M/s. Applied Materials India Private Limited, Bengaluru V. Deputy Commissioner of Income Tax, Circle-1(1)(1), Bengaluru

ITA 2687/BANG/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1675 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 11-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Initiation of penalty proceedings; Bad and doubtful debts; Set aside
• Section: 271(1)(c); 92C; 143(3); 234B; 10B; 201; 144C; 274; 143(2); 13; 22; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.2687/BANG/2017 ASSESSMENT YEAR : 2013 14 APPLIED MATERIALS INDIA PVT. LTD., UNIT 5, 3 RD FLOOR, EXPLORER BUILDING, INTERNATIONAL TECH PARK, WHITE FIELD, BENGALORE-560 001. PAN AAECA2635C VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1), BENGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. TANMAYEE RAJKUMAR, ADVOCATE RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, CIT (DR) DATE OF HEARING : 05 - 03 - 2020 DATE OF PRONOUNCEMENT : 13 - 05 - 2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGA INST FINAL ASSESSMENT ORDER DATED 12/10/2017 PASSED BY LD.DCIT CIRCLE- 1(1)(1), BANGALORE, UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE ACT FOR ASSESSMENT YEAR 2012-13 ON FOLLOWING GR OUNDS OF APPEAL: PAGE 2 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 1. ORDER! DIRECTIONS BAD IN LAW AND ON FACTS 1.1 THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1) ['LD. AO'], UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 ('THE ACT'), IS BAD IN LAW AND ON FACTS AND IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. WITHOUT PREJUDICE TO THE GENERALITY OF THE ABOVE, T HE ORDER ISSUED BY THE LD. AO IS BAD IN LAW IN SO FAR AS THE FACT THAT THE LD. AO DID NOT ISSUE TO APPLIED MATERIALS INDIA PRIVATE LIMITED ('THE APPEL LANT OR 'THE COMPANY'), A SHOW CAUSE NOTICE AS PER PROVISO TO SECTION 92C(3) OF THE ACT. 1.2 THE LD. AO HAS ERRED IN LAW IN MAKING A REFEREN CE TO THE DEPUTY COMMISSIONER OF INCOME TAX (TRANSFER PRICING) - 1(1 )(1) ['LD. TPO'], INTER ALIA WITHOUT RECORDING AN OPINION THAT ANY OF THE CONDIT IONS IN SECTION 92C(3) OF THE ACT, WERE SATISFIED IN THE INSTANT CASE. ACCORD INGLY, THE ORDER PASSED BY THE LD. TPO IS WITHOUT JURISDICTION. 1.3 THE FINAL ASSESSMENT ORDER PASSED BY THE LD. AO IS WITHOUT JURISDICTION, INTER ALIA, IN SO FAR AS IT PURPORTS TO GIVE EFFECT TO INVALID DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ('LD. PA NEL'). 1.4 THE ORDER PASSED BY THE LD.AO IS WITHOUT JURISD ICTION, INTER ALIA, IN SO FAR AS IT INCORPORATES THE ADJUSTMENT PROPOSED IN A N INVALID ORDER PASSED BY THE LD. TPO. 2. THE LD. PANEL AND LD. AO/ LD. TPO HAS ERRED IN J USTIFYING THE MOTIVE OF SHIFTING OF PROFITS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. PANEL AND LD. AO/ LD. TPO ERRED IN NOT DEMONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OUTSIDE INDIA BY MAN IPULATING THE PRICES CHARGED IN THE INTERNATIONAL TRANSACTION, WHICH IS A PRE-REQUISITE CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISIONS OF CHAP TER X OF THE ACT. THE LD. PANEL ERRED IN UPHOLDING THE SAME. 3. DETERMINATION OF ARM'S LENGTH PRICE OF INTERNATI ONAL TRANSACTIONS 3.1 THE LD. PANEL AND LD. AO/ LD. TPO ERRED IN REJE CTING THE VALUE OF THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES, AS RECORDED IN THE BOOKS OF ACCOUNT, AS THE ARM'S LENG TH PRICE. 3.2 THE LD. PANEL AND LD. AO/ LD. TPO ERRED IN DETE RMINING A NEW ARM'S LENGTH PRICE IN SUBSTITUTION OF THE ARM'S LENGTH PR ICE AS DETERMINED BY THE APPELLANT. 3.3 THE LD. AO/ U. TPO ERRED IN LAW IN HOLDING THAT THE FRESH COMPARABILITY ANALYSIS USING NON- CONTEMPORANEOUS D ATA CONDUCTED BY THE LD. TPO AND FURTHER SUBSTITUTING THE APPELLANT'S AN ALYSIS WITH FRESH BENCHMARKING ANALYSIS ON HIS OWN CONJECTURES AND SU RMISES. THE LD. PANEL ERRED IN UPHOLDING THE SAME. 3.4 THE U. AO/ LD. TPO ERRED AND THE LD. PANEL FURT HER ERRED IN CONFIRMING USE OF DATA WHICH WAS NOT CONTEMPORANEOUS AND WHICH WAS NOT AVAILABLE PAGE 3 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING THE TRANSFER PRICING STUDY BY THE APPELLANT. 3.5 THE LD. AO/ LD. TPO ERRED IN REJECTING AND THE U. PANEL FURTHER ERRED IN CONFIRMING NON- APPLICATION OF MULTIPLE-YEAR DAT A WHILE COMPUTING THE MARGINS OF ALLEGED COMPARABLE COMPANIES AS SUCH DAT A HAD AN INFLUENCE IN DETERMINING THE TRANSFER PRICING POLICY OF THE A PPELLANT. 4. DETERMINATION OF NET COST MARGIN OF THE APPELLAN T THE LD.AO/LD.TPO HAD ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE SUB-CONTRACTING CHARGES INCURRED BY THE APPELLA NT REPRESENTS ARM'S LENGTH CONSIDERATION AND WAS THEREBY REQUIRED TO BE CONSIDERED AS PASS- THROUGH COST AND THAT THE SAME THUS OUGHT TO HAVE B EEN EXCLUDED FROM THE APPELLANT'S OPERATING COSTS AND INCOME WHILE COMPUT ING THE ARM'S LENGTH PRICE. THE LD. PANEL ERRED IN CONFIRMING THE SAME. 5. COMPARABILITY ANALYSIS ADOPTED BY THE LD.TPO FOR DETERMINATION OF ARM'S LENGTH PRICE 5.1 THE LD.AO/LD.TPO GROSSLY ERRED AND THE LD. PANE L ERRED IN CONFIRMING THE BENCHMARKING OF TRANSACTION OF PROVISION OF SOF TWARE DEVELOPMENT SERVICES BY THE APPELLANT WITH COMPANIES OPERATING AS FULL-FLEDGED ENTREPRENEURS WITHOUT CONSIDERING THE DIFFERENCES I N THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISK ASSUMED BY THE APPELLANT VIS--VIS THE COMPANIES SELECTED AS BEING COMPARABLE. 5.2 THE LD.AO/LD.TPO ERRED IN APPLYING ARBITRARY FI LTERS TO ARRIVE AT A FRESH SET OF COMPANIES AS COMPARABLES TO THE APPELL ANT WITHOUT ESTABLISHING FUNCTIONAL COMPARABILITY AND THE LD. P ANEL ALSO ERRED IN CONFIRMING THE SAME. 5.3 THE LD.AO/LD.TPO ERRED IN ARBITRARILY ACCEPTING COMPANIES WITHOUT CONSIDERING THE TURNOVER AND SIZE OF THE APPELLANT AND COMPARABLES. THE LD. PANEL ALSO ERRED IN CONFIRMING THE SAME. 5.4 THE LD. PANEL ERRED IN UPHOLDING THE ACTION OF THE LD.AO/LD.TPO IN NOT APPLYING THE TURNOVER FILTER AT THE UPPER LIMIT SO AS TO REJECT THE HIGH TURNOVER COMPANIES SELECTED BY THE LD.AO/LD.TPO. 5.5 THE LD.AO/LD.TPO, WHILE APPLYING THE SAID TURNO VER FILTER AT THE LOWER LIMIT SO AS TO REJECT COMPANIES HAVING TURNOVERS LE SS THAN INR 1 CRORE IN FY 2012-13, ERRED IN NOT APPLYING THE SAID FILTER AT T HE UPPER END SO AS TO REJECT HIGH TURNOVER COMPANIES AS WELL. THE LD. PAN EL ALSO ERRED IN CONFIRMING THE SAME. 5.6 THE LD.AO/LD.TPO GROSSLY ERRED IN DEVIATING FRO M THE UNCONTROLLED PARTY TRANSACTION DEFINITION AS PER THE INCOME-TAX RULES AND IN ARBITRARILY APPLYING A 25% RELATED PARTY CRITERIA IN ACCEPTING / REJECTING COMPARABLES, WHILE ALSO REJECTING THE APPELLANT'S GROUND FOR APP LICATION OF THE RELATED PARTY TRANSACTION FILTER AT A THRESHOLD OF 10% OR 1 5% OF SALES. THE LD. PANEL ALSO ERRED IN CONFIRMING THE SAME. ACCORDINGLY, BAS IS APPLICATION OF 15% RELATED PARTY FILTER, ICRA TECHNO ANALYTICS LIMITED , PERSISTENT SYSTEMS PAGE 4 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 LIMITED AND LARSEN & TOUBRO LIMITED OUGHT TO BE EXC LUDED FROM THE LIST OF COMPARABLES. 5.7 THE LD.AO/LD.TPO GROSSLY ERRED IN ARBITRARILY R EJECTING COMPANIES HAVING SOFTWARE DEVELOPMENT SERVICES INCOME LESS TH AN 75% OF TOTAL OPERATING REVENUES. THE LD. PANEL ALSO ERRED IN CON FIRMING THE SAME. 5.8 THE LD.AO/LD.TPO ERRED IN ARBITRARILY REJECTING COMPANIES HAVING EXPORT SERVICE INCOMES LESS THAN 75% OF TOTAL SALES AND THE LD. PANEL ALSO ERRED IN CONFIRMING THE SAME. 5.9 THE LD.AO/LD.TPO ERRED IN REJECTING COMPANIES H AVING EMPLOYEE COST LESS THAN 25% OF TURNOVER AND THE LD. PANEL ALSO ER RED IN CONFIRMING THE SAME. 5.10 THE LD.AO/LD.TPO ALSO ERRED IN ARBITRARILY REJ ECTING COMPANIES WITH DIFFERENT YEAR ENDING (I.E. OTHER THAN 31 MARCH 201 3) AND IN INCONSISTENTLY APPLYING SUCH FILTER, AND THE LD. PANEL ALSO ERRED IN CONFIRMING THE SAME. 5.11 THE LD.AO/LD.TPO ALSO ERRED IN ERRONEOUSLY COM PUTING THE MARGINS OF COMPANIES IDENTIFIED AS COMPARABLE BY THE LD. TP O. THE LD.PANEL ERRED IN UPHOLDING THE SAME. 5.12 THE LD.AO/LD.TPO/LD.PANEL ERRED IN ARBITRARILY NOT INCLUDING AKSHAY SOFTWARE TECHNOLOGIES LTD, HELIOS & MATHESON INFORM ATION TECHNOLOGY LTD., R SYSTEMS INTERNATIONAL LTD., AND YBRANT DIGI TAL LIMITED IN THE LIST OF COMPARABLES DESPITE THESE COMPANIES BEING FUNCTIONA LLY COMPARABLE TO THE APPELLANT AND HAVING PASSED ALL THE FILTERS APPLIED BY THE LD.TPO AND UPHELD BY THE LD. PANEL. THE LD. PANEL ALSO ERRED I N CONFIRMING THE SAME. 5.13 THE AO/LD. TPO ERRED IN REJECTING YBRANT DIGIT AL LIMITED ON ACCOUNT OF NON-AVAILABILITY OF DATA IN PROWESS / CAPITALINE DATABASE AND IN PUBLIC DOMAIN, DESPITE THE ANNUAL REPORT BEING AVAILABLE. THE LD. PANEL ERRED IN CONFIRMING THE SAME. 5.14 THE LD.AO/LD.TPO ERRED IN INCLUDING CG VAK SOF TWARE EXPORTS LIMITED, MINDTREE LIMITED, PERSISTENT SYSTEMS LIMIT ED AND LARSEN AND TURBO LIMITED IN THE LIST OF COMPARABLES DESPITE TH ESE COMPANIES BEING FUNCTIONALLY INCOMPARABLE TO THE APPELLANT. THE LD. PANEL ERRED IN CONFIRMING THE SAME. 5.15 THE LD.AO/LD.TPO ERRED IN NOT APPRECIATING THE FACT THAT LARSEN & TOUBRO INFOTECH LIMITED AND PERSISTENT SYSTEMS LIMI TED WERE HELD BY THE HON'BLE TRIBUNAL TO BE FUNCTIONALLY INCOMPARABLE TO THE APPELLANT IN THE EARLIER ASSESSMENT YEARS, I.E. AYS 2010-11 AND 2011 -12, AND THAT, THEREFORE, THEY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THIS ASSESSMENT YEAR AS WELL AS THEY CONTINUE TO BE FUNC TIONALLY INCOMPARABLE TO THE APPELLANT. 5.16 IN DIRECTING THE EXCLUSION OF TECH MAHINDRA LT D. FROM THE LIST OF COMPARABLES, THE LD. PANEL ERRED IN NOT ACCEPTING T HE OTHER CONTENTIONS PUT FORTH BY THE APPELLANT FOR EXCLUSION OF THE SAID CO MPANY AS WELL. PAGE 5 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 5.17 THE LD.AO/LD.TPO ERRED IN CONSIDERING PROVISIO N FOR DOUBTFUL DEBTS AS A NON-OPERATING ITEM WHILE COMPUTING THE MARGINS . THE LD. PANEL ERRED IN UPHOLDING THE SAME. 5.18 THE LD.AO/LD.TPO ERRED IN CONSIDERING DATA OBT AINED U/S 133(6). THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE TPO. 6. NON-ALLOWANCE OF APPROPRIATE ADJUSTMENT TO THE C OMPARABLE COMPANIES BY THE LD. PANEL AND LD.AO/LD.TPO 6.1 THE LD.AO/LD.TPO ERRED IN NOT ALLOWING APPROPRI ATE ADJUSTMENTS UNDER RULE 10B TO ACCOUNT FOR, INTER ALIA, DIFFEREN CES IN (I) ACCOUNTING PRACTICES, (II) MARKETING EXPENDITURE, (III) RESEAR CH AND DEVELOPMENT EXPENDITURE, (IV) WORKING CAPITAL, AND (V) RISK PRO FILE BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES. 6.2 THE LD.AU/LD.TPO ALSO ERRED IN NOT GRANTING AN ADEQUATE OPPORTUNITY TO THE APPELLANT BEFORE MAKING AN ADJUSTMENT ON ACC OUNT OF NEGATIVE WORKING CAPITAL. 6.3 THE LD.PANEL AND AU/TPO ERRED IN MAKING A NEGAT IVE WORKING CAPITAL ADJUSTMENT WITHOUT APPRECIATING THE FACT THAT THE A PPELLANT IS A CAPTIVE SERVICE PROVIDER AND DOES NOT BEAR ANY WORKING CAPI TAL RISKS. 7. VARIATION OF 3% FROM THE ARITHMETIC MEAN THE LD.AO/LD.TPO ERRED IN NOT GRANTING THE BENEFIT OF THE PROVISO TO SECTION 92C(2) OF THE ACT TO WHICH THE APPELLANT IS ENTITLED. 8. REDUCTION IN AMOUNT OF INCOME-TAX DEPRECIATION C LAIMED ON COMPUTER PERIPHERALS 8.1 THE LD.PANEL AND THE LD.AO ERRED IN RESTRICTING THE DEPRECIATION ON COMPUTER PERIPHERALS BY APPLYING A RATE OF 15% INST EAD OF APPLICABLE RATE OF 60% CLAIMED BY THE APPELLANT AND THEREBY DISALLO WING ITS CLAIM FOR DEPRECIATION TO THE EXTENT OF RS. 299,010/-. 8.2 THE LD.PANEL AND THE LD.AO ERRED IN NOT TREATIN G COMPUTER PERIPHERALS AS PART OF 'COMPUTERS' FOR COMPUTING DEPRECIATION U NDER SECTION 32 OF THE ACT. 8.3 WITHOUT PREJUDICE TO GROUND NO.8.1 ABOVE, THE L D.AO ERRED IN COMPUTING THE AMOUNT OF DEPRECIATION ON SUCH COMPUT ER PERIPHERALS TO BE DISALLOWED BY CONSIDERING THE RELEVANT ASSETS AS HA VING BEEN PUT TO USE FOR MORE THAN 180 DAYS, ALTHOUGH THE RELEVANT ASSET S WERE PUT TO USE FOR LESS THAN 180 DAYS DURING THE RELEVANT PREVIOUS YEA R. 9. NON-GRANT OF MINIMUM ALTERNATE TAX ('MAT') CREDI T THE LD.AO ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE LD. PANEL BY NOT ALLOWING THE SET-OFF OF BROUGHT FORWARD MAT CREDIT UNDER SECTION 115JAA OF THE ACT WHILE COMPUTING THE INCOME-TAX LIABILITY UN DER THE NORMAL PROVISIONS OF THE ACT. 10. INTEREST UNDER SECTION 234B OF THE ACT THE LD.AO ERRED IN COMPUTING INTEREST UNDER SECTION 234B OF THE ACT AT INR 76,207,120. 11. INITIATION OF PENALTY PROCEEDINGS PAGE 6 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 THE APPELLANT SUBMITS THAT BASED ON THE FACTS AND C IRCUMSTANCES OF THE CASE, THERE WAS NO BASIS FOR THE LD. AO TO INITIATE PROCEEDINGS UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT. 12. RELIEF 12.1 THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN T O GRANT ALL SUCH RELIEF ARISING FROM THE ABOVE GROUNDS AND ALSO ALL RELIEF CONSEQUENTIAL THERETO. 12.2 THE APPELLANT DESIRES LEAVE TO ADD TO OR ALTER , BY DELETION, SUBSTITUTION OR OTHERWISE, ANY OR ALL OF THE ABOVE GROUNDS OF OBJECTIONS, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL . THE APPELLANT SUBMITS THAT THE ABOVE GROUNDS ARE IN DEPENDENT OF AND WITHOUT PREJUDICE TO ONE ANOTHER. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY AND FILED ITS RETURN OF INCO ME FOR YEAR UNDER CONSIDERATION ON 29/11/2013 DECLARING TOTAL I NCOME OF RS.37,11,50,990/-. THE CASE WAS SELECTED FOR SCRUTI NY AND NOTICE UNDER SECTION 143(2) WAS DULY SERVED ON ASSESSEE CA LLING FOR VARIOUS DETAILS IN CONNECTION WITH THE RETURN FILED. REPRES ENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO IN RESPONSE TO STATU TORY NOTICES AND FILED VARIOUS DETAILS. LD.AO OBSERVED THAT ASSE SSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION WITH ASSOCIATED ENTE RPRISE EXCEEDING RS.15 CRORES AND ACCORDINGLY THE CASE WAS REFERRED TO TRANSFER PRICING OFFICER TO DETERMINED ARMS LENGTH PRICE OF THE TRANSACTION. UPON RECEIPT OF REFERENCE UNDER 92C OF THE ACT, LD. TPO CALLED UPON ASSESSEE TO FILE ECONOMIC DETAILS OF INTERNATIONAL TRANSACTION IN FORM 3 CEB, IN RESPECT OF INTERNATIONAL TRANSACTION AND BETWEEN ASSESSEE AND ITS ASSOCIATED ENTERPRISES. 3. LD.TPO OBSERVED THAT, ASSESSEE WAS ENGAGED IN REND ERING SOFTWARE DEVELOPMENT SERVICE TO APPLIED INC. IT WAS ALSO OBSERVED THAT ASSESSEE EMPLOYED SERVICES OF 3 RD PARTY SERVICE PROVIDER FOR SUBCONTRACTING SPECIFIC PART OF THEIR WORK. L ASSE SSEE HAD FOLLOWING INTERNATIONAL TRANSACTION: 4. LD.TPO OBSERVED THAT ASSESSEE USED TNMM AS MOST APP ROPRIATE METHOD AND OP/OC AS PLI, FOR DETERMINING ARMS LENGT H INTERNATIONAL TRANSACTION REPRESENTING SOFTWARE DEV ELOPMENT SERVICES PROVIDED SERV WAS OBSERVED THAT ASSESSEE USED FOLLOWING 7 COMPARA BLES WITH AN AVERAGE MARGIN OF 12.47%: S.NO. PARTICULARS 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 2. EVOKE TECHNOLOGIES PVT.LTD. 3. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 4. RS SOFTWARE (INDIA) LTD. 5. R SYSTEMS INTERNATIONAL LTD. 6. SASKEN COMMUNICATION TECHNOLOGIES LTD 7. YBRANT DIGITAL LTD. PAGE 7 OF 29 IT(TP)A NO.2687 /BANG/201 A. Y: 2013 14 SUBCONTRACTING SPECIFIC PART OF THEIR WORK. L D. TPO OBSERVED THAT SSEE HAD FOLLOWING INTERNATIONAL TRANSACTION: LD.TPO OBSERVED THAT ASSESSEE USED TNMM AS MOST APP ROPRIATE METHOD AND OP/OC AS PLI, FOR DETERMINING ARMS LENGT H INTERNATIONAL TRANSACTION REPRESENTING SOFTWARE DEV ELOPMENT SERVICES PROVIDED SERV ICES TO ASSOCIATED ENTERPRISE AND 10.6% WAS OBSERVED THAT ASSESSEE USED FOLLOWING 7 COMPARA BLES WITH AN AVERAGE MARGIN OF 12.47%: PARTICULARS AKSHAY SOFTWARE TECHNOLOGIES LTD. EVOKE TECHNOLOGIES PVT.LTD. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. RS SOFTWARE (INDIA) LTD. R SYSTEMS INTERNATIONAL LTD. SASKEN COMMUNICATION TECHNOLOGIES LTD YBRANT DIGITAL LTD. MEAN MARGIN /BANG/201 7 14 TPO OBSERVED THAT LD.TPO OBSERVED THAT ASSESSEE USED TNMM AS MOST APP ROPRIATE METHOD AND OP/OC AS PLI, FOR DETERMINING ARMS LENGT H MARGIN OF INTERNATIONAL TRANSACTION REPRESENTING SOFTWARE DEV ELOPMENT AND 10.6% . IT WAS OBSERVED THAT ASSESSEE USED FOLLOWING 7 COMPARA BLES WITH AN MARGIN 6.76 7.88 18.98 16.61 7.62 17.58 11.90 12.47 5. AFTER ANALYSING VARIOUS SUBMISSIONS ADVANCED BY ASS ESSEE, LD.TPO ACCEPTED 1 COMPARABLE AND REJECTED 6 COMPARA BLES BY APPLYING VARIOUS FILTERS AS UNDER: 6. FINAL SET OF COMPARABLES CONSIDERED BY LD.TPO ARE A S UNDER: S.NO NAME OF THE COMPANY 1 CG - VAK SOFTWARE EXPORTS LTD 2 ICRA TECHNO_ANALYTICS LTD. 3 LARSEN AND TOUBRO INFOTECH LTD. 4 MINDTREE LTD. (SEG.) 5 PERSISTENT SYSTEMS LTD. 6 RS SOFTWARE (INDIA) PVT. LTD. 7 TECH MAHINDRA LTD. (SEG.) AVERAGE MARK 7. FURTHER, WHILE COMPUTING PLI OF ASSESSEE, LD.TPO WA S OF THE VIEW THAT SUBCONTRACTING CHARGES PAGE 8 OF 29 IT(TP)A NO.2687 /BANG/201 A. Y: 2013 14 AFTER ANALYSING VARIOUS SUBMISSIONS ADVANCED BY ASS ESSEE, LD.TPO ACCEPTED 1 COMPARABLE AND REJECTED 6 COMPARA BLES BY APPLYING VARIOUS FILTERS AS UNDER: FINAL SET OF COMPARABLES CONSIDERED BY LD.TPO ARE A S UNDER: NAME OF THE COMPANY MARGINE VAK SOFTWARE EXPORTS LTD 20.54 ICRA TECHNO_ANALYTICS LTD. 17.10 LARSEN AND TOUBRO INFOTECH LTD. 26.06 MINDTREE LTD. (SEG.) 18.19 PERSISTENT SYSTEMS LTD. 28.27 RS SOFTWARE (INDIA) PVT. LTD. 17.41 TECH MAHINDRA LTD. (SEG.) 18.72 AVERAGE MARK -UP 20.90 FURTHER, WHILE COMPUTING PLI OF ASSESSEE, LD.TPO WA S OF THE VIEW THAT SUBCONTRACTING CHARGES OF RS.81,29,78,005/- DURING /BANG/201 7 14 AFTER ANALYSING VARIOUS SUBMISSIONS ADVANCED BY ASS ESSEE, LD.TPO ACCEPTED 1 COMPARABLE AND REJECTED 6 COMPARA BLES BY FINAL SET OF COMPARABLES CONSIDERED BY LD.TPO ARE A S UNDER: MARGINE 20.54 17.10 26.06 18.19 28.27 17.41 18.72 20.90 FURTHER, WHILE COMPUTING PLI OF ASSESSEE, LD.TPO WA S OF THE VIEW DURING RELEVANT PAGE 9 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 FINANCIAL YEAR, PAID BY ASSESSEE TO 3 RD PARTIES TOWARDS PROVISION OF SOFTWARE DEVELOPMENT SERVICES, FORMED PART OF ASSES SEES OPERATING COST. HE THUS INCLUDED SUBCONTRACTING CHARGES IN OP ERATING COST, THEREBY INCREASING ASSESSEES MARGIN TO 15.38%. LD.TPO THUS PROPOSED THE ADJUSTMENT IN THE HANDS OF ASSESSEE BEING DIFFERENCE BETWEEN RECOMPUTED MARGIN OF ASSES SEE AND THE AVERAGE MARGIN OF COMPARABLES FINALLY SELECTED BY A SSESSEE AT RS.27,56,77,176/-. AGGRIEVED BY PROPOSED ADJUSTMENT BY LD.TPO, ASSESSE E RAISED OBJECTIONS BEFORE DRP. 8. BEFORE DRP ASSESSEE FILED VARIOUS DETAILS IN SUPPOR T OF ITS CONTENTIONS AGAINST INCLUSION OF SUBCONTRACTING CHA RGES AS OPERATING COST IN THE HANDS OF ASSESSEE AS WELL AS WRONG SELECTION OF COMPARABLES UNDER SOFTWARE DEVELOPMENT SERVICE SEGM ENT BY LD.TPO. 8.1. DRP AFTER CONSIDERING THE CONTENTIONS OF ASSESSEE R EJECTED THE CONTENTION OF ASSESSEE THAT SUBCONTRACTING CHARGES SHOULD BE EXCLUDED FOR COMPUTING MARGIN OF SOFTWARE DEVELOPME NT SERVICES IN THE HANDS OF ASSESSEE. DRP ALSO REJECTED ASSESSEES CONTENTION IN RESPECT OF OBJECTIONS REGARDING EXCLUSION/INCLUSION OF COMPARABLES. HOWEVER, DRP ACCEPTED THAT TECH MAHINDRA LTD OUGHT TO BE EXCLUDED ON THE GROUND THAT IT EXPANDED ITS BUSINES S THROUGH VARIOUS ACQUISITIONS WHICH HAD A MATERIAL EFFECT ON ITS PROFITABILITY. THUS UPON DRPS DIRECTIONS COMPARABLES THAT REMAINE D FOR COMPUTING ARMS LENGTH MARGIN WERE AS UNDER: 9. UPON RECEIPT OF DRP ORDER BY REWORKING THE TP ADJUSTMENT IN ACCORDANCE WITH DRP DIRECTIONS AT RS.28,36,84,461/ ASSESSEE CLAIMED DEPRECIATION AT THE R FOLLOWING ITEMS BY TREATING IT AS COMPUTERS WHICH ARE AS UNDE R: TOTAL ADDITION MADE BY LD.AO IN THE HANDS OF ASSESS EE AMOUNTED TO BE RS.65,51,34,461/- . AGGRIEVE D BY ORDER OF LD.AO, ASSESSEE IS IN APPEAL BEFORE U S NOW. 10. IT HAS BEEN SUBMITTED THAT NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATIO N. HE ALSO IS SUBMITTED THAT GROUNDS 3, 5.1 ARE NOT PRESSED AT THE INSTRUCTIONS OF ASSESSEE. ACCORDINGLY THESE GROUNDS STANDS DISMISSED PAGE 10 OF 29 IT(TP)A NO.2687 /BANG/201 A. Y: 2013 14 UPON RECEIPT OF DRP DIRECTIONS, LD.AO PASSED FINAL ASSESSMENT ORDER BY REWORKING THE TP ADJUSTMENT IN ACCORDANCE WITH DRP DIRECTIONS AT RS.28,36,84,461/ -. LD.AO FURTHER OBSERVED THAT ASSESSEE CLAIMED DEPRECIATION AT THE R ATE OF 60% IN RESPECT OF ITEMS BY TREATING IT AS COMPUTERS WHICH ARE AS UNDE R: TOTAL ADDITION MADE BY LD.AO IN THE HANDS OF ASSESS EE AMOUNTED TO . D BY ORDER OF LD.AO, ASSESSEE IS IN APPEAL BEFORE U S NOW. IT HAS BEEN SUBMITTED THAT GROUND NO. 1-2 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATIO N. HE ALSO IS GROUNDS 3, 5.1 -5.11, 5.13, 5.16- 5.18, 6, 7, 10 PRESSED AT THE INSTRUCTIONS OF ASSESSEE. ACCORDINGLY THESE GROUNDS STANDS DISMISSED /BANG/201 7 14 DIRECTIONS, LD.AO PASSED FINAL ASSESSMENT ORDER BY REWORKING THE TP ADJUSTMENT IN ACCORDANCE WITH DRP LD.AO FURTHER OBSERVED THAT ATE OF 60% IN RESPECT OF ITEMS BY TREATING IT AS COMPUTERS WHICH ARE AS UNDE R: TOTAL ADDITION MADE BY LD.AO IN THE HANDS OF ASSESS EE AMOUNTED TO D BY ORDER OF LD.AO, ASSESSEE IS IN APPEAL BEFORE U S NOW. ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATIO N. HE ALSO IS 5.18, 6, 7, 10 -11 PAGE 11 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 10.1. LD.AR SUBMITTED THAT, ASSESSEE WISH TO PRESS AND AR GUE CERTAIN GROUNDS. LD.AR THUS RESTRICTED HIS ARGUMENT S TO GROUND NO. 4, 5.12, 5.14, 5.15, 8 AND 9, AS UNDER. 11. GROUND NO. 4: 11.1. THIS GROUND RELATES TO THE CLAIM OF ASSESSEE THAT SUBCONTRACTING CHARGES PAID TO 3 RD PARTIES SHOULD NOT BE CONSIDERED IN THE OPERATING PROFIT WHILE COMPUTING ASSESSEES MARGIN. LD.AR SUBMITTED THAT THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN PRECEDING ASSESSMENT YEARS BEING ASSESSMENT YEA R 2011-12 AND 2012-13 IN ASSESSEES OWN CASE, IN IT(T P)A NO. 17/B/2016 BY ORDER DATED 21/09/2016 AND IT(TP)A NO. 1838/B/2016 BY ORDER DATED 05/02/2020, RESPECTIVELY AGAINST ASSESSEE. 11.2. LD.CIT DR PLACED RELIANCE UPON THE ORDERS PASSED B Y THIS TRIBUNAL IN ASSESSEES OWN CASE IN PRECEDING ASSESSMENT YEA RS. 11.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED THAT TH IS ISSUE NOW STANDS SETTLED AGAINST ASSESSEE IN ASSESSEES OWN C ASE WHEREIN THIS TRIBUNAL DECIDED BY MAKING FOLLOWING OBSERVATIONS. WE REFER TO AND RELY UPON OBSERVATIONS BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR 2012-13 (SUPRA): 10. WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATI VE ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICED THAT IDENTICAL ISSUE WAS CONSIDERED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE'S OWN CA SE FOR ASSESSMENT YEAR 2011-2012 IN IT(TP)A NO.17/BANG/2016 DATED 21.09.20 16 AND THE SAME HAS BEEN DECIDED AGAINST THE ASSESSEE WITH THE FOLLOWIN G OBSERVATIONS:- PAGE 12 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. UNDISPUTEDLY, THE ASSESSEE IS CHARGING A MARK UP ON THE SOFTWARE DEVELOPMENT SERVICES PROVIDED TO THE AE BEING CAPTI VE SERVICE PROVIDER. THEREFORE THE ASSESSEE IS NOT ACTING AS AN AGENT OR DISTRIBUTOR OF THE AR BUT IS A PROVIDER OF SERVICES OF ITS OWN. IT IS NOT THE CA SE OF RENDERING SERVICES OF AN AGENT WITHOUT ANY VALUE ADDITION BUT THE ASSESSEE I S PROVIDING SOFTWARE DEVELOPMENT SERVICES TO THE AE AND CHARGING MARGIN ON THE SAME. THEREFORE THE COST ON THE SOFTWARE DEVELOPMENT ACTIVITY IS IN CURRED BY THE ASSESSEE AND CHARGING THE AE ON THE SAID SERVICES WITH A MARK UP OF 10% ON COST. THE COST OF SUB-CONTRACTING IN SOFTWARE DEVELOPMENT SERVICES IS ALSO CHARGED WITH 10% MARK UP TO THE AE. WHEN THE MARGIN ON THE COST OF S UB-CONTRACTING CHARGES IS PART OF THE OPERATING REVENUE OF THE ASSESSEE THEN ONLY THE COST OF SUBCONTRACTING ACTIVITY CANNOT BE EXCLUDED AS PASS THROUGH. IT WOULD AMOUNT TO ARTIFICIALLY INFLATE THE MARGINS OF THE ASSESSEE ON THE OTHER REVENUE FROM THE SERVICES OTHER THAN SUBCONTRACTING ACTIVITY. IN ANY CASE, PASS THROUGH COST CAN BE CONSIDERED ONLY WHEN THE ACTIVITY OF PROVIDING S ERVICES TO THE AE DOES NOT INVOLVE VALUE ADDITION ON THE PART OF THE AE. THE D ECISION OF THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF DCIT VS. CHEIL COMMU NICATIONS INDIA PVT. LTD (SUPRA) WOULD NOT HELP THE CASE OF THE ASSESSEE AS IN THE SAID CASE THE ACTIVITY OF THE ASSESSEE WAS ONLY A DISTRIBUTOR WIT HOUT ANY VALUE ADDITION. IT IS PERTINENT TO NOTE THAT OUTSOURCING COST IN SOFTW ARE DEVELOPMENT SERVICES ACTIVITY IS PART AND PARCEL OF COST OF PROVIDING TH E SERVICE TO THE AE AND CANNOT BE SEPARATED FROM THE OPERATING COST AND OPERATING REVENUE OF THE SAID SEGMENT OF SERVICES. ACCORDINGLY, THE COST OF SOFTW ARE DEVELOPMENT SERVICES CANNOT BE TREATED IN THIS FASHION AS CLAIMED BY THE ASSESSEE. HENCE WE DO NOT FIND ANY MERIT OR SUBSTANCE IN THE CONTENTION R AISED BY THE ASSESSEE ON THIS ISSUE.' 11.3. IT HAS BEEN SUBMITTED BY BOTH SIDES THAT THERE IS N O CHANGE IN FACTS RELATING TO THIS CLAIM AND THE CONSISTENT VIEW HAS BEEN TAKEN BY COORDINATE BENCH IN THE PRECEDING ASSESSME NT YEARS. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN ASSESSEES OWN CASE, WE REJECT THE CLAIM OF ASSESSEE. ACCORDINGLY THIS GROUND STANDS DISMISSED. 12. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS CARRIED OUT BY ASSESSEE, AS SETS EMPLOYED AND RISKS ASSUMED IN PROVISION OF SOFTWARE DEVELOPM ENT SERVICE TO ITS ASSOCIATED ENTERPRISE. A. FUNCTIONS IN TP STUDY, AT PAGE 398 IT HAS BEEN SUBMITTED THAT ASSESSEE PROVIDES SOFTWARE DEVEL IN THIS REGARD ASSESSEE PROVIDERS (EG: TATA CONSULTANCY SERVICES, SERVICES, ASM T ECHNOLOGIES LTD ETC PART OF THEIR WORK. CORE CONDUCTED IN HOUSE BY ASSESSEE AND A PART OF NON SUBCONTRACTED TO THIRD - OF RO LE PLAYED BY ASSESSEE AND THE CONTRACTORS IN DEVEL OPMENT CYCLE HAS B EEN SUMMARISED AS UNDER: PROCESS IN SOFTWARE DEVELOPMENT LIFE CYCLE S OW HIGH LEVEL DESIGNING QUALITY ASSURANCE ENGINEERING TESTING BUG - FIXING QUALITY ASSURANCE EXPORT IT HAS BEEN SUBMITTED THAT ACTIVITIES LIKE DEVELOPM ENT (CODING), ENGINEERING, BUG FIXING ARE SUB CONTRACTED. IT IS A LSO BEEN SUBMITTED THAT ASSESSEE ALONG WITH SUBCONTRACTORS WORK TOGETH ER AS ONE TEAM AND RENDER SERVICES TO THE U.S. AE. PAGE 13 OF 29 IT(TP)A NO.2687 /BANG/201 A. Y: 2013 14 AT PAGE 398 IT HAS BEEN SUBMITTED THAT ASSESSEE PROVIDES SOFTWARE DEVEL OPMENT AND S UPPORT SERVICES TO APPLIED INC. IN THIS REGARD ASSESSEE EMPLOYED SERVICES OF 3 RD PARTY SERVICE TATA CONSULTANCY SERVICES, SATYAM ECHNOLOGIES LTD ETC ., ) FOR SUB CONTRACTING SPECIFIC PART OF THEIR WORK. CORE ACTIVITIES OF SOFTWARE DEVELOPMENT CYCLE ARE CONDUCTED IN HOUSE BY ASSESSEE AND A PART OF NON - CORE ACTIVITIES ARE - PARTY SERVICE PROVIDER. AT PAGE 403 LE PLAYED BY ASSESSEE AND THE CONTRACTORS IN DEVEL OPMENT CYCLE EEN SUMMARISED AS UNDER: PROCESS IN SOFTWARE DEVELOPMENT LIFE CYCLE APPLIED MATERIALS INDIA SUB- CONTRACTORS HIGH LEVEL DESIGNING IT HAS BEEN SUBMITTED THAT ACTIVITIES LIKE DEVELOPM ENT (CODING), ENGINEERING, BUG FIXING ARE SUB CONTRACTED. IT IS A LSO BEEN SUBMITTED THAT ASSESSEE ALONG WITH SUBCONTRACTORS WORK TOGETH ER AS ONE TEAM AND RENDER SERVICES TO THE U.S. AE. /BANG/201 7 14 AT PAGE 398 IT HAS BEEN SUBMITTED THAT ASSESSEE UPPORT SERVICES TO APPLIED INC. PARTY SERVICE COMPUTER ) FOR SUB CONTRACTING SPECIFIC ACTIVITIES OF SOFTWARE DEVELOPMENT CYCLE ARE CORE ACTIVITIES ARE SERVICE PROVIDER. AT PAGE 403 SUMMARY LE PLAYED BY ASSESSEE AND THE CONTRACTORS IN DEVEL OPMENT CYCLE CONTRACTORS IT HAS BEEN SUBMITTED THAT ACTIVITIES LIKE DEVELOPM ENT (CODING), ENGINEERING, BUG FIXING ARE SUB CONTRACTED. IT IS A LSO BEEN SUBMITTED THAT ASSESSEE ALONG WITH SUBCONTRACTORS WORK TOGETH ER AS ONE TEAM PAGE 14 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 B. ASSETS EMPLOYED: IT HAS BEEN SUBMITTED THAT ASSESSEE DO NOT OWN ANY ROUTINE VALUABLE INTANGIBLE ASSETS AND ANY INTANGIBLE CREAT ED DURING THE PERFORMANCE OF SUCH SOFTWARE DEVELOPMENT SERVICES W OULD BE OWNED BY THE U.S. AE. C. RISKS ASSUMED: IT HAS BEEN SUBMITTED THAT ASSESSEE BEARS LIMITED R ISK SUCH AS FOREIGN EXCHANGE RISK, TECHNOLOGY RISK AND HUMAN CA PITAL RISK. IT HAS BEEN SUBMITTED THAT ASSESSEE IS INSULATED FR OM MAJORITY OF BUSINESS RISK AND IS ENGAGED IN RENDERING SERVICES AS PER THE REQUIREMENT AND SPECIFICATIONS PROVIDED BY U.S.AE. IT HAS BEEN SUBMITTED THAT ASSESSEE INVOICES ITS AE ON A COST PLUS BASIS AND THE COST BASE IN THE PRESENT CASE INCLUDE S CHARGES PAID TO THIRD-PARTY SERVICE PROVIDERS AND THE OVERHEADS INC URRED BY THESE THIRD-PARTY SERVICE PROVIDER AS WELL AS ASSESSEE. CHARACTERISATION: ASSESSEE, BASED UPON ABOVE FAR, HAS CHARACTERIZED I TSELF AS A LIMITED RISK BEARING CAPTIVE SERVICE PROVIDER. BASED UPON THE ABOVE CHARACTERISATION, WE SHALL UND ERTAKE ALLEGED COMPARABLES FOR INCLUSION/EXCLUSION BY ASSESSEE. 12.1. GROUND NO. 5.12: THIS GROUND HAS BEEN RAISED BY ASSESSEE AGAINST EXC LUSION OF FOLLOWING COMPARABLES IN THE FINAL LIST: AKSHAY SOFTWARE TECHNOLOGIES LTD. HELIO AND MATHESON INFORMATION TECHNOLOGY LTD. PAGE 15 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 R SYSTEMS INTERNATIONAL LTD. A) AKSHAY SOFTWARE TECHNOLOGIES LTD. LD.AR SUBMITTED THAT THIS COMPARABLE WAS SELECTED B Y ASSESSEE IN THE TP STUDY AND HAS BEEN REJECTED BY LD.TPO ON FUN CTIONAL DISSIMILARITIES. IT HAS BEEN SUBMITTED THAT LD.TPO RELIED UPON RESPONSE RECEIVED FROM THIS COMPANY TO THE NOTICE U NDER SECTION 133 (6) OF THE ACT, WHEREIN, THIS COMPANY IS STATED TO BE ENGAGED IN PROVIDING PROFESSIONAL SERVICES, PROCUREMENT, INSTA LLATION, IMPLEMENTATION, SUPPORT AND MAINTENANCE OF ERP PROD UCTS AND SERVICES IN INDIA AND OVERSEAS. LD.AR SUBMITTED THAT ASSESSEE HAD THEM ON STATED BE FORE AUTHORITIES BELOW THAT THIS COMPANY WAS INVOLVED IN SOFTWARE DEVELOPMENT ACTIVITIES AND THUS WAS COMPARABLE TO A SSESSEE. HE REFERRED TO PAGE 1630-1649 WHEREIN ANNUAL REPORT OF THIS COMPANY HAS BEEN PLACED IN PAPER BOOK. HE SUBMITTED THAT RE VENUE EARNED BY THIS COMPARABLE IS SOFTWARE SERVICES FOR WHICH S EGMENTAL INFORMATION IS ARE AVAILABLE. NOTE 29 AT PAGE 1647 REVEALS THAT THIS COMPANY EARNS FOREIGN CURRENCY FROM EXPORT OF SOFTW ARE SERVICES. ON THE CONTRARY, LD.CIT.DR SUBMITTED THAT, IT IS AN ACCEPTED POSITION THAT THIS COMPANY IS PROVIDING ERP PRODUCT S AND SERVICES. FURTHER, IT IS ALSO AN ADMITTED POSITION THAT THIS COMPANY IS OPERATING IN VARIANCE SEGMENTS INCLUDING SOFTWARE P RODUCT HOWEVER THE SEGMENTAL INFORMATION AVAILABLE IS ONLY AS INCO ME FROM SOFTWARE SERVICES. LD.CIT DR REFERRED TO DECISION OF THIS TRIBUNAL IN CASE OF M/S.METRIC STREAM INFOTECH (INDIA) PRIVATE LIMITED VS DCIT IN ITA (TP) PAGE 16 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 A NO. 1418 AND 2735/B/2017 FOR ASSESSMENT YEAR 2013-14 WHEREIN THIS COMPARABLE HAS BEEN UPHELD FOR EXCLUSION. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE ALSO PERUSED DECISION RELIED UPON BY LD.CIT DR I N CASE OF M/S METRICSTREAM INFOTECH (INDIA) PVT.LTD (SUPRA), . IT IS NOTED THAT THIS TRIBUNAL EXCLUDED THIS COMPARABLE FOR THE REASON THAT NATURE OF SERVICES ARE DOUBTFUL. BEFORE US, LD.AR HAS NOT BEEN ABLE TO ESTABLISH CORRECT NATURE OF BUSINE SS CARRIED OUT BY THIS COMPANY OR PROVIDE WITH SEGMENTAL INFORMATION IS IN RESPECT OF VARIOUS SERVICES PROVIDED BY THIS COMPANY TO ITS CL IENTELE. THE BACKGROUND OF THIS COMPANY MENTIONED AT PAGE 1643 S UGGESTS THAT IT IS ENGAGED IN PROVIDING PROFESSIONAL SERVICES, P ROCUREMENT, INSTALLATION, IMPLEMENTATION, SUPPORT AND MAINTENAN CE OF ERP PRODUCTS AND SERVICES IN INDIA AND OVERSEAS. HOWEVE R IN THE PROFIT AND LOSS ACCOUNT NOTE 20 REVEALS THAT INCOME FROM S OFTWARE SERVICES FORMS THE MAJOR PART OF REVENUE GENERATION WHICH IS SUPPORTED BY NOTE 29 WHEREIN, ASSESSEE HAS EARNED IN FOREIGN CUR RENCY FROM EXPORT OF SOFTWARE SERVICES. ON COMBINED READING OF THESE IT IS CLEAR THAT ASSESSEE HAS NO DOUBT EARNINGS FROM RENDERING OF SERVICES SERVICES OUTSIDE INDIA, HOWEVER IT IS UNCERTAIN WHE THER THE ENTIRE REVENUE AMOUNTING TO RS.19,83,23,358/- IS FROM EXPO RT OF SOFTWARE SERVICES. FURTHER, IT IS NOTED THAT THIS COMPARABLE WAS EXCLUDED FOR NOT HAVING SEGMENTAL DETAILS IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 BY ORDER DATED 21/09/2016 (SUPRA). PAGE 17 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 UNDER SUCH CIRCUMSTANCES WE ARE UNABLE TO APPRECIAT E THE ARGUMENT ADVANCED BY LD.AR FOR INCLUSION OF THIS CO MPARABLE. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN CASE OF M/S METRICSTREAM INFOTECH (INDIA) PVT.LTD (SUPRA), WE UPHOLD EXCLUSION OF THIS COMPARABLE. ACCORDINGLY THIS COMPARABLE DESERVES TO BE EXCLUDED FROM FINALIST. B) HELIO AND MATHESON INFORMATION TECHNOLOGY LTD. & R SYSTEMS INTERNATIONAL LTD. THESE COMPARABLES HAVE BEEN SELECTED BY ASSESSEE BU T HAS BEEN REJECTED BY LD.TPO DUE TO DIFFERENT ACCOUNTING YEAR . BOTH ASSESSEE AS WELL AS REVENUE SEEKS INCLUSION OF THIS COMPANY IN THE FINAL LIST. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. MERELY BECAUSE COMPARABLE HAS A DIFFERENT YEAR ENDI NG, CANNOT LEAD TO THE CONCLUSION, OF IT BEING NON-COMPARABLE WITH THAT OF ASSESSEE. IN THE EVENT QUARTERLY RESULTS ARE AVAILABLE AND TH E SAME CAN BE EXTRAPOLATED, THIS COMPARABLE SHOULD BE CONSIDERED. WE THEREFORE, SET ASIDE HELIO AND MATHESON INFORMAT ION TECHNOLOGY LTD. AND R SYSTEMS INTERNATIONAL LTD., WHICH ARE ADMITTEDLY FUNCTIONALLY SIMILAR WITH ASSESSEE LD.AO/TPO IS DIR ECTED TO CONSIDER QUARTERLY REPORT AND EXTRAPOLATE THE SAME FOR PURPOSES OF COMPARING ITS MARGIN WITH ASSESSEE. ACCORDINGLY, WE SET ASIDE THESE COMPARABLES TO LD.A O/TPO. PAGE 18 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 ACCORDINGLY, THESE GROUNDS STANDS PARTLY ALLOWED. 12.2. GROUND NO. 5.14-5.15 THESE GROUNDS HAVE BEEN RAISED BY ASSESSEE AGAINST INCLUSION OF FOLLOWING COMPARABLES: CG VAK SOFTWARE EXPORTS LTD. MINDTREE LTD. PERSISTENT SYSTEMS LTD. LARSEN AND TOUBRO INFOTECH LTD. A) CG VAK SOFTWARE EXPORTS LTD. THIS COMPANY HAS BEEN INCLUDED BY LD.TPO SINCE REVE NUE FROM SOFTWARE SERVICES IS RS.8.55 CRORES AS COMPARED TO THE BPO SEGMENT BEING RS.14.43 LACS. THE LD.AR SUBMITTED THAT, ADMI TTEDLY THIS COMPANY EARNS REVENUE FROM 2 SEGMENTS BEING, SOFTWA RE DEVELOPMENT SERVICES AND BPO SERVICES. HOWEVER LD.T PO CONSIDERED ENTIRE REVENUE AT ENTITY LEVEL. IT HAS B EEN SUBMITTED THAT, THERE IS NO SEGMENTAL DETAILS AVAILABLE. LD.A R SUBMITTED THAT, IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 THIS COMPARABLE WAS EXCLUDED FOR BEING FUNCTIONALLY DIFF ERENT BY LD.TPO HIMSELF. ON THE CONTRARY, LD.CIT DR SUBMITTED THAT THIS COMP ARABLE HAS GOT SEGMENTAL DETAILS IN RESPECT OF SOFTWARE DEVELOPMEN T SERVICES AS WELL AS BPO SERVICES WHICH IS APPARENT FROM THE ANN UAL REPORTS PLACED AT PAGE 1173-1222 OF PAPER BOOK. REFERRING T O PAGE 1202, LD.CIT DR SUBMITTED THAT LD.TPO HAS CONSIDERED SOFT WARE SERVICE PAGE 19 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 SEGMENT FOR COMPARING WITH ASSESSEE IN THE PRESENT FACTS OF THE CASE. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED FROM THE ANNUAL REPORT AT PAGE 1198 REVELS THAT THIS COMPANY RECOGNISES INCOME FROM SOFTWARE DEVELOPMENT SERVICES, PRODUCTS. FURTHER WE NOTE THAT TOTAL REVENUE FROM O PERATIONS AT PAGE 1196 IS RS.8,69,20,713/- , WHEREAS PAGE 1209 S HOWS REVENUE FROM OPERATIONS TO BE RS.23,05,27,224/-. AT BOTH TH ESE PAGES FOR BREAK UP OF REVENUE FROM OPERATIONS REFERENCE IS TO SCHEDULED 3.01 SCHEDULE 3.01 AT PAGE 1202 THAT REVELS BREAK UP OF REVENUE FROM OPERATIONS BEING SOFTWARE SERVICES AMOUNTING TO RS. 8,54,77,282/- AND REVENUE FROM BUSINESS PROCESS OUTSOURCING SERVI CES AMOUNTING TO RS.14,43,431/-, TOTALLING TO RS.8,69,20,713/-. A LSO FROM THE NOTES TO THE ACCOUNTS FORMING PART OF THE ANNUAL RE PORT WE DO NOT FIND ANY DETAILS REGARDING STOCK. IT IS THEREFORE U NABLE TO ASCERTAINED IS ANY REVENUE HAS BEEN EARNED BY THIS COMPANY FROM SALE OF PRODUCTS. THIS IS SUPPORTED BY SCHEDULED 2. 06 BEING THE SCHEDULE FOR FIXED ASSETS AT PAGE 1200. WE FIND THERE IS SOME DISCREPANCY IN THE REPORTING OF REVENUE FROM OPERATIONS IN THE ANNUAL REPORT RAISED IN PAPER BOO K AS MENTIONED HEREINABOVE. ADMITTEDLY, BOTH SIDES DO NOT DISPUTE THE FUNCTIONAL SIMILARITY. IN THE SYNOPSIS SUBMITTED BY LD.AR, IT IS BEEN MENTIONED THAT, DIRECTORS REPORT AT PAGE 9 OF ANNUAL REPORT D ISCLOSES THE COMPANY IS INTO OUTSOURCED PRODUCT DEVELOPMENT. WE HAVE PERUSED PAGE 20 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 THE RELEVANT PAGE IN THE ANNUAL REPORT PLACED BEFOR E US AND WE DO NOT FIND ANY SUCH STATEMENT BEING MADE BY DIRECTORS . UNDER SUCH CIRCUMSTANCES WE FIND IT FIT AND PROPER TO SET ASIDE THIS COMPARABLE BACK TO LD.AO/TPO. LD.AO/TPO SHALL VERIF Y DETAILS/DISCREPANCIES MENTIONED HEREINABOVE. ASSESS EE IS GRANTED FULL LIBERTY TO FILE REQUISITE DETAILS IN SUPPORT O F ITS CONTENTION WHICH SHALL BE VERIFIED BY LD.AO/TPO BEFORE CONSIDERING I T IN THE FINALIST. ACCORDINGLY THIS COMPARABLE IS SET ASIDE TO LD.AO/T PO. B) MINDTREE LTD. THIS COMPARABLE HAS BEEN INCLUDED BY LD.TPO THE FIN AL LIST. LD.AR SUBMITTED THAT IT IS FUNCTIONALLY NOT SIMILAR WITH THAT OF ASSESSEE. IT IS SUBMITTED THAT ASSESSEE ENGAGED IN PROVIDING SER VICES SUCH AS AGILE, ANALYTICS AND INFORMATION MANAGEMENT, APPLIC ATION DEVELOPMENT AND MAINTENANCE, BUSINESS PROCESS MANAG EMENT, BUSINESS TECHNOLOGY CONSULTING, CLOUD, DIGITAL BUSI NESS, INDEPENDENT TESTING, INFRASTRUCTURE MANAGEMENT SERV ICES, MOBILITY, PRODUCT ENGINEERING AND SAP SERVICES. IT IS FURTHE R BEEN SUBMITTED THAT THIS COMPANY DOES NOT HAVE SEGMENTAL INFORMATI ON ON THE BASIS OF WHICH REVENUE EARNED FROM DIFFERENT VERTIC ALS COULD BE IDENTIFIED. THIS COMPANY ALSO OWNS HUGE INTANGIBLES AND THEREFORE DESERVES TO BE EXCLUDED. LD.AR REFERRED TO PAGE 125 9, 268, 1273, 1291, 1297, 1299, 1334, 1335, 1337,AND 1347 IN SUP PORT. ON THE CONTRARY LD. CIT DR PLACED RELIANCE UPON ORD ERS PASSED BY AUTHORITIES BELOW. PAGE 21 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 WE HAVE EXAMINED THE ANNUAL REPORTS OF THIS COMPANY AND IT IS OBSERVED THAT THIS COMPANY CARRIES OUT RESEARCH AND DEVELOPMENT ACTIVITIES AND HAS CREATED LARGE INTANGIBLES. UNDER SUCH CIRCUMSTANCES WE DO NOT FIND THIS COMPANY TO BE COM PARABLE WITH THAT OF A CAPTIVE SERVICE PROVIDER LIKE ASSESSEE. WE THEREFORE DIRECT THE LD. AO/TPO TO EXCLUDE THIS COMPARABLE FROM THE FINAL LIST. C) PERSISTENT SYSTEMS LTD IT HAS BEEN SUBMITTED THAT THIS COMPARABLE HAS BEEN INCLUDED BY LD.TPO EVEN THOUGH IT WAS OBJECTED BY ASSESSEE FOR FUNCTIONAL DISSIMILARITIES. LD.AR SUBMITTED THAT THIS COMPANY IS ENGAGED IN BOTH PRODUCT AND DEVELOPMENT OF SOFTWARE DEVELOPMEN T SERVICES AND THEREFORE CANNOT BE COMPARED TO A CONTRACT SOFT WARE DEVELOPMENT SERVICE PROVIDER LIKE ASSESSEE. IT IS A LSO BEEN SUBMITTED THAT THERE ARE SIGNIFICANT RESEARCH AND D EVELOPMENT EXPENDITURE THAT RESULTED IN GLOBAL PATENTS AND COM PANY OWNS SIGNIFICANT INTANGIBLES WHICH HAS EITHER BEEN DEVEL OPED OR HAVE BEEN ACQUIRED FROM 3 RD PARTIES AS A PART OF GROWTH STRATEGY. LD.AR SUBMITTED THAT ON THESE PARA METERS THIS COMPARABLE CANNOT BE COMPARED TO A LIMITED SERVICE PROVIDER LIKE THAT OF ASSESSEE. FURTHER IT HAS BEEN SUBMITTED THAT THIS COMPARABLE STOOD EX CLUDED BY DECISIONS OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 AND 2012-13(SUPRA). ON THE CONTRARY, LD.CIT.DR SUBMITTED THAT, IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD VS DCIT PAGE 22 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 REPORTED IN (2019) 101 TAXMAN.COM 294 , THIS TRIBUNAL SET ASIDE THIS COMPARABLE TO THE FILE OF LD.TPO FOR FRESH DECISION . SHE SUBMITTED THAT IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT.LTD.,(SUPRA) THIS TRIBUNAL RELYING UPON THE CASE OF ADVICE AMERICA SOFTWARE DEVELOPMENT CENTRE (P) LTD REPORTED IN (2018) 94 TAXMANN.COM 179 AND OBSERVATIONS MADE THEREIN. SHE THUS SUBMITTED THAT THIS COMPARABLE SHOULD BE SENT BACK TO LD.TPO FOR VERIFICATION. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE HAVE ALSO PERUSED DECI SIONS RELIED UPON BY LD. CIT.DR IN ORDER TO UNDERSTAND THE REASO NING BEEN THIS TRIBUNAL FOR SETTING ASIDE THIS COMPARABLE TO LD.TPO. ADMITTEDLY, THIS COMPARABLE PROVIDES SERVICES ACROS S THE ENTIRE LIFE- CYCLE OF SOFTWARE DEVELOPMENT WHICH ENABLES THEM TO WORK FOR A WIDE RANGE OF CUSTOMERS. FROM THE ANNUAL REPORT OF THIS COMPANY IS ALSO OBSERVED THAT THIS COMPANY EARNS INCOME FROM R OYALTY FEE AND IS ENGAGED IN DEVELOPMENT OF PRODUCTS WHICH IS NOT AT ALL COMPARABLE WITH THE SERVICES PROVIDED BY ASSESSEE T O ITS ASSOCIATED ENTERPRISE. RESPECTFULLY FOLLOWING THE CONSISTANT V IEW IN DECISIONS OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 AND 2012-13(SUPRA) AND THE DISCUSSIONS HEREIN ABOVE FOR REVELANT YEAR, WE HOLD THIS COMPANY TO BE NOT A GOOD COMPARA BLE IN ASSESSEES CASE. ACCORDINGLY WE DIRECT THIS COMPARABLE TO BE EXCLUDE D FROM FINALIST. PAGE 23 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 D) LARSEN AND TOUBRO INFOTECH LTD: LD.AR SUBMITTED THAT THIS COMPARABLE WAS INCLUDED B Y LD.TPO IN FINALIST, AND OBJECTED BY ASSESSEE FOR VARIOUS REAS ONS. LD.AR SUBMITTED THAT THIS COMPANY EARNS REVENUE FROM SOFT WARE SOLUTIONS AND PRODUCTS WITHOUT THERE BEING SEGMENTAL DETAILS AVAILABLE. IT HAS BEEN SUBMITTED THAT LD.TPO HAS ACCEPTED THAT THIS C OMPANY DEALS AND PRODUCTS BUT STILL HAS INCLUDED IN THE LIST OF COMPARABLES TO BE COMPARED WITH A CONTRACT SOFTWARE SERVICE PROVIDER LIKE ASSESSEE. THIS COMPARABLE ALSO OWNS HUGE INTANGIBLES AND INCU RS EXPENDITURE TO MAINTAIN THE BRAND NAME WHICH HAS EARNED 8 SUPER NORMAL PROFITS DURING THE YEAR. FURTHER IT HAS BEEN SUBMIT TED THAT THIS COMPARABLE STOOD EXCLUDED BY DECISIONS OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 AND 2012- 13(SUPRA). ON THE CONTRARY, LD.CIT.DR SUBMITTED THAT IN CASE O F CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD VS DCIT REPORTED IN (2019) 101 TAXMAN.COM 294 , THIS TRIBUNAL HAS SET ASIDE THIS COMPARABLE TO THE FILE OF LD.TPO FOR FRESH DEC ISION. SHE SUBMITTED THAT IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT LTD (SUPRA) THIS TRIBUNAL RELYING UPON THE CASE OF ADVICE AMERICA SOFTWARE DEVELOPMENT CENTRE (P) LTD REPORTED IN (2018) 94 TAXMANN.COM 179 AND OBSERVATIONS MADE THEREIN. SHE THUS SUBMITTED THAT THIS COMPARABLE SHOULD BE SENT BACK TO LD.TPO FOR VERIFICATION. PAGE 24 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE HAVE ALSO PERUSED DECI SIONS RELIED UPON BY LD. CIT DR IN ORDER TO UNDERSTAND THE REASO NING BEEN THIS TRIBUNAL FOR SETTING ASIDE THIS COMPARABLE TO LD.TPO. THERE IS NO DOUBT THAT THIS COMPARABLE EASE A SOFTW ARE DEVELOPMENT SERVICE PROVIDER. HOWEVER, THIS COMPARABLE OWNS INT ANGIBLES UNLIKE ASSESSEE WHO IS A CONTRACT SERVICE PROVIDER THAT FU NCTIONS IN ACCORDANCE WITH AND GUIDELINES GIVEN BY ITS ASSOCIA TED ENTERPRISES. EVEN THOUGH ASSESSEE IS ALSO INVOLVED IN SOFTWARE D EVELOPMENT LIFE CYCLE, THE CONTRIBUTION THAT IT MAKES IN THE DEVELO PMENT IS VERY LIMITED TO THE EXTENT OF CERTAIN RESEARCH ACTIVITIE S AND SUPPORT SERVICES THAT IT DOES AT THE BEHEST OF ITS ASSOCIAT ED ENTERPRISES. IN OUR VIEW THIS COMPARABLE UNDERTAKES COMPLETE RESPON SIBILITY OF THE ENTIRE LIFE-CYCLE INVOLVED IN A SOFTWARE DEVELOPMEN T WHEREAS ASSESSEE PARTICIPATES ONLY TO A LIMITED EXTENT ON B EHALF OF ITS ASSOCIATED ENTERPRISES AT THEIR BEHEST. WHATEVER FU NCTIONS ARE PERFORMED BY ASSESSEE IN PROVIDING IT SERVICES UNDE R THIS SEGMENT IS VERY LIMITED AS COMPARED TO THIS COMPARABLE. IN OUR CONSIDERED OPINION THE LTD FUNCTIONS PERFORM ED BY ASSESSEE CANNOT BE COMPARED TO A FULL-FLEDGED SOFTWARE DEVEL OPMENT SERVICE PROVIDER LIKE THIS COMPANY. RESPECTFULLY FOLLOWING THE CONSISTANT VIEW IN DECISIONS OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 AND 2012-13(SUPRA) AND THE DISCUSSIONS HEREIN ABOVE FOR REVELANT YEAR, WE HOLD THIS COMPAN Y TO BE NOT A GOOD COMPARABLE IN ASSESSEES CASE. PAGE 25 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 ON THE BASIS OF ABOVE, WE DIRECT THE LD.AO/TPO TO E XCLUDE THIS COMPANY FROM FINAL LIST. ACCORDINGLY, THIS GROUND STANDS PARTLY ALLOWED. 13. GROUND NO.8: THIS GROUND HAS BEEN RAISED BY ASSESSEE AGAINST DIS ALLOWANCE OF DEPRECIATION CLAIMED AT THE RATE OF 60% ON RACKS, X EROX MACHINE AND ACCESSORIES, BATTERIES AND STABILISER. LD. AO D ISALLOWED THE CLAIM AND GRANTED 15% DEPRECIATION FOR THE REASON T HAT THEY ARE NOT INTEGRAL PART OF COMPUTERS WHICH HAS BEEN UPHELD BY DRP. 13.1. LD.AR SUBMITTED THAT THESE MACHINES ARE REQUIRED FO R KEEPING COMPUTER PERIPHERALS AND INTEGRAL PARTS OF THE COMPUTER AND OUGHT TO BE GRANTED DEPRECIATION AT THE RATE OF 60%. 13.2. ON THE CONTRARY LEARN CIT DR SUBMITTED THAT THE MAC HINERY IS LISTED ARE NOT REQUIRED TO RUN THE COMPUTER AND CAN FUNCTION INDEPENDENTLY WITHOUT BEING ATTACHED TO A COMPUTER. HE THUS SUBMITTED THAT THESE MACHINES DO NOT THEREFORE FALL INTO THE CATEGORY OF PERIPHERALS ATTACHED TO THE COMPUTER. H E THUS SUPPORTED THE ORDERS PASSED BY AUTHORITIES BELOW. 13.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. UNDOUBTEDLY MACHINES LIKE RACKS, BATTERIES STABILIS ERS CAN FUNCTION WITHOUT A COMPUTER AND IS ATTACHABLE TO ANY OTHER E LECTRICAL APPLIANCES. THEREFORE THESE MACHINES DO NOT FORM PA RT OF COMPUTER PERIPHERALS. INSOFAR AS THE XEROX MACHINE IS CONCER NED, IT IS AN ASCERTAINED ABLE AT THIS STAGE WHETHER THESE MACHIN ES COULD BE PAGE 26 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 EXCLUSIVELY AND INDEPENDENTLY USED WITHOUT BEING AT TACHED TO A COMPUTER AS SUCH KINDS OF XEROX MACHINES DO EXIST. ASSESSEE HAS ALSO NOT BEEN ABLE TO ESTABLISH DETAILS OF ACCESSOR IES THAT HAS BEEN CATEGORISED TO BE FORMING PART OF COMPUTER PERIPHER ALS. 13.4. ACCORDINGLY WE SET ASIDE THIS ISSUE BACK TO LD.AO/T PO FOR VERIFYING THE ACTUAL USE AND NATURE OF XEROX MACHIN ES AND THE ACCESSORIES THAT HAS BEEN CONSIDERED AS COMPUTER PE RIPHERALS. IN THE EVENT IT IS ASCERTAINED ABLE THAT THESE ACCESSO RIES AND XEROX MACHINES COULD NOT BE INDEPENDENTLY USED BUT COULD ONLY BE USED ON BEING ATTACHED TO COMPUTER 60% DEPRECIATION SHOU LD BE ALLOWED. INSOFAR AS RACKS, BATTERIES AND STABILISERS ARE CON CERNED THESE DO NOT FALL WITHIN THE CATEGORY OF COMPUTER PERIPHERAL S AND WE UPHOLD THE DEPRECIATION BEING ALLOWED ONLY AT 15%. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS P ARTLY ALLOWED. 14. GROUND NO. 9 THIS GROUND IS BEEN RAISED BY ASSESSEE FOR NOT GRAN TING MAT CREDIT. IT HAS BEEN SUBMITTED THAT FOR YEAR UNDER CONSIDERA TION, ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME O F RS.37,11,50,990/- UNDER NORMAL PROVISIONS OF THE AC T. ASSESSEE HAD CLAIMED MAT OF RS.6,03,57,367/-BEING CREDIT BOU GHT FORWARD AS ON 01/04/2013. IT HAS BEEN SUBMITTED THAT LD.AO FAI LED TO GRANT THE CREDIT THAT WAS AVAILABLE TO ASSESSEE. ON RAISI NG OBJECTIONS BEFORE DRP, DRP DIRECTED LD.AO TO VERIFY THE CLAIM AND ALLOW THE PAGE 27 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 SAME IF FOUND ELIGIBLE. IT HAS BEEN SUBMITTED THAT WHILE PASSING FINAL ASSESSMENT ORDER LD.AO FAILED TO GRANT THE CR EDIT. 14.1. LD.CIT.DR SUBMITTED THAT IT MAY BE SENT BACK TO LD. AO FOR DUE VERIFICATION AND FOR CONSIDERING THE CLAIM IN A CCORDANCE WITH LAW. 14.2. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 14.3. IT IS OBSERVED THAT LD.AO HAS NOT VERIFIED THE CLAI M AND HAS DENIED IT TO ASSESSEE. WE DIRECT LD.AO TO VERIFY TH E CLAIM OF ASSESSEE AND IF FOUND ELIGIBLE THE SAME SHOULD BE GRANTED TO ASSESSEE IN ACCORDANCE WITH LAW. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. IN THE RESULT, APPEAL FILED BY ASSESSEE STANDS PART LY ALLOWED AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MAY, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 13 TH MAY, 2020. /VMS/* PAGE 28 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL. BANGALORE. PAGE 29 OF 29 IT(TP)A NO.2687/BANG/2017 A. Y: 2013 14 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR - 0 5 - 2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER - 0 5 - 2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. - 0 5 - 2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 20 - 0 5 - 2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON - 0 5 - 2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE - 05 - 2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK - 05 - 2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS