PER S. RIFAUR RAHMAN, A.M.: This appeal is preferred by the assessee against the order passed u/s 143(3) r.w.s. 147 r.w.s. 92CA(3) r.w.s.144C of the Income Tax Act, 1961 (in short Act) dated 27/10/2017 relating to AY 2008- 09.

2. Briefly the facts of the case are, assessee company, engaged in the business of span technology consulting, application services, systems integration, software development, maintenance, reengineering and independent testing services, filed its return of income for the AY 2008-09 on 29/09/2008 declaring total income of Rs. 3,52,270/-, which was processed u/s 143(1) of the Income-tax Act, 1961 ( in short the). Subsequently, the assessees case was reopened u/s 147 of the and notice u/s 143(2) was issued to the assessee. The AR of the assessee furnished the required information. ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

2.1 The assessee company is 100% Export Oriented Undertaking claiming deduction u/s.10B of the I.T. Act, 1961. During the financial year relevant to the AY 2008-09, assessee company was in receipt of Rs. 15.99 crores from AEs for providing IT Enabled services. As verified, assessee did not file Form 3CEB report. As the assessees international transactions during the year exceeded 15 crores, the case was referred to Transfer Pricing, Officer for determination of Arms length Price. The TPO vide order dated 31-10-2016 determined the ALP at Rs.18,88,23,969/- and held that the total income of the tax payer should be enhanced by Rs. 2,86,24,167/-, by observing as under in his order

2.2 Assessee has entered into following international transactions, as per 3CEB report/TP document: AE Nature of transaction Amount (Rs. Wissen Infotech Inc Provision of software development services 15,99,99,548

2.3 The TPO noted that assessee has used Prowess and Capitaline data base in search for comparable companies in the TP documentation. After applying certain filters, the assessee has short- listed 3 companies to bench mark the software development services transaction with arithmetic mean PLI (OP/OC was computed at 11.03% as against its own PLI at 6.27%. Accordingly, the assessee stated that the international transactions are at arms length.

2.4 As per the audited statement of accounts the financials of the assessee are as under: Description Amount (in Rs.) Operating revenue 16,01,99,802 Operating Cost 15,26,57,039 Operating profit 75,42,763 OP/OR (%) 4.71% OP/OC (%) 4.94% ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

2.5 The TPO arrived the arms length margin at 26.20% and the arms length price of international transactions was determined at Rs. 18,88,23,969/- and a sum of Rs. 2,86,24,167/- was treated as adjustment u/s 92CA(3) of the by selecting 19 comparables, which are as under: S.No. Particulars OP/OC 1 Avani Cimcon Technologies 21.65 2 Bodhtree Ltd. 19.14 3 Celestial Biolabs Ltd. 87.94 4 E-Zest Solutions Ltd. 28.95 5 Flextronics Software 8.07 6 iGate Global Solutions Ltd. 13.90 7 Infosys Technologies Ltd. 40.41 8 Kals Info Systems Ltd. (Seg.) 41.94 9 LGS Global 26.64 10 Mindtree Consulting (Seg.) 17.51 11 Persistent Systems 27.23 12 Quintegra Solutions 21.74 13 RS Software (India) Ltd. 6.46 14 R Systems International (Seg.) 15.30 15 Sasken Communications (Seg.) 13.44 16 Softsol India Ltd. 42.15 17 Tata Elxsi Ltd. (seg.) 18.97 18 Thirdware Solutions 18.01 19 Wipro Ltd. (Seg.) 28.38 arithmetic mean 26.20 Out of the said comparables, the assessee accepted 7 comparables and objected to 12 comparables selected by the TPO. The TPO computed the ALP as under: Description Amount Arms length margin 26.20% Less: WCA 1.35% Adjustment Arms length margin 24.85% Operating Cost (OC) 15,12,40,664 Adjusted arms length margin (%) AALM 24.85% Arms length Price = (100 + AALM) *OC 18,88,23,969 Price Received (OR) 16,01,99,802 Adjustment u/s 92CA 2,86,24,167 ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

3. When the assessee raised objections before the DRP, the DRP directed the AO/TPO to exclude the comparable companies, viz., E - zest solutions ltd., Kals Information Systems Ltd., and Tata Elxsi Ltd.

3.1 After applying the average margin of the remaining 16 comparables, as per the directions of the DRP, the arms length price was reworked out at Rs. 18,77,04,788/- and the adjustment u/s 92CA(3) for the year under consideration at Rs. 2,75,04,986/- instead of Rs. 2,86,24,167/- made by TPO.

4. The AO, thereafter, passed final assessment order u/s 143(3) rws 147 r.w.s. 92CA(3) rws 144C of the, on 27/10/2017, against which, the assessee is in appeal before us raising the following grounds of appeal:

1. The Learned(Ld.) Dispute resolutions panel (DRP)/ Assessing Officer (AO) are erroneous in law and on the facts of the case.

2. The DRP/AO ought to have accepted the profit margin (OP/OC) of 6.27% adopted by the appellant as having complied with the arms length principle.

3. The Ld DRP/AO are not justified in law in considering wrong comparables and consequently arriving at an arms length margin of 24.11% after making Working capital adjustment of 1.39% and thereby making an adjustment of Rs. 2,75,04,986/-.

4. The AO erred in not giving full effect to the directions of Ld. DRP in respect of excluding the company Wipro Limited (Seg) as a comparable company in computation of operating margin of comparable companies, which resulted in increase of margin by 0.33% (i.e. 24.11% less 23.78%) and thereby making an excess adjustment of Rs.5,03,127/- (i.e.Rs.2,75,04,986/- less Rs.2,70,011,859/-).

