Vestas Technology R&D Chennai Private Limited , CHENNAI V. ACIT Company Circle III(4), CHENNAI

ITA 1540/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6269 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 15-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS T H VIJAYALAKSHMI
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , # , ' ( BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ ITA NO.1540/MDS/2017 '# # /ASSESSMENT YEAR: 2010-11 M/S.VESTAS TECHNOLOGY R&D CHENNAI PVT. LTD., BLOCK A, 8 TH FLOOR, TECCI PARK, 173, RAJIV GANDHI SALAI (OMR), SHOLLINGANALLUR, CHENNAI-600 119. VS. THE ASST. COMMISSIONER- OF INCOME TAX, COMPANY CIRCLE III (4), CHENNAI-34. [PAN: AACCV 4768 P ] ( * /APPELLANT) ( +,* /RESPONDENT) * - / APPELLANT BY : MR.VIKRAM VIJAYARAGHAVAN, ADV. +,* - /RESPONDENT BY : MRS.T.H.VIJAYALAKSHMI, CIT - /DATE OF HEARING : 23.08.2017 - /DATE OF PRONOUNCEMENT : 01.09.2017 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.1540/MDS/2017 IS AN APPEAL FILED BY THE ASS ESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-1 3, CHENNAI, IN ITA NO.305/CIT(A)-13/2010-11 DATED 27.03.2017 FOR THE A Y 2010-11. 2. MRS.T.H.VIJAYALAKSHMI, CIT REPRESENTED ON BEHALF OF THE REVENUE AND MR.VIKRAM VIJAYARAGHAVAN, ADV. REPRESENTED ON B EHALF OF THE ASSESSEE. ITA NO.1540/MDS/2017 :- 2 -: 3. IN THE ASSESSEES APPEAL, THE ASSESSEE RAISED TH E FOLLOWING GROUNDS: GROUND NO.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED (LD.) COMMISSIONER OF INCOME TAX (APPEALS)-13 [CIT (A)] ERRED IN LAW AND IN FACTS, B Y CONFIRMING THE ORDER OF LD. TRANSFER PRICING OFFICER (TPO) PROPOSING AN ADJUSTMENT OF INR .2,95,22,365/- TO THE TRANSFER PRICE OF THE APPELLANT IN RESPECT OF PROVISION OF SOFTWAR E DEVELOPMENT SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISE (AE). GROUND NO.2 THE LD. CIT (A) AND THE LD. TPO ERRED BY NOT SHARING THE ACCEPT/REJECT MATRIX OF COMPARABLES FROM THE FRESH SEARCH CONDUCTED BY THE LD. TPO AND THEREBY ERRED IN NOT GRANTING SUFFICIENT OPPORTUNITY OF BEING HEARD TO T HE APPELLANT. GROUND NO.3 THE LD. CIT(A) ERRED BY UPHOLDING THE LD. TPOS APPRO ACH OF IDENTIFYING COMPARABLE COMPANIES WITHOUT PROVIDING DUE CONSIDERATION TO TH E APPELLANTS CONTENTIONS ON THE SEARCH AND THE COMPARABLE COMPANIES CHOSEN TO DETERMINE TH E ARMS LENGTH PRICE. GROUND NO.4 THE LD. CIT (A) ERRED IN LAW AND ON FACTS BY NOT TAK ING COGNIZANCE OF THE SUBMISSIONS FILED BY THE APPELLANT AND THEREBY NOT PASSING A SPEAKING ORDER IN RESPECT OF SUCH SUBMISSIONS. GROUND NO.5 5.1. THE LD. ASSESSING OFFICER (LD. AO) AND THE LD. CIT(A) ERRED IN FACTS AND IN LAW BY EXCLUDING FOREIGN TRAVEL EXPENDITURE AMOUNTING TO I NR.1,49,45,517/- FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N UNDER SECTION 10A OF THE ACT. 5.2. WITHOUT PREJUDICE TO THE ABOVE, HAVING MADE TH E ABOVE EXCLUSION, THE LD.AO AND THE LD. CIT(A) ERRED IN NOT MAKING CORRESPONDING EXCLUSI ON OF THE ABOVE FOREIGN TRAVEL EXPENDITURE FROM THE TOTAL TURNOVER WHILE COMPUTING THE ABOVE DEDUCTION. GROUND NO.6 THE LD. AO AND THE LD. CIT(A) ERRED IN FACTS AND IN L AW BY EXCLUDING DISALLOWANCE MADE UNDER SECTION 40(A)(IA) AMOUNTING TO INR.536,800/- W HILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 4. GROUND NOS.1 & 4 ARE GENERAL IN NATURE. GROUND NOS.2 & 3 ARE RELATED TO TRANSFER PRICING ISSUES. GROUND NOS.5 & 6 ARE RELATED TO REGULAR ADDITIONS IN RESPECT OF THE CORPORATE TAX. 5. IT WAS A SUBMISSION THAT THE ASSESSEE IS A COMP ANY WHICH IS PROVIDING SOFTWARE RELATED SERVICES TO ASSOCIATE EN TERPRISE. IT WAS A SUBMISSION THAT THE ASSESSEES COMPANY WAS ESTABLIS HED IN APRIL, 2007 AS ITA NO.1540/MDS/2017 :- 3 -: 100% OWN SUBSIDIARY OF VESTAS WIND SYSTEMS. IT WAS A SUBMISSION THAT THE ASSESSEE PROVIDED THE ENGINEERING DESIGN SERVIC ES FOR WIND SYSTEMS SOFTWARE DEVELOPMENT FOR CONTROLLING WIND TURBINES AND DOCUMENTATION SUPPORT SERVICES TO THE VESTAS GROUP. IT WAS A SUB MISSION THAT THE ASSESSEE HAD IN ITS TRANSFER PRICING STUDY SHOWN A PLI OF 10%. IT WAS A SUBMISSION THAT AS PER THE ASSESSEES TRANSFER PRIC ING STUDY IN RESPECT OF COMPARABLES, PLI DETERMINED WAS 13% AND THE ASSESSE E HAD SUBMITTED THAT 13 COMPARABLES BEFORE THE TPO WHOSE AVERAGE PL I CAME 14.14%. IT WAS A SUBMISSION THAT THE TRANSFER PRICING OFFICER (IN SHORT TPO) IN THE TRANSFER PRICING ORDER HAD TAKEN 12 COMPARABLES AND HAD COMPUTED THE AVERAGE PLI AT 20.99%. IT WAS A SUBMISSION THAT IN GROUND NOS.2 & 3 OF THE ASSESSEES APPEAL, THE ASSESSEE HAD CHALLENGED THE COMPARABLES TAKEN BY THE TPO. IT WAS A SUBMISSION THAT THE COM PARABLES ARE FOUND AT PAGE NO.23 OF THE TPOS ORDER DATED 22.01.2014, WHI CH IS EXTRACTED BELOW: SL.NO. NAME OF THE COMPARABLE OP/OC (AFTER ADJUSTMENT ON WORKING CAPITAL) 1 AKSHAY SOFTWARE TECHNOLOGIES LTD. -1.79% 2 KALS INFORMATION SYSTEMS LIMITED 27.75% 3 SPRY RESOURCES INDIA PVT. LTD. 22.58% 4 ICRA TECHNO ANALYTICS LTD. 26.00% 5 CTIL LTD (COMPULINK TECH INDIA LIMITED) 9.05% 6 TAKSHEEL SOLUTIONS LTD. 30.93% 7 THINKSOFT GLOBAL SERVICES LTD. 15.21% 8 ACROPETAL TECHNOLOGIES LTD. 30.65% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD. 12.85% 10 VRINCHI TECHNOLOGIES LTD. 18.91% 11 FCS SOFTWARE SOLUTIONS LTD. 41.85% 12 NUCLEUS SOFTWARE EXPORTS LTD. 17.89% MEAN 20.99% ITA NO.1540/MDS/2017 :- 4 -: 6. IT WAS A SUBMISSION THAT THE ASSESSEE IS CHALLEN GING THE COMPARABLES AT SL.NO.2 M/S.KALS INFORMATION SYSTEMS LTD., SL.NO.4 M/S.ICRA TECHNO ANALYTICS LTD., AND SL.NO.8 M/S.ACR OPETAL TECHNOLOGIES LTD. IT WAS A SUBMISSION THAT THESE COMPANIES WERE NOT COMPARABLE WITH THE ASSESSEE COMPANY. IT WAS A SUBMISSION THAT IN RESPECT OF M/S.KALS INFORMATION SYSTEMS LTD., THE SAME WAS INVOLVED IN SOFTWARE PRODUCTS DEVELOPMENT AND NO SEGMENTATION WAS AVAILABLE AND I T HAS BEEN HELD AS NOT COMPARABLE BY VARIOUS DECISIONS OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL SUCH AS IN M/S.WABCO TVS LTD., IN ITA NO.8 83/MDS/2015 DATED 23.09.2016 AS ALSO IN THE CASE OF M/S.SELLA SYNERGY INDIA PVT. LTD., IN ITA NOS.398, 417 & 557/MDS/2015 & CO NO.45/MDS/2015 DAT ED 15.09.2016, ETC. IT WAS A SUBMISSION THAT M/S.ICRA TECHNO ANAL YTICS LTD., COULD NOT BE CONSIDERED AS A COMPARABLE IN SO FAR AS IT WAS I NVOLVED IN PLETHORA OF SERVICES AND SEGMENTATION WAS NOT AVAILABLE FOR EAC H TYPE OF SERVICES. FOR WHICH, THE LD.AR RELIED UPON BY THE DECISION IN THE CASE OF M/S.SELLA SYNERGY INDIA PVT. LTD., REFERRED TO SUPRA AS ALSO DECISION IN THE CASE OF M/S.IKANOS COMMUNICATION INDIA PVT. LTD., IN ITA NO .137/BANG/2015, BANGALORE BENCHES DATED 10.11.2015. IN RESPECT OF M /S.TAKSHEEL SOLUTIONS LTD., IT WAS A SUBMISSION THAT THE EMPLOY EE COST TO TURNOVER IS 2.8% AND THAT IS NOT REPRESENTATIVE OF SOFTWARE SER VICE COMPANY WHEREAS IN THE ASSESSEES CASE THE PROPORTION IS 40.37% FOR WHICH PREPOSITION, THE LD.AR PLACED RELIANCE ON THE DECISION OF THE CO-ORD INATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.WABCO TVS LTD., REFERRE D TO SUPRA. SIMILARLY, IT WAS A SUBMISSION THAT IN THE CASE OF M/S.SPRY RESOU RCES INDIA PVT. LTD., ITA NO.1540/MDS/2017 :- 5 -: THE SAID COMPANY WAS INVOLVED IN PRODUCT DEVELOPMEN T WITH NO SEGMENTATION AVAILABLE BETWEEN THE SOFTWARE SERVICE S AND PRODUCTS IN RESPECT OF THE SAID COMPANY. THE LD.AR RELIED UPON BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M /S.WABCO TVS LTD., AND M/S.SELLA SYNERGY INDIA PVT. LTD. AT THIS POINT, I T WAS PUT TO THE ASSESSEE THAT THE 12 COMPANIES WHICH HAVE BEEN SELECTED AS C OMPARABLES WAS AFTER DISCUSSION WITH THE ASSESSEE, AND THE SAID COMPANIE S, WERE ALSO SOME OF THE COMPANIES SELECTED BY THE ASSESSEE ITSELF AS CO MPARABLE. IT WAS A SUBMISSION THAT DURING THE COURSE OF THE PROCEEDING S BEFORE THE LD.TPO, THE ASSESSEE WAS UNABLE TO PROPERLY CONSIDER THE CO MPARABLES. IT WAS A SUBMISSION THAT THE ASSESSEE WAS FULLY ENTITLED TO CHALLENGE THE COMPARABLES BEFORE THE TRIBUNAL AS THE TRIBUNAL IS THE HIGHEST FACT FINDING BODY. 7. IN REPLY, THE LD.DR VEHEMENTLY SUPPORTED THE ORD ER OF THE TPO AND THE DRP. FURTHER, THE LD.DR FILED WRITTEN SUBMISSI ONS AS FOLLOWS: THE WRITTEN SUBMISSION ON THE TRANSFER PRICING ISS UES IN THE ABOVE CASE IS SUBMITTED AS UNDER FOR A.Y.2010-11. 2. GENERAL 2.1. THE ASSESSEE WAS PROVIDED WITH SUFFICIENT OPPO RTUNITY TO COMMENT ON THE CORRECTNESS OR OTHERWISE OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO. IT IS NOT THE CASE OF THE ASSESSEE THAT THE TPOS ORDER WAS PASSED WITHOUT AFF ORDING ANY OPPORTUNITY. THE ASSESSEES MAIN POINT OF CONTENTION IS NOT THE CORR ECTNESS OF THE COMPARABLE, BUT THE NON- SHARING OF THE ACCEPT REJECT MATRIX. HOWEVER, IT CA N BE SEEN FROM THE TPOS ORDER THAT HE HAS DWELT ON THE SUBJECT OF COMPARABLE AND THE FILT ERS USED IN THE SEARCH PROCESS EXTENSIVELY. FROM THE TPOS ORDER, IT IS CLEAR THAT SOME OF THE FILTERS ADOPTED BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE AND THESE WERE SUITABLY M ODIFIED (PARA 6.3 & 6.4 OF THE ORDER) BY THE TPO. THE TPO HAS ALSO DISCUSSED IN DETAIL THE COMPARABLE SELECTED BY THE ASSESSEE (PARA 6.5) AND HAS REJECTED THEM BASED ON FUNCTIONAL DISSIMILARITIES AND ON OTHER CRITERIA. HE HAS THEN ADOPTED THE REVISED FILTERS AS DISCUSSE D IN PARA 6.4 AND HAS FOUND CERTAIN NEW COMPANIES WHICH ARE FUNCTIONALLY SIMILAR (PARA 6.6). IT IS CLEAR THEREFORE THAT THE TPO HAS ONLY ATTEMPTED TO FIND FUNCTIONALLY SIMILAR COMPANI ES. THE ASSESSEE HAS NOT REBUTTED THE ITA NO.1540/MDS/2017 :- 6 -: CORRECTNESS OF THESE COMPARABLES BEFORE THE HONBLE TRIBUNAL AS THE APPEAL IS ONLY ON THE TECHNICAL ISSUE OF PERCEIVED NON-SHARING OF ACCEPT REJECT MATRIX. THE ASSESSEE HAS RAISED THIS ISSUE BEFORE THE TPO W HICH WAS DEALT BY HIM IN DETAIL IN HIS ORDER (PARA 9-12). FURTHER, THE ASSESSEE HAD RESPONDED TO THE SHOW CAUSE NOTICE ISSUED BY THE TPO AND HAD ALSO FURNISHED ADDITIONAL COMPARABLES WHICH ISSUE IS DISCUSSED BY THE TPO IN PARA 14. THE APPROPRIATENESS OF THE AS SESSEES OWN FILTERS ARE ALSO DISCUSSED IN DETAIL IN PARA 11 OF THE ORDER. IN CONCLUSION, TH E ASSESSEE WAS GIVEN SUFFICIENT OPPORTUNITIES TO PUT FORTH ITS CASE AND WHICH WAS A LSO UTILIZED BY THE ASSESSEE TO MAKE DETAIL SUBMISSIONS. THESE SUBMISSIONS WERE CONSIDER ED BY THE TPO AND HIS VIEWS THEREON ARE ALSO DISCUSSED IN DETAIL IN HIS ORDER U/S.92CA ( 3). THE PLEA REGARDING SUFFICIENT OPPORTUNITY NOT BEING GIVEN IS NOT CORRECT AND THE ISSUE OF NON-FURNISHING OF ACCEPT REJECT MATRIX APPEARS TO BE ONLY AN AFTERTHOUGHT. AS SEEN IN THE PRECEDING PARAGRAPHS, THE TPO HAS AN ALYZED THE FILTERS USED BY THE ASSESSEE AND HAS GIVEN DETAILED REASONS FOR MODIFYI NG THE SAME. THE INAPPROPRIATENESS OF THE COMPARABLE CHOSEN BY THE ASSESSEE AND THE REASO N FOR CHOOSING DIFFERENT COMPARABLE HAVE ALSO BEEN DISCUSSED ELABORATELY BY THE TPO IN H IS ORDER. IN THE CIRCUMSTANCES, THE CIT(A) HAS RIGHTLY UPHELD THE ACTIONS OF THE TPO. 8. IT WAS PUT TO THE LD.AR THAT IF THE ASSESSEE IS CHALLENGING THE COMPARABLES THEN IT WAS THE DUTY OF THE TRIBUNAL TO EXAMINE EACH OF THE COMPARABLES TO IDENTIFY IF THEY WERE ACTUALLY COMPA RABLE AT ALL. TO THIS, THE LD.AR RAISED SUBSTANTIAL OBJECTION. IT WAS A S UBMISSION THAT THE COMPARABLES HAVING BEEN SELECTED AFTER DISCUSSION B ETWEEN THE TPO AND THE ASSESSEE, THE TRIBUNAL SHOULD NOT ENTER INTO TH E VERIFICATION OF THE COMPARABLES ANY FURTHER OTHER THAN REMOVAL OF SUCH COMPARABLES AS ARE SPECIFICALLY IDENTIFIED. ADMITTEDLY, THE TRIBUNAL BEING THE FACT FINDING BODY, THE ASSESSEE HAVING CHALLENGED BEFORE IT, CER TAIN COMPARABLES WHICH HAVE BEEN SELECTED AFTER DISCUSSION BETWEEN TPO AND THE ASSESSEE AS NOT REALLY COMPARABLES AND ARE TO BE EXCLUDED ON ACCOUN T OF OMISSION OR DEFECTS, THEN THE TRIBUNAL HAS A DUTY TO EXAMINE AL L THE COMPARABLES FOR VARIOUS DEFECTS. THE TRIBUNAL IS HANDICAPPED IN RE GARD TO THE SELECTING THE COMPARABLES AS THE REQUISITE DATA IN THE FORM OF TH E SOFTWARE IS NOT AVAILABLE BEFORE IT. IN THESE CIRCUMSTANCES, WE PR OCEED TO EXAMINE EACH ITA NO.1540/MDS/2017 :- 7 -: OF THE 12 COMPARABLES WHICH HAVE BEEN SELECTED IN T HE ASSESSEES CASE FOR ITS TRANSFER PRICING STUDY AND DETERMINATION OF THE PLI. 9. THE FIRST OF THE 12 COMPARABLES, IS M/S.AKSHAY S OFTWARE TECHNOLOGIES LTD. A PERUSAL OF THE PAGE NO.385 OF T HE ASSESSEES PAPER BOOK SHOWS THAT AS PER THE COMPANIES PROFILE, THE C OMPANY IS PROVIDING SOFTWARE SERVICES PREDOMINANTLY ONSITE. IT IS A GL OBAL TECHNOLOGY CORPORATION PROVIDING IT CONSULTING SERVICES AND SO LUTIONS FOR THE FINANCIAL SERVICES SECTOR. THE SAID COMPANY CANNOT BE TREATED AS COMPARABLE AT ALL IN SO FAR AS THE ASSESSEE IS IN T HE BUSINESS OF PROVIDING ENGINEERING DESIGN SERVICES FOR WIND SYSTEMS & SOFT WARE DEVELOPMENT FOR CONTROLLING WIND TURBINES. THESE TWO BUSINESSES AR E IN NO WAY COMPARABLE AT ALL. IT WAS STRONGLY OBJECTED TO BY THE LD.AR TH AT M/S.AKSHAY SOFTWARE TECHNOLOGIES LTD., SHOULD NOT BE REMOVED FROM THE C OMPARABLE LIST IN SO FAR AS THAT WAS THE ONLY SINGLE NEGATIVE OPERATING PROFIT COMPANY AND THE REMOVAL OF THE SAME WOULD AFFECT THE TP CALCULATION IN THE ASSESSEES CASE DISASTROUSLY. WE HAVE CONSIDERED THE OBJECTIONS OF THE LD.AR. FOR TP STUDY WHAT IS COMPARABLE IS SIMILARLY PLACED COMPAN IES. WHAT IS COMPARABLE IS APPLES WITH APPLES, HERE UNDER THE GU ISE OF USING THE TNMM METHOD WHAT IS BEING ATTEMPTED IS TO COMPARE APPLES WITH WATER MELONS AFTER MAKING VARIOUS ADJUSTMENTS. THIS IS JUST NOT PERMISSIBLE. JUST BECAUSE, ASSESSEE IS HAVING SOME SOFTWARE ACTIVITY, IT DOES NOT MEAN THAT THE ASSESSEES TP STUDY CAN BE DONE BY COMPARING AL L SOFTWARE COMPANIES. SOFTWARE ACTIVITIES HAVE VERY SPECIFIC AREAS SUCH A S SOFTWARE DEVELOPMENT ITA NO.1540/MDS/2017 :- 8 -: FOR FINANCIAL SECTOR, INSURANCE SECTOR, SOFTWARE DE VELOPMENT FOR ENGINEERING DESIGN, SOFTWARE DEVELOPMENT FOR SPECIF IC PRODUCTS SO ON AND SO FORTH. WHAT IS TO BE UNDERSTOOD IS THAT FOR ENGI NEERING DESIGN SOFTWARE DEVELOPERS CASE A REGULAR FINANCIAL SOFTWARE DEVELO PMENT COMPANIES CANNOT BE TREATED AS A COMPARABLE. THIS IS BECAUSE THE REQUIREMENT OF THE SKILL IN RESPECT OF THE SOFTWARE DEVELOPMENT FO R ENGINEERING DESIGN IS VERY SPECIFIC AND IT REQUIRES ADDITIONAL QUALIFICAT ION. IT IS NOT SIMILAR FOR DEVELOPING OR MODIFYING SOFTWARE FOR THE COMMON USE S. IT WOULD BE WORTHWHILE TO LOOK INTO THE NUMBER OF EMPLOYEES AND THE QUALIFICATIONS OF THOSE CORE EMPLOYEES WOULD DO THE DEVELOPMENT OF TH E SAID PROGRAMME WHEN MAKING THE COMPARISON. COMING TO THE 2 ND COMPARABLE - M/S.KALS INFORMATION SYSTEMS LIMITED, PAGE NO.24 OF THE PAPE R BOOK SHOWS THAT KALS CONSISTING OF STPI UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND TRAINING CENTRE ENGAGED IN TR AINING OF SOFTWARE PROFESSIONALS ON ON-LINE PROJECTS. ADMITTEDLY, THI S IS ALSO NOT IN ANY WAY COMPARABLE WITH THE LINE OF THE BUSINESS OF THE ASS ESSEE. THE 3 RD COMPARABLE IS M/S.SPRY RESOURCES INDIA PVT. LTD. - AS PER ANNUAL REPORT IS PROVIDING SOFTWARE DEVELOPMENT PROJECTS TO THE GOVE RNMENT OF GOA AND BASICALLY ENGAGED INTO APPLICATION DEVELOPMENT, PRO VIDING SOLUTIONS INTERNET/INTRANET, CLIENTS/SERVER AND MAIN FRAME AN D WIRE. THIS IS AGAIN ADMITTEDLY NO WAY SIMILAR TO THE ACTIVITY OF ENGINE ERING DESIGN AS HAS BEEN DONE BY THE ASSESSEE MORE SPECIFICALLY FOR CAP TIVE CLIENTS. THE 4 TH COMPARABLE IS M/S.ICRA TECHNO ANALYTICS LTD. - WHI CH IS A SOFTWARE DEVELOPMENT COMPANY PROVIDING SERVICES LIKE DATA WA REHOUSING, SOFTWARE ITA NO.1540/MDS/2017 :- 9 -: DEVELOPMENT, DATA MINING, ETC., AGAIN AN UN-COMPARA BLE. THE 5 TH COMPARABLE IS M/S.CTIL LTD (COMPULINK TECH INDIA LI MITED) - THE SAME IS INTO DOMAIN OF E-LEARNING, ERP/SAP PROJECTS AND CRM SOLUTIONS, AGAIN AN UN-COMPARABLE. THE 6 TH COMPARABLE IS M/S.TAKSHEEL SOLUTIONS LTD. - IT IS A COMPANY PROVIDING SOFTWARE DEVELOPMENT SERVICES FOR ENTERPRISES ENGAGED IN FINANCIAL SERVICE INDUSTRY, AGAIN AN UN-COMPARAB LE. THE 7 TH COMPARABLE IS M/S.THINKSOFT GLOBAL SERVICES LTD. - IT IS AGAIN A COMPANY WHICH IS IN THE BUSINESS OF ASSURANCE AND TESTING, CATERING NEEDS T O THE BANKING AND FINANCIAL SECTOR, AGAIN FUNCTIONALLY NOT COMPARABLE . THE 8 TH COMPARABLE IS M/S.ACROPETAL TECHNOLOGIES LTD. - THIS IS A COMPANY WHICH IS ENGAGED IN ENGINEERING DESIGN AND SOFTWARE DEVELOPMENT FUNCTIO NS AND HENCE, IT CAN BE CONSIDERED AS COMPARABLE. THE 9 TH COMPARABLE IS M/S.PERSISTENT SYSTEMS & SOLUTIONS LTD. - THE DETAILS OF THE SAM E HAVE NOT BEEN PLACED BEFORE US. THE 10 TH COMPARABLE IS M/S.VRINCHI TECHNOLOGIES LTD. - WHIC H IS AN IT PRODUCTS SOLUTIONS SERVICE COMPANY FOCUSING O N FINANCIAL SERVICES AND HENCE AN UN-COMPARABLE. THE 11 TH COMPARABLE IS M/S.FCS SOFTWARE SOLUTIONS LTD. - WHICH IS ENGAGED INTO PROVIDING VA LID SERVICES IN THE DOMAIN OF E-LEARNING AND DIGITAL CONTENT SERVICES W HICH IS ALSO NO WAY CONNECTED WITH ENGINEERING DESIGN AND HENCE AN UN-C OMPARABLE. THE LAST BEING NUCLEUS SOFTWARE, AGAIN IN THE BUSINESS OF SO FTWARE SOLUTIONS AND FINANCIAL SERVICES IN THE AREA OF CASH MANAGEMENT A GAIN AN UN- COMPARABLE. THUS, 12 COMPARABLES WHICH HAVE BEEN I N THE TP STUDY, IT IS NOTICED THAT ONLY ONE IS IN ANY MANNER COMPARABLE, THE REST ARE ALL IN NO WAY CONNECTED WITH ANY ENGINEERING DESIGN OR ENGINE ERING SOLUTIONS. THIS ITA NO.1540/MDS/2017 :- 10 -: BEING SO, WE ARE LEFT WITH NO OTHER ALTERNATIVE BUT TO REMOVE ALL THOSE COMPARABLES WHICH HAVE BEEN TAKEN INTO CONSIDERATIO N AS COMPARABLES AND WHICH ARE FOUND TO BE UN-COMPARABLE OR IN THE A LTERNATIVE, RESTORE THE ISSUE OF THE TP STUDY AND DETERMINATION OF THE ALP BACK TO THE FILE OF THE TPO FOR RE-ADJUDICATION. IF WE REMOVE ALL THE UN-C OMPARABLES AS HAS BEEN IDENTIFIED BY US, THEN WE WOULD BE LEFT ONLY ONE OU T OF 12, OBVIOUSLY THIS WOULD BE ABSOLUTELY UNFAIR. THIS BEING SO, IN THE INTEREST OF NATURAL JUSTICE AND FAIR PLAY, THE ISSUE OF THE DETERMINATION OF TH E ALP IN THE ASSESSEES CASE IS RESTORED TO THE FILE OF THE TPO FOR RE-ADJU DICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE HIS C ASE. DURING THE RE- ADJUDICATION, IT IS SPECIFICALLY DIRECTED THAT WHAT IS TO BE CONSIDERED FOR COMPARISON ARE SUCH COMPANIES WHICH ARE IN THE BUSI NESS THAT IS SIMILAR TO THE ASSESSEES BUSINESS BEING PROVIDING ENGINEERING DESIGN SERVICES AND SOFTWARE DEVELOPMENT FOR CONTROLLING SPECIFIED ENGI NEERING PRODUCTS. IN THESE CIRCUMSTANCES, GROUND NOS.2 & 3 OF THE ASSESS EES APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10. IN REGARD TO GROUND NO.5.1 WHICH IS AGAINST THE ACTION OF THE LD.CIT(A) AND AO IN EXCLUDING THE FOREIGN TRAVEL EX PENDITURE FROM THE EXPORT TURN OVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.10A OF THE ACT. THE LD.AR SUBMITTED THAT THE SAME NOT TO BE EXCLUDED. 11 IN REPLY, THE LD.DR SUBMITTED THAT IN VIEW OF TH E EXPLANTION-2(IV) TO SECTION 10A OF THE ACT, THE AO WAS RIGHT IN EXCLUDI NG THE FOREIGN TRAVEL ITA NO.1540/MDS/2017 :- 11 -: EXPENDITURE AS THE SAME WAS ATTRIBUTABLE TO THE DEL IVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA AND ALSO EXPENSES INCURRED I N FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMIT TEDLY, AS HAS BEEN RIGHTLY POINTED OUT BY THE LD.DR, THE FOREIGN TRAVE L EXPENDITURE RELATE TO PROVIDING TECHNICAL SERVICES OUTSIDE INDIA IS NOT L IABLE TO BE TREATED AS PART OF THE EXPORT TURNOVER IN VIEW OF THE EXPLANTION-2( IV) TO SECTION 10A OF THE ACT. CONSEQUENTLY, GROUND NO.5.1 OF THE ASSESSEES APPEAL STANDS DISMISSED. 13. IN REGARD TO GROUND NO.5.2 WHICH IS THE ALTERNA TIVE ARGUMENT TO SUBMIT THAT IF THE SAID FOREIGN TRAVEL EXPENDITURE IS TO BE EXCLUDED FROM THE EXPORT TURNOVER THEN THE SAME NEEDS TO BE EXCLU DED FROM THE TOTAL TURNOVER ALSO. FOR THIS PROPOSITION, THE LD.AR PLA CED RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN T HE CASE OF M/S.SAK SOFT LTD., REPORTED IN 30 SOT 55 (CHENNAI (SB)). THE LD .DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO & THE LD.CIT(A). 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S NOTICED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SP ECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.SAK SOFT LTD., WHEREIN THE SPECIAL BENCH HAS HELD THE PRINCIPLE THAT THE EXPENSES WHICH ARE BEIN G HELD HAS NOT PART OF THE EXPORT TURNOVER AS HAS BEEN PROVIDED FOR EXCLUS ION IN EXPLANTION-2(IV) ITA NO.1540/MDS/2017 :- 12 -: TO SECTION 10A OF THE ACT, IS TO BE EXCLUDED BOTH F ROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER WHICH ARE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. IN THESE CIRCUMSTANCE S, RESPECTFULLY FOLLOWING PRINCIPLE LAID DOWN IN THE DECISION OF THE HONBLE SPECIAL BENCH IN THE CASE OF M/S.SAK SOFT LTD., REFERRED TO SUPRA, IT IS HELD THAT THE FOREIGN TRAVEL EXPENDITURE WHICH HAS BEEN REDUCED FROM THE EXPORT TURNOVER IS ALSO TO BE REDUCED FROM THE TOTAL TURNOVER. IN THESE CIRCU MSTANCES, GROUND NO.5.2 OF THE ASSESSEES APPEAL STANDS ALLOWED. 15. IN REGARD TO GROUND NO.6 OF THE ASSESSEES APPE AL IT WAS SUBMITTED BY THE LD.AR THAT THE ISSUE WAS AGAINST THE REDUCTI ON ON THE CLAIM OF SEC.10A CONSEQUENT TO THE EXCLUSION OF THE DISALLOW ANCE U/S.40(A)(IA) OF THE ACT. IT WAS A SUBMISSION THAT THE DISALLOWANCE ON ACCOUNT OF SEC.40(A)(IA) OF THE ACT RESULTED IN THE TOTAL INCO ME OF THE ASSESSEE BEING INCREASED WAS ELIGIBLE TO BE INCLUDED FOR THE PURPO SE OF COMPUTING THE DEDUCTION U/S.10A OF THE ACT. 16. IN REPLY, THE LD.DR SUBMITTED THAT THE DISALLOW ANCE MADE BY INVOKING THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT WAS A NOTIONAL DISALLOWANCE IN SO FAR AS THE DISALLOWANCE WAS ON A CCOUNT OF THE NON- DEDUCTION OF TDS. IT WAS A SUBMISSION THAT IT DID NOT GO TO AFFECT THE PROFITS AND GAINS AS ARE DERIVED BY THE UNDERTAKING . ITA NO.1540/MDS/2017 :- 13 -: 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE SEC.40(A)(IA) SHOWS THAT THE OPENING WORDS ARE NOT WITHSTANDING ANYTHING TO THE CONTRARY IN SEC.30 TO 38, IT SHALL NOT BE DE DUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THUS, ANY ADJUSTMENT THAT IS MADE ON ACCOUNT OF THE DISALLOWANCE U/S.40(A)(IA) IS ADJUSTMENT TO THE INC OME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON. IN THESE CIRCUMSTANCES, THE DISALLOWANCES MADE BY THE AO BY INVOKING THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT WOULD HAVE T HE EFFECT TO INCREASE THE PROFITS ELIGIBLE FOR DEDUCTION U/S.10A. IN THESE C IRCUMSTANCES, THE AO IS DIRECTED TO GRANT THE ASSESSEE THE BENEFIT OF INCRE ASED DEDUCTION U/S.10A IN RESPECT OF THE DISALLOWANCE MADE BY INVOKING THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT. IN THESE CIRCUMSTANCES, GROUND NO.6 OF THE ASSESSEES APPEAL STANDS ALLOWED. 18. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 01 , 2017, AT CHENNAI. SD/- SD/- ( ) ( SANJAY ARORA ) /ACCOUNTANT MEMBER ( # ) (GEORGE MATHAN) ' /JUDICIAL MEMBER /CHENNAI, 3 /DATED: SEPTEMBER 01, 2017. TLN ITA NO.1540/MDS/2017 :- 14 -: - +'45 65 /COPY TO: 1. * /APPELLANT 4. 7 /CIT 2. +,* /RESPONDENT 5. 5 +'' /DR 3. 7 ( ) /CIT(A) 6. # /GF