Appeal details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 87316 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 month(s) 8 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-02-2015
Appeal Filed By
Assessee
Bench Allotted
B
Next Hearing Date
04-02-2015
Assessment Year
2009-2010
Appeal Filed On
05-03-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 383/HYD/2014 ASSESSMENT YEAR: 2009-10 INVENSYS DEVELOPMENT CENTRE INDIA PVT. LTD., HYDERABAD [PAN: AABCI1140F ] VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C.DEVDAS, FOR REVENUE : S HRI D.SUDHAKAR RAO DATE OF HEARING : 04 - 0 2 - 201 5 DATE OF PRONOUNCEMENT : 13 - 02 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE PREFERRED AGAINST TH E ORDER OF THE ASSESSING OFFICER PASSED U/S.143(3) OF THE INCOME T AX ACT (ACT) R.W.S.144C CONSEQUENT TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL [DRP]. 2. ASSESSEE IN ITS APPEAL HAS RAISED AS MANY AS 11 GROUNDS, OUT OF WHICH GROUND NO.1 TO 8 PERTAINS TO TRANSFER PRICING ADJUSTMENTS. GROUND NO.9 IS ON LEVY OF INTEREST U/S.234B OF THE ACT. GROUND NO.10 IS ON NOT ALLOWING CREDIT OF FOREIGN TAX PAID. GROUND NO.11 IS ON INITIATION I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 2 -: OF PENALTY PROCEEDINGS WHICH DOES NOT REQUIRE ANY A DJUDICATION AS IT IS PREMATURE TO RAISE THIS CONTENTION. 3. WE HAVE HEARD THE LD.COUNSEL AND LD.DR IN DETAIL AND CONSIDERED NOT ONLY THE PAPER BOOKS PLACED ON RECORD BUT ALSO WRITTEN SUBMISSIONS FILED BY BOTH THE PARTIES. 4. BRIEFLY STATED, ASSESSEE IS A COMPANY WHICH IS E NGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES AND PROVI DING QUALITY ASSURANCE AND SUPPORT SERVICES. IT IS A SUBSIDIARY OF INCLUSIVE INTERNATIONAL HOLDINGS LTD., UK./INVENSYS PLC UK. FOR THE AY.2009-10, ASSESSEE FILED RETURN OF INCOME DISCLOSING INCOME O F RS.12,97,42,600/- AFTER CLAIMING DEDUCTION U/S.10A. ITS IDA CENTRE, HYDERABAD WAS INCORPORATED ON 19-06-2013. IN THE ASSESSMENT COMP LETED U/S.143(3), THE ASSESSING OFFICER MADE A TRANSFER PRICING ADJUS TMENT OF RS.5,78,93,144/-. ASSESSEES TRANSACTIONS ARE WITH ITS ASSOCIATED ENTERPRISE [AE] ONLY. 5. ASSESSEE HAS SHOWN THE OPERATING REVENUE AT RS.9 2,34,67,567/-, ITS OPERATING COST BEING RS.81,96,44,793/-. IT HAS SHOWN OP/OC AT 12.66%. IT HAS JUSTIFIED THE PRICE RECEIVED AT ARM S LENGTH BY PROVIDING COMPARABLES OF 21 COMPANIES. THE TRANSFER PRICING OFFICER [TPO] IN THE COURSE OF DETERMINING THE ARMS LENGTH PRICE [ALP] HOWEVER, AGREED WITH ONLY EIGHT COMPANIES INITIALLY TAKEN BY ASSESSEE AN D HAS SELECTED A TOTAL OF 17 COMPARABLES BY USING VARIOUS FILTERS. EVEN T HOUGH INFOSYS LTD., IS ONE OF THE COMPARABLES INCLUDED BY ASSESSEE IN ITS OWN TP STUDY, ASSESSEE HAS OBJECTED TO THE INCLUSION IN A COURSE OF ANALYSIS BY THE TPO. THE ARMS LENGTH MARGIN COMPUTED BY THE TPO O F THE COMPARABLES WAS AT 22.03% AND ASSESSING OFFICER HAS ALLOWED WOR KING CAPITAL ADJUSTMENTS THEREBY, ALP WAS DETERMINED AT 19.73%. ON THIS BASIS, THE I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 3 -: ADJUSTMENT OF RS.5,78,93,144/- WAS MADE TO ASSESSEE S RECEIPTS. ASSESSEE PREFERRED OBJECTIONS ON THE DRAFT ORDER BE FORE THE DRP. DRP VIDE ITS ORDER DT.27-11-2013, REJECTED ALL OBJECTIO NS, THEREBY CONFIRMING THE ORDER OF THE ASSESSING OFFICER. ACCORDINGLY, A SSESSEE HAS RAISED VARIOUS GROUNDS. 6. TRANSFER PRICING GROUNDS : AGGRIEVED ON THE TRANSFER PRICING ADJUSTMENTS MADE BY THE ASSESSING OFFICER, ASSESSEE HAS RAISED GROUND NO.1 TO 9 ON VARIOUS ASPECTS OF TP ADJUSTMENT. HOWEVER, IN THE COURSE O F ARGUMENTS LD.AR CONFINED HIS ARGUMENTS TO GROUND NO.5 ON SELECTION OF COMPARABLES, GROUND NO.6 REJECTION OF COMPARABLES SELECTED BY AS SESSEE AND GROUND NO.7 ON ADJUSTMENT FOR RISK DIFFERENCES. IT WAS FA IRLY ADMITTED THAT IF ALL THE COMPARABLES OBJECTED BY ASSESSEE ARE REJECTED, THEN THE OTHER ISSUES OF INCLUSION OF COMPARABLES REQUESTED BY ASSESSEE A ND RISK ADJUSTMENTS WOULD BECOME ACADEMIC IN NATURE. HOWEVER, THESE AS PECTS WILL BE DISCUSSED IN DUE COURSE. 7. THE TPO HAS SELECTED THE FOLLOWING 17 COMPANIES AS COMPARABLES: SL. NO. NAME OF THE COM PANY AS PER TP ORDER OP/OC 1. AKSHAY SOFTWARE TECHNOLOGIES LTD 12.26% 2. LANCO GLOBAL SYSTEMS LTD 15.59% 3. MINDTREE LTD (SEG) 3.65% 4. NEILSOFT LTD 8.08% 5. PERSISTENT SYSTEMS PRIVATE LTD 17.05% 6. R S SOFTWARE (INDIA) LTD 10.05% 7. R SYSTEMS INTE RNATIONAL LTD (SEG) 15.28% 8. SASKEN COMMUNCIATION TECHNOLOGIES LTD (SEG) 15.10% 9. THINKSOFT GLOBAL SERVICES LTD 17.86% 10. THIRDWARE SOLUTIONS LTD 19.96% 11. ZYLOG SYSTEMS LTD 11.31% 12. BODHTREE CONSULTING LTD 66.66% I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 4 -: 13. COMP - U - LEARN TECH INDIA LT D 23.22% 14. INFOSYS LTD 38.27% 15. KALS INFORMATION SYSTEMS (SEG.) 20.63% 16. TATA ELXSI LTD (SEG) 21.09% 17. IGATE GLOBAL SOLUTIONS LTD 19.39% 8. AMONG THE ABOVE 17 COMPARABLES SELECTED BY THE T PO, ASSESSEE HAS NO OBJECTION WITH REFERENCE TO THE COMPANIES LI STED AT 1 TO 11. ASSESSEE VIDE ITS GROUND NO.6 HAS OBJECTED TO THE C OMPARABLES LISTED AT ITEM NO.12 TO 17 ON THE REASON THAT THESE ARE FUNCT IONALLY DIFFERENT FROM ASSESSEES ACTIVITY. IT WAS FURTHER SUBMITTED THAT SOME OF THE COMPARABLES ARE REJECTED IN ASSESSEES OWN CASE IN AY.2005-06. THE CO- ORDINATE BENCH IN THE CASE OF M/S.KANEXA TECHNOLOGI ES PVT. LTD., IN ITA NO.243/HYD/2014, M/S.CISCO SYSTEMS (INDIA) PRIVATE LTD., VS. DCIT IN IT(TP)A. NO.271/BANG/2014 AND ALSO IN PLANET ONLINE PVT. LTD., IN ITA NO.464 & 608/HYD/2014 DT.30-01-2015 HAVE CONSIDERED SIMILAR COMPARABLES AND REJECTED THEM AS NOT COMPARABLE. LD .DR HOWEVER, RELIED ON THE ORDERS OF TPO AND DRP AND FILED WRITT EN SUBMISSIONS SUPPORTING THE CONTENTIONS ON EACH OF THE COMPARABL ES. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF THE AUTHORITIES AS WELL AS OTHER MATE RIALS ON RECORD. WE HAVE ALSO CAREFULLY CONSIDERED VARIOUS CASE LAWS RE LIED UPON BY THE PARTIES. AS FAR AS THE COMPARABLES OBJECTED BY AS SESSEE FROM SR.NO.12 TO 15 OF THE SELECTION MENTIONED ABOVE, THESE ARE A RE MORE OR LESS COVERED BY THE DECISIONS OF THE CO-ORDINATE BENCHES FOR THE SAME ASSESSMENT YEAR I.E., AY.2009-10. IN THE CASE OF M /S.CISCO SYSTEMS (INDIA) PRIVATE LTD., VS. DCIT DT.14-08-2014 (SUPRA ), THE CO-ORDINATE BENCH AFTER EXAMINING IN DETAIL, EXCLUDED BODHTREE CONSULTING LTD., INFOSYS LTD., KALS INFORMATION SYSTEMS LTD (SEG) AN D TATA ELXSI (SEG). THE RELEVANT OBSERVATIONS OF THE BANGALORE BENCH IN RESPECT OF EACH OF I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 5 -: THE AFORESAID COMPANIES ARE RE-PRODUCED HEREUNDER F OR THE SAKE OF CLARITY. 26.1 BODHTREE CONSULTING LTD .:- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE THAT IN THE LIST O F COMPARABLES CHOSEN BY THE ASSESSEE, THIS COMPANY WAS ALSO INCLUDED BY THE ASSESSEE. THE ASSESSEE, HOWEVER, SUBMITS BEFORE US THAT LATE R ON IT CAME TO THE ASSESSEES NOTICE THAT THIS COMPANY IS NOT BEI NG CONSIDERED AS A COMPARABLE COMPANY IN THE CASE OF COMPANIES RENDER ING SOFTWARE DEVELOPMENT SERVICES. IN THIS REGARD, THE LD. COUN SEL FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWO RKS PVT. LTD. V. ITO, ITA NO.7633/MUM/2012, ORDER DATED 6.11.2013. IN THIS CASE, THE TRIBUNAL FOLLOWED THE DECISION RENDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WILLS PROCESSING SERVI CES (I) P. LTD., ITA NO.4547/MUM/2012. IN THE AFORESAID DECISIONS, THE TRIBUNAL HAS TAKEN THE VIEW THAT BODHTREE CONSULTING LTD. IS IN THE BUSINESS OF SOFTWARE PRODUCTS AND WAS ENGAGED IN PROVIDING OPE N & END TO END WEB SOLUTIONS SOFTWARE CONSULTANCY AND DESIGN & DE VELOPMENT OF SOFTWARE USING LATEST TECHNOLOGY. THE DECISION REN DERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAW K NETWORKS PVT. LTD. (SUPRA) IS IN RELATION TO A.Y. 2008-09. IT WA S AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FACTS AN D CIRCUMSTANCES IN THE PRESENT YEAR ALSO REMAINS IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREVAILED IN AY 08-09 AS FAR A S THIS COMPARABLE COMPANY IS CONCERNED. FOLLOWING THE AFORESAID DECI SION OF THE MUMBAI BENCH OF THE TRIBUNAL, WE HOLD THAT BODHTRE E CONSULTING LTD. CANNOT BE REGARDED AS A COMPARABLE. IN THIS R EGARDS, THE FACT THAT THE ASSESSEE HAD ITSELF PROPOSED THIS COMPANY AS COMPARABLE, IN OUR OPINION, SHOULD NOT BE THE BASIS ON WHICH T HE SAID COMPANY SHOULD BE RETAINED AS A COMPARABLE, WHEN FACTUALLY IT IS SHOWN THAT THE SAID COMPANY IS A SOFTWARE PRODUCT COMPANY AND NOT A SOFTWARE DEVELOPMENT SERVICES COMPANY. 26.2 INFOSYS LTD .:- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HAS BEEN CONSI DERED TO BE FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SI MPLE SOFTWARE DEVELOPMENT SERVICES, AS THIS COMPANY OWNS SIGNIFI CANT INTANGIBLES AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IN T HIS REGARD, WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN T HE CASE OF M/S. TDPLM SOFTWARE SOLUTIONS LTD. V. DCIT, ITA NO.1303 /BANG/2012, BY ORDER DATED 28.11.2013 WITH REGARD TO THIS COMP ARABLE HAS HELD AS FOLLOWS:- I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 6 -: 11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEF ORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJEC TED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS TH AT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELE VANT IN THE SOFTWARE DEVELOPMENT SEGMENT. 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTHO RISED REPRESENTATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO UBMIT THAT THIS CO MPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPMENT ACTIVITIES, WHEREAS THE ASSESSEE IS MER ELY A SOFTWARE SERVICE PROVIDER OPERATING ITS BUSINESS IN INDIA AND DOES NOT POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT :- (I) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE C ASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARE D TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL AD VANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION I S APPLICABLE TO THE ASSESSEE'S CASE, AS THE ASSESSEE DOES NOT OW N ANY INTANGIBLES AND HENCE INFOSYS TECHNOLOGIES LTD. CAN NOT BE COMPARABLE TO THE ASSESSEE; (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN TH E CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABL E TO CAPTIVE SERVICE PROVIDERS ASSUMING LIMITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTIONS AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFT WARE PRODUCTS AND THE BREAK UP OF SUCH REVENUES IS NOT A VAILABLE ; I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 7 -: (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR R ESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQU ISITION OF IPRS IN AUTOLAY, A COMMERCIAL APPLICATION PROD UCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS, THE LEARNED AUTHORISE D REPRESENTATIVE PLEADED THAT, THIS COMPANY I.E. INFO SYS TECHNOLOGIES LTD., BE EXCLUDED FORM THE LIST OF COM PARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MAR GINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF THI S, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE D ECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF C OMPARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIN D THAT THE ASSESSEE AS BROUGHT ON RECORD SUFFICIENT EVIDENCE T O ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND D IFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND T HE FINDING RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICABLE TO THIS YEAR ALSO. WE ARE INCLINED TO CO NCUR WITH THE ARGUMENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TEC HNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SI GNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PROD UCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REVENUE FROM SOFT WARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO B E OMITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. THE DECISION RENDERED AS AFORESAID PERTAINS TO A.Y . 2008-09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE T HAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR ALSO REMAINS IDE NTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREVAILED IN AY 08-09 AS F AR AS THIS COMPARABLE COMPANY IS CONCERNED. RESPECTFULLY FOLL OWING THE I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 8 -: DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE HOL D THAT INFOSYS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 26.3 KALS INFORMATION SYSTEMS LTD .:- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT THI S COMPANY HAS BEEN CONSIDERED AS NOT COMPARABLE TO A PURE SOFTWARE DE VELOPMENT SERVICES COMPANY BY THE BANGALORE BENCH OF THE TRI BUNAL IN THE CASE OF M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PVT . LTD. (SUPRA). THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TR IBUNAL:- (D) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTEN TION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BE SIDES THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPAN Y IS ENGAGED IN PROVIDING TRAINING. IT WAS ALSO SUBMITTE D THAT AS PER THE ANNUAL REPOT, THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS RS. 45,93,351. THE SAME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REV ENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNALS DEC ISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMI TED VS. DCI, ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006-07 ON ACCOUNT O F IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIE S. THE RELEVANT EXTRACT ARE AS FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPAR ABLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FU NCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES PROVID ED BY THE ASSESSEE. THE APPELLANT HAS SUBMITTED AN EXTRACT O N PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN O UR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SE T OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 9 -: BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOU LD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TP O HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAI NED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMA TION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE B EEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN TH E DECISION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE , THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PURELY OR MAIN LY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE HOLD THAT KALS INFORMATION SYSTEMS LTD. SHOULD NOT BE REGARDED AS A COMPARABLE. 26.4 TATA ELXSI LTD .:- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT IN ASSESSEES OWN CASE F OR THE A.Y. 2007- 08, THIS COMPANY WAS NOT REGARDED AS A COMPARABLE IN ITS SOFTWARE DEVELOPMENT SERVICES SEGMENT IN ITA NO.1076/BANG/2 011, ORDER DATED 29.3.2013. FOLLOWING WERE THE RELEVANT OBSER VATIONS OF THE TRIBUNAL:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. THE LEARNED CHARTERED ACCOUNTANT PLEADED THAT O UT OF THE SIX COMPARABLES SHORTLISTED ABOVE AS COMPARABLES BA SED ON THE TURNOVER FILTER, THE FOLLOWING TWO COMPANIES, N AMELY (I) TATA ELXSI LTD; AND (II) M/S. FLEXTRONICS SOFTWARE SYSTEMS LTD., DESERVE TO BE ELIMINATED FOR THE FOLLOWING RE ASONS : (I) TATA ELXSI LTD., : THE COMPANY OPERATES IN THE SEGMENTS OF SOFTWARE DEVELOPMENT SERVICES WHICH COMPRISES OF EM BEDDED PRODUCT DESIGN SERVICES, INDUSTRIAL DESIGN AND ENGI NEERING SERVICES AND VISUAL COMPUTING LABS AND SYSTEM INTEG RATION SERVICES SEGMENT. THERE IS NO SUB-SERVICES BREAK UP/INFORMATION PROVIDED IN THE ANNUAL REPORT OR THE DATABASES BASED ON WHICH THE MARGIN FROM SOFTWARE S ERVICES ACTIVITY ONLY COULD BE COMPUTED. THE COMPANY HAS AL SO IN ITS RESPONSE TO THE NOTICE U/S.133(6) STATED THAT IT CA NNOT BE I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 10 -: CONSIDERED AS COMPARABLE TO ANY OTHER SOFTWARE SERV ICES COMPANY BECAUSE OF ITS COMPLEX NATURE. HENCE, TATA ELXSI LTD., IS TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. (II) FLEXTRONICS SOFTWARE SYSTEMS LTD. : THE LEARNE D TPO HAS CONSIDERED THIS COMPANY AS A COMPARABLE BASED ON 13 3(6) REPLY WHEREIN THIS COMPANY REFLECTED ITS SOFTWARE DEVELOPMENT SERVICES REVENUES TO BE MORE THAN 75% O F THE 'SOFTWARE PRODUCTS AND SERVICES' SEGMENT REVENUES. FLEXTRONICS HAS A HYBRID REVENUE MODEL AND HENCE SH OULD BE REJECTED AS FUNCTIONALLY DIFFERENT. BASED ON THE IN FORMATION PROVIDED UNDER 'REVENUE RECOGNITION' IN ITS ANNUAL REPORT, IT CAN BE INFERRED THAT THE SOFTWARE SERVICES REVENUES ARE EARNED ON A HYBRID REVENUE MODEL, AND THE SAME IS N OT SIMILAR TO THE REGULAR MODELS ADOPTED BY OTHER SOFT WARE SERVICE PROVIDERS. THE LEARNED REPRESENTATIVE PLEAD ED THAT A REGULAR SOFTWARE SERVICES PROVIDER COULD NOT BE COM PARED TO A COMPANY HAVING SUCH A UNIQUE REVENUE MODEL, WHEREIN THE REVENUES OF THE COMPANY FROM SOFTWARE/PRODUCT DEVEL OPMENT SERVICES DEPENDS ON THE SUCCESS OF THE PRODUCTS SOL D BY ITS CLIENTS IN THE MARKETPLACE. HENCE, IT WOULD BE INAP PROPRIATE TO COMPARE THE BUSINESS OPERATIONS OF THE ASSESSEE WIT H THAT OF A COMPANY FOLLOWING HYBRID BUSINESS MODEL COMPRISIN G OF ROYALTY INCOME AS WELL AS REGULAR SOFTWARE SERVICES INCOME, FOR WHICH REVENUE BREAK-UP IS NOT AVAILABLE. HE FIN ALLY SUBMITTED THAT THIS WAS A GOOD REASON TO EXCLUDE TH IS COMPANY ALSO FROM THE LIST OF COMPARABLES. 20. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDER OF THE LOWER AUTHORITIES REGARDING THE INCLUSION OF TA TA ELXSI AND FLEXTRONICS SOFTWARE SYSTEMS LTD., IN THE LIST OF C OMPARABLES. HE REITERATED THE CONTENTS OF PARA 14.2.25 OF THE T PO'S ORDER. HE ALSO READ OUT THE FOLLOWING PORTION FROM THE TPO 'S ORDER : 'THUS AS STATED ABOVE BY THE COMPANY, THE FOLLOWING FACTS EMERGE : 1. THE COMPANY'S SOFTWARE DEVELOPMENT AND SERVICES SEGMENT CONSTITUTES THREE SUB-SEGMENTS I) PRODUCT DESIGN SERVICES; II) ENGINEERING DESIGN SERVICES AN D III) VISUAL COMPUTING LABS. 2. THE PRODUCT DESIGN SERVICES SUB-SEGMENT IS INTO EMBEDDED SOFTWARE DEVELOPMENT. THUS THIS SEGMENT IS INTO SOFTWARE DEVELOPMENT SERVICES. I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 11 -: 3. THE CONTRIBUTION OF THE EMBEDDED SERVICES SEGMEN T IS TO THE TUNE OF RS.230 CRORES IN THE TOTAL SEGMEN T REVENUE OF RS.263 CRORES. EVEN IF WE CONSIDER THE O THER TWO SUB-SEGMENTS PERTAIN TO IT ENABLED SERVICES, TH E 87.45% (75%) OF THE SEGMENT'S REVENUES IS FROM SOFTWARE DEVELOPMENT SERVICES. 4. THIS SEGMENT QUALIFIES ALL THE FILTERS APPLIED B Y THE TPO.' REGARDING FLEXTRONICS SOFTWARE SYSTEMS, THE FOLLOWI NG EXTRACT FROM PAGE 143 OF TPO'S ORDER WAS READ OUT BY HIM AS HIS SUBMISSIONS : 'IT IS VERY PERTINENT TO MENTION HERE THAT THE COMP ANY WAS CONSIDERED BY THE TAXPAYER AS A COMPARABLE FOR THE PRECEDING ASSESSMENT YEAR I.E., AY 2006-07. WHE N THE SAME WAS ACCEPTED BY THE TPO AS A COMPARABLE, THE SAME WAS NOT OBJECTED TO IT BY THE TAXPAYER. AS THE FACTS MENTIONED BY THE TAXPAYER ARE THE SAME AND THESE WERE THERE IN THE EARLIER FY 2005-06, THERE I S NO REASON WHY THE TAXPAYER IS OBJECTING TO IT. HOW THE COMPANY IS FUNCTIONALLY SIMILAR IN THE EARLIER FY 2 005- 06 BUT THE SAME IS NOT FUNCTIONALLY SIMILAR FOR THE SUBSEQUENT FY 2006-07 EVEN WHEN NO FACTS HAVE BEEN CHANGED FROM THE PRECEDING YEAR. THUS THE TAXPAYER IS ARGUING AGAINST THIS COMPARABLE AS THE COMPANY WAS NOT CONSIDERED AS A COMPARABLE BY THE TAXPAYER FOR THE PRESENT FY 2006-07.' 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE FACTS AND MATERIALS ON RECORD. AFTER CONSIDERING TH E SUBMISSIONS, WE FIND THAT TATA ELXSI AND FLEXTRONIC S ARE FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE AN D HENCE THEY DESERVE TO BE DELETED FROM THE LIST OF SIX COM PARABLES AND HENCE THERE REMAINS ONLY FOUR COMPANIES AS COMPARABLES, AS LISTED BELOW: 26.5. FOLLOWING THE AFORESAID DECISION OF THE TRIB UNAL, WE HOLD THAT M/S.TATA ELXSI LTD. SHOULD NOT BE REGARDED AS A CO MPARABLE. 9.1 ITAT, HYDERABAD BENCH FOLLOWING THE AFORESAID D ECISION OF THE ITAT, BANGALORE BENCH ALSO EXCLUDED THESE FOUR COMP ANIES IN CASE OF M/S KENEXA TECHNOLOGIES PVT. LTD. VS. DCIT IN ITA N O. 243/HYD/2014 I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 12 -: DT. 14/11/2014. RESPECTFULLY FOLLOWING THE DECISION S OF THE COORDINATE BENCH OF ITAT, WE DIRECT AO/TPO TO EXCLUDE THESE FO UR COMPANIES. 9.2 AS FAR AS COMP-U LEARN GLOBAL TECH INDIA LTD . IS CONCERNED, ITAT, HYDERABAD BENCH IN CASE OF M/S KENEXA TECHNO LOGIES PVT. LTD. VS. DCIT (SUPRA) OBSERVED AS UNDER: 39. THE ASSESSEE SUBMITTED BEFORE THE DRP THAT CO MP-U-LEARN TECH INDIA LTD. WAS ENGAGED IN THE DEVELOPMENT OF NEW SOFTWARE (PRODUCT DEVELOPMENT) (PAGE 7 OF THE ANNUAL REPORT ) IN ITES CALL CENTRE AND BPO SERVICES (PAGE 11 OF ANNUAL REPORT) . IT WAS FURTHER SUBMITTED THAT SCHEDULE XIII OF THE ANNUAL REPORT SHOWS SOFTWARE DEVELOPMENT EXPENDITURE AT ONLY 25% OF THE TOTAL E XPENDITURE. THE TPO EXTRACTED THE 133(6) NOTICE AND HELD THAT THE COMPANY HAS NIL ONSITE REVENUE AND SATISFIED ALL THE FILTERS APPLI ED BY THE TPO. WE ARE OF THE OPINION THAT SOME MORE ANALYSIS HAS TO BE DONE AND WE DIRECT THE TPO TO LOOK INTO THE FINANCIAL STATEMEN T OF THE COMPANY AND ALSO PROVIDE AN OPPORTUNITY TO THE ASSESSEE TO SUBMIT RELEVANT DETAILS TO SUBSTANTIATE ITS CLAIM THAT COMP-U-LEAR N TECH INDIA LTD. IS NOT A COMPARABLE COMPANY. CONSISTENT WITH THE VIEW EXPRESSED BY THE COORDINAT E BENCH, WE ALSO REMIT THE ISSUE OF COMPARABILITY OF THIS COMPANY TO AO/TPO WITH SIMILAR DIRECTIONS. 9.3. AS FAR AS I-GATE GLOBAL SOLUTIONS LTD . IS CONCERNED, IT IS THE CONTENTION OF LD. AR THAT THE COMPANY IS HAVING HUG E TURNOVER OF MORE THAN RS. 900 CRORES, AND IS A RELATIVELY BIG COMPAN Y HAVING PRESENCE IN VARIOUS COUNTRIES AND ENJOYS PREMIUM PRICING. HE HA S FURTHER SUBMITTED THAT THE COMPANY OWNS VARIOUS INTANGIBLES IN ITS NA ME AND IS HAVING CLOSING STOCK OF RAW MATERIALS WHICH SIGNIFY THAT I T IS INTO DEVELOPMENT OF PRODUCT. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES. ON A PERUSAL OF THE P&L ACCOUNT OF THIS COMPANY FOR THE YEAR ENDED MARCH 2009, A COPY OF WHICH IS SUBMITTED BY LD. AR, IT IS SEEN THAT THE COMPANY HAS CLAIMED EXPENSES TOWARDS RAW MATERIALS, STORE S AND SPARES. I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 13 -: THEREFORE, IT NEEDS TO BE EXAMINED IN DETAIL WHETHE R ASSESSEES CLAIM THAT THE COMPANY IS INTO PRODUCT DEVELOPMENT IS COR RECT. AS RELEVANT INFORMATIONS REQUIRED FOR COMING TO A DEFINITE CONC LUSION ARE NOT BEFORE US, WE ARE INCLINED TO REMIT THE ISSUE OF COMPARABI LITY OF THIS COMPANY TO AO/TPO FOR CONSIDERING AFRESH. FURTHER, WE MAY OBSE RVE THAT IN CASE OF TRIOLOGY E BUSINESS (SUPRA) THIS COMPANY HAS BEEN E XCLUDED ON THE BASIS OF HIGH TURNOVER. THEREFORE, THIS ASPECT IS A LSO REQUIRED TO BE EXAMINED BY AO/TPO WHILE DECIDING COMPARABILITY OF THIS COMPANY. 10. IN GROUND NO.6, ASSESSEE REQUESTED FOR INCLUSIO N OF FOLLOWING COMPANIES WHICH ARE REJECTED BY THE TPO: I. CG-VAK SOFTWARE EXPORTS LTD (SEG); II. GOLDSTONE TECHNOLOGIES LTD; III. LARSEN & TOUBRO INFOTECH LTD; IV. QUINTEGRA SOLUTIONS LTD; 10.1. CG-VAK SOFTWARE EXPORTS LTD (SEG): TPO IN HI S ORDER OPINED THAT THERE IS NO CLARIFICATION GIVEN IN THE NOTES T O ACCOUNTS IN RESPECT OF EMPLOYEE COST AND OTHER RELATED COSTS OF THE COMPAN Y. HENCE REJECTED, AS IT DOES NOT SATISFY THE EMPLOYEE COST FILTER. D RP AGREED WITH THE ARGUMENT OF THE TPO. IT WAS THE SUBMISSION THAT EM PLOYEE COST IS MORE THAN 80% OF THE TOTAL REVENUE AND IN THE ANNUAL REP ORT, THE EXPENDITURE WAS CATEGORIZED UNDER THE HEADING COST OF SERVICES , WHICH SHOULD BE CONSIDERED AS EMPLOYEES COST. IT WAS FURTHER SUBM ITTED THAT TPO SHOULD HAVE OBTAINED INFORMATION BY USING HIS POWER S U/S.136 SEEKING CLARIFICATIONS IN RELATION TO THE EMPLOYEES COST AN D OTHER RELATED COSTS. HAVING EXAMINED THE ANNUAL REPORT PLACED IN PAPER B OOK PAGE NO.205, WE ARE PRIMA-FACIE SATISFIED THAT COST OF SERVICES REPORTED AS SEPARATE ITEM IN SCHEDULE 15 TO THE ACCOUNTS PERTAINS TO EMP LOYEE COST. HOWEVER, I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 14 -: THE TPO HAS NOT EXAMINED THIS ASPECT NOR HE OBTAINE D ANY INFORMATION, THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF TH E OPINION THAT SELECTION OF THIS COMPARABLE SHOULD BE RE-EXAMINED BY THE TPO AF TER GIVING DUE OPPORTUNITY TO ASSESSEE. 10.2 GOLDSTONE TECHNOLOGIES LTD: EVEN THOUGH, ASSE SSEE WANTED THIS COMPARABLE TO BE INCLUDED, TPO HAS NOT OFFERED ANY REASON WHY IT IS REJECTED. EVEN THE DRP ALSO DID NOT COMMENT ON THE COMPARABILITY OF THIS COMPANY. ASSESSEE SUBMITS THAT IN THE SHOW CA USE LETTER, THE TPO REJECTED THIS COMPANY UNDER THE FOREIGN EXCHANGE EA RNINGS FILTER, IT WAS SUBMITTED THAT IT HAS FOREIGN EXCHANGE EARNINGS IN EXCESS OF 75% OF ITS REVENUE. SINCE COMPANY IS IN THE PROCESS OF PROVID ING IPTV SERVICES AND ON THE BASIS OF INFORMATION AVAILABLE IN PUBLIC DOM AIN, SATISFIES ALL SELECTION CRITERIA ADOPTED BY THE TPO. IT WAS FURT HER SUBMITTED THAT ASSESSING OFFICER HAS POWERS TO OBTAIN THE INFORMAT ION U/S.133(6) AND ASSESSEE SHOULD BE GIVEN OPPORTUNITY TO EXAMINE THE CONTRARY DISCLOSURES IF ANY, IN THE ANNUAL REPORT. CONSIDER ING ASSESSEES SUBMISSIONS AND RELIANCE ON THE ANNUAL REPORT, WE A RE OF THE OPINION THAT THIS COMPARABLE ALSO CAN BE RE-EXAMINED BY THE TPO WHETHER IT SATISFIES ALL THE FILTERS ADOPTED BY THE TPO AND TH E COMPANY IS COMPARABLE TO THE ASSESSEES FUNCTIONS. FOR THIS P URPOSE, SELECTION OF THIS COMPARABLE IS RESTORED TO THE FILE OF THE TPO WHO SHOULD EXAMINE AFRESH AFTER GIVING DUE OPPORTUNITY TO ASSESSEE. 10.3. LARSEN & TOUBRO INFOTECH LTD: IT WAS THE CON TENTION THAT TPO REJECTED THIS COMPARABLE WITHOUT GIVING ANY REA SONS AND THE COMPANY SATISFIES ALL THE FILTERS APPLIED BY THE TP O. IT IS ALSO FURTHER SUBMITTED THAT THERE IS NO INFORMATION TO ASSUME TH AT THE COMPANY HAS SOFTWARE PRODUCTS REVENUE IN EXCESS OF 25% AND EXPO RT REVENUE IN EXCESS OF 75% OF THE REVENUE. IT WAS FURTHER CONTE NDED THAT HONBLE I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 15 -: MADRAS HIGH COURT HAS STAYED PROCEEDINGS U/S.136 TH EREFORE, INFORMATION AVAILABLE IN PUBLIC DOMAIN CAN BE USED. ON A QUESTION ABOUT THE TURNOVER OF THIS COMPANY, IT WAS FAIRLY A DMITTED THAT THE TURNOVER OF THIS COMPANY IS RS.1,870 CRORES DURING THE YEAR. SINCE THE TURNOVER ITSELF IS VERY HUGE AND THAT COMPANY HAS M ULTI-FACETED ACTIVITIES, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS COMPARABLE ON THE BASIS OF FUNCTIONAL ANALYSIS AS W ELL AS ON TURNOVER BASIS. THE REASONS FOR EXCLUSION OF INFOSYS ABOVE IN THE COMPARABLE LIST WILL EQUALLY APPLY TO LARSEN & TOUBRO INFOTECH LTD. THEREFORE, WE REJECT ASSESSEES CONTENTIONS ON THIS COMPANY AND HOLD THA T TPO AND DRP ARE CORRECT IN NOT INCLUDING THIS COMPANY AS COMPARABLE . 10.4. QUINTEGRA SOLUTIONS LTD: IT WAS SUBMITTED TH AT THIS COMPANY WAS NOT SELECTED BY THE TPO ON THE REASON T HAT IT FAILS THE EXPORT TURNOVER FILTER AND FINANCIAL YEAR 2008-09 W AS A YEAR OF PECULIAR ECONOMIC CIRCUMSTANCES FOR THE COMPANY. AFTER CONS IDERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT THERE IS NO NEED TO INCLUDE THIS COMPANY AS COMPARABLE. WE UPHOLD THE TPOS OBSERVA TIONS ON THIS AND REJECT COMPANY AS COMPARABLE TO ASSESSEES ACTIVITI ES. IN THE RESULT, THE GROUND IS PARTLY ALLOWED. 11. ADJUSTMENT FOR RISK DIFFERENCES : IT IS FAIRLY SUBMITTED THAT THIS GROUND WILL BECOM E ACADEMIC IF OTHER CONTENTIONS ARE ACCEPTED. SINCE, WE HAVE ALR EADY CONSIDERED GROUND NO.5 & 6, THERE IS NO NEED TO ADJUDICATE THI S GROUND. HOWEVER, ASSESSEE IS FREE TO RAISE ANY OBJECTIONS IN THE COU RSE OF TPOS RE-EXAMINATION OF COMPARABLES AS DIRECTED ABOVE. WI TH THESE OBSERVATIONS, THIS GROUND IS CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 16 -: 12. GROUND NO.8 IS WITH REFERENCE TO THE PROVISO TO SECTION 92C(2) OF THE ACT. ASSESSING OFFICER IS DIRECTED TO KEEP THE OPTION GIVEN UNDER THE PROVISO TO SECTION 92C(2) WHILE DETERMINING ALP. T HIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO.9 IS WITH REFERENCE TO LEVY OF INTERE ST U/S.234B. THIS IS STATUTORY IN NATURE. ASSESSING OFFICER IS DIRECTED TO KEEP IN MIND THE PROVISIONS OF SECTION WHILE LEVYING INTEREST. ASSE SSEE SHOULD BE GIVEN OPPORTUNITY AND THE RELEVANT CALCULATION SHOULD BE PROVIDED IN CASE ANY INTEREST IS LEVIABLE. THIS GROUND IS CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND NO.10 IS ON THE FOREIGN TAX CREDIT AMOUN TING TO RS.19,48,519/-. ASSESSEE-COMPANY HAS RENDERED SERV ICES TO ONE OF ITS GROUP ENTITIES IN SPAIN. THE SAID AE DEDUCTED TAX @ 20% ON THE PAYMENTS MADE TO ASSESSEE. IT WAS SUBMITTED THAT R ELEVANT INCOME HAS BEEN INCLUDED IN THE TOTAL INCOME OF ASSESSEE AND O FFERED TO TAX IN INDIA. THE COMPANY IN ITS RETURN OF INCOME PROVIDED ALL TH E DETAILS OF DEDUCTION AND TAX PAID IN THE FOREIGN COUNTRY AND REQUESTED F OR ALLOWING RELEVANT TAX CREDIT FROM THE TAX PAYABLE AS PER THE PROVISIO NS OF THE ACT. IT WAS SUBMITTED THAT SURPRISINGLY, DRP HAS REJECTED ASSES SEES CONTENTIONS BY NOTING AS UNDER: '28. WE HAVE GONE THROUGH THE SUBMISSIONS OF THE AS SESSEE. AS PER LAW CREDIT FOR TDS MADE AS PER THE PROVISIONS OF I T ACT, 1961 IN INDIA IS ONLY ALLOWABLE. THERE IS NO PROVISION IN THE IT ACT, 1961 TO ALLOW CREDIT FOR THE TAX DEDUCTED OUTSIDE INDIA BY THE SAID SPAIN ENTITY. AS THIS GROUND OF OBJECTION IS NOT MAINTA INABLE, WE UPHOLD THE ACTION OF THE AO AND ACCORDINGLY THE GROUND OF OBJECTION IS REJECTED'. 15. WE WERE SURPRISED WITH THE OBSERVATIONS OF THE DRP. THE DRP SEEMS TO HAVE IGNORED PROVISIONS OF SECTION 90 OF T HE IT ACT. NOT ONLY I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 17 -: THAT, ARTICLE 25 OF THE DTIA ENTERED BETWEEN INDIA AND SPAIN ALSO COMES INTO PLAY. SINCE NEITHER THE ASSESSING OFFICER NO R DRP CONSIDERED THE ISSUE IN THE CORRECT PERSPECTIVE, WE ARE OF THE OPI NION THAT THE MATTER SHOULD BE RE-EXAMINED BY THE ASSESSING OFFICER TO GIVE NECESSARY CREDIT TO ASSESSEE. WITH THESE OBSERVATIONS, THE ISSUE IN THIS GROUND IS RESTORED TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION. ASSESSEE SHOULD BE GIVEN OPPORTUNITY TO MAKE ITS SUBMISSIONS AND CLAIMS. 16. WITH THESE OBSERVATIONS, ASSESSEES APPEAL IS C ONSIDERED PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH FEBRUARY, 2015 SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED 13 TH FEBRUARY, 2015. TNMM I.T.A. NO. 383/HYD/2014 INVENSYS DEVELOPMENT CENTRE INDIA P.LTD :- 18 -: COPY TO : 1. INVENSYS DEVELOPMENT CENTRE INDIA PVT. LTD. PLOT NO .17, VANENBURG IT PARK, SOFTWARE UNITS LAYOUT, MADHAPUR, HYDERABAD 500 081. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2( 1), 8 TH FLOOR, IT TOWERS, A.C. GUARDS, HYDERABAD. 3. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 4. DIRECTOR OF INCOME TAX (IT & TP), HYDERABAD. 5. ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICI NG), HYDERABAD. 6. D.R. ITAT, HYDERABAD.
