Multitech Software Systems India Pvt. Ltd.,, Bangalore v. ACIT, Bangalore

ITA 73/BANG/2012 | 2005-2006
Pronouncement Date: 30-04-2015 | Result: Partly Allowed

Appeal Details

RSA Number 7321114 RSA 2012
Assessee PAN AAACM9615Q
Bench Bangalore
Appeal Number ITA 73/BANG/2012
Duration Of Justice 3 year(s) 3 month(s) 14 day(s)
Appellant Multitech Software Systems India Pvt. Ltd.,, Bangalore
Respondent ACIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-04-2015
Assessment Year 2005-2006
Appeal Filed On 16-01-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N.V. VASUDEVAN JUDICIAL MEMBER AND SHRI JASON P. BOAZ ACCOUNTANT MEMBER I.T. (T.P) A. NO. 73 /BANG/201 2 (ASSESSMENT YEAR : 200 5 - 06 ) M/S. MULTITECH SOFTWARE SYSTEMS INDIA PVT. LTD. NO.170 8 TH CROSS 10 TH MAIN INDIRANAGAR 2 ND STAGE BANGALORE - 560 038 PAN AAACM 9615Q VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 12(1) BANGALORE. APPELLANT RESPONDENT. I.T.(T.P) A. NO.175/BANG/2012 (ASSESSMENT YEAR : 2005 - 06) ASSISTANT C OMMISSIONER OF INCOME TAX CIRCLE 12(1) BANGALORE. VS. M/S. MULTITECH SOFTWARE SYSTEMS INDIA PVT. LTD. BANGALORE - 560 038 APPELLANT RESPONDENT. ASSESSEE BY : SHRI V. SRIDHAR ADVOCATE. REVENUE BY : SHRI C.H. SUNDAR RAO CIT - I (D.R) DATE OF H EARI NG : 26.2.2015. DATE OF P RONOUNCEMENT : 30.04 . 201 5 . O R D E R PER SHRI JASON P. BOAZ A.M. : THESE ARE CROS S APPEALS ONE BY THE ASSESSEE AND ONE BY REVENUE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - IV BANGALORE DT.30.11.2011 FOR ASSESSMENT YEAR 2005 - 06. THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS IN THE MATTER. 2. THE FAC TS OF THE CASE BRIEFLY ARE AS UNDER : - 2 IT(T.P)A NOS.73 & 175/BANG/2012 2.1 THE ASSESSEE COMPANY IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2005 - 06 ON 29.10.2005 DECLARING TOTAL INCOME OF RS.24 93 540 AFTER CLAIMING DE DUCTION OF RS.1 50 41 210 UNDER SECTION 10A OF THE INCOME TAX ACT 1961 (IN SHORT 'THE ACT'). THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSING OFFICER OBSERVED FROM THE FORM NO.3C EB THAT THE ASSESSEE HAD REPORTEDLY ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ( AES ) IN THE YEAR UNDER CONSIDERATION AND MADE A REFERENCE TO THE TRANSFER PRICING OFFICER ( TPO ) UNDER SECTION 92CA OF THE ACT FOR DETERMINATI ON OF THE ARM S LENGTH PRICE ( ALP ) THEREOF THE DETAILS OF WHICH ARE AS UNDER : - (1) EXPORT OF SOFTWARE DEVELOPMENT SERVICES : RS.4 99 98 250. (2) REIMBURSEMENT OF EXPENSES : RS.1 59 320. THE TPO PASSED AN ORDER UNDER SECTION 92CA OF THE ACT DT.31.10.2008 IN RESPECT OF THE AFORESAID INTERNATIONAL TRANSACTIONS PROPOSING AN ADJUSTMENT OF RS.42 81 608 TO THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN RESPECT OF ITS SOFTWARE DEVELOPMENT SERVICES. 2.2 AFTER RECEIPT OF THE ORD ER OF THE TPO UNDER SECTION 92CA OF THE ACT THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT VIDE ORDER DT.16.12.2008 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.76 39 441 AS AGAINST THE RETURNED INCOME OF RS.24 9 3 540 BY MAKING THE FOLLOWING ADDITIONS /DISALLOWANCES THERETO : - 3 IT(T.P)A NOS.73 & 175/BANG/2012 (I) DISALLOWANCE ON ACCOUNT OF COMPUTATION OF DEDUCTION U/S.10A : RS.8 64 293. (II) T.P . ADJUSTMENT : RS.;42 81 608. 3. AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEA R 2005 - 06 DT.16.12.2008 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) IV BANGALORE. THE LEARNED CIT (APPEALS) DISPOSED OFF THE ASSESSEE'S APPEAL VIDE ORDER DT.30.11.2011 ALLOWING THE ASSESSEE PARTIAL RELIEF. 4. AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) - IV BANGALORE DT.30.11.2011 REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING GROUNDS : - 1. THE ORDER OF THE LEARNED CIT (APPEALS) IN SO FAR A IT RELATES TO THE FOLLOWING GROUNDS IS OPPOSED TO LAW AND FACTS OF THE CA SE. 2. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT EXPENDITURE OF RS.48 64 083 INCURRED TOWARDS TELECOMMUNICATION EXPENSES ATTRIBUTABLE TO DELIVERY OF SOFTWARE ARE TO BE EXCLUDED FROM TOTAL TURNOVER AS WELL WHEREAS SUCH EXCLUSION IS PERMITTED TO ARRIV E AT THE EXPORT TURNOVER ONLY AS PER THE DEFINITIONS GIVEN IN SEC. 10A OF THE ACT AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN THE SECTION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE TPO ERRED I N NOT EXCLUDING COMPARABLES HAVING ANY RELATED PARTY TRANSACTIONS. 4. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE SIZE AND TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TREATING A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN EXCLUDING M/ S. INFOSYS TECHNOLOGIES LTD. M/S. IGATE GLOBAL SOLUTIONS LTD. FLEXTRONICS SOFTWARE SYSTEMS LTD. AND L&T INFOTECH LTD. AND SATYAM SOFTWARE SERVICES LTD. AS COMPARABLES. 5. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT PROFIT ON COST OF MORE THAN 50% OF THE COMPARABLE COMPANY(IES) IS ABNORMAL WITHOUT GIVING REASONS HOW FUNCTIONS DISCHARGED ASSETS DEPLOYED AND RISKS ASSUMED OF SUCH COMPANIES WERE DIFFERENT FROM THAT OF THE APPELLANT COMPANY. 6. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE ASSESS EE IS ELIGIBLE FOR A STANDARD DEDUCTION OF 5% FROM THE ALP UNDER THE PROVISO TO SECTION 92C(2) OF THE IT ACT 1961. 7. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FAR AS IT R ELATES TO THE ABOVE GROUNDS MAY BE REVERED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 8. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4 IT(T.P)A NOS.73 & 175/BANG/2012 IT(T.P)A NO.73/BANG/2012 ASSESSEE'S APPEAL FOR A.Y . 2005 - 06. 5. IN THE ASSESSEE'S APPEAL IN RESPECT OF THE ORDER OF THE CIT (APPEALS) IV BANGALORE DT.30.11.2011 FOR ASSESSMENT YEAR 2005 - 06 THE FOLLOWING GROUNDS HAVE BEEN RAISED : - 1. THE ORDER OF THE CIT (APPEALS) IV BANGALORE - 560 001 DT.30.11. 2011 IN ITA NO.04/RANGE - 12/10 - 11 FOR THE ABOVE MENTIONED ASSESSMENT YEAR IS CONTRARY TO LAW FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) IV ERRED IN EXCLUDING THE COMPARABLES WHICH WERE SHOWING OPERATING PROFIT LESSER THAN THE MARG IN SHOWN BY THE APPELLANT IN THE DETERMINATION OF ALP WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 3. THE CIT (APPEALS) IV IN NOT ALLOWING MARKETING EXPENSES TO THE APPELLANT IN THE DETERMINATION OF ALP WITHOUT ASSIGNING PROPER REASONS AND JUSTI FICATION. 4. THE CIT (APPEALS) IV OUGHT TO HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT IN THIS REGARD FOR ALLOWING THE MARKETING EXPENDITURE AS PER THE PERCENTAGE OF EXPENSES MET BY THE COMPARABLES IN THE DETERMINATION OF ALP. 5. THE CIT (APPE ALS) IV ERRED IN DISALLOWING THE MISCELLANEOUS INCOME WITHOUT GRANTING THE OPPORTUNITY TO THE APPELLANT AND WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 6. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE REIMBURSEMENT OF EXPENSES WAS DEBITED AT THE TIME OF EXPENSES INCURRED BY THE APPELLANT AND FURTHER OUGHT TO HAVE CONSIDERED THAT THE SAID EXPENSES WERE CREDITED TO THE MISCELLANEOUS INCOME ACCOUNT WHEN THE SAME WAS REIMBURSED BY THE CLIENT(S). HENCE THE CIT (APPEALS) IV OUGHT TO HAVE CONSIDE RED THE MISCELLANEOUS INCOME FOR ARRIVING THE OPERATING PROFIT MARGIN IN THE DETERMINATION OF ALP. 7. THE CIT (APPEALS) IV OUGHT TO HAVE CONSIDERED THAT ACCELERATED DEPRECIATION WAS DEBITED TO THE PROFIT AND LOSS AS COMPARED TO THE RATE GIVEN IN SCHEDU LE IV AND HENCE OUGHT TO HAVE CONSIDERED FURTHER THAT THE SAID CLAIM SHOULD BE RESTATED TO MAKE THE COMPARABLE WITH THE OTHER COMPARABLES INASMUCH AS THE CIT (APPEALS) IV WITHOUT ASSIGNING PROPER REASONS WENT WRONG IN DISALLOWING THE SAME IN THE DETERMINAT ION OF ALP. 8. THE CIT (APPEALS) IV ERRED IN EXCLUDING THE MAJORITY OF SAMPLES WHILE RETAINING ONLY THE FEW SAMPLE IN ARRIVING AT ALP WHICH ACCORDING TO THE APPELLANT WAS WRONG INCORRECT AND UNJUSTIFIED ERRONEOUS AND NOT SUSTAINABLE BOTH FACTS AND IN L AW. 9. THE CIT (APPEALS) IV FAILED TO APPRECIATE THAT THE RE - DETERMINATION OF ALP IN THE RECOMPUTATION OF THE ADJUSTMENT REQUIRED RELATING TO THE TRANSACTION WITH THE AES IN THE COMPUTATION OF TAXABLE TOTAL INCOME WAS WRONG INCORRECT INVALID UNJUSTIFI ED ERRONEOUS AND NOT SUSTAINABLE BOTH ON FACTS AND IN LAW. 5 IT(T.P)A NOS.73 & 175/BANG/2012 10. THE CIT (APPEALS) IV FAILED TO APPRECIATE THAT THERE WAS NO PROPER OPPORTUNITY WAS GIVEN BEFORE PASSING THE IMPUGNED ORDER / THE TPO S ORDER AND ANY ORDER PASSED IN VIOLATION OF THE PRINCIPLE S OF NATURAL JUSTICE IS NULLITY IN LAW. 11. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GROUNDS / ARGUMENTS AT THE TIME OF HEARING. TRANSFER PRICING ISSUES. 6.0 BEFORE PROCEEDING TO DEAL WITH THE ABOVE GROUNDS OF APPEAL ON T. P . ISSUES THE APPROACH OF THE TPO VIS - A - VIS THAT OF THE ASSESSEE IN ITS T.P.STUDY SUBMITTED BEFORE THE TPO IS BRIEFLY SUMMARISED AS UNDER. 7. 0 THE ASSESSEE IS ENGAGED IN THE PROVISIONS OF SOFTWARE DEVELOPMENT SERVICES. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS RE PORTED THE FOLLOWING INTERNATIONAL TRANSACTIONS IN ITS 3CEB REPORT : - (I) SOFTWARE DEVELOPMENT SERVICES : RS.4 99 98 250. (II) REIMBURS EMENT OF EXPENSES : RS.1 59 320. THE ASSESSEE IN ITS T.P. STUDY HAS ADOPTED CUP METHOD AS THE MOST APPROP RIATE METHOD (MAM) AND COMPARED THE PRICE CHARGED BY IT TO ITS AES WITH THE PRICE CHARGED BY IT TO THIRD PARTIES TO JUSTIFY THE ALP OF ITS INTERNATIONAL TRANSACTIONS. AS THE ASSESSEE HAD SELECTED CUP METHOD BY CONSIDERING THE PRICE CHARGED BY IT TO ITS AE S VIS - - VIS THE PRICE CHARGED TO UNRELATED PARTIES THERE WAS NO SEARCH PROCESS INVOLVED. 8. THE TPO S APPROACH . 8.1 THE TPO REJECTED THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR JUSTIFYING ALP OF ITS INTERNATIONAL TRANSACTIONS ADOPTED TNMM AS THE MAM AND PROCEEDED TO CONDUCT HIS OWN FRESH SEARCH FOR COMPARABLES USING PROWESS AND CAPITALINE. THE TPO A DOPTED TNMM AS THE MAM. THE TPO ADOPTED THE FOLLOWING 17 COMPANIES AS COMPARABLE COMPANIES : - 6 IT(T.P)A NOS.73 & 175/BANG/2012 S.NO. NAME OF THE COMPARABLE COMPANY OP/OC (%) 1. BODHTREE CONSULTING LTD. 24.85 2. LANCO GLOBAL SYSTEMS LTD. 13.65 3. EXE N SYS SOFTWARE SOLUTIONS LTD. 70.67 4. SANKHYA INFOTECH LTD. 27.38 5. SASKEN NETWORK SYSTEMS LTD. 16.63 6. FOUR SOFT LTD. 22.98 7. THIRDWARE SOLUTION LTD. 66.09 8. R.S. SOFTW ARE (INDIA) LTD. 8.07 9. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. 20.33 10. TATA ELXSI LTD. (SOFTWARE DEVT. SERVICES - SEG) 24.343 11. VISUAL SOFT TECHNOLOGIES LTD. (SEG) 23.51 12. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 14.41 13. IG A TE GLOBAL SOLUT IONS LTD. (SEG) 4.32 14. FLEXTRONICS (SEG) 32.19 15. L&T INFOTECH LTD. 10.33 16. SATYAM COMPUTERS SERVICES 29.44 17. INFOSYS LTD. 42.83 8.2 THE ARITHMETIC MEAN OF THESE 17 COMPARABLES WAS COMPUTED AT 26.59%. AFTER ALLOWING WORKING CAPITAL ADJUSTM ENT OF ( - ) 0.06% THE ADJUSTED ARITHMETIC MEAN OF THESE COMPARABLES WAS ADOPTED AT 2 6 . 65 %. THE RESULTANT SHORTFALL IN THE PRICE AMOUNTING TO RS. 42 81 608 WAS TAKEN AT THE T.P. ADJUSTMENT TO THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH IT S AES AND ADDED TO THE INCOME OF THE ASSESSEE. 9.1 IN THE IMPUGNED ORDER THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DISPOSED OFF THE ASSESSEE'S APPEAL EXCLUDING CERTAIN COMPANIES CHOSEN BY THE TPO AS COMPARABLES TO THE ASSESS EE. WHILE DECIDING ON THE EXCLUSION OF CERTAIN COMPANIES FROM THE 17 COMPARABLE COMPANIES CHOSEN BY THE TPO THE LEARNED CIT(A) ADJUDICATED ON THE FOLLOWING ISSUES AS UNDER. 7 IT(T.P)A NOS.73 & 175/BANG/2012 9.2 COMPANIES WITH RELATED PARTY TRANSACTIONS ( RPF ) THE LEA RNED CIT(A) RELYING ON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF PHILLIPS SOFTWARE CENTRE PVT. LTD. V ACIT (26 SOT 226) HELD THAT COMPANIES WITH ANY RPT ARE TO BE EXCLUDED FROM THE SET OF COMPARABLE COMPANIES AND ACCORDINGLY 6 OF THE 17 COMPANIES SELECTED BY THE TPO WERE EXCLUDED FROM T HE SET OF COMPARABLE COMPANIES WHICH ARE AS UNDER : - 1. SASKEN NETWORK SYSTEMS LTD. 2. FOUR SOFT LTD. 3. R.S. SOFTWARE INDIA LTD. 4. GEOMETRIC SOFTWARE SOLUTIONS LTD. 5. TATA ELXSI LTD. 6. SASKEN COMMUNICATION TECH NOLOGY LTD. AS SEEN FROM THE ORDER OF THE LEARNED CIT(A) IN CASE OF SOME OF THE COMPARABLE COMPANIES THE ASSESSEE HAD ARGUED AGAINST THEIR INCLUSION ON GROUNDS OF THERE BEING FUNCTIONALLY DIS - SIMILARITY ALSO. WE FIND THAT THE LEARNED CIT(A) HAS NO T ADJUDICATED ON THIS ASPECT AS THE COMPANIES HAD BEEN EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND OF RPT. 9.3 COMPANIES WITH ABNORMAL PROFITS RELYING ON THE VARIOUS DECISIONS CITED IN THE IMPUGNED ORDER THE LEARNED CIT(A ) HELD THAT COMPANIES SHOWING EXTRA - ORDINARY PROFITS HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. ACCORDINGLY THE LEARNED CIT (APPEALS) EXCLUDED TWO COMPANIES NAMELY (I) EXENSYS SOFTWARE SOLUTIONS LTD. AND (II) THIRDWARE SOLUTIONS LTD. SHOWING PROF ITS OF 70.68% AND 66.09% FROM THE SET OF COMPARABLE COMPANIES CHOSEN BY THE TPO. 8 IT(T.P)A NOS.73 & 175/BANG/2012 9.4 COMPANIES WITH HIGH TURNOVER. RELYING ON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) P . LTD. V DCIT (2011) TAXCORP (TP) 3848 IN WHICH IT WAS HELD THAT THE TURNOVER RANGE OF RS.1 CRORE TO RS.200 CRORE WAS TO BE APPLIED THE LEARNED CIT (APPEALS) HELD THAT COMPANIES HAVING TURNOVER EXCEEDING RS.200 CRORES SHOULD BE EXCLUDED FROM THE FINAL SE T OF COMPARABLE AND THEREBY EXCLUDED THE FOLLOWING COMPANIES FORM THE LIST OF COMPARABLES : - 1. IGATE GLOBAL SOLUTIONS LTD. 2. FLEXTRONICS SOFTWARE SOLUTIONS LTD. (SEG) 3. L&T INFOTECH LTD. 4. SATYAM SERVICES LTD. 5. INFOSYS TECHNOLOGIES LTD. THE LEARNED CIT (APPE ALS) ALSO HELD THAT SATYAM COMPUTER SERVICES LTD. SHOULD BE EXCLUDED ON GROUNDS OF UNRELIABLE FINANCIAL RESULTS. THE LEARNED CIT (APPEALS) FURTHER HELD THAT LANCO GLOBAL LTD. SHOULD BE EXCLUDED FROM THE SET OF COMPARABLE COMPANIES ON GROUNDS OF LOW MARGI NS. 9. 5 COMPUTATION OF DEDUCTION U/S.10A OF THE ACT. IN RESPECT OF THE ASSESSEE'S CLAIM FOR DEDUCTION U/S.10A OF THE ACT THE LEARNED CIT(A) RELYING ON THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD. (349 ITR 98 ) AND OF THE SPECIAL BENCH OF THE CHENNAI ITAT IN THE CASE OF SAK SOFT LTD. (313 ITR 353) DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE SAME BY 9 IT(T.P)A NOS.73 & 175/BANG/2012 REDUCING FROM THE TOTAL TURNOVER THE COMMUNICATION EXPENSES BY WHICH THE EXPORT TURNOVER HAS BEEN REDUCE D. 10.1 IN THE PROCEEDINGS BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIVE CHALLENGED THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THE ISSUE OF RPT UPPER TURNOVER FILTER AND ABNORMAL PROFIT RAISED AT GROUNDS 3 4 AND 5 OF THE APPEAL; PLACING REL IANCE ON LATER DECISIONS OF THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN SUPPORT OF THE STAND OF REVENUE. ON THE CONTRARY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ASSAILED THE IMPUGNED ORDER OF THE LEARNED CIT(A) IN CONFIRMING PART OF THE TP ADJUSTMENT AND SUBMITTED PAPER BOOKS CONTAINING CASE LAWS AND OTHER DETAILS WHICH WERE TAKEN ON RECORD . THE LEARNED AUTHORISED REPRESENTATIVE ALSO FILED A CHART IN WHICH IT HAS BEEN SUBMITTED THAT THE FOLLOWING COMPANIES OUGHT TO BE EXCLUDED FROM THE SET OF COMPARABLE COMPANIES FOR THE REASONS GIVEN THEREIN : - S.NO. NAME OF THE COMPANY REASONS GIVEN BY ASSESSEE FOR EXCLUSION. 1. EXENSYS SOFTWARE SOLUTIONS LTD. EXCLUDED BY TPO IN A.Y. 2006 - 07 AS PRODUCT COMPANY. 2. FOUR SOFT LTD. RPT MORE THAN 15%. 3. THIRDWARE SOLUTIONS LTD. SUPER NORMAL PROFIT. 4. IGATE GLOBAL SOLUTIONS LTD. (SEG.) TURNOVER IN EXCESS OF RS.200 CRORES. 5. FLEXTRONICS SOFTWARE SOLUTIONS LTD. (SEG.) - DO - 6. L&T INFOTECH LTD. - DO - 7. SATYAM COMPUTER SERVICES LTD. - DO - 8. INFOSYS TEC HNOLOGIES LTD. - DO - 10.2 WE HAVE HEARD BOTH PARTIES PERUSED AND CAREFULLY CONSIDERED THE ORDER OF THE TPO UNDER SECTION 92CA OF THE ACT THE ORDER OF ASSESSMENT THE IMPUGNED ORDER OF THE LEARNED CIT(A) THE SUBMISSIONS OF BOTH THE LEARNED DEPARTMEN TAL REPRESENTATIVE FOR 10 IT(T.P)A NOS.73 & 175/BANG/2012 REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE IN CLUDING THE JUDICIAL DECISIONS CITED AND PLACED RELIANCE UPON. WE NOW PROCEED TO CONSIDER THE VARIOUS ISSUES RAISED BY REVENUE AND THE ASSESSEE. REVENUE S APPEAL I N IT(TP)A NO.1 75 /BANG/2011 FOR A.Y. 2005 - 06. 11. THE GROUNDS RAISED BY REVENUE AT S.NOS.1 7 & 8 ARE GENERAL IN NATURE AND NO ADJUDICATION BEING CALLED FOR THEREON ARE DISMISSED AS INFRUCTUOUS. 12 . GROUND NO.2 : COMPUTATION OF DEDUCTION U/S.10A OF THE ACT. 12.1 REVENUE CHALLENGES THE ORDER OF THE LEARNED CIT(A) IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE ELIGIBLE DEDUCTION TO THE ASSESSEE U/S.10A OF THE ACT BY REDUCING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY TOWARDS COMMUNICATION E XPENSES FROM BOTH EXPORT TURNOVER AS WELL AS TOTAL TURNOVER . THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS HEARD IN SUPPORT OF THE GROUND RAISED. 12.2 PER CONTRA THE LEARNED AUTHORISED REPRESENTATIVE SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT( A) ON THIS ISSUE SUBMITTING THA T THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD. (SUPRA). THE LEARNED A.R. CONTENDS IN VIEW OF THIS REVENUE S APPEAL ON THIS GROUND IS LIABLE TO BE DISMISSED. 12.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND AS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF TA TA ELXSI LTD. (SUPRA) HAS HELD THAT WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT IF THE EXPORT TURNOVER IN THE 11 IT(T.P)A NOS.73 & 175/BANG/2012 NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENDITURE THEN THE SAME EXPENDITURE SHOULD ALSO BE EXCLUDED FROM THE TOTA L TURNOVER ALSO. RESPECTFULLY FOLLOWING THE SAME WE DISMISS THIS GROUND OF REVENUE AND DIRECT THE ASSESSING OFFICER TO EXCLUDE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY TOWARDS DAILY ALLOWANCE SUPPORT ALLOWANCE AND TRAVEL BOTH FROM EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER FOR COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. ACCORDINGLY GROUND NO.2 RAISED BY REVENUE IS DISMISSED. 13. GROUND NO.3 : RELATED PARTY TRANSACTIONS (RPT) 13.1 IN THIS GROUND REVENUE ASSAILS THE DECISI ON OF THE LEARNED CIT (APPEALS) IN THE IMPUGNED ORDER IN HOLDING THAT COMPANIES HAVING ANY RPT HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 13.2.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR R EVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ON THIS ISSUE AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS REFERRED TO THE DECISION OF THE CO - ORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 WHILE MAKING SUBMISSIONS ON THE RPT FILTER IN THE CASE OF FOUR SOFT LTD.. WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE AFORESAID CASE HAS DIRECTED THAT COMPANIES WITH RPT IN EXCESS OF 15% OF TOTAL REVENUES ARE TO BE EXCLUDED FROM THE SET OF COMPARABLES. THE OPERATIVE PARAGRAPH 13 THEREOF IS EXTRACTED HEREUNDER : - 12 IT(T.P)A NOS.73 & 175/BANG/2012 13.0 RELATED PARTY TRANSACTIONS IN RESPECT OF THE GROUND RAISED AT S.NO.1 REGARDING ACCEPTANCE OF COMPARABLE COMPANIES HAVING RELATED PARTY TRANSACTIONS AS PROPOSED BY THE TPO THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE TRANSFER PRICING REGULATIONS DO NOT STIPULATE ANY MINIMUM LIMIT OF RELATED PARTY TRANSACTIONS WHICH FORM THE T HRESHOLD FOR EXCLUSION AS A COMPARABLE. IN THIS REGARD THE LEARNED COUNSEL FOR THE ASSESSEE OBJECTED TO THE TPO S SETTING A LIMIT OF 25% ON RELATED PARTY TRANSACTIONS. HE OBJECTED TO THE INCLUSION OF COMPARABLES BEING RELATED PARTY TRANSACTIONS IN EXCES S OF 15% OF SALES / REVENUE. IN SUPPORT OF THIS PROPOSITION THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE BENCH OF THE ITAT DELHI IN THE CASE OF SONY INDIA (P) LTD. REPORTED IN 2008 - TIOL - 439 - ITAT - DELHI DT.23.12.200 8. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PARA 115.3 OF THE ORDER WHEREIN THE TRIBUNAL HAS HELD THAT - ..WE ARE FURTHER OF THE VIEW THAT AN ENTITY CAN BE TAKEN AS UNCONTROLLED IF ITS RELATED PARTY TRANSACTIONS DO NOT EXCEED 10 T O 15% OF TOTAL REVENUE. WITHIN THE ABOVE LIMIT TRANSACTIONS CANNOT BE HELD TO BE SIGNIFICANT TO INFLUENCE THE PROFITABILITY OF THE COMPARABLES. FOR THE PURPOSE OF COMPARISON WHAT IS TO BE JUDGED IS THE IMPACT OF THE RELATED PARTY TRANSACTIONS VIS - - VIS SALES AND NOT PROFIT SINCE PROFIT OF AN ENTERPRISE IS INFLUENCED BY LARGE NUMBER OF OTHER FACTORS . RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SONY INDIA (P) LTD (SUPRA) THE ASSESSING OFFICER / TPO ARE DIRECTED TO EXCLUDE AFTER DUE VERIFICATION THOSE COMPARABLES FROM THE LIST WITH RELATED PARTY TRANSACTIONS OR CONTROLLED TRANSACTIONS IN EXCESS OF 15% OF TOTAL REVENUES FOR THE FINANCIAL YEAR 2003 - 04. 13.2.2 IN THE LIGHT OF THE ABOVE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) WE FIND THAT THE DECISION OF THE LEARNED CIT (APPEALS) IN EXCLUDING THOSE COMPANIES WITH ANY RPT IS NOT IN KEEPING WITH THE ABOVE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL. RESPECT FULLY FOLLOWING THE ABOVE DECISION WE HOLD THAT THE LEARNED CIT (APPEALS) WAS NOT CORRECT IN HOLDING THAT COMPANIES WITH ANY RPT HAVE TO BE EXCLUDED FROM THE SET OF COMPARABLE COMPANIES AND DIRECT THE TPO / A.O. TO APPLY THE RPT FILTER AT 15% OF TOTAL RE VENUES FOR INCLUDING / EXCLUDING THE COMPARABLE COMPANIES EXCLUDED BY THE LEARNED CIT (APPEALS) IN THE FINAL SET OF COMPARABLES. CONSEQUENTLY GROUND NO.3 RAISED BY REVENUE IS PARTLY ALLOWED. 13 IT(T.P)A NOS.73 & 175/BANG/2012 13.2.3 IN VIEW OF THE DECISION OF THE CO - ORDINATE BENCH O F THIS TRIBUNAL IN 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) OUT OF THE 6 COMPANIES EXCLUDED BY THE LEARNED CIT (APPEALS) FIVE COMPANIES NAMELY (1) SASKEN NETWORK SYSTEMS LTD. (2) R.S. SOFTWARE INDIA LTD. (3) GEOMETRIC SOFTWARE SOLUTIONS LTD. (4) TATA ELXSI L TD. AND (5) SASKEN COMMUNICATIONS TECHNOLOGY LTD. ARE RESTORED TO THE LIST OF COMPARABLE COMPANIES AS THEY HAVE RTP OF LESS THAN 15% . ONLY ONE COMPANY NAMELY SIMILARLY FOUR SOFT LTD. AT S.NO.6 OF THE TPO S LIST OF COMPARABLES IS TO BE EXCLUDED AS A CO MPARABLE COMPANY ON THE GROUND THAT IT HAS RPT IN EXCESS OF 15%. IN THE T.P. ORDER THE PERCENTAGE OF RPT OVER SALES FOR THIS COMPANY HAS BEEN MENTIONED AS 19.89%. THEREFORE FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE O F 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) WE HOLD AND DIRECT THAT THE COMPANY FOUR SOFT LTD. SHALL BE EXCLUDED FROM THE SET OF COMPARABLE COMPANIES CHOSEN BY THE TPO. CONSEQUENTLY GROUND NO.3 RAISED BY REVENUE IS PARTLY ALLOWED. 14. GROUND NO.4 TURNOVER FILTER OF RS.200 CRORES . 14.1 THE LEARNED CIT (APPEALS) IN THE IMPUGNED ORDER RELYING ON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V DCIT (2011) TAX CORP (T.P) 3848 IN WHICH IT WAS HELD THAT THE TURNOVER RANGE OF RS.1 CRORE TO RS.200 CRORE IS TO BE APPLIED HELD THAT COMPANIES WHICH WERE HAVING TURNOVER EXCEEDING RS.200 CRORES SHOULD BE EXCLUDED FROM THE SET OF COMPARABLES. IN THAT VIEW OF THE MATTER TH E FOLLOWING COMPANIES WERE EXCLUDED FROM THE TPO S LIST OF COMPARABLES : - 14 IT(T.P)A NOS.73 & 175/BANG/2012 SL.NO. NAME OF THE COMPANY TURNOVER IN CRORES (RS.) 1. IGATE GLOBAL SOLUTIONS LTD. (SEG) 406.00 2. FLEXTRONICS SOFTWARE SYSTEMS LTD. 457.45 3. L&T INFOTECH LTD. 562.45 4. SATYAM COMPUTER SERVICES LTD. 3 464.20 5. INFOSYS TECHNOLOGIES LTD. 6 859.70 14.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE HAS C HALLENGED THE DECISION OF THE LEARNED CIT (APPEALS) IN HOLDING THAT SIZE AND TURNOVER ARE DECIDING FACTORS FOR TREAT ING A COMPANY AS A COMPARABLE. 14.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUDICIAL DECISIONS CITED AND PLACED RELIANCE UPON. WE FIND THAT A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. (SUPRA) HAS HELD THAT TURNOVER IS AN IMPORTANT FILTER OF COMPARABILITY WHICH HAS TO BE ADOPTED FOR DETERMINATION OF ALP AND HAS DETERMINED THE UPPER LIMIT OF THE TURNOVER FILTER TO BE APPLIED AT RS .200 CRORES IN CASES WHERE THE TURNOVER OF THE ASSESSEE IS LESS THAN RS.200 CRORES. IN THE CASE ON HAND THE TURNOVER OF THE ASSESSEE BEING APPROX. RS.7.97 CRORES ONLY FALLS WITHIN THE RANGE OF RS.1 CRORE TO RS.200 CRORES. THEREFORE FOLLOWING THE DECI SION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. (SUPRA) WE HOLD AND DIRECT THAT ONLY THOSE COMPANIES HAVING A TURNOVER OF RS.1 CRORE TO RS.200 CRORES BE TAKEN AS COMPARABLE COMPANIES AND CONSEQU ENTLY UPHOLD THE DECISION OF THE LEARNED CIT (APPEALS) IN EXCLUDING 15 IT(T.P)A NOS.73 & 175/BANG/2012 THE ABOVE MENTIONED FIVE COMPANIES LISTED AT PARA 14.1 OF THIS ORDER FROM THE TPO S LIST OF COMPARABLES. CONSEQUENTLY GROUND NO.4 OF REVENUE S APPEAL IS DISMISSED. 15. GROUND NO. 5 : COMPANIES WITH ABNORMAL PROFITS. 15.1 IN GROUND NO. 5 REVENUE ASSAILS THE DECISION OF THE LEARNED CIT (APPEALS) IN THE IMPUGNED ORDER IN EXCLUDING COMPANIES WITH PROFIT MARGIN OF MORE THAN 50% FROM THE FINAL SET OF COMPARABLE COMPANIES BY HOLDING THE PROFIT MARGIN IN EXCESS OF 50% TO BE ABNORMAL. 1 5 .2.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. THIS IS AN ISSUE ON WHICH THERE HAVE BEEN CONFLICTING DECISIONS OF VARIOUS TRIBUNALS. HOWEVER THE SPECIAL BENCH OF THE ITAT MUMBAI IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. IN ITA NO.7466/MUM/2012 HAS HELD THAT COMPANIES CANNOT BE EXCLUDED FROM THE SET OF COMPARABLES ONLY B ECAUSE THE MARGINS ARE HIGH AND THE MATTER IN SUCH CASES WOULD REQUIRE FURTHER INVESTIGATION TO ASCERTAIN THE REASONS FOR UNUSUALLY HIGH PROFITS IN ORDER TO ESTABLISH WHETHER THE ENTITIES WITH SUCH HIGH PROFITS CAN BE TAKEN AS COMPARABLES OR NOT. THE OPER ATIVE PORTION OF THIS ORDER AT PARAS 97 TO 99 THEREOF ARE EXTRACTED HEREUNDER : - 97. AT THE TIME OF HEARING BEFORE US BOTH THE SIDES HAVE CITED SEVERAL DECISIONS OF THE TRIBUNAL IN SUPPORT OF THEIR CORRESPONDING STAND TAKEN ON THIS ISSUE. AFTER GOING T HROUGH ALL THESE DECISIONS OF THE DIVISION BENCHES OF THIS TRIBUNAL WE FIND THAT THE ISSUE RELATING TO EXCLUSION OF HIGH PROFIT MARGIN ENTITIES FROM COMPARABLES HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASES CITED BY SHRI PORUS KAKA WITHOUT TAKIN G INTO CONSIDERATION SOME VITAL ASPECTS INCLUDING THE RELEVANT TP REGULATIONS IN INDIA. IT IS OBSERVED THAT THE DECISION INITIALLY TAKEN IN ONE CASE WITHOUT 16 IT(T.P)A NOS.73 & 175/BANG/2012 MUCH MEANINGFUL DISCUSSION HAS BEEN INVARIABLY FOLLOWED BY THE TRIBUNAL IN OTHER CASES DECIDED THER EAFTER. ON THE OTHER HAND IT IS OBSERVED THAT THE TRIBUNAL IN SOME OF THE CASES CITED BY SHRI AJEET KUMAR JAIN THE LD. CIT DR HAS PASSED WELL DISCUSSED AND WELL REASONED ORDERS AFTER TAKING INTO CONSIDERATION NOT ONLY THE RELEVANT TP REGULATIONS IN IND IA BUT EVEN THE RELEVANT OECD GUIDELINES. FOR INSTANCE IN THE CASE OF BP INDIA SERVICES PRIVATE LIMITED (SUPRA) IT WAS HELD BY THE MUMBAI BENCH THAT THE VERY RATIONALE OF HAVING AVERAGE IN CASE OF MORE THAN ONE COMPARABLES IS TO IRON OUT THE EFFECT OF EX TREME CASES AND FIND THE PROFIT MARGIN AS A REPRESENTATIVE OF THE WHOLE LOT. IT WAS ALSO HELD BY THE TRIBUNAL THAT THE HIGHER OR LOWER PROFIT RATE HAS NOT BEEN PRESCRIBED AS THE DETERMINATIVE FACTOR IN THE RELEVANT RULES I.E. RULE 10B(2) AND 10B(3) TO MAKE A CASE INCOMPARABLE. THE TRIBUNAL OBSERVED THAT THE PROFIT RATE IN ANY CASE CANNOT BE SUCH DETERMINATIVE FACTOR IN ITSELF AS IT IS A CONSEQUENCE OF THE EFFECT OF THE VARIOUS FACTORS. IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) THE BANGALORE BENC H OF THIS TRIBUNAL CONSIDERED THE RELEVANT OECD GUIDELINES IN THIS RESPECT AND HELD THAT THE EXCLUSION OF COMPANIES WITH ABNORMAL PROFITS FROM THE COMPARABLES MAY BE IN LINE WITH THE PRINCIPLES ENUMERATED IN THE OECD GUIDELINES BUT THE SAME CANNOT BE S AID TO BE IN TUNE WITH THE INDIAN TP REGULATIONS. THE TRIBUNAL NOTED THAT THERE WAS A DEVIATION IN THE TP RULES SPECIFICALLY FROM OECD GUIDELINES BY SPECIFYING THE ARITHMETIC MEAN FOR DETERMINING THE ALP AS AGAINST THE QUARTILE METHOD SUGGESTED IN THE OECD GUIDELINES WHICH EXCLUDES THE COMPANIES THAT FALL IN THE EXTREME QUARTILES FOR COMPARABILITY. TO THE SIMILAR EFFECT IS ANOTHER -- DECISION OF BANGALORE BENCH IN THE CASE OF TRILOGY E - BUSINESS SOFTWARE INDIA LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE T P REGULATION S PROVIDE ARITHMETIC MEAN METHOD FOR DETERMINING THE ALP WHEREIN ALL COMPANIES THAT ARE IN THE SAMPLE ARE CONSIDERED WITHOUT EXCEPTION AND THE AVERAGE OF ALL THE COMPANIES IS CONSIDERED AS ALP. IN THE CASE OF STREAM INTERNATIONAL SERVICES P VT. LTD.(SUPRA) THE MUMBAI BENCH OF ITA T HELD THAT COMPARABILITY IS JUDGED PRIMARILY BY SEEING THE FUNCTIONAL SIMILARITY AND THEN THE CAPITAL EMPLOYED AND RISKS UNDERTAKEN BUT 17 IT(T.P)A NOS.73 & 175/BANG/2012 THE HIGHER OR LOWER PROFIT RATE IS NOT AND CAN NEVER BE A RELEVANT CRITERIA T O JUDGE THE COMPARABILITY. 98. AS NOTED BY THE DIVISION BENCHES OF THE TRIBUNAL IN THE CASES DISCUSSED ABOVE THE OECD GUIDELINES SUGGEST QUARTILE METHOD WHICH EXCLUDES THE COMPANIES THAT FALL IN THE EXTREME QUARTILES FOR COMPARABILITY AND THERE IS DEVIATI ON IN THIS RESPECT IN T.P. REGULATIONS IN INDIA WHICH SPECIFY THE ARITHMETIC MEAN FOR DETERMINING THE ALP. NEVERTHELESS THE OECD TP GUIDELINES HAVE CONSIDERED AND DEALT WITH THE SITUATION OF EXTREME RESULTS IN THE CONTEXT OF COMPARABILITY CONSIDERATION I N SECTION A.7.3 OF CHAPTER III AND IT IS SUGGESTED IN PARA 2.63 THAT WHERE ONE OR MORE OF POTENTIAL COMPARABLES HAVE EXTREME RESULTS CONSISTING LOSS OR UNUSUAL HIGH PROFITS FURTHER EXAMINATION WOULD BE NEEDED TO UNDERSTAND THE REASONS FOR EXTREME RESULTS. AFTER TAKING INTO CONSIDERATION THIS GUIDANCE PROVIDED IN OECD TRANSFER PRICING GUIDELINES AND ON ANALYZING THE DECISIONS RENDERED BY THE DIVISION BENCHES OF THIS TRIBUNAL ON THIS ISSUE AFTER TAKING INTO CONSIDERATION INTER ALIA THE T.P. REGULATIONS IN IN DIA AS DISCUSSED ABOVE WE ARE OF THE VIEW THAT THE POTENTIAL COMPARABLES CANNOT BE EXCLUDED MERELY ON THE GROUND THAT THEIR PROFIT IS ABNORMALLY HIGH. IN OUR OPINION THE MATTER IN SUCH CASE WOULD REQUIRE FURTHER INVESTIGATION TO ASCERTAIN THE REASONS FOR UNUSUAL HIGH PROFIT AND IN ORDER TO ESTABLISH WHETHER THE ENTITIES WITH SUCH HIGH PROFIT CAN BE TAKEN AS COMPARABLES OR NOT. 99. THE QUESTION NO. 2 REFERRED TO THIS SPECIAL BENCH IS AS TO WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE COMPANIES E ARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD BE INCLUDED IN THE LIST OF COMPARABLE CASES FOR THE PURPOSE OF DETERMINING ARM S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. AS ALREADY OBSERVED THE ISSUE INVOLVED IN THIS QUESTION HAS BECOME INFRUCTUOUS IN S O FAR AS THE CASE OF THE ASSESSEE BEFORE THE SPECIAL BENCH IS CONCERNED AND THE SAME THEREFORE NO MORE SURVIVES FOR CONSIDERATION IN THE PRESENT CA SE. IN GENERALITY WE ARE OF THE VIEW THAT THE ANSWER TO THIS QUEST ION WILL DEPEND ON THE FACTS AND CIRCU MSTANCES OF EACH CASE INASMUCH AS POTENTIAL COMPARABLE EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD TRIGGER FURTHER INVESTIGA TION IN ORDER TO 18 IT(T.P)A NOS.73 & 175/BANG/2012 ESTABLISH WHETHER IT CAN BE TAKEN AS COMPARABLE OR NOT. SUCH INVESTIGATION SHOULD BE TO ASCERTAIN AS TO WHETHER EARNING OF HIG H PROFIT REFLECTS A NORMAL BUSINESS CONDITION OR WHETHER IT IS THE RESULT OF SOME ABNORMAL CONDITIONS PREVAILING IN THE RELEVANT YEAR. THE PROFIT M ARGIN EARNED BY SUCH ENTITY IN THE IMMEDIATELY PRECEDING YEAR/S MAY ALSO BE TAKEN INTO CONSI DERATION TO FIND OUT WHETHER THE HIGH PROFIT MARGIN REPRESENTS THE NORMAL BUSINESS TREN D. THE FAR ANALYSIS IN SUCH CASE MAY BE REVIEWED TO ENSURE THAT THE POTENTIAL COMPA RABLE EARNING HIGH PROFIT SATISFIES THE COMPARABILITY CONDITIONS. IF IT IS FOUND O N SUCH INVESTIGATION THAT THE HIGH MARGIN PROFIT MAKING COMPANY DOES NOT SATISFY THE COMPARABILITY ANALYSIS AND OR THE HIGH PROFIT MARGIN EARNED BY IT DOES NOT REFLECT THE NORMAL BUSINESS CONDITION WE ARE OF THE VIEW THAT THE HIGH PROFIT MARGIN MAKING ENT ITY SHOULD NOT BE INCLUDED IN THE LIST OF COMPARABLE FOR THE PURPOSE OF DETERMINING THE ARM S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. OTHERWISE THE ENTITY SATISFYING THE COMPARABILITY ANALYSIS WITH ITS HIGH PROFIT MARGIN REFLECTING NORMAL BUSINESS C ONDITION SHOULD NOT BE REJECTED SOLELY ON THE BASIS OF SUCH ABNORMAL HIGH PROFIT MARGIN. QUESTION NO. 2 REFERRED TO THIS SPECIAL BENCH IS ANSWERED ACCORDINGLY . 1 5 .2.2 AS HELD BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MAERSK GLOBAL CENTRES (IND IA) PVT. LTD. (SUPRA) THE QUESTION OF WHETHER SUCH COMPANIES ARE TO BE INCLUDED OR EXCLUDED FROM THE FINAL SET OF COMPARABLES WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE; IN AS MUCH AS A POTENTIAL COMPARABLE COMPANY EARNING ABNORMALLY HIGH PRO FITS MARGINS SHOULD TRIGGER FURTHER INVESTIGATION AS TO WHETHER EARNING OF HIGH PROFITS REFLECTS A NORMAL BUSINESS CONDITION OR WHETHER IT IS THE RESULT OF SOME ABNORMAL CONDITION PREVAILING IN THE RELEVANT PERIOD TO ESTABLISH WHETHER IT CAN BE TAKEN AS A COMPARABLE OR NOT. THE COMPARABLE COMPANY SATISFYING THE COMPARABILITY ANALYSIS WITH ITS HIGH PROFIT SHOULD NOT BE REJECTED SOLELY ON THE BASIS OF SUCH ABNORMALLY HIGH PROFIT MARGINS. 19 IT(T.P)A NOS.73 & 175/BANG/2012 1 5 .2.3 WE FIND FROM A PERUSAL OF THE IMPUGNED ORDER THAT THE LEARNE D CIT (APPEALS) HAS EXCLUDED TWO COMPANIES NAMELY (1) ENENSYS SOFTWARE SOLUTIONS LTD. ;AND (2) THIRDWARE SOLUTIONS LTD. FROM THE LIST OF COMPARABLES MERELY BECAUSE THEY HAVE HIGH PROFITS WITHOUT EXAMINING WHETHER THESE COMPANIES SATISFY THE COMPARABILIT Y ANALYSIS. IN THIS FACTUAL MATRIX RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE ITAT MUMBAI IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD.(SUPRA) WE HOLD THAT THE LEARNED CIT (APPEALS) WAS WRONG IN EXCLU DING THE COMPANIES MER ELY BECAUSE OF HIGH PROFIT MARGINS REVERSE HIS FINDING IN THE MATTER AND RESTORE THE MATTER TO THE FILE OF THE TPO. THE TPO IS DIRECTED TO RE - EXAMINE AND DECIDE ON THE COMPARABILITY OF THE COMPANIES EXCLUDED BY THE LEARNED CIT (APPEALS) ON GROUNDS OF AB NORMAL PROFIT IN THE LIGHT OF OUR OBSERVATIONS IN THIS ORDER AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND FILING DETAILS IN THE MATTER. CONSEQUENTLY GROUND NO. 5 OF REVENUE S APPEAL IS ALLOWED AS INDICATED ABOVE. 16. GROUND NO. 6 : STANDARD DEDUCTION 5%. 1 6 .1 GROUND NO. 6 OF REVENUE S APPEAL CONTENDS THAT THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) IS ERRONEOUS IN GRANTING STANDARD DEDUCTION OF 5% IN COMPUTING THE ALP OF THE INTERNATIONAL TRANSACTIONS BY CITING VARIOUS JUDICIAL PRONOUNCEMENTS. 16.2.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. THE FACT OF THE MATTER IS THAT THE ASSESSEE SO UGHT FOR THE BENEFIT OF + / - 5% STANDARD DEDUCTION AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT WHICH WAS GRANTED BY THE 20 IT(T.P)A NOS.73 & 175/BANG/2012 LEARNED CIT (APPEALS) CITING SEVERAL JUDICIAL DECISIONS IN SUPPORT OF THIS PROPOSITION. PRIOR TO THE AMENDMENT MADE BY FINANCE (N O.2) ACT 2009 AND FINANCE ACT 2012 THE PROVISO TO SECTION 92C(2) OF THE ACT PROVIDED THAT THE ALP WOULD BE TAKEN TO BE THE ARITHMETIC MEAN ( AM ) OR AT THE OPTION OF THE ASSESSEE A PRICE WHICH MAY VARY FROM THE AM BY AN AMOUNT NOT EXCEEDING 5% OF SUCH AM. THUS THE ALP WAS + / - 5% OF SUCH AM. 16.2.2 THIS ISSUE IS NOW MORE OF ACADEMIC NATURE AND THE JUDICIAL DECISIONS CITED AND RELIED ON BY THE LEARNED CIT (APPEALS) IN THE IMPUGNED ORDER ARE NOT APPLICABLE AS THE ACT HAS BEEN AMENDED WITH RETROSP ECTIVE EFFECT FROM 1.4.2002 BY THE INTRODUCTION OF THE CLARIFICATORY AMENDMENT IN WHICH SECTION 92C(2A) OF THE ACT WAS INSERTED AS PER FINANCE ACT 2012 AND READS AS FOLLOWS : - 92C(2A) : WHERE THE FIRST PROVISO TO SUB - SECTION (2) AS IT STOOD BEFORE ITS AMENDMENT BY THE FINANCE (NO.2) ACT 2009 (33 OF 2009) IS APPLICABLE IN RESPECT OF AN INTERNATIONAL TRANSACTION FOR AN ASSESSMENT YEAR AND THE VARIATION BETWEEN THE ARITHMETICAL MEAN REFERRED TO IN THE SAID PROVISO AND THE PRICE AT WHICH SUCH TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN EXCEEDS FIVE PER CENT OF THE ARITHMETICAL MEAN THEN THE ASSESSEE SHALL NOT BE ENTITLED TO EXERCISE THE OPTION AS REFERRED TO IN THE SAID PROVISO. 16.2.3 THE NEW SECTION 92C(2A) OF THE ACT MANDATES THAT IF THE ARITHMET IC MEAN PRICE FALLS BEYOND + / - 5 % FROM THE PRICE CHARGED IN INTERNATIONAL TRANSACTIONS THEN THE ASSESSEE DOES NOT HAVE ANY OPTION REFERRED TO IN SECTION 92C(2)OF THE ACT. THUS AS PER THIS AMENDMENT IT IS CLEAR THAT THE + / - 5 % VARIATION IS ALLOWED ONLY TO JUSTIFY THE PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS AND NOT FOR ADJUSTMENT / STANDARD DEDUCTION PURPOSES. THE AFORESAID AMENDMENT HAS SETTLED THE ISSUE AND ACCORDINGLY THE 5% STANDARD DEDUCTION IS NOT ALLOWABLE TO THE ASSESSEE IN THE CASE ON HAND. THE VARIOUS 21 IT(T.P)A NOS.73 & 175/BANG/2012 JUDICIAL DECISIONS CITED PERTAIN TO THE PERIOD PRIOR TO THE RETROSPECTIVE AMENDMENT BY WAY OF INSERTION OF SECTION 92C(2A) OF THE ACT BY FINANCE ACT 2012 AND ARE THEREFORE NOT OF ANY HELP TO THE ASSESSEE. IN THIS VIEW OF THE MATT ER WE HOLD THAT THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE ASSESSEE THE BENEFIT OF 5% STANDARD DEDUCTION AND ACCORDINGLY REVERSE THIS ORDER OF THIS ISSUE IN VIEW OF THE RETROSPECTIVE AMENDMENT W.E.F. 1.4.2002 BROUGHT ABOUT BY THE INSERTION OF SECTION 92C(2A) OF THE ACT BY FINANCE ACT 2012. CONSEQUENTLY WE ALLOW THE GROUND RAISED BY REVENUE AT S.NO. 6 . 17. IN THE RESULT REVENUE S APPEAL FOR ASSESSMENT YEAR 2005 - 06 IS PARTLY ALLOWED. ASSESSEE'S APPEAL FOR A.Y. 2005 - 06 IN IT(TP)A NO.74/BANG/2012. 18. THE G ROUNDS RAISED AT S.NOS.10 & 11 OF THE ASSESSEE'S APPEAL ARE GENERAL IN NATURE AND NOT BEING URGED BEFORE US IN THE COURSE OF APPEAL HEARINGS ARE DISMISSED AS INFRUCTUOUS. 19. THE GROUNDS RAISED AT S.NOS.1 TO 4 : IN THE COURSE OF APPEAL PR OCEEDINGS THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THESE GROUNDS ARE NOT BEING PRESSED. IN VIEW OF THESE GROUNDS NOT BEING PRESSED THEY ARE RENDERED INFRUCTUOUS AND ARE ACCORDINGLY DISMISSED. 20.1 GROUNDS NO.5 & 6 ARE REL ATED TO MISCELLANEOUS INCOME . IN GROUND NO.5 THE ASSESSEE HAS ASSAILED THE DECISION OF THE AUTHORITIES BELOW IN EXCLUDING MISCELLANEOUS INCOME FOR ARRIVING AT THE OPERATING MARGIN WITHOUT GRANTING THE ASSESSEE OPPORTUNITY TO PRESENT ITS CASE AND ALSO IN HOLDING SO WITHOUT ASSIGNING ANY REASONS WHATSOEVER FOR THEIR DECISIONS IN THE MATTER. IN GROUND NO.6 THE ASSESSEE CONTENDS THAT MISCELLANEOUS INCOME 22 IT(T.P)A NOS.73 & 175/BANG/2012 SHOULD BE CONSIDERED FOR ARRIVING AT THE OPERATING MARGIN IN THE DETERMINATION OF ALP OF INTERNATIONAL TRANSACTIONS. 20.2 WE HAVE CONSIDERED THE SUBMISSIONS MADE. ON A PERUSAL OF THE ORDERS OF THE ASSESSING OFFICER / TPO WE FIND THAT THERE IS NO DISCUSSION OR FINDING THEREIN ON THE ISSUES RAISED BY THE ASSESSEE. IN THIS VIEW OF THE MATTER IN THE INT EREST OF EQUITY AND JUSTICE WE REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE MATTER AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS AND SUB MISSIONS REQUIRED. IT IS ORDERED ACCORDINGLY. CONSEQUENTLY GROUNDS NO.5 & 6 OF THE ASSESSEE'S APPEAL ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 21.1 GROUND NO.7 IS RELATED TO DEPRECIATION ADJUSTMENT IN RESPECT OF THE ASSESSEE VIS - - VIS THE COM PARABLES. THE ASSESSEE CONTENDS THAT THE LEARNED CIT (APPEALS) OUGHT TO HAVE CONSIDERED THE ASSESSEE'S REQUEST TO GRANT DEPRECIATION ADJUSTMENT AS THE RATE OF DEPRECIATION OF THE ASSESSEE VIS - - VIS THAT OF THE COMPARABLE COMPANIES ARE DIFFERENT. IN THIS REGARD IT IS SUBMITTED THAT THE ASSESSEE HAS DEBITED ACCELERATED DEPRECIATION IN ITS BOOKS OF ACCOUNT AS COMPARED TO THE RATES SPECIFIED IN SCHEDULE IV. 21.2 WE HAVE HEARD BOTH THE LEARNED AUTHORISED REPRESENTATIVE AND LEARNED DEPARTMENTAL REPRESENT ATIVE IN THE MATTER AND PERUSED THE MATERIAL ON RECORD. ON AN APPRECIATION OF THE ISSUE BEFORE US WE THINK IT WOULD BE APPROPRIATE TO REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE AND VERIFY THE DEPRECIATION POLICY OF THE C OMPARABLE COMPANIES AND ADOPT A SINGLE COMMON POLICY FOR BOTH THE ASSESSEE 23 IT(T.P)A NOS.73 & 175/BANG/2012 AND THE COMPARABLE COMPANIES AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE SUBMISSIONS / DETAILS REQUIRED. IT IS ACCORDINGLY DIRECTED. CONSEQUENTLY GROUND NO.7 OF THE ASSESSEE'S APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. GROUNDS NO. 8 & 9 - COMPARABILITY ANALYSIS. 22.0 EXCLUSION OF CERTAIN COMPARABLES. 22.1 AS DISCUSSED IN THE ISSUES RAISED IN REVENUE S APPEAL IN THE CASE ON HAN D EARLIER IN THIS ORDER THE LEARNED CIT (APPEALS) HAD ADJUDICATED ON THE ISSUES OF RPT FILTER TURNOVER FILTER AND ABNORMAL PROFIT MARGINS AND THEN DELETED / EXCLUDED CERTAIN COMPANIES FROM THE LIST OF 17 COMPARABLES CHOSEN BY THE TPO. IT IS HOWEVER OBS ERVED THAT THE LEARNED CIT (APPEALS) HAS NOT ADJUDICATED ON OTHER ISSUES OF NON - COMPARABILITY SUCH AS SOME OF THE COMPANIES CHOSEN BY THE TPO AS COMPARABLES ARE CLAIMED TO BE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE. 22.2 BEFORE US THE ASSESSEE HA D SUBMITTED A CHART EXPLAINING ITS STAND ON EACH OF THE COMPANIES WHICH AS PER THE ASSESSEE ARE REQUIRED TO BE EXCLUDED FROM THE SET OF 17 COMPARABLE COMPANIES ADOPTED BY THE TPO. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE ACCEPTS 9 OF THE COMPARABLE COMPANIES ADOPTED BY THE TPO AT S.NOS.1 2 4 5 8 9 10 11 AND 12 OF THE TPO S LIST OF 17 COMPARABLE COMPANIES. THE ASSESSEE HAS FILED A CHART GIVING THE REASONS WHY THE OTHER 8 COMPANIES ARE REQUIRED TO BE EXCLUDED AND THE JUDICIAL DECISIONS OF VARIOUS TRIBUNALS IN SUPPORT OF ITS CONTENTIONS. 24 IT(T.P)A NOS.73 & 175/BANG/2012 23.0 TURNOVER FILTER OF RS.200 CRORES . 23.1 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS FURNISHED A CHART WHEREIN THE NAMES OF THE 5 COMPANIES WHI C H HAVE TURNOVERS IN EXCESS OF R S.200 CRORES IN THE RELEVANT PERIOD ARE INDICATED. IT IS SUBMITTED THAT IN THE RELEVANT PERIOD THE ASSESSEE'S TURNOVER IS APPROXIMATELY RS.7.97 CRORES ONLY. IT WAS CONTENDED THAT THESE COMPANIES WITH TURNOVER IN EXCESS OF RS.200 CRORES OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES AS HELD BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. REPORTED IN 152 TTJ 215. 23.2 WHILE DEALING WITH REVENUE S APPEAL WE HAVE A LREADY ADJUDICATED ON THIS ISSUE AT PARA 14.1 TO 14.3 OF THIS ORDER AND THE SAME HOLDS GOOD IN RESPECT OF THE ASSESSEE'S SUBMISSIONS. 2 4 . RPT FILTER FOUR SOFT LTD. 2 4 .1 BEFORE US THE ASSESSEE MADE DETAILED SUBM ISSIONS TO THE EFFECT THAT M/S. FOUR SOFT LTD. THE COMPARABLE COMPANY CHOSEN BY THE TPO OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND THAT ITS RPT WAS 19.89% SINCE THE CO - ORDINATE BENCH OF THE BANGALORE TRIBUNAL IN THE CASE OF 24/7 CUS TOMER.COM PVT. LTD. (SUPRA) HAS HELD THAT COMPANIES HAVING RPT IN EXCESS OF 15% ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IT IS SUBMITTED THAT THE CO - ORDINATE BENCH FOLLOWED THE DECISION OF THE DELHI BENCH OF THE ITAT IN THE CASE OF SONY INDIA (P) LTD. REPORTED IN 2008 - TIOL - 439 - ITAT - DELHI DT.23.12.2008. THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS THAT IN VIEW OF THE ABOVE THIS COMPANY OUGHT TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 25 IT(T.P)A NOS.73 & 175/BANG/2012 24.2 WHILE DEALING WITH REVENUE S APPEAL WE HAVE A T PARA 13.1 TO 13.2.3 OF THIS ORDER ALREADY DIRECTED THE ASSESSING OFFICER / TPO TO EXCLUDE THIS COMPANY FOUR SOFT LTD. FROM THE LIST OF COMPARABLES AS THE RPT OF T HIS COMPANY IS IN EXCESS OF 15% AND THE SAME ALSO HOLDS GOOD IN RESPECT OF THE ASSESSEE'S SUBMISSIONS. 25. EXCLUSION ON GROUNDS OF SUPER PROFITS. 25.1 THE ASSESSEE CONTENDS THAT THIRDWARE SOLUTIONS LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE ON THE GROUNDS THAT IT HAS EARNED SUPER NORMAL PROFITS. WHILE DEALING WITH REVENUE S APPEAL AT PARA 15.1 TO 15.2.3 OF THIS ORDER WE HAVE ALREADY HELD THAT COMPARABLE COMPANIES CANNOT BE EXCLUDED ONLY ON THE GROUND THAT THEY HAVE EARNED SUPER PROFITS AND HAVE HELD THAT THE COMPARABILITY OF THIRDWARE SOLUTIONS LTD. IS TO BE RESTORED TO TH E FILE OF THE ASSESSING OFFICER / TPO FOR RE - EXAMINATION AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND THE SAME HOLDS GOOD IN RESPECT OF THE ASSESSEE'S SUBMISSIONS. 26. EXCLUSION ON GROUNDS OF BEING FUNCTIONALLY DIFFERENT . 26.1 THE ASSESSEE HAS SOUGHT THE EXCLUSION OF M/S. EXENSYS SOFTWARE SOLUTIONS LTD. FROM THE LIST OF COMPARABLES IN RESPECT OF WHICH SUBMISSIONS WERE PUT FORTH BEFORE US. IT WAS SUBMITTED THAT THIS COMPANY IS A PRODUCT COMPANY AND THEREFORE IT IS NO T COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND WHO IS PROVIDING SOFTWARE DEVELOPMENT SERVICES. IT WAS ALSO SUBMITTED THAT THE TPO HAS HIMSELF EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES IN THE NEXT ASSESSMENT YEAR 2006 - 07 AND THEREFORE FOLLOWING THIS M/S. EXENSYS SOFTWARE SOLUTIONS LTD. OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 26 IT(T.P)A NOS.73 & 175/BANG/2012 26.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. AS CONTENDED BY THE ASSESSEE WE FIND THAT THE TPO HAS EXCLUDED THIS COMPANY FROM THE FINAL SET OF COMPARABLES IN ASSESSMENT YEAR 2006 - 07. WE ARE HOWEVER OF THE VIEW THAT THERE IS A REQUIREMENT FOR EXAMINING WHETHER THE FACTS OF THE CASE ON HAND AND THAT OF THE COMPARABLE COMPANY I.E. EXENSYS SOFTWARE SOLU TIONS LTD. IN THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2005 - 06 WAS SIMILAR TO THAT OF ASSESSMENT YEAR 2006 - 07. IN THIS VIEW OF THE MATTER WE DEEM IT APPROPRIATE TO REMAND THE ISSUE BACK TO THE FILE OF THE TPO TO VERIFY THE COMPARABILITY OF TH IS COMPANY IN THE LIGHT OF THE DECISION TAKEN BY THE TPO IN ASSESSMENT YEAR 2006 - 07. 27. IN THE RESULT THE ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2005 - 06 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL 201 5 . SD/ - (N.V.VASUDEVAN) JUDICIAL MEMBER SD/ - (JASON P BOAZ) ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. C IT(A) 5. DR - A BENCH. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR ITAT BANGALORE