RMSI Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1631/DEL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6671 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 21-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 09-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence
• Section: 92C; 10B

Judgement Text

1 ITA NO. 1631/D EL/2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 1631/DEL/2012 (ASSESSMENT YEA R-2005-06) RMSI PVT. LTD. NO. 29, SECOND FLOOR, DEFENCE COLONY MARKET, DEFENCE COLONY NEW DELHI AAACR0680C (APPELLANT) VS ACIT CIRCLE-15(1) NEW DELHI (RESPONDENT) APPELLANT BY SH.ANIL BHALLA, C.A RESPONDENT BY SH. HEMANT GUPTA, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 31/01/2012 PASSED BY LD. CIT (A)-XX, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE ACT ION OF THE LEARNED ASSESSING OFFICER IN MAKING AN ADDITIO N OF RS.1,52,47,482/- IN RESPECT OF GIS AND SPATIAL SERV ICES REPRESENTING ALLEGED DIFFERENCE IN ARMS LENGTH PRI CE (ALP) OF INTERNATIONAL TRANSACTIONS AS RETURNED BY THE AP PELLANT COMPANY BY FOLLOWING TNMM METHOD OF VALUATION IN TE RMS OF SECTION 92C OF THE ACT BY INCLUDING DATA OF EARL IER YEARS DATE OF HEARING 21.01.2016 DATE OF PRONOUNCEMENT 10.03.2016 2 ITA NO. 1631/D EL/2012 IN TERMS OF PROVISO TO RULE 10B(4) WHICH HAS SUMMAR ILY BEEN REJECTED BY THE LEARNED TRANSFER PRICING OFFIC ER IN COMPUTING THE AVERAGE OPERATING PROFIT MARGIN OF COMPARABLES TO JUSTIFY THE ASSESSED ALP. 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE ACT ION OF THE LEARNED ASSESSING OFFICER IN EXCLUDING ALLEGED LY CONSISTENTLY LOSS MAKING COMPARABLE COMPANIES WHILE DETERMINING THE ARITHMETIC MEAN OF OPERATING PROFIT /TOTAL COST (PROFIT LEVEL INDICATOR) OF THE FINAL SET OF C OMPARABLES FOR COMPUTING THE ASSESSED ARMS LENGTH PRICE (ALP) . LEARNED LD. CIT (A) FURTHER ERRED BOTH ON FACTS AND IN LAW IN NOT ACCEPTING ALTERNATIVE SUBMISSION OF THE APPE LLANT COMPANY THAT IF LOSS MAKING COMPANIES WERE TAKEN OU T BY THE TPO FROM THE FINAL SET OF COMPARABLES, COMPANIE S WHICH HAD SHOWN SUPER NORMAL PROFITS SHOULD ALSO BE EXCLUDED WHILE DETERMINING THE ARITHMETIC MEAN OF OPERATING PROFIT/TOTAL COST (PROFIT LEVEL INDICATOR ) OF THE SAID FINAL SET OF COMPARABLES. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE ACT ION OF THE LEARNED ASSESSING OFFICER IN MAKING AN ADDITIO N OF RS.51,59,406/- IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES REPRESENTING ALLEGED DIFFERENCE IN ARMS L ENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS AS RETURN ED BY THE APPELLANT COMPANY BY FOLLOWING TNMM METHOD OF VALUATION IN TERMS OF SECTION 92C OF THE ACT BY INC LUDING DATE OF EARLIER YEARS OF COMPARABLE COMPANIES IN TE RMS OF PROVISO TO RULE 10B (4) OF THE INCOME TAX RULES, 19 62 WHICH HAS SUMMARILY BEEN REJECTED BY THE LEARNED TRANSFER PRICING OFFICER IN COMPUTING THE AVERAGE O PERATING PROFIT MARGIN OF COMPARABLES TO JUSTIFY THE ASSESSE D ARMS LENGTH PRICE. 3 ITA NO. 1631/D EL/2012 2.1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE ACT ION OF THE LEARNED ASSESSING OFFICER IN EXCLUDING ALLEGED LY CONSISTENTLY LOSS MAKING COMPARABLE COMPANIES WHILE DETERMINING THE ARITHMETIC MEAN OF OPERATING PROFIT /TOTAL COST (PROFIT LEVEL INDICATOR) OF THE FINAL SET OF C OMPARABLES FOR COMPUTING THE ASSESSED ARMS LENGTH PRICE (ALP) . LEARNED LD. CIT (A) FURTHER ERRED BOTH ON FACTS AND IN LAW IN NOT ACCEPTING ALTERNATIVE SUBMISSION OF THE APPE LLANT COMPANY THAT IF LOSS MAKING COMPANIES WERE TAKEN OU T BY THE TPO FROM THE FINAL SET OF COMPARABLES, COMPANIE S WHICH HAD SHOWN SUPER NORMAL PROFITS SHOULD ALSO BE EXCLUDED WHILE DETERMINING THE ARITHMETIC MEAN OF OPERATING PROFIT/TOTAL COST (PROFIT LEVEL INDICATOR ) OF THE SAID FINAL SET OF COMPARABLES. 3. THE ASSESSMENT SO MADE IS ILLEGAL IN AS MUCH AS THE TRANSFER PRICING OFFICER HAS NOT COMPLIED WITH THE LEGAL OBLIGATIONS CAST UPON HIM BEFORE PASSING HIS ORDER AND THE ASSESSING OFFICER HAS ERRED IN ACCEPTING THE TRANS FER PRICING OFFICERS ORDER IN ITS FULL ENTIRELY. 4. WITHOUT PREJUDICE TO ABOVE GROUNDS, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN N OT PROVIDING THE BENEFIT OF + - 5% UNDER PROVISO TO SE CTION 92C OF ACT FOR PURPOSES OF COMPUTING THE ARMS LENGTH P RICE IN RESPECT OF INTERNATIONAL TRANSACTIONS. 3. THE COMPANY IS ENGAGED IN PROVIDING SOFTWARE DEV ELOPMENT SERVICES IN TWO BUSINESS SEGMENTS GEOGRAPHIC INFORM ATION SYSTEM (GIS) AND APPLICATION SOFTWARE SERVICES. IN THESE S EGMENTS THE COMPANY UNDERTAKES BUSINESS TRANSACTIONS WITH ITS A SSOCIATED ENTERPRISES (AE) AND NON ASSOCIATED ENTERPRISES (NO N AE). 4 ITA NO. 1631/D EL/2012 4. RMSI WAS EARLIER KNOWN AS R. M. SOFTWARE INDIA P VT. LTD. AND IT STARTED ITS OPERATION IN INDIA IN 1992. RMSI WA S ENGAGED IN PROVIDING SERVICES O RISK MANAGEMETN SOLUTIONS INC. , USA (RMS USA), WHICH BECAME RMSIS PARENT COMPANY IN AUGUST 92 BY ACQUIRING EQUITY IN THE COMPANY. BOTH RMSI AND RMS USA FURTHER ARE SUBSIDIARIES OF DMG INFORMATION INC. USA, WHICH IS ALSO A SUBSIDIARY OF THE DAILY MAIL AND GENERAL TRUST (DMG T), A UK BASED MEDIA COMPANY. 5. RMSI PROVIDED SOFTWARE DEVELOPMENT SERVICES TO D MGT GROUP AND ITS INTERNATIONAL CLIENTS DURING THE YEAR 2004- 05. RMSI IS ENGAGED IN PROVIDING SOFTWARE AND ENGINEERING SOLUT IONS IN THE AREA OF GEOGRAPHIC INFORMATION SYSTEMS (GIS) AND DIGITAL MAPPING TO CLIENTS OVERSEAS. DURING THE YEAR, THE ASSESSEE HA S UNDERTAKEN THE FOLLOWING INTERNATIONAL TRANSACTIONS: TABLE-1: S. NO. DESCRIPTION OF TRANSACTION METHOD VALUE (IN RS.) 1 INCOME FROM SOFTWARE ACTIVITIES TNMM 7,87,72, 411 2 INCOME FROM GIS ACTIVITIES TNMM 15,64,38,886 6. THE ASSESSEE FILED ITS RETURN OF INCOME WITH DCI T, CIRCLE 15(1), NEW DELHI. A REFERENCE WAS RECEIVED FROM THE ASSES SING OFFICER TO DETERMINE THE ARMS LENGTH PRICE U/S 92CA (3) OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE DURING T HE F. Y 2004-05. IN RESPONSE TO NOTICE U/S 92CA, THE AUTHORIZED REPR ESENTATIVES OF 5 ITA NO. 1631/D EL/2012 THE ASSESSEE APPEARED FROM TIME TO TIME. THE DOCUM ENTATION PRESCRIBED UNDER RULE 10D OF THE INCOME TAX RULES W AS SUBMITTED AND PLACED ON THE RECORD. 7. IN THE TP STUDY, IN SOFTWARE SEGMENT, TRANSACTIO NAL NET MARGIN METHOD (TNMM), OPERATING PROFIT/TOTAL COST ( OP/TC) AS PROFIT LEVEL INDICATOR (PLI), 77 COMPARABLES ARE US ED. THE MARGIN OF THE ASSESSEE IS 10.5% AND THAT OF THE COMPARABLES I S CALCULATED AT 5.56% AND THEREFORE THE TRANSACTION IS HELD TO BE A T ARMS LENGTH PRICE. TPO REJECTED USE OF 35 COMPANIES ON VARIOUS GROUNDS. USING THE SINGLE YEAR DATA, THE MARGIN IS CALCULATE D AT 15.90%. WHICH IS RESULTED INTO THE ADDITION OF RS.77, 65,24 2/-TO THE INTERNATIONAL TRANSACTION OF THE ASSESSEE. 8. IN GIS AND SPECIAL SERVICES SEGMENT, THE ASSESSE E IS PROVIDING GEOGRAPHIC INFORMATION SYSTEM SERVICES AND DIGITAL MAPPING TO ITS OVERSEAS CLIENTS. THE ASSESSEE HAD USED 10 COMPARA BLE COMPANIES FOR JUSTIFYING ITS INTERNATIONAL TRANSACTION UNDER TNMM. THE TPO REJECTED ONE PERSISTENT LOSS MAKING COMPANY FROM TH E LIST OF 10 COMPANIES SUBMITTED BY THE ASSESSEE AND F. I. SOFEX LTD. WAS NOT CONSIDERED BECAUSE OF NON AVAILABILITY OF DATA. TH EREFORE, THE MARGIN OF 8 COMPARABLES WAS CALCULATED AT 21.27%. THE ASSESSEE HAD SHOWN A MARGIN OF 10.50%. THEREFORE, AN ADDITI ON OF RS.52, 6 ITA NO. 1631/D EL/2012 47,482/- WAS ADDED TO THE INTERNATIONAL TRANSACTION BY THE A.O/TPO. 9. THE MAIN OBJECTION OF THE ASSESSEE TO THE TREATM ENT GIVEN BY TPO ARE THAT EXCLUSION OF CONSISTENTLY LOSS MAKING COMPANIES BY THE TPO IS NOT CORRECT AND IF CONSISTENTLY LOSS MAK ING COMPANIES ARE ELIMINATED SUPER NORMAL PROFIT COMPANIES ALSO S HOULD BE REMOVED. COMPANIES WHICH HAVE SIGNIFICANT RELATED PARTY TRANSACTIONS (RPT) SHOULD BE REMOVED FROM THE LIST OF COMPARABLES. COMPARABLES WITH DIFFERENT FINANCIAL YEAR ENDINGS S HOULD NOT BE REJECTED. FURTHER OBJECTION OF THE ASSESSEE WAS USE OF SINGLE YEAR DATA BY THE TPO IS NOT PROPER. THE ASSESSEE ALSO OB JECTED AND STATED THAT INTERPRETATION OF PROVISO TO SECTION 92 C(2) WHICH GIVES THE BENEFIT OF 5% STANDARD BENEFIT AND ALLOWABLE TO ALL TAXPAYERS IRRESPECTIVE OF THE FACT THAT PRICE OF INTERNATIONA L TRANSACTION DETERMINED EXCEEDS THE MARGIN PROVIDED IN THE PROVI SION. 8. THE LD. AR CONTENDED THAT AS TPO HAS REJECTED CO NSISTENT LOSS MAKING COMPANIES, THEREFORE THOSE COMPANIES WHICH A RE MAKING SUPER NORMAL PROFITS SHOULD ALSO BE EXCLUDED FROM T HE SET OF COMPARABLES. ACCORDING TO THE ASSESSEE, THE OBJECT IVE OF THIS EXERCISE IS TO CONSIDER EQUALS OR ALMOST EQUALS AND NOT EXTREMES. THE LD. AR ALSO CONTENDED THAT THOSE COMPANIES, NAM ELY, PATNI COMPUTER SYSTEMS LTD., 3DPLM SOFTWARE SYSTEM LTD. A ND SAKSOFT LTD ARE HAVING SIGNIFICANT RELATED PARTY TRANSACTIO NS (RPT) AND THEREFORE SHOULD BE DELETED FROM THE LIST OF COMPAR ABLES. THE LD. AR PLEADED BEFORE THE TPO THAT SATYAM COMPUTER SERV ICES LTD 7 ITA NO. 1631/D EL/2012 SHOULD BE EXCLUDED BECAUSE OF THE UNRELIABILITY OF THE FINANCIAL STATEMENTS OF THE COMPANY. THE ASSESSEE HAD CONTEN DED THAT THOSE COMPANIES WHICH HAVE DIFFERENT YEAR ENDING OTHER TH AN 31 ST MARCH SHOULD NOT BE DELETED FROM THE LIST OF COMPARABLES. 9. THE MATTER WAS REMANDED BACK TO THE TPO. THE REM AND REPORT STRONGLY OBJECTED TO THE ARGUMENT OF THE ASSESSEE. ON THE ISSUE OF EXCLUSION OF LOSS MAKING COMPANIES, THE TPO STATED FOLLOWING IN REMAND REPORT: THEREFORE, A THRESHOLD LIMIT OF RELATED PARTY TRAN SACTIONS HAS TO BE SET AT A LEVEL WHERE ON THE ONE HAND IT PERMITS SUFFICIENT NUMBER OF COMPANIES TO BE INCLUDED IN THE COMPARABILITY CR ITERIA AND AT THE SAME TIME IT EXCLUDES THE COMPANIES WHOSE OVERALL M ARGINS WOULD HAVE BEEN SIGNIFICANTLY AFFECTED BY THE CONTROLLED OR RELATED PARTY TRANSACTIONS. THE THRESHOLD OF RPT NOT BEING MORE THAN 25% HAS BEEN CONSISTENTLY APPLIED FROM A. Y 2007-08 ONLY. A S IN THIS CASE, THE ASSESSEE HAS NOT ANALYZED ITS COMPARABLES WITH REGA RD TO RPT ON ANY THRESHOLD LIMIT, THE ARGUMENT FORWARDED NOW THA T 3 COMPANIES HAVE HIGH RPT IS NOT TENABLE. 10. ON THE ISSUE OF ELIMINATION OF SUPER NORMAL PRO FIT, THE TPO IN REMAND REPORT HAS MENTIONED AS FOLLOWS:- THE CONTENTION OF THE ASSESSEE WAS EXAMINED AND IT IS SEEN THAT AFTER APPLICATION OF FILTER OF PERSISTENT LOSS MAKI NG COMPANIES, ONLY 7 COMPARABLES OUT OF SET OF 77 COMPANIES SELECTED BY THE ASSESSEE HAVE BEEN REJECTED AS THEY WERE FOUND TO BE HAVING CONSISTENT 8 ITA NO. 1631/D EL/2012 LOSSES. THE TPO IN THE SET OF 42 COMPARABLES HAS C ONSIDERED 5 LOSS MAKING COMPANIES AS WELL. THIS SHOWS THAT THE INTE NTION OF TPO WAS NOT TO REJECT NEGATIVE MARGIN COMPANIES, OUT RIGHTL Y BUT ONLY TO CONSIDER COMPARABLES AFTER PROPER FAR ANALYSIS. TH E COMPARABLES REJECTED HAD PERSISTENT LOSSES. 11. AS PER THE STUDY REPORT BY NASSCOM TITLED INDIA N IT/ITES INDUSTRY IMAPCTING ECONOMY AND SOCIETY 2007-08, IT HAS BEEN REPORTED THAT THE SOFTWARE INDUSTRYS CONTRIBU TION TO THE COUNTRYS GDP HAS BEEN STEADILY INCREASING FROM A S HARE OF 1.2% IN F.Y 1998 TO 5.2% IN F. Y 2007. THE COMPARABLE COMP ANIES EXCLUDED BY THE TPO HAVE BEEN INCURRING PERSISTENT LOSSES, IT INDICATES THAT THESE COMPANIES HAVE SOME PECULIAR E CONOMIC PROBLEMS BECAUSE OF WHICH THE LOSSES ARE INCREASING AND NOT IN LINE WITH THE GROWTH IN THE SOFTWARE INDUSTRY. THE CONT ENTION OF THE ASSESSEE , THAT THE COMPARABLES HAVE BEEN REFLECTED BY THE TPO ONLY BECAUSE IT HAS NEGATIVE OPERATING MARGINS IS NOT PR OPER AS THE COMPARABLES HAVE BEEN REJECTED BASED ON FINANCIAL A NALYSIS. THE CONTENTION OF THE ASSESSEE WAS THEREFORE, REJECTED BY TPO. 12. THE CONTENTION OF THE ASSESSEE REGARDING INCLUS ION OF SUPER PROFIT COMPANIES WERE EXAMINED AND FOUND THAT SINCE , THE TOTAL NUMBER OF COMPANIES FOUND COMPARABLES TO THE ASSESS EES FUNCTIONALITY BY THE TPO CONSISTED OF 42 COMPARABLE S, WHICH CONTAINED BOTH HIGH AND LOW MARGINS, HENCE IT WAS A REPRESENTATIVE SET BECAUSE: 9 ITA NO. 1631/D EL/2012 INDIAN REGULATIONS PROVIDE FOR USE OF ARITHMETIC ME AN WHICH EVEN OUTS ALL THE MARGIN VARIATIONS. INDIAN REGULATIONS DO NOT PERMIT THE USE OF INTER Q UARTILE RANGE, HENCE THERE IS NO QUESTION OF REMOVING THE O UTLIERS. IT IS IMPORTANT TO MENTION HERE THAT THE TPO HAS CH OSEN COMPANIES DEPENDING UPON THEIR FUNCTIONAL COMPARABI LITY WITHOUT GOING INTO THE MARGINS. IT IS THE VIEW OF THE OECD THAT ABNORMAL PROFIT MAK ING COMPARABLE CANNOT BE EXCLUDED WITHOUT MAKING ANALYS IS TO KNOW WHETHER THERE IS EXCEPTIONAL CIRCUMSTANCES. IN ORDER TO EXCLUDE THE EXTREME RESULT CASES THERE SHO ULD BE EITHER A DEFECT IN COMPARABILITY OR EXCEPTIONAL CON DITIONS FACED BY THE COMPARABLES. 13. THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). TH E CIT(A) HELD THAT IN THE PRESENT CASE UNDER CONSIDERATION, THE A SSESSEE SOUGHT EXCLUSION OF SOME COMPARABLES USED BY THE TPO ON TH E GROUND OF ABNORMAL RESULTS WITHOUT DISPUTING THE FUNCTIONAL C OMPARABILITY OR SHOWING ANY EXCEPTIONAL ECONOMIC CIRCUMSTANCES. IT IS SEEN THAT THE HIGH MARGINS OF THESE COMPANIES ARE NORMAL INCI DENT OF BUSINESS AND MERELY BECAUSE IT HAS VERY HIGH MARGIN S DURING F.Y 2004-05, EXCLUSION OF THESE COMPANIES MAY NOT BE JU STIFIED. AT THE SAME TIME TPO HAS CONSIDERED COMPARABLES HAVING NEG ATIVE MARGIN OF (19.63%) AS WELL. THERE HAVE BEEN NO PECULIAR E CONOMIC CIRCUMSTANCES HIGHLIGHTED IN ANY OF THE ANNUAL REPO RTS AND THE COMPANIES ARE ENGAGED IN SOFTWARE DEVELOPMENT SERVI CES RELATED ACTIVITIES. THEREFORE, REJECTED THOSE COMPANIES AS COMPARABLES. 14. THE CIT(A) FURTHER HELD THAT EVEN, THE FACTS AN D CIRCUMSTANCES IN THE CASE OF THE ASSESSEE ARE DIFFERENT FROM THE DECISIONS RELIED 10 ITA NO. 1631/ DEL/2012 UPON BY THE ASSESSEE, AS IN THOSE DECISIONS, THE CO MPARABLES SELECTED, HAVING SUPER NORMAL PROFITS WERE FOUND FU NCTIONALLY NOT COMPARABLE WITH THE CONCERNED ASSESSEE COMPANY AND WERE THEREFORE, HELD TO BE NOT COMPARABLE. THEREFORE, T HIS CONTENTION OF THE ASSESSEE WAS REJECTED BY CIT(A). 15. THE ASSESSEE FILED PRESENT APPEAL. THE LD. AR S OUGHT THE PERMISSION UNDER RULE 29 OF THE INCOME TAX RULES, 1 962 TO FILE THE ADDITIONAL EVIDENCE AND SUBMITTED THAT THE CERTIFIE D SEGMENTAL PROFITABILITY STATEMENT WAS FILED TO SUBSTANTIATE T HE ASSESSEES CONTENTION THAT THE PROFITABILITY OF THE ASSESSEE F ROM BUSINESS TRANSACTION WITH AES IS BETTER THAN THE ASSESSEES BUSINESS TRANSACTIONS WITH THIRD PARTIES. IN THE TP STUDY BE CAUSE OF THE THEN PROFESSIONAL ADVICE AVAILABLE AND IN VIEW OF THE FA CT THAT THE TRANSFER PRICING PROVISIONS WERE GOING THROUGH EVOLUTION, TH E TWO SEGMENTS WERE NOT ANALYZED BETWEEN TRANSACTION TO AE AND THI RD PARTIES (NONE AE). THE ENTIRE TRANSFER PRICING PROCEEDINGS WERE IN A VERY NASCENT STAGE. THE ANALYTICAL SKILLS WERE STILL EV OLVING, AND NEW DIMENSIONS AND METHODS WERE BEING STUDIED IN ORDER TO DETERMINE THE MAM FOR FINDING OUT ALP. THESE WERE INITIAL YEA RS FOR IMPLEMENTATION OF TRANSFER PRICING PROVISIONS IN IN DIA AND THE ASSESSEE COMPANY HAD RESTRICTED KNOWLEDGE WITH REGA RD TO PRACTICAL EXECUTION OF THE PROVISIONS OF TRANSFER PRICING. IN THIS CONTEXT, AND BECAUSE OF NON AVAILABILITY OF EXPERIENCED INHOUSE STAFF, THE ASSESSEE COMPANY COULD NOT CARRY OUT A PROPER TRANS FER PRICING ANALYSIS. THE TRANSFER PRICING PROCEEDINGS HAVE SO EVOLVED THAT ITS ACCEPTED PROPOSITION, THAT INTERNAL TNMM IS PREFERR ED OVER EXTERNAL 11 ITA NO. 1631/ DEL/2012 TNMM IN ORDER TO DETERMINE THE ARMS LENGTH PRICE OF INTERNATIONAL CONTROLLED TRANSACTIONS. THE FACT THAT THE ASSESSEE COMPANY DID NOT DISTINGUISH ITS GIS AND APPLICATION SOFTWARE BUSINE SS TRANSACTIONS BETWEEN CONTROLLED TRANSACTION AND UNCONTROLLED TRA NSACTIONS HAS RESULTED IN TRANSFER PRICING ADJUSTMENTS ON THE ENT IRE BUSINESS TURNOVER OF THE COMPANY IN THE TWO SEGMENTS WITHOUT DISTINGUISHING BUSINESS TRANSACTIONS WITH AES AND N ON AES WHEREAS THE ADJUSTMENTS SHOULD HAVE BEEN RESTRICTED ONLY TO THE INTERNATIONAL TRANSACTIONS. THIS IS THE SITUATION W HERE CORRECT PLI CANNOT BE DETERMINED AS PER PROVISIONS OF THE ACT A ND THE RULES THEREON, SO AS TO APPROPRIATELY DETERMINE ALP OF TH E INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS A SSOCIATED ENTERPRISES. 16. THEREFORE, THE LD. AR SUBMITTED THAT THE ADDITI ONAL EVIDENCE HAS TO BE FILED IN THE PRESENT MATTER FOR THE REASO NS SET OUT HEREINABOVE UNDER RULE 29 OF THE INCOME TAX RULES A S IT WILL ENSURE DETERMINATION OF ASSESSEES TAX LIABILITY IN MOST S ATISFACTORY MANNER. IT IS A TRITE LAW THAT IT IS NECESSARY FOR THE AUTHORITIES TO ENSURE THAT THE ASSESSEE HAS BEEN MADE ON A CORRECT INCOME. IT IS NECESSARY FOR THE APPELLATE AUTHORITIES TO CORRECT ALL ERRORS IN THE PROCEEDINGS UNDER APPEAL SO AS TO ACHIEVE A FINAL O BJECTIVE OF ASSESSING THE CORRECT INCOME. THIS PROPOSITION HAS BEEN SO HELD BY THE HONBLE SUPREME COURT IN KAPURCHAND SHRIMAL 131 ITR 451 (HON'BLE SUPREME COURT). 12 ITA NO. 1631/ DEL/2012 QUOTE IT IS WELL KNOWN THAT AN APPELLATE AUTHORITY HAS T HE JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERRORS IN THE PR OCEEDINGS UNDER APPEAL AND TO ISSUE, IF NECESSARY, APPROPRIATE DIRE CTIONS TO THE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREF ERRED TO DISPOSE OF THE WHOLE OR ANY PART OF THE MATTER AFRE SH, UNLESS FORBIDDEN FROM DOING SO BY STATUTE. 17. THE DR SUBMITTED THAT THE SAID ADDITIONAL EVIDE NCE WAS NOT BEFORE THE CIT (A) AND NO EFFORT ON BEHALF OF THE A SSESSEE WAS MADE BEFORE THE ASSESSING OFFICER TO FURNISH THE COPY OF CERTIFIED SEGMENTAL STUDY. THEREFORE, THE APPEAL MAY BE DISM ISSED. 18. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH THE PARTIES. THE CIT(A) HAS NO OCCASION TO GO THROUGH THE CERTIF IED SEGMENTAL PROFITABILITY STATEMENT AS THE SAME WAS NOT FILED B EFORE THE CIT(A). THE TWO SEGMENTS WERE NOT ANALYZED BETWEEN TRANSACT ION TO AE AND THIRD PARTIES (NONE AE). THE ENTIRE TRANSFER PRICIN G PROCEEDINGS IS REQUIRED TO BE LOOKED INTO. THE FACT THAT THE ASSE SSEE COMPANY DID NOT DISTINGUISH ITS GIS AND APPLICATION SOFTWARE BU SINESS TRANSACTIONS BETWEEN CONTROLLED TRANSACTION AND UNC ONTROLLED TRANSACTIONS WHICH HAS RESULTED IN TRANSFER PRICING ADJUSTMENTS ON THE ENTIRE BUSINESS TURNOVER OF THE COMPANY IN THE TWO SEGMENTS WITHOUT DISTINGUISHING BUSINESS TRANSACTIONS WITH A ES AND NON AES WHEREAS THE ADJUSTMENTS SHOULD HAVE BEEN RESTRI CTED ONLY TO THE INTERNATIONAL TRANSACTIONS, THIS FACT HAS TO BE LOOKED INTO BY THE 13 ITA NO. 1631/ DEL/2012 CIT(A). THIS IS THE SITUATION WHERE CORRECT PLI CAN NOT BE DETERMINED AS PER PROVISIONS OF THE ACT AND THE RULES THEREON, SO AS TO APPROPRIATELY DETERMINE ALP OF THE INTERNATIONAL TR ANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED EN TERPRISES. THE ADDITIONAL EVIDENCE IS NECESSARY IN THIS MATTER AND THE REASONS ARE WELL GIVEN BY THE ASSESSEE. IN VIEW OF THIS, THE AD DITIONAL EVIDENCE IS ADMITTED AND THE SAME MAY BE LOOKED INTO BY THE CIT (A). NEEDLESS TO SAY THE PROPER OPPORTUNITY OF BEING HEARD MAY BE GIVEN TO BOTH THE PARTIES. HENCE, THE MATTER IS REMITTED BACK TO THE CIT (A). 19. IN RESULT, THE APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10 TH OF MARCH 2016. SD/- SD/- ( N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10/03/2016 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 14 ITA NO. 1631/ DEL/2012 DATE 1. DRAFT DICTATED ON 22/01/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 23/01/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 02.2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 11.02.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 11.02.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.