M/s SAP Labs India Private Limited, Bangalore V. Addl.CIT, Bangalore

ITA 1006/BANG/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0222 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 04-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; International transaction; Revenue expenditure
• Section: 133(6); 10B

Judgement Text

IT(TP)A.1006/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T(TP).A NO.1006/BANG/2011 (ASSESSMENT YEAR : 2007-08) M/S. SAP LABS INDIA P. LTD, NO.138, EXPORT PROMOTION INDUSTRIAL PARK, WHITEFIELD, BENGALURU 560 066 .. APPELLANT PAN : AAFCS3649P V. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE- 12(3), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. KANCHANKOUSHAL, CA REVENUE BY : SHRI. RAJESH K. R. JHA, CIT -DR HEARD ON : 09.06.2016 PRONOUNCED ON : 30.06.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE, IT HAS ALTOGETHER TAKEN 13 GROUNDS OF WHICH GROUNDS 1, 2 AND 13 ARE GENERAL NEEDING NO SP ECIFIC ADJUDICATION. IT(TP)A.1006/BANG/2011 PAGE - 2 GROUND 12 IS ON LEVY OF INTEREST U/S.234B, 234C AND 234D OF THE INCOME- TAX ACT, 1961 (THE ACT IN SHORT), WHICH IS CONSE QUENTIAL IN NATURE. 02. GROUNDS 3 TO 5 RAISE ISSUES RELATING TO TRANSFE R PRICING. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT IF HI S GROUNDS FOR EXCLUSION OF CERTAIN COMPANIES FROM THE LIST OF COMPARABLES FINA LLY SELECTED BY THE TPO, FOR THE TP STUDY WAS CONSIDERED, OTHER GROUNDS RELA TING TO TP ISSUES COULD BE TREATED AS NOT PRESSED. 03. FACTS APROPOS ARE THAT ASSESSEE, IS A SUBSIDIA RY OF A COMPANY CALLED SAP AG, GERMANY. M/S. SAP AG, GERMANY WAS PROVIDIN G SOFTWARE DEVELOPMENT SERVICE TO ITS GROUP COMPANIES. ASSESS EE IS A CAPTIVE SERVICE PROVIDER ASSISTING SAP AG, GERMANY IN RESEARCH, DES IGN AND DEVELOPMENT OF NEW SOFTWARE PRODUCTS, SOFTWARE ENHANCEMENT AND MODIFYING EXISTING SOFTWARE MODULES. IT OPERATES FROM VARIOUS UNITS R EGISTERED WITH SOFTWARE TECHNOLOGY PARKS (STP) OF INDIA. ASSESSEE HAD INTE RNATIONAL TRANSACTIONS IN THE NATURE OF SOFTWARE DEVELOPMENT SERVICES REND ERED TO ITS AE ABROAD, AND RECEIPTS FROM SUCH SOFTWARE DEVELOPMENT RELATED SERVICES CAME TO RS.5,20,17,36,977/-. OPERATING MARGIN WORKED OUT B Y ASSESSEE FOR THE SOFTWARE DEVELOPMENT SERVICES SEGMENT WAS 8.48% AS UNDER : IT(TP)A.1006/BANG/2011 PAGE - 3 04. FOR BENCH MARKING THE VALUE OF ITS INTERNATIONA L TRANSACTIONS ASSESSEE HAD IN ITS TP STUDY CONSIDERED TNM AS MOST APPROPRI ATE METHOD AND FOR THIS PURPOSE SELECTED 18 COMPARABLES. COMPARABLES SELECTED BY ASSESSEE AND THEIR MARGIN WERE AS UNDER : IT(TP)A.1006/BANG/2011 PAGE - 4 05. AS PER THE ASSESSEE, ITS MARGIN COMPARED FAVOUR ABLY WITH THE ARITHMETIC MEAN OF THE PLI OF THE COMPARABLES MENTI ONED ABOVE AND THEREFORE THERE WAS NO REQUIREMENT OF ANY ADJUSTMEN T ON ACCOUNT OF ALP. IT(TP)A.1006/BANG/2011 PAGE - 5 06. WHEN THE MATTER WAS REFERRED BY AO TO THE TPO, TPO WAS OF THE OPINION THAT SELECTION OF COMPARABLES MADE BY ASSES SEE WERE NOT APPROPRIATE EXCEPT FOR TWO COMPANIES, NAMELY SIP TE CHNOLOGIES & EXPORTS LTD, AND MINDTREE CONSULTING LTD. TPO THEREAFTER M ADE HIS OWN STUDY OF THE CAPITALINE, PROWESS DATA BASES AND ZEROED IN ON A SET OF 26 COMPARABLES WHICH INTER ALIA CONSISTED OF TWO COMPANIES SELECTE D BY THE ASSESSEE AND ACCEPTED BY THE TPO. THE FINAL SET OF COMPARABLES COMPILED BY THE TPO AND THEIR OPERATING MARGIN READ AS UNDER : IT(TP)A.1006/BANG/2011 PAGE - 6 07. ON THE ARITHMETIC MEAN OF 25.14% OF PLI OF THE COMPARABLES SELECTED BY HIM, TPO ALLOWED A WORKING CAPITAL ADJU STMENT OF 1.55% AND ARRIVED AT ADJUSTED ARITHMETIC MEAN PLI OF 23.59%. HE THEREAFTER WORKED OUT THE SHORTFALL U/S.92CA OF THE ACT, AS UNDER : IT(TP)A.1006/BANG/2011 PAGE - 7 * EXCLUDING INTEREST, DONATION, LOSS ON SALE OF A SSET 08. WHEN A PROPOSAL WAS PUT BY THE AO ON THESE LINE S, ASSESSEE CHOSE TO MOVE THE DRP. HOWEVER, DRP WAS NOT IMPRESSED BY AN Y OF THE ARGUMENTS RAISED BY THE ASSESSEE AGAINST THE ADJUSTMENT RECOM MENDED BY THE TPO FOR THE INTERNATIONAL PRICING OF THE SOFTWARE DEVELOPME NT SERVICES RENDERED BY THE ASSESSEE TO ITS AE. EXCEPT FOR A MINOR RELIEF, DRP DID NOT INTERFERE WITH THE ORDER OF THE TPO. ASSESSMENT WAS COMPLETED BY MAKING AN ADDITION OF RS.72,87,76,037/- U/S.92CA OF THE ACT. 09. NOW BEFORE US, LD. AR SUBMITTED THAT ASSESSEE W AS INTO SOFTWARE DEVELOPMENT SERVICES SECTOR AND PROVIDING CAPTIVE S ERVICE TO ITS AE ABROAD. AS PER THE LD. AR, OUT OF THE VERY MANY COMPARABLES CONSIDERED BY THE TPO, MEGASOFT LTD (SEG), ACCEL TRANSMATICS LTD (SEG ), AVANI CIMCON TECHNOLOGIES LTD, CELESTIAL LABS LTD, E-ZEST SOLUTI ONS LTD, FLEXTRONICS IT(TP)A.1006/BANG/2011 PAGE - 8 SOFTWARE SYSTEMS LTD (SEG), HELIOS & MATHESON INFOR MATION TECHNOLOGY LTD, INFOSYS LTD, ISHIR INFOTECH LTD, KALS INFORMAT ION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS LTD, TATA EL XSI LTD (SEG), THIRDWARE SOLUTIONS LTD, AND WIPRO LTD, WERE TO BE EXCLUDED SINCE THESE COMPANIES WERE FOUND TO BE FUNCTIONALLY DIFFERENT F ROM A SOFTWARE DEVELOPMENT SERVICE PROVIDER, BY A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ASSESSEES OWN SISTER CONCERN, VIZ., M/S. S AP LABS INDIA P. LTD V. DCIT [ITA NO.1118/BANG/2011, DT.23.09.2015. AS PER THE LD. AR, THE VERY SAME SET OF COMPARABLES WERE CONSIDERED BY THE TPO IN THAT CASE ALSO, WHICH WAS FOR THE VERY SAME ASSESSMENT YEAR. HENCE , THE SAME EXCLUSIONS SOUGHT BY THE ASSESSEE AND GIVEN BY THE TRIBUNAL IN THE SAID CASE COULD BE CONSIDERED HERE AS WELL. 10. CONTINUING HIS ARGUMENTS, LD. AR SUBMITTED THAT M/S. MEGASOFT LTD, ONE AMONG THE COMPARABLES WAS REMITTED BACK BY THE TRIBUNAL IN THE VERY SAME CASE FOR CONSIDERATION OF SEGMENTAL RESULTS, B ASED ON ITS BLUE ALLY SEGMENT. LD. AR ALSO SUBMITTED THAT AN ADDITIONAL GROUND HAS BEEN FILED FOR EXCLUSION OF ACCEL TRANSMATIC LTD (SEG), E-ZEST SOLUTIONS LTD, HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, PERSISTENT S YSTEMS LTD, AND THIRDWARE SOLUTIONS LTD, SINCE ASSESSEE HAD NOT CHA LLENGED THE IT(TP)A.1006/BANG/2011 PAGE - 9 APPROPRIATENESS OF THE ABOVE COMPARABLES BEFORE THE LOWER AUTHORITIES. FOR ADMISSION OF THE ADDITIONAL GROUND, LD. AR RELIED O N THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT V. QUARK SYSTEMS PVT. LTD. [42 DTR 414]. LD. AR ALSO POINTED OUT THAT VE RY SAME SET OF COMPARABLES WERE ALSO CONSIDERED BY THE TRIBUNAL IN THE CASE OF M/S. HEWLETT- PACKARD (INDIA) GLOBALSOFT P. LTD V DCIT [ITA.1031/BANG/2011, DT.23.09.2015] ALSO, AND THIS TRIBUNAL FOLLOWING IT S DECISION IN SAP LABS (SUPRA) HAD DIRECTED THE EXCLUSION OF THE COMPANIES ASSAILED HERE. AS PER THE LD. AR, IF THESE COMPANIES ARE EXCLUDED, THE FI NAL SET OF COMPARABLES THAT WOULD REMAIN ARE DATAMATICS LTD, GEOMETRIC LTD (SEG), IGATE GLOBAL SOLUTIONS LTD, LGS GLOBAL LTD, MEDIASOFT SOLUTIONS LTD, MINDTREE CONSULTING LTD, QUINTEGRA SOLUTIONS LTD, R S SOFTWA RE (INDIA) LTD, R SYSTEMS INTERNATIONAL LTD (SEG), SASKEN COMMUNICATI ON TECHNOLOGIES LTD (SEG), AND SIP TECHNOLOGIES & EXPORTS LTD. AS PER THE LD. AR, MEGASOFT LTD (SEG) CAN BE CONSIDERED AS A COMPARABLE IF PROP ER SEGMENTATION OF ITS RESULTS WERE DONE. 11. PER CONTRA, LD. DR SUBMITTED THAT THE FUNCTIONA L SIMILARITY OF THE ASSESSEE AND THE PARTIES IN THE CASES RELIED ON BY THE ASSESSEE COULD NOT BE ESTABLISHED BY THE LD. AR. THEREFORE, ACCORDING TO HIM THE DECISIONS IN THE IT(TP)A.1006/BANG/2011 PAGE - 10 CASE OF SAP LABS P. LTD (SUPRA) AND M/S. HEWLETT- P ACKARD (INDIA) GLOBALSOFT P. LTD (SUPRA) COULD NOT BE CONSIDERED A S A PROPER PRECEDENCE. 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. PROFILE OF THE ASSESSEE AS APPEARING AT P.NO.2 OF TP ORDER IS REPRODUCED HEREUNDER : 13. TPO HIMSELF HAS GIVEN A FINDING THAT ASSESSEE W AS PROVIDING SOFTWARE SERVICES TO SAP GROUP OF COMPANIES ABROAD. NOW COMING TO THE DECISION OF SAP LABS, RELIED ON BY THE LD. AR THIS TRIBUNAL AT PARA 3 HAS CLEARLY OBSERVED THAT THE SAID COMPANY WAS PROVIDIN G SOFTWARE DEVELOPMENT SERVICES TO ITS AE ABROAD. THE SAID DE CISION WAS RELIED BY THIS TRIBUNAL IN THE CASE OF M/S. HEWLETT- PACKARD (INDIA) GLOBALSOFT P. LTD IT(TP)A.1006/BANG/2011 PAGE - 11 (SUPRA), WHERE ALSO THE PROFILE OF THE CONCERNED AS SESSEE WAS SIMILAR TO THE ASSESSEE HERE. AT PARA 8 OF THE TRIBUNAL ORDER IN THE CASE OF M/S. HEWLETT- PACKARD (INDIA) GLOBALSOFT P. LTD (SUPRA), PROFILE OF THE SAID ASSESSEE HAS BEEN REPRODUCED AND SUCH PROFILE CLEARLY SHOWS THAT THE SAID COMPANY WAS ALSO RENDERING SOFTWARE DEVELOPMENT SERVICES TO THE M. THIS DECISION RELIED WAS ALSO FOR THE VERY SAME ASSESSMENT YEAR. HENCE, WE ARE OF THE OPINION THAT THESE DECISIONS COULD BE CONSIDERED AS A GOOD PRECEDENCE FOR ADJUDICATING THE EXCLUSIONS SOUGHT BY THE ASSESSEE. WHAT HAS BEEN HELD BY THE COORDINATE BENCH AT PARA 23 OF ITS ORDER DT.23. 09.2015, IN THE CASE OF M/S. HEWLETT- PACKARD (INDIA) GLOBALSOFT P. LTD (S UPRA) IS REPRODUCED HEREUNDER : 23. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN SO FAR AS ACCEL TRANSMATIC LTD (SEG), AVANI CIMCON TEC HNOLOGIES LTD, CELESTIAL LABS LTD, E-ZEST SOLUTIONS LTD,, HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INF OTECH LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SOLUTIONS LTD, TATA ELXSI LTD (SEG), THIR DWARE SOLUTIONS LTD (SEG) AND WIPRO LTD (SEG) ARE CONCERNED, THE ISSUE OF COMPARABILITY OF THESE COMPANIES HAD COME UP BEFORE THIS TRIBUNAL IN THE CASE OF NXP SEMICONDUCTORS INDIA P. LTD (SUPRA). ANALYSIS DONE IN THE SAID DECISION WAS ALSO FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT AND THE TPO IN THE SAID CASE HAD ALSO SELECTED THE VERY SAME SET OF 26 COMPANIES. SAID DECISION BEING FOR THE VERY SAME ASSESSMENT YEAR 20 07-08, WE ARE OF THE OPINION THAT IT CAN BE TAKEN AS A GOOD PRECEDENCE F OR DECIDING THE ISSUE OF IT(TP)A.1006/BANG/2011 PAGE - 12 COMPARABILITY RAISED BY THE ASSESSEE HEREIN, IN SO FAR AS THESE COMPANIES ARE CONCERNED. THIS TRIBUNAL HAD OBSERVED AS UNDER : I) ACCEL TRANSMATIC LTD. 48. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF THE ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOP MENT SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECISION OF CAPGEMINI INDIA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP ACCEPTED THE CONTENTION OF T HE ASSESSEE THAT ACCEL TRANSMATIC SHOULD BE REJECTED A S COMPARABLE. THE RELEVANT OBSERVATIONS OF DRP AS EXT RACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. THE ASSESSEE S UBMITTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINAN CIAL YEAR 2005-06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITIES OF THE COMPANY WERE AS UNDER. (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MAN UFACTURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, T ICKET VENDING SYSTEM (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENT RE FOR EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOL OGIES, OUTSOURCED PRODUCT DEVELOPMENT (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS) - TRAINING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYS TEM MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEV ELOPMENT. 4.3 ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH THE ASSESSEE THAT T HE IT(TP)A.1006/BANG/2011 PAGE - 13 COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSE E COMPANY AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF AC CEL IT AND ACCEL ANIMATION SERVICES FOR 2D AND 3D ANIMATION AN D THEREFORE ASSESSEES CLAIM THAT THIS COMPANY WAS FU NCTIONALLY DIFFERENT WAS ACCEPTED. DRP THEREFORE DIRECTED THE ASSESSING OFFICER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE F INAL LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. 49. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THI S COMPANY HAS RELATED PARTY TRANSACTIONS WHICH IS MORE THAN T HE PERMITTED LEVEL AND THEREFORE SHOULD NOT BE TAKEN F OR COMPARABILITY PURPOSES. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT IF THE ABOVE COMPANY SHOULD N OT BE CONSIDERED AS COMPARABLE. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE TPO. 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE THAT THE AFORESAID CO MPANY SHOULD NOT BE TREATED AS COMPARABLES WAS CONSIDERED BY THE TRIBUNAL IN CAPGEMINI INDIA LTD (SUPRA) WHERE THE ASSESSEE W AS SOFTWARE DEVELOPER. THE TRIBUNAL, IN THE SAID DECI SION REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE, HA S ACCEPTED THAT THIS COMPANY WAS NOT COMPARABLE IN THE CASE OF THE ASSESSEES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPTING THE ARGUMENT OF THE LD. COUNSEL FOR THE A SSESSEE, WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED AS COMPARABLES. 20. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN SIMILAR SET OF FACTS, THESE COMPANIES ARE DIRECTED TO BE EXCL UDED FROM THE LIST OF COMPARABLES. II) AVANI CIMCON TECHNOLOGIES LTD. 39. AS FAR AS THIS COMPANY IS CONCERNED, THE PLEA OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE. IT(TP)A.1006/BANG/2011 PAGE - 14 BASED ON THE INFORMATION AVAILABLE IN THE COMPANYS WEBSITE, WHICH REVEALS THAT THIS COMPANY HAS DEVELOPED A SOFTWARE PRODUCT BY NAME DXCHANGE, IT WAS SUBMITTED THAT THIS COMPANY WOUL D HAVE REVENUE FROM SOFTWARE PRODUCT SALES APART FROM REND ERING OF SOFTWARE SERVICES AND THEREFORE IS FUNCTIONALLY DIF FERENT FROM THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE MUMBAI BENCH OF THE TRIBUNAL TO THE DECISION IN THE CASE OF TELCORDIA T ECHNOLOGIES PVT. LTD. V. ACIT ITA NO.7821/MUM/2011 WHEREIN THE TRI BUNAL ACCEPTED THE ASSESSEES CONTENTION THAT THIS COMPAN Y HAS REVENUE FROM SOFTWARE PRODUCT AND OBSERVED THAT IN THE ABSE NCE OF SEGMENTAL DETAILS, AVANI CINCOM CANNOT BE CONSIDERED AS COMPA RABLE TO THE ASSESSEE WHO WAS RENDERING SOFTWARE DEVELOPMENT SER VICES ONLY AND IT WAS HELD AS FOLLOWS:- 7.8 AVANI CINCOM TECHNOLOGIES LTD. (AVANI CINCOM ) : HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPE RATING INCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE N OT BEEN PROVIDED SO AS TO SEE WHETHER THE PROFIT RATIO OF T HIS COMPANY CAN BE TAKEN INTO CONSIDERATION FOR COMPARING THE CASE THAT OF ASSESSEE. IN ABSENCE OF ANY KIND OF DETAILS PROVIDE D BY THE TPO, WE ARE UNABLE TO PERSUADE OURSELVES TO INCLUDE IT A S COMPARABLE PARTY. LEARNED CIT DR HAS PROVIDED A COPY OF PROFIT LOSS ACCOUNT WHICH SHOWS THAT MAINLY ITS EARNING IS FROM SOFTWARE EXPORTS, HOWEVER, THE DETAILS OF PERCENTAGE OF EXPO RT OF PRODUCTS OR SERVICES HAVE NOT BEEN GIVEN. WE, THEREFORE, REJ ECT THIS COMPANY ALSO FROM TAKING INTO CONSIDERATION FOR COM PARABILITY ANALYSIS. IT WAS ALSO HIGHLIGHTED THAT THE MARGIN OF THIS COM PANY AT 52.59% WHICH REPRESENTS ABNORMAL CIRCUMSTANCES AND PROFITS. THE FOLLOWING FIGURES WERE PLACED BEFORE US:- IT(TP)A.1006/BANG/2011 PAGE - 15 PARTICULARS FYS 05-06 06-07 07-08 08-09 OPERATING REVENUE 21761611 35477523 29342809 28039851 OPERATING EXPNS. 16417661 23249646 23359186 3110894 9 OPERATING PROFIT 5343950 12227877 5983623 (3069098 ) OPERATING MARGIN 32.55% 52.59% 25.62% - 9.87% 40. IT WAS SUBMITTED THAT THIS COMPANY HAS MADE UN USUALLY HIGH PROFIT DURING THE FINANCIAL YEAR 06-07. THE OPERAT ING REVENUES INCREASED 63.03% WHICH INDICATES THAT IT WAS AN EXT RAORDINARY YEAR FOR THIS COMPANY. EVEN THE GROWTH OF SOFTWARE INDU STRY FOR THE PREVIOUS YEAR AS PER NASSCOM WAS 32%. THE GROWTH R ATE OF THIS COMPANY WAS DOUBLE THE INDUSTRY AVERAGE. IN VIEW O F THE ABOVE, IT WAS ARGUED THAT THIS COMPANY OUGHT TO HAVE BEEN REJ ECTED AS A COMPARABLE. 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. THE REASONS GIVEN BY THE ASSESSEE FOR EXCLUDING THIS COMPANY AS COMPARABLE ARE FOUND TO B E ACCEPTABLE. THE DECISION OF ITAT (MUMBAI) IN THE CASE OF TELCOR DIA TECHNOLOGIES PVT. LTD. V. ACIT (SUPRA) ALSO SUPPORT S THE PLEA OF THE ASSESSEE. WE THEREFORE ACCEPT THE PLEA OF THE ASSE SSEE TO REJECT THIS COMPANY AS A COMPARABLE. III) CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT COMP ANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- IN THE DIRECTORS REPORT (PAGE 20 OF PB-IL), IT IS STATED THAT THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION IT(TP)A.1006/BANG/2011 PAGE - 16 FOR IN-HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UN DER SECTION 35(2AB) OF THE INCOME TAX ACT. AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER DEFERRED REVENUE EXPENDITURE (PAGE 31 OF PB-II), IT IS MENTIONED THAT, EXPENDITURE INCURRED ON RESEARCH A ND DEVELOPMENT OF NEW PRODUCTS HAS BEEN TREATED AS DEF ERRED REVENUE EXPENDITURE AND THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARLY INSTALLMENTS FROM THE YEAR IN WHICH IT IS IN CURRED. AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT AS DEFERRED REVENUE EXPENDITURE (PAG E 30 OF PB-II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFT WARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISI ON OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PR IVATE LTD. V. ADDL. CIT ITA NO.6623/MUM/2011 (FOR AY 2007-08) IN WHIC H THE COMPARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RE SEARCH SEGMENT. THE RELEVANT EXTRACT OF DISCUSSION REGARDING THIS COMPA NY IS AS FOLLOWS: THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAG E-389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRE CTORS REPORT WHICH READS AS FOLLOWS: THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TOO L CELSUITE TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FOR DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF SIC (OF) RIGHT/PATENT ACT. (APPRI SED AND FUNDED BY DEPARTMENT OF SCIENCE AND TECHNOLOGY NEW DELHI) BASED ON OUR INSILICO EXPERTISE (APPLYING BIO-INFOR MATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TRE AT LEUCODERMA AND MULTIPLE CANCER AND PROTECTED THE IP R BY IT(TP)A.1006/BANG/2011 PAGE - 17 FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DIS CUSSED WITH PATENT OFFICIALS AND THE RESPONSE IS VERY FAVORABLE . THE CLONING AND PURIFICATION UNDER WET LAB PROCEDURES A RE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTME NT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY HAS SIGN ED THE TECHNOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKET INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN INDIA AND OVERSEAS . THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACIL ITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NEW CANDIDATES DRUG MOLE CULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPA NIES ACROSS THE GLOBE. THE PROPOSED FACILITY WILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA PRADESH. ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SH OULD BE CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY T HE LEARNED COUNSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF THE IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MOLECULE TO TREAT CAN CER USING BIO-INFORMATICS TOOLS FOR WHICH PATENTING PRO CESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPA RABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS B EEN NO ATTEMPT MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJ USTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUN CTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING T O SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS IT(TP)A.1006/BANG/2011 PAGE - 18 COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THE REFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE AB OVE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS INTO RESEARCH IN PHARMA CEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT THIS COMPANY IS OWNER OF IP R, IT HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECU LE TO TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS COMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASO N THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEV ER, FROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJ ECTED AS A COMPARABLE BEING FUNCTIONALLY DIFFERENT. 45.FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANSP IRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06-07 THIS COMPANY WAS C LASSIFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN AY 07- 08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEV ELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROWESS DATABASE AS WELL AS IN THE ANNUAL REPORT OF THIS COMPANY. THE TPO HAS RELIED ON THE RESPONSE FROM THIS COMPANY TO A NOTICE U/S.133(6) OF THE ACT IN WHICH IT HAS SAID THAT IT IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT S ERVICES. THE ASSESSEE IN REPLY TO THE PROPOSAL OF THE AO TO TREA T THIS AS A COMPARABLE HAS POINTED OUT THAT THIS COMPANY PROVID ES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOINFORMATICS SERVICE S AND THAT THE SEGMENTAL DATA FOR EACH ACTIVITY IS NOT AVAILABLE A ND THEREFORE THIS COMPANY SHOULD NOT BE TREATED AS COMPARABLE. BESID ES THE ABOVE, THE ASSESSEE HAS POINT OUT TO SEVERAL REFERENCES IN THE ANNUAL REPORT FOR 31.3.2007 HIGHLIGHTING THE FACT THAT THIS COMPANY W AS DEVELOPS BIOTECHNOLOGY PRODUCTS AND PROVIDES RELATED SOFTWAR E DEVELOPMENT SERVICES. THE TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS COMPANY. THE TPO ALSO CALLED FOR DESCRIPTION OF SOFTWARE DEVELOPMENT PROCESS. IN RESPONSE TO THE REQUEST OF THE TPO THIS COMPANY IN ITS REPLY DATED 29.3.2010 HAS GIVEN DETA ILS OF EMPLOYEES WORKING IN SOFTWARE DEVELOPMENT BUT IT IS NOT CLEAR AS TO WHETHER ANY IT(TP)A.1006/BANG/2011 PAGE - 19 SEGMENTAL DATA WAS GIVEN OR NOT. BESIDES THE ABOVE THERE IS NO OTHER DETAIL IN THE TPOS ORDER AS TO THE NATURE OF SOFTW ARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLIC ISSUE OF SHARES AND IN THAT CONNECTION ISSUE D DRAFT RED HERRING PROSPECTUS (DRHP) IN WHICH THE BUSINESS OF THIS COM PANY WAS EXPLAINED AS TO CLINICAL RESEARCH. THE TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BUSINESS OF THIS COMPANY IS SOF TWARE DEVELOPMENT SERVICES AS INDICATED IN THE ANNUAL REPORT FOR FY 0 6-07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS AS STATED IN THE DRHP. THERE IS NO REFERENCE TO ANY REPLY BY CELESTIAL LABS TO THE ABOVE CLARIFICATION OF THE TPO. THE TPO WITHO UT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BUSINESS MENTIONED IN TH E DRHP ARE THE SERVICES OR BUSINESSES THAT WOULD BE STARTED BY UTI LIZING THE FUNDS GARNERED THOUGH THE INITIAL PUBLIC OFFER (IPO) AND THUS IN NO WAY CONNECTED WITH BUSINESS OPERATIONS OF THE COMPANY D URING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISS IONS MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICAL LY/ADMITTEDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS A ND OTHER PRODUCTS, THERE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT THIS COMPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTWARE DE VELOPMENT SERVICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT T HIS COMPANY OUGHT NOT TO HAVE BEEN CONSIDERED AS COMPARABLE. IV) E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY D IFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISE D BY THE ASSESSEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESP ONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPA RABLES ON THE GROUND IT(TP)A.1006/BANG/2011 PAGE - 20 THAT IT IS FUNCTIONALLY DIFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS ENGA GED IN E-BUSINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SE RVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SERVICES INCL UDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERVICES, TH E LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIGH END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING (KPO) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPANY HAS NOT PROVIDED SEGMENTAL DATA I N ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DES CRIPTIVE INFORMATION ON THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RE LIANCE ON THE DETAILS AVAILABLE ON THE COMPANYS WEBSITE WHICH SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND THEREFORE COMP ANIES RENDERING KPO SERVICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE T O SOFTWARE DEVELOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO-ORDI NATE BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961(HYD)/2011 DT.23.11.2012 AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., O UGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLYCONSIDERED THE MATERIAL ON RECORD. IT IS S EEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF CO MPARBALES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS R EPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWA RE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. FROM THE DETAIL S ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMEN T SERVICES, THIS COMPANY IT(TP)A.1006/BANG/2011 PAGE - 21 I.E. E-ZEST SOLUTIONS LTD., IS RENDERING PRODUCT DE VELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CA TEGORY OF KPO SERVICES. IT HAS BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q INFORMATIONSYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID D ECISION OF THE CO- ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFO RESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-ZEST SOLUTIONS LTD. BE OM ITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. THE A.O. /TPO IS ACCORDINGLY DIRECTED. V) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD & KALS INFORMATION SYSTEMS LTD (SEG) : 16. THE NEXT POINT MADE OUT BY THE ASSESSEE IS WITH REGARD TO THE INCLUSION OF ITEMS AT (9) AND (11) NAMELY HELIOS & MATHESON INFO RMATION TECHNOLOGY LTD., AND KALS INFORMATION SOLUTIONS LTD. (SEG). TH E PRIMARY PLEA RAISED BY THE ASSESSEE TO ASSAIL THE INCLUSION OF THE AFORESA ID TWO COMPANIES FROM THE LIST OF COMPARABLES IS TO BE EFFECT THAT THEY ARE F UNCTIONALLY INCOMPARABLE AND THEREFORE, ARE LIABLE TO BE EXCLUDED. IN SUM AN D SUBSTANCE, THE PLEA SET UP BY THE ASSESSEE IS THAT BOTH THE AFORESAID CONCE RNS ARE ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS WHICH IS FUNCTIONALLY DIFFERENT FROM THE SERVICES UNDERTAKEN BY THE ASSESSEE IN ITS IT-SERVICES SEGMENT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE ORD ER OF THE TPO, THE REASON ADVANCED FOR INCLUDING KALS INFORMATION SYSTEMS LTD ., IS TO THE EFFECT THAT THE SAID CONCERNS APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE WHICH CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCERN IS ENGAGED IN TW O SEGMENTS NAMELY APPLICATION SOFTWARE SEGMENT AND TRAINING. AS PER T HE TPO, THE APPLICATION SOFTWARE SEGMENT IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS THE SAID CONCERN IS ENGAGED IN SOFTWARE SERVICES. THE STAND OF THE ASSESSEE IS THAT A PERUSAL OF THE ANNUAL REPORT OF THE SAID CONCERN FO R F.Y. 2006-07 REVEALS THAT THE APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES. THE ASSESS EE POINTED OUT THIS TO THE IT(TP)A.1006/BANG/2011 PAGE - 22 TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH IS PL ACED IN THE PAPER BOOK AT PAGE 420.3 TO 420.4. THE ASSESSEE FURTHER POINTED O UT THAT THERE WAS NO BIFURCATION AVAILABLE BETWEEN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND THE BUSINESS OF SOFTWARE SERVICES, AND THEREFORE, I T WAS NOT APPROPRIATE TO ADOPT THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN FOR THE PURPOSES OF COMPARABILITY WITH THE ASSESSEES IT-SERVICES SE GMENT. THE TPO HOWEVER, NOTICED THAT THOUGH THE APPLICATION SOFTWA RE SEGMENT OF THE SAID CONCERN MAY BE ENGAGED IN SELLING OF SOME OF THE SO FTWARE PRODUCTS WHICH ARE DEVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT INTO TRADING OF SOFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHAS ES DEBITED IN THE PROFIT & LOSS ACCOUNT. THOUGH THE TPO AGREED THAT THE QUANTU M OF REVENUE FROM SALE OF PRODUCTS WAS NOT AVAILABLE AS PER THE FINAN CIAL STATEMENTS OF THE SAID CONCERN, BUT AS THE BASIC FUNCTION OF THE SAID CONC ERN WAS SOFTWARE DEVELOPMENT, IT WAS INCLUDIBLE AS IT WAS FUNCTIONAL LY COMPARABLE TO THE ASSESSEES SEGMENT OF IT-SERVICES. 18. BEFORE US, APART FROM REITERATING THE POINTS RA ISED BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITTED THAT IN THE IMME DIATELY PRECEEDING ASSESSMENT YEAR OF 2006-07, THE SAID CONCERN WAS EV ALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPARABLE. FOR THE SA ID PURPOSE, OUR REFERENCE HAS BEEN INVITED TO PAGES 421 TO 542 OF T HE PAPER BOOK, WHICH IS THE COPY OF THE TRANSFER PRICING STUDY UNDERTAKEN B Y THE ASSESSEE FOR THE A.Y. 2006-07, AND IN PARTICULAR, ATTENTION WAS INVI TED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAKEN BY THE ASSESSEE REF LECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONALLY INCOMPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITION HAS BEEN ACCEPTED B Y THE TPO IN THE EARLIER A.Y. 2006-07 AND THEREFORE, THERE WAS NO JUSTIFICAT ION FOR THE TPO TO CONSIDER THE SAID CONCERN AS FUNCTIONALLY COMPARABL E IN THE INSTANT ASSESSMENT YEAR. 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY THE ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDENT THAT THE SAID CONCERN H AS NOT BEEN FOUND TO BE FUNCTIONALLY COMPARABLE WITH THE ASSESSEE IN THE IM MEDIATELY PRECEDING ASSESSMENT YEAR AND IN THE PRESENT YEAR ALSO, ON TH E BASIS OF THE ANNUAL IT(TP)A.1006/BANG/2011 PAGE - 23 REPORT, REFERRED TO IN THE WRITTEN SUBMISSIONS ADDR ESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HAS CORRECTLY ASSERTED OU T THAT THE SAID CONCERN WAS INTER ALIA ENGAGED IN SALE OF SOFTWARE PRODUCTS, WH ICH WAS QUITE DISTINCT FROM THE ACTIVITY UNDERTAKEN BY THE ASSESSEE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHER IS THERE ANY ARGUMENT PUT FORTH BY THE REVENUE AND NOR IS THERE ANY DISCUSSION EMERGING FROM THE O RDERS OF THE LOWER AUTHORITIES AS TO IN WHAT MANNER THE FUNCTIONAL PRO FILE OF THE SAID CONCERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HAVING REGARD TO THE FACTUAL ASPECTS BRO UGHT OUT BY THE ASSESSEE, IT IS CORRECTLY ASSERTED THAT THE APPLICATION SOFTW ARE SEGMENT OF THE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEES SEGMENT OF IT SERVICES. 20. WITH REGARD TO THE INCLUSION OF HELIOS & MATHES ON INFORMATION TECHNOLOGY LTD., THE ASSESSEE HAS RAISED SIMILAR AR GUMENTS AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG). WE HAVE PERU SED THE RELEVANT PARA OF THE ORDER OF THE TPO I.E., 6.3.21, IN TERMS OF W HICH THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE CONCERN. THE ASSESSEE POINTED OUT THAT AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO FOR A.Y. 2006-07 THE SAID CONCERN WAS FOUND FUNCTIO NALLY INCOMPARABLE BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY AND THE SAID POSITION WAS NOT DISTURBED BY THE TPO. THE RELEVANT PORTION OF THE T RANSFER PRICING STUDY, PLACED AT PAGE 432 OF THE PAPER BOOK HAS BEEN POINT ED OUT IN SUPPORT. CONSIDERED IN THE AFORESAID LIGHT, ON THE BASIS OF THE DISCUSSION IN RELATION TO KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTA NT CASE ALSO WE FIND THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. VI) INFOSYS TECHNOLOGIES LTD. 12.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPA NY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND A TTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTION S RAISED BY THE ASSESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASP ECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEG MENT. IT(TP)A.1006/BANG/2011 PAGE - 24 12.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND IN THI S CONTEXT HAS CITED VARIOUS PORTIONS OF THE ANNUAL REPORT OF THIS COMPA NY TO THIS EFFECT WHICH IS AS UNDER :- (I) THE COMPANY HAS AN INTELLECTUAL PROPERTY (IP) CELL TO GUIDE ITS EMPLOYEES TO LEVERAGE THE POWER OF IP FOR THEIR GRO WTH. IN 2008, THIS COMPANY GENERATED OVER 102 INVENTION DISCLOSURES AN D FILED AN AGGREGATE 10 PATENTS IN INDIA AND THE USA. TILL DA TE THIS COMPANY HAS FILED AN AGGREGATE OF 119 PATENT APPLICATIONS (PEND ING) IN INDIA AND USA OUT OF WHICH 2 HAVE BEEN GRANTED IN THE US. (II) THIS COMPANY HAS SUBSTANTIAL REVENUES FROM SO FTWARE PRODUCTS AND THE BREAK-UP OF THE SOFTWARE PRODUCT REVENUES IS NO T AVAILABLE. (III) THIS COMPANY HAS INCURRED HUGE RESEARCH AND D EVELOPMENT EXPENDITURE TO THE TUNE OF APPROXIMATELY RS.200 CR ORES. (IV) THIS COMPANY HAS A REVENUE SHARING AGREEMENT TOWARDS ACQUISITION OF IPR IN AUTOLAY, A COMMERCIAL SOFTWARE PRODUCT US ED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLO WING JUDICIAL DECISIONS:- (A) ITAT, DELHI BENCH DECISION IN THE CASE OF AGNIT Y INDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.3856/DEL/2010) AND (B) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (IT A NO.1054/BANG/2011) 12.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF O PERATIONS AND THE OPERATING MARGINS OF THIS COMPANY HAVE NOT BEEN EXT RAORDINARY. IN VIEW IT(TP)A.1006/BANG/2011 PAGE - 25 OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SU PPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF C OMPARABLE COMPANIES. 12.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FI ND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABL ISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSES SMENT YEAR 2007-08 IS APPLICABLE TO THIS YEAR ALSO. THE ARGUMENT PUT FORTH BY ASSESSEE'S IS THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY C OMPARABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES F ROM SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REV ENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. I N THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITT ED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. VII) & VIII) M/S.ISHIR INFOTECH LTD. AND LUCID SO FTWARE LTD : 20. AS FAR AS COMPARABLE COMPANIES LISTED AT SL. NO.11 & 14 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TP O VIZ., M/S.ISHIR INFOTECH LTD. AND LUCID SOFTWARE LTD., IS CONCERNED , THIS TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD. VS. DCIT IT (TP) NO.1086/BANG/2011 FOR AY 07-08 HELD THAT THE AFORES AID COMPANIES ARE NOT COMPARABLE COMPANIES IN THE CASE OF SOFTWARE DE VELOPMENT SERVICES PROVIDER. THE NATURE OF SERVICES RENDERED BY THE A SSESSEE IN THIS APPEAL AND THE ASSESSEE IN THE CASE OF FIRST ADVANTAGE OFF SHORE SERVICES PVT.LTD.(SUPRA) ARE ONE AND THE SAME. THIS FACT WO ULD BE CLEAR FROM THE FACT THAT THE VERY SAME 26 COMPANIES WERE CHOSEN AS COMPARABLE IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF FIRS T ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA). THE FOLLOWING WERE THE R ELEVANT OBSERVATIONS IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PV T.LTD.(SUPRA): IT(TP)A.1006/BANG/2011 PAGE - 26 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE BASIS OF THE FINDING OF THIS TRIBUNAL IN THE CASE O F MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. DT 22.2.201 3, WHEREIN AT PAGES 17 AND 22 OF ITS ORDER THE DISTINCTIONS AS TO WHY T HESE COMPANIES SHOULD BE EXCLUDED ARE BROUGHT OUT. HE SUBMITTED THAT THE FACTS OF THE CASE BEFORE US ARE SIMILAR AND, THEREFORE, THE SAID DECI SION IS APPLICABLE TO THE ASSESSEE'S CASE ALSO. 23. THE LEARNED DR HOWEVER OBJECTED TO THE EXCLUSIO N OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES. ON A CAREF UL PERUSAL OF THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL IN TH E CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. (CITED SUPRA) HAS TAKEN A NOTE OF DISSIMILARITIES BETWEEN THE ASSESSEE THER EIN AND LUCID SOFTWARE LTD. AS OBSERVED THEREIN LUCID SOFTWARE L TD. COMPANY IS ALSO INVOLVED IN THE DEVELOPMENT OF SOFTWARE AS COM PARED TO THE ASSESSEE, WHICH IS ONLY INTO SOFTWARE SERVICES. SI MILARLY, AS REGARDS ISHIR INFOTECH LTD., THE TRIBUNAL HAS CONSIDERED TH E DECISION OF THE TRIBUNAL IN THE CASE OF 24/7 CO. PVT. LTD TO HOLD T HAT ISHIR INFOTECH IS ALSO OUT-SOURCING ITS WORK AND, THEREFORE, HAS NOT SATISFIED THE 25% EMPLOYEE COST FILTER AND THUS HAS TO BE EXCLUDED FR OM THE LIST OF COMPARABLES. AS THE FACTS OF THE CASE BEFORE US AR E SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH, WE HOLD THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED. 21. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMP ANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF DET ERMINING ALP. IT(TP)A.1006/BANG/2011 PAGE - 27 X) PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A CO MPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASONS THAT THIS COMPANY BEING ENGAGED IN SOFT WARE PRODUCT DESIGNING AND ANALYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. THE TPO R EJECTED THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE ANNUAL REPORT FOR THE COMPANY FOR FINANCIAL YEAR 2007-08, IT IS MAINL Y A SOFTWARE DEVELOPMENT COMPANY AND AS PER THE DETAILS FURNISHE D IN REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT, SOFTWARE DE VELOPMENT CONSTITUTES 96% OF ITS REVENUES. IN THIS VIEW OF TH E MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSIS TENT SYSTEMS LTD., IN THE LIST OF COMPARABLES AS IT QUALIFIED THE FUNCTIO NALITY CRITERION. 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPANY IS FUNCTI ONALLY DIFFERENT AND ALSO THAT THERE ARE SEVERAL OTHER FACTORS ON WHICH THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING S ERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPANY FO R F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOMINANTLY ENGAG ED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPEND ENT SOFTWARE VENDORS AND ENTERPRISES. (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPANY I S IN THE BUSINESS OF PRODUCT DESIGN SERVICES. (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORD IA TECHNOLOGIES INDIA PVT. LTD.(SUPRA) WHILE DISCUSSING THE COMPARA BILITY OF ANOTHER COMPANY, NAMELY LUCID SOFTWARE LTD. HAD RENDERED A FINDING THAT IN THE IT(TP)A.1006/BANG/2011 PAGE - 28 ABSENCE OF SEGMENTAL INFORMATION, A COMPANY BE TAKE N INTO ACCOUNT FOR COMPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUARELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INT O PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES AND FOR WHI CH THE SEGMENTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. BE OMITTE D FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE A SSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PROVIDER. WE FIND THAT, AS SUB MITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVEN SEPARATELY. THE REFORE, FOLLOWING THE PRINCIPLE ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) THA T IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, WE HOLD THAT THIS COMPA NY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OMITTED FROM THE SET OF CO MPARABLES FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. XII) TATA ELXSI LTD. 14.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNC TIONAL DIS- SIMILARITY, SIGNIFICANT R&D ACTIVITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTION PUT FORTH BY THE A SSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. IT(TP)A.1006/BANG/2011 PAGE - 29 14.2 BEFORE US, IT WAS REITERATED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT PERFO RMS A VARIETY OF FUNCTIONS UNDER THE SOFTWARE DEVELOPMENT AND SERVIC ES SEGMENT NAMELY (A) PRODUCT DESIGN SERVICES (B) INNOVATION DESIGN ENGINEERING AND (C) VISUAL COMPUTING LABS. IN THE SUBMISSIONS MADE THE ASSESSEE HAD QUOTED REL EVANT PORTIONS FROM THE ANNUAL REPORT OF THE COMPANY TO THIS EFFEC T. IN VIEW OF THIS, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND O THE TPO IN INCLUDING THIS COM PANY IN THE LIST OF COMPARABLES. 14.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAIL S ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVIC ES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE D EVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SI MILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 14.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF T ELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEVELOP MENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPA RABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRA CTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FR OM THE ASSESSEE IT(TP)A.1006/BANG/2011 PAGE - 30 COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARN ED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUC T DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN P ROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT AND SERVICE S. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LE NGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE L IST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPO RT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA EL XSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 25. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMP ANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF DET ERMINING ALP. XIII) THIRDWARE SOLUTIONS LTD. (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESSE E OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CRORES. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICE S, IT IS IN THE BUSINESS OF PRODUCT DEVELOPMENT AND TRADING IN SOFT WARE AND GIVING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD, THE L EARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT :- IT(TP)A.1006/BANG/2011 PAGE - 31 (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PRO VIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFT WARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (2008-TII-04- ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVID ERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INC REASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE AB OVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA) , THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN PRODUCT DEVEL OPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOW EVER, THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEV ELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. F URTHER, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE P UNE BENCH OF THE TRIBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCL UDES INCOME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMP ARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFT WARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FO LLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA), WE DIR ECT THAT THIS IT(TP)A.1006/BANG/2011 PAGE - 32 COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. XIV) WIPRO LIMITED 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES OR SEVERAL GROUN DS LIKE FUNCTIONAL DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, H OWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESSEE AND INCLUDED T HIS COMPANY IN THE SET OF COMPARABLES. 13.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE FOR SEV ERAL REASONS, WHICH ARE AS UNDER : (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN TH E NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES AND QUOTED EXTRACTS FROM THE ANNUAL REPORT OF THIS COMP ANY IN THE SUBMISSIONS MADE. (II) THE TPO HAD ADOPTED THE CONSOLIDATED FINANCIA L STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGIN S, WHICH CONTRADICTS THE TPOS OWN FILTER OF REJECTING COMP ANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 13.3. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE SET OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT I N THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAG ED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THER E IS NO INFORMATION ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODUCT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS IT(TP)A.1006/BANG/2011 PAGE - 33 COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW T HE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALES 75% O F THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE C OMPARABILITY ANALYSIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPR IATE COMPARISON. 13.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLE CTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVE RAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER .COM PVT. LTD. (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNI NG INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PR OVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CA SE ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DECIS ION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.C OM PVT. LTD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE CONSID ERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF CO MPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CO NSIDERATION. 14. IN SO FAR AS FLEXTRONICS SOFTWARE SYSTEMS LTD ( SEG) IS CONCERNED, COMPARABILITY OF THIS COMPANY WAS CONSIDERED BY THE TRIBUNAL AT PARA 26 TO 28 OF ITS ORDER IN THE CASE OF M/S. HEWLETT- PACKAR D (INDIA) GLOBALSOFT P. LTD (SUPRA). THESE PARAS ARE REPRODUCED HEREUNDER : 26. NOW TAKING UP THE QUESTION OF EXCLUSION OF FLEX TRONICS SOFTWARE SYSTEMS LTD (SEG), IT IS TRUE THAT THE DEC ISION OF MOTOROLA SOLUTIONS (INDIA) P. LTD (SUPRA) ALSO WAS FOR THE V ERY SAME YEAR IT(TP)A.1006/BANG/2011 PAGE - 34 AND ALSO ON SOFTWARE DEVELOPMENT SERVICES SECTOR. THIS TRIBUNAL HELD AS UNDER : 97.2 FOR A COMPANY TO BE INCLUDED IN THE LIST OF C OMPARABLES, IT IS NECESSARY THAT CREDIBLE INFORMATION IS AVAILABLE ABOUT THE COMPANY. UNLESS THIS BASIC REQUIREMENT IS FULFILLED , THE COMPANY CANNOT BE TAKEN AS A COMPARABLE. IT IS TRUE THAT LD . TPO IS ENTITLED TO OBTAIN INFORMATION US/ 133(6), THE OBJECT OF WHI CH IS PRIMARILY ONLY TO SUPPLEMENT THE INFORMATION ALREADY AVAILABL E ON RECORD, BUT NOT, AS RIGHTLY SUBMITTED BY LD. COUNSEL FOR TH E ASSESSEE, TO REPLACE THE INFORMATION. IF THERE IS A COMPLETE CON TRADICTION BETWEEN THE INFORMATION OBTAINED U/S 133(6) AND ANN UAL REPORT THEN THE SAID INFORMATION CANNOT BE SUBSTITUTED FOR THE INFORMATION CONTAINED IN ANNUAL REPORT. WE, THEREFORE, ARE IN I TA NO. 5637/D/2011 149 AGREEMENT WITH LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY CANNOT BE INCLUDED AS A COMPARABLE IN THE SET OF COMPARABLES SELECTED BY LD. TPO ON ACCOUNT OF CLEAR CONTRADICTION BETWEEN CONTENTS OF ANNUAL REPORT AND INFORMATION OBTAINED U/S 133(6). 27. RULE 10D(3) SPECIFIES THE INFORMATION AND DOCUM ENTS THAT ARE TO BE MAINTAINED BY A PERSON WHO IS ENTERING IN TO INTERNATIONAL TRANSACTIONS. THESE ARE OFFICIAL PU BLICATIONS, PUBLISHED ACCOUNTS OR THOSE WHICH ARE IN PUBLIC DOM AIN EXCEPT FOR AGREEMENTS AND CONTRACTS TO WHICH ASSESSEE IS PRIVY . ONCE THE ANNUAL REPORT OF A COMPANY IS FOR A YEAR DIFFERENT FROM THE FINANCIAL YEAR ENDING 31 ST MARCH, THEN WITHOUT DOUBT, IT WILL CEASE TO BE A GOOD COMPARABLE, UNLESS THE INFORMATION REC EIVED IN PURSUANCE TO A NOTICE U/S.133(6) OF THE ACT FROM SU CH COMPANY, IS RECONCILED WITH THE FIGURES AVAILABLE IN SUCH ANNUA L REPORT. 28. IN THE CASE OF FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), NO DOUBT THE ANNUAL REPORT WAS FOR THE YEAR ENDING 31. 03.2007. HOWEVER IT WAS ONLY FOR A NINE MONTHS PERIOD. NO R ECONCILIATION WAS ATTEMPTED BY THE LOWER AUTHORITIES BETWEEN THE FIGURES GIVEN IN SUCH ANNUAL REPORT WITH THE FIGURES WHICH WERE M ADE AVAILABLE BY THE SAID COMPANY TO THE TPO PURSUANT TO NOTICE I SSUED TO THEM U/S.133(6) OF THE ACT. NO DOUBT AT PAGE 123 OF TP ORDER, TPO HAS STATED THAT THE SOFTWARE DEVELOPMENT SERVICE REVENU ES WERE MORE THAN 75% BASED ON THE FOLLOWING FIGURES : IT(TP)A.1006/BANG/2011 PAGE - 35 BUT HOW THIS SEGMENTATION WAS DONE BY THE TPO AND T HE RECONCILIATION OF THE SAID SEGMENTATION WITH THE AN NUAL REPORT OF THE ASSESSEE WAS NEVER ATTEMPTED OR DONE. IN SUCH A SITUATION WE ARE OF THE OPINION THAT FLEXTRONICS SOFTWARE SOLUTI ONS LTD (SEG) COULD NOT BE CONSIDERED AS A PROPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. WE ARE THEREFORE OF THE OPINION THAT FLEXTRONICS SO FTWARE SYSTEMS LTD (SEG) HAS TO BE EXCLUDED FROM THE LIST OF COMPARABL ES. 15. AS FOR THE COMPARABILITY OF MEGASOFT LTD, OBSER VATIONS OF THE TRIBUNAL IN HP GLOBALSOFT (INDIA) P. LTD(SUPRA), IS REPRODUCED HEREUNDER : MEGASOFT LTD. : 24. THIS COMPANY WAS CHOSEN AS A COMPARABLE BY THE TPO. THE OBJECTION OF THE ASSESSEE IS THAT THERE ARE TWO SEG MENTS IN THIS COMPANY VIZ., (I) SOFTWARE DEVELOPMENT SEGMENT, AND (II) SOFTWARE PRODUCT SEGMENT. THE ASSESSEE IS A PURE SOFTWARE S ERVICES PROVIDER AND NOT A SOFTWARE PRODUCT DEVELOPER. ACCORDING TO THE ASSESSEE THERE IS NO BREAK UP OF REVENUE BETWEEN SOFTWARE PR ODUCTS AND SOFTWARE SERVICES BUSINESS ON A STANDALONE BASIS OF THIS COMPARABLE. THE TPO RELIED ON INFORMATION WHICH WAS GIVEN BY TH IS COMPANY IN WHICH THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DI VISIONS VIZ., BLUEALLY DIVISION AND XIUS-BCGI DIVISION. XIUS-BC GI DIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE. TH IS COMPANY IT(TP)A.1006/BANG/2011 PAGE - 36 DEVELOPS PACKAGED PRODUCTS FOR THE WIRELESS AND CON VERGENT TELECOM INDUSTRY. THESE PRODUCTS ARE SOLD AS PACKAGED PROD UCTS TO CUSTOMERS. WHILE IMPLEMENTING THESE STANDARDIZED PRODUCTS, CUS TOMERS MAY REQUEST THE COMPANY TO CUSTOMIZE PRODUCTS OR RECONF IGURE PRODUCTS TO FIT INTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES UP THE JOB OF CUSTOMIZING THE PACKAGED SOFTWARE. THE COMPANY ALSO EXPLAINED THAT 30 TO 40% OF THE PRODUCT SOFTWARE WO ULD CONSTITUTE PACKAGED PRODUCT AND AROUND 50% TO 60% WOULD CONSTI TUTE CUSTOMIZED CAPABILITIES AND EXPENSES RELATED TO TRA VELLING, BOARDING AND LODGING EXPENSE. BASED ON THE ABOVE REPLY, THE TPO PROCEEDED TO HOLD THAT THE COMPARABLE COMPANY WAS MAINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO P RODUCT SOFTWARE) INTERNALLY AND THAT THE PORTION OF THE REVENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUSTOMIZATION WAS LESS T HAN 25% OF THE OVERALL REVENUES. THE TPO THEREFORE HELD THAT LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUC TS AND THEREFORE THE COMPARABLE SATISFIED TPOS FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. THE BASIS ON W HICH THE TPO ARRIVED AT THE PLI OF 60.23% IS GIVEN AT PAGE-115 A ND 116 OF THE ORDER OF THE TPO. IT IS CLEAR FROM THE PERUSAL OF THE SAME THAT THE TPO HAS PROCEEDED TO DETERMINE THE PLI AT THE ENTIT Y LEVEL AND NOT ON THE BASIS OF SEGMENTAL DATA. 25. IN THE ORDER OF THE TPO, OPERATING MARGIN WAS COMPUTED FOR THIS COMPANY AT 60.23%. IT IS THE COMPLAINT OF THE ASSE SSEE THAT THE OPERATING MARGINS HAVE BEEN COMPUTED AT ENTITY LEVE L COMBINING SOFTWARE SERVICES AND SOFTWARE PRODUCT SEGMENTS. I T WAS SUBMITTED THAT THE PRODUCT SEGMENT OF MEGASOFT IS SUBSTANTIAL LY DIFFERENT FROM ITS SOFTWARE SERVICE SEGMENT. THE PRODUCT SEGMENT HAS E MPLOYEE COST OF 27.65% WHEREAS THE SOFTWARE SERVICE SEGMENT HAS EMP LOYEE COST OF 50%. SIMILARLY, THE PROFIT MARGIN ON COST IN PRODU CT SEGMENT IS 117.95% AND IN CASE OF SOFTWARE SERVICE SEGMENT IT IS 23.11%. BOTH THE SEGMENTS ARE SUBSTANTIALLY DIFFERENT AND THEREF ORE COMPARISON AT ENTITY LEVEL IS WITHOUT BASIS AND WOULD VITIATE THE COMPARABILITY (SUBMISSIONS ON PAGE 381 TO 383 OF THE PB-I). IT W AS FURTHER SUBMITTED THAT MEGASOFT LIMITED HAS PROVIDED SEGMEN TAL BREAK-UP BETWEEN THE SOFTWARE SERVICES SEGMENT AND SOFTWARE PRODUCT SEGMENT (PAGE 68 OF PB-II), WHICH WAS ALSO ADOPTED BY THE T PO IN HIS SHOW IT(TP)A.1006/BANG/2011 PAGE - 37 CAUSE NOTICE (PAGE 84 OF PB-I). THE SEGMENTAL RESU LTS I.E., RESULTS PERTAINING TO SOFTWARE SERVICES SEGMENT OF THIS COM PANY WAS: SEGMENTAL OPERATING REVENUES RS.63,71,32,544 SEGMENTAL OPERATING EXPENSES RS.51,75,13,211 OPERATING PROFIT RS.11,96,19,333 OP/TC (PLI) 23.11% 26. IT WAS REITERATED THAT IN THE GIVEN CIRCUMSTAN CES ONLY PLI OF SOFTWARE SERVICE SEGMENT VIZ., 23.11% OUGHT TO HAVE BEEN SELECTED FOR COMPARISON. 27. IT WAS FURTHER SUBMITTED THAT THE LEARNED TPO IN CASE OF OTHER COMPARABLE, SIMILARLY PLACED, HAD ADOPTED THE MARGI NS OF ONLY THE SOFTWARE SERVICE SEGMENT FOR COMPARABILITY PURPOSES . CONSISTENT WITH SUCH STAND, IT WAS SUBMITTED THAT THE MARGINS OF TH E SOFTWARE SEGMENT ONLY SHOULD BE ADOPTED IN THE CASE OF MEGASOFT ALSO , IN CONTRAST TO THE ENTITY LEVEL MARGINS. 28. COMPUTATION OF THE NET MARGIN FOR MEGA SOFT LT D. IS THEREFORE REMITTED TO THE FILE OF THE TPO TO COMPUTE THE CORR ECT MARGIN BY FOLLOWING THE DIRECTION OF THE TRIBUNAL IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT.LTD. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO COMPUTE THE CORRECT MARGIN OF MEGA SOFT LTD., AS DIRECTED BY THE TRIBUNAL IN THE CASE OF FI RST ADVANTAGE OFFSHORE SERVICES PVT.LTD. (SUPRA). IN LINE WITH THE ABOVE, WE HOLD THAT MEGASOFT LTD ( SEG), CAN BE CONSIDERED AS A GOOD COMPARABLE AFTER PROPER SEGMENTATION IS D ONE AS DIRECTED IN THE ABOVE ORDER. 16. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT EXCL USION OF ACCEL TRANSMATICS LTD (SEG), AVANI CIMCON TECHNOLOGIES LT D, CELESTIAL LABS IT(TP)A.1006/BANG/2011 PAGE - 38 LTD, E-ZEST SOLUTIONS LTD, FLEXTRONICS SOFTWARE SYS TEMS LTD (SEG), HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, INFOSYS TECH NOLOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS LTD(SEG), L UCID SOFTWARE LTD, PERSISTENT SYSTEMS LTD, TATA ELXSI LTD (SEG), THIRD WARE SOLUTIONS LTD AND WIPRO LTD (SEG) FROM THE LIST OF CMPARABLES CONSIDE RED BY THE TPO. WE ALSO DIRECT THAT MEGASOFT LTD, SHALL BE CONSIDERED AS A COMPARABLE ONLY AFTER EFFECTING PROPER SEGMENTATION OF ITS RESULTS AS MENTIONED AT PARA 15 ABOVE. TPO/AO IS DIRECTED TO REWORK THE ALP OF INTE RNATIONAL TRANSACTIONS OF THE ASSESSEE ACCORDINGLY. NEEDLESS TO SAY THAT W ORKING CAPITAL ADJUSTMENT HAS TO BE GIVEN TO THE ASSESSEE BASED ON THE WORK- OUT OF SUCH WORKING CAPITAL, RELATING TO THE FINAL SET OF COMPA RABLES LEFT IN THE LIST. 17. IN THE RESULT GROUNDS 3 TO 5 AND ADDITIONAL GRO UND RAISED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. 18. VIDE ITS GROUND.6, GRIEVANCE OF THE ASSESSEE IS THAT ITS CLAIM FOR DEDUCTION U/S.80JJAA OF THE ACT, WAS NOT ALLOWED BY THE LOWER AUTHORITIES. 19. FACTS APROPOS ARE THAT ASSESSEE HAD CLAIMED DED UCTION OF RS.9,26,66,731/- U/S.80JJAA OF THE ACT. CLAIM WAS SUPPORTED WITH AUDIT REPORT IN FORM 10DA. AS PER ASSESSEE, SOFTWARE ENG INEERS EMPLOYED BY THEM WERE WORKMEN UNDER INDUSTRIAL DISPUTES ACT, 19 47. CLAIM WAS IN IT(TP)A.1006/BANG/2011 PAGE - 39 RESPECT OF ADDITIONAL WAGES PAID TO 976 NEW WORKMAN . TOTAL WAGES PAID TO SUCH NEW WORKMAN CAME TO RS.30,88,89,102/- AND AT 3 0% THEREOF, THE AMOUNT WORKED OUT TO RS.9,26,66,731/-. UNITWISE DE TAILS OF THE CLAIM WERE AS UNDER : 20. IT IS TO BE NOTED THAT ASSESSEE WAS CLAIMING EX EMPTION U/S.10A ON UNIT-2, UNIT-3 AND UNIT-4 WHICH WERE SITUATED IN BE NGALURU, GURGAON AND CHANDIGARH RESPECTIVELY. AS PER AO, ASSESSEE WAS N OT ELIGIBLE FOR SUCH DEDUCTION IN VIEW OF SECTION 80A(4). AS PER THE A O ASSESSEE WAS HIT BY THE LIMITATION MENTIONED IN SECTION 80A(4) . HE RE JECTED THE CLAIM OF EXEMPTION OF RS.9,26,66,731/-. WHEN A PROPOSAL ON THE ABOVE LINES WAS GIVEN, ASSESSEE CHOSE TO MOVE THE DRP. IT(TP)A.1006/BANG/2011 PAGE - 40 21. OBJECTIONS OF THE ASSESSEE BEFORE THE DRP WAS T HAT THERE WAS NO SCOPE FOR INVOKING SUB-SECTION 4 OF SECTION 80A. AS PER THE ASSESSEE, THE SAID SUB-SECTION RESTRICTED ONLY A CLAIM WHICH WAS LINKED TO PROFIT. AS PER THE ASSESSEE, DEDUCTION U/S.80JJAA WAS NOT LINKED T O PROFIT. IN ANY CASE, AS PER THE ASSESSEE, ADDITIONAL WAGES PAID BY IT DURI NG THE YEAR CONSISTED OF A SUM OF RS.11,93,45,597/- TO 383 NEW REGULAR WORKMA N EMPLOYED IN UNIT-1 WHICH WAS NOT CLAIMING DEDUCTION U/S.10A OF THE ACT . THUS AS PER THE ASSESSEE, PRORATA DEDUCTION U/S.80JJA ON THE ABOVE AMOUNT WAS UNJUSTLY REJECTED. ARGUMENT OF THE ASSESSEE BEFORE THE DRP WAS THAT THE CONDITIONS REQUIRED TO BE FULFILLED U/S.80JJA OF THE ACT, WERE MET BY IT. RELYING ON THE COORDINATE BENCH DECISION IN THE CASE OF ACIT V. TE XAS INSTRUMENTS (INDIA) P. LTD, [115 TTJ 976], LD. AR SUBMITTED THAT COMPUT ER ENGINEERS WHO WERE NOT IN SUPERVISORY POSITION WERE ELIGIBLE TO B E CONSIDERED AS WORKMEN. HOWEVER, DRP WAS NOT IMPRESSED. ACCORDIN G TO THE DRP, DECISION IN THE CASE OF TEXAS INSTRUMENTS (SUPRA) W AS APPEALED BY THE REVENUE BEFORE THE JURISDICTIONAL HIGH COURT AND TH E ISSUE HAD NOT REACHED A FINALITY. ASSESSMENT WAS COMPLETED DISALLOWING THE CLAIM OF DEDUCTION U/S.80JJA OF THE ACT. IT(TP)A.1006/BANG/2011 PAGE - 41 22. NOW BEFORE US, STRONGLY ASSAILING THE ORDERS OF AUTHORITIES BELOW, LD. AR SUBMITTED THAT THE COORDINATE BENCH OF THIS TRIB UNAL IN THE CASE OF ACIT V. INSTRUMENTS INDIA P. LTD [115 TTJ976], HAD CLEARLY HELD THAT NEWLY EMPLOYED SOFTWARE ENGINEERS COULD BE CONSIDER ED AS WORKMEN BY VIRTUE OF NOTIFICATION OF KARNATAKA GOVERNMENT. RE LIANCE WAS ALSO PLACED ON ANOTHER COORDINATE BENCH DECISION IN THE CASE OF DCIT V. TEXAS INSTRUMENTS INDIA P. LTD [ITA NO.1358/BANG/2010, DT .29.09.2012]. ACCORDING TO HIM, IT WAS UNJUST TO DENY THE DEDUCTI ON FOR ADDITIONAL WAGES CONSIDERING THE ENGINEERS EMPLOYED BY ASSESSEE TO B E WORKING IN SUPERVISORY CADRE. 23. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF AUTH ORITIES BELOW. 24. WE HAVE PERUSED THE ORDERS AND CONSIDERED THE R IVAL CONTENTIONS. THE CLAIM OF ASSESSEE WITH REGARD TO ADDITIONAL WAG ES PAID TO NEW WORKMAN WAS DENIED FOR A REASON THAT ENGINEERS WHO WERE NEWLY EMPLOYED BY THE ASSESSEE WERE NOT CONSIDERED AS WORKERS BY T HE LOWER AUTHORITIES. HOWEVER, IN A SIMILAR SITUATION IN THE CASE OF TEXA S INSTRUMENTS INDIA P. LTD, (SUPRA), IT WAS HELD BY THE COORDINATE BENCH A T PARA 6 AND 7 OF ITS ORDER, AS UNDER : IT(TP)A.1006/BANG/2011 PAGE - 42 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE RECORDS. CONSIDERING THE FACTUAL POSITION AFTER REF ERRING TO THE VARIOUS DOCUMENTS FILED BY THE ASSESSEE, THE LEARNED CIT(A) HELD AS UNDER : 'ACCORDING TO THE AO IF AN EMPLOYEE OR WORKMAN IS G ETTING A SALARY OF MORE THAN RS. 1,600 PER MONTH HE IS NOT COVERED BY THE DEFINITION OF WORKMAN. HOWEVER AS PER CL. (IV) OF S. 2(S) OF THE INDUSTRIAL. DISPUTES ACT A WORKER, EMPLOYED IN SUPERVISORY CAPACITY AND GETTING A SALARY OF MORE THAN RS. 1,600 PER MONTH ONLY BE EXCLUDED F ROM THE DEFINITION OF WORKMAN. IN APPELLANT'S CASE THE SOFTWARE ENGINE ERS IN RESPECT OF WHOM DEDUCTION UNDER S. 80JJAA HAS BEEN CLAIMED HAV E NOT BEEN EMPLOYED IN A SUPERVISORY CAPACITY EVEN THOUGH THEY MAY BE GETTING A SALARY OF MORE THAN RS. 1,600 PER MONTH. AS THE SOF TWARE ENGINEERS WERE NOT EMPLOYED IN SUPERVISORY CAPACITY THEY CANN OT BE EXCLUDED FROM THE DEFINITION OF WORKMAN. FURTHER AS PER THE NOTIFICATION OF THE KARNATAKA GOVERNMENT, THE APPELLANT COMPANY ENGAGED IN THE DEVELOPMENT OF SOFTWARE IS COVERED BY THE INDUSTRIA L DISPUTES ACT. AS SUCH, I AM OF THE CONSIDERED OPINION THAT THE APPEL LANT HAS SATISFIED ALL THE CONDITIONS FOR CLAIMING RELIEF UNDER S. 80J JAA. HOWEVER, I FIND THAT THE APPELLANT HAS CLAIMED DEDUCTION OF RS. 2,5 5,81,220 WITH REFERENCE TO THE ADDITIONAL WAGES OF RS. 8,52,70,73 6 WHICH INCLUDED THE WAGES OF RS. 4,87,64,029 IN RESPECT OF THE NEW WORKMEN EMPLOYED DURING THE YEAR ENDED 31ST MARCH, 2000 RELEVANT TO THE ASST. YR. 2000- 01. AS THERE WAS NO CLAIM FOR RELIEF UNDER S. 80JJA A FOR THE ASST. YR. 2000-01, THE RELIEF IN RESPECT OF THE WORKERS EMPLO YED IN ASST. YR. 2000-01 CANNOT BE CONSIDERED FOR RELIEF UNDER S. 80 JJAA IN THE ASST. YR. 2001-02. AS SUCH THE APPELLANT WILL BE ENTITLED FOR RELIEF UNDER S. 80JJAA OF RS. 1,09,52,012 BEING 30 PER CENT OF THE ADDITIONAL WAGES OF RS. 3,65,06,707 (RS. 8,52,70,736 RS. 4,87,64,029 ) IN RESPECT OF THE NEW WORKMEN EMPLOYED DURING THE PREVIOUS YEAR RELEV ANT TO THE ASST. YR. 2001-02. SIMILARLY, FOR ASST. YR. 2002-03 THE A PPELLANT HAS CLAIMED DEDUCTION OF RS. 4,78,05,176 BEING 30 PER CENT OF T HE WAGES OF RS. 1,59,30,588 WHICH ALSO INCLUDED THE WAGES OF RS. 4, 38,68,182 PERTAINING TO THE NEW WORKERS EMPLOYED IN THE PREVI OUS YEAR 1999- 2000. FOR THE REASONS MENTIONED ABOVE THE APPELLANT IS NOT ENTITLED FOR RELIEF UNDER S. 80JJAA IN RESPECT OF THE WAGES PERTAINING TO THE WORKERS EMPLOYED IN THE PREVIOUS YEAR 1999-2000. AS SUCH THE APPELLANT WOULD BE ELIGIBLE FOR RELIEF OF RS. 3,46, 44,722 BEING 30 PER CENT OF THE ADDITIONAL WAGES OF RS. 11,54,82,406 (R S. 15,93,50,588 RS. IT(TP)A.1006/BANG/2011 PAGE - 43 4,38,68,182) IN RESPECT OF THE WORKMEN EMPLOYED IN PREVIOUS YEARS 2000-01 AND 2001-02. THE LEARNED AUTHORISED REPRESE NTATIVES OF THE APPELLANT VIDE ORDER-SHEET NOTING DT. 24TH AUG., 20 04 AGREED THAT THE RELIEF UNDER S. 80JJAA IN RESPECT OF THE EMPLOYEES WHO JOINED IN THE PREVIOUS YEAR RELEVANT TO THE ASST. YR. 2001-02 ONW ARDS ONLY MAY BE CONSIDERED AND IN RESPECT OF THE EMPLOYEES WHO JOIN ED IN EARLIER YEARS THE APPELLANT IS NOT PRESSING FOR RELIEF UNDER S. 8 0JJAA. IN THE CIRCUMSTANCES, THE AO IS DIRECTED TO ALLOW THE RELI EF UNDER S. 80JJAA OF RS. 1,09,52,012 AND RS. 3,46,44,722 FOR ASST. YR S. 2001-02 AND 2002-03 RESPECTIVELY.' 7. AS STATED EARLIER THE ASSESSEE HAD FILED THE DET AILS OF THE SOFTWARE ENGINEERS EMPLOYED DURING THE YEARS UNDER CONSIDERA TION CONTAINING THE NAMES OF THE EMPLOYEES, DESIGNATION AND DATE OF JOINING. FURTHER, IN THE SAME LIST THE DETAILS OF TOTAL NUMBER OF EMP LOYEES JOINED DURING BOTH THE ASSESSMENT YEARS, NUMBER OF EMPLOYEES WITH OUT SUPERVISORY ROLES, WORKMEN JOINED, NUMBER OF SUPERVISORS JOINED AND WORKMEN JOINED AND RELIEVED DURING THE YEARS UNDER CONSIDER ATION. A CURSORY PERUSAL OF THIS LIST SHOWS THAT THE ASSESSEE HAD CL AIMED DEDUCTION IN RESPECT OF EMPLOYEES, WHO HAD JOINED AS ENGINEERS I N THEIR RESPECTIVE FIELD SUCH AS SYSTEMS ENGINEER, TEST ENGINEER, SOFT WARE DESIGN ENGINEER, IC DESIGN ENGINEER, LEAD ENGINEER ETC. A CURSORY PERUSAL OF THOSE LISTS ESTABLISHES THAT THE ASSESSEE HAD CLAIM ED DEDUCTION IN RESPECT OF THE ENGINEERS EMPLOYED NOT IN THE CATEGO RY OF SUPERVISORY CONTROL. ALL THESE DETAILS WERE FILED BEFORE THE AO DURING ASSESSMENT PROCEEDINGS. THESE FACTS WERE NOT PROPERLY CONSIDER ED BY THE AO. FURTHER, FROM THE ORDER OF THE CIT(A), IT IS SEEN T HAT HE HAD TAKEN NOTE OF THE NOTIFICATION ISSUED BY THE GOVERNMENT OF KAR NATAKA AND CONCLUDED THAT AS PER THE NOTIFICATION ISSUED, THE ASSESSEE COMPANY ENGAGED IN THE DEVELOPMENT OF SOFTWARE IS COVERED B Y THE INDUSTRIAL DISPUTES ACT, 1947. FURTHER IT IS NOT THE CASE OF T HE REVENUE THAT THE ASSESSEE DID NOT FULFIL THE CONDITIONS EXTRACTED EL SEWHERE IN THIS ORDER. CONSIDERING ALL THOSE FACTUAL MATTERS WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF CIT(A) ACCORDING RELIEF TO THE ASSESSE E. IN FACT HE HAD CLARIFIED THE RELEVANT PORTIONS RELATED TO INDUSTRI AL DISPUTES ACT, 1947 AND IT ACT WHILE GRANTING RELIEF TO THE ASSSESSEE W HICH ARE EXTRACTED AT PP. 5 AND 6 OF THIS ORDER. AFTER CAREFULLY CONSI DERING THE SAME, WE ARE INCLINED TO ACCEPT THE REASONS SHOWN BY THE LEA RNED CIT(A). THE LEARNED CIT-DEPARTMENTAL REPRESENTATIVE COULD NOT A SSAIL THE FINDING IT(TP)A.1006/BANG/2011 PAGE - 44 REACHED BY THE LEARNED CIT(A) BY BRINGING IN ANY VA LID MATERIALS. THE ORDER OF THE CIT(A) IS CONFIRMED. IT IS ORDERED ACC ORDINGLY. THERE IS NO CASE FOR THE REVENUE THAT ASSESSEE HAD FAILED TO FILE DETAILS OF SOFTWARE ENGINEERS EMPLOYED BY IT. IN OUR OPINION SOFTWARE ENGINEERS NEWLY EMPLOYED BY IT FELL WITHIN THE MEANING OF THE WORD WORKMEN. 25. HOWEVER COMING TO THE SECOND LIMB OF THE REASON ING GIVEN BY THE LOWER AUTHORITIES, WHICH IS SECTION 80A(4), THE SAI D SECTION IS REPRODUCED HEREUNDER : 26. A READING OF THE ABOVE SECTION WOULD SHOW THAT ONCE AN ASSESSEES CLAIM IS ALLOWED UNDER SECTION 10A, 10AA, 10B OR 10 BA, THEN TO THE EXTENT SUCH DEDUCTION HAS BEEN ALLOWED, NO OTHER DE DUCTION COULD BE ALLOWED UNDER ANY OTHER PROVISION OF THE ACT. ASSE SSEE HAD CLAIMED DEDUCTION OF ITS INCOME U/S.10A OF THE ACT IN RESPE CT OF ITS UNITS 2, 3 AND 4. IT(TP)A.1006/BANG/2011 PAGE - 45 AS PER THE ASSESSEE EVEN IF DEDUCTION UNDER SECTION 10A OF THE ACT IS ALLOWED FOR THESE UNITS, A FURTHER DEDUCTION U/S.80 JJA OF THE ACT, IS ALSO ALLOWABLE. ARGUMENT OF THE ASSESSEES COUNSEL IS T HAT THE LIMITATION PUT IN BY SECTION 80A(4) OF THE ACT, WOULD APPLY ONLY TO P ROFIT LINKED DEDUCTIONS. THERE CAN BE NO DISPUTE THAT DEDUCTION UNDER SECTIO N 10A OF THE ACT, IS PROFIT LINKED. IN SO FAR AS DEDUCTION U/S.80JJA IS CONCERNED, A LOOK AT SUB- SECTION (1) OF THE SAID SECTION IS REQUIRED, WHICH IS REPRODUCED BELOW : 80JJAA(1) : WHERE THE GROSS TOTAL INCOME OF AN ASS ESSEE, BEING AN INDIAN COMPANY, INCLUDES ANY PROFITS AND GAINS D ERIVED FROM ANY INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTU RE OF PRODUCTION OF ARTICLE OR THING, THERE SHALL, SUBJEC T TO THE CONDITIONS SPECIFIED IN SUB-SECTION (2)M BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO THIRTY PER CENT OF ADDITIONAL WAGES PAID TO THE NEW REGULAR WORKMEN EMPLOYED BY THE ASSESSEE IN THE PREVIOUS YEAR FOR THREE ASSESSMENT YEARS INCLUDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH SUCH EMPLOYMENT IS PROVIDED. 27. A READING OF THE ABOVE SUB-SECTION WOULD CLEARL Y SHOW THAT THE DEDUCTION IS GIVEN ON PROFITS AND GAINS DERIVED FRO M INDUSTRIAL UNDERTAKING ENGAGED IN MANUFACTURE OF PRODUCTION OF ARTICLE OR THING. IT IS ONLY FOR QUANTIFICATION OF THE AMOUNT THAT 30% IS APPLIED. IN OUR OPINION THE DEDUCTION IS VERY MUCH LINKED TO THE PROFITS OF THE UNDERTAKING. WE ARE THEREFORE UNABLE TO ACCEPT THIS LINE OF ARGUMENT TA KEN BY THE COUNSEL. IN THE RESULT, WE HOLD THAT ASSESSEE IS NOT ELIGIBLE F OR DEDUCTION U/S.80JJAA OF IT(TP)A.1006/BANG/2011 PAGE - 46 THE ACT, IN RESPECT OF ITS UNITS 2 , 3 AND 4. HOWE VER, DENIAL OF SUCH CLAIM IN RESPECT OF UNIT-1, WHERE IT WAS NOT CLAIMING ANY DE DUCTION, IN OUR OPINION IS INCORRECT. WE, THEREFORE SET ASIDE THE ORDERS OF A UTHORITIES BELOW FOR THE LIMITED PURPOSE OF QUANTIFYING THE ELIGIBLE DEDUCTI ON U/S.80JJA IN RESPECT OF UNIT-1. IN THE RESULT, GROUND NO.6 IS TREATED A S PARTLY ALLOWED FOR STATISTICAL PURPOSE. 28. VIDE ITS GROUND 7 GRIEVANCE RAISED BY THE ASSES SEE IS INTEREST OF RS.597,06,982/- WHICH RELATED TO ITS NON 10A UNIT W AS ALLOCATED TO OTHER SOFTWARE UNITS, THEREBY DEPRESSING ITS CLAIM OF EXE MPT INCOME FROM 10A UNITS AND PRORATA INCREASING THE INCOME OF THE NON- 10A UNIT. 29. FACTS APROPOS ARE THAT ASSESSEE HAD CLAIMED DED UCTION UNDER SECTION 10A OF THE ACT, IN RESPECT OF ITS SALARPURIA, GURGA ON AND CHANDIGARH UNITS. THE CLAIMS WERE FOR RS.12,96,59,506/-, RS.2,93,22,8 92/- AND RS.8,39,936/- RESPECTIVELY. PROFITS OF THESE UNITS AGAINST WHICH THE ABOVE DEDUCTIONS WERE CLAIMED AS UNDER : BANGALORE SALARPURIA UNIT RS.13,05,55,108 GURGAON UNIT RS. 3,19,13,546 CHANDIGARH UNIT RS. 8,39,906 IT(TP)A.1006/BANG/2011 PAGE - 47 30. AO NOTED THAT ASSESSEE HAD CHARGED INTEREST OF RS.18,14,023/- ON THE ABOVE THREE UNITS WHEREAS ON UNIT-1, WHERE THERE WA S NO CLAIM U/S.10A OF THE ACT, THERE WAS A CHARGE OF INTEREST OF RS.5,97, 06,982/-. ASSESSEE WAS QUERIED AS TO WHY SUCH HUGE INTEREST WAS CHARGED TO THE NON-10A UNIT, REPLY OF THE ASSESSEE WAS THAT THERE WAS AN UNSECUR ED LOAN OF RS.69 CRORES WHICH WAS TAKEN DURING THE RELEVANT YEAR AND USED F OR ROLLING OVER A LOAN EARLIER TAKEN FOR CAMPUS CONSTRUCTION WHICH HOUSED UNIT-1. AS PER THE ASSESSEE LOAN WAS UTILISED IN UNIT-1 WHICH WAS A 10 A UNIT. THEREFORE, INTEREST ON SUCH LOAN WAS CHARGED TO THE SAID UNIT- 1. 31. HOWEVER, AO VERIFIED AND FOUND THAT ASSESSES U NIT-1 WAS SITUATED AT 138, EPIP, WHITEFIELD IN A LAND OF MORE THAN 20 ACR ES WHICH HOUSED THE CORPORATE OFFICE AS WELL. UNIT-2 WHICH WAS CLAIMI NG DEDUCTION U/S.10A OF THE ACT, WAS ALSO SITUATED IN WHITEFIELD. TURNOVER OF UNIT-1 AND UNIT-2 CAME TO RS.260 CRORES AND RS.221 CRORES RESPECTIVEL Y, WHEREAS FOR THE OTHER TWO UNITS, IT WAS ONLY RS.40 CRORES. AO ALSO NOTED THAT THE BUILDING WAS CONSTRUCTED AT A COST OF RS.56.8 CRORES WHICH W AS LOWER THAN THE BORROWED FUND. AS PER THE AO ASSESSEE ITSELF HAD A DMITTED THAT PART OF THE FUNDS WERE UTILISED FOR WORKING CAPITAL AS WELL AS OTHER BUSINESS NEEDS. AO ALSO NOTED THAT FUNDS ACQUIRED FOR PURCHASE OF PLAN T AND MACHINERY COULD IT(TP)A.1006/BANG/2011 PAGE - 48 NOT BE BIFURCATED BETWEEN UNIT-1 AND UNIT-2. AS P ER THE AO, COMMON FACILITIES WERE ALSO HOUSED IN THE CORPORATE OFFICE . THUS ACCORDING TO HIM, APPORTIONMENT OF INTEREST OF RS.5,97,06,922/- ENTIR ELY TO UNIT-1 WAS INCORRECT. HE THEREFORE REALLOCATED SUCH INTEREST IN THE PROPORTION OF THE TURNOVER OF UNIT-1 AND UNIT-2. RESULT WAS THAT FRO M THE PROFIT OF UNIT-2, WHERE ASSESSEE WAS CLAIMING DEDUCTION 10A OF THE AC T, WENT DOWN BY RS.2,74,32,938/- WHEREAS PROFIT OF UNIT-1 ON WHICH ASSESSEE WAS NOT CLAIMING ANY DEDUCTION WENT UP BY A CORRESPONDING A MOUNT. DEDUCTION U/S.10A OF THE ACT WAS RECOMPUTED BASED ON THE ABOV E FIGURES. 30. WHEN A PROPOSAL ON THE ABOVE LINE WAS PUT BEFOR E THE ASSESSEE, IT CHOSE TO MOVE THE DRP. ARGUMENT OF THE ASSESSEE BE FORE THE DRP WAS THAT IT HAD RAISED THE LOAN FACILITY OF RS.69 CRORE S ON 31.07.2006 AND THIS LOAN WAS ENTIRELY UTILISED FOR ROLLING OVER AN EARL IER LOAN TAKEN FOR CONSTRUCTION OF THE CAMPUS WHERE UNIT-1 WAS FUNCTIO NING. ACCORDING TO THE ASSESSEE, REALLOCATION MADE BY THE AO WAS NOT JUSTI FIED. ASSESSEE ALSO ARGUED THAT ITS UNIT-2 AT WHITEFIELD HAD COMMENCED PRODUCTION ONLY IN APRIL 1 ST , 2005. THEREFORE, AS PER THE ASSESSEE IT COULD NO T BE STATED THAT THE CAMPUS CONSTRUCTION WAS INTENDED FOR THE SAID UNIT. HOWEVER THE DRP WAS NOT IMPRESSED. DRP HELD THAT AO WAS JUSTIFIED IN R EALLOCATING THE COST. IT(TP)A.1006/BANG/2011 PAGE - 49 33. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE OR DERS OF AUTHORITIES BELOW SUBMITTED THAT THE LOAN WAS NOT AT ALL UTILIS ED FOR UNIT-2. ACCORDING TO HIM, IT WAS DEMONSTRATED THAT LOAN OF RS.66 CRORES WAS UTILISED FOR ROLLING OVER THE EARLIER LOAN TAKEN FOR THE PURPOSE OF FINANCING THE CAMPUS CONSTRUCTION WHERE UNIT-1 WAS HOUSED. ACCORDING TO THE LD. AR, ACCOUNTS OF EACH UNIT WERE SEPARATELY KEPT. HENCE THE REALLOCATION ATTEMPTED WAS INCORRECT AND UNJUSTIFIED. 34. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF LOWE R AUTHORITIES. 35. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. CLAIM OF THE ASSESSEE IS THAT UNIT-2 STARTED PRODUCTION ONL Y IN APRIL, 2005 AND THE UNIT-1 AND UNIT-2 WERE HOUSED SEPARATELY. AS PER THE ASSE SSEE UNIT-2 WAS NOT UTILISING THE CAMPUS FACILITY, WHERE UNIT-1 WAS SITUATED. WE FIND THAT BOTH UNIT-1 AND UNIT-2 WERE SITUATED IN WHITEFIELD, BANGALORE. IT MIGHT BE TRUE THAT THE LOANS WERE EARLIER TAKEN FOR THE PURPOSE OF CONSTRUCTION OF UNIT-1. HOWEVER, IT IS AN ADMITTED POSITION THAT UNIT-1 AND CORPORATE OFFICE OF THE ASSESSEE WERE SITUATED IN THE VERY SAME CAMPUS. ASSESSEE COULD NOT PRODUC E ANY RECORDS TO SHOW THAT UNIT-2 WAS TOTALLY INDEPENDENT AND WAS NOT AT ALL FUNCTIONING OR UTILISING THE CAMPUS FACILITY AT 138, EPIP, WH ITFIELD, BENGALURU. JUST BECAUSE THE LOAN WAS TAKEN FOR ROLLING OVER AN EAR LIER LOAN WOULD NOT MEAN IT(TP)A.1006/BANG/2011 PAGE - 50 THAT INTEREST INCURRED IN RELATION TO SUCH LOAN CAN NOT BE ALLOCATED TO UNIT-2 WHICH WAS ALSO FUNCTIONING FROM THE VERY SAME AREA AND UTILISING THE SERVICES GIVEN BY THE HEAD OFFICE, WHICH WAS FUNCTI ONING FROM THE BUILDING CONSTRUCTED UTILISING THE LOAN. IN OUR OPINION, AO WAS JUSTIFIED IN MAKING REALLOCATION OF THE INTEREST IN BETWEEN UNIT-1 AND UNIT-2. EVIDENCE PRODUCED BY THE ASSESSEE, WHICH IS IN THE NATURE OF RESOLUTION PASSED BY ITS BOARD OF DIRECTORS AND LETTER TO THE CONCERNED BANK DOES NOT IN ANY WAY SHOW THAT THE LOANS WERE UTILISED ONLY FOR CONSTRUC TION OF CAMPUS AND THE CAMPUS NEVER CATERED TO UNIT-2. IN ANY CASE, ASSES SEE ITSELF HAD MENTIONED THAT A PART OF THE LOAN WAS UNSED FOR FINANCING THE WORKING CAPITAL AND BUSINESS NEEDS. IN SUCH A SITUATION, WE DO NOT FIN D ANY REASON TO INTERFERE WITH THE ORDERS OF LOWER AUTHORITIES IN THIS REGARD . GROUND 7 IS DISMISSED. 36. VIDE ITS GROUNDS 8 AND 9 ASSESSEE IS AGGRIEVED ON DEDUCTION OF ITS TRAVELLING EXPENDITURE, SUPPORT EXPENSES, TELECOMMU NICATION EXPENDITURE AND OTHER EXPENDITURE OF RS.126,238,582/-, RS.27,71 ,10,751/-, 27,04,556/-, RS.29,000,627/- FROM EXPORT TURNOVER WHILE COMPUTIN G THE DEDUCTION AVAILABLE TO IT U/S.10A OF THE ACT. ALTERNATIVE PL EADING TAKEN BY THE ASSESSEE IS THAT IF THESE AMOUNTS ARE DEDUCTED FROM EXPORT TURNOVER, IT NEEDS IT(TP)A.1006/BANG/2011 PAGE - 51 TO BE REDUCED FROM THE TOTAL TURNOVER ALSO WHILE CO MPUTING THE DEDUCTION U/S.10A OF THE ACT. 37. WE HAVE HEARD THE RIVAL CONTENTIONS ON THE ABOV E TWO GROUNDS. AS REGARDS PLEADING OF THE ASSESSEE THAT THE ABOVE EXP ENDITURES OUGHT NOT BE DEDUCTED FROM THE EXPORT TURNOVER, WE ARE UNABLE TO ACCEDE. THIS IS BECAUSE THE DEFINITION OF THE TERM EXPORT TURNOVE R IN EXPLANATION (IV) TO SECTION 10A OF THE ACT, DOES NOT GIVE ROOM FOR SUCH AN INTERPRETATION AS SOUGHT BY THE ASSESSEE. HOWEVER, IN SO FAR AS ITS ALTERNATE GROUND THAT ITEMS WHICH ARE DEDUCTED FROM EXPORT TURNOVER HAVE TO BE REDUCED FROM TOTAL TURNOVER ALSO WHILE COMPUTING DEDUCTION U/S.1 0A OF THE ACT, WE ARE INCLINED TO ACCEPT, IN VIEW OF THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD V. CIT [349 ITR 98]. ACCORDINGLY, WE DIRECT THE AO TO REWORK THE DEDUCTION U/S.10A OF TH E ACT, AFTER REDUCING THE AMOUNTS WHICH ARE DEDUCTED FROM EXPORT TURNOVER FROM TOTAL TURNOVER ALSO. GROUND.8 OF THE ASSESSEE IS DISMISSED WHEREA S GROUND 9 IS ALLOWED. 38. VIDE ITS GROUND 10, GRIEVANCE RAISED BY THE ASS ESSEE IS THAT IT WAS NOT ALLOWED DEDUCTION OF RS.8,39,905/- U/S.10A OF THE A CT, IN RESPECT OF ITS BUSINESS UNDERTAKING LOCATED IN CHANDIGARH, REGISTE RED WITH STP AUTHORITIES. IT(TP)A.1006/BANG/2011 PAGE - 52 39. FACTS APROPOS ARE THAT THE CHANDIGARH UNIT IN W HICH ASSESSEE WAS CLAIMING DEDUCTION U/S.10A OF THE ACT WAS PURCHASED ON A SLUMP SALE BASIS FROM A COMPANY CALLED M/S. VIRSA SYSTEMS P. LTD (IN SHORT VIRSA). AS PER THE ASSESSEE DEDUCTION U/S.10A WAS SPECIFIC TO THE UNDERTAKING. JUST BECAUSE THE UNDERTAKING CAME UNDER A NEW OWNERSHIP, THE DEDUCTION CPI;D NOT BE DENIED. HOWEVER, THE AO WAS NOT IMPRESSED. ACCORDING TO HIM, ONE OF THE CONDITIONS FOR GIVING DEDUCTION U/S.10A WAS THAT THE UNDERTAKING ON WHICH SUCH DEDUCTION WAS CLAIMED SHOULD NOT BE F ORMED BY TRANSFER OF PLANT AND MACHINERY PREVIOUSLY USED. AS PER THE AO , ASSESSEES UNDERTAKING IN CHANDIGARH WAS FORMED BY TRANSFER OF PLANT AND MACHINERY WHICH WERE EARLIER USED BY M/S. VIRSA. FURTHER AS PER AO THE CHANDIGARH UNIT WAS FORMED ON SLUMP SALE OF ASSETS EARLIER USE D BY ANOTHER PERSON. JUST BECAUSE THE LIABILITIES WERE ALSO TRANSFERRED, AS PER THE AO, IT COULD NOT BE CONSIDERED THAT THE PLANT AND MACHINERY WERE NOT EARLIER USED. THUS AS PER THE AO ASSESSEES PLEA THAT CHANGE OF OWNERSHIP WOULD NOT TAKE AWAY THE BENEFIT, ATTACHED TO AN UNDERTAKING, COULD NOT BE ACCEPTED. HE DENIED THE CLAIM. WHEN A PROPOSAL ON THE ABOVE LINES WAS PUT BEFORE THE ASSESSEE, IT CHOSE TO MOVE THE DRP. IT(TP)A.1006/BANG/2011 PAGE - 53 40. CONTENTION OF THE ASSESSEE BEFORE THE DRP WAS T HAT IT WAS NOT A NEW UNDERTAKING. SAID UNDERTAKING CAME INTO THE OWNERS HIP OF THE ASSESSEE THROUGH A SLUMP SALE. AS PER THE ASSESSEE, DEDUCTI ON UNDER SECTION 10A OF THE ACT COULD NOT BE DENIED WHEN AN UNIT WHICH WAS ENJOYING THE BENEFIT OF DEDUCTION U/S.10A OF THE ACT, WAS TRANSFERRED TO A NEW OWNERSHIP THROUGH A SLUMP SALE. HOWEVER, DRP WAS NOT IMPRESSED BY THE ABOVE ARGUMENTS. AS PER THE DRP DECISION OF COORDINATE BENCH IN THE CASE OF DCIT V. LG SOFT INDIA INDIA P. LTD [ITA.623 & 847/BANG/2010, D T. 19.05.2010] WAS ON DIFFERENT SET OF FACTS AND NOT ACCEPTABLE. THEY UP HELD THE ORDER OF AO DENYING THE DEDUCTION CLAIMED U/S.10A OF THE ACT, I N RESPECT OF THE CHANDIGARH UNIT. 41. LD. AR STRONGLY ASSAILING THE ORDERS OF LOWER A UTHORITIES SUBMITTED THAT DEDUCTION U/S.10A OF THE ACT WAS UNDERTAKING S PECIFIC AND NOT OWNER SPECIFIC. ACCORDING TO HIM, CHANDIGARH UNIT CAME T O THE ASSESSEE THROUGH A SLUMP SALE WAS NOT DISPUTED BY ANY OF THE LOWER A UTHORITIES. LD. AR SUBMITTED THAT A SLUMP SALE COULD NOT BE CONSIDERED AS A RECONSTRUCTION OF BUSINESS, WHERE THERE WAS TRANSFER OF PLANT AND MAC HINERY. IN THIS REGARD RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE BOMB AY HIGH COURT IN THE IT(TP)A.1006/BANG/2011 PAGE - 54 CASE OF CIT V. SONATA SOFTWARE LTD, [343 ITR 397]. PER CONTRA LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 42. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IT IS NOT DISPUTED THAT THE CHANDIGARH UNIT CAME TO THE ASSES SEE THROUGH A SLUMP SALE. M/S. VIRSA HAD GIVEN THIS UNDERTAKING TO THE ASSESSEE AS A GOING CONCERN. THAT SUCH TRANSACTION WAS A SLUMP SALE HA S NOT BEEN DISPUTED BY ANY OF THE LOWER AUTHORITIES. IT IS ALSO NOT DISPU TED THAT THE SAID M/S. VIRSA WAS ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT AND W AS CLAIMING SUCH DEDUCTION IN THE EARLIER YEARS FOR SUCH UNIT. HON BLE BOMBAY HIGH COURT IN THE CASE OF SONATA SOFTWARE LTD, (SUPRA) IN A SI MILAR SITUATION HAD HELD AS UNDER : 8. THE ISSUE BEFORE THE COURT IS WHETHER THE TWO RE QUIREMENTS, CAST IN NEGATIVE TERMS, HAVE BEEN FULFILLED. CLAUSE (II) OF SUB-SECTION (1) OF SECTION 10A STIPULATES THAT THE INDUSTRIAL UNDER TAKING MUST NOT BE FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSIN ESS ALREADY IN EXISTENCE. IN OTHER WORDS, THE TEST IN LAW IS AS TO WHETHER THE UNDERTAKING IS FORMED BY SPLITTING UP OR RECONSTRUC TION OF A BUSINESS ALREADY IN EXISTENCE. IN CIT V. GAEKWAR FO AM AND RUBBER CO. LTD. [1959] 35 ITR 662 (BOM) A DIVISION BENCH OF THIS COURT CONSTRUED THE PROVISIONS OF SECTION 15C OF THE INDI AN INCOME-TAX ACT, 1922, SECTION 15C(2)(I) CONTAINED A SIMILAR PR OVISION THAT THE SECTION WOULD APPLY TO AN INDUSTRIAL UNDERTAKING WH ICH IS NOT FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE OR BY THE TRANSFER TO A NEW BU SINESS OF BUILDING, MACHINERY OR PLANT USED IN A BUSINESS WHI CH WAS BEING CARRIED ON BEFORE APRIL 1, 1948. IN THAT CASE, THER E WAS A IT(TP)A.1006/BANG/2011 PAGE - 55 PARTNERSHIP FIRM AND ITS ASSETS AND GOODWILL WERE T AKEN OVER BY THE ASSESSEE FOR A STATED CONSIDERATION AND AGAINST THE ALLOTMENT OF SHARES TO THE THREE PARTNERS IN THE ASSESSEE-COMPAN Y. THE ASSESSING OFFICER HAD REJECTED THE CLAIM OF EXEMPTION UNDER S ECTION 15C ON THE GROUND THAT THE ASSESSEE WAS FORMED BY THE RECO NSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE. THE APPELLATE CO MMISSIONER TOOK A DIFFERENT VIEW WHICH WAS AFFIRMED BY THE TRIBUNAL . THE DIVISION BENCH OF THIS COURT HELD THAT THE RECONSTRUCTION OF A BUSINESS CONNOTES THAT THE ORIGINAL BUSINESS IS NOT TO CEASE FUNCTIONING AND THE UNDERTAKING MUST CONTINUE TO CARRY ON THE SAME BUSINESS IN AN ALTERED FORM. ON THE OTHER HAND, IF THE OWNERSHIP O F A BUSINESS OR AN UNDERTAKING IS TRANSFERRED THAT WOULD NOT CONSTI TUTE A RECONSTRUCTION. THE DIVISION BENCH HELD AS FOLLOWS (PAGE 669) : 'THE RECONSTRUCTION OF A BUSINESS OR AN INDUSTRIAL UNDERTAKING MUST NECESSARILY INVOLVE THE CONCEPT THAT THE ORIGINAL B USINESS OR UNDERTAKING IS NOT TO CEASE FUNCTIONING, AND ITS ID ENTITY IS NOT TO BE LOST OR ABANDONED. THE CONCEPT ESSENTIALLY RESTS ON CHANGES BUT THE CHANGES MUST BE CONSTRUCTIVE AND NOT DESTRUCTIVE. T HERE MUST BE SOMETHING POSITIVE ABOUT THE WHOLE MATTER AS OPPOSE D TO NEGATIVE. THE UNDERLYING IDEA OF A RECONSTRUCTION EVIDENTLY M UST BEAND THIS IS BROUGHT OUT BY THE SECTION ITSELFOF A 'BUSINESS ALREADY IN EXIST ENCE'. THERE MUST BE A CONTINUATION OF THE ACTIVITI ES AND BUSINESS OF THE SAME INDUSTRIAL UNDERTAKING. THE UNDERTAKING MU ST CONTINUE TO CARRY ON THE SAME BUSINESS THOUGH IN SOME ALTERED O R VARIED FORM. IF THE ALTERATIONS AND CHANGES ARE SUBSTANTIAL, THE RE WOULD BE LITTLE SCOPE FOR DESCRIBING WHAT EMERGES AS A RECONSTRUCTI ON OF THE BUSINESS. THUS, FOR INSTANCE, IF THE OWNERSHIP OF A BUSINESS OR AN UNDERTAKING CHANGES HANDS NOT OSTENSIBLY BUT IN REA LITY AND EFFECTIVELY, THAT WOULD NOT BE RECONSTRUCTION OR IF THE VERY NATURE OF THE BUSINESS IS CHANGED, THAT AGAIN WOULD NOT BE RE CONSTRUCTION. ON THE OTHER HAND, REORGANIZATION OF THE BUSINESS ON S OUNDER LINES OR ALTER ATIONS IN THE MODE OR METHOD OR SCOPE OF THE ACTIVITIES OF THE BUSINESS OR IN ITS PERSONNEL OR INFUSION OF NEW BLO OD IN THE MANAGEMENT OR CONTROL OF THE BUSINESS WHICH MAY EVE N BE BY SOME CHANGES IN THE CONSTITUTION OF PERSONS INTERESTED I N THE UNDERTAKING WOULD CERTAINLY BE NO MORE THAN RECONSTRUCTION OF T HE BUSINESS IF IT IT(TP)A.1006/BANG/2011 PAGE - 56 IS SUBSTANTIALLY THE SAME BUSINESS CARRIED ON BY SU BSTANTIALLY THE SAME PERSONS.' RECONSTRUCTION, THE DIVISION BENCH HELD, MEANS THAT SUBSTANTIALLY THE SAME BUSINESS IS CARRIED ON AND SUBSTANTIALLY T HE SAME PERSONS CARRY IT ON (PAGE 671) : 'THE EMPHASIS, IT WILL BE NOTICED, IS ON TWO THINGS WHEN SUBSTANTIALLY THE SAME BUSINESS WAS CARRIED ON AND SUBSTANTIALLY THE SAME PERSONS WERE CARRYING IT ON. IT IS ALSO TO BE NOTICED THAT THE LEARNED JUDGE DRAWS A CLEAR DISTINCTION BETWEEN A RECONSTRUCTION AND A SALE OF AN UNDERTAKING. IN THE CASE OF A SALE, THERE CAN BE NO QUES TION OF RECONSTRUCTION. NOW, I N THESE MATTERS, WE HAVE TO LOOK AT THE SUBSTANCE OF THE TRANSACTION AND NOT THE FORM. IF LOOKING AT THE SUBSTANCE OF THE TRANSACTIO N, IT IS A SALE, THEN THE CONCEPT OF RECON STRUCTION MUST BE RULED OUT FO R IN SUCH A CASE THERE IS NO SCOPE FOR SPEAKING ABOUT ANY RECONSTRUC TION OF AN EXISTING BUSINESS.' 9. THE JUDGMENT OF THE DIVISION BENCH OF THIS COURT IN GAEKWAR FOAM [1959] 35 ITR 662 (BOM) WAS APPROVED BY THE SUPREME COURT IN A JUDGMENT IN TEXTILE MACHINERY CORPORATIO N LTD. V. CIT [1977] 107 ITR 195 (SC). THE SUPREME COURT, IN THAT CASE, DEALT WITH THE ISSUE AS TO WHETHER WITHIN THE MEANING OF SECTION 15C(2)(I) OF THE INDIAN INCOME-TAX ACT, 1922, THE INDUSTRIAL UNDERTAKINGS WHICH CONSISTED OF A STEEL FOUNDRY DIVISION AND JUT E MILL DIVISION WERE NOT FORMED BY THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. THE SUPREME COURT OBSERVED THAT IN ORDER TO BE ENTITLED TO THE BENEFIT OF SECTION 15C THE FOLLOWING FACTS W OULD HAVE TO BE ESTABLISHED BY THE ASSESSEE (PAGE 206) : '(1) INVESTMENT OF SUBSTANTIAL FRESH CAPITAL IN THE INDUSTRIAL UNDER TAKING SET UP ; (2) EMPLOYMENT OF REQUISITE LABOUR THEREIN ; (3) MANUFACTURE OR PRODUCTION OF ARTICLES IN THE SA ID UNDERTAKING ; (4) EARNING OF PROFITS CLEARLY ATTRIBUTABLE TO THE SAID NEW UNDER TAKING ; AND IT(TP)A.1006/BANG/2011 PAGE - 57 (5) ABOVE ALL, A SEPARATE AND DISTINCT IDENTITY OF THE INDUSTRIAL UNIT SET UP.' 10. THE SUPREME COURT WAS OF THE VIEW THAT THE NEW UNDERTAKING MUST NOT BE SUBSTANTIALLY THE SAME OLD EXISTING BUS INESS. EVEN IF A NEW BUSINESS IS CARRIED ON BUT BY PIERCING THE VEIL OF THE NEW BUSINESS IT IS FOUND THAT THERE IS EMPLOYMENT OF TH E ASSETS OF THE OLD BUSINESS, THE BENEFIT WILL NOT BE AVAILABLE. FROM T HIS PERSPECTIVE THE COURT HELD THAT A SUBSTANTIAL INVESTMENT OF NEW CAP ITAL IS IMPERATIVE. 11. THE TRIBUNAL, IN THE PRESENT CASE, HAS COME TO THE CONCLUSION THAT WHERE A RUNNING BUSINESS IS TRANSFERRED LOCK, STOCK AND BARREL BY ONE ASSESSEE TO ANOTHER ASSESSEE THE PRINCIPLE O F RECONSTRUCTION, SPLITTING UP AND TRANSFER OF PLANT AND MACHINERY CA NNOT BE APPLIED. ACCORDING TO THE TRIBUNAL, THE BENEFIT OF SECTION 1 0A ATTACHES TO THE UNDERTAKING AND NOT TO THE ASSESSEE WHICH OWNS THE UNDERTAKING. THE BENEFIT OF SECTION 10A WAS HELD TO HAVE ATTACHE D ITSELF TO THE STP UNIT OF THE SOFTWARE DIVISION WHICH WAS OWNED B Y IOCL TILL OCTOBER 19, 1994, AND IT WAS OWNED BY THE ASSESSEE SUBSEQUENT TO THAT DATE. WHAT IS MATERIAL, ACCORDING TO THE TRIBU NAL, IS NOT WHO OWNS THE UNDERTAKING BUT WHETHER THE UNDERTAKING IS ENTITLED TO THE BENEFIT AVAILABLE UNDER SECTION 10A. AS REGARDS THE ISSUE OF TRANSFER BY IOCL TO THE ASSESSEE, THE TRIBUNAL NOTED THAT SE CTION 10A(9) WAS SUBSTITUTED BY THE FINANCE ACT, 2000, WITH EFFECT F ROM APRIL 1, 2002. SECTION 10A(9) PROVIDED THAT WHERE DURING ANY PREVI OUS YEAR THE OWNERSHIP OR BENEFICIAL INTEREST IN AN UNDERTAKING OF THE BUSINESS IS TRANSFERRED BY ANY MEANS, THE DEDUCTION UNDER SUB-S ECTION (1) SHALL NOT BE ALLOWED TO THE ASSESSEE FOR THE ASSESSMENT Y EAR RELEVANT TO SUCH PREVIOUS YEAR AND THE SUBSEQUENT YEARS. THE TR IBUNAL NOTED THAT IF A TRANSFER BETWEEN IOCL AND THE ASSESSEE WE RE TO BE EFFECTED AFTER APRIL 1, 2001, THAT WOULD RESULT IN THE UNDER TAKING BEING DISENTITLED TO THE BENEFIT UNDER SECTION 10A. THIS WAS A POINTER TO THE FACT THAT PRIOR TO THE SUBSTITUTION A TRANSFER OF OWNERSHIP OR BENEFICIAL INTEREST IN THE UNDERTAKING WOULD NOT DI SENTITLE AN ASSESSEE TO THE BENEFIT OF SECTION 10A. (AS A MATTE R OF FACT IT MAY ALSO BE NOTED THAT THE PROVISIONS OF SECTION 10A(9) WERE OMITTED BY THE FINANCE ACT, 2003, WITH EFFECT FROM APRIL 1, 20 04). IT(TP)A.1006/BANG/2011 PAGE - 58 43. THUS IT HAS BEEN HELD BY THE HONBLE BOMBAY HIG H COURT THAT SLUMP SALE COULD NOT BE CONSIDERED AS A RECONSTRUCTION OF BUSINESS. SIMILAR VIEW WAS ALSO TAKEN BY THE COORDINATE BENCH IN THE CASE OF LG SOFT INDIA P. LTD (SUPRA). WE ARE THEREFORE OF THE OPINION THAT ASSE SSEE WAS ELIGIBLE FOR CLAIMING DEDUCTION U/S.10A OF THE ACT, FOR ITS CHAN DIGARH UNIT FOR THE BALANCE SHEET FOR THE PERIOD OF AVAILABILITY OF DED UCTION U/S.10A OF THE ACT. WE THEREFORE SET ASIDE THE ORDERS OF LOWER AUTHORIT IES IN THIS REGARD AND REMIT THE ISSUE BACK TO THE AO FOR CONSIDERATION AF RESH IN ACCORDANCE WITH LAW FOR VERIFYING WHETHER THE CLAIM FOR DEDUCTION U /S.10A OF THE ACT, ON CHANDIGARH UNIT IS WITHIN THE TOTAL PERIOD FOR WHIC H SUCH DEDUCTION IS AVAILABLE UNDER THE SAID SECTION. GROUND 10 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 44. IN ITS GROUND.11 GRIEVANCE RAISED BY THE ASSESS EE IS THAT FOREIGN TAX CREDIT OF RS.2,42,205/- WAS NOT GRANTED TO IT THOUG H IT WAS CLAIMED IN THE RETURN OF INCOME 45. FACTS BEFORE US DOES NOT SHOW WHETHER ASSESSEE WAS ELIGIBLE FOR THE CLAIM OF FOREIGN TAX CREDIT OF RS.2,42,205/-. IT M IGHT BE TRUE THAT IT HAD CLAIMED SUCH CREDIT IN THE RETURN OF INCOME. IN AL L FAIRNESS WE FEEL THAT THIS MATTER REQUIRES A FRESH LOOK BY THE AO. IF THE ASS ESSEE IS ELIGIBLE FOR IT(TP)A.1006/BANG/2011 PAGE - 59 FOREIGN TAX CREDIT AND IF THE AMOUNT CLAIMED BY THE ASSESSEE IS CORRECT, AO SHALL GIVE SUCH CREDIT. GROUND.11 IS ALLOWED FOR S TATISTICAL PURPOSE. 46. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF JUNE, 2016. SD/- SD/- (SUNIL KUMAR YADAV) (ABRAHAM P GEORGE ) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR IT(TP)A.1006/BANG/2011 PAGE - 60