IN INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T (T.P) A. No.1318/Bang/2012 (Assessment Year : 2008-09) M/s. Tektronix Engineering Vs. Dy. Commissioner of Income Development (India) Pvt. Ltd., Tax, nd Samrah Plaza, 2 Floor, 4/2, Circle 12(4), Bangalore. St. Marks Road, Bangalore-560 001 PAN AAACT 7289F Appellant Respondent. Appellant By : Shri Sharath Rao, C.A. Respondent By : Ms. Neera Malhotra, CIT (D.R) Date of Hearing : 06.10.2016. Date of Pronouncement : 19.10.2016. O R D E R Per Shri Vijay Pal Rao, J.M. : This appeal by assessee is directed against assessment order dt.3.8.2012 passed under Section 143(3) r.w.s. 144C(13) of Income Tax Act, 1961 (in short 'the Act') in pursuant to directions of Dispute Resolution Panel ( DRP ) dt.6.6.2012 for Assessment Year 2008-09. 2 IT(T.P)A No.1318 /Bang/2012 2. assessee has filed following concise grounds : 1. order passed by Honorable Dispute Resolution Panel ( DRP ) and learned Assessing Officer ( AO ) / Transfer Pricing Officer ( TPO )is not in accordance with law and is contrary to facts and circumstances of present case and in any case in violation of principle of equity and natural justice. 2. Honourable DRP and learned AO/TPO have erred in law and on facts in rejecting, without appropriate reasons, detailed benchmarking analysis conducted by Appellant and embarking on fresh search for comparables. 3. Honorable DRP and learned AO/TPO erred in fact and in law in determining Arm s Length Price ( ALP ) by adopting financial data for single year (i.e. financial year 2007-08) of comparables as against multiple year data considered by Appellant. 4. Honorable DRP and learned AO/TPO erred in fact and in law in using selective information, which was not available in public domain, obtained under section 133(6) of Income tax Act, 1961 ( Act ) and identifying additional comparables based on same. 5. Honourable DRP/ Leanred AO has erred in law and on facts in upholding ALP of 21.48 percent as proposed by TPO, for software development services rendered by Appellant. 6. Honorable DRP and learned AO/TPO has erred in determining ALP based on companies, which are not comparable to Appellant due to various factors such as functional comparability, product / intangible led revenues, different business model, inadequate financial information, use of unreliable segment financials, irreconcilable differences in accounting policy, extra ordinary events /business restructuring, abnormal fluctuation in margins, exceptional year, lower employee cost levels, fails TPO s own filters, significant related party transactions, brand value, high turnover differences etc. 7. Honourable DRP/learned AO have erred in law and on facts in upholding TPO s action of not making downward adjustment to ALP, considering risk differentials between Appellant and comparable companies; 8. Honorable DRP and learned AO/TPO erred in rejecting certain companies selected in transfer pricing study of Appellant based on incorrect reasons. 3 IT(T.P)A No.1318 /Bang/2012 9. Honorable DRP and learned AO/TPO erred in law and on facts in upholding arm s length margin arrived at by learned TPO by not considering benefit of 5 percent tolerance range allowed under Act and Rules. 10. Honourable DRP has erred in law and on facts in upholding AO s action of disallowing sum of Rs 7,255,396, representing foreign exchange fluctuation loss incurred by Appellant during FY 2007-08,based on incorrect reasons including on grounds that same is capital in nature. 11. Honourable DRP has erred in law and on facts in upholding AO s action of disallowing amount of Rs 156,306, being provision for legal and professional charges for FY 2007- 08, based on incorrect reasons including on ground thatthe said provision was towards unknown or unascertained liability. 12. Honourable DRP has erred in law and on facts in upholding AO s action of disallowing amount of Rs 59,544, paid by Appellant towards freight charges during FY 2007-08, on account of non-deduction of tax at source under provisions of Act. 13. Learned AO has erred in law and on facts in short granting credit for advance tax at Rs 7,219,408 as against Rs 7,700,000 paid by Appellant for AY 2008-09. 14. Honourable DRP, learned TPO, learned AO have erred in law and in facts in levying and computing interest under section 234B of Act. 3. Ground Nos.1 to 9 are regarding Transfer Pricing Adjustment and selection of comparables by Transfer Pricing Officer ( TPO ). 4. profile of assessee, financial results as well as international transactions are recorded by TPO in paras 2.1 & 2.2 as under : 4 IT(T.P)A No.1318 /Bang/2012 5. only dispute of TP Adjustment in present appeal of assessee is regarding software development services segment wherein TPO selected 20 comparables as under : 5 IT(T.P)A No.1318 /Bang/2012 TPO has computed average margin of comparable at 23.65% and accordingly proposed adjustment under Section 92CA of Rs.2,27,99,703. assessee challenged action of TPO before DRP by filing objections but could not succeed. 6. Before us, assessee is seeking exclusion of 13 comparables out of 20 comparables selected by TPO. comparables which are challenged by assessee and sought to be excluded are as under : Sl.No. Company 1. Avani Cincom Technologies Ltd. 2. Bodhtree Consulting Ltd. 3. Celestial Bio Labs Ltd. 4. E-Zest Solutions Ltd. 6 IT(T.P)A No.1318 /Bang/2012 5. Infosys Technologies Ltd. 6. KALS Info Systems Ltd. 7. LGS Global Ltd. 8. Lucid Software Ltd. 9. Persistent Systems Ltd. 10. Quintegra Solutions Ltd. 11. Softsol India Ltd. 12. Tata Elxsi Ltd. 13. Wipro Ltd. 7. ld. AR of assessee has submitted comparability of all these 13 companies have been examined by co-ordinate bench of this Tribunal vide order dt.26.6.2015 in case of Broadcom Communications Technologies Pvt. Ltd. Vs. DCIT in IT(TP)A No.1587/Bang/2012 and therefore these 13 companies are functionally not comparable with assessee. 8. On other hand, ld. DR has submitted that out of these comparable companies challenged by assessee, 2 comparables namely Bodhtree Consulting Ltd. & Lucid Software Ltd. were also part of set of comparables for Assessment Year 2006-07. ld. DR has submitted that in assessee's own case for Assessment Year 2006-07, Tribunal vide its order dt.20.2.2015 in IT(TP)A No.1465/Bang/2010 has not disturbed these two companies as comparability of these companies was not challenged by 7 IT(T.P)A No.1318 /Bang/2012 assessee therefore these two companies were accepted as comparable to assessee. ld. DR has thus contended that when these companies were accepted as functionally comparable for Assessment Year 2006-07 and there is no material change in business profile and activities of these two companies as well as assessee for year under consideration then these two companies cannot be excluded from set of comparables. 