5. The Ld. DRP/AO erred in not accepting assessees contention of rejecting the following 8 Companies inter alia on the grounds of High Turnover, Functional Dis-similarity, ownership of intangible assets and non-availability of segmental information relating to software development in case of companies engaged in both software development and product development. ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

1. Avani Cimcon Technologies Ltd

2. Bodh tree Ltd 3 Celestial Biolabs Ltd

4. Infosys Technologies Ltd 5 GS Global Ltd 6 Persistent Systems Ltd 7 Quintegra Solutions Ltd 8 Softsol India Limited

6. The DRP/AO erred in confirming an adjustment when the appellant company was claiming exemption u/s 10B and hence there is no intention to shift profits outside India and more so when the tax rates in USA where the AE is located, were higher than those prevailing in India.

7. Any other ground that may be urged at the time of hearing with the prior approval of the Honble ITAT.

4.1 The assessee has filed a petition for Admission of following Additional grounds:

1. The Ld. TPO / DRP erred in computing/confirming the margin of appellant company by treating Fringe Benefit Tax("FBT") as an operating expense, which resulted in reducing the margin of the Appellant company from 6.27% to 5.92%.

2. The Ld. TPO/DRP are not justified in law in considering FBT as an operating expense in case of Appellant company as the td. TPO himself did not consider the FBT as an operating expense while computing the margins of comparables.

5. Out of the said grounds, Ground Nos. 1, 2 & 3 are general in nature, the assessee has not pressed ground No. 4, as the AO already addressed the issue with the directions of DRP. Hence, all these grounds are dismissed.

6. In ground No. 5, the assessee object to exclude the following 8 companies as comparables from the list of comparables:

1. Avani Cimcon Technologies Ltd

2. Bodh tree Ltd 3 Celestial Biolabs Ltd

4. Infosys Technologies Ltd 5 LGS Global Ltd 6 Persistent Systems Ltd ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. 7 Quintegra Solutions Ltd 8 Softsol India Limited 7 As regards Avani Cincom Technologies Ltd, AR submitted that this company cannot be a comparable to the assessee company as the company is into both segments product and software services and further, segment-wise data is not available. The TPO included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the. He relied on the following cases:

1. Invensys Development Centre (P) Ld., Vs. aCIT, [2015] 68 SOT 247 (Hyd.)

2. United Online Software Development (India) (P) Ltd., Vs. ITO [2016] 69 Taxmann.com 446 (Hyd.)

7.1 The ld. DR, on the other hand, submitted that the assessee objects for inclusion of the said company on the ground that it has products and offers services and segmental information is not available. However, it has only one segment as seen from the annual report. The information obtained u/s 133(6) was shared with the assessee also by the TPO.

7.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd., by placing reliance on the judgement of jurisdictional tribunal in the case of Invensys Development Centre P Ltd. directed the AO/TPO to exclude the said company from the list of comparables while computing arms length price. Following the said decision, we direct the AO to exclude the said company as comparable.

8. As regards Bodhtree Consulting Ltd., ld. AR submitted that this company cannot be a comparable to the assessee company as it is engaged in the business of software products and it also provides open end to end web solutions, software consultancy, design and ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. development of software. It is functionally different from the assessee company and thus needs to be eliminated from the list of comparables. He relied on the following cases:

1. Cash Edge India (P) Ltd. Vs. ITO [2014] 151 ITD 717.

8.1 Ld. DR, on the other hand, submitted that there is significant employee cost and software development expenses and there are no intangibles indicating products.

8.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd. directed to exclude the said company by observing as under:

6. Bodhtree Consulting Ltd. (Seg.)

6.1 The ld. AR objecting to the said company as comparable, relied upon the decision of theAT, Hyderabad in assessees own case for AY 2005-06 wherein the Bench held as follows: 20. The Learned AR submitted that since the aforesaid company fails the RPT filter it cannot be treated as a comparable. The learned DR supported the order of the TPO.

21. We have considered the submissions of the parties and perused the materials on record. The ground on which the learned AR seeks for exclusion of the aforesaid company is, its related party transaction as a percentage to the total revenue is 34.68% which is more than the accept/reject matrix of more than 25% fixed by the TPO. It is to be noted that in final filters adopted by the TPO in para 9.7 of his order he himself has excluded companies having RPT of more than 25%. We, therefore, direct the Assessing Officer/TPO to examine this aspect and exclude it from the list of comparables if the assessees contention is found to be correct.

6.2 The ld. AR also relied upon the following cases:

1. ITAT Delhi in case of Cash Edge India Pvt. Ltd. in ITA No. 5848/D/2012 for AY 2008-09 ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

6.3 It is to be noted that in the case of 3DPLM Software Solutions Ltd, (TS-359-ITAT-2013(Bang)-TP) AY 2008-09, the coordinate bench has taken this company as comparable.

6.4 Ld. AR submitted that this company is engaged in providing open and end to end web solutions, software consultancy, design and development of software and also submitted that this is into business of software products. For that he submitted snap shot of companies profile from the net in page 561 of the paper book, which states as

we also provide product engineering and enterprise services to Fortune 500 firms and SMES

. Also

As a partner of industry leading technology providers, Bodhtree delivers best-in-class solutions that are tailored to meet the needs of global SMEs and fortune listed organizations

. Ld AR also submitted a letter from Chartered Accountats, M/s Gokhale & Co., which is addressed to ACIT (TP), Hyderabad (Refer pages 563 & 564 of the paper book). M/s Gokhale & Co., submits details about the Bodhtree e paper solutions.

