Alcatel Lucent India Ltd., Gurgaon V. Addl. CIT, Special Range-1, New Delhi

ITA 4706/DEL/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3482 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Assessment Year: 2014-2015
• Appeal Filed On: 26-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: MANASVINI BAJPAI S; DEEPAK CHOPRA SH ANKUL GOYAL
• Keywords: Transfer pricing; International transaction; TDS
• Section: 143(3); 92D; 234B; 40(a)(ia); 37(1); 144C; 274; 92

Judgement Text

, -1, IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI !' , # $ %'& '(. * , +, $ + - BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER &. / ITA NO. 4706/DEL/2018 # . ' . / ASSESSMENT YEAR: 2014-15 ALCATEL LUCENT INDIA LTD. DLF CYBER GREENS, 14 TH AND 15 TH FLOORS TOWER-C, PHASE III, DLF CITY, GURGAON PAN-AACCA8667N .......... /0 /APPELLANT VS THE ADDL. CIT, SPECIAL RANGE-1, NEW DELHI . 12/0 /RESPONDENT /0 3 4 + / APPELLANT BY :SH. DEEPAK CHOPRA, SH. ANKUL GOYAL & MS. MANASVINI BAJPAI, ADVOCATES 12/0 3 4 + / RESPONDENT BY :SH. SANJAY I. BARA, CIT DR ' 3 5, / DATE OF HEARING : 24.09.2019 67 3 5, / DATE OF PRONOUNCEMENT: 29.11.2019 +8 / ORDER PER SUSHMA CHOWLA, JM: THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST THE ORDER OF ASSESSING OFFICER, NEW DELHI DATED 30.05.2018 RELAT ING TO ASSESSMENT &. / ITA NO:- 4706/DEL/2018 PAGE | 2 YEAR 2014-15 PASSED U/S 144C R.W.S. 143(3) OF THE I NCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL WHICH READ AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO, HAS ERRED IN DETERMINING THE TAXABLE INCOME OF THE APPELLANT FOR THE SUBJECT ASSESSMENT YEAR AT INR 1,65,94,40,010/- AS AGAINST THE RETURNED INCOME OF INR 1,19,59,22,340/-. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO HAS ERRED IN MAKING SEVERAL ADDITIONS BASED ON M ERE CONJUNCTURES AND SURMISES, IGNORING THE FACTUAL MATRIX OF THE CO MPANY AS WELL AS THE NATURE OF THE TRANSACTIONS UNDERTAKEN BY THE AP PELLANT. 1.2 THAT THE LD. AO HAS FAILED TO APPRECIATE THE SUBMIS SIONS MADE/ CONTENTIONS RAISED BY THE APPELLANT AND FURTHER ERR ED IN MAKING SEVERAL OBSERVATIONS AND INFERENCES IN THE IMPUGNED ASSESSMENT ORDER WHICH ARE FACTUALLY INCORRECT AND LEGALLY UNT ENABLE. TRANSFER PRICING (TP) GROUNDS 2. THAT, IN FRAMING THE IMPUGNED ASSESSMENT ORDER, THE REFERENCE MADE BY THE LD. AO UNDER SECTION 92CA(1) OF THE ACT SUFF ERS FROM JURISDICTIONAL ERROR, AS THE LD. AO HAD NOT RECORDE D ANY REASONS NOR HE HAD ANY MATERIAL WHATSOEVER ON THE BASIS OF WHIC H HE COULD EVEN REACH A PRIMA-FACIE OPINION, THAT IT WAS NECESSARY OR EXPEDIENT TO REFER THE MATTER TO THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX, TRANSFER PRICING OFFICER -1(1 )(1), NEW DELHI (HERE INAFTER REFERRED TO AS LD. TPO) FOR COMPUTATION OF ARMS LENGTH PRICE ( ALP). 3. THAT ON THE FACT OF THE CASE AND IN LAW, THE LD. AO / LD. TPO / HONBLE DISPUTE RESOLUTION PANEL (HONBLE DRP) HAS ERRED BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT I N ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962 (THE RULES), AND CONDUCTING ALTERNATE COMPARABILI TY ANALYSIS FOR THE DETERMINATION OF THE ALP OF THE APPELLANTS INTERNA TIONAL TRANSACTION PERTAINING TO PROVISION OF CONTRACT SOFTWARE DEVELO PMENT (CSD) SERVICES BY THE APPELLANT TO ITS ASSOCIATED ENTERPR ISES (AES) AND HOLDING THAT THE SAID INTERNATIONAL TRANSACTION IS NOT AT ARMS LENGTH. 4. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. T PO / HONBLE DRP HAS ERRED IN REJECTING THE APPELLANTS CLAIM TO USE MULTIPLE YEAR DATA FOR COMPUTING THE ARM'S LENGTH PRICE AND, INSTEAD, HAS ADHERED TO THE USE OF SINGLE YEAR UPDATED DATA TO CONCLUDE THE ALP OF THE &. / ITA NO:- 4706/DEL/2018 PAGE | 3 INTERNATIONAL TRANSACTION WHICH WAS NOT AVAILABLE T O THE APPELLANT AT THE TIME OF UNDERTAKING TRANSFER PRICING STUDY REQU IRED TO BE MAINTAINED UNDER SECTION 92D OF THE ACT. 5. THAT ON FACT OF THE CASE AND IN LAW, THE LD. TPO/ H ONBLE DRP HAS ERRED IN APPLICATION OF INAPPROPRIATE FILTERS BASED ON DIFFERENT FINANCIAL YEAR END, EXPORT SERVICE INCOME AND EMPLO YEE COST FOR IDENTIFYING COMPANIES COMPARABLE TO THE APPELLANT. 6. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. T PO/ HONBLE DRP HAS ERRED IN SELECTION OF FUNCTIONALLY NON-COMPARAB LE COMPANIES AND REJECTION OF COMPARABLE COMPANIES, FOR THE PURPOSE OF DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF CSD SERVICES BY THE APPELLANT ON AN ADHOC BASIS, THEREB Y RESORTING TO CHERRY PICKING OF COMPARABLE. 6.1 THE LD. TPO/ HONBLE DRP, IN PARTICULAR, ERRED IN ARBITRARILY SELECTING INFOBEANS TECHNOLOGIES LIMITED, PERSISTENT SYSTEMS LIMITED, ACROPETAL TECHNOLOGIES LIMITED AND MINDTREE LIMITED AS COMPAR ABLES COMPANIES WITHOUT CONDUCTING ANY SCIENTIFIC SEARCH PROCESS AND WITHOUT APPRECIATING THAT THESE COMPANIES ARE NOT F UNCTIONALLY COMPARABLE TO THE APPELLANT IN RELATION TO THE INTE RNATIONAL TRANSACTION PERTAINING TO PROVISION OF CSD SERVICES. 6.2 THE HONBLE DRP, IN PARTICULAR, ERRED IN UPHOLDING THE REJECTION OF CAT TECHNOLOGIES LIMITED SELECTED BY THE APPELLANT AS A COMPARABLE COMPANY, ON THE GROUND THAT THE COMPANY MADE LOSSES IN TWO YEARS AND IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT IN RELATION TO THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION O F CSD SERVICES. 7. THAT ON FACTS OF THE CASE AND IN LAW, THE LD. TPO/ HONBLE DRP HAS ERRED IN SELECTING COMPANIES LIKE INFOBEANS TECHNOL OGIES LIMITED AND PERSISTENT SYSTEMS LIMITED WHICH ARE EARNING SUPER NORMAL PROFITS. 8. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. T PO HAS ERRED IN COMMITTING CERTAIN COMPUTATIONAL ERRORS WHILE COMPU TING OPERATING MARGIN OF PERSISTENT SYSTEMS LIMITED. 9. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LEARN ED TPO HAS GROSSLY ERRED IN TREATING FOREIGN EXCHANGE GAIN/ LO SS AS NON- OPERATING ITEM WHILE DETERMINING THE ARMS LENGTH P RICE OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT WITHOUT CONSIDERING THE TERMS & CONDITIONS OF THE INTERCOMPANY TRANSACTIONS OF THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. 10. THAT ON THE FACT OF THE CASE AND IN LAW, THE LD. TP O / HONBLE DRP HAS ERRED IN NOT ALLOWING A RISK ADJUSTMENT TO THE ASSE SSEE ON ACCOUNT OF THE FACT THAT THE APPELLANT IS A CAPTIVE SERVICE PROVID ER FOR ITS ASSOCIATED ENTERPRISES IN RELATION TO PROVISION OF CSD SERVICE S AND IS REMUNERATED ON A COST PLUS BASIS IRRESPECTIVE OF THE OUTCOME OF THE SERVICES PROVIDED AND HENCE UNDERTAKES NO MARKET RISK, PRODUCT/ SERVI CE LIABILITY RISK, CREDIT RISK, CAPACITY UTILIZATION RISK ETC. AS AGAI NST COMPARABLE COMPANIES THAT ARE THE FULL- FLEDGED RISK TAKING EN TREPRENEURS. &. / ITA NO:- 4706/DEL/2018 PAGE | 4 CORPORATE TAX GROUNDS 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN DISALLOWING THE LIQUIDATED DAMAGES OF INR 3,38,13,041/- INCURRED BY THE APPELLANT PURSUANT TO BREACH OF ITS CONTRACTUAL ARRANGEMENTS ON THE GROUNDS THAT THE SAME COULD NOT BE VERIFIED. 11.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN MAKING SEVERAL OBSERVATIONS AND INFERENCES IN THE IMPUGNED ASSESSMENT ORDER WHICH ARE FACTUALLY INCOR RECT AND LEGALLY UNTENABLE. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN DISALLOWING'] AN AMOUNT OF INR 75,41,0 71/- UNDER SECTION 37(1) OF THE ACT ON ACCOUNT OF PRIOR PERIOD EXPENDI TURE. 12.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO HAS ERRED IN SUMMARILY REJECTING THE APPELLANT S CONTENTIONS AND NOT CONSIDERING THE BINDING JUDICIAL PRECEDENTS WHICH S QUARELY APPLIES TO THE FACTS OF THE APPELLANTS CASE. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B AND SECTION 234 C OF THE ACT. 14. THAT ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271(L)(C) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY ADEQUATE SAT ISFACTION FOR ITS INITIATION. 3. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF DISTRIBUTION AND SALE OF DIGITAL SWITCH ING EQUIPMENT, CELLULAR EXCHANGE EQUIPMENT, AND OTHER TELECOMMUNIC ATION EQUIPMENT AND PROVISION OF RELATED SERVICES. IT AL SO PROVIDED INTRA- GROUP MARKETING, TECHNICAL SUPPORT AND CONTRACT SOF TWARE DEVELOPMENT SERVICES. THE ASSESSEE HAD ENTERED INT O VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (IN SHORT AE). THE ASSESSING OFFICER MADE REFERENCE U/S 92 CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (IN SHORT TPO). THE TPO NOTED THAT THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSE E AND ADJUSTMENT &. / ITA NO:- 4706/DEL/2018 PAGE | 5 WAS MADE IN RESPECT OF THE SEGMENT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND RECEIPT OF TECHNICAL SERVI CES. THE ASSESSEE HAD SELECTED TRANSACTIONAL NET MARGIN METHOD (IN SH ORT TNMM) WITH PROFIT LEVEL INDICATOR (IN SHORT PLI) OF OPERATIN G PROFIT TO TOTAL COST (IN SHORT OP/TC) FOR ANALYSIS. THE MARGIN OF THE A SSESSEE WORKED OUT TO 7.99% AS AGAINST MEAN MARGIN OF THE COMPARABLES SELECTED BY ASSESSEE AT 7.20%. THE TPO NOTED THAT THE ASSESSEE HAD ADOPTED WEIGHTAGE AVERAGE MARGINS OF THE COMPARABLE COMPANI ES AND HE PROPOSED DIFFERENT SET OF FILTERS AND ALSO PROPOSED THAT ONLY THE DATA OF CONTEMPORANEOUS PERIOD WAS TO BE APPLIED. IN THIS REGARD, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AND AS AGAI NST 07 COMPARABLES SELECTED BY THE ASSESSEE, 03 WERE ACCEP TED AND THE BALANCE WERE REJECTED. THE TPO IN FINAL ANALYSIS S ELECTED 16 COMPARABLES WHOSE MEAN MARGIN WORKED OUT TO 23.92%. THE ASSESSEE FILED ITS OBJECTION AGAINST THE SAME AND T HE TPO AFTER CONSIDERING VARIOUS ASPECT OF THE ISSUE INCLUDING F ILTERS TO BE APPLIED IN FINAL ANALYSIS SELECTED 14 COMPARABLES AND PROPO SED AN UPWARD ADJUSTMENT OF RS.70,29,58,610/-. 4. IN THE SECOND SEGMENT OF PROVISION OF TECHNICAL SUPPORT SERVICES, THE TPO AGAIN PROPOSED REVISED FILTERS AN D APPLIED THE DATE FOR CONTEMPORANEOUS PERIOD AND PROPOSED AN ADJUSTME NT OF RS.24,58,39,400/-. THE ASSESSING OFFICER ISSUED DR AFT ASSESSMENT ORDER TO THE ASSESSEE, AGAINST WHICH OBJECTIONS WER E FILED BEFORE THE &. / ITA NO:- 4706/DEL/2018 PAGE | 6 DISPUTE RESOLUTION PANEL (IN SHORT DRP). VIDE DI RECTIONS DATED 02.042.018, THE DRP DIRECTED THE TPO TO RE-COMPUTE THE ARM'S LENGTH PRICE AND ON RE-COMPUTATION, ADJUSTMENT MADE TO THE SOFTWARE DEVELOPMENT SEGMENT WAS RESTRICTED TO RS.42,21,63,5 60/-. NO ADJUSTMENT WAS MADE TO THE TECHNICAL SUPPORT SERVIC ES SEGMENT. THE ASSESSING OFFICER PASSED THE FINAL ASSESSMENT ORDER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD.AR FOR THE ASSESSEE AT THE OUTSET, POINTE D OUT THAT GROUNDS OF APPEAL NOS. 1 TO 5 ARE NOT PRESSED AND G ROUND OF APPEAL NOS. 6.2 & 7 TO 10 ARE IRRELEVANT AND NOT PRESSED. HE FURTHER STATED THE GROUND NOS. 6 & 6.1 AGAINST SELECTION OF COMPA RABLES NEED TO BE ADJUDICATED. 6. THE LIMITED ISSUE WHICH HAS BEEN RAISED IS WITH REGARD TO THE FINAL SELECTION OF COMPARABLES. THE LD.AR FOR THE ASSESSEE REFERRED TO THE ORDER OF THE TPO, WHEREIN AT PAGE 5, THE LIST O F COMPARABLES TOTALING 16 IS PROVIDED. HE FIRST POINTED OUT THAT THE TPO IN THE FIRST INSTANCE APPLIED THE CURRENT YEAR DATA OF COMPARABL ES AGAINST WHICH THERE IS NO DISPUTE. CONSEQUENTLY, OUT OF THE FINA L SELECTION OF 14 CONCERNS, THERE IS NO DISPUTE WITH REGARD TO THE CO MPANIES AT SL.NO.2 TO 6. THE FINAL LIST OF COMPARABLE IS AVAILABLE AT PAGE 31 OF THE ORDER OF THE TPO. IT WAS POINTED OUT BY THE LD.AR FOR THE A SSESSEE THAT AS AGAINST THE MARGIN OF THE ASSESSEE AT 7.99%, THE ME AN MARGIN OF 10 &. / ITA NO:- 4706/DEL/2018 PAGE | 7 COMPARABLES WAS APPLIED, AFTER DIRECTION OF DRP. H E REFERRED TO THE DIRECTIONS OF THE DRP AND FINDING OF THE TPO, COPY OF WHICH IS PLACED AT PAGES 661 TO 663 OF THE PAPER BOOK OF ANNUAL REP ORT COMPILATION. HE ALSO POINTED OUT THAT IN THE FINAL LIST OF THE C OMPARABLES, THE TOTAL NO. OF COMPANIES WERE 10 WHOSE AVERAGE MARGIN WORKE D OUT TO 15.56%. THE LD.AR FOR THE ASSESSEE STRESSED THAT T HE ASSESSEE COMPANY WAS AGGRIEVED BY THE INCLUSION OF THE CONCE RN PERSISTENT SYSTEMS LTD. AND MINDTREE LTD. IN THIS REGARD, HE A LSO POINTED OUT THAT THE TRIBUNAL IN THE PRECEDING YEAR HAD EXCLUDE D THE ABOVE CONCERNS BEING FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE. HE ALSO POINTED OUT THAT THE HONBLE HIGH COURT IN ASSESSME NT YEAR 2011-12 UPHELD THE ORDER OF THE TRIBUNAL IN THIS REGARD. H E FURTHER STATED THAT THE SAID CONCERNS HAD SAME FUNCTIONAL PROFILE DURIN G THE YEAR AND THESE NEEDED TO BE EXCLUDED FROM THE FINAL LIST OF THE COMPARABLES. HE POINTED OUT THAT THE CONCERN, PERSISTENT SYSTEMS LT D. WAS A SOFTWARE PRODUCT COMPANY AND WAS ALSO CARRYING ON THE BUSINE SS OF SOFTWARE DEVELOPMENT SERVICES BUT NO SEGMENTAL WERE AVAILABL E, HENCE THE MARGIN OF THE SAID CONCERN NEED TO BE EXCLUDED. IN THIS REGARD, HE PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL IN ASS ESSEES OWN CASE IN ITA NO.6979/DEL/2017 RELATING TO 2013-14 ORDER DATE D 09.05.2019. HE FURTHER POINTED OUT THAT THE CONCERN MINDTREE LT D. WAS ALSO ENGAGED IN DIVERSIFIED FIELD. HE FAIRLY SUBMITTED THAT THE SAID CONCERN WAS SELECTED BECAUSE IT WAS ENGAGED IN THE PROVISIO N OF SOFTWARE &. / ITA NO:- 4706/DEL/2018 PAGE | 8 SERVICES, BUT NO SEGMENTALS WERE AVAILABLE AND IN T HE ABSENCE OF THE SAME, THE SAID CONCERN COULD NOT BE APPLIED. HE AL SO PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL IN THIS REGARD AND HE FURTHER INVITED ATTENTION TO THE FINANCIALS OF THE SAID CONCERN AND PRAYED FOR ITS EXCLUSION. 7. COMING TO THE NEXT CONCERN, WHICH AS PER THE ASS ESSEE NEEDS TO BE EXCLUDED IS I.E. ACROPETAL TECHNOLOGIES LTD. TH E LD.AR FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN WAS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT WAS ENGAGED IN PRO VIDING BOTH SOFTWARE SERVICES AND PRODUCT DEVELOPMENT. OUR ATT ENTION WAS DRAWN TO THE FINANCIALS OF THE SAID CONCERN AT PAGE 376 & 377 OF PAPER BOOK OF ANNUAL REPORT COMPILATION AND IT WAS POINTED OUT THAT THE CONCERN HAD BOOKED SIGNIFICANT SELLING AND MARK ETING AND ADMINISTRATION EXPENSES, WHICH CONSTITUTE 84% OF T HE COST. THE LD.AR FOR THE ASSESSEE ALSO POINTED OUT THAT THE TP O WHILE ADOPTING MARGINS OF THE SAID CONCERN NEVER ALLOWED ANY OPPOR TUNITY TO THE ASSESSEE TO EXPLAIN ITS CASE. THE LAST CONCERN TO BE EXCLUDED WAS INFOBEANS TECHNOLOGIES LTD. ON THE GROUND THAT IT W AS ENGAGED IN SALE OF SOFTWARE AND NO SEGMENTALS WERE AVAILABLE IN RES PECT OF THE VARIOUS FIELDS, IT WAS ENGAGED IN. 8. THE LD.DR FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND ALSO REFERRED TO THE FINANCIA LS OF THE SAID &. / ITA NO:- 4706/DEL/2018 PAGE | 9 CONCERNS AND OBJECTED TO THE SUBMISSIONS RAISED BY THE LD.AR FOR THE ASSESSEE. 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAS NOT PRESSED THE GROUNDS OF APPEAL NOS. 1 TO 5 AND HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. GROU ND NOS. 6.2 & 7 TO 10 ARE ALSO NOT PRESSED, HENCE, DISMISSED. 10. NOW COMING TO THE ISSUE RAISED VIDE GROUND NOS. 6 & 6.1, THE LIMITED ISSUE WHICH ARISES IS THE SELECTION OF COMP ARABLES. THE SEGMENT WHICH NEEDS TO BE BENCH-MARKED IN THE PRESE NT CASE IS THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY THE A SSESSEE TO ITS AE. THE ASSESSEE HAD SELECTED TNMM METHOD AS THE MOST APPROPRIATE METHOD AND THERE IS NO DISPUTE WITH REGARD TO THE S AME. THE PLI OF THE ASSESSEE WAS OP/TC AND THE MARGIN OF THE ASSESS EE WAS 7.99% WHICH HAS ALSO BEEN APPLIED BY THE ASSESSING OFFICE R/TPO. NOW COMING TO THE BENCHMARKING OF THE INTERNATIONAL TRA NSACTION, THE ASSESSEE IN THE TRANSFER PRICING REPORT HAD APPLIE D WEIGHTED MARGINS OF THE COMPARABLES, WHICH WAS REJECTED BY THE TPO. HE WAS OF THE VIEW THAT THE DATA OF CONTEMPORANEOUS PERIOD NEED T O BE APPLIED AND THE LD.AR FOR THE ASSESSEE FAIRLY ADMITTED THAT CUR RENT YEAR DATA HAD TO BE APPLIED TO BENCHMARK THE INTERNATIONAL TRANSA CTION UNDERTAKEN BY THE ASSESSEE. THE LIMITED ISSUE WHICH IS RAISED BEFORE US, IS AGAINST THE FINAL SELECTION OF THE COMPARABLES AND THE OBJECTION OF THE &. / ITA NO:- 4706/DEL/2018 PAGE | 10 ASSESSEE IS WITH REGARD TO 04 OF THE CONCERNS AS AG AINST 10 CONCERNS FINALLY SELECTED BY THE ASSESSING OFFICER/DRP/TPO. THE FINAL LIST OF COMPARABLES READ AS UNDER:- SL.NO. COMPANY NAME 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 2. C G-V A K SOFTWARE & EXPORTS LTD. 3. INFOBEANS TECHNOLOGIES LTD. 4. PERSISTENT SYSTEMS LTD. 5. SAGARSOFT (INDIA) LTD. 6. T V S INFOTECH LTD. 7. MINDTREE LTD. 8. SASKEN COMMUNICATION TECHNOLOGIES LTD. 9. MAVERIC SYSTEMS LTD. 10. ACROPETAL TECHNOLOGIES LTD. 11. THE FIRST OBJECTION WHICH HAS BEEN RAISED BY TH E ASSESSEE IS AGAINST THE INCLUSION OF THE CONCERN, PERSISTENT SY STEMS LTD. THE ANNUAL REPORT OF THE SAID CONCERN IS PLACED AT PAGE S 183 TO 260 OF THE ANNUAL REPORT COMPILATION. THE REVENUE HAS BEEN SH OWN FROM OPERATIONS AND THE SAID CONCERN HAS RECOGNIZED SALE OF SOFTWARE SERVICES AT RS.11,841 MILLION. THE SAID COMPANY IN THE NOTES FORMING &. / ITA NO:- 4706/DEL/2018 PAGE | 11 PART OF FINANCIAL STATEMENTS UNDER THE HEAD SEGME NT INFORMATION HAD REPORTED AS UNDER:- 26. SEGMENT INFORMATION THE COMPANYS OPERATIONS PREDOMINANTLY RELATE TO P ROVIDING SOFTWARE PRODUCTS, SERVICES AND TECHNOLOGY INNOVATI ON COVERING FULL LIFE CYCLE OF PRODUCT TO ITS CUSTOMERS. THE PRIMARY REPORTING SEGMENTS ARE IDENTIFIED BASED ON REVIEW OF MARKET A ND BUSINESS DYNAMICS BASED ON RISK AND RETURNS AFFECTED BY THE TYPE OR CLASS OF CUSTOMERS FOR THE SERVICES PROVIDED WHICH ARE AS FOLLOWS:- A. TELECOM AND WIRELESS B. LIFE SCIENCE AND HEALTHCARE C. INFRASTRUCTURE AND SYSTEMS 12. THE SEGMENTALS OF THE SAID DIVISION ARE NOT AVA ILABLE AND IN SUCH FACTS AND CIRCUMSTANCES WHERE THE CONCERN PICK ED UP HAD DIFFERENT FUNCTIONAL PROFILE, THE MARGINS OF THE SA ID CONCERN CANNOT BE APPLIED IN ORDER TO BENCHMARK THE INTERNATIONAL TRA NSACTION UNDERTAKEN BY THE ASSESSEE. THE TRIBUNAL IN ASSESS EES OWN CASE IN ASSESSMENT YEAR 2013-14 VIDE PARA 4 HAS OBSERVED TH AT THE SAID CONCERN WAS ENGAGED IN BOTH PRODUCT AND DEVELOPMENT OF SOFTWARE DEVELOPMENT SERVICES AND HENCE, NEEDS TO BE EXCLUDE D FROM THE FINAL SET OF COMPARABLES. THE FUNCTIONAL PROFILE OF THE SAID CONCERN CONTINUES TO BE SAME AND CONSEQUENTLY, WE DIRECT IT S EXCLUSION FROM THE FINAL LIST OF COMPARABLES. &. / ITA NO:- 4706/DEL/2018 PAGE | 12 13. NOW COMING TO THE NEXT CONCERN I.E. MINDTREE LT D. THE FINANCIALS OF THE SAID CONCERN ARE PLACED AT PAGES 1 TO 182 OF THE ANNUAL REPORT COMPILATION AND THE SAID CONCERN IS E NGAGED IN DIVERSIFYING FIELD WHOSE SEGMENTAL WERE ALSO NOT AV AILABLE. THE ASSESSEE HAD SELECTED THE SAID CONCERN BECAUSE OF ITS ENGAGEMENT IN PROVIDING SOFTWARE SERVICES TO ITS AE; BUT THE TPO FOR THE YEAR UNDER CONSIDERATION HAD APPLIED THE ENTITY LEVEL RESULTS OF THE SAID CONCERNS AS NO SEGMENTAL WERE AVAILABLE. WE HAVE PERUSED TH E ANNUAL REPORT COMPILATION AT PAGE 69 OF THE PAPER BOOK UNDER WHIC H THE REVENUE IS RECOGNIZED FROM DIFFERENT SERVICES/MANUFACTURING ET C. BUT BIFURCATION OF REVENUE IS INDUSTRY-WISE AND NOT FUNCTION-WISE. IN THE ABSENCE OF THE SAME, THERE IS NO MERIT IN THE OBSERVATION OF T HE TPO THAT THE SEGMENTALS WERE AVAILABLE AND HENCE, CAN BE APPLIED FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF PROVI SION OF SOFTWARE SERVICES. WE FIND NO MERIT IN THE ORDER OF THE ASS ESSING OFFICER/TPO IN THIS REGARD AND HOLD THAT IN THE ABSENCE OF THE SEGMENTALS BEING AVAILABLE, THE SAID CONCERN CANNOT BE SELECTED AS F UNCTIONALLY COMPARABLE TO THE ASSESSEE. THE TRIBUNAL IN ASSESS MENT YEAR 2013- 14 HAD ALSO EXCLUDED THE SAID CONCERN FROM FINAL LI ST OF COMPARABLES. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXC LUDE THE SAID CONCERN I.E. MINDTREE LTD. FROM THE FINAL LIST OF T HE COMPARABLES. 14. THE NEXT CONCERN WHICH HAS BEEN ARGUED FOR ITS EXCLUSION IS ACROPETAL TECHNOLOGIES LTD. THE FINANCIALS OF THE SAID CONCERN ARE &. / ITA NO:- 4706/DEL/2018 PAGE | 13 AVAILABLE AT PAGES 356 TO 449 OF THE PAPER BOOK OF ANNUAL REPORT COMPILATION AND IT TRANSPIRES THAT THE SAID CONCERN RECOGNIZED REVENUE FROM BOTH SOFTWARE SERVICES AND PRODUCTS. THE REPORTING UNDER THE HEAD INCOME FROM OPERATIONS WAS FROM SO FTWARE SERVICES/PRODUCTS/SOLUTIONS. UNDER THE HEAD DIREC T COST, THE ASSESSEE HAD DEBITED COST OF MATERIALS, PROJECT EXP ENSES AND SELLING AND MARKETING EXPENSES, WHICH CONSTITUTE 84% OF THE TOTAL COST. IN SUCH FACTS AND CIRCUMSTANCES, THE CONCERN ACROPETAL TECHNOLOGIES LTD. CANNOT BE HELD TO BE FUNCTIONALLY COMPARABLE T O THE ASSESSEE, WHICH IS PURELY ENGAGED IN PROVIDING SOFTWARE SERVI CES TO ITS AE. HENCE, WE DIRECT ITS EXCLUSION. 15. THE LAST CONCERN WHICH IS UNDER ADJUDICATION IS INFOBEANS TECHNOLOGIES LTD. THE ANNUAL REPORT OF THE SAID C ONCERN IS AT PAGES 261 TO 282 OF THE PAPER BOOK OF ANNUAL REPORT COMPI LATION. AT PAGE 267 OF THE PAPER BOOK OF ANNUAL REPORT COMPILATION, THE REVENUE IS RECOGNIZED FROM OPERATIONS AND AT PAGE 274 OF THE P APER BOOK OF ANNUAL REPORT COMPILATION, THE BREAK-UP IS GIVEN UP FOR SALE OF EXPORT AS REVENUE FROM OPERATIONS. FURTHER, FOR THE YEAR UNDER CONSIDERATION, INFOBEANS TECHNOLOGIES LTD. HAD DECL ARED THAT IT WAS ENGAGED IN PROVIDING CUSTOM DEVELOPMENT SERVICES TO OFFSHORE AND WAS ENGAGED IN SOFTWARE ENGINEERING SERVICES IN DIF FERENT FIELDS. NO SEGMENTALS WERE AVAILABLE. IN SUCH FACTS AND CIRCU MSTANCES, WE FIND NO MERIT IN INCLUSION OF THE SAID CONCERN IN THE FI NAL LIST OF &. / ITA NO:- 4706/DEL/2018 PAGE | 14 COMPARABLES. WE DIRECT ITS EXCLUSION AND ALSO DIRE CT THE ASSESSING OFFICER TO RE-COMPUTE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION, IF ANY IN THE HANDS OF THE ASSESSEE, A FTER EXCLUDING 04 CONCERNS AS DIRECTED IN THE PARA ABOVE. THUS, GROU ND NOS. 6 & 6.1 RAISED BY THE ASSESSEE ARE ALLOWED. 16. NOW COMING TO THE CORPORATE ISSUES RAISED VIDE GROUND NOS.11 & 11.1. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAD NOTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION ON AC COUNT OF LIQUIDATED DAMAGES AMOUNTING TO RS.3.38 CRORES. TH E ASSESSEE WAS SHOW CAUSED AS TO WHY THIS EXPENDITURE SHOULD NOT B E TREATED AS PENALTY ON ACCOUNT OF DEFAULT MADE BY THE ASSESSEE UNDER THE STATUE AND WHY THE SAME SHOULD NOT BE DISALLOWED UNDER SEC TION 37(1) OF THE I.T.ACT, 1961. THE ASSESSEE EXPLAINED THAT THESE L IQUIDATED DAMAGES REFERRED TO THE CONTRACTUALLY STIPULATED COMPENSATI ON TO BE RECOVERED BY ONE PARTY FROM ANOTHER IF THE OTHER PARTY BREACH ES THE CONTRACT AND THESE DAMAGES WERE QUANTIFIED ON THE BASIS OF THE C ONTRACTUAL TERMS AGREED UPON BETWEEN THE PARTIES. 17. THE ASSESSING OFFICER DID NOT FIND FAVOUR WITH THE SUBMISSIONS OF THE ASSESSEE AND OBSERVED AS UNDER:- (I) THE QUANTUM OF LIQUIDATED DAMAGES CLAIMED IN R ESPECT OF TRANSACTION COULD NOT BE ESTABLISHED AS A FIX AMOUN T FOR A &. / ITA NO:- 4706/DEL/2018 PAGE | 15 PARTICULAR PERIOD IS CLAIMED AS LIQUIDATED DAMAGES AND NO DIRECT CONNECTION COULD BE SUBSTANTIATED BY THE ASSESSEE .. 18. ACCORDINGLY, THE ASSESSING OFFICER PROPOSED THE ADDITION WHICH WAS CONFIRMED BY THE DRP AND ADDITION WAS FINALLY M ADE BY THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER. 19. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT IT WAS A CONTRACTUAL OBLIGATION, WHICH WAS NOT COMPLIED WITH BUT THE ASS ESSING OFFICER/DRP CALLED IT PENALTY; IN FACT IT WAS A CON TRACTUAL LIABILITY ON DELAY AND SUPPLY OF EQUIPMENT. IT WAS FURTHER POIN TED OUT BY THE LD.AR THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN THE PRECEDING YEAR AND THE ISSUE HAS BEEN REMITTED BACK TO THE TR IBUNAL VIDE PARA 5 AT PAGES 28 & 29. WE FIND THAT SIMILAR ISSUE HAS A RISEN IN THE PRECEDING YEARS AND THE MATTER HAS BEEN REMANDED BA CK TO THE FILE OF ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH. F OLLOWING THE SAME PARITY OF REASONING, WE REMIT THIS ISSUE BACK TO TH E FILE OF ASSESSING OFFICER TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL IN THE PRECEDING YEAR. REASONABLE OPPORTUNITY OF HEARING SHOULD BE PROVIDE D TO THE ASSESSEE. THE GROUND NOS.11 & 11.1 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 20. NOW COMING TO GROUND OF APPEAL NO.12 & 12.1 RAI SED BY THE ASSESSEE WHICH IS AGAINST CLAIM OF EXPENDITURE ON A CCOUNT OF TDS PAID DURING THE YEAR. THE PLEA OF THE LD.AR BEFORE US WAS THAT THE &. / ITA NO:- 4706/DEL/2018 PAGE | 16 SAID EXPENDITURE RELATED TO EARLIER YEARS, WAS CLAI MED DURING THE YEAR, AS THE TDS WAS DEPOSITED DURING THE YEAR UNDER CONS IDERATION AND HENCE, THE SAME HAS TO BE ALLOWED AS DEDUCTION. IN VIEW OF THE PROVISION OF SECTION 40(A)(IA) WHERE THE ASSESSEE D OES NOT DEPOSIT THE TDS, THEN SUCH EXPENDITURE IS NOT TO BE ALLOWED AS DEDUCTION IN THE HANDS OF THE ASSESSEE. HOWEVER, IN CASE THE TDS I S DEPOSITED IN THE SUCCEEDING YEAR, THEN THAT EXPENSE NEEDS TO BE ALLO WED AS DEDUCTION IN THE YEAR WHEN TDS IS DEPOSITED. THE SAID FACTS NEED TO BE EXAMINED BY THE ASSESSING OFFICER. HENCE, WE REMIT THIS MATTER BACK TO THE FILE OF ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE AFTER DUE VERIFICATION AND AFTER ALLOWING REASONABLE OPPO RTUNITY OF HEARING TO THE ASSESSEE. THUS, GROUND NOS. 12 & 12.1 RAISE D BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DAY OF NOVEMBER, 2019. SD/- SD/- (B.R.R. KUMAR) (SUSHM A CHOWLA) +, $ /ACCOUNTANT MEMBER # $ /JUDICIAL MEMBER / & DATED : 29 TH NOVEMBER, 2019 . *AMIT KUMAR* &. / ITA NO:- 4706/DEL/2018 PAGE | 17 +8 3 1#59: ;+: 5 / COPY OF THE ORDER IS FORWARDED TO : 1. /0 / THE APPELLANT 2. 12/0 / THE RESPONDENT 3. =5 ( ) / THE CIT(A) 4. @ =5 / THE PR. CIT 5. 6. :'AB 1#5# , , / DR, ITAT, DELHI B'. C / GUARD FILE. +8 / BY ORDER , 2:5 1#5 // TRUE COPY // D EF$G , , ASSISTANT REGISTRAR, ITAT, DELHI