M/S ARIBA TECHNOLOGIES INDIA PVT. LTD.,,BANGALORE vs. ITO, BANGALORE

Assessee By : Shri P.K. Prasad, C.A. Revenue By : Shri P.K. Srihari, Addl.CIT (D.R) Date of Hearing : 3.12.2015. Date of Pronouncement : 02.02.2016. O R D E R Per Shri Vijaypal Rao, J.M. : These cross appeals are directed against the order dated 31.12.2012 of Commissioner of Income Tax (Appeals)-IV, Bangalore for the Assessment Year 2007-08. The assessee has raised the following grounds in its appeal:

2 IT(T.P)A Nos.441 & 442/Bang/2012 “ The grounds taken by the Appellant are without prejudice to one another.

2. That the learned CIT (Appeals) erred in upholding the rejection of Transfer Pricing (‘TP’) documentation by the learned Transfer Pricing Officer (‘TPO’)/ Assessing Officer (‘AO’) and in making an adjustment to the transfer price of the Appellant in respect of its software development services by Rs. 76,95,410 and in the information technology enabled services by Rs. 20,31,990. 3. That on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in; (a) Upholding the rejection of comparability analysis of the Appellant in the TP documentation and accepting the comparability analysis performed by the learned TPO in the TP Order. (b) Performing his own comparability analysis by modifying some of the filters applied by the learned TPO in the TP Order, without providing an opportunity of being heard to the Appellant. (c) Arbitrarily arriving at a set of companies as comparable to the software development and information technology enabled services of the Appellant, on rejecting companies that are otherwise functionally comparable to the Appellant and on inclusion of companies that otherwise fail the test of comparability. (d) Rejecting the segmental companies in the information technology enabled services segment only for the reason that the software development service segment of these companies were not comparable to that of the Appellant.

3 IT(T.P)A Nos.441 & 442/Bang/2012 (e) Disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2006-07) data for companies should be used for comparability. (f) Upholding the learned TPO’s approach of using data as at the time of assessment proceedings, instead of that available as on the date of preparing the TP documentation for comparable companies while determining the arm’s length price. (g) Upholding the approach adopted by the learned TPO of collecting selective information of the companies by exercising power granted to him under section 133(6) of the Income Tax Act, 1961 (‘Act’) that was not available to the Appellant in the public domain. (h) Not providing any adjustment towards the difference in the risk profile between the Appellant and the entrepreneurial companies selected as comparables while determining the arm’s length price.

4. Consequent to the above adjustment, the learned CIT (Appeals) erred in directing the learned AO to levy interest under section 234B of the Act.”

4 IT(T.P)A Nos.441 & 442/Bang/2012 Software IT enables Description Development Services Amount (Rs.) Services (Rs.) Operating Rs. 8,66,47,650/- 26,94,48,614/- Revenue 18,28,00,964/- Rs. Operating Cost 7,30,18,028/- 23,40,87,434/- 16,10,69,406/- Operating Profit Rs. 2,17,31,558/- 3,53,61,181/- 3,53,61,180/- (PBIT) Operating Profit to Cost 13% 19% Ratio

Contract Software Rs. Readjustment done 1. Development 18,28,00,964/- by TPO Services Rs. Readjustment done 2. IT enabled Services 8,66,47,650/- by TPO

5 IT(T.P)A Nos.441 & 442/Bang/2012 First we will take up the software development services segment. 5. The assessee selected 18 comparables for bench marking its international transactions and arrived at Mean Margin of 11.30% as under :

Without Adjs. Sl. Comparable Company Markup No on Total Cost Bodhtree Consulting 18% 1. Limited (Seg) F C S Software Solutions 14% 2. Ltd. Goldstone Technologies 3% 3. Ltd. Larsen & Toubro 11% 4. Infotech Ltd. Melstar Information 0% 5. Technologies Ltd. Orient Information -6% 6. Technology Ltd Powersoft Global 19% 7. Solutions Ltd SIP Technologies & 25% 8. Exports Ltd 9. Sonata Software Ltd. 9% 10. Synetairos Technologies 11% Limited 11. Trident Info-Tech 66% Corpn.Ltd 12. VJIL Consulting Ltd 7% 13. Akshay Software 7%

6 IT(T.P)A Nos.441 & 442/Bang/2012 Without Adjs. Sl. Comparable Company Markup No on Total Cost Technologies Ltd. 14. Cambridge Technology 21% Enterprises Ltd. 15. I C R A Techno Analytics 15% Ltd. Mindtree Consulting 11% 16 Limited Computech International 7% 17 Limited 18 Karuturi Networks 4%

OP to Total Cost % as Sl. Comparable Company per TP No. Name Order(after WC) 1. Accel Transmatic Ltd (Seg) 19.16

7 IT(T.P)A Nos.441 & 442/Bang/2012 OP to Total Cost % as Sl. Comparable Company per TP No. Name Order(after WC) Avani Cincom Technologies 2. 50.12 Ltd 3. Celestial Labs Ltd 53.20% 4. Datamatics Ltd -1.48 5. E-zest Solutions Ltd 35.05 Flextronics Software 6. 24.08 Systems Ltd 7. Geometric Ltd (Seg) 8.71 Helios & Matheson 8. 33.43 Information technology 9. I Gate Global Solutions Ltd 4.72 10. Infosys Technologies Ltd 37.95 11. IshirInfotech Ltd 29.42 KALS Information Systems 12. 22.47 Ltd (Seg.) LGS Global Ltd (Lanco 13. 14.22 Global Solutions Ltd) 14. Lucid Software Ltd 16.11 Mediasoft Solutions Ltd 15. 0.70 16. Megasoft Ltd (Seg) 50.26 17. Mindtree Consulting Ltd 14.43 18. Persistent Systems Ltd 22.47 19. Quintegra Solutions Ltd 8.33

8 IT(T.P)A Nos.441 & 442/Bang/2012 OP to Total Cost % as Sl. Comparable Company per TP No. Name Order(after WC) 20. R S Software (India) Ltd 12.21 R Systems International 21. 12.32 (Seg) Sasken Communication 22. 20.13 Technologies Ltd (Seg) S I P Technologies & 9.79 23. Exports Ltd. Tata Elxsi Ltd (Seg) 25.20 24. 25. Thirdware Solutions Ltd 20.57 Wipro Ltd 33.48 26.

As it is clear from the set of comparables selected by the assessee and TPO only two comparables are common which are mentioned at Sl. Nos. 19 & 23 of the TPO’s list. The TPO has arrived at the AM of the comparables after working capital adjustment at 22.19% in comparison to the assessee's operating margin at 13%. Thus the TPO proposed to make an upward adjustment of Rs.1,39,53,888. The Assessing Officer made the corresponding addition on account of TP adjustment as proposed by the TPO while passing the assessment order. The assessee challenged the action of the Assessing Officer before the CIT (Appeals) and raised the objections against the companies

9 IT(T.P)A Nos.441 & 442/Bang/2012 selected by the TPO as comparable in respect of the international transactions pertain to software development services segment. The CIT (Appeals) excluded 23 companies from the set of comparable companies selected by the TPO and retain only 3 companies which are as under :-

Sl.No. Company Name OP to Total Cost OP to Total Cost % (before working % (after working capital capital adjustment) adjustment) 1. E-Zest Solutions Ltd. 36.12 35.0535.05 2. KALS Information Systems Ltd. 30.55 22.47 (Seg.) 3. Lucid Software Ltd. 19.37 16.11 Mean MarginAfter Working 24.54 Capital Adjustment 73.63/3

10.1.1 Accel Transmatic Ltd. (Seg.) : This company was selected by the TPO for determining the ALP. Though the assessee has not contested the inclusion of this company in the list of comparables by the TPO however, this company was excluded by the CIT (Appeals) by applying 0% RPT filter. In view of our finding on the issue of RPT filter, we find that the assessee has claimed that this company is having 19.29% of revenue from RPT. On the other hand as it is clear from the details reproduced by the CIT (Appeals) in para 2.10 of the impugned order that the RPT revenue is 6.2% of the sales. Therefore, there are contradictory claims on behalf of the parties. The learned Authorised Representative of the assessee has further contended that this company is engaged in the product manufacturing activity and has shown manufacturing expenditure in the books of accounts which is 7.88 % of total expenditure. He has referred to the relevant part of the Annual Report and submitted that this 13 IT(T.P)A Nos.441 & 442/Bang/2012 company is engaged in the business of diversified activities like transmatic system, Accel IT Academy and Accel Animation Studio. Further, there is an extra ordinary event when this company hived of its division to a subsidiary and this company has started its animation division. Thus the learned Authorised Representative has submitted that this company is otherwise not comparable with that of the assessee. He has pointed out that this Tribunal in assessee's own case for the Assessment Year 2006-07 has excluded this company from the list of comparables. He has also relied upon the following decisions :-

CASES PERTAINING TO ASSTT. YEAR CASES PERTAINING TO : 2007– 08 OTHER ASSTT. YEARS Trilogy E Business Software M/s. Ariba Technologies India Private Limited (IT (TP) No. Bang /2011 (AY 2007-08) 1179/Bang/2010) (AY 2006- 07), Bearing Point Business Consulting Private Ltd. (ITA No. 1124/Bang/2011, TS-758- ITAT-2012(Bang)-TP, ITAT Bangalore)(Ay 2007-08) First Advantage Offshore Services Pvt. Ltd. [IT(TP)A No.1086/Bang/2011, AY 2007-08] M/s. Huawei Technologies India Private Limited (IT(TP) A. No.583/Bang/2012) (AY 2007-08) CSR India Pvt. Ltd. {ITA No. 1119/Bang/2011, AY 2007-08)

14 IT(T.P)A Nos.441 & 442/Bang/2012 10.1.2 On the other hand, the learned Departmental Representative has submitted that the CIT (Appeals) has not examined the functional comparability of this company and rejected the same / excluded the same by applying 0% RPT filter. He has relied upon the finding of the TPO and submitted that the TPO has examined the functional comparability of this company and the assessee did not dispute before the TPO or before the CIT (Appeals).

10.1.3 We have considered the rival submissions as well as relevant material available on record.Therefore, this company cannot be excluded from the list of comparables. There is no dispute that the assessee did not object this company as comparable by the TPO. Even before the CIT (Appeals) the assessee did not raise any objection for inclusion of this company. However, the CIT (Appeals) has excluded this company by applying 0% RPT filter. Thus the revenue is aggrieved by the order of the CIT (Appeals) on the issue of applying 0% RPT filter. As regards the functional comparability of this company, this issue does not emanate as the assessee did not raise any objection against the comparability of this company. Further the assessee has not filed any additional ground for exclusion of this company from the list of comparables. We find that the revenue from RPT of this company is 6.40% and therefore it is much below the threshold of 15% as discussed in the foregoing paragraphs. Thus in the absence of any objections on the functional comparability of this company by the 15 IT(T.P)A Nos.441 & 442/Bang/2012 assessee either before the authorities below or before us by way of additional ground, we restore this company to the list of comparables.

10.2.1 Avani Cincom Technologies Ltd. :- The assessee objected the inclusion of this company in the list of comparables on the ground of functional dis-similarity. The CIT (Appeals) instead of deciding the functional dis-similarity has excluded this company by applying the RPT filter at 0%.

10.2.2 Before us, the learned Authorised Representative of the assessee has submitted that this company is engaged in the software development services and IT services travel solutions, insurance solutions, relationship management, etc. There is no segmental data available in respect of software development services. Therefore this company cannot be considered as a good comparable of the assessee. In support of his contention, he has relied upon the following decisions :

CASES PERTAINING TO ASSTT. YEAR Trilogy E Business Software Bang /2011 (AY 2007-08) Bearing Point Business Consulting Private Ltd. (ITA No. 1124/Bang/2011, TS-758-ITAT- 2012(Bang)-TP, ITAT Bangalore)(AY 2007-08) CSR India Pvt. Ltd. {ITA No. 1119/Bang/2011, [2013] 31 taxmann.com 265 (Bangalore - Trib.), [TS-68-ITAT-2013(Bang)-TP]}, ITAT Bangalore(AY 2007-08) M/s. Huawei Technologies India Private Limited (IT(TP) A. No.583/Bang/2012) (AY 2007-08) EMC Data Storage Systems (India) Pvt. Ltd. (IT(TP) A No. 973/Bang/2010) (AY 2007-08)

16 IT(T.P)A Nos.441 & 442/Bang/2012 10.2.3 On the other hand, the learned Departmental Representative has supported the finding of the TPO and submitted that the TPO found this company is engaged in the similar business activity as of the assessee and therefore it is a good comparable.

10.2.4 We have considered the rival submissions as well as relevant material on record. The learned Authorised Representative has contended that this company is engaged in the diversified activity which are dis-simialr to the assessee. He has asserted that this company is engaged in the software development and IT services and there is no segmental data available for software development. In support of his contention, he has relied upon various decisions. After going through the Annual Report of this company as well as the auditor’s report, we find that this company is a software service provider and does not require to hold inventories as clearly reported by the auditor of the assessee. Further this company has received the revenue of Rs.3,54,77,523 as earning in foreign exchange of software export services. From the profit and loss account, this company has reported only one source of income from operations and that is export in foreign currency. Apart from this revenue, only a minor amount has been shown from the interest in the profit and loss account. Further, we find that there is no other revenue generating source during the year under consideration. Therefore, we find from the Annual Report of the 17 IT(T.P)A Nos.441 & 442/Bang/2012 company, there is one segment i.e. software exports. Thus the contention of the assessee is that this company is in the diversified activity is not found support from the record and therefore it is contrary to the record. The decisions relied upon by the assessee also does not give any finding of fact on functional dissimilarity but the earlier order of the Tribunal in some other cases has been followed in these decisions. There is no independent finding by analysing the facts on record in these decisions. Therefore when we analyse the relevant record and details as given in the annual report, profit and loss account and auditor’s report, we find that this company has earned revenue from only one source which is software exports in foreign currency. Accordingly, we do not find any merit in the objections raised by the assessee in this appeal. As regards the high profits, the same itself is not a ground for exclusion of this company or treating the same as not comparable until and unless any extra ordinary event occured during the year which has resulted abnormal profit. Therefore, only the extra ordinary event which could have resulted in abnormal results or income of the comparable company can be considered as a reason for exclusion but if the company is earning comparably high profits from its normal business activity, then the same itself is not a ground for exclusion, if otherwise comparable to that of the assessee. Accordingly, we set aside the order of the CIT (Appeals) excluding this company on the ground of related party filter at 0% 18 IT(T.P)A Nos.441 & 442/Bang/2012 and restore the order of the TPO/A.O. on functional comparability of this company.

10.3 Celestial Labs Limited :

As far as this company is concerned, the stand of the assessee is that it is absolutely a research & development company. In this regard, the following submissions were made:-

• In the Director’s Report (page 20 of PB-Il), it is stated that “the company has applied for Income Tax concession for in-house R&D centre expenditure at Hyderabad under section 35(2AB) of the Income Tax Act.” • As per the Notes to Accounts - Schedule 15, under “Deferred Revenue Expenditure” (page 31 of PB-II), it is mentioned that, “Expenditure incurred on research and development of new products has been treated as deferred revenue expenditure and the same has been written off in 10 years equally yearly installments from the year in which it is incurred.” • An amount of Rs. 11,692,020/- has been debited to the Profit and Loss Account as “Deferred Revenue Expenditure” (page 30 of PB-II). This amounts to nearly 8.28 percent of the sales of this company. It was therefore submitted that the acceptance of this company as a comparable for the reason that it is into pure software development activities and is not engaged in R&D activities is bad in law.

Further reference was also made to the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT – ITA 19 IT(T.P)A Nos.441 & 442/Bang/2012 No.6623/Mum/2011 (for AY 2007-08) in which the comparability of this company for clinical trial research segment was examined.

10.3.1 It was submitted by Ld A R of the assessee that this company is owner of IPR, it has software for discovery of new drugs and has developed molecule to treat cancer. Thus this company cannot be considered as a comparable of assessee for the reason that this company has diverse business and this company is not into software development activities, accordingly, this company should be rejected as a comparable being functionally different. 10.3.2 On the other hand Ld D R has relied upon the order of the TPO and submitted that this company has been classified as software development company and therefore the main activity is similar to that of assessee. 10.3.3 We have considered the rival submissions as wellas relevant material on record. The business activities of this company has been examined and analysed by the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT (supra) wherein the tribunal has observed as under:

“The learned D.R. however drew our attention to page- 389 of the paper book which is an extract from the Directors report which reads as follows: ‘The Company has developed a de novo drug design tool “CELSUITE” to drug discovery in, finding the lead molecules for drug discovery and protected the IPR by filing under the copy if sic (of) right/patent act. (Apprised and funded by Department of Science and Technology New Delhi) based on our insilico expertise (applying bio-informatics tools). The Company has 20 IT(T.P)A Nos.441 & 442/Bang/2012 developed a molecule to treat Leucoderma and multiple cancer and protected the IPR by filing the patent. The patent details have been discussed with Patent officials and the response is very favorable. The cloning and purification under wet lab procedures are under progress with our collaborative Institute, Department of Microbiology, Osmania University, Hyderabad. In the industrial biotechnology area, the company has signed the Technology transfer agreement with IMTECH CHANDIGARH (a very reputed CSIR organization) to manufacture and market initially two Enzymes, Alpha Amylase and Alkaline Protease in India and overseas. The company is planning to set up a biotechnology facility to manufacture industrial enzymes. This facility would also include the research laboratories for carrying out further R & D activities to develop new candidates’ drug molecules and license them to Interested Pharma and Bio Companies across the GLOBE. The proposed Facility will be set up in Genome Valley at Hyderabad in Andhra Pradesh.’ According to the learned D.R. celestial labs is also in the field of research in pharmaceutical products and should be considered as comparable. As rightly submitted by the learned counsel for the Assessee, the discovery is in relation to a software discovery of new drugs. Moreover the company also is owner of the IPR. There is however a reference to development of a molecule to treat cancer using bio-informatics tools for which patenting process was also being pursued. As explained earlier it is a diversified company and therefore cannot be considered as comparable functionally with that of the Assessee. There has been no attempt made to identify and eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustment, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the Assessee in this regard.’ ”

Besides the above, the Assessee has point out to several references in the annual report for 31.3.2007 highlighting the fact that this company was develops biotechnology products and provides related software development services.

