SUPPORT.COM INDIA PVT. LTD. vs. JCIT,

O R D E R Per VIJAY PAL RAO, JM:

These cross appeals are directed against the order dated 27/12/2012 of the CIT(A)-IV, Bangalore, for the assessment year 2008-09.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 2 of 36 2. First we take up the revenue’s appeal wherein the revenue has raised the following grounds: 1) The order of the learned CIT(A) is opposed to law and facts of the case. 2) On the facts and in the circumstances of the case the learned CIT(A) erred in law in directing the AO to exclude the reimbursement of expenses incurred towards telecommunication charges of Rs.15,55,791/-, insurance expenses of Rs.27,40,352/- and foreign travelling expenses incurred in foreign currency of Rs.36,48,177 both from the export turnover as well as total turnover for the purpose of computation of deduction u/s 10A without appreciating the fact that the statute allows exclusion of such of expenditure only from export turnover by way of specific definition of export turnover as envisaged by sub- clause (4) of Explanation 2 below sub-section (8) of section 10A and the total turnover has not been defined in this section. 3) On the facts and in the circumstances of the case the learned CIT(A) 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 Flextronics Ltd., M/s iGate Global Solutions Ltd., M/s.Infosys Technologies Ltd., M/s. Mindtree Ltd., M/s.Persistent Systems Ltd., M/s.Sasken Communications Technologies Ltd., M/s.Tata Elxsi Ltd. and M/s Wipro Ltd. as comparables. 4) On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that M/s VGL Softech Ltd. should be considered as a comparable in the case of the assessee since the assessee itself had not selected the said company as an uncontrolled comparable. 5) On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that M/s Avani Cimcon Technologies Ltd. cannot be taken as a comparable. 6) On the facts and in the circumstances of the case the learned CIT(A) has erred in excluding M/s Celestial Biolabs Ltd. from the final set of comparables.

7) On the facts and in the circumstances of the case the learned CIT(A) erred in excluding M/s Kals Information Systems Ltd. from the final set of comparables.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 3 of 36 8) For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 9) The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.

4.1 We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. The AO, while computing deduction u/s 10A of the Income-tax Act, 1961, [‘the Act’ for short], excluded tele-communication charges and insurance expenditure from the export turnover. On appeal, the CIT(A) directed the AO to exclude the said expenses from the total turnover as well and then re-compute the deduction under section 10A.

4.2 At the outset, we note that this issue is now covered by the decision of the Hon'ble jurisdictional High Court in the case of ACIT vs. Tata Elxsi (349 ITR 98) wherein the Hon’ble High Court has held as under:

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 4 of 36 “From the aforesaid judgments, what emerges is that. there should be uniformity in the ingredients of both the numerator and she denominator of the formula, since otherwise it would produce anomalies or absurd results. Sec. 10A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of s. 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in s. 10A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component, or part of a denominator, the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. ‘The components of the export turnover in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term ‘total turnover’ in s. 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, ‘export turnover’ is defined, and when the ‘total turnover’ includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a ‘component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the legislature, they would have expressly stated so. If they have not chosen to expressly define what the total turnover means then, when the total turnover includes export turnover, the meaning assigned by the legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore, the formula for computation of the deduction under s. 10A, would be as under :

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 5 of 36 Profits of the business of the Export turnover undertaking x (Export turnover + domestic turnover) total turnover 11. In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of s. 80HHC in interpreting s. 10A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the Revenue.”

The CIT(A) has decided the issue by following the judgment of the Hon'ble jurisdictional High Court and therefore, we do not find any error or illegality in the impugned order of the CIT(A) on this issue.

The revenue has challenged the impugned order of the CIT(A) excluding these companies from the list of comparables by applying turnover filter. It is pertinent to note that the assessee has also raised additional ground whereby objects the inclusion of four companies viz., Infosys Ltd., Persistent Systems Ltd, Tata Elxsi and Wipro Ltd., on the ground of being functionally different from the assessee. Thus, we will take up and dispose of the IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 6 of 36 ground No.3 of the revenue’s appeal and the additional ground raised by the assessee in its appeal together being common in nature.

Brief facts relating to the ground of the revenue and the additional ground of the assessee are that the assessee is a private limited company incorporated on 14th August, 2003 under the provisions of the Companies Act. The assessee is an 100% EOU registered as STPI. The assessee is a wholly owned subsidiary of M/s.Support Soft Inc. (SSI) and provides software development services (SDS) exclusively to its foreign parent company as per the agreement with SSI. The assessee is engaged in the business of SDS and also engaged in the business of providing sales and marketing services exclusively to its foreign parent company. For the year under consideration, the assessee has reported financial results from its international transactions (IT) as per its transfer pricing study report as under:

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 7 of 36 As far as the marketing support services to its AE are concerned, the TPO accepted the said international transaction at arms length. The international transaction in respect of SDS has been bench marked by the assessee by adopting TNMM as the most appropriate method (MAP) in respect of 12 comparables selected IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 8 of 36 by the assessee and arrived at average profit margin of 14.23% on the cost OP/TC as PLI. Hence, the assessee claimed that the margin earned by the assessee at 11.99% on operating cost was at arms length being within tolerance range of +/-5%. The TPO did not accept the TP analysis of the assessee. The TPO finally selected 20 comparables and arrived at mean margin of 23.65% and worked out the margin after working capital adjustment at 22.55%. The companies selected by the TPO as comparables and adjustment proposed under section 92CA are as under:

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 9 of 36 Thus the TPO proposed a final adjustment of Rs.1,76,64,444/- The assessee challenged the action of the AO/TPO before the CIT(A) and raised the objection in respect of comparable companies selected by the TPO. The objections raised by the assessee were based on the ground that these companies are having very high turnover in comparison to the turnover of the assessee and therefore, are not good comparables for determining the arms length price in respect of international transaction of the assessee. The CIT(A) accepted the objections raised by the assessee and directed the AO/TPO to exclude 9 companies from the list of comparables on the ground of high turnover. Apart from rejecting comparables on the ground of high turnover, the CIT(A) has also rejected the 3 more companies as comparables viz. M/s.Avani Cimcon Technologies Ltd., M/s Celestial Biolabs Ltd. and M/s.Kals information System from the set of comparables. The CIT(A) has also included a new comparable viz., M/s VGL Software Ltd. The exclusion of 3 more comparables and inclusion of one in the said comparables are challenged by the revenue in ground Nos.4 to 7 which we will deal in the later part of this order. Thus, after exclusion of the 12 comparables and inclusion of a new company in the list of comparables by the CIT(A), the remaining set of comparables with operating margin(OM) are as under:

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 10 of 36

I. Infosys Technologies Ltd.: We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. The learned authorised representative of the assessee has relied upon various decisions of this Tribunal in support of the contention that these four companies are functionally not comparable with the assessee.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 12 of 36 The decisions relied upon by the learned authorised representative of the assessee are as under: 1. 3DPLM Software Solution Ltd. v DCIT - AY: 2008-09 2 . NetHawk Networks Ind Pvt. Ltd, v ITO - ITA No. 7633/M/2012 AY: 2008-09 3. M/s. Mindteck (India) Ltd. v DCIT - IT(TP)A No. 70/Bang/2014 AY: 2009-10 4. M/s. NXP Semi Conductors India Pvt. Ltd. v DCIT TS- 102- ITAT-2015(Bang)-TP AY: 2008-09 5. M/s. Supportsoft India Pvt Ltd. V ITO - IT(TP)A No. 20/Bang/2012 AY: 2005-06 6. M/s. AMD India Pvt Ltd. V ITO - IT(TP)A No. 437/Bang/2013 AY:2008-09 7. Kodiak Networks(India) Pvt. Ltd v DCIT IT(TP) No. 1540/Bang/ 2012 AY: 2008-09 (i) At the outset, we note that the comparability of this company has been examined and decided by the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd. in IT(TP)A No.1303/Bang/2012 dated 28/11/2013 in para.11.1 to 11.4 as under: “11.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 11.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to submit that this company IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 13 of 36 commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas the assessee is merely a software service provider operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee ; (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered as comparable to captive service providers assuming limited risk ; (iii) the company has generated several inventions and filed for many patents in India and USA ; (iv) the company has substantial revenues from software products and the break up of such revenues is not available ; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements towards acquisition of IPRs in ‘AUTOLAY’, a commercial application product used in designing high performance structural systems. In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 14 of 36 11.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 11.4 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 and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur 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. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly.”

As it is clear from the finding of the Tribunal that the comparability of this company has been examined in a series of decisions and by following the earlier decisions of this Tribunal, the co-ordinate bench has held that Infosys Technologies Ltd. is functionally dissimilar from the assessee providing software development services. We further note that a similar view has been taken by the Tribunal in other decisions relied upon by the assessee. Accordingly, following the earlier decisions of the Tribunal, we hold that Infosys Technologies Ltd. is not functionally comparable with the assessee because it owns significant IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 15 of 36 intangibles as well as brands earning revenue from software products apart from software development services. Since no separate segment of SDS and software products is available, therefore, this company cannot be considered as a good comparable for the purpose of ALP in respect of international transaction of rendering SDS. Accordingly, when this company is functionally not comparable with the assessee, we decline to interfere with the impugned order of the CIT(A).

(ii) As regards the objections of the revenue that the CIT(A) has committed an error in directing the AO/TPO to exclude this company on the basis of turnover filter, we find that there are decisions of the Tribunal in the case of Cap Gemini and in the case of Willis Processing wherein it has been held that turnover filter cannot be considered as the reason for rejecting the comparables in service providing companies, wherein economies of scale is not available. Since the assessee has restricted its objection in the additional ground only to functional dissimilarity and non comparability of certain companies, therefore, we do not propose to go into the issue of high turnover in rejecting the comparable.

II. Persistent Systems Ltd. We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. The comparability of this company IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 16 of 36 has been examined and decoded by the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd (supra) in para.17 as under: 17.1.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable for the reasons that this company being engaged in software product designing and analytic services, it is functionally different and further that segmental results are not available. The TPO rejected the assessee's objections on the ground that as per the Annual Report for the company for Financial Year 2007-08, it is mainly a software development company and as per the details furnished in reply to the notice under section 133(6) of the Act, software development constitutes 96% of its revenues. In this view of the matter, the Assessing Officer included this company i.e. Persistent Systems Ltd., in the list of comparables as it qualified the functionality criterion. 17.1.2 Before us, the assessee objected to the inclusion of this company as a comparable submitting that this company is functionally different and also that there are several other factors on which this company cannot be taken as a comparable. In this regard, the learned Authorised Representative submitted that : (i) This company is engaged in software designing services and analytic services and therefore it is not purely a software development service provider as is the assessee in the case on hand. (ii) Page 60 of the Annual Report of the company for F.Y. 2007-08 indicates that this company, is predominantly engaged in ‘Outsourced Software Product Development Services’ for independent software vendors and enterprises. (iii) Website extracts indicate that this company is in the business of product design services. (iv) The ITAT, Mumbai Bench in the case of Telecordia Technologies India Pvt. Ltd. (supra) while discussing the comparability of another company, namely Lucid Software Ltd.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 17 of 36 had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available. The learned Authorised Representative prays that in view of the above, this company i.e. Persistent Systems Ltd. be omitted from the list of comparables. 17.2 Per contra, the learned Departmental Representative support the action of the TPO in including this company in the list of comparables. 17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly. We find that a similar view has been taken by the Tribunal in the other decisions as relied on by the assessee. Following earlier decision of this Tribunal, we direct the AO/TPO to exclude this company from the list of comparables. Accordingly, we are not inclined to interfere with the order of the CIT(A) in respect of this company.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 18 of 36 III. Tata Elxsi Ltd.: We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. The comparability of this company has been examined and decided by the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd (supra) in paras.13 to 13.5 as under: 13.1 This company was a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on several counts like, functional dis-similarity, significant R&D activity, brand value, size, etc. The TPO, however, rejected the contention put forth by the assessee and included this company in the set of comparables. 13.2 Before us it was reiterated by the learned Authorised Representative that this company is not functionally comparable to the assessee as it performs a variety of functions under software development and services segment namely – a) product design, (b) innovation design engineering and (c) visual computing labs as is reflected in the annual report of the company. The learned Authorised Representative submitted that, (i) The co-ordinate bench of the Mumbai Tribunal in the case of TelecordiaTechnologies Pvt. Ltd. (supra) has held that Tata Elxsi Ltd. is not a functionally comparable for a software development service provider. (ii) The facts pertaining to Tata Elxsi Ltd. have not changed from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008-09 and therefore this company cannot be considered as a comparable to the assessee in the case on hand. (iii) Tata Elxsi Ltd. is predominantly engaged in product designing services and is not purely a software development service provider. In the Annual Report of this company the description of the segment ‘software development services’ relates to design services and are not to software services provided by the assessee.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 19 of 36 (iv) Tata Elxsi Ltd. invests substantial funds in research and development activities which has resulted in the ‘Embedded Product Design Services Segment’ of the company to create a portfolio of reusable software components, ready to deploy frameworks, licensable IPs and products. The learned Authorised Representative pleads that in view of the above reasons, Tata Elxsi Ltd. is clearly functionally different / dis-similar from the assessee and therefore ought to be omitted form the list of comparables. 13.3 Per contra, the learned Departmental Representative supported the stand of the TPO in including this company in the list of comparables. 13.4.1 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment “software development services” relates to design services and are not similar to software development services performed by the assessee. 13.4.2 The Hon'ble Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. V ACIT (ITA No.7821/Mum/2011) has held that Tata Elxsi Ltd. is not a software development service provider and therefore it is not functionally comparable. In this context the relevant portion of this order is extracted and reproduced below :- “ …. 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 Authorised Representative 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 as fit for comparability analysis for IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 20 of 36 determining the arm’s length price for the assessee, hence, should be excluded from the list of comparable portion.” As can be seen from the extracts of the Annual Report of this company produced before us, the facts pertaining to Tata Elxsi have not changed from Assessment Year 2007-08 to Assessment Year 2008-09. We, therefore, hold that this company is not to be considered for inclusion in the set of comparables in the case on hand. It is ordered accordingly.

We find that a similar view has been taken by the Tribunal in the other decisions as relied on by the assessee. Accordingly, following earlier decision of this Tribunal, we direct the AO/TPO to exclude this company from the list of comparables. We are, therefore, not inclined to interfere with the order of the CIT(A) in respect of this company.

IV. Wipro Ltd.: We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. The comparability of this company has been examined and decoded by the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd (supra) in paras.12 to 12.5 as under:

12.1 This company was selected as a comparable by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables on several grounds like functional dis-similarity, brand value, size, etc. The TPO, however, brushed aside the objections of the assessee and included this company in the set of comparables.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 21 of 36 12.2 Before us, the learned Authorised Representative of the assessee contended that this company i.e. Wipro Ltd., is not functionally comparable to the assessee for the following reasons :- (i) This company owns significant intangibles in the nature of customer related intangibles and technology related intangibles, owns IPRs and has been granted 40 registered patents and has 62 pending applications and its Annual Report confirms that it owns patents and intangibles. (ii) the ITAT, Delhi observation in the case of Agnity India Technologies Pvt. Ltd. in at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and a market leader assuming all risks leading to higher profits, cannot be considered as comparable to captive service providers assuming limited risk; (iii) the co-ordinate bench of the ITAT, Mumbai in the case of Telecordia Technologies India Pvt. Ltd. (ITA No.7821/Mum/2011) has held that Wipro Ltd. is not functionally comparable to a software service provider. (iv) this company has acquired new companies pursuant to a scheme of amalgamation in the last two years. (v) Wipro Ltd. is engaged in both software development and product development services. No information is available on the segmental bifurcation of revenue from sale of products and software services. (vi) the TPO has adopted consolidated financial statements for comparability purposes and for computing the margins, which is in contradiction to the TPO’s own filter of rejecting companies with consolidated financial statements. 12.3 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 12.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 22 of 36 the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. 12.4.2 We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of patents. In this regard, the co- ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration.

We find that a similar view has been taken by the Tribunal in the other decisions as relied on by the assessee. Following the earlier decision of this Tribunal, we direct the AO/TPO to exclude this company from the list of comparables. Accordingly, we decline to interfere with the order of the CIT(A) in respect of this company.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 23 of 36 9. In view of the above findings, the additional ground raised by the assessee is allowed whereas the ground No.3 of the revenue’s appeal is partly allowed. The other 5 comparables are not disputed by the assessee.

I. M/s.VGL Software Ltd. The CIT(A), while deciding the comparability of the companies selected by the TPO, had included this company viz. VGES Ltd., in the list of comparable. We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. At the outset, we note that this company was neither selected by the assessee in the TP analysis nor by the TPO while passing the TP order under section 92CA of the Act. However, the CIT(A) included the same in the list of comparables while passing the impugned order without giving any opportunity of being heard to the AO/TPO. Since comparability of this company has not been examined at the level of the TPO/AO, therefore, without going into merits of the issue of comparability, we set aside the issue of comparability of this company to the record of the AO/TPO for considering the functional and other criteria of comparability for including the said company in the list of comparables for determining the ALP in IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 24 of 36 respect of international transaction of the assessee. We find that the assessee, in its TP analysis excluded this company for want of financial details and data in the public domain. It appears that during the appellate proceedings, the financial data were produced by obtaining directly from the company and therefore, these details including the functional comparability of the company are required to be examined. The ground No.4 of the revenue is allowed for statistical purposes.

II. Avani Cincom Technologies Ltd. We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. At the outset, we note that the comparability of this company has been examined and decided by the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd (supra) in paras.7.1 to 7.6 as under: 7.1 This company was selected by the TPO as a comparable. The assessee objects to the inclusion of this company as a comparable on the ground that this company is not functionally comparable to the assessee as it is into software products whereas the assessee offers software development services to its AEs. The TPO had rejected the objections of the assessee on the ground that this comparable company has categorized itself as a pure software developer, just like the assessee, and hence selected this company as a comparable. For this purpose, the TPO had relied on information submitted by this company in response to enquiries carried out under section 133(6) of the Act for collecting information about the company directly. 7.2 Before us, the learned Authorised Representative reiterated the assessee's objections for the inclusion of this company from the list of comparable companies on the ground that this company is not functionally comparable to the assessee as it is into software products.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 25 of 36 It is also submitted that the segmental details of this company are not available and the Annual Report available in the public domain is not complete. It was further contended that the information obtained by the TPO under section 133(6) of the Act, on the basis of which the TPO included this company in the final list of comparable companies, has not been shared with the assessee. In support of this contention, the learned Authorised Representative placed reliance on the following judicial decisions : i) Trilogy E-Business Software India Pvt. Ltd. V DCIT (ITA No.1054/Bang/2011) ii) Telecordia Technologies India Pvt Ltd V ACIT (ITA No.7821/Mum/2011) It was also submitted that this company has been held to be functionally not comparable to the assessee by a co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in dt.22.2.2013. 7.3 The learned Authorised Representative further submitted that the facts pertaining to this company has not changed from the earlier year (i.e. Assessment Year 2007-08) to the period under consideration (i.e. Assessment Year 2008-09). In support of this contention, it was submitted that :- (i) The extract from the Website of the company clearly indicates that it is primarily engaged in development of software products. The extract mentions that this company offers customised solutions and services in different areas; (ii) The Website of this company evidences that this company develops and sells customizable software solutions like “DX Change, CARMA, etc. 7.4 The learned Authorised Representative submitted that a co- ordinate bench of the Tribunal in its order in Curram Software International Pvt. Ltd., in its order in ITA No.1280/Bang/2012 dt.31.7.2013 has remanded the matter back to the file of the Assessing Officer / TPO to examine the comparability of this company afresh, by making the following observations at paras 9.5.2 and 9.5.3 thereof :- 9.5.2 As regards the submission of the learned Authorised Representative, we are unable to agree that this company has to be deleted from the list of comparables only because it has been deleted from the set of comparables in the case of Triology E- Business Software India Pvt. Ltd. (supra). No doubt this company IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 26 of 36 has been deleted as a comparable in the case of Triology E- Business Software India Pvt. Ltd. (supra) and this can be a good guidance to decide on the comparability in the case on hand also. This alone, however, will not suffice for the following reasons :- (i) The assessee needs to demonstrate that the FAR analysis and other relevant facts of the Triology case are equally applicable to the facts of the assessee's case also. Unless the facts and the FAR analysis of Triology case is comparable to that of the assessee in the case on hand, comparison between the two is not tenable. (ii) After demonstrating the similarity and the comparability between the assessee and the Triology case, the assessee also needs to demonstrate that the facts applicable to the Assessment Year 2007-08, the year for which the decision in case of Triology E-Business Software India Pvt. Ltd. (supra) was rendered are also applicable to the year under consideration i.e. Assessment Year 2008-09. 9.5.3 It is a well settled principle that the assessee is required to perform FAR analysis for each year and it is quite possible that the FAR analysis can be different for each of the years. That being so, the principle applicable to one particular year cannot be extrapolated automatically and made applicable to subsequent years. To do that, it is necessary to first establish that the facts and attendant factors have remained the same so that the factors of comparability are the same. Viewed in that context, the assessee has not discharged the onus upon it to establish that the decision rendered in the case of Triology E- Business Software India Pvt. Ltd. (supra) can be applied to the facts of the case and that too of an earlier year i.e. Assessment Year 2007-08. The assessee, in our view, has not demonstrated that the facts of Triology E-Business Software India Pvt. Ltd. (supra) are identical to the facts of the case on hand and that the profile of the assessee for the year under consideration is similar to that of the earlier Assessment Year 2007-08. In view of facts as discussed above, we deem it fit to remand the matter back to the file of the Assessing Officer / TPO to examine the comparability of this company afresh by considering the above observations. The TPO is directed to make available to the assessee information obtained under section 133(6) of the Act and to afford the assessee adequate opportunity of being heard and to make its submissions in the matter, which shall be duly considered before passing orders thereon. It is ordered accordingly.” The learned Authorised Representative submits that this company was selected as a comparable by the TPO not by any FAR analysis or as IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 27 of 36 per the search process conducted by the TPO, but only as an additional comparable for the reason that it was selected as a comparable in the earlier year i.e. Assessment Year 2007-08 on the basis of information obtained under section 133(6) of the Act. In this regard, the learned Authorised Representative took us through the relevant portions of the TP order under section 92CA of the Act and the show cause notices for both the earlier year i.e. Assessment Year 2007-08 and for this year and contended that the selection of this company as a comparable violates the principle enunciated in Curram Software International Pvt. Ltd. (supra) that a company can be selected as a comparable only on the basis of FAR analysis conducted for that year and therefore pleaded for its exclusion. The learned Authorised Representative also submitted that he has brought on record sufficient evidence to show that the functional profile of this company remains unchanged from the earlier year and hence the findings rendered by the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007- 08 (supra) and in other cases like Triology E-Business Software India Pvt. Ltd. (supra) are applicable to the year under consideration as well. 7.5 Per contra, the learned Departmental Representative supported the order of the TPO / DRP for inclusion of this company Avani Cincom Technologies Ltd. in the final set of comparables. 7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In these circumstances, it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. Non-furnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable. 7.6.2 We also find substantial merit in the contention of the learned Authorised Representative that this company has been selected by the TPO as an additional comparable only on the ground that this company was selected in the earlier year. Even in the earlier year, it is seen that this company was not selected on the basis on any search process carried out by the TPO but only on the basis of information collected under section 133(6) of the Act. Apart from placing reliance on the judicial decision cited above, including the assessee's own case for Assessment Year 2007-08, the assessee has brought on record evidence that this company is functionally dis-similar and different from the assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 28 of 36 during the year under consideration which fact has been demonstrated by the assessee, followingthe decisions of the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 in dt.22.2.2013, and in the case of Triology E- Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011), we direct the A.O./TPO to omit this company from the list of comparables. A similar view has been taken by the Tribunal in other decisions relied upon by the assessee. Following the orders of this Tribunal, we hold that this company cannot be considered as functionally comparable with the assessee. Accordingly, we do not find any error or illegality in the order of the CIT(A) and decline to interfere with the order of the CIT(A) qua this issue.

III. Celestial Biolabs Ltd. We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. At the outset, we note that the comparability of this company has been examined and decided by the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd (supra) in paras.9.1 to 9.4.2. as under: 9.1 This comparable was selected by the TPO for inclusion in the final list of comparables. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables for the reasons that it is functionally different form the assessee and that it fails the employee cost filter. The TPO, however, brushed aside the objections raised by the assessee by stating that the objections of functional dissimilarity has been dealt with in detail in the T.P. order for Assessment Year 2007-08. As regards the objection raised in respect of the employee cost filter issue, the TPO rejected the objections by observing that the employee cost filter is only a trigger to know the functionality of the company.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 29 of 36 9.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable, as the company is into bio- informatics software product / services and the segmental break up is not provided. It was submitted that :- (i) This company is engaged in the development of products in the field of bio-technology, pharmaceuticals, etc. and therefore is not functionally comparable to the assessee; (ii) This company has been held to be functionally incomparable to software service providers by the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra); (iii) The co-ordinate bench of this Tribunal in its order in the case of Triology E-Business Software India Pvt. Ltd. (supra) at para 43 thereof had observed about this company that – “ ….. As explained earlier, it is a diversified company and therefore cannot be considered as comparable functionally with the assessee. There has been no attempt to identify, 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 adjustments, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the assessee in this regard.” (iv) The rejection / exclusion of this company as a comparable for Assessment Year 2007-08 for software service providers has been upheld by the co-ordinate benches of this Tribunal in the cases of LG Soft India Pvt. Ltd. in CSR India Pvt. Ltd. in IT(TP)A No.1119/Bang/2011 and by the ITAT, Delhi Bench in the case of Transwitch India Pvt. Ltd. in ITA No.6083/Del/2010. (v) The facts pertaining to this company has not changed from Assessment Year 2007-08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability in the instant case and hence ought to be rejected. In support of this contention, the assessee has also referred to and quoted from various parts of the Annual Report of the company. 9.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparable companies. The learned Departmental Representative submitted that the decisions cited and relied on by the assessee are for Assessment Year 2007-08 and therefore there cannot be an assumption that it would continue to be IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 30 of 36 applicable for the period under consideration i.e. Assessment Year 2008- 09. 9.4.1 We have heard both the parties and perused and carefully considered the material on record. While it is true that the decisions cited and relied on by the assessee were with respect to the immediately previous assessment year, and there cannot be an assumption that it would continue to be applicable for this year as well, the same parity of reasoning is applicable to the TPO as well who seems to have selected this company as a comparable based on the reasoning given in the TPO’s order for the earlier year. It is evidently clear from this, that the TPO has not carried out any independent FAR analysis for this company for this year viz. Assessment Year 2008-09. To that extent, in our considered view, the selection process adopted by the TPO for inclusion of this company in the list of comparables is defective and suffers from serious infirmity. 9.4.2 Apart from relying on the afore cited judicial decisions in the matter (supra), the assessee has brought on record substantial factual evidence to establish that this company is functionally dis-similar and different from the assessee in the case on hand and is therefore not comparable and also that the findings rendered in the cited decisions for the earlier years i.e. Assessment Year 2007-08 is applicable for this year also. We agree with the submissions of the assessee that this company is functionally different from the assessee. It has also been so held by co- ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) as well as in the case of Triology E- Business Software India Pvt. Ltd. (supra). In view of the fact that the functional profile of and other parameters of this company have not changed in this year under consideration, which fact has also been demonstrated by the assessee, following the decision of the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 in and Triology E-Business Software India Pvt. Ltd. in ITA No.1054/Bang/2011, we hold that this company ought to be omitted form the list of comparables. The A.O./TPO are accordingly directed. A similar view has been taken by the Tribunal in other decisions relied upon by the assessee. Following the orders of this Tribunal, we hold that this company cannot be considered as functionally comparable with the assessee. Accordingly, we do not find any error or illegality in the order of the CIT(A) and decline to interfere with the order of the CIT(A) qua this issue.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 31 of 36 IV. KALS Information Systems Ltd. We have heard the learned DR as well as the learned authorised representative of the assessee and considered the relevant material on record. At the outset, we note that the comparability of this company has been examined and decided by the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd (supra) in paras.10 to 10.4 as under: 10.1 This is a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on grounds of functional differences and that the segmental details have not been provided in the Annual Report of the company with respect to software services revenue and software products revenue. The TPO, however, rejected the objections of the assessee observing that the software products and training constitutes only 4.24% of total revenues and the revenue from software development services constitutes more than 75% of the total operating revenues for the F.Y. 2007-08 and qualifies as a comparable by the service income filter. 10.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee and ought to be rejected / excluded from the list of comparables for the following reasons :- (i) This company is functionally different from the software activity of the assessee as it is into software products. (ii) This company has been held to be functionally not comparable to software service providers for Assessment Year 2007-08 by the co-ordinate bench of this Tribunal in the assessee's own case. This company has been held to be different from a software development company in the decision of the Tribunal in the case of Bindview India Pvt. Ltd. V DCIT in ITA No.1386/PN/2010. (iii) The rejection of this company as a comparable has been upheld by co-ordinate benches of the Tribunal in the case of – (a) Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011).

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 32 of 36 (b) LG Soft India Pvt. Ltd. (IT (TP) A No.112/Bang/2011) (c) CSR India Pvt. Ltd. (IT (TP) A No.1119/Bang/2011) and (d) Transwitch India Pvt. Ltd. (IA No.6083/Del/2010) (iv) The facts pertaining to this company has not changed from Assessment Year 2007-08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability in the case on hand and hence ought to be excluded from the list of comparables. In support of this contention, the learned Authorised Representative drew our attention to various parts of the Annual Report of this company. (v) This company is engaged not only in the development of software products but also in the provision of training services as can be seen from the website and the Annual Report of the company for the year ended 31.3.2008. (vi) This company has two segments; namely, a) Application Software Segment which includes software product revenues from two products i.e. ‘Virtual Insure’ and ‘La-Vision’ and b) The Training segment which does not have any product revenues. 10.3 Per contra, the learned Departmental Representative contended that the decision of the co-ordinate bench of the Tribunal in the case of Triology E-Business Software India Pvt. Ltd. (supra) was rendered with respect to F.Y.2006-07 and therefore there cannot be an assumption that it would continue to be applicable to the year under consideration i.e. A.Y. 2008-09. To this, the counter argument of the learned Authorised Representative is that the functional profile of this company continues to remain the same for the year under consideration also and the same is evident from the details culled out from the Annual Report and quoted above (supra). 10.4 We have heard both parties and perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s.133(6) of the Act. This information which was not in the public domain ought not to have been used by the TPO, more so when the same is contrary to the Annual Report of the company, as pointed out by the learned Authorised Representative. We also find that the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007- 08 (supra) and in the case of Triology E-Business Software India Pvt.

IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 33 of 36 Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company’s Annual Report to establish that this company is functionally dis-similar and different form the assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted form the list of comparable companies. It is ordered accordingly.

A similar view has been taken by the Tribunal in other decisions relied upon by the assessee. Following the orders of this Tribunal, we hold that this company cannot be considered as functionally comparable with the assessee. Accordingly, we do not find any error or illegality in the order of the CIT(A) and decline to interfere with the order of the CIT(A) qua this issue.

“GROUNDS RELATING TO PROCEDURE 1) The Order of the learned Commissioner of Income Tax (Appeals) - IV, to the extent prejudicial to the appellant, is bad in law. 2) The learned Assessing Officer has erred in making a reference to the Transfer Pricing Officer for determining the arm's length price without demonstrating as to why it was necessary and expedient to do so. The learned Commissioner of Income Tax (Appeals)-IV has erred in confirming the action of the Assessing Officer. GROUNDS RELATING TO TRANSFER PRICING -LEGAL ISSUES IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 34 of 36 The learned Assessing Officer, learned Transfer Pricing Officer arid the Commissioner of Income Tax (Appeals) - IV erred in: 3) passing the order without demonstrating that the appellant had motive of tax evasion; 4) not appreciating that the charging or computation provisions relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X and therefore addition made under Chapter X is bad in law; 5) adopting a flawed process for issuing notices u/s 133(6) and relying on the same without providing complete information and an opportunity to cross examine the companies concerned. GROUNDS RELATING TO TRANSFER PRICING - COMPUTATION OF ALP The learned Assessing Officer, learned Transfer Pricing Officer and the Commissioner of Income Tax (Appeals) - IV have erred in: 6) performing fresh transfer pricing analysis and adopting inappropriate filters in doing fresh transfer pricing analysis; 7) computing ALP based on data for financial year 2007-08 of the comparable companies which was not available at the time when the appellant undertook its transfer pricing documentation and reporting obligations; 8) adopting companies as comparables even though they are not comparable to the appellant; 9) rejecting comparables proposed by the appellant on unjustified grounds; 10) not appreciating that the law does not compel adopting many (or any minimum) companies as comparables and that the appellant could justify the price paid/charged on the basis of any one comparable only; 11) not making proper adjustment for enterprise level and transactional level differences between the appellant and the comparable companies, including but not limited to risk adjustment. PRAYER 12. On an overall consideration of the facts of the case and the law applicable, the ALP as determined by the Transfer IT(TP)A Nos.240 & 293/Bang/2013 M/s.Support.com India Pvt Ltd. Page 35 of 36 Pricing Officer, as adopted by the Assessing Officer and as modified by the CIT(A), being not correct, is to be quashed and the figures as determined and returned by the appellant being correct are to be accepted 13. The learned Assessing Officer has erred in levying interest under Section 234B. The appellant submits that each of the above grounds/sub- grounds are independent and without prejudice to one another”.