M/s Bearingpoint Business Consulting Private Limited, Bangalore V. DCIT, Bangalore

ITA 1124/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63840 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts; Revenue expenditure
• Section: 92C; 143(3); 234B; 133(6)

Judgement Text

PAGE 1 OF 29 ITA NO.1124 /BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NO.1124/BANG/2011 (ASSESSMENT YEAR 2007-08) M/S BEARING POINT BUSINESS CONSULTING PRIVATE LTD., NO.2/1, EMBASSY ICON ANNEX, INFANTRY ROAD, BANGALORE-1. PAN : AACC 89758 R VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(2), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 05.12.2012 DATE OF PRONOUNCEMENT : 21.12.2012 ASSESSEE BY : SHRI PADAM CHAND KHI NCHA, C.A. REVENUE BY : SHRI FARHAD HUSSAIN QURESHI, CIT (DR-II), ITAT ORD ER PER GEORGE GEORGE K : 1. THIS APPEAL FILED BY THE ASSESSEE-COMPANY IS DI RECTED AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 30.9.2011 U/S 143(3) R.W.S. 144C OF THE ACT. THE RELEVANT ASSESSMENT YEAR IS 2007-08. 2. THE ASSESSEE COMPANY HAS, IN ITS GROUNDS OF APPE AL, RAISED 22 GROUNDS. IT HAD RAISED LEGAL ISSUE VIDE GROUND NOS. 1 TO 7 UNDER THE CAPTION A - RELATING TO TRANSFER PRICING LEGAL I SSUES. HOWEVER, DURING THE COURSE OF HEARING, NEITHER ANY SUBMISSION NOR ARGUME NTS WERE MADE BY THE LEARNED AR WITH REGARD TO THESE GROUNDS. ACCORDING LY, THESE GROUNDS HAVE PAGE 2 OF 29 ITA NO.1124 /BANG/2011 2 NOT BEEN TAKEN UP FOR ADJUDICATION. GROUND NO.19 RELATES TO THE DISALLOWANCE OF RS.9,94,202/- REPRESENTING ASSETS C OSTING LESS THAN US $ 1000 WRITTEN OFF AND CLAIMED AS REVENUE EXPENDITURE . HOWEVER, DURING THE COURSE OF HEARING, THE LEARNED AR SUBMITTED THAT TH IS GROUND IS NOT URGED. ACCORDINGLY, THIS GROUND IS DISMISSED AS NOT PRESSE D. GROUND NO.22 IS NOT MAINTAINABLE AS CHARGING OF INTEREST U/S 234B OF TH E ACT IS MANDATORY AND CONSEQUENTIAL IN NATURE. THE REMAINING GROUNDS RAI SED ARE LISTED OUT FOR ADJUDICATION AS UNDER: I. GROUNDS RELATING TO TRANSFER PRICING COMPUTATION OF ALP: 1. (GROUND NOS. 8 TO 17) : NO ARGUMENT WAS PUT-FORTH ON GROUNDS NOS.8, 9 AND 1 6. THE REMAINING GROUNDS ARE CONDENSED AS UNDER:- THE ASSESSING OFFICER [ALONG WITH TPO/DRP] HAD ERR ED IN - PERFORMING FRESH TRANSFER PRICING ANALYSIS AND ADOPT ING INAPPROPRIATE FILTERS IN THE FRESH TRANSFER PRICING ANALYSIS; - SELECTING INAPPROPRIATE COMPARABLES AND REJECTING U NJUSTIFIABLY THE COMPARABLES SELECTED BY THE ASSESSEE; - INAPPROPRIATELY COMPUTING THE OPERATING MARGINS OF T HE COMPARABLES AND THE ASSESSEE; - TREATING FORE EXCHANGE GAIN OR LOSS AND PROVISION F OR BAD DEBTS AS NON-OPERATING IN NATURE WHILE COMPUTING OPERATING M ARGIN OF THE ASSESSEE; - NOT MAKING PROPER ADJUSTMENT FOR ENTERPRISE LEVEL A ND TRANSACTIONAL LEVEL DIFFERENCES IN DETERMINING THE ALP; - NOT APPROPRIATELY COMPUTING THE WORKING CAPITAL ADJU STMENT; PAGE 3 OF 29 ITA NO.1124 /BANG/2011 3 II. GROUNDS RELATING TO NON-TRANSFER PRICING ISSUES: THE ASSESSING OFFICER HAD ERRED IN (GROUND NOS.18 21) EXCLUDING TELECOMMUNICATION CH ARGES, INSURANCE EXPENSES AND TRAVELLING EXPENSES AMOUNTIN G FROM RS.69.45 LAKHS FROM THE EXPORT TURNOVER IN THE PROC ESS OF COMPUTATION OF DEDUCTION U/S 10A WITHOUT REDUCING T HE SAME FROM THE TOTAL TURNOVER; & O DISALLOWING RS.77,12,144/- ON THE GROUND THAT IT WA S PRIOR PERIOD EXPENSES WITHOUT APPRECIATING THAT THE SAME REPRESE NTED SHORT PROVISION, EXCESS PROVISION OR NO PROVISION OF EARL IER YEARS; 3. BRIEFLY STATED, THE ASSESSEE-COMPANY [THE ASSESSE E HENCE-FORTH] IS A SUBSIDIARY OF BEARING POINT INTERN ATIONAL BERMUDA HOLDINGS LIMITED WHICH IN TURN IS A SUBSIDIARY OF BEARING POI NT INC. USA. THE ASSESSEE PROVIDES SOFTWARE DEVELOPMENT SERVICES EXC LUSIVELY TO ITS GROUP COMPANIES. THE ASSESSEE HAS BEEN COMPENSATED ON BA SIS OF COST PLUS 12% MARGIN FOR ITS SERVICES. 3.1 DURING THE YEAR UNDER DISPUTE, THE ASSESEE HAD T HE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AE, N AMELY: (I) RENDERING OF SOFTWARE DEVELOPMENT SERVICES OF RS.47 .47 CRORES; & (II) REIMBURSEMENT OF EXPENSES OF RS.11.68 CRORES. WHEN THE ASSESSING OFFICER REFERRED THE CASE TO THE TPO TO DETERMINE THE ARMS LENGTH PRICE [ALP], THE TPO, AFTER EXAMINING THE DETAILS FURNISHED BY THE ASSESSEE, HAD PASSED AN ORDER U/S 92CA OF THE ACT DATED 29.10.2010 WHEREBY MADE AN ADJUSTMENT OF RS.4,94,71,132/- IN RE SPECT OF SOFTWARE DEVELOPMENT SERVICES. WITH REGARD TO REIMBURSEMENT OF EXPENSES, THE PAGE 4 OF 29 ITA NO.1124 /BANG/2011 4 ASSESSING OFFICER ACCEPTED ALP OF ASSESSEE AND NO A DJUSTMENT WAS MADE. WHILE CONCLUDING THE ASSESSMENT, THE AO HAD, FOLLOW ING THE PROVISIONS OF S. 92CA OF THE ACT, ADDED THE TRANSFER PRICING ADJUSTM ENT OF RS.4.94 CRORES TO THE ASSESSEES TOTAL INCOME. AS REGARDS THE CLA IM OF DEDUCTION U/S 10A OF RS.6.48 CRORES, THE AO RECOMPUTED THE DEDUCTION BY R EDUCING FROM THE EXPORT TURNOVER A SUM OF RS.69.45 LAKHS BEING TELEC OMMUNICATION, INSURANCE AND TRAVELLING EXPENSES WITHOUT CORRESPONDING DEDUC TION FROM THE TOTAL TURNOVER. AS A RESULT OF RECOMPUATION OF DEDUCTION UNDER SECTION 10A OF THE ACT, THE CLAIM WAS REDUCED TO RS.6,37,73,510/- AS A GAINST RS.6,48,95,788. IN RESPECT OF THE ASSESSEES CLAIM FOR DEDUCTION OF RS.77.12 LAKHS BEING THE PRIOR PERIOD EXPENSES, THE AO HAD, AFTER CONSIDERIN G THE ASSESSEES CONTENTIONS, REJECTED THE SAME ON THE GROUND THAT SINCE THE COMPANY FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING UNDER MERCAN TILE SYSTEM OF ACCOUNTING, THE ASSESSEE COMPANY IS REQUIRED TO MAKE PROVISION FOR SUCH CONTINGENCIES IN THE RELEVANT FY ITSELF. THEREFORE , FOR HAVING NOT MADE THE PROVISIONS IN THAT YEAR, FOR SUCH EXPENSES, IN THE S UBSEQUENT YEARS THE CLAIM OF EXPENSES CANNOT BE ALLOWABLE. FURTHER, AS THE EX PENDITURE DEBITED ARE NOT RELATED TO RELEVANT AY, THE EXPENDITURE SO DEBI TED AMOUNTING TO RS.77,12,144/- IS DISALLOWED 4. AGGRIEVED, THE ASSESSEE HAS COME UP WITH THE PR ESENT APPEAL. THE STATEMENT OF CASE AND THE WRITTEN SUBM ISSIONS MADE BY THE LEARNED A R ARE SUMMARIZED AS UNDER: - THAT THE ASSESSEE RENDERED SOFTWARE DEVELOPMENT SER VICES WHOLLY TO ITS AE AND THAT THE ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN METHOD [TNMM] TO JUSTIFY THE PRICE CHARGED IN THE IN TERNATIONAL TRANSACTIONS; PAGE 5 OF 29 ITA NO.1124 /BANG/2011 5 - THE ASSESSEE HAD CONDUCTED A METHODICAL SEARCH PROC ESS ON CAPITALINE PLUS AND PROWESS DATABASE TO IDENTIFY COMPARABLE COM PANIES; THAT AFTER ADOPTING VARIOUS SEARCH FILTERS, 17 COMPANIES WERE SELECTED AS COMPARABLES; AND THAT THE ARITHMETIC MEAN OF THESE COMPARABLES WAS 10.43% AND SINCE THE ASSESSEES MARGIN ON COST BEIN G 14.13% WHICH WAS GREATER THAN THE ARITHMETIC MEAN MARGIN OF COMP ARABLE, IT WAS CONCLUDED THAT THE INTERNATIONAL TRANSACTIONS RELAT ING TO SOFTWARE DEVELOPMENT SERVICES WERE AT ARMS LENGTH; - THAT THE TPO HAD SELECTED 26 COMPANIES AS COMPARABL ES AND THE ARITHMETIC MEAN WAS DETERMINED AT 25.14% AND AFTER FACTORING A WORKING CAPITAL ADJUSTMENT OF -1.27%, THE ADJUSTED ARITHMETIC MEAN WAS DETERMINED AT 26.41% WHEREBY THE TRANSFER PRICIN G ADJUSTMENT FOR THE SOFTWARE DEVELOPMENT SERVICES WAS ACCORDING LY DETERMINED AT RS.4.94 CRORES BY THE TPO WHICH WAS CHALLENGED BY THE ASSESSEE BEFORE DRP. THE DRP HAD, HOWEVER, TURNED DOWN THE ASSESSEES CONTENTIONS AND, ACCORDINGLY, THE AO HAD INCORPORATE D THE TP ADJUSTMENT WHILE DETERMINING THE TOTAL INCOME; - THAT IN THE TP ORDER, THE TPO HAD APPLIED A LOWER T URNOVER FILTER OF RS.1 CRORE, BUT, FAILED TO APPLY THE UPPER TURNOVER LIMIT; - THAT THE SIZE OF THE COMPARABLE IS AN IMPORTANT FAC TOR IN COMPARABILITY AND, RULE 10B(3) LAYS DOWN GUIDELINES F OR COMPARING AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION; - THAT RULE 10B(3) OUTLINES VARIOUS CONDITIONS FOR C OMPARABILITY, NOTABLY, IN JUDGING WHETHER AN UNCONTROLLED TRANSACT ION IS COMPARABLE, THE ENTERPRISE LEVEL DIFFERENCES WILL HAVE TO BE RE CKONED; AND THAT IN CHOOSING THE MOST APPROPRIATE METHOD, RULE 10C(2)(E ) FACTORS THE ABILITY OF MAKING RELIABLE AND ACCURATE ADJUSTMENT T O ACCOUNT FOR THE DIFFERENCES IN THE ENTERPRISES LEVELS; - THAT SIZE IS AN IMPORTANT FACET OF AN ENTERPRISE LE VEL DIFFERENCE. SIZE OF AN ENTERPRISE IS THUS TO BE EXAMINED FOR COMPARA BILITY PURPOSES AND THAT SIGNIFICANT DIFFERENCES IN SIZE OF COMPANI ES WOULD IMPACT COMPARABILITY; PAGE 6 OF 29 ITA NO.1124 /BANG/2011 6 - THAT SIZE AS ONE OF THE SELECTION CRITERIA HAS BEEN APPROVED BY VARIOUS BENCHES OF THE TRIBUNAL INCLUDING THE CHANDIGARH SP ECIAL BENCH IN THE CASE OF DCIT V. QUARK SYSTEMS PVT. LTD [38 SOT 207], THE BANGALORE BENCH IN PHILIPS SOFTWARE CENTRE PRIVATE LIMITED 26 SOT 226 (BANG) ETC., - THAT THE SIZE AS A CRITERIA FOR SELECTION OF COMPAR ABLES IS ALSO RECOMMENDED BY OECD IN ITS TP GUIDELINES, 2010; AND THAT THE ICAI TP GUIDANCE NOTICE HAS OBSERVED THAT A TRANSACTION ENTERED INTO BY A RS.1000 CRORE COMPANY CANNOT BE COMPARED WITH THE TR ANSACTION ENTERED INTO BY A RS.10 CRORE COMPANY; AND THAT THE T WO MOST OBVIOUS REASONS ARE THE SIZE OF THE TWO COMPANIES AND THE R ELATIVE ECONOMIES OF SCALE UNDER WHICH THEY OPERATE; - THAT THE TPOS RANGE HAD RESULTED IN SELECTION OF C OMPANIES LIKE INFOSYS WHICH WAS 277 TIMES BIGGER THAN THE ASSESSEE IN THE TURNOVER; - THAT AN APPROPRIATE TURNOVER RANGE SHOULD BE APPLIE D IN SELECTING COMPARABLE UNCONTROLLED COMPANIES; - THAT THE BANGALORE TRIBUNAL IN M/S. GENISYS INTEGRAT ING SYSTEMS (INDIA) PVT. LTD V. DCIT ITA NO.1231/BANG/2010 RE LYING ON DUN AND BRADSTREETS ANALYSIS HAD HELD THAT TURNOVER RANGE O F RS.1 CRORE TO RS.200 CRORES IS APPROPRIATE; - THAT THE SAID PROPOSITION HAS BEEN FOLLOWED BY THE H ONBLE EARLIER BENCHES OF THIS TRIBUNAL IN THE FOLLOWING CASES: (I) M/S. KODIAK NETWORKS (I) PVT. LTD V. ACIT ITA NO.1413/BANG/2010; (II) M/S. GENESIS MICROCHIP (I) PVT. LTD V. DCIT ITA NO.1254/BANG/2010; (III) ELECTRONIC FOR IMAGING INDIA PVT. LTD ITA NO.1171/BANG/2010; & (IV) M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD V. D CIT ITA NO.1054/BANG/2011 DATED 23.11.2012 PAGE 7 OF 29 ITA NO.1124 /BANG/2011 7 - BASED ON THE ABOVE, THE COMPANIES HAVING TURNOVER M ORE THAN RS.200 CRORES REQUIRE TO BE REJECTED; - THAT THE PROCESS ADOPTED FOR ISSUANCE OF NOTICE U/ S 133(6) OF THE ACT AND USE OF SUCH INFORMATION BY THE TPO WAS INAPP ROPRIATE FOR THE FOLLOWING REASONS: (I) THAT THE TPO HAD SOUGHT INFORMATION U/S 133(6) OF T HE ACT IN A FEW SELECT CASES, HOWEVER, FOR THE REMAINING COMPA NIES, HE RELIED ON THE INFORMATION AVAILABLE IN THE PUBLIC DOMAIN; (II) THAT THE ASSESSEE HAD CITED EXAMPLES OF LGS GLOBAL LTD., HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, ISHIR INFOTECH LTD AND CELESTIAL LABS LTD WHERE THE TPO HAD RELIED ON THE INFORMATION OBTAINED U/S 133(6) TO THE INFORMATION AVAILABLE IN PUBLIC DOMAIN. HOWEVER, IF THE DATABASES WERE NOT CONSIDERED RELIA BLE, THE APPROACH OF OBTAINING INFORMATION FROM THE RELEVANT COMPANIES SHOULD BE EXTENDED TO ALL THE COMPANIES BEFORE THEY ARE REJECTED OR SELECTED; (III) THAT THE TPO HAD SELECTED 12 COMPANIES BASED ON THE INFORMATION RECEIVED U/S 133(6) OF THE ACT WITHOUT GIVING ADEQU ATE OPPORTUNITY OF HEARING TO THE ASSESSEE AND ALSO THE TPO HAD NOT ISSUED ANY SHOW-CAUSE NOTICE INVITING THE ASSESSEES OBJECTION S; RELIES ON THE CASE LAW: (I) GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT - ITA NO. 1231/BANG/2010 DATED 5.8.2011; (II) KODIAK NETWORKS (INDIA) PVT. LTD V. ACIT ITA NO.1413/BANG/2010; (III) M/S. GENESIS MICROCHIP (I) PVT. LTD. V. DCIT ITA NO;1254/BANG/2010; & (IV) ELECTRONIC FOR IMAGING INDIA PVT. LTD ITA NO.1171/BANG/2010. - THAT THE INFORMATION OBTAINED BY PROCESS OF ISSUING NOTICE U/S 133(6) WAS NOT AVAILABLE IN PUBLIC DOMAIN OR AT THE TIME O F STUDY BY THE ASSESSEE; THAT THE DATA AVAILABLE SUBSEQUENTLY OR OB TAINED THROUGH PAGE 8 OF 29 ITA NO.1124 /BANG/2011 8 NOTICE U/S 133(6) - WHICH DATA WAS NOT AVAILABLE I N THE PUBLIC DOMAIN SHOULD BE REJECTED. THUS, THE APPROACH ADOPTED BY T HE TPO WAS BAD IN LAW; 4.1 WITH REGARD TO THE MARGIN OR ADOPTING OF THE C OMPANIES AS COMPARABLES AS PROPOSED BY THE TPO IN THE SHOW-CAUSE NOTICE, IT WAS CONTENDED BY THE ASSESSEE THAT (I) MEGASOFT LTD: THIS COMPANY HAS TWO SEGMENTS, VIZ., SOFT WARE SERVICE SEGMENT AND SOFTWARE PRODUCT SEGMENT. THE MARGIN OF 60.23% BEING ABNORMAL, THIS COMPANY IS TO BE REJECTE D AS COMPARABLE; (II) AVANI CIMCON TECHNOLOGIES LTD : THE MARGIN OF THIS COMPANY WAS ADOPTED AT 52.59% IN THE FINAL COMPUTATION OF THE A RMS LENGTH PRICE. AFTER ANALYZING THE OPERATING REVENUES, OPER ATING EXPENSES, OPERATING PROFIT FOR THE LAST 4 F.YS, IT HAS BEEN E VOLVED THAT THIS COMPANY HAS MADE AN UNUSUALLY HIGH PROFIT DURING THE FY 2006-07. THUS, THIS COMPANYS GROWTH RATE WAS NEARLY DOUBLE TH E INDUSTRY AVERAGE. THE EXTRA-ORDINARY CIRCUMSTANCES WARRANTIN G REJECTION OF THIS COMPANY AS COMPARABLE; (III) CELESTIAL LAB LIMITED : THE MARGIN OF THE COMPANY WAS ADOPTED AT 58.356% IN THE FINAL COMPUTATION OF ALP. THIS COMP ANY WAS REJECTED IN AY 2006-07 SINCE IT WAS ENGAGED IN R & D ACTIVITIES. HOWEVER, BASED ON THE REPLY TO THE NOTICE U/S 133(6) , IT WAS CONTENDED THAT THE COMPANY WAS MAINLY A SOFTWARE DEVE LOPMENT SERVICE PROVIDER AND, THEREFORE, SELECTED AS COMPAR ABLE. AFTER VERIFYING THE DIRECTORS REPORT, BALANCE-SHEET, P & L ACCOUNT ETC., IT WAS NOTICED THAT THIS COMPANY WAS NOT FUNCTIONALL Y SIMILAR TO THE ASSESSEE. AS PER THE ANNUAL REPORT, THE COMPANYS E MPLOYEE COST WAS LESS THAN 25% OF THE REVENUE. ACCORDINGLY, THIS COMPANY NEEDS TO BE REJECTED AS COMPARABLE. (IV) KALS INFORMATION SYSTEMS LIMITED : THE MARGIN OF THIS COMPANY HAS BEEN COMPUTED AT 30.55%. THIS COMPANY IS HAVING REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCT S. THE PAGE 9 OF 29 ITA NO.1124 /BANG/2011 9 TPO/DRP HAS CONSIDERED THIS COMPANY AS A COMPARABLES ADOPTING THE FIGURES SUPPLIED IN THE REPLY TO NOTICE U/S 133( 6). IN REPLY, THE COMPANY HAS CONTENDED THAT IT IS A PURE SOFTWARE DEV ELOPMENT COMPANY BY STATING THAT THE CORE OF OUR BUSINESS MAY BE CLASSIFIED AS THAT OF PURE SOFTWARE DEVELOPMENT SER VICE PROVIDER. THE ABOVE IS CONTRARY TO THE FACTUAL INFORMATION AS AVAILABLE IN ITS ANNUAL REPORT. IN VIEW OF THE ABOVE, THIS COMPANY I S NOT TO BE ADOPTED AS A COMPARABLE. (V) ACCEL TRANSMATIC LTD : THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMENT SERVICE COMPANY. AS PER THE ANNUAL REPO RT, IT HAS THREE DIVISIONS, NAMELY, SYSTEMS AND SERVICE DIVISION , USHUS TECHNOLOGIES AND ANIMATION DIVISION. DRP HAD AGREE D WITH THE ASSESSEES CONTENTION THAT THE COMPANY WAS FUNCTIONA LLY DIFFERENT FROM THE ASSESSEE AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATION SERVICES FOR 2D AND 3D ANIMATION AND, THEREFORE, ASSESSEES CLAIM THAT THIS COMPANY W AS FUNCTIONALLY DIFFERENT WAS ACCEPTED. BASED ON THE ABOVE, THIS C OMPANY SHOULD BE REJECTED AS FUNCTIONALLY DIFFERENT. (VI) ACCORDINGLY, THE ASSESSEE HAD TABULATED A LIST OF CO MPARABLES - OUT OF THE TPOS COMPARABLES OF COMPANIES FALLING WIT HIN A TURNOVER RANGES OF RS.1 CRORE TO RS.200 CRORES, NAMELY: (1) ACCEL TRANSMATIC LTD; (2) AVANI CIMCON TECHNOLOGIES LTD. (3) CELESTIAL LABS LTD. (4) DATAMATICS LTD (5) E-ZEST SOLUTIONS LTD (6) GEOMETRIC LTD (7) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD (8) ISHIR INFOTECH LTD (9) KALS INFORMATION SYSTEMS LTD. (SEG.) (10) LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS L TD.) (11) LUCID SOFTWARE LTD (12) MEDIASOFT SOLUTIONS PVT. LTD (13) MEGASOFT LTD (14) QUINTEGRA SOLUTIONS LTD PAGE 10 OF 29 ITA NO.112 4/BANG/2011 10 (15) R.S. SOFTWARE (INDIA) LTD (16) R SYSTEMS INTERNATIONAL LTD (SEG) (17) SIP TECHNOLOGIES & EXPORTS LTD (18) THIRDWARE SOLUTIONS LTD (SEG) (VII) THAT ASSUMING WITHOUT ADMITTING THAT TURNOVE R FILTER SHOULD NOT BE APPLIED, THE FOLLOWING COMPANIES DESERVE TO BE REJECTED ON MERITS, NAMELY: (A) INFOSYS TECHNOLOGIES LIMITED; (B) WIPRO LIMITED; (C) TATA ELXSI LIMITED; (VIII) BENEFIT OF 5 PER CENT RANGE : THAT THE ASSESSEE SHOULD BE GIVEN A STANDARD DEDUCTION OF 5% AS PROVIDED UNDER PROVISO TO SECTION 92C(2) BEFORE MAKING ADJUSTMENTS FOR THE TRANSFER P RICE; RELIES ON CASE LAWS : (A) M/S. SAP LABS INDIA PRIVATE LTD V. ACIT 2010-TII-44 - ITAT-BANG-TP; (B) PHILIPS SOFTWARE CENTRE PVT. LTD 26 SOT 226 (C) MSS INDIA PVT. LTD 32 SOT 132 (D) CUSTOMER SERVICES INDIA (P) LTD V. ACIT 30 SOT 486 4.2 IT WAS ASSERTED THAT EVER AFTER ADOPTING THE C OMPARABLES AS CHOSEN BY THE TPO SUBJECT TO REJECTION OF SOME CO MPANIES FOR JUSTIFIABLE REASONS, THE MARGINS OF THE ASSESSEE WERE WITHIN TH E ARMS LENGTH RANGE OF THE ADJUSTED ALP. (IX) DEDUCTION U/S 10A : WHILE COMPUTING DEDUCTION U/S 10A, THE AO REDUCED RS.69,45,076/- FROM THE EXPORT TURNOVER. HOWEVER, THE SAME HAS NOT BEEN REDUCED F ROM THE TOTAL TURNOVER. IT IS SUBMITTED THAT WHAT IS R EDUCED FROM EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM TO TAL TURNOVER. PAGE 11 OF 29 ITA NO.112 4/BANG/2011 11 RELIES ON THE FINDINGS OF THE SPECIAL BENCH IN THE CASE OF ITO V. SAK SOFT (2009) 313 ITR (AT) 353 AND THE HONBLE KA RNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LIMITED; (X) PRIOR PERIOD EXPENSES: THAT THE AO HAD DISALLOWED RS.77,12,144/- ON THE GROUND THAT IT IS PRIOR PERIOD EXPENSES WITH OUT APPRECIATING THAT SAME REPRESENTED SHORT PROVISION, EXCESS PROVISION OR NO PROVISION OF EARLIER YEARS; (XI) DEDUCTION U/S 10A ON DISALLOWANCE : THE ASSESSEES UNIT IS REGISTERED WITH STPI AUTHORITIES. PROFITS OF THE S AID STPI UNIT ARE ELIGIBLE FOR DEDUCTION U/S 10A. THE AO HAD, IN THE ASSESSMENT ORDER, MADE CERTAIN ADDITIONS/DISALLOWANCES. THE D ISALLOWANCE MADE HAS RESULTED IN ENHANCEMENT OF INCOME OF THE S TPI UNIT. HOWEVER, DEDUCTION U/S 10A HAS NOT BEEN ALLOWED IN RESPECT OF THE ADDITIONS MADE. DEDUCTION U/S 10A SHOULD HAVE BEEN ALLOWED IN RESPECT OF INCOME ASSESSED. RELIES ON CASE LAWS: (A) ITO V. SAHASRA ELECTRONICS P. LTD 2010-TIOL-89-ITAT , DEL; (B) CIT V. GEMPLUS JEWELLERY INDIA LTD (2010 330 ITR 017 5 (BOM); & (C) INTERNATIONAL GOLD CO. LTD V. ITO ITA NO.597/MUM/ 2010 DT.15.9.2010 OF ITAT, MUMBAI. 4.3 IN CONCLUSION, IT WAS SUBMITTED THAT THE ASSES SEES CASE IS SQUARELY COVERED BY THE FINDINGS OF THE HONBLE EARLI ER BENCH IN THE CASE OF M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMIT ED V. DCIT REFERRED ABOVE. 4.4 ON THE OTHER HAND, THE LEARNED D R HAD SUPPORT ED THE FINDINGS OF THE AUTHORITIES BELOW. IT WAS, FURTHER , SUBMITTED THAT THE LEARNED TPO HAD ANALYZED THE VARIOUS FACTORS, AS REC ORDED IN HIS ORDER U/S 92CA OF THE ACT, TO ARRIVE AT A CONCLUSION THAT THE ASSESSEES INTERNATIONAL PAGE 12 OF 29 ITA NO.112 4/BANG/2011 12 TRANSACTIONS HAD RESULTED IN AN ADJUSTMENT TO THE E XTENT OF RS.4,94,71,132/- WHICH HAS BEEN DULY SUSTAINED BY THE DRP IN ITS DIREC TIONS U/S 144C OF THE ACT. IT WAS, THEREFORE, PLEADED THAT THERE WAS NO INFIRMITY IN THE ORDER OF THE AO WARRANTING ANY INTERFERENCE OF THIS BENCH.. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE LEARNED A R AS WELL AS THE RIVAL SUBMISSION OF THE LEARNED D R ON VARIOUS ASPECTS OF THE ADJUSTMENT MADE BY THE TPO. WE HAVE ALSO DULY PERUSED THE RELEVANT CASE RECORDS AND ALSO THE DOCUMENTARY EVIDE NCES INCLUDING THE RECENT ORDER OF THE TRIBUNAL IN THE CASE OF M/S. T RILOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMITED (SUPRA) PRODUCED BY THE LEARNED AR DURING THE COURSE OF HEARING IN THE SHAPE OF VOLUMINOUS PA PER BOOKS. W E WOULD LIKE TO REITERATE THAT THE BANGALORE TRIBUNAL HAD RECENT LY DELIVERED A DECISION IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PRIVAT E LIMITED V. DCIT (ITA NO.1054/BANG/2011 DATED 23.11.2012) HEREIN REFERRED TO TRILOGY E - BUSINESS. IN THE SAID CASE, THE ASSESSEE WAS ENGAG ED IN THE BUSINESS OF RENDERING SOFTWARE DEVELOPMENT BUSINESS, JUST LIKE THE ASSESSEE IN THE INSTANT CASE. THE COMPARABLES SELECTED BY THE TPO I N THE CASE OF TRILOGY E- BUSINESS SOFTWARE AND THE ASSESSEE OF THIS CASE ARE IDENTICAL. THEY ARE AS FOLLOWS: (1) ACCEL TRANSMATIC LTD (SEG.); (2) AVANI CIMCON TECHNOLOGIES LTD. (3) CELESTIAL LABS LTD. (4) DATAMATICS LTD (5) E-ZEST SOLUTIONS LTD. (6) FLEXTRONICS SOFTWARE SYSTEMS LTD. (7) GEOMETRIC LTD. (SEG.) (8) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD (9) IGATE GLOBAL SOLUTIONS LTD. PAGE 13 OF 29 ITA NO.112 4/BANG/2011 13 (10) INFOSYS TECHNOLOGIES LTD. (11) ISHIR INFOTECH LTD (12) KALS INFORMATION SYSTEMS LTD.(SEG.) (13) LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS LTD.) (14) LUCID SOFTWARE LTD (15) MEDIASOFT SOLUTIONS PVT. LTD (16) MEGASOFT LTD.(SEG.) (17) MINDTREE LTD. (18) PERSISTENT SYSTEMS LTD. (19) QUINTEGRA SOLUTIONS LTD (20) R.S. SOFTWARE (INDIA) LTD (21) R SYSTEMS INTERNATIONAL LTD (SEG) (22) SIP TECHNOLOGIES & EXPORTS LTD (23) THIRDWARE SOLUTIONS LTD (SEG) (24) TATA ELXSI LTD. (SEG.) (25) SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) (26) WIPRO LTD. (SEG.) FOR THE YEAR UNDER CONSIDERATION, THE OPERATING COST IN THE CASE OF TRILOGY E-BUSINESS WAS RS.43.16 CRORES WHEREAS THE ASSESSEE S OPERATING COST FOR THE SAME PERIOD WAS RS.41.46 CRORES. THE COST BASE OF THE ASSESSEE AND TRILOGY E-BUSINESS BEING SIMILAR, WE ARE OF THE CONS IDERED VIEW THAT THE ORDER OF THE TRIBUNAL IN THE CASE OF TRILOGY E BUSIN ESS IS SQUARELY APPLICABLE TO THE ASSESSEES CASE. THE OBJECTIONS RAISED BY TH E ASSESSEE ARE DEALT WITH CHRONOLOGICALLY AS UNDER: I. TURNOVER FILTER: 5.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE TPO HAD, WHILE SELECTING THE ABOVE 26 ABOVE COMPARABLES, APPLIED A LOWER TURNOVER FILTER OF RS. 1 CRORE BUT PREFERRED NOT TO APPLY ANY UPPER TURNOVER LIMIT. THE SIZE OF THE CO MPARABLE IS AN IMPORTANT PAGE 14 OF 29 ITA NO.112 4/BANG/2011 14 FACTOR IN COMPARABILITY. THE ICAI TP GUIDANCE NOTE HAS OBSERVED THAT THE TRANSACTION ENTERED INTO BY A RS.1000 CRORES COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENTERED INTO BY A RS.10 CRORES COMPANY AND THE TWO MOST OBVIOUS REASONS ARE THE SIZE OF THE TWO COMPAN IES AND RELATED ECONOMIES OF SCALE UNDER WHICH THEY OPERATE. THE TP OS RANGE HAD RESULTED IN SELECTION OF COMPANIES AS COMPARABLE SUCH AS INF OSYS WHICH WAS 277 TIMES BIGGER THAN THAT OF THE ASSESSEE. THE BANGALORE BE NCH OF THE TRIBUNAL IN THE CASE OF M/S. GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT ITA NO.1231/BANG/2010 RELYING ON DUN AND BRADSTREET S ANALYSIS HAD HELD THAT TURNOVER RANGE OF RS.1 CRORE TO 200 CRORES IS APPROPRIATE. THE SAID PROPOSITION HAS FOLLOWED BY THE EARLIER BENCHES OF THIS TRIBUNAL IN THE FOLLOWING CASES: (I) M/S. KODIAK NETWORS (I) PVT. LTD V. ACIT ITA NO.1413/BANG/2010; (II) M/S.GENESIS MICROCHIP (I) PVT. LTD. DCIT ITA NO.1254/BANG/2010; (III) ELECTRONIC FOR IMAGING INDIA PVT. LTD ITA NO.1171 /BANG/2010; & (IV) M/S.TRILOGY E-BUSINESS SOFTWARE INDIA PRIVATE LTD. V . DCIT ITA NO.1054/BANG/2011 DATED 23.11.2012. 5.1.1 IN THE CASE OF M/S.GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT (SUPRA) RELYING ON DUN AND BRADSTR EET HAS OBSERVED AS UNDER: 9. .WE FIND THAT THE TPO HIMSELF HAS REJECTED THE COMPANIES WHICH ARE MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT THERE IS A LIMIT FOR THE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITUATION, W E ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE A N UPPER LIMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS AN OTHER FACTOR TO BE CONSIDERED. WE AGREE WITH THE CONTENT ION PAGE 15 OF 29 ITA NO.112 4/BANG/2011 15 OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SI ZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE IN A PO SITION TO BARGAIN THE PRICE AND ALSO ATTRACT MORE CUSTOMER S. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES WH O ARE ABLE TO GIVE BETTER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE, THE TURNOVER ALSO WOU LD COME DOWN REDUCING PROFIT MARGIN. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNAL, WHEN COMPANIES WHI CH ARE LOSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN THE SUPER PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUD ED. FOR THE PURPOSE OF CLASSIFICATION OF COMPANIES ON T HE BASIS OF NET SALES OR TURNOVER, WE FIND THAT A REAS ONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME, WE H OLD THAT THE TURNOVER FILTER IS VERY IMPORTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1 CRORE TO 200 CR ORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSE SSEE BEING IN THAT RANGE HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200 C RORES ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURP OSE OF MAKING TP STUDY. 5.1.2 THE ABOVE VIEW HAS BEEN FOLLOWED IN THE RECEN T ORDER OF THE TRIBUNAL IN THE CASE OF TRILOGY E BUSINESS (SUP RA). THE RELEVANT FINDINGS OF THE TRIBUNAL ARE EXTRACTED AS UNDER: 20. IN THIS REGARD WE FIND THAT THE PROVISIONS OF LAW POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE CLEARLY LAY DOWN THE PRINCIPLE THAT THE TURNOVER FILTER IS AN IMPORTANT CRITERIA IN CHO OSING THE COMPARABLES. THE ASSESSEES TURNOVER IS RS.47,46,66,638. IT WOULD THEREFORE FALL WITHIN TH E CATEGORY OF COMPANIES IN THE RANGE OF TURNOVER BETWEEN 1 CRORE AND 200 CRORES (AS LAID DOWN IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PAGE 16 OF 29 ITA NO.112 4/BANG/2011 16 PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010) . THUS, COMPANIES HAVING TURNOVER OF MORE THAN 200 CRORES HAVE TO BE ELIMINATED FROM THE LIST OF COMPARABLES AS LAID DOWN IN SEVERAL DECISIONS REFER RED TO BY THE LD. COUNSEL FOR THE ASSESSEE. APPLYING THO SE TESTS, THE FOLLOWING COMPANIES WILL HAVE TO BE EXCL UDED FROM THE LIST OF 26 COMPARABLES DRAWN BY THE TPO VIZ., TURNOVER RS. (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. 848.66 CRO RES (2) IGATE GLOBAL SOLUTIONS LTD. 747.27 CRORES (3) MINDTREE LTD. 590.39 CRORES (4) PERSISTENT SYSTEMS LTD. 293.74 CRORES (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 343.57 CRORES (6) TATA ELXSI LTD. 262.58 CRORES (7) WIPRO LTD. 961.09 CRORES. (8) INFOSYS TECHNOLOGIES LTD. 13149 CRORES.. 5.1.3 IN VIEW OF THE ABOVE SAID REASONING AND THE ORDERS OF THE BENCHES OF BANGALORE TRIBUNAL CITED SUPRA, THE FOLL OWING COMPANIES WILL HAVE TO BE ELIMINATED FROM THE LIST OF COMPARABLES SELEC TED BY THE TPO, NAMELY: (I) FLEXTRONICS SOFTWARE SYSTEMS LIMITED; (II) IGATE GLOBAL SOLUTIONS LIMITED; (III) MINDTREE LIMITED; (IV) PERSISTENT SYSTEMS LIMITED; (V) SASKEN COMMUNICATION TECHNOLOGIES LIMITED; (VI) TATA ELXSI LIMITED; (VII) WIPRO LIMITED; & (VIII) INFOSYS TECHNOLOGIES LIMITED. II. 5.2 WE SHALL NOW DEAL WITH THE IMPROPER SELECTION OF COMPARABLES BY THE TPO FOR THE REASONS THAT THEY WERE FUNCTIONALLY DIFFERENT AS OBSERVED BY THE EARLIER BENCH IN THE CA SE OF TRILOGY E-BUSINESS. PAGE 17 OF 29 ITA NO.112 4/BANG/2011 17 A. ACCEL TRANSMATIC LTD. (SEG): THE SELECTION OF THIS COMPANY AS COMPARABLE BY THE TP O WAS DULY CONSIDERED BY THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS AND REASON RECORDED IN ITS FINDING IS EXTRACTED AS UNDER: 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE THAT THE AFO RESAID COMPANY SHOULD NOT BE TREATED AS COMPARABLES WAS CONSIDERED BY THE TRIBUNAL IN CAPGEMINI INDIA LTD (SUPRA) WHERE THE ASSESSEE WAS SOFTWARE DEVELOPER. THE TRIBUNAL, IN THE SAID DECISION REFERRED TO BY TH E LD. COUNSEL FOR THE ASSESSEE, HAS ACCEPTED THAT THIS CO MPANY WAS NOT COMPARABLE IN THE CASE OF THE ASSESSEES ENG AGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPT ING THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, W E HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED AS COMPARABLES. B. AVANI CIMCON TECHNOLOGIES LTD: THE SELECTION OF THIS COMPANY AS COMPARABLE BY THE TP O WAS REJECTED BY THE EARLIER BENCH OF THE TRIBUNAL IN TRILOGY E-BUSIN ESS FOR THE REASONS THAT- 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. TH E REASONS GIVEN BY THE ASSESSEE FOR EXCLUDING THIS COM PANY AS COMPARABLE ARE FOUND TO BE ACCEPTABLE. THE DECI SION OF ITAT (MUMBAI) IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT (SUPRA) ALSO SUPPORTS THE PLEA OF THE ASSESSEE. WE THEREFORE AC CEPT THE PLEA OF THE ASSESSEE TO REJECT THIS COMPANY AS A COMPARABLE. PAGE 18 OF 29 ITA NO.112 4/BANG/2011 18 C. CELESTIAL LABS. LTD: THIS COMPANY WAS ALSO SELECTED BY THE TPO AS COMPARAB LE. HOWEVER, ON DUE CONSIDERATION OF THE ISSUE, THE EARLIER BENCH OF TH IS TRIBUNAL IN TRILOGY E- BUSINESS HAD OPINED THAT THIS COMPANY CANNOT BE AS C OMPARABLE ON THE GROUND THAT 45. .. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISS IONS MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICALLY/ADMITTEDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS, THE RE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT THIS COMPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTW ARE DEVELOPMENT SERVICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY OUGHT NOT TO HAVE BEE N CONSIDERED AS COMPARABLE. D. KALS INFORMATION SYSTEM LTD (SEG): INCIDENTALLY, THE SELECTION OF THIS COMPANY AS COM PARABLE BY THE TPO WAS REJECTED BY THE TRIBUNAL IN THE CASE O F TRILOGY E-BUSINESS ON THE PREMISE THAT THE INFORMATION OBTAINED BY THE TPO BY ISSUANCE OF NOTICE U/S 133(6) OF THE ACT WAS NOT, HOWEVER, AVAI LABLE IN PUBLIC DOMAIN. THE REASONS RECORDED, FOR APPRECIATION OF FACTS, AR E EXTRACTED HEREUNDER: 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) O F THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN P UBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPAN Y AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21.6 .2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFE RRED PAGE 19 OF 29 ITA NO.112 4/BANG/2011 19 TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMB AI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOP ING SOFTWARE PRODUCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE . 5.2.1 IN CONFORMITY WITH THE FINDINGS OF THE COORDIN ATE BENCH OF THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS, WE A RE OF THE CONSIDERED VIEW THAT (I) ACCEL TRANSMATIC LTD (SEG); (II) AVANI CIM CON TECHNOLOGIES LTD; (III) CELESTIAL LABS. LTD., & (IV) KALS INFORMATION SYSTEM S LTD (SEG) CANNOT QUALIFY AS COMPARABLES IN THE CASE OF THE ASSESSEE U NDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. 5.2.2 AFTER EXCLUDING FROM THE TPO LIST OF COMPARA BLES, THE COMPANIES HAVING TURNOVER EXCEEDING RS.200 CRORES A ND FOUR COMPANIES WHICH ARE FUNCTIONAL DISSIMILAR TO THAT OF THE ASSE SSEE, THE FOLLOWING FOURTEEN COMPANIES IN TPO LIST ARE RETAINED AS COMP ARABLES:- SL. NO. NAME OF THE COMPANY 1. DATAMATICS LIMITED 2. E ZEST SOLUTIONS LIMITED 3. GEOMETRIC LTD. (SEG) 4. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD 5. ISHIR INFOTECH LTD 6. LGS GLOBAL LTD (LANCO GLOBAL SOLUTIONS LTD) 7. LUCID SOFTWARE LTD 8. MEDIASOFT SOLUTIONS PVT. LTD 9. MEGASOFT LTD (SEG) 10. QUINTEGRA SOLUTIONS LTD 11. R S SOFTWARE (INDIA) LTD 12. R SYSTEMS INTERNATIONAL LTD (SEG) 13. SIP TECHNOLOGIES & EXPORTS LTD 14. THIRDWARE SOLUTIONS LTD (SEG) PAGE 20 OF 29 ITA NO.112 4/BANG/2011 20 5.2.3 THE ABOVE COMPANIES HAVE BEEN RETAINED AS COM PARABLES IN CONFORMITY WITH THE FINDINGS OF THE EARLIER BENCH IN THE CASE OF TRILOGY E- BUSINESS (SUPRA). IT IS TO BE NOTED THAT IN THE C ASE OF TRILOGY E-BUSINESS, THE TRIBUNAL TURNED DOWN THE PLEA OF THE ASSESSEE T HAT M/S. MEGASOFT LTD SHOULD BE REJECTED AS COMPARABLE. HOWEVER, THE TRI BUNAL ACCEPTED THE ALTERNATIVE SUBMISSION OF THE ASSESSEE THAT THE SEG MENTAL PROFIT MARGIN IS TO BE RECKONED WITH INSTEAD OF ENTITY LEVEL MARGIN AND HELD THAT THE PROFIT MARGIN OF 23.11% WHICH IS THE MARGIN OF THE SOFTWAR E SERVICE SEGMENT BE TAKEN FOR COMPARABILITY. THE DISCUSSION AND THE FINDINGS OF THE BENCH WITH REGARD TO THE ACCEPTANCE OF THE ALTERNATIVE SUBMISS ION OF THE ASSESSEE TO ADOPT THE SEGMENTAL MARGIN OF 23.11% IS REPRODUCED BELOW: 37. THE NEXT PLEA OF THE ASSESSEE IS THAT IF AT ALL THI S COMPANY IS CONSIDERED AS A COMPARABLE THEN THE SEGMENTAL MARGIN OF 23.11% (WHICH IS THE MARGIN FOR SOFTWARE SERVICE SEGMENT) ALONE SHOULD BE CONSIDERE D FOR COMPARABILITY. ON THE ABOVE SUBMISSION, WE FIND TH AT THE TPO CONSIDERED THE SEGMENTAL MARGIN (SOFTWARE SERVICE SEGMENT) IN THE CASE OF GEOMETRIC, KALS INF O SYSTEMS, R SYSTEMS, SASKEN COMMUNICATION AND TATA ELXSI. BEFORE DRP THE ASSESSEE POINTED OUT THAT TH E SEGMENTAL MARGIN OF 23.11% ALONE SHOULD BE TAKEN FO R COMPARABILITY. THE DRP HAS NOT GIVEN ANY SPECIFIC FI NDING ON THE ABOVE PLEA OF THE ASSESSEE. PERUSAL OF THE ORDER OF THE TPO SHOWS THAT THE TPO RELIED ON INFORMATION WHICH WAS GIVEN BY THIS COMPANY IN WHICH THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ., BLUEA LLY DIVISION AND XIUS-BCGI DIVISION. XIUS-BCGI DIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE (DEVELOPING SOFTWARE). THIS COMPANY DEVELOPS PACKAG ED PRODUCTS FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. THESE PRODUCTS ARE SOLD AS PACKAGED PRODU CTS PAGE 21 OF 29 ITA NO.112 4/BANG/2011 21 TO CUSTOMERS. WHILE IMPLEMENTING THESE STANDARDIZE D PRODUCTS, CUSTOMERS MAY REQUEST THE COMPANY TO CUSTOMIZE PRODUCTS OR RECONFIGURE PRODUCTS TO FIT I NTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES UP THE JOB OF CUSTOMIZING THE PACKAGED SOFTWA RE. THE COMPANY ALSO EXPLAINED THAT 30 TO 40% OF THE PRODUCT SOFTWARE (SOFTWARE DEVELOPED) WOULD CONSTIT UTE PACKAGED PRODUCT AND AROUND 50% TO 60% WOULD CONSTITUTE CUSTOMIZED CAPABILITIES AND EXPENSES REL ATED TO TRAVELLING, BOARDING AND LODGING EXPENSE. BASED ON THE ABOVE REPLY, THE TPO PROCEEDED TO HOLD THAT THE COMPARABLE COMPANY WAS MAINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO SOFT WARE DEVELOPMENT) INTERNALLY AND THAT THE PORTION OF THE REVENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUSTOMIZATION WAS LESS THAN 25% OF THE OVERALL REVE NUES. THE TPO THEREFORE HELD THAT LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUC TS AND THEREFORE THE COMPARABLE SATISFIED TPOS FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. HAVING DRAWN THE ABOVE CONCLUSION, THE T PO DID NOT BOTHER TO QUANTIFY THE REVENUES WHICH CAN BE ATTRIBUTED TO SOFTWARE PRODUCT DEVELOPMENT AND SOFTWARE DEVELOPMENT SERVICE BUT ADOPTED THE MARGIN OF THIS COMPANY AT THE ENTITY LEVEL. IN TERMS OF RULE 10B(3)(B) OF THE RULES, AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUC H TRANSACTIONS IN THE OPEN MARKET; OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. PAGE 22 OF 29 ITA NO.112 4/BANG/2011 22 38. NEITHER THE TPO NOR THE DRP HAVE NOTICED THAT THERE IS BOUND TO BE A DIFFERENCE BETWEEN THE ASSESSEE AND MEGASOFT AND THE PROFIT ARISING TO THE MEGASOFT AS A RESULT OF THE EXISTENCE OF THE SOFTWA RE PRODUCT SEGMENT AND NO FINDING HAS BEEN GIVEN THAT REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. FOR THIS REASON, WE ARE INCLINED TO HOLD THAT THE P ROFIT MARGIN OF 23.11% WHICH IS THE MARGIN OF THE SOFTWAR E SERVICE SEGMENT BE TAKEN FOR COMPARABILITY... 5.2.4 IN CONFORMITY WITH THE FINDINGS OF THE EARLIER BENCH (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE TPO WAS JUSTIFIED IN SELECTING M/S. MEGASOFT LTD AS COMPARABLE. HOWEVER , THE AO/TPO IS DIRECTED TO TAKE SEGMENTAL MARGINS OF 23.11% FOR CO MPARABILITY. IT IS ORDERED ACCORDINGLY. III. FOREX GAIN/LOSS IMPACT: 5.3 THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS HAD DIRECTED THAT THE FOREIGN EXCHANGE GAIN OR LOSS SHO ULD BE CONSIDERED AS OPERATING REVENUE OR COST WHILE COMPUTING THE OPERA TING MARGIN OF THE ASSSESSEE AS WELL AS THE COMPARABLE. THE RELEVANT FINDING OF THE TRIBUNAL READ AS FOLLOWS: 79 (B) . AS FAR AS FOREIGN EXCHANGE GAIN/LOSS BEING CONSIDER ED AS NOT FORMING PART OF THE OPERATING COST, THE REASONI NG OF THE REVENUE IS THAT SUCH LOSS OR GAIN CANNOT BE SAI D TO BE ONE REALIZED FROM INTERNATIONAL TRANSACTION THOUGH THEY MAY FORM PART OF THE GAIN/LOSS OF THE ENTERPRISE AND THEREFORE THEY SHOULD BE EXCLUDED WHILE DETERMINING PAGE 23 OF 29 ITA NO.112 4/BANG/2011 23 OPERATING COST. ON THE ABOVE ISSUE WE FIND THAT TH E BANGALORE BENCH OF ITAT IN THE CASE OF SAP LABS IND IA (P) LTD. VS. ACIT (2011) 44 SOT 156 (BANG.) HAS TAK EN THE VIEW THAT FOREIGN EXCHANGE FLUCTUATION GAINS AR E REQUIRED TO BE ADDED TO OPERATING REVENUE. FOLLOWI NG THE SAME, THE AO IS DIRECTED TO ACCEPT THE CLAIM OF THE ASSESSEE IN THIS REGARD. 5.3.1 IN CONFORMITY WITH THE ABOVE FINDING, WE DIRE CT THE AO/TPO TO CONSIDER THE FOREIGN EXCHANGE GAIN OR LOS S AS PART OF THE OPERATING COST OR REVENUE AS THE CASE MAY BE. SINCE THE TPO HAD COMPUTED THE MARGIN WITHOUT CONSIDERING THE FOREIGN GAIN OR LOSS, THE ASSESSEE HAD TABULATED REVISE MARGINS OF COMPARABLES AFTER CONSI DERING THE FOREIGN EXCHANGE GAIN OR LOSS AS OPERATING IN NATURE. THE TABULATED REVISED MARGIN OF COMPARABLE AFTER CONSIDERING THE FOREIGN EXCHANG E GAIN OR LOSS IS MADE AS ANNEXURE A TO THIS ORDER. THE ASSESSING OFFICER/TP O IS DIRECTED TO VERIFY THE CORRECTNESS OF THE WORKING/COMPUTATION OF ANNEXURE A. WORKING CAPITAL ADJUSTMENT: 5.4 WITH REGARD TO THE WORKING CAPITAL ADJUSTMENT, THE ASSESSEE SUBMITTED THAT THE COMPUTATION OF THE TPO WAS ERRONEOUS. IT IS SEEN THAT THE TPO HAD WORKED OUT THE WORKING CAPITA L ADJUSTMENT AT -1.27 % [WORKING AT ANNEXURE C OF THE ORDER OF TPO] . 5.4.1 IN THIS REGARD, THE ASSESSEE HAS SUBMITTED T HAT IN ARRIVING AT THE TOTAL AMOUNT OF TRADE PAYABLES, THE TPO HAD C ONSIDERED ONLY SUNDRY CREDITORS FOR EXPENSES AND NOT THE INTER COMPANY PAYA BLES WHICH ARE ACTUALLY TRADE PAYABLES OF THE ASSESSEE COMPANY [SOURC E: PAGE 6 OF PB-I]. PAGE 24 OF 29 ITA NO.112 4/BANG/2011 24 5.4.2 WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS . IF THE ABOVE CONTENTION OF THE ASSESSEE IS TO BE TAKEN INT O ACCOUNT, THE REVISED WORKING CAPITAL ADJUSTMENT COMES TO 2.04% INSTEAD O F -1.27% ARRIVED BY THE TPO. SINCE THE ISSUE IS FACTUAL WHICH REQUIRES VER IFICATION AT THE AO/TPOS LEVEL, THE SAME IS REMITTED BACK TO THE FILE OF THE AO/TPO WITH A DIRECTION TO EXAMINE THE VERACITY OF THE ASSESSEES CLAIM AND TO TAKE APPROPRIATE DECISION IN CORRECTLY COMPUTING THE WORKING CAPITAL ADJUSTMENT. IT IS ORDERED ACCORDINGLY. IV. RISK ADJUSTMENT: 5.5 ACCORDING TO THE ASSESSEE, IT IS OPERATING IN A RISK MITIGATED ENVIRONMENT. IT WAS SUBMITTED THAT THE R ISK ASSUMED BY IT ARE LESSER THAN THOSE ASSUMED BY THE COMPANIES IN AN UNC ONTROLLED CONDITION, THEREFORE, AN ADJUSTMENT FOR RISK IS TO BE GRANTED. THE REASONING FOR THE ABOVE SUBMISSION IS THAT HIGHER THE RISK, THE HIGHE R THE PROFIT. 5.5.1 IN THE INSTANT CASE, TPO IN HIS ORDER HAS CO MPUTED THE ADJUSTMENT FOR RISK DIFFERENTIAL TABLE AT PAGES 179 AND 180 OF THE ORDER PASSED U/S 92C OF THE ACT INDICATE MARGINS WERE RED UCED BY 0.73% TO FACTOR IN THE RISK DIFFERENTIALS. THE TPO, HOWEVER , AFTER COMPUTING THE RISK DIFFERENTIALS DID NOT GIVE EFFECT TO THE SAME ON TH E PREMISE THAT THE SINGLE CUSTOMER RISK OF THE ASSESSEE IS MORE TO OFF SET TH E EFFECT OF THE RISK DIFFERENTIALS AS ABOVE. IN THIS CONNECTION, THE EA RLIER BENCH OF THIS TRIBUNAL IN THE CASE OF M/S INTELLINET TECHNOLOGIES INDIA PV T. LTD V. ITO IN ITA NO.1237/BANG2007 HAD, ON A SIMILAR ISSUE, OBSERVED AS UNDER: PAGE 25 OF 29 ITA NO.112 4/BANG/2011 25 7.1 AS SEEN FROM THE RECORDS, THE ASSESSEE HAD ACQUIRED THE BUSINESS AND ALSO EARNED INCOME OUT OF THE SAID TRANSACTION BY COST PLUS BASIS. THUS, IT CAN B E SEEN THAT THE ASSESSEE HAS NOT ENCOUNTERED THE RISK OF H AVING A SINGLE CUSTOMER, WHEREAS THE SAME CANNOT BE SAID AS REGARDS THE COMPARABLES. AS POINTED OUT BY THE LEAR NED COUNSEL FOR THE ASSESSEE, THE COMPARABLES WERE DEAL ING IN OPEN MARKET AND THEREFORE, THEY WERE PRONE TO THE MARKETING AND TECHNICAL RISKS. THEY WOULD HAVE INCU RRED CERTAIN EXPENDITURE ON MARKETING SERVICES AND ALSO TO SAFEGUARD THE TECHNICAL USE BY THEM. IN SUCH A CASE , THE RISK ENCOUNTERED BY THE ASSESSEE CANNOT BE SAID TO B E THE EQUIVALENT RISKS ATTACHED TO THE COMPARABLES. THE RISK ATTRIBUTED TO THE ASSESSEE BY THE TPO IS AN ANTICIPATED RISK WHEREAS THE RISK ATTRIBUTED BY THE ASSESSEE TO THE COMPARABLES IS AN EXISTING RISK. I N SUCH SITUATION, THE TPO OUGHT TO HAVE GIVEN THE RISK ADJUSTMENT TO THE NET MARGIN OF THE COMPARABLES FOR BRINGING THEM ON PAR WITH THE ASSESSEE COMPANY. 5.5.2 IN CONFORMITY WITH THE FINDINGS OF THE EARLIER BENCH (SUPRA), WE DIRECT THE AO/TPO TO WORK OUT SUITABLE RISK ADJUSTMENT AND COMPUTE THE ALP ACCORDINGLY. 5.5.3 IT IS TO BE NOTED THAT NO SUBMISSIONS/ARGUMEN TS WERE RAISED IN COURSE OF HEARING WITH REGARD TO THE OTHE R ISSUE OF TP ADJUSTMENT, APART FROM ABOVE DISCUSSED ISSUE AND HENCE, GROUND NOS.8, 9, 16 AND PART OF GROUND NO.11 RELATING TO THE ASSESSEES OBJECTION T HAT ITS COMPARABLES ARE UNJUSTIFIABLY REJECTED IS NOT CONSIDERED/ADJUDICATED . 5.5.4 IN CONCLUSION, THE AO/TPO IS DIRECTED TO WOR K OUT THE ALP OF THE ASSESSEE IN ACCORDANCE WITH DIRECTIONS OF TH IS BENCH (SUPRA). IT IS PAGE 26 OF 29 ITA NO.112 4/BANG/2011 26 THE CLAIM OF THE ASSESSEE ITS MARGIN AFTER CONSIDER ING FOREIGN EXCHANGE LOSS IS AT 14.14%, WHERE MARGIN OF THE COMPARABLE AFTER WORK CAPITAL ADJUSTMENT IS 15.89% AND AFTER RISK ADJUSTMENT, THE ADJUSTED A VERAGE MARGIN OF COMPARABLE IS 15.16%. THE ASSESSEES TABULATION OF COMPARABLE OPERATING MARGIN ON COST AND MARGIN AFTER WORKING CAPITAL ADJ USTED IS MADE AS ANNEXURE B TO THIS ORDER. FURTHER, THE LEARNED ARS COMPUTAT ION PORTRAYING THE ASSESSEES MARGIN (AFTER GIVING EFFECT TO IMPAC T OF FOREX GAIN OR LOSS) AND MARGIN OF COMPARABLE (AFTER RISK ADJUSTMENT) IS GIVEN AS ANNEXURE C TO THIS ORDER. THE ASSESSING OFFICER/TPO IS DIRECTED TO VERIFY THE WORKING/COMPUTATION AND IF FOUND THAT THE DIFFERENT IAL IN THE MARGIN OF THE ASSESSEE AND THE COMPARABLES IS BEYOND 5% BANDWIDTH RECOGNIZED IN PROVISO TO S. 92C (2) OF THE ACT, THEN ADJUSTMENT IS REQUIR ED TO BE MADE TO THE REPORTED VALUE OF THE ASSESSEES TRANSACTION WITH I TS AE. IT IS ORDERED ACCORDINGLY. U/S 10A OF THE ACT. 6. WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF T HE ACT, THE ASSESSING OFFICER REDUCED RS.69,45,076/- FROM T HE EXPORT TURNOVER. HOWEVER, THE SAME HAS NOT BEEN REDUCED FROM THE TOT AL TURNOVER. AS A RESULT OF RECOMPUTATION OF DEDUCTION, THE CLAIM UND ER SECTION 10A OF THE ACT WAS REDUCED TO RS.6,37,73,510/- AS AGAINST RS.6 ,48,95,788/-. 6.1 IN THIS REGARD, THE ASSESSEES SUBMISSION IS TH AT THE ASSESSING OFFICER WHILE REDUCING FROM THE EXPORT TU RNOVER THE ABOVE SAID EXPENSES AND THE SAME OUGHT TO BE ALSO REDUCED FROM THE TOTAL TURNOVER. IT WAS ARGUED THAT THE ISSUE IN QUESTION IS SQUARELY CO VERED BY THE JUDGMENT OF PAGE 27 OF 29 ITA NO.112 4/BANG/2011 27 THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V M/S TATA ELXSI LTD. & OTHERS [(2012) 247 CTR (KAR.) 334)]. 6.2 THE LEARNED DR PRESENT WAS UNABLE CONTROVERT TH E SUBMISSION MADE BY THE LEARNED AR. 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS (SUPRA) HAS HELD THAT WHEN THE EXPENSES ARE REDUCED FROM THE EXPORT TURNOVER WHILE COMPUTIN G DEDUCTION UNDER SECTION 10A OF THE ACT, THE SAME SHOULD ALSO BE RED UCED FROM THE TOTAL TURNOVER IN ORDER TO MAINTAIN PARITY BETWEEN THE NUM ERATOR AND THE DENOMINATOR. IN THE LIGHT OF THE ABOVE JUDGMENT, W E DIRECT THE ASSESSING OFFICER TO REDUCE A SUM OF RS.69,45,076/- FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTIO N UNDER SECTION 10A OF THE ACT. IT IS ORDERED ACCORDINGLY. PRIOR PERIOD EXPENSES 7. THE ASSESSING OFFICER DISALLOWED A SUM OF RS.77 ,12,144/- ON THE GROUND THAT IT IS PRIOR PERIOD EXPENSES. TH E RELEVANT FINDING OF THE ASSESSING OFFICER READS AS FOLLOWS:- 6. SINCE THE COMPANY FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING, UNDER MERCANTILE SYSTEM OF ACCOUNTING TH E ASSESSEE-COMPANY IS REQUIRED TO MAKE PROVISION FOR S UCH CONTINGENCIES IN THE RELEVANT FY ITSELF. THEREFORE , FOR HAVING NOT MADE THE PROVISIONS IN THAT YEAR, FOR SUC H PAGE 28 OF 29 ITA NO.112 4/BANG/2011 28 EXPENSES, IN THE SUBSEQUENT YEARS THE CLAIM OF EXPEN SES CANNOT BE ALLOWABLE. FURTHER, AS THE EXPENDITURE D EBITED ARE NOT RELATED TO RELEVANT ASSESSMENT YEAR, THE EXPENDITURE SO DEBITED AMOUNTING TO RS.77,12,144/- IS DISALLOWED AND BROUGHT TO TAX. 7.1 IN THIS CONTEXT, THE SUBMISSION OF THE ASSESSEE IS THAT THIS AMOUNT PERTAINED TO FY 2005-06 AND IS A MIX OF SHOR T PROVISION, EXCESS PROVISION OR NO PROVISION MADE DURING THAT YEAR. 7.2 THE LEARNED DR PRESENT WAS DULY HEARD. 7.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IN THE INSTANT CASE, ADMITTE DLY, THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND HE NCE, IT WAS REQUIRED TO MAKE DEDUCTION/PROVISION FOR EXPENSES IN THE RESPEC TIVE ASSESSMENT YEARS AS AND WHEN IT OCCURS. ADMITTEDLY, THE EXPENSES ARE NOT PERTAINING TO THE CONCERNED ASSESSMENT YEAR AND, THEREFORE, THE EXPENS ES PERTAINING TO ASSESSMENT YEAR 2006-07 CANNOT BE CLAIMED AS DEDUCTI ON IN THE PRESENT ASSESSMENT YEAR (2007-08). IT IS ORDERED ACCORDINGL Y. 8. NO ARGUMENT WAS PUT FORTH ON GROUND NO.21 (NON G RANTING OF DEDUCTION UNDER SECTION 10A OF THE ACT ON DEDUCT ION/DISALLOWANCES); HENCE, THIS GROUND IS NOT ADJUDICATED. PAGE 29 OF 29 ITA NO.112 4/BANG/2011 29 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED AS INDICATED ABOVE. THE ORDER IS PRONOUNCED ON THE 21 ST DAY OF DECEMBER, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF ENCLS : ANNEXURE A, ANNEXURE B & ANNEXURE C MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BAN GALORE.