ITO, New Delhi V. M/s. Citi Financial Cosumer Finance India Ltd., New Delhi

ITA 2638/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5131 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Cost of acquisition; Revenue expenditure; Capital expenditure; Set aside
• Section: 37(1); 191; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2638/DEL/2016 (ASSESSMENT YEAR : 2009-10) ITO, WARD 6 (2), VS. M/S. CITI FINANCIAL CONSUMER FINANCE NEW DELHI. INDIA LTD., 3, LOCAL SHOPPING CENTRE, PUSHPA BHAWAN, PUSHP VIHAR, NEW DELHI 110 062. (PAN : AABCA3223B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C.S. AGARWAL, SENIOR ADVOCATE SHRI SHAILESH GUPTA, ADVOCATE REVENUE BY : SHRI H.K. CHOUDHARY, CIT DR DATE OF HEARING : 02.05.2019 DATE OF ORDER : 23.05.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, INCOME-TAX OFFICER, WARD 6 (2), NEW DELH I (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILIN G THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDERS DATE D 23.05.2013 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY LD. TPO/CIT (A) UNDER SECTION 143 (3)/144C OF THE INCOM E-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2 009-10 ON THE GROUNDS INTER ALIA THAT :- ITA NO.2638/DEL/2016 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.22,73,49,911/- ON ACCOUNT OF DISALLOWANCE OF LOAN ACQUISITION COST IGNORING THE FACTS THAT THESE EXPENSES HAVE A DIRECT BEARING IN RELATI ON TO THE LOAN AMOUNTS AND THE PERIOD OF THE LOAN, HENCE THE LOAN ACQUISITION FEE CANNOT BE HELD RELEVANT EXCLUSIVELY FOR THE CURRENT YEAR AND SAME HAS TO BE SPREAD OVER THE PERIOD OF THE LOAN. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.13,14,39,896/- ON ACCOUNT OF DISALLOWANCE OF 4/5TH OF NCD AND COM MERCIAL PAPER ISSUE EXPENSES IGNORING THE FACTS THAT THE NCD AND COMMERCIAL PAPER ISSUE EXPENDITURE INCURRED CANNOT BE HELD RELEVANT EXCLUSIVELY FOR THE CURRENT YEAR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN EXCLUDING M/S INFOSYS TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES IGNORING THE FACTS THA T THE ABOVE COM PARABLES BROADLY PERFORMS FUNCTIONS SIMILAR TO THE ASSESSEE AND ARE PART OF THE SAME INDUSTRY SEGMENT. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE :THE ASSESSEE COMPANY, M/S. CITI FINANCIAL CONSUMER FINANCE INDIA LTD. (HEREINAFTER REFERRED T O AS THE TAXPAYER) IS A NON BANKING FINANCE COMPANY (NBFC), INTO THE BUSINESS OF PROVIDING FINANCE TO CUSTOMERS FOR PERS ONAL LOANS AND MORTGAGE (I.E. HOME LOAN AND HOME EQUITY). THE ASS ESSEE COMPANY IS HAVING ITS OWN CORPORATE AGENCY TO ACT AS INSURA NCE AGENT FOR SOURCING LIFE INSURANCE POLICIES. THE ASSESSEE COM PANY DURING THE YEAR UNDER ASSESSMENT HAS INCURRED LOAN ACQUISITION COST TO THE TUNE OF RS.34,10,24,866/-, WHICH THE AO SOUGHT TO AMORTI ZED OVER A PERIOD OF THREE YEARS. DECLINING THE CONTENTIONS R AISED BY THE ASSESSEE COMPANY, AO REACHED THE CONCLUSION THAT TH E LOAN ACQUISITION FEE BEING PERTAINING TO THE PROCESSING OF LOAN HAS TO BE ITA NO.2638/DEL/2016 3 SPREAD OVER THE TENURE OF THE LOAN PERIOD AND THE A SSESSEE COMPANY HAS NOT CLAIMED THE ENTIRE EXPENDITURE IN FULL IN I TS BOOKS OF ACCOUNT AND THEREBY ALLOWED THE ACQUISITION FEE TO THE TUNE OF RS.11,36,74,955/- FOR THE CURRENT YEAR AND REMAININ G AMOUNT OF RS.22,73,49,911/- HAS BEEN DISALLOWED BEING ALLOWAB LE IN THE NEXT TWO YEARS AND THEREBY MADE ADDITION OF RS.22,73,49, 911/-. 3. AO FURTHER NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENSES TOWARDS ISSUE OF NON-CONVERTIBLE DEBENTURES (NCD) A ND COMMERCIAL PAPERS TO THE TUNE OF RS.16,42,99,870/- AND CLAIMED THE SAME AS PER COMPUTATION OF INCOME FILED ALONG W ITH RETURN OF INCOME BUT TREATED THE SAME AS DEFERRED REVENUE EXP ENSES AS PER COMPANY ACCOUNT. AO SOUGHT TO EXPLAIN BY THE ASSES SEE THAT AS TO WHY THE EXPENDITURE SHOULD NOT BE SPREAD OVER FIVE YEARS. DECLINING THE CONTENTION RAISED BY THE ASSESSEE THA T THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE UNDER THE I NCOME-TAX ACT, 1961 (FOR SHORT THE ACT), AO PROCEEDED TO SPREAD THE SAME OVER A PERIOD OF FIVE YEARS AND ACCORDINGLY ALLOWED 1/5 TH OF THE SAME AMOUNTING TO RS.3,28,59,974/- AND REMAINING AMOUNT TO BE ALLOWED IN THE NEXT FOUR YEARS AND THEREBY MADE ADD ITION OF RS.13,14,39,896/-. 4. DURING THE YEAR UNDER ASSESSMENT, ASSESSEE COMPA NY ALSO ENTERED INTO INTERNATIONAL TRANSACTIONS QUA PROVISI ONS OF SOFTWARE ITA NO.2638/DEL/2016 4 SERVICES TO THE TUNE OF RS.6,36,74,000/- WITH ITS A SSOCIATED ENTERPRISES (AE) QUA WHICH THE ASSESSEE CLAIMED TO HAVE RECEIVED A MARK-UP OF 15% OVER COST. ASSESSEE IN ORDER TO B ENCHMARK ITS INTERNATIONAL TRANSACTION SELECTED 14 COMPARABLES I N ITS TP ANALYSIS OUT OF WHICH 10 COMPARABLES HAVE BEEN REJECTED AND THE LD. TPO HAS INTRODUCED 8 NEW COMPARABLES. TPO HOWEVER HAS NOT DISPUTED THE APPROPRIATE METHOD FOR BENCHMARKING THE INTERNA TIONAL TRANSACTIONS ADOPTED BY THE ASSESSEE IN ORDER TO DE TERMINE THE ARMS LENGTH PRICE (ALP) AND THEREBY MADE AN ADJUST MENT U/S 92CA OF RS.34,67,662/- QUA PROVISION OF SOFTWARE DE VELOPMENT SERVICES. TPO HOWEVER HAS NOT DRAWN ANY ADVERSE IN FERENCE IN RESPECT OF OTHER INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AE DURING THE YEAR UNDER ASSESSME NT. 5. ASSESSEE CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITIONS BY ALLOWI NG THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE T HE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.2638/DEL/2016 5 GROUND NO.1 7. AO DECLINING THE CONTENTIONS RAISED BY THE ASSES SEE SPREAD THE LOAN ACQUISITION FEE EXPENSES OF RS.34,10,24,86 6/- OVER THE PERIOD OF THREE YEARS AND AFTER ALLOWING THE AMOUNT OF RS.11,36,74,955/- MADE AN ADDITION OF RS.22,73,49,9 11/- TO BE ALLOWED IN THE NEXT TWO YEARS. LD. AR FOR THE ASSE SSEE SUPPORTING THE ORDER PASSED BY THE LD. CIT (A) CONTENDED THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE AND STATED THAT THIS ISSUE IS COVERED BY THE ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2003-04, 2004-05, 2005-06 AND 2006-07 . LD. AR FOR THE ASSESSEE FURTHER BROUGHT ON RECORD THAT IN AY 2006- 07, REVENUE CHALLENGED THE ORDER OF THE TRIBUNAL BEFORE THE HON BLE HIGH COURT WHO HAS DISMISSED THE APPEAL VIDE ORDER DATED 28.09.2015 , AVAILABLE AT PAGES 517 TO 520 OF THE PAPER BOOK. 8. COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2003-04 TO 2005-06 VIDE ORDER DATED 20.04.2012 DECIDED THE ISSUE IN CONTROVERSY IN FAVOUR OF THE ASSESSEE. OP ERATIVE PART OF THE ORDER RENDERED BY THE COORDINATE BENCH OF THE TRIBU NAL IS EXTRACTED FOR READY PERUSAL AS UNDER :- 26. GROUND NO.4 IN THE APPEAL OF THE REVENUE FOR THE AY 2003-04 AND GROUND NO.3 IN THEIR APPEALS FOR THE AY S 2004-05 AND 2005-06 RELATE TO EXPENDITURE INCURRED IN CONNE CTION WITH ADVANCING OF LOAN TO CUSTOMERS. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2003-04, NOTICED THAT THE ITA NO.2638/DEL/2016 6 ASSESSEE COMPANY CLAIMED LOAN ACQUISITION COST OF RS.13,03,15,460/- AS REVENUE EXPENDITURE AND CHANGE D THE ACCOUNTING POLICY FOR ACCOUNTING OF LOAN ACQUISITIO N FEE AND CLAIMED THE SAME ON AMORTIZATION BASIS. TOTAL LOAN ACQUISITION COST INCURRED DURING THE YEAR WAS RS.13,03,15,460/- AND AMOUNT SHOWN IN THE PROFIT AND LOSS ACCOUNT WAS RS.7,44,16 ,728/- WHEREAS IN THE COMPUTATION OF INCOME , THE ASSESSEE CLAIMED ENTIRE LOAN ACQUISITION COST AS DEDUCTIBLE EXPENSES . TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED THAT IN COURSE OF IT S MONEY LENDING BUSINESS, THE ASSESSEE ENTERED INTO LOAN AG REEMENTS AND HIRE PURCHASE AGREEMENTS WITH ITS CUSTOMERS AND INC URRED COST SUCH AS CREDIT VERIFICATION OF THE BORROWER, FRONT END PROCESSING FEE ETC.. THESE COSTS WERE BOOKED AS LOAN ACQUISITI ON COSTS AND WERE RECOGNIZED AS EXPENSES OVER THE TENOR OF THE L OAN BY APPLYING THE INTERNAL RATE OF RETURN (IRR), IMPLICI T IN THE AGREEMENT ON THE DIMINISHING BALANCE OF THE FINANCE D AMOUNT SO AS TO PROVIDE A CONSTANT PERIODIC RATE OF RETURN ON THE NET INVESTMENT OUTSTANDING ON THE CONTRACT. HOWEVER, IN CASE, THE LOAN WAS FORECLOSED, THE UNAMORTIZED PORTION OF THE LOAN ACQUISITION COST, BEING DISCLOSED AS PART OF LOANS AND ADVANCES, WAS RECOGNIZED AS CHARGE TO THE PROFIT AND LOSS ACC OUNT AT THE TIME OF FORECLOSURE. HOWEVER, W.E.F APRIL, 2002, TH E ASSESSEE COMPANY CHANGED ITS POLICY FOR ACCOUNTING OF LOAN A CQUISITION COSTS. THE LOAN ACQUISITION COSTS WERE EARLIER CHAR GED TO THE PROFIT AND LOSS ACCOUNT AS AND WHEN INCURRED. IN TH E YEAR UNDER CONSIDERATION, IN ACCORDANCE WITH THE CHANGED ACCOU NTING POLICY , THE COMPANY AMORTIZED A PART OF THE LOAN ACQUISIT ION COST INCURRED DURING THE YEAR WHILE THE UNAMORTIZED PORT ION OF RS.55,899/- THOUSANDS WAS SHOWN UNDER LOANS AND ADV ANCES IN THE SCHEDULE 10 OF THE FINANCIALS. HOWEVER, IN THE RETURN, THE ASSESSEE CLAIMED AN AMOUNT OF RS.55,898,732/- BEING THE UNAMORTIZED AMOUNT OF THE LOAN ACQUISITION FEE ACTU ALLY INCURRED DURING THE YEAR, A PRACTICE OF CLAIMING THE LOAN AC QUISITION COST ON ACTUAL BASIS BEING CONSISTENTLY FOLLOWED BY THE ASSESSEE OVER THE YEARS AND NEVER QUESTIONED BY THE DEPARTMENT, T HE ASSESSEE CLARIFIED. HOWEVER, THE AO DID NOT ACCEPT THE SUBMI SSIONS OF THE ASSESSEE IN THE LIGHT OF DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N LIMITED VS. CIT,225 ITR 802(SC) AND ALLOWED ONLY 1/3RD OF T HE EXPENDITURE AND DISALLOWED AN AMOUNT OF RS.8,68,76, 973/-. 26.1 SIMILARLY, THE AO ALLOWED ONLY 1/3RD EXPENDITU RE AND DISALLOWED RS.11,38,85,144/- OUT OF TOTAL OF RS.17, 08,28,717/- IN THE AY 2004-05 AND ALLOWED ONLY RS.14,33,75,323/- A ND DISALLOWED REMAINING RS.28,67,50,647/- OUT OF TOTAL EXPENDITURE OF RS.43,01,25,970/- IN THE AY 2005-06. 27. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE AYS 2003-04 AND 2004-05,HOLDING AS UNDER: ITA NO.2638/DEL/2016 7 '12. I HAVE GONE THROUGH THE SUBMISSIONS GIVEN BY T HE APPELLANT AND HAVE EXAMINED THE MATTER IN DETAILS. THE APPELLANT HAS DEFERRED BOTH LOAN ACQUISITION COSTS AND LOAN PROCESSING FEES IN THE BOOKS OF ACCOUNTS BECAU SE OF THE ACCOUNTING POLICY FOLLOWED BY THE 44 ITA NOS.3144&3145,5514 &5191,2687&2688/DEL./2010 APPELLANT. HOWEVER FOR TAX PURPOSES, IT HAS OFFERED LOAN PROCESSING FEES (INCOME) FOR TAX AND HAS CLAIMED LO AN ACQUISITION COSTS AS EXPENSE IN THE YEAR OF ACCRUAL . THE ASSESSING OFFICER HAS ACCEPTED THE TAXATION OF LOAN PROCESSING FEES AS INCOME ON UPFRONT BASIS BUT AT T HE SAME TIME HAS ALLOWED LOAN ACQUISITION COSTS ON A DEFERRED BASIS OVER A PERIOD OF THREE YEARS. THIS T REATMENT BY ASSESSING OFFICER IS INCONSISTENT. THE ASSESSING OFFICER CANNOT TAKE A DIFFERENT STAND RELATING TO I NCOME AND EXPENDITURE ON THE SAME ISSUE. IT IS ALSO A WEL L SETTLED PRINCIPLE THAT TREATMENT IN BOOKS OF ACCOUNTS DOES NOT GOVERN THE TAX TREATMENT AS THE SAME IS GOVERNED BY THE PROVISIONS OF THE INCOME-TAX ACT . ACCORDINGLY, LOAN ACQUISITION COSTS ARE ALLOWABLE IN FULL IN THE YEAR IN WHICH THE SAME WERE INCURRED AND CANNOT BE SPREAD OVER NUMBER OF YEARS. THE DISALLOWANCE MADE BY THE ASSES SING OFFICER IN ASSESSMENT ORDERS AMOUNTING TO RS.8,68,76,973/- FOR ASSESSMENT YEAR 2003-04 AND RS.11,38,85,144/- FOR ASSESSMENT YEAR 2004-05 ARE, ACCORDINGLY, DELETED.' 27.1 FOLLOWING THE VIEW IN THE AFORESAID DECISION, THE LD. CIT(A) ALLOWED THE CLAIM FOR THE AY 2005-06IN THE F OLLOWING TERMS: '16. JUDICIAL PRECEDENTS DEMANDS THAT THE ORDER OF MY LD. PREDECESSOR HAS TO BE FOLLOWED BY ME UNLESS THERE I S CHANGE IN FACTS OR IN POSITION OF LAW. I DO NOT SEE ANY CHANGE IN FACTS OR IN LAW. THUS, DECISION IN GROUND OF APPEAL NO.4 AND ITS PART WOULD HAVE TO GO TO THE AS SESSEE. WHILE, DISSECTING THIS GROUND OF APPEAL, I OBSERVE THAT THE ASSESSEE HAS BEEN TAKING THE STAND THAT IN ASSESSME NT YEAR 2001-02 AND 2002-03, THE ITAT HAS ISSUED AN ORDER I N ITS FAVOUR. ON A CLOSE PERUSAL OF THE SAID ORDER, I DO NOT SEE ANY SUCH ADJUDICATION. IN ANY CASE, I HAVE ALREADY DECIDED IN FAVOUR OF THE ASSESSEE IN GROUND OF APPE AL NO.4 AND ITS PARTS.' 28. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR REL IED ON THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE A SSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A) . ITA NO.2638/DEL/2016 8 29. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE OFFER ED LOAN PROCESSING FEES (INCOME) FOR TAX AND CLAIMED LOAN A CQUISITION COSTS AS EXPENSE IN THE YEAR OF ACCRUAL IN ACCORDAN CE WITH, A PRACTICE BEING CONSISTENTLY FOLLOWED BY THE ASSESSE E OVER THE YEARS AND NEVER QUESTIONED BY THE REVENUE. HOWEVER, THE A O DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MADRAS IND USTRIAL INVESTMENT CORPORATION LIMITED(SUPRA) . ON APPEAL , THE LD. CIT(A) ALLOWED THE CLAIM ON THE GROUND THAT THE AO COULD NOT TAKE A DIFFERENT STAND RELATING TO INCOME AND EXPEN DITURE ON THE SAME ISSUE AND THE TREATMENT IN BOOKS OF ACCOUNTS D OES NOT GOVERN THE TAX TREATMENT ,WHICH IS GOVERNED BY THE PROVISIONS OF THE ACT. AS ALREADY OBSERVED BY US IN PARA 25 TO 25 .7 WHILE ADJUDICATING GROUND NO.3 IN THE APPEAL OF THE REVEN UE FOR THE AY 2003-04 AND GROUND NO.7 IN THEIR APPEAL FOR THE AY 2005-06 ,THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS ESS ENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT. THE RELEVA NT PROVISIONS OF THE ACT RECOGNISE ONLY CAPITAL OR REVENUE EXPEND ITURE. INDISPUTABLY, THE AMOUNT CLAIMED BY THE ASSESSEE IN THESE THREE ASSESSMENT YEARS IS REVENUE IN NATURE. DEFERRED REV ENUE EXPENDITURE DENOTES EXPENDITURE FOR WHICH A PAYMENT HAS BEEN MADE OR A LIABILITY INCURRED, WHICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARIOUS REASONS LIKE QUANTUM A ND PERIOD OF EXPECTED FUTURE BENEFIT ETC., IS WRITTEN-OFF OVER A PERIOD OF TIME E.G. EXPENDITURE ON ADVERTISEMENT, SALES PROMOTION ETC.. THERE IS NO MATERIAL BEFORE US TO INFER THAT THE AFORESAID E XPENDITURE RESULTED IN CREATION OF ANY CAPITAL ASSET, TANGIBLE OR INTANGIBLE, AND THUS, THE QUESTION OF TREATING THE SAME AS CAPI TAL EXPENDITURE DOES NOT ARISE. IN FACT, THE HON'BLE SUPREME COURT ITSELF IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED(SU PRA) WHILE DISCUSSING THE ISSUE, IN THE SAID CASE, AND DISTING UISHING BETWEEN VARIOUS SITUATIONS OBSERVED THAT 'ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF YEAR S EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS OVE R A PERIOD OF YEARS'. 29.1. IN VIEW OF DETAILED REASONS GIVEN IN PARA 25 TO 25.7 ABOVE, ESPECIALLY WHEN THE REVENUE HAVE NOT BROUGHT TO OUR NOTICE ANY CONTRARY DECISION NOR ANY OTHER MATERIAL SO AS TO E NABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE HAVE NO HES ITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). THEREFORE , GROUND NO.4 IN THE APPEAL OF THE REVENUE FOR THE AY 2003-04 AND GROUND NO.3 IN THEIR APPEALS FOR THE AYS 2004-05 AND 2005-06, A RE DISMISSED. ITA NO.2638/DEL/2016 9 9. SO, FOLLOWING THE DECISION RENDERED BY THE COORD INATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE QUA THE ISSU E IN CONTROVERSY, WE ARE OF THE CONSIDERED VIEW THAT SINCE THERE IS N O CONCEPT OF DEFERRED REVENUE EXPENDITURE WHICH HAVE BEEN INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE SAME A RE ENTITLED TO BE ALLOWED IN THE YEAR IN WHICH THE SAME HAVE BEEN INC URRED. SO, THE LD. CIT (A) HAS RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, HENCE GROUND NO.1 IS DETERMINED AGAINST THE REVENUE . GROUND NO.2 10. AO HAS SPREAD THE EXPENDITURE OF RS.16,42,99,87 0/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF NON-CONVERTIBLE DEBEN TURES ISSUED BY THE COMPANY TO FUND ITS FINANCING ACTIVITIES AND ON ACCOUNT OF COMMERCIAL PAPERS, OVER A PERIOD OF FIVE YEARS AND ACCORDINGLY ALLOWED 1/5 TH THEREOF AND REMAINING TO BE ALLOWED IN THE NEXT FO UR YEARS. HOWEVER, THE LD. CIT (A) HAS OVER TURNED TH E ORDER PASSED BY THE AO AND ALLOWED THE SAME IN ENTIRETY IN THE Y EAR OF ITS INCURRENCE. 11. LD. AR FOR THE ASSESSEE CONTENDED THAT THIS ISS UE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR AYS 2003-04 TO 2005-06 VIDE ORDER DATED 20.04.2012 BY RETURNING FOLLOWING FINDINGS :- ITA NO.2638/DEL/2016 10 25. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. INDISPUTABLY, THE AFORESAID AMOU NT RELATES TO EXPENDITURE IN CONNECTION WITH THE ISSUE OF NON CON VERTIBLE DEBENTURES AND COMMERCIAL PAPER. THE AO TREATED THE SAME AS DEFERRED EXPENDITURE WHILE THE LD. CIT(A) ALLOWED T HE CLAIM IN THE LIGHT OF DECISION IN INDIA CEMENTS LTD.(SUPRA). IT IS WELL ESTABLISHED THAT THE CONCEPT OF DEFERRED REVENUE EX PENDITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT. THE RELEVANT PROVISIONS OF THE ACT RECOGNISE ONLY CAPIT AL OR REVENUE EXPENDITURE. DEFERRED REVENUE EXPENDITURE DENOTES E XPENDITURE FOR WHICH A PAYMENT HAS BEEN MADE OR A LIABILITY IN CURRED, WHICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARI OUS REASONS LIKE QUANTUM AND PERIOD OF EXPECTED FUTURE BENEFIT ETC., IS WRITTEN-OFF OVER A PERIOD OF TIME E.G. EXPENDITURE ON ADVERTISEMENT, SALES PROMOTION ETC.. THOUGH THE NAT URE OF SUCH EXPENDITURE IS REVENUE, KEEPING IN VIEW THE FACT TH AT THE BENEFITS ARISING THEREFROM ARE EXPECTED TO BE DERIVED OVER A PERIOD OF TIME, STRETCHING SOMETIMES OVER SEVERAL ACCOUNTING YEARS, THE TAXPAYERS HAVE BEEN AMORTISING THE SAME OVER THE EX PECTED TIME PERIOD OVER WHICH THE BENEFITS ARE LIKELY TO ACCRUE THEREFROM. ACCORDINGLY, ONLY A PROPORTION OF SUCH EXPENDITURE IS AMORTISED IN THE PROFIT AND LOSS ACCOUNT BUT AN APPROPRIATE A DJUSTMENT IS MADE IN THE COMPUTATION OF INCOME, CLAIMING THE ENT IRE AS ALLOWABLE REVENUE EXPENDITURE IN TERMS OF PROVISION S OF SECTION 37(1) OF THE ACT. THE EXPENDITURE WHICH IS TREATED AS DE FERRED REVENUE IN THE BOOKS ALMOST IN ALL CASES COMPRISES OF ITEMS, THE BENEFITS DERIVED WHEREFROM ARE EPHEMERAL AND TRANSI TORY IN NATURE IN AS MUCH AS THESE ARE INCURRED AS A PART O F A CONTINUOUS PROCESS AND NEED TO BE EXPENDED IN ORDER TO GENERAT E AND INCREASE THE BRAND RECALL AND SUSTAIN IT IN THE MIN DS OF CUSTOMERS. WHETHER OR NOT EXPENDITURE IS OF ENDURIN G NATURE, THE HON'BLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT (1989) 177 ITR 377 HAS ITSELF OBSERVED THAT 'THE IDEA OF 'ONCE FOR ALL' PAYMENT AND 'ENDURING BENEFI T' ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITION S ; NOR ARE THE NOTIONS OF 'CAPITAL' OR 'REVENUE' A JUDICIAL FETISH . WHAT IS CAPITAL EXPENDITURE AND WHAT IS REVENUE ARE NOT ETE RNAL VERITIES BUT MUST NEEDS BE FLEXIBLE SO AS TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSINESS. THE EXPRESSION 'ASS ET OR ADVANTAGE OF AN ENDURING NATURE' WAS EVOLVED TO EMP HASISE THE ELEMENT OF A SUFFICIENT DEGREE OF DURABILITY APPROP RIATE TO THE CONTEXT.' 25.1. MOREOVER, THE DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO TREAT THE SAM E AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPENDITURE INVOLVED. FOR THE PURPOSE OF ALLOWABILITY OF ANY EXPENDITURE UNDER THE ACT , WHA T IS MATERIAL IS THE CLASSIFICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOGNISE OF ANY CONCEPT OF DEFERRED REVEN UE ITA NO.2638/DEL/2016 11 EXPENDITURE. THAT IS WHY AO HIMSELF ALLOWED THE 1/5 TH OF THE AMOUNT.. IN A NUMBER OF JUDGMENTS VIZ. AMAR RAJA BA TTERIES LTD. V. ACIT [(2004) 91 ITD 280 (HYD)], JCIT V. MODI OLI VETTI LTD. [(2005)4 SOT 859 (DELHI)], ACIT VS. MEDICAMEN BIOTE CH LTD. [(2005) 1 SOT 347 ( DELHI)],HERO HONDA MOTORS LTD. V. JOINT COMMISSIONER OF INCOME TAX [(2005) 3 SOT 572 (DELHI)];CHARAK PHARMACEUTICALS V. JCIT [(2005) 4SO T 393 40 ITA NOS.3144&3145,5514 &5191,2687&2688/DEL./2010 (MUMBAI)],AND ACIT VS. ASHIMA SYNTEX LTD.,117 ITD 1(AHD.)(SB)IT HAS BEEN AFFIRMED THAT WHERE ANY EXPE NDITURE IS TREATED AS A DEFERRED REVENUE EXPENDITURE, IT PRESU PPOSES THAT THE CONCERNED EXPENDITURE, CREATING BENEFIT IS IN THE R EVENUE FIELD AND IS A REVENUE EXPENDITURE, BUT CONSIDERING ITS E NDURING BENEFITS AS WELL AS THE FACT THAT IT DOES NOT RESUL T IN THE CREATION OF ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIELD, THE SAME IS REQUIRED TO BE TREATED DISTINCTL Y FROM CAPITAL EXPENDITURE. HOWEVER, WHERE ANY IDENTIFIABLE CAPITA L ASSET, TANGIBLE OR INTANGIBLE COMES INTO EXISTENCE AS A RE SULT OF THE AMOUNT EXPENDED, THE SAME WILL HAVE TO BE TREATED A S A CAPITAL EXPENDITURE AND DEPRECIATION ALLOWABLE THEREON AS P ER THE PRESCRIBED RULES AND PROCEDURES UNDER THE INCOME-TAX ACT . 25.2. IN THE INSTANT CASE, THERE IS NO MATERIAL BEF ORE US TO INFER THAT THE AFORESAID EXPENDITURE RESULTED IN CREATION OF ANY CAPITAL ASSET, TANGIBLE OR INTANGIBLE, AND THUS, THE QUESTI ON OF TREATING THE SAME AS CAPITAL EXPENDITURE DOES NOT ARISE. IN FACT, THE HON'BLE SUPREME COURT ITSELF IN MADRAS INDUSTRIAL I NVESTMENT CORPORATION LIMITED(SUPRA) WHILE DISCUSSING THE ISS UE, IN THE SAID CASE, AND DISTINGUISHING BETWEEN VARIOUS SITUA TIONS OBSERVED THAT 'ORDINARILY, REVENUE EXPENDITURE WHICH IS INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CA NNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRI TTEN IT OFF IN HIS BOOKS OVER A PERIOD OF YEARS'. 25.3. ANOTHER ARGUMENT BY THE LD. DR IS THE VARIATI ON AND DICHOTOMY BETWEEN THE ACCOUNTING TREATMENT OF SUCH EXPENDITURE IN THE BOOKS OF ACCOUNT AND ITS CLAIM UNDER THE ACT . AS FAR AS THE ENTRIES IN THE BOOKS OF ACCOUNT ARE CONCERNED, IT I S WELL SETTLED THAT THEY DO NOT CLINCH THE ISSUE EITHER WAY, AND A RE NOT DETERMINATIVE OF THE ALLOWABILITY OR OTHERWISE OF T HE EXPENDITURE. THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE C ASE OF KEDARNATH JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 AND IN THE CASE OF CIT V. INDIAN DISCOUNTS CO. LTD . [1970] 75 ITR 191 (SC) ARE CLEAR ON THE ISSUE. THE ACCOUNTING ENTRIES IN THE BOOKS OF ACCOUNTS ARE OCCASIONED BY A DIVERSE SET OF CONS IDERATIONS AND ISSUES SUCH AS COMPLIANCE WITH STATUTORY LAWS AND M ANDATORY ACCOUNTING STANDARDS/PRINCIPLES AND OF COURSE MANAG EMENT DECISIONS AS TO THE TREATMENT OF A PARTICULAR ITEM WHICH CAN BE GUIDED BY CONSIDERATIONS OF REPORTED PROFITABILITY EARNING PER ITA NO.2638/DEL/2016 12 SHARE, IMPACT ON SHARE PRICES ETC.. THE SUPREME COU RT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT ((1971) 82 ITR 363) (SC) ALSO AFFIRMED THE ABOVE VIEW BY OB SERVING THAT 'WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR D EDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERET O AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHT S NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACC OUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER'. 25.4. SUBSEQUENTLY THE HON'BLE COURT RE-AFFIRMED TH E SAID VIEW IN SUTLEJ COTTON MILLS. LTD. VS. CIT, 116 ITR 1(SC) ' BUT IT IS NOW WELL SETTLED THAT THE WAY IN WHICH ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATI VE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS. THE ASSESSEE MAY, BY MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE PROPER ACCOUNTANCY PRINCIPLES, CONCEAL PROFIT OR SHOW LOSS AND THE ENTRIES MADE BY HIM CANNOT, TH EREFORE, BE REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. WHAT I S NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF THE TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSES SEE. ' 25.5. LIKEWISE, IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD VS. CIT ,227 ITR 172(SC),HON'BLE SUPREME COURT HELD THAT 'IT IS TRUE THAT THIS COURT HAS VERY OFTE N REFERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MAD E BY A COMPANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WH EN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE O R NOT OR WHETHER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PE RMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDIN G TO THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUN TANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OVERRIDE SECTION 56 OR ANY OTHER PROVISION OF THE ACT AS WAS POINTED OUT BY LO RD RUSSELL IN THE CASE OF B. S. C. FOOTWEAR LTD. [1970] 77 ITR 85 7, 860 (CA), THE INCOME TAX LAW DOES NOT MARCH STEP BY STEP IN T HE FOOTPRINTS OF THE ACCOUNTANCY PROFESSION.' 25.6. IN A LATER DECISION IN CIT VS SECURE METERS LTD ., (2009 TIOL 93)(SC),HON'BLE APEX COURT TAKING NOTE OF THEI R EARLIER DECISION IN INDIA CEMENTS LTD.(SUPRA) HELD THAT EXP ENDITURE ON LOAN WAS ALLOWABLE AS REVENUE EXPENDITURE. THE REVE NUE IN THIS CASE CONTENDED THAT SINCE THE DEBENTURES WERE CONVE RTIBLE AND ON CONVERSION, IT WOULD ADD TO THE CAPITAL OF THE COMP ANY, THE EXPENDITURE SHOULD ALSO BE CONSTRUED AS CAPITAL EXP ENDITURE. THE HON'BLE SUPREME COURT REJECTED THIS CONTENTION AND HELD THAT THE DEBENTURES WERE LOANS AND THE OBJECT OF A LOAN WAS NOT RELEVANT. ACCORDINGLY, IT WAS CONCLUDED THAT EXPENSES ON ISSU E OF DEBENTURES, WHETHER CONVERTIBLE OR NOT, IS ALLOWABL E AS A DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE. ITA NO.2638/DEL/2016 13 25.7 IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE REVENUE HAVE NOT BROUGHT TO OUR NOTICE ANY CONTRARY DECISION NOR ANY OTHER MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIE W IN THE MATTER, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.3 IN THE APPEAL OF THE REVENUE FOR THE AY 2003-04 AND GROUND NO.7 IN THEIR APPEAL FOR THE AY 2005- 06 ARE DISMISSED. 12. FOLLOWING THE ORDER PASSED BY THE COORDINATE BE NCH OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT EXPENDITURE INCURRED BY THE ASSESSEE ON I SSUE OF NCD IS ALLOWABLE IN ENTIRETY IN THE YEAR IN WHICH IT WAS I NCURRED AND CANNOT BE SPREAD OVER NUMBER OF YEARS AS HAS BEEN D ONE BY THE AO. SO, THE LD. CIT (A) HAS RIGHTLY DECIDED THIS I SSUE IN FAVOUR OF THE ASSESSEE, HENCE GROUND NO.2 IS DETERMINED AGAIN ST THE REVENUE. GROUND NO.3 13. LD. TPO, AFTER ACCEPTING THE METHOD APPLIED BY THE ASSESSEE IN ORDER TO BENCHMARK ITS INTERNATIONAL TRANSACTION S, FINALLY SELECTED 12 COMPARABLES WITH AVERAGE OP/OC OF 21.26% WHICH A RE AS UNDER:- SL.NO. COMPARABLES NAME OP/OC 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 12.41 2. COMP-U-LEARN TECH INDIA LTD. 28 3. IGATE GLOBAL SOLUTION LTD 21.26 4. INFOSYS TECHNOLOGIES LTD. 47.15 5. L G S GLOBAL LTD. 21.26 6. LARSEN & TOUBRO INFOTECH LTD. 16.96 7. MINDTREE LTD.(SEG) 5.98 8. R S SOFTWARE (INDIA) LTD. 9.82 9. SASKEN COMMUNICATION TECHNOLOGIES LTD. 15.99 10. ZYLOG SYSTEMS LTD. 15 11. THIRDWARE SOLUTION 22.28 12. SYNTEL LTD. 39.02 AVG 21.26 ITA NO.2638/DEL/2016 14 AND PROPOSED THE ALP ADJUSTMENT OF INTERNATIONAL TR ANSACTION QUA SOFTWARE DEVELOPMENT SERVICES AS UNDER :- 14. THE ADJUSTMENTS MADE IN THIS CASE ARE TABULAT ED BELOW. S. NO. NATURE OF INTERNATIONAL TRANSACTION ALP DETERMINED BY ASSESSEE (INR) ALP DETERMINED BY THIS OFFICE (INR) ADJUSTMENT U/S 92CA (INR) 1. PROVISION OF SOFTWARE DEVELOPMENT SERVICES 63674000 6714 1662 3,467,662 TOTAL 3,467,662 THE ASSESSING OFFICER WILL ACCORDINGLY ENHANCE THE INCOME OF THE ASSESSEE BY RS.34,67,662/-. THIS SHALL BE TREA TED AS THE CUMULATIVE ADJUSTMENT U/S 92CA. 14. BEFORE THE LD. CIT (A), ASSESSEE COMPANY SOUGHT TO EXCLUDE 7 COMPARABLES VIZ. (I) IGATE GLOBAL SOLUTIONS LTD.; (II) INFOSYS TECHNOLOGIES LTD.; (III) SASKEN COMMUNICATION TECHN OLOGIES LTD.; (IV) ZYLOG SYSTEMS LTD.; (V) THIRDWARE SOLUTION; (V I) SYNTEL LTD.; AND (VII) COMP-U-LEARN TECH INDIA LTD. ASSESSEE AL SO SOUGHT TO INCLUDE ONE COMPARABLE, NAMELY, SIP TECHNOLOGY & EX PORT LTD.. HOWEVER, BEFORE LD. CIT (A), ASSESSEE CHALLENGED TH E INCLUSION OF M/S. INFOSYS TECHNOLOGIES LTD. ONLY FROM THE FINAL SET OF COMPARABLES, WHICH HAS BEEN EXCLUDED BY THE LD. CIT (A) LEADING TO THE NIL ADJUSTMENT IN VIEW OF THE SAFE HARBOUR B ENEFIT. ITA NO.2638/DEL/2016 15 15. NOW, THE REVENUE HAS CHALLENGED THE EXCLUSION O F INFOSYS TECHNOLOGIES LTD. (INFOSYS) FROM THE FINAL LIST OF COMPARABLES ON THE GROUND THAT INFOSYS BROADLY PERFORMS FUNCTIONS SIMILAR TO THE ASSESSEE AND ARE PART OF THE SAME SEGMENT. 16. ASSESSEE COMPANY SOUGHT TO EXCLUDE INFOSYS ON T HE GROUNDS INTER ALIA THAT INFOSYS IS HAVING HUGE BRAND VALUE AND THE PROFITS DERIVED BY THE INFOSYS DURING THE YEAR UNDER ASSESS MENT ARE PREDOMINANTLY DUE TO ITS PREMIUM BRANDING; THAT IT HAS OWNERSHIP OF INTANGIBLES; THAT INFOSYS IS INTO RESEARCH & DEV ELOPMENT ACTIVITIES EXPENDING SIGNIFICANT AMOUNT ON R&D FOR DEVELOPING NEW FUNCTIONALITIES; THAT INFOSYS DEALS IN SOFTWARE PRODUCTS/TOOLS AND ALSO OWNS IPRS OF SOFTWARE TOOLS DEVELOPMENT, A ND IT IS A SUBSTANTIAL RISK BEARING ENTITY; AND THAT IT HAS HI GH PROFIT MARGIN. 17. LD. CIT (A) BY ACCEPTING THE CONTENTIONS RAISED BY THE ASSESSEE ORDERED TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPARABLES. 18. WE ARE OF THE CONSIDERED VIEW THAT WHEN UNDISPU TEDLY ASSESSEE IS A CAPTIVE SOFTWARE DEVELOPMENT SERVICE PROVIDER BEING A NON-RISK BEARING ENTITY HAVING NO OWNERSHIP OF INTA NGIBLE NOR HAVING ANY EXPENDITURE IN R&D ACTIVITIES NOR HAVING ANY BRAND VALUE, INFOSYS CANNOT BE A SUITABLE COMPARABLE VIS- -VIS TAXPAYER. ITA NO.2638/DEL/2016 16 19. HONBLE DELHI HIGH COURT IN CASE CITED AS CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. (2013) 36 TAXMANN.CO M 289 (DELHI) EXAMINED THE COMPARABILITY OF INFOSYS VIS--VIS CA PTIVE SOFTWARE SERVICE PROVIDER AND FOUND THE SAME TO BE NOT A SUITABLE COMPARABLE BY RETURNING FOLLOWING FINDINGS :- 5. THE TRIBUNAL HAS OBSERVED THAT THE ASSESSEE WAS NOT COMPARABLE WITH INFOSYS TECHNOLOGIES LTD., AS INFOS YS TECHNOLOGIES LTD. WAS A LARGE AND BIGGER COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWARE AND, THEREFORE, THE PROFITS EARNED CANNOT BE A BENCH MARKED OR EQUATED WITH THE RESPONDENT, T O DETERMINE THE RESULTS DECLARED BY THE RESPONDENT-ASSESSEE. IN PARAGRAPH 3.3 THE TRIBUNAL HAS REFERRED TO THE DIFFERENCE BETWEEN THE RESPONDENT-ASSESSEE AND INFOSYS TECHNOLOGIES LTD. F OR THE SAKE OF CONVENIENCE, WE ARE REPRODUCING THE SAME:- BASIC PARTICULAR INFOSYS TECHNOLOGIES LTD. AGNITY INDIA RISK PROFILE OPERATE AS FULL-FLEDGED RISK TAKING ENTREPRENEURS OPERATE AT MINIMAL RISKS AS THE 100% SERVICES ARE PROVIDED TO AES NATURE OF SERVICES DIVERSIFIED-CONSULTING, APPLICATION DESIGN, DEVELOPMENT, RE- ENGINEERING AND MAINTENANCE SYSTEM INTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION AND BUSINESS PROCESS MANAGEMENT, ETC. (REFER PAGE 117 OF THE PAPER BOOK) CONTRACT SOFTWARE DEVELOPMENT SERVICES. REVENUE RS.9, 028 CRORES RS.16.09 CRORES OWNERSHIP OF BRANDED/PROPRIETARY PRODUCTS DEVELOPS/OWNS PROPRIETARY PRODUCTS LIKE FINACLE, INFOSYS ACTICE DESK, INFOSYS IPROWE, INFOSYS MCONNECT, ALSO, THE COMPANY DERIVES ITA NO.2638/DEL/2016 17 SUBSTANTIAL PORTION OF ITS PROPRIETARY PRODUCTS (INCLUDING ITS FLAGSHIP BANKING PRODUCT SUITE FINACLE) ONSITE VS. OFFSHORE - AS MUCH AS HALF OF THE SOFTWARE DEVELOPMENT SERVICES RENDERED BY INFOSYS ARE ONSITE (I.E., SERVICES PERFORMED AT THE CUSTOMERS LOCATION OVERSEAS). AND OFFSHORE (50.20%) (REFER PAGE 117 OF THE PAPER BOOK) THAN HALF OF ITS SERVICE, INCOME FROM ONSITE SERVICES. THE APPELLANT PROVIDES ONLY OFFSHORE SERVICES (I.E., REMOTELY FROM INDIA) EXPENDITURE ON ADVERTISING/SALES PROMOTION AND BRAND BUILDING RS.61 CRORES RS. NIL (AS THE 100% SERVICES ARE PROVIDE TO AES) EXPENDITURE ON RESEARCH & DEVELOPMENT RS. 102 CRORES RS. NIL OTHER 100% OFFSHORE (FROM INDIA) 6. LEARNED COUNSEL FOR THE REVENUE HAS SUBMITTED TH AT THE TRIBUNAL AFTER RECORDING THE AFORESAID TABLE HAS NO T AFFIRMED OR GIVEN ANY FINDING ON THE DIFFERENCES. THIS IS PARTL Y CORRECT AS THE TRIBUNAL HAS STATED THAT INFOSYS TECHNOLOGIES LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE REASO N LATTER WAS A GIANT COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWAR E AND IT ASSUMED ALL RISKS LEADING TO HIGHER PROFITS, WHEREA S THE RESPONDENT-ASSESSEE WAS A CAPTIVE UNIT OF THE PAREN T COMPANY AND ASSUMED ONLY A LIMITED RISK. IT HAS ALSO STATE D THAT INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPARED WITH THE RESPO NDENT- ASSESSEE AS SEEN FROM THE FINANCIAL DATA ETC. TO TH E TWO COMPANIES MENTIONED EARLIER IN THE ORDER I.E. THE CHART. IN THE GROUNDS OF APPEAL THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT OR DENY THE DATA AND DIFFERENCES MENTIONED IN THE TABULATED FOR M. THE CHART HAS NOT BEEN CONTROVERTED. 7. LEARNED COUNSEL FOR THE APPELLANT REVENUE DURING THE COURSE OF HEARING, DREW OUR ATTENTION TO THE ORDER PASSED BY THE TPO AND IT IS POINTED OUT THAT BASED UPON THE FIGUR ES AND DATA MADE AVAILABLE, THE TPO HAD TREATED A THIRD COMPANY AS COMPARABLE WHEN THE WAGE AND SALE RATIO WAS BETWEEN 30% TO 60%. BY APPLYING THIS FILTER, SEVERAL COMPANIES WE RE EXCLUDED. ITA NO.2638/DEL/2016 18 THIS IS CORRECT AS IT IS RECORDED IN PARA 3.1.2 OF THE ORDER PASSED BY THE TPO. TPO, AS NOTED ABOVE, HOWEVER HAD TAKEN THREE COMPANIES, NAMELY, SATYAM COMPUTER SERVICE LTD., L& T INFOTECH LTD. AND INFOSYS TECHNOLOGIES AS COMPARABL E TO WORK OUT THE MEAN. 8. IT IS A COMMON CASE THAT SATYAM COMPUTER SERVICE S LTD. SHOULD NOT BE TAKEN INTO CONSIDERATION. THE TRIBUNA L FOR VALID AND GOOD REASONS HAS POINTED OUT THAT INFOSYS TECHN OLOGIES LTD. CANNOT BE TAKEN AS A COMPARABLE IN THE PRESENT CASE . THIS LEAVES L&T INFOTECH LTD. WHICH GIVES US THE FIGURE OF 11.1 1 %, WHICH IS LESS THAN THE FIGURE OF 17% MARGIN AS DECLARED BY T HE RESPONDENT-ASSESSEE. THIS IS THE FINDING RECORDED BY THE TRIBUNAL. THE TRIBUNAL IN THE IMPUGNED ORDER HAS ALSO OBSERVE D THAT THE ASSESSEE HAD FURNISHED DETAILS OF WORKABLES IN RES PECT OF 23 COMPANIES AND THE MEAN OF THE COMPARABLES WORKED OU T TO 10%, AS AGAINST THE MARGIN OF 17% SHOWN BY THE ASSESSEE. DETAILS OF THESE COMPANIES ARE MENTIONED IN PARA 5 OF THE IMPU GNED ORDER. 20. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS RIGHTLY ORDERE D TO EXCLUDE THE INFOSYS FROM THE FINAL SET OF COMPARABLE FOR BENCHM ARKING THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE QUA SOFTWARE DEVELOPMENT SERVICE PROVIDER, HENCE GROUND NO.3 IS DETERMINED AGAINST THE REVENUE. 21. RESULTANTLY, THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF MAY, 2019. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 23 RD DAY OF MAY, 2019/TS ITA NO.2638/DEL/2016 19 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-43, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.