M/s Mavenir Systems Private Limited, Bangalore v. ITO, Bangalore

ITA 412/BANG/2016 | 2011-2012
Pronouncement Date: 25-03-2021 | Result: Allowed

Appeal Details

RSA Number 41221114 RSA 2016
Assessee PAN AAECM9663N
Bench Bangalore
Appeal Number ITA 412/BANG/2016
Duration Of Justice 5 year(s) 16 day(s)
Appellant M/s Mavenir Systems Private Limited, Bangalore
Respondent ITO, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2021
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 25-03-2021
Last Hearing Date 21-01-2019
First Hearing Date 04-02-2021
Assessment Year 2011-2012
Appeal Filed On 10-03-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SMT. BEENA PILLAI JUDICIAL MEMBER IT(TP)A NO.412/BANG/2016 ASSESSMENT YEAR : 2011-12 M/S MAVENIR SYSTEMS PVT. LTD. BEECH E1 2 ND FLOOR MANYATA EMBASSY BUSINESS PARK OUTER RING ROAD (HEBBAL K.R PURAM SECTION) BENGALURU-560 045. PAN AA E C M 9 663 N VS. THE INCOME-TAX OFFICER WARD-4(1)(3) BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SMT. TANMAYEE RAJKUMAR ADVOCATE REVENUE BY : SHRI MUZAFFAR HUSSAIN CIT (DR) DATE OF HEARING : 04-02-2021 DATE OF PRONOUNCEMENT : 25-03-2021 ORDER PER BEENA PILLAI JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST T HE FINAL ASSESSMENT ORDER DATED 23/12/2015 PASSED BY LD.ITO WARD 4(1)(3) BANGALORE FOR ASSESSMENT YEAR 2011-12 ON F OLLOWING GROUNDS OF APPEAL: I. TRANSFER PRICING THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJU DICE TO ONE ANOTHER. PAGE 2 OF 24 IT(TP)A NO.412/BANG/2016 1. THE LEARNED ASSESSING OFFICER ('LEARNED AO') LE ARNED TRANSFER PRICING OFFICER ('LEARNED TPO') AND THE HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') GROSSLY ERRED IN ADJUSTING THE TRAN SFER PRICE BY INR 2 02 90 530/- OF THE APPELLANT'S INTERNATIONAL TRAN SACTIONS WITH ITS ASSOCIATED ENTERPRISES ('AES') WITH RESPECT TO THE SOFTWARE DEVELOPMENT SERVICES ('IT') RENDERED BY THE TAX PAYER U/S 92CA OF THE INCOME-TAX ACT 1961. 2. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN REJECTING THE TP DOCUMENTATION MAINTAINED BY THE APPELLANT BY INVOKING PROVISIONS OF SUB-SECTION (3) OF 92C OF THE ACT. 3. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN REJECTING COMPARABILITY ANALYSIS CARRIED IN THE TP DOCUMENTAT ION AND IN CONDUCTING A FRESH COMPARABILITY ANALYSIS BY INTROD UCING VARIOUS FILTERS IN DETERMINING THE ALP. 4. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN NOT CONSIDERING THE PREVIOUS TWO YEARS FINANCIAL DATA OF THE COMPARABLE COMPANIES WHILE DETERMINING THE ALP. 5. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN APPLYING EXPORT EARNING FILTER OF 75% INSTEAD OF 25% OF THE TOTAL S ALES LEADING TO A NARROWER COMPARABLE SET. 6. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN NOT CONSIDERING THE PROVISION FOR BAD AND DOUBTFUL DEBTS AS EXTRAORDINA RY IN NATURE. 7. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS GROSS LY ERRED IN NOT REJECTING ACROPETAL TECHNOLOGIES LTD. ON THE GROUND S OF FUNCTIONAL DISSIMILARITY ABNORMAL TREND OF PROF1FETHTY AND FA ILING OF EMPLOYEE COST FILTER. 8. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS GROSS LY ERRED IN NOT REJECTING E ZEST SOLUTIONS BASED ON FUNCTIONAL DISS IMILARITY LACK OF SEGMENTAL DATA AND PRESENCE OF SIGNIFICANT INVENTOR Y. 9. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS GROSS LY ERRED IN NOT REJECTING E-LNFOCHIPS LTD. FOR FUNCTIONAL DISSIMILA RITY ABNORMAL TREND OF PROFITABILITY AND DIVERSIFIED OPERATIONS WHICH INCL UDES RESEARCH AND DEVELOPMENT. 10. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS GROS SLY ERRED IN NOT REJECTING ICRA TECHNO ANALYTICS LTD. ON THE GROUND OF FUNCTIONAL DISSIMILARITY AND LACK OF SEGMENTAL DATA. 11. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS GROS SLY ERRED IN REJECTING COMPANIES THAT OUGHT TO HAVE BEEN INCLUDE D AS COMPARABLES AKSHAY SOFTWARE TECHNOLOGIES LTD 'Z COMP-U-LEARN TECH INDIA LTD. LGS GLOBAL LTD. MAVERIC SYSTEMS LTD. THINKSOFT GLOBAL SERVICES LTD. CG-VAK SOFTWARE EXPORTS LTD. PAGE 3 OF 24 IT(TP)A NO.412/BANG/2016 GLOBSYN INFOTECH LTD. 12. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS ERRE D IN MAKING THE FOLLOWING ERRORS IN THE COMPUTATION OF WORKING CAPI TAL ADJUSTMENT. A. IN PROPOSING A RESTRICTION TO THE WORKING CAPITA L ADJUSTMENT WITHOUT GIVING ANY COGENT REASON B. IN CONSIDERING THE WRONG SBI PLR WHILE COMPUTING THE WORKING CAPITAL ADJUSTMENT. 13. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN NOT ALLOWING APPROPRIATE ADJUSTMENT TOWARDS TO THE RISK DIFFEREN TIAL BETWEEN THE APPELLANT VIS--VIS COMPARABLE COMPANIES. 14. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN LEVYING INTEREST UNDER SECTION 23413 OF THE INCOME-TAX ACT 1961. THE APPELLANT CRAVES LEAVE TO ADD ALTER RESCIND A ND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS FACTS AN D EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RA ISED AT THE TIME OF HEARING IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. 2. THE LD.AR SUBMITTED THAT ASSESSEE HAS RAISED ADD ITIONAL GROUND VIDE APPLICATION DATED 09/01/2020 WHEREIN F OLLOWING GROUNDS HAVE BEEN RAISED: GROUND NO. 9: THE LEARNED AO/ LEARNED TPOI HON'BLE DRP ERRED IN NOT EXCLUDING PERSISTENT SYSTEMS & SOLUTIONS LTD. FROM THE LIST OF COMPARABLE COMPANIES. 3. THE LD.AR SUBMITTED THAT COMPARABLE PERSISTENT S YSTEMS AND SOLUTIONS LTD. WAS SELECTED BY THE LD.TPO DURIN G THE TRANSFER PRICING ASSESSMENT PROCEEDINGS. ASSESSEE A LSO INCLUDED THIS COMPARABLE IN THE TP STUDY. THE LD.AR SUBMITTE D THAT BASED ON JUDICIAL PRONOUNCEMENTS BY COORDINATE BENCHES OF THIS TRIBUNAL IN GENESIS INTERGRATING SYSTEMS (INDIA)PVT. VS.DCIT REPORTED IN [2012] 20 TAXMANN.COM 715 MOBILITY INFOTECH INDIA (P.) LTD V. DY. CIT [2018] 97 TAXMANN.COM 2 AND MANY MORE SUCH DECISIONS IT WAS SUBMITTED THAT THIS COMPARABLE I S FUNCTIONALLY NOT SIMILAR WITH THAT OF ASSESSEE DUE TO HIGH TURNO VER AND DESERVES TO BE EXCLUDED. PAGE 4 OF 24 IT(TP)A NO.412/BANG/2016 4. THE LD.AR SUBMITTED THAT THOUGH THIS COMPARABLE WAS INCLUDED BY ASSESSEE. SUBSEQUENTLY IT COULD BE ALL EGED FOR EXCLUSION. IN SUPPORT HE PLACED RELIANCE ON THE DE CISION OF HONBLE SPECIAL BENCH OF CHANDIGARH TRIBUNAL IN CASE OF QUARK SYSTEMS LTD. REPORTED IN 38 SOT 307. 5. IT WAS SUBMITTED THAT NO PREJUDICE WOULD BE CAU SED TO THE REVENUE BY REASON OF THE ABOVE ADDITIONAL GROUNDS B EING ADMITTED AND ADJUDICATED AND ACCORDINGLY THE BALANC E OF CONVENIENCE IS IN FAVOUR OF SUCH AN ORDER BEING PAS SED BY THIS HONBLE TRIBUNAL. THE LD.AR STATES AND SUBMITS THAT THE ISSUES RAISED IN THE ADDITIONAL GROUND ABOVE ARE LEGAL ISS UES AND ARISE OUT OF THE ORDER OF THE LOWER AUTHORITIES. 6. WE HEARD LD.DR ON THIS ISSUE. 7. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 8. WE NOTICE THAT THE SPECIAL BENCH OF THIS TRIBUNAL HAS HELD IN THE CASE OF DY. CIT V. QUARKSYSTEMS P. LTD. (SUPRA) THAT THE NON- COMPARABLE COMPANIES EVEN IF IT WAS SELECTED BY TH E ASSESSEE IN TP STUDY COULD BE EXCLUDED SINCE THERE IS NO ESTO PPELS AGAINST LAW. THERE SHOULD NOT BE ANY DISPUTE THAT THE ULTIM ATE PURPOSE OF THE TRANSFER PRICING ANALYSIS IS TO DETERMINE TH E ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WHICH IS SOUGH T TO BE PROVED BY COMPARING THE FINANCIALS OF COMPARABLE COMPANIES . IN THE INSTANT CASE THE ASSESSEE HAS PRAYED FOR CONSIDERA TION OF ABOVE COMPANY BEFORE LD DRP. ACCORDINGLY WE ARE OF THE V IEW THAT PAGE 5 OF 24 IT(TP)A NO.412/BANG/2016 CONSIDERATION OF ABOVE SAID COMPANIES WOULD HELP TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTIONS. 9. ACCORDINGLY THE ADDITIONAL GROUND RAISED BY ASS ESSEE STANDS ADMITTED. BRIEF FACTS OF THE CASE ARE AS UNDER: 10. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS OF SOFTWARE DEVELOPMENT AND 100% SUBSIDIARY OF MAVENIR SYSTEMS INC. US. IT FILED ITS RETURN OF INCOME FOR YEAR UND ER CONSIDERATION ON DECLARING INCOME OF RS.56 544/- AFTER CLAIMING EXEMPTION UNDER SECTION 10A AMOUNTING TO RS.1 50 27 256/-. TH E CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 142 (1) OF THE ACT WAS ISSUED TO ASSESSEE IN RESPONSE TO WHICH REPRE SENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED DETAILS AS CALLED FOR. 11. THE LD.AO OBSERVED THAT ASSESSEE HAD INTERNATI ONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISE EXCEEDIN G RS.15 CRORES AND ACCORDINGLY REFERENCE WAS MADE TO THE LD.TPO U NDER SECTION 92CA OF THE ACT. 12. UPON RECEIPT OF REFERENCE THE LD.TPO CALLED FO R ECONOMIC DETAILS OF INTERNATIONAL TRANSACTION BETWEEN ASSESS EE AND ASSOCIATED ENTERPRISE IN FORM 3 CEB. THE LD.TPO NOT ED THAT ASSESSEE HAD FOLLOWING INTERNATIONAL TRANSACTION WI TH ITS AE: PARTICULARS AMOUNT IN RS. SOFTWARE DEVELOPMENT SERVICES 15 40 36 635/- TOTAL 15 40 36 635/- 13. THE LD.TPO OBSERVED THAT ASSESSEE USED TNMM AS MOST APPROPRIATE METHOD AND PLI AS OP/OC AND COMPUTED I TS MARGIN PAGE 6 OF 24 IT(TP)A NO.412/BANG/2016 AT 10.05%. HE NOTED THAT ASSESSEE SELECTED FOLLOWI NG 8 COMPARABLES HAVING AVERAGE MARGIN OF 13.88%. NAME OF THE COMPANY MARKUP ON TOTAL COST (WITHOUT ADJUSTMENT) A B M KNOWLEDGEWARE LTD. 40.35 C G- VAK SOFTWARE& EXPORTS