Deputy Commissioner of Income-tax,, v. Principal Global Services Pvt. Ltd.,, Pune

ITA 338/PUN/2015 | 2010-2011
Pronouncement Date: 29-11-2017 | Result: Dismissed

Appeal Details

RSA Number 33824514 RSA 2015
Assessee PAN AADCP7369P
Bench Pune
Appeal Number ITA 338/PUN/2015
Duration Of Justice 2 year(s) 7 month(s) 30 day(s)
Appellant Deputy Commissioner of Income-tax,,
Respondent Principal Global Services Pvt. Ltd.,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-11-2017
Date Of Final Hearing 06-11-2017
Next Hearing Date 06-11-2017
First Hearing Date 07-02-2017
Assessment Year 2010-2011
Appeal Filed On 30-03-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE MS. SUSHMA CHOWLA JM AND SHRI ANIL CHATURVEDI AM . / ITA NO. 323 /P U N/20 1 5 / ASSESSMENT YEAR : 20 1 0 - 1 1 PRINCIPAL GLOBAL SERVICES PVT. LTD. LEVEL 6 & 7 TOWER VI CYBERCITY MAGARPATTA CITY HADAPSAR PUNE - 411013 . / APPELLANT PAN: AADCP7369P VS. THE DY. COMMISSIONE R OF INCOME TAX CIRCLE 4 PUNE . / RESPONDENT . / ITA NO. 338 /P U N/20 15 / ASSESSMENT YEAR : 20 10 - 11 THE DY. COMMISSIONER OF INCOME TAX CIRCLE 4 PUNE . / APPELLANT VS. PRINCIPAL GLOBAL SE RVICES PVT. LTD. LEVEL 6 & 7 TOWER VI CYBERCITY MAGARPATTA CITY HADAPSAR PUNE - 411013 . / RESPONDENT PAN: AADCP7369P . /CO NO. 43 /P U N/201 6 / ASSESSMENT YEAR : 20 10 - 1 1 (OUT OF ITA NO. 323 /PUN/201 5 ) PRI NCIPAL GLOBAL SERVICES PVT. LTD. LEVEL 6 & 7 TOWER VI CYBERCITY MAGARPATTA CITY HADAPSAR PUNE - 411013 / CROSS OBJECT OR PAN: AADCP7369P ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 2 VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE 4 PUNE . / RESPONDE NT ASSESSEE BY : S HRI KAMAL SAWHENEY REVENUE BY : SHRI RAJEEV KUMAR CIT / DATE OF HEARING : 06 . 1 1 . 201 7 / DATE OF PRONOUNCEMENT: 29 . 1 1 . 201 7 / ORDER PER SUSHMA CHOWLA J M : THE CROSS APPEAL S FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST ORDER OF D CIT CIRCLE - 4 PUNE DATED 2 9 .0 1 .201 5 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 PASSED UNDER SECTION 143(3) R.W.S. 144C(1) OF THE INCOME - TAX ACT 1961 (IN SHORT THE ACT) . THE ASSESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2 . IN THIS BUNCH OF APPEALS CROSS APPEAL S ARE FILED BY THE ASSESSEE AND THE REVENUE AND CROSS OBJECTIONS ARE FILED BY THE ASSESSEE . THE CROSS APPEALS AND CROSS OBJECTIONS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO. 323 /PUN/201 5 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW; 1 . THE LD ASSESSING OFFICER ('AO') PURSUANT TO THE DIRECTIONS OF THE LD. DISPUTE RESOLUTION PANEL ('DRP') ERRED IN REJECTING THE BENCHMARKING APPROACH ADOPTED/CONTEMPORANEOUS DOCUMENTATION MAINTAINED BY THE APPELLANT AND THEREBY MAKING A TRANSFER PRICING ADJUSTMENT OF RS.1 82 90 976 TO THE INCOME OF THE APPELLANT BY HO LDING THAT THE INTERNATIONAL TRANSACTION PERTAINING TO ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 3 PROVISION OF IT ENABLED BACK OFFICE SUPPORT SERVICES ('ITES SERVICES OR BACK OFFICE SUPPORT SERVICES') TO THE ASSOCIATED ENTERPRISE ('AE') ARE NOT AT ARM'S LENGTH UNDER THE INCOME - TAX ACT 1961 ('THE ACT'). 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. DRP/AO ERRED IN MODIFYING THE BENCHMARKING ANALYSIS AS CONDUCTED BY THE APPELLANT USING TRANSACTIONAL NET MARGIN METHOD ('TNMM') FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF ITES SERVICES TO THE AE AND THEREBY MODIFYING THE SET OF COMPARABLES. IN DOING SO THE LD DRP/AO SPECIFICALLY ERRED IN: A ) INCLUDING THE COMPANIES WHICH ARE NOT FUNCTIONALLY COMPARABLE TO THE ITES SERVICES RENDERED BY THE APPELLANT IN FINAL SET OF COMPARABLES ON AN ADHOC BASIS THEREBY RESORTING TO CHERRY - PICKING OF COMPARABLES; B ) REJECTING COMPANIES FUNCTIONALLY SIMILAR TO THAT OF THE APPELLANT'S BUSINESS OPERATIONS OF PROVISION OF ITES SERVICES FROM FINAL SET OF COMPARABLES 3 . THE LD. DRP/AO E RRED IN NOT ADJUDICATING THE ADDITIONAL FUNCTIONALLY COMPARABLE COMPANIES PROVIDED BY THE APPELLANT TO THE LD DRP. 4 . THE LD. DRP/AO ERRED IN CONSIDERING THE SINGLE YEAR DATA FOR THE COMPARABLES I.E. DATA FOR FY 2009 - 10 ONLY AND DISREGARDING MULTIPLE YEAR DA TA WHICH WAS CONSIDERED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF RULE 108(4) OF THE INCOME - TAX RULE 1962 ('RULES'). 5 . THE LD. DRP / AO ERRED IN NOT ALLOWING AN ADJUSTMENT FOR THE DIFFERENCE BETWEEN THE LEVEL OF RISK BORNE/ASSETS EMPLOYED BY TH E COMPARABLES AND THE APPELLANT AS PROVIDED BY THE APPELLANT WITHOUT PROVIDING ANY COGENT REASONS AND DISREGARDING THE PROVISIONS OF RULES 10B(3) READ WITH RULE 10 C OF THE RULES. IN DOING SO THE LD DRP / AO ERRED BY: ( I ) FAILING TO CAPTURE THAT THE APPELLA NT IS A ROUTINE CAPTIVE SERVICE PROVIDER AS AGAINST THE COMPARABLE COMPANIES SELECTED BY THE LD TPO WHICH INCLUDE ENTREPRENEURIAL COMPANIES AND HENCE AN ADJUSTMENT IS NECESSARY; ( II ) DISREGARDING THE PROVISIONS OF RULES 10 B(3) READ WITH RULE 10 C OF THE RULES. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 4. THE REVENUE IN ITA NO.338/PUN/2015 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WHETHER THE LD. DISPUTE RESOLUTION PANEL WAS RIGHT IN LAW AND ON FACTS IN EXCLUDING FUNCTIONALLY COMPARABLE COMPANIES ONLY ON THE BASIS OF TURNOVER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WHETHER THE LD. DISPUTE RESOLUTION PANEL WAS RIGHT IN LAW AND ON FACTS IN EXCLUDING FUNCTIONALLY COMPARABLE COMPA NIES ON THE GROUND OF NON AVAILABILITY OF SEGMENTAL DATA WHEN THE ENTIRE RANGE OF ACTIVITY OF THE COMPARABLE WAS IN THE FIELD OF SOFTWARE SERVICES. ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 4 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WHETHER THE LD. DISPUTE RESOLUTION PANEL WAS RIGHT IN L AW AND ON FACTS FOR NOT CONSIDERING THAT ONSITE AND OFFSITE REVENUE DIFFERENCES ARE MATERIAL FOR DECIDING THE FUNCTIONAL COMPARABILITY OF A COMPANY AND THAT ASSETS AND RISK PROFILE PRICING AS WELL AS PREVAILING MARKET CONDITIONS ARE DIFFERENT IN PREDO MINANTLY ONSITE COMPANIES FROM PREDOMINANTLY OFFSHORE COMPANIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WHETHER THE LD. DISPUTE RESOLUTION PANEL WAS RIGHT IN LAW AND ON FACTS IN EXCLUDING COMPANIES WHICH ARE CONSIDERED AS FUNCTIONALLY COMPA RABLE BY THE ASSESSEE HIMSELF. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE DID THE LD. DISPUTE RESOLUTION PANEL ERRED IN NOT APPRECIATING THE TERM OF RULE 10B(2) OF THE INCOME - TAX RULES 1962 REGARDING FUNCTIONAL COMPARABILITY. 5 . THE ASSESSEE IN CO NO. 43 /PUN/201 6 HAS RAISED THE FOLLOWING GROUNDS OF OBJECTIONS: - 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD DRP HAS ERRED IN UPHOLDING THE ACTION OF THE TPO / AO IN INCLUDING THE COMPANIES THAT ARE FUNCTIONALLY DISSIMILAR TO THAT OF THE RESPONDENT'S SOFTWARE SERVICES SEGMENT NAMELY ACROPETAL TECHNOLOGIES LTD. (SEGMENT) AND THIRDWARE SOLUTIONS LTD. IT IS PRAYED THAT THE ABOVEMENTIONED COMPANIES BEING FUNCTIONALLY NON - COMPARABLE TO THE RESPONDENT OUGHT TO BE EXCLUDED IN THE FINAL SET OF COMPARABLE COMPANIES IN THE SOFTWARE SERVICES SEGMENT. 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD DRP HAS ERRED IN UPHOLDING THE ACTION OF THE TPO / AO IN EXCLUDING A COMPARABLE COMPANY NAMELY AKSHAY SOFTWARE TEC HNOLOGIES LTD. BY HOLDING THAT A LOSS MAKING COMPANY CANNOT BE COMPARED TO THE RESPONDENT WHICH IS OPERATING ON A COST - PLUS' BUSINESS MODEL. IT IS PRAYED THAT THE COMPARABLE COMPANY NAMELY AKSHAY SOFTWARE TECHNOLOGIES LTD. NOT BEING A PERSISTENT LOSS MAK ER OUGHT TO BE INCLUDED IN THE FINAL SE T OF COMPARABLE COMPANIES IN THE SOFTWARE SERVICES SEGMENT. 1. 3 YOUR RESPONDENT CRAVES LEAVE TO ADD TO ALTER AMEND VARY OMIT OR SUBSTITUTE THE AFO R E SAID GROUND OF CROSS OBJECTIONS OR ADD A NEW GROUND OR GROUNDS OF CROSS OBJECTIONS AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AS THEY MAY BE ADVISED. 6. FIRST WE TAKE UP THE APPEAL OF ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED BY THE ORDER OF DISPUTE RESOLUTION PANEL (DRP) / ASSESSING OFFICER IN MAKIN G THE TRANSFER PRICING ADJUSTMENT OF RS.1 82 90 976/ - TO INTERNATIONAL ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 5 TRANSACTIONS PERTAINING TO PROVISION OF IT ENABLED B ACK O FFICE SUPPORT SERVICES I.E. ITES SERVICES TO ITS ASSOCIATED ENTERPRISES. 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASS ESSEE AT THE OUTSET POINTED OUT THAT THERE IS NO DISPUTE ABOUT USE OF TNMM METHOD AS MOST APPROPRIATE METHOD AND THE ONLY DISPUTE IS IN RESPECT OF SELECTION / REJECTION OF CERTAIN COMPARABLES. HOWEVER DURING THE COURSE OF HEARING THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN CASE THREE CONCERNS I.E. ACCENTIA TECHNOLOGIES JEEVAN SOFTECH LTD. AND FORTUNE INFOTECH LTD. ARE EXCLUDED THEN ALL THE OTHER GROUNDS RELATING TO TRANSFER PRICING ISSUE WOULD BECOME ACADEMIC. HE ALSO PO INTED OUT THAT IN SUCH SCENARIO GROUNDS OF APPEAL NO.3 AND 5 WOULD BECOME ACADEMIC. IN RESPECT OF GROUND OF APPEAL NO.4 THE SAME WAS NOT PRESSED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR T HE REVENUE RELYING ON THE ORDER/S OF DRP/ASSESSING OFFICER POINTED OUT THAT WHERE SEGMENTAL DETAILS WERE AVAILABLE THERE WAS NO MERIT IN THE PLEA OF ASSESSEE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN PROV IDING SOFTWARE SERVICES (IT) AND B ACK O FFICE SUPPORT SERVICES (ITES) EXCLUSIVELY TO ITS ASSOCIATED ENTERPRISES I.E. PRINCIPAL FINANCIAL GROUP. THE ASSESSEE RECEIVED SERVICE FEES TO COVER DIRECT AND INDIRECT COSTS INCURRED WITH RESPECT TO PROVISION OF SERV ICES PLUS ARM'S LENGTH PRICE MARK - UP. THE VALUE OF TRANSACTIONS IN SEGMENT OF PROVISION OF SOFTWARE SERVICES FOR THE YEAR UNDER CONSIDERATION WAS RS.41.74 CRORES. THE ASSESSEE HAD ADOPTED TNMM METHOD AND HAD SELECTED INDEPENDENT THIRD PARTY COMPARABLES. THE ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 6 MARGIN OF ASSESSEE WAS WORKED OUT 16.38% AS AGAINST MARGIN OF COMPARABLES AS PER THE TP STUDY REPORT AT 13.18% AND HENCE THE ASSESSEE CLAIMED THAT THE SAME WERE AT ARM'S LENGTH PRICE. IN RESPECT OF PROVISION OF B ACK O FFICE SUPPORT SERVICES THE TOTA L VALUE OF TRANSACTIONS WAS RS.18.19 CRORES. THE ASSESSEE APPLIED TNMM METHOD AND ITS MARGIN WORKED OUT TO 17.18%. THE MEAN MARGIN OF COMPARABLES WAS SELECTED BY THE ASSESSEE IN TP STUDY REPORT WAS 14.27% AND THE ASSESSEE CLAIMED THE SAID TRANSACTION HEL D TO BE AT ARM'S LENGTH PRICE. THE TPO HOWEVER IN BOTH THE SEGMENTS SELECTED FRESH COMPARABLES AND FOUND BOTH THE TRANSACTIONS NOT TO BE AT ARM'S LENGTH PRICE . I N THE SEGMENT OF PROVISION OF SOFTWARE SERVICES T HE TPO PROPOSED BY WAY OF ADJUSTMENT OF RS .5.16 CRORES AND IN THE SEGMENT OF PROVISION OF BACK OFFICE SUPPORT SERVICES AN UPWARD ADJUSTMENT OF RS.2.90 CRORES WAS PROPOSED. T HE TOTAL TP ADJUSTMENT PROPOSED BY THE TPO WAS RS.8.08 CRORES. THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER TO THE ASSESSEE AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP DIRECTED THE ASSESSING OFFICER/TPO TO EXAMINE THE COMPUTATION OF MARGINS OF COMPARABLE COMPANIES AND ALSO TO COMPUTE WORKING CAPITAL ADJUSTMENT. THE DRP ALSO DIRECTED TO EXCLUD E AND INCLUDE CERTAIN COMPARABLES IN BOTH THE SEGMENTS. ANOTHER DIRECTION OF THE DRP WAS TO CORRECT THE PLI MARGINS COMPUTED BY THE TPO BOTH FOR THE SOFTWARE SERVICES AND ITES SEGMENT. BASED ON THE DIRECTIONS OF DRP THE ASSESSING OFFICER/TPO WORKED OUT THE REVISED COMPARABLE SET OF MARGINS FOR BOTH THE SEGMENTS. IN RESPECT OF SEGMENT OF PROVISION OF SOFTWARE SERVICES THE ADJUSTED MARGINS AS PER THE TPO I.E. OP/TC WAS WORKED OUT IN RESPECT OF FIVE COMPARABLES FINALLY SELECTED BY THE DRP AND THE ARITHMET IC MEAN OF THE SAID COMPARABLES WORKED OUT TO 18.42%. THE ASSESSEE HAD SHOWN MARGIN OF 16.38% AND SINCE IT WAS WITHIN +/ - 5% RANGE EARNED BY THE COMPARABLE COMPANIES I.E. 18.42% NO TP ADJUSTMENT PERTAINING TO SOFTWARE SERVICES SEGMENT WAS MADE BY THE ASS ESSING OFFICER. IN RESPECT OF ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 7 BACK OFFICE SUPPORT SERVICES AFTER DIRECTIONS OF THE DRP THE ASSESSING OFFICER/TPO SELECTED FIVE COMPARABLES AND WORKED OUT THE ARITHMETIC MEAN OF ADJUSTED MARGINS OF SAID COMPARABLES AT 28.75%. THE ASSESSEE HAD SHOWN MARG IN OF 17.18% AND THUS THE ADJUSTMENT FOR BACK OFFICE SUPPORT SERVICES WAS REVISED TO RS.1 82 90 976/ - . 1 0 . BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. 1 1 . THE ASSESSEE IS AGGRIEVED BY THE ADJUSTMENT MADE IN ITES SEGMENT WHEREAS THE REVENUE IS IN APPEAL AGAINST DIRECTIONS OF THE DRP IN DELETING CERTAIN CONCERNS FROM FINAL LIST OF COMPARABLES IN THE SEGMENT OF PROVISION OF SOFTWARE SERVICES. FIRST WE ARE TAKING UP THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 1 2 . THE ASSESSEE I S IN APPEAL IN ITES SEGMENT WHEREIN AS AGAINST THE MARGIN OF ASSESSEE AT 17.18% THE MEAN MARGIN OF FOLLOWING COMPARABLES WORKED OUT TO 28.75%: - SR.NO. NAME OF THE COMPANY ADJUSTED MARGINS AS PER TPO (OP/TC) (%) 1 COSMIC GLOBAL LTD. 15.94 2 ACCENTIA T ECHNOLOGIES LTD. 39.53 3 JEEVAN SOFTECH LTD. (BPO OPERATIONS SEGMENT) 40.48 4 FORTUNE INFOTECH LTD. 20.61 5 INFORMED TECHNOLOGIES INDIA LTD. 27.19 ARITHMETIC MEAN 28.75 1 3 . THE ASSESSEE IS AGGRIEVED WITH INCLUSION OF COMPARABLES I.E. ACCENTIA TECHNO LOGIES LTD. JEEVAN SOFTECH LTD AND FORTUNE INFOTECH LTD. IN RESPECT OF ACCENTIA TECHNOLOGIES LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 8 ASSESSEE POINTED OUT THAT IT WAS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE SINCE IT WAS OFFERING SERVICES I N HEALTHCARE I.E. MEDICAL T RANSCRIPTION AND BILLING ETC. SECONDLY THERE WAS AN EXTRAORDINARY EVENT OF MERGER DURING THE YEAR. THE ASSESSEE FURTHER POINTED OUT THAT NO SEGMENTAL DETAILS WERE AVAILABLE FOR ACCENTIA TECHNOLOGIES LTD. AND HENCE THE MARGIN S OF SAID CONCERN COULD NOT BE APPLIED. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF THE PUNE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.205/PN/2015 RELATING TO ASSESSMENT YEAR 2007 - 08 ORDER DATED 15.04.2016 . FURTHER IN RESPECT OF MER GER DURING THE YEAR I.E. EXTRAORDINARY FINANCIAL EVENT THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE DECISIONS OF DIFFERENT BENCHES OF TRIBUNAL. 1 4 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HOWEVER STRONGLY OPPOSED THE SAME. 1 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WHILE BENCHMARKING INTERNATIONAL TRANSACTIONS THE ENDEAVOUR NEEDS TO BE MADE THAT THE MARGINS OF ASSESSEE ARE TO BE COMPARED WITH MARGINS OF CONCERNS WHICH ARE FUNCTIONAL LY COMPARABLE. IN THE ABSENCE OF SUCH COMPARABILITY THE MARGINS OF INDEPENDENT CONCERNS CANNOT BE APPLIED TO BENCHMARK THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSE E BEFORE US HAS POINTED OUT THAT IN ITES SEGMENT WHEREIN AN UPWARD ADJUSTMENT OF RS.1.82 CRORES HAS BEEN MADE BY THE DRP/TPO/ASSESSING OFFICER THE ASSESSEE WOULD BE WITHIN MARGINS IN CASE THE MARGINS OF THREE CONCERNS ARE EXCLUDED. 1 6 . THE FIRST CONCE RN WHICH IS PICKED UP BY THE ASSESSEE FOR EXCLUSION IS ACCENTIA TECHNOLOGIES LTD. THE SAID CONCERN WA S POINTED OUT TO BE NOT ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 9 FUNCTIONAL LY COMPARABLE AS IT WA S ENGAGED IN PROVIDING SERVICES OF MEDICAL TRANSCRIPTION WHICH WA S NOT AT ALL COMPARABLE TO THE BA CK OFFICE SUPPORT SERVICES PROVIDED BY THE ASSESSEE. WE FIND MERIT IN THE PLEA OF ASSESSEE IN THIS REGARD. SIMILAR PLEA OF ASSESSEE WAS ACCEPTED BY THE TRIBUNAL IN ASSESSMENT YEAR 2007 - 08 . T HE CONCERN BEING FUNCTIONALLY NOT COMPARABLE CANNOT BE SELECTED AS PART OF FINAL LIST OF COMPARABLES AND HENCE WE DIRECT ITS EXCLUSION. 1 7 . THE NEXT ASPECT RELATING TO THE SAID CONCERN IS EXTRAORDINARY EVENT OF MERGER WHICH HAD HAPPENED DURING THE FINANCIAL YEAR UNDER CONSIDERATION. IN THIS REGARD WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN EQUANT SOLUTIONS INDIA PVT. LTD. VS. DCIT IN ITA NO.1202/DEL/2015 RELATING TO ASSESSMENT YEAR 2010 - 11 ORDER DATED 21.01.2016. FOLLOWING THE SAME PARITY OF REASONING WE HOLD THAT ACCENTIA TECHN OLOGIES LTD. BE EXCLUDED FROM FINAL LIST OF COMPARABLES. 1 8 . THE NEXT CONCERN WHICH THE ASSESSEE WANTS TO BE EXCLUDED IS JEEVAN SOFTECH LTD. BEING NOT FUNCTIONALLY COMPARABLE. THE SERVICES WHICH ARE PROVIDED BY THE SAID CONCERN INCLUDE MEDICAL WRITING CLINICAL DATA MANAGEMENT BIOSTATISTICS AND OTHER SERVICES. THE NAME OF SAID CONCERN HAS ALSO BEEN CHANGED TO JEEVEN SCIENTIFIC TECHNOLOGY LTD. THE ASSESSEE ON THE OTHER HAND IS ENGAGED IN PROVIDING BACK OFFICE SUPPORT SERVICE. ACCORDINGLY WE HOLD THA T THE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEE AND TO BE EXCLUDED FROM FINAL LIST OF COMPARABLES. IN THIS REGARD WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE CHENNAI BENCH OF TRIBUNAL IN INAUTIX TECHNOLOGIES INDIA PVT. LTD. VS. DCIT IN ITA NO.80 2/MDS/2015 RELATING TO ASSESSMENT YEAR 2010 - 11 ORDER DATED 24.08.2016. ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 10 19 . NOW COMING TO THE THIRD CONCERN I.E. FORTUNE INFOTECH LTD. WHICH IS SOUGHT TO BE EXCLUDED BEING FUNCTIONALLY NOT COMPARABLE. THE SAID CONCERN WAS CLAIMED TO BE FUNCTIONALLY NO T COMPARABLE. THE CASE OF ASSESSEE BEFORE US IS THAT THE SAID CONCERN HAS OWN SOFTWARE AND IS ENGAGED IN WEB APPLICATION MOBILE APPLICATION WEB DESIGNING ETC. HENCE IT IS FUNCTIONALLY DIFFERENT AND SHOULD BE EXCLUDED FROM FINAL LIST OF COMPARABLES. I N THIS REGARD RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN BECHTEL INDIA PVT. LTD. VS. DCIT IN ITA NO.1478/DEL/2015 RELATING TO ASSESSMENT YEAR 2010 - 11 ORDER DATED 21.12.2015. 2 0 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND REFERRED TO THE ORDER OF DRP/TPO/ASSESSING OFFICER IN THIS REGARD. 2 1 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS OPERATING IN ITES SEGMENT WHEREIN THE SERVICES ARE BEING PROVIDED TO AS SOCIATED ENTERPRISES WHEREAS THE CONCERN FORTUNE INFOTECH LTD. HAD ITS OWN UNIQUE WEB BASED SOFTWARE THROUGH WHICH IT PROVIDES SERVICES TO ITS CUSTOMERS. THE SAID CONCERN IS NOT COMPARABLE TO THE ENTITY ENGAGED IN ITES SEGMENT HAS BEEN DELIBERATED UPON BY THE DELHI BENCH OF TRIBUNAL IN EQUANT SOLUTIONS INDIA PVT. LTD. VS. DCIT (SUPRA) AND IT HAS BEEN HELD THAT THE CONCERN DEVELOPS ITS OWN SOFTWARE FOR PERFORMING SPECIALIZED SERVICES IN MEDICAL TRANSCRIPTION AND PATIENT RECORD MANAGEMENT AND THE SAME WAS HELD TO BE NOT FUNCTIONALLY COMPARABLE TO AN ENTITY ENGAGED IN ITES SEGMENT. WE FIND MERIT IN THE CLAIM OF ASSESSEE THAT ONCE THE CONCERN IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE THEN THE SAME CANNOT BE INCLUDED IN FINAL LIST OF COMPARABLES . ACCO RDINGLY WE HOLD SO AND DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE THE SAME. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HERE POINTED OUT THAT IN CASE THESE THREE ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 11 CONCERNS ARE TO BE EXCLUDED FROM FINAL LIST OF COMPARABLES THEN THE MARGINS S HOWN BY THE ASSESSEE ARE WITHIN +/ - 5% RANGE AND NO FURTHER ADJUSTMENT IS TO BE MADE. ACCORDINGLY WE DECIDED THE ISSUE OF EXCLUSION OF SAID THREE CONCERNS AND SINCE THE SAME HAS BEEN DIRECTED TO BE EXCLUDED FROM FINAL LIST OF COMPARABLES NO FURTHER ADJU STMENT IS TO BE MADE IN THE HANDS OF ASSESSEE. ACCORDINGLY THE GROUND OF APPEAL NO.2 IS ALLOWED TO THE EXTENT ARGUED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. THE GROUNDS OF APPEAL NO.3 AND 5 BECOME ACADEMIC IN NATURE AND HENCE THE SAM E ARE DISMISSED. THE GROUND OF APPEAL NO.4 IS NOT PRESSED AND HENCE THE SAME IS DISMISSED AS NOT PRESSED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS PARTLY ALLOWED. 22 . NOW COMING TO THE APPEAL FILED BY THE REVENUE WHEREIN THE REVENUE IS AGGRIEVED BY THE ORDER OF DRP IN EXCLUDING CERTAIN COMPARABLES IN SOFTWARE SEGMENT. 2 3 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT IF INFOSYS LTD. IS EXCLUDED FROM FINAL LIST OF COMPARABLES THEN THE ASSESSEE WAS WITHIN +/ - 5% RANGE AND OTHER ISSUES RAISED IN THE APPEAL FILED BY THE REVENUE WOULD BECOME ACADEMIC IN NATURE. HE ALSO POINTED OUT THAT CONSEQUENTLY CROSS OBJECTIONS FILED BY THE ASSESSEE WOULD ALSO BECOME ACADEMIC IN NATURE. 2 4 . THE LEARNED DEPARTMENT AL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF TPO. ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 12 2 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IN SOFTWARE SEGMENT HAD DECLARED MARGIN OF 16.38%. THE TPO SELECTED CERTAIN CONCERNS AND THE MEAN MARGIN OF SAID CONCERNS WORKED OUT TO 29.26%. THE TPO IN THE SEGMENT PROPOSED AN ADJUSTMENT OF RS.5.16 CRORES. THE DRP ON THE OTHER HAND DIRECTED THE EXCLUSION OF CERTAIN CONCERNS AND THE MEAN MARGINS OF FINALLY SELECTED WORKED OUT TO 18.42% AND SINCE THE SAME WAS WITHIN +/ - 5% OF THE ASSESSEES MARGINS NO TP ADJUSTMENT WAS MADE BY THE ASSESSING OFFICER IN SOFTWARE SERVICES SEGMENT. HOWEVER THE REVENUE IS IN APPEAL AGAINST THE SAME. ONE OF THE CONCERNS WHICH HAS BEEN DIRECTED TO BE EXCLUDED BY THE DRP IS INF OSYS LTD. ON ACCOUNT OF ITS BRAND VALUE AND HIGH TURNOVER. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN CASE INFOSYS LTD. IS EXCLUDED FROM LIST OF COMPARABLES SELECTED BY THE TPO THE ASSESSEE WAS WITHIN +/ - 5% OF MARGINS. AC CORDINGLY WE PROCEED TO DECIDE ONLY THE ISSUE OF EXCLUSION OF INFOSYS LTD. FROM FINAL LIST OF COMPARABLES WHICH IS SO DIRECTED BY THE DRP. WE FIND THAT EXCLUSION OF SAID CONCERN INFOSYS LTD. ON THE BASIS OF ITS HIGH TURNOVER AND BRAND VALUE HAS BEEN CON SIDERED BY US IN SEVERAL DECISIONS AND BECAUSE OF ITS HUGE BRAND VALUE AND ALSO HIGH TURNOVER THE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEE AND HENCE THE MARGINS OF INFOSYS LTD. ARE TO BE EXCLUDED FROM FINAL LIST OF COMPARABLES. ACCORDINGLY WE HOL D SO. ONCE THE SAID CONCERN IS EXCLUDED FROM FINAL LIST OF COMPARABLES THEN THE ASSESSEE CLAIM THAT ITS MARGINS ARE WITHIN +/ - 5% OF MEAN MARGINS OF COMPARABLES FINALLY SELECTED AND HENCE NO TP ADJUSTMENT IS TO BE MADE IN THE HANDS OF ASSESSEE. ACCORDINGLY ALLOWING THE PLEA OF ASSESSEE WE DO NOT ADJUDICATE THE OTHER ISSUES RAISED IN THE APPEAL FILED BY THE REVENUE BEING ACADEMIC. ACCORDINGLY APPEAL OF REVENUE IS DISMISSED. ITA NO. 323 /P U N/20 1 5 ITA NO.338/PUN/2015 CO NO. 43 /PUN/201 6 13 2 6 . THE CROSS OBJECTIONS FILED BY THE ASSESSEE BECOME ACADEMIC ON DISPOSAL OF APPEAL OF REVENUE AND THE SAME IS ALSO DISMISSED. 2 7 . IN THE RESULT APPEAL OF ASSESSEE IS PARTLY ALLOWED APPEAL OF REVENUE AND CROSS OBJECTIONS OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 29 TH DAY OF NOVEM BER 201 7 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 29 TH NOVEM BER 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP PUNE ; 4. THE DIT (TP/IT) PUNE ; 5. THE DR A ITAT PUNE; 6. GUARD FILE . / BY ORDER // TRUE COPY // / SR. PRIVATE SECRETARY / ITAT PUNE