Infineon Technologies India Private Limited, Bangalore V. DCIT, Bangalore

ITA 1068/BANG/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9393 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRISCILLA SINGSIT
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Non-deduction of tax
• Section: 143(3); 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- A, BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER SHRI S JAYARAMAN, ACCOUNTANT MEMBER IT(TP)A NOS.1068/BANG/20 11 (ASST. YEAR 2007-08) M/S INFINEON TECHNOLOGIES INDIA PVT. LTD., KALYANI PLATINA, 3 RD FLOOR, BLOCK I, #6&24, EPIP ZONE PHASE I, WHITEFILED, BENGALURU- 560 066. . APPELLANT VS. THE DY COMMISSIONER OF INCOME-TAX, CIRCLE 11(4), BENGALURU. . RESPONDENT APPELLANT BY : SHRI KR VASUDEVAN, ADVOCATE RESPONDENT BY : SMT. PRISCILLA SINGSIT, CIT DATE OF HEARING : 27-7-2016 DATE OF PRONOUNCEMENT : 22-9-2016 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF DY. COMMISSIONER OF INCOME-TAX DATED 30/8/2011 AN D IT PERTAINS TO THE ASSESSMENT YEARS 2007-08. IT(TP)A NO.1068/B/11 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT RESEARCH CENTER AND PROVIDES SOFTWARE D EVELOPMENT SERVICES OF ELECTRONIC INTEGRATED CIRCUITS. IT ALS O PROVIDE SUPPORT SERVICES TO INFINEON, SINGAPORE. THE OPERATION OF THE ASSESSEE ARE ORGANIZED INTO 2 BUSINESS DEVELOPMENT CENTER (STPI UNIT) AND SALES AND MARKET SUPPORT DIVISION (NON STPI UNIT). 3. THE ASSESSEE COMPANY FILES ITS RETURN OF INCOME FOR THE ASST. YEAR 2007-08 ON 25/1/2007 DECLARING TOTAL INCOME OF RS.15,19,500/- AFTER CLAIMING DEDUCTION U/S 10A AND TAX WAS PAID U NDER THE NORMAL PROVISION OF INCOME-TAX ACT. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) WAS ISSUED ON 9/9/ 2008. 4. DURING THE PREVIOUS ASST. YEAR 2007-08, THE ASSE SSEE HAD CERTAIN INTERNATIONAL TRANSACTIONS THEREFORE REFER ENCE WAS MADE TO THE TPO. THE TPO VIDE ORDER U/S 92CA DATED 14/10/2 010 DETERMINED THE ALP ADJUSTMENT IN RESPECT OF SOFTWAR E SERVICES RENDERED TO THE EXTENT OF RS.22,98,13,929/-. THERE FORE THE ALP ADJUSTMENT TO THE EXTENT OF RS.22,98,13,929/- WAS A DDED TO THE TOTAL INCOME OF THE ASSESSEE. IT(TP)A NO.1068/B/11 3 5. THE ASSESSEE COMPANY FILED ITS OBJECTION BEFORE THE DRP ON 12/1/2011. THE DRP ISSUED DIRECTIONS U/S 143(3) R .W.S 144C VIDE ORDER DATED 22/8/2011. 6. IN CONFIRMATION WITH THE DRP, THE ASST. WAS CONC LUDED ARRIVING AT THE TOTAL TAX PAYABLE BY THE ASSESSEE A T RS.14,52,83,020/- 7. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS OF APPEAL. 1. THE LEARNED DISPUTE RESOLUTION PANEL (DRP) AND THE LEARNED DIRECTOR OF INCOME TAX (TRANSFER PRICING IV), BANGALORE (TRANSFER PRICING OFFICER OR TPO) GROSSLY ERRED IN LAW AND FACTS OF THE CASE IN DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT OF RS.1,590,777,300/- RECEIVED ON ACCOUNT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND PROPOSING A TRANSFER PRICING ADJUSTMENT OF RS. 229,813,929/-. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED DRP ERRED IN UPHOLDING IT(TP)A NO.1068/B/11 4 THE REJECTION OF TRANSFER PRICING (TP) DOCUMENTATION BY THE LEARNED TPO WITHOUT APPRECIATING THE CONTENTIONS, ARGUMENTS, AND EVIDENTIARY DATA PUT FORWARD BY THE APPELLANT DURING THE COURSE OF THE PROCEEDINGS BEFORE THEM, AND IN DOING SO HAVE GROSSLY ERRED: IN REJECTING COST PLUS METHOD AS THE MOST APPROPRIATE METHOD AND ACCEPTING TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD. IN UPHOLDING THE REJECTION OF COMPARABILITY ANALYSIS CARRIED IN THE TP DOCUMENTATION AND CONDUCTING A FRESH COMPARABILITY ANALYSIS CARRIED I N THE TP DOCUMENTATION AND CONDUCTING A FRESH COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE BY THE LEARNED TPO. 3. IN ADOPTING THE ARMS LENGTH MARK UP TO BE 24.14% IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES OF THE APPELLANT. 4. IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN COMPLETELY RELYING ON THE UNAUDITED DATA REQUISITIONED AND CONSEQUENTLY OBTAINED BY TAKING RECOURSE TO THE PROVISIONS OF SECTION 133(6) OF THE INCOME-TAX ACT, 1961 (THE ACT), WHICH IN IT(TP)A NO.1068/B/11 5 MANY INSTANCES ARE INCONSISTENT WITH THE DATA DISCLOSED IN AUDITED REPORT. 5. IN CONSIDERING 25 PERCENT AS THE THRESHOLD LIMIT FOR THE RELATED PARTY TRANSACTIONS FILTER AS THIS NUMBER IS AN ARBITRARY NUMBER THAT HAS BEEN ADOPTED WITHOUT ANY JUDICIAL PRECEDENCE OR REASONABLE BASIS. 6. IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN REJECTING THE UPPER LIMIT FOR SALES TURNOVER FILTER PROPOSED BY THE ASSESSEE WITHOUT PROVIDING ANY EMPIRICAL ANALYSIS. IN DOING SO, THE LEARNED TPO ERRED IN NOT APPRECIATING THAT THE SOFTWARE INDUSTRY IS CLEARLY DEMARCATED BASED ON SIZE. 7. IN NOT MAINTAINING CONSISTENCY IN APPLYING THE FILTERS OF REJECTING COMPANIES WITH SOFTWARE DEVELOPMENT REVENUE LESS THAN 75% OF THE TOTAL REVENUE AND COMPANIES OF DIFFERENT YEAR END. 8. IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN APPLYING THE ONSITE FILTER FOR SELECTION OF SOFTWARE COMPARABLES WITH THE USE OF THE DATA OBTAINED UNDER SECTION 133(6) OF THE ACT. IN DOING SO THE LEARNED TPO ERRED IN REJECTING AKSHAY SOFTWARE IT(TP)A NO.1068/B/11 6 TECHNOLOGIES LIMITED AND VJIL CONSULTING LIMITED. 2.9 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING A COMPANIES LIKE INFOSYS LIMITED AND WIPRO LIMITED AS A COMPARABLE COMPANIES EVEN THOUGH THE SALES OF INFOSYS AND WIPRO ARE DRIVEN BASED ON BRAND DEVELOPED BY THEM, AND DOING SO THE LEARNED DRP HAVE INCORRECTLY APPLIED THE RATIO OF THE JURISDICTIONAL DELHI INCOME TAX APPELLATE TRIBUNAL (ITAT) RULING IN AGNITY INDIA TECHNOLOGIES INDIA PVT. LTD. (REFERENCE: ITA NO.3856(DEL)/2010). 2.10 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING TATA ELEXI LIMITED AS COMPARABLE COMPANY EVEN THOUGH THE COMPANY IN ITS REPLY TO THE LEARNED TPO UNDER SECTION 133(6) HAD MENTIONED THAT THE COMPANY PROVIDES PRODUCT DESIGN SERVICES, WHICH IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEES BUSINESS. 2.11 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING COMPANIES ENGAGED IN THE PROVISION OF SOFTWARE PRODUCT DEVELOPMENT LIKE MEGASOFT LIMITED, FLEXTRONICS SOFTWARE IT(TP)A NO.1068/B/11 7 SYSTEMS LIMITED, KALS INFORMATION SYSTEMS LIMITED, AVANI CIMCON TECHNOLOGIES LIMITED, LUCID SOFTWARE LIMITED, ISHIR INFOTECH LIMITED, E-ZEST SOLUTIONS LIMITED, PERSISTENT SYSTEMS LIMITED AND R SYSTEMS INTERNATIONAL LIMITED WHICH ARE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEES BUSINESS. 2.12 IN ACCEPTING ACCEL TRANSMATICS LIMITED AS A COMPARABLE COMPANY EVEN THOUGH THE COMPANY HAD SOLD ITS INTELLECTUAL PROPERTY AND EARNED INCOME FROM ROYALTY. 2.13 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING CELESTIAL LABS LIMITED AS A COMPARABLE COMPANY EVENTHOUGH IT IS A CONTRACT RESEARCH COMPANY WHICH ALSO ENGAGED IN BIO-INFORMATICS AND HENCE FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. 2.14 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING COMPANIES LIKE MEGASOFT LIMITED, FLEXTRONICS SOFTWARE SYSTEMS LIMITED AND HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED WHICH HAVE ABNORMAL/FLUCTUATING PROFIT MARGINS. IN DOING SO THE LEARNED DRP HAVE DISREGARDED THE VARIOUS JURISDICTIONAL ITAT RULINGS IN CASE OF SAP LABS INDIA PVT LTD. VS. ACIT IT(TP)A NO.1068/B/11 8 (REFERENCE ITA NO.398/BANG/2008), E-GAIN COMMUNICATION PRIVATE LIMITED (REFERENCE: ITANO.1685/PN/07 PUNE). 2.15 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN REJECTING THINKSOFT GLOBAL SERVICES LIMITED BY STATING THAT IT IS NOT FUNCTIONALLY COMPARABLE WHILE IGNORING THE FACT THAT THINKSOFT GLOBAL SERVICES LIMITED WAS ACCEPTED AS A COMPARABLE COMPANY BY THE LEARNED TPO IN AY 2006-07. 2.16 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN CONCLUDING THAT MAARS SOFTWARE INTERNATIONAL LIMITED IS NOT FUNCTIONALLY COMPARABLE WITHOUT EVEN CONSIDERING THE FACT THAT THE IT CONSULTANCY SERVICES FORMS AN INTEGRAL PART OF THE SOFTWARE DEVELOPMENT SERVICES AND CANNOT BE CLASSIFIED AS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE. 3. THAT THE LEARNED TPO AND THE LEARNED DRP ERRED IN DISREGARDING THE USE OF MULTIPLE YEAR DATA AND HAVE ACCEPTED THE USE OF CONTEMPORARANEOUS DATA AS PER THE TRANSFER PRICING REGULATIONS DUE TO NON-AVAILABILITY OF CURRENT YEAR DATA IN THE PUBLIC DOMAIN AT THE TIME OF PREPARING THE DOCUMENTATION. IT(TP)A NO.1068/B/11 9 4. THAT THE LEARNED TPO AND THE LEARNED DRP ERRED IN DISREGARDING THE FACT THAT THE ASSESSEE HAS NOT CLAIMED A DEDUCTION OR TAX BENEFITS UNDER SECTION 10A OF THE ACT AND HAS NOT SHIFTED PROFITS. THEREFORE THE ADJUSTMENT PROPOSED IS NOT CALLED FOR AND IS HENCE MISPLACED. 5. THAT THE LEARNED TPO AND THE LEARNED DRP ERRED IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN CONCLUDING THAT THE ASSESSEE IS EXPOSED TO SINGLE CUSTOMER RISK WITHOUT EVALUATING THE BUSINESS ARRANGEMENT OF THE ASSESSEE. 6. THAT THE LEARNED TPO AND THE LEARNED DRP ERRED IN NOT ALLOWING THE BENEFIT OF RANGE OF +5% AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT TO THE APPELLANT, WHILE DETERMINING THE ARMS LENGTH PRICE. II. CORPORATE TAX 7. DISALLOWANCE OF PROJECT SPECIFIC COSTS AMOUNTING TO RS. 158,395,739/- UNDER SECTION 40(A) OF THE ACT. IT(TP)A NO.1068/B/11 10 7.1 THE LEARNED AO AND LEARNED DRP ERRED IN DISALLOWING HE EXPENDITURE OF RS. 158,395,739/- INCURRED BY THE APPELLANT TOWARDS THE USAGE OF EDA (ELECTRONIC DESIGN AUTOMATION) SOFTWARE TOOLS IN SOFTWARE DEVELOPMENT, UNDER SECTION 40(A) OF THE ACT. 7.2 THE LEARNED AO ERRED IN DISALLOWING THE EXPENSES BY PLACING RELIANCE ON THE JUDGEMENT OF HONBLE KARNATAKA HIGH COURT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 WHERE IT HAS BEEN HELD THAT THE TAXES ARE REQUIRED TO BE WITHHELD AT SOURCE ON PAYMENTS MADE TO NON-RESIDENTS. 7.3 THE LEARNED AO ERRED IN NOT APPRECIATING THAT THE HONORABLE SUPREME COURT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02, VIDE ORDER DATED 9 TH SEPTEMBER, 2010, HAS SET ASIDE THE ORDER OF THE KARNATAKA HIGH COURT (SUPRA) AND REQUESTED THE HIGH COURT TO DECIDE THE CASE ON MERITS. 7.4 THE LEARNED AO ERRED IN NOT OBSERVING THAT SINCE THE HONORABLE SUPREME COURT (SUPRA) HAS SET ASIDE THE ORDER OF THE KARNATAKA HIGH COURT (SUPRA), THE DECISION OF THE HONORABLE INCOME- TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2000-01 AND 2001- IT(TP)A NO.1068/B/11 11 02, WHEREIN IT HAS BEEN HELD THAT THE AMOUNT PAID BY THE APPELLANT TO ITS PARENT COMPANY WAS NOT IN THE NATURE OF ROYALTY AND NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE, WOULD CONTINUE TO HOLD GOOD. 7.5 THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT THE EDA SOFTWARE LICENSES ARE PURCHASED BY INFINEON TECHNOLOGIES AG GERMANY, THE ULTIMATE PARENT COMPANY OF THE APPELLANT, FROM THE VENDORS AS A STANDARD OFF-THE-SHELF PRODUCT AND ARE NOT TRANSFERRED TO THE APPELLANT COMPANY. THE APPELLANT COMPANY ONLY USES THE LICENSES OWNED BY INFINEON TECHNOLOGIES AG, GERMANY. 7.6 THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT THE PAYMENTS MADE BY THE APPELLANT COMPANY TO INFINEON TECHNOLOGIES AG, GERMANY FOR USAGE OF EDA SOFTWARE TOOLS IS TOWARDS REIMBURSEMENT OF COSTS INCURRED BY INFINEON TECHNOLOGIES AG, GERMANY WITHOUT ANY MARK-UP, AND THEREFORE NO TAX IS REQUIRED TO BE DEDUCTED ON THE SAME. 8. ADJUSTMENTS MADE TO THE TOTAL TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT 8.1 THE LEARNED AO ERRED IN REDUCING TELECOMMUNICATION EXPENSES (BANDWIDTH CHARGES) IT(TP)A NO.1068/B/11 12 AMOUNTING TO RS. 12,321,729/- AND FOREIGN CURRENCY EXPENDITURE ON TRAVEL, PROFESSIONAL & CONSULTANCY EXPENSES AMOUNTING TO RS. 177,080,369/- FROM THE EXPORT TURNOVER COMPUTED BY THE APPELLANT ON THE CONTENTION THAT THESE EXPENSES ARE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. 8.2 THE LEARNED AO HAS ERRED IN REDUCING THE ENTIRE SUM, DEBITED BY THE APPELLANT UNDER THE ACCOUNT HEAD COMMUNICATION EXPENSES, FROM THE EXPORT TURNOVER AS ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. THE LEARNED AO OUGHT TO HAVE OBSERVED THAT, OUT OF THE ABOVE SUM OF RS. 12,321,729/-, AN AMOUNT OF RS.885,354/- ONLY RELATE TO THE BANDWIDTH CHARGES. THE BALANCE SUM OF RS. 11,436,375/- PERTAIN TO EXPENSES SUCH AS MOBILE CHARGES, COURIER CHARGES, LANDLINE CHARGES AND AUDIO CONFERENCE CHARGES. 8.3 NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO ERRED IN NOT OBSERVING THAT SHOULD A PORTION OF THE TELECOMMUNICATION EXPENSES (BANDWIDTH CHARGES) BE REDUCED FROM THE EXPORT TURNOVER, THE EXPENSES SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER IN ARRIVING AT THE DEDUCTION UND ER SECTION 10A OF THE ACT. IT(TP)A NO.1068/B/11 13 8.4 THE LEARNED AO HAS ERRED IN NOT RELYING UPON THE DECISION OF THE JURISDICTIONAL INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF KPIT CUMMINS INFOSYSTEMS (BANGALORE)(P) LTD. V. ACIT 26 SOT 529, WHEREIN IT HAS BEEN HELD THAT SHOULD THE EXPENSES BE REDUCED FROM EXPORT TURNOVER THEN THE EXPENSES OUGHT TO BE REDUCED FROM TOTAL TURNOVER ALSO. 8.5 FURTHER, THE LEARNED AO HAS ALSO ERRED IN NOT RELYING ON THE DECISION OF THE SPECIAL BENCH OF THE CHENNAI TRIBUNAL IN THE CASE OF SAK SOFT LIMITED V. ITO (ITA NO.691 & 1953/MDS/2007) WHEREIN IT HAS BEEN HELD THAT IF THE TELECOMMUNICATION, FREIGHT AN D INSURANCE EXPENSES ARE REDUCED FROM THE EXPORT TURNOVER THEN THE SAME WOULD ALSO HAVE TO BE REDUCED FROM THE TOTAL TURNOVER IN ORDER TO COMPUTE THE DEDUCTION UNDER SECTION 10A. FURTHER, RECENTLY THE HIGH COURT OF KARNATAKA HAS DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE IN THE CASE OF HONEYWELL TECHNOLOGIES SOLUTIONS LAB PVT.LTD. (ITA NO.820 OF 2009). 8.6 THE LEARNED AO ERRED IN COMPUTING DEDUCTION UNDER SECTION 10A BY ERRONEOUSLY CONSIDERING THE PROFITS OF THE SOFTWARE (STPI) UNIT AS RS. 297,319,880/- INSTEAD OF RS. 181,072,777/- THEREBY RESULTING IN A LOWER DEDUCTION UNDER SECTION 10A. IT(TP)A NO.1068/B/11 14 9. INTEREST 9.1 THE LEARNED AO ERRED IN LEVYING INTEREST OF RS. 48,314,743/- UNDER SECTION 234B OF THE ACT. TH E APPELLANT SUBMITS THAT THE LEVY OF INTERST IS CONSEQUENTIAL IN NATURE. THE APPELLANT CRAVES TO LEAVE/TO ADD TO/TO ALTER/TO AMEND/TO RESCIND/TO MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS, FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING THIS APPEAL. 9. THE TPO ADOPTED TNMM METHOD. THE SEGMENTAL DETA ILS PERTAINING TO SOFTWARE DEVELOPMENT SERVICE AND BPO SERVICES ARE AS UNDER:- PARTICULARS SOFTWARE RESEARCH & DEVELOPMENT & INFORMATION TECHNOLOGY MARKETING SUPPORT SERVICES TOTAL OPERATING INCOME(*) 1360963371 15424364 1376387735 OPERATING COST (**) 1275478913 14054641 1289533554 OPERATING PROFIT 85484458 1369723 86854181 OP MARGIN/COST 6.70% 9.76% 6.73% (*) EXCLUDING OTHER INCOME. (**) EXCLUDING LOSS ON SALE OF ASSET IT(TP)A NO.1068/B/11 15 10. THE LIST OF COMPANIES SELECTED BY THE TPO ARE AS FOLLOWS:- 1. ACCEL TRANSMATICS LTD (SEGMENT) 2. AVANI CIMCON TECHNOLOGIES LTD 3. CELESTIAL LABS LTD 4. DATAMATICS LTD 5. E ZEST SOLUTIONS LTD 6. FLEXTRONICS SOFTWARE SYSTEMS LTD (SEGMENT) 7. GEOMETRIC SOFTWARE LIMITED (SEGMENT) 8. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD 9. IGATE GLOBAL SOLUTIONS LTD (SEGMENT) 10. INFOSYS LIMITED 11. ISHIR INFOTECH LTD 12. KALS INFORMATION SYSTEMS LIMITED 13. LGS GLOBAL LTD (LANCO GLOBAL SOLUTIONS LTD) 14. LUCID SOFTWARE LIMITED 15. MEDIASOFT SOLUTIONS PRIVATE LIMITED 16. MEGASOFT LTD 17. MINDTREE CONSULTING LIMITED 18. PERSISTENT SYSTEMS LIMITED 19. QUINTEGRA SOLUTIONS LTD 20. RS SOFTWARE (INDIA) LTD 21. R SYSTEMS INTERNATIONAL LIMITED (SEGMENT) 22. SASKEN COMMUNICATIONS LIMITED (SEGMENT) 23. SIP TECHNOLOGIES & EXPORTS LIMITED 24. TATA ELEXI LIMITED (SEGMENT) 25. THIRDWARE SOLUTIONS LTD 26. WIPRO LTD (SEG) 11. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI KR VA SUDEAN SUBMITTED THAT OUT OF 26 COMPANIES SELECTED BY THE TPO, THE IT(TP)A NO.1068/B/11 16 FOLLOWING 16 COMPANIES MAY BE REJECTED FOR THE REA SONS MENTIONED IN THE TABLE BELOW. THE ASSESSEE RELIED ON THE DE CISION OF HEWLETT-PACKARD (INDIA) GLOBALSOFT PVT. LTD., IT(T P)A NO.1031/BANG/2011 . SN COMPARABLES REJEC TION REASONS 1 ACCEL TRANSMATICS LTD (SEGMENT) 1.FUNCTIONALLY DISSIMILAR 2.ABNORMALLY HIGH GROWTH RATES 3.FLUCTUATING MARGINS FROM 5.68% IN 2004 TO A LOSS OF (18.13%) IN 2005 TO A PROFIT OF 40.75% IN 2006 AND 21.11% IN 2007; 4.REVENUE FROM THE SOFTWARE SERVICES IS 27.60% OF T HE TOTAL OPERATING REVENUE CH WHICH IS MUCH LESS THAN THE 75% THRESHOLD. 2 AVANI CIMCON TECHNO-LOGIES LTD FUNCTIONALLY DISSIMILAR 3 CELESTIAL LABS LTD FUNCTIONALLY DISSIMILAR 4 E ZEST SOLUTIONS LTD., FUNCTIONALLY DISSIMILAR 5 FLEXTRONICS SOFTWARE SYSTEMS LTD (SEGMENT) FUNCTIONALLY DISSIMILAR IT(TP)A NO.1068/B/11 17 6 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., 1.FUNCTIONALLY DISSIMILAR 2. ABNORMAL MARGIN FLUCTUATIONS 7 INFOSYS LIMITED 1. FUNCTIONALLY DISSIMILAR 2. PRESENCE OF BRAND 3. HIGH MARGIN AND 4. INDUSTRY LEADER LARGE ECONOMIES OF SCALE 8 ISHIR INFOTECH LTD FUNCTIONALLY DISSIMILAR 9 KALS INFORMATION SYSTEMS LIMITED FUNCTIONALLY DISSIMILAR 10 LUCID SOFTWARE LTD., FUNCTIONALLY DISSIMILAR 11 MEGASOFT LTD 1.FUNCTIONALLY DISSIMILAR 2.MARGIN TO BE COMPUTED AT SEGMENTAL LEVEL AND NOT ENTITY LEVEL 3.ABNORMALLY HIGH MARGINS 12 PERSISTENT SYSTEMS LIMITED FUNCTIONALLY DISSIMILAR 13 RS SOFTWARE (INDIA) LTD., DIFFERENT FINANCIAL YEAR END 14 TATA ELEXI LIMITED (SEGMENT) FUNCTIONALLY DISSIMILAR 15 WIPRO LTD (SEG) 1. FUNCTIONALLY DISSIMILAR IT(TP)A NO.1068/B/11 18 2. INDUSTRY LEADER LARGE ECONOMIES OF SCALE; AND 3. PRESENCE OF INTANGIBLES 12. WE FIND THAT THE ABOVE COMPANIES, WHICH THE ASS ESSEE HAS CHOSEN TO REQUEST FOR EXCLUSION/REJECTION, ARE COVE RED BY THE DECISION OF HEWLETT-PACKARD (INDIA) GLOBALSOFT PVT. LTD., (SUPRA). HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE C OORDINATE BENCH, WE DIRECT THE TPO TO EXCLUDE ALL OF THEM. 13. THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONA L GROUND: THE APPELLANT SUBMITS THAT THIRDWARE AS REFERRED IN GROUND NO. 2.11.1 WAS SELECTED AS A COMPARABLE BY THE LD. TPO TO THE SOFTWARE DEVELOPMENT SERVICES RENDERED BY THE APPELLANT AT THE TIME OF TRANSFER PRICING ASSESSMENT PROCEEDINGS. BASED ON THE RECENT JUDICIAL PRONOUNCEMENTS, THE APPELLANT SUBMITS THAT THIRDWARE IS HELD TO BE FUNCTIONALLY N OT COMPARABLE TO THE APPELLANT AS IT IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. FURTHER, THIRDWARE HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND IT(TP)A NO.1068/B/11 19 LOSS ACCOUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVICES AND SALE OF LICENSES. 14. THIRD WARE SOLUTION LTD., SHOULD BE REJECTED AS A COMPARABLE COMPANY AS IT IS HELD TO BE FUNCTIONALLY NOT COMPAR ABLE TO THE ASSESSEE SINCE IT IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBTRACTION. 15. IN RESPECT OF THE FOLLOWING COMPANIES, WE ARE OF THE OPINION THAT THE SAME SHALL BE TAKEN AS COMPARABLE. 1. DATAMATICS LTD 2. GEOMETRIC SOFTWARE LIMITED (SEGMENT) 3. IGATE GLOBAL SOLUTIONS LTD (SEGMENT) 4. LGS GLOBAL LTD (LANCO GLOBAL SOLUTIONS LTD) 5. MEDIASOFT SOLUTIONS PRIVATE LIMITED 6. MINDTREE CONSULTING LIMITED 7. QUINTEGRA SOLUTIONS LTD 8. RS SOFTWARE (INDIA) LTD 9. SASKEN COMMUNICATIONS LIMITED (SEGMENT) 10. SIP TECHNOLOGIES & EXPORTS LIMITED 16. THUS, WE DIRECT THE TPO TO REJECT THE 15 COMP ANIES AS STATED ABOVE IN PARA 11, ACCEPT THE 10 COMPANIES AS STAT ED IN PARA 15 AND IT(TP)A NO.1068/B/11 20 REJECT 1 COMPANY (THIRDWARE SOLUTION LTD.,) AS STAT ED IN PARA 14 AND REWORK THE ALP OF THE ASSESSEE. 17. WITH RESPECT TO THE REMAINING GROUNDS OF APPEAL FILED, THE FOLLOWING OBSERVATIONS ARE TO BE TAKEN INTO ACCOUNT . 18. GROUND NO. 1, 2 ARE GENERAL. 19. GROUND NO.2.1 TO 2.4 CONCEPTUAL. 20. GROUND NO.2.2 TO 2.8 AND 2.15 TO 2.16, 3, 4, 5 AND 6 ARE NOT PRESSED. 21. GROUND NO. 7 TO 7.6 ARE WITH RESPECT TO CORPORA TE TAX DISALLOWANCE OF PROJECT SPECIFIC COSTS AMOUNTING TO RS.158,395,739 U/S 40(A)(IA) OF THE ACT. IT(TP)A NO.1068/B/11 21 22. THIS ISSUE IS COVERED BY THE DECISION OF THE TR IBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1670/BANG/2012, WHERE IN IT HAS BEEN HELD AS UNDER:- 10.1 THIS GROUND IS IN RESPECT OF THE DISALLOWANCE OF PROJECT SPECIFIC COSTS AMOUNTING RS.11,25,95,270 U/ S 40(A)(I) OF THE ACT. . IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED THESE AMOUNTS AS PROJECT SPECIFIC COSTS. IT WAS FOUND THAT THESE CHARGES CONSIST OF GLM AND SOFTWARE CHARGES PAID BY THE COMPANY. THE ASSESSING OFFICER HELD THAT THIS ISSUE OF DISALLOWANCE OF SOFTWARE USAGE CHARGES (SHRINK WRAPPED SOFTWARE) FOR NON-DEDUCTION OF TAXES IS TO BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT AS HAS BEEN HELD BY THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. & OTHERS (KAR) IN ITA NO.2808 OF 2005 DT.15.10.2011 AND TO WHICH CASE THE ASSESSEE WAS ALSO A PARTY (ITA NO.1264 & 1265/06). IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS.11,25,95,270 UNDER IT(TP)A NO.1068/B/11 22 SECTION 40(A)(I) OF THE ACT. ON APPEAL, THE DRP UPHELD THE DECISION OF THE ASSESSING OFFICER WHO THEN MADE THE DISALLOWANCE IN THE FINAL ORDER OF ASSESSMENT. IT IS AGAINST THESE FINDINGS OF THE AUTHORITIES BELOW, THAT THE ASSESSEE IS BEFORE US IN THIS APPEAL. IN THE COURSE OF HEARINGS BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF REVENUE BY THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. (SUPRA), RELIED ON BY THE A.O./DRP, AND TO WHICH CASE THE ASSESSEE WAS ALSO PARTY BEFORE THE HON'BLE HIGH COURT. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. (SUPRA) WHICH HAS ALSO BEEN RENDERED IN THE ASSESSEE'S CASE, WE UPHOLD THE DECISION OF THE ASSESSING OFFICER. CONSEQUENTLY, WE DISMISS GROUND NO.8 RAISED BY THE ASSESSEE. IT(TP)A NO.1068/B/11 23 23. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDIN ATE BENCH (SUPRA), WE DISMISS THIS GROUND OF APPEAL. 24. GROUND NO.8 IS ADJUSTMENTS MADE TO THE TOTAL TU RNOVER IN COMPUTING DEDUCTION U/S 10A OF THE ACT. 25. GROUND 8.1 TO 8.5 ARE COVERED BY THE DECISION O F TATA ELXSI 378 ITR 29. FURTHER THE AO IS DIRECTED TO CONSIDER THE RECENT DECISION OF HIGH COURT IN THE CASE OF HONEYWELL TEC HNOLOGIES SOLUTIONS LAB PVT. IN ITA NO.820 OF 2009. 26. IN GROUND NO.8.6, THE ASSESSEE HAS SUBMITTED TH AT WHILE COMPUTING DEDUCTION U/S 10A, THE PROFITS OF THE SOF TWARE (STPI) UNIT AS RS.297,319,880/- INSTEAD OF RS.181,072,777/ - THEREBY RESULTING IN A LOWER DEDUCTION U/S 10A. IT(TP)A NO.1068/B/11 24 27. WE DIRECT THE TPO TO CORRECT THE ERROR WHICH HA S CREPT IN WHILE COMPUTING DEDUCTION U/S 10A AND TAKE THE PROF IT OF SOFTWARE UNIT AT RS.181,072,777/- 28. ADDITIONAL GROUND NOS.5.1 AND 6.1 ARE AS UNDER : GROUND 5.1 MARKET RISK ADJUSTMENT THE APPELLANT SUBMITS THAT THE HONBLE DRP MEMBERS AND LEARNED AO OUGHT TO HAVE GRANTED MARKET RISK ADJUSTMENT TO THE APPELLANT: * THE HONBLE DRP MEMBERS AND THE LEARNED AO HAVE GROSSLY ERRED IN ACCEPTING THE LEARNED TPOS REJECTION OF MARKET RISK ADJUSTMENT SUBMITTED BY TH E APPELLANT. * THE HONBLE DRP AND THE LEARNED AO HAVE ERRED IN NOT APPRECIATING THE DIFFERENCE IN THE FUNCTIONA L PROFILE THAT EXISTS BETWEEN THE APPELLANT WHO FUNCTIONS IN THE ROLE OF A CAPTIVE SERVICE PROVIDER VIS-AVIS THE INDEPEN DENT UNRELATED COMPARABLE COMPANIES WHO OPERATE IN THE CAPACITY OF ENTREPRENEURIAL ENTITIES. IT(TP)A NO.1068/B/11 25 * THE HONBLE DRP MEMBERS AND THE LEARNED AO ERRED IN CONCLUDING THAT THE MARKET RISK ADJUSTMENT WILL BE NULLIFIED AGAINST THE EXISTENCE OF SINGLE CUSTOM ER AND POLITICAL RISKS. GROUND NO.6.1 - DEPRECIATION ADJUSTMENT THE APPELLANT SUBMITS THAT IT SHOULD BE GRANTED DEPRECIATION ADJUSTMENT. * THE DEPRECIATION COST AS A PERCENTAGE OF THE COS T OF THE APPELLANT DURING THE FINANCIAL YEAR 2006-07 IS SIGNIFICANTLY DIFFERENT FROM THAT OF THE COMPARABLE COMPANIES. * THE DIFFERENCE IN THE DEPRECIATION COST ARISES D UE TO DIFFERENCES IN THE ACCOUNTING TREATMENT ACROSS T HE COMPARABLE COMPANIES AND THE APPELLANT. * CONSIDERING THE ABOVE FACT, TO ACHIEVE RELIABLE COMPARABILITY, THE MARGINS OF THE COMPARABLE COMPAN IES SHOULD BE ADJUSTED FOR DIFFERENCE IN DEPRECIATION C OST OF COMPARABLE COMPANIES AND TESTED PARTY. 29. WITH RESPECT TO MARKET RISK ADJUSTMENT, THE LE ARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF INTELLIN ET TECHNOLOGIES PVT. LTD., IN ITA NO.1237/BANG/2010 WHICH HAS BEEN FOLLOWED IN IT(TP)A NO.1068/B/11 26 THE CASE OF INFINEON TECHNOLOGIES INDIA PVT. LTD., IN IT(TP) NO.1670/BANG/2012. THE ASSESSEE CONTENDS THAT IT IS A LOW RISK SERVICE PROVIDER WHEREAS THE COMPARABLE COMPANIES CHOSEN BY THE TPO ARE RISK BEARING ENTITIES AND HENCE THE DIFFERENCE IN THE RISK PROFILE NEEDS TO B E ADJUSTED FOR PROPER COMPARABILITY. THE ASSESSEE ALSO SUBMITS THAT THE DETAILS OF THE COMPUTATION OF THE RISK ADJUSTMENT HAS ALSO BEEN SUBMITTED. IN SUPPORT OF ITS CONTENTIONS FOR BEING ALLOWED RISK ADJUSTMENT, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF INTELLINET TECHNOLOGIES INDIA PVT. LTD. IN ITA NO.1217/BANG/2010 AND BEARING POINT BUSINESS CONSULTING PVT. LTD. IN ITA NO.1124/BANG/2011. WE FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASES OF INTELLINET TECHNOLOGIES INDIA PVT. LTD. (SUPRA) AND BEARING POINT BUSINESS CONSULTING PVT. LTD. (SUPRA) HAVE HELD THAT, IN PRINCIPLE, RISK ADJUSTMENT MUST BE GRANTED, IF WARRANTED IN THE FACTS OF THE CASE, FOR BRINGING TH E COMPARABLES ON PAR WITH THE ASSESSEE COMPANY. FOLLOWING THE ABOVE DECISION AND OF THE CO-ORDINATE IT(TP)A NO.1068/B/11 27 BENCH (SUPRA), WE ALSO HOLD THAT IN PRINCIPLE, THE ASSESSEE MAY BE GRANTED RISK ADJUSTMENT, IF SO REQUIRED IN THE PECULIAR FACTS OF THE CASE FOR BRINGING THE COMPARABLE COMPANIES ON PAR WITH THE ASSESSEE. HOWEVER, THE QUANTUM OF RISK ADJUSTMENT TO BE GRANTED, IF ANY, IS REMANDED BACK TO THE FILE OF THE TPO. THE TPO IS DIRECTED TO EXAMINE THE DETAILS OF THE QUANTITATIVE COMPUTATION OF RISK ADJUSTMENT AND ATTENDANT DETAILS SUBMITTED BY THE ASSESSEE JUSTIFYING ITS CLAIM FOR RISK ADJUSTMENT AND TO TAK E INTO ACCOUNT THE SAME ALONG WITH ALL THE RELEVANT MATERIAL BEFORE DECIDING ON THE PERCENTAGE OF RISK ADJUSTMENT TO BE ALLOWED, IF ANY, IN ACCORDANCE WIT H LAW. IT IS ORDERED ACCORDINGLY. CONSEQUENTLY, GROUND NOS.3 & 4 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 30. WE DIRECT THE ASSESSING OFFICER TO FOLLOW THE A BOVE ORDER IN ASSESSEES OWN CASE (SUPRA) AND REWORK THE MARKET R ISK ADJUSTMENT. IT(TP)A NO.1068/B/11 28 31. WITH RESPECT TO DEPRECIATION ADJUSTMENT ALLOWAN CE OF DEPRECIATION ADJUSTMENT, THE LEARNED COUNSEL FOR T HE ASSESSEE RELIED ON THE DECISION OF TRIBUNAL IN THE ASSESSEES OWN C ASE (SUPRA) FOR THE ASST. YEAR 2008-09. 19.2 THE ASSESSEE IN THE GROUNDS RAISED SOUGHT ADJU STMENT TOWARDS DEPRECIATION ON THE GROUND THAT THE DEPRECI ATION COST AS A PERCENTAGE OF THE GROSS BLOCK OF THE ASSE SSEE WAS 25% AS AGAINST 10% FOR THE COMPARABLE AND HENCE THI S DIFFERENCE NEEDS TO BE ADJUSTED FOR COMPARABILITY. DURING THE PROCEEDINGS, ON BEING SPECIFICALLY ASKED, THE L EARNED COUNSEL FOR THE ASSESSEE STATED THAT THIS GROUND WA S NOT RAISED BEFORE THE TPO AND CIT (APPEALS) BUT PRAYED THAT THE SAME BE ADMITTED FOR ADJUDICATION AS IT WAS A L EGAL ISSUE. 19.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT HE HAS, PRIMA FACIE, NO OBJECTION TO ADMISSION OF THIS ADDITIONAL GROUND. HE, HOWEVER, POINTED OUT THAT TH E ADDITIONAL GROUND RAISED WAS VERY GENERAL, PUT IN A BLAND MANNER, WAS NOT CLEAR OR SPECIFIC AND APPEARED TO B E AN AFTERTHOUGHT AFTER THE CIT (APPEALS) HAS CONFIRMED THE ADJUSTMENTS MADE BY THE TPO. THE LEARNED DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT IT(TP)A NO.1068/B/11 29 EXPLAINED AS TO WHY THIS CLAIM OF DEPRECIATION IS B EING SUBMITTED NOW; WHY IT IS NECESSARY TO ACCEPT THE SA ME; WHY THIS CLAIM WAS NOT RAISED EARLIER; COMPUTATION OF QUANTUM, ETC. IN THE ABSENCE OF THESE DETAILS, SUCH AN ADDITIONAL GROUND WOULD HAVE NO MEANING AND NOT BEI NG MAINTAINABLE OUGHT TO BE DISMISSED SUMMARILY. 9.4 WE HAVE HEARD BOTH PARTIES AND CONSIDERED THE R IVAL 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 PRINCIPLE. BUT WHETHER THE PRINCIPLE N EEDS TO BE APPLIED TO A PARTICULAR CASE OR NOT WOULD DEPEND ON THE PECULIAR FACTS OF THAT CASE. IT CANNOT BE ANYBODYS CASE THAT AN ADJUSTMENT HAS TO BE NECESSARILY GRANTED WHENEVE R AND WHEREVER THERE IS DIFFERENCE IN DEPRECIATION BETWEE N THE TESTED PARTY AND THE COMPARABLES. AN ADJUSTMENT FOR DIFFERENCE IN DEPRECIATION IS A VALID PRINCIPLE FOR COMPARABILITY, BUT WHETHER THIS CASE ENTAILS SUCH A N ADJUSTMENT HAS TO BE EXAMINED IN THE LIGHT OF THE P ARTICULAR FACTS OF THE CASE. HENCE, THE ADDITIONAL GROUND RAI SED BY THE ASSESSEE IS AS MUCH AS ISSUE OF FACT AS IT IS O F PRINCIPLE. 19.5 BEFORE US, THE ASSESSEE HAS NOT BEEN ABLE TO A DDUCE ANY REASON AS TO WHY THIS ISSUE WAS NOT RAISED BEFO RE THE AUTHORITIES BELOW. IT GIVES CREDENCE TO THE VIEW OF THE IT(TP)A NO.1068/B/11 30 LEARNED DEPARTMENTAL REPRESENTATIVE THAT THIS CLAIM IS ONLY AN AFTERTHOUGHT, PURSUANT TO THE LEARNED CIT (APPEA LS) CONFIRMING THE ADJUSTMENTS 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 GROUND S RAISED THAT WHILE THE DEPRECIATION OF THE ASSESSEE IS 25% OF ITS GROSS BLOCK, IT IS 10% OF THE GROSS BLOCK FOR THE COMPARABLES. IT IS INTERESTING TO NOTE THAT THE ASS ESSEE HAS COMPARED THE DEPRECIATION AS A PERCENTAGE OF THE GR OSS BLOCK OF THE INDIVIDUAL CASES AND NOT AS A PERCENTA GE 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 O WN ACCOUNTING PROBLEMS IN THE MATTER OF FIXED ASSETS A ND DEPRECIATION ON THE BASIS OF TECHNICAL ESTIMATES MA DE OF USEFUL LIFE OF THE ASSETS. DEPRECIATION PROVIDED UN DER THE INCOME TAX RULES OR THE MINIMUM DEPRECIATION PROVID ED UNDER THE COMPANIES ACT MAY NOT BE REALLY EXHIBITIN G THE ACTUAL POSITION. OVER A PERIOD OF TIME, THE DIFFERE NCE OF DEPRECIATION PROVIDED UNDER DIFFERENT METHODS WOULD ALMOST BE THE SAME EXCEPT FOR MARGINAL DIFFERENCE. IN THE IT(TP)A NO.1068/B/11 31 WRITTEN DOWN VALUE (WDV) METHOD, THE DEPRECIATION F OR THE 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 ITSELF. 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, MER E CLAIM FOR AN ADJUSTMENT WILL SERVE NO PURPOSE UNLESS IT I S BACKED BY PROPER DETAILS. THE ADDITIONAL GROUND STATES THA T THE DEPRECIATION OF THE ASSESSEE IS A RATIO OF ITS GROS S BLOCK OF 25% AS AGAINST 10% OF THE COMPARABLE COMPANIES. THE ASSESSEE HAS NOT STATED THE DEPRECIATION AS A PERCE NTAGE OF OPERATIONAL COST NOR HAS ANY EVIDENCE BEEN PLACED O N RECORD TO SHOW THAT THE DIFFERENCE IN DEPRECIATION IS DUE TO ANY OPERATIONAL REASONS. AS DISCUSSED (SUPRA), THER E COULD BE SEVERAL REASONS FOR DIFFERENCE IN DEPRECIATION B ETWEEN COMPANIES LIKE, RATES OF DEPRECIATION, AGE OF THE A SSETS, ETC. AND THEREFORE ADJUSTMENT TOWARDS DEPRECIATION CAN B E GRANTED ONLY IF THERE ARE OPERATIONAL DIFFERENCES T HAT AFFECT COMPARABILITY. WE REMIT THE ISSUE OF DEPRECIATION A S RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUNDS (SUPRA) T O THE FILE OF THE ASSESSING OFFICER / TPO WITH DIRECTION TO EX AMINE AND CONSIDER THE CLAIM FOR ADJUSTMENT TOWARDS DEPRE CIATION IN THE LIGHT OF OUR OBSERVATIONS FROM PARAS 19.3 TO 19.8 OF THIS ORDER AND TO DISPOSE THE MATTER EXPEDITIOUSLY AFTER IT(TP)A NO.1068/B/11 32 AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. IT IS ORDERED ACCORDINGLY. 12.3 FOLLOWING THE AFORESAID DECISION OF THE CO-ORD INATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER .COM PVT. LTD. (SUPRA), WE ADMIT THE ADDITIONAL GROUND R AISED FOR GRANT OF DEPRECIATION ADJUSTMENT AND REMIT THE MATT ER TO THE FILE OF THE TPO TO CONSIDER AND EXAMINE THE ASSESSE E'S CLAIM FOR ADJUSTMENT TOWARDS DEPRECIATION IN THE LI GHT OF THE TRIBUNALS OBSERVATIONS AT PARAS 19.4 TO 19.8 O F THE ORDER OF THE CO-ORDINATE BENCH (SUPRA) AFTER AFFORD ING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO SUBMIT DETAILS/EXPLANATIONS REQUIRED, WHICH SHALL BE DULY CONSIDERED. IT IS ORDERED ACCORDINGLY. CONSEQUENTLY , THIS ADDITIONAL GROUND IS TREATED AS ALLOWED FOR STATIST ICAL PURPOSES. 32. WE DIRECT THE TPO TO FOLLOW THE ORDER OF TRIBUN AL IN ASSESSEES OWN CASE (SUPRA) AND DECIDE THE ISSUE ACCORDINGLY. 33. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. IT(TP)A NO.1068/B/11 33 ORDER PRONOUNCED IN THE OPEN COURT ON 22ND SEPTEMBER, 2016 . SD/- SD/- (S JAYARAMAN) (ASHA VIJ AYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED : 22/09/2016 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED 4.THE CIT(A) CONCERNED 5.DR 6.GF BY ORDER ASST. REG ISTRAR, ITAT, BANGALORE.