LRD. 5.44 GLOBSYN INFOTECH LTD. 6.6 KALS INFORMATION SYSTEM LTD. 18.69 MELSTAR INFORMATION TECHNOLOGIES LTD. 1.93 PERSISTENT SYSTEMS AND SOLUTIONS LTD. 21.79 R S SOFTWARE (INDIA) LTD. 16.18 THINKSOFT GLOBAL SERVICES LTD. 0.08 NUMBER OF COMPANIES 8 MEAN 13.88% 14. LD.TPO REJECTED ECONOMIC ANALYSIS UNDERTAKEN BY ASSESSEE AND CONDUCTED FRESH ECONOMIC SEARCH BY APPLYING FOL LOWING FILTERS: STEP DESCRIPTION 1 COMPANIES WHOSE DATA FOR FY 2010-11 IS NOT AVAILA BLE EXCLUDED 2 COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE INCOME < RS. 1 CR - EXCLUDED 3 COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE REVENU E IS < 75% OF THE TOTAL OPERATING REVENUE - EXCLUDED 4 COMPANIES WHICH HAVE RELATED PARTY TRANSACTIONS > 2 5% OF SALES - EXCLUDED 5 COMPANIES WHICH HAVE EXPORT SALES < 75% OF SALES IN SOFTWARE CASES - EXCLUDED 6 COMPANIES WHOSE EMPLOYEE COST IS < 25% OF THEIR TUR NOVER IN SOFTWARE CASES - EXCLUDED 7 COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING - EXCLUDED 8 COMPANIES WHICH HAVE PERSISTENT LOSSES FOR THE LAST THREE YEARS UP TO AND INCLUDING FY 2010-11 - EXCLUDED PAGE 7 OF 24 IT(TP)A NO.412/BANG/2016 9 COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES - EXCLUDED 10 COMPANIES THAT ARE FUNCTIONALLY DIFFERENT - EXCLUDE D 15. THE LD.TPO THUS SELECTED FOLLOWING 13 COMPARABL ES WITH OPERATING MARGIN OF 24.82%. SL.NO COMPANY NAME NET MARGIN AS PER TP ORDER 1 ACROPETAL TECHNOLOGIES LTD. 31.98% 2 E ZEST SOLUTIONS 21.03% 3 E-INFOCHIPS LTD 56.44% 4 EVOKE 8.11% 5 ICRA TECHNO ANALYTICS LTD. 24.83% 6 INFOSYS LTD 43.39% 7 LARSEN & TOUBRO INFOTECH LTD 19.83% 8 MINDTREE LTD.(SEG.) 10.66% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD. 22.12% 10 PERSISTENT SYSTEMS LTD. 22.84% 11 R S SOFTWARE (INDIA)LTD. 16.37% 12 SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.13% 13 TATA ELXSI LTD.(SEG.) 20.91% AVERAGE 24.82% 16. HE PROPOSED AN ADJUSTMENT OF RS.1 95 06 722/- B EING SHORTFALL. IT IS SUBMITTED THAT THE LD.TPO RESTRICT ING TO 1.63% TOWARDS WORKING CAPITAL ADJUSTMENT. 17. AGGRIEVED BY ADDITIONS MADE BY LD.AO/TPO ASSESS EE RAISED OBJECTIONS BEFORE DRP. 18. THE DRP UPHELD EXCLUSION OF 6 COMPARABLES SELEC TED BY THE LD.TPO AND RESTRICTED TO FOLLOWING 7 COMPARABLES WI TH AVERAGE MARGIN OF 24.55 % AS UNDER: PAGE 8 OF 24 IT(TP)A NO.412/BANG/2016 SL.NO COMPANY NAME MARK-UP ON TOTAL COSTS (WC - ADJ) (IN %) 1 ACROPETAL TECHNOLOGIES LTD. 28.68 2 E-ZEST SOLUTIONS LTD. 18.95 3 E-INFOCHIPS LTD. 56.13 4. EVOKE TECHNOLOGIES LTD. 7.96 5. ICRA TECHNO ANALYTICS LTD. 22.80 6. PERSISTENT SYSTEMS AND SOLUTIONS LTD. 21.16 7. RS SOFTWARE (INDIA) LTD. 16.19 AVERAGE 24.55 19. ON RECEIPT OF DRP DIRECTIONS LD.AO PASSED FINA L ASSESSMENT ORDER BY MAKING TRANSFER PRICING ADDITI ON AS PER PROPOSED ADJUSTMENT BY LD.TP O. 20. AGGRIEVED BY ORDER OF LD.AO ASSESSEE IS IN APP EAL BEFORE US. ASSESSEE CHALLENGES EXCLUSION OF 4 COMPARABLES IN G ROUND NO.7- 10 ON THE BASIS OF FUNCTIONAL DISSIMILARITIES BEIN G ; ACROPATEL TECHNOLOGIES LTD E ZEST SOLUTIONS E-INFICHIPS LTD ICRA TECHNO ANALYTICS 21. ASSESSEE HAS ALSO SOUGHT INCLUSION OF 3 COMPARA BLE IS IN GROUND NO.11 BEING; AKSHAYA SOFTWARE LTD. PAGE 9 OF 24 IT(TP)A NO.412/BANG/2016 LGS GLOBAL LTD. THINKSOFT GLOBAL SERVICES LTD 22. THE ASSESSEE ALSO SEEKS WORKING CAPITAL ADJUSTM ENT ON ACTUAL IN GROUND NO.12. 23. APART FROM THE ABOVE REFERRED COMPARABLES LD.A R HAS NOT PRESSED UPON AND ARGUED ANY OTHER ISSUES RAISED IN THE GROUND OF APPEAL. ACCORDINGLY WE ARE RESTRICTING OUR OBSERVATION IN RESPECT OF SELECTED COMPARABLES REFERRED TO HEREIN ABOVE ALLEG ED BY ASSESSEE FOR INCLUSION/EXCLUSION. 24. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS IT S SINE QUA NON TO UNDERSTAND THE FAR OF ASSESSEE UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT. FUNCTIONS: MAVENIR INDIA HAS 101 EMPLOYEES INCLUDING A COUNTR Y MANAGER AND AN ADMINISTRATIVE STAFF DIRECTORS OF V ARIOUS PROJECTS (E.G. SOFTWARE DEVELOPMENT IMPROVEMENTS TO EXISTIN G SOFTWARE TESTING AND VALIDATION OF SOFTWARE AND DOCUMENT WR ITING) AND SYSTEM ENGINEERS PROVIDING TECHNICAL SUPPORT TO THE SALES TEAM. MAVENIR INDIA DOES NOT SELL PRODUCTS OR PROVIDE SIM ILAR CONTRACT R&D AND SUPPORT SERVICES TO THIRD PARTY CUSTOMERS. 25. ASSET OWNED: PAGE 10 OF 24 IT(TP)A NO.412/BANG/2016 26. RISKS ASSUMED: 27. GROUND NO.7 ASSESSEE IS SEEKING EXCLUSION FOLLOWING COMPARABLE ACROPATEL TECHNOLOGIES LTD.: IT IS SUBMITTED THAT THIS COMPARABLE IS FUNCTIONAL LY NOT SIMILAR WITH ASSESSE. IT HAS BEEN SUBMITTED THAT THIS COMPA RABLES CARRIES OUT DIVERSIFIED ACTIVITIES WITHOUT SEGMENTA L INFORMATION. 