Datex Ohmeda (I) Pvt Ltd.(Since merged with Wipro GE Healthcare Private Limited)., Kolkata V. D.C.I.T Cir - 2,kol., Kolkata

ITA 1848/KOL/2012

• Counselvise Citation: 184823514 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 13-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Assessee Lawyers: AJ AY AGARWAL; N VENKATRAMAN SR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Additional evidence
• Section: 144; 154; 143(3); 92; 92B; 234B

Judgement Text

I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 1 OF 15 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI SHAMIM YAHYA (ACCOUNTANT MEMBER), AND SHRI GEORGE MATHAN (JUDICIAL MEMBER) I.T.A. NO. 1848/KOL./ 2012 ASSESSMENT YEAR : 2008-2009 DATEX OHMEDA (I) PVT. LTD.,........................ ......APPELLANT (SINCE MERGED WITH WIPRO GE HEATHCARE PRIVATE LTD.) , 3, PRETORIA STREET, 3 RD FLOOR, KOLKATA-700 020 [PAN :AABCD 1182 E] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,............... ........RESPONDENT CIRCLE-2, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-700 069 APPEARANCES BY: SHRI N. VENKATRAMAN, SR. COUNSEL & SHRI AJAY AGARWA L, FCA, FOR THE ASSESSEE SHRI VARINDER MEHTA, CIT, D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : JULY 07, 2014 DATE OF PRONOUNCING THE ORDER : JULY 09, 2014 O R D E R PER GEORGE MATHAN: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ASSESSMENT ORDER PASSED BY DCIT, RANGE-2, KOLKATA UNDER SECTION 144 READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 18 TH OCTOBER, 2012 FOR THE ASSESSMENT YEAR 2008-09. 2. SHRI N. VENKATRAMAN, LD. SR. COUNSEL ALONGWITH S HRI AJAY AGARWAL, FCA REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI VARINDER MEHTA, LD. CIT (D.R.), REPRESENTED ON BEHALF OF THE REVENUE. 3. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS:- I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 2 OF 15 GENERAL GROUNDS : 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE TRANSFER PRICING OFFICER III (HEREINAFTER REFERRED TO AS LD.TPO) PASSED U/S. 92 CA(3) OF THE INCOME-TAX ACT, 1961, (HEREINAFTER REF ERRED TO AS THE ACT), SUBSEQUENTLY CONFIRMED BY THE DISPUTE RESOLUTION PANE L (HEREINAFTER REFERRED TO AS LD. PANEL) AND CONSEQUENTLY INCORPORATED BY TH E DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2, KOLKATA (HEREINAFTER REFERRED TO AS LD. AO) IN THE ASSESSMENT ORDER U/S. 143(3) R.W.S 144C(13) OF THE INCO ME-TAX ACT, 19961 (HEREINAFTER REFERRED TO AS THE ACT) IS ERRONEOUS ON FACTS AND BAD IN LAW. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. PANEL AND ACCORDINGLY THE LD. AO HAS ERRED IN MAKING AN ADJUS TMENT OF RS.69,130,255 TO THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE (HEREINAFTER REFERRED TO AS AE) SPECIAL GROUNDS : 1. WITHOUT PREJUDICE TO THE OTHER GROUND OF THE APPELL ANT, THE LD.AO, ERRED IN LAW AND IN FACTS BY NOT GIVING EFFECT TO THE DIRECTIONS I SSUED BY THE LD. PANEL UNDER SECTION 144C(5) OF THE ACT, FOR CONSIDERING THE DATE OF THE COMPARABLE COMPANIES FROM AUDITED ACCOUNTS FOR COMPUTING THE P ROFIT LEVEL INDICATOR (HEREINAFTER REFERRED TO AS PLI), WHILE DETERMININ G THE TRANSFER PRICING (HEREINAFTER REFERRED TO AS TP) ADJUSTMENT IN THE FINAL ASSESSMENT ORDER. THE ERRONEOUS APPROACH OF THE LD. TPO RESULTED IN INCREASI NG THE TP ADJUSTMENT BY RS.19,96,433 FROM RS.49,167,822 TO RS.69,130,255. THE APPELLANT HAD FILED A RECTIFICATION APPLICATION UNDER SECTION 154 OF THE ACT BEFORE THE LD. AO TO GIVE EFFECT TO THE DIRECTION PASSED BY THE LD. PANEL IN COMPUTING THE TP ADJUSTMENT. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. PANEL AND CONSEQUENTLY THE LD. AO HAS ERRED IN REJECTING THE TP STUDY UNDERTAKEN BY THE APPELLANT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WITHOU T PREJUDICE TO THE ABOVE GROUND, THE LD. PANEL AND ACCORDINGLY THE LD. AO HAS ERRED IN COMPUTING THE PLI OF COMPARABLE COMPANIES SELECTED ON THE BASIS OF A FRESH SEARCH ADOPTED BY THE LD. TPO, BY INCLUDING PROFITS EARNE D AT AN ENTITY LEVEL INSTEAD OF CONSIDERING THE PROFITS EARNED FROM THE RELEVANT TRAD ING/PRODUCT SEGMENT OF THESE COMPARABLES. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. PANEL AND CONSEQUENTLY THE LD. AO ERRED IN REJECTING THE AVAILABLE TRADING /PRODUCT SEGMENTAL INFORMATION FOR 4 COMPARABLES SELECTED BY THE LD. T PO BASED ON NON- AVAILABILITY OF SUCH TRADING/PRODUCT INFORMATION FOR ONLY ONE COMPARABLE COMPANY. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WITHOU T PREJUDICE TO THE ABOVE MENTIONED GROUNDS, THE LD. PANEL AND CONSEQUENTLY TH E LD. AO HAS ERRED IN CONSIDERING THE TOTAL COMPANY LEVEL INFORMATION FOR DETERMINING THE ARMS LENGTH PRICE, THUS MAKING TP ADJUSTMENT TO THE TRANSAC TIONS OF THE APPELLANT WITH THIRD PARTIES, WHEREAS SECTION 92 OF THE ACT IS APPLICABLE ONLY TO INTERNATIONAL TRANSACTIONS AS GIVEN IN SECTION 92B O F THE ACT, THEREBY RESULTING IN ABSURD AND ERRONEOUS TRANSFER PRICING ADJUSTMENT. I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 3 OF 15 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. PANEL AND CONSEQUENTLY THE LD. AO HAS ERRED IN NOT PROVIDING TH E BENEFIT OF 5% TOLERANCE AS PROVIDED IN THE PROVISO TO SECTION 92C(2) OF THE A CT IN DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT WITH ITS AES. 7. THE LD. PANEL AND CONSEQUENTLY THE LD. AO, ERRED IN CONFIRMING THE FRESH SEARCH FOR COMPARABILITY ANALYSIS (FY 2007-08). BY FOLLOWIN G THE SAID APPROACH THE LD. TPO HIMSELF TRAVELLED BEYOND THE DATE OF COMPLIA NCE RESULTING INTO IMPOSSIBILITY OF PERFORMANCE AND AGAINST THE PREMISE O F MAINTENANCE OF CONTEMPORANEOUS DOCUMENTATION. ACCORDINGLY, THE LD . TPO HAS WRONGLY PENALIZED THE ASSESSEE WITH THE USE OF SUCH ADDITIONA L INFORMATION AND CONSEQUENTLY CLAIMED THAT THE TP STUDY SUFFERS FROM VA RIOUS INFIRMITIES. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. PANEL AND CONSEQUENTLY THE LD. AO HAS ERRED BY DETERMINING THE ARMS LENGTH MARK-UP BASED ON THE DATA FOR FINANCIAL YEAR 2007-2008 TO T HE EXCLUSION OF PRIOR YEAR DATA [ AS CONTEMPLATED UNDER RULE 10B(4) OF THE RUL ES ]. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. PANEL AND CONSEQUENTLY THE LD. AO ERRED IN DISALLOWING THE CLAIM OF DEPREC IATION ON TECHNICAL KNOW- HOW TO THE EXTENT OF RS.4,37,994. 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. PANEL AND CONSEQUENTLY THE LD. AO ERRED IN DISALLOWING THE CL AIM OF RS. 2,92,22,652 U/S. 43B. 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. PANEL AND CONSEQUENTLY THE LD. AO ERRED IN DISALLOWING THE CLAIM OF RS.13, 58,291 ON ACCOUNT OF LEASE RENTAL. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. PANEL AND CONSEQUENTLY THE LD. AO ERRED IN DISALLOWING AN AMO UNT OF RS.79,87,091 ON AD- HOC BASIS. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. PANEL AND CONSEQUENTLY THE LD. AO ERRED IN DISALLOWING AN AMOUN T OF RS.4,05,95,283, BEING THE DIFFERENCE IN SALE AS PER AUDITED ACCOUNTS A ND SALES AS PER SALES TAX RETURN. 14. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. AO ERRED IN NOT GRANTING CREDIT FOR THE TDS OF RS.5,65,293/- CLAIME D BY THE APPELLANT. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . AO ERRED IN NOT ALLOWING THE CARRIED FORWARD LOSSES OF THE APPELLANT. 16. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. AO ERRED IN IMPOSING INTEREST U/S. 234B & 234D. 17. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND TO AL TER, AMEND, RESCIND OR MODIFY THE GROUNDS RAISED HEREINABOVE BEFORE OR AT TH E TIME OF HEARING OF THE APPEAL. I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 4 OF 15 4. AT THE TIME OF HEARING, IT WAS SUBMITTED BY THE LD. SR. COUNSEL THAT GENERAL GROUNDS NO. 1 & 2 WERE GENERAL IN NATURE AN D IN RESPECT OF SPECIAL GROUNDS, THERE WERE BASICALLY FOUR ISSUES B EING (1) TO CONSIDER THE AUDITED BALANCE-SHEET OF THE COMPARABLE CASES W HICH HAD BEEN TAKEN FOR COMPARISON FOR DETERMINING THE PROFIT LEVEL IND ICATOR (IN SHORT THE PLI) WHILE DETERMINING THE TRANSFER PRICING; (2) T O CONSIDER THE SEGMENTED DEMARCATION OF THE COMPARABLES WHILE DETE RMINING THE PROFIT LEVEL INDICATOR WHEN DETERMINING THE TRANSFER PRICI NG; (3) TO CONSIDER THE PRINCIPLE OF PROPORTIONALITY IN RESPECT OF THE ASSOCIATED ENTERPRISES AND THE NON-ASSOCIATED ENTERPRISES TRANSACTIONS OF THE ASSESSEE WHEN DETERMINING THE TRANSFER PRICING; AND (4) THE GROUN DS IN RELATION TO OTHER CORPORATE ADDITIONS. IT WAS THE SUBMISSION THAT WHE N DETERMINING THE TRANSFER PRICING ADJUSTMENTS IN THE CASE OF THE ASS ESSEE, THE TRANSFER PRICING OFFICER (IN SHORT THE TPO) HAD ADOPTED FI VE COMPARABLES NAMELY (I) ADVANCED MICRONIC DEVICES LIMITED, (II) HEMANT SURGICAL INDUSTRIES LTD., (III) PARAMOUNT SURGIMED LIMITED, (IV) RFCL L IMITED, AND (V) SOUTH INDIA SURGICAL CO. LIMITED. IT WAS THE SUBMISSION T HAT AS PER THE TRANSFER PRICING STUDY IN RESPECT OF THE ASSESSEE, THE GROSS PROFIT TO SALES RATIO WAS ARRIVED AT 27.88%. IT WAS THE SUBMISSION THAT T HE LD. TPO HAD VERIFIED THE PROWESS AND CAPITALINE DATA BASE AND H AD DETERMINED THE FIVE COMPARABLE COMPANIES AND HAD ARRIVED AT A GROS S PROFIT TO SALES RATIO AT 39.03%. CONSEQUENTLY LD. TPO HAD PROPOSED TO ADO PT THE SAID 39.03% AS THE RELEVANT GP/SALES RATIO IN THE CASE OF THE A SSESSEE AND HAD PROCEEDED TO MAKE THE ADDITION. IT WAS THE SUBMISSI ON THAT THE ISSUE WAS REFERRED TO THE DISPUTE RESOLUTION PANEL (IN SHORT THE DRP) WHO HAD DIRECTED THAT THE ASSESSING OFFICER FOR THE PURPOSE OF COMPUTATION OF THE PROFIT LEVEL INDICATOR WAS TO TAKE THE FIGURES FROM THE AUDITED ACCOUNTS AFTER VERIFICATION. HOWEVER, THE ASSESSING OFFICER WHEN COMPLETING THE ASSESSMENT DID NOT DO SO AND HAD CONSEQUENTLY VIOLA TED THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL IN ITS DIRECT IONS DATED 14.09.2012. IT WAS THE SUBMISSION THAT THE GROUND NO. 1 OF THE SPECIAL GROUNDS WAS I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 5 OF 15 AGAINST THIS ACTION OF THE ASSESSING OFFICER. LD. S R. COUNSEL DREW OUR ATTENTION TO THE PARA AFTER 4.14 WHEREIN THE DISPUT E RESOLUTION PANEL HAS DIRECTED AS FOLLOWS:- THE DATA CULLED FROM AUDITED ACCOUNTS IS THE PRIMA RY SOURCE OF PROWESS AND CAPITALINE DATA BASE. THAT BE ING SO, THE A.O. FOR THE PURPOSES OF COMPUTATION OF PLI IS DIRECTED TO TAKE THE FIGURES FROM THE AUDITED ACCOUNTS AFTER VERIFICATION. 5. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER MAY BE DIRECTED TO CONSIDER THE AUDITED ACCOUNTS OF THE COMPARABLES. I T WAS THE SUBMISSION THAT ONCE THE SAID AUDITED ACCOUNTS ARE CONSIDERED THE VARIATION IN THE GROSS PROFIT TO SALES RATIO WOULD COME DOWN FROM 39 .03% TO 35.81%. IT WAS THE FURTHER SUBMISSION THAT WHEN CONSIDERING TH E AUDITED BALANCE- SHEET AND PROFIT & LOSS A/C OF COMPARABLE CASES, TH E ASSESSING OFFICER MUST BE DIRECTED TO TAKE INTO CONSIDERATION ONLY TH E SEGMENTED PORTION OF SUCH SEGMENT AS RELATING TO COMPARABLE PRODUCTS DEA LT WITH BY THE ASSESSEE. IT WAS THE SUBMISSION THAT THE ASSESSEE I S ENGAGED IN TRADING AND PROVISION OF SERVICES IN RESPECT OF MEDICAL EQU IPMENTS. IT WAS THE SUBMISSION THAT IN RESPECT OF COMPARABLE COMPANIES, THE COMPARABLE COMPANIES HAD OTHER BUSINESS SEGMENTS ALSO. IT WAS THE FURTHER SUBMISSION THAT THE AUDITED BALANCE-SHEET AND PROFI T & LOSS ACCOUNTS OF THE COMPARABLES WHICH HAD BEEN SELECTED BY THE LD. TPO ITSELF CONTAINED THE SEGMENTS AND PROFITABILITY OF SUCH SEGMENTS AND THE GROSS PROFIT PERCENTAGE WAS CLEARLY DETERMINABLE IN RESPECT OF T HEIR BUSINESS IN DEALING MORE SO TRADING AND DISTRIBUTION IN RESPECT OF MEDICAL EQUIPMENTS. IT WAS THE SUBMISSION THAT THE ISSUE OF THE COMPARISON ON THE BASIS OF THE SEGMENTED TRANSACTIONS WAS THE VIEW EX PRESSED BY THE VARIOUS BENCHES OF THIS TRIBUNAL, A FEW OF WHICH RE FERRED TO BY THE LD. SR. COUNSEL AS NETHAWK NETWORKS INDIA PRIVATE LIMITED VS.- ITO, WARD- 3(2)(1), MUMBAI IN ITA NO. 7633/M/2012 IN PARAS 29 & 30 WHICH READ AS UNDER :- 29. ON THE OTHER HAND, LD. DR BROUGHT OUR ATTENTIO N TO THE SEGMENTAL REPORTING DATA AT PAGE 374 AND 375 OF THE PAPER BOOK AND MENTIONED THAT THE SEGMENTAL DATA RELATING TO SOFTWARE DEVELOPMENT SERVICES WAS ALONG CONSIDERED BY THE I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 6 OF 15 TPO. THEREFORE, THE ORDERS OF THE DRP / TPO DO NOT CALL ANY CHANGE. 30. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE SAID PAGES 374 & 375 OF THE PAPER BOOK AND FOUND THAT TH E ORDER OF THE DRP IS REASONABLE AND DOES NOT CALL FOR ANY INT ERFERENCE. ACCORDINGLY, WE DISMISS THE SUBMISSION OF THE LD. A R. SIMILARLY IN THE CASE OF M/S. BEARING POINT BUSINES S CONSULTING PRIVATE LTD., BANGALORE VS.- DCIT, CIRCLE-11(2), BANGALORE IN ITA NO. 1124/BANG/2011 AT PARA 5.2.3 AND 5.2.4 REFERRED TO BY THE LD. SR. COUNSEL AS UNDER :- 5.2.3. THE ABOVE COMPANIES HAVE BEEN RETAINED AS COMPARABLES IN CONFORMITY WITH THE FINDINGS OF THE EARLIER BENCH IN THE CASE OF TRILOGY E- BUSINESS (SUPRA). IT IS TO BE NOTED THAT IN THE CASE OF TRILOGY E-BUSINESS, THE TRIBUNAL TURNED DOWN THE PLEA OF THE ASSESSEE THAT M/S. MEGASOFT LTD SHOULD BE REJECTED AS COMPARABLE. HOWEVER, THE TRIBUNAL ACCEPTED THE ALTERNATIVE SUBM ISSION OF THE ASSESSEE THAT THE SEGMENTAL PROFIT MARGIN ISTO BE RECKONED WITH INSTE AD OF ENTITY LEVEL MARGIN AND HELD THAT THE PROFIT MARGIN OF 23.11% WHICH IS THE MARGIN OF THE SOFTWARE SERVICE SEGMENT BE TAKEN FOR COMPARABILITY. THE DISCUSSION AND THE FINDINGS OF THE BENCH WITH REGARD TO THE ACCEPTANCE OF THE ALTERNATIVE SU BMISSION OF THE ASSESSEE TO ADOPT THE SEGMENTAL MARGIN OF 23.11% IS REPRODUCED BELOW: 37. THE NEXT PLEA OF THE ASSESSEE IS THAT IF AT AL L THIS COMPANY IS CONSIDERED AS A COMPARABLE THEN THE SEGMENTAL MARGI N OF 23.11% (WHICH IS THE MARGIN FOR SOFTWARE SERVICE SEGMENT) ALONE SHOULD BE CONSIDERED FOR COMPARABILITY. ON THE ABOVE SUBMISSI ON, WE FIND THAT THE TPO CONSIDERED THE SEGMENTAL MARGIN (SOFTWARE SERVI CE SEGMENT) IN THE CASE OF GEOMETRIC, KALS INFO SYSTEMS, R SYSTEMS , SASKEN COMMUNICATION AND TATA ELXSI. BEFORE DRP THE ASSESS EE POINTED OUT THAT THE SEGMENTAL MARGIN OF 23.11% ALONE SHOULD BE TAKEN FOR COMPARABILITY. THE DRP HAS NOT GIVEN ANY SPECIFIC F INDING ON THE ABOVE PLEA OF THE ASSESSEE. PERUSAL OF THE ORDER OF THE T PO SHOWS THAT THE TPO RELIED ON INFORMATION WHICH WAS GIVEN BY THIS COMPA NY IN WHICH THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ ., BLUEALLY DIVISION AND XIUS-BCGI DIVISION. XIUS-BCGIDIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE (DEVELOPING SOFTWARE). THIS COMPANY DEVELOPS PACKAGED PRODUCTS FOR THE WIRELESS AND CON VERGENT TELECOM INDUSTRY. THESE PRODUCTS ARE SOLD AS PACKAGED PRODU CTS TO CUSTOMERS. WHILE IMPLEMENTING THESE STANDARDIZED PRODUCTS, CUS TOMERS MAY REQUEST THE COMPANY TO CUSTOMIZE PRODUCTS OR RECONF IGURE PRODUCTS TO FIT INTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES UP THE JOB OF CUSTOMIZING THE PACKAGED SOFTWARE. THE C OMPANY ALSO EXPLAINED THAT 30 TO 40% OF THE PRODUCT SOFTWARE (S OFTWARE DEVELOPED) WOULD CONSTITUTE PACKAGED PRODUCT AND AROUND 50% TO 60% WOULD CONSTITUTE CUSTOMIZED CAPABILITIES AND EXPENSES REL ATED TO TRAVELLING, I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 7 OF 15 BOARDING AND LODGING EXPENSE. BASED ON THE ABOVE RE PLY, THE TPO PROCEEDED TO HOLD THAT THE COMPARABLE COMPANY WAS M AINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO SOFTWARE DEVELOPMENT) INTERNALLY AND THAT THE PORTI ON OF THE REVENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUST OMIZATION WAS LESS THAN 25% OF THE OVERALL REVENUES. THE TPO THEREFORE HELD THAT LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFT WARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPOS FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. HAVIN G DRAWN THE ABOVE CONCLUSION, THE TPO DID NOT BOTHER TO QUANTIFY THE REVENUES WHICH CAN BE ATTRIBUTED TO SOFTWARE PRODUCT DEVELOPMENT AND S OFTWARE DEVELOPMENT SERVICE BUT ADOPTED THE MARGIN OF THIS COMPANY AT THE ENTITY LEVEL. IN TERMS OF RULE 10B(3)(B) OF THE RUL ES, AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TR ANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST C HARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE O PEN MARKET; OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. 38. NEITHER THE TPO NOR THE DRP HAVE NOTICED THAT THERE IS BOUND TO BE A DIFFERENCE BETWEEN THE ASSESSEE AND MEGASOFT A ND THE PROFIT ARISING TO THE MEGASOFT AS A RESULT OF THE EXISTENC E OF THE SOFTWARE PRODUCT SEGMENT AND NO FINDING HAS BEEN GIVEN THAT REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE M ATERIAL EFFECTS OF SUCH DIFFERENCES. FOR THIS REASON, WE ARE INCLINED TO HOLD THAT THE PROFIT MARGIN OF 23.11% WHICH IS THE MARGIN OF THE SOFTWAR E SERVICE SEGMENT BE TAKEN FOR COMPARABILITY... 5.2.4 IN CONFORMITY WITH THE FINDINGS OF THE EARLI ER BENCH (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE TPO WAS JUSTIFIED IN SELEC TING M/S. MEGASOFT LTD AS COMPARABLE. HOWEVER, THE AO/TPO IS DIRECTED TO TAKE SEGMENTAL MARGINS OF 23.11% FOR COMPARABILITY. IT IS ORDERED ACCORDINGLY . SIMILARLY IN THE CASE OF M/S. TRILOGY E-BUSINESS SO FTWARE INDIA PRIVATE LTD., BANGALORE VS.- DCIT, CIRCLE-12(4), BANGALORE IN ITA NO. 1054/BANG/2011 IN PARAS 37 & 38 REFERRED TO BY THE LD. SR. COUNSEL AS UNDER :- 37. THE NEXT PLEA OF THE ASSESSEE IS THAT IF AT ALL THIS COMPANY IS CONSIDERED AS A COMPARABLE THEN THE SEGMENTAL MARGIN OF 23.11% (WHI CH IS THE MARGIN FOR SOFTWARE SERVICE SEGMENT) ALONE SHOULD BE CONSIDERED FOR COMPAR ABILITY. ON THE ABOVE SUBMISSION, WE FIND THAT THE TPO CONSIDERED THE SEGMENTAL MARGI N (SOFTWARE SERVICE SEGMENT) IN THE CASE OF GEOMETRIC, KALS INFO SYSTEMS, R SYSTEMS, SASKEN COMMUNICATION AND TATA ELXSI. I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 8 OF 15 BEFORE DRP THE ASSESSEE POINTED OUT THAT THE SEGMEN TAL MARGIN OF 23.11% ALONE SHOULD BE TAKEN FOR COMPARABILITY. THE DRP HAS NOT GIVEN ANY SPECIFIC FINDING ON THE ABOVE PLEA OF THE ASSESSEE. PERUSAL OF THE ORDER OF THE TPO SHOWS TH AT THE TPO RELIED ON INFORMATION WHICH WAS GIVEN BY THIS COMPANY IN WHICH THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ., BLUEALLY DIVISION AND XIUS-BCGI DIVI SION. XIUS- BCGI DIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE (DEVELOPING SOFTWARE). TH IS COMPANY DEVELOPS PACKAGED PRODUCTS FOR THE WIRELESS ANDCONVERGENT TELECOM INDU STRY. THESE PRODUCTS ARE SOLD AS PACKAGED PRODUCTS TO CUSTOMERS. WHILE IMPLEMENTING THE SE STANDARDIZED PRODUCTS, CUSTOMERS MAY REQUEST THE COMPANY TO CUSTOMIZE PRODUC TS OR RECONFIGURE PRODUCTS TO FIT INTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPAN Y TAKES UP THE JOB OF CUSTOMIZING THE PACKAGED SOFTWARE. THE COMPANY ALSO EXPLAINED THA T 30 TO 40% OF THE PRODUCT SOFTWARE (SOFTWARE DEVELOPED) WOULD CONSTITUTE PACKAGE D PRODUCT AND AROUND 50% TO 60% WOULD CONSTITUTE CUSTOMIZED CAPABILITIES AND EXPE NSES RELATED TO TRAVELLING, BOARDING AND LODGING EXPENSE. BASED ON THE ABOVE REPLY, THE TPO PROCEEDED TO HOLD THAT THE COMPARABLE COMPANY WAS MAINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO SOFTWARE DEVELOPMENT) INTERNALLY A ND THAT THE PORTION OF THE REVENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUSTOMIZ ATION WAS LESS THAN 25% OF THE OVERALL REVENUES. THE TPO THEREFORE HELD THAT LESS TH AN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE T HE COMPARABLE SATISFIED TPOS FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPME NT SERVICES. HAVING DRAWN THE ABOVE CONCLUSION, THE TPO DID NOT BOTHER TO QUANTIFY THE REVENUES WHICH CAN BE ATTRIBUTED TO SOFTWARE PRODUCT DEVELOPMENT AND SOFTWARE DEVELOP MENT SERVICE BUT ADOPTED THE MARGIN OF THIS COMPANY AT THE ENTITY LEVEL. IN TERMS OF RULE 10B(3)(B) OF THE RULES, AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TR ANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET; OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO EL IMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. 38. NEITHER THE TPO NOR THE DRP HAVE NOTICED THAT T HERE IS BOUND TO BE A DIFFERENCE BETWEEN THE ASSESSEE AND MEGASOFT AND THE PROFIT AR ISING TO THE MEGASOFT AS A RESULT OF THE EXISTENCE OF THE SOFTWARE PRODUCT SEGMENT AND NO FIN DING HAS BEEN GIVEN THAT REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MAT ERIAL EFFECTS OF SUCH DIFFERENCES. FOR THIS REASON, WE ARE INCLINED TO HOLD THAT THE PROFIT MARGIN OF 23.11% WHICH IS THE MARGIN OF THE SOFTWARE SERVICE SEGMENT BE TAKEN FOR COMPARABIL ITY. IN VIEW OF THE ABOVE CONCLUSION, WE DO NOT WISH TO GO INTO THE QUESTION AS TO WHETHER LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE T HE COMPARABLE SATISFIED TPOS FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMEN T SERVICES. 6. IT WAS THE FURTHER SUBMISSION THAT WHEN DETERMIN ING THE ALP FOR TRANSFER PRICING, THE ASSESSEES TOTAL TURNOVER HAS BEEN CONSIDERED, WHEREAS THE ASSESSEE HAD A PORTION OF ITS TRANSACTI ONS WITH ASSOCIATED ENTERPRISES AND HAD A PORTION WITH NON-ASSOCIATED E NTERPRISES. IT WAS THE SUBMISSION THAT WHEN THE LD. TPO COMPUTED THE A LP, HE TOOK INTO CONSIDERATION EVEN THE NON-ASSOCIATED ENTERPRISES T RANSACTIONS OF THE I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 9 OF 15 ASSESSEE. IT WAS THE SUBMISSION THAT AS PER THE DEC ISION OF THE COORDINATE BENCHES OF THIS TRIBUNAL, IF ANY ADJUSTMENTS WERE T O BE MADE, SUCH ADJUSTMENTS, IF ANY, ARISING DUE TO THE COMPUTATION OF THE ALP SHOULD BE RESTRICTED ONLY TO THE INTERNATIONAL TRANSACTIONS W ITH ITS AES AND NOT TO THE ENTIRE TURNOVER OF THE ASSESSEE. FOR THIS PROPO SITION, HE RELIED UPON THE DECISION DATED 20.04.2010 OF THE COORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF M/S. STARLITE VS.- DCIT IN ITA NO. 925 /MUM/2006 FOR THE ASSESSMENT YEAR 2002-03 IN PARA 13 WHICH READS AS U NDER :- 13. AS IN THIS CASE, TPO HAS NOT APPLIED TRANSACTI ONS NET MARGIN METHOD, AS CONTEMPLATED IN THE ACT, WE HAVE NO OTHER ALTERNATIVE BUT TO SET ASIDE HER ORDER. IN AN Y EVENT AS THE ASSESSEE HAS ALSO NOT FULFILLED ITS STATUTORY O BLIGATIONS CONTEMPLATED IN CHAPTER X OF THE ACT, WE DEEM IT APPROPRIATE UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE, TO SET ASIDE THE MATTER, TO THE FILE OF THE ASSESSI NG OFFICER FOR FRESH ADJUDICATION. AS BOTH THE ASSESSEE AS WEL L AS THE ASSESSING OFFICER HAVE NOT FOLLOWED THE LAW, IN THE INTEREST OF JUSTICE WE DEEM IT APPROPRIATE TO PERMIT THE ASS ESSEE TO FURNISH A FRESH TRANSFER PRICING STUDY REPORT, IN S UPPORT OF ITS CONTENTION, THAT THE TRANSACTIONS WITH ASSOCIAT ED ENTERPRISES WERE IN FACT AT ARMS LENGTH. WE MAKE IT CLEAR THAT THE ASSESSEE WOULD BE ENTITLED TO FURNISH FRES H INFORMATION AND DOCUMENTATION, OR CHOSE A FRESH MET HOD AS PRESCRIBED, AS THE MOST APPROPRIATE METHOD, IN SUPP ORT OF ITS CASE. THE ASSESSING OFFICER AS WELL AS THE TPO SHALL EXAMINE THE REPORT AS CONTEMPLATED UNDER SECTION 92 E DE NOVO AFTER GIVING APPROPRIATE OPPORTUNITY TO THE AS SESSEE. WE ALSO AGREE WITH THE ARGUMENTS OF LEARNED COUNSEL FOR THE ASSESSEE THAT ADJUSTMENTS, IF ANY, ARISING DUE TO COMPUTATION OF ALP SHOULD BE RESTRICTED ONLY TO THE INTERNATIONAL TRANSACTIONS AND NOT TO THE ENTIRE TU RNOVER OF THE ASSESEE-COMPANY. NO ADDITION CAN BE MADE TO LOC AL TRANSACTION UNDER CHAPTER X OF THE ACT. SUCH THINGS ARE DONE ONLY WHEN THE ASSESSING OFFICER INVOKES SECTIO N 144. WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADJ USTMENTS, IF ANY ONLY TO INTERNATIONAL TRANSACTIONS, WHICH AR E FOUND BY HIM TO HAVE TAKEN PLACE AT A PRICE OTHER THAN AL P. 7. THE DECISION DATED 06.11.2009 OF HONBLE ITAT, M UMBAI BENCH IN THE CASE OF IL JIN ELECTRONICS (I) (P) LTD. VS.- A CIT, CIRCLE-11(1), NEW DELHI IN ITA NO. 438/DEL/2008 FOR THE ASSESSMENT YE AR 2003-04 IN PARA 15 OF THE SAID ORDER RELIED ON BY THE LD. SR. COUNS EL AS UNDER:- I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 10 OF 15 THE ASSESSEE HAS ALSO TAKEN ONE ALTERNATIVE GROUND OUT OF THE TOTAL RAW MATERIALS CONSUMED BY THE ASSESSEE FO R MANUFACTURING PRINT CIRCUIT BOARDS, ONLY 45.51 PER CENT OF THE TOTAL RAW MATERIALS WERE IMPORTED THROUGH ASSES SEES ASSOCIATE CONCERNS, AND, THEREFORE, ANY ADJUSTMENT, IF ANY CALLED FOR, CAN ONLY BE MADE TO THE 45.51 PER CENT OF THE TOTAL TURNOVER, AND NOT TO THE TOTAL TURNOVER OF TH E ASSESSEE. AFTER CONSIDERING THE FACTS OF THE CASE, WE DO NOT FIND ANY DIFFICULTY IN ACCEPTING THIS CONTENTION OF THE ASSESSEE THAT AT BESET ONLY 45.51 PER CENT OF THE O PERATING PROFIT CAN BE ATTRIBUTED TO IMPORTED RAW MATERIAL A CQUIRED FROM ASSESSEES ASSOCIATE CONCERNS. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS CALCULATED THE OPERATING PROF IT ON THE ENTIRE SALES OF THE ASSESSEE, WHICH IN OUR CONSIDER ED OPINION, IS NOT JUSTIFIED, WHEN IT IS ADMITTED POSI TION THAT ONLY 45.51 PER CENT OF RAW MATERIAL HAS BEEN ACQUIR ED BY THE ASSESSEE FROM ITS ASSOCIATE CONCERNS FOR THE PU RPOSE OF MANUFACTURING ITEMS. THE ASSESSEE HAS STATED THAT T HE OPERATING PROFIT IF APPLIED TO 45.51 PER CENT OF TH E TURNOVER WOULD COME TO RS.35,52,573/- AS AGAINST OPERATING P ROFIT OF RS.24,35,175/- BOOKED BY THE ASSESSEE, AND THE DIFF ERENCE THEREOF WOULD ONLY BE CALLED FOR TO BE MADE AS ADDI TION TO THE PROFIT SHOWN BY THE ASSESSEE. WE, THEREFORE, DI RECT THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT AND MAKE THE ADJUSTMENT ONLY TO THE EXTENT OF DIFFERENCE IN THE ARMS LENGTH OPERATING PROFIT WITH ADJUSTED PROFIT WITH R EFERENCE TO THE 45.51 PER CENT OF THE TURNOVER AND NOT TO TH E TOTAL TURNOVER OF THE ASSESSEE. THEREFORE, TO THIS EXTENT , THE ADDITION MADE BY THE ASSESSING OFFICER AND FURTHER CONFIRMED BY THE CIT(A) IS REDUCED. WE ORDER ACCORD INGLY. RELIANCE HAS ALSO BEEN PLACED ON THE DECISION DATED 25.02.2011 OF THE HONBLE ITAT, MUMBAI BENCH IN THE CASE OF M/S. TECN IMOUNT ICB PVT. LTD. VS.- ACIT-9(3), MUMBAI IN ITA NO. 7098/MUM/2010 FO R THE ASSESSMENT YEAR 2006-07 IN PARA 24, WHICH READS AS UNDER :- NOW, COMING TO THE MAIN ISSUE WHETHER THE SEGMENTA L RESULTS ARE TO BE TAKEN INTO CONSIDERATION OR PROFI T MARGIN AT ENTITY LEVEL IS TO BE CONSIDERED, WE FIND THAT CHAPTER-X INCORPORATES SPECIAL PROVISIONS RELATING TO AVOIDING OF TAX IN REGARD TO INTERNATIONAL TRANSACT IONS AND INCOME FROM INTERNATIONAL TRANSACTIONS HAS TO B E DETERMINED AT ARMS LENGTH PRICE. THEREFORE, AS PER THE PROVISIONS CONTAINED UNDER SECTIONS 92 TO 94, INTERNATIONAL TRANSACTIONS ARE TO BE TAKEN INTO CONSIDERATION. THEREFORE, SEGMENTAL RESULTS ARE TO BE I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 11 OF 15 CONSIDERED AND NOT THE PROFIT AT ENTITY LEVEL. AS R EGARDS THE SUBMISSIONS OF LEARNED DEPARTMENTAL REPRESENTAT IVE THAT WITH REFERENCE TO SEGMENTAL RESULTS, EACH AND EVERY INTERNATIONAL TRANSACTION HAS TO BE CONSIDERED SEPARATELY BECAUSE ALL THE ACTIVITIES ARE SEPARATE AND PROFIT MARGIN WILL BE DIFFERENT. LEARNED COUNSEL OB JECTED TO THESE SUBMISSIONS POINTING OUT THAT IT IS NOT TH E APPEAL FILED BY THE REVENUE BUT BY THE ASSESSEE. HE ALSO SUBMITTED THAT THE TRIBUNAL HAS NO POWER OF ENHANCEMENT AND ONLY SEGMENTAL RESULTS HAVE TO BE CONSIDERED. ON THIS COUNT, WE FIND THAT TPO HAS NOT AT ALL CONSIDERED THE SEGMENTAL RESULTS AND, THEREFORE, WE REFRAIN FROM MAKING ANY OBSERVATIONS WITH REFERENCE TO THE SUBMISSIONS MADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDER IT APPROPRIATE TO ONLY OBSERVE THAT THE ASSESSING OFFICER WILL CONSIDER TH E SEGMENTAL RESULTS AND DETERMINE THE ARMS LENGTH PR ICE IN ACCORDANCE WITH LAW. CONSEQUENTLY, THESE GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES IN TERM S OF OUR ABOVE OBSERVATIONS. IT WAS THUS THE PRIMARY SUBMISSION OF LD. SR. COUNS EL ON BEHALF OF THE ASSESSEE THAT IN RESPECT OF THE TRANSFER PRICING IS SUES, THE THREE PRIMARY ARGUMENTS ON BEHALF OF THE ASSESSEE WERE THAT THE C OMPUTATION OF THE ALP WAS TO BE DONE BY TAKING INTO CONSIDERATION THE AUD ITED BALANCE-SHEET OF THE COMPARABLES, CONSIDERING THE SEGMENTED DEMARCAT ION OF THE COMPARABLES IN RESPECT OF THE SEGMENT WHICH IS COMP ARABLE TO THE ASSESSEE AND APPLY THE PRINCIPLE OF PROPORTIONALITY IN RESPECT OF THE ASSOCIATED ENTERPRISES AND THE NON-ASSOCIATED ENTER PRISES TRANSACTIONS OF THE ASSESSEE. 8. IN REPLY, LD. CIT (D.R.) VEHEMENTLY SUPPORTED TH E ORDER OF THE ASSESSING OFFICER AND LD. TPO. IT WAS THE SUBMISSIO N THAT THE FACTUAL VERIFICATION OF THE COMPARABLES AND THE COMPUTATION OF THE ALP WERE LIABLE TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE- ADJUDICATION. ON THIS ISSUE, LD. SR. COUNSEL SUBMIT TED THAT HE HAD NO OBJECTION IF THE PRINCIPLES WERE LAID DOWN AND FOR FACTUAL VERIFICATION OF THE COMPARABLES AND THE QUANTIFICATION OF THE TRANS FER PRICING ADJUSTMENTS, AND ALP, WAS RESTORED TO THE FILE OF T HE ASSESSING OFFICER. IT WAS THE FURTHER SUBMISSION BY THE LD. SR. COUNSEL T HAT IN RESPECT OF I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 12 OF 15 GROUND NO. 6, 5% TOLERANCE AS PROVIDED IN THE PROVI SO TO SECTION 92C(2) OF THE ACT MAY BE GRANTED TO THE ASSESSEE WHILE DET ERMINING THE ARMS LENGTH PRICE (IN SHORT THE ALP) OF THE INTERNATIO NAL TRANSACTIONS OF THE APPELLANT WITH ASSOCIATED ENTERPRISES. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT THE OUTSET, A PERUSAL OF THE DIRECTIONS AS ISSUED BY THE DISPUTE RESOLUTI ON PANEL, WHICH HAS BEEN EXTRACTED EARLIER BEING THE PARAGRAPH AFTER 4. 14 OF THE DRPS ORDER CLEARLY SHOWS THAT THE LD. DRP HAS DIRECTED THE ASS ESSING OFFICER TO TAKE FIGURES FROM THE AUDITED ACCOUNTS AFTER VERIFICATIO N FOR THE PURPOSE OF COMPUTATION OF THE PROFIT LEVEL INDICATOR (PLI). TH IS HAS NOT BEEN DONE BY THE ASSESSING OFFICER OR THE LD. TPO. IN THESE CIRC UMSTANCES, THE ASSESSING OFFICER IS DIRECTED TO COMPLY WITH THE SAID DIRECTI ON OF THE LD. DRP WHEN COMPUTING THE PLI IN THE CASE OF THE ASSESSEE. 10. COMING TO THE ISSUE OF SEGMENTED DEMARCATION OF THE COMPARABLES, A PERUSAL OF THE DECISION AS HAS BEEN QUOTED BY THE LD. SR. COUNSEL CLEARLY SHOWS THAT IT HAS BEEN A CONSISTENT STAND THAT WHEN THE AUDITED ACCOUNTS ARE BEING CONSIDERED WHAT IS COMPARABLE IS ONLY THE COMPARABLES BETWEEN THE ASSESSEE UNDER ANALYSIS AND THE COMPARA BLE ENTITIES. ADMITTEDLY, AN ASSESSEE WHICH IS HAVING THE BUSINES S OF TRADING IN MEDICAL EQUIPMENTS, WHEN BEING SUBJECTED TO A TRANS FER PRICING STUDY, CANNOT BE COMPARED WITH A COMPARABLE COMPANY, WHICH IS HAVING MULTIPLE ACTIVITIES IN ITS TOTALITY. IN SUCH A CASE , SUCH SEGMENT OF THE COMPARABLE ENTITY WHICH IS HAVING IDENTICAL OR SIMI LAR ACTIVITIES TO THAT OF THE ASSESSEE UNDER TRANSFER PRICING STUDY IS TO BE CONSIDERED. IN THESE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL REFERRED TO SUPRA, THE ASS ESSING OFFICER IS DIRECTED TO CONSIDER ONLY THE SEGMENTED DATA OF THE COMPARABLE ENTITIES RELATING TO THE BUSINESS ACTIVITY SIMILAR TO THAT O F THE ASSESSEE TO BE CONSIDERED WHILE DETERMINING THE PLI FOR THE PURPOS E OF COMPUTING THE ALP. I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 13 OF 15 11. COMING TO THE ISSUE OF THE PRINCIPLE OF PROPORT IONALITY, IT IS NOTICED THAT THE ISSUE IN APPEAL IS A TRANSFER PRICING ISSU E, WHEREIN THE ARMS LENGTH PRICE BEING DETERMINED IN RESPECT OF THE TRA NSACTIONS BETWEEN THE ASSESSEE AND ITS INTERNATIONAL TRANSACTIONS WITH AS SOCIATED ENTERPRISES. ADMITTEDLY THE ASSESSEE HAD TRANSACTIONS WITH BOTH ASSOCIATED ENTERPRISES AND NON-ASSOCIATED ENTERPRISES. THE ARM S LENGTH PRICE IS BEING DETERMINED IN RESPECT OF THE TRANSACTIONS WIT H THE ASSOCIATED ENTERPRISES ONLY. CONSEQUENTLY THE TRANSACTIONS WIT H THE NON-ASSOCIATED ENTERPRISES CANNOT BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. THIS IS ALSO IN LINE WITH THE D ECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL REFERRED TO SUPRA. ADMITTED LY A PERUSAL OF THE AUDITED BALANCE-SHEET AND PROFIT & LOSS A/CS. OF TH E VARIOUS COMPARABLES WHICH HAVE BEEN ADOPTED BY THE LD. TPO AND COPIES O F WHICH HAVE BEEN PLACED IN THE PAPER BOOK BY THE ASSESSEE, CLEARLY S HOW THAT SOME OF THE COMPARABLES DO HAVE TRANSACTIONS WITH THEIR CONNECT ED INTERNATIONAL ASSOCIATED ENTERPRISES AS ALSO NON-ASSOCIATED ENTER PRISES SIMILAR TO THE ASSESSEE. IN MOST CASES, THE ASSOCIATED ENTERPRISES ARE FOREIGN COMPANIES/ ENTITIES. IN ONE OF THE CASES BEING HEMA NT SURGICAL INDUSTRIES INDIA LIMITED, A PERUSAL OF ITS BALANCE-SHEET AND P ROFIT & LOSS A/C. SHOWS THAT IT DOES NOT HAVE ANY INTERNATIONAL TRANSACTION WITH ANY ASSOCIATED ENTERPRISE AND ITS TRANSACTION IS EXCLUSIVELY WITH OTHER INDIAN COMPANIES. IT IS ALSO RIGHTLY POINTED OUT BY THE LD. SR. COUNS EL THAT M/S. HEMANT SURGICALS INDUSTIRES LTD. HAS ONLY ONE NATURE OF BU SINESS BEING MANUFACTURE AND SALE OF MEDICAL EQUIPMENTS. IT IS N OT PURCHASING AND SELLING ANY MEDICAL EQUIPMENT OF ANY FOREIGN COMPAN Y, AND CONSEQUENTLY THERE IS NO MULTIPLE-SEGMENTATION IN RESPECT OF ITS BUSINESS. CONSEQUENTLY THE ASSESSING OFFICER IS DIRECTED TO TAKE INTO CONS IDERATION ONLY THE TRANSACTIONS OF THE ASSESSEE AS ALSO THE COMPARABLE S WHICH ARE UNDER CONSIDERATION THAT THEY HAVE WITH THEIR RESPECTIVE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES WHEN D ETERMINING THE PLI FOR THE PURPOSE OF ARRIVING AT THE ALP. THE ASSESSI NG OFFICER IS ALSO FURTHER DIRECTED TO GRANT THE ASSESSEE 5% TOLERANCE AS PROVIDED IN THE I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 14 OF 15 PROVISO TO SECTION 92C(2) OF THE ACT IF FOUND APPLI CABLE. WITH THESE DIRECTIONS, THE ISSUES IN RESPECT OF THE TRANSFER P RICING ARE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE-COMPUTATION. 12. IN RESPECT OF GROUNDS NO. 7 & 8, IT WAS SUBMITT ED BY THE LD. SR. COUNSEL THAT THEY ARE GENERAL IN NATURE AND DO NOT NEED ANY ADJUDICATION. 13. IN RESPECT OF GROUNDS NO. 9 TO 15, IT WAS SUBMI TTED THAT THESE WERE AGAINST ADDITIONS REPRESENTING CORPORATE ADDITIONS. IT WAS THE SUBMISSION THAT THE ASSESSEE WAS UNABLE TO PRODUCE ALL EVIDENC ES IN RELATION TO THESE ADDITIONS BEFORE THE ASSESSING OFFICER IN THE COURS E OF ORIGINAL ASSESSMENT, AS THE ASSESSEE HAS BEEN DEMERGED AND T HE HEAD OFFICE OF THE COMPANY, WHICH WAS EARLIER SITUATED AT KOLKATA, WAS SHIFTED TO BANGALORE AND THE EMPLOYEES, WHO WERE ON THE PAY ROLE OF THE ASSESSEE, HAD RESIGNED AND THE BALANCES WERE RELOCATED TO BANGALO RE. ALSO WHILE SHIFTING THE OFFICE, MANY DOCUMENTS WERE MISPLACED AND NOT TRACEABLE. THE ASSESSEE HAS FILED A PETITION UNDER RULE 29 OF THE INCOME TAX APPELLATE TRIBUNAL RULES FOR ADMISSION OF SUBSTANTI AL NUMBER OF ADDITIONAL EVIDENCES. IT WAS THE SUBMISSION THAT TH E ISSUES IN GROUNDS 9 TO 15 OF THE ASSESSEES APPEAL MAY BE RESTORED TO T HE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION AS THE ASSESSEE WAS NOW IN A POSITION TO PRODUCE ALL REQUIRED EVIDENCES. IN REPLY, LD. CIT D .R. ADMITTED THAT THE ASSESSEE COULD BE GRANTED ANOTHER OPPORTUNITY. 14. WE HAVE CONSIDERED THE SUBMISSIONS AS ALSO THE APPLICATION UNDER RULE 29 OF THE ITAT RULES. A PERUSAL OF THE EVIDENC ES CLEARLY SHOWS THAT SUBSTANTIAL NUMBERS OF ADDITIONAL EVIDENCES RUNNING INTO MORE THAN NEARLY 430 PAGES HAVE BEEN PRODUCED AS ADDITIONAL E VIDENCES. THESE EVIDENCES NEED TO BE VERIFIED BY THE ASSESSING OFFI CER. CONSEQUENTLY, AS IT IS NOTICED THAT THE ASSESSEE HAS SHOWN JUSTIFIABLE REASONS FOR NON- PRODUCTION OF THE EVIDENCES BEFORE THE ASSESSING OF FICER IN THE COURSE OF ORIGINAL ASSESSMENT, THE ISSUES IN GROUNDS NO. 9 TO 15 OF THE ASSESSEES I.T.A. NO. 1848/KOL. /2012 ASSESSMENT YEAR: 2008-2009 PAGE 15 OF 15 APPEAL ARE RESTORED TO THE FILE OF THE ASSESSING OF FICER FOR RE-ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 15. GROUND NO. 16 IS AGAINST LEVY OF INTEREST UNDER SECTION 234B AND 234D, WHICH IS CONSEQUENTIAL IN NATURE. 16. GROUND NO. 17 IS AGAIN GENERAL IN NATURE AND DO ES NOT NEED ANY ADJUDICATION. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH JULY, 2014. SD/- SD/- SHAMIM YAHYA GEORGE MATHAN (ACCOUNTANT MEMBER) (JU DICIAL MEMBER) KOLKATA, THE 09 TH DAY OF JULY, 2014 COPIES TO : (1) DATEX OHMEDA (I) PVT. LTD. (SINCE MERGED WITH WIPRO GE HEATHCARE PRIVATE LTD.) , 3, PRETORIA STREET, 3 RD FLOOR, KOLKATA-700 020 (2) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-700 069 (3) COMMISSIONER OF INCOME-TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.