Microsoft India (R&D) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 507/DEL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6635 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 30-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: SHERRY GOYA
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Additional evidence; Wholly owned subsidiary; Bad and doubtful debts; Revised return
• Section: 143(3); 142(1); 234B; 80G; 143(1); 27; 56

Judgement Text

1 ITA NO. 507/DEL/2017 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 507/DEL/20 17 (A.Y 2012-13) MICROSOFT INDIA (R &D) PVT. LTD. 807, NEW DELHI HOUSE, BARAKHAMBA ROAD NEW DELHI AABCM6358F (APPELLANT) VS DCIT CIRCLE 16(2) C. R. BUILDING NEW DELHI (RESPONDENT) APPELLANT BY SH. NAGESHWAR RAO, ADV & MS. SHERRY GOYA, ADV RESPONDENT BY SH. SANJAY I BARA, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 25/11/2016 PASSED BY DCIT, CIRCLE 16(2), NEW DELHI, U/S 143(3) READ WITH 144C OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2012-1 3. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THE ORDER PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRICING- 2(2) (LD. TPO), DRAFT ASSESSMENT ORDER P ASSED BY DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -16(2), NEW DELH I (LD. AO) AND THE FINAL ASSESSMENT ORDER PASSED, ON THE DIRECTIONS OF THE H ONBLE DISPUTE RESOLUTION PANEL (DRP), BY THE LD. AO ARE BAD IN LAW. DATE OF HEARING 24.10.2018 DATE OF PRONOUNCEMENT 21.01.2019 2 ITA NO. 507/DEL/2017 2. THE I I HAS ERRED ON FACTS AND IN LAW IN DETERMI NING THE TOTAL INCOME OF THE APPELLANT AT RS. 5,18,03,18,360 AS AGAINST A RETURN ED INCOME OF RS. 2,93,43,42,780. PART I TRANSFER PRICING MATTERS 3. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND TH E LD. TPO/LD. AO HAVE GROSSLY ERRED BY NOT APPRECIATING THE CORRECT FUNCT IONAL PROFILE OF THE APPELLANT AND DRAWING AN ERRONEOUS CONCLUSION THAT THE APPELL ANT IS ENGAGED IN PROVIDING HIGH-END SOFTWARE SERVICES. 4. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND TH E LD. TPO/LD. AO HAS VITIATED THE PRINCIPLES OF NATURAL JUSTICE BY NOT G IVING DUE COGNIZANCE TO THE DETAILED ANALYSIS AND TECHNICAL ARGUMENTS IN RESPON SE TO THE SHOW CAUSE ISSUED BY THE LD. TPO AND OBJECTIONS FILED WITH THE HONBLE DRP. THE DETAILS OF THESE ARGUMENTS AND ANALYSIS WILL BE ELABORATED DURING THE COURSE OF HEARING BEFORE THE HONBLE ITAT. 5. THE TRANSFER PRICING ADJUSTMENT OF RS. 2,14,48,1 9,158 MADE BY THE LD. AO BASED ON THE ORDER OF LD. TPO GIVING EFFECT TO THE DIRECTIONS ISSUED OF THE HONBLE DRP IS BAD IN LAW INTER-ALIA FOR THE REASON THAT: A) THE ORDER OF THE LD. TPO IS BAD IN LAW IN AS MUCH A S BASED ON AN INVALID REFERENCE MADE BY THE LD. AO WITHOUT COMPLY ING WITH THE STATUTORY REQUIREMENTS; B) THE APPELLANTS AE BEING CHARGEABLE TO TAX AT A HIG HER RATE IN THE US, THERE WAS NO QUESTION OF SHIFTING OF ANY PROFIT FRO M A LOW TAX PAYING COUNTRY TO A HIGH TAX PAYING COUNTRY. 6. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND TH E LD. TPO/LD. A.O HAVE ERRED IN MAKING / UPHOLDING AN UPWARD ADJUSTMENT OF RS. 2,14,48,19,158/- IN RESPECT OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT PERTAINING TO PROVISION OF CONTRACT SOFTWARE DEVELOPMENT SERVICES (HEREINAFTER REFERRED TO AS IMPUGNED TRANSACTION') TO ITS ASSOCIATED ENTERPR ISE (A.E). 3 ITA NO. 507/DEL/2017 7. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND TH E LD. TPO/LD. AO HAVE ERRED BY NOT ACDEPTING THE ECONOMIC ANALYSIS UNDERT AKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962 (IT RULES), AND CONDUCTING A FRESH E CONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARMS LENGTH PRICE ALP OF THE IMPUGNED TRANSACTION AND HOLDING THAT THE SAME ARE NOT AT ARMS LENGTH.. 8. THAT ON FACTS AND IN LAW, HONBLE DRP AND THE LD . TPO/A.O HAVE ERRED BY: 8.1. USING SINGLE YEAR DATA OF COMPANIES TO DETERM INE THE ARMS LENGTH PRICE OF THE IMPUGNED TRANSACTION AND DISREGARDING THE APPELLANTS CLAIM FOR USE OF MULTIPLE .EAR DATA FOR COMPUTING THE ARM S LENGTH PRICE; AND 8.2 REJECTING THE DATA USED BY THE APPELLANT WHICH WAS AVAILABLE TO IT AT THE RELEVANT TIME AND PROCEEDING TO USE THE DATA WHICH WAS AVAILABLE ONLY AT THE TIME OF TRANSFER PRICING AUDIT. 8.3. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND THE LD. TPO/LD. AO ERRED IN REJECTING CERTAIN COMPARABLES IDENTIFIED B Y THE APPELLANT AND PERFORMING A FRESH COMPARABILITY ANALYSIS BY APPLYI NG ARBITRARY FILTERS WITHOUT ANY RATIONALE: A. REJECTION OF COMPARABLE COMPANIES HAVING TURNOVE R LESS THAN RS. 5 CRORE FROM THE IMPUGNED TRANSACTION. B. REJECTION OF COMPANIES HAVING DIFFERENT FINANCIA L YEAR ENDING (I.E. NOT 31 MARCH 2012) OR IF DATA OF THE COMPANY DO NOT FAL L WITHIN 12 MONTH PERIOD I.E. 01-04-2011 TO 31-03-2012. WITHOUT PREJU DICE TO THE OTHER ARGUMENTS, THE HONBLE DRP AND THE LD. TPO/LD. AO H AVE ALSO IGNORED THE FACT THAT FINANCIAL DATA FOR SEVERAL COMPANIES FOR THE YEAR ENDED 31 MARCH 2012 IS AVAILABLE IN PUBLIC DOMAIN. C. REJECTION OF COMPANIES HAVING EXPORT SALES LESS THAN 75% OF THE SALES. 4 ITA NO. 507/DEL/2017 D. REJECTION OF COMPANIES WITH A DIMINISHING REVEN UE TREND. E. REJECTION OF COMPANIES HAVING EMPLOYEE COST LES S THAN 25 PERCENT OF THE OPERATIONAL COST AS A COMPARABILITY CRITERIO N FOR THE IMPUGNED TRANSACTION. 9. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND TH E LD. TPO/LD. AO HAVE ERRED BY WRONGLY REJECTING CERTAIN COMPANIES AND AD DING CERTAIN COMPANIES TO THE FINAL SET OF COMPARABLES FOR THE IMPUGNED TR ANSACTION, ON AN ADHOC BASIS. THUS, THEY HAVE RESORTED TO CHERRY PICKING O F COMPARABLES TO DETERMINE THE ALP FOR THE IMPUGNED TRANSACTION. 10. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND T HE LD. TPO/A.O HAVE ERRED BY TREATING FOREIGN EXCHANGE FLUCTUATIO NS, BANK CHARGES, PROVISION FOR DOUBTFUL DEBTS AND LIABILITIES AND PROVISIONS NO LONGER REQUIRED WRITTEN BACK AS NON-OPERATING ITEMS WHILE COMPUTIN G THE OPERATING PROFITABILITY OF THE ASSESSEE AS WELL AS THE COMPAR ABLES. 11. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND T HE LD. TPO/LD. AO HAVE ERRED BY NOT CONSIDERING UPKEEP/ MAINTENANCE EXPENSES INCURRED IN CONNECTION WITH A PROPERTY LET OUT BY APPELLANT AS NON-OPERATING WHILE DETERMINING THE OPERATING PROFIT OR THE TASTED PART Y. 12. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND T HE LD. TPO/LD. AO HAVE GROSSLY ERRED BY SELECTING CERTAIN COMPANIES W HICH ARE EARNING SUPER NORMAL PROFITS AS COMPARABLE TO THE APPELLANT. 13. THAT ON FACTS AND IN LAW, THE HONBLE DRP AND T HE LD. TPO/LD. AO HAVE GROSSLY ERRED BY NOT APPRECIATING THE FACT THA T THE APPELLANT OPERATES AS A RISK FREE SERVICE PROVIDER AND ALL THE RISKS ASSO CIATED WITH THE IMPUGNED TRANSACTION WERE BORNE BY THE FOREIGN AE AND NOT BY THE APPELLANT, THUS, THE ASSESSEE IS ENTITLED TO SUITABLE ADJUSTMENTS TO ACC OUNT FOR DIFFERENCES IN ITS RISK PROFILE VIS-A-VIS THE COMPARABLES 5 ITA NO. 507/DEL/2017 14. THAT ON FACTS AND IN LAW, THE HONBLE DRP HAS E RRED IN CONFIRMING THAT LD. TPO HAS DISCHARGED HIS STATUTORY ONUS BY E STABLISHING THAT THE CONDITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SECTIO N 92C(3) OF THE ACT HAVE BEEN SATISFIED BEFORE DISREGARDING THE ARMS LENGTH PRIC E DETERMINED BY THE APPELLANT AND PROCEEDING TO DETERMINE THE ARMS LEN GTH PRICE HIMSELF. PART II - CORPORATE TAX MATTERS 15. THAT ON THE FACTS AND IN LAW, THE LD. AO AND TH E DRP WAS NOT JUSTIFIED AND HAVE ERRED BY TAXING GROSS COMPOSITE RENTAL INC OME OF RS. 19,42,65,000 RECEIVED FROM LET OUT BUILDING SPACE ALONGWITH INBU ILT INFRASTRUCTURE AND OTHER AMENITIES UNDER THE HEAD INCOME FROM HOUSE PROPERT Y INSTEAD OF INCOME FROM OTHER SOURCES COMPLETELY DISREGARDING THE PRO VISIONS OF SECTION 56 OF THE ACT AND HONBLE JURISDICTIONAL HIGH COURT JUDGM ENT IN THE CASE OF GARQ DYEING & PROCESSING INDUSTRIES VS. ACIT (2012) (ITA 319/2012) (DEL) (DEPARTMENTAL SLP HAS BEEN DISMISSED BY SUPREME COU RT). 15.1 THAT ON THE FACTS AND IN LAW, THE LD. AO AND D RP ERRED IN NOT ALLOWING PROPORTIONATE TAX DEPRECIATION AND EXPENSE S U/S 57 OF THE ACT AMOUNTING TO RS. 16,00,51,338. 15.2. THAT ON THE FACTS AND IN LAW, THE LD. AO AND DRP ERRED IN APPLYING RES JUDICATA WHICH IS NOT APPLICABLE IN INCOME TAX PROCEEDINGS AND ERRED IN NOT CORRECTING MISTAKES MADE IN EARLIER YEARS. 16. WITHOUT PREJUDICE TO OUR CONTENTION THAT UNREAL IZED FOREIGN EXCHANGE GAIN/ LOSS SHOULD NOT BE ADJUSTED FROM THE WDV OF T HE ASSETS AS OBSERVED BY THE SUPREME CO--: N THE CASE OF CIT VS HONDA SIEL P OWER PRODUCTS LTD. (312 ITR 024) AND PLAIN READING OF PROVISIONS OF SECTIO N 43A OF THE ACT, THE LD. AO AND DRP HAVE ERRED IN NOT ALLOWING DEPRECIATION ON UNREALIZED FOREIGN EXCHANGE LOSS ON CAPITAL CREDITORS AMOUNTING TO RS. 5,76,10,382 IN VIEW OF THE POSITION TAKEN BY THE LD. AO/ DRP IN THE EARLIER YE ARS. 6 ITA NO. 507/DEL/2017 17. THAT ON THE FACTS AND IN LAW, ON DISPOSAL OF TH IS APPEAL MATERIAL ADJUSTMENT WOULD BE REQUIRED IN COMPUTING TOTAL INC OME, TAX, INTEREST U/S 234B OF THE ACT AND REFUND ADDED (ALONG WITH INTERE ST U/S 234D OF THE ACT). NECESSARY DIRECTIONS MAY PLEASE BE GIVEN TO THE LD. AO IN THIS REGARD. 18. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY UNDER SECTION 27 1 (1 )(C) OF THE ACT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEN D, VARY, OMIT OR SUBSTITUTE, WITHDRAW ANY OF THE AFORESAID GROUNDS O F APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND PRODUCT SUPPOR T SERVICES. THE ASSESSEE COMPANY WAS INCORPORATED ON 15.05.1998 UNDER THE CO MPANIES ACT, 1956 AND IS A WHOLLY OWNED SUBSIDIARY OF M/S MICROSOFT IRELA ND CAPITAL LIMITED (99.99%), WHICH IS ULTIMATELY OWNED BY MICROSOFT CO RPORATION, U.S.A. THE COMPANY WAS INCORPORATED IN INDIA TO PROVIDE COMPUT ER SOFTWARE DEVELOPMENT SERVICES AND SUPPORT SERVICES TO MICROSOFT CORPORAT ION. THE COMPANY RENDERS THE SERVICES IN ACCORDANCE WITH THE INSTRUCTIONS OF MICROSOFT CORPORATION. THE ASSESSEE HAS TWO UNDERTAKINGS, ONE AT BANGALORE AND ANOTHER AT HYDERABAD. RETURN OF INCOME FOR A.Y. 2012-13 WAS ELECTRONICALL Y FILED ON 27.11.2012 AT TOTAL INCOME OF RS. 3,03,54,99,200/- AFTER CLAIMING DEDUCTION U/S 80G AMOUNTING TO RS. 78,94,941/-. A REVISED RETURN WAS ELECTRONICALLY FILED ON 31.03.2014 DISCLOSING TOTAL INCOME OF RS. 2,93,43,4 2,780/- AFTER CLAIMING DEDUCTION U/S 80G OF RS. 78,94,941/-. THE RETURN WA S PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 AND THEREAFTER THE CASE WA S SELECTED FOR SCRUTINY UNDER CASS, NOTICE U/S 143(2) DATED 07.08.2013 WAS ISSUED TO THE ASSESSEE COMPANY AND DULY SERVED UPON THE ASSESSEE. FRESH NO TICE U/S 143(2) AND 142(1) DATED 05.10.2015 WERE ISSUED AND SERVED UPON THE ASSESSEE. IN 7 ITA NO. 507/DEL/2017 RESPONSE TO THE SAID NOTICES, AUTHORIZED REPRESENTA TIVES OF THE ASSESSEE APPEARED ON VARIOUS DATES AND FILED THE REQUISITE D ETAILS WHICH HAVE BEEN EXAMINED AND PLACED ON RECORD. BOOKS OF ACCOUNTS WE RE PRODUCED WHICH HAVE BEEN EXAMINED ON TEST CHECK BASIS BY THE ASSESSING OFFICER. THE REFERENCE TO THE TRANSFER PRICING OFFICER WAS MADE U/S 92CA (1) OF THE INCOME TAX ACT, 1961 AFTER OBTAINING PRIOR APPROVAL OF THE COMMISSI ONER OF INCOME TAX-II, NEW DELHI. THE TRANSFER PRICING OFFICER PASSED THE ORDE R U/S 92CA(3) OF THE ACT ON 30.01.2016 PROPOSING AN ADJUSTMENT OF RS. 2,54,75,7 9,744/- ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH PRICE DETERMINED BY THE TRANSFER PRICING OFFICER AND THAT ADOPTED BY THE ASSESSEE, OBSERVING AS UNDER: SUMMARY OF ADJUSTMENTS SEGMENT AMOUNT IN CRORES PROVISION OF IT ENABLED SERVICES 40,27,60,586/- SOFTWARE DEVELOPMENT SERVICES 2,14,48,19,158/- TOTAL 2,54,75,79,744/- THE ASSESSING OFFICER SHALL ENHANCE THE INCOME OF T HE ASSESSEE BY RS. 2,54,75,79,744/- VIDE DRAFT ASSESSMENT ORDER DATED 11.03.2016, THE A SSESSING OFFICER PROPOSED TO MAKE FOLLOWING ADDITIONS AND ASSESSED THE TOTAL INCOME OF THE ASSESSEE AS UNDER: DESCRIPTION AMOUNT (RS.) INCOME FROM BUSINESS AND PROFESSION I. AS PER THE COMPUTATION OF INCOME : 2,74,13,78,159 (REVISED) II. ADD : TP ADJUSTMENTS : 2,54,75,79,744 (AS DISCUSSED IN PARA 3) 5,28,89,57,903 INCOME FROM HOUSE PROPERTY 13,53,70,085 8 ITA NO. 507/DEL/2017 (AS DISCUSSED IN PARA 4) INCOME FROM CAPITAL GAIN I. LONG TERM CAPITAL GAIN : NIL II. SHORT TERM CAPITAL GAIN : 2,91,118 2,91,118 INCOME FROM OTHER SOURCES (AS PER REVISED RETURN OF INCOME MINUS RENTAL INCOME CLAIMED AS OTHER SOURCES) 16,63,54,780 GROSS TOTAL INCOME 5,59,09,73,886 LESS DEDUCTION UNDER CHAPTER VIA I. DEDUCTION U/S 80G 78,94,941 TOTAL INCOME 5,58,30,78,945 THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE R ESOLUTION PANEL (DRP). THE DRP VIDE DIRECTIONS DATED 29.09.2016 ISSUED CERTAIN DIRECTIONS TO THE TPO. THE TPO VIDE HIS ORDER DATED 15.11.2016 REVISED THE TP ADJUSTMENT FROM RS. 2,54,75,79,744/- (ORIGINAL) TO RS. 2,14,48,19,158/- . THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 25.11.2016 ASSESSED THE INCO ME OF THE ASSESSEE COMPANY U/S 143(3) R.W.S. 144C OF THE ACT AT RS. 5, 18,03,18,360/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE HAS FILED PRESENT APPEAL BEFORE US. 5. DURING THE HEARING, THE LD. AR SUBMITTED THAT TH E IDENTICAL ISSUE IN RESPECT OF TRANSFER PRICING AND THE CORPORATE ISSUE ARE DECIDED IN ASSESSMENT YEAR 2011-12 BY THIS TRIBUNAL BEING ITA NOS. 1479 & 691/DEL/2016 ORDER DATED 14.09.2018. THE LD. AR SUBMITTED WRITTEN BAC KGROUND OF FACTS AS UNDER:- MICROSOFT INDIA (R&D) PRIVATE LIMITED (MIRPL/ APPE LLANT) IS ENGAGED IN PROVISION OF SOFTWARE DEVELOPMENT SERVICES (SDS) AN D IT ENABLED SERVICES (ITES). IN ADDITION TO CORPORATE TAX ISSUES CONTEST ED IN GROUND OF APPEAL 15 ONWARDS, TRANSFER PRICING ADJUSTMENT (GROUND OF APP EALS FROM 3 TO 14) MADE IN 9 ITA NO. 507/DEL/2017 SDS IS THE SUBJECT MATTER OF PRESENT APPEAL. BACKGROUND FACTS: THIS HON'BLE TRIBUNAL HAD RECENTLY DECIDED ITA NO 1 479 /DEL/2016 RELATING TO AY 11-12, BY ORDER DATED 14 TH SEPTEMBER 2018, COPY IS ENCLOSED FOR READY REFERENCE AS THE SAME ALSO INVOLVED DISPUTE AROUND TP ADJUSTMENT IN SDS. APPELLANT BONA FIDE BELIEVES THAT SOME OF THE CONCL USIONS REACHED IN AY 11-12 ORDER ARE NOT JUSTIFIED FOR REASONS SET OUT BRIEFLY HEREIN BELOW (APPELLANT IS FULLY CONSCIOUS THAT FOR REDRESSAL OF ITS GRIEVANCE RELAT ING TO AY 11-12 IT HAS TO APPROACH A HIGHER FORUM - HOWEVER , SUCH ISSUES ARE BEING POINTED OUT IN THE CONTEXT OF AY 12-13 AND SUBMISSIONS BEING MADE TO E NABLE THIS HON'BLE COURT DECIDE ISSUES ON MERITS APPROPRIATELY, ESPECIALLY A S EACH YEAR IS SEPARATE AND THERE IS NO RES JUDICATA IN TAX MATTERS). APPELLANT EXPLAINED IN WRITING BEFORE LOWER AUTHORI TIES AS ALSO IN STATEMENTS RECORDED AS PART OF APA PROCESS ON HOW DUE TO IPR I SSUES AND THE VERY LIMITED ROLE ASSIGNED TO MIRPL IN THE OVERALL SCHEME OF THI NGS MOST OF DAY TO DAY CORRESPONDENCE IS ENCRYPTED ETC., PREVENTING FILING OF MORE DETAILS RELATING TO DAY TO DAY ACTIVITIES. IGNORING THESE ASPECTS AND BY SE LECTIVE REFERENCE TO PORTIONS OF SUBMISSIONS AND STATEMENTS INCORRECT CONCLUSIONS HA S BEEN REACHED IN PARA 15 THAT AR REFUSED TO FILE DETAILS. FURTHER, HOLISTIC AND CONTEXTUAL VIEW OF APA STATEMENTS (WHICH WERE IN FACT RELIED ON BY ID. DR ALSO THOUGH THERE IS NO MENTION OF SUCH FACT IN THE ORDER) COULD HELP IN APPRECIATION OF PATENTS (DETAILS OF WHICH WERE FILED AS PER THE DIRECTION OF HON'BLE ITAT DURING COURSE OF HEARING AND NO QUERIES REMAINED UNANSWERED) AND THEIR RIGHTFUL IMPACT FOR TP IN RIGHT PERSPECTIVE. THESE STATEMENTS WERE RECORDED BY AUTH ORITIES WELL-VERSED IN TRANSFER PRICING IN SEPTEMBER 2013. REFERENCE IS IN VITED INCOME TAX RULES 10L, WHICH LAYS DOWN THE PROCESS AND EXPLAIN THE SANCTIT Y OF SUCH RECORDINGS BY AUTHORITIES AFTER HOLDING MEETINGS. SUCH ASPECTS RE MAINED OUT OF CONSIDERATION IN SAID ORDER. IT IS RESPECTFULLY SUBMITTED THAT SU CH STATEMENTS CANNOT BE DISCARDED/LIGHTLY IGNORED AS 'ONE SIDE OF THE STORY ' -KINDLY REFER PARAGRAPH 10 OF SAID ORDER OF TRIBUNAL. APA STATEMENTS CLEARLY AND UNEQUIVOCALLY EXPLAIN THAT 10 ITA NO. 507/DEL/2017 THERE IS NO 'RESEARCH' INVOLVED AND THAT THE PATENT IS REGISTERED IN THE NORMAL COURSE OF 'SOFTWARE DEVELOPMENT AND CODING' UNDER C OMPLETE SUPERVISION OF OVERSEAS AE, WHO FUND THE FULL COST. IT IS IMPORTAN T TO NOTE THAT VERACITY OF THESE STATEMENTS RECORDED BY AUTHORITIES DURING FIELD VIS ITS HAVE NOT BEEN DOUBTED IN THE LAST FIVE YEARS FROM 2013. THEREFORE, CONCLUSIO NS REACHED TO THE CONTRARY, MERELY BASED ON VAGUE SUSPICION, THAT MIRPL'S ACTIV ITIES INVOLVED SOMETHING MORE VALUABLE THAN ROUTINE SOFTWARE DEVELOPMENT AND CODING, ARE UNJUSTIFIED. CONCLUSION REACHED AT PARAGRAPH 23 THAT APPELLANT'S ACTIVITIES ARE NOT CONFINED TO CODING MAY REQUIRE RECONSIDERATION. APPELLANT PR AYS FOR APPROPRIATE CONSIDERATION OF ABOVE FACTS IN THE CONTEXT OF PRES ENT APPEAL. CLOSER LOOK AT DETAILS OF 113 PATENTS REGISTERED OV ER THE PERIOD OF FIVE YEARS (FROM 2008 TO 2012 - REFER PARA 24 OF HON'BLE ITAT ORDER ) SUBMITTED ON RECORD AND SOME OF WHICH ARE EXTRACTED IN PARAGRAPH 24 ONWARDS WOULD SHOW THAT THESE INVOLVED ROUTINE PROCESSES OF STEPS IN ORDER IN DEV ELOPMENT OF ANY SOFTWARE. AGAIN DISCARDING SUBMISSION (KINDLY REFER PARAGRAPH 29) THAT IRRESPECTIVE OF SUCCESS OR FAILURE OF WORK ASSIGNED TOTAL COST IS P AID FOR BY AE, IS UNJUSTIFIED. TRIBUNAL ORDER NOTES THAT IT SIGNIFIES THE DEGREE O F LOW-RISK - BUT IGNORES THIS EXTREMELY RELEVANT FACTOR FOR TRANSFER PRICING ANAL YSIS. WITH UTMOST RESPECT CONCLUSION AT PARAGRAPH 23 BY R EFERRING TO CLAUSES OF AGREEMENT FROM PARAGRAPH 18 ONWARDS IS INCORRECT. I T CANNOT RIGHTFULLY BE DENIED THAT IN ALMOST ALL AGREEMENTS INVOLVING DEVELOPMENT OF SOFTWARE ONE WILL FIND SUCH CLAUSE ASSIGNING CONSEQUENTIAL IPR TO THE PART Y FUNDING SOFTWARE DEVELOPMENT AND TAKING THE RISK FOR SUCH DEVELOPMEN T. IT IS THE BONA FIDE BELIEF OF APPELLANT THAT CONSEQ UENT TO ABOVE ERRORS IN APPRECIATION OF RELEVANT FACTS THE CONCLUSION REACH ED IN PARA 30 OF THE SAID ORDER REQUIRES RECONSIDERATION FOR AY 12-13. WITHOUT PREJUDICE TO ABOVE, ASSUMING ONLY FOR THE PURPOSE OF ARGUMENT THAT APPROACH ADOPTED IN AY 11-12 OF TREATING APPELLANT' S ACTIVITIES AS BEING OF HIGH 11 ITA NO. 507/DEL/2017 END (WHICH TERM IS NEITHER DEFINED ANYWHERE NOR HAS ANY REASONABLE BASIS) SDS AND CONTENTION THAT SAME CAN BE COMPARED ONLY WITH OTHER COMPANIES ENGAGED IN R&D ACTIVITIES IS REQUIRED TO BE ADOPTED FOR AY 12-13, APPELLANT RESPECTFULLY SUBMITS AS FOLLOWS: TRANSFER PRICING GROUNDS- NOS. 3 TO 14 DETAILED FAR ANALYSIS IS AVAILABLE ON RECORD AS PAR T OF TP STUDY (REFER PAGE 1125 IN PART III OF PAPER BOOK), WHEREIN DETAILED A NALYSIS CAN BE FOUND AT PAGE 1147 -SAME IS NOT BEING REPEATED IN THE INTERESTS O F BREVITY. ACTIVITIES CARRIED OUT AS PART OF SOFTWARE PRODUCT LIFECYCLE BE IT CODING, TESTING OR VALIDATION MAY AT TIMES RESULT IN PATENTS. ANY ORGANIZATION MIGHT GET SUCH PATENTS REGISTERED AS A DEFENSIVE MECHANISM TO ENSURE CONTINUITY OF BUSINES S AND TO BE ABLE TO USE THE FRUITS OF ITS EFFORTS, BUT SURELY SUCH PATENTS BY T HEMSELVES DO NOT PROVIDE ANY DIRECT MONETARY BENEFIT TO ORGANIZATION OWNING THEM . EVEN CASUAL REFERENCE TO DETAILS OF PATENTS FILED SHOW THAT THESE ARE NOTHIN G MORE THAN ROUTINE PROCESSES IN SOFTWARE DEVELOPMENT AND IN ANY CASE THE ENTIRE COST FOR SUCCESSFUL DEVELOPMENT OR OTHERWISE IS BORNE BY OVERSEAS AE. E SPECIALLY SO AS IT IS NOT EVEN DENIED THAT MIRPL ROLE IS MINISCULE PART OF TO TAL PRODUCT DEVELOPMENT AS IT MAY BE INVOLVED IN A FEATURE OR A PART OF IT AS ASS IGNED BY AE. WITHOUT PREJUDICE TO ABOVE POSITION, INFOSYS (KINDL Y REFER PAGES 1452, 1459 OF PAPER BOOK IV) AND PERSISTENT CANNOT BE COMPARABLE COMPANIES EVEN APPLYING ABOVE CRITERIA AS A REFERENCE TO AUDITED FINANCIALS WOULD SHOW. BOTH THE COMPANIES ARE ENGAGED IN SOFTWARE PRODUCTS AS NOTED IN TRIBUNAL ORDER FOR AY 11-12 IN APPELLANT'S OWN CASE, WHICH IS TRUE EVEN F OR AY 12-13. FURTHER, DURING AY 12-13 THERE WAS A MERGER (EXTRAORDINARY EVENT) IN CASE OF PERSISTENT (KINDLY REFER PAGES 1568,1716,1719 OF PAPER BOOK IV). WITHOUT PREJUDICE TO APPELLANT'S CONTENTION THAT TP O AND DRP (REFER COMPARABLE COMPANIES DISCUSSED AT PAGES 41 TO 58 OF APPEAL SET ) INCORRECTLY REJECTED INCLUSION OF ALL SUCH COMPANIES MENTIONED IN THE DE TAILED CHART SUBMITTED AT THE TIME OF HEARING ALSO AND RESPECTFULLY REQUESTS FOR APPROPRIATE CONSIDERATION FOR 12 ITA NO. 507/DEL/2017 INCLUSION OF ALL THESE COMPANIES (APPELLANTS PRAYS LEAVE TO NOT REPEAT THE SUBMISSIONS IN SUPPORT OF INCLUSION OF EACH OF SUCH COMPARABLE COMPANIES AS ELABORATED IN SUBMISSIONS BEFORE LOWER AUTHORITIES WHICH ARE PART OF APPEAL RECORD - IN THE INTEREST OF BREVITY), AS THESE ARE INVOLVED IN SOFTWARE DEVELOPMENT SERVICES, EVEN IF ONLY FOR ARGUMENT, BASIS AS APPLI ED BY TPO/DRP AND HON'BLE TRIBUNAL ORDER FOR AY 11-12 IS TO BE APPLIED, REFER ENCE IS KINDLY INVITED TO FINANCIALS OF MINDTREE (KINDLY REFER PAGES 385,386,387,403,404,405 AND 413 OF ANNUAL REPORTS BUNCH NO 1 HANDED OVER AT HEARING) , R S SOFTWARE (KINDLY REFER PAGES 518,520,521,525,528,536,537,538,539,548,550 A ND 557 OF ANNUAL REPORTS BUNCH NO 1 HANDED OVER AT HEARING), CIGNITI (KINDLY REFER PAGES 1355,1356,1357,1358,1360,1362,1374,1375 AND 1403 OF ANNUAL REPORTS BUNCH 2 FILED AT THE HEARING) AND SASKEN ( KIN DLY REFER 778,779,784,824,827,841,856,857 OF ANNUAL REPORTS B UNCH 2 HANDED OVER AT HEARING) WITH HUMBLE PRAYER TO ATLEAST INCLUDE THEM AS COMP ARABLE, AS THESE COMPANIES SATISFY ALL THE ABOVE CONDITIONS ( LIKE R&D ETC., THOUGH APPELLANT DOES NOT AGREE THAT TO BE CORRECT BASIS) ALSO. IT WILL KINDLY BE ACCEPTED THAT TESTING/VERIFICATION/VALIDATION IS AN IMPORTANT ESS ENTIAL PART OF SOFTWARE DEVELOPMENT ACTIVITIES UNDERTAKEN BY MIRPL ALSO (AD MITTEDLY UNDER STRICT AND COMPLETE SUPERVISION OF OVERSEAS AE) AND CONTRIBUTES A SIGNIFICANT PART ECONOMICALLY ALSO TO SOFTWARE DEVELOPMENT ACTIVITIE S. CIGNITI THOUGH ENGAGED IN TESTING/ VERIFICATION/ VALIDATION ( IN THIS CONTEXT IT MAY BE USEFUL TO REFER TO RULE 10 TA, WHEREIN SOFTWARE TESTING IS NOT PART OF ITES AND GETS COVERED UNDER 'SOFTWARE DEVELOPMENT SERVICES') HAS ADMITTEDLY UNDERTAKEN RESEARCH AND DEVELOPMENT ACTIVITIES RESULTING IN VALUABLE IPR, T HEREFORE, DESERVES TO BE CONSIDERED AS COMPARABLE TO MRIPL APPLYING THE SAME CRITERIA. CORPORATE TAX GROUNDS: GROUND NOS. 15 TO 17 APPELLANT EARNS INCOME FROM COMPREHENSIVE RENTAL OF PREMISES AND DESIRES THAT SUCH INCOME BE TAXED UNDER THE INCOME FROM OTHER SO URCES, WHEREAS THE AUTHORITIES HAVE TAXED THE SAME AS INCOME FROM HOUS E PROPERTY. THOUGH THIS IS A RECURRING ISSUE FROM EARLIER YEARS, RECENT JURISDIC TIONAL HIGH COURT DECISION IN THE 13 ITA NO. 507/DEL/2017 CASE OF JAY METAL INDUSTRIES (P.) LTD. V. CIT (396 ITR 194) IS BINDING ON THIS HON'BLE TRIBUNAL. IN VIEW OF PRINCIPLES LAID DOWN I N ASIT C MEHTA VS DCIT ( 2006) 10 SOT 36 , APPELLANT IS ENTITLED TO SEEK DECISION ON THIS ISSUE UNLIKE THE REMAND DIRECTIONS IN EARLIER YEARS AND ACCORDINGLY PRAYS FOR FINAL AND CONCLUSIVE DECISION ON THIS ISSUE. IT IS RESPECTFULLY SUBMITTE D THAT THOUGH THIS CASE LAW WAS BROUGHT TO NOTICE OF HON'BLE TRIBUNAL, THE SAME DOE S NOT FIND CONSIDERATION IN ORDER FOR AY 11-12, HENCE THIS PRAYER. THE OTHER GROUNDS OF APPEAL ARE CONSEQUENTIAL AND A PPELLANT PRAYS FOR SUITABLE DIRECTIONS. 6. THE LD. AR SUBMITTED THAT THE ASSESSEE IN THE PR ESENT YEAR ALSO CHALLENGING TWO COMPARABLES TO BE EXCLUDED AND FOUR COMPARABLES TO BE INCLUDED. THE LD. AR FURTHERS SUBMITTED THAT IN-FA CT THE ASSESSEE HAS SUBMITTED 19 COMPARABLES TO BE INCLUDED BUT AT THIS JUNCTURE ONLY, REQUESTING FOUR COMPARABLES TO BE INCLUDED. THE LD. AR SUBMIT TED THAT FOR EXCLUSION OF TWO COMPARABLES I.E. INFOSYS & PERSISTENT ARE NOT C OMPARABLE COMPANIES AND ALSO WAS EXCLUDED IN ASSESSMENT YEAR 2011-12. THE LD. AR SUBMITTED THAT THE FACTUAL POSITION HAS NOT BEEN CHANGED FROM THE EARL IER YEARS OF ASSESSMENT YEAR 2011-12. THEREFORE, THESE TWO COMPARABLES HAS TO BE EXCLUDED. THE LD. AR FURTHER SUBMITTED THAT DURING ASSESSMENT YEAR 20 12-13, THERE WAS A MERGER WHICH AMOUNTS TO EXTRAORDINARY EVENT IN CASE OF PERSISTENT. THEREFORE, BOTH THESE COMPARABLES SHOULD BE EXCLUDED. AS REGA RDS INCLUSION OF FOUR COMPARABLES, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS GIVEN FOUR COMPARABLES WHICH ARE AS UNDER:- (I) MIND TREE (II) R.S SOFTWARE (III) CIGNITI (IV) SASKEN AS REGARDS MINDTREE, R. S. SOFTWARE, CIGNITI & SASK EN, THE LD. AR SUBMITTED ANNUAL REPORTS OF THE SAID COMPARABLE COMPANIES. TH E LD. AR FURTHER 14 ITA NO. 507/DEL/2017 SUBMITTED THAT FUNCTIONS OF THESE COMPANIES ARE IDE NTICAL TO THE ASSESSEES COMPANY. 7. AS REGARDS CORPORATE GROUNDS, THE LD. AR SUBMITT ED THAT THOUGH FOR ASSESSMENT YEAR 2011-12, THE TRIBUNAL HAS REMANDED BACK THIS ISSUE TO THE FILE OF THE TPO/A.O IN VIEW OF PRINCIPALS LAID DOWN IN THE ASSESSEE MEHTA VS. DCIT 2006 10 SOT 36 SEEK TO CONTEST THIS ISSUE. TH E LD. AR SUBMITTED THAT THIS IS A RECURRING ISSUE FROM EARLIER YEARS AND RE CENT JURISDICTIONAL HIGH COURT DECISION IN CASE OF JAY METAL INDUSTRIES PVT. LTD. VS. CIT 396 ITR 194 HAS CONSIDERED AS THE ASSESSEE INCOMES FROM RENT FROM THE PREMISES HAS TO BE TAXED UNDER THE INCOME FROM OTHER SOURCES WHERE AS THE REVENUE AUTHORITIES TAXED THE SAME AS INCOME FROM HOUSE PROPERTY. THUS , THE LD. AR SUBMITTED THAT THIS RE-CHARACTERIZATION IS NOT PERMISSIBLE AS PER THE DECISION OF THE JURISDICTIONAL HIGH COURT. 8. THE LD. DR CONTESTED THE TP ISSUES REGARDING EXC LUSION AND INCLUSION OF THE COMPARABLES. THE LD. DR FURTHER SUBMITTED THAT THE TRANSFER PRICING OFFICER I.E. TPO HAS ELABORATELY DISCUSSED ALL THE FACTORS TO EXCLUDE CERTAIN COMPARABLES AND TO INCLUDE CERTAIN COMPARABLES. TH ERE IS A PROPER REASONING GIVEN BY THE TPO IN TRANSFER PRICING ORDER. AS REG ARDS, GROUND NO. 15 & 17, RELATING TO CORPORATE TAX, THE LD. DR SUBMITTED THA T THE ASSESSEE AT THIS JUNCTURE CANNOT CONTEST THESE ISSUES, AS IN EARLIER ASSESSMENT YEAR THESE ISSUES HAVE BEEN REMANDED BACK TO THE FILE OF THE A SSESSING OFFICER. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS GROUND NO. 1 AND 2, THE SAME ARE GENERAL IN NATURE, HENCE DISMISSED. NOW, WE ARE TAKING UP THE ISSUE OF TRANSFER PRICING IN RESPECT OF THE COMPARABLES. THE LD. AR CONTESTED TW O COMPARABLES TO BE EXCLUDED I.E. INFOSYS TECHNOLOGY LTD. AND PERSISTEN T SYSTEMS LTD. THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2011-12 HELD AS UND ER: (II) INFOSYS TECHNOLOGY LTD. 15 ITA NO. 507/DEL/2017 39. THE SECOND COMPANY UNDER CHALLENGE IS INFOSYS T ECHNOLOGY LTD., WHICH WAS INCLUDED BY THE TPO IN THE FINAL TALLY OF COMPARABLES. THE ASSESSEE OBJECTED TO SUCH INCLUSION BY CONTENDING, INTER ALIA, THAT IT IS ENGAGED IN NOTEWORTHY R&D ACTIVITIES APART FROM HAV ING SIGNIFICANT INTANGIBLE ASSETS AND EXCEPTIONALLY HIGH TURNOVER. THE ASSESSE E ALSO SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE AS IT IS ALS O HAVING REVENUES FROM SOFTWARE PRODUCTS. THE ASSESSEES OBJECTIONS HAVE B EEN RECORDED ON PAGES 80-82 OF THE TPOS ORDER. NOT CONVINCED, THE TPO HE LD THIS COMPANY TO BE COMPARABLE, WHICH HAS BEEN ASSAILED IN THE IMPUGNED ORDER. 40. HAVING HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMP ANY, A COPY OF WHICH IS AVAILABLE ON PAGES 1653 ONWARDS OF THE PAPER BOOK, THAT THIS COMPANY IS ALSO ENGAGED IN EARNING REVENUE FROM LICENSING OF S OFTWARE PRODUCTS. THIS FACT HAS ALSO BEEN RECORDED IN THE TPOS ORDER NOTI NG THAT THE REVENUE FROM SOFTWARE PRODUCTS STANDS AT RS.1,285/- CRORE. THIS REVENUE HAS BEEN GENERATED FROM ITS PRODUCT FINACLE, REFERENCE TO WHICH HAS BEEN MADE ON PAGE 8 OF THE DIRECTORS REPORT. THE EXTENT OF PROF IT FROM SOFTWARE PRODUCTS, CANNOT BE SEPARATED BECAUSE OF THE MERGED EXPENSES. IN VIEW OF THE FACT THAT THE TOTAL PROFIT OF THIS COMPANY INCLUDES PROFIT FR OM SOFTWARE DEVELOPMENT SERVICES AS WELL AS SOFTWARE PRODUCTS AND THERE IS NO SEPARATE PROFIT AVAILABLE OF THE SOFTWARE DEVELOPMENT SERVICES, WE ARE UNABLE TO COUNTENANCE THE COMPARABILITY OF THIS COMPANY AS THE ASSESSEE IS NO T ENGAGED IN LICENSING OF ANY SOFTWARE PRODUCTS. WE, THEREFORE, ORDER TO EXCL UDE INFOSYS TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES. (III) PERSISTENT SYSTEMS LTD. 41. THOUGH THIS COMPANY WAS INCLUDED BY THE ASSESSE E IN ITS LIST OF COMPARABLES, THE SAME HAS STILL BEEN CHALLENGED BEF ORE US. THE LD. AR CONTENDED THAT THIS COMPANY WAS ERRONEOUSLY INCLUDE D IN THE LIST OF COMPARABLES AS IT IS ALSO A PRODUCT COMPANY WHICH I S APPARENT FROM THE 16 ITA NO. 507/DEL/2017 ANNUAL REPORT OF THIS COMPANY. 42. THE LD. DR RAISED A PRELIMINARY OBJECTION TO TH E EFFECT THAT ONCE A COMPANY HAS BEEN CONSIDERED BY THE ASSESSEE AS COMP ARABLE IN ITS TP DOCUMENTATION AND THE SAME HAS BEEN ACCEPTED BY THE TPO, THE SAME CANNOT BE CHALLENGED IN THE FURTHER APPELLATE PROCEEDINGS. HE RELIED ON THE IMPUGNED ORDER TO CONTEND THAT THIS COMPANY WAS RIGHTLY OFFE RED BY THE ASSESSEE IN THE LIST OF COMPARABLES AND, HENCE, THE SAME SHOULD NOT BE EXCLUDED. 43. WE ARE DISINCLINED TO SUSTAIN THE PRELIMINARY O BJECTION TAKEN BY THE LD. DR THAT THE ASSESSEE SHOULD BE STOPPED FROM TAK ING A STAND CONTRARY TO THE ONE WHICH WAS TAKEN AT THE STAGE OF THE TP STUD Y OR DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO. IT GOES WITHOUT SAYING THAT THE OBJECT OF ASSESSMENT IS TO DETERMINE THE INCOME IN RESPECT OF WHICH AN ASSESSEE IS RIGHTLY CHARGEABLE TO TAX. AS AN INCOME NOR ORIGINA LLY OFFERED FOR TAXATION, IF OTHERWISE CHARGEABLE, IS REQUIRED TO BE INCLUDED IN THE TOTAL INCOME, IN THE SAME BREATH, ANY INCOME WRONGLY INCLUDED IN THE TOT AL INCOME, WHICH IS OTHERWISE NOT CHARGEABLE, SHOULD BE EXCLUDED. THERE CAN BE NO ESTOPPELS AGAINST THE PROVISIONS OF THE ACT. EXTENDING THIS P ROPOSITION FURTHER IN THE CONTEXT OF THE TRANSFER PRICING, IT TRANSPIRES THAT IF AN ASSESSEE FAILS TO REPORT AN OTHERWISE COMPARABLES, AND IN THE SAME MANNER, I F THE ASSESSEE WRONGLY REPORTED AN INCOMPARABLE COMPANY AS COMPARABLE IN I TS TP STUDY AND THEN LATER ON REALIZES AND CLAIMS THAT IT SHOULD BE EXCL UDED, THERE SHOULD BE NOTHING TO PROHIBIT IT FROM CLAIMING SO, PROVIDED T HE COMPANY SO ORIGINALLY REPORTED AS COMPARABLE IS, IN FACT, NOT COMPARABLE. SIMPLY BECAUSE A COMPANY WAS WRONGLY CHOSEN BY THE ASSESSEE AS COMPA RABLE, CANNOT TIE ITS HANDS FROM CONTENDING BEFORE THE TRIBUNAL THAT SUCH A COMPANY WAS WRONGLY CONSIDERED AS COMPARABLE WHICH IS, IN FACT, NOT. TH ERE IS NO QUALITATIVE DIFFERENCE BETWEEN A SITUATION WHERE AN ASSESSEE CL AIMS THAT A WRONG COMPANY INADVERTENTLY INCLUDED FOR THE PURPOSE OF C OMPARISON SHOULD BE EXCLUDED AND THE SITUATION IN WHICH THE REVENUE DOE S NOT ACCEPT A PARTICULAR 17 ITA NO. 507/DEL/2017 COMPANY CHOSEN BY THE ASSESSEE AS COMPARABLE. THE U NDERLYING OBJECT OF THE ENTIRE EXERCISE IS TO DETERMINE THE ARMS LENGTH PR ICE OF AN INTERNATIONAL TRANSACTION. SIMPLY BECAUSE A COMPANY WAS WRONGLY C ONSIDERED BY THE ASSESSEE AS COMPARABLE, CANNOT, ACT AS A DETERRENT FROM CHALLENGING BEFORE THE TRIBUNAL THE FACT THAT THIS COMPANY IS, IN FACT , NOT COMPARABLE. THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. QUARK SYSTEMS PVT . LTD. (2010) 132 TTJ (CHD) (SB) 1 HAS HELD THAT A COMPANY WHICH WAS INCL UDED BY THE ASSESSEE AND ALSO BY THE TPO IN THE LIST OF COMPARABLES AT T HE TIME OF COMPUTING ALP, CAN BE EXCLUDED BY THE TRIBUNAL, IF THE ASSESSEE PR OVES THAT THE SAME WAS WRONGLY INCLUDED. SIMILAR VIEW HAS BEEN UPHELD BY T HE HONBLE DELHI HIGH COURT IN XCHANGING TECHNOLOGY SERVICES INDIA PVT. L TD. [TS-446-HC- 2016(DEL)-TP]. THE HONBLE BOMBAY HIGH COURT IN TAT A POWER SOLAR SYSTEMS LTD. [TS-1007-HC-2016(BOM)-TP] AND THE HONBLE PUNJ AB & HARYANA HIGH COURT IN CIT VS. MERCER CONSULTING (INDIA) P. LTD. (2017) 390 ITR 615 (P&H) HAVE ALSO APPROVED SIMILAR VIEW. IN VIEW OF THE FOR EGOING DISCUSSION, WE DO NOT FIND ANY SUBSTANCE IN THE PRELIMINARY OBJECTION TAKEN BY THE LD. DR. 44. COMING TO THE COMPARABILITY OR OTHERWISE OF THI S COMPANY, WE FIND FROM ITS PROFIT & LOSS ACCOUNT THAT ITS INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS STANDS AT RS. 6,101.27 MILLIONS. PROD UCT REVENUE IS 7.2% OF THE TOTAL REVENUE. THUS, IT IS ESTABLISHED THAT THIS CO MPANY IS ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS. EVEN THOUGH THE PERCENTAGE OF SOFTWARE PR ODUCTS IN THE TOTAL REVENUE IS LESS, YET, THE SAME CEASES TO BE COMPARA BLE AS THERE IS NO PRECISE INFORMATION ABOUT THE CONTRIBUTION MADE BY THE INCO ME FROM SALE OF SOFTWARE TO THE TOTAL INCOME OF THE COMPANY. IN THE ABSENCE OF ANY SEGMENTAL INFORMATION PROVIDED BY THE COMPANY IN RESPECT OF S OFTWARE SERVICES, WE CANNOT APPROVE THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES. THE SAME IS DIRECTED TO BE EXCLUDED. FROM THE PERUSAL OF THE RECORDS IT CAN BE SEEN THAT THE FUNCTIONAL PROFILE OF THE 18 ITA NO. 507/DEL/2017 ASSESSEE HAS NOT CHANGED IN THE PRESENT ASSESSMENT YEAR. THE COMPARABLE COMPANIES WHICH NEEDS TO EXCLUDED ALSO HAS THE SIMI LAR FUNCTIONAL ASPECT AS DISCUSSED IN THE TRIBUNALS DECISION FOR A.Y. 2011- 12. THEREFORE, WE ARE FOLLOWING THE SAME DIRECTIONS OF THE TRIBUNAL IN AS SESSEES OWN CASE FOR A.Y. 2011-12 AS THE FACTS EMERGES FROM THE TP STUDY REPO RT AND THE ORDER OF THE TPO ARE IDENTICAL IN THE PRESENT ASSESSMENT YEAR AS WELL. 10. AS REGARDS TO INCLUSION OF FOUR COMPARABLES I.E . MINDTREE, R. S. SOFTWARE, CIGNITI & SASKEN, THE TRIBUNAL HELD AS UNDER: (IX) MINDTREE LTD. (IT SERVICE SEGMENT) 65. THE TPO HELD THIS COMPANY TO BE NOT COMPARABLE BY OBSERVING ON PAGE 58 OF HIS ORDER THAT IT WAS NOT INVOLVED IN RE NDERING ANY HIGH-END SOFTWARE SERVICES. 66. WE HAVE EXAMINED THE ANNUAL REPORT OF THIS COMP ANY, A COPY OF WHICH HAS BEEN PLACED ON RECORD. ANNEXURE TO THE DI RECTORS REPORT PROVIDES UNDER THE HEAD RESEARCH AND DEVELOPMENT THAT THIS : COMPANY HAS A DEDICATED BUSINESS UNIT FOR RESEARCH AND DEVELOPMEN T WHICH OFFERS INNOVATIVE SOLUTIONS TO CLIENTS AND ALSO FOSTERS R&D WITHIN AL L BUSINESS UNITS TO CREATE INTELLECTUAL PROPERTY IN THE FORM OF RE-USABLE COMP ONENTS, FRAMEWORKS, ETC., WHICH HELP DRIVE CORRECT PRODUCTIVITY. ON NEXT PAG E OF THE ANNEXURE TO THE DIRECTORS REPORT, A LIST OF PATENTS REGISTERED EIT HER IN INDIA OR THE USA HAS BEEN APPENDED, WHICH ARE 19 IN NUMBER. PROFIT & LOS S OF THIS COMPANY SHOWS INCOME FROM SOFTWARE DEVELOPMENT AT RS.15,090 MIL LION. THIS COMPANY HAS THREE SUB-SEGMENTS WHICH ARE COVERED WITHIN THE OVE RALL INCOME FROM SOFTWARE DEVELOPMENT. DETAILS OF SUCH SUB-SEGMENTS ARE GIVEN ON PAGE 32 OF THE ANNUAL REPORT, WHICH MAINLY COMPRISE REVENUE FR OM IT SERVICES AT RS.8,783 MILLION; FROM PRODUCT ENGINEERING SERVICES AT RS5653 MILLION; AND FROM WIRELESS SERVICES AT RS. 654 MILLION. OBVIOUSL Y, WIRELESS SERVICES CANNOT BE CONSIDERED AS A PART OF RESEARCH AND DEVE LOPMENT SOFTWARE 19 ITA NO. 507/DEL/2017 SERVICES PROVIDED BY THIS COMPANY. THE ASSESSEE HAS ALSO CONSIDERED ONLY IT SERVICES SEGMENT OF THIS COMPANY AS COMPARABLE WITH THE EXCLUSION OF WIRELESS SERVICES. ALL THE PARAMETERS, NAMELY, RE NDERING OF RESEARCH AND DEVELOPMENT SOFTWARE SERVICES AND ALSO PRODUCT ENGI NEERING SERVICES TO ITS CUSTOMERS LEADING TO THE CREATION OF PATENTS, MAKE THIS COMPANY FULLY COMPARABLE TO THE EXTENT IT EARNED REVENUES FROM IT SERVICES AND PRODUCT ENGINEERING SERVICES, FOR WHICH SEGMENTAL INFORMATI ON IS AVAILABLE. WE, THEREFORE, DIRECT THE TPO TO EXAMINE THE PLI OF THI S COMPANY FROM THE IT SERVICES AND PRODUCT ENGINEERING SERVICES AND THEN TREAT THE SAME AS COMPARABLES WITH THE SEGMENT OF THE ASSESSEE UNDER CONSIDERATION FOR THE PURPOSE OF BENCHMARKING. THE IMPUGNED ORDER IS OVER TURNED TO THIS EXTENT. FROM THE PERUSAL OF RECORDS IT CAN BE SEEN THAT THE FUNCTIONAL PROFILE OF MINDTREE REMAINS THE SAME IN THIS ASSESSMENT YEAR A S WELL WHICH IS SIMILAR TO THE ASSESSEES COMPANY AND THE SEGMENTAL INFORMATIO N IS AVAILABLE IN THE PRESENT ASSESSMENT YEAR AS WELL. THEREFORE, WE ARE FOLLOWING THE DIRECTIONS OF THE TRIBUNAL FOR A.Y. 2011-12. THUS, WE DIRECT THE TPO TO EXAMINE THE PLI OF THIS COMPANY FROM THE IT SERVICES AND PRODUCT ENGIN EERING SERVICES AND THEN TREAT THE SAME AS COMPARABLES WITH THE SEGMENT OF T HE ASSESSEE UNDER CONSIDERATION FOR THE PURPOSE OF BENCHMARKING. AS REGARDS THE R. S. SOFTWARE (INDIA) LTD. THE TRIB UNAL HELD AS UNDER (X) R. S. SOFTWARE (INDIA) LTD. 67. THE TPO EXCLUDED THIS COMPANY BY NOTING ON PAGE 58 OF HIS ORDER THAT IT WAS NOT INVOLVED IN ANY HIGH-END SOFTWARE S ERVICES AND, FURTHER, ON PAGE 76 THAT IT WAS NOT INTO ANY RESEARCH AND DEVEL OPMENT. 68. WE HAVE EXAMINED THE ANNUAL REPORT OF THIS COMP ANY. INCOME FROM SOFTWARE DEVELOPMENT HAS BEEN SHOWN IN THE PROFIT & LOSS ACCOUNT, WHOSE COPY IS AVAILABLE ON PAGE 823 OF THE PAPER BOOK. TH E LD. AR COULD NOT POINT OUT ANYWHERE FROM THE ANNUAL REPORT THAT THIS COMPA NY IS ENGAGED IN 20 ITA NO. 507/DEL/2017 RENDERING R&D SOFTWARE SERVICES. SINCE IT WAS A COM PARABLE CHOSEN BY THE ASSESSEE, THE ONUS IS ON IT TO SHOW THE COMPARABILI TY. THE SAME BEING NOT INVOLVED IN RENDERING ANY R&D SOFTWARE DEVELOPMENT SERVICES BECOMES FUNCTIONALLY DIFFERENT AND HENCE CANNOT BE CONSIDER ED AS COMPARABLE. IT IS THEREFORE, HELD TO HAVE BEEN RIGHTLY EXCLUDED. THIS COMPARABLE COMPANY IS INVOLVED IN R&D ACTIVIT IES FOR SOFTWARE DEVELOPMENT SERVICES IN THE PRESENT ASSESSMENT YEAR WHEREAS THE ASSESSEE COMPANY IS NOT INVOLVED IN R&D ACTIVITIES WHICH CAN BE SEEN FROM THE TP STUDY OF THE ASSESSEE COMPANY. THEREFORE, WE ARE FOLLOWIN G THE DIRECTIONS OF THE A.Y. 2011-12 PASSED BY THE TRIBUNAL. THUS, WE HELD THAT TPO HAS RIGHTLY EXCLUDED THIS COMPARABLE COMPANY. AS REGARDS, CIGNITY TECHNOLOGIES LTD. AND SASKEN C OMMUNICATION TECHNOLOGIES LIMITED (SOFTWARE SERVICES SEGMENT) B OTH OF THE COMPARABLES INVOLVED IN R&D ACTIVITIES FOR SOFTWARE DEVELOPMENT SERVICES IN THE PRESENT ASSESSMENT YEAR WHEREAS THE ASSESSEE COMPANY IS NOT INVOLVED IN R&D ACTIVITIES WHICH CAN BE SEEN FROM THE TP STUDY OF T HE ASSESSEE COMPANY. THEREFORE, WE HELD THAT TPO HAS RIGHTLY EXCLUDED TH ESE COMPARABLE COMPANIES. 11. THUS, GROUND NOS. 3 TO 14 ARE PARTLY ALLOWED FO R STATISTICAL PURPOSE. 12. AS REGARDS CORPORATE TAX GROUNDS RAISED BY THE ASSESSEE, THE TRIBUNAL FOR A.Y. 2011-12 HELD AS UNDER: 103. NOW, WE TAKE UP CORPORATE TAX GROUNDS RAISED BY THE ASSESSEE. 104. GROUND NO. 16 IS AGAINST THE ADDITION TOWARDS REALIZED FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS AND GROUND NO. 17 IS AGAINST THE ADJUSTMENT OF RS.13,40,482/- AGAINST THE OPENING WRITTEN DOWN VALUE OF COMPUTERS TOWARDS UNREALIZED FOREIGN EXCHANGE FLUCTUATION GAI N ARISING OUT OF RE- STATEMENT OF LIABILITY U/S 43A OF THE ACT. GROUND N O. 18 IS AGAINST DENIAL OF DEDUCTION U/S 10A OF THE ACT IN RESPECT OF SPECIFIC ADDITIONS AMOUNTING TO 21 ITA NO. 507/DEL/2017 RS.8,73,11,096/-. GROUND NO. 20 IS AGAINST THE TAXA BILITY OF RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 105. THE ASSESSING OFFICER DECIDED THE ABOVE ISSUES AGAINST THE ASSESSEE. THE LD. DRP ALSO UPHELD THE VIEW TAKEN BY THE ASSESSING OFFICER IN THE DRAFT ORDER BY NOTICING THAT SIMILAR VIEW WAS T AKEN BY IT ON THE ABOVE ISSUES IN THE IMMEDIATELY PRECEDING YEAR. 106. HAVING HEARD BOTH THE SIDES, IT IS OBSERVED TH AT THE IMMEDIATELY PRECEDING YEAR CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL. VIDE ORDER DATED 28.06.2016, THE TRIBUNAL IN ITA NO. 2058/DEL/ 2015, HAS RESTORED THE ABOVE ISSUES TO THE ASSESSING OFFICER FOR A FRESH D ECISION. SINCE THE ISSUES IN THE INSTANT APPEAL ARE ADMITTEDLY OF THE SIMILAR NA TURE AS IN THE PRECEDING YEAR, RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER ON THE ABOVE SCORES AND REMIT THE MATTER TO THE FIL E OF ASSESSING OFFICER FOR DECIDING THEM AFRESH IN ACCORDANCE WITH THE VIEW TA KEN IN SUCH IMMEDIATELY PRECEDING YEAR, AFTER ALLOWING A REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. 107. GROUND NO. 19 IS AGAINST NOT TREATING INTEREST INCOME OF RS. 3,13,60627/- EARNED ON FIXED DEPOSITS BY THE BANGAL ORE UNDERTAKING AS ELIGIBLE FOR BENEFIT U/S 10A OF THE ACT. THE LD. AR CANDIDLY ADMITTED THAT THIS ISSUE WAS NEITHER RAISED BEFORE THE ASSESSING OFFIC ER OR DRP AND THE SAME BEING A LEGAL ISSUE, SHOULD BE ADMITTED BY THE TRIB UNAL. THE LD. DR OBJECTED TO THE ADMISSION OF THIS GROUND. 108. HAVING GONE THROUGH THE NATURE OF ISSUE RAISED THROUGH THIS GROUND, WE FIND THAT THIS IS A LEGAL ISSUE AND CAN BE RAISE D BEFORE THE TRIBUNAL FOR THE FIRST TIME. WE, ERGO, ADMIT THIS ISSUE FOR CONSIDER ATION. 109. IN SUPPORT OF ITS CONTENTION, THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE TO BRING HOME ITS POINT ABOUT THE AVAILABI LITY OF BENEFIT U/S 10A IN RESPECT OF INTEREST INCOME. SINCE THIS ISSUE HAS NO T BEEN EXAMINED BY THE 22 ITA NO. 507/DEL/2017 AUTHORITIES BELOW AND THE ASSESSEE HAS FILED ADDITI ONAL EVIDENCE, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN THE FITN ESS OF THINGS IF THE ASSESSING OFFICER IS DIRECTED TO DECIDE THIS ISSUE AFRESH AS PER LAW, AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASS ESSEE WILL BE AT LIBERTY TO FILE ANY FRESH EVIDENCE BEFORE THE AO IN SUPPORT OF ITS CLAIM ON THIS ISSUE. 110. GROUND NO. 21 IS AGAINST NOT ALLOWING MAT TAX CREDIT. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE ASSESSEES CONTEN TION AND ALLOW THE NECESSARY MAT CREDIT AS PER LAW, IF AVAILABLE. 111. GROUND NO. 23 ABOUT NOT GRANTING CREDIT FOR TD S TO THE EXTENT OF RS.1,71,729/- WAS NOT PRESSED BY THE LD. AR. THE SA ME IS, THEREFORE, DISMISSED AS NOT PRESSED. 112. GROUND NOS. 23 AND 24 ABOUT CHARGING OF INTERE ST ARE CONSEQUENTIAL AND ARE DISPOSED OFF ACCORDINGLY. 113. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . THE ISSUES CONTESTED IN THE PRESENT ASSESSMENT YEAR BY THE ASSESSEE COMPANY REGARDING THE CORPORATE TAX ARE IDENTICAL TO THE IS SUE ARISING IN A.Y. 2011-12 WHEREIN THE TRIBUNAL HAS REMANDED BACK THE ISSUE TO THE ASSESSING OFFICER. THE LD. AR RELIED UPON THE DECISION OF JAY METAL IN DUSTRIES (SUPRA) AND ASIT C MEHTA (SUPRA), BOTH THESE JUDGMENTS WERE NOT TAKEN INTO ACCOUNT BY THE ASSESSING OFFICER. THEREFORE, WE REMAND BACK THESE CORPORATE ISSUES TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO CONSIDER THESE TWO DECISIONS PASSED BY THE JURISDICTIONAL HIGH COURT AFTER VERIFYING TH E FACTS OF THE ASSESSEE COMPANY. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPP ORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THUS, GROU ND NOS. 15 TO 17 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 13. AS REGARDS GROUND NO. 18 THE SAME IS CONSEQUENT IAL, HENCE DOES NOT 23 ITA NO. 507/DEL/2017 REQUIRE TO BE ADJUDICATED AT THIS JUNCTURE. 14. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JANUARY, 2019 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 21/01/2019 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 24 ITA NO. 507/DEL/2017 DATE OF DICTATION 25 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 2 1 . 0 1.201 9 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 2 1 . 0 1.201 9 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 1 . 0 1.201 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER