T D Satyan(HUF), Chickmagalur v. Commissioner of Income tax, Mysore

ITA 1482/BANG/2014 | 2007-2008
Pronouncement Date: 31-07-2015 | Result: Allowed

Appeal Details

RSA Number 148221114 RSA 2014
Assessee PAN CTION2340I
Bench Bangalore
Appeal Number ITA 1482/BANG/2014
Duration Of Justice 8 month(s) 10 day(s)
Appellant T D Satyan(HUF), Chickmagalur
Respondent Commissioner of Income tax, Mysore
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 31-07-2015
Date Of Final Hearing 21-07-2015
Next Hearing Date 21-07-2015
Assessment Year 2007-2008
Appeal Filed On 20-11-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH C BANGALORE BEFORE SHRI ABRAHAM P GEORGE QCCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER IT(TP)A NO.1444(BANG) 2012 (ASSESSMENT YEARS : 2008-2009) GXS INDIA TECHNOLOGY CENTRE PVT.LTD PRESTIGE EMERALD 2 ND 3 RD & 4 TH FLOOR MUNICIPAL NO.2 MADRAS BANK ROAD LAVELLE ROAD JUNCTION BANGALORE-560 001 APPELLANT VS THE INCOME-TAX OFFICER WARD-11(2) BANGLORE RESPONDENT ASSESSEE BY : SHRI K.R.VASUDEVAN ADVOCATE REVENUE BY : SHRI SUNIL KUMAR AGGARWAL JCIT DATE OF HEARING : 21-07-2015 DATE OF PRONOUNCEMENT : 3 1-07-2015 O R D E R PER SHRI VIJAYPAL RAO JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER PASSED U/S 143(3) R.W.S.144C(13) OF THE IT ACT 196 1 IN PURSUANT TO THE DIRECTIONS OF DRP DATED 26-06-2012 FOR THE ASSESSME NT YEAR 2008-09. 2. THE ASSESSEE IS A COMPANY INCORPORATED IN INDIA AND WAS ESTABLISHED AS 100% EOU REGISTERED UNDER SOFTWARE T ECHNOLOGICAL PARKS OF ITA NO.1444(BANG)12 2 INDIA (SWTPI) AT BANGALORE. THE ASSESSEE IS A COMPA NY PRIMARILY ENGAGED IN DESIGNING AND DEVELOPMENT OF SOFTWARE FOR ITS PA RENT COMPANY. THE ASSESSEE REPORTED INTERNATIONAL TRANSACTIONS WITH I TS AE ON ACCOUNT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES OF RS.27 42 51 262/-. THE ASSESSEE HAS REPORTED PROFIT BEFORE TAX ON COST AT 10.28%. THE ASSESSEE SELECTED 18 COMPARABLES IN ITS TP STUDY REPORT TO B ENCH MARK ITS INTERNATIONAL TRANSACTIONS AND ARRIVED AT 10.28% OF MEAN MARGIN IN COMPARISON TO THE ASSESSEES OPERATING MARGIN AT 10 .28%. THE COMPARABLES SELECTED BY THE ASSESSEE ARE AS UNDER; SL.NO. COMPANY NAME UNADJUSTED AVERAGE MARGIN 3 YEARS 1 AARMAN SOFTWARE PVT.LTD 57.64% 2 AKSHAY SOFTWARE TECHNOLOGIES LTD 5.93% 3 APPLABSTECHNOLOGIES PVT. LTD 18.25% 4 COMPUTECH INTERNATIONAL LTD 5.20% 5 CORE PROJECTS & TECHNOLOGIES LTD 38.85% 6 IGATE GLOBAL SOLUTIONS LTD 5.10% 7 MINDTREE LTD 15.61% 8 NIHAR INFO GLOBAL LTD -3.23% 9 ORIENT INFORMATION TECHNOLOGY LTD -21.85% 10 PRITHVI INFORMATION SOLUTIONS LTD 14.09% 11 R.S.SOFTWARE (INDIA) LTD 14.58% 12 R.SYSTEMS INTERNATIONAL LTD 18.08% 13 SIP TECHNOLOGIES & EXPORTS LTD 18.10% 14 SILVERLINE TECHNOLOGIES LTD -26.25% 15 SONATA SOFTWARE 7.38% ITA NO.1444(BANG)12 3 16 VJIL CONSULTING LTD 8.46% 17 VMF SOFT TECH 3.08% 18 ZYLO SYSTEMS LTD 18.53% ARITHMETIC MEAN 10.98% 3. OUT OF THE 18 COMPARABLES SELECTED BY THE ASSESS EE 14 WERE REJECTED BY THE TPO. THE TPO FINALLY SELECTED 20 C OMPANIES AS COMPARABLES INCLUDING 4 COMPANIES FROM THE LIST OF ASSESSEES COMPARABLES NAMELY: A) IGATE GLOBAL SOLUTIONS LTD (SEG.) B) MINDTREE CONSULTING LTD (SEG.) C) R.S.SOFTWARE (INDIA)LTD. AND D) R.S.SYSTEMS INTERNATIONAL (SEG.) 3.1 THUS THE TPO CALCULATED THE MEAN MARGIN OF 20 COMPARABLES AT 23.65%. THERE IS NO DISPUTE REGARDING THE MOST AP PROPRIATE METHOD BEING ADOPTED BY THE ASSESSEE AS WELL AS THE TPO AS TNMM. THE COMPARABLE COMPANIES SELECTED BY THE TPO FOR DETERMINATION OF ALP ARE AS UNDER; SL.NO COMPANY NAME UNADJUSTED MARGINS FY: 2007-08 1 AVANI COMCON 25.62% 2 BODHTREE LTD 18.72% 3 CELESTIAL BIOLABS LTD 87.94% 4 E-ZEST SOLUTIONS LTD 29.81% 5 FLEXTRONICS SOFTWARE (WSEG.) 7.86% 6 IGATE GLOBAL SOLUTIONS LTD(SEG.) 13.99% 7 INFOSYS TECHNOLOGIES LTD 40.37% ITA NO.1444(BANG)12 4 8 KALS INFO SYSTEMS (SEG.) 41.94% 9 LGS GLOBAL LTD(LANCO) 27.52% 10 MINDTREE CONSULTING (SEG.) 16.41% 11 PERSISTENT SYSTEMS LTD 20.31% 12 QUINTEGRA SOLUTIONS LTD 21.74% 13 R.SYSTEMS INTERNATIONAL (SEG.) 15.30% 14 R.S.SOFTWARE(INDIA)LTD 7.41% 15 SASKEN COMMUNICATIONS(SEG.) 7.58% 16 TATA ELXSI LTD (SEG.) 18.97% 17 THIRDWARE SOLUTIONS 19.35% 18 WIPRO LTD. 28.45% 19 SOFTSOL INDIA LTD 17.89% 20 LUCID SOFTWARE 16.50% ARITHMETIC MEAN 23.65% 3.2. THUS THE TPO ARRIVED AT A ARITHMETIC MEAN OF 23.65% IN COMPARISON TO ASSESSEES OPERATING MARGIN OF 10.28% AND ACCORDINGLY PROPOSED AN UPWARD ADJUSTMENT OF RS.3 42 18 209. T HE ASSESSEE CHALLENGED THE ACTION OF THE TPO IN REJECTING THE C OMPARABLES SELECTED BY THE ASSESSEE AND ADDING 16 MORE COMPARABLES IN THE LIST OF COMPARABLES FOR DETERMINATION OF ALP BEFORE THE DRP. THE DRP D ID NOT ACCEPT OBJECTIONS RAISED BY THE ASSESSEE AND CONFIRMED THE PROPOSED ADJUSTMENT ON ACCOUNT OF ALP IN RESPECT OF INTERNATIONAL TRANS ACTIONS OF THE ASSESSEE. ACCORDINGLY THE DRP REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE. ITA NO.1444(BANG)12 5 4. BEFORE US THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS; GROUNDS OF APPEA L I. T RANSFER PRICING 1. THE LEARNED ASSESSING OFFICER ( ' AO ') AND T HE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX (TRANSFER PRICING - VI) BANGALORE ('TRANSFER PRICING OFFICER ' OR 'TPO') GROSSLY ERRED IN L A W A ND FACTS OF THE CASE IN DETERMINING THE ARM'S LENGTH PRICE ( ' ALP ' ) O F TH E I NTERNATIONAL TRANSACTION OF THE APPELLANT AND THEREBY MAKING AN ADJUSTM E NT OF RS. 34 218 209/ - WITH RESPECT TO THE SOFTWARE DEVELOPMENT SE R VICES R E N DE R ED B Y THE TAX PAYER U/S 92CA OF THE INCOME TAX ACT. 1. THE LEARNED AO AND TPO OUGHT TO HAV E AC C EPT E D T HE ARM ' S LENGTH PRICE AS DETERMINED BY THE APPELLANT. 2. THE LEARNED TPO AND THE LEARNED AO OUGHT T O HA V E ACCEPTED THE DIFFERENCE IN RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COMPA R ABL E COMPANIES. THE LEARNED TPO AND THE LEARNED AO ERRED IN NOT A L LO WI NG TH E BENEFIT OF MARKET RISK ADJUSTMENT TO THE APPELLANT. 3. THE LEARNED TPO AND THE LEARNED AO ERR E D I N C ONC LU D I NG THAT THE APPELLANT IS EXPOSED TO SINGLE CUSTOMER RISK WITHOUT EVALU A TI N G THE BUSINESS ARRANGEMENT OF THE APPELLANT. 4. THE LEARNED TPO AND THE LEARNED AO ER R ED IN NOT ALL O W ING THE BENEFIT OF R ANGE OF +/- 5% AS PROVIDED IN PROVISO TO SEC TI O N 92C(2) OF THE ACT TO THE APPELLANT WHILE DETERMINING THE ARM'S LENGTH PRICE . 5. ON THE FACTS AND CIRCUMSTANCES OF T H E CASE THE LEARNE D A O AND THE LEARNED TPO ERRED IN REJECTING THE TRANSFE R PRICING ('TP') DOCUMENTATION WI THOUT APPRECIATING THE CONTENTIONS ARGUME NT S AND EVIDE N TIA R Y D ATA PUT FORWA R D B Y THE APPELLANT DURING THE COURSE OF T H E PROCEEDINGS BEF ORE THEM AND IN DO I NG SO HAVE GROSSLY ERRED: 6.1 IN REJECTING THE COMPARABILITY ANA LYSIS CARRIED IN TH E T P DOCUMENTATION AND CONDUCTING A FRESH COMPARABILITY A NALYSIS FOR DETER MINING THE ARM ' S LENGTH PRICE BY THE LEARNED TPO . ITA NO.1444(BANG)12 6 6.2 IN ADOPTING THE ARM ' S LENGTH M ARK UP TO BE 23. 65% IN RESPECT OF THE INTERNATIONAL TRANSACTION PERTAININ G TO THE RENDERING O F SOFTWARE DEVELOPMENT SERVICES BY THE APPELLANT ; 6 . 3 IN COMPLETEL Y RELYING ON THE UNAUD ITED DATA REQUISITION E D A ND CONSEQU E NTL Y OBTAINED B Y TAKING RECOURSE TO TH E PROVISIONS OF S ECT IO N 1 33(6) O F THE INCOME - TA X ACT 1961 (' THE AC T') WHICH IN MAN Y I NSTANC ES AR E INCONSIST E NT WITH THE DATA DISCLOSED IN AUDITED R EP O RT S . IN DOING SO T HE LE A R NE D TPO HAS ERRED I N COMPL Y ING WITH THE PRINC I PL E S O F NATURAL JUSTICE. 6 . 4 IN CONSIDERING 25 PERCEN T AS T HE THRESHOLD L IM I T FOR TH E REL A TED P AR TY TRANSACTIONS FILTER AS THIS NUMBE R IS AN ARBITRAR Y N UMB E R T HAT HAS BE EN ADOPTED WITHOUT AN Y J UDIC I AL PR E CED ENCE OR REASONABLE BASIS. 6 . 5 IN R EJECTING T HE UPPER LIMIT FOR S AL ES TURNOVER FILTER PROP OSE D B Y TH E APPE LLAN T WITHOUT PRO V IDING ANY EMPIR I CAL A NALYSIS. IN DOING SO T H E LE A R NED T PO ER RED I N NOT APPRECIATING THAT THE SOFT W AR E INDUSTR Y IS CLEARLY DEM AR C AT E D BASED O N SIZE. 6.6 IN ACCEPTING COMPANIES LIK E I N F O SYS L IMITED AND WIPR O LI M ITED A S COMPARABLE COMPANIES E V EN T HO U GH THE SALES OF INFOSYS AN D WIPR O AR E DRI V EN BASED ON B R AND DE VEL OP ED BY THEM . I N DOING SO THE LEAR N ED TPO AND THE LEARNED AO HA VE IGNOR E D THE ADJUDICATION OF THE DE L HI INCOME TAX APPELLATE TRIBUNAL (IT AT) IN A G NITY INDIA TECHNOLOGIE S I NDI A PV T. LT D . (REFERENCE: IT A N O. 38 5 6 ( D EL)12010) . 6. IN ACCEPTING COMPANIES E NGAGED IN T HE P ROVISION OF SO F TWAR E P ROD UCT DE V ELOPMENT LIKE A V ANI CI M CO N TECHNO L OGIES L I MITED KAL S INF O R M ATION S Y STEMS LIMI T ED PE R SISTENT SY ST EMS L I MITE D QUINTEGRA S O LU TIO N LIMITED SASKEN COMMUNICATION TECHN O L OGIES LI M IT E D R SYSTEMS I NT ERNATI O NAL LIMITED AND THI R D W ARE S OL UTION LIM IT ED WHI C H ARE FU N C T IONALLY NOT COMPARABL E TO THE APPELLAN T ' S BU SINESS. 6 . 8 IN ACCEPTIN G TATA E L X S I L I MI TE D AS A C O MPARABLE C OMPANY EVEN TH O UGH THE ITA NO.1444(BANG)12 7 COMPAN Y IN ITS R EPL Y TO THE L E A RNED TPO UN DER SECT ION 133( 6 ) H AD M E N T IO NED THAT THE COMPANY PROVIDES PRODU CT DESIG N S ERVICES WHICH I S F UNCTIONALL Y N OT COMPARABLE TO THE A PPELLAN T' S BUS INESS. 6.9 IN ACCEPTING COMPANIES SU C H AS CELES T IA L LA B S LIM ITED FLEX T RO NIC S SO FTW A RE S Y STEMS LIMITED AND SOFTSO L INDIA LIMITED WH ICH ARE FU NCT I ON A LL Y N O T COMPARABLE TO THE APPELLANT ' S B U S INESS ; 6 . 10 IN ACCEPTING COMP A NI E S LIKE CELESTIA L LABS LIMIT ED AND INF O SYS LIMITED W HICH HAVE ABNORMAL/ F LUCTU A TI NG PROF I T MARGINS. IN DOING SO TH E LEAR N ED AO HA V E DI SREGARDED THE V ARIOUS JURISDI C T IONAL ITA T R ULINGS IN CASE OF SAP LABS INDIA P V T . LTD . VS. ACIT ( R EFE RENC E ITA. NO. 398 /B A N G/2 00 8) E - GAIN COMMUNICAT I ON PRI V ATE LIMI T ED (REFERENCE: I TA N O . 16 8 5/P N /0 7 - PUNE) ; 6 . 11 IN ACC E PTING COMPANIES LIK E FLEXTRONICS SOFTWA R E SY ST E MS LI MITED QUINTEGRA SOLUTIONS L I MITED SASKEN COMMU N I CAT I ONS T ECHNOLOGIES LIMITED WIPRO LIMITED AND R S Y S TEM S INTERNATIONAL LIM IT E D W ITHOUT TAK I NG INTO CONSIDERATION THE PECULIAR ECO NOMIC CIRCUM STANC E S SURROUNDING T HEIR OPERATIONS DURING THE Y EAR UND E R REVIEW; 6 . 12 IN ACCEPTING COMPANIES HA V IN G RELATED PA R TY TRANSACTI O N S E XCEE D I N G 1 0 % SUCH AS SOFT801 INDIA L I MITED A R I D INFO S YS LIMITED. IN D OING SO THE LE A R NED AO HAS DISREGARDED T HE D E LH I IT A T RULING IN CASE OF S O NY IN D IA PVT . L TD . ( REFERENCE ITA NO .1 189/DE L/ 2005 ) 6 . 13 I N UPHO L DING THE ACTIONS OF T HE L E AR NED TPO IN APPLYI N G T HE EX PORT FILTE R FOR SELECTION OF SOFT WA RE COMPARABL B S. IN DOING SO THE LE A RN ED TPO ERRED I N REJECTING AARMAN SOF T WARE PR IV A TE LIMITED AND VMF S O FT T ECH LIMI T ED . 6.14 IN APPL Y ING THE ONSITE FILTER FOR S E L ECTION OF SOFTWAR E C O MP A R ABLES WI T H THE US E OF THE DATA OBTAINED UND ER SEC TION 133(6) OF THE ACT IS N OT EC ONOM ICALLY V ALID . IN DOING SO T HE L E ARNED 1 FPO ERRED IN REJECTING C OMPA N IES SUC H A S AKSHA Y SOFTWARE TECHNOLO GI E S LIMITED PR I THVI INFOR M A TIO N SOL U TI ON S LIM I TED S I LVERL I NE TECHNOLOG IES LIMITED ZYLOG SYST E M S L I M I TE D A ND V J I L CONSULTING LIMITED. I ITA NO.1444(BANG)12 8 6 . 15 IN NOT MAINTAINING CONSIS T ENC Y I N APPLYING THE F I LTERS OF REJECT IN G C OMPA NIES WITH ABNORMAL FLUCTUATING MA R GI N DIMINISHIN G REVENUE / P ERSIST E NT L OSSES FOR THE PERIOD UND E R CONS I D E R A T I O N COMPAN I ES WITH P E C ULIA R EC O NOMIC CIRCUMSTANCES COMPANIES WI TH DIFFERENT FINANCIAL YEAR ENDING COMPANIES FOR WHICH IN DATABASE/ P UB LI C DOMAI N AND C O MPANIES WITH RELATED PARTY 6 . 16 IN ACCEPTING COMPANIES L I KE W IPRO LIMITED THI RDWARE S O L UTION L I MITED PERSISTENT S YS TEMS LIMIT E D QUIN TEGRA SOLU TI O N S L IMITED TA T A ELX S I LIMITED WHICH OWNS INTANGIBLE A S SETS . 6.17 IN ACCEPTING COMPANIES LI K E I-G G ATE GLOBA L S OLUT IONS LIMI T E D T H I R DW A RE SOLUTION LIM I TED E-ZES T SO L UTI ONS L IM IT E D AVANI CIMC ON TE CHNOLO GIE S LIMITED AND WIPRO LIMITED W H ERE SEGM EN TA L DA TA PERTAINI NG TO S OFTW A RE DE V ELOPMENT SERVICES IS NOT AV AIL ABLE. 7. T HE LEARN E D T PO AND THE LEARNED AO ERRED IN DISREGARDING THE USE OF MULTIPLE Y EAR DATA AND OUGHT T O HAVE ACCEPTED THE USE OF CONTEMP O RANEO U S DATA DUE TO NON-A VA ILABILIT Y O F C URRENT Y E AR DATA IN T HE PUBLIC D O MA I N AT THE TIME OF PREPARING THE DOCUMENTAT ION. . 11. DENIAL OF BENEFIT UNDER SECTION 10A O F T H E A C T A. THE LEARNED AO ERRED IN NOT AL L OW IN G TAX B ENEFIT UNDER SECTION LOA AMOUNTING TO RS. 19 82 - 1 474/- B. THE LEARNED AO HAS FAILED TO APPRECIATE THAT T H E APP E L L ANT IS ELIGIBLE FOR DEDUCTION UNDER SECTION LOA OF THE ACT SINCE THE UNDE R TAK IN G O F THE APPELLANT RESULTED FROM A GLOBAL TRANSFER OF THE BUSINESS OF THE UNDERT A KING A S A GOING CONCERN WITH ALL THE ELEMENTS OF THE BUS I NESS . C. THE LEARNED AO FAILED TO APPRECIATE THAT T HE DEDUC T IO N U NDER SECTION LOA OF THE ACT IS ATTACHED TO THE UNDERTAKING AND CANNOT B E DENIED M E R ELY ON CHANGE IN OWNERSHIP THEREOF. I D. THE LEARNED AO HAS FAILED TO APPRECI A TE T H A T TH E UND ER TAKING W AS NOT FORMED IN THE YEAR OF TRANSFER I.E. ASSESSMENT YEA T CA Y) 2 00 4- 05 BUT IN THE INITIAL YEAR I . E . AY 2000-01. I E. THE LEARNED AO HAS ERRED IN CONCLUD I NG T H AT TH E UND E RTAKING HAS BEEN FORMED B Y THE SPLITTING UP OR THE RECONSTRUCTION OF A BUS I NESS ALR EAD Y I N E X ISTENCE . F. THE LEARNED AO HAS ERRED IN CONCLUD IN G TH A T THE UND E R TAKING OF THE COMPANY HAS BEEN FORMED OUT OF PLANT AND MACHINER Y PRE VIOU S LY USED . ITA NO.1444(BANG)12 9 G. THE LEARNED AO ERRED IN NOT RELYING . O N THE DECISION OF T HE H ONORABLE INCOME TAX APPELLATE TRIBUNAL BANGALORE IN THE A P PELLANT ' S OWN C ASE FOR AY 200 4 -05 VIDE ORDER DATED 10 AUGUST 20 I 0 WHEREIN THE H O NOURABLE INC OM E T AX APPELLATE TRIBUNAL HAS HELD THAT THE APPELLANT IS ELIGIBLE FO R TAX BENEFIT UNDER SECTION LOA . ILL . INTEREST UNDER SECTION 234B OF THE ACT: RS. 2 839 310 THE LEARNED AO IS NOT JUSTIFIED IN LEVYING INTEREST UN DER SECTION 234B OF THE ACT . LEVY OF INTEREST UNDER SECTION 234B IS CONSEQUENTI A L IN NATURE . IV. INTEREST UNDER SECTION 234D OF THE ACT: RS. 897 1 22 THE LEARNED AO IS NOT JUSTIFIED IN LEVYING INTEREST U NDER SECTION 234D OF THE ACT . LEVY OF INTEREST UNDER SECTION 23 40 IS CONSEQUENTI AL IN NATURE . THE APPELLAN T CRAVES LEAVE T O ADD ALTER A N D MODI FY THE ABOVE GROUND S DURI NG TH E COURSE OF T HE APP EAL . FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MA Y BE RA I SED AT T HE T I ME O F HEARING I T I S PRAYED THAT THE ORDER OF THE ASSESSING OFF I CE R B S ET A S IDE. 5. GROUND NO.(I TO VII) PERTAIN TO TP ADJUSTMENT. IN THE COURSE OF HEARING LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE RAISED THE OBJECTION AGAINST 13 COMPANIES SELECTED BY THE TPO OUT OF THE SET OF COMPARABLES WHICH ARE FUNCTIONALLY DISSIMILAR TO TH AT OF THE ASSESSEE. THE OBJECTIONS RAISED BY THE ASSESSEE AGAINST THE COMPA NIES ARE LISTED AS UNDER; ITA NO.1444(BANG)12 10 SL.NO COMPANY NAME 1 AVANI COMCON 2 BODHTREE LTD 3 CELESTIAL BIOLABS LTD 4 E-ZEST SOLUTIONS LTD 5 INFOSYS TECHNOLOGIES LTD 6 KALS INFO SYSTEMS (SEG.) 7 PERSISTENT SYSTEMS LTD 8 QUINTEGRA SOLUTIONS LTD 9 TATA ELXSI LTD (SEG.) 10 THIRDWARE SOLUTIONS 11 WIPRO LTD. 12 SOFTSOL INDIA LTD 13 LUCID SOFTWARE 5.1 THE OBJECTIONS OF THE ASSESSEE AND FUNCTIONAL SIMILARITY/DIS- SIMILARITY OF THESE COMPANIES ARE DISCUSSED ONE BY ONE AS UNDER; AVANI CIMCON : THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE P RODUCTS AS WELL AS SOFTWARE SERVICES. HOWEVER THERE ARE NO SEGMENTA L DETAILS AVAILABLE IN THE FINANCIAL ACCOUNT OF THIS COMPANY. THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE OF THE ASSESSEE COM PANY WHICH IS PURELY ITA NO.1444(BANG)12 11 A SOFTWARE DEVELOPMENT COMPANY AND NOT IN SOFTWARE PRODUCT. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISIONS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTION S LTD. IN IT(TP)A NO.1303(B)/2012. THUS THE LEARNED AR HAS SUBMITT ED THAT THE TRIBUNAL WHILE COMPARING THE FUNCTIONAL SIMILARITY OF AVANI CIMCON FOR THE AY: 2008-09 HAS CONCLUDED THAT THIS COMPANY CANNOT BE T REATED AS A FUNCTIONALLY SIMILAR TO SOFTWARE DEVELOPMENT COMPAN Y. 6. ON THE OTHER HAND LEARNED DR HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS COMPANY F ULFILLS ALL FILTERS AND CATEGORY OF SOFTWARE SOLUTIONS AND SOFTWARE DEVELOP MENT COMPANY. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) THE CO-ORDINATE BEN CH OF THIS TRIBUNAL HAD THE OCCASION TO EXAMINE THE FUNCTIONAL COMPARABILIT Y OF THIS COMPANY WITH THAT OF A SOFTWARE DEVELOPMENT COMPANY. THE TRIBUN AL ALSO RELIED UPON THE DECISIONS OF THE CO-ORDINATE BENCH OF THIS TRIB UNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD VS DCIT(ITA NO.10 54/B/2011) AND IN CASE OF TELECORDIA TECHNOLOGIES INDIA PVT.LTD VS AC IT (ITA NO.7821/M/2011). THE ASSESSEE IN CASE OF 3DPLM SO FTWARE SOLUTIONS LTD (SUPRA) ALSO EXPLAINED CERTAIN FACTS BEFORE THE TRI BUNAL IN PARA-7.3 IS AS UNDER; ITA NO.1444(BANG)12 12 7.3 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE FACTS PERTAINING TO THIS COMPANY HAS NOT C HANGED FROM THE EARLIER YEAR (I.E. ASSESSMENT YEAR 2007-08) TO THE PERIOD UNDER CONSIDERATION (I.E. ASSESSMENT YEAR 2008-09). IN SUPPORT OF THIS CONTENTION IT WAS SUBMITTED THAT :- (I) THE EXTRACT FROM THE WEBSITE OF THE COMPANY CLE ARLY INDICATES THAT IT IS PRIMARILY ENGAGED IN DEVELOPME NT OF SOFTWARE PRODUCTS. THE EXTRACT MENTIONS THAT THIS C OMPANY OFFERS CUSTOMISED SOLUTIONS AND SERVICES IN DIFFERE NT AREAS; (II) THE WEBSITE OF THIS COMPANY EVIDENCES THAT TH IS COMPANY DEVELOPS AND SELLS CUSTOMIZABLE SOFTWARE SOLUTIONS LIKE DX CHANGE CARMA ETC.. 7.1 THUS IT WAS BROUGHT TO THE NOTICE OF THE TRIB UNAL THAT THE SAID COMPANY IS PRIMARILY ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS AND PARTICULARLY IN CUSTOMIZED SOFTWARE SOLUTION LIKE D XCHANGE CARMA ETC. PRODUCTS. THE TRIBUNAL AFTER CONSIDERING THE FUNCT IONS AND THE INFORMATION AVAILABLE ON THE WEBSITE OF THE COMPANY HAS CONCLUD ED AT PARA-7.6.1 AND 7.6.2 AS UNDER; 7.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT I S SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY I N THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFO RMATION OBTAINED UNDER SECTION 133(6) OF THE ACT. IN THESE CIRCUMSTANCES IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY FURNISHED THE INFORMATION SO GATHERED T O THE ITA NO.1444(BANG)12 13 ASSESSEE AND TAKEN ITS SUBMISSIONS THEREON INTO CONSIDERATION BEFORE DECIDING TO INCLUDE THIS COMPA NY IN ITS FINAL LIST OF COMPARABLES. NON-FURNISHING THE INFOR MATION OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASS ESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARA BLE. 7.6.2 WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTE NTION OF THE LEARNED AR THAT THIS COMPANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMPARABLE ONLY ON THE GROUND THAT THIS COMPANY WAS SELECTED IN THE EARLIER YEAR. EVE N IN THE EARLIER YEAR IT IS SEEN THAT THIS COMPANY WAS NOT SELECTED ON THE BASIS ON ANY SEARCH PROCESS CARRIED OUT BY T HE TPO BUT ONLY ON THE BASIS OF INFORMATION COLLECTED UNDE R SECTION 133(6) OF THE ACT. APART FROM PLACING RELIANCE ON THE JUDICIAL DECISION CITED ABOVE INCLUDING THE ASSESSEES OWN CASE FOR AY: 2007-08 THE ASSESSEE HAS BROUGHT ON RECORD EVI DENCE THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND D IFFERENT FROM EH ASSESSEE AND HENCE IT IS NOT COMPARABLE. THEREFORE THE FINDING EXCLUDING IT FROM THE LIST O F COMPARABLES RENDERED IN THE IMMEDIATELY PRECEDING Y EAR IS APPLICABLE IN THIS YEAR ALSO. SINCE THE FUNCTIONAL PROFIRS AND OTHER PARAMETERS BY THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR UNDER CONSIDERATION WHICH FA CT HAS BEEN DEMONSTRATED BY THE ASSESSEE FOLLOWING THE DE CISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY: 2007-08 IN ITA NO.845/BANG/2011 DA TED 22.2.2013 AND IN THE CASE OF TRILOGY E-BUSINESS SO FTWARE INDIA PVT. LTD (ITA NO.1054/BANG/201) WE DIRECT THE AO/TPO TO OMIT THIS COMPANY FROM THE LIST OF COMPAR ABLES. ITA NO.1444(BANG)12 14 FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH F THI S TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 8. BODHTREE LTD : THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THI S COMPANY IS IN THE BUSINESS OF SOFTWARE PRODUCTS AND ENGAGED IN PROVIDING OPEN AND END TO END AS WELL AS SOFTWARE CONSULTANCY AND DESIGN DEVELOPMENT AND SOFTWARE. HE HAS REFERRED AND RELI ED UPON THE DECISIONS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M /S CISCO SYSTEMS INDIA PVT. LTD. DATED 14-08-2014 IN ITA NO.271(B)/2014 A ND SUBMITTED THAT THIS COMPANY WAS FOUND TO BE NOT COMPARABLE TO A SOFTWAR E DEVELOPMENT COMPANY. 8.1 ON THE OTHER HAND LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8.2 HAVING CONSIDERED THE RIVAL SUBMISSION AS WELL AS THE RELEVANT MATERIAL ON RECORD WE NOTE THAT THE FUNCTIONAL COM PARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S CISCO SYSTEMS INDIA PVT. LTD(SUPRA) IN PARA-26.1 AS UNDER; 26.1 BODHTREE CONSULTING LTD. :- AS FAR AS THIS COMPANY IS CONCERNED IT IS NOT IN DISPUTE THAT IN THE LIST OF COMPARABLES CHOSEN BY THE ASSESSEE THIS COMPANY .W AS ALSO INCLUDED BY THE ASSESSEE. THE ASSESSEE HOWEVER SU BMITS BEFORE US THAT LATER ON IT CAME TO THE ASSESSEES NOTICE THAT THIS COMPANY IS NOT BEING CONSIDERED AS A C OMPARABLE COMPANY IN THE CASE OF COMPANIES RENDERING SOFTWARE DEVELOPMENT SERVICES. IN THIS REGARD THE LEA RNED COUNSEL FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE TH E DECISION OF ITA NO.1444(BANG)12 15 THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NET HAWK NETWORKS PVT. LTD. V. ITO ITA NO.7633/MUM/2012 OR DER DATED 6.11.2013. IN THIS CASE THE TRIBUNAL FOLLOWED TH E DECISION RENDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WILLS PROCESSING SERVICES (I) P. LTD. ITA NO.4547/ MUM/2012. IN THE AFORESAID DECISIONS THE TRIBUNAL HAS TAKEN THE VIEW THAT BODHTREE CONSULTING LTD. IS IN THE BUSINESS OF SOFT WARE PRODUCTS AND WAS ENGAGED IN PROVIDING OPEN & END TO END WEB SOLUTIONS SOFTWARE CONSULTANCY AND DESIGN & DEVELOP MENT OF SOFTWARE USING LATEST TECHNOLOGY. THE DECISION REN DERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. (SUPRA) IS IN RELATION TO A.Y. 2008-09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FA CTS AND CIRCUMSTANCES IN THE PRESENT YEAR ALSO REMAINS IDEN TICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREVAILED IN AY 08-09 AS FAR AS THIS COMPARABLE COMPANY IS CONCERNED. FOLLOWING TH E AFORESAID DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL WE HO LD THAT BODHTREE CONSULTING LTD. CANNOT BE REGARDED AS A CO MPARABLE. IN THIS REGARDS THE FACT THAT THE ASSESSEE HAD ITS ELF PROPOSED THIS COMPANY AS COMPARABLE IN OUR OPINION SHOULD NOT BE THE BASIS ON WHICH THE SAID COMPANY SHOULD BE RETAINED AS A COMPARABLE WHEN FACTUALLY IT IS SHOWN THAT THE SAI D COMPANY IS A SOFTWARE PRODUCT COMPANY AND NOT A SOFTWARE DE VELOPMENT SERVICES COMPANY. FOLLOWING THE FINDING OF THIS TRIBUNAL IN CASE OF C ISCO SYSTEM (IND.)PVT. LTD.(SUPRA)WE DIRECT THE AO/TPO TO EXCLU DE THIS COMPANY FROM THE LIST OF COMPARABLES. ITA NO.1444(BANG)12 16 9. CELESTIAL LABS LTD . THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE PRODUCT DEVELOP MENT IN THE FIELD OF BIOTECH AND PHARMACEUTICALS ETC. THIS COMPANY HAS A LSO INCURRED R&D EXPENDITURE WHICH IS MORETHAN 3% OF THE SALES. THE REFORE THIS COMPANY CANNOT BE TREATED AS FUNCTIONALLY SIMILAR TO THE AS SESSEE FOR THE PURPOSE OF DETERMINING THE ALP. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA). 9.1 ON THE OTHER HAND LEARNED DR RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE OBJECTIONS OF THE ASSESSEE WERE DULY CONSIDERED BY THE TPO/DRP AND THIS COMPANY WAS FOUND TO BE A GOOD COMPARABLE OF THE ASSESSEE. 9.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE FUNCTIONA LLY COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) IN PA RA-9.4.1 & 9.4.2 AS UNDER; 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD.WHILE IT IS TRUE THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE WERE WITH RESPECT TO THE IMMEDIATELY PREVIOUS ASSESSMENT YEAR AND THERE CANNOT BE AN AS SUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THIS YEAR AS WELL TH E SAME PARITY OF REASONING IS APPLICABLE TO THE TPO AS WELL WHO SEEM S TO HAVE SELECTED THIS ITA NO.1444(BANG)12 17 COMPANY AS A COMPARABLE BASED ON THE REASONING GIVE N IN THE TPOS ORDER FOR THE EARLIER YEAR. IT IS EVIDENTLY CLEAR FROM THIS THAT THE TPO HAS NOT CARRIED OUT ANY INDEPENDENT FA R ANALYSIS FOR THIS COMPANY FOR THIS YEAR VIZ. ASSESSMENT YEAR 2008-09. TO THAT EXTENT IN OUR CONSIDERED VIEW THE SELECTION PROCESS ADOPTED BY THE TPO FOR INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES IS DEFECTIVE AND SUFFERS FROM SERIOUS I NFIRMITY. 9.4.2 APART FROM RELYING ON THE AFORE CITED JUDICIA L DECISIONS IN THE MATTER (SUPRA) THE ASSESSEE HAS B ROUGHT ON RECORD SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH TH AT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT F ROM THE ASSESSEE IN THE CASE ON HAND AND IS THEREFORE NOT C OMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN THE CITED DECISI ONS FOR THE EARLIER YEARS I.E. ASSESSMENT YEAR 2007-08 IS APPLI CABLE FOR THIS YEAR ALSO. WE AGREE WITH THE SUBMISSIONS OF THE AS SESSEE THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASS ESSEE. IT HAS ALSO BEEN SO HELD BY CO-ORDINATE BENCHES OF THIS TR IBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SU PRA) AS WELL AS IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PRIVATE LMITED. (SUPRA). IN VIEW OF THE FACT THAT THE FUNC TIONAL PROFILE OF AND OTHER PARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDERATION W HICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESSEE FOLLOWIN G THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ITA NO.1444(BANG)12 18 ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 AND TRIOLOGY E-BUSINESS SOFTWARE I NDIA PVT. LTD. IN ITA NO.1054/BANG/2011 WE HOLD THAT THIS CO MPANY OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. THE A. O./TPO ARE ACCORDINGLY DIRECTED. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL(SUPRA) WE DIRECT THE TPO/AO TO EXCLUDE TH IS COMPANY FROM THE LIST OF COMPARABLES. 10. E-ZEST SOLUTIONS LTD . THE LEARNED AR OF THE ASSESSEE HAS POINTED OUT THAT THIS COMPANY IS ENGAGED IN THE BUS INESS OF CONSULTANCY SERVICES AND TECHNICAL SERVICES WHICH IS CATEGORIZE D AS KPO SERVICES HENCE IT IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE. FURTHER THIS COMPANY HAS NOT PROVIDED SEGMENTAL DATA AS PART OF ITS ANNU AL REPORT AND FINANCIAL REPORTS THEREFORE THIS COMPANY CANNOT BE CONSIDER ED AS A GOOD COMPARABLE OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA). 10.1 ON THE OTHER HAND LEARNED AR RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS COMPANY I S MAINLY IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND THEREFORE IT IS FUNCTIONALLY COMPARABLE. ITA NO.1444(BANG)12 19 10.2 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD AT THE OUTSET WE NOTE THAT THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE CO-ORDINAT E BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (S UPRA) IN PARA-14.4 AS UNDER; 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY I N THE LIST OF COMPARABLES ONLY ON THE BASIS OF THE STATEMENT M ADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SECTIO N 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED T HE SERVICES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. FROM THE DETAILS ON RECORD WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES THIS COMPANY I. E. E-ZEST SOLUTIONS LTD. IS RENDERING PRODUCT DEVELOPMENT SE RVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CA TEGORY OF KPO SERVICES. IT HAS BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q INFORMATIO N SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT C OMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO- ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFO RESAID CASE WE HOLD THAT THIS COMPANY I.E. E-ZEST SOLUT IONS LTD. BE ITA NO.1444(BANG)12 20 OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O/TPO IS A CCORDINGLY DIRECTED. FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH (SUPRA ) WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE SET OF COMP ARABLES. 11. INFOSYS TECHNOLOGIES LTD. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY CANNOT BE CONSIDERED AS GOOD COMPARABLES OF THE ASSESSEE BECAUSE THIS COMPANY OWN INTANGIBLES A PART FROM THE INDUSTRY LEADER IN THE FIELD. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S CISCO SYSTEMS (IND.) PVT.LTD. 11.1 ON THE OTHER HAND LEARNED DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS COMPANY I S ENGAGED IN THE SAME BUSINESS THAT OF THE ASSESSEE AND THEREFORE IT IS A GOOD COMPARABLE OF A SOFTWARE DEVELOPMENT COMPANY. 11.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND T HE MATERIAL ON RECORD. WE NOTE THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF CISCO SYSTEMS (IND.)PVT. LTD (SUPRA) HAS CONSIDERED AND E XAMINED THE FUNCTIONAL COMPARABILITY OF THIS COMPANY IN PARA-26.2 AS UNDER ; 26.2 INFOSYS LTD. :- AS FAR AS THIS COMPANY IS CONCERNED IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HAS B EEN CONSIDERED ITA NO.1444(BANG)12 21 TO BE FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDI NG SIMPLE SOFTWARE DEVELOPMENT SERVICES AS THIS COMPANY OWNS SIGNIFICANT INTANGIBLES AND HAS HUGE REVENUES FROM SOFTWARE PRO DUCTS. IN THIS REGARD WE FIND THAT THE BANGALORE BENCH OF TH E TRIBUNAL IN THE CASE OF M/S. TDPLM SOFTWARE SOLUTIONS LTD. V. D CIT ITA NO.1303/BANG/2012 BY ORDER DATED 28.11.2013 WITH R EGARD TO THIS COMPARABLE HAS HELD AS FOLLOWS:- 11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BE FORE THE TPO THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY I N THE SET OF COMPARABLES ON THE GROUNDS OF TURNOVER AND BRAND A TTRIBUTABLE PROFIT MARGIN. THE TPO HOWEVER REJECTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASP ECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEG MENT. 11.2 BEFORE US THE LEARNED AUTHORISED REPRESENTAT IVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT THIS COMPANY COMMANDS SUBSTANTIAL BRAND VALUE OWNS INTE LLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPME NT ACTIVITIES WHEREAS THE ASSESSEE IS MERELY A SOFTWARE SERVICE P ROVIDER OPERATING ITS BUSINESS IN INDIA AND DOES NOT POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT :- (I) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY INTANGIBLE AN D HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. IT IS S UBMITTED THAT THIS DECISION IS APPLICABLE TO THE ASSESSEE'S CASE AS T HE ASSESSEE DOES NOT ITA NO.1444(BANG)12 22 OWN ANY INTANGIBLES AND HENCE INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPARABLE TO THE ASSESSEE ; (II) THE OBSERVATION OF THE ITAT DELHI BENCH IN T HE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2 010 AT PARA 5.2 THEREOF THAT INFOSYS TECHNOLOGIES LTD. BEING A GIA NT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDE RS ASSUMING LIMITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTIONS AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOF TWARE PRODUCTS AND THE BREAK UP OF SUCH REVENUES IS NOT AVAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQ UISITION OF IPRS IN AUTOLAY A COMMERCIAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS THE LEARNED AUTHORI SED REPRESENTATIVE PLEADED THAT THIS COMPANY I.E. INFO SYS TECHNOLOGIES LTD. BE EXCLUDED FORM THE LIST OF COMPARABLE COMPA NIES. 11.3 PER CONTRA OPPOSING THE CONTENTIONS OF THE A SSESSEE THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARAB ILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGINS OF THIS COMPANY HAVE NO T BEEN EXTRAORDINARY. IN VIEW OF THIS THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS ITA NO.1444(BANG)12 23 BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASS ESSEE AND HENCE IS NOT COMPARABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEA R 2007-08 IS APPLICABLE TO THIS YEAR ALSO. WE ARE INCLINED TO CO NCUR WITH THE ARGUMENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT I NTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALSO SE EN THAT THE BREAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PROD UCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. THE DECISION RENDERED AS AFORESAID PERTAINS TO A.Y. 2008- 09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR ALS O REMAINS IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREV AILED IN AY 08-09 AS FAR AS THIS COMPARABLE COMPANY IS CONCERNED. RE SPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE WE HOLD THAT INFOSYS LTD. BE EXCLUDED FROM THE LIST OF COMP ARABLE COMPANIES. FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 12. KALS INFORMATION SYSTEMS LTD: THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE BUSIN ESS OF DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS. THIS COMPANY IS ALS O ENGAGED IN THE PROVISION OF TRAINING SERVICES AND SOFTWARE SERVICE S. ITA NO.1444(BANG)12 24 12.1 THE LEARNED AR THUS SUBMITTED THAT THIS COMPA NY IS FUNCTIONALLY NOT COMPARABLE WITH THE BUSINESS OF TH E ASSESSEE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTION S LTD (SUPRA) AS WELL AS IN THE CASE OF CISCO SYSTEMS INDIA PVT. LTD. (SUPR A). 12.2 ON THE OTHER HAND LEARNED DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE TPO HAS CO NSIDERED THE SEGMENTAL DATA OF THIS COMPANY. THEREFORE THIS COMPANY IS A GOOD COMPARABLE OF THE ASSESSEE. 12.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL AS THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE FUNCTIONAL COM PARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD.(SUPRA) AND AL SO IN CASE OF M/S CISCO SYSTEMS INDIA PVT. LTD. (SUPRA) THE RELEVANT FINDING OF THE TRIBUNAL IN CASE OF CISCO SYSTEMS (SUPRA) IN PARA-26.3 AS UNDER ; ITA NO.1444(BANG)12 25 26.3 KALS INFORMATION SYSTEMS LTD. :- AS FAR AS THIS COMPANY IS CONCERNED IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HAS BEEN CONSIDERED AS NOT COMPARABLE TO A PURE SOFTWAR E DEVELOPMENT SERVICES COMPANY BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- (D) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED THE CONTEN TION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDE S THE ABOVE IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED I N PROVIDING TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE AN NUAL REPOT THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS RS. 45 93 351. THE SAME WAS LESS THAN 25% OF THE SOFTW ARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILT ER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNA LS DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006-07 ON ACCOUNT O F IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYST EM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH RE FERENCE TO PAGES 185-186 OF THE PAPER BOOK IT IS EXPLAINED TH AT THE SAID ITA NO.1444(BANG)12 26 COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODU CTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPM ENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS SUBMITT ED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDIN G OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPM ENT OF SOFTWARE PRODUCTS ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND IN OUR VIEW THE SAID CONCERN IS LIAB LE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES AND THUS ON THIS ASPECT ASSESSEE SUCCEEDS. BASED ON ALL THE ABOVE IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJ ECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE T PO HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPA NY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21. 6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND N OT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE T HEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY I S NOT COMPARABLE. ITA NO.1444(BANG)12 27 FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL W E HOLD THAT KALS INFORMATION SYSTEMS LTD. SHOULD NOT BE REGARDE D AS A COMPARABLE. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. 13. PERSISTENT SYSTEMS LTD: THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE SOFTW ARE DEVELOPMENT AND ANALYTICS SERVICES. SINCE THE SEGMENTAL INFORMATION WAS NOT AVAILABLE THEREFORE THE RESULTS OF THE COMPANY CANNOT BE COM PARED WITH THE ASSESSEE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON TH E DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SO LUTIONS LTD. (SUPRA) 13.1 ON THE OTHER HAND LEARNED DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 13.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS THE RELEVANT MATERIAL ON RECORD. AS POINTED OUT BY THE LEARNED AR OF THE ASSESSEE THAT THE FUNCTIONAL COMPARABILITY OF THE COMPANY HAS BEE N EXAMINED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SO FTWARE SOLUTIONS LTD. (SUPRA) INPARA-17.13 AS UNDER; 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. I T IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. P ERSISTENT SYSTEMS LTD. IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE ASSESSEE IS A SOFTWARE DE VELOPMENT SERVICES PROVIDER. WE FIND THAT AS SUBMITTED BY T HE ITA NO.1444(BANG)12 28 ASSESSEE THE SEGMENTAL DETAILS ARE NOT GIVEN SEPAR ATELY. THEREFORE FOLLOWING THE PRINCIPLE ENUNCIATED IN TH E DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) THAT IN THE AB SENCE OF SEGMENTAL DETAILS / INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS WE HOLD TH AT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OM ITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. 13.3 IT IS CLEAR FROM THE FINDING OF THIS TRIBUNAL THAT THIS COMPANY IS ENGAGED IN THE PRODUCT DEVELOPING AND PRODUCT DESIG N SERVICES WHICH IS SIMILAR WITH THE SOFTWARE DEVELOPMENT SERVICES PROV IDED BY THE ASSESSEE. ACCORDINGLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL (SUPRA) WE DIRECT THE TPO/AO TO EXCLUDE THIS COMPAN Y FROM THE LIST OF COMPARABLES. 14. QUINTEGRA SOLUTIONS LIMITED : THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ENGAGED IN PRODUCT E NGINEERING SERVICES AND THIS IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE P ROVIDER. HE HAS FURTHER POINTED OUT THAT THIS COMPANY IS ALSO ENGAGED IN RE SEARCH AND DEVELOPMENT ACTIVITY WHICH RESULTED IN CREATION OF INTELLECTUAL PROPERTY RIGHTS (IPR). THIS COMPANY HAS ALSO EXPERIENCED AN ABNORMAL ECONOMIC E VENT. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD.(SUPRA). ITA NO.1444(BANG)12 29 14.1 ON THE OTHER HAND LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 14.2 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND RE LEVANT MATERIAL ON RECORD WE NOTE THAT THE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) HAS EXAMINED THE FUNCTIONAL PROFILE OF THIS COMPANY INPRA-18.3.1 TO18.3.3 AS UNDER; 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT THIS COMPANY I.E . QUINTEGRA SOLUTIONS LTD. IS ENGAGED IN PRODUCT ENGI NEERING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT S ERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. I T IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN PROPRIETA RY SOFTWARE PRODUCTS AND HAS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. HAVING APPLIED F OR TRADE MARK REGISTRATION OF ITS PRODUCTS IT EVIDENCES THE FACT THAT THIS COMPANY OWNS INTANGIBLE ASSETS. THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THECASE OF 24/7 CUSTOMER.COM PV T. LTD. (ITA NO.227/BANG/2010 DT.9.11.2012) HAS HELD THAT I F A COMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS THEN IT CANNOT BE CONSIDERED AS A COMPARABLE COMPANY TO ONE THAT D OES NOT OWN INTANGIBLES AND REQUIRES TO BE OMITTED FROM THE LIST OF COMPARABLES AS IN THE CASE ON HAND. 18.3.2 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINTEGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUI SITIONS ITA NO.1444(BANG)12 30 MADE BY IT IN THE PERIOD UNDER CONSIDERATION. IT I S SETTLED PRINCIPLE THAT WHERE EXTRAORDINARY EVENTS HAVE TAKE N PLACE WHICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPA NY THEN THAT COMPANY SHALL BE REMOVED FROM THE LIST OF COMP ARABLES. 18.3.3 RESPECTFULLY FOLLOWING THE DECISION OF T HE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CASE ON HAND SINCE IT IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND OWNS ITS OWN INTA NGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SO FTWARE SERVICE PROVIDER. 14.3 THUS IT IS CLEAR FROM THE FINDING OF THIS TR IBUNAL THAT THIS COMPANY IS ENGAGED IN THE PRODUCT ENGINEERING SERVI CES AND ALSO OWNS INTANGIBLE/INTELLECTUAL PROPERTY RIGHTS. FOLLOWING THE FINDING OF THE CO- ORDINATE OF THIS TRIBUNAL (SUPRA) WE DIRECT THE AO/ TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 15. TATA ELXSI LTD; THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT SOFTWARE SEGMENT OF THIS COMPANY COMPRISES THE ACTIVITY OF PRODUCT DESIGNING SERVICES AND THEREFORE THIS COMPANY IS N OT PURELY SOFTWARE DEVELOPMENT SERVICE PROVIDER. HE HAS FURTHER SUBMI TTED THAT THIS COMPANY HAD SIGNIFICANT INTANGIBLE AND R & D EXPEND ITURE AND ALSO FAILS ON SITE FILTER OF MORE THAN 75%. IN SUPPORT OF HI S CONTENTION HE ITA NO.1444(BANG)12 31 HAS RELIED UPON THE DECISION OF THE CO-ORDINATE B ENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA). 15.1 ON THE OTHER HAND LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT TPO HAS CONSID ERED THE SEGMENTAL DATA OF THIS COMPANY PERTAINING TO SOFTWARE DEVELOP MENT SERVICES THEREFORE THIS COMPANY IS A GOOD COMPARABLES. 15.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL ALSO RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE FUNCTIONAL COM PARABILITY HAS BEEN CONSIDERED AND DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) AS WELL AS IN CASE OF CISCO SYSTEM (IND.) PVT. LTD (SUPRA). IN THE CASE OF CIS CO SYSTEMS (IND.) PVT.LTD (SUPRA) THE TRIBUNAL HAS ANALYSED THE FUNCTIONAL CO MPARABILITY IN PARA- 26.4 & 26.5 AS UNDER; 26.4 TATA ELXSI LTD. :- AS FAR AS THIS COMPANY IS CONCERNED IT IS NOT IN DISPUTE BEFORE US THAT IN A SSESSEES OWN CASE FOR THE A.Y. 2007-08 THIS COMPANY WAS NOT REG ARDED AS A COMPARABLE IN ITS SOFTWARE DEVELOPMENT SERVICES SEG MENT IN ITA NO.1076/BANG/2011 ORDER DATED 29.3.2013 . FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRI BUNAL:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. THE LEARNED CHARTERED ACCOUNTANT PLEADED THAT O UT OF THE SIX COMPARABLES SHORTLISTED ABOVE AS COMPARABLES BASED ON THE TURNOVER FILTER THE FOLLOWING TWO COMPANIES NAMEL Y (I) TATA ITA NO.1444(BANG)12 32 ELXSI LTD; AND (II) M/S. FLEXTRONICS SOFTWARE SYSTE MS LTD. DESERVE TO BE ELIMINATED FOR THE FOLLOWING REASONS : (I) TATA ELXSI LTD. : THE COMPANY OPERATES IN THE SEGMENTS OF SOFTWARE DEVELOPMENT SERVICES WHICH COMPRISES OF EMBEDDED PRODUCT DESIGN SERVICES INDUSTRIAL DESIGN AND ENGI NEERING SERVICES AND VISUAL COMPUTING LABS AND SYSTEM INTEG RATION SERVICES SEGMENT. THERE IS NO SUB-SERVICES BREAK UP /INFORMATION PROVIDED IN THE ANNUAL REPORT OR THE DATABASES BASE D ON WHICH THE MARGIN FROM SOFTWARE SERVICES ACTIVITY ONLY COU LD BE COMPUTED. THE COMPANY HAS ALSO IN ITS RESPONSE TO T HE NOTICE U/S.133(6) STATED THAT IT CANNOT BE CONSIDERED AS C OMPARABLE TO ANY OTHER SOFTWARE SERVICES COMPANY BECAUSE OF ITS COMPLEX NATURE. HENCE TATA ELXSI LTD. IS TO BE EXCLUDED F ROM THE LIST OF COMPARABLES. (II) FLEXTRONICS SOFTWARE SYSTEMS LTD. : THE LEARN ED TPO HAS CONSIDERED THIS COMPANY AS A COMPARABLE BASED O N 133(6) REPLY WHEREIN THIS COMPANY REFLECTED ITS SOFTWARE D EVELOPMENT SERVICES REVENUES TO BE MORE THAN 75% OF THE 'SOFTW ARE PRODUCTS AND SERVICES' SEGMENT REVENUES. FLEXTRONICS HAS A H YBRID REVENUE MODEL AND HENCE SHOULD BE REJECTED AS FUNCT IONALLY DIFFERENT. BASED ON THE INFORMATION PROVIDED UNDER 'REVENUE RECOGNITION' IN ITS ANNUAL REPORT IT CAN BE INFERR ED THAT THE SOFTWARE SERVICES REVENUES ARE EARNED ON A HYBRID R EVENUE MODEL AND THE SAME IS NOT SIMILAR TO THE REGULAR M ODELS ADOPTED BY OTHER SOFTWARE SERVICE PROVIDERS. THE LEARNED RE PRESENTATIVE PLEADED THAT A REGULAR SOFTWARE SERVICES PROVIDER C OULD NOT BE COMPARED TO A COMPANY HAVING SUCH A UNIQUE REVENUE MODEL ITA NO.1444(BANG)12 33 WHEREIN THE REVENUES OF THE COMPANY FROM SOFTWARE/P RODUCT DEVELOPMENT SERVICES DEPENDS ON THE SUCCESS OF THE PRODUCTS SOLD BY ITS CLIENTS IN THE MARKETPLACE. HENCE IT WOULD BE INAPPROPRIATE TO COMPARE THE BUSINESS OPERATIONS OF THE ASSESSEE WITH THAT OF A COMPANY FOLLOWING HYBRID BUSINESS MO DEL COMPRISING OF ROYALTY INCOME AS WELL AS REGULAR SOF TWARE SERVICES INCOME FOR WHICH REVENUE BREAK-UP IS NOT AVAILABLE. HE FINALLY SUBMITTED THAT THIS WAS A GOOD REASON TO EX CLUDE THIS COMPANY ALSO FROM THE LIST OF COMPARABLES. 20. ON THE OTHER HAND THE LEARNED DR SUPPORTED TH E ORDER OF THE LOWER AUTHORITIES REGARDING THE INCLUSION OF TA TA ELXSI AND FLEXTRONICS SOFTWARE SYSTEMS LTD. IN THE LIST OF C OMPARABLES. HE REITERATED THE CONTENTS OF PARA 14.2.25 OF THE TPO' S ORDER. HE ALSO READ OUT THE FOLLOWING PORTION FROM THE TPO'S ORDER : 'THUS AS STATED ABOVE BY THE COMPANY THE FOLLOWING FACTS EMERGE : 1. THE COMPANY'S SOFTWARE DEVELOPMENT AND SERVICES SEGMENT CONSTITUTES THREE SUB-SEGMENTS I) PRODUCT DESIGN SE RVICES; II) ENGINEERING DESIGN SERVICES AND III) VISUAL COMPUTI NG LABS. 2.THE PRODUCT DESIGN SERVICES SUB-SEGMENT IS INTO E MBEDDED SOFTWARE DEVELOPMENT. THUS THIS SEGMENT IS INTO SOF TWARE DEVELOPMENT SERVICES. 3.THE CONTRIBUTION OF THE EMBEDDED SERVICES SEGMENT IS TO THE TUNE OF RS.230 CRORES IN THE TOTAL SEGMENT REVENUE OF RS.263 CRORES. EVEN IF WE CONSIDER THE OTHER TWO SUB-SEGME NTS PERTAIN TO IT ENABLED SERVICES THE 87.45% (75%) OF THE SE GMENT'S REVENUES IS FROM SOFTWARE DEVELOPMENT SERVICES. ITA NO.1444(BANG)12 34 4.THIS SEGMENT QUALIFIES ALL THE FILTERS APPLIED BY THE TPO.' REGARDING FLEXTRONICS SOFTWARE SYSTEMS THE FOLLOWI NG EXTRACT FROM PAGE 143 OF TPO'S ORDER WAS READ OUT BY HIM AS HIS SUBMISSIONS : 'IT IS VERY PERTINENT TO MENTION HERE THAT THE COMP ANY WAS CONSIDERED BY THE TAXPAYER AS A COMPARABLE FOR THE PRECEDING ASSESSMENT YEAR I.E. AY 2006-07. WHEN THE SAME WAS ACCEPTED BY THE TPO AS A COMPARABLE THE SAME WAS NOT OBJECT ED TO IT BY THE TAXPAYER. AS THE FACTS MENTIONED BY THE TAXPAYE R ARE THE SAME AND THESE WERE THERE IN THE EARLIER FY 2005-06 THERE IS NO REASON WHY THE TAXPAYER IS OBJECTING TO IT. HOW THE COMPANY IS FUNCTIONALLY SIMILAR IN THE EARLIER FY 2 005-06 BUT THE SAME IS NOT FUNCTIONALLY SIMILAR FOR THE SUBSEQ UENT FY 2006-07 EVEN WHEN NO FACTS HAVE BEEN CHANGED FROM T HE PRECEDING YEAR. THUS THE TAXPAYER IS ARGUING AGAINS T THIS COMPARABLE AS THE COMPANY WAS NOT CONSIDERED AS A COMPARABLE BY THE TAXPAYER FOR THE PRESENT FY 2006- 07.' 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSID ERED THE FACTS AND MATERIALS ON RECORD. AFTER CONSIDERING TH E SUBMISSIONS WE FIND THAT TATA ELXSI AND FLEXTRONICS ARE FUNCTIO NALLY DIFFERENT FROM THAT OF THE ASSESSEE AND HENCE THEY DESERVE TO BE DELETED FROM THE LIST OF SIX COMPARABLES AND HENCE THERE RE MAINS ONLY FOUR COMPANIES AS COMPARABLES AS LISTED BELOW: 26.5. FOLLOWING THE AFORESAID DECISION OF THE TRIB UNAL WE HOLD THAT M/S.TATA ELXSI LTD. SHOULD NOT BE REGARDED AS A COMPARABLE. ITA NO.1444(BANG)12 35 FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM T HE LIST OF COMPARABLES. 16. THIRDWARE SOLUTIONS LTD : THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE S OFTWARE DEVELOPMENT PRODUCTS AS WELL AS SOFTWARE DEVELOPMEN T. HOWEVER NO SEGMENTAL INFORMATION IS AVAILABLE ON THIS COMPANY. FURTHER THIS COMPANY ACQUIRED INTANGIBLE ASSETS AND DERIVED REVE NUE BASED ON SALES OF LICENCES. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE ORDERS OF THE CO-ORDINATE BENCH OF THIS TRIBUNA L IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) AND SUBMITTED THAT T HIS COMPANY WAS FOUND TO BE FUNCTIONALLY DISSIMILAR TO THAT OF PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. 16.1 ON THE OTHER HAND LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE MATERIAL ON RECORD. WE NOTE THAT THE C O-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTION S LTD (SUPRA) HAWS CONSIDERED THE FUNCTIONAL COMPARABILITY OF THI S COMPANY IN PARA-15.3 AS UNDER; 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. I T IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENG AGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES ITA NO.1444(BANG)12 36 AND SUBSCRIPTION. HOWEVER THE SEGMENTAL PROFIT AN D LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PROD UCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS P VT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES IT OUGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND THE ASSESSEE IS RENDERING SOFTWARE DE VELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FO LLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA) WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPA RABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON H AND. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH WE DIRECT THE AO/TPO TO EXCLUDE THIS FROM THE LIST OF COMPARABLES. 17. WIPRO LTD: THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT TH IS COMPANY IS A INDUSTRY LEADER AND ALSO OWNS TANGIBLE S. HE HAS FURTHER SUBMITTED THAT THIS COMPANY IS ENGAGED IN PRODUCT D EVELOPMENT AND SERVICES. HOWEVER THE SEGMENTAL INFORMATION IS NO T AVAILABLE. HE HAS POINTED OUT THAT THERE IS A AMALGAMATION DURING THE YEAR AND THE SOFTWARE SERVICE REVENUE TO THE SALES IS LESS THAN 75%. HE HAS RELIED UPON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN C ASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA). ITA NO.1444(BANG)12 37 17.1 ON THE OTHER HAND LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS COMPANY W AS FOUND TO BE FUNCTIONALLY SIMILAR TO THE SOFTWARE DEVELOPMENT SE RVICE PROVIDED BY THE ASSESSEE. 17.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. WE NOTE THAT IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) THIS TRIBUNAL HAS CONSIDERED THE FUNCTIONAL COMPARA BILITY OF THIS COMPANY IN PARA-12.4.1 AND 12.4.2 AS UNDER; 12.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MER IT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS C OMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMATION ON T HE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW T HE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHER M AJOR FLAW IN THE COMPARABILITY ANALYSIS CARRIED OUT BY THE T PO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL ITA NO.1444(BANG)12 38 STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISON. 12.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLECTUAL PROPERTY IN THE FORM OF REGISTERED PAT ENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE CO MPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OW N ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL AD VANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DO ES NOT OWN ANY INTANGIBLES FOLLOWING THE AFORESAID DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.C OM PVT. LTD. (SUPRA) WE HOLD THAT THIS COMPANY CANNOT BE C ONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE THEREFORE DI RECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YE AR UNDER CONSIDERATION. 17.3 AS IT WAS FOUND THAT THIS COMPANY OWNS INTELL ECTUAL PROPERTY RIGHTS IN THE FORM OF REGISTERED PATENTS AND SEVERA L PENDING APPLICATIONS FOR GRANT OF PATENTS. THEREFORE THE SAID COMPANY OWNIN G INTANGIBLES CANNOT BE COMPARED TO LOW RISK CAPTIVE SERVICES PROVIDER. FOLLOWING THE FINDING OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ITA NO.1444(BANG)12 39 18. SOFTSOL INDIA LTD: THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE DEVELOPMENT SERVICES AND ALSO HAVING RELATED PARTY TRANSACTIONS OF MORE THAN 15%. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (S UPRA). 18.1 ON THE OTHER HAND LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS COMPANY I S FUNCTIONALLY COMPARABLE WITH THE ASSESSEE AND FILTER OF 15% OF R PT WAS NOT APPLIED BY THE TPO OR BY THE ASSESSEE IN SELECTION OF COMPARAB LES. THUS THE LEARNED DR HAS SUBMITTED THAT IF THIS FILTER OF 15% IS APPL IED THE SAME SHOULD BE APPLIED TO ALL THE COMPARABLES OR THE FILTER OF 25% OF RELATED PARTY SHOULD BE APPLIED IN ALL THE COMPARABLE CASES. 18.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL AS RELEVANT MATERIAL ON RECORD. THE LEARNED AR OF THE ASSESSEE HAS HEAVILY RELIED UPON THE ORDER OF THIS CO-ORDINATE BENCH OF THIS TRIBUNA L IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) WHEREIN THE TRIBUNAL HAS EXCLUDED THIS COMPANY ON THE GROUND OF RELATED PARTY TRANSACTION IN EXCESS OF 15% AS IT WAS CONSIDERED IN THE CASE OF 24/7 CUSTOMER.COM PV T.LTD. THE RELEVANT FINDING OF THE TRIBUNAL ARE IN PARA-19.3 AS UNDER; 19.3 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT TH E CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S O WN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 HAS ITA NO.1444(BANG)12 40 EXCLUDED THIS COMPANY FROM THE SET OF COMPARABLES F OR THE REASON THAT RPT IS IN EXCESS OF 15% FOLLOWING THE D ECISION OF ANOTHER BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2011. AS THE FACTS FOR THIS YEAR ARE SIMILAR AND MATERIAL ON REC ORD ALSO INDICATES THAT RPT IS 18.3% FOLLOWING THE AFORE CI TED DECISIONS OF THE CO-ORDINATE BENCHES (SUPRA) WE HOLD THAT TH IS COMPANY IS TO BE OMITTED FROM THE LIST OF COMPARABLES TO TH E ASSESSEE IN THE CASE ON HAND. 18.3 SINCE THE FUNCTIONAL COMPARABILITY HAS NOT BE EN EXAMINED BY THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTION S LTD. (SUPRA) AND THIS COMPANY WAS DIRECTED TO BE EXCLUDED ONLY ON THE GRO UND OF RELATED PARTY TRANSACTION. IT IS PERTINENT TO NOTE THAT THE TRIB UNAL IN SERIES OF DECISIONS HAS DETERMINED THE TOLERANCE RANGE OF RELATED PAR TY TRANSACTIONS FROM 5% TO 25% DEPENDING UPON CASE TO CASE AND FACTS AND CI RCUMSTANCES OF THE EACH CASE. IT IS NOT CLEAR FROM THE ORDERS OF THE AUTHORITIES BELOW WHETHER ANY RELATED PARTY FILTER WAS APPLIED BY THE TPO. FURTHER THE TOLERANCE RANGE OF RELATED PARTY TRANSACTIONS HAS TO BE DETER MINED DEPENDING UPON THE AVAILABILITY OF NUMBER OF COMPARABLES. IF THE NO OF COMPARABLES ARE ABUNDANCE THEN THIS TOLERANCE RANGE OF RELATED PAR TY TRANSACTIONS CAN BE FIXED AT A LOWER LEVEL TO SAY 10% TO 15% AS AGAINST THE CASE WHERE NUMBER OF COMPARABLES ARE VERY FEW THE TOLERANCE RANGE CA N BE RELAXED UPTO 25%. THIS VIEW OF VARYING THE RANGE OF RPT PERCENTAGE HA S BEEN CONSIDERED BY ITA NO.1444(BANG)12 41 THIS TRIBUNAL IN NUMBER OF CASES DEPENDING UPON THE PECULIAR FACTS OF EACH CASE. THUS IF THE FILTER OF RPT AT 15% IS APPLIED IN A PARTICULAR COMPARABLE THEN THIS FILTER SHOULD ALSO APPLIED TO ALL OTHER COMPARABLES COMPANIES. THE ASSESSEE HAS ALSO DISPUTED FUNCTIONAL COMPARABI LITY OF THIS COMPANY AND CONTENDED THAT THIS COMPANY IS ENGAGED IN THE S OFTWARE PRODUCT DEVELOPMENT. HOWEVER THE RELEVANT RECORD HAS NOT BEEN PRODUCED BEFORE US TO SHOW THE FUNCTIONAL PROFILE AND THE REVENUE G ENERATED ACTIVITY OF THIS COMPANY. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE FUNCTIONAL COMPARABILIT Y AS WELL AS THE APPLICABILITY OF RPT FILTER IS REQUIRED TO BE PROPE RLY EXAMINED AT THE LEVEL OF TPO. ACCORDINGLY WE SET ASIDE THE FUNCTIONAL COMP ARABILITY AND APPLICATION OF THE RPT FILTER TO THE RECORD OF THE TPO. NEEDLESS TO SAY THE ASSESSEE BE GIVEN AN APPROPRIATE OPPORTUNITY OF HEA RING. 18.4 WE MAKE IT CLEAR THAT THE RPT FILTER IF ANY I S APPLIED IN THIS CASE THEN THE SAME WOULD BE APPLICABLE IN ALL THE COMPA RABLE COMPANIES TO BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE ALP. 19. LUCID SOFTWARE AND MINDTREE: THOUGH THESE TWO COMPANIES WERE SELECTED BY THE ASSESSEE ITSELF AND ALSO ACCEP TED BY THE TPO HOWEVER THE ASSESSEE HAS RAISED THE OBJECTIONS AGAINST THE INCLUSION OF M/S LUCID SOFTWARE AS WELL AS M/S MINDTREE BY WAY OF RAISING ADDITIONAL GROUND WHICH WAS INCLUDED AS GROUND NO.8 & 9. 19.1 THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS NOT IN A P OSITION TO CONTROVERT ITA NO.1444(BANG)12 42 THE STAND OF THE TPO TO INCLUDE THESE COMPANIES IN THE LIST OF COMPARABLES BECAUSE THE SPECIFIC DETAILS WERE NOT AVAILABLE IN THE PUBLIC DOMAIN. FURTHER THERE ARE SUBSEQUENT FINDINGS OF THIS TRIBU NAL ON THE FUNCTIONAL COMPARABILITY OF THESE COMPANIES. THUS THE LEARNE D AR HAS SUBMITTED THAT THESE TWO COMPANIES SHOULD BE EXCLUDED FROM TH E LIST OF COMPARABLES. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON TH E DECISION OF THE CO- ORDINATE BENCHES OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) AS WELL AS IN CASE OF CISCO SYSTEMS (I ND.) PVT. LTD (SUPRA) AND SUBMITTED THAT THE FUNCTIONAL COMPARABILITY OF THES E TWO COMPANIES HAVE BEEN EXAMINED BY THE CO-ORDINATE BENCH OF THIS TRIB UNAL IN THESE TWO CASE AND FOUND THAT THESE TWO COMPANIES ARE NOT COMPARAB LE WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDING COMPANY. THUS THE L EARNED AR HAS SUBMITTED THAT THOUGH THE COMPANIES WERE ORIGINALL Y SELECTED BY THE ASSESSEE HOWEVER THERE ARE FINDINGS OF THE TRIBUNA L THAT THESE COMPANIES ARE FUNCTIONALLY DISSIMILAR TO THE SOFTWARE DEVELOP MENT SERVICES PROVIDER COMPANIES THEN THE SAME MAY BE EXCLUDED FROM THE L IST OF COMPARABLES. 19.2 ON THE OTHER HAND LEARNED DR SUBMITTED THAT THE ASSESSEE DID NOT RAISE ANY OBJECTION REGARDING THE FUNCTIONAL CO MPARABILITY OF THESE TWO COMPANIES EITHER BEFORE THE TPO OR BEFORE THE DRP. THEN HE ASSESSEE CANNOT BE ALLOWED TO RAISE THIS OBJECTIONS AT THIS STAGE. HE HAS FURTHER CONTENDED THAT THE FACTS RELEVANT TO THE COMPARABIL ITY OF FUNCTIONS HAVE NOT BEEN EXAMINED BY THE TPO OR BY THE DRP. THEREFORE T HE FACTS WHICH HAS ITA NO.1444(BANG)12 43 BEEN CONTENDED NOW WERE NOT RAISED BEFORE THE AUTHO RITIES BELOW AND THEREFORE THE SAME WERE NOT EXAMINED BY THE TPO/DR P. 19.3 WE HAVE CONSIDERED THE RIVAL SUBMISSION AND T HE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THESE TWO COMPANIES WERE SELECTED AND INCLUDED IN THE LIST OF COMPARABLES BY THE ASSESSEE ITSELF FOR THE PURPOSE OF BENCH MARKING ITS INTERNATIONAL TRAN SACTIONS IN THE TP STUDY REPORT. 19.4 WE FURTHER NOTE THAT AS FAR AS THE MINDTREE IS CONCERNED THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) ACCEPTED THE COMPARABLES OF THIS COMP ANY WHEREAS IN CASE OF NETHAWK NETWORKS INDIA PVT.LTD. IT WAS REJECTED AS COMPARABLE. 19.5 IT IS PERTINENT TO NOTE THAT IN THE CASE OF N ETHAWK NETWORKS INDIA PVT. LTD (SUPRA) THE FUNCTIONAL PROFILE OF TH E COMPANY PER SE WAS NOT EXAMINED BY THE TRIBUNAL BUT THE TRIBUNAL HAS FOLL OWED THE DECISION IN CASE OF WILLS PROCESSING SERVICES (I)PVT. LTD. THE RELEVANT PART OF THE FINDING WAS ALSO REPRODUCED WHICH SUGGESTS THAT THE TP ANAL YSIS OF THE COMPANY WAS ANALYSED IN THE SAID CASE ON THE GROUND THAT TH E TPO USED THE INFORMATION OBTAINED BY THE ANOTHER TPO U/S133(6). THEREFORE THE FUNCTIONAL COMPARABILITY WHILE CONSIDERING THE RELE VANT FACTS AND BUSINESS PROFILE OF THE SAID COMPANY WAS NOT EXAMINED BY TH E TRIBUNAL IN THE CASE OF WILLS PROCESSING SERVICES(I)PVT. LTD. WHICH WAS FOLLOWED IN THE CASE OF NETHAWK NETWORKS INDIA PVT.LTD. (SUPRA). FURTHER THE ASSESSEE HAS NOT PRODUCED ANY RECORD BEFORE US TO SHOW THE ACTUAL NA TURE OF ACTIVITY AND ITA NO.1444(BANG)12 44 BUSINESS FUNCTIONS OF BODHTREE CONSULTANCY LTD. IN THE ABSENCE OF RELEVANT FACTS AND RECORD WE ARE NOT IN A POSITION TO GIVE ANY FINDING REGARDING THE COMPARABILITY OF THIS COMPANY. THEREFORE A LAPSE O N THE PART OF TPO IN SOME OTHER CASE CANNOT BE A GROUND OF REJECTION OF THIS COMPANY IN THE PRESENT CASE. ACCORDINGLY IN THE FACTS AND CIRCUMS TANCES OF THE CASE WE REMIT THIS ISSUE TO THE RECORD OF THE TPO/AO TO RE- EXAMINE THE FUNCTIONAL COMPARABILITY OF THIS COMPANY BY VERIFYING THE RELE VANT FACTS. 20. AS REGARDS THE LUCID SOFTWARE WE FIND THAT THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTION S (SUPRA) IN PARA-16.3 AS UNDER; 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. I T IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LU CID SOFTWARE LTD. IS ENGAGED IN THE DEVELOPMENT OF SOF TWARE PRODUCTS WHEREAS THE ASSESSEE IN THE CASE ON HAND IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES . WE ALSO FIND THAT CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT (TP)A NO.845/BANG/2011) LG SOFT INDIA PVT. LTD. (SUPRA) CSR INDIA PVT. LTD. (SUPRA); THE ITAT MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) AND THE DELHI ITAT IN THE CASE OF TRANSWITCH INDIA PVT. LTD . (SUPRA) HAVE HELD THAT SINCE THIS COMPANY IS ENGAGED IN T HE ITA NO.1444(BANG)12 45 SOFTWARE PRODUCT DEVELOPMENT AND NOT SOFTWARE DEVEL OPMENT SERVICES IT IS FUNCTIONALLY DIFFERENT AND DIS-SIMI LAR AND IS THEREFORE TO BE OMITTED FROM THE LIST OF COMPARABLE S FOR SOFTWARE DEVELOPMENT SERVICE PROVIDERS. THE ASSESS EE HAS ALSO BROUGHT ON RECORD DETAILS TO DEMONSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO THIS COMPANY HAVE NOT CHANGED MATERIALLY FROM THE EARLIER YEAR I .E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDE RATION I.E. ASSESSMENT YEAR 2008-09. IN THIS FACTUAL MATRI X AND FOLLOWING THE AFORE CITED DECISIONS OF THE CO-ORDIN ATE BENCHES OF THIS TRIBUNAL AND OF THE ITAT MUMBAI AN D DELHI BENCHES (SUPRA) WE DIRECT THAT THIS COMPANY BE OMI TTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 20.1 THUS IT IS CLEAR FROM THE EXAMINATION OF THE FACT THAT THIS COMPANY WAS FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH THE SOFTWARE DEVELOPMENT SERVICE PROVIDER COMPANY. ACCORDINGLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL(SUPRA) WE D IRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 20.2 SINCE MOST OF THE COMPARABLES SELECTED BY THE TPO HAS BEEN REJECTED BY US IN THE FOREGOING FINDINGS THEREFORE THE ASSESSEE AS WELL AS THE TPO ARE AT LIBERTY TO CONSIDER AS MANY AS POSSI BLE COMPANIES AS COMPARABLE FOR THE PURPOSE OF DETERMINING THE ALP SUBJECT TO THE ITA NO.1444(BANG)12 46 PARAMETERS ON THE BASIS OF WHICH THE EARLIER COMPAN IES SELECTED BY THE TPO ARE REJECTED. THUS THE AO/TPO ARE DIRECTED TO RE -COMPUTE THE ALP BY DOING A FRESH EXERCISE OF SELECTING THE SUITABLE CO MPARABLES APART FROM THE COMPARABLES WHICH ARE ACCEPTED BY BOTH THE PARTIES IN THE PRESENT OF COMPARABLES. 21. GROUND NO.II IS REGARDING THE DENIAL OF DEDUC TION U/S 10A. 21.1 WE HAVE HEARD THE LEARNED AR AS WELL AS THE L EARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND EXAMINED BY THIS TRIB UNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO.616/ BANG/2009 BY ORDER DATED 10-08-2010 IN PARA-3 TO 5 AS UNDER; 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE- COMPANY IS ENGAGED IN THE BUSINESS OF DESIGN DEVELOPMENT AND TESTING OF SOFTWARE. IT FILED ITS RETURN OF INCOME ON 30-10-2004 DECLARING A TOTAL INCOME OF RS.1 43 781/- AND CLAIMED DEDUCTION OF RS.2 47 82 8 17/- U/S10A OF THE INCOME-TAX ACT 1961. THE RETURN OF I NCOME WAS PROCESSED U/S 143(1) AND A REFUND OF RS.49 64 3 55/- WAS ISSUED TO THE ASSESSEE-COMPANY. SUBSEQUENTLY THE ASSESSEE FILED AN APPLICATION U/S 154 AND PURSUANT TO THE SAME FURTHER REFUND OF RS.74 465/- WAS GRANTED. THEREAFTER PROCEEDINGS U/S 143(3) WERE INITIATED. DURING THE COURSE OF 143(3) PROCEEDINGS THE AO OBSERVED F ROM THE APPENDIX FILED ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 THAT THE ASSESSEE-COMPANY HAS ACQUIRED FROM GE INDIA TECHNOLOGY CENTRE THE FIXED ASSETS ITA NO.1444(BANG)12 47 EMPLOYEES CUSTOMERS LIABILITIES OBLIGATIONS AND O THERS IN ALL CONSULTING AN UNDERTAKING AND HAS CONTINUED THE BUSINESS OF SOFTWARE DEVELOPMENT. HE ALSO EXAMINED THE APPROVAL LETTER OF THE DIRECTOR STPI DATED 10-02-2 003 AND OBSERVED THAT THE APPROVAL HAS BEEN ACCORDED FOR SE TTING UP A NEW UNDERTAKING AND DOES NOT CONFER STATUS OF A S TP CONSEQUENT TO THE SALE OF THE UNDERTAKING. THEREAF TER HE CONSIDERED THE QUESTION AS TO WHETHER IT IS AN EXPA NSION OF A UNIT OR SHIFTING OF A UNIT OR SPLITTING OR RECONS TRUCTION OF A UNIT AND EXAMINED THE APPLICABILITY OF SECTION 10A( 2)(III) AND HELD THAT THE ASSESSEE DOES NOT FULFILL THE CONDITI ONS OF SEC.10A(2)(1)(B) 10A(2)(II) AND 10A(2)(III) AND TH EREFORE THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 10A(2)(I II) AND THEREFORE THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCT ION U/S 10A OF THE ACT. HE HOWEVER CONSIDERED THE ASSESSEE S ALTERNATIVE CLAIM OF DEDUCTION U/S 80HHEE OF THE AC T. AGGRIEVED THE ASSESEE PREFERRED AN APPEAL BEFORE T HE CIT(A) WHO ALLOWED THE SAME HOLDING THAT THE UNDERT AKING HAS EXISTED IN THE SAME SHAPE AND FORM AND HAS CAR RIED ON THE SAME BUSINESS BOTH BEFORE AND AFTER CHANGE I N OWNERSHIP AND THE MERE FACT OF CHANGE OF OWNERSHIP CANNOT BE TAKEN TO MEAN THAT THE UNDERTAKING ITSELF HAS BEEN FORMED FROM THE SPLITTING UP OF RE-CONSTRUCTIO N OF AN EXISTING BUSINESS. AGGRIEVED THE REVENUE IS IN A PPEAL BEFORE US. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED COU NSEL FOR ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) AND ALSO PLACED RELIANCE UPON 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 ITA NO.1444(BANG)12 48 NOS.623 & 847/BANG/2010 DATED 19-05-2010 WHEREIN IT HAS BEEN HELD THAT WHERE AN UNDERTAKING EXISTED IN THE SAME PLACE FORM AND SUBSTANCE AND DID CARRY ON THE SAME BUSINESS BEFORE AND AFTER THE CHANGE IN THE LEGAL C HARACTER OF THE FORM OF ORGANIZATION THE ASSESSEE IS ELIGIB LE FOR DEDUCTION U/S 10A OF THE ACT. HE ALSO PLACED RELI ANCE UPON THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS P.K.ENGG & FORGING (P) LTD REPORTED IN 87 TAXMANN. 101 WHEREIN WHILE CONSIDERING THE ASSESSEES CLAIM FOR DEDUCTION U/S 80-J IT WAS HELD THAT WHERE THE INDU STRIAL UNDERTAKING RUN BY A FIRM WHICH HAD BEEN ALLOWED DEDUCTION U/S 80-J FOR A PERIOD OF 5 YEARS IT WOU LD BE ENTITLED TO BENEFIT OF RESIDUARY PERIOD. HE ALSO P LACED RELIANCE UPON THE DECISION F THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TECH BOOKS ELECTRONICS SERVICES (P) LTD VS ADDL.CIT (100 ITD 125) WHEREIN IT WAS HELD THAT MER ELY BECAUSE OF CHANGE IN OWNERSHIP THE EXEMPTION CANNOT BE DENIED. ANOTHER DECISION RELIED UPON BY HIM IS IN THE CASE OF KUMARAN SYSTEMS (P) LTD. VS ACIT (106 TTJ 494) WHEREIN IT WAS HELD THAT WHERE A FIRM IS CONVERTED INTO A COMPANY AND THERE WAS CHANGE ONLY IN THE COMPOSITIO N OF OWNERSHIP AND NOT THE UNDERTAKING AND BUSINESS THE EXEMPTION ALLOWED TO THE FIRM U/S 10A OF THE ACT C OULD NOT BE DENIED TO THE COMPANY MERELY BECAUSE IT HAD BEEN SEPARATELY GRANTED RECOGNITION. 5. HAVING HEARD BOTH SIDES AND HAVING CONSIDERED T HE RIVAL SUBMISSIONS WE FIND THAT THE ISSUE IS SQUARE LY COVERED BY THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR ASSESSEE. THE DISTINCTIONS SOUGHT TO BE BROUGH T ABOUT BY THE LEARNED DEPARTMENT REPRESENTATIVE IN OUR OP INION ITA NO.1444(BANG)12 49 RE NOT RELEVANT TO THE FACTS OF THE CASE BEFORE US. IN VIEW OF THE SAME THE APPEAL OF THE REVENUE IS DISMISSED. FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) WE DECIDE THIS ISSUE I N FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION U /S 10A OF THE IT ACT 1961. 22. GROUND NO.3 & 4 REGARDING CHARGEABILITY OF INT EREST U/S 234B & 234D OF THE IT ACT. THE LEVY OF INTEREST U/S 234B & 234D IS CONSEQUENTIAL IN NATURE AND NO SPECIFIC FINDING IS REQUIRED. 23. IN THE RESULT THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE 31 ST JULY 2015. SD/ - (ABRAHAM P GEORGE) SD/ - (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE D A T E D : 31-07-2015 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR ITAT BANGALORE. 6 GUARD FILE BY ORDER AR ITAT BANGALORE