SSP India Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 1309/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91075 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 30-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJIT KUMAR SINGH; JUDY JAMES STANDING
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Question of law; Wholly owned subsidiary; Onus to prove
• Section: 154

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I : NEW DELHI BEFORE SHRI S.V.MEHROTRA, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 1309/DEL/2014 (ASSESSMENT YEAR: 2009 - 10) SSP INDIA PVT.LTD, 5 TH FLOOR, GOLF VIEW CORPORATE TOWER,SEC - 42, GURGAON, ( P AN: AAICS0682D ) VS. DCIT, CIRCLE - 2, GURGAON (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GAUTAM JAIN CA RESPONDENT BY : SHRI AJIT KUMAR SINGH CIT DR, & SHRI JUDY JAMES , STANDING CO U NSEL DATE OF HEARING 30 .0 4 .2015 DATE OF PRONOUNCEMENT 2 9 .05.2015 O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THIS APPEAL ARISES FROM AN ORDER MADE BY DCIT, CIRCLE 2, GURGAON U/S 144C(13) OF THE ACT IN PURSUANCE TO DIRECTIONS OF 2 THE DRP DATED 23.12.2013 U/S 144C(5) OF THE ACT AND RELATES TO ASSESSMENT YEAR 2009 - 10. 2 THE GROUND S RAISED BY THE APPELLANT IN THIS APPEAL ARE AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRANSFER PRICING OFFICER ( TPO )/ THE ASSESSING OFFICER ( AO ) AND THE HON BLE DISPUTE RESOLUTION PANEL ( DRP ), HAVE ERRED IN DETERMINING THE ADJUSTMENT OF RS. 2,13,67,550/ - TO THE VALUE OF THE INTERNATIONAL TRANSACTION OF THE ASSESSE E AND CONSEQUENTLY ENHANCING THE TAXABLE INCOME OF THE APPELLANT: 1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE THE LEARNED DISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER IN CONS IDERING CERTAIN NON - COMPARABLE COMPANIES AS COMPARABLE COMPANIES. 2 THAT ON THE FACTS OF THE ASSESSEE COMPANY S CASE THE LEARNED ASSESSING OFFICER ERRED IN NOT PASSING SPEAKING ORDER. 3 THAT ON THE FACTS OF THE ASSESSEE COMPANY S CASE THE LEARNED ASSESSING OFFICER ERRED IN USING FINANCIAL INFORMATION OF THE COMPARABLE COMPANIES RELATING TO THE FINANCIAL YEAR ( FY ) 2008 - 09 ALTHOUGH SUCH INFORMATION WAS NOT AVAILABLE WHEN THE APPELLANT MAINTAINED DOCUMENTATION AS PER THE REQUIREMENT OF THE ACT. 4 THAT ON THE FACTS OF THE ASSESSEE COMPANY S CASE THE LEARNED ASSESSING OFFICER ERRED IN CHERRY PICKING THE COMPARABLES WHICH IS NOT JUSTIFIED, AS THE LEARNED ASSESSING OFFICER HAS NOT PROVIDED THE INFORMATION REGARDING THE DATE OF SEARCH AND THE DATE OF DATABASE USE D. 5. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE THE LEARNED DISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED TRANSFER 3 PRICING OFFICER IN SELECTING FOLLOWING COMPANIES AS COMPARABLE COMPANIES EVEN WHEN THESE COMPANIES DID NOT MEET THE COMPARABILITY CRITERIA WITH RESPECT TO: A) RELATED PARTY TRANSACTION FILTER THE FOLLOWING COMPANIES I) TECH MAHINDRA LTD. THAT HAS A RPT OF 58.15% OF ITS TOTAL REVENUE. II) INFODRIVE SOFTWARE LIMITED HAS A RPT OF 59.23% OF ITS TOTAL REVENUE. B) EMPLOYEE COST FILTER INFODRIVE SOFTWARE LIMITED S EMPLOYEE COST IS 18 % OF ITS TOTAL OPERATING COSTS AS AGAINST 25% EMPLOYEE COST FILTER TAKEN BY THE LD. TPO. C) THE FUNCTIONAL AND PRODUCT PROFILE OF SUCH COMPANIES WAS DIFFEREN T AND SUCH COMPANIES WERE OPERATING IN DIFFERENT SEGMENTS AND THEY ARE : (I) ARICENT TECHNOLOGIES (HOLDING) LIMITED (II) TECH MAHINDRA LTD. (III) INFODRIVE SOFTWARE LIMITED (IV) CAT TECHNOLOGIES LIMITED D) SOME OF THE COMPARABLE COMPANIES IDENTIFIED B Y THE LEARNED ASSESSING OFFICER HAD SUPER - NORMAL PROFITS. E) THE DATA AVAILABLE FOR SAID COMPANIES WAS NOT AMPLE TO ASCERTAIN THE COMPARABILITY OF THE SAID COMPANIES AND SUCH COMPANIES ARE AS UNDER: (I) CAT TECHNOLOGIES LIMITED RPT DATA IS NOT AVAILABL E. (II) THIRDWARE SOLUTIONS LIMITED SEGMENT REPORTING DATA IS NOT AVAILABLE. F) THE AUDITED FINANCIALS OF SOME OF THE COMPANIES WERE NOT COMPLIED AS PER THE MANDATORY ACCOUNTING STANDARDS APPLICABLE IN INDIA SPECIFIED BY CENTRAL GOVERNMENT, THEREFORE S UCH COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPANY. I) CAT TECHNOLOGIES LIMITED AS 15 (RETIREMENT BENEFITS NOT PROVIDED) & AS 18 (NON DISCLOSURE OF RPT). G) IN FEW COMPARABLES FOR ACCEPTANCE OF COMPANIES WITH RPT TRANSACTIONS INAPPROPRIATE ASSUMPTION OF MORE 4 THAN 125% OF STANDALONE BASIS WAS TAKEN BY THE ASSESSING OFFICER. (I) KPIT CUMMINS INFOSYSTEMS LIMITED IS SELECTED BY LD. TPO ON CONSOLIDATED BASIS AS ITS RPT IS >25% WITH ABOVE ASSUMPTION. H) BRAND VALUE/ RECOGNITION AS COMPARED TO ASSESSEE COMP ANY, WHICH HAS WIDE IMPACT IN GETTING PREMIUM/HIGHER RATES FOR SIMILAR BUSINESS AND THEY ARE AS UNDER: (I) ARICENT TECHNOLOGIES (HOLDING) LIMITED (II) TECH MAHINDRA LIMITED I) ASSETS EMPLOYED AND THE RISKS ASSUMED IN COMPARISON WITH THE ASSESSEE COMPANY (I) ARICENT TECHNOLOGIES (HOLDING) LIMITED (CONSOLIDATED) (II) INFODRIVE SOFTWARE LIMITED (III) CAT TECHNOLOGIES LIMITED (STANDALONE) (IV) PERSISTENT SYSTEMS LIMITED (V) KP IT CUMMINS INFOSYSTEMS LIMITED (VI) TECH MAHINDRA LIMITED (VII) THIRDWARE SOLUTIONS LIMITED (VIII) LARSEN & TOUBRO INFOTECH LTD. (IX) MINDTREE LIMITED 6. THAT IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED DISPUTE RESOLUTION PANEL ERR ED IN SUSTAINING THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER IN COMPUTING NET MARGIN AS REQUIRED UNDER TRANSACTIONAL NET MARGIN METHOD ( TNMM ) BY CONSIDERING FOREIGN EXCHANGE GAIN/ LOSS AS NON - OPERATING ITEM. 7. THAT ON THE FACTS AND IN THE CIRCUM STANCES OF THE ASSESSEE COMPANY S CASE, THE LEARNED DISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER IN NOT MAKING ADJUSTMENTS TO THE ARM S LENGTH PRICE AS COMPUTED BY HIM SO AS TO TAKE INTO 5 ACCOUNT THE LOW RIS KS ASSUMED BY THE ASSESSEE COMPANY FOR ITS INTERNATIONAL TRANSACTION. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE THE LEARNED DISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER IN USING ENTIRELY DIFFERENT SET OF COMPANIES AS COMPARABLE COMPANIES AS MENTIONED IN THE TRANSFER PRICING ORDER DATED 23.01.2013 MADE UNDER SECTION 92CA(3) OF THE ACT WHEN THERE WERE AMPLE COMPARABLES AVAILABLE AS PER TRANSFER PRICING STUDY CONDUCTED BY TH E ASSESSEE COMPANY. 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE THE LEARNED DISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER IN REJECTING THE COMPARABLE COMPANIES AS IDENTIFIE D AND SELECTED BY THE ASSESSEE COMPANY WITHOUT HAVING A VALID REASON FOR THE SAME. 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE THE LEARNED DISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED TRANSFER PR ICING OFFICER IN REJECTING FOLLOWING COMPANIES AS COMPARABLE COMPANIES EVEN WHEN THESE COMPANIES MEET THE COMPARABILITY CRITERIA IN COMPARISON WITH THE ASSESSEE COMPANY. (I) CG VAK SOFTWARE AND EXPORTS LIMITED (II) AXIS - IT&T LIMITED (III) MPS TECHNOLOGIES LIMITED 11. THAT THE LEARNED DISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER W.R.T. APPLICATION OF FOLLOWING FILTERS USED BY HIM FOR IDENTIFYING COMPARABLE COMPANIES AND IN REJECTING CERTAIN FIL TERS USED BY THE ASSESSEE COMPANY. 6 (I) THE USE OF FILTER FOR 25% OF RPT AS AGAINST 15% USED BY THE ASSEESSEE COMPANY IN ITS TRANSFER PRICING STUDY. (II) THE USE OF LOWER TURNOVER LIMIT OF RS 5 CRORES AS AGAINST LOWER TURNOVER FILTER OF RS. 1 CRORE USED B Y THE ASSESSE COMPANY. (III) NON APPLICATION OF HIGH TURNOVER FILTER AND IN COMPARING PYGMY COMPANY WITH GIANTS. (IV) ACCOUNTING YEAR SHOULD STRICTLY END ON 31ST MARCH 2009. 12. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE T HE DISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED ASSESSING OFFICER / TRANSFER PRICING OFFICER IN REJECTING THE TRANSFER PRICING STUDY REPORT OF THE ASSESSEE COMPANY. 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE CO MPANY S CASE THE LEARNED DISPUTE RESOLUTION PANEL ERRED IN PARTIALLY SUSTAINING THE ORDER OF THE LEARNED ASSESSING OFFICER / TRANSFER PRICING OFFICER IN COMPUTING ARMS LENGTH PRICE AT A NET PROFIT MARGIN OF 28% AS AGAINST NET PROFIT MARGIN OF 15% ON OPERA TING COSTS CHARGED BY THE ASSESSEE COMPANY FROM ITS ASSOCIATED ENTERPRISE AND THUS MAKING ADJUSTMENT TO THE ARM S LENGTH PRICE AS COMPUTED BY THE ASSESSEE COMPANY. 14. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE THE LEARNED D ISPUTE RESOLUTION PANEL ERRED IN SUSTAINING THE ORDER OF THE LEARNED ASSESSING OFFICER IN TREATING THE NET PROFIT AS PER RESPECTIVE PROFIT AND LOSS ACCOUNTS AS OPERATING PROFIT OF THE VARIOUS COMPANIES AS SELECTED BY HIM WITHOUT MAKING ADJUSTMENT FOR NON - OPERATING INCOMES & EXPENSES OF SUCH COMPANIES. 15. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE THE LEARNED DISPUTE RESOLUTION PANEL ERRED BY RELYING UPON THE ACTION TAKEN BY THE 7 TRANSFER PRICING OFFICER WITHOUT EXERCISING THE IR OWN JUDGMENT AND SKILL. 16. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE COMPANY S CASE THE LEARNED ASSESSING OFFICER ERRED IN LEVYING INTEREST BASED ON THE ENHANCED TAXABLE INCOME. 3 THE FACTUAL MATRIX AS EMANATING FROM THE MATERIAL ON RECORD IS THAT THE APPELLANT COMPANY WAS INCORPORATED AS 100% EXPORT ORIENTED UNDERTAKING UNDER THE SOFTWARE TECHNOLOGY PARK SCHEME OF THE GOVERNMENT OF INDIA. IT IS A WHOLLY OWNED SUBSIDIARY OF M/S. SSP SIRIES SOLUTIONS LTD., UK (SSP (UK)) . IT IS A CAPTI VE SERVICE PROVIDER AND IS ENGAGED IN PROVIDING SUPPORT SERVICES FOR DEVELOPMENT AND MAINTENANCE OF SOFTWARE TO SSP (UK) . IN THE INSTANT ASSESSMENT YEAR, THE APPELLANT FURNISHED A RETURN OF INCOME ON 22.9.2009 DECLARING NIL INCOME AFTER CLAIMING EXEMPTION UNDER SECTION 10A OF THE ACT. AS PER THE TRANSFER PRICING DOCUMENT FURNISHED BY THE APPELLANT, THE TAX PAYER HAD ENTERED INTO AN INTERNATIONAL TRANSACTION FOR PROVISION OF SOFTWARE SERVICES OF THE VALUE OF RS. 18,90,20,954/ - . THE ARMS LENGTH PRICE OF THE I NTERNATIONAL TRANSACTION WAS DETERMINED BY THE TAX PAYER BY APPLYING TRANSACTIONAL NET MARGINAL METHOD (TNMM) AND ADOPTING OPERATING PROFIT TO OPERATING INCOME (OP/O I ) AS PROFIT LEVEL INDICATOR ( PLI ). T HE PLI OF TAX PAYER WAS ARRIVED AT 13.05% ON REVENUE ( PAGES 97 OF PAPER BOOK); WHEREAS 8 AVERAGE PLI OF THE COMPARABLES WA S ARRIVED AT 15.99% (PAGE 95 OF PAPER BOOK) AS PER THE TP DOCUMENT . FURTHER, AS PER THE TP DOCUMENT, THE TAX PAYER CLAIMED THAT IT DID NOT UNDERTAKE ANY CREDIT RISK, IDLE HOURS RISK, MARKETING RISK AND BUSINESS IS ASSURED, THEREBY IT SHOULD HAVE 6.75% LOWER PROFIT THEN INDUSTRY AVERAGE AT LEAST. AS A RESULT, IT CLAIMED T HAT OVERALL RETURN OF COMPARABLE S WAS DETERMINED AT 9.24% (15.99% - 6.15%) AND SINCE THE TAX PAYER WAS CHARGING AT THE RATE OF 13.05% WHICH IS MORE THAN THE PRICE CHARGED AS COMPARED TO COMPARABLES , I T WAS STATED THAT THE TRANSACTION IS AT ARM S LENGTH PRICE . THE APPELLANT HAD COMPUTED THE PLI OF THE COMPARABLES BY SELECTING A SET OF 10 COMPARABLES AS UNDER (PAGE 94 OF PAPER BOOK) : S.NO. NAME OF COMPARABLE AS PER ASSESSEE 1 BIRLA TECHNOLOGIES LIMITED 1.00 2 CG VAK SOFTWARE & EXPORTS LTD. 7.19 3 CALIBER POINT BUSINESS SOLUTIONS LTD. 24.33 4 CALIFORNIA SOFTWARE CO. LTD. 4.50 5 FORTUNE INFOTECH LTD. 32.98 6 GDA TECHNOLOGIES LTD. 14.36 7 INFO DRIVE SOFTWARE LTD. 40.51 8 MPS TECHNOLOGIES LTD. 7.49 9 MINDTECK (INDIA) LTD. 8.95 10 SAKSOFT LTD. 18.57 AVERAGE 15.99% 9 4 THE TPO IN AN ORDER DATED 23.1.2013 UNDER SECTION 92CA(3) OF THE ACT EXCLUDED 9 COMPARABLES SELECTED BY THE TAX PAYER AND ADOPTED A SET O F FRESH 11 COMPARABLES AND THUS, COMPUTED THE MARGIN OF THE COMPARABLES WITH PLI AS OPERATING PROFIT TO OPERATING COST (OP/OC) AT 31.48% IN THE MANNER HEREUNDER: S.NO. NAME OF COMPARABLE AS PER TPO 1 INFO DRIVE SOFTWARE LTD. 40.51 2 ARICENT TECHNOLOGIES LIMITED (CONSOLIDATED) 25.76 3 BODHTREE CONSULTING LIMITED (STANDALONE) 69.80 4 CAT TECHNOLOGIES LIMITED (STANDALONE) 34.43 5 KPIT CUMMINS INFOSYSTEM LIMITED (CONSOLIDATED) 21.56 6 LARSEN & TURBO INFOTECH 21.33 7 MINDTREE LTD. 27.36 8 PERSISTENT SYSTEMS LTD. 37.77 9 R.S. SOFTWARE (I) LTD. 10.15 10 TECH MAHINDRA LIMITED (CONSOLIDATED SEG) 35.35 11 THINK SOFT 16.56 12 THIRDWARE SOLUTIONS LIMITED 37.27 AVERAGE 31.48% 5 ON THE AFORESAID BASIS, THE TP O MADE AN ADJUSTMENT OF RS. 2,70,87,490/ - IN THE MANNER AS UNDER: 10 S. N O. PARTICULARS AMOUNT 1. PRICE RECEIVED 18,90,20,954 2. TOTAL COST 16,43,66,021 3. ALP AT A MARGIN OF 31.48% 21,61,08,444 4. PRICE RECEIVED 18,90,20,954 5. DIFFERENCE 2,70,87,490 6 PURSUANT TO THE DI RECTIONS OF DRP OUT OF THE SET OF 12 COMPARABLES ADOPTED BY THE TPO, ONE OF THE COMPARABLES NAMELY BODHTREE CONSULTING LTD. WAS DIRECTED TO BE EXCLUDED AND MARGIN WAS REDETERMINED AT 28% ON A SET OF 11 COMPARABLES IN THE MANNER AS UNDER: S.NO. NAME OF COMPARABLE AS PER ASSESSEE 1 INFO DRIVE SOFTWARE LTD. 40.51 2 ARICENT TECHNOLOGIES LIMITED (CONSOLIDATED) 25.76 3 CAT TECHNOLOGIES LIMITED (STANDALONE) 34.43 4 KPIT CUMMINS INFOSYSTEM LIMITED (CONSOLIDATED) 21.56 5 LARSEN & TURBO INFOTECH 21.33 6 MINDTREE LTD. 27.36 7 PERSISTENT SYSTEMS LTD. 37.77 8 R.S. SOFTWARE (I) LTD. 10.15 9 TECH MAHINDRA LIMITED (CONSOLIDATED SEG) 35.35 10 THINK SOFT 16.56 11 THIRDWARE SOLUTIONS LIMITED 37.27 AVERAGE 28.00% 11 7 PURSUANT TO THE ABOVE, TPO PASSED A FINAL ORDER DATED 7.1.2014 ORIGINALLY AT AN ASSESSED INCOME OF RS. 2,70,87,490/ - . HOWEVER, SUBSEQUENTLY, IN PURSUANCE TO THE TPO ORDER UNDER SECTION 154 OF THE ACT ON 15.1.2014, THE ASSESSING OFFICER PASSED ORDER UNDER S ECTION 154 OF THE ACT DETERMINING THE ADJUSTMENT AT RS. 2,13,67,552/ - IN TERMS OF THE DIRECTIONS OF THE D RP AND AS SUCH, INCOME OF THE APPELLANT FINALLY STAND S ASSESSED AT RS. 2,13,67,552/ - . THE SAID ADJUSTMENT HAS BEEN COMPUTED IN THE MANNER HEREUNDER: - S .NO. PARTICULARS AMOUNT 1. PRICE RECEIVED 18,90,20,954 2. TOTAL COST 16,43,66,021 3. ALP AT A MARGIN OF 28% 21,03,88,507 4. PRICE RECEIVED 18,90,20,954 5. DIFFERENCE 2,13,67,552 8 BEFORE US, LEARNED COUNSEL FOR THE APPELLANT SHRI GAUTHAM JAIN SUBMITTED THAT G ROUND NO. 6 AND G ROUND NO. 5(B) WOULD BE SUFFICIENT TO MEET THE ISSUE INVOLVED IN THE INSTANT APPEAL. IT WAS SUBMITTED THAT IF THE SAID GROUNDS ARE ALLOWED THEN OTHER GROUNDS WOULD BECOME ACADEMIC IN NATURE AS THE MARGIN WOULD COME WITHIN THE RANGE AND NO ADJUSTMENT WOULD BE WARRANTED. THEREAFTER, THE LEARNED COUNSEL SUBMITTED THAT TPO AT PAGE 2 OF THE ORDER HAS INCORRECTLY DETERMINED THE OP / OC MARGIN OF THE APPELLANT AT 13.05% WHEREAS THE 12 CORRECT MARGIN SHOULD BE 15.01%. AN A DDITIONAL GROUND IN SUPPORT OF THE ABOVE ARITHMETIC ERROR WAS ALSO FILED BY THE COUNSEL ON THE DATE OF HEARING. HE CONTENDED THAT THIS ADDITIONAL GROUND IS ON ACCOUNT OF AN ARITHMETIC AL ERROR AT THE END OF THE TPO AND THEREFORE, ALL FACTS IN SUPPORT OF THE ADDITIONAL GROUND ARE ALREADY ON RECORD AND SINCE IT IS MERELY AN ARITHMETIC ERROR , ADDITIONAL GROUND BE CONSIDERED AND IT BE HELD THAT MARGIN OF THE TAX PAYER WITH THE PLI OP/OC IS 15.01% AND NOT 13.05%. THE LEARNED DR ADV JUDY JAMES AT THIS JUNCTURE O PPOSE D THE PRAYER OF THE TAXPAYER TO RAISE AN ADDITIONAL GROUND OF APPEAL DURING THE COURSE OF HEARING. 9 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD. THE ADDITIONAL GROUND RAISED BY THE APPELLANT READS AS UNDER: THAT THE LE ARNED TRANSFER PRICING OFFICER/DISPUTE RESOLUTION PANEL HAVE FACTUALLY ERRED IN COMPUTING THE MARGIN WITH THE PLI OP/OC OF THE APPELLANT AT 13.05% INSTEAD OF 15.01%. 10 ACCORDING TO THE APPELLANT, THE TPO AT PAGE 2 OF THE TPO ORDER HAS ERRONEOUSLY DETERMINED THE OP/OC MARGIN AT 13.05%. ACCORDING TO HIM, THE OP/OC MARGIN IS 15.01%. IT WAS CLARIFIED THAT 13.05% IS THE OP/OR MARGIN , WHICH WAS THE PLI ADOPTED BY THE APPELLANT IN HIS TP STUDY. WE FIND THE TPO H AS STATED IN THE ORDER AS UNDER: 13 3.1 THE OPERATING PROFIT MARGIN (OP/OC) COMPUTED BY THE ASSESSEE IS AS BELOW. PARTICULARS AMOUNT (RS.) INCOME FROM SERVICES RENDERED 18,90,20,954 OTHER REVENUE (FOREIGN EXCHANGE) 24,495 TOTAL OPERATING INCOME 18,90,45,449 EXPENDITURE: PERSONNEL EXPENSES 9,02,91,690 OPERATING & OTHER EXPENSES 6,93,56,048 DEPRECIATION 47,18,283 TOTAL OPERATING COST 16,43,66,021 OPERATING PROFIT 2,46,79,428 OP/OC 13.05% 11 THE CONTENTION OF THE APPELLANT ON THE BASIS OF THE AFORESAID TABULATION IS LIMITED IN AS MUCH AS IT IS STATED THAT OP/OC MARGIN IS 15.01% AND NOT 13.05%. THE FIGURES AS STATED ARE NOT DISPUTED I.E. OPERATING PROFIT AT RS. 2,46,79,428/ - AND OPERATING COST AT RS. 16,43,66,021/ - . ACCORDING TO THE APPELLANT, IF THE RATIO OF THE AFORESAID FIGURES IS DO NE THEN THE OP/OC MARGIN WOULD BE 15.01%. THUS, FROM THE AFORESAID, IT IS EVIDENT THAT ALL THE FACTS TO DETERMINE ADDITIONAL GROUND OF APPEAL ARE ON RECORD. THE HON BLE SUPREME COURT IN THE CASE OF NTPC INDIA LTD. 229 ITR 383 HAS HELD AS UNDER: BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER THE QUESTION OF LAW ARISING FROM FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS 14 NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. 1 2 HAVING REGARD TO THE ABOVE FACTUAL AND JUDICIAL POSITION, WE ADMIT THE ABOVE GROUND OF APPEAL RAISED BY THE APPELLANT. FURTHER ON CONSIDERATION OF THE FACTS, WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE OP/OC BY ADOPTING THE OPERATING PROFIT AT RS. 2,46,79,428/ - AND OPERATING COST AT RS. 16,43,66,021/ - . THE ADDITIONAL GROUND IS THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. 1 3 GROUND NO. 6 OF THE GROUNDS PREFERRED BY THE APPELLANT RELATE S TO THE CLAIM OF THE APPELLANT THAT DRP AND TPO HAVE ERRED IN COMPUTING THE NET MARGIN BY CONSIDERING FOREIGN EXCHANGE GAIN/LOSS AS NON OPERATING ITEM . 14 HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE FIND THAT THE ISSUE IS NO LONGER RES - INTEGRA AND STANDS CONCLUDED BY THE DECISION OF THE COORDINATE BENCH IN THE CASE OF WESTFALIA SEPARATOR INDIA PVT. LTD. VS. ACIT ITA NO. 4446/D/02 FOR A SSESSMENT YEAR 2003 - 04 WHEREIN IT HAS BEEN HELD AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. THE FOREX GAIN OR LOSS IS THE DIFFERENCE BETWEEN THE PRICE AT WHICH AN IMPORT OR EXPORT TRANSACTION WAS RECORDED IN THE BOOKS OF ACCOUNT ON THE BASIS OF RATE OF FOREIGN EXCHANGE THEN PREVAILING AND THE AMOUNT ACTUALLY PA ID OR RECEIVED AT THE RATE OF FOREIGN EXCHANGE PREVAILING AT THE TIME OF ACTUAL 15 PAYMENT OR RECEIPT. SINCE SUCH FOREX LOSS OR GAIN IS A DIRECT OUTCOME OF THE PURCHASE OR SALE TRANSACTION, IT PARTAKES OF THE SAME CHARACTER AS THAT OF THE TRANSACTION TO WHICH IT RELATES. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. PRAKASH I. SHAH (2008) 115 ITD 167 (MUM) (SB) HAS HELD THAT FOREIGN EXCHANGE FLUCTUATION GAIN IS A PART OF EXPORT TURNOVER. THOUGH SUCH DECISION WAS RENDERED IN THE CONTEXT OF SECTION 8 0HHC, BUT THE SAME LOGIC APPLIES GENERALLY AS WELL. THE ESSENCE OF THE MATTER IS THAT ANY GAIN OR LOSS ARISING OUT OF CHANGE IN FOREIGN CURRENCY RATE IN RESPECT OF TRANSACTION FOR IMPORT OR EXPORT OF GOODS IS NOTHING, BUT INHERENT PART OF THE PRICE OF IMPO RT OR THE VALUE OF EXPORT. THE HON'BLE SUPREME COURT IN SUTLEJ COTTON MILLS LTD. VS. CIT 116 ITR 1 (SC) HAS HELD THAT : 'WHERE PROFIT OR LOSS ARISES TO AN ASSSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION ITA NOS.4446 & 4447/DEL/2007 IN THE VALUE OF FOR EIGN CURRENCY HELD BY IT, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EMBARKE D IN THE BUSINESS'. WHEN WE READ THE RATIO OF THE CASE OF SUTLEJ COTTON (SC)(SUPRA) IN JUXTAPOSITION TO THAT OF THE SPECIAL BENCH IN CASE OF PRAKASH I SHAH (SUPRA), THERE REMAINS NO DOUBT THAT FOREX GAIN OR LOSS FROM A TRADING TRANSACTION IS NOT ONLY AN IT EM OF REVENUE NATURE, BUT IS, IN FACT, A PART OF THE PRICE OF IMPORT OR VALUE OF EXPORT TRANSACTION, AS THE CASE MAY BE. OPERATING EXPENSE IS ORDINARILY AN EXPENSE THAT A BUSINESS INCURS AS A RESULT OF PERFORMING ITS NORMAL BUSINESS OPERATIONS. AS THE BUSI NESS OF 'ASSEMBLY' DONE BY THE ASSESSEE UNDER THIS SEGMENT IS NOT POSSIBLE WITHOUT PURCHASES AND FOREX GAIN IS IN RELATION TO SUCH PURCHASE TRANSACTIONS, WE HAVE NO HESITATION IN HOLDING THAT IT IS AN ITEM OF OPERATING COST. 1 5 THE LEARNED DR DURING THE COURSE OF ARGUMENTS, SUPPORTED THE ACTION OF THE AUTHORITIES BELOW ONLY ON THE 16 GROUND THAT DRP HAS REJECTED THE CONTENTION OF THE APPELLANT BY OBSERVING AS UNDER: THE OPERATING INCOME/EXPENDITURE WAS NEVER DEFINED IN ANY OF THE LEGISLATION SO FAR. IT WAS THE CONVENTIONAL WISDOM WHICH WENT INTO THE COMPONENTS OF OPERATING INCOME/EXPENDITURE WHILE CALCULATING THE OPERATING PROFIT. HOWEVER, THE POSITION HAS CHANGED SINCE THE NOTIFICATION OF CBDT ISSUED ON 18.9.2013. THIS IS THE NOTIFICATION ON SAFE HARBOU R RULES . RULE 10TA(J)(K) AND (L) DEFINE THE CONCEPT OF OPERATING EXPENSE , OPERATING REVENUE AND OPERATING PROFIT RESPECTIVELY. ACCORDING TO THIS RULE, LOSS OR INCOME ARISING ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATIONS ARE EXCLUDED FROM THE CALCULAT ION OF OPERATING EXPENSE AND OPERATING INCOME RESPECTIVELY. THEREFORE THE TPO WAS CORRECT IN EXCLUDING FOREX ITEMS FROM THE CALCULATION OF OPERATING PROFIT. THIS OBJECTION OF THE ASSESSEE IS REJECTED. 1 6 WE FIND THAT THE AFORESAID BASIS THAT FOREIGN EXCHANGE GAIN/LOSS SHOULD BE TREATED AS NON - OPERATING ITEM IS BASED ON THE NOTIFICATION OF CBDT ISSUED ON 18.9.2018 ON SAFE HARBO U R . HOWEVER, SUCH A CONTENTION HAS BEEN REJECTED IN THE AFORESAID ORDER OF THE C O ORDINATE B ENCH WHEREIN IT WAS HELD AS UNDER: 4.8. THE LD. AR RELIED ON RULE 10T(J) TO CONTEND THAT LOSS ARISING ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATIONS CANNOT BE INCLUDED IN THE OPERATING EXPENSE. WE ARE NOT PERSUADED TO GIVE ANY MILEAGE TO THE LD. AR ON THIS COUNT FOR THE SIMPLE REASON THAT RULE 10T IS A PART OF SAFE HARBOR RULES NOTIFIED ON 18.09.2013 WHICH ARE NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION. 17 1 7 MOREOVER, WE FIND THAT THE ASSESSING OFFICER WHILE COMPUTING THE MARGIN OF TH E TAX PAYER, HAS ADOPTED THE FOREIGN EXCHANGE LOSS OF RS. 13,01,702/ - AS PART OF THE OPERATING COST ; WHEREAS WHILE COMPUTING THE MARGIN OF THE COMPARABLES, HE HAS TREATED FOREIGN EXCHANGE GAIN/LOSS AS NON OPERATING ITEM WHICH TO OUR MIND, IS APPARENTLY CON TRADICTORY AND OTHERWISE NOT IN CONFORMITY WITH THE AFORESAID DECISION OF THE TRIBUNAL. IN LIGHT OF THE ABOVE, WE DIRECT THE AO/TPO TO TREAT THE FOREIGN EXCHANGE GAIN/LOSS AS AN OPERATING ITEM. AS SUCH, THE GROUND RAISED BY THE APPELLANT IS ALLOWED. 1 8 GROUND NO. 5 (B) PREFERRED BY THE APPELLANT RELATES TO EXCLUSION OF M/S. INFO DRIVE SOFTWARE LIMITED AS COMPARABLE TAKEN BY THE TPO/TRP. ACCORDING TO THE APPELLANT, EMPLOYEE COST OF M/S. INFO DRIVE SOFTWARE LIMITED IS 18% WHICH IS MUCH BELOW THE 25% FILTER ADOPTED BY THE TPO. IT WAS THEREFORE, SUBMITTED THAT SUCH COMPARABLE BE EXCLUDED. THE LEARNED SPECIAL COUNSEL OPPOSED THE CONTENTION OF THE APPELLANT ON THE GROUND THAT SUCH COMPARABLE HAS BEEN ADOPTED BY THE ASSESSEE IN ITS INITIAL LIST OF COMPARABLES. TH E LEARNED COUNSEL IN THE REJOINDER SUBMITTED THAT THE SAID CONTENTION IS NOT MAINTAINABLE IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF D CIT VS. QUARK SYSTEMS INDIA (P) LTD. 18 132 TTJ 1 (CHD) (SB) . RELIANCE WAS ALSO P LACED ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) (P) LTD. VS. DCIT 56 TAXMANN.COM 417 . 19 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT TPO AT PAGES 44 TO 45 OF THE ORDER HAS HELD THAT FILTER FOR SELECTION OF COMPARABLE S SHOULD INCLUDE A FILTER OF EMPLOYEES COST LESS THAN 25% OF TOTAL COST. THE TPO HAS OBSERVED AS UNDER: 7.3 THE ASSESSEE HAS OBJECTED TO THE USE OF FILTER OF EMPLOYEE COST LESS THAN 25% OF TO TAL COST: - 7.3.1 THE ASSESSEE HAS OBJECTED TO APPLYING A FILTER OF EMPLOYEES COST LESS THAN 25% OF TOTAL COST. THE ASSESSEE HAS OBJECTED TO THE USE OF THE EMPLOYEE COST FILTER. THE ASSESSEE BELIEVES THAT THERE IS NO RATIONAL BASIS FOR APPLICATION OF THIS FILTER AND FIXING THE THRESHOLD OF 25%. THE ASSESSEE MUST UNDERSTAND THAT EMPLOYEE COST IS A FACTOR THE SOFTWARE DEVELOPMENT SEGMENT. IT HAS BEEN HELD IN THE CASE OF VEDARIS TECHNOLOGIES LTD. BY THE ITAT DELHI THAT COMPANIES THAT HAVE LOWER LEVELS OF EM PLOYEE COST MAY NOT BE SOFTWARE DEVELOPERS. THEY MAY BE INVOLVED IN OTHER ACTIVITIES LIKE TRADE OF SOFTWARE PRODUCTS ETC. SUCH A DIFFERENTIATION WILL NOT BE ACHIEVED BY APPLYING THIS FILTER IN THE ITES SEGMENT. THEREFORE, THIS FILTER SHALL BE USED IN TH IS SEGMENT. THE ASESSEE MUST UNDERSTAND THAT FILTERS LIKE THIS ONE MAY BE DESCRIBED AS DIAGNOSTIC TOOLS . THE OBJECTIVE OF SUCH TOOLS IS TO ARRIVE AT A SET OF COMPARABLES THAT IS CLOSEST TO THE ASSESSEE IN FUNCTIONS. THE ENTIRE PROCESS OF SELECTION OF C OMPARABLES CANNOT BE LEFT TO THE STAGE OF QUALITATIVE ANALYSIS. THIS WILL ONLY INCREASE THE ELEMENT OF SUBJECTIVITY IN THE PROCESS, WHICH IS NOT GOOD FOR THE ROBUSTNESS AND CREDIBILITY OF THE 19 PROCESS. THE MAJOR PART OF THE JOB HAS TO BE LEFT TO THE QUANT ITATIVE FILTERS. THE USE OF THE EMPLOYEE COST FILTER IS PART OF THIS PROCESS. AS THE CORRECTNESS OF THIS FILTER HAS BEEN APPROVED BY A JUDICIAL PRONOUNCEMENT MENTIONED EARLIER, THE APPLICATION OF THIS FILTER IS CORRECT. 20 WE FURTHER FIND THAT EMPLOYEE COST AS PER THE FINANCIAL STATEMENTS OF M/S. INFO DRIVE SOFTWARE LTD. IS RS. 164.05 LACS WHEREAS THE TOTAL COST IS 927.61 LACS (PAGE 617 OF PAPER BOOK). ON THE SAID BASIS, ACCORDING TO THE APPELLANT SINCE THE EMPLOYEE COST IS 17.69% WHICH IS LESS THAN THE FILTER OF 25% APPLIED BY THE TPO , THEREFORE THE SAME SHOULD BE EXCLUDED . WE THEREFORE, DIRECT THE AO/TPO TO VERIFY THE CLAIM OF THE APPELLANT AS TO THE COMPUTATION OF PERCENTAGE AT 17.69% AND IF THE SAID COMPUTATION IS CORRECT THEN THE SAID COMPARABLE OF M/S. INFO DRIVE SOFTWARE LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES. SO FAR AS OBJECTION RAISED BY THE LEARNED DR AS WELL AS THE DRP THAT THIS COMPANY HAS BEEN TAKEN AS COMPARABLE AT THE TIME OF FILING TP STUDY IS NOT MAINTAINABLE IN LIGHT OF THE RECE NT JUDGMENT OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CHRYS C APITAL INVESTMENT ADVISORS (INDIA) (P) LTD. VS. DCIT 56 TAXMANN.COM 417 WHEREIN IT HAS BEEN HELD AS UNDER: THE FACT THAT THE ASSESSEE HAD INCLUDED IT IN THE PREVIOUS ASSESSMENT YEARS DOES NOT HAVE ANY BEARING ON ITS INCLUSION FOR THE SUBJECT ASSESSMENT YEAR. IN THIS REGARD, THIS COURT RELIES ON THE SUPREME COURT'S DECISION 20 IN CIT V. C. PARAKH & CO. (INDIA) LTD . [1956] 29 ITR 661, WHERE THE COURT NOTED: 'WHETHER THE RESPONDENT IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO, AND NOT ON THE VIEW WHICH IT MIGHT TAKE OF ITS RIGHTS, AND CONSEQUENTLY, IF THE WHOLE OF THE COMMISSION IS UNDER THE LAW LIABLE TO BE DEDUCTED AGAINST THE INDIAN PROFITS, THE RESPONDENT CANNOT BE ESTOPPED FROM CLAIMING THE BENEFIT OF SUCH DEDUCTION, BY REASON OF THE FACT THAT IT ERRONEOUSLY ALLOCATED A PART OF IT TOWARDS THE PROFITS EARNED IN KARACHI. WHAT HAS THEREFORE TO BE DETERMINED IS WHETHER, NOTWITHSTANDING THE APPORTIONMENT MADE BY THE RESPONDENT IN THE PROFIT AND LOSS STATEMENTS, THE DEDUCTION IS ADMISSIBLE UNDER THE LAW.' FURTHER, A DIVISION BENCH OF THIS COURT IN CIT V. BHARAT GENERA L REINSURANCE [1971] 81 ITR 303 HAS ALSO HELD THAT THERE IS NO ESTOPPEL AGAINST LAW UNDER THE ACT. THE COURT THEREIN HELD AS FOLLOWS: 'IT IS TRUE THAT THE ASSESSEE ITSELF HAD INCLUDED THAT DIVIDEND INCOME IN ITS RETURN FOR THE YEAR IN QUESTION BUT THERE IS NO ESTOPPEL IN THE INCOME TAX ACT AND THE ASSESSEE HAVING ITSELF CHALLENGED THE VALIDITY OF TAXING THE DIVIDEND DURING THE YEAR OF ASSESSMENT IN QUESTION, IT MUST BE TAKEN THAT IT HAD RESILED FROM THE POSITION WHICH IT HAD WRONGLY TAKEN WHILE FILING THE R ETURN. QUITE APART FROM IT, IT IS INCUMBENT ON THE INCOME - TAX DEPARTMENT TO FIND OUT WHETHER A PARTICULAR INCOME WAS ASSESSABLE IN THE PARTICULAR YEAR OR NOT. MERELY BECAUSE THE ASSESSEE WRONGLY INCLUDED THE INCOME IN ITS RETURN FOR A PARTICULAR YEAR, IT C ANNOT CONFER JURISDICTION ON THE DEPARTMENT TO TAX THAT INCOME IN THAT YEAR EVEN THOUGH LEGALLY SUCH INCOME DID NOT PERTAIN TO THAT YEAR.' 2 1 ALSO SPECIAL BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS 132 TTJ 1 UPHELD BY JURISDICTIONAL HIGH COURT 21 IN THE CASE OF CIT VS. QUARK SYSTEMS INDIA (P) LTD. 244 CTR 542 (P&H) HAS HELD AS UNDER: 34. IN THE CASE OF CIT V. V.MR.P. FIRM, MUAR [1965] 56 ITR 67 , THE FOLLOWING OBSERVATIONS OF THEIR LORDSHIPS OF SUPREME COURT ARE AS UNDER : 'THE DECISION IN AMARENDRA NARAYAN ROY V. CIT AIR 1954 CAL. 271 HAS NO BEARING ON THE QUESTION RAISED BEFORE US. THERE THE CONCESSIONAL SCHEME TEMPTED THE ASSESSEE TO DISCLOSE VOLUNTARILY ALL HIS CONCEALED INCOME AND HE AGREED TO PAY THE PROPER TAX UPON IT. THE AGREEMENT THERE RELATED TO THE QUANTIFICATION OF TAXABLE INCOME BUT IN THE PRESENT CASE WHAT IS SOUGHT TO BE TAXED IS NOT A TAXABLE INCOME. THE ASSES SEE IN SUCH A CASE CAN CERTAINLY RAISE THE PLEA THAT HIS INCOME IS NOT TAXABLE UNDER THE ACT. WE, THEREFORE, REJECT THIS PLEA.' 35. IN PARA 4.16 OF LATEST REPORT, THE OECD PROVIDES THE FOLLOWING GUIDELINES : 'IN PRACTICE, NEITHER COUNTRIES NOR TAXPAYERS SHOULD MISUSE THE BURDEN OF PROOF IN THE MANNER DESCRIBED ABOVE. BECAUSE OF THE DIFFICULTIES WITH TRANSFER PRICING ANALYSIS, IT WOULD BE APPROPRIATE FOR BOTH TAXPAYERS AND TAX ADMINISTRATIONS TO TAKE SPECIAL CA RE AND TO USE RESTRAINT IN RELYING ON THE BURDEN OF PROOF IN THE COURSE OF THE EXAMINATION OF A TRANSFER PRICING CASE. MORE PARTICULARLY, AS A MATTER OF GOOD PRACTICE THE BURDEN OF PROOF SHOULD NOT BE MISUSED BY TAX ADMINISTRATIONS OR TAXPAYERS AS A JUSTIF ICATION FOR MAKING GROUNDLESS OR UNVERIFIABLE ASSERTIONS ABOUT TRANSFER PRICING. A TAX ADMINISTRATION SHOULD BE PREPARED TO MAKE GOOD FAITH SHOWING THAT ITS 22 DETERMINATION OF TRANSFER PRICING IS CONSISTENT WITH THE ARM S LENGTH PRINCIPLE EVEN WHERE THE BURD EN OF PROOF IS ON THE TAXPAYER, AND THE TAXPAYERS SIMILARLY SHOULD BE PREPARED TO MAKE GOOD FAITH SHOWING THAT THEIR TRANSFER PRICING IS CONSISTENT WITH THE ARM S LENGTH PRINCIPLE REGARDLESS OF WHERE THE BURDEN OF PROOF LIES.' 36. THE AFORESAID DECISIONS AND GUIDELINES MAY NOT BE EXACTLY ON IDENTICAL FACTS BEFORE US BUT THEY EMPHATICALLY SHOW THAT TAXPAYER IS NOT ESTOPPED FROM POINTING OUT A MISTAKE IN THE ASSESSMENT THOUGH SUCH MISTAKE IS THE RESULT OF EVIDENCE ADDUCED BY THE TAXPAYER. 37. WHEN SUBSTANTI AL JUSTICE AND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED. FOR THE OTHER SIDE CANNOT CLAIM TO HAVE A VESTED RIGHT IN INJUSTICE BEING DONE DUE TO SOME MISTAKES ON ITS PART. 38. ACCORDIN GLY, ON FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT TAXPAYER IS NOT ESTOPPED FROM POINTING OUT THAT DATAMATICS HAS WRONGLY BEEN TAKEN AS COMPARABLE. WHILE ADMITTING ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE TO REQUIRE US TO CONSIDER WHETHER OR NOT DATAMATICS SHOULD BE INCLUDED IN THE COMPARABLE, WE 23 MAKE NO COMMENTS ON MERIT EXCEPT OBSERVING THAT ASSESSEE FROM RECORD HAS SHOWN ITS PRIMA FACIE CASE. FURTHER CLAIM MAY BE EXAMINED BY THE ASSESSING OFFICER. THIS COURSE WE ADOPT AS OBJECTION TO THE INCLUSION OF DATAMATICS AS COMPARABLE HAS BEEN RAISED NOW AND NOT BEFORE REVENUE AUTHORITIES. THEREFORE, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION OF CLAIM OF THE TAXPAYER AND MAKE A DE NOVO ADJUDICATION OF THE ARM S LENGTH PRICE AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. 22 THUS, IN VIEW OF THE ABOVE JUDICIAL AND FACTUAL POSITION , GROUND RAISED IS ALLOWED FOR STATISTICAL PURPOSES. 23 ACCOR DING TO THE APPELLANT, AS A RESULT OF THE ABOVE , I.E. TREATMENT OF FOREIGN EXCHANGE GAIN/LOSS AS OPERATING ITEM AND EXCLUSION OF INFO DRIVE SOFTWARE LTD. FROM THE LIST OF COMPARABLES , THE MARGIN OF THE COMPARABLES WOULD BE DETERMINED AT 19.87% IN THE MANN ER HEREUNDER: S.NO. NAME OF COMPARABLE MARGIN (%) 1. ARICENT TECH (CONSOLIDATED) 25.77 2. CAT TECHNOLOGIES 41.69 3. LARSEN AND TOURBO INFOTECH LTD. 16.96 4. MINDFREE LIMITED (SEGMENTAL) 4.24 5. PERSISTANT SYSTEMS LIMITED 11.73 6. RS SOFTWARE (INDIA) LIMITED 9.89 7. THIRDWARE SOLUTIONS LIMITED 23.09 24 8. IKPIT CUMMINS INFO SYSTEMS LIMITED 12.78 9. TECH MAHINDRA (CONSOLIDATED) 33.17 10. THINKSOFT 19.33 AVERAGE 19.87% 2 4 ON THE BASIS OF THE ABOVE, THE CONTENTION OF THE APPELLANT IS THAT UPPER BAND MARGIN BASED ON THE PLI OF THE APPELLANT AT 15.01% IS 20.76% AND SINCE MARGIN OF THE COMPARABLES IS 19.87% IS LESS THAN 20.76% THEREFORE, NO ADJUSTMENT IS WARRANTED. WE HAVE ALLO WED BOTH T HE ABOVE CLAIMS OF THE TAX PAYER SUBJECT TO ARITHMETICAL VERIFICATION BY THE TPO/AO. HAVING ACCEPTED THE ABOVE CLAIMS, WE THEREFORE DO NOT PROCEED TO DEAL WITH THE REMAINING GROUND S AS TH E SE GROUNDS HAVE BECOME ACADEMIC IN NATURE. IN VIEW OF THE ABOVE, ADJUSTMENT MADE BY THE TPO/AO PURSUANT TO THE DIRECTIONS OF DRP OF RS. 2,13,67,552/ - IS DELETED SUBJECT TO THE ARITHMETICAL VERIFICATION AS DIRECTED ABOVE. IN THE RESULT, THE ASSESSEE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S . ORDER PRONOUNCED IN THE OPEN COURT ON 29 . 05.2015. S D / - S D / - (S.V.MEHROTRA) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 /05/2015 25 AMIT SRIVASTAVA COPY FORWARDED TO : - 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI