Visteon Engineering Center (India) Pvt. Ltd., Pune V. ACIT, Circle-7, Pune

ITA 358/PUN/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2270 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: RUGVED APTE
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Initiation of penalty proceedings; Corroborative evidences
• Section: 92C; 143(3); 92B; 234B; 92

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.358/PN/2013 '% % / ASSESSMENT YEAR : 2008-09 VISTCON ENGINEERING CENTER (INDIA) PRIVATE LIMITED, A-205/206, A WING, 2 ND FLOOR, ICC TRADE TOWER, 403/A, SENAPATI BAPAT ROAD, PUNE 411 016 PAN NO.AACCT2585N . / APPELLANT V/S ACIT, CIRCLE-7, PUNE . / RESPONDENT / ASSESSEE BY : SHRI KETAN VED & SHRI RUGVED APTE / RESPONDENT BY : SHRI A.K.MODI, CIT / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29-11-2013 PASSED U/S.143(3) R.W.S. 144C(13) OF THE I .T ACT FOR THE ASSESSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A JOINT VENTURE COMPANY INCORPORATED ON 21-06-2005 UNDER THE / DATE OF HEARING :24.07.2015 / DATE OF PRONOUNCEMENT: 21.10.2015 2 ITA NO.358/PN/2013 COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF DES IGNING AND DEVELOPING PRODUCTS IN CAD/CAM OF AUTO PARTS. THE COMPANY IS ALSO PROVIDING CUSTOMER SUPPORT SERVICES AND TECHNO-M ARKETING SERVICES TO THE GROUP COMPANIES. IT FILED ITS RETURN OF INCOME ON 29- 09-2009 DECLARING TOTAL INCOME OF RS.49,791/-. THE AO MADE A REFERENCE U/S.92CA(1) OF THE I.T. ACT TO THE TPO FOR THE C OMPUTATION OF ALP IN RELATION TO THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR. 2.1 IN RESPONSE TO THE NOTICE U/S.92CA(2) OF THE I.T. ACT THE ASSESSEE SUBMITTED VARIOUS DETAILS. THE TPO NOTED THAT DURING THE YEAR THE ASSESSEE HAD UNDERTAKEN THE FOLLOWING INTERNATIO NAL TRANSACTIONS : SR.NO. NATURE OF TRANSACTION AMOUNT METHOD 1 PROVISION OF IT BASED ENGINEERING SERVICES 258507362 TNMM 2 RECEIPT OF MANAGERIAL SERVICES (PAID) 4553207 TNMM 3 REIMBURSEMENT EXPENSES (PAID) 8016243 NA 27,10,76,812 3. SO FAR AS THE PROVISION OF IT BASED ENGINEERING SERVIC ES IS CONCERNED, THE TPO NOTED THAT THE ASSESSEE HAS SELECT ED TNM METHOD AS THE MOST APPROPRIATE METHOD TO BENCHMARK T HE INTERNATIONAL TRANSACTION RELATING TO RENDERING OF IT BASED ENGINEERING SERVICES. THE OPERATING PROFITS EARNED BY COMP ARABLES HAVE BEEN COMPUTED ON OPERATING REVENUE. HOWEVER, DUR ING THE COURSE OF TP PROCEEDINGS THE ASSESSEE SUBMITTED THE DE TAILS OF PLI OF THE ASSESSEE AS WELL AS COMPARABLES WITH PBIT/OPERATIN G COST. FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS, THE ASSE SSEE IDENTIFIED COMPARABLE COMPANIES FROM THE FIELD OF ITES AND 3 ITA NO.358/PN/2013 ENGINEERING DESIGN SERVICES LISTED IN THE PROWESS AND CAPIT ALINE PLUS DATABASE. IT WAS FURTHER MENTIONED IN THE TP STUDY REPORT THAT OUT OF THE TOTAL 582 COMPANIES PICKED UP FOR THE EVA LUATION THE ASSESSEE HAS SELECTED ONLY 6 COMPANIES AS COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS. 4. THE ASSESSEE REJECTED 576 COMPANIES THAT FELL UNDER ONE OR MORE OF THE FOLLOWING CATEGORIES FOR EXCLUDING THE COMPANIES FROM THE COMPARABLE FINAL SET. THE ASSESSEE HAS APPLIED THE FO LLOWING REASONS : 1. FINANCIAL DATA FROM PROWESS/CAPITALINE PLUS OR TH E COMPANIES OFFICIAL WEBSITE WAS NOT AVAILABLE. 2. THE COMPANIES WERE ENGAGED IN PROVIDING SERVICES T O ASSOCIATED ENTERPRISES OR WERE ENGAGED IN OTHER SIGNIFIC ANT INTERNATIONAL TRANSACTIONS (TO THE EXTEND INFORMATIO N AVAILABLE). 3. COMPANIES WHOSE TURNOVER WAS MORE THAN RS.200 CRORES OR LESS THAN RS. 2 CRORES. 4. COMPANIES WHOSE TURNOVER INCLUDED TURNOVER FROM TR ADING AND MANUFACTURING ACTIVITY OF MORE THAN 30% OF THE TOTA L TURNOVER (THIS CRITERIA WAS APPLIED FOR COMPARABLE COMPANIES SEARCH I N PROWESS ONLY). 5. DETAILS REGARDING THE PRINCIPAL ACTIVITY WERE NOT AVAILABLE IN PROWESS/CAPITALISE PLUS. 6. COMPANIES NOT HAVING FINANCIAL DATA OF THE YEAR E NDED 31 ST MARCH 2005. 5. FINALLY, THE ASSESSEE IDENTIFIED THE FOLLOWING 6 COMPANIES A S BEING COMPARABLES TO CRTI, THE DETAILS OF WHICH ARE AS UNDER : S.NO. NAME OF CO. PLI% 1 ACE SOFTWARE EXPORTS LTD. - 56.35% 2 C.S. SOFTWARE ENTERPRISE LTD. 21.15% 3 CAMBRIDGE SOLUTIONS LTD. 19.45% 4 GENESYS INTERNATIONAL CORPORATION LTD. 32.44% 5 VAMA INDUSTRIES LTD. 5.69% 6 GEOMETRIC LTD. - 0.35% ARITHMETIC MEAN 3.67% TVEPL 10.45% 4 ITA NO.358/PN/2013 6. BASED ON THE ABOVE ANALYSIS THE WEIGHTED MEANS OF COMPARABLE COMPANIES WAS WORKED OUT AT 3.67% WHILE OPERA TING MARGIN OF THE TVEPL (ASSESSEE) IS 10.45%. IT WAS ACCORDIN GLY SUBMITTED THAT ITS TRANSACTIONS WITH THE AES IN RESPECT OF ITES AND MARKETING SUPPORT SERVICES CAN BE CONSIDERED AT ARMS LENGTH. 7. HOWEVER, THE TPO AFTER EXAMINING THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE DID NOT ACCEPT THE BENCHMARKING DONE B Y THE ASSESSEE OF ITS INTERNATIONAL TRANSACTIONS. HE THEREFO RE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. AFTER CONSIDERING TH E VARIOUS SUBMISSIONS MADE BY THE ASSESSEE THE TPO NOTED THAT O NLY 1 COMPANY OUT OF THE 6 COMPANIES SELECTED BY THE ASSESSE E, I.E. GENESYS INTERNATIONAL CORPORATION LTD. CAN BE CONSIDERED AS COMPARABLE. THE TPO THEREAFTER ADOPTED NEW FILTERS. HE NO TED THAT THE ASSESSEE COMPANY IS A SERVICE PROVIDING ENTITY. ONE OF THE CRITERIA IS SELECTION OF COMPANIES WITH TURNOVER EXCEEDING R S. 2 CRORES AND LOWER THAN RS.200 CRORES. AFTER APPLYING TH E QUANTITATIVE AND QUALITATIVE FILTERS THE TPO SELECTED THE FOLLO WING COMPANIES AS THE FINAL SET OF COMPARABLES, THE DETAILS OF W HICH ARE AS UNDER : 8. SINCE THE ASSESSEES PLI MARGIN IS 11.67% WHEREAS TH E AVERAGE PLI MARGIN OF THE COMPARABLES COMES TO 27.21% T HE TPO SR.NO. NAME OF THE COMPANY PLI MARGIN (OP/OC) 1 GENESYS INTERNATIONAL CORPORATION LTD. 47.40% 2 HDO TECHNOLOGIES LTD. 22.33% 3 ACROPETAL TECHNOLOGIES LTD. 39.47% 4 C.S. SOFTWARE LTD. 21.15% 5 VAMA INDUSTRIES 5.69% ARITHMETIC MEAN (136.04/5) 27.21% 5 ITA NO.358/PN/2013 PROPOSED ADJUSTMENT OF RS.4,02,74,292/- TO THE ALP WHICH IS AS UNDER : I. OPERATING REVENUE FROM ITES RS.28,95,10,000 II. OPERATING COST RS.25,92,44,000 III. OPERATING PROFIT SHOWN BY ASSESSEE RS.3,02,66,000 IV. ARMS LENGTH PRICE (259244000 X 127.21/100) RS.32,97,84,292 V. ADJUSTMENT TO BE MADE RS.4,02,74,292 9. SO FAR AS THE RECEIPT OF MANAGERIAL SERVICES IS CONCERN ED IT WAS SUBMITTED THAT THE AE HAD DEPUTED ITS EMPLOYEES TO THE ASSESSEE FOR CONTROL, MANAGEMENT, BUSINESS DEVELOPMENT AN D GROWTH OF COMPANY, I.E. STEWARDSHIP SERVICES THROUGH ITS EMPLOYEE S. IT WAS FURTHER STATED THAT THE RECEIPT OF SERVICES HELP THE ASSESSEE COMPANY IN MANAGING ITS BUSINESS SMOOTHLY SINCE ENTIRE S ERVICE RECEIPTS ARE FROM AES AND IT IS IN BUSINESS INTEREST OF THE ASSESSEE TO PAY FOR BENEFITS DERIVED FROM SUCH SERVICES. 10. DURING THE COURSE OF TP PROCEEDINGS THE TPO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF MANAGERIAL SERVICES SUCH AS NATURE OF SERVICES RENDERED BY THE AE TO ASSESSEE, CO PY OF AGREEMENT, EVIDENCES FOR RECEIPT OF SERVICES AND BENEFIT DE RIVED FROM SUCH SERVICES. HOWEVER, ACCORDING TO THE TPO THE ASSESSEE COULD NOT PRODUCE ANY OTHER INFORMATION IN SUPPORT OF ITS CLAIM EXCEPT FOR THE DETAILS OF TAX DEDUCTED AT SOURCE. SINCE THE ASSESSEE FAILED TO PROVE THE RECEIPT OF SERVICES AND BENEFIT DERIVED FROM SERVICES WITH SUPPORTING EVIDENCES THE AO TREATED THE A LP OF THIS TRANSACTION AS NIL AND ACCORDINGLY PROPOSED AN ADJUS TMENT OF RS.45,53,203/- TO BE MADE TO THE ALP. WHILE DOING SO, HE R ELIED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 6 ITA NO.358/PN/2013 GEM PLUS INDIA PVT. LTD. VS. ACIT VIDE ITA NO.352/BANG/2009 FOR A.Y. 2003-04. 11. THE AO PASSED THE DRAFT ASSESSMENT ORDER ON 30-1 2-2011 BY MAKING THE ABOVE ADDITIONS AS PROPOSED BY THE TPO. THE ASSESSEE APPROACHED THE DRP WHO VIDE ORDER DATED 04-09-2012 G AVE CERTAIN DIRECTIONS TO THE AO. BASED ON SUCH DIRECTIONS BY THE D RP THE AO PASSED THE ORDER U/S.143(3) R.W.S. 144C(13) ON 29-11-2012 BY MAKING AN ADJUSTMENT OF RS.6,04,43,374/- TO THE INTERNATION AL TRANSACTIONS AND DISALLOWED RS.4,73,965/- U/S.10A OF THE I.T. ACT. 12. AGGRIEVED WITH SUCH ORDER OF THE AO THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : THE APPELLANT OBJECTS TO THE ORDER DATED NOVEMBER 2 9, 2012 PASSED BY THE LD. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE ['ACIT'] U/S. 143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 ['THE ACT' ] IN PURSUANCE OF THE DIRECTIONS OF THE LEARNED DISPUTE RESOLUTION PANEL, PUNE ['DRP'] DATED SEPTEMBER 04, 2012 FOR TH E ASSESSMENT YEAR 2008-09 ON THE FOLLOWING AMONG OTHER GROUNDS: 1. TRANSFER PRICING ADJUSTMENT : THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE L EARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE IN MAKING AN ADJUSTMENT AMOUNTING TO RS. 6,04,43,374 TO THE VALU E OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE IN RESPECT OF PROVISION OF ENGINEERING DESIG N SERVICES. 2. ERRONEOUS REJECTION OF SEGMENTAL PROFITABILITY OF THE APPELLANT THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING THE SEGMENTAL PROFITABILITY OF THE APPELLANT IN RESPECT O F PROVISION OF ENGINEERING DESIGN SERVICES TO ITS ASSOCIATED ENTERPRISES. 3. ERRONEOUS COMPUTATION OF ADJUSTMENT IN RESPECT OF P ROVISION OF ENGINEERING DESIGN SERVICES TO ASSOCIATED ENTERPRISES AT THE ENTITY LEVEL. THE LEARNED CIT PURSUANT TO THE DIRECTIONS OF THE LEA RNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPUTING THE TRANSFER PRICING ADJUSTMENT ON THE ENTITY LEVEL INCOM E OF THE APPELLANT INSTEAD OF COMPUTING THE TRANSFER PRICING ADJUSTMENT O N INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF ENGINEERING DESIGN SERVICES TO ITS ASSOCIATED ENTERPRISES ONLY. 7 ITA NO.358/PN/2013 4. ERRONEOUS COMPUTATION OF OPERATING PROFIT OF THE APPELLANT THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE L EARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE IN NOT CONSIDERING SUNDRY CREDIT BALANCES WRITTEN BACK OF RS.2 9,33,688 AS PART OF THE OPERATING INCOME OF THE APPELLANT. 5. ERRONEOUS SELECTION OF COMPARABLE COMPANY THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF LEARN ED DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN SELECTING ACROPETAL TECHNOLOGIES LIMITED AND GENESYS INTERNATIONAL CORPORATION LIMITED AS A COMPARABLE COMPANY. 6. ERRONEOUS REJECTION OF COMPARABLE COMPANIES THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF LD. D RP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE I N REJECTING THE FOLLOWING COMPANIES AS COMPARABLE COMPANIES : ACE SOFTWARE EXPORTS LIMITED AND GEOMETRIC SOFTWARE SOLUTIONS LIMITED 7. ERRONEOUS COMPUTATION OF OPERATING MARGIN OF COMP ARABLE COMPANY. 7.1 THE LD. ACIT PURSUANT TO THE DIRECTIONS OF LD. D RP HAS ERRED IN CONSIDERING UNADJUSTED OPERATING MARGIN OF C.S. SOFTW ARE LIMITED (NOW KNOWN AS CSS TECHNERGY LIMITED) AT 26.82%. 8. ERRONEOUS COMPUTATION OF WORKING CAPITAL ADJUSTED MARGINS OF CERTAIN COMPARABLE COMPANIES. THE LD. ACIT PURSUANT TO THE DIRECTIONS OF LD. DRP H AS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN IN CORRECTLY COMPUTING WORKING CAPITAL ADJUSTMENT FOR ALL COMPARA BLE COMPANIES. 9. RISK ADJUSTMENT DENIED. THE LD. ACIT PURSUANT TO THE DIRECTIONS OF LD. DRP H AS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NO T GRANTING THE RISK ADJUSTMENT. 10. VARIATION/REDUCTION OF 5 PERCENT FROM THE ARITH METIC MEAN DENIED. THE LD. ACIT PURSUANT TO THE DIRECTIONS OF LD. DRP H AS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN N OT GRANTING THE BENEFIT OF +/- 5% PERCENT AS PER PROVISO TO SECTION 92 C(2) OF THE ACT. 11. ERRONEOUS COMPUTATION OF DEDUCTION U/S.10A THE LD. ACIT PURSUANT TO THE DIRECTIONS OF LD. DRP H AS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN IN CORRECTLY COMPUTING THE DEDUCTION U/S.10A OF THE ACT. 8 ITA NO.358/PN/2013 12. INITIATION OF PENALTY PROCEEDINGS THE LD. ACIT ERRED ON THE FACTS AND IN LAW IN INITIA TING PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT. 13. LEVY OF INTEREST ON ACCOUNT OF UNANTICIPATED TRA NSFER PRICING ADJUSTMENT. THE LD. ACIT ERRED ON THE FACTS AND IN LAW WHILE LEV YING INTEREST U/S.234A AND SECTION 234B OF THE ACT, ON ACCOUNT OF T HE UNANTICIPATED TRANSFER PRICING ADJUSTMENT. 14. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHO UT PREJUDICE TO THE OTHER. 15. THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO THE GROUNDS OF APPEAL. 13. GROUND OF APPEAL NO.1 BEING GENERAL IN NATURE IS DISMISSED. 14. SO FAR AS GROUND OF APPEAL NO.2 IS CONCERNED THE LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO MADE AN ADJUS TMENT TO THE ASSESSEES INTERNATIONAL TRANSACTION OF THE PROVISION OF I T BASED ENGINEERING SERVICES CONSIDERING THE OPERATING MARGIN OF 11 .67% OF THE WHOLE ENTITY. ALTHOUGH THE ASSESSEE HAD STATED THA T ADJUSTMENT SHOULD BE MADE ONLY ON SEGMENTAL PROFITABILITY OF EXPORTS TO AE AS PROFITABILITY TO DOMESTIC SALES DOES NO T REFLECT PROFITS EARNED FROM ANY INTERNATIONAL TRANSACTIONS THE TPO HAD REJECTED THE SAME. BEFORE THE DRP IT WAS SUBMITTED THA T THE DIFFERENCES IN OPERATING MARGINS EARNED BY THE ASSESSEE IN THESE 2 SEGMENTS ARE BECAUSE OF THE DIFFERENT BILLING RATES AS WELL A S DIFFERENCE IN SKILL SETS OF THE EMPLOYEES, WHO PROVIDE SERVICES IN RESPECTIVE SEGMENTS. IT WAS ARGUED THAT TRANSFER PRICIN G PROVISIONS ARE APPLICABLE ONLY TO THE INTERNATIONAL TRANSACTIONS FOR T ESTING ITS ALP. CONSEQUENTLY, ECONOMIC ANALYSIS AND FUNCTIONAL COMPAR ABILITY SHOULD BE MADE ONLY FOR THE INTERNATIONAL TRANSACTIONS AN D NOT FOR THE COMPANIES DEALING WITH THE UNRELATED PARTIES. RELYI NG ON 9 ITA NO.358/PN/2013 VARIOUS DECISIONS IT WAS ARGUED THAT THE PLI SHOULD BE C OMPUTED ONLY FOR THE PORTION RELATED TO INTERNATIONAL TRANSACTION AND NOT ON WHOLE ENTITY BASIS. 15. HOWEVER, THE DRP ALSO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. REFERRING TO PAGES 73 TO 77 OF THE COMPILATION HE SUBMITTED THAT DETAILED SEGMENTAL PROFITABILITY WAS FILED BEFOR E THE DRP. REFERRING TO THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF 3I INFOTECH LTD. VS. ITO REPORTED IN 35 TAXMANN.COM 582 AND THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF HONEYWELL ELECTRICAL DEVICES & SYSTEM S INDIA LTD. VS. ACIT REPORTED IN 64 SOT 119 HE SUBMITTED THAT IT HAS BEEN HELD THAT THE PLI SHOULD BE CONSIDERED ONLY F OR THE SEGMENT PERTAINING TO INTERNATIONAL TRANSACTIONS WITH AES. 16. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE TPO/DRP. HE SUBMITTED THAT THE DRP HAS ALREADY HELD THAT IN PRINCIPLE PLI SHOULD BE COMPUTED ONLY ON INTERNATIONAL TRANSACTION. ACCORDINGLY, THEY HELD THAT PLI SHOULD BE COMPUTED ACCORDING TO THE SEGMENT CONSISTING OF THE INTERNATIONAL TRANSACTIONS WITH THE AES. HOWEVER, IF EXPORT SEGMENT IS NOT MAINTAINED, THEN NECESSARY ADJUSTMENT SHOULD BE M ADE ON ACCOUNT OF THE MATERIAL DIFFERENCES, IF ANY, AFTER COMPUTING SUCH PLI OF THE RELEVANT SEGMENT. ACCORDINGLY, THE DRP HAD DIRECT ED THE AO TO WORK OUT PLI OF THE SEGMENT CONSISTING OF THE INTER NATIONAL TRANSACTIONS ONLY IF SUCH SEGMENTAL DATA IS AVAILABLE. THE DRP HAS NOT VERIFIED THE SEGMENTAL DATA GIVEN BY THE ASSESSEE. T HEREFORE, THE MATTER MAY BE RESTORED TO THE FILE OF THE TPO WITH A DIRECTION TO VERIFY THE SAME. 10 ITA NO.358/PN/2013 17. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE TPO/AO/DRP AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE TPO IN THE INSTANT CASE MADE AN ADJUSTMENT TO THE ASSESSEES INTERNATIONAL TRANSACT ION OF THE PROVISION OF IT BASED ENGINEERING SERVICES CONSIDERING THE OPERATING MARGIN OF 11.67% OF THE WHOLE ENTITY. WHILE DOING S O, HE REJECTED THE CONTENTION OF THE ASSESSEE THAT ADJUSTME NT SHOULD BE MADE ONLY ON SEGMENTAL PROFITABILITY OF EXPORTS TO AES A S PROFITABILITY OF DOMESTIC SALES DOES NOT REFLECT PROFITS EARNED FROM ANY INTERNATIONAL TRANSACTIONS. WE FIND THE DRP AGREED IN PRINCIPLE THAT PLI SHOULD BE COMPUTED ONLY ON INTERNATIONAL TRANS ACTION AND ACCORDINGLY HELD THAT IT SHOULD BE COMPUTING ACCORDING TO THE SEGMENT CONSISTING OF THE INTERNATIONAL TRANSACTIONS WITH THE AES. ACCORDINGLY, THEY DIRECTED THE AO TO WORK OUT PLI OF T HE SEGMENT CONSISTING OF THE INTERNATIONAL TRANSACTIONS ONLY IF SUCH SE GMENTAL DATA IS AVAILABLE. 18. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT HE HAS FILED SUCH SEGMENTAL PROFITABILITY BEFORE DRP, COPIES OF WHICH ARE PLACED AT PAGES 73 TO 80 OF THE PAPER BOOK. FROM PAGES 73 TO 80 OF THE APPEAL MEMO WE FIND THE ASSESSEE HAS GIV EN SEGMENTAL PROFITABILITY BASED ON SCIENTIFIC AND CONSISTENT METHODOLOGY. NO MISTAKES HAVE BEEN POINTED OUT BY THE DRP/TPO. THE VARIOUS BENCHES OF THE TRIBUNAL ARE CONSISTENTLY TA KING THE VIEW THAT PLI SHOULD BE CONSIDERED ONLY FOR THE SEGMENT PERTAINING TO INTERNATIONAL TRANSACTIONS WITH AES. WE ACCORDINGLY H OLD THAT THE TPO SHOULD NOT HAVE REJECTED THE SEGMENTAL PROFITAB ILITY OF THE 11 ITA NO.358/PN/2013 ASSESSEE IN RESPECT OF PROVISION OF ENGINEERING DESIGN SE RVICES TO ITS AES. SINCE THE SEGMENTAL PROFITABILITY AS SUBMITTED BY T HE ASSESSEE HAS NOT BEEN EXAMINED EITHER BY THE TPO OR T HE DRP AND SINCE THE DRP HAD ALSO DIRECTED THE AO TO WORK OUT THE PLI OF THE SEGMENT CONSISTING OF THE INTERNATIONAL TRANSACTIONS IF SUC H SEGMENTAL DATA IS AVAILABLE, THEREFORE, WE, IN THE INTEREST OF JUSTICE, DIRECT THE AO TO WORK OUT PLI OF THE SEGMENT CONSISTING OF THE INTERNATIONAL TRANSACTIONS ONLY. THE GROUND RAISED BY TH E ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 19. SO FAR AS GROUND OF APPEAL NO.3 IS CONCERNED, I.E. ERRO NEOUS COMPUTATION OF ADJUSTMENT IN RESPECT OF PROVISION OF SERVICES TO AE S AT ENTITY LEVEL IS CONCERNED WE FIND THE ISSUE STANDS DECI DED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE PUNE BENC H OF THE TRIBUNAL IN THE CASE OF DEMAG CRANES & COMPONENTS INDIA PVT. LTD. VS. DCIT REPORTED IN 49 SOT 610 AND THE DECISION IN THE CASE OF SANDVIK ASIA PVT. LTD. VS. ACIT VIDE ITA NO.2545/PN/2012 ORDER DATED 27-09-2013. WE FIND THE COORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF DEMAG CRANES & COMPONENTS INDIA PVT. (SUP RA) AT PARA NOS. 14 AND 15 HAS OBSERVED AS UNDER : 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S ON THIS ASPECT AND FIND OURSELVES INCLINED TO UPHOLD THE PLEA OF THE ASSESSEE. OSTENSIBLY, THE OBJECTIVE OF DETERMINING THE ARMS LEN GTH PRICE U/S 92C OF THE ACT IN RELATION TO AN INTERNATIONAL TRANSACTI ON CARRIED OUT BY AN ASSESSEE WITH ITS AE IS TO SUPPLANT THE PROVISIONS OF SECT ION 92(1) OF THE ACT , WHICH PRESCRIBES THAT INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE AL P, AND THE MEANING OF THE EXPRESSION INTERNATIONAL TRANSACTION IS CONTAINED IN SEC. 92B OF THE ACT TO MEAN A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES. THEREFORE, IT IS A NATURAL COR OLLARY THAT THE ADJUSTMENT ARISING AS A RESULT OF TRANSFER PRICING ANALY SIS IS TO BE CONFINED TO INTERNATIONAL TRANSACTIONS UNDERTAKEN WIT H THE AES ALONE AND NOT IN RELATION TO NON-AE TRANSACTIONS. SIMILAR POINT AROSE IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07 IN ITA NO. 120/P N/2011 (SUPRA) WHEREIN TRIBUNAL AFTER REFER RING TO SUB-CLAU SES (I) AND ( II) OF RULE 10B(1) (E) OF THE RULES AND CERTAIN PRECEDENTS B Y WAY OF 12 ITA NO.358/PN/2013 DECISIONS OF THE CO-ORDINATE BENCHES, FINALLY ACCEPTE D THE PLEA OF THE ASSESSEE IN THE FOLLOWING WORDS: 49. ALL THESE CITED DECISIONS IN GENERAL AND THE DEC ISION IN THE CASE OF M/S.JT .JIN ELECTRONICS I P. LTD. VS. ACIT 36 SOT 2 27, IN PARTICULAR ARE UNIFORM IN ASSERTING THAT THE TP ADJUSTMENTS ARE TO BE COMPUTED NOT CONSIDERING THE ENTITY LEVEL SALES. RATHER IT SHOULD BE DONE IDEALLY CONSIDERING THE RELATABLE SALES DRAWING THE QUANTITATI VE RELATIONSHIP TO THE IMPORTS FROM THE AES, I.E. CONTROLLED COST. THE PR INCIPLE OF PROPORTIONALITY IS RELEVANT HERE AND IT IS A SETTLED L AW IN THIS REGARD. IN THE SITUATION LIKE THE ONE IN THE INSTANT CASE OF THE ASSESSEE, THERE IS DATA RELATING TO CONTROLLED AND UNCONTROLLED COST PA RTICULARS. THIS UNDISPUTED DATA IS SUFFICE TO ARRIVE THE PROPORTIONATE SALES RELATABLE TO THE INTERNATIONAL TRANSACTION WITH THE AES I.E. CONT ROLLED COST . ACCORDINGLY, THE GROUND NO. 10 RELATING TO INCORREC T COMPUTATION OF TRANSFER PRICING ADJUSTMENT TO THE MANUFACTURING ACTI VITY IS ALLOWED PRO TANTO. 15. IN VIEW OF AFORESAID DISCUSSION WE THEREFORE, HOLD THAT THE ASSESSEE HAS TO SUCCEED ON THE SAID PLEA AND AS A RESULT GRO UND NO. 7 RAISED BY THE ASSESSEE STANDS ALLOWED. 20. SIMILARLY, THE TRIBUNAL IN THE CASE OF SANDVIK ASIA PVT. L TD. (SUPRA) AT PARA NO.16 OF THE ORDER HAS OBSERVED AS UNDER : 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN OUR CONSIDERED OPINION, THE TPO HAS CLEARLY MISDIRECTED HI MSELF IN COMPUTING THE TRANSFER PRICING ADJUSTMENT IN RESPECT O F ALL TRANSACTIONS OF THE ASSESSEE'S TOOLS MANUFACTURING SEGMENT A ND NOT LIMITING IT TO THE TRANSACTIONS WITH THE AES. PERTINE NTLY, THE ENTIRE EXERCISE OF CONDUCTING A TRANSFER PRICING ANALYSIS IS TO COMPUTE ALP OF AN INTERNATIONAL TRANSACTION ALONE. SECTION 92(1) OF THE ACT PRESCRIBES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSAC TION SHALL BE COMPUTED HAVING REGARD TO THE ALP. THEREFORE, THE O BJECTIVE OF THE COMPUTING ALP IS TO DETERMINING THE INCOME ARISING FR OM AN INTERNATIONAL TRANSACTION. THEREFORE, THE ADJUSTMENT THAT IS REQUIRED TO BE MADE IS TO BE LIMITED TO THE INTERNATIONAL TRANSAC TIONS WITH THE AES AND NOT TO THE ENTITY/SEGMENTAL LEVEL TRANSACTIONS. SI MILAR VIEW HAS BEEN EXPRESSED BY OUR COORDINATE BENCHES IN THE CASES O F (I) IL JIN ELECTRONICS INDIA (P) LTD. (SUPRA); (II) KYUNGSHIN IND USTRIAL MOTHERSON LIMITED (SUPRA); AND, (III) DEMAG CRANES & COMPONENTS (INDIA) PVT. LIMITED (SUPRA). FOLLOWING THE AFORESAID PRECEDENTS, W E THEREFORE FIND ENOUGH MERIT IN THE PLEA OF THE ASSESSEE AND CONCLUDE B Y DIRECTING THE ASSESSING OFFICER TO RE-COMPUTE THE ADJUSTMENT, IF SO WAR RANTED, ONLY WITH REGARD TO THE TRANSACTIONS IN THE TOOLS MANUFACTU RING SEGMENT CARRIED OUT WITH THE AES AND NOT TO THE ENTIRE TRANSA CTIONS IN THE SEGMENT WHICH INCLUDE THE TRANSACTIONS WITH THE NON- AES ALSO. IN OTHER WORDS, THE ADDITION IS TO BE CONFINED, IF OTHER WISE WARRANTED, TO THE COMPONENT OF TRANSACTIONS WITH THE AES ALONE AND A .Y. 2008-09 NOT TO THE ENTIRE SEGMENTAL RESULTS. THUS, ON GROUND OF APPEAL NO. 2, ASSESSEE SUCCEEDS AS ABOVE. 13 ITA NO.358/PN/2013 21. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE COORD INATE BENCHES OF THE TRIBUNAL CITED (SUPRA) AND IN ABSENCE OF A NY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. DEP ARTMENTAL REPRESENTATIVE, WE HOLD THAT ADDITION IS TO BE CONFINED TO THE COMPONENT OF INTERNATIONAL TRANSACTIONS WITH THE AES ALONE AND NOT TO THE ENTIRE SEGMENTAL RESULTS. THE ADJUSTMENT ARISING AS A RESULT OF TP ANALYSIS IS TO BE CONFINED TO THE INTERNATIONAL TRANS ACTIONS UNDERTAKEN WITH THE AES ALONE AND NOT IN RELATION TO NON AE TRANSACTIONS. GROUND OF APPEAL NO.3 BY THE ASSESSEE IS A CCORDINGLY ALLOWED. 22. SO FAR AS GROUND OF APPEAL NO.4 IS CONCERNED IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SUNDR Y CREDIT BALANCES WRITTEN BACK AT RS.29,33,688/- WAS NOT CONSIDERE D BY THE AO AS OPERATING INCOME. REFERRING TO THE LEDGER ACCOUNT OF THE PRIOR PERIOD EXPENSES THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE DETAILED BREAK-UP OF THE AMOUNT OF RS.29,33,688/- WAS GIVEN WHICH SHOWS THAT THE AMOUNT PERTAINS TO REVENUE ITEMS AND IS CLEARLY OPERATING IN NATURE AND OUGHT TO BE CONSIDERE D AS SUCH. HE ACCORDINGLY SUBMITTED THAT A DIRECTION MAY BE GIVEN TO THE AO TO LOOK INTO THE SAME AND DECIDE ACCORDINGLY. 23. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUBMITTED THAT IT IS NOT A PART OF THE OPERATING PROFIT. TH E SAFE HARBOUR RULE EXCLUDES SUCH TYPE OF EXPENSES. THEREFORE , THIS GROUND RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 24. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. IT IS NOT IN DISPUTE THAT NO DETAILS WERE FILED EITHER BEFORE THE AO OR BEFORE THE DRP. HOWEVER, SINCE IT INVOLVES COMPUTAT ION OF 14 ITA NO.358/PN/2013 OPERATING PROFIT OF THE ASSESSEE AND SINCE THE ASSESSEE HAS FILED CERTAIN DETAILS WHICH WERE NOT BEFORE THE TPO OR THE DRP , THEREFORE, WE, IN THE INTEREST OF JUSTICE, RESTORE THIS ISSUE TO THE FILE OF THE AO/TPO WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE AS SESSEE TO JUSTIFY AND EXPLAIN TO THE SATISFACTION OF THE AO/TPO THAT THE SUNDRY CREDIT BALANCES WRITTEN BACK AMOUNTING TO RS.29,3 3,688/- IS PART OF THE OPERATING INCOME OF THE ASSESSEE. THE AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORD INGLY. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATIST ICAL PURPOSES. 25. IN GROUND OF APPEAL NO.5 THE ASSESSEE HAS CHALLENGED THE DIRECTION OF THE DRP IN SELECTING ACROPETAL TECHNOLOGIES LTD . AND GENESYS INTERNATIONAL CORPORATION LTD. AS COMPARABLE COMPANIES. 26. SO FAR AS ACROPETAL TECHNOLOGIES LTD. IS CONCERNED IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TP O HAS CONSIDERED OVERALL ENTITY LEVEL OPERATING MARGIN IN RESPECT OF COMPARABLE SEGMENTAL MARGIN. HE SUBMITTED THAT ACROPETA L TECHNOLOGIES LTD. GENERATES REVENUE FROM ENGINEERING DESIG N SERVICES AND INFORMATION TECHNOLOGY CONSULTANCY. THEREFOR E, ONLY SEGMENTAL PROFITABILITY OF ENGINEERING DESIGN SERVICES NEEDS TO BE CONSIDERED FOR THE COMPARISON. THE DRP HELD THAT THE IT BASED SERVICES SEGMENT IS ALSO SIMILAR TO THE SEGMENT OF THE ENG INEERING DESIGN SERVICES AND ACCORDINGLY REJECTED THE GROUND RA ISED BY THE ASSESSEE. HE SUBMITTED THAT THE OPERATING PROFIT/OPER ATING COST OF THE RELEVANT SEGMENT OF THE SAID COMPARABLE COMPANY FOR THE YEAR UNDER CONSIDERATION IS 32.92% BEFORE CONSIDERING THE WORKIN G 15 ITA NO.358/PN/2013 CAPITAL ADJUSTMENT. HE SUBMITTED THAT THE ENGINEERING DE SIGN SERVICES CANNOT BE EQUATED WITH IT SERVICES, THEREFORE, A CROPETAL TECHNOLOGIES LTD. SHOULD NOT BE CONSIDERED AS COMPARABLE COMPANY. 27. SO FAR AS GENESYS INTERNATIONAL CORPORATION LTD. IS CONCERNE D THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABO VE COMPANY IS FUNCTIONALLY DIFFERENT. THE COMPANY IS ENGAGED IN PROVIDING GEOGRAPHICAL INFORMATION SERVICES COMPRISING PHOTOGRAMMERTR Y, REMOTE SENSING, CARTOGRAPHY, DATA CONVERSION AND RELATED COMPUTER BASED SERVICES ACCORDING TO THE INFORMATION PRO VIDED IN THE ANNUAL REPORT. FURTHER, IT OWNS INTANGIBLE ASSETS OF C OMPUTER AND GIS DATABASE AND HAS ACQUIRED NEW BUSINESS. REFERR ING TO THE COPY OF THE ASSESSMENT ORDER FOR A.Y. 2010-11 AND 2011- 12 HE SUBMITTED THAT THE TPO, BASED ON THE SUBMISSIONS MADE B Y THE ASSESSEE, HAS DROPPED GENESYS INTERNATIONAL CORPORATION LTD. FROM THE FINAL SET OF COMPARABLES. REFERRING TO THE DECISION OF TH E HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MO TORS INDIA ENGG. PVT. LTD. VS. ITO VIDE ITA NO.1850/HYD/2012 OR DER DATED 21-02-2014 HE SUBMITTED IN THAT CASE GENESYS IN TERNATIONAL CORPORATION LTD. WAS EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS A GEOSPATIAL SERVICES CONTE NT PROVIDER SPECIALISING IN LAND BASED TECHNOLOGIES. FURTHER, THE BUSINE SS OF THIS COMPANY REQUIRES SKILLED MANPOWER AND SCIENTISTS AND CIVIL ENGINEERS ETC. IT ALSO CARRIED OUT R&D SERVICES AND OWN INTANGIBLES. FOLLOWING THE DECISION OF THE BANGALORE BENCH OF THE TRIBUN AL IN THE CASE OF SUMPHONY MARKETING SALES INDIA PVT. LTD. REPO RTED IN 38 TAXMANN.COM 5 (BANGALORE) ORDER DATED 14-08-2012 THE TRIBUNAL HAS HELD THAT THIS COMPANY CANNOT BE REGARDED AS 16 ITA NO.358/PN/2013 COMPARABLE AND DESERVES TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 28. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND WHILE SUPPORTING THE ORDER OF THE TPO/DRP REFERRED TO PAGE 1 01 OF THE APPEAL MEMO AND SUBMITTED THAT FROM THE SEGMENTAL REVEN UE SUBMITTED BY THE ASSESSEE IT IS NOT CLEAR AS TO WHETHER ACROPETAL TECHNOLOGIES LTD. IS ENGAGED IN SOFTWARE DEVELOPMENT OR I TES. THE DRP PROCEEDED ON THE GROUND THAT ITES AND ITES ARE SIMILAR, HOWEVER, IF THEY CAN DEMONSTRATE THAT THEY ARE IN SOFTWA RE DEVELOPMENT, REVENUE HAS NO CASE. 29. SO FAR AS GENESYS INTERNATIONAL CORPORATION LTD. IS CONCER NED HE SUBMITTED THAT IN A.Y. 2010-11 IT WAS EXCLUDED FROM THE LIST OF COMPARABLES ONLY BECAUSE OF SUPER PROFIT. HOWEVER, FOR A .Y. 2011- 12 NO REASONS HAVE BEEN GIVEN FOR SUCH EXCLUSION. 30. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDER REFE RRING TO THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN TH E CASE OF HYUNDAI MOTORS INDIA ENGG. PVT. LTD.(SUPRA) SUBMITTED TH AT THE TRIBUNAL HAS ALREADY CONSIDERED THIS ASPECT AND HELD THAT WHEN ALL ACTIVITIES REMAIN SAME THE SAME HAS TO BE EXCLUDED. 31. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE TPO/AO/DRP AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. AS REGARDS THE SELECTION OF GE NESYS INTERNATIONAL CORPORATION LTD. AS COMPARABLE COMPANY IS CONCERNED WE FIND THE SAID COMPANY HAS NOT BEEN CONSIDE RED AS COMPARABLE BY THE TPO HIMSELF IN A.Y. 2010-11 AND 2011-1 2. 17 ITA NO.358/PN/2013 DURING A.Y. 2010-11 A SPECIFIC SHOW CAUSE NOTICE WAS GIVEN TO THE ASSESSEE AND THE SAME WAS EXCLUDED AFTER CONSIDERING TH E DETAILED REPLY FILED THERETO. IN A.Y. 2011-12, THE SAID COMPANY WAS NOT INCLUDED AS COMPARABLE COMPANY EVEN IN THE SHOW CAUSE NOTICE. 32. WE FURTHER FIND THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGG. PVT. LTD. (SUPRA) WHILE EXCLUDING GENESYS INTERNATIONAL CORPORATION LTD. AS COMPA RABLE COMPANY HAS OBSERVED AS UNDER : V. GENESYS INTERNATIONAL CORPORATION LTD. THIS COMPANY IS LISTED AT SL. NO.11 IN THE LIST OF COMP ARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED , THE STAND OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY N OT COMPARABLE AND THAT IT HAS A DIFFERENT EMPLOYEE SKILL SET AND THAT THIS COMPANY PERFORMS R&D SERVICES AND ALSO OWNS INTANGIBLES. THIS COMPANY IS A GEOSPATIAL SERVICES CONTENT PROVIDER SPECIA LISING IN LAND BASED TECHNOLOGIES. FROM THE NOTES TO ACCOUNTS OF THIS C OMPANY, IT IS SEEN THAT THIS COMPANY IS ENGAGED IN PROVIDING GEOGRAP HICAL INFORMATION SERVICES COMPRISING OF PHOTOGRAMMETRY, REM OTE SENSING CARTOGRAPHY, DATA CONVERSION RELATED COMPUTED BASED SE RVICES AND OTHER RELATED SERVICES. FURTHER THE BUSINESS OF THIS COMP ANY REQUIRES SKILLED MANPOWER AND SCIENTISTS, CIVIL ENGINEERS, ETC. B ESIDES THE ABOVE, THIS COMPANY ALSO CARRIES OUT R&D SERVICES AND OW N INTANGIBLES. THE AFORESAID FACTS, IN OUR VIEW, WILL T AKE THIS COMPANY OUT OF THE LIST OF COMPARABLES. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA(P) LTD (SUPRA) BY THE BANGALORE BENCH. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THA T THIS COMPANY CANNOT BE REGARDED AS A COMPARABLE AND DESERVES TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 33. SINCE THE ASSESSEE COMPANY IS ENGAGED IN PROVIDING ENGINEERING DESIGN SERVICES AND SINCE THE HYDERABAD BENC H OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGG. PVT. LTD . (SUPRA) HAS EXCLUDED GENESYS INTERNATIONAL CORPORATION L TD. FROM THE LIST OF COMPARABLES ON THE GROUND THAT THE COMPANY IS FUNCTIONALLY DIFFERENT, THEREFORE, FOLLOWING THE DECISION CITED (SU PRA) AND FURTHER CONSIDERING THE FACT THAT GENESYS INTERNATIO NAL CORPORATION LTD. WAS NOT INCLUDED AS COMPARABLE COMPANY IN 18 ITA NO.358/PN/2013 A.YRS. 2010-11 AND 2011-12 BY THE AO HIMSELF IN ASSESSEE S OWN CASE, WE DIRECT THE TPO TO EXCLUDE GENESYS INTERNATION AL CORPORATION LTD. FROM THE LIST OF COMPARABLES. 34. SO FAR AS ACROPETAL TECHNOLOGIES LTD IS CONCERNED WE HOLD THAT THE SAID COMPANY IS FUNCTIONALLY COMPARABLE. HOWEVER , SINCE THE TPO HAS CONSIDERED THE ENTITY LEVEL PROFIT MARGIN OF T HE COMPARABLE COMPANY IN RESPECT OF THE ENGINEERING DESIGN S ERVICES SEGMENT WHICH IS COMPARABLE, WE DIRECT THE TPO/AO TO CON SIDER ONLY PROFIT MARGIN OF THE ENGINEERING DESIGN SERVICES SEGM ENT. WE HOLD AND DIRECT ACCORDINGLY. GROUND OF APPEAL NO.5 IS ACCO RDINGLY PARTLY ALLOWED. 35. IN GROUND OF APPEAL NO.6 THE ASSESSEE HAS CHALLENGED THE ERRONEOUS REJECTION OF COMPARABLE COMPANIES. ACCORDING T O THE LD. COUNSEL FOR THE ASSESSEE THE DISPUTE IS RELATING TO 2 COM PANIES, I.E. ACE SOFTWARE EXPORTS LTD. AND GEOMETRIC SOFTWARE SOLUTION S LTD. SO FAR AS THE ACE SOFTWARE EXPORTS LTD. IS CONCERNED T HE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE TPO REJEC TED THE ABOVE COMPANY ON THE GROUND THAT THIS COMPANY HAD RE PORTED OPERATING LOSS OF 56%. FURTHER, THE BUSINESS OF THE COMPA NY RELATES TO DATABASE CREATION (E-PUBLISHING) PERTAINING TO IN FORMATION TECHNOLOGY ENABLED SERVICES. THE COMPANY HAS DEBITED ST OCK VARIANCE WHICH IS UNEXPLAINABLE IN CASE OF SERVICE COMPANY. FURTHER, IT HAS INCURRED EXPENDITURE TOWARDS SOFTWARE SO URCING AND THEREFORE IS A SERVICE RECIPIENT AND NOT A SERVICE PROVID ER. HE SUBMITTED THAT ALTHOUGH DETAILED ARGUMENTS WERE MADE BE FORE THE DRP FOR INCLUSION OF THE SAID COMPANY AS COMPARABLE THE DR P 19 ITA NO.358/PN/2013 IGNORED SUCH ARGUMENTS AND UPHELD THE ACTION OF THE TP O IN EXCLUDING THIS EXTREME LOSS MAKING COMPANY. 36. SO FAR AS GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. IS CONCE RNED HE SUBMITTED THAT GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. IS ENGAGED IN THE BUSINESS OF RUNNING ENGINEERING AND DESIGN SERVICES AND THEREFORE IT IS RIGHTLY SELECTED AS COMPARAB LE COMPANY. HOWEVER, THE TPO REJECTED THE SAME FROM THE LIST OF COM PARABLES ON THE GROUND THAT THIS COMPANY HAS SUBSTANTIAL RELATED PA RTY TRANSACTIONS. ACCORDINGLY, THE TPO HELD THAT COMPANIES W ITH SIGNIFICANTLY MORE THAN 25% RELATED PARTY TRANSACTIONS CA NNOT BE TREATED AS UNCONTROLLED TRANSACTIONS. HE SUBMITTED TH AT WHEN LESS COMPARABLES ARE AVAILABLE THE RPT CAN BE RELAXED AS HELD BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF APPROVA SYSTEM S PVT. LTD. AND VICE VERSA VIDE ITA NO.1788/PN/2013 AND ITA NO.1803/PN/2013 ORDER DATED 13-01-2015. IT HAS BEEN HELD IN THE SAID DECISION THAT IF SUFFICIENT NUMBER OF 100% UNCONTROLLED COMPARABLES ARE NOT FOUND THEN COMPARABLES HAVING SIMILAR TRANSACTIONS SHOULD BE CONSIDERED. WHEN SUFFICIENT COMPARA BLES ARE NOT AVAILABLE, THEN THE THRESHOLD SHOULD BE RELAXED AN D ONLY GRADUALLY TO THE EXTENT THAT SUFFICIENT COMPARABLES ARE FO UND THE LIMIT SHOULD BE RELAXED. HE SUBMITTED THAT SINCE IN THE CAS E OF THE ASSESSEE ONLY 4 COMPARABLES WERE AVAILABLE, THEREFORE, THE FILTER HAS TO BE RELAXED. 37. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUBMITTED THAT THE TPO HAS REJECTED ACE SOFTWARE EXPO RTS LTD. NOT ONLY FOR ABNORMAL LOSS, BUT HE HAD ALSO GIVEN VARIOUS OTHE R REASONS SUCH AS NATURE OF BUSINESS OF THE COMPANY WHICH RELATE S TO 20 ITA NO.358/PN/2013 DATABASE CREATION (E-PUBLISHING) PERTAINING TO INFORMATION TECHNOLOGY ENABLED SERVICES. FURTHER, IT IS REPORTED IN SEGMENT/PRODUCT-WISE PERFORMANCE THAT THE COMPANYS O PERATIONS FALLS UNDER SINGLE SEGMENT NAMELY SOFTWARE AND SERVICES EX PORTS. SEGMENT-WISE PERFORMANCE HAS NOT BEEN FURNISHED. THE LD . COUNSEL FOR THE ASSESSEE WAS UNABLE TO COUNTER THE FINDIN GS GIVEN BY THE TPO, THEREFORE, ACE SOFTWARE EXPORTS LTD. HAS RIG HTLY BEEN EXCLUDED. 38. SO FAR AS GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. IS CONCE RNED THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS GOT SUBSTANTIAL RELATED PARTY TRANSACTIONS. THEREFOR E, THE TPO HAS RIGHTLY EXCLUDED THE SAME FROM THE LIST OF COMPARABLES . THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF APPROVA SYSTEMS PVT. LTD. CANNOT BE APPLIED TO THIS CASE SINCE TH E SAID CASE WAS DECIDED UNDER DIFFERENT SETS OF FACTS. HE ACCORDINGLY SUBMITTED THAT THE AO IS JUSTIFIED IN REJECTING THE ABOVE 2 COMPAN IES FROM THE LIST OF COMPARABLES. 39. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE TPO/DRP IN REJECTING ACE SOFTWARE EXPO RTS LTD. AND GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. FROM THE LIST OF COMPARABLES. SO FAR AS ACE SOFTWARE EXPORTS LTD. IS CONC ERNED, WE FIND THE TPO HAS GIVEN VARIOUS REASONS AT PAGE 14 OF THE ORDER APART FROM OPERATING LOSS OF 56% IN THE CURRENT YEAR. TH E TPO HAS MENTIONED THAT THE COMPANYS BUSINESS RELATES TO DATA BASE CREATION (E-PUBLISHING) PERTAINING TO ITES. THIS INCLUDES CREAT ING LARGE VOLUME OF FULL TEXT, IMAGE BASED DATA AND THE COMPA NY CONTINUES TO SOURCE ITS ENTIRE WORK FROM APEX GROUP OF U SA. 21 ITA NO.358/PN/2013 FURTHER, THE ASSESSEE HAS NOT FURNISHED SEGMENT-WISE PE RFORMANCE OF THIS COMPANY. THE TPO HAS FURTHER MENTIONED THAT ACE SOFTWARE EXPORTS LTD. HAS REVENUE FROM DIFFERENT SOURCES BUT NO S EGMENT- WISE BIFURCATION IS AVAILABLE. THE COMPANY HAS DEBITED STOCK VARIATION WHICH IS UNEXPLAINABLE IN THE CASE OF A SERVICE COM PANY. THE VARIOUS ISSUES RAISED BY THE TPO HAS NOT BEEN ADDR ESSED BY THE LD. COUNSEL FOR THE ASSESSEE. IN ABSENCE OF ANY DIST INCT FEATURES BROUGHT TO OUR NOTICE AGAINST THE FINDINGS GIVEN BY THE TP O WHILE REJECTING ACE SOFTWARE EXPORTS LTD. FROM THE LIST OF COMPARABLES WE FIND NO INFIRMITY IN THE ORDER OF THE AO/TPO/ DRP IN REJECTING THE SAME FROM THE LIST OF COMPARABLES. THEREFO RE, REJECTION OF ACE SOFTWARE EXPORTS LTD. FROM THE LIST OF CO MPARABLES IS UPHELD. 40. SO FAR AS REJECTION OF GEOMETRIC SOFTWARE SOLUTIONS CO . LTD. IS CONCERNED WE FIND THE TPO REJECTED THE SAME ON THE GR OUND THAT THIS COMPANY HAS SUBSTANTIAL RELATED PARTY TRANSACTIONS. HE HAS APPLIED THE RPT FILTER OF MORE THAN 25% AND HELD THAT COMP ANIES WITH MORE THAN 25% RPT CANNOT BE TREATED AS UNCONTRO LLED TRANSACTIONS. SINCE IT IS AN ADMITTED FACT THAT THE RPT H AS EXCEEDED 25% DURING F.Y. 2007-08, THEREFORE, IT WAS RIGHTL Y REJECTED AS COMPARABLE COMPANY. THE DECISION OF THE TRIBUNAL IN THE CASE OF APPROVA SYSTEMS PVT. LTD., (SUPRA) AS RELIED ON BY THE L D. COUNSEL FOR THE ASSESSEE IS NOT APPLICABLE TO THE FACTS O F THE PRESENT CASE. IN THAT CASE THE THRESHOLD FILTER OF 75% WAS ADOPT ED BY THE AO WHICH WAS UPHELD BY THE CIT(A). THE TRIBUNAL AFTER CONS IDERING THE TOTALITY OF THE FACTS OF THE CASE HELD THAT EXPORT FILTE R SHOULD BE RELAXED TO 50% FROM 75%. HERE, IN THE INSTANT CASE THE RP T FILTER HAS BEEN CONSIDERED BY THE AO AT 25% AND ABOVE. THER EFORE, THE 22 ITA NO.358/PN/2013 SAID DECISION, IN OUR OPINION, IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY, WE HOLD THAT AO/TPO/DRP ARE JUSTIFIED IN REJECTING GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. FROM THE LIST OF COMPARABLES. GROUND OF APPEAL NO.6 BY THE ASSESSEE IS AC CORDINGLY DISMISSED. 41. IN GROUND OF APPEAL NO.7 THE ASSESSEE HAS CHALLENGED THE ERRONEOUS COMPUTATION OF OPERATING MARGIN OF C.S. SOFTWARE LTD. 42. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 17 OF THE TPO ORDER AND SUBMITTED THAT THE TPO IN THE FINAL SET O F COMPARABLES HAS TAKEN THE PLI MARGIN OF C.S. SOFTWARE LTD ,. AT 21.15%. THE AO IN THE ASSESSMENT ORDER AT PAGE 5 HAS ALSO CONSIDERED THE PLI MARGIN OF THE SAME AS 21.15%. HOWEVER, HE HAS CONSIDERED THE REVISED PLI MARGIN AFTER WORKING CAPITAL AD JUSTMENT AT 34.86%. AFTER RECTIFICATION APPLICATION WAS FILED THE TPO CONSIDERED THE OP/OC PERCENTAGE AT 26.82% THEREAFTER M ADE WORKING CAPITAL ADJUSTMENT OF (-)5.98%. HE SUBMITTED THAT A DIRECTION MAY BE GIVEN TO ADOPT THE CORRECT MARGIN. 43. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HAS NO OBJECTION IF THE ISSUE IS RESTORED TO THE FILE OF THE AO TO ADOPT THE CORRECT MARGIN AFTER VERIFICATION OF THE RECORDS. 44. AFTER HEARING BOTH THE SIDES WE REMIT THE ISSUE TO TH E FILE OF THE AO WITH A DIRECTION TO ADOPT THE CORRECT MARGIN. T HE GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 45. GROUND OF APPEAL NO.8 WAS NOT PRESSED BY THE LD. COU NSEL FOR THE ASSESSEE FOR WHICH THE LD. DEPARTMENTAL REPRESEN TATIVE HAS 23 ITA NO.358/PN/2013 NO OBJECTION. ACCORDINGLY, GROUND OF APPEAL NO.8 IS DISMISS ED AS NOT PRESSED. 46. GROUND OF APPEAL NO.9 BY THE ASSESSEE RELATES TO DEN IAL OF RISK ADJUSTMENT BENEFIT. 47. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DID NOT PROVIDE ANY RISK ADJUSTMENT IN THE TP DOCUMENTATION AS TH E MARGIN OF THE COMPARABLE COMPANIES PRESENTED IN THE TP R EPORT WAS IN LINE WITH THE ASSESSEES OPERATING MARGIN. THE COM PARABLE COMPANIES SELECTED IN THE TP REPORT BEAR MARKET RISK. TH E ASSESSEE BEING A CAPTIVE SERVICE PROVIDER IS INSULATED FROM MAJOR R ISKS DUE TO ITS CONTRACTUAL ARRANGEMENTS WHEREAS THE COMPARABLE CO MPANIES ARE FULL RISK BEARING ENTITIES AND THEREFORE THERE SHOULD BE SOME ADJUSTMENTS MADE TO NULLIFY THESE DIFFERENCES IN RISK PROFILE. HE SUBMITTED THAT ALTHOUGH VARIOUS SUBMISSIONS WERE MADE B EFORE THE DRP, THE DRP WAS NOT CONVINCED WITH THE ARGUMENTS ADVANCED BEFORE THEM AND DIRECTED THE AO NOT TO MAKE ANY RISK A DJUSTMENT. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITTED THAT THE A SSESSEE IS ENTITLED TO RISK ADJUSTMENT : 1. INTELLINET TECHNOLOGIES INDIA PVT. LTD. VS. ITO REPORTED IN (2012) 22 TAXMANN.COM 28. 2. SONY INDIA PVT. LTD. VS. DCIT REPORTED IN (2008) 114 ITD 448. 3. E-GAIN COMMUNICATION PVT. LTD. VS. ITO REPORTED IN AIT- 2008-370-ITAT. 48. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUBMITTED THAT ALTHOUGH RISK ADJUSTMENT MAY BE GRANTED BUT HOW IT HAS TO BE GRANTED HAS NOT BEEN PROPERLY ARGUED BY T HE LD. COUNSEL FOR THE ASSESSEE. 24 ITA NO.358/PN/2013 49. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDER SUBM ITTED THAT THE PRIME LENDING RATE WAS CONSIDERED AS THE NORMA L RISK BEARING RATE OF RETURN, I.E. RATE AT WHICH ALL COMMERCIAL BANK S IN INDIA WOULD IDEALLY LAND THE INDEPENDENT CUSTOMERS. THE BANK RATE WAS CONSIDERED AS THE RISK FREE RATE OF RETURN. THEREFOR E, THE DIFFERENCE BETWEEN THE PLR AND BANK RATE IS THE RISK PRE MIUM WHICH WAS CONSIDERED AS THE ADJUSTMENT ON ACCOUNT OF RISK PROFILE BETWEEN THE TAXPAYER AND THE COMPARABLES. CONSIDERING THE PLR AS 12.61 AND THE BANK RATE AT 6% THE RISK PREMIUM COME S TO 6.61%. HE ACCORDINGLY SUBMITTED THAT ADOPTING THE ABOVE APPROACH THE RISK ADJUSTMENT FOR THE YEAR ENDED MARCH 31 ST 2008 IS 6.61%. IN CASE THE SAME IS NOT ACCEPTABLE HE SUBMITTED THAT RISK ADJUSTMENT BASED ON CAPM CAN BE COMPUTED. 50. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE O F INTELLINET TECHNOLOGIES INDIA PVT. LTD. (SUPRA) AT PARA 7.1 OF THE ORD ER HAS OBSERVED AS UNDER : 7.1 AS SEEN FROM THE RECORDS, THE ASSESSEE HAD ACQUIRED THE BUSINESS AND ALSO EARNED INCOME OUT OF THE SAID TRANSACTI ON BY COST PLUS BASIS. THUS, IT CAN BE SEEN THAT THE ASSESSEE HAS NOT E NCOUNTERED THE RISK OF HAVING A SINGLE CUSTOMER, WHEREAS THE SAME C ANNOT BE SAID AS REGARDS THE COMPARABLES. AS POINTED OUT BY THE LEARN ED COUNSEL FOR THE ASSESSEE, THE COMPARABLES WERE DEALING IN OPEN MARKE T AND THEREFORE, THEY WERE PRONE TO THE MARKETING AND TEC HNICAL RISKS. THEY WOULD HAVE INCURRED CERTAIN EXPENDITURE ON MARKETIN G SERVICES AND ALSO TO SAFEGUARD THE TECHNICAL USE BY THEM. IN SUCH A CASE, THE RISK ENCOUNTERED BY THE ASSESSEE CANNOT BE SAID TO BE THE EQ UIVALENT RISKS ATTACHED TO THE COMPARABLES. THE RISK ATTRIBUTED TO T HE ASSESSEE BY THE TPO IS AN ANTICIPATED RISK WHEREAS THE RISK ATTRIBUTED BY THE ASSESSEE TO THE COMPARABLES IS AN EXISTING RISK. IN SUCH SITUATIO N, THE TPO OUGHT TO HAVE GIVEN THE RISK ADJUSTMENT TO THE NET MARGIN O F THE COMPARABLES FOR BRINGING THEM ON PAR WITH THE ASSESSEE COMPANY. THE ASSESSEE'S CONTENTION THAT THE RISK ADJUSTMENT SHOULD BE AT 5.5% OR AT THE DIFFERENCE OF PRIME LENDING RATE OF THE RBI AND THE BANKS IS NOT ACCEPTABLE TO US. THEREFORE, WE DIRECT THE TPO TO CO NSIDER ALL THE CONTENTIONS OF THE ASSESSEE AND AFTER TAKING INTO ACCOUN T ALL THE RELEVANT MATERIAL DECIDE THE PERCENTAGE OF RISK ADJU STMENT TO BE MADE 25 ITA NO.358/PN/2013 IN ACCORDANCE WITH LAW. THIS GROUND IS ACCORDINGLY, A LLOWED FOR STATISTICAL PURPOSES. 51. THE COORDINATE BENCHES OF THE TRIBUNAL ARE ALSO ALLOWIN G RISK ADJUSTMENT TO THE ASSESSEE SUBJECT TO FULFILLMENT OF V ARIOUS OTHER CONDITIONS. IN VIEW OF THE ABOVE DISCUSSION AND REL YING ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL, WE RES TORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO CONSIDER THE ALLOWABILITY OF RISK ADJUSTMENT TO THE ASSESSEE. THE AO IS DIRECTED TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING D UE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUND OF APPEAL NO.9 RAISED BY THE ASSESSE E IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 52. GROUND OF APPEAL NO.10 BY THE ASSESSEE RELATES TO NO N- GRANTING OF STANDARD DEDUCTION OF +/- 5%. 53. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE GROUND IS AGAINST THE ASSESSEE IN VIEW OF THE AMENDMENTS . ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 54. IN GROUND OF APPEAL NO.11 THE ASSESSEE HAS CHALLENGE D THE ORDER OF THE AO IN COMPUTING THE DEDUCTION U/S.10A INCORRECTLY. 55. FACTS IN BRIEF, ARE THAT THE ASSESSEE WHILE CALCULATING T HE BENEFIT U/S.10A HAS NOT EXCLUDED THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FOR THE PURPOSE OF CALCULATING EXPORT TU RNOVER AS PROVIDED IN EXPLANATION 2 (IV) OF SECTION 10A. ON BEING QUEST IONED BY THE AO IT WAS SUBMITTED THAT WHILE CONSIDERING DEDUCTIO N U/S.10A OF THE ACT ALL THE FUNDS TO BE CONSIDERED AS EXPE NSES IN 26 ITA NO.358/PN/2013 FOREIGN CURRENCY AS WELL AS RECEIPTS AGAINST THE SAME NE EDS TO BE IGNORED. RELYING ON THE DECISION OF THE CHENNAI SPECIAL BE NCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD. IT WAS SU BMITTED THAT THE EXPENDITURE INCURRED IN FOREIGN CURRENCY IS TO B E DEDUCTED NOT ONLY FROM EXPORT TURNOVER BUT ALSO FROM TOTAL TURNO VER. SINCE THE ASSESSEE ITSELF HAS AGREED TO EXCLUDE THE EXPENDITUR E INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER AND TOTAL TURNO VER THE AO DISALLOWED AN AMOUNT OF RS.4,73,965/- BEING EXCESS BENEFIT CLAIMED AND DISALLOWANCE U/S.10A WAS REDUCED BY RS.4,73,965/-. 56. AGAINST THE DRAFT ORDER THE ASSESSEE APPROACHED TH E DRP WHO DECIDED THE ISSUE AGAINST THE ASSESSEE HOLDING THAT ASSESSEE HAD AGREED TO EXCLUDE THE EXPENDITURE INCURRED IN FOREIG N CURRENCY FROM THE EXPORT TURNOVER AND THE TOTAL TURNOVER. THER EFORE, THE FACTUAL OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE DRP ARE IN THE NATURE OF ADDITIONAL EVIDENCES. SINCE THE ASSESSEE HAS NOT SOUGHT THE LEAVE OF THE DRP FOR ITS ADMISSION, THE DRP DECLINED TO ENTERTAIN THE ARGUMENTS OF THE ASSESSEE. 57. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DE CISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PRU THVI STOCK BROKERS AND SHAREHOLDERS LTD. REPORTED IN 349 IT R 336 SUBMITTED THAT APPELLATE AUTHORITIES HAVE POWER TO CONSID ER CLAIM NOT MADE IN THE RETURN. HE ACCORDINGLY SUBMITTED THAT A DIRECTION MAY BE GIVEN TO THE AO TO COMPUTE DEDUCTION U/S.10A CO RRECTLY AS PER LAW. 58. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE AO/TPO. 27 ITA NO.358/PN/2013 59. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTH VI STOCK BROKERS AND SHAREHOLDERS LTD. (SUPRA) HAS HELD THAT THE ASSESSEE IS ENTITLED TO RAISE NOT MERELY ADDITIONAL LEGAL SUBMISSIONS B EFORE THE APPELLATE AUTHORITIES BUT IS ALSO ENTITLED TO RAISE ADDIT IONAL CLAIMS BEFORE THEM. THE APPELLATE AUTHORITIES HAVE THE DI SCRETION TO PERMIT SUCH ADDITIONAL CLAIMS TO BE RAISED. THE APPELLATE AUTHORITIES HAVE JURISDICTION TO DEAL NOT MERELY WITH ADDIT IONAL GROUNDS, WHICH BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTANCES OR LAW, BUT WITH ADDITIONAL GROUNDS WHICH W ERE AVAILABLE WHEN THE RETURN WAS FILED. THE WORDS COULD NOT HAVE BEEN RAISED MUST BE CONSIDERED LIBERALLY AND NOT STRICTL Y. THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW PLEA IN AN APPEAL AND EACH CASE MUST BE CONSIDERED ON ITS OWN FACTS. 60. IN VIEW OF THE ABOVE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO COMPUTE THE DEDUCTION U/S.10A AS PER LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THIS GROUND BY THE ASSESSEE IS ACCO RDINGLY ALLOWED FOR STATISTICAL PURPOSES. 61. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21-10-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; # DATED : 21 ST OCTOBER, 2015. LRH'K 28 ITA NO.358/PN/2013 ( )'+ , / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. DRP, PUNE 4. 5. ' *, *, IQ.KS / DR, ITAT, B PUNE; / GUARD FILE. / BY ORDER , ' ' //TRUE COPY// / * / SR. PRIVATE SECRETARY *, IQ.KS / ITAT, PUNE