Netcracker Technology Solutions(India) Private Limited, Hyderabad V. Addl.CIT, Range-1, Hyderabad

ITA 86/HYD/2013

• Counselvise Citation: 8622514 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: ABHIROOP BHARGAV; DHANESH K BAFNA MR UTPAL SEN
• Keywords: Unexplained expenditure; Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 69C; 92C; 143(3); 115JB; 133(6); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.86/HYD/2013 ASSESSMENT YEAR 2008-2009 NET C RACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., (FORMERLY KNOWN AS CONVERGYS INFORMATION MANAGEMENT (INDIA) P. LTD., HYDERABAD 500 081 PAN AACCC0701B VS. ADDL. CIT, RANGE-1 HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. DHANESH K. BAFNA MR. UTPAL SEN AND MR. ABHIROOP BHARGAV FOR REVENUE : SMT. G. APARNA RAO DATE OF HEARING : 01 .0 4 .201 5 DATE OF PRONOUNCEMENT : 17 . 06 .201 5 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE DIRECTION OF THE DISPUTES RESOLUTION PANEL, HYDERAB AD PASSED UNDER SECTION 144C(5) READ WITH SUB-SECTION 8 OF SECTION 144C OF THE INCOME TAX ACT, 1961 DATED 27.09.2012 AND CONSEQUENTIAL ASSESSMENT ORDER DATED 30.11.2012 PASSED BY A.O. UNDER SECTION 143(3) READ WITH SECTION 144C(5) OF THE I.T. ACT, 1961 RELATING TO A .Y. 2008- 09. 2 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. 2. BRIEFLY THE FACTS ARE, ASSESSEE COMPANY IS A PRIVATE LIMITED COMPANY REGISTERED UNDER COMPANIES ACT, 1956. ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF CONVERGYS INFORMATION MANAGEMENT GROUP INC., USA. T HE ASSESSEE COMPANY HAS BEEN REGISTERED AS A 100% EXPO RT ORIENTED UNIT UNDER THE SOFTWARE TECHNOLOGY PARKS O F INDIA (STPI) SCHEME. IT IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT AND SUPPORT SERVICES TO CONVERGYS INFORMATION MANAGEMENT GROUP INC. USA, CONVERGYS EMEA LIMITED AND CONVERGYS CUSTOMER MANAGEMENT GROUP INC USA (CONVERGYS GROUP). CONVERGYS GROUP COMPENSATES ASSESSEE COMPANY FOR SOFTWARE DEVELOPME NT AND SUPPORT SERVICES ON COST PLUS BASIS WITHOUT REG ARD TO THE SUCCESS OR FAILURE OF THE ACTIVITIES. THE ASSES SEE COMPANY FILED ITS RETURN OF INCOME FOR THE A.Y. 200 8-09 ON 23.09.2008 DECLARING THE TOTAL INCOME OF RS.41,412 AFTER CLAIMING DEDUCTION UNDER SECTION 10A OF RS.27,74,72 ,754 UNDER NORMAL PROVISIONS. THE ASSESSEE COMPANY PAID TAX ON BOOK PROFIT OF RS.22,72,37,501 UNDER SECTION 115 JB OF THE I.T. ACT, 1961. A REFERENCE UNDER SECTION 92CA WAS MADE TO THE ADDL. COMMISSIONER OF INCOME TAX, TRANS FER PRICING, HYDERABAD BY THE ADDL. CIT, RANGE-1, CIRCL E 1(2), HYDERABAD TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE REPORTED IN FORM 3CEB. THE A.O. PASSED A DRAFT ASSESSMENT ORDER DATED 28.12.20 11 UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT FOR ARRIVING AT A TOTAL INCOME OF RS.186,344,463 AS AGA INST 3 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. RS.41,412 AS DECLARED IN THE RETURN OF INCOME. THE A.O. MADE THE FOLLOWING ADJUSTMENTS IN THE DRAFT ORDER. 1. ADJUSTMENT AS PROPOSED BY THE TPO AND ACCEPTED BY THE A.O. OF RS.18,22,23,579 TOWARDS ADJUSTMENT OF ARMS LENGTH PRICE. 2. EXCLUSION OF COMMUNICATION CHARGES OF RS.2,52,66,316 INCURRED BY THE ASSESSEE FROM THE EXPORT TURNOVER WITHOUT CORRESPONDING REDUCTION FROM THE TOTAL TURNOVER IN THE COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT. 3. DISALLOWED DEPRECIATION AMOUNTING TO RS.23,05,092 ON SOFTWARE, TREATING THEM AS INTANGIBLE ASSETS QUANTIFYING FOR DEPRECIATION AT THE RATE OF 25% INSTEAD OF THE DEPRECIATION RATE OF 60% CLAIMED BY THE ASSESSEE AS APPLICABLE TO SOFTWARES. 4. ADDED AN AMOUNT OF RS.223,902 TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE ACT. 5. INCREASED THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT TO THE EXTENT OF TRANSFER PRICING ADJUSTMENT MADE UNDER SECTION 92C OF THE ACT TOTALING TO RS.182,223,579. BEING AGGRIEVED OF THE PROPOSED ADDITION, ASSESSEE RAISED OBJECTIONS BEFORE THE DRP ON VARIOUS GROUNDS. THE DRP ACCEPTED THE OBJECTIONS WITH REFERENCE TO ITEMS 3,4 & 5 OF THE ADDITIONS AND DIRECTED TO BE DELETED. WITH REFERENCE TO ITEMS 1 A ND 2, IT REJECTED OTHER OBJECTIONS RAISED BY ASSESSEE, EXCEPT EXCLUDING ONE OF THE COMPARABLES SELECTED BY THE TPO I.E. M/S CELESTIAL LABS LIMITED WHICH WAS DIRECTED TO BE EXCLUDED BY THE DRP. 4 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. 3. BEING AGGRIEVED OF THE ORDER PASSED BY THE DRP ASSESSEE IS BEFORE US RAISING NINE GROUNDS OUT OF WHICH, GROUND NOS. 1 IS GENERAL IN NATURE AND THERE FORE, IT NEED NOT BE ADJUDICATED. GROUND NOS. 4, 5, 6, 7 AND 8 ARE NOT PRESSED AND ACCORDINGLY THEY ARE DISMISSED AS N OT PRESSED. GROUND NOS.2 AND 3 READS AS UNDER : 2. THAT THE LEARNED A.O./LEARNED TPO ERRED IN INCLUDING COMPANIES WHICH ARE DIFFERENT FROM THE APPELLANT AND REJECTING COMPANIES SIMILAR TO THE APPELLANT IN FUNCTIONS, ASSET BASE AND RISK PROFILE WHILE PERFORMING COMPARABILITY ANALYSIS. 3. THAT THE LEARNED A.O./ LEARNED TPO ERRED IN SELECTING FRESH COMPANIES WHICH ARE LARGER IS SIZE AS COMPARED TO THE APPELLANT AND COMPANIES THAT ARE EARNING SUPER NORMAL PROFITS. 4. THESE GROUNDS ARE WITH REFERENCE TO TRANSFER PRICING ADJUSTMENT MADE BY TPO/AO BY DETERMINING TH E ARMS LENGTH MARGIN AT 21.32% ( AFTER EXCLUDING ONE COMPARABLE AS DIRECTED BY DRP) AND MAKING ADDITION. FINALLY THERE ARE 18 COMPANIES WHICH ARE HELD AS COMPARABLE COMPANIES AND ASSESSEES OBJECTIONS ARE WITH REFERENCE TO THE FOLLOWING SIX COMPANIES : 1. INFOSYS TECHNOLOGIES LTD., 2. WIPRO LTD. (SEG.) 3. KALS INFORMATION SYSTEMS LTD., (SEG.) 4. TATA ELXSI LTD., (SEG.) 5. AVANI CIMCON TECHNOLOGIES LTD., 6. E-ZEST SOLUTIONS LTD., 5 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. 4.1. IT WAS SUBMITTED THAT ASSESSEES OBJECTIONS A RE ALREADY CONSIDERED SIMILARLY IN THE COORDINATE BENC H DECISION IN THE CASE OF M/S. INVENSYS DEVELOPMENT C ENTRE INDIA (P) LTD., HYDERABAD VS. ACIT, CIRCLE 2(1), HY DERABAD IN ITA.NO.1692/HYD/2012 DATED 12.11.2014 FOR A.Y. 2008-2009. AFTER CONSIDERING THE ARGUMENTS OF LEAR NED D.R. WE ARE OF THE OPINION THAT ASSESSEE SHOULD GET RELIEF ON THE ABOVE ISSUE. THE FACTS IN BOTH CASES BEING S AME AND BOTH A.O. AS WELL AS DRP HAS TAKEN SIMILAR COMPANIES FOR COMPARISON AND DRP EXCLUDED ONE COMPANY LIKE IN THE CASE OF INVENSYS DEVELOPMENT CE NTRE INDIA (P ) LTD., VS. ACIT, CIRCLE 2(1), HYDERABAD ( SUPRA), WE HAVE NO HESITATION IN DIRECTING THE A.O. TO EXCL UDE THE SIX COMPANIES AS THE ISSUES ARE ALREADY DECIDED SIM ILARLY IN INVENSYS DEVELOPMENT CENTRE INDIA (P) LTD., (SUP RA). FOR THE SAKE OF RECORD, THE CONSIDERATION AND DECIS IONS IN THAT ORDER ARE EXTRACTED AS UNDER : 1.AVANI CIMCON TECHNOLOGIES LIMITED : 4.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. ASSESSEE OBJECTS TO THE INCLUSION OF TH IS COMPANY AS A COMPARABLE ON THE GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS WHEREAS ASSESSEE OFFERS SOFTWARE DEVELOPMENT SERVICES TO ITS AES. TH E TPO HAD REJECTED THE OBJECTIONS OF ASSESSEE ON THE GROUND THAT THIS COMPARABLE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER, JU ST LIKE ASSESSEE, AND HENCE SELECTED THIS COMPANY AS A COMPARABLE. FOR THIS PURPOSE, THE TPO HAD RELIED ON INFORMATION SUBMITTED BY THIS COMPANY IN RESPONSE T O 6 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. ENQUIRIES CARRIED OUT UNDER SECTION 133(6) OF THE A CT FOR COLLECTING INFORMATION ABOUT THE COMPANY DIRECT LY. 4.1.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE REITERATED ASSESSEE'S OBJECTIONS FOR THE INCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS. IT IS ALSO SUBMITT ED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND THE ANNUAL REPORT AVAILABLE IN THE PUBLIC DOMAIN IS NOT COMPLETE. IN SUPPORT OF THIS COMPARABLE, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS : I) AGNITY INDIA TECHNOLOGIES P. LTD., VS. DCIT, CIRCLE 1(1), NEW DELHI ITA.NO.6485/DEL/2012 DATED 20 TH SEPTEMBER, 2013. II) 3DPLM SOFTWARE SOLUTION LTD., (SUCCESSOR TO DELMIA SOLUTIONS P. LTD.,) BANGALORE VS. DCIT, CIRCLE 11(1), BANGALORE I.T.(T.P.)A.NO.1303/ BANG / 2012 DATED 28.11.2013. 4.1.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE TPO / DRP FOR INCLUSION OF THIS COMPANY AVANI CINCOM TECHNOLOGIES LTD. IN THE FINAL SET OF COMPARABLES. 4.1.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY, CONSIDERED THE MATERIAL ON RECORD. I T IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT. WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMPARABLE ONLY ON THE GROUND THAT TH IS COMPANY WAS SELECTED IN THE EARLIER YEAR. APART FRO M PLACING RELIANCE ON THE JUDICIAL DECISIONS CITED AB OVE, INCLUDING ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08, ASSESSEE HAS BROUGHT ON RECORD EVIDENCE THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR AND 7 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. DIFFERENT FROM ASSESSEE AND HENCE IS NOT COMPARABLE . THEREFORE THE FINDING EXCLUDING IT FROM THE LIST OF COMPARABLES RENDERED IN THE IMMEDIATELY PRECEDING YEAR IS APPLICABLE IN THIS YEAR ALSO. SINCE THE FUNCTIONAL PROFILE AND OTHER PARAMETERS BY THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR UNDER CONSIDERATION WHICH FACT HAS BEEN DEMONSTRATED BY ASSESSEE, FOLLOWING THE DECISIONS O F THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN ASSESSE E'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.1780/HYD/2011, AND THE FINDINGS IN THE ABOVE CITED CASES WHEREIN THIS COMPANY WAS EXCLUDED, WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM TH E LIST OF COMPARABLES. 2. E-ZEST SOLUTION LTD : 4.2.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. BEFORE THE TPO, ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY DIFFERENT FROM ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY ASSESSEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 4.2.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT TO ASSESSE E. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS ENGAGED IN E- BUSINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SERVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SERVICES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES AND ENTERPRISE SOLUTIONS. IT IS FURTHER SUBMITTED THAT THIS COMPAN Y HAS NOT PROVIDED SEGMENTAL DATA IN ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY 8 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. DOES NOT CONTAIN DETAILED DESCRIPTIVE INFORMATION O N THE BUSINESS OF THE COMPANY, ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COMPANYS WEBSITE WHICH SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONAL PROFILE. IT IS ALSO SUBMIT TED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERVICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE T O SOFTWARE DEVELOPMENT COMPANIES AND RELIED ON THE DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL IN THE CASES OF (I) AGNITY INDIA TECHNOLOGIES P. LTD., VS. DCIT, CIRCLE 1(1), NEW DELHI ITA.NO.6485/DEL/2012 DATED 20 TH SEPTEMBER, 2013 AND (II) 3DPLM SOFTWARE SOLUTION LTD., (SUCCESSOR TO DELMIA SOLUTIONS P. LT D.,) BANGALORE VS. DCIT, CIRCLE 11(1), BANGALORE I.T.(T.P.)A.NO.1303/ BANG / 2012 DATED 28.11.2013 AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., OUGHT TO BE OMI TTED FROM THE LIST OF COMPARABLES. 4.2.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BY THE TPO. 4.2.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED CAREFULLY THE MATERIAL ON RECORD. IT IS SEE N FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES ONLY ON THE BASI S OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY T O THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPE ARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER THE SERVIC ES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY ASSESSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICE S, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., IS RENDERI NG PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASES OF CAPITAL I-Q INFORMAT ION SYSTEMS (INDIA) (P) LTD. THAT KPO SERVICES ARE NOT 9 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FURTHER, THE DECISIONS OF THE CO-ORDINATE BENCH IN THE AFORESAID CASES OF (I ) AGNITY INDIA TECHNOLOGIES P. LTD., VS. DCIT, CIRCLE 1(1), NEW DELHI ITA.NO.6485/DEL/2012 DATED 20 TH SEPTEMBER, 2013 AND (II) 3DPLM SOFTWARE SOLUTION LTD., (SUCCESSOR TO DELMIA SOLUTIONS P. LTD.,) BANGALORE VS. DCIT, CIRCLE 11(1), BANGALORE I.T.(T.P.)A.NO.1303/ BANG / 2012 DATED 28.11.2013, WE HOLD THAT THIS COMPANY, I.E. E-ZEST SOLUTIONS LT D. BE EXCLUDED FROM THE SET OF COMPARABLES. 3. INFOSYS TECHNOLOGIES LTD.: 4.3.1. THIS WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND EFFECTING PROF IT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY ASSESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEGMENT. 4.3.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF COMPANY TO SUBMIT THAT THIS COMPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPMENT ACTIVITIES , WHEREAS ASSESSEE IS MERELY A SOFTWARE SERVICE PROVIDER AND DOES NOT POSSESS EITHER ANY BRAND VALU E OR OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGH TS (IPRS). THE OBSERVATION OF THE ITAT, DELHI BENCH IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSY S TECHNOLOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LIMITED RISK WAS RELIED ON. LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT, 10 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. THIS COMPANY I.E. INFOSYS TECHNOLOGIES LTD., BE EXCLUDED FORM THE LIST OF COMPARABLE COMPANIES. 4.3.3 PER CONTRA, OPPOSING THE CONTENTIONS OF ASSESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND AS PROFIT MARGINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 4.3.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE ARE INCLINED TO CONCUR WITH THE ARGUMENT PUT FORTH BY ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICA NT INTANGIBLES AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAK-UP OF REVE NUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. COORDINATE BENCHES IN THE FOLLOWING CASES HAVE HELD THAT THIS COMPANY CANNOT BE TAKEN AS COMPARABLE. WE RELY ON THEM. I) AGNITY INDIA TECHNOLOGIES P. LTD., VS. DCIT, CIRCLE 1(1), NEW DELHI ITA.NO.6485/DEL/2012 DATED 20 TH SEPTEMBER, 2013. II) 3DPLM SOFTWARE SOLUTION LTD., (SUCCESSOR TO DELMIA SOLUTIONS P. LTD.,) BANGALORE VS. DCIT, CIRCLE 11(1), BANGALORE I.T.(T.P.)A.NO.1303/ BANG / 2012 DATED 28.11.2013. III) ADAPTEC (INDIA) P. LTD., HYDERABAD VS. ACIT, CIRCLE 1(1), HYDERABAD ITA.NO.1758/HYD/2012 DATED 21.03.2014. IV) M/S. PATNI TELECOM SOLUTIONS P. LTD., HYDERABAD VS. ACIT, CIRCLE 16(3), HYDERABAD ITA.NO.1846/ HYD/ 2012 DATED 25.04.2013. 11 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. AO/TPO IS DIRECTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 4. KALS INFORMATION SYSTEMS LTD: 4.4.1 THIS IS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON GROUNDS OF FUNCTIONAL DIFFERENCES AND THAT THE SEGMENTAL DETAILS HAVE NOT BEEN PROVIDED IN THE ANNUAL REPORT OF THE COMPANY WITH RESPECT TO SOFTWARE SERVICES REVENUE AND SOFTWARE PRODUCTS REVENUE. THE TPO, HOWEVER, REJECTED THE OBJECTIONS OF ASSESSEE OBSERVING THAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTES ONLY 4.24% OF TOTAL REVENUES A ND THE REVENUE FROM SOFTWARE DEVELOPMENT SERVICES CONSTITUTES MORE THAN 75% OF THE TOTAL OPERATING REVENUES FOR THE F.Y. 2007-08 AND QUALIFIES AS A COMPARABLE BY THE SERVICE INCOME FILTER. 4.4.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO ASSESSEE AND OUGHT TO BE REJECTED/EXCLUDED FROM THE LIST OF COMPARABLES FOR THE FOLLOWING REASONS :- (I) THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE SOFTWARE ACTIVITY OF ASSESSEE AS IT IS INTO SOFTWAR E PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE DIFFERENT FRO M A SOFTWARE DEVELOPMENT COMPANY IN THE DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD.V D CIT IN ITA NO.1386/PN/2010. (III) THE REJECTION OF THIS COMPANY AS A COMPARABLE HAS BEEN UPHELD BY CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF I) AGNITY INDIA TECHNOLOGIES P. LTD., VS. DCIT, CIRCLE 1(1), NEW DELHI ITA.NO.6485/DEL/2012 DATED 20 TH SEPTEMBER, 2013. 12 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. II) 3DPLM SOFTWARE SOLUTION LTD., (SUCCESSOR TO DELMIA SOLUTIONS P. LTD.,) BANGALORE VS. DCIT, CIRCLE 11(1), BANGALORE I.T.(T.P.)A.NO.1303/ BANG / 2012 DATED 28.11.2013. III) SYMPHONY SERVICES PUNE P. LTD., VS. ITO, WARD 1(4), PUNE ITA.NO.257/PN/2013 DATED 30.04.2014. IV) TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA.NO.1054/ BANG/2011). V) LG SOFT INDIA PVT. LTD. (IT (TP) A NO.112/BANG/2011) VI) CSR INDIA PVT. LTD. (IT (TP) A NO.1119/BANG/2011) AND VII) TRANSWITCH INDIA PVT. LTD. (ITA NO.6083/DEL/2010) (IV) THE FACTS PERTAINING TO THIS COMPANY HAS NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPARABILITY. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTIO N TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY. (V) THIS COMPANY IS ENGAGED NOT ONLY IN THE DEVELOPMENT OF SOFTWARE PRODUCTS BUT ALSO IN THE PROVISION OF TRAINING SERVICES AS CAN BE SEEN FROM THE WEBSITE AND THE ANNUAL REPORT OF THE COMPANY FOR THE YEAR ENDED 31.3.2008. (VI) THIS COMPANY HAS TWO SEGMENTS; NAMELY, A) APPLICATION SOFTWARE SEGMENT WHICH INCLUDES SOFTWARE PRODUCT REVENUES FROM TWO PRODUCTS I.E. VIRTUAL INSURE AND LA-VISION AND 13 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. B) THE TRAINING SEGMENT WHICH DOES NOT HAVE ANY PRODUCT REVENUES. 4.4.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE DECISION OF THE C O- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TRIOL OGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED WITH RESPECT TO F.Y.2006-07 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINU E TO BE APPLICABLE TO THE YEAR UNDER CONSIDERATION I. E. A.Y. 2008-09. TO THIS, THE COUNTER ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE IS THAT THE FUNCTIONAL PROFILE OF THIS COMPANY CONTINUES TO REM AIN THE SAME FOR THE YEAR UNDER CONSIDERATION ALSO AND THE SAME IS EVIDENT FROM THE DETAILS CULLED OUT FRO M THE ANNUAL REPORT AND QUOTED ABOVE. 4.4.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND FROM THE RECORD THAT THE TPO HAS DRAWN CONCLUSIONS AS TO THE COMPARABILITY OF THIS COMPANY TO ASSESSEE BASED ON INFORMATION OBTAINED U/S.133(6) OF THE ACT. WE ALSO FIND THAT THE CO-ORDINATE BENCHES OF THIS TRIBUNAL HAVE HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE SERVICE PROVIDER. APART FROM RELYING OF TH E ABOVE CITED DECISIONS OF CO-ORDINATE BENCHES OF THE TRIBUNAL (SUPRA), ASSESSEE HAS ALSO BROUGHT ON RECO RD EVIDENCE FROM VARIOUS PORTIONS OF THE COMPANYS ANNUAL REPORT TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR AND DIFFERENT FORM ASSESSEE AND THAT SINCE THE FINDINGS RENDERED IN THE DECISIO NS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 (CITED SUPRA) ARE APPLICABLE FOR THIS YEAR I.E. ASSESSMENT YEAR 2008- 09 ALSO, THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LI ST OF COMPARABLES. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY I.E. KALS INFORMATION SYSTEMS LTD., IS TO BE OMITTED FROM THE LIST OF COMPARABLE COMPANIES. 14 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. 5. TATA ELXSI LTD: 4.5.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, ASSESSEE HAD OBJECTED T O THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DISSIMILARITY, SIGNIFICANT R&D ACTIVITY, BRAND VALU E, SIZE, NICHE PRODUCTS ETC. THE TPO, HOWEVER, REJECTE D THE CONTENTION PUT FORTH BY ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 4.5.2 BEFORE US IT WAS REITERATED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIONS UNDER SOFTWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY A) PRODUCT DESIGN, (B) INNOVATION DESIGN ENGINEERING AND (C) VISUAL COMPUTING LABS AS IS REFLECTED IN THE ANNUAL REPORT OF THE COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT, (I) THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES PVT. LTD. (SUPR A) HAS HELD THAT TATA ELXSI LTD. IS NOT A FUNCTIONALLY COMPARABLE FOR A SOFTWARE DEVELOPMENT SERVICE PROVIDER. (II) THE FACTS PERTAINING TO TATA ELXSI LTD. HAVE N OT CHANGED FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008- 09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO ASSESSEE IN THE CASE ON HAND, AS THE SAME WAS EXCLUDED IN EARLIER YEAR BY ITAT IN ASSESSEE OWN CASE. (III) TATA ELXSI LTD. IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER. IN THE ANNUA L REPORT OF THIS COMPANY THE DESCRIPTION OF THE SEGME NT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN 15 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. SERVICES AND ARE NOT TO SOFTWARE SERVICES PROVIDED BY ASSESSEE. (IV) TATA ELXSI LTD. INVESTS SUBSTANTIAL FUNDS IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS RESULTED IN THE EMBEDDED PRODUCT DESIGN SERVICES SEGMENT OF THE COMPANY TO CREATE A PORTFOLIO OF REUSABLE SOFTWARE COMPONENTS, READY TO DEPLOY FRAMEWORKS, LICENSABLE IPS AND PRODUCTS. THE LEARNE D AUTHORISED REPRESENTATIVE PLEADS THAT IN VIEW OF TH E ABOVE REASONS, TATA ELXSI LTD. IS CLEARLY FUNCTIONA LLY DIFFERENT / DIS-SIMILAR FROM ASSESSEE AND THEREFORE OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. (V) THE LEARNED A.R. FURTHER RELIED ON THE COORDINA TE BENCHES OF THE TRIBUNAL IN THE FOLLOWING CASES : I) AGNITY INDIA TECHNOLOGIES P. LTD., VS. DCIT, CI RCLE 1(1), NEW DELHI ITA.NO.6485/DEL/2012 DATED 20 TH SEPTEMBER, 2013. II) 3DPLM SOFTWARE SOLUTION LTD., (SUCCESSOR TO DELMIA SOLUTIONS P. LTD.,) BANGALORE VS. DCIT, CIRC LE 11(1), BANGALORE I.T.(T.P.)A.NO.1303/ BANG / 2012 DATED 28.11.2013. 4.5.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE STAND OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 4.5.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAILS ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SIMILAR TO SOFTWARE DEVELOPMEN T SERVICES PERFORMED BY ASSESSEE. 4.5.5 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT ( ITA 16 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. NO.7821/MUM/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THEREFO RE IT IS NOT FUNCTIONALLY COMPARABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT R ATIO FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR ASSESSEE, HENCE, SHOULD BE EXCLUDE D FROM THE LIST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPO RT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008- 09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 6. WIPRO LTD: 4.6.1. THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN TH E LIST OF COMPARABLES ON SEVERAL GROUNDS LIKE FUNCTIO NAL DISSIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 4.6.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT THIS 17 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. COMPANY I.E. WIPRO LTD., IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE FOR THE FOLLOWING REASONS:- (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN TH E NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLO GY RELATED INTANGIBLES, OWNS IPRS AND HAS BEEN GRANTED 40 REGISTERED PATENTS AND HAS 62 PENDING APPLICATIONS AND ITS ANNUAL REPORT CONFIRMS THAT IT OWNS PATENTS AND INTANGIBLES. (II) THE ITAT, DELHI OBSERVATION IN THE CASE OF AGN ITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856(DEL)/20 10 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIANT COMPANY AND A MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER PROFITS, CANNO T BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDE RS ASSUMING LIMITED RISK; (III) THE COORDINATE BENCH OF THE ITAT, MUMBAI IN T HE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (IT A NO.7821/MUM/2011) HAS HELD THAT WIPRO LTD. IS NOT FUNCTIONALLY COMPARABLE TO A SOFTWARE SERVICE PROVIDER. (IV) WIPRO LTD. IS ENGAGED IN BOTH SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. NO INFORMATION IS AVAILABLE ON THE SEGMENTAL BIFURCATI ON OF REVENUE FROM SALE OF PRODUCTS AND SOFTWARE SERVICES. (V) THE TPO HAS ADOPTED CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGINS, WHICH IS IN CONTRADICTION TO THE TPOS OWN FILTER OF REJECTING COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. (VI) THE LEARNED A.R. FURTHER RELIED ON THE FOLLOWI NG DECISIONS : I) AGNITY INDIA TECHNOLOGIES P. LTD., VS. DCIT, CIRCLE 1(1), NEW DELHI ITA.NO.6485/DEL/2012 DATED 20 TH SEPTEMBER, 2013. 18 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. II) 3DPLM SOFTWARE SOLUTION LTD., (SUCCESSOR TO DELMIA SOLUTIONS P. LTD.,) BANGALORE VS. DCIT, CIRCLE 11(1), BANGALORE I.T.(T.P.)A.NO.1303/ BANG / 2012 DATED 28.11.2013. III) ADAPTEC (INDIA) P. LTD., HYDERABAD VS. ACIT, CIRCLE 1(1), HYDERABAD ITA.NO.1758/HYD/2012 DATED 21.03.2014. IV) M/S. PATNI TELECOM SOLUTIONS P. LTD., HYDERABAD VS. ACIT, CIRCLE 16(3), HYDERABAD ITA.NO.1846/ HYD/ 2012 DATED 25.04.2013. 4.6.3. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 4.6.4. WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGE D BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMATION ON TH E SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FILTER ADOPTED BY HIM. WE ALSO FIND THAT THIS COMPANY OWNS INTELLECTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CAS E ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCHES CITED SUPRA, WE HOLD THAT THIS COMPANY CANNOT BE 19 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE TPO/ AO TO EXCLUDE THE ABOVE SIX COMPANIES AND REWORK OUT THE ALP ACCORDINGLY. PROVISIONS OF SEC 92C(2) PROVISO MAY A LSO BE CONSIDERED WHILE DETERMINING THE ALP. AO IS DIRECTE D ACCORDINGLY. ASSESSEES ABOVE GROUNDS ARE CONSIDERE D ALLOWED. 5. GROUND NO. 9 READS AS UNDER : 9. WITHOUT PREJUDICE TO THE ABOVE, IF THE ABOVE COMMUNICATION EXPENSES ARE TO BE REDUCED FROM THE EXPORT TURNOVER, THE LEARNED A.O. MAY BE DIRECTED TO REDUCE THE SAME FROM THE TOTAL TURNOVER ALSO AND TO ALLOW DEDUCTION UNDER SECTION 10A ACCORDINGLY. 6. AS BRIEFLY STATED, A.O. EXCLUDED THE COMMUNICATION CHARGES FROM EXPORT TURNOVER HOLDING THAT THEY ARE NOT TO BE INCLUDED IN THE EXPORT TURNOVER. ASSESSEE CONTESTED THE SAME STATING THAT DATA LINK CHARGES CANNOT BE CONSIDERED AS ATTRIBUTABLE TO EXP ORT SERVICE, HOWEVER, ALTERNATE PLEA WAS MADE THAT IF T HE SAME WAS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME WAS ALSO TO BE EXCLUDED FROM THE TOTAL TURNOVER WHILE COMPUT ING DEDUCTION UNDER SECTION 10A. FOLLOWING THE DECISION OF ITAT IN THE CASE OF CIT VS. MENTOR GRAPHICS (I) P. LTD., IN ITA NO.696/HYD/2009 DATED 18.08.2009 AND SPECIAL BENCH DECISION IN THE CASE OF ITO VS. SAKSOFT 313 I TR (AT) 353, DRP SHOULD HAVE GIVEN A DIRECTION TO EXCLUDE 20 ITA.NO.86/HYD/2013 NET CRACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., HYDERABAD. COMMUNICATION CHARGES FROM THE TOTAL TURNOVER AS WE LL. SINCE THE ISSUE IS HELD IN FAVOUR OF ASSESSEE IN TH E CASE OF ITO VS. SAK SOFT LIMITED 313 ITR (AT) 353 AND ALSO AS APPROVED BY HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. GEMPLUS JEWELLERY LTD., 330 ITR 175, WE DIR ECT THE AO TO EXCLUDE THE COMMUNICATION CHARGES FROM TO TAL TURN OVER AS WELL. GROUND IS ALLOWED ACCORDINGLY. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 17.06.201 5. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 17 TH JUNE, 2015 VBP/- COPY TO 1. NET C RACKER TECHNOLOGY SOLUTIONS (INDIA) P. LTD., (FORMERLY KNOWN AS CONVERGYS INFORMATION MANAGEMENT (INDIA) P. LTD., PLOT NO. 5 & 43, SURVEY NO.64, HITEC CITY, MADHAPUR, HYDERABAD 500 081 2. ADDL. CIT, RANGE - 1, HYDERABAD. 3. DISPUTE RESOLUTION PANEL, HYDERABAD. 4. CIT(A) - 1, HYDERABAD 5. DIRECTOR OF INCOME TAX ( INTERNATIONAL TAXATION ), HYDERABAD. 6 . D.R. ITAT A BENCH, HYDERABAD. 7. GUARD FILE