21 IT(T.P)A Nos.441 & 442/Bang/2012 Having regard to the above facts and circumstances as well as the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT (supra) we are of the view that this company was basically in clinical research and manufacture of bio products and other products and therefore, this company cannot not be considered as good comparable of assessee. 10.4 Datamatrics Ltd. : This company is not disputed or contested by any of the parties though the CIT (Appeals) has deleted this company from the list of comparables on the ground of related party transactions. We find that the revenue from RPT of this company is 13.1% and therefore it is much below the threshold of 15% as discussed in the foregoing paragraphs. Thus in the absence of any objections on the functional comparability of this company by the assessee either before the authorities below or before us by way of additional ground, we restore this company to the list of comparables.

10.5 E-zest Solutions Ltd. : This company is not disputed or contested by the assessee, the CIT (Appeals) has also found that it is a comparable, accordingly, there is no specific finding is called for on this company. 10.6.1 Flextronics Software Ltd. (Seg.) : The assessee objected against the inclusion of this company in the list of comparables on the grounds that it fails the R&D filter as well as having diversified segments. The CIT (Appeals) excluded this company on the ground of RPT. Before us, the learned 22 IT(T.P)A Nos.441 & 442/Bang/2012 Authorised Representative of the assessee has submitted that this company is engaged in the R&D activities giving raise to Intellectual Property Rights (IPR). Therefore this company is dis-similar to that of the assessee. He has relied upon the following decisions : CASES PERTAINING TO ASSTT. YEAR • DE Shaw India Software Pvt Ltd (ITA No. 2071/Hyd/2011, [TS-348- ITAT-2013(HYD)-TP], ITAT Hyderabad) - THIS TRIBUNAL RULING HAS BEEN UPHELD BY THE HIGH COURT FOR THE STATE OF TELANGANA AND ANDHRA PRADESH - ITTA NO. 433 of 2014 DATED 22 JULY 2014. • Motorola Solutions India Pvt Ltd (ITA No. 5637/Del/2011, [TS-240-ITAT- 2014(DEL)-TP], ITAT Delhi)

10.6.2 On the other hand, the learned Departmental Representative has relied upon the orders of the TPO and submitted that this company is similar to that of the assessee and this is a good comparable for determining the ALP of international transactions. 10.6.3 Having considered the rival submissions and relevant material on record, we find that the functional comparability of this company has been examined by this Tribunal in the case of DE Shaw India Software Pvt. Ltd (supra). The Hyderabad Bench of this Tribunal has discussed the comparability of this company in para 27 at page 13 of the order as under :- “27. Flextronics Software Ltd. and Thirdware Software Solutions Ltd. : The assessee has objected to these two companies to be treated as comparable mainly on the ground that both these companies are into product development. We find that in case of 23 IT(T.P)A Nos.441 & 442/Bang/2012 Intoto Software India Pvtg. Ltd. (supra) the co-ordinate bench of this Tribunal having found that these two companies are functionally different as they are into product development has directed excluding these companies for comparability analysis. Respectfully following the decision of the co-ordinate bench of this Tribunal incase of M/s. Intoto Software India Pvt. Ltd. (supra) we also direct the Assessing Officer / TPO to exclude both these companies.” It has been brought to our notice that the finding of the Tribunal in case of DE Shaw India Software Pvt. Ltd. has been upheld by the Hon'ble High Court. By following the decision of the coordinate Bench at Hyderabad as well as Hon'ble High Court, we direct the TPO/A.O. to exclude this company from the list of comparables for determining the ALP. 10.7.1 Geometric Ltd. (Seg.) : The assessee objected the inclusion of this company before the TPO. The CIT (Appeals) excluded this company from the set of comparables on the ground of RPT filter. 10.7.2 We have heard the rival submissions and considered the material on record. It is not disputed that the Related Party revenue is 19.98% of total sale of this company. Therefore, this company fails the filter of threshold limit of 15% RPT. Accordingly, we do not find any reason to interfere with the finding of the CIT (Appeals) to exclude this company from the list of comparables. 10.8 Helios & Matheson Information Technology and I gate Global Solutions Ltd. : The assessee did not object to the inclusion of these two companies before CIT (Appeals) or even before this Tribunal. The revenue is aggrieved 24 IT(T.P)A Nos.441 & 442/Bang/2012 only on account of applying the 0% RPT filter by the CIT (Appeals). In view of our finding of tolerance range of RPT, these two companies are restored to the list of comparables of TPO. 10.9.1 Infosys Technologies Ltd. : The assessee objected to this company before the TPO on the ground of brand value having tangibles, research and development expenses, software products, etc. The CIT (Appeals) deleted this company from the list of comparables on the ground of RPT. 10.9.2 Before us, the learned Authorised Representative of the assessee has submitted that this company owns brands and intangibles and also having diversified operations as reported in the Annual Report of this company, this company earns from software products and no separate segmental data are reported. Therefore, in the absence of segmental data available, this company cannot be considered as good comparable of the assessee. This company also is engaged in the activities of R & D. In support of his contention he has relied upon the following decisions : Cases pertaining to Asst. Year 2007-08 Cases pertaining to other Asst. Years Triology E-Business Software India Pvt. Ltd. Ariba Technologies India Pvt. Ltd. Vs. ITO Vs. DCIT (A.Y. IT(TP)A No.1179/Bang/2010. 2007-08) CSR India Pvt. Ltd. (A.Y 2007-08) Agnity India Technologies Pvt. Ltd. ITA ITA No.1119/Bang/2011. No.3856(Del)/2010) ITAT, Delhi. This ruling has been upheld by the HighCourt (ITA No.1204/2011, dated July 2013). Scale of operation, brand value, etc.

25 IT(T.P)A Nos.441 & 442/Bang/2012 10.9.3 On the other hand, the learned D.R. has relied upon the findings of the TPO and submitted that this company is in business of software development services and therefore except for minor variations, this company is comparable with the assessee. 10.9.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis- similar and different from the assessee and hence is not comparable We are inclined to agree with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. The functional comparability of this company has been examined by the Delhi Bench of this Tribunal in case of Agnity India Technologies Pvt. Ltd. in (A.Y. 2006-07) and the finding of the Tribunal has been upheld by the Hon'ble Delhi High Court that this company cannot be compared with an ordinary entity because of the scale of operations and brand value. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. Accordingly we direct the TPO/A.O to exclude 26 IT(T.P)A Nos.441 & 442/Bang/2012 this company from the list of comparables for determining the ALP. It is ordered accordingly.

10.10.1 Ishir Infotech Ltd. : The assessee objected to the inclusion of this company on the ground of RPT at 22%. The CIT (Appeals) excluded from the list of comparables by applying the filter of RPT. 10.10.2 We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset we note that the RPT revenue earned by this company is 21.97% as stated by the TPO as well as by the CIT (Appeals). In view of our finding on this issue the RPT of this company exceeds the threshold limit of 15%. Accordingly this company fails the RPT filter and is directed to exclude from the list of comparables. 10.11.1 KALS Information Systems Ltd. (Seg.) : The assessee objected the inclusion of this company on the ground of functional dis-similarity and absence 27 IT(T.P)A Nos.441 & 442/Bang/2012 of segmental data. The CIT (Appeals) upheld the functional comparability of this company and inclusion of this company as comparable by the TPO. 10.11.2 Before us, the learned Authorised Representative has submitted that this company is not functionally comparable to the assessee as this company is a software product company. He has referred to Annual Report of this company and particularly the balance sheet and Profit & Loss Account and submitted that this company has shown inventories in the financial accounts and also shown the revenue earned from the sales, services and training. He further submitted that there is no segmentation of revenue available. He has relied upon the following decisions : CASES PERTAINING TO ASSTT. YEAR : 2007 – 08 TS-758-ITAT-2012(Bang)-TP, ITAT Bangalore)(AY-2007-08) Trilogy E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011, ITAT Bangalore) PTC Software (India) Pvt. Ltd. (ITA No. 1605/PN/2011, TS-149-ITAT- 2013(PUN)-TP, ITAT Pune)(AY 2007-08) CSR India Pvt. Ltd. {ITA No. 1119/Bang/2011, [2013] 31 taxmann.com 265 (Bangalore - Trib.), [TS-68-ITAT-2013(Bang)-TP]}, ITAT Bangalore(AY 2007-08) M/s. Huawei Technologies India Private Limited (IT(TP) A. No.583/Bang/2012) (AY 2007-08) Ariba technologies India Private Limited IT TP A No. 1179/Bang 2010 10.11.3 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that the functional 28 IT(T.P)A Nos.441 & 442/Bang/2012 comparability of this company has been examined by the TPO as well as by the CIT (Appeals) and therefore this company is found as a good comparable. 10.11.4 We have considered the rival submissions and the relevant material on record. At the outset we note that the functional comparability of this company has been examined by this Tribunal in assessee's own case for the Assessment Year 2006-07 wherein the Tribunal has held in paras 12 and 13 as under :

12. The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Triology E-Business Software India Pvt.Ltd.(supra): “(d) KALS Information Systems Ltd. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual repot, the salary cost debited under the software development expenditure was Q 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal’s decision of the ITAT in the case of Bindview India Private Limited Vs. DCI, No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: “16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds.

29 IT(T.P)A Nos.441 & 442/Bang/2012 Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limited should be rejected as a comparable. We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable.”

“(e) Accel Transmatic Ltd.

13. The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Triology E- Business Software India Pvt.Ltd. (supra). Respecfully following the decision of the Tribunal referred to above in the case of Triiology E-Business Software India Pvt.Ltd.(supra), we direct that KALS InfoSystems Ltd. And Accel Transmatic Ltd. be excluded from the list of 20 comparable arrived at by the TPO.”

10.11.5 We further note that the functional comparability of this company with that a similar view has been taken by this Tribunal in the said case as well as in other cases cited supra. Accordingly, by following the earlier decisions of this Tribunal and in view of the fact that the nature of functions and business which is the source of revenue of this company is software products and therefore this company cannot be a good comparable for determining the ALP.

31 IT(T.P)A Nos.441 & 442/Bang/2012 Accordingly, we direct the A.O./TPO to exclude this company from the list of comparables for the purpose of determining the ALP. 10.12 LGS Global Ltd. : The assessee did not object for the inclusion of this company either before the TPO or before this Tribunal. The CIT (Appeals) has excluded this company from the list of comparables on the ground of RPT filter applied at 0%. In view of our finding on the tolerance range of RPT in the case of assessee at 15%, we restore this company to the list of comparables for determining the ALP. Accordingly, the impugned order of the CIT (Appeals) is set aside to the extent of exclusion of this company and the order of the TPO is restored. 10.13.1 Lucid Software Ltd. : The assessee objected the inclusion of this company in the list of comparables on the ground of functional dis-similarity. The CIT (Appeals) has confirmed the inclusion of this company in the list of comparables and rejected the contention of the assessee. 10.13.2 Before us, the learned Authorised Representative has submitted that this company is a software product company. The company has debited the expenditure to the profit and loss account as work in progress. Further, this company has employed about 30% of total capital in product development expenditure as per the balance sheet. The learned Authorised Representative has pointed out that the Tribunal in assessee's own case for the Assessment 32 IT(T.P)A Nos.441 & 442/Bang/2012 Year 2006-07 has excluded this company from the list of comparables. He has relied upon the following decisions : CASES PERTAINING TO ASSTT. CASES PERTAINING TO OTHER YEAR : 2007– 08 ASSTT. YEARS CSR India Pvt. Ltd. {ITA No. M/s. Ariba Technologies India Private Limted (IT (TP) No. 1119/Bang/2011, [2013] 31 1179/Bang/2010) (AY 2006-07) taxmann.com 265 (Bangalore - Trib.), [TS-68-ITAT-2013(Bang)- TP]}, ITAT Bangalore(AY 2007-08) DE Shaw India Software Pvt Ltd (ITA No. 2071/Hyd/2011, [TS-348- ITAT-2013(HYD)-TP], ITAT Hyderabad) - THIS TRIBUNAL RULING HAS BEEN UPHELD BY THE HIGH COURT FOR THE STATE OF TELANGANA AND ANDHRA PRADESH - ITTA NO. 433 of 2014 DATED 22 JULY 2014 M/s. Huawei Technologies India Private Limited (IT(TP) A. No.583/Bang/2012) (AY 2007-08)

10.13.3 On the other hand, the learned Departmental Representative has submitted that the functional comparability of this company has been examined by the TPO as well as by the CIT (Appeals) and it was found that this company is functionally comparable with that of the assessee. He has relied upon the orders of the authorities below. 10.13.4 We have considered the rival submissions as well as the relevant material on record. At the outset we note that the functional comparability of 33 IT(T.P)A Nos.441 & 442/Bang/2012 this company has been examined by this Tribunal in assessee's own case for the Assessment Year 2006-07 wherein the Tribunal has held in paras 14 & 15 are as under :

14. The learned counsel for the Assessee brought to our notice that the comparable company chosen by the TPO viz., Lucid Software Limited, has to be excluded as functionally not comparable with that of the assessee in view of the decision of the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. in which was followed by the ITAT Bangalore Bench in the case of Logica Private Ltd. ITA No.1129/Bang/2011 for AY 07-08, wherein it was held as under:- “7.2 Lucid Software Limited It has been submitted before us that this company, besides doing software development services, is also involved in development of software product. The learned AR has tried to distinguish by pointing out that product development expenditure in this case is around 39% of the capital employed by the said company, and, therefore, such a company cannot be considered as tested party. Even as per the information received in response to notice under Section 133(6), the company has described its business as software development company or pure software development service provider. This information itself is very vague as the segmental details of operating revenue has not been made available to examine how much is the ratio of sale from software product and sale of software service and development. Looking to the fact that it has developed a software product named as “Muulam which is used for civil engineering structures and the product development expenditure itself is substantial vis-a-vis the capital employed by the said company, this criteria for being taken as comparable party, gets vitiated. For the purpose of comparability analysis, it is essential that the characteristics and the functions are by and large similar as that of the assessee company and T.P. analysis/study can be made with fewest and most reliable adjustment. If a company has employed heavy capital in development of a product then profitability in the sale of product would be entirely different from the company, who is involved in service sector. Therefore, this company cannot be treated as having same function and profitability ratio. In our view, due to non-availability of full information about the segmental details as to how much is the sale of product and how much is from the services, therefore, this entity cannot be taken into account for comparability analysis for determining arms length price in the case of the assessee.

34 IT(T.P)A Nos.441 & 442/Bang/2012 ……… ……… 15. The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Logica Private Ltd., (supra). Respectfully following the decision of the Tribunal referred to above in the case of Logica Pvt. Ltd..(supra), we direct that the company viz., Lucid Software be excluded from the list of 20 comparable arrived at by the TPO.”

Similar view has been taken by the co-ordinate benches of this Tribunal in the other cases cited supra. Accordingly, following the earlier orders of this Tribunal in assessee's own case for the Assessment Year 2006-07 as well as in the other cases, we direct the A.O./TPO to exclude this company from the list of comparables to determine the ALP. 10.14 Mediasoft Solutions Ltd. : The assessee did not object the inclusion of this company in the list of comparables. However, the CIT (Appeals) has excluded this company from the list of comparables on functional dis-similarity. Since neither the assessee nor the revenue contested against the exclusion or inclusion of this company, therefore, no specific finding is required in respect of this company and the finding of the CIT (Appeals) is upheld. 10.15.1 Megasoft Ltd. : The assessee objected the inclusion of this company on the ground of functional dis-similarity as well as different financial year followed by this company. The CIT (Appeals) has excluded this company on the ground of RP{T as well as functional dis-similarity.

35 IT(T.P)A Nos.441 & 442/Bang/2012 10.15.2 Before us, the learned Authorised Representative has submitted that there is an extra ordinary event during the year under consideration as there is an amalgamation of this company. Further this company follows a different financial year ending and therefore, the financial results are not contemporaneous and cannot be compared with assessee. In support of his contention, he has relied upon the following decisions : CASES PERTAINING TO ASSTT. YEAR : 2007 – 08 • Trilogy E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011, ITAT Bangalore). • Huawei Technologies India Pvt. Ltd. (ITA No. 583/Bang/2012, AY 2207-08)

10.15.3 On the other hand, the learned Departmental Representative has submitted that the alleged extra ordinary event has not affected the business model or functions of this company, therefore, the same itself cannot be a reason for exclusion of this company from the list of comparables. He has relied upon the order of the TPO. 10.15.4 We have considered the rival submissions. At the outset, we note that the comparability of this company has been examined by the co-ordinate bench of this Tribunal in the case of Triology E-Business Software India Pvt. Ltd. (supra). In the subsequent decision in the case of Huawei Technologies 36 IT(T.P)A Nos.441 & 442/Bang/2012 India Pvt. Ltd. (supra), the Tribunal has again examined the functional comparability of this company in paras 26 & 27 as under :- “ 26. As far as Sl.No.24 viz., Megasoft Ltd. of the list of comparables chosen by the TPO given in the chart at para-12 of this order is concerned, this Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) had held that only segmental data should be taken for the purpose of comparison. Following are the relevant observations of the Tribunal:- “37. The next plea of the Assessee is that if at all this company is considered as a comparable then the segmental margin of 23.11% (which is the margin for software service segment) alone should be considered for comparability. On the above submission, we find that the TPO considered the segmental margin (Software service segment) in the case of Geometric, Kals Info systems, R Systems, Sasken Communication and Tata Elxsi. Before DRP the Assessee pointed out that the segmental margin of 23.11% alone should be taken for comparability. The DRP has not given any specific finding on the above plea of the Assessee. Perusal of the order of the TPO shows that the TPO relied on information which was given by this company in which this company had explained that it has two divisions viz., BLUEALLY DIVISION and XIUS-BCGI DIVISION. Xius-BCGI Division does the business of product software (developing software). This company develops packaged products for the wireless and convergent telecom industry. These products are sold as packaged products to customers. While implementing these standardized products, customers may request the company to customize products or reconfigure products to fit into their business environment. Thereupon the company takes up the job of customizing the packaged software. The company also explained that 30 to 40% of the product software (software developed) would constitute packaged product and around 50% to 60% would constitute customized capabilities and expenses related to travelling, boarding and lodging expense. Based on the above reply, the TPO proceeded to hold that the comparable company was mainly into customization of software products developed (which was akin to software development) internally and that the portion of the revenue from development of software sold and used for customization was less than 25% of the overall revenues. The TPO therefore held that less than 25% of the revenues of the comparable are from software products and therefore the 37 IT(T.P)A Nos.441 & 442/Bang/2012 comparable satisfied TPO’s filter of more than 75% of revenues from software development services. Having drawn the above conclusion, the TPO did not bother to quantify the revenues which can be attributed to software product development and software development service but adopted the margin of this company at the entity level. In terms of Rule 10B(3)(b) of the Rules, an uncontrolled transaction shall be comparable to an international transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences.

10.20.3 On the other hand, the learned Departmental Representative has relied upon the order of the TPO and submitted that the predominant activity of this company is software development services and therefore this company is functionally comparable. 10.20.4 Having considered the rival submissions and relevant material on record, we note that this company is not in the activity of pure software development services but engaged in the diversified product development which includes multi media and Imaging process. Further this company is also engaged in the activities such as hardware design, engineering design and mutual computing. Therefore in view of the diversified activities as mentioned above, we find that this company is not comparable with the software development services provider like assessee. Identical issue has been considered by this Tribunal in assessee's own case for the Assessment Year 2006-07 in paras 17 & 18 as under :

17. As far as comparable company chosen by the TPO viz., Tata Elxsi Ltd., is concerned, the comparability of the aforesaid company with that of the software service provider such as the Assessee was considered by the Mumbai Bench of this Tribunal in the case of Logica Pvt. Ltd. IT (TP) 1129/Bang/2011 AY 07-08) wherein on the comparability of the aforesaid company, the Tribunal held as follows:- “14. As far as comparable at Sl.No.6 & 24 are concerned, the comparability of the aforesaid two companies with that of the software service provider was considered by the Mumbai 42 IT(T.P)A Nos.441 & 442/Bang/2012 Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. (supra) wherein on the aforesaid two companies, the Tribunal held as follows:- “7.7.Tata Elxsi Limited.: From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services, which is entirely different from the assessee company. We agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company fit for comparability analysis for determining the arms length price for the assessee, hence, should be excluded from the list of comparable parties.

15. In view of the above, the ld. counsel for the assessee fairly admitted that comparable company at Sl.No.6 viz., Flextronics Software Systems Pvt. Ltd. should be taken as a comparable, while comparable at Sl.No.24 viz., Tata Elxsi Ltd. should be rejected as a comparable.”

43 IT(T.P)A Nos.441 & 442/Bang/2012 10.21.2 We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset, we note that when the assessee did not raise any objection against the inclusion of this company by the TPO either in the proceedings before the TPO or before the CIT (Appeals), then, without seeking the leave of the Tribunal to raise a new plea/ground, the assessee cannot be permitted to raise this issue in the present appeal. Since there is no finding of the authorities below on the functional comparability of this company as the assessee did not raise any objection, therefore, in the absence of additional ground raised by the assessee and further in the absence of any leave of the Tribunal to raise such ground, this objection of the assessee is rejected. Since this company was excluded by the CIT (Appeals) on the ground of 0% RPT filter. Therefore, in view of our finding on the proper RPT filter at 15%, this company having only 9.9% RPT, is retored to the list of comparables. 10.22.1 Wipro Ltd. : This company was selected by the TPO and included in the list of comparables. The assessee objected the inclusion of this company on the ground of functional dis-similarity. The CIT (Appeals) excluded this company on 0% RPT filter as well as functional dis-similarity. 10.22.2 Before us, the learned Authorised Representative of the assessee submitted that this company cannot be compared with the assessee as it has 44. IT(T.P)A Nos.441 & 442/Bang/2012 made significant investment in the business acquisition. He has referred the relevant part of the Annual Report and submitted that this company has reported a huge investment in acquisition of the business. This company is also engaged in the business of innovation, technology innovation, process innovation and delivery innovation. It also earns about 8% of its revenue from innovation activity and also having more than 13 engineering patents, enterprises, business and quality. This company has 55 centres of excellence and 30 innovation products. It has also set up a handset mobile tested lab and engaged in R&D activity. Thus this company cannot be compared with the assessee. He has relied upon the following decision : CASES PERTAINING TO ASSTT. YEAR : 2007 -

08. Systech Integrators India Pvt Ltd (ITA No. 1283/Bang/2012, [TS-82-ITAT-2014(BANG)-TP], [2014] 44 taxmann.com 324 (Bang-Trib), [2014]

31. ITR(T) 697 (Bang-Trib), (ITAT Bangalore)

10.22.3 On the other hand, learned Departmental Representative has submitted that when the TPO has considered ITES segment of this segment than the other activity of this company are not relevant for determining the ALP. Thus he has submitted that this company is engaged in the similar activities and therefore is a good comparable. He has relied upon the order of the TPO.

45 IT(T.P)A Nos.441 & 442/Bang/2012 10.23.4 We have considered the rival submissions and the relevant material on record. The assessee objected to the inclusion of this company in the list of comparables on the ground that it fails the R&D filter as well as the functional dis-similarity. The CIT (Appeals) excluded this company from the list of comparables as it was found functionally dissimilar to the assessee. There is no dispute that this company is having significant investment in acquiring new business and also engaged in the R&D activities. Therefore this company is having huge brand value as well as bargaining power in comparison to the other companies who are engaged in the software services providing activity. The comparability of this company was also considered by the Hon'ble Delhi High Court in the case of Agnity India Technology Pvt. Ltd. and the Hon'ble High Court while confirming the finding of the Tribunal has observed that since this company is having the brand value and bargaining power, therefore, cannot be compared with the companies which are not having brand value and working only as captive service provider. Thus in view of the fact that this company is having various patents across product engineering, enterprise business and quality, this company cannot be considered as a good comparable of the assessee for the purpose of determining the ALP. Hence we direct the Assessing Officer / TPO to exclude this company from the list of comparables.

46 IT(T.P)A Nos.441 & 442/Bang/2012 10.23.5 Since we have directed the inclusion and exclusion of certain companies from the list of comparables, therefore, the TPO is directed to recompute the ALP on the basis of the remaining comparables and also consider the benefit of tolerance range of +5% to -5% as per the proviso to section 92C. I T E S (Segment) 11. As it has been mentioned in the foregoing paragraphs that the assessee is engaged in providing services to its parent company under two segments i.e. software development services and Information Technology Enabled Services with respect to products of Ariba based on the agreement for software development services and ITES respectively. The assessee operating margin in ITES is 19%. To bench mark its International Transactions in ITES segment the assessee has selected 12 comparables as under :-

Without Adjs. Mark up on Sl. No Comparable Company Total Cost (after WC) % Ace Software Exports Ltd. - 8.12 1. 2. Ask Me Info Hubs Ltd. 3.98 3. C S Software Enterprise Ltd. 15.83 4. Cosmic Global Ltd. 9.64 5. Maple Esolutions Ltd. 29.16 Aditya Birla Minacs 10.32 6. Worlwide Ltd (Earlier 47 IT(T.P)A Nos.441 & 442/Bang/2012 Without Adjs. Mark up on Sl. No Comparable Company Total Cost (after WC) % Transworks Information Services Ltd.) 7. Triton Corp Ltd. 25.07 8. Galaxy Commercial Ltd 11.47 9. C M C Ltd 30.78 10. DatamaticsSoftworld Pvt. Ltd 3.85 11. Goldstone Teleservices Ltd -67.94 National Securities 29.17 12. Depository Ltd Mean Margin 7.77% The assessee has computed the mean margin of these comparables being OP/TC at 7.77% and claimed that the assessee's international transaction is at arm’s length having margin of 19%. The TPO rejected the 9 of the comparables selected by the assessee in its Transfer Pricing analysis except the four companies which are at S.Nos.4, 5, 6 & 7 as under :- Without Adjs. Mark up on Comparable Company Total Cost (after WC) % Cosmic Global Ltd. 9.64 Maple Esolutions Ltd. 29.16 Aditya Birla Minacs 10.32 Worlwide Ltd (Earlier Transworks Information Services Ltd.) Triton Corp Ltd. 25.07 48 IT(T.P)A Nos.441 & 442/Bang/2012 Before the TPO/A.O., the assessee has also submitted the additional comparables as under :- Sl. Without Adjs. Mark up on Comparable Company Total Cost (after WC) % No. Cameo Corporate Services --

1. 1. Ltd.

2. Sparsh BPO Services Ltd. -- Nittany Outsourcing -- 3. Services Ltd. Out of these additional comparables submitted by the assessee, the TPO accepted the only one namely Nittany Outsourcing Services Pvt. Ltd. The TPO carried out fresh search and selected 27 companies in the set of comparables inclusive of three in the original set of comparables selected by the assessee and one from the additional comparables submitted before the TPO by the assessee. The set of comparables selected by the TPO are as under :- Sl.No. OP to Total Cost OP to Total Cost % as per TP % after exclusions Comparable Company Order of comparables as Name urged before ITAT.

1. Accentia Technologies 25.43 25.43 Limited 49 IT(T.P)A Nos.441 & 442/Bang/2012 2. Aditya Birla Minacs 10.37 10.37 Worldwide Limited (Transworks Information Services Ltd) 3. AllSec Technologies 24.99 24.99 Limited 4. Apex Knowledge Solutions 12.38 12.38 Limited 5. Apollo Health Street -22.62 -22.62 Limited 6. Asit C Mehta Financial 22.08 22.08 Services Limited 7. Bodhtree Consulting Ltd. 28.86 0.00 (Seg) 8. Caliber Point Business 19.51 0.00 Solutions Ltd 9. Cosmic Global Ltd 10.70 10.70 (Tulsyan Technologies Ltd) 10. Datamatics Financial 3.66 3.66 Services Limited (Seg) 11. Eclerx Services Ltd. 85.22 0.00 12. Flextronics Software 5.42 0.00 Systems Limited (Seg) 13. Genesys International 7.90 7.90 Corporation Ltd HCL Comnet 14. 43.28 0.00 15. ICRA Techno Analytics 10.78 10.78 Ltd (Seg) Informed Technologies Ltd 34.07 16. 0.00 17. Infosys BPO Ltd 27.90 0.00 50 IT(T.P)A Nos.441 & 442/Bang/2012 18. IServices India Ltd 47.80 47.80 19. Maple E Solutions Limited 29.48 29.48 20. Mold-Tek Technologies 114.25 0.00 Ltd R Systems International 21. 17.63 17.63 limited (Seg) 22. Spanco Limited (Seg) 18.94 18.94 Triton Corp Limited 23. 26.93 26.93 24. Vishal Information 41.57 0.00 Technologies Wipro Ltd (Seg) 25. 29.42 0.00 26. Nittany outsourcing 9.87 9.87 Services Pvt Ltd. Accurate Data Converters 27. 47.37 47.37 Ltd Arithmetic Mean Mark up of 26.92 17.49 Comparables after Working Capital Adjustment of 0.24% as determined by the TPO Assessee's Margin 18.66 Thus the TPO has arrived at Arithmetic Mean (AM) of the comparables after working capital adjustment of o.24% at 26.92% in comparison to the assessee's margin taken by the TPO at 18.66%.

57 IT(T.P)A Nos.441 & 442/Bang/2012 Before us, the learned Authorised Representative of the assessee has submitted that this company fails the RPT filter of more than 15% as this company has shown/reported 23% RPT. Therefore, this company should be excluded from the list of comparables. On the other hand, the learned Departmental Representative has submitted that the CIT (Appeals) as well as the TPO/A.O has reported only 13.69% RPT and therefore this company does not fail the filter of 15% RPT. We have considered the rival submissions as well as the relevant material on record. We note that the TPO/A.O as well as the CIT (Appeals) has mentioned the RPT of this company at 13.69%. therefore the claim of having more than 15% RPT is disputed by the revenue. We further note that th erelevnat record has not been produced before us to show that the company has earned the revenue of more than 15% from RPT as claimed by the assessee as 23%. In the absence of relevant record, even the issue of functional comparability cannot be decided. Accordingly, in view of the facts and circumstances of the case when the relevant record has not been produced before us in support of the rival claims of the parties the comparability of this company is set aside to the record of the A.O./TPO for considering the objection of the assessee regarding RPT as well as functional dis-similarity on account of R&D activity as well as other functions of this company.

58 IT(T.P)A Nos.441 & 442/Bang/2012 (ix) Caliber Point Business Solutions Ltd. (Seg.) : This company was part of the T.P. analysis of the assessee and also selected by the TPO/A.O. The CIT (Appeals) has also retained this company as a good comparable. The assessee did not object against this company. Accordingly, the comparability of this company is not in dispute before this Tribunal. (x) Datamatics Financial Services Ltd. (Seg.) : This company was selected by the TPO/A.O but was not objected by the assessee either before the TPO/A.O or before the CIT(A), even not before this Tribunal. However, the CIT (Appeals) excluded this company by applying 0% RPT filter. In view of our finding of proper RPT tolerance range at 15%, this company is restored back to the set of comparables having only 7.88% RPT. (xi) Eclerx Services Ltd. : This company was included by the TPO in the list of comparable. The assessee objected to this company on the ground of functional dis-similarity. The CIT (Appeals) has excluded this company on the ground of RPT that this company is having only 9.12% RPT. Therefore in view of our finding on RPT filter, the comparability of this company has to be decided on basis of functional similarity or dis-similarity. The ld. AR submitted that this company is rendering services like engineering, designing services which requires highly skilled employees. Thus, this company cannot be selected as comparable because their functions are different. He has relied upon the decision of Special Bench of Mumbai Tribunal in the case of Maersk Global Centres (India ) (P) Ltd V/s ACIT 147 ITD 83 and submitted that this company is rendering highly skilled services 59 IT(T.P)A Nos.441 & 442/Bang/2012 and cannot be compared with the service of ITES and accordingly, this company should be deleted from the set of comparables On the other hand, the ld. DR has relied upon the orders of authorities below and submitted that the TPO has considered the functional comparability at the time of selecting this company . We have considered the rival submissions and relevant record. At the out set, we note that the comparability of M/s Eclerx Services Ltd. has been examined by the Special Bench of the Tribunal in the case of Maersk Global Centres (India ) (P) Ltd (supra) in para 82 and 83 as under : “82. In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007- 08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is 60 IT(T.P)A Nos.441 & 442/Bang/2012 claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns.

As discussed by the Special Bench in the case of Maersk Global Centres (India ) (P) Ltd (supra), this company provides data analysis and data process solution and is recognised as experts in chosen market financial services, retail and manufacturing. It was found to have being providing complete business solutions. The nature and different field of services provided by this company clearly show that it is not functionally comparable with the software development services. Accordingly, we direct the TPO/AO to exclude this company from the set of comparables. (xii) Flextronics Software : This company was selected by the TPO/A.O. However, the assessee objected the inclusion of this company in the list of 61 IT(T.P)A Nos.441 & 442/Bang/2012 comparable as it fails R&D filter and also having ITES segment. The CIT (Appeals) excluded this company by accepting the contention of the assessee on R&D filter as well as ITES segment. We have heard the learned Departmental Representative as well as learned Authorised Representative. Ld. D R has relied upon the order of the TPO/A.O and submitted that the TPO has examined the the functional similarity of this company. At the outset, we note that the functional comparability of this company has been examined by this Tribunal in a number of decisions. The learned Authorised Representative has relied upon the decision of the Hyderabad Benches of Tribunal Dt.27.11.2013 in case of DE Shaw India Software Pvt. Ltd. Vs. ACIT wherein the Tribunal has held in para 27 as under :- “27. Flextronics Software Ltd. and Thirdware Software Solutions Ltd. : The assessee has objected to these two companies to be treated as comparable mainly on the ground that both these companies are into product development. We find that in case of Intoto Software India Pvtg. Ltd. (supra) the co-ordinate bench of this Tribunal having found that these two companies are functionally different as they are into product development has directed excluding these companies for comparability analysis. Respectfully following the decision of the co-ordinate bench of this Tribunal incase of M/s. Intoto Software India Pvt. Ltd. (supra) we also direct the Assessing Officer / TPO to exclude both these companies.”

Thus it is found by the Tribunal in a series of decisions that this company is into product development which is not comparable with the assessee of pure ITES 62 IT(T.P)A Nos.441 & 442/Bang/2012 segment. Accordingly, we do not find any error or illegality in the order of the CIT (Appeals) in excluding this company. (xiii) Genesys International Corporation Ltd. : This company was selected by the TPO/A.O but was not objected by the assessee either before the TPO/A.O or before the CIT(A) even not before this Tribunal. However, the CIT (Appeals) excluded this company by applying 0% RPT filter. In view of our finding of proper RPT tolerance range this company having 5.84% RPT is restored back to the set of comparables. (xiv) HCL Comnet : This company was selected by the TPO/A.O though the assessee did not contest the inclusion of this company either before the TPO/A.O or before the CIT (Appeals). However, the CIT (Appeals) excluded this company on RPT filter. We find that the RPT revenue of this company is 21.52%. Therefore this company fails RPT filter of 15% and accordingly, we upheld the exclusion of this company from the list of comparables. (xv) I C R A Techno Analytics Ltd. (Seg.) : This company was selected by the TPO/A.O but was not objected by the assessee either before the TPO/A.O or before the CIT(A) even not before this Tribunal. However, the CIT (Appeals) excluded this company by applying 0% RPT filter. In view of our finding of proper RPT tolerance range this company having RPT at 1.85% is restored back to the set of comparables.

63 IT(T.P)A Nos.441 & 442/Bang/2012 (xvi) Informed Technologies Ltd. : This company was selected by the TPO/A.O and the assessee did not contest the inclusion of this company either before the TPO/A.O or before the CIT (Appeals). However, the CIT (Appeals) excluded this company on RPT filter. We find that the RPT revenue of this company is 15.93%. Therefore this company fails RPT filter of 15% and accordingly, we upheld the exclusion of this company from the list of comparables. (xvii) Infosys BPO Ltd. : This company was selected by the TPO and included in the list of comparables. The assessee objected against inclusion of this company in the set of comparables before the CIT (Appeals) on the ground of functional dis-similarity. The CIT (Appeals) has excluded this company on the ground of 0% RPT filter. Before us, the learned Authorised Representative of the assessee has submitted that the assessee had opposed inclusion of this comparable before the TPO on the ground that this company has substantial intangible assets, profits earned predominantly due to brand value and has large focus on R&D apart from substantial selling and marketing expenses. This company has a finance BPO and there is no sub-segment in the ITES segment. The learned Authorised Representative has referred to the Annual Report of this company and submitted that this company has brands and intangibles having diversified 64 IT(T.P)A Nos.441 & 442/Bang/2012 operations at large scale. Further this company is engaged in the development of mixed products like Finacle. This company is carrying out a large scale R&D activities and therefore cannot be considered as a good comparable with the assessee. The learned Authorised Representative has relied upon the following decisions :- CASES PERTAINING TO ASSTT. CASES PERTAINING TO OTHER YEAR : 2006 - 07 ASSTT. YEARS Cypress Semiconductor technology Triology E –Business Software India Private Limited IT (TP) A No India Pvt. Ltd vs. DCIT 2010 1054/BANG/2012 (AY : 2007-08) Agnity India Technologies Pvt Ltd 24/7customer.com vs DCIT (AY : ITA No. 3856(Del ITAT)/2010 (AY 2004-05) 2006-07) ITA No.227/Bang/2010 Agnity India Technologies P. Ltd. Adaptec India Private Limited (AY : (ITA No. 1204/2011)(Del HC) 2007-08) ITA No. 1801/Hyd/09. Misys Software Solutions India Mercedes Benz R & D India Pvt. Private Limited – IT(TP) A Ltd. (AY : 2007-08) ITA No. No.1425/Bang/2010 – Turnover 1222/Bang/2011. Verisign Services India Private CSR India Pvt. Ltd. (AY : 2007-08) Limited IT(TP)A No 1404 bang ITA No. 1119/Bang/2011, [2013] 2010 – Turnover Thoughtworks Technologies Witness Systems Software India (India)Private Limited- IT(TP)A Pvt Ltd (AY : 2007-08) ITA No. No.1326/Bang/2010 - Turnover 1366/Bang/2011. FOR CASES INVOLVING JOINT OPERATION, LARGE INTANGIBLES, HIGH BRAND VALUE, RISK BEARING & HIGH PROFIT MARGIN CASES Agnity India Technologies Pvt Ltd ITA No. 3856(Del)/2010], ITAT Delhi" This ruling has been upheld by the High Court 65 IT(T.P)A Nos.441 & 442/Bang/2012 (ITA No. 1204/2011, dated July 2013). Scale of operation, brand value etc. NTT Data India Enterprise Application Services Pvt. Ltd. [ITA No. 1612/Hyd/2010.] Motorola India Electronics Private Limited vs. ACIT ITA No. 1274 & 1413/Bang/2008. Logica Pvt. Ltd. Vs ACIT (ITA No. 1129/Bang/2011 On the other hand, the learned Departmental Representative has relied upon the orders of the TPO and submitted that when this company is in the business of ITES then it is functionally comparable with that of the assessee. The assessee did not object the inclusion of this company in the list of comparables before the TPO. We have considered the rival submissions as well as the relevant material on record. The contention of the ld. A.R. of the Assessee is that if at all this company is considered as a comparable then the segmental margin of 23.11% (which is the margin for software service segment) alone should be considered for comparability. On the above submission, we find that the TPO considered the segmental margin (Software service segment) in the case of Geometric, Kals Info systems, R Systems, Sasken Communication and Tata Elxsi. Before DRP the Assessee pointed out that the segmental margin of 23.11% alone should be taken for comparability. The DRP has not given any specific finding on the above plea of the Assessee. Perusal of the order of the TPO shows that the TPO relied on information which was given by this company in which this company had explained that it has two divisions viz., BLUEALLY DIVISION and XIUS-BCGI DIVISION. Xius-BCGI Division does the business of 66 IT(T.P)A Nos.441 & 442/Bang/2012 product software (developing software). This company develops packaged products for the wireless and convergent telecom industry. These products are sold as packaged products to customers. While implementing these standardized products, customers may request the company to customize products or reconfigure products to fit into their business environment. Thereupon the company takes up the job of customizing the packaged software. The company also explained that 30 to 40% of the product software (software developed) would constitute packaged product and around 50% to 60% would constitute customized capabilities and expenses related to travelling, boarding and lodging expense. Based on the above reply, the TPO proceeded to hold that the comparable company was mainly into customization of software products developed (which was akin to software development) internally and that the portion of the revenue from development of software sold and used for customization was less than 25% of the overall revenues. The TPO therefore held that less than 25% of the revenues of the comparable are from software products and therefore the comparable satisfied TPO’s filter of more than 75% of revenues from software development services. Having drawn the above conclusion, the TPO did not bother to quantify the revenues which can be attributed to software product development and software development service but adopted the margin of this company at the entity level. In terms of Rule 10B(3)(b) of the Rules, an uncontrolled transaction shall be comparable to an international transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences.

67 IT(T.P)A Nos.441 & 442/Bang/2012 Neither the TPO nor the DRP have noticed that there is bound to be a difference between the Assessee and Megasoft and the profit arising to the Megasoft as a result of the existence of the software product segment and no finding has been given that reasonably accurate adjustments can be made to eliminate the material effects of such differences. For this reason, we are inclined to hold that the profit margin of 23.11% which is the margin of the software service segment be taken for comparability. In view of the above conclusion, we do not wish to go into the question as to whether less than 25% of the revenues of the comparable are from software products and therefore the comparable satisfied TPO’s filter of more than 75% of revenues from software development services. Thus it was found that this company is functionally dis-similar to the ITES service provider company as it provides end to end solutions in technical consultancy, design, development, re-engineering, maintenance, system 68 IT(T.P)A Nos.441 & 442/Bang/2012 integration and implementation. This company also generates revenue from the software products and has huge intangible assets. In view of the above facts and circumstances as discussed above, this company is functionally not comparable with that of the assessee. Accordingly, we direct the A.O./TPO to exclude this company. A similar view has been taken by the co-ordinate benches of this Tribunal in the cases relied upon by the assessee and cited supra. (xviii) I Services India Ltd. : This company was selected by the TPO/A.O and assessee did not contest the inclusion of this company in the list of comparables. Even before the CIT (Appeals) as well as before this Tribunal, the assessee has not contested against the inclusion of this company. The CIT (Appeals) has retained this company as a good comparable. Therefore no specific adjudication or finding was sought in respect of this company either by the assessee or by the revenue. (xix) Maple ESolutionsLtd. : This company was selected by the TPO/A.O and assessee did not contest the inclusion of this company in the list of comparables. Even before the CIT (Appeals) as well as before this Tribunal, the assessee has not contested against the inclusion of this company. The CIT (Appeals) has retained this company as a good comparable. Therefore no 69 IT(T.P)A Nos.441 & 442/Bang/2012 specific adjudication or finding was sought in respect of this company either by the assessee or by the revenue. (xx) Mold Tek Technologies Ltd. (Seg.) : This company was selected by the TPO and included in the list of comparables. The assessee objected to the inclusion of this company in the list of comparables before the TPO as well as before the CIT (Appeals) on the ground of functional dissimilarity and super normal growth. The CIT (Appeals) has excluded this company form the list of comparables by applying 0% RPT as well as on functional dissimilarity. Before us, the learned Authorised Representative of the assessee has submitted that this company is into engineering services being in the nature of producing design, drawings, detailed structure of engineering drawings using 2D and 3D software. These services are high end in nature and cannot be compared with the software development services provided by the assessee. There is also super normal growth of 200% in this segment. In support of his contention, he has relied upon the following decisions :- CASES PERTAINING TO ASSTT. YEAR Market Tools Research Pvt. Ltd. (ITA No. 2066/Hyd/2011. Capital IQ Information Systems (India) Pvt Ltd. Knoah Solutions Pvt Ltd (ITA No.1407/Hyd/2013 70 IT(T.P)A Nos.441 & 442/Bang/2012 On the other hand, the learned Departmental Representative has submitted that this company is in ITES and the CIT (Appeals) has excluded this company by holding that this company is a KPO and not a BPO. However, mere nomenclature of KPO and BPO cannot be a ground for inclusion or exclusion of a company in this list of comparables without examining the actual functions performed by the company. We have heard the rival submissions and the relevant material on record. We find that this company is providing highly technical and specialized engineering services. The functional comparability has been examined by the Special Bench of the Tribunal in the case of Maersk Globle Solution Vs. ACIT 147 ITD 83 and it was held that this company cannot be compared with an ordinary ITES. The assessee before us is providing only back office support to the parent company. Therefore, Mold-tek Technology is engaged in producing design, drawing and structural engineering drawings of 2D and 3D software cannot be compared with the assessee. Accordingly, we do not find any reason to interfere with the order of the CIT (Appeals) in treating this company functionally different. A similar view has been taken by the co-ordinate bench of this Tribunal in the case relied upon by the assessee. (xxi) R Systems International Ltd. (Seg.) : This company was selected by the TPO/A.O but was not objected by the assessee either before the TPO/A.O 71 IT(T.P)A Nos.441 & 442/Bang/2012 or before the CIT(A) even not before this Tribunal. However, the CIT (Appeals) excluded this company by applying 0% RPT filter. In view of our finding of proper RPT tolerance range at 15%, this company having 0.58 % of RPT is restored back to the set of comparables. (xxii) Spanco Systems Ltd. : This company was selected by the TPO/A.O but was not objected by the assessee either before the TPO/A.O or before the CIT(A) even not before this Tribunal. However, the CIT (Appeals) excluded this company by applying 0% RPT filter. In view of our finding of proper RPT tolerance range at 15%, this company having only 5.03% of RPT is restored back to the set of comparables. (xxiii) Triton Corp Ltd. : This company was selected by the TPO/A.O and the assessee did not contest the inclusion of this company in the list of comparables. Even before the CIT (Appeals) as well as before this Tribunal, the assessee has not contested against the inclusion of this company. The CIT (Appeals) has retained this company as a good comparable. Therefore no specific adjudication or finding was sought in respect of this company either by the assessee or by the revenue. (xxiv) Vishal Information Technologies Ltd. : This company was selected by the TPO and included in the list of comparables. The assessee objected against the inclusion of this company in the list of comparables on the ground that it fails 72 IT(T.P)A Nos.441 & 442/Bang/2012 R&D filter as well as functional dissimilarity. The assessee has also contested the inclusion of this company before the CIT (Appeals). However, the CIT (Appeals) has retained this company in the list of comparables. Before us, the learned Authorised Representative of the assessee has submitted that this company is functionally dissimilar to the assessee as this company is engaged in providing services by way of outsourcing services to the third party vendors. He has referred the relevant part of the Annual Report and submitted that the job work expenditure is significant which shows that this company is outsourcing the services to third party and therefore this company cannot be considered as a good comparable. The learned Authorised Representative has further pointed out that for the Assessment Year 2006-07, this Tribunal has held that this company cannot be considered as a good comparable. He has also relied upon the decisions as under : Zavata India Private Limited (ITA No. 1781/Hyd/2011, TS-156-ITAT-2013(HYD)-TP, ITAT Hyderabad) Capital IQ Information Systems (India) Pvt Ltd- 2007-08. Cognizant Technology Services Pvt. Ltd. [ITA Nos. 2106/Hyd/2011 (AY 2007-08) and 1864/Hyd/2012 (AY 2008-09), TS-140-ITAT- 2013(HYD)-TP] Avineon India Pvt Ltd [ITA No. 1989/Hyd/2011, (TS-308-ITAT-2013(Hyd)-TP)], ITAT Hyderabad)

73 IT(T.P)A Nos.441 & 442/Bang/2012 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that as far as the functions of this company is concerned, it is very much similar to that of the assessee in providing ITES services. We have heard the rival submissions and the relevant material on record. We find that salary and wages expenditure of this company is very minimal at 2.3% of total revenue which shows that this company outsources the services to third parties. This fact is also reflected in the Annual Report and profit and loss account wherein the job work expenditure is substantial under the head ‘Data Entry Charges’ and vendor payment. Therefore, there is no dispute as regards the business model of this company is not different from the Assessment Year 2006-07 and 2007-08. Rather the outsourcing service charges are increased during the year to Rs.13,12,00,000 from Rs.11,49,00,000 in the earlier year. This Tribunal in the assessee's own case for Assessment Year 2006-07 has held in paras 24 to 25 as under : “ 24. We have considered the rival submissions. As far as comparable companies chosen by the TPO at S.No.1,3,6,7 & 8 viz., Maple ESolution Ltd., Datamatics Financial Services Ltd., Vishal Information Technological Services Ltd., Asit C.Mehta Financial Services Ltd., and Gold Stone Infratech Ltd., in the list of comparable companies chosen by the TPO, we find that the Hyderbad Bench of the ITAT in the case of HSBC Electronic Data Processing India Ltd. Vs. ACIT, by order darted 28.6.2013 considered comparability of these companies in the case of a company engaged in rendering IT enabled services to its AE similar to that of the Assessee in the present case. The tribunal held that 74 IT(T.P)A Nos.441 & 442/Bang/2012 the aforesaid companies are not comparable. The following were the relevant observations of the Tribunal. "8. The first objection is with reference to selection of comparable data by the TPO with reference to the following five companies- (a) Vishal Information Technologies Ltd. (b) Goldstone Infratech Ltd. (c) Datamatic Financial Services Ltd.(seg) (d) Maple e-Solutions Ltd. (e) Nucleus Netsoft & GIS(India) Ltd. (now known as (Asit C. Mehta Financial Services Ltd.) Vishal Information Technologies Ltd.

9. The assessee’s objection with reference to inclusion of this comparable is on the reason that the company is functionally different, also does not satisfy the filters such as employee cost and on-site revenue filter. It was submitted that employee cost forms a major portion of the total cost of BPO services and in the assessee’s case employee cost is 62% of the total cost, whereas in the selected company the employee cost is less than 2%, which indicates that most of the work was outsourced and the out-sourcing cost was at 88.64% of the operating cost. It was further submitted that the ITAT Bangalore in the case of First Advantage Off-shore Services (ITA No.1252/Bang/2010) has directed to use employee turnover filter in a consistent manner for selection of comparables and in the case of Maersk Global Services Centre (India) Pvt. Ltd. (14 ITR(Trib) 541) the Mumbai Bench of the Tribunal has analysed and rejected this company as comparable for the reason that it has outsourced a considerable portion of it’s business and is functionally different. Moreover, it was also submitted that the DRP in the later year of 2008-09 vide its order dated 3.8.2012 has rejected this company as a comparable (name changed to Coral Hub Ltd.), vide para 18 of the order, wherein ultimately, it was decided that there is major difference in functionality and the business model and the DRP Bench was of the view that Coral Hub (formerly known as Vishal Information Technology Ltd.) was not a suitable comparable and needs to be dropped from the final set of comparables. Based on the above submissions, it was submitted that this company cannot be used as a comparable and has to be excluded. 9.1. The learned Departmental Representative, however relied on the orders of the TPO.

75 IT(T.P)A Nos.441 & 442/Bang/2012 9.2. After considering the rival contentions, we find considerable force in the contentions advanced by the learned counsel. There is no dispute with reference to the fact that most of the cost incurred by the company taken as comparable is outsourcing cost, as can be seen from the Annual report placed in the paper-book and ITAT, Mumbai in the case of Maersk Global Service Centre (supra) has analysed and rejected this company as comparable, due to the reason that it has outsourced a considerable portion of its business and it is functionally different. This factor was also approved by the DRP in assessee’s own case in the later year, as can be seen from the copy of the order placed on record, for assessment year 2008-09. In view of this, we direct the Assessing Officer to exclude this company from the list of comparables. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 14. In view of the foregoing discussion, we agree with the assessee’s objection that the above five comparables should be excluded.

On the other hand, learned Departmental Representative has submitted that when the TPO has considered ITES segment of this company than the other 77 IT(T.P)A Nos.441 & 442/Bang/2012 activity of this company are not relevant for determining the ALP. Thus he has submitted that this company is engaged in the similar activities and therefore is a good comparable. He has relied upon the order of the TPO. We have considered the rival submissions and the relevant material on record. Though the TPO has considered only segmental data relating to ITES services, however, there is no denial that this company is having significant investment in the business acquisition as well as engaged in the innovation activities of various fields including technology innovation, process innovation and delivery innovation. This company is also having a huge brand value and therefore has a bargaining power in comparison to the other companies who were engaged in the back office support services. This company is also maintaining 55 centres of excellence and 30 innovation projects. Therefore this company is also engaged in the R&D activities and getting the benefit of the innovation and R&D. In view of the above facts, this company cannot be treated as a good comparable for the assessee which is providing back office support services to its parent company without earning any benefit of the innovation and R&D. Accordingly, we do not find any reason to interfere with the finding of the CIT (Appeals) on functional dis-similarity of this company. (xxvi) Nittany Outsourcing Services Pvt. Ltd. : This company was selected by the TPO/A.O and assessee did not contest the inclusion of this company in 78 IT(T.P)A Nos.441 & 442/Bang/2012 the list of comparables. Even before the CIT (Appeals) as well as before this Tribunal, the assessee has not contested against the inclusion of this company. The CIT (Appeals) has retained this company as a good comparable. Therefore no specific adjudication or finding was sought in respect of this company either by the assessee or by the revenue. (xxvii) Accurate Data Converters Ltd. : : This company was selected by the TPO/A.O and assessee did not contest the inclusion of this company in the list of comparables. Even before the CIT (Appeals) as well as before this Tribunal, the assessee has not contested against the inclusion of this company. The CIT (Appeals) has retained this company as a good comparable. Therefore no specific adjudication or finding was sought in respect of this company either by the assessee or by the revenue.