GXS India Technology Centre Private Limited, Bangalore V. Income Tax Officer, Ward - 11(2), Bangalore

ITTPA 87/BANG/2014

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5671 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 18-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 24-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 143(1); 43; 13; 154

Judgement Text

IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.80/BANG/2014 ASSESSMENT YEAR: 2005-06 ITO WARD-11(2) BANGALORE VS. M/S. GXS INDIA TECHNOLOGY CENTRE PVT. LTD. PRESTIGE EMERALD 2,3,&4 TH FLOOR MUNICIPAL NO.2, MADRAS BANK ROAD, LAVELLE ROAD JUNCTION, BANGALORE-560 001 PAN NO : AABCG7972P APPELLANT RESPONDENT IT(TP)A NO.87/BANG/2014 ASSESSMENT YEAR: 2005-06 M/S. GXS INDIA TECHNOLOGY CENTRE PVT. LTD. PRESTIGE EMERALD 2,3,&4 TH FLOOR MUNICIPAL NO.2, MADRAS BANK ROAD, LAVELLE ROAD JUNCTION, BANGALORE-560 001 VS. ITO WARD-11(2) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, A.R. RESPONDENT BY : SHRI PRIYADARSHI MISHRA, D.R. DATE OF HEARING : 17.09.2020 DATE OF PRONOUNCEMENT : 18.09.2020 IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 2 OF 12 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 20.12.2013 PASSED BY LD. CIT(A)-IV, BENGALURU AND T HEY RELATE TO THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IS A CAPTIVE SOFTWARE DEVELOPMENT S ERVICE PROVIDER TO ITS ASSOCIATED ENTERPRISE NAMED M/S. GXS INC. T HE MATTER RELATING TO DETERMINATION OF ARMS LENGTH PRICE IN RESPECT O F INTERNATIONAL TRANSACTION WAS REFERRED BY THE A.O. TO THE TRANSFE R PRICING OFFICER WHO MADE TRANSFER PRICING ADJUSTMENT OF RS.3,09,56, 816/-. THE ASSESSING OFFICER ADDED THE SAME TO THE TOTAL INCOM E RETURNED BY THE ASSESSEE. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 1 0A OF THE ACT. HOWEVER THE ASSESSING OFFICER REJECTED THE SAME BY HOLDING THAT THE UNDERTAKING OF THE ASSESSEE HAS BEEN FORMED BY SPLI TTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. 3. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) NOT ICED THAT THE ISSUE RELATING TO DEDUCTION CLAIMED U/S 10A OF THE ACT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN IT A NO.616/BANG/2009. FOLLOWING THE SAME, THE LD. CIT( A) HELD THAT THE DEDUCTION U/S 10A OF THE ACT IS ALLOWABLE TO THE AS SESSEE. THE REVENUE IS AGGRIEVED BY THE SAID DECISION OF CIT(A) . IN RESPECT OF TRANSFER PRICING ADJUSTMENT, THE LD. CIT(A) GAVE PA RTIAL RELIEF TO THE ASSESSEE AND HENCE THE ASSESSEE IS IN APPEAL BEFORE US SEEKING FURTHER RELIEF. 4. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE R EVENUE. WE NOTICE THAT THE ISSUE WHETHER THE UNDERTAKING OF TH E ASSESSEE HAS BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION OF EX ISTING BUSINESS IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 3 OF 12 WAS EXAMINED BY THE COORDINATE BENCH IN THE ASSESSE ES OWN CASE IN ITA NO.616/BANG/2009 AND THE TRIBUNAL, VIDE ITS ORD ER DATED 10 TH AUGUST, 2010 ALLOWED THE DEDUCTION U/S 10A OF THE A CT TO THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE COORDINATE BENCH IN THIS R EGARD. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY IS ENGAGED IN THE BUSINESS OF DESIGN, DEVELOPMENT AND TESTING OF SOFTWARE. IT FILED ITS RETURN OF INCOME ON 30.10.2 004 DECLARING A TOTAL INCOME OF RS.1,43,781/- AND CLAIMED DEDUCTION OF RS.2,47,82,817/- U/S 10A OF THE INCOME-TAX CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE RETURN OF INCOME WA S PROCESSED U/S 143(1) AND A REFUND OF RS.49,64,355/- WAS ISSUED TO THE ASSESSEE- COMPANY. SUBSEQUENTLY, THE ASSESSEE FILED AN APPLI CATION U/S 154 AND PURSUANT TO THE SAME, FURTHER REFUND OF RS.74,4 65/- WAS GRANTED. THEREAFTER, PROCEEDINGS U/S 143(3) WERE INITIATED. DURING THE COURSE OF 143(3) PROCEEDINGS, THE AO OBSERVED FROM THE APPENDIX FILED ALONG WITH THE RETURN OF INCOME FOR THE ASSES SMENT YEAR 2004- 05, THAT THE ASSESSEE-COMPANY HAS ACQUIRED FROM GE INDIA TECHNOLOGY CENTRE, THE FIXED ASSETS, EMPLOYEES, CUS TOMERS, LIABILITIES, OBLIGATIONS AND OTHERS IN ALL CONSTITU TING AN UNDERTAKING AND HAS CONTINUED THE BUSINESS OF SOFTWARE DEVELOPM ENT. HE ALSO EXAMINED THE APPROVAL LETTER OF THE DIRECTOR, STPI DATED 10.2.2003 AND OBSERVED THAT THE APPROVAL HAS BEEN ACCORDED FO R SETTING UP A NEW UNDERTAKING AND DOES NOT CONFER STATUS OF A STP CONSEQUENT TO THE SALE OF THE UNDERTAKING. THEREAFTER, HE CONSID ERED THE QUESTION AS TO WHETHER THE UNDERTAKING HAS BEEN ESTABLISHED FOR THE FIRST TIME OR WHETHER IT IS AN EXPANSION OF A UNIT OR SHIFTING OF A UNIT OR SPLITTING OR RECONSTRUCTION OF A UNIT AND EXAMINED THE APPLIC ABILITY OF SECTION 10A(2)(III) AND HELD THAT THE ASSESSEE DOES NOT FUL FILL THE CONDITIONS OF SEC.10A(2)(1)(B), 10A(2)(II) AND 10A(2)(III) AND THEREFORE THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 10A OF T HE ACT. HE, HOWEVER, CONSIDERED THE ASSESSEES ALTERNATIVE CLAI M OF DEDUCTION U/S 80HHE OF THE ACT. AGGRIEVED, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE CIT(A) WHO ALLOWED THE SAME HOLDING THAT THE UNDERTAKING HAS EXISTED IN THE SAME SHAPE AND FORM AND HAS CARRIED ON THE SAME BUSINESS BOTH BEFORE AND AFTER CHANGE I N OWNERSHIP AND THE MERE FACT OF CHANGE OF OWNERSHIP CANNOT BE TAKE N TO MEAN THAT THE UNDERTAKING ITSELF HAS BEEN FORMED FROM THE SPL ITTING UP OR RE- CONSTRUCTION OF AN EXISTING BUSINESS. AGGRIEVED, T HE REVENUE IS IN APPEAL BEFORE US. IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 4 OF 12 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED COUNSEL FOR A SSESSEE SUPPORTED THE ORDER OF THE CIT(A) AND ALSO PLACED RELIANCE UP ON THE DECISION OF THE B BENCH OF THIS TRIBUNAL IN THE CASE OF DY CIT VS. M/S. L.G. SOFT INDIA PVT. LTD. IN ITA NOS.623 & 847/BANG/2010 DATED 19.5.2010 WHEREIN IT HAS BEEN HELD THAT WHERE AN UN DERTAKING EXISTED IN THE SAME PLACE, FORM AND SUBSTANCE AND D ID CARRY ON THE SAME BUSINESS BEFORE AND AFTER THE CHANGE IN THE LE GAL CHARACTER OF THE FORM OF ORGANIZATION, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. HE ALSO PLACED RELIANCE UPON THE D ECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. P.K. ENG G. & FORGING (P) LTD., REPORTED IN 87 TAXMAN 101 WHEREIN, WHILE CONSIDERING THE ASSESSEES CLAIM FOR DEDUCTION U/S 80-J, IT WAS HEL D THAT WHERE THE INDUSTRIAL UNDERTAKING RUN BY A FIRM WHICH HAD BEEN ALLOWED DEDUCTION U/S 80-J FOR A PERIOD OF 5 YEARS, IT WOUL D BE ENTITLED TO BENEFIT OF RESIDUARY PERIOD. HE ALSO PLACED RELIAN CE UPON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TECH BOOKS ELECTRONICS SERVICES (P) LTD. VS. ADDL. CIT (100 IT D 125) WHEREIN IT WAS HELD THAT MERELY BECAUSE OF CHANGE IN OWNERS HIP THE EXEMPTION CANNOT BE DENIED. ANOTHER DECISION RELIE D UPON BY HIM IS IN THE CASE OF KUMARAN SYSTEMS (P) LTD. VS. ACIT (106 TTJ 484) WHEREIN IT WAS HELD THAT WHERE A FIRM IS CONVERTED INTO A COMPANY AND THERE WAS CHANGE ONLY IN THE COMPOSITION OF OWN ERSHIP AND NOT THE UNDERTAKING AND BUSINESS, THE EXEMPTION ALLOWED TO THE FIRM U/S 10A OF THE ACT COULD NOT BE DENIED TO THE COMPANY M ERELY BECAUSE IT HAD BEEN SEPARATELY GRANTED RECOGNITION. 5. HAVING HEARD BOTH SIDES AND HAVING CONSIDERED TH E RIVAL SUBMISSIONS, WE FIND THAT THE ISSUE IS SQUARELY COV ERED BY THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR AS SESSEE. THE DISTINCTIONS SOUGHT TO BE BROUGHT ABOUT BY THE LEAR NED DEPARTMENTAL REPRESENTATIVE, IN OUR OPINION, ARE NOT RELEVANT TO THE FACTS OF THE CASE BEFORE US. IN VIEW OF THE SAME, THE APPEAL OF THE REVENUE IS DISMISSED. 5. THE LD. A.R. ALSO SUBMITTED THAT THE ORDER PASSE D BY THE TRIBUNAL HAS SINCE BEEN UPHELD BY HONBLE HIGH COUR T OF KARNATAKA, VIDE ITS ORDER DATED 14 TH DAY OF NOVEMBER, 2018 PASSED IN INCOME TAX APPEAL NO.4 OF 2011. SINCE THE LD. CIT(A) HAS FOLLOWED THE DECISION RENDERED BY THE COORDINATE BENCH ON THIS I SSUE, WHICH HAS SINCE BEEN UPHELD BY HONBLE KARNATAKA HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THIS ORDER. ACCORDINGLY, THE APPE AL OF THE REVENUE IS DISMISSED. IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 5 OF 12 6. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASS ESSEE. THOUGH THE ASSESSEE HAS RAISED MANY GROUNDS, AT THE TIME O F HEARING THE LD. A.R. SUBMITTED THAT THE ASSESSEE IS PRESSING FOR EX CLUSION OF 7 COMPANIES OUT OF THE COMPARABLE COMPANIES CONFIRMED BY THE LD. CIT(A). ACCORDINGLY, THE REST OF THE GROUNDS URGED BY THE ASSESSEE ARE DISMISSED AS NOT PRESSED. 7. THE FACTS RELATING TO THE TRANSFER PRICING ADJUS TMENT ARE DISCUSSED IN BRIEF. THE ASSESSEE IS ESTABLISHED AS A 100% EXPORT ORIENTED UNIT REGISTERED UNDER SOFTWARE TECHNOLOGY PARK OF INDIA SCHEME IN BANGALORE. THE ASSESSEE IS PRIMARILY ENG AGED IN PROVIDING DESIGN AND DEVELOPMENT OF SOFTWARE SERVICES TO ITS PARENT COMPANY. DURING THE YEAR UNDER CONSIDERATION, THE TURNOVER O F THE ASSESSEE IN RESPECT OF INTERNATIONAL TRANSACTION WITH A.E. AMOU NTED TO RS.24.09 CRORES. IN ORDER TO DETERMINE THE ARMS LENGTH PRIC E OF INTERNATIONAL TRANSACTIONS, THE ASSESSEE SELECTED TNM METHOD AS M OST APPROPRIATE METHOD. THE ASSESSEE ADOPTED OPERATING PROFIT BY T OTAL COST (OP/TC) AS PROFIT LEVEL INDICATOR (PLI). THE PLI OF THE A SSESSEE WORKED OUT TO 10.47%. 8. THE TPO REJECTED THE TRANSFER PRICING STUDY OF T HE ASSESSEE AND PROCEEDED TO SELECT HIS OWN COMPARABLES. THE TPO S ELECTED 17 COMPANIES AS COMPARABLE COMPANIES AND THEY ARE LIST ED BELOW: IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 6 OF 12 SL.NO. COMPANY NAME SALES (RS.CR.) OP TO TOTAL COST% 1 BODHTREE CONSULTING LTD. 3.87 24.85 2 LANCO GLOBAL SYSTEMS LTD. 6.11 13.65 3 EXENSYS SOFTWARE SOLUTIONS LTD. 7.3 70.68 4 SANKHYA INFOTECH LTD. 12.99 27.39 5 SASKEN NETWORK SYSTEMS LTD. 14.44 16.64 6 FOUR SOFT LTD. 15.94 22.98 7 THIRDWARE SOLUTION LTD. 29.11 66.09 8 R S SOFTWARE (INDIA) LTD. 81.69 8.07 9 GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. 95.44 20.34 10 TATA ELXSI LTD. (SEG) 146.46 24.35 11 VISUAL SOFT TECHNOLOGIES LTD. (SEG) 185.43 23.52 12 SASKEN COMMUNICATION TECHNOLOGIES LTD.(SEG) 189.05 14.42 13 IGATE (SEG) 406 4.32 14 FLEXTRONICS (SEG) 457.45 32.19 15 L&T INFOTECH 562.45 10.33 16 SATYAM 3464.2 29.44 17 INFOSYS 26.59% 9. THE ARITHMETIC MEAN OF COMPARABLE COMPANIES SELE CTED BY THE TPO WAS 26.59% AFTER ALLOWING WORKING CAPITAL ADJUS TMENT OF 1.47% THE ADJUSTED ARITHMETICAL MEAN OF COMPARABLE COMPAN IES WAS 25.12%. ADOPTING THE SAME, THE TPO MADE TRANSFER P RICING ADJUSTMENT OF RS.3,09,56,816/-. 10. BEFORE LD. CIT(A), THE ASSESSEE CONTENDED THAT THE TURNOVER OF THE ASSESSEE FALLS IN THE RANGE OF RS,1 CRORE TO RS .200 CRORES. ACCORDINGLY, BY PLACING RELIANCE ON THE DECISION RE NDERED BY BANGALORE BENCH OF ITAT IN THE CASE OF GENISYS INTE GRATING SYSTEMS VS. DCIT (15 ITR (TRIB) 476) AND OTHER DECISIONS, T HE ASSESSEE CONTENDED THAT THE COMPARABLE COMPANIES HAVING TURN OVER OF MORE THAN RS.200 CRORES SHOULD NOT BE CONSIDERED AS COMP ARABLES. THE LD. CIT(A) ACCEPTED THE SAID CONTENTIONS OF THE ASS ESSEE AND ACCORDINGLY EXCLUDED FOLLOWING 5 COMPANIES: IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 7 OF 12 SL.NO. COMPANY NAME TURNOVER (IN CRORES) 1 IGATE (SEG) 406 2 FLEXTRONICS (SEG) 457.45 3 L&T INFOTECH 562.45 4 SATYAM 3464.2 5 INFOSYS 6859.7 ACCORDINGLY, 12 COMPANIES SELECTED BY THE TPO CAME TO BE CONFIRMED BY LD. CIT(A). 11. IN THIS APPEAL, THE ASSESSEE SEEKS EXCLUSION OF FOLLOWING 7 COMPARABLES. 1. BODHTREE CONSULTING LIMITED 2. EXENSYS SOFTWARE SOLUTIONS LIMITED 3. SANKHYA INFOTECH LIMITED 4. FOUR SOFT LIMITED 5. THIRDWARE SOLUTIONS LTD. 6. GEOMETRIC SOFTWARE SOLUTIONS LTD. 7. TATA ELXSI LIMITED (SEG.) THE LD. A.R. SUBMITTED THAT THE COORDINATE BENCH HA S EXAMINED ALL THE ABOVE SAID COMPANIES IN THE CASE OF AUTODES K INDIA (P) LTD. VS. DCIT IT(TP)A NO.540/BANG/2013 DATED 6.7.2018 (9 6 TAXMANN.COM 263). HE SUBMITTED THAT THE COORDINATE BENCH HAS HELD THAT THESE 7 COMPANIES ARE NOT GOOD COMPARABLES IN CASE OF CAPTIVE SOFTWARE DEVELOPMENT SERVICE DEVELOPMENT PROVIDER. 12. WE HEARD LD. D.R. AND PERUSED THE RECORD. WE N OTICE THAT THE COORDINATE BENCH HAS CONSIDERED ALL THE ABOVE SAID 7 COMPANIES IN THE CASE OF AUTODESK INDIA PVT. LTD. FOR THE SAKE OF CONVENIENCE, WE IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 8 OF 12 EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE COORDINATE BENCH IN RESPECT OF THE ABOVE SAID 7 COMPANIES. (A) BODHTREE CONSULTING AND TATA ELXSI LTD:- 21. IN GR. NOS.7 & 8 IN REVENUE'S APPEAL, THE REVENUE IS CHALLENGING THE ACTION OF THE CIT(A) IN DIRECTING THE EXCLUSION OF BODHTREE CONSULTING LTD. ('BODHTREE') AND TATA ELXSI LTD. FROM THE LIST OF COMPARABLES. IN THIS REGARD, WE F IND THAT THE CIT(A) DIRECTED THEIR EXCLUSION AS BEING FUNCTIONALLY DISS IMILAR TO THE ASSESSEE AS IT WAS ENGAGED IN DEVELOPING SOFTWARE PRODUCTS AND FOR THE REASON THAT THIS COMPANY WAS RENDERING BOTH SWD SERVICES AND WAS ALSO IN PROVIDI NG INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND THE BREAK UP OF THE REV ENUES FROM THESE TWO SEGMENTS WAS NOT AVAILABLE. (VIDE PARAGRAPH 134 TO 136 AT PA GES 42 TO 43 OF HIS ORDER. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED DR ON GR. NO.8 WHO RELIED ON THE ORDER OF THE TPO. WE FIND THAT THIS COMPANY HAS BEEN EXCL UDED FROM THE LIST OF COMPARABLE COMPANIES IN THE DECISION OF THE TRIBUNAL BANGALORE BENCHES IN THE CASE OF SYSARRIS SOFTWARE (P.) LTD. (SUPRA) WHEREIN VIDE PARAGRAPHS 20-21 AT PAGES 7-9 OF THE SAID ORDER BODHTREE HAS BEEN HELD TO BE NOT FUNCTIONALLY COMPARABLE WITH A COMPANY PROVIDING SWD SERVICES. SIMILARLY TATA ELXSI LTD., DIRECTED TO BE REMOVED BY THE CIT(A) FROM THE LIST OF COMPARABLE COMPANIES FOR TH E REASON THAT THIS COMPANY WAS PROVIDING NICHE PRODUCTS AND SERVICES ENTIRELY DIFF ERENT FROM THE ASSESSEE COMPANY. IN COMING TO THE ABOVE CONCLUSION THE CIT(A) HAS FO LLOWED THE DECISION OF THE MUMBAI ITAT IN THE CASE OF TELECORDIA TECHNOLOGIES (P.) LTD. V. ASSTT. CIT [IT APPEAL NO.7821 (MUM.) OF 2011 VIDE PARAGRAPH 139 OF HIS ORDER AT PAGE-44. THE LEARNED DR RELIED ON THE ORDER OF THE TPO/AO. WE FI ND THAT THE BANGALORE ITAT IN ITS DECISION IN THE CASE OF NET DEVICES INDIA LTD. V. ITO [2015] 63 TAXMANN.COM 94 (BANG. - TRIB.) 2005-06 VIDE PARAS 18.4.1-18.4.3 AT PAGES 3740 HAS TAKEN THE VIEW THAT THIS COMPANY WAS NOT COMPARABLE WITH A SWD SER VICE PROVIDER SUCH AS THE ASSESSEE ON THE GROUND THAT THIS COMPANY WAS A PROD UCT COMPANY AND OWNING SUBSTANTIAL IP RIGHTS ETC. FOLLOWING THE PRECEDENTS ON THIS ISSUE RENDERED ON IDENTICAL FACTS AND CIRCUMSTANCES OF THE PRESENT CA SE, WE DISMISS GR.NO.8 & 9 RAISED BY THE REVENUE. (B) EXENSYS SOFTWARE SOLUTIONS LTD :- 18. AS FAR AS GROUND NO.3 RAISED BY THE REVENUE IN ITS APPEAL IS CONCERNED, THE REVENUE IS CHALLENGING THE CIT(A)'S ACTION IN EXCLU DING EXENSYS SOFTWARE SOLUTIONS LTD. ('EXENSYS' FOR SHORT) AND THIRDWARE SOLUTIONS LTD. ('THIRDWARE' FOR SHORT) ON THE BASIS OF THEIR ABNORMAL PROFIT MARGIN S IN FY 2004-05. THE SUBMISSION OF THE LEARNED DR WAS THAT ABNORMALLY HIGH PROFITS CANNOT BE A GROUND PER SE TO REJECT A COMPANY AS COMPARABLE COMPANY, WHEN IT IS FUNCTIONALLY FOUND TO BE COMPARABLE, UNLESS THERE ARE SOME EXTRAORDINARY EVE NTS OR CIRCUMSTANCES THAT LEAD TO HIGH PROFITS. WE AGREE WITH THE LEARNED DR THAT EXCLUSION OF COMPANIES WHICH ARE OTHERWISE FUNCTIONALLY COMPARABLE CANNOT BE EXC LUDED ON THE GROUND THAT ITS PROFITS WERE ABNORMAL, UNLESS THE ABNORMALITY IS OW ING TO EXTRAORDINARY EVENTS THAT TAKE PLACE IN THE RELEVANT PREVIOUS YEAR, LIKE MERG ERS/AMALGAMATION ETC. TO THIS EXTENT THE ORDER OF THE CIT(A) IS NOT PROPER. THE L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE COMPANIES WERE RIGHTLY EXC LUDED BY THE CIT(A) AS THEIR ABNORMALLY HIGH MARGINS WERE OCCASIONED BY EXTRAORD INARY CIRCUMSTANCES FOR WHICH NO ADJUSTMENT CAN BE MADE TO ELIMINATE THE MA TERIAL EFFECT OF SUCH CIRCUMSTANCES. IT WAS BROUGHT TO OUR NOTICE THAT TH E COMPARABLE COMPANY EXENSYS IS CONCERNED, A COMPANY BY NAME HOLOOL INDIA LTD. A MALGAMATED WITH IT DURING FY IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 9 OF 12 2004-05 WHICH INCREASED THE MARGIN OF EXENSYS. WE H AVE CONSIDERED THE RIVAL SUBMISSION AND IN VIEW OF THE UNCONTROVERTED FACT R EGARDING ANOTHER COMPANY AMALGAMATING WITH THIS COMPANY AND CONSEQUENT ABNOR MAL PROFIT OF THIS COMPANY, THIS COMPANY WAS RIGHTLY DIRECTED TO BE EXCLUDED BY THE CIT(A) . WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF CIT(A) IN TH IS REGARD. (C) SANKHYA INFOTECH LIMITED:- 25. IN GROUND NO.4(A) THE ASSESSEE CHALLENGES THE ACTI ON OF THE CIT(A) IN NOT EXCLUDING A COMPANY BY NAME SANKHYA INFOTECH LIMITED FROM THE LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF COMPARISON OF PROFIT MARGIN OF COMPARABLE COMPANIES. THE ASSESSEE SEEKS THE REJECT ION OF SANKHYA INFOTECH LIMITED AS COMPARABLE COMPANY ON THE GROUND THAT IT IS FUNCTIONALLY NOT COMPARABLE AS IT IS ENGAGED IN THE BUSINESS OF DEVE LOPMENT OF SOFTWARE PRODUCTS & SERVICES AND TRAINING WHEREAS THE ASSESSEE IS ENGAG ED ONLY IN RENDERING SWD SERVICES. THE ORDER OF CIT(A) DOES NOT DEAL WITH TH IS COMPANY SPECIFICALLY REGARDING COMPARABILITY OF THIS COMPANY WITH THAT O F THE ASSESSEE. THE ASSESSEE IN ITS APPEAL HAD CHALLENGED THE ACTION OF THE TPO IN CHOOSING COMPANIES WHICH ARE NOT FUNCTIONALLY COMPARABLE. THERE ARE NO SPECIFIC SUBMISSIONS BEFORE CIT(A) BROUGHT TO OUR NOTICE REGARDING EXCLUSION OF THIS C OMPANY ON THE GROUND OF FUNCTIONAL COMPARABILITY. ACCORDING TO THE ASSESSEE , THIS COMPANY FOCUSES ON THE DEVELOPMENT OF NICHE PRODUCTS FOR THE TRANSPORT AND AVIATION INDUSTRY AND THAT NO PROPER SEGMENTAL DETAILS ARE AVAILABLE IN RELATION TO THE SAID DIVERSE ACTIVITIES. THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF ITA T BANGALORE IN THE CASE OF NET DEVICES INDIA (P.) LTD. (SUPRA) AT PARAS 18.1.1-18. 1.3 AT PAGES 33 TO 35] WHEREIN IT WAS HELD THAT THIS COMPANY IS FUNCTIONALLY DISSIMIL AR TO A COMPANY PROVIDING SWD SERVICES IN SIMILAR CIRCUMSTANCES. IN VIEW OF THE P RECEDENT ON THE ISSUE RENDERED ON IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE FOR T HE SAME AY 2005-06, WE ARE OF THE VIEW THAT THE CIT(A) OUGHT TO HAVE EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES . (D) GEOMETRIC SOFTWARE SOLUTIONS CO LTD & FOUR SOFT LTD 29. THE LEARNED COUNSEL FOR THE ASSESSEE MADE SUBMISSI ON REGARDING THE COMPUTATION OF RPT AS ADOPTED BY THE TPO. THE SUBMI SSION IN THIS REGARD ON BEHALF OF THE ASSESSEE WAS THAT THESE TWO COMPANIES, NAMEL Y, GEOMETRIC SOFTWARE SOLUTIONS CO. LTD . (`GEOMETRIC') AND FOUR SOFT LTD. ('FOURSOFT') OUG HT TO STAND REJECTED SINCE THEIR RPTS ARE AT 19.89% AND 22.52% RESPECTIVELY AND THUS IN EXCESS OF 15%. ALTHOUGH THE RPT% OF GEOMETRIC HAS BEEN COM PUTED BY THE TPO TO BE 11.49%, ITS RPT%, IF CORRECTLY COMPUTED AS PER THE DISCLOSURES IN ITS FINANCIAL STATEMENT, WOULD BE 22.52% AS STATED HEREUNDER: IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 10 OF 12 NATURE OF TRANSACTION SUBSIDIARY HOLDING COMPANY SALES 1047,33,059 21,67,458 SOFTWARE DEVELOPMENT CHARGES 47,46,093 MARKETING EXPENSES 501,50,314 RENT PAID TOWARDS LEASED PREMISES 118,04,364 REIMBURSEMENT OF EXPENSES 399,73,123 13,96,553 TOTAL 1996,02,589 153,68,375 TOTAL RPTS 2149,70,964 SALES 9554,47,057 RPT/SALES 22.52% WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROP RIATE TO DIRECT THE TPO/AO TO EXAMINE THE CLAIM OF THE ASSESSEE IN THIS REGARD AN D IF IT IS FOUND THAT RPT IS MORE THAN 15% OF THE REVENUES, THEN THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 30. AS REGARDS FOURSOFT THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF ITAT BANGALORE IN THE CASE OF NET DEVICES INDIA LTD. (SU PRA) AT PARA 18.2 AT PAGE 36] WHEREIN FOURSOFT WAS EXCLUDED ON THE GROUND OF RPT BEING MORE THAN 15% OF THE REVENUE. FOLLOWING THE SAID DECISION, WE DIRECT FOURSOFT TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. (E) THIRDWARE SOLUTIONS LTD 26. IN GROUND NO.4(A) THE ASSESSEE HAS SOUGHT EXCLUSIO N OF EXENSYS SOFTWARE SOLUTIONS LTD. AND THIRDWARE SOLUTIONS LTD. ON THE GROUND THAT APART FROM THE FACT THAT THE PROFIT MARGINS OF THESE COMPANIES WERE ABN ORMALLY HIGH OWING TO EXTRAORDINARY EVENTS THAT HAPPENED DURING THE RELEV ANT PREVIOUS YEAR, THESE TWO COMPANIES HAVE TO BE EXCLUDED ON THE GROUND THAT TH ESE TWO COMPANIES ARE FUNCTIONALLY DISSIMILAR TO THAT OF THE ASSESSEE WHI CH IS SWD SERVICE PROVIDER. AS FAR AS EXENSYS SOFTWARE SOLUTIONS LTD. IS CONCERNED, WE HAVE ALREADY HELD THAT THE CIT(A) WAS JUSTIFIED IN EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT ITS PROFITS WERE ABNOR MALLY HIGH OWING TO EXTRAORDINARY EVENT OF MERGER/AMALGAMATION THAT TOO K PLACE DURING THE RELEVANT PREVIOUS YEAR. SINCE NO SUCH EXTRAORDINARY EVENTS T OOK PLACE, IN THE CASE OF THIRDWARE SOLUTIONS LTD., WE HELD THAT THIS COMPANY OUGHT NOT TO HAVE BEEN EXCLUDED ON THE GROUND OF ABNORMAL PROFITS OWING TO EXTRAORDINARY EVENTS HAPPENING IN THE RELEVANT PREVIOUS YEAR. THE ASSESS EE NOW SEEKS TO SUPPORT EXCLUSION OF THIS COMPANY ON THE GROUND OF FUNCTION AL COMPARABILITY. THERE IS NO DISCUSSION IN THE ORDER OF CIT(A) ON THE FUNCTIONAL COMPARABILITY OF THIS COMPANY. IT IS THE PLEA OF THE ASSESSEE THAT THIRDWARE SOLUT IONS LTD., IS ENGAGED IN MULTIPLE DIVERSE ACTIVITIES IN FY 2004-05 INCLUDING (A) SOFT WARE DEVELOPMENT SERVICES UNDER WHICH THE COMPANY PROVIDES APPLICATION DEVELOPMENT, CUSTOMER RELATIONSHIP MANAGEMENT AND ERP; AND (B) SALE OF SOFTWARE PRODUC T AND RELATED SERVICES, WITHOUT PROPER SEGMENTAL DATA BEING AVAILABLE FOR T HE SAID DIVERSE ACTIVITIES AND IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 11 OF 12 FOR SUCH REASONS BANGALORE ITAT IN NET DEVICES INDI A PVT. LTD. (SUPRA) AT PARAS 8.1-8.3 AND 9.1-9.3 AT PAGES 15-19 AND 19-21 RESPEC TIVELY] HAS TAKEN THE VIEW THAT FUNCTIONALLY NOT COMPARABLE WITH A SWD SERVICE PROV IDER SUCH AS THE ASSESSEE. 13. WE NOTICE THAT THE CO-ORDINATE BENCH HAS DIR ECTED EXCLUSION OF SIX COMPARABLE COMPANIES LISTED IN SUB-PARAGRAPHS ( A) TO (D). IN RESPECT OF THIRDWARE SOLUTIONS, THERE IS NO DIRECTI ON. THE LD A.R SUBMITTED THAT THIS COMPANY WAS REMANDED TO THE FIL E OF AO/TPO. ACCORDINGLY, FOLLOWING THE ABOVE SAID DECISION OF T HE CO-ORDINATE BENCH, WE DIRECT EXCLUSION OF SIX COMPARABLE COMPAN IES LISTED IN SUB- PARAGRAPHS (A) TO (D) AND RESTORE M/S THIRDWARE SOL UTIONS LTD TO THE FILE OF AO/TPO FOR EXAMINING IT AFRESH IN THE LIGHT OF CONTENTIONS RAISED BY THE ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE I S DISMISSED AND THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPT, 2020 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 18 TH SEPT, 2020. VG/SPS IT(TP)A NOS.80&87/BANG/2014 GXS INDIA TECHNOLOGY CENTRE PVT. LTD., BANGALORE PAGE 12 OF 12 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.