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M/s. Lionbridge Technologies Pvt. Ltd. Unit No.301 to 304, Reliable Tech 3rd Floor, GUT 31, Airoli, Navi Mumbai Vs. Income Tax Officer, 8(2)(2), M.K. Road, Mumbai.
November, 19th 2015
          IN THE INCOME TAX APPELLATE TRIBUNAL,
                MUMBAI BENCH "K", MUMBAI.

          BEFORE SH. A.D. JAIN, JUDICIAL MEMBERAND
            SH. N.K. BILLAIYA, ACCOUNTANT MEMBER

                   I.T.A. No. 668/Mum/2014
                   Assessment year: 2009-10
                   PAN:AABCT3380Q

M/s. Lionbridge Technologies Pvt. Ltd. vs. Income Tax Officer,
Unit No.301 to 304, Reliable Tech          8(2)(2), M.K. Road,
 rd
3 Floor, GUT 31,                           Mumbai.
Airoli, Navi Mumbai.
(Appellant)                               (Respondent)

                   I.T.A. No. 1375/Mum/2014
                   Assessment year: 2009-10
                   PAN:AABCT3380Q

Income Tax Officer,      vs.   M/s. Lionbridge Technologies Pvt. Ltd.
8(2)(2), M.K. Road,            Unit No.301 to 304, Reliable Tech 3rd floor,
Mumbai.                        Airoli, Navi Mumbai.

      Assessee by: S/Sh. Ajay Vohra. Sr.Advocate & N.K. Jain, Advocate
      Respondent by:S/Sh. N.K.Chand, CIT(DR) & Jitendra Yadav

                   I.T.A. No.7415/Mum/2014
                   Assessment year: 2010-11

M/s. Lionbridge Technologies Pvt. Ltd. vs. Income Tax Officer,
Mumbai                                     8(2)(2), M.K. Road, Mumbai
(Appellant)                                (Respondent)

                  I.T.A. No. 290/Mum/2015
                  Assessment year: 2010-11
Income Tax Officer,      vs. M/s. Lionbridge Technologies Pvt. Ltd.
8(2)(2), M.K. Road,            Unit No.301 to 304, Reliable Tech 3rd floor,
Mumbai.                        Airoli, Navi Mumbai.
                    S.A.No.376/Mum/2014
                                     2                     ITA No.668(Asr)/2014
                                                         ITA No.1375/Mum/2014

                   (Arising out of I.T.A. No.7415/Mum/2014)
                           Assessment year: 2010-11

M/s. Lionbridge Technologies Pvt. Ltd. vs. Income Tax Officer,
Mumbai                                    8(2)(2), M.K. Road, Mumbai
(Appellant)                               (Respondent)
      Assessee by: Sh. Ajit Jain, Adv.
      Respondent by:S/Sh. N.K.Chand, CIT(DR) & Jitendra Yadav

                   Date of hearing : 15/07/2015 & 16/07/2015
                   Date of pronouncement: 18/ 11/2015

                                 ORDER

Per A.D. Jain, JM:
     These are cross appeals ­ two by the assessee and two by the
Department are directed against the separate orders each dated 01.10.2013
& 20.09.2014, passed by the ld. DRP, for the assessment years 2009-10 &
2010-11. The assessee has also filed Stay Application.
ITA No.668/Mum/2014

2.    This is the assessee's appeal for the assessment year 2009-10, taking

the following grounds:

      "On the facts and circumstances of the case, the Dispute Resolution
      Panel (`DRP'), the learned Assessing Officer (`AO') and the learned
      Transfer Pricing Officer (`TPO') on the following grounds making an
      adjustment of INR 31, 28,41,221/- to the arm's length price (`ALP') in
      respect of recomputing 10A deduction, thereby determining the total
      income of the Appellant at INR 36,62,68,380/- as against the returned
      income of INR 23,91,580/-by the Appellant.
      The assessment order passed in the case of your appellant for
      Assessment Year (`AY') 2009-10 is following DRP's directions and
      this appeal is directed against the said order.
      Transfer pricing grounds
                                   3                   ITA No.668(Asr)/2014
                                                     ITA No.1375/Mum/2014

    Ground no.1: Treating foreign exchange as non-operating in nature
    for the computation of profit level indicator (PLI)
1. 1 On the facts and circumstances of the case, and in law, the DRP
        has erred in excluding the amount of Foreign Exchange Gain
        amounting to INR 15,99,29,779 from the operating revenue of the
        Appellant and treating the same as non-operating.
1.2       On the facts and circumstances of the case, and in law, the DRP
       has erred in enhancing the order ignoring the fact that TPO himself
       has agreed the treatment of foreign exchange as operating in
       nature in its order on the principle of consistency. In the earlier
       assessment years foreign exchange loss was also treated as
       operating in nature, thereby denied consistent treatment of foreign
       exchange gain/loss to the Appellant.
1.3        The Appellant prays that the foreign exchange gain amounting
           to INR 15,99,29,779 be treated as operating in nature for the
           computation of profit level indicator (PLI) and the
           consequential upward adjustment be deleted.
    Ground no.2: Systematic exclusion of comparable companies
    identified by the Appellant.
    2.1 On the facts and circumstances of the case, and in law, the DRP
        have erred in selectively excluding Computech International Ltd. a
        comparable company identified by the Appellant, having negative
        operating margin, from the finanl set of comparable companies
        stating that the company is not comparable in the absence of
        segmental information without appreciating that the annual report
        of the relevant year contains the segmental information and only
        the relevant segment has been considered comparable by the
        Appellant and was also provided during the DRP hearing.
    2.2. On the facts and circumstances of the case, and in law, the TPO
            and DRP have erred in selectively excluding Kaashyap
            Technologies Ltd. and SIP Technologies & Exports Ltd., an
            identified comparable companies by the Appellant from the
            final set of comparable companies stating that the said
            companies are not comparable on the ground of diminishing
            revenue, without establishing that the revenue of the said
            companies are actually diminishing over a period of time.
    2.3 On the facts and circumstances of the case, and in law, the TPO
        and DRP have erred in excluding R Systems International Ltd. and
        Roita India Ltd., identified by the Appellant from the final set of
        comparable companies stating that the said companies are not
                                4                  ITA No.668(Asr)/2014
                                                 ITA No.1375/Mum/2014

    comparable on the ground that they have a different financial year
    ending.
2.4 On the facts and circumstances of the case, and in law, the DRP
    have erred in rejecting the objections raised by the Appellant in
    relation to rejection of comparable companies in passing the order
    under section 92CA of the Act.
2.5 The Appellant prays that the systematic exclusion of the above
    comparables be struck down and the consequential upward
    adjustment be deleted. The appellant prays to include the above
    companies in the final comparable set.
Ground no.3: Systematic inclusion of additional comparable
companies which are functionally different, not fulfilling filters
applied, are having high turnover and are having higher margins.
3.1. On the facts and circumstances of the case, and in law, the TPO
and DRP have erred in selectively including Geneysys International
Corporation Ltd., in the final set of comparable companies and falling
to follow the order of the DRP in the Appellants own case for AY
2008-09 without appreciating that the said company is functionally
different compared to the appellant.
3.2 On the facts and circumstances of the case, and in law, the TPO
and DRP have erred in selectively including Infosys Technologies
Limited in the final set of comparable companies without appreciating
the facts that the said Company is failing the filter applied by the TPO
for software development income being greater than 75% of total
operating income, is also functionally different in many parameters
and the turnover of the said company is far greater than the turnover
of the appellant.
3.3 On the facts and circumstances of the case, and in law, the TPO
and DRP have erred in including KALS information Systems Ltd. and
persistent Systems Ltd. In the final set of comparable companies
without appreciating that the said companies are functionally
different compared to the appellant.
3.4 On the facts and circumstances of the case, and in law, the TPO
and DRP have erred in including infosys Technologies Limited, Igate
Global Solutions Ltd., Mindtree Ltd. and Persistent Systems Ltd. in
the final set of comparable companies without appreciating that the
turnover of the said companies is far greater than the turnover of the
appellant.
                                5                  ITA No.668(Asr)/2014
                                                 ITA No.1375/Mum/2014

3.5 Aggrieved by the systematic inclusion of the above mentioned
companies and non consideration of your appellant's submissions.
Your appellant humbly prays that the systematic inclusion of the
above companies be struck down and the consequential upward
adjustment be deleted. The appellant prays to exclude the above
companies from the final comparable set.
Ground no.4: Inclusion of pass through cost in the cost base at the
time of calculating the PLI of the appellant
4.1. On the facts and circumstances of the case, and in law, the TPO
      and the DRP has erred in ignoring the fact that the outsourcing
      third party service cost of INR 7,95,55,035/- is a pass through
      cost and no value addition is created by the Appellant on such
      services. It is a pure reimbursement of costs and accordingly
      the same should not be considered in the cost base at the time
      of calculating the PLI of the Appellant.

4.2.   The Appellant prays that the pass through cost amounting to
       INR 7,95,,035/- be excluded from the cost base at the time of
       calculating the PLI of the Appellant and the consequential
       upward adjustment be deleted.

Ground no.5: Rejecting of use of multiple year

5.1    Notwithstanding the aforementioned grounds, the TPO and
       DRP have erred in rejecting use of multiple year data to justify
       the ALP.
5.2.   The Appellant Prays that the Transfer Pricing documentation
       maintained by the Appellant be accepted.

Ground no.6: No working capital risk adjustment granted
6.1. Notwithstanding the aforementioned grounds, the TPO and
     DRP has erred in not making a further downward margin
     adjustment to consider working risk differentials between the
     Appellant and the comparable companies.

6.2    The Appellant prays that the working capital risk adjustment
       be granted to the appellant.

Ground no.7: Granting of benefit of +7-5 per cent range to the
Appellant.
                               6                  ITA No.668(Asr)/2014
                                                ITA No.1375/Mum/2014


7.1.   The Appellant prays that the benefit of +7-5 per cent range be
       granted to the appellant as envisaged by the provisions of
       section 92C(2) of the Act.

Ground no.8: Non-applicability of the provisions of Chapter X of the
Act to the Appellant.

8.1.   The TPO and DRP has erred in not applying the provisions of
       Chapter X of the Act although the Appellant is availing the
       relief under section 10A of the Act.
8.2    The Appellant prays that the provisions of Chapter X of the Act
       be made applicable to the appellant.

Corporate-tax grounds
Ground no.9:      Exclusion of unrealized foreign exchange for
determining the deduction under section 10A of the Act.

9.1 On the facts and in the circumstances of the case and in law,
the AO and the DRP have erred in concluding that unrealized foreign
exchange gain, relating to the activity of export, amounting to INR
3,75,69,434/- is not derived from the activity of export and therefore
not entitled for deduction under section 10A of the Act.

9.2. The Appellant prays that the unrealized foreign exchange gain
be included in the profits of the undertaking and the relief under
section 10A of the Act be recomputed accordingly.

Ground no.10: Exclusion of realize foreign exchange gain from
Export Turnover however included in Total Turnover while computing
deduction under section 10A of the Act.

10.1 On the facts and circumstances of the case and in law, the
learned AO and DRP has erred in including realized foreign
exchange gain amounting to INR 9,68,96,182/- only in Total Turnover
and not in Export Turnover.

10.2 The Appellant prays that the foreign exchange gain be excluded
from the total turnover of the Appellant and the relief under section
10A of the Act be recomputed accordingly.
                                         7                  ITA No.668(Asr)/2014
                                                          ITA No.1375/Mum/2014

          10.3 Without prejudice to the above, even if accepting the ground of
          TPO and DRP to consider realized foreign exchange gain to be
          considered as part of Total Turnover the assessee prays that a similar
          adjustment be made to the Export Turnover for computing deduction
          under section 10A of the Act.

          Ground no.11: Levy of Interest by AO

          11.1 On the facts and in the circumstances of the case and in law, the
          AO erred in levying interest under section 234B and 234D of the Act.
          The Appellant prays that the interest levied be deleted.

          The Appellant craves leave to add, alter, vary, omit, substitute or
          amend the above grounds, at any time before or at the time of hearing
          of the appeal. Each of the above grounds is independent and without
          prejudice to the other grounds preferred by the Appellant."


3.        Out of the original TP Grounds, i.e., Ground nos. 1 to 8, Ground nos.1

to 4 have been amended by filing the following Modified Grounds:


     1.      That the TPO/DRP erred on facts and in law in not considering
             foreign exchange gains amounting to Rs.15,99,29,779 as part of
             the operating income for computation of operating profit margin of
             the appellant for undertaking benchmarking analysis applying
             TNMM.
             (Original ground of appeal Nos.1,1.1 to 1.3)

     2.      That the TPO/DRP erred on facts and in law in considering
             following companies in the final set of comparable companies
             allegedly holding them to be functionally comparable to the
             appellant:

             (i)     3D PLM Software Solutions Ltd., (Addl). GOA No 2 to 6)
             (ii)    Bodhtree Consulting Ltd., (Addl). GOA Nos 2 to 6)
             (iii)   Cosmic Global Ltd. (Addl. GOA Nos 2 to 6)
             (iv)    Genesys International Corporation Ltd. (Addl. GOA No.3.1)
             (v)     Infosys Ltd. (Addl. GOA No.3.2)
                                             8                   ITA No.668(Asr)/2014
                                                               ITA No.1375/Mum/2014


     3.         That the TPO/DRP erred on facts and in law in rejecting
                Computech International Ltd., satisfying all the filters, in the final
                set of comparable companies allegedly on the ground that
                segmental information of the said company is not available.
                (Original ground of appeal No.2.1)

     4.         That the TPO/DRP erred on facts and in law in not excluding the
                pass through cost of Rs.7,95,55,035 on translation work
                outsourced to third parties from the total operating cost for
                determining the operating profit margin for the purpose of
                undertaking benchmarking analysis applying TNMM.
                (Original ground of appeal No.4, 4.1 to 4.2)

                The appellant craves leave to add, amend, alter or vary, any of the
                aforesaid grounds of appeal before or at the time of hearing of the
                appeal and consider each of the grounds as without prejudice to
                the other grounds of appeal."


4.        The following Additional Grounds have also been taken by the

assessee:

          "1.      That on the facts and circumstances of the case and in law, the
                   DRP/TPO ought to have allowed appropriate risk adjustment to
                   establish comparability considering that the applicant is a low-
                   risk-bearing captive service provider as opposed to the
                   comparable companies who were independent service provider.
          1.1      That on the facts and in the circumstances of the case and in
                   law, the DRP erred in rejecting the contention of the applicant
                   regarding risk adjustment without giving the applicant an
                   opportunity to provide workings to support the claim of risk
                   adjustment.
          2.       That on facts and circumstances of the case and in law, the
                   DRP/TPO ought to have excluded the following companies
                   from the set of comparable companies for the purpose of
                   benchmarking analysis:
                   a) Cosmic Global Ltd.
                   b)Bodhtree Consulting Ltd.
                                     9                   ITA No.668(Asr)/2014
                                                       ITA No.1375/Mum/2014

            c)3D PLM Software Solutions Ltd.

      3.    That on the facts and circumstances of the case and in law,
            Bodhtree Consulting Ltd. and 3D PLM Software Solutions Ltd.
            ought to be excluded from the final set of comparables on
            account of super normal profits earned by both the companies
            and also considering specific functional characteristic in
            comparison to the applicant which is a low end captive service
            provider.
      4.    That on the facts and circumstances of the case and in law, the
            DRP/TPO ought to have excluded Bodhtree Consulting Ltd.
            and Cosmic Global Ltd. from the final set of comparable
            companies on account of the fact that the year under
            consideration is the exceptional year of operation of both the
            companies.

      5.    That on the facts and circumstances of the case and in law, the
            DRP/TPO ought to have excluded Cosmic Global Ltd. on
            account of non-availability of information regarding related
            party transactions and thereby, not satisfying the filter of
            related party transactions applied by the TPO himself.

      6     That on the facts and circumstances of the case and in law, the
            DRP/TPO ought to have excluded 3D PLM Software Solutions
            Ltd. on account of substantial related party transactions and
            thereby no qualifying the filter applied by the TPO."


5.    Modified Ground no.2 is regarding five         companies considered,

according to the assessee, wrongly by the TPO/DRP, as companies

comparable to the assessee. These comparables are also the subject matter of

Additional Ground nos. 2 to 6.

6.    An application for additional evidence has been filed, seeking to place

on record the following documents:
                                      10                 ITA No.668(Asr)/2014
                                                       ITA No.1375/Mum/2014

     1. Audited financial statement of 3D PLM Software Solutions Ltd. for the
     financial year 2008-09- Refer page 940 of Paper Book.
     2. Audited financial statements of Genesys International Corporation
        Ltd. for the financial year 2006-07-Refer page 975 of Paper Book.
     3. DRP order in the case of the appellant for the assessment year 2008-
        09-Refer page 1063 of Paper Book.
     4. TPO order in the case of the appellant for the assessment year 2008-
        09-Refer Page 1077 of Paper Book.

7.      Apropos Additional Grounds 2 to 6/Modified Ground No.2 and the

additional evidence sought to be filed on behalf of the assessee, it has been

contended that undisputedly, these companies were taken as comparables by

the assessee itself in its TP study. Therefore, these companies can now be

taken and are being sought to be considered. It has been contended that the

legal position in this regard is that there is no estoppel in Income-tax

proceedings and the assessee can make a claim, notwithstanding that the

same was not made in the return of income. Of the five comparables taken in

the Modified Ground, the assessee contends that three comparable

Companies, i.e., 3D PLM Software Solutions Limited, Bodhtree Consulting

Limited and Cosmic Global Ltd., were undoubtedly taken by the assessee

itself in its Transfer Pricing documentation for bench-marking.          The

TPO/DRP considered them as companies comparable to the assessee-

company, holding them to be functionally comparable to the assessee

company. However, even now, they can be rejected for determination of

arm's length price of the international transaction of provision of software
                                      11                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

development services, as is being sought for. In this regard, reliance is

sought to be placed on the following case laws:

      i)     "CIT vs. C.Parakh & Co. (India ) Ltd.", 29 ITR 661 (SC)
      ii)    "CIT vs. V.M.R.P. Firm", 56 ITR 67 (SC)
      iii)   "National Thermal Power Co. Ltd. vs. CIT", 229 ITR 383(SC)
      iv)    "CIT vs. Enron Expat Services Ind.", 327 ITR 626 (Uttrakhand)
      v)     "R.B.Jessa Ram Fateh Chand vs. CIT", 81 ITR 409 (All.)
      vi)    "Pandit Seho Nath Prasad Sharma vs. CIT", 66 ITR 647 (Del.)
      vii)  "CIT vs. Bharat General Reinsurance Co. Ltd. ", 81 ITR 303
            (Del).
      viii) "DCIT vs. Quark Systems Pvt. Ltd.", ITA No.s 100 &
             115/Chd/2009 (SB) [approved by the Hon'ble P & H Court).

      ix)    Honeywell Autoation India Pvt. Ltd.           vs. DCIT", (ITA
             No.4/PN/08).

      x)     Sapient Corporation Pvt. Ltd. vs. DCIT ( ITA No.
             5263/Del/2010)

      xi)    DCIT vs. BP India Services Pvt. Ltd. ( ITA No.
             4425/Mum/2010).



So far as regards the additional evidence, it has also been contended that this

additional evidence is, even otherwise, available in the public domain.

8.    On the other hand, the ld. DR has opposed the request of admission of

the Additional Grounds and the additional evidence, mainly contending that
                                     12                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

since the assessee had itself taken these companies as comparables in its TP

documentation, it cannot now seek to withdraw these companies as

comparables. It has been contended that without prejudice, in case the

Additional Grounds are admitted, the matter may be restored to the file of

the TPO. So far as regards the additional evidence, it has been submitted that

no reason has been given as to why the assessee could not produce the

same before the Authorities below. In the alternative, it has been contended

that in case the additional evidence is admitted, again, the matter should be

restored to the file of the TPO/DRP for reconsideration.

9.    In this regard, it is seen that it remains undisputed that these

companies were chosen as comparables by the assessee itself in its TP

documentation. However, in "Quark Systems Pvt. Limited" (supra), the

Special Bench of the Tribunal, a similar contention, as now raised by the

Department, had been raised, that since one of the comparables was the

choice of the assessee and no objection to its inclusion was taken before the

Authorities below, such request at the second appellate stage was not

sustainable. Rejecting this contention, the Special Bench of the Tribunal

held that even if the comparable had been taken by the assessee in its

Transfer Pricing audit, the assessee was entitled to point out to the Tribunal

that the company had been taken wrongly as a comparable. It was held that
                                      13                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

the Tribunal is a fact finding body and, therefore, it has to take into account

all the relevant material and determine the question as per the statutory

regulations; that the assessee is not estopped from pointing out a mistake in

the assessment, though such mistake may be the result of evidence adduced

by the assessee itself; that when substantial justice and technical

considerations are pitted against each other, the cause of substantial justice

deserves to be preferred, for the other side cannot claim to have a vested

right in injustice being done due to some mistake on its part. "Quark

Systems Pvt. Limited" (supra), was approved by the Hon'ble Punjab &

Haryana High Court. This decision of the Special Bench has since been

followed, inter-alia, in "DCIT vs. BP India Services Pvt. Ltd." (supra).

10.   In view of the above, the Additional Grounds are admitted. The

request for additional evidence is accepted too, particularly keeping in view

that this evidence is also available even otherwise in the public domain.

11.   Concerning Modified Ground No.1, the assessee contends that the

TPO/DRP erred in not considering foreign exchange gains amounting to

Rs.15,99,29,770/- as part of the operating income of the assessee for

computation of the operating profit margin of the assessee for undertaking

bench-marking analysis applying TNMM. In this regard, it has been

contended that "operating profit" includes within its scope, the profit earned
                                       14                   ITA No.668(Asr)/2014
                                                          ITA No.1375/Mum/2014

from the normal operational activity of an enterprise and only extraneous

transaction and expenses of purely          financial nature are required to be

excluded therefrom. It has been submitted          that the ld. DRP     erred in

upholding the TPO's finding that the foreign exchange gain/loss is neither a

consideration, nor can it be considered to negotiate or determine the price of

the product or service, since it is uncertain and indefinite and can fluctuate

either direction. As per the assessee, in its case, as well as in the case of the

comparable companies, the exchange gain/loss is on the trading account and

is of operating nature and, therefore, it needs to be considered as part of the

net profit margin. In this regard, reliance has been placed on the following

case laws:

      1)     "Renaissance Jewellery (P) Ltd", 101 ITD 380.
      2)     "Changepon Technologies (P) Ltd. vs. ACIT", 119 TTJ 18
      3)     "Priyanka Gems vs. ACIT", 94 TTJ 557
      4)     "Discover India Tours (P) Ltd.", 104 TTJ 298 (Del.)

      5.      "DCIT vs. Think 3 Designs India (P) Ltd."

      6.      "Think 3 Designs India (P) Ltd. vs. DCIT", ITA Nos. 692 to
             694(Bang)/2010 (Bang. ITAT).
      7.     "K. Uttamlal Exports Ltd. vs. DCIT", 133 Taxman 248 (Mum.)

      8.      "Mohindra Impex vs. ACIT", 121 Taxman 326 (Del.)

      9.     "ITO vs. Banyan Chemicals (P) Ltd.", 310 ITR 384
                              15                    ITA No.668(Asr)/2014
                                                  ITA No.1375/Mum/2014

10.   "Livingstones Jewellery (P) Ltd.", 31 SOT 323
11.   DCIT vs. Accentures Services (P) Ltd." ITA No.4540/M/08
      (Mum. ITAT)
12.   "Sujata Grover", 74 TTJ 347 (Del.)
13.   "Deutsche Bank A.G. vs. DCIT", 86 ITD 431
14.   "Bestobell (India) Ltd", 117 ITR 789 (Cal.)
15.   "Khandelwal Brothers Pvt. Ltd. v. CIT", 117 ITR 452 (Cal.
16.   "CIT vs. Oil India Ltd." 143 ITR 848 (Cal.)
17.   "CIT vs. Martin and Harris P. Ltd." 154 ITR 460 (Cal.)
18.   "Oil and Natural Gas Corpn. Ltd. vs. DCIT", (2003) 261 ITR 1
      (SB) (Delhi ITAT)
19.   "DCIT VS. Sony India Pvt. Ltd.". 114 ITD 446
      [ affirmed up to the Hon'ble Supreme Court, as reported at 312
      ITR 254 (SC)]
20.   "Sumit    Diamond     India   P.     Ltd.   vs.   ACIT",     ITA
      No.7148/Mum/2012).
21.   "M/s. Techbooks International Pvt. Ltd. v. ACIT", ITA
      No.722/Del/2014
22.   "Westfalia Separator India Pvt. Ltd vs. ACIT", ITA
      Nos.4446/Del/2007 & 4447/Del/2007).
23.   "CISCO Systems (India) Ltd. vs. DCIT", [IT (TP) A.
      No.271/Bang/2014]
24.   "Four Soft Limited", ( ITA No.1495/Hyd/10)
25.   "M/s. Mercendex Benz Research & Development India Pvt.
      Ltd. vs. DCIT", ( ITA No.1222/Bang/2011)
                                     16                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

      26.   "M/s. Premier Exploration Services Pvt. Ltd. vs. ITO" ( ITA
            No.5293/Del/2012

      27.   "S. Narendera vs. ACIT"

      28.   "Rusabh Diamonds vs. ACIT" ( ITA No.7215/Mum/2012)

      29.   "Trilogy E-Business Software India (P) Ltd. vs. DCIT" (ITA
            No.1054/Bang/2011).

      30.   "M/s. Sap Labs India Pvt. Ltd. vs. ACIT", 44 SOT 156

      31.    "M/s. Mindtech (India) Ltd.", ( ITA No.70/Bang/2014)


12.   It has been contended that after considering foreign exchange gain as

its operating income, the operating profit margin of the assessee works out to

11.85% and the same is required to be considered for the purpose of bench-

marking analysis.

13.   On the other hand, the Department has contended that as against

ground taken, the order of the ld. DRP which excludes foreign exchange

gain/loss from the ambit of operating income should be upheld. It was

further contended     that however, without prejudice, in case, foreign

exchange gain, is to be treated as operating income, the true effect of the

ratio of the judgment in the case of "Techbook International", (supra) of the

Tribunal be given. Attention in this regard was drawn to para 4.6 of this

decision, as per which, when the foreign exchange gain directly emanates
                                         17                      ITA No.668(Asr)/2014
                                                               ITA No.1375/Mum/2014

from the consideration received for rendering of services by the assessee to

its AE, the foreign exchange gain fluctuates                and it ought not to be

considered as an item of non-operating revenue, and that the same is also

equally true for the foreign exchange loss, which needs to be considered as

part of operating cost from the transactions of revenue nature.

14.   It is further contended on behalf of the Department that though

complete details of the foreign exchange of Rs.15.99 crores were submitted

by the AO to the assessee, they were not filed before the TPO, due to which,

the TPO did not have the benefit of the details of foreign exchange gain and

its various components; that there are 3 components of the net foreign

exchange gain of Rs.15.99 crores:

      (1)    Unrealised exchange gain on account of
             Sundry Debtors                                      Rs.14,54,16,911

      (2)    Realized exchange loss related to Sundry Creditors Rs. 1,09,51,295

      (3)    Exchange gain related to other revenue items        Rs. 2,54,64,153

According to the ld. DR, a different treatment is to be given to each of the

above components of the assessee's net foreign exchange gain of Rs.15.99

crores, as per the requirement of "Techbook International" (supra). It is

contended that in accordance with "Techbook International" (supra), the

exchange gain related to sundry debtors will go to increase the operating

cost; and that the exchange gain relating to other revenue items need not to
                                      18                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

be considered, in the absence of the details. It is submitted that the exchange

gain relating to other revenue items may be related to business income, but

it cannot be treated as operating receipt; it may be on account of

reinstatement of interest receivable on account of foreign exchange

currency; that interest is not treated as operating income or expense for the

purpose of computation of the PLI; that on the other hand, without prejudice,

if it is to be so considered, it will go to increase the operating revenue and

not cost. It has been urged that here, the denominator in the computation of

the PLI (OP/OC) is the operating cost or the total cost; and that, therefore,

necessary direction be issued for computation of the assessee's PLI

accordingly, since the TPO could not make the necessary adjustment in the

working of the PLI, in the absence of details.

15.   In this regard, we find the contention of the ld. DR to be correct. It

remains undisputed that "Techbook International" (supra), rendered by the

Delhi Bench of the Tribunal, is the applicable decision. It is also patent on

record that the concerned details were not made available to the TPO,

though they were furnished before the AO. Accordingly, we remit this

matter to the file of the TPO, to be decided afresh in accordance with law, in

the light of the decision of the Tribunal in "Tech Book International"
                                     19                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

(Supra), on calling for necessary details from the assessee, by affording due

and adequate opportunity of hearing to the assessee.

16.   As such, Modified Ground No.1 is treated as allowed, for statistical

purposes.

17.   Turning to Ground No.2 of the Modified Grounds of Appeal,

according to the assessee, the TPO/DRP erred in considering the following

companies as companies comparable to the assessee, holding them to be

functionally comparable to the assessee:

      i)     3D PLM Software Solutions Ltd.
      ii)    Bodhtree Consulting Ltd.
      iii)   Cosmic Global Ltd.
      iv)    Genesys International Corporation Ltd.
      v)     Infosys Ltd.


18.   Apropos the first company, i.e., 3D PLM Software Solutions Ltd., this

company was taken as a comparable by the assessee in its TP study. Its

OP/OC percentage is 69.93. The contention of the assessee is that since the

related party transactions (RPT) of 3D PLM is more than 25%, it does not

satisfy the filter applied by the TPO. In this regard, the assessee has sought

to rely on the decision of the Delhi Bench of the Tribunal in the case of

"Global Logic India Pvt. Ltd. vs. DCIT", rendered in                     ITA

No.5110/Del/2010.
                                        20                   ITA No.668(Asr)/2014
                                                           ITA No.1375/Mum/2014

19.     Here, it is seen, that as per the record, the related party transactions to
sales ratio of 3D PLM is as follows:
Related Party transaction                                    INR (Rs.)
Sales to parties having substantial interest                 50,17,16,704
Sales to parties exercising significant influence            86,22,71,870
Rent & expense towards leased premises                         1,17,58110
Reimbursement of expenses                                      4,74,52,425
Other expenses                                                    1,78,683
Total                                                        1,42,33,77,792
Sales                                                        1,36,39,88,574


20.     These facts have not been disputed on behalf of the Department. It
has only been submitted as follows:
         "As regards RPT of comparable 3D PLM, it is submitted that there
        can be no situation where RPT exceeds 100%. The TPO has applied
        RPT filter of 25%. It is submitted that 3D PLM may not be excluded
        on functional comparability. The same may be decided subject to
        verification of RPT."

21.     As regards the RPT of 3D PLM, it is submitted that there cannot be

any situation where related party transaction exceeds one hundred percent

The TPO has applied related party transaction filter of 25%. It is submitted

that 3D PLM may not be excluded on functional comparability. The same

may be decided subject to verification of related party transactions.

22.     The contention of the Department is found to be justified.

Accordingly, the TPO is directed to verify the related party transactions of
                                      21                   ITA No.668(Asr)/2014
                                                         ITA No.1375/Mum/2014

3D PLM and if the contention of the assessee, that the RPT of 3D PLM is

more than 25%, is found to be correct, 3D PLM Software Solutions Ltd.

will be excluded from the final set of companies comparable to the assessee,

in accordance with "Global Logic India Pvt. Ltd." (supra). The TPO shall

also keep in mind the assessee's contention that 3D PLM is a software

product company, for which reason also it is not comparable to the assessee.

23.   Apropos Bodhtree Consulting Ltd., which was also taken as a

comparable by the assessee itself in its TP study, the assessee's objection

against its inclusion for the final set of comparable companies is that it is a

software product manufacturing company, which is the assessee is not and,

therefore, it is not functionally comparable to the assessee. In this regard, it

has been contended that Bodhtree Consulting Ltd. has been excluded from

the set of comparable companies by the Mumbai Bench of the Tribunal in

the cases of "Nethawk Networks Pvt. Ltd." (ITA No. 7633/M/2012) and

Wills Processing Services (I) P. Ltd." ( ITA No.4547/M/2012) (copies of

which decisions have been placed on record) and that following these

decisions, the Bangalore Bench of the Tribunal, in the case of "CISCO

Systems Pvt. Ltd.", for A.Y. 2009-10, directed CISCO to be excluded from

the set of comparables.
                                     22                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

24.   The ld. DR's objection in this regard is that the assessee is also a

product manufacturing company and, therefore, Bodhtree Consulting Ltd.,

ought not to be excluded from the final set of comparables.



24(a) In the Department's written submission at page 4, para 3.2.3, as also

by way of his oral arguments, the ld. DR has sought to place reliance on the

assessee's Transfer Pricing Report ( TPR), as per which, according to the ld.

DR, the assessee is into "application development", which includes, inter-

alia, "product release". Therefore, according to the ld. DR, the assessee is a

product manufacturing company. This, however, has been emphatically

denied on behalf of the assessee. It has been contended that the TPR is, in

fact, being grossly mis-construed and mis-read in as much as "product

release" does not, in any manner, have any equivalence whatsoever with

"product manufacture". As a matter of fact, according to the ld. Counsel for

the assessee, if the TPR is correctly construed, it refers to the "product

release" only in the context      of "application development" , software

development being the sole business activity of the assessee.



24(b) Here also, the argument of the ld. DR is found to be misplaced. He

has sought to develop this argument out of para 3.2.2 of the TPR of the
                                       23                 ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

assessee, as contained at page 72 of the assessee's paper book for AY 2009-

10. It would be apt to reproduce the relevant portion thereof:

      "Application development includes testing, application building,
      quality assurance, program assembly and product release.


A plain reading of the above sentence belies the Department's contention .

Reading this sentence as it is shows that it concern the components of

"application development"        only and "product release" is but one such

component. In the absence of any evidence to the contrary, either in the

TPR, or      elsewhere in the record, this argument of the ld. DR is

unsustainable and is rejected.

25.   Besides, the TPO's order does not record any finding that the assessee

is a product manufacturing company. Rather, the assessee was found to be in

the calling of localization and software services, as recorded by the TPO in

para 5.1 of his order. This finding of the TPO was confirmed by the ld.

DRP. The Department cannot now be allowed to set up a new case, as is

sought to be done. Even otherwise, the case sought to be now set up at this

stage, i.e., that the assessee manufacturing company is a product company,

is factually incorrect.

26.   On the basis of the above, it is correct that Bodhtree Consulting Ltd.,

being a software product manufacturer, is not comparable to the assessee
                                     24                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

company. Moreover, it has been excluded in "Nethawk Networks Pvt. Ltd.",

( supra), "Wills Processing Services (I) Pvt. Ltd." (supra) and "CISCO

Systems Pvt. Ltd." (supra). Accordingly, here also, it is ordered to be

excluded from the final set of comparables.

27.   So far as regards Genesys International Corporation Ltd., this

company was not included by the assessee in its Transfer Pricing study.

Rather, it was the TPO who considered it in the set of comparables. The

assessee's objection against such inclusion of         Genesys International

Corporation Ltd. in set of comparable is that Genesys is engaged in the

business of providing Geospatial Information System         or GIS services,

which comprises of photogrammetric remote sensing, cartography, data

conversion related computer based services and other related computer

based services and that, therefore, this company is also functionally not

comparable to the assessee company. Moreover, it is earning super normal

profits and is in an exceptional year of operation. For the assessment year

2008-09 in assessee's case, this company was excluded by the DRP, which

action has wrongly been sought to be distinguished for the year under

consideration, though there are no features distinguishing the facts for the

year under consideration from those of A.Y. 2008-09.
                                       25                   ITA No.668(Asr)/2014
                                                          ITA No.1375/Mum/2014

28.   The Department objects that the Additional Grounds relate to three

comparables and the reasons are given in the table below:

Sr.No. Name of the Companies              Reasons

1        Cosmic Global Ltd.        Abnormal profit margin on account
                                   of the exceptional circumstances in
                                   the financial year ending on 31st
                                   March, 2009.
2        Bodhtree Consulting Ltd;  Abnormal profit margin on account
                                   of specific functional difference viz.
                                   company is engaged in development
                                   and sale of software products.
3        3D PLM Software Solutions Abnormal profit margin on account
         Ltd.                      of specific functional difference viz.
                                   a software product company, and
                                   high related party transactions





29.   It has been contended that as per the assessee, super normal profits

were earned by Genesys International Corporation Ltd., during the year and

not in any other year; that this is not relevant, since year to year volatility is

not a consideration for determining ALP; that the assesse seeks to make a

comparison with the growth in the software industry and also the rise in the

profitability of the industry; that however, the TP calculations under Chapter

X of the Act do not mandate benchmarking on the basis of industry average;

that further, the assessee has also not chosen any criterion to align results of

industry averages in its TP Study Report; that also, this issue was never

before the TPO/DRP; that the some of the comparables have outperformed
                                      26                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

in terms of percentage of operating profits; that the assessee has applied this

criterion selectively to the comparables which are showing higher gain and

this criterion has not been applied to the other comparables, based on which,

the TPO has determined the ALP, where the PLI or the operating margins

are far below that of the industry average, as in the cases of "Gold Stone

Technologies", "R.S. Software", "Intertech Communications Ltd." and

"Mindtree Limited"; and that there are numerous factors affecting profit and

turnover is only one such factor. Reliance has been placed on the decision

of the Hon'ble Delhi High Court in the case of "Chryscapital Investment

Advisors (I) Pvt. Ltd.", (2015) 56 taxman.com 417 (Del), as per which,

wide fluctuations in profits margins of the same entity on an year to year

basis would be offset by taking the arithmetic means of all the comparables

in the assessment year in question. It has been contended that, therefore,

Genesys cannot be excluded as a comparable, particularly when the assessee

has itself selected "Rolta India Ltd.", which is at parity with Genesys as a

comparable. Whereas Genesys is involved in Geospatial Information

System, M/s. Rolta India Ltd., as per its profile given by the assessee itself,

is a provider and developer of digital map based geospatial information

system and, thus, it is exactly similar to Genesys.
                                     27                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

30.   Here also, the work profile of the comparable sought to be excluded,

i.e., Genesys, is entirely different from that of the assessee. Genesys is

engaged in the business of providing        Geospatial Information System

services, which is not at all the calling of the assessee. To reiterate, the

assessee company is engaged in the business of providing low and contract

software development services to its AE. Therefore, on this very basis,

Genesys needs to be excluded from the set of comparables. It is noteworthy

that this company was excluded by the ld. DRP in the assessee's case for AY

2008-09. However, while upholding the inclusion this was of Genesys in the

set of comparables for the year under consideration, the ld. DRP has not

pointed out any distinguishing features or facts different from those in AY

2008-09. Moreover, reference by the ld. DR to M/s. Rolta India Ltd., as

rightly contended on behalf of the assessee, has rather aided the cause of the

assessee, in asmuch as M/s. Rolta India Ltd. is also into GIS services and

though initially included, it was ultimately      excluded from the set of

comparables.

31.   The assessee has sought to exclude Cosmic Global Ltd. and Infosys

Ltd. from the final set up of comparables. However, it is seen that if the

Forex gain and the first three comparables, i.e., 3D PLM, Bodhtree

Consulting Ltd. and Genesys International Corporation Ltd. are excluded,
                                     28                ITA No.668(Asr)/2014
                                                     ITA No.1375/Mum/2014

the OP/OC of the remaining nine comparable companies, as taken by the

TPO, works out at 19.56%, as against the assessee's OP/OC of 18.15%,

which falls within the +/- 5% range, as provided in the proviso to section

92C(1) of the Act. Therefore, we find no need to go into the merits of the

comparability of the remaining two companies, i.e., Cosmic Global Ltd. and

Infosys Ltd. , and we are not doing so.

32.   Hence, the adjustment made by the TPO, as confirmed by the ld.

DRP, is deleted, subject to the verification to be made by the TPO, as

directed by us hereinbefore.

33.   Accordingly, Ground no.2 of the Modified Grounds of Appeal is

partly accepted., as above.

34.   In view of our discussion of and decision on Ground no.2 of the

Modified Grounds of Appeal, Ground nos. 3, 4 & 6 ( of the Original

Grounds of Appeal) are also not required to be gone into and we are not

doing so.

35.   Now, turning to the remaining effective Grounds in the Original

Grounds of Appeal, the ld. Counsel for the assessee has chosen not to press

Ground Nos. 5, 7 & 8. Ground nos. 5, 7 & 8 are, therefore, rejected as not

pressed.
                                      29                   ITA No.668(Asr)/2014
                                                         ITA No.1375/Mum/2014

36.   Ground no.9 of the Original Grounds pertains to the Cororate-tax

issue. It challenges the exclusion of unrealized Forex gain from the profits of

the business of the undertaking, for computing deduction u/s 10A of the Act.

As per the record, during the year under consideration, the assessee earned

net foreign exchange gain of Rs.15,99,29,779/-, as follows:

Nature of loss                          Amount in (Rs)

Exchange gain related to Sundry
Debtors
Realised Gain                   10,41,77,395

Unrealised Gain                            4,12,39,516

Total Exchange gain related to                                14,54,16,911
Sundry Creditors


Exchange gain related to Sundry
Creditors
Realised Gain                              (72,81,213)

Unrealised Gain                            (36,70,082)

Total Exchange gain related to                                (1,09,51,295)
Sundry Creditors
Exchange Gain related other revenue                           2,54,64,163
item
                                                              15,99,29,779



37.   This amount was credited to the profit & loss account and was offered

for tax as business income. However, the AO disallowed an amount of
                                     30                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

Rs.3,75,69,434/- representing unrealized foreign exchange gain arising on

account of reinstatement of debtors and creditors outstanding at the end of

the relevant financial year. The AO observed that mere reinstatement of

books of account cannot be treated as profit of the undertaking or export

turnover from the export activity eligible for deduction u/s 10A of the Act.

This action of the AO was upheld by the ld. DRP.

38.   As per the assessee, this issue is covered in its favour by the decision

of the Hon'ble Supreme Court in the case of "CIT vs. Woodward Governor

India (P.) Ltd.", 312 ITR 254 (SC). This has not been disputed by the ld. DR

and no decision contrary to "Woodward Governor India (P) Ltd." (supra),

has been brought to our notice.

39.   Therefore, in accordance with "Woodward Governor India (P) Ltd."

(supra), the net foreign exchange fluctuation gain booked by the assessee in

its books of account is directed to be included in the export turnover for

computing deduction u/s 10A of the Act. Accordingly, Ground no.9 of the

Original Grounds of Appeal is accepted.

40.   As per Ground no.10 of the Original Grounds of appeal, realized

Forex gain needs to be included in both, the export turnover and the total

turnover, for computing deduction u/s 10A of the Act.
                                      31                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

41.     Here, the AO included foreign exchange gain amounting to

Rs.9,68,96,182/- in the assessee's total turnover, but did not included it in

the assessee's export turnover. The ld. DRP confirmed this.

42.     The assessee contends that the foreign exchange gain earned by it has

never been included in the export turnover, since it has been accounted for

separately under the head "Foreign Exchange Capital Gain", which fact has

been acknowledged in the assessment order itself.

43.     It has been contended that it has been repeatedly judicially held that

for the computation of deduction u/s 10A of the Act, the total turnover in

the denominator and the export turnover in the numerator have to be read in

the same manner. For this reliance has been placed on the following case

laws:

        i)    "CIT vs. Gem Plus Jewellery India Ltd.", 330 ITR 175 (Bom.)
        ii)   "M/s. Microchiop Technology Designs (India) Pvt. Ltd.", ITA
              No.1161/Bang/2007 (Bang.)
        iii) "M/s. Alternative Food Process P. Ltd. vs. ITO", ITA
              No.52/Bang/2008 (Bang.)
        iv) "M/s. Goodrich Aerospace Services P. Ltd. vs. DCIT", ITA
              No.58/Bang/2008 (Bang.)
        v)    "M/s. Hewiett Packard Global Soft Ltd." IT No.333/Bang/208
              (Bang)
        vi) "ACIT vs. Infosys Technologies Ltd.", 172 Taxman 134 (Bang)
        vii) "ITO vs. Servio Global Solutions Ltd.", 117 TTJ 380( Chennai)
        viii) "I-Gate Global Solutions Ltd. vs. ACIT", 112 TTJ 1002 (Bang)
        ix) "Tata Elxsi Ltd.", 115 TTJ 423 (Bang) ­affirmed by Karnataka
              High Court in CIT vs. Tata Elxsi Ltd.: ITA No.70/2009,
              decided on 30.8.2011.
                                     32                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

      x)    "Nous Infosystems (P) Ltd. vs. ITO", ITA No.1042/Bang/07
            (Bang.)
      xi) "Mphasis Ltd. vs. ACIT", ITA No.884/Bang/07 (Bang).
      xii) "Patni Telecom (P) Ltd. v. ITO", 22 SOT 26 (Hyd.)
      xiii) "DCIT vs. Softsol India Ltd.", 22 SOT 271 (Hyd)
      xiv) "CIT vs. Sitel Operating Corpn. India Ltd.", IT no. 153 of 2011
            (Kar HC)
      xv) "DCIT vs. Binary Semantics Ltd.", 109 TTJ 556
      xvi) "ITO vs. Sak Soft Limited", 313 ITR (AT) 353 (Chennai ITAT)


44.   Here also, the Department has remained unable to effectively

controvert the assessee's contention. In "Gem Plus Jewellery India Ltd."

(supra), under similar circumstances, it has been held that since the export

turnover forms part of the total turnover, if an item is excluded from the

export turnover, the same should also be reduced from the total turnover to

maintain parity between the numerator and the denominator while

calculating deduction u/s 10A of the Act. No decision to the contrary has

been brought to our notice. All other case laws cited on behalf of the

assessee also reiterate that for computation of deduction u/s 10A of the Act,

the total turnover in the denominator and the export turnover in the

numerator have to be read in the same manner. Therefore, the assessee is

correct in contending that an equivalent amount of foreign exchange gain

attributable to the delivery of goods outside India, as included in the total

turnover by the AO, is also entitled to be included in the export turnover for
                                         33                  ITA No.668(Asr)/2014
                                                           ITA No.1375/Mum/2014

proper computation of the deduction u/s 10A of the Act. This contention by

way of Ground no.10 of the Original Grounds is accepted.

45.      Ground No.11 of the Original Grounds of appeal is consequential.

46.      Accordingly, ITA No.668/Mum/2014 is partly allowed.

ITA No.1375/Mum/2014

47.      This is the Department's appeal for the assessment year 2009-10. The

Department's challenge in this appeal is to the expenditure incurred in

foreign exchange, as excludible from the total turnover, for the purposes of

computing deduction 10A, whereas the AO and the ld. DRP excluded it only

from the export turnover.

48.      This issue, it is seen, has been decided in favour of the assessee by the

ld. DRP, relying on the decision of the Hon'ble Jurisdictional Bombay High

Court in the case of "CIT vs. Gem Plus Jewellery India Ltd.", (supra).

49.      The Department contends that it has not accepted the decision of the

Hon'ble Bombay High Court in the case of "Gem Plus Jewellery India Ltd."

(supra) and an appeal there against is pending before the Hon'ble Supreme

Court.

50.      Here, we find that it is the decision of the Hon'ble Jurisdictional

Bombay High Court in the case of "Gem Plus Jewellery India Ltd." (supra),

which holds the field, the operation whereof has not been shown to have
                                     34                  ITA No.668(Asr)/2014
                                                       ITA No.1375/Mum/2014

been stayed on appeal. The ld. DRP followed this decision in favour of the

assessee. Therefore, the appeal of the Department against the decision of the

Hon'ble Jurisdictional Bombay High Court in "Gem Plus Jewellery India

Ltd." (supra), notwithstanding, the order of the ld. DRP is confirmed.

51.   Accordingly, ITA No.1375/Mum/2012 is dismissed.

ITA No.7415/Mumbai/2014

52    This is the assessee's appeal for the assessment year 2010-11 against
the order dated 26th Sept., 2014, passed by the ld. DRP. The assessee has
taken the following grounds:
      "Based on the facts and circumstances of the case, the appellant
      respectfully submits that the learned AO erred in determining the total
      income of the appellant at Rs.17,61,98,340 as against the returned
      income of Rs.8,98,670 fled by the Appellant. The grounds of the
      Appellant against the action of the AO are as follows:

      1.    The assessment order dated November14, 2014, passed by the
      AO under section 143(3) read with section 144C of the Act is not in
      accordance with the law and is contrary to the facts and
      circumstances of the present case.
      Transfer pricing related grounds

      2.     The AO has erred in law and on facts in making an adjustment
      of Rs.12,72,63,996 to the arm's length price (`ALP') determined by
      the Appellant in respect of the international transactions in
      connection with IT and ITES activity undertaken by the Appellant
      with its Associated Enterprises (AE) . In doing so, the AO has erred in
      law and in facts ad follows:
      2.1. Rejecting the transfer pricing analysis undertaken and the
             comparable companies identified by the appellant.
      2.2. Not computing ALP in respect of the international transactions
             as computed by the Appellant and in ignoring the provisions of
             Rule 10B(4) of the I.T.Rules, 1962 which authorizes usage of
                                      35                   ITA No.668(Asr)/2014
                                                         ITA No.1375/Mum/2014

             multiple year data of comparable companies for the purpose of
             determination of the ALP under section92F of the Act.
      2.3.   Rejecting the objections raised by the appellant in relation to
             selection/rejection of filters.
      2.4.   Rejecting the objections raised by the appellant in relation to
             selection/rejection of companies while determining the arm's
             length price.
      2.5.   Erroneously recomputing the profit level indicator of the
             appellant.
      2.6.   Failing to grant the benefit of +/- 5 percent range as envisaged
             by the provisions of Section 92C(2) of the Act.

      Corporate Tax related grounds.

      3.     The AO has erred in law and in facts in disallowing the foreign
             exchange loss of Rs.4,80,35,675 on account of the same being
             neither accrued nor an actual loss.
      4.     The AO has erred in law and in facts in proposing to levy
             interest u/s 234B of the Act."


53.   The following Additional Ground has also been sought to be taken :

            "Based on the facts and circumstances of the case, the
      appellant respectfully submits that the learned AO erred in
      determining the total income of the appellant at Rs.17,61,98,340 as
      against the returned income of Rs.8,98,670 fled by the Appellant. The
      grounds of the Appellant against the action of the AO are as follows:

      Corporate Tax related ground

      "1. That the Hon'ble DRP and the AO have erred in not
      considering the disallowance of foreign exchange loss of
      Rs.2,98,03,522 for the purpose of re-computation of profits eligible
      for deduction u/s 10A of the Act."

54.   At the outset, the ld. Counsel for the assessee has stated at the bar that

the Additional Ground is not pressed. Rejected as not pressed.
                                        36               ITA No.668(Asr)/2014
                                                       ITA No.1375/Mum/2014

55.   Ground No.1 is general in nature.

56.   Ground No.2 challenges the adjustment of Rs.12,72,63,996/- to the

arm's length price determined by the assessee in respect of international

transactions in connection with IT and ITES activity undertaken by the

assessee with its Associated Enterprise (AE).

57.   The Taxing Authority       selected/rejected certain comparables. The

TPO computed 12.10% as the assessee's operating profit margin (OP/TC).

As against this, the assessee took 18 comparables in its TPR, as follows:

Sr.No.                Company Name                              Weighted
                                                                Average
1.       3D PLM Software Solutions Ltd.                         45.28%

2.       A S M Techlologies Ltd.                                13.68%

3.       Bodhtree Consulting Ltd.                               41.22%

4.       California Software Co. Ltd.                           3.98%

5.       Cosmic Global Ltd.                                     31.98%

6.       Goldston Technologies Ltd.                             -1.38%

7.       Indus Networks Ltd.                                    3.00%

8.       Intertec Communication Ltd.                            7.00%

9.       Kaashyap Technologies Ltd.                             18.66%

10.      Mindtech (India) Ltd.                                  0.77%
                                         37           ITA No.668(Asr)/2014
                                                    ITA No.1375/Mum/2014

11.      R.S.Software (India ) Ltd.                         8.34%

12       R Systems International Ltd.                       18.49%

13.      S Q L Star International Ltd.                       7.20%

14.      Sagarsoft (India) Ltd.                             -8.12%

15       Synetairos Technologies Ltd.                       20.91%

16.      Zylog Systems (India ) Ltd.                        -0.01%

17.      Core Projects & Technologies Ltd. (seg)            36.03%

18.      Roltaiondia Ltd. (seg)                             12.45%

         Average (Arithmetic man)                           14.42%



58.   As per the record,     during the TP proceedings, the assessee was

required to submit the updated OP/TC for the comparable companies using

data for the assessment year 2009-10 only. This was submitted by the

assessee as follows:

Sr.No.                 Company Name                         NCP

1.       3D PLM Software Solutions Ltd.                     44.11%

2.       A S M Techlologies Ltd.                            13.44%

3.       Bodhtree Consulting Ltd.                           29.47%

4.       California Software Co. Ltd.                        19.62%%
                                        38               ITA No.668(Asr)/2014
                                                       ITA No.1375/Mum/2014

5.      Cosmic Global Ltd.                                     18.27%

6.      Goldston Technologies Ltd.                             3.13%

7.      Indus Networks Ltd.                                    2.59%

8.      Intertec Communication Ltd.                            11.38%

9.      Kaashyap Technologies Ltd.                             6.48%

10.     Mindtech (India) Ltd.                                  -1.60%

11.     R.S.Software (India ) Ltd.                             10.27%

12      R Systems International Ltd.                           20.85%

13.     S Q L Star International Ltd.                           -14.31%

14.     Sagarsoft (India) Ltd.                                 11.85%

15      Synetairos Technologies Ltd.                           19.00%

16.     Zylog Systems (India ) Ltd.                            6.55%

17.     Core Projects & Technologies Ltd. (seg)                63.23%

18.     Roltaiondia Ltd. (seg)                                 14.75%

        Average (Arithmetic man)                               16.61%



59.   As evident, the arithmetic mean of the operating profit margin of these

comparable companies was 15.51%. As such, according to the assessee, the

assessee's OP/TC fell within permitted AL range of +/-5% as provided by
                                       39               ITA No.668(Asr)/2014
                                                      ITA No.1375/Mum/2014

the proviso to section 92C(2) of the Act, requiring no adjustment as per the

assessee.

60.   However, the TPO finally selected seven comparables, as follows:

Sr.No.           Comparable companies                           NCP

1.       Cosmic Global Ltd                                      16.59%

2.       RS Software (India ) Ltd.                              10.27%

3.       Igate Global Solutions Ltd.                            19.19%

4.       Infosys Technologies Ltd.                              45.47%

5.       Kals Information Systems Ltd.                          34.41%
         Segmental
6.       Mindtree Ltd.                                          22.83%

7.       Persistent Systems Ltd.                                30.56%

         Arithm,etic Mean                                       25.62%



61.   Of the above, seven comparables, Infosys Technololgies Ltd., Kals

Information Systems Ltd., and Persistent Systems Ltd. are the companies

introduced by the TPO, though not taken as comparables by the assessee.

The TPO, thus, arrived at an average profit margin of 25.62%.

62.   On the basis of the above, the TPO made addition on account of TP

adjustment amounting to Rs.12.72 crores. The DRP upheld this addition,

bringing the assessee now before us.
                                     40                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

63.   The assessee is aggrieved with the action of the DRP in confirming

the TPO's action of selecting       the above said three companies, i.e.,

Persistent, Infosys and Kals, as companies comparable to the assessee. In

this regard, the ld. Counsel for the assessee has contended that the services

rendered by the assessee include providing low-end software development

and related services, i.e., Information Technology (IT) and Information

Technology Enabled Services (ITES) and export thereof to its Associated

Enterprises. The assessee offers a range of services, such as software

development services & application maintenance, testing services,

localization services. It has been contended that so, the three companies have

wrongly been taken as comparables, since the assessee is not into software

product manufacturing.

64.   Apropos Persistent Systems Ltd., it has been contended that this

company is functionally not comparable with the assessee; that on perusal of

the annual report, it is observed that the company is engaged in outsourced

software product development services; that further, the company derives its

revenues primarily from the sale of software services and software products;

that as per the company's website, it is a global company specializing in

software product and technology innovation; and that the company utilizes

its product engineering processes to develop best-in/class solutions for its
                                     41                   ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

customers who are players in the technology, telecommunication, life

science, healthcare, banking and consumer products sectors.


65.   So far as regards the Infosys Technologies Ltd., it has been contended

that functionally not comparable with the assessee; that on perusal of the

annual report, it is observed that it provides end to end business solutions

that leverage cutting-edge technology, thereby enabling clients to enhance

business performance; that further, Infosys also provides solutions that span

the entire software lifecycle encompassing technical consulting, design,

development, re-engineering, maintenance, systems integration, package

evaluation and implementation, testing and infrastructure management

services; and that additionally, Infosys also offers software products for the

banking industry.


66.   Concerning Kals Information System Ltd., it has been submitted that

on perusal of the annual report, the company consists of an STPL unit

engaged in development of software and software products and a training

centre engaged in training of software professional online projects; that the

company derives its revenues primarily from software services and software

products; that some of the products sold by the company are Shine ­ ERP

software, Docuflo, Dac4Cast, CMSS, La Vision Virtual Insure etc.; and that
                                      42                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

since KALS Ltd. does not report separate segmental information for the

development of software and software products, it cannot be considered as a

comparable.


67.   On the other hand, the ld. DR has sought to place reliance on the

assessee's Transfer Pricing Report ( TPR), as per which, according to the ld.

DR, the assessee is into "application development", which includes, inter-

alia, "product release". Therefore, according to the ld. DR, the assessee is a

product manufacturing company. This, however, has been emphatically

denied on behalf of the assessee. It has been contended that the TPR is, in

fact, being grossly mis-construed and mis-read, in as much as "product

release" does not, in any manner, have any equivalence whatsoever with

"product manufacture". As a matter of fact, according to the ld. Counsel for

the assessee, if the TPR is correctly construed, it refers to "product release"

only in the context of "application development" , software development

being the sole business activity of the assessee.

68.   Referring to page 72 of the APB, it was pointed out that as declared

by the assessee itself, LB India has two development centres in Mumbai and

Chennai employing more than 1200 professionals. The services rendered by

LB India include     low-end, routine development and        maintenance    of

content application as well as testing to ensure the quality, interoperability,
                                      43                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

usability and performance of the client's software, hardware consumer

technology products, web-sites and content. LB India has an integrated

model for service delivery that enables       it to offer a range of options

including     low-end, routine, software development and application

maintenance, localization and translation, testing service, etc., to the

Lionbridge group and also to independent customers.

69.   It was further pointed out that Global Development and Testing

(GDT) through its GDT solutions, LB India provides applicaton-outsourcing

services,   including   new   low-end,     routine,   software   development,

maintenance and user support. Application development includes testing,

applications building, quality assurance, program assembly and product

release. Application maintenance includes minor modifications changes,

maintenance of already existing low-end, routine, software depending upon

the customer's requirements. Lionbridge's testing services include product

certification and competitive analysis. Lionbridge provides its GDT services

in a cost efficient and blended on site and offshore model.

70.   It was also pointed out that content development consists of

continuous updating and other ongoing management of the client's localized

low-end, routine, software products and multilingual web content. By

utilizing the LB US and LI technology and integrating the LB US and LI
                                      44                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

processes and infrastructure with the client content management processes

and technology. LB India is able to manage the content development in a

semi-automated manner for large volumes of content. Examples of client

content requiring    these types of services     include online support site

maintained in multiple languages, learning programs and marketing product

databases all of which are frequently updated to reflect the latest products

and terminologies.

71.   It has been argued that the services rendered by the assessee give rise

to intellectual properties rights, which rights are vested with the assessee's

AE in Ireland. It has been contended that the assessee itself, in its TP Study,

has chosen these comparables having the profile identical with itself.

72.   With regard to KALS, it has been contended that this was also the

TPO's comparable for AY 2009-10. Its margin is 23%. It was not contested

for AY 2009-10 and it is not comprehensible as to how, in these facts, it is

not a comparable for the year under consideration. The assessee is also

rendering a mixture of high-end services and release of products. Therefore,

according to the Ld. DR, KALS is definitely comparable to the assessee.

Moreover, since it was accepted last year, the assessee cannot cherry-pick

for the year under consideration. Besides, there are four companies taken as

comparables which are product manufacturing companies, i.e., 3 D PLM
                                     45                  ITA No.668(Asr)/2014
                                                       ITA No.1375/Mum/2014

Software Solutions, R Systems International Ltd., Goldstone Technologies

Ltd., and Zylog Systems (India ) Ltd. So, according to the ld. DR, the

assessee selects and then detracts from these comparables for these reasons,

which are not permissible in law.

73.   In this regard, it is seen that the assessee cannot be faulted with in

contending that since the assessee is not into software products manufacture,

it cannot be compared with companies which are not into this activity. Like

can be compared only with like, as is well settled . We have also held so in

the assessee's own case for the AY 2009-10 while dealing with ITA

No.668/M/2014 (supra) that Kals is into product manufacturing services ( As

per APB-291), whereas the assessee is only providing services. Complete

segmental data regarding software is available at APB 292 which is, as

follows:

Year Ended                                31.3.2010         31.3.2009

1. Segment Revenue
Application Software                      21692935          20533880
Training                                   1352209            870807
Net Sales/Income from operations          23045144          21404686
                                       46                 ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

2. Segment Results

Profit/loss before tax and interest from
each segment Application software
Training                                 5553647              6064571
Total profit                             -140594              -145053
Interest                                 5413057              4614040
Other Income                             -                    -
Investment written off                   2103759              2784259
Prior Period of Income                   -                    -
                                         ------------------   ------------------
Total Profit before tax                  5373695              4586475



3. Other information
Segment assets ( Net of Liabilities)
Application software                        27185317          17752290
Training & Investments                      27147046          30407835
Total                                       54332363          48160125


4. Sales
Overseas Application Software               21692935          20533880
Domestic Training                             267961            704683
Translation & Interpretation                 1084248            166123




So, it is not possible to make a comparison.

74.   In this regard, the DRP has held as follows:

      "2.2 Before us the ARs objected to selection of 3 fresh comparable
      by the TPO as erroneous inclusion. Two out of three comparables viz.
      M/s. Infosys technologies Ltd. and M/s. KALS Infosys Ltd. were
      rejected by the TPO in the previous year as well, which was agitated
      before the predecessor DRO. After a detailed discussion the panel
      had upheld the action of the AO in considering these two comparable.
                                       47                 ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

      Since the facts and the circumstances are identical this panel upheld
      the action of the AO in including these two comparable, therefore no
      interference is called for."

Apropos KALS, the DRP, for the year under consideration, followed the

DRP's order for the assessment year 2009-10, which reads thus:

      "KALS Information Systems Ltd. has revenue from both software
      development and not software products. As such the same is said to be
      functionality not comparable with the assessee. This company is into
      the business of software development and training. Segmental results
      are available. There cannot be dispute if segmental results of
      software segment are used for comparison. TPO is directed to
      determine the mean profitability on the basis of segmental results of
      software development of this company for comparison and
      determination of mean PLI."


So, for the AY 2009-10, segmental data regarding products manufactured

and services rendered was available.

75.   Thus, for the assessment year 2009-10, as per the DRP, segmental

results of software development were available. It was, therefore, that the

TPO was directed by the DRP to make a comparison considering segmental

results of the software development segment of KALS and to thereby

determine the mean PLI of the comparables.

76.   Such finding of the DRP for AY 2009-10 stands final. This is due to

the fact that comparability     only with three companies, i.e. 3D PLM,

Bodhtree and Genesys served the assessee's purpose for that year and on

our call, the assessee was not required to go into the other comparables.
                                       48                   ITA No.668(Asr)/2014
                                                          ITA No.1375/Mum/2014

77.   However, the said finality of the DRP order in AY 2009-10 regarding

KALS cannot be taken in any manner detrimental to the assessee qua the

year under consideration. It is trite that each year is independent and facts

are to be viewed and decided for each year separately.

78.   So, we have to consider the comparability or otherwise of KALS with

the assessee regarding the year under consideration separately and now we

are proceeding to do so.

79.   In this regard, it is seen that the audited financials of KALS for AY

2010-11 are at APB 271 ­ 298. At APB 291, is Schedule no. 14, i.e., "Notes

to the Financial Statements". In para -1 thereof, it is stated as follows:

      "The company was incorporated under the Companies Act, 1956 as a
      Private Limited Company in the year 1993. Subsequently the company
      was converted into a public limited company in the year 2000. The
      company is engaged in development of Software and Software
      products since its inception. The company consisting of STPL unit
      engaged in Development of Software and Software products and a
      Training Centre engaged in training of Software professionals on
      online projects."

80.    This clearly shows that KALS is into development of software and

software products.

81.   The segmental information of KALS is available at APB 293, as

follows:

Year Ended                                  31.3.2010          31.3.2009

1. Segment Revenue
                                       49                 ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

Application Software                        21692935          20533880
Training                                     1352209            870807
Net Sales/Income from operations            23045144          21404686

2. Segment Results

Profit/loss before tax and interest from
each segment Application software
Training                                 5553647              6064571
Total profit                             -140594              -145053
Interest                                 5413057              4614040
Other Income                             -                    -
Investment written off                   2103759              2784259
Prior Period of Income                   -                    -
                                         ------------------   ------------------
Total Profit before tax                  5373695              4586475



3. Other information
Segment assets ( Net of Liabilities)
Application software                        27185317          17752290
Training & Investments                      27147046          30407835
Total                                       54332363          48160125


4. Sales
Overseas Application Software               21692935          20533880
Domestic Training                             267961            704683
Translation & Interpretation                 1084248            166123


82.   From the above, it is evident that segmental information of KALS

regarding its software development segment is not available. Therefore,

comparison of the assessee, who is into software development only, with the

software development segment of KALS is not possible. Therefore, finding
                                    50                  ITA No.668(Asr)/2014
                                                      ITA No.1375/Mum/2014

the functionality of KALS incomparrable with the assessee, we reject this

company as a comparable. We hold that the DRP has erred in confirming

the TPO's action including KALS as a comparable.

83.   Apropos Persistent Systems Ltd., it is an offshore software product

development company, as available at APB 305. In this regard, the assessee

has contended that the company derives its revenues primarily from sale of

software services and software products. It was further submitted that this

company is a global company specializing         in software product and

technology innovation. The company utilizes its product engineering

processes to develop best-in-class solutions for its customers who are

players in the technology, telecommunication, life science, healthcare,

banking and consumer products sectors.

84.   On the other hand, the ld. DR, again, like in the case of KALS, states

the assessee to be a product manufacturing company.

85.   However, while dealing with KALS, we have rejected this company

as a comparable. Like-wise, we hold that Persistent Systems Ltd., has also

not been correctly chosen as acomparable. This comparable is also rejected.

86.   Coming to Infosys Technologies Ltd.. the assessee's contention is

that it provides end-to-end business solutions that leverage cutting-edge

technology, thereby enabling clients to enhance business performance. It
                                    51                 ITA No.668(Asr)/2014
                                                     ITA No.1375/Mum/2014

was further contended that Infosys also provides solutions that span the

entire software lifecycle encompassing technical consulting, design,

development, re-engineering, maintenance, systems integration, package

evaluation and implementation, testing and infrastructure management

services. This company also offers software products for the banking

industry.




87.   It has been contended that (as available at APB 452 in para 4 & 7 and

at APB 461 in para 5 )

      "4. Finacle: Finacle from Infosys ­ partners with banks across the
      globe to power their         innovation agenda, enabling them to
      differentiate their products and services, enhance customer
      experience and achieve greater operational efficiency. Finacle
      solutions address world-wide banking needs such as core banking,
      wealth management. Customer Relationship Manager (CRM). Islamic
      banking and treasury requirements of retail corporate and universal
      banking. Finacle solutions also empower banks with multiple sales,
      service and marketing channels including e-banking, mobile banking
      and call centers. Recently Finacle has launched a slew of innovative
      offerings including Finacle Advisor,. Finacle Treausry-in-a-box.
      Finacle Core Banking for rural regional banks and Finacle Financial
      Inclusion solutions. These offerings make Finacle a strong innovation
      facilitator enabling banks to accelerate growth while maximizing
      value from their large-scale business transformation.
      Finacle is the chosen solution in over 130 banks across 65 countries
      helping them serve more than 30,000 branches. These include over
      2,000 branches of regional rural banks in India which are leading the
      financial inclusion initiative in the country Independent reports by
      renowned research firms have positioned Finacle among the leaders
      in the global evaluation of retail core banking solution vendors.
      Finacle is one of the most scalable core banking solutions in the
      world with an unparalleled performance benchmark of 104 million
      effective transactions per hour (29,010 ETPS).
                              52                  ITA No.668(Asr)/2014
                                                ITA No.1375/Mum/2014


7.     Branding: We believe that the Infosys brand is one of the most
Important intangible aspects that we own. During this fiscal year, we
have been appreciated by the following bodies as a recognition of
how we appear and conduct business.
·      Ranked as the most admired company in India according to the
       Wall Street Journal Survey.
·      Ranked among the 50 most respected companies in the world
       by Reputation Institute's Global Reputation Pulse 2009.
·      Ranked among the top 25 companies in Business Week's
       Infotech 100.
·      Ranked among the top 25 companies in the world for
       developing leaders by Fortune/Hewitt.
·      Ranked as the best company to work for in India for Business
       Today's ninth survey of `Best Companies to Work For'.
Industry analysis rates as highly in reports on our key services and
markets. The services for which we were rated highly include, Service
Oriented Architecture, Oracle Service providers. Comprehensive
Finance and Accounting Business Process Outsourcing, and also for
the Finacle product suite.
We had over a million visits to our blogs on business and technology
related topics on our website wwwinfosys.com during the year. Our
employees contributed and published several thought leadership
articles across various industry for a and publications. We leveraged
social media platforms and engaged with our stakeholders and
investors on You Tube, Slide Share. Twitter and Facebook.
Leading global publications wrote about us, our leadership, our
talent and our performance. We continued to have leadership
presence at premier industry events like Oracle Open World and
Sapphire. Our annual client events in the U.S. and Europe were well
attended and highly appreciated. At the World Economic Forum in
Davos, Switzerland, our lunch panel discussion witnessed a (full
audience and the evening get-together hosted by us was attended by
some of the most influential and powerful global business leaders.

5. Our end to end solutions: We complement our industry expense
with specialized support for our clients. We also leverage the expense
of our various Centers of Excellence and our software engineering
group and technology lab to create customized solutions for our
                                     53                  ITA No.668(Asr)/2014
                                                       ITA No.1375/Mum/2014

      clients. In addition, we        continually evaluate and train our
      professionals in new technologies and methodologies. Finally, we
      ensure the integrity of our service delivery by utilizing a scalable and
      secure infrastructure.
      We generally assume full project management responsibility in each
      of our solution offerings. We strictly adhere to our SFI-CMM Level 5
      internal quality and project management processes. Our project
      delivery focus is supplemented by a robust knowledge management
      system that enables us to leverage existing solutions across our
      Company. We use in-house tools for project management and
      software lifecycle support. We believe that our process,
      methodologies, knowledge management systems and tools reduce the
      overall cost to the client, mitigate risks, enhance the quality of our
      offerings and allow clients to improve time to market for their
      solutions. Revenues attributable to custom application development,
      maintenance and production support, product engineering, package-
      enabled consulting and implementation and technology consulting
      services represented a majority of our total revenues in fiscal 2010.


88.   Infosys is into customized solutions, which is not the calling of the

assessee. It has been pointed out that as per APB 464, Infosys is into

software services and products, onsite and offshore. It has been contended

that the assessee is not doing any "onsite" business. It has been submitted

that as per APB 464 [Para 1(b)], Infosys is earning revenue from software

products. It has further been pointed out that as per the company's over-

view (APB 478 para -1), Infosys provides end to end business solutions

that leverage cutting-edge technology, thereby enabling its clients to

enhance business performance. The company provides solutions that span

the entire software lifecycle encompassing technical consulting, design,
                                      54                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

development, re-engineering, maintenance, systems integration, package

evaluation and implementation, testing and infrastructure management

services. In addition, the company offers software products for the banking

industry.

89.   It has also been pointed out as per APB 454, para 20, Infosys has a

strength of 92,688 employees. It has further been pointed out that per contra,

the assessee company has a team of approximately 4600 employees only,

out of whom, 1600 are professionals. It has been contended that in the case

of "Agnity India Technologies P. Ltd.", ITA/1204/11 (HC Delhi), Infosys

has been rejected as a comparable.

90.   On the other hand, the ld. DR has adopted the same argument as in the

case of KALS.

91.   In this regard, it is seen that the DRP, for the AY 2009-10, observed,

with regard to Infosys, as follows:

      "4.3.3.      Infosys Technologies Limited is said to be a large
      company and not comparable with the assessee company for the
      reason that it operates as full-fledged risk taking enterprises, having
      diversified activities like consulting application design, development,
      re-engineering and maintenance system integration, package
      evaluation and implementation and business process management,
      etc., high turnover exceeding Rs.20,000 crores, having large numbers
      of patented products, spends about Rs.276 crores in R & D, and has
      about 50% onsite development revenue. Further reliance is also
      placed on the judgment of Delhi High Court in case of CIT vs. Agnity
      India Technologies Private Limited ( ITA No.1204/2011) wherein it
      was concluded that Infosys is not comparable since it is a large and
                                       55                   ITA No.668(Asr)/2014
                                                          ITA No.1375/Mum/2014

      bigger company in the area of development of software and the profits
      earned by it cannot be benchmarked with the assessee. However, as
      per rule 10B(2), turnover is not an valid filter. There is no
      relationship between turnover and margin of a company. The assessee
      has not demonstrated, how the turnover affects, the margin.
      Therefore, the turnover is not regarded as a valid filter and the
      objection of assessee is dismissed. The other grounds of objection are
      also not sustainable. Decisive factors for determining the inclusion for
      exclusion of a comparable are prescribed in Rule 10B(2). The reasons
      for exclusion argued by the assessee don't find place in the Rules
      prescribed. ITAT Mumbai in case of Wills Processing in ITA
      No.4429/Mum/2012 in order dated 01.03.2012 has held in para 47.5
      that there is no relationship between turnover and margin of an entity.
      The turnover is not a criteria prescribed under Rule 10B(2) for
      selecting the comparable. Further Infosys BPO Ltd. has been held in
      Wills Processing case as a valid comparable. The activities of Infosys
      are similar to those of the assessee. Various objections taken by the
      assessee are not tenable in view of the specific provisions of Rule
      10B(2). Hence, the objection against Infosys is hereby rejected."

92.   So, for AY 2009-10, the DRP held that Infosys could not be excluded

on the basis of the turnover. But for the year under consideration, it is seen

that the assessee's challenge to Infosys is not on this basis. The assessee's

contention is that Infosys is functionally different from the assessee, as

above.

93.   This grievance of the assessee is also found to be correct. Infosys has

not been shown to be         at parity with the assessee, on the basis of

functionality. Its functionality is entirely different from that of the assessee,

as seen in the preceding paragraphs. Therefore, we reject Infosys as a

comparable.
                                      56                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

94.     Therefore, Ground No.2 is accepted, as indicated.

95.     In view of the above, the final set of companies comparable to the

assessee would be as follow:

Sr.No.       Name of the company                                NCP(%)

1.           Cosmic Global Ltd                                  16.59%

2.           I-Gate Global Solutions Ltd.                       19.19%

3.           Mindtree Ltd.                                      22.83%

4.           R.S. Software (India) Ltd.                         10.27%

             Arithmetic mean                                    17.22%

             Appellants' margin (computed by TPO)               12.10%



96.     Apropos Corporate Tax related Grounds, as per Ground no.3, the AO

erred    in disallowing the foreign exchange loss of Rs.4,80,35,675/- on

account of the same being neither accrued nor an actual loss.

97.     As per the assessee, this issue has been decided in favour of the

assessee in assessee's own case by the Mumbai Bench of the Tribunal for

the assessment year 2009-10.

98.     This contention of the assessee is found to be correct. At APB 563 to

581 is a copy of the order of the Mumbai Tribunal in the assessee's own

case for AY 2009-10.
                                      57                  ITA No.668(Asr)/2014
                                                        ITA No.1375/Mum/2014

99.   With regard to the assessee, it has been held as follows:

      "10.1 In the draft assessment order, the AO has proposed
      disallowance of foreign exchange loss on the ground that loss is only
      contingent and not allowable u/s 37(1). The contention of the assessee
      before us was that relying on the decision of Hon'ble Supreme Court
      in the case of Woodward Governor (I) Pvt. Ltd. (supra), the same
      should be allowed or in alternative the profit eligible for deduction
      tax u/s 10A should be increased by the corresponding amount of such
      disallowance.

      10.2. We have considered rival contentions. In view of the decision of
      the Hon'ble Jurisdictional High Court in the case of Gem Plus
      (supra), we direct the AO to allow the claim of deduction u/s 10A on
      the profit of business as increased by the disallowance made on
      account of foreign exchange loss. We direct accordingly.


100. Further, for the assessment year 2009-10 also, we have followed the

decision of the Hon'ble Supreme Court, in the case of "Woodward Governor

India (P) Ltd.", 312 ITR 254 (SC), (supra).

101. In view of the above, Ground No.3 is accepted.

102. Ground no. 4 is consequential.

ITA No. 290/Mum/2014 FOR THE AY 2010-11

103. This is the Department's appeal for the assessment year 2010-11. The

issue in dispute raised by the Department in the present appeal is similar to

the issue already adjudicated by us in the Revenue's appeal for the

assessment year 2009-10 in ITA No.1375Mum/2014, hereinabove. Since the

facts and circumstances of the Ground raised by the Revenue are exactly
                                   58                 ITA No.668(Asr)/2014
                                                    ITA No.1375/Mum/2014

similar to the Ground taken by the Revenue in ITA No.1375/M/2014, on the

same basis as for AY 2009-10, the Ground raised by the Revenue is

dismissed. Accordingly, the appeal in ITA No.260/M/2014 is dismissed.

SA No.376/M/2014 (Arising out of ITA No.7415/Mum/2014) for the
A.Y.2010-11.

104. Since we have decided the appeal of the assessee, the Stay

Application filed by the assessee has become infructuous and the same is

dismissed as infructuous.

105. In the result, the appeals of the assessee in ITA No.668/Mum/2014 &

ITA No.7415/M/2014 are partly allowed, the appeals of the Revenue in ITA

No.1375/Mum/2014 & ITA No.290/M/2014 are dismissed and S.A.

No.376/M/2014 is dismissed as infructuous.

        Order pronounced in the open court on 18th November, 2015.

                   Sd/-                         Sd/-

          (N.K. BILLAIYA)                        (A.D. JAIN)
       ACCOUNTANT MEMEBR                     JUDICIAL MEMBER
/SKR/
Dated:     /10/2015
Copy of the order, forwarded to :
   1.    The Assesse :M/s. Lionbridge Technologies Pvt. Ltd., Mumbai.
   2.    The ITO, 8 (2)(2), Mumbai
   3.    The CIT(A), Mumbai
   4.    The CIT, Mumbai
   5.    The SR DR ITAT, Mmbai
                         True copy
                                          By Order
    59                 ITA No.668(Asr)/2014
                     ITA No.1375/Mum/2014

     (Assistant Registrar)
Income Tax Appellate Tribunal

 
 
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