DCIT, Bangalore v. M/s Aruba Networks India Pvt. Ltd.,, Bangalore

ITA 57/BANG/2015 | 2010-2011
Pronouncement Date: 30-09-2016 | Result: Allowed

Appeal Details

RSA Number 5721114 RSA 2015
Bench Bangalore
Appeal Number ITA 57/BANG/2015
Duration Of Justice 1 year(s) 8 month(s) 10 day(s)
Appellant DCIT, Bangalore
Respondent M/s Aruba Networks India Pvt. Ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Department
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-09-2016
Date Of Final Hearing 27-08-2015
Next Hearing Date 27-08-2015
Assessment Year 2010-2011
Appeal Filed On 20-01-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH- A BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER SHRI S JAYARAMAN ACCOUNTANT MEMBER IT(TP)A NO.57/BANG/ 2015 (ASST. YEAR 2010-11) THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-1(1)(1) BANGALORE. . APPELLANT VS. M/S ARUBA NETWORKS INDIA PVT. LTD. BANGALORE. . RESPONDENT CO NO.81/BANG/2015 (ASST. YEAR 2010-11) M/S ARUBA NETWORKS INDIA PVT. LTD. BANGALORE. . APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-5(1)(2) BANGALORE. . RESPONDENT REVENUE BY : DR. PK SRIHARI ADDL. CIT ASSESSEE BY : SHRI PADAM CHAND KHINCHA CA DATE OF HEARING : 25-7-2016 DATE OF PRONOUNCEMENT : 30-9-2016 IT(TP)A NO.57 & 81/B/15 2 O R D E R PER ASHA VIJAYARAGHAVAN JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) IV BANGALO RE DATED 12/11/2014 AND IT PERTAINS TO THE ASSESSMENT YEAR 2010-11. CO NO.81/BANG/2015 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. GROUND ON COMPARABLES RETAINED/CONFIRMED BY THE TPO AND CIT(A) 1. THE LEARNED TPO AND THE LEARNED CIT(A) BANGALORE HAS ERRED IN SELECTING/CONFIRMING THE SELECTION OF COMPARABLES VIZ. ICRA TECHNO ANALYTIC S LTD (SEG.) AND KALS INFORMATION SYSTEMS LTD (SEG.) FOR THE COMPUTATION OF ARMS LENGTH PRICE. ON FACTS AND CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE THE AFORESAID COMPANIES SHOULD BE EXCLUDED FROM THE LIS TS OF COMPARABLES. 2. THE LEARNED TPO HAS ERRED IN TREATING FOREIGN EXCHANGE GAIN OR LOSS AS NON - OPERATING IN NATURE IN COMPUTING THE OPERATING MARG IN OF THE (I) COMPARABLES AND (II) ASSESSEE. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE IT(TP)A NO.57 & 81/B/15 3 FOREIGN EXCHANGE GAIN OR LOSS SHOULD BE CONSIDERED AS OPERATING IN NATURE IN COMPUTING THE OPERATING MARG IN OF THE (I) COMPARABLES AND (II) ASSESSEE. GROUND ON WORKING CAPITAL ADJUSTMENT 3. THE LEARNED TPO AND CIT(A) HAS ERRED IN NOT PROPERLY COMPUTING WORKING CAPITAL ADJUSTMENT IN COMPUTING THE ADJUSTED MARGIN OF COMPARABLES. ON FA CTS AND CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE WORKING CAPITAL ADJUSTMENT IS TO BE PROPERLY COMPUT ED AND ALLOWED IN COMPUTING THE ADJUSTED MARGIN OF COMPARABLES. GROUND ON RISK ADJUSTMENT 4. THE LEARNED TPO AND CIT(A) HAS ERRED IN NOT ALLOWING RISK ADJUSTMENT IN COMPUTING THE ADJUSTED MARGIN OF COMPARABLES. ON FACTS AND CIRCUMSTANCES O F THE CASE AND LAW APPLICABLE RISK ADJUSTMENT IS TO BE PROPERLY COMPUTED AND ALLOWED IN COMPUTING THE ADJUSTED MARGIN OF COMPARABLES. GROUND ON INAPPROPRIATE COMPUTATION OF OPERATING MARGIN OF COMPARABLES AND THE ASSESSEE IT(TP)A NO.57 & 81/B/15 4 5. THE LEARNED TPO HAS ERRED IN NOT PROPERLY COMPUTING THE OPERATING MARGIN OF THE COMPARABLES A ND THE ASSESSEE. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE THE OPERATING MARGIN OF TH E COMPARABLES AND THE ASSESSEE IS TO BE PROPERLY COMPUTED. MARKETING SUPPORT SERVICES SEGMENT GROUND OF TP ADJUSTMENT 6. THE LEARNED TPO HAS ERRED IN MAKING THE TP ADJUSTMENT IN RESPECT OF MARKETING SUPPORT SEGMENT AMOUNTING TO RS. 27 76 160/- AND THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAID TP ADJUSTMENT REMAININ G AFTER ALLOWING WORKING CAPITAL ADJUSTMENT. GROUND ON COMPARABLES SELECTED/CONFIRMED 7. THE LEARNED TPO HAS ERRED IN SELECTING THE COMPANIES VIZ. ASIAN BUSINESS EXHIBITION & CONFERE NCES LTD. HCCA BUSINESS SERVICES LTD. HINDUSTAN HOUSIN G CO. LTD. KILLICK AGENCIES AND MKTG. LTD AND PRIYA INTERNATIONAL LTD FOR THE COMPUTATION OF ARMS LENGT H PRICE. ON FACTS AND CIRCUMSTANCES OF THE CASE AND L AW APPLICABLE THE AFORESAID COMPANIES SHOULD BE EXCLU DED FROM THE LIST OF COMPARABLES. IT(TP)A NO.57 & 81/B/15 5 GROUND ON TREATING FOREIGN EXCHANGE GAIN OR LOSS AS NON-OPERATING IN NATURE 8. THE LEARNED TPO HAS ERRED IN TREATING FOREIGN EXCHANGE GAIN OR LOSS AS NON-OPERATING IN NATURE IN COMPUTING THE OPERATING MARGIN OF THE (I) COMPARABL ES AND (II) ASSESSEE. ON FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND LAW APPLICABLE FOREIGN EXCHANGE GAIN OR L OSS SHOULD BE CONSIDERED AS OPERATING IN NATURE IN COMP UTING THE OPERATING MARGIN OF THE (I) COMPARABLES AND (II ) ASSESSEE. GROUND ON WORKING CAPITAL ADJUSTMENT 9. THE LEARNED TPO AND CIT(A) HAS ERRED IN NOT PROPERLY COMPUTING WORKING CAPITAL ADJUSTMENT IN COMPUTING THE ADJUSTED MARGIN OF COMPARABLES. ON F ACTS AND CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE WORKING CAPITAL ADJUSTMENT IS TO BE PROPERLY COMPUT ED AND ALLOWED IN COMPUTING THE ADJUSTED MARGIN OF COMPARABLES. GROUND ON RISK ADJUSTMENT 10. THE LEARNED TPO AND CIT(A) HAS ERRED IN NOT ALLOWING RISK ADJUSTMENT IN COMPUTING THE ADJUSTED MARGIN OF COMPARABLES. ON FACTS AND CIRCUMSTANCES O F THE CASE AND LAW APPLICABLE RISK ADJUSTMENT IS TO BE PROPERLY COMPUTED AND ALLOWED IN COMPUTING THE ADJUSTED MARGIN OF COMPARABLES. IT(TP)A NO.57 & 81/B/15 6 GROUND ON INAPPROPRIATE COMPUTATION OF OPERATING MARGIN OF COMPARABLES AND THE ASSESSEE 11. THE LEARNED TPO HAS ERRED IN NOT PROPERLY COMPUTING THE OPERATING MARGIN OF THE COMPARABLES A ND THE ASSESSEE. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE THE OPERATING MARGIN OF THE COMPARABLES AND THE ASSESSEE IS TO BE PROPERLY COMP UTED. PRAYER 12. IN VIEW OF THE ABOVE AND OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING THE RESPONDENT PRAY S THAT THE ORDER OF THE LEARNED CIT(A) TO THE EXTENT PREJU DICIAL TO RESPONDENT BE QUASHED OR IN THE ALTERNATIVE THE AFORESAID GROUNDS OF CROSS OBJECTIONS BE ACCEPTED A ND RELIEF BE ALLOWED ACCORDINGLY. 3. M/S AROBA LTD IS A SUBSIDIARY OF AROBA WIRELESS NETWORK INCORPORATED USA. IT IS ENGAGED IN PROVIDING SOFTW ARE DEVELOPMENT AND SUPPORT SERVICES TO ITS AE. 4. THE FOLLOWING ARE THE DETAILS FROM THE INTERNATI ONAL TRANSACTIONS OF THE ASSESSEE. IT(TP)A NO.57 & 81/B/15 7 1) INCOME FROM SOFTWARE DEVELOPMENT SERVICES AMOUNT ING TO RS.15 74 03 549/-. 2) INCOME FROM PROVIDING MARKETING SERVICES AMOUNTI NG TO RS.2 06 39 290/- 3) PURCHASE OF CAPITAL ASSET AMOUNTING TO RS.2 40 1 6 114/- 5. THE ASSESSEE ADOPTED TNMM AT ENTITY LEVEL WHERE AS THE TPO ADOPTED TNMM SEGMENT LEVEL. THE OPERATING COSTS OF THE ASSESSEE IN SOFTWARE SERVICES WAS 14.39% AND IN MARKETING SERVI CES WAS AT 10.00%. SOFTWARE SERVICES 6. THE OPERATING COST OF THE COMPARABLES FOR SOFTWA RE SERVICES WAS AT 22.71%. THE COMPARABLES SELECTED BY THE ASSESSE E FOR TP STATED IS FOLLOWS. SL.NO. NAME OF THE COMPANY OPERATIANG MARGIN ON COST 1 AXIS IT AND T LTD 8.80% 2 BLUE STAAR INFOTECH LTD 10.82% 3 CALIFORNIA SOFTWARE CO. LTD 9.43% 4 CAMBRIDGE TECHNOLOGY ENTERPRISES LTD -7.32% 5 GOLDSTONE TECHNOLOGIES LTD 3.76% 6 ICRA TECHNO ANALYTICS LTD 24.92% 7 MINDTECH (INDIA) LTD -1.48% 8 MINDTREE WIRELESS PVT LTD. 24.39% 9 NUCLEUS SOFTWARE EXPORTS LTD. 18.43% IT(TP)A NO.57 & 81/B/15 8 10 RS SOFTWARE (INDIA) LTD 7.89% 11 R SYSTEMS INTERNATIONAL LTD 2.56% 12 SAKSOFT LTD 9.38% 13 SONATA SOFTWARE LTD. 28.92% 14 THINKSOFT GLOBAL SERVICES LTD 16.96% 15 ADITYA BIRLA MINACS IT SERVICES LTD -5.11% 17 BRISTLECONE INDIA LTD -2.12% 18 CG VAK SOFTWAARE AND EXPORTS LTD -16.20% 19 SAGARSOFT (INDIA) LTD -1.33% 20 SUNDERAM INFOTECH SOLUTIONS LTD -8.34% AVERAGE OF MEAN 6.55% LESS: WORKING CAPITAL ADJUSTMENT 4.88% ADJUSTED AVERAGE MEAN 1.67% GROUND NO. 1 OF THE CO ARE DEALT WITH HEREUNDER: 7. THE COMPARABLES SELECTED BY THE TPO IN ORDER U/S 92CA ARE AS FOLLOWS: SL.NO. NAME OF THE COMPANY OPERATING MARGIN ON COST W.CAP ADJUSTED MARAGIN 1 ICRA TECHNO ANALYTICS LTD. (SEG) 24.94% 23.79% 2 INFOSYS LTD. 44.98% 43.79% 3 KALS INFORMATION SYSTEMS LTD. (SEG) 34.41% 29.54% 4 LARSEN & TOUBRO INFOTECH LTD. 19.33% 18.53% 5 MINDTREE LTD. (SEG) 14.83% 11.87% 6 PERSISTENT SYSTEMS & SOLUTIONS LTD. 15.38% 14.28% 7 PERSISTENT SYSTEMS LTD. 30.335% 27.20% 8 RS SOFTWARE (INDIA) LTD. 10.29% 9.59% 9 SASKEN COMMUNICATION 17.36% 15.52% IT(TP)A NO.57 & 81/B/15 9 TECHNOLOGIES 10 TATA ELEXI (SEG) 20.93% 16.32% 11 THINKSOFT GLOBAL SERVICES LTD. 17.05% 13.10% ARITHMETIC MEAN 22.71% 20.32% COMPUTATION OF ARMS LENGTH PRICE BY THE TPO AND TH E ADJUSTMENT MADE: ARMS LENGTH MEAN MARGIN 22 71% LESS: WORKING CAPITAL ADJUSTMENT 1.98% ADJUSTED MEAN MARGIN AFTER WORKING CAPITAL ADJUSTMENT 20.73% OPERATING COST (A) 13 75 90 785 ARMS LENGTH PRICE 120.73% OF OPERATING COST (B) 16 61 13 355 TOTAL OPERATING REVENUE 15 74 03 549 SHORT FALL BEING ADJUSTMENT U/S92CA (B- C) 87 09 806 8. THE TPO HAS COMPUTED THE WORKING CAPITAL ADJUSTM ENT AT 2.39%. THE TPO HAS CONTENDED THAT THERE MUST BE A UPPER CAP FOR THE ADJUSTMENT TO BE GIVEN. HENCE THE WORKING CAPITAL ADJUSTMENT IS RESTRICTED TO 1.98% AND THE ADJUSTED MEAN MARGIN IS COMPUTED AT 20.73%. 