M/s. Giesecke & Devrient India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 1431/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6713 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 27-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 15-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: ROHAN KHARE ADVS
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; International transaction; TDS
• Section: 271(1)(c); 143(3); 234B; 194C; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES I-1, NEW DELHI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1431/DEL/2016 : ASSTT. YEAR : 2011-12 M/S GIESECKE & DEVRIENT INDIA PVT. LTD., CORPORATE OFFICE- PLOT # 57, SECTOR 44, GURGAON-122003, HARYANA VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA BCG4223D ASSESSEE BY : SH. HARPREET SINGH AJMANI & SH. ROHAN KHARE, ADVS. REVENUE BY : SH. SANJAY I. BARA, CIT DR DATE OF HEAR ING: 05 . 09 .201 9 DATE OF PRONOUNCEMENT: 30 .10 .201 9 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 29.12.2015 PASSED BY THE AO U/S 144 C R.W.S. 143(3) OF THE INCOME TAX ACT, 1961. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: A. SOFTWARE DEVELOPMENT SEGMENT [RS.1,63,08,413] 1. ON THE FACTS AND IN LAW, THE LD. TPO / AO AND HONBLE DRP ERRED IN DETERMINING THE ADJUSTMENT OF RS.1,63,08,413/- TO THE VALUE OF INTERNATIONAL TRANSACTIONS PERTAINING TO SOFTWARE DEVELOPMENT SERVICES SEGMENT. 2. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND LD . TPO/AO FAILED TO APPRECIATE THE BUSINESS MODEL AND ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 2 BUSINESS REALITIES OF THE APPELLANT AND ITS ASSOCIA TED ENTERPRISES (AES) WHILE CONDUCTING THE TRANSFER PRICING ANALYSIS AND ADOPTED AN ENTIRELY FLAWED APPROACH TO REACH A CONCLUSION THAT THE APPELLANT I S NOT COMPENSATED AT ARMS LENGTH FOR ITS SOFTWARE DEVELOPMENT SERVICES SEGMENT. 3. ON THE FACTS AND IN LAW, THE LD. TPO ERRED IN NO T DISCHARGING HIS STATUTORY ONUS TO ESTABLISH THAT AN Y OF THE CONDITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SE CTION 92C(3) OF THE INCOME TAX ACT, 1961 (ACT) HAVE BEE N SATISFIED BEFORE DISREGARDING THE ARMS LENGTH PRIC E DETERMINED BY THE APPELLANT AND PROCEEDING TO DETERMINE THE ARMS LENGTH PRICE HIMSELF. 4. ON THE FACTS AND IN LAW, THE HONBLE DRP AND LD. TPO/AO HAVE ERRED IN REJECTING THE ECONOMIC ANALYSI S UNDERTAKEN BY THE APPELLANT WITHOUT PROPER JUSTIFICATION AND CONDUCTING A FRESH SEARCH USING ARBITRARY FILTERS FOR IDENTIFYING COMPANIES COMPARA BLE TO THE APPELLANT. 5. ON THE FACTS AND IN LAW, THE LD. TPO / AO AND HONBLE DRP GROSSLY ERRED IN NOT ACCEPTING THE COMPARABLE COMPANIES PROPOSED BY THE APPELLANT, AS THE SAID COMPARABLE COMPANIES MET THE FAR (FUNCTION S PERFORMED, ASSETS EMPLOYED AND RISK ASSUMED) TEST STATED UNDER RULE 10B(2) OF THE INCOME TAX RULES, 1962 (THE RULES). 6. ON FACTS AND IN LAW, THE LD. AO/ TPO ERRED IN VIOLATING THE PROVISIONS OF RULE 10B(2) OF THE RULES BY INTRODUCING NEW COMPARABLES WITHOUT CONSIDERING THE DIFFERENCES IN THE FUNCTIONS PERFOR MED, ASSETS EMPLOYED AND RISKS ASSUMED BY SUCH COMPANIES VIS-A-VIS THE APPELLANT, THEREBY RESORTING TO CHERR Y PICKING OF COMPARABLES. 7. ON FACTS AND IN LAW, THE LD. AO/ TPO ERRED IN INCORRECTLY COMPUTING THE OPERATING MARGINS OF THE COMPARABLE COMPANIES BY TREATING CERTAIN ITEMS AS OPERATING / NON-OPERATING. ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 3 8. ON FACTS AND IN LAW, THE LD. AO/ TPO AND HONBLE DRP ERRED IN NOT PROVIDING THE BENEFIT ENVISAGED UN DER SECTION 92C(2) OF THE ACT. 9. ON THE FACTS AND IN LAW, THE LD. TPO AND LD. AO ERRED IN NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT THEREBY CONTRAVENING THE PROVISIONS OF RU LE 10B(1)(E)(III) AND RULE 10B(3) OF THE RULES. 10. ON FACTS AND IN LAW THE LD. TPO, LD. AO AND THE HONBLE DRP ERRED IN USING THE DATA FOR THE CURRENT YEAR (I.E. FINANCIAL YEAR 2010-11) WHICH WAS NOT CONTEMPORANEOUS AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF PREPARING THE TP DOCUMENTATION BY THE APPELLANT, THEREBY GROSSLY MISINTERPRETING THE REQUIREMENT OF CONTEMPORANEOUS DATA IN THE RULES TO NECESSARILY IMPLY CURRENT YEAR DATA, THEREBY BREACHING THE PRINCIPLES OF NATURAL JUSTICE AND IMPOSSIBILITY OF PERFORMANCE. CORPORATE TAX GROUNDS A. DISALLOWANCE U/S 40(A)(I) [RS. 20,83,040] 11. ON THE FACTS AND IN LAW, THE LD. DRP/AO HAVE ERRED IN DISALLOWING RS. 20,83,040 FOR NON-DEDUCTIO N OF TAX AT SOURCE UNDER SECTION 40(A)(I) OF THE ACT BY CONCLUDING THAT THE REIMBURSEMENT OF EXPENSES BY TH E ASSESSEE TO ITS OVERSEAS GROUP COMPANIES WAS LIABLE TO WITHHOLDING TAX PROVISIONS U/S 195(1) OF THE ACT. 12. ON THE FACTS AND IN LAW, THE LD. DRP/AO GROSSLY ERRED IN HOLDING THAT THE REIMBURSEMENT OF EXPENSES WERE PAYMENTS IN THE NATURE OF FEE FOR TECHNICAL SERVICES (FTS) / FEES FOR INCLUDED SERVICE (FIS) AN D WERE THUS SUMS CHARGEABLE TO TAX IN THE HANDS OF TH E RECIPIENTS. 13. ON THE FACTS AND IN LAW, THE LD. DRP/AO GROSSLY ERRED IN PASSING A NON-SPEAKING ORDER, WITHOUT GRANTING SUFFICIENT OPPORTUNITY OF HEARING. 14. ON THE FACTS AND IN LAW, THE LD. AO AND THE HONBLE DRP ERRED IN CONCLUDING THAT THE PAYMENT OF TRAINING EXPENSES AMOUNTING TO RS. 4,28,377 OUT OF ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 4 THE TOTAL REIMBURSEMENT OF RS. 20,83,040 IS LIABLE TO WITHHOLDING TAX PROVISIONS OF S. 195(1) OF THE ACT AND FAILING TO APPRECIATE THAT PAYMENT OF TRAINING EXPE NSES DOES NOT FALL WITHIN THE MEANING OF FIS UNDER ARTIC LE 12 OF THE INDIA-SINGAPORE TAX TREATY. B. OTHER GROUNDS 15. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. AO ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234D OF THE ACT. 16. ON THE FACTS AND IN LAW, THE LD. AO AND THE HONBLE DRP ERRED ON FACTS AND IN LAW IN INITIATING PENALTY UNDER SECTION 271(1)(C) AND 271AA OF THE AC T. 3. G&D INDIA WAS INCORPORATED IN 2001 AS 100 PERCENT SU BSIDIARY OF G&D GMBH, WITH ITS CORPORATE OFFICE LOCATED IN GURGAON. THE COMPANY INITIALLY SPECIALIZED IN CURRENCY AUTOMATION SYSTEMS, LA TER ADDING ITS BUSINESS IN THE FIELDS OF TELECOMMUNICATIONS, ELECTRONIC PA YMENT, TRANSPORTATION, HEALTH CARE AND IDENTIFICATION. G&D HA S ENJOYED BUSINESS RELATIONS WITH INDIA SINCE, THE 1990S AND SOLD THE FIRST BANKNOTE PROCESSING SYSTEMS TO INDIA ON 1997. G&D INDIA HOLDS SIGNI FICANT MARKET SHARE IN THE CURRENCY AUTOMATION EQUIPMENT SEGMENT, THE RESERVE BANK OF INDIA (RBI) BEING ONE OF ITS MAJOR CUSTOMERS. THE CO MPANY IS ALSO A PROVIDER OF SIM CARDS FOR MOBILE COMMUNICATIONS, CREDIT AND DEBIT CARDS FOR BANKS AS WELL AS CARDS FOR VARIOUS GOVERNMENT PROJECTS SUCH AS DRIVING LICENSES, VEHICLE REGISTRATION AND IDENTIFICATION. THE CO MPANY PROVIDES THE FOLLOWING PRODUCTS AND SERVICES TO ITS CUSTOMERS: CURRENCY AUTOMATION SYSTEMS; BANKNOTE PROCESSING SYSTEMS; BANKNOTE IDENTIFICATION SYSTEMS; BANKNOTE CANCELLING AND DESTRUCTION SYSTEMS; BANKNOTE PACKING SYSTEMS; BANKNOTE QUALITY INSPECTION; COIN HANDLING SYSTEMS; CASH DEPOSIT TERMINALS; ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 5 CASH MANAGEMENT SOFTWARE; CARDS FOR MOBILE COMMUNICATIONS; DEBIT AND CREDIT CARDS FOR ELECTRONIC PAYMENTS; INTERNET BANKING AND SIGNATURE CARDS; SMART CARD SERVICES; CARDS FOR TRANSPORTATION; PASSPORT SYSTEMS; ID CARD SYSTEMS; HEALTH CARD SYSTEMS; AND CARD OPERATING SYSTEMS. INTERNATIONAL TRANSACTIONS SL.NO. INTERNATIONAL TRANSACTION AMOUNT IN RS. 1 IMPORT OF CVPS MACHINES AND SPARE PARTS 1,179,731,026 2 REPAIR AND MAINTENANCE 457,494 3 IMPORT OF CHIPS /COMPONENTS /SIM / CARDS /SMART CARDS 117,020,244 4 LICENSE FEES 10,041,616 5 PROVISION OF SOFTWARE DEVELOPMENT SERVICES 176,983,040 6 SERVICE EXPENSES 63,374,343 7 REIMBURSEMENT OF EXPENSES 2,247,411 8 BANK CHARGES 125,789 9 SALE OF FIXED ASSETS 50,578,615 10 PURCHASE OF FIXED ASSETS 2,759,295 11 GUARANTEE FEE PAID 2,635,111 12 RECOVERY OF EXPENSES 4,309,493 ANALYSIS OF THE ASSESSEE'S TRANSFER PRICING APPROAC H 4. THE INTERNATIONAL TRANSACTIONS THAT HAVE BEEN ENTER ED INTO BY THE ASSESSEE HAVE BEEN TABULATED ABOVE. THE INTERNATIONAL T RANSACTION OF THE ASSESSEE IN RELATION TO PROVIDING SOFTWARE DEVELOPMENT SERVICES AND ASSEMBLY OF SIM CARDS ARE EXAMINED IN TP STUDY. THE FUN CTIONS OF THE ASSESSEE AND ITS AE AND THE FUNCTIONS OF THE ASSESSEE AS SUBMITT ED IN THE TP REPORT ARE FOUND TO BE IN ORDER. ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 6 SOFTWARE DEVELOPMENT CHARGES: 5. THE ASSESSEE HAS USED TNMM AS THE METHOD AND NET OPERAT ING PROFIT MARGIN BASED ON COSTS (NCP MARGIN) AS THE PLL. T HE ASSESSEE HAS ARRIVED AT A SET OF 12 COMPANIES WITH AN AVERAGE MARGI N OF 10.55%. THE ASSESSEE HAS USED MULTIPLE YEAR DATA. THE ASSESSEE'S OWN MARGI N IS WORKED OUT TO BE 11.61% FOR SOFTWARE DEVELOPMENT SE RVICES. BASED ON THE ANALYSIS, THE ASSESSEE HAS CONCLUDED THAT ITS INTERNATI ONAL TRANSACTIONS ARE AT ARM'S LENGTH. SIM CARD DISTRIBUTION: 6. THE ASSESSEE HAS USED TNMM AS THE METHOD AND NET OPERA TING PROFIT MARGIN BASED ON COSTS (NCP MARGIN) AS THE PLI. T HE ASSESSEE HAS ARRIVED AT A SET OF 04 COMPANIES WITH AN AVERAGE MARGI N OF 0.14%. THE ASSESSEE HAS USED MULTIPLE YEAR DATA. THE ASSESSEE'S OWN MARGI N IS WORKED OUT TO BE (6.78%) FOR SIM CARD DISTRIBUTION S EGMENT. BASED ON THE ANALYSIS, THE ASSESSEE HAS CONCLUDED THAT ITS INTERNATI ONAL TRANSACTIONS ARE AT ARM'S LENGTH. TRANSFER PRICING ANALYSIS BY THE TPO: 7. AS PER THE AUDIT REPORT, THE ASSESSEE OPERATES IN THE FOLLOWING PRIMARY BUSINESS SEGMENTS: TRADING IN BANK NOTE PROCESSING MACHINES AND RELATED MAI NTENANCE SERVICES TRADING IN SIM/SMART CARDS SOFTWARE SERVICES 8. IN THE SOFTWARE DEVELOPMENT SERVICES SEGMENT, THE TPO HAS USED CURRENT YEAR DATA AND SELECTED THE FOLLOWING COMPARABLE S. HE HAS COMPUTED THE PLI (OP/OC) AT 22.92% AND MADE AN ADJUST MENT OF RS.1,79,43,149/-. IN THE SIM CARD ASSEMBLY SEGMENT, THE TPO HAS ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 7 COMPUTED THE PLI (NPM) AT 0.03% AND MADE AN ADJUSTMEN T OF RS.7,53,88,809/-. SL. NO. COMPANY LONG NAME OP/OC 1 ACROPETAL TECHNOLOGIES LIMITED 36.69% 2 AKSHAY SOFTWARE TECHNOLOGIES LTD. 0.16% 3 EVOKE TECHNOLOGIES PVT LTD 8.11% 4 E-INFOCHIPS LIMITED 56.44% 5 E-ZEST SOLUTIONS LIMITED 34.83% 6 INFOSYS LTD 43.53% 7 KIREETI SOFT TECHNOLOGIES LTD. 3.63% 8 LARSEN & TOUBRO INFOTECH LTD. 18.40% 9 MINDTREE LIMITED (SEGMENT) 10.74% 10 PERSISTENT SYSTEMS & SOLUTIONS LTD. 22.12% 11 PERSISTENT SYSTEMS LTD. 23.08% 12 R S SOFTWARE (INDIA) LTD. 16.20% 13 SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.36% 14 TATA ELXSI LTD. (SEGMENT) 13.00% 15 THIRDWARE SOLUTIONS 16.19% 16 WIPRO TECHNOLOGIES LIMITED 54.42% 17 ZYLOG SYSTEMS LTD 28.74% 18 CG-VAK SOFTWARE AND EXPORTS LTD. 1.83% AVERAGE 22.92% 9. BEFORE US THE ASSESSEE HAS TAKEN OBJECTION OF SELECTION O F THE FOLLOWING COMPARABLES: SL. NO. NAME OF THE COMPANY 1 ACROPETAL TECHNOLOGIES LIMITED 2 E-INFOCHIPS LIMITED 3 E-ZEST SOLUTIONS LIMITED 4 INFOSYS LTD. 5 LARSEN & TOUBRO INFOTECH LTD. 6 PERSISTENT SYSTEMS AND SOLUTIONS LTD. 7 PERSISTENT SYSTEMS LTD. ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 8 8 SASKEN COMMUNICATION TECHNOLOGIES LTD. 9 WIPRO TECHNOLOGIES SERVICES LIMITED 10 ZYLOG SYSTEMS LTD. 10. FURTHER, THE ASSESSEE SOUGHT TO INCLUDE THE FOLLOWING TWO COMPARABLES NAMELY, 1. R. SYSTEMS LTD. 2. VAMA INDUSTRIES LTD. ACROPETAL TECHNOLOGIES LIMITED: 11. DURING THE ARGUMENTS, THE ASSESSEE HAS TAKEN PRIMARY OBJECTION AS TO THE COMPARABLE FAILS TPOS OWN EMPLOYEES COST FILTER O F 20%. WE HAVE GONE THROUGH THE FILTERS TAKEN UP BY THE TPO. THE TP O HAS TAKEN UP FILTER TO REJECT COMPANIES HAVING EMPLOYEE COST LESS THAN 25% O F THE TOTAL COSTS ON THE GROUNDS THAT IN THE CASE OF A SOFTWARE DEVELOPME NT COMPANY, EMPLOYEES ARE THE MAIN ASSET OF THE COMPANY AND DIRECTLY REFLECT THE NATURE OF BUSINESS UNDERTAKEN BY THE COMPANY. EXTREMELY LOW EXPENDITURE ON SALARY/EMPLOYEE COST IS AN INDICATION THA T THE COMPANY IS EITHER INTO FURTHER OUTSOURCING OF THE WORK OR IS A SO FTWARE PRODUCT DEVELOPER OR A SOFTWARE TRADING COMPANY. IN VIEW OF T HESE FACTS, FILTER OF 25% OF MINIMUM SALARY EXPENDITURE WAS APPLIED WHILE E XAMINING THE COMPARABLES SELECTED BY THE TAXPAYER WHILE SEARCHING FOR ADDITIONAL COMPARABLES. 12. THE P&L ACCOUNT OF THE COMPARABLE SHOWED THE FOLLO WING: SOFTWARE DEVELOPMENT EXPENSES SALARIES AND CONSULTANCY CHARGES INCLUDING BONUS, INCENTIVE, GRATUITY AND LEAVE ENCASHMENT RS.135, 160,463 CONTRIBUTION TO PROVIDENT FUND RS.3,851,751 STAFF WELFARE EXPENSES RS.1,395,789 ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 9 ONSITE DEVELOPMENT EXPENSES TECHNICAL SUB-CONTRACTORS RS.557,762,834 THIRD PARTY ITEMS BOUGHT FOR SERVICE DELIVERY TO CL IENT RS.1,036,118 RS.699,206,955 13. THE TURNOVER OF THE COMPANY EXCLUDING OTHER INCOME IS RS.141,65,28,000/-. THUS, WE OBSERVE THAT THE COMPARABL E SELECTED BY THE REVENUE FAILS THEIR OWN FILTER CHOOSEN BY THE TPO ON ACCOUNT OF EMPLOYEE COST LESS THAN 25% OF THE TOTAL COST. HENCE, WE H EREBY DIRECT THAT THE ASSET COMPARABLE BE EXCLUDED FROM THE TPO STUDY . E-INFOCHIPS LIMITED: 14. THE TPO HELD THAT THIS COMPARABLE PASSES ALL THE FI LTERS. THE LD. AR PRIMARILY ARGUED THAT IT FAILS THE TPOS OWN FILTER O F SOFTWARE REVENUES. WE HAVE GONE THROUGH THE FILTERS TAKEN UP BY THE TPO. T HE TPO HAS APPLIED FILTERS SO AS TO EXCLUDE COMPANIES WHOSE REVENUES FROM SOFT WARE DEVELOPMENT SERVICES IS LESS THAN 75% OF THE TOTAL OPERAT ING REVENUES. THE TPO HELD THAT THIS IS AN APPROPRIATE FILTER AS THI S IS THE STAGE WHICH DETERMINE THE CORRECT COMPARABILITY. IN RESPECT OF ENTE RPRISES WHOSE MAIN SOURCE OF INCOME IS FROM SERVICE SEGMENT, THE COMPANIES WH OSE INCOME FROM SOFTWARE DEVELOPMENT SERVICES COME TO MORE THAN 75% OF THE OPERATING REVENUES HAVE ONLY TO BE CONSIDERED FOR THE ALP STUDY AS OTHER SEGMENT MAY NOT MATERIALLY AFFECT THE FINANCIAL RESULT S OF THE COMPANY. WHILE DISPUTING THE CONTENTION OF THE ASSESSEE THAT FILT ER SHOULD BE 50% INSTEAD OF 75%, THE TPO REITERATED HIS STAND HOLDING T HAT THE SEARCH CRITERION IS BASICALLY TO SEARCH FOR COMPANIES WHICH ARE MAI NLY ENGAGED IN IT INDUSTRY OR WHOSE SIGNIFICANT ACTIVITIES OR FUNCTIONS R ELATE TO IT INDUSTRY. HENCE, IT IS APPROPRIATE TO APPLY THE FILTER THAT THE COMPARABLE COMPANY SHOULD HAVE AT LEAST 75% OF ITS REVENUE FROM IT INDUST RY. HE FURTHER HELD THAT EVEN THE OECD GUIDELINES SAYS THAT FUNCTIONAL ANAL YSIS IS TO IDENTIFY AND TO COMPARE ECONOMICALLY SIGNIFICANT ACTIVITIES UNDERT AKEN BY THE ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 10 INDEPENDENT ENTERPRISES. THUS THE FILTER OF 75% REVENU ES FROM IT INDUSTRY IS APPLIED AS THIS THRESHOLD WOULD GIVEN INDEPENDENT CO MPANIES WHOSE ECONOMICALLY SIGNIFICANT ACTIVITIES PERTAIN TO IT INDUST RY AND THE REVENUES FROM OTHER SOURCES WOULD NOT IMPACT MATERIALLY THE PRO FITABILITY OF THE COMPANY AT THE ENTERPRISE LEVEL. THE THRESHOLD APPLIED BY THE TAXPAYER AT 50% DOES NOT BRING IN COMPARABLES WITH IT INDUSTRY AS IT S SIGNIFICANT ACTIVITIES. 15. WE HAVE GONE THROUGH THE FINANCIALS OF THIS COMPAR ABLE, THE OPERATING REVENUES GROSS ARE TO THE TUNE OF RS.26,03,84 ,251/- WHEREAS THE REVENUE FROM SOFTWARE DEVELOPMENT IS RS.19,21,09,6 61/- WHICH IS LESS THAN 75% HENCE, DO NOT QUALIFY FOR THE COMPARABLE AS PER THE TPOS OWN FILTER. HENCE, IT IS DIRECTED THAT THIS COMPARABLE MAY BE OBLITERATED FROM THE LIST OF COMPARABLE. ZYLOG SYSTEMS LTD.: 16. SIMILARLY IN THE CASE OF THIS COMPARABLE, THE REVEN UES FROM THE SOFTWARE SOLUTIONS AND PRODUCTS IN THE CURRENT YEAR IS 45 .2% AND IN THE EARLIER YEAR 39.5% WHICH IS LESS THAN 75% HENCE, DO NOT QUALIFY FOR THE COMPARABLE AS PER THE TPOS OWN FILTER. HENCE, IT IS DIRE CTED THAT THIS COMPARABLE MAY BE OBLITERATED FROM THE LIST OF COMPARA BLE. E-ZEST SOLUTIONS LIMITED: 17. IT WAS ARGUED FOR EXCLUSION OF E-ZEST FROM THE FIN AL LIST OF COMPARABLES ON THE GROUND THAT THE SAID COMPANY IS FUNCTI ONALLY DISSIMILAR TO ASSESSEE, AS IT IS ENGAGED IN PROVIDING E-BUSINESS CONSUL TING SERVICES INCLUDING PRODUCT DEVELOPMENT SERVICES AND TECHNICAL SERVI CES WHICH THEY THEMSELVES CHARACTERIZE AS KNOWLEDGE PROCESS OUTSOURCING (K PO) SERVICES. WHILST PLACING HEAVY RELIANCE ON THE COMPANYS W EBSITE HANDOUT ALONG WITH THE ANNUAL REPORT, HE SUBMITTED THAT THE ASSESSEE BEING A ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 11 CAPTIVE SOFTWARE DEVELOPMENT COMPANY CANNOT BE COMPARED WITH A KPO. ADDITIONALLY, HE TOOK US THROUGH THE ANNUAL REPORT T O EVIDENCE THAT NO SEGMENTAL DATA VIS--VIS THE SERVICES AND PRODUCTS WAS AVA ILABLE. WE FIND THAT CLOUD COMPUTING HAS BEEN THE MAJOR SOURCE OF REVEN UE OF THIS COMPANY, HENCE, FUNCTIONALLY NOT COMPARABLE. IN THE ASSES SEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, THIS COMPARABLE HAS BEEN EXCLUDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL RELYING ON THE DECISION OF SUNGUARD SOLUTIONS INDIA PVT. LTD. IN ITA NO. 1487/BANG./2012 . HENCE, KEEPING IN VIEW THE DECISION OF THE EARLIER YEAR, WE DIRECT THAT THIS COMPARABLE MAY BE EXCLUDED FROM THE LIST OF COMPARABLES. INFOSYS LTD.: 18. IT WAS ARGUED BY THE LD. AR THAT THIS COMPARABLE I S FUNCTIONALLY DIFFERENT AS IT IS PROVIDING END TO END SOLUTIONS, TECH NICAL CONSULTANCY, DESIGN DEVELOPMENT, RE-ENGINEERING ALONG WITH SOFTWAR E PRODUCTS. HE ALSO ARGUED THAT OWING TO THE SCALE OF OPERATION AND RISK U NDERTAKEN AND OWING TO LACK OF SEGMENTAL DATA THIS CANNOT BE TAKEN AS A COMP ARABLE. IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, THIS COMPA RABLE HAS BEEN EXCLUDED BY THE CO-ORDINATE BENCH OF THE TRIB UNAL RELYING ON THE DECISION OF NOKIA SIEMENS NETWORKS INDIA PVT. LTD. VS AC IT IN ITA NO. 333/DEL/2013. HENCE, KEEPING IN VIEW THE DECISION OF T HE EARLIER YEAR, WE DIRECT THAT THIS COMPARABLE MAY BE EXCLUDED FROM THE LI ST OF COMPARABLES. LARSEN & TOUBRO INFOTECH LTD. 19. IT WAS ARGUED BY THE LD. AR THAT THIS COMPARABLE I S FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN SOFTWARE DEVELOPMENT A ND SOFTWARE PRODUCTS ALSO. HE ALSO ARGUED THAT OWING TO LACK OF SEGMENTAL DAT A, OWING TO INSUFFICIENT SEGMENTAL INFORMATION AND BEING EARNED MO RE THAN 50% OF THE REVENUE FROM ONSITE OPERATIONS, THIS CANNOT BE TAKEN A S A COMPARABLE. HE ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 12 ALSO RELIED ON THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ALCATEL LUCENT INDIA LTD. VS DCIT IN ITA N. 685 6/DEL/2015 AND PAREXEL INTERNATIONAL INDIA PVT. LTD. VS ACIT IN ITA NO.1918/HYD/2014. WE FIND IN THE CASE OF ALCATEL LUCENT INDIA LTD., THE C O-ORDINATE BENCH HAS HELD THAT L&T IS FUNCTIONALLY DISSIMILAR TO THE FUNCTION S OF ALCATEL LUCENT. IN THE CASE OF PAREXEL INTERNATIONAL INDIA PVT. LTD., TH E CO-ORDINATE BENCH HELD AS UNDER: IT WAS THE SUBMISSION THAT ONCE DRP HAS ACCEPTED THE OBJECTIONS OF ASSESSEE WHEREAS IN ASSESSEES CASE DRP DID NOT EXCLUDE L&T INFOTECH WHILE EXCLUDING INFOSYS TECHNOL OGIES LTD., IT WAS THE SUBMISSION THAT SIMILAR FACTS EXIST FOR B OTH THE COMPANIES AND DRP HAS EXCLUDED ONLY INFOSYS TECHNOLOGIES AND NOT L&T INFOTECH LTD., 14.3. AFTER CONSIDERING THE OBJECTIONS OF ASSESSEE AND PERUSING THE ORDER OF DRP IN T HE CASE OF M/S. SUMTOTAL SYSTEMS INDIA PVT. LTD., (SUPRA), A S EXTRACTED ABOVE, WE ARE OF THE OPINION THAT THIS COMPA NY CANNOT BE SELECTED AS COMPARABLE BY THE SAME REASONS WHICH DRP IN THE ABOVE REFERRED CASE ACCEPTED. MOREOVER, THER E ARE NO SEGMENTAL DETAILS AND AS SEEN FROM THE ANNUAL REPORT , REVENUES ARE REPORTED FROM SOFTWARE DEVELOPMENT SERVICE S AND PRODUCTS, HOW MUCH IS FROM SERVICES AND HOW MUCH IS FROM PRODUCTS COULD NOT BE ANALYSED. EVEN THOUGH TPO CONSIDERED THE SOFTWARE EXPORTS REPORTED IN EARNING IN FOREIGN CURRENCY AS THAT OF SOFTWARE DEVELOPMENT SERVICES, WE ARE NOT SURE WHETHER THE SOFTWARE EXPORTS REPORTED THEREIN EXCLUSIVELY PERTAIN TO SERVICES OR PRODUCTS. AS THERE ARE N O SEGMENTAL DETAILS, IT IS VERY DIFFICULT TO ANALYSE WHET HER THE INCOMES EARNED BY THE SAID COMPANY DO REALLY PERTAIN TO THE SIMILAR SERVICES RENDERED BY ASSESSEE. AS ALSO SEEN FROM THE INCOME SCHEDULES, ENGINEERING SERVICES REPORTED IN EARLIE R YEAR WERE NOT THERE IN THIS YEAR, THEREFORE, IT IS VE RY DIFFICULT TO ANALYSE WHETHER THE COMPANY IS FUNCTIONALLY SIMILA R OR NOT? KEEPING IN VIEW OF THE ABOVE DIFFICULTIES IN ANALYZIN G THE DATA AND CONSIDERING THE REASONS GIVEN BY DRP IN THE CASE OF M /S. SUMTOTAL SYSTEMS INDIA PVT. LTD., (SUPRA), WE ARE OF THE OPINION THAT L&T INFOTECH LTD., CANNOT BE SELECTED AS A COMPARABLE COMPANY. AO/TPO IS DIRECTED TO EXCLUDE THE SA ME FROM THE LIST OF COMPARABLES. 20. WE FIND THAT THE SUBMISSIONS OF THE LD. AR CANNOT B E ACCEPTED AS THE ASSESSEE AND THE COMPARABLE, AND THE STUDY OF THE TPO IN VOLVES ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 13 DETERMINATION OF ALP ON SOFTWARE DEVELOPMENT SERVICES. IN THE SOFTWARE DEVELOPMENT SERVICES, THE OVERSEAS REVENUES DO INVOLVE T HE SIMILAR FUNCTIONS. THE ASSESSEE IS ALSO IN THE SOFTWARE DEVELOPMENT SEGMENT SO AS THE COMPARABLE. INCREASE IN TURNOVER CANNOT ENTITLE TO EXCLUDE THE COMPARABLE. THE REVENUES HAVE SHOWN TO BE FROM THE IT SERVICES. THE CASE LAWS SUPPORTED BY THE ASSESSEE ARE NOT APPLICABLE TO TH E FACTS OF THIS CASE. 93.56% OF REVENUE IS COMING FROM THE EXPORT OF SOF TWARE DEVELOPMENT ONLY. FUNCTIONALLY INFOSYS IS ON A DIFFER ENT FORMAT WHEREAS L&T IS SIMILAR. KEEPING IN VIEW, THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF MORGAN STANLEY AND COMPANY INC. [292 ITR 416] REGARDING THE FUNCTIONS AND COMPARABILITY THEREOF, WE HOLD THAT THIS CAN BE INCLUDED AN APPROPRIATE COMPARABLE. PERSISTENT SYSTEMS AND SOLUTIONS LTD.: 21. IT WAS ARGUED BY THE LD. AR THAT THIS COMPARABLE I S FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN SOFTWARE DEVELOPMENT A ND SOFTWARE PRODUCTS ALSO. HE ALSO ARGUED THAT OWING TO LACK OF SEGMENTAL DAT A, OWING TO INSUFFICIENT SEGMENTAL INFORMATION, THIS CANNOT BE TAKEN AS A COMPARABLE. PLACED RELIANCE ON THE JUDGMENT OF ALCATEL LUCENT INDIA LTD. (SUPRA) AND BROADCOM INDIA RESEARCH PVT. LTD. IN ITA NO. 348/BANG/ 2015. WE FIND AS PER THE AUDITED ACCOUNT, THE COMPANY PROVIDES SUPPORT I N SOFTWARE DEVELOPMENT, CONSULTANCY AND SYSTEMS INTEGRATION. REGARD ING THE DESCRIPTION OF PRODUCTS OF SERVICES, THEY ARE INTO INFORMA TION TECHNOLOGY SOFTWARE SERVICES. IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, THIS COMPARABLE HAS BEEN EXCLUDED BY THE CO-OR DINATE BENCH OF THE TRIBUNAL. HENCE, KEEPING IN VIEW THE DECISION OF TH E EARLIER YEAR, WE DIRECT THAT THIS COMPARABLE MAY BE EXCLUDED FROM THE LI ST OF COMPARABLES ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 14 PERSISTENT SYSTEMS LTD.: 22. IT WAS ARGUED BY THE LD. AR THAT THIS COMPARABLE I S FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN DIVERSIFIED SERVICES INCLUDI NG INTELLECTUAL PROPERTY LED SOFTWARE SOLUTIONS AND SOFTWARE PRODUCTS FOC USING ON CLOUD COMPUTING, BUSINESS INTELLIGENCE AND ANALYTICS ETC. AND I S HENCE FUNCTIONALLY DISSIMILAR. THE COMPANY ALSO OWNS SIGNIFICANT INTANGIBLES. A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE COMPANY THA T THE COMPANY HAD REVENUE STREAMS FROM SOFTWARE SERVICES AND PRODUCTS. I T IS SEEN THAT THE REVENUES AND EXPENSES HAVE BEEN SHOWN IN A CONSOLIDA TED MANNER AND NO SEGMENTED DISCLOSURE HAS BEEN MADE. IN THE ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2008-09, THIS COMPARABLE HAS BEEN EXCLUDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL. HENCE, KEEPING IN VIEW THE DECISION OF THE EARLIER YEAR, WE DIRECT THAT THIS COMPARABLE MA Y BE EXCLUDED FROM THE LIST OF COMPARABLES SASKEN COMMUNICATION TECHNOLOGIES LTD.: 23. IT WAS ARGUED BY THE LD. AR THAT THIS COMPARABLE I S FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN DIVERSIFIED SERVICES SOFTWAR E PRODUCTS. IT WAS ARGUED THAT IN THE ABSENCE OF SUFFICIENT SEGMENTAL DATA AND ACQUISITION TAKEN UP DURING THE YEAR, IT CANNOT BE TAKEN AS A COMP ARABLE. IT WAS ALSO ARGUED THAT THE COMPARABLE SPENT EXTENSIVE EXPENDITURE ON R&D TOO. WE HOLD THAT A COMPARABLE HAVING A MERGER AND ACQUISITION WOULD CEASE TO BE COMPARABLE ONLY IF IT IS SHOWN THAT THIS HAS RESULTED I N MATERIAL DISSIMILARITY AND HAS AFFECTED ITS MARGINS. THIS IS PARTICUL ARLY TRUE IN THE ITES/SOFTWARE FILED WHERE MERGERS AND ACQUISITIONS ARE THE NORM RATHER THAN AN EXCEPTION. SUCH MERGERS AND ACQUISITIONS DO NOT OFTEN RESULT IN A SUBSTANTIAL CHANGE IN THE COMPANYS FUNCTIONAL PROFILE. WE RELY ON THE DECISION OF THE CO-ORDINATE BENCH OF ITAT IN WILLIS PRO CESSING SERVICES (I) ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 15 PVT. LTD. VS DCIT 2013-TII-47-ITAT-MUM-TP WHEREIN IT WAS OBSERVED AS UNDER: 18.3 WE ARE ALSO OF THE VIEW THAT IF EXTRA ORDINARY EVENTS LIKE MERGER AND DE-MERGER OR AMALGAMATION TOOK PLACE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEA R UNDER CONSIDERATION, AND BECAUSE OF THE MERGER/DE-MERGE R THE COMPANY BECAME FUNCTIONALLY DIFFERENT THEN THE SA ID COMPANY SHOULD BE EXCLUDED FROM THE COMPARABLES. HOWEVER , IF THE MERGER OF THE TWO FUNCTIONALLY SIMILAR COMPANI ES TOOK PLACE THEN THE EVEN OF MERGER ITSELF CANNOT BE TAKEN A FACTOR FOR EXCLUSION OF THE SAID COMPARABLE. ACCORDINGLY, WE DIR ECT THE AO/TPO TO VERIFY THIS FACT AND ACCORDINGLY DECIDE TH E COMPARABILITY OF THIS COMPANY NAMELY ACCENTIA TECHNOLOGIE S LTD. 24. THE COMPARABLE IS A PROVIDER OF TELE-COMMUNICATIO N SOFTWARE SERVICES TO MOBILE TERMINAL VENDORS, AND SOLUTIONS TO N ETWORK EQUIPMENT MANUFACTURES. THE RESTRUCTURING RESERVE ACCOUNT AND THE D IMINUTION VALUE OF INVESTMENT DO NOT NECESSARILY ADVERSELY AFFECT THIS TO BE A COMPARABLE. THE PROFITS, EBITDA MARGINS, SOFTWARE SERVICES, NETWORK ENGINEERING SERVICES DO NOT CHANGE PERCEPTIBLY. THE COMPANY HAS ENQUIR ED R&D CHARGES ON ACCOUNT OF R&D CENTRE AT IIT MADRAS AND INCURRE D EXPENSE OF RS.8.94 LACS DO NOT IMPACT THE PROFITABILITY. HENCE, WE HOLD THAT THIS COMPARABLE MAY BE INCLUDED IN THE TP STUDY. WIPRO TECHNOLOGIES SERVICES LIMITED: 25. IT WAS ARGUED THAT THIS CANNOT BE A COMPARABLE OWIN G TO DISSIMILAR FUNCTIONALITY AND SIGNIFICANT RPT, LACK OF SEGMENTAL DA TA. IN ADDITION, IT IS HOLDING SOFTWARE INTANGIBLES OF RS.2.31 CRORES. THE ACCUMU LATED DEPRECIATION AND AMORTIZATION REMAINED CONSTANT AS AT 1 ST APRIL 2010 AND AS AT 31 ST MARCH 2011. REGARDING THE SEGMENTAL INFORMATION, TH E COMPANY REPORTS THAT IT IS ENGAGED IN PROVIDING SERVICES WHICH A RE CONSIDERED AS ONE SEGMENT. SINCE, THERE ARE NO SEPARATE REPORTABLE SEGMENTS, NO SEGMENTAL REPORTING WAS DONE IN THE AUDIT REPORT. THE COMPARABLE WAS ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 16 REJECTED BY THE TRIBUNAL IN THE CASE OF ORANGE BUSINESS S ERVICE INDIA SOLUTION PVT. LTD. IN ITA NO. 869/DEL/2016 ON THE G ROUND THAT THIS COMPANY IS A SUBSIDIARY OF WIPRO LTD, WHICH HAS A CONSI DERABLE BRAND NAME, AND FURTHER THAT THE ENTIRE REVENUE DURING TH E YEAR IN THIS COMPANY IS COVERED BY A MASTER SERVICE AGREEMENT ENTERED INTO BY BREAKTHROUGH WITH CITI GROUP SERVICES. THE COORDINATE BENCH OF THIS TR IBUNAL HAS REJECTED THIS COMPARABLE BY HOLDING AS UNDER: WE CAREFULLY CONSIDERED THE RIVAL CONTENTION REGARDING EXCLUSION OF THIS COMPARABLE. THIS COMPANY HAD AGREED AN AGREEMENT WITH CITI TECHNOLOGY SERVICES LTD, WHICH IS 10 0% SUBSIDIARY OF WIPRO TECHNOLOGY LTD. THE ENTIRE REVENUE DURING THE YEAR IS COVERED BY A MASTER SERVICE AGREEMENT ENTER ED INTO BY WIPRO WITH CITI GROUP SERVICES. FURTHER, THIS COMPANY IS ALSO A SUBSIDIARY OF WIPRO LTD., WHICH COMPANY HAS A CONSIDERABLE BRAND NAME, THEREFORE BENEFIT ACCRUING TO THIS COMPANY FROM THE BRAND NAME OF WIPRO CANNOT BE DENIED . THEREFORE RELYING ON THE DECISION OF THE COORDINATE BE NCH IN THE CASE OF AGNITY TECHNOLOGY PVT. LTD, IN ITA NO.955JDE1J2015 FOR ASSESSMENT YEAR 2010-11, WHEREIN TH E INFOSYS OWNS OF ITS BRAND NAME WAS HELD TO BE INCOMPARABL E ON THE SAME ANALOGY, BRAND VALUE OF 'WIPRO' DOES HELP THIS COMPARABLE. HENCE, WE DIRECT TPO TO EXCLUDE THIS COMPARABL E, IT IS ORDERED ACCORDINGLY. 26. HENCE, WE HEREBY DIRECT THAT THIS MAY BE EXCLUDED FR OM THE TP STUDY. R SYSTEMS LTD.: 27. THE ASSESSEE SOUGHT TO INCLUDE THIS COMPANY ARGUING TH AT AUDITED QUARTERLY RESULTS ARE AVAILABLE IN THE PUBLIC DOMAIN AND DIFFERENT YEAR FINANCIAL DATA CAN BE USED FOR COMPARISON. WE HOLD THAT RULE 10B(4) REQUIRES THAT THE DATA TO BE USED IN ANALYZING THE COM PARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACT ION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATI ONAL TRANSACTION HAD BEEN ENTERED INTO. THE COMPARABILITY OF AN UNCONTROLL ED TRANSACTION CAN BE ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 17 ANALYZED ONLY WITH THE DATA RELATING TO THE FINANCI AL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. AS THE ASSESSEE FOLLOWS THE ACCOUNTING YEAR ENDING 31 ST MARCH, THE COMPARABLES MUST ALSO HAVE THE DATA RELATING TO THE FINANCIAL YEAR ENDING 31 ST MARCH. SINCE, THIS DATA IS NOT AVAILABLE, SUCH COMPANIES CANNOT BE ACCEPTED AS COMPARAB LES. VAMA INDUSTRIES LTD.: 28. IT WAS ARGUED THAT THIS COMPARABLE MAY BE INCLUDED OWING TO AVAILABILITY OF SEGMENTAL DATA. THE TPO REJECTED AS TH E COMPARABLE FAILS THE SERVICE INCOME FILTER. SINCE, WE HAVE ALREADY HELD THAT THE FILTER OF LESS THAN 75% IS TO BE EXCLUDED, THIS COMPANY DOES NOT PASS THE TEST OF FILTER OF SERVICE INCOME LAID DOWN BY THE TPO. HENCE, WE HOLD T HAT IT IS NOT AN APPROPRIATE COMPARABLE FOR TP STUDY. 29. REGARDING THE ALLOWANCE ON ACCOUNT OF RISK ADJUSTME NT, THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE. THE DRP HELD THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM OF RISK. IN THE CASE OF CIENA INDIA (P) LTD. 59 TAXMANN.COM 92, THE CO-ORDIN ATE BENCH HELD THAT RISK ADJUSTMENT CAN BE ALLOWED PROVIDED THE ASSESSEE PLACE S ON RECORD SOME APPROPRIATE MATERIAL TO DEMONSTRATE THAT RISK UND ERTAKEN BY THE COMPARABLE COMPANY WERE RELATIVELY MORE THAN IT, WARR ANTING DOWNWARD ADJUSTMENT IN THEIR PROFIT RATES. IT WAS HELD IN THE CASE OF EXL SERVIE.COM INDIA PVT. LTD. VS ACIT 2014-TII-313-ITAT-DEL-TP RI SK ADJUSTMENT IS ALLOWED ONLY WHEN THE DIFFERENCES HAVE POINTED OUT AN D THE AUTHORITIES CAN PROCEED TO CALCULATE THE EFFECT OF SUCH DIFFERENCES ON T HE OPERATING PROFITS MARGINS OF THE COMPARABLES. HENCE, KEEPING IN VIE W, THE PROVISIONS OF SECTION 10B(2)(B), WE DIRECT THE ASSESSEE TO PROVIDE T HE DETAILED WORKING OF THE RISK ASSUMED TO THE TPO SO THAT THEY CAN VERIFY THE CORRECTNESS OF THE WORKING AS GIVEN BY THE ASSESSEE AND ALLO W THE SAME IN ACCORDANCE WITH THE PROVISIONS OF THE RULES ENFORCE. ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 18 CORPORATE ISSUES: DISALLOWANCE U/S 40(A)(I) 30. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER D ISALLOWED RS.20,83,040/- AS THE ASSESSEE FAILED TO DEDUCT TDS ON THE SE PAYMENTS. BEFORE US IT WAS BROUGHT TO THE NOTICE THAT THESE AMOU NTS ARE PAID ON ACCOUNT OF PURCHASE OF MACHINERY, REIMBURSEMENT OF PENSIO N, REIMBURSEMENT OF TRAVEL EXPENSES AND TRAINING EXPENSES. OTHER THAN THIS, IT WAS ARGUED THAT TDS WAS NOT APPLICABLE AS REIMBURSEM ENT IS ON ACTUAL COST TO COST BASIS ON THE EXPENSES INCURRED. THE DRP HELD T HAT THEY ARE DISALLOWABLE AS THE ABOVE PAYMENTS ARE IN THE NATURE O F FTS. ON GOING TO THE EXPENSES, WE FIND THAT TRAINING EXPENSES, PURCHASE OF MATERIALS, REIMBURSEMENT OF TRAVEL EXPENSES AND PENSION ARE NOT LI ABLE TO THE PROVISIONS OF TDS. REGARDING THE OTHER REIMBURSEMENT, WE HAVE GONE THROUGH THE CIRCULARS ISSUED BY THE CBDT NO. 3/2015 AND 2/2014. WE HOLD THAT AMOUNTS PAID BY WAY OF REIMBURSEMENT OF EXPENSES D O NOT CONSTITUTE INCOME IN THE HANDS OF THE RECIPIENT. CONSEQUENTLY, THE PAYER IS UNDER NO OBLIGATION TO DEDUCT TDS U/S 194C AND NO DISALLOWANCE OF THE EXPENDITURE CAN BE MADE U/S 40(A)(IA). SINCE, IT IS THE ASSESSING OFFICE R WHO WOULD BE IN A POSITION TO DETERMINE WHETHER THE PAYMENTS ARE R EIMBURSEMENT ARE NOT, WE HEREBY DIRECT THE ASSESSEE TO PRODUCE THE RELEVAN T DETAILS PERTAINING TO REIMBURSEMENTS OTHER THAN TRAINING EXPE NSES, PURCHASE OF MATERIALS, REIMBURSEMENT OF TRAVEL EXPENSES AND REIMBU RSEMENT PENSION. THE ASSESSING OFFICER MAY TAKE A DECISION AFTER THE EXAMI NATION OF THE DETAILS OF THE REIMBURSEMENT. 31. GROUND NOS. 15 & 16 ARE CONSEQUENTIAL IN NATURE. ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 19 32. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/10/2019. SD/- SD/- (SUDHANSHU SRIVASTAVA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER AC COUNTANT MEMBER DATED: 30/10/2019 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO. 1431/DEL/2016 GIESECKE & DEVRIENT INDIA PVT. LTD. 20