Conexant Systems Private Limited, Hyderabad v. Dy.CIT, Circle1(2),, Hyderabad

ITA 384/HYD/2014 | 2009-2010
Pronouncement Date: 19-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 38422514 RSA 2014
Assessee PAN AAACF2723N
Bench Hyderabad
Appeal Number ITA 384/HYD/2014
Duration Of Justice 2 year(s) 7 month(s) 15 day(s)
Appellant Conexant Systems Private Limited, Hyderabad
Respondent Dy.CIT, Circle1(2),, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 19-10-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 19-10-2016
Date Of Final Hearing 11-08-2016
Next Hearing Date 11-08-2016
Assessment Year 2009-2010
Appeal Filed On 05-03-2014
Judgment Text
ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN ACCOUNTANT MEMBER ITA NO.384/HYD/2014 (ASSESSMENT YEAR: 2009-10) M/S. CONEXANT SYSTEMS PRIVATE LIMITED HYDERABAD PAN: AAACF 2723 N VS DY. COMMISSIONER OF INCOME TAX CIRCLE 1(2) HYDERABAD ITA NO.453/HYD/2014 (ASSESSMENT YEAR: 2009-10) DY. COMMISSIONER OF INCOME TAX CIRCLE 1(2) HYDERABAD VS M/S. CONEXANT SYSTEMS PRIVATE LIMITED HYDERABAD PAN: AAACF 2723 N FOR ASSESSEE : SHRI DHANESH BAFNA FOR REVENUE : SHRI T. VENKAT REDDY DR O R D E R PER SMT. P. MADHAVI DEVI J.M. BOTH ARE CROSS APPEALS FOR THE A.Y 2009-10. ITA NO.384/HYD/2014 2. IN THIS APPEAL ASSESSEE HAS RAISED AS MANY AS 1 1 GROUNDS OF APPEAL AND VIDE LETTER DATED 21.01.2016 FURTHER ADDITIONAL GROUNDS OF APPEAL HAVE BEEN RAISED. AT T HE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE HAS F ILED A CHART DATE OF HEARING : 11.08.2016 DATE OF PRONOUNCEMENT : 19.10.2016 ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 2 OF 14 BEFORE US GIVING THE DETAILS OF THE COMPANIES TAKE N AS COMPARABLE BY THE TPO AND THE COMPANIES WHICH ARE B EING CHALLENGED BY THE ASSESSEE BEFORE US AS NOT BEING C OMPARABLE TO THE ASSESSEE. THE CHART GIVES THE DETAILS OF THE CO MPANIES CHALLENGED BY THE ASSESSEE AND ALSO THE DECISIONS O N WHICH IT IS PLACED RELIANCE UPON IN SUPPORT OF ITS CONTENTIONS. 3. THE LEARNED DR DID NOT OBJECT TO THE CORRECTNESS OF THE FACTS IN THE CHART FILED BY THE ASSESSEE AND THEREF ORE THE SAME IS TAKEN ON RECORD AND THE DECISION IS GIVEN ON THE BA SIS OF THE SAID CHART AS WELL AS THE MATERIAL ON RECORD. 4. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS RAISED AS MANY AS 11 GROUNDS OF APPEAL AND THAT GROUND NOS.1 TO 9 ARE ON TRANSFER PRICING ADJUSTMENT WHILE GROUNDS NOS.10 & 11 ARE O N CORPORATE ISSUES. HE SUBMITTED THAT THE ASSESSEE IS MAINLY CO NTESTING GROUND NO.4 AND OTHER GROUNDS MAY BE TAKEN AS NOT P RESSED IF THE GROUND OF APPEAL NO.4 IS ALLOWED. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN DEVELOPING SOFTWARE I.E. IT IS ENGAGED I N RENDERING DESIGNING DEVELOPMENT AND MODIFICATION SERVICES RE LATING TO SEMI CONDUCTORS FOR SEMI-CONDUCTOR BASED PRODUCTS AND AL SO PROVIDING MARKETING SUPPORT AND FINANCIAL AND ADMINISTRATIVE SUPPORT SERVICES TO ITS AES. THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AES AND THE AO REFERRED THE DETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF TH E INTERNATIONAL TRANSACTIONS TO THE TPO. THE MARGIN OF THE ASSESSEE ACCORDING TO ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 3 OF 14 ITS TRANSFER PRICING STUDY IS AT 11.19% AS AGAINST T HE MARGIN OF THE COMPARABLES AT 13.28% AS REGARDS SOFTWARE DEVELO PMENT 42.4% AS AGAINST 12.95% OF THE COMPARABLES AS REGARD S MARKETING SUPPORT SERVICES AND 164% AS AGAINST 11.19 % OF THE COMPARABLES AS REGARDS THE FINANCIAL AND ADMINISTRA TIVE SERVICES. THE TPO OBSERVED THAT AFTER ADOPTING CERTAIN FILTER S THE ASSESSEE HAS ANALYZED THE TRANSACTIONS PERTAINING TO EACH SE GMENT SEPARATELY BUT ACCORDING TO HIM ALL THE TRANSACTI ONS ARE TO BE AGGREGATED FOR DETERMINING THE ALP. THE TPO THEREAF TER PERUSED THE TP STUDY OF THE ASSESSEE AND OBSERVED THAT IT S UFFERS FROM DEFECTS WHICH RESULTED IN SELECTION OF INAPPROPRIAT E COMPARABLES AND REJECTION OF APPROPRIATE COMPARABLES. THEREFORE HE REJECTED ASSESSEES TP STUDY AND CONDUCTED FRESH TP ANALYSIS BY AGGREGATING ALL THE TRANSACTIONS UNDER TNMM. THEREA FTER HE CONDUCTED FAR ANALYSIS AND ARRIVED AT 17 COMPANIES A S COMPARABLES. 6. THE 17 COMPANIES TAKEN AS COMPARABLES BY THE TPO ARE SHOWN IN THE CHART FILED BY THE ASSESSEE. IT IS STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE COMPANIES AT S.NOS. 1 TO 6 IS ACCEPTED BY THE ASSESSEE AS COMPARABLE TO T HE ASSESSEE. AS REGARDS ITEM NO.7 I.E ZYLOG SYSTEMS LTD ITEM NO.14 I.E THINKSOFT GLOBAL SERVICES LTD AND ITEM NO.17 I.E. SASKEN COM MUNICATIONS TECHNOLOGIES LTD THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT THESE COMPANIES WERE SELECTED AS COMPARABLE BY THE ASSESSEE ITSELF ON THE BASIS OF THE LIMITED INFORMA TION AVAILABLE ABOUT THESE COMPANIES AT THE TIME OF ITS T.P. STUDY BUT HOWEVER SUBSEQUENTLY IT HAS COME TO THE KNOWLEDGE OF THE A SSESSEE THAT THESE COMPANIES ARE NOT COMPARABLE TO THE ASSESSEE ON ACCOUNT ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 4 OF 14 OF FUNCTIONAL DISSIMILARITIES. IT IS SUBMITTED THAT THESE FUNCTIONAL DISSIMILARITIES HAVE COME TO THE KNOWLEDGE OF THE A SSESSEE SUBSEQUENTLY BY VIRTUE OF THE DECISIONS OF THE COOR DINATE BENCHES OF THIS TRIBUNAL IN VARIOUS SIMILAR CASES. THEREFOR E HE PRAYED FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL AND FOR R EJECTION OF ALL THESE COMPANIES AS COMPARABLES TO THE ASSESSEE. IN SUPPORT OF HIS CONTENTION THAT THOUGH THE ASSESSEE HAS CONSIDE RED THESE COMPANIES AS COMPARABLE IN ITS OWN TP STUDY IT IS ELIGIBLE TO CHALLENGE THE COMPARABILITY SUBSEQUENTLY HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS: (I) CIT VS. S. NELIAPPAN (66 ITR 722 (S.C) (II) CIT V. KANPUR COAL SYNDICATE (53 ITR 225 (S.C) (III) JUTE CORPORATION OF INDIA LTD (187 ITR 688 (S .C) (IV) NTPC LTD VS. CIT (229 ITR 383 (S.C) (V) ASHOK VARDHAN BIRLA VS. CWT (208 ITR 958 )(BOM. ) (VI) CONTROLLER OF ESTATE DUTY V. R.BRAHADEESWARAN (163 ITR 680)(MAD.) 7. THE LEARNED DR HOWEVER SUBMITTED THAT THESE AR E THE COMPANIES SELECTED BY THE ASSESSEE ITSELF DURING IT S T.P. STUDY AND THEREFORE CANNOT BE ALLOWED TO CHALLENGE THEM AT T HIS STAGE BEFORE THE TRIBUNAL. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD WE FIND THAT THE ASSESSEE THOUGH HAD C ONSIDERED THESE COMPANIES AS COMPARABLE TO THE ASSESSEE AT TH E TIME OF ITS TP STUDY HAS CHALLENGED THEIR CONSIDERATION BEFORE US. IN THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR TH E ASSESSEE (SUPRA) IT IS HELD THAT THE TRIBUNAL HAD POWERS TO ADMIT THE ADDITIONAL GROUNDS OF APPEAL EVEN IF THE SAME WAS NOT RAISED BEFORE THE LOWER AUTHORITIES. FURTHER WE ALSO FIND THAT THESE ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 5 OF 14 COMPANIES HAVE BEEN TREATED AS NOT COMPARABLE TO AN OTHER ASSESSEE I.E. PLANET ONLINE PVT. LTD FOR THE VERY SAME A.Y AND THAT PLANET ONLINE IS ALSO IN SIMILAR LINE OF BUSINESS. THEREFORE WE DEEM IT FIT AND PROPER TO ADMIT THE ADDITIONAL GROU NDS OF APPEAL AND REMAND THE ISSUE OF THEIR COMPARABILITY TO THE ASSESSEE TO THE FILE OF THE TPO FOR RE-CONSIDERATION IN ACCORDANCE WITH LAW. THE ASSESSEE SHALL BE GIVEN A FAIR OPPORTUNITY OF HEARI NG. ADDITIONAL GROUNDS OF APPEAL ARE THEREFORE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. THE COMPANIES ADOPTED BY THE TPO BUT WHICH ARE CHALLENGED BEFORE US AS NOT COMPARABLE TO THE ASSES SEE ARE : (A) INFOSYS LTD (B) KALS INFO SYSTEMS (C) TATA ELXSI LTD (D) THIRDWARE SOLUTIONS LTD (E) BODHTREE CONSULTING LTD (F) PERSISTENT SYSTEMS LTD (G) THINKSOFT GLOBAL SERVICES LTD (H) COMP U-LEARN TECH INDIA LTD WE FIND THAT THE COMPARABILITY OF THESE COMPANIES T O A COMPANY WHICH IS ENGAGED IN SIMPLE SOFTWARE DEVELOPMENT SER VICES AS PROVIDED BY THE ASSESSEE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF PLANET ONLINE PVT LTD VS. ACIT IN ITA NO.464/HYD/2014. FOR THE SAKE OF CONVEN IENCE AND READY REFERENCE THE RELEVANT PARAGRAPHS ARE REPROD UCED HEREUNDER: 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF DEPARTMENTAL AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE CASE LAWS CITE D BY THE PARTIES. 10.1 AS FAR AS COMPARABLES AT SL. NOS. 1 TO 5 ARE CONCER NED THE ISSUES ARE MORE OR LESS COVERED BY DECISIONS OF THE COORDINATE BENCHES FOR THE SELF- SAME AY I.E. 2009-10. IN CASE OF M/S CISCO SYSTEMS (INDIA) PVT. LTD. VS. ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 6 OF 14 DCIT IT(TP) NO. 130/BANG/14 DATED 14/08/14 THE CO ORDINATE BENCH AFTER EXAMINING IN DETAIL EXCLUDED BODHTREE CONSUL TING LTD. INFOSYS LTD. KALS INFORMATION SYSTEMS AND TATA ELXSI LTD. (SEG.) THE RELEVANT OBSERVATIONS OF THE ITAT BANGALORE BENCH IN RESPEC T TO EACH OF THE AFORESAID COMPANIES ARE REPRODUCED HEREUNDER FOR TH E SAKE OF CLARITY: 26.1 BODHTREE CONSULTING LTD.: - AS FAR AS THIS COMPANY IS CONCERNED IT IS NOT IN DISPUTE THAT IN THE LIST OF COMPARABLES C HOSEN BY THE ASSESSEE THIS COMPANY WAS ALSO INCLUDED BY THE ASSESSEE. THE ASSESSEE HOWEVER SUBMITS BEFORE US THAT LATER ON IT CAME TO THE ASSE SSEES NOTICE THAT THIS COMPANY IS NOT BEING CONSIDERED AS A COMPARABLE COM PANY IN THE CASE OF COMPANIES RENDERING SOFTWARE DEVELOPMENT SERVICE S. IN THIS REGARD THE LD. COUNSEL FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NET HAWK NETWORKS PVT. LTD. V. ITO ITA NO.7633/MUM/2012 ORDER DATED 6.11 .2013. IN THIS CASE THE TRIBUNAL FOLLOWED THE 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 T RIBUNAL HAS TAKEN THE VIEW THAT BODHTREE CONSULTING LTD. IS IN THE BU SINESS OF SOFTWARE PRODUCTS AND WAS ENGAGED IN PROVIDING OPEN & END TO END WEB SOLUTIONS SOFTWARE CONSULTANCY AND DESIGN & DEVELOPMENT OF SO FTWARE USING LATEST TECHNOLOGY. THE DECISION RENDERED BY THE MUMBAI BEN CH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. (SUPRA) I S IN RELATION 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 PREVAILED IN AY 0 8-09 AS FAR AS THIS COMPARABLE COMPANY IS CONCERNED. FOLLOWING THE AFOR ESAID DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL WE HOLD THAT BODH TREE CONSULTING LTD. CANNOT BE REGARDED AS A COMPARABLE. IN THIS RE GARDS THE FACT THAT THE ASSESSEE HAD ITSELF PROPOSED THIS COMPANY AS CO MPARABLE IN OUR OPINION SHOULD NOT BE THE BASIS ON WHICH THE SAID COMPANY SHOULD BE RETAINED AS A COMPARABLE WHEN FACTUALLY IT IS SHOW N THAT THE SAID COMPANY IS A SOFTWARE PRODUCT COMPANY AND NOT A SOF TWARE DEVELOPMENT SERVICES COMPANY. 