6.5 After analyzing the above submissions, we are of the view that the submissions on profile of the company, it is mentioned as

we also provide product engineering and enterprise services to fortune 500 firms

. This also will be categorized as software services and cannot be categorized as software product. The auditor of this company submitted the letter before TPO, which was part of assessment proceedings. These submissions are made by ld. AR as additional evidence and we direct AO/TPO to analyse this comparable with the submissions of the assessee after giving them an opportunity of being heard. In case, this comparable is found to be into software products, it may be eliminated from the list of comparables. Respectfully following the said decision, we direct AO/TPO to analyse this comparable with the submissions of the assessee after giving them an opportunity of being heard. In case, this comparable is found to be into software products, it may be eliminated from the list of comparables.

9. As regards Celestial Biolabs Ltd., ld. AR submitted that this company cannot be a comparable to the assessee company as it is engaged in R&D activities and renders services to specific sectors. It provides contract research services and is also diversified into ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. marketing and manufacturing activities. It is functionally different from the assessee company, thus, it has to be excluded from the final list of comparables. He relied on the following case:

1. 3DPLM Software Solutions Vs. DCIT [2014] 42 Taxmann.com 333 ( Bangalore Trib.)

9.1 The ld. DR, on the other hand, submitted that in the case of this company, unless R&D expenditure is shown to have material impact on the profit margin, the comparable could not be excluded.

9.2 Considered the rival submissions and perused the material on record. We find that the Bangalore Tribunal in the case of 3DPLM software Solutions (supra) direct the AO/TPO to exclude the said company by observing as under: "9.5 Apart from relying on the afore cited judicial decisions in the matter (supra), the assessee has brought on record substantial factual evidence to establish that this company is functionally dis-similar and different from the assessee in the case on hand and is therefore not comparable and also that the findings rendered in the cited decisions for the earlier years i.e. Assessment Year 2007-08 is applicable for this year also. We agree with the submissions of the assessee that this company is functionally different from the assessee. It has also been so held by co-ordinate benches of this Tribunal in the assessees own case for Assessment Year 2007-08 (supra) as well as in the case of Triology E-Business Software India (P.) Ltd. (supra). In view of the fact that the functional profile of and other parameters of this company have not changed in this year under consideration, which fact has also been demonstrated by the assessee, following the decision of the co-ordinate benches of the Tribunal in the assessees own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 and Triology E-Business software India (P.) Ltd. case (supra), we hold that this company ought to be omitted form the list of comparables. The A.O/TPO are accordingly directed." We notice that the decision of theAT Bengaluru bench cannot be relied as it refers to AY 2007-08 and it is based on several other decisions. We notice that similar to assessee, Celestial Bio Labs also offers several services to its AEs and since we are determining with ALP based on TNMM, we consider the average margin of all theA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. several activities carried on by the assessee. On a compartmentalizing two profit making companies with several activities, we can compare the end result, unless they are into product or highly diversified or some activities which will modify the profit making ability of the organization. In this case, we do not see any reason to interfere with the selection process. Therefore, the objection of the assessee to exclude the said company is hereby rejected.

10. As regards Infosys Technologies Ltd, ld. AR submitted that this company cannot be a comparable case to the assessee company as it is to be rejected based on its size, huge turnover, brand value, scale of operation, owning of intangibles and diversified operations. He relied on the following cases:

1. Invensys Development Centre (P) Ltd. (supra)

2. Adaptec (India) P. Ltd. Vs. ACIT [2014] 44 Taxmann.com 236 (Hyd. Trib)

3. 3DPLM Software Solutions Ltd. Vs. DCIT (supra)

4. United Online Software Development (India) P. Ltd. (supra)

10.1 The ld. DR, on the other hand, in his written submissions stated as under:

10. With regard to Infosys Technologies Ltd, the issue of size, turnover, scale of operation, intangibles and diversified operations are cited as objections. It is humbly submitted that none of the objections would be valid unless they are supported by quantitative analysis that they impact profit margins. Reliance in this regard is placed on the decision of Honble Delhi High Court in the case of Chryscapital Advisors India Pvt Ltd (376 ITR 173), wherein the Honble High Court held at para 33 of the decision that "it is clear that exclusion of some companies whose functions are broadly similar and whose profile - in respect of the activity in question can be viewed independently from other activities- cannot be subject to a per se standard of loss making company or an "abnormal" profit making concern or huge or "mega" turnover company". Reliance is also placed on the decision of ITAT Special Bench decision in case of Maersk Global Centres (India) Private Limited (TS-74- ITAT-2014 (Mum)-TP). Reliance is also placed on the recent decision of Honble I TAT, Delhi Bench in the case of FIS Global Solutions Ltd [2018] 94 taxmann.com 344 (Delhi - Trib.) wherein ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. it was held that "When average PLI of comparables, consisting of companies having similar or high or low turnover, is considered for benchmarking, effect of different volumes of turnover is automatically ironed out. Therefore, simply excluding the comparable because turnover of this company is more than Rs. 100 crore is not a proper reason". The decision in case of FIS Global Solution s Ltd also considers to the decision of Delhi High Court in Chryiscapital Advisors India Pvt Ltd.

10.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd. directed to exclude the said company by observing as under:

1. Infosys Technologies Ltd.

1.1 The ld. AR objecting to the aforesaid company being treated as comparable, relied on the decision of theAT, Hyderabad in assessees own case for AY 2007-08 and 2005-06.

1.2 The ITAT in AY 2007-08 vide ITA No. 1658/H/2011 and others held as follows: "7.2.3. We have considered the submissions of the parties and perused the materials on record. On considering the same, we are of the view that this company cannot be considered as comparable to Assessee due to various factors such as its size, turnover, brand value, scale of operation, diversified activities and owning of intangibles. As can be seen from the TP order, the turnovers of Infosys Technologies Limited during the year under consideration are Rs.13,149 crores as against Rs. 42 crores of Assessee. Though it is a fact that Assessee in the TP documentation, has selected Infosys Technologies Ltd. as comparable but that cannot prevent Assessee from objecting to the aforesaid company being selected as comparable, if there are valid reasons for doing so. In this context, the contention of the learned AR that Assessee has selected Infosys Limited on the basis of three years financial data, whereas the TPO considered only the current year data also needs to be appreciated. Therefore, considering the enormity of turnover of the company as well as other relevant factors, the aforesaid company cannot be treated as comparable to Assessee in any manner. This view of ours is also in tune with the view expressed by different Benches of this Tribunal as stated below as well as that of the Honble Delhi High Court in the case of CIT Vs. Agnity India Technologies Pvt. Ltd.,[2013] 85 CCH 146. ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.1978/H2011 c) M/s. Virtusa (I) P. Ltd. ITA.No.1962/Hyd/2011 d) Telcordia Technologies India P. Ltd. ITA.7821/Mum/2011 e) Triology E-Business Solutions ITA.No.1054/Bang/2011 f) Adaptec (India) P. Ltd. vs. DCIT ITA.No.1801/Hyd/2009 g) Trinity Advanced Software Labs P. Ltd. vs. ACIT ITA.No.1129/Hyd/2005. We therefore direct the Assessing Officer /TPO to exclude this while computing ALP.

1.3 The ITAT in AY 2005-06 in assessees own case for AY 2005-06 vide ITA No. 1480/H/10 and others held as follows: "15. We have heard submissions of the parties and perused the materials on record. So far as Infosys Technologies Ltd. is concerned the issue of comparability of the aforesaid company has been considered by different Benches of the Tribunal including the Hyderabad Benches. It is to be noted that the consistent view of different Benches of the Tribunal is to the effect that Infosys Technologies Ltd. being a big company in all respects including the range of turnover is not a comparable to small companies which are captive service providers having considerably low turnover. In fact, the Honble Delhi Court in a judgement dated 19.7.2013 in the case of Agnity India Ltd. upheld the decision of ITAT Delhi Bench in excluding Infosys Technologies Ltd., as a comparable in view of its size. Therefore, keeping in tune with the consistent view of different Benches of the Tribunal in respect of the aforesaid company, we direct the AO/TPO to exclude the aforesaid company from the list of comparables."

1.4 The ld. AR also placed reliance on the following decisions:

1. Invensys Development Centre India Pvt. Ltd., 1692/H/12 AY 2008-09

2. 3DPLM Software Solutions Ltd, (TS-359-ITAT-2013(Bang)- TP) AY 2008-09.

3. Cash Edge India Pvt. Ltd., ITA No. 5848/D/12 - AY 2008-09.

1.5 The ld. DR, on the other hand relied on the orders of revenue authorities.

1.6. After considering the submissions of both the parties and keeping in tune with the consistent view of different benches of the Tribunal in respect of the aforesaid, we direct the AO/TPO to exclude the aforesaid company from the list of comparables.

ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

After considering the submissions of both the parties and keeping in tune with the consistent view of different benches of the Tribunal in respect of the aforesaid, we direct the AO/TPO to exclude the aforesaid company from the list of comparables.

Following the said decision, we direct the AO/TPO to exclude the said company as comparable from the list of comparables.

11. As regard LGS Global Ltd., the ld. AR submitted that this company cannot be a comparable company to the assessee company, as this company is engaged in rendering consultancy services, BPO, testing services and application maintenance outsourcing. The segmental data is not available for comparability analysis therefore the company is to be rejected from the final list of comparables. He relied on the following cases:

1. Cash Edge India (P) Ltd. (supra)

2. United Online Software Development (India) Ltd. (supra)

11.1 The ld. DR on the other hand, on the objections on LGS Global Ltd that segmental data is not available, submitted that the range of services (consultancy services, BPO, testing services and application maintenance) rendered by the said company are very similar to that of the assessee and the said company operates only in one segment and hence, the objection is not sustainable.

11.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd. directed to exclude the said company by observing as under:

8. LGS Global Ltd.

8.1 Objecting to the said company as comparable, ld. AR submitted that this company is offering services in consultancy services, BPO, testing services and application maintenance outsourcing. Further, this company has capital work-in-progress towards capitalized software and product development cost. In ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. principle, software products cannot be considered as comparables for software services company. The ld. AR relied upon the decision of theAT Delhi Bench in case of Cash Edge India Pvt. Ltd. (supra) wherein the bench held as follows:

15. As regards the argument of Ld. A.R. regarding exclusion of LGS Global Ltd., Avani Cincon, Kals Information Systems and Bothtree Consultants, we are of the opinion that the company having similar functions can only be compared with the assessee and as per various decisions of the Tribunal as relied upon by the Ld. A.R., these companies were into development of the product also in addition to the business of providing services.

16. Ld. D.R. had argued that the TPO had taken segmental figures only to make the comparison. Therefore, we hold that this issue can be examined by the Assessing Officer afresh to ascertain as to whether segmental data relating to the provision of services were used or consolidated results were used for making comparison.

17. As regards the last argument of the Ld. A.R. regarding inclusion of finance and bank charges in operating expenses while computing the margin and comparables, we are in agreement with the argument of the Ld. A.R. that finance and bank charges form part of operating expenses and need to be included while calculating margin of comparables.

18. Therefore, in view of the facts and circumstances of the present case and in view of the discussions made above and in view of various judicial pronouncements, we direct the Assessing Officer to re-adjudicate the issue of arms length pricing and determine the same by excluding the comparables having turnover of more than Rs.200 crores. The Assessing Officer will also take into account the bank and finance charges as part of operating expenses of com parables for arriving at the margin. Similarly, Assessing Officer will only take segmental results relating to services only for comparing the companies Ws. Kals Information Systems, Avani Cincon, LGS GLobal Ltd. and Bodhtree Consulting Systems as the consolidated results of these companies cannot be compared with the assessee, as assessee is admittedly into service providing activities. It is further directed that if segmental results of the above companies relating to similar services as being provided by assessee are not available, then these companies will have to be excluded as comparables as held in various judicial pronouncements relied upon by Ld. A.R . ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

8.2 In view of the above and also ld. AR submitted that the revenue in FY 2007-08 is three times higher than the revenue of FY 2006-07. We direct the AO to apply the turnover filter and exclude the companies whose turnover are more than 200 crores. Since, we do not have segmental report, we direct AO to determine the service and product details from this company and if in case it is found that it is into product, this company will have to be excluded from the list of comparables.

Following the said decision, we direct AO to determine the service and product details from this company and if in case it is found that it is into product, this company will have to be excluded from the list of comparables.

12. With regard to Persistent Systems Ltd, the ld. AR submitted that this company cannot be a comparable company to assessee company, as this company is engaged in software product designing and analytical services. It is also incurred R&D expenses. The segmental data is not available for comparison purpose, therefore, the company is to be rejected from the final list of the comparables. He relied on the following cases:

1. 3DPLM Software Solutions Ltd. Vs. DCIT (supra)

2. United Online Software Development (India) P. Ltd. (supra)

12.1 The ld. DR submitted that the said company is not into products and it only deploys certain platforms to render IT Services. Therefore, the objections of the assessee on the services offered by the company are not tenable. DRP examined the comparable at length at pages 7 to 10 of its order and gave detailed reasons for retention of the said comparable.

12.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd. directed to exclude the said company by observing as under:

9. Persistent Systems Ltd. ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

9.1 Objecting to the aforesaid company as comparable, ld. AR submitted that this company is engaged in software product designing and analytical services. It has also expenditure in R&D. The ld. AR relied on the decision of the coordinate bench of ITAT Bangalore in case of 3DPLM Software Solutions Ltd. (supra) wherein the bench held as follows:

17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia 41 IT(T.P)A No.1303/Bang/2012 Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly.

9.2 Ld. AR also relied on the decision in the case of Cash Edge India Pvt. Ltd., ITA No. 5848/D/12 AY 2008-09.

9.3 Ld. DR relied on the orders of revenue authorities.

9.4 Respectfully following the said decision, we direct the AO/TPO to exclude the said company as comparable from the list of comparables. Following the said decision, we direct the AO/TPO to exclude the said company from the list of comparables.

13. As regards Quintegra Solutions Ltd., the ld. AR of the assessee submitted that this company cannot be a comparable, as it is engaged in product engineering services and is not purely a software development service provider. This company is also engaged in proprietary software products and R&D activities. Hence, this company may be excluded from the list of comparables. He relied on the following cases:

1. 3DPLM Software Solutions Ltd. Vs. DCIT (supra)

2. United Online Software Development (India) P. Ltd. (supra) ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

13.1 The ld. DR submitted that the assessee argues that it is a company offering product engineering services and having proprietary software products as well as R&D activities, but, it is submitted that unless the assessee establishes quantitatively that the R&D activity has significant impact on the profit margin, the same cannot be excluded.

13.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd. directed to exclude the said company by observing as under: 10. Qunitegra Solutions Ltd.

10.1 Objecting to the aforesaid company as comparable, the ld. AR relied on the decision of the coordinate bench of ITAT Banlgaore in case of IDPLM Software Solutions Ltd. (supra) wherein the bench held as follows:

18.3.1 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e. Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the 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 the fact that this company owns intangible assets. The 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 a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted form the list of comparables, as in the case on hand. 18.3.2 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where extraordinary events have taken place, which has an effect on the performance of the company, then that company shall be removed from the list of comparables. ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

18.3.3 Respectfully following the decision of the co- ordinate bench of the Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (supra), we direct that this company i.e. Quintegra Solutions Ltd. be excluded from the list of comparables in the case on hand since it is engaged in proprietary software products and owns its own intangibles unlike the assessee in the case on hand who is a software service provider.

10.2 Respectfully following the said decision, we direct the AO/TPO to exclude the said company as comparable from the list of comparables. Following the said decision, we direct the AO/TPO to exclude the said company from the list of comparables.

14. As regards the Softsol India Ltd., the ld. AR submitted that this company cannot be a comparable case to assessee company because RPT is over 15% in this case, i.e. 18.3%. He relied on the following case:

1. United Online Software Development (India) P. Ltd. (supra)

14.1 The ld. DR submitted that the assessee seeks exclusion of the said company as it fails RPT filter at 15%. He submitted that the standard RPT filter is applied at 25% and the assessee cannot seek selective application of this filter in case of one comparable.

14.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd. directed to exclude the said company by observing as under:

11. Softsol India Ltd.

11.1 Objecting to the said company as comparable, the ld. AR relied on the decision of coordinate bench of ITAT Banglaore in case of 3DPLM Software solutions Ltd. (supra) wherein the bench held as follows: ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

19.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables as this company was a pure software development service provider like the assessee.

19.3 We have heard both parties and perused and carefully considered the material on record. We find that the co- ordinate bench of this Tribunal in the assessees own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 has excluded this company from the set of comparables for the reason that RPT is in excess of 15% following the decision of another bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2011. As the facts for this year are similar and material on record also indicates that RPT is 18.3%, following the afore cited decisions of the co-ordinate benches (supra), we hold that this company is to be omitted from the list of comparables to the assessee in the case on hand.

11.2 Ld. DR relied on the orders of revenue authorities.

11.3 Respectfully following the said decision, we direct the AO/TPO to exclude the said company as comparable from the list of companies. We notice that assessee has adopted 10% RPT whereas TPO adopted 25% filter for RPT. Generally, the %age of RPT is determined based on the availability of comparables. When the comparables are more, the RPT filter is adopted at minimum level whereas when the comparables are less, the RPT % are fixed liberally. Generally, it is selected between 15% or 25% depending upon the availability of comparables. In the given case, TPO has selected 19 comparables. Therefore, it shows that comparables are reasonably more, hence, TPO could have applied 15%. In the given case, out of 19 comparables, assessee accepted only 7 and balance it objected. Therefore, in our considered view, in the restricted atmosphere of selection of comparables, the %age should be 25% not 15%. The more we restrict, chances of loosing reasonable comparability. Therefore, we reject the contention of the assessee and exclusion of the said comparable by the assessee from the list of comparables, is herby rejected. ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd.

15. We therefore direct the Assessing Officer /TPO to determine the ALP keeping in view our directions given hereinabove and if on such determination the price charged by the assessee for its international transaction is found to be within the arms length then no adjustment is required to be made.

16. As regards ground No. 6 regarding exemption u/s 10B, the assessee stated as under: 21.0 Appellant Company is enjoying benefit u/s 10B and therefore it is incorrect to make a transfer pricing adjustment. Moreover the tax rate in the country where our AE is situated i.e., USA is higher than the Indian tax rate, and accordingly, establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible. Since the tax rates in USA are higher than those compared in India there would not be any incentive to transfer the profits to higher tax chargeable region.

21.1 This view has been upheld by the Mumbai Bench of the Tribunal in the case of Indo American Jewellery 41 SOT 1, the Honble Tribunal held "We also find merit in the submission of the learned counsel for the assessee that since the tax rates were higher in USA compared with those of India, therefore, there would not be any incentive to transfer the profits to higher tax chargeable regions especially when the company enjoys deduction under section 80HHC of the. Further the AEs have earned meagre profit or incurred losses as compared to the profit of the assessee and, therefore, the submission of the assessee that there was no transfer of profit by the assessee outside India finds merit. It has been held by various judicial pronouncements that unless proper method is followed, comparables are chosen and selected after doing a proper FAR study as well as adjustments are made to the extent possible it would be unfair to summarily reject the transfer pricing analysis made by the assessee. We find in the instant case the Assessing Officer/TPO has not made out a case to establish that the comparables used by the assessee deserve to be rejected.

21.2 Moreover where income is derived from International Transaction which is exempt from tax in India (in our case u/s lOB) it cannot be alleged that the assessee has arranged its affairs in such a manner so as to show lesser taxable income in India. ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. This view has been endorsed by the Ahmedabad Tribunal in the case of Motif India Info tech Pvt Ltd ITA No.3043/ Ahd/2010 for A Y 2006-07.

37. In our considered opinion, in a case where the international transaction entered into by the assessee with the AEs giving rise to exempt income in the hands of the assessee is to be benchmarked with the ALP determined in accordance with the provisions of Transfer Pricing to ensure that no excess exempt income is disclosed by the assessee and assessee is entitled for exemption of income u/s lOA of the total income determined as per the Transfer Pricing Provisions only and where the assessee has claimed more exempt income, then exemption u/s lOA shall be allowed in accordance with the profit compared as per ALP only.

38. Keeping in view the above in mind in the instant case we find that as per the decisions of the lower authorities the assessee has not reported any excess exempt income from its international transactions with AE. On the other hand as per the opinion of the lower tiuthorities in the instant case exempt income declared by the assessee when benchmarked with the ALP determined in accordance with the provisions of Transfer Pricing, the assessee has declared lesser exempt income and thereby no taxable base in India was eroded. Therefore, in our considered opinion no adjustment with the exempt income of the assessee was required to be made as per provisions contained in Chapter X of the. Similarly in the case of "Philip Software", 119 TTJ 721 (Bang.), it was held that since the basic intention behind introducing the TP provisions in the is to prevent Shifting of profits outside India, and the assessee was claiming benefit u/s 10A of the, the TP provisions ought not to be applied to the assessee.

5.1 We have heard the rival contentions and we proceed to adjudicate on the issues in the sequence which has been argued by the rival parties before us. The learned counsel for the assessee has argued that the tax payable by it in India is lower than the tax rate applicable to its associated enterprise in the Netherlands. Since the assessee is availing the benefit under section 10A of the Act, one cannot take a simplistic view on the matter of tax avoidance. In this connection the learned Departmental Representative has drawn reference to the proviso to section 92C(4). Relying on OECD guidelines, the DR has mentioned that the consideration of transfer pricing should not be confused with the consideration of problems of tax avoidance, even though transfer pricing policies may be used ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. for such purposes. In this connection, it was pointed out that by not declaring proper profits in India, the assessee is indirectly reducing its liability to Dividend Distribution Tax (in short DDT). The Special Bench of the Tribunal, in the case of Aztec Software & Technology Services Ltd. (supra), has concluded that the Assessing Officer/TPO need not prove the motive of shifting of profits outside India for making a transfer pricing adjustment. The assessee had generally argued that one of the factors driving any motive for shifting profits would be the difference in the tax rate in India and the tax rate applicable to the associated enterprise in the overseas jurisdiction. In the instant case, since the assessee was availing the benefit under section 10A of the Act, it would be devoid of logic to argue that the assessee had manipulated prices (and shifted profits) to an overseas jurisdiction for the purpose of avoiding tax in India. The reference by the OR to the proviso to section 92C(4) is completely out of context and irrelevant. The DR ought to have appreciated that the proviso comes into play only once a transfer pricing adjustment is made. By quoting OECD guidelines, the Id. DR does not get much help. The Id. DR ought to have appreciated that what is relevant in the Indian context are the specific provisions of the Circular No. 14/2001. As submitted above, at para 55.5 of the said Circular, the CBDT has clearly mentioned that the intention of the transfer pricing provisions is to curtail avoidance of taxes by shifting profits outside India." In the case of Cotton Naturals (J) (P.) Ltd. v. DCIT [2013] 32 taxmann.com 219 (Delhi - Trib.) the Honble Delhi Tribunal held as under: "18. We further note that assessees profits are exempt u/s. 10B. Hence, there is no case that assessee would benefit by shifting profits outside India. This view is supported by Bangalore Tribunal decision in this case Philips Software Centre (P.) Ltd. v. Asstt. CIT [2008J 26 SOT 226 and Mumbai Tribunal in the case of ITO v. Zydus Altana HealthCare (P.) Ltd. [2011J 44 SOT 132.

I In the case of CIT v. Lumax Industries Ltd [2013]36 taxman.com 380 (Delhi Trib) "The TPO has nowhere made out a case that profit was shifted from a higher tax jurisdiction to a lower tax jurisdiction. In fact, there was no, as there could have been no, motive for any such shifting of profits at the hands of the assessee company and there could have been no reason for a majority stakeholder in India {the assessee} to over pay even a single paisa to the minority stakeholder in Japan {Stanley}. The TPO fell in error in ignoring the position that it is if and only if it stands proved that ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. there was manipulation of prices to avoid taxes in India, that the transfer pricing provisions of the can be invoked. Now, obviously, once the shareholding of Stanley was only to the extent of 19.51%, the assessee company would not have avoided taxes by shifting profits to Stanley. That transfer pricing regulations in India have been brought on the statute book with the intent of preserving tax base in India and preventing tax evasion through manipulation of pricing of inter company transactions, is also evident from CBDT Circular No.14/2001, providing the Explanatory Notes on provisions relating to direct taxes with respect to Finance Act, 2001. As per this Circular {also brought to the notice of the Assessing Officer by the assessee by way of its submissions dated 20.12.2006, copy at APB 189-218, relevant portion at page 194, para 3.1):- "The profits derived by such enterprises carrying on business in India can be controlled by the multinational group, by manipulating the prices charged and paid in such intra-group transactions, thereby leading to erosion of tax revenues The basic intention underlying the new transfer pricing regulations is to prevent shifting out of profits by manipulating prices charged or paid in international transactions, thereby eroding the countrys tax base. "

21.3 In addition to the above reliance is also placed on the following case laws where the above view was held by the various Benches of Honble Tribunal. i) "ITO vs. Zydus Altana Healthcare {P} Limited", 44 SOT 132 (Mumbai) ii) ii "ACIT vs. Dufon Laboratories", 39 SOT 59 (Mumbai) and iii) "IJM (India) Infrastructure", 281TR {Trib} 176 {Hyd} On the above facts we would like to rely on the recent decision by Mumbai Tribunal in the DClT v. Tata Consultancy Services Ltd ITA No: 7513/M/2010 for the AY 2005-06 wherein it was held "54. For the above discussion, the assessees support to the impugned order on both counts is found to be correct. The AO erred in not himself examining the issue of TP and with the approval of the Id. CIT, made a reference to the TPO u/s 92CA(1) of the; that the AO as well as the Id. CIT(A) failed to apply their mind to the TP Report filed by the assessee, or to any other material or information or document furnished. The TPO made an adjustment which was incorporated by the AO in the assessment order. Thereby. the AD as well as the Id. CIT(A) ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. did not discharge necessary respective judicial functions conferred on them under sections 92C and 92CA of the. Further, the assessee is also correct in contending that no TP adjustment can be made in a case like the present one, where the assessee enjoys u/s 10A or 80HHE of the, or where the tax rate in the country of the Associated Enterprises is higher than the rate of tax in India and where the establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible."

22.0 In view of what has been stated above we pray the Honble Bench to grant relief as per the grounds of appeal and submissions made as above.

16.1 The ld. DR, on the other hand, submitted that merely because the assessee is eligible for exemption u/s 10B, it would not establish that there was no shifting of profit. The adjustments to ALP are not subject to exemption u/s 10B. Besides, as per the TP law in India, intentions need not be established and the ALP needs to be worked out as per the methods specified by CBDT as per the provisions in the IT Act, 1961 and the Rules.

16.2 Considered the rival submissions and perused the material on record. The respective coordinate bench of ITAT has opined that when favourable exemption is available to the assessee in India, assessee may not shift the profit to other countries. This is general criteria that multinational companies will plan their business activities to retain maximum profit in the country in which less tax payment is there. But it is not the only criteria for decision making. The decision making and shareholder appetite of expansion will not remain same for all the time or countries. Irrespective of profit making ability and exemption available in the country of operation, the actual profit making ability cannot be determined. Irrespective of situation, the transfer price of the global market and the corporates must be within the band of pricing. It cannot fluctuate. It can be determined or evaluated only by means of comparing pricing pattern of Indian market and global market. When it is found that it is within the band ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. of prices adopted globally, no need of making any adjustment. It cannot be restricted based on the prevailing tax rate in other countries. As we said earlier, the tax saving alone cannot be a decision making process to restrict any TP adjustment. Therefore, ground No., 6 is dismissed.

17. As regards additional grounds regarding FBT, the ld. AR submitted that the TPO has traced the FBT as an expenditure and the margin determined by him are less compared to other comparables. The TPO while considering analysis of comparables, he has deducted the FBT from their operating expenses. He prayed before us that the FBT expenses which are not allowed as deductible expenses, the same should be removed while calculating profit of margin of the assessee or to the method adopted for the comparables.

17.1 The ld. DR filed written submissions wherein it was stated as under:

3. On the ground of treating FBT is treating as expenditure, it is humbly submitted that it is essential to know about the objective of levy of FBT which is available in Circular no: 8/2015. The relevant portions of the circular are quoted as under. The objective is as follows: "2. Objective:

2.1 The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are under-taxed, it violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization. Therefore, under-taxation of fringe benefits also violates vertical equity. It also discriminates between companies which can provide fringe benefits and those which cannot thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because- (a) all benefits cannot be individually attributed to employees, particularly in cases where the benefit is collectively enjoyed; ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. (b) of the present widespread practice of providing perquisites, wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/reduce their tax liability; and (c) of the difficulty in the valuation of the benefits.

2.2 In India, prior to assessment year 1998-99, some perquisites/fringe benefits were included in salary in terms of section 17 and accordingly taxed under section 15 of the Income-tax Act in the hands of the employee and a large number of fringe benefits were taxed by the employer-based disallowance method where the quantum of the disallowance was estimated on a presumptive basis. In practice, taxation of fringe benefits by the employer-based disallowance method resulted in large-scale litigation on account of ambiguity in defining the tax base. Therefore, the taxation of fringe benefits by the employer-based disallowance method was withdrawn by the Finance Act, 1997. However, the withdrawal of the provisions relating to taxation of fringe benefits by the employer-based disallowance method resulted in significant erosion of the tax base. The Finance Act, 2005 has introduced a new levy, namely, the FBT as a surrogate tax on employer, with the objective of resolving the problems enumerated in para 2.1 above, expanding the tax base and maintaining equity between employers".

4. From the above, it can be seen that as employee based taxation is difficult and also from the considerations of equity, the tax on benefits received by employees is charged from the employer. FBT is a tax on expenditure of the employer and not on his income. The fact that FBT is part of expenditure in commercial parlance is evident from answer to Query no: 103 of the circular cited above. The same is reproduced hereunder: "Whether FBT would be allowable deduction while computing book profit under section 115JB

103. FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub-clause (ic) of clause (a) of section 40 of the Income-tax Act expressly prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head profits and gains of business or profession. This prohibition does not apply to the computation of book profit for the purposes of section 11SJ8. Accordingly, the FBT is an allowable deduction in theA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. computation of book profit under section 11SlB of the Income - tax Act". From the above, it may kindly be seen that FBT is an expenditure in commercial parlance and needs to be considered as part of operating expenses.

16.3 Considered the rival submissions and perused the material on record. The assessee made the plea before us that TPO has considered the FBT as operating expenses at the same time, he eliminated the FBT expenditure in the case of comparables. AR has not submitted any papers in support of such submission. However, as a principle, the profit margin should be compared with comparables by following similar set of rules and accounting principles. In case of following different methods/rules, we end up reaching different conclusions. Therefore, we remit this issue also to the file of AO/TPO to treat the FBT as business operating expenses for both the assessee as well as comparables to determine the margin and then compare the same for arriving proper ALP. Accordingly, additional ground raised by the assessee is allowed for statistical purposes.

17. In the result, appeal of the assessee is partly allowed for statistical purposes. Pronounced in the open Court on 18 th April, 2019 Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 18 th April, 2019 kv ITA No. 2010/Hyd/17 Wissen Infotech Pvt. Ltd., Hyd. Copy to:-

1) M/s Wissen Infotech Pvt. Ltd., C/o Prasad & Prasad, CAs., Flat No. 301, MJ Towers, 8-2-698, Road No. 12, Banjaa Hills, Hyderabad 500 034

2) DCIT, Circle 17(2), Hyderabad

3) DRP - 1, Bengaluru

4) Pr. CIT 5, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.

6) Guard File