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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 ..... ) P. Ltd., is a wholly owned subsidiary of Cadence Design Systems Inc. and was established in India in order to undertake software development and research services, related information technology, back office support service and related pre sales marketing and post sales technological services in India. Assessee provides R&D services and ITes services 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as spelt out in the transfer pricing documents form are as follows: Functional analysis The functions performed by Cadence India and CDS with regard to the identified transaction are outlined below: In order to understand the relative value of the product development work performed by Cadence India, one needs to understand the overall value drivers of software development 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 marketin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct specifications for the software to be developed by Cadence India. Based on instructions/information provided by CDS, the requirements are internally analyzed by Cadence India and converted into functions and features of the intended application. Upon receiving the approval from CDS, Cadence India commences work. Coding, testing and documentation Cadence India undertakes code development in accordance 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 regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the firm runs the risk of default of such payment. Cadence India does not bear any credit and collection risk since it bills directly to its associated enterprise i.e. CDS, which makes payment on a monthly basis or in advance. Payment to Cadence India is not contingent upon payment received by CDS from its customers. However, CDS bears credit and collection risk as it sells its products to final customers. 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 analys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AVERAGE 23.64% 8. Learned DRP confirmed the selection of 19 comparable companies in respect of software development section, and pursuant to the directions of the Ld. DRP, the recomputation of ALP is: Operating Cost 1,641,012,105 Arm's Length value at a margin of 21.47% 1,993,337,404 Price received 1,886,342,446 105% of Price received 1,980,659,568 Proposed adjustment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.4 in the order in ITA 2074/Del/2014, a coordinate Bench of this Tribunal considered in assessee's own case for the AY 2009-10 the comparability of Infosys with the assessee in detail, and while placing reliance on the decision of the Hon'ble jurisdictional High Court in CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26 (Delhi) held that Infosys Ltd. 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 ₹ 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 evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal have held that Infosys Technologies Limited cannot be compared with small software companies, who are into contract software development services. A company like Infosys with mega operations and having significant assets and brand value and full-fledged risk taking entrepreneur developing and selling proprietary products cannot be held to be comparable with the captive service and contract software 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the contention of the assessee stating that earning of super normal profits was made possible by the Wipro due to the commercial efficiency gained by them. 18. Learned DRP again placed reliance on Chrys Capital Investment Advisors (India) (P.) Ltd. case (supra) and Rampgreen Solution (P.) Ltd.'s case (supra). He observed that inasmuch as both Wipro 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infrastructure services Ltd. and application of maintenance service for a period of six year under the agreement dated 21.1.2009. This fact could not be refuted by the revenue. 23. In Orange Business Service Solutions case (supra), under very similar circumstances found that Wipro Technologies Services is not a good comparable inasmuch as this company is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inclusion of this company in the list of comparables mainly contending that the company's revenue from software development services is less than 75% of its operating revenue and also that it is engaged into diversified activities as could be seen from the annual report of this company. Earning of super normal profits was also contended before the ld. TPO. 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 supe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using 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 service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt software testing, RIA/Ajax application development etc and technology expertise of this company includes the technology competency centers in relation to Microsoft competency Centre, Sun Java competency Centre, open source competency Centre, Cloud computing practice, mobility practice and BI practice. 40. Ld. TPO observed that an independent enterprise that has to survive on its own will make efforts 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. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on received in response to notice under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd is not comparable with a company which is into software development services. Though the Ld. DR stated that in the entire annual report there is no mention as to the sale of any product and entire income is from service, there is no explanation forthcoming before us justifying the entries at page No. 39,42 and 48 of the annual report on the aspect of inventories. 46. Having regard to the facts and circumstances of the case and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices is more than 5 crores of rupees and the company passes the employee cost filter with the 69.45%. It is further submitted that there is no change in business model from the earlier years. In respect of AY 2009-10 the tribunal included this company in the set of comparables whereas for the AY 2010-11 Ld. DRP accepted this company. He, therefore, submits that in all fairness this company should have been included in the set of comparables. 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 ₹ 6,29,80,650/-which includes ₹ 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 ₹ 5 Crore and after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial statements for the entire period of financial year 2010-11. Now it is submitted that the quarterly financial statements are available for FY 2010-11. In these circumstances, we direct the Ld. TPO to consider the quarterly financial statements for FY 2010-11 for the purpose of inclusion are otherwise of this company. Goldstone technologies Ltd 55. Assessee contends that this company is functionally comparable as is engaged only in software development 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 noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue is about 87.44% and thereby this company passes the export filter. As a matter of fact, this point was argued before the Ld. DRP. However, Ld. DRP did not touch this point in the discussion but stated that this company is functionally different inasmuch as it is into software testing services. 60. Be that as it may, there is no dispute that this company was accepted by the Ld. TPO in taxpayer's own case for the immediately preceding year and no change 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 compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the employee cost of LGS global Ltd is 91.41% of the total costs. It is argued that the Ld. TPO relied on the terminology used in the profit and loss account "Purchase And Personal Cost" to hold that it indicates a combination of two expenses, namely, "Purchase" and "Personal Cost", but while doing so the Ld. TPO failed to appreciate that this terminology has been used for employee related costs only as there are no dealings of tangible items in this company. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprise i.e. CDS Service liability risk Service liability risk is borne by a company when its service offerings fail to perform at accepted or advertised standards and the company is required to compensate the customer or undertake defect resolution at its own cost. CDS is the ultimate contracting entity and therefore assumes the overall responsibility for the quality of the services rendered by Cadence India. Therefore, CDS bears the ultimate service liability risk. Utilization risk Utilization 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 ris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n comparables with an average PLI of ₹ 31.74 and proposed an adjustment of ₹ 7,10,53,705/-. S.No. Name of the company OP/OC 1 Accentia Technologies Ltd. 29.18% 2 E4e Healthcare Business Services P. Ltd. 9.77% 3 Eclerx Services Ltd. 56.82% 4 ICRA Techno Analytics Ltd. (segment) 25.54% 5 Infosys BPO Ltd. 17.86% 6 Jindal Intellicom Ltd. 13.70% 7 TCS E-serve Ltd. 69.31% Average 31.74% 69. Pursuant to the direction of the learned DRP, ld. TPO 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is an element of development and support relating to software service in case of assessee also. He further submitted that the functional analysis depicted by the assessee in their TP study report at Item No.1 of Annexure 7, to be found at page 681 of the paper book is very much in agreement with the analysis of comparable companies done by the assessee at page no.685 thereof, and the assessee cannot have any grievance when the authorities below accepts the same. 76. We have 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and verticals does not matter. He further held that inasmuch as the assessee is authorised to provide the services like Unix Windows administration and support; Internal helpdesk services; Application development and support; Web development and support; and Customer support, it cannot be classified as a BPO and on that score the decision of the Hon'ble jurisdictional High Court in Rampgreen Solutions (P.) Ltd. case (supra) has no application. 79. It is pleaded on 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 conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntre management activities. Ld. AR submitted that both these companies are having significantly large scale operations. 84. Ld. TPO rejected these contentions and held that these two companies are engaged in providing ITES services and, therefore, are good comparables. He further held that holding of intangible has no effects on the profits. Ld. DRP held that these companies are functionally similar, high turnover has no correlation to high profits and when they are functionally similar 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imes and turnover at 67 times compared to the assessee in such case, suggest that the assets employed by TCS e-serve with huge intangible in the form of brand value, definitely has a huge effect in PLI and vitiates the comparability under FAR analysis with a company which is a captive service provider without much tangibles and risks. It is further pointed out that the operations of TCS e-serve broadly comprise of transaction processing and technical services including software testing, verification and validation, for which 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. (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Now coming to the companies sought to be included, R. Systems International Ltd. was rejected by the ld. TPO on account of different financial year end. However, it is submitted by the ld. AR that under similar circumstances in assessee's own case for AY 2009-10, a Coordinate Bench of this Tribunal relying on the ruling of the Hon'ble Punjab & Haryana High Court in Mercer Consulting India (P.) Ltd.'s case (supra) ITA NO.101 of 2015, held that if the audited quarterly results can be used to compute margin for the 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 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alized on the transactions undertaken and not the price of the product or services. The transfer pricing rules under Rule 10B and 10C also contemplate for eliminating the material effects and to make reasonably accurate adjustment for eliminating the differences on account of such material effects. Mere circumstance of a company which otherwise confirm to the comparability analysis in terms of Rule 10B(2) and (3), huge profit or huge turnover ipso facto does not lead to its exclusion unless and of course it is shown that turnover or 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persistent losses. Though diminishing revenues is not a ground to reject a company from the list of comparables, making persistent losses takes it away from the list of comparables. For these reasons we find it difficult to include these three companies, viz. Microland Ltd, Datamatics Financial Services Ltd., and Cosmic Global Ltd. in the list of comparables. 95. Grounds No. 13 & 14 relate to the allocation of directors remuneration between STP and non STP units, which are admittedly considered and decided by the coordinate benches 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears and in subsequent remaining two assessment years, i.e. 2009-10 and 2010-11. Before the ITAT, as discussed above, the Learned AR has tried to meet out the objections raised by the Assessing Officer in making the disallowance of the claimed deduction. In brief, the submission of the assessee against the objection of the Assessing Officer that the assessee has intentionally debited directors' salary to non-STP units to reduce 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 incr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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