9. ld. AR of assessee has submitted in rejoinder of that if other comparable companies are excluded from set of comparables then without prejudice to right of assessee to challenge functional comparability of these two companies, assessee would not press exclusion of these two companies because Arm s Length Price (ALP) from remaining comparables will be within tolerance range of + or 5% and consequently there will no TP Adjustment. 10. Having considered rival submissions as well as relevant material on record, at outset we note that identical set of 20 comparables were selected by TPO for same asst. year in case of Broadcom Communications Technologies Pvt. Ltd. Vs. DCIT (supra). Tribunal has 8 IT(T.P)A No.1318 /Bang/2012 examined comparability of all these companies as objected by assessee in said case in paras 5 to 17.4.2 as under : 5. Avani Cincom Technologies Ltd. (S.No.1 in chart). 5.1 This company was selected by TPO as comparable inspite of objections of assessee to exclusion of this company as comparable on ground that this company is not functionally comparable to assessee as it is into software products whereas assessee only provides software development services to its AEs. TPO rejected assessee's objections on ground that this company had categorised itself as pure software developer, like assessee and hence selected this company as comparable. In coming to this conclusion, TPO relied on information directly submitted by company in response to enquiries under Section 133(6) of Act. 5.2 Before us, learned Authorised Representative reiterated assessee's objections to inclusion of this company on ground that it is not functionally comparable to assessee as it is into software products. In support of this contention, learned Authorised Representative placed reliance on decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09. 5.3 Per contra, learned Departmental Representative supported order of TPO in including this company as comparable. 5.4.1 We have heard rival contentions and perused and carefully considered material on record; including judicial pronouncements cited. We find that co- ordinate bench of this Tribunal on decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09 had held that this company be omitted from set of comparables as it was functionally dis-similar from company which only provides software development services to its AEs, like assessee in case on hand. At paras 7.6.1 and 7.6.2 of its order, co- ordinate bench held as under :- 7.6.1 We have heard both parties and perused and carefully considered material on record. It is seen from record that TPO has included this company in final set of comparables only on basis of information obtained under section 133(6) of Act. In these circumstances, it was duty of TPO to have necessarily furnished information so gathered to 9 IT(T.P)A No.1318 /Bang/2012 assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. Non-furnishing information obtained under section 133(6) of Act to assessee has vitiated selection of this company as comparable. 7.6.2 We also find substantial merit in contention of learned Authorised Representative that this company has been selected by TPO as additional comparable only on ground that this company was selected in earlier year. Even in earlier year, it is seen that this company was not selected on basis on any search process carried out by TPO but only on basis of information collected under section 133(6) of Act. Apart from placing reliance on judicial decision cited above, including assessee's own case for Assessment Year 2007-08, assessee has brought on record evidence that this company is functionally dis-similar and different from assessee and hence is not comparable. Therefore finding excluding it from list of comparables rendered in immediately preceding year is applicable in this year also. Since functional profile and other parameters by this company have not undergone any change during year under consideration which fact has been demonstrated by assessee, followingthe decisions of co-ordinate benches of this Tribunal in assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013, and in case of Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011), we direct A.O./TPO to omit this company from list of comparables. 5.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09, we direct Assessing Officer / TPO to exclude this company, i.e. Avani Cincom Technologies Ltd. from list of comparables in case on hand. 6. Bodhtree Consulting Ltd. (S.No.2 in chart) 6.1.1 This company has been selected as comparable by TPO. assessee objected to inclusion of this company in list of comparables both before DRP and also before us on grounds that it is functionally different as it is product oriented company into software consulting, web services integration, data management, data clearing services, etc. 6.1.2 Before us, learned Authorised Representative placed reliance on decision of co-ordinate bench of this Tribunal in case of NXP Semi-Conductors 10 IT(T.P)A No.1318 /Bang/2012 India P. Ltd. (supra) for A.Y.2008-09 and decision of Mumbai Bench of ITAT in case of Nethawk Networks India Pvt. Ltd. (supra) for A.Y. 2008-09 wherein Bodhtree Consulting Ltd., was excluded from list of comparable companies on account of being functionally different from provider software development services to its AE as it has software products and hybrid service business model. 6.2 Per contra, learned Departmental Representative supported orders of TPO in including this company in list of comparable companies. 6.3.1 We have heard rival contentions and perused and carefully considered material on record; including judicial pronouncements relied upon by assessee. We find that this company; i.e. Bodhtree Consulting Ltd. has been excluded from list of comparables for providers software development services in judicial decisions cited by assessee (supra at para 6.1.2 of this order). relevant portion at para 15 of order in case of NXP Semi-conductors India (P) Ltd. (supra) is extracted hereunder :- 15. Bodhtree Consulting Ltd. 15.1 This company has been selected as comparable by TPO. assessee has objected to inclusion of this company as comparable, both before DRP and this Bench, on grounds that this company is functionally different as it has software products and hybrid service business model. In proceedings before us, learned Authorised Representative placed reliance on decision of co-ordinate benches of this Tribunal in cases of Mindtech (India) Ltd. (supra) and CISCO Systems (India) Pvt. Ltd., in IT(TP)A No.271/Bang/2014 dt.14.8.2014, both for Assessment Year 2009-10, wherein this company was excluded from list of comparables. It was submitted by learned Authorised Representative that though these cited decisions were rendered for Assessment Year 2009-10, facts and circumstances of case are similar for Assessment Year 2008-09 as well and applies to year under consideration. learned Authorised Representative prays that in view of above, this company be excluded from list of comparables. 15.2 Per contra, learned Departmental Representative supported orders of authorities below in including this company in list of comparable companies. 15.3.1 We have heard both parties and perused and carefully considered material on record, including judicial decisions cited by ld. A.R. We find 11 IT(T.P)A No.1318 /Bang/2012 that this company has been excluded from set of comparables for software development service companies in both aforesaid decisions cited by assessee. In Mindtech (India) Ltd., relevant portion of order at para 16 thereof it has been held as under :- 16. We have considered rival submissions. Special Bench of ITAT in case of Maersk Global Centres (supra) had occasion to deal with question as to whether high profit margin making companies should be excluded as comparable. Special Bench after considering several aspects held in para 88 of its order that potential comparable companies cannot be excluded merely on ground that their profit is abnormally high. Special bench held that in such cases it would require further investigation to ascertain reasons for unusually high profit and in order to establish whether entities with such high profits can be taken as comparable or not. In light of aforesaid decision of Special Bench and in view of admitted position that assessee follows Fixed Price Project model where revenues from software development is recognized based on software developed and billed to clients, there is possibility of expenditure in relation to revenue being booked in earlier year. results of Bodhtree from FY 2003 to 2008 excluding FY 2007 as given by learned counsel for assessee were also perused. Perusal of same shows, that there has been consistent change in operating margins. chart filed by assessee in this regard is given as annexure to this order. It appears to us that revenue recognition method followed by assessee is reason for drastic variation in profit margins of this company. In given circumstances, we are of view that it would be safe to exclude Bodhtree Consulting from final list of comparables chosen by assessee. We hold and direct accordingly. relevant portion of order in case of CISCO Systems (India) Pvt. Ltd. (supra) at para 26.1 is extracted hereunder :- 26.1 Bodhtree Consulting Ltd.:- As far as this company is concerned, it is not in dispute that in list of comparables chosen by assessee, this company was also included by assessee. assessee, however, submits before us that later on it came to assessee s notice that this company is not being considered as comparable company in case of companies rendering software development services. In this regard, ld. counsel for assessee has brought to our notice decision of Mumbai Bench of Tribunal in case of Nethawk Networks Pvt. Ltd. v. ITO, ITA No.7633/Mum/2012, order dated 6.11.2013. In this case, Tribunal followed decision rendered by Mumbai Bench of Tribunal in case of Wills Processing Services (I) P. Ltd., ITA No.4547/Mum/2012. In aforesaid decisions, Tribunal has taken view that Bodhtree Consulting Ltd. is in business of software products and was engaged in providing open & end to end web solutions software consultancy and design & development of software using latest technology. decision 12 IT(T.P)A No.1318 /Bang/2012 rendered by Mumbai Bench of Tribunal in case of Nethawk Networks Pvt. Ltd. (supra) is in relation to A.Y. 2008-09. It was affirmed by learned counsel for Assessee that facts and circumstances in present year also remains identical to facts and circumstances as it prevailed in AY 08-09 as far as this comparable company is concerned. Following aforesaid decision of Mumbai Bench of Tribunal, we hold that Bodhtree Consulting Ltd. cannot be regarded as comparable. In this regards, fact that assessee had itself proposed this company as comparable, in our opinion, should not be basis on which said company should be retained as comparable, when factually it is shown that said company is software product company and not software development services company. 15.3.2 It is also seen that decision relied on by co-ordinate bench of this Tribunal in above mentioned case; CISCO Systems (India) Pvt. Ltd. (supra), has been in relation to Assessment Year 2008-09 and therefore we find merit in contention of assessee that finding rendered in above cited decision applies to facts and circumstances of case on hand, which is for Assessment Year 2008-09. In this view of matter, following above decision of co-ordinate bench of Tribunal, we direct TPO to include this company form set of comparable companies to be applied to assessee. It is ordered accordingly. 6.3.2 In view of above mentioned decision of co-ordinate bench of this Tribunal in case of NXP Semi-Conductors India P. Ltd. (supra) for A.Y.2008-09. We direct Assessing Officer/TPO to omit this company from set of comparables to be applied to assessee. 7. Celestial Biolabs Ltd. (S.No.3 in chart) 7.1 comparable was selected by TPO as comparable inspite of assessee's objection to its inclusion in list of comparables for reason that it is functionally different form assessee and as it fails employee cost filter. 7.2 Before us, learned Authorised Representative contended that this company is not functionally comparable as this company is into bio-informatics, software product / services and in this context placed reliance on decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09. 7.3 Per contra, learned Departmental Representative supported order of TPO in including this company as comparable. 13 IT(T.P)A No.1318 /Bang/2012 7.4.1 We have heard rival contentions and perused and carefully considered material on record; including judicial pronouncement relied on by assessee. We find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09 has held that this company be excluded from list of comparables as it is functionally different from provider of software development services to its AEs holding as under at paras 9.4.1 to 9.4.2 thereof which is extracted hereunder :- 9.4.1 We have heard both parties and perused and carefully considered material on record. While it is true that decisions cited and relied on by assessee were with respect to immediately previous assessment year, and there cannot be assumption that it would continue to be applicable for this year as well, same parity of reasoning is applicable to TPO as well who seems to have selected this company as comparable based on reasoning given in TPO s order for earlier year. It is evidently clear from this, that TPO has not carried out any independent FAR analysis for this company for this year viz. Assessment Year 2008-09. To that extent, in our considered view, selection process adopted by TPO for inclusion of this company in list of comparables is defective and suffers from serious infirmity. 9.4.2 Apart from relying on afore cited judicial decisions in matter (supra), assessee has brought on record substantial factual evidence to establish that this company is functionally dis-similar and different from assessee in case on hand and is therefore not comparable and also that findings rendered in cited decisions for earlier years i.e. Assessment Year 2007-08 is applicable for this year also. We agree with submissions of assessee that this company is functionally different from assessee. It has also been so held by co-ordinate benches of this Tribunal in assessee's own case for Assessment Year 2007-08 (supra) as well as in case of Triology E-Business Software India Pvt. Ltd. (supra). In view of fact that functional profile of and other parameters of this company have not changed in this year under consideration, which fact has also been demonstrated by assessee, following decision of co-ordinate benches of Tribunal in assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 and Triology E-Business Software India Pvt. Ltd. in ITA No.1054/Bang/2011, we hold that this company ought to be omitted form list of comparables. A.O./TPO are accordingly directed. 14 IT(T.P)A No.1318 /Bang/2012 7.4.2 Following above decision of co-ordinate bench of this Tribunal on decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09, we direct Assessing Officer / TPO to omit this company from list of comparables in case on hand. 8. e-Zest Solutions Ltd. (S.No.4 in chart) 8.1 This company was selected by TPO as comparable inspite of assessee's objections to its inclusion as comparable on ground that it was functionally different from assessee. TPO rejected assessee's objections on ground that as per information received under Section 133(6) of Act this company is engaged in software development services and qualifies all filters applied. 8.2 Before us, learned Authorised Representative contended that this company ought to be excluded from list of comparables on ground that it is functionally different to assessee. It was submitted that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09, has held that this company is to be excluded from list of comparables to provider of software development services as it is rendering product development services and high and technical services which come under category of KPO services. 8.3 Per contra, learned Departmental Representative supported order of TPO including this company in list of comparables. 8.4.1 We have heard rival contentions and perused and carefully considered material on record; including judicial decisions cited. We find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from list of comparables to provider of software development services as it is into product development services and high end technical services which come under category of KPO Services; holding as under at para 14.4 thereof :- 14.4 We have heard rival submissions and perused and carefully considered material on record. It is seen from record that TPO has included this company in list of comparbales only on basis of statement made by company in its reply to notice under section 133(6) of Act. It appears that TPO has not examined services rendered by company to give finding whether services performed by this company are 15 IT(T.P)A No.1318 /Bang/2012 similar to software development services performed by assessee. From details on record, we find that while assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under category of KPO services. It has been held by co-ordinate bench of this Tribunal in case of Capital I-Q InformationSystems (India) (P) Ltd. Supra) that KPO services are not comparable to software development services and are therefore not comparable. Following aforesaid decision of co-ordinate bench of Hyderabad Tribunal in aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from set of comparables for period under consideration in case on hand. A.O. / TPO is accordingly directed. 8.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09, we direct Assessing Officer / TPO to omit this company from list of comparables in case on hand. 9. Infosys Technologies Ltd. (S.No.7 in chart). 9.1 This company was selected as comparable by TPO in spite of assessee's objections to its inclusion as comparable on grounds of its scale of operations and brand attributable profit margins. TPO, however, brushed aside assessee's objections on ground that turnover and brand aspects were not materially relevant in software development services segment. 9.2 Before us, learned Authorised Representative contended that this company ought to be omitted from list of comparables as it is not functionally comparable to assessee since it commands substantial brand value, owns IPR s and is market leader in software development activities, whereas assessee in case on hand is merely provider of software services to its AEs and does not possess any brand value or own any intangibles or IPR s. In support of this proposition, learned Authorised Representative placed reliance on decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra). 9.3 Per contra, learned Departmental Representative supported order of TPO/DRP in including this company in list of comparables to assessee. 16 IT(T.P)A No.1318 /Bang/2012 9.4.1 We have heard both parties and perused and carefully considered material on record; including judicial pronouncement relied on by assessee. We find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from list of comparables as it has huge revenue s from software product development, Owned IPR s and was not purely provider of software services by observing at paras 11.4 thereof as under :- 11.4 We have heard rival submissions and perused and carefully considered material on record. We find that assessee has brought on record sufficient evidence to establish that this company is functionally dis- similar and different from assessee and hence is not comparable and finding rendered in case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with argument put forth by assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that break up of revenue from software services and software products is not available. In this view of matter, we hold that this company ought to be omitted from set of comparable companies. It is ordered accordingly. 9.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we direct Assessing Officer to omit this company from list of comparables in case on hand. 10. KALS Information Systems Ltd. (S.No.8 in chart). 10.1 This is comparable selected by TPO inspite of assessee's objections to its inclusion in list of comparables on grounds that it is functionally different and that segment details were inconsistent with respect to software services revenue and software products revenue. TPO, however, rejected assessee's objections and included this company in list of comparables by relying on information received in reply to notice under Section 133(6) of Act. 10.2 Before us, learned Authorised Representative contended that this company ought to be excluded from list of comparables as it is functionally different, being into software products, whereas assessee in case on hand is merely into provision of software development services. It was submitted that rejection of 17 IT(T.P)A No.1318 /Bang/2012 this company as comparable to providers of software development services has been upheld by co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra). 10.3 Per contra, learned Departmental Representative supported TPO s action in including this company in final list of comparables. 10.4.1 We have heard both parties and perused and carefully considered material on record, including judicial decision relied on by assessee. We find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from list of comparables as it was into development of software products and hence not comparable to provider of software services; observing as under at para 10.4 of order :- 10.4 We have heard both parties and perused and carefully considered material on record. We find from record that TPO has drawn conclusions as to comparability of this company to assessee based on information obtained u/s.133(6) of Act. This information which was not in public domain ought not to have been used by TPO, more so when same is contrary to Annual Report of company, as pointed out by learned Authorised Representative. We also find that co-ordinate benches of this Tribunal in assessee's own case for Assessment Year 2007-08 (supra) and in case of Triology E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software products and was not purely or mainly software service provider. Apart from relying of above cited decisions of co-ordinate benches of Tribunal (supra), assessee has also brought on record evidence from various portions of company s Annual Report to establish that this company is functionally dis-similar and different form assessee and that since findings rendered in decisions of co-ordinate benches of Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from list of comparables. In this view of matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted form list of comparable companies. It is ordered accordingly. 10.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we 18 IT(T.P)A No.1318 /Bang/2012 direct Assessing Officer to omit this company from list of comparables in case on hand. 11. Lucid Software Ltd. (S.No.10 in chart) 11.1 This company was selected as comparable by TPO. Before DRP, assessee objected to inclusion of this company in list of comparables but DRP retained this company as comparable on ground that it is pure software development services provider and does not have any revenue s by way of sale of products/licenses. 11.2 Before us also, assessee objected to inclusion of this company as comparable on grounds that it is into software product development and is therefore functionally different from assessee in case on hand. In this context, learned Authorised Representative submitted that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has omitted this company form list of comparables on ground that it is into development of software products and therefore is functionally different from provider of software development services. 11.3 Per contra, learned Departmental Representative supported orders of authorities below in including this company as comparable. 11.4.1 We have heard rival contentions and perused and carefully considered material on record; including decision relied on by assessee. We find that co-ordinate bench in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 excluded this company from list of comparables observing that this company, being into development of software products, is functionally different from provider of software development services, as is assessee's in case on hand and therefore ought to be excluded from list of comparables. At para 16.3 of this order co-ordinate bench held as under :- 16.3 We have heard rival submissions and perused and carefully considered material on record. It is seen from details on record that company i.e. Lucid Software Ltd., is engaged in development of software products whereas assessee, in case on hand, is in business of providing software development services. We also find that, co-ordinate benches of Tribunal in assessee's own case for Assessment Year 2007-08 (IT(TP)A No.845/Bang/2011), LG Soft India Pvt. Ltd. (supra), CSR India Pvt. Ltd. 19 IT(T.P)A No.1318 /Bang/2012 (supra); ITAT, Mumbai Bench in case of Telecordia Technologies India Pvt. Ltd. (supra) and Delhi ITAT in case of Transwitch India Pvt. Ltd. (supra) have held, that since this company, is engaged in software product development and not software development services, it is functionally different and dis-similar and is therefore to be omitted from list of comparables for software development service providers. assessee has also brought on record details to demonstrate that factual and other circumstances pertaining to this company have not changed materially from earlier year i.e. Assessment Year 2007-08 to period under consideration i.e. Assessment Year 2008-09. In this factual matrix and following afore cited decisions of co-ordinate benches of this Tribunal and of ITAT, Mumbai and Delhi Benches (supra), we direct that this company be omitted from list of comparables for period under consideration in case on hand. 11.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we direct Assessing Officer/TPO to exclude this company from list of comparables in case on hand. 12. Persistent Systems Ltd. (S.No.12 in chart). 12.1 This company was selected as comparable by TPO over-ruling objections of assessee that this company, being into development of software products engaged in product design and analytic services is functionally different from assessee who is only provider of software development services. TPO rejected assessee's objections on ground that this company is mainly, software development service company, and as per details filed/obtained under Section 133(6) of Act 96% of its revenues are from software development services. 12.2 Before us, assessee objected to inclusion of this company in list of comparables on ground that it is functionally different, being engaged in software designing and analytic services and is therefore not comparable to provider of software development service provider, as is assessee in case on hand. learned Authorised Representative submitted that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008- 09 has held that this company, being engaged in product development and product design services, is to be omitted from list of comparables to providers of software development services. 20 IT(T.P)A No.1318 /Bang/2012 12.3 Per contra, learned Departmental Representative supported orders of authorities below in including this company in list of comparables. 12.4.1 We have heard rival contentions and perused and carefully considered material on record; including judicial pronouncement relied on by assessee. We find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from list of comparables as it is functionally different from provider of software development services, being engaged in product development and product design services. At para 17.3 of this order co-ordinate bench has held as under :- 17.3 We have heard rival submissions and perused and carefully considered material on record. It is seen from details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while assessee is software development services provider. We find that, as submitted by assessee, segmental details are not given separately. Therefore, following principle enunciated in decision of Mumbai Tribunal in case of Telecordia Technologies India Pvt. Ltd. (supra) that in absence of segmental details / information company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from set of comparables for year under consideration. It is ordered accordingly. 12.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we direct Assessing Officer/TPO to omit this company from list of comparables in case on hand. 13. Quintegra Solutions Ltd. (S.No.13 in chart). 13.1 This company was selected as comparable by TPO inspite of objection of assessee to its inclusion in list of comparables on ground that there were peculiar economic circumstances in form of acquisitions made during year. TPO rejected assessee's objections holding that this company qualifies all filters applied. 13.2 Before us, assessee objected to inclusion of this company as comparable on ground that it is functionally different as it is engaged in product engineering services and not in software development services. It was also submitted 21 IT(T.P)A No.1318 /Bang/2012 that this company was engaged in developing proprietary software products and has IPR s and is functionally different from provider of software development services, as is assessee in case on hand. In support of its contentions, assessee relied on decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 where it was held that this company was to be omitted from list of comparables. 13.3 Per contra, learned Departmental Representative supported orders of authorities in including this company in list of comparables. 13.4.1 We have heard rival contentions and perused and carefully considered material on record; including judicial decision relied on by assessee. We find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company, being engaged in product engineering services, having substantial R&D activity resulting in creation of proprietary software products and IPR s, is functionally different from mere provider of software development services is to be omitted from set of comparables; observing as under at paras 18.3.1 to 18.3.3 of order :- 18.3.1 We have heard rival submissions and perused and carefully considered material on record. It is seen from details brought on record that this company i.e. Quintegra Solutions Ltd. is engaged in product engineering services and is not purely software development service provider as is assessee in case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences fact that this company owns intangible assets. co- ordinate bench of this Tribunal in thecase of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010 dt.9.11.2012) has held that if company possesses or owns intangibles or IPRs, then it cannot be considered as comparable company to one that does not own intangibles and requires to be omitted form list of comparables, as in case on hand. 18.3.2 We also find from Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in period under consideration. It is settled principle that where extraordinary events have taken place, which has effect on performance of company, then that company shall be removed from list of comparables. 22 IT(T.P)A No.1318 /Bang/2012 18.3.3 Respectfully following decision of co-ordinate bench of Tribunal in case of 24/7 Customer.Com Pvt. Ltd. (supra), we direct that this company i.e. Quintegra Solutions Ltd. be excluded from list of comparables in case on hand since it is engaged in proprietary software products and owns its own intangibles unlike assessee in case on hand who is software service provider. 13.4.2 Following decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we direct Assessing Officer/TPO to omit this company from list of comparables in case on hand. 14. Softsol India Ltd. (S.No.17 in chart) 14.1 This company was selected as comparable by TPO inspite of assessee's objections that it was functionally different and dis-similar from assessee. TPO rejected assessee's objections on ground that as per company s reply to information called for under Section 133(6) of Act, company has categorised itself as pure software developer and therefore included this company as comparable to assessee in case on hand who was also provider of software development services. 14.2 Before us, learned Authorised Representative submitted that this company ought to be excluded from list of comparables as co-ordinate bench of this Tribunal in its order in 3DPLM Software Solutions Ltd. (supra) has held that this company is to be excluded as comparable as it has related party transactions (RPT) of 18.3%; thereby failing RPT filter of 15%. 14.3. Per contra, learned Departmental Representative supported order of TPO in including this company in list of comparables. 14.4.1 We have heard rival contentions and perused and carefully considered material on record; including judicial decision relied on by assessee. We find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from set of comparables observing / holding as under at para 19.3 of order :- 19.3 We have heard both parties and perused and carefully considered material on record. We find that co-ordinate bench of this Tribunal in 23 IT(T.P)A No.1318 /Bang/2012 assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 has excluded this company from set of comparables for reason that RPT is in excess of 15% following decision of another bench of this Tribunal in case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2011. As facts for this year are similar and material on record also indicates that RPT is 18.3%, following afore cited decisions of co-ordinate benches (supra), we hold that this company is to be omitted from list of comparables to assessee in case on hand. 14.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we direct Assessing Officer/TPO to exclude this company from list of comparables in case on hand. 15. Tata Elxsi Ltd. (Seg) (S.No.18 in chart) 15.1 This company was comparable selected by TPO inspite of assessee's objections to its inclusion in set of comparables on ground that it is product company which has significant R&D activity, IPR s, etc and is therefore functionally dis- similar from assessee who is provider of software development services. TPO, however, rejected contentions put forth by assessee and included this company in set of comparables on ground that he has taken only software development and services segment for comparability purposes. 15.2 Before us, it was submitted that this company is not functionally comparable to assessee as it performs variety of activities under software development and services segment, namely, product design, innovation design engineering and visual computing labs, as is reflected in Annual Report of company and therefore it is not purely provider of software development services like assessee. learned Authorised Representative also submitted that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) has held that this company is to be omitted from list of comparables for providers of software development services, like assessee in case on hand. 15.3 Per contra, learned Departmental Representative supported orders of authorities below in including this company in list of comparable companies. 15.4.1 We have heard rival contentions and perused and carefully considered material on record; including judicial decision relied on by assessee. We 24 IT(T.P)A No.1318 /Bang/2012 find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from list of comparables to provider of software development holding as under at paras 13.4.1 and 13.4.2 of its order extracted hereunder :- 13.4.1 We have heard both parties and carefully perused and considered material on record. From details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. details in Annual Report show that segment software development services relates to design services and are not similar to software development services performed by assessee. 13.4.2 Hon'ble Mumbai Tribunal in case of Telecordia Technologies India Pvt. Ltd. V ACIT (ITA No.7821/Mum/2011) has held that Tata Elxsi Ltd. is not software development service provider and therefore it is not functionally comparable. In this context relevant portion of this order is extracted and reproduced below :- . Tata Elxsi is engaged in development of niche product and development services which is entirely different from assessee company. We agree with contention of learned Authorised Representative that nature of product developed and services provided by this company are different from assessee as have been narrated in para 6.6 above. Even segmental details for revenue sales have not been provided by TPO so as to consider it as comparable party for comparing profit ratio from product and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining arm s length price for assessee, hence, should be excluded from list of comparable portion. As can be seen from extracts of Annual Report of this company produced before us, facts pertaining to Tata Elxsi have not changed from Assessment Year 2007-08 to Assessment Year 2008-09. We, therefore, hold that this company is not to be considered for inclusion in set of comparables in case on hand. It is ordered accordingly. 15.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we 25 IT(T.P)A No.1318 /Bang/2012 direct Assessing Officer/TPO to omit this company from list of comparables in case on hand. 16. Thirdware Solutions Ltd. (S.No.19 in chart) 16.1 This company was included in list of comparables despite objections of assessee to its inclusion in list of comparables on ground that its turnover was in excess of Rs.500 Crores. 16.2 Before us, assessee objected to inclusion of this company as comparable for reason that apart from software development services, it is in business of product development, trading in software, giving licenses for use of software and that segmental details are not available. It was also submitted that co- ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) in its order for Assessment Year 2008-09 has held that this company is to be omitted from list of comparables for providers of software development services. 16.3 Per contra, learned Departmental Representative supported orders of TPO in including this company in list of comparables. 16.4.1 We have heard rival contentions and perused and carefully considered material on record; including judicial decision relied upon. We find that co- ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 had held that since this company is engaged in product development and earns revenue from sale of licenses it is to be omitted from list of comparables for software development services, holding as under at para 15.3 of order :- 15.3 We have heard rival submissions and perused and carefully considered material on record. It is seen from material on record that company is engaged in product development and earns revenue from sale of licenses and subscription. However, segmental profit and loss accounts for software development services and product development are not given separately. Further, as pointed out by learned Authorised Representative, Pune Bench of Tribunal in case of E-Gain Communications Pvt. Ltd. (supra) has directed that since income of this company includes income from sale of licenses, it ought to be rejected as comparable for software development services. In case on hand, assessee is rendering software development services. In this factual view of matter and following afore cited decision 26 IT(T.P)A No.1318 /Bang/2012 of Pune Tribunal (supra), we direct that this company be omitted from list of comparables for period under consideration in case on hand. 16.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09, we direct Assessing Officer/TPO to omit this company from list of comparables in case on hand. 17. Wipro Ltd. (S.No.20 in chart) 17.1 This company was selected as comparable by TPO inspite of assessee's several objections to its inclusion in list of comparables on grounds of functional dis-similarity, brand value, size, etc. 17.2 Before us, learned Authorised Representative contended that this company i.e. Wipro Ltd. is not functionally comparable to assessee as it owns significant intangibles; both in nature of customer related and technology related intangibles. It was submitted that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra) has held that this company be omitted from list of comparables for providers of software development services since it is into product development, owns significant IPR s, has immense brand value, etc. 17.3 Per contra, learned Departmental Representative supported TPO s action in including this company in final list of comparables. 17.4.1 We have heard both parties and perused and carefully considered material on record; including judicial pronouncements cited and relied upon. We find that co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from list of comparables for providers of software development services for following reasons as laid out at paras 12.4.1 and 12.4.2 of its order which is extracted hereunder :- 12.4.1 We have heard both parties and carefully perused and considered material on record. We find merit in contentions of assessee for exclusion of this company from set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on segmental bifurcation of revenue from sale of product and software services. TPO appears to have adopted this 27 IT(T.P)A No.1318 /Bang/2012 company as comparable without demonstrating how company satisfies software development sales 75% of total revenue filter adopted by him. Another major flaw in comparability analysis carried out by TPO is that he adopted comparison of consolidated financial statements of Wipro with stand alone financials of assessee; which is not appropriate comparison. 12.4.2 We also find that this company owns intellectual property in form of registered patents and several pending applications for grant of patents. In this regard, co-ordinate bench of this Tribunal in case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that company owning intangibles cannot be compared to low risk captive service provider who does not own any such intangible and hence does not have additional advantage in market. As assessee in case on hand does not own any intangibles, following aforesaid decision of co-ordinate bench of Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as comparable to assessee. We, therefore, direct Assessing Officer/TPO to omit this company from set of comparable companies in case on hand for year under consideration. 17.4.2 Following above decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd. (supra), we direct Assessing Officer / TPO to omit this company from telecommunication expenses list of comparable companies. Since two comparable companies viz. Bodhtree Consulting Ltd. and Lucid Software Ltd. were accepted by assessee itself as comparable for Assessment Year 2006-07 and Tribunal vide its order dt.20.2.2015 in assessee's own case has not disturbed comparability of these two companies therefore by following earlier orders of this Tribunal, we direct A.O./TPO to exclude remaining 11 companies from set of comparables and then recompute ALP. Needless to say benefit of 28 IT(T.P)A No.1318 /Bang/2012 proviso to section 92CA also to be considered if price of assesseeis within tolerance range of + or 5% of ALP so computed by TPO. 11. Ground No.10 is regarding disallowance of loss of foreign exchange fluctuation on advance to holding company and Export Earner Foreign Company Account (EEFCA). 12. Assessing Officer noted that assessee has debited sum of Rs.72,55,396 as foreign exchange loss. Assessing Officer asked assessee to submit details. On verification of record, Assessing Officer found that assessee has not furnished details of loss whether this income is capital or revenue in nature. Finally Assessing Officer made disallowance of Rs.2,20,50,750 on account of foreign exchange loss by treating same as capital loss. details of loss has been reproduced by Assessing Officer in para 8.2 as under : 8.2 Assessee Company has not been able to establish that following : a. Advance to Holding Company Rs.1,50,46,655. b. Advance from Holding Company Rs.18,65,755 c. Export Earners Foreign Currency Account. Rs.51,38,309 Rs.2,20,50,715 29 IT(T.P)A No.1318 /Bang/2012 13. Before us, ld. AR has submitted that this is revenue loss arising from foreign exchange fluctuation of receivables. He has referred to details of loss at pages 217 & 253 of paper book and submitted that advance to holding company is pertaining to payment made to employees under Employees Stock Option Scheme which was receivable by assessee from holding company. Therefore it is revenue expenditure and foreign exchange loss on this account is allowable claim. As regards EEFC Account, ld. AR has submitted that this is loss on realization amount in EEFC Account and therefore it is in nature of revenue and allowable claim. 14. On other hand, ld. DR has referred to relevant finding of DRP at page 48 and submitted that Assessing Officer as well as DRP has disallowed claim for want of necessary details of bifurcation of different head of receivable on which assessee has claimed foreign exchange loss. Thus ld. DR has submitted that despite sufficient opportunity given assessee failed to produce any supporting evidence that this loss is in revenue account and not in capital account. 30 IT(T.P)A No.1318 /Bang/2012 15. We have considered rival submissions as well as relevant material on record. At outset we note that Assessing Officer as well as DRP has disallowed claim of assessee on ground that assessee has failed to furnish necessary details and supporting evidence to show that loss is revenue in nature. Though assessee has contended that amounts are revenue receivables and therefore loss is also allowable loss however we find that necessary details and supporting evidence has not been produced by assessee. Accordingly, in facts and circumstances of case as well as in interest of justice assessee is granted one more opportunity to produce necessary details and supporting evidence before Assessing Officer. Hence this issue is set aside to record of Assessing Officer for verification and examination of necessary record to be filed by assessee and then readjudicate same. 16. Ground Nos.11 & 12 are regarding disallowance of provision for legal and professional charges and trade charges. Assessing Officer disallowed provision for legal and professional charges on ground that it is uncertain liability. As regards freight charges, Assessing Officer has disallowed same for non-deduction of tax under Section 40(a)(ia) of Act. 31 IT(T.P)A No.1318 /Bang/2012 17. Before us, assessee has not pointed out any error or illegality in orders of authorities below. Further no contrary fact has been brought to our notice to show that finding of Assessing Officer is perverse or illegal or not tenable. Accordingly in absence of any facts or submissions to substantiate claim of assessee, we do not find any error or illegality in orders of authorities below qua this issue. Accordingly, Ground Nos.11 & 12 are dismissed. 18. Ground No.13 is regarding short grant of credit for advance tax. 19. We have heard learned Authorised Representative as well as learned Departmental Representative and considered relevant material on record. assessee has pointed out that advance tax is Rs.77 lakhs whereas Assessing Officer has granted credit on account of advance tax only to extent of Rs.72,19,408 for assessment year under consideration. Since this is purely matter of verification of facts and therefore no dispute of decision is involved. Accordingly, we direct Assessing Officer to verify correct advance tax available for credit and then consider plea of assessee for granting of credit for advance tax. 32 IT(T.P)A No.1318 /Bang/2012 20. Ground No.14 is levy of interest under Section 234B which is consequential in nature. 21. In result, assessee's appeal is partly allowed. Order pronounced in open court on 19th October, 2016. Sd/- Sd/- (A.K. GARODIA) (VIJAY PAL RAO) Accountant Member Judicial Member Bangalore, Dt.19.10.2016. *Reddy gp Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File. By Order Asst. Registrar, ITAT, Bangalore M/s. Tektronix Engineering Development (India) Pvt. Ltd. v. Dy. Commissioner of Income-tax, Circle 12(4), Bangalore