ATOS INDIA P. LTD, MUMBAI V. DCIT RG 8(1), MUMBAI

ITA 1467/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2783 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 31-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2014
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Question of law; Scheme of amalgamation; Notional interest; Unabsorbed depreciation
• Section: 143(3); 234B; 10B

Judgement Text

, , K, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1467/MUM/2014 ASSESSMENT YEAR: 2009-10 ATOS INDIA PVT. LTD. , GODREJ & BOYCE COMPLEX, PLANT 5, PIROJSHANAGAR, LBS MARG, VIKHROLI(W) MUMBAI-400079 / VS. DC IT 8 ( 1 ) AAYAKAR BHAVAN, MUMBAI (ASSESSEE ) (REVENUE) P.A. NO. AAACO2461J / ASSESSEE BY SHRI KANCHAN KAUSHAL SHRI DHANESH BAFNA SHRI ALI ASGAR RAMPURWALA (AR) / REVENUE BY SHRI N.K. CHAND (DR) / DATE OF HEARING : 05/04/2016 / DATE OF ORDER: 30/06/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 16.01.2014 143(3) R.W. S. 144C(13) OF THE INCOME TAX ACT, 1961 PASSED IN PURS UANCE TO THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANE L (IN SHORT ATOS INDIA P. LTD. 2 REFERRED TO AS DRP) VIDE ITS ORDER DATED 18.11.20 13 FOR A.Y. 2009-10, ON THE FOLLOWING GROUNDS: TP GROUNDS: 1. GROUND NO. 1 - ON THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN LAW, THE HON'BLE DISPUTE RESOLUTION PAN EL - I ('HON'BLE DRP') ERRED IN DIRECTING THE DEPUTY COMMI SSIONER OF INCOME TAX, CIRCLE - 8(1), MUMBAI ('AO')/ ADDITI ONAL COMMISSIONER OF INCOME TAX, TRANSFER PRICING - 1(1) , MUMBAI ('TPO') TO MAKE AN ADJUSTMENT OF RS.25,13,81 ,559 IN RELATION TO THE INTERNATIONAL TRANSACTION OF PRO VISION OF SOFTWARE DEVELOPMENT SERVICES. 2. GROUND NO. 2 - ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP ERRED IN DIRECTING THE LEARNE D AO/ TPO TO MAKE AN ADJUSTMENT OF RS.2,63,31,853 ON ACCO UNT OF NOTIONAL INTEREST ON THE ALLEGED OVERDUE RECEIVA BLES FROM AES. 2.1. WITHOUT PREJUDICE TO ABOVE, THE LEARNED TPO ER RED IN INADVERTENTLY CONSIDERING THE INTEREST ON OVERDUE RECEIVABLES AS PER THE SUBMISSION DATED 22 OCTOBER, 2012 INSTEAD OF SUBMISSION DATED 1 NOVEMBER, 2012 (REFER RED TO IN THE TP ORDER). ACCORDINGLY, THE ADJUSTMENT IN RE LATION TO NOTIONAL INTEREST ON OVERDUE RECEIVABLES AMOUNTED T O RS. 2,63,31,853 INSTEAD OF RS. 1,08,69,820. 3. GROUND NO.3 - ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP ERRED IN NOT DIRECTING THE LE ARNED AO/ TPO TO GRANT WORKING CAPITAL ADJUSTMENT BY MAKI NG AN INCORRECT OBSERVATION THAT THE APPELLANT DID NOT CL AIM THE WORKING CAPITAL ADJUSTMENT IN ITS TP STUDY. THE APPELLANT PRAYS THAT THE LEARNED AO/ TPO BE DIR ECTED TO GRANT THE WORKING CAPITAL ADJUSTMENT. DT GROUNDS: 4. GROUND NO. 4 - DISALLOWANCE OF PROJECT RISK EXPE NSES 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING AN AMO UNT OF RS. 1,08,17,012 IN RESPECT OF PROJECT RISK EXPENSES INCURRED BY THE APPELLANT PERTAINING TO CONTRACT ENTERED WIT H HPCL. 4.2 WITHOUT PREJUDICE TO GROUND NO. 4.1 ABOVE, THE COMPANY REQUESTS YOUR HONOUR TO DIRECT THE LEARNED AO TO GR ANT A DEDUCTION OF THE AFORESAID EXPENSES IN THE YEAR OF ACTUAL - PAYMENT/ SETTLEMENT. ATOS INDIA P. LTD. 3 IN DOING SO, THE APPELLANT REQUESTS YOUR HONOUR THA T THE EXPENSES CLAIMED BY THE APPELLANT IN THE EARLIER YE ARS (I.E. FY 2006-07, FY 2007-08 AND FY 2008-09) WITH RESPECT TO PHASE I, II AND III, SHOULD BE ALLOWED I N THE YEAR OF ACTUAL SETTLEMENT IN THE BOOKS OF ACCOUNTS I.E. WHEN THE NET AMOUNT IS RECEIVED FROM HPCL AFTER THE COMPLETI ON OF THE RESPECTIVE PHASE. 4.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING AN AMO UNT OF RS.1,46,31,238 IN RESPECT OF PROJECT RISK EXPENSES INCURRED BY THE COMPANY PERTAINING TO CONTRACT ENTERED WITH P&G. 4.4 WITHOUT PREJUDICE TO GROUND NO.4.3 ABOVE, THE COMPANY REQUESTS YOUR HONOUR TO DIRECT THE LEARNED AO NOT T O TAX THE AFORESAID AMOUNT OF LIQUIDATED DAMAGES IN THE Y EAR OF REVERSAL/WRITE-BACK IN CASE THE SAME IS DISALLOWED DURING THE YEAR UNDER CONSIDERATION. 4.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING AN AMO UNT OF RS. 1,21,89,645 IN RESPECT OF PROJECT RISK EXPENSES INCURRED BY THE COMPANY PERTAINING TO CONTRACTS ENTERED WITH OTHER PARTIES. 4.6 WITHOUT PREJUDICE TO GROUND NO. 4.5 ABOVE, THE COMPANY REQUESTS YOUR HONOUR TO DIRECT THE LEARNED AO NOT T O TAX THE AFORESAID AMOUNT OF LIQUIDATED DAMAGES IN THE Y EAR OF REVERSAL/WRITE-BACK IN CASE THE SAME IS DISALLOWED DURING THE YEAR UNDER CONSIDERATION. 5. GROUND NO. 5 - DENIAL OF DEDUCTION UNDER SECTION 10A IN RESPECT OF BANGALORE UNIT ACQUIRED ON SLUMP SALE 5.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO ERRED IN DISALLOWING THE DEDUCT ION UNDER SECTION 10A OF THE ACT AMOUNTING TO RS. 1,97, 92,908. WHILE DOING SO, THE LEARNED AO ERRED IN DISREGARDIN G THE CIRCULAR NO. 1/2013 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ('CBDT') WHICH CLARIFIES THAT BENEFIT OF DEDU CTION UNDER SECTION 10A SHOULD BE ALLOWED TO AN UNDERTAKI NG EVEN AFTER SLUMP SALE. 6. GROUND NO. 6 - GRANT OF LESSER DEDUCTION UNDER S ECTION 10A OF THE ACT IN RESPECT OF REMAINING UNITS 6.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN REDUCING FOREIGN CURRENCY E XPENSES ONLY FROM EXPORT TURNOVER AND NOT FROM TOTAL TURNOV ER ATOS INDIA P. LTD. 4 THEREBY REDUCING THE BENEFIT OF DEDUCTION UNDER SEC TION 10A BY RS. 6,89,82,112 IN RESPECT OF THE REMAINING UNIT S. 7. GROUND NO.7. DENIAL OF SET-OFF OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION OF SEMA SOFTWARE INDIA PRIVATE LIMITED 7.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN DENYING THE SET-OFF OF BROU GHT FORWARD LOSSES AND UNABSORBED DEPRECIATION OF ENTIT Y TAKEN OVER I.E. SEMA SOFTWARE INDIA PRIVATE LIMITED. GROUND NO. 8- SHORT CREDIT OF TDS, ADVANCE TAXES AN D SELF ASSESSMENT TAX 8.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED AO HAS ERRED GRANTING SHORT CREDIT OF TDS, ADVANCE TAX AND SELF ASSESSMENT TAX TO THE EXTENT OF RS. 99 ,05,886, RS. 82,00,000 AND 15,79,545 RESPECTIVELY. GROUND NO.9 - EXCESS LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT 9.1ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED AO HAS ERRED IN LEVYING EXCESS INTEREST UND ER SECTION 234B AND 234C OF THE ACT. 10. GROUND NO. 10- INITIATION OF PENALTY PROCEEDING S 10.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED AO HAS ERRED IN PROPOSING TO INITIATE PENAL TY UNDER SECTION 271(1)(C) OF THE ACT FOR VARIOUS PROPOSED ADDITIONS/DISALLOWANCES. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI SHRI KANCHAN KAUSHAL, SHRI DHANESH BAFNA & SHR I ALI ASGAR RAMPURWALA, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI N.K. CHAND, DEPARTMENTA L REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. DURING THE COURSE OF HEARING, LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED ON RECORD BRIEF SYNOPSES AND A CHART MENTIONING THEREIN UPDATED STAND OF THE ASSESSEE WI TH RESPECT TO EACH GROUND OF THE AO IN THE ORIGINAL APPEAL MEM O AND ATOS INDIA P. LTD. 5 ACCORDINGLY, THE SAME HAS BEEN TAKEN INTO CONSIDERA TION WHILE DISPOSING THE GROUNDS RAISED IN APPEAL MEMO. 3.1. THE BRIEF BACKGROUND OF THE BUSINESS OF THE ASSESS EE AS GIVEN IN THE ORDER OF THE DRP (I.E. DISPUTE RESOLUT ION PENAL) IS THAT DURING THE YEAR ASSESSEE WAS AN INFORMATION TE CHNOLOGY (IT) SERVICE COMPANY ENGAGED IN THE BUSINESS OF DEV ELOPMENT AND MAINTENANCE OF COMPUTER SOFTWARE, DEVELOPMENT A ND SALE AND EXPORT OF SOFTWARE SERVICES AND PROVISION OF TE CHNICAL CONSULTANCY. THE COMPANYS MAIN INTERNATIONAL TRANS ACTION WITH ITS ASSOCIATED ENTERPRISES (AES) WAS OF PROV ISION OF SOFTWARE DEVELOPMENT SERVICES. IT WAS ALSO MENTION ED BY DRP IN ITS ORDER THAT APART FROM THE ABOVE TRANSACTION, THE COMPANY ALSO HAD CERTAIN OTHER INTERNATIONAL TRANSA CTIONS WITH ITS AES VIZ. RECEIPTS OF SOFTWARE DEVELOPMENT SERVICES, RECEIPT OF COMMUNICATION AND NETWORK RELATED SERVIC ES, ALLOCATION OF IT INFRASTRUCTURE CHARGES, REIMBURSEM ENT OF VARIOUS EXPENSES, PAYMENT OF SOFTWARE LICENSES ETC. 4. GROUND NOS. 1 & 3: THESE GROUNDS DEAL WITH THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF SOFTWARE DEVE LOPMENT SERVICES PROVIDED TO THE ASSOCIATED ENTERPRISES (AE ) BY THE ASSESSEE AGGREGATING TO RS.25,13,81,559/-. 4.1. DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS IT WAS NOTED BY THE TPO THAT TNMM (TRANSACTIONAL NET MARGI N METHOD) WAS MOST APPROPRIATE METHOD (MAM) TO BENCHM ARK THESE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WI TH ITS AES ATOS INDIA P. LTD. 6 AND THERE IS NO DISPUTE ON THE SELECTION OF TNMM AS MAM. THE TPO CARRIED OUT A FRESH SEARCH OF COMPARABLES AND I N THE FINAL ACCEPT-REJECT MATRIX, IT CONTAINED 14 COMPARABLES A S PER THE TABLE GIVEN IN PARA 10 AT THE PAGE 29 OF TPOS ORDE R, ACCORDING TO WHICH THE MARGIN OF THE ASSESSEE TAKING OP/TC AS ITS PLI (PROFIT LEVEL INDICATOR) CAME OUT TO BE 21.52% AS A GAINST 14.76% AS SHOWN BY THE ASSESSEE FOR ITS SOFTWARE SE GMENT. CONSEQUENTLY, AN ADJUSTMENT FOR RS.24,96,72,932/- W AS PROPOSED BY THE TPO. FURTHER, FOR THE SSIPL SOFTWAR E DEVELOPMENT SEGMENT, THE ASSESSEE HAD SHOWN OP/TC O F 14.16% AS AGAINST 21.52% AS DETERMINED BY THE TPO O N THE BASIS OF ACCEPT-REJECT MATRIX OF THE COMPARABLES. CONSEQUENTLY, AN ADJUSTMENT OF RS.17,08,627/- WAS P ROPOSED BY THE TPO. THUS, AGGREGATE ADJUSTMENT OF RS.25,13, 81,559/- (I.E. RS.24,96,72,932 + 17,08,627) WAS PROPOSED BY THE TPO IN ITS ORDER. 4.2. BEING AGGRIEVED, THE ASSESSEE HAD FILED AN OBJECTI ON BEFORE THE DRP WHERE NO RELIEF WAS GIVEN AND ORDER OF THE TPO WAS UPHELD. 4.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL. 4.4. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L OF THE ASSESSEE SUBMITTED THAT WITH A VIEW TO REDUCE AND N ARROW DOWN THE CONTROVERSY, THE ASSESSEE WISHES TO CONTES T NOW ONLY ATOS INDIA P. LTD. 7 THREE COMPARABLES AS WERE SELECTED BY THE TPO AND R EQUESTS FOR EXCLUSION OF SAME, AS PER DETAILS GIVEN BELOW: 1. INFOSYS LTD.(40.49%) 2. BODHTREE CONSULTING LTD. (61.38%) 3. SONATA SOFTWARE LTD. (29.77%) 4.5. IT WAS SUBMITTED BY THE ASSESSEE THAT THESE THREE COMPARABLES CANNOT BE INCLUDED FOR BENCHMARKING TRANSACTIONS OF THE ASSESSEE, IN VIEW OF THE DETAIL ED SUBMISSIONS MADE HEREINAFTER AND IF THESE THREE COM PARABLES ARE EXCLUDED, THEN THE ASSESSEES CASE COMES WITHIN THE ACCEPTABLE RANGE OF +/- 5% AND THAT WOULD OBVIATE T HE NEED TO CONTEST ALL OTHER ISSUES. UNDER THESE CIRCUMSTANCES , WE FIND IT APPROPRIATE TO FIRST DEAL WITH AFORESAID THREE COMP ARABLES (BEFORE TAKING UP OTHER ISSUES, IF THE NEEDED) AS U NDER: 5. INFOSYS LTD. IT IS SUBMITTED BY THE LD. COUNSEL THAT THIS COMPAN Y IS AN ENTREPRENEUR AND HENCE FUNCTIONALLY NOT COMPARABLE. FURTHER, IT HAS SIGNIFICANTLY HIGH SCALE OF OPERATIONS. IT W AS FURTHER SUBMITTED THAT LOW TURNOVER FILTER WAS APPLIED BY T HE TPO AS WELL AS BY THE ASSESSEE THEREFORE, UNDER THESE CIRC UMSTANCES IT WAS ALSO ESSENTIAL TO FIND OUT IF THE TURNOVER OF A COMPARABLE WAS TOO LARGE BEYOND A LIMIT, THEN THAT SHOULD ALSO HAVE BEEN EXCLUDED. IT WAS SUBMITTED THAT ASSESSEES TURNOVER DURING THE YEAR WAS FOR AN APPROXIMATE AMOUNT OF RS.450 CRORES WHEREAS TURNOVER OF INFOSYS LTD. FOR THE RELEVANT PERIOD WA S RS.20264 CRORES AS IS EVIDENT FROM PAGE NO.251 OF THE PAPER BOOK. THE LD. COUNSEL RELIED UPON FOLLOWING JUDGMENTS IN SUPP ORT OF ITS CLAIM: ATOS INDIA P. LTD. 8 I. CIT V. AGNITY INDIA TECHNOLOGIES P. LTD.-ITA NO. 1204/2011 (DEL HC) II. OSI SYSTEMS P. LTD. V. DCIT (ITA NO.542 & 683/H YD/2014) III. ALLIANCE GLOBAL SERVICES IT INDIA P. LTD. V. D CIT(ITA NO.58/HYD/2014 IV. TELCORDIA TECHNOLOGIES INDIA P. LTD. V. ACIT (I TA NO.7821/MUM/2011 5.1. PER CONTRA, LD. CIT-DR SUBMITTED THAT HUGE TURNOVER OR HIGH SCALE OF OPERATIONS IPSO FACTO DOES NOT MAKE A COMPANY NON-COMPARABLE. IT WAS FURTHER SUBMITTED THAT ENTREPRENEURSHIP OF A COMPARABLE COMPANY CANNOT BE ANY CRITERIA TO MAKE A COMPANY AS NON-COMPARABLE BECAUS E EVERY COMPANY IS AN ENTREPRENEUR IN ITS OWN CLASS. EVEN, THE ASSESSEE COMPANY IS AN ENTREPRENEUR. WITH REGARD TO THE CASE LAWS, IT WAS SUBMITTED THAT UNLESS PARITY IS DRAWN, THE CASE LAWS CANNOT BE USED BLINDLY. IT WAS FURTHER SUBMITT ED THAT IN THE CASE LAWS RELIED UPON BY THE LD. COUNSEL, MANY OBJECTIONS MADE ON BEHALF OF THE REVENUE WERE NOT CONSIDERED. IT WAS FURTHER SUBMITTED THAT THERE IS NO RELATION BETWEEN MARGIN AND TURNOVER AND THEREFORE, THERE WAS NO JUSTIFICAT ION OF REMOVING COMPARABLES LIKE INFOSYS LTD, MERELY BECAU SE IT HAS A LARGE SCALE OF OPERATIONS. HE RELIED UPON THE JUD GMENT OF MUMBAI BENCH OF ITAT IN THE CASE OF WILLIS PROCESSI NG DATED 01.03.2013 IN SUPPORT OF HIS PROPOSITION THAT INFOS YS LTD. SHOULD NOT BE EXCLUDED. HE ALSO RELIED UPON THE JUD GMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITA L INVESTMENT ADVISORS (INDIA) P. LTD. V. DCIT 376 ITR 183. 5.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND SUBMISSIONS MADE BY BOTH THE SIDES BEFORE US. T HE ATOS INDIA P. LTD. 9 UNDISPUTED FACTS BEFORE US ARE THAT DURING THE YEAR UNDER CONSIDERATION TURNOVER OF THE ASSESSEE OF SOFTWARE DEVELOPMENT SEGMENT WAS RS.423.71 CRORES AND SIPL SEGMENT WAS R S.2.10 CRORES AS AGAINST TURNOVER OF RS.20,264 CRORES OF T HE INFOSYS LTD., WHICH IS MORE THAN 45 TIMES OF THE TURNOVER O F THE ASSESSEE COMPANY. FURTHER, EXPENDITURE INCURRED ON BRAND BUILDING, ADVERTISING/SALES PROMOTION ETC. WAS TO T HE TUNE OF RS.0.46 CRORES BY THE ASSESSEE COMPANY AS AGAINST R S.933 CRORES BY INFOSYS LTD. FURTHER, IT IS NOTED THAT TH E ASSESSEE COMPANY IS OPERATING AT MINIMAL RISK BASIS. ON THE OTHER HAND, INFOSYS IS A MARKET LEADER AND THERE IS HUGE BRAND VALUE ASSOCIATED WITH IT. IT HAS BEEN FURTHER BROUGHT TO OUR NOTICE THAT THE ASSESSEE COMPANY IS MERELY CAPTIVE SOFTWAR E DEVELOPMENT SERVICE PROVIDER, WHEREAS INFOSYS IS RU NNING ITS BUSINESS AS FULL-FLEDGED ENTREPRENEUR COMPANY. IT I S NOTED BY US ON THE BASIS OF ANNUAL REPORT OF INFOSYS THAT IT PROVIDES END TO END BUSINESS SOLUTION THAT SPAN ENTIRE SOFTWARE LIKE CYCLE ENCOMPASSING TECHNICAL CONSULTING, DESIGN, DEVELOPM ENT, RE- ENGINEERING, MAINTENANCE SYSTEM INTEGRATION, PACKAG E EVALUATION AND IMPLEMENTATION, CONTESTING AND INFRA STRUCTURE MANAGEMENT SERVICES. INFOSYS ALSO OFFERS SOFTWARE P RODUCTS FOR BANKING INDUSTRY AND ITS REVENUE IS PRIMARILY DERIV ED FROM SOFTWARE DEVELOPMENT AND FROM LICENSING OF SOFTWARE PRODUCTS. ON THE OTHER HAND, THE ASSESSEE COMPANY FUNCTIONS A S A CAPTIVE SERVICE PROVIDER; IT IS NOT REQUIRED TO COM PETE WITH ITS GROUP COMPANIES FOR THE CONTRACTS AS IT OPERATES AS A GLOBAL OFFSHORE SERVICE CENTRE. IT IS BROUGHT TO OUR NOTIC E THAT ASSESSEE DOES NOT OWN INTANGIBLES NOR DOES IT INVES T IN THE ATOS INDIA P. LTD. 10 RESEARCH AND DEVELOPMENT ACTIVITIES. FOR THE PURPOS E OF BRING OUT A CLEAR DISTINCTION BETWEEN THE PROFILES OF THE ASSESSEE AND INFOSYS, THIS POINT WAS REPEATEDLY EMPHASISED BY TH E ASSESSEE THAT THE ASSESSEE COMPANY BEARS MINIMAL ENTREPRENEU RIAL AND MARKET RISK. UNDER THESE CIRCUMSTANCES, WE FIND THA T INFOSYS STAND ON AN ALTOGETHER DIFFERENT PEDESTAL AND FALLS IN DIFFERENT CLASS IN THE INDUSTRY. IT IS NOT ONLY DIFFERENCE IS TURNOVER BUT ITS OWN HUGE BRAND VALUE MAKES IT AN ENTREPRENEUR O F ITS OWN CATEGORY. IT IS A GIANT OF ITS OWN KIND. ON THE OTHER HAND, T HE ASSESSEE COMPANY WOULD NOT STAND EVEN ANYWHERE NEAR TO A COMPANY LIKE INFOSYS ON VARIOUS PARAMETERS. UNDER T HESE CIRCUMSTANCES, IT WOULD NOT BE JUST AND FAIR TO PUT BOTH THESE COMPANIES AT A COMPARABLE SCALE. IF IT IS SO DONE, IT MAY PUSH AN ASSESSEE TOWARDS AN UNFAIR, UNACCEPTABLE AND UNREASONABLE SITUATION. IT IS FURTHER NOTED BY US T HAT AS ON DATE THIS ISSUE IS NO MORE RES-INTEGRA . 5.3. FOR THE SAKE OF READY REFERENCE, WE MAY FIRST REFE R TO A JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. AGNITY INDIA TECHNOLOGY (P.) LTD.; AND RELEVANT OBS ERVATION FROM THIS JUDGMENT ARE REPRODUCED HEREUNDER: 5. THE TRIBUNAL HAS OBSERVED THAT THE ASSESSEE WAS NOT COMPARABLE WITH INFOSYS TECHNOLOGIES LTD., AS INFOS YS TECHNOLOGIES LTD. WAS A LARGE AND BIGGER COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWARE AND, THEREFORE, THE PROFITS EARNED CANNOT BE A BENCH MARKED OR EQUATED WITH THE RESPONDENT, TO DETERMINE THE RESULTS DECLARED BY TH E RESPONDENT- ASSESSEE. IN PARAGRAPH 3.3 THE TRIBUNAL HAS REFERRED TO THE DIFFERENCE BETWEEN THE RESPONDENT- ASSESSEE AND INFOSYS TECHNOLOGIES LTD. FOR THE SAKE OF CONVENIENCE, WE ARE REPRODUCING THE SAME:- ' ATOS INDIA P. LTD. 11 BASIC PARTICULAR INFOSYS TECHNOLOGIES LTD. AGNITY INDIA RISK PROFILE OPERATE AS FULL- FLEDGED RISK TAKING ENTREPRENEURS OPERATE AT MINIMAL RISKS AS THE 100% SERVICES ARE PROVIDED TO AES NATURE OF SERVICES DIVERSIFIED- CONSULTING, APPLICATION CONTRACT SOFTWARE DESIGN, DEVELOPMENT, RE-ENGINEERING DEVELOPMENT SERVICES AND MAINTENANCE SYSTEM INTEGRATION, P ACKAGE EVALUATION AND IMPLEMENTATION AND BUSINESS PROCESS MANAGEMENT, ETC. (REFER PAGE 117 OF THE PAPER BOO K) REVENUE RS.9, 028 CRORES RS. 16.09 CRORES OWNERSHIP OF DEVELOPS/OWNS PROPRIETARY PROD UCTS BRANDED/PROPRIETARY LIKE FINACLE, INFOSYS ACTICE DE SK, PRODUCTS INFOSYS IPROWE, INFOSYS MCONNECT, ALSO, TH E COMPANY DERIVES SUBSTANTIAL PORTION OF ITS PROPRIET ARY PRODUCTS (INCLUDING ITS FLAGSHIP BANKING PRODUCT SU ITE FINACLE ) ONSITE VS. OFFSHORE -AS MUCH AS HALF OF THE SOFTWARE THE APPELLANT PROVIDES ONLY DEVELOPMENT SE RVICES RENDERED BY OFFSHORE SERVICES (I.E., INFOSYS ARE ON SITE (I.E., SERVICES REMOTELY FROM INDIA) PERFORMED AT THE CUST OMER S LOCATION OVERSEAS). AND OFFSHORE (50.20%) (REFER PA GE 117 OF THE PAPER BOOK) THAN HALF OF ITS SERVICE, INCOME FROM ONSITE SERVICES. EXPENDITURE ON RS.61 CRORES RS. NIL (AS THE 100% ADVERTISING/SALES SERVICE S ARE PROVIDE TO AES) PROMOTION AND BRAND BUILDING EXPENDITURE ON RS. 102 CRORES RS. NIL RESEARCH & DEVELOPMENT OTHER 100% O FFSHORE (FROM INDIA) 6. LEARNED COUNSEL FOR THE REVENUE HAS SUBMITTED TH AT THE TRIBUNAL AFTER RECORDING THE AFORESAID TABLE HAS NO T AFFIRMED ATOS INDIA P. LTD. 12 OR GIVEN ANY FINDING ON THE DIFFERENCES. THIS IS PA RTLY CORRECT AS THE TRIBUNAL HAS STATED THAT INFOSYS TECHNOLOGIE S LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE REASON LATTER WAS A GIANT COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWARE AND IT ASSUMED ALL RISKS LE ADING TO HIGHER PROFITS, WHEREAS THE RESPONDENT-ASSESSEE WAS A CAPTIVE UNIT OF THE PARENT COMPANY AND ASSUMED ONLY A LIMITED RISK. IT HAS ALSO STATED THAT INFOSYS TECHN OLOGIES LTD. CANNOT BE COMPARED WITH THE RESPONDENT- ASSESSEE AS SEEN FROM THE FINANCIAL DATA ETC. TO THE TWO COMPANIES M ENTIONED EARLIER IN THE ORDER I.E. THE CHART. IN THE GROUNDS OF APPEAL THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT OR DENY THE DATA AND DIFFERENCES MENTIONED IN THE TABULATED FORM. TH E CHART HAS NOT BEEN CONTROVERTED. 7. LEARNED COUNSEL FOR THE APPELLANT REVENUE DURING THE COURSE OF HEARING, DREW OUR ATTENTION TO THE ORDER PASSED BY THE TPO AND IT IS POINTED OUT THAT BASED UPON THE F IGURES AND DATA MADE AVAILABLE, THE TPO HAD TREATED A THIRD CO MPANY AS COMPARABLE WHEN THE WAGE AND SALE RATIO WAS BETW EEN 30% TO 60%. BY APPLYING THIS FILTER, SEVERAL COMPAN IES WERE EXCLUDED. THIS IS CORRECT AS IT IS RECORDED IN PARA 3.1.2 OF THE ORDER PASSED BY THE TPO. TPO, AS NOTED ABOVE, HOWEV ER HAD TAKEN THREE COMPANIES, NAMELY, SATYAM COMPUTER SERV ICE LTD., L&T INFOTECH LTD. AND INFOSYS TECHNOLOGIES AS COMPARABLE TO WORK OUT THE MEAN. 8. IT IS A COMMON CASE THAT SATYAM COMPUTER SERVICE S LTD. SHOULD NOT BE TAKEN INTO CONSIDERATION. THE TRIBUNA L FOR VALID AND GOOD REASONS HAS POINTED OUT THAT INFOSYS TECHN OLOGIES LTD. CANNOT BE TAKEN AS A COMPARABLE IN THE PRESENT CASE. THIS LEAVES L&T INFOTECH LTD. WHICH GIVES US THE FI GURE OF 11.11 %, WHICH IS LESS THAN THE FIGURE OF 17% MARGI N AS DECLARED BY THE RESPONDENT-ASSESSEE. THIS IS THE FI NDING RECORDED BY THE TRIBUNAL. THE TRIBUNAL IN THE IMPUG NED ORDER HAS ALSO OBSERVED THAT THE ASSESSEE HAD FURNISHED D ETAILS OF WORKABLES IN RESPECT OF 23 COMPANIES AND THE MEAN O F THE COMPARABLES WORKED OUT TO 10%, AS AGAINST THE MARGI N OF 17% SHOWN BY THE ASSESSEE. DETAILS OF THESE COMPANI ES ARE MENTIONED IN PARA 5 OF THE IMPUGNED ORDER. ATOS INDIA P. LTD. 13 9. IN VIEW OF THE AFORESAID POSITION, WE DO NOT THI NK THAT ANY SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATIO N. THE APPEAL IS DISMISSED. 5.4. SIMILARLY, IN THE CASE OF OSI SYSTEMS PVT. LTD. (S UPRA), THE HYDERABAD BENCH HAD TAKEN A SIMILAR VIEW AND RELEVA NT OBSERVATIONS OF THE BENCH ARE REPRODUCED HEREUNDER: 26.2 INFOSYS LTD. :- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HA S BEEN CONSIDERED TO BE FUNCTIONALLY DIFFERENT FROM A COMP ANY PROVIDING SIMPLE SOFTWARE DEVELOPMENT SERVICES, AS THIS COMPANY OWNS SIGNIFICANT INTANGIBLES AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IN THIS REGARD, WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. TDPLM SOFTWARE SOLUTIONS LTD. V. DCIT, ITA NO.1303/BANG/2012, BY ORDER DATED 28.11.2013 WITH REGARD TO THIS COMPARABLE HAS HELD AS FOLLOWS:- '11 .0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABL E SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE O BJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPA RABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE P ROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS THAT TURNOVER AND BR AND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWAR E DEVELOPMENT SEGMENT. 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPA NY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTHORISED REPRESENTATIVE DREW OU R ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT THIS COMPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPMENT ACTI VITIES, WHEREAS THE ASSESSEE IS MERELY A SOFTWARE SERVICE PROVIDER OPERATING ITS BUSINESS IN INDIA AND DOES N OT POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIBL E OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SU BMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT :- (I) T HE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES ATOS INDIA P. LTD. 14 NOT OWN ANY INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION IS APPLICABLE TO THE ASSESSEE'S CASE, AS THE ASSESSEE DOES NOT OWN ANY INTANGIBLES AND HENCE INF OSYS TECHNOLOGIES LTD. CANNOT BE COMPARABLE TO THE ASSES SEE; (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN TH E CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNO LOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMI NG ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSI DERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LI MITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVE NTIONS AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFTWARE PROD UCTS AND THE BREAKUP OF SUCH REVENUES IS NOT AVAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQUISITION OF IPRS IN 'AUTOLAY', A COMMERC IAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMA NCE STRUCTURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS, T HE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT, THI S COMPANY I.E. INFOSYS TECHNOLOGIES LTD., BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE ASSESSEE, THE LEARN ED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARAB ILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGIN S OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW O F THIS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED TH E MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE AS BR OUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THI S COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT F ROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FINDIN G RENDERED IN THE CASE OF TRILOGY EBUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007- 08 IS APPLICABLE TO THIS YEAR ALSO. WE ARE INCLINED TO CO NCUR WITH THE ARGUMENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SIN CE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES F ROM ATOS INDIA P. LTD. 15 SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAKUP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCT S IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARA BLE COMPANIES. IT IS ORDERED ACCORDINGLY.' THE DECISION RENDERED AS AFORESAID PERTAINS TO A.Y. 2008-09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE TH AT THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR ALSO RE MAINS IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREV AILED IN AY 08-09 AS FAR AS THIS COMPARABLE COMPANY IS CONCE RNED. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT INFOSYS LTD. BE EXCLUDED FRO M THE LIST OF COMPARABLE COMPANIES. 5.5. SIMILAR VIEW WAS TAKEN BY MUMBAI BENCH IN THE CASE OF TELCORDIA TECHNOLOGIES INDIA P. LTD. V. ACIT 222 TA XMANN.COM 96 WITH THE FOLLOWING OBSERVATIONS: 7.4 INFOSYS TECHNOLOGIES LTD. : THE PARAMETER FOR IDENTIFYING COMPARABLE ENTITY HA S TO BE SEEN FROM THE ANGLE OF FUNCTIONS FORMED BY THE COMP ANY, SIZE OF THE COMPANY IN TERMS OF THE SALES REVENUE, STAGE OF BUSINESS CYCLE AND COMPANYS GROWTH CYCLE. IN THE C ASE OF INFOSYS, THERE ARE HUGE INTANGIBLE ASSETS WHICH AS PER THE INFORMATION PROVIDED BY THE LEARNED AR ARE VALUED A T RS.69,552 CRORES, WHICH COMPRISES OF BRAND VALUE IT SELF AT RS.22,915 CRORES. BASED ON SUCH FUND VALUATION, THE PROFIT OF INFOSYS IS PREDOMINANTLY DUE TO ITS PREMIUM BRAN DING. IT IS INDIAS NO.2 SOFTWARE SERVICE EXPORTER AND THIRD IN THE WORLD AS AN IT SERVICE COMPANY. IT IS A GIANT COMPA NY WHICH IS EVIDENT FROM ITS REVENUE FUND FROM THE SAL ES WHICH ITSELF IS MORE THAN RS.13145 CRORES AND EXPEN DITURE ON ADVERTISEMENT/SALES PROMOTION AND EXPENDITURE ON R & D IS AT RS.69 CRORES AND RS.167 CRORES RESPECTIVELY , WHEREAS IN THE CASE OF THE ASSESSEE THE REVENUE IS ONLY 10.7 CRORES WITH NO EXPENDITURE ON ADVERTISEMENT, S ALES AND PROMOTION ETC., WHICH ARE BORNE BY THE ASSOCIAT ED ENTERPRISES. EVEN FROM THE TEST OF FAR I.E. FUNCT ION PERFORMED, ASSETS EMPLOYED AND RISK ASSUMED, COMPARABILITY ANALYSIS MISERABLY FAILS IN THIS CASE . THE COMPARISON OF FUNCTION AND PROFILE AS HAS BEEN REPR ODUCED ATOS INDIA P. LTD. 16 IN PARA 6(IV) ABOVE, MOSTLY SHOWS THAT THE PROFIT L EVEL INDICATORS IN RELATION TO RETURN OF COST, RETURN OF SALES AND RETURN OF ASSETS ARE HUGE BETWEEN INFOSYS AND THE ASSESSEE COMPANY AND THEREFORE, THE INFOSYS CANNOT BE TREATED AS COMPARABLE ENTITY FOR MAKING COMPARABILI TY ANALYSIS WITH THE ASSESSEE COMPANY. THE COMPARABILI TY OF INFOSYS TECHNOLOGY OF THE COMPANY AS THAT OF AN ASS ESSEE HAS BEEN DEALT WITH ITAT DELHI BENCH IN THE CASE OF AGNITY INDIA TECHNOLOGIES PRIVATE LIMITED (ITA NO.3856/DELHI/2010), WHEREIN IT WAS HELD THAT INFOS YS IS A GIANT IN THE AREA OF DEVELOPMENT OF SOFTWARE AND IT ASSUMES ALL RISKS, LEADING TO HIGHER PROFIT AND CAN NOT BE COMPARED WITH THE COMPANY WHICH IS A CAPTIVE UNIT O F ITS PARENT COMPANY ASSUMING ONLY LIMITED CURRENCY RISK. IN VIEW OF THE ABOVE FINDING, WE HOLD THAT THE INFOSYS CANNOT BE TAKEN AS A COMPARABLE FOR DETERMINING THE ARMS L ENGTH PRICE IN THE CASE OF THE ASSESSEE. 5.6. IT IS FURTHER NOTED BY US THAT SIMILAR VIEW HAS BE EN TAKEN IN PLETHORA OF OTHER JUDGMENTS AND THEREFORE, KEEPI NG IN VIEW FACTS OF THIS CASE AND RESPECTFULLY FOLLOWING THESE JUDGMENTS, WE FIND THAT INFOSYS LTD. SHOULD NOT BE CONSIDERED AS PART OF COMPARABLES. IT IS FURTHER NOTED BY US THAT CASE LA WS RELIED UPON BY THE LD. CIT-DR ARE NOT APPLICABLE ON THE FA CTS OF THE CASE BEFORE US. THUS, TAKING INTO ACCOUNT ALL THE F ACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE TPO TO EXC LUDE INFOSYS LTD. FORM THE LIST OF COMPARABLES. 6. BODHTREE CONSULTING LTD. BACKGROUND OF THIS COMPARABLE IS THAT THOUGH THE A SSESSEE HAD ORIGINALLY SELECTED (INCLUDED) IT IN THE TRANSF ER PRICING STUDY, BUT IT WAS SUBSEQUENTLY CONTESTED BY THE ASS ESSEE FOR EXCLUSION FROM THE LIST OF COMPARABLES FOR THE FIRS T TIME BEFORE DRP ON THE GROUND THAT IT WAS NOT COMPARABLE. BUT D RP DID ATOS INDIA P. LTD. 17 NOT ACCEPT THE PRAYER OF THE ASSESSEE ON THE GROUND THAT SINCE THE ASSESSEE HAD SELECTED IT AS COMPARABLE; THEREFO RE, THE SAME CANNOT BE REQUESTED FOR EXCLUSION BY THE ASSES SEE HIMSELF, IN VIEW OF DOCTRINE OF ESTOPPEL WHICH PREVENTS THE ASSESSEE TO RAISE OBJECTIONS BEFORE THE DRP FOR THE FIRST TIME. IT WAS FURTHER HELD BY THE DRP THAT THERE WAS NO DIFFE RENCE IN THE FUNCTIONALITY BETWEEN THE ASSESSEE AND THE SAID COMPARABLE. 6.1. DURING THE COURSE OF HEARING BEFORE US IT HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT THIS COMPANY IS N OT COMPARABLE WITH THE ASSESSEE COMPANY. IT WAS SUBMIT TED THAT BODHTREE CONSULTING LTD. IS NOT A RELIABLE COMPARAB LE. IT WAS SUBMITTED THAT ITS MARGIN IS COMPARATIVELY MUCH HIG HER IN COMPARISON TO THE OPERATING MARGIN EARNED BY OTHER COMPARABLE COMPANIES. IT WAS FURTHER SUBMITTED THAT FROM THE HISTORY CHART OF THE MARGIN EARNED BY THE COMPANY I N PREVIOUS AND SUBSEQUENT YEARS, IT IS QUITE EVIDENT THAT THIS COMPANY WAS OPERATING UNDER ABNORMAL BUSINESS CONDITIONS. R ELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS FOR THE PROPO SITION THAT COMPANIES WITH THE ABNORMAL PROFIT/LOSS SHOULD NOT BE CONSIDERED FOR FINDING OUT APPROPRIATE COMPARABLE C OMPANIES FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE: (I) ADOBE SYSTEMS INDIA PVT. LTD. (ITA NO.5043/DEL/ 2010 (II) SONATA SOLUTION LTD. (ITA NO.3514/MUM/2010) (III) NIT LTD. (ITA NO.1844/DEL/2009 (IV) SAP LAB INDIA PVT. LTD. V. ACIT (ITA NO.398/BA NG/2008 ATOS INDIA P. LTD. 18 6.2. IT WAS FURTHER SUBMITTED BY THE LD. COUNSEL THAT AS PER LAW, AN ASSESSEE CAN SHOW EVEN BEFORE THE APPELLATE AUTHORITY FOR THE FIRST TIME THAT A PARTICULAR COMPANY IS NOT COMPARABLE WITH THE ASSESSEE COMPANY, EVEN IF, IT WAS SELECTED AS A COMPARABLE COMPANY INADVERTENTLY OR BY MISTAKE BY T HE ASSESSEE IN THE TRANSFER PRICING REPORT AND FOR THI S PURPOSE LD. COUNSEL RELIED UPON FOLLOWING JUDGMENTS: (I) OSI SYSTEMS P. LTD. V. DCIT (ITA NO.542 & 683/H YD/2014 (II) MINDTECK INDIA LTD. VS. DCIT- ITA NO.70/BANG/2 014 (III) Q LOGIC INDIA P. LTD. VS. DCIT- ITA NO.227/P UN/2014 (IV) LIONBRIDGE TECHNOLOGIES P. LTD. VS. ITO (ITA- NO.668/MUM/2014 6.3. PER CONTRA, LD. CIT-DR VEHEMENTLY OPPOSED THE SUBMISSIONS OF THE ASSESSEE. IT WAS SUBMITTED BY HI M THAT THIS COMPANY WAS SELECTED BY THE ASSESSEE HIMSELF AND TH EREFORE, NOW AT THIS STAGE THE ASSESSEE CANNOT ITSELF TAKE A U-TURN AND MAKE OUT A DISTINCTION BETWEEN THE ASSESSEE AND SAI D COMPARABLE. IN RESPONSE TO THE JUDGMENTS QUOTED BY THE LD. COUNSEL IN HIS SUPPORT, IT WAS STATED BY LD. CIT-DR THAT THERE CANNOT BE AN ABSOLUTE AND OPEN ENDED LAW THAT ASSES SEE CAN INCLUDE OR EXCLUDE ANY COMPARABLE AT ANY STAGE. 6.4. WE HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS OF THE ASSESSEE AS WELL AS LD. CIT-DR. IT IS NOTED THAT AD MITTEDLY, THIS COMPARABLE WAS INCLUDED BY THE ASSESSEE ITSELF IN ITS LIST OF COMPARABLES. BUT THE ASSESSEE OBJECTED TO FOR IN CLUSION OF THE SAME BEFORE THE DISPUTE RESOLUTION PENAL (DRP). IT WAS ATOS INDIA P. LTD. 19 SHOWN TO THE DRP THAT THE SAID COMPANY WAS A PRODUC T COMPANY AND THERE WAS HUGE FLUCTUATION IN THE MARGI N TREND OF THE SAID COMPANY SHOWING THAT THE SAID COMPANY W AS UNDER UNUSUAL BUSINESS CIRCUMSTANCES. IT IS NOTED B Y US THAT CLAIM OF THE ASSESSEE WAS REJECTED BY THE DRP WITHO UT VERIFYING THE SUBSTANCE IN THE ARGUMENTS OF THE ASS ESSEE. 6.5. WE HAVE GONE THROUGH THE MARGIN TREND OF THE SAID COMPANY AND FIND THE SAME TO BE HIGHLY FLUCTUATING. FOR THE SAKE OF READY REFERENCE, THE MARGIN TREND OF THE SA ID COMPANY IS REPRODUCED HEREUNDER: FINANCIAL YEAR 2006 - 07 2007 - 08 2008 - 09 2009 - 10 2010 - 11 SALES 10.40 10.40 16.57 22.81 21.93 TOTAL COST (TC) 5.80 8.81 10.26 17.78 43.90 OPERATING PROFIT(OP) 4.59 1.60 6.30 5.03 - 21.97 OP/TC 79.13% 18.14% 61.38% 28.28% - 50.04% THUS, THERE IS NO DOUBT THAT MARGIN OF THIS COMPANY HAS BEEN FLUCTUATING FROM (-) 50.4% TO (+) 79.13%. FURTHER PERUSAL OF THE ABOVE CHART SHOWS THAT TURNOVER OF THE COMPANY REMAIN IN THE RANGE OF 10 CRORE TO 22 CRORES BUT MARGIN OF TH E SAID COMPANY HAS BEEN FLUCTUATING BETWEEN (-) 50.4% TO ( +) 79.13%. SUCH A HUGE VARIATION IN THE MARGINS DESPIT E THE FACT THAT SCALE OF OPERATION DID NOT CHANGE THAT MUCH, S HOWS THAT THE BUSINESS CIRCUMSTANCES OF THE ASSESSEE COMPANY WERE NOT NORMAL AND SAID COMPANY INDEED PASSED THROUGH UNUSU AL OR ATOS INDIA P. LTD. 20 ABNORMAL BUSINESS CIRCUMSTANCES. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND THIS COMPANY AS A SAF E AND RELIABLE TO BE USED AS A COMPARABLE COMPANY. IT IS FURTHER NOTED BY US THAT SIMILAR VIEW HAS TAKEN IN VARIOUS JUDGMENTS AS HAVE BEEN RELIED BY THE LD. COUNSEL WHOSE NAMES HAVE BEEN MENTIONED ABOVE. 6.6. WITH REGARD TO THE OTHER ISSUE OF RAISING OF THE O BJECTION BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE DRP, IT IS NOTED THAT A LAW IS IN FAVOUR OF THE ASSESSEE ON THIS ISS UE AS WELL. IT IS NOTED BY US THAT IN THE CASE OF OSI SYSTEM PVT. LTD. (SUPRA), SIMILAR SITUATION AROSE WITH RESPECT TO THIS VERY C OMPARABLE AND HONBLE HYDERABAD BENCH DECIDED THE ISSUE AS UN DER: '26.1 BODHTREE CONSULTING LTD.:- AS FAR AS THIS COM PANY IS CONCERNED, IT IS NOT IN DISPUTE THAT IN THE LIST OF COMPARABLES CHOSEN BY THE ASSESSEE, THIS COMPANY WA S ALSO INCLUDED BY THE ASSESSEE. THE ASSESSEE, HOWEVE R, SUBMITS BEFORE US THAT LATER ON IT CAME TO THE ASSE SSEE'S NOTICE THAT THIS COMPANY IS NOT BEING CONSIDERED AS A COMPARABLE COMPANY IN THE CASE OF COMPANIES RENDERI NG SOFTWARE DEVELOPMENT SERVICES. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. V. ITO, ITA NO.7633/MUM/2012, ORDER DATED 6.11.2013. IN THIS CA SE, THE TRIBUNAL FOLLOWED THE DECISION RENDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WILLS PROCESSI NG SERVICES (I) P. LTD., ITA NO.4547/MUM/2012. IN THE AFORESAID DECISIONS, THE TRIBUNAL HAS TAKEN THE VIE W THAT BODHTREE CONSULTING LTD. IS IN THE BUSINESS OF SOFT WARE PRODUCTS AND WAS ENGAGED IN PROVIDING OPEN & END TO END WEB SOLUTIONS SOFTWARE CONSULTANCY AND DESIGN & DEVELOPMENT OF SOFTWARE USING LATEST TECHNOLOGY. TH E DECISION RENDERED BY THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. (SUPRA) IS I N RELATION TO A.Y. 2008-09. IT WAS AFFIRMED BY THE LE ARNED ATOS INDIA P. LTD. 21 COUNSEL FOR THE ASSESSEE THAT THE FACTS AND CIRCUMS TANCES IN THE PRESENT YEAR ALSO REMAINS IDENTICAL TO THE F ACTS AND CIRCUMSTANCES AS IT PREVAILED IN AY 08-09 AS FAR AS THIS COMPARABLE COMPANY IS CONCERNED. FOLLOWING THE AFOR ESAID DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL, WE HO LD THAT BODHTREE CONSULTING LTD. CANNOT BE REGARDED AS A COMPARABLE. IN THIS REGARDS, THE FACT THAT THE ASSE SSEE HAD ITSELF PROPOSED THIS COMPANY AS COMPARABLE, IN OUR OPINION, SHOULD NOT BE THE BASIS ON WHICH THE SAID COMPANY SHOULD BE RETAINED AS A COMPARABLE, WHEN FACTUALLY IT IS SHOWN THAT THE SAID COMPANY IS A SO FTWARE PRODUCT COMPANY AND NOT A SOFTWARE DEVELOPMENT SERV ICES COMPANY. 6.7. IT IS THUS NOTED FROM THE ABOVE THAT HONBLE HYDER ABAD BENCH EXCLUDED THIS COMPARABLE ON THIS GROUND ALSO THAT IT WAS A SOFTWARE PRODUCT COMPANY AND NOT A SOFTWARE DEVELOPMENT SERVICE COMPANY. FURTHER, THE SAID ASSE SSEE HIMSELF HAD ORIGINALLY INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES. FURTHER, IT IS NOTED THAT THIS COMPARA BLE WAS EXCLUDED ALSO BY HONBLE BANGLORE BENCH IN THE CASE OF MINDTECK INDIA LTD. (SUPRA) ON THE GROUND OF HIGH F LUCTUATION IN THE OPERATING MARGINS, WITH THE FOLLOWING OBSERV ATIONS: 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MAERSK GLO BAL CENTERS (SUPRA) HAD AN OCCASION TO DEAL WITH THE QU ESTION AS TO WHETHER HIGH PROFIT MARGIN MAKING COMPANIES S HOULD BE EXCLUDED AS A COMPARABLE. THE SPECIAL BENCH AFTE R CONSIDERING SEVERAL ASPECT HELD IN PARA 88 OF ITS O RDER THAT THE POTENTIAL COMPARABLE COMPANIES CANNOT BE EXCLUD ED MERELY ON THE GROUND THAT THEIR PROFIT IF ABNORMALL Y HIGH. THE SPECIAL BENCH HELD THAT IN SUCH CASES IT WOULD REQUIRE FURTHER INVESTIGATION TO ASCERTAIN THE REASONS FOR UNUSUALLY HIGH PROFIT AND IN ORDER TO ESTABLISH WHETHER THE E NTITIES WITH SUCH HIGH PROFITS CAN BE TAKEN AS COMPARABLE O R NOT. IN THE LIGHT OF THE AFORESAID OF THE SPECIAL BENCH AND IN VIEW OF THE ADMITTED POSITION THAT THE ASSESSEE FOL LOWS ATOS INDIA P. LTD. 22 FIXED PRICE PROJECT MODEL WHERE REVENUES FROM SOFTW ARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOP ED AND BILLED TO CLIENTS, THERE IS A POSSIBILITY OF TH E EXPENDITURE IN RELATION TO THE REVENUE BEING BOOKED IN THE EARLIER YEAR. THE RESULTS OF BODHTREE FROM F.Y. 200 3 TO 2008 EXCLUDING FY 2007 AS GIVEN BY THE LEARNED COUN SEL FOR THE ASSESSEE WERE ALSO PERUSED. PERUSAL OF THE SAME SHOWS, THAT THERE HAS BEEN A CONSISTED CHANGE IN TH E OPERATING MARGINS. THE CHART FILED BY THE ASSESSEE IN THIS REGARD IS GIVEN AS AN ANNEXURE TO THIS ORDER. IT AP PEARS TO US THAT THE REVENUE RECOGNITION METHOD FOLLOWED BY THE ASSESSEE IS THE REASON FOR THE DRASTIC VARIATION IN THE PROFIT MARGINS OF THIS COMPANY. IN THE GIVEN CIRCUMSTANCES , WE ARE OF THE VIEW THAT IT WOULD BE SAFE TO EXCLUDE BO DHTREE CONSULTING FROM THE FINAL LIST OF COMPARABLES CHOSE N BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 6.8. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE PUNE BE NCH IN THE CASE OF Q LOGIC INDIA P. LTD. (SUPRA) AND BY HONBLE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF LIONBRI DGE TECHNOLOGIES P. LTD. (SUPRA). THUS, KEEPING IN VIEW FACTS AND CIRCUMSTANCES OF THIS CASE AND POSITION OF LAW AS D ISCUSSED ABOVE, WE FIND THIS COMPANY AS NOT COMPARABLE WITH THE ASSESSEE COMPANY AND THE SAME IS DIRECTED TO BE EXC LUDED. 7. SONATA SOFTWARE LTD. IT HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT IN TH E CASE OF THIS COMPANY RELATED PARTY TRANSACTIONS ARE TO THE TUNE OF RS. 50.38% AND TO SHOW THIS FACT, OUR ATTENTION WAS DRA WN UPON THE FINANCIAL STATEMENTS OF THE SAID COMPANY. 7.1. PER CONTRA LD. CIT-DR SUBMITTED THAT REQUISITE WOR KING IN THIS REGARD IS NOT AVAILABLE HERE, AND THUS WITHOUT VERIFYING THE FACTS NO PROPER DECISION CAN BE TAKEN. ATOS INDIA P. LTD. 23 7.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHOR ITIES AND FACTS MADE AVAILABLE BEFORE US. IT IS NOTED FRO M THE ORDER OF THE DRP THAT THIS CONTENTION WAS MADE BY THE ASS ESSEE BEFORE THE DRP ALSO, WHICH WAS DISMISSED ON THE GRO UND THAT THE ASSESSEE WAS NOT ABLE TO DEMONSTRATE THE BASIS OF COMPUTING 50.38%. THE DRP MADE ITS OWN COMPUTATION AND OBSERVED THAT RPT WERE TO THE TUNE OF 16% ONLY. IT IS STATED BY LD COUNSEL THAT CALCULATIONS DONE BY THE DRP WERE N OT CONFRONTED TO THE ASSESSEE AND CLARIFICATIONS THE A SSESSEE WERE NOT OBTAINED BY THE DRP. LD. COUNSEL HAS VEHEMENTLY CONTENDED BEFORE US THAT THE DRP HAS MISUNDERSTOOD THE FACTS AND MADE WRONG COMPUTATION AND THESE FACTS CAN BE G OT VERIFIED THROUGH AO/TPO. IN OUR CONSIDERED VIEW, IT IS A MATTER OF FACT TO BE ASCERTAINED FROM FINANCIAL STATEMENTS OF THE SAID COMPANY AND OTHER SUPPORTING DOCUMENTS THAT HOW MUC H EXACT AMOUNT OF TRANSACTIONS IS ON ACCOUNT OF RELAT ED PARTY TRANSACTIONS. IN OUR VIEW, WITHOUT VERIFYING THE FA CTS PROPERLY FINAL DECISION SHOULD NOT BE TAKEN BY THE ASSESSEE. THOUGH, LD. COUNSEL HAS DRAWN OUR ATTENTION ON THE JUDGMENT OF DELHI BENCH OF TRIBUNAL IN THE CASE OF FISERV INDIA PVT. LTD. V. ITO 60 TAXMANN.COM 48 WHEREIN IT WAS HELD THAT IN THE C ASE OF SONATA SOFTWARE LTD-RELATED PARTY TRANSACTIONS TO S ALES RATIO IS MORE THAN 40% DURING THE A.Y. 2009-10, BUT KEEPING IN VIEW REQUEST OF LD. CIT-DR AND TO MEET ENDS OF JUSTICE, WE FIND IT APPROPRIATE TO SEND IT BACK TO THE FILE OF THE AO/T PO TO COMPUTE THE SAME PROPERLY AND EXCLUDE IT FROM THE L IST OF COMPARABLES IF RATIO OF RPT TO SALES IS FOUND TO BE MORE THAN 25%. THE ASSESSEE SHALL BE FREE TO RAISE ANY LEGAL OR FACTUAL ATOS INDIA P. LTD. 24 ISSUE WITH RESPECT TO THIS COMPARABLE. THE AO/TPO S HALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE TO SUBMIT REQUISITE DETAILS AND EVIDENCES AND CASE LAWS IN SU PPORT OF ITS CLAIM, WHICH SHALL BE TAKEN INTO CONSIDERATION ON O BJECTIVE BASIS BEFORE DECIDING THIS ISSUE AFRESH. WE DIRECT ACCORDINGLY. 8. WORKING CAPITAL ADJUSTM ENT THE ASSESSEE HAS CONTENDED BEFORE THE TPO THAT THE ASSESSEE SHOULD BE PROVIDED BENEFIT OF THIS ADJUSTMENT. BUT TPO REJECTED THE CLAIM OF THE ASSESSEE RELYING UPON THE JUDGMENT OF TRIBUNAL IN THE CASE OF SYMANTEC SOFTWARE PVT. LTD. FOR A.Y. 2006-07. BEFORE THE DRP ALSO, ASSESSEE WAS NOT GIVE N ANY RELIEF ON THE GROUND THAT CLAIM OF THE ASSESSEE WAS NOT SUPPORTED WITH PROPER WORKINGS AND DETAILED EXPLANA TION TOGETHER WITH DEMONSTRATION OF RISK OF THE ASSESSEE AND THOSE OF COMPARABLES. 8.1. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND SUBMISSIONS MADE BEFORE US BY BOTH THE SIDES. D URING THE COURSE OF HEARING IT HAS BEEN SHOWN TO US THAT ASSE SSEE HAD GIVEN PROPER WORKING IN THE TRANSFER PRICING REPORT AS WELL AS SUBSEQUENT PROCEEDINGS BEFORE THE LOWER AUTHORITIES . OUR ATTENTION WAS DRAWN ON VARIOUS PAGES OF THE PAPER B OOK SHOWING THAT REQUISITE DETAILS WERE SUPPLIED TO THE LOWER AUTHORITIES BUT NO SPECIFIC QUERY OR DOUBT WAS RAIS ED BY ANY OF THE AUTHORITIES. IT IS NOTED BY US THAT HONBLE DEL HI BENCH OF THE TRIBUNAL IN THE CASE OF MERCER CONSULTING INDIA LTD. VS. DCIT (ITA NO.966/DEL/2014 FOR A.Y. 2009-10 ORDER DA TED ATOS INDIA P. LTD. 25 06.09.2014 OBSERVED WITH REGARD TO GRANTING OF WORK ING ADJUSTMENT AS UNDER: 16.1. THE NEXT ISSUE RAISED BY THE LD. AR IS AGAINS T NON- GRANTING OF WORKING CAPITAL ADJUSTMENT CLAIMED BY T HE ASSESSEE FOR THE FIRST TIME BEFORE THE TPO. THE ASS ESSEE REQUESTED THE TPO TO GRANT WORKING CAPITAL ADJUSTME NT. THE ASSESSEES CLAIM WAS JETTISONED ON THE GROUND T HAT THE ASSESSEE FAILED TO DEMONSTRATE THAT THERE WAS A DIFFERENCE IN THE LEVELS OF WORKING CAPITAL EMPLOYE D BY IT VIS-A-VIS THE COMPARABLES. THE TPO FURTHER OBSERVED THAT : THE CLAIM OF WORKING CAPITAL ADJUSTMENT IS NOT A M ATTER OF RIGHT. HE FURTHER WENT ON TO ADD THAT THE ISSUE OF WORKING CAPITAL CAN BE RELEVANT WHEN THERE IS A SITUATION O F INVENTORY REMAINING TIED UP OR RECEIVABLES BEING HE LD UP AND SUCH SITUATION WILL NOT BE RELEVANT TO THE SERV ICE INDUSTRY. THAT IS HOW THE ASSESSEES CONTENTION ON THIS ISSUE WAS REPELLED. THE DRP ALSO FOLLOWED THE SUIT BY NOTICING THAT THE WORKING CAPITAL ADJUSTMENT IS DIF FICULT TO APPLY DUE TO THE LACK OF ACCURATE AND RELIABLE DATA . IT ALSO HELD THAT THE ISSUE OF WORKING CAPITAL WOULD BE REL EVANT ONLY WHEN THERE IS A SITUATION OF INVENTORY REMAINI NG TIED UP OR RECEIVABLES BEING HELD UP. THE ASSESSEE CONTE STS THE NON-GRANTING OF THE WORKING CAPITAL ADJUSTMENT. 8.2. WE FIND THAT THIS ISSUE HAS BEEN APTLY ADDRESSED B Y THE HONBLE BENCH IN THE CASE OF MERCER CONSULTING INDIA LTD. (SUPRA). THIS ISSUE COULD NOT HAVE BEEN BRUSHED ASI DE BY THE LOWER AUTHORITIES IN THE MANNER AS HAS BEEN DONE IN THIS CASE. WE FIND THAT AMPLE DETAILS HAVE ALREADY BEEN FILED BY THE ASSESSEE BEFORE LOWER AUTHORITIES, THEREFORE, IN AL L FAIRNESS AND JUSTICE WE SEND THIS ISSUE TO THE FILE OF THE AO/TP O WHO SHALL CONSIDER THIS DECISION AND SHALL GIVE AN ADEQUATE O PPORTUNITY OF HEARING TO THE ASSESSEE TO FILE FURTHER DETAILS AND EVIDENCES AS MAY BE REQUIRED AND CONSIDERED APPROPRIATE BY TH E ASSESSEE AND SHALL DECIDE THIS ISSUE AFRESH ON OBJE CTIVE BASIS ATOS INDIA P. LTD. 26 AFTER CONSIDERING THE DETAILS AND EVIDENCES AS MAY BE PLACED ON RECORD BY THE ASSESSEE. 9. SINCE, WE HAVE DECIDED THE ISSUES RAISED BY THE AS SESSEE WITH RESPECT TO COMPARABLES IN FAVOUR OF THE ASSESS EE, THEREFORE, KEEPING IN VIEW REQUEST OF BOTH THE PART IES, WE ARE NOT DECIDING ANY OTHER ISSUES ON THIS STAGE AS THES E ARE REPORTED TO HAVE BECOME INFRUCTUOUS ON THIS STAGE. IN VIEW OF THE SAME GROUND NOS. 1 & 3 ARE PARTLY ALLOWED IN TH E MANNER AS INDICATED ABOVE. 10. GROUND NO.2: IN THIS GROUND THE ASSESSEE HAS RAISED THE ISSUE OF ADDITION OF RS.2,63,31,853/- ON ACCOUNT OF NOTIONAL INTEREST ON THE ALLEGED OVERDUE RECEIVABLES FROM AE S. OF THE ASSESSEE COMPANY. 10.1. DURING THE COURSE OF HEARING BOTH THE PARTIES AGRE ED THAT THIS ISSUE IS COVERED BY THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 IN ITA NO.1778/MUM/2012 VIDE ORDER DATED 13.01.2016. 10.2. WE HAVE GONE THROUGH THE ORDER OF THE LOWER AUTHOR ITIES AS WELL AS THAT OF THE TRIBUNAL FOR THE EARLIER YEA R AND FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN A.Y. 2007- 08 WITH THE FOLLOWING OBSERVATIONS: 3.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE RECOMMENDING UPWARD ADJUSTMENT FOR CHARGING INTEREST FOR THE DEL AYED RECEIPTS THE TPO HAD CONSIDERED THE TERMS AND CONDI TIONS OF THE AGREEMENT ENTERED IN TO BY THE ASSESSEE WITH ITS ATOS INDIA P. LTD. 27 AE.S., THAT THE AGREEMENT STIPULATES THAT FOR DELAY ED PAYMENT(BEYOND A PERIOD OF ONE MONTH)THE AES. HAD T O PAY INTEREST @2%,THAT THE AO HAD CALLED FOR DETAILS IN THAT REGARD ABOUT THE PERIOD OF DELAY AND AS PER THE AO THE ASSESSEE DID NOT PROVIDE THE NECESSARY INFORMATION, THAT AS PER THE DIRECTION OF THE AO THE ASSESSEE HAD CAL CULATED THE INTEREST AMOUNT FOR THE DELAYED RECEIPTS FROM I TS AES. IN OUR OPINION, THE TRANSACTION IN QUESTION IS AN INTERNATIONAL TRANSACTION AND NOT A RESULT OF A TRA NSACTION AS ARGUED BY THE AR. THE ASSESSEE HAD PROVIDED SPEC IFIC SERVICES TO ITS AE.S. THEREFORE THE SERIES OF EVENT S CANNOT BE TERMED A RESULT OF INTERNATIONAL TRANSACTION. ON CE IT HAS BEEN DECIDED THAT ISSUE BEFORE US IS A TRANSFER PRI CING ISSUE THEN THE VALUE OF THE TRANSACTION HAS TO BE DETERMINED. IT IS A CASE WHERE THE TPO HAS RELIED U PON ON THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS AE AND HAS TREATED IT AS A BENCHMARK. WE FIND THAT NO INDEPENDENT SOURCE WAS SEARCHED OR RELIED UPON BY T HE HIM. IT IS A FACT THAT THE AGREEMENTS WITH THE THIR D PARTIES DID NOT CONTAIN ANY CLAUSE FOR CHARGING INTEREST FO R DELAYED PAYMENT. THUS, THE MATTER HAS ITS OWN PECULIARITIES. THE ASSESSEE HAS ENTERED IN TO AGREE MENT WITH THE AE.S. AND VALUE OF THE TRANSACTION WILL HA VE TO BE DECIDED. THE ARGUMENTS OF FACTORING OF DELAYED PAYM ENT IN THE VALUE OF SERVICE CANNOT BE BRUSHED ASIDE ESPECI ALLY WHEN IT IS FOUND THAT THE OPTC MARGIN EARNED BY THE ASSESSEE WAS 29.41 % AND IT WAS QUITE HIGHER THAN T HE PARTIES COMPARED WITH I.E.APP.15%.THE TPO HAD NOT CONSIDERED THESE VITAL ISSUES AND HAD APPLIED THE F LAT RATE OF 2%,AS MENTIONED IN THE AGREEMENT. IN OUR, OPINIO N THE ALTERNATE ARGUMENT ADVANCED BY THE ASSESSEE OF ADOP TING LIBOR RATE IS WORTH CONSIDERING, IF THE FACTS OF TH E CASE UNDER APPEAL ARE DELIBERATED UPON. WE ARE OF THE OP INION THAT IN THE INTEREST OF JUSTICE INTEREST RATE SHOUL D BE FIXED AT LIBOR+200 POINTS FOR THE DELAYED PAYMENTS RECEIV ED BY THE ASSESSEE FROM ITS AE.S. FOR THE PERIOD AS ME NTIONED IN THE AGREEMENTS.AO IS DIRECTED TO RECALCULATE THE INTEREST AMOUNT ACCORDINGLY. GROUND NO.4-5 ARE DECIDED IN FA VOUR OF THE ASSESSEE, IN PART. ATOS INDIA P. LTD. 28 10.3. BOTH PARTIES AGREED THAT FACTS ARE SIMILAR; UNDER THESE CIRCUMSTANCES WE SEND THIS ISSUE BACK TO THE FILE O F THE AO/TPO WITH THE DIRECTIONS TO FOLLOW THE ORDER OF T HE TRIBUNAL FOR A.Y. 2007-08 AND TO COMPUTE UPWARD ADJUSTMENT T O BE MADE ACCORDINGLY ON ACCOUNT OF INTEREST. THIS GROUN D IS DISPOSED ACCORDINGLY. 11. GROUND NOS.4.1 & 4.2: THESE GROUNDS ARE WITH REGARD TO DISALLOWANCE OF AMOUNT OF RS.1,08,17,012/- IN RESPE CT OF EXPENSES INCURRED BY THE ASSESSEE PERTAINING TO CON TRACT ENTERED WITH HPCL. IT WAS STATED BY BOTH THE PARTIE S THAT THIS ISSUE IS ALREADY ADDRESSED BY THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08. 11.1. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AS WELL AS THAT OF THE TRIBUNAL OF A.Y. 2007-08. IT IS NOTED THAT THE ASSESSEE HAD INCURRED LIQUIDATED DAMAGES WITH R ESPECT TO HPCL (PHASE 3) PROJECT FOR RS. 1,08,17,012/- TO BE INCURRED FOR VARIOUS PROJECTS. IT WAS FOUND BY THE LOWER AUTHORI TIES THAT THESE TRANSACTIONS WERE NEITHER ACCRUED NOR CRYSTAL LIZED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE P ROVIDED IN ITS BOOKS EXPENSES INCURRED ON THE PROJECTS OF HPCL (PHASE 3), AND OTHERS FOR AN AGGREGATE AMOUNT OF RS.5,49,31,77 2/- WHICH WAS TOTALLY DISALLOWED BY THE AO AND CONFIRME D BY THE DRP. 11.2. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L OF THE ASSESSEE HAS CONTESTED THE ISSUE BY WAY OF GROU ND NO.4.1 ATOS INDIA P. LTD. 29 & 4.2 PERTAINING TO THE EXPENSES OF HPCL PROJECT ON LY. THE EXPENSES WITH REGARD TO P & G AND OTHERS PROJECTS W ERE NOT CONTESTED AND GROUND NO. 4.3 TO 4.6 WERE NOT PRESSE D BY THE LD. COUNSEL AND NOTHING WAS ARGUED WITH RESPECT TO THESE GROUNDS AND THEREFORE, GROUNDS NOS. 4.3 TO 4.6 ARE DISMISSED. 11.3. WITH REGARD TO GROUND NO.4.1 AND 4.2 WHEREIN THE ASSESSEE HAS CONTESTED THIS ISSUE OF EXPENSES WITH REGARD TO HPCL, IT IS NOTED THAT SIMILAR ISSUE HAS ARISEN BEF ORE THE TRIBUNAL IN A.Y. 2007-08 WHEREIN THE TRIBUNAL HAD P ARTLY DELETED THE ADDITION AND PARTLY CONFIRMED. WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO TO FOLLOW THE ORDER OF TRIBUNAL FOR A.Y. 2007-08 FOR D ECIDING THIS ISSUE AFRESH. THE AO SHALL GIVE ADEQUATE OPPORTUNIT Y OF HEARING TO THE ASSESSEE TO FILE REQUISITE DETAILS A ND DOCUMENTARY EVIDENCES. THUS, GROUNDS NOS. 4.1 & 4.2 ARE ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR DI RECTION AS GIVEN ABOVE AND GROUND NOS. 4.3 TO 4.6 ARE DISMISSE D AS NOT PRESSED. 12. GROUND NO.5: THIS GROUND DEALS WITH THE ISSUE OF DENIAL OF DEDUCTION U/S 10A AMOUNTING TO RS.1,97,92,908/- IN RESPECT OF BANGALORE UNIT ACQUIRED ON SLUMP SALE. IN THE AS SESSMENT ORDER, THE AO DENIED THE BENEFIT OF DEDUCTION RELYI NG UPON THE ASSESSMENT ORDER FOR THE PRECEDING YEARS I.E. A.Y. 2008-09 ON THE GROUND THAT THE SAID UNIT WAS NOT A NEWLY ESTAB LISHED UNDERTAKING AND THAT IT WAS ACQUIRED BY ASSESSEE CO MPANY BY VIRTUE OF A SLUMP SALE TRANSACTION ENTERED INTO BY THE ASSESSEE ATOS INDIA P. LTD. 30 COMPANY WITH FCI TECHNOLOGY SERVICES LIMITED, AND T HUS, THE CLAIM OF DEDUCTION WAS NOT IN ACCORDANCE WITH SUB-S ECTION (7A) OF SECTION 10A OF THE ACT WHICH PROVIDES FOR A DMISSIBILITY OF DEDUCTION UNDER THIS SECTION TO A UNIT TRANSFER RED BY VIRTUE OF ANY SCHEME OF AMALGAMATION OR MERGER BUT THERE IS NO MENTION THERE IN WITH REGARD TO ANY PROVISION FOR A LLOWING DEDUCTION WITH RESPECT TO UNIT WHICH IS ACQUIRED BY WAY OF SLUMP SALE. IT WAS FURTHER MENTIONED BY THE AO TH AT THE ASSESSEE DID NOT PROVIDE PROPERLY STAMPED COPY OF A GREEMENT OF SLUMP SALE ENTERED INTO BY THE ASSESSEE WITH THE SAID COMPANY. BEFORE THE DRP ALSO THE ASSESSEE DID NOT G ET ANY RELIEF AS THE ORDER OF THE AO WAS CONFIRMED. 12.1. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L DREW OUR ATTENTION ON PAGE NO.486 OF THE PAPER BOOK BEING COPY OF AGREEMENT WHICH WAS REQUIRED BY THE AO. IT WAS SUBMITTED THAT THIS AGREEMENT ALONG WITH OTHER DOCU MENTS WERE SUBMITTED TO THE AO BUT WITHOUT EXPRESSING ANY DOUBTS, THE BENEFIT OF DEDUCTION WAS DENIED. OUR ATTENTION WAS ALSO DRAWN ON CBDT CIRCULAR DATED 17.01.2013 WHEREIN THE BOARD HAS CLARIFIED THAT BENEFIT OF DEDUCTION WOULD BE AL LOWABLE, EVEN UNDER THE CASE OF SLUMP SALE SUBJECT TO FULFILLMENT OF OTHER PRESCRIBED CONDITIONS. OUR ATTENTION WAS DRAWN ON V ARIOUS PAGES OF THE PAPER BOOK CONTAINING EVIDENCES OF REG ISTRATION OF THE BANGALORE UNIT AS STPI UNIT AND OTHER EVIDENCES TO SHOW COMPLIANCE OF ALL THE PRESCRIBED CONDITIONS. RELIAN CE WAS PLACED BY THE LD. COUNSEL ON THE JUDGMENT OF HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. SONATA SOFTWARE L TD. 343 ITR ATOS INDIA P. LTD. 31 397 WHEREIN HONBLE HIGH COURT HELD THAT BENEFIT OF DEDUCTION WOULD BE AVAILABLE EVEN IF UNIT IS ACQUIRED UNDER S LUMP SALE AND IT WAS FURTHER HELD THAT BENEFIT OF DEDUCTION S HALL NOT BE DENIED MERELY BECAUSE OF CHANGE IN THE OWNERSHIP. 12.2. PER CONTRA, LD. CIT-DR MENTIONED THAT THERE WAS NO DENIAL TO THE LEGAL POSITION THAT MERELY BECAUSE OF CHANGE IN OWNERSHIP BENEFIT OF DEDUCTION SHOULD NOT BE DENIED , BUT IN THIS CASE FACTS AND EVIDENCES WERE NOT CLEARLY BROU GHT BY THE ASSESSEE ON RECORD TO SHOW COMPLIANCE OF VARIOUS OT HER CONDITIONS AND THEREFORE, THIS ISSUE SHOULD BE SENT BACK TO THE FILE OF THE AO FOR EXAMINING ALLOWBILITY OF DEDUCTI ON AS PER LAW AND FACTS. 12.3. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AS WELL AS SUBMISSIONS MADE BY BOTH THE SIDES BEFOR E US. IN OUR VIEW, THE RELATIONSHIP BETWEEN THE UNDERTAKING AND THE DEDUCTION CAN BE COMPARED WITH THE RELATIONSHIP BET WEEN THE MOTHER AND BABY THAT IS TO SAY THAT WHEREVER MOTHER GOES- THE BABY FOLLOWS. IN OTHER WORDS, THE BENEFIT OF DEDUCTION IS AVAILABLE TO THE UNDERTAKING IF THE UNDERTAKING IS TAKEN OVER BY ANOTHER ASSESSEE WITH ALL THE ASSETS AND LIABILI TIES AND ITS BUSINESS REMAINS THE SAME. THE BENEFIT OF DEDUCTION ALLOWABLE TO THE UNDERTAKING FOR THE REMAINING PERIOD WOULD B E ALLOWABLE TO THE PERSON WHO HAS ACQUIRED THE UNDERTAKING, PRO VIDED OTHER PRESCRIBED CONDITIONS ARE ALSO FULFILLED. IN THIS REGARD, IT HAS BEEN CLARIFIED BY THE BOARD IN ITS CIRCULAR DAT ED 17.01.2013 WHICH HAS BEEN RELIED UPON BY THE LD. CO UNSEL ATOS INDIA P. LTD. 32 BEFORE US. THE RELEVANT PORTION OF THE SAID CIRCULA R IS REPRODUCED HEREIN FOR THE SAKE OF READY REFERENCE: (IV)WHETHER TAX BENEFIT UNDER SECTION 10A, 10AA, AND 10B WOULD CONTINUE TO REMAIN AVAILABLE IN CASE OF SLUMP SALE OF A UNIT/UNDERTAKING. THE VITAL FACTOR IN DETERMINING THE ABOVE ISSUE WOU LD BE FACTS SUCH AS HOW A SLUMP SALE IS MADE AND WHAT IS ITS NATURE. IT WILL ALSO BE IMPORTANT TO ENSURE THAT TH E SLUMP SALE WOULD NOT RESULT INTO ANY SPLITTING OR RECONST RUCTION OF EXISTING BUSINESS. THESE ARE FACTUAL ISSUES REQUIRI NG VERIFICATION OF FACTS. IT IS, HOWEVER, CLARIFIED TH AT ON THE SOLE GROUND OF CHANGE IN OWNERSHIP OF AN UNDERTAKING, AN D THE TAX HOLIDAY CAN BE AVAILED OF FOR THE UNEXPIRED PER IOD AT THE RATES AS APPLICABLE FOR THE REMAINING YEARS, SU BJECT TO FULFILLMENT OF PRESCRIBED CONDITIONS. 12.4. IN ADDITION TO THE ABOVE, THIS ISSUE ALSO CAME UP BEFORE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SON ATA SOFTWARE LTD, (SUPRA). THE RELEVANT PORTION CONTAIN ING USEFUL OBSERVATIONS OF HONBLE HIGH COURT IS REPRODUCED HE REUNDER: 11. THE TRIBUNAL IN THE PRESENT CASE HAS COME TO T HE CONCLUSION THAT WHERE A RUNNING BUSINESS IS TRANSFE RRED LOCK, STOCK AND BARREL BY ONE ASSESSEE TO ANOTHER ASSESSEE THE PRINCIPLE OF RECONSTRUCTION, SPLITTING UP AND TRANSFER OF PLANT AND MACHINERY CANNOT BE APPLIED. ACCORDING TO THE TRIBUNAL THE BENEFIT OF SECTION 10A ATTACHES TO THE UNDERTAKING AND NOT TO THE ASSE SSEE WHICH OWNS THE UNDERTAKING. THE BENEFIT OF SECTION 10A WAS HELD TO HAVE ATTACHED ITSELF TO THE STP UNI T OF THE SOFTWARE DIVISION WHICH WAS OWNED BY IOCL TILL 19 OCTOBER 1994 AND IT WAS OWNED BY THE ASSESSEE SUBSEQUENT TO THAT DATE. WHAT IS MATERIAL, ACCORDIN G TO THE TRIBUNAL, IS NOT WHO OWNS THE UNDERTAKING BUT WHETH ER THE UNDERTAKING IS ENTITLED TO THE BENEFIT AVAILABLE UNDER SECTION 10A. AS REGARDS THE ISSUE OF TRANSFER BY IOCL TO THE ASSESSEE, THE TRIBUNAL NOTED THAT SECTI ON 10A(9)WAS SUBSTITUTED BY THE FINANCE ACT 2000 WITH EFFECT FROM 1 APRIL 2002. SECTION 10A(9) PROVIDED THAT WHE RE ATOS INDIA P. LTD. 33 DURING ANY PREVIOUS YEAR THE OWNERSHIP OR BENEFICIA L INTEREST IN AN UNDERTAKING OF THE BUSINESS IS ITXAL -311- 2004 TRANSFERRED BY ANY MEANS, THE DEDUCTION UNDER SUB- SECTION (1) SHALL NOT BE ALLOWED TO THE ASSESSEE FO R THE ASSESSMENT YEAR RELEVANT TO SUCH PREVIOUS YEAR AND THE SUBSEQUENT YEARS. THE TRIBUNAL NOTED THAT IF A TRAN SFER BETWEEN IOCL AND THE ASSESSEE WERE TO BE EFFECTED A FTER 1 APRIL 2001, THAT WOULD RESULT IN THE UNDERTAKING BE ING DISENTITLED TO THE BENEFIT UNDER SECTION 10A. THIS WAS A POINTER TO THE FACT THAT PRIOR TO THE SUBSTITUTION A TRANSFER OF OWNERSHIP OR BENEFICIAL INTEREST IN THE UNDERTAKING WOULD NOT DISENTITLE AN ASSESSEE TO THE BENEFIT OF SECTIO N 10A. (AS A MATTER OF FACT IT MAY ALSO BE NOTED THAT THE PROV ISIONS OF SECTION 10A(9) WERE OMITTED BY THE FINANCE ACT 2 003 WITH EFFECT FROM 1 APRIL 2004). 12. THE JUDGMENT OF THE DIVISION BENCH OF THIS COUR T IN GAEKWAR FOAM EXPLAINS THAT THE CONCEPT OF A RECONSTRUCTION OF A BUSINESS IMPLIES THAT THE ORIGI NAL BUSINESS IS NOT TO CEASE FUNCTIONING AND ITS IDENTI TY IS NOT LOST. RECONSTRUCTION IS OF A BUSINESS ALREADY IN EX ISTENCE AND THERE MUST BE A CONTINUATION OF THE ACTIVITIES AND BUSINESS OF THE SAME INDUSTRIAL UNDERTAKING. WHERE THE OWNERSHIP OF A BUSINESS OR UNDERTAKING CHANGES HAND S THAT WOULD NOT BE REGARDED AS RECONSTRUCTION. THIS JUDGMENT HAS SPECIFICALLY BEEN APPROVED BY THE SUPREME COURT IN ITXAL-311-2004 TEXTILE MACHINERY CORPORATION (SUPRA). AS REGARDS THE SPLITTING UP OF A BUSINESS, THE RELEVANT TEST IS WHETHER AN UNDERTAKI NG IS FORMED BY SPLITTING UP OF A BUSINESS ALREADY IN EXI STENCE. UNLESS THE FORMATION OF THE UNDERTAKING TAKES PLACE BY THE SPLITTING UP OF A BUSINESS ALREADY IN EXISTENCE, TH E NEGATIVE PROHIBITION WOULD NOT BE ATTRACTED. IN THE PRESENT CASE, THE ENTIRE BUSINESS OF THE SOFTWARE UNDERTAKI NG WAS TRANSFERRED TO THE ASSESSEE. THE UNDERTAKING OF THE ASSESSEE WAS NOT FORMED BY THE SPLITTING UP OF THE BUSINESS. 13. FOR THE AFORESAID REASONS, THE FIRST QUESTION O F LAW WOULD HAVE TO BE ANSWERED IN THE AFFIRMATIVE IN FAV OUR OF THE ASSESSEE AND AGAINST THE REVENUE. 12.5. THUS, THE POSITION OF LAW IS VERY CLEAR THE BENEFI T OF DEDUCTION SHALL NOT BE DENIED TO THE ASSESSEE MEREL Y BECAUSE ATOS INDIA P. LTD. 34 THE UNDERTAKING WAS ACQUIRED BY THE SLUMP SALE. THE DEDUCTION IS ATTACHED TO THE UNDERTAKING AND THEREF ORE SHOULD BE ALLOWED TO THE ASSESSEE PROVIDED OTHER PRESCRIBE D CONDITIONS ARE FULFILLED. BUT THERE HAS BEEN SOME C ONFUSION WITH REGARD TO APPRECIATION OF FACTUAL EVIDENCES. I T HAS BEEN SHOWN TO US THAT COMPLETE EVIDENCES INCLUDING AGREE MENT AND OTHER VARIOUS EVIDENCES WERE AVAILABLE. BUT AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE AGREEMENT FILED WI TH THE AO WAS NOT ELIGIBLE AND IT WAS NOT PROPERLY STAMPED. N O PROPER DISCUSSION HAS BEEN MADE BY THE DRP ALSO IN ITS ORD ER. UNDER THESE CIRCUMSTANCES, WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO TO ENABLE HIM TO MAKE PR OPER VERIFICATION OF FACTS AND EVIDENCES TO ANALYZE THE OTHER PRESCRIBED CONDITIONS. THE DEDUCTION CANNOT BE DENI ED MERELY ON THE GROUND THAT THE UNIT WAS ACQUIRED UNDER SLUM P SALE. THE AO SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING T O THE ASSESSEE BEFORE DECIDING THIS ISSUE AFRESH. THUS, W ITH THESE DIRECTIONS THIS ISSUE IS SENT BACK TO THE FILE OF T HE AO WITH THE DIRECTIONS GIVEN ABOVE. 13. GROUND NO.6: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN REDUCING FOREIGN CURRENCY EXPENSES ONLY FROM EXPORT TURNOVER AND NOT FROM TOT AL TURNOVER WHILE CALCULATING THE AMOUNT OF DEDUCTION U/S 10A IN RESPECT OF THE OTHER UNITS. 13.1. IT WAS SUBMITTED BY LD. COUNSEL THAT THIS ISSUE WA S COVERED IN THE FAVOUR OF THE ASSESSEE WITH THE ORDE R OF THE ATOS INDIA P. LTD. 35 TRIBUNAL FOR A.Y. 2007-08. THE LD. DR DID RELIED UP ON THE ORDER OF THE LOWER AUTHORITIES. 13.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHOR ITIES AND ORDER OF THE TRIBUNAL FOR A.Y. 2007-08 IN ASSES SEES OWN CASE DATED 13.01.2006 AND FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ITS ORDER WITH THE FOLLO WING OBSERVATIONS: 5.THE EFFECTIVE GROUND OF APPEAL, FILED BY THE AO, IS ABOUT DIRECTION GIVEN BY THE FAA FOR REDUCING EXPENDITURE INCURRED IN FOREIGN CURRENCY FOR PROVIDING TECHNICA L SERVICES FROM TOTAL TURNOVER, WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE AS TO WHY THE EXPENSES INCURRED IN FOR EIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES IN RESPECT OF AKRITI SOFT TECH UNIT SHOULD NOT BE EXCLUDED FOR EXPORT TU RNOVER. THE ASSESSEE RELIED UPON CERTAIN CASES AND SUBMITTE D THAT IF EXPENSES WERE TO BE REDUCED FROM EXPORT TURN OVE R THEN THE SAME SHOULD BE REDUCED FROM TOTAL TURNOVER AS W ELL. HOWEVER, THE AO DID NOT AGREE WITH THE ASSESSEE AND RECOMPUTED THE EXEMPTION U/S.10A OF THE ACT. 5.1.IN THE APPELLATE PROCEEDINGS THE ASSESSEE BROUG HT TO THE ATTENTION OF THE FAA, THE JUDGMENT DELIVERED BY THE TRIBUNAL FOR THE AY.2002-03 AND OTHER CASES. REFERR ING TO THE JUDGMENT OF THE TRIBUNAL FOR THE AY 04-05 IN ASSESSEES OWN CASE, THE FAA HELD THAT EXPENSES INC URRED IN FOREIGN EXCHANGE TOWARDS TECHNICAL SERVICES PROV IDED OUTSIDE INDIA AMOUNTING TO RS.6.65CR FROM EXPORT TU RNOVER ALONE WAS NOT AS PER LAW, THAT SAME HAD ALSO TO BE REDUCED FROM TOTAL TURNOVER. 5.2.DURING THE COURSE OF HEARING BEFORE US,THE DR L EFT THE ISSUE TO THE DISCRETION OF THE BENCH. THE AR STATED THAT THE HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE HA S DECIDED THE ISSUE IN TS FAVOUR FOR THE AY.S. 2002- 03-2005- 06. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US WE FIND THAT THE TRIBUNAL AS WEL L AS THE HONBLE BOMBAY HIGH COURT HAS DECIDED THE ISSUE AGA INST THE AO AND IN FAVOUR OF THE ASSESSEE (IT APPEAL NO. 3733 ATOS INDIA P. LTD. 36 OF 2010, 1446 OF 2011 AND 1409 OF 2011 AND 1410 OF 2011 DT. 29.7.11, 8.2.13., 11.1.2013 AND 11.1.2013).RESPECTFULLY, FOLLOWING THE SAME EFFECTI VE GROUND OF APPEAL, RAISED BY THE AO, IS DECIDED AGAI NST HIM. 13.3. THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE TR IBUNAL AND JUDGMENT OF HONBLE HIGH COURT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, WE DECIDE THIS ISSUE IN FAVOUR O F THE ASSESSEE AND DIRECT THE AO TO FOLLOW THE ORDERS OF THE EARLI ER YEARS. THE AO SHOULD REDUCE THE AMOUNT OF IMPUGNED EXPENSES IN CURRED ON FOREIGN CURRENCY FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR COMPUTING THE AMOUNT OF DEDUCTION ALLO WABLE U/S 10A. THUS, THIS GROUND IS ALLOWED. 14. GROUND NO.7 . THIS GROUND IS NOT PRESSED AND THEREFORE, DISMISSED. 15. GROUND NO.8: IN THIS GROUND THE ASSESSEE HAS REQUESTED FOR SUITABLE DIRECTION TO THE AO FOR GRANTING SHORT CREDIT OF TDS, ADVANCE TAX AND AS ASSESSMENT TAX. NO SERIOUS OBJECTION WAS RAISED BY THE LD. DR, IN THIS REGARD. THE AO IS DIRECTED TO GIVE OPPORTUNITY TO THE ASSESSEE TO SUBMIT REQUISIT E DETAILS AND EVIDENCES WITH REGARD TO CORRECT AMOUNT OF TDS, ADVANCE TAX AND SELF ASSESSMENT TAX PAID BY THE ASSESSEE AN D AFTER CONSIDERING THE SAME THE AO SHALL GIVE CREDIT FOR T HE CORRECT AMOUNT AS PER LAW AND FACTS. THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ATOS INDIA P. LTD. 37 16. GROUND NO.9: THIS GROUND IS WITH REGARD TO LEVY OF INTEREST U/S 234B AND 234C AND THE SAME WAS STATED TO BE CONSEQUENTIAL IN NATURE AND THEREFORE, IT IS DISMIS SED. 17. GROUND NO.10: THIS GROUND IS WITH REGARD TO THE PENALTY PROCEEDINGS AND THE SAME IS DISMISSED BEING PREMATU RE. 18. GROUND NO.11: THIS GROUND IS NOT PRESSED AND THEREFORE, DISMISSED. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2016. SD/- (SAKTIJIT DEY) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED : 30/06/2016 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI