Symphony Services Pune Pvt. Ltd. (presently merged with Symphony Services Corp. (India) Pvt. Ltd.,, Pune v. ITO, Ward 1(4), Pune

ITA 257/PUN/2013 | 2008-2009
Pronouncement Date: 30-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 25724514 RSA 2013
Assessee PAN AABCI0798M
Bench Pune
Appeal Number ITA 257/PUN/2013
Duration Of Justice 1 year(s) 3 month(s) 1 day(s)
Appellant Symphony Services Pune Pvt. Ltd. (presently merged with Symphony Services Corp. (India) Pvt. Ltd.,, Pune
Respondent ITO, Ward 1(4), Pune
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 30-04-2014
Assessment Year 2008-2009
Appeal Filed On 28-01-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO.257/PN/2013 (ASSESSMENT YEAR : 2008-09) SYMPHONY SERVICES PUNE PRIVATE LIMITED (PRESENTLY MERGED WITH SYMPHONY SERVICES CORP. (INDIA) PVT. LTD.) AMAR APEX 1 ST FLOOR BANER ROAD PUNE 411 045. PAN : AABCI0798M . APPELLANT VS. INCOME TAX OFFICER WARD 1(4) PUNE. . RESPONDENT ASSESSEE BY : MR. RAGHAV CHARAN DEPARTMENT BY : MR. A. K. MODI DATE OF HEARING : 12-03-2014 DATE OF PRONOUNCEMENT : 30-04-2014 ORDER PER G. S. PANNU AM THE CAPTIONED APPEAL HAS BEEN PREFERRED BY THE ASSE SSEE PERTAINING TO THE ASSESSMENT YEAR 2008-09 WHICH IS DIRECTED AGAI NST THE ORDER OF THE INCOME TAX OFFICER WARD 1(4) PUNE (IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT 1 961 (IN SHORT THE ACT) DATED 30.11.2012 WHICH IS IN CONFORMITY WITH THE D IRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL PUNE (IN SHORT THE DRP) DATED 04.09.2012. 2. IN THIS APPEAL ASSESSEE HAS RAISED MULTIPLE GRO UNDS OF APPEAL BUT THE SUBSTANTIVE GRIEVANCE IS WITH REGARD TO AN ADDITION OF RS.7 42 04 322/- MADE BY THE ASSESSING OFFICER TO THE STATED VALUE OF INT ERNATIONAL TRANSACTIONS ENTERED WITH THE ASSOCIATED ENTERPRISES (IN SHORT T HE AE) SO AS TO BRING THE SAME TO THE ARM'S LENGTH PRICE. ITA NO.257/PN/2013 A.Y. 2008-09 3. IN BRIEF THE BACKGROUND OF THE CONTROVERSY CAN BE UNDERSTOOD AS FOLLOWS. THE APPELLANT BEFORE US IS A COMPANY INCO RPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT 1956 AND IS INTER- ALIA ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES. THE ASS ESSEE IS A 100% OWNED SUBSIDIARY OF GLOBAL SYMPHONY TECHNOLOGY PVT. LTD. MAURITIUS (GST) AND GST IN-TURN IS A 100% SUBSIDIARY OF SYMPHONY SERVIC ES CORPORATION (SSC). THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD ENTER ED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES ON ACCOUNT OF PROVISIONS OF SOFTWARE DEVELOPMENT AND RELATED SERV ICES REIMBURSEMENT OF EXPENSES AND RECOVERY OF EXPENSES. IN ORDER TO DET ERMINE THE COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIO NAL TRANSACTIONS ASSESSING OFFICER REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER IN TERMS OF SECTION 92CA(1) OF THE ACT. THE TPO HAS PASSED AN ORDER U/ S 92CA(3) OF THE ACT DATED 28.10.2011 DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS RELATING TO THE PROVISION OF SOFTWARE DEVELOPMENT AND RELATED SERVICES AT RS.79 63 60 703/- AS AGAINST THE STATED CONSIDERATION OF RS.62 59 60 686/- THEREBY RESULTING IN UPWARD ADJU STMENT OF RS.17 04 00 017/- TO THE ARM'S LENGTH PRICE. WHILE PASSING SUCH ORDER THE TPO ALLOWED ASSESSEE AN OPPORTUNITY TO PRODUCE THE RELEVANT MATERIAL WHICH THE ASSESSEE SOUGHT TO RELY ON FOR THE PURPOSES OF DETERMINING THE ARM'S LENGTH PRICE. ACCORDINGLY THE ASSESSING OFFICER P ASSED A DRAFT ASSESSMENT ORDER DATED 27.12.2011 MAKING AN ADDITION OF RS.17 04 00 017/- TO THE RETURNED INCOME ON ACCOUNT OF THE TRANSFER PRICING ADJUSTMENT DETERMINED BY THE TPO. THE ASSESSEE CHOSE TO FILE OBJECTIONS TO THE DRP AGAINST THE SAID DRAFT ASSESSMENT ORDER. THE DRP AFTER DUE CONSIDER ATION OF THE OBJECTIONS RAISED BY THE ASSESSEE PASSED AN ORDER GIVING DIREC TIONS U/S 144C(5) OF THE ACT DATED 04.09.2012 IN TERMS OF WHICH THE ASSESSIN G OFFICER HAS FINALIZED THE ASSESSMENT U/S 143 R.W.S. 144C(13) OF THE ACT DATED 30.11.2012. IN COMPLIANCE OF THE DIRECTIONS OF THE DRP THE DRAFT ASSESSMENT ORDER DATED 27.12.2011 WAS AMENDED AND FINALLY THE ARM'S LENGTH PRICE OF THE STATED VALUE ITA NO.257/PN/2013 A.Y. 2008-09 OF THE INTERNATIONAL TRANSACTIONS WAS DETERMINED AT RS.70 01 65 008/- THEREBY RESULTING IN AN ADDITION OF RS.7 42 04 322/- TO THE RETURNED INCOME. AGAINST THE SAID ADDITION ASSESSEE IS IN FURTHER APPEAL BE FORE THE TRIBUNAL. 4. IN THIS BACKGROUND THE RIVAL COUNSELS HAVE BEEN HEARD AND ASSESSEE HAS MADE SUBMISSIONS BY REFERRING TO THE RELEVANT M ATERIAL PLACED IN THE PAPER BOOK FILED BEFORE US. THE LEARNED CIT-DR HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICER BY REFERRING TO DISCUSSION IN THE RESPECTIVE ORDERS OF THE AUTHORITIES BELOW. 5. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALTHOUGH THE ASSESSEE HAS PREFERRED VARIOUS OB JECTIONS AGAINST THE ASSESSMENT ORDER AS IS EMERGING FROM THE STATED GR OUNDS OF APPEAL FILED WITH THE MEMO OF APPEAL HOWEVER THE APPELLANT WISHES T O ADVANCE SUBMISSIONS ONLY ON THREE ISSUES NAMELY (I) NON-CONSIDERATION OF SEGMENTAL DETAILS OF THE ASSESSEES FINANCIAL STATEMENTS AND CONFINING OF AD JUSTMENTS ONLY TO THE ASSOCIATED ENTERPRISES (I.E. AE) SEGMENT; (II) EXCL USION OF KALS INFORMATION SYSTEM LIMITED (IN SHORT KALS) FROM THE LIST OF C OMPARABLES OR IN THE ALTERNATIVE TO CONSIDER THE MARGINS OF M/S KALS AT 18.53% AS AGAINST 30.92% CONSIDERED BY THE TPO; AND (III) TO EXCLUDE E-ZEST SOLUTIONS LIMITED FROM THE LIST OF COMPARABLES. IN DEFERENCE TO THE AFORESAID PLEA OF THE ASSESSEE THE APPEAL HAS BEEN HEARD ONLY ON THE AFORESAID THREE P OINTS PRESSED BEFORE US IN THE COURSE OF HEARING. 6. THE FIRST POINT RAISED BY THE ASSESSEE IS RELATI NG TO THE ACTION OF THE ASSESSING OFFICER IN DETERMINING THE ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIONS WHICH ACCORDING TO THE ASSESSEE IS BAS ED ON AN ERRONEOUS COMPUTATION OF OPERATING MARGINS OF ASSESSEES SEGM ENT OF AE TRANSACTION. IN THIS CONTEXT OUR SPECIFIC ATTENTION HAS BEEN DR AWN TO PARA 7.5.3 OF THE ASSESSMENT ORDER WHICH READS AS UNDER :- ITA NO.257/PN/2013 A.Y. 2008-09 7.5.3 PLI OF THE ASSESSEE HAS BEEN WORKED OUT AT 18.26 AS AGAINST PLI OF COMPARABLES AT 24.34 ASSESSEE IS NOT ENTITLED FOR BENEFIT OF +/- 5% DEDUCTION. IN VIEW OF THE ABOVE REVISED ADJUST MENT IS WORKED OUT AS UNDER :- AS PER TPOS ORDER AS PER DRPS DIRECTIONS OPERATING REVENUE OF THE ASSESSEE [B] 913 024 950 625 960 687 OPERATING COST (OC) 821 211 981 563 014 642 ( * ) ARMS LENGTH MEAN MARGIN (OP/OC) [D] 0.3193 0.2436 ARMS LENGTH PRICE (ALP ) OF THE INTERNATIONAL TRANSACTION [A] (ALP=OC*)1+D)) 1 083 424 967 700 165 009 5% RANGE ON LOWER SIDE -- 655 156 759 ADJUSTMENT OVER OPERATING INCOME [A-B] 170 400 017 74 204 322 ( * )- THERE IS NO SEGMENTAL ACCOUNT WITH REFERENCE TO TRANSACTION WITH AE AND WITH NON AE OC IS THEREFORE TAKEN ON PROPORTIONATE BASIS. 7. AS PER THE LEARNED COUNSEL THE REVISED ADJUSTME NT WAS WORKED OUT BY THE ASSESSING OFFICER IN COMPLIANCE WITH THE DIRECT IONS OF THE LEARNED DRP BUT WHILE DOING SO THE OPERATING COST RELATABLE TO THE AE SEGMENT OF ASSESSEES FINANCIAL RESULTS HAS BEEN WRONGLY WORKE D OUT. IN THIS CONTEXT THE LEARNED COUNSEL POINTED OUT THAT EVEN BEFORE THE TP O DURING THE COURSE OF THE TRANSFER PRICING PROCEEDINGS ASSESSEE HAD FURNISHE D SEGMENTAL DETAILS OF AE AND NON-AE SEGMENTS AND REFERRED TO PARA 19.3 OF TH E ORDER OF THE TPO IN THIS REGARD. EXPLAINING FURTHER IT IS CONTENDED THAT W HILE THERE WAS NO DISPUTE ON IDENTIFYING THE OPERATING REVENUE FOR SOFTWARE DEVE LOPMENT AND RELATED SERVICES INCOME BETWEEN AE SEGMENT AND NON-AE SEGME NT BUT THE ASSESSEE DIFFERS WITH THE ASSESSING OFFICER ONLY WITH REGARD TO THE ALLOCATION OF COSTS SO AS TO DETERMINE THE OPERATING COSTS OF THE AE AND N ON-AE SEGMENTS. THE LEARNED COUNSEL REFERRED TO PARA 19.4 OF THE ORDER OF THE TPO AND POINTED OUT THAT THE TPO REJECTED THE PLEA OF THE ASSESSEE FOR MAKING ADJUSTMENT ONLY ON THE BASIS OF THE DATA OF AE SEGMENT AND INSTEAD THE TPO APPLIED THE TNM METHOD AND COMPUTED THE ADJUSTMENT AT THE ENTITY LE VEL MARGIN. IN PARA 19.4(A) OF HIS ORDER THE TPO OBSERVES THAT THE BAS IS OF ALLOCATION OF INCOME AND EXPENSES BETWEEN THE AE AND NON-AE SEGMENTS WAS NOT PROVIDED AND HENCE HE ADOPTED THE ENTITY LEVEL MARGINS FOR THE P URPOSES OF WORKING OUT THE ADJUSTMENT FOR DETERMINATION OF THE ARM'S LENGTH PR ICE OF THE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES. ITA NO.257/PN/2013 A.Y. 2008-09 8. THE LEARNED COUNSEL EXPLAINED THAT IT RAISED THE ISSUE BEFORE THE DRP WHEREBY THE FOLLOWING FINDING WAS GIVEN BY THE DRP IN PARA 2.1.6 OF ITS ORDER : 2.1.6 ON ADJUSTMENT TO BE MADE TO THE AE SEGM ENT THE ADJUSTMENT FOR DETERMINING ARM'S LENGTH PRICE HAS T O BE MADE TO THE INTERNATIONAL TRANSACTION WITH THE AE. HENCE THE ADJUSTMENT SHOULD BE MADE ONLY TO THE AE SEGMENT AND NOT AT THE ENTIRE ENTITY LEVEL WHICH WOULD CONSIST OF NON-AE SEGMENT ALSO. THE AO IS DIRECTED TO MAKE ADJUSTMENT ONLY TO THE AE SEGMENT. 9. THE LEARNED COUNSEL EMPHASIZED THAT IN TERMS OF THE AFORESAID DIRECTIONS OF THE DRP THE ASSESSING OFFICER WAS DI RECTED TO MAKE ADJUSTMENT ONLY WITH RESPECT TO THE AE SEGMENT. ACCORDING TO HIM WHILE CARRYING OUT THE SAID DIRECTIONS OPERATING COSTS WITH RESPECT TO THE AE SEGMENT HAS BEEN TAKEN AS RS.56 30 14 642/- IN TERMS OF THE TABULATI ON REPRODUCED ABOVE WHEREAS THE SAME WOULD AMOUNT TO RS.49 51 47 742/- ON THE BASIS OF THE FOLLOWING ALLOCATION WORKED OUT BY THE ASSESSEE : ANNEXURE DETAILS OF SEGMENTAL MARGIN PARTICULARS NON-AE AE TOTAL BASIS OF ALLOCATION INCOME SOFTWARE DEV. SERVICES 287 064 264 625 960 686 913 024 950 ACTUAL BASIS OPERATING INCOME 287 064 264 625 960 686 913 024 950 EXPENDITURE EMPLOYEE COSTS 186 222 333 342 656 991 528 879 324 ON ACTUAL BASIS TO THE EXTENT IDENTIFIABLE AND BALANCE APPORTIONED ON HEAD COUNT BASIS OPERATING & ADMINISTRATIVE EXPENSES 75 658 931 148 358 275 224 017 206 DEPRECIATION 14 840 563 34 609 523 49 450 086 FINANCE CHARGES 156 141 8 843 655 8 999 796 TOTAL EXPENSES 276 877 968 534 468 444 811 346 412 LESS : NON- OPERATING EXPENSES FOREX LOSS 5 251 901 5 251 901 ON ACTUAL BASIS LEASE FINANCE CHARGES (INTEREST ON LEASE PAYMENTS) 8 655 705 8 655 705 ON ACTUAL BASIS BUSINESS ACQUISITION EXPENSES- ADDED BACK IN THE RETURN OF INCOME AS CAPITAL EXPENDITURE DEBITED TO P&L 24 413 096 25 413 096 ON ACTUAL BASIS TOTAL OPERATING EXPENSES 276 877 968 495 147 742 772 025 710 OPERATING MARGIN 10 186 296 130 812 944 140 999 240 ITA NO.257/PN/2013 A.Y. 2008-09 OPERATING MARGIN ON COST 3.68% 26.42% 18.26% 10. IN SUM AND SUBSTANCE THE PLEA OF THE ASSESSEE IS CONFINED TO THE ADOPTION OF OPERATING COSTS OF RS.56 30 14 642/- OF THE AE SEGMENT BY THE ASSESSING OFFICER WHILE COMPUTING THE PROFIT LEVEL INDICATOR (PLI) OF THE ASSESSEE BASED ON THE FORMULA OPERATING PROFITS/ OP ERATING COSTS (OP/OC). AS WE HAVE NOTED EARLIER THE TPO HAS REJECTED THE PLEA IN THE ABSENCE OF ANY BASIS OF ALLOCATION OF EXPENSES AND INCOME BETWEEN THE AE AND NON-AE SEGMENTS BEING PROVIDED BY THE ASSESSEE. NOW AFTE R THE ORDER OF THE DRP IN THE FINAL ASSESSMENT ORDER THE OPERATING INCOME HAS BEEN TAKEN ON ACTUAL BASIS WHICH IS NOT IN DISPUTE. THE OPERATING COSTS HAVE BEEN TAKEN BY THE ASSESSING OFFICER ON PROPORTIONATE BASIS WITH REFER ENCE TO THE RESPECTIVE OPERATING REVENUES OF THE AE AND NON-AE SEGMENTS. HOWEVER AS PER THE ASSESSEE THERE ARE CERTAIN COSTS AS IS STATED IN T HE AFORESAID TABULATION WHICH CAN BE IDENTIFIED ON ACTUAL BASIS AND ONLY TH E NON-IDENTIFIABLE COSTS BE APPORTIONED. EVEN APPORTIONING HAS BEEN DONE BY TH E ASSESSEE ON THE BASIS OF THE HEAD COUNT IN THE RESPECTIVE SEGMENTS AND NO T ON THE BASIS OF THE REVENUES OF THE RESPECTIVE SEGMENTS. THE AFORESAID BRINGS OUT THE RELEVANT FACTS AND THE CONTROVERSY SOUGHT TO BE RAISED BY TH E ASSESSEE IS MERELY WITH REGARD TO THE DETERMINATION OF OPERATING COSTS IN R ELATION TO THE AE AND THE NON-AE SEGMENTS FOR THE PURPOSES OF DETERMINING OF PLI OF AE SEGMENT BASED ON THE FORMULA OPERATING PROFITS/ OPERATING COSTS ( OP/OC). 11. THE LEARNED CIT-DR ON THE OTHER HAND POINTED OUT THAT THE TPO AS WELL AS THE ASSESSING OFFICER IN PARA 7.5.3 HAS OPI NED THAT THERE ARE NO SEGMENTAL ACCOUNTS WITH REFERENCE TO THE AE AND THE NON-AE AND THEREFORE THE OPERATING COST HAS BEEN ALLOCATED ON PROPORTION ATE BASIS AND THUS NO INTERFERENCE IS CALLED FOR. ITA NO.257/PN/2013 A.Y. 2008-09 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AT THE OUTSET WE MAY SAY THAT THE ONUS LIES WITH THE ASSESSEE TO JUS TIFY THE ALLOCATION OF EXPENSES AND INCOME WITH REFERENCE TO THE TRANSACTI ONS WITH THE ASSOCIATED ENTERPRISES AND NON-ASSOCIATED ENTERPRISES. SO HOW EVER THE CLAIM OF THE ASSESSEE IS THAT CERTAIN COSTS LIKE EMPLOYEE COSTS OPERATING AND ADMINISTRATION EXPENSES DEPRECIATION AND FINANCE C HARGES CAN BE ALLOCATED ON ACTUAL BASIS TO THE EXTENT IDENTIFIABLE AND ONLY THE BALANCE EXPENSES BE APPORTIONED ON HEAD COUNT BASIS. SIMILAR IS THE SI TUATION WITH REGARD TO NON- OPERATING EXPENSES WHICH ACCORDING TO THE ASSESSEE COULD BE ALLOCATED ON THE ACTUAL BASIS. IN OUR CONSIDERED OPINION THE B EST METHOD OFCOURSE TO IDENTIFY EXPENSES ON ACTUAL BASIS TO THE EXTENT IT IS SO POSSIBLE. THEREFORE WE DEEM IT FIT AND PROPER TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO CARRY OUT THE AFORESAID EXERCISE; OFCOUR SE IT WOULD BE THE RESPONSIBILITY OF THE ASSESSEE TO SATISFY THE ASSES SING OFFICER ON THIS COUNT. TO THE EXTENT THAT ASSESSEE IS ABLE TO ESTABLISH TH E ALLOCATION ON ACTUAL BASIS THE ASSESSING OFFICER SHALL CONSIDER THE SAME AND I N SO FAR AS THE EXPENSES WHICH CANNOT BE ALLOCATED ON ACTUAL BASIS BETWEEN T HE AE AND THE NON-AE SEGMENTS THE ASSESSING OFFICER SHALL CONSIDER THE PLEA OF THE ASSESSEE AND DECIDE ON A METHOD WHICH IS RATIONAL AND SCIENTIFIC . PERTINENTLY WE MAY OBSERVE ON THIS POINT THAT THE ASSESSING OFFICER HA S TAKEN THE OPERATING COSTS ON A PROPORTIONATE BASIS CONSIDERING THE RESPECTIVE REVENUES WHEREAS ASSESSEE CANVASES THAT THE NON-IDENTIFIABLE EXPENSE S BE APPORTIONED ON HEAD COUNT BASIS. WITHOUT GOING INTO THE MERITS OF THE TWO CONTRARY STANDS WE LEAVE IT OPEN FOR THE ASSESSING OFFICER TO ADOPT ON E OR THE OTHER METHOD WHICH HE SHALL JUSTIFY ON THE BASIS OF A SPEAKING ORDER H AVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE ON THE AFORES AID LIMITED POINT WE HEREBY REMAND THE MATTER BACK TO THE FILE OF THE AS SESSING OFFICER TO CARRY OUT THE AFORESAID EXERCISE. NEEDLESS TO SAY THE ASSES SING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AN D TO PUT-FORTH THE MATERIAL AND SUBMISSIONS IN SUPPORT OF ITS STAND AND ONLY TH EREAFTER THE ASSESSING ITA NO.257/PN/2013 A.Y. 2008-09 OFFICER SHALL PASS AN ORDER AFRESH ON THIS LIMITED ASPECT AS PER LAW. THUS ON THIS ASPECT ASSESSEE SUCCEEDS FOR STATISTICAL PURP OSES. 13. THE SECOND POINT RAISED BY THE ASSESSEE IS WITH REGARD TO THE ADOPTION OF KALS INFORMATION SYSTEMS LIMITED AS A COMPARABLE CONCERN WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. BEFORE THE TPO ASSESSEE SUBMITTED THAT THE SAID CONCERN BE EXCLUDE D FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIE S. THE RELEVANT DISCUSSION IN THIS REGARD IS CONTAINED IN PARA 6.1 OF THE ORDE R OF THE TPO. THE PLEA OF THE ASSESSEE WAS THAT THE SAID CONCERN WAS ENGAGED IN S ELLING OF SOFTWARE PRODUCTS NAMELY VIRTUAL INSURE LA VISION CMSS E-DMS AND ERP SHINE ETC. WHICH ARE ALL SPECIALISED SOFTWARE PRODUCTS DEVELOPED FOR THE RESPECTIVE SECTORS. FOR THE INSTANCE VIRTUAL INSURE WAS SAID TO BE A WEB BASED SOLUTION THAT WAS USEFUL IN THE INSURANCE SECTOR; LA VISION WAS AN E-COMMERCE BASED APPLICATION IN THE FIELD OF INTRA-ORGANIZATIONAL CO MMUNICATIONS ETC.; AND CMSS WAS A SOFTWARE FOR CONSULTANTS/AGENTS TO MANAG E THEIR CUSTOMERS PRE AND POST SALES. ON THIS BASIS IT WAS SOUGHT TO BE MADE OUT THAT THE ASSESSEE WAS FUNCTIONALLY DIFFERENT INASMUCH IT WAS ENGAGED IN THE PROVISION OF SOFTWARE DEVELOPMENT AND OTHER RELATED SERVICES TO ITS ASSOC IATED ENTERPRISES AS WELL AS TO THE NON-ASSOCIATED ENTERPRISES AND WAS NOT I NVOLVED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. THE TPO DID NOT ACC EPT THE PLEA OF THE ASSESSEE FOR THE REASON THAT THE ANNUAL REPORT OF T HE SAID CONCERN DID NOT REFLECT ABOUT SALE OF SOFTWARE PRODUCTS AFTER DEVEL OPMENT AND THEREFORE ACCORDING TO HIM IT WAS NOT FUNCTIONALLY DIFFERENT . 14. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY POINTED OUT THAT THE PLEA OF THE ASSESSEE HAS BEEN REJECTED BY THE INCOME-TAX AUTHORITIES WITHOUT ANY JUSTIFIABLE REASONS AS EVE N ON THE BASIS OF THE INFORMATION AVAILABLE IN THE PUBLIC DOMAIN IT IS QU ITE EVIDENT THAT KALS INFORMATION SYSTEM LIMITED WAS A CONCERN WHICH WAS DEVELOPING AND SELLING ITA NO.257/PN/2013 A.Y. 2008-09 SOFTWARE PRODUCTS WHICH WAS AN ACTIVITY QUITE DIST INCT FROM THE ACTIVITY OF SOFTWARE DEVELOPMENT UNDERTAKEN BY THE ASSESSEE. I N THE COURSE OF HEARING THE LEARNED COUNSEL HAS FURNISHED THE PRINTS OUT FR OM THE ANNUAL REPORT OF KALS INFORMATION SYSTEMS LTD. WHEREIN VARIOUS SOFTW ARE PRODUCTS SOLD BY THE SAID CONCERN HAVE BEEN DETAILED WHICH ACCORDING TO HIM SUPPORTS THE PLEA OF THE ASSESSEE THAT THE SAID CONCERN WAS FUNCTIONALLY DIFFERENT. APART THEREFROM THE LEARNED COUNSEL HAS REFERRED TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. VS . DCIT VIDE ITA NO.1386/PN/2010 DATED 30.11.2011 WHICH WAS ALSO A CONCERN ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES FOR ITS PAR ENT COMPANY. THE ACTION OF THE TPO OF SELECTING KALS INFORMATION SYSTEMS LI MITED AS A COMPARABLE CONCERN WHILE APPLYING THE TNM METHOD WAS REJECTED BY THE TRIBUNAL ON THE BASIS THAT THE SAID CONCERN WAS ENGAGED IN DEVELOPM ENT OF SOFTWARE PRODUCTS AND SALE WHICH WAS FUNCTIONALLY DISSIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES UNDERTAKEN BY THE BINDVIEW INDIA PVT. LTD. (SUPRA). THE LEARNED COUNSEL POINTED OUT THAT THE SAID DECISION IS FULLY APPLICABLE TO THE FACTS OF THE PRESENT CASE INASMUCH AS SIMILAR FUNCTIONS WERE UND ERTAKEN BY BINDVIEW INDIA PVT. LTD. AND THEREFORE KALS INFORMATION SYST EMS LIMITED IS LIABLE TO BE EXCLUDED FROM THE LISTS OF COMPARABLES. 15. A REFERENCE HAS ALSO BEEN MADE TO THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFT WARE SOLUTIONS LTD. VS. DCIT VIDE IT(TP)A NO.1303/BANG/2012 DATED 28.11.201 3 WHEREIN ALSO THE SAID CONCERN NAMELY KALS INFORMATION SYSTEMS LIMI TED WAS NOT CONSIDERED AS A COMPARABLE ON ACCOUNT OF FUNCTIONAL DISSIMILAR ITIES. THE LEARNED COUNSEL POINTED OUT THAT M/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WAS ALSO A CONCERN ENGAGED IN THE PROVISION OF SOFTWARE DEVELO PMENT AND OTHER RELATED SERVICES WHICH IS SIMILAR TO THE FUNCTIONS UNDERTA KEN BY THE ASSESSEE. IT WAS POINTED OUT THAT THE FUNCTIONS OF KALS INFORMATION SYSTEMS LIMITED CONSIDERED BY THE BANGALORE BENCH OF THE TRIBUNAL IS FOR THE S AME ASSESSMENT YEAR AS IS ITA NO.257/PN/2013 A.Y. 2008-09 IN THE PRESENT CASE AND THEREFORE THE SAID DECISION ALSO SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. 16. THE LEARNED CIT-DR HAS DEFENDED THE POSITION OF THE TPO BY RELYING ON THE DISCUSSION IN THE ORDER OF THE TPO WHICH WE HA VE ALREADY ADVERTED TO IN THE EARLIER PART OF THIS ORDER AND IS NOT BEING RE PEATED FOR THE SAKE OF BREVITY. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE FIND THAT THE PRECEDENTS BY WAY OF THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) AND THE DE CISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFT WARE SOLUTIONS LTD. (SUPRA) RELIED UPON BY THE ASSESSEE SQUARELY COVER THE CONTROVERSY RELATING TO KALS INFORMATION SYSTEMS LIMITED. IN THE AFORESAID TWO PRECEDENTS THE SAID CONCERN HAS BEEN SOUGHT TO BE EXCLUDED FROM THE LIS T OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. THE BANGALO RE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUPR A) HAS CONSIDERED THE FUNCTIONS UNDERTAKEN BY THE SAID CONCERN DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US AND IT HAS BEEN FOUND THAT THE SAID CONCERN WAS ENGAGED IN THE BUSINESS O F DEVELOPING AND SELLING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SO FTWARE SERVICE PROVIDER. THERE IS NO DISPUTE TO THE FACT POSITION THAT THE A PPELLANT BEFORE US HAS UNDERTAKEN MAINLY SOFTWARE DEVELOPMENT SERVICES FOR ITS ASSOCIATED ENTERPRISES AND THE NON-ASSOCIATED ENTERPRISES AND THAT SUCH ACTIVITY IS QUITE DISTINCT FROM THE DEVELOPING AND SELLING OF SOFTWAR E PRODUCTS. THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) HAS ALSO FOUND THE SAID CONCERN TO BE FUNCTIONALLY DISSIMILAR FROM A CONCERN WHICH WAS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SER VICES WHICH IS THE CASE BEFORE US. THOUGH THE DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) RELATES TO THE ASSESSMENT YEAR 20 06-07 WHEREAS THE PRESENT CASE OF THE ASSESSEE IS FOR ASSESSMENT YEAR 2008-09 YET THERE IS NO MATERIAL ITA NO.257/PN/2013 A.Y. 2008-09 ON RECORD TO SUGGEST THAT THE ACTIVITIES CARRIED OU T BY KALS INFORMATION SYSTEMS LIMITED IN THE CURRENT ASSESSMENT YEAR ARE DIFFEREN T FROM THOSE NOTED BY THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (S UPRA) FOR ASSESSMENT YEAR 2006-07. 18. CONSIDERING THE AFORESAID DISCUSSION IN OUR VI EW THE CONCERN I.E. KALS INFORMATION SYSTEMS LIMITED IS LIABLE TO BE EXCLUDE D FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF BENCHMARKING INTERN ATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES. WE HOL D SO. THUS ON THIS ASPECT ASSESSEE SUCCEEDS. 19. THE LAST POINT RAISED BY THE ASSESSEE IS TO EXC LUDE E-ZEST SOLUTIONS LIMITED FROM THE LIST OF COMPARABLES FOR THE PURPOS ES OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF PROVIDING OF SOFTWARE DEVELOPMENT SERVICES TO THE ASSOCIATED ENTERPRISES. ON THIS ASPECT THE PLEA O F THE ASSESSEE BEFORE THE TPO WAS THAT THE SAID CONCERN IS FUNCTIONALLY DISSI MILAR BECAUSE IT IS ENGAGED IN PROVIDING SERVICES WHICH INCLUDE E-BUSINESS SERV ICES WHICH ARE MORE IN THE NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES ( ITES) AND NOT COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESS EE. IT WAS ALSO POINTED OUT TO THE TPO THAT THE E-BUSINESS CONSULTANCY AND TECHNOLOGY CONSULTANCY SERVICES BEING PROVIDED BY THE SAID CONCERN DO NOT PERTAIN TO SOFTWARE DEVELOPMENT SERVICES BUT ARE ITES SERVICES. ASSESS EE ALSO SUBMITTED BEFORE THE TPO THAT THE SAID CONCERN DOES NOT PROVIDE ANY SEGMENTAL DATA AND BEING A HIGHLY DIVERSIFIED COMPANY IT IS NOT POSSIBLE TO SEGREGATE DATA RELATING TO THE SEGMENT OF SOFTWARE DEVELOPMENT SERVICES BEING UNDE RTAKEN BY THE SAID CONCERN. 20. THE TPO HAS CONSIDERED THE SUBMISSIONS OF THE A SSESSEE AS PER HIS DISCUSSION IN PARA 16.3 OF THE ORDER. THE TPO REFE RRED TO THE PROFIT & LOSS ACCOUNT OF THE CONCERN AND NOTED THAT IT WAS A TYPI CAL SOFTWARE DEVELOPING ITA NO.257/PN/2013 A.Y. 2008-09 COMPANY AND REJECTED THE PLEA OF THE ASSESSEE FOR E XCLUDING THE SAME FOR THE LIST OF THE COMPARABLE. 21. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID CONCERN WAS FUNCTIONALLY DISSIMILAR AND ITS SERVICE S CAN BE CONSIDERED AS KNOWLEDGE PROCESS OUTSOURCING (KPO) WHICH IS QUITE DISTINCT FROM THAT OF THE ASSESSEE. IT IS FURTHER POINTED OUT THAT THE SAID DISTINCTION HAS BEEN APPRECIATED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHEREBY THE SAID CO NCERN HAS BEEN HELD TO BE FUNCTIONALLY DISSIMILAR TO A CONCERN WHICH WAS UNDE RTAKING FUNCTIONS SIMILAR TO THOSE PERFORMED BY THE ASSESSEE. ACCORDINGLY RELI ANCE HAS BEEN PLACED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN ORDER TO JUSTIFY THE EXCLUSION OF THE SAID CONCERN FROM THE LIST OF COMP ARABLES. 22. ON THE OTHER HAND THE LEARNED CIT-DR HAS REFER RED TO THE ARGUMENT SETUP BY THE TPO IN HIS ORDER WHICH WE HAVE ALREADY ADVERTED TO IN THE EARLIER PARAGRAPHS OF THIS ORDER AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN THIS CONTEXT WE FIND THAT BEFORE THE TPO RELIED UPON THE INFORMATIO N AVAILABLE ON THE WEBSITE OF THE SAID CONCERN AND SUBMITTED THAT THE SAID CON CERN WAS ENGAGED IN E- BUSINESS CONSULTANCY SERVICES CONSISTING OF WEB ST RATEGY SERVICES ITES SERVICES AND IN TECHNOLOGY CONSULTANCY SERVICES IN CLUDING PORTAL DEVELOPMENT SERVICES ETC.. IT IS SOUGHT TO BE EXPLAINED THAT SUCH KIND OF SERVICES ARE ITES SERVICES WHICH ARE UNDERSTOOD AS KPO SERVICES. IT WAS ALSO POINTED OUT THAT THE SAID CONCERN HAS NOT PROVIDED ANY SEGMENTAL DAT A IN ITS ANNUAL REPORT. BEFORE US IT IS SOUGHT TO BE CONTENDED THAT THE KP O SERVICES ARE NOT COMPARABLE TO THE SOFTWARE DEVELOPMENT SERVICES BEI NG RENDERED BY THE ASSESSEE AND THEREFORE CONCERNS WHICH RENDER KPO SE RVICES CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE TO THE CONCER NS WHO RENDER SOFTWARE ITA NO.257/PN/2013 A.Y. 2008-09 DEVELOPMENT SERVICES. FOR THE SAID PROPOSITION RE LIANCE HAS BEEN PLACED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHICH HAS INDEED BE EN RENDERED IN THE CONTEXT OF THE SAME COMPARABLE WHICH IS THE SUBJECT-MATTER OF CONSIDERATION BEFORE US I.E. E-ZEST SOLUTIONS LIMITED. 24. WE FIND THAT THE FACTUAL ASSERTIONS MADE BY THE ASSESSEE BEFORE THE TPO AS WELL AS BEFORE US WITH REGARD TO THE FUNCTIO NS BEING PERFORMED BY E- ZEST SOLUTIONS LIMITED HAVE NOT BEEN CONTROVERTED B Y THE REVENUE. OSTENSIBLY E-ZEST SOLUTIONS LIMITED IS RENDERING P RODUCT DEVELOPMENT SERVICES AND TECHNOLOGY SERVICES AND THE LATTER FA LLS IN THE CATEGORY OF KPO SERVICES AND THE SAME HAVE NOT BEEN HELD BY THE BAN GALORE BENCH OF THE TRIBUNAL TO BE SIMILAR TO A CONCERN ENGAGED IN REND ERING OF SOFTWARE DEVELOPMENT SERVICES AS IS THE ASSESSEE BEFORE US. FOLLOWING THE RATIO OF THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WE HOLD THAT E-ZEST SOLUTIONS LIMITED IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION. WE HOLD SO. THUS ON THIS ASPECT ASSESSEE SUCCEEDS . 25. APART FROM THE AFORESAID NO OTHER ISSUE MANIFE STED IN THE GROUNDS OF APPEAL HAS BEEN PRESSED BY THE LEARNED COUNSEL OF T HE ASSESSEE AT THE TIME OF HEARING AND THE APPEAL OF THE ASSESSEE IS ACCOR DINGLY DISPOSED OFF. 26. RESULTANTLY THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL 2014. SD/- SD /- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE DATED : 30 TH APRIL 2014 SUJEET ITA NO.257/PN/2013 A.Y. 2008-09 COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP PUNE; 4) THE DR B BENCH I.T.A.T. PUNE; 5) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T. PUNE