Conexant Systems Private Limited, Hyderabad, Hyderabad V. DCIT, Circle-1(2), Hyderabad, Hyderabad

ITA 1694/HYD/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8131 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-10-2018
• Assessment Year: 2005-2006
• Appeal Filed On: 15-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: A RAMPURAWALA
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Revised return
• Section: 143(3); 10B; 143(1); 195; 148; 10; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT P. MADHAVI DEVI , JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 1 694 /HYD/201 6 ASSESSMENT YEAR: 20 05 - 06 CONEXANT SYSTEMS PVT. LTD., HYDERABAD. PAN AA ACF2723N VS. DY . COMMISSIONER OF INCOME - TAX, CIRCLE 1 ( 2 ), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : S HRI A. RAMPURAWALA REVENUE BY : SHRI J. SIRI KUMAR DATE OF HEARING : 0 4 / 1 0/2018 DATE OF PRONOUNCEMENT : 26 /1 2 /2018 O R D E R PER S. RIFAUR RAHMAN, A.M . : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) 1, HYDERABAD DATED 26/08/2016 FOR THE AY 2005 - 06. 2. BRIEF FACTS OF THE CASE ARE, THE ASSESSEE , ENGAGED IN THE BUSINESS OF RESEARCH AND DEVELOPMENT FOR THE DESIGN AND DEVELOPMENT OF SEMI - C ONDUCTOR IC AND SUPPORTING HARDWARE AND SOFTWARE PRODUCTS FOR THE COMMUNICATION INDUSTRY, FILED ITS RETURN OF INCOME FOR THE AY 2005 - 06 ON 28/10/2005 DECLARING TOTAL INCOME OF RS. 4,513/ - , WHICH WAS PROCESSED U/S 143(1) OF THE INCOME - TAX ACT, 1961 (IN SHOR T THE ACT). THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 30/12/2008 DETERMINING THE TAXABLE INCOME AT RS. 2,88,12,525/ - . 2 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 2.1 A NOTICE U/S 92CA(2) WAS ISSUED ALONG WITH A QUESTIONNAIRE ON 30/06/2008, IN RESPONSE TO WH ICH, THE AR OF THE ASSESSEE FILED THE REQUISITE DETAILS. 2.2. THE TPO NOTED THAT THE DURING THE YEAR THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE , AS UNDER: 1. TE CHNICAL SERVICES RENDERED FOR AN AMOUNT OF RS. 11,68,40,141/ - (DESIGN OF CHIPS AND IP CORES) METHOD ADOPTED TNMM 2.3 AFTER EXAMINING THE DETAILS/DOCUMENTS SUBMITTED DURING THE COURSE OF THE PROCEEDINGS, THE TPO OBSERVED THAT THE BENCHMARKING DONE BY TH E ASSESSEE OF ITS INTERNATIONAL TRANSACTION WAS NOT FOUND TO BE ACCEPTABLE AND ACCORDINGLY A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ON 28/08/2008 . 2.4 AFTER CONSIDERING THE REPLY TO THE SHOW CAUSE NOTICE, THE TPO SELECTED THE FINAL SET OF COMPARABLES (14 COMPARABLES CHOSEN BY TPO) FOR THE PURPOSES OF BENCHMARKING ASSESSEES INTERNATIONAL TRANSACTION WITH ARITHMETIC MEAN OF ITS PLI AT 25.03% AND HAS NO T ALLOWED ANY ADJUSTMENT FOR RISK. THUS, ADJUSTED ARITHMETIC MEAN OF PLI OF THE SET OF COMPARABLES REM AINS THE SAME I.E. AT 25.03%. THE OPERATING PROFIT OVER TOTAL COST OF THE ASSESSEE COMPANY IS 13.51% AND ACCORDINGLY , DETERMINED THE ALP AS UNDER: THE TOTAL VALUE OF INTERNATIONAL TRANSACTION RELATING TO PROVISION OF SOFTWARE SERVICES RS. 11,68,40,141/ - DIFFERENCE IN THE ADJUSTED MEAN OF PLI OF THE COMPARABLES AND THE ASSESSEE : 25.03% - 13.51% = 11.52% ADJUSTMENT REQUIRED TO COMPUTE ARMS LENGTH PRICE: 11.52% OF RS. 11,68,40,141/ - = RS. 1,34,59,984/ - . 3. WHEN THE ASSESSEE RAISED OBJECTIONS BEFORE THE C IT(A), THE CIT(A) UPHELD THE ACTION OF TPO. 3 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 4. THE AO ALSO MADE AN ADDITION OF RS. 1,53,48,028/ - U /S 10A/10B, WHICH WAS UPHELD BY THE CIT(A). 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: CORPORATE TAX GROUNDS 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ('CIT ( A)') ERRE D IN NOT ALLOWING DEDUCTION UNDER SECTION 10 A/ 10 B OF THE INCOME TAX ACT, 1961 ('ACT') CLAIMED BY THE APPELLANT. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DISREGARDING THE ORDER DATED NOVEMBER 12, 2014 OF TH E HON'BLE INCOME TAX APPELLATE TRIBUNAL (ITA NO. 710 TO 714/HYD/2014), WHEREIN IT WAS HELD THAT APPELLANT WOULD BE ELIGIBLE FOR EXEMPTION UNDER SECTION 10A / 10B OF THE ACT. 3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS E RRED IN NOT ADJUDICATING ON THE GROUND OF THE APPELLANT CLAIMING EXEMPTION UNDER SECTION 10A / 10 B OF THE ACT OF RS. 1,53,48,028 TO BOTH PUNE AND BANGALORE UNIT AS A WHOLE. 4 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ER RED IN NOT APPRECIATING THE FACTS OF THE CASE THAT THE ELIGIBLE UNITS WERE NOT FORMED AS 'SPLITTING UP' OR 'RECONSTRUCTION' OF THE EXISTING BUSINESS OF THE ASSESSEE. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. TRANSFER PRICING GROUNDS THE GRO UNDS MENTIONED HEREIN ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT OF RS. 1,34,59,984 TO THE APPELLANT'S INTERNATIONAL TRANSACTIONS. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE POSITION OF THE LEARNED TRANSFER PRICING OFFICER ('LEARNED TPO'), WHICH INTER - ALIA INCLUDED: 4 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. A. REJECTING THE TRANSFER PRICING STUDY WHICH WAS MAINTAINE D IN GOOD FAITH AND WITH DUE DILIGENCE BY THE APPELLANT; B. NOT FOLLOWING A STRUCTURED SEARCH PROCESS IN SELECTION OF COMPARABLE COMPANIES; C. REJECTING THE USE OF MULTIPLE YEAR DATA AND RELYING ON CONTEMPORANEOUS INFORMATION WHICH WAS NOT AVAILABLE AT T HE TIME OF PREPARATION OF THE TRANSFER PRICING STUDY; D. INCLUDING CERTAIN COMPARABLES, WHICH WERE NOT COMPARABLE; E. SELECTING COMPANIES AS COMPARABLE WHICH HAD SIGNIFICANT RELATED PARTY TRANSACTIONS; AND F. NOT INCLUDING CERTAIN COMPARABLES SELECTED B Y THE APPELLANT IN ITS TRANSFER PRICING STUDY. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE POSITION OF THE LD. TPO WHILE COMPUTING THE QUANTUM ON ADJUSTMENT BY CONSIDERING THE CONTROLLED REVENUE OF THE APPELLANT IN CONTRAST TO THE UNCONTROLLED CO STS OF THE APPELLANT. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 6. AS REGARDS CORPORATE TAX GROUNDS 1 TO 4 REG ARDING ASSESSEES CLAIM OF EXEMPTION U/S 10A, ASSESSEE CLAIMED THAT IT IS A 100% EXPORT ORIENTED SOFTWARE TECHNOLOGY PARK UNIT. AS PER THE AUDIT REPORT, ASSESSEE IS IN THE BUSINESS OF HARDWARE ENGINEERING, DESIGNING. DURING THE YEAR ASSESSEE HAS SHOWN SALE S OF RS. 11,68,40,141/ - . ASSESSEE HAS MADE ENTIRE SALES TO PAXONET COMMUNICATIONS INC., USA. ASSESSEE IS 100% SUBSIDIARY OF PAXONET COMMUNICATIONS INC., USA (EARLIER KNOWN AS COREELMICRO SYSTEMS INC.). ASSESSEE HAS SHOWN PROFIT OF RS. 1,27,19,226/ - AS PER PROFIT & LOSS ACCOUNT. IN THE ORIGINAL RETURN, THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B OF RS. 1,62,37,571/ - . IN THE REVIS ED RETURN FILED ON 31/03/2016, THE AMOUNT OF DEDUCTION CLAIMED IS SHOWN AT RS. 1,53,48,025/ - U/S 10A AS AGAINST ORIGINALLY CLAIMED U/S 10B. 6.1 THE AO REJECTED THE ASSESSEES CLAIM OF DEDUCTION ON THE GROUND THAT THE ASSESSEE COMPANY IS NOT A NEW UNIT, AS ENVISAGED IN 5 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. SECTION 10A, AS IT IS A MERE RECONSTRUCTION OF THE BUSINESS OF CG - COREEL LOGIC SYSTEMS PVT. LTD., NOT A NEW COMPANY. 6.2 THE CIT(A) UPHELD THE ACTION OF AO. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN ASSESSEES OWN CASE FOR AYS 2001 - 02 TO 2004 - 05 AND 2008 - 09 IN ITA NOS. 710 TO 714/HYD/2014, VIDE ORDER DATED 12/11/2014, WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 15 . IT IS CLEAR FROM THE ASSESSMENT ORDER, THE AO HAS DENIED EXEMPTION U/S 10B FOR NON - FULFILLMENT OF CONDITIONS PRESCRIBED UNDER CLAUSE (II) AND (III) OF SECTION 10B(2). THEREFORE, KEEPING ASIDE FOR THE TIME BEING THE ISSUE WHETHER ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10A OR 10B LET US EXAMINE WHETHER ASSESSEE HAS ACTUALLY NOT FULFILLED THE CONDITIONS OF SECTION 10B(2), AS ALLEGED BY AO AND UPHELD BY LD. CIT(A). THE FIRST GROUND FOR REJECTION IS, ASSESSEE COMPANY HAS BEEN FORMED BY SPLITTING UP OR RECONST RUCTION OF A BUSINESS ALREADY IN EXISTENCE. THE HONBLE SUPREME COURT IN CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT, 107 ITR 195 HAD AN OCCASION TO INTERPRET THE MEANING OF EXPRESSION SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE AS USED IN SECTION 15C OF 1922 ACT. FOR THE SAKE OF CLARITY SECTION 15C OF 1922 ACT IS REPRODUCED HEREUNDER 15C. EXEMPTION FROM TAX OF NEWLY ESTABLISHED INDUSTRIAL UNDERTAKINGS (1) SAVE AS OTHERWISE HEREINAFTER PROVIDED, THE TAX SHALL NOT BE PAYABLE BY AN ASSESSEE ON SO MUCH OF THE PROFITS OR GAINS DERIVED FROM ANY INDUSTRIAL UNDERTAKING OR HOTEL TO WHICH THIS SECTION APPLIES AS DO NOT EXCEED SIX PER CENT PER ANNUM ON THE CAPITAL EMPLOYED IN THE UNDERTAKING OR HOTEL, COMPUTED IN ACCORDANCE WITH SUCH RULES AS MAY BE MADE IN THIS BEHALF BY THE CENTRAL BOARD OF REVENUE. 2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTAKING WHICH I) IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION OF, BUSINESS ALREADY IN EXISTENCE OR BY THE TRANSFER TO A NEW B USINESS OF BUILDING, MACHINERY OR PLANT PREVIOUSLY USED IN ANY OTHER BUSINESS. THE HONBLE SUPREME COURT WHILE INTERPRETING THE TRUE IMPORT OF THE AFORESAID PROVISION HELD AS UNDER: 'AGAIN, THE NEW UNDERTAKING MUST NOT BE SUBSTANTIALLY THE SAME OLD EXISTI NG BUSINESS. THE THIRD EXCLUDED CATEGORY MENTIONED ABOVE IS SIGNIFICANT. EVEN IF A NEW BUSINESS IS CARRIED ON BUT BY PIERCING THE VEIL OF THE NEW BUSINESS, IT IS FOUND THAT THERE IS EMPLOYMENT OF THE ASSETS OF THE OLD BUSINESS, THE BENEFIT WILL NOT BE AVAI LABLE. FROM THIS IT CLEARLY FOLLOWS THAT SUBSTANTIAL INVESTMENT OF NEW CAPITAL IS IMPERATIVE. THE WORDS 'THE CAPITAL EMPLOYED' IN THE PRINCIPAL 6 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. CLAUSE OF S. 15C ARE SIGNIFICANT, FOR FRESH CAPITAL MUST BE EMPLOYED IN THE NEW UNDERTAKING CLAIMING EXEMPTION. THERE MUST BE A NEW UNDERTAKING WHERE SUBSTANTIAL INVESTMENT OF FRESH CAPITAL MUST BE MADE IN ORDER TO ENABLE EARNING OF PROFITS ATTRIBUTABLE TO THAT NEW CAPITAL. MANUFACTURE OR PRODUCTION OF ARTICLES YIELDING ADDITIONAL PROFIT ATTRIBUTABLE TO THE NEW OUT LAY OF CAPITAL IN A SEPARATE AND DISTINCT UNIT IS THE HEART OF THE MATTER, TO EARN BENEFIT FROM THE EXEMPTION OF TAX LIABILITY UNDER S. 15C. SUB - SO (6) OF THE SECTION ALSO POINTS TO THE SAME EFFECT, NAMELY, PRODUCTION OF ARTICLES. THE ANSWER, IN EVERY PART ICULAR CASE, DEPENDS UPON THE PECULIAR FACTS AND CONDITIONS OF THE NEW INDUSTRIAL UNDERTAKING ON ACCOUNT OF WHICH THE ASSESSEE CLAIMS EXEMPTION UNDER S. 15C. NO HARD AND FAST RULE CAN BE LAID DOWN. TRADE AND INDUSTRY DO NOT RUN IN EARMARKED CHANNELS AND P ARTICULARLY SO IN VIEW OF MANIFOLD SCIENTIFIC AND TECHNOLOGICAL DEVELOPMENTS. THERE IS GREAT SCOPE FOR EXPANSION OF TRADE AND INDUSTRY. THE FACT THAT AN ASSESSEE BY ESTABLISHMENT OF A NEW INDUSTRIAL UNDERTAKING EXPANDS HIS EXISTING BUSINESS, WHICH HE CERT AINLY DOES, WOULD NOT, ON THAT SCORE, DEPRIVE HIM OF THE BENEFIT UNDER S. 15C. EVERY NEW CREATION IN BUSINESS IS SOME KIND OF EXPANSION AND ADVANCEMENT. THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION OF THE EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW AND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS.' 16. AS PER THE INTERPRETATION GIVEN BY THE HONBLE SUPREME COURT BUSINESS ALREADY IN EXISTENCE AS REFERRED TO IN SECTIO N 15C WOULD MEAN BUSINESS OF THE ASSESSEE. 17. THE HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. SUESSIN TEXTILE BEARING LTD., 135 ITR 443 WHILE INTERPRETING SIMILAR EXPRESSION USED IN SECTION 84 OF IT ACT, 1961 HELD AS UNDER: 16. THUS, IN THE DECISIONS WHICH HAVE BEEN APPROVED BY THE SUPREME COURT IN TEXTILE MACHINERY CORPORATION'S CASE (SUPRA) AND IN THE DECISION OF THE SUPREME COURT ITSELF, SUFFICIENT INDICATIONS HAVE BEEN GIVEN THAT SO FAR AS 'RECONSTRUCTION OF THE BUSINESS' IS CONCERNED OR 'SPLITTIN G OF BUSINESS' IS CONCERNED, IT MUST BE, SPLITTING UP OF THE BUSINESS WHICH WAS ALREADY BEING CARRIED ON BY THE ASSESSEE OR THE RECONSTRUCTION OF THE BUSINESS WHICH WAS ALREADY BEING CARRIED ON BY THE ASSESSEE AND THE NEW INDUSTRIAL UNDERTAKING MUST HAVE B EEN FORMED AS A RESULT OF THE SPLITTING UP OF THE PREVIOUSLY EXISTING BUSINESS OF THE ASSESSEE OR THE RECONSTRUCTION OF THE PREVIOUSLY EXISTING BUSINESS OF THE ASSESSEE. THUS, SO FAR AS THE FIRST TWO CLAUSES ARE CONCERNED, THE ONLY CONCLUSIONS POSSIBLE 7 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. LOO KING TO THE OBJECT OF THE LEGISLATURE AND THE WORDS USED BY THE LEGISLATURE IN THE RELEVANT PROVISIONS LAYING DOWN THE CONDITIONS THEN OBTAINING REGARDING S. 84, ARE THAT IN THE FIRST TWO CONDITIONS THE PREVIOUSLY EXISTING BUSINESS MUST BE OF THE ASSESSEE HIMSELF. SIMILARLY, THE PREVIOUSLY EXISTING BUSINESS WHICH IS RESUSCITATED OR RECONSTRUCTED OR WHICH IS BEING SPLIT UP MUST BE OF THE ASSESSEE HIMSELF. IF THAT IS SO, THE POSITION IS VERY CLEAR, NAMELY, THAT SO FAR AS THE THIRD CONDITION MENTIONED AT P. 20 2 IS CONCERNED, NAMELY, THAT THE NEW INDUSTRIAL UNDERTAKING OF THE ASSESSEE SHOULD NOT BE FORMED BY THE TRANSFER TO THE NEW BUSINESS OF BUILDING, MACHINERY OR PLANT USED BY ANOTHER PRIOR TO APRIL I, 1948, MUST APPLY IN THE CONTEXT OF THE PREVIOUS BUSINESS BEING CARRIED ON BY THE ASSESSEE HIMSELF. THESE WORDS MUST BE HELD TO TAKE COLOUR FROM THE CONTEXT IN WHICH THEY ARE APPEARING. 18. FURTHER, THE HON BLE AP HIGH COURT ALSO HAD AN OCCASION TO INTERPRET SECTION 80J WHICH ALSO EMPLOYED SIMILAR EXPRESSION. FOR THE SAKE OF CONVENIENCE SECTION 80J IS REPRODUCED HEREUNDER: 80J (1): WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DE RIVED FROM AN INDUSTRIAL UNDERTAKING OR A SHIP OR THE BUSINESS OF A HOTEL, TO WHICH THIS SECTION APPLIES, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS (REDUCED BY THE DEDUCTION, IF ANY, ADMISSIBLE TO THE ASSESSEE UNDER S. 80HH OR S. 80HHA) OF SO MUCH OF THE AMOUNT THEREOF AS DOES NOT EXCEED THE AMOUNT CALCULATED AT THE RATE OF SIX PER CENT PER ANNUM ON THE CAPITAL EMPLOYED IN THE INDUSTRIAL UNDERTAKING OR SHIP OR BUSINESS OF THE HOTEL, AS THE CASE MAY BE, COMPUTED IN THE PRESCRIBED MANNER IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR (THE AMOUNT CALCULATED AS AFORESAID BEING HEREAFTER, IN THIS SECTION, REFERRE D TO AS THE RELEVANT AMOUNT OF CAPITAL EMPLOYED DURING THE PREVIOUS YEAR) ... (4) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: (I) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE; ..... 8 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. PROVIDED THAT THE CONDITION IN CL. (I) SHALL NOT APPLY IN RESPECT OF ANY INDUSTRIAL UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE - ESTAB LISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN S. 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION: PROVIDED FURTH ER THAT, WHERE ANY BUILDING OR ANY PART THEREOF PREVIOUSLY USED FOR ANY PURPOSE IS TRANSFERRED TO THE BUSINESS OF THE INDUSTRIAL UNDERTAKING, THE VALUE OF THE BUILDING OR PART SO TRANSFERRED SHALL NOT BE TAKEN INTO ACCOUNT IN COMPUTING THE CAPITAL EMPLOYED IN THE INDUSTRIAL UNDERTAKING. 19. TH E HONBLE AP HIGH COURT WHILE INTERPRETING THE EXPRESSION SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE AS USED IN SECTION 80J TOOK JUDICIAL NOTE OF THE RATIO LAID DOWN IN CASE OF TEXTILE MACHINERY CORPN. LTD VS. CIT AND CIT VS. SUESSIN TEXTILE BEARING LTD. AND HELD AS UNDER: WE ARE PRINCIPALLY CONCERNED WITH CL. (II) OF SUB - SO (4) OF S. 80J, WHICH SAYS THAT THE UNDERTAKING MUST BE ONE WHICH IS NOT FORMED BY TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOS E. SEC. 80J APPLIES TO ALL INDUSTRIAL UNDERTAKINGS EXCEPT THE THREE CATEGORIES MENTIONED IN CLS, (I) AND (II). THE TWO EXCLUDED CATEGORIES UNDER CL. (I) ARE: WHERE THE UNDERTAKING IS FORMED BY SPLITTING UP OF THE EXISTING BUSINESS OR BY RECONSTRUCTION OF T HE EXISTING BUSINESS. THESE TWO CATEGORIES ARE NECESSARILY REFERABLE TO THE SAME ASSESSEE. OTHERWISE, THE QUESTION OF SPLITTING UP OR RECONSTRUCTION DOES NOT ARISE. THE WORDS 'SPLITTING UP' OR 'RECONSTRUCTION' OF THE BUSINESS ALREADY IN EXISTENCE NECESSARI LY SUGGESTS THE SPLITTING UP OR RECONSTRUCTION OF THE EXISTING BUSINESS OF THE ASSESSEE. THE WORDS 'OF THE ASSESSEE' HAVE NECESSARILY TO BE READ INTO THE SUB - SECTION. SIMILARLY, THE THIRD EXCLUDED CATEGORY IN CL. (II) ALSO MUST NECESSARILY REFER TO THE CAS E OF THE SAME ASSESSEE. THE WORDS 'BY THE ASSESSEE' MUST BE READ AT THE END OF THE SUB - SECTION. THE EXPRESSION 'TRANSFER' IN THE CONTEXT, MEANS NOT TRANSFER AS USED IN THE TRANSFER OF PROPERTY ACT, BUT TRANSFER BY THE ASSESSEE OF THE ASSETS USED BY HIM PR EVIOUSLY FOR ANY PURPOSE, I.E., WHERE THE ASSESSEE DOES NOT INVEST ANY CAPITAL, BUT MERELY TRANSFERS PLANT AND MACHINERY USED BY HIM PREVIOUSLY EITHER IN AN EXISTING BUSINESS OR FOR ANY OTHER PURPOSE, HE WILL NOT BE ENTITLED TO THE BENEFIT. THE WORDS 'FOR ANY PURPOSE' WERE INTRODUCED BY THE 1961 ACT BY S. 84 WHICH CORRESPONDS TO THE PRESENT S. 80J. IN THE 1922 ACT, THE WORDS USED WERE 'PLANT AND MACHINERY PREVIOUSLY USED IN ANY OTHER BUSINESS'. THE CHANGE BROUGHT ABOUT BY THE AMENDMENT IS, THE PLANT AND MAC HINERY MUST NOT ONLY NOT HAVE BEEN USED 9 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. IN ANY BUSINESS, BUT IT SHOULD NOT HAVE BEEN USED FOR ANY PURPOSE. BUT THE USER IS REFERABLE ONLY TO THE ASSESSEE. A NY OTHER CONSTRUCTION WOULD RESULT IN NULLIFYING THE OBJECT OF THE ACT. 20. THUS, APPLYING THE LEGAL PROPOSITION LAID DOWN IN THE DECISIONS REFERRED TO ABOVE, SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE MENTIONED IN CLAUSE (II) OF SECTION 10B(2) OR FOR THAT MATTER SECTION 10A(2) WILL MEAN SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE OF THE ASSESSEE AND NOT OF ANY OTHER PERSON. AT THE COST OF REPETITION IT NEEDS TO BE NOTED, AO WHILE DENYING ASSESSEES CLAIM OF EX EMPTION HAS CONCLUDED THAT ASSESSEE COMPANY HAS BEEN FORMED BY SPLITTING UP, OR RECONSTRUCTION OF CG COREEL LOGIC SYSTEMS PVT. LTD., A BUSINESS ALREADY IN EXISTENCE. ONE OF THE REASONS FOR COMING TO SUCH CONCLUSION IS ULTIMATE SHAREHOLDERS OF THE COMPANIE S ARE SAME. HOWEVER, A PERUSAL OF THE SHAREHOLDING PATTERN/OWNERSHIP STRUCTURE OF CG COREEL LOGIC SYSTEMS P. LTD. AS WELL AS THE ASSESSEE COMPANY IN THE FIRST YEAR OF OPERATION OF ASSESSEE COMPANY, WHICH IS ALSO REFERRED TO BY LD. CIT(A) IN THE IMPUGNED OR DER SHOWS THAT THOUGH CHETAN SANGHVI AND CROMPTON GREAVES, WHO ARE 100% SHARE HOLDERS OF CG COREEL LOGIC SYSTEMS P. LTD. ARE ALSO HOLDING RESPECTIVELY 29.8% AND 28.9% SHARES IN CMS, THE PARENT COMPANY OF ASSESSEE, REST 41.3% SHARES IN CMS ARE HELD BY OTHER S. HOWEVER, SO FAR AS ASSESSEE IS CONCERNED, THE PARENT COMPANY I.E. CMS HOLDS 99.8% SHARES, WHEREAS WHILE CHETAN SANGHAVI HOLDS .1%. CROMPTON GREAVES HAS NO SHARES. THEREFORE, AOS CONCLUSION THAT ULTIMATE SHAREHOLDERS OF BOTH THE COMPANIES ARE SAME IS WI THOUT ANY BASIS. EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT SHAREHOLDERS OF BOTH THE COMPANIES ARE SAME, IT CANNOT BE DENIED THAT BOTH ASSESSEE AND CG COREEL LOGIC SYSTEMS P. LTD. ARE TWO SEPARATE ENTITIES HAVING DISTINCT IDENTITY AND ARE CAPABLE OF INDE PENDENT EXISTENCE. THE HONBLE SUPREME COURT IN CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT (SUPRA) LAID DOWN TESTS FOR IDENTIFYING A NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING. THEY ARE: A) INVESTMENT OF SUBSTANTIAL FRESH CAPITAL IN THE INDUSTRIAL UN DERTAKING SET UP. B) EMPLOYMENT OF ADEQUATE LABOUR C) MANUFACTURE OR PRODUCTION OF ARTICLES IN THE SAID UNDERTAKING D) EARNING OF PROFITS CLEARLY ATTRIBUTABLE TO THE SAID UNDERTAKING E) A SEPARATE AND DISTINCT IDENTITY OF THE INDUSTRIAL SET UP. 21. THE SA ME VIEW HAS ALSO BEEN EXPRESSED IN A NUMBER OF DECISIONS OF DIFFERENT HIGH COURTS AS WELL AS THIS TRIBUNAL. REFERENCE IN THIS REGARD CAN BE MADE TO THE FOLLOWING DECISIONS: 1. CIT VS. FINOLEX CABLES LTD., [2012] 209 TAXMAN 79 (BOM) 2. M/S KAKATIYA CEMENTS VS. ACIT (ITA NO. 931/HYD/2011, DT. 04/01/12 3. GUJARAT ALKALIES AND CHEMICALS LTD. VS. CIT 350 ITR 94 (GUJ.) 4. ACIT VS. CHANGEPOND TECHNOLOGIES P. LTD., [2008] 119 TTJ 13 (CHENNAI) 10 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 22. APPLYING THE TESTS LAID DOWN IN THE DECISIONS REFERRED TO ABOVE TO T HE FACTS OF ASSESSEES CASE IT IS SEEN THAT ASSESSEE HAS MADE SUBSTANTIAL CAPITAL INVESTMENT OF RS. 2 CRORE OUT OF WHICH ABOUT RS. 1.23 CRORES WAS IN NEW PLANT AND MACHINERY, FIXED ASSETS ETC. WHICH IS CLEARLY EVIDENT FROM THE BALANCE SHEET AND P&L A/C FOR AY 2000 - 2001 SUBMITTED IN THE PAPER BOOK. ASSESSEE HAS EMPLOYED SUBSTANTIAL WORK FORCE. IT HAS STARTED MANUFACTURE OR PRODUCTION OF ARTICLES IN THE INDUSTRY SET UP AS PER ANNUAL REPORT FOR YEAR ENDED 31/03/2000. THOUGH, ASSESSEE INCURRED LOSS IN F.Y. 1999 - 2000 BUT IT RETURNED PROFIT IN FY 2000 - 01. ASSESSEE HAS SEPARATE IDENTIFIABLE PREMISES AT PUNE AND BANGALORE. BOTH THE UNITS OF ASSESSEE AT PUNE AND BANGALORE HAVE BEEN APPROVED AS STPI UNDERTAKINGS ON 07/01/2000 AND 20/05/2000 RESPECTIVELY AS PER CERTIFI CATES ISSUED, COPIES OF WHICH ARE PLACED IN THE PAPER BOOK. FROM THE AFORESAID FACTS IT BECOMES CLEAR THAT CG COREEL LOGIC SYSTEMS P. LTD. AND ASSESSEE ARE SEPARATE ENTITIES HAVING DISTINCT IDENTITY AND CAPABLE OF INDEPENDENT EXISTENCE. MORE SO, WHEN CG C OREEL LOGIC SYSTEMS P. LTD. IS STILL IN EXISTENCE AND CONTINUING ITS BUSINESS. THEREFORE, UNDER NO CIRCUMSTANCES IT CAN BE SAID THAT ASSESSEE COMPANY HAS BEEN FORMED BY SPLIT UP, OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE, MUCH LESS A BUSINESS I N EXISTENCE OF ASSESSEE. 23. THE AO WHILE CONCLUDING THAT ASSESSEE HAS BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE HAS OBSERVED THAT PRODUCT/BUSINESS OF ASSESSEE AND THAT OF CG COREEL LOGIC SYSTEMS P. LTD. IS SAME, FURT HER 58% OF ASSESSEES EMPLOYEES WERE FROM CG COREEL LOGIC SYSTEMS P. LTD. THESE REASONINGS OF AO, IN OUR VIEW, ARE ALSO NOT VALID. THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S VIRTUSA (I) P. LTD. VS. DCIT IN ITA NO. 268/HYD/2011 AND ITA NO. 482/HYD /2011 DATED 24/08/12 HELD THAT EXISTENCE OF SOME OLD EMPLOYEES IN THE NEW UNDERTAKING IS NOT A DISQUALIFICATION FOR GRANTING EXEMPTION U/S 10A AS LONG AS LARGER CHUNK OF EMPLOYEES HAS NOT MOVED TO THE NEW UNIT FROM THE OLD ONE. SO LONG AS BOTH THE UNITS AR E EXISTING AND DOING THE DECLARED BUSINESS AND ARE NOT FORMED OUT OF THE EXISTING BUSINESS 10A BENEFIT CANNOT BE DENIED. IT WAS FURTHER HELD THAT EVEN IF THE OLD AS WELL AS NEW UNIT ARE ENGAGED IN THE SAME BUSINESS WITH IDENTICAL PRODUCT BUT THE SAME SHALL NOT CONTRIBUTE TO THE DENIAL OF EXEMPTION TO ASSESSEE U/S 10A. THE ITAT CHENNAI BENCH IN CASE OF ACIT VS. CHANGE POND TECHNOLOGIES P. LTD., 119 TTJ 13 ALSO EXPRESSED SIMILAR VIEW. 24. THE OTHER REASONINGS OF AO, SUCH AS, BOTH COMPANIES ARE HAVING COMMON DIRECTORS, PRESS NOTE DATED 28/04/2000 REFERRING TO CG COREEL LOGIC SYSTEMS P. LTD. AS ASSESSEES PARENT, NO STPI APPROVAL IN ASSESSEES NAME, DRASTIC REDUCTION IN SALE OF CG COREEL LOGIC SYSTEMS P. LTD. OR EVEN THE ALLEGATION THAT ASSESSEE WAS FORMED ON LY IN AY 2001 - 02, IN OUR VIEW, ARE EITHER IRRELEVANT OR ARE BASED ON INCORRECT ASSUMPTION OF FACTS OR WRONG FACTS HENCE NOT RELEVANT TO CONCLUDE THAT ASSESSEE HAS BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION. THOUGH, IN EARLIER ROUND OF LITIGATION, THE CO ORDINATE BENCH AFTER CONSIDERING ALL THESE FACTS HAD DIRECTED THE LD. CIT(A) TO CONSIDER ASSESSEES CLAIM OF EXEMPTION IN THE LIGHT OF FACTS CONSIDERED BY THE TRIBUNAL BUT LD. CIT(A), IN OUR VIEW, HAS DONE PRECIOUS LITTLE TO EITHER ESTABLISH THE FACT THAT ASSESSEE IS FORMED BY SPLIT UP, OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE OF ASSESSEE OR TO CONTROVERT THE SUBMISSIONS OF ASSESSEE WHICH ARE SUPPORTED BY FACTS AND EVIDENCES. LD. CIT(A) HAS MERELY REPEATED THE REASONINGS OF AO AND HER PREDECESSOR IN THE APPEAL ORDER PASSED EARLIER. ON THE CONTRARY, THE FACTS AND EVIDENCES BROUGHT ON RECORD BY ASSESSEE IF CONSIDERED IN THE LIGHT OF THE DECISIONS REFERRED TO HEREINBEFORE, CLEARLY DEMONSTRATE THAT ASSESSEE COMPANY CANNOT BE SAID TO HAVE BEEN FORMED BY SPLITTING UP, OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE OF ASSESSEE OR FOR THAT MATTER CG COREEL LOGIC SYSTEMS P. LTD. THUS, SEEN FROM ANY ANGLE AOS AND LD. CIT(A)S VIEW THAT 11 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. ASSESSEE IS FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE CANNOT BE ACCEPTED. RESTRICTIONS IMPOSED IN CLAUSE (II) OF SECTION 10B(2) WILL NOT APPLY TO ASSESSEE. 25. FURTHER, IT IS ALSO THE ALLEGATION OF THE AO THAT ASSESSEE HAS BEEN FORMED BY TRANSFER OF MACHINERY OR PLANT PREVIOUSLY USED, HEN CE, IT FAILS THE CONDITION IMPOSED IN CLAUSE (III) OF SECTION 10B(2). HOWEVER, FACTS BROUGHT ON RECORD BY ASSESSEE IN THE EARLIER ROUND OF LITIGATION BEFORE ITAT WHICH WERE REITERATED AGAIN BEFORE US SHOW INVESTMENT IN PLANT AND MACHINERY AND OTHER ASSETS ARE AS UNDER: PARTICULARS OPENING GROSS TRANSFERRED NEW ADDITION CLOSING RATIO (%) BLOCK FROM CGCLS GROSS BLOCK AY 2000 - 01 - - 4,317,918 4,317,918 AY 2001 - 02 4,317,918 6,151,871 22,388,788 32,858,567 19:81 AY 2002 - 03 32,858,567 - 3,508,287 36,366,854 AY 2003 - 04 36,366,854 - 4,404,748 40,771,602 AY 2004 - 05 40,771,602 - 1,244,811 42,016,413 26. FROM THE FIGURES GIVEN IN THE ABOVE TABLE IT IS CLEAR THAT IN THE YEAR OF FORMATION I.E. AY 2000 - 01 THERE IS NO TRANSFER OF ASSETS FROM CG COREEL LOGIC SYSTEMS P. LTD. TO ASSESSEE. ONLY IN THE SECOND YEAR OF OPERATION ASSETS WORTH RS. 61,51,871 WAS TRANSF ERRED TO ASSESSEE. HOWEVER, THE VALUE OF SUCH ASSETS CONSTITUTE 19.81% OF THE TOTAL COST OF PLANT AND MACHINERY OF THE ASSESSEE WHICH IS LESS THAN PRESCRIBED LIMIT OF 20% AS ENVISAGED IN EXPLANATION 1 TO CLAUSE (III) OF SECTION 10B(2) READ WITH EXPLANATI ON 1 & 2 TO SUB - SECTION (2) OF SECTION 80I. THIS FACTUAL ASPECT HAS NOT BEEN CONTROVERTED EITHER BY THE AO OR BY THE LD. CIT(A) BY BRINGING ON RECORD ANY SUBSTANTIVE EVIDENCE. 27. IN THE AFORESAID VIEW OF THE MATTER, WE HAVE NO HESITATION IN HOLDING THAT ASSESSEE HAS NOT VIOLATED ANY OF THE CONDITIONS OF SECTION 10B(2). AS THE AO HAS REJECTED ASSESSEES CLAIM OF EXEMPTION ONLY ON THE GROUND OF VIOLATION OF CLAUSE (II) AND (III) OF SECTION 10B(2), WHICH IN OUR VIEW, WILL NOT APPLY TO THE FACTS OF ASSESSEES CASE, IT IS TO BE PRESUMED THAT ASSESSEE SATISFIES ALL OTHER CONDITIONS OF THE PROVISION. HENCE, ASSESSEE WOULD BE ELIGIBLE FOR EXEMPTION U/S 10B. 28. HAVING HELD THAT AO AND LD. CIT(A) WERE NOT CORRECT IN REJECTING ASSESSEES CLAIM OF EXEMPTION U/S 10B , IT IS NECESSARY TO DECIDE THE APPROPRIATE SECTION, I.E. 10A OR 10B UNDER WHICH ASSESSEE IS ENTITLED TO CLAIM DEDUCTION. THOUGH, THE COORDINATE BENCH WHILE REMITTING THE MATTER HAS SPECIFICALLY DIRECTED LD. CIT(A) TO DECIDE THIS ISSUE BUT LD. CIT(A) HAS N OT GIVEN ANY SPECIFIC FINDING. BE THAT AS IT MAY, UNDISPUTEDLY, BOTH THE UNITS OF ASSESSEE ARE APPROVED AS STPI UNITS. WHILE THE PUNE UNIT HAS BEEN APPROVED ON 07/01/2000, THE BANGALORE UNIT WAS APPROVED ON 20/05/2000. THEREFORE, THE APPROPRIATE PROVISION UNDER WHICH ASSESSEE IS ENTITLED TO CLAIM EXEMPTION IS 12 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. SECTION 10A. ACCORDINGLY, WE DIRECT THE AO TO VERIFY AND ALLOW ASSESSEES CLAIM OF EXEMPTION U/S 10A. 29. THE NEXT COMMON ISSUE IN ALL THESE APPEALS IS THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT IN CA SE EXEMPTION U/S 10B/10A IS NOT GRANTED TO PUNE UNIT, 10A DEDUCTION TO BANGALORE UNIT SHOULD BE GRANTED AS IT IS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF PUNE UNIT. 30. SO FAR AS THE ISSUE OF 10A DEDUCTION CLAIMED IN RESPECT OF BANGALORE UNIT, THE DEPARTMENTAL AUTHORITIES HAVE DENIED SUCH EXEMPTION TO ASSESSEE ON THE GROUND THAT FOR AVAILING THE DEDUCTION ASSESSEE HAS TO FILE RETURN WITHIN THE DUE DATE SPECIFIED U/S 139(1). FURTHER ALONG WITH THE RETURN OF INCOME ASSESSEE HAS TO FURNISH FORM NO. 56F CERTIFIED BY A QUALIFIED AUDITOR QUANTIFYING THE DEDUCTION CLAIMED. AO OBSERVED THAT ALL THESE YEARS ASSESSEE HAS BEEN CLAIMING DEDUCTION FOR BOTH THE UNITS U/S 10B. ONLY WHEN AO DENIED 10B DEDUCTION, ASSESSEE CAME UP WITH THE PLEA FOR GRANTING 10A DEDUCT ION TO BANGALORE UNIT. IT WAS OBSERVED BY THE AO AS WELL AS CIT(A) THAT ASSESSEE HAS ALWAYS TREATED THE BUSINESS AS ONE AND THE SAME SET OF BOOKS OF ACCOUNT ARE MAINTAINED SAME PRODUCTS ARE PRODUCED IN BOTH THE UNITS, SERIES OF INVOICES FOR BOTH THE SERIES IS UNDER ONE SERIES, THE PAY ROLL OF THE EMPLOYEES ALSO CENTRALIZED. THUS, IT WAS OBSERVED THAT AS THERE IS NO SEPARATE BOOKS OF ACCOUNTS AND EMPLOYEES ARE ALSO SAME, THE BANGALORE CANNOT BE CONSIDERED TO BE SEPARATE UNIT FOR THE PURPOSE OF 10A. THE LEARN ED CIT(A) FURTHER OBSERVED THAT DEDUCTION U/S 10A AND 10B ARE BASED ON DIFFERENT PREMISES. HENCE, INTERCHANGING OF 10B AND 10A IF PERMITTED THEN THERE WAS NO NEED FOR THE LEGISLATURE TO HAVE TWO SECTIONS SEPARATELY. ACCORDINGLY, SHE DENIED EXEMPTION TO THE BANGALORE UNIT. 31. THE LEARNED AR SUBMITTED BEFORE US THAT ONLY BECAUSE SEPARATE BOOKS OF ACCOUNTS ARE NOT MAINTAINED OR THE PRODUCTS ARE SAME, EXEMPTION U/S 10A CANNOT BE DENIED. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: 32. THE LEARNED DR ON TH E OTHER HAND SUBMITTED THAT ASSESSEE WHILE CLAIMING DEDUCTION U/S 10B FOR THE BANGALORE UNIT HAS FILED A CONSOLIDATED FORM NO. 56G AND ONLY IN THE REVISED RETURN FILED IN PURSUANCE TO NOTICE U/S 148 FOR AY 2001 - 02, ASSESSEE CLAIMED SEPARATE DEDUCTION FOR B OTH THE UNITS. THE LEARNED DR SUBMITTED THAT AS PER THE PROVISIONS OF THE ACT, CLAIM UNDER SECTION 10A MUST BE FILED ALONG WITH RETURN OF INCOME AS PER SECTION 139(1). WHEREAS THE ASSESSEE HAS NOT MADE ANY SUCH CLAIM IN THE ORIGINAL RETURN. FURTHER, THE CO RRECT FORM TO BE FOR CLAIMING EXEMPTION U/S 10A 56F WHEREAS THE ASSESSEE FILED A COMMON FORM FOR BOTH THE UNITS U/S 56G. THEREFORE, IT WAS SUBMITTED THAT AS ASSESSEE ITSELF NOT TREATING BOTH THE UNITS ARE SEPARATE WHILE FILING A CONSOLIDATED FORM 56G, THE RE IS NO QUESTION OF GRANTING EXEMPTION U/S 10A FOR THE BANGALORE UNIT. 33. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. THIS IS AN ALTERNATIVE CLAIM MADE BY ASSESSEE IN THE EVENT OF DENIAL OF EXEMPTION IN RESPECT OF PUNE UNIT. IN OUR VIEW, THIS ISSUE IS OF MERE ACADEMIC INTEREST BECAUSE OF OUR DECISION THAT ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10A, FOR TEN CONSECUTIVE ASST. YEARS WHICH WILL BE APPLICABLE TO THE INCOME OF ASSESSEE AS A WHOLE. HOWEVER, CONSIDERING THE FACT THAT PARTIES WERE HEARD ON THIS ISSUE, WE THOUGHT IT APPROPRIATE TO RECORD OUR FINDINGS ON THIS ISSUE. ASSESSEES CLAIM FOR DEDUCTION U/S 10A FOR THE BANGALORE UNIT HAS BEEN BASICALLY REJECTED FOR TWO REASONS. NO SEPARATE BOOKS OF ACCOUNT ARE MAI NTAINED FOR BOTH THE UNITS AND ASSESSEE HAS NOT CLAIMED 10A BENEFIT IN THE ORIGINAL RETURN FILED. HOWEVER, WE ARE OF THE VIEW THAT THESE CANNOT BE THE SOLE 13 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. CRITERIA FOR DENYING EXEMPTION U/S 10A IF OTHERWISE IT CAN BE PROVED THAT THE BANGALORE UNIT IS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS OF ASSESSEE. HOWEVER, THE ASSESSEE HAS TO PROVE SUCH FACT BY PRODUCING NECESSARY EVIDENCE. AS THE ISSUE HAS NOT BEEN PROPERLY EXAMINED EITHER BY AO OR BY LEARNED CIT(A), WE ARE INCLINED TO REMIT THE MATTER BACK TO THE AO FOR CONSIDERING AFRESH, IF WARRANTED, AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. CONSEQUENT TO THE ORDER OF ITAT (SUPRA), THE AO PASSED ORDER U/S 143(3) DATED 22/12/2006 ALLOWING THE ASSESSEES CLAI M OF DEDUCTION U/S 10A, WHICH IS EVIDENT ON RECORD AS THE COPY OF THE CONSEQUENTIAL ORDER IS PLACED AT PAGE 569 OF PAPER BOOK. ACCORDINGLY, SINCE THE ISSUE SIMILAR IN THIS AY, WE DIRECT THE AO TO ALLOW THE ASSESSEES CLAIM OF DEDUCTION U/S 10A OF THE ACT. THUS, THE GROUNDS 1 TO 4 RAISED ON THIS ISSUE ARE ALLOWED. 8. AS REGAR DS THE GROUNDS OF 1 TO 3 ON TRANSFER PRICING ADJUSTMENT, THE AMOUNT OF RS. 1,34,59,984/ - WAS ASSESSED U/S 92CA(3) OF THE ACT. THE ASSESSEE SUBMITTED THAT THE AO HAS TAKEN COMPARABLES THAT SHOULD NOT HAVE BEEN TAKEN, AS THEY WERE IN PRINCIPLE UNCOMPARABLE T O THE ASSESSEE. THE FOLLOWING 8 COMPANIES ARE DISPUTED BY THE ASSESSEE: 8.1 SIP TECHNOLOGY AND EXPORTS LTD. LD. AR SUBMITTED THAT THE SAID COMPANY IS NOT COMPARABLE TO THE ASSESSEE COMPANY AS THE COMPANY HAS CLOSED BOOKS ON SEPT2004, THUS, THE FINANCIAL STATEMENTS ARE NOT AVAILABLE FOR THE FULL FY. HE SUBMITTED THAT SINCE THE DATA IS NOT CONTEMPORANEIOUS AS REQUIRED UNDER RULE 10B(4)( OF THE IT RULES, 1962 AND IN ABSENCE OF COMPLETE ANNUAL REPORT, THE SAID COMPARABLE SHOULD BE EXCLUDED. HE RELIED ON THE FOLLOWING DECISIONS: 1. BINDVIEW INDIA PVT. LTD., VS. DCIT, ITA NO. 1501/PN/2011, 2. CIT VS. PRINCIPAL GLOBAL SERVICES PVT. LTD., ITA NO. 57/2006 (BOM. HC) 8.2 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 14 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 8.3 CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA), THE PUNE BENCH OF ITAT, HELD AS UNDER: 12.4 SO FAR AS INCLUSION OF SIP TECHNOLOGIES LTD IS CONCERNED WE FIND NO RELEVANT DATA FOR A.Y. 2004 - 05 IS AVAILABLE SINCE THE COMPANY HAD CLOSED ITS BOOKS OF ACCOUNTS FOR THE YEAR ENDING 30 - 09 - 2004 AND SUBSEQUENTLY CLOSED ITS BOOKS OF ACCOUNTS ONLY FOR TH E YEAR ENDING 31 - 03 - 2006 WHICH IS FOR A PERIOD OF 18 MONTHS. WE, THEREFORE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SIP TECHNOLOGIES AND EXPORTS LTD. SHOULD NOT BE CONSIDERED AS A COMPARABLE AND HAS TO BE REJECTED ALTHOUGH THE SAME WAS CONSIDERED BY THE ASSESSEE ITSELF WHILE PREPARING THE T.P. REPORT. WHEN THE TPO REJECTED CERTAIN COMPANIES AS NOT COMPARABLE, THEREFORE, WE FIND NO REASON WHY SIP TECHNOLOGIES LTD. SHOULD NOT BE EXCLUDED FROM THE LIST OF COMPARABLES WHEN THE RESUL TS OF THE ENTIRE YEAR IS NOT AVAILABLE. 12.5 WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD. (SUPRA) AT PARA 9 OF THE ORDER HAS OBSERVED AS UNDER : '9. WE HAVE GIVEN SERIOUS CONSIDERATION TO RIVAL CONTENTIONS OF THE PA RTIES. IN THIS COMPLICATED FIELD OF TRANSFER PRICING, THE TAXPAYER HAS RAISED ONLY A LIMITED ISSUE RELATING TO EXCLUSION OF WELLWIN INDUSTRY LTD. AS A COMPARABLE. ALL OTHER OBJECTIONS RAISED BEFORE REVENUE AUTHORITIES HAVE BEEN GIVEN UP. NEITHER THE SELECT ION OF MOST APPROPRIATE METHOD (TNMM), NOR ANY PARAMETERS OF SELECTION HAVE BEEN CHALLENGED BEFORE US BY THE LEARNED COUNSEL FOR THE TAXPAYER. AS REGARDS THE QUESTION OF NOT CONSIDERING PROFIT/LOSSES OF WELLWIN INDUSTRY LTD., FOR THE PERIOD ENDING MARCH 31 , 2004, IT IS AN ADMITTED POSITION THAT RESULTS OF THAT ENTERPRISE FOR THE RELEVANT PERIOD ARE NOT AVAILABLE. THE PARTY AFTER SEPTEMBER, 2003 MAINTAINED ACCOUNTS FOR 18 MONTHS AND CLOSED ITS ACCOUNT ONLY ON MARCH 31, 2005. THE COMPANY DID NOT MAINTAIN SEPA RATE ACCOUNTS FOR THE PERIOD MARCH 31, 2004. THE TAXPAYER DID TRY TO WORK OUT THE ALLEGED LOSSES OF THE CONCERN FOR THE PERIOD ENDING MARCH 31, 2004 ON SOME BASIS BY TAKING AVERAGE OF PROFITS BUT WAS UNABLE TO SHOW TO THE REVENUE AUTHORITIES THAT FIGURES S O ARRIVED AT WERE CORRECT AND RELIABLE FOR COMPARISON. DURING THE COURSE OF HEARING OF THE APPEAL, WE HAD ALSO ASKED THE LD. COUNSEL TO GIVE WORKING OF RESULTS OF THE CONCERN FOR THE RELEVANT PERIOD ON SOME SOUND BASIS, BUT THE LD. COUNSEL SHOWED HIS INABI LITY TO DO SO. HE CONCEDED THAT RESULTS OF THE CONCERN ARE NOT AVAILABLE IN THE PUBLIC DOMAIN. IF THAT IS THE POSITION, WE SEE NO FORCE IN THE OBJECTION OF THE TAXPAYER TO NON INCLUSION OF WELLWIN INDUSTRY LTD. IN THE LIST COMPARABLES FOR WORKING MEAN MARG IN OF OPERATING PROFIT UNDER TNM METHOD.' 15 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 12.6 SIMILAR VIEW HAS BEEN TAKEN BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PTC SOFTWARE (INDIA) PVT. LTD. VIDE ITA NO.1605/PN/2011 ORDER DATED 30 - 04 - 2013AND HAS OBSERVED HAS UNDER : '23. THE NEXT POINT MADE BY THE ASSESSEE IS WITH REGARD TO INCLUSION OF TRANSWORLD INFOTECH LTD., APPEARING AT ITEM (10) IN THE TABULATION IN PARA 10, AS A COMPARABLE CASE. THE TPO, AS PER HIS DISCUSSION IN PARA 6.3.22 OF THE ORDER, HAS INCLUDED THE SAID CONCERN IN THE LIST OF COM PARABLES ON THE GROUND THAT IT WAS FUNCTIONALLY SIMILAR TO THE ASSESSEE'S IT - SERVICES SEGMENT. THE SHORT POINT MADE BY THE ASSESSEE BEFORE US IS TO THE EFFECT THAT THE SAID CONCERN WAS NOT INCLUDIBLE BECAUSE THE ASSESSEE'S FINANCIAL PERIOD IS FROM 1.4.2006 TO 31.3.2007, WHEREAS THE RELEVANT DATA OF THE SAID CONCERN WHICH HAS BEEN CONSIDERED IS FOR THE PERIOD 1.7.2006 TO 30.06.2007. IT WAS THEREFORE POINTED OUT THAT SINCE THE DATA OF THE COMPARABLE CONCERN DOES NOT CORRESPOND TO THE FINANCIAL YEAR OF THE ASS ESSEE, THE SAID CONCERN IS INCOMPARABLE. FACTUALLY, THE AFORESAID POSITION IS NOT DISPUTED BY THE REVENUE. IN FACT THE PROVISIONS OF RULE 10B(4) OF THE INCOME TAX RULES, 1963 (IN SHORT 'THE RULES') PROVIDE THAT THE DATA TO BE USED IN ANALYZING THE COMPARAB ILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. IN THE PRESENT CASE, THE DATA ADOPTED OF TRANSWORLD INFOTECH LTD. DOES NOT RELATE TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN CARRIED OUT BY THE ASSESSEE. ON THIS POINT THE SAID CONCERN IS EXCLUDIBLE FROM THE LIST OF COMPARABLES AND WE ALSO FIND THAT THE TPO HAS ADOPTED SUCH AN APPROACH WHILE EXCLUDING POWERSOFT GLOBAL SOLUTIONS LTD. FROM THE LIST OF COMPARABLES AS PER DISCUSSION IN PARA 6.3.7. OF THE IMPUGNED ORDER.' 8.4 FOLLOWING THE SAID DECISION, WE DIRECT THE AO/TPO TO EXCLUDE THE SAID COMPANY AS COMPARABLE FROM THE LIST OF COMPARABLES CONSIDERING T HE FACT THAT THERE IS NO COMPARABLE DATA FOR THE AY 2005 - 06. TPO HIMSELF ACKNOWLEDGED THAT THE COMPANY HAS CLOSED THE BOOKS IN SEPTEMBER, 2004 AND THERE IS NO INFORMATION FILED BEFORE US A B OUT THE YEAR END CLOSING OF RESULT AS ON 31/03/2005. 9. VMF SOFT TECH. LTD., LD. AR SUBMITTED THAT THE SAID COMPANY IS NOT COMPARABLE TO THE ASSESSEE COMPANY AS THE DETAILS OF THE COMPANY WERE TAKEN FROM A DATABASE BY THE TPO, AS THE FINANCIAL STATEMENTS WERE NOT AVAILABLE IN PUBLIC DOMAIN. HE, THEREFORE, SUBMITTED THAT IN THE ABSENCE OF 16 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. COMPLETE ANNUAL REPORT, THE SAID C OMPARABLE SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. HE RELIED ON THE FOLLOWING CASE LAWS: 1. CASH EDGE INDIA PVT. LTD. VS. ITO, ITA NO. 64/DEL/2015 2. H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE (P) LTD., VS. ACIT, ITA NO. 6455/DEL/2012 3. SOFTBRANDS INDIA PVT. LD., VS. DCIT, ITA NO. 1094/BANG/2011. 9.1 THE LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 9.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE CASE OF CASH EDGE INDIA PVT. LTD. , (SUPRA), THE COORDINATE BENCH OF DELHI TRIBUNAL HELD AS UNDER: 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ARGUMENTS OF THE LD. AR THAT ONLY ON ACCOUNT OF SUPER NORMAL PROFIT THIS COMPARABLE SHOULD BE EXCLUDED IS NOT TENABLE IN THE LIGHT OF THE HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD IN ITA 417/2014 JUDGMENT DATED 27.04.2015. HOWEVER, WE MUST, AT THE OUTSET, RECORD CERTAIN FACTS WHICH ARE UNDISPUTE D. FIRSTLY, WTS DID NOT FEATURE IN THE ACCEPT/REJECT MATRIX APPLIED BY THE TPO. HOWEVER, IT WAS INCLUDED IN THE FINAL SET OF COMPARABLE. THE TPO, AT PAGE 37 OF HIS ORDER, HAS STATED THAT WIPRO LTD. IS WTS WHICH APPEARED IN THE ACCEPT REJECT MATRIX. HOWEVER , THE TPO HAS FAILED TO APPRECIATE THAT WIPRO LTD. IS NOT WTS, THE LATTER BEING A SUBSIDIARY OF THE FORMER. SECONDLY, BEFORE THE DRP, THE ASSESSEE RAISED THE OTHER OBJECTIONS AS WERE RAISED BEFORE US I.E. THIS COMPANY IS RENDERING DIFFERENT SERVICES, THERE IS INSUFFICIENT SEGMENTAL INFORMATION AND IT FAILS RPT FILTER. SO, WHEN THE ASSESSEE ASKED FOR THE COMPLETE ANNUAL REPORT AT THE TIME OF THE ORIGINAL TP PROCEEDINGS, OR THE PROCEEDINGS PURSUANT TO THE DRP AND ALSO IN THE RECTIFICATION ITA NO.64/DEL./2015 PROCEEDINGS UNDER SECTION 154 , THE TPO FAILED TO PROVIDE THE COMPLETE ANNUAL REPORT OF THE SAID COMPARABLE TO THE ASSESSEE. IF THE TPO WANTED TO USE WTS AS A COMPARABLE, THE ONUS WAS ON HIM TO PROVIDE THE COMPLETE ANNUAL REPORT TO THE ASSESSEE. IT IS A SETTLED LAW THAT ONUS IS ON THE PERSON WHO ASSERTS THE FACTS. IN ANY CASE, WE FAIL TO SEE HOW WITHOUT THE COMPLETE ANNUAL REPORT OF WTS, THE TPO OR EVEN THE DRP CAME TO THE CONCLUSION THAT THE SAID COMPANY IS A VALID COMPARABLE AND/OR THAT IT PASSED ALL FILTERS APPLIED BY THE TPO HIMSELF . FROM THE ANNUAL REPORT, WE TAKE NOTE OF THE FOLLOWING : - 'AS PER THE PROFIT AND LOSS ACCOUNT OF FY 2009 - 10, 100% INCOME IS FROM 'REVENUE' AND NO FURTHER BREAK UP IS PROVIDED, AS DEPICTED IN THE EXTRACT OF PAGE 5 BELOW: 17 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. SCHEDULE 2010 2009 INCOME R EVENUE 3,993,928,222 3,643,586,896 OTHER INCOME 13 111,817,731 208,593,516 4,105,745,953 3,852,180,412 28.1 NO REVENUE OR SEGMENTAL BREAK UP IS AVAILABLE BETWEEN SOFTWARE SERVIC ES AND INFRASTRUCTURE SUPPORT SERVICES AND NO INFORMATION ABOUT THE NATURE OF BUSINESS IS AVAILABLE IN THE ANNUAL REPORT. FURTHER, THE 'BALANCE ITA NO.64/DEL./2015 SHEET ABSTRACT AND THE COMPANY'S GENERAL BUSINESS PROFILE' SECTION ON PAGE 14 DOES NOT PROVI DE ANY INFORMATION REGARDING THE TYPE OF PRODUCTS/ SERVICES THE COMPANY DEALS IN AS SHOWN BELOW: V. GENERIC NAMES OF THE THREE PRODUCTS/SERVICES OF THE COMPANY(AS PER MONETARY TERMS) (I) ITEM CODE NO (ITC COD.) PRODUCT DESCRIPTION (II) ITEM CODE NO (ITC CO DE) PRODUCT DESCRIPTION (III) ITEM CODE NO (ITC CODE) PRODUCT DESCRIPTION ' 28.2 IN THE LIGHT OF THE AFORESAID FACTS EMERGING FROM FEW EXTRACTS OF THE ANNUAL REPORT, WE CONCUR WITH THE SUBMISSIONS ADVANCED BY LD AR THAT IN THE ABSENCE OF THE DIRECTOR'S REPORT AND NOTES TO ACCOUNT FOR THIS COMPARABLE ARE NOT AVAILABLE IN PUBLIC DOM AIN IT WOULD NOT BE PRUDENT TO TAKE THIS COMPANY AS A COMPARABLE. LD. DR HAS NOT BEEN ABLE TO CONTROVERT THIS FACT. SINCE SUFFICIENT INFORMATION FOR THIS COMPARABLE IS NOT AVAILABLE, WE DIRECT EXCLUSION OF THIS COMPANY AS A COMPARABLE AS WE HAVE DONE IN T HE CASE OF AVAYA INDIA (P) LTD. VS. ADDL.CIT, RANGE 2, NEW DELHI IN ITA NO.5528/DEL./2011 FOR AY 2007 - 08 ORDER DATED 18.09.2015. FOLLOWING THE SAID DECISION, WE DIRECT THE AO/TPO TO EXCLUDE THE SAID COMPANY AS COMPARABLE COMPANY FROM THE LIST OF COMPARABL ES. 10. SAKSOFT LTD. THE LD. AR SUBMITTED THAT THIS COMPANY IS NOT COMPARABLE TO THE CASE OF ASSESSEE AS THE RELATED PARTY TRANSACTIONS (RPT) IS 74.16% OF THIS COMPANY, THEREFORE, THIS COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPARABLES AS A COMPARAB LE IS EXCLUDED WHERE RP T IS IN EXCESS OF 25%. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING CASES: 1. CIT VS. THYSSEN KRUPP INDUSTRIES INDIA PVT. LD., ITA NO. 2218/2013 (BOMBAY HC) 18 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 2. BOBST INDIA PVT. LTD., VS. ACIT, ITA NO. 2090/PN/2012. 10.1 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 10.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERI AL ON RECORD. IN THE CASE OF THYSSEN KRUPP INDUSTRIES INDIA PVT LTD., THE HONBLE BOMBAY HIGH COURT HELD AS UNDER: THE GRIEVANCE OF THE RESPONDENT ASSESSEE BEFORE THE TRIBUNAL WAS THAT M / S. ENGINEERS INDIA LTD. HAS BEEN ERRONEOUSLY INTRODUCED AS A COMPAR ABLE BY THE TPO FOR DETERMINING THE ALP OF THE RESPONDENT ASSESSEE'S INTERNATIONAL TRANSACTIONS. THE IMPUGNED ORDER OF THE TRIBUNAL RECORDS THE FACT THAT THE ENGINEERING INDIA LTD. IS A GOVERNMENT COMPANY AND ITS ANNUAL REPORT INDICATES THAT A SUBSTANTIAL PART OF ITS REVENUE IN EXECUTION OF TURNKEY PROJECTS AROSE OUT OF EXECUTING PROJECTS OF PUBLIC SECTOR UNDERTAKINGS. IN THE CIRCUMSTANCES. THE IMPUGNED ORDER OF THE TRIBUNAL HOLDS THAT THE ENGINEERS INDIA LTD. COULD NOT BE CONSIDERED TO BE COMPARABLE FOR TH E REASON THAT CONTRACTS BETWEEN PUBLIC SECTOR UNDERTAKINGS ARE NOT DRIVEN BY PROFIT MOTIVE ALONE BUT OTHER CONSIDERATION ALSO WEIGH IN SUCH AS DISCHARGE OF SOCIAL OBLIGATIONS ETC. THUS, IT IS NOT COMPARABLE. MOREOVER, FROM THE ANNUAL REPORT, IT IS CLEAR TH AT THE REVENUE EARNED IN EXECUTING TURNKEY PROJECT FOR OTHER PUBLIC SECTOR UNDERTAKINGS WAS MUCH MORE THAN THE FILTER OF 25%, WHICH HAS BEEN APPLIED BY THE TPO IN HIS ORDER UNDER SECTION 92CA(3) OF THE ACT, WHILE TAKING TRF LTD. AS A COMPARABLE ON THE GROU ND THAT ITS RELATED PARTY TRANSACTION WAS NOT IN EXCESS OF 25% OF ITS TOTAL TURNOVER. THUS, APPLYING CONSISTENT FILTER OF 25% OR LESS OF RELATED PARTY TRANSACTION ALONE TO BE CONSIDERED COMPARABLE, ENGINEERS INDIA LTD. COULD NOT BE CONSIDERED TO BE COMPARA BLE. FOLLOWING THE RATIO LAID BY THE HONBLE BOMBAY HIGH COURT AS ABOVE, THIS IS FOR THE RPT FILTER OF 25%. H OWEVER, W E NOTICE THAT THE ASSESSEE IS 100% SUBSIDIARY OF CONEXANT SYSTEMS INC. USA AND 100% OF ITS REVENUE ARE GENERATED FROM ITS AE. THEREFORE, RPT ARE 100% WHEREAS THE SAKSOFT LTD. HAD 74.16%. MOREOVER, TPO HAS NOT APPLIED RPT FILTER TO ANY OF THE COMPARABLES. T HEREFORE, IN OUR VIEW, SAKSOFT LTD. AND THE ASSESSEE BOTH ARE 100% SUBSIDIARIES AND RPT FILTER CANNOT BE APPLIED IN THE GIVEN CASE. THEREFORE, THE GROUND RAISED BY THE ASSESSEE ON THIS ASPECT IS REJECTED. 19 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 11. COMPUCOM SOFTWARE LTD., THE LD. AR SUBMITTED THAT THE SAID COMPANY IS NOT COMPARABLE TO THE ASSESSEES CASE DUE TO THE FOLLOWING REASONS: I) RELATED PARTY TRANSACTIONS IN THE SAID COMPANY ARE 57.35% OF SALES. II) THE COMPANY OPERATES IN BPO SERVICE CENTRES, WHICH INCLUDES SERVICES LIKE 7X24 CUSTOMER SERVICE CENTRE SOLUTIONS, SOFTWARE MAINTENANCE SOLUTIONS, DATA CONVERSION, NETWORKING SOLUTIONS, ETC. III) COMPANY DERIVES INCOME FROM SOFTWARE SERVICES AND ALSO SALE OF SOFTWARE PRODUCTS. IV) THE SOFTWARE SERVICE SEGMENT IS THE ONLY SEGMENT WHICH CAN IN CLUDE REVENUE FROM SALE OF PRODUCTS AND THERE ARE NO SEPARATE DETAILS FOR IT. V) WEBSITE EXTRACTS REFLECT A NUMBER OF PRODUCTS OFFERED BY THE COMPANY LIKE ICARE, IOBTS, ETC. LD. AR RELIED ON THE FOLLOWING CASES WHERE A COMPARABLE IS EXCLUDED WHERE RPT IS IN EXCESS OF 25%: 1. CIT VS. THYSSEN KRUPP INDUSTRIES INDIA PVT. LD., ITA NO. 2218/2013 (BOMBAY HC) 2. BOBST INDIA PVT. LTD., VS. ACIT, ITA NO. 2090/PN/2012. HE RELIED ON THE FOLLOWING DECISION WHERE A COMPARABLE IS EXCLUDED IN ABSENCE OF SEGMENTAL DETAILS: 1. CIT VS. INTOTO SOFTWARE INDIA PVT. LTD., ITA NO. 233/2014. 11.1 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 11.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL ON RECORD. SINCE THE ASSESSEE HAS 100% RPT, IT CANNOT A RGUE ON FILTER OF 25%. IT SHOULD BE OTHERWISE AROUND. WE REJECT THE CONTENTION OF THE ASSESSEE ON RPT. WE NOTICE THAT THIS COMPARABLE HAS OPERATIONS IN 20 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. SOFTWARE AS WELL AS ON SOFTWARE PRODUCTS. WE NOTICED FROM THE TPOS ORDER THAT HE HAS NOT CLARIFIED THIS ASP ECT IN HIS REPORT. WE REMIT THIS ISSUE BACK TO TPO TO ELABORATE THE SEGMENTAL INFORMATION AND DO THE ANALYSIS. IN CASE IT IS FOUND THAT THERE IS NO SEGMENTAL DATA, THIS COMPARABLE SHOULD BE ELIMINATED. 12. HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD., THE LD. AR SUBMITTED THAT THE SAID COMPANY IS NOT A COMPARABLE CASE TO THE ASSESSEE AS THE RPT TRANSACTIONS ARE 26.49% OF SALES, FOR WHICH HE RELIED ON THE FOLLOWING CASES: 1. CIT VS. THYSSEN KRUPP INDUSTRIES INDIA PVT. LD., ITA NO. 2218/2013 (BOMBAY HC) 2. BOBST INDIA PVT. LTD., VS. ACIT, ITA NO. 2090/PN/2012. 12.1 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 12.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SINCE THE ASSESSEE HAS 100% RPT, IT CANNOT A RGUE ON FILTER OF 25%. IT SHOULD BE OTHERWISE AROUND. WE REJECT THE CONTENTION OF THE ASSESSEE ON RPT AND ACCORDINGLY, THIS COMPANY CANNOT BE EXCLUDED AS COMPARABLE. 13. GEOMETRIC SOFTWARE SOLUTIONS LTD. (SEG.) THE LD. AR SUBMITTED THAT THE SAID COMPANY IS N OT A COMPARABLE CASE TO THE ASSESSEE AS THE SAID COMPANY PROVIDES SERVICES IN ALL ASPECTS OF THE PRODUCT DEVELOPMENT LIFECYCLE, CONCEPT, DESIGN, DEVELOPMENT, DEPLOYMENT AND SUPPORT AND THE COMPANYS PRODUCTS RANGE IS DIVIDED INTO 4 GROUPS. FURTHER, REVENUE BREAK UP OF SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. HE RELIED ON THE FOLLOWING DECISIONS: 1. DCIT VS. ABB GLOBAL INDUSTRIES & SERVICES PVT. LTD., ITA NO. 620/BANG/2013. 21 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 2. SAP LABS INDIA PVT. LTD. VS. ADDL. CIT, ITA NO. 485 & 501/BANG/2012. 13.1 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 13.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE CASE OF ABB GLOBAL INDUSTRIES & SERVICES PVT. LT D., (SUPRA) THE COORDINATE BENCH OF ITAT, B ENGALURU HELD AS UNDER: AS REGARDS M / S. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD., THE LEARNED CIT (APPEALS) HAS RENDERED A FINDING THAT THIS COMPANY IS COMPANY IS ENGAGED IN DEVELOPING AND LICENSING OF PRODUCTS AND PRODUCT LIFE CYCLE MANAGEMENT SERVICES WHICH ARE NOT SIMILAR TO THE FUNCTIONS OF THE ASSESSEE. THE LEARNED CIT (APPEALS) HAS ALSO OBS ERVED THAT THE REVENUE BREAK UP BETWEEN PRODUCTS AND SERV ICES IS NOT AVAILABLE AND THEREFORE DIRECTED EXCLU SION OF THIS COMPANY FROM THE SET OF COMPARABLES. THIS FINDING OF THE LEARNED CIT (APPEALS) THAT THIS COM PANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE, HAS NOT BEEN CONTROVERTED BY THE LEARNED REPRESENTAT IVE. IN THIS VIEW OF THE MATTER, WE FIND NO REASON TO INTERFERE WITH THE DECISION OF C IT(APPEALS) IN DIRECTING EXCLUSION OF THIS COMPANY, M / S. GEOMETRIC SOFTWARE SOLUTIONS COMPANY LTD. FROM THE SET OF COM PARABLES. FOLLOWING THE SAID DECISION, WE DIRECT THE AO/TPO TO EXCLUDE THE SAID COMPANY AS COMPARABLE FROM THE LIST OF COMPARABLE COMPANIES. 14. ICSA (I) LTD., THE LD. AR SUBMITTED THAT THE SAID COMPANY IS NOT A COMPARABLE CASE TO THE ASSESSEE AS THE COMPANY IS F UNCTIONALITY IS DIFFERENT THAT THE COMPANYS SOFTWARE SEGMENT UNDERTAKES DEVELOPMENT OF EMBEDDED SOLUTIONS, SOFTWARE PRODUCTS AND SERVICES AND REVENUE BREAK - UP OF SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. HE SUBMITTED THAT THE PROFIT AND LO SS ACCOUNT REFLECTS PURCHASES AND JOB WORK (OUTSOURCING) RELATED EXPENDITURE WHICH CONSTITUTES 88% OF THE TOTAL EXPENDITURE. HE SUBMITTED THAT THIS COMPANY FOLLOWS A DIFFERENT BUSINESS MODEL, IT CANNOT BE CONSIDERED AS A GOOD COMPARABLE. HE RELIED ON THE F OLLOWING CASES: 22 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. 1. CIT VS. BA CONTINUUM INDIA PVT. LTD. ITA NO. 440/2014 (AP HC) 2. CIT VS. PRINCIPAL GLOBAL SERVICES PVT. LTD. , 57/2016 (BOMBAY HC). HE ALSO RELIED ON THE FOLLOWING DECISION WHERE A COMPARABLE IS EXCLUDED IN ABSENCE OF SEGMENTAL DETAILS: CIT VS. INTOTO SOFTWARE INDIA PVT. LTD. 14.1 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 14.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE CASE OF PRINCIPAL GLOBAL SERVICES PVT. LTD., (SUPRA), THE HONBLE BOMBAY HIG H COURT HELD THAT THE BUSINESS MODEL OF THE COMPARABLE BEING OF OUT SOURCING ITS SERVIC ES IS DIFFERENT FROM THE IN - HOUSE BUSINESS MODEL OF PROVIDING SERVICES ADOPTED B Y THE ASSESSEE. THIS FINDING OF FACT BY THE TRIBUNAL ON DIFFERENCE IN BUSINESS MODEL, NOT BEING A COMPARABLE, IS A POSSIBLE VIEW ON FACTS. 14.3 FOLLOWING THE SAID RATIO, WE DIRECT THE AO/TPO TO EXCLUDE THE SAID COMPANY AS COMPARABLE FROM THE LIST OF COMPA RABLES AS THE SAID COMPANY HAS DIFFERENT BUSINESS MODEL/LOW EMPLOYEE COST. 15. VISUAL SOFT TECHNOLOGIES LTD. THE LD. AR SUBMITTED THAT THE SAID COMPANY IS NOT A COMPARABLE CASE TO THE ASSESSEE AS THE MARGIN CALCULATED BY THE TPO IS INCORRECT, AS HE HAS CA LCULATED THE MARGINS BEFORE DEDUCTING DEPRECIATION AND THE CORRECT CALCULATION OF MARGIN AFTER REDUCING THE DEPRECIATION COST IS 15.46% AND THE CIT(A) ACKNOWLEDGED THE FACT THAT THERE IS A DIFFERENCE IN THE MARGIN COMPUTATION OF THE COMPANY. 15.1 LD. DR R ELIED ON THE ORDERS OF REVENUE AUTHORITIES. 15.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . THE ASSESSEE HAS OBJECTED TO THE MARGIN ADOPTED BY THE TPO AND LD. CIT(A) HAS NOT ADJUDICATED ON THIS ISSUE. THEREFORE, WE REMIT 23 ITA NO. 1694 /HYD/1 6 CONEXANT SYSTEMS PVT. LTD., HYD. THIS ISSUE BACK TO THE FILE OF TPO TO DETERMINE PROPER OP/TC AND ADOPT THE SAME AS THE PROPER MARGIN IN ARRIVING AT THE ALP AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 16. IN VIEW OF THE ABOVE, WE DIRECT THE AO/TPO TO RECOMPUTE THE ALP OF THE ASSESSEE BY TAKING THE DIRECTIONS GIVEN AGAINST THE SAID COMPANIES . 17. IN THE RESULT, APP EAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 26 TH DECEMBER , 2018 . SD/ - SD/ - (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 26 TH DECEMBER , 2018 KV C OPY TO: - 1) M/S CONEXANT SYSTEMS PVT. LTD., 6 - 3 - 249/3/1, SSK BUILDING, 2 ND FLOOR, RANGA RAJU LANE, NAVEEN NAGAR, ROAD NO. 1, BANJARA HILLS, HYDERABAD 34 2) D C IT, CIRCLE 1 ( 2 ) , HYDERABAD 3) CIT(A) 1, HYD. , BENGALURU 4) PR. CIT 1 , HYDERABAD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE