M/s. Cadence Design Systems (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 2074/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4576 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 01-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Rule of consistency; Additional evidence; Initiation of penalty proceedings
• Section: 92C; 143(3); 92B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I , NEW DELHI BEFORE N. K. SAINI, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER I.T .A. NO. 2074/DEL/2014 ASSESSMENT YEAR: 2009 - 10 C A DENCE DESIGN SYSTEMS (INDIA) PVT. LTD. O - FLOOR, HOTEL TH E SURYAA , NEW FRIENDS COLONY , NEW DELHI V. D Y. C OMMISSIONER OF I NCOME T AX CIRCLE 3(1) NEW DELHI TAN/PAN: AAACC1138Q (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI NAGESHWAR RAO, ADVOCATE RESPONDENT BY: SHRI NEERAJ KUMAR, D.R. DATE OF HEARING: 0 5 0 6 20 1 7 DATE OF PRONOUNCEMENT: 04 0 9 201 7 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 25 .2. 2014 , FOR QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3)/144C OF THE INCOME TAX ACT, 1961, WHICH IS IN PURSUANCE OF DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PA NEL - 1, NEW DELHI (DRP), VIDE ORDER DATED 24/12/2013. FOR THE SAKE OF READY REFERENCE, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE REPRODUCED HEREUNDER: - 1. THE FINAL ASSE SSMENT ORDER DATED FEBRUARY 25, 2014 PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1) NEW DELHI ('LEARNED AO') PURSUANT TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL (,DRP'), DRAFT ASSESSMENT ORDER PASSED I.T.A. NO.2074/DEL/2014 2 BY LEARNED AO AND THE ORDER S DATED JANUARY 08, 2013 AND FEBRUARY 02, 2014 PASSED BY ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRICING - 1 (1), NEW DELHI ('LEARNED TPO'), IS BAD IN LAW AND VOID - AB - INITIO. 2. THAT ON FACTS AND IN LAW, THE LEARNED AO HAS ERRED IN COMPUTING THE TOT AL INCOME OF THE APPELLANT AT INR 66,75,13,660 AS AGAINST THE RETURNED INCOME OF INR 37,65,99,859 BY MAKING AN UPWARD ADJUSTMENT OF RS 28,92,41,993 AND INR 16,71,808 WITH RESPECT TO TRANSFER PRICING (UTP') AND CORPORATE TAX MATTERS, RESPECTIVELY. PART I - TRANSFER PRICING GROUNDS 3. THAT ON FACTS OF THE CASE AND IN LAW, THE DRPI TPO/AO HAVE ERRED IN REJECTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT BY CONDUCTING A FRESH ECONOMIC ANALYSIS FOR INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES, PROVISION OF INFORMATION TECHNOLOGY ('IT') BACK OFFICE SUPPORT SERVICE AND PRE - SALES MARKETING AND POST - SALES TECHNICAL SUPPORT SERVICE (IMPUGNED TRANSACTIONS') 4. THAT ON FACTS OF THE CASE AND IN LAW, THE DRPI TPO/AO HAVE ERRED IN REJECTING CERTAIN COMPANIES AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF ALLEGED COMPARABLE COMPANIES ON AN AD - HOC BASIS, THEREBY RESORTING TO CHERRY PICKING OF COMPARABLE COMPANIES FOR BENCHMARKING THE IMPUGNED TRANSACTIONS. 5. THAT ON FACT S OF THE CASE AND IN LAW, THE DRP ITPO/AO HAVE ERRED BY IDENTIFYING COMPANIES WHICH ARE ENGAGED IN PROVIDING KNOWLEDGE PROCESS OUTSOURCING SERVICES AS COMPARED TO THE APPELLANT FOR THE BENCHMARKING OF THE INTERNATIONAL TRANSACTION PERTAINING TO IT BACK OFF ICE SUPPORT SERVICES. 6. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP/ TPO/AO HAVE ERRED IN SELECTING COMPANIES IN THE FINAL SET OF ALLEGED COMPARABLES WHICH HAVE DIFFERENT BUSINESS/OPERATING MODELS AS COMPARED TO THE APPELLANT FOR THE IMPUGNED TRANSACTIO NS. 7. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP IGNORED THE PRINCIPLE OF NATURAL JUSTICE BY NOT A GIVING A FINDING ON THE I.T.A. NO.2074/DEL/2014 3 ADDITIONAL EVIDENCE FILED BY THE APPELLANT WITH RESPECT TO COMPARABLE COMPANIES NAMELY FORTUNE INFOTECH LIMITED, MICROLAND LIMITE D AND MICROGENETICS SYSTEMS LIMITED CONSIDERED FOR THE BENCHMARKING OF INTERNATIONAL TRANSACTION PERTAINING TO IT BACK OFFICE SUPPORT SERVICES AND ICRA TECHNO ANALYTICS LIMITED AND INDUS NETWORKS LIMITED FOR THE BENCHMARKING OF INTERNATIONAL TRANSACTION PE RTAINING TO PRE - SALES MARKETING AND POST - SALES TECHNICAL SUPPORT SERVICE. 8. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP / TPO/AO ERRED AND VITIATED THE PRINCIPLE OF NATURAL JUSTICE BY NOT GIVING DUE COGNIZANCE TO THE DETAILED ANALYSIS AND TECHNICAL ARGUME NTS SUBMITTED BY THE APPELLANT IN RESPECT OF CERTAIN COMPANIES CONSIDERED/REJECTED FOR BENCHMARKING OF IMPUGNED TRANSACTIONS. 9. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP HAS GROSSLY ERRED IN GIVING A DIRECTION TO RECTIFY THE ARITHMETICAL ERRORS IN THE COMPUTATION OF THE OPERATING MARGINS OF ALLEGED COMPARABLE COMPANIES IN COMPLIANCE WITH THE INCOME TAX ACT (LITHE ACT') WITHOUT APPRECIATING THAT INDIAN REGULATIONS DO NOT ENUMERATE THE METHODOLOGY FOR COMPUTING OPERATING MARGINS WHICH MAY APPLY TO THE AP PELLANT DRP HAS ERRED IN DIRECTING THE TPO TO RE - COMPUTE MARGINS OF ALLEGED COMPARABLES USING SAFE HARBOUR RULES WITHOUT UNDERSTANDING THAT: ASSESSEE HAS NOT APPLIED FOR BEING ASSESSED UNDER SAFE HARBOR PROVISIONS SAFE HARBOUR PROVISIONS DO NOT REFLE CT ARM'S LENGTH NATURE OF MARGINS SAFE HARBOUR RULES CANNOT BE APPLIED RETROSPECTIVELY AND ARE ONLY APPLICABLE FOR ASSESSMENT YEAR ('AY') 2013 - 14 AND AY 2014 - 15 ON SPECIFIC APPLICATION BY A TAXPAYER 10. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO/AO HAVE ERRED BY MAKING COMPUTATIONAL ERRORS WHILE COMPUTING THE OPERATING MARGIN OF THE APPELLANT. 11. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO/AO HAVE ERRED BY MAKING COMPUTATIONAL ERRORS WHILE COMPUTING THE UNADJUSTED I.T.A. NO.2074/DEL/2014 4 AND WORKING CAPITAL ADJUSTED OPER ATING MARGIN OF THE ALLEGED COMPARABLE COMPANIES FOR THE BENCHMARKING OF IMPUGNED TRANSACTIONS. 12. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP / TPO/AO HAVE ERRED IN CONDUCTING A FRESH ECONOMIC ANALYSIS BY USING ARBITRARY FILTERS FOR IDENTIFYING COMPANIES COMPARABLE TO THE APPELLANT. THE ARBITRARY FILTERS APPLIED BY THE TPO AND CONFIRMED BY THE DRP/AO INTER - ALIA INCLUDE THE FOLLOWING: FOR INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES, IT BACK OFFICE SUPPORT SERVICES AN D PRE - SALES MARKETING AND POST - SALES TECHNICAL SUPPORT SERVICE: REJECTING COMPANIES HAVING TURNOVER LESS THAN INR 5 CRORES; REJECTING COMPANIES HAVING DIFFERENT ACCOUNTING YEAR THAN THAT OF THE APPELLANT; AND REJECTION OF COMPANIES IDENTIFIED BY T HE APPELLANT ON ACCOUNT OF HAVING PECULIAR ECONOMIC CIRCUMSTANCES WHICH ARE NOT IN LINE WITH THE INDUSTRY TREND, - COMPANIES WHICH SHOWED DIMINISHING REVENUE TREND; FOR INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES, I T BACK OFFICE SUPPORT SERVICES: REJECTING COMPANIES HAVING EXPORT REVENUE LESS THAN 75 PERCENT OF THE OPERATING REVENUE. FOR INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES: REJECTING COMPANIES HAVING EMPLOYEE COST LESS THAN 25 PERCENT OF THE TOTAL SALES. 13. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP / TPO/AO HAVE ERRED BY SELECTING CERTAIN COMPANIES WHICH ARE EARNING SUPER NORMAL PROFITS AS COMPARABLE TO THE APPELLANT FOR THE IMPUGNED TRANSACTIONS. I.T.A. NO.2074/DEL/2014 5 14. THAT O N FACTS OF THE CASE AND IN LAW, THE DRP / TPO/AO HAVE ERRED BY ALLOCATING THE DEPRECIATION AMOUNTING TO INR 1,21,22,486 ON AN UNUTILIZED PALLADIUM MACHINE TO THE OPERATING COST OF THE APPELLANT AND RE - DETERMINE THE OPERATING MARGIN OF THE APPELLANT FOR THE B ENCHMARKING OF INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES. 15. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP/TPO/AO HAVE ERRED BY CHARGING INTEREST ON CREDIT PERIOD GRANTED BY THE APPELLANT UNDER NORMAL TRADE PRACTI CES FOR THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF PRE - SALES MARKETING AND POST - SALES TECHNICAL SUPPORT SERVICES. 16. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP/TPO/AO HAVE FAILED TO MAKE APPROPRIATE ADJUSTMENTS TO ACCOUNT FOR VARYING RI SK PROFILES OF THE APPELLANT VIS - A - VIS THE ALLEGED COMPARABLES FOR IMPUGNED TRANSACTIONS AND IN THE PROCESS INTER - ALIA NEGLECTED THE INDIAN TRANSFER PRICING REGULATIONS, INTERNATIONAL GUIDELINES ON TRANSFER PRICING AND JUDICIAL PRECEDENCE IN THIS REGARD. 17. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP AND TPO/AO HAVE ERRED BY NOT CONSIDERING THAT THE ADJUSTMENT TO THE ARM'S LENGTH PRICE, IF ANY, SHOULD BE LIMITED TO THE LOWER END OF THE 5 PERCENT RANGE AS THE APPELLANT HAS THE RIGHT TO EXERCISE THIS OPT ION UNDER THE SECOND PROVISO TO SECTION 92C(2) OF THE ACT. 18. THAT ON FACTS OF THE CASE AND IN LAW, THE DRPI TPO/AO HAVE ERRED IN USING SINGLE YEAR DATA FOR FINANCIAL YEAR (UFY') 2008 - 09 OF ALLEGED COMPARABLE COMPANIES WITHOUT CONSIDERING THE FACT THAT THE SAME WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS AND DISREGARDING THE APPELLANT'S CLAIM FOR USE OF MULTIPLE YEAR DATA FOR COMPUTING THE ARM'S LENGTH PRICE. 19. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP/AO HAS ERRED IN CONFIRMING THAT ASSESSING OFFICER/TPO HAS DISCHARGED HIS STATUTORY ONUS BY ESTABLISHING THAT THE CONDITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SECTION 92C (3) OF THE ACT HAVE BEEN SATISFIED BEFORE DISREGARDING THE AR M'S LENGTH PRICE DETERMINED BY THE APPELLANT AND PROCEEDING TO DETERMINE THE ARM'S LENGTH PRICE. I.T.A. NO.2074/DEL/2014 6 PART II - CORPORATE TAX GROUNDS 20. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ DRP ERRED IN ALLOCATING DIRECTOR'S REMUNERATION BET WEEN STP UNIT AND NON - SSTP UNIT BY IGNORING THE FACTS PLACED ON RECRD. 21. THAT ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE AO/ DRP ERRED IN HOLDING THAT THE APPELLANT INTENTIONALLY DEBITED DIRECTOR'S SALARY TO NON STP UNIT TO REDUCE ITS TA XABLE INCOME, WITHOUT APPRECIATING THE OPERATING MODEL (COST PLUS MARK - UP) OF THE APPELLANT. 22. WITHOUT PREJUDICE TO GROUNDS 20 AND 21 ABOVE, THE AO/ DRP ERRED IN NOT SHIFTING THE INCOME LINKED WITH DIRECTOR'S REMUNERATION COST, FROM NON - STP UNIT TO STP UNIT, BASED ON THE OPERATING MODEL OF THE APPELLANT. 23. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED IN INITIATING PENALTY UNDER SECTION 271 (1 )(C) OF THE ACT, AS CONSEQUENCES OF THE ADDITIONS MADE IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT. 24. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED IN CHARGING INTEREST UNDER SECTION 2348, 234C AND 234D OF THE ACT, AS CONSEQUENCES OF THE ADDITIONS MADE IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT. 1. AT THE OUTSET, GROUND NOS. 8, 11, 13, 17, 18 & 19 HAVE NOT BEEN PRESSED BY THE LD. COUNSEL, THEREFORE, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. GROUND NOS. 1 & 2 HAVE STATED TO BE GENERAL, THEREFORE, THEY WOULD GET COVER WHILE ADJUDICATING THE OTHER ISSUES RAISED IN VARIOUS GROUNDS OF APPEAL. 2. IN VARIOUS GROUNDS OF APPEAL, THE ASSESSEE HAS MAINLY CHALLENGED THE TRANSFER PRICING ADJUSTMENTS MADE IN ITES I.T.A. NO.2074/DEL/2014 7 SEGMENT; SO FTWARE SERVICE SEGMENT; MARKET SUPPORT AND BACK OFFICE SUPPORT SERVICE SEGMENT AND A DJUSTMENT ON ACCOUNT RECEIVABLES. APART FROM THAT , THE ASSESSEE HAS ALSO CHALLENGED CERTAIN CORPORATE T AX GROUNDS. SINCE THE GROUNDS RAISED BY THE ASSESSEE ARE VERY ARGUMEN TATIVE AND GROUND WISE SUBMISSIONS HAVE NOT BEEN MADE BEFORE US, ALBEIT ON THE ISSUES , THEREFORE, WE ARE DECIDING THE PRESENT APPEAL ON THE BASIS OF ISSUES RAISED IN VARIOUS GROUNDS OF APPEAL. HERE IN THIS CASE T HE MAIN ISSUE REVOLVES AROUND FOLLOWING TRAN SFER PRICING ADJUSTMENTS, WHEREIN THE ASSESSEE BEFORE US HAS MAINLY CHALLENGED INCLUSION/EXCLUSION OF CERTAIN COMPARABLES: - S.NO. PARTICULARS AMOUNT (IN RS.) (I) ADJUSTMENT ON ACCOUNT OF TRANSACTIONS RELATING TO : - A) ITES SEGMENT: B) SOFTWARE SERVICE SEGMENT : C) MARKET SUPPORT SERVICE : 9,01,60,601 19,34,12,795 2,84,87,689 (II) ADJUSTMENT ON ACCOUNT OF RECEIVABLE S 18,53,109 4. THE BRIEF FACTS ARE THAT THE ASSESSEE - COMPANY (CADENCE DESIGN (I NDIA ) PVT. LTD.) IS A WHOLLY OWNED SUBSIDIAR Y OF CADENCE DESIGN SYSTEMS, INC. USA (CDS) WHICH WAS INCORPORATED TO UNDERTAKE , S OFTWARE RESEARCH AND DEVELOPMENT (R&D) SERVICES; RELATED INFORMATION TECHNOLOGY (IT) BACK OFFICE SUPPORT SERVICES ; AND RELATED PRE - SALES MARKETING AND POST SALES TECHNICAL SUPPORT SERVI CES. THE ASSESSEE COMPANY PROVIDES R&D AND IT SERVICES FROM ITS UNIT LOCATED IN NOIDA SPECIAL ECONOMIC ZONE , NOIDA AND SOFTWARE TECHNOLOGY PARKS UNIT LOCATED IN BANGALORE. IT IS MAINLY A CAPTIVE SERVICE PROVIDER AND RISK MITIGATED ENTITY, WHIC H IS COMPENSATED ON A COST PLUS MARK UP BASIS FOR THE SERVICES RENDERED TO ITS ASSOCIATED ENTERPRISES (AE). IN ITS TRANSFER PRICE I.T.A. NO.2074/DEL/2014 8 STUDY REPORT AND FORM 3 CEB THE ASSESSEE HAS REPORTED FOLLOWING INTERNATIONAL TRANSACTIONS ENTERED INTO WITH ITS AE: - S.NO. NA TURE OF TRANSACTION METHOD APPLIED VALUE (IN RS.) 1 PROVISION OF SOFTWARE RESEARCH AND DEVELOPMENT SERVICES TNMM 1,719,316,641 2 PROVISION OF IT BACK OFFICE SUPPORT SERVICES TNMM 470,689,564 3 PROVISION OF PRE - SALES MARKETING AND POST - SALES TECHNICAL SU PPORT SERVICES TNMM 250,438,819 4 PROVISION OF BANK GUARANTEE TNMM 127,400 5 PAYMENT OF INTEREST TOWARDS FOREIGN CURRENCY LOAN CUP 10,481,177 6 PURCHASE OF FREE OF COST ASSETS FROM ASSOCIATED ENTERPRISE - NO BENCHMARKING REQUIRED 7 EMPLOYEE STOCK PURCH ASE PLAN FROM ASSOCIATED ENTERPRISE - NO BENCHMARKING REQUIRED I. PROVISION FOR SOFTWARE RESEARCH & DEVELOPMENT SERVICES: - 5. WE WILL FIRST TAKE UP THE TRANSFER PRICING ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER (TPO) ON PROVISION FOR SOFTWA RE RESEARCH & DEVELOPMENT SERVICES . SO FAR AS SOFTWARE RESEARCH DEVELOPMENT SERVICES ARE CONCERNED, THE ASSESSEE WAS COMPENSATED WITH COST PLUS MARK UP OF 15% AND ACTUAL PLI WAS ARRIVED AT 15.07%. THE ASSESSEE - COMPANY HAD ENTERED INTO AN AGREEMENT WITH CDS FOR PROVIDING RESEARCH AND DEVELOPMENT SERVICES (FOR THE DEVELOPMENT OF SOFTWARE PRODUCTS) TO CDS UTILIZING GROUPS R&D TECHNOLOGY AND OTHER APPROPRIATE TECHNOLOGY. THE CDS SPECIFIES R&D SERVICES TO BE PERFORMED; PRODUCTS TO BE DEVELOPED OR USED; TIMELINE FOR COMPLETION AND SPECIFIC RESULT TO BE ACHIEVED. THE FUNCTIONS PERFORMED BY THE ASSESSEE - COMPANY UNDER THE PROVISION OF SOFTWARE RESEARCH AND I.T.A. NO.2074/DEL/2014 9 DEVELOPMENT SERVICES WERE HIGHLIGHTED IN THE TPSR IN THE FOLLOWING MANNER: - MARKETING AND BUSINESS DEVELOPMENT CDS CONCEPTUALIZES THE MARKETING STRATEGY FOR THE SALE OF ITS PRODUCTS AND SERVICES AND UNDERTAKES FUNCTIONS SUCH AS CUSTOMER LEAD IDENTIFICATION, MARKETING AND SECURING THE ORDERS FOR THE PRODUCTS TO BE DEVELOPED. AS PART OF ITS MARKETING FUNCTION, CDS IS I NVOLVED IN THE IDENTIFICATION OF KEY PROSPECTIVE CUSTOMERS AND UNDERSTANDING THEIR REQUIREMENTS. BEING A CAPTIVE UNIT OF CDS, CADENCE INDIA DOES NOT UNDERTAKE ANY MARKETING OR BUSINESS DEVELOPMENT FUNCTIONS. CONCEPTUALIZATION OF SERVICES CDS IS PRIM ARILY RESPONSIBLE FOR THE CONCEPTUALIZATION OF SERVICES AND DETERMINATION OF THE EXACT SCOPE OF WORK TO BE PERFORMED BY CADENCE INDIA. THE FUNCTION PERTAINING TO THE CONCEPTUALIZATION OF SERVICES IS A KEY ASPECT AND IS WHOLLY UNDERTAKEN BY CDS, CDS SPECIFI ES THE EXACT REQUIREMENTS OF THE MODULES TO BE DEVELOPED BY CADENCE INDIA. REQUIREMENT ANALYSIS CDS PROVIDES THE SOFTWARE MODULE SPECIFICATIONS, INSTRUCTIONS, PRODUCT SPECIFICATIONS FOR THE SOFTWARE TO BE DEVELOPED BY CADENCE INDIA, BASED ON INSTRUCTIONS /INFORMATION PROVIDED BY CDS, THE REQUIREMENTS ARE INTERNALLY ANALYSED BY CADENCE INDIA AND CONVERTED INTO FUNCTIONS AND FEATURES OF THE INTENDED APPLICATION. UPON RECEIVING THE APPROVAL FROM CDS, THE DEVELOPMENT WORK IS COMMENCED BY CADENCE INDIA. CODIN G, TESTING AND DOCUMENTATION I.T.A. NO.2074/DEL/2014 10 CADENCE INDIA UNDERTAKES CODE DEVELOPMENT IN ACCORDANCE WITH PRODUCT SPECIFICATIONS DEFINED BY CDS. THE CODE GENERATED IS SUBSEQUENTLY TESTED TO ENSURE THAT FUNCTIONS PERFORMED BY THE_C.ODE ARE IN ACCORDANCE WITH THE PROTOCOL DESIGN AND STANDARD SPECIFICATIONS. CADENCE INDIA GENERATES AND MAKES AVAILABLE DOCUMENTATION FOR THE SOFTWARE DEVELOPED AND TRANSFERRED. THE SOFTWARE DEVELOPED BY CADENCE INDIA IS SUBSEQUENTLY INTEGRATED INTO THE FINAL SOFTWARE PRODUCT BY CDS AND OTHER CA DENCE GROUP ENTITIES. PROJECT MANAGEMENT ALTHOUGH THE DAY - TO - DAY MANAGEMENT OF THE PROJECT IS UNDERTAKEN BY CADENCE INDIA, CDS IS RESPONSIBLE FOR THE OVERALL PROJECT MANAGEMENT. CADENCE INDIA'S RESPONSIBILITY IS CONFINED TO THE PROJECT MANAGEMENT AND THE END DELIVERABLES WITH RESPECT TO THE MODULE OF THE SOFTWARE BEING DEVELOPED BY IT. CDS ALSO REGULARLY CONDUCTS MEETINGS TO ANALYSE THE PROGRESS AND MONITORS THE PROJECT PLAN. HOWEVER, THE ULTIMATE RESPONSIBILITY OF THE WORK UNDERTAKEN BY CADENCE INDIA RES TS WITH CDS. QUALITY CONTROL, TESTING AND INTEGRATION CADENCE INDIA IS RESPONSIBLE FOR ENSURING THAT REQUISITE QUALITY/ PERFORMANCE STANDARDS ARE COMPLIED WITH WHILE RENDERING SERVICES. CADENCE INDIA IS RESPONSIBLE TO ENSURE THAT SERVICES PROVIDED MEET CERTAIN QUALITY AND PERFORMANCE REQUIREMENTS AND ADHERE TO ESTABLISHED PRESCRIBED STANDARDS. 5.1 SO FAR AS THE RISK ANALYSIS IS CONCERNED, IT WAS STATED THAT THE ASSESSEE S BUSINESS RISK EXPOSURE WAS LIMITED, AS IT PROVIDES SOFTWARE DEVELOPMENT SERVIC ES ONLY TO CDS AND WAS ASSURED OF SPECIFIC RETURN ON ITS COST. SIMILARLY, WITH REGARD TO OTHER RISKS LIKE , SERVICE LIABILITY RISK; CREDIT AND COLLECTION RISK; FOREIGN EXCHANGE RISK , ETC., IT WAS MAINLY WITH CDS AND THE ASSESSEE - I.T.A. NO.2074/DEL/2014 11 COMPANY HAD A VERY LOW/LIMIT ED RISK. BASED ON FAR ANALYSIS, THE ASSESSEE CARRIED COMPARABILITY ANALYSIS BY ADOPTING TNMM AS MOST APPROPRIATE METHOD WITH PLI (OP/OC) ARRIVED AT 15.07% , CONSIDERING DEPRECIATION ON PALLADIUM MACHINE AS NON - OPERATING AND FOREIGN EXCHANGE FLUCTUATION AS O PERATING EXPENDITURE. IN ITS TPSR T HE ASSESSEE HAD SHORTLISTED 21 COMPANIES WITH WEI GHTED AVERAGE OP/OC AT 14.35%. HENCE IT WAS REPORTED THAT ITS MARGIN WAS AT ALP. HOW EVER, THE TPO AFTER DETAILED ANALYSIS, MODIFIED THE SET OF COMPARABLES AND ARRIVED AT S ET OF 14 COMPARABLE COMPANIES, THE DETAILS OF WHICH ALONG WITH PROFIT MARGIN WE RE AS UNDER: - SL. NO. NAME OP/OC (%) 1 AKSHAY SOFTWARE TECHNOLOGIES LTD. 12.41 2 BODHTREE CONSULTING LTD. 68.63 3 COMP - U - LEARN TECH INDIA LTD. 28 4 LARSEN & TOUBRO INFOTECH LIMITED 16.96 5 LGS GLOBAL LTD. 21.26 6 MINDTREE LTD. 6.11 7 PERSISTENT SYSTEMS LTD. 30.76 8 R S SOFTWARE (INDIA) LTD. 9.82 9 SASKEN COMMUNICATION TECHNOLOGIES LIMITED 28.96 10 SONATA SOFTWARE LTD. 31.88 11 INFOSYS LTD. 47.15 12 F C S SOFTWARE SOL UTIONS LTD. 32.73 13 AVANI CIMCON TECHNOLOGIES LTD. 12.19 14 IGATE GLOBAL SOLUTIONS LTD. 20.82 AVG. MEAN 26.98 I.T.A. NO.2074/DEL/2014 12 5.2 THE DRP ALSO CONFIRMED THE SAID COMPARABLES AS SHORTLISTED BY THE TPO AND ONLY GRANTED WORKING CAPITAL ADJUSTMENT, AND FINALLY THE AV ERAGE PROFIT MARGINS OF COMPARABLES WAS WORKED OUT TO 23.45%. ACCORDINGLY, ADJUSTMENT OF RS.13,51,99,075/ - WAS MADE IN THE FOLLOWING MANNER: - OPERATING COST : 1,502,240,356 ARM S LE NGTH MARGIN (%) : 23.45 ARM S LE NGTH PRICE (ALP) : 1 , 854 , 515 , 719 PRICE RECEIVED : 1,719,316,644 SHORTFALL BEING ADJUSTMENT U/S 92CA : 135,199,075 5.3 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, SHRI NAGESHWAR RAO AFTER EXPLAINING TH E RELEVANT FACT S AND BACKGROUND, SUBMITTED THAT UNDER THIS SEGMENT THE ASSESSEE BEFORE THIS TRIBUNAL IS ONLY CHALLENGING THE EXCLUSION OF THREE COMPARABLES VIZ. (I) BODHTREE CONSULTING LIMITED; (II) INFOSYS TECHNOLOGIES LIMITED; AND (III) SONATA SOFTWARE L IMITED AND INCLUSION OF ONE COMPARABLE VIZ. (I) GOLD STONE TECHNOLOGIES. (A) BODHTREE CONSULTING LIMITED (68.52%) 6.1 THE ASSESSEE S CASE BEFORE THE TPO AS WELL AS THE DRP HAD BEEN THAT, THIS COMPANY IS A GLOBAL IT CONSULTING AND PRODUCT ENGINEERING SERVIC E PROVIDER. ITS KEY FOCUS AREAS INCLUDE PRODUC T ENGINEERING , ANALYTICS, AND CLOUD AND ENTERPRISE SERVICES. THE ARRAY OF SERVICES PROVIDED BY THIS COMPANY INCLUDE S SOFTWARE CONSULTANCY; DATA MANAGEMENT; DATA WAREHOUSING AND PROVIDING END - TO - END WEB SOLUTIO NS. APART FROM THAT, IT WAS SUBMITTED THAT THERE HAD BEEN ABNORMAL GROWTH IN THE REVENUE BY 67% AND OPERATING PROFIT HAD JUMPED TO 340.98% IN THIS YEAR, INDICATING THAT EXTRA ORDINARY BUSINESS OPERATIONS HAVE BEEN CARRIED OUT BY I.T.A. NO.2074/DEL/2014 13 THIS COMPANY. IT WAS FURTHE R SUBMITTED THAT THERE IS A DIFFERENCE IN REVENUE RECOGNITION MODEL, AS IN THE CASE OF THE ASSESSEE THE REVENUE IS RECOGNIZED AT THE TIME OF RENDERING OF SERVICE , WHEREAS IN THE CASE OF BODHTREE , FROM THE STAGE OF SOFTWARE DEVELOPMENT REVENUE IS RECOGNIZED BASED ON SOFTWARE DEVELOPMENT AND BILL TO THE CLIENTS. THUS, IT WAS SUBMITTED THAT THE SAID COMPANY CANNOT BE HELD TO BE COMPARABLE WITH THE ASSESSEE. THE TPO AS WELL AS THE DRP HAD REJECTED ASSESSEE S CONTENTIONS ON THE GROUND THAT HIGH MARGIN IS NOT A R EASON FOR REJECTION OF OTHER COMPARABLE COMPANIES AND ALSO THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES. 6.2 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, SHRI NAGESHWAR RAO, BESIDES REITERATING THE ABOVE OBJECTIONS SUBMITTED THAT , EX CLUSION OF BODHTREE S CASE ON SIMILAR SET OF FACTS HAS BEEN DEALT BY THIS TRIBUNAL IN THE CASE OF FISERV INDIA (P.) LTD. IN ITA NO.1822/DEL/2014 , WHICH HAS BEEN CONFIRMED BY THE HON'BLE HIGH COURT ALSO. HE FURTHER RELIED UPON THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF CIENA INDIA PVT. LTD. IN ITA NO.1453/DEL/2014. THUS, HE SUBMITTED THAT FOLLOWING THESE DECISIONS OF THE TRIBUNAL, THIS COMPARABLE CASE SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. 6.3 ON THE OTHER HAND, THE LD. SR. D.R., SUBMI TTED THAT THE ASSESSEE IS ALSO PROVIDING HIGH END R&D SERVICES TO ITS AE WHICH IS ENABLING AE IN DEVELOPMENT OF SOFTWARE PRODUCTS. IN OTHER WORDS, IT IS DEVELOPING PRODUCTS FOR ITS AE, THEREFORE, IT CAN BE VERY WELL COMPARED WITH THE COMPANY WHICH IS INTO SOFTWARE DEVELOPMENT PRODUCTS. HE FURTHER SUBMITTED THAT THE ASSESSEE WHILE CARRYING OUT ITS OWN RESEARCH ANALYSIS HAS ADOPTED COMPANIES WHICH WERE INTO SOFTWARE PRODUCTS AND LIKE TPO , THE I.T.A. NO.2074/DEL/2014 14 ASSESSEE HAS TAKEN COMPARABLES FROM WIDE/BROAD SPECTRUM AND WHEN ON SUCH CRITERIA A COMPARABLE IS SHORTLISTED THEN IT CANNOT BE HELD THAT APPROACH OF TPO IS NOT CORRECT. I N THE CASE OF FISERV INDIA (P.) LTD. (SUPRA) AS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE , H E SUBMITTED TH AT THIS COMPANY WAS PURELY IN S OFTWARE D EVELOPMENT SERVICES WHEREAS THE ASSESSEE IS INTO R&D AND IT IS ALSO NOT CLEAR WHETHER FAR ANALYSIS OF FISERV INDIA (P.) LTD. WAS MORE SIMILAR TO THAT OF ASSESSEE. HE ALSO POINTED OUT THAT IN FISERV S CASE , MINDTREE LTD. WAS EXCLUDED , WHEREAS IN THE CASE OF THE ASSESSEE, IT IS A PART OF COMPARABLES. IN THE CASE OF OTHER COMPARABLES ALSO WHICH HAS NOT BEEN DISPUTED BY THE ASSESSEE , HE POINTED OUT THAT SOME OF THEM ARE INTO DEVELOPMENT OF SOFTWARE PRODUCTS AND SEARCH CRITERIA ADOPTED BY THE ASSESSEE ITSELF HAS THROWN SUCH COMPARABLES. IN SUCH CIRCUMSTANCES, T HE ASSESSEE IS ASKING FOR EXCLUSION BASED ON DEEP SCRUTINY FUNCTIONALITY WHICH OTHERWISE UNDER TNMM IS NOT REQUIRED . OTHERWISE, THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE TPO BY ADOPTING DIFFER ENT SEARCH CRITERIA BY NOT INCLUDING THE COMPANIES WHICH ARE INTO SOFTWARE PRODUCTS. 6 . 4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDI NGS GIVEN IN THE IMPUGNED ORDER AS WELL AS THE MATERIAL REFERRED TO BEFORE US. AS DISCUSSED EA RLIER, THE ASSESSEE UNDER THE PROVISION OF SOFTWARE RESEARCH AND DEVELOPMENT SERVICES CARRIES OUT R&D SERVICES FOR ITS AE FOR THE DEVELOPMENT OF SOFTWARE PRODUCTS TO ITS CDS UTILIZING R&D TECHNOLOGY OF CDS ONLY. CDS SPECIFIES R&D SERVICES TO BE PERFORMED; PRODUCTS TO BE DEVELOPED OR USED; TIMELINE FOR COMPLETION AND SPECIFIC RESULT TO BE ACHIEVED. THE ENTIRE CONCEPTUALIZING OF THE MARKETING STRATEGY FOR SALES OF ITS PRODUCTS AND SERVICES , SECURING OF ORDERS OF ITS I.T.A. NO.2074/DEL/2014 15 PRODUCTS ARE DONE BY CDS AND NOT BY THE ASS ESSEE. THE ASSESSEE COMPANY IS PURELY A CAPTIVE SERVICE PROVIDER AND DOES NOT UNDERTAKE ANY KIND OF MARKETING OR DEVELOPMENT FUNCTIONS. CONCEPTUALIZATION OF SERVICES AND DETERMINATION OF EXACT SCOPE OF WORK, WHICH IS TO BE PERFORMED BY THE ASSESS EE, IS RESPONSIBILITY OF CDS. EVEN THE QUALITY CONTROL, TESTING OF THE PRODUCTS IS ALL DONE BY CDS. NOW , IF WE ANALYZE THE FUNCTION S OF THE ASSESSEE, WHICH IS PURELY R&D BEING A CAPTIVE UNIT VIS - - VIS THE FUNCTIONS OF BODHTREE, WE FIND THAT THIS COMPANY IS INTO I T CONSULTING AND PRODUCT ENGINEERING SERVICE AND HAS A WIDE ARRAY OF BUSINESS ACTIVITIES LIKE DATA WAREHOUSING AND DATA MANAGEMENT. IT HA S ONLY ONE SEGMENT NAMELY , SOFTWARE DEVELOPMENT AND BEING A SOFTWARE SOLUTION COMPANY, IT IS ENGAGED IN PROVIDING OPEN AND END - TO - END WEB SOLUTIONS , OFF SHORES DATA MANAGEMENT AND DATA CONSULTANCY DESIGN AND DEVELOPMENT SOLUTION. SUCH FUNCTIONS, THOUGH MAY BE SAID TO BE CARRIED OUT BY THE AE I.E. CADENCE, BUT IT CANNOT BE SAID THAT SIMILAR FUNCTIONS HAVE BEEN PERFORMED BY THE ASSESSEE. EVEN ON THE RISK ANALYSIS, THE COMPARABILITY FAILS AS ASSESSEE IS PURELY RISK MITIGATED COMPANY AS DISCUSSED ABOVE. WE FIND THAT THERE ARE CATENA OF DECISIONS OF VARIOUS BENCH ES OF THE TRIBUNAL LIKE IN CASE OF CISCO SYSTEMS INDIA PVT. LTD. V S. DCIT (2014) 66 SOT 82 , WHEREIN IT WAS HELD THAT THIS COMPANY IS RENDERING SOFTWARE BUSINESS OF DEVELOPING SOFTWARE PRODUCTS AND IS PROVIDING OPEN AND END - TO - END WEB SOLUTION, SOFTWARE CONSULTANCY AND DESIGN AND DEVELOPMENT OF SOFTWARE AND THE SAME CANNO T BE HELD TO BE COMPARABLE WITH THE COMPANIES, WHICH ARE PURELY INTO SOFTWARE DEVELOPMENT SERVICES AND NOT INTO SOFTWARE PRODUCTS . APART FROM THAT, IN THE CASE OF FISERV INDIA (P.) LTD. (SUPRA), THIS COMPARABLE HAS BEEN EXCLUDED AFTER CONSIDERING VAR IOUS DECISIONS OF THE TRIBUNAL. COMING TO THE I.T.A. NO.2074/DEL/2014 16 ARGUMENTS OF THE LD. SR. D.R. THAT DURING THE COURSE OF SEARCH ANALYSIS, THE ASSESSEE TOO HAS CHOSEN THE COMPANIES BY ADOPTING SEAR CH CRITERIA OF COMPANY INTO SOFTWARE PRODUCTS AND THEREFORE , THE ASSESSEE NOW IS P RECLUDED FROM MAKING A DISTINCTION THAT SOFTWARE PRODUCT COMPANIES SHOULD BE EXCLUDED. IN OUR OPINION, SUCH A CONTENTION OF THE LD. SR. DR CANNOT BE ACCEPTED , BECAUSE SELECTION OF COMPARABLES BY USING ANY SEARCH CRITERIA IS ONE OF THE PROCESS OF SHORTLIST I NG THE COMPANIES BY APPLYING VARIOUS QUANTITATIVE AND QUALITATIVE FILTERS IN THE WIDE ARRAY OF COMPANIES IN THE DATA . ON C E IN THE SEARCH PROCESS , CERTAIN COMPANIES ARE THROWN IN THE SEARCH RESULT, THEN IT IS INCUMBENT THAT DEEP FAR ANALYSIS I S TO BE DONE S O AS TO CARRY OUT PROPER COMPARABILITY ANALYSIS WITH THE TESTED PARTY SO AS TO BENCHMARK AND ARRIVE AT A PROPER ARM S LENGTH PRICE. IF AT THE FUNCTIONAL LEVEL, IT IS SHOWN THAT FUNCTIONS PERFORMED BY THE ASSESSEE IS ENTIRELY DIFFERENT FROM THE FUNCTIONS CA RRIED OUT BY THE COMPARABLE COMPANIES, OR IT DOES FOUND COMPARABLE EITHER UNDER RISK ANALYSIS OR ASSETS DEPLOYED, THEN SUCH COMPARABLE COMPANIES SHOULD NOT BE EXCLUDED FROM COMPARABILITY ANALYSIS. ACCORDINGLY , WE HOLD THAT BODHTREE CANNOT BE INC LUDED AS CO MPARABLE FOR BENCHMARKING THE ASSESSEE S MARGIN . (B) INFOSYS TECHNOLOGIES LIMITED (42.44%) 7. THE ASSESSEE S MAIN CONTENTION FOR EXCLUSION OF INFOSYS TECHNOLOGIES LIMITED HAD BEEN THAT FIRSTLY , ITS SERVICES ARE INCOMPARABLE WITH THE ASSESSEE BECAUS E INFOSYS IS INTO TECHNICAL CONSULTANCY DESIGN , DEVELOPMENT , RE - ENGINEERING MAINTENANCE, SYSTEM INTEGRATION, P ACKAGE EVALUATION AND IMPLEMENTATION AND INFRASTRUCTURE MANAGEMENT SERVICES ; SECONDLY , I T HAS HUGE R&D WORK FOR ITS PRODUCTS, WHICH ARE MORE THAN RS.267 CRORES , I.T.A. NO.2074/DEL/2014 17 WHEREAS IN THE CASE OF THE ASSESSEE IT IS NIL ; THIRDLY, INFOSYS HAS HUGE INTANGIBLE S AND BRAND VALUE IS ALSO HUGE WHEREAS IN THE CASE OF THE ASSESSEE IT IS N IL ; AND LASTLY, INFOSYS I S INTO LARGE SCALE OF OPERATION S WHICH IS EVIDENT FROM THE FACT THAT DURING THE YEAR IT HAD TURNOVER OF RS. 2 0 , 2 65 CRORES , WHEREAS IN THE CASE OF THE ASSESSEE , IT IS ONLY 248.53 CRORES. THUS, THE COMPANY HAVING SUCH A HUGE TURNOVER CANNOT BE H ELD TO BE COMPARABLE UNDER FAR. THE TPO AND DRP, HELD THAT REVENUE FROM S OFTWARE PRODUCTS OF INFOSYS TECHNOLOGIES LIMITED IS ONLY RS.848 CRORES OUT OF ITS OPERATING REVENUES OF RS.20 , 297 CRORES AND ITS REVENUE FROM SOFTWARE SERVICES IS RS.19 , 416 CRORES. THUS , SOFTWARE DEVELOPMENT SERVICES OF INFOSYS TECHNOLOGIES LIMITED CAN VER Y WELL BE COMP ARED WITH THAT OF THE ASSESSEE. REGARDING EXPENDITURE ON R&D EXPENSES, THE DRP OBSERVED THAT IT IS MERELY 1.3% OF THE REV ENUE OF INFOSYS , WHICH CANNOT BE SAID TO BE SUBSTANTIAL. 7.1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, SHRI NAGE SHWAR RAO, BESIDE AFORESAID CONTENTION STRONGLY RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF FISERV INDIA (P.) LTD. (SUPRA); AND THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.1204/2 011 (DEL). 7.2 ON THE OTHER HAND, THE LD. SR. D.R., SUBMITTED THAT INFOSYS TECHNOLOGIES LIMITED HAS BEEN ASSESSEE S OWN COMPARABLE IN THIS YEAR AS WELL AS IN THE EARLIER YEAR ALSO AND THE SAME WAS NOT CHALLENGED IN THE EARLIER YEAR, THEREFORE, THE ASS ESSEE CANNOT CHALLENGE THE SAME COMPARABLE IN THIS YEAR O NCE IT HA S ACCEPTED THIS COMPARABLE IN ASSESSMENT YEAR 2008 - 09. IN SUPPORT OF HIS CONTENTION, THE LD. SR. DR STRONGLY RELIED UPON THE I.T.A. NO.2074/DEL/2014 18 DECISION OF THE TRIBUNAL IN THE CASE OF CAP G EMINI INDIA PVT. LTD . VS. ACIT 7861/MUM/2011 AND THE DECISION OF E - V ALUE S ERVE.COM PVT. LTD. VS. ITO IN ITA NO.4001/DEL/2013. THUS, INFOSYS TECHNOLOGIES LIMITED HAS RIGHTLY BEEN TAKEN AS A COMPARABLE BY THE TPO. 7.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE R ELE VANT FINDING GIVEN IN THE IM PUGNED O RDER AS WELL AS MATERIAL REFERRED TO BEFORE US. FIRST OF ALL, INFOSYS TECHNOLOGIES LIMITED IS A GIANT ENTERPRISE WITH TURNOVER OF MORE THAN RS.20 , 264 CRORES. ITS EXPENDITURE ON R&D WAS RS. 267 CRORES AND IT HAS HUGE BRAN D VALUE AND SIGNIFICANT INTANGIBLE ASSETS, WHICH HAVE BEEN VALUED AT APPROXIMATELY RS.1,34,478 CRORES. IF THESE ASSETS ARE TO BE COMPARED WITH THOSE OF THE ASSESSEE , IT CAN BE SEEN THAT IT HAS NIL EXPENDITURE ON R&D AND NO SIGNIFICANT INTANGIBLE ASSET. O N THIS GROUND ALONE, VARIOUS BENCHES OF THE TRIBUNAL HAVE HELD THAT INFOSYS TECHNOLOGIES LIMITED CANNOT BE COMPARED WITH SMALL SOFTWARE COMPANIES , WHO ARE INTO CONTRACT SOFTWARE DEV ELOPMENT SERVICES. A COMPANY LIKE INFOSYS WITH MEGA OPERATIONS AND HAVING S IGNIFICANT ASSETS AND BRAND VALUE AND FULL - FLEDGED RISK TAKING ENTREPRENEUR DEVELOPING AND SELLING PROPRIETARY PRODUCTS CANNOT BE HELD TO BE COMPARABLE WITH THE CAPTIVE SERVICE AND CONTRACT SOFTWARE DEVELOPMENT COMPANIES AS THE COMPARABILITY ANALYSIS FAILS ON ALL THE FACTORS OF FAR. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) MADE A COMPARATIVE CHAR T WHILE DEALING WITH SIMILAR COMPARATIVE ANALYSIS, WHICH FOR SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER: - BASIC PARTICULAR INFOSYS TECHNOLOGIES LTD. ASSESSEE I.T.A. NO.2074/DEL/2014 19 RISK PROFILE : OPERATE AS FULL - FLEDGED RISK TAKING ENTREPRENEURS OPERATE AT MINIMAL RISKS AS THE 100 PERCENT SERVICES ARE PROVIDED TO AES NATURE OF SERVICES : DIVERSIFIED - CONSULTING, APPLICATION DESIG N, DEVELOPMENT, RE - ENGINEERING AND MAINTENANCE SYSTEM INTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION AND BUSINESS PROCESS MANAGEMENT, ETC . CONTRACT SOFTWARE DEVELOPMENT SERVICES TURNOVER : 20,264 CRORES 209.83 CRORES OWNERSHIP BRANDED/PROPR IETARY PRO DUCTS : DEVELOPS/OWNS PROPRIETARY PRODUCTS LIKE FINACLE, INFOSYS ACTICE DESK, INFOSYS IPROWE, INFOSYS MCONNECT. ALSO THE COMPANY DERIVES SUBSTANTIAL PORTION OF ITS PROPRIETARY PRODUCTS (INCLUDING ITS FLAGSHIP BANKING PRODUCT SUITE 'FINACLE') ONSITE V. O FF SHORE AS MUCH AS HALF OF THE SOFTWARE DEVELOPMENT SERVICES RENDERED BY INFOSYS ARE ONSITE (I.E. SERVICES PERFORMED AT THE CUSTOMER'S LOCATION OVERSEAS) A ND OFFSHORE (50,20 PER CENT) THAN HALF OF ITS SERVICE, INCOME FROM ONSITE SERVICES THE APPELLANT PR OVIDES ONLY OFFSHORE SERVICES (I.E. REMOTELY FROM INDIA) EXPENDITURE ON ADVERTISING/SAL ES PROMOTION AND BRAND BUILDING : RS.80 CRORES. RS. NIL (AS THE 1 PERCENT SERVICES ARE PROVIDED TO AES) EXPENDITURE ON RESEARCH AND D EVELOPMEN T RS.236 CRORES RS.NIL OTHER 100 PER CENT I.T.A. NO.2074/DEL/2014 20 OFFSHORE (FROM INDIA) 7.4 IF WE APPLY THE AFORESAID COMPARATIVE CRITERIA AS LAID DOWN BY JURISDICTIONAL HIGH COURT , WE FIND THAT THE SAME WOULD BE APPLICABLE ON THE FACTS OF THE PRESENT CASE ALSO AND, THEREFORE, RESPECTFULLY FOLLO WING THE JUDGMENT OF THE HON'BLE DELHI HIGH C OURT (SUPRA) , WE HOLD THAT INFOSYS TECHNOLOGIES LIMITED CANNOT BE COMPARED WITH THE ASSESSEE - COMPANY, WHICH IS OPERATING AT MINIMAL RISK AND IS A CONTRACT SOFTWAR E DEVELOPMENT SERVICE PROVIDER. ACCORDINGLY, WE D IRECT THE TPO TO EXCLUDE INFOSYS TECHNOLOGIES LIMITED FROM THE COMPARABLE LIST . 7.5 COMING TO THE ARGUMENTS OF THE LD. SR. DR THAT WHEN ASSESSEE HAS CHOSEN THIS COMPARABLE AND WAS NOT DISPUTED IN EARLIER YEAR, WE FIND THAT SIMILAR CONTENTION OF THE R EVENUE HAS BEEN DEALT BY THE ITAT MUMBAI BENCH IN THE CASE OF TATA POWER SOLAR SYSTEMS LTD. ITA NO. 6657/MUM/2012, ORDER DATED 15.01.2014, WHEREIN TRIBUNAL OBSERVED AND HELD AS UNDER: - UNDER THE TRANSFER PRICING MECHANISM, A COMPARABILITY ANALYSIS HAS TO BE UNDERTAKEN FOR COMPARING THE CONTROL TRANSACTIONS WITH AN UNCONTROLLED TRANSACTION. THIS IS ACHIEVED BY IDENTIFYING POTENTIAL COMPARABLES HAVING SIMILAR FUNCTIONS THAT CAN STAND THE TEST OF FAR ANALYSIS (I.E., FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RI SKS ASSUMED). THE ASSESSEE IS REQUIRED TO IDENTIFY THE COMPARABLES AFTER CARRYING OUT PROPER SEARCH AND UNDERTAKING FAR ANALYSIS. HOWEVER, IF THE SAME HAS NOT BEEN DONE PROPERLY THEN IT HAS TO STAND THE SCRUTINY OF THE TAXING AUTHORITIES. IF, ON A DEEP EXA MINATION, IT IS FOUND THAT THE COMPARABLES CHOSEN BY THE ASSESSEE DO NOT STAND THE TEST OF I.T.A. NO.2074/DEL/2014 21 FAR ANALYSIS, REQUIREMENT OF THE STATUTORY PROVISIONS AND CORRECT SELECTION OF MOST APPROPRIATE METHODS, THE SAME CAN BE REJECTED. AT THE SAME TIME, IF DURING THE CO URSE OF TRANSFER PRICING PROCEEDINGS, IF THE ASSESSEE POINTS OUT THE COGENT REASONS AND GIVES PROPER ANALYSIS AS TO WHY THE COMPARABLES CHOSEN BY IT WERE NOT CORRECT, IT CANNOT BE SAID THAT THE ASSESSEE IS OUT RIGHTLY PRECLUDED FROM RAISING SUCH OBJECTIONS . THE ULTIMATE AIM OF THE TRANSFER PRICING PROVISIONS IS TO DETERMINE THE APPROPRIATE ALP, WHICH CAN BE DONE ONLY BY BENCH MARKING WITH THE PROPER COMPARABLES BASED ON FAR ANALYSIS AND UNDER THE PRESCRIBED METHODS. IF IN THE COURSE OF THE PROCEEDINGS, IT I S FOUND THAT CERTAIN COMPARABLES DO NOT STAND THE TEST OF FUNCTIONAL ANALYSIS OR FOR SOME OTHER REASONS, THEN TATA POWER SOLAR SYSTEMS LTD. THE SAME SHOULD BE EXCLUDED AND WE DO NOT FIND ANY REASON THAT THEY SHOULD TO BE INCLUDED SIMPLY BECAUSE THE ASSESSE E HAD INCLUDED THE SAME INITIALLY. IF THE COGENT REASONS HAVE BEEN GIVEN BY THE ASSESSEE FOR EXCLUDING THE SAME, THE SAME SHOULD BE CONSIDERED. THE INITIAL ONUS OR DUTY IS CAST UPON THE ASSESSEE TO CARRY OUT THE SELECTION OF PROPER COMPARABLES BASED ON FAR ANALYSIS AND BY ADOPTING SUITABLE TRANSFER PRICING METHOD AND THEN ANALYSE ITS TRANSACTION TO SHOW THE CORRECT ARM'S LENGTH RESULT. THEREAFTER, IT IS AXIOMATIC THAT THE TAXING AUTHORITIES / TPO, SHOULD SCRUTINIZE THE ASSESSEE'S REPORT ON ARM'S LENGTH RESU LT AND THE ENTIRE PROCESS OF ARRIVING AT THE ALP, WHETHER THEY ARE BASED ON TRANSFER PRICING PRINCIPLES AND STATUTORY PROVISIONS OR NOT. IF HE HIMSELF FOUNDS SOME IRREGULARITY OR MISTAKE IN ANY OF THE PROCESS OR THE STEPS UNDERTAKEN, THEN HE IS BOUND TO CO RRECT IN ACCORDANCE WITH THE SETTLED PRINCIPLES AND LAW. IF THE ASSESSEE POINTS OUT SOME MISTAKE OR ANY IRREGULARITY IN THE ARM'S LENGTH RESULT, THEN IT IS INCUMBENT UPON THE TPO TO I.T.A. NO.2074/DEL/2014 22 EXAMINE AND CONSIDER THE SAME AND IF THE ASSESSEE'S CONTENTIONS ARE FOUND TO BE CORRECT OR TENABLE, THEN HE HAS TO ACCEPT THE SAME. THERE CANNOT BE ESTOPPEL AGAINST CORRECT PROCEDURE OF LAW AND PRINCIPLES SOLELY ON ACCOUNT OF ACQUIESCENCE OR MISTAKE OF THE ASSESSEE. THE TPO IS REQUIRED UNDER LAW TO ANALYZE EVERY COMPARABLES AND THEN ONLY DETERMINE THE CORRECT ALP BASED ON PROPER COMPARABILITY ANALYSIS. THUS, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE REVENUE THAT SIMPLY BECAUSE THE ASSESSEE HAS INCLUDED THESE TWO COMPANIES THEN THE ASSESSEE IS DEBARRED FROM OBJECTING TO TH E SAME, IF THERE ARE STRONG AND COGENT REASONS. THIS RATIO HAS NOW BEEN UPHELD BY THE HON BLE BOMBAY HIGH COURT IN CIT VS. M/S. TATA POWER SOLAR SYSTEMS LTD. IN ITA NO. 1120 OF 2014, VIDE JUDGMENT DATED 16.12.2016. THUS, RESPECTFULLY FOLLOWING THE AFORESAI D RATIO THE CONTENTION RAISED BY THE LD. SR. DR IS NOT ACCEPTED. (C) SONATA SOFTWARE LIMITED (30.98%) 8. REGARDING SONATA SOFTWARE LIMITED, THE ASSESSEE S CONTENTION HAD BEEN THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR BECAUSE IT IS INTO SALE OF PRODU CTS AND HAS A VERY HIGH RELATED PARTY TRANSACTION , WHICH IS TO THE EXTENT OF 50.38% OF THE SALES. THE INVENTORY SHOWN IN SCHEDULE 15 OF ITS ANNUAL REPORT GOES TO SHOW THAT IT HAS A HUGE PRODUCT AS OPENING AND CLOSING STOCK , WHICH INDICATES THAT THIS COMPA NY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS , WHICH CANNOT BE COMPARED WITH THE ASSESSEE S SOFTWARE DEVELOPMENT SERVICES. THE DRP AND TPO HAVE REJECTED THIS CONTENTION ON THE GROUND THAT PROFIT & LOSS ACCOUNT OF THE ANNUAL REPORT OF THIS COMPANY REVEALS THA T IT HAS A HUGE INCOME I.T.A. NO.2074/DEL/2014 23 FROM SERVICES WHICH INDICATES THAT IT IS MAINLY INTO SOFTWARE DEVELOPMENT, THEREFORE, IT IS FUNCTIONALLY COMPARABLE AND ANNUAL REPORT OF THE COMPANY SHOWS THAT ITS RPT IS AT 14.65% WHICH IS OVERALL LESS THAN THE FILTER APPLIED AT 25% . 8.1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT IF PROPER CALCULATION IS DONE THEN, RPT IS MORE THAN 50% AND IN THE CASE OF FISERV INDIA (P.) LTD. (SUPRA), THE TRIBUNAL HAS TAKEN NOTE OF THIS FACT AND THAT ITS RPT IN THIS YEAR IS MOR E THAN 25%. 8.2 THE LD. D.R., SUBMITTED THAT THE MATTER CAN BE SENT BACK TO THE TPO SO AS TO EXAMINE HOW MUCH IS THE RELATED PARTY TRANSACTION AND IF IT EXCEEDS MORE THAN 25%, THEN THE SAME CAN BE EXCLUDED. 8.3 AFTER CONSIDERING THE AFORESAID SUB MISSIONS, WE ARE OF THE OPINION THAT BOTH THE ASSESSEE AS WELL AS THE AUTHORITIES BELOW , HAVE DISPUTED THE PERCENTAGE OF RELATED PARTY TRANSACTIONS. IN ORDER TO ASCERTAIN THE EXACT RELATED PARTY TRANSACTIONS, WE ARE OF THE OPINION THAT THIS MATTER SHOULD B E RESTORED BACK TO THE FILE OF TPO, WHO SHALL EXAMINE THE EXACT RPT , BECAUSE AT THE FACE OF ITS ANNUAL ACCOUNTS IT IS SEEN THAT SONATA SOFTWARE LIMITED HAS RELATED PARTIES AND SERVICE CHARGES CREDITED TO THE PROFIT & LOSS ACCOUNT . THE RELATED PARTY TRANSAC TIONS TO THE SALES RATIO NEEDS TO BE EXAMINED AND IF THE RPT FILTER APPLIED BY THE TPO AS WELL AS DRP FAILS THE BENCHMARK OF 25%, THEN THIS COMPARABLE SHOULD NOT BE INC LUDED FOR COMPARATIVE ANALYSIS. IF RPT RATIO IS LESS THAN FILTER OF 25%, THEN THIS COMPA RABLE NEEDS TO BE PROPERLY ANALYSED UNDER FAR ANALYSIS. THE TPO WILL GI VE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTI AT E ITS CLAIM ABOUT RATIO OF RPT TRANSACTIONS AND IF REQUIRED THEN IN FAR COMPARABILITY . I.T.A. NO.2074/DEL/2014 24 (D) GOLD STONE TECHNOLOGIES ( - 38.27%) [FOR INCLUSION] 9. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TPO HAS REJECTED THIS COMPARABLE ON THE GROUND THAT IT HAS INSUFFICIENT SEGMENTAL INFORMATION. THERE IS NO DISPUTE BY THE LOWER AUTHORITIES THAT THIS COMPANY IS ENGAGED IN SIMILAR SOFTWARE DEVELOPMENT ACTIVITIES. T HE LD. COUNSEL SUBMITTED THAT NOW THE ENTIRE SEGMENTAL DETAILS ARE AVAILABLE AND, THEREFORE, THIS MATTER CAN BE RESTORED BACK TO THE FILE OF THE TPO. LD. DR ALSO DID NOT OBJECTED THAT, IF THE ENTIRE SEGMENTAL DETAILS ARE AVAILABLE THEN MATTER CAN BE EXAMINED FRESH. 9.1 IN VIEW OF THE ABOVE CONTENTIONS MADE BY THE PARTIES , WE ARE SETTING ASIDE THE ORDER OF THE DRP ON THIS COMPARABLE AND RESTORE THE MATTER TO THE FILE OF THE TPO TO SEE , WHETHER SEGMENTAL INFORMATION ARE AVAILABLE OR NOT AND IF THE SAME ARE AVAILABLE, THEN SAID COMPANY SHOULD BE INCLUDED AFTER CARRYING OUT PROPER COMPARABLE ANALYSIS . THE TPO SHALL PROVIDE DUE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE THE INCLUSION OF THIS COMPANY. II. IT BACK OFFICE SUPPORT SERVICE (ITS) SEGMENT: 10. NOW WE SHALL TAKE UP THE TRANSFER PRICING ADJUSTMENT ON PROVISION OF IT BACK OFFICE SUPPORT SERVICE (ITS) SEGMENT. UNDER THIS S EGMENT , THE ASSESSEE AGAIN HAS RENDERED SERVI CES ON COST PLUS MARGIN OF 15%. THE ASSESSEE HAD ENTE RED INTO AN AGREEMENT WITH CDS, PURSUANT TO WHICH THE ASSESSEE WAS RESPONSIBLE FOR PROVIDING CDS AND OTHER C ADENCE AFFILIATED ENTITIES , IT BACK OFFICE SUPPORT SERVICES WHICH COMPRISE OF UNIX / W INDOWS ADMINISTRATION & SUPPORT; I NTERNAL HELPDESK SERVICES; A PP LICATION DEVELOPMENT & SUPPORT; W EB DEVELOPMENT & SUPPORT; AND I.T.A. NO.2074/DEL/2014 25 C USTOMER SUPPORT. THE FUNCTIONS PERFORMED BY THE ASSESSEE WITH REGARD TO THE IDENTIFIED TRANSACTIONS WERE HIGHLIGHTED IN TPSR AS UNDER: - DETERMINING THE SCOPE OF SERVICES THE BROAD SCOPE OF WOR K TO BE UNDERTAKEN BY CADENCE INDIA IN CONNECTION WITH THE IDENTIFIED TRANSACTION IS OUTLINED IN A SERVICE AGREEMENT BETWEEN CADENCE INDIA AND CDS. PROVISION OF SERVICES CADENCE INDIA IS RESPONSIBLE TO PROVIDE THE AGREED SERVICES AS AND WHEN REQUESTED BY O VERSEAS GROUP ENTITIES AS PER TERMS LAID OUT IN THE AGREEMENT. QUALITY ASSURANCE THOUGH THERE IS NO PENALTY FOR A LAPSE IN QUALITY, CADENCE INDIA IS REQUIRED TO ENSURE THAT SERVICES PROVIDED ARE OF A CERTAIN REQUISITE QUALITY AND ADHERE TO ESTABLISHED INTE RNATIONAL GROUP STANDARDS. 11. SO FAR AS RISK ANALYSIS IS CONCERNED, THE ASSESSEE STATED THAT IT DID NOT HAD ANY KIND OF BUSINESS RISK; CREDIT AND COLLECTION RISK; SERVICE LIABILITY RISK; UTILIZATION RISK; FOREIGN EXCHANGE RISK; AND VERY LIMITED SERVIC E LIABILITY RISK. THUS, IN THIS SEGMENT ALSO THE ASSESSEE WAS RISK MITIGATED ENTITY. UNDER THIS SEGMENT, THE ASSESSEE WAS COMPENSATED FOR SERVICES RENDERED WITH A FEE WHICH IS EQUAL TO OPERATING EXPENSES INCURRED PLUS AN AMOUNT EQUAL TO 15% OF OPERATING E XPENSES AND THE PAYMENT TERMS LAID DOWN THAT THE ASSESSEE WOULD INVOICE CDS FOR ITS SERVICES ON PERIODIC BASIS AND CDS WAS REQUIRED TO PAY INVOICE AMOUNT WITHIN 90 DAYS ON RECEIPT OF INVOICE. IN ITS TRANSFER PRICING STUDY REPORT, THE ASSESSEE ADOPTED TNMM AS MAM WITH PLI AS OP/OC. AFTER CARRYING OUT I.T.A. NO.2074/DEL/2014 26 DETAILED ANALYSIS, THE ASSESSEE SHORTLISTED 7 COMPARABLE COMPANIES WITH WEIGHTED AVERAGE OPERATING PROFIT MARGIN ARRIVED AT 19.41% AND TAKING CUE OF TOLERANCE RANGE OF +/ - 5% IT WAS SUBMITTED THAT ITS MARGIN MET THE ARM S LENGTH REQUIREMENT. THE TPO HOWEVER MODIFIED THE SET OF COMPARABLES AND FINALLY ADOPTED 8 COMPARABLE COMPANIES WITHIN AVERAGE ARITHMETIC MEAN OF 71.11%. THE DETAILS OF THESE COMPARABLES ARE AS UNDER: - S.NO. COMPARABLE OP/OC IN % 1 ACCENTIA TECH NOLOGIES LTD. 52.00 2 CORAL HUB 36.93 3 COSMIC GLOBAL 48.20 4 E - CLERX SERVICES 47.00 5 GENESYS INTERNATIONAL LIMITED 58.45 6 CROSSD O MAIN SOLUTIONS PVT. LTD. 29.4 7 INFORMED TECHNOLOGIES INDIA LTD. 23.16 8 ADITYA BIRLA MINACS WORLDWIDE LTD. 1.71 AV ERAGE 37.11 ACCORDINGLY, HE DETERMINED THE ARM S LENGTH PRICE IN THE FOLLOWING MANNER: - RS . OPERATING COST 4 0 , 90 , 51 , 247 ARMS LENGTH MARGIN (%) 37.11 ARMS LENGTH PRICE (ALP) 56 , 08 , 50 , 165 PRICE RECEIVED 47 , 06 , 89 , 564 SHORTFALL BEING ADJUSTMENT U/S 92CA 9 , 01 , 60,601 I.T.A. NO.2074/DEL/2014 27 12. AFTER GIVING EFFECT TO THE DRP S ORDER, FINALLY 7 SET S OF COMPARABLES WERE LEFT AS DRP HAS EXCLUDED GENESYS INTERNATIONAL LIMITED AND ACCORDINGLY FINAL SET OF COMPARABLES FROM THE STAGE OF DRP WERE AS UNDER: - S L .NO. NAME OP/OC (%) 1 ACCENTIA TECHNOLOGIES LTD. 48.78% 2 VISHAL INFO TECH. (CORAL HUB LTD.) 27.77% 3 COSMIC GLOBAL LTD. 50.34% 4 ECLERX SERVICES LTD. 55.93% 5 CROSSDOMAIN SOLUTIONS P. LTD. 29.91% 6 INFORMED TECH. LTD. 29.25% 7 ADITYA BIRLA MINACS WORLDWIDE LTD. 25.23% AVERAGE 38.17% ACCORDINGLY, THE TRANSFER ADJUSTMENT WAS MADE AT RS.92,09,52,089/ - . 13. OUT OF T HESE 7 COMPARABLE COMPANIES, ASSESSEE HAS CHALLENGED EXCLUSION OF 4 COMPANIES NAMELY , (I) ACCENTIA TECHNOLOGIES LTD.; (II) COSMIC GLOBAL LTD.; (III) ECLERX SERVICES LTD.; AND (IV) VISHAL INFO TECH . APART FROM THAT, ASSESSEE FROM HIS OWN SET OF COMPARABLES HAD SOUGHT INCLUSION OF 4 COMPARABLE COMPANIES NAMELY , (I) CG VAK SOFTWARE AND EXPORTS LTD. (SEGMENTAL); (II) R SYSTEMS INTERNATIONAL LIMITED (SEGMENTAL); (III) MICRO LAND; AND (IV) MICROGENETICS SYSTEMS LIMITED . ANOTHER COMPARABLE COMPANY , ALL SEC TECHNOLO GIES LIMITED WAS THOUGH RAISED FOR INCLUSION IN COMPARABLE LIST, HOWEVER, AT THE TIME OF I.T.A. NO.2074/DEL/2014 28 HEARING THE SAME WAS NOT PRESSED. ACCORDINGLY, WE ARE CEASED WITH EXCLUSION AND INCLUSION OF 4 COMPARABLES EACH. (A) ACCENTIA TECHNOLOGIES LTD. (48.78%) 14. THE ASSESSEE HAS SOUGHT FOR EXCLUSION OF THIS COMPANY MAINLY ON THE GROUND THAT THIS COMPANY IS ENGAGED IN PROVIDING HEALTH CARE RECEIVABLE CYCLE MANAGEMENT SERVICES AND SOFTWARE DEVELOPMENT SERVICES. HENCE IT WAS SUBMITTED THAT IT IS FUNCTIONALLY NOT COMPARABLE. APAR T FROM THAT, IT WAS STATED THAT THE ANNUAL REPORT OF THIS COMPANY SHOWS THAT IT HAS INSUFFICIENT SEGMENTAL INFORMATION , BECAUSE IT HAS VARIOUS STREAMS OF INCOME LIKE MEDICAL TRANSCRIPTION; BILLING AND COLLECTIONS; INCOME FROM CODING ALL UNDER ONE HEAD OF I NCOME. IN THE ABSENCE OF SUCH SEGMENTAL INFORMATION, IT WOULD BE VERY DIFFICULT TO BENCHMARK ITS OPERATING MARGIN WITH THAT OF THE ASSESSEE. HOWEVER, THE TPO AS WELL AS THE DRP RELIED UPON CBDT CIRCULAR S O - 890(E ) DATED 26/9/2000 WHEREIN IT HAS BEEN CLARIFI ED THAT MEDICAL TRANSCRIPTION SERVICES HAVE BEEN TREATED AS IT E S ONLY. THE DRP FURTHER HELD THAT ASSESSEE S PLEA THAT IT HAS A HIGH MARGIN CANNOT BE THE REASON FOR REJECTION. 14.1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE APART FROM REITERATING THE S UBMISSIONS MADE BEFORE THE TPO AND DRP SUBMITTED THAT NOT ONLY ITS SERVICES ARE INCOMPARABLE WITH THAT OF THE ASSESSEE BUT BENCHMARKING WOULD NOT BE POSSIBLE AS IT HAS INSUFFICIENT SEGMENTAL INFORMATION . IN SUPPORT OF THIS CONTENTION THAT IN ABSENCE OF SEG MENTAL INFORMATION IT CAN N OT BE HELD TO BE COMPARABLE, HE RELIED UPON VARIOUS DECISIONS OF THIS TRIBUNAL LIKE IN THE CASE OF MAC QUAR I E GLOBAL SERVICES PVT. LTD. VS. DCIT IN ITA I.T.A. NO.2074/DEL/2014 29 NO.6803/DEL/2013 ; AND TNS INDIA PVT. LTD. VS. DCIT IN ITA NO.1875/HYD/2012 . 14. 2 ON THE OTHER HAND, THE LD. SR. DR, STRONGLY RELIED UPON THE ORDER OF THE DRP AND ALSO DECISION OF THE TRIBUNAL IN THE CASE OF EVALUES ERVE.COM PVT. LTD. VS. ITO IN ITA NO.4001/DEL/2013. 14.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED R ELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. ACCENTIA TECHNOLOGIES LTD. HAS TWO MAIN BUSINESS AREAS NAMELY , HEALTH CARE RECEIVABLE CYCLE MANAGEMENT SERVICES AND SOFTWARE PRODUCTS FOR BPOS. IT EARNS SUBSTANTIAL PART OF ITS INCOME FROM CODING ACTIVITIES WHIC H IS PRIMARILY RELATED TO E - SOFTWARE DEVELOPMENT. VARIOUS STREAMS OF INCOME SHOWN IN THE ANNUAL REPORT REFLECTS THAT IT HAS INC OM E FROM MEDICAL TRANSCRIPTION, BILLING AND COLLECTIONS, INCOME FROM CODING, ETC. IT IS NOT IN DISPUTE THAT SEGMENTAL INFORMATION FOR EACH STREAMS OF INCOME ARE NOT AVAILABLE, THEREFORE, IT WOULD BE VERY DIFFICULT TO BENCHMARK PROFIT MARGIN WITH THE ASSESSEE - COMPANY , WHICH IS ONLY RENDERING BACK OFFICE SUPPORT SERVICES. ANOTHER IMPORTANT FACT WHICH IS BORNE OUT FROM THE ITS ANNUAL R EPORT IS THAT , DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS ACQUIRED BUSINESS OF OAK TECHNOLOGIES INC. USA WHICH HAS LED TO RAPID INCREASE IN ITS CUSTOMER BASE. SUCH ACQUISITION DEFINITELY HAS AN IMPACT ON THE TRADING RESULT AND CAN DISTORT PROFIT MAR GIN. THUS, WE HOLD THAT ACCENTIA TECHNOLOGIES LTD. CANNOT BE INCLUDED IN THE LIST OF FINAL COMPARABLES AND ACCORDINGLY , THE SAME IS DIRECTED TO BE EXCLUDED. COSMIC GLOBAL LTD. (50.34%) I.T.A. NO.2074/DEL/2014 30 15. THE ASSESSEE - COMPANY HAS SOUGHT EXCLUSION OF THIS COMPARABLE COMP ANY MAINLY ON THE GROUND THAT , FIRSTLY, IT OUTSOURCES MOST OF ITS ACTIVITIES AND HENCE IT HAS DIFFERENT BUSINESS MODEL ; SECONDLY, THE EMPLOYEE COST IS LESS THAN 2% OF THE TURNOVER AS COMPARED TO THE ASSESSEE WHICH HAS MUCH HIGHER EMPLOYEE COST ; AND LASTLY, IT IS ENGAGED IN PROVIDING SERVICES OF TRANSLATION CHARGES; MEDICAL TRANSCRIPTION AND IS ALSO INTO BPO SERVICES FOR WHICH SEGMENTAL ACCOUNTS ARE NOT AVAILABLE. 15.1 THE LD. SR. DR , SUBMITTED THAT THIS COMPARABLE WAS TAKEN BY THE ASSESSEE IN THE EARL IER YEAR WHICH HAS BEEN ACCEPTED BY THE TPO AS WELL AS DRP. NOT ONLY THAT, H E FURTHER POINTED OUT THAT THIS COMPARABLE WAS AGAIN TAKEN AS SET OF COMPARABLE BY THE ASSESSEE IN THE ASSESSMENT YEAR 2010 - 11 AND ALSO IN AY 2011 - 12. IT IS ONLY IN THIS YEAR THAT ASSESSEE SEEKS FOR EXCLUSION JUST BECAUSE IN THIS YEAR THE MARGIN IS MORE. THEREFORE, THERE CANNOT BE EXCLUSION ONLY IN THIS YEAR WITHOUT CHANGE IN MATERIAL FACTS THIS YEAR . 15.2 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT FUNCTIO NAL COMPARABILITY HAS TO BE SEEN FOR INCLUSION OR EXCLUSION AND, THEREFORE, LOOKING TO THE FACT THAT IN SEVERAL CASES THIS COMPARABLE COMPANY HAS BEEN EXCLUDED FROM THE COMPANIES, WHICH ARE RENDERING PURELY IT ES SERVICES , THEREFORE BASED ON THESE DECISIONS THIS COMPARABLE SHOULD BE REMOVED. IN SUPPORT OF EXCLUSION OF THIS COMPANY , HE RELIED UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF MACQUAR I E GLOBAL SERVICES PVT. LTD. (SUPRA) AND THE DECISION IN THE CASE OF SAXO INDIA PVT. LTD. IN ITA NO.682/2016. I.T.A. NO.2074/DEL/2014 31 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDING AND MATERIAL REFERRED TO BEFORE US. THE ASSESSEE HAS SOUGHT EXCLUSION OF THIS COMPARABLE COMPANY MAINLY ON THE GROUND THAT IT OUTSOURCES MOST OF ITS WORK WHICH IS 57.31% A S COMPARED TO THE ASSESSEE WHICH IS ONLY 2.5% AND EMPLOYEE COST OF THIS COMPANY IS LOWER . THOUGH THIS IS FAIRLY A VITAL FACTOR VITIATING THE COMPARABILITY, H OWEVER, THE LD. COUNSEL FOR THE ASSESSEE COULD NOT GIVE ANY REBUTTAL OR ANY COGENT REASONS AS TO WH Y THIS COMPARABLE COMPANY WAS SELECTED AND CHOSEN BY THE ASSESSEE AFTER CARRYING OUT FAR ANALYSIS NOT ONLY IN EARLIER YEARS, BUT ALSO IN SUBSEQUENT ASSESSMENT YEARS I.E. 2010 - 11 AND 2011 - 12 AGAIN ON CARRYING SAME FAR ANALYSIS . IT IS ONLY IN THIS YEAR THAT ASSESSEE IS SEEKING EXCLUSION ON THE GROUND THAT IT HAS A DIFFERENT BUSINESS MODEL. SUCH PICK AND CHOOSE OF COMPARABLES EVERY YEAR ACCORDING TO THE SUITABILITY OF THE MA RGIN DEFINITELY AMOUNTS TO CHERRY PICKING. THE ASSESSEE HAS NOT DEMONSTRATED BEFORE US THAT IN EARLIER YEAR S AND SUBSEQUENT YEARS THE BUSINESS MODEL OF COSMIC GLOBAL LTD. IS DIFFERENT , I.E. , IT DOES NOT OUTSOURCE ITS SUBSTANTIAL W ORK. NO DOUBT ASSESSEE CAN OBJECT TO INCLUSION OR EXCLUSION OF A COMPARABLE COMPANY CONTRARY TO ITS TP STUDY REPO RT BY CITING COGENT GROUNDS AND POINTING OUT THE FACTORS VITIATING THE COMPARABILITY AND TPO HAS TO EXAMINE THESE COMPARABILITY FACTORS ON MERITS, BUT WHEN ASSESSEE CONSISTENTLY ADOPTS ANY COMPARABLE COMPANY AND TOO AFTER FAR SCRUTINY THEN ONUS IS VERY HEA VY UPON THE ASSESSEE TO SUBSTANTIATE THAT THE MATERIAL FACTORS IN THIS YEAR ARE DIFFERENT FROM THE YEARS WHEN IT SEEKS TO TAKE CONTRARY STAND IN A PARTICULAR YEAR. THE LD. COUNSEL HAS BEEN UNABLE TO POINT OUT THE MATERIAL FACTORS FOR DISTINCTION SOUGHT IN THIS YEAR WAS NOT PERMEATING IN THE EARLIER YEARS OR IN THE SUBSEQUENT YEARS. THIS I.T.A. NO.2074/DEL/2014 32 INCONSISTENT APPROACH CANNOT BE PERMITTED AS IT CAN LEAD TO FALLING IN THE REALM OF WHIMS OF SUITABILITY OF ASSESSEE. HAD IT BEEN THE CASE WHERE MATERIAL FACTS WERE DIFFEREN T IN THIS YEAR AND THE COMPARABLE HAS BEEN SELECTED ON SOME INCORRECT ANALYSIS IN THE EARLIER YEAR OR AT THE TIME OF TP STUDY, THEN DEFINITELY THERE CANNOT BE ANY ESTOPPEL FOR OBJECTING TO FOR EXCLUSION, BUT SUCH MATERIAL FACTS AND INCORRECT APPROACH HAS T O BE DEMONSTRATED WHICH HAS NOT BEEN DONE IN THIS YEAR. THIS INCONSISTENCY IS FURTHER ACCENTUATED BY THE FACT THAT THIS COMPARABLE CONTINUES TO BE PART OF ASSESSEE S COMPARABLE IN SUBSEQUENT YEARS. THUS, WE AGREE WITH THE CONTENTION OF THE LD. SR. DR THAT ASSESSEE CANNOT BE ALLOWED TO RESORT TO SUCH CHERRY PICKING. ACCORDINGLY, WE CONFIRM THE ACTION OF THE TPO IN INCLUDING COSMIC GLOBAL LTD. AS COMPARABLE FOLLOWING RULE OF CONSISTENCY . E - CLERX SERVICES LTD. (55.90%) 16. THE ASSESSEE HAS SOUGHT FOR EXCLU SION OF THIS COMPANY MAINLY ON THE GROUND THAT IT IS FUNCTIONALLY DISSIMILAR AS IT IS RENDERING HIGH LEVEL KPO SERV ICES AND PROVIDES DATA ANALYTICS OPERATION MANAGEMENT AND AUDIT RECONCILIATION SERVICES. THE TPO AND DRP HAVE INCLUDED THIS COMPANY ON THE GR OUND THAT THE SERVICES PROVIDED BY THIS COMPANY ARE BASICALLY IN THE NATURE OF ITES. 16.1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THAT THIS COMPANY IS PROVIDING HIGH END KPO SERVICES WHICH IS DIFFERENT FROM THE FUNCTIONS PERFORMED BY T HE ASSESSEE, IN SUPPORT FOR ITS EXCLUSION ON SIMILAR POINT, HE RELIED UPON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF RAMP GREEN SOLUTIONS PVT. LTD. IN ITA NO.102/205 WHEREIN THIS I.T.A. NO.2074/DEL/2014 33 COMPARABLE HAS BEEN REMOVED AND ALSO RELIED UPON THE TRIBUNAL D ECISION IN THE CASE OF MACQUAR I E GLOBAL SERVICES (SUPRA). 16.2 ON THE OTHER HAND, LD. DR, RELIED UPON THE ORDER OF THE DRP THAT THIS COMPANY IS BOTH INTO KPO AND BPO WHICH WAS NOTHING BUT IN THE NATURE OF ITES SERVICES AND THEREFORE, IT HAS RIGHTLY BEEN INCLUDED IN THE LIST OF COMPARABLES . 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. FROM THE PERUSAL OF THE ANNUAL REPORT OF ECLERX SERVICES LTD. , WE FIND THAT , FIRST OF ALL , DUE TO ITS EXCEPTIONA L PERFORMANCE DURING THE YEAR, IT HAS BEEN CHOSEN AS BEST KPO COMPANY AND IT HAS ALSO OUTSOURCED ITS SUBSTANTIAL WORK TO THE THIRD PARTY DURING THE YEAR. THE ASSESSEE ON THE OTHER HAND IS PROVIDING BACK OFFICE SUPPORT SERVICES AND SUCH SERVICES ARE BEING P ROVIDED BY ITS OWN HUMAN RESOURCES, THAT IS, IT IS NOT OUTSOURCING ITS WORK. WITHOUT GOING INTO MUCH ANALYSIS, WE FIND THAT THE HON BLE DELHI HIGH COURT IN THE CASE OF RAMP GREEN SOLUTIONS PVT. LTD. (SUPRA) HAS DIRECTED THE TPO TO EXCLUDE THIS COMPANY ON T HE GROUND THAT IT IS PROVIDING KPO SERVICES AND MOST OF ITS WORK WAS OUTSOURCED TO OTHER SERVICE PROVIDERS WHICH AFFECTS THE PROFITABILITY. THUS, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON BLE DELHI HIGH COURT (SUPRA), WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE FROM THE COMPARABILITY LIST. VISHAL INFO TECH. ( NOW CORAL HUB LTD.) (27.77%) 17. THIS COMPANY HAS BEEN SOUGHT TO BE EXCLUDED BY THE ASSESSEE ON THE GROUND THAT THIS COMPANY IS INTO OUTSOURCING ACTIVITIES WHICH IS AROUND 90.57% AND APART FRO M THAT IT IS INTO E - I.T.A. NO.2074/DEL/2014 34 PUBLISHING SERVICES W HICH IS KPO BUSINESS MODEL. IT WAS FURTHER SUBMITTED THAT THERE ARE SIGNIFICANT INTANGIBLES INCLUDING INTELLECTUAL PROPERTY AND TECHNICAL KNOW - HOW WITH THIS COMPANY THUS, VITIATING THE COMPARISON. LASTLY IT WAS SUBM ITTED THAT IT DOES STAND THE TEST OF THE EMPLOYEE COST FILTER APPLIED BY THE TPO I.E. EMPLOYEE COST IS LESS THAN 25% OF THE TURNOVER , WHICH HERE IN THIS CASE OF COMPARABLE IS 2%. THE SAME SUBMISSIONS HAVE REITERATED BY THE LD. COUNSEL BEFORE US AND ALSO RE LIANCE WAS PLACED ON THE JUDGMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF RAMP GREEN SOLUTIONS PVT. LTD. (SUPRA) WHEREIN OUTSOURCING MODEL COMPANIES HAVE BEEN HELD TO INCOMPARABLE WITH THE COMPANIES OPERATING ON ITS OWN RE SOURCES. 17.1 ON THE OTHER, THE LD. DR , STRONGLY RELIED UPON THE ORDER OF THE DRP THAT THIS COMPANY IS OPERATING UNDER ONE SEGMENT , I.E., IT ES SERVICES AND SOLUTIONS AND THEREFORE , FUNCTIONALLY IT IS A COMPARABLE COMPANY. 17.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS MADE BY THE PARTIES, WE FIND THAT THERE IS NO DISPUTE THAT , VISHAL INFO TECH. (CORAL HUB) HAS A DIFFERENT BUSINESS MODEL INASMUCH AS ITS OUTSOURCING CHARGES IS 90.57% WHICH REFLECTS THAT IT HAS A DIFFERENT BUSINESS MODEL ALL TOGETHER AND DEPLOYMENT OF HUMAN RESOURCES IN AN OUTSOURCING MODEL DEFINITELY IS DIFFERENT FROM A COMPANY WHICH CARRIES ITS WORK THROUGH ITS OWN RESOURCES AND THERE IS HUGE DIFFERENCE IN EMPLOYEES COST RATIO TO TURNOVER . THUS, I N THE OUTSOURCING MODEL, THE ASSETS DEPLOYED ( IN THE FORM OF HUMAN RESO URCES ) AND OTHER INTANGIBLE DIFFERS FROM AN ENTITY WHICH OPERATES MOSTLY ON ITS OWN RESOURCES. T HE RATIO LAID DOWN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF RAMP GREEN SOLUTIONS PVT. LTD. (SUPRA) IS CLEARLY APPLICABLE AND ACCORDINGLY , I.T.A. NO.2074/DEL/2014 35 WE DIRECT THE TP O TO EXCLUDE THIS COMPANY FROM THE LIST OF FINAL COMPARABLE. CG VAK SOFTWARE AND EXPORTS LTD. ( - 3.38%) 18. THIS COMPANY HAS BEEN SOUGHT TO BE INCLUDED BY THE ASSESSEE - COMPANY, WHICH HAS BEEN REJECTED BY THE TPO AND DRP ON THE GROUND THAT IT DOES NOT FUL FIL THE TURNOVER CRITERIA OF FIVE CRORES SINCE ITS TURNOVER IS LESS THAN FIVE CRORES, T HEREFORE, IT CANNOT BE INCLUDED IN THE COMPARABLE ANALYSIS. 18.1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAD SUBMITTED THAT NOW THIS ISSUE HAS BEEN DEALT BY TH E HON BLE DELHI HIGH COURT IN THE CASE OF CRYS C APITAL INVESTMENT ADVIS ORS INDIA PVT. LTD. VS. DCIT IN ITA NO.417/2014 , WHEREIN THE HON BLE HIGH COURT HELD THAT TURNOVER FILTER CANNOT BE USED TO EXCLUDE OTHERWISE FUNCTIONAL COMPARABLE COMPANIES. 18.2 T HE LD. DR REL YING UPON THE ORDER OF THE DRP SUBMITTED THAT HERE IN THIS CASE THE TURNOVER WAS LESS THAN R S.1 CRORE AND WHEN TURNOVER IS SO SMALL, THEN IT CANNOT BE COMPARED UNDER FAR. IN SUPPORT , HE ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CAS E OF S & P CAPITAL IQ ( INDIA ) (P) LTD. VS. DCIT, (2016) 72 TAXMANN.COM 236. 18.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. THE MAIN REASON FOR NOT INCLUDING THIS COMPANY IS THAT ITS TURNOVER IS LESS THAN RS 1 CRORE . SO FAR AS EXCLUSION OF THIS COMPARABLE ON BASIS OF TURNOVER FILTER CRITERIA OF LESS THAN RS. 1 CRORE, WE FIND THAT, FIRST OF ALL, IT WAS A COMPARABLE CHOSEN BY THE ASSESSEE AND AT THE TIME OF SELECTION PROCESS THE ASSESSEE AS STATED HAD NO T APPLIED I.T.A. NO.2074/DEL/2014 36 ANY TURNOVER FILTER FOR ACCEPTING OR REJECTING THE COMPARABLES. ONCE THE TURNOVER FILTER HAS NOT BEEN APPLIED AT THE QUANTITATIVE LEVEL THEN COMPARABILITY HAS TO BE DONE ON QUALITATIVE LEVEL BASED ON FAR ANALYSIS. IF ON FAR ANALYSIS IT IS FOUND T HAT THERE ARE DIFFERENCES ON ACCOUNT OF EITHER ASSETS DEPLOYED, RISK ASSUMED MATERIALLY AFFECTING THE COST OR MARGIN THEN ONLY COMPARABILITY ANALYSIS FAILS IN SUCH CASES. FURTHER, UNDER THE TNMM, THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UN CONTROLLED TRANSACTION IS TO BE SEEN WITH REFERENCE TO FUNCTIONS PERFORMED AFTER TAKING INTO ASSETS EMPLOYED AND THE RISK ASSUMED. WHILE RECKONING THE COMPARABILITY ANALYSIS UNDER TNMM, THE MAIN EMPHASIS IS INTO NET MARGIN REALIZED ON THE TRANSACTIONS UNDE RTAKEN AND NOT THE PRICE OF THE PRODUCT OR SERVICES. THE TRANSFER PRICING RULES UNDER RULE 10B AND 10C ALSO CONTEMPLATE FOR ELIMINATING THE MATERIAL EFFECTS AND TO MAKE REASONABLY ACCURATE ADJUSTMENT FOR ELIMINATING THE DIFFERENCES ON ACCOUNT OF SUCH MATER IAL EFFECTS. MERE CIRCUMSTANCE OF A COMPANY WHICH OTHERWISE CONFIRM TO THE COMPARABILITY ANALYSIS IN TERMS OF RULE 10B(2) AND (3), HUGE PROFIT OR HUGE TURNOVER IPSO FACTO DOES NOT LEAD TO ITS EXCLUSION UNLESS AND OF COURSE IT IS SHOWN THAT TURNOVER OR HUGE PROFIT IS ON ACCOUNT OF FACTOR LEADING TO A DIFFERENT RESULTS IN FAR ANALYSIS. WE FIND THAT THE HON BLE DELHI HIGH COURT IN THE CASE OF CRYSCAPITAL INVESTMENT ADVISORS INDIA PVT. LTD. VS. DCIT (SUPRA) AFTER DETAILED ANALYSIS OF RULE 10B(3), SAME PRINCIPLE HAS BEEN REITERATED THAT IF THE COMPANY IS FUNCTIONALLY COMPARABLE THEN SAME CANNOT BE REJECTED ON THE BASIS OF TURNOVER. THE HON BLE HIGH COURT IN ITS VERY DETAILED JUDGMENT WHEREIN IT WAS REQUIRED TO ANSWER, WHETHER THE COMPARABLE CAN BE REJECTED ON THE GROUND THAT THEY HAVE HIGH PROFIT MARGIN AS COMPARED TO THE ASSESSEE IN TP ANALYSIS, HAS I.T.A. NO.2074/DEL/2014 37 ALSO D EA LT UPON THE TURNOVER FACTOR IN DETAIL AND REITERATED THAT IF THE COMPANY IS FUNCTIONALLY COMPARABLE THEN SAME CANNOT BE REJECTED ON THE BASIS OF TURNOVER. THU S, FOLLOWING THE RATIO LAID DOWN BY THE HON BLE DELHI HIGH COURT, WE HOLD THAT THE COMPANY CANNOT BE HELD TO BE IN COMPARABLE SIMPLY ON THE GROUND OF LOW TURNOVER, UNLESS IT IS DEMONSTRATED THAT THE ASSETS AND RISK ARE COMPLETELY DIFFERENT AND ARE INCOMPARA BLE . THUS, WE DIRECT THE TPO TO INCLUDE C G VAK SOFTWARE AND EXPORTS LTD. AS A COMPARABLE COMPANY. R SYSTEMS INTERNATIONAL LIMITED ( - 17.18%) 19. THE ASSESSEE HAS SELECTED THIS COMPANY AS COMPARABLE IN TP STUDY REPORT WHICH HAS BEEN REJECTED BY THE TPO AND DRP ON THE GROUND THAT IT FOLLOWS CALENDAR YEAR FOR ITS ACCOUNTING , THAT IS, 1 ST JANUARY TO 31 ST DECEMBER . THE CASE OF THE LD. SR. DR BEFORE US HAS BEEN THAT A COMPARABLE CANNOT BE ACCEPTED WHEN THE ENTIRE DATA RELATING TO THE RELEVANT FINANCIAL YEAR IS NOT AVAILABLE. 19.1 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, RELIED UPON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF M C K INSEY K NOWLEDGE C ENTRE I NDIA PVT. LTD. IN ITA NO.217/2014 AND CIT VS. M/S. MERCER CONSULTING INDIA PVT . LTD., ITA NO. 101 OF 2015 DATED 24.08.2016 . 19.2 WE HAVE HEARD RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. THIS COMPARABLE COMPANY HAS BEEN REJECTED NOT ON THE GROUND OF FUNCTIONALITY ALBEIT ON THE GROUND THAT IT IS FOLLOWING THE FINANCIAL YEAR ACCOUNTING FROM JANUARY TO DECEMBER (I.E., CALENDAR YEAR). I.T.A. NO.2074/DEL/2014 38 THOUGH A COMPARABLE COMPANY FOLLOWING A DIFFERENT FINANCIAL YEAR MAY NOT BE GENERALLY TAKEN FOR COMPARABILITY ANALYSIS, HOWEVER, IF FINANCIAL DATA IS AVAILABLE FO R ALL THE QUARTERS INCLUDING JANUARY TO MARCH AND IT IS OTHERWISE POSSIBLE TO DETERMINE THE VALUE OF THE TRANSACTION AS WELL AS THE PROFITABILITY DURING THE CORRESPONDING PERIOD, THEN IT SUFFICES THE COMPARABILITY CRITERIA. BECAUSE, ULTIMATELY THE CORE POI NT IN COMPARABILITY ANALYSIS IS TO BENCHMARK THE MARGIN OF A GIVEN PERIOD OF A COMPARABLE UNCONTROLLED TRANSACTION WITH CONTROLLED TRANSACTION. IF THE FINANCIALS OF THE CORRESPONDING PERIOD IS AVAILABLE THEN IT CANNOT BE REJECTED SIMPLY ON THE GROUND THAT IT HAS A DIFFERENT FINANCIAL YEAR. AS BROUGHT OUT ON RECORD BY THE LD. COUNSEL BEFORE US SUBMITTED THAT THE AUDITED ACCOUNTS OF R - SYSTEMS FOR THE YEAR ENDING 31.12.2008 AND FOR THE QUARTER STARTING FROM 31.01.2008 TO 31.03.2009 IS AVAILABLE AND ONCE SUCH A N AUDITED STATEMENT IS AVAILABLE, THEN THE PROPORTIONATE WORKING FOR 31.03 2009 CAN EASILY BE DEDUCED. IF THERE ARE NO MAJOR INCIDENT OF FACTORS DISTURBING THE PROFIT MARGIN IN THAT QUARTER, WHOSE RESULTS ARE BEING WORKED OUT AND THE TRANSACTIONS OF THE CO MPANY ARE CARRIED OUT IN THE NORMAL COURSE OF BUSINESS, THEN WE DO NOT FIND ANY REASON TO REJECT THE COMPARABLE OUT RIGHTLY ON THE AFORESAID GROUND. THE WORKING OF PLI BASED ON AUDITED ACCOUNTS AS INCORPORATED ABOVE CLEARLY CLINCHES THE POINT. THE HON'BLE P&H HIGH COURT IN CIT VS. M/S. MERCER CONSULTING INDIA PVT. LTD., IN THE CONTEXT OF R - SYSTEMS ONLY HAD MADE A VERY IMPORTANT OBSERVATION WHICH READS AS UNDER: - 27. THE TPO EXCLUDED THE CASE OF R - SYSTEMS INTERNATIONAL LIMITED FROM THE LIST OF COMPARABLES. THE ITAT INCLUDED THE SAME. THE TRANSFER PRICING OFFICER EXCLUDED THE CASE OF R - SYSTEMS INTERNATIONAL LIMITED ON THE GROUND THAT IT FOLLOWS I.T.A. NO.2074/DEL/2014 39 THE CALENDAR YEAR I.E. 1ST JANUARY TO 31ST DECEMBER FOR MAINTAINING ITS ANNUAL ACCOUNT WHEREAS THE ACCOUNTING YEAR OF THE ASSESSEE IS 1 ST APRIL TO 31 ST MARCH. THE TRANSFER PRICING OFFICER FOLLOWED AN ORDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN ACIT V. HAPAG LLOYD GLOBAL SERVICES LTD. 2013 - TH - 68 - ITATMUM - TP IN WHICH IT HAD BEEN HELD THAT A COMPANY WITH A DIFFEREN T FINANCIAL YEAR ENDING CANNOT BE COMPARED. 28. WE ARE UNABLE TO AGREE WITH THE DECISION OF THE TRANSFER PRICING OFFICER AND OF THE DRP THAT AFFIRMED IT. THE VIEW TAKEN BY THE TRIBUNAL COMMENDS ITSELF TO US. IT IS NOT THE FINANCIAL YEAR PER SE THAT IS REL EVANT. EVEN IF THE FINANCIAL YEARS OF THE ASSESSEE AND OF ANOTHER ENTERPRISE ARE DIFFERENT IT WOULD MAKE NO DIFFERENCE. IF IT IS POSSIBLE TO DETERMINE THE VALUE OF THE TRANSACTIONS DURING THE CORRESPONDING PERIOD, THE PURPOSE OF COMPARABLES WOULD BE SERVED . THE QUESTION IN EACH CASE IS WHETHER DESPITE THE FINANCIAL YEARS OF THE ASSESSEE AND OF THE OTHER ENTERPRISE BEING DIFFERENT, THE FINANCIALS OF THE CORRESPONDING PERIOD OF EACH OF THEM ARE AVAILABLE. IF THEY ARE, THE TRANSFER PRICING OFFICER MUST REFER T O THE CORRESPONDING PERIOD OF BOTH THE ENTITIES IN DETERMINING WHETHER THE TWO ARE COMPARABLE OR NOT FOR THE PURPOSE OF DETERMINING THE ALP. 29. AS NOTED BY THE TRIBUNAL, THE AUDIT ACCOUNTS OF R SYSTEM INTERNATIONAL LTD. FOR THE YEAR ENDING 31.12.2008 HAD BEEN GIVEN UNDER ONE COLUMN AND THE DATA FOR THE QUARTER ENDING 31.03.2009 AND 31.03.2008 (BOTH AUDITED) HAD BEEN GIVEN IN TWO OTHER COLUMNS. THUS, AS RIGHTLY HELD BY THE TRIBUNAL, IF FROM THE YEARLY DATA ENDING 31.12.2008, THE RESULTS OF THE QUARTER ENDIN G 31.03.2008 ARE EXCLUDED AND IF THE RESULTS FOR I.T.A. NO.2074/DEL/2014 40 THE QUARTER ENDING 31.03.2009 ARE INCLUDED, IT IS POSSIBLE TO OBTAIN THE DATA FOR THE FINANCIAL YEAR 01.04.2008 TO 31.03.2009. 30. THIS VIEW IS NOT CONTRARY TO RULE 10(B)(4) WHICH READS AS UNDER: - '10B(4) THE DATA TO BE USED IN ANALYSING THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. 31. THE RULE DOES NOT EXCLUDE FROM CONSIDERATION THE DATA OF AN ENTITY MERELY BECAUSE ITS FINANCIAL YEAR IS DIFFERENT FROM THE FINANCIAL YEAR OF THE ASSESSEE. WHAT THE RULE REQUIRES IS THAT THE DATA TO BE USED IN ANALYZING THE FINANCIAL RESULTS OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL B E THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. THUS, SO LONG AS THE DATA RELATING TO THE FINANCIAL YEAR IS AVAILABLE, IT MATTERS NOT, IF THE FINANCIAL YEAR FOLLOWED IS DIFFERENT. IN THE CASE BEFORE U S THE DATA RELATING TO THE RELEVANT FINANCIAL YEAR OF R - SYSTEMS INTERNATIONAL LIMITED IS AVAILABLE. 32. WE ARE, THEREFORE, ENTIRELY IN AGREEMENT WITH THE DECISION OF THE TRIBUNAL THAT IF THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL T RANSACTION HAS BEEN ENTERED INTO IS DIRECTLY AVAILABLE FROM THE ANNUAL ACCOUNTS OF THAT COMPARABLE, THE SAME CANNOT BE HELD AS NOT PASSING THE TEST OF SUB - RULE (4) OF RULE 10 B . I.T.A. NO.2074/DEL/2014 41 THUS, RESPECTFULLY FOLLOWING THE JUDGMENT OF HON BLE HIGH COURT, WE HOLD TH AT THIS COMPANY SHOULD BE ACCEPTED AS COMPARABLE COMPANY FOR THE PURPOSE OF BENCHMARK ING THE ASSESSEE S MARGIN . MICROLAND LTD. ( - 15.69%) 20. IT HAS BEEN SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPARABLE COMPANY WAS REQUESTED BY THE AS SESSEE FOR INCLUSION BEFORE THE DRP BY WAY OF DETAILED SUBMISSIONS. AND GIVING ALL THE DETAILS OF COMPARABILITY. HOWEVER, DRP DID NOT PROVIDE IT S COMMENTS ON THIS COMPARABLE , T HEREFORE, HE REQUESTED THAT THIS COMPARABLE SHOULD BE SENT BACK TO THE FILE OF THE TPO. HE ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF X CHANGING TECHNOLOGY SERVICES INDIA PVT. LTD. VS. DCIT IN ITA NO.1897/DEL/2014 FOR ASSESSMENT YEAR 2009 - 10 , WHEREIN ON SIMILAR GROUND THE MATTER WAS REMANDED TO THE TPO FOR FRESH CON SIDERATION. THE LD. D.R. TOO ADMITTED THAT THIS MATTER CAN BE RESTORED BACK TO THE FILE OF TPO. 20.1 ACCORDINGLY, WE SET ASIDE THE ORDER OF THE DRP AND RESTORE THIS COMPARABLE TO THE FILE OF THE TPO TO CARRY OUT COMPARABILITY ANALYSIS AND IF THIS COMPAN Y IS FOUND TO BE COMPARABLE , THE N SAME CAN BE INCLUDED FOR BENCHMARKING ASSESSEE S MARGIN. NEEDLESS TO SAY THAT TPO WILL GIVE OPPORTUNITY TO THE ASSESSEE TO THE ASSESSEE TO SUBSTANTIATE ITS CASE. MICROGENETICS SYSTEMS LTD. (1.84%) 21. REGARDING THIS CO MPARABLE ALSO, IT HAS BEEN SUBMITTED THAT THIS COMPARABLE WAS REQUESTED FOR INCLUSION BEFORE THE DRP BY WAY OF SUBMISSION. HOWEVER, THE DRP HAS NOT GIVEN ITS COMMENT. SINCE ON SIMILAR ISSUE WE HAVE SET ASIDE THE ORDER OF THE DRP AND I.T.A. NO.2074/DEL/2014 42 RESTORED THE COMPARABL E TO THE FILE OF TPO, ACCORDINGLY , FOR THIS COMPARABLE ALSO, WE ARE REMITTING BACK TH E SAME TO THE FILE OF THE TPO FOR CARRYING OUT COMPARABILITY ANALYSIS FOR BENCHMARKING ASSESSEE S MARGIN. 22. IN VIEW OF OUR AFORESAID FINDING AND DIRECTIONS, WE DIRECT THE TPO TO BENCHMARK ASSESSEE S MARGIN VIS - - VIS THE COMPARABLES AS DECIDED ABOVE AND ARRIVE AT APPROPRIATE ARM S LENGTH PRICE FOR BOTH THE SEGMENTS AS DECIDED ABOVE . III. T.P. ADJUSTMENT ON PROVISION OF PRE - SALES MARKETING AND POST - SALES TECHNICAL SUPP ORT SERVICES 23. NOW COMING TO THE ADJUSTMENT OF ARM S LENGTH PRICE RELATING TO P ROVISION OF PRE - SALES MARKETING AND POST - SALES TECHNICAL SUPPORT SERVICES, THE BRIEF FACTS QUA THE ISSUE ARE THAT , THE ASSESSEE PROVIDES PRE - SALES MARKETING TO CADENCE , IR ELAND AND POST - SALES TECHNICAL SERVICES TO THIRD PARTY CUSTOMERS IN INDIA ON BEHALF OF CADENCE . THE SERVICES ARE PROVIDED BY THE ASSESSEE FROM ITS UNIT LOCATED IN BANGALORE PRIMARILY WITH A VIEW TO FACILITATE PROVISION OF SOFTWARE TECHNOLOGICAL SERVICES FO R CADENCE S PRODUCTS IN INDIA. THE ASSESSEE IS COMPENSATED FOR THE SERVICES RENDERED ON COST PLUS MODEL , I.E. , REIMBURSEMENT OF OPERATING EXPENSES PLUS MARK UP OF 12% OF OPERATING EXPENSES. THE FUNCTIONAL ANALYSIS AND RISK ANALYSIS HAS BEEN DISCUSSED IN DE TAIL IN TPSR. IN S UM AND SUBSTANCE, THE FUNCTIONS PERFORMED ARE IDENTIFICATION OF CUSTOMERS, PRICE NEGOTIATION AND CONTRACTUAL AGREEMENTS WITH INDIAN CU STOMERS AND QUALITY ASSURANCE. SO FAR AS MARKET RISK ; FOREIGN EXCHANGE RISK ; AND CREDIT AND COLLECTION R ISK IS CONCERNED , THE ASSESSEE DOES NOT UNDERTAKE ANY RISK A S THE SAME IS THAT OF CADENCE . IN THE TP STUDY REPORT, THE ASSESSEE I.T.A. NO.2074/DEL/2014 43 HAD TAKEN BOTH THE SERVICES AS ONE SEGMENT AND FOR THE PURPOSE OF BENCHMARK ING THE MARGIN, IT HAS SHORTLISTED 15 COMPARABLE COMP ANIES AFTER ADOPTING TN MM AS MAM. HAD THE TPO REJECTED ALL THE 15 COMPARABLES AND SELECTED 4 COMPARABLE COMPANIES AND AFTER THE STAGE OF DRP , IT HAS BEEN REDUCED TO 3 COMPARABLE COMPANIES AND THEREBY , ADJUSTMENT OF RS.3.30 CRORES HA S BEEN MADE. 23.1 I T HAS BEEN INFORMED BY THE LD. D.R. THAT IN ASSESSMENT YEAR 2008 - 09 , IDENTICAL ISSUE WAS SENT BACK TO THE TPO VIDE ORDER DATED 20/5/2016 IN ITA NO.39/DEL/2013 IN THE ASSESSEE S OWN CASE. 23.2 THE LD. COUNSEL FOR THE ASSESSEE , POINTED OUT THAT IN THE OR DER GIVING EFFECT TO THE ORDER OF THE TRIBUNAL BY THE TPO (ORDER DATED 30/3/2017), THE TPO HAD HELD THAT PRE - SALES MARKETING AND POST - SALES TECHNICAL SERVICE CANNOT BE BENCHMARKED SEPARATELY , BECAUSE THE ASSESSEE ITSELF HAS CONSOLIDATED THE FIGURES OF BOTH THE SEGMENTS UNDER ONE SINGLE HEAD. HOWEVER, H E POINTED OUT THAT IN ASSESSMENT YEAR S 201 1 - 1 2 AND 2012 - 13 , THE ASSESSEE HAD BENCHMARKED BOTH THESE SERVICES SEPARATELY IN ITS TP STUDY REPORT AND THE SAME HAS BEEN ACCEPTED BY THE TPO VIDE ORDER DATED 29/1/2 016 AND NO FAULT HAS BEEN FOUND WITH SUCH APPROACH AND NO ADJUSTMENT HAS BEEN MADE. THUS, HE SUBMITTED THAT LOOKING TO THE FACT THAT BOTH THESE ACTIVITIES ARE ENTIRELY DIFFERENT, BENCHMARKING SHOULD BE DONE SEPARATELY, SO THAT PROPER ALP CAN BE DETERMINED. 23.3 ON THE OTHER HAND, THE LD. D.R. OBJECTED THAT ONCE THE ASSESSEE ITSELF HAS TREATED BOTH THE SERVICES UNDER ONE SEGMENT, I.T.A. NO.2074/DEL/2014 44 THEN IT CANNOT TAKE A DIFFERENT STAND THAT BOTH SHOULD BE SEPARATELY BENCHMARKED. 23.4 AFTER CONSIDERING THE RIVAL SUBMISSIO NS, WE FIND THAT THOUGH IN ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 , ASSESSEE HAS TREATED PRE AND POST SALES SERVICES UNDER ONE SEGMENT , I.E. IT HAS TAKEN CONSOLIDATED FIGURE TO ARRIVE AT THE MARGIN OF 12.92% . HOWEVER F ROM ASSESSMENT YEAR 2011 - 12, ASSESSEE HAS SEPARATELY BENCHMARKED THE SAME AFTER CARRYING OUT DETAILED FAR ANALYSIS, WHICH HAS BEEN STATED TO HAVE BE EN ACCEPTED BY THE TPO . UNDER THESE FACTS THAT THE TRANSACTION OF PRE - SALES AND POST SALES HAVE BEEN RECOGNISED AS TWO SEPARATE TRANSACTION HAVING DI FFERENT FUNCTIONS, THEN, FOR THIS YEAR ALSO, WE ARE SETTING THIS ISSUE TO THE FILE OF THE TPO , WHO SHALL CONSIDER ASSESSEE S SUBMISSION FOR SEPARATELY BENCHMARKING THESE ACTIVITIES/ FUNCTIONS AND WHETHER THESE TWO TRANSACTIONS HA VE BEEN ACCEPTED BY THE DEP ARTMENT IN SUBSEQUENT YEARS. THE ASSESSEE WILL SUBSTANTIATE AND BENCHMARK BOTH THE TRANSACTIONS AFTER CARRYING OUT DETAILED COMPARABILITY ANALYSIS IN FRESH SEARCH PROCESS , SO AS TO JUSTIFY ITS ARM S LENGTH MARGIN. ACCORDINGLY, THIS ISSUE IS REMANDED BACK T O THE FILE OF THE TPO , WHO SHALL DECIDE THIS ISSUE AFRESH AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. IV. T.P. ADJUSTMENT ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLES : - 24. SO FAR AS ADJUSTMENT ON ACCOUNT OF INTEREST ON OUTSTANDING R ECEIVABLES, THE TPO HAS MADE TP ADJUSTMENT FOR OVERDUE RECEIVABLES AND PRE AND POST SALES AGREEMENT BY APPLYING THE INTEREST RATE OF 15.77% AFTER TAKING THE PLR RATE OF STATE BANK OF INDIA, WHICH WAS AROUND 12 TO 13.75% DURI NG THE FINANCIAL YEAR I.T.A. NO.2074/DEL/2014 45 2008 - 09. A FTER ADDING 300 BASIS POINTS, HE CONSIDERED INTEREST RATE OF 15.77% AS ARM S LENGTH LEVEL OF INTEREST , I.E. , SHOULD HAVE BEEN CHARGED ON THE OUTSTANDING RECEIVABLE S FROM THE AE . ACCORDINGLY, HE MADE ADJUSTMENT OF RS.18,53,109/ - . 24.1 BEFORE US, THE LD . COUNSEL FOR THE ASSESSEE, AFTER REFERRING TO PAGE 542 AND 543 OF THE PAPER BOOK, POINTED OUT THAT ULTIMATELY THERE WAS A NEGATIVE BALANCE , I.E. , ASSESSEE H AD RECEIVED AMOUNT IN ADVANCE FROM ITS AE. THUS, THERE WAS NO POINT IN I MPUTING ANY KIND OF INTERES T RATE OF 15.77%. OTHERWISE ALSO , HE SUBMITTED THAT IF THE WORKING CAPITAL ADJUSTMENT IS ALLOWED, THEN NO FURTHER ADJUSTMENT TOWARDS OUTSTANDING RECEIVABLES IS WARRANTED. IN SUPPORT, HE STRONGLY RELIED UPON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KUSUM HEALTH CARE PVT. LTD. IN ITA NO.765/2015. 24.2 ON THE OTHER, THE LD. D.R., STRONGLY RELYING UPON THE ORDER OF DRP, SUBMITTED THAT THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KUSUM HEALTH CARE PVT. LTD. (SUPRA) WAS BAS ED ON ITS FACT. HE RELIED UPON THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF MCKINSEY KNOWLEDGE CENTRE PVT. LTD. VS. DCIT IN ITA NO.154/DEL/2016 . ALTERNATIVELY, HE SUBMITTED THAT THE MATTER CAN BE RESTORED BACK TO TPO TO VERIFY, WHETHER THE WORKING CA PITAL ADJUSTMENT HAS ANY IMPACT ON RECEIVABLES. 24.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER AS WELL AS THE DECISIONS REFERRED TO BEFORE US. IN THE CASE OF MCKINSEY KNOWLEDGE CENTRE PVT. LTD. VS . DCIT (SUPRA) AS RELIED UPON BY THE LD. SR. DR , THE TRIBUNAL HAS DISCUSSED THIS ISSUE IN DETAIL AND OBSERVED THAT GRANTING OF WORKING CAPITAL ADJUSTMENT IS CONFINED I.T.A. NO.2074/DEL/2014 46 TO THE INTERNATIONAL TRANSACTIONS OF RENDERING OF SERVICES, WHOSE ALP IS SEPARATELY DETERM INABLE, WHEREAS TH E INTERNATIONAL TRANSACTION OF INTEREST RECEIVABLES FROM AE FOR LATE REALIZATION IS A SEPARATE TRANSACTION. ALLOWING WORKING CAPITAL ADJUSTMENT IN THE INTERNATIONAL TRANSACTION OF RENDERING SERVICES WILL HAVE NO IMPACT ON THE DETERMINATIO N OF ALP OF THE INTERNATIONAL TRANSACTION OF INTEREST ON RECEIVABLES FROM AE BEYOND THE STIPULATED PERIOD ALLOWED IN THE AGREEMENT. THE TRIBUNAL HELD THAT WORKING CAPITAL ADJUSTMENT WILL NOT HAVE ANY EFFECT OR BEARING ON THE INTEREST ON DELAYED REALIZATION OF INVOICE VALUE , BECAUSE IT DEPENDS U PON THE PERIOD OF REALIZATION ON TRANSACTION TO TRANSACTION BASIS AND IT HAS NOTHING TO DO WITH OPENING AND CLOSING VALUES OF INVENTORIES, RECEIVABLES AND PAYABLES. FIRST OF ALL, F OR CALCULATING THE WORKING CAPITAL AD JUSTMENTS, GENERALLY TRADE RECEIVABLES, INVENTORY AND TRADE PAYABLES ARE CONSIDERED TO IDENTIFY THE DIFFERENCES IN THE LEVELS OF WORKING CAPITAL. IF TNMM IS APPLIED RELATIVE TO AN APPROPRIATE BASE, LIKE COSTS, SALES OR ASSETS, THEN ANY DIFFERENCES IN WORKI NG CAPITAL LEVELS TO THAT BASE IS MEASURED VIS - - VIS THE COMPARABLES. FIRSTLY, THE V ALUE FOR DIFFERENCES IN THE LEVELS OF WORKING CAPITAL BETWEEN THE TESTED PARTY AND THE COMPARABLES RELATIVE TO THE APPROPRIATE BASE (I.E., COSTS, SALES OR ASSETS) AND REFLE CTING THE TIME VALUE OF MONEY BY USING AN APPROPRIATE INTEREST RATE IS CALCULATED; AND THEN ONLY ADJUSTMENTS OF THE RESULTS IS MADE TO REFLECT THE DIFFERENCES IN LEVELS OF WORKING CAPITAL. NOW POST THE TRIBUNAL ORDER THE HON'BLE DELHI HIGH COURT IN THE CAS E OF PR. CIT VS. KUSUM HEALTH CARE PVT. LTD. IN ITA NO.765/2016, ORDER DATED 25/4/2017 , HA VE BEEN PRONOUNCED WHEREIN, THE HON BLE COURT HAS OPINED AS UNDER: - I.T.A. NO.2074/DEL/2014 47 8 . AGGRIEVED BY THE SAID ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE ITAT. BY THE IMPUGNED ORD ER DATED 31TH MARCH 2015, THE ITAT SET ASIDE THE ASSESSMENT ORDER. THE ITAT NOTED THAT THE ASSESSEE HAD UNDERTAKEN WORKING CAPITAL ADJUSTMENT FOR THE COMPARABLE COMPANIES SELECTED IN ITS TRANSFER PRICING REPORT. IT WAS FURTHER NOTED THAT 'THE DIFFERENTIAL IMPACT OF I WORKING CAPITAL OF THE ASSESSEE VIS - A - VIS ITS COMPARABLES HAD ALREADY BEEN FACTORED IN THE PRICING/PROFITABILITY' WHICH WAS MORE THAN THE WORKING CAPITAL ADJUSTED MARGIN OF THE COMPARABLES AND, THEREFORE, 'ANY FURTHER ADJUSTMENT TO THE MARGINS OF THE ASSESSEE ON THE PRETEXT OF OUTSTANDING RECEIVABLES IS UNWARRANTED AND WHOLLY UNJUSTIFIED.' 9. MR. RAGHVENDRA SINGH, LEARNED COUNSEL APPEARING FOR THE REVENUE SUBMITTED THAT THE ITAT OVERLOOKED THE FACT THAT THE EXPRESSION 'INTERNATIONAL TRANSACTIO N' AS DEFINED IN EXPLANATION (I) (C) TO SECTION 92B OF THE ACT INCLUDED 'PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS', AND THEREFORE, THE OUTSTANDING RECEIVABLES COULD BY THEMSELVES CONSTITUTE AN INTER NATIONAL TRANSACTION. HE FURTHER REFERRED TO THE OCED TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS. PARAS 3.48 & 3.49 UNDER CHAPTER III PARA A.6.1 OF THE SAID GUIDELINES TITLED 'DIFFERENT TYPES OF COMPARABILITY ADJUSTME NTS' SPOKE OF THE NEED TO ELIMINATE DIFFERENCES THAT MAY ARISE FROM DIFFERENT ACCOUNTING PRACTICES BETWEEN CONTROLLED AND UNCONTROLLED TRANSACTIONS. IN PARTICULAR, IT WAS NOTED UNDER PARA 3.49 THAT 'A SIGNIFICANTLY DIFFERENT LEVEL OF RELATIVE WORKING CAPIT AL BETWEEN THE CONTROLLED AND UNCONTROLLED PARTIES MAY RESULT IN FURTHER INVESTIGATION OF THE COMPARABILITY CHARACTERISTICS OF THE POTENTIAL COMPARABLE.' MR. SINGH SUBMITTED THAT THE ITAT ERRED IN DISAGREEING WITH THE TPO, WHO HAD CHARACTERISED THE OUTSTAN DING RECEIVABLES AS AN INTERNATIONAL TRANSACTION BY ITSELF WHICH REQUIRED BENCHMARKING. 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SUBMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION 'RECEIVABLES' DOES NOT MEAN T HAT I.T.A. NO.2074/DEL/2014 48 DE HORS THE CONTEXT EVERY ITEM OF 'RECEIVABLES' APPEARING IN THE ACCOUNTS OF AN ENTITY, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPP LIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF FACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CASE TO CASE BASIS. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORKING CAPITAL OF THE ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, THERE H AS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIOD OF TIME TO DISCERN A PATTERN WHICH WOULD INDICATE THAT VIS - A - VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANSACTION INTENDED T O BENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVABLES BEYON D 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES ON THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VIS - A - VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTM ENT ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE - CHARACTERISED THE TRANSACTION. THIS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIANCES LTD. (2012) 345 ITR 241 (DELHI). 24.4 ACCORDINGLY, WE DIRECT THE TPO TO FIRST OF ALL EXAMINE THE WORKING CAPITAL ADJUSTMENT WORKED OUT BY THE ASSESSEE VIS - - VIS THE COMPARABLES AND THEN TO SEE WHETHER THE ASSESSEE HAS FACTORED THE IMPACT OF THE RECEIVABLES ON THE WORKING CAPITAL AND THEREBY PR ICING/PROFITABILITY VIS - - VIS THAT OF THE COMPARABLES AS HELD BY THE HON'BLE DELHI HIGH COURT AND SEE THE IMPACT OF CAPITAL ADJUSTMENT ON OUTSTANDING RECEIVABLES. THUS, THE TPO IS DIRECTED TO FOLLOW THE RATIO LAID DOWN BY THE HON BLE I.T.A. NO.2074/DEL/2014 49 JURISDICTIONAL HIGH CO URT AND DECIDE THIS MATTER ACCORDINGLY AFTER GIVING OPPORTUNITY TO THE ASSESSEE. SINCE THE LD. COUNSEL HAS ONLY PLEADED THE AFORESAID POINT THAT WORKING CAPITAL ADJUSTMENT WILL SUBSUME THE INTEREST COMPONENT ON DELAYED RECEIVABLES, THEREFORE, WE ARE NOT GI VING ANY FINDING ON THE QUANTUM OF INTEREST RATE APPLIED BY THE TPO. 25. NOW C OMING TO THE ISSUE WHETHER FOREIGN EXCHANGE FLUCTUATION COST IS OPERATING OR NOT, WE FIND THAT THE TPO HAS TREATED IT AS NON - OPERATING COST, WHEREAS THE ASSESSEE HAS TREATED I T AS AN OPERATING COST. THE LD. COUNSEL FOR THE ASSESSEE, BEFORE US HAS RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH C OURT IN THE CASE OF PR. CIT VS. FISERV INDIA (P.) LTD. IN ITA NO.17/2016 AND REFERRED TO PARA 10 THEREOF. HE SUBMITTED THAT THE DRP HAS DIRECTED TPO TO APPLY SAFE HARBO U R RULES . HOWEVER, THE SAME WILL NOT APPLY IN THIS YEAR BECAUSE , IT CAN BE APPLIED PROSPECTIVELY. ON THE OTHER HAND THE LD. DR RELIED UPON THE ORDER OF THE TPO AS WELL AS DRP. 25.1 WE HAVE HEARD THE PARTIES AND GONE THROUGH THE IMPUGNED ORDERS. AS REGARD T HE ISSUE W HETHER F OREX LOSS IS TO BE REGARDED AS OPERATING COST OR NOT , IS NO LONGER DEBATABLE ISSUE AS FOREIGN EXCHANGE GAIN OR LOSS RELATABLE TO AN INTERNATIONAL TRANSACTION IS ALWAYS PART AND PARCEL OF SUCH UNDER LINED TRANSACTION. W HEN AN INTERNATIONAL TRANSACTIONS ARE ENTERED INTO WITH THE AE, ONE OF WHOM IS RESIDENT OF OTHER CONTRACTING STATE AND THE TRANSACTIONS ARE IN FOREIGN CURRENCY, THEN ANY GAIN OR LOSS ON ACCOUNT OF FOREX IS INHERENT ITEM OF COST OR PROFI T. FOR THE PURPOSE OF DETERMINING THE PROFIT REALIZED ON THE INTERNATIONAL TRANSACTION, ALL OPERATING COSTS INCURRED FOR THE PURPOSE OF PROVIDING THE SERVICES TO THE AE HAVE TO BE TAKEN INTO ACCOUNT. THEREFORE, NO QUESTION ARISES I.T.A. NO.2074/DEL/2014 50 WHETHER THE FOREIGN EXCHAN GE GAIN OR LOSS IS NON - OPERATING IN NATURE OR NOT. THUS , WE HOLD THAT FOREX LOSS OR GAIN IS OPERATING COSTS OR GAIN AND ACCORDINGLY, WE ALLOW THIS GROUND RAISED BY THE ASSESSEE. 26. AS REGARD THE CORPORATE ISSUE AS RAISED IN GROUNDS NO S . 20, 21 AND 2 2, WE FIND THAT THE IMPUGNED ISSUE RELATES TO DIRECTOR S REMUNERATION BETWEEN STP UNIT AND NON - STP UNIT. IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT THIS MATTER HAD COME FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEE S OWN CASE IN ASSESSMENT YEAR 2008 - 09 , IN ITA NO. 39/DEL/2013, ORDER DATED 20.05.2016, THIS MATTER HAS BEEN REMANDED BACK TO THE FILE OF THE A O FOR FRESH EXAMINATION. 26.1 AFTER GOING THROUGH THE DECISION OF THE TRIBUNAL AND THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT TH IS PRECISE ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN THE ASSESSEE S OWN CASE . THE RELEVANT OBSERVATION OF THE TRIBUNAL IS REPRODUCED HEREUNDER: - 14. IN SUPPORT OF THE GROUNDS I.E. GROUND NOS. 6 TO 8, THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICE R HAS ERRED IN NOT CORRECTLY VERIFYING THE RECORD SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS CONTRARY TO DRP DIRECTIONS. HE WAS NOT JUSTIFIED IN DISALLOWING INCOME - TAX HOLIDAYS CLAIMED BY THE ASSESSEE IN RESPECT OF STP UNIT HI ITS 8TH YEAR OF OP ERATION. THE AUTHORITIES BELOW HAVE ALSO ERRED IN ALLOCATING DIRECTOR'S REMUNERATIONS BETWEEN STP UNIT AND NON - STP UNITS BY IGNORING THE FACTS PLACED ON RECORD AND HOLDING THAT THE ASSESSEE INTENTIONALLY DEBITED DIRECTOR'S SALARY TO NON - STP UNITS TO REDUCE ITS TAXABLE INCOME WITHOUT APPRECIATING THE OPERATING MODEL BEING FOLLOWED BY THE ASSESSEE. THE LEARNED AR SUBMITTED THAT ASSESSEE'S STP I.T.A. NO.2074/DEL/2014 51 UNIT HAS ITS OWN FINANCE/OPERATIONAL TEAM WHICH IS RESPONSIBLE FOR THE DAY TO DAY AFFAIRS/FUNCTIONING OF THE SAID UNIT . THE DIRECTORS OF THE ASSESSEE HAVE NO ACTIVE INVOLVEMENT ON THE AFFAIRS OF STP UNITS. ALL COST RELATED STPI UNIT AND NON - STPI UNIT OF ASSESSEE WERE BEING BOOKED INTO IRRESPECTIVE UNIT AND NO APPORTIONMENT WAS REQUIRED/DONE FOR ANY OTHER COST. HE SUBMITTE D FURTHER THAT ASSESSEE WAS OPERATING ON COST + MARK UP ARRANGEMENTS WITH ITS OVERSEAS GROUP COMPANIES. UNDER THE SAID ARRANGEMENT, THE ASSESSEE WAS ENTITLED TO RECEIVE PRE - AGREED MARK UP ON COST INCURRED BY IT. ALLOCATING COST FROM NON - STP UNIT TO STP UNI T WILL RESULT IN REDUCING THE COST BASED FOR THE ASSESSEE, WHICH WILL EVENTUALLY LEAD TO LOWER TAXABLE INCOME. THUS, THE REASON PROVIDED BY THE ASSESSING OFFICER FOR MAKING THE ADJUSTMENT DOES NOT STAND CORRECT IN THE CASE OF ASSESSEE. THE LEARNED AR SUBMI TTED THAT IN THE SUBSEQUENT YEARS 2009 - 10 AND 2010 - 11, THE CLAIMED DEDUCTION UNDER SEC. 10A WAS ALLOWED. HE REFERRED PAGE NOS. THE LEARNED AR ALSO TRIED TO POINT OUT TYPOGRAPHICAL AND ARITHMETICAL ERRORS IN THE WORKING OF THE DISALLOWANCE UNDER SEC. 10A OF THE ACT BY THE ASSESSING OFFICER AT PAGE NOS. 6 TO 8 OF THE ASSESSMENT ORDER. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 19. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT IN THE CASE OF C IT VS. WESTERN OUTDOOR INTERACTIVE (P) LTD. (SUPRA), THE HON'BLE HIGH COURT HAS BEEN PLEASED TO HOLD THAT BENEFIT OF DEDUCTION UNDER SEC, 10A IS AVAILABLE FOR A PARTICULAR NUMBER OF YEARS ON SATISFACTION OF CERTAIN CONDITIONS UNDER PROVISIONS OF THE ACT AN D UNLESS RELIEF GRANTED FOR FIRST ASSESSMENT YEAR IN WHICH CLAIM IS MADE AND ACCEPTED, THE ASSESSING OFFICER CANNOT WITHDRAW RELIEF FOR SUBSEQUENT YEARS, UNDISPUTEDLY, IT IS 8TH YEAR OF THE CLAIM OF DEDUCTION UNDER SEC. 10A OF THE ACT MADE BY THE ASSESSEE AND IT HAS BEEN ALLOWED IN EARLIER YEARS AND IN SUBSEQUENT REMAINING TWO ASSESSMENT YEARS, I.E. 2009 - 10 AND 2010 - 11. BEFORE THE I.T.A. NO.2074/DEL/2014 52 ITAT, AS DISCUSSED ABOVE, THE LEARNED AR HAS TRIED TO MEET OUT THE OBJECTIONS RAISED BY THE ASSESSING OFFICER IN MAKING THE DISA LLOWANCE OF THE CLAIMED DEDUCTION. IN BRIEF, THE SUBMISSION OF THE ASSESSEE AGAINST THE OBJECTION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS INTENTIONALLY DEBITED DIRECTORS' SALARY TO NON - STP UNITS TO REDUCE ITS TAXABLE INCOME, THE SUBMISSION OF THE AS SESSEE REMAINED THAT THE ASSESSEE MAINTAINS ITS ACCOUNT IN A MANNER THAT COSTS RELATING TO STP AND NON - STP UNITS ARE BOOKED IN THE RESPECTIVE UNITS; MD RESPONSIBLE FOR ESTABLISHING/LEADING STRATEGIC R&D PARTNERSHIP AND R&D CENTRAL OPERATIONS FUNCTIONS FOR NOIDA SITE WHERE MAJOR PORTION OF R & D WORK WAS CARRIED OUT; DIRECTOR FINANCED RESPONSIBLE FOR FINANCE AND ACCOUNTING, LEGAL, TAX AND COMPANY SECRETARIAL COMPLIANCE FUNCTIONS AT NOIDA; STP UNIT AT BANGALORE SINCE HAS ITS OWN CORE MANAGEMENT STAFF AND EACH PERSON IS RESPONSIBLE FOR THEIR AREAS, THE COST OF SUCH PERSONNEL ARE DEBITED TO THEIR UNDERTAKING ONLY; AND APPELLANT OPERATES OWN COST PLUS MODEL, HENCE, INCREASE IN COST IN NON - STPI UNIT WILL RESULT IN INCREASE IN REVENUE AND, THEREFORE, RESULTS IN INC REASE IN TAX LIABILITY. AGAINST THE OBJECTION OF THE ASSESSING OFFICER THAT SEPARATE BOOKS OF ACCOUNT ARE NOT MAINTAINED, THE SUBMISSIONS OF THE ASSESSEE REMAINED THAT AS PER THE PROVISIONS OF LAW, THERE IS NO REQUIREMENT OF MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR A UNIT ELIGIBLE TO CLAIM DEDUCTION UNDER SEC. 10A OF THE ACT; AND THAT IT IS THE 8 YEAR OF CLAIM OF DEDUCTION UNDER SEC. IOA OF THE ACT AND THE CLAIM OF DEDUCTION UNDER SEC. 10A OF THE ACT ONLY NEEDS TO BE SEEN IN FIRST YEAR. AGAINST THE OBJECT ION OF THE ASSESSING OFFICER THAT ADDITIONS SHOWN IN BLOCK OF COMPUTERS IS NOT IN AGREEMENT WITH RECORDS MAINTAINED IN COMPUTERS, THE SUBMISSIONS OF THE ASSESSEE REMAINED THAT AS PER FIXED ASSETS SCHEDULE PROVIDED TO THE ASSESSING OFFICER TOTAL ADDITION IN COMPUTER MADE DURING FINANCIAL YEAR 2007 - 08 IN STP UNIT WAS RS. 32,05,095; IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER STATED THAT AS PER DETAILS PROVIDED TO HIM, I.T.A. NO.2074/DEL/2014 53 ADDITION MADE IN BLOCK OF COMPUTER WAS OF RS.31,73,495 WHICH IS AGAINST THE FACTS ON RECO RD; THE ASSESSING OFFICER COMPARED ALLEGED ADDITIONS OF RS.31,73,495 WITH DETAILS EXTRACTS FROM SAP AND WRONGLY CONCLUDED THAT AMOUNTS DO NOT MATCH. THE LEARNED AR IN HIS ABOVE SUBMISSIONS HAS POINTED OUT AS TO HOW THE ASSESSING OFFICER HAS COMMITTED MISTA KE IN COMING TO THE CONCLUSION THAT AMOUNTS DO NOT MATCH. THE LEARNED AR SUBMITTED THAT TOTAL ADDITION MADE TO BLOCK OF COMPUTERS AS PER SAP DETAILS AFTER CORRECTING ABOVE MISTAKES MADE BY THE ASSESSING OFFICER IS RS.32,05,095 WHICH MATCHES WITH FIXED ASSE TS SCHEDULED SUBMITTED TO THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS. AGAINST THE OBJECTION OF ASSESSING OFFICER THAT INVOICES RAISED IN US DOLLARS ARE NOT VERIFIABLE WITH AMOUNTS RECORDED IN BOOKS AS SOME AMOUNTS IS IN INR, THE SUBMISSION OF THE ASSESSEE REMAINED THAT ALL THE DETAILS ON ACCOUNT OF SERVICE INCOME WAS FURNISHED BEFORE THE ASSESSING OFFICER; INVOICES ARE USUALLY RAISED IN USD, HOWEVER, IF THERE IS. AN ADJUSTMENT ENTRY TO BE PASSED, SAME IS PASSED IN INR IN THE LEDGER ACCOUNT; AND AUD IT ADJUSTMENT ENTRY WAS PASSED BY AUDITOR FOR FINANCIAL YEAR 2007 - 08; BONUS EXPENSES PERTAINING TO FINANCIAL YEAR 2008 - 09 INADVERTENTLY CONSIDERED BY CADENCE INDIA AS COST FOR FINANCIAL YEAR 2007 - 08 AND AS THE ASSESSEE OPERATES ON A COST PLUS MODEL INVOICE ON SUCH COST WAS RAISED ALREADY IN FINANCIAL YEAR 2007 - 08; ETC. THE GRIEVANCE OF THE ASSESSEE IN THIS REGARD ALSO REMAINED THAT THE ASSESSING OFFICER HAS NOT FOLLOWED DRP'S DIRECTIONS. IT WAS SUBMITTED THAT AS PER DIRECTIONS ISSUED BY THE DRP, THE ASSESSI NG OFFICER WAS DIRECTED TO RECTIFY THE DETAILS OF ACCOUNTS SUBMITTED BY THE ASSESSEE WITH REGARD TO ADDITIONS IN THE COMPUTER ACCOUNT AND DIFFERED REVENUE. KEEPING IN VIEW THESE MATERIAL SUBMISSIONS OF THE ASSESSEE, WE SET ASIDE THE MATTER TO THE FILE OF T HE ASSESSING OFFICER TO VERIFY THE ABOVE SUBMISSIONS AND DECIDE THE ISSUE AFRESH IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT I.T.A. NO.2074/DEL/2014 54 VS. WESTERN OUTDOOR INTERACTIVE PVT. LTD. (SUPRA). THE GROUND NOS. 6 TO 8 ARE THUS ALLOWED FOR STATIST ICAL PURPOSES. 26.2 THUS, RESPECTFULLY FOLLOWING THE EARLIER YEAR S PRECEDENCE, WE ALSO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS AND TO BE DECIDED IN THE SAME MANNER. ACCORDINGLY GROUNDS NO 20 TO 22 ARE TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. 27. GROUND NO.23 RELATES TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) , WHICH IS PREMATURE AND ACCORDINGLY , THE SAME IS DISMISSED AS INFRUCTUOUS. 28. LASTLY IN GROUND NO.24, THE ASSESSEE HAS RAIS ED CHARGEABILITY OF INTEREST UNDER SECTION 234B, 234C AND 234D, WHICH HAS BEEN ADMITTED TO BE CONSEQUENTIAL IN NATURE. THEREFORE, THE SAME IS DISMISSED AS INFRUCTUOUS. 29. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER, 2017. SD/ - SD/ - [ N. K. SAINI ] [ AMIT SHUKLA ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 4 TH SEPTEMBER , 2017 JJ: I.T.A. NO.2074/DEL/2014 55 COPY FORWARDED TO: 1. APP ELLA NT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR DATE 1. DRAFT DICTATED ON 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SEN T TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.