Stmicroelectronics Private Limited, Bangalore V. DCIT, Bangalore

ITA 949/BANG/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8657 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 25-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: III
• Keywords: Related party transaction; Transfer pricing; International transaction; Revenue expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 92C; 271(1)(b); 139; 92; 234B; 133(6); 80G; 144C; 13; 119; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER IT(TP)A NO.949/BANG/2011 ASSESSMENT YEAR : 2007-08 STMICROELELCTRONICS PRIVATE LTD., (FORMERLY GENESIS MICROCHIP (INDIA) PVT. LTD., FERNS ICON, LEVEL 4, NO.28 & 36/5, DODDANAKUNDI VILLAGE, K R PURAM HOBLI, OFF OUTER RINGROAD, BANGALORE 560 037. PAN: AAACS 3406M VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI SANJAY KUMAR, CIT-III(DR) DATE OF HEARING : 29.11.2016 DATE OF PRONOUNCEMENT : 06.01.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF AO PASSED CONSEQUENT TO THE ORDER OF DRP INTER ALIA ON THE FOLLOWING GROUNDS:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, STMICROELECTRONICS PRIVATE LIMITED (HEREINAFTER REF ERRED TO AS 'APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY DEPUTY COMMISSIONER OF INCOME-TAX - 11(3) ('AO') IN IT(TP)A NO.949/BANG/2011 PAGE 2 OF 37 PURSUANCE OF THE DIRECTIONS ISSUED BY DISPUTE RESOL UTION PANEL ('DRP'), BANGALORE DATED 16 AUGUST 2011 UNDER SECTI ON 144C OF THE INCOME-TAX ACT, 1961 ('ACT') ON THE FOLLOWING GROUN DS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, 1. THE ORDER OF THE LEARNED AO, BASED ON DIRECTIONS OF THE HON'BLE DRP, ERRED IN ASSESSING THE TOTAL INCOME AT RS. 4,1 1,78,787 AS AGAINST RETURNED INCOME OF RS.9,38,770/- COMPUTED B Y THE APPELLANT; GROUNDS OF APPEAL RELATING TO CORPORATE TAX MATTERS 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, BASED ON DIRECTIONS OF DRP, THE LEARNED AO HAS ERRED IN L AW BY HOLDING THAT THE COMMUNICATION EXPENSES (I.E. INTERNET CHAR GES) ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA SHOULD BE REDUCED FROM EXPORT TURNOVER WHILE COMPUTING THE DE DUCTION UNDER SECTION L0A OF THE ACT; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED IN LAW BY NOT CONSIDERING THAT , IF THE COMMUNICATION EXPENSES (I.E. INTERNET CHARGES) ATTR IBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA ARE REDUCED FROM EXPORT TURNOVER, AN EQUAL AMOUNT SHOULD ALSO BE RED UCED FROM TOTAL TURNOVER FOR COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO HAS ERRED IN LAW BY NOT CONSIDERING THE DEDUCTION UNDER CHAPTER VI-A OF THE ACT FOR DONATIONS ELIGIBL E UNDER SECTION 80G OF THE ACT. GROUNDS OF APPEAL RELATING TO TRANSFER PRICING MATT ERS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW: 5. THE LEARNED AO/TRANSFER PRICING OFFICER ('TPO') ERRED IN MAKING AN ADDITION OF RS. 3,99,84,625 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE OF THE SOFTWARE RESEARCH AND DEVELOPMENT SERVICES TRANSACTION ENTER ED BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE; IT(TP)A NO.949/BANG/2011 PAGE 3 OF 37 6. THE LEARNED AO/TPO ERRED IN DISREGARDING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACT ION; 7. THE LEARNED AO/TPO HAVE ERRED IN IGNORING THE FACT THAT SINCE THAT APPELLANT IS AVAILING TAX HOLIDAY U/S 10A OF THE AC T, THERE IS NO INTENTION TO SHIFT THE PROFIT BASE OUT OF INDIA, WH ICH IS ONE OF THE BASIC INTENTION OF THE INTRODUCTION OF T RANSFER PRICING PROVISIONS; 8. THE LEARNED AO/TPO ERRED IN DETERMINING THE ARM'S LENGTH MARGIN/PRICE USING ONLY FINANCIAL YEAR 2006-07 DATA , WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPL YING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS; 9. THE LEARNED TPO ERRED IN OBTAINING INFORMATION W HICH WAS NOT AVAILABLE IN PUBLIC DOMAIN BY EXERCISING POWERS U/S 133(6) OF THE ACT AND RELYING ON THE INFORMATION FOR COMPARABILIT Y ANALYSIS; 10.THE LEARNED AO/TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY AN ALYSIS BY APPLYING DIFFERENT QUANTITATIVE AND QUALITATIVE FIL TERS ARBITRARILY; A) THE LEARNED AO/TPO HAS ERRED BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT AS HAVING ECO NOMIC PERFORMANCE CONTRARY TO THE INDUSTRY BEHAVIOR (E.G. COMPANIES WHICH SHOWED A DIMINISHING REVENUE TREND); B) THE LEARNED AO/TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY AN ALYSIS ON THE GROUND THAT THE COMPARABLES WERE HAVING DIFFERE NT ACCOUNTING YEAR (OTHER THAN MARCH 31 OR COMPANIES W HOSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 1 2 MONTHS); C) THE LEARNED AO/TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY AN ALYSIS USING 'ONSITE REVENUES GREATER THAN 75% OF THE EXPO RT REVENUES' AS A COMPARABILITY CRITERION; AND D) THE LEARNED AO/TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY AN ALYSIS USING 'EMPLOYEE COST GREATER THAN 25% OF THE TOTAL REVENUES' AS A COMPARABILITY CRITERION. 11.THE LEARNED AO/TPO ERRED IN BY ACCEPTING/REJECTING CERTAIN COMPANIES USING UNREASONABLE COMPARABILITY CRITERIA ; IT(TP)A NO.949/BANG/2011 PAGE 4 OF 37 12.THE LEARNED AO/TPO ERRED IN NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT OF DIFFERENCES IN THE RISK PROFILE OF THE A PPELLANT VIS-A-VIS THE COMPARABLES, WHILE CONDUCTING COMPARABILITY ANA LYSIS; 13.THE LEARNED AO/TPO ERRED IN WRONGLY COMPUTING THE WORKING CAPITAL ADJUSTMENT; 14.THE LEARNED AO/TPO ERRED IN COMPUTING THE ARMS LENGTH PRICE WITHOUT GIVING BENEFIT OF + / - 5 PERCENT UNDER THE PROVISO TO SECTION 92C OF THE ACT; 15.THE LEARNED AO ERRED IN LEVYING INTEREST OF RS.7 1,44,250 U/S 234B OF THE ACT; 16.THE LEARNED AO ERRED, IN LAW, AND IN FACTS, IN I NITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENAB LE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 2. GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO IN DEPENDENT ADJUDICATION. 3. DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE HAS INVITED OUR ATTENTION THAT GROUND NOS. 2 & 3 ARE SQ UARELY COVERED BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT V. TATA ELXSI LTD. (349 ITR 98)(KARN) IN WHICH IT HAS BEEN HELD THAT WHERE CERTAIN EXPENSES ARE NOT PART OF THE EXPORT TURNOVER, THE S AME SHOULD BE EXCLUDED FROM THE TOTAL TURNOVER. WE, THEREFORE, FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT, DECIDE THIS ISSUE IN FAV OUR OF ASSESSEE AND DIRECT IT(TP)A NO.949/BANG/2011 PAGE 5 OF 37 THE AO TO RECOMPUTE THE DEDUCTION U/S. 10A OF THE A CT IN THE LIGHT OF THE AFORESAID JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD. (SUPRA) . 4. AS FAR AS GROUND NO.4 IS CONCERNED, IT SHOULD B E EXAMINED IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE ACT. ACCOR DINGLY WE RESTORE IT TO THE FILE OF ASSESSING OFFICER. 5. WITH RESPECT TO GROUND NOS. 5 TO 14, WHICH RELAT E TO TRANSFER PRICING (TP) ISSUES AND CALCULATION OF THE ARMS LENGTH PRI CE (ALP) OF THE INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE (AE), DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION THAT SOME COMPAR ABLES WERE TAKEN BY THE TPO IN THE CASE OF HEWLETT PACKARD (INDIA) AND THE TRIBUNAL HAS EXAMINED THE SAME COMPARABLES AND HAVE REJECTED 16 COMPARABLES AND THE AO WAS DIRECTED TO RECOMPUTED THE ALP AFTER TAK ING INTO ACCOUNT THE REMAINING COMPARABLES. IN SUPPORT OF HIS CONTENTIO NS, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED COPY OF THE ORDER OF TRIBUNA L IN THE CASE OF HEWLETT PACKARD (INDIA) GLOBAL SOFT PVT. LTD. V. DCIT IN IT(TP)A NO.1031/BANG/ 2011. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CON TENDED THAT THE IMPUGNED ISSUE MAY BE DECIDED IN THE LIGHT OF THE O RDER OF THE TRIBUNAL IN THE CASE OF HEWLETT PACKARD (INDIA) GLOBAL SOFT PVT. LTD. (SUPR A) . 6. THE LD. DR, ON THE OTHER HAND, HAS PLACED RELIA NCE UPON THE ORDER OF THE TPO. IT(TP)A NO.949/BANG/2011 PAGE 6 OF 37 7. HAVING CAREFULLY EXAMINED THE ORDER OF LOWER AU THORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS AND THE SYNOPSIS OF THE AR GUMENTS AND THE CHART DETAILING THE PROFILE AND THE REASONS FOR REJECTION OF THE COMPARABLES, WE FIND THAT THE ASSESSEE COMPANY, GENESIS MICROCHIP ( INDIA) PVT. LTD. (NOW MERGED WITH ST MICROELECTRONICS (P) LTD)., IS ENGAG ED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES AND CODING OF EMBEDDED SOFTWAR E TO ITS ASSOCIATED ENTERPRISE (AE), GENESIS MICROCHIP INC. US. DURING THE IMPUGNED FINANCIAL YEAR I.E., 2006-07, ASSESSEE HAS ENTERED INTO FOLLO WING TRANSACTIONS WITH ITS AE:- INTERNATIONAL TRANSACTIONS VALUE (INR) PROVISION OF SOFTWARE DEVELOPMENT SERVICES 47,00,02,366 REIMBURSEMENT OF EMPLOYEE COST 2,65,77,954 8. THE OPERATING PROFIT TO EXPENSES OF THE ASSESSE E WAS ALSO WORKED OUT AS ON 31.3.2007 WHICH IS AS UNDER:- PARTICULARS SOFTWARE DEVELOPMENT OPERATING REVENUE 47,00,02,366 LESS: OPERATING EXPENSES* 40,95,95,527 OPERATING PROFIT 6,04,07,239 OPERATING PROFIT TO EXPENSES 14.74% * EXCLUDING FOREX LOSS FROM OPERATING COST 9. THE TPO HAS MADE ADJUSTMENT IN BOTH THE SEGMENTS , BUT THE ASSESSEE IS IN APPEAL AGAINST THE ADJUSTMENT IN SOF TWARE DEVELOPMENT SERVICES. HAVING NOTED THAT ASSESSEE WAS ENGAGED I N INTERNATIONAL IT(TP)A NO.949/BANG/2011 PAGE 7 OF 37 TRANSACTIONS WITH ITS AE, THE MATTER WAS REFERRED T O THE TPO AND THE TPO HAS TAKEN THE FOLLOWING 26 COMPARABLES:- (1) ACCEL TRANSMATICS LTD. (SEG.) (2) AVANI CIMCON TECHNOLOGIES LTD. (3) CELESTIAL LABS LTD. (4) DATAMATICS LTD. (5) E ZEST SOLUTIONS LTD. (6) FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) (7) GEOMETRIC SOFTWARE LTD. (SEG.) (8) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. (9) IGATE GLOBAL SOLUTIONS LTD. (SEG.) (10) INFOSYS LTD. (11) ISHIR INFOTECH LTD. (12) KALS INFORMATION SYSTEMS LTD. (13) LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS LTD.) (14) LUCID SOFTWARE LTD. (15) MEDIASOFT SOLUTIONS PVT. LTD. (16) MEGASOFT LTD. (17) MINDTREE CONSULTING LTD. (18) PERSISTENT SYSTEMS LTD. (19)QUINTEGRA SOLUTIONS LTD. (20)R S SOFTWARE (INDIA) LTD. (21)R SYSTEMS INTERNATIONAL LTD. (SEG.) (22)SASKEN COMMUNICATIONS LTD. (SEG.) (23)SIP TECHNOLOGIES & EXPORTS LTD. (24)TATA ELXSI LTD. (SEG.) (25)THIRDWARE SOLUTIONS LTD. (26)WIPRO LTD. (SEG.) IT(TP)A NO.949/BANG/2011 PAGE 8 OF 37 10. AGAINST THE ORDER OF TPO, THE ASSESSEE MOVED DR P, BUT DID NOT FIND FAVOUR AND NOW THE ASSESSEE IS IN APPEAL BEFORE US. 11. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT HEWLETT PACKARD (INDIA) GLOBAL SOFT PVT. LTD. WAS ALSO ENGAGED IN SOFTWARE SEGMENT AND WAS ALSO PROVIDING DEVELOPMENT SERVICES TO ITS AE AND THE TRIBUNAL HAD AN OCCASION TO EXAMINE ALL THESE COMPARABLES IN THE CASE OF HEWLETT PACKARD (INDIA) GLOBAL SOFT PVT. LTD. V. DCIT (SUPRA) AND IN THAT CASE THE TPO HAS TAKEN THE SA ME 26 COMPARABLES AND THE TRIBUNAL HAD REJECTED 16 COMPAR ABLES, OUT OF 26 COMPARABLES ON THE GROUND THAT THESE COMPARABLES AR E FUNCTIONALLY DIFFERENT AND SOME OF THE COMPARABLES HAD ABNORMAL MARGIN FLUCTUATION AND THE TRIBUNAL FINALLY DIRECTED THE AO/TPO TO TAK E THE FOLLOWING COMPARABLES FOR COMPUTING THE ALP:- 1. DATAMATICS LTD. 2. GEOMETRIC SOFTWARE LTD. (SEG.) 3. IGATE GLOBAL SOLUTIONS LTD. (SEG.) 4. LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS LTD.) 5. MEDIASOFT SOLUTIONS PVT. LTD. 6. MINDTREE CONSULTING LTD. 7. QUINTEGRA SOLUTIONS LTD. 8. R S SOFTWARE (INDIA) LTD. 9. SASKEN COMMUNICATIONS LTD. (SEG.) 10. SIP TECHNOLOGIES & EXPORTS LTD. IT(TP)A NO.949/BANG/2011 PAGE 9 OF 37 12. COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE O F HEWLETT PACKARD (INDIA) GLOBAL SOFT PVT. LTD. V. DCIT (SUPRA) IS PLACED ON RECORD AND THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THAT CASE FOR REJECTION OF THESE COMPARABLES ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 23. WE HAVE PERUSED THE ORDERS AND HEARD THE RIV AL CONTENTIONS. IN SO FAR AS ACCEL TRANSMATIC LTD (SEG ), AVANI CIMCON TECHNOLOGIES LTD, CELESTIAL LABS LTD, E-ZEST SOLUTI ONS LTD,, HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, INFOSYS TECHNO LOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS LTD (S EG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SOL UTIONS LTD, TATA ELXSI LTD (SEG), THIRDWARE SOLUTIONS LTD (SEG) AND WIPRO LTD (SEG) ARE CONCERNED, THE ISSUE OF COMPARABILITY OF THESE COMPANIES HAD COME UP BEFORE THIS TRIBUNAL IN THE CASE OF NXP SEM ICONDUCTORS INDIA P. LTD (SUPRA). ANALYSIS DONE IN THE SAID DEC ISION WAS ALSO FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT AND THE TPO I N THE SAID CASE HAD ALSO SELECTED THE VERY SAME SET OF 26 COMPANIES . SAID DECISION BEING FOR THE VERY SAME ASSESSMENT YEAR 2007-08, WE ARE OF THE OPINION THAT IT CAN BE TAKEN AS A GOOD PRECEDENCE F OR DECIDING THE ISSUE OF COMPARABILITY RAISED BY THE ASSESSEE HEREI N, IN SO FAR AS THESE COMPANIES ARE CONCERNED. THIS TRIBUNAL HAD OBSERVED AS UNDER : I) ACCEL TRANSMATIC LTD. 48. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF T HE ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMEN T SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI T RIBUNAL DECISION OF CAPGEMINI INDIA (F) LTD V AD. CIT 12 TA XMAN.COM 51, THE DRP ACCEPTED THE CONTENTION OF THE ASSESSEE THAT ACCEL TRANSMATIC SHOULD BE REJECTED AS COMPARABLE. THE RE LEVANT OBSERVATIONS OF DRP AS EXTRACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. THE ASSESSEE S UBMITTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 2005-06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITI ES OF THE COMPANY WERE AS UNDER. IT(TP)A NO.949/BANG/2011 PAGE 10 OF 37 (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFAC TURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, T ICKET VENDING SYSTEM (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENTRE FO R EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOL OGIES, OUTSOURCED PRODUCT DEVELOPMENT (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS)- TRAI NING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYS TEM MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEV ELOPMENT. 4.3 ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH THE ASSESSEE THAT T HE COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPAN Y AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATION SERVICES FOR 2D AND 3D ANIMATION AND THER EFORE ASSESSEES CLAIM THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. DRP THEREFORE DIRECTED THE ASSESSING OFFI CER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST O F COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MAR GIN. 49. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THIS COMPANY HAS RELATED PARTY TRANSACTIONS WHICH IS MORE THAN THE P ERMITTED LEVEL AND THEREFORE SHOULD NOT BE TAKEN FOR COMPARABILITY PURPOSES. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT IF THE ABOVE COMPANY SHOULD NOT BE CONSIDERED AS COMPARABL E. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE T PO. 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF T HE VIEW THAT THE PLEA OF THE ASSESSEE THAT THE AFORESAID COMPANY SHOULD NOT BE TREATED AS COMPARABLES WAS CONSIDERED BY THE TRIBUN AL IN CAPGEMINI INDIA LTD (SUPRA) WHERE THE ASSESSEE WAS SOFTWARE DEVELOPER. THE TRIBUNAL, IN THE SAID DECISION REFER RED TO BY THE LD. COUNSEL FOR THE ASSESSEE, HAS ACCEPTED THAT THIS CO MPANY WAS NOT COMPARABLE IN THE CASE OF THE ASSESSEES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPTING THE ARGUME NT OF THE LD. COUNSEL FOR THE ASSESSEE, WE HOLD THAT THE AFORESAI D COMPANY SHOULD BE EXCLUDED AS COMPARABLES. IT(TP)A NO.949/BANG/2011 PAGE 11 OF 37 20. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN SIMILAR SET OF FACTS, THESE COMPANIES ARE DIRECTED TO BE EXCLUD ED FROM THE LIST OF COMPARABLES. II) AVANI CIMCON TECHNOLOGIES LTD. 39. AS FAR AS THIS COMPANY IS CONCERNED, THE PLEA OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE. BASED ON THE INFORMATION AVAILABLE IN THE COMPANYS WEBSITE, WHICH REVEALS THAT THIS COMPANY HAS DEVELOPED A SOFTWARE PRODUCT BY NAME DXCHANGE, IT WAS SUBMITTED THAT THIS COMPANY WOUL D HAVE REVENUE FROM SOFTWARE PRODUCT SALES APART FROM RENDERING OF SOFTWARE SERVICES AND THEREFORE IS FUNCTIONALLY DIFFERENT FROM THE AS SESSEE. IT WAS FURTHER SUBMITTED THAT THE MUMBAI BENCH OF THE TRIBUNAL TO THE DECISION IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT ITA NO.7821/MUM/2011 WHEREIN THE TRIBUNAL ACCEPTED THE ASSESSEES CONTENTION THAT THIS COMPANY HAS REVENUE FROM SOFTW ARE PRODUCT AND OBSERVED THAT IN THE ABSENCE OF SEGMENTAL DETAILS, AVANI CINCOM CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE WHO WAS RENDERING SOFTWARE DEVELOPMENT SERVICES ONLY AND IT WAS HELD AS FOLLOWS:- 7.8 AVANI CINCOM TECHNOLOGIES LTD. (AVANI CINCOM ): HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPE RATING INCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE N OT BEEN PROVIDED SO AS TO SEE WHETHER THE PROFIT RATIO OF T HIS COMPANY CAN BE TAKEN INTO CONSIDERATION FOR COMPARING THE CASE THAT OF ASSESSEE. IN ABSENCE OF ANY KIND OF DETAILS PROVIDE D BY THE TPO, WE ARE UNABLE TO PERSUADE OURSELVES TO INCLUDE IT A S COMPARABLE PARTY. LEARNED CIT DR HAS PROVIDED A COPY OF PROFIT LOSS ACCOUNT WHICH SHOWS THAT MAINLY ITS EARNING IS FROM SOFTWAR E EXPORTS, HOWEVER, THE DETAILS OF PERCENTAGE OF EXPORT OF PRO DUCTS OR SERVICES HAVE NOT BEEN GIVEN. WE, THEREFORE, REJECT THIS COMPANY ALSO FROM TAKING INTO CONSIDERATION FOR COMPARABILI TY ANALYSIS. IT WAS ALSO HIGHLIGHTED THAT THE MARGIN OF THIS COM PANY AT 52.59% WHICH REPRESENTS ABNORMAL CIRCUMSTANCES AND PROFITS . THE FOLLOWING FIGURES WERE PLACED BEFORE US: IT(TP)A NO.949/BANG/2011 PAGE 12 OF 37 PARTICULARS FYS 05-06 06-07 0 7-08 08-09 OPERATING REVENUE 21761611 35477523 29342809 280398 51 OPERATING EXPNS. 16417661 23249646 23359186 3110894 9 OPERATING PROFIT 5343950 12227877 5983623 (306909 8) OPERATING MARGIN 32.55% 52.59% 25.62% - 9.87% 40. IT WAS SUBMITTED THAT THIS COMPANY HAS MADE UN USUALLY HIGH PROFIT DURING THE FINANCIAL YEAR 06-07. THE OPERATING REVE NUES INCREASED 63.03% WHICH INDICATES THAT IT WAS AN EXTRAORDINARY YEAR FOR THIS COMPANY. EVEN THE GROWTH OF SOFTWARE INDUSTRY FOR T HE PREVIOUS YEAR AS PER NASSCOM WAS 32%. THE GROWTH RATE OF THIS COMPAN Y WAS DOUBLE THE INDUSTRY AVERAGE. IN VIEW OF THE ABOVE, IT WAS ARGUED THAT THIS COMPANY OUGHT TO HAVE BEEN REJECTED AS A COMPARABLE . 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. THE REASONS GIVEN BY THE ASSESSEE FOR EXC LUDING THIS COMPANY AS COMPARABLE ARE FOUND TO BE ACCEPTABLE. T HE DECISION OF ITAT (MUMBAI) IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT (SUPRA) ALSO SUPPORTS THE PLEA OF THE ASSESSEE . WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE TO REJECT THIS COMP ANY AS A COMPARABLE. III) CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT COMP ANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- IN THE DIRECTORS REPORT (PAGE 20 OF PB-IL), IT IS STATED THAT THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR I N-HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2A B) OF THE INCOME TAX ACT. AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDE R DEFERRED REVENUE EXPENDITURE (PAGE 31 OF PB-II), IT IS MENT IONED THAT, EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT O F NEW PRODUCTS HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AN D THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARLY INSTALL MENTS FROM THE YEAR IN WHICH IT IS INCURRED. IT(TP)A NO.949/BANG/2011 PAGE 13 OF 37 AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT AS DEFERRED REVENUE EXPENDITURE (PAGE 30 OF PB-II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFT WARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PR IVATE LTD. V. ADDL. CIT ITA NO.6623/MUM/2011 (FOR AY 2007-08) IN WHIC H THE COMPARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RE SEARCH SEGMENT. THE RELEVANT EXTRACT OF DISCUSSION REGARDING THIS COMPA NY IS AS FOLLOWS: THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAG E-389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS R EPORT WHICH READS AS FOLLOWS: THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TO OL CELSUITE TO DRUG DISCOVERY IN, FINDING THE LEAD M OLECULES FOR DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDE R THE COPY IF SIC (OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND TECHNOLOGY NEW DELHI) BASED ON OUR INSI LICO EXPERTISE (APPLYING BIO-INFORMATICS TOOLS). THE COM PANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERMA AND MULTIP LE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PAT ENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE RESPON SE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET L AB PROCEDURES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE , DEPARTMENT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY HAS SIGNED THE TECH NOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKE T INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN INDIA AND OVERSEAS. THE COMPANY IS PLANNING TO SET UP A BIOTE CHNOLOGY FACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FA CILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NEW CANDIDATES DRUG MOLECU LES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY WILL BE SET UP IN GENO ME VALLEY AT HYDERABAD IN ANDHRA PRADESH. IT(TP)A NO.949/BANG/2011 PAGE 14 OF 37 ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE C ONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWAR E DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF TH E IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MO LECULE TO TREAT CANCER USING BIO-INFORMATICS TOOLS FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIE R IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDE RED AS COMPARABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMPT MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFER ENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RE NDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THE REFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE AB OVE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS INTO RESEARCH IN PHARMA CEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT THIS COMPANY IS OWNER OF IP R, IT HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECU LE TO TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS COMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASO N THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEVE R, FROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJ ECTED AS A COMPARABLE BEING FUNCTIONALLY DIFFERENT. 45. FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANS PIRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06-07 THIS COMPANY WAS CLASS IFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN AY 07- 08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEV ELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROWESS DATABASE AS WELL AS IN THE ANNUAL REPORT OF THIS COMPANY. THE TPO HAS RELIED ON THE R ESPONSE FROM THIS COMPANY TO A NOTICE U/S.133(6) OF THE ACT IN WHICH IT HAS SAID THAT IT IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT S ERVICES. THE ASSESSEE IN REPLY TO THE PROPOSAL OF THE AO TO TREA T THIS AS A COMPARABLE HAS POINTED OUT THAT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOINFORMATICS SERVICES AND THAT THE SEG MENTAL DATA FOR EACH ACTIVITY IS NOT AVAILABLE AND THEREFORE THIS COMPAN Y SHOULD NOT BE TREATED AS COMPARABLE. BESIDES THE ABOVE, THE ASSES SEE HAS POINT OUT TO SEVERAL REFERENCES IN THE ANNUAL REPORT FOR 31.3.20 07 HIGHLIGHTING THE FACT THAT THIS COMPANY WAS DEVELOPS BIOTECHNOLOGY P RODUCTS AND IT(TP)A NO.949/BANG/2011 PAGE 15 OF 37 PROVIDES RELATED SOFTWARE DEVELOPMENT SERVICES. THE TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS COMPAN Y. THE TPO ALSO CALLED FOR DESCRIPTION OF SOFTWARE DEVELOPMENT PROC ESS. IN RESPONSE TO THE REQUEST OF THE TPO THIS COMPANY IN ITS REPLY DA TED 29.3.2010 HAS GIVEN DETAILS OF EMPLOYEES WORKING IN SOFTWARE DEVE LOPMENT BUT IT IS NOT CLEAR AS TO WHETHER ANY SEGMENTAL DATA WAS GIVE N OR NOT. BESIDES THE ABOVE THERE IS NO OTHER DETAIL IN THE TPOS ORD ER AS TO THE NATURE OF SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLIC ISSUE OF SHARES AND IN THAT CONNECTION ISSUED DRAFT RED HERRING PROSPECTUS (DRHP) IN WHICH THE BUSINESS OF THIS COMPANY WAS EXPLAINED AS TO CLINICAL RESEARCH. THE TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BUSINESS OF THIS COM PANY IS SOFTWARE DEVELOPMENT SERVICES AS INDICATED IN THE ANNUAL REP ORT FOR FY 06-07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS A ND OTHER PRODUCTS AS STATED IN THE DRHP. THERE IS NO REFERENCE TO ANY RE PLY BY CELESTIAL LABS TO THE ABOVE CLARIFICATION OF THE TPO. THE TPO WITH OUT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BUSINESS MENTIONED IN TH E DRHP ARE THE SERVICES OR BUSINESSES THAT WOULD BE STARTED BY UTI LIZING THE FUNDS GARNERED THOUGH THE INITIAL PUBLIC OFFER (IPO) AND THUS IN NO WAY CONNECTED WITH BUSINESS OPERATIONS OF THE COMPANY D URING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISS IONS MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICAL LY/ADMITTEDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS A ND OTHER PRODUCTS, THERE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT THIS COMPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTWARE DE VELOPMENT SERVICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT T HIS COMPANY OUGHT NOT TO HAVE BEEN CONSIDERED AS COMPARABLE. IV) E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY D IFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISE D BY THE ASSESSEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS EN GAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT TO THE ASS ESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COM PANY IS ENGAGED IN E-BUSINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SERVICES, IT(TP)A NO.949/BANG/2011 PAGE 16 OF 37 I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SE RVICES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERV ICES, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIGH END IT ES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING (KPO ) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPANY HAS NOT PROVIDE D SEGMENTAL DATA IN ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENT ATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CON TAIN DETAILED DESCRIPTIVE INFORMATION ON THE BUSINESS OF THE COMP ANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COM PANYS WEBSITE WHICH SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHOR ISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DE VELOPMENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERVICES OUGH T NOT TO BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVELOPMENT CO MPANIES AND RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961 (HYD)/2011 DT.23.11.2012 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. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPAR ABLES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS R EPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT TH E TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GI VE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY I.E. E-ZEST SOLU TIONS LTD., IS RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT H AS BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF C APITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES A RE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD T HAT THIS COMPANY, I.E. E-ZEST SOLUTIONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O. /TPO IS ACCORDINGLY DIRECTED. IT(TP)A NO.949/BANG/2011 PAGE 17 OF 37 (V) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD : 16. THE NEXT POINT MADE OUT BY THE ASSESSEE IS WIT H REGARD TO THE INCLUSION OF ITEMS AT (9) AND (11) NAMELY HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., AND KALS INFORMATION S OLUTIONS LTD. (SEG). THE PRIMARY PLEA RAISED BY THE ASSESSEE TO A SSAIL THE INCLUSION OF THE AFORESAID TWO COMPANIES FROM THE LIST OF COMPAR ABLES IS TO BE EFFECT THAT THEY ARE FUNCTIONALLY INCOMPARABLE AND THEREFO RE, ARE LIABLE TO BE EXCLUDED. IN SUM AND SUBSTANCE, THE PLEA SET UP BY THE ASSESSEE IS THAT BOTH THE AFORESAID CONCERNS ARE ENGAGED IN DEVELOPM ENT AND SALE OF SOFTWARE PRODUCTS WHICH IS FUNCTIONALLY DIFFERENT F ROM THE SERVICES UNDERTAKEN BY THE ASSESSEE IN ITS IT-SERVICES SEGME NT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE OR DER OF THE TPO, THE REASON ADVANCED FOR INCLUDING KALS INFORMATION SYST EMS LTD., IS TO THE EFFECT THAT THE SAID CONCERNS APPLICATION SOFT WARE SEGMENT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE WHICH CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCER N IS ENGAGED IN TWO SEGMENTS NAMELY APPLICATION SOFTWARE SEGMENT AN D TRAINING. AS PER THE TPO, THE APPLICATION SOFTWARE SEGMENT IS FU NCTIONALLY COMPARABLE TO THE ASSESSEE AS THE SAID CONCERN IS E NGAGED IN SOFTWARE SERVICES. THE STAND OF THE ASSESSEE IS THAT A PERUS AL OF THE ANNUAL REPORT OF THE SAID CONCERN FOR F.Y. 2006-07 REVEALS THAT THE APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES. THE ASSESSEE POINTE D OUT THIS TO THE TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH IS PL ACED IN THE PAPER BOOK AT PAGE 420.3 TO 420.4. THE ASSESSEE FURTHER P OINTED OUT THAT THERE WAS NO BIFURCATION AVAILABLE BETWEEN THE BUSINESS O F SALE OF SOFTWARE PRODUCTS AND THE BUSINESS OF SOFTWARE SERVICES, AND THEREFORE, IT WAS NOT APPROPRIATE TO ADOPT THE APPLICATION SOFTWARE SEGME NT OF THE SAID CONCERN FOR THE PURPOSES OF COMPARABILITY WITH THE ASSESSEES IT- SERVICES SEGMENT. THE TPO HOWEVER, NOTICED THAT THO UGH THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN MA Y BE ENGAGED IN SELLING OF SOME OF THE SOFTWARE PRODUCTS WHICH ARE DEVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT INTO TRADING OF S OFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHASES DEBITED IN THE PROF IT & LOSS ACCOUNT. THOUGH THE TPO AGREED THAT THE QUANTUM OF REVENUE F ROM SALE OF PRODUCTS WAS NOT AVAILABLE AS PER THE FINANCIAL STA TEMENTS OF THE SAID CONCERN, BUT AS THE BASIC FUNCTION OF THE SAID CONC ERN WAS SOFTWARE DEVELOPMENT, IT WAS INCLUDIBLE AS IT WAS FUNCTIONAL LY COMPARABLE TO THE ASSESSEES SEGMENT OF IT-SERVICES. IT(TP)A NO.949/BANG/2011 PAGE 18 OF 37 18. BEFORE US, APART FROM REITERATING THE POINTS R AISED BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITTED THAT IN THE IMMEDIATELY PRECEEDING ASSESSMENT YEAR OF 2006-07, THE SAID CON CERN WAS EVALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPAR ABLE. FOR THE SAID PURPOSE, OUR REFERENCE HAS BEEN INVITED TO PAGES 42 1 TO 542 OF THE PAPER BOOK, WHICH IS THE COPY OF THE TRANSFER PRICING STU DY UNDERTAKEN BY THE ASSESSEE FOR THE A.Y. 2006-07, AND IN PARTICULAR, A TTENTION WAS INVITED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAK EN BY THE ASSESSEE REFLECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONALLY INCOMPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITION HAS BEEN ACCEPTED BY THE TPO IN THE EARLIER A.Y. 20 06-07 AND THEREFORE, THERE WAS NO JUSTIFICATION FOR THE TPO T O CONSIDER THE SAID CONCERN AS FUNCTIONALLY COMPARABLE IN THE INSTANT A SSESSMENT YEAR. 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY THE ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDENT THAT THE SAID CON CERN HAS NOT BEEN FOUND TO BE FUNCTIONALLY COMPARABLE WITH THE ASSESS EE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN THE PR ESENT YEAR ALSO, ON THE BASIS OF THE ANNUAL REPORT, REFERRED TO IN THE WRITTEN SUBMISSIONS ADDRESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HA S CORRECTLY ASSERTED OUT THAT THE SAID CONCERN WAS INTER ALIA ENGAGED IN SALE OF SOFTWARE PRODUCTS, WHICH WAS QUITE DISTINCT FROM THE ACTIVIT Y UNDERTAKEN BY THE ASSESSEE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHER IS THERE ANY ARGUMENT PUT FORTH BY THE REVENUE AND NOR IS THERE ANY DISCUSSION EMERGING FROM THE ORDERS OF THE LOWER AU THORITIES AS TO IN WHAT MANNER THE FUNCTIONAL PROFILE OF THE SAID CONC ERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HAVING REGARD TO THE FACTUAL ASPECTS BROUGHT OUT BY THE AS SESSEE, IT IS CORRECTLY ASSERTED THAT THE APPLICATION SOFTWARE SEGMENT OF T HE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEES SEGMENT OF IT SERVICES . 20. WITH REGARD TO THE INCLUSION OF HELIOS & MATHE SON INFORMATION TECHNOLOGY LTD., THE ASSESSEE HAS RAISED SIMILAR AR GUMENTS AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG). WE H AVE PERUSED THE RELEVANT PARA OF THE ORDER OF THE TPO I.E., 6.3.21, IN TERMS OF WHICH THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE CONC ERN. THE ASSESSEE POINTED OUT THAT AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO FOR A.Y. 2006-07 TH E SAID CONCERN WAS FOUND FUNCTIONALLY INCOMPARABLE BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY AND THE SAID POSITION WAS NOT DISTURBED BY TH E TPO. THE RELEVANT PORTION OF THE TRANSFER PRICING STUDY, PLACED AT PA GE 432 OF THE PAPER BOOK HAS BEEN POINTED OUT IN SUPPORT. CONSIDERED I N THE AFORESAID LIGHT, ON THE BASIS OF THE DISCUSSION IN RELATION TO KALS INFORMATION IT(TP)A NO.949/BANG/2011 PAGE 19 OF 37 SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO WE F IND THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF C OMPARABLES. VI) INFOSYS TECHNOLOGIES LTD. 12.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEF ORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY I N THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND A TTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASP ECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEG MENT. 12.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND IN THIS CONTEXT HAS CITED VARIOUS PORTIONS OF THE ANNUAL REPORT OF THIS COMPA NY TO THIS EFFECT WHICH IS AS UNDER :- (I) THE COMPANY HAS AN INTELLECTUAL PROPERTY (IP) C ELL TO GUIDE ITS EMPLOYEES TO LEVERAGE THE POWER OF IP FOR THEIR GRO WTH. IN 2008, THIS COMPANY GENERATED OVER 102 INVENTION DISCLOSURES AN D FILED AN AGGREGATE 10 PATENTS IN INDIA AND THE USA. TILL DAT E THIS COMPANY HAS FILED AN AGGREGATE OF 119 PATENT APPLICATIONS (PEND ING) IN INDIA AND USA OUT OF WHICH 2 HAVE BEEN GRANTED IN THE US. (II) THIS COMPANY HAS SUBSTANTIAL REVENUES FROM SOF TWARE PRODUCTS AND THE BREAK-UP OF THE SOFTWARE PRODUCT REVENUES IS NO T AVAILABLE. (III) THIS COMPANY HAS INCURRED HUGE RESEARCH AND D EVELOPMENT EXPENDITURE TO THE TUNE OF APPROXIMATELY RS.200 CRO RES. (IV) THIS COMPANY HAS A REVENUE SHARING AGREEMENT T OWARDS ACQUISITION OF IPR IN AUTOLAY, A COMMERCIAL SOFTWARE PRODUCT US ED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLOW ING JUDICIAL DECISIONS:- (A) ITAT, DELHI BENCH DECISION IN THE CASE OF AGNIT Y INDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.3856/DEL/2010) AND (B) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (IT A NO.1054/BANG/2011) IT(TP)A NO.949/BANG/2011 PAGE 20 OF 37 12.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARAB ILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE OPERATING MARGINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY . IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARAB LE COMPANIES. 12.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THI S COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASS ESSEE AND HENCE IS NOT COMPARABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEA R 2007-08 IS APPLICABLE TO THIS YEAR ALSO. THE ARGUMENT PUT FORT H BY ASSESSEE'S IS THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPAR ABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM S OFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REVENUE FROM SOFT WARE 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. IT IS ORDERED ACCORDINGLY. VII) & VIII) M/S.ISHIR INFOTECH LTD. AND LUCID SOFT WARE LTD : 20. AS FAR AS COMPARABLE COMPANIES LISTED AT SL.NO. 11 & 14 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO VIZ. , M/S.ISHIR INFOTECH LTD. AND LUCID SOFTWARE LTD., IS CONCERNED , THIS TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.L TD. VS. DCIT IT (TP) NO.1086/BANG/2011 FOR AY 07-08 HELD THAT THE A FORESAID COMPANIES ARE NOT COMPARABLE COMPANIES IN THE CASE OF SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE NATURE OF SERVIC ES RENDERED BY THE ASSESSEE IN THIS APPEAL AND THE ASSESSEE IN THE CAS E OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA) ARE ONE AND THE S AME. THIS FACT WOULD BE CLEAR FROM THE FACT THAT THE VERY SAME 26 COMPANIES WERE CHOSEN AS COMPARABLE IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA ). THE FOLLOWING WERE THE RELEVANT OBSERVATIONS IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA): 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE BASIS OF THE FINDING OF THIS TRIBUNAL IN THE CASE O F MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. DT 22.2.2013 , WHEREIN AT PAGES 17 AND 22 OF ITS ORDER THE DISTINCTIONS AS TO WHY T HESE COMPANIES SHOULD IT(TP)A NO.949/BANG/2011 PAGE 21 OF 37 BE EXCLUDED ARE BROUGHT OUT. HE SUBMITTED THAT THE FACTS OF THE CASE BEFORE US ARE SIMILAR AND, THEREFORE, THE SAID DECI SION IS APPLICABLE TO THE ASSESSEE'S CASE ALSO. 23. THE LEARNED DR HOWEVER OBJECTED TO THE EXCLUS ION OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES. ON A CAREFU L PERUSAL OF THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL IN TH E CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. (CITED SUPRA) HAS TAKEN A NOTE OF DISSIMILARITIES BETWEEN THE ASSESSEE THEREI N AND LUCID SOFTWARE LTD. AS OBSERVED THEREIN LUCID SOFTWARE LTD. COMPAN Y IS ALSO INVOLVED IN THE DEVELOPMENT OF SOFTWARE AS COMPARED TO THE A SSESSEE, WHICH IS ONLY INTO SOFTWARE SERVICES. SIMILARLY, AS REGARDS ISHIR INFOTECH LTD., THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE TRIBUNA L IN THE CASE OF 24/7 CO. PVT. LTD TO HOLD THAT ISHIR INFOTECH IS ALSO OU T-SOURCING ITS WORK AND, THEREFORE, HAS NOT SATISFIED THE 25% EMPLOYEE COST FILTER AND THUS HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. AS THE FA CTS OF THE CASE BEFORE US ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, WE HOLD THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED. 21. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAI D COMPANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURP OSE OF DETERMINING ALP. IX) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTE NTION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOT H SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABO VE, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED IN PROVIDI NG TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE ANNUAL REPORT, THE S ALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS Q 45 ,93,351. THE SAME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REV ENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. RE FERENCE WAS MADE TO THE PUNE BENCH TRIBUNALS DECISION OF THE ITAT IN THE C ASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386 /PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006-07 ON A CCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIE S. THE RELEVANT EXTRACT ARE AS FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYST EM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT IT(TP)A NO.949/BANG/2011 PAGE 22 OF 37 FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH RE FERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED TH AT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODU CTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPM ENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS SUBMITT ED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDIN G OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE N OT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCE RN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THU S ON THIS ASPECT, ASSESSEE SUCCEEDS. BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS D RAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTIC E U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN P UBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CON TRARY TO THE ANNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY THE ASSESS EE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DEC ISION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BE NCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PROD UCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVI DER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY I S NOT COMPARABLE. X) PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A C OMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMP ANY AS A COMPARABLE FOR THE REASONS THAT THIS COMPANY BEING ENGAGED IN SOFTWARE PRODUCT DESIGNING AND ANALYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE ANNUAL REPORT FOR THE COMPANY FOR FINANCIAL YEAR 2007-08, IT IS MAINL Y A SOFTWARE DEVELOPMENT COMPANY AND AS PER THE DETAILS FURNISHE D IN REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT, SOFTWARE DE VELOPMENT CONSTITUTES 96% OF ITS REVENUES. IN THIS VIEW OF T HE MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSIS TENT SYSTEMS LTD., IN THE LIST OF COMPARABLES AS IT QUALIFIED THE FUNCTIO NALITY CRITERION. IT(TP)A NO.949/BANG/2011 PAGE 23 OF 37 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE I NCLUSION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPAN Y IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE ARE SEVERAL OTHER FAC TORS ON WHICH THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS R EGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING S ERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPANY F OR F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOMINANTLY ENGAG ED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPEND ENT SOFTWARE VENDORS AND ENTERPRISES. (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPANY I S IN THE BUSINESS OF PRODUCT DESIGN SERVICES. (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORD IA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) WHILE DISCUSSING THE COMPAR ABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFTWARE LTD. HAD RENDERED A FINDING THAT IN THE ABSENCE OF SEGMENTAL INFORMATION, A COMPANY BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUA RELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INT O PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES AND FOR WHI CH THE SEGMENTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. BE OMITTE D FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE A SSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PROVIDER. WE FIND TH AT, AS SUBMITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVEN S EPARATELY. THEREFORE, FOLLOWING THE PRINCIPLE ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES IND IA PVT. LTD. (SUPRA) THAT IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMAT ION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, W E HOLD THAT THIS IT(TP)A NO.949/BANG/2011 PAGE 24 OF 37 COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OM ITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION. I T IS ORDERED ACCORDINGLY. XI) QUINTEGRA SOLUTIONS LTD. 18.1 THIS CASE WAS SELECTED BY THE TPO AS A COMPARA BLE. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE WERE PECULIAR ECONOMI C CIRCUMSTANCES IN THE FORM OF ACQUISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS HOLDING THAT THIS COMPANY QUA LIFIES ALL THE FILTERS APPLIED BY THE TPO. ON THE ISSUE OF ACQUISITIONS, THE TPO REJECTED THE ASSESSEE'S OBJECTIONS OBSERVING THAT THE ASSESSEE H AS NOT ADDUCED ANY EVIDENCE AS TO HOW THIS EVENT HAD AN ANY INFLUENCE ON THE PRICING OR THE MARGIN EARNED. 18.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONALLY DIF FERENT AND ALSO THAT THERE ARE OTHER FACTORS FOR WHICH THIS COMPANY CANN OT BE CONSIDERED AS A COMPARABLE. IT WAS SUBMITTED THAT, (I) QUINTEGRA SOLUTIONS LTD., THE COMPANY UNDER CONSIDERATION, IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND NOT IN PURELY SOFTWARE DEVELOPMENT SERVICES. THE ANNUAL REPORT OF THIS CO MPANY ALSO STATES THAT IT IS ENGAGED IN PREPARATORY SOFTWARE PRODUCTS AND IS THEREFORE NOT SIMILAR TO THE ASSESSEE IN THE CASE ON HAND. (II) IN ITS ANNUAL REPORT, THE SERVICES RENDERE D BY THE COMPANY ARE DESCRIBED AS UNDER : LEVERAGING ITS PROVEN GLOBAL MODEL, QUINTEGRA PROV IDES A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTIN G, MAINTENANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEM ENT SERVICES), PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVI CES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. (III) THIS COMPANY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATION OF INTELL ECTUAL PROPRIETARY RIGHTS (IPRS) AS CAN BE EVIDENCED FROM THE STATEMEN TS MADE IN THE ANNUAL REPORT OF THE COMPANY FOR THE PERIOD UNDER C ONSIDERATION, WHICH IS AS UNDER : IT(TP)A NO.949/BANG/2011 PAGE 25 OF 37 QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELLECTUAL PROPERTY. ACCORDINGLY, SOME OF THE PRODUCTS DEVELO PED BY THE COMPANY HAVE BEEN COVERED BY THE PATENT RIGHTS. THE COMPANY HAS ALSO APPLIED FOR TRADE MARK REGISTRATION FOR ONE OF ITS PRODUCTS, VIZ. INVESTOR PROTECTION INDEX FUND (IPIF). THESE MEASU RES WILL HELP THE COMPANY ENHANCE ITS PRODUCTS VALUE AND ALSO MITIGAT E RISKS. (IV) THE TPO HAS APPLIED THE FILTER OF EXCLUDIN G COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES. QUINTEGRA FAILS T HE TPOS OWN FILTER SINCE THERE HAVE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FROM THE COMPANYS ANNUAL REPORT FOR F.Y. 2007-08, THE PERIO D UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE SUBMISSIONS MADE ABOVE, IT IS CLEAR THAT INTER ALIA , THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BEING FUNCTIONALLY DIFFERE NT AND POSSESSING ITS OWN INTANGIBLES / IPRS, IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSID ERATION. 18.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE SET OF COMPARABLES TO THE ASSESSEE FOR THE PERIOD UNDER CO NSIDERATION. 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN P ROPRIETARY SOFTWARE PRODUCTS AND HAS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. HAVING APPLIED FOR TRADE MAR K REGISTRATION OF ITS PRODUCTS, IT EVIDENCES THE FACT THAT THIS COMPANY O WNS INTANGIBLE ASSETS. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010 DT.9.1 1.2012) HAS HELD THAT IF A COMPANY POSSESSES OR OWNS INTANGIBLE S OR IPRS, THEN IT CANNOT BE CONSIDERED AS A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGIBLES AND REQUIRES TO BE OMITTED FORM THE LIST OF COMPARABLES, AS IN THE CASE ON HAND. 18.3.2 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINTEGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUISITIONS MA DE BY IT IN THE PERIOD UNDER CONSIDERATION. IT IS SETTLED PRINCIPLE THAT WHERE EXTRAORDINARY IT(TP)A NO.949/BANG/2011 PAGE 26 OF 37 EVENTS HAVE TAKEN PLACE, WHICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPANY, THEN THAT COMPANY SHALL BE REMOVED FROM TH E LIST OF COMPARABLES. 18.3.3 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER. COM PVT. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CASE O N HAND SINCE IT IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND OWNS I TS OWN INTANGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SO FTWARE SERVICE PROVIDER. 27. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAI D COMPANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURP OSE OF DETERMINING ALP. XII) TATA ELXSI LTD. 14.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIGNIFICANT R&D ACTIVITY, BRAND VAL UE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTION PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 14.2 BEFORE US IT WAS REITERATED BY THE LEARNED AUT HORISED REPRESENTATIVE THAT THIS COMPANY IS NOT FUNCTIONALL Y COMPARABLE TO THE ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIONS UNDE R SOFTWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY A) PRODUCT DESIGN, (B) INNOVATION DESIGN ENGINEERING AND (C) VISUAL COMPUTING LABS. IN THE SUBMISSIONS MADE THE ASSESSEE HAD QUOTED REL EVANT PORTIONS FROM THE ANNUAL REPORT OF THE COMPANY TO THIS EFFECT. IN VIEW OF THIS, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND OF THE TPO IN INCLUDING THIS CO MPANY IN THE LIST OF COMPARABLES. IT(TP)A NO.949/BANG/2011 PAGE 27 OF 37 14.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULL Y PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAIL S ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODU CT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVIC ES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE D EVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SI MILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 14.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE O F TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEVELOP MENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE. I N THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REP RODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FR OM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARN ED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASS ESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DET AILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CO NSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FRO M PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO T REAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE L IST 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 EL XSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 200 8-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONS IDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 25. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAI D COMPANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURP OSE OF DETERMINING ALP. XIII) THIRDWARE SOLUTIONS LTD. (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESS EE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CRORES. BEFOR E US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMP ARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICE S, IT IS IN THE IT(TP)A NO.949/BANG/2011 PAGE 28 OF 37 BUSINESS OF PRODUCT DEVELOPMENT AND TRADING IN SOFT WARE AND GIVING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD, THE L EARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMEN T AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PRO VIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFTWARE DEVE LOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD . (2008-TII-04- ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVID ERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INC REASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE AB OVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA) , THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN PRODUCT DE VELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTIO N. HOWEVER, THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEV ELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE P UNE BENCH OF THE TRIBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCL UDES INCOME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMP ARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFT WARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FO LLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA), WE DIRECT TH AT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. XIV) WIPRO LIMITED 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON SEVERAL GROUN DS LIKE FUNCTIONAL IT(TP)A NO.949/BANG/2011 PAGE 29 OF 37 DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, H OWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESSEE AND INCLUDED THIS CO MPANY IN THE SET OF COMPARABLES. 13.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE CONTENDED THAT THIS COMPANY I.E. WIPRO LTD ., IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE FOR THE FOL LOWING REASONS:- (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN TH E NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIB LES AND QUOTED EXTRACTS FROM THE ANNUAL REPORT OF THIS COMPANY IN THE SUBMISSIONS MADE. (II) THE TPO HAD ADOPTED THE CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGIN S, WHICH CONTRADICTS THE TPOS OWN FILTER OF REJECTING COMPA NIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 13.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT I N THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOF TWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFO RMATION ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COM PANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SA TISFIES THE SOFTWARE DEVELOPMENT SALES 75% OF THE TOTAL RE VENUE FILTER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY AN ALYSIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CON SOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISON. 13.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLEC TUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BAN G/2010) HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE CO MPARED 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 CASE ON HAND DOES NOT OWN ANY INTAN GIBLES, FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE HOLD THAT THIS C OMPANY CANNOT BE IT(TP)A NO.949/BANG/2011 PAGE 30 OF 37 CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, TH EREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YE AR UNDER CONSIDERATION. 24. NO DOUBT IF WE FOLLOW THE ABOVE DECISION M/S . ACCEL TRANSMATIC LTD (SEG), AVANI CIMCON TECHNOLOGIES LTD , CELESTIAL LABS LTD, E-ZEST SOLUTIONS LTD,, HELIOS & MATHESON INFOR MATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, PERSISTENT S YSTEMS LTD, QUINTEGRA SOLUTIONS LTD, TATA ELXSI LTD (SEG), THIR DWARE SOLUTIONS LTD (SEG) AND WIPRO LTD (SEG) HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. HOWEVER OUT OF THESE, M/S. ACCEL TRANS MATICS LTD. (SEG), QUINTEGRA SOLUTIONS LTD AND TATA ELXSI LTD (SEG) WE RE A PART OF ASSESSEES OWN TP STUDY. HONBLE PUNJAB & HARYANA H IGH COURT IN CIT V. QUARK SYSTEMS INDIA (P) LTD (SUPRA), UPHELD THE SPECIAL BENCH DECISION IN DCIT V. QUARK SYSTEMS (P) LTD [(2010) 4 2 DTR 414], NOTING THAT LATTER HAD ONLY REMITTED THE ISSUE OF C OMPARABILITY OF COMPARABLES CONSIDERED IN ASSESSEES OWN TP STUDY, BACK TO TPO. HENCE WE ARE OF THE OPINION THAT THE ISSUE OF COMPA RABILITY OF THESE THREE COMPANIES HAVE TO GO BACK TO AO / TPO FOR CON SIDERATION AFRESH. HOWEVER M/S. AVANI CIMCON TECHNOLOGIES LTD, CELESTI AL LAB LTD, E- ZEST SOLUTIONS LTD, HELIOS & MATHESON INFORMATION T ECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS L TD, THIRDWARE SOLUTION LTD (SEG) AND WIPRO LTD (SEG) HAVE TO BE E XCLUDED BY VIRTUE OF COORDINATE BENCH DECISION IN THE CASE OF NXP SEMICO NDUCTORS INDIA LTD (SUPRA). COMPARABILITY OF M/S. ACCEL TRANSMATICS LT D (SEG), M/S. QUINTEGRA SOLUTIONS LTD AND M/S. TATA ELXSI LTD (SE G) IS REMITTED BACK TO THE AO / TPO FOR CONSIDERATION AFRESH AS PER LAW . ORDERED ACCORDINGLY. 25. VIS-A-VIS MEGASOFT LTD, WE FIND THAT COORDINAT E BENCH OF THIS TRIBUNAL IN THE VERY CASE OF NXP SEMI CONDUCTORS IN DIA LTD (SUPRA) RELYING ON ITS OWN EARLIER DECISION IN TRILOGY E-BU SINESS SOFTWARE INDIA PVT.LTD. VS. DCIT [ITA NO.1064/BANG/2011 FOR AY 07- 08 ORDER DATED 23.11.2012] HELD IT TO BE A GOOD COMPARABLE, BUT HA D DIRECTED SEGMENTATION OF ITS RESULTS. THIS TRIBUNAL HAD DIRE CTED THAT ONLY THE BLUE ALLY SEGMENT OF THE SAID COMPANY COULD BE CONS IDERED FOR COMPARISON. RELEVANT FINDINGS OF THE TRIBUNAL AS IT APPEARS IN THE DECISION OF NXP SEMICONDUCTORS INDIA LTD (SUPRA) IS REPRODUCED HEREUNDER: IT(TP)A NO.949/BANG/2011 PAGE 31 OF 37 MEGASOFT LTD.: 24. THIS COMPANY WAS CHOSEN AS A COMPARABLE BY THE TPO. THE OBJECTION OF THE ASSESSEE IS THAT THERE ARE TWO SEG MENTS IN THIS COMPANY VIZ., (I) SOFTWARE DEVELOPMENT SEGMENT, AND (II) SO FTWARE PRODUCT SEGMENT. THE ASSESSEE IS A PURE SOFTWARE SERVICES P ROVIDER AND NOT A SOFTWARE PRODUCT DEVELOPER. ACCORDING TO THE ASSESS EE THERE IS NO BREAK UP OF REVENUE BETWEEN SOFTWARE PRODUCTS AND S OFTWARE SERVICES BUSINESS ON A STANDALONE BASIS OF THIS COMPARABLE. THE TPO RELIED ON INFORMATION WHICH WAS GIVEN BY THIS COMPANY IN WHIC H THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ., BLUEA LLY DIVISION AND XIUS-BCGI DIVISION. XIUS-BCGI DIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE. THIS COMPANY DEVELOPS PACKAGED PR ODUCTS FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. THESE PRO DUCTS ARE SOLD AS PACKAGED PRODUCTS TO CUSTOMERS. WHILE IMPLEMENTING THESE STANDARDIZED PRODUCTS, CUSTOMERS MAY REQUEST THE CO MPANY TO CUSTOMIZE PRODUCTS OR RECONFIGURE PRODUCTS TO FIT I NTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES UP THE JOB OF CUSTOMIZING THE PACKAGED SOFTWARE. THE COMPANY ALSO EXPLAINED T HAT 30 TO 40% OF THE PRODUCT SOFTWARE WOULD CONSTITUTE PACKAGED PROD UCT AND AROUND 50% TO 60% WOULD CONSTITUTE CUSTOMIZED CAPABILITIES AND EXPENSES RELATED TO TRAVELLING, BOARDING AND LODGING EXPENSE . BASED ON THE ABOVE REPLY, THE TPO PROCEEDED TO HOLD THAT THE COMPARABL E COMPANY WAS MAINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVE LOPED (WHICH WAS AKIN TO PRODUCT SOFTWARE) INTERNALLY AND THAT THE P ORTION OF THE REVENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUST OMIZATION WAS LESS THAN 25% OF THE OVERALL REVENUES. THE TPO THEREFORE HELD THAT LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFT WARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPOS FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. THE BA SIS ON WHICH THE TPO ARRIVED AT THE PLI OF 60.23% IS GIVEN AT PAGE-1 15 AND 116 OF THE ORDER OF THE TPO. IT IS CLEAR FROM THE PERUSAL OF T HE SAME THAT THE TPO HAS PROCEEDED TO DETERMINE THE PLI AT THE ENTITY LE VEL AND NOT ON THE BASIS OF SEGMENTAL DATA. 25. IN THE ORDER OF THE TPO, OPERATING MARGIN WAS COMPUTED FOR THIS COMPANY AT 60.23%. IT IS THE COMPLAINT OF THE ASSES SEE THAT THE OPERATING MARGINS HAVE BEEN COMPUTED AT ENTITY LEVE L COMBINING SOFTWARE SERVICES AND SOFTWARE PRODUCT SEGMENTS. IT WAS SUBMITTED THAT THE PRODUCT SEGMENT OF MEGASOFT IS SUBSTANTIALLY DI FFERENT FROM ITS SOFTWARE SERVICE SEGMENT. THE PRODUCT SEGMENT HAS E MPLOYEE COST OF 27.65% WHEREAS THE SOFTWARE SERVICE SEGMENT HAS EMP LOYEE COST OF 50%. SIMILARLY, THE PROFIT MARGIN ON COST IN PRODUC T SEGMENT IS IT(TP)A NO.949/BANG/2011 PAGE 32 OF 37 117.95% AND IN CASE OF SOFTWARE SERVICE SEGMENT IT IS 23.11%. BOTH THE SEGMENTS ARE SUBSTANTIALLY DIFFERENT AND THEREFORE COMPARISON AT ENTITY LEVEL IS WITHOUT BASIS AND WOULD VITIATE THE COMPAR ABILITY (SUBMISSIONS ON PAGE 381 TO 383 OF THE PB-I). IT WAS FURTHER SUB MITTED THAT MEGASOFT LIMITED HAS PROVIDED SEGMENTAL BREAK-UP BETWEEN THE SOFTWARE SERVICES SEGMENT AND SOFTWARE PRODUCT SEGMENT (PAGE 68 OF PB -II), WHICH WAS ALSO ADOPTED BY THE TPO IN HIS SHOW CAUSE NOTICE (P AGE 84 OF PB-I). THE SEGMENTAL RESULTS I.E., RESULTS PERTAINING TO S OFTWARE SERVICES SEGMENT OF THIS COMPANY WAS: SEGMENTAL OPERATING REVENUES RS.63,71,32,544 SEGMENTAL OPERATING EXPENSES RS.51,75,13,211 OPERATING PROFIT RS.11,96,19,333 OP/TC (PLI) 23.11% 26. IT WAS REITERATED THAT IN THE GIVEN CIRCUMSTA NCES ONLY PLI OF SOFTWARE SERVICE SEGMENT VIZ., 23.11% OUGHT TO HAVE BEEN SELECTED FOR COMPARISON. 27. IT WAS FURTHER SUBMITTED THAT THE LEARNED TPO I N CASE OF OTHER COMPARABLE, SIMILARLY PLACED, HAD ADOPTED THE MARGI NS OF ONLY THE SOFTWARE SERVICE SEGMENT FOR COMPARABILITY PURPOSES . CONSISTENT WITH SUCH STAND, IT WAS SUBMITTED THAT THE MARGINS OF TH E SOFTWARE SEGMENT ONLY SHOULD BE ADOPTED IN THE CASE OF MEGASOFT ALSO , IN CONTRAST TO THE ENTITY LEVEL MARGINS. 28. COMPUTATION OF THE NET MARGIN FOR MEGA SOFT LTD . IS THEREFORE REMITTED TO THE FILE OF THE TPO TO COMPUTE THE CORR ECT MARGIN BY FOLLOWING THE DIRECTION OF THE TRIBUNAL IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT.LTD. 23. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO COMPUTE THE CORRECT MARGIN OF MEGA SOFT LTD., AS DIRECTED BY THE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD. (SUPRA). ACCORDINGLY WE HOLD THAT MEGASOFT LTD CAN BE CONSID ERED AS A GOOD COMPARABLE AFTER SEGMENTATION AS DIRECTED IN THE AB OVE ORDER IS DONE. 26. NOW TAKING UP THE QUESTION OF EXCLUSION OF FLE XTRONICS SOFTWARE SYSTEMS LTD (SEG), IT IS TRUE THAT THE DECISION OF MOTOROLA SOLUTIONS (INDIA) P. LTD (SUPRA) ALSO WAS FOR THE VERY SAME Y EAR AND ALSO ON SOFTWARE DEVELOPMENT SERVICES SECTOR. THIS TRIBUNAL HELD AS UNDER : IT(TP)A NO.949/BANG/2011 PAGE 33 OF 37 97.2 FOR A COMPANY TO BE INCLUDED IN THE LIST OF C OMPARABLES, IT IS NECESSARY THAT CREDIBLE INFORMATION IS AVAILABLE ABOUT THE COMPANY. UNLESS THIS BASIC REQUIREMENT IS FULFILLED , THE COMPANY CANNOT BE TAKEN AS A COMPARABLE. IT IS TRUE THAT LD . TPO IS ENTITLED TO OBTAIN INFORMATION US/ 133(6), THE OBJECT OF WHI CH IS PRIMARILY ONLY TO SUPPLEMENT THE INFORMATION ALREADY AVAILABL E ON RECORD, BUT NOT, AS RIGHTLY SUBMITTED BY LD. COUNSEL FOR TH E ASSESSEE, TO REPLACE THE INFORMATION. IF THERE IS A COMPLETE CON TRADICTION BETWEEN THE INFORMATION OBTAINED U/S 133(6) AND ANN UAL REPORT THEN THE SAID INFORMATION CANNOT BE SUBSTITUTED FOR THE INFORMATION CONTAINED IN ANNUAL REPORT. WE, THEREFO RE, ARE IN ITA NO. 5637/D/2011 149 AGREEMENT WITH LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY CANNOT BE INCLUDED AS A COMPARABL E IN THE SET OF COMPARABLES SELECTED BY LD. TPO ON ACCOUNT OF CL EAR CONTRADICTION BETWEEN CONTENTS OF ANNUAL REPORT AND INFORMATION OBTAINED U/S 133(6). 27. RULE 10D(3) SPECIFIES THE INFORMATION AND DOC UMENTS THAT ARE TO BE MAINTAINED BY A PERSON WHO IS ENTERING IN TO INTERNATIONAL TRANSACTIONS. THESE ARE OFFICIAL PUBLICATIONS, PUBL ISHED ACCOUNTS OR THOSE WHICH ARE IN PUBLIC DOMAIN EXCEPT FOR AGREEME NTS AND CONTRACTS TO WHICH ASSESSEE IS PRIVY. ONCE THE ANNUAL REPORT OF A COMPANY IS FOR A YEAR DIFFERENT FROM THE FINANCIAL YEAR ENDING 31STM ARCH, THEN WITHOUT DOUBT, IT WILL CEASE TO BE A GOOD COMPARABLE, UNLES S THE INFORMATION RECEIVED IN PURSUANCE TO A NOTICE U/S.133(6) OF THE ACT FROM SUCH COMPANY, IS RECONCILED WITH THE FIGURES AVAILABLE I N SUCH ANNUAL REPORT. 28. IN THE CASE OF FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), NO DOUBT THE ANNUAL REPORT WAS FOR THE YEAR ENDING 31.03.2007. H OWEVER IT WAS ONLY FOR A NINE MONTHS PERIOD. NO RECONCILIATION WAS ATT EMPTED BY THE LOWER AUTHORITIES BETWEEN THE FIGURES GIVEN IN SUCH ANNUA L REPORT WITH THE FIGURES WHICH WERE MADE AVAILABLE BY THE SAID COMPA NY TO THE TPO PURSUANT TO NOTICE ISSUED TO THEM U/S.133(6) OF THE ACT. NO DOUBT AT PAGE 123 OF TP ORDER, TPO HAS STATED THAT THE SOFTW ARE DEVELOPMENT SERVICE REVENUES WERE MORE THAN 75% BASED ON THE FO LLOWING FIGURES : ................... BUT HOW THIS SEGMENTATION WAS DONE BY THE TPO AND T HE RECONCILIATION OF THE SAID SEGMENTATION WITH THE ANNUAL REPORT OF THE ASSESSEE WAS NEVER ATTEMPTED OR DONE. IN SUCH A SITUATION WE ARE OF THE OPINION THAT FLEXTRONICS SOFTWARE SOLUTIONS LTD (SEG) COULD NOT BE CONSIDERED AS A PROPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. IT(TP)A NO.949/BANG/2011 PAGE 34 OF 37 29. VIS-A-VIS R SYSTEMS INTERNATIONAL LTD (SEG), MUMBAI BENCH OF THIS TRIBUNAL HAD HELD AS UNDER AT PARA 7.1 AND 7.2 IN THE CASE OF HAPAG LLOYD GLOBAL SERVICES PVT. LTD (SUPRA) : 7.1 THIS CASE WAS INCLUDED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. THE TPO EXCLUDED THIS CASE BECAUSE O F DIFFERENT FINANCIAL YEAR ENDING IN THAT CASE. THE LEARNED CIT (A) ORDERED FOR THE INCLUSION OF THIS CASE BY RECORDING THAT EVEN T HOUGH THIS COMPANY WAS FOLLOWING DIFFERENT FINANCIAL YEAR ENDI NG BUT THE FOLLOWING DIFFERENT FINANCIAL YEARS COULD NOT BE A REASON TO EXCLUDE THIS CASE. 7.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTEN DED THAT UNLESS THE FINANCIAL YEAR END OF A COMPARABLE CASE MATCHES WITH THAT OF THE ASSESSEE, IT CANNOT BE CONSIDERED AS CO MPARABLE BECAUSE THE FIGURES OF DIFFERENT FINANCIAL YEAR END INGS ARE DISTORTED. HE RELIED ON AN ORDER PASSED BY THE MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF SANDSTONE CAPITAL ADVIS ORS PRIVATE LIMITED V. ACJT IN ITA NO.6315/MUM! 2012. VIDE ITS ORDER DATED 06.02.2013, THE TRIBUNAL, AFTER CONSIDERING T HE PRESCRIPTION OF RULE IOB(4) AND AN ANOTHER CASE OF PUNE BENCH OF THE TRIBUNAL IN HONEYWELL AUTOMATION INDIA LTD., HAS HE LD THAT IT IS MANDATORY FOR THE PURPOSES OF COMPARING THE DATA OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION THAT THE SAME MUST RELATE TO THE FINANCIAL YEAR ENDING SIMIL AR TO THAT OF THE ASSESSEE. THE ID. DR CONTENDED THAT SINCE THE CASE OF CMC LIMITED HAS A DIFFERENT FINANCIAL YEAR ENDING VIS-A -VIS THAT OF THE ASSESSEE, THE SAME OUGHT TO HAVE BEEN EXCLUDED. NO CONTRARY PRECEDENT WAS BROUGHT TO OUR NOTICE BY THE LEARNED AR. IN FACT, THE ARGUMENT ADVANCED BY THE ID. DR IN THIS REGARD WAS NOT SERIOUSLY CHALLENGED BY THE ID. AR. RESPECTFULLY FO LLOWING THE PRECEDENT, WE HOLD THAT THIS CASE SHOULD BE EXCLUDE D FROM THE LIST OF COMPARABLES. 30. NO DOUBT THE ABOVE DECISION WAS FOR A. Y. 200 5-06, BUT THE ANNUAL REPORT OF THE SAID COMPANY PLACED BY THE ASSESSEE A T PAPERBOOK PAGE NO.599 SHOW THAT ITS FINAL ACCOUNTS WERE BEING PREP ARED ON A CALENDAR YEAR BASIS EVEN AFTER THAT. PROFIT AND LOSS ACCOUNT IS FOR CALENDAR YEAR ENDING 31.12.2008 FOR THE SAME REASON AS MENTIONED BY THE COORDINATE BENCH OF MUMBAI IN THE CASE OF HAPAG LLOYD GLOBAL S ERVICES P. LTD (SUPRA), WE ARE OF THE OPINION THAT R SYSTEMS INTER NATIONAL LTD (SEG) COULD NOT BE CONSIDERED AS A PROPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. IT(TP)A NO.949/BANG/2011 PAGE 35 OF 37 31. AS FOR SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG), THIS TRIBUNAL IN THE CASE OF MOTOROLA SOLUTIONS (INDIA) P LTD (SUPRA), HELD AS UNDER AT PARA 12 ITS ORDER : 12. SASKIN COMMUNICATION TECHNOLOGIES LTD.: 109. LD TPO NOTICED THAT THE COMPANY WAS REJECTED I N THE TP DOCUMENT ON THE GROUND THAT THE COMPANY FAILS ITS F ILTER OF BUSINESS REVIEW AND R&D TO SALES WAS MORE THAN 3%. HOWEVER, NO REASONS WERE GIVEN FOR THE BUSINESS REVIEW. 109.1 LD. TPO POINTED OUT THAT R&D TO SALES BEING M ORE THAN 3% IS NOT ACCEPTABLE FOR WHICH DETAILED DISCUSSION HAS ALREADY BEEN MADE EARLIER. HE FURTHER NOTICED THAT THE COMP ANY HAS SOFTWARE SERVICES SEGMENT AND SEGMENTAL RESULTS ARE AVAILABLE FOR SOFTWARE SERVICES. HE FURTHER POINTED OUT THAT ON T HE BASIS OF INFORMATION OBTAINED U/S 133(6), THE COMPANY QUALIF IES ONSITE REVENUE FILTER (ONSITE REVENUES WERE TO THE EXTENT 27.27% OF ITS EXPORT REVENUES). AFTER CONSIDERING THE ASSESSEES REPLY, LD. TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES. L D. COUNSEL POINTED OUT THAT THIS COMPANY HAS INCURRED SIGNIFIC ANT EXPENDITURE ON RESEARCH AND DEVELOPMENT ACTIVITY TH E SAME BEING 6.07% OF SALES. HE FURTHER SUBMITTED THAT THE COMPA NY HAD SIGNIFICANT INTANGIBLE INASMUCH AS IT DEVELOPS SISK IN BRANDED PRODUCTS. THE COMPANY OWNS IPR FURTHER IT WAS POINT ED OUT BEFORE TPO THAT DURING THE YEAR THE COMPANY HAD ACQ UIRED BOTNIA HIGHTECH F. AND ITS TWO SUBSIDIARIES AND THU S, IT HAD UNDER GONE SIGNIFICANT RESTRUCTURING. HOWEVER, LD. TPO IG NORED THESE FACTS HE RELIED ON THE FOLLOWING DECISIONS: IQ INFORMATION SYSTEM (I) PVT. LTD., ITA NO. 1961 /HYD./2012 (PARA NO. 11 & 23, PAGE 25); AMERSON PROCESS MANAGEMENT INDIA PVT. LTD., ITA N O. 8118/MUM./2010 (PARA 16 PAGE 15). 110. LD. DR RELIED ON THE ORDER OF TPO AND SUBMITTE D THAT TPO CONSIDERED THE COMPANIES SOFTWARE SERVICES SEGMENT DETAILS ONLY. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE RECORD OF THE CASE. 111. LD. TPO HAS COMPLETELY IGNORED THE EXTRAORDINA RY BUSINESS CIRCUMSTANCES POINTED OUT BY ASSESSEE FOR WHICH NEC ESSARY IT(TP)A NO.949/BANG/2011 PAGE 36 OF 37 ADJUSTMENT WAS REQUIRED TO BE MADE IN ACCORDANCE WI TH RULE 10B(3) OF INCOME TAX RULES. HOWEVER, SINCE THIS ADJUSTMENT WAS NOT POSSIBLE, TH EREFORE, THIS COMPANY SHOULD NOT HAVE BEEN INCLUDED IN THE LIST O F COMPARABLES. FURTHER, WE FIND THAT THE COMPANY OWNS IPR AND HAS BRANDED PRODUCTS WHICH ALSO DISTINGUISHES IT FR OM THE ASSESSEE AND, THEREFORE, KEEPING IN VIEW THE DECISI ON OF HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNO LOGIES PVT. LTD.(SUPRA), WE DIRECT THE LD. TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. IF WE FOLLOW THE COORDINATE BENCH DECISION IN THE C ASE OF MOTORALA SOLUTION (INDIA) P. LTD, SASKEN COMMUNICATION TECHN OLOGIES LTD NEEDS TO BE EXCLUDED. HOWEVER, AS MENTIONED BY US AT PARA 24 ABOVE, WHERE THE CONTESTED COMPARABLE FORMED PART OF ASSESSEES OWN STUDY, THEN THE AO / TPO HAS TO BE GIVEN A CHANCE FOR VERIFICATION, IN VIEW OF JUDGMENT OF HONBLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF QUARK SYSTEMS INDIA P. LTD (SUPRA). ACCORDINGLY WE REMIT THE ISSUE OF COMPARABILITY OF SASKEN COMMUNICATION TECHNOLOGIES LTD BACK TO THE AO / TPO FOR CONSIDERATION AFRESH AS PER LAW. ORDER ED ACCORDINGLY. 32. ONCE THE ABOVE COMPANIES ARE EXCLUDED WHAT WO ULD BE DIRECTLY LEFT IN THE LIST OF COMPARABLES AND DATAMATICS FINA NCIAL SERVICES LTD (SEG), GEOMETRIC SOFTWARE LTD (SEG), IGATE GLOBAL S OLUTIONS LTD, LGS GLOBAL LTD, MEDIA SOFT SOLUTIONS P. LTD, MINDTREE L TD, R S SOFTWARE (INDIA) LTD, SIP TECHNOLOGIES & EXPORTS LTD AND MEG A SOFT LTD. LAST OF THESE, VIZ MEGA SOFT LTD, HAS TO BE CONSIDERED A FTER PROPER SEGMENTATION, MENTIONED BY US AT PARA 25 ABOVE. AO / TPO WILL ALSO HAVE TO DECIDE ON THE COMPARABILITY OF M/S. ACCEL T RANSMATICS LTD (SEG), QUINTEGRA SOLUTION LTD, SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG) AND TATA ELXSI LTD (SEG), CONSIDERING THE JUDICIAL PRECEDENCE RELATED TO THE COMPARABILITY OF THESE COMPANIES. WE DIRECT THE AO / TPO TO REWORK THE AVERAGE PLI OF THE COMPARABLES, A S PER THE DIRECTIONS IN THE PRECEDING PARAS AND DECIDE ON THE QUESTION OF ALP ADJUSTMENT ACCORDINGLY. 13. SINCE THIS TRIBUNAL HAS TAKEN A VIEW IN SIMILAR SET OF FACTS AND HAS EXCLUDED 16 COMPARABLES OUT OF 26 TAKEN BY THE TPO BY PASSING A REASONED ORDER IN THE CASE OF HEWLETT PACKARD (INDIA) GLOBAL SOFT PVT. LTD. IT(TP)A NO.949/BANG/2011 PAGE 37 OF 37 (SUPRA) , WE FIND NO JUSTIFICATION TO TAKE A CONTRARY VIEW IN THIS CASE AS THE PROFILE OF THE ASSESSEE IS SIMILAR TO HEWLETT PACKA RD (INDIA) GLOBAL SOFT PVT. LTD. WE THEREFORE FOLLOWING THE SAME, DIRECT THE TP O/AO TO TAKE THE 10 COMPARABLES FOR COMPUTING THE ALP OF THE INTERNATIO NAL TRANSACTIONS. 14. THE OTHER GROUNDS ARE CONSEQUENTIAL IN NATURE AND NEED NO INDEPENDENT ADJUDICATION. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DAY OF JANUARY, 2017. SD/- SD/- ( A.K. GARODIA ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 06 TH JANUARY, 2017. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.