9. THE CIT(A) OBSERVATIONS WITH RESPECT TO SOF TWARE DEVELOPMENT SEGMENTS IS AS FOLLOW. IT(TP)A NO.57 & 81/B/15 10 CIT(A) OBSERVATION (SOFTWARE DEVELOPMENT SEGMENT) SL. NO . NAME OF THE COMPANY SALES (RS. IN CRORES OPERATING MARGIN ON COST ADJUSTED OPERATING MARGIN ON COST CIT(A) ORDER 1 ICRA TECHNO ANALYTICS LTD. (SEG) 11.89 24.94% 23.79% ACCEPT 2 INFOSYS LTD. 21 14 0.00 44.98% 43.79% REJECT 3 KALS INFORMATION SYSTEMS LTD(SEG) 2.16 34.41% 29.54% ACCEPT 4 LARSEN & TOUBRO INFOTECH LTD. 1 776. 76 19.33% 18.53% REJECT 5 MINDTREE LTD (SEG) 698.0 2 14.83% 11.87% REJECT 6 PERSISTENT SYSTEMS & SOLUTIONS LTD 6.67 15.38% 14.28% ACCEPT 7 PERSISTENT SYSTEMS LTD. 504.4 1 30.35% 27.20% REJECT 8 RS SOFTWARE (INDIA) LTD 161.8 3 10.29% 9.59% ACCEPT 9 SASKEN COMMUNICATION TECHNOLOGIES 401.5 0 17.36% 15.52% REJECT 10 TATA ELEXI (SEG) 336.9 4 20.93% 16.32% REJECT 11 THINKSOFT GLOBAL SERVICES LTD 74.55 17.05% 13.10% ACCEPT 10. REMAINING COMPANIES AFTER REJECTION BY THE CIT (A) IS : REMAINING COMPANIES AFTER CIT(A) REJECTION SL.NO. NAME OF THE COMPANY SALES(RS.IN CRORES OPERATING MAARGIN ON CSOT ADJUSTED OPERATING MAARGIN ON COST 1 ICRA TECHNO ANALYTICS LTD.(SEG) 11.89 24.94% 23.79% 2 KALSINFORMATION 2.16 34.41% 29.54% IT(TP)A NO.57 & 81/B/15 11 SYSTEMS LTD. (SEG) 3 PERSISTENT SYSTEMS & SOLUTIONS LTD. 6.67 15.38% 14.28% 4 RS SOFTWARE (INDIA) LTD. 161.83 10.29% 9.59% 5 THINKSOFT GLOBAL SERVICES LTD. 74.55 17.05% 13.10% ARITHMETIC MEAN 20.41% 18.06% 11. WITH RESPECT TO THE COMPARABLES NUMBERING 5 BY CIT(A) THE LEARNED COUNSEL FOR THE ASSESSEE REQUESTED FOR ICRA TECHNO ANALYTICS LTD. (SEGMENT) AND KALS INFORMATION SYSTEMS LTD. (SEGMENT) ARE TO BE REJECTED. THE FINAL COMPARABLES ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE WOULD BE AS FOLLOWS : FINAL COMPARABLES SL.NO. NAME OF THE COMPANY OPERATING MARGIN ON COST WORKING CAPITAL ADJ.MARGIN 1 PERSISTENT SYSTEMS & SOLUTIONS LTD. 15.38% 14.28% 2 RS SOFTWARE (INDIA) LTD. 10.29% 9.59% 3 THINKSOFT GLOBAL SERVICES LTD. 17.05% 13.10% ARMS LENGTH MARGIN 14.24% 12.32% IT(TP)A NO.57 & 81/B/15 12 12. WE HEARD BOTH PARTIES. 13. WE FIND THAT THE DECISION IN THE CASE OF DCIT VS M/S ELECTRONICS FOR IMAGING INDIA PVT. LTD. IN IT(TP) NO.212/BANG/2015 I S HELD AS FOLLOWS. (1) ICRA TECHNO ANALYTICS LTD. (SEG) 2. AT THE OUTSET WE NOTE THAT APART FROM HAVING THE RELATED PARTY REVENUE AT 20.94% OF THE TOTAL REVENU E THIS COMPANY WAS ALSO FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. THE DRP HAS GIVEN ITS FINDING AT PAGES 13 TO 14 AS UNDER:- HAVING HEARD THE CONTENTION ON PERUSAL OF THE ANNUAL REPORT IT IS NOTICED BY US THAT THE SEGMENTAL INFORMATION IS AVAILABLE FOR TWO SEGMENTS I.E. SERVICES AND SALES. HOWEVER IT IS EVIDENT FROM THE ANNUAL REPORT THAT THE SERVICE SEGMENT COMPRISES OF SOFTWARE DEVELOPMENT SOFTWARE CONSULTANCY ENGINEERING SERVICES WEB DEVELOPMENT WEB HOSTING ETC. FOR WHICH NO SEGMENTAL INFORMATION IS AVAILABLE AND THEREFORE THE OBJECTION OF THE ASSESSEE IS FOUND ACCEPTABLE. ACCORDINGLY ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARABLES. IT(TP)A NO.57 & 81/B/15 13 3. WE FIND THAT THE FACTS RECORDED BY THE DRP IN RESPECT OF BUSINESS ACTIVITY OF THIS COMPANY ARE NO T IN DISPUTE. THEREFORE WHEN THIS COMPANY IS ENGAGED I N DIVERSIFIED ACTIVITIES OF SOFTWARE DEVELOPMENT AND CONSULTANCY ENGINEERING SERVICES WEB DEVELOPMENT & HOSTING AND SUBSTANTIALLY DIVERSIFIED ITSELF INTO D OMAIN OF BUSINESS ANALYSIS AND BUSINESS PROCESS OUTSOURCING THEN THE SAME CANNOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE W HO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS A E. 4. IN VIEW OF THE ABOVE FACTS WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THAT OF A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. 14. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. M/S ELECTRONICS FOR IMAGING IN DIA PVT. LTD. IN IT(TP) NO.212/BANG/2015 WE EXCLUDE ICRA TECHNO ANA LYTICS LTD. (SEG) FROM THE LIST OF COMPARABLES SELECTED BY TPO/ AO. 15. WITH RESPECT TO KALS INFORMATION SYSTEMS LTD. WE FIND THAT THE CO-COORDINATE BENCH IN THE CASE DCIT VS. M/S E LECTRONICS FOR IMAGING INDIA PVT LTD IN ITA NO.212/2015 FOR THE A SSESSMENT YEAR 2010-2011 HAS HELD AS FOLLOWS: IT(TP)A NO.57 & 81/B/15 14 ( 3) KALS INFORMATION SYSTEMS LTD. 5. THE ASSESSEE RAISED OBJECTIONS AGAINST THIS COMPANY ON THE GROUND THAT THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS. FURTHER THIS COMPANY CONSISTS OF STPI UNIT AND ALSO HAVING A TRAINING CENTRE ENGAGED IN TRAINING OF SOFTWARE PROFESSIONALS ON ONLINE PRODUCTS. THUS WHEN THIS COMPANY IS HAVING REVENUE FROM SOFTWARE SERVICES AS WELL AS SOFTWARE PRODUCT THE SAME CANNOT BE CONSIDERED AS COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICE PROVIDING COMPANY. 6. THE DRP HAS DIRECTED THE AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES BY TAKING NOTE OF THE FACT THAT THERE WERE INVENTORIES IN THE BOOK S OF ACCOUNTS OF THIS COMPANY WHICH SHOWS THAT THIS COMPANY IS IN THE SOFTWARE PRODUCT BUSINESS. FURTHER BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA LT D. V. DCIT ITA NO.1054/BANG/2011 DATED 23.11.2012 THIS COMPANY WAS FOUND TO BE NOT COMPARABLE WITH THAT OF THE ASSESSEE. 7. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. IT(TP)A NO.57 & 81/B/15 15 THE LD. DR HAS NOT DISPUTED THE FACT THAT COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN A SERIES OF DECISIONS INCLUDING IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA LTD. (SUPRA). WE FURTHER NOTE THAT IN THE BALANCE SHEET OF THIS COMPANY AS ON 31.3.2010 THERE ARE INVENTORIES OF RS.60 47 977. THEREFORE WHEN THIS COMPANY IS IN THE BUSINESS OF SOFTWARE PRODUCTS THE SAME CANNOT BE COMPARED WITH A PURE SOFTWARE DEVELOPMENT SERVICES PROVIDER. ACCORDINGLY WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED FINDINGS OF THE DRP. 16. RESPECTFULLY FOLLOWING THE DECISION OF THE CO -ORDINATE BENCH IN THE CASE OF DCIT VS. M/S ELECTRONICS FOR IMAGING IN DIA PVT. LTD. IN IT(TP) NO.212/BANG/2015 WE EXCLUDE ICRA TECHNO ANA LYTICS LTD. (SEG) FROM THE LIST OF COMPARABLES SELECTED BY TPO/ AO. 17. HENCE BASED ON FINAL LIST OF COMPARABLE COMPAN IES 3 IN NOS. VIZ. PERSISTENT SYSTEMS RS SOFTWARE THINK SOFT THE WORKING CAPITAL ADJUSTMENT COMES TO 1.92% WHICH IS LESSER THAN 1.98 ADOPTED BY THE TPO. IT(TP)A NO.57 & 81/B/15 16 18. THE APPELLANTS MARGIN FOR SOFTWARE DIVISION IS AS UNDER:- PARTICULARS AMOUNT(INR) OPERATING REVENUE AS PER TPO 15 74 03 549 OPERATING COST AS PER TPO 13 75 90 785 OPERATING PROFIT 1 98 12 764 OP/OC 14 40% 19. GROUND NO.2 - RELYING ON THE DECISION IN THE CA SE OF CSR INDIA PVT. LTD. VS ITO IN IT(TP) NO.119/BANG/2011 FOREI GN EXCHANGE GAIN OR LOSS SHOULD BE CONSIDERED AS OPERATING IN NATURE . 20. WITH RESPECT TO GROUND NO. 3 WORKING CAPITAL AD JUSTMENT THE CIT(A) HAS HELD THAT THE ACTION OF THE TPO IN RESTR ICTING WORKING CAPITAL ADJUSTMENT TO 1.98% IS CORRECT. WE FIND T HAT 1.92% WHICH COMES OUT BASED ON FINAL LIST OF COMPARABLES IS LES SER THAN 1.98% ADOPTED BY THE TPO. THE LD COUNSEL FOR THE ASSESSE E REQUESTED THAT WORKING CAPITAL ADJUSTMENT SHOULD BE GIVEN AT ACTUA L BASED ON FINAL COMPARABLES. RELIANCE WAS PLACED ON THE ITAT DECIS ION IN ARM EMBEDDED TECHNOLOGIES PVT. LTD. VS. DCIT TS-466-I TAT- IT(TP)A NO.57 & 81/B/15 17 2015(BANG)-TP. HENCE WE DIRECT THE TPO TO REWORK THE WORKING CAPITAL ADJUSTMENT. 21. WITH RESPECT TO 4 THE LEARNED COUNSEL ALSO POI NTED OUT THAT THE PRICE MARGINS ARE WITHOUT ADJUSTMENT OF RISK DIFFER ENTIALS. THE LEARNED COUNSEL SUBMITTED THAT IT SHOULD BE GRANTED ADJUSTM ENT AND PLACED RELIANCE ON THE DECISION IN THE CASE OF M/S INTELLI NET TECHNOLOGIES INDIA PVT. LTD. VS. ITO IN ITA NO./1237/BANG/2007 AND M/S BEARING POINT BUSINESS CONSULTING PVT. LTD. IN ITA NO.1124 /BANG/2011. 22. GROUND NO.5 IS CONCEPTUAL. 23. WE FIND THAT THE APPELLANTS MARGIN IS HIGHER T HAN THE AVERAGE MARGIN OF THE COMPARABLES. THUS INTERNATIONAL TRAN SACTION OF THE APPELLANT RELATING TO SOFTWARE DEVELOPMENT SERVICES SHOULD BE CONSIDERED TO BE AT ARMS LENGTH . SALES & MARKETING SUPPORT SERVICES SEGMENT 24. GROUND NO.6 IS CONCEPTUAL. GROUND NO.7 IS DEAL T AS BELOW: IT(TP)A NO.57 & 81/B/15 18 25. THE COMPARABLES SELECTED BY TPO IN ORDER U/S 92 CA FOR SALES MARKETING AND SUPPORT SERVICES SEGMENT. 26. COMPARABLES SELECTED BY THE TPO IN ORDER U/S 92CA SL.NO. NAME OF THE COMPANY OPERATING MARGIN ON COST 1 ASIAN BUSINESS EXHIBITION & CONFERENCES LTD 60.13% 2 CYBER MEDIA RESEARCH LTD. 13.68% 3 HCCA BUSINESS SERVICES 19.09% 4 HINDUSTAN HOUSING CO LTD 38.12% 5 ICC INTERNATIONAL AGENCIES LTD. 13.72% 6 KILLICK AGENCIES & MKTG. LTD. 17.36% 7 PRIYA INTERNATIONAL LTD 11.47% ARITHMETIC MEAN 24.80% 27. COMPUTATION OF ARMS LENGTH PRICE BY THE TPO AND THE ADJUSTMENT MADE: ARAMS LENGTH MEAN MARGIN 24.80% OPERATING COST (A) 1 87 62 380 ARMS LENGTH PRICE 124.80% OF OPERATING COST (B) 2 34 15 450 TOTAL OPERATING REVENUE (C) 2 06 39 290 SHORT FALL BEING ADJUSTMENT U/S 92CA (B-C) 27 76 16 0 IT(TP)A NO.57 & 81/B/15 19 28. THE ASSESSEE HAS OBJECTED TO THE COMPARABLES SE LECTED BY TPO IN THE FOLLOWING CHART. MARGINS AS PER TPO APPELL- ANTS STAND REASONS FOR REJECTION SL. NAME OF THE COMPANY OPERATING MARGIN ON COST FUNCTIO NALLY DISSIMIL AR OTHER OTHER REASONS NOTE 1 ASIAN BUSINESS EXHIBITION & CONFERENCES LTD 60.13% REJECT A)ABNOR MALLY HIGH MARGIN AND ABNORMA L FINANCIAL CIRCUMST ANCES 1 2 CYBER MEDIA RESEARCH LTD.* 13.68% ACCEPT 2 3 HCC A BUSINESS SERVICES 19.09% REJECT 4 HINDUSTAN HOUSING CO LTD 38.12% REJECT B) FAILS RPT FILTER 5 ICC INTERNATIONAL AGENCIES LTD. 13.72% ACCEPT 6 KILLICK AGENCIES & MKTG. LTD. 17.36% REJECT C)FAILS RPT FILTER 3 7 PRIYA INTERNATIONAL LTD 11.47% ACCEPT 24.80% 29. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED AS FOLLOWS:- IT(TP)A NO.57 & 81/B/15 20 30. ASIAN BUSINESS EXHIBITION & CONFERENCES LTD. SHOULD BE REJECTED AS IT IS FUNCTIONALLY DIFFERENT FROM THE A PPELLANT FOR THE FOLLOWING REASONS: A. AS PER DIRECTOR REPORT THE COMPANY IS ENGAGED IN T HE BUSINESS OF ORGANIZING EXHIBITIONS AND CONFERENCE. B. AS PER PROFIT AND LOSS ACCOUNT THE COMPANY HAS REV ENUES FROM EXHIBITIONS & EVENTS DELEGATE FEES SPONSORSH IPS AND ENTRY CHARGES. C. AS PER SIGNIFICANT ACCOUNTING POLICIES THE COMPANY HAS REVENUES RECOGNITION POLICY FOR INCOME FROM EXHIBIT IONS & EVENTS DELEGATE FEES SPONSORSHIPS AND ENTRY CHA RGES. 31. IN VIEW OF THE ITAT DECISION IN THE CASE OF ACI T V RGA SERVICES INDIA PVT. LTD TS-580-ITAT-2015(MUM)-TP AY 10-11 AND DCIT V M/S ELECTRONICS FOR IMAGING INDIA PVT. LTD. IT(TP)A NO.212/BANG/2015-AY 10-11 WHEREIN IT IS HELD AS UN DER:- 8. HOWEVER WE FIND THAT THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IN THE MARKETING SUPPORT SEGMENT IS REGARDING ASIAN BUSINESS EXHIBITION & CONFERENCE LTD. A COMPARABLE SELECTED BY THE TPO AND RETAINED BY THE DRP. IT(TP)A NO.57 & 81/B/15 21 9. THE ASSESSEE OBJECTED AGAINST THIS COMPANY ON THE GROUND THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN ORGANIZING EXHIBITION S AND CONFERENCES. THE DRP DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THAT THIS COMPANY RECEIVED INCOME IN THE NATURE OF CONSULTANCY FOR ORGANIZING EXHIBITIONS AND EVENTS. THEREFORE THIS COMPANY IS FUNCTIONALLY SIMILAR TO T HE FUNCTIONS CARRIED OUT BY THE ASSESSEE. 10. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RGA SERVICES INDIA PVT. LTD. VIDE ORDER DATED 20.11.2015 IN ITA NO.22/MUM/2015 AND SUBMITTED THAT THE MUMBAI TRIBUNAL HAS HELD THAT THE OPERATION OF ORGANIZING EXHIBITION AND EVENTS IS NOT COMPARABLE WITH SUPPORT SERVICES PROVIDED BY THE ASSESSEE TO ITS AE IN RESPECT OF REINSURANCE AND ACTUARIAL ACTIVITIES. THUS THE LD. AR HAS SUBMITTED THAT THIS COMPANY CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE WITH HE ASSESSEES ACTIVITY OF PROVIDING SALES AND MARKETING SERVICES TO ITS AE. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AS IT IS CLEAR THAT THE ASSESSEE IS PROVIDING SALES AN D IT(TP)A NO.57 & 81/B/15 22 MARKETING SERVICES TO ITS AE WHICH INCLUDES IDENTIFYING POTENTIAL CUSTOMERS BY CONDUCTING ROAD SHOWS PRESENTATION AND THE LIKE THE WORKING ALSO INCLUDES EDUCATING POTENTIAL USERS OF THE BENEFIT A ND FEATURES OF THE AES RANGE OF PRODUCTS. HOWEVER PRODUCTS FOR WHICH THE ASSESSEE IS PROVIDING SALES AND MARKETING SERVICES IS ONLY SOFTWARE/INFORMATION TECHNOLOGY PRODUCTS. THEREFORE ASIAN BUSINESS EXHIBITION & CONFERENCE LTD. WHICH IS MAINLY ENGAGED IN THE ORGANIZATION OF EXHIBITIONS AND EVENTS AS WELL AS CONDUCTING CONFERENCES ON BEHALF OF THE VARIOUS CLIENTS FOR THEIR VARIOUS PRODUCTS A ND BUSINESSES. THE FUNCTIONS OF THIS COMPANY ARE ENTIRELY DIFFERENT FROM THE ASSESSEE WHO IS PROVIDI NG SALES AND MARKETING SUPPORT SERVICES TO ITS AE FOR SOFTWARE/IT PRODUCTS. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RGA SERVICES INDIA PVT. LTD . (SUPRA) WHILE CONSIDERING THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS HELD AT PARAS 11 AND 12 AS UNDER:- 11. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. ON PERUSAL OF THE ORDER PASSED BY THE TPO IT IS NOTICED THAT THE TPO WHILE DEALING WITH ASSESSEES OBJECTION WITH REGARD TO SELECTION OF ASIAN IT(TP)A NO.57 & 81/B/15 23 BUSINESS EXHIBITION AND CONFERENCES LIMITED AS A COMPARABLE HAS ADMITTED THAT THE NATURE OF FUNCTION PERFORMED BY THIS COMPANY IS EVENT MANAGEMENT. IT IS FURTHER RELEVANT TO OBSERVE ON PERUSAL OF ANNUAL REPORT OF THIS COMPANY IT IS SEEN THAT AS PER DIRECTORS REPORT THE MAIN OPERATION IS ORGANIZING EXHIBITION AND EVENTS. FURTHER SCHEDULE 12 OF THE PROFIT AND LOSS ACCOUNT AS WELL AS NOTES TO THE ACCOUNTS REVEALS REVENUE EARNED BY THE COMPANY IS FROM SPONSORSHIP DELEGATES ATTENDING CONFERENCES EVENTS AND ENTRY FEES CHARGED FROM VISITORS FOR VISITING EXHIBITION SALE OF STALL PLACE ETC. 12. THUS ON OVERALL ANALYSIS OF FACTS AND MATERIALS PLACED ON RECORD IT IS VERY MUCH CLEAR THAT THE BUSINESS MODEL OF THE ASSESSEE AND ASIAN BUSINESS EXHIBITION AND CONFERENCES LIMITED ARE TOTALLY DIFFERENT. WHILE ASSESSEE UNDOUBTEDLY IS PROVIDING SUPPORT SERVICES TO ITS OVERSEAS AES ASIAN BUSINESS EXHIBITION AND CONFERENCES LIMITED IS PRIMARILY AND FUNDAMENTALLY ENGAGED IN EVENT MANAGEMENT. THUS UNDER NO CIRCUMSTANCES IT CAN BE IT(TP)A NO.57 & 81/B/15 24 CONSIDERED AS A COMPARABLE TO THE ASSESSEE. THEREFORE FOR THE AFORESTATED REASONS THE DRP IN OUR VIEW WAS JUSTIFIED IN EXCLUDING THIS COMPANY AS A COMPARABLE. AS FAR AS THE CONTENTION OF LEARNED DR THAT REASONS ON WHICH THIS COMPANY WAS EXCLUDED EQUALLY APPLIES TO OTHER COMPARABLES RETAINED BY THE DRP WE MAY OBSERVE SUCH ARGUMENT OF LEARNED DR IS NOT AT ALL RELEVANT AS THE ISSUE RAISED BY THE DEPARTMENT IN THE PRESENT APPEAL IS CONFINED TO EXCLUSION OF ASIAN BUSINESS EXHIBITION AND CONFERENCES LIMITED AS A COMPARABLE. AS FAR AS OBJECTION OF LEARNED DEPARTMENTAL REPRESENTATIVE THAT ASSESSEE ITSELF HAS SELECTED THIS COMPANY AS A COMPARABLE WE MAY OBSERVE THAT CANNOT BE THE SOLE CRITERIA TO REJECT ASSESSEES OBJECTION WITH REGARD TO SELECTION OF A COMPARABLE. AT THE TIME OF PREPARING T.P. STUDY REPORT ASSESSEE HAD SELECTED SOME COMPARABLES BY CONSIDERING MULTIPLE YEAR DATA AND INFORMATION AVAILABLE AT THE RELEVANT TIME. HOWEVER IF SUBSEQUENTLY ON THE BASIS OF INFORMATION AVAILABLE IN PUBLIC DOMAIN IT IS FOUND ON THE BASIS OF IT(TP)A NO.57 & 81/B/15 25 FUNCTIONALITY OR SOME OTHER REASON A COMPANY IS NOT AT ALL COMPARABLE ASSESSEE CANNOT BE PRECLUDED FROM OBJECTING TO SELECTION OF THE COMPANY AS A COMPARABLE. THIS LEGAL PROPOSITION IS FAIRLY WELL SETTLED BY THE DECISION IN CASE OF DCIT V/S. QUARK SYSTEMS (P) LTD. (2010)132TTJ(CHD)(SB)1 AS WELL AS DECISIONS RELIED UPON BY THE COUNSEL FOR THE ASSESSEE. IN VIEW OF THE AFORESAID WE DO NOT FIND ANY INFIRMITY IN THE DIRECTIONS OF DRP IN EXCLUDING ASIAN BUSINESS EXHIBITION AND CONFERENCES LIMITED AS A COMPARABLE. THE GROUND RAISED IS THEREFORE DISMISSED. 12. IN VIEW OF THE ABOVE FACTS AS WELL AS DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE WITH THE ASSESSEE. ACCORDINGLY WE DIRECT THE AO/TPO TO RE-COMPUTE THE ALP IN MARKETING SUPPORT SERVICES SEGMENT BY EXCLUDING ASIAN BUSINESS EXHIBITION & CONFERENCE LTD. FROM THE COMPARABLES. IT(TP)A NO.57 & 81/B/15 26 32. THE LEARNED COUNSEL SUBMITTED THAT HCCA BUSINESS SERVICES IS ENGAGED IN PAYROLL PROCESSING. THEREFORE THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT AND SHOULD BE REJECTED. RELIANCE IS PLACED ON ITAT DECISION IN THE CASE OF DC IT V M/S ELECTRONIC S FOR IMAGING INDIA PVT. LTD. IT(TP)A NO.212/BANG/2015-AY 10-11 WHEREIN IT IS HELD AS UNDER: ( 1) HCCA BUSINESS SERVICES PVT. LTD. 13. THE ASSESSEE OBJECTED AGAINST INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS ENGAGED IN PROVIDING PAYROLL PROCESS SERVICES AND THEREFORE IT IS FUNCTIONALLY DIFFERENT. IN SUPPORT OF ITS CONTENTI ON THE ASSESSEE REFERRED TO NOTES TO THE ACCOUNTS WHEREIN THE COMPANYS OPERATIONS COMPRISE OF PAYROLL PROCESSING SERVICES IS MENTIONED AND HENCE IT IS NOT POSSIBLE TO GIVE THE QUANTITATIVE DETAILS OF SALES AND CERTAIN INFORMATION SEPARATELY. 14. THE DRP AFTER CONSIDERING THE ANNUAL REPORT NOTED THAT EXCEPT THE NOTE 2.14 THERE IS NO OTHER OBSERVATION IN THE ANNUAL REPORT FROM WHICH IT CAN BE ESTABLISHED THAT THE COMPANY IS ENGAGED IN MARKETING AND SALES SUPPORT SERVICES COMPARABLE TO IT(TP)A NO.57 & 81/B/15 27 THE ASSESSEE. ACCORDINGLY THE DRP DIRECTED THE AO TO EXCLUDE THE SAID COMPANY FROM THE COMPARABLES. 15. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP HAS CONSIDERED THE FACT THAT PAYROLL PROCESSING SERVICES WAS MAIN PART OF THE OPERATIONS OF THE COMPANY AND QUANTITATIVE DETAILS OF SALES AN D CERTAIN INFORMATION AS REQUIRED UNDER PART II OF SCHEDULE VI TO COMPANIES ACT WAS NOT POSSIBLE. THUS IN THE ABSENCE OF ANY CONTRARY FACT ON RECORD BROUGHT BEFORE US WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE DRP WHEN THE FUNCTIONS AND BUSINESS ACTIVITY OF THIS COMPANY WAS FOUND TO BE DIFFERENT FROM MARKETING AND SALES SUPPORT SERVICES OF THE ASSESSEE. ACCORDINGLY THE OBJECTION OF THE REVENUE IS REJECTED. 33. LEARNED COUNSEL SUBMITTED THAT HINDUSTAN HOUSING CO. LTD. SHOULD BE REJECTED AS IT HAS A SUBSTANTIAL RELATED PARTY TRANSACTIONS AT 26.97% AND HENCE FAILS RTP FILTER. 34. LEARNED COUNSEL SUBMITTED THAT IT(TP)A NO.57 & 81/B/15 28 KILLICK AGENCIES & MKTG. LTD. SHOULD BE REJECTED AS IT IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT FOR THE F OLLOWING REASONS: A. COMMISSION/SERVICE CHARGES INCOME OF THE COMPANY CONSTITUTES 64.66% OF THE OPERATING REVENUES WHICH IS LESS THAT 75% OF THE OPERATING REVENUE. NO SEGMENTAL RE SULTS ARE AVAILABLE IN THE ANNUAL REPORT. B. THIS COMPANY IS ALSO INVOLVED IN EXPORTS OF MICR O SWITCHES ENGINEERING ITEMS ACOUSTICS ITEMS & HEAD SETS. RELIANCE IS PLACED ON ITAT DECISION IN THE CASE OF DCIT V M/S ELECTRONICS FOR IMAGING INDIA PVT. LTD. IT(TP)A NO.212/BANG/2015-AY 10-11. 35. RELIANCE IS PLACED ON ITAT DECISION IN THE CASE OF DC IT V M/S ELECTRONICS FOR IMAGING INDIA PVT. LTD. IT(TP )A NO.212/BANG/2015-AY 10-11 WHEREIN IT IS HELD AS UN DER: (2) KILLICK AGENCIES & MARKETING LTD. 16. THE ASSESSEE OBJECTED AGAINST THIS COMPANY ON THE GROUND THAT COMMISSION/SERVICE CHARGES INCOME OF THIS COMPANY IS RS.2 19 00 000 OUT OF THE OPERATING REVENUE OF RS.3 39 00 000. THEREFORE THE IT(TP)A NO.57 & 81/B/15 29 COMMISSION/ SERVICE CHARGES INCOME CONSTITUTE ABOUT 65% OF THE OPERATING REVENUE WHICH IS LESS THAN 75% OF THE OPERATING REVENUE FILTER APPLIED BY THE TPO. IN THE ABSENCE OF SEGMENTAL RESULTS THIS COMPANY WAS SOUGHT TO BE EXCLUDED FROM THE SET OF COMPARABLES. 17. THE DRP FOUND THAT THIS COMPANY CONDUCTS BUSINESS AS AN AGENT OF THE FOREIGN PRINCIPAL AND DEAL IN MARITIME EQUIPMENTS. FURTHER THE RECEIPTS ARE MAINLY IN THE NATURE OF COMMISSION INCOME AND SERVICE CHARGES. THEREFORE THIS COMPANY WAS FUNCTIONALLY DISSIMILAR TO THAT OF ASSESSEE. 18. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. 19. THE LD. DR HAS SUBMITTED THAT THE TPO HAS CONSIDERED THE RELEVANT INFORMATION AS REPORTED IN THE ANNUAL REPORT OF THE COMPANY AND IT WAS FOUND THAT THIS COMPANY IS ACTING AS AN AGENT FOR VARIOUS FOREIGN PRINCIPALS FOR SALE OF DREDGERS DREDGING EQUIPMENT AND ALSO OFFERS AFTER SALES SERVICE. THEREFORE THIS C OMPANY IT(TP)A NO.57 & 81/B/15 30 WAS FOUND TO BE IN THE BUSINESS OF MARKETING SUPPOR T SERVICES WHICH IS SIMILAR TO THE ASSESSEE. 36. ALSO WE FIND THAT RTP FILTER IS SUBSTANTIAL AT 16.4% AND HENCE THE FOLLOWING DECISION OF 24/7 CUSTOMER.COM PVT. L TD. (SUPRA) WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE. 37. FOLLOWING THE CO-ORDINATE BENCH DECISIONS STATE D (SUPRA) WE DIRECT THAT TPO TO EXCLUDE ASIAN BUSINESS EXHIBITIO N & CONFERENCES LTD. CYBER MEDIA RESEARCH LTD. HCCA BUSINESS SE RVICES PVT. LTD. HINDUSTAN HOUSING CO. LTD. AND KILLICK AGENCIES & MARKETING LTD. 38. HENCE THE FINAL COMPARABLES IN SALES AND SUPPOR T SERVICES SEGMENT WHICH ARE TO BE RETAINED ARE AS FOLLOWS. SN NAME OF THE COMPANY OPERATING MARGIN ON COST AS PER TPO 1 CYBER MEDIA RESEARCH LTD. 13.68% 2 ICC INTERNATIONAL AGENCIES LTDS. 13.72% 3 PRIYA INTERNATIONAL AGENCIES 11.47% IT(TP)A NO.57 & 81/B/15 31 LTD. ARMS LENGTH MARGIN 12.96% 39. WE ALSO DIRECT THAT TPO TO GRANT RISK ADJUSTM ENT FOLLOWING DECISIONS OF THE COORDINATE BENCH IN THE CASE OF M/ S BEARING POINT BUSINESS CONSULTING PVT. LTD. IN ITA NO.1124/BANG/ 2011 WHEREIN IT HAS BEEN HELD AS FOLLOWS:- IV. RISK ADJUSTMENT: 5.5 ACCORDING TO THE ASSESSEE IT IS OPERATING IN A RISK MITIGATED ENVIRONMENT. IT WAS SUBMITTED THAT THE RISK ASSUMED BY IT ARE LESSER THAN THOSE ASSUME D BY THE COMPANIES IN AN UNCONTROLLED CONDITION THEREFORE AN ADJUSTMENT FOR RISK IS TO BE GRANTED. THE REASONING FOR THE ABOVE SUBMISSION IS THAT HIGHER THE RISK THE HIGHER THE PROFIT. 5.5.1 IN TH E INSTANT CASE TPO IN HIS ORDER HAS COMPUTED THE ADJUSTMENT FOR RISK DIFFERENTIAL TABLE AT PAGES 179 AND 180 OF THE ORDER PASSED U/S 92C OF THE ACT INDICATE MARGINS WERE REDUCED BY 0.73% TO FACTOR IN THE RISK DIFFERENTIALS. THE TPO HOWEVER AFTER COMPUTING THE RISK DIFFERENTIALS DID NOT GIVE EFFEC T TO THE SAME ON THE PREMISE THAT THE SINGLE CUSTOMER IT(TP)A NO.57 & 81/B/15 32 RISK OF THE ASSESSEE IS MORE TO OFF SET THE EFFECT OF THE RISK DIFFERENTIALS AS ABOVE. IN THIS CONNECTION TH E EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF M/S INTELLINET TECHNOLOGIES INDIA PVT. LTD V. ITO IN ITA NO.1237/BANG'2007 HAD ON A SIMILAR ISSUE OBSERVED AS UNDER: PAGE 25 OF 29 25 ITA NO.1124/BANG/2011 '7.1 AS SEEN FROM THE RECORDS THE ASSESSEE HAD ACQUIRED THE BUSINESS AND ALSO EARNED INCOME OUT OF THE SAID TRANSACTION BY COST PLUS BASIS. THUS IT CAN BE SEE N THAT THE ASSESSEE HAS NOT ENCOUNTERED THE RISK OF HAVING A SINGLE CUSTOMER WHEREAS THE SAME CANNOT BE SAID AS REGARDS THE COMPARABLES. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THE COMPARABLES WERE DEALING IN OPEN MARKET AND THEREFORE THEY WERE PRONE TO THE MARKETING AND TECHNICAL RISKS. THEY WOULD HAVE INCURRED CERTAIN EXPENDITURE ON MARKETING SERVICES AND ALSO TO SAFEGUARD THE TECHNICAL USE BY THEM. IN SUCH A CASE THE RISK ENCOUNTERED BY THE ASSESSEE CANNOT BE SAID TO BE THE EQUIVALENT RISKS ATTACHED TO THE COMPARABLES. THE RISK ATTRIBUTED TO THE ASSESSEE BY THE TPO IS AN ANTICIPATED RISK WHEREAS THE RISK ATTRIBUTED BY THE ASSESSEE TO THE COMPARABLES IS AN EXISTING RISK. IN SUCH SITUATION THE TPO OUGHT TO HAVE GIVEN THE RISK ADJUSTMENT TO THE NET MARGIN OF IT(TP)A NO.57 & 81/B/15 33 THE COMPARABLES FOR BRINGING THEM ON PAR WITH THE ASSESSEE COMPANY..................'. 5.5.2 IN CONFORMITY WITH THE FINDINGS OF THE EARLIE R BENCH (SUPRA) WE DIRECT THE AO/TPO TO WORK OUT SUITABLE RISK ADJUSTMENT AND COMPUTE THE ALP ACCORDINGLY. 40. THE PARTICULARS FOR GRANT OF RISK DIFFERENTIAL IS AS FOLLOWS: PARTICULARS AMOUNT (INR) TOTAL OPERATING REVENUE 2 06 39 290 OPERATING COST AS PER TPO 1 87 62 380 OPERATING MARGINS 18 76 910 OP/OC 10.00% 41. HENCE WE DIRECT THE TPO TO GRANT RISK ADJUSTME NT IN LIGHT OF THE DECISION OF BEARING POINT (SUPRA). 42. GROUND NO.9 THE TPO IS DIRECTED TO PROVIDE APPR OPRIATE WORKING CAPITAL ADJUSTMENT FOR THE SALES AND MARKETING SEGM ENT. 43. GROUND NO.8 - RELYING ON THE DECISION IN THE CA SE OF CSR INDIA PVT. LTD. VS ITO IN IT(TP) NO.119/BANG/2011 FOREI GN EXCHANGE GAIN IT(TP)A NO.57 & 81/B/15 34 OR LOSS SHOULD BE CONSIDERED AS OPERATING IN NATURE FOR MARKETING SUPPORT SERVICES. 44. THE APPELLANTS MARGIN IS WITHIN 5% RANGE OF THE AV ERAGE MARGIN OF THE COMPARABLES. THUS THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT SHOULD BE CONSIDERED TO BE AT ARM S LENGTH. WITH THESE DIRECTIONS WE SET ASIDE THE ISSUES TO T HE FILE OF THE TPO TO REWORK THE ALP. 45. GROUND 11 IS CONCEPTUAL GROUND NO.12 IS GENERAL. ITA NO.57/BANG/2015 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN DIRECTING THE TPO ON MARKETING SUPPORT SEGMENT TO IT(TP)A NO.57 & 81/B/15 35 GRANT WORKING CAPITAL ADJUSTMENT UNDER TNM METHODOLOGY AS PER PREVAILING NORMS WITHOUT APPRECIATING THAT THE DIRECTIONS ISSUED ARE BEYOND THE MANDATE OF THE PROVISIONS OF SEC. 251(1)(A) OF IT A CT WHICH DOES NOT EMPOWER THE CIT(A) TO SET ASIDE THE ISSUE. 3. THE CIT(A) ERRED IN DIRECTING THE AO TO FOLLOW THE RATIO LAID DOWN BY THE HONBLE COURT IN THE CASE OF TATA ELXSI LTD. 349 ITR 98 AND EXCLUDE THE TELECOMMUNICATION EXPENSES AND OTHER FOREIGN CURRENCY EXPENSES FROM THE TOTAL TURNOVER ALSO WHIL E COMPUTING THE DEDUCTION U/S 10A OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THERE IS NO PROVISIONS IN SECTION 10A THAT SUCH EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURNOVER ALSO AS CLAUSE (IV) OF THE EXPLANATION TO SECTION 10A PROVIDES THAT SUC H EXPENSES ARE TO BE REDUCED ONLY FROM THE EXPORT TURNOVER ALSO. 4. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE JURISDICTIONAL HIGH COURTS DECISION IN TH E CASE OF TATA ELXSI LTD. 349 ITR 98 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL HAS BEEN FIXED BEFORE THE HONBLE SUPREME COURT. IT(TP)A NO.57 & 81/B/15 36 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING IT IS HUMBLY PRAYED T HAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE AO BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGE D AT THE TIME OF HEARING OF THE APPEAL. 46. GROUND NO.1 IS GENERAL. 47. GROUND NO.2 HAS ALREADY BEEN DECIDED IN ASSESS EES CROSS OBJECTION. 48. GROUND NO.3 AND 4 ARE DECIDED AGAINST THE REVE NUE IN THE LIGHT OF HONBLE COURTS DECISION IN THE CASE OF TATA EL XSI LTD. 349 ITR 98. 49. GROUND NO.5 AND 6 ARE GENERAL. IT(TP)A NO.57 & 81/B/15 37 50. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSE AND THE CROSS-OBJECTION IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30TH SEPTEMBER 2016 . SD/- SD/- (S JAYARAMAN) (ASHA VIJ AYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED : 30/09/2016 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED 4.THE CIT(A) CONCERNED 5.DR 6.GF BY ORDER ASST. R EGISTRAR ITAT BANGALORE.