Manhattan Associates (I) Development Centre P Ltd, Bangalore V. Deputy Commissioner of Income tax, Circle-12(1), Bangalore

ITA 1293/BANG/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4792 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 21-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO C IT DR I
• Assessee Lawyers: DARPAN KIRPALANI S
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Initiation of penalty proceedings; Bad and doubtful debts
• Section: 92C; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 1293 / BANG/201 4 ASSESSMENT YEAR : 20 09 - 10 M/S. MANHATTAN ASSOCIATES (INDIA) DEVELOPMENT CENTRE PVT. LTD., PLOT NO. 170/171 & 172, PHASE II, EPIP ZONE, WHITEFIELD ROAD, BANGALORE 560 066. PAN: AADCM0727A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12 (1), BANGALORE. APPELLANT RESPONDENT IT (TP) A NO. 1342 /BANG/201 4 ASSESSMENT YEAR : 20 09 - 10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12 (1), BANGALORE. VS. M/S. MANHATTAN ASSOCIATES (INDIA) DEVELOPMENT CENTRE PVT. LTD., PLOT NO. 170/171 & 172, PHASE II, EPIP ZONE, WHITEFIELD ROAD, BANGALORE 560 066. PAN: AADCM0727A APPELLANT RESPONDENT ASSESSEE BY : SHRI VED JAIN & SHRI DARPAN KIRPALANI, ADVOCATES RE VENUE BY : SHRI C.H. SUNDAR RAO, CIT (DR - I) DATE OF HEARING : 0 4 . 0 4 .2018 DATE OF PRONOUNCEMENT : 31 . 0 5 .201 8 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND R EVENUE AND THESE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-IV, BANGAL ORE DATED 18.08.2014 FOR ASSESSMENT YEAR 2009-10. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW. IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 2 OF 12 MANHATTAN ASSOCIATES INDIA) DEVELOPMENT CENTRE PVT. LTD. (HEREINAFTER REFERRED TO AS 'MA INDIA' OR THE COMPA NY- OR THE 'APPELLANT'), RESPECTFULLY CRAVES LEAVE TO PREFER A N APPEAL AGAINST THE APPEAL ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IV [HEREINAFTER REFERRED TO AS THE 'LEA RNED CIT(A)'] UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 ('ACT') ON THE FOLLOWING GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS, B Y UPHOLDING THE ADDITION OF RS. 8,58,68,414 MADE BY THE LEARNED ASS ESSING OFFICER ('AO') / TRANSFER PRICING OFFICER ('TPO') ON ACCOUN T OF ADJUSTMENT TO THE ARM'S LENGTH PRICE OF THE PAYMENTS MADE BY T HE APPELLANT TO ITS ASSOCIATED ENTERPRISE ('AE') TOWARDS SOFTWARE DEVEL OPMENT SERVICES: A) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY NOT ACCEPTING THE APPELLANT'S PLEA IN ENTIRETY AND CONFIRMING WIT H THE LEARNED ASSESSING OFFICER ('AO')/TRANSFER PRICING OFFICER ( 'TPO') ON NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE A PPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULES, 1962 ('RULES'), AND CONDUCTING A FRESH ECONO MIC ANALYSIS FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACTION AND HOLDING THAT THE APPELLANT'S INTERNATIONAL TRANSACTION IS NOT AT ARM 'S LENGTH; B) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY UPHOLDING THE ACTION OF AO/ TPO IN DETERMINATION OF THE ARM'S LEN GTH MARGIN/ PRICE USING ONLY SINGLE YEAR DATA I.E. FOR FY 2008- 09 AND NOT ALLOWING THE USE OF MULTIPLE YEAR DATA AS APPLIED B Y THE APPELLANT IN THE TRANSFER PRICING DOCUMENTATION; C) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY UPHOLDING THE ACTION OF AOITPO IN REJECTING CERTAIN COMPARABLES C ONSIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS BY APPL YING DIFFERENT QUANTITATIVE AND QUALITATIVE FILTERS: I. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FACT S, BY NOT ACCEPTING THE APPELLANT'S PLEA THAT COMPANIES HAVIN G DIFFERENT ACCOUNTING YEAR (I.E. COMPANIES HAVING ACCOUNTING Y EAR OTHER THAN MARCH 31 OR COMPANIES WHOSE FINANCIAL STATEMEN TS WERE FOR A PERIOD OTHER THAN 12 MONTHS) SHOULD NOT BE RE JECTED. II. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FAC TS, BY NOT ACCEPTING THE APPELLANT'S PLEA THAT COMPANIES SHOUL D NOT BE REJECTED USING EMPLOYEE COST GREATER THAN 25% OF TH E TOTAL REVENUES AS A COMPARABILITY CRITERION. III. THE LEARNED CIT(A) HAS ERRED. IN LAW AND IN FA CTS, BY NOT ACCEPTING THE APPELLANT'S PLEA THAT REJECTING COMPA NIES USING IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 3 OF 12 EXPORT SALES LESS THAN 75% OF THE OPERATING REVENUE S AS A COMPARABILITY CRITERION IN RESPECT OF THE SOFTWARE DEVELOPMENT SERVICES TRANSACTION, IS NOT APPROPRIATE. IV. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACT S, BY NOT ACCEPTING THE APPELLANT'S PLEA THAT IN CASE OF CERT AIN COMPARABLE COMPANIES CONSOLIDATED RESULTS CAN BE US ED FOR ANALYSIS. THE APPELLANT HAD CONSIDERED THE CONSOLID ATED RESULTS IN ONLY THOSE CASES WHERE THE INCOME OF THE INDIAN COMPANY CONSTITUTED MORE THAN 75% OF THE CONSOLIDATED COMPA NY-WIDE/ SEGMENTAL REVENUES. D) THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FACT S, BY UPHOLDING THE ACTION OF AO/TPO IN ACCEPTING/ REJECTING CERTAI N COMPARABLE COMPANIES BASED ON UNREASONABLE COMPARABILITY CRITE RIA. E) THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, BY CONSIDERING INCORRECT RECEIVABLES AND PAYABLES IN COMPUTING THE WORKING CAPITAL ADJUSTMENT AND FURTHER ERRED, BY UPHOLDING THE ACTION OF THE AO/TPO IN RESTRICTING THE BENEFIT ON ACCOUNT OF WOR KING CAPITAL ADJUSTMENT TO 1.71 PERCENT. F) THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS--VIS THE COMPARABLES AND CONCLUD ING THAT ONCE THE WORKING CAPITAL ADJUSTMENT IS GRANTED, THERE IS NO NECESSITY OF PROVIDING ANY FURTHER ADJUSTMENTS.; G) THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS B Y, IGNORING THE FACT THAT THE APPELLANT IS AVAILING TAX HOLIDAY UND ER SECTION 10A OF THE ACT, AND THERE IS NO MOTIVE/ REASON TO SHIFT TH E PROFITS OUT OF INDIA, WHICH IS ONE OF THE BASIC INTENTION OF THE I NTRODUCING THE TRANSFER PRICING PROVISIONS. 2. THE LEARNED CIT (A) HAS ERRED, IN LAW AND FACTS, IN COMPUTING THE ALP WITHOUT GIVING BENEFIT OF +/-5 PERCENT UNDER TH E PROVISO TO SECTION 92C (2) OF THE ACT; 3. THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, IN CONFIRMING THE IMPOSITION OF INTEREST UNDER SECTIONS 234B OF THE A CT BY THE LEARNED AO. 4. THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, IN UPHOLDING INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT BY THE LEARNED AO. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 4 OF 12 SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENAB LE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 3. THE ASSESSEE HAS ALSO RAISED SOME ADDITIONAL GRO UNDS WHICH ARE AS UNDER. 5. THE APPELLANT PRAYS FOR APPLICATION OF HIGHER TU RNOVER FILTER TO THE FOLLOWING COMPARABLES SELECTED BY THE LEARNED TPO. THE APPELLANT FURTHER PRAYS THAT THERE IS NO ESTOPPEL IN LAW AGAI NST POINTING OUT A MISTAKE IN THE ASSESSMENT A) TATA ELXSI LIMITED B) SASKEN COMMUNICATIONS TECHNOLOGIES LTD C) PERSISTENT SYSTEMS LTD D) ZYLOG SYSTEMS LTD E) MINDTREE LTD F) LARSEN AND TUBRO INFOTECH LTD G) LNFOSYS LTD 6. WITHOUT PREJUDICE TO THE GROUND 5 ABOVE. THE APP ELLANT PRAYS THAT THE FOLLOWING COMPANIES SHOULD BE REJECTED AS COMPA RABLES TO THE APPELLANT AS THEY ARE FUNCTIONALLY DISSIMILAR. THE APPELLANT FURTHER PRAYS THAT THERE IS NO ESTOPPEL IN LAW AGAINST POIN TING OUT A MISTAKE IN THE ASSESSMENT A) TATA ELXSI LIMITED B) SASKEN COMMUNICATIONS TECHNOLOGIES LTD C) PERSISTENT SYSTEMS LTD D) LARSEN AND TUBRO INFOTECH LTD E) INFOSYS LTD 7. THE LEARNED TPO HAS ERRED IN LAW AND IN FACTS IN TREATING THE FOLLOWING EXPENDITURE ITEMS AS NON-OPERATING WHILE COMPUTING THE MARGINS OF COMPARABLE COMPANIES. A) FOREIGN EXCHANGE GAIN/LOSS B) PROVISION FOR BAD AND DOUBTFUL DEBTS/ADVANCES C) DEPRECIATION THE ADDITIONAL GROUND RAISE ISSUE WHICH IS FUNDAMEN TAL TO THE APPEAL AND THE NON-ADMISSION AND NON-ADJUDICATION OF THE S AME WOULD RESULT IN AN INCOMPLETE APPRECIATION AND ADJUDICATION OF T HE MATTER. THE PETITIONER SUBMITS THAT THE FAILURE TO RAISE THIS G ROUND AT AN EARLIER STAGE IS NEITHER WILFUL NOR WANTON BUT DUE TO THE R EASONS STATED ABOVE. FURTHER THE ABOVE GROUND HAS BEEN RAISED BASED ON T HE RULING OF BANGALORE TRIBUNAL IN THE CASE OF YODLEE INFOTECH P RIVATE LIMITED [IT(TP)A NO. 108/BANG/2014] FOR AY 2009-10 AND TRIL OGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMITED (1054/BANG/2011) FOR AY 2007-08 WHEREIN, THE HON'BLE ITAT HAS UPHELD THE APPLICATIO N OF UPPER LIMIT FOR THE TURNOVER FILTER. NO PREJUDICE WOULD BE CAUS ED TO THE RESPONDENT BY REASON OF THE ABOVE ADDITIONAL GROUND S BEING ADMITTED AND ADJUDICATED AND ACCORDINGLY THE BALANCE OF CONV ENIENCE IS IN IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 5 OF 12 FAVOUR OF SUCH AN ORDER BEING PASSED BY THIS HONBL E TRIBUNAL. THE PETITIONER STATES AND SUBMITS THAT THE ISSUES R AISED IN THE ADDITIONAL GROUND ABOVE ARE LEGAL ISSUES AND ARISE OUT OF THE ORDER OF THE LOWER AUTHORITIES. RELIANCE IS BASED ON THE DEC ISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CHANDIGARH SPE CIAL BENCH IN THE CASE OF DCIT VS. QUARK SYSTEMS (P.) LTD. (IT AP PEAL NO.100(CHD.) OF 2009). IN THE ABOVE CIRCUMSTANCES THE PETITIONER PRAYS THA T THIS HON'BLE TRIBUNAL BE PLEASED TO: I. ADMIT AND ADJUDICATE THE ABOVE ADDITIONAL GROUND . II. PASS ANY OTHER ORDER THAT MAY BE REQUIRED IN TH E CIRCUMSTANCES OF THE CASE AND RENDER JUSTICE. 4. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LA W AND FACTS OF THE CASE. 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) WAS JUSTIFIED IN LAW IN HOLDING THAT EXPENSE S INCURRED IN FOREIGN CURRENCY BEING TRAVELING EXPENSES OF RS.4,7 3,20,263/-, IS TO BE EXCLUDED FROM BOTH THE EXPORT TURNOVER AND THE TOTA L TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT WHEREAS SUCH EXCLUSION IS PERMITTED TO ARRIVE AT THE EXPORT TURN OVER ONLY AS PET THE DEFINITIONS GIVEN IN SEC.10A OF THE ACT AND TOTAL T URNOVER HAS NOT BEEN DEFINED IN THE SECTION'. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT(A) ERRED IN HOLDING THAT FOREIGN EXCHANGE LOSS/GAIN IS OPERA TING IN NATURE WHEN SUCH LOSS/GAIN THAT IS ATTRIBUTABLE TO THE OPERATIN G ACTIVITY IS NOT DERIVED FROM THE OPERATING ACTIVITY. 4. THE LD. CIT(A) ERRED IN LAW IN DIRECTING TO INCL UDE FOREX GAIN/LOSS AS PART OF OPERATING INCOME/LOSS WITHOUT ASCERTAINI NG THE NEXUS WITH THE BUSINESS ACTIVITY OF THE TAXPAYER. 5. THE LD.CIT(A) ERRED IN CONCLUDING THAT FOREX GAI N/LOSS ARE TO BE TREATED AS OPERATING IN NATURE AS WHILE THEY MAY BE INCIDENTAL BUT CANNOT BE DEEMED AS OPERATING IN NATURE SINCE, THEY ARE NOT CRITICAL TO OPERATIONAL ACTIVITIES OF THE BUSINESS CONDUCTED BY THE TAXPAYER. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF TH E ASSESSING OFFICER MAY BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 6 OF 12 5. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ASSE SSEE HAS SUBMITTED A BIG CHART BEFORE THE TRIBUNAL IN WHICH THE ASSESSEE HAS GIVEN ITS ARGUMENTS FOR EXCLUSION OF FIVE COMPARABLES I.E. 1) BODHTREE CONSULTING LTD ., 2) INFOSYS TECHNOLOGIES LTD., 3) PERSISTENT SYSTEMS LTD., 4) TATA ELXSI LTD . AND 5) LARSEN AND TOUBRO INFOTECH LTD. HE ALSO POINTED OUT THAT IN RESPECT OF THE FIRST FOUR COMPANIES, THE ASSESSEES REQUEST FOR EXCLUSION IS ON THIS BASIS T HAT THESE FOUR COMPANIES ARE FUNCTIONALLY DIFFERENT BUT IN RESPECT OF THE 5 TH COMPANY I.E. LARSEN & TOUBRO INFOTECH LTD., THE ASSESSEES REQUEST IS ON THIS BA SIS THAT IF THE TURNOVER FILTER OF 10 TIMES MORE THAN THE TURNOVER AS COMPARED TO ASSE SSEES TURNOVER FILTER IS APPLIED THEN THIS COMPANY SHOULD BE EXCLUDED BECAUS E THE TURNOVER OF THIS COMPANY IS RS. 1950 CRORES WHEREAS THE ASSESSEES T URNOVER IS ONLY RS. 104.82 CRORES. HE ALSO SUBMITTED THAT THE ASSESSEE S REQUEST FOR EXCLUSION OF THESE COMPANIES IS COVERED BY THE TRIBUNAL ORDER RE NDERED IN THE CASE OF M/S. YODLEE INFOTECH PVT. LTD. VS. ITO IN IT(TP)A NO. 10 8/BANG/2014 DATED 12.12.2014, COPY AVAILABLE ON PAGES 1 TO 32 OF PAPE R BOOK-II FILED BY THE ASSESSEE. HE ALSO POINTED OUT THAT THIS TRIBUNAL O RDER IS FOR THE SAME ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2009-10 AND TH E FUNCTIONAL PROFILE OF ASSESSEE COMPANY AND THIS COMPANY IS SIMILAR I.E. S OFTWARE DEVELOPMENT SUPPORT SERVICES. HE SUBMITTED THAT BY FOLLOWING T HIS TRIBUNAL ORDER, THESE FIVE COMPANIES SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. THE LD. DR OF REVENUE SUPPORTED THE ORDER OF CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE CONSIDER THE APPLICABILITY OF THIS TRIBUNAL ORDER CITED BEFORE U S I.E. RENDERED IN THE CASE OF YODLEE INFOTECH PVT. LTD. VS. ITO (SUPRA). WE FIND THAT IN THE PRESENT CASE, AS PER THE ORDER OF TPO, BUSINESS PROFILE OF ASSESSEE COMPANY HAS BEEN NOTED ON PAGE NO. 2 OF THE ORDER OF TPO IN WHICH IT IS ST ATED THAT THE ASSESSEE COMPANY PROVIDES SOFTWARE DEVELOPMENT SERVICES TO I TS AE IN US ON A COST PLUS 15 PERCENT MARKUP BASIS. IN THE CASE OF YODLE E INFOTECH PVT. LTD. VS. ITO (SUPRA), IT IS NOTED BY THE TRIBUNAL ON PAGE NO. 2 OF THIS TRIBUNAL ORDER THAT THE ASSESSEE COMPANY IN THAT CASE IS PRIMARILY ENGAGED IN THE PROVISION OF SOFTWARE DEVELOPMENT SUPPORT SERVICES TO ITS AE IN US AND HENCE, IT IS SEEN THAT THE BUSINESS PROFILE OF THE PRESENT ASSESSEE A ND THAT COMPANY I.E. YODLEE IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 7 OF 12 INFOTECH PVT. LTD. IS SIMILAR AND THEREFORE, IN OUR CONSIDERED OPINION, THIS TRIBUNAL ORDER CITED BEFORE US IS APPLICABLE IN THE PRESENT CASE. THEREAFTER WE FIND THAT IN THAT CASE, THE TPO CONSIDERED 11 COMPA RABLES INCLUDING THESE FIVE COMPANIES FOR WHICH THE ASSESSEE IS REQUESTING FOR EXCLUSION IN THE PRESENT CASE. IN PARA NO. 21 OF THIS TRIBUNAL ORDER AVAILA BLE ON PAGE NO. 25 OF PAPER BOOK, IT IS NOTED BY THE TRIBUNAL REGARDING M/S. BO DHTREE CONSULTING LTD. THAT LD. DR HAS NOT REBUTTED THE ARGUMENT OF THE ASSESSEE TH AT IT WAS SOFTWARE PRODUCT COMPANY AND FUNCTIONALLY DIFFERENT FROM THE ASSESSE E WHICH WAS INTO SOFTWARE DEVELOPMENT SERVICES AND AFTER CONSIDERING ANOTHER TRIBUNAL ORDER RENDERED IN THE CASE OF M/S. CISCO SYSTEM PVT. LTD. VS. DCIT IN ITA NO. 271/BANG/2014 DATED 14.08.2014, THE TRIBUNAL DIRECTED IN THAT CAS E FOR EXCLUSION OF M/S. BODHTREE CONSULTING LTD. ON THIS BASIS THAT THIS CO MPANY IS FUNCTIONALLY DIFFERENT. 7. SIMILARLY REGARDING M/S. INFOSYS TECHNOLOGIES LT D., IT WAS HELD BY THE TRIBUNAL ON PAGE NO. 24 OF THAT TRIBUNAL ORDER THAT M/S. INF OSYS TECHNOLOGIES LTD. HAD CONSIDERABLE INTANGIBLES LIKE IPR AND WAS INTO SOFT WARE PRODUCT DEVELOPMENT. 8. REGARDING M/S. PERSISTENT SYSTEMS LTD., IT WAS N OTED ON THE SAME PAGE I.E. 24 OF THAT TRIBUNAL ORDER THAT REGARDING THIS COMPANY, IT WAS HELD BY TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT IN I T (TP) A NO. 1303/BANG/2012 DATED 28.11.2013 THAT THIS COMPANY W AS INTO PRODUCT DESIGNING SERVICES AND INTO SOFTWARE PRODUCT DEVELO PMENT. 9. REGARDING M/S. TATA ELXSI LTD. ALSO, IT WAS HELD BY THE TRIBUNAL ON PAGE 24 THAT TATA ELXSI LTD. WAS DEVELOPING NICHE PRODUCTS AND I NTO PRODUCT DESIGNING SERVICES AND HENCE, ON THIS BASIS, IT WAS HELD THAT ALL THESE THREE COMPANIES VIZ., M/S. INFOSYS TECHNOLOGIES LTD., M/S. PERSISTE NT SYSTEMS LTD. AND M/S. TATA ELXSI LTD. SHOULD BE EXCLUDED FROM THE FINAL LIST O F COMPARABLES BEING FUNCTIONALLY DIFFERENT. RESPECTFULLY FOLLOWING THI S TRIBUNAL ORDER, WE HOLD THAT IN THE PRESENT CASE ALSO, THESE FOUR COMPANIES I.E. M/ S. BODHTREE CONSULTING LTD., M/S. INFOSYS TECHNOLOGIES LTD., M/S. PERSISTENT SYS TEMS LTD. AND M/S. TATA ELXSI LTD. SHOULD BE EXCLUDED FROM THE FINAL LIST O F COMPARABLES. IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 8 OF 12 10. REGARDING THE REMAINING 5 TH COMPARABLE I.E. M/S. LARSEN & TOUBRO INFOTECH LTD., THE ASSESSEES REQUEST FOR EXCLUSION OF THIS COMPANY IS ON THIS BASIS THAT THIS COMPANY IS HAVING HIGH TURNOVER WHICH IS MORE THAN 10 TIMES OF ASSESSEE COMPANYS TURNOVER BECAUSE THE TURNOVER OF THAT COM PANY IS RS. 1950 CRORES WHEREAS THE TURNOVER OF ASSESSEE COMPANY IS RS. 104 .82 CRORES. IN THIS REGARD, THIS TRIBUNAL IS NOW FOLLOWING THE JUDGEMEN T OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CHRYSCAPITAL INVESTMENT ADV ISORS (INDIA) (P.) LTD. VS. DCIT AS REPORTED IN 376 ITR 183 WHEREIN IT WAS HELD THAT HUGE PROFIT OR HUGE TURNOVER, IPSO FACTO DOES NOT LEAD TO THE EXCLUSION OF A COMPARABLE AND THE TPO, FIRST, HAS TO BE SATISFIED THAT SUCH DIFFERENC ES DO NOT MATERIALLY AFFECT THE PRICE OR COST AND SECONDLY, AN ATTEMPT IS TO BE MAD E FOR MAKING REASONABLE ADJUSTMENT TO ELIMINATE THE MATERIAL EFFECT OF SUCH DIFFERENCES. RESPECTFULLY FOLLOWING THIS JUDGEMENT OF HONBLE DELHI HIGH COUR T, WE RESTORE THE MATTER BACK TO THE FILE OF TPO REGARDING THE EXCLUSION OF THIS COMPANY IN THE LIGHT OF THIS JUDGEMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) (P.)LTD. VS. DCIT (SUPR A) AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THI S MANNER, THE ASSESSEES REQUEST REGARDING THE EXCLUSION OF FIVE COMPARABLES STANDS DECIDED AS PER ABOVE PARAS. 11. THE REMAINING GROUNDS OF THE ASSESSEES APPEAL ARE REGARDING TREATING VARIOUS EXPENDITURE AS NON-OPERATING WHILE COMPUTING THE MA RGINS OF COMPARABLE COMPANIES I.E. A) FOREIGN EXCHANGE GAIN / LOSS B) PROVISION FOR BAD AND DOUBTFUL DEBTS / ADVANCES C) DEPRECIATION IN THIS REGARD, THIS TRIBUNAL IS TAKING A CONSISTEN T VIEW THAT EVEN IF AN EXPENDITURE/INCOME IS OF OPERATING NATURE, IT HAS T O BE SEEN AS TO WHETHER THE SAME CAN BE CONSIDERED FOR T.P. ANALYSIS BECAUSE EV EN IF AN EXPENDITURE / INCOME IS OF OPERATING NATURE, IT HAS TO BE SEEN AS TO WHETHER THE SAME CAN BE CONSIDERED FOR THE PURPOSE OF TP ANALYSIS. IN TP A NALYSIS BY USING TNMM AS MAM, PROFIT PERCENTAGE OF THE TESTED PARTY AND THE COMPARABLE COMPANIES ARE COMPARED AND THEREFORE, IT HAS TO BE SEEN THAT THE EXPENSES / INCOMES IN IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 9 OF 12 DISPUTE CAN BE CONSIDERED FOR THIS PURPOSE. REGARD ING THE FOREIGN EXCHANGE GAIN / LOSS IT HAS TO BE SEEN WHETHER SUCH GAIN / L OSS IS IN RESPECT OF THE TURNOVER OF THE PRESENT YEAR AND IF THAT IS SO, IT CAN BE CONSIDERED BECAUSE THE CORRESPONDING TURNOVER IS BEING CONSIDERED FOR WORK ING OUT THE PROFIT PERCENTAGE OF THE TESTED PARTY OR COMPARABLE AS THE CASE MAY BE. BUT IF THE FOREIGN EXCHANGE GAIN / LOSS IS IN RESPECT OF EARLI ER YEARS TURNOVER THEN SUCH FOREIGN EXCHANGE GAIN / LOSS CANNOT BE CONSIDERED F OR TP ANALYSIS BECAUSE THE CORRESPONDING TURNOVER IS NOT FORMING PART OF THE D ENOMINATOR TO WORK OUT THE PROFIT PERCENTAGE. SIMILARLY, IN RESPECT OF PROVIS ION FOR BAD AND DOUBTFUL DEBTS ALSO, IT HAS TO BE SEEN AS TO WHETHER THE SAME IS I N RESPECT OF TURNOVER OF THE PRESENT YEAR OR OF THE EARLIER YEAR AND FOR THIS IT EM OF EXPENDITURE ALSO, THE SAME LOGIC WILL APPLY AND IF SUCH PROVISION FOR BAD AND DOUBTFUL DEBTS IS AGAINST TURNOVER OF THE PRESENT YEAR THEN IT CAN BE CONSIDE RED FOR TP ANALYSIS AND OTHERWISE NOT. NO MATERIAL HAS BEEN BROUGHT ON REC ORD BY LD. AR OF ASSESSEE THAT THESE TWO ITEMS I.E. FOREIGN EXCHANGE GAIN / L OSS AND PROVISION FOR BAD AND DOUBTFUL DEBTS ARE IN RESPECT OF THE CURRENT YEARS TURNOVER AND THEREFORE, REGARDING THESE TWO ITEMS, WE FIND NO REASON TO INT ERFERE IN THE ORDER OF CIT (A). 12. REGARDING DEPRECIATION, WE FIND THAT IN THE CAS E OF M/S. PERSISTENT SYSTEMS LTD., THE AO HAS ADDED DEPRECIATION IN TOTAL COST. WE HAVE ALREADY DIRECTED FOR EXCLUSION OF THIS COMPARABLE I.E. M/S. PERSISTENT S YSTEMS LTD. FROM THE FINAL LIST OF COMPARABLES AND THEREFORE, THIS ISSUE DOES NOT S URVIVE REGARDING THIS COMPARABLE COMPANY AT LEAST. IN ADDITION TO THAT, DEPRECIATION HAS BEEN ADDED IN CASE OF ZYLOG SYSTEMS LTD. AS PER ANNEXURE B O F TPO ORDER AND AFTER ADDING DEPRECIATION OF RS. 19,37,05,047/-, THE OPER ATING COST HAS BEEN INCREASED AND OPERATING PROFIT HAS BEEN REDUCED RES ULTING INTO OP/OC OF 7.81%. WE FAIL TO UNDERSTAND WHAT IS THE REQUEST O F THE ASSESSEE AS PER GROUND NO. 7 (C) RAISED BEFORE US BY WAY OF ADDITIO NAL GROUNDS OF APPEAL BECAUSE DEPRECIATION HAS BEEN CONSIDERED AS OPERATI NG COST BY THE AO IN RESPECT OF ZYLOG SYSTEMS LTD. AND ALSO PERSISTENT S YSTEMS LTD. AND THE AO HAS NOT CONSIDERED THE DEPRECIATION COST AS NON-OPERATI NG COST WHILE COMPUTING THE MARGINS OF COMPARABLE COMPANIES AND THEREFORE, THIS GROUND NO. 7 (C) OF ASSESSEES APPEAL IS ALSO REJECTED. IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 10 OF 12 13. THERE IS ONE MORE ISSUE RAISED BY THE ASSESSEE AS PER GROUND NO. 1 (E) AS PER WHICH THIS IS THE GRIEVANCE OF THE ASSESSEE THAT CI T (A) HAS ERRED IN LAW AND FACTS BY CONSIDERING INCORRECT RECEIVABLES AND PAYA BLES IN COMPUTING THE WORKING CAPITAL ADJUSTMENT AND FURTHER ERRED BY UPH OLDING THE ACTION OF THE AO/TPO IN RESTRICTING THE BENEFIT ON ACCOUNT OF WOR KING CAPITAL ADJUSTMENT TO 1.71 PERCENT. ON THIS ISSUE, NO ARGUMENT WAS RAISE D BY LD. AR OF ASSESSEE IN THE COURSE OF HEARING BEFORE US AND THEREFORE, WE I NFER THAT THIS GROUND IS NOT PRESSED BY LD. AR OF ASSESSEE AND ACCORDINGLY, REJE CTED AS NOT PRESSED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 15. NOW WE TAKE UP THE APPEAL OF THE REVENUE. GROU ND NO. 1 OF THE REVENUES APPEAL IS GENERAL IN NATURE AND THE ISSUE INVOLVED IN GROUND NO. 2 IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. TATA ELXSI LT D., 349 ITR 98 WHEREIN IT WAS HELD THAT TOTAL TURNOVER IS SUM TOTAL OF EXPORT TUR NOVER AND DOMESTIC TURNOVER AND THEREFORE, IF AN AMOUNT IS REDUCED FROM EXPORT TURNOVER THEN THE TOTAL TURNOVER ALSO GOES DOWN BY THE SAME AMOUNT AUTOMATI CALLY. THE DIRECTION OF CIT (A) ON THIS ISSUE IS IN LINE WITH THIS JUDGMENT OF HON'BLE KARNATAKA HIGH COURT AND THEREFORE, ON THIS ISSUE, WE FIND NO INFI RMITY IN THE ORDER OF CIT (A) AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT (A) ON THIS ISSUE. GROUND NO. 2 IS REJECTED. 16. REGARDING GROUND NOS. 3 TO 5, IT WAS SUBMITTED BY LD. DR OF REVENUE THAT ON THIS ASPECT, THE DECISION OF CIT (A) IS CONTAINED IN PAR A NO. 10.5(V), 10.5.1 TO 10.5.3 OF HIS ORDER. HE SUBMITTED THAT EVEN IF THE EXPEND ITURE IN QUESTION ARE OPERATING IN NATURE, IT HAS TO BE SEEN AS TO WHETHE R THE SAME CAN BE CONSIDERED FOR TP ANALYSIS BECAUSE IF SUCH EXPENSES ON ACCOUNT OF FOREIGN EXCHANGE GAIN / LOSS AND PROVISION FOR BAD AND DOUB TFUL DEBTS ETC. ARE IN RESPECT OF THE EARLIER YEARS TURNOVER THEN THE SAM E CANNOT BE CONSIDERED FOR TP ANALYSIS BECAUSE THE CORRESPONDING TURNOVER IS N OT FORMING PART OF DENOMINATOR AND FROM THE ORDER OF CIT(A) ON THIS IS SUE, THIS IS NOT COMING OUT THAT THIS ASPECT HAS BEEN EXAMINED BY HIM. HE SUBM ITTED THAT THIS ISSUE MAY IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 11 OF 12 BE RESTORED BACK TO THE FILE OF CIT(A) TO EXAMINE T HIS ASPECT OF THE MATTER. THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CIT(A). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND FORCE IN THE SUBMISSIONS OF LD. DR OF REVENUE THAT THE ISSUE REGARDING INCLU SION OF FOREIGN EXCHANGE GAIN / LOSS FOR THE PURPOSE OF TP ANALYSIS HAS TO BE EXA MINED AFTER FINDING OUT WHETHER SUCH GAIN / LOSS IS IN RESPECT OF CURRENT Y EARS TURNOVER OR EARLIER YEARS TURNOVER. SINCE THERE IS NO FINDING OF AUTHORITIES BELOW ON THIS ASPECT, WE FEEL IT PROPER TO RESTORE THIS MATTER BACK TO THE FILE OF T PO FOR FRESH DECISION WITH THE DIRECTION THAT THE ASSESSEE SHOULD FURNISH THE DETA IL OF CORRESPONDING TURNOVER AGAINST WHICH THIS FOREIGN EXCHANGE GAIN / LOSS AND PROVISION FOR BAD AND DOUBTFUL DEBTS ETC. HAS ARISEN AND IF IT IS FOUND T HAT SUCH GAIN / LOSS AND PROVISION FOR BAD AND DOUBTFUL DEBTS ARE IN RESPECT OF CURRENT YEARS TURNOVER THEN THE SAME SHOULD BE CONSIDERED FOR TP ANALYSIS IN THE HANDS OF TESTED PARTY AND COMPARABLE BOTH AS THE CASE MAY BE BUT IF IT IS FOUND THAT THE SAME IS RELATED TO TURNOVER OF EARLIER YEAR THEN THE SAME S HOULD BE IGNORED BECAUSE IN THAT SITUATION, THE CORRESPONDING TURNOVER IS NOT F ORMING PART OF DENOMINATOR AND THEREFORE, THE NUMERATOR ALSO CANNOT BE INCREAS ED OR DECREASED. ACCORDINGLY GROUND NOS. 3 TO 5 OF REVENUES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. 19. IN THE COMBINED RESULT, BOTH THE APPEALS FILED BY THE REVENUE AND ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE TERM S INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 31 ST MAY, 2018. /MS/ IT(TP)A NOS. 1293 & 1342/BANG/2014 PAGE 12 OF 12 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.