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TMI Blog2016 (11) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessment Year 2008-09. 2. The revenue has raised the following grounds : 1. The order of the learned CITCA) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the learned CITCA) erred in law in directing the AO to exclude the reimbursement of expenses incurred in foreign currency both from the export turnover as well as from total turnover for the purpose of computation of deduction u / s . lOA without appreciating the fact that the statute allows exclusion of such 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 J OA and the total turnover has not been defined in this Section. 3. On the facts and in the circumstances of the case the learned CITCA) 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 MIs Celestial Blolabs Ltd., MIs Flextronics Software Ltd. M/s. iGate Global Solutions Ltd., MIs lnfosys Technologies Ltd., M/s. Mindtree Consulting Ltd., M/s. Persistent Systems Ltd., M/s. Sasken Commun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 6. We have heard the rival submissions as well as considered the relevant material on record. At the outset, we note that this issue is covered by the decision of the Hon'ble jurisdictional High Court of Karnataka in the case of CIT V Tata Elxsi Ltd Others (2011) 247 CTR 334 (Karnataka) wherein it has been held that while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator. The relevant finding of the Hon ble jurisdictional High Court reads as follows:- ..Section 10A is enacted as an incentive to exporters to enable their products to be competitive in the global market and consequently earn precious foreign exchange for the country. This aspect has to be borne in mind. While computing the consideration received from such export turnover, the expenses incurred towards freight, telecommunication charges, or insurance attributable to the delivery of the articles or things or computer software outside India, or expenses if any incurred in foreign exchange, in providing the technical services outside India should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Thus, there is no error committed by the Tribunal in following the judgments rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same . Respectfully following the judgment of Hon'ble jurisdictional High Court, We do not find any error or illegality in the impugned order of CIT (Appeals) qua this issue. 7. Ground Nos.3 to 10 are regarding the Transfer Pricing Adjustment made by the Transfer Pricing Officer ( TPO ) and certain comparables selected by the TPO were excluded by the CIT (Appeals). The assessee is a company incorporated under the provisions of the Companies Act, 1956, and is a wholly owned subsidiary of PMC-Sie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Powersoft Global Solutions Limited 17 15 11. S I P Technologies and Exports Limited 20 18 12. Synetarios Technologies Ltd 20 17 13. Bodhtree Consulting Ltd 26 25 14. Lanco Global Systems Ltd 11 9 15. Computech International Ltd 5 5 16. Karuturi Networks Ltd 3 3 Mean (Average) 12 10 Thus the assessee claimed that its international transactions having operating margin of 13.17% at Arm s Length in comparison to the mean margin of comparables at 10%. The TPO rejected the TP analysis of the assessee and carried out fresh search by applying various filters like revenue from software development services should not be less than 75%, Related Party Transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (Seg) 28.45 29.90 19. Softsol India Ltd. 17.89 15.79 20. Lucid Software Ltd. 16.50 18.11 Mean (Average) 23.65 22.98 Thus the TPO has determined the mean margin of the assessee at 23.65% and after working capital adjustment at 22.98%. Accordingly, the TPO proposed an adjustment under Section 92CA of the Act of ₹ 4,03,93,704. The assessee challenged the action of the TPO/A.O before the CIT (Appeals) against the selection of various companies selected by the TPO. The CIT (Appeals) applied a turnover filter with the range of ₹ 1 Crore to ₹ 200 Crores and consequently excluded 8 companies as under : 1. Flextronics Ltd. 2. iGate Global Solutions Ltd. 3. Infosys Technologies Ltd. 4. Mindtree Ltd. 5. Persistent Systems Ltd. 6. Sasken Communication Technologies Ltd. 7. Tata Elxsi Limited 8. Wipro Limited (Seg) In addition to exclusion of 8 companies mentioned above, the CIT (Appeals) has also excluded Cele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est Solutions Ltd. 2. Lucid Software Ltd. 3. Quintegra Solutions Ltd. 4. Thirdware Solutions Ltd. The assessee has raised various grounds in the cross objection, however, at the time of hearing, the learned Authorised Representative has submitted that only Ground Nos.6, 8 and 10 are effective grounds which are pressed by the assessee and remaining grounds may be dismissed as not pressed. Accordingly, the Ground Nos.1 to 5, 7 9 of the cross objections of the assessee are dismissed as not pressed. The assessee has also filed an additional ground along with a petition for admission of the additional ground seeking exclusion of E-Zest Solution Ltd. which was selected by the TPO 8.1 We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record on the admissibility of the additional grounds. The learned Authorised Representative has submitted that the functional comparability of the company has been examined by this Tribunal in various cases and it was found that this company is not a good comparable. The learned Authorised Representative has also relied upon the decision of the Special B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st filter, RPT filter as well as functional comparability of these companies and therefore once it has been held that these companies cannot be regarded as good comparable on these contentions then even if these companies has been selected in the TP Study, the assessee cannot be precluded from raising an objection against these companies which are found to be not comparable. This view is supported by the decision of the Chandigarh Special Bench of this Tribunal in the case of DCIT Vs. Quark Systems Pvt. Ltd. 38 SOT 307 in paras 30 and 38 as under : 30. Learned special counsel for the Revenue Shri Kapila has vehemently argued that Datamatics was taken as one of the comparables by the taxpayer and no objection to its inclusion was raised before the TPO or before the learned CIT(A) in appeal. Therefore, the taxpayer should not be permitted to raise additional ground and ask for exclusion of the above enterprise in the determination of the average margins. We are unable to accept above contention. In the first place, these are initial years of implementation of transfer pricing legislation in India and taxpayers as well as tax consultants were not fully conversant with this new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined by this Tribunal, we admit the additional ground raised by the assessee regarding functional comparability of E-Zest Solutions Ltd. for deciding the same on merits. 9. The issue of applying the turnover filter by the CIT (Appeals) in the range of ₹ 1 Crore to ₹ 200 Crores has been considered by the co-ordinate bench of this Tribunal in the case of ITO Vs. Maxim India Integrated Security Pvt. Ltd. vide order dt.31.3.2016 in IT(TP)A No.28/Bang/2012 in paras 11 12 as under : 11. We have heard the ld. DR and carefully considered the relevant material on record. The CIT(A) has directed the AO/TPO to exclude 5 comparable companies on the ground that their turnover exceeds ₹ 200 crores. The details of the companies are as under:- Sr No. Name of the company Turnover (Rs. in crores) 1 iGate Solutions Ltd. 406 2 Flextronics Software System Ltd. 457.45 3 L T Infotech Ltd. 562.45 4 Satyam Computer Services Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the co-ordinate bench, we direct the TPO/A.O to apply a multiple of 10 times of the assessee's turnover on higher as well as lower side of turnover of the assessee. Even otherwise we find that the CIT (Appeals) rejected 8 companies by applying the turnover filter in the range of ₹ 1 Crore to ₹ 200 Crores as under : Sl.No. Comparable company Turnover (Rs. Crores) OP/TC (%) 1 Celestial Biolabs Ltd. 20.21 87.94 2 Flextronics Ltd. 954.42 7. 86 3 iGate Global Solutions Ltd. 781.56 13.99 4 Infosys Technologies Ltd. 15,672.00 40.37 5 Mindtree Consulting Ltd. (Seg.) 572.97 16.41 6 Persistent Systems Ltd. 383.41 20.31 7 Sasken Communication Tech Ltd. (Seg.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Tribunal in the case of Kodiak Network India Pvt. Ltd. (supra) in paras 21 to 25 as under : 21. We have considered the rival submissions and relevant material available on record. As we have narrated the facts in the foregoing paras that the TPO has determined the ALP by taking into consideration the set of 20 comparables. The assessee has raised objection regarding 13 comparables out of 20 selected by the TPO. The companies against which the assessee raised objections are as under: S.No. Name of the Company 1 AvaniCimcon Technologies Ltd 2 Bodhtree Ltd 3 Celestial Biolabs Ltd 4 E-Zest Solutions Ltd 5 Infosys Technologies Ltd 6 KALS Information Systems Ltd (Seg.) 7 Lucid Software Ltd 8 Persistent Systems Ltd 9 Quintegra Solutions Ltd 10 Softsole India Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013. 7.3 The learned Authorised Representative further submitted that the factspertaining 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 :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed 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 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 prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change during the year under consideration which fact has been demonstrated by the assessee, following the decisions of the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 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. 8.0 Bodhtree Consulting Ltd. 8.1 This company has been selected as a comparable company to the assessee by the TPO; the inclusion of which was not objected to by the assessee before both the TPO and the DRP. The assessee has not objected to the inclusion of this company in the list of comparables, as can be seen from the grounds of appeal raised in Form 36B before this Tribunal. 8.1 However in the course of proceedings before us, the learned Authorised Representative objected to the inclusion of this company as a comparable for the following reasons : (i) This company has reported abnormally fluctuating margins in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is held to be comparable to the assessee and its inclusion in the list of comparable companies is upheld. 9. Celestial Biolabs Ltd. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely 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 IT(TP)A 1380/Bang/2012 Page 8 of 34 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware India Pvt. Ltd. (ITA No.1054/Bang/2011). (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.ITA 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 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, rejected these objections raised by the assessee on the grounds that turnover IT(TP)A 1380/Bang/2012 Page 24 of 34 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 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 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 intangible and hence does not have an additional advantage in the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. 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. 12. Wipro Ltd. 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, IT(TP)A 1380/Bang/2012 Page 26 of 34 however, brushed aside the objections of the assessee and included this company in the set of comparables. 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 ITA No.3856(Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 13. Tata Elxsi Ltd. 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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, 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. 14. E-Zest Solutions Ltd. 14.1 This company was selected by the TPO as a comparable. Before the TPO, the assessee had objected to the inclusion of this company as a compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 133(6) of the Act. It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest software Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate 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 software 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. 15. Thirdware Solutions Ltd. (Segment) 15.1 This company was proposed for inclusion in the list of comparables by the TPO. Before the TPO, the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration in the case on hand. 16. Lucid Software Ltd. 16.1 This company was selected as a comparable by the TPO. Before us, the assessee has objected to the inclusion of this company as a comparable on the grounds that it is into software product development and therefore functionally different from the assessee. In this regard, the learned Authorised Representative submitted that - (i) This company is engaged in the development of software products. (ii) This company has been held to be functionally different and therefore not comparable to software service providers by the order of a coordinate bench of the Tribunal in the assessee's own case for Assessment Year 2007-08 (IT(TP)A No.845/Bang/2011), following the decision of Mumbai Tribunal in the case of Telcordia Technologies India (P.) Ltd.(ITA No.7821/Mum/2011) (iii) The rejection of this company as a comparable to software service providers has been upheld by the co-ordinate benches of this Tribunal in the cases of LG Soft India (P.) Ltd and CSR India (P.) Ltd. (supra) and by the Delhi Bench of the Tribunal in the case of Transwitch India (P.) Ltd. (supra).(ITA No.6083/Del/2010) (iv) The factual position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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. 17. Persistent Systems Ltd. 17.1 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. 17.2 Before us, the assessee objected to the inclusion of this company as a comparable submitting that this company is functionally different and also that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a comparable. Before the TPO, the assessee objected to the inclusion of this company in the set of comparables on the ground that this company is functionally different and also that there were peculiar economic circumstances in the form of acquisitions made during the year. The TPO rejected the assessee's objections holding that this company qualifies all the filters applied by the TPO. On the issue of acquisitions, the TPO rejected the assessee's objections observing that the assessee has not adduced any evidence as to how this event had an any influence on the pricing or the margin earned. 18.2 Before us, the assessee objected to the inclusion of this company for the reason that it is functionally different and also that there are other factors for which this company cannot be considered as a comparable. It was submitted that, (i) Quintegra Solutions Ltd., the company under consideration, is engaged in product engineering services and not in purely software development services. The Annual Report of this company also states that it is engaged in preparatory software products and is therefore not similar to the assessee in the case on hand. (ii) In its Annual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com (P.) Ltd. (supra) 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. 18.5 We also find from the Annual Report of Quintegra Solution 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. 18.6 Respectfully following the decision of the co-ordinate bench of the Tribunal in the case of 24/7 Customer.Com (P.) Ltd. (supra), we direct that this company i.e. Quintegra Solution Ltd. be excluded from the list of comparables in the case on hand since it is engaged in proprietary software products and owns its own intangibles unlike th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software development services as provided by assessee. 24. As regard the objection of the ld. DR that Quintegra Solution Ltd. has been selected by the assessee itself, we notice that the functional comparability of this company has been examined by the Tribunal in the case of M/s 3DPLM Software Solutions Ltd (supra) and it was found that the said company is engaged in the different field of services i.e. product designing and analytic services as well as in proprietary of software product and are in research and development activity which has resulted in creation of its intellectual property rights. Therefore, the said company is not functionally comparable with pure software development service activity. Once the company is found to be a non-comparable company with the assessee, the same is required to be excluded from the set of comparables even if the said company is selected by the assessee itself. This view was taken by the decision of the Special Bench of Chandigarh Tribunal in the case QUARK SYSTEMS (P.) LTD (supra). 25. Thus, out of 20 comparables 12 companies are required to be excluded from the list of comparables for determining the ALP. Accordingly, we direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, we direct the TPO/A.O to exclude 12 companies as mentioned in para 25 of the order of the co-ordinate bench (supra) from the set of comparables and recomputed the ALP after considering the claim of risk adjustment as well as the benefit of tolerance range of + / - 5% as per the proviso to section 92C(2). Accordingly by following the earlier order of this Tribunal for the same assessment year, we direct the TPO/A.O to exclude 12 companies from the list of comparables on functional dis-similarity. Apart from the above 12 companies in which 2 companies namely Infosys Ltd. and Wipro Ltd. are common as also excluded on the ground of high turnover. Therefore the total companies which are directed to be excluded are 15 out of the 20 of the TPO s set of comparables. 12. As regards the inclusion of Indus Network Ltd., we find that employees cost is a relevant factor for selecting the comparables. We note that the TPO applied 25% of employees cost filter while selection of the comparables which shows that the companies which are engaged in providing software development services must be doing its business through their own employees and therefore if the employees cost is les ..... X X X X Extracts X X X X X X X X Extracts X X X X
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