DCIT, New Delhi V. M/s. Vedaris Technology Pvt. Ltd, New Delhi

CO 35/DEL/2010

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4501 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2002-2003
• Appeal Filed On: 15-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJIV SHAR MA
• Assessee Lawyers: SANJIV SHAR MA; RAJIV KANVAR
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Application of stay; Wholly owned subsidiary; Bad and doubtful debts; Onus to prove
• Section: 143(3); 92D; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSA L ITA NO. 4372(DEL)/2009 ASSESSMENT YEAR: 2002-03 STAY NO. 101(DEL)/2009 (IN ITA NO. 4372(DEL)/2009) ASSESSMENT YEAR: 2002-03 M/S VEDARIS TECHNOLOGY (P) LTD., ASSISTAN T COMMISSIONER OF INCOME B-1/471, 2 ND FLOOR, VS. TAX, CIRCLE 17(1), NEW DELHI. MADANPUR KHADAR, J.J. COLONY, NEW DELHI. C.O. NO. 35(DEL)/2010 (IN ITA NO. 4372(DEL)/2009) ASSESSMENT YEAR: 2002-03 ASSISTANT COMMISSIONER OF INCOME M/S VEDARI S TECHNOLOGY (P) LTD., TAX, CIRCLE 17(1), NEW DELHI. VS. B1/471, 2 ND FLOOR, MADANPUR KHADAR, J.J. COLONY, NEW D ELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJIV KANVAR & SHRI SANJIV SHARMA RESPONDENT BY: SHRI SANJIV SHARMA, CIT, DR ORDER PER K.G. BANSAL : AM THE AFORESAID APPEAL OF THE ASSESSEE AND CROS S OBJECTION OF THE REVENUE ARISE OUT OF THE ORDER OF CIT(APPEALS)-XX , NEW DELHI, PASSED ON 23.9.2009 IN APPEAL NO. 128/2006-07, PERTAINING T O ASSESSMENT YEAR ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 2 2002-03. THE ASSESSEE HAS TAKEN 7 SUBSTANTIVE GROUNDS IN THE APPEAL, THE SUM AND SUBSTANCE OF WHICH IS THAT THE LD. C IT(A) ERRED IN UPHOLDING THE ORDER OF THE AO IN WHICH ADJUSTMENT OF RS. 1, 06,38,003/- WAS MADE IN RESPECT OF TRANSACTIONS WITH THE ASSOCIATED ENTERPRISE, BY TAKING THE NET PROFIT MARGIN AT 16.584% AGAINST THE MARGIN OF 7.82% DECLARED BY THE ASSESSEE. VARIOUS OTHER GROUNDS TAKEN IN THI S REGARD ARE IN THE NATURE OF ARGUMENTS OF THE ASSESSEE OR THE PRAYER. H OWEVER, FOR THE SAKE OF READY REFERENCE, THESE GROUNDS ARE REPRODUCE D BELOW:- 1. THE ORDER PASSED BY THE ACIT UNDER SECTION 143(3) OF THE I.T.ACT, 1961 AND THE CIT(A) UNDER SECTION 2 50 OF THE ACT, ARE BAD IN LAW AND ON FACTS. 2. THE LD. CIT(A) ERRED IN DETERMINING THE A RITHMETICAL MEAN OF THE COMPARABLES AT 16.584% AND IN CONFIRM ING TRANSFER PRICING ADJUSTMENT OF RS. 1,06,38,003/-. 3. THE CIT(A) ERRED IN LAW AND FACTS IN NOT GR ANTING THE SUITABLE ADJUSTMENTS TO THE NET PROFIT MARGINS I N TERMS OF RULE 10B (1)(E)(3) OF THE IT RULES, PARTICULARL Y, THE WORKING CAPITAL ADJUSTMENT AND THE RISK ADJUSTMENT. 4. THE CIT(A) ERRED IN LAW AND FACTS IN DISR EGARDING THE DECISION OF HONBLE TRIBUNAL, PUNE BENCH I N THE CASE OF HONEYWELL AUTOMATION INDIA LTD., HONBLE TRIBUN AL, MUMBAI BENCH IN THE CASE OF UCB INDIA PVT. LTD. , HONBLE DELHI TRIBUNAL IN THE CASE OF SONY INDIA & MENT OR GRAPHIS (NOIDA) PVT. LTD. AND HONBLE TRIBUNAL, PUNE BEN CH IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. 5. THE CIT(A) ERRED IN LAW IN NOT GRANTING THE BENEFIT OF +/- 5 PER CENT VARIANCES AS PER PROVISO TO S ECTION 92C(2) OF THE ACT. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 3 6. THE LOWER AUTHORITIES SHOULD HAVE ACCEPTED THE RESULTS AS SHOWN BY THE APPELLANT AS THE SAME WERE FAIR AND REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. IN VIEW OF THE ABOVE AND THE OTHER GROUND TO BE ADDUCED, AT THE TIME OF HEARING, THE APPELLANT REQUESTS THAT THE TP ADJUSTMENT OF RS.1,06,38,003/-, CONFIRMED BY THE CIT(A) BE DELETED, IN THE INTEREST OF JUSTICE. 1.1 ON THE OTHER HAND, THE REVENUE HAS TAKEN THR EE GROUNDS, THE SUM AND SUBSTANCE OF WHICH IS THAT THE LD. CIT(APPEALS) ERRED IN NOT UPHOLDING THE ORDER OF THE AO, WHICH WAS BASED UPON THE AVERAGE OF THE RESULTS OF THE 20 COMPARABLE CASES. FOR THE SAKE OF READ Y REFERENCE, THESE GROUNDS ARE ALSO REPRODUCED BELOW:- 1. THE LD. CIT(A) HAS ERRED IN FACTS AND LAW IN NOT APPRECIATING THE FACT PROPERLY THAT THE ASSESSEE HAD NOT MAINTAINED THE DOCUMENTS AS STATUTORILY REQUI RED BY SECTION 92D OF THE IT ACT AND RULE 10D OF IT RULE S, 1962. 2. THAT THE LD. CIT(A) HAS ERRED IN FACTS AND I N LAW IN ANALYZING THE COMPARABILITY OF THE COMPANIES OBJECT ED BY THE ASSESSEE TO BE COMPARABLES OUT OF 20 COMPARABLES SELECTED BY THE TPO BASED ON THE COMPARABILITY FACTOR MENTIONED IN RULE 10B(2) OF THE IT RULE, 1962. 3. THAT THE LD. CIT(A) HAS ERRED IN FACTS AND LAW IN NOT ANALYZING THE COMPARABILITY OF THE COMPANIES, WHICH WERE PART OF SET OF TPO BUT NOT OBJECTED BY THE ASSESSEE, ON THE SAME OR SIMILAR CRITERIA/FACTORS BY WHICH HE HELD THAT SOME OF THE COMPANIES WERE NOT THE APPROPRIATE COMPARABLES. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 4 1.2 THE ASSESSEE HAD ALSO MOVED A STAY APPLI CATION ON 16.11.2009, REQUESTING INTER-ALIA THAT THE RECOVERY OF DEMAN D MAY BE STAYED TILL THE PASSING OF THE ORDER BY THE TRIBUNAL ON ASSESSEES APPEAL. THIS APPLICATION WAS HEARD, BUT IT WAS DECIDED TO HEAR THE A PPEAL OUT OF TURN RATHER THAN TO GRANT THE STAY FOR PAYMENT OF DEMAND. WITH TH E PASSING OF THIS ORDER ON THE CROSS APPEALS, THE APPLICATION HAS BECOME INFRUCTUOUS. 2. COMING TO THE CROSS APPEALS, WE MAY SUMMAR IZE THE ORDER OF THE AO, THE TRANSFER PRICING OFFICER (THE TPO FOR SH ORT) AND THE LD. CIT(A). THE FACTS MENTIONED IN THE ASSESSMENT ORDER A RE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 13.10.2002 DECLARING T OTAL INCOME OF RS. 12,91,562/-. IT IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE WHICH WAS SOLD TO VEDARIS LTD., U.K., FSD INTER NATIONAL ( THE VEDARIS U.K. FOR SHORT), AN ASSOCIATED ENTERPRISE FOR RS . 13,28,78,923/-. SINCE THE TRANSACTIONAL VALUE WAS MORE THAN RS. 5.00 CROR E, THE AO MADE A REFERENCE TO THE TPO FOR DETERMINING ARMS LENG TH PRICE (THE ALP FOR SHORT) U/S 92-CA(1) OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). THE TPO DETERMINED THE VALUE AT RS. 14,37,19,100/ -, BEING RS. 1,08,40,177/- MORE THAN THE VALUE DECLARED BY THE ASSESSEE . THE AO FURNISHED AN OPPORTUNITY TO THE ASSESSEE TO STATE ITS CASE AS TO WHY THE AFORESAID ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 5 DIFFERENCE OF RS. 1,08,40,177/- SHOULD NOT BE TAK EN AS THE ALP AND THE CORRESPONDING ADDITION BE MADE TO THE RETURNE D INCOME. AFTER HEARING THE ASSESSEE, HE CAME TO THE CONCLUSION THAT THE VALUE DETERMINED BY THE TPO REPRESENTED THE ALP AND, THUS, MADE THE ADDITION TO THE INCOME RETURNED BY THE ASSESSEE. THIS ADDITION WAS C HALLENGED BEFORE THE LD. CIT(APPEALS). 2.1 COMING TO THE ORDER OF THE TPO, IT WAS EXP LAINED THAT THE VEDARIS U.K. IS A LEADING PROVIDER OF ENERGY TRADING AND RISK MANAGEMENT SOLUTIONS IN EUROPE, WITH A HIGH QUALITY CUSTOME R BASE IN U.K., GERMANY AND SCANDINAVIA COUNTRIES FOR GAS AND ELECTRICIT Y TRADING. THE SOFTWARE DEVELOPED BY THE ASSESSEE IS USED BY THE TRADERS , MARKETERS, PRODUCERS AND GENERATORS AND CONSUMERS OF THE POWER. THE U .K. COMPANY, DEPENDING UPON THE FEEDBACK FROM THE CUSTOMERS, DEVELOPS THE IDEAS IN RESPECT OF PRODUCT MANAGEMENT AND ENGINEERING DES IGN. THE ASSESSEE DEVELOPS THE SOFTWARE BY ANALYZING THE REQUIRE MENTS, TESTING, RELEASING AND MAINTAINING IT AS PER SPECIFICATION FROM TH E CLIENTS. THEREAFTER, VEDARIS U.K SELLS THE SOFTWARE AND ALSO PROVIDE S ON-LINE AND OFF-LINE SUPPORT AND CONSULTANCY. IT WAS FURTHER EXPL AINED THAT THE ASSESSEE USED COST PLUS METHOD FOR DETERMINING THE ALP A ND IN THIS CONNECTION A ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 6 REFERENCE WAS MADE TO THE AUDIT REPORT, IN WHICH IT WAS INTER-ALIA MENTIONED THAT- THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE. THE SALE PRICE OF PARTICULAR PRO GRAMME/SOFTWARE CANNOT ALWAYS BE A FIXED PRICE AND COMPARABLE TO ANY OTHER ORGANISATION ENGAGED IN THE SAME BUSINESS. THE SALE VALUE OF A PARTICULAR SOFTWARE/PROGRAMME IS ESTIMATED ON THE BASIS OF COST DIRECTLY ATTRIBUTED TO THE DEVELOPMENT OF THAT PARTICULAR SOFTWARE/PROGRAMME. (UNQUOTE). WHEN THE ASSESSEE WAS REQUIRED TO FU RNISH THE DETAILS, MENTIONED IN PARAGRAPH 3.0 OF THE ORDER OF THE T PO, IT WAS SUBMITTED THAT IN THE INTERNATIONAL MARKET FOR LONG-TERM EX CLUSIVE CONTRACTS, THE DEVELOPERS ARE CHARGING $10 PER MAN-HOUR ($80 PE R MAN-DAY), AGAINST WHICH THE ASSESSEE WAS CHARGING A HIGHER RA TE OF $165 PER MAN-DAY LOOKING TO EXPERTISE AVAILABLE WITH IT AND THE NA TURE OF BUSINESS. ON CONSIDERING THE NOTE AND THE SUBMISSIONS AND TH E FACT THAT REQUISITE DOCUMENTATION WAS NEITHER MAINTAINED NOR FILED FO R JUSTIFYING COST PLUS METHOD, THE TPO CAME TO THE CONCLUSION THAT THE MENTION REGARDING THE AFORESAID METHOD IN THE NOTE AND THE EXPLANATION FURNISHED BY THE ASSESSEE WERE CASUAL IN NATURE. AS PROPER DOCUMENTS W ERE NOT MAINTAINED TO JUSTIFY THE ALP ON COST PLUS METHOD, THE MATTER WAS DISCUSSED FURTHER WITH THE ASSESSEE AND FINALLY THE TRANSACTIONAL NET MARGIN METHOD ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 7 (TNMM FOR SHORT) WAS ADOPTED FOR DETERMINING THE ALP. WITH THIS VIEW IN MIND, COMPARABLE DATA WAS COLLECTED FR OM CMIE AND PROWESS DATA BASE. THIS DATA WAS ANALYSED ON A BROAD BASIS, TAKING INTO ACCOUNT THE SALES, RATIO OF TRADING SALES TO TOTAL SALES, RATIO OF MANUFACTURING SALES TO TOTAL SALES, RATIO OF RE SEARCH AND DEVELOPMENT EXPENSES TO SALES AND RATIO OF THE VALUE OF NET FIXED ASSETS TO SALES. THIS LED TO INITIAL IDENTIFICATION OF 118 COMPARABLE CASES. THESE CASES WERE FURTHER ANALYZED BY GOING THROUGH THE DIRECTORS REPORT, AUDITED FINANCIAL ACCOUNTS ETC. AND FINALLY 20 COMPANIES WERE SH ORT-LISTED AS THE COMPARABLES. THE DATA IN RESPECT OF THESE 20 CO MPANIES WAS TABULATED IN ANNEXURE-A-I, WHICH IS REPRODUCED BELOW:- S.NO. NAME OF CASE NCP (%) 1. APTECH LTD. 2.67 2. BLUE STAR INFOTECH LTD. 25.75 3. ADVANCE TECHNOLOGIES LTD. 44.36 4. DATAMATICS TECHNOLOGIES LTD. 30.87 5. EONOUR TECHNOLOGIES LTD. 24 6. FORE C. SOFTWARE LTD. 6.12 7. IDEASPACE SOLUTIONS LTD. 18.16 8. INTEGRATED HITECH LTD. 3.06 9. KCC SOFTWARE LTD. 19.32 10. KUSHAL SOFTWARE LTD. (-) 7.35 11. MAX HEALTHSCRIBE LTD. 5.68 12. NIIT GIS LTD. 28.68 ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 8 13. OCL INFORMATIONS LTD. 4.26 14. SMR UNIVERSAL SOFTECH LTD. 22.53 15. SARK SYSTEMS INDIA LTD. 23.25 16. SOFFIA SOFTWARE LTD. 28.94 17. TATA ELXSI LTD. 15.1 18. TELEDATA INFORMATICS LTD. 25.56 19. TERA SOFTWARE LTD. (-) 0.62 20. UNIVERSAL MEDIA NETWORK LTD. 11.35 MEAN OR AVERAGE 16.585 2.2 THE ASSESSEE RAISED OBJECTION ABOUT SOME OF THE COMPANIES, BUT THE TPO WAS OF THE VIEW THAT THE NET PROFIT MARGIN OF COMPARABLE COMPANIES CAN BE CALCULATED RATHER ON A UNIFORM, CONSIS TENT AND MEANINGFUL BASIS FROM THE INFORMATION AVAILABLE IN PUBLIC DOMAI N, WHICH ELIMINATES THE EFFECT OF A NUMBER OF FACTORS. THEREFORE, HE WAS OF THE VIEW THAT THE AVERAGE PROFIT OF 16.585% WAS THE ALP, WHICH COULD BE APPLIED TO THIS CASE. HE GRANTED DEDUCTION OF 5% FROM THE ALP SO DETERMINED AND THE DIFFERENCE WAS WORKED OUT AT RS. 1,0 8,40,177/-. 2.3 AS MENTIONED EARLIER, THE ASSESSEE FILED APPEAL AGAINST THIS ORDER. HE OBJECTED TO THE SELECTION OF COMPARABLE CASES O N VARIOUS GROUNDS AND SUCH OBJECTIONS WERE CONSIDERED BY THE LD. CIT(A PPEALS). THE FIRST ISSUE WAS WHETHER CASES HAVING RELATED-PARTY TRAN SACTIONS COULD BE CONSIDERED AS COMPARABLES. IT WAS HELD THAT COM PANIES WHICH HAD ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 9 SIGNIFICANT RELATED PARTY TRANSACTIONS OF THE VALUE OF 25% OR MORE OF THE TURNOVER SHOULD NOT BE USED AS COMPARABLES. TH US, THE CASE OF BLUE STAR INFOTECH LTD., IDEASPACE SOLUTIONS LTD. AND MAX HEALTH SCRIBE LTD. WERE TAKEN OUT OF THE PURVIEW OF THE COMPARABLES . THE SECOND ISSUE WAS WHETHER COMPARABLE CASES HAVING VERY HIGH OR V ERY LOW TURNOVER COMPARED TO THE TURNOVER OF THE ASSESSEE SHOULD HAVE BEEN CONSIDERED BY THE TPO. IT WAS MENTIONED THAT THE CASES SEL ECTED BY THE TPO HAD TURNOVERS RANGING BETWEEN 0.47 CRORE TO 223.7 9 CRORE, WHILE THE TURNOVER OF THE ASSESSEE WAS RS. 13.29 CRORE. IT WAS HELD THAT TURNOVER FILTER SHOULD HAVE BEEN APPLIED BY THE TPO A S IT IS ONE OF THE IMPORTANT FACTORS IN DECIDING PROFITABILITY. THE CASE OF THE ASSESSEE WAS THAT COMPARABLES SHOULD HAVE TURNOVER RANGING BETW EEN RS. 5.00 CRORE TO RS. 25.00 CRORE. HOWEVER, THE LD. CIT(APPEALS) WAS OF THE VIEW THAT THE RANGE SUGGESTED BY THE ASSESSEE WAS RATHER N ARROW AND CASES HAVING TURNOVER RANGING BETWEEN RS. 5.00 CRORE TO RS. 66 .00 CRORE COULD BE TERMED AS COMPARABLE CASES. THUS, THE CASE OF APTECH LTD., ADVANCE TECHNOLOGIES LTD., EONOUR TECHNOLOGIES LTD., FORE C SOFTWARE LTD., INTEGRATED HITECH LTD., OCL INFORMATICS LTD. AND TATA ELXSI LTD. WERE EXCLUDED FROM THE LIST OF COMPARABLES SELECTED B Y THE TPO. THE THIRD ISSUE WAS WHETHER THE CASES SELECTED BY THE TPO WERE COMPARABLE ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 10 HAVING REGARD TO FUNCTIONALITY TEST. IN THIS C ONNECTION, VARIOUS ARGUMENTS WERE MADE AND CONSIDERED IN RESPECT OF NIIT GIS LTD. , SOFFIA SOFTWARE LTD., TELEDATA INFORMATICS LTD. AND KCC SOFTWARE LTD. FINALLY, IT WAS HELD THAT NIIT GIS LTD., TELEDATA INFORMATICS LTD. , SMR UNIVERSAL SOFTECH LTD. KCC SOFTWARE LTD. AND UNIVERSAL MEDIA NETWORK LTD. WERE NOT VALID COMPARABLES ON THIS GROUND. THUS, THE LD. C IT(APPEALS) WAS OF THE VIEW THAT THERE WERE FIVE VALID COMPARABLES, WHI CH WERE ENUMERATED BY HIM ON PAGE 16 OF HIS ORDER. THESE ARE AS UNDER :- S.NO. COMPARABLE TURNOVER OP/TC AS PER TPO OP/TC (AS PER APPELLATE) 1. SOFFIA SOFTWARE LTD. (QUINTEGRA SOLUTIONS LTD.) 36.64 28.94% 12.86% 2. DATAMATICS TECHNOLOGIES LTD. 42.60 30.87% 43.85% 3. KUSHAL SOFTWARE LTD. 5.19 -7.35% -5.86% 4. SARK SYSTEMS INDIA LTD. 5.74 23.25% 31.09% 5. TERA SOFTWARE LTD. 10.15 -0.62% 0.15% 2.4 IT WAS ALSO SUBMITTED BEFORE HIM THAT ADJUS TMENT IN REGARD TO WORKING CAPITAL SHOULD HAVE BEEN ALLOWED BY THE TPO. THE LD. CIT(APPEALS) CONSIDERED THE ARGUMENT IN THE LIGHT OF RULE 10B(3), OECD GUIDELINES AND THE CASES DECIDED BY THE TR IBUNAL IN THIS MATTER. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 11 ON THE BASIS OF THE AFORESAID JURISPRUDENCE, THE FOLLOWING PRINCIPLES WERE EXTRACTED:- (I) RULE 10B(1)(E)(III) AND 10B(3)(II) MADE P ROVISION FOR SUCH ADJUSTMENT; (II) THE OECD GUIDELINES AND THE DRAFT NOTES ON COMPARABILITY MAY BE RELIED UPON FOR MAKING SUCH ADJUSTMENT; (III) THE ADJUSTMENT CAN BE MADE IN RESPECT OF CAPITAL, RI SK, GROWTH AND R&D EXPENSES; (IV) RULE 10B(3)(II) PROVIDES FOR MAKING REASONABLY ACCURATE ADJUSTMENT; (V) ACCORDING TO OECD DRAFT NOTES, P URPOSE OF ADJUSTMENT, RELIABILITY OF ADJUSTMENT AND RELIABILITY OF D OCUMENTATION REQUIRE PROPER ASSESSMENT; AND (VI) WHILE THE TRIBUNAL HAS ALLO WED AD-HOC OR FLAT ADJUSTMENT IN THIS MATTER, THE HONBLE KARNATAKA HIGH COURT HAS HELD THAT RULE 10B(3)(II) STIPULATES ONLY ABOUT REASONABLY ACCURATE ADJUSTMENT. COMING TO THE FACTS OF THE CASE, IT WAS MENT IONED THAT IT WAS THE FINDING OF THE TPO THAT TNMM WAS THE MOST A PPROPRIATE METHOD AND COST PLUS METHOD WAS NOT THE APPROPRIATE METHOD IN THIS CASE. ALL THE OBJECTIONS OF THE ASSESSEE IN REGARD TO FUNCT IONAL AND TURNOVER TESTS HAVE BEEN CONSIDERED. THE CLAIM FOR WORKING C APITAL ADJUSTMENT HAVE ALSO BEEN CONSIDERED. HOWEVER, IT WAS HELD THA T ADJUSTMENTS ON ACCOUNT OF WORKING CAPITAL CANNOT BE MADE IN A ROUTINE M ANNER BECAUSE THE ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 12 UNDERLYING ASSUMPTION IS THAT ALL COMPANIES A RE EFFICIENT PROFIT MAKING COMPANIES, ALTHOUGH POOR MANAGEMENT MAY ALSO B E A REALITY. THE DATA IN REGARD TO REASONABLY ACCURATE ADJUSTMENT H AS NOT BEEN MADE AVAILABLE AND, THEREFORE, NO ADJUSTMENT WAS MADE ON THIS BASIS. THUS, THE DATA MENTIONED IN EARLIER TABLE IN REGARD TO FIVE CO MPARABLES WAS ADOPTED FOR WORKING OUT THE ALP. THE ARITHMETICAL MEAN I N RESPECT OF THESE CASES WORKED OUT BY THE TPO WAS 15.02% WHILE IT WA S 16.42% ACCORDING TO THE ASSESSEE. IN THIS CONNECTION, IT WAS MEN TIONED THAT THE CALCULATION OF THE ASSESSEE IS MORE ACCURATE AS IT IS BA SED ON FINANCIAL ACCOUNTS. ACCORDINGLY, THE ARITHMETICAL MEAN WAS TAKEN AT 16.42% TO DETERMINE THE ALP, WHICH LED TO AN ADDITION OF RS. 1,06,3 8,003/- TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEFORE US, THE LD. AR REFERRED TO PARAGRAP H 8 OF THE ORDER OF THE TPO IN WHICH THE ARMS LENGTH PRICE OF THE TRA NSACTIONS WITH ASSOCIATED ENTERPRISE WAS DETERMINED AT RS. 14,37,19,100/ -. THIS PRICE WAS DETERMINED ON THE BASIS OF 20 COMPARABLE CASES MENTIONED IN ANNEXURE- I OF HIS ORDER. FURTHER, HE REFERRED TO THE FIN DINGS OF THE LD. CIT(APPEALS) TO ASSESSEES OBJECTION FOR INCLUSION OF DATAM ATICS TECHNOLOGIES LTD. AND SARK SYSTEMS INDIA LTD. IN FIVE COMPARABL E CASES SELECTED BY ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 13 HIM OUT OF 20 COMPARABLE CASES MENTIONED BY T HE TPO AND THE AO. HIS CASE WAS THAT THESE CASES WERE NOT CO MPARABLE CASES AND THEY OUGHT TO HAVE BEEN EXCLUDED BY THE LD. CIT(APPE ALS) FOR DETERMINING THE ALP. 3.1 IN REGARD TO DATAMATICS TECHNOLOGIES LTD., IT WAS SUBMITTED BEFORE HIM THAT IT IS PURELY A BPO COMPANY WH OSE BUSINESS IS ENTIRELY DIFFERENT FROM THE BUSINESS OF THE ASSESSEE. T HE PROFIT MARGINS IN THE TWO BUSINESSES WILL BE TOTALLY DIFFERENT. HOWEV ER, AFTER EXAMINING THE FINANCIAL ACCOUNTS OF THE AFORESAID COMPANY AND T HE SUBMISSIONS OF THE ASSESSEE, IT WAS HELD BY THE LD. CIT(A) THAT NO CONCRETE INFORMATION HAS BEEN SUBMITTED WITH REGARD TO THE CLAIM THAT IT IS PURELY A BPO COMPANY. THE SEGMENTAL ACCOUNTS IN TERMS OF RECEIPT FROM BPO BUSINESS AND THE OTHER BUSINESS WERE NOT AVAIL ABLE. 3.2 IN REGARD TO SARK SYSTEMS INDIA LTD., IT WA S SUBMITTED THAT IT IS A PROJECT COMPANY AND, THUS, IT IS NOT A VALID COMPARABLE CASE. THE LD. CIT(APPEALS) EXAMINED THE FINANCIAL STATEMENT O F THIS COMPANY ALSO AND IT WAS SEEN THAT SEGMENTAL ACCOUNTS WERE NOT FURNISHED, AND EXPENDITURE ON EMPLOYEES AND SOFTWARE DEVELOPMENT AMOUNT ED TO 89% OF THE ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 14 RECEIPT. HOWEVER, HE WAS OF THE VIEW THAT S OFTWARE INDUSTRIES HAVE THE MAIN INPUT AS HUMAN RESOURCES AND LOOKIN G TO THE RATIO OF EXPENDITURE TO RECEIPT, IT WAS A VALID COMPA RABLE CASE. 3.3 THE CASE OF THE LD. COUNSEL WAS THAT DA TAMATICS TECHNOLOGIES LTD. HAD 70% OF ITS RECEIPT FROM THE BPO BUS INESS AND, THEREFORE, IT IS NOT A COMPARABLE CASE AS BUSINESS MODEL WAS D IFFERENT. SARK SYSTEMS INDIA LTD. WAS ENGAGED IN PROVIDING SOFTWARE SERVICES IN THE AREA OF PUBLIC TRANSPORTATION, E-GOVERNANCE, BIOMETRIC S OLUTIONS AND PRODUCTIVITY TOOLS. THE BUSINESS MODEL IN THIS CASE IS A LSO TOTALLY DIFFERENT FROM THAT OF THE ASSESSEE. THEREFORE, NONE OF THESE CASES CAN BE TERMED AS A VALID COMPARABLE CASE. IF THESE CASES ARE EXCLUDED, THE AVERAGE PROFIT RATIO OF THE REMAINING THREE CASES COMES TO ABOUT 2.38%. THE ASSESSEE SHOWED THE MARGIN OF 7.78%. THEREFORE , IT WAS ARGUED THAT THERE IS NO JUSTIFICATION FOR MAKING ANY ADJUSTM ENT TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF TRANSFER PRICING . IT WAS FURTHER ARGUED THAT SOME ADJUSTMENT OUGHT TO HAVE BEEN MADE B Y THE LD. CIT(APPEALS) IN RESPECT OF CAPITAL AS IT HAD RECEIVED SUBSTAN TIAL ADVANCES FROM THE VEDARIS U.K., THE PARENT COMPANY. IT WAS ALS O ARGUED THAT A DEDUCTION ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 15 OF 5% OUGHT TO HAVE BEEN ALLOWED AS PER THE P ROVISION CONTAINED IN PROVISO TO SECTION 92C(2). 3.4 IN ORDER TO SUPPORT HIS ARGUMENT, RELIANC E WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF HONEYW ELL AUTOMATION INDIA LTD. (PUNE BENCH), UCB INDIA PVT. LTD. (MUMBAI TRIBUNAL) , SONY INDIA & GREATER NOIDA PVT. LTD. (DELHI TRIBUNAL) AND E- GAIN COMMUNICATION PVT. LTD. (PUNE BENCH). 4. THE LD. DR FILED WRITTEN SUBMISSIONS WHIC H WERE EXPLAINED TO US. IT WAS MENTIONED THAT THE ASSESSEE DEAL S IN ANALYSIS, HIGH LEVEL DESIGN, DEVELOPMENT, TESTING AND MAINTENANCE O F SOFTWARE PROJECTS AS PER SPECIFICATIONS OF THE VEDARIS, U.K. THE TOT AL VALUE OF TRANSACTIONS IN RESPECT OF SOFTWARE PROVIDED TO THAT COMPANY AMOU NTED TO RS. 13.28 CRORE AS PER BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT THE ASSESSEE HAD FOLLOWED COST PLUS METHOD FOR FIXING VALUE OF INTERNATI ONAL TRANSACTIONS. HOWEVER, IT DID NOT MAINTAIN DOCUMENTS AS REQU IRED U/S 92-D READ WITH RULE 10D. THE MATTER WAS REFERRED TO THE TPO FOR DETERMINING THE ALP. AS THE ASSESSEE DID NOT SUBMIT ANY DATA BE FORE HIM TO JUSTIFY THE BOOK VALUE OF INTERNATIONAL TRANSACTIONS AND IT WAS FOUND THAT COST PLUS ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 16 METHOD HAD NOT BEEN FOLLOWED BY THE ASSESSEE, HE PROCEEDED TO VALUE OF THE TRANSACTIONS BY APPLYING TNMM. FOR THIS P URPOSE A PRELIMINARY SEARCH WAS MADE AND THEREAFTER COMPARABILITY T EST MENTIONED IN RULE 10C(2) WAS APPLIED. 20 CASES WERE FOUND TO BE COMPARABLES UNDER THE AFORESAID RULE. THE MEAN OF THE PROFITABILITY WA S TAKEN FOR VALUING THE ALP. THE LD. CIT(APPEALS) CONSIDERED VARIOUS SUBMISSIONS OF THE ASSESSEE AND THEREAFTER EXCLUDED CERTAIN CASES APPLYING THE FILTERS OF RELATED-PARTY TRANSACTION, TURNOVER AND FUNCTION ALITY. THUS, IT WAS HELD THAT ONLY FIVE CASES COULD BE SAID TO BE T HE COMPARABLE CASES. 4.1 COMING TO THE ARGUMENTS, IT WAS SUBMITTED THAT THE ASSESSEE HAD NOT MAINTAINED ANY DOCUMENT TO SUBSTANTIATE ITS CASE THAT INTERNATIONAL TRANSACTIONS WERE VALUED ON COST PLUS METHOD. T HUS, IT FAILED TO COMPLY WITH THE RELEVANT STATUTORY PROVISION. IN SUCH A CASE, THE REVENUE AUTHORITIES HAD TO DETERMINE THE ALP AND THE BURDEN OF PROOF CAST ON THEM STOOD HIGHLY REDUCED, AS HELD BY THE BANGA LORE BENCH OF THE TRIBUNAL IN THE CASE OF AZTEC SOFTWARE & TECHNO LOGY LTD. VS. ACIT, (2007) 107 ITD 141 (SB). NONETHELESS, THE TPO CARRIED OUT METICULOUS SEARCH TO ASCERTAIN THE COMPARABLES AND DETERM INE THE ALP. IT WAS FURTHER SUBMITTED THAT THE LIMITED ISSUE BEFOR E THE TRIBUNAL IN THE APPEAL ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 17 OF THE ASSESSEE IS WHETHER, TWO COMPARABLES CONFIRM ED BY THE LD. CIT(APPEALS) MET THE COMPARABILITY TEST? THESE CASES ARE DATAMATICS TECHNOLOGIES LTD. AND SARK SYSTEMS INDIA LTD. TH E QUESTION WHICH ARISES IN THE APPEAL OF THE REVENUE IS WHETHE R, KUSHAL SOFTWARE LTD. AND TERA SOFTWARE LTD. COULD BE EXCLUDED FROM THE L IST OF FIVE CASES FOUND TO BE COMPARABLES BY THE LD. CIT(A)? 4.2 IN THE CASE OF TERA SOFTWARE LTD., IT W AS SUBMITTED BY THE ASSESSEE THAT IT IS A BPO AND CALL CENTER COM PANY. IN RESPECT OF KUSHAL SOFTWARE LTD., IT WAS SUBMITTED THAT THE USE OF THE WORD SOFTWARE IN ITS NAME CANNOT BY ITSELF LEAD TO THE CONCLUSION THAT IT IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE. THIS COMPA NY HAD PURCHASED SOFTWARE OF THE VALUE OF RS. 5.05 CRORE IN RES PECT OF THE SALES OF RS. 5.17 CRORE. IT IS A TRADING COMPANY HAVING THE SAME NATURE OF BUSINESS AS THAT OF SMR UNIVERSAL SOFTECH LTD., WHICH WAS HELD TO BE NOT COMPARABLE BY THE LD. CIT(APPEALS). THEREFORE, IT WAS URGED THAT THIS CASE MAY ALSO BE EXCLUDED FROM THE LIST OF COMP ARABLES. IN RESPECT OF TERA SOFTWARE LTD., IT WAS SUBMITTED THAT IT IS ENGAGED IN THE BUSINESS OF COMPUTER EDUCATION, BPO AND CALL CENTER. THE TOTAL TURNOVER WAS RS. 10.15 CRORE WHICH INCLUDED SALE OF SOFTWAR E OF RS.57.02 LAKH ONLY. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 18 THE SOFTWARE WAS PURCHASED AT THE COST OF RS. 5 1.34 LAKH. THE SEGMENTAL ACCOUNTS SHOW THAT IT IS ENGAGED IN THE BUSINE SS OF INTEGRATED SOLUTIONS, TECHNICAL SERVICES AND SOFTWARE SERVICES. SI NCE ITS BUSINESS IS ALSO DIFFERENT FROM THAT OF THE ASSESSEE, IT WAS PLEADED THAT THIS CASE MAY ALSO BE EXCLUDED FROM THE LIST OF COMPARABLES. 4.3 COMING TO THE OBJECTIONS OF THE ASSESSEE REG ARDING INCLUSION OF SARK SYSTEMS INDIA LTD., IT WAS SUBMITTED TH AT ALTHOUGH IT IS IN THE BUSINESS OF SOFTWARE SOLUTIONS FOR TRANSPORTATIO N, E-GOVERNANCE ETC. , THAT WOULD NOT HAVE ANY EFFECT ON ITS FUNCTIONAL PRO FILE. THE DIFFERENCE IN PRODUCTS WILL NOT AFFECT THE COMPARABILITY UNDER TNMM AS THE COMPARABILITY UNDER THIS METHOD DOES NOT DEPEND UPON PRODUCTS BUT SIMILARITY OF FUNCTIONS PERFORMED. THEREFORE, IT WAS ARGUED THAT THIS CASE CONSTITUTED A VALID COMPARABLE CASE. IT WAS ALSO SUBMITTED THAT ALTHOUGH ANALYSIS REGARDING DIFFERENCES IN THE LINE OF BUSINESS, EXPERTISE AND COMPLEXITIES OF THE PRODUCT MAY BE USEFUL, BUT ABSENCE THEREOF WILL NOT MAKE THE ANALYSIS OF THE TPO FAULTY MORE PARTICULARLY IN A SITUATION WHERE THE ASSESSEE HAS NOT MAI NTAINED DOCUMENTS REQUIRED UNDER THE STATUTE. FINALLY, IT WAS URGED THA T THE CASE OF TELEDATA INFORMATICS LTD., SOFFIA SOFTWARE LTD. AND SARK SY STEMS INDIA LTD. WERE ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 19 THE COMPARABLES ON THE BASIS OF WHICH THE ALP OUGH T TO HAVE BEEN DETERMINING. 4.4 IN THE REJOINDER, THE LD. AR STRESSED THA T THE ASSESSEE IS NOT A PROJECT DEVELOPMENT COMPANY AND THERE IS A DIFFER ENCE BETWEEN SOFTWARE DEVELOPMENT AND PROJECT DEVELOPMENT. THE RISK I N THE CASE OF SOFTWARE DEVELOPMENT IS LOWER AND THE RISK OF PROJECT D EVELOPMENT WAS BORNE BY VEDARIS, U.K. IT WAS SUBMITTED THAT THE A SSESSEE HAD CHARGED THE VEDARIS, U.K. ON THE BASIS OF MAN-HOUR AND THE RATE APPLIED WAS FAIR AND REASONABLE. HOWEVER, IT WAS FAIRLY CON CEDED THAT THE ASSESSEE IS NOT CHALLENGING THE METHOD EMPLOYED BY THE TPO FOR DETERMINING THE VALUE OF RELATED-PARTY TRANSACTIONS. OUR ATTEN TION WAS DRAWN TO THE SUBMISSIONS MADE BEFORE THE TPO, CONTAINED IN PAR AGRAPH 4 OF HIS ORDER, WHEREIN IT IS MENTIONED THAT THE MARK-UP EARNED BY COMPARABLE COMPANIES WAS ABOUT 8.1% AGAINST 7.78% BY THE ASSESSEE, WH ICH FELL WITHIN THE PERMISSIBLE DIFFERENCE OF 5%. THE MARK-UP OF OTHE R COMPANIES WAS STATED TO BE ON THE PERSONAL INFORMATION OF SHRI PRAVEEN GOYAL, THE AR, BUT THE NAMES AND ADDRESSES OF SUCH PARTIES WERE N OT DISCLOSED. IT WAS FURTHER SUBMITTED THAT OUT OF THE LIST OF 20 CASES, THE LD. CIT(APPEALS) APPLIED CERTAIN FILTERS AND EXCLUDED 15 CASE S FROM THE LIST OF THE TPO. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 20 4.5 COMING TO THE ARGUMENT OF THE LD. DR THAT TERA SOFTWARE LTD. WAS REQUIRED TO BE EXCLUDED, IT WAS SUBMITTED THAT THE REPORT OF THE DIRECTORS MERELY MENTIONED THAT STATE GOVERNMEN T OF ANDHRA PRADESH HAD GRANTED AN ORDER TO IMPART COMPUTER EDUCAT ION IN SCHOOLS, WHOSE VALUE WILL BE ABOUT RS. 17.80 CRORE IN THE NEXT FIVE YEARS. IT WAS ALSO MENTIONED THAT THE COMPANY FOCUSED ON EMERGING INDUSTRIES OF BPO AND ENTERED INTO THE BUSINESS OF CALL CENTER. ON THE BASIS OF THESE REMARKS, IT WAS ARGUED THAT THESE WERE ONLY FUTURE BUSI NESSES AND OTHERWISE THE PRESENT BUSINESS OF THE COMPANY WAS COMPARABLE W ITH THE BUSINESS OF THE ASSESSEE. COMING TO ITS PROFIT AND LOSS ACCOUNT, IT IS SEEN THAT THE SALE OF SOFTWARE WAS IN THE VICINITY OF RS. 57.02 LAKH. THE SEGMENTAL ACCOUNT SHOWS REVENUES FROM INTEGRATED SOLUTIONS AT AB OUT RS. 5.61 CRORE AND FROM TECHNICAL SERVICE AT ABOUT RS. 3.44 CRORE. 4.6 IN REGARD TO KUSHAL SOFTWARE LTD., IT IS S EEN THAT ITS SOFTWARE SALES AMOUNTED TO ABOUT RS. 5.17 CRORE OUT OF W HICH PURCHASES AMOUNTED TO ABOUT RS. 5.65 CRORE. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 21 4.7 FROM THE ANNUAL REPORT OF SARK SYSTEMS INDIA L TD. FOR THE YEAR 2001-02, IT IS SEEN THAT ITS TURNOVER WAS AB OUT RS. 5.72 CRORE. THE EXPENDITURE ON SOFTWARE/PROJECT DEVELOPMENT EXPEN SES AMOUNTED TO ABOUT RS. 2.26 CRORE AND PAYMENTS TO EMPLOYEES AMOUNTE D TO ABOUT RS. 1.14 CRORE. IT IS FURTHER SEEN THAT ALL ITS S ALES ARE IN-LAND SALES. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS OF THE CASE ARE THAT TH E ASSESSEE SUPPLIED SOFTWARE TO THE VEDARIS U.K., WHICH IS AN INTERNATIONAL T RANSACTION, FOR A SUM OF RS. 13,28,78,923/-. THE SOFTWARE WAS PREPARED ON THE BASIS OF THE REQUIREMENT OF THE CLIENTS OF THE U.K. COMPANY. T HE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF THE VEDARIS, U.K. THE ASS ESSEE CHARGED THE PARENT COMPANY ON THE BASIS OF MAN-DAYS SPENT FOR DEVEL OPING THE SOFTWARE, BEING $ 165 PER MAN-DAY. THE ASSESSEE ALSO PROV IDED AFTER SALE SERVICES TO THE CLIENTS OF THE VEDARIS, U.K. IT WAS CLA IMED THAT THE VALUE OF THE INTERNATIONAL TRANSACTIONS WAS BASED UPON COST PLUS METHOD. HOWEVER, NO DOCUMENTATION WAS MAINTAINED TO PROVE THE AFORES AID ASSERTION. IT WAS FURTHER CLAIMED THAT THE RATE OF $ 165 PER MAN-D AY WAS FAIR AND REASONABLE LOOKING TO THE PREVAILING MARKET CHAR GES OF $ 80 PER MAN-DAY. AGAIN, NO EVIDENCE WAS FILED TO PROVE THAT TH E CHARGES WERE AT ARMS ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 22 LENGTH. THE AO REFERRED THE MATTER TO THE TPO, WHO CAME TO THE CONCLUSION THAT THE INTERNATIONAL TRANSACTION SH OULD BE VALUED ON TNMM. THERE IS NO DISPUTE RAISED BY THE ASSES SEE REGARDING THE APPROPRIATE METHOD OF VALUATION. AFTER APPLYING FUNCTIONALITY TEST, THE TPO SELECTED 20 COMPARABLES OUT OF 118 COMPANIE S AVAILABLE FROM PROWESS AND CMIE DATA BASE. THE AVERAGE NET PROFIT AND RATIO IN THESE CASES WORKED OUT TO 16.585%. THE TPO GRANTED 5% DEDUCTION IN VALUING THE ALP DETERMINED ON THE BASIS O F THE ABOVE AVERAGE PROFIT RATIO. THE LD. CIT(APPEALS) CONSIDERED THE MATT ER FURTHER IN THE LIGHT OF THE OBJECTIONS RAISED BY THE ASSESSEE. FINALLY, HE CAME TO THE CONCLUSION THAT THERE WERE ONLY FIVE COMPARABLE CASES. H OWEVER, HE REJECTED THE PLEA THAT SUITABLE ADJUSTMENT TO BE MADE IN RESP ECT OF THE CAPITAL EMPLOYED IN THE BUSINESS ON THE GROUND THAT REASONABLY ACCURATE ADJUSTMENT ON THIS GROUND WAS NOT FEASIBLE. THE ARGUMENT OF THE ASSESSEE IS THAT THE CASE OF DATAMATICS TECHNOLOGIES LTD. AND SARK S YSTEMS INDIA LTD. SHOULD BE EXCLUDED AS THEY ARE NOT VALID COMP ARABLES. ON THE OTHER HAND, THE CASE OF THE LD. DR IS THAT THE CASE OF KUSHAL SOFTWARE LTD. AND TERA SOFTWARE LTD. ARE NOT COMPARABLE CASES AND THESE SHOULD BE EXCLUDED FROM CONSIDERATION. AT THE SAME TIME, IT WAS ALSO PLEADED THAT THE CASE OF SARK SYSTEMS INDIA LTD. AND DATAMATICS TECH NOLOGIES LTD. WERE ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 23 VALID COMPARABLES AND, THEREFORE, THEY SHOULD CON TINUE TO BE INCLUDED FOR THE PURPOSE OF DETERMINING ALP. THIS IS NOW T HE LIMITED CONTROVERSY PENDING BEFORE US FOR DECISION. 5.1 RULE 10C(2) LAYS DOWN COMPARABILITY TEST F OR DISCOVERING AN UNCONTROLLED TRANSACTION. THIS RULE READS AS UNDER:- (2) FOR THE PURPOSES OF SUB-RULE (1), THE COM PARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLE D TRANSACTION SHALL BE JUDGED WITH REFERENCE TO TH E FOLLOWING, NAMELY:- (A) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUME D, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS; (C) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONS IBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; (D) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKE TS, THE LAW AND GOVERNMENT ORDERS IN FORCE, COSTS OF LA BOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 24 5.2 IN THE CONTEXT OF THE FACTS OF THIS CASE, THE CHARACTERISTICS OF THE PROPERTY TRANSFERRED, THE FUNCTIONS PERFORMED ET C. AND CONDITIONS PREVAILING IN THE MARKETS IN WHICH RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE ETC. ARE OF RELEVANCE. THE ASSESSEE HAS, HOWEVER, NOT REFERRED TO CONTRACTUAL TERMS OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY THE RESPONSIBILITIES, RISKS AND BEN EFIT ARE TO BE DIVIDED BETWEEN THE VEDARIS, U.K. AND ITSELF. RULE 10C( 3) LAYS DOWN THAT AN UNCONTROLLED TRANSACTION SHALL BE A COMPARABLE T RANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTION AND THE ENTERPRISES ARE LIKELY TO MATERIALLY AFFECT THE COST, AND (II) REA SONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL AFFECTS OF THE AFORESAID DIFFERENCES. WE MAY EXAMINE THE QUESTIONED COMPARABLES IN TH E LIGHT OF THE AFORESAID RULES AND THE CASES REFERRED TO BY THE LD. AR A ND THE LD. DR. 5.3 WE HAVE PERUSED THE 9 TH ANNUAL REPORT OF KUSHAL SOFTWARE LTD. FOR FINANCIAL YEAR 2002-03, WHICH ALSO FURNISHES COR RESPONDING FIGURES FOR THE FINANCIAL YEAR 2001-02. IT IS SEEN THAT THIS C OMPANY HAS SHOWN SALE OF SOFTWARE AT ABOUT RS. 5.17 CRORE AGAINST PURCHA SE OF ABOUT RS. 5.05 CRORE. THE FINANCIAL DIVISION IS ALSO UNDERTAKING SOME TRANSACTIONS, WHICH APPEAR TO BE IN THE NATURE OF PURCHASE AND SALE O F SHARES. FROM THE ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 25 DETAILS MENTIONED ABOVE, IT IS CLEAR THAT IT IS A TRADING COMPANY, ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SOFTWARE. IT IS NOT ENGAGED PRIMARILY IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE. THIS BECOMES MORE CLEAR FROM THE FACT THAT THE A CCOUNTS DO NOT SHOW PAYMENT OF ANY SIGNIFICANT AMOUNT OF SALARIES TO EMPLOYEES FOR DEVELOPMENT OF SOFTWARE. THE TOTAL ADMINISTRATIV E EXPENSES STAND AT ABOUT RS. 14.59 LAKH, OUT OF WHICH SALARY EXPENS ES AMOUNT TO RS. 6,21,112/-. RULE 10B SPECIFICALLY MENTIONS TH AT THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND RISK ASSUMED, BY RESPECTIVE PARTIES TO THE TRANSACTI ON SHALL BE ONE OF THE CRITERIA FOR THE PURPOSE OF COMPARABILITY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE WHILE KUSHAL SOFTWARE LTD. IS ENGAGED IN THE BUSINESS OF TRADING IN SOFTWARE. T HE TWO COMPANIES ARE PERFORMING TOTALLY DIFFERENT FUNCTIONS AND, TH EREFORE, THIS CASE IS NOT A VALID COMPARABLE CASE. THE DIFFERENCES IN THE B USINESS MODELS ARE IRRECONCIABLY DIFFERENT AND NO REASONABLY ACC URATE ADJUSTMENT CAN BE MADE TO MAKE THEM COMPARABLE CASES. THE LD. A R WAS NOT ABLE TO FURNISH ANY VALID REASON FOR TAKING THIS TO BE A COMPARABLE CASE UNDER RULE 10-B. IN VIEW OF THE BASIC DIFFERENC E IN BUSINESS MODELS, WE NEED NOT REFER TO THE CASE LAW TO COME TO THE CO NCLUSION THAT THE AFORESAID ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 26 KUSHAL IS NOT A VALID COMPARABLE CASE. THEREFO RE, WE ARE OF THE VIEW THAT THE LD. DR RIGHTLY ARGUED THAT THIS CASE WAS NOT A COMPARABLE CASE. 5.4 COMING TO THE ANNUAL ACCOUNTS OF TERA SOFTW ARE LTD. FOR FINANCIAL YEAR 2001-02, IT IS SEEN THAT THE COMPANY HAS TAKEN THREE ACTIVITIES OF SALES, TECHNICAL SERVICES AND SALES OF SOFTWARE . THE SALES AMOUNTED TO ABOUT RS. 5.60 CRORE, TECHNICAL SERVICE RECEIP TS STOOD AT ABOUT RS. 3.44 CRORE AND SALE OF SOFTWARE AMOUNTED TO RS. 57. 02 LAKH. THE COMPANY HAD OTHER INCOME OF ABOUT RS. 54.94 LAKH. IT IS FURTHER SEEN THAT THE COMPANY PURCHASED SOFTWARE OF ABOUT RS. 51.34 LAK H. THE MATERIAL CONSUMED AMOUNTED TO ABOUT RS. 5.19 CRORE AND THE PERSONNEL COST WAS ABOUT RS. 40.78 LAKH. FROM THE NARRATION ABOVE , IT CAN BE SEEN THAT THIS COMPANY IS ALSO TRADING IN SOFTWARE AND NOT IT I S NOT A SOFTWARE DEVELOPMENT COMPANY. FROM THE DIRECTORS REPORT, I T IS SEEN THAT THE COMPANY IS MAINLY ENGAGED IN THE BUSINESS OF PROV IDING INTEGRATED SOLUTIONS AND ALSO UNDERTAKES THE MAN-POWER SUP PLY. THEREFORE, THE SALES OF ABOUT RS. 5.59 CRORE APPEAR TO BE IN RESPECT OF PROVIDING INTEGRATED SOLUTIONS, WHICH MAY BE IN THE NATUR E OF PROJECT DEVELOPMENT RATHER THAN SOFTWARE DEVELOPMENT. THE TECHNICAL SERVICES RECEIPTS ARE IN RESPECT OF THE MAN-POWER SUPPLY. THUS, THI S COMPANY IS ENGAGED IN PROVIDING TECHNICAL SERVICES, INTEGRATED SOLUTIO NS AND SALE OF SOFTWARE. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 27 THEREFORE, THE BUSINESS MODEL OF THIS COMPANY IS ALSO DIFFERENT FROM THAT OF THE ASSESSEE, WHICH IS STATED TO BE DEVELOPME NT OF SOFTWARE FOR THE VEDARIS, U.K. IN THE LIGHT OF THIS DISCUSSION, THE MENTION ABOUT FUTURE FOCUS OF THE COMPANY REGARDING COMPUTER EDUCATIO N IN GOVERNMENT SCHOOLS BECOMES OF NO SIGNIFICANCE. THUS, WE FIND THAT THE ARGUMENT TAKEN BY THE LD. DR IS VALID THAT THIS CASE SH OULD BE EXCLUDED FROM THE CONSIDERATION AS A COMPARABLE, MAINLY FOR THE REASONS DISCUSSED IN THE CASE OF KUSHAL SOFTWARE LTD (SUPRA). 5.5 WE HAVE ALSO PERUSED THE ANNUAL ACCOUNTS OF SARK SYSTEMS INDIA LTD. FOR FINANCIAL YEAR 2001-02. FROM THE DIR ECTORS REPORT, IT IS SEEN THAT THE COMPANY FOCUSES ON TRANSPORTATION, E-G OVERNANCE, CRM SOLUTIONS AND CUSTOMER SPECIFIC PROJECTS. THE C OMPANY HAS SHOWN DOMESTIC SALES AT ABOUT RS. 5.72 CRORE. THE EXPENDITURE ON SOFTWARE DEVELOPMENT AND PROJECT DEVELOPMENT AMOUNTS TO RS. 2.26 CRORE AND PAYMENT TO EMPLOYEES AMOUNTS TO ABOUT RS. 1.15 C RORE. THE COMPANY EMPLOYED ASSETS VALUED AT ABOUT RS. 2.294 CRO RE FOR DEVELOPMENT OF SOFTWARE. THE FINDINGS OF THE LD. CIT(APPEALS) ARE THAT HUMAN RESOURCES IS THE DRIVING FACTOR BEHIND SOFTWAR E INDUSTRY AND, THEREFORE, IT IS A VALID COMPARABLE CASE. THE LD. DR H AS REITERATED THE FACTS ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 28 MENTIONED IN THE ANNUAL ACCOUNTS AND THE FINDING S OF THE LD. CIT(APPEALS). ON THE OTHER HAND, THE CASE OF THE LD. AR IS THAT THE COMPANY IS IN A TOTALLY DIFFERENT LINE OF BUSINE SS, I.E., PUBLIC TRANSPORT SOLUTIONS AND E-GOVERNANCE, WHILE THE ASSESSEE IS ENGAGED IN THE AREA OF ENERGY. IT IS ALSO SEEN THAT ALL THE SALE S OF THE COMPANY ARE DOMESTIC SALES WHILE ALL THE SALES OF THE ASSESSEE AR E EXPORT SALES. THEREFORE, NOT ONLY THE AREA OF FUNCTIONING IS DIFFERENT BUT MARKET CONDITIONS PREVAILING IN THE TWO CASES ARE ALSO GEOGRAPHI CALLY DIFFERENT. THEREFORE, WE ARE OF THE VIEW THAT THIS CASE ALSO DOES NOT MEET THE CONDITIONS MENTIONED IN RULE 10-C(2). AS THE GEOGRAPHICAL C ONDITIONS ARE QUITE DIFFERENT, WHICH AFFECT THE PROFIT RATIO, WE D O NOT NEED GUIDANCE FROM ANY DECIDED CASE TO COME TO THE AFORESAID CONCLU SION. 5.6 WE HAVE ALSO PERUSED THE ANNUAL ACCOUNTS OF DATAMATICS TECHNOLOGY LTD. THE DIRECTORS REPORT MENTIONS THAT THE COMPANY IS AN EARLY ENTRANT IN THE IT ENABLED SERVICES/BUSINESS PROCESS OUTSOURCING INDUSTRY. (BPO). ON THE COVER OF THE REPORT, I T IS MENTIONED THAT THE COMPANY SPEARHEADED THE BPO ACTIVITIES IN INDI A THROUGH PIONEERING PURSUITE OF KNOWLEDGE MANAGEMENT SERVICES. THE TOTAL INCOME OF THE COMPANY AMOUNTED TO ABOUT RS. 42.60 CRORE, CON SISTING OF EXPORT ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 29 TURNOVER OF ABOUT RS. 40.55 CRORE, DOMESTIC TUR NOVER OF RS. 10.53 LAKH AND OTHER INCOME OF ABOUT RS. 1.94 CRORE. THE O PERATIONAL EXPENSES AMOUNTED TO ABOUT RS. 21.43 CRORE, CONSISTING PR IMARILY OF KNOWLEDGE ASSOCIATES CHARGES OF ABOUT RS. 3.67 CRORE, SOFTW ARE PURCHASE/DEVELOPMENT CHARGES OF ABOUT RS. 41.41 LAKH, EMPLOYEES EXP ENSES OF ABOUT RS. 8.68 CRORE, TRAVELING EXPENSES OF ABOUT RS.2.27 CRORE, TECHNICAL FEES OF ABOUT RS. 3.58 CRORE AND LINK CHARGES OF ABOUT RS. 1. 48 CRORE. FROM THE ANNUAL REPORT, IT BECOMES CLEAR THAT THE COMPA NY IS PRIMARILY A BPO COMPANY. THEREFORE, ITS BUSINESS MODEL IS TOTAL LY DIFFERENT FROM THAT OF THE ASSESSEE. THE FINDING OF THE LD. CIT(APPEALS) WAS THAT THE PLEA OF THE ASSESSEE IS NOT ACCEPTABLE FOR THE REASON THAT IT IS ENGAGED IN THE BUSINESS OF IT ENABLED SERVICES AND SOFTWARE DEVELOPMEN T SERVICES APART FROM THE BPO BUSINESS. WE ARE UNABLE TO ACCEPT TH IS ARGUMENT BECAUSE ON THE FACE OF IT THE COMPANY IS A PIONEER IN BPO BUSINESS AND, THEREFORE, IT IS CLEAR THAT BULK OF ITS EXPORT TURNOVER IS ON ACCOUNT OF THIS BUSINESS. THEREFORE, THE COMPANY DOES NOT M EET THE REQUIREMENT OF RULE 10C(2)(A), WHICH IS A MAJOR FACTOR IN J UDGING THE COMPARABILITY OF THE CASE. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 30 5.7 IT WAS ALSO THE ARGUMENT OF THE LD. DR THA T THE CASE OF TELEDATA INFORMATICS LTD. WAS WRONGLY EXCLUDED BY THE LD. CIT(APPEALS). WE HAVE EXAMINED THE ANNUAL ACCOUNTS OF THIS COMP ANY ALSO. ITS DIRECTORS REPORT MENTIONS THAT THE COMPANY IS A SOFTWARE PRODUCTS AND SERVICE COMPANY AND IT FOCUSES ON DEVELOPMENT OF MARIN E, EDUCATIONAL AND INTERNET SOFTWARE. IT IS LOCATED IN CHENNAI AND IS SUPPORTED BY MARKETING OFFICES ACROSS THE GLOBE, INCLUDING AT MUMBAI AN D COIMBOTORE IN INDIA. ITS TOTAL REVENUE AMOUNTED TO ABOUT RS. 24.72 CRORE, CONSISTING OF EXPORT SALES OF ABOUT RS. 22.98 CRORE, DOMESTIC SALES OF ABOUT RS. 1.62 CRORE AND OTHER INCOME OF ABOUT RS. 12.00 LAKH. T HE MAJOR EXPENSES WERE ADMINISTRATIVE EXPENSES OF ABOUT RS. 9.97 CRORE, DEPRECIATION OF ABOUT RS. 9.58 CRORE, BAD DEBTS OF ABOUT RS. 56.23 LAKH AND SELLING AND DISTRIBUTION EXPENSES OF ABOUT RS. 18.00 LAKH. IT WILL BE SEEN FROM THE AFORESAID ENUMERATION OF FACTS THAT THE COMPA NY IS IN A DIFFERENT LINE OF BUSINESS OF PREPARATION OF MARINE, EDUCATIONAL AND INTERNET SOFTWARE, BEING IN THE NATURE OF PROJECT DEVELOPMENT COMP ANY. THAT IS WHY, IT HAS TO INCUR EXPENSES ON SELLING AND DISTRIBUTION AND SUFFER THE RISK OF DEBTS GOING BAD. THEREFORE, WE ARE OF THE VI EW THAT THIS IS ALSO NOT A COMPARABLE CASE UNDER RULE 10C(2)(B). ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 31 5.8 THUS, WE ARE LEFT WITH ONLY ONE COMPARABLE CASE OF SOFFIA SOFTWARE LTD., WHOSE PROFIT IS ABOUT RS. 12.86%. BOTH THE PARTIES HAVE ACCEPTED IT TO BE A VALID COMPARABLE CASE AND, THEREFORE, WE ARE OF THE VIEW THAT THE ALP SHOULD BE DETERMINED ON THE BASIS OF THIS CASE AS A COMPARABLE CASE. 6. IN TERMS OF GROUND NO.3, IT WAS AGITATED BE FORE US THAT THE LD. CIT(APPEALS) OUGHT TO HAVE GRANTED ADJUSTMENT I N RESPECT OF WORKING CAPITAL AND RISKS IN TERMS OF RULE 10B(1)(E)(II I), WHEREIN IT IS MENTIONED THAT THE PROFIT MARGIN ARISING IN THE COMPARA BLE UNCONTROLLED TRANSACTION HAS TO BE ADJUSTED TO TAKE INTO ACCOUNT THE DIF FERENCE ARISING FROM A FACTOR WHICH MATERIALLY AFFECTS THE NET PROFIT MARGIN THE OPEN MARKET. 6.1 IN THIS CONNECTION, THE MAIN ARGUMENT TAKE N BEFORE THE LD. CIT(A) IS THAT THE TPO SELECTED THE CASES WHICH HAD INCURRED LARGE DEBTS. AS AGAINST THAT, THE ASSESSEE RECEIVED ADVANCE FROM ITS PARENT COMPANY IN THE VICINITY OF ABOUT RS. 1.40 CRORE. ON THE B ASIS OF OECD GUIDELINES, IT WAS THE CASE OF THE ASSESSEE THAT THE PROFIT M ARGIN OF VARIOUS COMPARABLES MAY BE REDUCED BY SUITABLE ADJUSTM ENTS, MENTIONED ON PAGE 18 OF THE IMPUGNED ORDER. THE AVERAGE OF ADJUSTME NT WAS COMPUTED AT ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 32 4.11%. THE FINDING OF THE LD. CIT(APPEALS) IS THAT SINCE REASONABLY ACCURATE ADJUSTMENT CANNOT BE MADE UNDER THE I NDIAN LAW, THE SAME CANNOT BE ALLOWED TO THE ASSESSEE. IT IS ALSO HELD THAT TNMM TAKES CARE OF VARIOUS DIFFERENCES LEAVING LITTLE SCOP E FOR ADJUSTMENT ON THIS GROUND. IT APPEARS TO US THAT THE MATTER REG ARDING ADJUSTMENT ON ACCOUNT OF RISKS AND GROWTH AND R&D EXPENSE S WAS NOT SERIOUSLY PRESSED BEFORE THE LD. CIT(APPEALS). IN ANY CAS E, HE HAS NOT DEALT WITH ADJUSTMENT ON AFORESAID ACCOUNTS. THE ASSESSE E ASKED FOR ADJUSTMENT TO THE EXTENT OF 4.11% ON ALL THESE GROUNDS. THE WORKING CAPITAL ADJUSTMENT HAS BEEN WORKED OUT AT 1.30% ON THE BA SIS OF SOFFIA SOFTWARE LTD. (3/2 OF THE PAPER BOOK) IN THE COURSE OF H EARING BEFORE US, THE LD. COUNSEL RELIED ON OECD GUIDELINES AND ORDER S OF TRIBUNAL THAT ADJUSTMENT IN RESPECT OF VARIOUS UNEQUAL FACTO RS HAS TO BE MADE. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE LD. CIT(APPEALS). 6.2 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. RULE 10B(1)(E)(III) PROVIDES THAT THE NET PROFIT MARGIN WORKED OUT UNDER TNMM IS TO BE ADJUSTED TO TA KE INTO ACCOUNT THE DIFFERENCES BETWEEN INTERNATIONAL TRANSACTION AND COMPARABLE UNCONTROLLED TRANSACTION, WHICH COULD MATERIALLY AFFECT THE AM OUNT OF NET PROFIT ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 33 MARGIN IN THE OPEN MARKET. THUS, THE QUESTION IS , -WHETHER THE AVAILABILITY OF ADVANCES FROM THE VEDARIS, U.K. IS A MATER IAL FACTOR IN DETERMINING THE RATE OF NET PROFIT? WE ARE OF THE VIEW THAT AVAILABILITY OF FUNDS WITHOUT STIPULATION OF INTEREST DOES MAKE DIF FERENCE IN THE RATE OF NET PROFIT. IN THE CASE OF E-GAIN COMMUNICATIONS (P) LTD. (SUPRA), THE DIVISION BENCH OF THE TRIBUNAL HELD THAT IN COMPA RING CONTROLLED AND UNCONTROLLED TRANSACTIONS UNDER TNMM, THE DIFFE RENCES HAVING TANGIBLE BEARING ON COST PRICE OR PROFIT ARE TO BE CONSID ERED WITH A VIEW TO MAKE REASONABLE ADJUSTMENT SO THAT THE IMPACT OF SUC H DIFFERENCES ARE ELIMINATED. WE HAVE ALREADY GIVEN A FINDING THAT THE ADVANCES RECEIVED FROM THE PARENT COMPANY MAY HAVE IMPACT ON THE NET PROFIT MARGIN. HOWEVER, ITS IMPACT ON THE MARGIN HAS NOT BEEN E XAMINED BY THE LOWER AUTHORITIES AS THEY SIMPLY REFUSED TO MAKE A DJUSTMENT IN THIS REGARD. THEREFORE, WE RESTORE THIS MATTER TO THE FILE OF THE AO TO CONSIDER THE WORKING FURNISHED BY THE ASSESSEE AND DECIDE THE GROUND OF ADJUSTMENT AFTER HEARING THE ASSESSEE. HOWEVER, SUCH ADJ USTMENT SHALL NOW BE WORKED ONLY ON THE BASIS OF THE ACCOUNTS OF SO FFIA SOFTWARE LTD. THUS, GROUND NO. 3 IS RESTORED TO THE FILE OF THE AO F OR FRESH DECISION TO THE EXTENT OF MAKING THIS ADJUSTMENT. ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 34 6.3 COMING TO THE RISK FACTOR, THE ASSESSEE DID N OT FURNISH THE TERMS OF AGREEMENT WITH THE VEDARIS U.K. THE ASSESSEE IS BEARING RISK ASSOCIATED WITH SOFTWARE DEVELOPMENT BY PROVIDING ON-SHORE A ND OFF-SHORE AFTER SALES SERVICE. THEREFORE, THERE IS NO WAY IN WHICH SUCH ADJUSTMENT CAN BE COMPUTED. SIMILARLY, NO DATA IS AVAILABLE T O COMPARE R&D EXPENSES. HOWEVER, THE OVERALL ADJUSTMENT IN RESPECT OF AL L THE THREE GROUNDS IS SOUGHT ON AN AD-HOC BASIS AT 20% ON THE BASIS OF DECISIONS IN THE CASE OF SONY INDIA LTD. (12/1 OF THE PAPER BOOK). HOWEVER . NO FIRM CALCULATION HAS BEEN FURNISHED. IN ABSENCE OF SUCH CALCULAT ION, WE ARE OF THE VIEW THAT IT IS NOT FEASIBLE TO MAKE ADJUSTMENT ON TH IS GROUND ALSO. 7. GROUND NO. 5 IS REGARDING THE ADJUSTMENT TO BE MADE AS PER PROVISO TO SECTION 92-C(2) OF THE ACT. THE PROVISO AS IT EXISTED FOR THE RELEVANT ASSESSMENT YEAR STATES THAT WHERE MORE THA N ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, ALP SHALL BE TAKEN TO BE ARITHMETICAL MEAN OF SUCH PRICE, OR, AT THE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT N OT EXCEEDING 5% OF SUCH ARITHMETICAL MEAN. THUS, THIS PROVISION I S APPLICABLE WHERE MORE THAN ONE PRICE IS DETERMINED BY THE APPROPRIAT E METHOD. WE HAVE ALREADY GIVEN A FINDING THAT THERE IS ONLY ONE COMPARABLE CASE OF SOFFIA ITA NO.4372(DEL)/2009, CO NO. 35/2010 & STAY NO.101/2009 35 SOFTWARE LTD. SINCE MORE THAN ONE PRICE HAS NOT BEEN DETERMINED, THE PROVISO IS NOT APPLICABLE ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE. 8. IN THE RESULT: (I) THE STAY APPLICATION IS DISMISSED; (II) THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED; AND (III) THE APPEAL OF THE REVENUE IS TREATED AS D ISMISSED SUBJECT TO REMARKS MADE IN THE BODY OF THE ORDER. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 3 1ST MARCH, 2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 31ST MARCH, 2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. M/S VEDARIS TECHNOLOGY (P) LTD., NEW DELHI. 2. ACIT, CIRCLE 17(1), NEW DELHI. 3. CIT(A) 4. CIT 5. THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.