Cisco Systems (India) Private Limited, Bangalore V. DCIT, Bangalore

ITA 1076/BANG/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0674 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 14-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI CITII
• Keywords: Transfer pricing; Opportunity of cross examination; International transaction
• Section: 80HHC; 133(6)

Judgement Text

IT(TP)A.1076/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI. GEORGE GEORGE K. JUDICIAL MEMBER I.T.A NO.1076/BANG/2011 (ASSESSMENT YEAR : 2007-08) M/S. CISCO SYSTEMS (INDIA) P. LTD., DIVYASHREE CHAMBERS, 'B' WING, NO.11, 'O' SHAUGHNESSEY ROAD, OFF LANGFORD ROAD, BANGALORE 560 026 .. APPELLAN T PAN : AABCC0258Q V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 11(2), BANGALORE .. RESPONDENT APPELLANT BY : SHRI. RAJAN VORA, CA RESPONDENT BY : SHRI. FARHAT HUSSAIN QURESHI, CIT- II, DR DATE OF HEARING : 09.01.2013 DATE OF PRONOUNCEMENT : 29.03.2013 O R D E R PER N. BARATHVAJA SANKAR, VICE PRESIDENT : THIS IS AN APPEAL PREFERRED BY M/S. CISCO SYSTEMS I NDIA P. LTD., FOR THE ASSESSMENT YEAR 2007-08 AGAINST THE ASSESSM ENT ORDER DATED.30.12.2010. THE ASSESSEE HAS TAKEN VARIOUS G ROUNDS SOME OF THEM RELATING TO CORPORATE TAX MATTERS AND THE REMA INING RELATING TO TRANSFER PRICING MATTERS. IT(TP)A.1076/BANG/2011 PAGE - 2 02. LET US FIRST TAKE UP THE ISSUES RELATING TO TRA NSFER PRICING MATTERS. THE BRIEF FACTS ARE THAT M/S. CISCO SYSTEMS INDIA P . LTD., IS A COMPANY PRIMARILY ENGAGED IN UNDERTAKING SOFTWARE DEVELOPME NT ACTIVITIES, MARKETING SUPPORT SERVICES AND PRODUCT REPLACEMENT SERVICES FOR CISCO PRODUCTS IN INDIA. CISCO INDIA'S DEVELOPMENT CENTR E FOR SOFTWARE DEVELOPMENT AND TESTING IS REGISTERED UNDER THE SOF TWARE TECHNOLOGY PARKS OF INDIA (STPI) SCHEME AND HAS CLAIMED DEDUCT ION U/S.10A OF THE INCOME-TAX ACT, 1961, IN RESPECT OF PROFITS EAR NED FROM THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO CISCO TECHNOLOGY INC., USA (CISCO TECHNOLOGY INC) FROM THE STPI UNIT. PRODUCT DEVELOPMENT SERVICES TRANSACTION: 03. CISCO SYSTEMS INC., USA (CISCO US) IS THE PAREN T COMPANY FOR A NUMBER OF CISCO SUBSIDIARIES WORLDWIDE. CISCO US CONDUCTS BUSINESS GLOBALLY AND DEVELOPS, MANUFACTURES AND SE LLS NETWORKING AND COMMUNICATION PRODUCTS AND SERVICES ASSOCIATED WITH THE EQUIPMENT AND ITS USE. CISCO US MAKES DIRECT SALE TO CUSTOMERS IN INDIA. IN RELATION TO THE DIRECT SALES MADE BY CIS CO US TO CUSTOMERS IN INDIA, CISCO INDIA PROVIDES 'PRODUCT REPLACEMENT SE RVICES' TO CISCO US. AS A PART OF THE PRODUCT REPLACEMENT SERVICES, CISCO INDIA PURCHASES SPARE PARTS FROM CISCO US, MAINTAINS A ST OCK OF SPARE PARTS AND FACILITATES DELIVERY OF THE SAME TO CISCO US'S CUSTOMERS (AT THE TIME OF REQUISITION OF PRODUCE REPLACEMENTS) AND BI LLS THEM TO CISCO IT(TP)A.1076/BANG/2011 PAGE - 3 US. IN RELATION TO THE PROVISION OF PRODUCT REPLAC EMENT SERVICES TO CISCO US, CISCO INDIA ACTS IN ITS INDEPENDENT CAPAC ITY. THE PRODUCT REPLACEMENT SERVICES ARE PROVIDED PURSUANT TO THE A GREEMENT ENTERED INTO WITH CISCO US. AS COMPENSATION FOR THE PRODUC E REPLACEMENT SERVICES, CISCO INDIA IS COMPENSATED ON 1% MARK-UP ON THE PRICE OF THE PRODUCT REPLACEMENTS AND DUTIES INCURRED ON IMP ORT, AND AT 10% MARK-UP ON THE LOGISTICS, WAREHOUSING AND OTHER EXP ENSES INCURRED BY CISCO INDIA IN PROVIDING THESE SERVICES. THE ASSES SING OFFICER AND THE TPO HAD PROPOSED CERTAIN TRANSFER PRICING ADJUS TMENTS TO THE RETURNED INCOME OF THE ASSESSEE WHICH WERE INCORPOR ATED IN THE DRAFT ASSESSMENT ORDER AND THE SAME WERE CONFIRMED BY THE DRP. 04. IN THE TRANSFER PRICING STUDY UNDERTAKEN BY THE ASSESSEE, THE TNMM WAS DETERMINED AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP OF THE PRODUCT REPLACEMENT SERVICES TRANSAC TION. IN ORDER TO IDENTIFY COMPANIES WHICH ARE COMPARABLE TO THE ASSE SSEE, A SEARCH WAS CONDUCTED ON PROWESS (A DATABASE COMPILED AND MANAG ED BY THE CENTRE FOR MONITORING INDIAN ECONOMY), AND CAPITALI NE PLUS (A DATABASE COMPILED AND MANAGED BY CAPITAL MARKET PUB LISHERS) FOR OBTAINING PUBLICLY AVAILABLE FINANCIAL INFORMATION OF COMPANIES IN INDIA ENGAGED IN SIMILAR BUSINESS ACTIVITY AS THAT OF THE ASSESSEE. FOR THE COMPANIES IDENTIFIED AS COMPARABLES, THE WEIGHT ED AVERAGE OF OPERATING PROFIT EARNED ON VALUE ADDED COSTS WERE C OMPUTED USING THE IT(TP)A.1076/BANG/2011 PAGE - 4 FINANCIAL DATA PERTAINING TO THE FINANCIAL YEARS 20 04-05, 2005-06 AND 2006-07 (WHEREVER AVAILABLE), WHICH WAS AVAILABLE T O THE ASSESSEE AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOC UMENTATION REQUIREMENTS. IN COMPUTING THE MARGINS EARNED BY T HE ASSESSEE, THE COST OF SPARES DELIVERED TO THE CUSTOMERS HAVE BEEN TREATED AS 'PASS THROUGH COSTS'. BASED ON THE SEARCH CRITERIA/FILET S ADOPTED BY THE ASSESSEE, A TOTAL OF 23 COMPANIES WERE CONSIDERED A S COMPARABLES WITH THE ASSESSEE. FURTHER, THE ASSESSEE USED OPERATING PROFITS/VALUE ADDED COST AS THE PROFIT LEVEL INDICATOR (PLI). BASED ON THE ABOVE ANALYSIS, THE ARITHMETIC MEAN OF THE COMPARABLE COMPANY'S UNA DJUSTED NET MARGINS WAS DETERMINED AT 3.76% ON VALUE ADDED COST S, AS COMPARED TO THE APPELLANT'S OPERATING MARGIN USING THE SAME PLI WHICH WAS DETERMINED AT 37.14% ON VALUE ADDED COSTS. AS THE ASSESSEE'S MARGIN OF 37.14% WAS HIGHER THAN THE ARITHMETIC MAN OF THE COMPARABLE COMPANY'S MARGIN OF 3.76%, THE INTERNATIONAL TRANSA CTIONS ENTERED BY THE ASSESSEE WITH REGARD TO THE PROVISION OF PRODUC T REPLACEMENT SERVICES WAS CONSIDERED TO BE AT ARM'S LENGTH. 05. IN THE TP ORDER DATED.28.10.2010, THE TPO HAS N OT CONCURRED WITH THE ANALYSIS UNDERTAKEN BY THE ASSESSEE. THE TPO WAS OF THE VIEW THAT THE APPROACH ADOPTED BY THE ASSESSEE AND THE COMPARABLE COMPANIES IDENTIFIED IN DETERMINING THE ARM'S LENGT H NATURE OF THE INTERNATIONAL TRANSACTION WAS NOT APPROPRIATE. THE TPO HAS IT(TP)A.1076/BANG/2011 PAGE - 5 CHARACTERIZED THE ASSESSEE AS A TRADER/DISTRIBUTOR OF SPARE PARTS PURSUANT TO WHICH, HE HAS IDENTIFIED COMPANIES ENGA GED IN TRADING OF NETWORKING PRODUCTS AS BEING COMPARABLE COMPANIES A ND REJECTED THE COMPARABLES IDENTIFIED BY THE ASSESSEE. THE TPO HA S ALSO NOT ACCEPTED THE TNMM USED BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD ON THE GROUNDS THAT THE ASSESSEE IS NOT A SE RVICE PROVIDER, BUT IS A TRADER/DISTRIBUTOR OF SPARE PARTS. PURSUANT T O THE CHARACTERIZATION OF THE ASSESSEE AS A TRADER, THE LEARNED TPO STATED THAT THE PURCHASE OF SPARE PARTS BY THE ASSESSEE IS A SIGNIFICANT INTERN ATIONAL TRANSACTION AND ACCORDINGLY THE COST OF GOODS CANNOT BE REGARDED AS 'PASS THROUGH COSTS'. IN DETERMINING THE ARM'S LENGTH PRICE FOR THE SPARE REPLACEMENT SERVICES SEGMENT, THE TPO ADOPTED RESALE PRICE METH OD (RPM) USING GROSS PROFITS/TOTAL SALES AS A PLI AND DETERMINED T HE SAME AT 18.60% ON SALES. BASED ON THE ABOVE, THE FINAL COMPARABLE S CONSIDERED FOR MAKING AN ADJUSTMENT TO THE INTERNATIONAL TRANSACTI ON ENTERED INTO BY THE ASSESSEE FOR THE F. Y. 2006-07 (A.Y.2007-08) IS GIVEN BELOW : SL. NO. NAME OF THE COMPANY MARGIN (GP/SALES) % 1 TVS INTERCONNECT SYSTEMS LTD 24.37% 2 POINTRED TELECOM PVT. LTD 12.83% ARITHMETIC MEAN 18.60% BASED ON A NEW COMPARABLE SEARCH AND USING RPM AS T HE MOST APPROPRIATE METHOD WITH A PLI OF GROSS PROFITS/TOTA L SALES, THE TPO IT(TP)A.1076/BANG/2011 PAGE - 6 HAS DETERMINED AN ADJUSTMENT OF RS.20,28,61,348 TO THE ASSESSEE'S INCOME VIDE ORDER U/S.92CA(2) OF THE ACT, DATED.28. 10.2010. 06. AGAINST THE PROPOSED ADDITIONS BY THE ASSESSING OFFICER, THE ASSESSEE FILED ITS OBJECTION BEFORE THE DRP, WHO AF TER CONSIDERING THE SUBMISSIONS AND PROVIDING AN OPPORTUNITY OF BEING H EARD TO THE ASSESSEE, UPHELD THE APPROACH OF THE TPO. AS PER T HE DRP, THERE IS FUNCTIONAL COMPARABILITY WHEN THE TPO COMPARES THE PRODUCT REPLACEMENT SEGMENT WITH COMPANIES ENGAGED IN TRADI NG OF NETWORKING PRODUCTS. AS PER THE DRP, THE USE OF LO GISTICS SERVICE PROVIDER COMPANIES AS COMPARABLES TO PRODUCT REPLAC EMENT SEGMENT IS NOT APPROPRIATE. BASED ON THE DIRECTIONS OF THE DR P, THE ASSESSING OFFICER PASSED THE PRESENT ORDER. AGGRIEVED BY THE TPO'S ORDER, THE ASSESSEE IS IN APPEAL BEFORE US WITH THIS ISSUE. 07. THE LEARNED COUNSEL FOR THE ASSESEE SUBMITTED A S FOLLOWS : 'THE LEARNED TPO HAS REJECTED THE TRANSFER PRICING APPROACH, THE TRANSFER PRICING METHOD ADOPTED AS WELL AS THE COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT IN DETERMININ G THE ARM'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTION. TH E TPO HAS STATED THAT, IN THE AGREEMENT WHICH THE APPELLANT H AS ENTERED INTO WITH ITS AE, THE APPELLANT IS DESCRIBED AS 'TH E PURCHASER' AND THE AE IS DESCRIBED AS THE 'SELLER'. FURTHER, THE TPO HAS PLACED RELIANCE ON THE VARIOUS TERMS IN THE AGREEME NT WITH THE AE AND HAS CONCLUDED THAT THE APPELLANT LIKE A NORM AL TRADER BEARS ALL THE RISKS REGARDING THE TRADED ITEMS. AC CORDINGLY, THE IT(TP)A.1076/BANG/2011 PAGE - 7 TPO HAS REJECTED THE TNMM USED BY THE APPELLANT ON THE GROUNDS THAT THE APPELLANT IS NOT A SERVICE PROVIDE R, BUT IS A TRADER/DISTRIBUTOR OF SPARE PARTS. THE TPO HAS NOT CONSIDERED THE FAR ANALYSIS OF THE APPELLANT AS PROVIDED IN TH E TP DOCUMENTATION FOR DETERMINING ITS CHARACTERIZATION FOR TRANSFER PRICING PURPOSES. THE APPELLANT WISHES TO SUBMIT T HAT THE NOMENCLATURE USED IN THE AGREEMENT AS 'PURCHASER' A ND 'SELLER' IS NOT DETERMINATIVE FOR CHARACTERIZATION OF THE AP PELLANT FOR TRANSFER PRICING PURPOSES. THE APPELLANT HAS BENCHMARKED ITS MARGIN USING THE COMPANIES ENGAGED IN PROVIDING LOGISTICS SERVICES. HOWEVER, THE LEARNED TPO HAS CHARACTERIZED THE APPELLANT AS A TRADER/DISTRIBUTOR OF SPARE PARTS AND IDENTIFIED CO MPANIES ENGAGED IN TRADING OF NETWORKING PRODUCTS AS BEING COMPARABLE COMPANIES AND REJECTED THE COMPARABLES I DENTIFIED BY THE APPELLANT. PURSUANT TO THE CHARACTERIZATION OF THE APPELLANT A S A TRADER, THE LEARNED TPO HAS STATED THAT THE PURCHAS E OF SPARE PARTS BY THE APPELLANT IS A SIGNIFICANT INTERNATION AL TRANSACTION AND ACCORDINGLY THE COST OF GOODS CANNOT BE REGARDE D AS A 'PASS THROUGH COSTS'. IN DETERMINING THE ARM'S LEN GTH PRICE, THE TPO HAS ADOPTED RESALE PRICE METHOD ('RPM') USING G ROSS PROFITS/TOTAL SALES AS A PLI AND DETERMINED THE SAM E AT 18.60% ON SALES. WE WISH TO BRING TO THE ATTENTION OF THE HON'BLE TR IBUNAL THE DECISION IN THE APPELLANT'S OWN CASE OF AY 2006 -07 IN RESPECT OF THE PRODUCT REPLACEMENT SERVICE TRANSACT ION [ITA NO.1410(BANG)/2010]. THE KEY OBSERVATIONS/DIRECTIO NS AS PER IT(TP)A.1076/BANG/2011 PAGE - 8 THE ORDER PASSED BY THE HON'BLE TRIBUNAL IN RELATIO N TO THE PRODUCT REPLACEMENT SERVICE TRANSACTION ARE AS BELO W. USE OF RESALE PRICE METHOD AS ADOPTED BY THE TPO IS NOT APPROPRIATE AND THE TRANSACTION NET MARGIN METH OD IS TO BE REGARDED AS THE MOST APPROPRIATE METHOD WHICH HA S BEEN RIGHTLY ADOPTED BY THE APPELLANT (REFER TO PARA NO. 7.3 AND 7.4 PG.21 TO 23 OF THE ORDER). THE COMPARABLES AS SELECTED BY THE APPELLANT IN ITS TRANSFER PRICING REPORT ARE PERFORMING SIMILAR FUNC TIONS AND ARE THEREFORE APPROPRIATE (REFER TO PARA NO.8, PG.2 4 TO 25 OF THE ORDER). GIVEN THE ABOVE, WE WISH TO SUBMIT THAT THE APPELLA NT HAS ADOPTED A SIMILAR APPROACH IN RELATION TO AY 20 07-08 AS ADOPTED IN THE TRANSFER PRICING ANALYSIS FOR AY 200 6-07. ACCORDINGLY, IN RELATION TO THE PRODUCT REPLACEMENT SERVICES TRANSACTION, THE DECISION/ PRINCIPLES OF THE HON'BL E BANGALORE TRIBUNAL'S RULING PERTAINING TO AY 2006-07 SHOULD A LSO BE APPLICABLE FOR AY 2007-08, GIVEN THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE.' RELIANCE IS PLACED ON THE FOLLOWING IN SUPPORT OF T HE ABOVE CONTENTION : CASE LAW PAGE NO. OF PAPER BOOK FOR HEAD NOTES/RELEVANT PAGES CISCO SYSTEMS (INDIA) PRIVATE LIMITED V. DCIT (APPELLANT'S OWN CASE) ITA NO.1410/BANG/2010) 333 TO 359 MENTOR GRAPHICS (NOIDA) PVT. LTD V. DCIT (2007) 112 TTJ (DEL) 408. 412 TO 525 M/S. QUARK SYSTEMS PRIVATE LIMITED V. DCIT (2010) 4 ITR (TRIB) 606 (CHANDIGARH) (SB) 426 TO 447 IT(TP)A.1076/BANG/2011 PAGE - 9 08. PER CONTRA, THE LEARNED DR SUPPORTED THE ORDER OF THE TPO AS WELL AS THE DRP AND SUBMITTED THAT THE ASSESSEE'S A DOPTION OF TNMM AS THE MOST APPROPRIATE METHOD IS INCORRECT AND THE CORRECT METHOD TO BE ADOPTED IS RESALE PRICE METHOD AS DONE BY THE TP O. THE LEARNED DR SUBMITTED THAT THE TPO HAS BROUGHT OUT THE REASONS FOR REJECTING THE COMPARABLES ADOPTED BY THE ASSESSEE AND ALSO ADOPTI NG THE OTHER COMPARABLES EXPLICITLY IN ITS ORDER AND THEREFORE, THE SAME HAS BEEN RIGHTLY CONFIRMED BY THE DRP. HE SUBMITTED THAT TH E ADOPTION OF THE SAID COMPARABLES IS JUSTIFIED FOR THE REASONS GIVEN BY THE AUTHORITIES BELOW. 09. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, THE M ATERIALS ON RECORD AS ALSO THE CASE LAWS CITED. THIS ISSUE WAS CONSIDERED BY THIS BENCH IN THE ASSESSEE'S OWN CASE FOR EARLIER ASSESS MENT YEAR IN ITA NO.1410/BANG/2010, WHEREIN IT WAS OBSERVED AS UNDER : 7.1. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED THE RIVAL CONTENTIONS, WE FIND THAT THE DETERMINATION O F ALP OF THE INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND THE AE IN USA AS REGARDS THE 'PRODUCT REPLACEMENT SERVICE IS BEFORE US. IT IS NOT IN DISPUTE THAT THE INTERNATIONAL TRANSAC TION WITH THE ASSOCIATED ENTERPRISES HAS TO BE SCRUTINIZED TO VER IFY, IF THE SAME IS AT ALP. THE DISPUTE BEFORE US IS WITH REGARD TO THE METHOD OF COMPUTING THE ALP AND ALSO THE COMPARABLES SELECTED BY THE TPO. WE, THEREFORE, FIRST PROCEED TO DECIDE THE COR RECT METHOD OF COMPUTING THE ALP. 7.2 IN THE CASE BEFORE US, TWO DIFFERENT METHODS AR E ADOPTED TNMM BY THE ASSESSEE AND RPM BY THE TPO. WHICH IS T HE MOST APPROPRIATE METHOD FOR ARRIVING AT THE ALP IS TO BE EXAMINED. IT(TP)A.1076/BANG/2011 PAGE - 10 RULE L0B OF IT RULES PROVIDES FOR DIFFERENT METHODS TO BE FOLLOWED FOR DETERMINATION OF THE ALP UNDER SUB-SEC .2 OF SEC.92C OF THE IT ACT. THE FOLLOWING ARE THE METHOD S FOR COMPUTING THE ALP. (A) COMPARAB1E UNCONTROLLED PRICE METHOD (CUP) IN WHICH THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED AND SUCH PRICE IS ADJUSTED TO ACCOUNT FOR 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 PRICE IN THE OPEN MARKE T AND THE ADJUSTED PRICE ARRIVED AT IS TAKEN TO BE N ARMS LE NGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PRO VIDED IN THE INTERNATIONAL TRANSACTION; THUS, IT CAN BE SEEN THAT IN THIS METHOD A COMPARIS ON HAS TO BE WITH TRANSACTION OF A COMPARABLE IN AN UNCONTROLLED MARKET CONDITIONS I.E WITH A UNRELATED THIRD PARTY IN A FR EE MARKET. IN THE CASE BEFORE US, THERE IS NO SUCH COMPARABLE UNC ONTROLLED TRANSACTION TO BE COMPARED WITH THE TRANSACTIONS OF THE ASSESSEE WITH ITS AE. THEREFORE, THE CUP METHOD IS NOT APPLI CABLE. (B) RESALE PRICE METHOD (RPM) BY WHICH THE PRICE AT WHICH PROPERTY PURCHASED OR SERVICES OBTAINED BY THE ENTE RPRISE FROM AN ASSOCIATED ENTERPRISE IS RE-SOLD OR ARE PROVIDED TO AN RELATED ENTERPRISE ( EMPHASIS PROVIDED BY US) IS IDENTIFIED AND SUCH RE- SALE PRICE IS REDUCED BY THE AMOUNT OF A NORMAL GRO SS PROFIT MARGIN ACCRUING TO THE ENTERPRISE OR TO AN UNRELAT ED ENTERPRISE FROM THE PURCHASE AND RESALE OF THE SAME OR SIMILAR PROPERTY OR FROM OBTAINING AND PROVIDING THE SAME OR SIMILAR SE RVICES, IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS. THUS, IT CAN BE SEEN THAT TO ADOPT RE SALE PRICE METHOD, THE PROPERTY PURCHASED OR SERVICES OBTAINED BY THE ENTERPRISES FROM AN ASSOCIATED ENTERPRISE IS TO BE RESOLD TO AN UNRELATED PARTY. 7.3 IN THE CASE BEFORE US, THE PURCHASE FROM AND SA LE TO IS THE SAME ASSOCIATED ENTERPRISE. THE REASON GIVEN BY THE TPO FOR ADOPTING THE RE-SALE PRICE METHOD IS THAT THE ASSES SEE IS A TRADER/DISTRIBUTOR OF THE SPARES OF ITS ASSOCIATED ENTERPRISE. WE IS A WHO PURCHASES THE GOODS BY TRANSFER OF OWNERSH IP OVER THE GOODS AND IS FREE TO FIX THE RE-SALE PRICE AND ALSO IS FREE TO CHOOSE THE CUSTOMERS TO WHOM HE WOULD SELL THE GOOD S. LIKEWISE, IT(TP)A.1076/BANG/2011 PAGE - 11 IN THE CASE OF DISTRIBUTION ALSO THE RE-SALE PRICE CAN BE FIXED BY THE DISTRIBUTOR AND SELLER HAS NO INFLUENCE WHATSOE VER IN FIXING SUCH A RESALE PRICE. HOWEVER, IN THE CASE BEFORE US , THOUGH THE ASSESSEE IS BECOMING THE OWNER OF THE GOODS IMPORTE D, BUT, BY VIRTUE OF THE PRODUCT REPLACEMENT SERVICES AGREEMEN T, HE HAS NO RIGHT TO FIX THE RESALE PRICE OR TO CHOOSE THE CUST OMER TO WHOM THE PRODUCTS ARE TO BE SOLD. IT IS CLEAR FROM THE A GREEMENT THAT THE ASSESSEE PURCHASES THE SPARE PARTS TO BE SOLD T O ITS ASSOCIATED ENTERPRISE ONLY AND FOR DOING SO, IT EAR NED 1% OF MARK UP ON THE VALUE OF THE PRODUCTS AND THE COST O F IMPORTING THE GOODS. THUS, IT CAN BE SEEN THAT THE ASSESSEE I S ONLY A CUSTODIAN OF THE GOODS IMPORTED TILL THEY ARE DELIV ERED TO THE CLIENT OR CUSTOMER OF ITS PARENT COMPANY ON ITS DIR ECTIONS. THEREFORE, THE ASSESSEE CANNOT HE HELD TO BE A TRAD ER OR DISTRIBUTOR OF THE GOODS. WHEN THE ASSESSEE CANNOT BE HELD TO BE A TRADER OR DISTRIBUTOR OF THE SPARE PARTS, IT IS C LEAR THAT THE RESALE PRICE METHOD IS NOT APPLICABLE FOR ARRIVING AT THE ALP OF THE INTERNATIONAL TRANSACTIONS. 7.4 THE OTHER METHODS PROVIDED ARE COST PLUS METHOD WHICH IS APPLICABLE LS RELATING TO MANUFACTURE AND SALE OF GOODS AND PROFIT SPLIT METHOD WHICH IS APPLICABLE MAINLY IN INTERNATIONAL TRANSACTIONS INVOLVING TRANSFER OF UN IQUE INTANGIBLES OR IN MULTIPLE INTERNATIONAL TRANSACTIO NS WHICH ARE SO INTERRE1ATED THAT THEY CANNOT BE EVALUATED SEPAR ATELY FOR THE PURPOSE OF DETERMINING THE ALP OF ANY ONE TRANSACTI ON. THESE TWO METHODS CANNOT BE MADE APPLICABLE TO THE FACTS BEFORE US. THE ONLY REMAINING METHOD IS THE TRANSACTIONAL NET MARGIN METHOD (TNMM)BY WHICH THE NET PROFIT MARGIN REALIZED BY AN ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERE D INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO CO STS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE AND IS COMPARED TO NET PROFIT MARGIN REA LIZED BY AN UNRELATED ENTERPRISE FROM AN UNCONTROLLED TRANSACTI ON OR A NUMBER OF SUCH TRANSACTIONS AND THE ADJUSTMENTS FOR THE DIFFERENCE IS MADE. THE ASSESSEE HAS ADOPTED THE TR ANSACTIONAL NET MARGIN METHOD, AS THE MOST APPROPRIATE METHOD A S SEEN ABOVE. WE HAVE ALREADY FOUND THAT THE OTHER METHODS PRESCRIBED / BY RULES ARE NOT APPLICABLE TO THE FACTS OF THE C ASE BEFORE AND / THEREFORE, THE TNMM METHOD IS THE MOST APPROPRIATE METHOD FOR COMPUTING THE ALP RELATING TO THE INTERNATIONAL TRA NSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE. IT(TP)A.1076/BANG/2011 PAGE - 12 8. COMING TO THE NEXT ISSUE I.E SELECTION OF COMPAR ABLES, WE FIND THAT, THE RULE- L0B OF SUB-RULE-2 & 3 CLEARLY PROVIDES THE CRITERIA TO BE CONSIDERED IN SELECTION OF COMPARABL ES. ONE OF THE IMPORTANT CRITERIA IS THE FAR ANALYSIS I.E FUNCTION S PERFORMED, ASSETS EMPLOYED AND RISKS UNDERTAKEN BY THE ASSESSE E AS WELL AS THE COMPARABLE COMPANIES. IN THE SUBMISSIONS MADE B Y THE ASSESSEE, IT IS CLEAR THAT THE ASSESSEE IS PERFORMI NG THE FUNCTION OF STORING THE SPARE PARTS IMPORTED AND SUPPLY THEM TO THE CUSTOMERS WHILE BILLING THE US COMPANY FOR THE SALE OF THE PRODUCTS. THE SERVICES PROVIDED BY THE ASSESSEE ARE AKIN TO THAT OF THE C & F AGENTS WHO ARE RESPONSIBLE FOR THE SAF E KEEPING AND TRANSPORT OF THE GOODS TO THE CLIENTS ON THE DIRECT ION OF THE PRINCIPAL. THE COMPARABLES ADOPTED BY THE ASSESSEE ARE ALSO PERFORMING SIMILAR FUNCTIONS. 8.1 AS ALREADY BROUGHT OUT BY THE COUNSEL FOR THE A SSESSEE THE ASSETS EMPLOYED AND THE RISK UNDERTAKEN BY THE ASSE SSEE ARE NIL. ALL THESE FACTORS ARE TO BE CONSIDERED WHILE SELECT ING THE COMPARABLES, BUT THE TPO HAS NOT CONSIDERED THESE A SPECTS BEFORE REJECTING THE COMPARABLES SELECTED BY THE AS SESSEE. AS REGARDS THE COMPARABLES SELECTED BY THE TPO, AS RIG HTLY POINTED THE COUNSEL FOR THE ASSESSEE, THREE OF THESE COMPAR ABLES IRIS COMPUTERS ARE INVOLVED IN TRADING AND MANUFACTURING ACTIVITIES AND THE SEGMENTAL BREAK UP IS NOT GIVEN. FURTHER, T HE ASSETS EMPLOYED AND THE RISK UNDERTAKEN BY THESE COMPANIES ARE ALSO HIGHER THAN THE ASSESSEE. THEREFORE, WE ARE IN AGRE EMENT WITH THE LEARNED COUNSEL FOR THE ASSESSEE THAT THESE COM PANIES HAVE TO BE REJECTED AS THE COMPARABLES. THE ONLY COMPARA BLE WHICH CAN BE ACCEPTED IS IRIS COMPUTERS AND IS TO BE ACCE PTED AND THE GROSS PROFIT AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE SHOULD ALSO BE RECONSIDERED BY THE TPO. H OLDING THUS, WE REMIT THE ISSUE BACK TO THE TPO/AO WITH A DIRECT ION TO RECOMPUTE THE ALP BY ADOPTING THE PROPER COMPARABLES AND ALSO BY USING THE TNMM METHOD FOR ARRIVING AT THE A LP. 10. FOLLOWING THE SAME, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS AS GIVEN THEREIN. HOWEVER, IT IS ALSO DIRECTED TO CONSIDER THE ISSUE OF ALLOWING THE BENEFIT OF +/-5% RANGE AS PER THE AMENDED PROVISIONS OF THE ACT. IT IS NEEDLESS TO SAY IT(TP)A.1076/BANG/2011 PAGE - 13 THAT THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY OF HEARING BEFORE DECIDING THE ISSUE. SOFTWARE DEVELOPMENT SERVICES TRANSACTION : 11. THE FACTS RELATING TO SOFTWARE DEVELOPMENT SERV ICES ARE THAT THE ASSESSEE CARRIES OUT ITS DEVELOPMENT ACTIVITIES BAS ED ON SPECIFIC REQUESTS MADE BY CUSTOMERS OR FROM SURVEYING CUSTOM ERS WORLDWIDE, CONDUCTED WITH THE ASSISTANCE OF ITS MARKETING DEPA RTMENT. THE SPECIFICATIONS ARE THEREAFTER GIVEN TO CISCO INDIA, WHICH THEN UNDERTAKES THE DEVELOPMENT OF THE REQUIRED SOFTWARE . CISCO INDIA'S ACTIVITIES INCLUDE UNDERTAKING OF THE REQUIRED CODI NG OF THE PROGRAMS AND IT IS ALSO RESPONSIBLE FOR PHYSICAL TESTING OF THE PRODUCTS SUCH AS INTEGRATION TESTING, SOFTWARE TESTING, SYSTEM TESTI NG, PERFORMANCE AND REGRESSION TESTING ETC., HOWEVER, ALL THE INTELLEC TUAL PROPERTY RIGHTS IN RELATION TO THE SOFTWARE DEVELOPMENT ACTIVITIES UND ERTAKEN BY CISCO INDIA REMAIN WITH CISCO TECHNOLOGY INC. THE SOFTWA RE DEVELOPMENT SERVICES ARE PROVIDED PURSUANT TO THE AGREEMENT ENT ERED INTO WITH CISCO TECHNOLOGY INC. AS A COMPENSATION FOR SOFTWARE DEV ELOPMENT SERVICES, CISCO INDIA IS REMUNERATED ON A COST PLUS 10 PER CENT MARK-UP BASIS ON THE COSTS INCURRED FOR THE PROVISION OF TH ESE SERVICES. 12 THE SEGMENTAL RESULTS DERIVED IN RESPECT OF THE SOFTWARE SERVICES, AS PER P& L ACCOUNT AS PER THE TPO'S ORDER AT PAGE 4 OF HIS ORDER : IT(TP)A.1076/BANG/2011 PAGE - 14 OPERATING INCOME .. RS.8081456750 OPERATING COST .. RS.4419077526 OPERATING PROFIT .. RS. 662379234 PROFIT % ON COST .. RS.14.99% TURNOVER OF APPELLANT IN RELATION TO SOFTWARE DEVEL OPMENT SERVICES IS RS.508 CRORES. 13. IN THE TRANSFER PRICING STUDY UNDERTAKEN BY THE ASSESSEE, THE TNMM WAS DETERMINED AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP OF THE SOFTWARE DEVELOPMENT SERVICES TRANSA CTION. IN ORDER TO IDENTIFY COMPANIES WHICH ARE COMPARABLE TO THE ASSE SSEE, A SEARCH WAS CONDUCTED ON PROWESS (A DATABASE COMPILED AND MANAG ED BY THE CENTRE FOR MONITORING INDIAN ECONOMY), AND CAPITALI NE PLUS (A DATABASE COMPILED AND MANAGED BY CAPITAL MARKET PUB LISHERS) FOR OBTAINING PUBLICLY AVAILABLE FINANCIAL INFORMATION OF COMPANIES IN INDIA ENGAGED IN SIMILAR BUSINESS ACTIVITY AS THAT OF THE ASSESSEE. FOR THE COMPANIES IDENTIFIED AS COMPARABLES, THE WEIGHT ED AVERAGE OF OPERATING PROFIT EARNED ON OPERATING COSTS WERE COM PUTED USING THE FINANCIAL DATA PERTAINING TO THE FINANCIAL YEAR 200 4-05,FINANCIAL YEAR 2005-06 AND FINANCIAL YEAR 2006-07 (WHEREVER AVAILA BLE), WHICH WAS AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS. BASED ON THE S EARCH CRITERIA/FILTERS ADOPTED BY THE ASSESSEE, THE FOLLO WING 28 COMPANIES WERE CONSIDERED AS COMPARABLE WITH THE ASSESSEE : IT(TP)A.1076/BANG/2011 PAGE - 15 SL.NO. NAME OF THE COMPANY WEIGHTED AVERAGE MARGINS (%) 1 AKSHAY SOFTWARE TECHNOLOGIES LIMITED 7.64% 2 AZTECSOFT LIMITED (FORMERLY KNOWN AS AZTEC SOFTWARE & TECHNOLOGY SERVICES LIMITED) 18.42% 3 FOUR SOFT LIMITED 22 .27% 4 GEBBS INFOTECH LIMITED 16.52% 5 GENESYS INTERNATIONAL CORPN. LIMITED - 11.24% 6 GOLDSTONE TECHNOLOGIES LIMITED 3.79% 7 HELLOS & MATHESON INFORMATION TECHNOLOGY LIMITED 35.17% 8 INFOSYS TECHNOLOGIES LIMITED 41.04% 9 KPIT CUMMINS INFOSYSTEMS LIMITED 13.30% 10 LANCO GLOBAL SYSTEMS LIMITED 6.73% II LARSEN & TOUBRO INFOTECH LIMITED 11.03% 12 MAARS SOFTWARE INTERNATIONAL LIMITED 17.12% 13 MEISTAR INFORMATION TECHNOLOGIES LIMITED 1.30% 14 MINDTREE CONSULTING LIMITED 16.60% 15 ORIENT INFORMATION TECHNOLOGY LIMITED 2.68% 16 QUINTEGRA SOLUTIONS LIMITED 11.93% 17 R S SOFTWARE (INDIA) LIMITED 12.19% 18 S I P TECHNOLOGIES AND EXPORTS LIMITED 25.25% 19 SASKEN COMMUNICATION TECHNOLOGIES LIMITED 17.71% 20 SASKEN NETWORK SYSTEMS LIMITED 16.19% 21 SATYAM COMPUTERS SERVICES LIMITED 29.27% 22 TV S INFOTECH LIMITED - 4.8 1% 23 TRANSWORLD INFOTECH LIMITED 26.34% 24 TYCHE INDUSTRIES LIMITED 10.62% 25 VJIL CONSULTING LIMITED 6.26% 26 V M F SOFTECH LIMITED 18.39% 27 VISUALSOFT TECHNOLOGIES LIMITED 18.73% 28 ZYLOG SYSTEMS LIMITED 16.32% ARITHMETIC MEAN 14.53% LOWER RANGE (-5%) UPPER RANGE (+5%) 8.80% 20.26% THE ASSESSEE HAD USED OPERATING PROFITS/OPERATING C OST AS THE PROFIT LEVEL INDICATOR (PLI). BASED ON THE ABOVE ANALYSI S, THE ARITHMETIC IT(TP)A.1076/BANG/2011 PAGE - 16 MEAN OF UNADJUSTED NET MARGINS OF THE COMPARABLE CO MPANIES WAS DETERMINED AT 14.53% ON OPERATING COSTS, AS COMPARE D TO THE ASSESSEE'S OPERATING MARGIN USING THE SAME PLI OF 14.99% ON OP ERATING COSTS. AS THE ASSESSEE'S MARGIN OF 14.99% WAS HIGHER THAN THE ARITHMETIC MEAN OF THE COMPARABLE COMPANY'S MARGIN OF 14.53%, THE INTE RNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH REGARD TO THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES WAS CONSIDERED TO BE AT ARM'S LENGTH. 14. AGGRIEVED BY THE ASSESSMENT ORDER DATED.30.12.2 012, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING BR OAD ISSUES CONTENDING THAT THE TPO'S ACTION IS AGAINST THE RUL ING OF THIS TRIBUNAL IN CERTAIN EARLIER ORDERS PASSED BY THE TRIBUNAL : I) TPO'S ACTION IN REJECTING THE USE OF MULTIPLE YEAR CONTEMPORANEOUS DATA DUE TO NON-AVAILABILITY OF CUR RENT YEAR DATA IN PUBLIC DOMAIN AT THE TIME OF TP STUDY IS ERRONEOUS ; II) TPO'S ACTION IN TAKING RECOURSE TO SECTION 133(6) T HAT TOO WITHOUT GIVING AN OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE ; III) TPO'S ACTION IN NOT APPLYING AN UPPER LIMIT TO THE SALES TURNOVER IS AGAINST THE LAW LAID DOWN BY THE HON'BL E TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS INDIA LTD., AND TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LT D., IV) TPO'S ACTION IN SELECTING COMPARABLES WITH ABNORMAL LY HIGH MARGIN ; V) TPO'S ACTION IN SELECTING FUNCTIONALLY DISSIMILAR COMPARABLES; IT(TP)A.1076/BANG/2011 PAGE - 17 VI) TPO ERRED IN HOLDING THAT GAINS ON ACCOUNT OF FOREI GN EXCHANGE FLUCTUATION DO NOT FORM PART OF OPERATING REVENUES. 15. WHILE RELYING ON THE CRUX OF THE GROUNDS OF APP EAL EXTRACTED AS ABOVE, THE LEARNED CHARTERED ACCOUNTANT, SHRI. RAJA N VORA, FILED WRITTEN SUBMISSIONS ALONG WITH CHARTS AND THE SAME IS SUMMARIZED IN THE FOLLOWING LINES. HE RELIED ON THE DECISIONS OF THIS TRIBUNAL IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA LTD., GE NESIS INTEGRATING SYSTEM INDIA LTD., AND SUBMITTED THAT IN THE ABOVE SAID DECISIONS, CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SAL ES OR TURNOVER ARE UPHELD AND THE HON'BLE TRIBUNAL HAS HELD THAT, CONS IDERING THE INDIAN SCENARIO, THE CLASSIFICATION MADE BY DUN BRADSTREE T IS MORE SUITABLE AND REASONABLE. AS PER THE RATIO LAID DOWN, COMPAR ABLES HAVING TURNOVER BETWEEN RS.200 CRORES TO RS.2,000 CRORES N EEDS TO BE CONSIDERED IN THE CASE OF THE ASSESSEE AS THE REVEN UE OF THE ASSESSEE IS RS.508 CRORES. ON APPLICATION OF THE PRINCIPLES OF THE AFORESAID DECISIONS, THERE WOULD ONLY BE 6 COMPARABLES AS BEL OW, OUT OF THE SET OF 26 COMPARABLES AS IDENTIFIED BY THE TPO : SL. NO. COMPANY NAME TURNOVER AS PER TPO GROSS MARGINS AS PER TPO 1. FL EXTRONICS SOFTWARE SYSTEMS LTD., (SEG.) 848.66 25.31% 2. IGATE GLOBAL SOLUTIONS LTD., 747.27 7.49% 3. MINDTREE LTD., (SEG.) 590.35 16.90% IT(TP)A.1076/BANG/2011 PAGE - 18 4. PERSISTENT SYSTEMS LTD., 293.75 24.52% 5. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) 34 3.57 22.18% 6. TATA ELXI LTD. (SEG.) 262.56 26.51% 16. ON THE OTHER HAND THE LEARNED DR SUPPORTED THE FINDINGS OF THE AUTHORITIES BELOW. IT WAS FURTHER SUBMITTED THAT T HE TPO HAD ANALYSED THE VARIOUS FACTORS AS RECORDED IN THE ORDER U/S.92 C OF THE ACT, TO ARRIVE AT THE CONCLUSION THAT THE ASSESSEE'S INTERNATIONAL TRANSACTIONS HAD RESULTED IN ADJUSTMENT OF RS.60,23,60,764/-, WHICH HAS BEEN DULY SUSTAINED BY THE DRP VIDE ITS DIRECTIONS U/S.144C(5 ) R.W.S.144C(8), DATED.02.09.2011. HE FURTHER PLEADED THAT THERE WA S NO INFIRMITY IN THE ORDER OF THE DRP WHICH CALLED FOR INTERFERENCE BY T HIS BENCH. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD AND PROCEED TO DEAL WITH THE ISSUE AS UND ER. I. TURNOVER FILTER : THE TPO HAD SELECTED THE FOLLOWING 26 COMPARABLES : NO. NAME OF THE COMPANY TURNOVER GROSS MARGIN 1 ACCEL TRANSMATIC LTD.(SEGMENT) 9.68 21.11 2 AVANI CIMCOM TECHNOLOGIES LTD 3.55 52.59 3 CELESTIAL LABS LTD. 14.13 58.35 4 BATAMATICS LTD 54.51 1.38 5 E-ZEST SOLUTIONS LTD. 6.26 36.12 6 FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEGMENT) 848.66 25.31 7 GEOMETRIC LTD. (SEGMENT) 158.38 10.71 8 HELIO C MATHESON INFORMATION TECHNOLOGY LTD. 178.63 36.63 IT(TP)A.1076/BANG/2011 PAGE - 19 9 IGATE GLOBAL SOLUTIONS LTD 747.27 7.49 10 INFOSYS TECHNOLOGIES LTD 13,149.00 40.30 11 ISHIR INFORTECH LTD. 7.42 30.12 12 KALS INFORMATION SYSTEMS LTD. 2.00 30.55 13 LGS GLOBAL LTD. 45.39 15.75 14 LUCID SOFTWARE LTD 1.70 19.37 15 MEDIA SOFT SOLUTIONS PVT. LTD 1.85 3.66 16 MEGASOFT LTD 139.33 60.23 17 MINDTREE LTD 590.35 16.90 18 PERSISTENT SYSTEMS LTD 293/75 24.52 19 QUINTEGRA SOLUTIONS LTD 62.72 12.56 20 R 5 SOFTWARE (INDIA) LTD 101.04 13.47 21 R SYSTEMS INTERNATIONAL LTD(SEGMENT) 112.01 15 07 22 SASKEN COMMUNICATION TECHNOLOGIES LTD(SEGMENT) 343.57 22.17 23 S I P TECHNOLOGIES & EXPORTS LTD 3.80 13.90 24 TATA ELXSI LTD (SEGMENT) 262.58 26.51 25 THIRDWARE SOLUTIONS LTD. (SEGMENT) 36.08 25.12 26 WIPRO LTD (SEGMENT) 9,616.09 33.65 ARITHMETIC MEAN 25.14 WHILE SELECTING THE ABOVE 26 COMPARABLES, THE TPO A PPLIED A LOWER TURNOVER LIMIT OF RS.1 CRORE, BUT PREFERRED NOT TO APPLY ANY UPPER TURNOVER LIMIT. THE SIZE OF THE COMPARABLE IS AN I MPORTANT FACTOR IN COMPARABILITY PROCESS. THE ICAI TP GUIDANCE NOTE H AS OBSERVED THAT THE TRANSACTION ENTERED INTO BY A RS.1000 CRORES CO MPANY CANNOT BE COMPARED WITH THE TRANSACTION ENTERED INTO BY A RS. 10 CRORES COMPANY AND THE TWO MOST OBVIOUS REASONS ARE THE SIZE OF TH E TWO COMPANIES AND RELATED ECONOMIES OF SCALE UNDER WHICH THEY OPE RATE. THE TPO'S RANGE HAD RESULTED IN SELECTION OF COMPANIES AS COM PARABLE SUCH AS INFOSYS WHICH WAS 25 TIMES BIGGER THAN THAT OF THE ASSESSEE. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF GENI SYS INTEGRATING SYSTEMS (INDIA) P. LTD., V. DCIT ITA NO.1231/BANG /2010 RELYING ON IT(TP)A.1076/BANG/2011 PAGE - 20 DUN AND BRADSTREET'S ANALYSIS HAD HELD THAT TURNOVE R RANGE OF RS.200 CRORES TO RS.2000 CRORES IS APPROPRIATE. THE SAID PROPOSITION HAS BEEN FOLLOWED BY THE EARLIER ORDERS PASSED BY THIS BENCH IN THE FOLLOWING CASES : SL. NO. NAME OF THE CASE ITA NO. 1. M/S. KODIAK NETWORKS (I) P. LTD V. ACIT ITA.1413/BANG/2010 2. M/S. GENESIS MICROCHIP (I) P. LTD., V. DCIT ITA 1254/BANG/2010 3. ELECTRONIC FOR IMAGING INDIA P. LTD., ITA.1171/BANG/2010 4. M/S. TRILOGY E- BUSINESS SOFTWARE INDIA P. LTD., V. DCIT ITA.1054/BANG/2011, DATED.23.11.2012 18. APPLYING THE REASONING GIVEN BY US AS ABOVE AND THE ORDERS OF THIS BENCH AS ABOVE, ONLY THE SIX COMPANIES THE LIS T OF WHICH IS GIVEN BELOW ARE TO BE CONSIDERED AS COMPARABLES AND THE B ALANCE 20 CASES ARE TO BE ELIMINATED FROM THE LIST OF 26 COMPARABLES : SL. NO. COMPANY NAME TURNOVER AS PER TPO GROSS MARGINS AS PER TPO 1. FLEXTRONICS SOFTWARE SYSTEMS LTD., (SEG.) 848.66 25.31% 2. IGATE GLOBAL SOLUTIONS LTD., 747.27 7.49% 3. MINDTREE LTD., (SEG.) 590.35 16.90% 4. PERSISTENT SYSTEMS LTD., 293.75 24.52% 5. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) 34 3.57 22.18% 6. TATA ELXI LTD. (SEG.) 262.56 26.51% IT IS ORDERED ACCORDINGLY. IT(TP)A.1076/BANG/2011 PAGE - 21 II. UNREASONABLE COMPARABILITY CRITERIA : 19. THE LEARNED CHARTERED ACCOUNTANT PLEADED THAT O UT OF THE SIX COMPARABLES SHORTLISTED ABOVE AS COMPARABLES BASED ON THE TURNOVER FILTER, THE FOLLOWING TWO COMPANIES, NAMELY (I) TAT A ELXSI LTD; AND (II) M/S. FLEXTRONICS SOFTWARE SYSTEMS LTD., DESERVE TO BE ELIMINATED FOR THE FOLLOWING REASONS : (I) TATA ELXSI LTD., : THE COMPANY OPERATES IN THE SEGM ENTS OF SOFTWARE DEVELOPMENT SERVICES WHICH COMPRISES OF EM BEDDED PRODUCT DESIGN SERVICES, INDUSTRIAL DESIGN AND ENGI NEERING SERVICES AND VISUAL COMPUTING LABS AND SYSTEM INTEG RATION SERVICES SEGMENT. THERE IS NO SUB-SERVICES BREAK UP/INFORMATION PROVIDED IN THE ANNUAL REPORT OR THE DATABASES BASED ON WHICH THE MARGIN FROM SOFTWARE S ERVICES ACTIVITY ONLY COULD BE COMPUTED. THE COMPANY HAS A LSO IN ITS RESPONSE TO THE NOTICE U/S.133(6) STATED THAT IT CA NNOT BE CONSIDERED AS COMPARABLE TO ANY OTHER SOFTWARE SERV ICES COMPANY BECAUSE OF ITS COMPLEX NATURE. HENCE, TATA ELXSI LTD., IS TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. (II) FLEXTRONICS SOFTWARE SYSTEMS LTD., : THE LEARNED TPO HAS CONSIDERED THIS COMPANY AS A COMPARABLE BASED ON 13 3(6) REPLY WHEREIN THIS COMPANY REFLECTED ITS SOFTWARE DEVELOPMENT SERVICES REVENUES TO BE MORE THAN 75% O F THE 'SOFTWARE PRODUCTS AND SERVICES' SEGMENT REVENUES. FLEXTRONICS HAS A HYBRID REVENUE MODEL AND HENCE SH OULD BE REJECTED AS FUNCTIONALLY DIFFERENT. BASED ON THE I NFORMATION PROVIDED UNDER 'REVENUE RECOGNITION' IN ITS ANNUAL REPORT, IT CAN BE INFERRED THAT THE SOFTWARE SERVICES REVENUES ARE IT(TP)A.1076/BANG/2011 PAGE - 22 EARNED ON A HYBRID REVENUE MODEL, AND THE SAME IS N OT SIMILAR TO THE REGULAR MODELS ADOPTED BY OTHER SOFT WARE SERVICE PROVIDERS. THE LEARNED REPRESENTATIVE PLEAD ED THAT A REGULAR SOFTWARE SERVICES PROVIDER COULD NOT BE COM PARED TO A COMPANY HAVING SUCH A UNIQUE REVENUE MODEL, WHERE IN THE REVENUES OF THE COMPANY FROM SOFTWARE/PRODUCT DEVEL OPMENT SERVICES DEPENDS ON THE SUCCESS OF THE PRODUCTS SOL D BY ITS CLIENTS IN THE MARKETPLACE. HENCE, IT WOULD BE INA PPROPRIATE TO COMPARE THE BUSINESS OPERATIONS OF THE ASSESSEE WITH THAT OF A COMPANY FOLLOWING HYBRID BUSINESS MODEL COMPRI SING OF ROYALTY INCOME AS WELL AS REGULAR SOFTWARE SERVICES INCOME, FOR WHICH REVENUE BREAK-UP IS NOT AVAILABLE. HE FI NALLY SUBMITTED THAT THIS WAS A GOOD REASON TO EXCLUDE TH IS COMPANY ALSO FROM THE LIST OF COMPARABLES. 20. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDER OF THE LOWER AUTHORITIES REGARDING THE INCLUSION OF TATA E LXSI AND FLEXTRONICS SOFTWARE SYSTEMS LTD., IN THE LIST OF COMPARABLES. HE REITERATED THE THE CONTENTS OF PARA 14.2.25 OF THE TPO'S ORDER. HE AL SO READ OUT THE FOLLOWING PORTION FROM THE TPO'S ORDER : 'THUS AS STATED ABOVE BY THE COMPANY, THE FOLLOWING FACTS EMERGE : 1. THE COMPANY'S SOFTWARE DEVELOPMENT AND SERVICES SEG MENT CONSTITUTES THREE SUB-SEGMENTS I) PRODUCT DESIGN SE RVICES; II) ENGINEERING DESIGN SERVICES AND III) VISUAL COMPUTI NG LABS. 2. THE PRODUCT DESIGN SERVICES SUB-SEGMENT IS INTO EMB EDDED SOFTWARE DEVELOPMENT. THUS THIS SEGMENT IS INTO SO FTWARE DEVELOPMENT SERVICES. 3. THE CONTRIBUTION OF THE EMBEDDED SERVICES SEGMENT I S TO THE TUNE OF RS.230 CRORES IN THE TOTAL SEGMENT REVENUE OF RS.263 IT(TP)A.1076/BANG/2011 PAGE - 23 CRORES. EVEN IF WE CONSIDER THE OTHER TWO SUB-SEGM ENTS PERTAIN TO IT ENABLED SERVICES, THE 87.45% (75%) OF THE SE GMENT'S REVENUES IS FROM SOFTWARE DEVELOPMENT SERVICES. 4. THIS SEGMENT QUALIFIES ALL THE FILTERS APPLIED BY T HE TPO.' REGARDING FLEXTRONICS SOFTWARE SYSTEMS, THE FOLLOWI NG EXTRACT FROM PAGE 143 OF TPO'S ORDER WAS READ OUT BY HIM AS HIS SUBMISSIONS : 'IT IS VERY PERTINENT TO MENTION HERE THAT THE COMP ANY WAS CONSIDERED BY THE TAXPAYER AS A COMPARABLE FOR THE PRECEDING ASSESSMENT YEAR I.E., AY 2006-07. WHEN THE SAME WA S ACCEPTED BY THE TPO AS A COMPARABLE, THE SAME WAS NOT OBJECT ED TO IT BY THE TAXPAYER. AS THE FACTS MENTIONED BY THE TAXPAY ER ARE THE SAME AND THESE WERE THERE IN THE EARLIER FY 2005-06 , THERE IS NO REASON WHY THE TAXPAYER IS OBJECTING TO IT. HOW TH E COMPANY IS FUNCTIONALLY SIMILAR IN THE EARLIER FY 2005-06 BUT THE SAME IS NOT FUNCTIONALLY SIMILAR FOR THE SUBSEQUENT FY 2006-07 EVEN WHEN NO FACTS HAVE BEEN CHANGED FROM THE PRECEDING YEAR. T HUS THE TAXPAYER IS ARGUING AGAINST THIS COMPARABLE AS THE COMPANY WAS NOT CONSIDERED AS A COMPARABLE BY THE TAXPAYER FOR THE PRESENT FY 2006-07.' 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE FACTS AND MATERIALS ON RECORD. AFTER CONSIDERING THE SUB MISSIONS, WE FIND THAT TATA ELXSI AND FLEXTRONICS ARE FUNCTIONALLY DI FFERENT FROM THAT OF THE ASSESSEE AND HENCE THEY DESERVE TO BE DELETED F ROM THE LIST OF SIX COMPARABLES AND HENCE THERE REMAINS ONLY FOUR COMPA NIES AS COMPARABLES, AS LISTED BELOW : IT(TP)A.1076/BANG/2011 PAGE - 24 SL. NO. COMPANY NAME TURNOVER AS PER TPO GROSS MARGINS AS PER TPO 1. IGATE GLOBAL SOLUTIONS LTD., 747.27 7.49% 2. MINDTREE LTD., (SEG.) 590.35 16.90% 3. PERSISTENT SYSTEMS LTD., 293.75 24.52% 4. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) 34 3.57 22.18% AVERAGE 17.77% 22. THE ASSESSEE, IN DETERMINING THE TOTAL OPERATIN G COSTS, HAD CONSIDERED THE NET FOREIGN EXCHANGE LOSS INCURRED I N THE NORMAL COURSE OF CARRYING ON THE BUSINESS OPERATIONS AS 'OPERATIN G' IN NATURE AND THUS INCLUDED AS PART OF 'TOTAL OPERATING COSTS'. THIS APPROACH HAD BEEN ADOPTED IN DETERMINING THE MARGINS OF THE ASSESSEE AS WELL AS THE COMPARABLE COMPANIES' MARGINS AS IDENTIFIED IN THE TP REPORT. THE TPO WHILE COMPUTING THE MARGINS OF THE COMPARABLE C OMPANIES HAD EXCLUDED THE FOREIGN EXCHANGE FLUCTUATIONS (GAINS/L OSSES) AS BEING 'NON- OPERATING' IN NATURE. HOWEVER, IN DETERMINING THE MARGINS EARNED BY THE ASSESSEE, THE TPO HAD CONSIDERED NET FOREIGN EX CHANGE LOSS INCURRED BY THE ASSESSEE AS BEING 'OPERATING' IN NA TURE, INCLUDED AS PART A OF THE TOTAL OPERATING COSTS AND THE TRANSFER PRI CING ADJUSTMENT HAD BEEN MADE THEREAFTER. THE LEARNED REPRESENTATIVE F OR THE ASSESSEE SUBMITTED THAT IF FOREIGN EXCHANGE FLUCTUATION LOSS ES ARE NOT CONSIDERED AS PART OF 'OPERATING EXPENSES' IN THE CASE OF COMP ARABLE COMPANIES, THEN THE SAME APPROACH NEEDS TO BE CONSISTENTLY APP LIED IN THE CASE OF IT(TP)A.1076/BANG/2011 PAGE - 25 THE ASSESSEE AS WELL. OTHERWISE, THIS WOULD LEAD T O A DIFFERENT AND INCONSISTENT APPROACHES AS ADOPTED FOR DETERMINING THE NET MARGINS EARNED BY THE ASSESSEE AND THAT OF THE COMPARABLE C OMPANIES. IN RELATION TO THE ABOVE INCONSISTENT APPROACH, THE AS SESSEE HAD ALSO FILED A RECTIFICATION APPLICATION BEFORE THE DRP ON THE D IRECTIONS ISSUED UNDER RULE 13 OF THE INCOME-TAX (DISPUTE RESOLUTION PANEL) RULES, 2009 AND THIS RECTIFICATION APPLICATION IS PENDING BEFORE THE DRP. 23. WE HAVE ALSO HEARD THE LEARNED DR WHO RELIED ON THE CONTENTS OF THE ORDERS OF THE TPO AND DRP. 24. AFTER CONSIDERING THE SUBMISSIONS MADE BEFORE U S AND THE FACTS AND MATERIALS ON RECORD, WE FIND THAT THE DRP/TPO H AS ADOPTED DIFFERENT STANDARDS IN THE CASE OF THE COMPARABLES AND THE ASSESSEE, AS FAR AS THE LOSS ON FOREIGN EXCHANGE FLUCTUATION IS CONCERNED. IN OUR CONSIDERED VIEW, IF THE REVENUE TREATS THE PROFIT/L OSS ON FOREIGN EXCHANGE FLUCTUATION AS PART OF OPERATING COST IN T HE CASE OF COMPARABLES, THE SAME YARDSTICK IS TO BE APPLIED IN THE CASE OF THE ASSESSEE ALSO. WE DIRECT ACCORDINGLY. 25. IN ADDITION TO THE ABOVE OBSERVATIONS, WE ALSO DIRECT THE TPO TO CONSIDER +/- 5% RANGE AS PER THE AMENDED ACT, WHILE GIVING EFFECT TO THIS ORDER. THUS, THIS ISSUE IS RESTORED TO THE FI LE OF THE ASSESSING OFFICER WITH THE ABOVE DIRECTIONS. IT(TP)A.1076/BANG/2011 PAGE - 26 THOUGH THE ASSESSEE HAS TAKEN OTHER GROUNDS RELATIN G TO TP ISSUE (EXTRACTED ELSEWHERE IN THIS ORDER), WE ARE NOT GOI NG INTO THOSE ISSUES AS THE LEARNED CHARTERED ACCOUNTANT DURING THE COU RSE OF HEARING SUBMITTED THAT IF THESE ADJUSTMENTS DEALT BY US, VI Z., TURNOVER FILTER, UNREASONABLE COMPARISON FILTER ARE GIVEN, THE ASSES SEE'S PROFIT WOULD BE WITHIN THE ALP. IT IS ORDERED ACCORDINGLY. 26. LET US TURN TO THE REMAINING ISSUES RELATING TO CORPORATE TAX MATTERS. THE GROUNDS OF APPEAL OF THE ASSESSEE REL ATING TO THIS ISSUE ARE AS UNDER : I) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW A ND IN FACT BY CONSIDERING THE ENTIRE LEASE LINE CHARGES RELATABLE TO THE STP UNIT OF THE ASSESSEE AS BEING ATTRIBUTABLE TO THE DELIVE RY OF COMPUTER SOFTWARE OUTSIDE INDIA, WITHOUT APPRECIATING THE FA CT THAT THE LEASE LINE CHARGES ARE INCURRED FOR GENERAL COMMUNI CATION PURPOSES AS WELL ; II) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND IN FACT BY CONSIDERING THE ENTIRE TELEPHONE CHARGES RELATABLE TO THE STP UNIT OF THE APPELLANT AS BEING ATTRIBUTABLE TO THE DELIV ERY OF COMPUTER SOFTWARE OUTSIDE INDIA, WITHOUT APPRECIATING THE FA CT THAT THE INTERNET CHARGES ARE INCURRED FOR GENERAL COMMUNICA TION PURPOSES AS WELL ; III) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND IN FACT BY CONSIDERING TRAVELING EXPENDITURE INCURRED IN FOREI GN CURRENCY AS BEING ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA ; IT(TP)A.1076/BANG/2011 PAGE - 27 IV) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND IN FACT BY NOT CONSIDERING THE PLEA OF THE APPELLANT THAT IT D OES NOT PROVIDE ANY TECHNICAL SERVICES OUTSIDE INDIA AND THEREFORE FOREIGN CURRENCY EXPENDITURE INCURRED BY THE APPELLANT SHOU LD NOT BE REDUCED FROM 'EXPORT TURNOVER' FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER THE ACT ; V) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW A ND IN FACT BY NOT CONSIDERING THE PLEA OF THE APPELLANT THAT IF E XPENSES SUCH AS LEASE LINE CHARGES, TELEPHONE CHARGES (LANDLINE), I NTERNET CHARGES AND FOREIGN CURRENCY EXPENDITURE, IF REDUCED FROM ' EXPORT TURNOVER' SHOULD ALSO BE REDUCED FROM 'TOTAL TURNOV ER' FOR COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE AC T ; VI) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND IN FACT BY DISALLOWING THE STAFF ADVANCES WRITTEN OFF AS A NON -DEDUCTIBLE LOSS, IN COMPUTING THE TAXABLE INCOME UNDER THE ACT . 27 THE FACTS RELATING TO THIS ISSUE ARE THAT THE AS SESSING OFFICER PROPOSED CERTAIN ADDITIONS/DISALLOWANCES TO THE TOT AL INCOME ON ACCOUNT OF THE FOLLOWING : NATURE OF ADDITION/DISALLOWANCE AMOUNT(RS.) REDUCTION FROM 'EXPORT TURNOVER' FOR COMPUTING DEDUCTION U/S.10A, AMOUNTS ON ACCOUNT OF THE FOLLOWING: A)'LEASED LINE CHARGES' ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA 21,52,81,756 B)'INTERNET CHARGES' ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA 82,89,094 C) 'TELEPHONE CHARGES (LANDLINE)' ATTRIBUTABLE TO DELI VERY OF SOFTWARE OUTSIDE INDIA 2,32,35,203 D) 'INTERNATIONAL ASSIGNEE COSTS' INCURRED BY THE APPELLANT IN FOREIGN CURRENCY 4,89,43,259 E)'TRAVEL EXPEN SES' INCURRED BY THE APPELLANT IN FOREIGN CURRENCY 7,28,70,842 IT(TP)A.1076/BANG/2011 PAGE - 28 AGAINST THE PROPOSED ADDITIONS, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP. THE DRP AFTER CONSIDERING THE SUBMISSIONS CONFIRMED THE ADDITIONS. HENCE THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 28. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE FACTS AND MATERIALS ON RECORD. THE LEARNED CHARTERED ACCOUNT ANT SUBMITTED THAT THE VERY SAME ISSUE OF 10A DEDUCTION WAS CONSIDERED BY THE HON'BLE HIGH COURT OF KARNATAKA IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2004-05, A COPY OF WHICH HAS BEEN FILED ON REC ORD. IN THE SAID ORDER THE HON'BLE HIGH COURT HAS ALLOWED THE CLAIM OF THE ASSESSEE, BY OBSERVING AS UNDER : 'IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURN OVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER IS IN CLUDED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TUR NOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE . IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE E XPRESSLY STATED SO. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WH AT THE TOTAL TURNOVER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLU DES EXPORT TURNOVER, THE MEANING ASSIGNED BY THE LEGISLATURE T O THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WH ILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE THE FORMULA FOR COMPUTATION OF THE DEDUCT ION UNDER SECTION 10A, WOULD BE AS UNDER : IT(TP)A.1076/BANG/2011 PAGE - 29 PROFITS OF THE BUSINESS X EXPORT TURNOVER OF THE UNDERTAKING TOTAL TURNOVER (EXPORT TURNO VER + DOMESTIC TURNOVER) 11. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY E RROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGEMENTS RENDERE D IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE A ND THE SAME. THEREFORE, WE DO NOT SEE ANY MERIT IN THIS APPEALS. ' IN A NUTSHELL, THIS ISSUE HAS BEEN DECIDED IN FAVO UR OF THE ASSESSEE BY THE HON'BLE HIGH COURT FOR THE ASSESSMENT YEAR 2004 -05. RESPECTFULLY FOLLOWING THE SAME, WE ALSO ALLOW THESE GROUNDS OF APPEAL OF THE ASSESSEE. 29. THE NEXT ISSUE RAISED BY THE ASSESSEE IN RESPEC T OF LEVY OF INTEREST U/S.234D IS CONSEQUENTIAL IN NATURE. WE D IRECT THE ASSESSING OFFICER TO GIVE CONSEQUENTIAL RELIEF. 30. THOUGH CERTAIN OTHER GROUNDS ARE ALSO RAISED BY THE ASSESSEE AND WRITTEN SUBMISSIONS ARE ALSO GIVEN ON THOSE GROUNDS , AS THE SAME WERE NOT SERIOUSLY ARGUED BEFORE US, WE ARE NOT GOING IN TO THOSE GROUNDS. IN OTHER WORDS, ACCORDING TO THE LEARNED CHARTERED ACC OUNTANT, IF THE ABOVE DIRECTIONS OF THIS TRIBUNAL ARE GIVEN EFFECT TO, TH AT ITSELF WOULD BEING THE ADJUSTED ARITHMETIC MEAN WITHIN ITS ARM'S LENGT H PRICE. IT(TP)A.1076/BANG/2011 PAGE - 30 31. IN THE RESULT, THE ASSESSEE'S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28.03.2013. SD/- SD/- (GEORGE GEORGE K) (N. BARATHVAJA SANKAR) JUDICIAL MEMBER VICE PRESIDENT