Novell Softeare Development (India) Private Limited, Bangalore V. DCIT, Bangalore

ITA 1047/BANG/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86036 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-02-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 11-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Cost of acquisition
• Section: 92E; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT (TP) A NOS.1105/BANG/2011 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. VS. M/S. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., LAUREL, BLOCK-D, 65/2, BAGMANE TECH PARK, C V RAMAN NAGAR, BYRASANDRA POST, BANGALORE 560 093. PAN : AAACN 6992K APPELLANT RESPONDENT IT (TP) A NOS.1047/BANG/2011 ASSESSMENT YEAR : 2005-06 M/S. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., BANGALORE 560 093. PAN : AAACN 6992K VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. APPELLANT RESPONDENT REVENUE BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) ASSESSEE BY : SHRI T. SURYANARAYAN, ADVOCATE DATE OF HEARING : 04.02.2015 DATE OF PRONOUNCEMENT : 13.02.2015 IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 2 OF 25 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THESE ARE APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE AGAINST THE ORDER DATED 12.9.2011 OF CIT(APPEALS)-V , BANGALORE RELATING TO ASSESSMENT YEAR 2005-06. 2. THE ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS IS RELATING TO THE ADDITION MADE TO THE TOTAL INCOME CONSEQUENT TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF INTERNATIONAL TRAN SACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES (AE) U/S.92 OF THE INCOME TAX ACT, 1961 (ACT). THE ADDITION MADE CONSEQUENT TO DETERMINATION OF ALP BY THE TPO AND ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WAS A SUM OF RS.9,16,77,074 WHICH WAS REDUCED TO RS.3,3 6,89,845/- BY THE CIT(A) IN THE APPEAL FILED BY THE ASSESSEE. 3. THE ASSESSEE, NOVELL INDIA, IS A SUBSIDIARY OF NOVELL, USA AND IS A CAPTIVE SERVICE PROVIDER. IT IS ENGAGED IN THE BUSI NESS OF PROVIDING SOFTWARE DEVELOPMENT AND SUPPORT SERVICES TO NOVELL, USA. DU RING THE FINANCIAL YEAR 2004-05 RELEVANT TO THE ASSESSMENT YEAR 2005- 06, T HE ONLY INTERNATIONAL TRANSACTION THAT TOOK PLACE BETWEEN NOVELL INDIA AN D NOVELL US WAS PROVISION OF SOFTWARE DEVELOPMENT AND SUPPORT SERVI CES TO NOVELL US AT A PRICE OF RS. 55,01,62,457/-. IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 3 OF 25 4. IN SUPPORT OF THE ASSESSEES CLAIM THAT THE PRIC E CHARGED BY IT FOR SERVICES RENDERED TO ITS AE WAS AT ARMS LENGTH, TH E ASSESSEE FILED A REPORT AS REQUIRED BY THE PROVISIONS OF SECTION 92E OF THE ACT IN FORM 3EB TOGETHER WITH DETAILED ANALYSIS. THE ASSESSEE ADOP TED TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. OPERATING PROFITS TO COST WAS ADOPTED AS THE PROFIT LEVEL INDICATOR ( PLI ). THE PLI OF THE ASSESSEE WAS ARRIVED AT AS FO LLOWS: OPERATING REVENUE RS.55,01,62,457 OPERATING COST RS.50,01,47,691 OPERATING PROFIT RS.5,00,14,766 OP.PR/COST% 10% 5. THE TRANSFER PRICING OFFICER ( TPO ) ARRIVED AT A FINAL SET OF 17 COMPARABLE COMPANIES. THE SET OF 17 COMPARABLE COM PANIES IS GIVEN AS ANNEXURE-I TO THIS ORDER . 6. THE ASSESSEE RAISED VARIOUS OBJECTIONS TO THE M ETHODOLOGY ADOPTED AND THE REASONS ASSIGNED BY THE TPO FOR REJ ECTING THE COMPARABLE CHOSEN BY THE ASSESSEE IN ITS TP STUDY. THE TPO F INALLY PASSED AN ORDER U/S. 92CA OF THE ACT AND ON THE BASIS OF THE PROFIT MARGINS OF COMPARABLE COMPANIES SET OUT IN ANNEXURE-I TO THIS ORDER , ARRIVED AT ARITHMETIC MEAN OF 28.33% AFTER WORKING CAPITAL ADJUSTMENT AND 26.59% BEFORE WORKING CAPITAL ADJUSTMENT. THE COMPUTATION OF THE ALP BY THE TPO IN THIS REGARD WAS AS FOLLOWS:- IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 4 OF 25 COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE B FOR DETA ILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS, THE ARMS LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES R ENDERED BY THE TAXPAYER TO ITS AE(S) IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI 26.59% LESS: WORKING CAPITAL ADJUSTMENT (ANNEXURE-C) -1.74% ADJ.ARITHMETIC MEAN PLU 28.33% ARMS LENGTH PRICE: OPERATING COST RS.50,01,47,691 ARMS LENGTH MARGIN 28.33% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) AT 128.33% OF OPERATING COST RS.64,18,39,532/- PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE: THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATE D ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE (ALP) AT 128.33% OF OPERATING COST RS.64,18,39,532/- PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS RS.55,01,62,457 SHORTFALL BEING ADJUSTMENT U/S.92CA RS.9,16,77,074 THE ABOVE SHORTFALL OF RS.9,16,77,074/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA. 7. ON APPEAL BY THE ASSESSEE, THE CIT(A) PARTLY AL LOWED THE APPEAL OF THE ASSESSEE, OBSERVING AS FOLLOWS:- IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 5 OF 25 (I) TWO COMPANIES VIZ., EXENSYS SOFTWARE SOLUTIONS LTD. AND THIRDWARE SOLUTIONS LTD. (WHICH ARE SL.NO.3 & 7 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO GIVEN AS ANN EXURE-I TO THIS ORDER) WERE REJECTED BASED ON THE GROUND THAT THESE COMPANIES HAD ABNORMAL PROFITS IN AY 05-06 AND HENCE SHOULD B E EXCLUDED FOR THE PURPOSE OF COMPARABILITY. IN COMING TO THE ABOV E CONCLUSION, THE CIT(A) FOLLOWED THE DECISIONS OF THIS HONBLE TRIBU NAL IN THE CASE OF MENTOR GRAPHICS (NOIDA) (P.) LTD. VS DCIT (2007] 10 9 LTD 101 (DEL), E-GAIN COMMUNICATIONS (P.) LTD VS. ITO, WARD 1(4), PUNE[2008]- (023)- SOT-0385-TPIIN] AND SAP LABS INDIA PVT. LTD VS ACIT [2010] ITA NO. 398 & 418 (BANG)]. (II) ONE COMPANY, SATYAM COMPUTER SERVICES LTD (W HICH IS SL.NO.16 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO GIVEN AS ANNEXURE-I TO THIS ORDER)SELECTED BY T HE TPO, WAS REJECTED FOR NON-RELIABILITY OF FINANCIAL DATA. IN DOING SO, THE CIT(A) FOLLOWED THE DECISION OF THIS HONBLE TRIBUNAL IN A GNITY INDIA TECHNOLOGIES V. ITO (ITA 3856/DEI/2010) AND SAP IND IA PVT. LTD V. ITO [ITA NO. 398/8/2008]. (III) ONE COMPANY, LNFOSYS TECHNOLOGIES SELECTED BY THE TPO, (WHICH IS SL.NO.17 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO GIVEN AS ANNEXURE-I TO THIS ORDER) WAS REJECTED AS A COMPARABLE BASED ON HIGH TURNOVER AND HIGH RISK. I N DOING SO, THE CIT(A) FOLLOWED THE DECISION OF THIS HONBLE TRIBUN AL IN AGNITY INDIA TECHNOLOGIES V. ITO AND GENISYS INTEGRATED SYSTEMS (INDIA) PVT LTD V. ITO (SUPRA). (IV)NINE OTHER COMPANIES WERE REJECTED FOR HAVING R ELATED PARTY TRANSACTIONS (RPT FILTER). THE CIT(A) APPLIED AN RP T FILTER OF ZERO PERCENT ON THE GROUND THAT EVEN IF ONE IDEAL COMPAR ABLE WITHOUT ANY RELATED PARTY TRANSACTIONS IS AVAILABLE FOR COMPARI SON, IT WOULD NOT BE NECESSARY TO APPLY THE FILTER. THE FOLLOWING COMPAN IES WERE THEREFORE REJECTED:- (1) SASKEN NETWORK SYSTEMS LTD (2) FOURSOFT LTD (3) R S SOFTWARE INDIA LTD (4) GEOMETRIC SOFTWARE SOLUTIONS LTD (5) TATA EIXSI LTD (6) SASKEN COMMUNICATION TECHNOLOGIES LTD (7) IGATE SOLUTIONS LTD (8) FLEXTRONICS SOFTWARE LTD (9) L&T INFOTECH LTD IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 6 OF 25 (WHICH ARE SL.NO.12, 6, 8, 9, 10, 12, 13, 14, & 15 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO GIVEN AS ANN EXURE-I TO THIS ORDER) THE CIT(A) ALSO OBSERVED THAT ON THE EXCLUSION OF T HE ABOVE COMPANIES, THE REMAINING FOUR COMPARABLES WERE HAVING A TURNOV ER BETWEEN RS. 1 CR AND RS. 200 CR THUS ACCEPTING THAT THE TURNOVER FIL TER OF RS.1 CR. TO RS.200 CRORE WAS A FILTER TO BE APPLIED IN CHOOSING COMPAR ABLE COMPANIES. 8. A SUMMARY OF THE SET OF FINAL COMPARABLES SELEC TED BY CIT(A) ALONG WITH THE REASONS FOR REJECTION OF COMPARABLES SELEC TED BY TPO IS AS TABULATED BELOW:- IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 7 OF 25 9. ARITHMETIC MEAN OF THE COMPARABLES RETAINED BY THE CIT(A): AFTER GIVING EFFECT TO THE FINDINGS GIVEN ABOVE, THE FOLL OWING COMPANIES WERE SELECTED AS FINAL COMPARABLES TO DETERMINE THE ARM S LENGTH PRICE:. 10. COMPUTATION OF ARMS LENGTH PRICE BY THE CIT(A ): THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS OF NOVELL WAS COMPUTED BY THE CIT(A) AS UNDER:- 11. BOTH THE ASSESSEE AS WELL AS THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE REVENUE IS IN APPEAL ON TWO GROUNDS AS FOLLOWS-: IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 8 OF 25 (1) THE CIT(A) ERRED IN HOLDING THAT THE COMPARABLE S OUGHT TO HAVE BEEN EXCLUDED EVEN IF RELATED PARTY TRANSACTIO NS WERE LESS THAN 25% OF THE REVENUES. (2) THE CIT(A) ERRED IN ALLOWING A STANDARD DEDUCTI ON OF 5% FROM THE ARMS LENGTH PRICE UNDER SECTION 92C(2) OF THE INCOME- TAX ACT, 1961. 12. THE ASSESSEES GROUNDS OF APPEAL ARE AS FOLLOWS :- (1) ASSESSMENT AND REFERENCE TO TRANSFER PRICING O FFICER ARE BAD IN LAW. (2) DEPARTURE FROM EARLIER YEARS STAND BY THE TRA NSFER PRICING OFFICER (TPO) THE TPO HAVING ACCEPTED THE INTERNATIONAL TRANSACTI ON OF THE APPELLANT AS BEING AT ARMS LENGTH IN THE ASSESSMEN T YEAR 2004- 05, THE CIT(A) ERRED IN LAW IN CONFIRMING THE DIFFE RENT VIEW ADOPTED BY THE TPO IN THE ASSESSMENT YEAR 2005-06. (3) THE FRESH COMPARABLE SEARCH UNDERTAKEN BY THE TPO IS BAD IN LAW. (4) DETERMINATION OF ARMS LENGTH PRICE BY THE TPO . (5) ERRONEOUS DATA USED BY THE AO/TPO. (6) NON-ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO TH E COMPARABLE COMPANIES, BY THE TPO. (7) CONFIRMATION OF LEVY OF INTEREST UNDER SECTION 234B AND NON-ADJUDICATION ON THE GROUNDS RAISED AS REGARDS L EVY OF PENALTY. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS. AS REGARD S THE IMPROPER APPLICATION OF THE RPT FILTER BY THE CIT(A), IT IS NOT IN DISPUTE BEFORE US THAT THIS TRIBUNAL, IN THE CASES OF 24/7 CUSTOMER PVT. LTD. (ITA IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 9 OF 25 NO.227/BANG/2010), AND SONY INDIA PRIVATE LTD. REPO RTED IN (2009) 315 ITR (80) 150 (DEL.) AND VARIOUS OTHER CASES HAS TAKEN A VIEW THAT COMP ARABLES HAVING RPT OF UPTO 15% OF TOTAL REVENUES CAN BE CON SIDERED. IN VIEW THEREOF, THE REVENUES ON THIS GROUND HAS TO BE ALL OWED. IT IS HELD THAT THE CIT(A) OUGHT TO HAVE ADOPTED A THRESHOLD LIMIT OF 1 5% OF THE TOTAL REVENUE ATTRIBUTABLE TO RELATED PARTY TRANSACTION AS GROUND FOR REJECTING COMPARABLE COMPANIES. CONSEQUENTLY IT IS HELD THAT COMPARABLE COMPANIES HAVING RPT UPTO 15% OF THE TOTAL REVENUES ALONE CAN BE INC LUDED. THE REVENUES CONTENTION THAT COMPARABLES WITH RPT UPTO 25% CAN B E CONSIDERED IS WITHOUT ANY BASIS. 14. AS REGARDS THE STANDARD DEDUCTION OF 5% OF THE ARMS LENGTH PRICE AFFORDED TO THE APPELLANT BY THE CIT(A), IT IS NOT IN DISPUTE BEFORE US THAT IN VIEW OF THE SUBSTITUTION OF THE SECOND PROVISO TO S ECTION 92C(2) OF THE INCOME-TAX ACT BY THE FINANCE (NO.2) ACT, 2009, THE SECOND GROUND OF APPEAL (GROUND NO.3 IN THE APPEAL FILED BY THE REVE NUE) MAY HAVE TO BE ALLOWED. CONSEQUENTLY IT IS HELD THAT IF THE DIFFE RENCE BETWEEN THE ARITHMETIC MEAN OF THE PROFIT MARGINS COMPARABLE CO MPANIES ULTIMATELY RETAINED AND THE PROFIT MARGIN OF THE ASSESSEE IS M ORE THAN 5% THAN NO DEDUCTION UNDER THE PROVISO TO SEC.92C(2) OF THE AC T COULD BE ALLOWED TO AN ASSESSEE. 15. IN VIEW OF THE CONCLUSION ABOVE THAT EXCLUSION OF COMPARABLE COMPANIES WITH RPT OF LESS THAN ZERO PERCENT IS NOT VALID, AND THAT IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 10 OF 25 COMPANIES WHERE RPT IS LESS THAN 15% ALONE CAN BE CONSIDERED, THEN THE COMPARABLES REJECTED BY THE CIT(A) ON THE BASIS OF THE SAID FILTER WILL HAVE TO BE INCLUDED ALONG WITH THE FOUR COMPARABLES RETA INED BY THE CIT(A). ALTHOUGH NINE COMPARABLES WHICH WERE REJECTED ON TH E BASIS OF RPT BEING MORE THAN ZERO PERCENT, ONE COMPARABLE VIZ., FOUR S OFT LTD., WILL HAVE TO BE EXCLUDED SINCE THE RPT IS AT 19.89% AND THUS IN EXC ESS OF 15%. THE ASSESSEE HAS SUBMITTED BEFORE US THAT THREE COMPARA BLES VIZ., IGATE GLOBAL SOLUTIONS LTD, FLEXTRONICS SOFTWARE SYSTEMS LTD AND L&T INFOTECH LTD. WOULD HAVE TO BE REJECTED APPLYING THE UPPER LIMIT OF RS.200 CRORES TO THE TURNOVER. IN THIS REGARD HE HAD PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF TRILOGY EBUSINESS SOFTWARE INDIA PVT. LTD. IN ITA NO.1054/BANG/2011. ALSO, TATA ELXSI LTD WOULD HAVE TO BE REJECTED AS BEING FUNCTIONALLY INCOMPARABLE IN VIEW OF THE DECI SION OF THIS TRIBUNAL IN LOGICA PVT. LTD. (ITA 1129/BANG/2011). 16. THE SUBMISSION OF THE ASSESSEE IN THIS REGARD AND CORRECT AND IN THE LIGHT OF THE DECISIONS REFERRED IN THE EARLIER PARA, WE HOLD THAT IGATE GLOBAL SOLUTIONS LTD., FLEXTRONICS SOFTWARE SYSTEMS LTD. AND L & T INFOTECH LTD WOULD HAVE TO BE EXCLUDED AS COMPARABLE COMPANI ES AS THESE COMPANIES HAVE TURNOVER ABOVE RS.200 CRORES. SO AL SO TATA ELXSI LTD., WOULD HAVE TO BE EXCLUDED AS NOT COMPARABLE IN THE LIGHT OF THE DECISION IN THE CASE OF LOGICA PVT. LTD. (SUPRA). IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 11 OF 25 17. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SEEK S EXCLUSION OF ONE COMPARABLE CHOSEN BY THE TPO AS A COMPARABLE VIZ., SANKHYA LNFOTECH LIMITED. HE ALSO SEEKS INCLUSION OF ONE OF ITS COM PARABLES IN THE TP STUDY VIZ. MELSTAR INFORMATION TECHNOLOGIES LIMITED WHICH WAS EXCLUDED BY THE TPO. BESIDES THE ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT AN ADJUSTMENT FOR DEPRECIATION OUGHT TO BE ALLOWED. THE SUBMISSIONS ON THIS ASPECT WILL BE SET OUT IN THE L ATER PARAGRAPHS. SANKHYA INFOTECH LIMITED (SANKHYA) 18. IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT SANKHYA IS ENGAGED IN THE BUSINESS OF DEVELOPMENT O F SOFTWARE PRODUCTS & SERVICES AND TRAINING. THE COMPANY FOCUSES ON THE D EVELOPMENT OF NICHE PRODUCTS FOR THE TRANSPORT AND AVIATION INDUSTRY. H OWEVER, SEGMENTAL INFORMATION IN RELATION TO THE ABOVE MENTIONED ACTI VITIES IS NOT AVAILABLE IN PUBLIC DOMAIN. THEREFORE, AS SANKHYA ENGAGES ITSELF IN PRODUCTS AND SERVICES AS WELL AS SOFTWARE TRAINING, IT CANNOT BE CONSIDERED AS A COMPARABLE OF THE APPELLANT. THE PRODUCTS DEVELOPE D AND OWNED BY SANKHYA ARE LISTED BELOW: (1) SILICON TM TRAINING SUITE OF PRODUCTS: THE PRODUCTS ARE A COMPREHENSIVE ENTERPRISE WIDE TRAINING PLATFORM THA T COVERS THE ENTIRE SPECTRUM OF TRAINING IN A PAPERLESS ENVIRONMENT. IT COMPRISES OF FOUR PRODUCTS:- - SILICON TM LMS (TRAINING MANAGEMENT INFORMATION - SILICON TM QT (ONLINE ASSESSMENT SYSTEM) IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 12 OF 25 - SILICON TM LCMS (LEARNING CONTENT MANAGEMENT SYSTEM) - IRMAQ TM : THIS IS AN INTEGRATED RESOURCE PLANNING, MANAG EMENT TRACKING SYSTEM EXCLUSIVELY DEVELOPED FOR AIRLINE O PERATIONS. IT IS AN END-TO- END SOLUTION FOR ALL FLIGHT OPERATIONS. - SAKAI CLE : THIS IS A WIDELY USED AND POPULAR O PEN SOURCE LMS USED IN MANY LEADING EDUCATIONAL INSTITUTIONS AND CORPORATE . THE RELEVANT EXTRACT FROM THE ANNUAL REPORT SUBSTANTIATING THAT THE COMP ANY ALSO ENGAGES IN DIFFERENT ACTIVITIES IS REPRODUCED BELOW: 2. ACTIVITIES THE COMPANY AS ENGAGED IN THE BUSINESS OF DEVELOPME NT OF SOFTWARE PRODUCTS & SERVICES AND TRAINING. THE PROD UCTION OF SOFTWARE IS NOT CAPABLE OF BEING EXPRESSED IN ANY G ENERIC UNIT AND HENCE 11 IS RIOT POSSIBLE TO GIVE THE INFORMATION A S REQUIRED BY CERTAIN CLAUSES OF PARAGRAPHS 3.4C AND 4 D OF PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956. 19. THE DELHI TRIBUNAL IN ITO V. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (JUDGMENT DATED 23.10.2012 IN ITA NO. 609I/DEL/201 1 FOR THE ASSESSMENT YEAR 2005-06) HAS HELD THAT THE SAID COM PANY IS NOT A COMPARABLE TO THE ASSESSEE THEREIN WHICH WAS ALSO I N THE BUSINESS OF SOFTWARE DEVELOPMENT. 20. THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE CONSIDERED. THE ACTIVITIES SET OUT ABOVE AND THE D ECISION OF THE DELHI ITAT RENDERED IN THE CONTEXT OF A SOFTWARE DEVELOPMENT C OMPANY SUCH AS THE ASSESSEE MAKES IT AMPLY CLEAR THAT THIS COMPANY SAN KHYA CANNOT BE REGARDED AS A COMPARABLE. THE SAME IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 13 OF 25 21. MELSTAR INFORMATION TECHNOLOGIES LTD. (MELSTAR) : AS FAR AS THIS COMPANY IS CONSIDERED, THE SAME WAS CHOSEN AS COMPA RABLE COMPANY BY THE ASSESSEE IN ITS TP STUDY. THE TPO REJECTED MEL STAR STATING THE FOLLOWING:- AS PER THE DIRECTORS REPORT MELSTAR HAS FACED ADV ERSE ECONOMIC CONDITIONS DURING THE FY 2004-05 AND ITS M ARGINS ARE ADVERSELY AFFECTED BY ITS PECULIAR CIRCUMSTANCES. T HE BUSINESS PROFILE OF MELSTAR IS NOT ALIGNED WITH THE NORMAL T REND OF THE SOFTWARE INDUSTRY IN INDIA. THE COMPANY THEREFORE I S NOT TREATED AS A COMPARABLE. (PAGE 82 OF THE TP ORDER) 22. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US THAT THAT MELSTAR PASSES ALL FILTERS APPLIED BY THE TPO IN HIS ORDER AND IS FUNCTIONALLY COMPARABLE. THE FILTERS APPLIED BY TPO AND THEIR SATISFACTION WAS TABULATED AS UNDER: IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 14 OF 25 23. IT WAS FURTHER POINTED OUT BY HIM THAT THE TPO HAS CONCLUDED THAT MELSTAR IS NOT COMPARABLE ON THE GROUND THAT THERE WAS AN EXTRAORDINARY DEBIT OF RS. 2.85 CR AND ON THE GROUND THAT THE COM PANYS SALES ARE DIMINISHING. A PERUSAL OF THE REVENUES OF THE PREVI OUS FINANCIAL YEARS (PAGE 81 OF THE TP ORDER) DEMONSTRATES THAT THE REVENUES ARE MORE OR LESS CONSISTENT FOR THE PREVIOUS FINANCIAL YEARS AND HAS ONLY SUBSTANTIALLY DECREASED IN THE FINANCIAL YEAR 2004-05. THE RELEV ANT EXTRACT OF THE ANNUAL REPORT (PAGE 4) IS REPRODUCED BELOW: C) FINANCIAL PERFORMANCE BASED ON GIVEN INDICATORS AS PER THE AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31.3.2 005: IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 15 OF 25 IF THE ABOVE EXTRAORDINARY EXPENSE OF RS. 2.85 CR I S EXCLUDED FROM THE OPERATING COST, THE MARK-UP ON THE COST WORKS OUT T O 3.26%. THE DETAILED WORKING WAS ALSO GIVE AS BELOW:- 24. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT SIN CE MELSTAR IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND CLEARS ALL THE FILTERS APPLIED BY THE TPO, THE SAME SHOULD BE CONSIDERED AS COMPARABL E WITH NET COST PLUS MARGIN OF 3.26%. 25. THE SUBMISSIONS ARE CONSIDERED AND FOUND TO BE ACCEPTABLE. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, MELSTAR PASSES ALL THE TESTS OF COMPARABILITY ADOPTED BY THE TPO. THE EXTRAORDINARY ITEM IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 16 OF 25 OF EXPENDITURE, IF REMOVED, WOULD RENDER THIS COMPA NY AS A COMPANY REVENUES OF WHICH ARE NOT DIMINISHING. MELSTAR THE REFORE DESERVES TO BE INCLUDED AS A COMPARABLE COMPANY. WE HOLD ACCORDIN GLY. ADJUSTMENT FOR DEPRECIATION ASSESSEES DEPRECIATION POLICY VIS--VIS DEPRECIATI ON POLICIES OF THE COMPARABLES SELECTED BY THE CIT(A ) 26. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS A POLICY OF CHARGING A HIGHER RATE OF DEPRECIAT ION AS COMPARED TO THE COMPANIES SELECTED BY THE TPO AND THE CIT(A). IT WA S THEREFORE SUBMITTED BY HIM THAT THERE IS A NEED FOR MAKING AN ADJUSTMEN T TO ELIMINATE DIFFERENCES IN THE ACCOUNTING POLICIES OF THE ASSES SEE AND THE COMPARABLE COMPANIES. THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEES DEPRECIATION POLICY FOR THE YEAR WAS AS BELOW (AVAILABLE IN THE ANNUAL REPORT OF THE ASSESSEE AT PAGE 8 OF THE PAPE R BOOK FILED):- (IV) DEPRECIATION DEPRECIATION IS PROVIDED ON STRAIGHT LINE METHOD PR O-RATA FROM THE DATE OF ADDITION AT THE RATES MENTIONED BELOW, WHICH ARE HIGHER THAN THE CORRESPONDING RATES PRESCRIBED IN S CHEDULE XIV OF THE COMPANIES ACT, 1956: RATE OF DEPRECIATION COMPUTER SYSTEMS 50.00% COMPUTER SOFTWARE 33.33% PLANT AND MACHINERY 20.00% OFFICE EQUIPMENT 33.33% FURNITURE AND FIXTURES 20.00% VEHICLES 33.33% IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 17 OF 25 27. MOST OTHER COMPANIES PROVIDE FOR DEPRECIATION A T THE RATES SPECIFIED IN THE COMPANIES ACT. THE DEPRECIATION POLICIES OF A FEW COMPARABLES SELECTED BY CIT(A), AS AVAILABLE IN THEIR ANNUAL RE PORTS, IS AS BELOW:- BODHTREE CONSULTING LTD . 3. FIXED ASSETS FIXED ASSETS ARE ACCOUNTED AT COST OF ACQUISITION I NCLUSIVE OF OTHER RELATED EXPENSES ON SUCH ACQUISITION. DEPRE CIATION ON FIXED ASSETS IS PROVIDED ON A PRORATA BASIS USING S TRAIGHTLINE METHOD AT RATES AS PER SCHEDULE XIV TO THE CORNPONE S ACT, 1956. LANCO GLOBAL SYSTEMS LTD. FIXED ASSETS : (I) FIXED ASSETS ARE STATED AT COST LESS ACCUMULATE D DEPRECIATION. COST OF ACQUISITION OF FIXED ASSETS IS INCLUSIVE OF FREIGHT, DUTIES, TAXES AND INCIDENTAL EXPENSES THERETO. DEPRECIATION AND AMORTISATION (I) DEPRECIATION IS PROVIDED ON STRAIGHT LINE METHO D ON PRORATA BASIS AND AT THE RATES AND MANNER SPECIFIED IN THE SCHEDULE XIV OF THE COMPANIES ACT, 1956. (II) PRELIMINARY EXPENSES ARE AMORTISED OVER THE PE RIOD OF 5 YEARS. (III) PUBLIC ISSUE EXPENSES ARE AMORTISED OVER THE PERIOD OF 5 YEARS. SANKHYA INFOTECH LTD. 5. FIXED ASSETS FIXED ASSETS ARE STATED AT COST, LESS ACCUMULATED D EPRECIATION. DIRECT COSTS ARE CAPITALIZED UNTIL FIXED ASSETS ARE READY FOR USE. COST MEANS COST OF BRINGING THE ASSET TO ITS WORK ING CONDITION FOR ITS INTENDED USE ARE CAPITALIZED AS PER THE STA TEMENT ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 18 OF 25 6. DEPRECIATION AND AMORTIZATION DEPRECIATION ON FIXED ASSETS IS APPLIED ON THE WRIT TEN DOWN VALUE METHOD BASED BY FOLLOWING THE RATES PRESCRIBED IN S CHEDULE XIV OF THE COMPANIES ACT, 1956. INDIVIDUAL LOW COST ASS ETS (ACQUIRED FOR LESS THAN RS.5,000/-) ARE ENTIRELY DEPRECIATED IN THE YEAR OF ACQUISITION. INTANGIBLE ASSETS ARE AMORTIZED OVER T HEIR RESPECTIVE INDIVIDUAL ESTIMATED USEFUL LIVES ON A STRAIGHT-LIN E BASIS, COMMENCING FROM THE DATE THE ASSET IS AVAILABLE TO THE COMPANY FOR ITS USE. VISUAL SOFT TECHNOLOGIES LTD. 3. FIXED ASSETS: FIXED ASSETS ARE STATED AT COST LESS ACCUMULATED DE PRECIATION. ALL COSTS, DIRECTLY ATTRIBUTABLE TO BRINGING THE ASSET TO THE PRESENT CONDITION FOR THE INTENDED USE, ARE CAPITALIZED. 4. DEPRECIATION A) DEPRECIATION ON FIXED ASSETS HAS BEEN PROVIDED ON STRAIGHT LINE METHOD BASED ON USEFUL LIFE OF ASSETS AS ESTIM ATED BY THE MANAGEMENT AND DEPRECIATION ON THE ASSETS ACQUIRED DURING THE YEAR IS PROVIDED ON PRO-RATA BASIS. B) DEPRECIATION IS CHARGED AT ONE HUNDRED PERCENT IN RESPECT OF THE INDIVIDUAL ASSETS COSTING LESS THAN RS. 5,000 I N THE YEAR OF PURCHASE. C) THE MANAGEMENT HAS ESTIMATED THE USEFUL LIVES O F THE ASSETS AS UNDER: ASSETS YEARS BUILDINGS 28 COMPUTERS 2 - 5 OTHER ASSETS 5 LEASEHOLD IMPROVEMENTS OVER THE LEASE PERIOD OR USEFUL LIFE WHICHEVER IS LOWER. IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 19 OF 25 28. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THE RATIONALE FOR MAKING DEPRECIATION ADJUSTMENT. HE POINTED OUT THAT RULE10B OF THE INCOME-TAX RULES, 1962 [THE RULES] PROVIDES THE M ETHOD IN WHICH THE COMPARABILITY ANALYSIS IS TO BE CONDUCTED UNDER THE TRANSACTIONAL NET MARGIN METHOD. UNDER SUB-CLAUSE (I) OF RULE 10B(1)( E), THE NET PROFIT MARGIN REALISED BY THE TAXPAYER FROM AN INTERNATION AL TRANSACTION IS COMPUTED HAVING REGARD TO A RELEVANT BASE E.G. COST S INCURRED, SALES EFFECTED, ETC. UNDER SUB-CLAUSE (II) OF RULE 10B(1) (E), THE NET PROFIT MARGIN REALISED BY AN UNRELATED ENTERPRISE/COMPARABLE COMP ANY IS COMPUTED HAVING REGARD TO THE SAME RELEVANT BASE AS WAS SELE CTED IN SUB-CLAUSE (I). 29. SUB-CLAUSE (III) OF THE SAID RULE SPECIFIES TH AT BEFORE A COMPARISON OF THE NET MARGINS REALISED UNDER SUB- CLAUSES (I) AND (II) IS DONE, THE NET MARGIN REALISED UNDER SUB-CLAUSE (II) MUST BE ADJUS TED TO TAKE INTO ACCOUNT THE DIFFERENCES WHICH COULD MATERIALLY AFFECT THE N ET PROFIT MARGIN IN THE OPEN MARKET. RELEVANT EXTRACTS OF RULE 10B(1)(E)(II I) ARE REPRODUCED AS UNDER:- (III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLA USE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERN ATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSAC TIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACT IONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MA RGIN IN THE OPEN MARKET, (EMPHASIS SUPPLIED) IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 20 OF 25 30. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, BASE D ON THE ABOVE, THERE WAS A NEED FOR MAKING AN ADJUSTMENT ON ACCOUNT OF D IFFERENCE BETWEEN THE NET MARGIN OF THE ASSESSEE AND THAT OF THE COMPARAB LE COMPANIES. IT WAS FURTHER POINTED OUT BY HIM THAT RULE 10B(3) OF THE RULES PROVIDES THAT AN UNCONTROLLED TRANSACTION SHALL BE CONSIDERED AS A C OMPARABLE IF: A) NONE OF THE DIFFERENCES BETWEEN THE COMPARABLE C OMPANY AND THE CONTROLLED TRANSACTION ARE LIKELY TO MATERIALLY AFFECT THE PROFIT ARISING FROM SUCH TRANSACTIONS IN THE OPEN MARKET; OR B) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO E LIMINATE THE MATERIAL EFFECT OF SUCH DIFFERENCES. 31. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED REL IANCE ON THE JUDGMENTS OF THIS HONBLE TRIBUNAL IN E-GAIN COMMUN ICATION PVT. LTD. VS. ITO [2008] 23 SOT 385 (PUNE) (AT PAGE 36) AND HONEY WELL TECHNOLOGY SOLUTIONS LAB P. LTD. [JUDGMENT DATED 28.03.2013 IN IT(TP)A NO. 1344/BANG/2011 AT PARA 5.71]. OUR ATTENTION WAS ALSO DRAWN TO THE FACT THAT THOUGH THE ASSESSEE URGED THE ABOVE GROUND BEF ORE THE CIT(A) AND FILED WRITTEN SUBMISSIONS ALSO ON THE SAME, (AT PAG E 503 OF THE PAPERBOOK FILED BEFORE THIS TRIBUNAL), THE CIT(A) HAS NOT ADJ UDICATED ON THE SAID GROUND. IT WAS ALSO POINTED OUT BY HIM THAT FOR THE ASSESSMENT YEAR 2002-03, THE CIT(A), IN HIS ORDER DATED, 09.08.2012 , ALLOWED THE ADJUSTMENT OF DEPRECIATION (PARA 4.7 AT PAGES 27-28 OF THE ORDER). A COPY OF THE ORDER WAS ALSO FILED BEFORE US. THE LEARNED COUNSEL FOR THE IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 21 OF 25 ASSESSEE THUS SUBMITTED THAT THE ASSESSEE IS ELIGI BLE FOR AN ADJUSTMENT IN RESPECT OF DEPRECIATION. 32. THE LEARNED DR RELIED ON THE OBSERVATIONS OF T HE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER CARE.COM PVT.LTD. 140 ITD 344 (BANG.) WHEREIN THE TRIBUNAL HAS MADE OBSERVATIONS ON WHEN ADJUSTMENT O N ACCOUNT OF DIFFERENT ACCOUNTING POLICIES BEING FOLLOWED BY COM PARABLE COMPANIES CAN BE CONSIDERED FOR ADJUSTMENT IN THE MATTER OF DETER MINATION OF ALP. 33. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. IN THE CASE OF E-GAIN COMMUNICATION PVT.LTD. (SUPRA) , THE QUESTION OF ADJUSTMENT ON ACCOUNT OF DIFFERENT DEPRECIATION POL ICY OF COMPARABLE COMPANY AND THE TESTED PARTY WAS NEVER IN ISSUE. T HE ISSUE AROSE IN THE CASE OF 24/7 CUSTOMERCARE.COM (SUPRA) . THE CONTENTION OF THE ASSESSEE BEFORE THE TRIBUNAL WAS THAT DEPRECIATION COST AS A PERCENTAGE OF THE GROSS BLOCK OF THE ASSESSEE DURING THE FINANCIA L YEAR 2004 WAS 25 PERCENT AND THE COMPARABLES REPORTED AN AVERAGE DEP RECIATION COST AS A PERCENTAGE OF THE GROSS BLOCK OF 10 PERCENT. THE A SSESSEE ARGUED THAT THE DIFFERENCE IN THE DEPRECIATION COST ARISES DUE TO D IFFERENCES IN THE ACCOUNTING TREATMENT ACROSS THE COMPARABLES AND THE ASSESSEE. THE ASSESSEE PLEADED THAT CONSIDERING THE ABOVE FACT, T O ACHIEVE RELIABLE COMPARABILITY, THE MARGINS OF THE COMPARABLE COMPAN IES POST THE ADJUSTMENT OF THE DEPRECIATION SHOULD BE CONSIDERED . THE TRIBUNAL HELD ON THE ABOVE ISSUE AS FOLLOWS: IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 22 OF 25 19.4 WE HAVE HEARD BOTH PARTIES AND CONSIDERED THE RIVAL SUBMISSIONS. WE FIND FORCE IN THE SUBMISSIONS OF TH E LEARNED DEPARTMENTAL REPRESENTATIVE. WHETHER AN ADJUSTMENT TOWARDS DEPRECIATION IS WARRANTED OR NOT MAY BE, ISSUE OF P RINCIPLE. BUT WHETHER THE PRINCIPLE NEEDS TO BE APPLIED TO A PART ICULAR CASE OR NOT WOULD DEPEND ON THE PECULIAR FACTS OF THAT CASE . IT CANNOT BE ANYBODYS CASE THAT AN ADJUSTMENT HAS TO BE NECESSA RILY GRANTED WHENEVER AND WHEREVER THERE IS DIFFERENCE IN DEPREC IATION BETWEEN THE TESTED PARTY AND THE COMPARABLES. AN AD JUSTMENT FOR DIFFERENCE IN DEPRECIATION IS A VALID PRINCIPLE FOR COMPARABILITY, BUT WHETHER THIS CASE ENTAILS SUCH AN ADJUSTMENT HA S TO BE EXAMINED IN THE LIGHT OF THE PARTICULAR FACTS OF TH E CASE. HENCE, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS AS MUCH AS ISSUE OF FACT AS IT IS OF PRINCIPLE. 19.5 BEFORE US, THE ASSESSEE HAS NOT BEEN ABLE TO A DDUCE ANY REASON AS TO WHY THIS ISSUE WAS NOT RAISED BEFORE T HE AUTHORITIES BELOW. IT GIVES CREDENCE TO THE VIEW OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THIS CLAIM IS ONLY AN AFTERTHOU GHT, PURSUANT TO THE LEARNED CIT (APPEALS) CONFIRMING THE ADJUSTMENT S PROPOSED BY THE TPO. 19.6 BESIDES THIS, THE ADJUSTMENT FOR DEPRECIATION, SOUGHT FOR BY THE ASSESSEE, DOES NOT APPEAR TO BE TENABLE EVEN ON MERITS. IT HAS BEEN STATED IN THE ADDITIONAL GROUNDS RAISED THAT W HILE THE DEPRECIATION OF THE ASSESSEE IS 25 PERCENT OF ITS G ROSS BLOCK, IT IS 10 PERCENT OF THE GROSS BLOCK FOR THE COMPARABLES. IT IS INTERESTING TO NOTE THAT THE ASSESSEE HAS COMPARED THE DEPRECIA TION AS A PERCENTAGE OF THE GROSS BLOCK OF THE INDIVIDUAL CAS ES AND NOT AS A PERCENTAGE TO OPERATING COST. 19.7 NO CASE HAS BEEN MADE OUT BY THE ASSESSEE THAT THE DIFFERENCE IN DEPRECIATION IS DUE TO ANY REASON LIK E CAPACITY UTILIZATION, ETC. THE DIFFERENCE IN DEPRECIATION CO ULD BE DUE TO MANY REASONS AS DIFFERENT COMPANIES HAVE THEIR OWN ACCOUNTING PROBLEMS IN THE MATTER OF FIXED ASSETS AND DEPRECIA TION ON THE BASIS OF TECHNICAL ESTIMATES MADE OF USEFUL LIFE OF THE ASSETS. DEPRECIATION PROVIDED UNDER THE INCOME TAX RULES OR THE MINIMUM DEPRECIATION PROVIDED UNDER THE COMPANIES A CT MAY NOT BE REALLY EXHIBITING THE ACTUAL POSITION. OVER A PERIOD OF TIME, THE DIFFERENCE OF DEPRECIATION PROVIDED UNDER DIFFE RENT METHODS WOULD ALMOST BE THE SAME EXCEPT FOR MARGINAL DIFFER ENCE. IN THE WRITTEN DOWN VALUE (WDV) METHOD, THE DEPRECIATION F OR THE IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 23 OF 25 INITIAL YEAR WOULD BE MORE, WHEREAS IN STRAIGHT LIN E METHOD, DEPRECIATION IN THE INITIAL YEARS WOULD BE LESS. HO WEVER, AT THE END OF THE DAY, THE DEPRECIATION OFF SETS EACH BY I TSELF. 19.8 IN THE INTEREST OF EQUITY AND NATURAL JUSTICE, WE FEEL CONSTRAINED TO ADMIT THE ADDITIONAL GROUND RAISED B Y THE ASSESSEE ON THE ISSUE OF DEPRECIATION. HOWEVER, MERE CLAIM F OR AN ADJUSTMENT WILL SERVE NO PURPOSE UNLESS IT IS BACKE D BY PROPER DETAILS. THE ADDITIONAL GROUND STATES THAT THE DEPR ECIATION OF THE ASSESSEE IS A RATIO OF ITS GROSS BLOCK OF 25 PERCEN T AS AGAINST 10 PERCENT OF THE COMPARABLE COMPANIES. THE ASSESSEE H AS NOT STATED THE DEPRECIATION AS A PERCENTAGE OF OPERATIONAL COS T NOR HAS ANY EVIDENCE BEEN PLACED ON RECORD TO SHOW THAT THE DIF FERENCE IN DEPRECIATION IS DUE TO ANY OPERATIONAL REASONS. AS DISCUSSED (SUPRA), THERE COULD BE SEVERAL REASONS FOR DIFFERE NCE IN DEPRECIATION BETWEEN COMPANIES LIKE, RATES OF DEPRE CIATION, AGE OF THE ASSETS, ETC. AND THEREFORE ADJUSTMENT TOWARD S DEPRECIATION CAN BE GRANTED ONLY IF THERE ARE OPERATIONAL DIFFER ENCES THAT AFFECT COMPARABILITY. WE REMIT THE ISSUE OF DEPRECIATION A S RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUNDS (SUPRA) TO THE F ILE OF THE ASSESSING OFFICER / TPO WITH DIRECTION TO EXAMINE A ND CONSIDER THE CLAIM FOR ADJUSTMENT TOWARDS DEPRECIATION IN TH E LIGHT OF OUR OBSERVATIONS FROM PARAS 19.3 TO 19.8 OF THIS ORDER AND TO DISPOSE THE MATTER EXPEDITIOUSLY AFTER AFFORDING ADEQUATE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS ORDERED ACCORDIN GLY. 34. THE ABOVE OBSERVATIONS WERE REFERRED TO BY THE TRIBUNAL IN THE CASE OF M/S. HONEYWELL TECHNOLOGY SOLUTIONS LAB P LTD. (SUP RA) . WE HOWEVER DO NOT FIND ANY QUANTIFICATION OF ADJUSTMEN T TO BE ALLOWED GIVEN BY THE ASSESSEE. 35. WE ARE OF THE VIEW THAT IT WOULD BE JUST AND AP PROPRIATE TO REMAND THE ISSUE TO THE AO FOR FRESH CONSIDERATION IN THE LIGHT OF THE DECISIONS REFERRED TO ABOVE. WE ARE ALSO OF THE VIEW THAT TH E ASSESSEE SHOULD BE DIRECTED TO GIVE THE QUANTIFICATION OF ADJUSTMENT T O BE ALLOWED, IF FOUND IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 24 OF 25 ELIGIBLE, APPLYING THE RATIO LAID DOWN IN THE CASE OF 24/7 CUSTOMERCARE.COM (SUPRA ). WE HOLD AND DIRECT ACCORDINGLY. 36. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESS EE, IF THE SUBMISSIONS OF THE ASSESSEE ARE ACCEPTED, THEN THE ARITHMETIC MEAN OF THE COMPARABLES RETAINED WOULD BE WITHIN THE RANGE OF + /- 5% OF THE ASSESSEES NET MARGIN. THEREFORE, THE OTHER GROUNDS RAISED IN THE MEMORANDUM OF APPEAL ARE NOT PRESSED AT THIS STAGE. HE HAS HOWEVER SOUGHT LIBERTY TO URGE THE SAID GROUNDS IN ANY FUTU RE PROCEEDING, APPELLATE OR OTHERWISE, AND IN THESE PROCEEDINGS AT A FUTURE POINT IN TIME. THE PRAYER SOUGHT BY THE LEARNED COUNSEL FOR THE ASSESSEE IN T HIS REGARD IS ACCEPTED. 37. IN THE RESULT THE APPEAL BY THE ASSESSEE AND TH E REVENUE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF FEBRUARY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER ENCL: ANNEXURE-I BANGALORE, DATED, THE 13 TH FEBRUARY, 2015. /D S/ IT(TP)A NOS.1105 & 1047/BANG/2011 PAGE 25 OF 25 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.