Agilis Information Technologies India Pvt. Ltd., New Delhi v. ACIT, New Delhi

ITA 555/DEL/2017 | 2012-2013
Pronouncement Date: 15-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 55520114 RSA 2017
Assessee PAN AAECA2786J
Bench Delhi
Appeal Number ITA 555/DEL/2017
Duration Of Justice 9 month(s) 13 day(s)
Appellant Agilis Information Technologies India Pvt. Ltd., New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 15-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted I2
Tribunal Order Date 15-11-2017
Date Of Final Hearing 10-07-2017
Next Hearing Date 10-07-2017
First Hearing Date 10-07-2017
Assessment Year 2012-2013
Appeal Filed On 01-02-2017
Judgment Text
1 ITA NO. 555/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI R. S. SYAL VICE PR ESIDENT AND MS SUCHITRA KAMBLE JUDICIAL MEMBER I.T.A .NO. 555/DE L/2017 (A.Y 2012-13) AGILIS INFORMATION TECHNOLOGIES INDIA PVT. LTD. (NOW KNOWN AS INFOGIX INTERNATIONAL PVT. LTD.) E-11 RAJOURI GARDEN NEW DELHI AAECA2786J (APPELLANT) VS ACIT CIRLC-12(1) NEW DELHI (RESPONDENT) APPELLANT BY SH. NEERAJ JAIN ADV MS. DIPIKA AGARWAL ADV RESPONDENT BY SH. H. K. CHOUDHARY CIT DR ORDER PER SUCHITRA KAMBLE JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER DATED 29.12.2016 PASSED BY ACIT C IRCLE-12(1) NEW DELHI U/S 143(3) READ WITH SECTION 144C OF INCO ME TAX ACT 1961 IN ASSESSMENT YEAR 2012-13. DATE OF HEARING 30.08.2017 DATE OF PRONOUNCEMENT 15.11.2017 2 ITA NO. 555/DEL/2017 2. AGILIS INFORMATION TECHNOLOGIES INTERNATIONAL (I ) LTD. IS ESTABLISHED IN INDIA TO UNDERTAKE SOFTWARE DEVELOPM ENT AND INSTALLATION OF COMPUTERIZED SYSTEMS CONDUCT FEASI BILITY STUDIES SYSTEMS ANALYSIS AND DESIGN AS WELL AS DESIGN OF SP ECIAL SOFTWARE AND SYSTEM AND APPLICATION OF SOFTWARE. IT IS ALSO ENGAGED IN THE BUSINESS OF RENDERING TECHNICAL SERVICES RELATED TO TABULATION CODING AND SOFTWARE DEVELOPMENT. IT IS ESTABLISHED TO UNDERTAKE AND ENGAGED IN EXPORT OF SOFTWARE COMPUTER SKILLED MAN POWER AND OTHER COMPUTER RELATED ACTIVITIES TO CARRY OUT DEVE LOPMENT IN THE AREA OF INFORMATION TECHNOLOGY COMPUTER SYSTEMS S OFTWARE APPLICATION SOFTWARE INTEGRATED TOLLS FOR COMPUTER SYSTEMS AND APPLICATION DEVELOPMENT DATA COMMUNICATION AND NET WORK. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTION OF RS.20 61 19 812 REGARD ING RENDERING OF SERVICES I.E. SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE USED TNMM AS THE METHOD AND OP/TC AS THE PLI. THE ASSESS EE ARRIVED AT A SET OF 9 COMPANIES WITH AN AVERAGE MARGIN OF 7 .64%. THE ASSESSEE USED MULTIPLE YEAR DATA. THE ASSESSEES OW N MARGIN WORKED OUT TO BE 13.48%. BASED ON THIS ANALYSIS TH E ASSESSEE CONCLUDED THAT ITS INTERNATIONAL TRANSACTIONS ARE A T ARMS LENGTH. A SHOW CAUSE NOTICE DATED 07.12.2015 WAS ISSUED TO TH E ASSESSEE. THE ASSESSEE FILED REPLY DATED 28.12.2015 IN RESPON SE TO THE SHOW CAUSE NOTICE AND THE PERSONAL HEARING WAS CONDUCTED ON THE SAME DAY. THE TPO REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE BY REJECTING THE ECONOMIC ANALYSIS OF THE ASSESSEE. FO REIGN EXCHANGE 3 ITA NO. 555/DEL/2017 FLUCTUATION WAS ALSO TREATED AS NON OPERATING INCOM E OF THE TAXPAYER AND ALSO IN THE CASE OF COMPARABLES BY THE TPO. 3. THE TPO APPLIED THE FOLLOWING QUANTITATIVE AND Q UALITATIVE FILTERS FOR THE PURPOSE OF BENCHMARKING ANALYSIS. (I) USE OF CURRENT YEAR DATA (II) COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING WERE REJECTED (III) COMPANIES HAVING SALES LESS THAN 1 CRORES WERE REJECTED (IV) COMPANIES UNDERTAKING SIGNIFICANTLY DIFFERENT FUNCTIONS COMPARED TO APPLICANT (V) INCOME FROM EXPORT SALES AT LEAST 75% OF T HE TOTAL SALES FROM SOFTWARE DEVELOPMENT SERVICES INCOME (VI) COMPANIES HAVING SERVICE INCOME AT-LEAST 7 5% TO TOTAL OPERATING INCOME (VII) COMPANIES HAVING EMPLOYEE COST TO OPERATIN G COST RATIO MORE THAN 25% WERE SELECTED (VIII) COMPANIES HAVING RPT MORE THAN 25% OF TOTA L SALES WERE REJECTED (IX) COMPANIES INCURRING PERSISTENT LOSSES FOR THE LAST THREE YEARS UPTO AND INCLUDING FY 2011-12 WERE REJECTED (X) COMPANIES THAT ARE AFFECTED BY SOME PECULIAR ECONOMIC CIRCUMSTANCES ACCORDINGLY THE TPO ARRIVED AT THE COMPARABLE COMP ANIES WITH AN AVERAGE OPERATING PROFIT TO OPERATION COST RATIO OF 21.65%. THE COMPARABLES ARE AS FOLLOWS: S. NO. NAME OF THE COMPANY OP/OC (%) 1 ACROPETAL TECHNOLOGIES LTD. (SEG) 65.92 2 AKSHAY SOFTWARE TECHNOLOGIES LTD. 7.77 3 CELSTREAM TECHNOLOGIES PVT. LTD. 11.34 4 CIGNITI TECHNOLOGIES LTD. 8.28 5 INFOSYS LTD. 42.15 6 SASKEN COMMUNICATION 14.58 4 ITA NO. 555/DEL/2017 TECHNOLOGIES LTD. 7 LUCID SOFTWARE LTD. 11.10 8 LARSEN & TOUBRO INFOTECH LTD. (INDUSTRIAL CLUSTER) 27.16 9 PERSISTENT SYSTEMS LTD. 26.92 10 R S SOFTWARE (INDIA) LTD. 15.43 11 SANKHYA INFOTECH LTD. 5.68 12 MINDTREE LTD. (IT SERVICE SEGMENT) 19.19 13 SPRY RESOURCES PVT. LTD. 33.59 14 TATA ELXSI LTD. 14.32 15 THIRDWARE SOLUTIONS LTD. (OVERSEAS SEGMENT) 11.10 16 ZYLOG SYSTEMS 32.01 AVERAGE 21.65 THE TPO MADE AN ADJUSTMENT OF RS.2 61 31 755/- ON ACCOUNT OF THE DIFFERENCE IN THE ARMS LENGTH PRICE OF THE INT ERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AS UNDE R:- OPERATING COST 19 12 33 941 ARMS LENGTH MARGIN(%) 21.65 ARMS LENGTH PRICE (ALP) 23 26.36 089 PRICE RECEIVED 20 65 04 334 PROPOSED ADJUSTMENT U/S 92CA 2 61 31 755 A DRAFT ORDER U/S. 143(3) R.W.S. 144C OF INCOME TAX ACT 1961 WAS PASSED BY THE THEN ASSESSING OFFICER ON 15.03.2 013 WHILE MAKING ADJUSTMENT OF RS.2 61 32 755/- ON ACCOUNT OF TP ADJUSTMENT. THE ASSESSEE COMPANY FILED OBJECTION BE FORE THE DISPUTE RESOLUTION PANEL (DRP) AND DRP ISSUED CERTA IN DIRECTIONS 5 ITA NO. 555/DEL/2017 TO THE TPO VIDE ORDER DATED 18.11.2016. THE TPO FOL LOWED THE DRP DIRECTIONS AS FOLLOWS: S. NO. NAME OF THE COMPANY OP/OC (%) DRP DIRECTED TO CONSIDER FOREX AS OPERATING OP/OC (%) 1 ACROPETAL TECHNOLOGIES LTD. (SEG) 65.92 65.92 2 AKSHAY SOFTWARE TECHNOLOGIES LTD. 7.77 9.87 3 CELSTREAM TECHNOLOGIES PVT. LTD. 11.34 7.13 4 CIGNITI TECHNOLOGIES LTD. 8.28 9.08 5 INFOSYS LTD. 42.15 42.15 6 SASKEN COMMUNICATION TECHNOLOGIES LTD. 14.58 14.58 7 LUCID SOFTWARE LTD. 11.10 11.64 8 LARSEN & TOUBRO INFOTECH LTD. (INDUSTRIAL CLUSTER) 27.16 16.06 9 PERSISTENT SYSTEMS LTD. 26.92 26.27 10 R S SOFTWARE (INDIA) LTD. 15.43 15.43 11 SANKHYA INFOTECH LTD. 5.68 6.27 12 MINDTREE LTD. (IT SERVICE SEGMENT) 19.19 15.01 13 SPRY RESOURCES PVT. LTD. 33.59 33.59 14 TATA ELXSI LTD. 14.32 15.17 15 THIRDWARE SOLUTIONS LTD. (OVERSEAS SEGMENT) 11.10 11.10 16 ZYLOG SYSTEMS 32.01 28.38 AVERAGE 21.65 20.48 6 ITA NO. 555/DEL/2017 THUS THE ASSESSING OFFICER VIDE ORDER DATED 29.12. 2016 ASSESSED TOTAL INCOME AT RS.3 55 88 710/-. THE COMP UTATION OF INCOME AS PER ASSESSING OFFICER IS AS FOLLOWS: TOTAL INCOME AS PER RETURN OF INCOME RS.1 16 94 390 ADD ADDITION ON ACCOUNT OF ALP RS.2 38 94 318 TOTAL ASSESSED INCOME RS.3 55 88 708 4. THE LD. AR SUBMITS THAT THE ASSESSEE IS PRAYING FOR EXCLUSION OF FOLLOWING COMPARABLES:- (1) ACROPETAL TECHNOLOGIES LIMITED (2) INFOSYS LTD. (3) LARSEN & TOUBRO INFOTECH LTD. (4) MINDTREE LIMITED (5) PERSISTENT SYSTEMS LTD. (6) SPRY RESOURCES PVT. LTD. (7) ZYLOG SYSTEMS LTD. THE LD. AR SUBMITTED THAT THESE 7 COMPANIES CONSIDE RED BY THE DRP/TPO IN THE FINAL SET OF COMPARABLE COMPANIE S ARE NOT COMPARABLE TO THE ASSESSEE AND DOES NOT SATISFY TH E CRITERIA OF FUNCTIONAL COMPARABILITY LAID DOWN UNDER RULE 10B(2 ) OF THE INCOME TAX RULES 1962. 7 ITA NO. 555/DEL/2017 4.1 ACROPETAL TECHNOLOGIES LTD. THE LD. AR SUBMITTED THAT THIS COMPANY IS FUNCTIONA LLY DIFFERENT FROM THE ASSESSEE COMPANY. THIS COMPANY IS ENGAGED IN PROVISION OF HIGH END HEALTHCARE SERVICES AND DEVELOPS & OWNS RELATED INTELLECTUAL PROPERTY PROVIDING A SUBSTANTIAL COMPE TITIVE ADVANTAGE TO THIS COMPANY LEADING TO HIGHER PROFITABILITY. A S PER THE ANNUAL REPORT THE COMPANY IS ENGAGED IN THE SALE OF SOFTW ARE PRODUCTS. THE LD. AR SUBMITTED THAT FROM PAGE 6 OF THE ANNUAL REPORT IT IS EVIDENT THAT WITHIN THE HEALTHCARE SEGMENT THE COM PANY IS OPERATING AS A KPO SERVICE PROVIDER AND IS ENGAGED IN BUILDING ELECTRONIC MEDICAL RECORD (EMR). FURTHER THE CO MPANY INTEGRATED SUCH EMRS WITH OTHER ASPECTS OF PATIENT LIFE CYCLE SUCH AS DRUG AND DISEASE MANAGEMENT CLINICAL LIFE CYCLE MANAGEMENT AND PRESCRIPTIVE & SPECIALTY MEDICINE. THE LD. AR SUBM ITTED THAT THESE ACTIVITIES ARE KNOWLEDGE INTENSIVE ACTIVITIES REQUI RING HIGH LEVEL OF SKILL AND APPLICATION OF INTELLECTUAL PROPERTY. THE LD. AR FURTHER SUBMITTED THAT FROM THE PROFIT AND LOSS ACCOUNT IT IS EVIDENT THAT THE COMPANY IS EARNING REVENUE FROM SALE OF PRODUCT S NAMELY PRODUCT HARDWARE AND PRODUCT SOFTWARE. AS ON 31 ST MARCH 2012 THE COMPANY HELD INVENTORIES AMOUNTING TO RS. 21 01 502 WHICH CLEARLY ESTABLISHES THE FACT THAT THE COMPANY IS EN GAGED IN THE BUSINESS OF SALE OF SOFTWARE PRODUCT. THUS THE COM PANY IS ENGAGED IN TWO BUSINESS SEGMENTS I.E. SALE OF PRODUCTS AN D SALE OF SERVICES BUT SEGMENTAL PROFITABILITY IS NOT AVAILABLE IN THE AUDITED FINANCIAL STATEMENTS. THE TPO REJECTED THE CONTENTIONS OF THE ASSESSEE COMPANY DURING THE TP PROCEEDINGS AND HELD THAT INF ORMATION 8 ITA NO. 555/DEL/2017 TECHNOLOGY SEGMENT PROVIDING OUTSOURCED SWD SERVICE S HAS BEEN CONSIDERED. THE LD. AR SUBMITTED THAT OPERATING EXP ENSES AND OPERATING INCOME ARE NOT ALLOCATED IN THE SEGMENTAL DETAILS PROVIDED IN THE FINANCIAL STATEMENTS. ACCORDINGLY CORRECT A ND ACCURATE OPERATING PROFIT MARGIN OF THE IT SEGMENT CANNOT BE COMPUTED. THE LD. AR FURTHER SUBMITS THAT THE COMPANY ACQUIRED TW O US BASED COMPANIES NAMELY LINE BEYOND INC AND OPTECH CONS ULTING INC. THE COMPANY ACQUIRED 100% STAKE IN LINE BEYOND INC. AND 70% STAKE IN OPTECH CONSULTING INC. FURTHER THE COMPAN Y ALSO ACQUIRED TWO DOMESTIC COMPANIES VIZ. MIND RIVER INFORMATIO N TECHNOLOGIES LTD. AND KINFOTECH PVT. LTD. THUS THE LD. AR SUBMI TS THAT IT IS AN EXTRA-ORDINARY EVENT WHICH THE TPO HAS OVERLOOKED W HILE SELECTING THIS AS COMPARABLE. 4.2 THE LD. AR RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (377 ITR 533) WHEREIN THERE IS A CLEAR DISTINCTION BETWEEN BPO AND KPO COMPANIES AND IT WAS HELD THAT A COMPANY ENGAGED IN PROVISION OF KPO SERVICES CANNOT BE REGARDED AS AN APPROPRIATE C OMPARABLE FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANS ACTION OF PROVISION OF BPO SERVICES. THE LD. AR FURTHER RELI ED UPON THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF TNS INDIA PVT. LTD. VS. DCIT (ITA NO. 1875/HYD/2012) WH EREIN THE TRIBUNAL DIRECTED TO EXCLUDE ACROPETAL TECHNOLOGIES LTD. HOLDING THAT THE SERVICES PROVIDED BY THE COMPANY ARE IN TH E NATURE OF HIGH END SERVICES COMING WITHIN THE CATEGORY OF KNOWLEDG E PROCESS 9 ITA NO. 555/DEL/2017 OUTSOURCING (KPO) AND THE COMPANY CANNOT BE COMPARE D WITH A LOW END SERVICE PROVIDER. THE LD. AR RELIED UPON THE FO LLOWING DECISIONS WHEREIN ACROPETAL TECHNOLOGIES LTD. HAS BEEN EXCLU DED ON ACCOUNT OF FUNCTIONAL DISSIMILARITY: SYMPHONY MARKETING SOLUTIONS INDIA PRIVATE LIMITED VS. ITO (ITA NO 1316/BANG/2012) MARKET TOOLS RESEARCH PRIVATE LIMITED VS. DCIT (ITA NO. 1811/HYD /2012) HSBC ELECTRONIC DATA INDIA PRIVATE LIMITED VS. DCIT (ITA NO. 1647/HYD/2012) MINDCREST (INDIA) PVT. LTD. VS. DCIT (ITA NO. 7289/ MU M/2012) M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD . (ITA NO. 124/HYD/14) VISTEON ENGINEERING CENTRE (INDIA) (P.) LTD. VS. AC IT (2016) 70 TAXMANN.COM 248 (PUNE - TRIB.) ITO VS. SYSTIME GLOBAL SOLUTIONS LTD. (ITA NO. 336/ PUN/2015) SIEMENS TECHNOLOGY & SERVICES PVT. LTD. VS. ACIT (I TA NO. 1601/BANG/2012 ADP PVT. LTD. VS. DCIT (ITA NO. 191/HYD/2014) S&P CAPITAL IQ (INDIA) PRIVATE LIMITED VS. DCIT (IT A NO. 22/HYD/2016. EXCELLENCE DATA RESEARCH P. LTD. VS ITO (ITA NO. 15 9/HYD/2014) SWISS RE SHARED SERVICES (INDIA ) P. LTD. VS. ACIT (ITA NO. 380/BANG/2016) THE LD. AR ALSO RELIED UPON THE FOLLOWING DECISION S WHEREIN A COMPANY IS DIRECTED TO BE EXCLUDED ON ACCOUNT OF NO N-AVAILABILITY OF SEGMENTAL DATA: 10 ITA NO. 555/DEL/2017 MACQUARIE GLOBAL SERVICES (P.) LTD (ITA 6803/DELHI/ 2013) VODAFONE INDIA SERVICES VS. DCIT THE LD. AR RELIED UPON THE FOLLOWING DECISIONS WHER EIN CONSISTENTLY A VIEW TAKEN TO EXCLUDE COMPANIES HAVING EXTRA-ORDI NARY EVENT DURING THE YEAR UNDER CONSIDERATION: STREAM INTERNATIONAL (ITA NO.8997/MUM/2010) CRM SERVICES ITA NO. 4068/DEL/2009 TOLUNA INDIA PVT. LTD. VS. ACIT (ITA NO. 5645/DEL/2 011. LEAR AUTOMOTIVE INDIA P. LTD VS ACIT (ITA NO 561 2/DEL/2011) AND GLOBAL LOGIC INDIA PVT. LTD. VS ACIT (ITA NO. 5809/ DEL/2011) BECHTEL INDIA PVT. LTD. VS. DCIT (ITA NO. 1478/DEL/ 2015) EQUANT SOLUTIONS INDIA (P.) LTD VS. DCIT (ITA NO. 1202/DEL/2015) 4.3 THE LD. DR SUBMITS THAT THE SEGMENT IS OF IT SE RVICE ONLY AND THERE IS NO PRODUCT INCLUDED IN THE SAME. THE LD. D R FURTHER SUBMITS THAT % IS VERY LESS SO HARDLY IT WILL MAKE ANY DIFFERENCE. THE LD. DR RELIED UPON THE ORDERS OF THE TPO AND TH E DRP. 4.4 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS AVAILABLE BEFORE US. THIS COMPANY IS ENGAGED IN PRO VISION OF HIGH END HEALTHCARE SERVICES AND DEVELOPS & OWNS RELATED INT ELLECTUAL PROPERTY PROVIDING A SUBSTANTIAL COMPETITIVE ADVANTAGE TO TH IS COMPANY LEADING TO HIGHER PROFITABILITY. AS PER THE ANNUAL REPORT THE COMPANY IS ENGAGED IN THE SALE OF SOFTWARE PRODUCTS. IN ASSESSEES CAS E THE COMPANY IS UNDERTAKING SOFTWARE DEVELOPMENT WHICH IS MORE OF AN EVENT CONSTITUTING A NEW STAGE IN A CHANGING SITUATION THAN A COMPLETE PRODUCT. THEREFORE ACROPETAL TECHNOLOGIES LIMITED IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY AND SHOULD HAVE BEEN 11 ITA NO. 555/DEL/2017 EXCLUDED BY THE TPO. FURTHER THE SEGMENTAL DATA WA S NOT AVAILABLE FOR THE ASSESSMENT YEAR UNDER QUESTION OF THIS COMP ANY. THE COMPANY IS ENGAGED IN TWO BUSINESS SEGMENTS I.E. SALE OF PRODUCTS AND SALE OF SERVICES BUT SEGMENTAL PROFITABILITY IS NOT AVAI LABLE IN THE AUDITED FINANCIAL STATEMENTS. THE ASSESSEE COMPANY CANNOT B E COMPARED WITH THIS COMPANY AS SEGMENTAL DATA IS NOT AVAILABLE. BESIDES THIS THERE WAS EXTRA-ORDINARY EVENTS OCCURRED DURING THE YEAR AS T HE COMPANY ACQUIRED 100% STAKE IN LINE BEYOND INC. AND 70% STA KE IN OPTECH CONSULTING INC. FURTHER THE COMPANY ALSO ACQUIRED TWO DOMESTIC COMPANIES VIZ. MIND RIVER INFORMATION TECHNOLOGIE S LTD. AND KINFOTECH PVT. LTD. THUS AS HELD BY THE HONBLE D ELHI HIGH COURT & THIS TRIBUNAL IN VARIOUS DECISIONS COMPANIES HAVING EXTRA-ORDINARY EVENT HAS TO BE EXCLUDED. THEREFORE WE DIRECT TPO TO EXC LUDE THIS COMPANY FROM COMPARABLES. 4.5. INFOSYS LTD. THE LD. AR SUBMITTED THAT AS PER PAGE 9 OF THE ANNU AL REPORT THE COMPANY HAS SET UP A NETWORK OF RESEARCH LABS AND D URING THE RELEVANT PREVIOUS YEAR 143 UNIQUE PATENT APPLICATIO NS WERE FILED BY THE COMPANY. THE LD. AR FURTHER SUBMITTED THAT THE COMPANY HAS BEEN GRANTED 47 PATENTS OUT OF WHICH 46 ARE IN USA AND ONE IN LUXEMBURG. AT PAGE 26 OF THE ANNUAL REPORT IT IS AL SO STATED THAT THE COMPANY RECOGNIZES ITS STRONG BRAND AS ONE OF ITS COMPETITIVE STRENGTHS. IN THIS REGARD THE LD. AR SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNO LOGIES (ITA 1204/2011 DATED 10.07.2013) DIRECTED FOR EXCLUSION OF INFOSYS LTD. 12 ITA NO. 555/DEL/2017 FROM THE LIST OF COMPARABLE COMPANIES NOT MERELY ON THE BASIS OF HIGH TURNOVER BUT ON THE BASIS THAT INFOSYS LTD IS A FULL RISK BEARING ENTREPRENEUR WHEREAS THE ASSESSEE THEREIN IS A CAPT IVE SOFTWARE SERVICE PROVIDER. THE LD. AR FURTHER SUBMITTED THAT INFOSYS LTD APART FROM BEING A GIANT IN THE FIELD OF SOFTWARE P RODUCT ALSO OWNS VARIOUS UNIQUE INTANGIBLES IN THE FORM OF PROPRIETA RY PRODUCTS PATENTS BRANDS ETC WHICH LEADS TO CREATION OF SIGN IFICANT COMPETITIVE ADVANTAGE RESULTING HIGH OPERATING MARG INS WHICH ARE VALUABLE INTANGIBLES DUE TO WHICH IT IS EARNING EXC EPTIONALLY HIGH OPERATING MARGINS. THE LD. AR SUBMITTED THAT SINCE INFOSYS LTD IS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCT S. THE SOFTWARE PRODUCTS DEVELOPED BY THE COMPANY INCLUDES FINACLE TM FINACLE CORE BANKING SOLUTION FINACLE DIGITAL COMMERCE SOL UTION FINACLE WATCHWIZ INFOSYS HEALTH BENEFIT EXCHANGE ETC. THU S THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY. THE LD. AR RELIED UPON THE ORDER OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TOLUNA INDIA PVT. LTD. VS. ACIT (ITA NO 56 45/DEL/2011) WHEREIN THE TRIBUNAL DIRECTED TO EXCLUDE INFOSYS HO LDING THAT THE COMPANY IS A GIANT RISK TAKING COMPANY AND CANNOT B E COMPARED WITH A CAPTIVE SERVICE PROVIDER. DELHI BENCH OF THE TRIBUNAL IN THE CASE OF UT STARCOM INC. (INDIA BRANCH) VS. DDIT (IT A NO. 5848/DEL/2011) ALSO DIRECTED TO EXCLUDE INFOSYS HO LDING THAT THE COMPANY IS A GIANT RISK TAKING COMPANY AND CANNOT B E COMPARED WITH A CAPTIVE SERVICE PROVIDER. DELHI BENCH OF THE TRIBUNAL IN THE CASE OF AVAYA INDIA PVT. LTD. VS. DCIT (ITA NO. 146 /DEL/2013) DIRECTED TO EXCLUDE INFOSYS ON ACCOUNT OF BEING A G IANT COMPANY. 13 ITA NO. 555/DEL/2017 DELHI BENCH OF THE TRIBUNAL IN THE CASE OF AVL INDI A SOFTWARE PVT. LTD. VS. DCIT (ITA NO 6454/DEL/2012) DIRECTED TO E XCLUDE INFOSYS HOLDING THAT THE ASSESSEE PROVIDING SERVICES TO ITS AE ON A COST PLUS BASIS WITHOUT HAVING ANY INTANGIBLE ASSETS CANNOT B E COMPARED WITH A GIANT COMPANY LIKE INFOSYS. THE LD. AR RELIE D UPON THE FOLLOWING DECISIONS WHEREIN INFOSYS TECHNOLOGIES LTD WAS DIRECTED TO BE EXCLUDED HOLDING THAT THE COMPANY IS A GIANT COMPANY HAVING SIGNIFICANT INTANGIBLES: NOKIA SIEMENS NETWORKS INDIA PVT LTD VS. ACIT (ITA NO. 5837/DEL/2011) FIL INDIA BUSINESS SERVICES PVT. LTD. VS. DCIT (ITA NO. 6867/DEL/2014) SONY MOBILE COMMUNICATIONS INTERNATIONAL AB (INDIA BRANCH OFFICE) VS. DDIT (ITA NO. 769/DEL/2014) HEADSTRONG SERVICES (INDIA) PVT. LTD VS. DCIT (ITA NO. 714/DEL/2015) BENTLEY SYSTEMS INDIA PVT. LTD. VS ACIT (ITA NO. 6 161/DEL/2013) SUN LIFE INDIA SERVICE CENTRE PVT. LTD. VS. DCIT (I TA NO. 1489/DEL/2014) AVAYA INDIA (P) LTD. VS. ACIT (ITA NO. 5528/DEL/201 1) ALCATEL-LUCENT TECHNOLOGIES VS. DCIT (ITA NO 2298/ DEL/2008) DCIT VS. MENTOR GRAPHICS (ITA NO. 2634/DEL/2011) THE LD. AR ALSO RELIED UPON THE FOLLOWING DECISIONS OF THE VARIOUS BENCHES OF TRIBUNAL WHEREIN IT HAS BEEN HELD THAT C OMPANIES ENGAGED IN SALE OF SOFTWARE PRODUCTS CANNOT BE REGA RDED AS APPROPRIATE COMPARABLE FOR THE PURPOSE OF BENCHMARK ING THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE SERVICES: (I) CONNEXANT SYSTEMS INDIA PVT. LTD VS. ITO ITA N O 1429/HYD /2010 (II) INTOTO SOFTWARE LTD PVT LTD. (ITA NO 1196-97/ HYD/2010 & 2102/HYD /2010) (III) NXP SEMICONDUCTORS INDIA PVT. LTD. VS. ACIT ( ITA NO. 1174/BANG/2011) (IV) (SAPIENT CORPORATION PVT. LTD VS. DCIT (ITA NO 5263/DEL/2010) (V) BINDVIEW INDIA PRIVATE LIMITED VS. DCI ITA N O. ITA NO 1386/PN/10 (VI) TRILOGY E-BUSINESS SOFTWARE VS. DCIT : 47 SOT 45(URO) 14 ITA NO. 555/DEL/2017 (VII) NETHAWK NETWORKS INDIA PVT. LIMITED. VS. ITO (ITA 7633/MUM/2012) (VIII) TOLUNA INDIA PVT. LTD. VS. ACIT (ITA NO.5645 /DEL/2011) (IX) LEAR AUTOMOTIVE INDIA P. LTD. VS. ACIT (ITA NO. 5612/DEL/2011) (X) GLOBAL LOGIC INDIA PVT. LTD. VS. ACIT (ITA N O. 5809/DEL/2011) 4.6. THE LD. DR RELIED UPON THE ORDERS OF THE TPO A ND THE DRP. 4.7 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS AVAILABLE BEFORE US. THIS COMPANY HAS SET UP A NETW ORK OF RESEARCH LABS AND GRANTED 42 PATENTS. INFOSYS IS A GIANT RI SK TAKING COMPANY BESIDES THAT IT IS ENGAGED IN DEVELOPMENT & SALE O F SOFTWARE PRODUCTS AND ALSO OWNS INTANGIBLE ASSETS. THUS AS HELD BY THE HONBLE HIGH COURT AND THIS TRIBUNAL IN VARIOUS DECISIONS THIS COMPANY HAS TO BE EXCLUDED. WE THEREFORE DIRECT TPO TO EXCLUDE THI S COMPANY FROM COMPARABLE. 4.8. LARSEN & TURBO INFOTECH LTD. THE LD. AR SUBMITTED THAT SEGMENTAL DATA IS NOT AVA ILABLE. AS PER THE ANNUAL REPORT THE COMPANY IS IT BPO SERVICE PR OVIDER. THE LD. AR RELIED UPON THE ORDER DECISION OF DELHI BENCH OF THE TRIBUNAL IN CASE OF SAXO INDIA PVT. LTD. VS. ACIT (ITA NO. 6148 /DEL/2015) WHEREIN L&T INFOTECH LTD. WAS DIRECTED TO BE EXCLU DED HOLDING THAT THE COMPANY IS ALSO ENGAGED IN BUSINESS OF SOFTWARE PRODUCT AND SEGMENTAL INFORMATION IS NOT AVAILABLE . THE APPEAL FILED BY THE REVENUE WAS DISMISSED BY THE HONBLE DELHI HIGH COU RT IN ITA NO 682/2016. THE LD. AR FURTHER SUBMITS THAT DELHI BE NCH OF THE TRIBUNAL IN THE CASE OF ALCATEL-LUCENT INDIA LTD V S. DCIT (ITA NO. 6856/DEL/2015) DIRECTED TO EXCLUDE LARSEN & TOUBRO ON ACCOUNT OF 15 ITA NO. 555/DEL/2017 FUNCTIONAL DISSIMILARITY AND UNAVAILABILITY OF SEGM ENTAL DATA. THE LD. AR ALSO RELIED UPON THE FOLLOWING DECISIONS WH EREIN LARSEN & TOUBRO WAS DIRECTED TO BE EXCLUDED ON ACCOUNT OF UN AVAILABILITY OF SEGMENTAL DATA: PEGASYSTEMS WORLDWIDE INDIA PVT. LTD VS. ACIT (ITA NO. 1758/HYD/2014) CERNER HEALTHCARE SOLUTIONS P LTD VS ITO (ITA NO 4 4/BANG/2015) INVENSYS DVELOPMENT CENTRE INDIA PVT LTD. VS DCIT (ITA NO 383/HYD/2014) M/S BROADCOM INDIA RESEARCH PVT LTD. VS DCIT (ITA NO 62/BANG/2014) 4.9 THE LD. DR RELIED UPON THE ORDERS OF THE TPO AN D DRP 4.10 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS COMPANY IS ENGAGED IN TWO BUSINESS SEGMENTS NAMELY SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE PRODUCTS. HOWEVER SEPARATE SEGMENTAL DATA WITH RESPECT TO BU SINESS SEGMENT IS NOT AVAILABLE IN THE ANNUAL REPORT OF THE COMPANY. FROM THE AUDITED FINANCIAL STATEMENT AND WEBSITE IT IS EVIDENT THAT THE COMPANY IS EARNING REVENUE FROM TWO BUSINESS SEGMENTS VIZ. SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCT. THEREFORE THIS COMPANY SHOULD BE EXCLUDED FROM THE COMPARABLES. THUS WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE. 4.11. MINDTREE LIMITED : THE LD. AR SUBMITTED THAT THIS COMPANY IS FUNCTIONA LLY DIFFERENT AND ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRO DUCTS. AT PAGE 22 OF THE ANNUAL REPORT IT IS STATED THAT THE COMP ANY HAS DEVELOPED SERIES OF PRODUCTS AND TECHNOLOGIES SUCH AS ENTERP RISE 16 ITA NO. 555/DEL/2017 COLLABORATION PLATFORM' CPG- RETAIL COLLABORATION PLATFORM STOCK MANAGEMENT FRAMEWORK APPFACTORY ETC. THE LD. AR FU RTHER SUBMITS THAT MINDTREE LTD UNDERTAKES SIGNIFICANT RE SEARCH ACTIVITIES LEADING TO CREATION OF VALUABLE INTANGIBLES SUCH AS PROPRIETARY KNOW-HOW PATENTS ETC. AT PAGE 24 OF THE ANNUAL RE PORT OF THIS COMPANY IT IS STATED THAT THE R&D INITIATIVES UNDER TAKEN BY THE COMPANY HAS LED TO ADDITION OF NEW CUSTOMERS DURING THE RELEVANT YEAR AND ENABLES THE COMPANY TO BE A PREFERRED TECH NOLOGY SOLUTION PROVIDER. FURTHER AT PAGE 23 OF THE ANNUAL REPORT THE COMPANY HAS PROVIDED A LIST OF PATENTS OWNED BY IT . THE LD. AR RELIED UPON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GLOBAL LOGIC INDIA PVT. LTD. VS. DCIT (ITA NO 122/DE!/2013 ) WHEREIN THE TRIBUNAL HELD THAT COMPANIES UNDERTAKING R&D ACTIVI TY AND OWNING IPRS CANNOT BE REGARDED AS AN APPROPRIATE COMPARABL E FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTI ONS UNDERTAKEN BY A CAPTIVE SOFTWARE SERVICE PROVIDER. 4.12 THE LD. DR RELIED UPON THE ORDERS OF THE TPO AND THE DRP. 4.13 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS AVAILABLE BEFORE US. THIS COMPANY IS ENGAGED IN DEV ELOPMENT & SALE OF SOFTWARE PRODUCT AND ALSO OWNS INTANGIBLE ASSETS (P ATENTS). IN ASSESSEES CASE THE COMPANY IS UNDERTAKING SOFTWAR E DEVELOPMENT WHICH IS MORE OF AN EVENT CONSTITUTING A NEW STAGE IN A CHANGING SITUATION THAN A COMPLETE PRODUCT. THEREFORE MINDTREE LIMITE D IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY AN D SHOULD HAVE BEEN EXCLUDED BY THE TPO. THUS AS HELD BY THE HON BLE DELHI HIGH COURT & THIS TRIBUNAL IN VARIOUS DECISIONS COMPANIE S WHICH ARE 17 ITA NO. 555/DEL/2017 FUNCTIONALLY DIFFERENT HAS TO BE EXCLUDED. THEREFOR E WE DIRECT TPO TO EXCLUDE THIS COMPANY FROM COMPARABLES. 4.14. PERSISTENT SYSTEMS LTD. THE LD. AR SUBMITTED THAT PERSISTENT SYSTEMS LTD. I S ENGAGED IN THE BUSINESS OF DEVELOPMENT AND SALE OF SOFTWARE PRODUC TS AND THEREFORE CANNOT BE REGARDED AS COMPARABLE TO THE APPLICANT A ROUTINE SOFTWARE SERVICE PROVIDER FROM THE ANNUAL R EPORT OF THE COMPANY IT WOULD BE APPRECIATED THAT DURING THE RE LEVANT PREVIOUS YEAR THE COMPANY LAUNCHED A NEW PRODUCT NAMELY E MEE AN EMPLOYEE ENGAGEMENT PLATFORM TARGETED TOWARDS SME CLIENTS. FURTHER AT PAGE 49 OF THE ANNUAL REPORT OF THE COM PANY IT IS STATED THAT DURING THE RELEVANT PREVIOUS YEAR THE COMPANY HAS DEVELOPED AND LAUNCHED TWO NEW PRODUCTS NAMELY EMEE AND KLISM A. THE LD. AR RELIED ON THE DECISION OF DELHI BENCH OF THE TRI BUNAL IN THE CASE OF CASH EDGE INDIA (PVT.) LTD VS ITO (ITA NO. 64/DE L/2015) DIRECTED TO EXCLUDE THE COMPANY ON ACCOUNT OF FUNCTIONAL DIS SIMILARITY. APPEAL PREFERRED BY THE REVENUE WAS DISMISSED BY TH E HONBLE DELHI HIGH COURT VIDE ORDER DATED 04.05.2016 (ITA N O 279/2016). DELHI BENCH OF THE TRIBUNAL IN THE CASE OF EQUANT S OLUTIONS INDIA PVT LTD. VS. DCIT (ITA NO. 1202/DEL/2015) DIRECTE D TO EXCLUDE PERSISTENT SYSTEMS LTD HOLDING THAT IT IS ENGAGED I N SOFTWARE PRODUCT AND SEGMENTAL DATA IS NOT AVAILABLE. THE LD . AR RELIED UPON THE FOLLOWING DECISIONS WHEREIN THE BENCHES HAVE SPECIFICALLY HELD THAT PERSISTENT SYSTEMS LIMITED IS ENGAGED IN PRODU CT DEVELOPMENT AND PRODUCT DESIGN AND ANALYSIS SERVICE IS FUNCTION ALLY DIFFERENT 18 ITA NO. 555/DEL/2017 FROM A PURE SOFTWARE SERVICE PROVIDER AND THEREFORE OUGHT TO BE EXCLUDED: SAXO INDIA PVT. LTD VS. ACIT (ITA NO. 6148/DEL/2015 ) - APPEAL FILED BY THE REVENUE WAS DISMISSED BY THE HONBLE DELHI HIGH COU RT IN ITA NO. 682/2016 DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ALCATEL- LUCENT INDIA LTD. VS. DCIT (ITA NO. 6856/DEL/2015) DIRECTED TO EXCLUDE PERSIST ENT SYSTEMS LTD ON ACCOUNT OF FUNCTIONAL DISSIMILARITY AND UNAVAILABILITY OF SEGMENTAL DATA. AT & T GLOBAL BUSINESS SERVICES INDIA (P.) LTD ITA 1604/BANG/2012 NXP SEMI CONDUCTORS INDIA PVT. LTD I T. (T.P.)A. NO .1634/BANG/2014 HEWLETT- PACKARD (INDIA) GLOBALSOFT P LTD I.T(TP).A NO.1031/BANG/2011 PYRAMID IT CONSULTING PRIVATE VS. ITO (ITA NO. 5401 /DEL/2012) GLOBAL LOGIC INDIA PVT. LTD. VS. ACIT (ITA NO. 122/ DEL/2013) LEAR AUTOMOTIVE INDIA P. LTD. VS. ACIT (ITA NO. 561 2/DEL/2011) M/S ION TRADING INDIA PVT. LTD. VS. ITO (ITA NO. 10 35/DEL/2015) 4.15. THE LD. DR RELIED UPON THE ORDER OF THE TPO AND THE DRP. 4.16. WE HAVE HEARD BOTH THE PARTIES AND PERUS ED THE RECORDS. PERSISTENT SYSTEMS LIMITED IS ENGAGED IN PRODUCT DEVELOPMENT PRODUCT DESIGN AND ANALYSIS SERVICE IS FUNCTIONALLY DIFFERENT FROM A PURE SOFTWARE SERVICE PROVIDER AND THEREFORE OUGHT TO BE EXCLUDED. THUS THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM T HAT OF ASSESSEE COMPANY. AS HELD BY THE HONBLE DELHI HIGH COURT & THIS TRIBUNAL IN VARIOUS DECISIONS COMPANIES WHICH ARE FUNCTIONAL LY DIFFERENT HAS TO BE EXCLUDED. THEREFORE THIS COMPANY SHOULD BE EXCLUDED FROM THE COMPARABLES. THUS WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE. 19 ITA NO. 555/DEL/2017 4.17. SPRY RESOURCES PVT. LTD. THE LD. AR SUBMITTED THAT THE AUDITED FINANCIAL STA TEMENT FOR THE FINANCIAL YEAR 2011-12 IS NOT AVAILABLE. 4.18 THE LD. DR RELIED UPON THE ORDER OF THE TPO AN D THE DRP. 4.19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E RECORDS. SINCE THE AUDITED FINANCIAL STATEMENT FOR THE FINAN CIAL YEAR 2011-2 WAS NOT AVAILABLE TO THE ASSESSEE. THE SAME CAN BE SEEN IN THE TPOS ORDER PARA 12 (F) WHEREIN THE ASSESSEE HAS AS KED FOR ANNUAL REPORT OF THIS COMPANY WHICH WAS NOT GIVEN TO THE A SSESSEE. THE TPO IS DIRECTED TO CONSIDER THE OBJECTION OF THE AS SESSEE. THE TPO IS DIRECTED TO TAKE ON RECORD THE FINANCIAL STATEMENT AND GIVE OPPORTUNITY TO ASSESSEE FOR HEARING TO THAT EXTENT. THE TPO THEREAFTER SHOULD CONSIDER WHETHER THIS COMPARABLE IS PROPER OR NOT IN ASSESSEES CASE. 4.20. ZYLOG SYSTEMS LTD. THE LD. AR SUBMITTED THAT THIS COMPANY IS ENGAGED I N THE BUSINESS OF DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. AT PA GE 21 OF THE ANNUAL REPORT IT IS STATED THAT PRODUCTS AND SOLUT IONS OFFERED BY THE COMPANY ARE ITS MAIN DIFFERENTIATORS VIS-A- VI S THE COMPETITORS. THE COMPANY INVESTS HEAVILY IN DEVELOPMENT OF NEW P RODUCTS AND ALSO OWNS IP RIGHTS WITH RESPECT TO VARIOUS SOFTWAR E PRODUCTS SUCH AS FIELD POWER SMART MIGRATOR AND BANK. COMPANION. FURTHER AT PAGE 26 & 37 OF THE ANNUAL REPORT IT IS STATED THA T THE COMPANY SPENDS SIGNIFICANT RESOURCES ON THE R&D ACTIVITY FO R THE PURPOSE OF 20 ITA NO. 555/DEL/2017 DEVELOPMENT OF NEW PRODUCTS. FURTHER AS ON MARCH 3 1 2012 THE COMPANY HAS CAPITALIZED A SUM OF RS 97.72 CRORE AS PRODUCT DEVELOPMENT COST UNDER THE HEAD INTANGIBLE ASSETS. (FIXED ASSET SCHEDULE AT PAGE 73 OF THE ANNUAL REPORT). THE LD. AR RELIED ON THE DECISIONS OF DELHI BENCH OF THE TRIBUNAL IN THE CAS E OF EQUANT SOLUTIONS INDIA PVT. LTD. VS. DCIT (ITA NO. 1202/DE L/2015) (NOW KNOWN AS ORANGE BUSINESS SERVICES INDIA SOLUTIONS ( P) LTD.) DIRECTED TO EXCLUDE ZYLOG SYSTEMS LTD. HOLDING THAT THE COMPANY HOLDS INTANGIBLES SEGMENTAL DATA IS NOT AVAILABLE AND THERE WAS A MERGER DURING THE YEAR. FOLLOWING THE DECISION FOR ASSESSMENT YEAR 2010-11 DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT LTD. VS. DCIT (ITA NO. 869/DEL/2016) DIRECTED TO EXCLUDE ZYLOG SYSTEMS LT D. ON ACCOUNT OF UNAVAILABILITY OF SEGMENTAL DATA AND MERGERS AND ACQUISITIONS UNDERTAKEN IN THE PRECEDING YEAR. THE LD. AR ALSO R ELIED ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ALCATEL-LUCENT INDIA LTD. VS. DCIT (ITA NO. 6856/DEL/2015) WHEREI N THE TRIBUNAL DIRECTED TO EXCLUDE ZYLOG SYSTEMS LTD. HOLDING THAT SOFTWARE PRODUCT COMPANY CANNOT BE COMPARED WITH SOFTWARE DE VELOPMENT SERVICE PROVIDER. 4.21 THE DR RELIED UPON THE ORDER OF THE TPO AND D RP. 4.22. WE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS. THE COMPANY IS EARNING REVENUE FROM TWO BUSINESS SE GMENTS NAMELY SOFTWARE SERVICES AND SOFTWARE PRODUCTS. HOWEVER S EPARATE SEGMENTAL DATA WITH RESPECT TO THE AFORESAID TWO SEGMENTS IS NOT AVAILABLE IN THE 21 ITA NO. 555/DEL/2017 FINANCIAL STATEMENT. THE ASSESSEE COMPANY CANNOT BE COMPARE WITH THIS COMPANY AS THE FUNCTIONS ARE DIFFERENT AND THE RE IS NO SEGMENTAL DATA AVAILABLE. THE COMPANY INVESTS HEAVILY IN DEVE LOPMENT OF NEW PRODUCTS AND ALSO OWNS IP RIGHTS WITH RESPECT TO VA RIOUS SOFTWARE PRODUCTS SUCH AS FIELD POWER SMART MIGRATOR AND BA NK. COMPANION. AS HELD BY THE HONBLE DELHI HIGH COURT & THIS TRIBUNAL IN VARIOUS DECISIONS COMPANIES WHICH ARE FUNCTIONAL LY DIFFERENT HAS TO BE EXCLUDED. THEREFORE THIS COMPANY SHOULD BE EXCL UDED FROM THE COMPARABLES. THUS WE DIRECT THE TPO TO EXCLUDE THI S COMPARABLE. 5. THE LD. AR SUBMITTED THAT THINKSOFT GLOBAL SERVI CES LTD. SONATA SOFTWARE LTD. SHOULD HAVE BEEN INCLUDED AS C OMPARABLE WHICH WAS REJECTED BY THE TPO AS THESE COMPANIES ARE FUNC TIONALLY COMPARABLE WITH THE ASSESSEE COMPANY. 5.1 THINKSOFT GLOBAL SERVICES LTD. THE LD. AR SUBMITTED THAT VIDE SHOW CAUSE NOTICE DA TED 07.12.2015 TPO REJECTED THINKSOFT GLOBAL SERVICES LTD. HOLDING THAT THE COMPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE WITHOUT POINTING OUT ANY SPECIFIC FUNCTIONAL DISSIM ILARITY. IN RESPONSE THE ASSESSEE COMPANY VIDE REPLY DATED 23. 12.2015 SUBMITTED A DETAILED SUBMISSION SUBSTANTIATING THAT THE COMPANY IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE COMPANY. HOWEVER THE TPO FAILED TO ADJUDICATE THE AFORESAID OBJECTION IN THE TRANSFER PRICING ORDER. THE LD. AR SUBMITTED THAT THE COMPAN Y IS ENGAGED IN THE BUSINESS OF PROVISION OF SOFTWARE SERVICES SUCH AS SOFTWARE 22 ITA NO. 555/DEL/2017 VALIDATION AND VERIFICATION SERVICES. AT PAGE 38 OF THE ANNUAL REPORT IT IS EVIDENT THAT THE BUSINESS OPERATIONS OF THE C OMPANY PREDOMINANTLY RELATES TO SOFTWARE VALIDATION AND VE RIFICATION SERVICES RELATING TO BANKING AND FINANCIAL SERVICES INDUSTRY. DURING THE FINANCIAL YEAR 2011-12 THE COMPANY EARNED 100 PERCENT REVENUE AMOUNTING TO RS. 1 118 983 577 FROM PROVISI ON OF SOFTWARE SERVICES. THE LD. AR RELIED UPON THE DECISION OF PU NE BENCH OF THE TRIBUNAL IN THE CASE OF TIBCO SOFTWARE INDIA PVT. L TD. VS. DCIT (ITA NO. 2536/PN/2012) WHEREIN THE TRIBUNAL DIRECTED TPO TO INCLUDE THINKSOFT GLOBAL SERVICES LTD HOLDING THAT VERIFICA TION AND VALIDATION SERVICES PROVIDED BY THE COMPANY IS SIMI LAR TO SOFTWARE DEVELOPMENT SERVICES. 5.2 THE LD. DR RELIED UPON THE ORDERS OF THE TPO AN D DRP. 5.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. THE ASSESSEE COMPANY VIDE REPLY DATED 23.12.2015 SUBMIT TED A DETAILED SUBMISSION SUBSTANTIATING THAT THE COMPANY IS FUNCT IONALLY COMPARABLE TO THE ASSESSEE COMPANY. HOWEVER THE TP O FAILED TO ADJUDICATE THE AFORESAID OBJECTION IN THE TRANSFER PRICING ORDER. THEREFORE WE DIRECT THE TPO TO ADJUDICATE THE OBJE CTION OF THE ASSESSEE. THE TPO THEREAFTER SHOULD CONSIDER WHET HER THIS COMPARABLE IS PROPER OR NOT IN ASSESSEES CASE. 5.4. SONATA SOFTWARE LTD. THE LD. AR SUBMITTED THAT VIDE SHOW CAUSE NOTICE DA TED 07.12.2015 THE TPO REJECTED SONATA SOFTWARE LTD. W HEREBY HOLDING 23 ITA NO. 555/DEL/2017 THAT THE COMPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE COMPANY. IN RESPONSE THE ASSESSEE COMPANY VIDE REP LY DATED 23.12.2015 SUBMITTED A DETAILED SUBMISSION SUBSTANT IATING THAT THE COMPANY IS FUNCTIONALLY COMPARABLE TO THE ASSES SEE COMPANY. THE LD. AR SUBMITTED THAT DURING THE YEAR THE COMP ANY EARNED 100% OF ITS REVENUE FROM EXPORT OF SOFTWARE DEVELOP MENT AND RELATED SERVICES. FROM REVENUE RECOGNITION POLICY R EPORTED IN NOTES TO ACCOUNTS IT IS CLEARLY EVIDENT THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE SERVICES TO THE CLIE NTS. DURING THE FINANCIAL YEAR 2011-12 THE COMPANY EARNED FOREIGN EXCHANGE AMOUNTING TO RS. 2 23 40 17 001 FROM PROVISION OF S OFTWARE SERVICES. 5.5. THE LD. DR RELIED UPON THE ORDERS OF THE TPO A ND DRP. 5.6 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. THE TPO REJECTED SONATA SOFTWARE LTD. WHEREBY HOLDING T HAT THE COMPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSES SEE COMPANY. IN RESPONSE THE ASSESSEE COMPANY VIDE REPLY DATED 23.12.2015 SUBMITTED A DETAILED SUBMISSION SUBSTANTIATING THAT THE COMPANY IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE COMPANY. HOWEVER THE TPO FAILED TO ADJUDICATE THE AFORESAID OBJECTION IN THE TRANSFER PRICING ORDER. THEREFORE WE DIRECT THE TPO TO ADJU DICATE THE OBJECTION OF THE ASSESSEE. THE TPO THEREAFTER SHO ULD CONSIDER WHETHER THIS COMPARABLE IS PROPER OR NOT IN ASSESSE ES CASE. 24 ITA NO. 555/DEL/2017 6. THE LD. AR SUBMITTED THE FINAL SET OF COMPARABLE COMPANIES FOR THE CONSIDERATION OF THE TPO AS FOLLOWS: 6.1 THE LD. DR RELIED UPON THE ORDER OF THE TPO AND DRP AND SUBMITTED THAT THE FINAL COMPARABLES GIVEN BY THE T PO ARE THE PROPER COMPARABLE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND NO. 1 IS GENERAL THEREFORE THE SAM E IS NOT ADJUDICATED. GROUND NO. 2 2.1 2.2 2.3 2.4 AND 2.5 ARE RELATI NG TO EXCLUSION AND INCLUSIONS OF THE COMPARABLES BY THE TPO. THE REAS ONS AND DIRECTIONS FOR EACH COMPARABLES ARE GIVEN HEREINABOVE PARAS. H ENCE THE MATTER IS REMANDED BACK TO ASSESSING OFFICER /TPO TO DECIDE A S PER THE DIRECTIONS GIVEN IN THE ABOVEMENTIONED PARAS. NEEDLESS TO SAY THE ASSESSEE WILL GIVEN FULL OPPORTUNITY FOR HEARING. THUS GROUND NO . 2 2.1 2.2 2.3 2.4 AND 2.5 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. AS RELATES GROUND NO. S. NO. COMPANY NAME OP/OC(%) 1 AKSHAY SOFTWARE TECHNOLOGIES LTD. 9.87% 2 CELSTREAM TECHNOLOGIES PVT. LTD. 7.13% 3 CIGNITI TECH. 9.08% 4 LUCID SOFTWARE LTD. 11.64% 5 R S SOFTWARE (INDIA ) LTD. 15.43% 6 SANKHYA INFOTECH LTD. 6.27% 7 SASKEN COMMUNICATION TECHNOLOGIES LTD. 14.58% 8 TATA ELXSI LTD. (SEGMENTAL) 15.17% 9 THIRDWARE SOLUTION LTD. (OVERSEAS SEGMENT) 11.10% 10 THINKSOFT GLOBAL SERVICES LTD. 11.08% 11 SONATA SOFTWARE LTD. 5.66% AVERAGE 10.64% APPELLANTS MARGIN 7.93% 25 ITA NO. 555/DEL/2017 3 THE SAME IS CONSEQUENTIAL SINCE THE MATTER IS R EMANDED BACK TO THE FILE OF TPO/AO THE SAME DO NOT REQUIRE ADJUDICATIO N AND BE DECIDED BY THE TPO/AO. 8. IN RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER 2017 . SD/- SD/- (R. S. SYAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER DATED: 15/11/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 15/09/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 15/09/2017 PS 26 ITA NO. 555/DEL/2017 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 15.11.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 5 .11.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.