Microsoft Corporation (India) Private LimitedOliver Wyman Limited -India Branch Office, Gurgaon V. Deputy Commissioner of Income-tax, New Delhi

ITA 1889/DEL/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4941 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA PAL SINGH
• Keywords: Related party transaction; Transfer pricing; International transaction; Rule of consistency; Services rendered outside India; Question of law; Revised return; TDS
• Section: 43B; 143(3); 133(6); 80G; 10B; 195; 144C; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1, NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.1889/DEL/2015 (ASSESSMENT YEAR-2010-11) M/S MICROSOFT CORPORATION (INDIA) PVT. LTD., DLF EPITOME, BUILDING NO.5, DLF CYBER CITY, PHASE-3, GURGAON, HARYANA-122 002. PAN:AAACM 5586C VS. DY.CIT, CIRCLE-16(2), NEW DELHI (APPELLANT) (RESPONDENT) ITA NO.1760/DEL/2015 (ASSESSMENT YEAR-2010-11 ) DCIT, CIRCLE-16(2), NEW DELHI. VS. M/S. MICROSOFT CORPORATION (INDIA) PVT. LTD., DLF EPITOME, F-40, NDSE, PART-1, NEW DELHI-110049. PAN:AAACM 5586C (APPELLANT) (RESPONDENT) 2 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT C.O. NO.308/DEL/2015 ARISING OUT OF ITA NO.1760/DE L/2015 (ASSESSMENT YEAR-2010-11) M/S. MICROSOFT CORPORATION (INDIA) PVT. LTD., 807, NEW DELHI HOUSE, BARAKHAMBA ROAD, NEW DELHI-110 001 PAN:AAACM 5586C VS. DCIT, CIRCLE-16(2), NEW DELHI. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY SH. NAGESHWAR RAO, ADV. RESPONDENT BY SH. SURENDRA PAL SINGH, CIT-DR DATE OF HEARING 16.07.2020 DATE OF PRONOUNCEMENT 12.10.2020 ORDER PER SUDHANSHU SRIVASTAVA, JM: ITA NO.1760/DEL/2015 IS THE APPEAL OF THE DEPARTMEN T AGAINST THE FINAL ASSESSMENT ORDER DATED 29.01.2015 PASSED IN PURSUANCE TO THE DIRECTIONS OF THE LD. DISPUTE RESO LUTION PANEL (DRP) VIDE DIRECTIONS DATED 28.11.2014 FOR ASSESSME NT YEAR 2010- 11. ITA NO.1889/DEL/2015 IS THE ASSESSEES APPEAL F OR THE SAME YEAR. ALSO CROSS OBJECTION NO.308/DEL/2015 HAS BEEN PREFERRED BY THE ASSESSEE. 3 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY WAS INCORPORATED IN JULY, 1988 AS A WHOLLY OWNED SUBSI DIARY OF MICROSOFT CORPORATION, US. THE COMPANY IS PRIMARILY ENGAGED IN RENDERING MARKETING SUPPORT SERVICES (MSS) TO ITS ASSOCIATED ENTERPRISES (AES) I.E. MICROSOFT CORPORATION AND MI CROSOFT OPERATIONS PVT. LTD., SINGAPORE. IT ALSO PROVIDES M ICROSOFT CONSULTANCY SERVICES AND PRODUCT SUPPORT SERVICES. FOR THE PROVISIONS OF THESE SERVICES, THE ASSESSEE IS REMUN ERATED ON COST PLUS 15 % BY THE AES. 2.1 THE RETURN OF INCOME FOR THE CAPTIONED YEAR WAS FILED DECLARING A TOTAL INCOME OF RS.20,63,87,027/- AFTER CLAIMING DEDUCTION U/S 80G AMOUNTING TO RS.1,08,62,475/-. SU BSEQUENTLY, THE ASSESSEE REVISED THE RETURN OF INCOME DISCLOSIN G TOTAL INCOME AT RS.20,81,82,464/-. SINCE, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS DURING THE YEAR UNDER CO NSIDERATION, A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) AND THE TPO PASSED THE ORDER U/S 92CA (3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) PROPOSING AN ADJUSTM ENT OF 4 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT RS.58,49,85,516/- ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH PRICE (ALP). THE SUMMARY OF ADJUSTMENTS PROPOSED BY THE T PO IS AS UNDER: (I) MARKETING SUPPORT SERVICES- RS.53,68,71,251/- (II) MANAGEMENT CONSULTING SERVICES AND PROJECT CO NSULTING SERVICES - RS.4,81,14,265/- 2.2 THE DRAFT ASSESSMENT ORDER WAS PASSED COM PUTING THE TOTAL TAXABLE INCOME OF THE ASSESSEE COMPANY AT RS. 1,51,70,12,290/- AFTER INCORPORATING THE ADJUSTMENT PROPOSED BY THE TPO. 2.3 THE ASSESSEE FILED ITS OBJECTIONS AGAINST THE DRAFT ASSESSMENT ORDER BEFORE THE LD. DRP AND THE DRP SUB SEQUENTLY ISSUED DIRECTIONS AFTER WHICH THE FINAL ASSESSMENT O RDER WAS PASSED COMPUTING THE TOTAL INCOME OF THE ASSESSEE AT RS.26 ,37,51,463/- AFTER MAKING THE TRANSFER PRICING ADJUSTMENT OF RS. 3,77,75,992/-, APART FROM THIS THE ASSESSING OFFICER ALSO MADE A D ISALLOWANCE OF RS.2,24,50,124/- OUT OF CAR HIRING EXPENSES AND ALS O DISALLOWED CLAIM OF EXCESS REVERSAL OF RS. 25,453,475/-. 5 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 2.4 AGGRIEVED WITH THE FINAL ASSESSMENT ORDER, THE ASSESSEE AS WELL AS THE DEPARTMENT IS NOW BEFORE THIS TRIBUNA L. THE RESPECTIVE GROUNDS RAISED BY THE PARTIES ARE AS UND ER: 2.4.1 THE FOLLOWING GROUNDS HAVE BEEN FILED BY THE ASSESSEE IN ITA NO.1889/DEL/2015: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT RESPECTFULLY CRAVES TO PREFER AN APPEAL A GAINST THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 (THE ACT) BY DEPUTY COMM ISSIONER OF INCOME-TAX - CIRCLE 16(2), NEW DELHI (LD. AO), AF TER CONSIDERING THE ADJUSTMENT PROPOSED BY THE ADDITIONAL COMMISSIO NER OF INCOME TAX, TRANSFER PRICING OFFICER- LL(2), NEW DE LHI (LD. TPO) FOR THE INTERNATIONAL TRANSACTION PERTAINING TO PRO VISION OF MICROSOFT CONSULTANCY SERVICES & PREMIER SUPPORT SE RVICES (MCS/PSS OR IMPUGNED TRANSACTION) IN HIS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT ON THE FOLLOWING G ROUNDS: EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH MAY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER. 1. THE ORDER PASSED BY LD. TPO, DRAFT ASSESSMENT ORDER PASSED BY LD. AO AND THE FINAL ASSESSMENT ORDER PAS SED, ON THE DIRECTIONS OF THE HONBLE DISPUTE RESOLUTION PANEL (HONBLE DRP), BY THE LD. AO ARE BAD IN LAW AND V OID AB- INITIO. 2. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN DETERMINING THE TOTAL INCOME OF THE APPELLANT AT RS . 26,37,51,463/- AS AGAINST A RETURNED INCOME OF RS. 20,81,82,464/- PART I - TRANSFER PRICING GROUNDS 3. THAT ON FACTS AND IN LAW, THE HONBLE DRP AN D THE LD. TPO/AO ERRED IN MAKING AN ADJUSTMENT OF INR 3,77,75 ,992 TO 6 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT THE RETURNED INCOME OF THE APPELLANT IN RESPECT OF THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION O F MCS IPSS. 4. THAT ON FACTS AND IN LAW, THE HONBLE DRP AN D THE LD. TPO/AO HAVE ERRED BY NOT FOLLOWING THE PRINCIPLE OF CONSISTENCY WHILE DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE IMPUGNED TRANSACTION BY IGNORING THE FACT THAT NO T RANSFER PRICING ADJUSTMENT HAS BEEN MADE FOR IMPUGNED TRANS ACTIONS IN PAST YEARS AND NEITHER THE FUNCTIONAL PROFILE OF AP PELLANT NOR THE METHODOLOGY ADOPTED BY THE APPELLANT TO BENCHMARK T HE SAME HAS CHANGED FROM PAST YEARS. 5. THAT ON FACTS AND IN LAW, THE HONBLE DRP AN D THE LD. TPO/AO HAVE ERRED BY NOT ACCEPTING THE ECONOMIC ANA LYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE IT RULES, AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ALP FOR THE IMPUGNED TRANSACTION AND HOLDING THAT IT IS NOT AT AN ARMS LENGTH. 6. THAT ON FACTS AND IN LAW, THE LD. AO/TPO/DR P HAVE ERRED BY 6.1 USING SINGLE YEAR DATA OF COMPANIES TO DETERMINE TH E ARMS LENGTH PRICE OF THE IMPUGNED TRANSACTION AND DISREGARDING THE APPELLANTS CLAIM FOR USE OF MULTI PLE YEAR DATA FOR COMPUTING THE ARMS LENGTH PRICE; AND 6.2 REJECTING THE DATA USED BY THE APPELLANT WHICH WAS AVAILABLE TO IT AT THE RELEVANT TIME AND PROCEEDING TO USE THE DATA WHICH WAS AVAILABLE ONLY AT THE TIME OF TR ANSFER PRICING AUDIT. 7. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND THE LD. TPO/AO ERRED IN REJECTING CERTAIN COMPARABLES IDENT IFIED BY THE APPELLANT AND PERFORMING A FRESH COMPARABILITY ANAL YSIS BY APPLYING ARBITRARY FILTERS WITHOUT ANY RATIONALE: A) REJECTION OF COMPANIES HAVING DIFFERENT FINANCIAL Y EAR 7 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT ENDING (I.E. NOT MARCH 31, 2010) OR IF DATA OF THE COMPANY DID NOT FALL WITHIN 12 MONTH PERIOD I.E. 01 - 04-2009 TO 31 03-2010; B) REJECTION OF COMPANIES HAVING TURNOVER LESS THAN INR 5 CRORE; C) REJECTION OF COMPANIES HAVING EXPORT SALES LESS T HAN 75 PERCENT OF TOTAL SALES; D) REJECTION OF COMPANIES HAVING EMPLOYEE COST LESS THAN 25% OF TOTAL COSTS; AND E) REJECTION OF COMPANIES HAVING DIMINISHING REVENUE/PERSISTENT LOSSES TREND AND PECULIAR ECONOMIC CIRCUMSTANCES 8. THAT ON FACTS AND IN LAW, THE HONBLE DRP AN D THE LD. TPO/AO ERRED BY WRONGFULLY REJECTING CERTAIN COMPAN IES AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF COMPAR ABLES FOR THE IMPUGNED TRANSACTION OF THE APPELLANT ON AN ADHOC B ASIS. THE HONBLE DRP AND THE LD. TPO/AO HAVE RESORTED TO CHE RRY PICKING OF COMPARABLES TO DETERMINE ALP FOR THE IMP UGNED TRANSACTION. 9. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND THE LD. TPO/ AO ERRED IN LAW AND IN FACTS BY SELECTING CERT AIN COMPANIES WHICH ARE EARNING SUPER NORMAL PROFITS, A S BEING COMPARABLE TO THE APPELLANT. 10. THAT ON FACTS AND IN LAW, THE HONBLE DRP A ND THE LD. TPO/AO ERRED BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE WORKING CAPITAL EMPLOYED BY THE APPELLANT VIS-A-VIS THE COMPARABLES. 11. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND THE LD. TPO/ AO ERRED BY IGNORING THAT THE APPELLANT, BEING ONLY A CAPTIVE SERVICE PROVIDER AND A RISK FREE ENTITY, IS ENTITLED TO SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN ITS RISK PROFILE VIS-A-VIS THE COMPARABLES. 8 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 12. THAT ON FACTS AND IN LAW, THE LD. AO ERRE D IN MAKING A REFERENCE TO THE LD. TPO DESPITE THE ABSENCE OF REQ UISITE PRECONDITIONS BEING MET IN LAW. 13. THE LD. TPO HAS ERRED, IN LAW AND IN FACTS, BY NOT DISCHARGING THE STATUTORY ONUS TO ESTABLISH THAT TH E CONDITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SECTION 92C(3) OF THE ACT HAVE BEEN SATISFIED BEFORE DISREGARDING THE ALP DETERMIN ED BY THE APPELLANT AND PROCEEDED TO DETERMINE THE ALP HIMSEL F. PART II- CORPORATE TAX GROUNDS 14. THAT ON FACTS AND IN LAW, THE LD. DRP AND LD. AO HAVE ERRED IN DISALLOWING 50% OF RUNNING AND MAINTENANCE EXPENDITURE AMOUNTING TO INR 22,450,124 ON AD HOC B ASIS WITH RESPECT TO THE VEHICLES THAT WERE USED BY ITS EMPLO YEES FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. 14.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. DRP AND LD. AO HAVE ERRED IN DISREG ARDING THE FACT THAT REIMBURSEMENT BY THE APPELLANT TO EMPLOYE ES ON ACCOUNT OF RUNNING AND MAINTENANCE EXPENDITURE IS A N ACTUAL EXPENDITURE INCURRED BY THE APPELLANT WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. 14.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP AND LD. AO HAVE ERRED IN DISREGARD ING THE SUBMISSION MADE BY THE APPELLANT AND IN STATING THA T NO SPECIFIC ARGUMENT HAS BEEN EXTENDED FOR JUSTIFYING THE CLAIM TO BE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES . 15. THAT ON FACTS AND IN LAW, THE HONBLE DRP HAS ERRED IN NOT GRANTING THE RELIEF IN RESPECT OF EXCESS INCOME OF INR 25,453,475 OFFERED FOR TAXATION IN THE SUBJECT YEAR ERRONEOUSLY ON ACCOUNT OF AUTOMATIC REVERSAL OF YEAR END PROVIS IONS IN THE ACCOUNTING SYSTEM OF APPELLANT. 9 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 15.1 THAT ON THE FACTS OF CASE AND IN CIRCUMSTANCES OF THE CASE IN LAW, THE LD. AO AND THE LD. DRP HAVE ERRED IN NOT APPRECIATING THAT CLAIM MADE BY APPELLANT SHOULD BE ALLOWED AS PER THE MATCHING CONCEPT 15.2 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE LD. AO AND THE LD. DRP HAVE ERRED IN APPRECIATING P RINCIPLE LAID DOWN BY VARIOUS JUDICIAL PRECEDENTS THAT ALL THE RI GHTFUL CLAIMS MADE BY THE APPELLANT SHOULD BE ALLOWED IRRESPECTIV E OF WHETHER ANY ENTRIES ARE MADE IN BOOKS OF ACCOUNTS O R NOT 15.3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. AO AND LD. DRP HAVE GROSSLY ERR ED BY IGNORING CIRCULAR NO. 14 DATED APRIL 11, 1955 ISSUE D BY CENTRAL BOARD OF DIRECT TAXES (CBDT) WHICH CLEARLY PROVID ES THAT THE INCOME TAX OFFICERS MUST NOT TAKE ADVANTAGE OF IGNO RANCE SHOWN BY THE APPELLANT AND ALL THE LEGITIMATE CLAIM S MADE BY THE APPELLANT SHOULD BE ALLOWED. 15.4. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF ENHANCED CLAIM WITHOUT APPRECIATING THAT ADDITIO NAL CLAIM MADE BEFORE THE APPELLATE AUTHORITY SHOULD BE ADMIT TED. 16. THAT ON THE FACTS AND IN LAW, THE LD. AO HAS ERRED IN NOT ALLOWING THE ENTIRE TDS CREDIT OF INR 85,118,067 DU LY CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. 17. THAT ON THE FACTS AND IN LAW, THE LD. AO H AS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1) (C) OF THE ACT CONSEQUENT TO THE ADDITIONS MADE IN THE ASSESSMENT ORDER PASSED U/S 143(3)/ 144C(5) OF THE ACT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAV ES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE, WITHDRAW ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR A T THE TIME OF HEARING OF THE APPEAL. 10 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCES O F THE CASE. 2.4.2 THE FOLLOWING GROUNDS HAVE BEEN RAISED BY TH E DEPARTMENT IN ITA NO.1760/DEL/2015: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP ERRED IN ALLOWING THE PAYMENT OF RS. 7 0 CRORES AS A DEDUCTION U/S 43B OF THE ACT WITHOUT APPRECIATING THAT THIS WAS TO MEET OUT THE CONTINGENT LIABILITY AND NOT TO WARDS ANY ASCERTAINED LIABILITY. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE DRP ERRED IN NOT ADJUDICATING ON THE AO'S FINDING THAT IF THE DEDUCTION U/S 43B OF THE ACT AMOUNTING TO RS. 7 0 CRORES IS ALLOWED, THE INCOME OF THE ASSESSEE WOULD BE CORRES PONDINGLY ENHANCED BY RS. 80.50 CRORE AS PER THE TERMS OF AGR EEMENT OF THE ASSESSEE WITH ITS PARENT COMPANY AS THE ASSESSE E CANNOT CLAIM EXPENDITURE WITHOUT RECOGNIZING CORRESPONDING REVENUE. 3. THAT THE ORDER OF THE DRP IS ERRONEOUS AND IS NO T TENABLE ON FACTS AND IN LAW. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT T HE TIME OF HEARING OF THE APPEAL. 2.4.3 THE ASSESSEE HAS ALSO FILED CROSS OBJECTI ONS BY RAISING THE FOLLOWING GROUNDS: 1. THAT THE LD. ASSESSING OFFICER ('AO') HAS ERRED ON FACTS AND IN LAW IN PROPOSING ENHANCEMENT OF INCOME OF THE RE SPONDENT BY INR 80.50 CRORES WITHOUT APPRECIATING THAT THE R ESPONDENT CANNOT RECOVER THE SERVICE TAX LIABILITY PAID UNDER PROTEST AS PER THE AGREEMENT WITH THE PARENT ENTITY. 11 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 2. THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW IN PR OPOSING ENHANCEMENT OF THE INCOME BY INR 80.50 CRORES WITHO UT APPRECIATING THAT THERE IS NO INCOME ACCRUED TO THE RESPONDENT ON PAYMENT OF STATUTORY LIABILITY OF SERVICE TAX UN DER PROTEST. 3. THAT THE LD. AO HAS NOT MADE ANY SUCH SPECIFIC PROP OSAL FOR ENHANCEMENT EITHER WHILE CONDUCTING THE ASSESSM ENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT READ WI TH SECTION 144C OF THE ACT OR DURING THE PROCEEDINGS CONDUCTED BEFORE THE LD. DISPUTE RESOLUTION PANEL. 4. THAT THE LD. AO HAS ERRED OF FACTS AND IN LAW IN NO T APPRECIATING THE ORDER OF THE HON'BLE CESTAT (CUSTO MS, EXCISE, SALES TAX APPELLATE AUTHORITY) PASSED ON 23 SEPTEMB ER 2014 HOLDING THAT THE SERVICES RENDERED TO PARENT ENTITY ARE EXPORT OF SERVICES AND QUASHED THE SERVICE TAX DEMAND RAISED BY SERVICE TAX AUTHORITIES. THAT THE ABOVE GROUNDS OF CROSS OBJE CTIONS ARE WITHOUT PREJUDICE TO EACH OTHER. THAT THE RESPONDENT RESERVES ITS RIGHT TO ADD, ALTE R, AMEND OR WITHDRAW ANY GROUND OF CROSS OBJECTIONS EITHER BEFO RE OR AT THE TIME OF HEARING OF THIS APPEAL. 3.0 THE LD. AUTHORIZED REPRESENTATIVE SUBMIT TED THAT THE ASSESSEE WAS CHALLENGING THE TRANSFER PRICING ADJUST MENT OF RS.37,75,992/- AS WELL AS ADDITIONS RELATING TO COR PORATE TAX ISSUES. IT WAS SUBMITTED THAT WITH RESPECT TO THE TRA NSFER PRICING ADJUSTMENT, THE ASSESSEE WAS PRAYING FOR INCLUSION O F TWO COMPARABLES VIZ. R SYSTEMS INTERNATIONAL LIMITED AN D HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. WHICH HAD BEEN REJECTED ON 12 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT THE GROUND OF DIFFERENT FINANCIAL YEAR ENDING. IT WA S FURTHER SUBMITTED THAT THE ASSESSEE WAS ALSO PRAYING FOR EXC LUSION OF SONATA SOFTWARE LIMITED ON THE GROUND THAT IT HAD HI GH RELATED PARTY TRANSACTIONS. IT WAS FURTHER SUBMITTED THAT T HE ASSESSEE WAS ALSO REQUESTING GRANTING OF WORKING CAPITAL ADJUSTME NT. FURTHER, IT WAS SUBMITTED THAT WITH RESPECT TO CORPORATE TAX GROU ND, THE ASSESSEE WAS PRAYING FOR DELETION OF DISALLOWANCE MAD E ON ACCOUNT OF RUNNING AND MAINTENANCE OF MOTOR CARS AND ALSO F OR DELETION OF ADDITION MADE ON ACCOUNT OF ALLEGED ACCOUNTING ERRO R. 3.1 ARGUING FOR THE INCLUSION OF TWO COMPARA BLES VIZ. R SYSTEM INTERNATIONAL AND HELIOS & MATHESON INFORMAT ION TECHNOLOGY LIMITED, THE LD. AUTHORIZED REPRESENTATI VE ARGUED THAT DIFFERENT FINANCIAL YEAR ENDING IS NOT A RELEVANT B ASIS FOR EXCLUSION OF A PARTICULAR COMPARABLE. IT WAS SUBMITTED THAT TH E HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. MCKINSEY KNOWLEDGE CENTRE INDIA PVT. LTD., VIDE ORDER DATED 27.03.2015, IN IT A NO.217/2014 HAD UPHELD THE ORDER OF THE ITAT HOLDING THAT IF TH E COMPARABLE IS FUNCTIONALLY THE SAME AS THAT OF THE TESTED PARTY, THEN, THE SAME CANNOT BE REJECTED MERELY ON THE GROUND THAT DATA F OR ENTIRE 13 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT FINANCIAL YEAR IS NOT AVAILABLE. IT WAS SUBMITTED TH AT THE HONBLE DELHI HIGH COURT HAD HELD THAT IF FROM THE AVAILABL E DATA ON RECORD, THE RESULTS FOR FINANCIAL YEAR CAN BE REASO NABLY COMPILED, THEN THE COMPARABLES CANNOT BE EXCLUDED SOLELY ON T HE GROUND THAT THE COMPARABLES HAVE A DIFFERENT FINANCIAL YEA R ENDING. APART FROM THIS ORDER OF THE HONBLE DELHI HIGH COURT, TH E LD. AUTHORIZED REPRESENTATIVE ALSO PLACED RELIANCE ON NUMEROUS ORD ER OF THIS TRIBUNAL FOR THE PROPOSITION THAT A DIFFERENT FINAN CIAL YEAR ENDING CANNOT BE THE SOLE BASIS FOR REJECTING A COMPARABLE IF THE COMPARABLE IS OTHERWISE FUNCTIONALLY SIMILAR. 3.2 WITH RESPECT TO THE COMPARABLE SONATA S OFTWARE LTD., THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE RE LATED PARTY TRANSACTIONS OF THIS COMPANY WERE 53.83% WHEREAS THE TPO HIMSELF HAD APPLIED THE RPT FILTER OF 25%. IT WAS SU BMITTED THAT, THUS, EVIDENTLY, THE TPO HIMSELF HAD FAILED TO CORR ECTLY APPLY THE FILTER IN THE CASE OF THIS COMPANY. IT WAS FURTHER S UBMITTED THAT THE LD. DRP HAD ROUTINELY UPHELD THE ORDER OF THE T PO AND, THEREFORE, THE ASSESSEE WAS PRAYING FOR EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. THE LD. AUTHORI ZED 14 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT REPRESENTATIVE PLACED RELIANCE ON NUMEROUS ORDERS O F THIS TRIBUNAL WHEREIN THIS COMPANY WAS DIRECTED TO BE EXC LUDED. THE LD. AUTHORIZED REPRESENTATIVE HARPED ON THE FACT TH AT THIS COMPANY HAD CONSISTENTLY BEEN DIRECTED TO BE EXCLUD ED BY THE TRIBUNAL. 3.3 THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED TH AT GROUND NOS.10 & 11 OF THE ASSESSEES APPEAL PERTAIN TO DENIAL OF WORKING CAPITAL ADJUSTMENT WHICH HAS NOT BEEN GRANTED TO THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT WORKING CAPI TAL ADJUSTMENT WAS ALLOWED TO THE ASSESSEE COMPANY IN AS SESSMENT YEAR 2007-08. IT WAS SUBMITTED THAT WHILE DENYING THE WORKING CAPITAL ADJUSTMENT, THE TPO HAD HELD THAT THE WORKIN G CAPITAL ADJUSTMENT WAS NOT RELEVANT IN THE CASE OF A SERVICE COMPANY AND THE LD. DRP HAD UPHELD THE ACTION OF THE TPO IN THI S REGARD. IT WAS SUBMITTED THAT IT HAS BEEN THE CONSISTENT VIEW OF THIS TRIBUNAL THAT WORKING CAPITAL ADJUSTMENT WAS NECESSARY FOR AN OBJECTIVE COMPARABILITY ANALYSIS. 3.4.1 COMING TO THE CORPORATE TAX GROUNDS, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESS ING OFFICER 15 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT HAD MADE AN AD HOC DISALLOWANCE OF RS.2,24,50,124/- OUT OF RUNNING AND MAINTENANCE OF MOTOR CARS. IT WAS SUBMIT TED THAT AN IDENTICAL ISSUE HAS ARISEN IN ASSESSMENT YEAR 2007- 08 AND THIS TRIBUNAL HAD DELETED SUCH DISALLOWANCE IN ITA NO.64 17/DEL/2012 VIDE ORDER DATED 09.02.2016 AND WHICH WAS FOLLOWED BY THE TRIBUNAL IN SUCCEEDING ASSESSMENT YEARS AS WELL. IT WAS FURTHER SUBMITTED THAT THE HONBLE DELHI HIGH COURT HAD REF USED TO EVEN FRAME A SUBSTANTIAL QUESTION OF LAW ON THE ISSUE IN THE APPEAL FILED BY THE DEPARTMENT VIDE ORDER DATED 18.11.2016 IN IT A NO.33/2016. 3.4.2 COMING TO THE OTHER ISSUE RELATING TO CORPOR ATE TAX, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE AS SESSEE HAD CLAIMED A DEDUCTION OF RS.2,54,53,475/- ON ACCOUNT OF AN ACCOUNTING ERROR. THE FACTS LEADING TO THE DISPUTE ARE THAT IN FINANCIAL YEAR 2008-09, RELEVANT TO ASSESSMENT YEAR 2009-10, THE ASSESSEE COMPANY HAD BOOKED YEAR ENDING PROVISION/A CCRUALS OF RS.31,180,867/- IN ITS PROFIT & LOSS ACCOUNT AND OU T OF SUCH ACCRUALS/PROVISIONS, THE STATUTORY AUDITORS OF THE COMPANY HAD REVERSED THE ACCRUALS OF RS.2,54,53,475/- BEING EXC ESS IN NATURE 16 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT AT THE TIME OF FINALIZATION OF THE ACCOUNTS AND, TH US, ONLY NET EXPENSES OF RS.57,27,392/- HAD BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT AND HAD BEEN CLAIMED AS DEDUCTION IN T HE RETURN OF INCOME. IT WAS FURTHER SUBMITTED THAT SUBSEQUENTLY IN FINANCIAL YEAR 2009-10, I.E., RELEVANT TO THE YEAR UNDER APPE AL, THE ENTIRE AMOUNT OF RS.3,11,80,867/- WAS AUTOMATICALLY REVERS ED IN THE ACCOUNTING SYSTEM (SAP) OF THE COMPANY INSTEAD OF R EVERSING ONLY RS.57,27,392/- WHICH HAD BEEN DEBITED IN THE IMMEDIA TE PRECEDING YEARS. THUS, AN ADDITIONAL AMOUNT OF RS.2 ,54,53,473/- (BEING THE DIFFERENCE BETWEEN THE TWO AMOUNTS) HAD BEEN OFFERED TO TAX ERRONEOUSLY. IT WAS FURTHER SUBMITTED THAT IN F INANCIAL YEAR 2012-13 I.E., ASSESSMENT YEAR 2013-14, THE ASSESSEE HAD REVERSED THIS ADDITIONAL INCOME OF RS.25,45,53,475/- TO SQUA RE UP THE ACCOUNTS AND EXPENSES OF RS.2,54,53,475/- HAD BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT. THE LD. AUTHORIZED REPRE SENTATIVE SUBMITTED THAT RELIEF WITH RESPECT TO THE ADDITIONAL AMOUNT OF RS.2,54,53,475/- OFFERED TO TAX SHOULD BE ALLOWED T O THE ASSESSEE. IT WAS SUBMITTED THAT AN IDENTICAL ISSUE HAD ARISEN BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2 008-09 ALSO 17 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT AND THE ITAT IN ITA NO.6417/DEL/2012 HAD RESTORED T HIS MATTER TO THE FILE OF THE ASSESSING OFFICER FOR ALLOWING THE A SSESSEES CLAIM AFTER DUE VERIFICATION. THE LD. AUTHORIZED REPRESEN TATIVE SUBMITTED THAT ON SUCH REMAND BY THE ITAT, THE ASSE SSING OFFICER HAD ALLOWED THE ASSESSEES CLAIM AFTER VERIFICATION . THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESS EE PRAYS FOR SIMILAR RELIEF ON THE ISSUE. 4.0 IN RESPONSE TO THE ARGUMENTS ADVANCED BY THE L D. AUTHORIZED REPRESENTATIVE WITH RESPECT TO THE ASSESS EES APPEAL, ON THE ISSUE OF INCLUSION OF R SYSTEM INTERNATIONAL AND HELIOS AND METHESON INFORMATION TECHNOLOGY LTD, THE LD. SR. DE PARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE LD. DRP HAD DULY CONSIDERED ASSESSEES OBJECTIONS AND HAD, THEREAFTE R, REJECTED THE SAME. IT WAS SUBMITTED THAT THE LD. DRP HAD FOUND TH E APPROACH OF THE TPO CORRECT IN NOT INCLUDING THESE TWO COMPA RABLES. IT WAS SUBMITTED THAT RELIANCE WAS PLACED ON THE DIRECTIONS OF THE LD. DRP FOR EXCLUDING THESE TWO COMPARABLES. 4.1 WITH RESPECT TO THE ASSESSEES PRAYER FOR EXCL USION OF SONATA SOFTWARE LTD., THE LD. SR. DR AGAIN SUBMITTED THAT THE LD. 18 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT DRP HAD TAKEN THE CORRECT VIEW THAT THE OBJECTIONS O F THE ASSESSEE FOR EXCLUSION OF THIS COMPANY WERE INCORRECT. ATTEN TION WAS INVITED TO THE OBSERVATIONS OF THE LD. DRP IN THIS REGARD WH EREIN THE LD. DRP HAD HELD THAT IT WAS OF THE VIEW THAT THE CALCULA TION OF RPT BY SALES WAS CORRECT. 4.2 WITH REFERENCE TO THE ASSESSEES PRAYER FOR WO RKING CAPITAL ADJUSTMENT, THE LD. SR. DR SUBMITTED THAT THE ISSUE OF WORKING CAPITAL WAS RELEVANT ONLY WHERE THERE WAS A SITUATION OF INVENTORY REMAINING TIED UP OR RECEIVABLES BEING HELD UP. IT WAS SUBMITTED THAT THE LD. DRP HAD DIRECTED THAT SUCH SITUATION W AS NOT PRESENT IN THE CASE OF A SERVICE INDUSTRY COMPANY AND THAT THE WORKING CAPITAL ADJUSTMENT WAS REQUIRED ONLY WHEN THE VARYIN G LEVELS OF CAPITAL DEPLOYED MADE DIFFERENCE TO THE MARGINS EAR NED BY THE TAXPAYER AND THE COMPARABLES. 4.3 WITH RESPECT TO THE CORPORATE TAX GROUND REGA RDING THE DISALLOWANCE ON ACCOUNT OF MOTOR CAR EXPENDITURE, RE LIANCE WAS PLACED ON THE CONCURRENT OBSERVATIONS OF THE ASSESS ING OFFICER AND THE LD. DRP. WITH REFERENCE TO THE ACCOUNTING ERROR CLAIMED BY THE 19 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT ASSESSEE AND THE RELATED RELIEF CLAIMED, THE LD. SR . DR SUBMITTED THAT THE ASSESSEE HAD NOT CLAIMED SUCH ERROR THROUG H A REVISED RETURN AND THE ASSESSING OFFICER HAD NO POWER TO EN TERTAIN SUCH CLAIM. IT WAS SUBMITTED THAT THEREFORE, IN VIEW OF THE SETTLED JUDICIAL PRECEDENT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT REPORTED IN [2006] 284 ITR 323 (SC) , THE ACTION OF ASSESSING OFFICER WAS VALID IN LAW. 5.0 COMING TO THE APPEAL OF THE DEPARTMENT, THE LD . SR. DR ARGUED THAT THE SOLE ISSUE IN THE DEPARTMENTS APPE AL WAS THE ISSUE OF RS.70 CRORES OF SERVICE TAX WHICH HAD BEEN PAID BY THE ASSESSEE UNDER PROTEST AND THE LD. DRP HAD ERRED IN DIRECTING THAT THE SAME WAS AN ALLOWABLE DEDUCTION U/S 43B OF THE ACT. IT WAS SUBMITTED THAT THE ASSESSEE HAD RECEIVED A SHOW C AUSE NOTICE FROM THE SERVICE TAX DEPARTMENT ALLEGING NON-PAYMEN T OF SERVICE TAX VIDE NOTICE DATED 24.04.2008 AND ON 23 RD SEPTEMBER, 2008 RELEVANT TO ASSESSMENT YEAR 2009-10, THE LD. CIT OF SERVICE TAX HAD PASSED AN ORDER CONFIRMING DEMAND OF SERVICE TA X ON SERVICE PROVIDED TO OVERSEAS AES FOR WHICH CONSIDERATION WAS RECEIVED IN FOREIGN EXCHANGE. IT WAS SUBMITTED THAT DURING THE P ENDENCY OF 20 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT THE ASSESSEES APPEAL AGAINST DEMAND OF SERVICE TAX , THE CESTAT DIRECTED THE DEPOSIT OF RS.70 CRORES AND WHEN THE MA TTER WAS CARRIED TO THE HONBLE DELHI HIGH COURT, THE HONBL E DELHI HIGH COURT CONFIRMED THE REQUIREMENT OF SUCH PRE-DEPOSIT WHICH WAS COMPLIED BY THE ASSESSEE AND DEDUCTION WAS CLAIMED U /S 43B OF THE ACT. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAD ADDED THIS AMOUNT TO THE INCOME OF THE ASSESSEE BUT THE LD. DR P HAD HELD THAT THE AMOUNT WAS DEDUCTABLE UNDER PROVISIONS OF S EC.43B OF THE ACT ON PAYMENT BASIS WHICH WAS INCORRECT IN LAW, A S THIS AMOUNT WAS IN THE NATURE OF CONTINGENT LIABILITY AND , N THEREFORE, THE SAME SHOULD NOT HAVE BEEN ALLOWED AS A DEDUCTIO N. RELIANCE WAS PLACED ON THE DETAILED OBSERVATIONS OF THE ASSES SING OFFICER IN THIS REGARD AS CONTAINED IN PARA 6.4 OF THE FINAL A SSESSMENT ORDER AND IT WAS ARGUED THAT EVEN IF THE ASSESSEE WAS TO BE ALLOWED THE BENEFIT OF DEDUCTION U/S 43B OF THE ACT, THE INCOME OF THE ASSESSEE SHOULD ALSO BE ENHANCED BY 80.50 CRORES ON COST PLU S 15% MARKUP AS PER THE TERMS OF AGREEMENT OF THE ASSESSE E WITH ITS PARENT COMPANY AS THE ASSESSEE CANNOT CLAIM EXPENDI TURE WITHOUT RECOGNIZING CORRESPONDING REVENUE. 21 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 6.0 IN RESPONSE TO THE ARGUMENTS OF THE LD. SR. DR, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE AMOUNT OF RS.70 CRORES WAS SUBSEQUENTLY WAS REFUNDED BY THE SERVICE T AX DEPARTMENT VIDE ORDER DATED 5 TH MAY, 2015 RELEVANT TO ASSESSMENT YEAR 2016-17 AND THE ASSESSEE HAD ALREADY OFFERED T O TAX THIS AMOUNT IN ASSESSMENT YEAR 2016-17 AS WAS EVIDENT FRO M THE COMPUTATION OF INCOME FILED BEFORE THE TRIBUNAL IN THE PAPER BOOK FILED BY THE ASSESSEE. IT WAS SUBMITTED THAT, THEREF ORE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAD RIGH TLY DIRECTED THAT THIS AMOUNT DESERVES TO BE ALLOWED IN TERMS OF PROVISIONS OF SEC.43B OF THE ACT. 7.0 IT WAS SUBMITTED BY THE LD. AR THAT IF T HE DEPARTMENTS APPEAL ON THIS SOLE ISSUE WAS DISMISSED, THE ASSESS EES CROSS OBJECTION WILL BECOME ACADEMIC IN NATURE AND WOULD NO T REQUIRE ANY ARGUMENTS OR ADJUDICATION. 8.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL ON RECORD. FIRST, WE TAKE UP AP PEAL OF THE ASSESSEE BEARING ITA NO.1889/DEL/2015 WHEREIN THE AS SESSEE HAS PRAYED FOR INCLUSION OF TWO COMPARABLES VIZ. R SYSTE M 22 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT INTERNATIONAL AND HELIOS & MATHESON INFORMATION TEC HNOLOGY LIMITED. IT IS SEEN THAT THESE TWO COMPARABLES HAVE BEEN EXCLUDED BY THE TPO ON THE GROUND THAT THESE TWO COMPANIES HA D A DIFFERENT FINANCIAL YEAR ENDING. IT IS NOW A CONSIST ENT VIEW OF THE VARIOUS HONBLE HIGH COURTS AS WELL AS OF THIS TRIBU NAL THAT IF A COMPANY IS OTHERWISE FUNCTIONALLY SIMILAR, THEN, IT CANNOT BE EXCLUDED ONLY ON THE GROUND OF HAVING A DIFFERENT F INANCIAL YEAR ENDING. FOR THIS, WE AGREE WITH THE RELIANCE PLACED B Y THE LD. AUTHORIZED REPRESENTATIVE ON THE ORDER OF THE HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS. MCKINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. IN ITA NO.217/2014 . WE NOTE THAT THE LD. DRP HAS NOTED THAT THESE COMPANIES WERE USING MULTIPLE YEAR DATA AND, T HEREFORE, THESE COMPANIES WERE TO BE EXCLUDED. HOWEVER, A PERU SAL OF THE PAPER BOOK FILED BY THE ASSESSEE SHOWS THAT THIS OBS ERVATION OF THE LD. DRP IS INCORRECT AS, EVIDENTLY, THE ASSESSEE IS USING A SINGLE YEAR DATA. WE ALSO NOTE THAT THE ONLY GROUND FOR EX CLUSION, AS PROPOUNDED BY THE TPO, IS THE GROUND THAT THESE COM PANIES WERE HAVING A DIFFERENT FINANCIAL YEAR ENDING. AS WE HAVE ALREADY MENTIONED THAT NOW IT IS SETTLED LAW THAT IF THE DATA IS AVAILABLE IN 23 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT THE PUBLIC DOMAIN WHICH CAN BE COMPILED AND COLLATED SO AS TO ARRIVE AT FINANCIAL RESULTS CORRESPONDING TO THE FI NANCIAL YEAR ENDING OF THE TESTED PARTY AND WHERE THERE ARE NO O THER FACTORS WHICH WOULD OTHERWISE DISTORT THE RESULTS, THEN SUCH COMPANIES WOULD HAVE TO BE INCLUDED IN THE FINAL SET OF COMPAR ABLES. FROM THE ORDER OF THE TPO AND THE OBSERVATIONS OF THE LD . DRP NO SUCH FACTORS ARE EVIDENT. THEREFORE, WE RESTORE THESE TWO COMPARABLES TO THE FILE OF ASSESSING OFFICER/TPO FOR THE PURPOSE O F INCLUDING THESE TWO COMPARABLES AFTER DUE VERIFICATION AS PER LAW AND AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS C ASE. 8.1 THE ASSESSEE IS ALSO PRAYING FOR EXCLUSION OF THE COMPANY SONATA SOFTWARE LIMITED ON THE GROUND THAT A LTHOUGH THE TPO HAD HIMSELF APPLIED THE RELATED PARTIES TRA NSACTIONS FILTER OF 25%, IN CASE OF THIS COMPANY, THE RELATED PARTY TRANSACTIONS AS A PERCENTAGE OF SALES WAS 53.83%. WE HAVE GONE THRO UGH THE ANNUAL ACCOUNTS OF THIS COMPANY AND WE AGREE WITH TH E CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE THA T THE RELATED PARTY TRANSACTIONS IN THIS COMPANY CASE ARE MORE TH AN 50% OF SALES. ACCORDINGLY, THIS COMPANY DOES NOT PASS THE RELATED PARTY 24 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT FILTER AS APPLIED BY THE TPO. ACCORDINGLY, WE DIREC T THE TPO TO EXCLUDE THIS COMPANY FROM THE FINAL SET OF COMPARAB LES. 8.2 THE ASSESSEE HAS ALSO PRAYED FOR GRANTING OF WO RKING CAPITAL ADJUSTMENT. ALTHOUGH IT IS THE VIEW OF THE L OWER AUTHORITIES THAT WORKING CAPITAL ADJUSTMENT IS NOT BE ALLOWED IN CASE OF SERVICE INDUSTRIES, WE ARE OF THE CONSIDERED VIEW THA T THIS IS NOT THE CORRECT VIEW. WE FIND THAT THIS ISSUE HAS BEEN DEALT AT LENGTH BY THE BANGALORE BENCH OF ITAT IN THE CASE OF GOLDM AN SACHS SERVICES PVT. LTD. IN IT (TP)A 3244/BANG/2018 AND R ELEVANT OBSERVATIONS OF THE TRIBUNAL ARE CONTAINED IN PARAG RAPH 7.1 TO 7.9 WHEREIN THE CO-ORDINATE BENCH AT BANGALORE HAD GRANT ED WORKING CAPITAL ADJUSTMENT ON ACTUALS. THE RELEVANT PARAGRA PHS ARE PRODUCED HEREIN UNDER FOR A READY REFERENCE: 7.1 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US INCLUDING THE DEC ISION RELIED UPON BY LD.AR IN CASE OF HUAWEI TECHNOLOGIES INDIA PVT.LTD VS JCIT (SUPRA). A READING OF RULE 10B (L)(E)(III) OF THE RULES READ WITH SEC. 92CA OF THE ACT, WOULD CLEARLY SHOWS THAT THE NET PROFIT MARGIN ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS HAS TO BE A DJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMO UNT OF NET PROFIT MARGIN IN THE OPEN MARKET. 25 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 7.2. CHAPTERS I AND III OF OECD TRANSFER PRICING GUIDELI NES CONTAIN GUIDELINES ON COMPARABILITY ANALYSES FOR TR ANSFER PRICING PURPOSES. GUIDLINES ON ADJUSTMENTS TO BE PROVIDED I S FOUND IN PARAGRAPHS 3.47-3.54 AND IN THE ANNEX TO CHAPTER II I. THE GUIDELINES MUST BE FOLLOWED FOR COMPUTING ARM'S LEN GTH PRINCIPLE, AND FOR COMPARING COMPARABLE UNCONTROLLE D TRANSACTIONS. REASONABLY ACCURATE ADJUSTMENTS SHOUL D BE MADE TO ELIMINATE EFFECT OF ANY SUCH DIFFERENCES 7.3. PARAGRAPHS 13 TO 16 OF OECD GUIDELINES, EMPHASIZES NEED FOR WORKING CAPITAL ADJUSTMENT IN TERMS OF RECEIVAB LES AND PAYABLES AS UNDER: '13. IN A COMPETITIVE ENVIRONMENT, MONEY HAS A TIME VALUE. IF A COMPANY PROVIDED, SAY, 60 DAYS TRADE TERMS FOR PAYMENT OF ACCOUNTS, THE PRICE OF THE GOODS SHOULD EQUATE TO THE PRICE FOR IMMEDIATE PAYMENT PLUS 60 DAYS OF INTEREST ON THE IMMEDIATE PAYMENT PRICE. BY CARRYIN G HIGH ACCOUNTS RECEIVABLE A COMPANY IS ALLOWING ITS CUSTO MERS A RELATIVELY LONG PERIOD TO PAY THEIR ACCOUNTS. IT WO ULD NEED TO BORROW MONEY TO FUND THE CREDIT TERMS AND/OR SUF FER A REDUCTION IN THE AMOUNT OF CASH SURPLUS WHICH IT WO ULD OTHERWISE HAVE AVAILABLE TO INVEST. IN A COMPETITIV E ENVIRONMENT, THE PRICE SHOULD THEREFORE INCLUDE AN ELEMENT TO REFLECT THESE PAYMENT TERMS AND COMPENSATE FOR T HE TIMING EFFECT. 14. THE OPPOSITE APPLIES TO HIGHER LEVELS OF ACCOU NTS PAYABLE. BY CARRYING HIGH ACCOUNTS PAYABLE, A COMPA NY IS BENEFITTING FROM A RELATIVELY LONG PERIOD TO PAY IT S SUPPLIERS. IT WOULD NEED TO BORROW LESS MONEY TO FU ND ITS PURCHASES AND/OR BENEFIT FROM AN INCREASE IN THE AM OUNT OF CASH SURPLUS AVAILABLE TO INVEST. IN A COMPETITI VE ENVIRONMENT, THE COST OF GOODS SOLD SHOULD INCLUDE AN ELEMENT TO REFLECT THESE PAYMENT TERMS AND COMPENSA TE FOR THE TIMING EFFECT. 26 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 15. A COMPANY WITH HIGH LEVELS OF INVENTORY WOULD SIMILARLY NEED TO EITHER BORROW TO FUND THE PURCHAS E, OR REDUCE THE AMOUNT OF CASH SURPLUS WHICH IT IS ABLE TO INVEST. NOTE THAT THE INTEREST RATE JULY 2010 PAGE 6 MIGHT BE AFFECTED BY THE FUNDING STRUCTURE (E.G. WHERE TH E PURCHASE OF INVENTORY IS PARTLY FUNDED BY EQUITY) O R BY THE RISK ASSOCIATED WITH HOLDING SPECIFIC TYPES OF INVE NTORY) 16. MAKING A WORKING CAPITAL ADJUSTMENT IS AN ATTE MPT TO ADJUST FOR THE DIFFERENCES IN TIME VALUE OF MONEY B ETWEEN THE TESTED PARTY AND POTENTIAL COMPARABLES, WITH AN ASSUMPTION THAT THE DIFFERENCE SHOULD BE REFLECTED IN PROFITS. THE UNDERLYING REASONING IS THAT: A COMPANY WILL NEED FUNDING TO COVER THE TIME GAP BETWEEN THE TIME IT INVESTS MONEY (I.E. PAYS MONEY TO SUPPLIER) AND THE TIME IT COLLECTS THE INVESTMENT ( I.E. COLLECTS MONEY FROM CUSTOMERS) THIS TIME GAP IS CALCULATED AS: THE PERIOD NEEDED T O SELL INVENTORIES TO CUSTOMERS + (PLUS) THE PERIOD N EEDED TO COLLECT MONEY FROM CUSTOMERS - (LESS) THE PERIOD GRANTED TO PAY DEBTS IN SUPPLIERS' 7.4 THE REVERSE APPLIES TO HUGE ACCOUNTS PAYABLE. BY HAVING HIGH ACCOUNTS PAYABLE, A COMPANY IS BENEFITTING FRO M A RELATIVELY LONG PERIOD TO PAY ITS SUPPLIERS. IT WOU LD NEED TO BORROW LESS MONEY TO FUND ITS PURCHASES AND/OR BENE FIT FROM AN INCREASE IN THE AMOUNT OF CASH SURPLUS AVAILABLE TO INVEST. IN A COMPETITIVE ENVIRONMENT, THE COST OF GOODS SOLD SHO ULD INCLUDE AN ELEMENT TO REFLECT THESE PAYMENT TERMS AND COMPE NSATE FOR THE TIMING EFFECT. A COMPANY WITH HIGH LEVELS OF IN VENTORY WOULD SIMILARLY NEED TO EITHER BORROW TO FUND THE PURCHAS E, OR REDUCE THE AMOUNT OF CASH SURPLUS WHICH IT IS ABLE TO INVE ST. MAKING A WORKING CAPITAL ADJUSTMENT IS AN ATTEMPT TO ADJUST FOR THE DIFFERENCES IN TIME VALUE OF MONEY BETWEEN THE TEST ED PARTY AND POTENTIAL COMPARABLES, WITH AN ASSUMPTION THAT THE DIFFERENCE SHOULD BE REFLECTED IN PROFITS. METHODOLOGY TO COMP UTE WORKING CAPITAL ADJUSTMENT IS GIVEN IN PARAGRAPHS 13 TO 16 OF THE 27 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT AFORESAID OECD GUIDELINES (SUPRA). THESE GUIDELINE ALSO INDICATE FACTORS THAT NEEDS TO CONSIDERED LIKE; 7.5 THE POINT IN TIME AT WHICH THE RECEIVABLES, I NVENTORY AND PAYABLES SHOULD BE COMPARED BETWEEN TESTED PARTY AN D COMPARABLES, AND WHETHER IT SHOULD BE THE FIGURES O F RECEIVABLES, INVENTORY PAYABLE AT THE YEAREND OR BE GINNING OF THE YEAR OR AVERAGE OF THESE FIGURES THAT SHOULD BE CONSIDERED;, 7.6. IN THE MATTER OF DETERMINATION OF ARM'S LENGTH PRIC E, IT CANNOT BE SAID THAT THE BURDEN IS ON THE ASSESSEE O R THE DEPARTMENT TO SHOW WHAT IS THE ARM'S LENGTH PRICE. THE DATA AVAILABLE WITH ASSESSEE AND DEPARTMENT SHOULD BE TH E STARTING POINT AND DEPENDING ON THE FACTS AND CIRCUMSTANCES OF A CASE, FURTHER DETAILS CAN BE CALLED FOR. AS FAR AS ASSESS EE IS CONCERNED, THE FACTS AND FIGURES WITH REGARD TO ITS BUSINESS MUST BE FURNISHED. IN SO FAR AS APPLYING INVENTORY, RECEIVABLES AND PAYABLES FOR COMPUTING WORKING CAPITAL ADJUSTME NT ALLEDGED BY DRP/TPO IN CASE OF CERTAIN COMPARABLES, ITAT DELHI BENCH IN CASE OF ITO V E VALUE SERVC.COM, REP ORTED IN [2016] 75 TAXMANN.COM 195 HELD THAT, INSISTING ON D AILY BALANCES OF WORKING CAPITAL REQUIREMENTS TO COMPUTE WORKING CAPITAL ADJUSTMENT IS NOT PROPER, AS IT WILL BE IMP OSSIBLE TO CARRY OUT SUCH EXERCISE AND THAT WORKING CAPITAL ADJUSTME NT HAS TO BE BASED ON THE OPENING AND CLOSING WORKING CAPITAL DE PLOYED. 7.7 IT MUST NOT BE FORGOTTEN THAT TRANSFER PRICI NG ANALYSIS IS ESTIMATION AND NOT AN EXACT SCIENCE. ONE HAS TO SEE THAT, REASONABLE ADJUSTMENT MUST BE MADE WHERE EVER IT IS NEEDED, SO AS TO BRING BOTH COMPARABLE AND TEST PARTY ON SA ME FOOTING. IN PRESENT FACTS OF CASE, DRP MAY BE CORRECT IN DEN YING WORKING ADJUSTMENT DUE TO UNAVAILABLITY REQUIRED DATA, HOWE VER THERE IS NO MERIT IN OBSERVATIONS OF DRP/TPO AS SUPPORTED BY LD.CIR DR, IN DENYING WORKING CAPITAL ADJUSTMENT DUE TO AB SENCE OF DETAILS FOR WORKING OUT ADJUSTMENTS IN COMPARABLE C OMPANIES CHOSEN. IF WE APPRECIATE THE ARGUMENT ADVANCED BY L D.CIT DR, THERE WOULD REMAIN NO COMPARABLES FOR THE PURPOSE O F 28 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT COMPARIBILITY ANALYSIS TO DETERMINE ALP OF AN INTER NATIONAL TRANSACTION, AND THIS WOULD BE FATAL TO ENTIRE EXER CISE OF TRANSFER PRICING ANALYSIS. 7.8 REGARDING COMPARABLE COMPANIES, ONE HAS TO FALL BACK UPON ONLY ON INFORMATION AVAILABLE IN PUBLIC DOMAIN . IF THAT INFORMATION IS INSUFFICIENT, IT IS BEYOND THE POWER OF ASSESSEE TO PRODUCE CORRECT INFORMATION ABOUT COMPARABLE COM PANIES. REVENUE ON THE OTHER HAND HAS SUFFICIENT POWERS U/S . 133(6) TO COMPEL PRODUCTION OF REQUIRED DETAILS FROM COMPA RABLE COMPANIES. IF THIS POWER IS NOT EXERCISED TO FIND T O GET INFORMATION REQUIRED, THEN IT IS NO DEFENSE TO SAY THAT ASSESSEE HAS NOT FURNISHED REQUIRED DETAILS TO DENY ANY ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL DIFFERENCE S. THEREFORE THIS OBJECTION OF DRP IS NOT SUSTAINABLE. THEREFORE IN, ENDEAVOR SHOULD BE MADE TO BRING IN COMPARABLE COMP ANIES FOR THE PURPOSE OF BROAD COMPARISON AND WORKING CAP ITAL ADJUSTMENT CLAIMED BY ASSESSEE SHOULD BE ANALYSED, KEEPING IN MIND, OECD GUIDELINES (SUPRA). 7.9. BASED ON THE ABOVE DISCUSSIONS, AND RESPECTFULLY FO LLOWING DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN TH E CASE OF HUAWEI TECHNOLOGIES INDIA (P.) LTD. {SUPRA), WE DIR ECT WORKING CAPITAL ADJUSTMENT TO BE COMPUTED AND TO ALLOW AS P ER ACTUALS, AFTER CONSIDERING EXCLUSION/INCLUSION OF COMPARABLE COMPANIES IN THE FINAL SET OF COMPARABLES AS DISCUSSED HEREIN ABOVE. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED. 8.2.1 RESPECTFULLY FOLLOWING THE DECISION OF THE C O- ORDINATE BENCH IN THE CASE OF GOLDMAN SACHS SERVICE S PVT. LTD. (SUPRA) AND AFTER DULY NOTING THAT WORKING CAPITAL A DJUSTMENT HAD BEEN ALLOWED TO THE ASSESSEE IN ASSESSMENT YEAR 200 7-08, WE DIRECT THE WORKING CAPITAL ADJUSTMENT TO BE COMPUTE D AND TO BE 29 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT ALLOWED AS PER ACTUALS AFTER CONSIDERING EXCLUSIONS /INCLUSIONS OF COMPARABLES COMPANIES IN THE FINAL SET OF COMPARABL ES AS DISCUSSED HEREIN ABOVE. 8.3 COMING TO THE CORPORATE TAX GROUNDS IN THE ASSESSEES APPEAL WE FIND THAT ON THE ISSUE OF AD HOC DISALLOWANCE WITH RESPECT TO MOTOR CAR RUNNING EXPENDITURE, THE I TAT IN ASSESEES OWN CASE, FOR ASSESSMENT YEAR 2008-09 IN I TA NO. 6417/DEL/2012 VIDE ORDER DATED 09.02.2016 HAD DIREC TED THE DELETION OF THIS DISALLOWANCE. THE RELEVANT OBSERVAT IONS ARE REPRODUCED HEREIN UNDER FOR A READY REFERENCE: 6. GROUND NO.1 IS GENERAL IN NATURE AND GROUND NO.5 IS A PRE-MATURED ONE. GROUND TO RELATED TO THE DISALLOWA NCE OF 50% OF CAR RUNNING AND MAINTENANCE EXPENSES WHEREAS GRO UNDS 3 & 4 RELATED TO THE EXCESS INCOME OF RS. 2,04,88,369/- OFFERED FOR TAXATION IN THE SUBJECT YEAR ERRONEOUSLY ON ACCOUNT OF AUTOMATICALLY WORSEN OF YEAR-END PROVISIONS IN THE ACCOUNTING SYSTEM OF MCIPL. 7. IN RESPECT OF GROUND NO. 3 IT IS THE FINDING OF THE LD. AO THAT THE FREEDOM TO USE CAR WAS WITH THE EMPLOYEE A ND THE COMPANY ONLY MONITORS IT BY PUTTING AN OVERALL CEIL ING ON THE AMOUNT THAT CAN BE CLAIMED BY THE EMPLOYEE, FOR ALL PRACTICAL PURPOSES THE VEHICLE IS UNDER THE FULL CONTROL AND COMMAND OF THE EMPLOYEE AS SUCH THE POSSIBILITY OF EMPLOYEE MA KING USE OF THE VEHICLE FOR NON-BUSINESS PURPOSES CANNOT BE RUL ED OUT. BY OBSERVING THAT THE CAR POLICY OF THE COMPANY DOES N OT KEEP AN EYE ON THE PURPOSE OF USE OF CAR USE BUT ONLY ON QU ANTUM OF CAR USE, LD. AO FOUND THAT IN THE ABSENCE OF ANY RECORD , 50% OF 30 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT RUNNING AND MAINTENANCE EXPENSES THAT IS RS. L,74,9 4,518/- HAD TO BE DISALLOWED BEING EXPENDITURE INCURRED FOR NON- BUSINESS PURPOSES. 8. LD. DRP RECORDED THAT THE FACTS OF THIS C ASE ARE SIMILAR TO THE FACTS AS IN AY 2008-09 AND FOR AY 2008-09 THE L D. DRP HELD THAT INASMUCH AS THE ISSUE WAS PENDING BEFORE THE ITAT AND HAS NOT REACHED FINALITY, FOLLOWING THE EARLIER YEAR ORDER DECLINED TO INTERFERE WITH THE ORDER OF THE LD. AO. BY FOLLOWING THE SAME, LD. DRP DECLINED TO INTERFERE WITH THE OR DER OF THE LD. AO FOR THIS AY ALSO. 9. IT IS BROUGHT TO OUR NOTICE THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN RESPECT OF TH E ASSESSMENT YEARS 2006-07 VIDE ORDER DATED 18/12/2014 IN ITA NO . 5855/DEL/2010, AND FOR ASSESSMENT YEAR 2007-08 BY O RDER DATED 30/06/2015 IN ITA NO. 5766/DEL/2011. WE HAVE GONE THROUGH THE ORDER DATED 09/02/2016 IN ITA NO. 6417/DEL/2012 FOR THE ASSESSMENT YEAR 2008-09 WHERE IN AFTER REFERRING TO THE ORDERS RELATING TO THE EARLIER ASS ESSMENT YEARS, THE TRIBUNAL REACHED THE VERY SAME CONCLUSION IN FA VOUR OF THE ASSESSEE. INSOFAR AS THE CONTINUITY OF THESE FACTS OVER THE YEARS IS CONCERNED, REVENUE DOES NOT DISPUTE THE SAME. WH EN THE FACTS CONTINUE TO BE SIMILAR, WE DO NOT FIND ANY RE ASON TO TAKE A DIFFERENT VIEW. WE, THEREFORE, RESPECTFULLY FOLLOWI NG THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL FOR THE ASSES SMENT YEARS 2006-07 TO 2008-09 ANSWER THE ISSUE IN FAVOUR OF TH E ASSESSEE AND A DIRECT THE LD. AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF CAR RUNNING AND MAINTENANCE EXPE NSES. 8.3.1 RESPECTFULLY FOLLOWING THE ABOVE, WE DIRECT TH E DELETION OF THIS DISALLOWANCE. 8.4 SO FAR AS THE ISSUE OF DEDUCTION BEING CL AIMED TOWARDS ACCOUNTING ERROR OF RS. 25,453,475/- IS BEING CLAIM ED, WE NOTE THAT 31 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT THIS ISSUE ALSO HAD ARISEN IN ASSESSMENT YEAR 2008- 09 AND THE ITAT IN ITA NO. 6417/DEL/2012, VIDE ORDER DATED 09. 02.2016 HAD RESTORED THIS ISSUE TO THE FILE OF THE FOR VERIFICA TION AND ALLOWING RELIEF TO THE ASSESEE IF THE ASSESSEES CLAIM WAS FO UND CORRECT. THE RELEVANT DIRECTIONS OF THE TRIBUNAL ARE BEING REPRO DUCED HERE IN UNDER: 10. NOW COMING TO GROUNDS NO. 4 AND 5, IT IS SUBMITTED BY THE LD. AR THAT IN THE FINANCIAL YEAR 2007-08, THE ASSESSEE COMPANY HAS BEEN BOOKING YEAR-END PROVISIONS IN ITS PROFIT AND LOSS ACCOUNT AND OUT OF SUCH PROVISIONS THE STATUTO RY AUDITORS OF THE COMPANY HAD REVERSED HALF THE AMOUNT BEING EXCE SS IN NATURE AT THE TIME OF FINALISATION OF THE BOOKS OF ACCOUNTS AND CLAIMED ONLY THE REMAINING HALF AS DEDUCTION IN THE RETURN OF INCOME. HOWEVER, SUBSEQUENTLY IN THE FINANCIAL YEAR 2008-09 THE ENTIRE AMOUNT OF PROVISION WAS AUTOMATICALLY RE VERSED IN THE ACCOUNTING SYSTEM OF THE COMPANY AS A NORMAL INDUST RY PRACTICE INSTEAD OF REVERSING THE AMOUNT THAT WAS D EBITED TO THE PROFIT AND LOSS ACCOUNT IN FINANCIAL YEAR 2007-08, RESULTING IN AN ADDITIONAL AMOUNT BEING OFFERED TO TAX IN THE WRITT EN OF INCOME ERRONEOUSLY. 11. HE FURTHER SUBMITTED THAT IN THE FINANCIAL YEAR 2012-13 THE ASSESSEE HAD REVERSED THE ABOVE ADDITIONAL INCO ME TO SQUARE UP THE ACCOUNT AND AN EXPENSE HAS BEEN DEBIT ED TO THE PROFIT AND LOSS ACCOUNT. IN THE RETURN OF INCOME FO R THE FINANCIAL YEAR 2012-13 FILED BY THE ASSESSEE SUCH AN AMOUNT W AS NOT CLAIMED, AND HAS BEEN ADDED BACK WHILE COMPUTING TH E TAXABLE INCOME ON AND AS EMPTION THAT THE SAME SHALL BE ALL OWED IN THE SUBJECT PROCEEDINGS OF FINANCIAL YEAR 2008-09. ASSE SSEE WAS OF THE VIEW THAT IT IS MORE APPROPRIATE TO CLAIM THIS EXPENSE OR REVERSAL OF INCOME IN THE SAME FINANCIAL YEAR IN WH ICH THE ADDITIONAL INCOME WAS OFFERED, BY BOOKING THE SAME AS 32 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 'ADVANCES AND DEPOSITS WRITTEN OFF' IN NOTE 17 TO T HE FINANCIAL STATEMENTS OF FINANCIAL YEAR 2012-13. 12. LD. AR SUBMITTED THAT AN ADDITIONAL GROUND ON THIS ASPECT WAS RAISED AGAINST THE DRAFT ASSESSMENT ORDE R BEFORE THE LD. DRP, BUT THE LD. DRP HAS NOT CONSIDERED THE SAME IN THE DIRECTIONS PASSED ON 31/12/2013. 13. ON A CAREFUL CONSIDERATION OF THE MATTER WE FIND FORCE IN THE SUBMISSION OF THE LD. AR. INASMUCH AS FACTUAL V ERIFICATION IS NECESSARY ON THIS ASPECT, WE DIRECT THE LD. AO TO V ERIFY WHETHER THE ASSESSEE HAD REVERSED THE PROVISION TO THE EXTE NT OF RS. 2,04,88,269/-IN THE FINANCIAL YEAR 2007-08 ITSELF, BUT BY MISTAKE OF THE AUTOMATICALLY PROCEDURES REVERSED TH E ENTIRE AMOUNT OF RS. 4,09,81,176/-THEREBY AN ADDITIONAL AM OUNT OF RUPEES RS. 2,04,88,269/-WAS OFFERED TO TAX ERRONEOU SLY, AND TO PASS ORDER IN ACCORDANCE WITH LAW. THESE GROUNDS AR E, ACCORDINGLY ARE RESTORED TO THE FILE OF THE LD. AO FOR THE PURPOSE OF VERIFICATION AND PASSING ORDERS A FRESH. 8.4.1 IT IS ALSO THE SUBMISSION OF THE ASSESSEE T HAT THIS AMOUNT HAS FINALLY BEEN REVERSED IN ASSESSMENT YEAR 2013-14. ACCORDINGLY, IN VIEW OF THE ORDER OF THE ITAT IN AY 2008-09 ON IDENTICAL ISSUE, WE RESTORE THIS ISSUE TO THE FILE O F THE ASSESSING OFFICER WITH THE DIRECTION TO ALLOW THE ASSESSEES CL AIM IF ON VERIFICATION IT IS FOUND TO BE CORRECT. 9.0 THUS, THE APPEAL OF THE ASSESSEE STANDS AL LOWED FOR STATISTICAL PURPOSES. 33 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 10.0 COMING TO THE DEPARTMENTS APPEAL, THE SOL E ISSUE IS THE ADDITION OF RS.70 CRORES PAID AS A SERVICE TAX BY T HE ASSESSEE AND ALLOWED BY THE LD. DRP IN TERMS OF PROVISIONS OF SE C.43B OF THE ACT. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS AMOU NT WAS ACTUALLY PAID AND THE LD. DRP HAS ALLOWED IT ON PAYMENT BASI S U/S 43B. IT IS ALSO BEING SUBMITTED THAT WHEN THIS AMOUNT WAS FIN ALLY REFUNDED BY THE DEPARTMENT IN ASSESSMENT YEAR 2016-17, THE S AME HAS BEEN OFFERED TO TAX. WE AGREE WITH THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE IN THIS REGARD THAT THE AMOUNT WAS DE DUCTIBLE ON ACTUALLY PAYMENT BASIS IRRESPECTIVE OF WHETHER THE S AME HAS BEEN DEPOSITED UNDER PROTEST OR VOLUNTARILY. THE DEPARTM ENT COULD NOT SHOW A COGENT REASON BEFORE US AS TO WHY THE DIRECTIO NS OF THE LD. DRP WERE INCORRECT IN THIS REGARD. WE NOT ARE NOT A GREEABLE WITH THE CONTENTION OF THE DEPARTMENT THAT THIS AMOUNT REPRE SENTS CONTINGENT LIABILITY. THEREFORE, WE FIND NO REASON TO INTERFERE WITH THE DIRECTIONS OF THE LD. DRP IN THIS REGARD AND WE UPHOLD THE SAME. THUS, GROUNDS RAISED BY THE DEPARTMENT ON THE ISSUE ARE DISMISSED. 11.0 IN THE RESULT, THE APPEAL OF THE DEPARTMENT STAND S DISMISSED. 34 ITA NOS.1889 & 1760/DEL/2015 & C.O NO.308/DEL/2015 MICROSOFT CORPORATION (INDIA) PVT. LTD. VS. DCIT 12.0 IN VIEW OF OUR DISMISSING THE DEPARTMENTS APPEAL AND AS ALREADY ACCEPTED BY THE LD. AUTHORIZED REPRESENTATI VE, THE CROSS OBJECTION OF THE ASSESSEE BECOMES ACADEMIC IN NATUR E AND DOES NOT NEED ANY ADJUDICATION, THUS, IT IS DISMISSED AS HAV ING BECOME IN FRUCTUOUS. 13.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES, THE APPEAL OF THE DEPARTMENT STANDS DISMISSED AND THE CROSS OBJECTION FILED BY T HE ASSESSEE STANDS DISMISSED AS HAVING BECOME IN FRUCTUOUS AND NOT REQUIRING ANY ADJUDICATION. ORDER PRONOUNCED ON 12/10/2020. SD/- SD/- (ANIL CHATURVEDI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:12/10/2020 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI