Approva Systems Private Ltd., Pune V. Dy. Commissioner of Income-tax,

ITA 1788/PUN/2013

• Counselvise Citation: 178824514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: AJAY KERRING
• Keywords: Related party transaction; Business income; Transfer pricing; International transaction; Rule of consistency; Retrospective amendment; Question of law; Wholly owned subsidiary; Bad and doubtful debts
• Section: 92B; 92A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.1788/PN/2013 (ASSESSMENT YEAR : 2009-10) APPROVA SYSTEMS PVT. LTD., C-501, PUNE IT PARK, 34 AUNDH ROAD, PUNE - 411020 .. APPLICANT PAN NO.AADCA4150F VS. CIT(A)-IT/TP, PUNE .. RESPONDENT ITA.NO.1803/PN/2013 (ASSESSMENT YEAR : 2009-10) DCIT, CIRCLE-1(1), PUNE .. APPELLANT VS. APPROVA SYSTEMS PVT. LTD., C-501, PUNE IT PARK, 34 AUNDH ROAD, PUNE - 411020 .. RESPONDENT PAN NO.AADCA4150F ASSESSEE BY : SHRI ARUN CHHABRA & SHRI AJAY KERRING REVENUE BY : SHRI A.K. MODI DATE OF HEARING : 16-10-2014 DATE OF PRONOUNCEMENT : 13-01-2015 ORDER PER R.K. PANDA, AM : THESE ARE CROSS APPEALS, THE FIRST ONE IS FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIR ECTED AGAINST THE ORDER DATED 31-07-2013 OF THE CIT(A)-IT/TP, PUNE RE LATING TO ASSESSMENT YEAR 2009-10. FOR THE SAKE OF CONVENIEN CE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. 2 ITA NO.1788/PN/2013 : 2. GROUND OF APPEAL NO.1 AND 4 BY THE ASSESSEE BEIN G GENERAL IN NATURE ARE DISMISSED. GROUNDS OF APPEAL NO 11 AND 13 WERE NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE FOR WHI CH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCO RDINGLY, THE ABOVE 2 GROUNDS ARE ALSO DISMISSED AS NOT PRESSED . 3. GROUNDS OF APPEAL NO. 2 AND 3 BY THE ASSESSEE AR E AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO IS NOT ALLOWING DEDUCTION U/S.10B OF THE ACT AMOUNTING TO I NR 2,30,81,297/- ON THE GROUND THAT THE APPROVAL GRANT ED BY THE SOFTWARE TECHNOLOGY PARK OF INDIA (STPI) TO THE BOP ODI UNIT OF THE APPELLANT IS NOT RATIFIED BY THE BOARD OF APPROVAL C ONSTITUTED U/S.14 OF THE INDUSTRIAL DEVELOPMENT REGULATION ACT. 3. WITHOUT PREJUDICE TO THE CLAIM OF DEDUCTION U/S.1 0B OF THE ACT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN DENYING THE ALTERNATE CLAIM OF DEDUCTION U/S.10A OF THE ACT ON THE GROUND THAT THE APPELLANT DOES NOT MEET THE FUNDAMEN TAL CONDITION OF HAVING BEEN LOCATED IN FREE TRADE ZONE AND THA T THE CLAIM OF DEDUCTION CANNOT BE SWITCHED FROM ONE SECTION ANOTHER . 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A WHOLLY OWNED SUBSIDIARY OF APPROVA US WHICH PROVIDES SOFT WARE DEVELOPMENT ACTIVITIES AND QUALITY ASSURANCE SERVIC ES TO ITS AE ON EXCLUSIVE BASIS. IT ALSO PROVIDES SOFTWARE MAINTEN ANCE AND SUPPORT FUNCTIONS LIKE DOCUMENTATION OF THE PROGRAMMED CODE , IT INTEGRATION AND CONFIGURATION MANAGEMENT TO ITS AE. IT FILED ITS RETURN OF INCOME ON 23-09-2009 DECLARING LOSS OF RS .2,86,049/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S.10B OF THE ACT A T 3 RS.2,30,81,297/-. ON BEING ASKED BY THE AO, THE AS SESSEE FURNISHED FULL DETAILS JUSTIFYING ITS CLAIM OF DEDUCTION U/S. 10B. HOWEVER, FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE , THE AO NOTED THAT THE UNIT OF THE ASSESSEE IS REGISTERED WITH DIRECTORATE OF SOFTWARE TECHNOLOGY PARK OF INDIA (STPI). ACCORDING TO THE AO FOR BECOMING ELIGIBLE U/S.10B OF THE ACT, THE ASSESSEE SHOULD BE A 100% EXPORT ORIENTED UNIT (EOU) AS SPECIFIED UNDER EXPLA NATION 2 (IV) BELOW SECTION 10B OF THE ACT WHICH DEFINES A 100% EXPORT ORIENTED UNDERTAKING AS A UNDERTAKING SO APPROVED BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT U/S.14 OF THE INDUSTRIES DEVELOPMENT AND REGULATION ACT, 1951. 3.2 THE AO NOTED THAT SUBSEQUENT TO THE DELEGATION OF THIS POWER BY MINISTRY OF COMMERCE AND INDUSTRIES TO THE DEVEL OPMENT COMMISSIONERS, SUCH APPROVALS TO 100% EOU ARE NOW B EING GRANTED BY THE DEVELOPMENT COMMISSIONERS WHICH ARE LATER RATIFIED BY THE BOARD OF APPROVAL. HE REFERRED TO THE CBDT INSTRUCTION DATED 09-03-2009 VIDE F. NO. 178/19/2008-ITA-1 WHER E THE BOARD HAS CLARIFIED THAT MATTER REGARDING VALIDITY OF APP ROVALS GIVEN BY THE DEVELOPMENT COMMISSIONER HAS BEEN EXAMINED BY THE B OARD. IT HAS BEEN DECIDED THAT AN APPROVAL GRANTED BY THE DE VELOPMENT COMMISSIONER IN THE CASE OF AN EXPORT ORIENTED UNIT (EOU) SET UP IN EXPORT PROCESSING ZONE WILL BE CONSIDERED VALID ONCE SUCH APPROVAL IS RATIFIED BY THE BOARD OF APPROVAL FOR E OU SCHEME. THEREFORE, HE WAS OF THE OPINION THAT FOR CLAIMING DEDUCTION U/S.10B OF THE ACT, THE UNIT MUST BE APPROVED BY THE DEVELO PMENT 4 COMMISSIONER. SINCE IN THE INSTANT CASE THE UNIT O F THE ASSESSEE WAS NOT APPROVED BY THE DEVELOPMENT COMMISSIONER, THE A O ASKED THE ASSESSEE TO EXPLAIN AS TO WHY DEDUCTION U/S.10B OF THE ACT SHOULD NOT BE DISALLOWED. 4. IT WAS EXPLAINED BY THE ASSESSEE THAT IT HAS FUL FILLED ALL RELATED CONDITIONS IN THE AGREEMENT CONSIDERING THE EXPRESS LANGUAGE OF SECTION 10B OF THE ACT. IT WAS SUBMITTED THAT THE G OVERNMENT HAS DELEGATED THE AUTHORITY OF GRANTING APPROVALS TO CO MMISSIONERS OF RESPECTIVE SCHEMES. FOR EXAMPLE, FOR SEZ, IT IS SE Z COMMISSIONER, FOR BIO-TECHNOLOGY PARK UNITS (BTP), IT IS THE DESI GNATED OFFICER UNDER THE DEPARTMENT OF BIO-TECHNOLOGY; FOR AN EPZ UNIT OF ETHP UNIT, IT IS THE DEVELOPMENT COMMISSIONER AND FOR ST P UNIT (I.E. SOFTWATE TECHNOLOGY PARK) UNIT, IT IS THE OFFICER D ESIGNATED BY MINISTRY OF INFORMATION TECHNOLOGY (I.E. THE STPI D IRECTOR). ALL THE REST OF THE UNITS, THE APPROVAL IS TO BE SOUGHT FOR FROM BOA (BOARD OF APPROVAL). AS THE 100% EOU STATUS UNDER T HE STP SCHEME IS BESTOWED UPON THE ASSESSEE BY THE STPI DI RECTOR, THE ASSESSEE HAS FULFILLED THE CONDITIONS OF REGISTRATI ON AS PER IDRA ACT. 4.1 IT WAS SUBMITTED THAT IF A PEDANTIC VIEW HAS TO BE TAKEN THAT YET THE ASSESSEE SHOULD HAVE AVAILED IDRA REGISTRAT ION IT WOULD LEAD TO A PROPOSITION THAT THE SAME STATUS, I.E. 100% EO U WILL BE GRANTED BY TWO AUTHORITIES WHICH IS UNWORKABLE, UNREASONABL E AND UNACCEPTABLE. VARIOUS DECISIONS WERE ALSO BROUGHT TO THE NOTICE OF THE AO. IT WAS FURTHER SUBMITTED THAT THE ISSUE WA S EXAMINED IN 5 SCRUTINY PROCEEDINGS FOR A.Y. 2006-07 AND THE AO AF TER SATISFYING HIMSELF ON THIS ISSUE HAD GRANTED DEDUCTED U/S.10B OF THE ACT. VARIOUS DECISIONS WERE ALSO RELIED UPON BEFORE THE AO IN WHICH DEDUCTION U/S.10B WAS GRANTED ON OBTAINING APPROVAL EITHER FROM THE BOARD OF APPROVAL OF STPI OR DEVELOPMENT COMMIS SIONER OF SEZ. 5. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE. HE REFERRED TO THE DECISION OF HO NBLE DELHI HIGH COURT IN THE CASE OF REGENCY CREATIONS LTD. REPORTE D IN 27 TAXMANN.COM 322 AND NOTED THAT THE HONBLE DELHI HI GH COURT HAS DISCUSSED ALL THE ISSUES RAISED BY THE ASSESSEE. T HEREFORE, THE SUBMISSION OF THE ASSESSEE THAT THE JUDGEMENT IS NO T APPLICABLE TO IT IS NOT CORRECT. HE HELD THAT SINCE THE ASSESSEES UNIT DOES NOT HAVE THE APPROVAL OF DEVELOPMENT COMMISSIONER AS 100% EO U AS REQUIRED UNDER EXPLANATION 2(IV) OF SECTION 10B, TH EREFORE, THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS SPECIFIED UNDER SECTION 10B OF THE ACT. HE OBSERVED THAT NOWHERE IT IS MENTION ED THAT AS A PART OF THE BOARDS FUNCTIONS U/S.14 OF THE INDUSTRIAL D EVELOPMENT AND REGULATION ACT TO GRANT APPROVAL U/S.10B IS ALSO DE LEGATED TO STPI DIRECTOR. ACCORDING TO HIM, IT IS NOT CLEAR AS TO FUNCTION OF GRANTING APPROVAL FOR THE SECTION 10B ALSO STANDS DELEGATED TO THE STPI DIRECTOR U/S.14 OF IDRA. 5.1 AS REGARDS THE ARGUMENT OF THE ASSESSEE THAT FO LLOWING THE PRINCIPLE OF CONSISTENCY THE DEDUCTION U/S.10B SHOU LD BE GRANTED TO 6 IT, THE AO HELD THAT PRINCIPLE OF RESJUDICATA IS NO T APPLICABLE TO INCOME-TAX PROCEEDINGS. ACCORDING TO THE AO, HE IS NOT PRECLUDED FROM ARRIVING AT A CONCLUSION INCONSISTENT WITH THE CONCLUSION IN ANOTHER YEAR. ACCORDING TO HIM, IF THE PRACTICE AD OPTED BY THE ASSESSEE IS ACCEPTED BY THE TAX AUTHORITIES IN THE EARLIER YEAR AND IF IT IS LATER FOUND THE SAME TO BE NOT IN ACCORDANCE WIT H LAW, THEN THE TAX AUTHORITIES ARE BOUND TO TAKE A VIEW IN ACCORDANCE WITH LAW AND THE AUTHORITIES ARE NOT ESTOPPED BY THEIR CONDUCT FROM INSISTING ON A DIFFERENT PRACTICE CONSISTENT WITH LAW. HE ACCORDI NGLY REJECTED THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE U/S.10B OF THE I.T. ACT. 6. BEFORE CIT(A) IT WAS SUBMITTED THAT THE CENTRAL GOVT. HAS APPOINTED THE BOARD U/S.14 OF IDRA FOR APPROVAL OF 100% EO UNITS. THE CENTRAL GOVT. APPOINTED INTER- MINISTERIAL STAN DING COMMITTEE VIDE NOTIFICATION NO.117E DATED 22-02-1993. THE IM SC IN TURN DELEGATED POWERS TO THE DIRECTOR OF STPI FOR GRANTI NG APPROVAL TO STPI UNIT AS PER PRESS NOTE NO.05/1997 DATED 21-05- 2997 READ WITH PRESS NOTE NO.2/1993 DATED 09-03-1993. IT WAS ARGU ED THAT IN PURSUANCE TO THE DELEGATED POWERS VIDE THE ABOVE PR ESS NOTES, STPI FRAMED SOFTWARE TECHNOLOGY PARK SCHEME VIDE NOTIFIC ATION NO.33/(RE)/92-97 DATED 22 ND MARCH, 1994. IT WAS AMENDED BY THE NOTIFICATION NO. SO 388(E) DATED 30 TH APRIL 1995. IT WAS CONTENDED THAT THE STPI APPOINTED BY THE CENTRAL GOVERNMENT U NDER SECTION 14 OF IDRA CAN ALSO BE CONFIRMED FROM THE CUSTOM NOTIF ICATION NO. 138 AND 140 DATED 22 OCTOBER 1991. THUS, ON A COMBI NED READING OF ABOVE NOTIFICATIONS IT IS CLEAR THAT THE BOARD H AD AUTHORIZED 7 IMSC, WHO IN TURN DELEGATED THE POWERS TO THE DIREC TOR OF STPI FOR GRANTING APPROVAL TO STPI UNITS FOR CLAIMING THE BE NEFIT AS 100% ECU. FOR THE ABOVE PROPOSITION THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS : I. THE COMMISSIONER OF INCOME TAX VS K SUDHA RA NI AP HIGH COURT ITA 87 OF 2013 DATED 25 JUNE 2013 II. BEBO TECHNOLOGIES PLTD. VS JCIT 20 TAXMANN. COM 812 SIMILAR VIEW HAS ALSO BEEN TAKEN IN THE CASES OF: I. VISU INTERNATIONAL LTD VS DCIT (ITA 696/HYD/2011 ) II. SECUNDERABAD SOFTWARE VS DIT (ITA 1501/HYD/2011 ) III. VALLIANT COMMUNICATIONS LTD VS DCIT (ITA. 2706/DEL/2008 6.1 IT WAS SUBMITTED THAT A VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED IN THE CASE OF CONFLICTING DECISIONS. F OR THE ABOVE PROPOSITION, THE ASSESSEE RELIED ON THE FOLLOWING C ASE LAW : I CIT VS VEGETABLE PRODUCTS 88ITR 195 (SC) II. SURYALATHA SPINNING MILLS LIMITED VS UNION OF INDIA ITA NO. 624/HYD/2009 III. ITO VS CHANDANMAL CHAMPALAL 11 TAXMANN 32 PUN E TRIBUNAL 6.2 THE ASSESSEE SUBMITTED THAT THE CONDITIONS OF A LLOWABILITY OF DEDUCTION U/S 10B CAN ONLY BE EXAMINED IN THE YEAR OF FORMATION OF THE UNIT. THEREFORE, IF THE DEDUCTION IS GRANTED IN THE INITIAL OR IN THE EARLIER YEARS, THEN IT CANNOT BE DISTURBED THEREAFT ER IN THE SUBSEQUENT ASSESSMENT YEARS WITHOUT FIRST WITHDRAWING SUCH DED UCTION ALLOWED IN THE INITIAL YEAR. IN THIS CONNECTION, THE ASSESS EE RELIED ON THE FOLLOWING DECISIONS: I. CIT VS, WESTERN OUTDOOR INTERACTIVE (P)LTD 25 TAXMANN.COM 340 (BOM HC) 8 II. CIT VS. PAUL BROTHERS-216 ITR 548 (BOM HC) IN. SAURASHTRA CEMENT & CHEMCIAL INDUSTRIES LIMITED VS [123 ITR 669 (GUJ) HC] 6.3 THE ASSESSEE HAS ALSO ARGUED THAT RULE OF CONSI STENCY SHOULD BE FOLLOWED AND THE DEDUCTION ONCE ALLOWED CANNOT B E DISTURBED. FOR THE ABOVE PROPOSITION, THE ASSESSEE PLACED RELI ANCE ON THE FOLLOWING DECISIONS : I. DCIT VS VALLIANT COMMUNICATION LTD ITA 2706/DE L/2009 II. RADHASOAMI SATSANG VS CIT 193 ITR 321 III.CIT VS WESTERN OUTDOOR INTERACTIVE (P) LIMITED 25 TAXMANN.COM.340 6.4 IT WAS ALSO SUBMITTED THAT THE SECTION 10B BEIN G AN INCENTIVE PROVISION INTRODUCED BY THE LEGISLATURE TO PROMOTE EXPORTS OF COMPUTER SOFTWARE AND IT ENABLED SERVICES SHOULD BE CONSTRUED LIBERALLY. FOR THE ABOVE PROPOSITION, THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS: I. BAJAJ TEMPO LTD. VS. CIT (196 ITR 188) II. CIT VS. U.P. CO-OP FEDERATION LTD. III. CIT VS. STRAW BOARD MANUFACTURING CO. LTD., (177 ITR 431) 6.5 ALTERNATIVELY THE ASSESSEE ARGUED THAT IF THE D EDUCTION U/S.10B IS DENIED THEN ALTERNATIVELY IT SHOULD BE GRANTED D EDUCTION U/S.10A. IT WAS SUBMITTED THAT THE ASSESSEE HAD MADE ALTERNA TIVE CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND FILED THE ACCOUNTANTS REPORT IN FORM 56F. HOWEVER, THE AO DID NOT ACCEPT THE ALTERNATIVE CLAIM OF DEDUCTION U/S 10A ON THE GROUND THAT DEDUC TION CAN BE CLAIMED ONLY AT THE TIME OF THE FILING OF RETURN OF INCOME AND SINCE 9 THE ASSESSEE DID NOT FURNISH MANDATORY ACCOUNTANT'S REPORT AT THE TIME OF FILING OF RETURN, ITS ALTERNATIVE CLAIM OF AVAILING DEDUCTION U/S 10A CANNOT BE ENTERTAINED. 6.6 THE ASSESSEE SUBMITTED THAT THE CONDITIONS REQU IRED TO BE FULFILLED FOR THE CLAIM OF THE DEDUCTION U/S 10B AR E IDENTICAL WITH THE DEDUCTION U/S 10A. EVEN THE FORMATS OF THE FORM 56F AND 56G ARE SAME. THEREFORE, IF THERE IS A TECHNICAL DEFECT, ON LY ON ACCOUNT OF TECHNICALITY OR VENIAL DEFECT, THE BENEFIT, OTHERWI SE ALLOWABLE TO THE ASSESSEE, SHOULD NOT BE DISALLOWED BY THE AO. FOR T HE ABOVE PROPOSITION, THE ASSESSEE RELIED ON THE FOLLOWING D ECISIONS : I. EFEXTRA ESOLUTIONS PVT LTD VS DIT-DELHI TRIB UNAL ITA. 313/DEL/2012 II. ACIT VS YESHWANT KANETKAR- 150/NAG/2011-NAGPU R TRIBUNAL III. MANTEC CONSULTANTS P LTD VS CIT-II - DELHI HC - ITA 1295/2008 KRISHNAN NAIR VS CIT- KERALA HIGH COURT - 180 CTR 3 64 IV. N MAKRO TECHNOLOGIES (P) LTD. VS. ACIT- HYDERA BAD TRIBUNAL -1057/H/2010 V. INFOSAGE SYSTEMS (INDIA ) VS. DCIT - ITA NO. 952/HYD/10 VI. SUPREME NETSOFT PVT LTD VS DIT - ITA NO. 1301/HYD/2011 VII. LEGATO SYSTEMS INDIA (P) LTD. V /TO - 203 CTR 101 6.7 VARIOUS DECISIONS WERE ALSO BROUGHT TO THE NOTI CE OF THE LD.CIT(A) TO THE PROPOSITION THAT IN CASE DEDUCTION U/S.10B IS NOT ALLOWED THEN ALTERNATIVELY DEDUCTION U/S.10A SHOULD BE GRANTED TO IT. 7. HOWEVER, THE LD.CIT(A) ALSO WAS NOT CONVINCED WI TH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND REJECTED THE CLAIM OF DEDUCTION BOTH U/S.10B AS WELL AS U/S.10A BY OBSERV ING AS UNDER : 10 2.2.23 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE APPELLANT AND THE LEGAL POSITION. THE APPELLANT HAS SU BMITTED THAT THE POWER OF GRANTING APPROVAL FOR THE PURPOSE OF CL AIMING DEDUCTION U/S 10B IS NOW DELEGATED TO THE STPI. SECON DLY, IT IS STATED THAT, THE JUDGEMENT OF THE DELHI HIGH COURT I N THE CASE OF REGENCY CREATIONS IS BASED ON THE OLD FOREIGN TRADE PO LICY TO 1992- 1997. HOWEVER, UNDER THE NEW FOREIGN TRADE POLICY O F 2004-2009, THE POWER OF GRANTING APPROVAL IS CONFERRED TO CHIEF EXECUTIVE OF STPI FOR WHICH THE APPELLANT HAS PLACED RELIANCE ON NOTIFICATION NO SO 388(E) DATED 30.04.1995. FURTHER, THE APPELLANT HAS PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS K. SUDH A RANI ANDHRA PRADESH HIGH COURT . 2.2.24 ON PERUSAL OF THE ABOVE DOCUMENTS AND THE CASE LAWS CITED BY THE LEARNED AO AND THE APPELLANT, I AM INC LINED TO CONFIRM THE DECISION OF THE LEARNED AO TO DENY THE DEDUCTION U/S 10B. THE REASONS OF MY DECISION ARE AS UNDER: 2.2.25 FIRSTLY, I FIND THAT THE APPROVAL TO THE AP PELLANT'S UNIT WAS GRANTED BY THE SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI), PUNE VIDE LETTER DATED 20.05.2002. THEREFORE, THE A PPELLANT'S CONTENTION THAT ITS CASE IS GOVERNED BY THE NEW FOREIG N TRADE POLICY OF 2004-2009 IS INCORRECT. IN ANY CASE, THE APPELLANT HAS NOT EXPLAINED THE RELEVANCE OF THE NEW FOREIGN TRADE PO LICY, WHEN CLAUSE (IV) TO THE EXPLANATION 2 TO SECTION 10B PROV IDE THAT THE APPROVAL WOULD BE GRANTED BY THE BOARD U/S 14 OF IND USTRIAL DEVELOPMENT REGULATION ACT AND THE RULES MADE THERE UNDER. THE APPELLANT HAS NOT FURNISHED DOCUMENTS ON NEW FOREIGN T RADE POLICY PROVIDING THE CONTENDED CHANGE IN THE APPROVAL TO B E GRANTED ONLY BY THE STPI DIRECTOR, WHICH NEED NOT BE RATIFIED BY THE BOARD OF APPROVAL. 2.2.26 SECONDLY, I FIND THAT THE APPELLANT HAS NOT REBUTTED THE LEARNED TPO'S FINDING AS TO ITS APPROVAL WAS NOT RA TIFIED BY THE BOARD OF APPROVAL AS PROVIDED IN THE INSTRUCTION DAT ED 9.3.2009. I FIND THAT THE PRESS NOTE 5 1997, PARA 2.3 OF THE NOTI FICATION NO S-4 388E DATED 30.04.1995 REFERS TO THE RATIFICATION OF THE APPLICATION BY THE BOARD. FURTHER, PARA 2.10 (C) STATE THAT INTE R-MINISTERIAL STANDING COMMITTEE WOULD SUBSTITUTE THE BOARD OF APP ROVAL FOR THIS PURPOSE. THEREFORE, IN MY VIEW, THE APPELLANT HA S NOT MET THE NECESSARY PRE-CONDITION OF OBTAINING RATIFICATION OF THE APPROVAL GRANTED BY STPI DIRECTOR FOR AVAILING OF DEDUCTION U/S 10B. 2.2.27 THIRDLY, THE JUDGEMENT OF THE DELHI HIGH CO URT ON REGENCY CREATIONS LIMITED IS A COMPREHENSIVE DECISION, WHICH PERTAINS TO THE AYS 2003-04, 2004-05, 2006-07 AND 200 7-08. THEREFORE, IT COVERS PART OF THE PERIOD OF THE NEW F OREIGN TRADE POLICY. IN THIS CASE, THE HIGH COURT HAS EXPRESSLY HELD THAT MERE APPROVAL BY THE STPI IS NOT ENOUGH. THE APPROVAL SHOU LD BE GRANTED BY THE BOARD CONSTITUTED IN ACCORDANCE WITH THE PROV ISIONS OF THE SECTION 14 OF IDRA. FURTHER, THE HONOURABLE HIGH CO URT HAS ALSO HELD THAT THE POWER OF APPROVAL TO BE GRANTED BY AN AUTHORITY BY EXPRESS PROVISION OF THE STATUTE HAS TO BE EXERCISED BY T HAT AUTHORITY AND CANNOT BE DELEGATED. THEREFORE, THE A PPROVAL GIVEN ONLY BY THE STPI IS NOT SUFFICIENT TO CLAIM THE DEDUC TION U/S 10B. 11 THE HONOURABLE HIGH COURT IN PARA 17 OF THE JUDGMEN T HAS HELD AS UNDER: 'IN THE INSTANT CASE, THERE IS NO NOTIFICATION OR OFFI CIAL DOCUMENT SUGGESTING THAT EITHER THE INTERMINISTERIAL COMMITTEE, OR ANY OTHER OFFICER OR AGENCY WAS NOMINA TED TO PERFORM THE DUTIES OF THE BOARD (CONSTITUTED UNDER SEC TION 14 OF THE /OR ACT), FOR PURPOSES OF APPROVALS UNDER SECTIO N 10-B. THOUGH THE CONSIDERATIONS WHICH APPLY FOR GRANTING AP PROVAL UNDER SECTIONS 10-A AND 10-B MAY TO AN EXTENT, OVERLA P, YET THE DELIBERATE SEGREGATION OF THESE TWO BENEFITS BY TH E STATUTE REFLECTS PARLIAMENTARY INTENTION THAT TO QUALIFY FOR BENEFIT UNDER EITHER, THE SPECIFIC PROCEDURE ENACTED FOR THA T PURPOSE HAS TO BE FOLLOWED. THERE IS NOTHING IN ANY OF THE CI RCULARS OR INSTRUCTIONS RELIED ON BY THE TRIBUNAL IN ALL THE ORD ERS, IMPLYING THAT APPROVAL FOR PURPOSES OF AN STP ALSO ENT ITLED THE UNIT TO A BENEFIT UNDER SECTION 10-B. THE ORDERS OF THE TRIBUNAL ARE CONSEQUENTLY, ERRONEOUS, AND ITS REASONING, UNSUPPORTABLE.' 2.2.28 THEREFORE, THE ARGUMENT RELIED ON BY THE APPELLANT THAT SINCE UNITS WERE APPROVED BY THE SPI D IRECTOR IS NOT UPHELD BY THE ABOVE DECISION OF THE HIGH COURT . THE APPELLANT HAS ALSO RELIED ON THE DECISION OF ENABLE EX PORTS. I HAVE PERUSED THE JUDGMENT. IN THIS CASE, THE HIGH COUR T HAS HELD THAT THE APPROVAL GRANTED BY THE DEVELOPMENT COMMISSIONER FOR CONVERSION OF ASSESSEE-COMPANY FROM A DOMESTIC TARIFF AREA (DTA) TO 100% EOU IS A VALID APP ROVAL FOR CLAIMING EXEMPTION U/S 10B. IT MAY BE MENTIONED THAT, THE APPELLANT'S FACTS ARE DIFFERENT. IN THE APPELLANT'S CA SE, THE APPROVAL IS NOT GRANTED BY THE DEVELOPMENT COMMISSIONE R. THEREFORE, THIS JUDGMENT WILL NOT HELP THE APPELLANT . THE APPELLANT'S FACTS ARE SIMILAR TO THE FACTS IN THE CASE O F REGENCY CREATIONS. 2.2.29 THE APPELLANT HAS ARGUED THAT IN VIEW OF THE CONFLICTING JUDGEMENTS, FAVOURABLE JUDGMENT OF ANDHR A PRADESH HIGH COURT SHOULD BE CONSIDERED. ACCORDING TO ME, THIS ARGUMENT IS MISPLACED IN THE FACTS OF THE CASE. TH E PERUSAL OF THE AP HIGH COURT JUDGEMENT SHOWS THAT THE HONOURABLE HIGH COURT HAS NOT ADMITTED THE APPEAL. T HE APPEAL IS DISMISSED WITHOUT HAVING BEEN ARGUED BY BOTH THE SIDES BEFORE IT. THE HONOURABLE HIGH COURT HAS NOT REN DERED THE DECISION ON THE MERITS OF THE APPEAL. IN THIS SENSE, IT IS A NON-SPEAKING ORDER. THE SUPREME COURT IN THE CASE OF S SHANMUGAVEL NADAR VS STATE OF TAMILNADU (2003) 263 ITR 658 (SC) HAS HELD THAT NON-SPEAKING ORDER CANNOT CONST ITUTE A BINDING PRECEDENT. THEREFORE, AT PRESENT, THE ONLY HIGH COURT ORDER DIRECTLY AVAILABLE ON THIS ISSUE IS IN THE CASE OF REGENCY CREATIONS, WHICH IS AGAINST THE APPELLANT. 2.2.30 THE OTHER DECISIONS RELIED UPON BY THE APPELLANT ARE OF THE COURT SUBORDINATE TO THE HIGH C OURT. THEREFORE, THESE DECISIONS WOULD NOT SUPPORT THE APPELL ANT'S CASE. 12 2.2.31 THE APPELLANT HAS RAISED AN ARGUMENT THAT I T IS NOT OPEN FOR THE AO TO DENY THE DEDUCTION, WHICH WAS ALREADY GRANTED TO IT IN THE EARLIER YEARS. THE LEAR NED AO HAS ALREADY DISTINGUISHED THE DECISIONS RELIED ON BY THE AP PELLANT ON THIS ISSUE IN THE ASSESSMENT ORDER. ACCORDING TO ME, TH E FUNDAMENTAL ISSUE IS THAT THE APPELLANT'S DEDUCTION IS N OT IN ACCORDANCE WITH THE PROVISIONS OF THE LAW. HENCE, THE CONDUCT OF THE AO GRANTING OF DEDUCTION IN THE EARLIER YEAR WILL NOT ESTOPP OPERATION OF LAW IN THE CURRENT YEAR. A DEDUC TION WHICH IS LEGALLY ERRONEOUS CANNOT BECOME LAWFUL BY TH E CONSENT OF THE DEPARTMENT BECAUSE IT REACHED ERRONEOU S CONCLUSION IN THE EARLIER YEARS. THEREFORE, I DO NOT ACCEPT THE APPELLANT'S ARGUMENT ON THIS GROUND. FOR THE SAME REA SONS, I DO NOT ACCEPT THE APPELLANT'S ARGUMENTS ON UPHOLDING PRINCIPLE OF CONSISTENCY. IN MY OPINION, 'PRINCIPLE OF CONSISTENCY' HAS NO APPLICATION TO THE FACTS OF THE CASE . 2.2.32 THE APPELLANT HAS TAKEN ALTERNATIVE GROUND O F APPEAL VIDE WHICH IT HAS REQUESTED FOR GRANTING THE D EDUCTION U/S10A. I HAVE CONSIDERED THE APPELLANT'S PLEA. I AM U NABLE TO ACCEPT THE APPELLANT'S ARGUMENT BECAUSE THE PROVISION S OF SECTION10A AND SECTION 10B THOUGH SIMILAR IN MANY ASP ECTS, THEY ARE FUNDAMENTALLY DIFFERENT ON SOME OF THE ISSUE S. SECTION 10A IS AVAILABLE TO THE UNIT ESTABLISHED IN FR EE TRADE ZONE, WHEREAS SECTION 10B IS AVAILABLE TO THE UNIT AP PROVED AS DISCUSSED ABOVE. IT IS SEEN FROM THE APPROVAL LETTER ISSU ED BY THE STPI, PUNE THAT THE APPELLANT'S UNIT IS LOCATED A T BHANDARKAR ROAD, ERANDWANE, PUNE. THEREFORE, IT WIL L NOT MEET THE FUNDAMENTAL CONDITION OF HAVING BEEN LOCAT ED IN FREE TRADE ZONE FOR CLAIMING THE DEDUCTION U/S 10A. NEEDL ESS TO SAY THAT AVAILABILITY OF THE DEDUCTION FROM ONE SECTI ON TO ANOTHER CANNOT BE SWITCHED TO EASILY BECAUSE OTHERWISE THE LEGISLATURE WOULD NOT HAVE PROVIDED TWO DIFFERENT SE CTIONS IN THE FIRST PLACE. THE LEGISLATURE HAS ENACTED DIFFERENT SECTIONS TO ACHIEVE DIFFERENT OBJECTIVES. THEREFORE, THE APPE LLANT'S CONTENTION OF ALTERNATIVELY GRANTING DEDUCTION U/.S 10A CANNOT BE ACCEPTED. 2.2.33 WITH THE RESULT, I DISMISS THE GROUND OF APPEAL FOR AVAILING THE DEDUCTION U/S 10B. I ALSO CONFIRM THE LE ARNED AO'S DECISION TO NOT TO GRANT DEDUCTION/S 10A. 7.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME ARGUMENTS AS MADE BEFORE THE AO AND THE CIT(A). HE SUBMITTED THAT DURING A.Y. 2003-04 THE CLAIM OF ASSESSEE FOR DEDUCTION 13 U/S.10B WAS GRANTED. HE SUBMITTED THAT THE UNIT WA S GRANTED APPROVAL BY THE STPI, PUNE VIDE LETTER DATED 20-05- 2002 AND THE AO IN THE A.Y.2003-04 HAS GRANTED DEDUCTION U/S.10B OF THE I.T. ACT. HOWEVER, FOR THE IMPUGNED ASSESSMENT YEAR, THE AO R EJECTED THE CLAIM OF DEDUCTION U/S.10B. REFERRING TO THE DECIS ION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. K. SUDHA RANI VIDE ITA NO.412/HYD/2010 ORDER DATED 17-09-201 0 HE SUBMITTED THAT IN THAT CASE THE CIT(A) HAD ALLOWED THE CLAIM OF DEDUCTION U/S.10B ALTHOUGH THE BUSINESS OF THE ASSE SSEE WAS NOT APPROVED BY THE BOARD APPOINTED BY THE CENTRAL GOVT . IN EXERCISE OF POWERS U/S.14 AND THE INDUSTRIES (DEVELOPMENT AND R EGULATION ACT, 1951) AND THE RULES MADE THEREIN WHICH IS PRESCRIBE D UNDER THE I.T. ACT. THE TRIBUNAL UPHELD THE ORDER OF CIT(A) AND D ISMISSED THE APPEAL FILED BY THE REVENUE. WHEN THE REVENUE CHAL LENGED THE ORDER OF THE TRIBUNAL, THE HONBLE HIGH COURT VIDE ORDER DATED 25- 06-2012 DISMISSED THE APPEAL FILED BY THE REVENUE H OLDING THAT THE APPEAL IS NOT REQUIRED TO BE ADMITTED AS THE TRIBUN AL HAS NOT DONE ANYTHING WRONG EITHER ON FACTS OR ON LAW WHILE FOLL OWING ITS EARLIER DECISION IN SAME ASSESSEES CASE. SINCE NOWHERE IT IS SUGGESTED THAT THE AFORESAID EARLIER DECISION OF THE TRIBUNAL HAS NOT BEEN ACCEPTED OR THAT THE APPEAL HAS BEEN PREFERRED AGAINST THE S AID DECISION AND THE HONBLE HIGH COURT INTERFERED WITH THE ORDER OF THE TRIBUNAL. ACCORDINGLY, THE APPEAL FILED BY THE REVENUE WAS DI SMISSED. 14 8.1 REFERRING TO THE DECISION OF THE HONBLE GUJARA T HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. VS. DCIT REPOR TED IN 155 TAXMANN 330 HE DREW THE ATTENTION OF THE BENCH TO T HE FOLLOWING OBSERVATIONS : 26. IN THE RESULT THE EFFECT OF DISMISSAL OF TAX APPEA L BY THE HIGH COURT HOLDING THAT NO SUBSTANTIAL QUESTION OF LAW ARISE S IS THAT THE ORDER OF THE TRIBUNAL ON THE ISSUE WHICH WAS AGITATED BY THE APPELLANT BEFORE THE HIGH COURT STANDS MERGED IN THE ORDER OF THE HIGH COURT, AND FOR ALL INTENTS AND PURPOSES IT IS THE DECISION OF THE HIGH COURT WHICH IS OPERATIVE AND WHICH IS CAPABLE OF BEING GIVEN EFFECT TO. IT IS NOT OPEN TO ANY PERSON TO CONTEND THAT THERE IS NO DECISION OF THE HIGH COURT AND THE SUBORDINATE FORUM IS ENTITLED TO TAKE A CONTRARY VIEW THAN THE ONE ADOPTED IN THE EA RLIER PROCEEDINGS WHICH HAVE BEEN AFFIRMED BY THE HIGH COU RT BY A PROCESS OF DISMISSAL OF THE APPEAL SIMPLICITER. 8.2 IN HIS ALTERNATE CONTENTION, THE LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT SINCE HE IS FULFILLING ALL THE CONDI TIONS FOR GETTING DEDUCTION U/S.10A, THEREFORE, THE SAME SHOULD BE AL LOWED TO HIM. REFERRING TO PAPER BOOK PAGES 1110 TO 1112 THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE APP EAL IN THE CASE OF CIT VS. VALLIANT COMMUNICATIONS LTD. VIDE ITA NO.20 02/2010 ORDER DATED 04-01-2013 AND DREW THE ATTENTION OF TH E BENCH TO THE OBSERVATION OF THE HONBLE HIGH COURT : ISSUE NOTICE. SH. KIRAN BABU, SR. STANDING COUNSEL ACCEPTS NOTICE ON BEHALF OF THE REVENUE. THE APPLICANT ASSESSEE HAD SUCCEEDED BEFORE THE TRI BUNAL IN THE CONTENTION THAT IT WAS ENTITLED TO THE BENEFIT OF S ECTION 10B OF THE INCOME TAX ACT. IT HAD URGED THAT THE SUPPORTING MA TERIALS DISCLOSE THAT THERE WAS STP CLEARANCE/APPROVAL UNDER SECTION 10A AND THAT SUCH APPROVAL WAS SUFFICIENT TO ENTITLE IT TO THE B ENEFIT OF SECTION 10B. BY JUDGMENT, THIS COURT NEGATIVED THE PLEA WITH REG ARD TO THE APPROVAL VIS-?-VIS SECTION 10B AND HAS RULED THAT S EPARATE REGIME EXISTS. 15 THE APPLICANT CONTENDS THAT THE CIT(A) AND THE TRIBU NAL HAD, IN THE PRESENT CASE, NOT GONE INTO THE MERITS OF THE ALTER NATIVE CLAIM FOR ENTITLEMENT UNDER SECTION 10A. THIS FACT IS APPAREN T FROM A READING OF THE ORDER OF CIT(A) AS WELL AS THAT OF THE TRIBUNAL IN THE ORDER IMPUGNED. IN THE CIRCUMSTANCES, THE TRIBUNAL SHALL CONSIDER THE RELEVANT DOCUMENTS ON THE BASIS OF THE CLAIMS AND A SCERTAIN WHETHER THE APPLICANT IS ENTITLED TO THE BENEFIT OF SECTION 10A, AS CLAIMED. THE JUDGMENT AND ORDER OF THIS COURT DATED 17.09.2012 I S ACCORDINGLY MODIFIED; THE TRIBUNAL SHALL PROCEED TO PASS APPROPR IATE ORDERS AFTER HEARING BOTH PARTIES. 8.3 REFERRING TO THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. HEARTLAND KG INFORMATION LTD . REPORTED IN 39 TAXMANN.COM 132 (2013) HE DREW THE ATTENTION OF THE BENCH TO PARA 6 OF THE ORDER WHICH READS AS UNDER : 6. AS FAR AS THE FIRST QUESTION RAISED AS REGARDS THE CLA IM OF THE ASSESSEE ORIGINALLY MADE UNDER SECTION 10B OF THE INCOM E TAX ACT IS CONCERNED, WE DO NOT THINK, THE SAID QUESTION CAN BE ANSWERED IN FAVOUR OF THE REVENUE. A READING OF THE ORDER OF TH E ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF INCOME TAX (APPE ALS) SHOWS THAT EVEN THOUGH THE ASSESSEE ORIGINALLY CLAIMED RELIEF UNDER SECTION 10B, IT WAS CAUTIOUS ENOUGH TO MAKE AN ALTER NATIVE PLEA UNDER SECTION 10A IN VIEW OF THE FACT THAT THE ASSESSEE 'S VENDOR HAD THE BENEFIT UNDER SECTION 10A. IT IS NOT DENIED BY T HE REVENUE THAT THE ASSESSEE HAD THE WHOLE BUSINESS TRANSFERRED TO ITS FAVOU R AND THAT THE FACTUM OF TRANSFER WAS ALSO INTIMATED TO THE SOFTWARE TECHNOLOGY PARK OF INDIA. THUS, AS A SOFTWARE TECHNOL OGY PARK, THE ASSESSEE IS ENTITLED TO PLACE HIS CLAIM UNDER SECTION 10A . IN ANY EVENT, EVEN ASSUMING FOR A MOMENT, THE ASSESSEE HAD NOT REFERRED TO THE SECTION CORRECTLY, THE FACT REMAINS THAT IF T HE CLAIM COULD BE FAVOURABLY BE CONSIDERED UNDER ANY OF THOSE SPECIAL DE DUCTION PROVISIONS AND ON THE CONDITIONS SPECIFIED THEREIN BEIN G SATISFIED, WE DO NOT THINK THAT THERE EXISTS ANY JUSTIFIABLE GROU ND FOR THE REVENUE TO CONTEND THAT THE ASSESSEE SHALL NOT BE ENTITLED TO HAVE THE BENEFIT OF SECTION 10A. 8.4 REFERRING TO THE DECISION OF THE HYDERABAD BENC H OF THE TRIBUNAL IN THE CASE OF CLOUD SOFTTECH INDIA PVT. L TD., VIDE ITA NO.483/HYD/2013 ORDER DATED 13-09-2013 THE LD. COUN SEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PARA 9 TO 11 OF THE ORDER WHICH READS AS UNDER : 16 9. THE GRIEVANCE OF THE REVENUE AUTHORITIES IS THAT AS THE ASSESSEE HAS NOT FURNISHED NECESSARY APPROVAL OF THE BOARD AS REQUIRED UNDER THE ACT, THE DEDUCTION U/S. 10B CANNO T BE GRANTED. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE A UTHORITIES BELOW. WE ALSO FIND SUPPORT FROM THE DECISION OF THE DELHI HIGH COURTIN THE CASE OF CIT VS. VALIANT COMMUNICATIONS IN ITA.NO. 2002/2010 IN CIVIL MISCELLANEOUS PETITION NO. 12 OF 2 013 IN WHICH THE FACTS ARE SIMILAR TO THAT OF THIS CASE. IN THAT CASE , THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10B, WHEREAS, THE Y HAVE NOT BEEN APPROVED BY THE BOARD APPOINTED ON THIS BEHALF BY THE GOVERNMENT AS REQUIRED UNDER SECTION 10B BUT WAS REGIST ERED WITH STPI. IN THEIR ORIGINAL ORDER, THE DELHI HIGH COURT REJECTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10B. HOWEVER , ON A REVIEW PETITION FILED BY THE ASSESSEE THE DELHI HIGH CO URT, SET ASIDE THE ISSUE TO THE FILE OF THE CIT(A) TO CONSIDER THE AL TERNATE CLAIM FOR DEDUCTION UNDER SECTION 10A. 11. THE COORDINATE BENCH OF HYDERABAD TRIBUNAL IN THE CASE OF INFOTECH ENTERPRISES LTD. VS. JCIT 85 ITD 325 HAD REJE CTED THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SECTION 10A ON THE GROUND THAT THE UNIT WAS NOT SET UP IN THE YEAR RELEVANT TO ASSESSMEN T YEAR 1994-95. THE TRIBUNAL ALSO REJECTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10B ON THE GROUND THAT THE U NIT WAS NOT APPROVED BY BOARD APPOINTED BY THE GOVERNMENT FOR A PPROVING 100% EOU. WE AGREE THAT THE UNDERTAKING WHICH HAS NO T BEEN APPROVED AS A 100% EOU, BY THE BOARD APPOINTED BY TH E GOVERNMENT, AS REQUIRED UNDER SECTION 10B, THE ASSESSEE W ILL NOT BE ENTITLED TO DEDUCTION UNDER SECTION 10B. BUT THAT DO ES NOT MEAN THAT WE HAVE TO CLOSE OUR EYES TOWARDS THE ALTERNATE C LAIM FOR DEDUCTION MADE BY THE ASSESSEE. AFTER-ALL, THE ASSESSEE IS C LAIMING DEDUCTION IN RESPECT OF PROFITS FROM EXPORT OF SOFTWAR E. DEDUCTION FOR EXPORT OF SOFTWARE IS AVAILABLE UNDER SECTION 10A, 10B AND 80HHE. IF THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDE R ONE SECTION, HIS CLAIM FOR DEDUCTION UNDER ANOTHER SECTION OF THE ACT SHOULD BE CONSIDERED. RESPECTFULLY FOLLOWING THE DECIS ION OF THE DELHI HIGH COURT IN THEIR FINAL DECISION IN THE CASE OF CIT VS. VALIANT COMMUNICATIONS IN ITA. NO. 2002 OF 2010 IN CIVIL MISC . APPLN. NO. 12/2013 WE HOLD THAT THE CLAIM OF THE ASSESSEE FOR DEDU CTION UNDER SECTION 10A REQUIRES TO BE EXAMINED IN ACCORDANCE WIT H LAW AND HENCE, WE REMIT THE ISSUE TO THE FILE OF ASSESSING OFFIC ER TO DECIDE DENOVO THE CLAIM OF THE ASSESSEE IN THE PRESENT CASE. HE ACCORDINGLY SUBMITTED THAT EITHER THE BENEFIT OF DEDUCTION U/S. 10B SHOULD BE GRANTED TO THE ASSESSEE OR ALTERNATIV ELY DEDUCTION 17 U/S.10A SHOULD BE GRANTED SINCE ASSESSEE FULFILS AL L THE CONDITIONS PRESCRIBED FOR CLAIMING THE SAME DEDUCTION. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF THE CIT(A). HE SUB MITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF REGENCY CRE ATIONS HAS PASSED A VERY DETAILED ORDER ON THIS ISSUE. THEREFO RE, THE ORDER OF THE AO WHICH IS BASED ON THE DECISION OF THE HONBLE DE LHI HIGH COURT HAS TO BE FOLLOWED. SO FAR AS THE DECISION OF THE HONBLE AP HIGH COURT RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IS CONCERNED, HE SUBMITTED THAT MERELY BECAUSE THE REVENUE HAD NOT F ILED ANY APPEAL IN THE PAST, THE HONBLE HIGH COURT DISMISSED THE A PPEAL FILED BY THE REVENUE. THEREFORE, THAT CANNOT BE CONSIDERED AS A PRECEDENT AND THE DECISION OF THE HONBLE DELHI HIGH COURT WILL B E A BINDING PRECEDENT. 9.1 AS REGARDS THE ALTERNATE CLAIM OF THE ASSESSEE THAT DEDUCTION U/S.10A SHOULD BE ALLOWED TO IT, THE LD. DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT THE SAME SHOULD HAVE BEEN CLAIMED IN THE RETURN FILED U/S.139(1) OF THE I.T. ACT. NOBOD Y HAS EXAMINED THE ELIGIBILITY FOR DEDUCTION U/S.10A. HE ACCORDINGLY SUBMITTED THAT THE ALTERNATE CLAIM OF THE ASSESSEE ALSO SHOULD BE REJE CTED. 10. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOIND ER SUBMITTED THAT THE CIT(A) HAS NOT GIVEN ANY FINDING REGARDING THE ELIGIBILITY OF THE ASSESSEE FOR GETTING THE BENEFIT U/S.10A AS PER THE ALTERNATE 18 CLAIM. HE HAS ALSO NOT EXAMINED THE ALLOWABILITY O F THE PROVISIONS ALTHOUGH HE HAS MENTIONED THAT THE PROVISIONS OF SE CTION 10A AND 10B ARE SIMILAR IN MANY ASPECTS. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE BOPODI UNIT OF THE ASSESSEE IS REGISTERED WITH THE STPI AS A 100% EOU W.E.F., 20-05-2002. THE ASSESSEE WAS CLAIMING DEDUCTION U/S.10B OF THE I.T. ACT FROM A.Y. 2003-04 ONWARDS A ND THE SAME WAS BEING GRANTED TO THE ASSESSEE. WE FIND DURING THE IMPUGNED ASSESSMENT YEAR THE AO DISALLOWED THE DEDUCTION CLA IMED BY THE ASSESSEE U/S.10B OF THE ACT ON THE GROUND THAT THE ASSESSEE IS NOT AN 100% EOU WITHIN THE MEANING OF CLAUSE (IV) OF EXPLA NATION 2 TO SECTION 10B OF THE I.T. ACT SINCE IT HAS OBTAINED A PPROVAL FROM THE DIRECTOR AND CHIEF EXECUTIVE OF THE STPI AND NOT FR OM THE DEVELOPMENT COMMISSIONER. HE ALSO REJECTED THE ALT ERNATE CLAIM OF DEDUCTION U/S.10A OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION U/S.10A, THROUGH FILING OF RE TURN OF INCOME AND HAS NOT FURNISHED THE PRESCRIBED REPORT OF THE AUDITOR AT THE TIME OF FILING OF THE RETURN OF INCOME. IT IS PERTINENT TO MENTION HERE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE HAS FILED THE REPORT OF THE ACCOUNTANT IN FORM NO.56F AND HAS MADE ALTERNATE CLAIM OF DEDUCTION U/S.10A OF THE ACT IN CASE THE D EDUCTION IS NOT ALLOWED U/S.10B. WE FIND IN APPEAL THE LD.CIT(A) U PHELD THE 19 ACTION OF THE AO IN DISALLOWING THE CLAIM OF DEDUCT ION U/S.10A OF THE I.T. ACT. 11.1 SO FAR AS THE ALTERNATE CLAIM OF THE ASSESSEE THAT IN CASE DEDUCTION U/S.10B IS NOT ALLOWED THEN HE SHOULD BE ALLOWED THE DEDUCTION U/S.10A, THE LD.CIT(A) REJECTED THE SAME ALSO HOLDING THAT THE UNIT OF THE ASSESSEE WILL NOT MEET THE FUN DAMENTAL CONDITION OF HAVING BEEN LOCATED IN FREE TRADE ZONE FOR CLAIM ING THE DEDUCTION U/S.10A. FURTHER, ACCORDING TO HIM, THE AVAILABILI TY OF THE DEDUCTION FROM ONE SECTION TO ANOTHER CANNOT BE SWITCHED SO E ASILY BECAUSE OTHERWISE THE LEGISLATURE WOULD NOT HAVE PROVIDED 2 DIFFERENT SECTIONS IN THE FIRST PLACE. HE ACCORDINGLY REJECT ED THE CLAIM OF THE ASSESSEE. 11.2 WE FIND A SOMEWHAT SIMILAR ISSUE HAD COME UP B EFORE THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. HE ARTLAND KG INFORMATION LTD.(SUPRA). IN THAT CASE, THE ASSESSE E WAS AN INDUSTRIAL UNDERTAKING ENGAGED IN MEDICAL TRANSCRIPTION BUSINE SS. THERE WAS ANOTHER UNDERTAKING K WHICH GOT APPROVAL AS 100% EO U FROM STPI AND STARTED ITS NEW BUSINESS OF MEDICAL TRANSCRIPTI ON DURING F.Y. 1999-2000. IT ALSO HAD ANOTHER UNDERTAKING ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE EXPORTED OUTSIDE INDIA. IN RESPECT OF BUSINESS INCOME EARNED FROM EXPORT THE SAID UNDERTA KING CLAIMED EXEMPTION U/S.10A OF THE I.T. ACT. IN JULY, 2001 T HE COMPANY K TRANSFERRED ITS ENTIRE UNDERTAKING ENGAGED IN THE E XPORT BUSINESS OF MEDICAL TRANSCRIPTION ALONG WITH ALL TRANSCRIPTIONS , CONTRACTS, BOOKS , 20 RECORDS, ALL RIGHTS, ALL PERMITS, WARRANTIES INCLUD ING COMPUTER SOFTWARE AND EXPORT OBLIGATION TO THE ASSESSEE COM PANY. THE TRANSFER WAS RECOGNISED AND ALLOWED BY THE STPI. T HE ASSESSEE CLAIMED DEDUCTION U/S.10B IN RESPECT OF INCOME FROM EXPORT. HOWEVER, THE AO REJECTED THE CLAIM ON THE GROUND TH AT APPROVAL OBTAINED FROM STPI FOR PURPOSE OF SECTION 10B WOULD NOT BE SUFFICIENT TO GRANT RELIEF. ACCORDING TO HIM, THE TRANSFER WAS ONLY RELATED TO MACHINERY AND THUS THE CLAIM COULD NOT B E SUSTAINED. HE HOWEVER GRANTED DEDUCTION U/S.80HHE ON ALTERNATIVE CLAIM OF THE ASSESSEE. IN APPEAL THE LD.CIT(A) REFERRING TO CDB T CIRCULAR FILE NO.15/5/63(IT)(A-1) HELD THAT THE BENEFIT WITH THE VENDOR COMPANY IN RESPECT OF INDIVIDUAL UNDERTAKING ENGAGED IN THE MANUFACTURE OF ARTICLES COULD BE CLAIMED BY SUCCESSOR COMPANY FOR THE REMAINING TAX HOLIDAY PERIOD SINCE THE ENTIRE UNDERTAKING OF THE BUSINESS OF MEDICAL TRANSCRIPTION WAS TRANSFERRED TO THE ASSESS EE. THUS, THE ASSESSEE WOULD BE ENTITLED TO HAVE THE BENEFIT U/S1 0A OF THE ACT FOR THE REMAINING PERIOD. HE THEREFORE HELD THAT RELIEF U/S.80HHE WOULD BE AVAILABLE TO THE ASSESSEE. THE HONBLE TRIBUNAL AFFIRMED THE ORDER OF THE CIT(A). ON FURTHER APPEAL BY THE REVE NUE, THE HONBLE HIGH COURT DISMISSED THE APPEAL FILED BY THE REVENU E AND UPHELD THE ORDER OF THE TRIBUNAL. WHILE DOING SO, THE HON BLE HIGH COURT HELD THAT EVEN ASSUMING FOR A MOMENT THAT THE ASSES SEE HAS NOT REFERRED TO THE SECTION CORRECTLY, THE FACT REMAINS THAT IF THE CLAIM COULD BE FAVOURABLY CONSIDERED UNDER ANY OF THOSE S PECIAL DEDUCTION PROVISIONS AND ALL THE CONDITIONS SPECIFIED THEREIN BEING SATISFIED 21 THERE IS NO JUSTIFIABLE GROUND EXIST FOR THE REVENU E TO CONTEND THAT THE ASSESSEE SHALL NOT BE ENTITLED TO HAVE THE BENE FIT OF SECTION 10A OF THE I.T. ACT. 11.3 SINCE IN THE INSTANT CASE ALTHOUGH THE ASSESSE E HAS NOT CLAIMED THE DEDUCTION U/S.10A OF THE ACT IN THE RETURN FILE D U/S.139(1), HOWEVER, THE ASSESSEE HAS CLAIMED SUCH AN ALTERNATE DEDUCTION BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS ITS ELF BY FILING THE REQUISITE REPORT OF THE ACCOUNTANT ALONG WITH FORM NO.56G. THEREFORE, IF THE ASSESSEE IS NOT ELIGIBLE FOR DEDU CTION U/S.10B OF THE ACT BUT ELIGIBLE U/S.10A OF THE ACT, WE FIND NO REA SON AS TO WHY SUCH BENEFIT SHOULD BE DENIED TO THE ASSESSEE. AFT ER ALL THESE ARE INCENTIVE PROVISIONS AND ARE TO BE LIBERALLY CONSTR UED. IF THE ASSESSES OTHERWISE FULFILS ALL THE LEGAL REQUIREMEN TS FOR CLAIMING THE DEDUCTION U/S.10A OF THE ACT BUT INADVERTENTLY CLAI MED THE SAME U/S.10B OF THE ACT WHICH WAS GRANTED TO IT IN THE P AST, WE FIND NO REASON AS TO WHY THE ALTERNATE CLAIM OF THE ASSESSE E SHOULD NOT BE ACCEPTED. 11.4 HOWEVER, SINCE THE LOWER AUTHORITIES HAVE NOT THOROUGHLY EXAMINED THE ALLOWABILITY OF DEDUCTION U/S.10A OF T HE ACT AND MERELY REJECTED THE CLAIM ON THE GROUND THAT THE SA ME WAS NOT CLAIMED IN THE ORIGINAL RETURN FILED, THEREFORE, WE IN THE INTEREST OF JUSTICE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS ELIGIBILITY FOR DEDUCTION U/S.10A OF THE I.T. ACT. WE HOLD AND DIRECT 22 ACCORDINGLY. SINCE WE ARE RESTORING THE ISSUE TO T HE FILE OF THE AO FOR DECIDING THE ALTERNATE CLAIM OF THE ASSESSEE FO R DEDUCTION/S.10A, THEREFORE, WE REFRAIN OURSELVES FROM ADJUDICATING T HE ALLOWABILITY OF DEDUCTION U/S.10B OF THE I.T. ACT. THE GROUNDS RAI SED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PU RPOSES. 12. IN THE RESULT, GROUND OF APPEAL NO. 3 IS ALLOWE D FOR STATISTICAL PURPOSES. 13. GROUND OF APPEAL NO.4 TO 10, 12, 14, & 15 BY TH E ASSESSEE AND ALL THE GROUNDS OF APPEAL BY THE REVENUE RELATE TO THE PARTIAL RELIEF GRANTED BY THE CIT(A) OUT OF THE TP ADJUSTME NT MADE BY THE AO. THESE GROUNDS OF APPEAL ARE AS UNDER : GROUNDS BY REVENUE : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-T AX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE KALS INFORMA TION SYSTEMS PVT. LTD. FROM THE LIST OF COMPARABLE COMPANIES BY RO UTINELY FOLLOWING THE DECISION OF THE HON'BLE INCOME-TAX APPELLATE TRI BUNAL, PUNE IN THE CASE OF BINDVIEW INDIA PVT. LTD. (ITA NO.L386/PN/201 0 FOR THE A.Y. 2006-07) INSTEAD OF EXAMINING THE FACTS PERTAINING TO THE RESPECTIVE CASES AS HAD BEEN CLEARLY BROUGHT OUT BY THE TRANSFER P RICING OFFICER / ASSESSING OFFICER IN THEIR ORDERS. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN FAILING TO APPRECIATE THE DIFFERENCES BETWEEN A PROD UCT COMPANY AND A SERVICE COMPANY; AND, CONSEQUENTLY, IN FAILING TO TAK E COGNIZANCE OF THE FACTS BROUGHT OUT IN THE ORDER OF THE TRANSFER PRICIN G OFFICER THAT THE PROFIT & LOSS ACCOUNT OF KALS INFORMATION SYSTEMS PVT. LTD. DID NOT INDICATE ANY REVENUE WHATSOEVER FROM THE SALE OR DEVE LOPMENT OF PRODUCTS; AND IT IS ALSO EVIDENT FROM THE DATABASE OF T HIS CONCERN THAT THE SAME IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPME NT SERVICES SIMILAR TO THAT OF THE ASSESSEE COMPANY. 4. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE LEARNED COMMISSIONER O F INCOME-TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFIC ER BE RESTORED. 23 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF THE APP ELLATE PROCEEDINGS BEFORE THE HON'BLE TRIBUNAL. GROUNDS BY ASSESSEE : 4. MAKING AN INCORRECT ADDITION BY RE-COMPUTATI ON OF ARM'S LENGTH PRICE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO/TRANSFER PRICING OFFICER ('TPO') IN MAKING AN ADJ USTMENT OF RS. 4,31,26,609/ TO THE INCOME RETURNED BY THE APPELLAN T BY RECOMPUTING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACT IONS. 5. INCORRECT CALCULATION OF OPERATING PROFIT/ TO TAL COST COP/ TC') OF THE APPELLANT AND COMPARABLES ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A)/THE LEARNED AO ERRED IN CALCULATING OP/TC OF THE APPELLANT AND THE COMPARABLES. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE LD AO/TPO IN TREATING LOSS/GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLU CTUATIONS AS NON- OPERATING FOR THE PURPOSES OF COMPUTING THE OP/TC MAR GIN OF THE APPELLANT AND IN NOT FOLLOWING THE RATIO LAID DOWN BY VARIOUS APPELLATE TRIBUNAL/SUPREME COURT DECISIONS. 6. UNJUST REJECTION OF TP STUDY FILTERS AND UNJUST I NTRODUCTION OF ADDITIONAL FILTERS FOR SELECTING FINAL SET OF COMPARAB LES. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/TPO IN APPLYING ADDITIONAL FILTERS FOR SELECTING C OMPANIES AS COMPARABLES, WITHOUT PROVIDING COGENT REASONS AND BY I GNORING THE APPELLANT'S SUBMISSION FOR NOT APPLYING THE ADDITIONAL FILTERS. THE LEARNED CIT(A ) HAS ERRED IN CONFIRMING THE ACTI ON OF THE LD AO/TPO IN REJECTING APPELLANT'S FILTERS FOR SELECTING COMPANIES AS COMPARABLES, WITHOUT PROVIDING COGENT REASONS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD CIT(A)/HAS ERRED IN UPHOLDING THE ACTION OF THE ID A O/TPO IN REJECTING THE APPELLANT'S CRITERIA, OF APPLYING A FILTER, TO S ELECT COMPANIES/SEGMENTS WITH RPT /SALES LESS THAN OR EQUAL TO 5% AND ADOPTING THE CRITERIA RPT/TOTAL TRANSACTIONS LESS THAN OR EQUAL TO 25%. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE ID CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ID AO/TPO IN REJECTING THE APPELLANT'S CRITERIA, OF APPLYING AN UPPER TURNO VER FILTER, TO SELECT COMPANIES /SEGMENTS WITH TURNOVER LESS THAN OR EQUAL TO RS 50 CRORE AND UNJUSTLY REPLACING THE CRITERIA WITHOUT SOUND/LO GICAL REASONS TO ACCEPT COMPANIES WITH TURNOVER LESS THAN OR EQUAL TO RS 200 CRORES. 24 7. UNJUST SELECTION OF NEW COMPARABLES ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE ID AO/TPO IN E INTRODUCING ADDITIONAL COMPANIES AS COMPARABLES ALTHOU GH, COMPANIES INTRODUCED DIFFER IN FUNCTIONS UNDERTAKEN AND/OR ASSET S EMPLOYED AND/OR RISKS ASSUMED AS COMPARED TO THE APPELLANT. 8. UNJUST REJECTION OF COMPARABLES SELECTED IN THE TP STUDY FOR FY 2008-09 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD AO/TPO IN REJECTING FUNCTIONALLY COMPARABLE COMPANIES UNDERTAK ING DEVELOPMENT OF SOFTWARE, CHOSEN BY THE APPELLANT WITH OUT PROVIDING INADEQUATE/SUFFICIENT REASONS. 9. UNJUST INCLUSION OF HIGH/ SUPER PROFIT MAKING C OMPANIES IN FINAL SET OF COMPARABLES ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE ID CIT(A)/HAS ERRED IN CONFIRMING THE ACTION OF THE LD AO/TPO IN CHERRY PICKING HIGH/SUPER PROFIT MAKING COMPANIES IN FINAL SE T OF COMPARABLES IN THE ORDER. 10. UNJUST EXCLUSION OF LOSS MAKING COMPANIES ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ID AO/TPO IN REJECTING LOSS MAKING COMPANIES WITHOUT PROVIDING ADEQ UATE/COGENT REASONS. 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ID CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE LD AO/TPO IN NOT SHARING THE SEARCH STRATEGY; ACCEPT/REJECT MATRIX, SOURCE OF ADDITIONAL COMPARABLES, SELECTED IN THE FINAL SET OF COMPARABLES, EVEN AFTER THE APPELLANT HAS DEMANDED FOR THE SAME IN THE SUBMISSIONS AND HEARINGS. 14. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD AO/TPO IN COMPUTING TRANSFER PRICING ADJUSTMENT USING THE FINANC IAL INFORMATION OF THE COMPARABLES PERTAINING TO FINANCIAL YEAR ENDE D MARCH 2009 ONLY, AVAILABLE AT THE TIME OF ASSESSMENT, ALTHOUGH SUCH INFORMATION WAS NOT AVAILABLE AT THE TIME WHEN THE APPELLANT COM PLIED WITH THE INDIAN TP REGULATIONS AS PER THE ACT. 15. NO MOTIVE, CIRCUMSTANCES, INTENTION OF TAX EVASIO N BY THE APPELLANT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT (A) ERRED IN NOT APPRECIATING THAT THE APPELLANT HAD NO MOTIVE TO SHIFT PROFITS SINCE IT ENTITLED TO BENEFIT UNDER SECTION 10B OF THE ACT. 25 13.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING T HE PREVIOUS YEAR UNDER CONSIDERATION THE ASSESSEE HAS ENTERED INTO I NTERNATIONAL TRANSACTION WITH ITS AE AGGREGATING TO RS.16,06,78, 428/- AS ENVISAGED IN SECTION 92A AND 92B OF THE I.T. ACT. THE ASSESSEE HAS ADOPTED TNMM METHOD FOR THE INTERNATIONAL TRANSACTI ON OF SOFTWARE DEVELOPMENT AND RELATED SUPPORT SERVICES TO ITS AE. THE AO REFERRED THE MATTER TO THE TPO FOR DETERMINING THE ALP U/S.92CA(1) OF THE I.T. ACT. FROM THE VARIOUS DETAILS FURNISHE D BY THE ASSESSEE DURING SUCH TP PROCEEDINGS THE TPO NOTED FROM THE T P STUDY REPORT SUBMITTED BY THE ASSESSEE THAT IT HAS SELECTED TNMM AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL T RANSACTION RELATING TO RENDERING OF SOFTWARE DEVELOPMENT AND R ELATED SUPPORT SERVICES. IN TNMM ANALYSIS THE OPERATING PROFITS E ARNED BY COMPARABLES HAVE BEEN COMPUTED AT OPERATING COST. FOR BENCHMARKING THE INTERNATIONAL TRANSACTION, THE ASS ESSEE HAS IDENTIFIED COMPARABLE COMPANIES ON THE BASIS OF FAR ANALYSIS, I.E. FUNCTIONS PERFORMED, RISK ASSUMED AND ASSETS. THE TPO NOTED THAT THE ASSESSEE HAS REFERRED PROWESS AND CAPITAL LINE PLUS DATA BASE TO GET THE INFORMATION OF THE COMPARABLE COMPANIES. H E NOTED THAT THE ASSESSEE HAS SELECTED 8 COMPANIES AS THE COMPARABLE S FOR BENCHMARKING THE INTERNATIONAL TRANSACTION AND ARRI VED AT AVERAGE PLI OF THE COMPARABLES AT 12.80% BASED ON EARLIER 2 YEAR DATA, THE DETAILS OF WHICH ARE AS UNDER : 26 SINCE THE PLI MARGIN OF THE COMPANY IS 16%, IT WAS CLAIMED THAT THE TRANSACTION WAS AT ARMS LENGTH PRICE. 13.2 DURING TP PROCEEDINGS THE TPO CONSIDERED THE D ETAILS OF COMPARABLES SELECTED BY THE ASSESSEE FOR BENCHMARKI NG INTERNATIONAL TRANSACTION FOR A.Y. 2007-08 AND 2008-09, VIS--VIS THE COMPARABLES SELECTED BY THE TPO FOR A.Y. 2007-08 AN D 2008-09. HE NOTED THAT THE SEARCH CRITERIA AND THE ACCEPTANC E REJECTION MATRIX SR. NO. COMPANY NAME OP/TC FY2006 - 07 FY2007 - 08 2YEARS WA PROWESS 1 A BM KNOWLEDGEWARE LTD. 12.02% 42.11% 28.91% 2 ACCEL TRANSMATIC LTD. (SOFTWARE SERVICES SEGMENT) 6.96% 14.17% 10.58% 3 COMPULINK SYSTEMS LTD. (SOFTWARE SERVICES SEGMENT) - 0.59% 10.81% 5 - 17% 4 SAGARSOFT (INDIA) LTD. 22.82% 6.44% 11.97% 5 SYNETAIROS TECHNOLOGIES LTD. 26.95% 22.98% 24.93% PROWESS SEGMENTAL 6 KERALA AYURVEDA LTD. (HEALTHCARE SOFTWARE BUSINESS SEGMENT) 34.75% - 5.78% 9 - 53% CAPITALINE 7 SAARC NET LTD. (COMPUTER SOFTWARE SEGMENT) 1.36% 1.99% 1.57% 8 VAM A INDUSTRIES LTD. (SOFTWARE DEVELOPMENT & SERVICES SEGMENT) 11.01% 8.99% 9.76% OP/TC FY2OO6 - O7 FY2OO7 - 08 2 YEAR W A AVERAGE (ARITHMETIC MEAN) 14.41% 12.71% 12.80% 27 APPLIED BY THE ASSESSEE FOR EXCLUDING THE COMPANIES FOR ARRIVING AT A FINAL COMPARABLES SET ARE AS UNDER : A. COMPANIES NOT HAVING FINANCIALS FOR ATLEAST 2OUT OF 3YEARS B. SALES TURNOVER MORE THAN 75% OF TOTAL INCOME IN THE LATEST YEAR C. COMPANIES NOT HAVING PROFIT BEFORE TAX OF LESS THA N ZERO FOR AT LEAST 2 OUT OF 3 YEARS D. COMPANIES WITH R&D NOT MORE THAN 3% OF SALES OF TH E LATEST YEAR E. COMPANIES WITH NFA NOT MORE THAN 200% OF SALES F. COMPANIES WITH LESS THAN ONE CRORE SALES G. COMPANIES WITH NET WORTH NOT LESS THAN ZERO IN THE LATEST YEAR H. COMPANIES HAVING GOVT OWNERSHIP I. COMPANIES HAVING GOVERNMENT OWNERSHIP J. COMPANIES HAVING DIFFERENT FUNCTIONS K. COMPANIES NOT HAVING IT-S - COMPANIES RESULTS L. COMPANIES NOT PARTIALLY ENGAGED IN IT-S COMPANIE S RESULTS 13.3 THE TPO AFTER CONSIDERING THE DETAILS FURNISHE D BY THE ASSESSEE OBSERVED THAT THE FOLLOWING ADDITIONAL/MOD IFIED FILTERS OR CRITERIA MAY LEAD TOWARDS SELECTING APPROPRIATE COM PARABLES FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE : (A) AS PER RULE 10B(4) IT IS MANDATORY TO USE THE C URRENT YEAR DATA, I.E. DATA FOR A.Y. 2008-09. HOWEVER, AS PER TP REPORT AT THE TIME OF PREPARATION OF THE SAME THE DATA FOR A. Y. 2008-09 WAS NOT AVAILABLE AND THEREFORE THE ASSESSEE HAS NO T USED THE CURRENT YEAR DATA IN ALL THE COMPARABLE COMPANIES W HICH VITIATES THE ENTIRE TP DOCUMENTATION. ACCORDING TO THE TPO AS PER THE PROVISO TO RULE 10B(4) THE EARLIER 2 YEA R DATA CAN BE USED ONLY WHEN IT IS SHOWN THAT EARLIER YEAR DAT A HAS AN INFLUENCE IN DETERMINING THE PRICE. FURTHER, SUCH DATA CAN BE USED PROVIDED THE ABOVE CONDITION IS SATISFIED AND ALSO IS IN ADDITION TO THE CURRENT YEAR DATA. SINCE THE ASSES SEE DID NOT 28 GIVE ANY REASON AS TO HOW THE EARLIER DATA HAS AN I NFLUENCE OVER THE PRICING EITHER IN THE CASE OF ASSESSEE OR IN THE CASE OF UNCONTROLLED ENTERPRISES, THEREFORE, THE TPO USED T HE CURRENT YEAR DATA ONLY, I.E. FOR F.Y. 2008-09. FURTHER, IN ABSENCE OF ANY COGENT RELEVANT AND RELIABLE EVIDENCE TO PROVE THAT THE DATA FOR PRECEDING 2 YEARS REVEALED FACTS WHICH COU LD HAVE AN INFLUENCE ON THE DETERMINATION OF THE ALP, THE TPO HELD THAT THE ASSESSEE IS NOT JUSTIFIED IN USING THE DATA PER TAINING TO THE 2 EARLIER YEARS, I.E. F.Y. 2006-07 AND 2007-08. TH E TPO THEREFORE USED ONLY THE CURRENT YEAR DATA TO THE EX CLUSION OF THE EARLIER YEAR DATA. THE TPO SELECTED THE COMPAN IES WHOSE REVENUES FROM SOFTWARE DEVELOPMENT SERVICES ARE MOR E THAN 75% OF THEIR OPERATING REVENUE OR SEGMENTAL REVENUE AS COMPARABLES AND REJECTED THE COMPANIES WITH LESS TH AN 75% EARNINGS FROM EXPORTS. SIMILARLY, HE OBSERVED THAT SINCE THE ASSESSEE IS MAINLY DEALING WITH EXPORT ORIENTED SOF TWARE DEVELOPMENT SERVICE PROVIDER, IT IS BUT NATURAL TO COMPARE THE ASSESSEE WITH COMPANIES THAT HAVE CONSEQUENT EXPORT REVENUES, I.E. ATLEAST 75% OF THEIR REVENUES GENERA TED FROM EXPORTS. APPLYING THE PROVISIONS OF RULE 10B(2) TH E TPO APPLIED THIS FILTER FOR SELECTING THE COMPARABLES. FURTHER, THE TPO APPLIED 25% RELATED PARTY TRANSACTIONS FILTER A ND THE COMPANIES WHICH HAVE RELATED PARTY TRANSACTIONS IN EXCESS OF 25% FOR THE F.Y. 2008-09 WERE ELIMINATED AS COMPARA BLES. THE TPO SIMILARLY REJECTED COMPANIES WITH DIFFERENT 29 ACCOUNTING YEAR, COMPANIES WITH PERSISTENT LOSS AND COMPANIES WITH PECULIAR CIRCUMSTANCES. 13.4 THUS, THE TPO APPLIED THE FOLLOWING FILTERS OR CRITERIA IN SEARCHING FOR THE COMPARABLES : (A) COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE F Y 2008-09 WERE EXCLUDED AND THE DATA FOR THE FY 2008- 09 HAS BEEN CONSIDERED FOR THE PERIOD FROM 01-04-2008 TO 3 1-03- 2009. (B) COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE INCOME < RS.1 CR. WERE EXCLUDED AND THE COMPANIES H AVING TURNOVER BETWEEN 1 TO 200 CRORES WERE CONSIDERED AS COMPARABLES. (C) COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE REVENUE IS LESS THAN 75% OF THE TOTAL OPERATING REV ENUE OR SEGMENTAL REVENUE WERE EXCLUDED. (D) COMPANIES WHO HAVE MORE THAN 25% RELATED PARTY TRANSACTIONS WERE EXCLUDED. (E) COMPANIES WHO HAVE LESS THAN 75% OF THE OPERAT ING REVENUE AS EXPORT SALES WERE EXCLUDED. (F) COMPANIES WHO HAVE PERSISTENT LOSSES FOR THE P ERIOD UNDER CONSIDERATION WERE EXCLUDED. (G) COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDIN G (I.E. NOT MARCH 31, 2009) OR DATA OF THE COMPANY DOES NOT FALL WITHIN 12 MONTH PERIOD I.E. 01-04-2008 TO 31-03-200 9, WERE REJECTED. HOWEVER, IF THE DATA OF AT LEAST 9 MONTHS OF FY 2008- 30 09 IS AVAILABLE FOR ANALYSIS, THEN SUCH COMPANIES W ERE CONSIDERED ACCEPTABLE PROVIDED OTHER FILTERS ARE AL SO FULFILLED. (H) COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FROM THAT OF TAXPAYER OR HAVING PECULIAR CIRCUMSTANCES WERE EXCL UDED. 13.5 ON THE BASIS OF THE ABOVE FILTERS OR CRITERIA, THE TPO ANALYSED THE COMPARABLES SELECTED BY THE ASSESSEE AND NOTED THAT NONE OF THE COMPANIES ARE COMPARABLE TO THAT OF THE ASSESSEE. THE REASONING GIVEN BY THE TPO ARE AS UNDER : SR. NO. NAME OF COMPARABLE COMPANY SELECTED BY THE ASSESSEE REMARKS OF THE TPO 1 ABM KNOWLEDGEWARE LTD. IN THIS CASE, THE FOREIGN EA RNINGS IS NIL. SINCE EXPORT TURNOVER IS LESS THAN 75% (OF THE OPERATING REVENUE, THE COMPANY IS NOT CONSIDERED AS COMPARABLE. 2 ACCEL TRANSMATIC LTD., (SOFTWARE SERVICES SEGMENT) THE ASSESSEE IS ENGAGED IN SALE OF PRODUCT, SOFTWARE SERVICES AND ANIMATION. THE TURNOVER OF SOFTWARE SERVICE IS 31% OF TOTAL TURNOVER. THE RELATED PARTY TRANSACTIONS ARE MORE THAN 25% AND THE FOREIGN EXCHANGE EARNINGS ARE LESS THAN 75%. THEREFORE THE COMPANY IS NOT CONSIDERED AS COMPARABLE. 3 SOMPULINK SYSTEMS LTD., (SOFTWARE SERVICES SEGMENT) IN THIS CASE, THE FOREIGN EXCHANGE EARNINGS ARE 47% ONLY, I.E. IN TOTAL OPERATING REVENUE OF RS.13.77 CRORES, FOREX IS 6.47 CRORES ONLY. THUS THE FOREX EXCHANGE EARNINGS ARE LESS THAN 75% OF THE OPERATING REVENUE. THEREFORE THE COMPANY IS NOT CONSIDERED AS COMPARABLE. 4 SAGARSOFT (INDIA) LTD. THIS COMPANY HAS INCURRED HEA VY LOSS IN THIS YEAR. THE RELATED PARTY TRANSACTIONS ARE MORE THAN 25%. THEREFORE, THE COMPANY IS NOT COMPARABLE TO THE ASSESSEE 5 SYNETAIROS TECHNOLOGIES LTD. IN THIS CASE, THE FOREIG N EXCHANGE EARNINGS IS NIL. SINCE EXPORT TURNOVER IS LESS THAN 75% OF THE OPERATING REVENUE, THE COMPANY IS NOT CONSIDERED AS COMPARABLE 31 6 KERALA AYURVEDA LTD., (HEALTHCARE SOFTWARE BUSINESS SEGMENT) IT IS SEEN FROM THE SEGMENT WISE PERFORMANCE MENTIONED IN THE ANNUAL REPORT THAT AYURVEDIA BUSINESS: AYURVEDA BUSINESS BEING THE MAIN BUSINESS SEGMENT OF YOUR COMPANY REGISTERED A TOTAL REVENUE OF RS.1,751.44 LACS AS AGAINST RS.1,411.60 LACS IN THE CORRESPONDING PREVIOUS FINANCIAL YEAR. HEALTHCARE SOFTWARE BUSINESS HEALTHCARE SOFTWARE BUSINESS WAS REORGANIZED WITH VIEW OF DOWNTURN IN GLOBAL HEALTHCARE SOFTWARE INDUSTRY AND MORE FOCUS WAS GIVEN ON NURSING BUSINESS WHERE WE CAN BE IN A POSITION TO PLACE NURSES IN OUR US SUBSIDIARY ONCE VISA RETROGRESSION IN US IS LIFTED AS THE REVENUE EARNING POTENTIAL IS SIGNIFICANT. THUS IT IS SEEN THAT THE ASSESSEE IS NOT IN THE SOFTWARE DEVELOPMENT BUSINESS. MOREOVER THE SEGMENTAL REVENUE IS 0.77% ONLY AS COMPARED TO THE TOTAL REVENUE. THE FOREIGN EXCHANGE EARNINGS IS ALSO LESS THAN 75%. IN THE SEGMENTAL RESULT, THE NET PROFIT IS - 63.51%. THEREFORE, THE COMPANY IS NOT COMPARABLE TO THE ASSESSEE. 7 SAARC NET LTD. (COMPUTER SOFTWARE SEGMENT) IN THIS CASE, THE SEGMENTAL REVENUE FROM SOFTWARE SERVICE IS -0.34 LAKHS IN TOTAL TURNOVER OF 4.58 CRORES. THUS IT COMES TO - 7.14% OF TOTAL TURNOVER. THERE ARE NO FOREIGN EXCHANGE EARNINGS. SIMILARLY THERE IS SEGMENTAL EXPENDITURE FOR SOFTWARE SEGMENT. HENCE THE NET RESULT OF SOFTWARE SEGMENT IS SHOWN AS -0.34 LAKHS, WHICH MEANS THAT THERE IS NO PROFIT. THEREFORE THE COMPANY IS NOT COMPARABLE TO THE ASSESSEE 8 VAMA INDUSTRIES LTD. (SOFTWARE DEVELOPMENT & SERVICES SEGMENT) IN THIS CASE, THE FOREIGN EXCHANGE EARNINGS IS 36.08%. SINCE EXPORT TURNOVER IS LESS THAN75% OF THE OPERATING REVENUE, THE COMPANY IS NOT CONSIDERED AS A COMPARABLE. THE TPO ACCORDINGLY HELD THAT THE INFORMATION AS WE LL AS THE DATA USED IN COMPUTATION OF THE ALP IS NOT RELIABLE AND CORRECT. HE THEREFORE INVOKED THE PROVISIONS OF SECTION 92C(3)( C) OF THE ACT AND REJECTED THE TP DOCUMENT. 32 13.6 THE TPO CONSIDERED THE OPERATING PROFIT TO OPE RATING COST AS THE APPROPRIATE PLI. THE PROFIT BEFORE INTEREST AND TAX WAS CONSIDERED BY HIM FOR COMPUTING THE OPERATING MARGI NS. HOWEVER, THE INCOMES AND EXPENSES RELATED TO THE OPERATIONS OF THE RELEVANT FINANCIAL YEAR ALONE WERE CONSIDERED BY HIM FOR THE COMPUTATION OF OPERATING MARGINS OF THE COMPARABLES. FOR EXAMPLE, THE FOLLOWING INCOMES, WHICH ARE NON-OPERATING IN NATURE AND NOTH ING TO DO WITH THE OPERATIONS OF THE COMPANY, WERE EXCLUDED FROM O PERATING REVENUES. I. INTEREST II. DIVIDENDS III. GAIN ON SALE OF ASSETS/INVESTMENTS IV. INCOME FROM INVESTMENTS V. GAIN ON REVALUATION OF ASSETS VI. OTHER INCOMES NOT PERTAINING TO THE OPERATIONS 13.7 THE FOLLOWING EXPENSES WHICH ARE NON-OPERATING AND PROVISIONS WERE EXCLUDED BY HIM FROM OPERATING EXPE NSES : I. PROVISIONS OTHER THAN PROVISIONS FOR BAD DEBTS II. LOSS ON SALE OF ASSETS/INVESTMENTS III. LOSS ON REVALUATION OF ASSETS IV. OTHER EXPENSES NOT PERTAINING TO THE OPERATIONS 13.8 SIMILARLY EXTRA ORDINARY EXPENSES OR INCOME WH ICH DO NOT OCCUR EVERY YEAR LIKE DONATIONS, PRELIMINARY EXPENS ES WRITTEN OFF WERE NOT CONSIDERED AS OPERATING EXPENSES AS THE CO MPARISON OF THE PROFITS ACCORDING TO HIM SHOULD BE AT SAME LEVEL FO R THE COMPARABLE WITH THAT OF THE TAX PAYER. 33 14. AFTER CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE TO THE PROPOSED COMPARABLES THE TPO FINALLY SELECTED THE F OLLOWING COMPANIES AS COMPARABLES : SR NO. NAME OF THE COMPARABLE COMPANY PLI OP/OC PLI AFTER WORKING CAPITAL ADJUSTMENT 1 THINKSOFT GLOBAL SERVICE LTD. 19 - 37 22.62 2 ACROPETAL (SEGMENTAL) 21.81 26.60 3 THIRDWARE SOLUTION LTD. 21.90 24 - 73 4 KALS INFORMATION TECHNOLOGY SYSTEM LTD. 41.91 42.89 ARITHMETIC MEAN 26.75% (104.99/4) 29.41% (117.65/4) 14.1 THE TPO ACCORDINGLY WORKED OUT THE ALP OF THE IT ENABLED SERVICES RENDERED BY THE ASSESSEE AS UNDER : DESCRIPTION RS. IN CRORES PRICE CHARGED (OPERATING REVENUE OF THE ASSESSEE) [B] 16,06,78,428 OPERATING COST (OC) 15,74,87,858 ARMS LENGTH MEAN MARGIN (OP/OC) [D] 29.41 ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACT ION [A] (ALP =OC*(1+D)) 20,38,05,037 5% RANGE ON LOWER SIDE ( THE ASSESSEE'S TRANSACTION FALLS OUTSIDE THE RANGE) 19,36,14,785 ADJUSTMENT OVER OPERATING INCOME [A-B] (SHORTFALL BE ING ADJUSTMENT U/S 92CA) 4,31,26,609 THUS, THE TPO MADE AN ADJUSTMENT OF RS.4,31,26,609/ - TO THE INTERNATIONAL TRANSACTION AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 15. BEFORE CIT(A) THE ASSESSEE CHALLENGED THE TP AD JUSTMENT MADE BY THE AO. RELYING ON VARIOUS DECISIONS IT WA S SUBMITTED THAT THE TPO ERRED IN TREATING FOREIGN EXCHANGE GAIN AS NON-OPERATING IN NATURE. ACCORDING TO THE ASSESSEE, IT SHOULD BE TR EATED AS AN 34 OPERATING INCOME. SIMILARLY, IT WAS ARGUED THAT TH E TPO HAD ERRED IN COMPUTING THE OPERATING MARGIN OF THE FOLLOWING COMPANIES : SR COMPANY NAME OP/TC AS PER TP ORD ER OP/TC REWORKED BY APPELLANT BEFORE ADJUSTMENT AFTER WC ADJUSTMENT BEFORE ADJUSTMENT AFTER WC ADJUSTMENT 1 ACROPETAL TECHNOLOGIES LTD 21.81% 26.60% 21.30 20.80% 2 KALS INFORMATION TECHNOLOGIES SYSTEMS LTD 42.55% 42.89% 41.91% 37.31% 3 THINKSOFT GLOBAL SERVICE LTD 16.61% 22.62% 19.02% 21.34% ACCORDINGLY, IT WAS ARGUED THAT THE TPO BE DIRECTED TO ADOPT THE CORRECT OPERATING MARGIN. 15.1 THE ASSESSEE ALSO CHALLENGED THE UNJUST REJECT ION OF TP STUDY FILTERS AND UNJUST INTRODUCTION OF ADDITIONAL FILTE RS FOR SELECTING FINAL SET OF COMPARABLES. IT WAS SUBMITTED THAT THE TPO HAS APPLIED FILTER OF EXCLUDING COMPANIES HAVING LESS THAN 75% OF OPER ATING REVENUE OF EXPORT SALES. THIS FILTER ACCORDING TO THE ASSE SSEE IS WITHOUT ANY BASIS AND THERE IS NO LOGIC FOR THE CRITERIA OF 75% . IF CRITERIA OF COMPARING TURNOVER OF 100% EXPORT MAKING UNIT IS TO BE USED, THEN THIS CRITERIA CAN ALSO BE RELAXED TO INCLUDE COMPAN IES HAVING TURNOVER OF HAVING MINIMUM 50% OF EXPORT TURNOVER. IT WAS ARGUED THAT EVERY GEOGRAPHICAL REGION WILL HAVE DIFFERENT COST BENEFIT ADVANTAGES. FURTHER, THIS FILTER CANNOT BE UNIFORM ALLY APPLIED TO ALL COMPARABLES AND THEREFORE IT SHOULD NOT BE APPLIED FOR SELECTION OF COMPARABLES. 35 15.2 AS REGARDS THE SELECTION OF NEW COMPARABLES BY THE TPO, IT WAS ARGUED THAT THE SAME IS UNJUST AND WITHOUT ANY VALID BASIS. AS REGARDS THINKSOFT GLOBAL SERVICE LTD. IS CONCERNED, IT WAS SUBMITTED THAT THE COMPANY DURING THE YEAR HAS EARN ED MOST OF ITS REVENUE FROM EUROPE AND IMEA WHEREAS THE ASSESSEE H AS RENDERED THE SERVICES ONLY IN USA. BESIDES THE COMPANY IS N OT APPEARING IN THE ACCEPT REJECT MATRIX OF THE SEARCH CARRIED OUT BY THE ASSESSEE. THEREFORE, THIS COMPANY CANNOT BE CONSIDERED AS COM PARABLE. 15.3 AS REGARDS ACROPETAL TECHNOLOGIES LTD. IS CONC ERNED IT WAS SUBMITTED THAT THE TPO HAS ERRED IN CONSIDERING THI S COMPANY AS FUNCTIONALLY COMPARABLE. IT WAS STATED THAT FIRST OF ALL THE COMPANY IS NOT APPEARING IN THE ACCEPT REJECT MATRIX OF THE ASSESSEE AND SECONDLY IT IS NOT FUNCTIONALLY COMPARABLE BECAUSE IT IS INVOLVED IN ENGINEERING DESIGN AND PRODUCT DEVELOPMENT. THE CO MPANY HAS DIVERSIFIED ACTIVITIES IN THE AREA OF E-LEARNING AN D HEALTHCARE MANAGEMENT ETC. THEREFORE, THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. 15.4 AS REGARDS THIRDWARE SOLUTIONS LTD. IS CONCERN ED T HE ASSESSEE ARGUED THAT THE TPOS DECISION TO ACCEPT T HE ABOVE COMPANY AS FUNCTIONALLY COMPARABLE IS INCORRECT BEC AUSE IT UNDERTAKES SOFTWARE DEVELOPMENT, TRADING OF SOFTWAR E LICENSES AND TRAINING IMPLEMENTATION ACTIVITIES APART FROM SOFTW ARE DEVELOPMENT. FURTHER, IN THE CASE OF COLT TECHNOLOGY SERVICES IN DIA (P) LTD. VS. ITO THE DELHI BENCH OF THE TRIBUNAL HAS HELD THAT T HIRDWARE SOLUTIONS LTD. IS NOT A COMPARABLE COMPANY. 36 15.5 AS REGARDS KALS INFORMATION SYSTEM LTD. IS CON CERNED, IT WAS ARGUED THAT THE TPO SELECTED THIS COMPANY ON THE BA SIS OF THE INFORMATION AVAILABLE ON THE WEBSITE OF THE COMPANY . HE WAS OF THE VIEW THAT THE COMPANY IS FUNCTIONALLY DIFFERENT AND THAT THE COMPANY HAS EARNED INCOME FROM SALE OF APPLICATION SOFTWARE AND SEGMENTAL INFORMATION WITH RESPECT TO SOFTWARE SERV ICES WERE AVAILABLE. 15.6 THE ASSESSEE ARGUED THAT THE COMPANY IS ALSO I NTO DEVELOPMENT OF SOFTWARE PRODUCTS ALONG WITH SOFTWAR E SERVICES. IT WAS SUBMITTED THAT THE COMPANY IS ALSO ENGAGED IN R ENDERING INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND IT ALSO PROVIDES TRAINING SERVICES. THE ASSESSEE REPRODUCED RELEVANT PART OF THE INFORMATION FROM THE ANNUAL REPORT OF THE COMPA NY AND SNAP SHOTS OF THE COMPANY'S WEBSITE. IT WAS STATED THAT AS MENTIONED ON THE WEBSITE OF THE COMPANY, THE COMPANY HAS DEVELOP ED TWO PRODUCTS NAMELY, VIRTUE INSURE AND LAW VISION. REL YING ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF BINDVIEW INDIA PVT. LTD., VIDE ITA NO.1386/PN/2010 FOR A.Y. 2006-07 IT WAS SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HA S REJECTED KALS INFORMATION SYSTEM LTD. AS COMPARABLE COMPANY ON TH E GROUND THAT THE COMPANY IS ENGAGED INTO DEVELOPMENT OF PRODUCT AND IS RENDERING OF ITES. 37 15.7 SO FAR AS REJECTION OF COMPARABLES SELECTED IN THE TP STUDY IS CONCERNED IT WAS SUBMITTED THAT THE TPO HAS APPLIED FILTER OF EXPORT SALES EXCEEDING 75% OF TOTAL SALES. THIS FILTER IS WITHOUT ANY LOGICAL BASIS. THEREFORE, IT WOULD BE INCORRECT TO IGNORE THE COMPANIES REJECTED BY APPLYING THIS FILTER. THE ASSESSEE ARG UED THAT THE TPO BE DIRECTED TO DROP THIS FILTER AND INCLUDE THE COMPAR ABLES SELECTED BY THE ASSESSEE IN THE TP STUDY. 15.8 AS REGARDS THE INCLUSION OF HIGH SUPER PROFIT MAKING COMPANIES IN THE FINAL SET OF COMPARABLE COMPANIES THE ASSESSEE ARGUED THAT THE TPO HAS ERRED IN CHERRY PICKING HIG H PROFIT MAKING OR SUPER PROFIT MAKING COMPANIES IN THE FINAL SET O F COMPARABLE COMPANIES. IT WAS ARGUED THAT THE COMPANIES CANNOT BE COMPARED WITH THE CAPTIVE UNIT LIKE THE ASSESSEE WHICH OPER ATES ON A RISK MITIGATED COST PLUS BUSINESS MODEL. 15.9 AS REGARDS UNJUST REJECTION OF LOSS MAKING COM PANIES IS CONCERNED THE ASSESSEE SUBMITTED THAT LOSS MAKING COMPANIES ARE AS MUCH PART AND PARCEL OF THE INDUSTRY AS ARE PROFIT MAKING COMPANIES. THE ELIMINATION OF COMPANIES MERELY BEC AUSE THEY ARE LOSS MAKING WOULD TANTAMOUNT TO ELIMINATE ONE HALF OF THE SPECTRUM OF COMPARABLE COMPANIES, LEAVING A SET OF COMPARAB LES THAT WOULD RESULT IN A SIGNIFICANTLY HIGHER MARK UP. THE ELIM INATION OF SUCH LOSS MAKING COMPANIES AND INCLUSION OF ONLY PROFIT MAKING COMPANIES IN THE SET OF COMPARABLES WOULD SKEW THE RESULT AS ARITHMETIC MEAN WOULD BE DETERMINED AT A MUCH HIGHE R VALUE THAN WHAT SHOULD ORDINARILY BE THE CASE. FOR THE ABOVE PROPOSITION THE 38 ASSESSEE RELIED ON VARIOUS DECISIONS AND PARA 36.4 OF THE OECD GUIDELINES 2010. 15.10 SO FAR AS RELATED PARTY TRANSACTION FILTER IS CONCERNED IT WAS ARGUED THAT THE TPO HAS WRONGLY APPLIED THRESHOLD O F 25% OF RPT IN PLACE OF 15% AS ADOPTED BY THE ASSESSEE. RELYIN G ON VARIOUS DECISIONS IT WAS ARGUED THAT RPT OF 15% SHOULD BE A CCEPTED AS A FILTER TO SELECT OR REJECT COMPARABLE COMPANIES. 15.11 SO FAR AS TURNOVER FILTER CRITERIA IS CONCER NED, IT WAS SUBMITTED THAT THE ASSESSEE HAS APPLIED THE TURNOVE R FILTER OF RS.10 CRORE TO RS.50 CRORES THEREBY REJECTING ALL THE COM PANIES HAVING TURNOVER LESS THAN RS.10 CRORES AND GREATER THAN RS .50 CRORES. HOWEVER, THE TPO HAS MODIFIED THE TURNOVER FILTER H AVING TURNOVER RANGE FROM RS. 1 CRORE TO RS.200 CRORES FOLLOWING T HE RATIO LAID DOWN IN THE CASE OF GENESYS INTEGRATING SYSTEMS IND IA PVT. LTD., VS. DCIT. IT WAS ARGUED THAT THE TURNOVER OF THE A SSESSEE DURING THE YEAR IS RS.16.06 CRORES. THEREFORE, THE TURNOVER F ILTER APPLIED BY THE ASSESSEE WAS PROPER. RELYING ON VARIOUS DECISIONS AND THE GUIDANCE NOTE ON REPORTING ON INTERNATIONAL TRANSACTIONS ISS UED BY THE ICAI THE ASSESSEE SUBMITTED THAT THE TURNOVER FILTER APP LIED BY THE ASSESSEE SHOULD BE ACCEPTED. 15.12 THE ASSESSEE FURTHER SUBMITTED THAT THE TPO H AS NOT GRANTED THE RISK ADJUSTMENT WHICH IS ONE OF THE IMPORTANT C ONSIDERATIONS FOR COMPARABILITY OF THE RISK UNDERTAKEN BY THE TESTED PARTY IN A CONTROLLED TRANSACTION. RELYING ON VARIOUS DECISIO NS AND THE 39 PROVISIONS OF RULE 10B(2) AND RULE 10B(3) IT WAS SU BMITTED THAT SOME RISK ADJUSTMENT HAS TO BE GRANTED SINCE THE AS SESSEE IS A RISK MITIGATED ENTITY. 15.13 THE ASSESSEE FURTHER SUBMITTED THAT THE TPO H AS ERRED IN NOT SHARING THE SEARCH STRATEGY, ACCEPT REJECT MATRIX, SOURCE OF ADDITIONAL COMPARABLES AND COMPUTATION OF OP/TC OF COMPARABLES SELECTED IN FINAL SET OF COMPARABLES EVEN THOUGH SAME WAS DEMAN DED BY THE ASSESSEE DURING THE COURSE OF HEARING. IT WAS ARGU ED THAT THE RULES OF EVIDENCE DEMAND THAT THE ASSESSEE BE GIVEN THE EVID ENCE GATHERED AND INTENDED TO BE USED AGAINST THE ASSESSEE. SUCH EVIDENCE SHOULD BE OPEN TO CROSS VERIFICATION. SINCE THE INFORMATI ON USED BY THE TPO WAS NEITHER PUBLICLY NOR CONTEMPORANEOUSLY AVAI LABLE, THEREFORE, THE NEW ADDITIONAL COMPARABLE COMPANIES CONSIDERED BY THE TPO SHOULD BE REJECTED. FOR THE ABOVE PROPOSIT ION THE ASSESSEE RELIED ON VARIOUS DECISIONS. 15.14 AS REGARDS THE REJECTION OF MULTIPLE YEAR DAT A BY THE TPO AND ADOPTING SINGLE YEAR DATA, THE ASSESSEE SUBMITTED T HAT USE OF MULTIPLE YEAR DATA REDUCES VARIATION OR DISTORTION TO THE FINANCIAL RESULTS ARISING FROM THE USE OF SINGLE YEAR DATA GI VEN THE NATURE OF THE INDUSTRY AND THE CONDITION OF THE ECONOMY. USE OF SINGLE YEAR DATA OF THE COMPARABLE COMPANIES MAY NOT ADEQUATELY CAPTURE THE MARKET AND BUSINESS CYCLE OF THE INDUSTRY. FOR THE ABOVE PROPOSITION THE ASSESSEE RELIED ON THE OECD TP GUID ELINES WHICH ADVISES CONSIDERATION OF MULTIPLE YEAR DATA. IT WA S ALSO SUBMITTED 40 THAT THE TP RULES OF USA AND AUSTRALIA ALLOW USE OF MULTIPLE YEAR DATA. 15.15 THE ASSESSEE ALSO CHALLENGED NON-GRANTING OF BENEFIT OF +/-5% ON THE INTERNATIONAL TRANSACTION. IT WAS SUB MITTED THAT THE AMENDMENT TO PROVISION TO SECTION 92C(2) IS W.E.F. 01-10-2009. SAME CANNOT BE APPLIED WITH RETROSPECTIVE EFFECT. FINALLY, THE ASSESSEE SUBMITTED THAT IT CAN NEVER HAVE AN INTENS ION TO AVOID ANY TAXES IN INDIA AS THE PROFIT OF THE UNIT WAS EXEMPT FROM TAX. IT WAS SUBMITTED THAT THE INTERNATIONAL TRANSACTION ENTERE D INTO WITH ITS AES WERE CARRIED OUT AT THE ALP AND ANY INFERENCE THAT PROFITS HAVE BEEN SHIFTED OUTSIDE INDIA IS FACTUALLY INCORRECT. IT W AS ACCORDINGLY ARGUED THAT THE TP PRICING PROVISIONS ARE NOT APPLI CABLE TO IT. 16. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE LD.CIT(A) DIRECTED THE ASSESSING OFFICER TO EXCLUDE KALS INFORMATION SYSTEM LTD. FROM THE LIST OF COMPARABLE COMPANIES BY FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRI BUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD., (SUPRA). SIMILARLY, H E ALSO DIRECTED THE ASSESSING OFFICER TO GIVE BENEFIT OF +/-5% WITHOUT GRANTING STANDARD DEDUCTION. WHILE DOING SO, HE HELD THAT A FTER INTRODUCTION OF THE AMENDMENT TO THE SECTION 92C(2A) BY THE FINA NCE ACT, 2012 IS WITH RETROSPECTIVE EFFECT AND NOT PROSPECTIVE. HE HOWEVER, REJECTED THE OTHER GROUNDS RAISED BY THE ASSESSEE. 17. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 41 18. SO FAR AS THE GROUNDS RAISED BY THE REVENUE ARE CONCERNED, WE FIND THE SAME RELATES TO EXCLUSION OF KALS INFORMAT ION SYSTEM LTD. FROM THE LIST OF COMPARABLE COMPANIES BY THE LD.CI T(A). 19. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD., (SUPRA) FOR A.Y. 2006-07 HAS HELD THAT THE SAID COM PANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AN D IS NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES PROVIDE D BY THE ASSESSEE. SIMILARLY, THE PUNE BENCH OF THE TRIBUNA L IN THE CASE OF BITWISE SOLUTIONS PVT. LTD. (SUPRA) HAS ALSO HELD T HAT KALS INFORMATION SYSTEM LTD., CANNOT BE CONSIDERED AS CO MPARABLE. SIMILAR VIEW HAS BEEN TAKEN BY THE VARIOUS OTHER BE NCHES OF THE TRIBUNAL, THE DETAILS OF WHICH ARE GIVEN ABOVE BELO W : 1. SYMPHONY SERVICES PUNE PVT. LTD. VS. ITO ITA NO.257/PN/2013 2. PTC SOFTWARE (INDIA) PVT. LTD., - ITA NO.1605/PN /2011 3. TOLUNA INDIA PVT. LTD. VS. ACIT ITA NO.5645/DEL //2011 4. UNITED HEALTH GROUP INFORMATION SERVICES PVT. LTD ., VS. ACIT ITA NO.6312/DEL/2012 5. M/S. HCL EAI SERVICES LTD. VS. DCIT IT(TP) A.NO.1348/BANG/2011 6. INTOTO SOFTWARE INDIA PVT. LTD. VS. ACIT ITA NO.1196/HYD/2010 19.1 SINCE THE LD.CIT(A) FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL HAS REJECTED KALS INFORMATION SYSTEM LTD. HOLDING THE SAME TO BE FUNCTIONALLY DIFFERENT, THER EFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE FIND NO INFIRMITY 42 IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMI SSED. 19.2 NOW COMING TO THE GROUNDS RAISED BY THE ASSESS EE ARE CONCERNED, WE FIND GROUNDS OF APPEAL NO.5 RELATES T O INCORRECT CALCULATION OF OP/TC BY TREATING FOREIGN GAIN/LOSS AS OPERATING IN NATURE. 20. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS FOLLOWING TNMM METHOD AND WAS CONSISTENTLY TREAT ING FOREIGN FLUCTUATION LOSS/GAIN AS A PART OF THE OPERATING PR OFIT/LOSS. HOWEVER, DURING THIS YEAR THE TPO EXCLUDED THIS FROM THE OPE RATING PROFIT WHICH HAS BEEN UPHELD BY THE LD.CIT(A). REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF W ESTFALIA SEPARATOR INDIA PVT. LTD.,VS. ACIT VIDE ITA NO.4447 /DEL/2007 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HA S HELD THAT FOREIGN GAIN/LOSS IS A PART AND PARCEL OF OPERATING REVENUE /OPERATING COST. FOR THE ABOVE PROPOSITION HE REFERRED TO PARA 4.10 OF THE ORDER PLACED AT PAPER BOOK 1176 WHICH READS AS UNDER. 4.10 IN CONTRACT TO THE ABOVE, WE FIND THAT THERE IS A PLETHORA OF DECISIONS RENDERED BY VARIOUS BENCHES OF THE TRIBUNAL A CROSS THE COUNTRY HOLDING THAT FOREX GAIN/LOSS IS PART OF OPERAT ING REVENUE/COST. TO CITE A FEW, THE DELHI BENCH OF THE TRIBUNAL IN TECHBOOKS INTERNATIONAL PVT. VS. ACIT (TO WHICH ONE O F US, NAMELY, THE AM IS PARTY) HAS HELD VIDE ITS ORDER DATED 28-04-2 014 THAT FOREIGN EXCHANGE GAIN OR LOSS IS A PART AND PARCEL OF OPERATING REVENUE/OPERATING COST. THE BANGALORE BENCH OF THE TRIBUNAL IN SAP LABS INDIA (P) LTD. VS. ACIT (2010) 6 ITR (TRIB) 81 (BANG) HAS ALSO HELD THAT FOREIGN EXCHANGE GAIN SHOULD BE ADDED TO THE OPERATING REVENUE. THE MUMBAI BENCH OF THE TRIBUNAL IN RUSHABH DIAMONDS, MUMBAI VS. ACIT IN ITA NO.7217 VIDE ITS ORDE R DATED 26- 04-2013 ( TO WHICH THE AM IS PARTY) HAS ALSO HELD FOR EIGN EXCHANGE GAIN AS A PART OF OPERATING PROFIT. 43 HE ACCORDINGLY SUBMITTED THAT THE SAME SHOULD BE CO NSIDERED AS A PART OF THE OPERATING PROFIT. 21. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUBMITTED THAT AT THE TIME OF CONSIDERING ALP ONE D OES NOT CONSIDER THE FOREIGN EXCHANGE FLUCTUATION LOSS/GAIN. IT IS A GAIN OR LOSS OF BUSINESS. ALL OTHER DEDUCTIONS MAY BE ALLOWED BUT CONCEPT OF THIS LOSS CANNOT BE BROUGHT INTO ALP CALCULATION BECAUSE IT IS NOT A PART OF OPERATING COST. HE ACCORDINGLY SUBMITTED THAT T HE ORDER OF THE CIT(A) IS JUSTIFIED. HE ALSO RELIED ON THE DECISIO N OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DHL EXPRESS IN DIA PVT. LTD. VS. ACIT REPORTED IN 4650-TIOL- 379 (MUM) (ITAT). REFERRING TO THE SAFE HARBOUR GUIDELINES ISSUED BY THE CBDT HE S UBMITTED THAT FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS IS NOT A PAR T OF OPERATING COST. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT( A) SHOULD BE UPHELD. 22. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. AS REPRODUCED ABOVE IN PARA 20 IN THE ARGUM ENTS ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND THE DE LHI BENCH OF THE TRIBUNAL IN THE CASE OF WESTFALIA SEPARTATOR INDIA PVT. LTD., (SUPRA) FOLLOWING VARIOUS DECISIONS HAS HELD THAT FOREIGN E XCHANGE LOSS/GAIN IS A PART OF THE OPERATING REVENUE/COST. IN THE FO LLOWING DECISIONS ALSO (FILED IN THE PAPER BOOK BY THE ASSESSEE), IT HAS BEEN HELD THAT FOREIGN EXCHANGE FLUCTUATION CANNOT BE EXCLUDED FRO M THE COMPUTATION OF THE OPERATING MARGIN OF THE ASSESSEE COMPANY : 44 1. SAP LABS INDIA P. LTD. VS. ACIT 44 SOT 156 (BANG ) 2. PRAKASH I SHAH REPORTED IN (2008) 115 ITD 167 (M UM) (SB) 3. SMT. SUJATA GROVER VS. DY.CIT (2002) 74 TTJ (DE L) 347 4. M/S. S. NARENDRA VS. ADDL.CIT ITA NO.6839/MUM/20 12 MUMBAI TRIBUNAL 5. M/S. MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT . LTD. VS. DCIT (IT/TP A.NO.1222/BANG/2011 BANGALORE TRIBU NAL 6. M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PRIVATE LTD., VS. DCIT, ITA NO.1054/BANG/2011 BANGALORE TRIBUNAL 7. SUMIT DIAMOND (INDIA) PVT. LTD. VS. ACIT ITA NO.7148/MUM/2012 MUMBAI TRIBUNAL 8. M/S. FOURSOFT LTD. VS. THE DY.CIT ITA NO.1495/HYD /2010 9. TECHBOOKS INTERNATIONAL PVT. LTD. VS. ACIT ITA N O.722 DELHI TRIBUNAL 10. M/S. CISCO SYSTEMS (INDIA) PRIVATE LTD. VS. THE DY. CIT- IT/TP A.NO.271/BANG/2014 BANGALORE TRIBUNAL 11. M/S. MIDTECK (INDIA) LTD. VS. THE DY.CIT-IT(TP) A.NO.70/BANG/2014 BANGALORE TRIBUNAL 12. M/S. PETRO ARALDITE PVT. LTD. THE DY.CIT ITA NO.1538/MUM/2014 MUMBAI TRIBUNAL 13. ACIT VS. NGC NETWORK INDIA PVT. LTD. ITA NO.53 07/M/2008 22.1 RESPECTFULLY FOLLOWING THE DECISIONS OF THE DI FFERENT BENCHES OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF THE CIT( A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO CONSIDER FOREIG N EXCHANGE FLUCTUATION GAIN AS PART OF THE OPERATING INCOME OF THE ASSESSEE. 23. SO FAR AS GROUND OF APPEAL NO. 6 IS CONCERNED T HE SAME RELATES TO UNJUST REJECTION OF TP STUDY FILTER AND INTRODUC TION OF ADDITIONAL FILTERS FOR SELECTING FINAL SET OF COMPARABLES. 23.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR TH E ASSESSEE THAT ON ONE SIDE THE TPO HAS ARGUED THAT THERE IS NO RATION ALE FOR CONSIDERING R&D MORE THAN 3%. SUCH QUANTITATIVE FI LTER FOR REJECTING COMPANIES AT 3% IS NOT BACKED BY ANY ANAL YSIS/STUDY. HOWEVER, ON THE OTHER HAND, TPO IS APPLYING THE FIL TER OF 75% EXPORT TURNOVER WITHOUT DEMONSTRATING THE SAME ON T HE BASIS OF ANY STUDY/ANALYSIS. HE SUBMITTED THAT IF ONE HAS TO BE CONSIDER 45 PREDOMINANT EXPORT COMPANIES, THEN EVEN COMPARABLES WITH MORE THAN 50% EXPORT SHOULD BE CONSIDERED AS PREDOMINANT EXPORT COMPARABLES. CONSIDERING THAT THE STRINGENT APPLIC ABILITY OF EXPORT FILTER BY THE TPO, THAT ALSO WITHOUT ANY BASIS, RES ULTED IN INADEQUATE NUMBER OF COMPANIES HE SUBMITTED THAT EITHER THE EX PORT FILTER SHOULD BE CONSIDERED AS A QUALITATIVE PARAMETER RAT HER THAN QUANTITATIVE CRITERIA FOR REJECTION AND APPLIED ON A CASE TO CASE BASIS OR THE EXPORT FILTER SHOULD BE RELAXED TO 50% FROM 75%. REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA SOLUTIONS INDIA PVT. LTD. VS. ACIT VIDE IT A NO.5637/DEL/2011 HE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING OBSERVATION OF THE TRIBUNAL : 56. WE ARE IN AGREEMENT WITH TPO IN PRINCIPLE THA T THIS FILTER IS APPROPRIATE TO ELIMINATE THE COMPANIES WHICH HAVE C ONTROLLED TRANSACTIONS AND THEREBY HAVE A SIGNIFICANT INFLUENCE ON THE MARGINS EARNED. THE TPO IN HIS ORDER HAS OBSERVED THAT IN PRIN CIPLE THE TAX PAYER HAS NO OBJECTION FOR APPLYING THIS FILTER. HOW EVER, ITS TWO MAIN CONTENTIONS ARE-ONE-AVAILABILITY OF RPT INFORMA TION AND SECOND THE THRESHOLD LIMIT OF 15% IN PLACE OF 25%. AT THE SAME TIME WE ALSO FIND CONSIDERABLE FORCE IN THE SUBMISSION OF LD . COUNSEL FOR THE ASSESSEE THAT IDEALLY IF SUFFICIENT NUMBER OF 100% UNCONTROLLED COMPARABLES ARE FOUND, THEN NO COMPARABLE HAVING REL ATED PARTY TRANSACTIONS SHOULD BE CONSIDERED. WE ARE IN AGREEMENT WITH LD. COUNSEL THAT ONLY WHEN SUFFICIENT COMPARABLES ARE NOT FOUND, THE RELATED PARTY THRESHOLD SHOULD BE RELAXED AND ONLY GR ADUALLY TO THE EXTENT THAT SUFFICIENT COMPARABLES ARE FOUND, THE LIM IT SHOULD BE RELAXED. THEREFORE, WE ACCEPT THE ASSESSE'S PLEA THAT NO SACROSANCT THRESHOLD LIMIT SHOULD BE FIXED FOR THIS FILTER. LD. D RP HAS ALSO NOTED THAT NEITHER THERE IS ANY JUDICIAL CONSENSUS ON THE NUM ERICAL LIMIT NOR THE SECTION SO PRESCRIBES. HOWEVER, THERE IS CONSENSU S ON THE EFFECT OF RPT I.E. IT SHOULD NOT MATERIALLY AFFECT T HE INTERNATIONAL TRANSACTION. THEREFORE, CONSIDERING THE SUBMISSIONS OF BO TH THE SIDES, WE ARE OF THE OPINION THAT IF BY APPLYING THE THRESHOLD LIMIT OF 15% OF RELATED PARTY TRANSACTION, SUFFICIENT COMPARAB LES ARE AVAILABLE THEN THERE IS NO REASON TO FURTHER EXTEND THE LIMIT TO 25%. THEREFORE, WE DIRECT THE TPO TO TAKE INTO CONSIDERAT ION ONLY THOSE COMPARABLES WHERE RELATED PARTY TRANSACTIONS ARE TO TH E EXTENT OF 15% BECAUSE IT IS NOT THE CASE OF REVENUE THAT BY APPL YING THE THRESHOLD LIMIT OF 15%, IT WILL NOT GET SUFFICIENT N UMBER OF COMPARABLES. 46 24. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT S INCE 100% MATCHING IS NOT POSSIBLE. THEREFORE, REASONABLE LI MIT OF FILTERS HAS TO BE ADOPTED. HE SUBMITTED THAT IN SOFTWARE INDUS TRY THERE ARE LOTS OF DIFFERENCE BETWEEN ONSHORE AND OFF SHORE AND 100 % EOU SHOULD BE COMPARED WITH 100% EOU. SINCE THE LD.CIT(A) WHI LE REJECTING THE CLAIM OF THE ASSESSEE HAS FOLLOWED THE OECD GUI DELINES, THEREFORE, HE SUBMITTED THAT THE SAME BEING IN ORDE R SHOULD BE UPHELD. 25. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND MERIT IN THE ARGUMENT OF THE LD. CO UNSEL FOR THE ASSESSEE THAT TPO HAS APPLIED THE FILTER OF 75% EXP ORT TURNOVER WITHOUT DEMONSTRATING THE SAME ON THE BASIS OF ANY STUDY/ANALYSIS WHICH RESULTED IN INADEQUATE NUMBER OF COMPANIES FO R COMPARABILITY. IN OUR OPINION, IF SUFFICIENT NUMBE R OF 100% UNCONTROLLED COMPARABLES ARE NOT FOUND, THEN COMPAR ABLES HAVING SIMILAR TRANSACTIONS SHOULD BE CONSIDERED. IN OUR OPINION WHEN SUFFICIENT COMPARABLES ARE NOT AVAILABLE THEN THE T HRESHOLD SHOULD BE RELAXED AND ONLY GRADUALLY TO THE EXTENT THAT SUFFI CIENT COMPARABLES ARE FOUND THE LIMIT SHOULD BE RELAXED. SINCE THE T HRESHOLD FILTER OF 75% ADOPTED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) IN OUR OPINION IS ON THE HIGHER SIDE, THEREFORE, CONSI DERING THE TOTALITY OF THE FACTS OF THE CASE, WE HOLD THAT UNDER THE FA CTS AND CIRCUMSTANCES OF THE CASE, THE EXPORT FILTER SHOULD BE RELAXED TO 50% 47 FROM 75%. THIS GROUND BY THE ASSESSEE IS ACCORDING LY PARTLY ALLOWED. 26. IN GROUNDS OF APPEAL NO.7 TO 10 THE ASSESSEE HA S CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE AOS ACTION IN SELECTING CERTAIN NEW COMPARABLES AND REJECTION OF THE COMPAR ABLES SELECTED BY THE ASSESSEE IN THE TP STUDY REPORT. FURTHER TH E ABOVE GROUNDS ALSO RELATE TO INCLUSION OF HIGH/SUPER PROFIT MAKIN G COMPANIES AND EXCLUSION OF LOSS MAKING COMPANIES. 27. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. IN THE ABOVE GROUNDS, THE ASSESSEE HAS BASI CALLY CHALLENGED THE INCLUSION OF THIRDWARE SOLUTIONS LTD. AND EXCLU SION OF VAMA INDUSTRIES LTD. AS A COMPARABLE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIRDWARE SOLUTIONS LTD. SHOULD BE R EJECTED AS COMPARABLE SINCE THE MARGIN OF THIS COMPANY AT 39.7 9% IS ABNORMALLY HIGH AS COMPARED TO THE MARGIN OF THE AS SESSEE. REFERRING TO THE DECISION OF THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT VIDE ITA NO.7466/M/2012 HE SUBMITTED THAT THE SPECIAL BENCH IN THE SAID DECISION HAS HELD THAT COMPANIES EARNING HIGH PROFI T MARGIN SHOULD INVITE FURTHER INVESTIGATION TO ASCERTAIN AS TO WHE THER THE ENTITIES EARNING SUCH HIGH PROFITS SHOULD BE INCLUDED IN THE LIST OF FINAL COMPARABLES OR NOT. HE SUBMITTED THAT THIRDWARE SO LUTIONS LTD. IS ALSO ENGAGED IN TRADING OF SOFTWARE LICENCE AND TRA DING IMPLEMENTATION ACTIVITIES APART FROM SOFTWARE DEVEL OPMENT. THEREFORE, THE ABOVE ACTIVITIES RENDER THE COMPANY FUNCTIONALLY 48 DIFFERENT. REFERRING TO THE DECISIONS OF DIFFERENT BENCHES OF THE TRIBUNAL HE SUBMITTED THAT THE DIFFERENT BENCHES OF THE TRIBUNAL HAVE RULED IN FAVOUR OF THE EXCLUSION OF THIS COMPA NY OWING TO THE REASONS CITED ABOVE. 27.1 AS REGARDS THE CONTENTION OF THE CIT(A) THAT T HE REVENUE FROM THE SALE OF SOFTWARE LICENSES AND SUPPORT SERVICES IS LESS THAN 5% OF THE COMPANYS TOTAL REVENUE AND THEREFORE, THE SAME CAN BE ACCEPTED AS A COMPARABLE WITH THE ASSESSEE IS CONCERNED, HE SUBMITTED THAT THE SAME IS MISPLACED. HE SUBMITTED THAT IN ABSENC E OF THE SEGMENTAL DATA, THE IMPACT OF THE FUNCTIONALLY DIFF ERENT ACTIVITY (SALE OF SOFTWARE LICENCE AND SUPPORT) ON THE COMPANYS O VERALL PROFITABILITY CANNOT BE ASCERTAINED. THEREFORE, TH E RESULTS OF THE OVERALL OPERATION OF THE COMPANIES CANNOT BE COMPAR ED TO THAT OF THE ASSESSEE. FOR THIS PROPOSITION, HE RELIED ON THE F OLLOWING DECISIONS : 1. INTOTO SOFTWARE INDIA PRIVATE LTD. VS THE ACIT (ITA.NO.LL96/HYD/2010(HYDERABAD TRIBUNAL - PB NO. 1 307 PARA 26. 2. TOLUNA INDIA PVT. LTD VS ACIT (ITA NO. 5645/DEL /2011) PB PG 1442 3. M/S 3DPLM SOFTWARE SOLUTIONS LTD. V DCIT IT (T.P ) A. NO.L303/BANG/2012 4. M/S. BEARINGPOINT PROPERTY SERVICES PRIVATE LIMI TED VS DCIT IT(TP)A NO.1380/BANG/2012(BANGALORE TRIBUNAL) 5. COLT TECHNOLOGY SERVICES INDIA PVT. LTD., VS ITO , ITA NO.609/DEL/2011 (DELHI TRIBUNAL) 6. M/S. CONEXANT SYSTEMS PVT. LTD., VS ITO ITA NO. 1160/HYD/2011(HYDERABAD TRIBUNAL) 7. CORDYS SOFTWARE INDIA P. LTD., VS DCIT 8. INVENSYS DEVELOPMENT CENTRE (INDIA) PVT. LTD. V S THE ADDL. CIT ITA.NO.L256/HYD/2010(HYDERABAD TRIBUNAL) 9. NESS INNOVATIVE BUSINESS SERVICES P. LTD., VS DCIT ITA.NO.472/HYD/2011(HYDERABAD TRIBUNAL) 49 27.2 AS REGARDS EXCLUSION OF VAMA INDUSTRIES LTD., IS CONCERNED HE SUBMITTED THAT THE EXPORT TURNOVER OF SOFTWARE SERV ICES SEGMENT OF VAMA SOFTWARE INDUSTRIES LTD. IS 69% OF THE TOTAL S EGMENTAL TURNOVER AND THEREFORE THIS COMPARABLE SHOULD BE CO NSIDERED IN THE SET OF COMPARABLES AS IT IS PREDOMINANT INTO EXPORT BUSINESS. HE SUBMITTED THAT THE TPO REJECTED THE COMPARABLE ON T HE GROUND THAT THE EXPORT TURNOVER IS 38% OF THE TOTAL TURNOVER. HE SUBMITTED THAT THE TPO HAS TAKEN THE OVERALL TURNOVER . REFERRING TO PAGE 969 OF THE PAPER BOOK CONTAINING THE EXTRACTS OF ANNUAL RE PORT PROVIDING DETAILS OF EXPORT TURNOVER OF THE SOFTWARE SEGMENT HE REFERRED TO SCHEDULE 13 AND DREW THE ATTENTION OF THE BENCH TO THE SEGMENTAL RESULTS ACCORDING TO WHICH EXPORT TURNOVER IS 69%. HE ACCORDINGLY SUBMITTED THAT VAMA INDUSTRIES LTD. SHOULD NOT BE E XCLUDED AS A COMPARABLE. SO FAR AS THE OTHER 2 COMPARABLES TAKE N BY THE ASSESSING OFFICER/TPO ARE CONCERNED HE DID NOT CHAL LENGE THE SAME. 28. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUPPORTED THE ORDER OF THE CIT(A). HE SUBMITTED THA T ALTHOUGH FUNCTIONALLY THIRDWARE SOLUTIONS LTD. IS SIMILAR TO THAT OF THE ASSESSEE COMPANY, HOWEVER, THE ASSESSEE CHALLENGES THE SAME BECAUSE IT IS IN THE HIGH PROFIT CATEGORY. HE SUBM ITTED THAT NOWHERE IN THE ANNUAL REPORT IT IS MENTIONED THAT IT IS PRO DUCT COMPANY. REFERRING TO PAGE 739 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO SCHEDULE 12 WHICH CONTAINS THE DETAILS OF SALES. REFERRING TO THE SAME HE SUBMITTED THAT THE SALE OF LICENCE H AS BEEN SHOWN AT RS.2,32,37,588/- ON A TURNOVER OF RS.77.03 CRORES W HICH IS LESS THAN 50 5%. SIMILARLY, PURCHASE OF LICENCE HAS BEEN SHOWN AT RS.1.93 CRORES. THE MARGIN IS NOT ABNORMALLY HIGH. HE ACC ORDINGLY SUBMITTED THAT THE SAME CANNOT BE REJECTED AS A COM PARABLE. SO FAR AS VAMA INDUSTRIES LTD. IS CONCERNED, HE SUBMITTED THAT THE TURNOVER INCLUDES HARDWARE SALE ALSO. 29. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT VI DE ITA NO.7466/MUM/2012 HAS OBSERVED AS UNDER : 99. THE QUESTION NO. 2 REFERRED TO THIS SPECIAL BENC H IS AS TO WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, CO MPANIES EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD BE INCL UDED IN THE LIST OF COMPARABLE CASES FOR THE PURPOSE OF DETERMINING ARM S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. AS ALREADY OBSE RVED, THE ISSUE INVOLVED IN THIS QUESTION HAS BECOME INFRUCTUOUS IN SO F AR AS THE CASE OF THE ASSESSEE BEFORE THE SPECIAL BENCH IS CONCERNE D AND THE SAME THEREFORE NO MORE SURVIVES FOR CONSIDERATION IN T HE PRESENT CASE. IN GENERALITY, WE ARE OF THE VIEW THAT THE ANSW ER TO THIS QUESTION WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE INASMUCH AS POTENTIAL COMPARABLE EARNING ABNORMALLY H IGH PROFIT MARGIN SHOULD TRIGGER FURTHER INVESTIGATION IN ORDER TO ESTABLISH WHETHER IT CAN BE TAKEN AS COMPARABLE OR NOT. SUCH I NVESTIGATION SHOULD BE TO ASCERTAIN AS TO WHETHER EARNING OF HIGH P ROFIT REFLECTS A NORMAL BUSINESS CONDITION OR WHETHER IT IS THE RESULT O F SOME ABNORMAL CONDITIONS PREVAILING IN THE RELEVANT YEAR. THE PROFIT MARGIN EARNED BY SUCH ENTITY IN THE IMMEDIATELY PREC EDING YEAR/S MAY ALSO BE TAKEN INTO CONSIDERATION TO FIND OUT WHET HER THE HIGH PROFIT MARGIN REPRESENTS THE NORMAL BUSINESS TREND. THE FAR ANALYSIS IN SUCH CASE MAY BE REVIEWED TO ENSURE THAT THE POTENTIAL COMPARABLE EARNING HIGH PROFIT SATISFIES THE COMPARAB ILITY CONDITIONS. IF IT IS FOUND ON SUCH INVESTIGATION THAT T HE HIGH MARGIN PROFIT MAKING COMPANY DOES NOT SATISFY THE COMPARABILI TY ANALYSIS AND OR THE HIGH PROFIT MARGIN EARNED BY IT DOES NOT REFLECT THE NORMAL BUSINESS CONDITION, WE ARE OF THE VIEW THAT THE HIGH PROFIT MARGIN MAKING ENTITY SHOULD NOT BE INCLUDED IN THE L IST OF COMPARABLE FOR THE PURPOSE OF DETERMINING THE ARMS L ENGTH PRICE OF AN INTERNATIONAL TRANSACTION. OTHERWISE, THE ENTITY SATISFYING THE COMPARABILITY ANALYSIS WITH ITS HIGH PROFIT MARGIN REF LECTING NORMAL BUSINESS CONDITION SHOULD NOT BE REJECTED SOLELY ON THE BASIS OF SUCH ABNORMAL HIGH PROFIT MARGIN. QUESTION NO. 2 REFERRED TO THIS SPECIAL BENCH IS ANSWERED ACCORDINGLY. 51 29.1 WE FIND FROM THE DETAILS FURNISHED BY THE ASSE SSEE THAT THE ASSESSEE IS A SOFTWARE DEVELOPER WHEREAS THIRDWARE SOLUTIONS LTD. IS ENGAGED IN THE BUSINESS OF SALE-CUM-LICENCE OF S OFTWARE WHICH IS AVAILABLE FROM THE AUDITED ACCOUNTS, THE DETAILS OF WHICH ARE AS UNDER : SCHEDULE : SALES AS ON AS ON 31-0 3-2009 31-03-2008 SALE OF LICENCE 22,237,588 3,916,427 SOFTWARE SERVICES 89,177,023 76,724,371 EXPORT FROM SEZ UNIT 478,572,420 263,971,033 EXPORT FROM STPI UNIT 162,900,630 168,863,049 REVENUE FROM SUBSCRIPTION 16,433,714 9,293,874 770,321,376 522,768,754 APART FROM THE ABOVE THE COMPANY IS ALSO HAVING DIV IDEND INCOME, INTEREST INCOME AND PROFIT ON SALE OF INVESTMENT AS WELL AS PREMIUM OF SOFTWARE CONTRACT TOTALLING TO RS.2,30,48,603/- WHICH IS AS PER SCHEDULE-13 OTHER SOURCES. FROM THE VARIOUS DECIS IONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WE FIND THIRDWA RE SOLUTIONS LTD. HAS BEEN REJECTED ON THE GROUND THAT IT IS FUN CTIONALLY DISSIMILAR. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD. VS. ACIT AND VICEVE RSA IN CONSOLIDATED ORDER DATED 24-05-2013 FOR A.Y. 2005-0 6 AND 2007-08 AT PARA 26 OF THE ORDER HAS OBSERVED AS UNDER : 26. AS FAR AS THIRDWARE SOFTWARE SOLUTION LIMITED IS CONCERNED, WE FIND FROM THE INFORMATION FURNISHED B Y THE SAID COMPANY THAT THOUGH THE SAID COMPANY IS ALSO I NTO PRODUCT DEVELOPMENT, THERE ARE NO SOFTRWARE PRODUCT S THAT THE COMPANY INVOICED DURING THE RELEVANT FINAN CIAL 52 YEAR AND THE FINANCIAL RESULTS ARE IN RESPECT OF SE RVICES ONLY. THUS, IT IS CLEAR THAT THERE IS NO SALE OF SO FTWARE PRODUCTS DURING THE YEAR BUT THE SAID COMPANY MIGHT HAVE INCURRED EXPENDITURE TOWARDS THE DEVELOPMENT OF THE SOFTWARE PRODUCTS. 29.2 IN VARIOUS OTHER DECISIONS ALSO THIRDWARE SOLU TIONS LTD. HAS BEEN REJECTED AS A COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY DISSIMILAR. WE THEREFORE FIND FORCE IN THE SUBMISS ION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIRDWARE SOLUTIONS L TD. SHOULD NOT BE INCLUDED AS A COMPARABLE. WE ACCORDINGLY SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. 29.3 SO FAR AS EXCLUSION OF VAMA INDUSTRIES LTD., B Y THE TPO IS CONCERNED WE FIND FROM PAPER BOOK PAGE 969 THAT THE SAID COMPANY HAS GIVEN THE SEGMENT REPORTING ACCORDING TO WHICH FOR THE YEAR ENDING 31-03-2009 THE EXPORT TURNOVER OF SOFTWARE D EVELOPMENT AND SERVICES IS RS.297.83 CRORES AND THE TOTAL SOFTWARE DEVELOPMENT SERVICES (BOTH EXPORT & DOMESTIC) IS RS.430.88 CROR ES. ALTHOUGH SUCH EXPORT TURNOVER OF SOFTWARE DEVELOPMENT AND SE RVICES IS AROUND 38% OF THE TOTAL TURNOVER OF RS.806.80 CRORE S, HOWEVER, SINCE SEGMENTAL DATA IS AVAILABLE, IT COMES TO ABOU T 69% OF THE EXPORT TURNOVER. WE THEREFORE FIND MERIT IN THE SU BMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN SEGMENTAL DA TA IS AVAILABLE AND THE EXPORT TURNOVER OF THE SOFTWARE DEVELOPMENT SERVICES IS 69% OF THE TOTAL TURNOVER OF THE SOFTWARE DIVISION, THE REFORE, THE SAME SHOULD NOT HAVE BEEN REJECTED. WE THEREFORE DIRECT THE ASSESSING 53 OFFICER TO CONSIDER THE SAME AS A COMPARABLE. GROUN DS OF APPEAL NO. 7 TO 10 BY THE ASSESSEE ARE ACCORDINGLY PARTLY ALLOWED. 30. GROUNDS OF APPEAL NO.12 RELATES TO NON GRANTING OF OPPORTUNITY OF VERIFICATION. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT TPO HAS NOT PROVIDED ANY OPPO RTUNITY FOR VERIFICATION OF THE APPROACH/DATA, COMPARABILITY AN ALYSIS FOLLOWED/CONSIDERED BY THE TPO FOR IDENTIFYING THE COMPARABLE COMPANIES FOR A.Y. 2009-10 AND FOR JUSTIFYING THE R EASONS FOR NOT CONSIDERING CERTAIN COMPARABLES. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE WHEN THE TPO INTRODUCED 3 COMPARABLES, HE HAS NOT CONSIDERED THE COMPARABLES TAKEN DURING THE LAST YE AR. ACCORDING TO HIM HE COULD HAVE DONE FILTERING AND CONSIDERED THE SAME SINCE THESE ARE FUNCTIONALLY COMPARABLE FOR THE IMPUGNED ASSESSMENT YEAR ALSO. 31. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUPPORTED THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THERE CANNOT BE PRESUMPTION OF INAPPROPRIATE WORKING ON PART OF THE PUBLIC AUTHORITY. REFERRING TO THE ORDER OF THE CIT(A) HE SUBMITTED THAT THE LD.CIT(A) HAS CORRECTLY HELD THAT THERE CANNOT BE P RESUMPTION OF INAPPROPRIATE WORKING ON PART OF THE PUBLIC AUTHORI TY. THE ASSESSEE WAS CONFRONTED BY THE TPO BY ISSUING SHOW CAUSE NOT ICE. ADEQUATE OPPORTUNITY WAS GIVEN. THEREFORE, IT CANNOT BE SAI D THAT CERTAIN INFORMATION WAS USED AGAINST THE ASSESSEE WITHOUT P ROVIDING ANY OPPORTUNITY TO REBUT THE SAME. THEREFORE, THIS GRO UND SHOULD BE OUTRIGHTLY REJECTED. 54 32. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND AN Y INFIRMITY IN ORDER OF LD.CIT(A) ON THIS ISSUE. ADMITTEDLY, DURI NG TP ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE. THE MATTER WAS THOROUGHLY DISCUSSED WITH THE AUTHOR ISED REPRESENTATIVE. THEREFORE, IT CANNOT BE SAID THAT NO OPPORTUNITY WAS GRANTED TO THE ASSESSEE. THEREFORE, THIS GROUND IS DISMISSED. 33. SO FAR AS GROUND OF APPEAL NO.14 IS CONCERNED T HE SAME RELATES TO REJECTION OF MULTIPLE YEAR DATA. THE LD . COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT THE ISSUE STANDS DECI DED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF TH E TRIBUNAL IN THE CASE OF AZTECH SOFTWARE AND TECHNOLOGY SERVICES LTD ., VS. ACIT REPORTED IN 107 ITD 141 (BANG.) (SB). ACCORDINGLY, THIS GROUND BY THE ASSESSEE IS DISMISSED. 33.1 IN THE LIGHT OF OUR ABOVE DISCUSSION IN THE PR ECEDING PARAGRAPHS, WE DIRECT THE AO TO RECOMPUTE THE ARMS LENGTH PRICE. 34. GROUND OF APPEAL NO.15 IN OUR OPINION IS GENERA L GROUND WHICH DOES NOT REQUIRE ANY ADJUDICATION IN VIEW OF OUR FINDINGS GIVEN BY THE PRECEDING PARAGRAPHS. 35. GROUNDS OF APPEAL NO.16 TO 18 RELATE TO CHARGIN G OF INTEREST AND EXCESS RECOVERY OF INTEREST ETC. 35.1 AFTER HEARING BOTH SIDES WE ARE OF THE OPINION THAT THESE GROUNDS ARE MANDATORY AND CONSEQUENTIAL IN NATURE. ACCORDINGLY, THESE GROUNDS ARE DISMISSED. 55 36. GROUND OF APPEAL NO.19 RELATING TO LEVY OF PENA LTY U/S.271(1)(C) OF THE I.T. ACT WHICH IN OUR OPINION IS PREMATURE AT THIS JUNCTURE. THEREFORE, THIS GROUND IS DISMISSED . 37. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 13-01-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, 13 TH JANUARY 2015. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-IT/TP, PUNE 4. THE CIT-IT/TP, PUNE 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, PUNE