DCIT10(2), MUMBAI v. DELMIA SOLUTIONS P.LTD, MUMBAI

ITA 6732/MUM/2013 | 2005-2006
Pronouncement Date: 19-11-2019 | Result: Dismissed

Appeal Details

RSA Number 673219914 RSA 2013
Assessee PAN AABCD0394C
Bench Mumbai
Appeal Number ITA 6732/MUM/2013
Duration Of Justice 5 year(s) 11 month(s) 29 day(s)
Appellant DCIT10(2), MUMBAI
Respondent DELMIA SOLUTIONS P.LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-11-2019
Appeal Filed By Department
Order Result Dismissed
Bench Allotted K
Tribunal Order Date 19-11-2019
Date Of Final Hearing 10-10-2016
Next Hearing Date 10-10-2016
First Hearing Date 10-10-2016
Assessment Year 2005-2006
Appeal Filed On 20-11-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY JUDICIAL MEMBER AND SHRI N.K.PRADHAN ACCOUNTANT MEMBER IT (TP) A NO. 1576 / BANG ./201 3 ( ASSESSMENT YEAR : 20 0 5 06 ) 3DPLM SOFTWARE SOLUTIONS LTD. (SUCCESSOR TO DELMIA SOLUTIONS PVT. LTD.) NO.680 8 TH MAIN 15 TH CROSS J.P. NAGAR 2 ND PHASE BANGALORE 560 078 PAN AABCD0394C . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 11(1) BANGALORE . RESPONDENT ITA NO.6732/MUM./2013 ( ASSESSMENT YEAR : 2005 06 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 10(2) BANGALORE . APPELLANT V/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUCCESSOR TO DELMIA SOLUTIONS PVT. LTD.) NO.680 8 TH MAIN 15 TH CROSS J.P. NAGAR 2 ND PHASE BANGALORE 560 078 PAN AABCD0394C . RESPONDENT ASSESSEE BY : SHRI KETAN VED A/W MS. URVI A. MEHTA REVENUE BY : SHRI SUHAS KULKARNI DATE OF HEARING 21 .08 .2019 DATE OF ORDER 19.11.2019 2 3DPLM SOFTWARE SOLUTIONS LTD. O R D E R PER SAKTIJIT DEY J.M. THE CAPTION CROSS APPEALS ARISE OUT OF ORDER DATED 18 TH SEPTEMBER 2013 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IV BANGALORE PERTAINING TO THE ASSESSMENT YEAR 2005 06. IT(TP)A NO.1576/BANG./2013 APPEAL BY THE ASSESSEE 2. THOUGH THE ASSESSEE HAS RAISED VARIOUS ISSUES IN THE GROUNDS HOWEVER THEY BASICALLY RELATE TO THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE TO THE ARM'S LENGTH PRICE OF SOFTWARE DEVELOPMENT SERV ICES PROVIDED TO THE OVERSEAS ASSOCIATED E NTERPRISE S (AES) . NOTABLY SUBSEQUENTLY THE ASSESSEE HAS FILED AMENDED GROUNDS OF APPEAL AND AS PER THE SAID AMENDED GROUNDS THE DISPUTE HAS BEEN NARROWED DOWN TO SELECTION OF SEVEN COMPARABLES. THEREFORE WE WILL RESTRICT OUR FINDING TO THE AFORESAID ISSUE ALONE. 3. THE ASSESSEE IS A SUCCESSOR TO DELMIA SALES PVT. LTD. WHICH WAS A SUBSIDIARY OF SOMERO ENTERPRISES INC. MAURITIUS. SO MERO ENTERPRISES INC. IN TURN IS A SUBSIDIARY OF DELMIA CORPORATION USA. THE ASSESSEE BASICALLY IS ENGAGED IN PROVIDING SOFTWARE DEVE LOPMENT SERVIC ES TO THE A E. DURI NG THE YEAR UNDER CONSIDERATION THE ASSESSEE RECEIVED REVENUE OF ` 17 02 81 992 TOWARDS PROVISION OF SOFTWARE DEVELOPMENT AN D CONSULTANCY SERVICES TO THE A E. IN THE TRANSFER PRI CING REPORT THE 3 3DPLM SOFTWARE SOLUTIONS LTD. ASSESSEE BENCH MARKED THE A FORESAID TRANSACTION WITH THE AE BY ADOPTING TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AS THE MOST APPROPRIATE METHOD. BY APPLYING CERTAIN FILTERS THE ASSESSEE UNDERTOOK A SEARCH PROCESS TO SELECT COMPARABLES AND ULTIMATELY SHORTLISTED SEVEN COMPANIES AS COMPARABLE WITH AVERAGE PROFIT MARG IN OF 9.7% . S INCE THE MARGIN SHOWN BY THE ASSESSEE @ 10.9% WAS HIGHER THAN THE MARGIN OF THE COMPARABLE S THE PRICE CHARGED TO THE A ES TOWARDS SERVICES RENDERED WAS CLAIMED TO BE AT ARM'S LENGTH. THOUGH THE TRANSFER PRICING OFFICER AGREED WITH THE ASSESSE E THAT TNMM IS THE M OST APPROPRIATE METHOD TO BENCH MARK THE TRANSACTION HOWEVER HE DID NOT FIND THE SEARCH PROCESS ADOPTED BY THE ASSESSEE TO SELECT COMPARABLES APPROPRIATE . HE OBSERVED WHILE COMPUTING THE MARGIN OF THE COMPARABLES THE ASSESSEE HAS CON SIDERED MULTIPLE YEAR DATA IN RESPECT OF MAJORITY OF THE COMPARABLES. HE ALSO POINTED OUT VARIOUS DEFECTS AND DEFICIENCIES IN THE TRANSFER PRICING STUDY REPORT. AFTER REJECTING THE TRANSFER PRICING STUDY REPORT THE TRANSFER PRICING OFFICER BY APPLYING CER TAIN ADDITIONAL FILTERS PROCEEDED TO SELECT COMPARABLES INDEPENDENTLY . IN THE PROCESS HE SELECTED SEVENTEEN COMPANIES AS COMPARABLE WITH AVERAGE MARGIN (OPERATING PROFIT TO TOTAL COST) OF 26.59% AND BY APPLYING THE AVERAGE MARGIN OF THE COMPARABLES TO THE OPERATING COST HE DETERMINED THE ARMS LENGTH PRICE AT ` 20 96 60 978. THEREBY SUGGESTING AN UPWARD ADJUSTMENT OF ` 2 66 90 108 TO THE ARMS LENGTH PRICE SHOWN BY THE ASSESSEE. T HE 4 3DPLM SOFTWARE SOLUTIONS LTD. TRANSFER PRICING ADJUSTMENT WAS ULTIMATELY ADDED TO THE INCOME OF THE AS SESSEE WHILE FRAMING THE ASSESSMENT ORDER. THE ASSESSEE CHALLENGED THE AFORESAID ADDITION BEFORE THE FIRST APPELLATE AUTHORITY. 4. THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE REMOVED FOUR OUT OF THE SEVENTEEN COMPARA BLES SELECTED BY THE TRANSFER PRICING OFFICER. STILL AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER (APPEALS) THE ASSESSEE HAS FILED THE PRESENT APPEAL. 5. BEFORE US THE ASSESSEE IS OBJECTING TO THE SELECTION OF THE FOLLOWING COMPARABLES: I) THIRDWAR SO LUTIONS LTD; II) TATA ELXSI LTD ; III) FOURSOFT LTD; IV) EXENSYS SOFTWARE SOLUTIONS LTD; V) SANKHYA INFOTECH LTD; VI) GEOMETRIC SOFTWARE SOLUTIONS LTD; AND VII) BODHTREE LTD. HEREAFTER WE WILL DEAL WITH EACH OF THE COMPARABLES OBJECTED BY THE ASSESSEE. I) THIRDWARE SOLUTIONS LTD. 6. OBJECTING TO THE SELECTION OF THIS COMPANY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE COMPANY IS ENGAGED IN MULTIPLE ACTIVITIES SUCH AS SOFTWARE DEVELOPMENT SERVICES SALE OF 5 3DPLM SOFTWARE SOLUTIONS LTD. PRODUCTS AND RELATED SERVICE. HE SUBMITTED THE COMPANY HAS EARNED SUBSTANTIAL REVENUE FROM PRODUCT LICENSE AND HAS EARNED EXTRA ORDINARY PROFIT DUE TO INTANGIBLE OWNED BY IT. THUS HE SUBMITTED THE COMPANY BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE CANNOT BE TREATED AS COMPARABLE. HE SUBMITTED FOR THE AFORESAID REASONS THE COMPANY WAS NOT CONSIDERED AS A COMPARABLE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 09. IN THIS CONTEXT HE DREW OUR ATTENTION TO THE RELEVANT OBSERVATIONS OF THE TRIBUNAL. FURTHER HE SUBMITTED THE TR IBUNAL IN SAPLABS INDIA PVT. LTD. V/S ADIT [2017] 87 TAXMANN.COM 316 WHILE CONSIDERING THE ISSUE RELATING TO COMPARABILITY OF THIS COMPANY WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER FOR THE VERY SAME ASSESSMENT YEAR HAS HELD THAT THIS COMPANY CANNOT B E TREATED AS COMPARABLE. THUS HE SUBMITTED THIS COMPANY SHOULD BE EXCLUDED AS A COMPARABLE. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THE ASSESSEE CANNOT SELECTIVELY SEEK EXCLUSION OF CERTAIN COMPARABLES BY RAISING THE ISSUE OF FUNCTIONAL DISS IMILARITY. HE SUBMITTED WHEN THE ASSESSEE IS NOT OBJECTING TO SOME OT HER COMPARABLES SELECTED WITH SA ME FUNCTIONS IT CANNOT OBJECT TO SPECIFIC COMPARABLES. HE SUBMITTED SINCE THE OTHER COMPANIES NOT OBJECTED BY THE ASSESSEE STAND ON SAME FOOTING THEY SH OULD ALSO HAVE TO BE EXCLUDED ON ACCOUNT OF FUNCTIONAL DISSIMILARITY AND THE MATTER SHOULD BE RE STORED TO 6 3DPLM SOFTWARE SOLUTIONS LTD. THE ASSESSING OFFICER/ TRANSFER PRICING OFFICER FOR SELECTING FRESH COMPARABLES. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECO RD. WE HAVE ALSO EXAMINED THE JUDICIAL PRECEDENTS CITED BEFORE US. THE MAIN OBJECTION OF THE ASSESSEE IS THIS COMPARABLE IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT IS OBSERVED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 09 THE TRIBUNAL HAVI NG EXAMINED THE FINANCIALS OF THE COMPANY HAS FOUND THAT IT IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSE AND SUBSCRIPTIONS WHICH COULD BE A REASON FOR EARNING HIGH PROFIT. ACCORDINGLY THE COMPANY WAS EXCLUDED FROM THE LIST OF C OMPARABLES. IT IS ALSO RELEVANT TO OBSERVE THE TRIBUNAL IN SAPLABS INDIA PVT. LTD. (SUPRA) WHILE EXAMINING THE COMPARABILITY ISSUE OF THIS COMPANY IN THE VERY SAME ASSESSMENT YEAR HAS HELD THAT THE COMPANY CANNOT BE TREATED AS COMPARABLE AS IT IS ENGAGED IN SALE OF PRODUCTS LICENSE AND OWNS INTANGIBLES. NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE BY THE REVENUE . THEREFORE TAKING NOTE OF THE OBSERVATIONS MADE BY THE BENCH IN THE AFORESAID JUDICIAL PRECEDENTS WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE. I I) TATA ELXSI LTD. 9. OBJECTING TO SELECTION OF THIS COMPANY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE COMPANY IS ENGAGED IN VARIOUS 7 3DPLM SOFTWARE SOLUTIONS LTD. ACTIVITIES SUCH AS PRODUCT ENGINEERING AND DESIGN SERVICE. HE SUBMITTED THE COMPANY OPERATES IN TWO SEGMENTS AND THE SOFTWARE DEVELOPMENT SERVICE SEGMENT ITSELF COMPRISE S OF T HREE SUB SERVICES NAMELY PRODUCT DESIGN SERVICE DESIGN ENGINEERING SERVICE AND VISUAL COMPUTING LABS. HE SUBMITTED THE SEGMENTAL RESULT OF THE VARIOUS SERVICES PROVIDED BY THE COMPANY IS ALSO NOT AVAILABLE. HE SUBMITTED CONSIDERING THE AFORESAID FACTS IN ASSESSEES OWN CASE IN ASSE SSMENT YEAR 2008 09 AND 2009 10 THE COMPANY WAS REJECTED AS A COMPARABLE. IN THIS CONTEXT HE DREW OUR ATTENTION TO THE OR DERS PASSED BY THE TRIBUNAL IN ITA NO.1303/BANG./2012 DATED 28 TH NOVEMBER 2013 AND ITA NO.634/MUM./2014 DATED 7 TH SEPTEMBER 2015. FURTHER HE SUBMITTED IN CASE OF GOOGLE INDIA PVT. LTD. V/S DCIT ITA NO.1298/BANG./2013 DATED 3 RD MARCH 2017 WHICH IS F OR THE VERY SAME ASSESSMENT YEAR THE TRIBUNAL HAVING FOUND THE COMPANY TO BE FUNCTIONALLY DIFFERENT EXCLUDED IT FROM THE LIST OF COMPARABLES. THUS HE SUBMITTED THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE REL IED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) / TRANSFER PRICING OFFICER. 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTS PLACED ON RECORD IT APPEARS THAT THIS COMPANY HAS MORE THAN ONE SEGMENT AN D FURTHER THE SOFT WARE 8 3DPLM SOFTWARE SOLUTIONS LTD. DEVELOPMENT SERVICE SEGMENT ALSO HAS MORE THAN ONE SUB SEGMENTS. WHEREAS THE SEGMENTAL DETAILS ARE NOT AVAI LABLE. CONSIDERING THESE ASPECTS THE TRIBUNAL IN ASSESSEES OWN CASE REJECTED THIS COMPANY AS A COMPARABLE. FURTHER IN CAS E OF GOOGLE INDIA PVT. LTD. (SUPRA) THE TRIBUNAL WHILE EXAMINING THE COMPARABILITY OF THIS COMPANY IN THE VERY SAME ASSESSMENT YEAR HAS HELD THAT THIS COMPANY IS NOT A COMPARABLE. TAKING NOTE OF THE JUDICIAL PRECEDENTS CITED ABOVE WE HOLD THAT THIS COMPAN Y SHOULD NOT BE TREATED AS COMPARABLE. II I) FOURSOFT LTD. 12. OBJECTING TO SELECTION OF THIS COMPANY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED RELATED PARTY TRANSACTION (RPT) AS A PERCENTAGE OF TOTAL TURNOVER WORKS OUT TO 19.9%. THUS IT EXCEEDS THE RPT FILTER OF 15%. HE SUBMITTED IN ASSESSEES OWN CASE IN ASSESSMENT YEAR S 2006 07 AND 2007 08 THE TRIBUNAL HAS APPLIED RPT FILTER OF 15%. IN THIS CONTEXT HE RELIED UPON THE ORDERS PASSED BY THE TRIBUNAL IN ITA NO.1109/BANG./2010 DATED 10 TH MAY 2031 AN D ITA NO. 845/BANG./2011 DATED 22 ND FEBRUARY 2013. FURTHER HE SUBMITTED THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AS IT IS DEVELOPING SOFTWARE PRODUCTS. THUS HE SUBMITTED THE COMPANY CANNOT BE TREATED AS COMPARABLE. IN SUPPORT HE RELIED UPON THE FOLLOWING DECISIONS: 9 3DPLM SOFTWARE SOLUTIONS LTD. I) SAPLABS INDIA PVT. LTD. V/S ADIT [2017] 87 TAXMANN.COM 316 (BANG.); AND II) GOOGLE INDIA PVT. LTD. V/S DCIT ITA NO.1298/BANG./2013 DATED 03.03.2017. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 14. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO TAKEN NOTE OF THE DECISIONS RELI ED UPON. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE FOR REMOVAL OF THE COMPANY ON ACCOUNT OF RPT IS UNACCEPTABLE. IT IS NOTICED THAT THE AS SESSEE DID NOT APPLY RPT FILTER WHILE SELECTING COMPARABLE. THE TRANSFER PRICING OFFICER HAS APPLIED RP T FILTER OF MORE THAN 25% FOR REJECTING COMPANIES. IN OUR VIEW THE RPT FILTER OF MORE THAN 25% APPLIED BY THE TRANSFER PRICING OFFICER IS CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN MANY CASES. THOUGH IT MAY BE A FACT THAT IN ASSESSEES OWN CASE IN SOME OTHER ASSESSMENT YEARS RPT FILTER OF MORE THAN 15% WAS APPLIED BUT THAT CANNOT BE CONSIDERED AS THE YARDSTICK IN EVERY ASSESSMENT YEAR. BE THAT AS IT MAY ON FACTUAL EXAMINATION OF THE FUNCTIONALITY OF THIS COMPARABLE IT IS NOTICED THAT THE COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT. THAT BEING THE CASE IT IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. CONSIDERING THE FACT THAT THIS COMPANY IS A PRODUCT DEVELOPMENT COMPANY THE CO ORDINATE 10 3DPLM SOFTWARE SOLUTIONS LTD. BENCH IN SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA) HAVE EXCLUDED THIS COMPANY AS A COMPARABLE. THE AFORESAID DECISIONS OF THE TRIBUNAL BEING FOR THE VERY SAME ASSESSMENT YEAR RESPECTFULLY FOLLOWING THEM WE EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S . IV ) EXENSYS SOFTWARE SOLUTIONS LT D. 15. OBJECTING TO THE SELECTION OF THIS COMPANY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AS IT IS ENGAGED IN MULTIPLE ACTIVITY INCLUDING SOFTWARE PRODUCT DEVELOPMENT. HE SUBMITTED THE BUSINESS OF THE COMPANY IS PRI MARILY RELATED TO ERP SUITE OF PRODUCTS OWNED BY IT. HE SUBMITTED THE COMPANY OWNED SIGNIFICANT INTANGIBLE INCLUDING MARKETING INTANGIBLE CON SISTING 60% OF ITS GROSS ASSETS. HE SUBMITTED THE COMPANY IS INVOLVED IN COMPLEX OPERATIONS OF DEVELOPING PROPRIETARY TECHNOLOGIES AND MARKETING THE SAME. FURTHER HE SUBMITTED DURING THE YEAR THERE WAS A AMALGAMATION OF ANOTHER COMPANY BY NAME HOLOOL INDIA LTD. WITH THIS COMPANY. THEREFORE THE YEAR UNDER CONSIDERATION BEING AN EXCEPTIONAL YEA R OF OPERATION THE COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. IN SUPPORT OF HIS CONTENTION THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE DECISION OF THE TRIBUNAL BANGALORE BENCH IN SAPLABS INDIA PVT. LTD. (SUPRA). 11 3DPLM SOFTWARE SOLUTIONS LTD. 16. THE LEARNED DEPARTMENTAL R EPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 17. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTS ON RECORD IT IS NOTICED THAT THIS COMPANY IS ENGAGED IN VARIOUS ACTIVITIES INCLUDING DEVELOPMENT OF SOFTWARE PRODUCTS. THE COMPANY OWNS A PRODUCT IN THE NAME OF ERP SUITE. FURTHER IT OWNS SIGNIFICANT INTANGIBLE WHICH PROVIDES THAT IT IS A PRODUCT COMPANY. FURTHER DURING THE YEAR UNDER CONSIDERATION THE ANOT HER COMPANY NAMELY HOLOOL INDIA LTD. HAS MERGED WITH THIS COMPANY. THUS EXTRA ORDINARY EVENT OF MERGER / AMALGAMATION MIGHT HAVE IMPACTED THE PROFITABILITY OF THE COMPANY. CONSIDERING THE AFORESAID FACTS THE CO ORDINATE BENCH IN SAPLABS INDIA PVT. LTD. EXCLUDED THIS COMPANY AS A COMP ARABLE. SUBSCRIBING TO THE VIEW EXPRESSED BY THE CO ORDINATE BENCH IN THE AFORESAID DECISION WE EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE. V ) SANKHYA INFOTECH LTD. 18. OBJECTING TO THE SELECTION OF THIS COMPANY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE COMPANY IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AS I T IS ENGAGED IN DEVELOPMENT OF NICHE S OFTWARE PRODUCT AND TRAINING. HE SUBMITTED THE COMPANY F OCUSES ON 12 3DPLM SOFTWARE SOLUTIONS LTD. DEVELOPMENT OF N ICHE PRODUCTS FOR THE TRANSPORT AND AVIATION I NDUSTRIES . W HEREAS SEGMENTAL INFORMATION IN RELATION TO THE AFORESAID ACTIVITIES IS NOT AVAILABLE IN PUBLIC DOMAIN. THUS HE SUBMITTED THE COMPANY CANNOT BE SELECTED AS A COMPARABLE. IN SUPPORT HE RELIED UPON THE DECISION OF THE TRIBUNAL IN SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA). 19. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 20. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTS ON RECORD IT IS NOTICED THAT APART FROM PROVIDING SOFTWARE DEVELOPMENT SERVICE THE COMPANY IS ALSO ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND TRAINING. HOWEVER SEGMENTAL DETAILS RELATI NG TO ALL ITS ACTIVITIES ARE NOT AVAILABLE IN PUBLIC DOMAIN . CONSIDERING THE ABOVE THE CO ORDINATE BENCH IN SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA) HAS EXCLUDED THESE COMPANIES AS COMPARABLE. NO CONTRARY FACTS OR MATERIAL HAS BE EN BROUGHT TO OUR NOTICE BY THE REVENUE TO TAKE A DIFFERENT VIEW OTHER THAN THE VIEW TAKEN BY THE BENCH IN THE DECISIONS REFERRED TO ABOVE. ACCORDINGLY WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. 13 3DPLM SOFTWARE SOLUTIONS LTD. V I) GEOMATRIC SOFTWARE SOLUTIONS LTD. 21. OBJECTING TO THE SELECTION OF THIS COMPANY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AS IT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCT AND SEGMENTAL DETAILS OF SOFTWARE SERVICE AN D SOFTWARE PRODUCT SEGMENT S ARE NOT AVAILABLE. THUS HE SUBMITTED THE COMPANY CANNOT BE TREATED AS COMPARABLE. IN SUPPORT HE RELIED UPON THE DECISION OF THE TRIBUNAL IN SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA). 22. THE LEARNED DEPA RTMENTAL REPRESENTATIV E STRONGLY RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 23. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE MATERIALS AVAILABLE ON RECORD IT IS NOTICED THAT APART FROM PROVIDING SOFTWARE DEVELOPMENT SERVICES THE COMPANY I S ALSO ENGAGED IN DEVELOPING SOFTWARE PRODUCTS . W HEREAS SEGMENTAL DETAILS RELATING TO THE AFORESAID ACTIVITIES ARE NOT AVAILABLE. CONSIDERING THE ABOVE THE CO ORDINATE BENCH IN SAPLABS INDIA PVT. LTD. AND GOOGLE INDIA PVT. LTD. (SUPRA) HAS EXCLUDED THIS COMPANY AS A COMPARABLE. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR NOTICE BY THE REVENUE TO DEVIATE FROM THE VIEW TAKEN BY THE CO ORDINATE BENCH IN 14 3DPLM SOFTWARE SOLUTIONS LTD. THE DECISIONS REFERRED TO ABOVE . THEREFORE WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. VI I) BODHTREE CONSULTING LTD. 24. OBJECTING TO THE SELECTION OF THIS COMPANY AS A COMPARABLE THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THOUGH THE TRANSFER PRICING OFF ICER HAS MENTIONED THAT THE COMPANY DOES NOT HAVE ANY RPT HOWEVER IN REALITY RPT OF THIS COMPANY EXCEEDS MORE THAN 25% RPT FILTER APPLIED BY THE TRANSFER PRICING OFFICER. HE SUBMITTED THE RPT OF THIS COMPANY CONSTITUTE S 34.68% OF THE TOTAL TURNOVER. FUR THER HE SUBMITTED THERE IS EXTREME FLUCTUATION IN MARGIN OF THE COMPANY OVER THE YEARS REFLECTS THAT THE REVENUE R ECOGNITION POLICY FOLLOWED BY THE COMPANY IS IMPROPER AND IS RESULTING IN CONSISTENT CHANGE IN MARGIN. HE SUBMITTED THE GROWTH RATE OVER TH E YEARS IS ALSO FLUCTUATING TO EXTREME AND THE GROWTH IN REVENUE IS NOT SUPPORTED BY GROWTH IN EXPENDITURE. THUS HE SUBMITTED DUE TO HUGE FLUCTUATION IN THE MARGIN OF THE COMPANY IT CANNOT BE REGARDED AS A COMPARABLE WITHOUT PROPERLY ANALYZING THE REASO NS LEADING TO SUCH FLUCTUATIONS. IN SU PPORT OF HIS CONTENTION HE RELIED UPON THE DECISION OF THE TRIBUNAL IN HIS OWN CASE IN ASSESSMENT YEAR 2006 07 AND 2007 08 AS WELL AS THE DECISION S OF THE TRIBUNAL IN CASE OF SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA). 15 3DPLM SOFTWARE SOLUTIONS LTD. 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 26. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY THE TRANSFER PRICING OFFICER HAS APPLIED RPT FILTER OF MORE THAN 25% TO REJECT COMPARABLES. THOUGH THE TRANSFER PRICING OFFICER HAS TAKEN A RPT OF THIS COMPANY AS ZERO PERCENTAGE HOWEVER IT IS THE CONTENTION OF THE ASSESSEE THAT THE RPT OF THE COMPANY IS ACTUALLY 34.68% HENCE IT FAILS THE RPT FILTER APPLIED BY THE TRANSFER PRICING OFFICER. IT IS NOTICED THAT IN CASE OF GOOGLE INDIA PVT. LTD. (SUPRA) WHICH IS FOR THE VERY SAME ASSESSMENT YEAR THE TRIBUNAL HAVING FACTUALLY FOUND THAT RPT O F THE COMPANY CONSTITUTE S 34.68% OF THE TOTAL TURNOVER EXCLUDED IT AS A COMPARABLE. MOREOVER IN CASE OF SAPLABS INDIA PVT. LTD. (SUPRA) THE TR IBUNAL EXCLUDED IT DUE TO EXTRA ORDINARY AND EXTREMELY FLUCTUATING MARGINS OVER THE YEARS. SINCE THE AFORESAID DECISION S OF THE TRIBUNAL ARE FOR THE VERY SAME ASSESSMENT YEAR AND THE REVENUE HAS FAILED TO BRING TO OUR NOTICE ANY CONTRARY FACT OR MATERIAL TO DEVIATE FROM THE VIEW EXPRESSED BY THE BENCH IN THESE DECISIONS RESPECTFULLY FOLLOWING THEM WE EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE ARMS LENGTH PRICE AFRESH AFTER EXCLUDING THE COMPARABLES AS DIRECTED HEREIN ABOVE. 16 3DPLM SOFTWARE SOLUTIONS LTD. 27. IN THE RESULT APPEAL IS PARTLY ALLOWED. ITA NO.6732/MUM ./2013 APPEAL BY THE REVENUE 28. THE ONLY GROUND RAISED BY THE REVENUE IS AGAINST A PPLICATION OF TURNOVER FILTER THE L EARNED COMMISSIONER (APPEALS) WHILE EXCLUDING SOME COMPARABLES SELECTED BY THE TRANSFER PRICING OFFICER. 29. AS DISCUSSED EARLIER IN THIS ORDER OUT OF 17 COMPARABLES SELECTED BY T HE TRANSFER PRICING OFFICER LEARNED COMMISSIONER (APPEALS) REJECTED FOUR COMPARABLES NAMELY FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEGMENTAL) L&T INFOTECH LTD. SATYAM COMPUTER SERVICE LTD. AND INFOSYS TECHNOLOGIES LTD. DUE TO THEIR HIGH TURNOVER. 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED HIGH TURNOVER IS NOT A CRITERIA TO REJECT COMPARABLES IF THE COMPARABLE IS OTHERWISE FUNCTIONALLY SIMILAR TO THE ASSESSEE. HE SUBMITTED THE COMPANIES REJECTED BY LEARNED COMM ISSIONER (APPEALS) ON T HE GROUND OF HIGH TURNOVER ARE FUNCTIONALLY SIMILAR TO THE ASSESSEE. THUS HE SUBMITTED MERELY BECAUSE THE TURNOVER OF THE COMPANY IS HIGH IT CANNOT BE REJECTED AS A COMPARABLE. 31. THE LEARNED AUTHORISE D REPRESENTATIVE STRONGLY RELYI NG UPON THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS) SUBMITTED TURNOVER IS ALSO A CRUCIAL FACTOR IN SELECTING COMPARABLES. HE SUBMITTED IF THE 17 3DPLM SOFTWARE SOLUTIONS LTD. COMPANIES HAVING SUBSTANTIAL LY LOW TURNOVER CAN BE EXCLUDED APPLYING THE SAME LOGIC COMPANIES HAVING SU BSTANTIALLY HIGH TURNOVER ALSO HAVE TO BE REJECTED. HE SUBMITTED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR S 2005 06 AND 2007 08 THE TRIBUNAL APPLYING THE TURNOVER FILTER HAS DIRECTED EXCLUSION OF COMPANIES HAVING TURNOVER OF MORE THAN ` 200 CRORE. HE SUBMITTED THE SAME PRINCIPLE WOULD ALSO APPLY TO THE IMPUGNED ASSESSMENT YEAR. 32. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTS ON RECORD IT IS OBSERVED THA T AS AGAINST THE TURNOVER OF ASSESSEE SHOWN AT ` 17.30 CRORE THE TURNOVER OF THE COMPANIE S REJECTED BY LEARNED COMMISSIONER (APPEALS) ARE AS UNDER: FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) ` 652.45 CRORE L&T INFOTECH LTD. ` 562.45 CRORE SATYAM COMPUTERS SERVICE LTD. ` 3464.20 CRORE INFOSYS TECHNOLOGIES LTD. ` 6859.70 CRORE 33. IT IS RELEVANT TO OBSERVE THE ASSESSEE WHILE SELECTING COMPARABLES HAD APPLIED BOTH UPPER AND LOWER TURNOVER FILTER BY FIXING RANGE OF ` 5 TO 250 CRORE. WHEREAS THE TRANSFER PRICING OFFICER THOUGH HAS APPLIED THE LOWER TURNOVER FILTER BY EXCLUDING COMPANIES HAVING LESS THAN ` 1 CRORE INCOME HOWEVER IT DID NOT APPLY UPPER TURNOVER FILTER. THIS IN OUR VIEW IS A WHOLLY INCORRECT APPROACH. UNDISPUTEDLY COMPAR ED TO ASSESSEES TURNOVER OF ` 17.30 CRORE THE 18 3DPLM SOFTWARE SOLUTIONS LTD. TURNOVER OF THE EXCLUDED COMPANIES ARE SUBSTANTIALLY HIGHER AND FAR AHEAD OF THE ASSESSEE. COMPARED TO THESE COMPANIES AND MORE PARTICULARLY INFOSYS TECHNOLOGIES AND SATYAM COMPUTER SERVICE LTD. THE ASSESSEE HAS TO BE CONSIDERED AS A PI GMY . FURTHER IT CANNOT BE SAID THAT THE TURNOVER IN ALL CASES DO NOT IMPACT THE PROFITABILITY. PERTINENTLY IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006 07 THE TRIBUNAL IN ITA NO.1109/ BANG./2010 DATED 10 TH MAY 2013 HAS HELD THAT UPPER TURNOVER FILTE R IS A CRUCIAL FACTOR IN SELECTING COMPARABLES. THE SAME VIEW WAS EXPRESSED BY THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007 08 IN IT(TP)A NO.845/BANG./2011 DATED 22 ND FEBRUARY 2013. IN VIEW OF THE AFORESAID WE DO NOT FIND AN Y INFIRMITY IN THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN EXCLUDING COMPANIES HAVING TURNOVER OF MORE THAN ` 200 CRORE. GROUND RAISED IS DISMISSED. 34. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.11.2019 SD/ - N.K.PRA DHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI DATED: 19.11.2019 19 3DPLM SOFTWARE SOLUTIONS LTD. COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR ITAT MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT MUMBAI