28. THE LD.AR RELIED ON DECISION OF COORDINATE BENC H OF THIS TRIBUNAL IN CASE OF E LECTRONICS FOR IMAGING INDIA PVT. LTD. VS. DCIT FOR ASSESSMENT YEAR 2011-12 REPORTED IN [2017] 85 TAXMANN.COM 124 WHEREIN THESE COMPARABLES HAVE BEEN HELD TO BE FUNCTIONALLY DIFFERENT WITH A CONTRACT SERVICE PROV IDER LIKE ASSESSEE. PAGE 11 OF 24 IT(TP)A NO.412/BANG/2016 29. ON THE CONTRARY LD.CIT.DR RELIED ON OBSERVATIO NS OF AUTHORITIES BELOW. 30. WE ALSO NOT THAT THIS COMPARABLE WAS DIRECTED TO BE EXCLUDED IN FOLLOWING DECISIONS ON IDENTICAL OBSERV ATIONS : DCIT VS. CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTATION (P.) LTD REPORTED IN [2018] 93 TAXMANN .COM 9 DCIT VS HERBALIFE INTERNATIONAL INDIA (P.) LTD REPO RTED IN [2019] 111 TAXMANN.COM 244 31. WE NOTE THAT UNDER SIMILAR CIRCUMSTANCES THIS TRIBUNAL IN CASE OF DCIT VS CGI INFORMATION SYSTEMS (SUPRA) OBSERVED AS UNDER: 19. ACROPETAL TECHNOLOGIES LIMITED - AS FAR AS EXCLUSI ON OF THIS COMPANY AS A COMPARABLE COMPANY IS CONCERNED IT IS SEEN FROM THE DIRECTIONS OF THE DRP AT PARAGRAPH 2.7 AT PAGE-9 T HAT THIS COMPANY WAS EXCLUDED ON THE GROUNDS THAT: (I) THE SEGMENTAL INFORMATION CONTAINING THE BREAK-UP OF ITS EXPORT SALES AND EMP LOYEE COSTS WAS NOT AVAILABLE AND IT WAS NOT POSSIBLE TO ASCERTAIN IF I T PASSED THE EXPORT EARNINGS AND/OR EMPLOYEE COSTS FILTERS; AND (II) A SUBSTANTIAL PORTION OF ITS SOFTWARE DEVELOPMENT ACTIVITIES HAVE BEEN OUTSO URCED ON SUB- CONTRACT AND IT COULD THEREFORE NOT BE RETAINED A S A COMPARABLE. THE DRP IN DIRECTING EXCLUSION OF THIS COMPANY FOLLOWED DECISION OF HYDERBAD BENCH OF ITAT IN THE CASE OF CAPITAL IQ IN FORMATION SYSTEMS (INDIA) (P.) LTD. V. DY. CIT (INTERNATIONAL TAXATIO N) [2013] 32 TAXMANN.COM 21(HYD. - TRIB.) . THE DRP ALSO OBSERVED THAT THIS COMPANY WAS PREDOMINANTLY DOING ON-SITE DEVELOPMENT OF SOFT WARE AND THEREFORE CANNOT BE COMPARED WITH A COMPANY WHICH DEVELOPS SO FTWARE OFF- SHORE. ONE OF THE FILTERS APPLIED BY THE TPO WAS TH AT COMPANIES WHERE EMPLOYEE COSTS ARE LESS THAN 25% OF TURNOVER CANNOT BE REGARDED AS COMPARABLE. IN THE ABSENCE OF SEGMENTAL INFORMATION IT WAS NOT POSSIBLE TO ASCERTAIN AS TO WHETHER THIS COMPANY PA SSES THE TEST ADOPTED BY THE TPO HIMSELF FOR COMPARISON. THE LEAR NED DR SUBMITTED THAT THE REQUIRED DATA CAN BE CULLED OUT FROM THE I NFORMATION AVAILABLE IN THE PUBLIC DOMAIN OR BY RESORTING TO A PROCESS O F CALLING FOR INFORMATION FROM THIS COMPANY U/S.133(6) OF THE ACT . THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE HON'BLE DELHI HIGH COURT REJECTED A SIMILAR ARGUMENT BY THE REVENUE IN THE CASE PAGE 12 OF 24 IT(TP)A NO.412/BANG/2016 OF PR. CIT V. SAXO INDIA (P.) LTD. [2016] 74 TAXMANN.COM 88 . IN THE CIRCUMSTANCES THIS COMPANY WAS RIGHTLY HELD BY THE DRP TO BE NOT COMPARABLE. WE ARE OF THE VIEW THAT ONCE A COMPANY BECOMES NOT COMPARABLE FOR THE REASON THAT SEGMENTAL INFORMATIO N TO APPLY FILTERS WE NEED NOT CONSIDER ANY OTHER ASPECT OF COMPARABIL ITY. THE LEARNED COUNSEL FOR THE ASSESSEE MADE SUBMISSIONS BEFORE US THAT THIS COMPANY WAS RIGHTLY DIRECTED TO BE EXCLUDED BY THE DRP ON THE ABOVE BASIS AND FURTHER CONTENDED THAT EVEN OTHERWISE TH IS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. AS ALREADY STATED WE DO NOT WISH TO GO INTO THIS ASPECT AS THIS COMPANY GOES OU T OF COMPARABILITY ON OTHER REASONS. 32. FURTHER LD.AR ALLEGED THAT ACROPETAL IS FUNCT IONALLY NOT SIMILAR WITH A CONTRACT SERVICE PROVIDER LIKE ASSES SEE. THIS OBSERVATION COULD NOT BE DISLODGED BY LD.CIT.DR. WE ALSO NOTE THAT ACROPETAL TECHNOLOGIES HAS BEEN HELD TO BE INTO PRODUCTS BY THIS TRIBUNAL IN CASE OF ELECTRONICS FOR IMAGING INDIA PVT.LTD (SUPRA) . WE THEREFORE ARE OF THE OPINION THAT THIS COMPARABLES CANNOT BE INCLUDED IN THE FINAL LIST OF COMPARABLES. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS WE DIRECT EXCLUSION OF ACROPETAL TECHNOLOGIES. GROUND NO.8 33. THE LD.AR SUBMITTED THAT E-ZEST SOLUTION LTD I S HAVING SOFTWARE DEVELOPMENT SERVICES AS WELL AS PRODUCT AN D ALSO SHOWN CLOSING STOCK IN THE FINANCIALS. IT WAS ALSO SUBMI TTED THAT T HIS COMPANY HAS ON-SITE SERVICES AND SIGNIFICANT PRESEN CE OF INVENTORY AND IS FUNCTIONALLY INCOMPARABLE AND IS E NGAGED IN PRODUCT DEVELOPMENT WEB DEVELOPMENT AND KPO SERVIC ES AND SEGMENTAL DETAILS ARE NOT AVAILABLE. PAGE 13 OF 24 IT(TP)A NO.412/BANG/2016 34. THE LD.AR ALSO RELIED UPON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL DT.22.4.2016 IN THE CASE OF ELECTRONICS FOR IMAGING INDIA (P.) LTD. V. DCIT IN IT(TP)A NO.227 & 285/DEL/2013. 