M/s Subex Limited , Bangalore V. Deputy Commissioner of income Tax Circle-6(1)(2), Bangalore

ITA 190/BANG/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 0781 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 19-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAVNA C YASHROY
• Assessee Lawyers: S VENKATRAM
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; International transaction; Initiation of penalty proceedings; Unabsorbed depreciation
• Section: 143(3); 92B; 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 1 90 /BANG/201 8 ASSESSMENT YEAR : 20 1 3 - 1 4 M/S. SUBEX LIMITED, RMZ ECOWORLD, OUTER RING ROAD, DEVARABISANAHALLI, BANGALORE 560 103. PAN: AABCS9255R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6 (1) (2), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI S. VENKATRAM, SR. ADVOCATE RE VENUE BY : SMT. BHAVNA C. YASHROY, CIT (DR) DATE OF HEARING : 25 . 0 9 .2018 DATE OF PRONOUNCEMENT : 05 . 1 0.2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME I S DIRECTED AGAINST THE ASSESSMENT ORDER DATED 04.10.2017 FOR ASSESSMENT YE AR 2013-14 PASSED BY THE AO U/S. 143(3) R.W.S. 144C(13) OF IT ACT, 1961 AS P ER THE DIRECTIONS OF DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. THE GROUNDS STATED HEREUNDER ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT SUBMITS AS UNDER: 1. ASSESSMENT AND REFERENCE TO TRANSFER PRICING OFF ICER ARE BAD IN LAW 1.1 THE DEPUTY COMMISSIONER OF INCOME TAX. CIRCLE 6 (1)(2) ('LD. AO') ERRED IN MAKING A REFERENCE TO THE DEPUT Y COMMISSIONER OF INCOME-TAX, TRANSFER PRICING RANG E 2(2)(2) ('LD. TPO'), INTER-ALIA, SINCE HE HAS NOT RECORDED AN OPINION THAT ANY OF THE CONDITIONS IN SECTION 92C(3) OF THE INCOME-TAX ACT, 1961 (THE ACT'), WERE SATISFIED IN THE INSTANT CASE. ACCORDINGLY, THE ORDER PASSED BY THE LD. TPO IS WIT HOUT JURISDICTION. THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. T PO. IT(TP)A NO. 190/BANG/2018 PAGE 2 OF 9 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO/ LD. TPO ERRED IN NOT DEMONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OUTSIDE INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INTERNATIONA L TRANSACTIONS. WHICH IS A PRE-REQUISITE CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTIONS OF THE L D. AO/ LD. TPO. 1.3 THE ASSESSMENT ORDER PASSED BY THE LD. AO IS WI THOUT JURISDICTION, INTER-ALIA, IN SO FAR AS IT PURPORTS TO GIVE EFFECT TO AN INVALID ORDER OF THE LD. TPO. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 2. INCORRECT REJECTION OF AGGREGATED APPROACH 2.1 THE LD. AO/ LD. TPO ERRED IN REJECTING THE ENTI TY LEVEL TRANSACTIONAL NET MARGIN METHOD ('TNMM') APPROACH ( AGGREGATED APPROACH) ADOPTED BY THE APPELLANT AND IN PREPARING A SEGMENTAL PROFIT AND LOSS OF THE COMPANY ON HIS OWN SURMISES. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. T PO AND CONCLUDING THAT THE APPELLANT HAD NOT PROVIDED ANY RATIONALE S UPPORTING ITS CLAIM. 3. INCORRECT SEGMENTAL ACCOUNT DRAWN BY THE LD. TPO 3.1 WITHOUT PREJUDICE TO THE FACT THAT AN AGGREGATE D APPROACH IS APPROPRIATE, GIVEN THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LD. AO/ LD. TPO ERRED IN APPROPRIATING ALL COSTS OTHER THAN SALES AND MARKETING COSTS ON THE BASIS OF SALES. FURTHER, THE HON'BLE DRP ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO AND IN DOING SO IGNORED THE CONTENTIONS OF THE APPELLANT. 3.2 WITHOUT PREJUDICE TO THE FACT THAT AN AGGREGATE D APPROACH IS APPROPRIATE, GIVEN THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LD. AO/ LD. TPO ERRED IN CONSIDERING FOREIGN EXCHANGE LOSS ON FCCBS AS OPERATING IN NATURE AND NOT FOLLOWING THE DECISI ON OF THE TRIBUNAL IN APPELLANTS OWN CASE FOR AY 2010-11 IN IT(TP)A N O. 373/BANG/2015 DATED 18 MARCH 2016, WHILE CONSIDERIN G THE SEGMENTAL ACCOUNTS. THE HONBLE DRP ERRED IN UPHOL DING THE ACTIONS OF THE LD. AO/LD. TPO 4. DETERMINATION OF ARM'S LENGTH PRICE BY THE LD. T PO 4.1. THE LD. AO/ LD. TPO ERRED ON FACTS AND IN LAW IN CONDUCTING A FRESH BENCHMARKING ANALYSIS USING NON-CONTEMPORANEO US DATA AND SUBSTITUTING THE APPELLANT'S ANALYSIS WITH FRESH BE NCHMARKING ANALYSIS ON HIS OWN CONJECTURES AND SURMISES. THUS, THE APPELLANT PRAYS THAT THE FRESH BENCHMARKING ANALYSIS CONDUCTE D BY THE LEARNED LD. TPO IS LIABLE TO BE QUASHED. THE HON'BLE DRP ER RED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 4.2. THE LD. AO/ LD. TPO ERRED ON FACTS IN REJECTIN G THE COMPARABLE I IT(TP)A NO. 190/BANG/2018 PAGE 3 OF 9 COMPANIES (I.E. NUCLEUS SOFTWARE EXPORTS LTD & TATA ELXSI LTD) ARRIVED AT IN THE TRANSFER PRICING STUDY WITHOUT CO NSIDERING THE FUNCTIONAL AND RISK ANALYSIS OF THE APPELLANT. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 4.3. THE LD. AO/ LD. TPO GROSSLY ERRED ON FACTS IN BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT WITH SO -CALLED PRODUCT COMPANIES WITHOUT CONSIDERING THE DIFFERENCES IN TH E FUNCTIONS PERFORMED, ASSETS EMPLOYED, AND RISK UNDERTAKEN BY THE APPELLANT VIS- A-VIS COMPARABLE COMPANIES. THE HON'BLE DRP ERRED I N UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 4.4. THE LD. AO/ LD. TPO GROSSLY ERRED IN LAW IN DE VIATING FROM THE UNCONTROLLED PARTY TRANSACTION DEFINITION AS PER RU LE 10A OF THE INCOME-TAX RULES, 1962 AND ARBITRARILY APPLYING A 2 5% RELATED PARTY CRITERIA IN ACCEPTING/ REJECTING COMPARABLES. THE H ON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. 4.5. THE LD. AO/ LD. TPO ERRED IN SELECTING SASKEN COMMUNICATIONS TECHNOLOGIES LTD AS A COMPARABLE COMPANY EVEN THOUG H THE COMPANY DOES NOT SATISFY THE EXPORT REVENUES FILTER OF 75% OF TOTAL SALES AS APPLIED BY THE LD. TPO HIMSELF. THE HON'BLE DRP ERR ED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 4.6. WITHOUT PREJUDICE TO GROUND 4.5 ABOVE, THE LD. AO/ LD. TPO ERRED IN SELECTING ONLY THE PRODUCT SEGMENT OF SASK EN COMMUNICATIONS TECHNOLOGIES LTD WITHOUT APPRECIATIN G THE BUSINESS PROFILE OF THE APPELLANT. IN DOING SO, THE LD. TPO ERRED IN CONSIDERING ONLY THE SEGMENTAL DATA (PRODUCT SEGMENT) FOR SASKE N COMMUNICATIONS TECHNOLOGIES LIMITED AND NOT AT ENTI TY LEVEL. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD . AO/LD. TPO AND CONCLUDING THAT SOFTWARE SERVICES SEGMENT OF SA SKEN COMMUNICATIONS TECHNOLOGIES LTD IS INTO TELECOM SOF TWARE AND EMBEDDED DESIGNS AND HENCE IS NOT FUNCTIONALLY COMP ARABLE TO THE APPELLANT. 4.7. WITHOUT PREJUDICE TO GROUNDS 4.5 AND 4.6 ABOVE , THE LD. AO/ LD. TPO ERRED IN SELECTING THE PRODUCT SEGMENT OF SASKEN COMMUNICATIONS TECHNOLOGIES LIMITED EVEN THOUGH THE REVENUE OF THE SEGMENT IS UNRELIABLE OWING TO THE SAME BEING S UBJECTED TO LITIGATION. 4.8. THE LD. AO/ LD. TPO ERRED ON FACTS IN SELECTIN G LARSEN AND TOUBRO INFOTECH LIMITED AS A COMPARABLE WHICH IS EN GAGED ONLY IN THE RENDERING OF SERVICES WHILE SELECTING OTHER COM PARABLE COMPANIES WHICH ARE INTO DEVELOPMENT AND OWNING OF SOFTWARE P RODUCTS AND RENDERING SERVICES. THE LD. AO/ LD. TPO HAS INCONSI STENTLY APPLIED THE FUNCTIONAL COMPARABILITY PARAMETER AND THE HON' BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. IT(TP)A NO. 190/BANG/2018 PAGE 4 OF 9 4.9. THE LD. AO/ LD. TPO ERRED IN SELECTING LARSEN AND TOUBRO INFOTECH LIMITED AS A COMPARABLE WITHOUT CONSIDERIN G THE FACT THAT THE COMPANY HAS SIGNIFICANT RELATED PARTY TRAN SACTIONS (I.E17.52%). THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. 4.10. THE LD. AO/ LD. TPO ERRED ON FACTS BY INCONSI STENTLY APPLYING THE FUNCTIONAL COMPARABILITY PARAMETER AND IN SELECTING PERSISTENT SYSTEMS LIMITED AS A COMPARABL E WHICH IS ENGAGED IN OUTSOURCED PRODUCT DEVELOPMENT ACTIVITIE S. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD . AO/ LD. TPO. 4.11. THE LD. AO/ LD. TPO ERRED IN SELECTING PERSIS TENT SYSTEMS LIMITED AS A COMPARABLE WITHOUT CONSIDERING THE FAC T THAT THE COMPANY HAS SIGNIFICANT RELATED PARTY TRANSACTIONS (I.E., 19.66%). THE HON'BLE DRP ERRED IN UPHOLDING THE ACT ION OF THE LD. AO/ LD. TPO. 4.12. THE LD. AO/ LD. TPO ERRED IN SELECTING PERSIS TENT SYSTEMS LIMITED AS A COMPARABLE EVEN THOUGH THE COMPANY HAS ACHIEVED INORGANIC GROWTH THROUGH ACQUISITION OF OTHER COMPA NIES. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD . AO/ LD. TPO. 4.13. THE LD. AO/ LD. TPO ERRED IN SELECTING TECH M AHINDRA LIMITED AS A COMPARABLE EVEN THOUGH THE COMPANY FAI LS THE RELATED PARTY TRANSACTIONS FILTER OF 25% APPLIED BY THE LD. TPO (I.E., 43.17%). THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. 4.14. THE LD. AO/ LD. TPO ERRED IN REJECTING MINDTR EE LTD AND CG VAK SOFTWARE & EXPORTS LTD AS FUNCTIONALLY NOT C OMPARABLE TO THE APPELLANT. THE HON'BLE DRP ERRED IN UPHOLDIN G THE ACTION OF THE LD. AO/ LD. TPO AND IN DOING SO ERRED IN NOT APPLYING THE FUNCTIONAL COMPARABILITY FILTER CONSISTENTLY. 4.15 THE LD. AO/ LD. TPO ERRED IN NOT APPLYING AN U PPER- TURNOVER FILTER TO IDENTIFY COMPARABLE COMPANIES. H OWEVER, THE LD. AO/ LD. TPO HAS APPLIED A LOWER TURNOVER FILTER AND HAS ACCORDINGLY REJECTED COMPARABLE COMPANIES WITH TURN OVER LESS THAN INR 1 CRORE. THE HON'BLE DRP ERRED IN UPHOLDIN G THE ACTION OF THE LD. AO/ LD. TPO. 4.16 THE LD. AO/ LD. TPO ERRED IN UTILIZING DETAILS COLLECTED UNDER SECTION 133(6) OF THE ACT, WITHOUT PROVIDING THE APPELLANT AN OPPORTUNITY OF EXAMINING AND VALIDATING THE DATA RELIED UPON. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. IT(TP)A NO. 190/BANG/2018 PAGE 5 OF 9 5. ERRONEOUS TRANSFER PRICING ADJUSTMENT FOR BOTH S OFTWARE DEVELOPMENT SERVICES AND MARKETING AND ALLIED CHARGES 5.1. WITHOUT PREJUDICE TO THE GROUNDS ABOVE, THE LD . AO/ LD. TPO ERRED ON FACTS AND IN LAW IN ADJUSTING THE PRIC E OF INTERNATIONAL TRANSACTION TWICE WHILE DETERMINING T HE ARM'S LENGTH PRICE FOR SOFTWARE DEVELOPMENT INCOME AND MA RKETING AND ALLIED CHARGES. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 5.2. WITHOUT PREJUDICE TO THE GROUNDS ABOVE, THE LD . AO/ LD. TPO HAS ERRED IN CONSIDERING THE SOFTWARE DEVELOPME NT INCOME AND MARKETING AND ALLIED CHARGES AS SEPARATE TRANSA CTIONS. EACH REQUIRING INDEPENDENT BENCHMARKING EVEN THOUGH BOTH TRANSACTIONS WERE SUBSUMED IN THE TNMM APPROACH ADO PTED BY THE LD. AO/ LD. TPO. THE LD. AO/ LD. TPO ERRED IN N OT CONSIDERING EITHER ONE OF SOFTWARE DEVELOPMENT INCO ME OR MARKETING AND ALLIED CHARGES AS THE PRIMARY ADJUSTM ENT AND NOT GRANTING CREDIT FOR THE SAME, WHILE COMPUTING THE S ECONDARY ADJUSTMENT. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. 6. TRANSFER PRICING ADJUSTMENTS ARISING FROM INTERE ST ON LOANS AND INTEREST ON TRADE RECEIVABLES 6.1. THE LD. AO/ LD. TPO HAS ERRED IN CONSIDERING O UTSTANDING RECEIVABLES FROM SUBEX AMERICAS INC.. TO BE A SEPAR ATE INTERNATIONAL TRANSACTION AND COMPUTING INTEREST ON THE SAME. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF TH E LD. AO/ LD. TPO. 6.2. THE LD. AO/ LD. TPO ERRED IN NOT APPRECIATING THAT CREATION OF TRADE RECEIVABLES WAS A SECONDARY TRANS ACTION ARISING OUT OF INTERNATIONAL TRANSACTIONS WITH SUBE X AMERICAS INC., WHICH HAS ALREADY BEEN BENCHMARKED AT THE TIM E OF INCOME RECOGNITION. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. 6.3. THE LD. AO/ LD. TPO ERRED IN NOT APPRECIATING THAT THE UNDERLYING AGREEMENT DOES NOT HAVE A CLAUSE FOR INTEREST ON OUTSTANDING BALANCE AND HENCE NO SUCH INTEREST IS P AYABLE BY SUBEX AMERICAS INC. THE HON'BLE DRP ERRED IN UPHOLD ING THE ACTION OF THE LD. AO/ LD. TPO. 6.4. WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO/ LD . TPO HAS ERRED IN COMPUTING INTEREST ON RECEIVABLES FROM SUB EX AMERICAS INC. ON CLOSING BALANCES AS AGAINST THE AVERAGE AMO UNT OUTSTANDING DURING THE YEAR. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. 7. TRANSFER PRICING ADJUSTMENTS ARISING FROM CORPORATE IT(TP)A NO. 190/BANG/2018 PAGE 6 OF 9 GUARANTEE 7.1. THE LD. AO/ LD. TPO ERRED IN NOT APPRECIATING THE FACT THAT THE PROVISION OF CORPORATE GUARANTEE BY THE APPELLANT T O SUBEX TECHNOLOGIES INC., DOES NOT HAVE A BEARING ON THE P ROFIT OR LOSS OR INCOME OR ASSETS OF THE APPELLANT DURING FY 2012-13 AND HENCE IS NOT AN INTERNATIONAL TRANSACTION AS ENVISAGED UNDER SEC TION 92B OF THE ACT. ACCORDINGLY. THE LD. AO/ LD. TPO ERRED IN COMP UTING A FEE ON THE CORPORATE GUARANTEE PROVIDED BY THE APPELLANT. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TP O. 7.2. THE LD. AO/ LD. TPO ERRED IN NOT APPRECIATING THAT CORPORATE GUARANTEE GIVEN BY THE COMPANY TO SUBEX TECHNOLOGIES INC., WAS IN THE NATURE OF SHAREHOLDER SERVICE AND SUCH GUARANTEE WAS EXTENDED WITH A VIEW TO PROTECT ITS INVESTMENT. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LD. AO/ LD. TPO. 8. ERRONEOUS COMPUTATION OF INCOME 8 1. WITHOUT PREJUDICE TO THE GROUNDS ABOVE, THE LD. AO HAS ERRED IN COMPUTING THE ASSESSED INCOME OF THE APPELLANT AT I NR 90,79,17,131 IN THE FINAL ASSESSMENT ORDER. THE LD. AO ERRED IN ADDING THE RETURNED LOSS TO THE ADJUSTMENT ARISING ON ACCOUNT OF TRANSFER PRICING MATTERS, INSTEAD OF REDUCING THE RETURNED LOSS FROM THE TRAN SFER PRICING ADJUSTMENT. 9. SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND U NABSORBED DEPRECIATION 9.1. THE LD. AO HAS ERRED IN NOT SETTING-OFF BROUGH T FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION PERTAIN ING TO AY 2008-09. THE HON'BLE DRP HAS ERRED IN NOT ADJUDICATING THE GROUNDS RAISED BY THE APPELLANT BEFORE IT. 10. SET OFF OF MAT CREDIT 10.1. THE LD. AO HAS ERRED IN LAW IN NOT ALLOWING S ET-OFF OF MAT CREDIT PERTAINING TO AY 2007-08, AY 2008-09 AND AY 2012-13. THE HON'BLE DRP HAS ERRED IN NOT ADJUDICATING THE GROUNDS RAISED BY THE APPELLANT BEFORE IT. 11. GRANT OF FOREIGN TAX CREDIT 11.1. THE LD. AO HAS ERRED IN LAW IN NOT GRANTING F OREIGN TAX CREDIT. THE HON'BLE DRP HAS ERRED IN NOT ADJUDICATING THE G ROUNDS RAISED BY THE APPELLANT BEFORE IT. 12. LEVY OF INTEREST UNDER SECTION 234B 12.1. THE LD. AO HAS ERRED IN LEVYING INTEREST OF INR 14,86,04,445 UNDER SECTION 234B OF THE ACT. 13. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT 13.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN IT(TP)A NO. 190/BANG/2018 PAGE 7 OF 9 LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PRO CEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE DRP HAS ERR ED IN DISMISSING THE APPELLANT'S OBJECTION AGAINST INITIA TION OF PENALTY PROCEEDINGS. 14. RELIEF 14.1. THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRANT ALL SUCH RELIEF ARISING FROM THE PRECEDING GROUNDS AS ALSO A LL RELIEFS CONSEQUENTIAL THERETO. THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBS TITUTION OR OTHERWISE, ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL. 3. AT THE VERY OUTSET, IT WAS SUBMITTED BY LD. SENI OR COUNSEL OF THE ASSESSEE THAT IN THE PRESENT CASE, THE MATTER HAS TO BE RESTORED BAC K TO THE FILE OF TPO FOR FRESH DECISION BECAUSE THE TPO HAS COMMITTED SOME FUNDAME NTAL MISTAKES. IN THIS REGARD, HE DRAWN OUR ATTENTION TO PARA NO. 6 OF THE ORDER OF TPO AND POINTED OUT THAT AS PER THIS PARA, THE TPO HAD MADE SEPARAT E ADDITIONS/DISALLOWANCE IN RESPECT OF TP ADJUSTMENT ON MARKETING AND ALLIED CH ARGES PAID TO AE OF RS. 12,3,19,59,360/- AND THE TPO HAS ALSO MADE TP ADJUS TMENT ON ACCOUNT OF SALE OF SOFTWARE TO AE OF RS. 1,51,95,29,978/- AND ON TH IS ACCOUNT, THE ADJUSTMENT MADE BY HIM IS OF RS. 48,92,80,300/-. AFTER POINTI NG OUT THIS, HE PLACED RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF M/S. MP HASIS LTD. VS. ADDL. CIT IN IT(TP)A NO. 242/BANG/2014 DATED 09.08.2017. HE SUB MITTED A COPY OF THIS TRIBUNAL ORDER AND DRAWN OUR ATTENTION TO PARA 9 OF THIS TRIBUNAL ORDER AND SUBMITTED THAT AS PER THIS PARA OF TRIBUNAL ORDER, IT WAS HELD BY THE TRIBUNAL THAT ONCE TNMM IS APPLIED, FOR AN ITEM OF EXPENDITU RE FORMING PART OF OPERATING EXPENDITURE, NO SEPARATE ADJUSTMENT IS JUSTIFIED. HE POINTED OUT THAT IN THAT CASE, THE TPO HAS APPLIED CUP METHOD FOR COMPUTING ALP FOR COMMISSION WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS ADOPTED THE TNMM AT EACH SEGMENT LEVEL WHILE CONSIDERING SELLING COMMISSIONS AS CLOSELY LINKED TRANSACTION. HE SUBMITTED THAT IN THE PRESENT CASE ALSO, THE PAYMENT OF MARKETING AND ALLIED CHARGES ARE PART OF OPERATING EXPENDITURE FOR COMPUTING THE PROFIT MARGIN OF THE ASSESSEE ON SALE OF SOFTWA RE AND ONCE, THE PROFIT MARGIN ON SALE OF SOFTWARE IS EXAMINED UNDER TNMM, NO SEPARATE ADJUSTMENT IS CALLED FOR IN RESPECT OF MARKETING AND ALLIED CH ARGES BEING PART OF OPERATING EXPENDITURE. IT(TP)A NO. 190/BANG/2018 PAGE 8 OF 9 4. HE ALSO PLACED RELIANCE ON ANOTHER TRIBUNAL ORDE R RENDERED IN THE CASE OF ACIT VS. GATES INDIA (P) LTD. IN ITA NO. 75/DEL/2011 DAT ED 31.07.2017. HE SUBMITTED A COPY OF THIS TRIBUNAL ORDER ALSO AND DR AWN OUR ATTENTION TO PARA NO. 7 OF THIS TRIBUNAL ORDER AND POINTED OUT THAT IN TH AT CASE, THE TPO CONSIDERED THE TNMM AS WELL AS CUP METHOD AS MOST APPROPRIATE METHOD IN RESPECT OF TWO TRANSACTIONS OF IMPORT OF GOODS AND SALE OF FIN ISHED PRODUCTS TO THE A.E. BECAUSE IN THAT CASE, THE ASSESSEE WAS IMPORTING RA W MATERIAL FROM ITS A.E. AND ALSO MAKING EXPORTS OF THE FINISHED GOODS TO TH E A.E. HE POINTED OUT THAT UNDER THESE FACTS, IT WAS HELD BY TRIBUNAL IN THAT CASE THAT IT IS NOT PROPER TO APPLY SEPARATE METHODS FOR DETERMINING THE ALP FOR EACH OF THE TRANSACTIONS PARTICULARLY WHEN THE INTERNATIONAL TRANSACTIONS AR E CLOSELY LINKED AND INTER- DEPENDING HAVING DIRECT BEARING ON THE PRICE OF EAC H OTHER. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW A ND HE ALSO SUBMITTED THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF TPO FOR FRESH DECISION IN THE LIGHT OF THESE TRIBUNAL ORDERS. 5. IN THE REJOINDER, THE LD. AR OF ASSESSEE FURTHER SUBMITTED THAT THERE IS ONE MORE DEFECT IN THE ORDER OF TPO BECAUSE THE TPO HAS BIFU RCATED DOMESTIC SALE AND EXPORT SALES FOR THE PURPOSE OF COMPUTING OPERATING PROFIT AND THEREAFTER, CONSIDERED THE PROFIT OF EXPORT SEGMENT ONLY FOR TP ANALYSIS. HE SUBMITTED THAT THIS ACTION OF TPO IS NOT JUSTIFIED AND IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. JDSU INDIAN PVT. LTD. IN ITA NO. 1120/DEL/2015 DATED 02.04.2018. HE SUBMITTED A COPY OF THIS TRIBUNAL ORDER AND POINTED OUT THAT IN THAT CASE, T HE TPO HAS SEGREGATED THE FINANCIALS OF ASSESSEE INTO TWO SEGMENTS I.E. DISTR IBUTION AND COMMISSION SEGMENTS IN PROPORTION TO SALES BY THE ASSESSEE IN DISTRIBUTION BUSINESS AND COMMISSION INCOME FROM INDENTING ACTIVITIES. HE DR AWN OUR ATTENTION TO PARAS 19 AND 20 OF THIS TRIBUNAL ORDER AND POINTED OUT TH AT IN THAT CASE, IT WAS HELD BY THE TRIBUNAL THAT NO COMPELLING REASONS ARE FORTHCO MING BEFORE THE TRIBUNAL AS TO WHY THE LD. TPO SHOULD DISCARD THE METHOD OF TNM M WHICH HAS BEEN CONSISTENTLY AND CONTINUOUSLY ADOPTED IN THE LAST T HREE PRECEDING YEARS. HE SUBMITTED THAT IN VIEW OF THIS TRIBUNAL ORDER, THIS ACTION OF TPO SHOULD ALSO BE DISPROVED. IT(TP)A NO. 190/BANG/2018 PAGE 9 OF 9 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THE OBJECTIONS WHICH ARE RAISED BEFORE US WERE NOT RAISED BY ASSESSEE BE FORE THE TPO OR DRP AND HENCE, ON THIS ASPECT, THERE IS NO FINDING OF TPO & DRP. HENCE WE FEEL IT PROPER THAT IN THE FACTS OF PRESENT CASE, THE ENTIR E ISSUE SHOULD GO BACK TO THE FILE OF TPO FOR FRESH DECISION IN THE LIGHT OF VARI OUS TRIBUNAL ORDERS WHICH ARE CITED BEFORE US AS NOTED ABOVE. ACCORDINGLY WE SET ASIDE THE ASSESSMENT ORDER AND RESTORE THE MATTER BACK TO THE FILE OF AO /TPO FOR FRESH DECISION IN THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. IN VIEW OF THIS DECISION, NO ADJUDICATION IS CALLED FOR IN RESPECT OF VARIOUS SPECIFIC GROUNDS RAISED BY THE ASSESSEE IN THE PRES ENT APPEAL. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 05 TH OCTOBER, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.