Agilent Technologies (International) Pvt. Ltd., Gurgaon v. ACIT, Gurgaon

ITA 1084/DEL/2016 | 2007-2008
Pronouncement Date: 18-11-2019 | Result: Allowed

Appeal Details

RSA Number 108420114 RSA 2016
Assessee PAN AADCA4115C
Bench Delhi
Appeal Number ITA 1084/DEL/2016
Duration Of Justice 3 year(s) 8 month(s) 18 day(s)
Appellant Agilent Technologies (International) Pvt. Ltd., Gurgaon
Respondent ACIT, Gurgaon
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I1
Tribunal Order Date 18-11-2019
Date Of Final Hearing 29-06-2017
Next Hearing Date 29-06-2017
First Hearing Date 29-06-2017
Assessment Year 2007-2008
Appeal Filed On 01-03-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.K. PANDA ACCOUNTANT MEMBER AND SHRI KULDIP SINGH JUDICIAL MEMBER ITA NO.1084/DEL./2016 (ASSESSMENT YEAR : 2007-08) M/S. AGILENT TECHNOLOGIES (INTERNATIONAL) VS. ACIT CIRCLE 1 (1) PRIVATE LIMITED GURGAON. PLOT NO.CP-11 SECTOR 8 IMT MANESAR GURGAON 122 051 (HARYANA). (PAN : AADCA4115C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KAMAL SAWHNEY ADVOCATE SHRI ANSHUL SHARMA CA REVENUE BY : SHRI SANJAY I. BARA CIT DR DATE OF HEARING : 30.09.2019 DATE OF ORDER : 18.11.2019 O R D E R PER KULDIP SINGH JUDICIAL MEMBER THIS IS SECOND ROUND OF LITIGATION BECAUSE DURING T HE FIRST ROUND OF ASSESSMENT PROCEEDINGS THE MATTER WAS RES TORED TO THE FILE OF LD. TRANSFER PRICING OFFICER (TPO) BY THE COORDI NATE BENCH OF THE TRIBUNAL VIDE ORDER DATED 15.06.2012 TO DECIDE AFRESH AFTER PROVIDING COPIES OF REPLY TO NOTICES ISSUED UNDER S ECTION 133 (6) OF THE INCOME-TAX ACT 1961 (FOR SHORT THE ACT) TO THE TAXPAYER. ITA NO.1084/DEL/2016 2 2. THE APPELLANT M/S. AGILENT TECHNOLOGIES (INTERN ATIONAL) PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER ) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 28.01.2016 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE ACT QUA THE ASSESSMENT YEAR 2007-08 ON THE G ROUNDS INTER ALIA THAT :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSESSING OFFICER CAO') HAS ERRED IN PASSIN G THE ASSESSMENT ORDER UNDER SECTION 254/143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT 1961 ('FILE ACT') AFTER CONSIDERING THE ADJUSTMENTS MADE BY THE LEARNED TRANSFER PRICIN G OFFICER ('LEARNED TPO') IN HIS ORDER PASSED UNDER SECTION 2 54 READ WITH 92CA(3) OF THE ACT AND SUBSEQUENTLY CONFIRMED BY TH E HON'BLE DISPUTE RESOLUTION PANEL (DRP') EACH OF THE GROUND IS REFERRED TO SEPARATELY WHICH MAY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW 1. THE LEARNED TPO / AO / DRP HAVE ERRED M MAKING A N ADDITION OF INR 180 674 599 TO THE TOTAL INCOME OF THE APPELLANT IN RESPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND PROVISION OF IT-E NABLED SERVICES BY THE APPELLANT TO ITS ASSOCIATED ENTERPR ISES ('AES') (HEREINAFTER REFERRED TO AS 'IMPUGNED TRANSACTIONS' ). 2. THE LEARNED TPO / A.O / DRP HAVE ERRED BY NOT A CCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT I N ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME- TAX RULES 1962 ('THE RULES') AND MODIFYING THE SA ME FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE ('ALP') OF THE IMPUGNED TRANSACTIONS TO HOLD THAT THE INTERNATIONA L TRANSACTIONS ARE NOT AT ARM'S LENGTH. 3. THE LEARNED TPO I AO F DRP HAVE ERRED IN A. NOT ACCEPTING THE USE OF MULTIPLE YEAR DATA AS ADOPTED BY THE APPELLANT IN ITS TRANSFER PRICING ('TP') DOCUME NTATION AND ITA NO.1084/DEL/2016 3 B. DETERMINING THE ARMS LENGTH MARGINS / PRICES US ING DATA PERTAINING ONLY TO FINANCIAL YEAR (FY') 2006-07 WH ICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE INDIAN TP DOCUMENTATION REQUIREMENTS 4 THE LEARNED TPO / AO / DRP HAVE ERRED III REJECT ING CERTAIN COMPARABLE COMPANIES SELECTED BY TILE APPEL LANT BY APPLYING INAPPROPRIATE COMPARABILITY CRITERIA SUCH AS A TURNOVER LESS THAN INR < CRORE B DIMINISHING REVENUE C DIFFERENT ACCOUNTING YEAR. D. EMPLOYEE COST GREATER THAN 25 PERCENT; AND E. ONSITE REVENUES GREATER THAN 75 PERCENT. 5 THE LEARNED TPO / AO / DRP HAVE ERRED IN LAW BY EXERCISING POWERS UNDER SECTION 133(6) OF THE ACT T O OBTAIN INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAI N AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES. 6. THE LEARNED TPO / AO / DRP HAVE ERRED IN SELECT ING CERTAIN COMPANIES (WHICH ARC EARNING SUPER NORMAL P ROFITS) AS COMPARABLE TO THE APPELLANT. 7 THE LEARNED TPO / AO / DRP HAVE ERRED IN ERRONEO USLY REJECTING THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF CO MPARABLE COMPANIES ON AN AD-HOC BASIS THEREBY RESORTING TO CHERRY PICKING OF COMPARABLES TO DETERMINE ALP. 8. THE LEARNED TPO / AO / DRP HAVE ERRED IN TREATME NT OF OPERATING AND NON-OPERATING ITEMS WHILE COMPUTING T HE MARGINS OF THE APPELLANT AND COMPARABLE COMPANIES AND PASS ED AN ORDER WHICH ALSO SUFFERS FROM SEVERAL COMPUTATIONAL ERROR S IN COMPUTATION OF MARGINS. 9. THE LEARNED TPO / AO / DRP HAVE ERRED IN NOT MAK ING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES 10. THE LEARNED TPO / AO HAVE ERRED IN NOT PASSING AN ASSESSMENT ORDER IN CONFORMITY WITH THE DIRECTIONS OF THE HON'BLE DRP IN RESPECT OF CERTAIN ITEMS (VIZ. TREATMENT OF FRINGE BENEFIT TAX AND COMPUTATIONAL ERRORS WHILE COMPUTING OPERAT ING MARGINS OF THE APPELLANT AND COMPARABLE COMPANIES) THUS AC TING IN CONTRAVENTION OF PROVISIONS OF SECTION 144C(10) OF THE ACT. 11 THE LEARNED AO HAS GROSSLY ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT ITA NO.1084/DEL/2016 4 12. THE LEARNED AO HAS ERRED IN LEVYING INTEREST UN DER SECTION 2348 AND 234C OF THE ACT WHILE COMPLETELY D ISREGARDING THE PROVISIONS OF THE ACT AND THE JUDICIAL PRECEDEN CE. 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. AGILENT TECHNOLOGIES (INTERNATIONAL) PVT. LTD. THE TAXPAYER IS A WHOLLY OWNED SUBSIDIAR Y OF AGILENT TECHNOLOGIES INTERNATIONAL EUROPE BV AND IS INTO T HE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT (IT) SERVICES AND IN FORMATION TECHNOLOGIES ENABLED SERVICES (ITES) TO ITS OVERSEA S COMPANY. AS PER REPORT IN FORM 3CEB THE TAXPAYER PROVIDED S OFTWARE DEVELOPMENT (IT) SERVICES AND ITES TO ITS ASSOCIATE D ENTERPRISES (AE) AND THEREBY ENTERED INTO INTERNATIONAL TRANSAC TIONS AS UNDER:- NAME OF TRANSACTION VALUE OF INTERNATIONAL TRANSACTION PURCHASE OF FIXED ASSETS 4 222 962 PURCHASES FOR REPAIRS AND MAINTENANCE 1 885 599 PROVISION OF IT ENABLED SERVICES 1 452 567 224 PROVISION OF SOFTWARE R & D SERVICES 321 600 317 REIMBURSEMENT OF EXPAT SALARIES PAID 32 542 090 4. THE TAXPAYER IN ITS TRANSFER PRICING (TP) ANALYS IS APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPR OPRIATE METHOD (MAM) WITH OP/OC AS PROFIT LEVEL INDICATOR ( PLI) AND COMPUTED ITS OWN MARGIN AT 13.03% AND 15.98% IN THE ITES AND IT SEGMENT RESPECTIVELY. TPO AFTER APPLYING VARIOU S FILTERS UNDER RULE WHICH HAVE NOT BEEN CHALLENGED BY THE TAXPAYE R REJECTED 15 COMPARABLES SELECTED BY THE TAXPAYER QUA SOFTWARE S EGMENT AND ITA NO.1084/DEL/2016 5 REJECTED 3 COMPARABLES QUA ITES SEGMENT SELECTED BY THE TAXPAYER. LD. TPO FINALLY SELECTED 26 COMPARABLES FOR SOFTWAR E SEGMENT WITH AVERAGE MARGIN AFTER WORKING CAPITAL ADJUSTMEN T OF 32.68% WITH OP/OC AND 25 COMPARABLES QUA ITES SEGMENT TO B ENCHMARK THE INTERNATIONAL TRANSACTIONS WITH AVERAGE MARGIN AFTER WORKING CAPITAL ADJUSTMENT OF 32.02% WITH OP/OC AND COMPUTE D THE ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTI ONS ENTERED INTO BY THE TAXPAYER WITH ITS AE AS UNDER :- 9.1 SOFTWARE DEVELOPMENT SERVICES :- ARMS LENGTH PRICE : OPERATING COST 279 485 304 ARMS LENGTH MARGIN 32.68% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @ 132.68% OF OPERATING COST 370 821 101 PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE THE PRICE CHARGED BY THE TAXPAYER TO ITS ASSOCIATED ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER :- ARMS LENGTH PRICE (ALP) @ 132.68% OF OPERATING COST 370 821 101 PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS 321 644 804 SHORTFALL BEING ADJUSTMENT U/S 92CA 49 176 297 9.2 IT ENABLED SERVICES SEGMENT : OPERATING COST 1 293 732 265 ARMS LENGTH MARGIN 30.05% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) 1 682 498 810 PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE : THE PRICE CHARGED BY THE TAXPAYER TO ITS ASSOCIATED ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER :- ITA NO.1084/DEL/2016 6 ARMS LENGTH PRICE AS COMPUTED ABOVE 1 682 498 810 PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS 1 453 039 699 SHORTFALL BEING ADJUSTMENT U/S 92CA 229 459 111 10. IN VIEW OF THE SAME FOLLOWING ADJUSTMENTS CAN BE MADE :- A. SOFTWARE DEVELOPMENT SEGMENT RS. 49 176 297 B. ITES RS.229 459 111 TOTAL : RS.278 635 408 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY WAY OF FILING OBJECTIONS WHO HAS GIVEN PARTIAL RELIEF TO THE TAXPAYER IN BOTH ITES AS WELL AS IT SEGMENT. FEELING AGGRIEVED THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING TH E PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. UNDISPUTEDLY TNMM AS THE MAM APPLIED BY THE TAX PAYER TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS QUA IT AND ITES SEGMENT HAS BEEN ACCEPTED BY THE LD. TPO/DRP. AFTE R GIVING EFFECT TO THE LD. DRP DIRECTIONS LD. TPO COMPUTED THE AVERAGE OF SOFTWARE DEVELOPMENT SERVICES SEGMENT AT 31.56% AND IN CASE OF ITES SEGMENT AT 22.72% AND PROPOSED ALP ADJUSTMENT OF ITA NO.1084/DEL/2016 7 RS.13 46 28 537/- AND RS.4 60 46 062/- IN ITES AND IT SEGMENT RESPECTIVELY. 8. LD. AR FOR THE TAXPAYER IN ORDER TO COMPRESS THE ISSUE RAISED IN THE PRESENT APPEAL CONTENDED THAT AT THIS STAGE THE TAXPAYER IS SEEKING EXCLUSION OF WIPRO LIMITED (BPO SEGMENT) MAPLE ESOLUTIONS LTD. TRITON CORP. LTD. INFOSYS BPO LTD . HCL COMNET SYSTEMS & SERVICES LTD. AND ACCENTIA TECHNOL OGIES LTD. IN ITES SEGMENT AND SOUGHT EXCLUSION OF INFOSYS TECHNOLOGIES LTD. WIPRO LIMITED KALS INFO SYSTEMS LTD. PERSIS TENT SYSTEMS LTD. TATA ELXSI LTD. MEGASOFT LTD. ISHIR INFOTEC H LTD. HELIOS & MATHESON INFORMATION TECHNOLOGIES LTD. THIRDWARE S OLUTIONS LTD. AVANI CIMCON TECHNOLOGIES LTD. SASKEN COMMUN ICATION TECHNOLOGIES LTD. AND FLEXTRONIC SOFTWARE SYSTEMS L TD. IN SOFTWARE DEVELOPMENT (IT) SEGMENT. ITES SEGMENT 9. AFTER GIVING EFFECT TO THE DIRECTIONS ISSUED BY THE LD. DRP LD. TPO IN ORDER TO BENCHMARK THE INTERNATIONAL TRA NSACTIONS QUA ITES SEGMENT TAKEN FINAL SET OF COMPARABLES AS UNDE R :- NO. COMPANY NAME ADJUSTED OP TO TOTAL COST % 1 ACCENTIA TECHNOLOGIES LTD (SEG) 27.87% 2 ADITYA BLRLA MINCAS WORLDWIDE LTD (EARLIER TRANSWORKS INFORMATION SERVICES LTD 12.75% ITA NO.1084/DEL/2016 8 3 ALLSEC TECHNOLOGIES LTD 27.44% 4 APPOLLO HEALTHSTREET LTD (-)9.99% 5 COSMIC GLOBAL LTD 13.1% 6 DATAMATICS FINANCIAL SERVICES LTD 10.34% 7 FLEXTRONCS SOFTWARE SYSTEMS LTD. (SEG) 7.8% 8 GENESYS INTERNATIONAL CORPORATION LTD 10.28% 9 HCL COM NET SYSTEMS & SERVICES LTD (SEG.) 45.83% 10 I C R A TECHNO ANALYTICS LTD (SEG.) 13.15% 11 INFORMED TECHNOLOGIES INDIA LTD 35.33% 12 INFOSYS B P O LTD 30.38% 13 ISERVICES INDIA PVT LTD 50.35% 14 MAPLE ESOLUTIONS LTD 31.99% 15 R SYSTEMS INTERNATIONAL LTD (SEG.) 20.04% 16 SPANCO LTD (SEG.) 21.39% 17 TRITON CORP LTD 29.37% 18 WIPRO LTD (SEG.) 31.51% ARITHMETICAL MEAN 22.72% 10. THE LD. TPO COMPUTED THE ALP QUA ITES SEGMENT A S UNDER:- OPERATING COST 1 29 37 32 265/- ARMS LENGTH PRICE 22.72% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @ 122.72% OF OPERATING COST 1 58 76 68 236/- PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE : ARMS LENGTH PRICE (ALP) @ 122.72% OF OPERATING COST 1 58 76 68 236/- PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS 1 4 5 30 39 699/- SHORTFALL BEING ADJUSTMENT U/S 92CA 13 46 28 537/- 11. NOW WE WOULD EXAMINE THE SUITABILITY OF COMPAR ABLE COMPANIES FINALLY SELECTED BY THE TPO/DRP NOW SOUGH T TO BE EXCLUDED BY THE TAXPAYER ONE BY ONE. ITA NO.1084/DEL/2016 9 WIPRO LIMITED (BPO SEGMENT) (WIPRO) 12. LD. AR FOR THE TAXPAYER SOUGHT EXCLUSION OF WIP RO FROM THE FINAL SET OF COMPARABLES ON THE GROUNDS INTER ALIA THAT IT IS A PRODUCT COMPANY; THAT IT HAS SIGNIFICANT INTANGIBLES; THAT WIPRO HAS ACQUIRED SUBSTANTIAL BUSINESS AND BRAND OF NORTH WE ST SWITCHGEAR LTD.; THAT WIPRO IS A GIANT COMPANY WITH HUGE TURNO VER AND RELIED UPON THE DECISIONS IN CASES OF AVAYA INDIA PVT. LTD. ITA 532/2019 AMERICAN EXPRESS (INDIA) PVT. LTD. ITA NO.1868/DEL/2015 ORACLE (OFSS) BPO SERVICES PVT. L TD. ITA 124/2018 H&S SOFTWARE DEVELOPMENT AND KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. NEW RIVER SOFTWARE SER VICES PVT. LTD. ITA 924/2016 PENTAIR WATER INDIA PVT. LTD. VS . CIT ITA 18/2015 & EVEREST BUSINESS ADVISORY INDIA (P) LTD. ITA NO.41/DEL/2013 & 1191/DEL/201 3. 14. WHEN WE EXAMINE THE LETTER ISSUED BY THE WIPRO TO LD. TPO PURSUANT TO THE NOTICE ISSUED U/S 133 (6) OF THE AC T AVAILABLE AT PAGE 989 OF THE PAPER BOOK IT IS CATEGORICALLY MEN TIONED IN PARA 4 THAT BPO SEGMENT OF WIPRO COVERS VARIOUS ACTIVITIES I.E. IT SERVICES AND PRODUCT. FURTHERMORE WHEN WE EXAMINE SUMMARY OF SEGMENTAL PROFIT & LOSS FOR FY 2006-07 AVAILABLE A T PAGE 991 OF THE PAPER BOOK WIPRO HAS SOLD GOODS WORTH RS.63 13 70 75 351/-. ITA NO.1084/DEL/2016 10 FURTHERMORE WHEN WE EXAMINE TPOS ORDER AT PAGE 92 EXTERNAL PAGE 139 OF THE APPEAL SET IT HAS COME ON RECORD T HAT WIPRO HAS ACQUIRED 9 COMPANIES DETAILED AS UNDER :- (I) MPOWER SOFTWARE SERVICES INC. AND SUBSIDIARIES (100% STAKE ACQUIRED IN DECEMBER 2005) - CUSTOMER RELATED INTANGIBLES RS.513.13 MILLION (II) BVPENTE BETEILIGUNGSVERWALTUNG GMBH AND SUBSIDIARIES (100% STAKE ACQUIRED IN DECEMBER 200 5) - CUSTOMER RELATED INTANGIBLES - RS. 117.40 MILLION (III) CMANGO LNC. AND SUBSIDIARIES (100% STAKE ACQU IRED IN APRIL 2006) - CUSTOMER RELATED INTANGIBLES - RS 1 17.40 MILLION (IV) RETAILBOX BV AND SUBSIDIARIES (100% STAKE ACQU IRED IN JUNE 2006) CUSTOMER RELATED INTANGIBLES - RS. 29 7.72 MILLION (V) NORTH-WEST SWITCHGEAR LTD (100% STAKE ACQUIRED IN MAY 2006) - MARKETING RELATED INTANGIBLES - RS. 1097.91 MILLION (VI) SARAWARE OY (100% STAKE ACQUIRED IN JUNE; 2006 ) - CUSTOMER RELATED INTANGIBLES - RS 254.72 MILLION (VII) QUANTECH GLOBAL SERVICES (100% STAKE ACQUIRED IN JULY 2006) - CUSTOMER RELATED INTANGIBLES - RS 45 92 MI LLION (VIII) HYDRAUTO GROUP (100% STAKE ACQUIRED IN NOVEM BER 2006) - CUSTOMER RELATED INTANGIBLES - RS. 73.57 MI LLION (IX) 3D NETWORKS (100% STAKE ACQUIRED IN NOVEMBER 2006) - CUSTOMER RELATED INTANGIBLES - RS. 136.24 MILLION 15. WHEN WE EXAMINE FINANCIALS OF THE WIPRO AVAILA BLE AT PAGE 1468 OF THE PAPER BOOK IT HAS COME ON RECORD THAT ON ACCOUNT OF ACQUISITION WIPRO HAS ACQUIRED CUSTOMER RELATED M ARKET RELATED AND TECHNOLOGY RELATED INTANGIBLES WITHOUT HAVING A NY VERIFICATION OF INTANGIBLES BETWEEN STANDALONE AND CONSOLIDATED FINANCIALS. ITA NO.1084/DEL/2016 11 FURTHERMORE FINANCIAL STATEMENT AVAILABLE AT PAGE 1475 OF THE PAPER BOOK SHOWS THAT WIPRO HAS GOODWILL OF RS.8.6 CRORES. IT IS ALSO PROVED FROM PAGE 991 OF THE PAPER BOOK THAT WI PRO HAS HUGE TURNOVER OF RS.940 CRORES AS AGAINST RS.142 CRORES OF THE TAXPAYER THUS A GIANT COMPANY WITH HUGE BRAND VALUE. 16. THE LD. DR FOR THE REVENUE CONTENDED THAT WHEN COMPANY IS INTO BPO IT IS POSSIBLE TO HAVE PRODUCTS AND THAT INTANGIBLES DO NOT CONTRIBUTE TO PROFITS AND THAT THE TAXPAYER HAS FAI LED TO BRING ON RECORD AS TO HOW PRODUCT SALE OF WIPRO AND ITS INTA NGIBLES HAVE AFFECTED THE PROFIT MARGINS. LD. DR ALSO CONTENTED ON BRAND VALUE OF WIPRO THAT THE TAXPAYER IS ALSO A BIG BRAND AND MOREOVER BRAND IS ALWAYS BUILT WITH LOT OF CORRESPONDING EXPENSES AND RELIED UPON THE ORDERS OF THE LD. TPO/DRP. 17. THE CONTENTIONS RAISED BY THE LD. DR FOR THE RE VENUE ARE NOT SUSTAINABLE WHEN WE EXAMINE THE PROFILE OF WIPRO IN TOTALITY WHICH IS A GIANT COMPANY HAVING HUGE TURNOVER OF RS.940 C RORES VIS--VIS TURNOVER OF THE TAXPAYER OF RS.142 CRORES WHICH IS ADMITTEDLY A CAPTIVE SERVICE PROVIDER COMPENSATIVE ON A COST PLU S MARK-UP BASIS HAVING SIGNIFICANT CUSTOMER RELATED MARKET RELATED AND TECHNOLOGY RELATED INTANGIBLES AND ALSO INTO ACQUIS ITIONS DURING THE YEAR UNDER ASSESSMENT. ITA NO.1084/DEL/2016 12 18. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF [PA GE 61 OF CASE LAWS PAPER BOOK] EXAMINED THE SUITABILITY OF W IPRO VIS-- VIS AMERICAN EXPRESS (INDIA) PVT. LTD. A ROUTINE I TES PROVIDER AND ORDERED TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPARABLES. 19. THE RATIO LAID DOWN BY HONBLE DELHI HIGH COURT IN THE CASE OF AVAYA INDIA PVT. LTD. IN ITA 532/2019 ORDER DATED 2 4.07.2019 IS ALSO APPLICABLE TO THE FACTS AND CIRCUMSTANCES O F THE CASE TO THE EXTENT THAT SCALE OF OPERATION OF A COMPANY VIS--V IS TESTED PARTY IS REQUIRED TO BE KEPT IN VIEW AND A GIANT COMPANY CAN NOT BE COMPARED WITH A CAPTIVE CONTRACT SERVICE PROVIDER W ORKING ON A SMALL SCALE BY RETURNING FOLLOWING FINDINGS :- 27. THERE IS MERIT IN THE CONTENTION OF THE ASSES SEE THAT THE SCALE OF OPERATIONS OF THE COMPARABLES WITH THE TES TED ENTITY IS A FACTOR THAT REQUIRES TO BE KEPT IN VIEW. TCS E-SERV E HAS A TURNOVER OF RS.1359 CRORES AND HAS NO SEGMENTAL REV ENUE WHEREAS THE ASSESSEES ENTIRE SEGMENTAL REVENUE IS A MERE24 CRORES. AS OBSERVED BY THIS COURT IN ITS DECISION D ATED5THAUGUST 2016 IN ITA 417/2016(PCIT V. ACTIS GLOBAL SERVICES PRIVATE LIMITED)SIZE AND SCALE OF TCS S OPERATION MAKES IT AN INAPPOSITE COMPARABLE VIS--VIS THE PETITIONER. AS ALREADY POINTED OUT EARLIER THERE IS A CLOSER COMPARISON OF TCS E-SERVE LIMITED WITH INFOSYS BPO LIMITED WITH EACH OF THEM EMPLOYING 13 342 AND 17 934 EMPLOYEES RESPECTIVELY AND MAKING RS.37 CRORES AND RS.19 CRORES AS CONTRIBUTION TOWARDS BRA ND EQUITY. WHEN RULE 10(B)(2) IS APPLIED I.E. THE FAR ANALYSIS NAMELY FUNCTIONS PERFORMED ASSETS OWNED AND RISKS ASSUMED IS DEPLOYED THEN BRAND AND HIGH ECONOMIC UPSCALE WOULD FALL WIT HIN THE DOMAIN OF ASSETS AND THIS ALSO WOULD MAKE BOTH TH ESE COMPANIES AS UNSUITABLE COMPARABLES. 20. MOREOVER WIPRO HAS ACQUIRED CUSTOMER RELATED MARKET RELATED AND TECHNOLOGY RELATED INTANGIBLES WHICH AR E PART OF THE ITA NO.1084/DEL/2016 13 SUBSIDIARIES ACQUIRED BY WIPRO. PERUSAL OF FINANCI AL STATEMENT AVAILABLE AT PAGE 1475 OF PAPER BOOK SHOWS THAT WI PRO IS HAVING GOODWILL OF RS.8.6 CRORES WHEREAS THE TAXPAYER IS H AVING NO SUCH GOODWILL AS IT IS WORKING AS A CAPTIVE CONTRACT SER VICE PROVIDER. 21. HONBLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS. ORACLE (OFSS) BPO SERVICES PVT. LTD. IN ITA 124/2018 ORDER DATED 05.02.2018 CONFIRMED THE EXCLUSION OF WIPRO BY THE TRIBUNAL O N GROUND OF BRAND VALUE WHICH HAVE SIGNIFICANT ROLE I N ITS ABILITY TO GARNER PROFITS AND TO NEGOTIATE CONTRACTS BY RETURN ING FOLLOWING FINDINGS :- THERE IS NO ERROR OF LAW PER SE IN THIS APPROACH. AS TO THE EXCLUSION OF M/S WIPRO LIMITED HERE TOO THE COURT IS OF THE OPINION THAT THE BRAND VALUE OF AN ENTITY HAS A SIG NIFICANT ROLE IN ITS ABILITY TO GARNER PROFITS AND NEGOTIATE CONTRAC TS. THUS WHILE CONSIDERING THE COMPARABLES THE LIKELIHOOD OF PROF ITS DERIVED OR ATTRIBUTABLE TO THE BRAND HAVING REGARD TO THE CONS ISTENCY OF THE QUALITY OF SERVICES THAT AN ENTITY IS ABLE TO OFFER WOULD BE RELEVANT; ALTHOUGH FUNCTIONALLY THE TWO ENTITIES M AY BE SIMILAR IN TERMS OF THE SERVICES OR PRODUCTS THEY OFFER BRAND DOES PLAY ITS OWN ROLE IN PRICE OR COST DETERMINATION. IF THIS SI NGULAR ASPECT IS KEPT IN MIND THE ITATS APPROACH CANNOT BE FAULTED WITH. 22. SIMILARLY HONBLE DELHI HIGH COURT IN H & S SOFTWARE DEVELOPMENT AND KNOWLEDGE MANAGER CENTRE PVT. LTD. (SUPRA) HAS CONFIRMED THE EXCLUSION OF WIPRO BY THE TRIBUNA L ON GROUND OF SIGNIFICANT BRAND PRESENCE FOR PROFITS AT LARGE COR PORATE SIZE. SO IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE LAW LAID DOWN BY HONBLE DELHI HIGH COURT IN THE CA SES SUPRA WE ITA NO.1084/DEL/2016 14 ARE OF THE CONSIDERED VIEW THAT WIPRO IS NOT A SUIT ABLE COMPARABLE VIS--VIS TAXPAYER HENCE ORDERED TO BE EXCLUDED. MAPLE ESOLUTIONS LTD. (MAPLE) 23. THE TAXPAYER SOUGHT EXCLUSION OF MAPLE FROM THE FINAL SET OF COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRAN SACTIONS ON GROUND OF MERGER AND ACQUISITIONS WHICH HAS AFFECTE D ITS PROFIT LEADING TO ABNORMAL RESULTS WITH GROWTH OF 64% IN S ALES OVER THE PREVIOUS YEAR. THE TAXPAYER HAS MADE ANALYSIS OF R EVENUE AND PROFIT OF MAPLE FOR AY 2006-07 2007-08 & 2008-09 I N TABULATED FORM AS UNDER :- MAPLE ESOLUTIONS LTD. FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 PARTICULARS AMOUNT (INR) AMOUNT (INR) AMOUNT (INR) AMOUNT (INR) REFER PAGE 1308 OF PB REFER INTERNAL PAGE 63 OF FY 07-08 ANNUAL REPORT REFER INTERNAL PAGE 63 OF FY 08-09 ANNUAL REPORT REVENUE 74 312 955.54 122 132 832.77 336 459 841.54 38 599 505.82 64.35% 175.49% -88.53% REFER PAGE 1308 OF PB REFER INTERNAL PAGE 63 OF FY 07-08 ANNUAL REPORT REFER INTERNAL PAGE 63 OF FY 08-09 ANNUAL REPORT PROFIT / LOSS AS PER FINANCIALS 17 510 010.00 30 145 087.00 51 1566 745.00 (20 176 862.00) 72.16% 69.70% -139.44% LD. AR FOR THE TAXPAYER RELIED UPON THE DECISIONS I N THE CASES OF CALIBERATED HEALTHCARE SYSTEMS INDIA PVT. LTD. IN I TA ITA NO.1084/DEL/2016 15 NO.5271/DEL/2012 M/S. EVEREST BUSINESS ADVISORY IN DIA (P) LTD. IN ITA NO.41/DEL/2013 CRM SERVICES INDIA (P) LTD. IN ITA NO.4796/DEL/2010 ORACLE (OFSS) BPO SERVICE PVT. LT D. IN ITA NO.1111/KOL/2011 CAPITAL IQ INFORMATION SYSTEMS IN DIA PVT. LTD. IN ITA NO.1961/HYD./2011 & AOL ONLINE INDIA PV T. LTD. IN ITA NO.1036/BANG./2011 . 24. ON THE OTHER HAND LD. DR FOR THE REVENUE CONTE NDED THAT SIMPLE ACQUISITION IS NOT ENOUGH TO EXCLUDE ANY COM PANY FROM THE LIST OF COMPARABLES. 25. THE CONTENTION RAISED BY THE LD. DR FOR THE REV ENUE IS NOT SUSTAINABLE BECAUSE IN CASE OF MAPLE ACQUISITION H AS CERTAINLY AFFECTED THE PROFIT MARGIN AS ITS GROWTH DURING THE YEAR UNDER ASSESSMENT IS ABNORMAL TO THE TUNE OF 64% IN SALES OVER THE PREVIOUS YEAR. MAPLE HAS BEEN ORDERED TO BE EXCLUD ED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CABLIBERATED HEALTHCARE SYSTEMS INDIA PVT. LTD. (SUPRA) AS A COMPARABLE IN SIMILAR SET OF FACTS AND CIRCUMSTANCES ON GROUNDS O F ACQUISITION BY RETURNING FOLLOWING FINDINGS :- 9. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE R ELEVANT MATERIAL ON RECORD. BOTH THESE COMPANIES ARE INTER- RELATED ENTITIES. DURING THE YEAR UNDER CONSIDERATION THER E WAS ACQUISITION OF 100% SHARES OF MAPLE ESOLUTIONS LTD. BY TRITON CORP. LTD. AND THUS MAPLE ESOLUTIONS LTD. BECAME A WHOLLY OWNED SUBSIDIARY OF TRITON CORP. LTD. W.E.F 01.01.2 007. IT CAN BE SEEN THAT THIS MERGER/ACQUISITION HAS TAKEN PLACE D URING THE YEAR UNDER CONSIDERATION THEREBY SHATTERING THEIR COMPA RABILITY. ITA NO.1084/DEL/2016 16 . 11. WE FIND THAT THERE IS A DIRECT ORDER BY THE DEL HI BENCHES OF THE TRIBUNAL IN WHICH THESE TWO COMPANIES HAVE B EEN EXCLUDED BECAUSE OF FINANCIAL IRREGULARITIES COMMIT TED BY THEIR DIRECTORS. IN THE ABSENCE OF ANY CONTRARY ORDER BRO UGHT ON RECORD BY THE LD. DR PERMITTING THE INCLUSION OF COMPANIES UNDER CLOUD IN THE LIST OF COMPARABLES RESPECTFULLY FOLLOWING THE PRECEDENT WE DIRECT THE EXCLUSION OF THESE TWO COMPANIES FROM TH E LIST OF COMPARABLES. 26. MAPLE HAS BEEN ORDERED TO BE EXCLUDED IN MANY O THER CASES DECIDED BY THE TRIBUNAL ON THE GROUND THAT ITS FINA NCIAL RESULTS ARE NOT CREDIBLE AS ITS DIRECTORS HAVE BEEN INDICTED IN FRAUDS. SO IN VIEW OF THE MATTER WE FIND THAT MAPLE IS NOT A SUI TABLE COMPARABLE VIS--VIS TAXPAYER HENCE ORDERED TO BE EXCLUDED. TRITON CORP. LTD. (TRITON) 27. THE TAXPAYER SOUGHT TO EXCLUDE TRITON AGAIN ON GROUND OF ACQUISITION AND ON THE GROUND THAT ITS FINANCIALS A RE NOT CREDIBLE AS ITS DIRECTORS WERE INDICTED FOR FRAUD; THAT IT IS A PRODUCT COMPANY AND SEGMENTAL FINANCIALS ARE NOT AVAILABLE AND RELI ED UPON THE DECISION OF CABLIBERATED HEALTHCARE SYSTEMS INDIA PVT. LTD. (SUPRA). LD. AR FOR THE TAXPAYER IN SUPPORT OF HIS ARGUMENTS BROUGHT ON RECORD THAT FINANCIAL RESULTS OF TRITON FOR FYS 2006-07 2007-08 & 2008-09 IN TABULATED FORM WHICH ARE EXTRA CTED AS UNDER:- ITA NO.1084/DEL/2016 17 TRITON CORP LTD. FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 PARTICULARS AMOUNT (INR) AMOUNT (INR) AMOUNT (INR) AMOUNT (INR) REFER PAGE 1344 OF PB REFER PAGE 22 OF ANNUAL REPO RT REVENUE 317 529 518.00 533 671 726.00 1 431 655 866.00 327 661 569.00 68.07% 168.27% -77.11% REFER PAGE 1344 OF PB REFER PAGE 22 OF ANNUAL REPO RT PROFIT / LOSS AS PER FINANCIALS 46 361 173.00 122 204 738.00 236 804 944.00 (328 31 8 273.00) 163.59% 93.78% -238.65% 28. LD. DR FOR THE REVENUE ON THE OTHER HAND CONT ESTED THE EXCLUSION OF TRITON ON THE BASIS OF SAME ARGUMENT I N CASE OF MAPLE AND RELIED UPON THE ORDERS PASSED BY THE LD. TPO/DR P. 29. BARE PERUSAL OF FINANCIAL RESULTS EXTRACTED IN PRECEDING PARA SHOWS THAT DUE TO ACQUISITION PROFIT OF TRITON HAS INCREASED BY 163.59% AND 93.78% IN FY 2006-07 AND 2007-08 RESPEC TIVELY WHICH IS SUFFICIENT TO EXCLUDE AS A COMPARABLE VIS- -VIS THE TAXPAYER AS NO SUCH EXTRA ORDINARY EVENT HAS PUSHED TAXPAYER FURTHER TO ACHIEVE SUCH PROFIT RESULTS. 29.1 MOREOVER IN CABLIBERATED HEALTHCARE SYSTEMS INDIA PVT. LTD. (SUPRA) TRITON HAS BEEN ORDERED TO BE EXCLUDED AS A COMPARABLE BECAUSE OF FINANCIAL IRREGULARITIES COMM ITTED BY THEIR DIRECTORS AS ITS FINANCIALS WERE NOT CREDIBLE. SO IN VIEW OF THE MATTER WE ARE OF THE CONSIDERED VIEW THAT TRITON I S ALSO NOT A SUITABLE COMPARABLE HENCE ORDERED TO BE EXCLUDED F ROM THE FINAL SET OF COMPARABLES. ITA NO.1084/DEL/2016 18 INFOSYS BPO LTD. (INFOSYS BPO) 30. THE TAXPAYER SOUGHT TO EXCLUDE INFOSYS BPO ON T HE GROUNDS INTER ALIA THAT IT IS A GIANT COMPANY WITH HUGE TUR NOVER AND SIGNIFICANT INTANGIBLES; THAT INFOSYS BPO HAS A BRA ND EXPENDITURE OF RS.56 LAKHS VIS--VIS NIL IN CASE OF THE TAXPAYE R; THAT INFOSYS BPO HAS A BRAND VALUE OF RS.31 617 CRORES AND RELIE D UPON THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TR IBUNAL IN CASE OF FLEXTRONICS TECHNOLOGIES (INDIA) PVT. LTD. IN ITA NO.1559/BANG/2012 AVAYA INDIA PVT. LTD. IN ITA NO.1904/DEL/2015 EVALUESERVE SEZ (GURGAON) PVT. LT D. IN ITA 241/2018 AND ORACLE (OFSS) BPO SERVICES PVT. LTD. IT HAS ALSO BEEN ORDERED TO BE EXCLUDED IN TAXPAYERS OWN CASE IN ITA NO.4191/DEL/2018 FOR AY 2014-15 ORDER DATED 06.05.2 019 . 31. LD. DR FOR THE REVENUE ON THE OTHER HAND RELI ED UPON THE ORDERS PASSED BY THE LD. TPO/DRP. 32. COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2014-15 (SUPRA) ORDERED TO EXCLUDED INFOSYS BPO AS A COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANS ACTION FOR ITES SEGMENT BY RETURNING FOLLOWING FINDINGS :- 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT ION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES WHEREIN THE REASONS GIVEN FOR INCLUSION OF THE ABOVE COMPARABLE COMPANY FOR THE ITA NO.1084/DEL/2016 19 PURPOSE OF BENCHMARKING OF THE ARMS-LENGTH PRICE O F THE INTERNATIONAL TRANSACTION OF THE ITES SEGMENT OF TH E ASSESSEE. THE ASSESSEE HAS ALSO PLACED BEFORE US THE ANNUAL R EPORT OF INFOSYS BPO LTD FOR 2013 14. ON LOOKING AT THE AN NUAL REPORT ITSELF IT IS CLEAR THAT THE COMPANY HAS AN IMPRINT OF INFOSYS BRAND ALL OVER IT. IN THE COMPANIES OVERVIEW AT PAGE NUMB ER 4 OF THE ANNUAL ACCOUNTS AS MENTIONED THAT THIS COMPANY IS T HE BUSINESS PROCESS OUTSOURCING SUBSIDIARY OF INFOSYS AND IS EN GAGED AS OUTSOURCING SERVICE PROVIDER. IN THE MANAGEMENT DIS CUSSION AND ANALYSIS PLACED AT PAGE NUMBER 14 OF THE ANNUAL REP ORT IT IS STATED THAT INFOSYS BPO PROVIDES BUSINESS PROCESS M ANAGEMENT SERVICES TO ORGANIZATIONS THAT OUTSOURCE THEIR BUSI NESS PROCESSES AND INFOSYS BPO IS MAJORITY OWNED AND CONTROLLED SU BSIDIARY OF INFOSYS LTD. RICH INDUSTRY EXPERIENCE HELD THE COMP ANY TO UNDERSTAND THE EVOLVING NEEDS OF THE CLIENTS BETTER AND PROVIDED THEM WITH THE ABILITY TO OFFER APPROPRIATE SOLUTION ACROSS DIFFERENT INDUSTRY VERTICALS AND HORIZONTALS QUICKLY. FURTH ER IN PARAGRAPH NUMBER 1 IT IS STATED THAT THE COMPANY IS COMMITTED TO PROVIDING BEST- IN - CLASS SERVICES TO BOTH HORIZONTAL AND VE RTICAL FOCUS AREAS. THE HORIZONTAL SOLUTIONS COMPRISES OF SOURCI NG AND PROCUREMENT CUSTOMER SERVICES FINANCE AND ACCOUNT ING LEGAL PROCESS OUTSOURCING SALES AND FULFILLMENT ANALYTI CS BUSINESS PLATFORM BUSINESS TRANSFORMATION SERVICES HUMAN R ESOURCES OUTSOURCING TECHNOLOGY SOLUTION OPTIMIZATION. WHIL E VERTICAL SOLUTION INCLUDED FINANCIAL SERVICES AND INSURANCE MANUFACTURING ENERGY UTILITIES COMMUNICATION AND SERVICES RETAIL CONSUMER PACKAGED GOODS LOGISTICS AND LIFE SCIENCES. ON LOOKING AT THE HORIZONTAL SERVICES WHICH COMPARABL E COMPANY PROVIDES IT IS APPARENT THAT ON THIS GROUND ITSELF THE SAME IS NOT COMPARABLE WITH THE ASSESSEE COMPANY. ON LOOKING AT PAGE NUMBER 64 OF THE ANNUAL ACCOUNTS IT IS APPARENT TH AT COMPARABLE COMPANY HAS CONTRIBUTED INR 50 000 000 T OWARDS BRAND BUILDING AND ADVERTISEMENT EXPENDITURE. ADMIT TEDLY THE COMPANY DOES NOT HAVE ANY GOODWILL WHICH CAN IMPACT THE PROFITABILITY OF THE PRICE OF THE BUSINESS OF IT SE RVICES BECAUSE THE GOODWILL IS RECORDED ON AMALGAMATION IN THE NATURE OF PURCHASE ONLY. THIS IS MENTIONED AT PAGE NUMBER 51 IN PARA N UMBER 1.5 OF THE ANNUAL REPORT AND CORROBORATED BY PAGE NUMBER 5 8 OF THE FIXED ASSETS SCHEDULE IN PARAGRAPH NUMBER 2.6 OF TH E REPORT. BASED ON THE ABOVE ANALYSIS IT IS APPARENT THAT IN FOSYS BPO LTD HAS A HUGE BRAND BACKING OF THE INFOSYS GROUP BEHIN D IT WHICH CAN DEFINITELY IMPACT THE REVENUE AS WELL AS THE PR OFITABILITY OF THE COMPARABLE COMPANY THEREFORE IN ABSENCE OF ANY SUCH ASSETS AVAILABLE TO THE ASSESSEE COMPANY INFOSYS BPO LTD IS REQUIRED TO BE EXCLUDED FROM THE COMPARABILITY ANALYSIS OF ITES SEGMENT. ACCORDINGLY WE DIRECT THE LEARNED TPO/AO TO EXCLUDE THE ABOVE COMPARABLE AND THEN COMPUTE THE ARMS-LENGTH PRICE OF THE ITES SEGMENT OF THE ASSESSEE. ITA NO.1084/DEL/2016 20 33. UNDISPUTEDLY THERE IS NO CHANGE IN THE BUSINES S MODEL OF THE TAXPAYER. MOREOVER WHEN WE EXAMINE SCALE OF B USINESS OF INFOSYS BPO VIS--VIS THE TAXPAYER IT IS A GIANT C OMPANY WITH HUGE TURNOVER AND HAVING SIGNIFICANT INTANGIBLES BECAUSE AS PER ANNUAL REPORT RELEVANT PAGE 1239 OF THE PAPER BOOK INFOS YS BPO IS HAVING A TURNOVER OF RS.649 CRORES WHEREAS TURNOVER OF THE TAXPAYER IS RS.142 CRORES. MOREOVER INFOSYS BPO H AS BRAND EXPENDITURE OF RS.56 LAKHS AS AGAINST NIL EXPENDITU RE OF THE TAXPAYER. 24. MOREOVER RATIO LAID DOWN BY HONBLE DELHI HIGH COURT IN CASE OF AVAYA INDIA PVT. LTD. (SUPRA) IS APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE THAT SCALE OF OPERATION O F COMPARABLE VIS--VIS TESTED PARTY IS A FACTOR REQUIRES TO BE K EPT IN MIND. SO KEEPING IN VIEW THE SIZE AND SCALE OF INFOSYS BPO V IS--VIS THE TAXPAYER IT IS NOT A SUITABLE COMPARABLE. 25. HONBLE DELHI HIGH COURT HAS ALSO CONFIRMED THE EXCLUSION OF INFOSYS BPO VIS--VIS ROUTINE ITES PROVIDER IN C ASE OF H & S SOFTWARE DEVELOPMENT AND KNOWLEDGE MANAGEMENT CENTR E PVT. LTD. (SUPRA) BY RETURNING FOLLOWING FINDINGS :- .IN THE OTHER TWO CASES OF M/S. INFOSYS BPO AND WIPRO BPO LTD. THE ITAT AGAIN IN THE OPINION O F THIS COURT QUITE CORRECTLY HELD THAT THE CORPORATE ENTITIES HAD A SIGNIFICANT BRAND PRESENCE FOR PROFI TS AND ITA NO.1084/DEL/2016 21 LARGE CORPORATE SIZE WHICH COULD NOT BE COMPARED T O THE ASSESSEES TRANSACTIONS. 26. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE DISCUSSED ABOVE AND FOLLOWING THE DECISION RENDERED BY THE CO ORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2014- 15 (SUPRA) AND DECISIONS SUPRA RENDERED BY HONBLE DELHI HIGH COUR T WE ARE OF THE CONSIDERED VIEW THAT INFOSYS BPO IS NOT A SUITA BLE COMPARABLE VIS--VIS THE TAXPAYER HENCE ORDERED TO BE EXCLUDE D. HCL COMNET SYSTEMS & SERVICES LTD. (HCL COMNET) 27. THE TAXPAYER SOUGHT EXCLUSION OF HCL COMNET ON THE GROUNDS INTER ALIA THAT THE INFORMATION QUA HCL COM NET IS NOT AVAILABLE IN THE PUBLIC DOMAIN AND THE LD. TPO HAS RELIED UPON THE DATA COLLECTED U/S 133 (6) OF THE ACT; THAT HCL COM NET FAILS RPT/SALES FILTER. WHEN THE RELEVANT DATA/INFORMATI ON IS NOT AVAILABLE IN THE PUBLIC DOMAIN AND APPARENTLY LD. T PO RELIED UPON INFORMATION OBTAINED U/S 133(6) OF THE ACT WHICH OT HERWISE RELATES TO SUCCEEDING ASSESSMENT YEAR I.E. AY 2008-09 AS IS APPARENT FROM PAGES 977 TO 983 OF THE PAPER BOOK BOTH THE REPRES ENTATIVES OF THE PARTIES TO THE APPEAL CONCEDED THAT THIS COMPARABLE BE SET ASIDE TO THE LD TPO TO EXAMINE ITS SUITABILITY AFRESH. IN V IEW OF THE MATTER ITA NO.1084/DEL/2016 22 WE SET ASIDE THE ISSUE AS TO EXAMINING SUITABILITY OF HCL COMNET AS A COMPARABLE VIS--VIS THE TAXPAYER TO THE LD TP O BY PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE TAXPAYER . ACCENTIA TECHNOLOGIES LTD. (ACCENTIA) 28. LD. AR FOR THE TAXPAYER SOUGHT EXCLUSION OF ACC ENTIA ON GROUND OF EXTRA ORDINARY EVENTS AND THAT THE COMPAN Y IS HAVING GOODWILL ON AMALGAMATION OF RS.2.8 CRORES DURING TH E YEAR UNDER ASSESSMENT AND THAT ACCENTIA IS EARNING REVENUE FRO M SOFTWARE SERVICES WITH NO SEGMENTAL DATA AVAILABLE. 29. LD. DR FOR THE REVENUE ON THE OTHER HAND RELI ED UPON THE ORDERS PASSED BY THE LD. TPO/DRP. 30. PERUSAL OF THE REPLY GIVEN BY ACCENTIA U/S 133 (6) OF THE ACT TO THE TPO SHOWS THAT GEOSOFT TECHNOLOGIES (TRIVAND RUM) LTD. AND IRIDIUM TECHNOLOGIES (INDIA) PVT. LTD. HAS BECO ME SUBSIDIARIES OF ACCENTIA W.E.F. APRIL 1 2006 AND THEREBY INCREA SED THE REVENUE AND PROFIT OF ACCENTIA TO THE EXTENT OF 528% AND 57 % RESPECTIVELY. THE REVISED REVENUE AND PROFIT INCREASE POST REMOVI NG SALE OF INVESTMENT ARE 100683% AND 5148%. 31. COORDINATE BENCH OF THE TRIBUNAL IN AOL ONLINE INDIA PVT. LTD. IN ITA NO.1036/BANG/2011 HAS ALSO EXAMINED THE SUITABILITY OF ACCENTIA AS A COMPARABLE VIS--VIS ROUTINE ITES PROVIDER AND ITA NO.1084/DEL/2016 23 ORDERED TO BE EXCLUDED ON GROUND FOR EXTRA ORDINARY EVENTS I.E. AMALGAMATION OF SUBSIDIARY RESULTING IN GROWTH OF R EVENUE OF 100683% AND ON FUNCTIONAL NON-COMPARABILITY AS ACCE NTIA IS INTO THE ACTIVITY OF MEDICAL TRANSCRIPTION BILLING & CO DING AND SOFTWARE DEVELOPMENT AND IMPLEMENTATION AND ON THE GROUND TH AT BUSINESS PROMOTION EXPENSES CONSTITUTE 28.34% OF THE TOTAL O PERATING REVENUE EARNED BY THE COMPANY. 32. SUITABILITY OF ACCENTIA HAS ALSO BEEN EXAMINED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ICC INDIA PVT. LTD. IN ITA NO.25/DEL/2012 AND ORDERED TO EXCLUDE THE SAME BY R ETURNING FOLLOWING FINDINGS :- (I) ACCENTIA TECHNOLOGIES LTD. (SEG) : THE ASSESSE E IS OBJECTING TO THE AFORESAID COMPANY BEING TREATED AS A COMPARABLE ON THE GROUND THAT DURING THE YEAR GEOSOFT TECHNOLO GIES (TRIVANDRUM) LTD. AND INDIAN TECHNOLOGIES (INDIA) P VT. LTD. AMALGAMATED WITH ACCENTIA DURING THE YEAR RESULTING IN ABNORMAL RISE IN PROFITS. THE DELHI BENCH OF THE TR IBUNAL IN CIENNA INDIA (P) LTD. VS DCIT 57 TAXMANN.COM 329 ( DELHI- TRIB) AS WELL AS THE MUMBAI BENCH IN PETRO ARALDITE (P) LTD VS. DCIT 144 ITD 625 (MUMBAI-TRIB) HAVE HELD THAT A COM PANY CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF FINAN CIAL RESULTS BECOME DISTORTED DUE TO MERGERS DEMERGERS ETC. SIM ILAR VIEW HAS ALSO BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TOLUNA INDIA PVT. LTD VS ACIT IN ITA NO. 5654/DEL/2 011. AS THERE WERE AMALGAMATIONS IN ACCENTIA TECHNOLOGIES L TD. DURING THE FINANCIAL YEAR IN QUESTION THIS FACT MAKES IT INCOMPARABLE WITH THE ASSESSEE COMPANY. IN VIEW OF THE AFORESAID WE DIRECT TO EXCLUDE ACCENTIA TECHNOLOGIES LTD. (SEG) FROM THE L IST OF COMPARABLES. 33. SO IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE CASE AND FOLLOWING THE DECISION (SUPRA) RENDERED BY THE COOR DINATE BENCH OF ITA NO.1084/DEL/2016 24 THE TRIBUNAL WE ARE OF THE CONSIDERED VIEW THAT AC CENTIA IS NOT A SUITABLE COMPARABLE ON GROUND OF AMALGAMATION OF SU BSIDIARIES RESULTING INTO GROWTH OF REVENUE BY 100683% AND ON GROUND OF FUNCTIONAL DIS-SIMILARITY HENCE ORDERED TO BE EXCL UDED. SOFTWARE DEVELOPMENT SERVCIES (SDS) (IT SEGMENT) 34. POST DRP DIRECTIONS LD. TPO COMPUTED THE ADJUS TMENT ON ACCOUNT OF ALP QUA SDS SEGMENT TO THE TUNE OF RS.4 60 46 062/- BY FINALLY SELECTING 24 COMPARABLES WHICH ARE AS UN DER :- NO. COMPANY NAME OP TO TOTAL COST% 1 AVANI CIMCON TECHNOLOGIES LTD. 50.29% 2 DATAMATICS LTD. 1.38% 3 E-ZEST SOLUTIONS LTD. 35.63% 4 FLEXTRONCS SOFTWARE SYSTEMS LTD. (SEG) 25.31% 5 GEOMETRIC LTD (SEG) 10.71% 6 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD 36.63% 7 IGATE GLOBAL SOLUTIONS LTD 7.49% 8 INFOSYS TECHNOLOGIES LTD 40.30% 9 ISHIR INFOTECH LTD 30.12% 10 KALS INFORMATIONS SYSTEMS LTD 30.55% 11 LGS GLOBAL LTD (LANCO GLOBAL SOLUTIONS LTD) 15.75% 12 LUCID SOFTWARE LTD 19.37% 13 MEDIASOFT SOLUTIONS LTD 3.66% 14 MEGASOFT LTD 60.23% 15 MINDTREE LTD. 16.90% 16 PERSISTENT SYSTEMS LTD. 24.18% 17 QUINTEGRA SOLUTIONS LTD. 12.56% 18 R S SOFTWARE (INDIA) LTD. 13.47% 19 R SYSTEMS INTERNATIONAL LTD. (SEG.) 15.07% 20 SASKEN COMMUNICATION TECHNO LTD. (SEG.) 22.16% ITA NO.1084/DEL/2016 25 21 SIP TECHNOLOGIES & EXPORTS LTD. 13.90% 22 TATA ELXSI LTD (SEG.) 26.51% 23 THIRDWARE SOLUTIONS LTD. 25.12% 24 WIPRO LTD. (SEG.) 33.48% AVERAGE 23.78% AFTER WORKING CAPITAL ADJUSTMENT OP/OC% 31.56% 35. CONSEQUENTLY LD. TPO PROPOSED THE ADJUSTMENT O F ALP QUA PROVISION OF SDS SEGMENT AS UNDER ;- OPERATING COST 27 94 85 304/- ARMS LENGTH PRICE 31.56% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @ 131.56% OF OPERATING COST 36 76 90 866/- PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE : ARMS LENGTH PRICE (ALP) @ 131.56% OF OPERATING COST 36 76 90 866/- PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS 32 16 44 804 SHORTFALL BEING ADJUSTMENT U/S 92CA 4 60 46 062/- 36. LD. AR FOR THE TAXPAYER IN ORDER TO COMPRESS TH E CONTROVERSY RAISED BY WAY OF GROUNDS NO.6 & 7 QUA ADJUSTMENT IN SDS SEGMENT CONTENDED THAT THE LD. TPO/DRP HAVE ERRED IN SELECT ING 12 OUT OF 24 COMPARABLES AND AS SUCH SOUGHT THEIR EXCLUSION V IZ. (I) INFOSYS TECHNOLOGIES LTD. (II) WIPRO LTD. (IT SEG.) (III) KALS INFORMATIONS SYSTEMS LTD (IV) PERSISTENT SYSTEMS LTD. (V) TATA ELXSI LTD (SEG.) (VI) MEGASOFT LTD. (VII) HE LLOS & MATHESON INFORMATION TECHNOLOGY LTD. (VIII) THIRDW ARE SOLUTIONS LTD. (IX) AVANI CINCOM TECHNOLOGIES LTD. (X) ITA NO.1084/DEL/2016 26 SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) (XI) FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG) AND (XII)I SHIR INFOTECH LTD.. WE WOULD DECIDE THE SUITABILITY OF EACH OF THE AFOR ESAID COMPARABLES ONE BY ONE. INFOSYS TECHNOLOGIES LTD. (INFOSYS TECHNOLOGIES) 37. THE TAXPAYER CHALLENGED THE INCLUSION OF INFOSY S TECHNOLOGIES AS A COMPARABLE VIS--VIS THE TAXPAYER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS ON THE GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DISSIMILAR BEING A PRODUCT COMPANY; TH AT IT IS A GIANT COMPANY WITH HUGE TURNOVER AND BRAND EXPENDITURE AN D FURTHER CONTENDED THAT THIS COMPARABLE WAS EXCLUDED BY THE TRIBUNAL IN TAXPAYERS OWN CASE IN ITA NO.477/DEL/2016 FOR AY 2 011-12 ORDER DATED 13.02.2018 . 37.1 PERUSAL OF THE ANNUAL REPORT RELEVANT PAGES 1 815 AND 1862 OF PAPER BOOK-III SHOWS THAT INFOSYS TECHNOLOGIES HAS ITS BANKING PRODUCT NAMELY FINACLE SUITE AND ITS OVERVIEW ALS O CLAIMS THAT THE COMPANY HAS SOFTWARE PRODUCTS. FURTHERMORE ITS EX PENDITURE ON R&D ARE RS.48 CRORES DURING THE YEAR UNDER ASSESSME NT AS AGAINST NO EXPENDITURE ON R&D BY THE TAXPAYER. ITA NO.1084/DEL/2016 27 37.2 FURTHERMORE WHEN WE EXAMINE THE SCALE OF BUSI NESS WITH BRAND EXPENSES OF INFOSYS TECHNOLOGIES VIS--VIS TH E TAXPAYER BOTH ARE INCOMPARABLE AS IS EVIDENT FROM THE TABLE EXTRACTED BELOW :- PARTICULARS AGILENT INTERNATIONAL INFOSYS LTD. FY 2006-07/AY 2007-08 FY 2006-07/AY 2007-08 TURNOVER INR 32 CRORES @ PG 51 OF PB 1 INR 13 149 CRORES @ PG 1854 OF PB III BRAND EXPENDITURE INR 0 LAKHS @ PG 302 OF PB I INR 69 LAKHS @ PG 1859 OF PB III ASSET BASE INR 29 CRORES @ PG 298 OF PB I INR 2 150 CRORES @ PG 1856 OF PB III 38. FURTHERMORE INFOSYS TECHNOLOGIES HAS BEEN EXCL UDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2011-12 (SUPRA) WHEN UNDISPUTEDLY THERE IS NO CHANGE IN T HE BUSINESS MODEL OF THE TAXPAYER DURING THE YEAR UNDE R ASSESSMENT AND IN THE YEAR 2011-12 BY FOLLOWING THE RATIO LAID DOWN BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA 1204/2011 AND BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN CADENCE DESIGN SYSTEM (INDIA) PVT. LTD. VS. DCIT IN ITA NO.2074/DEL/2014. 39. HONBLE DELHI HIGH COURT IN CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) CONFIRMED THE EXCLUSION OF INFOSYS TECHNOLOGIES VIS--VIS SDS PROVIDER A CAPTIVE SERV ICE PROVIDER BY THE TRIBUNAL BY RETURNING FOLLOWING FINDINGS :- ITA NO.1084/DEL/2016 28 5. THE TRIBUNAL HAS OBSERVED THAT THE ASSESSEE WAS NOT COMPARABLE WITH INFOSYS TECHNOLOGIES LTD. AS INFOS YS TECHNOLOGIES LTD. WAS A LARGE AND BIGGER COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWARE AND THEREFORE THE PROFITS EARNED CANNOT BE A BENCH MARKED OR EQUATED WITH THE RESPONDENT T O DETERMINE THE RESULTS DECLARED BY THE RESPONDENT-ASSESSEE. IN PARAGRAPH 3.3 THE TRIBUNAL HAS REFERRED TO THE DIFFERENCE BETWEEN THE RESPONDENT-ASSESSEE AND INFOSYS TECHNOLOGIES LTD. F OR THE SAKE OF CONVENIENCE WE ARE REPRODUCING THE SAME:- BASIC PARTICULAR INFOSYS TECHNOLOGIES LTD. AGNITY I NDIA RISK PROFILE OPERATE AS FULL-FLEDGED RISK TAKING ENTREPRENEURS OPERATE AT MINIMAL RISKS AS THE 100% SERVICES ARE PROVIDED TO AES NATURE OF SERVICES DIVERSIFIED-CONSULTING APPLICATION DESIGN DEVELOPMENT RE- ENGINEERING AND MAINTENANCE SYSTEM INTEGRATION PACKAGE EVALUATION AND IMPLEMENTATION AND BUSINESS PROCESS MANAGEMENT ETC. (REFER PAGE 117 OF THE PAPER BOOK) CONTRACT SOFTWARE DEVELOPMENT SERVICES. REVENUE RS.9 028 CRORES RS.16.09 CRORES OWNERSHIP OF BRANDED/ PROPRIETARY PRODUCTS DEVELOPS/OWNS PROPRIETARY PRODUCTS LIKE FINACLE INFOSYS ACTICE DESK INFOSYS IPROWE INFOSYS MCONNECT ALSO THE COMPANY DERIVES SUBSTANTIAL PORTION OF I TS PROPRIETARY PRODUCTS (INCLUDING ITS FLAGSHIP BANKING PRODUCT SUITE FINACLE ) ONSITE VS. OFFSHORE AS MUCH AS HALF OF THE SOFTWARE DEVELOPMENT SERVICES RENDERED BY INFOSYS ARE ONSITE (I.E. SERVICES PERFORMED AT THE CUSTOMERS LOCATION OVERSEAS). AND OFFSHORE (50.20%) (REFER PAGE 117 THE APPELLANT PROVIDES ONLY OFFSHORE SERVICES (I.E. REMOTELY FROM INDIA) ITA NO.1084/DEL/2016 29 OF THE PAPER BOOK) THAN HALF OF ITS SERVICE INCOME FROM ONSITE SERVICES. EXPENDITURE ON ADVERTISING/SALES PROMOTION AND BRAND BUILDING RS.61 CRORES RS. NIL (AS THE 100% SERVICES ARE PROVIDE TO AES) EXPENDITURE ON RESEARCH & DEVELOPMENT RS. 102 CRORES RS. NIL OTHER 100% OFFSHORE (FROM INDIA) 6. LEARNED COUNSEL FOR THE REVENUE HAS SUBMITTED TH AT THE TRIBUNAL AFTER RECORDING THE AFORESAID TABLE HAS NO T AFFIRMED OR GIVEN ANY FINDING ON THE DIFFERENCES. THIS IS PARTL Y CORRECT AS THE TRIBUNAL HAS STATED THAT INFOSYS TECHNOLOGIES LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE REASO N LATTER WAS A GIANT COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWAR E AND IT ASSUMED ALL RISKS LEADING TO HIGHER PROFITS WHEREA S THE RESPONDENT-ASSESSEE WAS A CAPTIVE UNIT OF THE PAREN T COMPANY AND ASSUMED ONLY A LIMITED RISK. IT HAS ALSO STATE D THAT INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPARED WITH THE RESPO NDENT- ASSESSEE AS SEEN FROM THE FINANCIAL DATA ETC. TO TH E TWO COMPANIES MENTIONED EARLIER IN THE ORDER I.E. THE CHART. IN THE GROUNDS OF APPEAL THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT OR DENY THE DATA AND DIFFERENCES MENTIONED IN THE TABULATED FOR M. THE CHART HAS NOT BEEN CONTROVERTED. 40. SO BY FOLLOWING THE RATIO LAID DOWN BY THE HON BLE HIGH COURT IN AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) AND ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2011-12 (SUPRA) WE ARE OF THE CONSIDERED VIEW THAT INFOSYS TECHNOLOGIES HAVING TURNOVER OF RS.13 149 C RORES WITH ASSET BASE OF RS.2150 CRORES HAVING BRAND EXPENDITU RE OF RS.69 LAKHS AS AGAINST TURNOVER OF RS.32 CRORES OF TAXPAY ER WITH NIL BRAND EXPENDITURE AND ASSET BASE OF RS.29 CRORES; AND THA T INFOSYS ITA NO.1084/DEL/2016 30 TECHNOLOGIES HAS ALSO INCURRED RS.49 CRORES ON THE R&D EXPENDITURE AND ITS REVENUE FROM THE SOFTWARE PRODU CT HAS INCREASED TO 67.6% WHEREAS SEGMENTAL FINANCIALS ARE NOT AVAILABLE SO INFOSYS IS NOT A SUITABLE COMPARABLE. SO IN TH ESE CIRCUMSTANCES WE ARE OF THE CONSIDERED VIEW THAT INFOSYS TECHNOLO GIES IS NOT A SUITABLE COMPARABLE VIS--VIS TAXPAYER HENCE ORDER ED TO BE EXCLUDED. WIPRO LIMITED (WIPRO) 41. THE TAXPAYER SOUGHT EXCLUSION OF WIPRO FOR BENC HMARKING ITS INTERNATIONAL TRANSACTIONS QUA SDS SEGMENT ON T HE GROUNDS INTER ALIA THAT WIPRO IS A PRODUCT COMPANY; THAT ITS SEGM ENTAL ACCOUNTS ARE NOT PREPARED ON CONSOLIDATED BASIS; THAT WIPRO HAS AN INVENTORY AMOUNTING TO RS.2 404 MILLIONS WHICH SHOWS THAT IT IS ENGAGED IN TRADING FUNCTION APART FROM RENDERING SERVICES; THA T WIPRO IS A GIANT COMPANY AS ITS SIZE AND SCALE VIS--VIS THE T AXPAYER MAKE ALL THE DIFFERENCE AND RELIED UPON THE DECISION OF TOLUNA INDIA PVT. LTD. IN ITA NO.6407/DEL/2012 H&S SOFTWARE DEVELOPM ENT KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. IN ITA 912/20 17 AND ALCATEL LUCENT INDIA LTD. IN ITA 515/2017. 42. WHEN WE EXAMINE ANNUAL REPORT OF WIPRO RELEVAN T PAGE 1465 OF THE PAPER BOOK IT SHOWS THAT IN THE STANDA LONE FINANCIAL STATEMENT WIPRO IS EARNING ITS INCOME FROM SALES A ND SERVICE BUT ITA NO.1084/DEL/2016 31 WHEN WE EXAMINE ITS FURTHER BIFURCATION OF REVENUE AT PAGE 1474 OF THE PAPER BOOK IT SHOWS THAT IT HAS REVENUE FROM S OFTWARE SERVICES SALE OF COMPUTERS TOILET SOAPS LIGHTING PRODUCTS ETC.. MOREOVER COST OF GOODS SOLD UNDER IT SEGMENT AS PER INFORMAT ION SUPPLIED TO THE TPO U/S 133 (6) OF THE ACT IS RS.6313 CRORES WH EREAS SEGMENTAL ACCOUNTS ARE PREPARED ONLY ON STANDALONE BASIS. FURTHERMORE WHEN WE EXAMINE SIZE AND SCALE OF WIPR O VIS--VIS THE TAXPAYER IT HAS COME ON RECORD THAT WIPRO IS HA VING TURNOVER OF RS.9 616 CRORES AS AGAINST RS.32 CRORES OF THE TAXP AYER. SIMILARLY WIPRO HAS ASSET BASE OF RS.2 626 CRORES AS AGAINST RS.29 CRORES OF THE TAXPAYER. HONBLE DELHI HIGH COURT VIDE ORDER DATED 29.07.2016 IN ITA 393/2016 IN TOLUNA INDIA PVT. LTD . CONFIRMED THE FINDINGS RETURNED BY THE COORDINATE BENCH OF TH E TRIBUNAL THAT THE GIANT COMPANY IN TERMS OF SIZE AND SCALE CANNOT BE A GOOD COMPARABLE VIS--VIS ROUTINE SDS PROVIDER. 43. SIMILARLY HONBLE DELHI HIGH COURT IN CASE OF H&S SOFTWARE DEVELOPMENT AND KNOWLEDGE MANAGEMENT CENTR E PVT. LTD . (SUPRA) ALSO CONFIRMED THE FINDINGS RETURNED BY T HE COORDINATE BENCH OF THE TRIBUNAL EXCLUDING WIPRO BY RETURNING FOLLOWING FINDINGS :- IN THE OTHER TWO CASES OF M/S. INFOSYS BPO AND W IPRO BPO LTD. THE ITAT AGAIN IN THE OPINION OF THIS CO URT QUITE CORRECTLY HELD THAT THE CORPORATE ENTITIES HAD A SI GNIFICANT BRAND ITA NO.1084/DEL/2016 32 PRESENCE FOR PROFITS AND LARGE CORPORATE SIZE WHIC H COULD NOT BE COMPARED TO THE ASSESSEES TRANSACTIONS. 44. SO KEEPING IN VIEW THE FACT THAT WIPRO IS A PR ODUCT COMPANY HAVING SOLD GOODS UNDER IT SEGMENT OF RS.6 313 CRORES AND BEING A GIANT COMPANY CANNOT BE A SUITABL E COMPARABLE VIS--VIS THE TAXPAYER WHO IS A CAPTIVE SDS PROVIDE R HENCE ORDERED TO BE EXCLUDED. KALS INFO SYSTEMS LTD. (KALS) 45. THE TAXPAYER SOUGHT EXCLUSION OF KALS FOR BENCH MARKING ITS INTERNATIONAL TRANSACTIONS QUA SDS SEGMENT ON THE G ROUNDS INTER ALIA THAT KALS IS FUNCTIONALLY DISSIMILAR; THAT IT HAS SHOWN INVENTORY OF RS.1.01 CRORES IN ITS BOOKS OF ACCOUNTS AND RELI ED UPON THE DECISIONS OF TOLUNA INDIA PVT. LTD. IN ITA NO.6407/DEL/2012 AVL INDIA SOFTWARE (P) LTD. VS. DCIT IN ITA NO.6454 /DEL/2012 & 279/DEL/2013 AND AIRCOM INTERNATIONAL (INDIA) PVT . LTD. IN ITA NO.6402/DEL/2012 . 46. HOWEVER ON THE OTHER HAND LD. DR FOR THE REVE NUE DREW OUR ATTENTION TOWARDS LETTER DATED 13.01.2009 ISSUE D BY THE KALS TO THE TPO IN RESPONSE TO NOTICE ISSUED U/S 133 (6) OF THE ACT WHEREIN IN PARA 5 IT IS CATEGORICALLY MENTIONED THAT INCOM E FROM EXPORT/ ITA NO.1084/DEL/2016 33 SALES/SOFTWARE PRODUCTS AND EXPORT OF SALES/SOFTWAR E TRAINING IS SHOWN AS NIL. 47. NO DOUBT IN THE NOTES TO THE FINANCIAL STATEME NT AVAILABLE AT PAGE 1913 OF THE PAPER BOOK CATEGORICALLY CLAIM S THAT KALS IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRO DUCTS SINCE ITS INCEPTION. THE COMPANY CONSISTING OF STP UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND A TRAINING CENTRE ENGAGED IN TRAINING OF SOFTWARE PROFESSIONAL S ON ONLINE PROJECTS. 48. AT THE SAME TIME WHEN WE EXAMINE PAGE 1911 OF THE PAPER BOOK KALS HAS SHOWN INVENTORY OF RS.1.01 CRORES SI NCE ENTIRE DATA IS AVAILABLE IN THE PUBLIC DOMAIN IT IS DIFFICULT TO RELY UPON THE INFORMATION OBTAINED U/S 133 (6) SO IT WOULD BE IN THE INTEREST OF JUSTICE TO SET ASIDE THIS ISSUE TO THE TPO TO DECID E AFRESH AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E TAXPAYER. PERSISTENT SYSTEMS LTD. (PERSISTENT) 49. THE TAXPAYER SOUGHT TO EXCLUDE PERSISTENT FROM THE FINAL SET OF COMPARABLES FOR BENCHMARKING ITS INTERNATIONAL T RANSACTIONS QUA SDS SEGMENT ON THE GROUNDS INTER ALIA THAT PERSISTE NT IS FUNCTIONALLY DISSIMILAR BEING ENGAGED IN SOFTWARE P RODUCTS WITH NON-AVAILABILITY OF SEGMENTAL FINANCIALS; THAT THE ASSET BASE OF PERSISTENT IS 5 TIMES MORE THAN THE TAXPAYER I.E. A SSET BASE OF ITA NO.1084/DEL/2016 34 RS.161 CRORES AS AGAINST RS.29 CRORES OF THE TAXPAY ER AND RELIED UPON THE DECISIONS OF LIME LABS (I) PVT. LTD. IN ITA NO.1703/DEL/2015 AVL INDIA SOFTWARE (P.) LTD. (SUP RA) SAXO INDIA PVT. LTD. IN ITA NO.6148/DEL/2015 AND AFFIRME D BY HONBLE DELHI HIGH COURT IN ITA 682/2016 . 50. HOWEVER ON THE OTHER HAND LD. DR FOR THE REVE NUE BY RELYING UPON THE INFORMATION SUPPLIED BY PERSISTENT IN RESPONSE TO THE NOTICE ISSUED U/S 133 (6) OF THE ACT CONTENDED THAT REVENUE OF PERSISTENT FROM PRODUCT LICENSES IS RS.21.57 MILLIO NS WHICH IS 0.76% AND IT DOES NOT IMPACT THE PROFIT MARGIN. IT IS FURTHER CONTENDED THAT PERSISTENT IS A PURE SOFTWARE DEVELO PMENT COMPANY. 51. HOWEVER WHEN WE EXAMINE PROFIT & LOSS ACCOUNT AT PAGE 2155 OF THE PAPER BOOK IT SHOWS THAT PERSISTENT HAS INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCT TO THE TUNE O F RS.29374.63 LAKHS; PERSISTENT HAS R&D EXPENDITURE OF RS.2.71 CR ORES AS IS EVIDENT FROM PAGE 2177 OF THE PAPER BOOK AS AGAINST NIL OF THE TAXPAYER. PERSISTENT IS ALSO EARNING ROYALTY FROM THE SALE OF PRODUCTS AS IS EVIDENT FROM NOTE TO ACCOUNTS AT PAG E 2165 OF THE PAPER BOOK. IT HAS ALSO COME ON RECORD THAT PERSIS TENT IS ALSO EARNING COMMISSION ON SALES AS IS EVIDENT FORM PAGE 2162 OF THE PAPER BOOK. ITA NO.1084/DEL/2016 35 52. HONBLE HIGH COURT OF DELHI CONFIRMED THE FINDI NGS RETURNED BY THE TRIBUNAL IN SAXO INDIA PVT. LTD. (SUPRA) THAT THE MERE AVAILABILITY OF THE TURNOVER ALLOCABLE FOR SOF TWARE PRODUCT SALES PER SE CANNOT LEAD TO AN ASSUMPTION THAT SEGM ENTAL ACCOUNTS ARE AVAILABLE. FROM PAGE 2177 OF THE PAPER BOOK I T FURTHER SHOWS THAT DURING THE YEAR UNDER ASSESSMENT CONTROL NET (INDIA) PVT. LTD. WAS AMALGAMATED WITH PERSISTENT W.E.F. 01.04.2006. IT IS ALSO PROVED FROM PAGE 2142 OF THE PAPER BOOK THAT EXPENS ES INCURRED BY PERSISTENT ALSO INCLUDES 12 MONTH EXPENSES OF CONTR OL NET (INDIA) PVT. LTD. WHICH SHOWS THAT DURING THE YEAR UNDER AS SESSMENT PERSISTENT ALSO PERFORMED ADDITIONAL FUNCTIONS FOR RENDERING SERVICES TO THE CUSTOMERS HAVING DIFFERENT FUNCTION AL PROFILE. 53. PERSISTENT HAS BEEN ORDERED TO BE EXCLUDED AS C OMPARABLE VIS--VIS THE ROUTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER IN CASE OF AVL INDIA SOFTWARE (P.) LTD. (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 37. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT. LTD (SUPRA) THE TRIBUNAL HAS EXCLUDED THIS COMPARABLE FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER: '33. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD WE HOLD T HAT THIS COMPANY ALSO CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF MERGER OF ANOTHER COMPANY INTO IT WHICH FACT IS EVIDENT FROM PAGE 196 OF @ THE PAPER BOOK. IT C AN BE SEEN THAT A SUBSIDIARY COMPANY WAS MERGED INTO THIS COMPANY PURSUANT TO JUDGMENT OF HON'BLE BOMBAY HIGH COURT W.E.F. 1.4.06. BECAUSE OF THE MERGER OF SUBSI DIARY INTO THIS COMPANY WE HOLD THAT THE FINANCIAL POSIT ION OF ITA NO.1084/DEL/2016 36 THIS COMPANY CANNOT BE CONSTRUED AS NORMAL CAPABLE OF A GOOD COMPARISON. FOLLOWING THE MUMBAI BENCH DECISIO N IN PETRO ARALDITE (P) LTD. (SUPRA) WE DIRECT THE E XCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. 54. SO IN VIEW OF THE MATTER WE ARE OF THE CONSID ERED VIEW THAT PERSISTENT BEING A PRODUCT COMPANY WITH NO SEPARATE SEGMENTAL ACCOUNTS HAS UNDERGONE MERGER DURING THE YEAR UNDE R ASSESSMENT AND HAVING REVENUE FROM THE OUTSOURCES PRODUCT DEVE LOPMENT; HAVING R&D EXPENDITURE OF RS.2.71 CRORES AS AGAINST NIL OF THE TAXPAYER HAVING REVENUE FROM LICENCE OF PRODUCTS A ND IS ALSO EARNING ROYALTY FROM THE SALE OF PRODUCTS IS NOT A SUITABLE COMPARABLE VIS--VIS TAXPAYER WHICH IS A ROUTINE SD S PROVIDER HENCE ORDERED TO BE EXCLUDED. TATA ELXSI LIMITED (SDS SEGMENT) (TATA ELXSI) 55. THE TAXPAYER SOUGHT EXCLUSION OF TATA ELXSI AS COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTION QUA SDS SEGMENT ON THE GROUNDS INTER ALIA THAT TATA ELXSI IS ENGAGE D IN EMBEDDED PRODUCT DESIGN SERVICES WHICH INCLUDE DESIGN OF HAR DWARE AND SOFTWARE; THAT COMPANY IS ENGAGED IN PRODUCT R&D D EVELOPMENT OF HARDWARE AND SOFTWARE EMBEDDED PRODUCTS; THAT SE GMENTAL RESULTS SHOW ONLY TWO SEGMENTS I.E. SOFTWARE DEVELO PMENT SERVICES AND SYSTEMS INTEGRATION & SUPPORT; THAT TATA ELXSI ALSO PROVIDES ITA NO.1084/DEL/2016 37 DIGITAL TV ENABLED PRODUCTS LIKE SET TOP BOX ADVAN CED DISPLAYS MULTIMEDIA PRODUCTS ETC.; THAT IT HAS INVENTORY OF RS.37.42 LAKHS AND HAS INCURRED R&D EXPENSES AMOUNTING TO RS.10.9 1 CRORES I.E. 3.54% OF THE TOTAL REVENUE AS AGAINST NIL EXPENDITU RE OF TAXPAYER AND RELIED UPON THE DECISIONS OF MENTOR GRAPHICS (INDIA) PVT. LTD. IN ITA NO.2587/DEL/2014 AND TOLUNA INDIA PVT. LTD. (SUPRA). 56. WHEN WE EXAMINE ANNUAL REPORT OF TATA ELXSI AT PAGE 2499 OF THE PAPER BOOK IT HAS COME ON RECORD THAT ITS S DS BUSINESS CONSTITUTES FROM EMBEDDED PRODUCT DESIGN SERVICES ( DESIGN & DEVELOPMENT TO HARDWARE AND SOFTWARE) INDUSTRIAL D ESIGN AND ENGINEERING (MECHANICAL DESIGN WITH A FOCUS ON INDU STRIAL DESIGN) AND ANIMATION AND VISUAL EFFECTS (ANIMATION AND SPECIAL EFFECT). ANNUAL REPORT AT PAGE 2512 OF THE PAPER B OOK UNDER THE HEAD MANAGEMENT DISCUSSION & ANALYSIS FOR THE YEAR ENDED 31 ST MARCH 2007 SHOWS THAT TATA ELXSI PROVIDES GLOBAL CUSTOMERS WITH SERVICE TOWARDS TECHNOLOGY PRODUCT DEVELOPMENT AND OUTSOURCED R&D INCLUDING DIGITAL TV ENABLED PRODUCTS SUCH AS ADVANCED DISPLAYS AND SET TOP BOXES MULTIMEDIA AND PORTABLE ENTERTAINMENT PRODUCTS SUCH AS AUDIO AND MEDIA PLAYERS CONSUMER ELECTRONICS SUCH AS DIGITAL VIDEO CAMERAS MOBILE PHONES ETC. A ND ENABLES VALUE TO ITS CUSTOMERS THROUGH THE COST-EFFECTIVE A ND TIMELY SERVICE DELIVERY OF ITS TECHNOLOGY AND DOMAIN EXPERTISE. ITA NO.1084/DEL/2016 38 57. FURTHERMORE PERUSAL OF PAGE 2501 OF THE PAPER BOOK UNDER THE HEAD ANNEXURE A TO DIRECTORS REPORT PROVES T HAT TATA ELXSI INCURRED RS.10.91 CRORES I.E. 3.54% OF THE TOTAL RE VENUE AS R&D EXPENDITURE AND ALL THESE FUNCTIONS ARE NOT BEING P ERFORMED BY THE TAXPAYER WHICH MAKES IT INCOMPARABLE TO THE TAXPAYE R. 58. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF MENTOR GRAPHICS (INDIA) PVT. LTD. (SUPRA) ORDERED TO EXCLUDE TATA ELXSI AS A COMPARABLE VIS--VIS SDS PROVIDER BY RETURNING FO LLOWING FINDINGS :- '5.5 ..ITAT WHILE EXCLUDING TATA ELXSI LTD. ARE IN PARA 5.04 AND 5.04.1. THE SAME ARE BEING REPRODUCED AS U NDER FOR A READY REFERENCE:- '5.04 TATA ELXSI LIMITED ('TATA ELXSI') - THE LD. A R HAS SUBMITTED THAT THIS COMPANY HAS BEEN INCLUDED BY TH E TPO ON THE GROUND THAT IT IS FUNCTIONALLY SIMILAR T O THE ASSESSEE COMPANY. THE LD. AR HAS ALSO SUBMITTED THA T THIS COMPANY HAS SOFTWARE SEGMENT AND THAT THIS SEG MENT DOES NOT CONTAIN ANY REVENUE BY WAY OF SALE OF PROD UCTS AND THEREFORE THE COMPANY WAS NOT FUNCTIONALLY COMPARABLE. THE LD. AR HAS SUBMITTED THAT TATA ELXS I LTD. HAS TWO SEGMENTS VIZ. SYSTEMS INTEGRATION& SUP PORT AND SOFTWARE DEVELOPMENT & SERVICES. 5.04.1 IT IS SEEN THAT THIS COMPANY WAS EXCLUDED AS A COMPARABLE ON THE GROUND THAT IT WAS ENGAGED IN THE DEVELOPMENT OF SPECIALIZED/NICHE PRODUCTS IN THE FOLLOWING RULINGS: JDA SOFTWARE INDIA (P) LTD. VS. ITO ([2016J 66 TAXMANN.COM 327) (AY 2006-07) YODLEE INFOTECH P. LTD. VS. ITO [TS-63-ITAT-2013 (BANG)-TP J (AY 2006-07) HCL EAI SERVICES LTD. VS. DCIT [TS-13 3- ITAT-2013(BANG)- TP] GOLDMAN SACHS SERVICES PRIVAT E LIMITED [TS-435-ITAT- 2015(BANGJ-TPJ (AY 2006-07) NOVELL SOFTWARE DEVELOPMENT (INDIA) P. LTD. [TS-257 - ITAT-2016 (BANG) (AY 2007-08) TELECORDIA TECHNOLOGIES INDIA P. LTD. [TS-325-ITAT- 2012(MUM)J (AY 2007-08) VIRTUSA (INDIA) PVT. LTD. VS. DCIT [T S- 253-ITAT-2013(HYD)-TPJ (AY 2007-08). IN VIRTUSA ITA NO.1084/DEL/2016 39 (INDIA) PVT. LTD. VS. DCIT [TS-253- ITAT-20J3(HYD)- TPJ THE HYDERABAD BENCH OF THE ITAT IN ITA NO.1962/HYD/2011 FOLLOWED THE DECISION OF THE MUMBA I BENCH RENDERED IN THE CASE OF TELCORDIA TECHNOLOGIE S INDIA P. LTD. IN ITA NO. 7821/MUM/2011 WHEREIN THE MUMBAI BENCH HAD HELD THAT 'FROM THE FACTS AND MATERIAL ON RECORD AND SUBMISSIONS MADE BY THE LD. AR IT IS SEEN THAT TATA ELXSI IS ENGAGED IN DEVELOPMEN T OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS EN TIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LD. AR THAT THE NATURE OF THE PRO DUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED A BOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE N OT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FRO M PRODUCT AND SERVICES. THUS ON THESE FACT WE ARE U NABLE TO TREAT THIS COMPANY FIT FOR COMPARABILITY ANALYSI S FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSESSEE HENCE SHOULD BE EXCLUDED FROM THE LIST OF COMPARAB LE PARTIES.' FOLLOWING THE AFORESAID DECISIONS THIS C OMPANY CANNOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSE E AND WE DIRECT EXCLUSION OF THE AFORESAID COMPANY FROM T HE FINAL LIST OF COMPARABLE WHILE DETERMINING ALP. 59. SIMILARLY COORDINATE BENCH OF THE TRIBUNAL IN TOLUNA INDIA PVT. LTD. (SUPRA) UPHELD BY HONBLE DELHI HIGH COURT ORDER ED TO EXCLUDE TATA ELXSI AS A COMPARABLE VIS--VIS ROUTIN E SDS PROVIDER BY RETURNING FOLLOWING FINDINGS :- 39.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD WE FIND FROM PAGE NO. 206 OF TH E PAPER BOOK WHICH IS ANNEXURE TO THE DIRECTOR'S REPORT OF THIS COMPANY THAT THE NATURE OF ITS ACTIVITY IS QUITE DISTINCT FROM T HAT OF THE ASSESSEE. IT CAN BE SEEN THAT THIS COMPANY IS INTO DEVELOPMEN T OF HARDWARE AND SOFTWARE FOR EMBEDDED PRODUCTS SUCH AS MULTI-ME DIA AND SOME OTHER ELECTRONICS ETC. APART FROM THAT THIS COMPANY IS ALSO ENGAGED IN MAKING SOME PROGRAMMES DEVELOPING TECHNO LOGY INTELLECTUAL PROPERTY. AS THE NATURE OF ACTIVITY CA RRIED OUT BY THE ASSESSEE IN QUESTION IS NOWHERE CLOSE TO THAT OF TA LA ELXSI LTD. WE HOLD THAT THIS COMPANY CANNOT BE INCLUDED IN THE LIST OF COMPARABLES. ACCORDINGLY THIS COMPANY IS DIRECTED TO BE EXCLUDED. THE ASSESSEE SUCCEEDS. ITA NO.1084/DEL/2016 40 60. IN VIEW OF THE MATTER WE ARE OF THE CONSIDERED VIEW THAT TATA ELXSI IS NOT A SUITABLE COMPARABLE VIS--VIS T HE TAXPAYER TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS QUA SDS SE GMENT. MEGASOFT LIMITED (MEGASOFT) 61. THE TAXPAYER SOUGHT EXCLUSION OF MEGASOFT FROM THE FINAL SET OF COMPARABLES TO BENCHMARK INTERNATIONAL TRANSACTI ONS QUA SDS SEGMENT ON THE GROUNDS INTER ALIA THAT MEGASOFT IS A SOFTWARE PRODUCT SERVICE COMPANY AND ITS SEGMENTAL FINANCIAL S ARE NOT AVAILABLE; THAT ASSET BASE OF MEGASOFT IS 5.3 TIMES LARGER THAN THE TAXPAYER; THAT THERE WAS AN AMALGAMATION FROM AUGUS T 2006 ONWARDS WITH VISUAL SOFT TECHNOLOGIES LTD. TAKING O VER ASSETS LIABILITIES RIGHTS AND OBLIGATIONS OF VISUAL SOFT TECHNOLOGIES LTD. AND RELIED UPON THE DECISIONS IN AVAYA INDIA PVT. LTD. IN ITA 532/2019 TOLUNA INDIA PVT. LTD. IN ITA NO.5645/DEL /2011 AND AOL ONLINE INDIA PVT. LTD. IN ITA NO.1036/BANG/2011 . 62. WHEN WE EXAMINE PAGE 1972 OF THE PAPER BOOK UND ER THE HEAD MANAGEMENT DISCUSSION AND ANALYSIS IT HAS C OME ON RECORD THAT MEGASOFT HAS DOUBLED ITS PRODUCT REVENU E FROM RS.694 MILLION TO RS.1448 MILLION WITH A RECORD PROFIT OF RS.560 MILLION. IT IS ALSO COME ON RECORD THAT MEGASOFT DELIVERS VA LUE TO CUSTOMERS AND STAKEHOLDERS THROUGH INNOVATIVE TECHNOLOGIES US ED FOR ITS OWN ITA NO.1084/DEL/2016 41 PRODUCT DEVELOPMENT AND FOR CO-CREATING VALUE FOR O THER PRODUCT COMPANIES THROUGH ITS TWO DIVISIONS. 63. WHEN WE EXAMINE LD. DRP ORDER AT PAGE 15 MEGAS OFT HAS BEEN RETAINED AS COMPARABLE BY RELYING UPON CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD. VS. DCIT IN I TA 417/2014 BUT HAS NOT MET WITH THE DETAILED OBJECTIONS RAISED BY THE TAXPAYER. FURTHERMORE WHEN WE EXAMINE PAGE 1975 OF THE PAPER BOOK IT IS PROVED ON RECORD THAT REVENUE OF MEGASOFT FROM SOFT WARE PRODUCT WAS 49% DURING THE YEAR UNDER ASSESSMENT AND IT ALS O EARNS REVENUE FROM THE SALE OF SOFTWARE LICENCE AS IS EV IDENT FORM PAGE 1988 OF THE PAPER BOOK. MOREOVER SEGMENTAL FINANC IALS SHOWING BREAK-UP BETWEEN SOFTWARE PRODUCT AND SOFTWARE BUSI NESS AT STANDALONE LEVEL IS NOT AVAILABLE. 64. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF TOLUNA INDIA PVT. LTD. (SUPRA) ORDERED TO EXCLUDE MEGASOFT ON GROUND OF AMALGAMATION BY RETURNING FOLLOWING FINDINGS :- '31.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD WE FIND FROM THE DIREC TOR'S REPORT OF THIS COMPANY A COPY OF WHICH IS AVAILABLE ON PAGE 193 OF THE PAPER BOOK THAT THE FINANCIAL RESULTS FOR THE YEAR INCLUDE THE BUSINESS PERFORMANCE OF VISUAL SOFT TECHNOLOGIES LT D. W.E.F 1 ST OCTOBER 2006 CONSEQUENT TO THE AMALGAMATION. THE M UMBAI BENCH OF THE TRIBUNAL IN PETRO ARALDITE (P) LTD. VS . DCIT [(2013) 154 TTJ (MUM) 176} HAS HELD THAT A COMPANY CANNOT B E CONSIDERED AS COMPARABLE BECAUSE OF EXCEPTIONAL FIN ANCIAL RESULTS DUE TO MERGERS/DEMERGERS ETC. SINCE THE FIN ANCIAL RESULTS OF MEGASOJT LTD. HAVE THE IMPACT OF THE MERGER OF V ISUAL SOFTWARE TECHNOLOGIES LTD. W.E.F. 1ST OCTOBER 200 6 OBVIOUSLY ITA NO.1084/DEL/2016 42 THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. AC CORDINGLY THIS COMPANY IS DIRECTED TO BE EXCLUDED. THE ASSESS EE SUCCEEDS.' 65. SIMILARLY COORDINATE BENCH OF THE TRIBUNAL IN AOL ONLINE INDIA PVT. LTD. (SUPRA) ALSO ORDERED TO EXCLUDE MEGASOFT AS COMPARABLE VIS--VIS ROUTINE SDS PROVIDER BY RETURN ING FOLLOWING FINDINGS :- 4.2. ASSESSEE IS OBJECTING TO THE BALANCE OF THE C OMPARABLES AND OBJECTIONS ON EACH OF THE COMPARABLES ARE AS UN DER: 'MEGASOFT LTD. ....................... 1. FUNCTIONALLY NOT COMPARA BLE - COMPANY HAS TWO SEGMENTS - BLUEALLY AND XIUS-BCGI UNDER THE XIU S- BCGI COMPANY CARRIED OUT PRODUCT DEVELOPMENT. SOFTW ARE DEVELOPMENT IS CARRIED OUT UNDER BLUEAPPLY DIVISION . 2. THE PRODUCT SEGMENT HAS EMPLOYEE COST OF 27.65% WHEREAS SOFTWARE SERVICES SEGMENT HAS EMPLOYEE COST OF 50%. SIMILARLY PROFIT MARGIN ON COST IN PRODUCT SEGMENT IS 117.95% AND IN CASE OF SOFTWARE SERVICES SEGMENT IS 23.11 % . HENCE BOTH THE SEGMENTS ARE SUBSTANTIALLY DIFFERENT. ..IT WAS ADMITTED THAT THESE OBJECTIONS WERE CONSIDERED IN THE CO-ORDINATE BENCH DECISION IN THE CASE OF BROADCOM INDIA RESEARCH PRIVATE LIMITED IN IT(IP)A NO.1180/BANG/2011. FURTHER IN THE CASE OF NXP SEMICONDUCTORS INDIA P. LTD. VS. ACIT IN IT(IP)A NO.1174/BANG/2011 ALSO EXAMINED THE ABOVE COMPARABL ES. SIMILARLY IN THE CASE OF CAPGEMINI INDIA P. LTD. V S. ACIT [46 SOT 195} (MUM) HAS ALSO EXAMINED THESE COMPARABLES. IN ALL THESE DECISION OF THE CO-ORDINATE BENCHES THE OBJE CTIONS AS STATED IN THE ABOVE COLUMN WERE EXAMINED IN DETAIL AND THE ABOVE SAID COMPANIES WERE HELD TO BE NOT COMPARABLE TO THE FUNCTIONALITY OF THE SAID ASSESSEE'S COMPANY. SINCE THE FACTS ARE SIMILAR AND ASSESSEE'S BUSINESS IS ALSO SIMILAR AND TPO HAS SELECTED THE SAME COMPARABLES WE ARE OF THE OPINIO N THAT THE SAID COMPARABLES LISTED ABOVE CANNOT BE CONSIDERED AS SUITABLE FOR INCLUSION IN THE LIST FOR TP ANALYSIS. AO/TPO I S DIRECTED TO EXCLUDE THE ABOVE COMPARABLES.' 66. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE WE AR E OF THE CONSIDERED VIEW THAT MEGASOFT IS NOT A SUITA BLE COMPARABLE ITA NO.1084/DEL/2016 43 VIS--VIS THE TAXPAYER ON GROUND OF FUNCTIONAL DISS IMILARITY AND ON ACCOUNT OF AMALGAMATION HENCE ORDERED TO BE EXCLUD ED. ISHIR INFOTECH LTD. (ISHIR) 67. THE TAXPAYER SOUGHT TO EXCLUDE ISHIR AS COMPARA BLE TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA SDS SE GMENT ON THE GROUND THAT ISHIR FAILS TO QUALIFY 25% EMPLOYEES CO ST FILTER APPLIED BY THE TPO AND RELIED UPON THE DECISION IN M/S. SOFTBRANDS INDIA PVT. LTD. IN ITA NO.1094/BANG/2011 AND AOL ONLINE I NDIA PVT. LTD. IN ITA NO.1036/BANG/2011 . 68. WHEN WE EXAMINE PARA 9.5 AT PAGE 25 OF THE ORDE R OF THE TPO IT IS EVIDENT THAT THE TPO HAS HIMSELF APPLIED EMPLOYEE COST FILTER OF 25% OVER SALES BUT WHEN WE EXAMINE THE OB JECTIONS FILED BY THE TAXPAYER BEFORE LD. DRP RELEVANT PAGE 927 EMPLOYEE COST/ OPERATING REVENUE IS CALCULATED AT 3.96% OF OPERATI NG REVENUE. HOWEVER IT IS BROUGHT TO OUR NOTICE THAT LD. TPO W HILE COMPUTING EMPLOYEE COST INCLUDED PROFESSIONAL FEE AS EMPLOYEE COST WHICH IS NOT INCLUDIBLE AS CONTENDED BY THE LD. AR FOR THE T AXPAYER. 69. ISHIR HAS BEEN EXCLUDED ON GROUND OF FAILING EM PLOYEE COST FILTER BY THE COORDINATE BENCH OF THE TRIBUNAL IN M/S. SOFTBRANDS INDIA PVT. LTD. (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 21. AS FOR 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. I S CONCERNED ITA NO.1084/DEL/2016 44 THIS TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHO RE SERVICES PVT. LTD. VS. DCIT IT (IP) NO.10861BANG12011 FOR AY 07-08 HELD THAT THE COMPANIES SHOULD BE EXCLUDED FOR THE REASONS AS HELD IN THE FOLLOWING PARAS: '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 TRI BUNAL IN THE CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. DT 22.2.2013 WHEREIN AT PAGES 17 AND 22 OF ITS ORD ER THE DISTINCTIONS AS TO WHY THESE COMPANIES SHOULD BE EX CLUDED ARE BROUGHT OUT. HE SUBMITTED THAT THE FACTS OF THE CAS E BEFORE US ARE SIMILAR AND THEREFORE THE SAID DECISION IS APPLIC ABLE TO THE ASSESSEE 'S CASE ALSO. 23. THE LEARNED DR HOWEVER OBJECTED TO THE EXCLUSIO N OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES. O N A CAREFUL PERUSAL OF THE MATERIAL ON RECORD WE FIND THAT THE TRIBUNAL IN THE CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT IN DIA PVT. LTD. (CITED SUPRA) HAS TAKEN A NOTE OF DISSIMILARIT IES BETWEEN THE ASSESSEE THEREIN AND LUCID SOFTWARE LTD. AS OBSERVE D THEREIN LUCID SOFTWARE LTD. COMPANY IS ALSO INVOLVED IN THE DEVELOPMENT OF SOFTWARE AS COMPARED TO THE ASSESSEE WHICH IS O NLY INTO SOFTWARE SERVICES. SIMILARLY AS REGARDS ISHIR INFO TECK LTD. THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE TRIBUNA L IN THE CASE OF 24/7 CO. PVT. LTD TO HOLD THAT ISLTIR INFOTECH I S ALSO OUT- SOURCING ITS WORK AND THEREFORE HAS NOT SATISFIED THE 25% EMPLOYEE COST FILTER AND THUS HAS TO BE EXCLUDED FR OM THE LIST OF COMPARABLES. AS THE FACTS OF THE CASE BEFORE US AR E SIMILAR RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH WE HOLD THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUD ED.' 70. ISHIR IS ORDERED TO BE EXCLUDED BY THE COORDINA TE BENCH OF THE TRIBUNAL IN AOL ONLINE INDIA PVT. LTD. (SUPRA) ON ACCOUNT OF FAILING EMPLOYEE COST FILTER AS COMPARABLE VIS--VI S SDS PROVIDER BY RETURNING FOLLOWING FINDINGS :- 'ISHIR INFOTECH LTD . ......................... FAILS EMPLOYEE COST FILTE R - ONLY 3.96% OF THE OPERATING REVENUE OF THE COMPANY (SCHEDULE 15 ON PA GE 13 OF THE ANNUAL REPORT AND PAGE 7 OF THE ANNUAL REPORT FOR O PERATING REVENUE) - ISHIR IS ENGAGED IN TRADING OF SERVICES ..................... IT WAS ADMITTED THAT THESE OB JECTIONS WERE CONSIDERED IN THE CO-ORDINATE BENCH DECISION IN THE CASE OF BROADCOM INDIA RESEARCH PRIVATE LIMITED IN IT(TP)A ITA NO.1084/DEL/2016 45 NO.1180/BANG/2011. FURTHER IN THE CASE OF NXP SEMICONDUCTORS INDIA P. LTD. VS. ACIT IN IT(TP)A NO.1174/BANG/2011 ALSO EXAMINED THE ABOVE COMPARABL ES. SIMILARLY IN THE CASE OF CAPGEMINI INDIA P. LTD. V S. ACIT [46 SOT 195J (MUM) HAS ALSO EXAMINED THESE COMPARABLES. IN ALL THESE DECISION OF THE CO-ORDINATE BENCHES THE OBJE CTIONS AS STATED IN THE ABOVE COLUMN WERE EXAMINED IN DETAIL AND THE ABOVE SAID COMPANIES WERE HELD TO BE NOT COMPARABLE TO THE FUNCTIONALITY OF THE SAID ASSESSEE'S COMPANY. SINCE THE FACTS ARE SIMILAR AND ASSESSEE'S BUSINESS IS ALSO SIMILAR AND TPO HAS SELECTED THE SAME COMPARABLES WE ARE OF THE OPINIO N THAT THE SAID COMPARABLES LISTED ABOVE CANNOT BE CONSIDERED AS SUITABLE FOR INCLUSION IN THE LIST FOR TP ANALYSIS. AO/TPO I S DIRECTED TO EXCLUDE THE ABOVE COMPARABLES.' 71. SO WE ARE OF THE CONSIDERED VIEW THAT WHEN ISH IR FAILS TO QUALIFY EMPLOYEE COST FILTER APPLIED BY LD. TPO HIM SELF IT CANNOT BE A SUITABLE COMPARABLE VIS--VIS TAXPAYER BECAUSE PROFESSIONAL FEE OTHERWISE INCLUDED BY THE TPO FOR EMPLOYEE COST CANNOT BE PART AND PARCEL OF EMPLOYEE COST BY ANY STRETCH OF IMAGINATION BECAUSE IT FALLS IN THE CATEGORY OF OUTSOURCED FUNC TION BY THE COMPANY. SO WE ORDER TO EXCLUDE ISHIR FROM THE FI NAL SET OF COMPARABLES. HELIOS & MATHESON INFORMATION TECHNOLOGIES LTD. (HELIOS & MATHESON) 72. THE TAXPAYER SOUGHT TO EXCLUDE HELIOS & MATHESO N ON THE GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DISSIMIL AR BEING ENGAGED IN SOFTWARE SALES AND SERVICES AND IT EARNS ALSO REVEN UE FROM TRAINING DEVELOPMENT AND FROM SALE OF SOFTWARE OF WHICH SEGM ENTAL ITA NO.1084/DEL/2016 46 FINANCIALS ARE NOT AVAILABLE AND RELIED UPON THE DE CISIONS OF TOLUNA INDIA PVT. LTD. AND AOL ONLINE INDIA PVT. LTD. (SUPRA). 73. WHEN WE EXAMINE THE FINANCIALS OF HELIOS & MATH ESON IN THE ANNUAL REPORT AVAILABLE AT PAGE 1663 OF THE PA PER BOOK IT SHOWS THAT HELIOS & MATHESON IS HAVING INCOME FROM SOFTWARE SALE AND SERVICES TO THE TUNE OF RS.178 63 80 304/- WITH NO SEGMENTAL FINANCIALS SO AS TO EXPLAIN THE INCOME FR OM SOFTWARE SERVICES AND TO SPECIFY INCOME FROM SOFTWARE SALES AND INCOME FROM SOFTWARE SERVICES. WHEN WE EXAMINE PAGE 1666 OF THE PAPER BOOK IT IS ALSO PROVED THAT THERE IS NO QUANTITATIV E DETAILS AVAILABLE WITH HELIOS & MATHESON. RELEVANT PORTION IS EXTRAC TED AS UNDER :- THE COMPANY IS ENGAGED IN TRAINING DEVELOPMENT AND MAINTENANCE OF COMPUTER SOFTWARE THE PRODUCTION OF SALE OF SUCH SOFTWARE CANNOT BE EXPRESSED IN ANY GENERIC UN IT HENCE IT IS NOT POSSIBLE TO GIVE THE QUANTITATIVE DETAILS OF SALES AND CERTAIN INFORMATION AS REQUIRED UNDER PART II OF SCHEDULE V I TO THE COMPANIES ACT 1956. 74. SUITABILITY OF HELIOS & MATHESON AS COMPARABLE HAS BEEN EXAMINED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TOLUNA INDIA PVT. LTD. (SUPRA) AND ORDERED TO EXCLUDE THE SAME BY RETURNI NG FOLLOWING FINDINGS :- 23.2 .FURTHER BE NOTICED THAT THE TPO HAS TAK EN THE FIGURES OF THIS COMPANY WHICH REPRESENT 'INCOME FRO M SOFTWARE SALES AND SERVICES'. OBVIOUSLY THE ASSESSEE IS NOT ENGAGED IN SOFTWARE SALES. IN VIEW OF OUR ABOVE DISCUSSION WHI LE DEALING WITH THE COMPARABILITY OF FLEXTRONICS SOFTWARE SYST EMS LIMITED WE ARE SATISFIED THAT THIS COMPANY CANNOT BE CONSID ERED AS COMPARABLE AND IS HENCE DIRECTED TO BE EXCLUDED F ROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. ITA NO.1084/DEL/2016 47 75. SIMILARLY HELIOS & MATHESON HAS BEEN ORDERED T O BE EXCLUDED AS COMPARABLE VIS--VIS SDS SEGMENT IN AOL ONLINE INDIA PVT. LTD. (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 4.2. ASSESSEE IS OBJECTING TO THE BALANCE OF THE C OM PARABLES AND OBJECTIONS ON EACH OF THE COMPARABLES ARE AS UN DER: 'HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. ....................... 1. FUNCTIONALLY NOT COMPARA BLE - IS EARNING REVENUE FROM SOFTWARE SALES AND SERVICES. 2. REJECTED AS A COMPARABLE BY THE ASSESSEE IN ITS TP STUDY FOR AY 2006-07 ON FUNCTIONAL COMPARABILITY. IT WAS ADMITTED THAT THESE OBJECTIONS WERE CONS IDERED IN THE CO-ORDINATE BENCH DECISION IN THE CASE OF BROAD COM INDIA RESEARCH PRIVATE LIMITED IN IT(TP)A NO.1180/BANG/20 11. FURTHER IN THE CASE OF NXP SEMICONDUCTORS INDIA P. LTD. VS. ACIT IN IT(TP)A NO.1174/BANG/2011 ALSO EXAMINED THE ABOVE COMPARABLES. SIMILARLY IN THE CASE OF CAPGEMINI IND IA P. LTD. VS. ACIT (46 SOT 195) (MUM) HAS ALSO EXAMINED THESE COMPARABLES. IN ALL THESE DECISION OF THE CO-ORDINA TE BENCHES THE OBJECTIONS AS STATED IN THE ABOVE COLUMN WERE E XAMINED IN DETAIL AND THE ABOVE SAID COMPANIES WERE HELD TO BE NOT COMPARABLE TO THE FUNCTIONALITY OF THE SAID ASSESSE E'S COMPANY. SINCE THE FACTS ARE SIMILAR AND ASSESSEE'S BUSINESS IS ALSO SIMILAR AND TPO HAS SELECTED THE SAME COMPARABLES WE ARE O F THE OPINION THAT THE SAID COMPARABLES LISTED ABOVE CANN OT BE CONSIDERED AS SUITABLE FOR INCLUSION IN THE LIST FO R TP ANALYSIS. AO/TPO IS DIRECTED TO EXCLUDE THE ABOVE COMPARABLES .' 76. IN VIEW OF THE MATTER WE ARE OF THE CONSIDERED VIEW THAT HELIOS AND MATHESON CANNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER BEING FUNCTIONALLY DISSIMILAR AS IT HAS IN COME FROM SOFTWARE SALES AND SERVICES WITH NO SEGMENTAL FINAN CIALS AVAILABLE HENCE WE ORDER TO EXCLUDE THE SAME FROM THE FINAL S ET OF COMPARABLES. ITA NO.1084/DEL/2016 48 THIRDWARE SOLUTIONS LTD. (THIRDWARE) 77. THOUGH THE TAXPAYER HAS CHALLENGED THE THIRDWAR E AS COMPARABLE BUT DURING THE COURSE OF ARGUMENTS THE LD. AR FOR THE TAXPAYER SUBMITTED THAT HE DOES NOT PRESS EXCLUSION OF THIRDWARE FROM THE FINAL SET OF COMPARABLES HENCE IT IS ORDE RED TO BE RETAINED. AVANI CIMCON TECHNOLOGIES LTD. (AVANI) 78. THE TAXPAYER SOUGHT EXCLUSION OF AVANI FROM THE SDS SEGMENT ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY BEING ENGAGED INTO SOFTWARE PRODUCTS AND THE SEGMENTAL RESULTS AR E NOT AVAILABLE IN THE PUBLIC DOMAIN. THE TAXPAYER RELIED UPON THE INFORMATION QUA AVANI FROM WEBSITE WHEREIN IT IS STATED THAT AV ANI HAS DEVELOPED ITS VERY FIRST VERSION OF PRODUCT CALLED DXCHANGE IN THE YEAR 2006 AND RELIED UPON THE DECISIONS IN ST MICROELECTRONICS PVT. LTD. IN ITA NO.949/BANG/2011 AIRCOM INTERNATI ONAL (INDIA) PVT. LTD. IN ITA NO.6402/DEL/2012 AND SAXO INDIA (P .) LTD. (SUPRA). 79. LD. DR FOR THE REVENUE ON THE OTHER HAND CONT ENDED THAT AVANI IS A PURE SOFTWARE DEVELOPMENT SERVICE PROVID ER AND RELIED UPON THE INFORMATION GIVEN AT PAGES 993 994 AND 99 6. AT PAGES 993 994 & 996 OF THE PAPER BOOK IT IS CATEGORICAL LY MENTIONED THAT AVANI IS A PURE SOFTWARE DEVELOPMENT SERVICE P ROVIDER. ITA NO.1084/DEL/2016 49 80. WHEN THERE IS AN INHERENT CONTRADICTION BETWEEN THE DATA RELIED UPON BY THE TAXPAYER FROM THE WEBSITE OF THE COMPANY AND THE DATA AVAILABLE IN THE ANNUAL REPORT WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE IS REQUIRED TO BE SET ASIDE TO TPO TO DECIDE AFRESH AFTER SCANNING THE DATA AVAILABLE IN THE PUB LIC DOMAIN BY PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E TAXPAYER. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SOFTWARE SERVICE SEGMENT) (SASKEN) 81. THE TAXPAYER SOUGHT EXCLUSION OF SASKEN AS A CO MPARABLE TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA SDS SE GMENT ON THE GROUNDS INTER ALIA THAT SASKEN HAS ACQUIRED BOTNIA HIGHTECH AND ITS SUBSIDIARIES BASED IN FINLAND IN MARCH 2007; THAT DURING THE YEAR UNDER ASSESSMENT SASKEN HAS COMPLETED THREE OTHER MERGERS VIZ. SASKEN NETWORK SYSTEM LTD. AND INTEGRATED SOFTECH S OLUTIONS LTD. ALONG WITH BOTNIA HIGHTECH; THAT THERE HAS BEEN INC REASE OF REVENUE OF 55% BY ORGANIC AND INORGANIC GROWTH LED BY ACQUISITION; THAT SASKEN HAS INTANGIBLES OF RS.5.72 CRORES DURING THE YEAR UNDER ASSESSMENT AND IT IS ALSO ENGAGED IN CREATION OF INTELLECTUAL PROPERTY; THAT SASKEN HAS INCURRED HUG E R&D EXPENDITURE TO THE TUNE OF RS.22.23 CRORES AS AGAIN ST NIL OF TAXPAYER AND THAT ASSET BASE OF SASKEN IS RS.95 CRORES AS AG AINST RS.29 CRORES OF THE TAXPAYER AND RELIED UPON THE DECISION S IN TOLUNA ITA NO.1084/DEL/2016 50 INDIA PVT. LTD. (SUPRA) TATA MCGRAW HILL EDUCATION PVT. LTD. IN ITA NO.5857/DEL/2011 AN SAXO INDIA PVT. LTD. (SUPRA). 82. LD. DR FOR THE REVENUE ON THE OTHER HAND CONT ENDED THAT ASSESSEE HAS FAILED TO SHOW THE IMPACT OF MERGERS O N MARGIN OF PROFIT AND RELIED UPON THE ORDERS OF THE LOWER AUTH ORITIES BELOW. 83. PERUSAL OF ANNUAL REPORT OF SASKEN AVAILABLE A T PAGES 2388 & 2445 OF THE PAPER BOOK SHOWS THAT SASKEN HAS ACQ UIRED BOTNIA HIGHTECH AND ITS SUBSIDIARIES SITUATED IN FINLAND I N MARCH 2007 COMPLETED MERGERS OF SASKEN NETWORK SYSTEMS LTD. AN D INTEGRATED SOFTECH SOLUTIONS LTD. LEADING TO ROBUST GROWTH AS ITS REVENUE HAVE INCREASED BY 55% FROM RS.308.1 CRORES IN 2005-06 TO RS.477.1 CRORES IN 2006-07 WITH SOFTWARE SERVICES INCLUDING NETWORK ENGINEERING SERVICES CONTRIBUTING 95% TO THE REVENU E. ITS OWN PROFIT GREW FROM RS.22.9 CRORES IN FY 2006-07 TO RS .45.3 CRORES DURING THE YEAR UNDER ASSESSMENT REGISTERING A GRO WTH OF 93% AS IS EVIDENT FROM ANNUAL REPORT AVAILABLE AT PAGE 2357 O F THE PAPER BOOK. 83.1 FURTHERMORE PERUSAL OF SCHEDULE 3 FORMING PAR T OF THE BALANCE SHEET QUA FIXED ASSETS AVAILABLE AT PAGE 2 425 OF THE PAPER BOOK SHOWS THAT SASKEN HAS INTANGIBLE ASSETS AMOUN TING TO RS.5.72 CRORES AS AGAINST NIL OF THE TAXPAYER. SAS KEN HAS ALSO INCURRED R&D EXPENDITURE TO THE TUNE OF RS.22.23 CR ORES AS PER ITA NO.1084/DEL/2016 51 PROFIT & LOSS ACCOUNT AVAILABLE AT PAGE 2423 OF TH E PAPER BOOK AS AGAINST NIL R&D EXPENDITURE OF THE TAXPAYER. 83.2 FURTHERMORE AS PER SCHEDULE 3 FORMING PART OF THE BALANCE SHEET AVAILABLE AT PAGE 2425 OF THE PAPER BOOK IT IS PROVED ON RECORD THAT SASKEN IS HAVING ASSET BASE OF RS.95 CR ORES WHICH IS 3.2 TIMES AS AGAINST RS.29 CRORES OF THE TAXPAYER. ALL THESE FACTS MAKE SASKEN NOT A SUITABLE COMPARABLE VIS--VIS THE TAXP AYER FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS QUA SDS SEGMENT. 84. COORDINATE BENCH OF THE TRIBUNAL IN TOLUNA INDIA PVT. LTD. (SUPRA) DIRECTED EXCLUSION OF SASKEN ON GROUNDS OF ACQUISITION AS A COMPARABLE VIS--VIS SDS SEGMENT. SIMILARLY COORD INATE BENCH OF THE TRIBUNAL IN TATA MCGRAW HILL EDUCATION PVT. LTD. (SUPRA) ALSO EXCLUDED SASKEN ON GROUND OF MERGER OF SASKEN NETWORK SYSTEMS LTD. AND INTEGRATED SOFTECH SOLUTIONS LTD. ON THE GROUND THAT ITS FINANCIAL RESULTS MAKES INCOMPARABLE VIS- -VIS ROUTINE SDS SEGMENT. 85. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE AFORESAID DECISIONS RENDERED BY THE COORDINATE BENC H OF THE TRIBUNAL WE ARE OF THE CONSIDERED VIEW THAT KEEPIN G IN VIEW THE ACQUISITION MERGER ASSET BASE R&D EXPENDITURE AN D INORGANIC GROWTH OF SASKEN IT IS NOT A SUITABLE COMPARABLE V IS--VIS THE TAXPAYER HENCE ORDERED TO BE EXCLUDED. ITA NO.1084/DEL/2016 52 FLEXTRONIC SOFTWARE SYSTEMS LTD. (FLEXTRONIC) 86. THE TAXPAYER SOUGHT EXCLUSION OF FLEXTRONIC FRO M THE FINAL SET OF COMPARABLES TO BENCHMARK INTERNATIONAL TRANS ACTIONS QUA SDS SEGMENT ON THE GROUNDS INTER ALIA THAT IT IS A PRODUCT COMPANY; THAT IT HAS ASSET BASE OF RS.125.84 CRORES WHICH IS 43 TIMES OF THE TAXPAYER; THAT IT HAS INCURRED R&D EXPENDITURE TO T HE TUNE OF 4.6% OF THE TOTAL TURNOVER AND RELIED UPON THE DECISIONS OF AVAYA INDIA PVT. LTD. IN ITA NO.5528/DEL/2011 AND TOLUNA INDIA PVT. LTD. (SUPRA). 87. PERUSAL OF ANNUAL REPORT AVAILABLE AT PAGE 155 8 OF THE PAPER BOOK SHOWS THAT FLEXTRONIC IS END TO END PROVIDER OF COMMUNICATION PRODUCTS SERVICES AND SOLUTIONS TO N ETWORK EQUIPMENT PROVIDERS HANDSET MANUFACTURERS SERVICE PROVIDERS AND BUSINESS PROCESS OUTSOURCING SECTORS AND THAT IT HA S HYBRID BUSINESS MODEL OF SUPPLYING BOTH PRODUCTS AND SERVICES TO IT S CUSTOMERS. PERUSAL OF THE PROFIT & LOSS ACCOUNT AVAILABLE AT PAGE 1568 OF THE PAPER BOOK SHOWS THAT FLEXTRONIC HAS AMORTIZED PRO DUCT DEVELOPMENT COST OF RS.5.15 CRORES DURING THE YEAR UNDER ASSESSMENT. ITA NO.1084/DEL/2016 53 87.1 FURTHERMORE PERUSAL OF SCHEDULED D FORMING PA RT OF THE BALANCE SHEET SHOWS THAT IT HAS ASSET BASE OF RS.12 5.84 CRORES AS AGAINST RS.29 CRORES OF THE TAXPAYER. FLEXTRONIC H AS ALSO INCURRED R&D EXPENDITURE AS PER ANNEXURE TO THE DIRECTORS R EPORT AVAILABLE AT PAGE 1561 OF THE PAPER BOOK TO THE TU NE OF 4.6% OF THE TOTAL TURNOVER AS AGAINST NIL R&D EXPENDITURE OF TH E TAXPAYER. SO ALL THESE FACTS MAKE FLEXTRONIC NOT A SUITABLE COMP ARABLE VIS--VIS THE TAXPAYER WHICH IS A ROUTINE SDS PROVIDER AS A R ISK BEARING ENTITY. MOREOVER A PRODUCT COMPANY CANNOT BE COMP ARED FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS VIS--V IS ROUTINE SDS PROVIDER. 88. COORDINATE BENCH OF THE TRIBUNAL IN TOLUNA INDIA PVT. LTD. (SUPRA) EXCLUDED FLEXTRONIC AS A COMPARABLE VIS--V IS ROUTINE SDS PROVIDER ON THE GROUND THAT THIS COMPANY IS HAVING A PRODUCT REVENUE OF RS.92.1 CRORES WHEREAS THE TAXPAYER IS N OT SELLING ANY PRODUCT BY RETURNING FOLLOWING FINDINGS :- '21.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD WE FIND T HIS COMPANY TO BE NOT COMPARABLE TO THAT OF THE ASSESSEE. THE REAS ON FOR OUR THIS DECISION IS THAT THE TPO HAS TAKEN SEGMENTAL DATA O F 'PRODUCT AND SERVICE SEGMENT' OF THIS COMPANY WHICH HAS PROD UCT REVENUE OF RS.92.1 CRORE. IN CONTRAST TO IT THE INSTANT A SSESSEE IS NOT SELLING ANY SOFTWARE PRODUCTS BUT IS DOING THE JO B ASSIGNED TO IT ON COST PLUS BASIS. THE CONTENTION OF THE LD. DR TH AT SINCE THE MAJORITY OF THE REVENUE FROM 'PRODUCT AND SERVICES SEGMENT' WAS FROM THE SERVICES SEGMENT AND HENCE THIS COMPANY SHOULD BE CONSIDERED AS COMPARABLE IS BEREFT OF ANY FORCE. W HEN FIGURES OF PRODUCTS AND SERVICES ARE COMBINED IT CANNOT BE AS CERTAINED AS TO HOW MUCH CONTRIBUTION WAS MADE BY THE PRODUCT DI VISION OR ITA NO.1084/DEL/2016 54 THE SERVICE DIVISION TO THE OVERALL REVENUE OF THE PRODUCT AND SERVICES SEGMENT. AS THE ASSESSEE IS ADMITTEDLY NOT ENGAGED IN SELLING ITS SOFTWARE PRODUCTS SUCH A COMPANY CANNO T BE CONSIDERED AS COMPARABLE. IT CAN BE SEEN FROM THE A NNUAL REPORT OF THIS COMPANY A COPY OF WHICH IS AVAILABLE ON PA GE 88 OF THE PAPER BOOK THAT IT CONSOLIDATED ITS EXISTING PRODU CT PORTFOLIO AND TOOK STEPS TO EXPAND INTO FURTHER TECHNOLOGIES BY I NCREASING THE MOMENTUM IN KEY INITIATIVES IN WIMAX IMS SIP & IS SIESS DOMAINS. THIS COMPANY HAS ITS OWN PRODUCTS SUCH AS ASN WIMAX GATEWAY PRODUCT WITH ASN LIGHT. IT IS FURTHE R RELEVANT TO NOTE THAT THE YEAR ENDING OF THIS COMPANY IS NOT COINCIDING WITH THAT OF THE ASSESSEE AND IT IS NOT KNOWN AS TO HOW THE TPO HAS ADOPTED THE RELEVANT FIGURES FOR COMPARISON. IN VIEW OF THE FOREGOING DISCUSSION WE HOLD THIS COMPANY TO BE NO T COMPARABLE AND DIRECT ITS EXCLUSION FROM THE LIST OF COMPARABL ES. THE ASSESSEE SUCCEEDS. ' 89. SIMILARLY COORDINATE BENCH OF THE TRIBUNAL IN C ASE OF AVAYA INDIA PVT. LTD. (SUPRA) EXCLUDED FLEXTRONIC AS A COMPARABLE VIS-- VIS ROUTINE SDS PROVIDER BEING FUNCTIONALLY DISSIMI LAR AND ENGAGED INTO SIGNIFICANT R&D ACTIVITIES RESULTING INTO CREA TING OF INTELLECTUAL PROPERTY RIGHTS. 90. KEEPING IN VIEW THE AFORESAID FACTS AND CIRCUMS TANCES OF THE CASE AND FOLLOWING THE AFORESAID ORDERS PASSED BY T HE TRIBUNAL WE ARE OF THE CONSIDERED VIEW THAT FLEXTRONIC BEING A PRODUCT COMPANY HAVING SUBSTANTIAL REVENUE FROM SALE OF PRODUCTS B EING INTO EXTENSIVE R&D ACTIVITIES HAVING EXPENDITURE OF 4.6% OF THE TURNOVER WHICH IS IN RETURN CREATING INTELLECTUAL P ROPERTY RIGHTS AND THERE IS NO BREAK UP OF PRODUCT AND SERVICES AVAILA BLE AND MOREOVER ITS ASSET BASE IS 43 TIMES OF TAXPAYER WHICH CERTAI NLY MAKES IT ITA NO.1084/DEL/2016 55 INCOMPARABLE VIS--VIS THE TAXPAYER. SO WE ORDER TO EXCLUDE FLEXTRONIC FROM THE FINAL SET OF COMPARABLES. 91. KEEPING IN VIEW THE FINDINGS RETURNED IN THE PR ECEDING PARAS THE APPEAL FILED BY THE TAXPAYER IS ALLOWED FOR STA TISTICAL PURPOSES AND AO/TPO TO COMPUTER THE TP ADJUSTMENT IF ANY A CCORDINGLY. ORDER PRONOUNCED IN OPEN COURT ON THIS 18 TH DAY OF NOVEMBER 2019. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 18 TH DAY OF NOVEMBER 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.