9911796707
TMI Blog2015 (11) TMI 1662X X X X Extracts X X X X X X X X Extracts X X X X ..... ry company of Deere and Co. USA. The assessee is engaged in providing software development services, ITES and sales support services to John Deere group entities {Associated Enterprises (AEs)}. The assessee is having three divisions; (i) Software Development; (ii) Design, Engineering & Testing, and (iii) Business Support Services. For benchmarking its international transactions with its AEs, the assessee selected TNM Method as the most appropriate method. As per the assessee the margin of operating profit to total operating cost of the comparables entities was 12.72% and that of the assessee is 12%. Since, the margin of the assessee is within +/- 5% range, the transaction of providing software services to the AEs was adopted as ALP. The assessee selected 23 companies as comparable entities for software development services and 11 companies as comparable for design, engineering, testing and authoring services. For business support services the assessee selected 18 companies as comparables. 4. The assessee furnished TP study report before the Transfer Pricing Officer (TPO). In respect of software development services, the TPO rejected most of the companies selected by the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue receipts of the respective units. The Assessing Officer also made disallowance u/s. 40(a)(i) and 43B of the Act in respect of unit eligible for deduction u/s.10A. The Assessing Officer disallowed deduction u/s. 10A on the disallowance made u/s. 40(a)(i) and 43B of the Act in respect of profits of STPI unit. Aggrieved by the draft assessment order, the assessee filed objections before Dispute Resolution Panel (DRP). The DRP vide directions u/s. 44C(5) dated 28-08-2012 rejected the objections of the assessee. In the light of the directions of DRP the Assessing Officer passed the impugned assessment order, against which the assessee is in appeal before the Tribunal. 6. Shri Nikhil Pathak appearing on behalf of the assessee submitted that the assessee has raised primarily 3 grounds in the grounds of appeal. As far as ground No. 1 relating to disallowance of deduction u/s. 35D is concerned, the same is not pressed. Ground No. 2 relates to restricting the claim of deduction u/s. 10A on the ground that deduction u/s. 10A is not allowable in respect of disallowance made u/s. 40(a)(i) and 43B of the Act. The authorities below have erred in not appreciating the fact that the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .30%. The objections raised by the Ld. Counsel for assessee in respect of comparables selected by the TPO in respect of Software Division are as under: Comparables selected by the TPO Objections raised by the assessee Bodhtree Consulting Ltd. The said company is not exclusively engaged in software development services and hence, the same cannot be considered as comparable entity. The Ld. Counsel in support of his submissions relied on the decision of Coordinate Bench of the Tribunal in the case of Barclays Technology Centre India (P) Ltd. Vs. ACIT reported as 56 taxmann.com 386 (Pune)(Trib.). E-Zest Solutions Ltd. The Ld. Counsel submitted that the said company is functionally different. Pune Bench of the Tribunal in the case of Symphony Services Pune (P) Ltd. Vs. ITO reported as 46 taxmann.com 182 (Pune)(Trib.) has held that E-Zest Solutions Ltd. is not engaged in software development. Since, the said company is engaged in a different activity, it should be excluded from the list of comparables. Similar view has been taken by the Tribunal in the case of Barclays Technology Centre India (P) Ltd. (supra). Helios & Matheson Information Tech. The Ld. Counsel contended that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from software development and services was 241.43 Crores. A comparative analysis of the above figures show that there was no drastic change (fall) in the revenue of the company. Further, from the perusal of annual report of Aztec Soft Ltd. on standalone basis, it is evident that there is no exceptional item on sale of any unit. Thus, the contention of the TPO that the company is in restructuring phase is not tenable. The Ld. Counsel submitted that the related party transaction (RPT) filter applied by the authorities below considering the related party transactions in respect of both revenue and expenditure in numerator and only revenue in denominator, is not correct. The correct percentage of related party transaction in the case of Aztec Soft Ltd. is 18.69% and not 25% as has been calculated by the TPO. Thus, the rejection of Aztec Soft Ltd. as comparable entity is wrong. SIP Technologies and Exports Ltd. The Ld. Counsel submitted that the company has been rejected as comparable on the ground that it has incurred loss in the current year. SIP Technologies is not a persistently loss making entity. It was accepted as a comparable by the Ld. TPO in assessee's own case for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company. Further, the operating margin of Genesys is 46.82% which is very much on the higher side. The Ld. Counsel submitted that the Genesys has been rejected as comparable entity in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) and Hyundai Motors India Engineering Pvt. Ltd. 152 ITD 112 (Hyderabad)(Trib.) Cosmic Global Ltd. The Ld. Counsel submitted that the said company has been held to be functionally not comparable in the case of Parexel International India Pvt. Ltd. reported as 51 taxmann.com 238 (Hyderabad)(Trib.). 10. The Ld. Counsel contended that the TPO has rejected CG-VAK Software & Exports Ltd. on the ground that it is engaged in different business and it had incurred loss in the year under consideration. The DRP has pointed out that the said company is mainly engaged in development of computer software and is not providing ITES/BPO services. The said observations of the authorities below are against the facts. CG-VAK Software & Exports Ltd. is providing ITES services similar to the one provided by the assessee. Thus, the assessee and the said company are not functionally different. An examination of the segmental results of the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 (Pune)(Trib.), it was held that these companies are not good comparables. Thus, the same were deleted from the list of comparable entities. The Ld. Counsel prayed for excluding the companies from the list of comparables which are either functionally not compatible with the assessee company or have abnormally high profits and to include the companies which have been dropped from the list of comparables by the TPO on one pretext or the other. 13. On the other hand Shri S.K. Rastogi representing the Department vehemently supported the findings of DRP, TPO and Assessing Officer. The Ld. DR submitted that the assessee has not maintained separate books of account in respect of the two units, eligible and non-eligible to claim deduction u/s.10A of the Act. In the absence of separate books of account, the correctness/reasonableness of allocation of expenses between the two units cannot be verified. The Assessing Officer rightly allocated the operating expenses on the basis of sales. As far as restructuring of deduction u/s. 10A on the basis of disallowance u/s. 40(a)(i) and section 43B is concerned the deduction u/s. 10A is given to promote export of goods and computer software. Disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as 43 taxmann.com 100 (Mumbai)(Trib.)(SB) and the judgment of Hon'ble Delhi High Court in the case of Chrys Capital Investment Advisors India P. Ltd. Vs. DCIT reported as 56 taxmann.com 417 (Delhi). The Ld. DR further submitted that before rejecting the company on account of high margins, the reasons for such extreme results should be examined and after conducting detailed analysis, if it is found that normal business conditions have resulted into higher profits for an enterprises, the enterprise should be selected as a comparable. The Ld. DR prayed for sustaining the order of DRP and Assessing Officer and dismissing the appeal of the assessee. 15. We have heard the submissions made by the representative of rival sides at length. Both the sides have vehemently argued on the issues raised in the appeal. We have also examined the orders of the authorities below and perused the decisions on which both the sides have placed reliance to support their submissions. 16. The first ground raised by the assessee in appeal is with regard to disallowance of deduction u/s. 35D of the Act. The Ld. Counsel of the assessee has stated at the Bar that he is not pressing the first ground rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A, the addition made on account of the employees' contribution was ignored in calculating the profits eligible for deduction on the ground that these receipts were not generated out of the manufacturing activity of the assessee company. By reason of the judgment of the Supreme Court in CIT vs. Alom Extrusions Ltd. (2009) 227 CTR (SC) 417 : (2009) 32 (SC) DTR 49 : (2009) 319 ITR 306 (SC) the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the AO has not, the Court is informed, been challenged by the assessee. As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards PF/ESIC and the only question which is canvassed on behalf of the Revenue is whether on that basis the Tribunal was justified in directing the AO to grant the exemption under s. 10A. On this position, in the present case it cannot be di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the method adopted by the assessee for determination of ALP. The dispute is with regard to selection of comparable entities for determination of ALP. To decide these issues we will first take up the entities initially selected by the assessee in the case of Software Development Services and the entities substituting by the TPO for TP study. 18.1 The assessee provided Software Development Services to Deere & Co., USA. Services provided by the assessee were in nature of computer programming, Code development, integration etc. The total turnover of Software Division is Rs. 73,52,09,170/- and operating margin to operating cost ratio is 12.50%. The assessee had initially selected 23 companies as comparable entities for determining ALP. The list of companies selected by the assessee as comparables is as under: Sl. No. Name of the company Weighted average of operating profits on operating costs (%) 1 Akshay Software Technologies Limited 6.60% 2 Aztecsoft Limited 18.16% 3 Goldstone Technologies Limited 11.50% 4 Helios & Matheson Information Technology Limited 38.40% 5 Indium Software (India) Limited 11.09% 6 Infosys Technologies Limited 39.96% 7 K P 1 T Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparables selected worked out to 27.28% after allowing the working capital adjustment, operating margin of comparables is 24.63%. However, the assessee raised objection to the selection of some of comparables adopted by the TPO. The list of comparables selected by the TPO and upheld by the DRP on which the assessee has raised objection is as under: 20.1 Bodhtree Consulting Ltd. : The assessee had initially selected Bodhtree Consulting Ltd. in its list of comparable. Subsequently, the same was taken out from the list of comparable as the said company is not exclusively engaged in software development services. The TPO again included the company in the list of comparable entity. The Ld. Counsel in support of his submissions that, Bodhtree Consulting Ltd. is not a good comparable placed reliance on the decision in the case of Barclays Technology Centre India (P) Ltd. Vs. ACIT (supra). The Coordinate Bench of the Tribunal in the case of Barclays Technology Centre India (P) Ltd. Vs. ACIT (supra) rejected Bodhtree Consulting Ltd. as comparable by placing reliance on the decision of Bangalore Bench of the Tribunal in the case of M/s. Mindteck (India) Ltd. in I.T.(TP).A.No.70/Bang/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have carefully considered the rival submissions with respect to Bodhtree Consulting Limited. The plea of the assessee is that the said concern is engaged in the sale of software products, apart from considering software services, and that no segmental data is available in this context; thus, it is functionally not comparable with the assessee's activities. In this regard, we have perused the discussion made by our Coordinate Bench in the case of NetHawk Networks India Pvt. Ltd. (supra) wherein the said concern has been found to be not exclusively engaged in rendering software development services. The relevant discussion in the case of NetHawk Networks India Pvt. Ltd. (supra) is as under : "C. Bodhtree Consulting Limited 21. On this comparable, case of the assessee is that the company is not a good comparable in view of the Software Products produced by the company. As such, no segmental data is adequately available too. Accordingly, we dismiss the argument of the Ld. DR in this regard. Ex consequenti, the AO/TPO is directed to exclude the same from the list of final comparables for working out the arithmetic mean. 22. On the other hand, Ld DR filed a copy of the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO of the assessee in the present case. It is stated in the letter dated 5.2.2010 written by the Chartered Accountant of Bodhtree Consulting Ltd to the TPO Hyderabad that the company is providing data cleaning services to clients for whom it had developed the software application........." 23. Considering the above, we are of the opinion that Bodhtree Consulting Limited is not engaged in the software development services and there is no segmental data comparable. Therefore, the FAR analysis goes against the TPO/AO." 23. There is no material placed before us which would require us to deviate from the conclusion drawn by the Mumbai Bench of the Tribunal in the case of NetHawk Networks India Pvt. Ltd. (supra) in the context of the exclusion of Bodhtree Consulting Ltd. from the final set of comparables." Thus, in view of the detailed discussion in the aforesaid order, we are of the view that Bodhtree Consulting Ltd. is not functionally comparable to the services rendered by the assessee. The Ld. DR has not placed on record any material to distinguish the aforesaid decision. Accordingly, Bodhtree Consulting Ltd. has to be excluded from the final set of comparables. 20.2 E-Zest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra) we hold that E-Zest Solutions Limited is liable to be excluded from the list of comparables for the period under consideration. We hold so. Thus, on this aspect assessee succeeds." Thus, in view of aforesaid findings of the Co-ordinate Bench in respect of functional difference between the activities of E-Zest Solutions Ltd. and the companies engaged in software development activities (assessee being one of such software development companies), we are of the considered view that the said company has to be excluded from the list of comparables in the present case. 20.3 Helios & Matheson Information Tech.: The company was selected as comparable by the assessee in the first instance in TP study. A perusal of the TPO order shows that no objection was filed by the assessee against this comparable. Before us the Ld. Counsel submitted that this comparable was rejected by the Tribunal in assessee's own case for assessment year 2007-08 on the ground that it is functionally different. The relevant extract of the order of the Tribunal in ITA No. 1319/PN/2011 for the assessment year 2007-08 decided on 10-10-2014 is reproduced here-in-under: "36. So far as Helios and Matherson In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. and the assessee. The relevant extract of the order of Tribunal is as under: "34. Now coming to the merit of each case, we find the assessee in its TP study report has included Infosys Technologies Ltd., as comparable. From the various details furnished by the assessee, we find the TPO in its order for A.Y. 2006-07 in assessee's own case has held that Infosys is not a comparable company with that of the assessee company because of huge disparity between the turnover of Infosys Technologies Ltd. with that of the assessee company. 34.1 We find the Hon'ble Delhi High Court in the case of CIT Vs. Agnity India Technologies Pvt. Ltd., (Supra) has held that Infosys Technologies Ltd., cannot be considered as a comparable entity with that of smaller companies. In various other judicial decisions it has been held that considering huge difference in revenues, assets and risks assumed by Infosys and other smaller companies, Infosys Technologies Ltd., cannot be considered as comparable entity with smaller companies. In this view of the matter and considering the fact that the TPO in assessee's own case in the immediately preceding assessment year has excluded Infosys as a comparable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation Technology Ltd., and KALS Information Solutions Ltd. (Seg). The primary plea raised by the assessee to assail the inclusion of the aforesaid two companies from the list of comparables is to be effect that they are functionally incomparable and therefore, are liable to be excluded. In sum and substance, the plea set up by the assessee is that both the aforesaid concerns are engaged in development and sale of software products which is functionally different from the services undertaken by the assessee in its IT-services segment. 17. As per the discussion in para 6.3.2. of the order of the TPO, the reason advanced for including KALS Information Systems Ltd., is to the effect that the said concern's application software segment is engaged in the development of software which can be considered as comparable to the assessee company. The said concern is engaged in two segments namely application software segment and Training. As per the TPO, the application software segment is functionally comparable to the assessee as the said concern is engaged in software services. The stand of the assessee is that a perusal of the Annual Report of the said concern for F. Y. 2006-07 rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of the Annual Report, referred to in the written submissions addressed to the lower authorities, the assessee has correctly asserted out that the said concern was inter alia engaged in sale of software products, which was quite distinct from the activity undertaken by the assessee in the IT Services segment. At the time of hearing, neither is there any argument put forth by the Revenue and nor is there any discussion emerging from the orders of the lower authorities as to in what manner the functional profile of the said concern has undergone a change from that in the immediately preceding year. Therefore, having regard to the factual aspects brought out by the assessee, it is correctly asserted that the application software segment of the said concern is not comparable to the assessee's segment of IT services." 37.2 xxxxxxxxxx 37.3 In view of the decision of the Pune Bench of the Tribunal giving reasons for exclusion of Kals Information System Ltd., and Compucom Software Ltd., from the list of comparables because of different functions, we find merit in the submission of the Ld. Counsel for the assessee that the above two companies cannot be included in the lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said concern has earned abnormally high profit margin of 57.02% and for this reason also, it should be excluded from the final set of comparables. It has also been submitted that after perusing profit margins for various years, it is evidenced that the margins have widely fluctuated over the years. The following Tabulation has been placed before us :- Year Unadjusted Operating margin (OP/OC) F.Y. 2005-06 14.75 F.Y. 2006-07 19.94% F.Y. 2007-08 57.02% F.Y. 2008-09 37.07% 26. The Ld. Counsel pointed out that the operating margin of the said concern for the year under consideration is 57.02%, which is quite abnormal in the context of the operating margins of 19.94% to 14.75% for the preceding financial years of 2006-07 and 2005-06 respectively, as also for the succeeding financial year of 2008-09 where the operating margin is 37.09%. In this context, reliance has been placed on the decision of the Special Bench of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd., ACIT vide ITA No.7466/Mum/2012 dated 07-03-2014. 27. The Ld. CIT Departmental Representative pointed out that the DRP has rejected the plea of the assessee on the ground that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded from the list of comparables straightaway without making appropriate investigations. As per the Special Bench, it would be appropriate to ascertain as to whether the high profit margin declared by the concern reflects a normal business phenomenon or it has resulted because of certain abnormal conditions prevailing in a particular year. As per the Special Bench, in order to carry out the aforesaid analysis, the profit margins earned by such concern in the proximate preceding and succeeding years should also be taken into consideration so as to establish whether the high profit margins reflect a normal business trend or otherwise. In this background of the matter, we find that in the case of FCS Software Solutions Ltd., the margins for the two preceding financial years are 14.75% and 19.94%, whereas in the financial year succeeding to the year under consideration, the margin is 37.07%; and, the margin declared for the year under consideration is 57.02%. At the time of hearing, the Ld. Representative pointed out that in the financial year 2007-08 relevant to the assessment year under consideration the said concern's revenues from the software activity was Rs. 86.73 crores as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty Transaction (RPT). According to the TPO, the RPT of the said comparable was more than 25%. The TPO further observed that the said company is in restructuring phase, therefore, cannot be considered as comparable. The Ld. Counsel has placed on record the financial results of Aztec Soft Ltd. for the F.Ys. 2006-07 and 2007-08. A perusal of the profit and loss account for the said financial years shows that as on 31-03-2007 the income of Aztec Soft Ltd. from software development and services was to the tune of Rs. 241.43 Crores and for the financial year ending on 31-03-2008 the corresponding income from software development services was Rs. 225.52 Crores. Thus, the financial result shows that there has not been much deviation in the revenue generated by the said company. As far as the RPT are concerned the assessee has placed on record at page 420 of the paper book the calculation of RPT. For the sake of convenience the same is reproduced herein : Calculation of Related Party Transactions (RPT) Particulars Amount (INR'000) Revenue 2,306,448 Expenses 2,122,712 Subtotal (A) 4,429,160 Total Related Party Transactions Onsite Consultancy Fees Payable to Aztech Soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion. During the period relevant to the assessment year 2008-09 the assessee provided Designing & Engineering related services to the tune of Rs. 86,42,20,000/- to its AE. To benchmark international transaction in respect of Design & Engineering division the assessee adopted TNMM as the most appropriate method. The operating margin of the assessee company under this division is 14.30%. The assessee initially selected 11 companies as comparables. The list of the companies selected by the assessee is as under: 23. The assessee while selecting the comparables for benchmarking considered the functional results of the comparable entities of 3 financial years. In the first instance the TPO rejected the three year criteria and confined to the comparison of financial result relating to assessment year 2008-09. The Assessing Officer rejected most of the companies which were included by the assessee in the list of comparables and included new companies as comparable entities. The final list of the entities, considered by the TPO as comparables is as under: Sr. No. Company Operating profits on operating costs % (F.Y. 2007-08) 1 Genesys International Corporation Ltd. 46.82 2 K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the decision of the co-ordinate bench of this Tribunal in the case of Netlinx India(P) Ltd in ITA No.454/Bang/2011 dt.19.10.2012 wherein it was held that Vishal Information Technologies Ltd cannot be considered as a comparable. We, therefore, respectfully following the decision of the Mumbai Tribunal in the case of Mearsk Global Services (I) Pvt Ltd, direct the Assessing Officer / TPO to exclude Vishal Information Technologies Ltd. from the list of comparables." 15. Following the decision of the Tribunal referred to above, we hold that Coral Hubs Ltd. cannot be considered as a comparable. It may also be relevant to point out that the TPO in his order has observed that this company is retained as a comparable on the basis of detailed discussion in the TP order for the A.Y. 2007-08. In fact in A.Y. 2007-08, there was no determination of ALP and therefore there was no occasion for any order being passed by the TPO. It is also seen that this company entered into an area of business known as New Vertical Digital Library & Print on Demand in F.Y. 2007-08. In the case of Capital IQ Information Systems India Pvt. Ltd. (supra), the ITAT Hyderabad Bench in the case of ITES company cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded." In view of the observations made by the DRP as well as the decision of the ITAT Mumbai in the case of Maersk Global Service Centre, (supra), we accept that this company cannot be taken as a comparable." 16. It is also further noticed that the employee cost/operating sales of this company is a mere 3%, whereas the threshold limit for acceptance as a comparable on the basis of employee cost to sales should be at least 25%. This Tribunal in the case of First Advantage Offshore Services Ltd. v. CIT, IT(TP)A No.1086/Bang/2011, order dated 30.4.2013, has taken the following view:- "36. Having heard both the parties and having considered their rival contentions and the material on record, we find that this issue had arisen in the assessee's own case for the assessment year 2006-07. This Tribunal has held that employee cost filter is to be the same even for ITES segment also. The learned DR's argument that the empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R&D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R&D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables." I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segments. The entire outsourcing is confined to Translation charges paid at Rs. 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of Rs. 6.99 crore. If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3. However, we find this case to incomparable on the alternative argument advanced by the Ld. AR to the effect that total revenue of the Accounts BPO segment of Cosmic Global Limited is very low at Rs. 27.76 lacs. We have discussed this aspect above in the context of CGVAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BPO segment of Cosmic Global Limited at Rs. 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and is not providing ITES/BPO services. On the other hand the contention of the assessee is that CGVAK Software & Exports Ltd. is providing ITES services. The assessee has placed on record Annual Report of CG-VAK Software & Exports Ltd. for the period relevant to the assessment year 2008-09 at pages 460 to 474 of the paper book. From the perusal of the said report we observe that CG-VAK Software & Exports Ltd. is engaged in providing software services and BPO services. The substantial part of the Revenue earned by CG-VAK Software & Exports Ltd. is from software services and only 15.40% of the total revenue is generated from BPO services. Thus, the segmental result as reflected in the profit and loss account and balance sheet of the comparable entity shows that the same can be considered as good comparable. Accordingly, we reject the contentions of the assessee in respect of the said company. 25. The third segment in which the assessee company is operating is Business Support Services. The assessee has been providing management services to its AE. The turnover of the assessee from the Business Support Services is to the tune of Rs. 5,43,91,000/-. The operating margin of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent etc. The relevant extract of the services provided by Apitco Ltd. are as under: "APITCO, incorporated in 1976, is a premier Technical Consultancy Organization (TCO) promoted jointly by all-India financial institutions (IDBI, IFCI, ICICI), industry development corporations in Andhra Pradesh (APIDC, APSFC) and Commercial Banks (Andhra Bank, Indian Bank, Stale Bank of India, Syndicate Bank). At AP1TCO, we offer a wide range of consulting services, especially to SMEs in project identification, project counseling, prefeasibility reports, detailed project feasibility studies, infrastructure planning, market assessment, expansion, diversification and turnaround .strategies, energy audits, waste minimization, environment impact assessment, valuation of fixed assets, skill development etc. Extending handholding to micro entrepreneurs through its 'escort services' is APITCO's USP. APITCO's services to institutions engaged in industrial and entrepreneur ship development relate to undertaking area development studies, preparation of perspective plans, carrying out evaluation studies, industry specific studies, project appraisals, project management, asset valuation, HRD in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity level and there is no bifurcation available in respect of the services similar to those provided by the assessee under this segment, this company on entity level cannot be considered as comparable. We, therefore, hold that the ld. CIT(A) was justified in considering this company as not comparable." When we compare the activities of the assessee which is also primarily engaged in Software Development and other related services with Apitco Ltd., we observe that both the entities are at variance functionally. Therefore, we are of considered view that Apitco Ltd. is liable to be excluded from the list of comparables. 27.3. As far as TSR Darashaw Ltd. is concerned the only objection is that the said company is having abnormally high operating margin. In view of the fact that nothing has been brought on record to show the reasons for high profit margin, the same cannot be excluded from the list of comparable on mere bald assertions. 28. In view of our detailed findings above, the third ground of appeal is partly accepted for statistical purpose. 29. The fourth ground raised by the assessee in appeal is general in nature and thus, requires no adjudication. 30. In the result, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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