PRODUCTS, WHICH WAS QUITE DISTINCT FROM THE ACTIVITY UNDERTAKEN BY THE ASSESSEE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHER IS THERE ANY ARGUMENT PUT F ORTH BY THE REVENUE AND NOR IS THERE ANY DISCUSSION EMERGING FROM T HE ORDERS OF THE LOWER AUTHORITIES AS TO IN WHAT MANNER T HE FUNCTIONAL PROFILE OF THE SAID CONCERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREF ORE, HAVING REGARD TO THE FACTUAL ASPECTS BROUGHT OUT BY T HE ASSESSEE, IT IS CORRECTLY ASSERTED THAT THE APPLICATION SOF TWARE SEGMENT OF THE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEE'S SEGMENT OF IT SERVICES. 37.2 XXXXXXXXXX 37.3 IN VIEW OF THE DECISION OF THE PUNE BENCH OF TH E TRIBUNAL GIVING REASONS FOR EXCLUSION OF KALS INFORMATION SYSTEM LTD., AND COMPUCOM SOFTWARE LTD., FROM THE LIST OF COMPARA BLES BECAUSE OF DIFFERENT FUNCTIONS, WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ABOVE TWO COMPANIES CANNOT BE INCLUDED IN THE LIST OF COMPARABL ES. WE ACCORDINGLY DIRECT THE TPO/AO TO EXCLUDE KALS INFORM ATION SYSTEM LTD., AND COMPUCOM SOFTWARE LTD., FROM THE LI ST OF COMPARABLES. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, NO MATERIAL CHANGE HAS BEEN POINTED OUT BY THE REVENUE IN THE FACTS OR FUNC TIONS/ACTIVITIES OF THE ASSESSEE. THEREFORE, FOR THE SIMILAR REASONS, WE DI RECT THE TPO/ASSESSING OFFICER TO EXCLUDE KALS INFORMATION SYSTEM LTD. FROM THE LIST OF COMPARABLES. 41. SINCE THE FACTS OF THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS OF THE CASE IN THE TWO PRECEDING AS SESSMENT YEARS, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASS ESSEES OWN CASE FOR A.Y. 2007-08 AS WELL AS 2008-09 WE DIRECT TH E TPO/AO TO EXCLUDE THIS COMPANY AS COMPARABLE. 42. AS REGARDS BODHTREE CONSULTING LTD. IS CONCERNED, WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 HAS DIRECTED 25 ITA 827/PN/2014 THE TPO/AO TO EXCLUDE THIS COMPARABLE SINCE THIS COMPAN Y IS NOT FUNCTIONALLY COMPARABLE TO THE SERVICES RENDERED BY THE ASSESSEE. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 20.1 ONW ARDS READS AS UNDER : 20.1 BODHTREE CONSULTING LTD. : THE ASSESSEE HAD INITIALLY SELECTED BODHTREE CONSULTING LTD. IN ITS LIST OF COMPARABLE. S UBSEQUENTLY, THE SAME WAS TAKEN OUT FROM THE LIST OF COMPARABLE AS THE SA ID COMPANY IS NOT EXCLUSIVELY ENGAGED IN SOFTWARE DEVELOPMENT SERV ICES. THE TPO AGAIN INCLUDED THE COMPANY IN THE LIST OF COMPAR ABLE ENTITY. THE LD. COUNSEL IN SUPPORT OF HIS SUBMISSIONS THAT, BODHTREE C ONSULTING LTD. IS NOT A GOOD COMPARABLE PLACED RELIANCE ON THE DECISION IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA (P) LTD. VS. ACIT (SUPRA). THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA (P) LTD. VS. ACIT (SUPRA) REJ ECTED BODHTREE CONSULTING LTD. AS COMPARABLE BY PLACING RELIANCE ON THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MINDTECK (INDIA) LTD. IN I.T.(TP).A.NO.70/BANG/2014 DECIDED ON 21-08 -2014 IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. IN ITA NO. 7 633/M/2012 DECIDED ON 06-11-2013 FOR THE ASSESSMENT YEAR 2008-09. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS AS UNDER : 20. THE NEXT POINT RAISED BY THE ASSESSEE IS FOR EXCLUSIO N OF BODHTREE CONSULTING LTD., FROM THE FINAL SET OF COMPA RABLES. THE MAIN PLEA OF THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE TO THE A SSESSEE. IT IS ALSO POINTED OUT THAT THE SAID CONCERN IS ENGAGED IN PRODUCT ENGINEERING AND CONTENT ENGINEERING SERVICES WHICH AR E IN THE NATURE OF ITES SERVICES, AND ARE NOT COMPARABLE WITH THE ASSESSEES ACTIVITIES. AT THE TIME OF HEARING, IT WAS AL SO POINTED OUT THAT THE SAID CONCERN OPERATES UNDER A D IFFERENT PRICING MODEL, I.E. FIXED PRICE PROJECT METHOD, WHE REBY REVENUES FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOPED AND BILLED TO THE CLIENTS. IT HAS BEEN EXPLAINED THAT IN SUCH A SITUATION, EXPENDITURE FOR D EVELOPING SOFTWARE WOULD BE BILLED IN AN EARLIER YEAR BUT THE INCOME WOULD BE RECOGNIZED IN A SUBSEQUENT YEAR. THIS BUSINES S MODEL RESULTS IN FLUCTUATION IN MARGINS OVER THE YEARS. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF QLOGIC (INDIA) PRIVATE LIMIT ED VS. DCIT (ITA NO.227/PN/2014) FOR ASSESSMENT YEAR 2009-10 DATED 21.10.2014 HAS EXCLUDED THE SAID CONCERN FROM THE LIS T OF COMPARABLES IN A SIMILAR SITUATION BY FOLLOWING THE DE CISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M /S. MINDTECK (INDIA) LTD., VIDE I.T.(TP).A.NO.70/BANG/2 014 DATED 21-08-2014. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS INDIA PVT. L TD. VIDE ITA NO.7633/M/2012 DATED 06-11-2013 FOR ASSESSMENT YEAR 2008-09 HAS ALSO BEEN RELIED UPON FOR EXCLUDING THE S AID CONCERN FROM THE FINAL SET OF COMPARABLES. 26 ITA 827/PN/2014 21. ON THE OTHER HAND THE LD. CIT-DR APPEARING FOR THE REVENUE HAS DEFENDED THE INCLUSION OF BODHTREE CONSULT ING LTD., BY REFERRING TO THE DISCUSSION IN PARA 14.1 OF T HE ORDER OF TPO. AS PER THE TPO, THE MATERIAL ON RECORD DOES NOT JUSTIFY THE ASSERTIONS OF THE ASSESSEE THAT THE SAID CONCERN WAS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. THE LD. CIT-DR HAS OPPOSED THE PLEA OF THE ASSESSEE BY REFE RRING TO THE STAND OF THE TPO AS CONTAINED IN HIS ORDER. 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS WITH RESPECT TO BODHTREE CONSULTING LIMITED. THE PLE A OF THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN THE SALE OF SOFTWARE PRODUCTS, APART FROM CONSIDERING SOFTWARE SERVI CES, AND THAT NO SEGMENTAL DATA IS AVAILABLE IN THIS CONTEX T; THUS, IT IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEES ACTIV ITIES. IN THIS REGARD, WE HAVE PERUSED THE DISCUSSION MADE BY O UR COORDINATE BENCH IN THE CASE OF NETHAWK NETWORKS IND IA PVT. LTD. (SUPRA) WHEREIN THE SAID CONCERN HAS BEEN FOUND T O BE NOT EXCLUSIVELY ENGAGED IN RENDERING SOFTWARE DEVELOP MENT SERVICES. THE RELEVANT DISCUSSION IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) IS AS UNDER : C. BODHTREE CONSULTING LIMITED 21. ON THIS COMPARABLE, CASE OF THE ASSESSEE IS THAT TH E COMPANY IS NOT A GOOD COMPARABLE IN VIEW OF THE SOFT WARE PRODUCTS PRODUCED BY THE COMPANY. AS SUCH, NO SEGMENTA L DATA IS ADEQUATELY AVAILABLE TOO. ACCORDINGLY, WE DISMISS THE ARGUMENT OF THE LD. DR IN THIS REGARD. EX CONSEQUENTI, THE AO/TPO IS DIRECTED TO E XCLUDE THE SAME FROM THE LIST OF FINAL COMPARABLES FOR WORKING OU T THE ARITHMETIC MEAN. 22. ON THE OTHER HAND, LD DR FILED A COPY OF THE FI NANCIAL STATEMENT AND ARGUED VEHEMENTLY STATING THAT THIS COMP ANY IS NOT ENGAGED IN THE SOFTWARE PRODUCTS. IN THIS REGARD, LD DR RELIED ON THE NOTE NO.3, RELATING TO THE RELATING T O THE REVENUE RECOMMENDATION IN SCHEDULE 12, NOTE NO.5 RELATING T O THE SEGMENTAL INFORMATION ETC TO MENTION THAT THE COMPAN Y IS ENGAGED IN THE SOFTWARE DEVELOPMENT ONLY. HOWEVER, T HE ASSESSEE ARGUED VEHEMENTLY STATING THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE BASED PRODUCTS. FURTHER, LD CO UNSEL MENTIONED THAT THE SAID COMPANY WAS ALREADY EXAMINED AND WAS HELD AS PRODUCT BASED COMPANY BY THE TPO IN THE TP STUDY OF OTHER CASE AND THE TPO CANNOT TAKE DIFFERENT STAND IN THIS CASE. IN THIS REGARD, WE HAVE PERUSED THE PARA 29 OF THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. WILLS PROCE SSING SERVICES (I) P LTD (SUPRA) WHEREIN IT WAS MENTIONED T HAT THE TPO DESCRIBED THIS COMPANY IS ENGAGED IN THE BUSINESS O F SOFTWARE PRODUCTS, NOT THE SOFTWARE DEVELOPMENT SERVICE S. RELEVANT PORTIONS FROM THE SAID PARA 29 OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HERE UNDER: 27 ITA 827/PN/2014 '29.1 THE LD SR COUNSEL FOR THE ASSESSEE HAS SUBMITTED TH AT THIS COMPANY IS ENGAGED IN THE SOFTWARE PRODUCTS. HE HA S REFERRED THE TPO ORDER AND SUBMITTED THAT IN THE PRO FILE OF THE COMPARABLES SELECTED BY THE TPO ITSELF HAS MENTIONED TH E BUSINESS OF THE ASSESSEE IS IN SOFTWARE PRODUCTS. THE ID AR H AS REFERRED THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE TPO AT PAGE 286 OF THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE BROUGHT THIS FACT THAT THIS COMPANY IS ENGAGED IN PROV IDING OPEN AND END TO END WEB SOLUTIONS, SOFTWARE CONSULTANCY , DESIGN AND DEVELOPMENT OF SOFTWARE, USING THE LATEST TECHNOLOGIES. FURTHER, THE COMPANY HAS IDENTIFIED ONL Y ONE SEGMENT I.E SOFTWARE DEVELOPMENT. THEREFORE, THE ID A R HAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPAR ABLE WITH THE ASSESSEE AND CONSEQUENTLY SHOULD BE EXCLUDED FRO M THE COMPARABLES. 29.2 ON THE OTHER HAND, THE ID DR HAS FILED THE INFO RMATION COLLECTED U/S 133(6) OF THE I T ACT AND SUBMITTED THA T AS PER THIS INFORMATION, THIS COMPANY HAS REVENUE FROM ITES A CTIVITY TO THE EXTENT OF RS. 2,94,85,528/-. THEREFORE, THIS C OMPANY IS A GOOD COMPARABLE HAVING FUNCTIONAL SIMILARITY. 29.3......... 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS T HE RELEVANT MATERIAL ON RECORD. THE DETAILS FILED BY TH E ID DR BEFORE US HAS BEEN OBTAINED BY THE TPO AT HYDERABAD A ND NOT BY THE TPO OF THE ASSESSEE IN THE PRESENT CASE. IT IS STA TED IN THE LETTER DATED 5.2.2010 WRITTEN BY THE CHARTERED ACCOUNTANT OF BODHTREE CONSULTING LTD TO THE TPO HYDERABAD THAT THE COMPANY IS PROVIDING DATA CLEANING SERVICES TO CLIENTS FOR WHOM IT HAD DEVELOPED THE SOFTWARE APPLICATION...... ...' 23. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THA T BODHTREE CONSULTING LIMITED IS NOT ENGAGED IN THE SOFT WARE DEVELOPMENT SERVICES AND THERE IS NO SEGMENTAL DATA COMPARABLE. THEREFORE, THE FAR ANALYSIS GOES AGAINST TH E TPO/AO. 23. THERE IS NO MATERIAL PLACED BEFORE US WHICH WOULD REQUIRE US TO DEVIATE FROM THE CONCLUSION DRAWN BY TH E MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) IN THE CONTEXT OF TH E EXCLUSION OF BODHTREE CONSULTING LTD. FROM THE FINAL SET OF COMPARABLES. THUS, IN VIEW OF THE DETAILED DISCUSSION IN THE AFORESAI D ORDER, WE ARE OF THE VIEW THAT BODHTREE CONSULTING LTD. IS NOT FUNCTIONALLY COMPARABLE TO THE SERVICES RENDERED BY THE ASSESSEE. THE LD. DR HAS NOT PLACED ON RECORD ANY MATERIAL TO DISTINGUISH THE AFORESAID DECISION. ACCORDINGLY, BODHTREE CONSULTING LTD. HAS T O BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 28 ITA 827/PN/2014 43. SINCE THE FACTS OF THE IMPUGNED ASSESSMENT YEAR AR E IDENTICAL TO THE FACTS OF THE CASE DECIDE BY THE TRIBUNAL I N THE PRECEDING ASSESSMENT YEAR, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CO NTRARY MATERIAL BROUGHT TO OUR NOTICE WE DIRECT THE TPO/AO TO EXCLUDE THIS COMPANY AS COMPARABLE. 44. SO FAR AS INCLUSION OF AZTEC SOFT LTD. IS CONCERNED WE FIND THE TPO REJECTED THIS COMPANY AS COMPARABLE ON THE GR OUND THAT ITS RELATED PARTY TRANSACTIONS ARE MORE THAN 25%. IT I S THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE T PO AND DRP WHILE COMPUTING THE PERCENTAGE OF RELATED PARTY TRA NSACTIONS HAVE CONSIDERED THE RELATED PARTY REVENUE AND EXPENDIT URE IN NUMERATOR WHILE ONLY REVENUE HAS BEEN CONSIDERED IN TH E DENOMINATOR. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE RELATED PARTY TRANSACTIONS OF AZTEC SOFT LTD. IS ONLY 17.25% WHICH IS LESS THAN 25%. FROM THE DETAILS FUR NISHED BY THE ASSESSEE IN THE PAPER BOOK AT PAGE 112 WE FIND THE ASSESSEE HAS GIVEN THE FOLLOWING TO SUBSTANTIATE ITS SUBMIS SION THAT THE RELATED PARTY TRANSACTIONS IN CASE OF AZTEC S OFT LTD. IS LESS THAN 25% : NAME OF THE PARTY NATURE OF TRANSACTIONS AMOUNT OF RELATED PARTY TRANSACTIONS AZTEC SOFTWARE INC., USA ONSITE CONSULTANCY RENDERED BY THE SUBSIDIARY 405,528 AZTECSOFT DISHA INC., USA REVENUE FROM SOFTWARE DEVELOPMENT SERVICES 518,158 SUBSIDIARIES REIMBURSEMENT PAID (AZTEC INC & DISHA INC) 899 MINDTREE LIMITED INCOME FROM SOFTWARE DEVELOPMENT 6,664 SUB - CONTRACT SERVICES 8450 TOTAL (A) 939,699 SALES AS PER P&L 2,737,798 29 ITA 827/PN/2014 EXPENSES AS PER P&L 2,710,035 TOTAL (B) 5,447,833 % OF RPT TO TOTAL SALES AND EXPENSES (A)/(B)*100 17.25% 45. WE FURTHER FIND IN ASSESSEES OWN CASE IN A.Y. 2008-09 THE TRIBUNAL HAS DIRECTED THE TPO/AO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE ON THE GROUND THAT THE RELATED PARTY TRANSACTIONS IS LESS THAN 25%. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 21.1 OF THE ORDER READS AS UNDER : 21.1 AZTEC SOFT LTD. : THE SAID COMPANY HAS BEEN REJ ECTED AS COMPARABLE ENTITY BY THE TPO ON THE FILTER OF RELAT ED PARTY TRANSACTION (RPT). ACCORDING TO THE TPO, THE RPT OF THE SAID COMPARABLE WAS MORE THAN 25%. THE TPO FURTHER OBSERVE D THAT THE SAID COMPANY IS IN RESTRUCTURING PHASE, THEREFORE, CANN OT BE CONSIDERED AS COMPARABLE. THE LD. COUNSEL HAS PLACED ON RECORD THE FINANCIAL RESULTS OF AZTEC SOFT LTD. FOR THE F.YS. 200 6-07 AND 2007-08. A PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOR THE SAID F INANCIAL YEARS SHOWS THAT AS ON 31-03-2007 THE INCOME OF AZTEC SOFT L TD. FROM SOFTWARE DEVELOPMENT AND SERVICES WAS TO THE TUNE OF RS. 241.43 CRORES AND FOR THE FINANCIAL YEAR ENDING ON 31-03-20 08 THE CORRESPONDING INCOME FROM SOFTWARE DEVELOPMENT SERVICE S WAS RS.225.52 CRORES. THUS, THE FINANCIAL RESULT SHOWS THAT T HERE HAS NOT BEEN MUCH DEVIATION IN THE REVENUE GENERATED BY THE SAID COMPANY. AS FAR AS THE RPT ARE CONCERNED THE ASSESSEE HAS PLACED ON RECORD AT PAGE 420 OF THE PAPER BOOK THE CALCULATION OF RPT. FOR THE SAKE OF CONVENIENCE THE SAME IS REPRODUCED HEREIN : CALCULATION OF RELATED PARTY TRANSACTIONS (RPT) PARTICULARS AMOUNT (INR000) REVENUE 2,306,448 EXPENSES 2,122,712 SUBTOTAL (A) 4,429,160 TOTAL RELATED PARTY TRANSACTIONS ONSITE CONSULTANCY FEES PAYABLE TO AZTECH SOFTWARE USA 278787 REVENUE FROM AZTECH DISHA INC USA 421367 REIMBURSEMENTS PAID TO SUBSIDIARIES 1977 REIMBURSEMENTS RECEIVED FROM SUBSIDIARIES 10277 SUBTOTAL (B) 712,408 PERCENTAGE OF RELATED PARTY TRANSACTIONS 16.08% THUS, FROM THE ABOVE CALCULATIONS WHICH HAVE NOT BEEN DISPUTED BY THE REVENUE IT IS EVIDENT THAT THE PERCENTAGE OF REL ATED PARTY TRANSACTION IS ONLY 16.08% AND NOT MORE THAN 25% AS HA S BEEN HELD BY THE TPO. THUS, WE DO NOT FIND ANY VALID REASON IN THE OBSERVATIONS MADE BY THE TPO IN REJECTING THE AZTEC SOFT LTD. AS COMPARABLE ENTITY. 30 ITA 827/PN/2014 WE, ACCORDINGLY, DIRECT THE TPO/ASSESSING OFFICER TO IN CLUDE THE SAME IN THE LIST OF COMPARABLES. 46. SINCE THERE IS SOME CONFUSION REGARDING THE PERCENTAG E OF THE RELATED PARTY TRANSACTIONS, THEREFORE, UNDER THE FACT S OF THE CASE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE CORRECTNESS OF THE RELATED PARTY TRANSACTIONS AS GIVEN BY THE ASSESSEE IN THE PAPER BOO K AND, IF FOUND CORRECT, TO INCLUDE THE SAME IN THE LIST OF COMPARABLES. 47. AS REGARDS THE SIP TECHNOLOGIES AND EXPORTS LTD. IS CONCERNED, WE FIND THE TPO HAS REJECTED THIS COMPANY ON THE GROUND THAT IT IS A PERSISTENT LOSS MAKING COMPANY AND H AVING DIMINISHING REVENUE. FURTHER, THE SAID COMPANY WAS REJECT ED BY THE DRP IN A.Y. 2008-09. WE FIND THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 2008-09 AT PARA 21.2 HAS DISCUSSED THIS ISS UE AND HAS DIRECTED THE TPO/AO TO INCLUDE THE SAID COMPANY AS COMPARABLE ENTITY. THE RELEVANT OBSERVATION OF THE TRIBUN AL READS AS UNDER : 21.2 SIP TECHNOLOGIES AND EXPORTS LTD. : THE SAID CO MPANY HAS BEEN EXCLUDED FROM THE LIST OF COMPARABLE BY THE TPO ON T HE GROUND THAT IT IS A LOSS MAKING COMPANY. THE ASSESSEE HAS BROUGHT ON RECOR D THE OPERATING MARGIN OF THE THREE PRECEDING ASSESSMENT YEA R OF THE SAID COMPANY. THE SAME ARE AS UNDER: F.Y. 2005-06 21.09% F.Y. 2006-07 10.12% F.Y. 2007-08 -33.20% THE CONTENTION OF THE ASSESSEE IS THAT THE SAID COMPANY IS NOT A PERSISTENT LOSS MAKING COMPANY. ONLY FOR THE REASON THAT THE COMPARABLE HAS SUFFERED LOSS IN ONE YEAR THE SAME SHOULD NOT BE REJECTED. WE FIND MERIT IN THE SUBMISSION OF THE LD. A.R. IN THE CASE OF BOBST INDIA PVT. LTD. VS. DCIT IN ITA NO.1380/PN/2010 FOR A.Y. 2006- 07 THE TRIBUNAL HAS OBSERVED THAT ONLY PERSISTENT LOSS MA KING COMPANIES SHOULD BE HELD AS NOT GOOD COMPARABLE. THE T RIBUNAL HELD THAT THE PERSISTENT LOSS MEANS, CONTINUOUS LOSS FOR MORE THAN 3 YEARS. THUS, WHERE THE COMPARABLE ENTITY IS NOT UNDER PERSISTENT LOSS, THE SAME SHOULD NOT BE REJECTED AS COMPARABLE. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF GOLDMAN SACHS (INDIA) SECUR ITIES PVT. LTD. 31 ITA 827/PN/2014 VS. ACIT, ITA NO.7724/MUM/2011, AND BRIGADE GLOBAL V S. ITO, ITA NO.1494/HYD/2010. IN THE PRESENT CASE, THE COMPARABLE ENTITY SIP TECHNOLOGIES & EXPORTS LTD. HAS SUFFERED LOSS IN F.Y. 200 7-08 ONLY. THEREFORE, IT CANNOT BE SAID TO BE A PERSISTENT LOSS MAK ING COMPANY. THE AUTHORITIES BELOW HAVE THUS ERRED IN EXCLUDING TH E SAME FROM THE LIST OF COMPARABLE ENTITIES. WE DIRECT THE TPO/A O TO INCLUDE THE AFORESAID COMPANY AS COMPARABLE ENTITY. 48. FURTHER, FROM THE VARIOUS DETAILS FURNISHED BY THE ASSE SSEE, WE FIND THE ASSESSEE HAS PROFIT OF RS.6 CRORES IN A.Y. 2007- 08 AND LOSS OF RS.1.01 CRORES IN A.Y. 2008-09 AND LOSS OF RS.1.83 CRO RES IN A.Y. 2009-10. THEREFORE, THIS COMPANY IS NOT A PERSISTEN T LOSS MAKING COMPANY SINCE OUT OF THE 3 YEARS IT HAS GOT PROFIT IN ONE OF THE YEARS. SINCE THE COMPANY IS NOT A PERSISTENT LOSS M AKING COMPANY, THEREFORE, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09, WE DIRECT THE TPO/ AO TO INCLUDE THE COMPANY IN THE LIST OF COMPARABLES. 49. SO FAR AS PERSISTENT SYSTEMS PVT. LTD. IS CONCERNED, IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE IS O NLY SOME MISTAKE IN CALCULATION OF OPERATING MARGIN. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE THE TPO HAS INADVERTENTLY CONSIDERED T HE OPERATING MARGIN OF PERSISTENT SYSTEMS LTD. AT 16.18% BEFO RE WORKING CAPITAL ADJUSTMENT WHEREAS ACCORDING TO THE ASS ESSEE THE CORRECT OPERATING MARGIN IS 12.52% PRIOR TO WORKING CAPITA L ADJUSTMENT. WE THEREFORE RESTORE THIS ISSUE TO THE FILE O F THE TPO/AO TO VERIFY THE CORRECTNESS OF THE OPERATING MARG IN BEFORE WORKING CAPITAL ADJUSTMENT AND ADOPT THE CORRECT PERCENTAGE. 50. SO FAR AS REJECTION AND SELECTION OF CERTAIN COMPARABLE S IN THE DESIGN ENGINEERING DIVISION ARE CONCERNED WE FIND THE ISSUE IS 32 ITA 827/PN/2014 CONFINED TO ONLY 3 COMPANIES, NAMELY CORAL HUBS, GENESYS INTERNATIONAL CORPORATION LTD. AND COSMIC GLOBAL LTD. 51. SO FAR AS CORAL HUBS LTD. (EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD.) IS CONCERNED WE FIND THE TPO HAS SELECTED THIS COMPANY AS COMPARABLE MAINLY ON THE GROUN D THAT IT WAS ALSO CONSIDERED AS COMPARABLE FOR A.Y. 2008-09. WE FIND ON THE BASIS OF THE SUBMISSION OF THE ASSESSEE THAT THIS COM PANY IS ENGAGED IN E-PUBLISHING AND THEREFORE THE BUSINESS MODEL OF THE SAID COMPANY IS NOT COMPARABLE WITH THAT OF THE ASSESSEE COMPANY, THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008 -09 HAS REJECTED THIS COMPANY AS COMPARABLE. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 24.1 OF THE ORDER REA DS AS UNDER : 24.1 CORAL HUBS LTD. (EARLIER KNOWN AS VISHAL INFORMA TION TECHNOLOGIES LIMITED) : THE OBJECTION OF THE ASSESSEE I S THAT THE SAID COMPANY IS ENGAGED IN E-PUBLISHING WHICH IS QUITE DIFF ERENT IN FUNCTION FROM THE ACTIVITIES CARRIED OUT BY THE ASSESSEE . THE ANOTHER OBJECTION RAISED BY THE ASSESSEE IS THAT THE OPERATING MA RGIN OF THE SAID COMPARABLES IS ABNORMALLY HIGH I.E. 51.79%. THE L D. COUNSEL POINTED THAT IN THE CASE OF SYMPHONY MARKETING SOLU TIONS INDIA PVT. LTD. VS. ITO IN IT(TP) A.NO.1316/BANG/2012, A.Y. 200 8-09 DECIDED ON 14-08-2013 IT HAS BEEN HELD THAT CORAL HUBS IS NOT A GOOD COMPARABLE ON ACCOUNT OF FUNCTIONAL DISPARITY AS WELL AS ON ACCOUNT OF ABNORMALLY HIGH PROFITS. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS PVT. LTD. (SUPRA) IS AS UNDER: 14. THIS COMPANY IS LISTED AT SL.NO.6 OF THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, IT IS SEEN THAT THIS COMPANY WAS EARLIER KNO WN AS VISHAL INFORMATION TECHNOLOGIES LTD. THE COMPARABILIT Y OF THIS COMPANY IN THE CASE OF AN ITES COMPANY BY NAME 24 X 7 CUSTOMER.COM PVT. LTD. WAS CONSIDERED BY THE TRIBUNAL IN ITA NO.227/BANG/2010 AND BY ORDER DATED 09.11.2012 THE TRIBUNAL HELD THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH ITES FOR THE FOLLOWING REASON:- 17.3 VISHAL INFORMATION TECHNOLOGIES LTD. (VIT) - IN THE CASE OF THIS COMPARABLE, WE FIND THAT THE MUMBAI TRIBUNAL IN THE CASE OF MEARSK GLOBAL SERVICES (I) PVT LTD IN ITA NO.3774/MUM/2011 BY ORDER DT.9.11.2011 HAS HELD THAT SINCE VISHAL INFORMATION TECHNOLOGIES LTD IS OUTSOURCING MOST 33 ITA 827/PN/2014 OF ITS WORK IT HAS TO BE EXCLUDED FROM THE LIST WHEREA S THE ASSESSEE IN THE CITED CASE WAS CARRYING OUT THE WORK BY I TSELF. IN THE INSTANT CASE OF THE ASSESSEE ALSO THE ASSESSEE WAS CARRYING OUT ITS WORK BY ITSELF WHEREAS IN THE CASE OF VITL, IT IS OUTSOURCING MOST OF ITS WORK. WE ARE THEREFORE OF THE CONSIDERED OPINION THAT THE DECISION OF THE ITAT, MUM BAI IN THE CITED CASE ON THE ISSUE OF EXCLUDING VITL AS A COM PARABLE SQUARELY APPLIES. THIS DECISION WAS FOLLOWED BY THE DECI SION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NETLINX INDIA(P) LTD IN ITA NO.454/BANG/2011 DT.19.10.2012 WHEREIN IT WAS HELD THAT VISHAL INFORMATION TECHNOLOGIES LTD CANNOT BE CONSIDERED AS A COMPARABLE. WE, THEREFORE, RESPECTF ULLY FOLLOWING THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF MEARSK GLOBAL SERVICES (I) PVT LTD, DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE VISHAL INFORMATION TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES. 15. FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT CORAL HUBS LTD. CANNOT BE CONSIDERED AS A COMPARABLE. IT MAY ALSO BE RELEVANT TO POINT OUT TH AT THE TPO IN HIS ORDER HAS OBSERVED THAT THIS COMPANY IS RETAINED AS A COMPARABLE ON THE BASIS OF DETAILED DISCUSSION IN THE TP ORDER FOR THE A.Y. 2007-08. IN FACT IN A.Y. 2007-08, THER E WAS NO DETERMINATION OF ALP AND THEREFORE THERE WAS NO OCCA SION FOR ANY ORDER BEING PASSED BY THE TPO. IT IS ALSO SEEN THAT THIS COMPANY ENTERED INTO AN AREA OF BUSINESS KNOWN AS NEW VERTICAL DIGITAL LIBRARY & PRINT ON DEMAND IN F.Y. 2007-08. IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. (SUPRA), THE ITAT HYDERABAD BENCH IN THE CASE OF ITES COMPANY CONSIDERED THE COMPARABLE OF THIS COMPANY AS AN ITES COMPANY AND HELD AS FOLLOWS:- IV. CORAL HUB LIMITED (EARLIER KNOWN AS VISHAL INFO RMATION TECHNOLOGIES LTD.): 16. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEING TAK EN AS COMPARABLE MAINLY ON THE GROUND THAT THE ACTIVITIES OF THE COMPANY IS NOT ONLY FUNCTIONALLY DIFFERENT, BUT THE BUSINESS MODEL OF THE COMPANY IS ALSO DIFFERENT AS IT SUB-CONTRA CTS MAJORITY OF ITS ITES WORKS TO THIRD PARTY VENDORS AND HAS ALSO MADE SIGNIFICANT PAYMENTS TO THOSE VENDORS. THE PAYMENT S MADE TO VENDORS TOWARDS THE DATA ENTRY CHARGES ALSO SUPP ORTS THE FACT THAT THE COMPANY OUTSOURCES ITS WORKS. IN THE CIRCUMSTANCES, IT CANNOT BE TAKEN AS A COMPARABLE TO T HE ITES FUNCTIONS PERFORMED BY THE ASSESSEE. SINCE THIS COMPANY I S ACTING AS AGENT ONLY BY OUTSOURCING ITS WORKS TO THE TH IRD PARTY VENDORS. IN THIS CONTEXT, THE ASSESSEE RELIED UPON THE ORDER OF THE DRP IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WHEREIN THE DRP, AFTER TAKING INTO CONSIDERATION, THE AFORESAID ASPECT, HAS ACCEPTED THE CLAIM OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT THE INCOM E- TAX APPELLATE TRIBUNAL MUMBAI BENCH IN THE CASE OF A SSTT. CIT V. MAERSK GLOBAL SERVICE CENTRE (INDIA) (P.) LTD. [2 011] 133 ITD 543/16 TAXMANN.COM 47 (MUM.), A COPY OF WHICH I S SUBMITTED BEFORE US, HAS ALSO DIRECTED FOR THE EXCLUSION OF THE 34 ITA 827/PN/2014 AFORESAID COMPANY SINCE IT HAS OUTSOURCED A CONSIDERABLE PORTION OF ITS BUSINESS. 17. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE, WE FIND THAT THE DRP, IN THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEE'S OWN CASE, AFTER TAKING NOTE OF THE COMPOSITION OF THE VENDOR PAYMENTS OF CORAL HUB FOR THE LAST THREE Y EARS, AND THE FACT THAT IT HAS ALSO COMMENCED A NEW LINE OF BU SINESS OF PRINTING ON DEMAND(POD), WHEREIN IT PRINTS UPON CLIE NTS REQUEST, CONCLUDED AS FOLLOWS- '18.4. IN VIEW OF THIS MAJOR DIFFERENCE IN FUNCTIONA LITY AND THE BUSINESS MODEL, THIS PANEL IS OF THE VIEW THAT 'CORAL H UB' IS NOT A SUITABLE COMPARABLE TO THE TAXPAYER AND HENCE NEED S TO BE DROPPED FROM THE FINAL LIST OF COMPARABLES. ' IN CASE OF MAERSK GLOBAL SERVICE CENTRE INDIA (P.) LTD . (SUPRA), THE ITAT MUMBAI BENCH HAS ALSO DIRECTED FOR EXCLUSION OF THE AFORESAID COMPANY, BY OBSERVING IN THE FOLLOWING MANN ER- 'INSOFAR AS THE CASES OF TULSYAN TECHNOLOGIES LIMITED AND VISHAL INFORMATION TECHNOLOGIES LIMITED ARE CONCERNED , IT IS NOTICED FROM THEIR ANNUAL ACCOUNTS THAT THESE COMPANI ES OUTSOURCED A CONSIDERABLE PORTION OF THEIR BUSINESS. AS THE ASSESSEE CARRIED OUT ENTIRE OPERATIONS BY ITSELF, IN OUR CONSIDERED OPINION, THESE TWO CASES WERE RIGHTLY EXCLUD ED.' IN VIEW OF THE OBSERVATIONS MADE BY THE DRP AS WELL AS THE DECISION OF THE ITAT MUMBAI IN THE CASE OF MAERSK GLOB AL SERVICE CENTRE, (SUPRA), WE ACCEPT THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. 16. IT IS ALSO FURTHER NOTICED THAT THE EMPLOYEE COST/ OPERATING SALES OF THIS COMPANY IS A MERE 3%, WHEREAS THE THRESHOL D LIMIT FOR ACCEPTANCE AS A COMPARABLE ON THE BASIS OF EMPLOYEE COST TO SALES SHOULD BE AT LEAST 25%. THIS TRIBUNAL IN TH E CASE OF FIRST ADVANTAGE OFFSHORE SERVICES LTD. V. CIT, IT(T P)A NO.1086/BANG/2011, ORDER DATED 30.4.2013, HAS TAKEN THE FOLLOWING VIEW:- 36. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE FOR TH E ASSESSMENT YEAR 2006-07. THIS TRIBUNAL HAS HELD THAT EMPLOYEE COST FILTER IS TO BE THE SAME EVEN FOR ITES SE GMENT ALSO. THE LEARNED DRS ARGUMENT THAT THE EMPLOYEE COST FILTER IS APPLICABLE ONLY TO SOFTWARE DEVELOPMENT SEGMENT AND NOT TO ITES SEGMENT IS NOT ACCEPTABLE. THOUGH IT IS WITHOU T ANY DISPUTE THAT THE SOFTWARE DEVELOPMENT WOULD REQUIRE SK ILLED EMPLOYEES AND, THEREFORE, THE EMPLOYEE COST WOULD DEF INITELY BE MORE THAN 25% OF THE TOTAL EXPENSES, IT CANNOT BE SAID THAT THE SAID FILTER IS NOT APPLICABLE TO ITES SEGMENT, WHE RE 38 COMPARABLY LESS SKILLED EMPLOYEES ARE EMPLOYED. IN THE ITES SEGMENT, THE ENTIRE WORK IS TO BE DONE BY THE EMPLOYE ES AND, THEREFORE, EVEN THOUGH THEY MAY BE LESS SKILLED COMPAR ED TO 35 ITA 827/PN/2014 SOFTWARE DEVELOPMENT SEGMENT, THE NUMBER OF EMPLOYEES WOULD DEFINITELY BE MORE AND THUS THE EMPLOYEE COST W OULD BE HIGH AND THUS APPLICATION OF EMPLOYEE COST FILTER TO THE ITES SECTOR IS ALSO JUSTIFIED. IN VIEW OF THE SAME, WE D IRECT THE TPO TO APPLY THE EMPLOYEE COST FILTER TO EXCLUDE COM PANIES WITH EMPLOYEE COST OF LESS THAN 25% FROM THE LIST OF COMPARABLES FOR THE COMPUTATION OF ALP. 17. APPLYING THE AFORESAID DECISIONS, WE ARE OF THE V IEW THAT CORAL HUBS LTD. CANNOT BE CONSIDERED AS A COMPARABLE. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE COMPANY IS FUNCTIONALLY DIFFERENT FROM CORAL HUB LIMITED. BOTH THE COMPANIES HAVE DIFFERENT OPERATING MODELS, THUS THERE CANNOT BE ANY COMPARISON BETWEEN TWO ENTITIES HAVING DIFFERENT BUSIN ESS SPHERES AND DISTINCT MODE OF OPERATION. ACCORDINGLY, WE DIRE CT THE TPO/AO TO EXCLUDE THE COMPANY FROM THE LIST OF COMPARABLE ENTI TIES. 52. FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE DIRECT THE TPO/AO TO EXCLUDE CORAL HUBS LTD. FROM THE LIST OF COMPARABLES ON ACCOUNT OF DIFFERENT OPERATING MODELS/DIFFEREN T BUSINESS SPHERES AND DISTINCT MODE OF OPERATION. 53. SO FAR AS GENESYS INTERNATIONAL CORPORATION LTD. IS CONCERNED, WE FIND THE TPO HAS CONSIDERED THIS COMPANY A S COMPARABLE ON THE GROUND THAT IT WAS SELECTED AS COMPA RABLE IN A.Y. 2008-09. WE FIND ON THE BASIS OF THE SUBMISSION OF THE ASSESSEE THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE BECAUSE IT IS ENGAGED IN THE BUSINESS OF GEOSPATIAL SERVIC ES, THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 HAS DIREC TED THE TPO/AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 24.2 OF T HE ORDER READS AS UNDER : 36 ITA 827/PN/2014 24.2 GENESYS INTERNATIONAL CORPORATION LTD. : THE LD . COUNSEL OBJECTED TO THE INCLUSION OF THE AFORESAID COMPANY AS COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT. THE SAI D COMPANY IS ALLEGEDLY ENGAGED IN THE BUSINESS OF GEOSPATIAL SERVICES AND HENCE, IT CANNOT BE COMPARED WITH THE ACTIVITIES CARRIED ON BY THE ASSESSEE. THE LD. COUNSEL POINTED OUT THAT THE OPERATING MARGI N OF THE SAID COMPANY IS 46.82% WHICH IS VERY MUCH ON THE HIGHER SID E. THE LD. COUNSEL HAS FURTHER POINTED OUT THAT IN THE CASE OF HY UNDAI MOTORS INDIA ENGINEERING PVT. LTD. (SUPRA) AND SYMPHONY MAR KETING SOLUTIONS INDIA PVT. LTD. (SUPRA), GENESYS INTERNATIONA L CORPORATION LTD. HAVE BEEN REJECTED ON THE GROUND OF FUNCTIONAL DISPARITY. THE RELEVANT EXTRACT OF THE ORDER OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING PVT. LTD . (SUPRA) IS AS UNDER: V. GENESYS INTERNATIONAL CORPORATION LTD. : THIS COMPANY IS LISTED AT SL. NO.11 IN THE LIST OF COMPARAB LE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE AND THAT IT H AS A DIFFERENT EMPLOYEE SKILL SET AND THAT THIS COMPANY P ERFORMS R&D SERVICES AND ALSO OWNS INTANGIBLES. THIS COMPANY IS A GEOSPATIAL SERVICES CONTENT PROVIDER SPECIALISING IN LAN D BASED TECHNOLOGIES. FROM THE NOTES TO ACCOUNTS OF THIS COMPA NY, IT IS SEEN THAT THIS COMPANY IS ENGAGED IN PROVIDING GEOGRAP HICAL INFORMATION SERVICES COMPRISING OF PHOTOGRAMMETRY, REM OTE SENSING CARTOGRAPHY, DATA CONVERSION RELATED COMPUTED BASED SERVICES AND OTHER RELATED SERVICES. FURTHER THE BUSINES S OF THIS COMPANY REQUIRES SKILLED MANPOWER AND SCIENTISTS, C IVIL ENGINEERS, ETC. BESIDES THE ABOVE, THIS COMPANY ALSO CA RRIES OUT R&D SERVICES AND OWN INTANGIBLES. THE AFORESAID FAC TS, IN OUR VIEW, WILL TAKE THIS COMPANY OUT OF THE LIST OF COMPARABLES. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA(P) LTD (SUPRA) BY THE BANGA LORE BENCH. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THA T THIS COMPANY CANNOT BE REGARDED AS A COMPARABLE AND DESERV ES TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN THE PRESENT CASE, THE ASSESSEE IS UNDISPUTEDLY NOT ENGAG ED IN GEOSPATIAL SERVICES. THE ACTIVITIES OF THE ASSESSEE ARE AT VARIANCE FROM THAT OF GENESYS INTERNATIONAL CORPORATION LTD. THUS, T HE SAID COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE, HEN CE IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 54. FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN C ASE FOR A.Y. 2008-09 AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE AG AINST THE ORDER OF THE TRIBUNAL WE DIRECT THE TPO/AO TO EXCLUDE TH IS COMPANY FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTION AL DIFFERENCE. 37 ITA 827/PN/2014 55. SO FAR AS COSMIC GLOBAL LTD. IS CONCERNED, WE FIND THIS COMPANY WAS INITIALLY SELECTED BY THE ASSESSEE IN THE LIST OF COMPARABLES. HOWEVER, WHEN THE ASSESSEE REQUESTED THE TPO/DRP TO EXCLUDE THE SAME ON THE GROUND THAT THE S AID COMPANY IS FUNCTIONALLY DIFFERENT, THE PLEA OF THE ASSESSEE WAS REJECTED. WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE T RIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSE SSMENT YEAR. CONSIDERING THE SUBMISSION OF THE ASSESSEE THE TRIBUNAL HAD DIRECTED THE TPO/AO TO EXCLUDE THE SAME FROM THE LIST O F COMPARABLES BY OBSERVING AS UNDER : 24.3 COSMIC GLOBAL LTD. : INITIALLY THE ASSESSEE HAD IN CLUDED THE SAID COMPANY IN THE LIST OF COMPARABLE. SUBSEQUENTLY, THE ASSESSEE OBJECTED TO THE INCLUSION OF SAME. THE LD. COUNSEL FOR THE ASSESSEE POINTED THAT IN THE CASE OF PAREXEL INTERNATIONAL IN DIA PVT. LTD. (SUPRA) THE TRIBUNAL HAS HELD THAT THE COMPANY IS NOT FUNCTIONALLY COMPARABLE. THE RELEVANT EXTRACT OF THE ORDER OF TR IBUNAL IS AS UNDER: 14. AS REGARDS THE SELECTION OF COSMIC GLOBAL LTD. AS COMPARABLE, IT IS OBSERVED THAT THIS COMPANY WAS ALSO EXCLUDED BY THE TRIBUNAL FROM THE LIST OF COMPARABLE S IN THE CASE OF EXCELLENCE DATA RESEARCH SERVICES P. LIMITED ( SUPRA), FOLLOWING THE DECISION OF THE DELHI BENCH OF THE TRI BUNAL IN THE CASE OF MERCER CONSULTING (INDIA) LTD. V/S DCIT (VIDE ORDER DATED 6TH JUNE, 2014 IN ITA NO.966/DEL/2014), WHERE IN M/S. COSMIC GLOBAL LIMITED WAS NOT ACCEPTED AS COMPARABLE BY THE TRIBUNAL FOR THE FOLLOWING REASONS GIVEN IN PARAS 13.2 AND 13.3 OF ITS ORDER- 13.2. NOW COMING TO THE FACTUAL MATRIX OF THIS CASE, WE FIND FROM THE MATERIAL ON RECORD THAT OUTSOURCING CHARGES OF THIS CASE CONSTITUTE 57.31% OF THE TOTAL OPERATING COSTS. TH IS DOES NOT APPEAR TO US TO BE A VALID REASON FOR ELIMINATING THIS CASE FROM THE LIST OF COMPARABLES. ON GOING THROUGH THE AN NUAL ACCOUNTS OF COSMIC GLOBAL LIMITED, A COPY OF WHICH HA S BEEN PLACED ON RECORD, WE FIND THAT ITS TOTAL REVENUE FRO M OPERATIONS ARE AT RS.7.37 CRORE DIVIDED INTO THREE SE GMENTS, NAMELY, MEDICAL TRANSCRIPTION AND CONSULTANCY SERVICE S AT RS.9.90 LACS, TRANSLATION CHARGES AT RS.6.99 CRORE AND ACCOUNTS BPO AT RS.27.76 LAC. THE LD. AR HAS MADE OUT A CASE THAT OUTSOURCING ACTIVITY CARRIED OUT BY THIS COMPANY CONSTITUTES 57% OF TOTAL EXPENSES. THE REASON FOR WHICH WE ARE NOT AGREEABLE WITH THE LD. AR IS THAT WE HAVE TO EXAMINE THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO SEGMENT AND NOT ON THE ENTITY LEVEL, BEING ALSO FROM MEDICAL TRA NSCRIPTION 38 ITA 827/PN/2014 AND TRANSLATION CHARGES. WHEN WE ARE EXAMINING THE RE SULTS OF THIS COMPANY FROM THE ACCOUNTS BPO SEGMENT ALONE, T HERE IS NO NEED TO EXAMINE THE POSITION UNDER OTHER SEGMENT S. THE ENTIRE OUTSOURCING IS CONFINED TO TRANSLATION CHARGES P AID AT RS.3.00 CRORE, WHICH IS STRICTLY IN THE REALM OF THE T RANSLATION SEGMENT, REVENUES FROM WHICH ARE TO THE TUNE OF RS.6. 99 CRORE. IF THIS SEGMENT OF TRANSLATION IS NOT UNDER CONSIDERATION FOR DECIDING AS TO WHETHER THIS CASE IS COMPARABLE OR NOT, WE CANNOT TAKE RECOURSE TO THE FI GURES WHICH ARE RELEVANT FOR SEGMENTS OTHER THAN ACCOUNTS BP O. THUS IT IS HELD THAT THIS CASE CANNOT BE EXCLUDED ON TH E STRENGTH OF OUTSOURCING ACTIVITY, WHICH IS ALIEN TO TH E RELEVANT SEGMENT. 13.3. HOWEVER, WE FIND THIS CASE TO INCOMPARABLE ON T HE ALTERNATIVE ARGUMENT ADVANCED BY THE LD. AR TO THE EFFECT THAT TOTAL REVENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GL OBAL LIMITED IS VERY LOW AT RS.27.76 LACS. WE HAVE DISCUSSED T HIS ASPECT ABOVE IN THE CONTEXT OF CGVAKS CASE AND HELD T HAT A CAPTIVE UNIT CANNOT BE COMPARED WITH A GIANT CASE AN D THUS EXCLUDED CG-VAK WITH TURNOVER FROM ACCOUNTS BPO SEGME NT AT RS.86.10 LACS. AS THE SEGMENTAL REVENUE OF BPO SEGMEN T OF COSMIC GLOBAL LIMITED AT RS.27.76 LAC IS STILL ON MUCH LOWER SIDE, THE REASONS GIVEN ABOVE WOULD FULLY APPLY TO HO LD COSMIC GLOBAL LIMITED AS INCOMPARABLE. THIS CASE IS, THEREFO RE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 15. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSE E FROM THE RELEVANT DETAILS PLACED AT PAGE NO.391 OF HIS PAPER-B OOK, SUBSTANTIAL WORK WAS OUTSOURCED BY M/S. COSMIC GLOBAL LIMITED IN TH E RELEVANT YEAR, WHICH IS EVIDENT FROM THE FACT THAT THE OUTSOUR CING COST WAS 57% OF THE TOTAL OPERATING COST OF THE SAID COMPANY. KEEPING IN VIEW THIS POSITION CLEARLY EVIDENT FROM THE RELEVANT DETAI LS FURNISHED ON RECORD, WHICH IS NOT DISPUTED EVEN BY THE LEARNED DE PARTMENTAL REPRESENTATIVE, WE RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MERCER CONSULTIN G INDIA P. LTD. (SUPRA) AND EXCELLENCE DATA RESEARCH P. LTD. (SUPRA) T O HOLD THAT M/S. COSMIC GLOBAL LIMITED CANNOT BE CONSIDERED AS COMP ARABLE WITH THE ASSESSEE-COMPANY. ACCORDINGLY, THE ASSESSING OFFICER I S DIRECTED TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. WE M AY CLARIFY HERE FOR THE SAKE OF COMPLETENESS THAT THE LEARNED DEPARTME NTAL REPRESENTATIVE HAS POINTED OUT AT THE TIME OF HEARING BEFORE US THAT M/S. COSMIC GLOBAL LIMITED WAS INITIALLY SELECTED BY TH E ASSESSEE COMPANY ITSELF AS A COMPARABLE IN THE TP STUDY REPORT. IN OUR OPINION, THIS ASPECT ON ITS OWN IS NOT SUFFICIENT TO IN CLUDE M/S. COSMIC GLOBAL LTD. IN THE LIST OF COMPARABLES, AS THE ASSESSEE HA S ALWAYS A RIGHT TO OBJECT SELECTION OF A COMPANY TAKEN AS COMPA RABLE EARLIER, IF IT IS SUBSEQUENTLY FOUND TO BE NOT COMPARABLE, AS A RESU LT OF DIFFERENCE IN FUNCTIONS PERFORMED ETC., AND SUCH OBJE CTION IS REQUIRED TO BE CONSIDERED ON MERITS. THE LD. DR HAS NOT BEEN A BLE TO CONTROVERT THE FINDINGS OF THE TRIBUNAL. A PERUSAL O F THE ABOVE ORDER SHOWS THAT COSMIC GLOBAL LTD. IS PRIMARILY ENGAGED IN P ROVIDING BPO SERVICES. OUTSOURCING ACTIVITY CARRIED OUT BY THE SAID COMPANY CONSTITUTES 57% OF THE TOTAL OPERATING COST. HENCE, TH E ASSESSEE AND COSMIC GLOBAL LTD. ARE FUNCTIONALLY DIFFERENT. ACCOR DINGLY, WE HOLD 39 ITA 827/PN/2014 THAT COSMIC GLOBAL LTD. HAS TO BE EXCLUDED FROM THE L IST OF COMPARABLE. 56. FACTS BEING SIMILAR, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECED ING ASSESSMENT YEAR AND IN ABSENCE OF ANY CONTRARY MATERIA L BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE WE DIRECT T HE TPO/AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. IN VIEW OF OUR ABOVE DISCUSSION, WE RESTORE THE ISSUE OF THE TP ADJUSTMENT TO THE FILE OF THE AO TO RECOMPUTE THE ADJ USTMENT TO BE MADE FINALLY, IF ANY, TO THE ALP. 57. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27-10-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED : 27 TH OCTOBER, 2016. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE DRP, PUNE 4. % S / THE DIT (IT&TP), PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , ( + //TRUE COPY// 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE