Appeal Details
Counselvise Citation
[2021] 109 COUNSELVISE.COM (IT) 9578 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 9 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-01-2021
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
30-12-2020
Assessment Year
2011-2012
Appeal Filed On
10-03-2016
Judgement Text
IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.411/BANG/2016 ASSESSMENT YEAR: 2011-12 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD. 4 TH FLOOR, TOWER B., COMMERCIO @ MANTRI SURVEY NO.51/2, 51/3, DEVARABISANAHALLI, SURVEY NO.39/5, KARIYAMMANA AGRAHARA VILLAGE VARTHUR HOBLI BANGALORE-103 PAN NO : AACCM9437E VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-4(1)(2) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI PADAM CHAND KHINCHA, A.R. RESPONDENT BY : SHRI RAJESH KUMAR JHA, D.R. DATE OF HEARING : 30.12.2020 DATE OF PRONOUNCEMENT : 05.01.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ASSESSMENT ORDER DATED 31.12.2015 PASSED BY THE A.O. U/S 143(3 ) R.W.S 144C OF THE ACT FOR ASSESSMENT YEAR 2011-12 IN PURSUANCE OF DIRECTIONS GIVEN BY LD. DISPUTE RESOLUTION PANEL (DRP). 2. THE GROUNDS AND ADDITIONAL GROUNDS URGED BY T HE ASSESSEE GIVE RISE TO THE FOLLOWING ISSUES:- A) ADDITION RELATING TO TRANSFER PRICING ADJUSTMENT B) DISALLOWANCE OF INTEREST PAID ON ECB LOANS. IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 2 OF 20 C) ADDITIONAL DEPRECIATION CLAIMED ON COMPUTERS D) DEDUCTION U/S 10A OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] IN RESPECT OF DISALLOWANCE OF INTEREST ON EC B LOANS AND ADDITIONAL DEPRECIATION. 3. THE ASSESSEE HAS FILED A LETTER DATED 9.11.2 020, WHEREIN IT IS STATED THAT THE GROUND NO.7 RELATING TO CLAIM OF AD DITIONAL DEPRECIATION IS BEING WITHDRAWN. ACCORDINGLY, THE GROUND RELATING TO THE ABOVE SAID ISSUE ARE DISMISSED AS WITHDRAWN. 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE HEREIN IS A SUBSIDIARY OF M/S. MAXIM INTERNATIONAL HOLDINGS INC., USA. THE ASSESSEE IS REGISTERED AS 100% EXPORT-ORI ENTED UNIT IN INDIA. HENCE IT WAS CLAIMING DEDUCTION U/S 10A OF THE ACT. IT HAS GOT 3 DISTINCT OPERATING DIVISIONS, VIZ., SOFTWARE DEVELOPMENT SERVICES, ITES SERVICES & MARKETING SERVICES. SIN CE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISES (AES), THE AO REFERRED THE MATTER OF DE TERMINATION OF ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSA CTIONS TO THE TRANSFER PRICING OFFICER (TPO). 5. THE FIRST ISSUE IS RELATING TO THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE BY THE A.O. THE T RANSFER PRICING ADJUSTMENT RELATES TO THE SOFTWARE DEVELOPMENT SEGM ENT OF THE ASSESSEE. THE TURNOVER OF THE ASSESSEE FROM THIS S EGMENT FOR ASSESSMENT YEAR UNDER CONSIDERATION IS RS.25.66 CRO RES. THE ASSESSEE FOLLOWED TNM METHOD AS MOST APPROPRIATE ME THOD AND PROFIT LEVEL INDICATOR (PLI) WAS TAKEN AS OPERATING PROFIT/OPERATING REVENUE. THE ASSESSEE DECLARED MARGIN OF 10.83%. ACCORDING TO THE TRANSFER PRICING STUDY CONDUCTED BY THE ASSESSEE, I TS INTERNATIONAL TRANSACTIONS IN RESPECT OF SOFTWARE DEVELOPMENT SEG MENT WERE AT ARMS LENGTH. IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 3 OF 20 6. THE TPO REJECTED TRANSFER PRICING STUDY CONDU CTED BY THE ASSESSEE AND SELECTED FOLLOWING 13 COMPANIES: SL. NO. NAME SALES COST PLI 1 ACROPETAL TECHNOLOGIES LTD. (SEG) 81,40,16,893 61,67,54,876 31.98% 2 E - ZEST SOLUTIONS (FROM CAPITALINE) 11,28,66,098 9,32,55,341 21.03% 3 E - INFOCHIPS LTD. 26,03,84,251 167,64,47,527 56.44% 4 EVOKE (FROM CAPITALINE) 14,48,69,912 13,39,96,568 8.11% 5 ICRA TECHNO ANALYTICS LTD. (IN 000) 15,84,01,000 12,68,94,000 24.83% 6 INFOSYS LTD 253850000000 177,030,000,000 43.39% 7 LARSEN & TOUBRO INFOTECH LTD. 23318122096 19,764, 861,289 19.83% 8 MINDTREE LTD. (SEG) 8,783,000,000 7,937,143,242 10.66% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD. 189,490,457 155,172,089 22.12% 10 PERSISTENT SYSTEMS LTD. 6,101,270,000 4,971,860,000 22.84% 11 R S SOFTWARE (INDIA) LTD. 1,882,638,471 1,617,804,170 16.37% 12 SASKEN COMMUNICATION TECHNOLOGIES LTD. 3,941,962,000 3,175,616,000 24.13% 13 TATA ELXSI LTD. (SEG) 3,581,985,000 2,962,533,352 20.91% AVERAGE MARGIN 24.82% THE AVERAGE MARGIN OF THE ABOVE SAID 13 COMPARABLE COMPANIES WAS 24.82%. AFTER ALLOWING WORKING CAPITAL ADJUSTMENT OF 1.63%, THE TPO ARRIVED AT ADJUSTED MARGIN OF 23.19%. ACCORDIN GLY, THE A.O. PROPOSED ADJUSTMENT OF RS.2,52,81,059/-. THE AO PA SSED DRAFT ASSESSMENT ORDER MAKING THE ADDITION CITED ABOVE TO WARDS TRANSFER PRICING ADJUSTMENT. 7. THE ASSESSEE FILED ITS OBJECTIONS BEFORE LD. DRP, WHICH REJECTED FOLLOWING 6 COMPANIES BY APPLYING TURNOVER FILTER. 1. INFOSYS LTD. 2. L&T INFOTECH LTD. 3. MINDTREE LTD. 4. PERSISTENT SYSTEMS LTD. 5. SASKEN COMMUNICATION TECHNOLOGIES LTD. 6. TATA ELXSI LTD. IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 4 OF 20 ACCORDINGLY, THE LD DRP CONFIRMED SELECTION OF REMA INING SEVEN COMPARABLE COMPANIES. AS A RESULT OF DIRECTION SO G IVEN BY DRP, THE TP ADJUSTMENT CAME TO BE ENHANCED TO RS.2,76,15,067 /-. THE A.O. ADDED THE ABOVE SAID AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE IN THE FINAL ASSESSMENT ORDER PASSED BY HIM. 8. THE LD. A.R. SUBMITTED THAT THE ASSESSEE SEEK S EXCLUSION OF FOLLOWING 5 COMPARABLE COMPANIES ALSO FROM THE LIST OF COMPARABLE COMPANIES CONFIRMED BY LD DRP:- 1. ACROPETAL TECHNOLOGIES LTD. (SEG) 2. E-ZEST SOLUTIONS 3. E-INFO CHIPS LTD. 4. ICRA TECHNO ANALYTICS LTD. 5. PERSISTENT SYSTEMS & SOLUTIONS LTD. THE LD. A.R. SUBMITTED THAT ALL THE ABOVE SAID COMP ANIES HAVE BEEN HELD TO BE NOT GOOD COMPARABLE COMPANIES FOR SOFTWA RE DEVELOPMENT SEGMENT BY VARIOUS DECISIONS OF THE TRIBUNAL. THE LD A.R FURNISHED COPIES OF VARIOUS CASE LAWS RELIED UPON BY HIM. 9. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT AL L THE ABOVE SAID COMPANIES SHOULD BE EXAMINED INDEPENDENTLY BY THE T RIBUNAL WITHOUT HAVING RECOURSE TO THE PAST DECISIONS RENDE RED BY THE TRIBUNAL. 10. WE HEARD THE PARTIES ON THIS ISSUE. THE LD A.R SUBMITTED THAT M/S. ACROPETAL TECHNOLOGIES LTD, E-ZEST SOLUTIONS, E-INFOCHIPS LTD AND ICRA TECHNO ANALYTICS LTD HAVE BEEN EXCLUDED BY THE CO- ORDINATE BENCH IN THE CASE OF M/S COMMSCOPE NETWORK S (INDIA) PRIVATE LIMITED (IT(TP)A NO.166/BANG/2016 DATED 22- 02-2017). 11. THE LD D.R, HOWEVER, MADE DETAILED ARGUMENT S IN RESPECT OF THE ABOVE SAID FOUR COMPARABLE COMPANIES. THE LD A .R REBUTTED TO IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 5 OF 20 THE CONTENTIONS OF LD D.R. THE RIVAL CONTENTIONS I N RESPECT OF EACH OF THE FOUR COMPANIES AND THE DECISION TAKEN THEREO N ARE DISCUSSED BELOW:- (A) ACROPETAL TECHNOLOGIES LTD:- 11.1 THE LD D.R INVITED OUR ATTENTION TO PAGE 9 O F TPOS ORDER AND SUBMITTED THAT THE ASSESSEE HAS SOUGHT EXCLUSION OF THIS COMPANY BY SUBMITTING THAT IT FAILS EMPLOYEES COST FILTER, I.E., ITS EMPLOYEE COST WAS ONLY 11.51%. HOWEVER, THE TPO HAS NOTICED THAT THIS COMPANY HAS PASSED EMPLOYEE COST FILTER, SINCE ITS EMPLOYEE COST WAS 49.36%. THE LD D.R SUBMITTED THAT THE TRIBUNAL, IN THE CASE OF COMMSCOPE NETWORKS (INDIA) PRIVATE LTD (SUPRA) HAS FOLLOWED T HE DECISION RENDERED BY THE TRIBUNAL IN THE CASE OF M/S APPLIED MATERIALS INDIA P LTD (IT(TP)A NO.17 & 39/BANG/2016 DATED 21.9.2016 ). IN THE CASE OF APPLIED MATERIALS INDIA P LTD (SUPRA), THE TRIBU NAL HAS EXCLUDED ACROPETAL TECHNOLOGIES LTD BY APPLYING THE FILTER T HAT REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT WAS LESS THAN 75%. A DVERTING OUR ATTENTION TO PAGE 863 OF THE PAPER BOOK, WHEREIN TH E PROFIT AND LOSS ACCOUNT OF M/S ACROPETAL TECHNOLOGIES LTD IS PLACED , THE LD D.R SUBMITTED THAT THE SEGMENTAL REVENUE DETAILS ARE NO T AVAILABLE. ACCORDINGLY, THE LD D.R SUBMITTED THAT THE DECISION RENDERED IN THE CASE OF APPLIED MATERIALS INDIA P LTD SHOULD NOT BE FOLLOWED. 11.2 THE LD A.R, ON THE CONTRARY, SUBMITTED THA T THE TPO HAS ISSUED A SHOW CAUSE NOTICE DATED 10.09.2014 TO THE ASSESSEE DURING THE COURSE OF PROCEEDINGS BEFORE HIM. HE SUBMITTED THAT THE COPY OF SAID LETTER IS PLACED AT PAGES 251 TO 265 OF THE PA PER BOOK. THE LD A.R INVITED OUR ATTENTION TO PAGE 260 OF THE PAPER BOOK AND SUBMITTED THAT THE TPO HAS COLLECTED SEGMENTAL DETA ILS OF SOFTWARE DEVELOPMENT ACTIVITY FROM M/S ACROPETAL TECHNOLOGIE S LTD. ACCORDING TO THE INFORMATION SO COLLECTED BY THE TP O, THE TURNOVER OF SOFTWARE DEVELOPMENT SEGMENT WAS RS.81.40 CRORES, W HILE ITS TOTAL IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 6 OF 20 TURNOVER WAS RS.140.55 CRORES. THE LD A.R INVITED OUR ATTENTION TO PAGE 7 OF THE TPOS ORDER AND SUBMITTED THAT THE TP O HAS APPLIED FOLLOWING FILTER FOR SELECTING COMPARABLE COMPANIES :- COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE AND R ELATED SERVICES IS LESS THAN 75% OF THE TOTAL OPERATING RE VENUES WERE EXCLUDED APPLYING THE ABOVE FILTER, THIS COMPANY IS REQUIRED TO BE EXCLUDED, SINCE ITS REVENUE FROM SOFTWARE DEVELOPMENT SERVICE S WAS LESS THAN 75% OF THE TOTAL REVENUE. THE LD A.R FURTHER SUBMI TTED THAT THE ASSESSEE HAD ADVANCED ARGUMENTS BEFORE THE TRIBUNAL IN THE CASE OF APPLIED MATERIALS INDIA P LTD (SUPRA) BOTH ON EMPLO YEE FILTER AND REVENUE FILTER. HOWEVER, THE TRIBUNAL CHOSE TO EXC LUDE THIS COMPANY BY APPLYING REVENUE FILTER. 11.3 WE HEARD RIVAL CONTENTIONS ON THIS COMPARAB LE COMPANY AND PERUSED THE RECORD. WE NOTICE THAT THE CO-ORDINATE BENCH HAS EXCLUDED THIS COMPANY IN THE CASE OF M/S APPLIED MA TERIALS INDIA P LTD (SUPRA) WITH THE FOLLOWING OBSERVATIONS:- 15. THE REVENUE IS ALSO SEEKING INCLUSION OF SOME OF THE COMPANIES IN THE LIST OF COMPARABLES WHICH WERE REFLECTED BY THE DRP . WE WILL DEAL WITH THE ISSUES ONE BY ONE AS UNDER : (I) ACROPETAL TECHNOLOGIES LTD.(SEG.) 16.1 THE DRP REJECTED THIS COMPANY ON THE GROUND O F EMPLOYEE COST FILTER. THE LD. DR HAS SUBMITTED THAT THE TPO HAS APPLIED T HE EMPLOYEE COST FILTER AND THIS COMPANY SATISFIES THE SAME. 16.2 ON THE OTHER HAND, THE LEARNED AUTHORISED REP RESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE TOTAL EMPLOYEE COST OF THIS COMPANY IS 11.51% OF THE TOTAL OPERATING REVENUE THEREFORE IT FAILS THE EMPLOYEE COST IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 7 OF 20 FILTER OF 25%. FURTHER HE HAS POINTED OUT THAT THIS COMPANY ALSO FAILS THE SOFTWARE DEVELOPMENT SERVICES REVENUE FILTER OF 75% . HE HAS REFERRED THE DETAILS AT PAGE NOS.39 AND 53 OF THE ANNUAL REPORT AND SUBMITTED THAT THE INCOME FROM SOFTWARE DEVELOPMENT IS RS.81.40 CRORES OUT OF TOTAL REVENUE OF RS.141 CRORES. THEREFORE THIS COMPANY FAILS THIS FILTER. 16.3 IN A REJOINDER THE LD. DR HAS SUBMITTED THAT T HE TPO HAS CONSIDERED ONLY INFORMATION TECHNOLOGY TRANSACTIONS SEGMENT AN D THEREFORE IT SATISFIES SOFTWARE DEVELOPMENT SERVICES INCOME FILTER AS WELL AS EMPLOYEE COST FILTER. 16.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS PER THE SEGMENTAL REPORTING AT PAGE 53 OF THE ANNUAL REPORT THE INCOME FROM INFORMATION TECHNOLOGY SERVI CES IS RS.81.40 CRORES OUT OF THE TOTAL INCOME OF RS.141 CRORES. THEREFORE THE REVENUE FROM INFORMATION TECHNOLOGY TRANSACTIONS SERVICES IS LES S THAN 75% AND CONSEQUENTLY THIS COMPANY DOES NOT SATISFY THE FILT ER OF INFORMATION TECHNOLOGY REVENUE APPLIED BY THE TPO ITSELF. ACCOR DINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE DRP F OR THIS ISSUE. 11.4 WE NOTICE THAT THE TRIBUNAL CHOSE TO EXCLU DE THIS M/S ACROPETAL TECHNOLOGIES LTD (SEG.) APPLYING REVENUE FILTER, EVEN THOUGH THE ASSESSEE HAS ADVANCED ARGUMENTS BOTH ON EMPLOYE E FILTER AND REVENUE FILTER. WE ALSO NOTICE THAT THE TPO HAS CO NSIDERED SEGMENTAL DETAILS ONLY. ADMITTEDLY, THIS COMPANY FAILS ON RE VENUE FILTER. ACCORDINGLY, FOLLOWING THE ABOVE SAID DECISION, WE DIRECT EXCLUSION OF M/S ACROPETAL TECHNOLOGIES LTD. (B) E-ZEST SOLUTIONS LTD:- 11.5 THE LD A.R SUBMITTED THAT THIS COMPANY HAS BEEN EXCLUDED IN THE CASES RELIED UPON BY HIM. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THIS COMPANY WAS REMANDED TO THE FIL E OF AO/TPO IN IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 8 OF 20 THE CASE OF APPLIED MATERIALS INDIA P LTD. HE FURT HER BROUGHT TO OUR NOTICE CERTAIN INCONSISTENCIES IN VARIOUS DECISIONS RENDERED BY THE CO-ORDINATE BENCHES. 11.6 WE HEARD THE PARTIES ON THIS COMPARABLE COM PANY. WE NOTICE THAT THE CO-ORDINATE BENCHES HAVE RENDERED DIVERSE DECISIONS AS UNDER:- (A) IN THE CASE OF APPLIED MATERIALS INDIA (P) LTD (IT(TP)A 17 & 39/BANG/2016 DATED 21.09.2016, IT WAS REMANDED TO T HE FILE OF AO/TPO. (B) IN THE CASE OF SAXO INDIA P LTD (2016)(67 TAX MANN.COM 155), THE DELHI BENCH OF TRIBUNAL HAS HELD THAT M/S E ZEST SOLUTION S LTD IS GOOD COMPARABLE AND ACCORDINGLY RETAINED THE SAME. (C) IN THE CASE OF SYMANTECH SOFTWARE & SERVICES (I) PVT. LTD. V. DCIT , ITA NO .614/MDS/2016, THIS COMPANY WAS HELD TO BE ENGAGED IN KNOWLEDGE PROCESS OUTSOURCING (KPO) AND CANNOT BE REGARDED AS A SWD SERVICES COMPANY. HOWEVER, IN THE CASE OF APPLIED MATERIALS INDIA P LTD (SUPRA), THE CO-ORDINATE BENCH HAS EXPRESSED THE VIEW THAT T HE QUESTION OF BPO AND KPO IS RELEVANT ONLY IN ITES SEGMENT AND NOT FOR SO FTWARE DEVELOPMENT SERVICES SEGMENT. (D) IN THE CASE OF AMD INDIA P LTD VS. ACIT (IT(TP )A 1487 & 1496/BANG/2015 DATED 06-04-2017), THE TRIBUNAL APPA RENTLY FOLLOWED THE DECISION RENDERED IN THE CASE OF SAXO INDIA P LTD ( SUPRA), BUT FINALLY IT EXCLUDED E ZEST SOLUTIONS LTD. WE NOTICED EARLIER THAT THE TRIBUNAL HAS RETAINED THIS COMPANY IN THE CASE OF SAXO INDIA P L TD. HENCE, THERE IS AN ERROR IN THE ORDER PASSED IN THE CASE OF AMD INDIA P LTD (SUPRA). (E) IN THE CASE OF ELECTRONIC IMAGING INDIA P LTD (SUPRA), THE DECISION RENDERED IN THE CASE OF AMD INDIA P LTD (SUPRA) WAS FOLLOWED. IN VIEW OF DIVERSE OF OPINIONS EXPRESSED IN VARIOUS CASES, WE ARE OF THE VIEW THAT COMPARABILITY OF THIS COMPANY REQUIRE S FRESH EXAMINATION AS HELD IN THE CASE OF APPLIED MATERIAL S INDIA (P) LTD. ACCORDINGLY, WE RESTORE THIS COMPANY TO THE FILE OF AO/TPO FOR EXAMINING IT AFRESH. IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 9 OF 20 (C) E-INFOCHIPS LTD:- 11.7 WE HEARD THE PARTIES ON THIS COMPARABLE C OMPANY. WE NOTICE THAT THE CO-ORDINATE BENCH, IN THE CASE OF M/S COMM SCOPE NETWORKS (INDIA) PRIVATE LTD (SUPRA) HAS EXCLUDED THIS COMPA NY BY FOLLOWING THE DECISION RENDERED BY THE DELHI BENCH OF TRIBUNA L IN THE CASE OF SAXO INDIA P LTD (ITA NO.6148/DEL/2015 DATED 05-02- 2016). IN THE CASE OF SAXO INDIA P LTD (SUPRA), THIS COMPANY WAS EXCLUDED WITH THE FOLLOWING OBSERVATIONS:- (I) E-INFOCHIPS LIMITED: 10.1. THE TRANSFER PRICING OFFICER INCLUDED THIS CO MPANY IN THE LIST OF COMPARABLES. ON BEING CALLED UPON TO EXPLAIN AS TO WHY IT SHOULD NOT BE CONSIDERED AS A COMPARABLE, THE ASSESSEE CONTENDED THAT THERE WAS FUNCTIONAL DISSIMILARITY INASMUCH AS THIS COMPANY W AS ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES AND ALSO PRODUC TS. THE TRANSFER PRICING OFFICER OBSERVED THAT THE REVENUES OF THIS COMPANY FROM PRODUCTS WAS ONLY 15% OF TOTAL REVENUE AND HENCE THE SAME QU ALIFIED TO BE ELIGIBLE FOR COMPARISON. THE DRP DID NOT ALLOW ANY RELIEF. 10.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ANNUAL REPORT OF THIS COMPANY IS AVAILABLE IN THE PAPER BOOK WITH ITS PROFIT AND LOS S ACCOUNT AT PAGE 1025. SCHEDULE OF INCOME INDICATES ITS OPERATING REVENUE FROM SOFTWARE DEVELOPMENT, HARDWARE MAINTENANCE, INFORMATION TECH NOLOGY, CONSULTANCY ETC. REVENUE FROM HARDWARE MAINTENANCE STANDS AT RS . 3.92 CRORE, WHICH HAS BEEN CONSIDERED BY THE TRANSFER PRICING OFFICER HIM SELF AS SALE OF PRODUCTS. SUCH SALE OF PRODUCTS CONSTITUTES 15% OF TOTAL REVE NUE. THERE IS NO SEGMENTAL INFORMATION AVAILABLE AS REGARDS THE REVENUE FROM S ALE OF PRODUCTS AND REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT. AS THE A SSESSEE IS SIMPLY ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES AND THERE IS NO SALE OF IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 10 OF 20 ANY SOFTWARE PRODUCTS, THIS COMPANY, IN OUR CONSIDE RED OPINION, CEASES TO BE COMPARABLE. IT IS OBVIOUS THAT FROM THE COMMON P OOL OF INCOME FROM BOTH THE STREAMS OF SOFTWARE PRODUCTS AND SOFTWARE SERVI CES, ONE CANNOT DEDUCE THE REVENUE FROM SOFTWARE SERVICES AND NO ONE KNOWS THE IMPACT OF REVENUE FROM PRODUCTS ON THE OVERALL KITTY OF PROFIT, WHICH MAY BE SIGNIFICANT. SINCE NO SEGMENTAL DATA OF THIS COMPANY IS AVAILABLE INDI CATING OPERATING PROFIT FROM SOFTWARE DEVELOPMENT SERVICES, WE ORDER TO EXC LUDE THIS COMPANY FROM THE LIST OF COMPARABLES. FOLLOWING THE DECISION RENDERED IN THE CASE OF SAXO INDIA P LTD (SUPRA), WE DIRECT EXCLUSION OF THE ABOVE SAID COMP ARABLE COMPANY. (D) ICRA TECHNO ANALYTICS LTD:- 11.8 THE LD D.R SUBMITTED THAT THE TPO HAS APP LIED RELATED PARTY TRANSACTIONS (RPT FILTER) OF MORE THAN 25%. IN THE CASE OF APPLIED MATERIALS INDIA P LTD (SUPRA), THE TRIBUNAL HAS APP LIED RPT FILTER OF 15%. 11.9 THE LD A.R INVITED OUR ATTENTION TO PAGE 8 79 OF THE PAPER BOOK AND SUBMITTED THAT THIS COMPANY IS HAVING RELA TED PARTY TRANSACTIONS TO THE TUNE OF 22.38%. HE FURTHER SUB MITTED THAT THE TRIBUNAL IN THE CASE OF APPLIED MATERIALS INDIA P L TD (SUPRA) HAS EXCLUDED THIS COMPANY ON BOTH RPT FILTER AND FUNCTI ONALITY DIFFERENCE. 11.10 WE HEARD THE PARTIES ON THIS ISSUE AND P ERUSED THE RECORD. WE NOTICE THAT THE CO-ORDINATE BENCH HAS EXCLUDED M /S ICRA TECHNO ANALYTICS LTD IN THE CASE OF APPLIED MATERIALS INDI A P LTD (SUPRA0 WITH THE FOLLOWING OBSERVATIONS:- IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 11 OF 20 (II) ICRA TECHNO ANALYTIC LTD. 17.1 WE HAVE HEARD THE LEARNED D.R. AS WELL AS LEAR NED A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP HAS REJECTED THIS COMPANY BY RECORDING THE FACT AS UNDE R : WE EXAMINED THE ANNUAL REPORT FROM WHICH IT IS EVIDENT THAT THE ENTIRE REVENUE HAS BEEN SHOWN UNDER SERVICE SEGMENT WHICH INDICATES THAT THE REVENUE FROM SOFTWARE DEVELOPMEN T, CONSULTANCY, LICENSING AND SUB- LICENSING, ANNUAL M AINTENANCE CHARGES FOR SOFTWARE SUPPORT. WEB DEVELOPMENT AND H OSTING HAS BEEN REPORTED IN ONE SEGMENT, THUS IN ABSENCE O F SEGMENTAL INFORMATION, WE CONCUR WITH THE VIEW OF THE DRP IN PRECEDING YEAR AND ACCORDINGLY DIRECT THE ASSESSING OFFICER T O EXCLUDE THIS COMPANY FROM COMPARABLES. 17.2 WE FURTHER NOTE THAT THE TRIBUNAL IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) HAS CONSIDERED THE COMPARABILITY OF THIS COMPANY IN PARAS 14 TO 16 AS UNDER : (1) ICRA TECHNO ANALYTICS LTD. (SEG) 14. AT THE OUTSET, WE NOTE THAT APART FROM HAVING T HE RELATED PARTY REVENUE AT 20.94% OF THE TOTAL REVENUE, THIS COMPAN Y WAS ALSO FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH SOFTWARE DEV ELOPMENT SERVICES SEGMENT OF THE ASSESSEE. THE DRP HAS GIVEN ITS FINDING AT PAGES 13 TO 14 AS UNDER:- HAVING HEARD THE CONTENT ION, ON PERUSAL OF THE ANNUAL REPORT, IT IS NOTICED BY US THAT THE SEGMENTAL INFORMATION IS AVAILABLE FOR TWO SEGMENTS I.E., SERVICES AND SA LES. HOWEVER, IT IS EVIDENT FROM THE ANNUAL REPORT THAT THE SERVICE SEG MENT COMPRISES OF SOFTWARE DEVELOPMENT, SOFTWARE CONSULTANCY, ENGINEE RING SERVICES, WEB DEVELOPMENT, WEB HOSTING, ETC. FOR WHICH NO SEG MENTAL INFORMATION IS AVAILABLE AND THEREFORE, THE OBJECTI ON OF THE ASSESSEE IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 12 OF 20 IS FOUND ACCEPTABLE. ACCORDINGLY, ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARABLES. 15. WE FIND THAT THE FACTS RECORDED BY THE DRP IN R ESPECT OF BUSINESS ACTIVITY OF THIS COMPANY ARE NOT IN DISPUTE. THEREF ORE, WHEN THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES OF SOF TWARE DEVELOPMENT AND CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPM ENT & HOSTING AND SUBSTANTIALLY DIVERSIFIED ITSELF INTO DOMAIN OF BUSINESS ANALYSIS AND BUSINESS PROCESS OUTSOURCING, THEN THE SAME CAN NOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSE E WHO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AE. 16. IN VIEW OF THE ABOVE FACTS, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY IS FUN CTIONALLY NOT COMPARABLE WITH THAT OF A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. NOTHING HAS BEEN BROUGHT BEFORE US TO SHOW THAT THE FACTS RECORDED BY THE DRP AS WELL AS BY THE CO-ORDINATE B ENCH OF THIS TRIBUNAL ARE NOT IT(T.P)A NOS.17 & 39/BANG/2016 COR RECT. ACCORDINGLY, IN VIEW OF THE DECISION OF THE CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ELECTRONICS F OR IMAGING INDIA PVT. LTD. (SUPRA), WE DO NOT FIND ANY ERROR OR ILLE GALITY IN THE ORDER OF THE DRP ON THIS ISSUE. 11.11 WE FIND MERIT IN THE SUBMISSIONS MADE BY LD A.R. ACCORDINGLY, FOLLOWING THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE CASE OF APPLIED MATERIALS INDIA P LTD (SUPRA ), WE DIRECT EXCLUSION OF THIS COMPANY. 12. WITH REGARD TO THE PRAYER OF THE LD A.R FOR EXCLUSION OF M/S PERSISTENT SYSTEMS AND SOLUTIONS LTD, THE LD D.R SUPPORTED THE IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 13 OF 20 ORDER PASSED LD DRP. ON THE CONTRARY, THE LD A.R R ELIED UPON THE CASE LAWS IN SUPPORT OF HIS CONTENTION THAT THIS CO MPANY IS NOT A GOOD COMPARABLE COMPANY. 12.1 WE HEARD THE PARTIES ON THIS COMPARABLE COMP ANY. WE NOTICE THAT THIS COMPANY HAS BEEN EXCLUDED BY THE CO-ORDIN ATE BENCH IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA P LT D (IT(TP)A NOS. 227 & 285/DEL/2013). FOR THE SAKE OF CONVENIENCE, WE E XTRACT BELOW THE OBSERVATIONS MADE BY THE TRIBUNAL IN RESPECT OF THI S COMPARABLE COMPANY:- PERSISTENT SYSTEMS & SOLUTIONS LTD. 60. THE ASSESSEE HAS THE GRIEVANCE AGAINST REJECTIO N OF THIS COMPANY BY THE DRP. THE LD. AR HAS SUBMITTED THAT ASSESSEE DID NOT RAISE ANY OBJECTION AGAINST THIS COMPANY, HOWEVER, THE DRP HAS REJECTED THE SAID COMPANY. THEREFORE, THE SAID COMPANY SHOULD BE RETAINED IN T HE LIST OF COMPARABLES. 61. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, AT THE OUTSET, WE NOTE THAT THE DRP HAS EXA MINED THE FUNCTIONAL COMPARABILITY OF THIS COMPANY BY CONSIDERING THE RE LEVANT DETAILS AS GIVEN IN THE ANNUAL REPORT OF THIS COMPANY. THE DRP HAS G IVEN THE FINDING THAT THE ENTIRE REVENUE HAS BEEN EARNED BY THIS COMPANY FROM THE SALE OF SOFTWARE SERVICES AND PRODUCTS AND IN THE ABSENCE OF SEGMENT AL DETAILS, IT CANNOT BE CONSIDERED AS COMPARABLE WITH SOFTWARE SERVICES SEG MENT. WE FIND THAT THIS COMPANY HAS SHOWN THE INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS TO THE TUNE OF RS.6.67 CRORES. WE FURTHER NOTE THAT AS PER SCHEDULE 11, THE ENTIRE REVENUE HAS BEEN SHOWN UNDER ONE SEGMENT I.E ., SALE OF SOFTWARE SERVICES AND PRODUCTS. THEREFORE, NO SEPARATE SEGME NT HAS BEEN GIVEN IN RESPECT OF SOFTWARE SERVICES. ACCORDINGLY, THE COMP OSITE DATA OF REVENUE AS WELL AS MARGINS OF THIS COMPANY PERTAINING TO THE S ALE OF SOFTWARE SERVICES AND PRODUCTS CANNOT BE CONSIDERED AS COMPARABLE WIT H THE SOFTWARE IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 14 OF 20 DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. IN VI EW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY ERROR OR ILLEGALI TY IN THE DIRECTIONS OF THE DRP IN EXCLUDING THIS COMPANY FROM THE LIST OF COMP ARABLES. THIS GROUND OF CO IS DISMISSED. WE NOTICE THAT THE CO-ORDINATE BENCH HAS EXCLUDED T HIS COMPANY IN THE CASE OF APPLIED MATERIALS INDIA PRIVATE LIMITED (SUPRA) BY FOLLOWING THE DECISION RENDERED IN THE CASE OF ELEC TRONICS FOR IMAGING INDIA P LTD (SUPRA). CONSISTENT WITH THE VIEW TAKE N IN THE ABOVE SAID CASES, WE DIRECT EXCLUSION OF THIS COMPARABLE COMPA NY. 13. THE LD A.R ALSO SUBMITTED THAT THE TPO HAS NOT ALLOWED WORKING CAPITAL ADJUSTMENT ON ACTUAL BASIS. RELYIN G UPON THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE C ASE OF M/S ZYME SOLUTIONS P LTD VS. ITO (MISCELLANEOUS PETITION NO. 36/BANG/2016), THE LD A.R SUBMITTED THAT THE TPO MAY BE DIRECTED T O ALLOW WORKING CAPITAL ADJUSTMENT ON ACTUAL BASIS. 13.1 WE HEARD LD D.R ON THIS ISSUE. WE FIND ME RIT IN THE CONTENTIONS OF LD A.R. ACCORDINGLY, WE DIRECT THE AO/TPO TO ALLOW WORKING CAPITAL ADJUSTMENTS ON ACTUAL BASIS AS HELD IN THE CASE OF ZYME SOLUTIONS P LTD (SUPRA). 13.2 IN VIEW OF THE FOREGOING DISCUSSIONS, THE A LP OF THE TRANSACTIONS RELATING TO SOFTWARE SEGMENT REQUIRES TO BE RE- DETERMINED. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF AO/TPO WITH THE DIRECTION TO RE-COMPUTE THE ALP OF SOFTWAR E DEVELOPMENT SERVICES SEGMENT IN THE LIGHT OF DISCUSSIONS MADE S UPRA. 14. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F INTEREST PAID ON ECB LOANS. THE INTEREST CLAIMED BY THE ASSESSEE ON THE ECB LOAN HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT TH E LOAN HAS BEEN IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 15 OF 20 TAKEN FOR PURCHASE OF AN IMMOVABLE PROPERTY AND THE INTEREST HAS TO BE CAPITALIZED TILL THE ASSET IS PUT TO USE AS PER THE PROVISO TO SECTION 36(III) OF THE ACT. 14.1 THE LD A.R SUBMITTED THAT THE AO HAD MADE IDENTICAL DISALLOWANCE IN AY 2009-10 IN THE ASSESSEES OWN CA SE AND THE TRIBUNAL, VIDE ITS ORDER DATED 05-07-2019 PASSED IN IT(TP)A NO. 287/BANG/2014, HAS DELETED THE DISALLOWANCE. 14.2 WE HEARD LD D.R ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE CO-ORDINATE BENCH HAS DEALT WITH AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN AY 2009-10 (SUPRA). THE RELEVANT DISCUSSIONS MADE BY THE CO-ORDINATE BENCH ARE EXTRA CTED BELOW:- 12. REGARDING GROUND NO. 4(B), IT WAS SUBMITTED BY ID. AR OF ASSESSEE THAT AS PER PARA NO. 7.1 OF THE ASSESSMENT ORDER, I T IS NOTED BY THE AO THAT THIS INTEREST OF RS. 31,08,280/- WAS PAID O N ECB LOAN WHICH WAS TAKEN FROM THE HOLDING COMPANY AND UTILIZED FOR THE PURPOSE OF PURCHASING AN IMMOVABLE PROPERTY AT KORAMANGALA, IN BANGALORE DURING THE YEAR 2005-06 AND THIS PROPERTY WAS PURCH ASED WITH AN INTENTION TO BUILD ITS OWN OFFICE PREMISES FOR THE ASSESSEE COMPANY. IT IS ALSO NOTED BY THE AO IN SAME PARA OF ASSESSME NT ORDER THAT THE CONSTRUCTION COULD NOT BE TAKEN UP AS THERE DEVELOP ED A DISPUTE FOLLOWED BY LITIGATION AND BECAUSE OF THIS REASON, THE PROPERTY REMAINED IN THE FORM OF VACANT SITE AND IT WAS KEPT UNUSED RIGHT FROM THE DATE OF PURCHASE TILL THE DATE OF ASSESSME NT ORDER. HE SUBMITTED THAT THE AO HAS INVOKED THE PROVISO TO OF SECTION 36(III) OF THE IT ACT WHICH IS REPRODUCED BY THE AO IN PARA 7.2 OF THE ASSESSMENT ORDER AND HE POINTED OUT THAT THE PROVIS O IS APPLICABLE WHERE THE LOAN IS BORROWED FOR ACQUISITION OF ASSET FOR EXTENSION BUT IN THE PRESENT CASE, THE LOAN IS NOT BORROWED F OR THE EXTENSION OF ASSESSEE COMPANY'S BUSINESS BUT IT WAS FOR EXPAN SION AND IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 16 OF 20 THEREFORE, THIS PROVISO IS NOT APPLICABLE IN THE PR ESENT CASE. HE PLACED RELIANCE ON THE TRIBUNAL ORDER RENDERED IN T HE CASE OF ITVV SIGNODE INDIA LTD. VS. DCIT AS REPORTED IN [2007] 1 10 TTJ 170 (HYD.), COPY AVAILABLE ON PAGES 662 TO 669 OF PAPER BOOK. HE ALSO PLACED RELIANCE ON THE TRIBUNAL ORDER RENDERED IN T HE CASE OF AT & T GLOBAL NETWORK SERVICES (INDIA) PVT. LTD. VS.DCIT AS REPORTED IN (2017) TAX CORP (A.T.) 57930 (ITAT-DELHI), COPY AVAILABLE ON PAGES 673 TO 743 OF PAPER BOOK. HE SUBMITTED THAT P ARA NO. 18 OF THIS TRIBUNAL ORDER AVAILABLE ON PAGE NO. 690 OF PAPER B OOK IS RELEVANT IN THIS REGARD. THE ID. DR OF REVENUE SUPPORTED THE OR DERS OF AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THIS IS NOT IN DISPUTE THAT THE BORROWED FUNDS WERE USED FOR THE P URPOSES OF ACQUIRING A LAND TO BE USED FOR CONSTRUCTING ASSESS EE'S OFFICE PREMISES AND THIS IS ALSO NOT IN DISPUTE THAT CONSTRUCTION C OULD NOT TAKE PLACE BECAUSE OF SOME DISPUTE IN THE TITLE OF THE SAID LA ND. UNDER THESE FACTS, THE AO INVOKED THE PROVISIONS OF PROVISO TO SECTION 36(1)(III) WHICH SAYS THAT IF THE FUNDS ARE BORROWED FOR ACQUIRING A N ASSET FOR EXTENSION OF EXISTING BUSINESS, THEN INTEREST IS NOT ALLOWABL E TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. THE OBJECTION OF T HE ASSESSEE IS THIS THAT IN THE PRESENT CASE, THE LAND WAS NOT ACQUIRED FOR EXTENSION OF BUSINESS BUT IT WAS ACQUIRED FOR EXPANSION OF BUSINESS AND T HEREFORE, THIS PROVISO IS NOT APPLICABLE. IN THIS REGARD, PARA NO. 18 OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF AT & T GLOBAL NETWORK SERVICES (INDIA) PVT. LTD. VS. DCIT (SUPRA) IS RELEVANT AND HENCE, T HE SAME IS REPRODUCED HEREINBELOW FROM PAGE NO. 690 OF THE PAP ER BOOK. '18. UNDISPUTEDLY ASSESSEE IS ENGAGED IN TELECOMMUN ICATION BUSINESS. IT HAS COMMENCED ITS BUSINESS OPERATION O N APRIL 07, 2007. THE PRESENT SITUATION DEALS WITH THE CASE WHE RE IN THE ASSESSEE HAS PURCHASED CAPITAL GOODS FOR ITS EXISTI NG TELECOMMUNICATION BUSINESS. THE QUESTION THAT ARISE S FOR IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 17 OF 20 CONSIDERATION HERE IS THAT WHETHER THE PROVISO TO S ECTION 36(1)(III) WHICH DISALLOWS THE INTEREST PAID ON ACQ UISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS IS APPLICA BLE TO THE PRESENT CASE OR NOT. IN THE PRESENT CASE, WHETHER THE ASSET S WERE ACQUIRED FOR EXTENSION OF BUSINESS OR NOT. THE WORD -EXTENSI ON HAS NOT BEEN DEFINED IN THE INCOME-TAX ACT, 1961 AND ONE HAS TO RESORT TO THE POPULAR MEANING OF THE TERM. THE DICTIONARY MEANING OF THE WORD -EXTEND IS A PART THAT IS ADDED TO SOMETHING TO ENL ARGE OR PROLONG IT, ADDITION, ADD-ON, ADJUNCT, ADDENDUM, AUGMENTATI ON, SUPPLEMENT, APPENDAGE, APPENDIX; ANNEXE, SUPPLEMENT ARY ETC. THE ASSESSEE SUBMITTED THAT THE ASSETS HAVE BEEN AC QUIRED ONLY IN CONNECTION WITH ITS EXISTING TELECOMMUNICATION BUSI NESS. IN OUR VIEW, THERE IS A VERY THIN LINE OF DEMARCATION BETW EEN THE TERM EXPANSION AND EXTENSION, WHICH CAN BE DIFFERENTIATE D BASIS THE FACTS AND EVIDENCES BROUGHT ON RECORD. NEITHER THE LD AO OR THE LD DRP HAS BROUGHT ANY EVIDENCE ON FACTS TO SUGGEST THAT THERE WAS AN E , XTENSION OF BUSINESS DURING THE YEAR UNDER CONSIDER ATION AND THE INTEREST PAID SHOULD HE DISALLOWED U/S 36(1 )(III) OF THE ACT. FURTHER, THE .ASSESSEE ALSO DISTINGUISHED THE DECIS IONS RELIED UPON BY THE LOWER AUTHORITIES ON FACTS OF THE PRESENT CA SE. WHILE ARRIVING AT THE ABOVE FINDING WE ALSO DRAW SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DCIT VS. GUJARAT ALKALIES & CHEMICALS LTD. [2008] 299 ITR 85 (SC) CITED BY THE LD. AR WHEREIN IT WAS HELD THAT EXTENSION' I MPLIES STARTING OF A NEW BUSINESS ACTIVITY. KEEPING IN VIEW THE ABO VE SAID MEANING WE ARE OF THE VIEW THAT THE TELECOM EQUIPME NT PURCHASED BY THE APPELLANT USING THE ECB LOANS WAS FOR CONTIN UATION OF THE EXISTING BUSINESS ONLY AND NOT FOR THE EXTENSION OF BUSINESS. HENCE, THE SAID PROVISO TO SECTION 36(1)(III) DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE. IN THE RESULT, THE GROUN D NO. 3 OF THE APPEAL OF THE ASSESSEE IS ALLOWED' IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 18 OF 20 14. FROM THE ABOVE PARA REPRODUCED FROM THE TRIBUNAL OR DER, IT COMES OUT THAT IF THE BORROWED FUNDS ARE NOT USED FOR EXTENSI ON OF EXISTING BUSINESS, AND THE SAME ARE USED FOR CONTINUATION OF EXISTING BUSINESS ONLY, THEN THE PROVISO TO SECTION 36(1)(III) OF THE IT ACT IS NOT APPLICABLE. IN OUR CONSIDERED OPINION, PURCHASING O F LAND FOR CONSTRUCTION OF NEW OFFICE PREMISES CANNOT BE SAID TO BE FOR EXTENSION OF ASSESSEE'S BUSINESS AND HENCE, IN OUR CONSIDERED OPINION, IN THE FACTS OF PRESENT CASE, THIS TRIBUNAL ORDER IS APPLICABLE AND HENCE, RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE HOLD THAT THE INTEREST DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED BECAUS E THE FUNDS WERE BORROWED FOR CONTINUATION / EXPANSION OF EXISTING B USINESS AND NOT FOR EXTENSION OF EXISTING BUSINESS AND THEREFORE, THE PROVISO TO SECTION 36(1)(III) IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE A MENDMENT IN THIS PROVISO WAS MADE BY THE FINANCE ACT, 2015 W.E.F. 01.04.2016 AS PER WHICH THE WORDS 'FOR EXTENSION OF WERE OMITTED AND THEREFORE IN OU R CONSIDERED OPINION, UP TO ASSESSMENT YEAR 2015-16, THE PROVISO IS APPLICAB LE ONLY IN THOSE CASES WHERE BORROWED FUNDS WAS USED FOR ACQUISITION OF ASSET FOR EXTENSION OF EXISTING BUSINESS. IN THE PRESENT CAS E, THE ASSESSMENT YEAR INVOLVED IS ASSESSMENT YEAR 2009-10 AND THEREFORE, IN THE FACTS OF PRESENT CASE, IN THE PRESENT YEAR, THIS PROVISO IS NOT APPL ICABLE AND HENCE, WE DELETE THIS DISALLOWANCE BY RESPECTFULLY FOLLOWING THIS TR IBUNAL ORDER RENDERED IN THE CASE OF AT & T GLOBAL NETWORK SERVICES (INDIA) PVT. LTD. VS. DCIT (SUPRA). ACCORDINGLY, GROUND NO. 4(B) IS ALLOWED. 14.3 FOLLOWING THE ABOVE SAID DECISION OF THE C O-ORDINATE BENCH RENDERED IN ASSESSEES OWN CASE ON AN IDENTICAL ISS UE, WE DIRECT THE AO TO DELETE THIS DISALLOWANCE. 15. THE LAST ISSUE RELATES TO RE-COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. IT IS THE SUBMISSION OF THE LD A.R, T HE AMOUNT, IF ANY, DISALLOWED WHILE COMPUTING BUSINESS INCOME OF THE U NDERTAKING, WHICH IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT, WOULD GO TO INCREASE THE PROFITS AND GAINS DERIVED FROM THE EL IGIBLE UNDERTAKING IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 19 OF 20 WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. ACCO RDINGLY HE PRAYED THAT THE AO MAY BE DIRECTED TO RE-COMPUTE TH E DEDUCTION U/S 10A BY ADOPTING THE CORRECT AMOUNT OF PROFIT AND GA INS DERIVED FROM THE UNDERTAKING. HE SUBMITTED THAT THE PRAYER OF T HE ASSESSEE IS SUPPORTED BY CIRCULAR NO.37/2016 DATED 2.11.2016 IS SUED BY CBDT. 15.1 WE HEARD LD D.R. WE NOTICE THAT THE ADDIT ION RELATING TO TRANSFER PRICING ADJUSTMENT IS NOT ELIGIBLE FOR DED UCTION U/S 10A OF THE ACT, IN VIEW OF THE BAR PROVIDED IN THE PROVISO TO SEC. 92C(4) OF THE ACT. OTHER DISALLOWANCES MADE BY THE AO WOULD GO TO INCREASE THE PROFITS DERIVED FROM THE UNDERTAKING. SINCE THE PRAYER OF THE ASSESSEE IS SUPPORTED BY CIRCULAR NO.37/2016 DATED 2.11.2016 ISSUED BY CBDT, WE DIRECT THE AO TO RE-COMPUTE THE DEDUCTION ACCORDINGLY. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JAN, 2021 SD/- (GEORGE GEORGE K. ) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 5 TH JAN, 2021. VG/SPS IT(TP)A NO.411/BANG/2016 MAXIM INDIA INTEGRATED CIRCUIT DESIGN PVT. LTD., BA NGALORE PAGE 20 OF 20 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.