26.2 INFOSYS LTD.:- AS FAR AS THIS COMPANY IS CONCERNED IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HAS BEEN CONSID ERED TO BE FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SIM PLE SOFTWARE DEVELOPMENT SERVICES AS THIS COMPANY OWNS SIGNIFIC ANT INTANGIBLES AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IN THIS R EGARD WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. TDPLM SOFTWARE SOLUTIONS LTD. V. DCIT ITA NO.1303/BANG/2012 BY O RDER DATED 28.11.2013 WITH REGARD TO THIS COMPARABLE HAS HELD AS FOLLOWS:- 11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEF ORE 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 ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 7 OF 14 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 REPRESENTATI VE 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 UBMIT 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 B RAND VALUE OR OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGHTS (IPR S). 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 AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION IS APPLI CABLE TO THE ASSESSEE'S CASE AS THE ASSESSEE DOES NOT OWN ANY I NTANGIBLES AND HENCE INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPA RABLE TO THE ASSESSEE; (II) (II) THE OBSERVATION OF THE ITAT DELHI BENCH IN TH E 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 GIANT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADIN G TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABLE TO CAPTI VE SERVICE PROVIDERS ASSUMING LIMITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTIONS AND FILED FOR MANY PAT ENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFTWARE PRODUCTS AND THE BREAKUP OF SUCH REVENUES IS NOT AVAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQUISITION OF IPRS IN AUTOLAY A COMMERC IAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMA NCE STRUCTURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS T HE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THIS COMPAN Y I.E. INFOSYS TECHNOLOGIES LTD. BE EXCLUDED FORM THE LIS T OF COMPARABLE COMPANIES. 11.3 PER CONTRA OPPOSING THE CONTENTIONS OF THE A SSESSEE THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF O PERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGINS OF THIS COMPANY H AVE NOT BEEN EXTRAORDINARY. IN VIEW OF THIS THE LEARNED DEPARTM ENTAL REPRESENTATIVE ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 8 OF 14 SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS C OMPANY IN THE LIST OF COMPARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE AS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THI S 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 INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BR EAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAI LABLE. IN THIS VIEW OF THE MATTER WE HOLD THAT THIS COMPANY OUGHT TO BE O MITTED 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 TH AT THE FACTS 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. RESPECTFULLY FOLLOWING THE DE CISION OF THE TRIBUNAL REFERRED TO ABOVE WE HOLD THAT INFOSYS LT D. BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 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 SOFTWARE DEV ELOPMENT SERVICES COMPANY BY THE BANGALORE BENCH OF THE TRIBUNAL IN T HE 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 CONTE NTION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOT H SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOV E IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED IN PROVIDI NG TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE ANNUAL REPORT THE S ALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS RS. 45 93 351. THE SAME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REV ENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REF ERENCE WAS MADE TO THE PUNE BENCH TRIBUNALS DECISION OF THE ITAT IN THE C ASE 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 COMPAR ABLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 9 OF 14 OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIO NALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVEL OPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFT WARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HA S SUBMITTED 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 FACT UALLY REBUTTED AND IN OUR VIEW THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES AND THUS ON THIS ASPECT ASSESSEE SUCC EEDS. BASED ON ALL THE ABOVE IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS DR AWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTIC E U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PU BLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO WHEN THE SAME IS CONTRAR Y TO THE ANNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY THE ASSESS EE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECI SION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE TH EREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT COMPA RABLE. FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL W E HOLD THAT KALS INFORMATION SYSTEMS LTD. SHOULD NOT BE REGARDED AS A COMPARABLE. 26.4 TATA ELXSI LTD.: - AS FAR AS THIS COMPANY IS CONCERNED IT IS NOT IN DISPUTE BEFORE US THAT IN ASSESSEES OWN CASE FOR T HE A.Y. 2007-08 THIS COMPANY WAS NOT REGARDED AS A COMPARABLE IN ITS SOF TWARE DEVELOPMENT SERVICES SEGMENT IN ITA NO.1076/BANG/20 11 ORDER DATED 29.3.2013. FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- 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 NAMELY (I) TAT A ELXSI LTD; AND (II) M/S. FLEXTRONICS SOFTWARE SYSTEMS LTD. DESERVE TO BE ELIMINATED FOR THE FOLLOWING REASONS : (I) TATA ELXSI LTD. : THE COMPANY OPERATES IN THE SEGMENTS OF SOFTWAR E DEVELOPMENT SERVICES WHICH COMPRISES OF EMBEDDED PR ODUCT DESIGN SERVICES INDUSTRIAL DESIGN AND ENGINEERING SERVICE S AND VISUAL COMPUTING LABS AND SYSTEM INTEGRATION SERVICES SEGMENT. THERE IS NO SUB-SERVICES BREAK UP/INFORMATION PROVIDED IN THE ANNUAL REPORT OR THE DATABASES BASED ON WHICH THE MARGIN FROM SOFTWARE SERVICES AC TIVITY ONLY COULD BE ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 10 OF 14 COMPUTED. THE COMPANY HAS ALSO IN ITS RESPONSE TO T HE NOTICE U/S.133(6) STATED THAT IT CANNOT BE CONSIDERED AS COMPARABLE T O ANY OTHER SOFTWARE SERVICES COMPANY BECAUSE OF ITS COMPLEX NATURE. HEN CE TATA ELXSI LTD. IS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 10.2 ITAT HYDERABAD BENCH FOLLOWING THE AFORESAID DECISION OF THE ITAT BANGALORE BENCH ALSO EXCLUDED THESE FOUR COMP ANIES IN CASE OF M/S KENEXA TECHNOLOGIES PVT. LTD. VS. DCIT IN ITA N O. 243/HYD/2014 DT. 14/11/2014. RESPECTFULLY FOLLOWING THE DECISIONS OF THE ITAT WE DIRECT AO/TPO TO EXCLUDE THESE FOUR COMPANIES. AS FAR AS C OMP-U LEARN GLOBAL TECH INDIA LTD. IS CONCERNED ITAT HYDERABA D BENCH IN CASE OF M/S KENEXA TECHNOLOGIES PVT. LTD. VS. DCIT (SUPRA) OBSERVED AS UNDER: 39. THE ASSESSEE SUBMITTED BEFORE THE DRP THAT COMP -ULEARN TECH INDIA LTD. WAS ENGAGED IN THE DEVELOPMENT OF NEW SO FTWARE (PRODUCT DEVELOPMENT) (PAGE 7 OF THE ANNUAL REPORT) IN ITES CALL CENTRE AND BPO SERVICES (PAGE 11 OF ANNUAL REPORT). IT WAS FURTHER SUBMITTED THAT SCHEDULE XIII OF THE ANNUAL REPORT SHOWS SOFTWARE D EVELOPMENT EXPENDITURE AT ONLY 25% OF THE TOTAL EXPENDITURE. T HE TPO EXTRACTED THE 133(6) NOTICE AND HELD THAT THE COMPANY HAS NIL ONS ITE REVENUE AND SATISFIED ALL THE FILTERS APPLIED BY THE TPO. WE AR E OF THE OPINION THAT SOME MORE ANALYSIS HAS TO BE DONE AND WE DIRECT THE TPO TO LOOK INTO THE FINANCIAL STATEMENT OF THE COMPANY AND ALSO PRO VIDE AN OPPORTUNITY TO THE ASSESSEE TO SUBMIT RELEVANT DETAILS TO SUBST ANTIATE ITS CLAIM THAT COMP-U-LEARN TECH INDIA LTD. IS NOT A COMPARABLE CO MPANY. CONSISTENT WITH THE VIEW EXPRESSED BY THE COORDINATE BENCH WE ALSO REMIT THE ISSUE OF COMPARABILITY OF THIS COMPANY TO AO/TPO WITH SIM ILAR DIRECTIONS. 10.3 AS FAR AS PERSISTENT SYSTEMS PVT. LTD. IS CONCERNED IT IS THE CONTENTION OF THE LEARNED AR THAT THIS COMPANY CANNOT BE A COMPAR ABLE AS IT IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCT AND PROD UCT DESIGNING. ON A PERUSAL OF THE EXTRACTS OF ANNUAL REPORT OF THIS COMPANY FOR THE FY 2008-09 SUBMITTED BY LD. AR IT IS NOTICED THAT THE COMPANY HAS CLAIMED THAT IT WAS FORMED MAINLY TO PROVIDE SOFTWARE DEVEL OPMENT SERVICES. HOWEVER THE P&L ACCOUNT FOR THE YEAR ENDED 31/03/2 009 A COPY OF WHICH HAS BEEN SUBMITTED BEFORE US INDICATES THAT IT HAS SHOWN INCOME FROM SALE OF SOFTWARE SERVICES AS WELL AS PRODUCTS. THEREFORE UNLESS SEGMENTAL DETAILS ARE AVAILABLE THE COMPANY CANNOT BE TREATED AS COMPARABLE. MOREOVER IN CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT IT(TP) NO. 1303/BANG/2012 THE ITAT BANGA LORE BENCH HELD AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE A SSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PROVIDER. WE FIND THA T AS SUBMITTED BY THE ASSESSEE THE SEGMENTAL DETAILS ARE NOT GIVEN S EPARATELY. THEREFORE FOLLOWING THE PRINCIPLE ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES IND IA PVT. LTD. (SUPRA) THAT IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMAT ION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANAL YSIS WE HOLD THAT ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 11 OF 14 THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OMITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION . IT IS ORDERED ACCORDINGLY. THOUGH THE AFORESAID FINDING OF THE COORDINATE BEN CH RELATES TO THE AY 2008-09 BUT IN OUR VIEW IT WILL ALSO EQUALLY APP LY TO AY UNDER CONSIDERATION AS FACTS ARE IDENTICAL. THEREFORE RE SPECTFULLY FOLLOWING THE VIEW EXPRESSED BY THE COORDINATE BENCH WE EXCLUDE THIS COMPANY AS COMPARABLE. 10.5 AS FAR AS THINK SOFT GLOBAL SERVICES LTD . IS CONCERNED ASSESSEE HAS OBJECTED TO INCLUSION OF THE AFORESAID COMPANY ON T HE REASONING THAT IT IS FUNCTIONALLY DIFFERENT AS IT IS A PRODUCT BASED COMPANY AND PROVIDES TESTING SERVICES. ON A PERUSAL OF THE ANNUAL REPORT OF THIS COMPANY EXTRACT OF WHICH WAS SUBMITTED BEFORE US IT IS SEE N THAT THE COMPANY IS PREDOMINANTLY INTO SOFTWARE TESTING. IN CASE OF TRI OLOGY E BUSINESS VS. DCIT ITA NO. 1054/BANG/11 DTD. 23/11/12 IT HAS BE EN HELD BY COORDINATE BENCH THAT SOFTWARE TESTING SERVICES CAN NOT BE EQUATED WITH SOFTWARE DEVELOPMENT SERVICES. THEREFORE WE FIND M ERIT IN THE CONTENTION OF LD. AR. ACCORDINGLY WE HOLD THAT THI S COMPANY CANNOT BE TREATED AS COMPARABLE TO ASSESSEE. 10.6 AS FAR AS THIRDWARE SOLUTIONS IS CONCERNED ASSESSEE HAS SOUGHT EXCLUSION OF THE AFORESAID COMPANY BECAUSE IT IS IN TO PRODUCT DEVELOPMENT AND PURCHASE AND SALE OF LICENCES. IT I S FURTHER CONTENTION OF ASSESSEE THAT THOUGH SEGMENTAL DETAILS FOR SALES IS AVAILABLE BUT NO EXPENDITURE BIFURCATION IS AVAILABLE WHICH MAKES I T IMPOSSIBLE TO CORRECTLY DETERMINE THE OPERATING MARGIN OF SOFTWAR E SERVICES. ON A PERUSAL OF THE BREAK-UP OF SALES OF THIS COMPANY AS ON 31ST MARCH 2009 THE CONTENTION OF ASSESSEE APPEARS TO BE CORRECT. F URTHER ITAT BANGALORE BENCH IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT (SUPRA) HAS HELD AS UNDER: 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL O N RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENG AGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NO T GIVEN SEPARATELY. FURTHER AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE THE PUNE BENCH OF THE TRIBUNAL IN T HE CASE OF E-GAIN COMMUNICATIONS PVT. 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 S ERVICES. IN THE CASE ON HAND THE ASSESSEE IS RENDERING SOFTWARE DEVELOP MENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FOLLOWING THE A FORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA) WE DIRECT THAT THIS COMP ANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSID ERATION IN THE CASE ON HAND. 10.7 THE LD. DR HAS NOT BROUGHT ANY MATERIAL TO OUR NOTICE TO DEMONSTRATE THAT THE AFORESAID FINDING OF THE COORD INATE BENCH WILL NOT BE APPLICABLE TO AY UNDER CONSIDERATION. THEREFORE FOLLOWING THE VIEW ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 12 OF 14 EXPRESSED BY THE ITAT BANGALORE BENCH WE EXCLUDE T HIS COMPANY FROM THE LIST OF COMPARABLES. 10.8 AS FAR AS I-GATE GLOBAL SOLUTIONS LTD. IS CONCERNED IT IS THE CONTENTION OF LD. AR THAT THE COMPANY IS HAVING HUG E TURNOVER OF MORE THAN RS. 900 CRORES AND IS A RELATIVELY BIG COMPAN Y HAVING PRESENCE IN VARIOUS COUNTRIES AND ENJOYS PREMIUM PRICING. HE HA S FURTHER SUBMITTED THAT THE COMPANY OWNS VARIOUS INTANGIBLES IN ITS NA ME AND IS HAVING CLOSING STOCK OF RAW MATERIALS WHICH SIGNIFY THAT I T IS INTO DEVELOPMENT OF PRODUCT. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES. ON A PERUSAL OF THE P&L ACCOUNT OF THIS COMPANY FOR THE YEAR ENDED MARCH 2009 A COPY OF WHICH IS SUBMITTED BY LD. AR IT IS SEEN THAT THE COMPANY HAS CLAIMED EXPENSES TOWARDS RAW MATERIALS STORE S AND SPARES. THEREFORE IT NEEDS TO BE EXAMINED IN DETAIL WHETHE R ASSESSEES CLAIM THAT THE COMPANY IS INTO PRODUCT DEVELOPMENT IS COR RECT. AS RELEVANT INFORMATIONS REQUIRED FOR COMING TO A DEFINITE CONC LUSION ARE NOT BEFORE US WE ARE INCLINED TO REMIT THE ISSUE OF COMPARABI LITY OF THIS COMPANY TO AO/TPO FOR CONSIDERING AFRESH. FURTHER WE MAY OBSE RVE THAT IN CASE OF TRIOLOGY E BUSINESS (SUPRA) THIS COMPANY HAS BEEN E XCLUDED ON THE BASIS OF HIGH TURNOVER. THEREFORE THIS ASPECT IS ALSO RE QUIRED TO BE EXAMINED BY AO/TPO WHILE DECIDING COMPARABILITY OF THIS COMP ANY. 10.9 AS FAR AS ZYLOG SYSTEMS LTD. IS CONCERNED IT IS THE CONTENTION OF THE LD. AR THAT DURING THE YEAR COMPANY HAS MADE ACQUIS ITIONS WHICH COULD BE HAVING AN IMPACT OVER THE FINANCIALS OF THE COMP ANY AS THE REVENUE HAS SUBSTANTIALLY INCREASED COMPARED TO THE PRECEDI NG YEAR. ON A PERUSAL OF THE EXTRACT OF ANNUAL REPORT FOR THE FY 2008-09 OF THIS COMPANY WHICH WERE PLACED BEFORE US BY LEARNED AR IT IS SEEN THAT DURING THE FY 2008-09 THE COMPANY HAS ACQUIRED FAI R FAX CONSULTING INC. AND DUCONT FZ LLC THROUGH ITS WHOLLY OWNED SUB SIDIARY ZYLOGBV LTD.. THE COMPANY ITSELF HAS ADMITTED IN THE ANNUAL REPOR T THAT BENEFITS FROM SUCH ACQUISITION INCLUDE ACCESS TO NEW CLIENTS NEW GEOGRAPHICAL AREAS AND NEW SERVICE OFFERINGS AS WELL AS AN INCREASE IN PER CAPITA REVENUE. FROM THE EXTRACTS OF THE ANNUAL REPORT IT IS SEEN THAT THERE IS SUBSTANTIAL INCREASE IN REVENUE IN THE IMPUGNED AY COMPARED TO THE PRECEDING AY. THEREFORE CONSIDERING THE FACT THAT THE ACQUISITIO NS MADE BY THE COMPANY DURING THE RELEVANT FY COULD HAVE IMPACTED THE REVENUE EARNING AND PROFITABILITY OF THE COMPANY IT WILL N OT BE SAFE TO TREAT THE AFORESAID COMPANY AS A COMPARABLE. ACCORDINGLY WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. 10.10 AS FAR AS SASKEN COMMUNICATION TECHNOLOGIES LTD IS CONCERNED THE MAIN THRUST OF THE LEARNED ARS CONTENTION IS T HE COMPANY IS ALSO DEVELOPING PRODUCTS AND SEGMENTAL DETAILS ARE NOT A VAILABLE RELATING TO COSTS. ON A PERUSAL OF THE EXTRACTS OF ANNUAL REPOR T OF THE AFORESAID COMPANY SUBMITTED BEFORE US BY LD. AR IT IS SEEN TH AT THE COMPANY IS INVOLVED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES AS WELL AS DEVELOPMENT OF SOFTWARE PRODUCTS ALSO. FROM THE BRE AKUP OF REVENUE EARNED DURING THE RELEVANT FY IT IS SEEN THAT AS A GAINST REVENUE OF RS. ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 13 OF 14 40531.20 LAKHS EARNED FROM SOFTWARE DEVELOPMENT SER VICES RS. 6146.43 LAKHS WERE FROM SOFTWARE PRODUCTS. THOUGH IT APPEA RS THAT SUBSTANTIAL REVENUE IS EARNED FROM SOFTWARE DEVELOPMENT SERVICE S HOWEVER THE COST RELATING TO EARNING OF SUCH REVENUE HAS TO BE TAKEN INTO ACCOUNT. IT IS THE CONTENTION OF THE ASSESSEE THAT SEGMENTAL DE TAILS OF COST IS NOT AVAILABLE FROM THE ANNUAL REPORT. SINCE THE ENTIRE ANNUAL REPORT HAS NOT BEEN PLACED BEFORE US WE ARE NOT IN A POSITION TO GIVE A CONCLUSIVE FINDING IN THIS REGARD. WE THEREFORE REMIT THE IS SUE RELATING TO COMPARABILITY OF THIS COMPANY FOR FRESH ADJUDICATIO N BY THE AO/TPO. HOWEVER WE MAKE IT CLEAR THAT UNLESS SEGMENTAL DET AILS OF COST ARE AVAILABLE IT WILL BE BETTER TO IGNORE THIS COMPANY . RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH WE DIRECT THE TPO/AO TO EXCLUDE THESE COMPANIES FROM T HE FINAL LIST OF COMPARABLES. 10. AS REGARDS GROUND NO.10 IT IS THE CASE OF THE ASSESSEE THAT THOUGH THE ASSESSEE HAS RAISED OBJECTIONS BEFO RE THE DRP ON THESE ISSUES THE DRP HAS FAILED TO ADJUDICATE THE SAME. HE HAS DRAWN OUR ATTENTION TO THE OBJECTIONS RAISED BEFORE THE DRP. THE ISSUE RAISED BEFORE US IS THE OBJECTION NO.10 BEFOR E THE DRP AND ALSO IN THE GROUND OF APPEAL NO.2 TO 3 IN ANNEXURE- 1. WE FIND THAT THE DRP HAS NEITHER REPRODUCED NOR ADJUDICATED THE SE GROUNDS OF OBJECTIONS. IN VIEW OF THE SAME WE DEEM IT FIT AND PROPER TO REMAND THE ISSUES TO THE FILE OF THE DRP FOR ADJUDICATION IN ACCORDANCE WITH LAW. 11. GROUND NO.11 IS FOR THE CORRECT CREDIT OF PREP AID TAXES BY THE ASSESSEE I.E. ADVANCE TAX & MAT CREDIT. THI S GROUND IS ALSO REMANDED TO THE FILE OF THE DRP FOR GRANTING RELIEF TO THE ASSESSEE IF ANY AFTER VERIFICATION OF THE ASSESSEES CLAIM. TH IS GROUND OF APPEAL IS ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSES . 12. IN VIEW OF THE SAME ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NOS 384 AND 453 OF 2014 CONEXA NT SYSTEMS P LTD HYDERABAD PAGE 14 OF 14 ITA NO.453/HYD/2014 13. AS REGARDS REVENUES APPEAL ONLY GROUND RAISED IS AGAINST THE DIRECTION GIVEN BY THE DRP TO THE AO TO EXCLUDE TELECOMMUNICATION CHARGES BOTH FROM EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER FOR COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE AS SESSEE BY THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD REPORTED IN 349 ITR 98 (KARN.) . RESPEC TFULLY FOLLOWING THE SAME THIS GROUND OF APPEAL OF THE REVENUE IS REJEC TED AND THE REVENUES APPEAL IS DISMISSED. 14. IN THE RESULT REVENUES APPEAL IS DISMISSED. 15. TO SUM UP ASSESSEES APPEAL IS PARTLY ALLOWED AND THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCTOBER 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD DATED 19 TH OCTOBER 2016. VINODAN/SPS COPY TO: 1 M/S. CONEXANT SYSTEMS (P) LTD 5 TH FLOOR PIONEER TOWERS PLOT NO.16 SURVEY NO.64/2 SOFTWARE UNITS LAYOUT MADHAP UR HYDERABAD 500081 2 DY. COMMISSIONER OF INCOME TAX CIRCLE 1(2) AAYAK AR BHAVAN BASHEERBAGH HYDERABAD 3 ASSTT. CIT (TRANSFER PRICING)-HYDERABAD 4 CIT 1 HYDERABAD 500004 5 THE DR ITAT HYDERABAD 6 GUARD FILE BY ORDER