Kony IT Services Private Limited , Hyderabad v. Dy. Commissioner of Income Tax , Circle-2(1), Hyderabad

ITA 2304/Hyd/2018 | 2014-2015
Pronouncement Date: 20-11-2019 | Result: Allowed

Appeal Details

RSA Number 230422514 RSA 2018
Assessee PAN AAECK9066D
Bench Hyderabad
Appeal Number ITA 2304/Hyd/2018
Duration Of Justice 11 month(s) 10 day(s)
Appellant Kony IT Services Private Limited , Hyderabad
Respondent Dy. Commissioner of Income Tax , Circle-2(1), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 20-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB-B
Tribunal Order Date 20-11-2019
Date Of Final Hearing 26-08-2019
Next Hearing Date 26-08-2019
Last Hearing Date 25-06-2019
First Hearing Date 04-04-2019
Assessment Year 2014-2015
Appeal Filed On 10-12-2018
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.2304/HYD/2018 ASSESSMENT YEAR: 2014 - 15 M/S. KONY IT SERVICES PRIVATE LIMITED 9 TH FLOOR B - 6 SOUTH T OWER DIVYASREE ORION SY. NO.66/1 RAIDURGAM RR DIST. HYDERBAD 500 032. PAN: AAECK 9066 D VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 2(1) ROOM NO.514 5 TH FLOOR SIGNATURE TOWERS OPP. BOTANICAL GARDEN KOND APUR HYDERABAD - 84. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI H. SRINIVASULU & SRI KRANTHI P ALIVELA CA ARS REVENUE BY: SRI Y.V.S.T. SAI CIT - DR DATE OF HEARING: 26/08/2019 DATE OF PRONOUNCEMENT: 20 / 11 /2019 ORDER PER A. MOHAN ALANKAMONY AM.: THIS APPEAL IS FILED AGAINST THE FINAL ASSESSMENT ORDER OF THE LD. AO DATED 29/10/2018 PASSED U/S. 143(3) R.W.S 92CA(4) R.W.S 144C (5) AND (13) OF THE ACT FOR THE ASSESSMENT YEAR 2014 - 15. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS AND A DDITIONAL GROUNDS IN ITS APPEAL HOWEVER THE CRUX OF THE ISSUE STATED IN THE TWO SET OF CONCISE GROUNDS DATED 16/10/2019 WHICH WERE ARGUED BEFORE US ON THE 2 DATE OF HEARING IS THAT T HE LD. TPO HAS ERRED BY SELECTING THE FOLLOWING COMPARABLE: - (A) E - INFOCHIPS LIMITED (B) THIRDW A RE SOLUTIONS LIMITED (C) INFOBEANS TECHNOLOGIES LIMITED (D) INFOSYS LIMITED (E) PERSISTENT SYSTEMS LIMITED 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SER VICE S FILES ITS RETURN FOR THE AY 2014 - 15 ON 30/11/2014 . FROM THE FORM - 3CEB REPORT IT WAS OBSERVED THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES FOR RS. 42 83 33 622/ - . THEREFORE THE CASE WAS REFERRED TO THE TPO. THE TPO PASSED ORDER U/S. 92CA (3) OF THE ACT ON 31/10/2017 RECOMMENDING UPWARD ADJUSTMENT OF PROFIT BY RS. 5 74 14 856/ - . THEREAFTER DRAFT ASSESSMENT ORDER WAS PASSED ON 19/12/2017. SUBSEQUENTLY THE PETITION WAS FILED IN FORM - 35A BY THE ASSESSEE RAISING OBJECTIONS REGARDING THE DRAFT ASSESSMENT ORDER PASSED ON 04/09/2018 U/S. 143(3) R.W.S 92CA(3) R.W.S 144C OF THE ACT HOWEVER THE LD . MEMBERS OF THE DRP UPHELD THE ENTIRE UPWARD ADJUSTMENT OF PROFIT BY RS. 5 38 2 0 4 9 2 / - AND ADDED TO THE INCOME OF THE ASSESSEE BASED ON WHICH FINAL ASSESSMENT ORDER WAS PASSED ON 29/10/2018 AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 3 4. THE LD. TPO OBSERVED IN HIS PROCEEDINGS THAT THE ASSESSEE HAD DECLARED PROFIT MARGIN ON COST @ 18.08%. IT WAS FURTHER OBSERVED THAT THE TP DOCUMENT MAINTAINED BY THE ASSESSEE WAS BASED ON MULTIPLE YEAR DATA DUE TO NON - AVAILABILITY OF CONTEMPORANEOUS DATA AT THE TIME OF PREPARATION OF THE TP DOCUMENT. IT WAS FURTHER OBSERVED THAT THE APPELLANT HAD SELECTED TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP WITH RESPECT TO ITS BUSINESS OF SOFTWARE DEVELOPMENT SERVICES. IT WAS FURTHER NOTICED THAT THE ASSESSEE HAD SELECTED EIGHT COMPARABLE COMPANIES WHOSE PROFIT MARGIN RANGED FROM 3.39% TO 19.76% WITH AN ARITHMETIC MEAN OF 13.88%. SINCE THE ASSESSEE COMPANY HAD DECLARED MARGIN OF 18.08% DURING THE PREVIOUS YEAR WHICH W AS ABOVE THE ARITHMETIC MEAN OF THE MARGIN S OF THE COMPARABLE COMPANIES THE ASSESSEE COMPANY CLAIMED THAT THE INTERNATIONAL TRANSACTION WITH ITS AE WAS AT ARMS LENGTH. 5. HOWEVER THE LD. TPO ON HIS INDEPENDENT ANALYSIS OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE REJECTED THE TP STUDY OF THE ASSESSEE BECAUSE THE ASSESSEE HAD TAKEN INTO CONSIDERATION OF 3 YEARS DATA WHICH IS NOT IN ACCORDANCE WITH RULE 10B(4) OF THE IT RULES 1962. THEREFORE THE LD. TPO CONDUCTED A FRESH SEARCH FOR THE COMPARABLE COMPANIES BY HOLDING THAT THE ASSESSEES BUSINESS AS SOFTWARE DEVELOPMENT SERVICE PROVIDER. THEREAFTER THE LD. TPO ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE MOST APPR OPRIATE METHOD IS TNMM METHOD AND SELECTED 12 COMPARABLE COMPANIES AS FOLLOWS: - 4 SL NO. COMPANY NAME OP/OC 1 SQS INDIA BFSI LTD 22.25 2 MINDTREE LTD 21.64 3 R S SOFTWARE (INDIA) LTD 24.03 4 E - INFOCHIPS LTD 81.00 5 LARSEN & TURBO INFOTECH LTD 24.04 6 CIGNITI TECHNOLOGIES LTD 27.64 7 INFOSYS LTD 36.36 8 PERSISTENT SYSRTEMS LTD 36.06 9 INFOBEANS TECHNOLOGIES LTD 42.08 10 THIRDWARE SOLUTIONS LTD 50.51 11 TECH MAHINDRA (SEG) 23.82 12 TATA ELXSI LTD (SEG) 22.29 AVERAGE 34.31 6. THE LD. TPO BASED ON THE ABOVE 12 COMPARABLE COMPANIES COMPUTED THE ARMS LENGTH MARGIN AT 34. 31% AND S INCE THE ARMS LENGTH MARGIN COMPUTED BY THE ASSESSEE WAS ONLY 18.08% WHICH FELL OUTSIDE THE + / - 3% RANGE THE LD. TPO ADOPTED THE MARGIN COMPUTED BY HIM AT 34.31 % AND PROPOSED TO MAKE TP ADJUSTMENT U/S. 92C(3) OF THE ACT AND ENHANC ED THE PROFIT BY RS. 5 74 14 856/ - . THE LD. TPO FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAD NOT CHARGED INTEREST ON TRADE RECEIVABLES FROM ITS AE AS PER THE AGREEMENT EXECUTED BETWEEN THE ASSESSEE - COMPANY AND ITS AE SINCE THE REALIZATION PERIOD IN THE AGREEMENT WAS 90 DAYS. THE LD. TPO WAS OF THE VIEW THAT THE REALIZATION PERIOD OF 30 DAYS WAS REASONABLE AND FOR THE BALANCE PERIOD THE ASSESSEE OUGHT TO HAVE CHARGED INTEREST ON THE RECEIVABLE FROM ITS AE AND SINCE IT WAS A N INTERNATIONAL TRANSACTION SUSCEPTIBLE TO ARMS LENGTH ADJUSTMENT PROPOSED TO MAKE ADJUSTMENT BY ENHANCING THE PROFIT BY RS. 97 193/ - . HOWEVER THE LD. DRP THOUGH HELD THAT THE TRADE RECEI VABLES IS AN INTERNATIONAL TRANSACTION REQUIRING TP ADJUSTMENT AND 5 THE SHORT TERM DEPOSIT RATES OF INTEREST OF STATE BANK OF INDIA PREVAILING IN THE PREVIOUS YEAR APPLIED BY THE TPO AS THE ALP INTEREST RATE IS IN ORDER FINALLY CONCLUDED BY DIRECTING THE LD. TPO TO COMPUTE THE ALP INTEREST RATE TAKING INTO CONSIDERATION OF THE CREDIT PERIOD OF 90 DAYS AS STIPULATED IN THE INTER - COMPANY AGREEMENTS AND THEREBY DELETED THE TP ADJUSTMENT ON INTEREST RECEIVABLES. ACCORDINGLY THE LD. TPO REDUCED THE ENHANCEMEN T OF RS. 5 74 14 856 TO RS. 5 38 20 492/ - . 7. AT THE OUTSET LD. AR SUBMITTED BEFORE US THAT THE TNMM METHOD ADOPTED BY THE REVENUE IS ACCEPTABLE. THE LD. AR ALSO SUBMITTED THAT THE DRP HAD EXCLUDED M/S. SQS INDIA BFSI LIMITED M/S. CIGNITI TECHNOLOGIES LIMITED AND M/S. TECH MAHENDRA AS THE COMPARABLE HOWEVER INCLUDED CG - VAK SOFTWARE AND EXPORTS LTD. AS COMPARABLE COMPANY. HOWEVER HE ARGUED STATI NG THAT THE ASSESSEE - COMPANY IS A CAPTIVE SERVICE PROVIDER TO ITS AE AND CONSIDERING THE NATURE OF COMPARABLE COMPANIES SELECTED BY THE LD. TPO SUCH AS (I) E - INFOCHIPS LIMITED (II) THIRDWARE SOLUTIONS LIMITED (III) INFOBEANS TECHNOLOGIES LIMITED (IV) INFO SYS LIMITED AND (V) PERSISTENT SYSTEMS LIMITED HAVE TO BE EXCLUDED FOR THE FOLLOWING REASONS: - (I) E - INFOCHIPS LIMITED : - (A) THE LD. TPO HAD WRONGLY OBSERVED THAT M/S. E - I NFOCHIPS LIMITED HAS PASSED ALL FILTERS AND WAS FUNCTIONALLY COMPARABLE. 6 (B) M/S. E - INFOCHIPS LIMITED IS FUNCTIONALLY DISSIMILAR BECAUSE IT IS ENGAGED IN INFORMATION TECHNOLOGY SERVICES (IT) INFORMATION ENABLED SERVICES(ITES) SOFTWARE PRODUCTS AND PHYSICAL PRODUCT - BASED CO MPANY AND THE SEGMENTAL DETAILS ARE NOT DISCLOSED IN THE ANNUAL REPORT. (C) M/S. E - INFOCHIPS LIMITED HAD EARNED SUPER - PROFIT AND IT WAS ALSO IN VOLVED IN R & D ACTIVITIES AND DERIVES BENEFITS FROM SUCH ACTIVITIES. (D) THE LD. MEMBERS OF THE DRP HAD ERRED BY HOLDIN G THAT THE COMPARABLE IS MAINLY A SOFTWARE SERVICE PROVIDER COMPANY BECAUSE ONLY TO THE EXTENT OF 2.5% OF THE TURNOVER PERTAINS TO SALE OF PRODUCTS AND THE REST OF THE TURNOVER WAS ATTRIBUTABLE TOWARDS SERVICE PROVIDE D WHEN THE FACT REMAINS THAT THE COMPAN Y WAS INVOLVED IN VARIOUS OTHER NATURE OF ACTIVITIES. (II) M/S. THIRDWARE SOLUTIONS LIMITED : (A) THE COMPANY IS A PRODUCT - BASED COMPANY AND FUNCTIONALLY DISSIMILAR. DURING THE PREVIOUS YEAR THE COMPANY HAD REVENUE FROM SALE OF PRODUCTS AND THERE WAS NO REVENUE FROM SALE OF SERVICES. (B) THE COMPANY HAS VARIOUS SOURCES OF REVENUE SUCH AS RECEIPTS FROM TRAINING AND SUBSCRIPTION SALE OF LICENSES. 7 THE COMPANY HAS ALSO INCURRED MARKETING EXPENSES SUCH AS COMMISSION PAID TO SELLING AGENTS. (C) THE COMPANY HAS NOT FURNISHED SEGMENTAL DETAILS OF SOFTWARE DEVELOPMENT SERVICES AND PRODUCTS IN ITS ANNUAL REPORT. (D) THE COMPANY HAS ALSO ACQ UIRED INT ANGIBLES DURING THE YEAR. (III) M/S. INFOBEANS TECHNOLOGIES LIMITED : - (A) THE COMPANY IS ENGAGED IN EXPORT OF GOODS AND SERVICES AND NO SEGMENTAL DETAILS ARE AVAILABLE IN THE ANNUAL REPORT. HENCE THE COMPANY IS NOT FUNCTIONALLY SIMILAR. (B) IT IS APPARENT FROM THE ANNUAL REPORT THAT THE COMPANY HAS MODVAT DEPOSIT AMOUNTING TO RS . 25 000 AND SALES TAX DEPOSIT AMOUNTING TO RS. 10 000 WHICH ESTABLISHES THE FACT THAT THE COMPANY IS ENGAGED IN SALE OF GOODS. (IV) M/S. INFOSYS LIMITED: (A) THE COMPANY UNDERWENT EXTRA ORDINARY EVENTS DURING THE PREVIOUS YEAR SUCH ACQUISITION OF M/S. LODES TONE HOLDINGS SPACE AG AND MERGER OF M/S. INFOSYS CONSULTING INDIA P LTD. 8 THESE ACQUISITIONS HAD IMPACT ON THE PROFITABILITY OF THE COMPANY DURING THE PREVIOUS YEAR. (B) THE COMPANYS TURNOVER OF RS. 42 531 CRS APPROXIMATELY DURING THE PREVIOUS YEAR WHICH CANNOT BE COMPARED WITH THE APPELLANT COMPANYS TURNOVER AS IT IS ONLY RS. 163 CRS APPROXIMATELY. (C) THE COMPANY HAS ALSO INCURRED EXPENDITURE OF RS. 59 CRS TOWARDS DEVELOPMENT OF INTELLECTUAL PROPERTY RIGHTS. (D) THE COMPANY SPENT HUGE AMOUNT ON R & D ACT IVITIES AND HAD FILED 79 PATTERNS IN ITS NAME. IN THE CASE OF THE APPELLANT IT IS ONLY A CAPTIVE SERVICE PROVIDER TO ITS PARENT COMPANY RENDERING ITES SERVICES AND DO NOT UNDERTAKE ANY R & D ACTIVITIES . (E) THE COMPANY HAS ALSO INCURRED HUGE EXPENDITURE OF RS. 2 390 CRS TOWARDS SELLING AND MARKETING AND THEREFORE HAS A WIDE MARKET BUT IN THE CASE OF THE ASSESSEE COMPANY NO SUCH EXPENSES IS INCURRED AND ITS SCOPE IS LIMITED TO THE WORK ASSIGNED BY THE PARENT COMPANY. (V) M/S. PERSISTENT SYSTEMS LTD: - (A) THE COMPANY IS PRODUCT BASED DEVELOPING PRODUCTS WHICH HAVE BEEN OUTSOURCES BY CLIENTS. THE PRODUCT DEVELOPMENT IS NOTHING BUT SOFTWARE DEVELOPMENT SERVICES. (B) THE COMPANY DOES NOT OWN THE IP OF THE PRODUCTS DEVELOPED. 9 (C) THE COMPANY ALSO SERVICES THE PRODUCT DEVELOPED BY IT. (D) THE COMPANY HAS INCURRED AN EXPENDITURE OF RS. 3.96 CRS TOWARDS R & D ACTIVITIES. (E) THE MAINSTREAM OF REVENUE EARNED BY THE CO MPANY IS FROM PRODUCTS (IP BUSINESS) PLATFORMS (SOLUTIONS INTEGRATION) AND SERVICES (PRODUCT ENGINEERING) . (F) THE MAIN SEGMENTS DISCLOSED IN THE ANNUAL REPORT ARE TELECOM & WIRELESS LIFE - SCIENCES & HEALTH CARE AND INFRASTRUCTURE & SYSTEMS. (G) HOWEVER THE COMPANY HAS NOT REPORTED SEGMENTAL DETAILS IN THE ANNUAL REPORT. (H) FOR THE ABOVE - STATED REASONS THE COMPANY IS FUNCTIONALLY DIFFERENT THAT OF THE ASSESSEE COMPANY BECAUSE THE ASSESSEE COMPANY DOES NOT HAVE ALL THESE FEATURES. 8. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE LD. REVENUE AUTHORITIES. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE PAPER BOOK FURNISHED BY THE ASSESSEE AS WELL AS THE ARGUMENTS ADVANCED BY THE LD.AR WE FIND MERIT IN HIS CONTENTION BECAUSE OF THE FOLLOWING REASONS: - 10 (I) E - INFOCHIP S LIMITED: - (A) AS PER THE ANNUAL REPORT OF M/S. E - INFOCHIPS LIMITED FOR THE PERIOD 1/4/2013 TO 31/3/2014 (PAGE NO.98 OF THE PAPER BOOK - VOLUME - II) IT IS EVIDENT THAT THE COMPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT IT ENABLES SERVICES AND PRODUCT - BASE D COMPANY . FURTHER NO SEGMENTAL DETAILS ARE AVAILABLE IN THE ANNUAL REPORT. WHILE AS T HE ASSESSEES COMPANYS ONLY ACTIVITY IS CAPTIVE SOFTWARE DEVELOPMENT SERVICES . EXTRACTION FROM PAGE - 98 OF PB - II THE COMPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLE SERVICES AND PRODUCTS WHICH IS CONSIDERED THE ONLY REPORTABLE BUSINESS SEGMENT AS PER ACCOUNTING STANDARD - AS 17 SEGMENT REPORTING PRESCRIBED IN COMPANIES ACCOUNTING STANDARDS NOTIFIED U NDER SECTION 211(3C) (WHICH CONTINUES TO BE APPLICABLE IN TERMS OF GENERAL CIRCULAR 15/2013 DATED SEPTEMBER 13 2013 OF THE MINISTRY OF CORPORATE AFAIRS IN RESPECT OF SECTION 133 OF THE COMPANIES ACT 1961. (B) THE COMPANY ALSO MANUFACTURES PRODUCTS SUCH AS ELECTRONIC BOARDS AND PRINTER CIRCUITS BY IMPORTING RAW MATERIALS AND HOLDING INVENTORY AS APPARENT FROM PAGE NO. 119 OF THE PB - II. THE ASSESSEE COMPANY IS NOT ENGAGED INTO ANY ACTIVITY OF PRODUCING PHYSICAL GOODS. PAGE NO. 119 OF THE PB - II 11 (C) THE COMPANY HAS ALSO INCURRED EXPENSES IN R & D AND THEREFORE GENERATED INTANGIBLE ASSETS AS APPARENT FROM PAGE NO. 65 & 121 OF PB - II WHILE AS THE ASSESSEE COMPANY IS NOT INVOLVED IN ANY R & D ACTIVITY. IN THE CASE OF THE ASSESSEE COMPANY NEITHER SUCH EXPENS ES ARE INCURRED OR ANY INTANGIBLES ARE ACQUIRED DURING THE RELEVANT PERIOD. EXTRACTION FROM PAGE NO. 65 OF PB - II EXTRACTION FROM PAGE NO.121 PB - II: 12 (D) THE COMPANY HAS ALSO EARNED REVENUE FROM INFORMATION TECHNOLOGY CONSULTANCY OF RS. 29.07 CRS AS APPARENT FROM PAGE NO.123 OF PB - II. HOWEVER T HE ASSESSEE COMPANY HAVE NOT EARNED ANY INCOME FROM INFORMATION TECHNOLOGY CONSULTANCY ACTIVITIES. EXTRACTION FROM PAGE NO.123 OF PB - II: 10. CONSIDERING THE NATURE OF ACTIVITIES CARRIED OUT BY M/S. E - INFOCHIPS LIMITED DISCUSSED HEREINABOVE AND S INCE THE ASSESSEE COMPANY IS PRIMARILY ENGAGED IN CUSTOM - BUILT MOBILE APPLICATIONS AND SOFTWARE SUPPORT AND MAINTENANCE RELATED SERVICES TO M/S. KONY GROUP OF COMPANIES WE ARE OF THE VIEW THAT M/S. E - INFOCHIP S LIMITED CANNOT BE CONSIDERED AS A COMPARABLE COMPANY BECAUSE OF THE REASONS STATED HEREINABOVE. 13 (II) THIRDWARE SOLUTIONS LIMITED: (A) AS ARGUED BY THE LD. AR IT IS EVIDENT FROM THE ANNUAL REPORT (PAGE NO.235 OF PB - II) THAT THE COMPANY HAS DERIVED REVENUE FROM SALE OF PRODUCTS AMOUNTING TO RS. 206.75 CRS. FURTHER THERE IS NO REVENUE FROM SALE OF SERVICES DURING THE PREVIOUS YEAR. THE ASSESSEE HAS ALSO PURCHASED STOCK AMOUNTING TO RS. 40.21 CRS. WHILE AS THE ASSESSEE COMPANY IS NOT ENGAGED INTO ANY ACTIV ITY OF PRODUCING PHYSICAL GOODS. PAGE NO.235 OF PB - II (B) IT IS ALSO APPARENT THAT THE COMPANY IS RECEIVING REVENUE FROM VARIOUS STREAMS AND NONE OF THEM WERE PERTAINING TO SOFTWARE DEVELOPMENT SERVICES. AS APPARENT FROM PAGE 237 OF PB - II THE COMPANY HAS RECEIVED REVENUE FROM TRAINING AND SUBSCRIPTION AMOUNTING TO RS. 59.32 LAKHS AND SALE OF LICENSES RS. 7.98 LAKHS. THE ASSESSEE COMPANY IS ONLY ENGAGED IN ITES. 14 EXTRACTION FROM PAGE NO.237 OF PB - II: (C) IT IS ALSO APPARENT FROM PAGE NO. 217 OF PB - II THAT THE COMPANY HAS NOT DISCLOSED SEGMENTAL DETAILS BETWEEN SOFTWARE DEVELOPMENT SERVICES AND PRODUCTS. THE RELEVANT PORTION IS EXTRACTED HEREINBELOW FOR REFERENCE: - 34) SEGMENT REPORTING THE COMPANYS COOP ERATION COMPRISES OF SOFTWARE DEVELOPMENT IMPLEMENTATION AND SUPPORT SERVICES. PRIMARY SEGMENTAL REPORTING IS BASED ON GEOGRAPHICAL AREAS VIZ. DOMESTIC = INDIA (PRODUCTS & SERVICES) AND INTERNATIONAL = REST OF THE WORLD (EXPORTS - SOFTWARE SERVICES). IN PRIMARY SEGMENT REVENUE AND ALL EXPENSES WHICH RELATES TO A PARTICULAR GEOGRAPHICAL SEGMENT ARE REPORTED. FIXED ASSETS CURRENT ASSETS LOANS AND ADVANCES CURRENT LIABILITIES AND PROVISIONS ARE CLASSIFIED BASED ON SPECIFIC GEOGRAPHICAL SEGMENTS BUSIN ESS. THE COMPANY MAINTAINS SEPARATE BOOKS OF ACCOUNT FOR THE REPORTED SEGMENTS. WHEREVER THE COSTS ARE DIRECTLY IDENTIFIABLE WITH THE REPORTED SEGMENT IT HAS BEEN BOOKED TO THAT SEGMENT. WHEREVER COMMON EXPENSES ARE INCURRED THOSE EXPENSES HAVE ALREAD Y BEEN CONSIDE3RED FOR ALLOCATION AND RELEVANT ENTRIES IN THE BOOKS OF ACCOUNT HAVE BEEN PASSED. HENCE THERE ARE NO UN - ALLOCABLE EXPENSES. FURTHER CASH INVESTMENT (NET OF PROVISION) AND BANK BALANCES ARE REPORTED AT THE ENTERPRISE LEVEL. CURRENT ASSETS AND CURRENT LIABILITIES RELATING TO THE SPECIFIC BUSINESS SEGMENTS ARE IDENTIFIED AND REPORTED. THOSE WHICH ARE NOT IDENTIFIABLE ARE REPORTED AS COMMON ASSETS / LIABILITIES. (D) AS DISCLOSED IN THE ANNUAL ACCOUNT IT IS ALSO APPARENT THAT THE COMPANY HAS ACQUIRED INTANGIBLES DURING THE YEAR. RELEVANT 15 PORTION OF PAGE 210 OF PB - II IS EXTRACTED HEREINBELOW FOR REFERENCE: - D) INTANGIBLE ASSETS AND AMORTIZATION ACQUIRED INTANGIBLE AS SETS RELATING TO SOFTWARE PURCHASED FOR COMPANYS INTERNAL USE ARE CAPITALISED AT THE COST OF ACQUISITION AND IS AMORTISED ON THE STRAIGHT LINE METHOD OVER ITS ESTIMATED USEFUL LIFE OF THREE YEARS AS PERCEIVED BY THE MANAGEMENT OR USEFUL LIFE OF ASSET AS PER CONTRACT WHICHEVER IS EARLIER. DEPRECIATION ON INTANGIBLE ASSETS IS CALCULATED ON PRO - RATA BASIS WITH REFERENCE TO DATE OF ADDITION OVER ITS USEFUL LIFE OF THREE YEARS AS PERCEIVED BY THE MANAGEMENT OR USEFUL LIFE OF ASSET AS PER CONTRACT WHICHEVER I S EARLIER. THE INTANGIBLE ASSETS ACQUIRED B THE RESPECTIVE UNITS OF THIRDWARE SOLUTION LIMITED ARE USED IN RELATION TO THE OPERATION / SERVICES BY THE RESPECTIVE UNITS ONLY. INTANGIBLE ASSETS INTERNALLY DEVELOPED BY THE COMPANY ARE CAPITALISED AT THE TOTAL COST ATTRIBUTABLE TOWARDS THE DEVELOPMENT OF THE PRODUCT AND IS AMORTISED ON THE STRAIGHT - LINE METHOD OVER ITS ESTIMATED USEFUL LIFE OF THREE YEARS AS PERCEIVED BY THE MANAGEMENT. 10.1. IN THE CASE OF THE ASSESSEE COMPANY NEITHER SUCH EXPE NSES ARE INCURRED OR ANY INTANGIBLES ARE ACQUIRED DURING THE RELEVANT PERIOD. 11. SINCE THE ASSESSEE COMPANY IS PRIMARILY ENGAGED IN CUSTOM - BUILT MOBILE APPLICATIONS AND SOFTWARE SUPPORT AND MAINTENANCE RELATED SERVICES TO M/S. KONY GROUP OF COMPANIES WE ARE OF THE CONSIDERED VIEW THAT M/S. THIRD - WARE SOLUTIONS LIMITED CANNOT BE CONSIDERED AS A COMPARABLE COMPANY BECAUSE OF THE REASONS STATED HEREINABOVE. (III) M/S. INFOBEANS TECHNOLOGIES LIMITED: - (A) FROM THE ANNUAL REPORT PAGE NO.276 OF THE PB - II IT IS APPARENT THAT THE ASSESSEE HAS ALSO BEEN ENGAGED IN SALE OF GOODS ALONG WITH RENDERING OF SERVICES BECAUSE THE TURNOVER IS REPORTED ON EXPORT OF GOODS / SERVICES CALCULATED ON FOB BASIS. 16 (B) THE COMPANY A LSO HAS MODVAT DEPOSITS AND SALES TAX DEPOSIT. (C) THEREFORE THE COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPANY. (D) FOR REFERENCE THE RELEVANT PORTION OF THE ANNUAL REPORT ENCLOSED IN PAPER BOOK - II PAGE NO.276 IS EXTRACTED HEREINBELOW: NOTE - 27 EAR NINGS IN FOREIGN EXCHANGE A. EXPORT OF GOODS / SERVICES CALCULATED ON F.O.B BASIS 329 659883 216 854 891 TOTAL 329 659883 216 854 891 LONG TERM LOANS & ADVANCES SECURITY DEPOSIT SECURED CONSIDERED GOOD TELEPHONE DEPOSIT OTHER DEPOSIT CUSTOM DEPOSIT DEPOSIT WITH MPPKVVCL SALES TAX DEPOSIT (KOTAK FDR) DEPOSIT (M - VAT) M.P.S.E.D.C. LTD 9 400 9 153 10 000 140 850 10 000 25 000 10 121 460 9 400 3 500 10 000 73 150 - 25 000 - TOTAL 10 325 863 121 050 11.1. SINCE THE COMPANY IS FUNCTIONALLY DISSIMILAR IT CANNOT BE COMPARED WITH THE ASSESSEE COMPANY FOR THE PURPOSE OF TP ADJUSTMENT. (IV) M/S. INFOSYS LIMITED: (A) FROM THE PROFITABILITY REPORTED IN THE P & L ACCOUNT (PAGE NO. 324 349 AND 357 OF PB - II) IT IS EVIDENT THAT THE COMPANY HAD UNDERGONE EXTRAORDINARY EVENTS AS STATED BY THE LD. AR AND 17 THIS ACQUISITION HAD SUBSTANTIAL IMPACT ON THE PROFITABILITY OF THE COM PANY DURING THE PREVIOUS YEAR. EXTRACTION FROM PAGE 324 LODESTONE HOLDING AG ON OCTOBER 22 2012. INFOSYS ACQUIRED 100%OF THE OUTSTANDING SHARE CAPITAL OF LODESTONE HOLDING AG A GLOBAL MANAGEMENT CONSULTANCY FIRM HEADQUARTERED IN ZURICH SWITZERLAND. THE ACQUISITION WAS EXECUTED THROUGH A SHARE PURCHASE AGREEMENT FOR AN UPFRONT CASH CONSIDERATION OF 1 187 CRORE AND A DEFERRED CONSIDERATION OF UP TO RS. 608 CRORE. DURING THE YEAR WE INVESTED IN OUR SUBSIDIARIES FOR THE PURPOSE OF OPERATIO NS AND EXPANSION AS FOLLOWS: SUBSIDIARY IN FOREIGN CURRENCY CRORE INFOSYS AMERICAS INC. USD O.1 MILLION 1 LODESTONE HOLDING AG CHF 20 MILLION 136 INFOSYS PUBLIC SERVICES INC. USD 12.5 MILLION 75 EDGEVERVE SYSTEMS LIMITED 1 (1) ON APRIL 15 2014 THE BOARD OF DIRECTORS OF INFOSYS AUTHORIZED THE COMPANY TO EXECUTE A BUSINESS TRANSFER AGREEMENT AND RELATED DOCUMENTS WITH EDGEVERVE (REFER TO NOTE 2.10.2 OF THE STANDALONE FINANCIALS). REFER TO STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT 1956 FOR THE SUMMARY FINANCIAL PERFORMANCE OF OUR SUBSIDIARIES. THE AUDITED FINANCIAL STATEMENTS AND RELATED INFORMATION OF SUBSIDIARIES WILL BE AVAILABLE ON OUR WEBSITE WWW.INFOSYS.COM. EXTRACTION FROM PAGE 349 OF PB - II 2.10.1 INVESTMENT IN LODESTONE HOLDING AG ON OCTOBER 22 2012 INFOSYS ACQUIRED 100% OF THE OUTSTANDING SHARE CAPITAL OF LODESTONE HOLDING AG A GLOBAL MANAGEMENT CONSULTANCY FIRM HEADQUARTERED IN ZURICH SWITZERLAND. THE ACQUISITION WAS EXECUTED THROUGH A SHARE 18 PURCHASE A GREEMENT FOR AN UPFRONT CASH CONSIDERATION OF RS. 1 87 CRORE AND A DEFERRED CONSIDERATION OF UP TO RS. 608 CR. THE DEFERRED CONSIDERATION IS PAYABLE TO THE SELLING SHAREHOLDERS OF LODESTONE ON THE THIRD ANNIVERSARY OF THE ACQUISITION DATE AND IS CONTINGENT UPON THEIR CONTINUED EMPLOYMENT FOR A PERIOD OF THREE YEARS. THE INVESTMENT IN LODESTONE HAS BEEN RECORDED AT THE ACQUISITION COST AND THE DEFERRED CONSIDERATION IS BEING RECOGNIZED ON A PROPORTIONATE BASIS OVER A PERIOD OF THREE YEARS FROM TH E DATE OF ACQUISITION. AN AMOUNT OF RS. 228 CRORE AND RS. 85 CR REPRESENTING THE PROPORTIONATE CHARGE OF THE DEFERRED CONSIDERATION HAS BEEN RECOGNIZED AS AN EXPENSE DURING THE YEARS ENDED MARCH 31 2014 AND MARCH 31 2013 RESPECTIVELY. EXTRACTION FROM PAGE 357 OF PB - II 2.26 MERGER OF INFOSYS CONSULTING INDIA LIMITED THE HONORABLE HIGH COURT OF KARNATAKA SANCTIONED THE SCHEME OF AMALGAMATION OF INFOSYS CONSULTING INDIA LIMITED (ICIL) WITH INFOSYS LIMITED WITH AN EFFECTIVE DATE OF AUGU ST 23 2013 AND AN APPOINTED DATE OF JANUARY 12 2012 ICIL WAS A WHOLLY - OWNED SUBSIDIARY OF INFOSYS LIMITED AND WAS ENGAGED IN SOFTWARE - RELATED CONSULTANCY SERVICES. THE MERGER OF ICIL INTO INFOSYS LIMITED HAS BEEN ACCOUNTED FOR UNDER POOLING OF INTEREST METHOD REFERRED TO IN ACCOUNTING STANDARD 14. ACCOUNTING FOR AMALGAMATION (AS - 14). ALL THE ASSETS AND LIABILITIES OF ICIL ON AN AFTER THE APPOINTED DATE AND PRIOR TO THE EFFECTIVE DATE HAVE BEEN TRANSFERRED TO INFOSYS LIMITED ON A GOING CONCERN BASIS. A S ICIL WAS A WHOLLY - OWNED SUBSIDIARY OF INFOSYS LIMITED NO SHARES HAVE BEEN ALLOTTED TO THE SHAREHOLDERS UPON THE SCHEME BECOMING EFFECTIVE. 11.2. HOWEVER IN THE CASE OF THE ASSESSEE COMPANY THERE ARE NO SUCH EVENTS LEADING TO SUPER PROFITS. (B) THE COMPANY HAS A BUMPER TURNOVER OF RS. 42 531 CRS WHICH CANNOT BE COMPARED WITH THE TURNOVER OF THE ASSESSEE COMPANY WHICH IS ONLY RS. 41 CRS. 19 (C) THE COMPANY HAS RECOGNISED INTELLECTUAL PROPERTY RIGHTS (IPRS) FOR RS. 59 CRS AS EVIDENT FROM PAGE 348 OF PB - II. EXTRACTION FROM PAGE 3 48 OF PB - II 2.8 FIXED ASSETS IN ` CRORE EXCEPT AS OTHERWISE STATED PARTICULARS ORIGINAL COST DEPRECIATION AND AMORTIZATION NET BOOK VALUE AS AT APRIL 1 2013 ADDITIONS / ADJUSTMENTS DURING THE YEAR DEDUCTIONS / RETIREMENT DURING THE YEAR AS AT MARCH 31 2014 AS AT APRIL 1 2013 FOR THE YEAR DEDUCTIONS / ADJUSTMENTS DURING THE YEAR AS AT MARCH 31 2014 AS AT MARCH 31 2014 AS AT MARCH 31 2013 TANGIBLE ASSETS : LAND : FREEHOLD 492 290 1 781 781 492 LEASEHOLD 348 1 349 4 878 1 754 349 3 124 348 BUILDINGS (1)(2) 4 053 825 1 467 287 2 586 PLANT AND EQUIPMENT (2) 779 312 1 1 090 547 125 1 671 419 232 OFFICE EQUIPMENT (2) 276 117 393 159 56 215 178 117 COMPUTER EQUIPMENT (2)(3) 1 525 672 19 2 178 1 053 520 19 1 554 624 472 FURNITURE AND FIXTURES (2) 518 161 679 345 96 441 238 173 VEHICLES 10 3 13 5 2 7 6 5 8 001 2 381 21 10 361 3 576 1 086 20 4 642 5 719 4 425 INTANGIBLE ASSETS : INTELLECTUAL PROPERTY RIGHTS 59 59 31 15 46 13 28 59 59 31 15 46 13 28 TOTAL 8 060 2 381 21 10 420 3 607 1 101 20 4 688 5 732 4 453 PREVIOUS YEAR (4) 7 173 1 422 535 8 060 3 112 956 461 3 607 4 453 (1) BUILDINGS INCLUDE ` 250/ - BEING THE VALUE OF 5 SHARES OF ` 50/ - EACH IN MITTAL TOWERS PREMISES CO - OPERATIVE SOCIETY LIMITED. (2) INCLUDES CERTAIN ASSETS PROVIDED ON CANCELLABLE OPERATING LEASE TO INFOSYS BPO A SUBSIDIARY. (3) INCLUDES COMPUTER EQUIPMENT HAVING GROSS BOOK VALUE OF ` 1 CRORE (NET BOOK VALUE NIL) TRANSFERRED FROM INFOSYS CONSULTING INDIA LIMITED (REFER NOTE 2.26). (4) DURING THE YEARS ENDED MARCH 31 2014 AND MARCH 31 2013 CERTAIN ASSETS WHICH WERE OLD AND NOT IN USE HAVING GROSS BOOK VALU E OF NIL AND ` 521 CRORE RESPECTIVELY IN THE CASE OF ASSESSEE COMPANY THERE IS NO ACCRETION OF SUCH KIND OF ASSETS. (D) THE COMPANY HAS SPENT HUGE AMOUNT ON R & D ACTIVITIES AMOUNTING TO RS. 261 CRS DURING THE PREVIOUS YEAR AND ALSO 20 HAVE FILED 79 PATTERNS IN ITS NAME AS POINTED BY THE LD. AR AND APPARENT FROM THE PB - II PAGE NO.304 AND 311. EXTRACTION FROM PAGE 3 04 OF PB - II OUR RESEARCH AND DEVELOPMENT EFFORTS FOCUS ON THE TWIN GOALS OF IMPROVING PRODUCTIVITY AND QUALITY OF OUR SERVICES ALONGSIDE WORKING TOWARDS TECHNOLOGY DRIVEN INNOVATION AND DIFFERENTIATION THAT WILL DELIVER GREATER VALUE TO OUR CLIENTS. AT INFOSYS LABS SERVICE INNOVATION IS BEING ACHIEVED THROUGH ENHANCED AUTOMATION OPTIMIZATION PREVENTION AND EFFECTIVE COLLABORATION AMONG DESCRIBED TEAMS. INFOSYS LABS HAS ESTABLISHED A SET OF SERVICE INNOVATION GROUPS FOCUSED ON ENHANCING QUALITY AND PRODUCTIVITY OF SIX DOMINANT INFOSYS SERVICES - BUSINESS PROCESS OUTSOURCING; INFRASTRUCTURE MANAGEMENT SERVICES; INDEPENDENT VALIDATION SERVICES; APPLIC ATION DEVELOPMENT AND MAINTENANCE INCLUDING LARGE DEALS; CONSULTING AND SYSTEMS INTEGRATION; AND MODERNIZATION. THESE GROUPS WORK ON SERVICE PLATFORMS WITH A FOCUS ON AUTOMATION OPTIMIZATION CONSOLIDATION AND ON ENHANCING THE EFFECTIVENESS OF CONTEXTUAL COLLABORATION FOR DISTRIBUTED TEAMS. UNDER ITS CLIENT INNOVATION UMBRELLA INFOSYS LABS HAS ESTABLISHED SIX CENTRES OF EXCELLENCE (COE) NAMELY MODERNIZATION ADVANCED ANALYTICS SECURITY AND DEPENDABILITY ADVANCED MOBILITY EXPERIENCE AND INNOVATION CO - CREATION. THE COES WORK TOWARDS ESTABLISHING TECHNOLOGY - BASED CLIENT INNOVATION AND DIFFERENTIATION THROUGH THE ESTABLISHMENT OF CLIENT INNOVATION CENTRES PUBLISHING FOCUSED TECHNOLOGY POINTS OF VIEW IMPLEMENTING PROOFS OF CONCEPTS DRIVEN B Y OUR FOCUS ON CLIENT VALUE AND CONDUCTING CLIENT WORKSHOPS. ADDITIONALLY WE HAVE SET UP INNOVATION CENTRES WITH A NUMBER OF OUR CLIENTS UNIVERSITY PARTNERS AND INDUSTRY RESEARCH CONSORTIA TO DRIVE CO - CREATION. INFOSYS LABS FOCUSES ON DEVELOPING SIGNI FICANT NEW INTELLECTUAL PROPERTY TO ENHANCE THE PRODUCTIVITY AND QUALITY OF OUR SERVICES WHILE ENABLING DIFFERENTIATION IN CLIENT OFFERINGS. DURING FISCAL YEAR 2014 INLOSYS LABS FILED 79 UNIQUE PATENT APPLICATIONS IN THE UNITED STATES PATENT AND TRADEMAR K OFFICE(USPTO) THE INDIAN PATENT OFFICE AND OTHER JURISDICTIONS. ON A STANDALONE BASIS OUR RESEARCH AND DEVELOPMENT EXPENSES FOR FISCAL YEARS 2014 2013 AND 2012 WERE RS. 873 CRORE RS. 907 CRORE AND RS. 655 CRORE RESPECTIVELY. 21 EXTRACTION FROM PAGE 3 11 OF PB - II RESEARCH AND DEVELOPMENT EXPENDITURE THE R&D CENTERS OF THE COMPANY (FINACLE AND INFOSYS LABS) LOCATED AT BANGALORE BHUBANESWAR CHANDIGARH CHENNAI PUNE HYDERABAD MYSORE AND THIRUVANANTHAPURAM HAVE BEEN ACCORDED APPROVAL FOR WEIGHTE D DEDUCTION BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) EFFECTIVE NOVEMBER 23 2011. THE ELIGIBLE R&D REVENUE AND CAPITAL EXPENDITURE ON A STANDALONE BASIS ARE RS 261 CRORE AND NIL RESPECTIVELY FOR THE YEAR ENDED MARCH 31 2014 AND RS. 247 CRORE AND RS. 3 CRORE RESPECTIVELY FOR THE YEAR ENDED MARCH 31 2013. ON A STANDALONE BASIS THE TOTAL R&D EXPENDITURE INCLUDING ELIGIBLE R&D EXPENDITURE DISCUSSED ABOVE FOR FISCAL YEARS 2014 AND 2013 IS AS FOLLOWS: IN ` CRORE 2014 2013 REVENUE EXPENDITURE 873 873 2.0% 907 CAPITAL EXPENDITURE 6 TOTAL 913 R&D EXPENDITURE / TOTAL REVENUE (%) 2.5% (E) IT IS ALSO APPARENT FROM PAGE NO.326 OF PB - II THAT THE COMPANY HAS INCURRED HUGE SELLING AND MARKETING EXPENSES OF RS. 2 390 CRS. EXTRACTION FROM PAGE 3 26 OF PB - II III RESULTS OF OPERATIONS THE FUNCTION WISE CLASSIFICATION OF THE STANDALONE STATEMENT OF PROFIT AND LOSS IS AS FOLLOWS: IN ` CRORE YEAR ENDED MARCH 31 2014 % 2013 % INCOME FROM SOFTWARE SERVICES AND PRODUCTS 44 341 100.0 36 765 100.0 22 SOFTWARE DEVELOPMENT EXPENSES 26 738 60.3 21 662 58.9 GROSS PROFIT 17 603 39.7 15 103 41.1 SELLING AND MARKETING EXPENSES 2 390 5.4 1 870 5.1 GENERAL AND ADMINISTRATION EXPENSES 2 686 6.0 2 218 6.0 5.076 11.4 4 088 11.1 OPERATING PROFIT BEFORE DEPRECIATION 12 527 28.3 11 015 30.0 WHILE AS IN THE CASE OF THE ASSESSEE COMPANY NO SUCH EXPENSES HAVE BEEN INCURRED AS IT IS CATERING ONLY TO ITS PARENT COMPANY. 12. CONSIDERING THE ABOVE - MENTIONED FACTORS WE ARE OF THE CONSIDERED VIEW THAT M/S. INFOSYS LIMITED IS NOT A COMPARABLE COMPANY WITH RESPECT TO THE ASSESSEE COMPANY FOR TP ADJUSTMENTS. (V) M/S. PERSISTENT SYSTEMS LTD: - (A) IT IS EVIDENT FROM PAGE NO. 533 OF PB - II THAT THE COMPANY IS MAINLY ENGAG ED IN THREE AREAS SUCH AS PRODUCTS (IP BUSINESS) PLATFORMS (SOLUTIONS INTEGRATION) AND SERVICES (PRODUCT ENGINEERING) AND IS ALSO SELLING ITS BRANDED PRODUCTS. EXTRACTION FROM PAGE 533 OF PB - II BUSINESS OVERVIEW YOUR COMPANY SPECIALIZES IN BU IL DING COMPUTER SOFTWARE PRODUCTS. YOUR COMPANYS BUSINESS IS ORGANIZED WITH A FOCUS ON THE FOLLOWING THREE AREAS: PRODUCTS (IP BUSINESS) PLATFORMS (SOLUTIONS INTEGRATION) AND SERVICES (PRODUCT ENGINEERING). YOUR COMPANY HAS DECIDED TO BRAND THE PRODUCT BUSINE SS SEPARATELY FROM THE PERSISTENT BRAND AND HAS NAMED IT ACCELERITE ( WWW.ACCELERITE.COM ). ACCELERITE WILL BE HEADQUARTERED IN THE SILICON VALLY AND WILL HELP YOUR COMPANY PROVIDE CLARITY THE PERSISTENT BRAND I S FOR PRODUCT DEVELOPMENT AND THE ACCELERITE BRAND IS FOR PRODUCTS. 23 YOUR COMPANY HAS ORGANIZED THE DEVELOPMENT AND ENGINEERING TEAMS AROUND THREE STRATEGIES. ACCOUNT - LED PLATFORM - LED AND PRODUCT - LED. FURTHER ACCOUNT - LED TEAMS ARE ORGANIZED AS NAMED A CCOUNTS AND GROWTH ACCOUNTS. DRIVEN BY GROWTH IN THE PLATFORM BASED SOLUTIONS AND IP LED BUSINESS THE CONSOLIDATED REVENUE OF YOUR COMPANY RECORDED AN INCREASE OF 15.2% IN THE US DOLLAR TERMS AND 28.9% IN THE RUPEE TERM DURING THE YEAR UNDER REVIEW. THE CONSOLIDATED EBIDTA INCREASED BY 28.4% AND THE NET PROFIT AFTER TAX WENT UP BY 32.9% DURING THE SAME PERIOD. (B) IT IS ALSO EVIDENT FROM PAGE NO.701 OF PB - II THAT THE COMPANY IS ALSO ENGAGED IN R & D ACTIVITIES AND HAS INCURRED REVENUE AND CAPITAL EXPENDITURE TOWARDS THE SAME FOR RS. 3.96 CRS . EXTRACTION FROM PAGE 701 OF PB - II 35. RESEARCH AND DEVELOPMENT EXPENDITURE. THE PARTICULARS OF EXPENDITURE INCURRED ON IN - HOUSE RESEARCH AND DEVELOPMENT CENTRE APPROVED BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) ARE AS FOLLOWS: FOR THE YEAR ENDED MARCH 31 2014 MARCH 31 2013 CAPITAL 2.43 - REVENUE 37.18 27.87 39.61 27.87 (C) THOUGH THE COMPANYS REVENUE FLOWS FROM THE THREE STREAMS VIZ. PRODUCTS (IP BUSINESS) PLATFORMS (SOLUTIONS INTEGRATION) AND SERVICES (PRODUCT ENGINEE RING) THE MAIN SEGMENTS DISCLOSED IN THE ANNUAL REPORT ARE TELECOM & WIRELESS LIFE - SCIENCES & HEALTH CARE AND INFRASTRUCTURE & SYSTEMS. THUS THE SEGMENTAL DETAILS IN THE ANNUAL REPORT IS ABSENT. 24 EXTRACTION FROM PAGE 675 OF PB - II (M) SEGMENT REPORTING (I) IDENTIFICATION OF SEGMENT THE COMPANYS OPERATIONS PREDOMINANTLY RELATE TO PROVIDING SOFTWARE PRODUCTS SERVICES AND TECHNOLOGY INNOVATION COVERING FULL LIFE CYCLE OF PRODUCT TO ITS CUSTOMERS. (II) ALLOCATION OF INCOME AND DIRECT EXPENSES INCOME AND DIRECT EXPENSES ALLOCABLE TO SEGMENTS ARE CLASSIFIED BASED ON ITEMS THAT WE INDIVIDUALLY IDENTIFIABLE TO THAT SEGMENT SUCH AS SALARIES AND PROJECT RELATED TRAVEL EXPENSES. THE REMAINDER IS CONSIDERED AS UN - ALLOCABLE EXPENSE AND IS CHARGED AGAINST THE TOTAL INCOME. (I) UN ALLOCATED ITEM UN ALLOCATED ITEMS INCLUDE GENERAL CORPORATE INCOME AND EXPENSE ITEMS WHICH ARE NOT ALLOCATED TO ANY BUSINESS SEGMENT. SEGREGATION OF ASSETS LIABILITIES DEPRECIATION AND OTHER NON - CASH EXPENSES INTO VARIOUS REPORTABLE SEGMENTS HAVE NOT BEEN PRESENTED EXCEPT FOR TRADE RECEIVABLES AS THESE ITEMS ARE USED INTERCHANGEABLY BETWEEN SEGMENTS AND THE COMPANY IS OF THE VIEW THAT IT IS NOT PRACTICAL TO REASONABLE ALLOCATE THESE ITEMS TO INDIVIDUAL SEGMENTS AND AN ADHOC ALLOCATION WILL NOT BE MEANINGFUL. 13. FROM THE ABOVE IT IS EVIDENT THAT M/S. PERSISTENT SYSTEMS LTD IS FUNCTIONALLY DISSIMILA R TO THE ASSESSEE COMPANY IT ALSO HAS INTANGIBLES UNLIKE THE ASSESSEE COMPANY AND FURTHER SEGMENTAL DATA ARE NOT AVAILABLE. HENCE M/S. PERSISTENT SYSTEMS LTD CANNOT BE TREATED AS A COMPARABLE COMPANY WITH THE ASSESSEE COMPANY FOR THE PURPOSE OF TP ADJUS TMENTS . 14. THUS THE FINAL LIST OF COMPARABLE COMPANIES AFTER EXCLUDING FUNCTIONALLY DISSIMILAR COMPANIES WOULD BE AS FOLLOWS: - 25 SL N O. NAME OF THE COMPANY OP / OC 1 TATA ELXSI LTD (SEG) 22.29% 2 MINDTREE LTD 21.64% 3 R S SOFTWARE (INDIA) LTD 24.03% 4 LARSEN & TURBO I NFOTECH L TD 24.04% 5 CG - VAK SOFTWARE & EXPORTS LTD 9.55% ARITHMETIC MEAN 20.31% 15. SINCE THE ASSESSEE HAD DECLARED PROFIT MARGIN ON COST @ 18.08% WHICH IS WITHIN THE RANGE OF (+ / - ) 3% OF 20.31% AS PER THE SECOND PROVISO T O SECTION 92C(2) OF THE ACT WE ARE OF THE CONSIDERED VIEW THAT TP ADJUSTMENT IS NOT REQUIRED IN THE CASE OF THE ASSESSEE TOWARDS ASSESSEES INTERNATIONAL TRANSACTION WITH RESPECT TO SOFTWARE DEVELOPMENT SERVICES. SINCE ALL OTHER GROUND S RAISED IN THE APPE AL ARE NOT PRESSED THEY HAVE NOT BEEN CONSIDERED. 16. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER 2019. SD/ - SD/ - (P. MADHAVI DEVI) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD DATED: 20 TH NOVEMBER 2019. OKK 26 COPY TO: - 1) M/S. KONY IT SERVICES PRIVATE LIMITED 9 TH FLOOR B - 6 SOUTH POWER DIVYASREE ORION SY. NO. 66/1 RAIDURGAM HYDERABAD - 022. 2) DCIT CIRCLE - 2(1) ROOM NO. 514 5 TH FLOOR SIGNATURE TOWERS OPP. BOTANICAL GARDEN KONDAPUR HYDERABAD N500 084. 3) THE DRP - 1 BANGALORE. 4) THE DCIT (TPO - II) HYDERABAD . 5) THE DR ITAT HYDERABAD 6) GUARD FILE