TMI Blog2018 (4) TMI 1614X X X X Extracts X X X X X X X X Extracts X X X X ..... xsi (2011 (8) TMI 782 - KARNATAKA HIGH COURT) held that such expenditure incurred in foreign currency should be deducted from export turnover as well as total turnover. Hence, this ground of appeal filed by the revenue is dismissed. Benefit u/s. 80JJA in respect of salaries paid to newly employed employees - AO denied the claim on the ground that software engineers are not workmen - Held that:- Once an assessee's claim is allowed under section 10A, 10AA, 10B or 10BA, then to the extent such deduction has been allowed, no other deduction could be allowed under any other provision of the Act. Assessee had claimed deduction of its income u/s. 10A in respect of its units 2, 3 and 4. As per the assessee even if deduction under section 10A is allowed for these units, a further deduction u/s. 80JJA, is also allowable. Argument of the assessee's counsel is that the limitation put in by Section 80A(4), would apply only to profit linked deductions. There can be no dispute that deduction under Section 10A of the Act, is profit linked. In so far as deduction u/s. 80JJA is concerned, a look at sub-section (1) of the said section is required as held in assessee's own case clearly show tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l transactions should be treated as operating in nature. Re-allocation of rent expenses relating to non-10A unit - Held that:- There was no shifting of bonded warehouse from unit II to unit I. No addition can be made based on presumptions/assumptions. Thus, we allow this ground of appeal. Companies functionally dissimilar with that of assessee software development services need to be deselected from final list. - IT(TP)A No. 981/Bang/2013, Cross Objn. No. 41/Bang/2016 in IT(TP)A No. 1070/Bang/2013 and IT(TP)A No. 1070/Bang/2013 - - - Dated:- 6-4-2018 - Sunil Kumar Yadav and Inturi Rama Rao , JJ. For Appellant: Kanchun Kaushal and Aliasger Rampurawala , CAs For Respondents: Ch. Sundar Rao , CIT(DR) ORDER Inturi Rama Rao , 1. These are cross appeals filed by the revenue as well as the assessee directed against the order of the learned Commissioner of Income-tax (Appeals)-IV, Bangalore, dated 23/04/2013 for the assessment year 2008-09. The assessee also filed cross objections in ITA No. 1070/Bang/2013 (revenue appeal). 2. Brief facts of the case are that the assessee is a company duly incorporated under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's length price (ALP). While doing so, the TPO applied the following filters: i. Companies having export sales less than 75% of the sales were excluded. ii. Companies with onsite revenue greater than 755 of the export revenues from software are excluded. By applying the above filters, the TPO finally selected the following 20 comparables: 6. The TPO computed average profit margin of the comparables finally selected at 23.65% after giving working capital adjustment of 1.7%, adjusted margin of 21.95%. On the above basis, the TPO made the TP adjustment as follows: 7. The AO passed draft assessment order dated 23/12/2011 incorporating the TP adjustment suggested by the TPO and sent to the assessee. After receipt of draft assessment order the assessee filed objections before the Hon'ble DRP belatedly. Hence, the AO proceeded to pass final assessment order u/s. 143(3) r.w.s 144(C) on 27/02/2012 after making the following disallowances: 1) TP adjustment as suggested by the TPO. 2) Disallowing: (i) ₹ 18,07,31,409/- u/s. 80JJAA (ii) Interest of ₹ 2,99,06,766/- on a loan and (iii) rent of ₹ 4,72,94,681/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in holding that the assesses company is eligible for deduction u/s. 80JJAA in respect of additional wages paid to software engineers employed in non 10A units without appreciating the fact that the software engineers cannot be equated with 'workmen' as envisaged under Rule 2(s) of Industrial Disputes Act 1947. 5. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that the assessee company is entitled to claim deduction u/s. 10A in respect of profits derived from the units acquired under slump sale without appreciating the fact that there is split up in the existing business of the assessee on account of such slump sale. 6. 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. Avani Cimcom technologies Ltd. M/s. Bodhtree Consulting Ltd., M/s. e-Zest Solutions Ltd. M/s. Infosys Technologies Ltd. M/s. Kals Information Systems Ltd. MVs LGS Global Ltd. M/s. Lucid Software Ltd. M/s. Quintegra Solution Ltd. M/s. R. Systems International Ltd. M/s. RS Softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred in foreign currency should be deducted from export turnover as well as total turnover. Hence, this ground of appeal filed by the revenue is dismissed. 12. Ground No. 4 challenges the findings of the ld. CIT(A) granting benefit u/s. 80JJA of the Act in respect of salaries paid to newly employed employees. AO denied the claim on the ground that software engineers are not workmen. On appeal before the ld. CIT(A), the ld. CIT(A) directed the AO to grant the benefit of deduction u/s. 80JJ following this Tribunal's decision in the Texas Instruments Ltd. reported in 115 TTJ 976 , wherein it was held that software engineers, who are not in supervisory position, were eligible to be considered as workmen. However, the ld. CIT(A) had restricted the deduction to non-10A unit. 13. Before us the ld. CIT(DR) vehemently contended that software engineers cannot be treated as a workmen and therefore, assessee-company is not entitled to make a claim u/s. 80JJA of the Act. 14. On the other hand, learned counsel for assessee contended that software engineers are 'workmen' as defined under the Industrial Disputes Act and thus are eligible for deduction u/s. 80JJA of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31st March, 2000 relevant to the asst. yr. 2000- 01. As there was no claim for relief under s. 80JJAA for the asst. yr. 2000-01, the relief in respect of the workers employed in asst. yr. 2000-01 cannot be considered for relief under s. 80JJAA in the asst. yr. 2001-02. As such the appellant will be entitled for relief under s. 80JJAA of ₹ 1,09,52,012 being 30 per cent of the additional wages of ₹ 3,65,06,707 (Rs. 8,52,70,736 ₹ 4,87,64,029) in respect of the new workmen employed during the previous year relevant to the asst. yr. 2001-02. Similarly, for asst. yr. 2002-03 the appellant has claimed deduction of ₹ 4,78,05,176 being 30 per cent of the wages of ₹ 1,59,30,588 which also included the wages of ₹ 4,38,68,182 pertaining to the new workers employed in the previous year 1999- 2000. For the reasons mentioned above the appellant is not entitled for relief under s. 80JJAA in respect of the wages pertaining to the workers employed in the previous year 1999-2000. As such the appellant would be eligible for relief of ₹ 3,46,44,722 being 30 per cent of the additional wages of ₹ 11,54,82,406 (Rs. 15,93,50,588 ₹ 4,38,68,182) in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the same, we are inclined to accept the reasons shown by the learned CIT(A). The learned CIT-Departmental Representative could not assail the finding IT(TP)A. 1006/Bang/2011 Page - 44 reached by the learned CIT(A) by bringing in any valid materials. The order of the CIT(A) is confirmed. It is ordered accordingly. There is no case for the Revenue that assessee had failed to file details of software engineers employed by it. In our opinion software engineers newly employed by it fell within the meaning of the word 'workmen'. 25. However coming to the second limb of the reasoning given by the lower authorities, which is section 80A(4), the said section is reproduced hereunder : '(4) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading C-Deductions in respect of certain incomes , where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore set aside the orders of authorities below for the limited purpose of quantifying the eligible deduction u/s. 80JJA in respect of Unit-1. In the result, ground No. 6 is treated as partly allowed for statistical purpose. In the light of above decision of the co-ordinate bench in the assessee's own case, we do not find any fallacy in the order of the ld. CIT(A). Therefore, the ground of appeal raised by the revenue is dismissed. 16. Ground No. 5 challenges the direction of the ld. CIT(A) directing the AO to allow deduction u/s. 10A of the Act with respect to the unit acquired viz. Virsa Systems Pvt. Ltd. which had STP unit in Chandigarh after obtaining necessary approval from STPI. This unit was acquired by the assessee-company as part of global acquisition on a slump sale basis. Thereafter, the assessee-company had applied to STPI for transfer of this undertaking from Versa Systems Pvt. Ltd., to the assessee-company. In the light of this approval, the assessee made a claim u/s. 10A in respect of profits earned by that unit. However, the AO had disallowed the claim placing reliance on the provisions of sub-section (7A) of section 10A of the Act. On appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(TP)A. 1006/Bang/2011 Page - 55 partnership firm and its assets and goodwill were taken over by the assessee for a stated consideration and against the allotment of shares to the three partners in the assessee-company. The Assessing Officer had rejected the claim of exemption under section 15C on the ground that the assessee was formed by the reconstruction of the business already in existence. The Appellate Commissioner took a different view which was affirmed by the Tribunal. The Division Bench of this court held that the reconstruction of a business connotes that the original business is not to cease functioning and the undertaking must continue to carry on the same business in an altered form. On the other hand, if the ownership of a business or an undertaking is transferred that would not constitute a reconstruction. The Division Bench held as follows (page 669) : The reconstruction of a business or an industrial undertaking must necessarily involve the concept that the original business or undertaking is not to cease functioning, and its identity is not to be lost or abandoned. The concept essentially rests on changes but the changes must be constructive and not de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt with the issue as to whether within the meaning of section 15C(2)(i) of the Indian Income-tax Act, 1922, the industrial undertakings which consisted of a steel foundry division and jute mill division were not formed by the reconstruction of a business already in existence. The Supreme Court observed that in order to be entitled to the benefit of section 15C the following facts would have to be established by the assessee (page 206) : (1) investment of substantial fresh capital in the industrial under taking set up; (2) employment of requisite labour therein; (3) manufacture or production of articles in the said undertaking; (4) earning of profits clearly attributable to the said new under taking; and IT(TP)A. 1006/Bang/2011 Page - 57 (5) above all, a separate and distinct identity of the industrial unit set up. 10. The Supreme Court was of the view that the new undertaking must not be substantially the same old existing business. Even if a new business is carried on but by piercing the veil of the new business it is found that there is employment of the assets of the old business, the benefit will not be available. From this perspective the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and remit the issue back to the AO for consideration afresh in accordance with law for verifying whether the claim for deduction u/s. 10A of the Act, on Chandigarh unit is within the total period for which such deduction is available under the said section. Ground 10 of the assessee is allowed for statistical purpose. Respectfully following the decision of the co-ordinate bench for earlier year, this ground of appeal filed by the revenue is dismissed. 19. Ground No. 6 challenges the direction of the ld. CIT(A) excluding the following companies applying the turnover range for ₹ 200 to ₹ 2000 cr.: i. M/s. Avani Cimcom Technologies, ii. M/s. Bodhtree Consulting Limited, iii. M/s. E-zest Solutions Limited, iv. M/s. Infosys Technologies Ltd., v. M/s. Kals Information Systems Limited (Seg.), vi. M/s. LGS Global Ltd., vii. M/s. Lucid Software Limited, viii. M/s. Quintegra Solution Limited, ix. M/s. R Systems International Ltd., x. M/s. R.S. Software (I) Ltd., xi. M/s. Softsol India Ltd., xii. M/s. Thirdware Solution Limited and xiii. M/s. Wipro Ltd. (Seg.). 20. This issue is covered in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the revenue is allowed. 22. Ground No. 8 challenges the finding of the ld. CIT(A) in rejecting diminishing revenue filter. The reasoning adopted by the ld. CIT(A) is as under: 113. I have considered the appellant's submissions on this aspect. The reason given by the TPO for applying the diminishing revenue and persistent losses filters is that the filters are designed to eliminate companies which are not in line with the trend of growth witnessed in the software industry. However, use of these fitters depends cm trends over a period of time and is contrary to the TPO's own stand that only current year's data are required to be used. 114. Growth of the Indian software industry cannot be attributed solely to existing companies, but also to new companies being set up, which in turn depends upon the entry and exit barriers that characterise an industry. Moreover, revenue may not always 'be a true indicator of a company's performance, 'which may also depend on its own business cycle. A company with increasing revenues over a period, of time does not necessarily reflect better performance, as increase in expenses in the corresponding pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following cases: i) CIT v. Tara Jewels Exports Pvt. Ltd. (ITA No. 1814 of 2013) ii) CIT v. Thyssen Krupp Industries India (P) Ltd. (ITA No. 2201 of 2013); and iii) CIT v. Goldstar Jewellery Design Pvt. Ltd. (ITA No. 2237 of 2013) In the light of the above settled position of law, we do not find any reason to differ from the finding of the ld. CIT(A). Hence, the ground of appeal raised by the revenue is dismissed. 26. In the result, the appeal filed by the revenue is partly allowed. 27. The assessee raised the following grounds of appeal: e grounds mentioned herein are without prejudice to one another. That the order passed by the Ld. Commissioner of Income-Tax (Appeals) ['CIT (Appeals)'] under section 250 of the Income-tax Act, 1961 ('Act'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. (a) That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) and the learned AO erred in not allowing full deduction under section 80JJAA of the Act amounting to ₹ 180,731,409. (b) That the learned AO and the learned CIT (Appeals) erred in invoking the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Ld. AO and the CIT (Appeals) erred in consequently levying interest under section 234B, 234C and 234D of the Act. 6. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 28. The assessee-company also raised the following additional grounds of appeal: Transfer Pricing Matters 7. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) - IV ('CIT(A)') erred in confirming the action of the Ld. Assessing Officer ('AO')/Transfer Pricing Officer (TPO') in making an adjustment to the extent of ₹ 48,61,77,068/- to the provision of contract software development and related services provided to its associated enterprises. 8. On the fact and in the circumstances of the case and in law, the Ld. CIT(A)/AO/TPO erred in: 8. 1. Rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant under Section 92D of the Act in good faith and with due diligence; 8. 2. Using data, which was not contemporaneous and which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved private bonded warehouse for Unit-1 (non-10A), situated at RMZ Nxt, Sonnenahalli Village, KR Puram Hobli, Mahadevapura. During the year, Unit-1 (non-10A) was carrying on its activities from owned premises at Campus, #138, EPIP, Whitefield and various other rented premises. During the year, Unit-1 (non-10A) had de-bonded premises at Phase-3, Salarpuria GR Tech Park and SECON. Resources of the floors de-bonded were shifted to newly bonded floors (which was bonded on August 3, 2007) at RMZ nxt in Block 2B fourth fifth floor and Block 2C fourth floor for business operations of Unit-1 (non 10A). Accordingly, the rent paid for the same was claimed as deduction by the Company from Unit-1 (non 10A). Details of the premises held by Unit-1 (non-10A) as on 1st April 2007, premises bonded de-bonded during FY 2007-08 for Unit-1 (non-10A) is placed at Page 1216 to 1218 of the Paper Book. Also, Unit-2 (10A) was carrying on its activities from various rented premises approved as private bonded warehouse by Customs and STPI. On October 23, 2007, Unit-2 (10A) de-bonded premises at Salarpuria GR Tech Park, RMZ nxt in Block 2A fourth floor and ITPL. The floors de-bonded from Unit-2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO, which was contested by the assessee-company. On appeal, the ld. CIT(A) deleted this company from the list of comparables by applying turnover filter of range of ₹ 200 crores to ₹ 2000 crores. 36.1 Being aggrieved by this revenue was in appeal before us in IT(TP)A No. 1070/Bang/2013 wherein we held that turnover is not an appropriate filter. Hence, the assessee-company is challenging the inclusion of this company on the ground that this company is into both software development services as well as development of products like Dxchange, Travel Solutions, Insurance Solutions, Customer Appreciation Relationship Management Application (CARMA), Content Management systems etc. The website of the company indicates that it has developed a software product by name 'Dxchange' and no segmental information is available. Reliance in this regard was placed on the decision of the coordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 36.2 We heard rival submissions and perused the material on record. The comparability of Avani Cimcon Technologies Ltd. ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused 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 Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and document digitization. It was further submitted that the website of the Company mentions that the company offers product solutions in the areas of Data Quality, Business Intelligence, and Life sciences to a reputed customer base worldwide and its products include Spend Data Management Solution (SDMS), Multi Industry Data Anomaly Solution (MIDAS), data cleansing and integration software, Patent Asset Management (PAM), and Patent Search and Patent Analysis Tool (PSPAT). Reliance in this regard was placed on the decision of the co-ordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 37.3 We heard rival submissions and perused the material on record. The comparability of M/s. Bodhtree Consulting Ltd., had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra). The relevant portion is extracted hereunder: 20. Vis-a-vis M/s. Bodhtree Consulting Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 6 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the list of comparables. It was submitted by the learned Authorised Representative that though these cited decisions were rendered for Assessment Year 2009-10, the facts and circumstances of the case are similar for Assessment Year 2008-09 as well and applies to the year under consideration. The learned Authorised Representative prays that in view of the above, this company be excluded from the list of comparables. 15. 2 Per contra, the learned Departmental Representative supported the orders of the authorities below in including this company in the list of comparable companies. 15. 3.1 We have heard both parties and perused and carefully considered the material on record, including the judicial decisions cited by the ld. A.R. We find that this company has been excluded from the set of comparables for software development service companies in both the aforesaid decisions cited by the assessee. In Mindtech (India) Ltd., the relevant portion of the order at para 16 thereof it has been held as under :- 16. We have considered the rival submissions. The Special Bench of the ITAT in the case of Maersk Global Centres (supra) had an occasion to deal with the question as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that the company is into diversified activities such as outsourced product engineering, product development, technology consulting, business consulting which are normally regarded as high-end ITES services. The services fall under the category of KPO services. Therefore, should be excluded. Further, no segmental data is provided in the annual report of the company for the year under consideration. Reliance in this regard was placed on the decision of the co-ordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 38.3 We heard rival submissions and perused the material on record. The comparability of M/s. E-Zest Solutions Ltd., had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra). The relevant portion is extracted hereunder: 22. Vis-a-vis M/s. e-Zest Solutions Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 8 which is reproduced hereunder : 8. e-Zest Solutions Ltd. 8. 1 Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct development services and high end technical services which come under the category of KPO services. It has been held by the coordinate bench of this Tribunal in the case of Capital I-Q Information Systems (India) (P) Ltd. Supra) that KPO services are not comparable to software development services and are therefore not comparable. Following the aforesaid decision of the co-ordinate bench of the Hyderabad Tribunal in the aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O./TPO is accordingly directed. 8. 4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09, we direct the Assessing Officer/TPO to omit this company from the list of comparables in the case on hand. Respectfully following the ratio of the decision of the co-ordinate bench in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra) we direct the AO/TPO to exclude E-Zest Solutions Ltd., from the list of comparables. Infosys Technologies Ltd. 39. This company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly comparable to the assessee since it commands substantial brand value, owns IPR's and is a market leader in software development activities, whereas the assessee in the case on hand is merely a provider of software services to its AEs and does not possess any brand value or own any intangibles or IPR's. In support of this proposition, the learned Authorised Representative placed reliance on the decision of a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra). 9. 3 Per contra, the learned Departmental Representative supported the order of the TPO/DRP in including this company in the list of comparables to the assessee. 9. 4.1 We have heard both parties and perused and carefully considered the material on record; including the judicial pronouncement relied on by the assessee. We find that a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables as it has huge revenue's from software product development, Owned IPR's and was not purely a provider of software services by observing at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bifurcation between software services and products. Inventory holding on account of software development products is around 43% of total current assets. Reliance in this regard was placed on the decision of the co-ordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 40.3 We heard rival submissions and perused the material on record. The comparability of Kals Information Systems Ltd., had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra). The relevant portion is extracted hereunder: 24. Vis-a-vis M/s. Kals Information Systems Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 10 which is reproduced hereunder : 10. KALS Information Systems Ltd. 10. 1 This is a comparable selected by the TPO inspite of the assessee's objections to its inclusion in the list of comparables on the grounds that it is functionally different and that the segment details were inconsistent with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght 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. 10. 4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we direct the Assessing Officer to omit this company from the list of comparables in the case on hand. Respectfully following the ratio of the decision of the co-ordinate bench in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra) we direct the AO/TPO to exclude Kals Information Systems Ltd., from the list of comparables. Persistent Systems Ltd. 41. This company was selecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing engaged in software designing and analytic services and is therefore not comparable to a provider of software development service provider, as is the assessee in the case on hand. The learned Authorised Representative submitted that a coordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company, being engaged in product development and product design services, is to be omitted from the list of comparables to providers of software development services. 12. 3 Per contra, the learned Departmental Representative supported the orders of the authorities below in including this company in the list of comparables. 12. 4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement relied on by the assessee. We find that a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables as it is functionally different from a provider of software development services, being engaged in product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and consultancy services in IT on various platforms and technologies. During the year under consideration, the company has developed certain proprietary products portfolio and acquired copy rights for the same in Flexible Home Building (HBfx), Hospital Management and Information System (HMIS) in healthcare and Edu Campus in Education verticals as products. During the year, the company made a key strategic acquisition of PA Corporation Inc. ('PAC'), a US-based information technology corporation providing a broad range of services. PAC has core competencies in high-end IT consulting and leadership in middle space IT services, enabling Quintegra to leverage across multiple points in the value chain. Reliance in this regard was placed on the decision of the coordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 42.4 We heard rival submissions and perused the material on record. The comparability of Quintegra Solutions Ltd. had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this company i.e. Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The coordinate bench of this Tribunal in the case of 24/7 Customer Com. Pvt. Ltd. (ITA No. 227/Bang/2010 dt. 9.11.2012) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted form the list of comparables, as in the case on hand. 18. 3.2 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where extraordinary events have taken place, which has an effect on the performance of the company, then that company shall be removed from the list of comparables. 18. 3.3 Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the description of the activities performed in the embedded software service segment that the company has invested in R D efforts in developing reusable software components, licensable IPs, etc. The company is engaged in IP development in communication and multimedia technologies. Reliance in this regard was placed on the decision of the co-ordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 43.3 We heard rival submissions and perused the material on record. The comparability of Tata Elxsi Ltd. had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra). The relevant portion is extracted hereunder: 27. Vis-a-vis M/s. Tata Elxsi Ltd. (seg), findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 15 which is reproduced hereunder : 15. Tata Elxsi Ltd. (Seg) 15. 1 This company was a comparable selected by the TPO inspite of the assessee's objections to its inclusion in the set of comparables on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The relevant portion is extracted hereunder: 28. Vis-a-vis M/s. Thirdware Solutions Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 16 which is reproduced hereunder : 16. Thirdware Solutions Ltd. 16. 1 This company was included in the list of comparables despite the objections of the assessee to its inclusion in the list of comparables on the ground that its turnover was in excess of ₹ 500 Crores. 16. 2 Before us, the assessee objected to the inclusion of this company as a comparable for the reason that apart from software development services, it is in the business of product development, trading in software, giving licenses for use of software and that segmental details are not available. It was also submitted that a coordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) in its order for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables for providers of software development services. 16. 3 Per contra, the learned Departmental Representative supported the orders of the TPO in includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 45.1 On appeal, the ld. CIT(A) deleted this company from the list of comparables by applying turnover filter of range of ₹ 200 crores to ₹ 2000 crores. 45.2 Being aggrieved by this revenue was in appeal before us in IT(TP)A No. 1070/Bang/2013 wherein we held that turnover is not an appropriate filter. Hence, the assessee-company is challenging the inclusion of this company on the ground that this company on the ground that the company is engaged in Information Technology Services, R D Services, Business Processing Outsourcing and other business. The company caters to various industries and is leading India based provider of IT services and Products. Wipro is a giant company and a market leader assuming all risks leading to higher profits. During the year under consideration, the company has earned revenue from software development services (as considered by the TPO) of ₹ 11955.6 crore which is 16.83 times higher than the revenue of the Appellant. There are no segmentals available for revenue from sale of product and services. Reliance in this regard was placed on the decision of the co-ordinate bench of Tribunal in the case of M/s. Hewlett-Packard (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The TPO rejected the assessee's objections on the ground that as per the company's reply to the information called for under Section 133(6) of the Act, the company has categorised itself as a pure software developer and therefore included this company as a comparable to the assessee in the case on hand who was also a provider of software development services. 14. 2 Before us, the learned Authorised Representative submitted that this company ought to be excluded from the list of comparables as a co-ordinate bench of this Tribunal in its order in 3DPLM Software Solutions Ltd. (supra) has held that this company is to be excluded as a comparable as it has related party transactions (RPT) of 18.3%; thereby failing the RPT filter of 15%. 14. 3. Per contra, the learned Departmental Representative supported the order of the TPO in including this company in the list of comparables. 14. 4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decision relied on by the assessee. We find that a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2 Reliance in this regard was placed on the decision of the coordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 47.3 We heard rival submissions and perused the material on record. The comparability of Lucid Software Ltd. had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra). The relevant portion is extracted hereunder: 31. Vis-a-vis M/s. Lucid Software Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 11 which is reproduced hereunder : 11. Lucid Software Ltd. 11. 1 This company was selected as a comparable by the TPO. Before the DRP, the assessee objected to the inclusion of this company in the list of comparables but the DRP retained this company as a comparable on the ground that it is a pure software development services provider and does not have any revenue's by way of sale of products/licenses. 11. 2 Before us also, the assessee objected to the inclusion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to demonstrate that the factual and other circumstances pertaining to this company have not changed materially from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008-09. In this factual matrix and following the afore cited decisions of the co-ordinate benches of this Tribunal and of the ITAT, Mumbai and Delhi Benches (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand. 11. 4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we direct the Assessing Officer/TPO to exclude this company from the list of comparables in the case on hand. Respectfully following the ratio of the decision of the co-ordinate bench in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra) we direct the AO/TPO to exclude Lucid Software Ltd. from the list of comparables. In the result, the appeal filed by the assessee as well as the revenue is partly allowed. 49. The cross objection filed by the assessee is dismissed as the de ..... 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