35. ON THE OTHER HAND THE LD.DR RELIED ON ORDERS P ASSED BY AUTHORITIES BELOW. 36. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. 37. WE FIND THAT THE ASSESSEE HAS RAISED OBJECTIONS AGAINST THIS COMPANY BEFORE THE DRP. HOWEVER THE DRP DID NOT ADJ UDICATE THE OBJECTIONS RAISED BY THE ASSESSEE. WE FOUND THAT THIS COMPARABLE WAS REMANDED BY CO-ORDINATE BENCH IN CAS E OF APPLIED MATERIALS INDIA LTD. V. ACIT IT(TP) APPEAL NOS.17 & 39/BANG/2016 DT.21.09.2016 FOR THE ASSESSMENT YEAR 2011-12. THE TRIBUNAL HAS OBSERVED AT PAGE 17 PARA 9.1.3 AS UNDER : '9.1.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSES SEE HAS RAISED OBJECTIONS AGAINST THIS COMPANY BEFORE THE D RP. HOWEVER THE DRP DID NOT ADJUDICATE THE OBJECTIONS RAISED BY THE ASSESSEE. THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) REL IED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE IS BASED ON TWO A SPECTS. (I) THE INFORMATION RECEIVED UNDER SECTION 133(6) OF TH E ACT WAS CONSIDERED BY THE TPO WITHOUT SHARING WITH THE ASSE SSEE AND (II) NATURE OF THE ACTIVITY IS KPO. IT IS PERTINENT TO NOTE THAT THE QUESTION OF BPO AND KPO IS RELEVANT ONLY IN ITES SE GMENT AND NOT FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT. ON T HE CONTRARY THE DECISION IN THE CASE OF TOLUNA INDIA PVT. LTD. (SUPRA) PERTAINS TO THE ASSESSMENT YEAR 2007-08 THEREFORE THE FACTS OF THE DIFFERENT YEAR CANNOT BE APPLIED WITHOUT VERIFI CATION. ACCORDINGLY WE SET ASIDE THIS ISSUE OF COMPARABILI TY OF E-JUST SOLUTION LTD. TO THE RECORD OF THE ASSESSING OFFICE R/TPO FOR PAGE 14 OF 24 IT(TP)A NO.412/BANG/2016 DECIDING THE SAME AFTER VERIFICATION OF THE RELEVAN T FACTS AS WELL AS CONSIDERING THE OBJECTIONS OF THE ASSESSEE.' 38. THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S APPLIED MATERIALS OF INDIA LTD. V. A CIT (SUPRA) RELIED UPON BY THE LD.AR BASED ON TWO ASPECTS (I) THE INFORMATION RECEIVED U NDER SECTION 133(6) OF THE ACT WAS CONSIDERED BY THE TPO WITHOUT SHARING WITH THE ASSESSEE AND (II) NATURE OF THE ACTIVITY IS KPO . IT IS PERTINENT TO NOTE THAT THE QUESTION OF BPO AND KPO IS RELEVAN T ONLY IN ITES SEGMENT AND NOT FOR SOFTWARE DEVELOPMENT SERVICES S EGMENT. 39. ACCORDINGLY WE SET ASIDE THIS ISSUE OF COMPARA BILITY OF E- JEST SOLUTIONS LTD. TO THE RECORD OF THE ASSESSING OFFICER/TPO FOR DECIDING THE SAME AFTER VERIFICATION OF THE RELEVAN T FACTS AS WELL AS CONSIDERING THE OBJECTIONS OF THE ASSESSEE. 40. GROUND NO.9 IS AGAINST INCLUSION OF M/S.E-INFOCHIPS BY AUTHORITIES BELOW. 41. LD.AR PLACED RELIANCE UPON DECISION OF COORDINA TE BENCH OF THIS TRIBUNAL IN CASE OF ELECTRONICS FOR IMAGING INDIA PVT.LTD (SUPRA) WHEREIN E- INFOCHIPS LTD IS EXCLUDED FOR FAILING IN SERVICE INCOME FILTER. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 42. THE LD.CIT DR SUBMITTED THAT LD.TPO WHILE ANALY SING COMPARABLES OBSERVED THAT THIS COMPANY HAS REVENUE FROM SOFTWARE DEVELOPMENT UP TO 88%. 43. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. PAGE 15 OF 24 IT(TP)A NO.412/BANG/2016 44. IT IS OBSERVED THAT THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT LTD. VS ACIT (SUPRA) EXCLUDED E- INFOCHIPS LTD. BY FOLLOWING VIEW TAKEN BY THIS TRIBUNAL IN CASE OF COMSCOP NETWORK (INDIA) PVT.LTD. LIMITED VS ITO IN IT (TP) A/BANG/2016 DATE D 22/02/17 WHEREIN THIS COMPANY WAS EXCLUDED FOR REASON THAT THERE IS NO SEGMENTAL INFORMATION REGARDING DIVERSE FUNCTIONS P ERFORMED BY THIS COMPANY AND THAT THERE WAS MAJOR FLUCTUATION I N ITS PROFITS WHICH INFLUENCED TURNOVER OF THIS COMPANY. WE ALSO NOTE THAT THIS TRIBUNAL IN CASE OF DCIT VS CGI INFORMATION SYSTEMS (SUPRA) HAD ENCOUNTERED WITH AN IDENTICAL SITUATION FOR YEA R UNDER CONSIDERATION. THIS TRIBUNAL OBSERVED AS UNDER: 24. AS FAR AS GROUND NO. 4 RAISED BY REVENUE IS CONCER NED THE SAID GROUND OF APPEAL IS WEAK AND ANY EVENT COMPARABILIT Y OF COMPANIES THAT WERE EXCLUDED BY THE DRP WERE ON VALID GROUNDS CONTEMPLATED BY THE RELEVANT STATUTORY PROVISIONS OF THE ACT AND RULES. AS FAR AS GROUND NO. 5 IN REVENUES APPEAL IS CONCERNED THE REVENUE SEEKS TO CHALLENGE THE EXCLUSION OF AE INFOTECH LTD. ON THE GROUND THAT IT FAILED DIRECT SOFTWARE SERVICE INCOME FILTER AT 75%. AT TH E OUTSET THE ASSESSEE SUBMITS THAT E INFOTECH LTD WAS EXCLUDED B Y THE DRP ON THE GROUND THAT: (I) NO SEGMENTAL INFORMATION IS REGARD ING ITS DIVERSE FUNCTIONS IS AVAILABLE; (II) IT FAILED THE SOFTWARE SERVICE INCOME FILTER AND 75%; (III) THERE WERE MAJOR FLUCTUATIONS IN PRO FIT AND TURNOVER EVERY YEARS WHICH SEEMS TO BE INFLUENCED BY EXTRAOR DINARY/PECULIAR CIRCUMSTANCES; AND (IV) THERE IS A PRESENCE OF INVE NTORY (PAGE 10 AND 11 OF THE DRPS DIRECTIONS). THE REVENUE IN ITS AP PEAL HAS CHALLENGED ITS EXCLUSION ONLY ON THE 2 ND GROUND. IN OTHER WORDS THE REVENUE HAS NOT CHALLENGED ITS EXCLUSION ON THE OTHER GROUNDS S TATED HEREINABOVE AND THUS ITS EXCLUSION ON THESE GROUNDS HAVE ATTAIN ED FINALITY AND CANNOT BE DISTURBED BY THIS HONBLE TRIBUNAL. EVEN OTHERWISE WE ARE OF THE VIEW THAT THE DRP RIGHTLY ARRIVED AT THE FIN DING THAT COMPANIES SOFTWARE DEVELOPMENT SERVICE REVENUE FOR FY 2010-11 WAS LESS THAN 75% OF ITS TOTAL OPERATING REVENUE FOR THE YEAR. TH US THE ABOVE ACTION OF THE DRP IN REJECTING THE ABOVE COMPANIES CORRECT . 