Computer Sciences Corporation Business Process Services India Ltd., Baroda V. The ACIT.,Com.Circle-1(2), Baroda

ITA 274/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9595 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 14-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAVAN
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Transfer pricing; International transaction; Question of law
• Section: 143(3); 92F; 10B

Judgement Text

I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 1 OF 21 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND KUL BHARAT JM ] I.T.A. NO. : 274/AHD/13 ASSESSMENT YEAR : 2008 - 09 FORTUNE INFOTECH LIMITED .. .APPELLANT (NOW KNOWN AS COMPUTER SCIENCE CORPORATIO N BUSINESS SERVICES PVT LTD) PLOT NO. 160/4, OLD CHANNI ROAD VADODARA 390 024 [PAN : AAACC7460R ] VS. A SSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1 (2), VADODARA .. . RESPONDENT APPEARANCES BY: S N SOPARKAR , FOR THE APPELLANT B Y CHAVAN AND S ANJAY AGARWAL , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : NOVEMBER 04 , 201 5 DATE OF PRONOUNCING THE ORDER : FEBRUARY 03 , 201 6 O R D E R PER PRAMOD KUMAR AM : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALL ENGED COR RECTNESS OF THE ORDER DATED 25 TH OCTOBER 2012 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) R.W.S. 144C (1) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2008 - 09. 2. GRIEVANCE OF THE ASSESSEE , IN SHORT, IS THAT THE ASSESSING OFFICER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE, ERRED IN MAKING AN ARMS LENGTH PRICE ADJUSTMENT OF RS 1,74,20,294 TO THE VALUE OF INTERNATIONAL TRANSACTIONS THAT THE ASSESSEE HAD ENTERED INTO WITH ITS ASSOCIATED ENTERPRISES. I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 2 OF 21 3. THE ARGUMENTS ARE IN SUPPOR T OF THIS GRIEVANCE, HOWEVER, ARE MULTI - FOLD. 4. ON LEGAL PRINCIPLES, THE FUNDAMENTAL PROPOSITIONS THAT THE LEARNED COUNSEL CANVASSES ARE THAT (A) I NTERNAL TNM HAS BEEN INCORRECTLY REJECTED BY THE TPO, AND (B) THAT, IN ANY EVENT, THE TOTAL ADJUSTMENT MAD E TO THE TRANSFER PRICE OF THE APPELLANT SHOULD BE RESTRICTED TO THE OVERALL INCOME EARNED BY THE AE FROM THIRD PARTIES. 5. ON FACTUAL ASPECTS, THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE SHOULD BE GRANTED AN ADJUSTMENT, AS CLAIMED, IN RESPECT O F THE HIGHER EMPLOYEE COSTS AS THE CAPACITY OF THE ASSESSEE IS UNDERUTILIZED WHICH IS REFLECTED IN THE EMPLOYEE COST AS PERCENTAGE OF REVENUES BEING SUBSTANTIALLY HIGHER COMPARED TO THE EMPLOYEE COSTS OF COMPARABLE COMPANIES. FINALLY, SO FAR AS COMPARABLES SELECTED BY THE TPO ARE CONCERNED, THE GRIEVANCE OF THE ASSESSEE IS THAT (A) CROSSDOMAIN SOLUTIONS LTD (B) MAPLE ESOLUTIONS (C) VISHAL INFORMATION TECH LTD HAVE BEEN WRONGLY SELECTED AS COMPARABLES INASMUCH AS THESE COMPARABLES ARE FUNCTIONALLY NOT COMPA RABLE TO THE ASSESSEE . 6. WE WILL TAKE UP THE PRELIMINARY LEGAL ISSUES FIRST. 7. IN ORDER TO ADJUDICATE ON THESE ISSUES, IT IS ESSENTIAL TO TAKE A LOOK AT THE RELEVANT MATERIAL FACTS, AND DEVELOPMENTS LEADING TO THIS APPEAL BEFORE US . THE ASSESSEE IS ENG AGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY ENABLED SERVICES IN THE AREAS OF INSURANCE CLAIM PROCESSING, MORTGAGE LOAN PROCESSING AND DOCUMENT PROCESSING SERVICES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO TRANSACTIONS IN R ESPECT OF INFORMATION TECHNOLOGY ENABLED SERVICES, AMOUNTING TO RS 10,39,29,814, WITH ITS ASSOCIATED ENTERPRISES - NAMELY FORTUNE INFOTECH (USA) INC ( FORTUNE US , IN SHORT) . THE ASSESSEE ALSO ENTERED INTO INTERNATIONAL TRANSACTIONS, AGGREGATING TO RS 13,90,58 ,591, WITH FIDELITY INFORMATION SERVICES INC, USA ( FIDELITY US , IN SHORT) - A COMPANY WHICH WAS, SO FAR AS MATERIAL POINT OF TIME IS CONCERNED, NOT AN ASSOCIATED ENTERPRISES . THE ASSE SSEE S CONTENTION WAS THAT SINCE THE MARGINS EARNED BY THE ASSESSEE ON ITS I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 3 OF 21 TRANSACTIONS WITH NON - AE ARE LOWER THAN THE MARGINS EARNED BY THE ASSESSEE ON ITS TRANSACTIONS WITH THE AE, THE TRANSACTIONS WITH THE AE SHOULD BE TREATED AT AN ARMS LENGTH PRICE. THE PLI OF THE AE COMPARABLE (NON - AE SEGMENT) WAS ARRIVED AT ( - ) 3.82% ON C OST, WHEREAS PLI OF NON - AE SEGMENT WAS ARRIVED AT ( - ) 21.75% . THE TPO WAS OF THE VIEW THAT AS FAR AS BENCHMARKING ON INTERNAL TNMM IS CONCERNED, IT IS SEEN THAT THE COMPANY IS UNDERTAKING DIFFERENT FUNCTIONS AND ASSUMING ENTIRELY DIFFERENT RISKS IN RESPE CT OF THE AE AND NON - AE TRANSACTIONS, WHICH IS ENUMERATED IN THE TP REPORT ITSELF, (AND) CONSIDERING THESE DIFFERENCES IN FUNCTIONS AND RISKS, THE BENCHMARKING DONE THROUGH INTERNAL TNMM CANNOT BE ACCEPTED . A DETAILED ANALYSIS OF THESE DIFFERENCES WAS THE N SET OUT BY THE TPO, THOUGH, FOR THE REASONS WE WILL SET OUT IN A SHORT WHILE, IT IS NOT REALLY NECESSARY TO GO INTO THOSE FACTUAL ASPECTS. SUFFICE TO SAY THAT DIFFERENCES WERE POINTED OUT WHICH WERE CHALLENGED, ON MERITS, DURIN G THE PROCEEDINGS BEFORE TH E DISPUTE RESOLUTION PANEL (DRP) AS WELL . THE DRP DID NOTE THAT THE ASSESSEE HAS MADE DETAILED SUBMISSIONS EXPLAINING THAT THAT THE TWO SEGMENTS OF THE BUSINESS ARE ESSENTIALLY SIMILAR TO EACH OTHER AND, HENCE, THE INTERNAL TNMM SHOULD BE ACCEPTED BUT THE DRP DECLINED TO BE PERSUADED BY THESE ARGUMENTS. IT WAS NOTED BY THE DRP THAT THE TRANSACTION WAS CARRIED FROM EARLIER YEARS WHEN FIDELITY (I.E. NON - AE) WAS AN AE OF THE ASSESSEE , AND THAT THE NON - AE APPEARS TO HAVE BEEN AN AE TILL RECENTLY, AND, THEREF ORE THE CONTINUING TRANSACTIONS WITH THE SAME ENTITY MAY NOT ACTUALLY BE CONSIDERED AS AT ARMS LENGTH . T HE ASSESSEE S OBJECTION BEFORE THE DRP WAS THUS REJECTED. 8 . DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO, IT WAS CONTENDED BY THE ASSESSEE THAT SI NCE THE ASSESSEE GROUP, AS A WHOLE, WAS INCURRING THE LOSS, NO ARMS LENGTH PRICE ADJUSTMENT WAS REQUIRED AT ALL. IT WAS POINTED OUT THAT REVENUE EARNED FROM THE THIRD PARTY WAS MUCH LESS THAN OVERALL OPERATING COSTS INCURRED BY THE ASSESSEE AND ITS AES ABRO AD. THE TPO WAS OF THE VIEW THAT THIS ARGUMENT PROCEEDS ON THE FALLACIOUS ASSUMPTION THAT THE AE CANNOT INCUR LOSSES ON STANDALONE BASIS, AND WHEN HE DOES INCUR SUCH LOSSES, THE ASSESSEE MUST SHARE THE SAME. HE ALSO REFERRED TO THE TRIBUNAL DECISION IN TH E CASE OF GHARDA I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 4 OF 21 CHEMICALS VS DCIT [(2010) 35 SOT 406 (MUM)] , AND REJECTED THIS LINE OF REASONING. WHEN THIS ACTION OF THE ASSESSEE WAS CHALLENGED BEFORE THE DISPUTE RESOLUTION PANEL, THE DRP ALSO CONFIRMED THIS ACTION IN PRINCIPLE. HOWEVER, AS REGARDS THE PLEA OF THE ASSESSEE THAT F URTHER, THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACTS BY NOT CONSIDERING THE FACT THAT ADJUSTMENTS, IF ANY, SHOULD BE RESTRICTED TO THE PRICE RECEIVED BY FORTUNE USA FROM ITS ULTIMATE CUSTOMERS , THE DRP DID DIRECT THE TPO TO RESTRICT THE QUANTUM OF ADJUSTMENT TO THE AMOUNT ACTUALLY RECEIVED BY THE AE FROM THE THIRD PARTIES . ACCORDINGLY, EVEN THOUGH THE ALP DETERMINED BY THE TPO WAS RS 13,46,20,929 AS AGAINST THE TRANSACTION VALUE OF RS 10,39,29,814, THE ASS ESSING OFFICER RESTRICTED THE ALP TO RS 12,13,50,108, I.E. THE ULTIMATE SALE REVENUE RECEIVED BY THE AE FROM THE END CUSTOMER, AND MADE THE ALP ADJUSTMENT OF RS 1,74,20,294 (I.E. RS 12,13,50,108 MINUS RS 10,39,29,814). THE ASSESSEE IS NOT SATISFIED BY THIS ACTION OF THE ASSESSING OFFICER, AS HE CONTENDS THAT A NY ADJUSTMENT BEYOND THE ACTUAL INCOME EARNED BY THE AE WOULD RESULT IN ATTRIBUTING TO THE A PPELLANT HIGHER THAN THE GLOBAL PROFIT EARNED BY THE GROUP AS A WHOLE WHICH IS AGAINST THE BASIC F UNDAMENTAL OF TRANSFER PRICING. ON THIS ISSUE ALSO THUS, NOT SATISFIED BY THE ORDERS OF THE AUTHORITIES BELOW, THE ASSESSEE IS IN APPEAL BEFORE US. 9 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIG HT OF THE APPLICABLE LEGAL POSITION. 10 . WE HAVE NOTED THAT D URING THE COURSE OF THE HEARING BEFORE US, LEARNED COUNSEL VEHEMENTLY CONTENDED THAT, ON THE FACTS OF THIS CASE, THE INTERNAL TRANSACTIONAL NET MARGIN METHOD WAS WRONGLY REJECTED BY THE AUTHORIT IES BELOW. HIS CONTENTION WAS THAT UNDOUBTEDLY FIDELITY US WAS AN ASSOCIATED ENTERPRISE IN AN EARLIER ACCOUNTING PERIOD BUT THAT ASPECT OF THE MATTER WAS WHOLLY IRRELEVANT SINCE THE PRICES FOR WORK DONE FOR FIDELITY US WERE NEGOTIATED AFRESH AFTER THIS CON CERN CEASED TO AN AE. LEARNED COUNSEL TOOK PAINS TO TAKE US THROUGH THE DOCUMENTS IN SUPPORT OF THE FACTS EMBEDDED IN HIS ARGUMENTS, BUT, FOR THE REASONS WE WILL SET OUT IN A SHORT WHILE AND IN OUR CONSIDERED VIEW, IT IS NOT I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 5 OF 21 REALLY NECESSARY TO GO INTO THA T ASPECT OF THE MATTER. WHEN WE PUT IT TO THE LEARNED COUNSEL THAT WHEN ONLY ONE COMPARABLE IS AVAILABLE SO FAR AS INTERNAL TNMM IS CONCERNED, AND THE RELIABILITY OF THIS COMPARABLE IS ALSO NOT FREE FROM DOUBT, WOULD IT REALLY BE APPROPRIATE TO SELECT THI S METHOD AS MOST APPROPRIATE METHOD FOR DETERMINING ARMS LENGTH PRICE ON THE FACTS OF THIS CASE, HE QUICKLY RESPONDED THAT THERE IS NO STATUTORY BAR ON APPLICATION OF A PARTICULAR METHOD ONLY BECAUSE ONE COMPARABLE IS AVAILABLE FOR BENCHMARKING. HE REFE RRED TO JUDICIAL PRECEDENTS IN SUPPORT OF THE PROPOSITION SO ADVANCED BY HIM. THAT IS NOT, HOWEVER, THE ISSUE; IT IS NOT A QUESTION OF STATUTORY BAR. THE QUESTION IS AS TO WHAT IS THE MOST APPROPRIATE METHOD ON THE FACTS OF THAT CASE, AND THIS QUESTION CAN NOT BE DECIDED IN VACUUM OR IN AN ABSTRACT OR THEORETICAL TERMS . IT HAS BE CONSIDERED IN THE LIGHT OF THE FACTS OF THAT CASE, IN THE LIGHT OF AVAILABILITY OF NECESSARY INPUTS FOR VARIOUS ALTERNATIVE OPTIONS AND IN THE LIGHT OF OTHER RELEVANT FACTORS . IF I N ONE CASE THE TRIBUNAL HAS HELD THAT EVEN ONE COMPARABLE IS GOOD ENOUGH FOR DETERMINING THE ARMS LENGTH PRICE ON THE BASIS OF ONE OF THE PRESCRIBED METHODS, AND THAT METHOD IS MOST APPROPRIATE METHOD IN A GIVEN SITUATION, IT CANNOT BE INFERRED THAT IRRES PECTIVE OF THE METHOD EMPLOYED AND DE - HORS THE PECULIARITIES OF A FACT SITUATION, A SINGLE COMPARABLE IS GOOD ENOUGH FOR ALL THE METHODS OF DETERMINING ARMS PRICE, SO AS TO BE TREATED AS MOST APPROPRIATE METHOD FOR THAT PURPOSE. IN AN INDIRECT METHOD LIKE TNMM, A REASONABLE NUMBER OF COMPARABLES IS AN IMPORTANT FACTOR TO ENSURE THAT THE RESULTS ARE TRULY REPRESENTATIVE OF THE SEGMENT TO WHICH THE TESTED PARTY BELONGS. THE SITUATION WITH REGARD TO DIRECT METHODS LIKE CUP, AS LONG AS TRANSACTIONS ARE ESTABLI SHED TO BE BONAFIDE, COULD BE SLIGHTLY DIFFERENT. THERE ARE NO YARDSTICKS OF UNIVERSAL APPLICATION. HOWEVER, T HE MANDATE OF SECTION 92C(1), READ WITH RULE 10C, IS UNAMBIGUOUS. A METHOD SELECTED FOR BENCHMARKING MUST BE A PERMISSIBLE METHOD TO BE INCLUDED IN THE CONSIDERATION ZONE, BUT EVEN ITS PRESENCE IN THE CONSIDERATION ZONE IS NOT GOOD ENOUGH TO JUSTIFY ITS APPLICATION FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS ON THE FACTS OF A PARTICULAR CASE BECAUSE SUCH A METHOD HAS TO BE NOT ONLY A PERMISSIB LE METHOD BUT ALSO MOST APPROPRIATE METHOD HAVING REGARD TO ALL THE MATERIAL FACTORS, INCLUDING AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPLICATION OF SUCH A I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 6 OF 21 METHOD. THE METHOD SELECTED FOR BENCHMARKING MUST NOT ONLY BE A PERMISSIBLE METHOD BUT IT ALSO BE THE MOST APPROPRIATE METHOD ON THE FACTS AND CIRCUMSTANCES OF THAT CASE AND VIS - - VIS THE OTHER METHODS WHICH CAN BE APPLIED ON THE FACTS OF THAT CASE . THE SELECTION OF MOST APPROPRIATE METHOD IS NOT SIMPLY DECIDING A QUESTION AS TO WHAT IS PERMISSIBLE AND WHAT IS NOT PERMISSIBLE , BECAUSE, AS IS ELEMENTARY, EVERYTHING PERMISSIBLE IN LAW, AS INDEED IN ALL WALKS OF LIFE, IS NOT NECESSARILY THE MOST APPROPRIATE THING AS WELL. IT IS IMPORTANT TO BEAR IN MIND THE FACT THAT UNDER SECTION 9 2C(1), THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ONE OF THE . ..(PRESCRIBED)... METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSO CIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE . RULE 10C, WHICH PRESCRIBES THE RELEVANT FACTORS FOR DETERMINING THE MOST APPROPRIATE METHOD, AS IT STOOD AT THE RELEVANT POINT OF TIME, STATES AS FOLLOWS: RULE 10 C - MOST APPROPRIATE METHOD. (1) FOR THE PURPOSES OF SUB - SECTION (1) OF SECTION 92C, THE MOST APPROPRIATE METHOD SHALL BE THE METHOD WHICH IS BEST SUITED TO THE FACTS AND CIRCUMSTANCES OF EACH PARTICULAR INTERNATIONAL TRANSACTION AND WHICH PROVIDES THE MOST RELIABLE MEASURE OF AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION (2) IN SELECTING THE MOST APPROPRIATE METHOD AS SPECIFIED IN SUB - RULE (1), THE FOLLOWING FACTORS SHALL BE TAKEN INTO ACCOUNT, NAMELY: ( A ) THE NATURE AND CLASS OF THE INTERNATIONAL TRANSACTION ; ( B ) THE CLASS OR CLASSES OF ASSOCIATED ENTERPRISES ENTERING INTO THE TRANSACTION AND THE FUNCTIONS PERFORMED BY THEM TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND RISKS ASSUMED BY SUCH ENTERPRISES; ( C ) THE AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPLICATION OF THE METHOD ; ( D ) THE DEGREE OF COMPARABILITY EXISTING BETWEEN THE INTERNATIONAL I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 7 OF 21 TRANSACTION AND THE UNCONTROLLED TRANSACTION AND BETWEEN THE ENTERPRISE S ENTERING INTO SUCH TRANSACTIONS; ( E ) THE EXTENT TO WHICH RELIABLE AND ACCURATE ADJUSTMENTS CAN BE MADE TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTION OR BETWEEN THE ENTERPRISES E NTERING INTO SUCH TRANSACTIONS; ( F ) THE NATURE, EXTENT AND RELIABILITY OF ASSUMPTIONS REQUIRED TO BE MADE IN APPLICATION OF A METHOD [EMPHASIS, BY UNDERLINING, SUPPLIED BY US] 1 1 . THE SCHEME OF THE TRANSFER PRICING LEGISLATION IN INDIA IS THUS UN A M BI GUOUS. THERE IS NO DISPUTE THAT THE SELECTION OF MOST APPROPRIATE METHOD IS NOT IN THE UNFETTERED DISCRETION OF THE ASSESSEE AND IT IS SOMETHING WHICH CAN ALWAYS BE SUBJECT MATTER OF ADJUDICATION AT THE ASSESSMENT AS WELL AS APPELLATE STAGE. THE TPO HAS A RIGHT, AS INDEED DUTY, TO EXAMINE WHETHER A PARTICULAR METHOD ADOPTED BY THE ASSESSEE IS INDEED MOST APPROPRIATE METHOD OF DETERMINING ARMS LENGTH PRICE ON THE FACTS OF A PARTICULAR CASE. ONE OF THE IMPORTANT FACTORS GOVERNING THE DECISION ON AS TO WHAT WILL CONSTITUTE THE MOST APPROPRIATE METHOD, AS SET OUT IN RULE 10C(1)(C) ABOVE, IS THE AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPLICATION OF THE METHOD . THE AVAILABILITY OF DATA, WITH RESPECT TO A PARTICULAR METHOD VIS - A - VIS OTHER METHODS OF DETERMINING THE ALP, IS THUS ONE OF THE CRUCIAL FACTORS IN DECIDING WHETHER THAT PARTICULAR METHOD OF DETERMINING THE ALP IS MOST APPROPRIATE METHOD OF DETERMINING ALP ON THE FACTS OF THAT CASE, OR NOT. WHEN ONLY ONE COMPARABLE IS AVAILABLE FO R APPLICATION OF A PARTICULAR METHOD, THIS SERIOUS LIMITATION ON THE AVAILABILITY OF DAT A , IN OUR CONSIDERED VIEW, CERTAINLY RELEGATES ITS APPROPRIATENESS VIS - A - VIS OTH ER ALTERNATE METHODS AVAILABLE, SUCH AS EXTERNAL TNMM, IN RESPECT OF WHICH SUFFICIENT, AND ESSENTIALLY RELIABLE, DATA IS AVAILABLE. FOR THIS SHORT REASON ALONE, THE INTERNAL TNMM IS CERTAINLY NOT THE MOST APPROPRIATE METHOD ON THE FACTS OF THIS CASE. THAT IS ONE ASPECT OF THE MATTER. THE OTHER ASPECT OF THE MATTER IS ITS RELIABILITY. THE FAC T THAT THE INDEPENDENT ENTERPRISE WAS AN ASSOCIATED ENTERPRISE IN NOT SO DISTANT A PAST, THE FACT THAT I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 8 OF 21 DESPITE ITS BECOMING, IN LEGAL TERMS AND AS AN OFFSHOOT OF GROUP RESTRUCTURING, AN INDEPENDENT ENTERPRISE, THE ASSESSEE CONTINUES TO WORK FOR THIS ENTERP RISE EVEN AFTER MAKING HUGE LOSSES, AS HIGH AS 21.75% ON COST, AND THE FACT THAT IT IS A SINGLE COMPARABLE, DOES RAISE SERIOUS APPREHENSIONS ABOUT ITS RELIABILITY. THIS FACT SITUATION, COUPLED WITH THE ADMITTED POSITION THAT SUFFICIENT NUMBER OF EXTERNAL C OMPARABLES FOR TNMM ARE AVAILABLE, DOES LEAVE THE INTERNAL TNMM MUCH LOWER IN THE HIERARCHY OF METHODS, PARTICULARLY VIS - - VIS EXTERNAL TNMM, APPROPRIATE FOR DETERMINING THE ALP ON THE FACTS OF THIS CASE. WE ARE OF THE CONSIDERED VIEW THAT THE INTERNAL TN MM, ON THE BASIS OF WHICH THE ASSESSEE HAD DONE ITS BENCHMARKING, WAS INDEED NOT THE MOST APPROPRIATE METHOD ON THE FACTS OF THIS CASE. FOR THIS SHORT REASON ALONE, AND WITHOUT ADDRESSING OURSELVES TO THE MERITS OF THE LINE OF REASONING ADOPTED BY THE AUTHO RITIES BELOW, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE TPO AND THE DRP AND DECLINE TO INTERFERE IN THE MATTER. A LOT OF ARGUMENTS HAVE BEEN ADDRESSED ON WHETHER THE SERVICES RENDERED TO THE NON AE CAN BE COMPARED WITH THE SERVICES RENDERED TO THE AE, BUT, GIVEN OUR ABOVE CONCLUSIONS, THAT ASPECT OF THE MATTER IS WHOLLY ACADEMIC. 12. THE SECOND LEGAL PROPOSITION ADVANCED BY THE LEARNED COUNSEL IS THAT THE TOTAL ADJUSTMENT MADE TO THE ARMS LENGTH PRICE OF THE APPELLANT SHOULD BE RESTRICTED TO THE OVER ALL INCOME EARNED BY THE AE FROM THIRD PARTIES. AS WE DEAL WITH THIS CONTENTION, WE MUST BEAR IN MIND THE SITUATION BEFORE US IS THAT THE AE HAS SOLD THE SERVICE TO THE INDEPENDENT ENTERPRISE AT A PRICE LOWER THAN THE ALP WORKED OUT BY THE TPO. IT IS FOR THIS REASON THAT THE ALP ADJUSTMENT, ON THE FACTS OF THIS CASE, HAS BEEN RESTRICTED TO THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE AE HAS SOLD THE SERVICE TO THE INDEPENDENT ENTERPRISE AND THE PRICE AT WHICH THE ASSESSEE HAS SOLD THE SERVICE TO THE AE. W HEN THE SAME SERVICE, WITHOUT ANY VALUE ADDITION, IS SOLD BETWEEN INDEPENDENT PARTIES (I .E. THE AE AND THE END CUSTOMER) AT A PRICE, SUCH A TRANSACTION IS THE BEST INDICATOR OF ITS ARMS LENGTH PRICE. THE ASSESSEE , HOWEVER, IS NOT CONTENT WITH THIS. HE CONT ENDS THAT SINCE THE AE HAS INCURRED CERTAIN EXPENSES TO EARN THIS REVENUE, THE EXPENSES SO INCURRED BY THE AE SHOULD ALSO BE REDUCED FROM THE REVENUE, SO REALIZED BY THE I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 9 OF 21 AE, TO ARRIVE AT THE CORRECT ARMS LENGTH PRICE OF THE SERVICE. THE UNDERLYING CONCEPT UAL JUSTIFICATION FOR THIS PROPOSITION IS THAT THE ALP ADJUSTMENT SHOULD BE RESTRICTED TO THE OVERALL PROFITS OF THE GROUP AS A WHOLE. IN SUPPORT OF THIS PROPOSITION, THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE SETS OUT THE FOLLOWING REASONING : THE APPEL LANT SUBMITS THAT THE FORTUNE GROUP AS A WHOLE HAS INCURRED LOSS AND IF THE APPELLANT HAD DIRECTLY ENTERED INTO AGREEMENTS WITH THE ULTIMATE CUSTOMERS IT WOULD HAVE INCURRED MORE LOSSES. THE GROUP HAS INCURRED LOSSES ON ACCOUNT OF FALL IN THE OVERALL REVEN UES OF THE BUSINESS WHICH SHOWS THAT NO PROFITS HAVE BEEN SHIFTED FROM THE APPELLANT TO ITS AE. THE APPELLANT FURTHER SUBMITS THAT, SINCE THE HONBLE DRP HAS DIRECTED THE LEARNED TPO TO RESTRICT THE QUANTUM OF ADJUSTMENT OF THE APPELLANT TO THE PRICE REC EIVED BY THE AE FROM ITS THIRD PARTY, THE EXPENDITURE INCURRED BY THE AE SHOULD ALSO BE ALLOWED AS A REDUCTION FROM THE PROPOSED TP ADJUSTMENT IF THE CONTENTIONS OF THE APPELLANT AT GROUNDS 2.2. TO 2.7 ARE REJECTED. CONSEQUENTLY, THE ADJUSTMENT SHOULD BE L IMITED TO THE PROFITS EARNED BY THE AE OF THE APPELLANT AND NOT TO THE REVENUES EARNED BY THE AE FROM THIRD PARTY. THE LEARNED TPO HAS INCORRECTLY INTERPRETED THE RULING OF THE HONBLE ITAT IN THE CASE OF GLOBAL VANTADGE. THE RELEVANT EXTRACT OF THE RULI NG IS REPRODUCED AS UNDER, WHICH PRINCIPALLY CONCURS WITH THE VIEW OF THE APPELLANT IS AS UNDER: IF AN ENTITY IS UNABLE TO EARN ADEQUATE PROFITS ON ACCOUNT OF LEGITIMATE BUSINESS EXIGENCIES AND NOT DUE TO MANIPULATION OF TRANSACTIONS UNDERTAKEN BY THE ASSOCIATED ENTERPRISES, SUCH ENTITY CANNOT BE PENALIZED. IN THE CASE OF A REVENUE SHARING MODEL BETWEEN TWO ENTITIES (SAY A & B), IT MAY BE CONTENDED THAT THE AMOUNT OF REVENUE RECEIVED BY AN ENTITY (SAY ENTITY A, IS LOWER THAN THE FAIR AMOUNT OF REVENUE RECEIVABLE BY IT IS DUE TO THE OTHER ENTITY (SAY ENTITY B) RECEIVING A LARGER SHARE. SUCH UNFAIRNESS MAY BE MITIGATED BY REQUIRING THE ENTITY B TO RETAIN ONLY ITS FAIR SHARE AND GIVE UP THE BALANCE AMOUNT IN FAVOUR OF ENTITY A. IN THE WORST CASE, ENTITY B MAY BE REQUIRED TO GIVE UP ITS ENTIRE SHARE OF REVENUE WHICH WOULD RESULT IN ENTITY A RECEIVING 100 PER CENT OF THE REVENUE. HOWEVER, IT CANNOT BE LOGICAL TO SAY THAT THE FAIR AMOUNT OF REVENUE TO BE RECEIVED BY ENTITY A IS MORE THAN 100 PER CENT OF THE TO TAL REVENUE EARNED BY BOTH A AND B. UNDER SUCH CIRCUMSTANCES, ENTITY B WILL HAVE TO PAY THE ADDITIONAL AMOUNT FROM ITS INTERNAL SOURCES WHICH IN ADDITION TO BEING A HIGHLY ABSURD PROPOSITION, MAY I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 10 OF 21 ALSO LEAD TO THE BANKRUPTCY OF B SINCE THIS CANNOT BE SUSTAI NED OVER A PERIOD OF TIME. IN VIEW OF THE ABOVE DISCUSSIONS, THE CONTENTION OF APPELLANT IS FOUND TO BE ACCEPTABLE, ESPECIALLY WITH REFERENCE TO THE OBJECT AND SCHEME OF TRANSFER PRICING REGULATION WHICH GOVERN THE INTERNATIONAL TRANSACTION UNDERTAKEN BY AN ASSESSEE WITH ITS ASSOCIATED ENTERPRISE AND NOT WHEN TRANSACTIONS TAKE PLACE BETWEEN ASSESS EE AND INDEPENDENT CLIENTS. IT IS FURTHER SUBMITTED BY THE APPELLANT THAT FORTUNE USA UNDERTAKES THE BUSINESS DEVELOPMENT AND THE MARKETING FUNCTIONS FOR AND ON BEHALF OF THE APPELLANT. IT IS ALSO RESPONSIBLE FOR MAINTAINING THE RELATIONSHIP WITH THE END CUSTOMERS IN ORDER TO PROCURE REGULAR BUSINESS. IN THIS REGARD, THE APPELLANT SUBMITS THAT IF FORTUNE USA I.E. THE AE INCURS SUCH EXPENDITURE ON BEHALF OF THE APP ELLANT, THE AE SHOULD BE ADEQUATELY REMUNERATED FOR THE SAME. SINCE, THE GROUP HAS NOT BEEN ABLE TO MAKE PROFIT OUT OF THE TRANSACTION, IN A WORST CASE SCENARIO ALL THE REVENUES MAY BE ATTRIBUTED TO THE APPELLANT INDIA; HOWEVER, THAT WOULD MEAN THAT THE AE WHICH HAS PLAYED A DOMINANT ROLE IN OBTAINING BUSINESS IS NOT EVEN REIMBURSED FOR THE EXPENDITURE IT HAS INCURRED ON OBTAINING BUSINESS; EFFECTIVELY, THE AE WILL HAVE TO PAY THIS AMOUNT OF EXPENDITURE FROM ITS INTERNAL RESOURCES WHICH IS AN ABSURD PROPOSI TION ENVISAGED IN THE DECISION OF GLOBAL VANTEDGE (SUPRA). AN ALTERNATE WAY OF LOOKING AT THIS IS IF THE AE WAS NOT IN PICTURE AND THE APPELLANT WAS REQUIRED TO PERFORM THE MARKETING AND BUSINESS DEVELOPMENT FUNCTION, THE APPELLANT WOULD HAVE TO INCUR TH IS EXPENDITURE BY ITSELF. NO DOUBT IN SUCH CASES, ALL THE REVENUES WOULD HAVE ALSO ACCRUED TO THE APPELLANT AS IS PURPORTED TO BE INTERPRETED OF THE DECISION OF GLOBAL VANTEDGE. BUT SINCE, THE EXPENDITURE WOULD HAVE ALSO BEEN INCURRED BY THE APPELLANT TO E ARN ENTIRE REVENUES, THE NET BENEFIT TO THE APPELLANT WOULD HAVE BEEN ONLY THE PROFIT AND NOT THE ENTIRE REVENUE. THE SAID SCENARIO HAS BEEN APPROPRIATELY ADDRESSED IN THE SUBSEQUENT RULINGS OF HONBLE HYDERABAD ITAT IN THE CASE OF APP LABS TECHNOLOGIES PRIVATE LIMITED V. DCIT WHEREIN IT WAS HELD THAT THE QUANTUM OF ADJUSTMENT SHOULD BE RESTRICTED TO THE GLOBAL OPERATING PROFITS EARNED BY THE GROUP FROM THE INTERNATIONAL TRANSACTION (PLEASE REFER PARA 9 AND 10 ON PAGE 682 AND 683 OF THE COMPILATION OF CAS E LAWS). SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN THE DECISION OF APOLLO HEALTH STREET INCLUDED AT SERIAL NO 38 OF THE COMPILATION OF LEGAL CASE LAWS (PLEASE REFER PARA 9 AND 10 ON PAGE 692). I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 11 OF 21 CONSIDERING ALL THE ABOVE, THE APPELLANT RESPECTFULLY SUBMITS TH AT THE TP ADJUSTMENT SHOULD BE LIMITED TO THE NET PROFITS OF THE AE. ACCORDINGLY, SINCE THE ENTIRE REVENUE HAS ALREADY BEEN ADJUSTED IN CASE OF THE APPELLANT, DEDUCTION OF EXPENDITURE OF RS 1,61,05,222 INCURRED BY THE AE SHOULD ALSO BE ALLOWED. 13. WE FIN D THAT AN IDENTICAL ISSUE CAME UP BEFORE A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GHARDA CHEMICALS LTD VS DCIT [(2010) 35 SOT 406 (BOM)] . REJECTING SIMILAR PLEA OF THE ASSESSEE , THE COORDINATE BENCH, INTER ALIA, OBSERVED AS FOLLOWS: .. THE ARG UMENT ADVANCED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE TRANSFER PRICING PROVISIONS ARE NOT APPLICABLE IN VIEW OF THE TOTAL INCIDENCE OF TAX REMAINING AT THE SAME LEVAL DUE TO LOSSES INCURRED BY AE OFFSETTING THE INCOME OF THE ASSESSEE , DOES NOT ME RIT ACCEPTANCE. THE INTENT AND PURPOSE OF THESE PROVISIONS IS NOT TO ENSURE THAT THERE IS NO DIMINUTION IN THE TAX LIABILITY OF INDIAN ENTERPRISE AS WELL AS ITS AE ON A TOTAL BASIS. RATHER THE LOGIC IS TO MAKE CERTAIN THAT THE TRANSACTIONS BETWEEN THE AE S HOULD NOT BE ARRANGED IN SUCH A WAY THAT THE ULTIMATE TAX PAYABLE IN INDIA IS ARTIFICIALLY REDUCED. IF GOODS WORTH RS. 100, WHICH ARE SOLD FOR RS. 125 TO UNRELATED PARTIES ARE SOLD TO THE AE AT RS. 105, THERE IS REDUCTION OF INCOME TO THE EXTENT OF RS. 20 IN THE HANDS OF INDIAN ENTERPRISE. IF THE INDIAN ENTERPRISE HAD CHARGED THE SAME PRICE FROM ITS AE AS THAT FROM THE UNRELATED PARTIES, ITS PROFIT WOULD HAVE BEEN RS. 25 INSTEAD OF RS. 5 BY WAY OF A SALE TO AE. HOW MUCH TAX IS PAID BY THE FOREIGN AE IS NOT RELEVANT IN THE DETERMINATION OF CORRECT TAX LIABILITY IN THE HANDS OF THE INDIAN ENTERPRISE. WHAT IS MATERIAL IS THAT THE RIGHTFUL TAX PAYABLE IN INDIA SHOULD NOT SUFFER DUE TO THE ADJUSTMENT OF PRICE FOR GOODS OR SERVICES BETWEEN THE RELATED ENTERPRISES. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ENTIRE EXERCISE OF DETERMINING ALP OF THE TRANSACTIONS BETWEEN THE TWO ENTERPRISES IS USELESS AS THE PRICE CHARGED OR PAID BY ONE ENTERPRISE TO ANOTHER AE IS TAX - NEUTRAL ON TOTALITY, THEREFO RE, IS SANS MERIT. THE PAYMENT OF TAX BY THE AE ABROAD DOES NOT CONTRIBUTE ANYTHING TO THE INDIAN EXCHEQUER. IMPORTANT FACTOR IS THE PAYMENT OF TAX QUA INDIA AND NOT QUA THE ASSESSEE ALONG WITH ITS AE ON A WHOLE. IF WE AGREE WITH THIS SUBMISSION OF THE LEAR NED AUTHORISED REPRESENTATIVE THAT AS THE ULTIMATE TAX LIABILITY OF THE ASSESSEE TOGETHER WITH ITS AE DOES NOT VARY EVEN IF THE LOWER PRICE IS CHARGED INTER SE AND HENCE THE EXERCISE DONE BY THE TPO BE HELD AS FRUITLESS, THEN THE PROVISIONS OF SS. 92 TO 92F WOULD BECOME REDUNDANT I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 12 OF 21 14. OBLIVIOUS OF THIS DEVELOPMENT, ANOTHER COORDINATE BENCH , IN THE CASE OF GLOBAL VANTEDGE PVT LTD VS DCIT AND VICE VERSA [(2010) 37 SOT 1 (DEL)] TOUCHED A DIFFERENT CHORD. THAT WAS A CASE IN WHICH, AS IT APPEARS FROM THE LIMITED FACTS STATED IN THE BODY OF THIS DECISION, THERE WAS A LINEAR RELATIONSHIP BETWEEN THE GROUP ENTITIES IN QUESTION, I.E. THE ASSESSEE AND ITS US BASED AE, AND RESPECTIVE CONTRIBUTION, AS HELD BY THE CIT(A) AND ON THE BASIS OF THEIR FUNCTIONAL PROFILE, WAS 9 8.60% AND 1.40%. THERE WERE NO OTHER GROUP ENTITIES INVOLVED, IN ANY MANNER, WITH THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE . ON TH ESE FACTS, THE CIT(A) HELD AS FOLLOWS: KEEPING IN VIEW THE FUNCTIONAL PROFILE OF THE TWO ENTITIES (APPELLANT AND RCS I.E. THE US BASED AE ) INCLUDING THE FAR ANALYSIS AND ALSO KEEPING IN VIEW THE FACT THAT AS PER R ULE 10B (4) DATA FOR THE CURRENT YEAR TO BE USED. AS IN THE FINANCIAL YEAR 2002 - 03 THE AVERAGE EXPENDITURE ON SELLING EXPENSES IN THE SOFTWARE INDUSTRY WERE IN THE RANGE OF 1.4 PER CENT, ACCORDINGLY, I AM OF THE VIEW THAT A SHARE OF 1.40 PER CENT, OF THE REVENUE IS ADEQUATE TO COMPENSATE RCS (I.E. THE US BASED AE) FOR ITS ACTIVITIES. THUS, AS PER THIS HYPOTHESIS, THE ARM'S LENGTH PRICE DETERMINED CANNOT EXCEED 98.60 PER CENT, OF THE REVENUE EARNED BY THE GLOBAL VANTEDGE GROUP AS A WHOLE 15. WHEN THE MATTER TRAVELLED IN APPEAL BEFORE A COORDINATE BENCH OF THIS TRIBUNAL, THESE FINDINGS OF THE CIT(A) WERE CONFIRMED WITH THE OBSERVATION SINCE BOTH THE PARTIES HAVE NOT B EEN ABLE TO CONTROVERT THE FINDINGS RECORDED BY THE LEARNED CIT(A) OR POINT OUT ANY MATERIAL TO ENABLE US TO TAKE A VIEW OTHER THAN THE VIEW TAKEN BY THE LEARNED CIT(A), WE ARE INCLINED TO UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THE POINT OF DETERMINATIO N OF THE ARM'S LENGTH PRICE IN RESPECT OF THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE ... THE MATTER WAS CARRIED IN APPEAL BEFORE THE HONBLE DELHI HIGH COURT, BY THE COMMISSIONER, BUT WITHOUT ANY SUCCESS. HONBLE DELHI HI GH COURT, IN THE JUDGMENT REPORTED AS GLOBAL VANTEDGE PVT LTD [( 2013) 354 ITR 21 (DEL)] , OBSERVED THAT, IN THE PRESENT CASE, WE FIND THAT THE TRIBUNAL HAD EXAMINED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DETAIL AND HAD GIVEN AN OPPORTU NITY TO THE DEPARTMENTAL REPRESENTATIVE TO CONTROVERT OR REBUT THE I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 13 OF 21 FINDINGS AND CONCLUSIONS ARRIVED AT BY THE CIT (APPEALS). HOWEVER, DESPITE THAT OPPORTUNITY, IT IS RECORDED IN THE ORDER, A PORTION WHEREOF WAS EXTRACTED ABOVE, THAT THE DEPARTMENTAL REPRES ENTATIVE HAD NOT BEEN ABLE TO CONTROVERT THOSE FINDINGS AND POINT TO ANY MATERIAL TO ENABLE THE TRIBUNAL TO TAKE A VIEW OTHER THAN THE VIEW TAKEN BY THE CIT (APPEALS). IT IS IN THESE CIRCUMSTANCES THAT THE TRIBUNAL CONCURRED WITH THE VIEW TAKEN BY THE CIT (APPEALS) IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY SUBSTANTIAL QUESTION OF LAW WHICH ARISES FOR OUR CONSIDERATION IN THESE APPEALS . HONBLE SUPREME COURT, VIDE ORDER DATED 2 ND JANUARY 2014, DISMISSED THE SPECIAL LEAVE PETITION FILED AGAINST THIS JU DGM ENT OF HONBLE DELHI HIGH COURT. THE MATTER HAS THUS REACHED FINALITY. 16. THESE SOMEWHAT PARALLEL DEVELOPMENTS, EVEN AS THESE DEVELOPMENTS HAVE QUITE DIFFERENT APPROACHES, DO NOT LEAD TO ANY CONFLICT AND BOTH OF THESE DECISIONS DESERVE UTMOST RESPECT FROM US. CLEARLY, THERE IS A MEETING GROUND. IN OUR HUMBLE UNDERSTANDING, THESE TWO DECISIONS ARE DISTINCT IN APPROACHES BUT THEN THESE DECISIONS, FOR ALL PRACTICAL PURPOSES, COVER TWO DIFFERENT SET OF CIRCUMSTANCES . IN GHARDAS CASE (SUPRA), THE COORDINAT E BENCH WAS DEALING WITH A SITUATION IN WHICH THE GLOBAL PROFITS OF THE ASSESSEE , AS A WHOLE, WERE A NEGATIVE FIGURE, AND IT WAS FOR THIS REASON THAT THE ASSESSEE CONTENDED THAT THE ARMS LENGTH PRICE ADJUSTMENT CANNOT BE MADE IN RESPECT OF THE INTERNATIONA L TRANSACTIONS ON WHICH LOSSES ARE INCURRED AND THAT THE ALP ADJUSTED FIGURES CANNOT RESULT IN A SITUATION THAT THE PROFITS OF THE AES TAKEN TOGETHER CANNOT EXCEED GLOBAL PROFITS OF THE GROUP AS A WHOLE . IN GLOBAL VANTEDGES CASE (SUPRA), IT WAS AN UNCONT ROVERTED POSITION THAT THE CONTRIBUTION OF THE AE WAS JUST 1.4%, WHICH WAS ARRIVED AT BY TAKING INTO ACCOUNT AVERAGE EXPENDITURE ON SELLING IN SOFTWARE INDUSTRY, THAT NORMALLY THE ASSESSEE HAD A RIGHT OVER THE RESIDUAL RECEIPTS FROM THE END CUSTOMER, AND TH AT, THEREFORE, THE ALP ADJUSTMENTS COULD ONLY BE MADE FOR THE DIFFERENCE BETWEEN THE TRANSACTION VALUE VIS - - VIS THE AMOUNT OVER WHICH THE ASSESSEE NORMALLY HAD A RESIDUAL RIGHT. WHAT IS TAKEN INTO ACCOUNT, FOR ADJUSTING THE REVENUES FROM NON AE, IS NOT TH E ACTUAL EXPENSES INCURRED BY THE AE BUT NOTIONAL EXPENSES ATTRIBUTED TO THE AE ON THE B ASIS OF ITS I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 14 OF 21 FUNCTIONAL PROFILE, WHICH IS SO GLARING FROM THE FACT THAT THESE EXPENSES ARE SET OUT IN PERCENTAGE TERMS RATHER THAN ABSOLUTE TERMS. AS IT RECOGNIZES THE ULTIMATE REVENUE REALIZED FROM THE NON AE, THE ALP ADJUSTMENT MADE TO THE VALUE OF INTERNATIONAL TRANSACTION CANNOT BE SUCH SO AS THE ALP AND THE TRANSACTION VALUE PUT TOGETHER EXCEED THE OVERALL REVENUES REALIZED FROM THE NON AE. THAT IS WHAT THE DRP HAS ACCEPTED AND THAT ASPECT OF THE MATTER IS NOT EVEN IN DISPUTE BEFORE US. WE DONOT, THEREFORE, SEE ANY CONFLICT IN THE DECISIONS OF THE COORDINATE BENCHES IN THE CASES OF GHARDA CHEMICALS (SUPRA) AND GLOBAL VANTEDGE (SUPRA). IN ANY CASE, ALL INTRA AE RELATI ONSHIPS ARE NOT LINEAR. THERE ARE COMPLEX STRUCTURES INVOLVED IN MANY INTRA AE TRANSACTIONS, AND, IF WE ARE HOLD THAT THE ALP ADJUSTMENTS CANNOT EXCEED THE GLOBAL PROFITS, IT WILL RESULT IN INTERACTION OF TOO MANY TAX JURISDICTIONS, IN MANY A CASES WITH IR RECONCILABLE TAX LAWS - PARTICULARLY WITH RESPECT TO PERMISSIBLE TAX MANOEUVRINGS, TO COME TO A LOGICAL CONCLUSION IN SUCH CASES. WE ARE, THEREFORE, NOT INCLINED TO YIELD TO THE SUGGESTION OF THE LEARNED COUNSEL THAT , AS A PRINCIPLE AND UNIVERSALLY, THE ALP ADJUSTMENTS CANNOT RESULT IN A SITUATION THAT THE PROFITS OF THE AES AND THE ALP ADJUSTMENTS, PUT TOGETHER, EXCEED THE GLOBAL PROFITS OF THE GROUP AS A WHOLE. AS REGARDS THE RELIANCE PLACED BY THE LEARNED COUNSEL ON CERTAIN OBSERVATIONS IN THE CIT(A)S OR DER, WHICH HAVE BEEN EXTENSIVELY REPRODUCED AND APPROVED BY THE COORDINATE BENCH, WE CAN ONLY SAY, TO BORROW THE WORDS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SUDHIR JAYANTILAL M ULJI [ (1995) 214 ITR 154 (BOM) ] , A JUDICIAL PRECEDENT IS ONLY 'AN AUTHORITY FOR WHAT IT ACTUALLY DECIDES AND NOT WHAT MAY COME TO FOLLOW FROM SOME OBSERVATIONS WHICH FIND PLACE THEREIN'. THAT APART, WHAT IS BEING RELIED UPON IS NOT EVEN AN OBSERVATION OF THE COORDINATE BENCH BUT AN OBSERVATION IN AN ORDER OF THE LOWER J UDICIAL FORUM CONCLUSIONS OF WHICH HAVE BEEN APPROVED BY THE COORDINATE BENCH. 17. IN THE CASE OF APP LAB TECHNOLOGIES PVT LTD VS DCIT [(2014)149 ITD 99 (HYD)] , HOWEVER, IT WAS NOTED BY THE TRIBUNAL THAT THE DISPUTE RESOLUTION PANEL HAS GONE A STEP FURTH ER AND HELD THAT WE CONCUR WITH THE ASSESSEE ON THIS ISSUE THAT THE ADJUSTMENTS, IF ANY, CANNOT EXCEED THE GLOBAL PROFITS EARNED BY THE GROUP FROM THOSE TRANSACTIONS. TAKING NOTE OF THESE DIRECTIONS OF THE DRP, AND I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 15 OF 21 THE FACT THAT THE ASSESSING OFFICER HAS NOT GIVING PROPER EFFECT TO THESE DIRECTIONS, THE COORDINATE BENCH REMITTED THE MATTER TO THE FILE OF THE ASSESSING OFFICER. WHILE DOING SO, THE COORDINATE BENCH HAS ALSO OBSERVED AS FOLLOWS: 10. ON A PLAIN READING OF THE AFORESAID EXTRACTED PORTION (O F THE DRPS ORDER) , IT IS VERY MUCH CLEAR THAT THE DRP HAS HELD THAT ADJUSTMENTS IF ANY, CANNOT EXCEED THE GLOBAL PROFITS EARNED BY THE GROUP FROM THOSE TRANSACTIONS. IT IS FURTHER EVIDENT FROM PARA 11 OF THE ORDER OF THE DRP THAT WHILE SUMMARISING ITS F INDING THE DRP HAS CATEGORICALLY HELD THAT IT HAS ALLOWED THE ASSESSEE S GROUND WITH REGARD TO RESTRICTING TP ADJUSTMENT TO THE GLOBAL PROFITS OF THE GROUP FROM THE INTERNATIONAL TRANSACTIONS. THEREFORE, CONSIDERING THE SUBMISSIONS OF THE PARTIES, IN THE LI GHT OF THE DIRECTIONS GIVEN BY THE DRP, WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING IT AFRESH IN CONFO RMITY WITH THE DIRECTION GIVEN BY THE DRP 18. IN THE CASE OF APOLLO HEALTH STREET VS DCIT [(2014) 151 ITD 248 (HYD)] ALSO , THE SITUATION WAS MATERIALLY THE SAME. IN THIS CASE ALSO, AS NOTED BY THE COORDINATE BENCH, THE DRP CONSIDERED THE ASSESSEE S OBJECTION AND HAS GIVEN A DIRECTION THAT THE UPPER LIMIT FOR ANY TP ADJUSTMENT IN TRANSACTIONS BETWEEN THE RELATED PARTIES WOULD BE THE GLO BAL PROFITS EARNED BY THE GROUP. THE MATTER WAS IN APPEAL BEFORE THE TRIBUNAL ONLY BECAUSE THE ASSESSING OFFICER HAD NOT GIVEN DUE EFFECT TO THE DIRECTIONS OF THE DRP, AND THE COORDINATE BENCH, WITH THE CONSENT OF THE PARTIES, REMITTED THE MATT ER BACK TO THE FILE OF THE ASSESSING OFFICER FOR GIVING DUE EFFECT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. 19. NONE OF THESE TWO DECISIONS FROM THE HYDERABAD BENCHES CAN, THEREFORE, BE A JUDICIAL AUTHORITY FOR THE PROPOSITION THAT THE TP ADJUS TMENTS OF AN ASSESSEE CANNOT RESULT IN A SITUATION THAT THESE ARE IN EXCESS OF THE GLOBAL PROFITS. THESE DECISIONS WERE DEALING WITH A SITUATION IN WHICH THE DRP HAD GIVEN CERTAIN DIRECTION AND THE LIMITED QUESTION BEFORE THE TRIBUNAL WAS WHETHER THESE DIR ECTIONS HAVE BEEN GIVEN PROPER EFFECT OR NOT. I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 16 OF 21 20. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSIDERED VIEW, THE RIGHT COURSE OF ACTION WILL BE TO REMIT THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO RE - EXAMINE THIS ASPECT OF THE MATTER IN THE LIG HT OF THE DECISION OF GLOBAL VANTEDGE (SUPRA) AS ANALYSED BY US ABOVE. IN THE ABSENCE OF NECESSARY INFORMATION INPUTS, SUCH AS AVERAGE SELLING EXPENSES IN THIS LINE OF ACTIVITY AT THE RELEVANT POINT OF TIME, THIS ISSUE CANNOT BE DECIDED AT THIS STAGE. IN C ASE THE ASSESSEE CAN INDEED DEMONSTRATE THAT THE RESIDUAL REVENUES BELONGING TO THE ASSESSEE , AFTER MAKING APPROPRIATE ADJUSTMENTS FOR THE AVERAGE SELLING EXPENSES IN HIS LINE OF COMMERCIAL ACTIVITY, ARE LESS THAN THE TRANSACTION VALUE, OR WITHIN 5% RANGE OF THE SAME, THE SAME WILL HAVE TO BE ACCEPTED AS AN ARMS LENGTH PR ICE BY THE ASSESSING OFFICER. THE FUNCTIONAL PROFILE OF THE AE, AS ALSO OTHER RELATED FACTORS SUCH AS WEIGHTAGE TO THIS FUNCTIONAL PROFILE IN TERMS OF THE REVENUE ALLOCATION, WILL ALSO HAVE TO BE EXAMINED. AS THE MATTER IS BEING REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION DE NOVO IN THE ABOVE LIGHT , WE ALSO CONSIDER IT APPROPRIATE TO LEAVE IT OPEN TO THE ASSESSEE TO RAISE ANY SUCH LEGAL OR FACTUAL ISSUES , WITH RESPECT TO THIS ASPECT OF THE MATTER, AS HE MAY BE ADVISED TO , AND THE ASSESSING OFFICER WILL BE DEAL WITH THE SAME BY WAY OF A SPEAKING ORDER, IN ACCORDANCE WITH THE LAW AND AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE . 21. AS WE REMIT THE MATTER T O THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION ON THE ABOVE ISSUE AND IN TERMS OF OUR SPECIFIC DIRECTIONS SET OUT EARLIER IN THIS ORDER, WE MAY ALSO DEAL WITH THE TWO FACTUAL GRIEVANCES OF THE ASSESSEE . COMING BACK TO THE FACTUAL ASPECTS, THE ASSESSEE S TWIN GRIEVANCES ARE WITH RESPECT TO THE SELECTION OF COMPARABLES AND WITH RESPECT TO ADJUSTMENT FOR UNDERUTILIZATION. SO FAR AS COMPARABLES SELECTED BY THE TPO ARE CONCERNED, THE ASSESSEE SEEKS EXCLUSION OF (A) CROSSDOMAIN SOLUTIONS LTD (B) MAPLE E SOLUTIONS , AND (C) VISHAL INFORMATION TE CH LTD. ON COMPARABILITY ADJUSTMENTS, THE ASSESSEE SEEKS ADJUSTMENT IN RESPECT OF THE HIGHER EMPLOYEE COSTS AS THE CAPACITY OF THE ASSESSEE IS UNDERUTILIZED AS EMPLOYEE COST AS PERCENTAGE OF REVENUES IS HIGHER COMPARE D TO THE EMPLOYEE COSTS OF COMPARABLE COMPANIES. I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 17 OF 21 22. SO FAR AS THE ADJUSTMENT FOR UNDERUTILIZATION OF CAPACITY IS CONCERNED, IT WAS DECLINED BY THE TRANSFER PRICING OFFICER ON THE BASIS OF FOLLOWING REASONING: 6.1 DURING THE COURSE OF PROCEEDINGS, IT W AS SUBMITTED BY THE ASSESSEE THAT CAPACITY UNDERUTILIZATION WAS WITH RESPECT TO NON AE TRANSACTIONS AND THE ASSESSEE DID NOT CONTROVERT THIS STATEMENT IN ANY OF THE REPLIES SUBMITTED TO THE SHOW CAUSE NOTICES ISSUED. SINCE THERE IS NO UNDERUTILIZATION OF CAP ACITY IN THE CASE OF AE TRANSACTIONS, THERE IS NO BASIS FOR ANY ADJUSTMENT IN THE AE TRANSACTIONS. 23. THE ASSESSEE DID RAISE AN OBJECTION BEFORE THE DRP, AGAINST THE ABOVE FINDINGS, INASMUCH AS, VIDE GROUND NO. 1.6, IT WAS CONTENDED THAT BASED ON THE FA CTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO AND THE LEARNED TPO HAVE ERRED IN LAW AND ON FACTS, BY ATTRIBUTING THE REASONS FOR LOSS INCURRED BY FORTUNE INDIA TO THE INTERNATIONAL TRANSACTIONS AND HAVE NOT TAKEN INTO CONSIDERATION THE ECONOMIC AND COM MERCIAL REASONS RELATING TO INCREASE OF EMPLOYEE COST AND UNDERUTILIZATION OF CAPACITY. HOWEVER, THE ONLY FACTUAL ARGUMENT ON RECORD, IN SUPPORT OF THIS GRIEVANCE AND IN THE OBJECTIONS FILED BEFORE THE DRP , WAS THAT THE PERCENTAGE OF EMPLOYEE COST ON TO TAL REVENUE OF THE ASSESSEE WAS 76% WHEREAS THE AVERAGE EMPLOYEE COST ON TOTAL REVENUE OF THE COMPARABLE COMPANIES WAS 36% APPROXIMATELY AND THAT AS THERE ARE MATERIAL DIFFERENCES BETWEEN EMPLOYEE COSTS OF FORTUNE INDIA (AE SEGMENT) AND THAT OF COMPARABLE COMPANIES, AN ADJUSTMENT FOR SUBSTANTIAL DIFFERENCE IN EMPLOYEE COST IS REQUIRED TO BE CARRIED OUT BEFORE COMPUTING THE ALP. IN THE DRP ORDER, THERE IS NO MENTION ABOUT THE SPECIFIC SUBMISSIONS ON THIS ISSUE. THERE IS NO SPECIFIC MENTION ABOUT THE UNDE RUTILIZATION OF CAPACITY EITHER . THE GRIEVANCE OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE DRP EITHER. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 24. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY PERUSED THE MA TERIAL ON RECORD IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 18 OF 21 25. IN OUR CONSIDERED VIEW , MERELY BECAUSE THE EMPLOYEE COSTS OF THE ASSESSEE ARE HIGHER, IT DOES, IN OUR CONSIDERED VIEW, LEAD TO THE CONCLUSION THAT THERE IS AN UNDERUTILIZATION OF CAPACITY. IT IS ALSO A MATTER OF RECORD, AS NOTED BY THE ASSESS EE IN THE WRITTEN SUBMISSIONS, THAT THE UNDERUTILIZATION IS MUCH MORE IN THE CASE OF NON AE TRANSACTIONS INASMUCH AS THE EMPLOYEE COSTS TO TURNOVER RATIO IN AE SEGMENT IS 76% WHEREAS IN NON - AE SEGMENT IT IS 97%. THERE IS NO SPECIFIC SUBMISSION AND QUANTIFICATION ON THE FACT, IF AT ALL, OF THE UNDERUTILIZATION OF CAPACITY. THE FACTUAL ELEMENTS EMBEDDED IN THE SUBMISSIONS ARE NOT AT ALL ESTABLISHED. THERE IS NO ROOM FOR VAGUE GENERALITIES AND OVER SIMPLI FICATIONS, AS THE IMPACT OF UNDERUTILIZED CAPACITY IS TO BE, WITH REASONABLE PRECISION, QUANTIFIED AND THEN ONLY IT CAN BE ADJUSTED. THE EXERCISE OF QUANTIFYING THE CAPACITY UNDERUTILIZATION HAS NOT BEEN CARRIED OUT AT ALL. THERE IS NOT EVEN WHISPER OF A DISCUSSION, ON THIS ASPECT OF THE MATTER, I N THE ORDERS OF THE AUTHORITIES BELOW OR IN THE SUBM ISSIONS O F THE ASSESSEE. 26. AS FOR THE JUDICIAL PRECEDENT RELIED UPON BY THE ASSESSEE , IN THE CASE OF GOOGLE INDIA PVT LTD VS DCIT [(2013) 55SOT 489 (BANG)] , THAT WAS A CASE IN WHICH THE DRP HAD GIVEN A CATEGORICAL FINDING ABOUT THE UNDERUTILIZATION OF CAPACITY AND THE LIMITED ISSUE BEFORE THE TRIBUNAL WAS AN ADVERTENT ERROR IN GRANT OF ADJUSTMENT WHICH WAS, WITH THE CONSE NT OF THE PARTIES, SETTLED. THERE WAS NO DECISION ON MERITS, AS SUGGESTED BY THE LEARNED COUNSEL, THAT THE CAPACITY UNDERUTILIZATION ADJUSTMENT WAS WARRANTED WHEN EMPLOYEE COST WAS HIGHER THAN THAT IN THE COMPARABLES. THIS ASPECT OF THE MATTER WILL BE CLEA R FROM THE FOLLOWING OBSERVATIONS IN THE TRIBUNALS ORDER: 6. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE ORDER OF THE DRP DATED 20.9.2010 RELATING TO ADJUSTMENT TO BE GIVEN FOR THE UNDER UTILIZATION OF THE CAPACITY. HE SUBMITTED THAT THE DRP HAS CLEARLY NOTED THAT THE COMPARABLES HAVE A AVERAGE OF 80 PERCENT UTILIZATION LEVELS AS COMPARED TO THE ASSESSEE WHICH IS AT 58 PERCENT. HOWEVER, WHILE COMPUTING THE ADJUSTMENT, AT PAGE 7 PARA 7, THE DRP HAS TAKEN THE CAPACITY UN DER UTILIZATION OF THE COMPARABLE COMPANIES AT 65 PERCENT, WHICH HAS RESULTED IN THE HIGHER ADJUSTMENT. I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 19 OF 21 7. THE LEARNED DR ALSO AGREED THAT AN ERROR HAS BEEN COMMIT T ED WHILE MAKING THE ADJUSTMENT UNDER UTILIZATION OF CAPACITY OF THE COMPARABLES AS THIS IS ONLY A MISTAKE APPARENT FROM RECORD, WE DEEM IT FIT AND PROPER TO DIRECT THE ASSESSING AUTHORITY TO RECTIFY THE MISTAKE BY COMPUTING THE CORRECT ADJUSTMENT IN UNDER UTILIZING CAPACITY BY TAKING THE CAPACITY UTILIZATION OF THE COMPARABLE COMPANIES AT 80 PER CENT INSTEAD OF 65 PERCENT MENTIONED IN THE ORDER OF THE DRP. 2 7 . AS FOR THE CASE OF DCIT VS PANASONIC AVC NETWORKS PVT LTD [(2014) 42 TAXMANN.420 (DEL)] , RELIED UPON BY THE ASSESSEE , IT IS NOT ON THE ISSUE BEFORE US EITHER. IT DOES NOT DEAL WITH A SITUAT ION IN WHICH HIGHER EMPLOYEE COST IN PERCENTAGE TERMS, BY ITSELF, LEADS TO THE CONCLUSION THAT THERE IS AN UNDERUTILIZATION OF CAPACITY. ALL THIS DECISION HOLDS, IN THE CONTEXT OF UNDERUTILIZATION OF CAPACITY, IS THAT CAPACITY UNDERUTILIZATION BY ENTERPRI SES IS CERTAINLY AN IMPORTANT FACTOR AFFECTING NET PROFIT MARGIN IN THE OPEN MARKET BECAUSE LOWER CAPACITY UTILIZATION RESULTS IN HIGHER PER UNIT COSTS, WHICH, IN TURN, RESULTS IN LOWER PROFITS. OF COURSE, THE FUNDAMENTAL ISSUE, SO FAR AS ACCEPTABILITY OF SUCH ADJUSTMENTS IS CONCERTED, IS REASONABLE ACCURACY EMBEDDED IN THE MECHANISM FOR SUCH ADJUSTMENTS, AND AS LONG AS SUCH AN ADJUSTMENT MECHANISM CAN BE FOUND, NO OBJECTION CAN BE TAKEN TO THE ADJUSTMENT . THERE IS NO, AND CANNOT BE ANY, QUARREL WITH THIS PROPOSITION BUT THAT DOES NOT ADVANCE THE CASE OF THE ASSESSEE EITHER. THE SAME IS THE POSITION WITH RESPECT TO THE DECISION OF ANOTHER COORDINATE BENCH IN THE CASE OF DCIT VS PETRO ARALDITE PVT LTD [(2013) 1145 ITD 185 (BOM)] . THIS DECISION WAS IN THE CONT EXT OF DEPRECIATION AND IT HAD NOTHING TO DO WITH THIS ALSO DOES NOT DEAL WITH A SITUATION IN WHICH HIGHER EMPLOYEE COST IN PERCENTAGE TERMS, BY ITSELF, LEADS TO THE CONCLUSION THAT THERE IS AN UNDERUTILIZATION OF CAPACITY. THE JUDICIAL PRECEDENTS CITED B EFORE US DONOT THUS SUPPORT THE CASE OF THE ASSESSEE . 28. IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE NOT INCLINED TO UPHOLD THE ASSESSEE S GRIEVANCE WITH RESPECT TO DENIAL OF ADJUSTMENT FOR CAPACITY UNDERUTILIZATION. I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 20 OF 21 29. THAT LEAVES US WITH THE ASSESSEE S G RIEVANCE AGAINST THE INCLUSION OF THREE COMPARABLES, NAMELY (A) CROSSDOMAIN SOLUTIONS LTD (B) MAPLE ESOLUTIONS , AND (C) VISHAL INFORMATION TE CH LTD. HOWEVER, IN OUR CONSIDERED VIEW, THIS GRIEVANCE IS ABSOLUTELY ACADEMIC BECAUSE EVEN IF WE DO SO, THE ALP AD JUSTMENT COMPUTED ON THE BASIS OF REVISED ALP WILL BE LESS THAN THE REVENUE REALIZED FROM THE NON AE. THIS ASPECT OF THE MATTER WILL BE CLEAR FROM THE FOLLOWING FIGURES: AVERAGE MARGIN ON THE OPERATING COST, AS COMPUTED ON THE BASIS OF THE COMPARABLES PRESENTLY SELECTED BY THE TPO - CORRECTED VIDE ORDER UNDER 154 DATED 26.12.11 24.58% REVISED MARGIN, AFTER EXCLUDING THE CROSSDOMAINS, MAPLE ESOLUTIONS AND VISHAL INFORMATION TECHNOLOGY 15.68% (AFTER EXCLUDING MARGINS AT ITEM NO. 4, 8 AND 10 IN THE CHART REPRODUCED AT PAGE 4 OF THE ABOVE ORDER PASSED BY THE TPO) TOTAL OPERATING COST ON AE TRANSACTIONS 10,80,59,824 (AS STATED AT PAGE 52 OF TPOS ORDER DATED 24.10.2011) 115.68% OF THE ABOVE OPERATING COST 12,50,03,640 (AFTER TAKING THE REVISED MARGIN ABOVE) REVENUE REALIZED FROM THE NON AE 12,13,50,108 (STATED AT PAGE 4 OF THE ASSESSMENT ORDER) 3 0. AS EVIDENT FROM THE ABOVE WORKING EVEN IF ALL THE THREE COMPARABLES AGITATED BY THE ASSESSEE ARE EXCLUDED, THE ALP ADJUSTMENT WORKED OUT ON THE BASIS OF THE REVISED MARGIN WILL BE MUCH MORE THAN THE REVENUE REALIZED FROM THE NON AE. SINCE, IN TERMS OF THE DRP DIRECTIONS, THE ALP OF THE INTERNATIONAL TRANSACTIONS IS REQUIRED TO BE RESTRICTED TO THE REVENUE REALIZED FROM THE NON AE, I.E. RS 12,13,5 0,108, IT IS WHOLLY ACADEMIC WHETHER THE ALP ON THE BASIS OF THE COMPARABLES ADOPTED BY THE ASSESSEE IS RS 12,50,03,640 , ON THE BASIS OF COMPARABLES AGREED TO BY THE ASSESSEE , OR IS RS 13,46,20,929 AS WORKED OUT BY THE TPO, ON THE BASIS OF COMPARABLES ADOPTE D BY HIM. IN EITHER OF THE SITUATIONS, I.T.A. NO.: 274/AHD/13 ASSESSMENT YEAR: 2008 - 09 PAGE 21 OF 21 THE ALP ADJUSTMENT WILL BE RESTRICTED TO THE DIFFERENCE BETWEEN THE TRANSACTION VALUE (I.E. RS 10,39,29,814) AND THE REVENUE REALIZED FROM THE NON AE (I.E. RS 12,13,50,108). THE DIRECTIONS OF THE DRP HAVING REACHED FI NALITY, SO FAR AS THIS APPROACH ADOPTED BY THE DRP IS CONCERNED, THE ASSESSEE S PRESENT GRIEVANCE ON COMPARABLES IS WHOLLY ACADEMIC AND IT DOES NOT CALL FOR ANY ADJUDICATION AT THIS STAGE. WE LEAVE IT AT THAT. 3 1. IN THE RESULT, THE APPEAL IS PARTLY ALLOWE D FOR THE STATISTICAL PURPOSES AND IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 3RD DAY OF FEBRUARY 2016. SD/XX SD/XX KUL BHARAT PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBE R) DATED: THE 3RD DAY OF FEBRUARY, 201 6 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD