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TMI Blog2018 (4) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... from its unit located in the Noida Special Economic Zone (SEZ) and the Software Technology Parks (STP) unit located in Bangalore. Further the IT group in India provides systems supports to all the Cadence offices across the world. They derive income in the business of development and export of computer software and providing technical support and training services. Assessee is a captive service provider and risk mitigated entity inasmuch as it is compensated on a cost place markup basis for the services rendered to its associated enterprise (s).For the AY 2011-12, the assessee filed the return of income on 25.11.2011 declaring a total income of Rs. 44,54,97,708/- and during the scrutiny learned AO found that during that year the assessee had the international transactions with associated enterprises, as such, referred the matter to the learned Transfer Pricing Officer("TPO") u/s 92CA(1) of the Act. Learned TPO tabulated the international transactions entered into by the assessee, transfer pricing approach of the assessee for bench marking purpose, as follows: S. No. Nature of Transaction Value (Rs.) Method applied No. of comparables Arm's length result Result of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performed by Cadence India. Conceptualization of services Software product lifecycle ("SPL") is generally a 3 phase, multi step process involving Product Management team, Marketing team and Product Engineering team. The 3 phases of Product Engineering are Product Definition, Product Development and Servicing. In the Product Definition (Conceptualization) phase, a value proposition and a product prototype are developed based on customer feedback from the servicing phase, surveys, competitive analysis, the product leader's vision for future and CDS's overall vision for the product category. Then, marketing research is performed to test the value proposition and the marketing feasibility of a product prototype. The product leadership team and product engineers will work with the marketing research team to address software engineering issues and technical feasibility. When the prototype is finalized the next phase of the lifecycle begins. The second phase is Product Development, which is a multi-step process involving determination of the requirements, design, implementation, verification and release. Again, each stage is a collaborative effort among the Product Engine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with product specifications defined by CDS. The code generated is subsequently tested to ensure that functions performed by the code are in accordance with the protocol design and standard specifications, Cadence India generates and makes available documentation for the software developed and transferred. The software developed by Cadence India is subsequently integrated into the final software product by CDS and other Cadence group entities. Project management Although the day-to-day management of the project is undertaken by Cadence India, CDS is responsible for the overall project management. Cadence India's responsibility is confined to the project management and the end deliverables with respect to the module of the software being developed by it. CDS also regularly conducts meetings to analyze the progress and monitors the project plan. However, the ultimate responsibility of the work undertaken by Cadence India rests with CDS. Quality control, testing and integration Cadence India is responsible for ensuring that requisite quality/performance standards are complied with while rendering services. Cadence India is responsible to ensure that services provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. Foreign exchange risk Exchange rate risk relates to the potential variability of profits that can arise because of changes in foreign exchange rates and arises whenever the transacting currency of an entity is different from its functional currency. Cadence India invoices CDS for its services in USD, which is different from its functional currency. However, since Cadence India is remunerated on all its costs including foreign exchange loss, Cadence India does not bear the foreign exchange risk in relation to transactions with CDS. CDS is exposed to any foreign currency risk in this context. Briefly tabulated are the key risks, borne by Cadence India and CDS in relation to the software development services provided by Cadence India to CDS. 6. Basing on the FAR analysis the assessee carried comparability analysis by providing the TNMM as the most appropriate method with PLI (OP/OC) to reach the figure 15.04%. In their transfer pricing study report, the assessee selected the following 23 companies with weighted average by OP/OC at 12.84%, and so stating that its margin was at ALP. S. No. Name of the company Weighted average of operating profits on operating costs (% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment u/s 92CA 106,994,958 9. In this appeal, as submitted by the learned AR, assessee is challenging the exclusion of Five companies, vis., Infosys Limited, Wipro Technology Services Limited, Acroperal Technologies Limited (Segmental), E-Infochips Limited and E- zest Solutions Ltd. and also praying for inclusion of Seven companies, viz., CG VAK software & Exports Ltd., Goldstone Technologies Ltd., Thinksoft Global Services Ltd., Cat Technologies Ltd., LGS Global Ltd., R. Systems International Ltd., and Blue Star Infotech Ltd. 10. Now we shall deal with the arguments relating to the inclusion or exclusion of these disputed comparables with reference to the documents available on record. Infosys Ltd.: 11. Assessee disputes the inclusion of this company on the ground of functional dissimilarity by stating that this company is engaged in technical consulting, design, development, re-engineering, maintenance systems integration, package evaluation, infrastructure Management services, etc. It is also submitted by learned AR that this company derives income from sale of software products such as Finacle Analyz, Flypp, iEngage etc. besides holding significant intangibles i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. cannot be compared with the assessee company and the observations of the bench needs to be extracted hereunder. (B) INFOSYS TECHNOLOGIES LIMITED (42.44%) 7. The assessee's main contention for exclusion of Infosys Technologies Limited had been that firstly, its services are incomparable with the assessee because Infosys is into technical consultancy design, development, re-engineering maintenance, system integration, package evaluation and implementation and infrastructure management services; secondly, it has huge R&D work for its products, which are more than Rs. 267 crores, whereas in the case of the assessee it is Nil; thirdly, Infosys has huge intangibles and brand value is also huge whereas in the case of the assessee it is nil; and lastly, Infosys is into large scale of operations which is evident from the fact that during the year it had turnover of Rs. 20,265 crores, whereas in the case of the assessee, it is only 248.53 crores. Thus, the company having such a huge turnover cannot be held to be comparable under FAR. The TPO and DRP, held that revenue from software products of Infosys Technologies Limited is only Rs. 848 crores out of its operating revenues of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development companies as the comparability analysis fails on all the factors of FAR. The Hon'ble Delhi High Court in the case of CIT v. Agnity India technologies Pvt. Ltd. (supra) made a comparative chart while dealing with similar comparative analysis, which for sake of ready reference is reproduced hereunder:- Infosys Technologies Ltd. Assessee Basic Particular Risk Profile: Operate as full-fledged risk taking entrepreneurs Operate at minimal risks as the 100 percent services are provided to AEs Nature of services: Diversified-consulting, application design, development, re-engineering and maintenance system integration, package evaluation and implementation and business process management, etc. Contract software development services Turnover: 20,264 crores 209.83 crores Ownership branded/proprietary products: Develops/owns proprietary products like Finacle, Infosys Actice Desk, Infosys iProwe, Infosys mConnect. Also the company derives substantial portion of its proprietary products (including its flagship banking product suite 'Finacle') Onsite v. Offshore As much as half of the software development services rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o and assessee are engaged in the development of software and software services, they are functionally similar and earning of super normal profits is of no consequence in respect of their comparability. 19. It is the argument of the learned AR that Wipro earns its entire income from services rendered to Citi Group of companies. According to him, the Wipro is engaged in IT software solutions/maintenance and technology infrastructure software services. Segmental information provided in its annuals is insufficient. Wipro with its profit rate of 54.42% earns super normal profits. He placed reliance on the decisions of the coordinate benches of this tribunal in Orange Business Services India Solutions P. Ltd. vs DCIT in ITA No.869/Del/2016 and Ness Technologies (India) P. Ltd. vs DCIT in ITA No.696/Mum/2016 and anr. 20. Learned DR submitted that in Ness India Technologies (P.) Ltd. case (supra) the Mumbai Tribunal followed the decision of Delhi Bench in the case of Saxo India P. Ltd. vs ACIT, ITA No.6148/Del/2015 order dated 5th February, 2016 and such decision in Saxo relates to some other earlier year, as such, without adverting to the changes that have taken place subsequent to tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a subsidiary to Wipro Ltd. and the entire revenue during the year is covered by a master service agreement entered into by break through with Citi Group services. Further, vide schedule No.18.9 it is clearly stated that this company is engaged in providing software related support services primarily information technology software solutions/maintenance and technology infrastructure support service to Citi group entities globally and it is considered as one segment. 24. We, therefore, find no reason not to believe that the entire revenues of this Wipro Technology services Ltd. are covered during the year by the master service agreement between Wipro Ltd. and Citi Group Inc. For this reason, we do not agree with the authorities below that this is a good comparable to the assessee. Learned AO is directed to delete this company from the list of comparables. Acropetal Technologies Ltd. (Segmental): 25. Assessee objected this company to be in the list of comparables mainly on the ground that this company employees cost is less than 25% of the total cost and also that this company is engaged in significant R &D activities and incurring significant advertisement, marketing and promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, ld. TPO observed that the assessee is also engaged in Semantics, under two heads of income i.e. income from software development and income from IT services which put together amounts to 86% of the total income, as such the assessee cannot insist on considering the income only from software development. He further observed that the other activities are of very small volume and integrally connected with the function of providing software services. 32. Ld. DRP observed that the revenue from software services of this company is as high as 85% of total receipts and there was no earning from sale of software products. Only a small component of earning is from hardware. Following Chrys Capital Investment Advisors (India) (P.) Ltd. case (supra) he held that when the companies are otherwise comparables, earning of super normal profit is not a ground to reject the company. 33. It is the argument of the ld. AR that the ld TPO vide paragraph No.16(i) of order selected one of the filters as "companies who have export sales less than 75% of the sales from the software development are excluded", but E-Infochip Ltd. has got the ratio of service revenue to total operating revenue at 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity." 37. In Ness technologies (India) (P.) Ltd. case (supra) this aspect was argued before the Mumbai Tribunal. Having considered the rival contentions in the light of the annual report of this company and also the decision of a coordinate bench of Delhi Tribunal in the case of Saxo India (P.) Ltd. (supra), it was held that this company is not a good comparable and deserves to be excluded from the final set of comparables for benchmarking the international transaction of provision of software development services undertaken by the assessee. Relevant portion of this division needs to be extracted hereunder for culling out the ratio:- "9.5 In our considered opinion, qualitatively speaking, the activities undertaken by M/s.E-Infochips Limited are not comparable to the pure software development services undertaken by the assessee as a captive service provider to its associated enterprises. Factually, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts to have different customers, i.e., unlike the assessee which actually faces a single customer risk. He further observed that the assessee has not recognized with this risk in its risk metrics. He, therefore, using his company as a comparable. 41. Ld. DRP considered all the submissions of the assessee in detail but held that this company is engaged in software development service, as such is a valid comparable to the taxpayer. 42. It is the submission of the Ld. AR that page No. 39 of the annual report of this company under the heading, shows an entry relating to increase/(decrease) in stock. Further, at page No. 42 of the annual report white schedule 7 inventory is there is an entry work in process. Under the significant accounting policies of identity "I" at page No. 48 of the annual report, it is mentioned that "valuation of inventories: inventories are accounted for at cost, automatically realizable value, whichever is less." Ld. AR submitted that the inventory is not a feature to be seen in software development industry. Basing on the sea submitted that the business model of the assessee is quite different from that of the e-zest and solutions Ltd. 43. Per contra, Ld. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing ('KPO') services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company's website which should be considered while evaluating the company's functional profile. It is also submitted by the learned Authorised Representative that KPO services are not comparable to software development services and therefore companies rendering KPO services ought not to be considered as comparable to software development companies and relied on the decision of the co-ordinate bench in the case of Capital IQ Information Systems (India) (P) Ltd. in ITA No.1961(Hyd)/2011 dt.23.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more particularly in view of the profile of the easiest solutions as could be found in the annual report of this company in detail, where of the considered opinion that this company is rendering broad portfolio of services including product engineering and software development. It has a special expertise in emerging technologies such as cloud, SAAS, business intelligence and mobility etc and it also holds and maintains inventory. For these reasons as has been held in Symantec Software and Services India (P.) Ltd. case (supra), we find that while the assessee is into software development services, E-Zest solutions Ltd is engaged in product engineering services in the nature of High end knowledge process outsourcing and also in product engineering software Development Company having expertise in emerging technologies cloud SAAS, Business Intelligence and mobility for more than 10 years and serving 8 industries across the globe with over 200 software professionals and on that ground it is not a comparable for benchmarking the international transaction of software development service. We accordingly direct the library ever to exclude this company from the list of comparables. 47. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 52. We have perused the annual report of this company. At page No. 19 thereof under the head expenditure the cost of service is noted. Except this, we will not find any expenditure relating to the employee cost whether it is called salaries and wages so on and so forth. There is no dispute that this company is engaged in software development service. Further the revenue from software development, services and products is Rs. 6,29,80,650/-which includes Rs. 5,24,54,418/- from offshore software services. For AY 2009-10, in the order of the Tribunal vide paragraph No. 18 it is noted that for such assessment year the TPO and DRP rejected this company on the ground that it does not fulfill the turnover criteria of Rs. 5 Crore and after considering the financials of this company the Tribunal rejected version that this company cannot be held to be incomparable simply on the ground of no turnover, unless it is demonstrated that the assets and the risks are completely different and non-incomparable. No employee cost filter is referred to in this order. However on a reading of the profit and loss account of this company incorporated at page No. 19 of its annual report we are of the consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment activities. It is brought to our notice that fire AY 2010-11 this company was accepted as a good comparable by the Ld. DRP. Ld. ADR placed reliance on the orders of the authorities below. 56. We have gone through the order dated 11/11/2014 passed by the Ld. DRP in assessee's own case for AY 2010-11 and found from para No. 48 thereof that the Ld. DRP recorded that this company is into IT services, software development and ITES services sector which is also the domain of the taxpayer as can be seen from the profile of the taxpayer mentioned in para 2 of the order. It is not the case of the Revenue that there is any change in the business model of the assessee from the earlier years nor are any circumstances brought to our notice which render this company which was comparable for the earlier year as non- comparable for this year. We, therefore, in view of the reasoning given by the Ld. DRP for the earlier year, hold that this company is a good comparable, and accordingly direct the Ld. TPO to include this company in the final list of comparables to benchmark the international transaction of software development services. Think soft global services Ltd 57. As could be seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of circumstances either in the business model of the assessee or that of the comparable are brought to our notice. This suggests the functional comparability of the company to that of the taxpayer. We, therefore, direct the Ld. TPO to verify the export sales vis-a-vis the total operating revenue from the annual report of this company and to include it in the list of comparables if it passes the export earnings filter. Cat technologies Ltd 61. Ld. TPO rejected this company on the ground that it is functionally different and has RPT in excess of 25% of sales. Ld. TPO recorded that this company is involved in a variety of services and in the absence of proper segmental accounts the same cannot be treated as a suitable comparable. Further the taxpayer has taken extracts from the consolidated annual report rather than the standalone annual report relied upon by the TPO. 62. Ld. DRP observed that as per the audit report the company's exclusive business is medical transcription, training software development and consulting services as such this is the only reportable segment. On this ground Ld. DRP refused to interfere with the order of the Ld. TPO. 63. It is argued on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany. It is further submitted that this fact is also evident from the fact that the LGS Global does not have any inventory of stock in trade of goods are revenue from sale of such purported purchased items. This is a verifiable fact. Ld. TPO has to verify whether there is any inventory or stock in trade of goods or revenue from the sale of such purported items, in the absence of which it is reasonable to believe that the expense under the head "Purchase and Personal cost" would amount only employee related cost. We, therefore, set aside this issue to the TPO to cast the above verification and to treat the purchase and personnel cast as the employee related cost if there is no inventory or stock in trade of goods or revenue from sale of such purported purchased items. 66. Now turning to the transfer pricing adjustment on provision of IT back office support service (ITES segment), according to the assessee, they have been rendering the services on cost plus margin of 15% under the agreement with CDS, according to which the functions performed and risks assumed, which are summarized in respect of this international transactions in the transfer pricing study, as follows: Functional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilization risk relates to the possibility of non-recovery of fixed costs being incurred. This may happen due to circumstances such as lack of production, lack of demand, inability to recover prices, etc. Provision of services requires substantial investment in infrastructure, in terms of premises, equipment, connectivity, etc. The risk of optimal utilization of capacity is borne by the entity making the investment. Since, Cadence India is compensated on a total cost plus mark up basis by CDS, it is assured of the recovery of costs of any underutilized/unutilized resources. Thus, Cadence India is not exposed to utilization risk and the same is borne by CDS. Re-work risk Re-work risk arises in a situation where the product sold/service provided does not meet the requisite quality/delivery standards and requires re-work. In case the services provided by Cadence India do not meet the requisite standards, the same may require re-work; however, since Cadence India is reimbursed for all costs including re-work costs along with a specified mark up. Cadence India does not bear any re-work risk. Foreign exchange risk Exchange rate risk relates to the potential variability of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO excluded the ICRA Techno Analytics Ltd. (segment) with PLI of 25.54 and basing on the average of the remaining six comparables at 31.71 proposed an adjustment of Rs. 7,14,47,304/-. The recomputation of the ALP is as follows: Operating Cost 424,850,161 Arm's length value at a margin of 31.71% 559,570,147 Price Received 488,122,843 105% of Price received 512,528,985 Proposed Adjustment u/s 92CA 71,447,304 70. On the aspects of these comparables the assessee is challenging the inclusion of four comparables, viz., Accentia Technologies Ltd., eClerx Services Ltd., Infosys BPO Limited, TCS E-Serve Limited, and prays for inclusion of seven comparables, viz., R. Systems International Ltd., CG VAK Software & Exports Ltd., Informed Technologies India Ltd., Microgenetics Systems Ltd., Microland Ltd, Datamatics Financial Services Ltd., Cosmic Global Ltd.: Accentia Technologies Ltd.(ATL): 71. Contention of the assessee is that though initially this company has been chosen by them as a comparable in its TP report, subsequently it was realized that this company is functionally different from the assessee inasmuch as, according to the annual report vide page nos.5, 6, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carefully considered the contentions of the parties in the light of the records. Page No.23 of the Annual Report of this company clearly shows that the ATL has initially ventured into ITES business through Geo soft technologies and it is at present into providing consultancies to share the knowledge that aspirant starting healthcare documentation units in India and set up its consultancy division to provide end-to-end consultancy services to start-ups. It further needs that with the increasing requirements to match with the ongoing technological changes, years after started a project division under the name of iridium. With a forecast the approach, the product team was able to come up with an end-to-end global workflow automation systems that help in the day today workflow. Products like iridium medical transcription automation software (IMTAS), iridium certified home base in medical transcription (ICHMT), iridium certified medical transcription (ICMT), Falcon-2000, F1 HBPO automation software, iridium real-time school (IRD as), iridium accounts management system (IMS), iridium inventory management system (IMS), iridium payroll management systems (IP MS), iridium business transcri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the assessee that the functions of eClerx involves providing financial services to like trade processing reference data, accounting and finance expense management activities and sale marketing services like web content management and merchandizing institution, web social media etc. At page 35 of the annual report of this company it is specifically stated that eClerx has become one of India's most KPOs to be apprised for and rated it maturity level 3 of the People Capability Maturity Model. He further brought to our notice that for AY 2009-10, in assessee's own case it was found that eClerx Services Ltd. is functionally dissimilar to the assessee. In so far as Asstt. Year 2010-11 is concerned, ld. DRP accepted the contention of the assessee and held at page no.44 of its order that whereas the assessee has also been to high end services, the domain of eClerx is into an entirely different area, thereby rendering eClerx non comparable with the assessee. 80. Per contra learned DR submitted that inasmuch as both the assessee and Eclerx are providing similar services, it is not covered by Rampgreen case (supra) and on this ground ld. DR justified the inclusion of this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar large scale operation is no ground to reject the same. In respect of TCS e-services, he held that the contention of the assessee that its transactions with Citi Bank group are not shown in the Notes to Accounts cannot be accepted because once there is change in the ownership of the erstwhile company, the Citi group of companies cannot be held to be related to TCS e services. 85. Ld. DR brought to our notice that for the AY 2010-11, a Coordinate Bench of this Tribunal extensively dealt with the comparability of these two companies and reached a conclusion that these two companies are valid comparables for the back office support transactions. He submitted that there is no change of functions of these two companies from earlier years. So also the functions of the assessee. He, therefore, urged to uphold the action of the ld. DRP for this year. 86. In reply, it is the argument of the ld. AR that the order for AY 2010-11 was pronounced on 5.1.2018 and the assessee is carrying the matter in appeal to higher forums. However, he brought to our notice that a Coordinate Bench of this Tribunal in B C Management Services (P.) Ltd. v. Dy. CIT, ITA 6134/Del/2015 and batch by order dated 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no segmental bifurcation is available, in the absence of which margins of various segments would be difficult to be compared. Ld. AR submitted that these observations are applicable to the case of the assessee also on all fours. He further submitted that these observations of the Tribunal are upheld by the Hon'ble jurisdictional High Court in Principal CIT v. B.C. Management Services (P.) Ltd. [2018] 89 taxmann.com 68 (Delhi), in the following manner:- On a reading of the order of the Tribunal in B C Management case (supra), it is clear that the Tribunal did not find that TCS e-Serve is functionally dissimilar to the B C Management services (P.) Ltd. (supra). In spite of the same, the Tribunal recorded that the employee cost base at more than 64 times and the turnover at more than 67 times as compared to the assessee therein suggests that the assets employed by the TCS e-serves along with huge intangibles in the form of brand value impacted the PLI and vitiated the comparability under FAR analysis. The ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TATA Consul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year ending on March 2009 then the company should be included in the final set of comparables. 89. Similar is the situation in respect of this year also inasmuch as ld. TPO rejected on the ground of this company having a year ending other than March and ld. TPO upholding the same. Since no change of the circumstances for the earlier year is either pleaded or proved by the revenue, in the absence of any dispute on the functional similarity of the comparable and the assessee, while respectfully following the order of a coordinate bench in respect of AY 2009-10, we hold that if the audited quarterly results can be used to compute margin for the year ending on March 2011, then company should be included in the list of comparables. We, therefore, direct the ld. TPO to include this company in the list of comparables subject to the condition that the audited quarterly results for the year ending with March 2011 are available. CG VAK Software & Exports Ltd., Informed Technologies India Ltd., and Microgenetics Systems Ltd. 90. CG VAK Software & Exports Ltd., Informed Technologies India Ltd., and Microgenetics Systems Ltd. were rejected by the ld. TPO on the basis of turnover filter an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huge profit is on account of factor leading to a different results in FAR analysis. We find that the Hon'ble Delhi High Court in the case of Cryscapital Investment Advisors India Pvt. Ltd. v. DCIT (supra) after detailed analysis of rule 10B(3), same principle has been reiterated that if the company is functionally comparable then same cannot be rejected on the basis of turnover. The Hon'ble High Court in its very detailed judgment wherein it was required to answer, whether the comparable can be rejected on the ground that they have high profit margin as compared to the assessee in TP analysis, has also dealt upon the turnover factor in detail and reiterated that if the company is functionally comparable then same cannot be rejected on the basis of turnover. Thus, following the ratio laid down by the Hon'ble Delhi High Court, we hold that the company cannot be held to be incomparable simply on the ground of low turnover, unless it is demonstrated that the assets and risk are completely different and are incomparable. Thus, we direct the TPO to include CG Vak Software And Exports Ltd. as a comparable company. 92. Same reasoning is applicable in respect of these three co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this Tribunal for the AY 2008-09 in ITA No.29/Del/2013 by order dated 20.5.2016, for AY 2009-10 in ITA No.2074/Del/2014 and for the AY 2010-11 in ITA 380/Del/2015 by order dated 5.1.2018. For all the years the issue was remitted to the file of the ld. AO for fresh examination and for the asstt. Years 2009-10 and 2010-11, the Tribunal relied upon the following observations made in assessee's own case for the AY 2008-09,- "14. In support of the grounds i.e. Ground Nos. 6 to 8, the Learned AR submitted that the Assessing Officer has erred in not correctly verifying the record submitted during the course of assessment proceedings contrary to DRP directions. He was not justified in disallowing income-tax holidays claimed by the assessee in respect of STP unit hi its 8th year of operation. The authorities below have also erred in allocating director's remunerations between STP unit and non-STP units by ignoring the facts placed on record and holding that the assessee intentionally debited director's salary to non-STP units to reduce its taxable income without appreciating the operating model being followed by the assessee. The Learned AR submitted that assessee's S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce its taxable income, the submission of the assessee remained that the assessee maintains its account in a manner that costs relating to STP and non-STP units are booked in the respective units; MD responsible for establishing/leading strategic R&D partnership and R&D central operations functions for NOIDA site where major portion of R&D work was carried out; director financed responsible for finance and accounting, legal, tax and company secretarial compliance functions at Noida; STP unit at Bangalore since has its own core management staff and each person is responsible for their areas, the cost of such personnel are debited to their undertaking only; and appellant operates own cost plus model, hence, increase in cost in non-STPI unit will result in increase in Revenue and, therefore, results in increase in tax liability. Against the objection of the Assessing Officer that separate books of account are not maintained, the submissions of the assessee remained that as per the provisions of law, there is no requirement of maintaining separate books of account for a unit eligible to claim deduction under sec. 10A of the Act; and that it is the 8 year of claim of deduction under sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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