45. FROM THE ABOVE IT IS OBSERVED BY THIS TRIBUNAL CONSISTENTLY IN VARIOUS DECISIONS FOR A.Y: 2011-12 HELD THAT TH IS COMPANY PAGE 16 OF 24 IT(TP)A NO.412/BANG/2016 DOES NOT SATISFY SERVICE INCOME FILTER BEING 75%. WE THEREFORE DO NOT SEE ANY REASON TO SET ASIDE THIS COMPANY TO LD. TPO. THEREFORE RESPECTFULLY FOLLOWING VIEW TAKEN BY COO RDINATE BENCH OF THIS TRIBUNAL IN DCIT VS M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATIONS PVT. LTD. (SUPRA) WE DIRECT LD.TPO TO EXCLUDE THIS COMPANY. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DI SMISSED. GROUND NO.10 46. ICRA TECHNOLOGY ANALYTICS LTD IS NOT FUNCTIONAL LY COMPARABLE WITH A CAPTIVE SERVICE PROVIDER LIKE ASS ESSEE. IT IS SUBMITTED THAT THIS COMPANY HAS SIGNIFICANT RPT OF 24.81% WITH MARGIN OF 24.83% AND PREDOMINANTLY INTO SOFTWARE DE VELOPMENT SERVICES AND WHICH IS ENGAGED IN DIVERSIFIED ACTIVI TIES AND NO SEGMENTAL DETAILS ARE AVAILABLE AND FURTHER CONCENT RATED IN NICHE AREA OF BUSINESS INTELLIGENCE AND ANALYTICS SPACE A ND HAS REVENUE FROM LICENSING ACTIVITIES. IT HAS BEEN SUBMITTED THAT COORDINATE BENCH OF THIS TRIBUNAL HAS HELD THIS COMPARABLE TO BE FUNCTIONALLY NOT COMPARABLE WITH ASSESSEE IN CASE OF APPLIED MATERIALS INDIA PVT. LTD. V. ACIT REPORTED IN IT(TP) APPEAL NOS.17 & 39/BANG/2016 DT.21.09.2016] FOR THE ASSESSMENT YEA R 2011-12. IT HAS BEEN SUBMITTED THAT THIS TRIBUNAL FOUND THIS COMPANY NOT FUNCTIONALLY COMPARABLE TO THE SOFTWARE DEVELOPMENT CAPTIVE SERVICES PROVIDER. 47. IT IS ALSO SUBMITTED THAT THIS COMPANY HAS SIG NIFICANT GROWTH IN BUSINESS OF INTELLIGENCE AND ANALYTICS SP ACE WHICH ARE PAGE 17 OF 24 IT(TP)A NO.412/BANG/2016 DIFFERENT FROM ACTIVITIES OF THE FUNCTIONAL PROFILE OF THE ASSESSEE AND ENGAGED IN LICENSING ACTIVITY. 48. THE CONTRARY THE LD. CIT DR PLACED RELIANCE ON ORDERS PASSED BY AUTHORITIES BELOW. 49. WE HAVE PERUSED SUBMISSIONS ADVANCED BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 50. WE FOUND THE SAID COMPARABLE WAS EXCLUDED BY TH E CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF APPLIED MATERIALS INDIA LTD. (SUPRA) AT PAGES 32 & 33 PARA S 17.1 & 17.2 AS UNDER : 17.1 WE HAVE HEARD THE LEARNED D.R. AS WELL AS LEAR NED A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP HAS REJECTED THIS COMPANY BY RECORDING THE FACT AS UNDER : 'WE EXAMINED THE ANNUAL REPORT FROM WHICH IT IS E VIDENT THAT THE ENTIRE REVENUE HAS BEEN SHOWN UNDER SERVICE SEGMENT WHICH INDICATES THAT THE REVENUE FROM SOFTWARE DEVELOPMENT CONSULTANCY LICENSING AND SUB-LICENSING ANNUAL MAINTENANCE CHARGES FOR SOFTW ARE SUPPORT. WEB DEVELOPMENT AND HOSTING HAS BEEN REPORTED IN ONE SE GMENT THUS IN ABSENCE OF SEGMENTAL INFORMATION WE CONCUR WITH TH E VIEW OF THE DRP IN PRECEDING YEAR AND ACCORDINGLY DIRECT THE ASSESS ING OFFICER TO EXCLUDE THIS COMPANY FROM COMPARABLES.' 17.2 WE FURTHER NOTE THAT THE TRIBUNAL IN THE CASE OF DCIT V. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) HAS CONSIDERED THE COMPARABILITY OF THIS COMPANY IN PARAS 14 TO 16 AS UNDER : '(1) ICRA TECHNO ANALYTICS LTD. (SEG) 14. AT THE OUTSET WE NOTE THAT APART FROM HAVING T HE RELATED PARTY REVENUE AT 20.94% OF THE TOTAL REVENUE THIS COMPAN Y WAS ALSO FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH SOFTWARE DEV ELOPMENT SERVICES SEGMENT OF THE ASSESSEE. THE DRP HAS GIVEN ITS FIND ING AT PAGES 13 TO 14 AS UNDER:- 'HAVING HEARD THE CONTENTION ON PERUSAL OF THE ANN UAL REPORT IT IS NOTICED BY US THAT THE SEGMENTAL INFORMATION IS AVA ILABLE FOR TWO SEGMENTS I.E. SERVICES AND SALES. HOWEVER IT IS E VIDENT FROM THE ANNUAL REPORT THAT THE SERVICE SEGMENT COMPRISES OF SOFTWARE DEVELOPMENT SOFTWARE CONSULTANCY ENGINEERING SERV ICES WEB DEVELOPMENT WEB HOSTING ETC. FOR WHICH NO SEGMENT AL INFORMATION IS AVAILABLE AND THEREFORE THE OBJECTION OF THE ASSES SEE IS FOUND PAGE 18 OF 24 IT(TP)A NO.412/BANG/2016 ACCEPTABLE. ACCORDINGLY ASSESSING OFFICER IS DIREC TED TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARABLES.' 15. WE FIND THAT THE FACTS RECORDED BY THE DRP IN R ESPECT OF BUSINESS ACTIVITY OF THIS COMPANY ARE NOT IN DISPUTE. THEREF ORE WHEN THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES OF SOF TWARE DEVELOPMENT AND CONSULTANCY ENGINEERING SERVICES WEB DEVELOPM ENT & HOSTING AND SUBSTANTIALLY DIVERSIFIED ITSELF INTO DOMAIN OF BUSINESS ANALYSIS AND BUSINESS PROCESS OUTSOURCING THEN THE SAME CAN NOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSE E WHO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AE. 16. IN VIEW OF THE ABOVE FACTS WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY IS FUNCT IONALLY NOT COMPARABLE WITH THAT OF A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER.' NOTHING HAS BEEN BROUGHT BEFORE US TO SHOW THAT THE FACTS RECORDED BY THE DRP AS WELL AS BY THE CO-ORDINATE BENCH OF THIS TRI BUNAL ARE NOT CORRECT. ACCORDINGLY IN VIEW OF THE DECISION OF THE CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE DRP ON THIS ISSUE.' BASED ON THE ABOVE WE DIRECT THIS COMPARABLE TO BE EXCLUDED FROM THE FINAL LIST. ADDITIONAL GROUND: IN THE ADDITIONAL GROUND ASSESSEE IS SEEKING EXCLUS ION OF PERSISTENT SYSTEMS AND SOLUTIONS LTD. 51. THIS COMPANY WAS PART OF THE TP STUDY ANALYSIS HOWEVER THE ASSESSEE RAISED IS SEEKING EXCLUSION BEFORE US. THE LD.AR SUBMITTED THAT THESE COMPANIES ARE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE AS THESE ARE ENGAGED IN DIVERSIFIED ACTIVITY I.E. RENDERING OF SOFTWARE DEVELOPMENT SERVICES AND LICE NSING ROYALTY OF SOFTWARE PRODUCTS. THUS WITHOUT HAVING THE SEPAR ATE SEGMENTAL DETAILS AND DATA THESE DIVERSIFIED ACTIVI TIES CANNOT BE COMPARED WITH THE ASSESSEE. HE HAS FURTHER POINTED OUT THAT THE COMPANY PERSISTENT SYSTEMS LTD. ALSO ENGAGED IN DEV ELOPING PRODUCTS AND THEREFORE THE ACTIVITIES ARE NOT COMPA RABLE WITH PAGE 19 OF 24 IT(TP)A NO.412/BANG/2016 THAT OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THIS (TRIBUNAL) IN THE CASE OF (ELECTRONICS FOR IMAGING INDIA (P.) LTD. VS. DCIT) (SUPRA) AND SUBMITTED THAT THIS COMPANY WAS FOUND TO BE NOT COM PARABLE WITH THE SOFTWARE DEVELOPMENT SERVICES PROVIDER. 52. ON THE OTHER HAND THE LD.CIT.DR PLACED RELIANC E ON ORDERS PASSED BY AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN LIGHT O F MATERIAL PLACED ON RECORD. AT THE OUTSET WE NOTE THAT THE FUNCTIONAL COMPARABI LITY OF THESE TWO COMPANIES HAVE EXAMINED BY THE CO-ORDINATE BENC H OF THIS TRIBUNAL IN THE CASE OF ELECTRONICS FOR IMAGING IND IA (P.) LTD. IN I T(TP) A NOS. 227 & 285/DEL/2013 BY ORDER DATED 22/0 4/2016 IN PARAS 60 AND 61 & AS UNDER: ' PERSISTENT SYSTEMS & SOLUTIONS LTD. 60. THE ASSESSEE HAS THE GRIEVANCE AGAINST REJECTIO N OF THIS COMPANY BY THE DRP. THE LD. AR HAS SUBMITTED THAT ASSESSEE DID NOT RAISE ANY OBJECTION AGAINST THIS COMPANY HOWEVER THE DRP HA S REJECTED THE SAID COMPANY. THEREFORE THE SAID COMPANY SHOULD BE RETA INED IN THE LIST OF COMPARABLES. 61. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD AT THE OUTSET WE NOTE THAT THE DRP HAS EXAMINED THE FUNCTIONAL COMPARABILITY OF THIS COMPANY BY CON SIDERING THE RELEVANT DETAILS AS GIVEN IN THE ANNUAL REPORT OF THIS COMPA NY. THE DRP HAS GIVEN THE FINDING THAT THE ENTIRE REVENUE HAS BEEN EARNED BY THIS COMPANY FROM THE SALE OF SOFTWARE SERVICES AND PROD UCTS AND IN THE ABSENCE OF SEGMENTAL DETAILS IT CANNOT BE CONSIDER ED AS COMPARABLE WITH SOFTWARE SERVICES SEGMENT. WE FIND THAT THIS C OMPANY HAS SHOWN THE INCOME FROM SALE OF SOFTWARE SERVICES AND PRODU CTS TO THE TUNE OF RS.6.67 CRORES. WE FURTHER NOTE THAT AS PER SCHEDUL E 11 THE ENTIRE REVENUE HAS BEEN SHOWN UNDER ONE SEGMENT I.E. SALE OF SOFTWARE SERVICES AND PRODUCTS. THEREFORE NO SEPARATE SEGME NT HAS BEEN GIVEN IN RESPECT OF SOFTWARE SERVICES. ACCORDINGLY THE C OMPOSITE DATA OF REVENUE AS WELL AS MARGINS OF THIS COMPANY PERTAINI NG TO THE SALE OF PAGE 20 OF 24 IT(TP)A NO.412/BANG/2016 SOFTWARE SERVICES AND PRODUCTS CANNOT BE CONSIDERED AS COMPARABLE WITH THE SOFTWARE DEVELOPMENT SERVICES SEGMENT OF T HE ASSESSEE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES WE DO NO T FIND ANY ERROR OR ILLEGALITY IN THE DIRECTIONS OF THE DRP IN EXCLUDIN G THIS COMPANY FROM THE LIST OF COMPARABLES. THIS GROUND OF CO IS DISMISSED . 53. IT HAS BEEN SUBMITTED THAT THE ABOVE OBSERVATIO N WAS FOLLOWED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF ELECTRONICS FOR IMAGING VS DCIT REPORTED IN 85 TAXMANN.COM 124 FOR ASSESSMENT YEAR 2011-12 AND HAD EXCLUDED THIS C OMPARABLE AS NOT COMPARABLE WITH A CAPTIVE SERVICE PROVIDER. 54. WE FURTHER FIND FROM THE ANNUAL REPORT PLACED AT PAGE 1167-1168 THAT THERE IS NO CHANGE IN THE ACTIVITY A ND FUNCTIONS OF THESE COMPANIES DURING THE YEAR UNDER CONSIDERAT ION IN COMPARISON TO THE ASSESSMENT YEAR 2010-11. ACCORDINGLY FOLLOWING THE DECISIONS OF THE CO-ORDI NATE BENCHES OF THIS TRIBUNAL (SUPRA) WE DIRECT THE AO/TPO TO EXCL UDE THESE TWO COMPANIES FROM THE SET OF COMPARABLES.' ACCORDINGLY WE ALLOW THE ADDITIONAL GROUND RAISED B Y ASSESSEE. GROUND NO.11: 55. THE ASSESSEE IS SEEKING INCLUSION OF AKSHAY SOF TWARE TECHNOLOGIES LTD. LGS GLOBAL LTD. AND THINKSOFT GL OBAL LTD. IN THE FINAL LIST OF COMPARABLES WHICH WAS ALSO ENGAG ED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES. IT HAS BEEN SUBMITTE D THAT THESE COMPARABLES WERE ALSO CONSIDERED BY COORDINATE BENC H OF THIS TRIBUNAL IN CASE OF OF APPLIED MATERIALS INDIA LTD. (SUPRA) . IT IS SUBMITTED BY THE LD.AR THAT THIS TRIBUNAL WAS PLEASED TO REMAND PAGE 21 OF 24 IT(TP)A NO.412/BANG/2016 THE QUESTION OF INCLUSION OF THIS COMPANY FOR FRESH CONSIDERATION BY THE AO/TPO. 56. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL WE SET ASIDE THE ORDER OF THE LD.TPO/AO EXCLUDING THIS COM PANY AS A COMPARABLE COMPANY AND REMAND THE ISSUE OF COMPARAB ILITY OF THIS COMPANY BE CONSIDERED AFRESH BY THE LD.TPO/AO. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. GROUND 12(A) 57. THE LD.AR SUBMITTED THAT ASSESSEE IS CHALLENGIN G THE ACTION OF RESTRICTING THE WORKING CAPITAL ADJUSTMENT. HE R EFERRED TO RULE 10B(3) THAT PROVIDE THAT AN ADJUSTMENT OUGHT TO BE PROVIDED FOR ANY DIFFERENCES IN THE ECONOMIC FACTORS BETWEEN THE TESTED PARTY AND THE COMPARABLES. THE LD.AR ALSO PLACED RELIANCE ON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF ARM EMBEDDED TECHNOLOGIES PVT.LTD. VS ITO IN IT(TP)A NO. 1369/BANG/2014 AND VMWARE SOFTWARE INDIA PVT.LTD. VS DCIT IN IT (TP)A.NO.1311 (BANG.) OF 2014 DATED 6-1-2017 WHEREIN THE TRIBUNAL DIRECTED TO GRANT FULL WORKING CAPITAL ADJUSTMENT WITHOUT ANY. ON THE CONTRARY THE LD.CIT.DR RELIED ON ORDERS PAS SED BY AUTHORITIES BELOW. 58. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 59. THE LD.TPO RESTRICTED THE WORKING CAPITAL ADJUS TMENT AT 1.63%. IDENTICAL ISSUE WHICH HAD COME UP BEFORE THI S TRIBUNAL IN THE CASE OF RAMBUS CHIP TECHNOLOGIES (INDIA) (P.) LTD. V. DY. PAGE 22 OF 24 IT(TP)A NO.412/BANG/2016 CIT IT(TP)A.23/BAN/2015 DT. 22.07.2015 WHEREIN THIS T RIBUNAL OBSERVED AND HELD AS UNDER: '13.AS REGARDS GROUND NO.3(F). LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO/TPO WHILE CONSIDERING THE WOR KING CAPITAL ADJUSTMENT HAS ARRIVED AT THE WORKING CAPITAL ADJU STMENT IN THE CASE OF THE ASSESSEE AT 5.97% BUT WHILE GIVING EFFECT T O THE WORKING CAPITAL ADJUSTMENT HAS RESTRICTED THE SAID ADJUSTMENT TO 1 .71% IN CASE OF UNCONTROLLED COMPARABLES SELECTED BY THE TPO. THE L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO HAS NOT GIVEN A NY BASIS FOR SUCH RESTRICTION OF THE WORKING CAPITAL ADJUSTMENT. HE S UBMITTED THAT THE CIT (A) ALSO HAS NOT APPLIED HIS MIND TO THIS ISSUE BUT HAS SUMMARILY CONFIRMED THE ORDER OF THE AO AND THEREFORE IT HAS TO BE SET ASIDE. 60. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW TAKE N BY THIS TRIBUNAL WE DIRECT LD.AO/TPO TO RECOMPUTE THE WORK ING CAPITAL ADJUSTMENT IN THE CASE OF COMPARABLES IN ACTUAL. WE NOTE THAT IN ALL THE TRANSFER PRICING CASES THIS TRIBUNAL HAS BEEN DIRECTING THE LD.AO/TPO TO GRANT WORKING CAPIT AL ON ACTUAL. PRESENT ASSESSEE BEING A CAPTIVE SERVICE PROVIDER T HERE IS MINIMAL RISK UNDERTAKEN AND THEREFORE THERE IS A NECESSITY TO PROVIDE ADJUSTMENT TO THE MARGINS OF COMPARABLES IN THE FIN AL LIST TO SET APART THE DIFFERENCES. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON M ARCH 2021 (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE DATED THE MARCH 2021. /VMS/ PAGE 23 OF 24 IT(TP)A NO.412/BANG/2016 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE PAGE 24 OF 24 IT(TP)A NO.412/BANG/2016 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -3-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -3-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -3-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -3-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -3-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -3-2021 SR.PS 8. IF NOT UPLOADED FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -3-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS