Veritas Software Technologies India Pvt. Ltd, Pune V. Deputy Commissioner of Income Tax (TP-2), Pune

ITA 207/PUN/2021

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5410 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 26-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 32; 271(1)(c); 13

Judgement Text

आयकर अपीलीय अिधकरण “सी” Ɋायपीठ पुणे मŐ। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.207/PUN/2021 िनधाŊरण वषŊ / Assessment Year : 2016-17 M/s. Veritas Software Technologies India Private Limited, EON Free Zone, Ground to Second Floor, Wing-4, Cluster A, Plot No.1, Survey No.77, MIDC Knowledge Park, Kharadi, Pune-411 014. PAN : AAFCV1059A .......अपीलाथŎ / Appellant बनाम / V/s. The Deputy Commissioner of Income Tax (TP-2), Pune. ......ŮȑथŎ / Respondent Assessee by : Shri Ajit Korde Revenue by : Shri Shivraj B. Morey सुनवाई की तारीख / Date of Hearing :17.11.2021 घोषणा की तारीख / Date of Pronouncement : 31.12.2021 आदेश / ORDER PER INTURI RAMA RAO, AM: This appeal filed by the assessee is directed against the final assessment order passed by National e-Assessment Centre, Delhi u/s.143(3) r.w.s. 144C(13) r.w.s.143(3A) and section 143(3B) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 2016-17 dated 30.03.2021. 2 ITA No.207/PUN/2021 A.Y.2016-17 2. The assessee raised the following grounds of appeal :- “1. Ground No.1- General ground On the facts and in the circumstances of the case and in law, the National e-Assessment Centre (NeAC) erred in enhancing the income of the Appellant by INR 63,36,98,426 by holding that the International transactions pertaining to provision of software development services, provisions of technical support services and provision of sales and marketing support of the Appellant do not satisfy the arm’s length principle envisaged under the Income Tax Act, 1961 ( “the Act”), thereby making a transfer pricing (TP) adjustment of INR 24,39,53,671, INR 5,01,93,449 and INR 33,95,51,306 respectively. The appellant prays that the TP analysis conducted by the Appellant be accepted and consequently the TP adjustment be deleted. 2. Ground No.2- Comparable Companies in relation to the provision of software Development Services 2.1 On the facts and in the circumstances of the case and in law, NeAC erred in excluding the following companies from the comparable set which are comparable to the provision of Software Development Service segment’s functions, asset base and risk profile. i. Kals Information Systems. ii. Akshay Software Technologies Limited iii. Sagarsoft (India) Limited iv. Accel Frontline Ltd. (Segmental) v. Maveric Systems Limited vi. Mudunuru Limited vii. CG-VAK Software & Exports Limited viii. Infomile Technologies Limited ix. Cigniti Technologies Limited x. R Systems International Limited ( Segmental) xi. SQS India BFSI Limited ( formerly Thinksoft Global Services Ltd.(Consolidated) and xii. Kellton Tech Solution Ltd. The Appellant prays that the TP Analysis conducted by the Appellant ought to be accepted and aforementioned comparable companies ought to be selected; consequently the TP adjustment in relation to the Provision of Software Development Service segment ought to be deleted. 2.2.On the facts and in the circumstances of the case and in law, NeAC erred in including the following companies from the comparable set which are not comparable to the provision of Software Development Service segment’s functions, asset base and risk profile. i. Exilant Technologies Private Limited ii. Harbinger Systems Private Limited iii. Nihilent Limited iv. Persistent Systems Limited v. Cybage Software Private Limited vi. Aspire Systems (India) Private Limited 3 ITA No.207/PUN/2021 A.Y.2016-17 vii. Thirdware Solution Limited viii. Dun& Bradstreet Technologies & Data Services Private Limited and iv. E-Infochips Limited. The Appellant prays that the TP Analysis conducted by the Appellant ought to be accepted and aforementioned comparable companies ought to be rejected; consequently the TP adjustment in relation to the Provision of Software Development Service segment ought to be deleted. 3. Ground No.3- Comparable Companies in relation to provision of Technical Support Services: 3.1 On the facts and in the circumstances of the case and in law, NeAC erred in excluding the following companies from the comparable set which are comparable to the provision of Technical support Service segment’s functions, asset base and risk profile i. Sundaram Business Services Limited ii. Informed Technologies India Limited iii. ACE Software Exports Limited iv. Allsec Technologies Limited v. Crystal Hues Limited vi. JindalIntellcom Limited vii. Cosmic Global Limited viii. Suprawin Technologies Limited ix. R Systems International Limited and x. Datamatics Financial Services Limited The Appellant prays that the TP analysis conducted by the Appellant ought to be accepted and aforementioned comparable companies ought to be selected. Consequently, the TP adjustment in relation to the Provision of Technical Support Service Segment ought to be deleted. 3.2 On the facts and in the circumstances of the case and in law, NeAC erred in including the following companies from the comparable set which are not comparable to the provision of Technical support Service segment’s functions, asset base and risk profile. i. Domex E-Data Private Limited ii. Manipal Digital Systems Private Limited iii. C E S Limited and iv. M P S Limited The Appellant prays that the TP analysis conducted by the Appellant ought to be accepted and aforementioned comparable companies ought to be rejected. Consequently, the TP adjustment in relation to the Provision of Technical Support Service Segment ought to be deleted. 4. Ground No.4- Comparable companies in relation to Provision of Sales and Marketing Support Services On the facts and circumstances of the case and in law, NeAC erred in excluding the following companies in the comparable set which are 4 ITA No.207/PUN/2021 A.Y.2016-17 comparable to the Provision of Sales and Marketing Support Service segment’s functions, asset base and risk profile: i. MCI Management (India) Limited; ii. India Tourism Development Corporation Limited and iii. EDCIL (India) Limited (Segmental) The appellant prays that the TP analysis conducted by the Appellant ought to be accepted and consequently the TP adjustment in relation to the Provision of Sales and Marketing Support services segment ought to be deleted. 5. Ground No. 5- Treatment of goodwill amortization cost On the facts and in the circumstances of the case and in law, NeAC erred in considering amortization of goodwill, arising on account of acquisition as operating in nature while computing the operating profit margin of Provision of Sales and Marketing Support Service segment of the Appellant. The Appellant prays that the Learned Assessing Officer ( Ld. AO) NeAC be directed to treat the amortization of goodwill as a non- operating cost. 6. Ground No. 6- Double disallowance due to treatment of goodwill amortization cost Without prejudice to any of grounds raised above, on the facts and circumstances of the case and in law, the NeAC consequent to treating amortization of goodwill as an operating cost for computing impugned transfer pricing adjustment on one hand, erred in, not allowing depreciation on goodwill under section 32 of the Act as specifically requested by the Appellant (on without prejudice basis), resulting in double disallowance of the same amount. The Appellant prays on a without prejudice basis that in case the Goodwill is treated as on operating cost for the purpose of computation of the arm’s length price, the depreciation on goodwill be allowed to the Appellant under section 32 of the Act. 7. Ground No.7- Common ground in relation to the risk adjustment Without prejudice to any of the Grounds raised above, on the facts and in the circumstances of the case, the NeAC have erred in not granting the Appellant, the benefit of an adjustment for the differences in the level of risk borne by the comparable companies and the Appellant. The Appellant prays that Ld. AO/NeAC be directed to allow the risk adjustment to the Appellant. 8. Ground No. 8- Initiation of penalty proceedings On the facts and circumstances of the case, the NeAC has erred in initiating penalty proceedings under section 271(1)(c) of the Act. The Appellant prays that the Ld. AO/NeAC be directed to drop the penalty proceedings. 5 ITA No.207/PUN/2021 A.Y.2016-17 The above grounds are without prejudice to each other. The Appellant craves leave to add, amend, alter, withdraw, modify and/or substitute and to withdraw the above ground of appeal.” 3. The brief facts of the case are as under:- The assessee is a company incorporated under the provisions of Indian Companies Act, 2013. It is engaged in the business of providing Software Development Services, Provision of Technical Support Services and Provision of Sales and Marketing support services to its Associate Enterprises (AEs). The return of income for the assessment year 2016-17 was filed on 30.11.2016 declaring total income of Rs.64,74,70,080/-. The said return of income was selected for scrutiny assessment. The Assessing Officer on noticing that the assessee company had reported international transactions in Form 3CEB, referred the matter to the TPO u/s.92CA(1) of the Act for the purpose of benchmarking the international transactions. The assessee company reported the following international transactions in Form 3CEB: No. Nature of Transaction Amount as per 3CEB Method 1. Provision of software development services and consultancy services 2,47,69,11,000 TNMM 2. Provision of technical support services 52,17,39,000 TNMM 3. Provision of sales and marketing support services 41,94,99,000 TNMM 4. Payment of interest on convertible debentures 17,06,10,000 CUP 5. Reimbursement of expenses to AEs 7,57,78,034 OM 6. Recovery of expenses from AEs 18,04,039 OM Total 366,63,41,073 4. The assessee company sought to justify the consideration received for the above international transaction entered with its AE to be at arm’s length price. The assessee company had also submitted transfer pricing study report adopting the operating profit to total cost (OP/TC) as profit level indicator (PLI) for the transfer pricing study report. For the purpose of TP study, the 6 ITA No.207/PUN/2021 A.Y.2016-17 assessee company applied Transactional Net Margin Method (TNMM) segment wise which was considered to be the most appropriate method for the purpose of benchmarking the international transactions. The assessee company computed the segment-wise PLI as under: Particulars Software Development Services Technical Support Services Sales & Marketing Consulting & Education Total Operating Revenue 247,69,11,000 52,17,39,000 41,9499000 2,60,19,000 344,41,68,000 Operating expenses 2205808408 465477699 385821900 39697994 309,68,06,000 Operating profit 271137112 56268572 33682947 -13678631 34,74,10,000 OP/OC% 12.29% 12.09% 8.73% -34.46% 11.22% PLI of comparables 12.77% 11.88% 8.73% 5. The assessee company claimed that the same was comparable with other companies rendering Software Development Services, Technical Support Services and Sales and Marketing Support Services. For the purpose of transfer pricing study, the assessee company had chosen 16 comparable entities and weighted average of profit margin of the said comparables was computed at 12.77%. Similarly, the assessee company had chosen 14 comparables in respect of Technical Support Services whose weighted average of the operating profit of the said comparable companies was computed at 11.88% as against the PLI of the assessee company at 12.09%. Similarly, in respect of Sales and Marketing segment, the assessee company had chosen 8 comparables whose weighted average profit margin was computed at 8.73%. According to the assessee company, its PLI is within range and hence, it was claimed that transactions with its AEs are at arm’s length price. However, the TPO had rejected the TP study report submitted by the assessee company and 7 ITA No.207/PUN/2021 A.Y.2016-17 had proceeded with identifying different set of comparable entities for the purpose of determining arm’s length price. 6. Now, we shall take segment-wise comparables for adjudication. A. Software Development Services Segment :- 7. In the TP study report, the assessee company had adopted the following comparable entities: Sr. No. Assessee’s set of comparable Companies in the TPSR PLI (OP/TC) 1. Akshay Software Technologies Limited 1.08% 2. Sagar Soft India Limited 1.52% 3. Accel Frontline Ltd. (SS Segmental) 6.03% 4. Sasken Communication Technologies Limited 8.00% 5. Kals Information Systems 8.11% 6. Maveric Systems Limited 9.27% 7. Infomine Technologies Ltd. 10.87% 8. CG-VAK Software & Exports Limited 12.35% 9. Mudunuru Ltd. 13.18% 10. Cigniti Technologies Ltd. 19.82% 11. Kellton Tech Solutions Ltd. 33.32% 12. R Systems International Limited (Segmental) 22.22% 13. SQS India BFSI Limited (formerly Thinksoft Global Services Ltd.)(Consolidated) 23.58% 14. Larsen & Toubro Infotech Limited 24.07% 15. Infobeans Technologies Ltd 29.94% 16. R.S. Software (India) Ltd 21.22% 8 ITA No.207/PUN/2021 A.Y.2016-17 8. However, the TPO had rejected the TP study report and proceeded to identify different set of comparables by adopting the following filters/criteria: S. No. Criteria (i) Companies with income from services> 75% of the operating revenue or segmental revenue are selected. (ii) Companies with less than 75% earning from export rejected (iii) Companies with related party transactions less than 25% are selected (iv) Persistent Loss making and negative net worth Companies are rejected. (v) Companies with Peculiar and extra ordinary Economic Circumstances are rejected. (vi) Companies that are functionally different from you were excluded (vii) Companies having turnover of less than Rs.24.76 Cr. And more than Rs.2476 Cr. have been excluded. (viii) Companies having different accounting year are rejected (ix) Companies with employee cost less than 25% of operating cost have been rejected (x) Companies with gross intangibles greater than 50% of operating revenue are rejected (xi) Companies with forex spending greater than 75% of operating cost are rejected. (xii) Companies for which data for 2015-16 and 2014-15 is not available are rejected. 9. Applying the above filters, the TPO rejected 13 comparables selected by the assessee company by accepting 3 companies viz. (a) Sasken Technologies Ltd.( formerly known as Sasken Communication Technologies Limited); (b) Infobeans Technologies Ltd. and (c) R.S. Software (India) Ltd. and finally selected the following list of comparables with respect to PLI: Sr. No. TPO’s Set of the comparable companies PLI (OP/TC) 1. Sasken Technologies Ltd.( formerly known as Sasken Communication Technologies Limited) 0.46% 2. Evoke Technologies Pvt.Ltd. 4.79% 3. Sasken Technologies Ltd.-Seg. 6.12% 9 ITA No.207/PUN/2021 A.Y.2016-17 4. E-Zest Solutions Ltd. 10.26% 5. Great Software Laboratory Pvt. Ltd. 13.18% 6. Exilant Technologies Pvt. Ltd. 17.10% 7. Harbinger Systems Pvt. Ltd. 19.70% 8. R.S. Software (India) Ltd 21.01% 9. Nihilent Ltd. 25.68% 10. Persistent Systems Ltd. 27.69% 11. Aspire Systems (India) Pvt. Ltd. 33.40% 12. Infobeans Technologies Ltd. 33.41% 13. Thirdware Solution Ltd. 38.76% 14. Cybage Software Pvt. Ltd. 66.09% 15. Dun & Bradstreet Technologies & Data Services Pvt. Ltd. 68.14% 16. E-Infochips Ltd. 87.25% 10. In respect of the technical support services, the TPO applied following filters :- 11. In respect of the technical support services, applying the above filters, the TPO rejected the comparables selected by the assessee company by accepting the three companies. The TPO vide order passed u/s 92CA(3) of S. No. Criteria (i) Companies with income from services > 75% of the operating revenue or segmental revenue are selected (ii) Companies with less than 75% earnings from exports rejected (iii) Companies with related party transactions less than 25% are selected (iv) Persistent Loss making and negative net worth Companies are rejected (v) Companies with Peculiar and extra ordinary Economic Circumstances are rejected (vi) Companies that are functionally different from you were excluded. (vii) Companies having turnover of less than Rs. 5.21 Cr and More than Rs. 521 Cr. have been excluded (viii) Companies having different accounting year are rejected (ix) Companies with employee cost less than 25% of operating cost have been rejected. (x) Companies with gross intangibles greater than 50% of operating revenue are rejected. (xi) Companies with forex spending greater than 75% of operating cost are rejected. (xii) Companies for which data for 2015-16 and 2014-15 is not available are rejected. 10 ITA No.207/PUN/2021 A.Y.2016-17 the Act dated 30.10.2019 suggested transfer pricing adjustments of Rs.24,39,53,671/- in respect of software development services. The assessee is not challenging the inclusion of the comparables selected by the assessee company. However, the assessee company is only seeking the exclusion of the following set of comparables chosen by the TPO :- (i) Nihilent Technologies Pvt. Ltd. (ii) Persistent Systems Ltd. (iii) Aspire Systems (India) Pvt. Ltd. (iv) Thirdware Solutions Ltd. (v) Cybage Software Private Ltd. (vi) Dun and Bradstreet Technologies & Data Services Pvt. Ltd. (vii) E-Infochip Ltd. (viii) Exilant Technologies Private Ltd. (ix) Manipal Digital Systems Pvt. Ltd. (x) CES Ltd. (xi) MPS Ltd. (xii) Domex E-data Pvt. Ltd. 12. NIHILENT TECHNOLOGIES PVT. LTD. : It is contested before the TPO, seeking exclusion of this company from the list of the comparables on the ground that (i) This company is engaged in providing high-end IT services in the area of design, thinking, digital transformation, advanced analytics, enterprise transformation, product development and product engineering etc., the same are not comparable to that of a pure software development services. (ii) The company earns revenue from IT as well as IT enabled services and segmental details in relation to the same are not available in its annual report. (iii) Since the company becomes non-comparable for financial year 2015-16, it would also stand rejected for financial years 2014-15 and 2013- 14 based on third proviso to Rule 10CA(2) of the Rules. 11 ITA No.207/PUN/2021 A.Y.2016-17 (B). The contentions were rejected by the TPO by making a reference to the annual report of the company, the relevant findings of the TPO are extracted below :- “The assessee has contended that Nihilent is functionally different. However, the same is not acceptable. It is seen from the Profit & Loss account of the company that it is earning 100% revenue from sale of software related services. The main description of the company as per the Annual report is as below: “Name and Description of main products / services % to total turnover of the company IT Consultancy, Software Development & other related services 100%” Further, the below screenshot from the AR states that, the company is earning revenue from Software Development and Consultancy. The description of the main product of the company also mentions that it is engaged in IT consultancy, software development and related services. Further, on page 111 of the AR under Revenue Recognition, the company is deriving income primarily from rendering software service activities. Moreover, the background of the company from the Annual Report (page 112) also states that is engaged in the software development services as below: Background: Nihilent technologies Limited (‘NTL’ or the ‘Company’ or ‘Nihilent’ is engaged in rendering software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT services. The company is considered as comparable and the objection of the assessee is hereby rejected.” (C). Even before DRP, the same contentions were reiterated and the DRP held that this company is purely software company, accordingly, upheld the inclusion of this company in the list of the comparables. (D). Before us, it is contended that this company is engaged into IT consultancy, software development and related services. It is further contended that the software development services are different from the provisions of software consultancy services placing reliance on the decision of the Hon’ble Delhi High Court in the case of Avenue Asia Advisors (P.) Ltd. vs. DCIT, 398 ITR 120 (Delhi). 12 ITA No.207/PUN/2021 A.Y.2016-17 (E). On the other hand, ld. CIT-DR contended that the contentions of the assessee company are based on the website information of the company which cannot be relied upon. He further submitted that page 111 of the annual report clearly states that the company derives its revenue primarily from rendering software service activities. The ld. CIT-DR contended that the IT consultancy services cannot be treated different from software development services. He further contended that when the assessee company is not engaged into IT enabled services, the question of segmental results does not arise when the assessee company is engaged purely into software development services. (F). We heard the rival submissions and perused the material on record. The annual report of the assessee company i.e. Nihilent Technologies Pvt. Ltd. is placed in the paper book at page no.1336 to 1471. From perusal of page no.1446 and 1447 of the paper book, it is clear that the company derives its revenue primarily from rendering software services activities. It is nowhere stated in the annual report of the company that it is into IT Enabled Services/sale of products. The arguments made on behalf of the appellant are not borne out of any material on record. Hence, we do not find any merit in the arguments of the assessee seeking exclusion of this company from the list of the comparables. 13. PERSISTENT SYSTEMS LTD. : The appellant sought exclusion of this company from the list of comparables before the TPO on the ground that (i) Persistent Systems Ltd. has significant related party transactions of 32.12% of net sales during the year under consideration. (ii) Persistent Systems Ltd. is engaged in development of software products, services and technology innovation and also earns income from 13 ITA No.207/PUN/2021 A.Y.2016-17 royalty. However, no segmental information is available for the same in the annual report. (iii) The financial year 2015-16 is an extra ordinary year of operations for the company and stand rejected for financial years 2014-15 and 2013-14 based on the third proviso to Rule 10CA(2) of the Rules. (B). The above contentions of the assessee company had been rejected by the TPO by holding that 93% revenue of the company is derived from software services and software consultancy services. Even the DRP also confirmed the findings of the TPO. (C). Before us, it is contended that it is engaged in development of software products, services and technology innovation and no segmental information is available in annual report, possessed the tangible and intangible assets etc. The assessee company have related party transaction exceeding 20% as applied by the TPO. (D). On the other hand, ld. CIT-DR submitted that the revenue derived from operations of the company constitutes revenue from sale of software services for the financial year 2013-14 whereas in the financial years 2014-15 and 2015-16 revenue from software services worked out to 99.42% and 98.35% respectively. Thus, it is submitted that revenue derived from software services constitutes very high. Further, it is submitted that the company had not earned any revenue from project engineering services as claimed by the appellant. It is submitted that the assessee company had not discharged the onus on establishing because of this acquisition there is a positive impact on the financials of the company for the year. Hence, it is submitted that this 14 ITA No.207/PUN/2021 A.Y.2016-17 company cannot rejected only on the ground of acquisition of other companies. (E). We heard the rival submissions and perused the material on record. From the annual report in the notes forming part of the financial statements, it is stated as under :- “The company is a global company specializing in software products, services and technology innovation. The company offers complete product life cycle services.” From the director’s report placed at page no.1627 of the paper book states as under :- “The company provides product engineering services, platform based solutions and IP-based software products to its global customers. The company derives a significant portion of its revenues from export of software services and products.” The information contained in notes forming part of the financial statements at page no.1709, the breakup of the revenue from operations is given vide Schedule 21, wherein, it is mentioned that the revenue from software services is Rs.14,232.56 millions and the revenue from software license is Rs.238.08 millions. However, segment-wise profitability or loss is not furnished. Though, the revenue from software development services constitutes 93% of the total revenue, the impact of the revenue from software license on the profitability of the company is not known. In the circumstances, this company cannot be considered as comparable with that of the assessee company which is pure software development services company. Hence, we direct the AO/TPO to exclude this company from list of the comparables. 14. ASPIRE SYSTEMS (INDIA) PVT. LTD. : The appellant company had objected the inclusion of this comparable on the ground that (i) The related party transactions are more than 25%. 15 ITA No.207/PUN/2021 A.Y.2016-17 (ii) It is engaged into developing, innovative products through its onsite and offshore model. (iii) The TPO rejected the above contentions by holding that the company has derived entire revenue from software services and the related party transactions does not exceed 25%. (iv) Even before the DRP, the same submissions were reiterated. However, the DRP upheld the inclusion in the list of comparables by holding that the submissions made by the assessee are based on the website information which cannot be relied upon. (B) Being aggrieved, the appellant is challenging the inclusion of this company in the list of comparables by arguing that it is engaged in diversified activity such as product engineering, testing, IT infrastructure support, cloud computing, etc, exceptional year companies amalgamated with Aspire super normal profit-making company. (ii) The TPO had not considered the website information and it is super normal profit-making company and (iii) The business model of the company is different from that of the assessee company as it had rendered service of onsite and offshore. (C). On the other hand, ld. CIT-DR contended that the annual report does not reveal any income for sale of software products, ITES, in-fact the annual report revealed that the entire revenue operation only from onsite of software services, software development and the information contained in the website cannot be relied upon. As regards to the amalgamation to the company applied Development Software (India) Pvt. Ltd. and Pure Apps Consulting Services Private Limited, it is submitted that the assessee has not 16 ITA No.207/PUN/2021 A.Y.2016-17 demonstrated as to how the amalgamation of this two companies has impacted the profitability of the assessee company and in any event both the companies are engaged in the business of development of software and provisions of software services. (D). We heard the rival submissions and perused the material on record. The company considered its business segment as its primary segment. The company is engaged in the business of providing outsourced technology services. The company focused on helping software companies creates innovating products through its onsite and offshore model. The company activities are not distinguishable on the basis of risk and method of operations. Accordingly, the company views the entire business as once segment. In notes forming part of the annual accounts at page no.1933 of the paper book, it is mentioned as under :- “The company considers its business segment as its primary segment. The company is engaged in the business of providing outsourced technology services, company focused on helping software companies create innovative products through its onsite and offshore model. The company’s activities are not distinguishable on the basis of risk and return, the methods of operations and regulatory environment, accordingly, the company views the entire business as one segment.” (E). That apart, in note no.36 of notes of accounts, the total expenditure in foreign currency is Rs.46,15,94,724/- indicating the incurring of expenditure onsite. It is settled position of law that when the business model of the assessee is different from that of comparables, then the company cannot be considered as comparable. In the present case, only indication available in the annual report suggesting that it is rendering both onsite and offshore services is incurring of expenditure in foreign currency. There is no other indication available. That apart, this contention was not raised before the lower authorities. Therefore, we are no option but remit the matter to the file 17 ITA No.207/PUN/2021 A.Y.2016-17 of the AO/TPO to examine the business model of this company with that of the assessee company and adjudicate the issue of comparability. 15. THIRDWARE SOLUTIONS LTD. : The assessee sought the exclusion of this company from list of comparables on the ground that (i) The company is engaged in consulting, design, implementing and support of enterprise applications for Fortune 500 firms. Also in transaction systems, analytics and cloud applications. Two decades of experience in transaction, analytics and cloud layers of enterprise applications – a global leader in enterprise applications. (ii) No segmental information for sale of licenses and sale of services is available. (iii) However, the TPO rejected the exclusion on the ground that 99% of the revenue is derived from the provision of software services. (B) Even before the DRP, the DRP confirmed the action of the TPO by holding that 99% of the revenue is derived from the provisions of software services and the contentions that it is engaged into diversified services is not supported by the information contained in the annual report. (C). Being aggrieved, the appellant is in the present appeal before us reiterating the same submissions as made before the lower authorities. Our attention is drawn to explanatory note given on revenue recognition at page 2144 stated that : “Revenue is primarily derived from software development, implementation services, application management services and other related services and from the sale of license and subscription for software application.” 18 ITA No.207/PUN/2021 A.Y.2016-17 It is further submitted that revenue from subscription for software application and sale of license indicates that there is income from development of software products. (D). On the other hand, ld. CIT-DR referring to the annual report of the company i.e. Thirdware Solutions Ltd. submits that 99% of income is derived from the provisions of software services. He further submits that the contention of the appellant that this company is engaged in diversified activities is not supported by the information contained in the annual report of the company and, therefore, the contention of the appellant company cannot be accepted. (E). We heard the rival submissions and perused the material on record. We find at page no.2139 of the paper book the breakup of the software services from local unit, export of software services, revenue from subscription & training and sale of licence as under :- “Software Services from local unit : 2809.62; Export of Software Services : 19285.11; Revenue from Subscription & Training : 32.59; and, Sale of Licence : 8.77” Even though, more than 90% of the total revenue is derived from provisions of software services. In the absence of segment-wise profits and losses, it is not possible to determine the impact of the operations of sale of products and training on the profitability of software service segment of the company. Therefore, we are of the considered opinion that this company i.e. Thirdware Solutions Ltd. cannot be compared with that of the appellant company which is purely software development company. In the circumstances, we direct the Assessing Officer/TPO to exclude this company from the list of comparables. 19 ITA No.207/PUN/2021 A.Y.2016-17 16. CYBAGE SOFTWARE PRIVATE LTD. : The appellant had sought exclusion from the list of the comparables before TPO on the ground that (i) It is engaged in providing the product engineering services and wide range of services such as support services, cloud, mobility, data analytics and social collaboration. (ii) However, the TPO rejected the contentions of the appellant on the ground that the submission of the assessee is based on the website information. The TPO further held that from the information contained in the annual report, it is clear that it is engaged in the development of software services. Even, the DRP confirmed the inclusion of Cybage Software Private Ltd. from the list of comparables. (B). Being aggrieved, the appellant is in the present appeal before us seeking exclusion of the said company from the list of comparables reiterating the contentions as made before the TPO/DRP. (C). On the other hand, ld. CIT-DR contends that from the information contained in the annual report at page no.149, it is clear that entire revenue is derived only from the software development services which make it clear that the company is engaged in the software development services. The submissions made by the assessee based on the website information which cannot be relied upon. (D). We heard the rival submissions and perused the material on record. We have carefully gone through the annual report wherein, it is clearly stated that the entire revenue is derived from the activities of software development services. We find no merit in the submissions of the appellant that a super normal profit-making company cannot be included in the list of the 20 ITA No.207/PUN/2021 A.Y.2016-17 comparables for the reasons that firstly, this contention was not raised before the lower authorities and secondly, a super profit-making company, ipso facto, leads to exclusion from the comparables. Therefore, we do not find any merit in the contention made by the appellant seeking exclusion of this company from the list of comparables. Therefore, we uphold the inclusion of this company in the list of the comparables with that of the appellant company. 17. DUN AND BRADSTREET TECHNOLOGIES & DATA SERVICES PVT. LTD. : The appellant sought the exclusion of this company from the list of comparables selected by the TPO on the ground that (i) Functional dissimilarity, as the company is engaged into diversified activities and no segmental information is available. However, the TPO rejected the contention of the appellant by holding that entire revenue of the company is derived from the activities of the provisions of software services. (B) Even the DRP confirmed the inclusion of this company in the list of comparables. (C). Before us, the assessee sought the exclusion of this company on the ground that this company is engaged in providing data analytics services- cum-predictive analytics and also engaged in diversified activities which is totally different from the software development services. It is also sought that the exclusion of this company on the ground that the entire business transactions are to its holding company or its affiliates. Therefore, comparison cannot be made with another controlled transaction and also is a super-normal profit-making company. 21 ITA No.207/PUN/2021 A.Y.2016-17 (D). On the other hand, ld. CIT-DR placing reliance on page no.131 of the annual report wherein, it is stated that entire revenue from the operations is derived from the services of the provisions of IT and provisions of software development services contended that this company is not into diversified activities and solely into the software development services. The submissions made by the assessee are based on the website information, which cannot be relied upon. (E). We heard the rival submissions and perused the material on record. The assessee company is seeking exclusion of this company from the list of the comparables on the ground that the company is engaged in diversified activities. We have carefully perused the annual report of this company, though it was stated that the company was incorporated with the object of providing predictive analytics but the information given in the annual accounts clearly shows that entire revenue is derived from the provisions of IT and software development services as contained in page no.138 of the annual report. The entire revenue is derived from the sale of software services as evident from the information contained in the profit and loss account at page no.135 and 136 of the annual report. However, we find merit in the contention of the appellant that a comparison can be made with only uncontrolled transactions. It is evident from the information contained in annual report that the company, as mentioned in the annual report at page no.2347 of the paper book, renders services to its parent company as well as some other affiliates companies only. However, this contention was made for the first time before us and requires verification of this facts/evidence by the AO/TPO. Hence, we remit this issue of comparability of this company to the TPO/AO. 22 ITA No.207/PUN/2021 A.Y.2016-17 18. E-INFOCHIP LIMITED : The appellant company is seeking the exclusion of this company from the list of comparables selected by the TPO as confirmed by the DRP. The appellant has objected inclusion of this company in the list of comparables before the TPO on the ground that (i) It is engaged in sale of products, product engineering and semi- conductor, service computer programming , consultancy and IT enabled services. The appellant submitted that in the absence of any segmental data, this company cannot be compared with that of the appellant company. (ii) Two subsidiary companies were merged with the appellant company. The impact of merger of these two companies has not been evaluated. (iii) However, the TPO upheld the inclusion by holding that 97% of the revenue is generated from the operations of Software Development activity and the acquisition had insignificant impact on the profitability of this company. (B) The TPO further held that the company cannot be excluded based on the website information. Even the DRP also upheld the inclusion. (C) Being aggrieved, the appellant is before us in the present appeal. (D). The ld. AR submitted that the company is into diversified activity such as, IT enabled services and sale of products. He placed reliance on the information contained in the disclosure of Accounting Policies etc., wherein it is stated as under : “e-Infochips Limited (e-Infochips) provide solutions to key verticals like Aerospace & Defense, Automotive, Consumer Electronics, Energy & Utilities, Healthcare, Home, Office, Industrial Automation, Media & Broadcast, Medical Devices, Retail & E-Commerce, Security & Surveillance and semiconductor.” 23 ITA No.207/PUN/2021 A.Y.2016-17 Our attention is also drawn to the information contained on segmental reporting at page 2686 of the paper book wherein it is stated as under : “Information about Primary Segments. The company is primarily engaged in Software Development and IT enable services and products which is considered the only reportable business segment as per Accounting Standard –AS17. “Segment Reporting” prescribed in Companies accounting standards notified under Section 133 of the Companies Act, 2013 (“the Act”) read with Rule 7 of the Companies (Accounts) Rules, 2014 and other relevant provisions of the Act. Information about Secondary Segments Sales by market. . . . . .” (E). On the other hand, the ld. CIT-DR placing reliance on the page 11 of the annual report of this company wherein name of the main product/service has been described as Computer Programming, Consultancy & related activities submitted that it is only a Software Development service. He further submitted that out of the total revenue of Rs.269,04,44,983/-, sale of services is Rs.255,82,06,799/- and revenue from sale of products is Rs.13,22,38,184/-. He submitted that revenue from Software Consultancy charges should be treated as part of Software Development services which means the revenue from Software Development services works out to 95.08%, therefore, this company cannot be excluded. It is further submitted that a supernormal profit making company cannot be ipso facto be excluded from the list of comparables. (F). We heard the rival submissions and perused the material on record. From the perusal of the annual report of this company, it would show that company derives income from Software Development as well as provision of technical know-how and revenue from sale of products etc. Though the break-up of the revenue is available, segment-wise profits are not available. Therefore, the impact of profitability from provisions of technical know-how and sale of products on the profitability of software developer segment is not known. Hence, we are of the considered opinion that this company cannot be 24 ITA No.207/PUN/2021 A.Y.2016-17 considered as comparable. Hence, we direct the AO/TPO to exclude this company from the list of comparables. 19. EXILANT TECHNOLOGIES PVT. LTD. : The appellant company objected to the inclusion of this company in the list of comparables before the TPO on the ground that (i) It is engaged in provision of information technology consulting and implementation, provides business process management and product engineering services, develops and owns intangible properties. Segmental information is not available. (B). However, the TPO rejected the above contentions by holding that 98.39% of the total revenue is from the activities of Software Development and therefore, held that the company is comparable with that of the appellant company. (C). Apart from the contention raised before the TPO, it is urged before the DRP that the company is also into Research and Development work and possess intangibles in the form of patents. However, the DRP also upheld the inclusion of this company in the list of comparables. Being aggrieved, the appellant is in appeal before us. (D). The ld. AR submitted that this company is functionally dissimilar with that of the assessee company as it is into Information Technology consulting and implementation company. Along with its subsidiaries, Exilant provides/delivers business solutions through global software development, Business IT services, application development and maintenance, business process management, business technology consulting, cloud and product engineering. Exilant is a Private Limited company incorporated and 25 ITA No.207/PUN/2021 A.Y.2016-17 headquartered in India and has registered office in Bangalore, Karnataka. Apart from having offices in India, the company has offices in United States of America, United Kingdom and Singapore. The company has also its wholly owned subsidiary in Switzerland and Singapore. It is also submitted that the company provides product engineering and consulting services, develops and owns the intangibles. Finally, it is submitted that the business model of this company is different from that of the appellant company as it provides on-site software services. The ld. AR placing reliance on the judgment of Hon’ble Delhi High Court in the case of PCIT Vs. Open Solutions Software Services (P) Ltd. (2020)116 taxmann.com 708 (Delhi), PCIT Vs. Aptara Technology (P) Ltd. (2019) 40 TR 100 (Bombay) and Rampgreen Solutions (P) Ltd. Vs. CIT (2015) 377 ITR 533 submitted that the companies having different business models are not comparable with the appellant company and therefore, urged for exclusion of this company from the list of comparables. (E). The ld. CIT-DR submitted that since 98.39% of the revenue is derived from the software development this company is comparable with that of the appellant company. (F). We heard the rival submissions and perused the material on record. We have also perused the annual report of the company which is placed at pages 3594 to 3716 of the paper book. From the information contained in the Director’s report at page 3599, it is seen that the entire revenue of this company is derived from the activities of Software services and products and Software licences. Activities of the company are described as Information Technology Software and other related services which is placed at page 15 of the annual report. Balance sheet placed at page 3678 also shows that this company is in possession of intangibles worth Rs.1,67,46,061/-. It is settled 26 ITA No.207/PUN/2021 A.Y.2016-17 position of law that a company which is engaged in the diversified activities such as Development of Software and sale of products cannot be compared with another company which is purely a Software Development company. We have noted in the above discussion that the company is into Software Development and sale of products. Further, there is no segmental data available. In the light of the above factual matrix, this company cannot be compared with that of the appellant company which is purely a Software Company in view of the law laid down by the Hon’ble Delhi High Court in the case of Open Solutions Software Services (P) Ltd. (supra). In the light of these findings given by us, we direct the AO/TPO to exclude this company from the list of comparables. 20. TECHNICAL SUPPORT SERVICE AGREEMENT : In this segment, the appellant company provides technical support which includes resolution of queries from the customers of AEs qua the calls. The appellant company is remunerated on cost plus model in consideration of providing these services. The appellant has selected 12 companies as comparable in its TP study which were rejected by the TPO vide page 44 of his order and the same is reproduced here below : Sr.No. Name of the company 1 Sundaram Business Services Limited 2 Hartron Communication Limited (Segmental) 3 Informed Technologies India Limited 4 ACE Software Exports Ltd. 5 Allsec Technologies Ltd. 6 Crystal Hues Limited 7 Jindal Intellicom Private Limited 8 Cosmic Global Limited 9 Suprawin Technologies Ltd. 10 R Systems International Limited (Segmental) 11 Ultramarine & Pigments Ltd. (Segmental) 12 Datamatics Financial Services Ltd. 27 ITA No.207/PUN/2021 A.Y.2016-17 B. The appellant is not challenging the inclusion of comparables chosen by it. It is only seeking exclusion of the comparables selected by the TPO. There is no doubt about the characterization of the activity of the appellant company as BPO or ITeS company. Now we shall deal with each of the comparables sought to be excluded by the appellant. 21. MANIPAL DIGITAL SYSTEMS PVT. LTD. : The appellant company had pleaded before the TPO for exclusion of this company from the list of comparables on the ground that (i) It is engaged is providing digital solutions, graphic solutions, packaging brand management services, packaging prepress, digital publishing and content solutions. (ii) It also renders web development and e-book distribution services. The activities of this company should be classified as KPO services and hence cannot be compared with that of the appellant company which is purely into IT enabled services. (B). The TPO rejected the appellant’s contention by holding that the appellant is engaged in provision of ITeS and the characterization of the activities cannot be done on the basis of website information. (C) The DRP also confirmed the findings of the TPO by holding that the revenue from ITeS is 85.27% of the total revenue. The revenue from web development and other services and e-book distribution is only 9.2% and 2.66%. (D) Even before us the same arguments were reiterated. The ld. AR pleaded that the activities of the company such as web development and e- book distribution can be classified as KPO services and therefore, cannot be 28 ITA No.207/PUN/2021 A.Y.2016-17 compared with that of the appellant company which is purely an ITeS company. Reliance was placed on the judgment of Hon’ble Delhi High Court in the case of Rampgreen Solutions (P) Ltd. Vs. CIT (2015) 60 taxmann.com 355 (Delhi) for the proposition that ITeS comprises of a wide range of services and classification between BPO/KPO services must be done to establish comparability. (E). On the other hand, the ld. CIT-DR submitted that 85.27% of the total revenue is derived from the operations of ITeS activity and therefore, the company should be treated accordingly. (F). We heard the rival submissions and perused the material on record. We have gone through the annual report of this company. On perusal of the same, it shows that the company is engaged in diversified activities such as web-development and e-book distribution, digital solutions, graphic solutions and packaging branch management which are value added services and can be classified as KPO activity. Though the breakup of the revenue and segment wise details are available, the details of profit or loss of the two segments are not available. The law laid down in the Rampgreen Solutions (P) Ltd. (supra) fortifies the view that the company providing KPO services cannot be compared with that of another company which is purely engaged in ITeS company. We, therefore, direct the AO/TPO to exclude this company from the list of comparables. 22. CES LIMITED : The appellant company objected for inclusion of this company in the list of comparables before the TPO on the ground that 29 ITA No.207/PUN/2021 A.Y.2016-17 (i) It fails to satisfy Related Party Transactions filter, change in accounting year and finance and accounting, fraud prevention, human resources, mortgage and process automation etc. (ii) It is contended that CES Limited cannot be compared with that of the appellant company as it is providing BPO as well as KPO services. (B). However, the TPO has rejected the above contentions by holding that 79% of the revenue is derived from the activities of IT enabled services. Percentage of RPT filter (income) to operating revenue is only 23.45% and the expenses to operating cost is 0.58%. The DRP also upheld the inclusion of this company. (C). Being aggrieved, the appellant is before us. While reiterating the same submissions as made before the lower authorities, he submitted that the company is engaged in both BPO as well as KPO services. In the absence of segmental details, this company cannot be compared with that of the appellant company which is purely an ITeS company. In support of his contention, he placed reliance on the decision of Coordinate Bench in the case of Credence Resource Management Private Limited Vs. ACIT (ITA No.133/PUN/2021, dt. 18-06-2021) as well as on the judgment of Hon’ble Delhi High Court in the case of Rampgreen Solutions (P) Ltd. Vs. CIT (2015) 60 taxmann.com 355. (D). On the other hand, the ld. CIT-DR submitted that the appellant company mainly earns revenue from provision of IT enabled services. The same is borne out from the annual report of CES Limited. It is further submitted that the contention of the appellant company that it earns revenue 30 ITA No.207/PUN/2021 A.Y.2016-17 from sale of software services, products and sale of user licenses and KPO services is not borne out of the material on record. (E). We heard the rival submissions and perused the material on record. The annual report of the company is placed at pages 2759 to 2864 of the paper book. On page 2797 of the paper book, it is seen that the principal business activities of the company is described as BPO/KPO. On page 2837, para No. 24 which is note to consolidated financial statements indicates that the operations of the company predominantly relates to provision of IT and IT enabled services. Schedule of the fixed deposits placed at page 2833 of the paper book also discloses intangible assets at Rs.45,996,313/-. Page 2847 of the paper book states method of revenue recognition which reads as under : “2.3 Revenue recognition : Income from software services and products. Revenue from professional services consist primarily of revenue earned from services performed on a “time and material” basis. The related revenue is recognized as and when the services are performed. The company also performs time bound fixed-price engagements, under which revenue is recognized using the percentage of completion method of accounting. The cumulative impact of any revision in estimates of the percentage of work completed is reflected in the year in which the change becomes known. Provision for estimated losses on such engagements are made during the year in which a loss becomes probable and can be reasonably estimated. Revenue from the sale of user licenses for software applications is recognized on transfer of the title in the user license, except in case of multiple element contracts requiring significant implementation services, where revenue is recognized as per the percentage of completion method.” From the above, it is apparent that the company is engaged into development of software and sale of products and revenue from sale of user licenses etc. and ITeS activity. It is settled position of law that a company which is engaged in diversified activities such as software development and ITeS cannot be compared with that of the appellant company which is a pure ITeS company. We further find there is no segmental data available. In view of 31 ITA No.207/PUN/2021 A.Y.2016-17 aforementioned reasons, we direct the AO/TPO to exclude this company from the list of comparables. 23. MPS LIMITED : The appellant objected inclusion of this company before the TPO in the list of comparables on the ground that (i) It is engaged in content creation, production, transformation and technology services, provides publishing solutions and services for digital first strategy. It also operates as an end-to-end solution provider and its product backed other services. (ii) It is submitted that the activity of content creation, production, transformation and technology services are value added services which can be characterized as KPO services. Therefore, this company cannot be considered as comparable with the appellant company. (B). However, the TPO rejected the above contentions by holding that it is purely an ITeS company. The DRP also upheld the inclusion of this company. (C). Aggrieved by the inclusion of this company in the list of comparables, the appellant is before us. The ld. AR placed reliance in the case of Credence Resource Management Private Limited Vs. ACIT (supra). (D). On the other hand, the ld. CIT-DR submitted that the appellant company operates on a single business segment of providing publishing services such as typesetting and data digitalization services and it has earned entire revenue from operations from the said activity MPS Ltd. is functionally comparable to the appellant company which is into ITeS segment. 32 ITA No.207/PUN/2021 A.Y.2016-17 (E). We heard the rival submissions and perused the material on record. Page No.2868 shows the business of the company. Which is reproduced as under : “Content Creation and Development. The content creation and development teams at MPS North America partner with publishers to create and develop engaging content for print and digital delivery. Our subject matter experts bring their curriculum and classroom expertise to projects across disciplines for Education and Professional Publishers. Content Production, Transformation. The content production and transformation teams across the facilities in India provide end-to-end delivery across all print and digital formats through smart workflows powered by relevant platforms.” (F). On perusal of the annual report of the company, it would show that the company is engaged in publishing tools like Digi Edit and Digi Comp, etd., and typesetting of data digitalization services. These services are undoubtedly can be classified as KPO services. There is no segmental data available. Considering the above facts, we direct the AO/TPO to exclude this company from the list of comparables. 24. DOMEX E-DATA PVT. LTD. : The appellant company objected for inclusion of this company before the TPO on the ground that (i) Insufficient information is available but no nature of activities performed and no website information is available. (ii) It was contended by the appellant that this company cannot be comparable as sufficient information is not available in the public domain. (B) However, the TPO rejected the same and held that this company is an ITeS company. The DRP confirmed the inclusion of this company in the list of comparables. (C). Being aggrieved, the appellant is in appeal in the present appeal. 33 ITA No.207/PUN/2021 A.Y.2016-17 (D). The ld. CIT-DR supported the inclusion of this company in the list of comparables and placed on the orders of the authorities below. It is submitted that entire revenue from operations is from export of IT enabled services. (E). We heard the rival submissions and perused the material on record. Page No.2978 of the paper book is the notes to the financial statements indicating revenue from operations. On going through the note to accounts, it is apparent that major revenue is from export of ITES. We do not find any reason to exclude this company from the list of comparables. Hence, this argument of the appellant company stands rejected. 25. The ground of appeal no.4 is dismissed as withdrawn. 26. The ground of appeal no.5 and 6 challenges the findings of the lower authorities holding that amortization of goodwill as operating expenses while computing the operating margin of provisions of sales and marketing. It is the contention of the appellant before DRP that amortization of goodwill is treated as operating cost depreciation on the same should be allowed as a deduction u/s 32 of the I.T. Act. The DRP rejected the claim by returning finding that the amortization of goodwill debited to P&L account was allowed as a deduction and no claim u/s 32 was made in the return of income. We do not find fallacy in the findings of the Hon’ble DRP as the claim for deduction of depreciation only on AO being satisfied with the fulfillment of the condition laid down u/s 32 of the I.T. Act. Thus, we do not find any merit in the ground of appeal no.5 and 6. Accordingly, the ground of appeal no.5 and 6 stands dismissed. 34 ITA No.207/PUN/2021 A.Y.2016-17 27. The ground of appeal no.7 challenges the decision of the DRP denying the grant of risk adjustments based on the decision of the Tribunal in the case of Philips Software. The DRP had denied the risk adjustments by holding as under :- “The assessee has not demonstrated as to how the difference in risk undertaken by a bank in advancing a loan to a borrower as compared to the risk involved in a loan advanced by RBI to a bank or by a bank to another bank is similar to the difference between the risk undertaken by the comparable company and the risk undertaken by the assessee. Hence, the difference between the Prime Lending Rate and the Bank Rate cannot be considered as a reliable and accurate measure of the Risk adjustment required to be made. In the absence of a reliable and accurate measure of the risk difference between the assessee and the comparables, no risk adjustment can be granted.” 28. Nothing is demonstrated before us as to how the findings of the DRP are incorrect. Hence, we dismiss this ground of appeal no.7. 29. The additional ground of appeal no.1 challenges seeking deduction of education cess from computation of taxable income. The ld. AR submits that the above ground raised by the assessee is purely legal ground and raised for the first time before this Tribunal. Since, the Education Cess paid by the assessee available with the respondent revenue which does not require any further examination of facts and prayed to allow the additional ground. Further, he submitted that this Tribunal taking support from the decision of Hon’ble High Court of Bombay in the case of Sesa Goa Ltd. reported in 423 ITR 426 directed the AO to allow deduction paid towards Education Cess. 30. After hearing both the parties, we note that the assessee paid Education Cess while computing the taxable income under normal provision of the I.T. Act. The Hon’ble High Court of Bombay in the case of Sesa Goa Ltd. (supra) was pleased to hold that the Education Cess is an allowable expenditure as per the provision of the I.T. Act. The relevant portion of the said judgment reads as follows: 35 ITA No.207/PUN/2021 A.Y.2016-17 “Legislature, in Section 40(a)(ii) has provided that "any rate or tax levied" on "profits and gains of business or profession" shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession". There is no reference to any "cess". Obviously therefore, there is no scope to accept Ms. Linhares’s contention that “cess” being in the nature of a “Tax” is equally not deductable in computing the income chargeable under the head “profits and gains of business or profession”. Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in Section 40(a)(ii) of the IT Act. 23. If the legislature intended to prohibit the deduction of amounts paid by an Assessee towards say, “education cess” or any other “cess”, then the legislature could have easily included reference to “cess” in clause (ii) of Section 40(a) of the IT Act. The fact that the legislature has not done so means that the legislature did not intend to prevent the deduction of amounts paid by the assessee towards the “cess”, when it comes to computing income chargeable under the head “profits and gains of business or profession”.” The Hon‟ble Bombay High Court observing on the impugned order of the ITAT has reasoned at Para 33 of the said order that the Tribunal has observed that since “cess” is collected as a part of the income tax and fringe benefit tax, therefore, such “cess‟ is to be construed as “tax”. However, the Hon‟ble Bombay High Court held that there is no scope for such implications when construing a taxing statute. Even though, “cess” may be collected as a part of income tax, that does not render such “cess” either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii) of the Act. The mode of collection is really not determinative in such matter. Therefore, it was held that amount “cess” paid is deductable from total income of the assessee.” 31. That therefore, from the legal perspective, the issue of “education cess‟ is an allowable expenditure as per provisions of Section 40(a)(ii) of the Act and placing reliance on the decision of the Hon’ble Bombay High Court (supra.), we direct the Assessing Officer to allow deduction in respect of Education Cess paid by the assessee. Accordingly, the additional ground of appeal no.1 raised by the assessee is allowed. 32. The additional ground of appeal no.2 challenges the levy of interest u/s 234C of the Act. This additional ground of appeal is consequential in nature. Once the default within the meaning of section 234C takes place, levy of interest is automatic and mandatory, is not open to challenge in the appeal proceedings. Hence, we do not find any merit in the said additional ground of appeal no.2 and the same is dismissed. 36 ITA No.207/PUN/2021 A.Y.2016-17 33. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced on 31 st day of December, 2021. Sd/- Sd/- (S.S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; िदनांक / Dated : 31 st December, 2021 SB/Sujeet आदेश की Ůितिलिप अŤेिषत / Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant. 2. ŮȑथŎ / The Respondent. 3. The CIT(Appeals)-13, Pune. 4. The Pr. CIT-5, Pune. 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, “सी”बŐच, पुणे / DR, ITAT, “C” Bench, Pune. 6. गाडŊ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, //True Copy// िनजी सिचव / Private Secretary आयकरअपीलीयअिधकरण, पुणे / ITAT, Pune.