DCIT, V. M/s Netapp (India) Pvt. Ltd., Bangalore

ITA 881/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0155 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard
• Section: 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER IT(TP) A NO881(BANG) 2013 (ASSESSMENT YEAR 2008-09) THE DEPUTY COMMISSIONER OF INCOME TAX OFFICER, CIRCLE-12(2), RASTHROTHANA BHAVAN, OPP : RBI BANGALORE APPELLANT VS M/S NETAPP (IND.) PVT. LTD., (FORMERLY NETWORK APPLIANCE SYSTEMS INDIA PVT. LTD. , 3 RD FLOOR, FAIR WINDE BLOCK EGL SOFTWARE PARK, INTERMEDIATE RING ROAD, BANGALORE PAN NO.AABCN4063A RESPONDENT AND C.O.NO.156(BANG)/2013 (IN ITA NO.881(BANG)/2013) (BY ASSESSEE) REVENUE BY: MRS. NEERA MALHOTRA, CIT-II ASSESSEE BY : SHRI G.S.SRIVASTAVA, ADVOCATE DATE OF HEARING : 13-06-2016 DATE OF PRONOUNCEMENT: : 22-07-2016 O R D E R PER SHRI A.K.GARODIA, AM THIS APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-IV DATED 14-03 -2013 FOR THE ASSESSMENT YEAR 2008-09. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1 . THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW A ND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN ITA NO.881 & C.O NO.156/BANG/2013 PAGE 2 OF 16 LAW IN DIRECTING THE AO TO EXCLUDE THE REIMBURSEMEN T OF EXPENSES INCURRED IN FOREIGN CURRENCY BOTH FROM THE EXPORT TURNOVER AS W ELL AS FROM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 1OA WITHOUT APPRECIATING THE FACT THAT THE STATUTE ALLOWS EXCLUSION OF SUCH EXPENDITURE ONLY FROM EXPORT TURNOVER BY WAY OF SPECIFIC DEFINITION OF EX PORT TURNOVER AS ENVISAGED BY SUB-CLAUSE (4) OF EXPLANATION 2 BELOW SUB-SECTIO N (8) OF SECTION 1OA AND THE TOTAL TURNOVER HAS NOT BEEN DEFINED IN THIS SEC TION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN HOLDING THAT MIS CELESTIAL BIOLABS LTD . IN SOFTWARE DEVELOPMENT SEGMENT; MIS ADITYA BIRLA MINACS WORLDWIDE LTD; MIS CORAL HUBS LTD. , MIS ECLERX SERVICES LTD., MIS JINDAL INTELLICOM PVT LTD . , MIS MOLDTEK TECHNOLOGIES LTD AND MIS ALLSEC TECHNOLOGIES LTD IN ITES SEGMENT; MIS PRIYA INTERNATIONAL LTD (SEG) AND ICC INTERNATIONAL LTD (SEG) IN MARKETING SUPPORT SE RVICES SEGMENT BECAUSE OF ABNORMAL PROFITS AND LOSSES MARGIN, WITHOUT GIVING REASON HOW FUNCTIONS DISCHARGED, ASSETS DEPLOYED AND RISKS ASSUMED ON SU CH COMPANIES WERE DIFFERENT FROM ASSESSEE COMPANY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE TPO WAS NOT JUSTIFIED IN APPLYING THE EMPLOYEE COST FILTER AND DIRECTED TO INCLUDE MIS INDUS NETWORKS LTD WHICH WAS EXCLUDED IN THE SOFTWARE DEVELOPMENT SERVICES SEGMENT BY USING THIS FILTER . 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED CIT(A) HAS ERRED IN OBJECTING THE DIMINISHING REVENUE FILTER USED BY TH E TPO TO EXCLUDE COMPANIES THAT DO NOT REFLECT THE NORMAL INDUSTRY T REND. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT ( A ) FAILED TO APPRECIATE THAT THE DIFFERENT YEAR ENDING FILTER AP PLIED BY THE TPO IS NECESSARY TO EXCLUDE COMPANIES WHICH DO NOT HAVE TH E SAME OR COMPARABLE FINANCIAL CYCLE AS THE TESTED PARTY. 7. ON THE FACTS AND IN THE C IR CUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT M / S A VANI CIMCON TECHNOLOGIES LTD . CANNOT BE TAKEN AS A COMPARABLE AS THE SEGMENTAL DETAILS ARE NOT AV AILABLE . 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) HAS ERRED IN EXCLUDING M / S CELESTIAL BIOLABS LTD . FROM T HE FINAL SET OF COMPARABLES OF SOFTWARE SEGMENT AND ENGINEERING R&D SEGMENT . 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) ERRED ITA NO.881 & C.O NO.156/BANG/2013 PAGE 3 OF 16 IN HOLDING THAT M/S KALS INFORMATION SYSTEMS LTD. , CANNOT BE TAKEN AS A COMPARABLE AS THE COMPANY CARRIES INVENTORIES . 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT M/S ACCENTIA TECH. LTD HAD EXTRAORDINARY CIRCUMSTANCES AND CANNOT BE TAKEN AS A COMPARABLE. 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LEAR NED CIT(A) HAS ERRED IN HOLDING THAT M/S GENESYS INTERNATIONAL CORPN. LTD., BEING FUNCTIONALLY DIFFERENT CANNOT BE TAKEN AS COMPARABLE. 12. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDERS OF THE CIT(A) IN SO FAR AS I T RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE AO MAY BE RESTORED. 13. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS C.O AR E AS UNDER; TRANSFER PRICING 1.THAT THE LD. CIT(A) ERRED IN UPHOLDING THE REJEC TION OF THE RESPONDENTS TP DOCUMENTATION ON THE BASIS THAT THE DATA USED IN TH E COMPUTATION OF THE ARMS LENGTH PRICE WAS NOT RELIABLE. 2. THAT THE LD.CIT(A) ERRED IN UPHOLDING THE LD. TR P APPROACH OF USING DATA AT THE TIME OF ASSESSMENT PROCEEDINGS, INSTEAD OF THAT AVAILABLE AS ON THE DATE OF PREPARING THE TP DOCUMENTATION FOR COMPARABLE CO MPANIES WHILE DETERMINING THE ARMS LENGTH PRICE, IGNORING THE FA CT THAT THIS DATA WAS NOT AVAILABLE TO THE RESPONDENT AT THE TIME OF COMPLYIN G WITH TP DOCUMENTATION REQUIREMENTS. 3. THAT THE LD. CIT(AQ) ERRED IN UPHOLDING THE LD. TPOS APPROACH OF DISREGARDING APPLICATION OF MULTIPLE YEAR DATA/PRIO R YEAR DATA AS USED BY THE RESPONDENT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FY 2007-08) DATA FOR COMPANIES SHOULD BE USED FOR COMP ARABILITY. 4. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE LD. T POS APPROACH OF COLLECTING SELECTIVE INFORMATION OF THE COMPANIES BY EXERCISIN G POWERS GRANTED TO HIM UNDER SECTION 133(6) OF THE ACT THAT WAS NOT AVAILA BLE TO THE RESPONDENT IN THE PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABI LITY PURPOSES. 5. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE TPOS APPROACH OF IGNORING THE LIMITED RISK NATURE OF THE SERVICES PROVIDED BY THE RESPONDENT AND IN NOT PROVIDING AN APPROPRIATE ADJUSTMENT TOWARDS RISK DI FFERENTIAL, EVEN WHEN THE FULL-FLEDGED ENTREPRENEURIAL COMPANIES ARE SELECTED AS COMPARABLES. 6.THAT THE LD. CIT(A) ERRED IN UPHOLDING THE LEARNE D TPOS APPROACH OF USING THE RELATED PARTY TRANSACTIONS (RPT) FILTER GREATE R THAN 25% FOR EXCLUSION OF COMPARABLE INSTEAD OF RPT FILTER >15% FILTER AS APP LIED Y THE RESPONDENT. 7. THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE T POS APPROACH OF USING THE EXPORT SALES >25% OF REVENUES FILTER AND THE ONSITE REVENUE >75% FILTER FOR THE ITA NO.881 & C.O NO.156/BANG/2013 PAGE 4 OF 16 EXCLUSION OF COMPARABLES. 8. WITHOUT PREJUDICE, THE LEARNED CIT(A) ERRED IN N OT REJECTING COMPANIES WHICH ARE NOT FUNCTIONALLY COMPARABLE TO THE RESPON DENT IN RESPECT OF ITS SWD SEGMENT AND HENCE CANNOT BE CONSIDERED AS COMPARABL ES. 9. WITHOUT PREJUDICE, THE LEARNED CIT(A) ERRED IN N OT REJECTING COMPANIES WHICH ARE NOT FUNCTIONALLY COMPARABLE TO THE RESPON DENT IN RESPECT OF ITS ITES SEGMENT AND HENCE CANNOT BE CONSIDERED AS COMPARABL ES. 10. WITHOUT PREJUDICE, THE LEARNED CIT(A) ERRED IN NOT REJECTING COMPANIES WHICH ARE NOT FUNCTIONALLY COMPARABLE TO THE RESPON DENT IN RESPECT OF ITS MSS SEGMENT AND HENCE CANNOT BE CONSIDERED AS COMPARABL ES. 11. THAT THE RESPONDENT CRAVES LEAVE TO ADD TO AND/ OR TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 4. AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT C.O OF THE ASSESSEE COMPANY IS NOT PRESSED AND ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 5. REGARDING GROUND NO.,1 OF THE REVENUES APPEAL, IT WAS AGREED BY BOTH SIDES THAT THIS GROUND IS GENERAL IN NATURE AND NO SEPARATE ADJUDICATION IS CALLED FOR. 6. REGARDING GROUND NO.2 OF THE APPEAL OF THE REVE NUE ALSO, BOTH SIDES AGREED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE JUDGMENT OF HONBLE KARNATAKA HIGH C OURT RENDERED IN THE CASE OF M/S TATA ELXSI LTD., AS REPORTED IN 349 ITR 98. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IT WAS HELD BY THE HONBLE KARNATAKA HIGH COURT IN THIS CASE TH AT IF AN AMOUNT IS REDUCED FROM THE EXPORT TURNOVER, THE SAME AMOUNT HAS TO BE REDUCED FROM THE TOTAL TURNOVER ALSO BECAUSE THE TOTAL TURNOVER IS NOTHIN G BUT SUM TOTAL OF EXPORT TURNOVER AND DOMESTIC TURNOVER. RESPECTFULLY FOL LOWING THIS JUDGMENT, WE ITA NO.881 & C.O NO.156/BANG/2013 PAGE 5 OF 16 DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT( A) ON THIS ISSUE. ACCORDINGLY, GROUND NO.2 OF THE REVENUE IS REJECTED. 8. REGARDING GROUND NO.3 OF THE REVENUES APPEAL, LD. DR OF THE REVENUE PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE DELH I HIGH COURT RENDERED IN THE CASE OF M/S CHRYSCAPITAL INVESTMENT ADVISORS (I ND.) PVT. LTD., VS DCIT AS REPORTED IN 376 ITR 183. IN PARTICULAR, OUR ATTENT ION WAS DRAWN TO PARA-33 OF THIS JUDGMENT. 9. THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). HE ALSO SUBMITTED A CHART REGARDING EXCLUSION OF VARIO US COMPARABLES INCLUDING SOME COMPARABLES WHICH ARE BEING OBJECTED TO BY THE REVENUE AS PER GROUND NO.2 OF THIS APPEAL SUCH AS M/S CELESTIAL LABS LTD. , ON THE BASIS OF FUNCTIONAL DISSIMILARITY BY WAY OF PLACING RELIANCE ON VARIOUS TRIBUNAL ORDERS. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL, WE FEEL IT PROPER TO RE-PRODUCE THE RELEVANT PARAS FROM THE OR DER OF THE LD. CIT(A) AS PER WHICH, HE HAS DECIDED THE ISSUE REGARDING APPLICATI ON OF ABNORMAL PROFITS AND LOSSES FILTER. THIS ISSUE HAS BEEN DECIDED BY TH E LD. CIT(A) AS PER PARA -100 & 101 OF HIS ORDER AND THE SAME ARE REPRODUCED HERE UNDER; 100. IT WAS ARGUED THAT THE TPO HAD CONSIDERED CER TAIN COMPARABLE WITH ABNORMAL PROFITS AND NEGATIVE MARGINS. THE DELHI BE NCH OF THE HONBLE ITAT HAD IN THE CASE OF SONY INDIA (P)LTD., V DCIT(2008) 11 4 ITD 448(DEL.) UPHELD THE OBJECTION OF ASSESSEE ON INCLUSION OF A COMPARABLE WHEN DISTINCTIVE DIFFERENCES LIKE SIZE AND TURNOVER MATERIALLY AFFECTED PERFORMA NCE OR PRICES OF PRODUCTS. IT HAD BEEN HELD IN E-GAIN COMMUNICATION PVT. LTD., (2008) TIOL-282-ITAT-PUNE ) THAT THERE WAS NO JUSTIFICATION FOR CONSIDERING OVE RSIZED COMPANIES AND THE ITA NO.881 & C.O NO.156/BANG/2013 PAGE 6 OF 16 COMMISSIONER (APPEALS) WAS IN ERROR IN CONSIDERING TURNOVER AS THE ONLY RELEVANT FACTOR NEEDED TO BE CONSIDERED FOR A PROPER ANALYSI S. 101. I HAVE CONSIDERED THE APPELLANTS CONTENTION AND AM INCLINED TO AGREE. FOLLOWING THE DECISIONS CITED ABOVE, I DIR ECT THE AO TO APPLY TO EXCLUDE FROM THE FINAL SET OF COMPARABLES THE FOLLOWING COM PANIES THAT HAD ABNORMALLY HIGH PROFITS OR HAD INCURRED LOSSES. THIS GROUND OF APPEAL IS PARTLY ALLOWED. SL.NO. COMPARABLE COMPANY TURNOVER (RS.CRORE) OP/TC(%) I. SOFTWARE DEVELOPMENT SERVICES 1. CELESTIAL LABS LTD., 20.21 87.91 II. IT ENABLED SERVICES 1 ADITYA BIRLA MINACS WORLDWIDE LTD 176.72 -4. 00 2 CORAL HUBS LTD., 38.08 50.68 3 ECLERX SERVICES LTD., 116.98 58.80 4 JINDAL INTELLICOM PVT. LTD., 19.55 - 10.29 5 MOLD-TEK TECHNOLOGIES LTD., 17.85 96.66 6 ALLSEC TECHNOLOGIES LTD., 99.53 -13.29 III MARKETING SUPPORT SERVICES 1 PRIYA INTERNATIONAL LTD (SEG.) 1.96 237.93 2 ICC INTERNATIONAL LTD (SEG.) 5.06 195.91 11. FROM THE ABOVE PARAS OF THE ORDER OF THE LD. CI TA), IT IS SEEN THAT HE HAS CONSIDERED TWO TRIBUNAL DECISIONS RENDERED IN THE C ASE OF SONY INDIA PVT. LTD. V DCIT 114 ( ITD 448DEL) AND E-GAIN COMMUNICATION PVT . LTD., REPORTED IN (2008) TIOL-282-ITAT PUNE. IN THE CASE OF M/S CHRYSCAPITA L INVESTMENT ADVISORS (IND.) PVT. LTD., VS DCIT(SUPRA), THE HONBLE DELHI HIGH C OURT HAS DULY CONSIDERED ALL THE AVAILABLE JUDGMENTS AND THEREAFTER HELD THAT MERELY FOR A PECULIAR FEATURE SUCH AS ITA NO.881 & C.O NO.156/BANG/2013 PAGE 7 OF 16 HUGE PROFIT OR HUGE TURNOVER IPSO-FACTO , DOES NOT LEAD TO ITS EXCLUSION. HENCE, IN OUR CONSIDERED OPINION, WHEN JUDGMENT OF A HIGH COU RT IS AVAILABLE, WE HAVE TO FOLLOW THAT JUDGMENT AS COMPARED TO VARIOUS TRIBUNA L ORDERS. FOR THE SAKE OF READY REFERENCE, WE RE-PRODUCE PARA-33 OF THE JUDGM ENT OF THE HONBLE DELHI HIGH COURT WHICH READS AS UNDER; 33. SUCH BEING THE CASE, IT IS CLEAR THAT EXCLUSIO N OF SOME COMPANIES WHOSE FUNCTIONS ARE BROADLY SIMILAR AND W HOSE PROFILE IN RESPECT OF THE ACTIVITY IN QUESTION CA N BE VIEWED INDEPENDENTLY FROM OTHER ACTIVITIES- CANNOT BE SUBJ ECT TO A PER SE STANDARD OF LOSS MAKING COMPANY OR AN ABNORMAL PROFIT MAKING CONCERN OR HUGE OR MEGA TURNOVER COMPANY. AS EXPLAINED EARLIER, RULE 10B (2) GUIDES THE SIX METH ODS OUTLINED IN CLAUSES (A) TO (F) OF RULE 10B(1), WHILE JUDGING COMPARABILITY. RULE 10B (3) ON THE OTHER HAND, INDICATES THE APPRO ACH TO BE ADOPTED WHERE DIFFERENCES AND DISSIMILARITIES ARE A PPARENT. THEREFORE, THE MERE CIRCUMSTANCE OF A COMPANY - OTHERWISE CONFORMING TO THE STIPULATIONS IN RULE 10B (2) IN A LL DETAILS, PRESENTING A PECULIAR FEATURE - SUCH AS A HUGE PROF IT OR A HUGE TURNOVER, IPSO FACTO DOES NOT LEAD TO ITS EXCLUSION . THE TPO, FIRST, HAS TO BE SATISFIED THAT SUCH DIFFERENCES DO NOT MATERIALLY AFFECT THE PRICE...OR COST; SECONDLY, AN ATTEMPT T O MAKE REASONABLE ADJUSTMENT TO ELIMINATE THE MATERIAL EFF ECT OF SUCH DIFFERENCES HAS TO BE MADE. HENCE, BY RESPECTFULLY FOLLOWING THIS JUDGMENT OF T HE HONBLE DELHI HIGH COURT, WE HOLD THAT THE ORDER OF THE LD. CIT(A) ON HIS ISSUE THAT CERTAIN COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMP ARABLES MERELY ON THE BASIS OF ABNORMAL PROFITS AND LOSSES IS NOT SUSTAIN ABLE. ALTHOUGH, THE SAME COMPANY MAY BE EXCLUDED IF SUCH EXCLUSION IS PROPER BECAUSE OF OTHER REASONS ITA NO.881 & C.O NO.156/BANG/2013 PAGE 8 OF 16 SUCH A FUNCTIONAL DISSIMILARITIES ETC. BUT WE FIND THAT AS PER THE ORDER OF THE LD.CIT(A), THE IS NO DISCUSSION ABOUT SOME OF THE COMPARABLE COMPANIES ON THE BASIS OF OTHER ASPECTS SUCH AS FUNCTIONAL DISSI MILARITY ETC., AND IN THE ABSENCE OF ANY FINDING OF THE LD. CIT(A) ON THESE A SPECTS, WE DO NOT CONSIDER IT PROPER TO EXAMINE AND DECIDE THESE ASPECTS IN THE A BSENCE OF ANY FINDING ON THESE ASPECTS. IN OUR CONSIDERED OPINION, THE MATT ER SHOULD GO BACK TO THE FILE OF THE LD. CIT(A) FOR HIS DECISION ON THESE ASPECTS . WE HOLD ACCORDINGLY AND SET ASIDE THE ORDER OF THE LD.CIT(A) AND RESTORE BACK T HIS ISSUE TO HIS FILE FOR FRESH DECISION FOR EXCLUSION OF THESE COMPANIES WHICH ARE OBJECTED TO BY THE REVENUE IN GROUND NO.3 IN THE LIGHT OF VARIOUS ARGUMENTS OF THE ASSESSEE ON THE BASIS OF FUNCTIONAL DISSIMILARITIES ETC. THE LD. CIT(A) SHO ULD PASS NECESSARY ORDER AS PER LAW AND AS PER THE ABOVE DISCUSSION AFTER PROVI DING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 12. REGARDING GROUND NO.4, LD. DR OF THE REVENUE SU PPORTED THE ORDER OF THE AO/TPO WHEREAS THE LD. AR OF THE ASSESSEE SUBMI TTED THAT HE HAS NO OBJECTION EVEN IF THIS COMPANY IS INCLUDED AS A COM PARABLE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE REVENUE AND AGAIN ST THE ASSESSEE AND GROUND NO.4 OF THE REVENUE IS ALLOWED. 13. REGARDING GROUND NO.5, LD. DR OF THE REVENUE SU PPORTED THE ORDER OF THE LD. AO/TPO WHEREAS THE LD. AR OF THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A). ITA NO.881 & C.O NO.156/BANG/2013 PAGE 9 OF 16 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THIS ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) AS PER PARA-89 & 90 OF HIS ORDER WHICH ARE RE-PRODUCED BELOW FOR THE SAKE OF READY REFERENCE; 89. I HAVE CONSIDERED THE APPELLANTS SUBMISSIONS ON THIS ASPECT. THE REASON GIVEN BY THE TPO FOR APPLYING THE DIMINISHING REVENUE AND PERSISTENT LOSSES FILTERS I S THAT THE FILTERS ARE DESIGNED TO ELIMINATE COMPANIES WHICH A RE NOT IN LINE WITH THE TREND OF GROWTH WITNESSED IN THE SOFT WARE INDUSTRY. HOWEVER, USE OF THESE FILTERS DEPENDS O N TRENDS OVER A PERIOD OF TIME AND IS CONTRARY TO THE TPOS OWN STAND THAT ONLY CURRENT YEARS DATA ARE REQUIRED TO BE US ED. 90. GROWTH OF THE INDIAN SOFTWARE INDUSTRY CANNOT B E ATTRIBUTED SOLELY TO EXISTING COMPANIES, BUT ALSO T O NEW COMPANIES BEING SET UP, WHICH IN TURN DEPENDS UPON THE ENTRY AND EXIT BARRIERS THAT CHARACTERISE AN INDUSTRY. M OREOVER, REVENUE MAY NOT ALWAYS BE A TRUE INDICATOR OF A COM PANYS PERFORMANCE, WHICH MAY ALSO DEPEND ON ITS OWN BUSIN ESS CYCLE. A COMPANY WITH INCREASING REVENUES OVER A PE RIOD OF TIME DOES NOT NECESSARILY REFLECT BETTER PERFORMANC E, AS INCREASE IN EXPENSES IN THE CORRESPONDING PERIOD CA N BE HIGHER THAN THAT IN REVENUES AND CONSEQUENTLY, THE COMPANY MAY STILL INCUR LOSSES. CONVERSELY, A COMPANY WITH DIMINISHI NG REVENUES OVER A PERIOD OF TIME MAY NOT NECESSARILY BE PERFORMING BADLY, IF IT STILL HAS A GOOD PROFIT MAR GIN ACHIEVED THROUGH COST EFFICIENTLY. 15. FROM THE ABOVE PARAS REPRODUCED FROM THE ORDER OF THE LD.CIT(A), WE FIND THAT HE HAS GIVEN COGENT REASONING FOR REJE CTING THE DIMINISHING REVENUE FILTER USED BY THE TPO AND THEREFORE, ON TH IS ISSUE, WE FIND NO ITA NO.881 & C.O NO.156/BANG/2013 PAGE 10 OF 16 REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A ). ACCORDINGLY, GROUND NO.5 OF THE REVENUE IS REJECTED. 16. REGARDING GROUND NO.6, LD. DR OF THE REVENUE S UPPORTED THE ORDER OF THE LD. AO/TPO WHEREAS THE LD. AR OF THE ASSESSE E SUPPORTED THE ORDER OF THE LD.CIT(A). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THIS ISSUE WAS DECIDED BY THE LD. CIT(A) AS PER PARA NO.96 TO 99 OF HIS ORDER WHICH ARE REPRODUCED BELOW; 96.ON CONSIDERATION OF THE APPELLANTS CONTENT IONS, I AM UNABLE TO AGREE WITH THE TPO THAT IN A SHORT TIME H ORIZON OF CURRENT YEARS BUSINESS, A MERE CHANGE IN FINANCIAL YEAR ENDING WOULD MAKE SIGNIFICANT DIFFERENCE TO COMPANI ES THAT ARE FUNCTIONALLY SIMILAR, OPERATE IN A SIMILAR BUSI NESS ENVIRONMENT, AND FACE THE SAME BUSINESS CYCLE. IF THE TPO HAD EVIDENCE THAT SUCH A THING HAD HAPPENED IN THE CASE OF A PARTICULAR COMPANY, IT WAS FOR HIM TO POINT OUT W HAT EXACT DIFFERENCE HAD THE CHANGE OF ACCOUNTING YEAR MADE T O THE FINANCIAL RESULTS OF THAT COMPANY AND WHETHER IT WO ULD NOT BE POSSIBLE TO RESTATE OR RECONCILE THOSE FINANCIAL RESULTS FOR A DIFFERENT ACCOUNTING PERIOD WITHOUT SIGNIFICANT C HANGE IN THE NET PROFIT MARGIN OR ANY OTHER PARAMETERS HE CO NSIDERED RELEVANT. 97. SINCE MULTINATIONAL COMPANIES OPERATE IN DIFFE RENT GEOGRAPHICAL REGIONS AND DIFFERENT COUNTRIES FOLLOW DIFFERENT ACCOUNTING OR FINANCIAL YEARS, FUNCTIONALLY SIMILAR OR EVEN IDENTICAL COMPANIES CANNOT BE HELD TO BE INCOMPARAB LE ONLY OWING TO DIFFERENCES IN THE DATE OF ENDING OF THE F INANCIAL ITA NO.881 & C.O NO.156/BANG/2013 PAGE 11 OF 16 YEAR. MOST BUSINESS ENTERPRISES OPERATE ON THE GOIN G CONCERN CONCEPT WHICH IS FUNDAMENTAL TO PRESENT DAY ACCOUNTING, BUT THE PERIOD CONCEPT USED IN ACCOUNTI NG IS JUST AN ARTIFICIAL MEANS TO RECKON THE OPERATING RESULTS OF BUSINESS OPERATIONS AT A GIVEN POINT IN TIME. NOTH ING WOULD TURN UPON CHANGING THE END OF ACCOUNTING PERIOD FRO M31ST MARCH TO ANOTHER DATE WITHIN A SHORT SPAN OF TIME ( SAY, SIX MONTHS). THIS VIEW FINDS SUPPORT FROM PARAGRAPH 32 OF THE OCED DRAFT COMPARABILITY ISSUES WHICH STATES THAT W HILE IT IS PRACTICAL TO MAKE YEAR BY YEAR COMPARISONS, ECON OMIC CIRCUMSTANCES CANNOT BE ASSUMED TO CHANGE OVERNIGHT AT THE END OF A TAX YEAR. 98. AS-21 ISSUED BY THE ICAI ON CONSOLIDATION OF A CCOUNTS AS WELL AS SECTION 212 OF THE COMPANIES ACT PERMIT DIFFERENCES IN THE DATES OF FINANCIAL YEAR CLOSURE OF COMPANIES WITHIN SIX-MONTH TIME FRAME. CONSIDERI NG THIS, I AM INCLINED TO HOLD THAT WHERE HE ACCOUNTING PERI OD OF A COMPARABLE EXCEEDS THE FINANCIAL YEAR BY NOT MORE T HAN SIX MONTHS RELATIVE TO THE ACCOUNTING YEAR OF THE APPEL LANT, IT SHOULD BE CONSIDERED AS A COMPARABLE, SO LONG AS TH ESE COMPANIES, DESPITE HAVING A DIFFERENT FINANCIAL YEA R ENDING, ARE OPERATING DURING THE SAME PERIOD OF TIME AND AR E ALSO FACING THE SAME BUSINESS CYCLES AND MARKET AND ECON OMIC CONDITIONS AS THE APPELLANT DOES. 99. IN THE ABSENCE OF EVIDENCE THAT THERE HAS BEEN A SIGNIFICANT IMPACT ON MARGINS DUE TO DIFFERENT REPO RTING OR ACCOUNTING PERIODS, IT WOULD BE INCORRECT TO DISREG ARD COMPANIES BY USING THIS FILTER. CONSIDERING THESE A SPECTS, I UPHOLD THE APPELLANTS ARGUMENTS ON THIS ISSUE AND DISAPPROVE OF THIS FILTER. ITA NO.881 & C.O NO.156/BANG/2013 PAGE 12 OF 16 18. FROM THE ABOVE PARAS FROM THE ORDER OF THE LD. CIT(A), WE FIND THAT AS PER THE LD. CIT(A), EVEN IF THE ACCOUNTING YEAR OF THE COMPARABLE IS NOT FINANCIAL YEAR, BUT THE ACCOUNTING YEAR OF THE COMP ARABLE COMPANY IS CLOSING WITHIN SIX MONTHS TIME FRAME THEN SUCH COMPANY CAN BE CONSIDERED AS COMPARABLE. ON THIS ASPECT, WE ARE OF THE CONSIDER ED OPINION THAT IF THE ASSESSEE OR TPO WANTS THAT SUCH COMPANY SHOULD BE C ONSIDERED AS A COMPARABLE THEN THE ASSESSEE/TPO SHOULD BE ABLE TO PROVIDE THE DATA OF THE SAME COMPANY FOR THE SAME FINANCIAL YEAR BY ADDING THE DATA OF TWO YEARS AND THEN MAKING EXCLUSION OF PRECEDING PERIOD DATA AND SUBSEQUENT PERIOD DATA AND HENCE, WE FEEL IT PROPER TO SET ASIDE THIS MATTER BACK TO THE FILE OF LD. CIT(A) FOR A FRESH DECISION AND IF THE ASSESSEE CAN FURNISH DATA OF SUCH COMPARABLE FOR THE RELEVANT FINANCIAL YEAR THEN SUC H COMPANY MAY BE CONSIDERED AS A COMPARABLE AND NOT WITHOUT THAT. LD . CIT(A) SHOULD PASS NECESSARY ORDER AS PER LAW AFTER PROVIDING REASONAB LE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. GROUND NO.6 IS ALLOWED FOR ST ATISTICAL PURPOSES. 19. REGARDING GROUND NO.7OF THE REVENUES APPEAL, L D. DR OF THE REVENUE PLACED RELIANCE ON THE ORDER OF THE AO/TPO WHEREAS THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). REGARDING C OMPANY M/S AVANI CINCOM TECHNOLOGIES LTD., HE PLACED RELIANCE ON THE TRIBUN AL ORDER RENDERED IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS PVT. LTD., IN IT( TP)A NO.1303/BANG/2012 (AY: 2008-09). COPY AVAILABLE ON PAGES 12 TO 17 OF CASE LAW COMPENDIUM. 20. REGARDING M/S CELESTIAL BIOLABS LTD., OBJECTION RAISED AS PER GROUND NO.8, IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSE E THAT EXCLUSION OF THIS ITA NO.881 & C.O NO.156/BANG/2013 PAGE 13 OF 16 COMPANY IS JUSTIFIED ON ACCOUNT OF FUNCTIONAL DISSI MILARITY AND IN THIS REGARD, RELIANCE WAS PLACED ON THE SAME TRIBUNAL ORDER REND ERED IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS PVT. LTD.(SUPRA). 21. IN RESPECT OF M/S KALS INFORMATION SYSTEMS LTD. , EXCLUSION OF WHICH IS BEING DISPUTED BY THE REVENUE AS PER GROUND NO.9 , LEARNED AR OF THE ASSESSEE PLACED RELIANCE ON THE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS PVT. LTD.(SUPRA). 22. REGARDING M/S ACCENTIA TECHNOLOGIES LTD., FOR W HICH OBJECTION IS RAISED AS PER GROUND NO.10, LEARNED AR OF THE ASSES SEE PLACED RELIANCE ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF IGS IMAGING SERVICE (I) PVT. LTD., VS DCIT IN IT(TP)A NO.470/BANG/2013 (AY: 2008-09), COP Y AVAILABLE ON PAGE - 160 OF THE CASE LAW COMPENDIUM. 23. WE HAVE CONSIDERED RIVAL SUBMISSIONS. REGARDING GROUND NO.7 TO 9 IN RESPECT OF M/S AVANI CINCOM TECHNOLOGIES LTD., M /S CELESTIAL BIOLABS LTD., AND M/S KALS INFORMATION SYSTEMS LTD., WE FIND THAT IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS PVT. LTD(SUPRA), IT WAS HELD BY THE TRIBUNAL THAT THESE COMPANIES ARE FUNCTIONALLY DISSIMILAR. IN THAT CASE ALSO, THE ASSESSEE COMPANY I.E. 3DPLM SOFTWARE SOLUTIONS PVT. LTD(SUPR A) WAS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES AND OTHER R ELATED SERVICES TO ITS GROUP COMPANIES AS IN THE PRESENT CASE. THEREFORE , RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DECLINE TO INTERFERE WITH THE OR DER OF THE LD.CIT(A). ACCORDINGLY, GROUND NOS.7 TO 9 RAISED BY THE REVENU E ARE REJECTED. ITA NO.881 & C.O NO.156/BANG/2013 PAGE 14 OF 16 24. REGARDING GROUND NO.10 WE FIND THAT IT WAS HELD BY THE TRIBUNAL IN THE CASE OF IGS IMAGING SERVICES (I) PVT. LTD.,(SUP RA) THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE AND IT WAS SO HELD BY FOLLOWING ANOTHER TRIBUNAL ORDER RENDERED IN THE CASE OF M/S SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD., IT(TP)A NO.1316(BANG)/2012 DATED 1 4-08-2013) THE RELEVANT PORTION OF THAT TRIBUNAL ORDER WAS REPRODUCED BY TH E TRIBUNAL IN THE ORDER IN THE CASE OF IGS IMAGING SERVICES (I) PVT. LTD., (SU PRA) AND THERE IN, IT HAS BEEN NOTED BY THE TRIBUNAL THAT THERE WAS MERGER AND DEM ERGER IN FY: 2007-08 AND ON THIS BASIS, THE TRIBUNAL HELD THAT BECAUSE O F EXTRAORDINARY EVENTS LIKE MERGER AND DEMERGER, IT WILL HAVE AN EFFECT ON THE PROFITABILITY OF THIS COMPANY IN THE FINANCIAL YEAR IN WHICH SUCH EVENT TAKES PLA CE AND THEREFORE, IN THAT YEAR, THIS COMPANY CANNOT BE CONSIDERED AS A COMPAR ABLE. IN THE PRESENT CASE ALSO, ASSESSMENT YEAR INVOLVED IS AY: 2008-09 FOR W HICH RELEVANT AY: IS FY: 2007-08 AND THEREFORE, RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DECLINE TO INTERFERE WITH THE ORDER OF LD.CIT(A) ON THIS IS SUE. ACCORDINGLY, GROUND NO. 10 OF THE REVENUE IS REJECTED. 25. REGARDING GROUND NO.11, LD. DR OF THE REVENUE S UPPORTED THE ORDER OF THE AO/TPO WHEREAS THE LD. AR OF THE ASSESSEE SU BMITTED THAT THE ASSESSEE COMPANY HELD TO BE FUNCTIONALLY DISSIMILAR AS PER T HE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF IGS IMAGING SERVICES (I) PV T. LTD., (SUPRA). COPY AVAILABLE ON PAGES 163 TO 165 OF CASE LAW COMPENDIU M. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT IN THE CASE OF IGS IMAGING (I) PVT. LTD(SUPRA), THE TRIBUNAL HA S FOLLOWED ANOTHER TRIBUNAL ITA NO.881 & C.O NO.156/BANG/2013 PAGE 15 OF 16 ORDER RENDERED IN THE CASE OF SYMPHONY MARKETING SO LUTIONS INDIA PVT. LTD.,(SUPRA) AND AS PER THE RELEVANT PORTION OF THA T TRIBUNAL ORDER RENDERED IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD.,(SUPRA) REPRODUCED IN THE TRIBUNAL ORDER RENDERED IN THE CASE OF IGS I MAGING (I) PVT. LTD., (SUPRA), IT WAS HELD BY THE TRIBUNAL THAT THIS COMPANY IS PR OVIDING SERVICES OF KPO AND THEREFORE, THIS CANNOT BE CONSIDERED AS COMPARA BLE IN THE CASE OF A COMPANY ENGAGED IN PROVIDING BPO SERVICES. 27. THE LD. DR OF THE REVENUE COULD NOT POINT OUT A S TO WHY THIS TRIBUNAL ORDER IS NOT APPLICABLE IN THE PRESENT CAS E AND THEREFORE, RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DECLINE TO INTERF ERE WITH THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. ACCORDINGLY, GROUND NO.11 OF THE REVENUE IS ALSO REJECTED. 28. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 29. IN THE COMBINED RESULT, THE APPEAL OF THE REVEN UE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE CROSS OBJECTIO N OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- ( N.V.VASUDEVAN ) (A.K.GARODIA) JUDICIAL MEMER ACCOUNTANT MEMBER BANGALORE: D A T E D : 22-07-2016 AM ITA NO.881 & C.O NO.156/BANG/2013 PAGE 16 OF 16 COPY TO : 1 APPELLANT 2 RESPONDENT 3. CIT(A), BANGALORE 4. CIT, BANGALORE 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER AR, ITAT, BANGALORE 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS P LACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH T HE FILE GOES TO THE DISPATCH SECTION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER