Microsoft India (R&D) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1479/DEL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6908 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I1
• Next Hearing Date: 17-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 92D; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 NEW DLEHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.1479/DEL/2016 ASSESSMENT YEAR: 2011 - 12 M/S MICROSOFT INDIA (R&D) P. LTD. V S DY.COMMIS SIONER OF INCOME - TAX, 807, NEW DELHI HOUSE, CIRCLE 16(2), NEW DELHI. BARAKHAMBA ROAD, NEW DELHI. (PAN:AABCM6358F) ( APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI NAGESHWAR RAO & PARTH, ADVOCATE RESPONDENT BY: SHRI SANJAY I. BARA, CIT - DR DATE OF HEARING: 0 5 .06.2018 DA TE OF PRONOUNCEMENT: 2 3 . 07 .2018 I NTERIM ORDER PER DIVA SINGH THE PRESENT APPEAL PERTAIN ING TO 2011 12 ASSESSMENT YEAR I S A STAY GRANTED APPEAL AND HAS COME UP FOR A PR IORITY HEARING ON ACCOUNT OF THIS FACT. THE ASSESSEE IN THE PRESENT APPEAL, ASSAILS THE CORRECTNESS OF THE FINAL ASSESSMENT ORDER DATED NIL PASSED BY THE ASSESSING OFFICER (AO) U/S 143 (3) R .W.S 144 C (1) OF THE INCOME T AX A CT 1961 (HEREINAFTER CALLED TH E A CT) INCORPORATING THE REVISED T RANSFER PRICING OFFICERS ORDER DATED 04/01/2016 PASSED PURSUANT TO THE D IRECTIONS DATED 08/12/2015 GIVEN BY THE DRP . 2. THE ISSUE WHICH FALLS FOR CONSIDERATION IN THE PRESENT PROCEEDINGS , ADDRESSED VIDE THIS INTERIM ORDER REVOLVES AROUND THE ARGUMENTS STATED TO HAVE BEEN ADVANCED BEFORE THE CO - ORDINATE BENCH ON 21/05/2018 QUA THE CHAL LENGE POSED IN GROUND NO. 7 BY THE ASSESSEE. THE RELEVANT EXTRACT OF THE HANDWRITTEN ORDER SHEET ENTRY BY THE BENCH CLERK SIGNED BY THE LD. M EMBERS IS REPRODUCED HEREUNDER FOR READY REFERENCE 21/05/2018 PRESENT FOR THE ASSESSEE : SH. NAGESHWAR RAO, ADV. PRESENT FOR THE DEPTT.: SHRI SANJAY I. BARA, CIT VDR . 7 29 . 05 . 2018 SD/ - S D/ - (S.K. KAMBLE) (N.K. SAINI) 3. IN THE SAID BACKGROUND ON 29 . 05 .2018 THE PARTIES INVITED OUR ATTENTION TO THE AFORESAID OR DER SHEET ENTRY. THE LD.AR FILED COPY OF THE WRITTEN ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 2 OF 21 SUBMISSIONS STATED T O HAVE BEEN FILED ON THE DIRECTIONS OF THE B ENCH AND STATED THAT THESE HAVE BEEN EMAILED TO THE DEPARTMENT AND HARD COPY THEREOF WAS BEING FILED IN THE C OURT. 4. THE CIT - DR MR. BARA S TATED THAT THE TPO S REPLY AVAILABLE WA S ALSO BEING FILED IN THE COURT . I T WAS ALSO HIS SUBMISSION THAT THOUGH THE EMAILED COPY HAD BEEN SENT BY THE LD. AR HOWEVER HE HAD NOT BEEN ABLE TO GO THROUGH THE SAME ACCORDINGLY AN ORAL REQUEST WAS MADE SEEKING TIME. 5 . DEPARTMENTAL REQUEST FOR TIME WAS ACCEPTED, HOWEVER THE LD. A R FOR THE SAKE OF CLARITY ABOUT WHAT TRANSPIRE D ON AN EARLIER DATE WAS REQUIRED TO BRIEFLY SUM UP THE SUBMISSIONS STATED TO HAVE BEEN ADVANCED BEFORE THE C OORDINATE B ENCH. HE WAS ALSO REQUIRED TO ADDRESS THE SPECIFIC GROUND UNDER WHICH THE PRAYER FOR QUASH ING THE ORDER WAS STATED TO BE MAINTAINABLE. 5.1 READING OUT GROUND NO. 7 RAISED BY THE ASSESSEE IN THE PRESENT APPEAL AND INVITING ATTENTION TO SPECIFIC INTERNAL PAGE 13 AND 61 O F THE TPOS ORDER IT WAS HIS SUBMISSION THAT REPEATEDLY THE TPO HAS NOTE D THAT THE TP STUDY IS NOT BEING REJECTED. THUS IN THE FACE OF THIS CATEGORIC REPETITION BROUGHT OUT IN THE ORDER BY THE TPO HIMSELF WHICH HE HAS ALSO BEEN KIND ENOUGH TO HIGHLIGHT IT IN HIS ORDER TO EMPHASIZE ITS IMPORTANCE THE ISSUE ON FACTS , IT WAS STA TED , STANDS ADDRESSED . THUS, IN TH E FACE OF THE ADMISSION BY THE TPO HIMSELF IT HAD BEEN ARGUED THAT THE PRAYER IS MAINTAINABLE RELYING ON THE PRECEDENT LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF LI & FUNG, 361 ITR 85 (DELHI) . THE SAID PRE CEDENT, IT HAD BEEN ARGUED BEFORE THE BENCH THAT IT HAD BEEN FOLLOWED BY THE DELHI BENCH IN ITA NO.7260/DEL/2017 DATED 7 TH MAY, 2018 IN THE CASE OF COIM INDIA P. LTD. C OPY OF TH E ORDER WAS FILED. ON THE BASIS OF THESE DECISIONS IT WAS HIS SUBMISSION THAT IT HAD BEEN ARGUED THAT THE TPO THEREFORE LACKED THE JURISDICTION TO PASS THE ORDER. IN THESE CIRCUMSTANCES IT WAS HIS SUBMISSION THAT IN CASE THE ASSESSEE SUCCEEDS ON THE BASIS OF FACTS AVAILABLE ON RECORD AND THE JUDICIAL PRECEDENT AVAILABLE THE ISSUES R AISED IN THE RE MAINING GROUNDS ASSAILING THE ADJUSTMENTS MADE WOULD NOT BE REQUIRED TO BE ADDRESSED IN THE PRESENT APPEAL. 6 . ON A READING OF THE ASSESSEE'S GROUND NO. 7 , THOUGH TIME HAD BEEN SOUGHT BY THE R EVENUE WHICH WAS BEING GRANTED CONSIDERING T HE RECORD A PRELIMINARY VIEW AFTER HEARING THE LD. AR WAS CONVEYED TO THE PARTIES ON BEHALF OF THE B ENCH THAT THE ISSUE IT APPEARED COULD NOT BE SAID TO BE ARISING ON A READING OF THE AFORESAID GROUND. SINCE N O EXPLANATION WAS OFFERED ADDRESSING THE SPECIF IC QUERY OF THE BENCH THE LD. AR MERELY CONFINED HIMSELF TO STATING ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 3 OF 21 THAT THE PLEA WAS RAISED ON 21.5.2018 AND THE ISSUE WAS HEARD AT LENGTH FROM BOTH THE SIDES AND THE BENCH IN VIEW THEREOF HAD GIVEN T IME TO THE PARTIES TO PLACE THEIR WRITTEN SUBMISSIONS . ACCORDINGLY THE LD. AR WAS REQUIRED TO ADDRESS THE QUERY ON THE NEXT DATE. I N THE SAID BACKGROUND ACCEPTING THE ORAL PRAYER OF THE CITDR ADJOURNMENT WAS GRANTED. 6.1 THE TYPED COPY OF THE SPECIFIC HANDWRITTEN ORDER SHEET ENTRY BY THE BENCH IS REPRODUCED A S UNDER: ORDER SHEET ENTRY DATED 29.5.2018 ADJOURNED TO 5 TH JUNE, 2018 ON THE REQUEST OF THE CIT DR SHRI S.I. BORA WHO IS HANDED OVER THE SUBMISSION BY LD.AR. REPLY OF TPO FILED . MR. RAO, ADVOCATE TO PLACE JUSTIFICATION OF RAISING THE PL EA IN GROUND NO.7. MR. RAO SEEK TIME TO REPLY THERETO THE REPLY OF TPO READ OUT IN THE TRIBUNAL. S D/ - S D/ - (PRASHANT MAHARISHI) (DIVA SINGH) 7. ON THE NEXT DATE OF HEARING I.E. 5.6.2018, THE LEARNED AR INVITED ATTENT ION TO APPLICATION DATED 29.5.2018 FILED IN THE REGISTRY PRAYING FOR ADMISSION OF THE FOLLOWING ADDITIONAL GROUND AS GROUND NO.7A: GROUND NO.7A: TRANSFER PRICING ADJUSTMENTS MADE BY LD. TPO ARE BAD IN LAW INTER - ALIA FOR THE REASON THAT LD. TPO DID NOT REJECT TP DOCUMENTATION PREPARED BY APPELLANT AND STILL MODIFIED ECONOMIC ANALYSIS UNDERTAKEN BY APPELLANT. 7.1 . RELYING U PON THE DECISION OF THE A PEX COURT IN THE CASE OF NTPC IT WAS HIS PRAYER THAT THE RAISING OF THE AFORESAID ADDITIONAL GROUND IS M AINTAINABLE AS NO FRESH ENQUIRY INTO FACTS IS REQUIRED AND IN TERMS OF THE PRECEDENT AVAILABLE IN THE CASE OF LI AND FUNG WHICH HAS BEEN FOLLOWED BY THE ITAT IN DELHI BENCHES IN THE CASE OF COIM INDIA PRIVATE LIMITED IT WAS HIS SUBMISSION THAT THE GROUND M AY BE ADMITTED AND ALLOWED . 7.2 A TTENTION WAS INVITED TO THE FURTHER WRITTEN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE REGARDING N ON - REJECTION OF TP STUDY . READING THEREFROM IT WAS SUBMITTED THAT DURING THE HEARING OF THE SUBJECT APPEAL ON 21 ST M AY 2 018 THE ITAT HAD DIRECTED THE ASSESSEE AND R EVENUE TO FILE SYNOPSIS OF THE ORAL SUBMISSIONS MADE IN CONNECTION WITH GROUND NO. 7 OF ASSESSEES APPEAL WHEREIN RELYING ON DECISION OF THE JURISDICTIONAL HIGH COURT AND THE ITAT DELHI B ENCH S ORDER IT WAS SUBM ITTED THAT WHEN THE TPO HAS CATEGORICALLY ASSERTED IN HIS ORDER THAT IT IS EMPHASI Z ED THAT TRANSFER PRICING STUDY IS NOT REJECTED AT ALL THE TPO THEREAFTER COULD NOT THEN MAKE ANY MODIFICATIONS/SUPPLEMENTATION/SUBSTITUTION OF THE STUDY . ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 4 OF 21 7.3 I T WAS SUBMIT TED THAT THE ASSESSEE HAS PROVIDED ADVANCE COPY OF ITS SYNOPSIS TO THE DEPARTMENTAL REPRESENTATIVE HOWEVER ON GOING THROUGH THE R EPORT RECEIVED FROM THE TPO FILED BY T HE CIT - DR ON THE DIRECTIONS OF THE B ENCH W HICH HAD BEEN PROVIDED TO THE COUNSEL ON THE LA ST DATE, IT WAS NOTICED THAT THE DEPARTMENT HAS NOT INCLUDED ANY SUBMISSIONS/COMMENT ON THE ABOVE ARGUMENTS ADVANCED BEFORE THE COURT ON 21/05/2018 . 7.4 THUS IT WAS HIS SUBMISSION THAT IN THE FACE OF THE NON REJECTION OF THE ASSESSEES TP DOCUMENTATION . EVIDENT FROM THE TPOS ORDER DATED 30 .01. 2015 WHEREIN AT INTERNAL PAGES 13 AND 61 OF HIS ORDER THE TPO HAS UN AMBIGUOUSLY EMPHASIZE D THAT TP STUDY IS NOT BEING REJECTED AT ALL IN THESE FACTS RELYING UPON PARA 44 OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LI AND FUNG INDIA IT WAS HIS SUBMISSION THAT THE C OURT HAS HELD THAT IT IS IMPROPER ON TH E PART OF THE R EVENUE AUTHORITIES TO PROCEED TO THEIR OWN DETERMINATION AND CALCULATIONS OF ALP WITHOUT HAVING REJECTED ASSESSEES COMPARISON / ASSESSMENT IN THE FIRST PLACE. 7.5 THE SAID PROPOSITION OF LAW IT WAS SUBMITTED HAS BEEN FOLLOWED BY THE I TAT DELHI B ENCH IN THE CASE OF COIM INDIA PRIVATE LIMITED VERSUS ACIT SPECIFIC ATTENTION WAS INVITED TO PARA - 11 OF THE SAID DECISION WHEREIN IT HAD B EEN HELD THAT WITHOUT FIRST DISCARDING THE METHODOLOGY OF THE ASSESSEE THE TPO CANNOT PROCEED TO MAKE ANY ALTERATIONS 7.6 . A CCORDINGLY IT WAS HIS PRAYER THAT THE TP ADJUSTMENTS MADE BY THE TPO/AO ARE BAD IN LAW AND DESERVE TO BE QUASHED AND THE ADJUSTMEN TS / ADDITION MAY BE DELETED ON THIS PRELIMINARY OBJECTION . H OWEVER FOR THE SAKE OF COMPLETENESS IT WAS SUBMITTED THE ASSESSEE WOULD ALSO WANT TO ARGUE THE ENTIRE APPEAL ON MERIT S . 8 . T HE LD. THE CIT - DR MR. BARA O N GOING THROUGH THE WRITTEN SUBMISSIONS AND THE FURTHER WRITTEN SUBMISSIONS MADE AVAILABLE ON BEHALF OF THE ASSESSEE AND ON CONSIDERING THE REPLY OF THE TPO FILED STATED THAT THOUGH ON THE DIRECTIONS OF THE B ENCH WRITTEN REPLY WAS REQUIRED TO BE FILED HOWEVER THE REPLY FILED DOES NOT APPEAR TO HAVE ADDRESSED THE OBJECTION TO THE ALLOWABILITY OF THE SAID PRAYER . I T WAS HIS SUBMISSION THAT ALL ALONG HE HAS ARGUED THAT THE PRAYER OF THE ASSESSEE WAS NOT MAINTAINABLE ON FACTS AND IT HAD BEEN OBJECTED TO BY HIM BEFORE THE BENCH EVEN ON 21.05.2018 . I T WAS ALSO HIS SUBMISSION THAT WHEN THE TPOS ORDER IS CONSIDERED IN TOTALITY IT WOULD BE SEEN THAT THOUGH THE WORDS HAVE BEEN USED BY THE TPO BY WAY OF ABUNDANT CAUTION TO SAY THAT THE ENTIRE TP STUDY IS NOT BEING REJECTED , IT IS ALSO HIGHLIGHT ED TO ADDRE SS THE ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 5 OF 21 REASONABLENESS OF THE VIEW OF THE TPO WHO HAS ADDRESSED THE OBJECTION S OF THE ASSESSEE AND WHILE DOING SO, HE IS ONLY HIGHLIGHT ING THE SALIENT ISSUES ON WHICH HE PICKS OUT AND REQUIRES THE ASSESSEE TO ADDRESS AND CONSEQUENTLY CONSIDER S THAT TO THE E XTENT THE TP STUDY IS ACCEPTED. THE ARGUMENTS RAISED BY THE ASSESSEE , IT WAS SUBMITTED, WERE IN FACT AN AFTERTHOUGHT AND MAY NOT BE MADE THE BASIS FOR GRANTING RELIEF AS NEITHER IT IS RAISED BEFORE THE DRP NOR THE ITAT ORIGINALLY . 8.1 ACCORDINGLY, IT WAS SUBMITTED THAT SINCE THE ISSUE WAS NEVER AGITATED BEFORE THE DRP AND NOT RAISED BEFORE THE ITAT ALSO ORIGINALLY IT IS AN AFTERTHOUGHT AND THUS THE ADDITIONAL GROUND MAY NOT BE ADMITTED AND IN CASE IT IS ADMITTED , IT MAY BE REJECTED AS THE TPO REPEATEDLY HA S GIVEN DETAILED REASONS AFTER HEARING THE ASSESSEE CLEARLY STATING FOR WHAT REASONS AND TO WHAT EXTENT, THE TRANSFER PRICING STUDY WAS NOT BEING ACCEPTED. THE GROUND IN THE EVENTUALITY IT WAS ADMITTED IT WAS HIS PRAYER MAY BE DISMISSED. 9 . THE LD. AR IN REPLY STATED THAT IT IS AN AFTER THOUGHT ON THE PART OF THE REVENUE TO NOW DEFEND THE SPEAKING OBSERVATIONS MADE BY THE TPO BY WAY OF THE ORAL ARGUMENTS ADVANCED BEFORE THE ITAT. 10 . WE HAVE HEARD THE SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIRST PROPOSE TO ADDRESS THE ARGUMENTS QUA THE ALLOWABILITY OF THE ASSESSEE S PRAYER UNDER THE WEIGHT OF GROUND NO. 7 AS IT HAS BEEN WORDED . THE SPECIFIC GROUND IS EXTRACTED HEREUNDER FOR READY REFERENCE : GROUND NO.7: THAT ON FACTS AND IN LA W, THE HONBLE DRP AND THE LD. TPO/LD.AO HAVE ERRED BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME - TAX RULES, 1962 (IT RULES), AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF THE IMPUGNED TRANSACTIONS AND HOLDING THAT THE SAME ARE NOT AT ARMS LENGTH. 10. 1 ON A READING OF THE ABOVE , WE FIND THAT THE CHALLENGE THEREIN IS POSED SPECIFICALLY TO THE CORRECTNESS OF THE DECI SION OF THE DRP/TPO WHEREIN THE ECONOMIC ANALYSIS CARRIED OUT BY THE TAXPAYER IS REJECTED. THUS, WE FIND THAT BY NO STRETCH OF IMAGINATION, THE PRAYER STATED TO BE ADVANCED BY WAY OF ORAL ARGUMENT ON 21.05.2018 COULD BE ADDRESSED UNDER THE WEIGHT OF GROUND NO. 7 AS IT IS WORDED . ACCORDINGLY, WE HAVE NO HESITATION IN HOLDING THAT THE SAME HAS TO BE REJECTED. 11 . WE NOTE THAT THE ASSESSEE TAKING THE HINT FROM THE PRELIMINARY VIEW EXPRESSED ON 29.05.2018 HAS MOVED AN APPLICATION FOR ADMISSION OF ADDITIONA L ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 6 OF 21 GROUND NAMELY GROUND NUMBER 7A WHICH THOUGH HAS BEEN EXTRACTED EARLIER IS REPRODUCED HERE UNDER AGAIN FOR READY REFERENCE: GROUND NO.7A: TRANSFER PRICING ADJUSTMENTS MADE BY LD. TPO ARE BAD IN LAW INTER - ALIA FOR THE REASON THAT LD. TPO DID NOT REJECT TP DOCUMENTATION PREPARED BY APPELLANT AND STILL MODIFIED ECONOMIC ANALYSIS UNDERTAKEN BY APPELLANT. 11 .1 ADDRESSING THE ADMISSIBILITY OF THE SAID GROUND TAKING NOTE OF THE DEPARTMENTAL OBJECTIONS TO THE RAISING OF THE SAID GROUND AT THIS STAGE WE DEEM I T APPROPRIATE TO FIRST ADDRESS CERTAIN SALIENT FACTS. ADMITTEDLY THE PRECEDENT LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN CASE OF LI & FUNG (CITED SUPRA) RELIED UPON BY THE ASSESSEE WE NOTE WAS AVAILABLE IN THE PUBLIC DOMAIN FROM 16.12.2013 . T HE ASSESS EE HAVING FILED THE OBJECTION S BEFORE THE DRP PURSUANT TO THE TPOS ORDER DATED 30.01.2015 WE NOTE COULD HAVE AGITATED THE SAME BEFORE THE DRP AND THERE WAS NO IMPEDIMENT FOR THE ASSESSEE TO RAISE THE OBJECTION EITHER BEFORE THE DRP OR TAKE IT AS A FRESH G ROUND INADVERTENTLY NOT TAKEN BEFORE THE ITAT. IT IS A MATTER OF RECORD THAT NO SUCH OBJECTION BEFORE THE DRP OR GROUND BEFORE THE ITAT WAS RAISED. 11. 2 IT IS SEEN THAT THE LD. AR HAS ALSO RELIED UPON A RECENT DECISION ARGUED BY HIM BEFORE THE DELHI BENCH IN ITA 7260 /DEL/ 2017 DATED 07/05/2018 IN THE CASE OF M/S COIM INDIA PRIVATE LIMITED. ON GOING THROUGH THE SAID ORDER WE FIND FROM THE DISCUSSION MADE THEREIN THAT IT IS NOT CLEAR WHICH GROUND OF THE ASSESSEE WAS BEING CONSIDERED BY THE COORDINATE BEN CH AS THE GROUNDS RAISED BEFORE THE ITAT ARE NOT FOUND EXTRACTED IN THE ORDER . WE PROPOSE TO EXTRACT HEREINAFTER THE SPECIFIC FINDING OF THE CO - ORDINATE BENCH WHEREUPON HEAVY RELIANCE IS PLACED UPON BY THE REVENUE. ON A READING THERE FROM WE NOTE THAT THOU GH THE LD. AR HAS RELIED UPON THE SAME AS A PRECEDENT FOR ALLOWABILITY OF THE PRAYER COUCHED IN THE ADDITIONAL GROUND, HOWEVER, IN THE ORDER THE FACTUAL BACKGROUND WHICH LEAD TO THE PASSING OF THE ORDER IS NOT ADDRESSED. IT IS NOT CLEAR WHETHER A N ADDITION AL GROUND WAS RAISED IN THE COURSE OF THE ARGUMENTS BEFORE THE ITAT OR WAS THE GROUND ALL ALONG BEFORE THE DRP AND STOOD ADJUDICATED UPON BY THE DRP WHICH HAD BEEN CONSIDERED BY THE CO - ORDINATE BENCH . WE FURTHER NOTE O N A READING OF THE AFORESAID ORDER TH AT NOT ONLY WAS THE ASSESSEE REPRESENTED BY THE VERY SAME COUNSEL MR. NAGESHWAR RAO APPEARING IN THE PRESENT PROCEEDING EVEN THE REVENUE WAS ALSO REPRESENTED BY THE VERY SAME CIT - DR MR. BARA . O N A READING OF THE ORDER IT ALSO APPEARS THAT THE POSITION ON F ACTS CONSIDERED WAS ACCEPTED BY THE REVENUE AS APPARENTLY NO O BJECTIONS TO THE ALLOWABILITY OF THE ASSESSEE S PRAYER ARE FOUND DISCUSSED BY THE CO - ORDINATE BENCH . FOR READY REFERENCE WE REPRODUCE PARA 11 AND 12 FROM THE AFORESAID DECISION : ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 7 OF 21 11. MOREOVER, IT CAN BE SEEN THAT NEITHER THE TPO NOR THE DRP HAS DISCARDED THE MOST APPROPRIATE METHOD ADOPTED BY THE ASSESSEE WHICH WAS TNMM. WITHOUT DISCARDING THE METHODOLOGY OF THE ASSESSEE, THE TPO CANNOT PROCEED FURTHER. FOR THIS PROPOSITION, WE DRAW SUPPORT FROM THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF LI AND FUNG INDIA [P] LTD VS. CIT REPORTED AT 361 ITR 85 [DEL]. THE RELEVANT FINDINGS OF THE HON'BLE JURISDICTIONAL HIGH COURT READ AS UNDER: '44. ANOTHER IMPORTANT ASPECT WHICH CANNOT BE OVERLOOKED IS THAT THE TRANSFER PRICING DOCUMENTATION MAINTAINED IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10B OF THE INCOME - TAX RULES, DETERMINED THE ARM'S LENGTH PRICE OF THE 'INTERNATIONAL TRANSACTION' OF THE PROVISION OF BUYING SERVI CES APPLYING THE TNMM, BY COMPARING OPERATING PROFIT MARGIN OF LFIL WITH THAT OF THE COMPARABLE COMPANIES, AS UNDER: WEIGHTED AVERAGE OP/OC PER CENT OF 4.07 PER CENT 26 COMPARABLE COMPANIES OP/OC PER CENT OF LFIL 5.17 PERCENT THIS EXERCISE HAS NOT BEEN DISCARDED, IN OTHER WORDS, THE TPO AND THE APPELLATE FORA WERE AWARE THAT IN ACCORDANCE WITH THE RULES, A COMPARISON OF THE PROFIT MARGIN OF LFIL WITH THAT OF OTHER SIMILARLY FUNCTIONING COMPANIES WAS SHOWN, AND IS, AT THE FIRST INSTANCE, RELEVANT TO DETERMINE THE ALP. THE PROFIT MARGIN, AS WELL AS THE COST PLUS MODEL ADOPTED BY LFIL, WAS NOT SHOWN TO BE DISTORTED OR OF SUCH MAGNITUDE AS TO PERSUADE THE TAX AUTHORITIES INTO DISCARDING THE EXERCISE ALTOGETHER. HAVING NOT CONTRADICTED THIS COMPARISON, TH E REVENUE PROCEEDED TO ITS OWN DETERMINATION AND CALCULATIONS. THIS, HOWEVER, IS IMPROPER, GIVEN THAT THE ASSESSMENT CARRIED OUT BY THE ASSESSEE MUST FIRST BE REJECTED, FOR ANY FURTHER ALTERATIONS TO TAKE PLACE. INDEED, IT CANNOT BE THAT THE REVENUE ADMITS TO THE CORRECTNESS OF LFIL 'S ASSESSMENT BUT NONETHELESS PROCEEDS TO ADOPT A DIFFERENT METHOD. 45. INDEED, ONCE THE TNMM WAS DEEMED MOST APPROPRIATE METHOD, THE DISTORTIONS, IF ANY, HAD TO BE ADDRESSED WITHIN ITS FRAMEWORK. HERE, THE UNRELATED TRANSA CTIONS WHICH WERE COMPARED BY LFIL HAVE NOT BEEN ADVERSELY COMMENTED UPON, AND NEITHER HAS THE CHOICE OF THE TNMM. THE TPO, THEREFORE, IGNORED THE RELEVANT AND CRUCIAL MATERIAL, AND STRAIGHTAWAY PROCEEDED TO BROADEN THE BASE FOR ARRIVING AT THE PROFIT MA RGIN, FOR ATTRIBUTED INCOME OF THE ASSESSEE. NOT ONLY IS THIS A CLEAR INFRACTION OF THE TERMS OF THE ACT AND RULES; THE TPO WENT AHEAD TO INTRODUCE WHAT IS CLEARLY ALIEN TO THE PROVISIONS OF LAW AND TRAVELLED OUTSIDE THE RULES. 46. THE ASSESSEE HAD AR GUED THAT NO SUCH ADJUSTMENT WAS MADE IN THE EARLIER ASSESSMENT YEARS, FOR WHICH ASSESSMENT ORDERS OF PREVIOUS FOUR YEARS WERE SUBMITTED, WHEREIN THE TNMM WITH OPERATING PROFIT OVER TOTAL COST (OP/TC) AS A PROFIT LEVEL INDICATOR WAS ACCEPTED PREVIOUSLY. RE LIANCE WAS PLACED ON DECISIONS OF THE SUPREME COURT IN RADHASOAMI SATSANG (SUPRA) AND CIT V. NEW POLY PACK (SUPRA) TO SUPPORT THE AFOREMENTIONED ARGUMENT. ALTHOUGH PREVIOUS TAX ASSESSMENTS DO NOT BAR SUBSEQUENT CLAIMS AS RES JUDICATA, EACH ASSESSMENT MUST BE JUSTIFIED ON ITS OWN TERMS, AND AS DETAILED ABOVE, THE ASSESSMENT BY THE TPO/AO, AND THE SUBSEQUENT ACCEPTANCE OF THESE METHODS BY THE APPELLATE AUTHORITIES, IS INCONSISTENT WITH THE IT RULES AND THE IT ACT,' 12. FACTS ON RECORD SHOW THAT THE TPO HAS N OT DISCARDED THE EXERCISE UNDERTAKEN BY THE ASSESSEE IN DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION RELATING TO PAYMENT OF ROYALTY AND TECHNICAL FEES. IN LIGHT OF THE AFORE STATED JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT [SUPRA], ACTION O F THE TPO IS BAD IN LAW AND THE DRP GROSSLY ERRED IN AFFIRMING THE ACTION OF THE TPO. (EMPHASIS SUPPLIED) 11.3 ACCORDINGLY , NOTING THAT THOUGH THE JUDICIAL PRECEDENT AVAILABLE IN THE CASE OF L I & FUNG WAS AVAILABLE IN THE PUBLIC DOMAIN FROM 16.12.2013 AND THE ASSESSEE RAISED NO SUCH OBJECTION BEFORE THE DRP OR BEFORE THE ITAT HOWEVER EMBOLDENED BY THE PRECEDENT AS AVAILABLE IN THE CASE OF M/S COI M INDIA P.LTD. DATED 07.05.2018 THE GROUND HAS BEEN RAISED WHEREIN IT IS SUCCESSFULLY PLEADED THAT NO FRESH ENQU IRY IS REQUIRED TO BE MADE FOR ADJUDICATING THE GROUND NO. 7( A ) . ACCORDINGLY, IN VIEW OF THESE PECULIAR FACTS AND CIRCUMSTANCES AND CONSIDERING THE POSITION OF LAW WE DEEM IT APPROPRIATE TO ADMIT THE SAID GROUND OVERRULING THE DEPARTMENTAL OBJECTIONS. ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 8 OF 21 1 2 . ADDRESSING THE ARGUMENTS OF THE PARTIES FOR ALLOWABILITY OF THE PRAYER IN TERMS OF GROUND NO. 7( A ), WE FIND THAT THE PLEAS RAISED BY THE ASSESSEE REFERRING TO PAGE 13 AND 61 OF THE TPOS 95 PAGED ORDER PLACED AT APPEAL - SET PAGES 336 TO 430 WHEREIN THE SPE CIFIC OBSERVATIONS HAVE BEEN MADE BY THE TPO AT INTERNAL PAGE 1 3 (348 OF THE APPEAL SET) AND INTERNAL PAGE 61 (396 OF THE APPEAL SET) THE PRAYER OF THE ASSESSEE CANNOT BE ACCEPTED. THE REASONS FOR THE AFORESAID CONCLUSION ARE ELABORATED HEREINAFTER. BEFOR E WE ELABORATE THE CONCLUSION SO DRAWN AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES THE MATERIAL AVAILABLE ON RECORD AND THE JUDICIAL PRECEDENT CITED WHICH HAS BEEN DULY CONSIDERED WE DEEM IT APPROPRIATE TO FIRST ADDRESS CERTAIN RELEVANT FACTS. 1 2.1 . T HE ASSESSEE IN THE FACTS OF THE PRESENT CASE (MIRPL) IS A PRIVATE LIMITED COMPANY WHICH IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND PRODUCT SUPPORT SERVICES. THE ASSESSEE COMPANY WAS INCORPORATED ON 15/05/1998 UNDER THE COMPANIES ACT 1956 AND IS A WHOLLY OWNED SUBSIDIARY OF M/S MICROSOFT IRELAND CAPITAL LTD (99.99%) WHICH IS ULTIMATELY OWNED BY MICROSOFT CORPORATION, USA. THE ASSESSEE HAS TWO UNDERTAKINGS, ONE AT BANGALORE AND THE OTHER AT HYDERABAD. THE HYDERABAD STP UNIT WAS SETUP IN 1998 AND P ROVIDES SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISE ('AE'), MS CORP. THE BANGALORE STP UNIT WAS SETUP IN 2003 AND PROVIDES IT ENABLED SERVICES TO MS CORP . IN RESPECT OF ITS BANGALORE UNIT REGISTERED WITH STPI OF BANGALORE, THE ASSESSEE HAS C LAIMED DEDUCTION UNDER SECTION 10A. IT IS SEEN THAT THE ASSESSEE IN THE TP STUDY DISCLOSED THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH THE AES IN THE YEAR UNDER CONSIDERATION : 1 2 .2 . THE OWNERSHIP STRUCTURE OF MIRPL AS ON 31 ST MARCH,2011 HAS BEEN ADDRESSED BY THE TPO IN THE FOLLOWING MANNER : 2. GROUP OVERVIEW AND OWNERSHIP STRUCTURE: TYPE OF INTERNATIONAL TRANSACTION METHOD SELECTED VALUE OF TRANSACTION IN IN R MARGIN OF ASSESSEE MARGIN OF COMPARABLES PROVISION OF SOFTWARE DEVELOPMENT SERVICES (HYDERABAD UNIT) TNMM USING OP/OC AS PL1 10,720,663,928 14.94% 9.50% PURCHASE OF FIXED ASSETS 596,590 PROVISION OF IT ENABLED SERVICES (BANGALORE UNIT) TNMM USING OP/OC AS PL1 3,234,626,948 15.39% 13.18% PAYMENT FOR ASSIGNMENT OF PERSONNEL SERVICES BY MIRPL TNMM USING OP/OC AS PLI 87,065,082 5% PAYMENT OF INTEREST ON EXTERNAL COMMERCIAL BORROWING ('ECB') CUP METHOD 571,927 LIBOR PLUS REIMBURS EMENT OF EXPENSES RECEIVED FROM AES NO BENCHMARKING REQUIRED 366,988,222 NA ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 9 OF 21 2.1 O WNERSHIP STRUCTURE THE OWNERSHIP STRUCTURE OF MIRPL AS ON 31 MARCH 2011 IS AS FOLLOWS: THE DIAGRAMMATIC REPRESENTATION OF THE OWNERSHIP STRUCTURE OF MIRPL AS ON 31 MARCH 2011 IS AS FOLLOWS. 1 2 . 3 THE PROFILE OF M.S CORP HAS BEEN ADD RESSED IN THE FOLLOWING MANNER: 2.2 PRO FILE OF MS CORP MS CORP, THE PARENT COMPANY OF THE MICROSOFT GROUP WAS FOUNDED AS A PARTNERSHIP IN 1975 AND LATER INCORPORATED IN 1981 WITH ITS HEADQUARTERS IN REDMOND, WASHINGTON, THE UNITED STATES OF AMERICA ('US'}. THE HEADQUARTERS HOUSE MS CORP'S CORPO RATE OFFICES, ITS US BASED FINANCE AND ADMINISTRATIVE STAFF, ALL OF ITS OFFICERS AND MOST OF ITS EXECUTIVES, MOST OF ITS RESEARCH AND DEVELOPMENT TEAMS AND SOME OF ITS SALES AND MARKETING PERSONNEL. MS CORP DEVELOPS AND MARKETS SOFTWARE, SERVICES, HARDWARE , AND SOLUTIONS. MS CORP DOES BUSINESS THROUGHOUT THE WORLD AND HAS OFFICES IN MORE THAN 100 COUNTRIES. MS CORP GENERATES REVENUE BY DEVELOPING, MANUFACTURING, LICENSING, AND SUPPORTING A WIDE RANGE OF SOFTWARE PRODUCTS AND SERVICES FOR MANY DIFFERENT TYPE S OF COMPUTING DEVICES. MICROSOFT SOFTWARE PRODUCTS AND SERVICES INCLUDE OPERATING SYSTEM FOR PERSONAL COMPUTER SERVICES AND INTELLIGENT DEVICES SERVER APPLICATION FOR DISTRIBUTED COMPUTING ENVIRONMENTS INFORMATION WORKER PRODUCTIVITY APPLICATION BUSNESS SOLUTIONS HIGH - PERFORMANCE COMPUTING APPLICATION SOFTWARE DEVELOPMENT TOOLS AND VIDEO GARNES ,MS CORP PROVIDES CONSULTING AND PRODUCT AND SOLUTION SUPPORT SERVICES, AND TRAIN AND CERTIFY COMPUTER SYSTEM INTEGRATORS AND DEVELOPERS. MS CORP ALSO DESIGNS A ND SELLS HARDWARE INCLUDING S.NO LIST OF SHAREHOLDER NO. OF SHARES PERCENTAGE OF HOLDING 1. MICROSOFT IRELAND RESEARCH LIMITED, IERLAND 4,236,002 99.99 PERCEN T 2. ROUND ISLAND ONE LIM ITED 1 0.01 PERCENT TOTAL 4,236,002 100 PERCENT MICROSOFT IRELAND RESEARCH MICROSOFT INDIA R&D PRIVATE LIMITED 99.99% OUTSIDE INDIA INDIA ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 10 OF 21 THE XBOX 360 GAMING AND ENTERTAINMENT CONSOLE AND ACCESSORIES, THE ZUNE DIGITAL MUSIC AND ENTERTAINMENT DEVICE AND ACCESSORIES, AND PC HARDWARE PRODUCTS. MS CORP EARNS REVENUE FROM CUSTOMERS PURCHASING ITS SOFTWARE; THAT WILL CO NTINUE TO BE AN IMPORTANT PART OF ITS BUSINESS, EVEN AS MS CORP DEVELOPS AND DELIVERS 'CLOUD - BASED' COMPUTING SERVICES. CLOUD - BASED COMPUTING INVOLVES PROVIDING SOFTWARE, SERVICES AND CONTENT OVER THE INTERNET BY WAY OF SHARED COMPUTING RESOURCES LOCATED I N CENTRALIZED DATA CENTERS. CONSUMERS AND BUSINESS CUSTOMERS ACCESS THESE RESOURCES FROM A VARIETY OF DEVICES. REVENUES ARE EARNED PRIMARILY FROM USAGE FEES AND ADVERTISING. MICROSOFT'S 'SOFTWARE PLUS SERVICES' VISION REFLECTS ITS BELIEF THAT WHAT IS MOST POWERFUL FOR END USERS IS A COMPUTING OR COMMUNICATION DEVICE RUNNING SOPHISTICATED SOFTWARE, INTERACTING WITH CLOUD - BASED RESOURCES. EXAMPLES OF CONSUMER - ORIENTED CLOUD - BASED COMPUTING SERVICES MS CORP OFFERS CURRENTLY INCLUDE: > BING, ITS INTERNET SEARCH S ERVICE; > WINDOWS LIVE ESSENTIALS SUITE, WHICH ALLOWS USERS TO UPLOAD AND ORGANIZE PHOTOS, MAKE MOVIES, COMMUNICATE VIA EMAIL AND MESSAGING AND ENHANCE ONLINE SAFETY; AND XBOX LIVE SERVICE, WHICH ENABLES ONLINE GAMING, SOCIAL NETWORKING, AND CONTENT ACCESS. MS CORP'S CURRENT CLOUD - BASED SERVICES FOR BUSINESS USERS INCLUDE: > MICROSOFT OFFICE WEB APPS, WHICH ARE THE ONLINE COMPANIONS TO MICROSOFT WORD, EXCEL, POWERPOINT, AND ONENOTE; > BUSINESS PRODUCTIVITY ONLINE SUITE, OFFERING COMMUNICATIONS AND COLLABORATION SOLUTIONS WITH HIGH AVAILABILITY AND SIMPLIFIED ENTERPRISE IT MANAGEMENT; > MICROSOFT DYNAMICS ONLINE FAMILY OF CUSTOMER RELATIONSHIP MANAGEMENT ['CRM') AND ENTERPRISE RESOURCES PLANNING SERVICES; .AND > THE AZURE FAMILY OF SERVICES, INCLUDING A SCALABLE OPERA TING SYSTEM WITH COMPUTE, STORAGE, HOSTING AND MANAGEMENT CAPABILITIES, A RELATIONAL DATABASE, AND A PLATFORM THAT HELPS DEVELOPERS CONNECT APPLICATIONS AND SERVICES IN THE CLOUD OR ON PREMISE. WHILE MS CORP AND AFFILIATES PERFORM R&D ACTIVITY AROUND THE W ORLD (UNITED STATES, CANADA, CHINA, DENMARK; FRANCE, INDIA, IRELAND, ISRAEL, JAPAN, NORWAY AND THE U.K. AMONGST OTHERS), ALL FINAL DEVELOPMENT AND PRODUCT RELEASE ACTIVITIES ARE PERFORMED IN THE UNITED STATES BY MS CORP. NO LOCAL MICROSOFT SUBSIDIARY, INCL UDING MIRPL, PLAYS ANY PART IN THE PRODUCT RELEASE ACTIVITIES. MICROSOFT SUBSIDIARIES MAY OCCASIONALLY ANNOUNCE THE RELEASE OR AVAILABILITY OF A MICROSOFT PRODUCT IN THEIR LOCAL MARKET. THIS DOES NOT MEAN THAT SUBSIDIARY HAD ANY ROLE IN THE DEVELOPMENT, CR EATION, OR RELEASE OF THAT PRODUCT TO THE MARKET THE PUBLIC RELATIONS RELEASE IS MERELY EN PERFORMANCE OF THE MARKETING SERVICES THAT MIRPL HAS BEEN ENGAGED TO PERFORM UNDER EITHER THE PARENT - SUBSIDIARY AGREEMENT WITH MS CORP. 1 2 .4. THE TPO SUMMED UP THE TP APPRO ACH OF THE ASSESSEE IN THE FOLLOWING MANNER : 5.1 ASSESSEE HAD SELECTED THE TRANSACTIONAL NET MARGIN (TNMM) AS THE METHOD FOR BENCHMARKING OF THE INTERNATIONAL TRANSACTIONAL FOR PROVISION, OF SOFTWARE SERVICES (SWO) WITH RETURN ON OPERATING COST (' OP/OC') AS THE PROFIT LEVEL INDICATOR - (PLL ). FOR THIS THE PLI OF THE ASSESSEE HAD BEEN COMPUTED AT 14.34% AND OF COMPARABLE ON THE BASIS OF MULTIPLE YEAR DATA AT 9.50%. FOR PROVISION OF IT ENABLED SERVICES (ITES), ASSESSEE HAD SELECTED TNMM AS THE MOST APPROPRIATE METHOD WITH OP/OC AS A PROFIT LEVEL INDICATOR. THE PLI OF THE ASSESSEE WAS COMPUTED AT 15.39% AND OF COMPARABLE ON THE BASIS OF MULTIPLE YEAR DATA AT 4.63%. FOR ASSIGNMENT OF PERSONNEL, THE TNMM WAS SELECTED AS THE MOST APPROPRIATE METHOD WITH OP/TC AS A PU. IN THIS CASE FOREIGN AE WAS SELECTED AS THE TESTED PARTY. THE MARGIN OF THE ASSESSEE WAS SHOWN AT 5% AND OF COMPARABLES WAS SHOWN AT 2.51%. ON THE BASIS OF ABOVE ANALYSIS, IT HAD BEEN CONCLUDED BY THE ASSESSEE THAT INTERNATIONAL TRANSACTIONS ARE AT - ARM'S LENGTH PRICE. ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 11 OF 21 FOR THE SAKE OF CONVENIENCE AND CLARITY THE TWO MAIN SEGMENTS OF THE ASSESSES NAMELY ITES SEGMENT AND THE SOFTWARE DEVELOPMENT RELATED CONTRACT R AND ACTIVITY ARE ANALYSED SEPARATELY AND THEIR ARM'S LENGTH DETERMINED ACCORDINGL Y. FIRST THE IT ENABLED SERVICES SEGMENT IS TAKEN UP FOR CONSIDERATION AS FOLLOWS IN PART A AND THE CONTRACT R AND D SEGMENT IS DEALT AFTER THAT. (EMPHASIS SUPPLIED) 1 2 .5 WE NOTE THAT THE TPO CONSI DERING THE ASSESSEES TP STUDY F IRST ADDRESSES THE I T ENABLED SERVICES . HE NOTES THAT, T HE ASSESSEE HAS USED TNMM AS THE MOST APPROPRIATE METHOD AND OP/OC AS THE PLI. THE ASSESSEE HAS ARRIVED AT A SET OF 17 COMPANIES UNDER ITES SEGMENT WITH AN AVERAGE MARGIN OF 4.63%. THE ASSESSEE HAS USED MULTIPLE YEAR DAT A. THE ASSESSEE'S OWN MARGIN IS WORKED OUT TO BE 15.39%, BASED ON THE ANALYSIS, THE ASSESSEE HAS CONCLUDED THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARM'S LENGTH. ON A READING OF THE TPOS ORDER IT IS NOTICED THAT THE USE OF MULTIPLE YEAR DATA WAS NOT AP PROVED . APART FROM THAT IT IS NOTICED THAT SHOW CAUSE NOTICE DATED 02.12.2014 WAS ISSUED AND TAKING NOTE OF PRODUCT SUPPORT SERVICES AGREEMENT DATED 01.07.2002 ENTERED INTO BY THE ASSESSEE WITH M.S. CORP, THE TPO THOUGH ACCEPTING TNMM AS A METHODOLOGY AND ALSO ACCEPT ED THE PLI OF O P/OC REJECTED THE MULTIPLE YEAR DATA RESORTED TO BY THE ASSESSEE AND DIRECTED THE ASSESSEE TO CARRY OUT A FRESH SEARCH CONSIDERING THE CURRENT YEAR DATA; MODIFIED QUALITATIVE AS WELL AS QUANTITATIVE FILTERS APPLIED BY THE ASSESSEE GIVING JUSTIFICATION FOR OVERRULING THE ASSESSEE'S OBJECTIONS; GAVE SPEAKING REASONS FOR RETAINING FOUR COMPARABLES AS OPPOSED TO 17 TAKEN BY THE ASSESSEE; INTRODUCED THREE NEW COMPARABLES AND ULTIMATELY H E WORKED OUT AVERAGE PROFIT MARGIN OF 29.53% CONSI DERING THE COMPARABLES SELECTED BY HIM AND PROPOSED AN ADJUSTMENT OF RS. 39.68 CR. WE NOTE ON CONSIDERING THE PRECEDENT LAID DOWN BY THE HONBLE HIGH COURT IN LI AND FUNG WHICH WE PROPOSE TO ADDRESS IN DETAIL IN LATER PART OF THIS ORDER, WE FIND THAT THE T POS ORDER IS FULLY IN COMPLIANCE WITH THE PRECEDENT LAID DOWN. SPECIFIC ATTENTION IS INVITED TO PARA 49 (D) OF THE SAID DECISION. 1 2 .6 . SIMILARLY FOR THE SOFTWARE DEVELOPMENT SERVICES , IT IS SEEN THE TPO ACCEPTING TNMM AS THE MAM AND ALSO ACCEPTING PLI O F OP/OC, THE TPO AFTER CONSIDERING THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE ASSESSEE PROCEEDED TO H O LD THAT THE ECONOMIC ANALYSIS OF THE ASSESSEE WAS INADEQUATE; THE TAXPAYER WAS ALSO DIRECTED TO CARRY OUT A FRESH SEARCH INCORPORATING CURREN T YEAR DATA; FILTERS WERE MODIFIED ; OUT OF THE FIVE COMPARABLES OFFERED BY THE ASSESSEE EVEN AFTER CARRYING OUT A FRESH SEARCH AT THE INSTANCE OF THE TPO ONLY ONE COMPARABLE WAS RETAINED AND HE INTRODUCED FOUR COMPARABLES GIVING JUSTIFICATION FOR THEIR IN CLUSION . A S A RESULT THEREOF HE WORKED OUT THE AVERAGE PROFIT MARGIN OF 37.47% CONSIDERING THE COMPARABLES SELECTED BY HIM ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 12 OF 21 AND HE PROPOSED AN ADJUSTMENT OF RS. 201.22 CR. WE FIND THAT THE TPO HAS GIVEN REASONS , JUSTIFICATION FOR NOT ACCEPTING THE COMPARAB LES ETC. CONSIDERING FAR APPLYING FILTERS WHICH IS INFACT SUPPORTED BY THE DECISION OF THE HONBLE HIGH COURT IN CASE OF LI AND FUNG. 1 2 .7 . THE ACTIONS AS NOTED WERE CHALLENGED BEFORE THE DRP AND PURSUANT TO THE DIRECTIONS ETC., INCORPORATED BY THE TPO TH E FINAL ASSESSMENT ORDER HAS BEEN PASSED . 1 2 . 8. THUS, WHEN THE ORDER OF THE TPO IS READ, IT CLEARLY AND UNAMBIGUOUSLY DEMONSTRATES THAT THE TPO HAS VARIOUSLY AND INNUMERABLY OBJECTED TO THE TP STUDY AND OVER - RULED THE OBJECTIONS OF THE ASSESSEE ON VARIOU S ASPECTS OF THE TP STUDY . THE MERE FACT THAT TNMM AS A METHOD IS RETAINED FOR BOTH THE SEGMENTS AS MAM AND FACT THAT THE PLI OF T HE ASSESSEE STOOD DISTURBED BY THE SINGLE YEAR DATEA ETC. DEMONSTRATES THAT THE ENTIRE TP STUDY HAS NOT BEEN ACCEPTED. THE MULTIPLE OBSERVATIONS ADDRESSING VARIOUS OTHER ASPECTS OF THE TP STUDY IN AN ENDEAVOUR TO ADDRESS THE FUNCTIONS PERFORMED, ASSETS UTILIZED AND RISKS UNDERTAKEN BY THE ASSESSEE FOR HAVING A PROPER FAR ANALYSIS OF THE ASSESSEE AND THEN TO BEING IT AT PAR WIT HIN THE ACCEPTABLE DEGREE OF COMPARABILITY WITH THE FAR OF THE COMPARABLES IS AN EXERCISE FOR WHICH NOT ONLY THE AGREEMENTS; THE ARRANGEMENTS AND THUS THE RECORD OF THE ASSESSEE HAS TO BE CONSIDERED BUT EVEN HOW THE PARTIES HAVE CONDUCTED THEIR AFFAIRS AS BORNE OUT FROM THE ARRANGEMENT ETC AS PER RECORD HAS TO BE CONSIDERED. IT IS SEEN ON A READING OF THE TPOS ORDER THAT CONSIDERING THE FUNCTIONS PERFORMED , HE HAS HELD THAT THE ASSESSEE IS NOT MERELY A CONTRACT SOFTWARE DEVELOPMENT SERVICE PROVIDER BUT ALS O INVOLVED IN CODING AND TESTING OF PARTICULAR FUNCTIONS / FEATURES OF PRODUCT EVEN IF FINAL CODING TESTING ETC. IS DONE BY M.S. CORPS I.E. THE AE . T HE ASSESSEE'S CLAIM THAT M.S. CORP UNDERTAKES FINAL TESTING PRIOR TO FINAL CODE RELEASE AND THUS THE ASSESS EE IS ONLY A CONTRACT SOFTWARE DEVELOPMENT SERVICE PROVIDER, HAS BEEN OVER - RULED BY THE TPO . THESE OBSERVATIONS ARE MADE ONLY TO A DJUDICATE UPON THE PRELIMIN A RY CLAIM OF THE TAXPAYER THAT THE TP STUDY WAS ACCEPTED BY THE TPO. THE CORRECTNESS OF THE CONCLU SIONS DRAWN BY THE TPO ARE NOT BEING CONSIDERED. WE DEEM IT APPROPRIATE TO CLARIFY THAT THESE CONCLUSIONS ARE FOR THE LIMITED PURPOSE OF DETERMINING THE ISSUES WHICH ARISES IN THE PRESENT PROCEEDING AND SHALL HAVE NO BEARING FOR DETERMINING THE ISSUES ON THE MERITS OF THE CLAIMS MADE IN THE APPEAL FILED BEFORE THE ITAT. STATING THE OBVIOUS IN THE PRESENT PROCEEDING WE ARE NOT REQUIRED TO ADDRESS THE CORRECTNESS OF THE CONCLUSIONS DRAWN BY THE TPO AND THE ISSUE FOR CONSIDERATION IS LIMITED TO WHETHER THE TP O CAN BE SAID ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 13 OF 21 TO HAVE ACCEPTED THE TP STUDY ; AND IN CASE THE ANSWER TO THE FORMER IS YES THEN IN TERMS OF THE JUDICIAL PRECEDENT THE PRAYER OF THE ASSESSEE HAS TO BE ALLOWED. IT IS THE CORRECTNESS OF THE SAID CLAIM WHICH IS BEING CONSIDERED. CONSEQUENTLY T HE FINDINGS GIVEN ARE IN THIS LIMITED CONTEXT ONLY AND HENCE HAVE A LIMITED PLAY. HAVING SO CLARIFIED WE PROCEED TO FURTHER CONSIDER THE ORDER OF THE TPO AND NOTE THAT T HE TPO HAS ALSO HELD THAT THE ASSESSEE'S CODING AND TESTING PERFORMANCE IS A NATURE OF R & D ACTIVITY EVEN THOUGH FINAL TESTING OF PRODUCT IS BEING DONE BY M.S. CORP. AGAIN THE CORRECTNESS OF THESE CONCLUSION S OF TPO IS NOT BEING AFFIRMED AND THESE OBSERVATIONS WE MAKE IT CLEAR WOULD NOT IN ANY MANNER IMPINGE UPON THE CLAIMS TO BE DECIDED IN THE GROUNDS RAISED BY THE ASSESSEE IN THE PRESENT APPEAL. REFERENCE THERETO HAS BEEN MADE IN ORDER TO ADJUDICATE UPON THE PRELIMINARY OBJECTI ONS OF THE ASSESSEE NAMELY THAT THE TP STUDY NOT HAVING BEEN REJECTED BY THE TPO. THE SUBSEQUENT ADJUSTMENTS WERE THUS BARRED TO HIM. WE FIND THAT THE ASSESSEE'S READING BASED ON THESE TWO SPECIFIC OBSERVATIONS OF THE AO IS MISCONCEIVED. WE WILL ALSO ADVERT SPECIFICALLY TO THESE TWO SPECIFIC OBSERVATIONS OF THE TPO, BUT BEFORE THAT, WE DEEM IT APPROPRIATE TO FURTHER TAKE NOTE OF THE RELEVANT FACTS QUA THE FILTERS ETC. APPLIED AFTER CARRYING OUT A FAR (FUNCTION ASSERTED RISKS) ANALYSIS OF THE TAX PAYER. IT IS SEENT THAT THE TPO HAS NOT ACCEPTED THE PRAYER OF THE ASSESSEE FOR RESORTING TO LOWER TURNOVER FILER. SIMILARL Y, THE TPO HAS APPLIED THE EXPORT SALES FILTER WHICH HAS BEEN OBJECTED TO BY THE ASSESSEE. THE DRPS CONCLUSION THAT BY SELECTING COMPANIES WHO ARE OPERATING IN THE EXPORT MARKET THE TPO HAS CORRECTLY CARRIED OUT A SEARCH FOR COMPARABLES AND THE APPLICATI ON OF THE FILTER BY THE TPO HAVING BEEN UPHELD AGAIN SHOWS THAT THE TPO IN UNAMBIGUOUS TERMS WHEREIN SEVERAL COUNTLESS SHORTCOMINGS IN THE TP REPORT HAVE BEEN ADDRESSED CLEARLY DEMONSTRATED INNUMEROUS TIMES SEVERALLY THAT THE TPO HAS NOT ACCEPTED THE TP ST UDY AND THE TAXPAYER WAS WELL AWARE THAT THE TP STUDY WAS LARGELY MODIFIED BY THE TPO IN AN ENDEAVOR TO BRING IT IN CONFORMITY WITH THE PROVISIONS OF THE ACT AND THE RULES AND THE DECISIONS OF ITAT AND THE COURTS . AS NOTED, THE CORRECTNESS OF THE SAID DE CISIONS OF THE TPO IS NOT BEING ADDRESSED IN THE PRESENT ORDER. 12.9 IT IS FURTHER SEEN THAT AT INTERNAL PAGE 8 AND 9 OF THE TPOS ORDER, HE HAS SPECIFICALLY GIVEN THE REASONS FOR ACCEPTING, REJECTING OR MODIFYING THE FILTERS IN THE I T ENABLED SERVICES AP PLIED BY THE ASSESSEE. THE TPO IN VERY CATEGORIC TERMS QUA THE PROPOSED FILTERS HAS HELD, AS CAN BE SEEN, THAT SOME OF THE FILTERS THAT YOU HAVE USED TO SELECT YOUR COMPARABLES ARE INAPPROPRIATE. THIS MEANS THAT YOUR ECONOMIC ANALYSIS IS INADEQUATE.. THEREAFTER, HE PROPOSES TO APPLY THE SPECIFIC FILTER S SET OUT IN THE ORDER ALONGWITH THE ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 14 OF 21 JUSTIFICATION AND ADDRESSING THE COMPARABLES MADE AVAILABLE BY THE ASSESSEE IN ITS TP REPORT AND AGAIN MADE AVAILABLE IN THE FRESH SEARCH CAR RI ED OUT AT HIS INSISTE NCE INCORPORATING ONLY THE RELEVANT YEAR DATA . THE FRESH SEARCH UPDAT ING THE ORIGINAL TP STUDY WE NOTE HAS BEEN ACCEPTED BY THE ASSESSEE ALSO AND THUS THE FACT THAT THE TP STUDY STOOD MODIFIED CONSEQUENTLY WAS NOT ACCEPTED BY THE TPO IS EVIDENT ON THE FAC E OF THE RECORD ITSELF . 12.10 WE NOW ALSO PROCEED TO CONSIDER THE SPECIFIC REMARKS OF THE TPO AT PAGES 13 AND 61 IN THE 95 PAGED ORDER . WE NOTE THAT APART FROM UMPTEEN OBSERVATIONS / FINDINGS AND CONCLUSION OF THE TPO NOTICED IT IS SEEN THAT EVEN IF THESE TWO SPECIFIC INSTANCES ARE NOTICED IN ISOLATION IT IS EVIDENT THAT THESE ARE IN THE CONTEXT OF THE ASSESSEES SPECIFIC OBJECTIONS BEING CONSIDERED IN THE RESPECTIVE PAGES WHERE THE ASSESSEE AT PAGE 13 IN PARA 8 ASSERTS THAT THE METHODICAL SEARCH FOR BENCH MARKING THE INTERNATIONAL TRANSACTIONS IN ACCORDANCE WITH THE RULES , HAS BEEN REJECTED BY THE TPO. H EAVY RELIANCE HAS BEEN PLACED BY THE ASSESSEE UPON THE TPOS REMARKS. FOR READY REFERENCE, WE REPRODUCE PARA 7 AND 8 FROM PAGE 13 OF THE TPO EXTRACTED HEREU NDER : 7. THE ASSESSEE MADE A REPLY DATED 22.12.2014 AND A PERSONAL HEARING WAS CONDUCTED AND SUBMISSION OF THE ASSESSEE HAS BEEN DISCUSSED. THE REPLIES THAT HAVE BEEN MADE BY THE ASSESSEE HAVE BEEN CAREFULLY CONSIDERED. THE ASSESSEE HAS ALSO BEEN GIVEN TH E OPPORTUNITY TO MAKE ORAL SUBMISSIONS. AFTER THIS, THE FOLLOWING POINTS ARE MADE 8. ASSESSEE ARGUED THAT IT HAS CONDUCTED A METHODICAL SEARCH FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS IN ACCORDANCE WITH RULE 10B AND RULE 10C OF INCOME - TAX RULES, 1962 AND THIS HAS BEEN REJECTED BY THE TPO. THE ASSESSEE SUBMITTED THAT APPLYING THE PROVISIONS OF SECTION 92C(2), THE ARMS LENGTH PRICE WAS COMPUTED AFTER CONSIDERING THE AVERAGE OPERATING PROFIT MARGIN OF 4.63% EARNED BY THE COMPARABLE COMPANIES UNDER T HE IT ENABLED SERVICES SEGMENT. THE AFORESAID ARMS LENGTH MARGIN WAS COMPARED TO THE MARGIN OF 15.39% EARNED BY THE ASSESSEE COMPANY. BASED ON THE ABOVE, THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE COMPANY WAS CLAIMED TO BE ADHERING TO THE AR MS LENGTH STANDARD. ASSESSEE CONCLUDED THAT THE SEARCH CARRIED OUT IN THE TP DOCUMENTATION BEING CORRECT AND THEREFORE SHOULD BE ACCEPTED, EVEN CONSIDERING THE RESULT OF THE FRESH SEARCH, THE MARGIN EARNED BY THE ASSESSEE COMPANY BEING HIGHER THAN THE MAR GIN EARNED BY THE COMPARABLE COMPANIES, THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH THE AES WERE DEMONSTRATED TO BE AT ARMS LENGTH PRICE. TPOS REMARKS: THE ASSESSEE HAS POSSIBLY NOT READ THE SHOW CAUSE NOTICE CAREFULLY, IF IT HAD IT WOULD HAVE REALI ZED THAT SPECIFIC REASONS HAVE BEEN GIVEN FOR THE REJECTION OF FILTERS AND COMPARABLES. THAT APART, IT IS EMPHASIZED HERE THAT THE TP STUDY HAS NOT BEEN REJECTED AT ALL. IT HAS BEEN ONLY MODIFIED BY THE USE OF CURRENT YEAR DATA AND SOME APPROPRIATE FILTERS . SOME OF THE COMPARABLES THAT THE ASSESSEE HAS CHOSEN HAVE BEEN ACCEPTED. EVEN THE COMPARABLES THAT HAVE BEEN ADDED BACK TO THE SET OF COMPARABLES, ARISE FROM THE SEARCH MATRIX OF THE ASSESSEE. NO COMPARABLE HAS BEEN ADDED THAT DOES NOT FIGURE IN THE SEAR CH PROCESS OF THE ASSESSEE. THE OECD GUIDELINES, 2010 ALSO SPEAK OF A COMBINATION OF THE ADDITIVE AND DEDUCTIVE APPROACH TO ARRIVE AT A POTENTIAL SET OF COMPARABLES. THE RELEVANT PORTION OF THE GUIDELINES IS QUOTED BELOW . QUOTE ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 15 OF 21 3.45 IT WOULD NOT BE AP PROPRIATE TO GIVE SYSTEMATIC PREFERENCE TO ONE APPROACH OVER THE OTHER BECAUSE, DEPENDING ON EH CIRCUMSTANCES OF THE CASE, THERE WOULD BE VALUE IN EITHER THE ADDITIVE OR THE DEDUCTIVE APPROACH, OR IN A COMBINATION OF BOTH. THE ADDITIVE AND DEDUCTIV E APPROACHES ARE OFTEN NOT USED EXCLUSIVELY. IN A TYPICAL DEDUCTIVE APPROACH, IN ADDITION TO SEARCHING PUBLIC DATABASES IT IS COMMON TO INCLUDE THIRD PARTIES, FOR INSTANCE KNOWN COMPETITORS (OR THIRD PARTIES THAT ARE KNOWN TO CARRY OUT TRANSACTIONS POTE NTIALLY COMPARABLE TO THOSE OF THE TAXPAYER), WHICH MAY OTHERWISE NOT BE FOUND FOLLOWING A PURELY DEDUCTIVE APPROACH, E.G. BECAUSE THEY ARE CLASSIFIED UNDER A DIFFERENT INDUSTRY CODE. IN SUCH CASES, THE ADDITIVE APPROACH OPERATES AS A TOOL BE REFINE A S EARCH THAT IS BASED ON A DEDUCTIVE APPROACH. UN QUOTE THE COMPARABLE PROPOSED IN THE SHOWCAUSE NOTICE, ALL ARE TAKEN OUT OF THE ASSESSEES OWN SEARCH CONDUCTED WHILE PREPARING THE TP STUDY. 12. 1 1 . ON A READING OF THE ABOVE, WE NOTE THAT THE HIGHLIGHTE D OBSERVATION WAS MADE IN THE B ACKGROUND OF THE ASSESSEE'S ARGUMENTS/OBJECTION IN PARA 8 EXTRACTED ABOVE WHEREIN THE ASSESSEE HAD ARGUED THAT IT HA D CONDUCTED A METHODICAL SEARCH FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS IN ACCORDANCE WITH RULE 10B A ND RULE 10C OF INCOME - TAX RULES, 1962 AND THIS HAS BEEN REJECTED BY THE TPO . THE TPO ADDRESSING THE FACTUAL BACKGROUND NOTES THAT T HE ASSESSEE HAS POSSIBLY NOT READ THE SHOW CAUSE NOTICE CAREFULLY, IF IT HAD IT WOULD HAVE REALIZED THAT SPECIFIC REASONS HAV E BEEN GIVEN FOR THE REJECTION OF FILTERS AND COMPARABLES , IT IS IN THAT BACKGROUND THAT THE CRUCIAL WORDS ARE HIGHLIGHTED NAMELY THAT APART, IT IS EMPHASIZED HERE THAT THE TP STUDY HAS NOT BEEN REJECTED AT ALL. IT IS SEEN THAT THE TPO GOES ON TO HOLD THAT IT HAS BEEN ONLY MODIFIED BY THE USE OF CURRENT YEAR DATA AND SOME APPROPRIATE FILTERS. SOME OF THE COMPARABLES THAT THE ASSESSEE HAS CHOSEN HAVE BEEN ACCEPTED. EVEN THE COMPARABLES THAT HAVE BEEN ADDED BACK TO THE SET OF COMPARABLES, ARISE FROM THE SEARC H MATRIX OF THE ASSESSEE. NO COMPARABLE HAS BEEN ADDED THAT DOES NOT FIGURE IN THE SEARCH PROCESS OF THE ASSESSEE . ACCORDINGLY, WE FIND THA T THE PRAYER OF THE ASSESSEE BASED ON THESE OBSERVATIONS MADE IN THE CONTEXT OF THE CLAIMS BEING CONSIDERED CANNOT B E ACCEPTED. 12.1 2 . PROCEEDING TO THE NEXT OBSERVATION MADE BY THE TPO, ON WHICH THE ASSESSEE IS RELYING IT IS APPROPRIATE TO ALSO FIRST EXTRACT THE RELEVANT OBSERVATIONS : 7. REJECTION OF THE ECONOMIC ANALYSIS OF THE ASSESSEE : ASSESSEE SUBMITTED THAT THE ECONOMIC ANALYSIS CONDUCTED BY THE ASSESSEE, BEING WITH THE PROVISIONS OF THE ACT AND BEING THEIR NO INFIRMITY, NEED TO BE ACCEPTED AND TPO IS BOUND TO ACCEPT THE ECONOMIC ANALYSIS DONE BY THE ASSESSEE. TPOS REMARKS : THE ASSESSEE HAS POSSIBLY NOT REA D THE SHOW CAUSE NOTICE CAREFULLY, IF IT HAD IT WOULD HAVE REALIZED THAT SPECIFIC REASONS HAVE BEEN GIVEN FOR THE REJECTION OF FILTERS AND COMPARABLES. THAT APART, IT IS EMPHASIZED THAT ITS TP STUDY HAS NOT BEEN REJECTED AT ALL ., IT HAS BEEN ONLY MODIFIED BY THE USE OF CURRENT YEAR DATA AND SOME APPROPRIATE FILTERS. ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 16 OF 21 SOME OF THE COMPARABLES THAT THE ASSESSEE HAS CHOSEN HAVE BEEN ACCEPTED. EVEN THE COMPARABLES THAT HAVE BEEN ADDED BACK TO THE SET OF COMPARABLES, ARISE FROM THE SEARCH MATRIX OF THE ASSESSEE. NO COMPARABLE HAS BEEN ADDED THAT DOES NOT FIGURE IN THE SEARCH PROCESS OF THE ASSESSEE. THE OECD GUIDELINES, 2010 ALSO SPEAK OF A COMBINATION OF THE ADDITIVE AND DEDUCTIVE APPROACH TO ARRIVE AT A POTENTIAL SET OF COMPARABLES. THE RELEVANT PORTION OF THE GUIDELINES IS QUOTED BELOW . (QUOTE) 3.45 IT WOULD NOT BE APPROPRIATE TO GIVE SYSTEMATIC PREFERENCE TO ONE APPROACH OVER THE OTHER BECAUSE, DEPENDING ON THE CIRCUMSTANCES OF THE CASE, THERE COULD BE VALUE IN EITHER THE ADDITIVE OR THE DEDUCTIVE A PPROACH, OR IN A COMBINATION OF BOTH. THE ADDITIVE AND DEDUCTIVE APPROACHES ARE OFTEN NOT USED EXCLUSIVELY. IN A TYPICAL DEDUCTIVE APPROACH, IN ADDITION TO SEARCHING PUBLIC DATABASES IT IS COMMON TO INCLUDE THIRD PARTIES, FOR INSTANCE KNOWN COMPETITI ORS (OR THIRD PARTIES THAT ARE KNOWN TO CARRY OUT TRANSACTIONS POTENTIALLY COMPARABLE TO THOSE OF THE TAXPAYER), WHICH MAY OTHERWISE NOT BE FOUND FOLLOWING A PURELY DEDUCTIVE APPROACH, E.G. BECAUSE THEY ARE CLASSIFIED UNDER A DIFFERENT INDUSTRY CODE. IN SU CH CASES, THE ADDITIVE APPROACH OPERATES AS A TOOL TO REFINE A SEARCH THAT IS BASED ON A DEDUCTIVE APPROACH. (UNQUOTE) 8. ASSESSEES ARGUMENTS AGAINST FILTERS APPLIED BY TPO(AND OPPOSED BY THE ASSESSEE APPLIED BY THE ASSESSEE (AND REJECTED BY THE TP O) A) CURRENT YEAR DATA ASSESSEE HAS OBJECTED ON REJECTION OF USE OF MULTIPLE YEAR DATA AND USE OF CONTEMPORANEOUS DATA I.E. FY 2010 - 11 ONLY. THIS FILTER HAS ALREADY BEEN DISCUSSED IN THE ITES SECTION OF THIS ORDER THEREFORE THE SAME IS NOT REPEATED HERE F OR SAKE OF BREVITY. 12.1 3 . HEREIN ALSO IN VERY CLEAR TERMS, IT IS SEEN THAT THE TPO NOTES THAT T HE ASSESSEE HAS POSSIBLY NOT READ THE SHOW CAUSE NOTICE CAREFULLY, IF IT HAD IT WOULD HAVE REALIZED THAT SPECIFIC REASONS HAVE BEEN GIVEN FOR THE REJECTION O F FILTERS AND COMPARABLES. THAT APART, IT IS EMPHASIZED THAT ITS TP STUDY HAS NOT BEEN REJECTED AT ALL., IT HAS BEEN ONLY MODIFIED BY THE USE OF CURRENT YEAR DATA AND SOME APPROPRIATE FILTERS. SOME OF THE COMPARABLES THAT THE ASSESSEE HAS CHOSEN HAVE BEEN ACCEPTED. EVEN THE COMPARABLES THAT HAVE BEEN ADDED BACK TO THE SET OF COMPARABLES, ARISE FROM THE SEARCH MATRIX OF THE ASSESSEE. NO COMPARABLE HAS BEEN ADDED THAT DOES NOT FIGURE IN THE SEARCH PROCESS OF THE ASSESSEE . 12.1 4 ON A CURSORY READING OF THE SAME WE NOTE IT IS EVIDENT IN WHAT CONTEXT THE TPO HAS MADE THE OBSERVATIONS. WE HAVE GIVEN OUR UTMOST CONSIDERATION TO THESE MULTITUDINOUS OBSERVATIONS AND ALSO TO THE ABOVE TWO SPECIFIC OBSERVATIONS IN ISOLATION AND FAIL TO READ THE SAME IN THE MANNER TH E TAXPAYER WOULD WANT US TO READ AND THUS HAVE CONCLUDED THAT THE PRAYER OF THE TAX PAYER IS NOT MAINTAINABLE. I T IS EVIDENT THAT THE TPO WAS ADDRESSING THE CLAIMS/ARGUMENT, ASSERTIONS SET OUT IN PARA 7 OF HIS ORDER WHEREBY AS PER RECORD THE A SSESSEE SUBMI TTED THAT THE ECONOMIC ANALYSIS CONDUCTED BY THE ASSESSEE, BEING IN CONFORMITY WITH THE PROVISIONS OF THE ACT AND THE RULES ETC. WAS ASSERTED AS A REASON ON ACCOUNT OF WHICH THERE COULD BE NO INFIRMITY AND ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 17 OF 21 HENCE THE TPO PERFORCE HA D TO ACCEPT THE TP STUDY AND WAS NECESSARILY BOUND TO ACCEPT THE ECONOMIC ANALYSIS DONE BY THE ASSESSEE. THE SAID INSISTENCE OF THE ASSESSEE AND THE CONCLUSIONS DRAWN WERE BEING ADDRESSED BY THE TPO . WE FIND THAT THE SAID ASSERTION BASED ON THE BELIEF THAT SINCE THE TP STUDY IS IN COMPLIANCE WITH THE ACT AND THE RULES IS MADE AVAILABLE THE TPO THEREFORE PERFORCE IT HAS TO ACCEPT ED IT IS AN INCORRECT ASSUMPTION OF THE TAX PAYER. IT IS FOR THE TPO TO DETERMINE WHETHER THE TP REPORT IS IN COMPLIANCE WITH THE ACT AND RULES . THE TPO I S VERY MUCH WITHIN HIS RIGHTS TO CONSIDER AND DECIDE THE CLAIM OF THE ASSESSEE WHICH HAS BEEN DONE AND AFTER HEARING THE ASSESSEE HE HAS HELD THAT IT IS NOT IN COMPLIANCE WITH THE ACT AND THE RULES AND CONSEQUENTLY TP REPORT STOOD MODIFIED. 13. THOUGH WE H AVE TAKEN INTO CONSIDERATION THE PR O POSITION OF LAW LAID DOWN BY THE HONBLE COURT BEFORE ARRIVING AT A CONCLUSION HOWEVER FOR THE SAKE OF COMPLETENESS WE ELABORATE THE REASONS WHICH PREVAILED WITH THE HONBLE JUDGES TO ADDRESS THE POSITION OF LAW AS CONSI DERED BY THE HONBLE DELHI HIGH COURT IN CASE OF LI AND FUNG INDIA PVT. VS. CIT 361 ITR 85(DELHI) AND THEREAFTER THE DECISION OF THE COORDINATE BENCH IN ITA NO. 7260/DEL/2017 IN M/S COIM INDIA PVT. LTD. VS. ACIT ON WHICH HEAVY RELIANCE HAS BEEN PLACED BY T HE LD. AR WILL BE ADDRESSED . 13.1 IN THE CASE OF LI & FUNG(CITED SUPRA) THE ISSUE FOR CONSIDERATION WAS BENCHMARKING OF RECEIPT OF SUPPORT SERVICES FEES RECEIVED FROM ITS AE. THE ASSESSEE RECEIVED SUPPORT SERVICES RENDERED FOR THE SUPPLY OF HIGH VALUE, TIME SENSITIVE CONSUMER GOODS FOR SOURCING OF THE GOODS. THE ASSESSEE BENCHMARKED THE TRANSACTION ADOPTING TNMM METHOD AS MOST APPROPRIATE METHOD ADOPTING THE PLI OF OP/TC SELECTING 26 COMPARABLES WHOSE PLI WAS 4.07% AND PLI OF THE ASSESSEE WAS 5.17% AND A S PER TP STUDY REPORT ASSESSEE CLAIMED THAT ITS INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH. THE TPO DID NOT DISPUTE THE SELECTION OF THE MOST APPROPRIATE METHOD AS WELL AS SELECTION OF THE COMPARABLE COMPANIES. HOWEVER, OVER AND ABOVE THE MARGIN HE HELD THAT THE 5% COMPENSATION BASED ON COST IS INAPPROPRIATE AND HE APPLIED A MARKUP OF 5% ON THE FOB VALUE OF EXPORT. IN THESE CIRCUMSTANCES THE HONBLE HIGH COURT VIDE PARA NO.44 HELD AS UNDER: - 44. ANOTHER IMPORTANT ASPECT WHICH CANNOT BE OVERLOOKED IS T HAT THE TRANSFER PRICING DOCUMENTATION MAINTAINED IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10B OF THE INCOME - TAX RULES, DETERMINED THE ARM'S LENGTH PRICE OF THE 'INTERNATIONAL TRANSACTION' OF THE PROVISION OF BUYING SERVICES APPLYING THE TRANSACTI ONAL NET MARGIN METHOD, BY COMPARING ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 18 OF 21 OPERATING PROFIT MARGIN OF LFIL WITH THAT OF THE COMPARABLE COMPANIES, AS UNDER : WEIGHTED AVERAGE OP/OC PER CENT. OF 26 COMPARABLE COMPANIES 4.07 PERCENT. OP/OC PER CENT. OF LFIL 5.17 PERCENT. THIS EXERCISE HAS NOT BEEN DISCARDED . IN OTHER WORDS, THE TRANSFER PRICING OFFICER AND THE APPELLATE FORA WERE AWARE THAT IN ACCORDANCE WITH THE RULES, A COMPARISON OF THE PROFIT MARGIN OF LFIL WITH THAT OF OTHER SIMILARLY FUNCTIONING COMPANIES WAS SHOWN, AND IS, AT THE FI RST INSTANCE, RELEVANT TO DETERMINE THE ARM'S LENGTH PRICE. THE PROFIT MARGIN, AS WELL AS THE COST PLUS MODEL ADOPTED BY LFIL, WAS NOT SHOWN TO BE DISTORTED OR OF SUCH MAGNITUDE AS TO PERSUADE THE TAX AUTHORITIES INTO DISCARDING THE EXERCISE ALTOGETHER. HA VING NOT CONTRADICTED THIS COMPARISON , THE REVENUE PROCEEDED TO ITS OWN DETERMINATION AND CALCULATIONS . THIS, HOWEVER, IS IMPROPER , GIVEN THAT THE ASSESSMENT CARRIED OUT BY THE ASSESSEE MUST FIRST BE REJECTED, FOR ANY FURTHER ALTERATIONS TO TAKE PLACE. IND EED, IT CANNOT BE THAT THE REVENUE ADMITS TO THE CORRECTNESS OF LFIL'S ASSESSMENT BUT NONE THE LESS PROCEEDS TO ADOPT A DIFFERENT METHOD. (UNDERLINE PROVIDED BY US) 13.2 THUS WE NOTE THAT THE HON'BLE HIGH COURT HAS MERELY HELD THAT WITHOUT CONTRADICTING THE METHOD, THE COMPARABLES AND THE PLI OF THE TP STUDY REPORT IT IS IMPROPER TO MAKE FURTHER ALTERATION S . THE HON'BLE HIGH COURT HAS NOT HELD THAT SUCH AN ORDER PASSED BY THE TPO IS REQUIRED TO BE SET ASIDE. THE PRAYER OF THE LD AR IS TO CONSIDER THE WOR D IMPROPER AS INVALID. WE COULD NOT READ ANY SUCH FINDING OF THE HON'BLE HIGH COURT. 13 . 3 IT IS APPROPRIATE T O HIGHLIGHT THE OBSERVATION OF THE HON'BLE HIGH COURT IN PARA NO. 45 HAS FURTHER HELD: - 45. INDEED, ONCE THE TRANSACTIONAL NET MARGIN METHOD WAS DEEMED MOST APPROPRIATE METHOD, THE DISTORTIONS, IF ANY, HAD TO BE ADDRESSED WITHIN ITS FRAMEWORK. HERE, THE UNRELATED TRANSACTIONS WHICH WERE COMPARED BY LFIL HAVE NOT BEEN ADVERSELY COMMENTED UPON, AND NEITHER HAS THE CHOICE OF THE TRANSACTIONAL NET MAR GIN METHOD. THE TRANSFER PRICING OFFICER, THEREFORE, IGNORED THE RELEVANT AND CRUCIAL MATERIAL, AND STRAIGHTAWAY PROCEEDED TO BROADEN THE BASE FOR ARRIVING AT THE PROFIT MARGIN, FOR ATTRIBUTED INCOME OF THE ASSESSEE. NOT ONLY IS THIS A CLEAR INFRACTION OF THE TERMS OF THE ACT AND RULES ; THE TRANSFER PRICING OFFICER WENT AHEAD TO INTRODUCE WHAT IS CLEARLY ALIEN TO THE PROVISIONS OF LAW AND TRAVELLED OUTSIDE THE RULES. 13.4 AS NOTED IN THE FACTS OF THE PRESENT CASE BEFORE US THE FACTS CLEARLY SHOW THAT THE TRANSFER PRICING OFFICER HAS REJECTED THE APPROACH OF THE ASSESSEE FOR DETERMINING THE PROFIT LEVEL INDICATOR OF THE COMPARABLE BY TAKING MULTIPLE YEAR DATA. THE TRANSFER PRICING OFFICER TOOK THE SINGLE YEAR DATA. FURTHER, OUT OF THE ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 19 OF 21 17 COMPARABLES SELECT ED BY THE ASSESSEE IN THE IT ENABLED SERVICES HE REJECTED 1 3 COMPARABLES EITHER BY DISTINGUISHING THEM ON FUNCTIONAL PROFILE OR BY APPLYING APPROPRIATE FILTERS. THE REASONS FOR INTRODUCING NEW COMPARABLES ARE FOUND DISCUSSED. IN THE SOFTWARE DEVELOPMENT SE RVICES SEGMENT SIMILARLY SPEAKING REASONS HAVE BEEN GIVE FOR REJECTING 4 OUT OF THE 5 COMPARABLES OF THE ASSESSEE AND FOR INTRODUCING NEW COMPARABLES. THEREFORE, IT CANNOT BE SAID THAT FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS AS CONSIDERED BY THE HON'BLE DELHI HIGH COURT. IN THE PRESENT CASE IT IS APPARENT THAT THE TPO HAS QUESTIONED THE APPLICATION OF APPROPRIATE FILTERS, THE COMPUTATION OF DATA AND FUNCTIONAL COMPARABILITY STUDY CONDUCTED BY THE ASSESSEE. IT MAY ALSO BE APPROPRIATE TO HIGHLIG HT THAT THE HON'BLE DELHI HIGH COURT HAS SUMMARIZED THE WHOLE ISSUE IN PARA NO. 49 OF THE DECISION AS UNDER: - 49. THIS COURT SUMMARIZES ITS CONCLUSIONS AS FOLLOWS : '(A) THE BROAD BASING OF THE PROFIT DETERMINING DENOMINATOR AS THE ENTIRE FOB VALUE OF THE CONTRACTS ENTERED INTO BY THE ASSOCIATED ENTER PRISE TO DETERMINE THE LFIL'S ARM'S LENGTH PRICE, AS AN 'ADJUSTMENT', IS CONTRARY TO PROVISIONS OF THE ACT AND RULES ; (B) THE IMPUGNED ORDER HAS NOT SHOWN HOW, AND TO WHAT EXTENT, LIFIL BEARS 'SIGNIFICANT' R ISKS, OR THAT THE ASSOCIATED ENTERPRISE ENJOYS SUCH LOCATIONAL ADVANTAGES, AS TO WARRANT REJECTION OF THE TRANSFER PRICING EXERCISE UNDERTAKEN BY LFIL ; (C) TAX AUTHORITIES SHOULD BASE THEIR CONCLUSIONS ON SPECIFIC FACTS, AND NOT ON VAGUE GENERALITIES, SU CH AS 'SIGNIFICANT RISK', 'FUNCTIONAL RISK', 'ENTERPRISE RISK', ETC., WITHOUT ANY MATERIAL ON RECORD TO ESTABLISH SUCH FINDINGS. IF SUCH FINDINGS ARE WARRANTED, THEY SHOULD BE SUPPORTED BY DEMONSTRABLE REASON, BASED ON OBJECTIVE FACTS AND THE RELATIVE EVAL UATION OF THEIR WEIGHT AND SIGNIFICANCE. (D) WHERE ALL ELEMENTS OF A PROPER TRANSACTIONAL NET MARGIN METHOD ARE DETAILED AND DISCLOSED IN THE ASSESSEE'S REPORTS, CARE SHOULD BE TAKEN BY THE TAX ADMINISTRATORS AND AUTHORITIES TO ANALYSE THEM IN DETAIL AND T HEN PROCEED TO RECORD REASONS WHY SOME OR ALL OF THEM ARE UNACCEPTABLE. (E) THE IMPUGNED ORDER, UPHOLDING THE DETERMINATION OF 3 PER CENT. MARGIN OVER THE FOB VALUE OF THE ASSOCIATED ENTERPRISE'S CONTRACT, IS IN ERROR OF LAW.' 13.5 IN PARA NO. 49(D) THE HON'BLE HIGH COURT HAS ALSO HELD THAT WHERE ALL ELEMENTS OF PROPER TRANSACTIONAL NET MARGIN METHOD ARE DETAILED AND DISCLOSED IN ASSESSEES REPORT, CARE WOULD BE TAKEN BY THE TAX ADMINISTRATORS AND AUTHORITIES TO ANALYSE THEM IN DETAIL AND THEN PROCEED TO RECORD REASONS WHY SOME OR ALL OF THEM ARE UNACCEPTABLE. IN THE FACTS OF THE PRESENT CASE THE TPO HAS GIVEN DETAILED REASONS IN BOTH THE SEGMENTS FOR REJECTION OF THE MULTIPLE YEAR DATA AND FOR THE EXCLUSION OF COMPARABLES SELECTED BY THE ASSESSEE. IN THE FACTS AS THEY STAND IT CANNOT BE SAID THAT THE TPO HAS REJECTED THE CONTENTION S WITHOUT RECORDING REASONS. IN FACT PROPER SHOW CAUSE NOTICE DETAILING REASONS FOR WHAT HAS BEEN DONE WAS ISSUED AND EXPLANATION OF THE ASSESSEE WAS ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 20 OF 21 CONSIDERED AND SOME OF THE E XPLANATIONS ARE REJECTED BY GIVING REASONS. IN VIEW OF THIS THE RELIANCE PLACED BY THE LD AR ON THE ABOVE DECISION OF THE HON'BLE DELHI HIGH COURT IT IS OUR CONSIDERED OPINION IS MISPLACED. 14. RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF THE COORDIN ATE BENCH IN ITA NO. 7260/DEL/2017 . T HE ISSUE BEFORE THE BENCH WAS IN RESPECT OF THE ARMS LENGTH PRICE DETERMINATION OF PAYMENT OF ROYALTY AND PAYMENT FOR TECHNICAL ASSISTANCE FEES (PARA NO. 5 OF THE ORDER). THE TRANSFER PRICING OFFICER ISSUED THE SHOW CA USE NOTICE DATED 27.08.2016 ASKING THE ASSESSEE TO EXPLAIN WHY ALP SHOULD NOT BE TAKEN AS NIL APPLYING THE CUP METHOD. THE ASSESSEE BENCHMARKED THE ABOVE BY APPLYING TNMM METHOD. THE TPO DETERMINED THE ALP APPLYING THE CUP METHOD OF TECHNICAL FEES AS NIL A S ASSESSEE FAILED TO SATISFY THE BENEFIT TEST, THE NEED TEST AND SHAREHOLDER ACTIVITY TEST AS WELL AS THE DUPLICITY TEST. THE COORDINATE BENCH RECORDED VIDE PARA NO. 11 THAT THE TPO AS WELL AS THE DRP HAS NOT DISCARDED THE MOST APPROPRIATE METHOD ADOPTED B Y THE ASSESSEE AS TNMM. THUS ON A PLAIN READING OF THE ORDER OF THE COORDINATE BENCH IT CAN BE DECIPHERED THAT THE TPO AND DRP HAS APPLIED THE CUP METHOD WHICH IS ALSO EVIDENT FROM THE SHOW CAUSE NOTICE MENTIONED IN PARA NO. 5 OF THE ORDER. IN VIEW OF THE ABOVE FACTS OF THE DECISION OF THE COORDINATE BENCH, WHICH IS QUITE DISSIMILAR TO THE FACTS BEFORE US, WE FIND THE RELIANCE PLACED BY THE ASSESSEE ON IT IS ALSO MISPLACED. 15. ACCORDINGLY, ON GOING THROUGH THE FACTS , SUBMISSIONS AND PRECEDENT WE FIND THA T THE PRAYER OF THE ASSESSEE IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, IS NOT MAINTAINABLE AS NOT - WITHSTANDING THE SPECIFIC BOLD TEXTED HIGHLIGHTED WORDS IN THE ORDER OF THE TPO THERE CAN BE NO DOUBT THAT ON A READING OF THE ENTIRE 95 PA GED ORDER OF THE TPO, ONE IS LEFT IN NO DOUBT WHAT - SO - EVER THAT THE TP STUDY MADE AVAILABLE BY THE ASSESSEE WAS FOUND TO BE NOT FULLY IN COMPLIANCE WITH THE ACT AND THE RULES THUS STOOD MODIFIED. MULTIPLE YEAR DATA WAS NOT ACCEPTED, FILTERS WERE TWEAKED, C OMPARABLES WERE UPDATED, ALTERED, MODIFIED, BROUGHT IN CONFORMITY WITH WHAT THE TPO CONSIDERED TO BE IN ACCORDANCE WITH LAW. THE CORRECTNESS OF THE CONCLUSIONS DRAWN BY THE TPO AS NOTED IS NOT BEING ADJUDICATED UPON . THE ORDER HAS BEEN CONSIDERED IN THE BACKGROUND OF THE PRAYER THAT ONCE THE TP STUDY STANDS ACCEPTED, THE ADJUSTMENTS PROPOSED WERE NOT IN ACCORDANCE WITH LAW. AS WE HAVE BROUGHT OUT HEREIN ABOVE IN DETAIL BY REFERRING TO VARIOUS OBSERVATIONS AND CONCLUSIONS OF THE TPO, THERE CAN BE NO DOUBT WHAT - SO - EVER THAT THE TP STUDY OF THE ASSESSEE WAS NOT ACCEPTED BY THE TPO . THE PROCEDURES FOLLOWED WE FIND ARE ITA NO. 1479/DEL/16 AY 2011 - 12 PAGE 21 OF 21 FULLY COMPLIANT WITH THE PRECEDENT AS LAID DOWN BY THE HONBLE HIGH COURT AND THE PRAYER OF THE ASSESSEE ON ACCOUNT OF THE DETAILED REASONS GI VEN HEREINABOVE WHEREIN THE PRECEDENT LAID DOWN IN FACTS IS FOUND TO BE OF NO HELP TO THE ASSESSEE . ACCORDINGLY, GROUND NO. 7(A) OF THE ASSESSEE IS REJECTED. 1 6 . THE PARTIES ARE DIRECTED TO ARGUE THE APPEAL ON MERITS ON 31.07.2018 ON WHICH DATE, THE APPE AL IS FIXED FOR HEARING. 1 7 . IN TERMS OF THE ABOVE, THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT 2 3 . 07 .2018 - SD/ - - SD/ - PRASHANT MAHARISHI DIVA SING H ( ACCOUNTANT MEMBER ) ( JUDICIAL MEMBER ) DATED: 2 3 . 07 .2018 VS (DEL)/POONAM(CHD)/AG(CHD) COPY FORWARDED TO: 1. APPELLANT , 2. RESPONDENT , 3. CIT , 4. CIT(APPEALS) , 5. DR: ITAT