Calance Software Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4363/DEL/2010

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3040 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 26-07-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 27-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY BARA
• Keywords: Depreciation; Transfer pricing; International transaction; Period of limitation; Revised return
• Section: 143(3); 139(5); 139

Judgement Text

1 ITA NO. 4363/DEL/2010 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 4363/DEL/2 010 (A.Y 2006-07) CALANCE SOFTWARE PVT. LTD. C/O RAVI GUPTA, ADVOCATE, D-10, KAILASH COLONY, NEW DELHI 110048 (APPELLANT) VS DCIT CIRCLE-3 (1) NEW DELHI (RESPONDENT) APPELLANT BY SH. P. C. YADAV, ADV. RESPONDENT BY SH. KUMAR PRANAV, SR. DR & SH. SANJAY BARA, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 26.07.2010 PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WI TH SECTION 144C OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE IS A COMPANY ENGAGED IN PROVIDING T HE SERVICES SUCH AS SOFTWARE DEVELOPMENT AND MAN POWER PLACING AND FILE D ITS ORIGINAL RETURN OF INCOME DECLARING AN INCOME OF RS.11,31,200/- AND SU BSEQUENTLY REVISED ITS RETURN OF INCOME ON 19/3/2008 AND DECLARED A LOSS O F RS.36,00,046/-. A REFERENCE WAS MADE TO TPO BY THE ASSESSING OFFICER FOR DETERMINING THE ARMS LENGTH PRICE U/S 92CA(3) IN RESPECT OF INTERNATIONA L TRANSACTIONS ENTERED INTO BY THE ASSESSEE DURING F.Y. 2005-06. THE ASSESSEE H AS UNDERTAKEN FOLLOWING INTERNATIONAL TRANSACTION: DATE OF HEARING 06.02.2018 DATE OF PRONOUNCEMENT 23.03.2018 2 ITA NO. 4363/DEL/2010 S.NO. DESCRIPTION OF TRANSACTION METHOD VALUE (IN R S.) 1 SOFTWARE DEVELOPMENT CUP 2,15,04,878 THE TPO DETERMINED THE ARMS LENGTH PRICE OF THE IN TERNATIONAL TRANSACTIONS AT RS. 2,95,01,518/-. THE TPO FURTHER HELD THAT SIN CE THE DIFFERENCE BETWEEN THE ALP AND THE VALUE OF INTERNATIONAL TRANSACTION BOOKED IS MORE THAN 5% OF THE INTERNATIONAL TRANSACTION, NO BENEFIT OF THE AM ENDED PROVISO TO SEC. 92C(2) IS AVAILABLE TO THE ASSESSEE. THE TPO DIRECTED THE ASSESSING OFFICER TO ENHANCE THE TAXABLE INCOME OF THE ASSESSEE BY RS.79,96,640/ -. THE ASSESSEE FILED OBJECTION BEFORE THE DRP. THE DRP ISSUED DIRECTION TO THE ASSESSING OFFICER REGARDING THE DEPRECIATION ON THE COMPUTER ACCESSOR IES TO SEGREGATE DETAILS RELATING TO ACCESSORIES AND PERIPHERALS WHICH CAN W ORK ONLY IN CONNECTION WITH OR WITH THE AID OF COMPUTER AND ASSETS WHICH CAN WO RK INDEPENDENTLY AND ACCORDINGLY ALLOW ADMISSIBLE DEPRECIATION ON THESE ASSETS @60% OR @15% AS THE CASE MAY BE. RELATING TO TRANSFER PRICING ISSUE S, THE DRP UPHELD THE TPOS FINDINGS. AS RELATING TO 10A ISSUE THE DRP UPHELD T HE DIRECTIONS OF THE TPO/AO. THE ASSESSING OFFICER DISALLOWED THE CLAI M OF THE ASSESSEE U/S 10A AS WELL AS DISALLOWED AN AMOUNT OF RS.79,96,640 MAD E ON ACCOUNT OF ALP AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER ALSO MADE ADDITION OF RS.22,230/- IN RESPECT OF DEPRECIA TION CLAIMED ON COMPUTER. 3. BEING AGGRIEVED BY THE SAID ASSESSMENT ORDER, TH E ASSESSEE FILED APPEAL BEFORE US. 4. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS FILED ADDITIONAL LEGAL GROUND WHICH WAS ADMITTED ON 16/1/2013 AND THE SAME WAS PR AYED TO BE ADJUDICATED FIRST. THE ADDITIONAL LEGAL GROUND IS AS FOLLOWS:- THE REFERENCE TO THE TRANSFER PRICING OFFICER U/S 9 2CA OF THE INCOME TAX ACT, 1961 BY THE ASSESSING OFFICER WAS ILLEGAL BEIN G CONTRARY TO (I) THE BINDING INSTRUCTION NO. 3/2003, (II) THE PROVISIONS OF SECTION 92CA AND THE 3 ITA NO. 4363/DEL/2010 BINDING DECISION OF THE SPECIAL BENCH IN THE CASE O F AZTEC SOFTWARE AND TECHNOLOGY SERVICES LTD. 107 ITD 141 (BANG) (SB). CONSEQUENTLY, THE IMPUGNED ASSESSMENT IS TIME BARRED AND, THEREFORE, BAD IN LAW. 5. THE LD. AR SUBMITS THAT AS REGARDS THE LEGAL GRO UND, THE REFERENCE MADE TO THE TPO IS BAD IN LAW. THERE ARE TWO LIMBS OF TH IS GROUND. FIRSTLY, THE ASSESSING OFFICER HAS NOT TAKEN ANY APPROVAL FROM T HE COMMISSIONER IN THIS REGARD AND SECONDLY, AS THE QUANTUM OF THE INTERNAT IONAL TRANSACTION IS BELOW RS. 5 CRORE THE ASSESSING OFFICER OUGHT TO HAVE DET ERMINED THE ALP HIMSELF AND NOT REFERRED TO THE TPO. THE ORDER OF THE TPO MAKES IT CLEAR THAT QUANTUM OF INTERNATIONAL TRANSACTION IS RS.2,15,04,878/- WHICH MEANS THE SAME IS BELOW THE MONETARY LIMIT OF RS. 5 CRORE. THE LD. AR SUBMI TTED THAT LIMIT OF RS. 5 CRORE IS NOT MENTIONED ANYWHERE IN THE PROVISIONS OF TRAN SFER PRICING, HOWEVER, CBDT VIDE ITS INSTRUCTION DATED 20.03.2003 BEING IN STRUCTION NO. 03 OF 2003 CATEGORICALLY PROVIDED THAT ONLY THOSE CASES WHERE THE QUANTUM OF INTERNATIONAL TRANSACTION IS ABOVE RS. 5 CRORE WOUL D BE REFERRED TO THE TPO. THE LD. AR SUBMITTED THAT THE CBDT MADE IT CLEAR TH AT IT WOULD BE APPROPRIATE IF A SMALL NUMBER OF CASES ARE SELECTED FOR SCRUTINY OF TRANSFER PRICE AND THESE ARE DEALT WITH EFFECTIVELY. THEREFORE, I T CAN BE SAID THAT THE REFERENCE MADE TO THE TPO WAS BAD IN LAW AND HENCE THE ADJUST MENT MADE BY THE TPO WAS ALSO BAD IN LAW. THIS ARGUMENT FURTHER FINDS SU PPORT FROM THE INSTRUCTION NO. 3 OF 2016 WHEREIN IT HAS BEEN CATEGORICALLY MEN TIONED THAT ALL REFERENCES MADE TO TPO, WHICH ARE NOT IN CONSONANCE WITH THE I NSTRUCTION OF BOARD, SHOULD BE WITHDRAWN. THE LD. AR RELIED UPON THE DEC ISION OF THE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. SPLS SIDDHARTHA LTD. (2012) 345 ITR 223 AND ALSO RELIED UPON THE DECISION OF SPECIAL BENCH OF T HIS TRIBUNAL IN CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. VS. ACIT (2007) 107 ITD 0141 (SB). 6. THE LD. AR FURTHER SUBMITTED THAT THE DRP VIDE O RDER DATED 2/7/2010 IGNORED THE REVISED RETURN FILED BY THE ASSESSEE WI THIN THE PERIOD OF LIMITATION AS PRESCRIBED U/S 139 (5) OF THE INCOME TAX ACT. T HE LD. AR FURTHER SUBMITS 4 ITA NO. 4363/DEL/2010 THAT THE ASSESSEE HAS REVISED ITS RETURN OF INCOME WITHIN THE TIME PRESCRIBED U/S 139(5) OF THE ACT AND ONE YEAR EXPIRES ON 31 ST MARCH 2008. THE ASSESSEE FILED REVISED RETURN OF INCOME ON 19/3/2008 WHICH M EANS THAT THE PERIOD OF LIMITATION WILL NOT COME IN THE WAY OF THE ASSESSEE . THE LD. AR SUBMITS THAT THE ASSESSEE CAN REVISED HIS/RETURN OF INCOME BEFOR E THE EXPIRY OF ONE YEAR FOR THE RELEVANT ASSESSMENT YEAR AFTER DISCOVERING ANY OMISSION OR ANY WRONG STATEMENT THEREIN. 7. THE LD. AR SUBMITTED THAT BONA-FIDES OF THE ASSE SSEE CAN BE JUDGE FROM THE CERTIFICATE OF CA WHO HAD AUTHORIZED THE MERGER A VALID MERGER, WITHOUT THERE BEING A VALID ORDER OF THE HIGH COURT. THE LD . AR SUBMITTED THAT DOCUMENTS SUCH AS ADVICE OF MERGER ON THE BASIS OF CAS CERTIFICATE WERE FOUND DURING THE COURSE OF SURVEY. THEREFORE IT CANNOT BE ALLEGED THAT THE DOCUMENTS WERE AFTER THOUGHT. THE LD. AR FURTHER SUBMITTED TH AT THESE DOCUMENTS WOULD PROVE BEYOND DOUBT THAT THE ASSESSEE WAS UNDER BONA -FIDE BELIEF AND HAS MERGED THE TWO COMPANIES, ON THE BASIS OF CA CERTIF ICATE, WITHOUT THERE BEING ANY ORDER OF HIGH COURT. THE LD. AR SUBMITTED THAT ASSESSEE REVISED ITS RETURN OF INCOME ON 19/03/2008, ADMITTEDLY IN THE TIME ALL OWED UNDER SECTION 139(5) OF THE INCOME TAX ACT. THEREFORE, THE ASSESSING OFF ICER OUGHT TO HAVE CONSIDERED THE REVISED RETURN INSTEAD OF ORIGINAL R ETURN. THE LD. AR FURTHER MENTIONED THAT WHILE DECIDING THE APPEAL OF FBT, TH E ITAT IN THE CASE OF PRESENT ASSESSEE, FOR THE SAME ASSESSMENT YEAR, HAS DIRECTED THE ASSESSING OFFICER TO ACCEPT THE REVISED RETURN INSTEAD OF ORI GINAL RETURN. THEREFORE, THE ASSESSING OFFICER WAS NOT CORRECT IN IGNORING THE R EVISED RETURN. THE LD. AR SUBMITTED THAT PROVISIONS RELATED TO FURNISHING OF FBT RETURN ARE PRESCRIBED UNDER SECTION 115 WD AND PROVISIONS RELATING TO REV ISED RETURN OF FBT ARE PRESCRIBED AS UNDER SECTION 115 WD (4). THE LD. AR SUBMITTED THAT THE PERUSAL OF SECTION 115 WD (4) WOULD MAKE IT CLEAR THAT THE LANGUAGE OF THIS SUB-SECTION AS WELL AS LANGUAGE OF SECTION 135 (5) IS VERBATIM. THEREFORE, INTERPRETATION AS ADOPTED BY THE ITAT VIS--VIS FBT RETURN MAY BE ADO PTED HERE FOR INCOME TAX RETURN. THE LD. AR SUBMITTED THAT IN VIEW OF THE AB OVE THE REVISED RETURN OF 5 ITA NO. 4363/DEL/2010 THE ASSESSEE MAY BE ACCEPTED AND THE MATTER MAY BE RESTORED TO THE AO FOR FRESH ADJUDICATION. THE LD. AR SUBMITTED THAT IT IS SETTLED POSITION OF LAW THAT REVISED RETURN WOULD REPLACE THE ORIGINAL RETURN AN D HAS TO BE CONSIDERED FOR ALL ASPECTS WHICH MEANS, THE ORIGINAL RETURN BECOME NON -EST A REFERENCE WAS MADE TO THE FOLLOWING CASES:- A BICO ENGINEERING LTD VS, CIT 148 ITR 478 PUNJA B & HARYANA H C B. B. CIT VS RANA POLYCOT 347 ITR 466 8. THE LD. AR FURTHER SUBMITTED THAT WITHOUT PREJUD ICE EVEN IF WE IGNORE THE REVISED RETURN FILED BY THE ASSESSEE THEN ALSO IT IS AN ADMITTED POSITION OF FACTS THAT THE MERGER OF THE ASSESSEE WITH M/S ABRI DGE INFO-TECH WAS BAD IN LAW, WHICH MEANS ASSESSEE WAS SEPARATELY ASSESSABLE ENTITY UNDER THE INCOME TAX AND M/S ABRIDGE WAS SEPARATE ASSESSABLE ENTITY. THIS FACTUAL POSITION HAS ALSO BEEN ACCEPTED BY THE ASSESSING OFFICER AS WELL AS BY THE CA OF THE ASSESSEE COMPANY AT THE TIME OF SURVEY. THEREFORE, CONSOLIDATED BALANCE SHEET OF BOTH COMPANIES WAS NON-EST PER SE AND THER EFORE, THE AO WAS NOT CORRECT IN TAXING THE INCOME OF ABRIDGE IN THE HAND S OF ASSESSEE, MERELY BECAUSE ASSESSEE HAS INCLUDED THE SAME IN ITS HAND. THE LD. AR SUBMITTED THAT IT IS THE SETTLED POSITION OF LAW THAT CORRECT INCOME HAS TO BE TAXED IN CORRECT HANDS AND MERELY BECAUSE AN ASSESSEE HAS OF FERED AN INCOME IN HIS HANDS THAT DOES NOT MEAN THE SAME IS TAXABLE IN HIS HANDS. RELIANCE WAS MADE ON THE FOLLOWING JUDGMENTS: A) CIT VS VMRP 56 ITR 67(SC)( LARGER BENCH) T HE HONBLE APEX COURT HELD THAT THE DOCTRINE OF 'APPROBATE AND REPROBATE' IS ONLY A SPECIES OF ESTOPPEL; IT APPLIES ONLY TO THE CONDUCT OF PARTIES . AS IN THE CASE OF ESTOPPEL, IT CANNOT OPERATE AGAINST THE PROVISION OF A STATUTE. IF A PARTICULAR INCOME IS NOT TAXABLE UNDER THE IT ACT, IT CANNOT BE TAXED ON THE BASIS OF ESTOPPEL OR ANY OTHER EQUITABLE DOCTRINE EQUITY IS OUT OF PLACE IN TAX LAW; A PARTICULAR INCOME IS EITHER ELIGIBLE TO TAX UNDER THE TAXING STATUTE OR IT IS NOT. IF IT IS NOT, THE ITO HAS NO POWER TO IMPOSE TAX ON THE SAID INCOME 6 ITA NO. 4363/DEL/2010 B) MAYANK PODAR(HUF) VS WEALTH TAX OFFICER REPORTED IN 262 ITR 633(CALL), THE HONBLE CALCUTTA HIGH COURT HELD THAT THERE IS NO ESTOPPEL AGAINST THE STATUTE A PROPERTY WHICH IS NOT OTHERWISE TAXABLE C ANNOT BECOME TAXABLE BECAUSE OF MISUNDERSTANDING OR WRONG UNDERSTANDING OF LAW BY THE ASSESSEE OR BECAUSE OF HIS ADMISSION OR HIS MISAPPREHENSION' 9. THE LD. AR SUBMITTED THAT THE AO WHILE MAKING A REFERENCE TO THE TPO HAS ADOPTED THE FIGURE OF REVISED RETURN ONLY. HOW EVER WHILE COMPUTING THE INCOME THE ASSESSING OFFICER HAS ADOPTED THE FIGURE S OF ORIGINAL RETURN. THE LD. AR SUBMITTED THAT ASSESSING OFFICER HAS REFERRED TO TPO THE TRANSACTION OF RS 2,15,04,878/- WHICH FIGURE MATCHED WITH ORDER OF TP O. THE LD. AR SUBMITTED THAT IN REVISED RETURN ASSESSEE HAS REFLECTED AN AM OUNT OF RS 2,48,26,091 UNDER THE SALES RECEIPTS, OUT OF THIS AMOUNT AN AMO UNT OF RS 2,15,04,878/- WAS RELATED TO THE AE OF ASSESSEE AND BALANCE AMOUN T OF RS 33,21,213/- WAS RELATED TO INDEPENDENT PARTY AND THAT IS WHY THE AS SESSING OFFICER HAS ONLY REFERRED THE TRANSACTION OF RS 2,15,04,878/- TO THE TPO. THE LD. AR POINTED OUT THAT BELATED RETURN OF ABRIDGE WAS FILED ON 19. 03.2008, IN WHICH THE INCOME PERTAINING TO THAT FIRM HAS BEEN DECLARED. T HE LD. AR FURTHER SUBMITTED THAT TILL DATE NO ACTION HAS BEEN TAKEN B Y THE REVENUE TO ASSESS THE INCOME OF ABRIDGE AND WHATEVER DECLARED OVER THERE HAS BEEN ACCEPTED BY THE REVENUE AS CORRECT. THEREFORE THE ENTIRE ASSESSMENT MAY BE ANNULLED AND A DIRECTION MAY BE GIVEN TO AO TO REASSESS THE INCOME OF THE ASSESSEE ON THE BASIS OF REVISED RETURN. 10. AS REGARDS TO MERIT, THE LD. AR SUBMITTED THAT THE TPO HAS WRONGLY APPLIED THE TNMM METHOD INSTEAD OF CUP METHOD. DURI NG THE COURSE OF TP PROCEEDING AS WELL AS IN THE PROCEEDING BEFORE THE DRP, THE ASSESSEE HAS AVERTED THAT IT HAD ENTERED INTO SIMILAR TRANSACTIO NS WITH M/S VISIONGAIN LTD, UK. THE LD. AR FURTHER SUBMITTED THAT IN THIS REGAR D ASSESSEE HAD ALSO FURNISHED A COMPARATIVE CHART WHEREIN THE ASSESSEE HAS DEMONSTRATED THE SIMILARITY OF SERVICE PROVIDED TO AE AS WELL AS IND EPENDENT PARTY. THIS 7 ITA NO. 4363/DEL/2010 COMPARATIVE CHART WOULD PROVE THAT THE TRANSACTIONS WITH INDEPENDENT PARTY ARE SIMILAR TO THE TRANSACTIONS WITH AE AND HENCE I NTERNAL CUP IS THE BEST METHOD TO APPLY FOR COMPUTING ALP. THE ABOVE CONTEN TIONS OF THE ASSESSEE WERE DISMISSED BY THE TPO OBSERVING THAT IN TP REPO RT THE ASSESSEE ADMITTED THAT THERE WAS SOME DIFFERENCES IN FUNCTION PERFORM ED BETWEEN CALANCE INDIA AND UNCONTROLLED COMPARABLES. THE LD. AR SUBMITTED THAT THIS OBSERVATION IS FACTUALLY INCORRECT AND PERVERSE. NO SUCH AVERMENT WAS MADE IN TP REPORT. THIS ALLEGATION OF TPO WAS REFUTED BY THE ASSESSEE BEFORE THE DRP, IN ITS SUBMISSION. IT IS SETTLED POSITION OF LAW THAT WHEN INTERNAL CUP IS AVAILABLE THEN NO OTHER METHOD IS PREFERRED. THE LD. AR RELI ED UPON THE OECD GUIDELINES AND DECISION OF INTER GARDEN (BANGALORE ). 11. THE LD. AR FURTHER SUBMITTED THAT THE TPO HAS A LSO WRONGLY CHOSEN THE COMPARABLE NAMELY BODH TREE CONSULTING LTD. AND SPI TECHNOLOGIES. THE SELECTION CRITERIA OF SELECTING COMPANIES WITH POSI TIVE NET-WORTH FOR THE YEAR ARE INCORRECT. CALANCE INDIA HAD A NEGATIVE NET WORTH E XCLUDING THE SHARE APPLICATION MONEY. NEGATIVE NET WORTH COMPANIES SHO ULD HAVE BEEN CONSIDERED. THE SEARCH PARAMETER SHOULD HAVE BEEN M ADE ON COMPANIES THAT WERE IN THE FIRST, SECOND OR THIRD YEAR OF OPERATIO N WITH REVENUES BETWEEN 2-5 CRORES. THE SEARCH PARAMETER OF TURNOVER RS, 1 TO R S 15 CRORE IS TOTALLY IRRELEVANT. THE SEARCH PARAMETER SHOULD INCLUDE IND EPENDENT COMPANIES IN SOFTWARE DEVELOPMENT ONLY. WAGES/SALES RATIO RANGE IF 40% - 60% IS ALSO NOT APPLICABLE AS IT STANDS UP FOR MATURE COMPANIES AND NOT STARTUPS. STARTUPS HAVE A HIGHER WAGES TO SALES RATIO. THEREFORE, COMP ANIES WHICH ARE IDENTIFIED BASED ON THESE POINTS, SHOULD HAVE BEEN FURTHER NAR ROWED, BASED ON 80% WAGES TO SALES RATIO (CALANCE INDIAS RATIO) AS THA T WOULD BE A FAIR COMPARISON. THE LIST SHOULD BE FURTHER SHORT LISTED BASED ON POSITIVE GROWTH COMPANIES. CALANCE INDIA HAS ONLY 77% OF TOTAL INCO ME AS EXPORT INCOME (TOTAL REVENUE RS 3 22 CRORES AND EXPORT REVENUE RS 2 48 C RORES). THIS LIST SHOULD BE FURTHER SHORT LISTED BY COMPANIES THAT HAD AN EX PORT INCOME OF 75% OR HIGHER. THE LD. TPO HAS NOT ELABORATED AS TO WHY TH ESE COMPANIES ARE 8 ITA NO. 4363/DEL/2010 COMPARABLE WITH THE ASSESSEE COMPANY. THE LD. AR SU BMITTED THAT THESE COMPANIES CANNOT AT ALL BE COMPARED WITH THE ASSESS EE COMPANY. THE SAMPLE SET IS TOO SMALL (ONLY 2 COMPANIES) TO BE GENERICAL LY APPLIED TO A COMPANY LIKE CALANCE INDIA. THE RELEVANT SAMPLE SIZE HAD TO BE H UNDREDS OF COMPANIES IN ORDER TO BE STATISTICALLY MEANINGFUL. A) BODH TREE CONSULTING WAS FOUNDED IN 1999 AND HAS BEEN IN BUSINESS FOR 7 YEARS AND HENCE PROBABLY MATURED. COMPARISON OF C ALANCE INDIA (18 MONTH OLD STARTUP COMPANY) WITH BODHTREE IS NOT MEANINGFU L BESIDES BODH TREE CONSULTING WAS IN THE BUSINESS OF BUSINESS CONSULTI NG, BUSINESS TRANSFORMATION AND DATA MANAGEMENT WHICH ARE NOT TH E SAME AS CALANCE SOFTWARE BUSINESS LINES. THIS COMPANIES IS ABSOLUTE LY MEANINGLESS. B) SIP TECHNOLOGIES WAS FOUNDED IN 1996 AND AGAIN A MATURE COMPANY AND SHOULD NOT BE COMPARED WITH CALANCE INDIA. ALSO, TH E LINE OF BUSINESS PURSUED BY SIP TECHNOLOGIES IS VERY DIFFERENT FROM CALANCE INDIA. THEY ARE INTO TESTING, PORTABILITY AND MAINTENANCE AND SUPPORT. NONE OF TH ESE BUSINESS LINES WERE PURSUED BY CALANCE INDIA IN 2005-2006. CALANCE INDI A WAS DOING CUSTOM SOFTWARE DEVELOPMENT CALANCE INDIA RESPONDED TO THE SHOW CAUSE NOTICE CLEARLY ARTICULATING THE REASONS FOR USING THE CUP METHOD. TNMM WAS NOT APPLICABLE AND THEREFORE THE MEAN MARGIN APPROACH U SING BODH TREE AND SIP WAS NOT APPROPRIATE COMPARISON SETS AND ALSO THE DA TA SIZE TOO SMALL TO BE STATISTICALLY MEANINGFUL. IN A NUTSHELL, TPO HAS FA ILED TO APPLY FAR TEST FOR CHOOSING THE CORRECT COMPARABLES. THE LD. AR SUBMITTED THAT ALL THESE DISSIMILARITIES WERE POINTED OUT BEFORE THE DRP. HOWEVER THE DRP HAS NOT CONSIDERED ANY OF THE ABOVE OBJECTIONS AND HAS JUST AFFIRMED THE ORDER OF THE T PO IN A SKETCHY MANNER. WITHOUT PREJUDICE TO THE ABOVE EVEN IF IT IS PRESUM ED THAT THE TPO HAS CORRECTLY APPLIED TNMM METHOD, THEN ALSO THE CALCUL ATIONS MADE BY THE TPO ARE NOT TENABLE IN LAW BECAUSE IT IS AN ADMITTED PO SITION OF FACT THAT THE AGREEMENT WAS ENTERED ON 29/09/2005 AND THE PAYMENT S WERE RECEIVED FROM THE MONTH OF OCTOBER 2005. THEREFORE, THE TPO OUGHT TO HAVE EXCLUDED THE 9 ITA NO. 4363/DEL/2010 EXPENSES OF 1ST APRIL TO 30 TH SEPTEMBER 2005. HOWEVER, THE TPO AS WELL AS DRP FAILED TO CONSIDERED THIS ASPECT AND HAS MADE THE A DJUSTMENT. THE LD. AR SUBMITTED THAT IF WE EXCLUDE THE OPERATIONAL COST F OR THE PERIOD OF 1-04-2005 TO 30/09/2005 THEN PROFITS OF THE ASSESSEE WOULD BECOM E 67% OF THE COST. IN MORE CLEAR TERMS THE ASSESSEE WISH TO DEMONSTRATE A S UNDER:- TOTAL COST FROM 1. 10 .2005 TO 31 03.2006= 2,06,25, 838/ 62 % OF THE COST CAN BE ATTRIBUTED TO AE WHICH IS =1,28,56,699/- NOW IF WE APPLY 23,64% AS APPLIED BY THE TPO THEN THE F IGURE OF PROFITS WOULD BE 1,58,96,023/- ON THE OTHER HAND ASSESSEE H AS SHOWN AN AMOUNT OF RS 2,15,04,878 FROM AE WHICH IS 67% OF TH E COST THEREFORE THE MARGIN SHOWN BY THE ASSESSEE IS MUCH HIGHER THA N THE RATE OF TPO. IN VIEW OF THE ABOVE THE LD. AR SUBMITTED THAT THE ORDER OF ASSESSMENT AS WELL AS DRP MAY BE ANNULLED AND APPEAL OF THE ASSESSEE M AY BE ALLOWED. 12. THE LD. DR SUBMITTED THAT THE CIRCULAR / INSTRU CTIONS ARE DIRECTIVE IN NATURE AND NOT MANDATORY. THEREFORE, ADDITIONAL GRO UND HAS TO BE DISMISSED. THE LD. DR FURTHER SUBMITTED THAT QUESTION OF LIMIT ATION SHOULD HAVE NOT BEEN TAKEN INTO ACCOUNT AS THE ASSESSEE FILED REVISED RE TURN DURING THE ASSESSMENT PROCEEDINGS WHICH IS NOT PERMISSIBLE. ONCE THE NOT ICE RECEIVED THE REVISED RETURN CANNOT BE FILED. THE LD. DR ALSO RELIED UPO N THE ORDER OF THE TPO AND DRP. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE TIME OF HEARING THE LD. AR HAS TAKE N A GROUND WHICH IS ON LEGAL POINT THAT AS PER THE INSTRUCTION NO. 3/2003 ISSUED BY THE CBDT, THE ASSESSING OFFICER SHOULD HAVE DECIDED THE ISSUE OF INTERNATIONAL TRANSACTION HIMSELF INSTEAD OF REFERRING IT TO TRANSFER PRICING OFFICER AS THE QUANTUM OF INTERNATIONAL TRANSACTION IS BELOW THE MONETARY LIM IT OF RS.5 CRORE. PRIMA FACIE, IT APPEARS THAT THE CONTENTION OF THE LD. AR IS SUP PORTED BY THE INSTRUCTION NO. 10 ITA NO. 4363/DEL/2010 3/2003. THEREFORE, WE HAVE TO VERIFY WHETHER THAT INSTRUCTION HAS A BINDING FORCE OR IT IS JUST AN ADMINISTRATIVE INSTRUCTION W ITHIN THE DEPARTMENTS DAY TO DAY ACTIVITIES. THE CIRCULAR HAS BEEN CONSIDERED B Y THE ANDHRA PRADESH HIGH COURT IN CASE OF CIT VS. NAYANA P DEDHIA 270 ITR 57 2 WHEREIN IT IS HELD THAT THE AUTHORITIES RESPONSIBLE FOR ADMINISTRATION OF T HE ACT SHALL OBSERVE AND FOLLOW ANY SUCH ORDERS, INSTRUCTIONS AND DIRECTIONS OF THE BOARD. THIS IS ACTUALLY REITERATED FROM THE DECISION OF THE HONBL E APEX COURT IN CASE OF UCO BANK VS. CIT 237 ITR 889. BUT AT THE SAME TIME THE HON'BLE SUPREME COURT ALSO HELD THAT THE CIRCULARS CAN BE ADVERSE TO THE IT DEPARTMENT BUT STILL ARE BINDING ON THE AUTHORITIES OF THE INCOME TAX DEPART MENTS BUT CANNOT BE BINDING ON THE ASSESSEE IF THEY ARE ADVERSE TO THE ASSESSEE. THESE RATIO LAID DOWN BY THE APEX COURT HAS AN IMPACT ON THE ARGUMEN T OF THE LD. AR REGARDING THE BOARDS INSTRUCTION TO BE FOLLOWED. THE SPECIAL BENCH OF THIS TRIBUNAL ALSO IN CASE OF AZTEC SOFTWARE & TECHNOLOG Y SERVICES LTD. VS. ACIT HELD THAT CBDT DIRECTIONS ARE MANDATORY AND BINDING ON THE ASSESSING OFFICER AND CIT. FURTHER THE JURISDICTIONAL HIGH COURT IN C ASE OF CIT VS. SPLS SIDDHARTHA LTD. (SUPRA) HELD THAT SECTION 116 OF THE ACT ALSO DEFINES THE INCOME-TAX AUTHORITIES AS DIFFERENT AND DISTINCT AU THORITIES. SUCH DIFFERENT AND DISTINCT AUTHORITIES HAVE TO EXERCISE THEIR POWERS IN ACCORDANCE WITH LAW AS PER THE POWERS GIVEN TO THEM IN SPECIFIED CIRCUMSTANCES . IF POWERS CONFERRED ON A PARTICULAR AUTHORITY ARE ARROGATED BY OTHER AUTHORI TY WITHOUT MANDATE OF LAW, IT WILL CREATE CHAOS IN THE ADMINISTRATION OF LAW AND HIERARCHY OF ADMINISTRATION WILL MEAN NOTHING. SATISFACTION OF ONE AUTHORITY CA NNOT BE SUBSTITUTED BY THE SATISFACTION OF THE OTHER AUTHORITY. IT IS TRITE TH AT WHEN A STATUE REQUIRES, A THING TO BE DONE IN A CERTAIN MANNER, IT SHALL BE DONE IN THAT MANNER ALONE AND THE COURT WOULD NOT EXPECT ITS BEING DONE IN SOME OTHER MANNER. THEREFORE, THE ADDITIONAL GROUND OF THE ASSESSEE IS ALLOWED. AT TH IS JUNCTURE, THE ASSESSMENT HAS BECOME TIME BARRED AS THE REFERENCE MADE TO TPO ITSELF IS NOT SUSTAINABLE AND THE ASSESSING OFFICER SHOULD HAVE PASSED ASSESS MENT ORDER AT THE PRESCRIBED TIME PROVIDED UNDER THE STATUTE. WE ARE NOT DECIDING ON THE MERIT OF THE CASE AS THE ADDITIONAL GROUND IS DECIDED IN FAV OUR OF THE ASSESSE. 11 ITA NO. 4363/DEL/2010 14. IN RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 23/03/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 12 ITA NO. 4363/DEL/2010 DATE 1. DRAFT DICTATED ON PS 2. DRAFT PLACED BEFORE AUTHOR PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 23.03.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON 23.03.2018 PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.