ITO, Bangalore V. M/s Vendio Technologies (India) Pvt. Ltd., Bangalore

ITA 1374/BANG/2011

• Counselvise Citation: 137421114 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 29-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment
• Section: 143(3); 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER I.T (T.P) A. NO. 1374 /BANG/201 1 (ASSESSMENT YEAR : 200 5 - 06 ) INCOME TAX OFFICER, WARD 12(2), BANGALORE. VS. M/S. VENDIO TECHNOLOGIES (INDIA) PVT. LTD., (FORMERLY KNOWN AS ANDALE INFORMATION TECHNOLOGIES PVT. LTD.) PRESTIGE BLUE CHIP SOFTWARE PARK, 2 ND BLOCK, 4 TH FLOOR, NO.9, HOSUR ROAD, BANGALORE - 560 029 PAN AADCA 6424G APPELLANT RESPONDENT. C.O. NO. 58/BANG/2012 (IN I. T (T.P) A NO.1374/BANG/2011) (BY ASSESSEE) ASSESSEE / C.O. BY : SHRI PADAMCHAND KHINCHA, C.A. REVENUE BY : SHRI FARHAT HUSSAIN QURESHI, CIT (D.R) DATE OF H EARING : 20.08.2014 . DATE OF P RONOUNCEMENT : 19.09 . 201 4 . O R D E R PER SHRI JASON P. BOAZ, A.M. : THIS APPEAL BY REVENUE AND THE CROSS OBJECTIONS (C.O.) BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - IV, BANGALORE DT.31.10.2011 FOR ASSESSMENT YEAR 2005 - 06. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 2.1 THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISE ( AE ), M/S. ANDALE INC., USA. FOR ASSESSMENT YEAR 2005 - 06, THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.10.2005 DECLARING INCOME OF RS.6,179 AFTER CLAIMING DEDUCTION OFRS.96,73,3 13 U/S.10A OF THE INCOME TAX ACT, 196 1 ( HEREINAFTER REFERRED TO AS 'THE ACT'). THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSING OFFICER ON NOTICING THAT IN THE PERIOD UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS AE AMOUNTING TO RS.11,31,34,171 MADE A REFERENCE U/S.92CA OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE ( ALP ) OF THESE INTERNATIONAL TRANSACTIONS AFTER OBTAINING THE NECESSARY APPROVAL OF THE CIT, BANGALOR E - 1. 2.2 IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RENDERED SOFTWARE DEVELOPMENT SERVICES TO ITS AE TO THE EXTENT OF RS.11,31,74,171. THE ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AS THE MOST APPROPRIATE METHOD ( MAM ) FOR ITS T.P. STUDY / DOCUMENTATION AND AFTER CARRYING OUT SEARCH ON THE PROWESS DATABASE SELECTED 24 COMPANIES AS COMPARABLES. THE ASSESSEE'S LIST OF COMPARABLES ARE AS UNDER : - COMPANY MARGIN % 1. ACE SOFT WARE EXPORTS LTD. 11 2. ORIENT INFORMATIONTECHNOLOGY L TD. 13 3. ASIA J H TECHNOLOGIES LTD. 06 4. BANGALORE SOFTSELL LTD. 13 5. C S SOFTWARE ENTERPRISE LTD. 10 6. FOUR SOFT LTD. 38 7. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 17 8. INTERTEC COMMUNICATIONS LTD. 20 9. JEEVAN SOFTECH LTD. - 86 10. LANC O GLOBAL SYSTEMS LTD. 07 11. OMNI AX S SOFTWARE LTD. 01 3 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 12. S Q L STAR INTERNATIONAL LTD. - 19 13. SAVEN TECHNOLOGIES LTD. - 32 14. O C L INFOMATICS LTD. 08 15. MEGASOFT LTD. 02 16. CALIFORNIA SOFTWRE CO. LTD. 05 17. ZENITH INFOTECH LTD. 06 18. AVIA TION SOFTWRE DEV. CONSULTANCY LTD. 19 19. N S E IT LTD. 15 20. 3DPLM SOFTWARE SOLUTIONS LTD. 36 21. MELSTAR INFORMATION TECHNOLOGIES LTD. 03 22. KALE CONSULTANTS LTD. 07 23. SYNERGY LOG - IN SYSTEMS LTD. 08 24. QUINTEGRA SOLUTIONS LTD. 06 THE ASSESSE E COMPUTED THE ALP USING DATA FROM FINANCIAL YEAR 2003 - 04. ADOPTING OPERATING PROFITS TO OPERATING COSTS AS THE PROFIT LEVEL INDICATOR ( PLI ), THE ARITHMETIC MARGIN OF THE COMPARABLES WAS COMPUTED AT 4.75%. AFTER MAKING ADJUSTMENT OF 0.61% ON ACCOUNT O F LOANS AND ASSETS, THE ARITHMETIC MARGIN OF THE COMPARABLES WAS TAKEN AT 4.14% (VIZ. 4.75 LESS 0.61). IN PROCEEDINGS BEFORE THE TPO, THE ASSESSEE WAS REQUIRED TO SUBMIT VARIOUS DOCUMENTS . V IDE SHOW CAUSE NOTICE DT.23.7.2008 THE TPO, PROPOSED TO REJECT C ERTAIN COMPARABLES SELECTED BY THE ASSESSEE, CONDUCT A FRESH SEARCH APPLYING CERTAIN FILTERS, ADOPT FRESH COMPANIES AS COMPARABLES, ETC. IN THESE PROCEEDINGS, THE ASSESSEE REPEATEDLY SOUGHT ADJOURNMENTS AND DID NOT FURNISH ITS EXPLANATIONS / SUBMISSIONS T O THE TPO S SHOW CAUSE NOTICE. 2.3 THE TPO THEREFORE CONCLUDED THE PROCEEDINGS AND PASSED THE ORDER U/S.92CA OF THE ACT ON 6.10.2008 AFTER CONS IDERING THE MATERIAL ON RECORD. I N THE ORDER UNDER SECTION 92CA OF THE ACT, THE TPO REJECTED 22 OF THE 24 CO MPANIES SELECTED AS COMPAR A BLES BY THE ASSESSEE AND REJEC TED ITS TP ANALYSIS. T HE TPO THEN CARRIED OUT A FRESH T.P SEARCH 4 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 ANALYSIS AND SELECTED THE FOLLOWING 17 COMPARABLE COMPANIES (LISTED AT PAGE 90 OF HIS ORDER) : - S. NO. NAME OF THE COMPANY MARGIN % 1. BODHTREE CONSULTING LTD. 24.85 2. LANCO GLOBAL SYSTEMS LTD. 13.65 3. EXENSYS SOFTWARE SOLUTIONS LTD. 70.68 4. SANKHYA INFOTECH LTD. 27.39 5. SASKEN NETWORK SYSTEMS LTD. 16.64 6. FOUR SOFT LTD. 22.98 7. THIRDWARE SOLUTION LTD. 66.09 8. R S SOFT WARE (INDIA) LTD. 8.07 9. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. 20.34 10. TATA ELXSI LIMITED (SEG) 24.35 11. VISUAL SOFT TECHNOLOGIES LTD. (SEG) 23.52 12. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 14.42 13. I - GATE (S EG) 4 .32 14. FLEXTRONICS (S EG) 32.19 15. L & T INFOTECH 10.33 16. SATYAM 29.44 17. INFOSYS 42.83 AVERAGE 26.59% THE AVERAGE MARGIN OF THE 17 COMPARABLE COMPANIES ADOPTED BY THE TPO WAS 26.59% AND AFTER ALLOWING A DOWNWARD ADJUSTMENT OF 2.28% FOR WORKING CAPITAL ADJUSTMENT, T HE ARITHMETIC MEAN MARGI N WAS COMPUTED AT 24.31%. BASE D ON THE ABOVE MARGINS, THE TPO VIDE ORDER UNDER SECTION 92CA OF THE ACT DT.6.10.2008 PROPOSED A TP ADJUSTMENT OF RS.1,63,08,116 TO THE ALP OF THE INTERNATIONAL TRANSACTIONS. 2.4 THE ASSESSING OFFI CER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT VIDE ORDER DT.17.12.2008 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.1,63,15,559 AS 5 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 AGAINST THE RETURNED INCOME OF RS.6,179 IN VIEW OF THE FOLLOWING ADDITIONS / DISALLOWANCES, ETC. THERET O : - 1) T.P. ADJUSTMENT : RS.1,63,08,116 2) REDUCTION OF DEDUCTION U/S.10A OF THE ACT BY EXCLUSION OF COMMUNICATION EXPENSES OF RS.14,785 INCURRED FOR DELIVERY OF SOFTWARE OUTSIDE INDIA : RS.1,264. 3.1 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR AS SESSMENT YEAR 2005 - 06 DT.17.12.2008, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS) IV, BANGALORE CONTESTING BOTH THE TP ADJUSTMENT AND THE RECOMPUTATION OF THE DEDUCTION U/S.10A OF THE ACT. THE LEARNED CIT (APPEALS) IV, BANGALORE DISPOSED O FF THE ASSESSEE'S APPEAL BY ORDER DT.31.10.2011 ALLOWING THE ASSESSEE PARTIAL RELIEF. 3.2 IN THE SAID ORDER, THE LEARNED CIT (APPEALS) HAS RENDERED THE FOLLOWING FINDINGS : - (A) FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF GENISYS IN TEGRATING SYSTEMS (INDIA) PVT. LTD. (ITA NO.1231(BANG)/2010) DT.5.8.2011, THE LEARNED CIT (APPEALS), APPLYING THE TURNOVER FILTER OF RS.200 CRORES DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE FOLLOWING COMPANIES FORM THE LIST OF COMPARABLE COMPANIES : - I ) I - GATE GLOBAL SOLUTIONS LTD. II) FLEXTRONICS SOFTWARE SYSTEMS LTD. III) L&T INFOTECH LTD. IV) SATYAM SOFTWARE SERVICES LTD. AND V) INFOSYS TECHNOLOGIES LTD. (B) APPLYING THE FILTER OF RELATED PARTY TRANSACTIONS ( R P T ) OF THESE COMPANIES THAT WAS IN E XCESS THAN 0 %, THE LEARNED CIT (APPEALS) DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE FOLLOWING COMPANIES FROM THE LIST OF COMPARABLES. 6 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 (I) GEOMETRIC SOFTWARE SOLUTIONS COMPANY LTD. (II) SASKEN NETWORK SYSTEMS LTD. (III) FOUR SOFT LTD. (IV) THIRDWA RE SOLUTIONS LTD. (V) R.S. SOFTWARE (INDIA) LTD. (VI) TATA ELXSI LTD. (SEG) (VII) SASKEN COMMUNICATION TECHNOLOGIES LTD. (C) THE LEARNED CIT (APPEALS) UPHELD THE INCLUSION OF BODHTREE CONSULTING LTD. AND SANKHYA INFOTECH LTD. AS COMPARABLES. (D) THE LEARNED CIT (APPEALS) REJEC TED THE ASSESSEE'S CLAIM FOR CAPACITY UNDER - UTILISATION, RISK ADJUSTMENT ETC. BUT ALLOWED STANDARD DEDUCTION OF 5% UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT, AND (E) THE LEARNED CIT (APPEALS) DIRECTED THE ASSESSING OFFICE R TO REDUCE COMMUNICATION EXPENSES OF RS.14,785 FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION U/S.10A OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS) IV, BANGALORE DT.31.10.2011 FOR ASSESSMENT YEAR 2005 - 06, IN APPLYING 0% RPT FILTER, TURNOVER FILTER OF RS.200 CRORES AND THE GRANT OF STANDARD DEDUCTION OF 5%, THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING GROUNDS : - 1. THE ORDER OF THE LEARNED CIT (APPEALS) IN SO FAR AS IT RELATES TO THE FOLLOWING GROUNDS IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE TPO OUGHT TO HAVE EXCLUDED ALL COMPANIES HAVING ANY RELATED PARTY TRANSACTIONS AS COMPAR ABLES. 3. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE SIZE & TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TREATING A COMPANY AS A COMPARABLE, AND ACCORDINGLY ERRED IN EXCLUDING IGATE GLOBAL SOLUTIONS LTD., FLEXTRONICS SOFTWARE 7 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 SYSTEMS LTD., L&T INFOTECH AND SATYAM SOFTWARE SERVICES AND M/S. INFOSYS TECHNOLOGIES LTD. AS COMPARABLES. 4. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT PROFIT ON COST OF THE COMPARABLE COMPANIES, (70.68% & 66.09% IN CASES OF M/S. EXENSYS SOFTWARE SOLUTIONS LTD . & THIRDWARE SOLUTIONS LTD. RESPECTIVELY) IS ABNORMAL WITHOUT GIVING REASONS HOW FUNCTIONS DISCHARGED, ASSETS DEPLOYED AND RISKS ASSUMED OF SUCH COMPANIES WERE DIFFERENT FROM THAT OF THE APPELLANT COMPANY. 5. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR A STANDARD DEDUCTION OF 5% FROM THE ARM S LENGTH PRICE (ALP) UNDER THE PROVISO TO SECTION 92C(2) OF THE I.T.ACT, 1961. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 5. THE ASSES SEE HAS ALSO PREFERRED CROSS OBJECTIONS WHICH ARE AS UNDER : - 1. THE ORDER OF THE LEARNED CIT (APPEALS) IV, BANGALORE TO THE EXTENT PREJUDICIAL TO THE RESPONDENT IS BAD IN LAW. 2. THE LEARNED CIT (APPEALS) IV, BANGALORE HAS ERRED IN CONFIRMING T HE ACTION OF THE ASSESSING OFFICER IN MAKING A REFERENCE TO TRANSFER PRICING OFFICER FOR DETERMINING THE ARM S LENGTH PRICE WITHOUT DEMONSTRATING AS TO HOW OR WHY IT WAS NECESSARY AND EXPEDIENT TO DO SO. 3. THE LEARNED CIT (APPEALS) IV, BANGALORE HAS E RRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER AND TRANSFER PRICING OFFICER IN A. PASSING THE ORDER WITHOUT DEMONSTRATING THAT THE RESPONDENT HAD MOTIVE OF TAX EVASION. B. NOT APPRECIATING THAT THE CHARGING OR COMPUTATION PROVISION RELATING T O INCOME UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION DO NOT REFER TO OR INCLUDE THE AMOUNTS COMPUTED UNDER CHAPTER X AND THEREFORE THE ADDITION MADE UNDER CHAPTER X IS BAD IN LAW. C. ADOPTING A FLAWED PROCESS FOR ISSUING NOTICES U/S.133( 6) AND RELYING ON THE SAME WITHOUT PROVIDING COMPLETE INFORMATION OR AN OPPORTUNITY TO CROSS EXAMINE THE COMPANIES CONCERNED. 4. THE LEARNED CIT (APPEALS) IV, BANGALORE HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER AND TRANSFER PRICING O FFICER IN A. COMPUTING THE ARM S LENGTH PRICE BASED ON THE DATA FOR THE F.Y. 2004 - 05 OF THE COMPARABLES, WHICH WAS NOT AVAILABLE WHEN THE RESPONDENT UNDERTOOK TRANSFER PRICING DOCUMENTATION AND REPORTING OBLIGATIONS; B. REJECTING THE COMPARABLES SELECTED BY THE APPELLANT ON UNJUSTIFIABLE GROUNDS; AND 8 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 C. REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAKEN BY THE RESPONDENT ON UNJUSTIFIABLE GROUNDS. 5. THE LEARNED CIT (APPEALS) IV, BANGALORE HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESS ING OFFICER AND TRANSFER PRICING OFFICER IN : A. PERFORMING FRESH TRANSFER PRICING ANALYSIS; B. REJECTING THE COMPANIES WITH ONSITE REVENUES GREATER THAN 75% OF THE EXPORT REVENUES. C. PERFORMING THE TRANSFER PRICING ANALYSIS WITHOUT MAKING PRO PER ADJUSTMENT FOR ENTERPRISE LEVEL AND TRANSACTIONAL LEVEL DIFFERENCES BETWEEN THE RESPONDENT AND THE COMPARABLE COMPANIES. D. NOT GRANTING ADJUSTMENT FOR UNDER - UTILISATION OF FACILITY AS WELL AS EMPLOYEES WHILE COMPUTING THE ARM S LENGTH PRICE. 6. THE LEARNED CIT (APPEALS) IV, BANGALORE HAS ERRED IN A. REJECTING COMPANIES HAVING RELATED PARTY TRANSACTIONS WITHOUT APPRECIATING THAT INSIGNIFICANT RELATED PARTY TRANSACTION CANNOT HAVE SIGNIFICANT INFLUENCE ON PROFITABILITY OF COMPARABLE COMP ANIES AND TH A T SUCH COMPANIES ATLEAST OUGHT TO BE RETAINED AS COMPARABLES. B. CONFIRMING SANKHYA INFOTECH LIMITED AS A COMPARABLE. C. NOT APPRECIATING THAT TATA ELXSI LIMITED DESERVES TO REJECTED AS A COMPARABLE ON THE GROUND THAT IT IS FUNCTIONAL LY DIFFERENT FROM THE RESPONDENT. PRAYER 7. ON AN OVERALL CONSIDERATION OF THE FACTS OF THE CASE, AND THE LAW APPLICABLE, THE ALP AS DETERMINED BY THE TRANSFER PRICING OFFICER, AS ADOPTED BY THE ASSESSING OFFICER AND AS MODIFIED BY THE CIT (APPEALS) TO THE EXTENT BEING PREJUDICIAL TO THE RESPONDENT BEING NOT CORRECT IS TO BE QUASHED AND THE FIGURES AS DETERMINED AND RETURNED BY THE RESPONDENT BEING CORRECT ARE TO BE ACCEPTED. 6.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE LEARNED CI T (APPEALS) ORDER WAS NOT CORRECT IN ACCEPTING AND APPLYING THE TURNOVER FILTER OF RS.200 CRORES AND IN APPLYING 0 % RPT FILTER TO EXCLUDE COMPANIES FROM THE LIST OF COMPARABLES. THE ORDER OF THE LEARNED CIT (APPEALS) WAS ALSO ASSAILED BY THE LEARNED DEP ARTMENTAL REPRESENTATIVE FOR ALLOWING THE ASSESSEE 5% STANDARD DEDUCTION U/S.92C(2) OF THE ACT. RELIANCE WAS PLACED ON THE TPO S ORDER AND THE SYNOPSIS OF ARGUMENTS FILED WHILE PRAYING FOR THE RESTORATION OF THE ORDER OF THE TPO. 9 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 6.2 THE LEARNED AUTHO RISED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (APPEALS) AND THE CHART FILED EXPLAINING THE CRITERIA FOR ACCEPTING OR REJECTING EACH COMPARABLE COMPANY WITH SUPPORTING JUDICIAL PRONOUNCEMENTS FOR WHICH, A COMPILA TION OF CASE LAWS WAS ALSO FILED. 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS, AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS CITED. THE GROUNDS RAISED BY REVENUE AND THE CO S BY THE ASSESSEE ARE PRIMARIL Y IN RESPECT OF THE ACCEPTANCE OR REJECTION OF COMPANIES AS COMPARAB LES BY THE TPO / CIT(APPEALS) AND THE FILTERS ADOPTED IN THIS REGARD . WE, THEREFORE, DISPOSE OFF THE REVENUE S APPEAL AND THE ASSESSEE'S CROSS OBJECTIONS TOGETHER BY EXAMINING THE ISSUES PERTAINING TO THE COMPANIES RETAINED / REJECTED BY THE LEARNED CIT (APPEALS). 7. REVENUE S APPEAL, THE GROUNDS RAISED AT S.NOS.1, 6 & 7 , ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 8. IN RESPECT OF THE C.OS RAISED BY THE ASSESSEE AT S.NOS.1 TO 3 , NO ARGUMENTS WERE URGED BEFORE US AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 9. TURNOVER FILTER OF RS.200 CRORES . 9.1 IN GROUND NO.3 REVENUE CHALLENGES THE LEARNED CIT (APPEALS) ORDER IN APPLYING THE T URNOVER FILTER OF RS.200 CRORES TO SELECT / REJECT COMPARABLE COMPANIES F ROM THE LIST OF 17 COMPARABLES SELECTED BY THE TPO, THE FOLLOWING 5 COMPANIES HAVE TURNOVERS IN EXCESS OF RS.200 CRORES, THE DETAILS OF WHICH ARE AS UNDER : - 10 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 S.NO. NAME OF THE COMPA NY TURNOVER (RS. IN CRORES) 1. INFOSYS TECHNOLOGIES LTD. 6,859.70 2. FLEXTRONICS SOFTWARE SYSTEMS LTD. 457.45 3. I - GATE GLOBAL SOLUTIONS LTD. (SEG) 406.04 4. L&T INFOTECH LTD. 562.45 5. SATYAM COMPUTER SERVICES LTD. 3,464.2 9. 7. 2 AS PER THE PRO FIT AND LOSS ACCOUNT OF THE ASSESSEE, ITS TURNOVER IN THE RELEVANT PERIOD IS RS. 11,31,75,171. W E FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. IN ITS ORDER IN ITA NO.1231/BANG/2010 DT.5.8.20 11 HELD THAT COMPANIES HAVING TURNOVER OF MORE THAN RS.200 CRORES SHOULD NOT BE CONSIDERED AS A COMPARABLE S IN RESPECT OF AN ASSESSEE HAVING TURNOVER OF LESS THAN RS.200 CRORES HOLDING AT PARA 9 OF THIS ORDER AS UNDER : - 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND ALSO THE JUDICIAL PRECEDENTS ON THE ISSUE, 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 IDENTIFYIN G THE COMPARABLES. IN SUCH A SITUATION, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSIDERED. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE T HAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE IN A POSITION TO BARGAIN THE PRICE AND ALSO ATTRACT MORE CUSTOMERS. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES WHO ARE ABLE TO GIVE BETTER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFI TS AND 32 ITA.NO.1231(B)/10 THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCING PROFIT MARGIN. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNAL, WHEN COMPANIES WHICH ARE LOSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN THE SUPER PROFIT MAKING COMPANI ES SHOULD ALSO BE EXCLUDED. FOR THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER, WE FIND THAT A REASONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCENARIO INTO CONSIDERATION, WE FEEL THAT THE CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME, WE HOLD THAT THE TURNOVER FILTER IS VERY IMPORTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1.00 CORE TO 200 CRORES HAVE T O BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THAT RANGE HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200.00 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY. 9.3 THE ABOVE DECISION HAS BEEN FOLLOWED BY OTHER C O - ORDINATE BENCHES OF THIS TRIBUNAL IN THE FOLLOWING CASES : - 11 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 I. TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011 DT.23.11.2012). II. BEARING POINT BUSINESS CONSULTING P. LTD. (ITA NO.1124/BANG/2011) III. KODIAK NETWORKS (INDIA) PVT. LTD. (ITA NO.1413/BANG/2010) IV. CSR INDIA PVT. LTD. (IT (TP)A NO.1119/BANG/2011). V. MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. ( IT(TP)A NO.1222/BANG/2011). FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCH IN THE CAS E OF GENISYS INTEGRATING SYSTEMS P. LTD. (SUPRA), TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AND OTHER DECISIONS, WE HOLD THAT THE ABOVE FIVE COMPANIES LISTED AT PARA 9.1 OF THIS ORDER, HAVING TURNOVER OF MORE THAN RS.200 CRORES , SHOULD BE EXCLU DED FROM THE LIST OF COMPARABLES. WE ALSO CONCUR WITH THE VIEW OF THE LEARNED CIT (APPEALS) IN EXCLUDING M/S. SATYAM COMPUTER SERVICES LTD. FROM THE LIST OF COMPARABLES IN VIEW OF THE ADMISSION BY ITS AUDITORS THAT THE ACCOUNTS OF THE COMPANY CANNOT BE RE LIED UPON. IN VIEW OF OUR ABOVE FINDING, UPHOLDING THE ORDER OF THE LEARNED CIT (APPEALS) IN EXCLUDING THE ABOVE 5 COMPANIES, HAVING TURNOVERS IN EXCESS OF RS.200 CRORES, W E CONSEQUENTLY DISMISS GROUND AT S. NO.3 OF REVENUE S APPEAL. 10. AS PER TH E CHART FURNISHED BY THE LEARNED AUTHORISED REPRESENTATIVE, THE ASSESSEE ACCEPTS THAT THE FOLLOWING COMPANIES ARE CORRECTLY TAKEN AS COMPARABLES BY THE TPO / CIT(APPEALS) : - I) BODHTREE CONSULTING LTD. AND II) LANCO GLOBAL SYSTEMS LTD. IN THIS VIEW O F THE MATTER, THE ACTION OF THE TPO AND CIT(APPEALS) IN INCLUDING AND RETAINING THESE TWO COMPANIES AS COMPARABLES IS NOT CHALLENGED AND HAS ATTAINED FINALITY. 12 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 RELATED PARTY TRANSACTIONS (RPT) 11.1 THE GROUND NO.2 OF REVENUE S APPEAL AND GROUND NO. 6(A) OF THE ASSESSEE'S C.O. CHALLENGE THE ORDER OF THE LEARNED CIT (APPEALS) IN DIRECTING THE ASSESSING OFFICER / TPO TO EXCLUDE THE FOLLOWING COMPANIES FROM THE LIST OF COMPARABLES BY APPLYING THE RPT FILTER OF MORE THAN 0% ; AS HE WAS OF THE VIEW THAT E VEN A SINGLE INSTANCE OF RPT SHOULD LEAD TO THEIR REJECTION FROM THE LIST OF COMPARABLES : - I) GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. II) SASKEN NETWORK SYSTEMS LTD. III) FOUR SOFT LTD. IV) R.S. SOFTWARE (INDIA) LTD. V) THIRDWARE SOLUTIONS LTD. VI) TATA ELXSI LTD. (SEG) AND VII) SAS KEN COMMUNICATIONS TECHNOLOGIES LTD. 11.2 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD , INCLUDING THE JUDICIAL DECISIONS CITED AND RELIED ON IN THE CONTEXT OF THE ISSUE OF RPT. IT WAS SUBMITTED BEFORE US, THA T IN THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 DT.9.11.2012, IT WAS HELD THAT THE RPT FILTER SHOULD BE APPLIED AT 15%. IN DOING SO, THE CO - ORDINATE BENCH FOLLOWED THE DECISIO N OF THE ITAT, DELHI BENCH IN THE CASE OF SONY INDIA P. LTD. (2008 - TIOL - 439 - ITAT - DEL) WHEREIN IT WAS HELD THAT COMPANIES HAVING RPT IN EXCESS OF 15% OF TOTAL REVENUES ARE TO BE EXCLUDED FROM THE LIST OF COMPARBALES. THE RELEVANT OBSERVATION / CONCLUSIONS OF THE CO - ORDINATE BENCH IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) AT PARA 13 THEREOF ARE EXTRACTED HEREUNDER : - 13 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 13.0 RELATED PARTY TRANSACTIONS IN RESPECT OF THE GROUND RAISED AT S.NO.1 REGARDING ACCEPTANCE OF COMPARABLE COMPANIES HAVING RELATED PARTY TRANSACTIONS AS PROPOSED BY THE TPO, THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE TRANSFER PRICING REGULATIONS DO NOT STIPULATE ANY MINIMUM LIMIT OF RELATED PARTY TRANSACTIONS WHICH FORM THE THRESHOLD FOR EXCLUSION AS A COMPAR ABLE. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE OBJECTED TO THE TPO S SETTING A LIMIT OF 25% ON RELATED PARTY TRANSACTIONS. HE OBJECTED TO THE INCLUSION OF COMPARABLES BEING RELATED PARTY TRANSACTIONS IN EXCESS OF 15% OF SALES / REVENUE. IN SUPPORT OF THIS PROPOSITION, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE BENCH OF THE ITAT, DELHI IN THE CASE OF SONY INDIA (P) LTD. REPORTED IN 2008 - TIOL - 439 - ITAT - DELHI DT.23.12.2008. THE LEARNED COUNSEL FOR THE ASS ESSEE DREW OUR ATTENTION TO PARA 115.3 OF THE ORDER WHEREIN THE TRIBUNAL HAS HELD THAT - ..WE ARE FURTHER OF THE VIEW THAT AN ENTITY CAN BE TAKEN AS UNCONTROLLED IF ITS RELATED PARTY TRANSACTIONS DO NOT EXCEED 10 TO 15% OF TOTAL REVENUE. WITHIN THE ABOVE LIMIT, TRANSACTIONS CANNOT BE HELD TO BE SIGNIFICANT TO INFLUENCE THE PROFITABILITY OF THE COMPARABLES. FOR THE PURPOSE OF COMPARISON WHAT IS TO BE JUDGED IS THE IMPACT OF THE RELATED PARTY TRANSACTIONS VIS - - VIS SALES AND NOT PROFIT SINCE PROFIT O F AN ENTERPRISE IS INFLUENCED BY LARGE NUMBER OF OTHER FACTORS . RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SONY INDIA (P) LTD (SUPRA), THE ASSESSING OFFICER / TPO ARE DIRECTED TO EXCLUDE AFTER DUE VERIFICATION THOSE COMPARABLES FROM THE LIST WITH RELATED PARTY TRANSACTIONS OR CONTROLLED TRANSACTIONS IN EXCESS OF 15% OF TOTAL REVENUES FOR THE FINANCIAL YEAR 2003 - 04. 11.3 THE ABOVE DECISIONS ACKNOWLEDGE THAT RPT UPTO A CERTAIN LIMIT SHOULD NOT LEAD TO THE REJECTION OF A COMPANY AS A COMPARABLE. THE ABOVE DECISION WAS FOLLOWED IN THE DECISION OF ANOTHER CO - ORDINATE BENCH IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. IN IT(TP)A NO.1303/BANG/2013 DT.28.11.2013 HOLDING THAT COMPANIES HAVING RPT IN EXCESS OF 15% OF TOTAL REVEN UES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. OTHER DECISIONS THAT HAVE UPHELD THE APPLICATION OF RPT FILTER OF 15% ARE : - I) ITO V CRM SERVICES INDIA (P) LTD. (2011) 14 TAXMAN.COM 96 (DEL) II) LOGIC A PVT. LTD. (TS - 131 - ITAT - BANG - TP). III) CSR INDIA (P) LTD. (2 013) 31 TAXMANN.COM 265 (BANG) IV) HUAWE I TECHNOLOGIES INDIA P. LTD. IT(TP)A NO.1338/BANG/2010 14 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 V) WILLS PROCESSING SERVICES (INDIA) P. LTD. [TS - 49 - ITAT - 2013 (MUM)] VI) SAKA T A INX (INDIA) LTD. (2012) 21 TAXMANN.COM 37 (JP) 11.4 FOLLOWING THE ABOVE DECISIONS, WE HO LD THAT THE RPT FILTER SHOULD BE CONSIDERED AT 15% OF THE TOTAL REVENUE AND COMPANIES HAVING RPT IN EXCESS OF 15% OF TOTAL REVENUES ARE TO BE EXCLUDED FROM THE LI S T OF COMPAR A BLES. IN THIS VIEW OF THE MATTER, THE ORDER OF THE LEARNED CIT (APPEALS) HOLDING THAT COMPANIES ARE NOT TO BE CONSIDERED AS COMPAR A BLES EVEN IF THEY HAVE A SINGLE RPT I.E. ;THAT THE RPT IS IN EXCESS OF 0%, IS REVERSED. 11.5 IN RESPECT OF THE FOLLOWING THESE COMPANIES WHICH FORMED PART OF THE TPO S LIST OF COMPARABLES : - 1) SASKEN CO MMUNICATION TECHNOLOGIES LTD. (SEG) 2) R.S. SOFTWARE (INDIA) LTD. AND 3) SASKEN NETWORK SYSTEMS LTD. T HE ABOVE COMPARABLES WERE EXCLUDED BY THE LEARNED CIT (APPEALS) ON THE GROUND THAT THEY HAD RPT IN EXCESS OF 0%. WE FIND FROM A PERUSAL OF THE ORDER OF THE TPO U/S.92CA OF THE ACT, AT PAGE 90 THEREOF, THAT THE RPT TRANSACTIONS OF THESE COMPANIES ARE BELOW 15% OF TOTAL SALES. THIS FACT IS ALSO NOT DISPUTED BY THE ASSESSEE BEFORE US. IN VIEW OF OUR FINDING THAT THE RPT FILTER SHOULD BE APPLIED IN CASES WHEN IT OCCURS IN EXCESS OF 15%, THE ABOVE THREE COMPANIES UNDISPUTEDLY HAVING LESS THAN 15% RPT ARE TO BE INCLUDED IN THE LIST OF COMPARABLES. THE A.O. / TPO ARE ACCORDINGLY DIRECTED. 11.6 FOUR SOFT LTD. AS PER THE TPO S ORDER, AT PAGE 90 THEREOF, THIS COMPANY HAS RPT OF 19.89% ON TOTAL SALES. THIS FACT IS NOT DISPUTED. IN THE LIGHT OF OUR DECISION AT PARA 11.4 OF THIS ORDER, WHEREIN FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF 24/7 CUSTOMER.COM 15 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 PVT. LTD. (SUPRA) WE H E LD THAT COMPANIES HAVIN G RPT IN EXCESS OF 15% ARE TO BE EXCLUDED FROM BEING ADOPTED AS COMPARABLES, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE FOUR SOFT LTD. FORM THE LIST OF COMPARABLES AS IT HAS RPT IN EXCESS OF 15% OF TOTAL SALES. IT IS ORDERED ACCORDINGLY. 11.7 M/S. GE OMETRIC SOFTWARE SOLUTIONS LTD. IN THE CASE OF THIS COMPANY, AS PER THE TPO S ORDER, AT PAGE 90 THEREOF, ITS RPT IS SHOWN TO BE AT 11.89% OF TOTAL SALES. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE, HOWEVER, DISPUTED THIS SUBMITTING THAT THE RPT OF THIS COMPANY IS 24.11% OF TOTAL SALES (I.E. RPT OF 23,01,31,955 TO SALES OF RS.95,44,47,057) AND SINCE RPT IS IN EXCESS OF 15% OF SALES, IT OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. WE FIND FROM A PERUSAL OF THE ORDER OF THE TPO, THE SUBMISSI ON OF THE ASSESSEE BEFORE THE LEARNED CIT (APPEALS) AND THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS), THAT THE ASSESSEE HAD NEVER CHALLENGED THE FINDING OF THE TPO ON THE GROUND THAT THE RPT OF THIS ASSESSEE WAS 11.89% OF SALES BEFORE THE LOWER AUTHORIT IES , BUT ON OTHER GORUNDS . IT IS ONLY BEFORE US THAT THIS ASPECT HAS BEEN URGED I.E. THAT THE ASSESSEE'S RPT WAS 24.11% OF TOTAL SALES. IN THIS BEING THE FACTUAL MATRIX, WE SET ASIDE THE ISSUE OF EXAMINATION OF THE COMPARABILITY OF GEOMETRIC SOFTWARE SOLU TIONS LTD. TO THE FILE OF THE TPO FOR FRESH EXAMINATION IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE BEFORE US ON THE APPLICATION OF THE RPT FILTER OF 15% OF SALES AND TO DECIDE THE MATTER AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS REQUIRED. IT IS ORDERED ACCORDINGLY. 16 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 11.8 EXENSYS SOFTWARE SOLUTIONS LTD. (REVENUE S APPEAL GROUND NO.4) 11.8.1 THIS COMPANY SELECTED BY THE TPO WAS EXCLUDED FROM THE LIST OF COMPARABLES BY THE LEARNED CIT (APPEALS) FOR THE R EASON THAT IT WAS A SUPER PROFIT COMPANY HAVING A MARGIN OF 70.68% ON COSTS. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE ABOVE COMPANY IS ALSO FUNCTIONALLY DIFFERENT AS IT IS ENGAGED BOTH IN PROVIDING SOFTWARE SERVICES AND BPO SERVICE S. IT IS ALSO SUBMITTED THAT THE A SSESSEE HAD ITS OWN RANGE OF SOFTWARE PRODUCTS LIKE EXENSYS SUITE , SD , HRP , QC , EXENSYS FINANCIALS , ASSET MANAGEMENT MODULE , ETC., WHEREAS THE ASSESSEE IN THE CASE ON HAND IS PURELY A SOFTWARE SERVICE PROVIDE R. THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT, AS OBSERVED BY THE LEARNED CIT (APPEALS), THE YEAR UNDER CONSIDERATION WAS AN EXCEPTIONAL YEAR FOR THIS COMPANY DUE TO AMALGAMATION OF M/S.HOLOOL INDIA LTD. WITH IT RESULTING IN EXCEPTIONALLY H IGH REVENUE AND PROFITS. IT WAS SUBMITTED THAT BOTH IN VIEW OF ABNORMAL PROFIT DUE TO THE EXCEPTIONAL OCCURRENCE OF AMALGAMATION AND ALSO IT BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE, THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 1 1.8.2 ON PERUSAL OF THE DETAILS ON RECORD AND SUBMISSIONS MADE, IT IS SEEN THAT THIS COMPANY OPERATES IN ATLEAST THREE BUSINESS SEGMENTS I.E. PROVISION OF SOFTWARE SERVICES, BPO SERVICES AND HAS DEVELOPED ITS OWN SOFTWARE PRODUCTS LIKE EXENSYS FINAN CIALS , EXENSYS SUITE , S D , HRP , Q C , ASSET MANAGEMENT MODULE ETC. THE ASSESSEE IN THE CASE ON HAND IS A MERE SOFTWARE SERVICE PROVIDER TO ITS AE. ON AN APPRAISAL OF THE SAME, WE ARE OF THE OPINION THAT IT WOULD CERTAINLY STAND TO REASON THAT THIS COMPANY IS 17 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 FUNCTIONALLY DIFFERENT FROM THE ASSESSEE, IN THE CASE ON HAND, FOR APART FROM OPERATING IN PROVIDING SOFTWARE SERVICES AND BPO SERVICES, IT HAS ALSO ADMITTEDLY DEVELOPED ITS OWN SOFTWARE PRODUCTS IN ITS AREA OF SPECIALISATION, FROM WHICH I T WOULD DERIVE SUBSTANTIAL BENEFITS / ADVANTAGES COMPARED TO THE ASSESSEE WHICH IS A MERE SOFTWARE SERVICE PROVIDER TO ITS AE. APPLYING THE PRINCIPLE THAT COMPANIES WHICH ARE ON SIMILAR STANDARDS ONLY SHOULD BE TAKEN AS COMPARABLES FOR THE ASSESSEE, WE AC CORDINGLY DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES IN THIS CASE AS IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IN VIEW OF THIS FINDING OF OURS, THE OTHER ISSUE OF ABNORMAL PROFITS BECOMES ACADEMIC IN NATURE AND DOES NOT REQUIRE ADJUDICATION. 11.9 THIRDWARE SOLUTIONS LTD. ( REVENUE S APPEAL GROUND NO.4) 11.9.1 THIS COMPANY WAS SELECTED BY THE TPO AND INCLUDED IN THE LIST OF COMPARABLES. THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES BY THE LD. CIT(APPEAL S) ON ACCOUNT OF ITS HAVING ABNORMAL PROFITS OF 66.09% DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO CONTENDED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE, AS APART FROM PROVISION OF SOFTWARE SERVICES, IT ALSO INTO OTHER VARIED ACTIVI TIES. IN VIEW OF THE ABOVE, THE LD. D.R. PLEADED FOR UPHOLDING THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES ON GROUNDS OF BEING FUNCTIONALLY DIFFERENT. 11.9.2 THIS COMPANY SELECTED BY THE TPO AS A COMPARABLE WAS EXCLUDED BY THE LEARNED C IT (APPEALS) ON GROUNDS OF IT BEING A COMPANY HAVING EXTRA - ORDINARY OR ABNORMAL PROFITS OF 66.09% DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO CONTENDED BY THE ASSESSEE THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE SINCE IT WAS INTO S OFTWARE 18 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 PRODUCTS APART FROM PROVISION OF SOFTWARE SERVICES. THIS CLAIM OF FUNCTIONAL DIFFERENCE OF THIS COMPANY VIS - - VIS THE ASSESSEE WILL BE DEALT WITH SUBSEQUENTLY IN THIS ORDER. 11.9.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE ASSES SEE SEEKING THE EXCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT HAS HIGH PROFITS OF 66.09% DURING THE YEAR UNDER CONSIDERATION. A SIMILAR MATTER OF SUPER PROFITS WAS CONSIDERED BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24 /7 CUSTOMER.COM PVT. LTD. REPORTED IN ITA NO.227/BANG/2010 DT.9.11.2012 WITH THE COMPARABILITY OF A COMPANY ULTRA MARINE PRODUCTS LTD. IN THAT CASE, THE TRIBUNAL HAD HELD THAT A COMPARABLE COMPANY CANNOT BE ELIMINATED JUST BECAUSE IT WAS A LOSS MAKING UNI T OR HAD EARNED HIGHER PROFITS AND IT WAS FOR THE ASSESSEE TO DEMONSTRATE WITH MATERIAL EVIDENCE TO SUPPORT ITS CLAIM THAT THE COMPANY S PROFITS WERE ABNORMALLY HIGH DUE TO THE OCCURRENCE OF AN EXTRA - ORDINARY EVENT OR CIRCUMSTANCE. IN RESPECT OF HIGH OR SUPER PROFIT COMPANIES, THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) , FOLLOWING THE DECISIONS OF ANOTHER CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NETLIUX INDIA PVT. LTD. (ITA NO.454/BANG/2011) AND THE C ASE OF THE MUMBAI TRIBUNAL IN THE CASE OF EXXOR MOBILE COMPANY INDIA PVT. LTD. (ITA NO.8311/MUM/2010 DT.10.6.2011 ), HAS AT PARA 17.8 OF ITS ORDER HELD AS UNDER : - 17.8 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE SEEKING THE EXCLUSION OF THIS CO MPANY AS A COMPARABLE FOR THE REASON THAT IT HAS HIGH PROFITS OF 63.27% AND THAT IT HAS VARIOUS SEGMENTAL APART FROM ITES AND THAT THERE WERE A CATERA OF DECISIONS IN SUPPORT OF THE ASSESSEE'S PROPOSITION. A SIMILAR MATTER OF SUPER PROFITS WAS CONSIDERED BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. NETLINX INDIA PVT LTD (ITA NO.454/BANG/2011) TO WHICH BOTH OF US WERE A PARTY. IN THAT ORDER, IT WAS HELD THAT THE WORD SUPER IS A SUPERLATIVE WORD WHICH DENOTES SOMETHING EXTRAORDINARY AND N OTED THAT IN ALL THE CASES / DECISIONS WHERE THESE SUPER 19 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 PROFIT MAKING COMPANIES WERE DIRECTED TO BE EXCLUDED, THE TPO WAS COMPARING CASES LIKE INFOSYS, WIPRO, ETC. WHERE THE TURNOVER WAS MORE THAN 10 TIMES THAT OF THE ASSESSEE OR THE PROFIT MARGIN WAS ABN ORMALLY HIGH. IN THE CASE OF EXXON MOBILE COMPANY INDIA PVT LTD VS. DCIT (ITA NO.8311/MUM/2010 DT.10.6.2011), THE ITAT, MUMBAI HELD THAT : A COMPARABLE CANNOT BE ELIMINATED JUST BECAUSE IT IS A LOSS MAKING UNIT. SIMILARLY, A HIGHER PROFIT MAKING UNIT CANNOT ALSO BE AUTOMATICALLY ELIMINATED JUST BECAUSE THE COMPARABLE COMPANY EARNED HIGHER PROFITS THAN THE AVERAGE. IN OTHER WORDS, AS A GENERAL PRINCIPLE, BOTH LOSS MAKING UNIT AND HIGH PROFIT MAKING UNIT CANNOT BE ELIMINATED FROM THE COMPARABLES UNLESS , THERE ARE SPECIFIC REASONS FOR ELIMINATING THE SAME WHICH IS OTHER THAN THE GENERAL REASON THAT THE COMPARABLE HAS INCURRED LOSS OR MADE ABNORMAL PROFITS. FURTHER, INDIA TP RULES SPECIFICALLY DEVIATE FROM OECD GUIDELINES IN THIS ASPECT AND SPECIFY THE ARITHMETIC MEAN FOR DETERMINING ALP. IN THE QUARTILE METHOD, THE COMPANIES THAT FALL IN THE EXTREME QUARTILES GET EXCLUDED AND ONLY THOSE THAT FALL IN THE MIDDLE QUARTILE ARE RETAINED FOR COMPARABILITY THEREBY AUTOMATICALLY ELIMINATING OUTLINERS WHEREA S IN THE ARITHMETIC MEAN METHOD ALL COMPANIES THAT ARE IN THE SAMPLE ARE CONSIDERED, WITHOUT EXCEPTION, AND THE AVERAGE OF ALL THE COMPANIES ARE CONSIDERED AS ALP. THEREFORE AS A GENERAL RULE THAT COMPANIES WITH ABNORMAL PROFITS SHOULD BE EXCLUDED MAY BE IN LINE WITH THE PRINCIPLES ENUMERATED IN THE OECD GUIDELINES, BUT CANNOT BE SAID TO BE IN TUNE WITH INDIAN TP REGULATIONS. THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH OR DEMONSTRATE WITH ANY EVIDENCE ANY REASON TO SUPPORT THE PROPOSITION THAT THE PROFIT OF THE COMPARABLE COMPANY WAS ABNORMALLY HIGH. IT MUST NOT BE OVERLOOKED THAT HIGH PROFITS REFLECT BETTER BUSINESS SENSE AND PRACTICES ALSO. THE NET ARITHMETIC MEAN MARGIN OF 36.49% WAS ARRIVED AT AFTER TAKING INTO ACCOUNT BOTH 63.27% AND ALSO 3.44% WHI CH IS THE LOWEST IN THE RELEVANT ITES INDUSTRY. WE ALSO FIND FROM THE MATERIAL ON RECORD THAT THIS COMPANY HAS A CLEARLY DEMARCATED CALL CENTRE SEGMENT AND SEGMENTAL RESULTS ARE AVAILABLE IN THE AUDITED FINANCIAL STATEMENTS OF THE COMPANY. WE, THEREFORE, SEE NO REASON WHY THE M/S. ULTRA MARINE PIGMENTS LTD SHOULD NOT BE CONSIDERED AS A COMPARABLE AND THEREFORE REJECT THE ASSESSEE'S GROUNDS SEEKING ITS EXCLUSION. THIS COMPANY IS, THEREFORE, DIRECTED TO BE RETAINED AS A COMPARABLE FOR THE ASSESSEE FOR ASSE SSMENT YEAR 2004 - 05. IN THE CASE ON HAND, WE FIND THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT THE COMPANY S PROFITS WERE ABNORMALLY HIGH DUE TO ANY EXTRAORDINARY EVENT OR REASON AND THE FACT THAT THE LEARNED CIT (APPEALS) MERELY HAS EXCLUDED THIS COMPANY AS A COM PARABLE ON THE GROUNDS OF IT HAVING A HIGH PROFIT IS NOT TENABLE IN THE LIGHT OF THE DECISIONS OF THE CO - 20 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 ORDINATE BENCHES OF THIS TRIBUNAL CITED ABOVE . THEREFORE FOLLOWING THE RATIO OF THE AFORESAID DECISION IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SU PRA), WE REVERSE THE ORDER OF THE LEARNED CIT (APPEALS), EXCLUDING THIS COMPANY AS A COMPARABLE ON GROUNDS OF HIGH PROFIT MARGINS SINCE THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THE COMPANY S ABNORMAL / HIGH PROFITS WERE DUE TO ANY EXTRAORDINARY EVENTS O R CIRCUMSTANCES. IT IS ORDERED ACCORDINGLY. 11.9.4 WE HAVE PERUSED THE DETAILS ON RECORD AND THE SUBMISSIONS MADE. WE FIND FROM THE DETAILS ON FILE, BEFORE THE LOWER AUTHORITIES, THAT THE INFORMATION FURNISHED IN RESPECT OF THIS COMPANY INDICATES TH AT THERE ARE NO SOFTWARE PRODUCTS THAT THE COMPANY INVOICED DURING THE PERIOD UNDER CONSIDERATION AND THE FINANCIAL RESULTS ARE IN RESPECT OF SOFTWARE SERVICES ALONE. THIS HAS ALSO BEEN OBSERVED BY THE ITAT, HYDERABAD IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD. IN ITS ORDER ITA NOS.1196 & 1197/HYD/2010 AND 2012/HYD/2011 DT.24.5.2013 FOR ASSESSMENT YEAR 2005 - 06. IT HOWEVER APPEARS THAT THE ASSESSEE'S SUBMISSIONS BEFORE THE LEARNED CIT (APPEALS) ON THE ASPECT OF ITS EXCLUSION FROM THE LIST OF COMPARABLE S DUE TO FUNCTIONAL DIFFERENCES OF THIS COMPANY VIS - - VIS THE ASSESSEE HAS NOT BEEN EXAMINED OR ADJUDICATED UPON BY THE LEARNED CIT (APPEALS). IN THIS VIEW OF THE MATTER, WE DIRECT THE LEARNED CIT (APPEALS) TO EXAMINE THE ASSESSEE'S CLAIM FOR EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES FOR BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS IN THIS REGARD. IT IS ORDERED ACCORDINGLY. 21 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 11.10 TATA ELXSI LTD. (SEG MENTAL) [ASSESSEE'S C.O. NO.6( C )] 11.10.1 THIS COMPANY WAS INCLUDED IN THE LIST OF COMPARABLES BY THE TPO, AFTER CONSIDERING ITS SOFTWARE DEVELOPMENT SERVICES SEGMENT IN THE COMPANY S ANNUAL REPORT. THE LEARNED CIT (APPEALS) EXCLUDED THIS COMPANY FR OM THE LIST OF COMPARABLES FOR THE REASON THAT IT HAD RPT TRANSACTIONS IN EXCESS OF 0%. THIS FINDING OF THE LEARNED CIT (APPEALS) HAS BEEN CONSIDERED AT PARAS 11.1 TO 11.4 OF THIS ORDER AND REVERSED BY US FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) AND IN THE LIGHT OF MANY OTHER DECISIONS OF VARIOUS BENCHES OF TRIBUNALS ACROSS INDIA AS LISTED OUT AT PARA 11.3 OF THIS ORDER (SUPRA) WHEREIN THE RPT FILTER HAS BEEN APPLIED AT 15%. 11.10. 2 ON APPEAL BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE HAD ALSO PUT FORTH THE SUBMISSION THAT EVEN IN THE SOFTWARE DEVELOPMENT SEGMENT, TATA ELXSI LTD. IS ENGAGED IN DIVERSE ACTIVITIES SUCH AS SOFTWARE DEVELOPMENT AND SERVICES AND SYSTEMS INTEGRAT ION AND SUPPORT. IT IS SUBMITTED THAT THE SOFTWARE DEVELOPMENT SERVICE SEGMENT IS FURTHER SUB - DIVIDED INTO HIGHLY SPECIALISED AREAS LIKE PRODUCT DESIGN SERVICES, DESIGNS AND ENGINEERING SERVICES AND VISUAL COMPUTING LABS. IT WAS CONTENDED THAT THESE DIVE RSE ACTIVITIES OF THIS COMPANY IN THE SOFTWARE DEVELOPMENT SERVICES ALONE, MAKES MEANINGFUL COMPARISON DIFFICULT WITH THE ASSESSEE, WHO IS ONLY A SOFTWARE SERVICE PROVIDER TO ITS AE. IN VIEW OF THE ABOVE DIFFERENCE AND THE SIZE OF THE COMPANY, BRAND VALUE , SIGNIFICANT R& D ACTIVITY, THE ASSESSEE SUBMITS THAT THIS COMPANY IS CLEARLY FUNCTIONALLY DIFFERENT FROM THE 22 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 ASSESSEE AND THEREFORE TATA ELXSI LT. OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES TO THE ASSESSEE. THESE ARGUMENTS WERE REITERATED BEFORE US ALSO IN THE APPEAL PROCEEDINGS. 11.10.3 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAILS ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES , DES IGN AND ENGINEERING SERVICES AND VISUAL COMPUTING LABS AND NOT PURELY SOFTWARE DEVELOPMENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SIMILAR TO SOFTWARE DEVELOP MENT SERVICES PERFORMED BY THE ASSESSEE. 11.10.4 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011) HAS HELD THAT TATA ELXSI LTD. IS ENGAGED IN NICHE PRODUCT DEVELOPMENT AND ITS DEVELOPMENT SERVIC ES ARE ENTIRELY DIFFERENT FROM A MERE SOFTWARE SERVICE PROVIDER AND THEREFORE IS NOT COMPARABLE TO A PURELY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT THE NATURE OF PRO DUCTS DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE AS NARRATED IN PARA 11.10.2 ABOVE. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPORT PLACED BEFORE US AND THE SEGMENTAL DETAILS ADOPTED BY THE TPO, IT IS CLEAR THAT TATA ELXSI LTD. IS ENGAGED IN THE DEVELOPMENT OF NICHE PRODUCTS AND DESIGNING SERVICES AND THE SERVICES PROVIDED BY IT ARE DISTINCT AND DIFFERENT FROM THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE IN THE CASE ON HAND. WE, THEREFORE, DIRECT THE 23 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 ASSESSING OFFICER / T PO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES TO THE ASSESSEE. 11.11 SANKHYA INFOTECH LTD. [ASSESSEE'S C.O. GROUND NO.6(B)] 11.11.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE TO THE ASSESSEE. ON APPEAL, THE ASSESSEE IN SUBM ISSIONS BEFORE THE LEARNED CIT (APPEALS) CONTENDED THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR FOR THE REASON THAT THIS COMPANY IS ENGAGED IN DIVERSE BUSINESS ACTIVITIES FROM PROVISION OF SOFTWARE DEVELOPMENT SERVICES, TO PRODUCT DEVELOPMENT AND IS NOT A PURE SOFTWARE DEVELOPMENT SERVICE COMPANY LIKE THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY WAS REJECTED AS A COMPARABLE TO A SOFTWARE SERVICE PROVIDER FOR BEING FUNCTIONALLY DISSIMILAR BY THE DECISION OF THE I TAT, DELHI IN THE CASE OF COLT TECHNOLOGY SERVICES INDIA PVT. LTD. IN ITA NO.609/BANG/2011 & C.O. NO.81/BANG/2011 DT.23.10.2012 FOR ASSESSMENT YEAR 2005 - 06 SINCE IT WAS FOUND FROM A REVIEW OF SCHEDULE 4 OF ITS BOOKS OF ACCOUNTS ON FIXED ASSETS THAT IT OWNE D ITS OWN IPR S IN RESPECT OF SOFTWARE PRODUCTS DEVELOPED BY IT AND FOCUSED ON DEVELOPMENT OF NICHE PRODUCTS IN THE TRANSPORTATION AND AVIATION INDUSTRY ETC. 11.11.2 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECO RD. IN THE CASE ON HAND, IT IS SEEN FROM THE TPO S ORDER THAT NO OBJECTION TO THE ADOPTION OF THIS COMPANY AS A COMPARABLE WAS FURNISHED BY THE ASSESSEE TO THE TPO IN REPLY TO THE TPO S SHOW CAUSE NOTICE AND THEREFORE TPO INCLUDED IT AS A COMPARABLE TO T HE ASSESSEE. THE AFORESAID OBJECTIONS RAISED BY THE ASSESSEE, HAVE BEEN PUT FORTH ONLY BEFORE THE LEARNED CIT (APPEALS) AND NOW BEFORE US. IT IS CLEAR THAT THE TPO NEVER HAD 24 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 ANY OCCASION TO EXAMINE THE OBJECTIONS RAISED BEFORE THE APPELLATE AUTHORITIES, BECAUSE THEY WERE NEVER PUT FORTH BEFORE HIM. IN THIS VIEW OF THE MATTER, WE REMAND THIS MATTER TO THE FILE OF THE TPO AND DIRECT THE TPO TO EXAMINE THE ISSUE OF THE COMPARABILITY OF M/S. SAN KH YA INFOTECH LTD. VIS - - VIS THE ASSESSEE IN THE LIGHT OF THE OB JECTIONS RAISED BY THE ASSESSEE AND AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS. IT IS ORDERED ACCORDINGLY. 11.12 VISUALSOFT TECHNOLOGIES LTD. ( S EGMENT) 11.12.1 THIS COMPANY WAS SELECTED AS A COMPARAB LE TO THE ASSESSEE BY THE TPO TAKING ONLY ITS SOFTWARE DEVELOPMENT SERVICE SEGMENT, WHILE EXCLUDING ITS ITES / BPO SEGMENT. FROM A PERUSAL OF THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS), WE FIND THAT THE ASSESSEE NEVER OBJECTED BEFORE THE LEARNED CIT (APPEALS) TO THIS COMPANY BEING INCLUDED IN THE LIST OF COMPARABLES. SINCE THE COMPARABILITY OF THIS COMPANY WAS NOT CHALLENGED BEFORE THE LEARNED CIT (APPEALS), THE MATTER OF ITS COMPARABILITY ATTAINED FINALITY AND NO GRIEVANCE HAVING ARISEN FROM THE IMP UGNED ORDER OF LEARNED CIT (APPEALS) TO THE ASSESSEE ON THIS SCORE, THE ASSESSEE'S CHALLENGE TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES IS NOT MAINTAINABLE IN THIS APPEAL BEFORE US. WE, THEREFORE, DISMISS THIS CLAIM OF THE ASSESSEE, BEING NON - MAINTAINABLE. 12. IN ADJUDICATING THE INCLUSION / EXCLUSION OF COMPANIES IN THE LIST OF COMPARABLES FROM PARA 9.1 TO 11.12.1 OF THIS ORDER (SUPRA), REVENUE S GROUNDS RAISED AT S.NOS.2 TO 4 OF ITS APPEAL AND ASSESSEE'S CROSS OBJECTIONS AT S.NOS.4(A ), (B) AND ( C ), 5(A), (B) AND ( C ) ALSO STAND DISPOSED OFF. 25 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 13.1 IN THE GROUND RAISED AT S.NO.5 IN REVENUE S APPEAL, THE DEPARTMENT CHALLENGES THE CONCLUSION OF THE LEARNED CIT (APPEALS) THAT THE ASSESSEE IS ENTITLED TO BE ALLOWED STANDARD DEDUCTIO N OF 5% FROM THE ALP UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT. 13.2 WE HAVE HEARD BOTH PARTIES. THE RETROSPECTIVE AMENDMENT TO SECTION 92C(2A) OF THE ACT W.R.E.F. 1.4.2002 BROUGHT ABOUT BY THE FINANCE ACT, 2012 HAS SETTLED THE ISSUE AND THEREF ORE THE BENEFIT OF 5% STANDARD DEDUCTION IS NOT ALLOWABLE TO THE ASSESSEE. THE NEW SECTION 92C(2A) MANDATES THAT IF THE ARITHMETIC MEAN PRICE FALLS BEYOND + / - 5% FROM THE PRICE CHARGED IN INTERNATIONAL TRANSACTION S , THEN THE ASSESSEE DOES NOT HAVE THE O PTION RE FERRED TO IN SECTION 92C(2) OF THE ACT. THUS, IT IS CLEAR THAT, AS PER THIS AMENDMENT, THAT THE + / - 5% VARIATION IS ONLY TO JUSTIFY THE PRICE CHARGED IN INTER NATIONAL TRANSACTIONS FOR ALP ADJUSTMENT PURPOSES AND NOT FOR BEING ALLOWED STANDARD DEDUC TION OF 5% . THE AFORESAID AMENDMENT HAS THEREFORE SETTLED THE ISSUE AND ACCORDINGLY THE 5% BENEFIT OF STANDARD DEDUCTION IS NOT ALLOWABLE TO ASSESSEE. IN THIS VIEW OF THE MATTER, WE REVERSE THE FINDING OF THE LEARNED CIT (APPEALS) IN HOLDING THAT THE AS SESSEE IS ELIGIBLE FOR STANDARD DEDUCTION OF 5% FROM THE ALP AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT. THE VARIOUS JUDICIAL DECISIONS RELIED ON BY THE LEARNED CIT (APPEALS) TO COME TO THE FINDING HE DID, PERTAIN TO THE PERIOD PRIOR TO THE RETROSPE CTIVE AMENDMENT IN SECTION 92CA(2A) OF THE ACT AND ARE NOT APPLICABLE TO THE ASSESSEE'S CASE. IN VIEW OF THE AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT, 2012 BY INTRODUCTION OF THE CLARIFICATORY AMENDMENT OF SECTION 92CA(2) OF THE ACT W.R.E.F. 1.4.2002 , T HE ISSUE HAS BEEN SETTLED AND THEREFORE THE 26 IT (TP) A NO. 13 74/BANG/2011 C.O. NO.58/BANG/2012 ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF 5% STANDARD DEDUCTION FROM THE ALP OF INTERNATIONAL TRANSACTIONS. ACCORDINGLY, REVENUE S GROUND AT S.NO.5 IS ALLOWED. 14. THE ASSESSING OFFICER / TPO ARE DIRECTED TO RECOMPUTE THE WORKING CAPITAL ADJUSTMENT WHILE GIVING EFFECT TO THIS ORDER. 1 5 . IN THE RESULT, BOTH REVENUE S APPEAL AND THE ASSESSEE'S C.OS FOR ASSESSMENT YEAR 2005 - 06 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH SEPT., 201 4 . SD/ - SD/ - ( N.V. VASUDEVAN ) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TR UE COPY) BY ORDER ASST. REGISTRAR , ITAT, BANGALORE