M/s Verisign Services India Pvt Ltd , Bangalore V. Deputy Commissioner of Income TAx Circle-7(1)(2), Bangalore

ITTPA 3151/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2622 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 14-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKA RAN , ACCOUNTANT MEMBER IT (TP) A NO. 3151/BANG/2018 ASSESSMENT YEAR : 2012 - 13 VERISIGN SERVICES INDIA PVT. LTD., NO.52, 3 RD FLOOR, 100 FEET ROAD, KORAMANGALA 2 ND BLOCK, BANGALORE 560 034. PAN: AAACL 8712L VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2), BANGALORE. APPELLANT RESPONDENT APP E LLANT B Y : SHRI UMASHANKAR G A U TAM, ADVOCATE RESP ONDENT BY : DR. SHANKAR PRASAD, ADDL.CIT (DR)(ITAT), BENGALURU. DATE OF HEARING : 12. 0 6 .2019 DATE OF PRONOUNCEMENT : 14 . 0 6 . 2 0 1 9 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 19.9.2018 OF CIT(APPEALS)-7, BENGALURU, RELATING TO ASSESSMEN T YEAR 2012-13. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL BY THE ASSESSEE IS WITH REGARD TO THE CORRECTNESS OF THE D ETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF AN INTERNATIONAL T RANSACTION OF RENDERING SOFTWARE DEVELOPMENT SERVICES (SWD SERVICES) BY THE ASSESSEE TO ITS IT(TP)A NO.3151/BANG/2018. PAGE 2 OF 12 ASSOCIATED ENTERPRISE (AE) I.E., ITS HOLDING COMPAN Y VERISIGN INC., US AND VERSIGN SARL. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF PROVIDING CONTRACT SOFTWARE DEVELOPMENT SERVICES (SWD SERVICE S) TO ITS HOLDING COMPANY. THE TRANSACTION OF RENDERING SOFTWARE DEVE LOPMENT SERVICES TO ITS HOLDING COMPANY WAS A TRANSACTION WITH AN ASSOC IATED ENTERPRISE (AE) AND WAS THEREFORE AN INTERNATIONAL TRANSACTION. AS PER THE PROVISIONS OF SCC.92 OF THE INCOME-TAX ACT, 1961(ACT), INCOME FRO M INTERNATIONAL TRANSACTION HAS TO BE COMPUTED HAVING REGARD TO ARM 'S LENGTH PRICE (ALP). 4. THE ASSESSEE RECEIVED A SUM OF RS.24,79,60,171 F ROM ITS AE FOR RENDERING SWD SERVICES. TO JUSTIFY THE PRICE RECEI VED IN THE INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH, THE ASSESSEE FILED A TRANSFER PRICING ANALYSIS IN WHICH IT ADOPTED THE TRANSACTION NET MA RGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM) FOR DETERMINATION OF ALP. THE PROFIT LEVEL INDICATOR CHOSEN FOR THE PURPOSE OF COMPARISO N OF THE ASSESSEE'S PROFIT WITH THAT OF COMPARABLE COMPANIES WAS OPERAT ING PROFIT/TOTAL COST (OP/TC). THE TRANSFER PRICING OFFICER HAS ACCEPTED THE TNMM TO BE THE MAM FOR DETERMINING ALP AND ALSO THE PROFIT LEVEL I NDICATOR (PLI) CHOSEN FOR THE PURPOSE OF COMPARISON. THE OP/TC OF THE AS SESSEE WAS 10.38%. THE ASSESSEE IN ITS TP STUDY SELECTED 14 COMPARABLE COMPANIES WHOSE ARITHMETIC MEAN OF OP/TC WAS MORE COMPARABLE WITH T HE ARITHMETIC MEAN OF OP/TC OF THE 14 COMPARABLES SELECTED BY THE ASSE SSEE, IT WAS CLAIMED BY THE ASSESSEE THAT THE PRICE CHARGED BY IT IN THE INTERNATIONAL TRANSACTION WAS AT ARM'S LENGTH. 5. THE TRANSFER PRICING OFFICER (TPO) TO WHOM THE D ETERMINATION OF ALP WAS REFERRED BY THE AO, ACCEPTED 1 (MINDTREE LT D.) OUT OF THE 14 COMPARABLE COMPANIES SUGGESTED IN THE TP STUDY BY T HE ASSESSEE AS IT(TP)A NO.3151/BANG/2018. PAGE 3 OF 12 COMPARABLE WITH THE ASSESSEE. THE TPO ON HIS OWN SE LECTED 9 OTHER COMPANIES AS COMPARABLE COMPANIES WITH THE ASSESSEE . THUS A FINAL SET OF 10 COMPARABLE COMPANIES WAS CHOSEN BY THE TPO AS COMPARABLE COMPANIES. THE ARITHMETIC MEAN OF PROFIT MARGIN OF THESE COMPANIES AFTER AND BEFORE ADJUSTMENT TOWARDS WORKING CAPITAL ADJUS TMENT SELECTED BY TPO WAS AS FOLLOWS:- SI. NO. NAME OF THE COMPANY MARKUP ON TOTAL COSTS (WC-UNADJ) (IN %) MARKUP ON TOTAL COSTS (WC-ADJ) (IN %) 1 DATAMATICS GLOBAL SERVICES LTD. 14.57 17.87 2 GENESYS INTERNATIONAL CORPN. LTD. 30.09 28.60 3 ICRA TECHNO ANALYTICS LTD. 17.24 19.07 4 INFOSYS LTD. 43.10 45.01 5 LARSEN & TOUBRO INFOTECH LTD. 25.47 28.64 6 MINDTREE LTD. 15.01 17.83 7 PERSISTENT SYSTEMS LTD. 27.20 30.05 8 RS SOFTWARE (INDIA) LTD. 15.34 20.67 9 SASKEN COMMUNICATION TECHNOLOGIES LTD. 12.15 16.21 10 SPRY RESOURCES INDIA PVT. LTD. 26.18 14.02 AVERAGE MARKUP 22.64 23.80 IT(TP)A NO.3151/BANG/2018. PAGE 4 OF 12 6. BASED ON THE ABOVE AVERAGE ARITHMETIC MEAN OF PR OFIT MARGIN OF THE COMPARABLE COMPANIES, THE TPO COMPUTED THE ALP OF T HE INTERNATIONAL TRANSACTION OF RENDERING OF SWD SERVICES BY THE ASS ESSEE TO ITS HOLDING COMPANY AS FOLLOWS:- COMPUTATION OF ARM'S LENGTH PRICE BY THE TPO AND AD JUSTMENT MADE: ARM'S LENGTH MEAN MARKUP 22.63% LESS: WORKING CAPITAL ADJUSTMENT AS PER ANNEX. C 2.51% ADJUSTED MAR GIN 2 0.12 % OPERATING COST RS.22,46,44,069 ARM'S LENGTH PRICE 120.12 % OF OPERATING COST RS.26,98,42,456 PRICE RECEIVED RS. 24,79,60,171 SHO RTFALL BEING ADJUSTMENT U/S. 92CA RS. 2,18,82,285 7. THE DIFFERENCE BETWEEN THE PRICE CHARGED BY THE ASSESSEE AND THE ALP DETERMINED BY THE TPO VIZ ., RS.2,18,82,285/- WAS ADDED TO THE TOTAL INCOME BY THE AO IN HIS DRAFT ASSESSMENT ORDER AS W ELL AS THE FINAL ASSESSMENT ORDER AS THE ASSESSEE DID NOT FILED OBJE CTIONS TO THE DRAFT ASSESSMENT ORDER ON THE AFORESAID ADDITION BEFORE T HE DISPUTE RESOLUTION PANEL (DRP) U/S.144C OF THE ACT. THE ASSESSEE HOWEV ER FILED APPEAL AGAINST THE ORDER OF ASSESSMENT BEFORE THE CIT(A). 8. THE CIT(A) IN THE IMPUGNED ORDER DIRECTED THE AO (I ) TO EXCLUDE ICRA TECHNO ANALYTICS LTD,, DATAMATICS GLOBAL SERVI CES LTD., AND SASKEN COMMUNICATIONS TECHNOLOGIES LTD., FROM THE LIST OF COMPARABLE COMPANIES AS THE CIT(A) AGREED WITH THE ASSESSEE THAT THESE T WO COMPANIES ARE NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE, THE CIT(A) REJECTED THE ASSESSEE'S CLAIM FOR EXCLUSION OF THE FOLLOWING FOU R COMPANIES VIZ ., IT(TP)A NO.3151/BANG/2018. PAGE 5 OF 12 (A) GENESYS INTERNATIONAL CORPN. LTD., (B) INFOSYS LTD., (C) LARSEN AND TOUBRO INFOTECH LTD., (D) PERSISTENT SYSTEMS LTD., AND (E) SPRY RESOURCES INDIA PVT.LTD. THE ASSESSEE HAD CONTENDED BEFORE C IT(A) THAT THE FIRST 5 COMPANIES ARE NOT COMPARABLE TO THE ASSESSEE FUNCTI ONALLY. 9. PURSUANT TO THE ABOVE DIRECTIONS ISSUED BY THE D RP, THE LIST OF COMPARABLES THAT REMAINED FOR CONSIDERATION WAS AS FOLLOWS: S I. NO. NAME OF THE COMPANY 1 GENESYS INTERNATIONAL CORPN. LTD. 2 INFOSYS LTD. 3 LARSEN & TOUBRO INFOTECH LTD. 4 MINDTREE LTD. 5 PERSISTENT SYSTEMS LTD. 6 RS SOFTWARE (INDIA) L T D. 7 SPRY RESOURCES INDIA PVT. LTD. 10. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS RAISED SEVERAL GROUNDS OF APPEAL CHALLENGING THE ADDITION ON SEVERAL COUNTS. HOWEVER AT THE TIME OF HEARING THE LEARNED COUNSEL RESTRICTED HIS ARGUMENTS TO EXCLUSION OF 5 COMPARABLES OUT OF THE 7 COMPARABLE COMPANIES THAT REMAIN IN THE FINAL LIST OF COMPARAB LE COMPANIES AFTER THE DIRECTIONS OF THE CIT(A) VIZ., (A) GENESYS INTERNAT IONAL CORPN. LTD., (B) INFOSYS LTD., (C) LARSEN AND TOUBRO INFOTECH LTD., (D) PERSISTENT SYSTEMS LTD., AND (E) SPRY RESOURCES INDIA PVT.LTD. THE ASS ESSEE ALSO SEEKS INCLUSION OF A COMPANY BY NAME CELSTREAM TECHNOLOGI ES PRIVATE LIMITED. THIS COMPANY WAS CHOSEN AS A COMPARABLE COMPANY IN THE TP STUDY OF THE ASSESSEE BUT WAS NOT ACCEPTED BY THE TPO AS WEL L AS CIT(A) AS COMPARABLE COMPANY FOR THE REASON THAT THIS COMPANY WAS RENDERING PRODUCT ENGINEERING SERVICES. IT(TP)A NO.3151/BANG/2018. PAGE 6 OF 12 11. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE COMPARABILITY OF THE 3 COMPANIES OUT OF THE AFORESA ID 5 COMPANIES WHICH THE ASSESSEE SEEKS TO EXCLUDE FROM THE LIST OF COMP ARABLE COMPANIES CHOSEN BY THE TPO VIZ ., INFOSYS LTD., LARSEN & TOUBRO INFOTECH LTD. AND PERSISTENT SYSTEMS LTD., WERE CONSIDERED BY THE ITA T DELHI BENCH IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA (P.) LTD. V. ASSTT. CIT [2018] 89 TAXMANN.COM 440 (DELHI - TRIB.) FOR THE SAME AY 2012-13. IN THIS REGARD IT WAS SUBMITTED THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE IS SAME AS THAT OF THE ASSESSEE IN THE CASE OF AGILIS INFORMATIONTECHNOLOGIES INDIA (P.) LTD. ( SUPRA ), IS IDENTICAL INASMUCH AS THE SAID COMPANY WAS AL SO INVOLVED IN PROVIDING SWD SERVICES TO ITS AE AND THE TPO HAD CHOSEN 16 COMPARABLE COMPANIES OUT OF WHICH 6 COMPANIES CHOSE N BY THE TPO IN THE CASE OF THE ASSESSEE FOR THE PURPOSE OF COMPARA BILITY WERE THE SAME. HIS SUBMISSION WAS THAT THE DECISION RENDERED BY TH E TRIBUNAL IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ) WOULD BE EQUALLY APPLICABLE TO THE ASSESSEE IN THE PRESENT CASE ALSO . THE LEARNED DR. SUBMITTED THAT THE CIT(A) IN HIS ORDER HAS GIVEN RE ASONS AS TO WHY THE AFORESAID COMPANIES ARE TO BE REGARDED AS COMPARABL E AND RELIED ON THE SAID OBSERVATIONS. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN TH E CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ), THIS TRIBUNAL CONSIDERED THE COMPARABILITY OF THE 3 COMPANIES WHI CH THE ASSESSEE SEEKS TO EXCLUDE FROM THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. THE FUNCTIONAL PROFILE OF ME ASSESSEE AND THAT OF THE ASSESSEE IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ), IS IDENTICAL INASMUCH AS THE SAID COMPANY WAS ALSO INVOLVED IN P ROVIDING SWD SERVICES TO ITS AE AND THE TPO HAD CHOSEN SOME COMP ARABLE COMPANIES WHICH WERE ALSO CHOSEN BY THE TPO IN THE CASE OF TH E ASSESSEE FOR THE IT(TP)A NO.3151/BANG/2018. PAGE 7 OF 12 PURPOSE OF COMPARABILITY. IN THE AFORESAID DECISION THE TRIBUNAL HELD ON THE COMPARABILITY OF THE 3 COMPANIES WHICH THE ASSESSEE SEEKS TO EXCLUDE AS FOLLOWS:- ( A ) INFOSYS LTD., WAS EXCLUDED FROM THE LIST OF COMPARA BLE COMPANIES BY FOLLOWING THE DECISIO N OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. AGNITY INDIA TECHNOLOGIES (P.) LTD. [2013] 36 TAXMANN.COM 289/219 TAXMAN 26 (DELHI) . THE DISCUSSION IS CONTAINED IN PARAGRAPHS 4.5 TO 4.7 OF THE TRIBUNAL'S ORDER. THE TRIBUNAL ACCEPTED THAT INFOSYS LTD. IS A GIANT RISK TAKING COMPANY AN D ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS AND ALSO OWNS INTANGIBLE ASSETS AND THEREFORE NOT COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE IN THAT CASE. ( B ) LARSEN & TOU BRO INFOTECH LTD., WAS EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES BY R ELYING ON THE DECISION OF THE DELHI BENCH OF ITAT IN THE CASE OF SAXO INDIA (P.) LTD. V. ASSTT. CIT [2016] 67 TAXMANN.COM 155 (DELHI - TRIB.) . THE DISCUSSION IS CONTAIN ED IN PARAGRAPHS 4.8 TO 4.10 OF THE TRIBUNAL'S ORDER. THE TRIBUNAL HELD THAT L & T INFOTECH LTD., WAS A SOFTWARE PRODUCT COMPANY AND SEGMENTAL I NFORMATION ON SWD SERVICES WAS NOT AVAILABLE. THE TRIBUNAL ALSO NOTICED THAT THE APPEAL FILED BY THE REVENUE AGA INST THE TRIBUNAL'S ORDER WAS DISMISSED BY THE HON'BLE DELHI HIGH COURT IN ITA NO.682/2016. ( C ) PERSISTENT SYSTEMS LTD., WAS EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THIS COMPANY WAS A SOF TWARE PRODUCT COMPANY AND SEGMENTAL I NFORMATION ON SWD SERVICES WAS NOT AVAILABLE. THE TRIBUNAL IN COMING TO THE ABOVE CONC LUSION REFERRED TO THE DECISION RENDERED BY ITAT DELHI BENCH IN THE CA SE OF CASH EDGE INDIA (P.) LTD. V. ITO ITA NO.64/DEL/2015 ORDER DATED 23.9.2015 AND THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CAS E OF SAXO INDIA PVT. LTD. ( SUPRA ). THE FINDINGS IN THIS REGARD ARE CONTAINED IN PARAGRAPHS 4.14 TO 4.16 OF ITS ORDER. 13. THE CIT(A) HAS IN THE IMPUGNED ORDER HAS OPINED THAT COMPANIES LIKE MINDTREE LTD., WHICH ARE SIMILAR IN SIZE AND O THER ASPECTS TO THAT OF IT(TP)A NO.3151/BANG/2018. PAGE 8 OF 12 INFOSYS LTD., WERE CHOSEN BY THE ASSESSEE AS COMPAR ABLE COMPANY IN ITS TP STUDY AND THEREFORE THEY CANNOT OBJECT TO INFOSY S LTD., BEING CHOSEN AS COMPARABLE COMPANY. WE ARE OF THE VIEW THAT THIS A RGUMENT CANNOT BE SAID TO BE VALID BECAUSE, WE HAVE TO DEAL WITH ONLY EXCLUSION OF COMPARABLES AND WHEN THE REASONS GIVEN EXCLUSION AR E VALID, THEN SUCH COMPANIES HAVE TO BE EXCLUDED. RESPECTFULLY FOLLOW ING THE DECISION OF THE TRIBUNAL WE HOLD THAT THE AFORESAID 3 COMPANIES BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF ARR IVING AT THE ARITHMETIC MEAN OF COMPARABLE COMPANIES FOR THE PURPOSE OF COM PARISON WITH THE PROFIT MARGINS. 14. THE LEARNED COUNSEL FOR THE ASSESSEE NEXT SUBMI TTED THAT GENESYS INTERNATIONAL CORPORATION LTD., SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE COMPARABILITY OF THIS COM PANY WITH THE ASSESSEE HAS BEEN DISCUSSED BY THE TPO IN PAGE-10 O F HIS ORDER. THE ASSESSEE OBJECTED TO INCLUSION OF THIS COMPANY IN T HE LIST OF COMPARABLE COMPANIES FOR THE REASON THAT THIS COMPANY IS FUNCT IONALLY DIFFERENT AND OWNS INTANGIBLE ASSETS WHICH ARE PECULIAR ONLY WHEN THE ASSESSEE OWNS SOFTWARE PRODUCTS. ACCORDING TO THE ASSESSEE THIS C OMPANY IS ENGAGED IN PROVIDING GEOGRAPHICAL I NFORMATION COMPRISING OF PHOTOGRAMMETRY, REMOTE SENSING, CARTOGRAPHY, DATA CONVERSION, STATE OF THE ART TERRESTRIAL AND 3D GEOCONTENT INCLUDING LOCATION BASED AND OTHE R COMPUTER BASED RELATED SERVICES. PAGC-38 OF THE ANNUAL REPORT 2012 CONTAINING THE ABOVE DESCRIPTION WAS BROUGHT TO THE NOTICE OF THE TPO, I N THE DIRECTORS REPORT TO THE SHAREHOLDERS THE DIRECTORS HAVE INFORMED THE SH AREHOLDERS THAT THE COMPANY CONTINUED IN ITS JOURNEY, TO BE INNOVATORS AND LEADERS IN THE FIELDS OF LOCATION BASED SERVICES RELATED GEOPLATFORMS AND ADVANCED SURVEY TECHNIQUES. THERE IS NO SEGMENTAL REPORTING BECAUSE IT IS STATED IN THE ANNUAL REPORT THAT THIS COMPANY IS ONLY IN ONE SEGM ENT VIZ ., GIS BASED IT(TP)A NO.3151/BANG/2018. PAGE 9 OF 12 SERVICES AND THEREFORE THERE IS NO REQUIREMENT OF S EGMENTAL REPORTING. IT WAS ALSO SUBMITTED THAT THIS COMPANY OWNS SUBSTANTI AL INTANGIBLES EQUIVALENT TO 10.42% OF ITS TOTAL TURNOVER. 15. THE TPO HOWEVER HAS REGARDED THIS COMPANY AS A COMPARABLE COMPANY BY OBSERVING THAT THIS COMPANY DEVELOPS SOF TWARE FOR MAPPING AND GEOSPATIAL SERVICES AND OPERATES A FEW DEVELOPM ENT CENTRES IN INDIA. THE COMPANY IS PREDOMINANTLY INTO SOFTWARE DEVELOPM ENT SERVICES. THE INTANGIBLES IN THE POSSESSION OF THE COMPANY ARE ON LY THE GIS DATABASE WHICH IS ONLY DEPRECIATION. IT DOES NOT ADD SIGNIFI CANT VALUE TO THE COMPANY. THE CIT(A) CONFIRMED THE ORDER OF THE AO OBSERVING THAT THE SOFTWARE DEVELOPED BY ASSESSEE IS ALSO COMPLICATED. 16. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NO TICE THAT COMPARABILITY OF THIS COMPANY WITH A COMPANY ENGAGED IN PROVIDING SWD SERVICES SUCH AS THE ASSESSEE WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS LTD. VS. ACIT ITA NO.183/BANG/2017 ORDER DATED 11.4.2018, AND IT WAS HELD THEREIN ON THE COMPARABILITY OF M/S.GENSYS INTERNATIONAL CORPORATI ON LTD., AS FOLLOWS: 35. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. IT IS CLEAR FROM THE MATERIAL BROUGHT TO THE NOTICE OF THE TPO BY THE ASSESSEE THAT THIS: COMPANY RENDERS MAPPING AND GEOSPATIAL SERVICES. IN RENDERING SUCH SERVICES IT DEVELOPS SOFTWARE. BUT THAT DOES NOT MEAN THAT THIS COMPANY IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT. THE BUSINESS PROF ILE OF THIS COMPANY AS PER THE ANNUAL REPORT DOES NOT SHOW THAT THIS COMPANY IS INTO SOFTWARE DEVELOPMENT SERVICE. THE ONLY LINE OF BUSINESS THAT THIS COMPANY CARRIES ON IS RENDERING GIS BASED SERV ICES AND THIS IS CLEAR FROM THE ANNUAL REPORT WHICH SPECIFIES THAT S INCE THE COMPANY CARRIES ON ONLY ONE LINE OF BUSINESS VIZ ., GIS BASED SERVICES THERE IS NO NEED TO GIVE ANY SEGMENTAL RES ULTS. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE IS NO BASIS FOR THE TPO TO CONCLUDE THAT THIS COMPANY IS PREDOMINANTLY INTO SOFTWARE- IT(TP)A NO.3151/BANG/2018. PAGE 10 OF 12 DEVELOPMENT SERVICES. THE PRESENCE OF INTANGIBLE AS SETS IS INDICATIVE OF THE FACT THAT THIS COMPANY IS NOT IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. THE TPO HAS OVERLOOK ED THIS ASPECT AND PROCEEDED ON THE BASIS THAT THE PRESENCE OF INTANGIBLE ASSETS WOULD NOT BE SIGNIFICANT. RULE 10B(2) OF THE INCOME TAX RULES, 1962 (RULES) SPECIFICALLY PROVIDES THAT FOR THE PURPOSES OF SUB-RULE (1) OF RULE 10B, THE COMPARABILITY OF AN I NTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ( B ) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS; IN THE GIVEN FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT GENESYS INTERNATIONAL CORPORATION LTD., CANNOT BE C ONSIDERED AS A COMPARABLE COMPANY AND THE SAID COMPANY SHOULD BE E XCLUDED FROM THE FINAL LIST OF COMPARABLE COMPANIES. WE HOL D ACCORDINGLY. 17. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL, WE DIRECT EXCLUSION OF THE AFORESAID COMPANY FROM THE LIST OF COMPARABLE COMPANIES. 18. THE NEXT COMPANY THAT THE ASSESSEE SEEKS EXCLUS ION IS SPRY RESOURCES INDIA PVT.LTD. THE LEARNED COUNSEL FOR T HE ASSESSEE BROUGHT TO OUR NOTICE THAT THIS COMPANY WAS CHOSEN AS A COMPAR ABLE COMPANY BY THE ASSESSEE IN AY 2013-14 IN ITS TP STUDY BUT THE TPO REJECTED IT ON THE GROUND THAT THE RECEIVABLES AS ON 31.3.2013 WERE RS .7.49 CRORES WHEREAS THE TURNOVER OF THIS COMPANY WAS ONLY RS.3.45 CRORE S. THIS WAS HELD TO BE CONTRARY TO NORMAL COURSE OF BUSINESS AND HENCE THI S COMPANY WAS NOT REGARDED AS COMPARABLE COMPANY. THE LEARNED COUNSE L FOR THE ASSESSEE IT(TP)A NO.3151/BANG/2018. PAGE 11 OF 12 POINTED OUT THAT IN THIS YEAR AS ON 31.3.2012 THE R ECEIVABLES WERE RS. 4.21 CRORES WHEREAS THE TURNOVER WAS ONLY RS.3.70 CRORES . WE ARE OF THE VIEW THAT THIS PLEA WAS NOT RAISED BEFORE THE TPO OR CIT (A) AND THEREFORE THE COMPARABILITY OF THIS COMPANY ON THE AFORESAID GROU ND SHOULD BE CONSIDERED AFRESH BY THE TPO. WE DIRECT ACCORDINGL Y. 19. THE LEARNED COUNSEL FOR THE ASSESSEE PRAYS FOR INCLUSION OF A COMPANY AS A COMPARABLE COMPANY VIZ., M/S.CELSTREAM TECHNOLOGIES PVT.LTD. THIS COMPANY WAS CHOSEN AS A COMPARABLE C OMPANY IN THE TP STUDY OF THE ASSESSEE BUT WAS NOT ACCEPTED BY THE T PO AS WELL AS CIT(A) AS COMPARABLE COMPANY FOR THE REASON THAT THIS COMP ANY WAS RENDERING PRODUCT ENGINEERING SERVICES. FROM PAGE 890 OF THE ASSESSEES PAPER BOOK WHICH IS A COPY OF THE ANNUAL REPORT OF THIS C OMPANY IN NOTE NO.27 TO THE NOTE ON ACCOUNTS REGARDING SEGMENTAL INFORMATIO N, IT HAS BEEN MENTIONED THAT THIS COMPANY HAS ONLY ONE SEGMENT VI Z., SOFTWARE DEVELOPMENT AND RELATED SERVICES. THE CIT(A) IN EX CLUDING THIS COMPANY AS A COMPARABLE COMPANY HAS RELIED ON THE OBSERVATI ONS IN THE ANNUAL REPORT THAT THIS COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING PRODUCT ENGINEERING SERVICES. THEREFORE IT BECOMES NECESSA RY TO ASCERTAIN AS TO WHAT RELATED SERVICES AS MENTIONED IN NOTE NO.27 TO THE NOTES TO ACCOUNTS MEANS. WE FEEL IT WOULD BE IN THE INTERES T OF JUSTICE TO REMAND THE ISSUE OF COMPARABILITY OF THIS COMPANY TO THE T PO FOR FRESH CONSIDERATION. THE TPO MAY EXERCISE HIS POWERS U/S .133(6) OF THE ACT OR OTHERWISE IN ANY OTHER MANNER, TO GET THE REQUIRED DETAILS FROM THE COMPANY OR OTHERWISE TO ASCERTAIN AS TO WHETHER THI S COMPANY IS ONLY IN PROVIDING SWD SERVICES. 20. THE TPO WILL COMPUTE THE ALP AS PER THE DIRECTI ONS CONTAINED IN THIS ORDER AFTER AFFORDING ASSESSEE OPPORTUNITY OF BEING HEARD. IT(TP)A NO.3151/BANG/2018. PAGE 12 OF 12 21. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS TR EATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF JUNE, 2019. SD/- SD/- ( B.R. BASKARAN ) ( N.V . VASUDEVAN ) AC COUNTANT M EMBER VICE PRESIDENT BANGALORE, DATED, THE 14 TH JUNE, 2019. / D ESAI S MURTHY / COPY TO: 1. A PP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.