DCIT, Bangalore V. M/s Core Objects India Pvt. Ltd., Bangalore

ITA 517/BANG/2015

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7297 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-02-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 30-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MUZAFFAR HUSSAIN
• Keywords: Related party transaction; Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Question of law; Non-deduction of tax; Bad and doubtful debts; Revised return; TDS; Capital Gains; CHAPTER IV
• Section: 92C; 92E; 10AA; 234B; 40(a)(ia); 10B; 143(1); 201; 144C; 143(2); 43; 48; 194J; 72; 13; 22; 92CA; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.517/BANG/2015 ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)(1), BENGALURU. VS. M/S HARMAN CONNECTED SERVICES CORPORATION PVT. LTD., NO.3&3A, EOIZ INDUSTRIAL AREA, SURVEY NO.85 & 86, SADAMANGALA VILLAGE, KRISHNARAJAPURAM HOBLI, BANGALORE-560 066. PAN AACCC 2040 B APPELLANT RESPONDENT IT(TP)A NO.570/BANG/2015 ASSESSMENT YEAR : 2010-11 M/S HARMAN CONNECTED SERVICES CORPORATION PVT. LTD., NO.3&3A, EOIZ INDUSTRIAL AREA, SURVEY NO.85 & 86, SADAMANGALA VILLAGE, KRISHNARAJAPURAM HOBLI, BANGALORE-560 066. PAN AACCC 2040 B VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)(1), BENGALURU. APPELLANT RESPONDENT PAGE 2 OF 55 IT(TP)A NO.517 & 570/BANG/2015 ASSESSEE BY : SHRI MUZAFFAR HUSSAIN, CIT (DR) REVENUE BY : SMT. TANMAYEE RAJKUMAR, ADVOCATE DATE OF HEARING : 02-02-2021 DATE OF PRONOUNCEMENT : 01-04-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT CROSS APPEAL ARE FILED BY REVENUE AND ASSESSEE AGAINST ORDER DATED 30/01/2015 PASSED BY LD.DCIT CI RCLE 6(1)(2), BANGALORE UNDER SECTION 143 (3) READ WITH SECTION 144C(13) OF THE ACT FOR ASSESSMENT YEAR 2010-11 ON FOLLOWING GROUNDS OF APPEAL: ITA NO.517/B/2015 1. THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ARE OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN LAW IN HOLDING THAT THE S IZE, TURNOVER AND BRAND OF THE COMPANY ARE THE DECIDING FACTORS FOR TREATIN G A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN EXCLUDING INFOS YS LTD., M/S. KALS INFORMATION SYSTEMS LTD., PERSISTENT SYSTEMS LTD., M/S. TATA ELXSI LTD., SASKEN COMMUNICATION TECH. LTD., R.S.SOFTWARE INDIA LTD. AS COMPARABLES WITHOUT APPRECIATING THE FACT THAT THE TPO HAD DISCUSSED REGARDING COMPARABLES AND INCLUDED THE COMPANIES AS RULE 1OB(3) REQUIRES THAT NOT ONLY THE TRANSACTIONS BUT THE ENT ERPRISES SHOULD ALSO BE COMPARABLE IN TNMM. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN APPRECIATING THAT THE DIR ECTIONS ISSUED ARE BEYOND THE MANDATE OF THE PROVISIONS OF SEC. 144C O F THE IT ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN SUPER IMPOSING THE DECISI ON OF OTHER BENCHES OF FIAT IN THE CASE OF ASSESSEE TO REJECT THESE COMPAR ABLES WHEN SELECTION OF COMPARABLES IN A CASE DEPENDS IN TRANSFER PRICING O N ASSESSEE SPECIFIC FAR ANALYSIS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN RELYING ON DECISION OF OT HER BENCHES OF FIAT AND PAGE 3 OF 55 IT(TP)A NO.517 & 570/BANG/2015 OUGHT TO HAVE DECIDED THE COMPARABILITY OF THESE CO MPANIES ON THE BASIS OF SPECIFIC FACTS BROUGHT ON RECORD BY THE TPO IN T HE CASE OF THE ASSESSEE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN NOT APPRECIATING THAT THE PAYMENTS FOR THE PURCHASE OF COMPUTER SOFTWARE FALLS UNDER THE PURVI EW OF 'ROYALTY' AS DEFINED IN EXPLANATION 2 TO SEC. 9(1)(IV) OF THE AC T AND ARE LIABLE FOR TDS U/S 194J OF THE ACT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN NOT APPRECIATING THAT THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT WAS MADE ON THE FINDINGS OF TH E AO FOR NOT DEDUCTING TDS ON THE PURCHASE OF SOFTWARE AND ALSO ON LEGAL A ND PROFESSIONAL FEES. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN NOT APPRECIATING THAT THE SUB LEASED RENTAL INCOME IS TAXABLE WITHOUT ANY ADJUSTMENT AGAINST TH E BUSINESS EXPENDITURE OF THE STPI UNITS OF THE ASSESSEE. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN DIRECTING THE AO TO REDUC E EXPENSES ON TELECOMMUNICATION, SOFTWARE EXPENSES, TRAVEL AND OT HER EXPENSES INCURRED IN FOREIGN CURRENCY BOTH FROM EXPORT TURNO VER AND AS WELL AS FROM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DE DUCTION U/S 10A OF THE INCOME TAX ACT WITHOUT APPRECIATING THE FACT THAT T HE STATUTE ALLOWS EXCLUSION OF SUCH EXPENDITURE ONLY FROM THE EXPORT TURNOVER BY WAY OF SPECIFIC DEFINITION OF EXPORT TURNOVER DEFINED IN T HE ACT AND THERE IS NO SPECIFIC PROVISION IN SECTION 10A WARRANTING EXCLUS ION OF ABOVE EXPENSES FROM THE TOTAL TURNOVER ALSO. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE DISPUTE RESOLUTION PANEL ERRED IN PLACING RELIANCE ON THE D ECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S. TATA EL XSI LTD. WHICH HAS NOT BECOME FINAL SINCE THE SAME HAS BEEN NOT ACCEPTED B Y THE DEPARTMENT AND SLPS ARE PENDING BEFORE THE HON'BLE SUPREME COU RT. 11. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS OF THE DISPUTE RES OLUTION PANEL IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED. 12. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. ITA NO. 570/B/2016 I. TRANSFER PRICING THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJU DICE TO ONE ANOTHER. 1. THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX (T RANSFER PRICING-IV), BANGALORE ('TRANSFER PRICING OFFICER' OR 'LEARNED T PO') GROSSLY ERRED IN DETERMINING AN ADJUSTMENT U/S 92CA OF THE INCOME-TA X ACT, 1961 TO THE ARM'S LENGTH PRICE ('ALP') OF THE INTERNATIONAL TRA NSACTIONS ENTERED INTO PAGE 4 OF 55 IT(TP)A NO.517 & 570/BANG/2015 BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES (' AES') WITH RESPECT TO THE SOFTWARE DEVELOPMENT SERVICES. 2. THE APPELLANT AGGRIEVED BY THE TPO ORDER FURTHER APPEALED BEFORE THE HONORABLE DISPUTE RESOLUTION PANEL ('DRP') AGAINST THE TPO ORDER AND SUBSEQUENTLY, THE LEARNED ASSESSING OFFICER ('LEARN ED AO') ISSUED THE FINAL ASSESSMENT ORDER WITH A TRANSFER PRICING ('TP ') ADJUSTMENT OF INR 4,77,30,553/-. 3. THE LEARNED AO/LEARNED TPO/ HON'BLE DRP ERRED IN NOT ACKNOWLEDGING THE VOLUNTARY PAYMENT OF TRUE-UP ADJU STMENT OFFERED SUO-MOTO FOR TAX BY THE ASSESSEE. 4. THE LEARNED AO / LEARNED TPO / HON'BLE DRP ERRED IN REJECTING THE TP DOCUMENTATION MAINTAINED BY THE APPELLANT ON INVOKI NG PROVISIONS OF SUB-SECTION (3) OF 92C OF THE ACT CONTENDING THAT T HE INFORMATION OR DATA USED IN THE COMPUTATION OF THE ALP IS NOT RELIABLE OR CORRECT. IN DOING SO, THE LEARNED AO/ LEARNED TPO HAS GROSSLY ERRED IN: A. REJECTING COMPARABILITY ANALYSIS CARRIED IN THE TP DOCUMENTATION AND IN CONDUCTING A FRESH COMPARABILITY ANALYSIS BY INT RODUCING VARIOUS FILTERS IN DETERMINING THE ALP. B. INCLUDING COMPANIES THAT DO NOT SATISFY THE TE ST OF COMPARABILITY. SPECIFICALLY THE FOLLOWING COMPANIES SELECTED AS CO MPARABLE BY THE LEARNED AO/LEARNED TPO OUGHT TO HAVE BEEN REJECTED: . LARSEN AND TOUBRO INFOTECH LIMITED . ICRA TECHNO ANALYTICS LIMITED C. REJECTING COMPANIES THAT ARE COMPARABLE TO THE A PPELLANT WHILE PERFORMING THE COMPARABILITY ANALYSIS. SPECIFICALLY , THE FOLLOWING COMPANIES OUGHT TO HAVE BEEN INCLUDED AS COMPARABLE : AKSHAY SOFTWARE TECHNOLOGIES LIMITED QUINTEGRA SOLUTIONS LIMITED 5. THE LEARNED AU / LEARNED TPU ERRED IN NOT APPLYI NG THE TURNOVER FILTER IN SELECTING THE COMPARABLE COMPANIES. 6. THE LEARNED AU / LEARNED TPU I HONBLE DRP ERRED IN NOT CONSIDERING THE MULTIPLE YEAR FINANCIAL DATA OF COMPARABLE COMP ANIES WHILE DETERMINING THE ALP. 7. THE LEARNED AO / LEARNED TPO / HON'BLE DRP ERRED IN APPLICATION OF DIFFERENT FINANCIAL YEAR ENDING FILTER. 8. THE LEARNED AU / LEARNED TPO I HON'BLE DRP ERRED IN APPLYING ONSITE FILTER TO REJECT THE COMPANIES THAT ARE COMPARABLE TO THE APPELLANT. 9. THE LEARNED AU / LEARNED TPO I HON'BLE DRP ERRED IN USING DATA AS AT THE TIME OF ASSESSMENT PROCEEDINGS, INSTEAD OF THAT AVAILABLE AS ON THE DATE OF PREPARING THE TP DOCUMENTATION FOR COMPARAB LE COMPANIES WHILE DETERMINING ALP. 10. THE LEARNED AU / LEARNED TPO I HON'BLE DRP ERRE D IN COMPUTATION OF WORKING CAPITAL ADJUSTMENT. PAGE 5 OF 55 IT(TP)A NO.517 & 570/BANG/2015 II. THE LEARNED AU / LEARNED TPO / HON'BLE DRP ERRE D IN IGNORING THE LIMITED RISK NATURE OF THE CONTRACTUAL SERVICES PRO VIDED BY THE APPELLANT AND IN NOT PROVIDING AN APPROPRIATE ADJUSTMENT TOWA RDS THE RISK DIFFERENTIAL, EVEN WHEN THE FULL- FLEDGED ENTREPREN EURIAL COMPANIES ARE SELECTED AS COMPARABLE COMPANIES. II CORPORATE TAX 1. SET OFF AND CARRY FORWARD OF BUSINESS LOSS OF N OIDA UNIT 1.1 THE LEARNED AO HAS ERRED IN NOT SETTING OFF TH E BUSINESS LOSS AMOUNTING TO RS. 5,14,01,852 PERTAINING TO NOIDA UN IT AGAINST THE INCOME CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AN D GAINS FROM BUSINESS' AFTER CLAIM OF DEDUCTION U/S 10A FOR THE BANGALORE AND PUNE UNITS. 2. SET OFF OF LOSS UNDER THE HEAD 'INCOME FROM OTHE R SOURCES 2.1 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AU HAS FURTHER ALLOWING SET OFF OF LOSS UNDER THE HEAD 'INCOME FRO M OTHER SOURCES' AMOUNTING TO RS. 2,16,0 17 AGAINST THE INCOME CHARG EABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS'. 2.2 IN CASE YOUR HONOUR ALLOWS THE LOSS OF THE NOID A UNIT TO BE SET OFF AGAINST THE INCOME CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS' AFTER CLAIM OF DEDUCTION UNDER SECTI ON 1 OA FOR THE BANGALORE AND PUNE UNITS., THE LEARNED AO BE DIRECT ED TO ALLOW CARRY FORWARD OF THE LOSS UNDER THE HEAD 'INCOME FROM OTH ER SOURCES' AMOUNTING TO RS. 2, 16,017 FOR SET OFF AGAINST INCO ME IN SUBSEQUENT YEARS. 3. INTEREST UNDER SECTION 234B THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT AMOUNTING TO RS. 8,802,484. 4. INTEREST UNDER SECTION 234C THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234C OF THE ACT AMOUNTING TO RS. 60,382. THE APPELLANT CRAVES TO LEAVE/ TO ADD TO ! TO ALTER / TO AMEND/ TO RESCIND/ TO MODIFY THE GROUNDS HEREIN ABOVE OR PROD UCE FURTHER DOCUMENTS, FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING THIS APPEAL. 2. AT THE OUTSET THE LD.COUNSEL SUBMITTED THAT, FOL LOWING ADDITIONAL GROUNDS HAS BEEN RAISED BY ASSESSEE VIDE APPLICATION DATED 25/03/2018 BEFORE THIS TRIBUNAL. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, MIS. HARMAN CONNECTED SERVICES CORPORATION INDIA PRIVATE LIMITE D [FORMERLY KNOWN AS CORE OBJECTS INDIA PRIVATE LIMITED] ('THE APPELLANT '), RESPECTFULLY SUBMITS PAGE 6 OF 55 IT(TP)A NO.517 & 570/BANG/2015 THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL FOR ADMI SSION BEFORE YOUR HONOURS: TRANSFER PRICING GROUNDS 1. THE HONOURABLE DRP HAS ERRED IN UPHOLDING THE OR DER THE LD. TPO CONSIDERING ICRA TECHNO ANALYTICS LTD. ('ICRA') AS COMPARABLE TO THE APPELLANT DESPITE THE SAME BEING FUNCTIONALLY DIFFE RENT TO THE APPELLANT OR FAILS TO MEET THE LEGALLY ACCEPTABLE CRITERIA FOR C OMPARABILITY; 2. THE LD AO / TPO / DRP ERRED IN NOT CONSIDERING T HE FACT THAT THE APPELLANT DOES NOT HAVE ANY WORKING CAPITAL RISK, T HEREFORE, NO NEGATIVE WORKING CAPITAL ADJUSTMENT SHOULD BE ALLOWED; CORPORATE TAX GROUNDS 3. WITHOUT PREJUDICE TO OUR PRIMARY CONTENTION THAT THE SUB-LEASE INCOME (NET OF RENTAL EXPENSE) IS TO BE TREATED AS INCOME FROM OTHER SOURCES, IF THE EXPENSES IN RELATION TO THE SUB-LEASE INCOME ARE TR EATED AS PART OF THE STP BUSINESS, THEN THE CORRESPONDING SUB-LEASE INCOME S HOULD ALSO BE TREATED AS PART OF PROFITS OF THE STP BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THE SAID GROUNDS ARE INDEPENDENT AND WITHOUT PREJUD ICE TO THE OTHER GROUNDS OF APPEAL PREFERRED BY THE APPELLANT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUND OF APPEAL, AT ANY TIME BEFORE OR A T, THE TIME OF HEARING, OF THE APPEAL, SO AS TO ENABLE THE HONORABLE INCOME TA X APPELLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO LAW. THE APPELLANT DOES NOT HAVE A MANAGING DIRECTOR AND HENCE THESE ADDITIONAL GROUNDS OF APPEAL ARE SIGNED BY THE DIRE CTOR OF THE COMPANY IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 3. LD.COUNSEL SUBMITTED THAT, AMONGST THE TP ADJUST MENT, ASSESSEE WISHES TO SEEK EXCLUSION OF ICRA TECHNO AN ALYTICS LTD. SHE SUBMITTED THAT THOUGH THIS COMPARABLE WAS SELEC TED BY ASSESSEE, SHE PLACED RELIANCE ON THE DECISION OF CHANDIGARH SPECIAL BENCH IN CASE OF QUARK SYSTEMS PVT.LTD. , REPORTED IN (2010) 4 ITR (T) 606 . PLACING RELIANCE ON THE RATIO OF THIS DECISION, THE LD.COUNSEL SUBMITTED THAT, ASSESEE SEEK EXCLUSI ON OF A COMPARABLES SELECTED BY IT IN ITS TP STUDY AS NOT B EING COMPARABLE, EVEN OF SUCH PLEA IS RAISED FOR THE 1 ST TIME BEFORE THIS TRIBUNAL . SHE ALSO SUBMITTED THAT THE DECISION OF CHANDIGARH PAGE 7 OF 55 IT(TP)A NO.517 & 570/BANG/2015 SPECIAL BENCH IN CASE OF QUARK SYSTEMS PVT.LTD.(SUPRA) HAS BEEN AFFIRMED BY HONABLE PUNJAB AND HARYANA HIGH COURT REPORTED IN 244 CTR 542 . 4. THE NEXT ISSUE RAISED IN THE ADDITIONAL GROUND I S REGARDING COMPUTATION OF NEGATIVE WORKING CAPITAL ADJUSTMENT. SHE SUBMITTED THAT THE LD.TPO COMPUTED NEGATIVE WORKING CAPITAL ADJUSTMENT FOR THE COMPARABLE COMPANIES BY USING TH E STANDARD TEMPLATE OF COMPUTATION, WITHOUT APPRECIATING THE F ACT THAT ASSESSEE IS A CAPTIVE SERVICE PROVIDER FUNDED BY IT S ASSOCIATED ENTERPRISES. SHE SUBMITTED THAT, THIS ISSUE WAS NOT CONTESTED BEFORE THE DRP, HOWEVER SEVERAL SUBSEQUENT RULINGS OF VARIOUS BENCHES OF THIS TRIBUNAL HAS HELD THAT NEGATIVE WORKING CAPITAL CANNOT BE EFFECTED AND THEREFORE ASSESSEE WISHES TO RAISE THIS ISSUE BY WAY OF ADDITIONAL GROUND. 5. THE NEXT ISSUE RAISED IN THE ADDITIONAL GROUND I S REGARDING THE EXPENDITURE NOT DISALLOWED BY THE LD.AO AGAINST THE SUBLEASE INCOME. THE LD.COUNSEL SUBMITTED THAT THE CONTENTIO NS OF ASSESSEE WERE ACCEPTED BY THE DRP AND DIRECTED THE LD.AO TO DELETE THE ADDITION. HOWEVER THE LD.AO ALLOWED THE EXPENDITURE IN COMPUTING THE INCOME UNDER OTHER SOURCES THEREBY LOSS OF RS.3 CRORES WAS NOT SET OFF WHILE COMPUTING THE TOT AL INCOME IN THE HANDS OF ASSESSEE. ALTERNATIVELY, SHE SUBMITTE D THAT THE ENTIRE RENTAL INCOME TO BE TREATED AS BUSINESS INCO ME WHICH IS ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 10 A OF THE ACT. PAGE 8 OF 55 IT(TP)A NO.517 & 570/BANG/2015 IT HAS BEEN SUBMITTED BY THE LD.COUNSEL THAT ALL TH ESE ISSUES ARE TO BE DECIDED TO ASCERTAIN THE CORRECT TAXABLE INCO ME IN THE HANDS OF ASSESSEE. SHE ALSO SUBMITTED THAT NO NEW R ECORD NEEDS TO BE VERIFIED IN ORDER TO ADJUDICATE THESE GROUNDS AND ACCORDINGLY REQUESTED FOR ADMISSION OF THE ADDITION AL GROUNDS RAISED BEFORE THIS TRIBUNAL . SHE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF NATIONAL THERMAL POWER CO LTD.VS CIT, REPORTED IN (1998) 229 ITR 383 AND JUTE CORPORATION INDIA LTD. VS CIT REPORTED IN (1991) 187 ITR 688 IN SUPPORT OF ADMITTING THE ADDITIONAL GROUNDS. 6. THE LD.CI.TDR STRONGLY OPPOSED TO THE ADMISSION OF ADDITIONAL GROUND RAISED BY ASSESSEE FOR THE REASON THAT THEY WERE NOT ALLEGED BY ASSESSEE BEFORE THE DRP. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 7. WE NOTE THAT THE ISSUE RAISED IN ADDITIONAL GROU NDS, ARISE OUT OF RECORDS PLACED BEFORE US, AND THAT IT WOULD BE DISPOSED OFF BASED ON THE MATERIALS PLACED BEFORE US. MOREOVER, THERE ARE NO ESTOPPELS THAT AN ISSUE ARISING OUT OF THE RECORDS COULD NOT BE ALLEGED BY ASSESSEE BEFORE THIS TRIBUNAL . TO MEET THE ENDS OF JUSTICE IT IS NECESSARY THAT THESE ISSUES DESERVES TO BE CONSIDERED FOR DETERMINING THE CORRECT TAXABLE INCOME IN THE H ANDS OF ASSESSEE IN ACCORDANCE WITH LAW. WE ARE THEREFORE ADMITTING THE ADDITIONAL GROUNDS R AISED BY ASSESSEE FOR ADJUDICATION. PAGE 9 OF 55 IT(TP)A NO.517 & 570/BANG/2015 BRIEF FACTS OF THE CASE ARE AS UNDER: 8. THE ASSESSEE IS STATED TO BE A SUBSIDIARY OF COR E OBJECTS SOFTWARE INC., USA, WHICH IN TURN IS HELD BY SYMPHO NY SERVICES CORP. US. THE ASSESSEE WAS INCORPORATED UNDER THE P ROVISIONS OF COMPANIES ACT 1956, AND IS ENGAGED IN PROVISION OF SOFTWARE DEVELOPMENT AND RELATED SERVICES. 9. THE ASSESSEE FILED ITS RETURN OF INCOME ON 12/10 /2010. SUBSEQUENTLY THE RETURN WAS REVISED ON 15/10/2010 W HEREIN ADDITIONAL INCOME OF RS.1,20,30,165/- WAS OFFERED A S ADJUSTMENT VOLUNTARILY. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT, AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO STATUTORY NOTICES, REPRESE NTATIVE OF ASSESSEE APPEARED BEFORE THE LD.AO AND FILED REQUIS ITE DETAILS AS CALLED FOR. 10. WHILE GOING THROUGH THE DETAILS, THE LD.AO FOUN D THAT ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION THAT EXCEEDED RS.15 CRORES, AND ACCORDINGLY, A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER TO DETERMINE THE ARMS LEN GTH PRICE OF SUCH INTERNATIONAL TRANSACTION. 11. UPON RECEIPT OF REFERENCE, THE LD.TPO CALLED FO R ECONOMIC DETAILS OF THE INTERNATIONAL TRANSACTION IN FORM 3 CEB. THE LD.TPO OBSERVED THAT ASSESSEE HAD FOLLOWING INTERNA TIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES: PARTICULARS AMOUNT IN RS. OUTCOME OF TP ORDER PAGE 10 OF 55 IT(TP)A NO.517 & 570/BANG/2015 SOFTWARE DEVELOPMENT SERVICES (CORE US) 33,90,53,318 ADJUSTMENT OF RS. 6,04,40,428/-. SOFTWARE DEVELOPMENT SERVICES (COREOBJECTS UK LTD.) 3,11,05,603 ACCEPTED TO BE AT ARM'S LENGTH ADVANCES (RECEIPT) 10,29,02,306 ACCEPTED TO BE AT ARM'S LENGTH REIMBURSEMENT (RECEIPT) 61,90,674 ACCEPTED TO BE AT ARM'S LENGTH 12. THE LD.TPO NOTED THAT, ASSESSEE COMPUTED THE NE T MARGIN ON COST AS UNDER: OPERATING INCOME RS. 37,01,58,923/- OPERATING COST RS. 34,91,72,357/- OPERATING PROFIT (OP. INCOME OP. COST) RS. 2,09,86,566/- OPERATING/NET MARGIN (OP/OC) 6.01% 13. THE LD.TPO NOTED THAT ASSESSEE ADOPTED TNMM AS MOST APPROPRIATE METHOD, AND OP/TC AS PLI, THEREBY COMPU TING ITS MARGIN AT 6.01%. FOR PURPOSES OF COMPUTING THE ARM S LENGTH PRICE, ASSESSEE USED FOLLOWING 12 COMPARABLES HAVIN G AVERAGE MARGIN OF 9.46%. AS THE MARGIN OF ASSESSEE WAS LOW , IT OFFERED ADDITIONAL ADJUSTMENT OF RS.1,20,30,165/- VOLUNTARI LY. THUS MARGIN EARNED BY ASSESSEE WAS DETERMINED AT 9.46%. ASSESSEE THUS THEREBY HELD THE PRICE PAID UNDER THE INTERNA TIONAL TRANSACTION TO BE AT ARMS LENGTH. SI. NO. NAME OF THE COMPANY AVERAGE NPI 1. CG - VAK SOFTWARE & EXPORTS LTD. -13.79 2 CANVASM TECHNOLOGIES LTD 19.96 3 ICRA TECHNO ANALYTICS LTD. 21.45 4. ! R S SOFTWARE (INDIA) LTD. 7.44 0. R SYSTEMS INTERNATIONAL LTD. -0.67 1. SONATA SOFTWARE LTD. 21.59 2. TATA ELXSI LTD. 14.86 PAGE 11 OF 55 IT(TP)A NO.517 & 570/BANG/2015 3. THINKSOFT GLOBAL SERVICES LTD. 11.13 4. ZENITH INFOTECH LTD. 18.23 0. KALE CONSULTANTS LTD. 18.27 1. TANIA SOLUTIONS LTD. -12.39 2. VIRINCHI TECHNOLOGIES LTD. 7.46 ARITHMETICAL MEAN 9.46 14. THE LD.TPO DISSATISFIED WITH ANALYSIS BY ASSESS EE APPLIED FOLLOWING FILTERS: STEP DESCRIPTION 1. COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE INCOME < RS. 1 CRORE - EXCLUDED 2. COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE IS LES S THAN 75% OF THE TOTAL OPERATING REVENUE - EXCLUDED 3. COMPANIES WHICH HAVE RELATED PARTY TRANSACTIONS MOR E THAN 25% OF THE SALES - EXCLUDED 4. COMPANIES WHO HAVE EXPORT SALES LESS THAN 75% OF SA LES - EXCLUDED 5. COMPANIES WHOSE EMPLOYEE COST IS LESS THAN 25% OF T HEIR TUMO\DER - EXCLUDED 6. COMPANIES WHICH HAVE PERSISTENT LOSSES FOR THE LAST THREE YEARS UPTO AND INCLUDING FINANCIAL YEAR 2009-10 - EXCLUDED 7. COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I .E.. NOT MARCH 31, 2010) OR DATA OF THE COMPANY WHICH DOES NOT FALL WI THIN 12 MONTH PERIOD I.E., 01.04.2009 TO 31.03.2010 - EXCLUDED 8. COMPANIES THAT ARE FUNCTIONALLY DIFFERENT - EXCLUDE D 9. COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES - EXCLUDED 15. AFTER APPLYING THE ABOVE FILTERS, THE LD.TPO RE TAINED 3 COMPARABLES THAT WAS SELECTED BY ASSESSEE BEING RS SOFTWARE INDIA LTD. TATA ELXSI LTD., AND THINKSOFT GLOBAL SE RVICES LTD., AND ADDED 8 NEW COMPARABLES WITH AVERAGE MARGIN OF 22.7 1%. THE DETAILS OF WHICH ARE AS UNDER: PAGE 12 OF 55 IT(TP)A NO.517 & 570/BANG/2015 SI. NO. NAME OF THE COMPANY MARK- UP ON TOTAL COSTS (WC- UNADJ) (IN A)) MARK-UP ON TOTAL COSTS (WC - ADJ) (IN %) 1 ICRA TECHNO ANALYTICS LTD. (SEG) 24.94 26.79 2 LNFOSYS LTD 44.98 41.07 3 KALS INFORMATION SYSTEMS LTD. (SEG) 34.41 32.55 4 LARSEN & TOUBRO LNFOTECH LTD. 19.33 21.55 5 MINDTREE LTD. (SEG) 14.83 14.89 16. THE LD.TPO THUS COMPUTED THE PROPOSED ADJUSTMEN T AT RS.6,04,40,428/- BEING SHORTFALL IN ARMS LENGTH PRI CE. THE LD.TPO ALSO WORKED OUT WORKING CAPITAL ADJUSTMENT A T (-)0.61% TO THE AVERAGE MARGIN OF THE COMPARABLES. IT HAS BE EN SUBMITTED THAT THE LD.TPO WHILE COMPUTING THE SHORTFALL DID N OT CONSIDER THE ADDITIONAL INCOME VOLUNTARILY OFFERED BY ASSESS EE. 17. ON RECEIPT OF THE TRANSFER PRICING ORDER WITH T HE PROPOSED ADJUSTMENT, THE LD.AO PASSED DRAFT ASSESSMENT ORDER ON 24/03/2013 UNDER SECTION 144C(1) OF THE ACT. IN THE DRAFT ASSESSMENT ORDER SO PASSED THE LD.AO:- DISALLOWED DEPRECIATION ON COMPUTER SOFTWARE AT RS.7,46,162/- FOR NON-DEDUCTION OF TDS; DISALLOWED PAYMENTS ON WHICH TDS WAS NOT DEDUCTED UNDER SECTION 40(A)(IA) OF THE ACT AT RS.7,46,162/- ; DISALLOWED PROFESSIONAL CHARGES FOR NON-DEDUCTION O F TDS UNDER SECTION 40(A)(IA) OF THE ACT AMOUNTING TO RS.51,00,689/-; PAGE 13 OF 55 IT(TP)A NO.517 & 570/BANG/2015 DISALLOWED A SUM OF RS.21,73,081/- UNDER THE HEAD I NCOME FROM OTHER SOURCES WHICH WAS SET OFF AGAINST THE RE NTAL EXPENDITURE BY ASSESSEE; RECOMPUTED THE DEDUCTION UNDER SECTION 10A OF THE A CT THEREBY REDUCING THE DEDUCTION TO RS.46,80,755/- AS AGAINST RS.6,58,74,683/- CLAIMED BY ASSESSEE. 18. UPON RECEIPT OF THE DRAFT ASSESSMENT ORDER, ASS ESSEE RAISED OBJECTIONS BEFORE DRP. 19. IN REGARDS TO THE TRANSFER PRICING ADJUSTMENT, THE DRP DIRECTED EXCLUSION OF INFOSYS LTD., KALS INFORMATIO N SYSTEMS LTD., PERSISTENT SYSTEMS LTD., TATA ELXSI LTD., AND SASKE N COMMUNICATIONS LTD., BY ACCEPTING THE CONTENTIONS O F ASSESSEE. THE DRP ALSO EXCLUDED RS SOFTWARE INDIA LTD., AND P ERSISTENT SYSTEMS AND SOLUTIONS LTD., SUO MOTO. IN RESPECT OF THE REMAINING COMPARABLES DRP REJECTED THE SUBMISSIONS OF ASSESSE E. REGARDING CORPORATE TAX ISSUES RAISED, THE DRP HELD THAT; DISALLOWANCE OF DEPRECIATION ON SOFTWARE UNDER SECT ION 40(A)(IA) OF THE ACT, ON ACCOUNT OF NON-DEDUCTION O F TDS IS NOT SUSTAINABLE. DIRECTED THE LD.AO TO VERIFY THE CLAIM OF TDS HAVIN G DEDUCTED ON PROFESSIONAL FEES PAID AND TO ALLOW THE CLAIM OF ASSESSEE ACCORDINGLY. DRP ACCEPTED THE CONTENTION OF ASSESSEE THAT IN COM PUTING DEDUCTION UNDER SECTION 10A OF THE ACT, ADDITIONS M ADE ON PAGE 14 OF 55 IT(TP)A NO.517 & 570/BANG/2015 ACCOUNT OF DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT HAS TO BE IGNORED. AS REGARDS COMPUTATION OF 10A DEDUCTION, THE DRP DI RECTED THE LD.AO TO COMPUTE IN ACCORDANCE WITH THE DECISIO N OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS TATA ELXSI LTD. , AND OTHERS REPORTED IN (2011) 247 CTR 334; THE DRP ALSO DIRECTED THE LD.AO TO RECOMPUTE THE LO SS ARISING OUT OF NOIDA UNIT AGAINST THE BUSINESS INCO ME AFTER EXCLUDING THE TRANSFER PRICING ADJUSTMENT LOCATED B Y ASSESSEE IN THE COMPUTATION. DRP ALSO DIRECTED TO GRANT TDS CREDIT AFTER VERIFYI NG THE CLAIM OF ASSESSEE. 20. THE LD.AO UPON RECEIPT OF DRP DIRECTIONS CALLED UPON ASSESSEE TO FILE VARIOUS DETAILS. IN COMPLIANCE ASS ESSEE FILED ALL RELEVANT DETAILS TO THE LD.AO, HOWEVER THE SAME WAS NOT CONSIDERED IN ACCORDANCE WITH THE DIRECTIONS OF DRP . AGGRIEVED BY THE ORDERS OF THE LD.AO, ASSESSEE AS W ELL AS REVENUE ARE IN APPEAL BEFORE US. 21. MAIN ISSUES ALLEGED BY ASSESSEE AS WELL AS REVE NUE UNDER TRANSFER PRICING GROUNDS ARE RELATING TO THE COMPAR ABLES INCLUDED/EXCLUDED BY THE LD.AO/TPO. 21. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS IT I S (SINE QUA NON) TO UNDERSTAND THE FUNCTIONS PERFORMED, ASSETS OWNED AND RISKS ASSUMED BY ASSESSEE. FUNCTIONS: PAGE 15 OF 55 IT(TP)A NO.517 & 570/BANG/2015 22. IT HAS BEEN SUBMITTED IN THE TRANS-APPRISING ST UDY THAT, ASSESSEE PROVIDES SOFTWARE AND SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES IN U.S. AND UK. AS PER TRANSFER PRICING REPORT, ASSESSEE HAS ENTERED INTO MASTER CONSULTING AGREEME NT WITH THE USA ASSOCIATED ENTERPRISES REGARDING THE SERVICES R ENDERED. THE REPORT ALSO STATES THAT THE FUNCTIONS PERFORMED BY ASSESSEE DURING FINANCIAL YEARS 2001-0 TO 2 2008-09 ARE SIMI LAR AND IDENTICAL. AT PAGE 4 TO 8 OF THE PAPER BOOK ASSESSE E HAS BEEN CHARACTERISED AS YOU ROUTINE CONTRACT SERVICE PROVI DER UNDERTAKING SOFTWARE DEVELOPMENT AND SUPPORT SERVIC ES FOR ITS AE. ASSETS OWNED: 23. IT HAS BEEN STATED IN THE REPORT THAT ASSESSEE DO NOT OWN ANY INTELLECTUAL PROPERTY RIGHTS ARISING OUT OF ITS FUNCTIONS AND ASSESSEE DO NOT DEVELOP ANY VALUABLE, NONROUTINE IN TANGIBLES IN ITS BUSINESS AND LICENSES ALL TECHNOLOGY REQUIRED F OR ITS FUNCTIONS FROM ITS AE. RISK ASSUMED: 24. IN TERMS OF THE RISKS ASSUMED, THE REPORT STATE S THAT ASSESSEE IS NOT A COMPLEX ENTITY THAT ENGAGES IN FU LL-FLEDGED PRODUCT DEVELOPMENT/SYSTEM CONSULTING SERVICES COVE RING THE COMPLETE SOFTWARE DEVELOPMENT CYCLE. THE AE UNDERTA KES ALL THESE ACTIVITIES AND THEREFORE ALL THE SIGNIFICANT BUSINESS AND ENTERPRISE IN REAL RISK INCLUDING PRODUCT DEVELOPME NT PAGE 16 OF 55 IT(TP)A NO.517 & 570/BANG/2015 PERFORMANCE OF THE MARKET, FINANCIAL RISK ETC., ARE BORN BY THE AE. 25. FROM THE ABOVE IT IS CLEAR THAT ASSESSEE IS A C APTIVE SERVICE PROVIDER TO ITS ASSOCIATED ENTERPRISES CARRYING OUT ITS FUNCTIONS AS REQUIRED AND SPECIFIED BY THE AE. IT IS ALSO CLEAR THAT ASSESSEE ASSUMES LOW RISK WHILE PROVIDING THE SOFTWARE DEVEL OPMENT SERVICE AND IS CHARACTERISED AS A LOW RISK CONTRACT SERVICE PROVIDER. 26. AT THE OUTSET, LD.COUNSEL, SUBMITTED THAT IN AS SESSEES APPEAL, SHE HAS BEEN INSTRUCTED TO RESTRICT HER ARG UMENTS TO GROUNDS NO.3, 4 (B), (C) AND ADDITIONAL GROUND NO.1 , 2. AMONGST CORPORATE TAX ISSUES THE LD.COUNSEL ARGUED ON ISSUE S RAISED IN GROUND NOS.1, 2 AND ADDITIONAL GROUND NO.3. 27. IT HAS BEEN SUBMITTED THAT OTHER GROUNDS ARE EI THER GENERAL OR CONSEQUENTIAL IN NATURE, AND THEREFORE DO NOT RE QUIRE SEPARATE ADJUDICATION. 1 ST WE SHALL DEAL WITH THE ISSUES RAISED BY ASSESSEE I N ITS APPEAL. 28. GROUND NO. 3 IS IN RESPECT OF NOT ACKNOWLEDGING VOLUNTARY ADJUSTMENT OF RS.1,20,30,165/- OFFERED BY ASSESSEE AS SUO MOTO IN THE REVISED RETURN FILED. 29. THE LD.TPO PROCEEDED TO MAKE ADJUSTMENT OF RS.6,04,40,428/- CONSIDERING THE PRICE RECEIVED AT RS.37,01,58,923/-, IGNORING THE VOLUNTARY ADJUSTMEN T OF RS.1,20,30,165/- PAGE 17 OF 55 IT(TP)A NO.517 & 570/BANG/2015 30. AN OBJECTION WAS RAISED BEFORE DRP IN THIS REGA RD. THE DRP WHILE CONSIDERING THIS ISSUE, RECORDED A FINDING TH AT COLUMN 10 OF FORM 3 CEB SHOWS THE VALUE OF INTERNATIONAL TRANSAC TION WITH AE FOR SOFTWARE DEVELOPMENT SERVICES, AS PER BOOKS OF ACCOUNT BEING RS.37,01,58,923/-. HOWEVER THE VALUE OF INTERNATION AL TRANSACTION WITH AE AS PER ALP WAS SHOWN AT RS.38,2 1,89,088/-. THE DRP OBSERVED AND HELD AS UNDER: OBJECTIONS RELATING TO TRANSFER PRICING 3.1.1 THE LEARNED TPO AND THE LEARNED AO HAVE ERR ED, IN MAKING AT RS.604,40,428/- BY CONSIDERING INCORRECT PRICE RECE IVED BY THE ASSESSEE OF RS.3701R58,923/ AS AGAINST THE CORRECT PRICE REC EIVED OF RS. 38,21,89,088/-. AS PER THE SUBMISSION OF ASSESSEE, THE ASSESSING OF FICER/TPO SHOULD HAVE CONSIDERED THE CORRECT PRICE RECEIVED OF RS,38 21,89,088/- SINCE THE ASSESSEE HAS VOLUNTARILY OFFERED RS. 12030,165/- AS ADDITIONAL INCOME WHILE' FILING THE REVISED RETURN, AND THE SAME WAS BROUGHT TO THE NOTICE OF TPO VIDE SUBMISSION DATED 17.12.2013. THEREFORE THE TP ADJUSTMENT BY THE ASSESSING OFFICER/TPO SHOULD HAVE BEEN RS.484,10,25310440,428/- 120,30,165/-) 3.1.1.2 HAVING HEARD THE ASSESSEE, WE HAVE EXAMINED THE TP STUDY, AND THE REVISED COMPUTATION OF INCOME FILED IN RESP ECT OF REVISED RETURN, AND PERUSED THE SUBMISSION BEFORE THE TPO DATED 20. 11.2013, FILED IN VOL.2 OF THE OBJECTIONS FILED ON 24.04.2014. IN THE SUBMISSION DATED 20.11.2013, IT HAS BEEN STATED THAT, 'BASED ON THE ABOVE BENCH MARKING APPROACH, THE ASSESSEE DID SEARCH FOR EXTER NAL COMPANIES THAT ARE COMPARABLE TO THE FAR PROFILE OF THE ASSESSEE I N PROWESS AND CAPITALINE DATABASES THROUGH APPLYING VARIOUS QUAN TITATIVE AND QUALITATIVE FILTERS, THE DATABASES WERE UPDATED UP TO SEPTEMBER 3, 2010. THIS SEARCH RESULTED IN SELECTION OF 12 COMPA NIES AS COMPARABLE TO THE FAR PROFILE OF THE ASSESSEE, WITH AVERAGE OP ERATING PROFIT MARK-UP OF 9.46%. SINCE THE OPERATING PROFIT MARK-UP OF 9.4 6% EARNED BY THE ASSESSEE DURING THE YEAR WAS EQUAL TO THE AVERAGE O PERATING PROFIT MARK-UP ON COST EARNED BY THE COMPARABLE COMPANIES, IT WAS CONCLUDED THAT THE TRANSFER PR/CE OF THE ASSESSEE IS AT ARM'S LENGTH.' IN OUR VIEW, THE STATEMENT IS FACTUALLY INCORRECT AND MISLEADING . THE STATEMENT THAT THE ASSESSEE RECEIVED PRICE OF RS.3821,89,008/- IN THE INTERNATIONAL TRANSACTIONS WITH AES AS AGAINST RS.370158,923/, CO NSIDERED BY THE PAGE 18 OF 55 IT(TP)A NO.517 & 570/BANG/2015 TPO IS FALSE AND CONTRARY TO THE FACTS EMERGING FRO M THE AUDITED P&L ACCOUNTS, REPORT U/S 92E (IN FORM 3CEB) AND TP STUD Y. 3.1.1.3 PERUSAL OF THE AUDITOR'S REPORT U/S 92E (CO L. 10 IN PART B OF FORM 3CEB) SHOWS THAT THE VALUE OF INTERNATIONAL TR ANSACTIONS WITH AES FOR SOFTWARE DEVELOPMENT SERVICES AS PER BOOKS OF A CCOUNTS WAS RS.3701,58,923/- ONLY (REFER ANNEXURE 2). VALUE OF INTERNATIONAL TRANSACTIONS WITH AES AS PER ALP AS BEEN SHOWN AT R S.3821,89,088/-. IN THE LAST COLUMN OF ANN. 2OF THE AUDITORS REPO RT, THE ADJUSTMENT TO TOTAL INCOME IS SHOWN AT RS.120, EMPHASIS ADDED). T HIS REPORT IS APPARENTLY BASED ON TP DOCUMENTATION/STUDY MAINTAIN ED BY THE ASSESSEE. 3.1.1.32 AS SEEN FROM THE UNDATED TRANSFER PRICING STUDY REPORT PREPARED BY RAGHURAMAN & CHYTHANYA ADVOCATES, FILED WITH VOL.2 DATED 24.4.2014, THE OPERATING MARGIN OF THE ASSESS EE COMPANY ON EXPORT (TO AES) REVENUE OF RS.3701,58,9231- WAS 6.0 1% ONLY (REFER ANN 2 OF TP STUDY), AND NOT 9.46%. THE TP REPORT (PAGE 36 OF TPR) ALSO STATES THAT THE NET MARGIN OF THE 12 COMPARABLE COMPANIES WORKS OUT TO 9.46% WHEREAS CORE OBJECTS INDIA'S OPERATING MARGIN OF 6. 01% ON COST IS LOWER THAN THE NET MARGIN OF THE COMPARABLE COMPANIES. IN THE CONCLUSION PARA 4 OF THE TP STUDY (PAGE 37) IT HAS BEEN STATED THAT, 'AS PER THE ANALYSIS THE INTERNATIONAL TRANSACTION UNDER TAKEN BY CORE OBJECTS INDIA WITH ITS GROUP COMPANY DURING THE YEAR ENDED MARCH 31, 2010 WITH RESPECT TO SOFTWARE DEVELOPMENT AND SUPPORT SERVICE S ARE NOT AT PRICE WITHIN THE RANGE OF THOSE IDENTIFIED FROM 'COMPARAB LES'. THIS MAY WARRANT OFFER OF ADDITIONAL INCOME TO TAX TO THE EX TENT OF RS.12046446/- SUBJECT TO APPROPRIATE RELIEFS.' IN OUR VIEW, THIS OBSERVATION IN THE TP STUDY IS MISLEADING AND NOT IN ACCORDANCE WITH THE LAW, AND THE OFFER OF ADDITIONAL INCOME TO TAX 'SUBJECT TO RELIEF' IS WIT HOUT LEGAL SANCTION. SECOND PROVISO TO SECTION 92C(2) CLEARLY PROVIDES T HAT 'IF THE VARIATION BETWEEN THE ARM'S LENGTH P1-ICE SO DETERMINED AND T HE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN TAK EN DOES NOT EXCEED FIVE PERCENT OF LATTER, THE PRICE AT WHICH THE INT ERNATIONAL TRANSACTION HAS ACTUALLY BEEN TAKEN SHALL BE DEEMED TO BE AT AR M 'S LENGTH PRICE.' IT IS CLEAR THAT THE MEAN MARGIN OF COMPARABLES WAS FOUND IN THE TP STUDY TO BE WHICH WAS WITHIN THE RANGE OF +1- 5% OF THE OPERATING MARGIN OF THE ASSESSEE COMPANY (6.01%), AND HENCE T HE ACTUAL INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WAS AT A RM'S LENGTH PRICE. THE ALLEGED OFFER OF ADDITIONAL INCOME TO TAX IS WITHOU T ANY LEGAL SANCTITY, WITHIN THE MEANING OF RULE 10D OF IT RULE R.W.SECTI ON 92C, 920 AND 92E OF THE IT ACT 1961. MORE SO, IN VIEW OF THE ANENT T O PROVISO TO SECTION 92C BY FINANCE ACT2009 WHICH HAS TAKEN AW THE OPTIO N EARLIER AVAILABLE TO THE ASSESSEE. THEREFORE, THE TPO AND A SSESSING OFFICER HAVE RIGHTLY REJECTED THE TP DOCUMENTATION, WHILE M AKING TP ADJUSTMENT PAGE 19 OF 55 IT(TP)A NO.517 & 570/BANG/2015 TO TOTAL INCOME OF THE ASSESSEE. WE HAVE ALSO NOTED THAT THE TP ADJUSTMENT OF RS.12046446/ WORKED OUT BY THE ASSESS EE, HAS NOT BEEN ADDED TO THE TOTAL INCOME, BUT ALLOCATED AMONG THE THREE STP UNITS AND DEDUCTION U/S 10A HAS BEEN CLAIMED AS PROFITS OF TH E UNDERTAKINGS, WHICH IS NOT CORRECT IN OUR VIEW. 3.1.1.4 WHILE FILING THE REVISED RETURN ON 15.10.20 10, THE ASSESSEE HAS ALLOCATED THE ALLEGED TP ADJUSTMENT OF RS.120,30,16 41- AS INCOME/PROFITS AMONG THREE OF THE STPI UNITS AT BEN GALURU, NOIDA & PUNE AND CLAIMED DEDUCTION U/S.10A. WE HAVE PERUSED THE AUDITOR'S REPORT IN FORM 56 (RULE 160) FOR THE COMPUTATION OF DEDUCTION LI/S 10A AS UNDER: PARTICULARS STP BENGALURU STP NOIDA STP PUNE STP TOTAL INC FROM OTHER SOURCE TOTAL RS. INCOME FROM BUSINESS OR PROFESSION PROFIT AS PER P&L A/C 62070954 (51560848) 3823649 14333755 (215157) 14118597 ADD: DEPRECIATION AS PER BOOKS 22570821 NIL NIL 22570821 NIL 22570821 ADD: INADMISSIBLE EXPENSES ADDITION U/S.92E 8190770 327387 3512007 12030164 12030164 TRANSFER PRICING ADJUSTMENT LESS: DEPREDATION AS PER 2046496 NIL NIL 2046496 NIL 2046496 IT ACT OTHERS PROFITS FROM BUSINESS 65874983 (51401852) 8186989 22660120 215968 22444151 LESS: DEDUCTION U/S.10A 62614737 6931232 69545969 - 69545969 IT IS NOTICED FROM SCHEDULE LII OF THE REPORT, THAT TP ADJUSTMENT HAS BEEN ALLOCATED TO VARIOUS STP UNITS AS 'INADMISSIBLE EXP ENSES' IN AN ARBITRARY MANNER CLAIMED TO BE ADJUSTMENT U/S 92E AND TREATED AS PROFITS OF BUSINESS OF THE UNDERTAKINGS, ALTHOUGH THE ALLOCATE D ADJUSTMENT HAS BEEN REDUCED FROM THE EXPORT TURNOVER FOR THE PURPO SE OF COMPUTATION OF 10A DEDUCTION. 3.1.1.5 EVEN IF WE ACCEPT THE ASSESSEE'S CLAIM FOR THE ARGUMENTS SAKE THAT ADJUSTMENT OF RS.120,30,164/- HAS BEEN MA DE BY THE ASSESSEE AND THEREFORE THE TP ADJUSTMENT DETERMINED BY THE TPO SHOULD HAVE BEEN REDUCED TO THAT EXTENT, WE ARE OF THE VIEW THAT THE CORE ISSUE IS WHETHER THE TP ADJUSTMENT BY THE ASSE SSEE BASED ON ITS OWN TP STUDY SHOULD BE ADDED TO THE TOTAL INCOME FO R TAX PURPOSES OR WHETHER IT CAN BE ALLOCATED AMONG STP AND 10A DEDUC TION PAGE 20 OF 55 IT(TP)A NO.517 & 570/BANG/2015 CLAIMED/ALLOWED ON SUCH ADJUSTMENT. WE ARE IN AGREE MENT THAT THE TP ADJUSTMENT CANNOT BE ALLOCATED TO STP UNDERTAKING T O INFLATE THE PROFITS OF SUCH UNITS FOR CLAIMING DEDUCTION. IT IS A SETTL ED POSITION OF LAW THAT FOR THE BENCHMARKING OF INTERNATIONAL TRANSACTIONS OF A PARTICULAR NATURE (AS LISTED IN COL,8 -13 OF PART B OF FORM 3CEB) WIT H THE AES, THE AGGREGATED PROFIT MARGINS AND AGGREGATED VALUE OF T RANSACTIONS AT THE ENTITY LEVEL ONLY COULD BE TAKEN, AND IT IS NOT PER MISSIBLE TO BENCHMARK EACH OF THE SIP UNITS ON A STANDALONE BASIS. IN CAS E OF DCIT VS BIRLA SOFT INDIA LTD (2014) 150 ITD 378 (DELHI), HONBLE [TAT DELHI HELD WHERE THE ASSESSEE HAD THREE STP UNITS THAT SINCE PROFITS OF EACH OF THE STP UNITS OF THE ASSESSEE COMPANY COULD NOT BE EVALUATE D INDEPENDENTLY OF ONE ANOTHER, AND THEY COULD NOT BE SEGREGATED FOR T HE PURPOSE OF DETERMINING THE ALP RELATING TO ASSESSEE'S INTERNAT IONAL TRANSACTIONS, WHERE THE ASSESSEE WAS BEING REMUNERATED BY THE AE ON COST PLUS MARK-UP BASIS. 3.1.1.52 IT IS RELEVANT TO REFER TO CLAUSE (I) OF S UB-RULE IOD(1) REPRODUCED AS UNDER: '(1) EVERY PERSON WHO HAS ENTERED INTO AN INTERNATI ONAL TRANSACTION SHALL KEEP AND MAINTAIN THE FOLLOWING INFORMATION A ND DOCUMENTS, NAMELY- (A) .. (1) DETAILS OF THE ADJUSTMENTS IF ANY, MADE TO THE TRANSFER PRICES TO ALIGN THEM WITH ARM'S LENGTH PRICES DETERMINED UNDER THES E RULES AND CONSEQUENT ADJUSTMENT MADE TO THE TOTAL INCOME FOR TAX PURPOSES.' (EMPHASIS SUPPLIED) AS MAY BE SEEN FROM THE SAID SUB-RULE THAT ANY ADJU STMENT DETERMINED (BY AN ASSESSEE OR BY THE AO) UNDER THESE RULES SHA LL BE MADE TO THE TOTAL INCOME OF AN ASSESSEE FOR TAX PURPOSES, AND N OT TO THE PROFITS OF ANY PARTICULAR UNDERTAKING BELONGING TO THE ASSESSE E. SINCE THE DEDUCTION U/S.10A IS BASED ON BOOKS OF ACCOUNTS AND COMPLIANCE TO THE REQUIREM ENT OF BRINGING IN FOREIGN EXCHANGE FOR THE PROFITS TO BE ELIGIBLE FOR DEDUCTION, THE TP ADJUSTMENT AMOUNT CANNOT BE SAID TO BE PROFITS OR I NCOME OF AN UNDERTAKING FOR THE PURPOSE OF DEDUCTION. FURTHER, THE TP ADJUSTMENT HAS TO BE MADE ONLY AFTER BEING DETERMINED UNDER TH E RULES (1OB, 10C & 10D), AND NOT OTHER-WISE. IT IS CLEAR TO US THAT THE AFORESAID ALP ADJUSTMENT OF RS. 120,30,164/- HAS NOT BEEN DETERMI NED IN THE TP DOCUMENTATION MAINTAINED BY THE ASSESSEE IN ACCORDA NCE WITH RULE 1OD OF THE IT RULES, 1962, READ WITH SECTION 92C, 9 2D AND 92E OF THE INCOME TAX ACT AND IT REMAINS AN ARBITRARY, ARTIFIC IAL AND UNSUBSTANTIATED FIGURE. 31. THE LD.COUNSEL SUBMITTED THAT, IN THE ORIGINAL RETURN FILED BY ASSESSEE REVENUE OF RS.37,01,58,923/- WAS SHOWN TO BE THE PAGE 21 OF 55 IT(TP)A NO.517 & 570/BANG/2015 VALUE OF INTERNATIONAL TRANSACTION FOR SOFTWARE DEV ELOPMENT SERVICES, WITH AN OPERATING MARGIN OF 6.01%. IT WAS SUBMITTED THAT WHILE FILING THE REVISED RETURN ON 15/10/2010, THE ASSESSEE VOLUNTARILY OFFERED RS.1,20,30,164/- AS ADDITIONAL INCOME TO INCREASE ITS MARGIN. SHE THUS SUBMITTED THAT WHILE THE PRICE AT WHICH THE ASSESSEE HAD RENDERED SWD SERVICES WAS RS . 37,01,58,923/-, IT SUO MOTO MADE ADDITION OF RS.1,20,30,164/- ON ACCOUNT OF THE PRICE RECEIVED AGAINST SWD SERVIC ES. SHE SUBMITTED THAT IF ANY ADJUSTMENT IS TO BE MADE THE SAME OUGHT TO BE MADE AFTER TAKING INTO CONSIDERATION THE VOLUNTA RY ADDITION OF RS.1,20,30,164/-. THE LD.COUNSEL SUBMITTED THAT THE SAID ADDITIONAL ADJUSTMENT WAS SUO MOTO MADE BY ASSESSEE IN THE REVISED RETURN FOR THE SAKE OF DETERMINING THE ALP OF THE TRANSACTION, SINCE MARGIN OF ASSESSEE WAS VERY LOW. 32. THE LD.COUNSEL SUBMITTED THAT, THE LD.TPO SHOUL D HAVE CONSIDERED RS.38,21,89,088/- THAT WAS OFFERED IN TH E REVISED RETURN, WHICH INCLUDED VOLUNTARY ADDITION OF RS.1,2 0,30,165/- FOR COMPUTING ALP OF THE TRANSACTION, THEREBY THE OPERA TING PROFIT MARKUP OF 9.46% WAS EARNED BY ASSESSEE . 33. THE LD.COUNSEL FURTHER SUBMITTED THAT, THE VOLU NTARY ADJUSTMENT WAS ALLOCATED AS EXPENDITURE AMONG THE 3 STPI UNITS AT BANGALORE, NOIDA AND PUNE, AGAINST WHICH DEDUCTI ON UNDER SECTION 10A WAS CLAIMED, WHICH IS NOT QUESTIONED BY THE LD.AO. SHE SUBMITTED THAT THE 10A DEDUCTION IS ALSO AVAILA BLE TO ASSESSEE ON THE VOLUNTARY ADJUSTMENT OFFERED BY ASS ESSEE. PAGE 22 OF 55 IT(TP)A NO.517 & 570/BANG/2015 34. SHE SUBMITTED THAT, IT IS A SETTLED LEGAL POSIT ION THAT, SECTION 10A DEDUCTION IS ALLOWED IN RESPECT OF VOLUNTARY TP ADJUSTMENT MADE BY ASSESSEE. THE BAR IS IN RESPECT OF ADJUSTME NT MADE BY THE LD.TPO UNDER SECTION 92C(4). IN SUPPORT OF THIS CLAIM SHE RELIED ON FOLLOWING DECISIONS: DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS.IGATE GLOBAL SOLUTIONS LTD IN ITA NO.453 OF 2008 DATED 17 /06/2014; DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CA SE OF DCIT VS. EYBGS INDIA (P) LTD REPORTED IN (2020) 117 TAXMANN. COM 294 DECISION OF HONBLE DELHI TRIBUNAL IN CASE OF DCIT VS. G.S.ENGINEERING & CONSTRUCTIONS INDIA (P.) LTD. REP ORTED IN (2018) 100 TAXMANN.COM 66; DECISION OF HONBLE PUNE TRIBUNAL IN CASE OF APPORV A SYSTEMS (P.) LTD. VS. DCIT REPORTED IN (2018) 92 TAXMANN.COM 82. 35. ON THE CONTRARY, LD.CIT.DR RELIED ON THE OBSERV ATIONS OF AUTHORITIES BELOW. HE SUBMITTED THAT, THERE WAS NO NEED TO MAKE VOLUNTARY ADJUSTMENT. HE SUBMITTED THAT THESE WERE NOT REFLECTED IN THE COMPUTATION OF ALP AND THEREFORE LD.TPO WAS CORRECT IN NOT CONSIDERING IT. HE ALSO SUBMITTED THAT, ASSESSE E HAS CLAIMED DEDUCTION UNDER SECTION 10A ON SUCH VOLUNTARY ADJUS TMENT AS A PART OF EXPORT TURNOVER. 36. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. THE ISSUES THAT NEEDS TO BE CONSIDERED FOR PURPOSE OF THIS GROUND ARE TWO: (1) WHETHER LD.TPO ERRED IN NOT CONSIDERING THE AD DITIONS OF VOLUNTARY ADJUSTMENT FOR COMPUTING PROPOSED ADJUSTM ENTS. (2) WHETHER LD.AO ERRED IN IGNORING THE ADDITIONAL VOLUNTARY INCOME FOR PURPOSE OF COMPUTING 10A OF THE ACT? PAGE 23 OF 55 IT(TP)A NO.517 & 570/BANG/2015 ISSUE 1 : 37. ADMITTEDLY, ASSESSEE INCLUDED VOLUNTARY ADDITIO N OF RS.1,20,30,165/- FOR COMPUTING ALP OF THE TRANSACTI ON. UNDER SECTION 92C OF THE ACT, WHEN ASSESSEE ENTERS INTO A N INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTER PRISE, THE ARMS LENGTH PRICE OF THE TRANSACTION IS TO BE COMPUTED A S PER SECTION 92C BY THE LD.TPO, IN THE HANDS OF ASSESSEE. IN OTH ER WORDS, SECTION PROVIDES COMPUTATION OF INCOME FROM INTERNA TIONAL TRANSACTION HAVING REGARDS TO THE ARMS LENGTH PRIC E. SUCH INCOME IF ANY, SO COMPUTED BY THE LD.TPO IN RESPECT OF THE INTERNATIONAL TRANSACTION BETWEEN ASSESSEE AND THE ASSOCIATED ENTERPRISE IS NOTIONAL INCOME IN THE HANDS OF ASSE SSEE WHICH IS AS PER SECTION 92C(4) OF THE ACT. HOWEVER IN THE PR ESENT CASE, IT IS NOT THE LD.AO/TPO BUT THE ASSESSEE WHO WAS OFFERED VOLUNTARILY ADDITIONAL INCOME FOR COMPUTING ALP OF THE TRANSACT ION IN THE REVISED RETURN DURING THE TRANSFER PRICING PROCEEDI NGS. THEREFORE, IN OUR VIEW SUCH ADDITIONAL INCOME CANNOT BE IGNORE D FOR COMPUTING THE PROPOSED ADJUSTMENT IN RESPECT OF THE INTERNATIONAL TRANSACTION BY THE LD.AO/TPO. ISSUE 2 : 38. NOW COMING TO THE 2 ND PART OF DISALLOWANCE BY THE LD. AO UNDER SECTION 10A REGARDING THE VOLUNTARY INCOME OF FERED BY ASSESSEE FOR COMPUTING THE TRANSFER PRICING ADJUSTM ENT. 39. ON ONE HAND, IT IS THE ASSESSEES CONTENTION TH AT PROVISIONS OF SECTION 92(4) WILL NOT BE APPLICABLE IN THIS CAS E AS THE TRANSFER PAGE 24 OF 55 IT(TP)A NO.517 & 570/BANG/2015 PRICING ADJUSTMENT HAS BEEN MADE VOLUNTARILY BY THE ASSESSEE AND ONCE THE INCOME HAS BEEN OFFERED TO TAX, IT FOR MS PART OF THE PROFIT OF THE BUSINESS AND THE DEDUCTION U/S 10A CA NNOT BE DENIED. THE LD.COUNSEL RELIED ON DECISIONS REFERRED TO HEREIN ABOVE IN SUPPORT OF THIS CONTENTION. 39.1 THE FACTS LEADING TO THIS CONTROVERSY ARE THAT , WHILE FILING ITS INCOME TAX RETURN, THE ASSESSEE COMPARED ITS OPERA TING MARGIN WITH THE COMPARABLE COMPANIES. SINCE THE OPERATING MARGIN EARNED BY THE ASSESSEE WAS LOWER THAN THE OPERATING MARGIN EARNED BY THE COMPARABLE COMPANIES, THE ASSESSEE MA DE A VOLUNTARY TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS. RS.1,20,30,165/-. A REVISED RETURN WAS THEREFORE FI LED WHICH INCLUDED THE VOLUNTARY ADJUSTMENT MADE BY THE ASSES SEE. DRP NOTICED THAT, ASSESSEE IN FROM 56(REPORT FILED BY A UDITOR FOR COMPUTATION OF DEDUCTION UNDER SECTION 10A), ALLOCA TED THE VOLUNTARY TP ADJUSTMENT TO VARIOUS STPI UNITS AS I NADMISSIBLE EXPENSES, FOR WHICH THERE IS NO BASIS. DRP NOTICED THAT THOUGH THE VOLUNTARY TP ADJUSTMENT HAS BEEN TREATED AS PRO FITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME HAS BEEN REDU CED FROM EXPORT TURNOVER FOR PURPOSES OF COMPUTATION OF DEDU CTION UNDER SECTION 10A. THE ASSESSEE THUS CLAIMED DEDUCTION UN DER SECTION 10A AMOUNTING TO RS.6,95,45,969/- WHICH WAS SUBSEQU ENTLY DENIED BY THE DRP. THE DRP DENIED SUCH ALLOCATION T O STPI UNDERTAKING, AND THEREBY INFLATE THE PROFITS OF SUC H UNITS FOR CLAIMING DEDUCTION. PAGE 25 OF 55 IT(TP)A NO.517 & 570/BANG/2015 39.2 DRP WAS OF THE OPINION THAT SINCE DEDUCTION U/ S.10A IS BASED ON THE BOOKS OF ACCOUNTS, AND COMPLIANCE TO R EQUIREMENT OF BRINING IN FOREIGN EXCHANGE FOR THE PROFITS TO B E ELIGIBLE FOR DEDUCTION, THE VOLUNTARY TP ADJUSTMENT CANNOT BE SA ID TO BE PROFITS OR INCOME OF THE UNDERTAKING FOR THE PURPOS E OF DEDUCTION. DRP THUS HELD THAT, WHERE THE CONSIDERATION HAS NOT BEEN EARNED BY THE UNDERTAKING OR ACCOUNTED IN ITS BOOKS OF ACC OUNT AS EXPORT RECEIVABLES NOR THE CONSIDERATION IS RECEIVE D IN OR BROUGHT INTO INDIA BY ASSESSEE, THE SAME CANNOT BE INCLUDED IN THE EXPORT TURNOVER OF UNDERTAKING FOR COMPUTING THE DEDUCTION . DRP ALSO EXCLUDED THE SAME FROM TOTAL INCOME. THE DRP FURTHER HELD THAT; 3.1.1.7 IT WOULD BE ABSURD TO ALLOW DEDUCTION UNDER SECTION 10A TO AN ASSESSEE ONLY BECAUSE HE ADMITS AND DECLARES IN THE RETURN OF INC OME ANY AMOUNT OF PROFIT AS VOLUNTARY TP ADJUSTMENT, BASED ON SHEER IMAGINAT ION OR VARIATION FROM THE MEAN MARGIN OF COMPARABLES SELECTED BY IT, MERELY B ECAUSE THE PROFITS ARE EXEMPT FROM TAX THIS WOULD RESULT IN THE ENTIRE PROVISIONS IN CHAPT ER-X OF THE IT ACT RELATING TO TRANSFER PRICING OTIOSE AND RENDERED INEFFECTIVE. H ONBLE P&H HIGH COURT IN CASE OF COCA-COLA (2009) 309 ITR 194 HAVE EXAMINED IN DETAIL THE LEGISLATIVE INTENT BEHIND THE PROVISIONS IN CHAPTER-X. IT IS AL SO A MATTER OF COMMON KNOWLEDGE AND RECORD THAT PROVISIONS OF SECTIONS 10 A/10AA/10B EXCEPT RACK ARE INCENTIVES WITH AN AIM TO AUGMENT THE FOREIGN E XCHANGE FOR THE COUNTRY. THESE PROVISIONS CANNOT BE A LICENSED TO AN ASSESSE E TO CHARGE A LOWER PRICE OR PAY A HIGHER PRICE THAN THE ALP, IN INTERNATIONA L TRANSACTIONS WITH THE AES. AN INTERPRETATION WHICH FRUSTRATES THE LEGISLATIVE INTENT BOTH FOR EARNING FOREIGN EXCHANGE FOR THE COUNTRY, AS ALSO PREVENTIN G FLIGHT/SHIFTING OF INCOME/CAPITAL TO OTHER COUNTRIES IS BEST AVOIDED. THEREFORE THE TPO/ASSESSING OFFICER IS RIGHT IN IGNORING THE TP A DJUSTMENT MADE BY THE ASSESSEE TO THE PROFITS OF 10AA UNIT AND MAKING THE TP ADDITION TO THE GROSS TOTAL INCOME OF THE ASSESSEE. 40. THE DRP THUS FOLLOWING DECISION OF HONABLE KARNATAKA HIGH COURT IN CASE OF YOKOGAWA REPORTED IN (2012) 341 ITR 385 AND PAGE 26 OF 55 IT(TP)A NO.517 & 570/BANG/2015 THE DECISION OF MUMBAI TRIBUNAL IN CASE OF DELOITTE CONSULTING INDIA PVT. LTD., REPORTED IN (2014) 151 ITD 454 , HELD THAT, NO TP ADJUSTMENT WOULD ENTER THE COMPUTATION OF DEDUCTION UNDER SECTION 10A/10AA/10B ETC. 41. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOT H SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 42. IN CASE OF I-GATE GLOBAL SOLUTIONS LTD. VS. ACIT (SUPRA), CAME UP FOR HEARING BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL, THIS TRIBUNAL TOOK THE VIEW THAT THE ASSESSEE WAS ENTITLED TO DE DUCTION U/S 10A IN RESPECT OF INCOME DECLARED IN THE RETURN OF INCOME ON THE BASIS OF COMPUTATION OF ALP. THE RELEVANT PORTI ON OF THE ITATS ORDER NARRATING THE FACTS AND THE OBSERVATIO N IS REPRODUCED HERE IN UNDER:- THE LAST GRIEVANCE IS IN RESPECT OF NOT ALLOWING D EDUCTION UNDER S. 10A ON THE ADJUSTMENT MADE BY THE ASSESSEE TO THE ARM'S LENGTH PRICE. IN THE INSTANT CASE, THE ASSESSEE COMPANY ENTERED INTO TRA NSACTION WITH ASSOCIATED ENTERPRISE. THE ASSESSEE COMPANY DETERMI NED ARM'S LENGTH PRICE AND ACCORDINGLY MADE ADJUSTMENT TO THE INCOME BECAUSE ARM'S LENGTH PRICE DETERMINED WAS MORE THAN THE CONSIDERA TION, AT WHICH THE TRANSACTIONS WERE SHOWN IN THE BOOKS OF ACCOUNT. TH E DEDUCTION UNDER S. 10A HAS NOT BEEN ALLOWED AS PER PROVISO TO S. 92C(4 ). AS PER THIS PROVISO, NO DEDUCTION UNDER S. 10A OR 10B OR UNDER CHAPTER V I-A IS TO BE ALLOWED IN RESPECT OF AMOUNT OF INCOME, BY WHICH THE TOTAL INCOME OF THE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER THE S UB-SECTION. THE LEARNED AUTHORIZED REPRESENTATIVE DURING THE COURSE OF PROCEEDINGS HAS REFERRED TO THE WORD 'ENHANCED'. IN CASE THE INCOME IS ENHANCED, THEN DEDUCTION IS NOT PERMISSIBLE. HOWEVER, IN THE INSTA NT CASE, INCOME HAS NOT BEEN ENHANCED BECAUSE THE SAME WAS ALREADY RETU RNED BY THE ASSESSEE. IN THE MEMO EXPLAINING THE PROVISIONS OF FINANCE BILL, 2006, IT HAS BEEN MENTIONED AS UNDER: UNDER SUB-S. (4), IT HAS BEEN PROVIDED THAT ON TH E BASIS OF ARM'S LENGTH PRICE SO DETERMINED, THE A.O. MAY COMPUTE TH E TOTAL INCOME OF AN ASSESSEE. THE FIRST PROVISO TO SUB-S. (4) PROVID ES THAT WHERE THE TOTAL INCOME OF THE ASSESSEE AS COMPUTED BY AO IS H IGHER THAN THE PAGE 27 OF 55 IT(TP)A NO.517 & 570/BANG/2015 INCOME DECLARED BY THE ASSESSEE, NO DEDUCTION UNDER S. 10A OR S. 10B OR UNDER CHAPTER VI-A WILL BE ALLOWED IN RESPEC T OF THE AMOUNT OF INCOME, BY WHICH THE TOTAL INCOME OF THE ASSESSE E IS ENHANCED AFTER COMPUTATION OF INCOME UNDER SUBSECTION.' FROM THE MEMO EXPLAINING THE PROVISIONS OF FINANCE BILL, 2006 AS WELL AS FROM THE LITERAL MEANING OF THE WORD 'ENHANCED1, IT IS CLEAR THAT IF INCOME INCREASED, AS A RESULT OF COMPUTATION OF ARMS LENG TH PRICE, THEN SUCH INCREASE IS NOT TO BE CONSIDERED FOR DEDUCTION UNDE R S. 10A. IN THE INSTANT CASE, THE ASSESSEE HIMSELF HAS COMPUTED THE ARM'S L ENGTH PRICES AND HAS DISCLOSED THE INCOME ON THE BASIS OF ARM'S LENGTH P RICES. IT IS NOT A CASE, WHERE THERE IS AN ENHANCEMENT OF INCOME DUE TO DETE RMINATION OF ARM'S LENGTH PRICE. HENCE, IT IS HELD THAT THE ASSESSEE W AS ENTITLED TO DEDUCTION UNDER SECTION 10A IN RESPECT OF INCOME DECLARED IN THE RETURN OF INCOME ON THE BASIS OF COMPUTATION OF ARMS LENGTH PRICE. IN THE RESULT, BOTH APPEALS ARE PARTLY ALLOWED. 43. THIS ORDER OF THE COORDINATE BENCH WAS UPHELD BY HONBLE KARNATAKA HIGH COURT IN ITA 453/2008 WHEREIN, VIDE ORDER DATED 17.6.2014 , THE HONBLE KARNATAKA HIGH COURT ANSWERED THE SUBSTANTIAL QUESTION OF LAW NO.4 AGAINST THE REVENU E AND IN FAVOUR OF THE ASSESSEE. WE FURTHER NOTE THAT, VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF I-GATE GLOBAL SOLUTIONS LTD. VS ACIT (SUPRA) HAS BEEN FOLLOWED IN FOLLOWING CASES BY VARIOUS BENCHES OF THIS TRIBUNAL , AND HAD ACCORDINGLY ALLOWED THE DEDUCTION U/S.10A OF THE ACT ON THE VOL UNTARY TP ADJUSTMENTS MADE BY THE ASSESSEE: (I) G.S. ENGINEERING & CONSTRUCTION INDIA OF THE ITAT D ELHI BENCH REPORTED IN 93 TAXMANN.COM 154 (DELHI TRIBUNAL) (II) QX KPO SERVICES PVT. LTD. VS. ITO OF THE AHMEDABAD TRIBUNAL IN ITA NO.2043/AHD/2014 (III) APPROVA SYSTEMS PVT. LTD. VS DCIT OF THE PUNE BENCH OF ITAT IN ITA NO.1051/PUNE/2015 (IV) SUMTOTAL SYSTEMS INDIA (P) LTD. VS DCIT OF THE HYDE RABAD TRIBUNAL REPORTED IN 88 TAXMANN.COM 897 44. THE RATIO OF THE AFORESAID ORDERS OF THE TRIBUN AL, WHICH WE ARE BOUND TO FOLLOW, IS THAT; THE FIRST PROVISO TO SECTION 92C(4) OF PAGE 28 OF 55 IT(TP)A NO.517 & 570/BANG/2015 THE ACT IS EVIDENTLY APPLICABLE ONLY TO SITUATIONS WHERE ADJUSTMENT TO THE ALP IS MADE BY THE ASSESSING OFFI CER/TPO/LD. DRP AND NOT TO THE VOLUNTARY ADJUSTMENT MADE BY THE ASSESSEE ITSELF. WE NOTE THAT, VARIOUS HONBLE HIGH COURTS AND THE CO- ORDINATE BENCHES OF THE TRIBUNAL HAVE ALLOWED REVISED ENHANCED DEDUCTION U/S 10A OF THE ACT ON THE ADDITIONS TO TH E INCOME MADE DURING THE REVISED RETURN/COURSE OF ASSESSMENT . FURTHER, WE ALSO NOTE THAT, IF THE LEGISLATURE INTENDED TO T REAT THE ADJUSTMENTS MADE BY THE ASSESSING OFFICER AT PAR WI TH THE VOLUNTARY ADJUSTMENT MADE BY THE ASSESSEE, THE SAME WOULD HAVE BEEN EXPRESSED, AND SECTION 92C(4) WOULD NOT H AVE REFERRED TO COMPUTATION OF INCOME MADE BY THE ASSESSING OFFI CER IN TERMS OF THE ALP DETERMINED U/S 92C(3) BASED ON ENHANCED INCOME. WE THEREFORE FIND MERIT IN THE ARGUMENTS ADVANCED B Y THE LD.COUNSEL IN THIS REGARDS. 45. THE LD.COUNSEL BEFORE US SUBMITTED THAT ASSESSE E DOES NOT HAVE ANY OTHER INCOME OTHER THAN THE INCOME GENERAT ED FROM THE UNITS THAT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. IT IS ALSO BEEN SUBMITTED THAT THE ASSESSEE HAS EXCLUD ED VOLUNTARY TP ADJUSTMENT FROM 'EXPORT TURNOVER' IN LINE WITH T HE COMPUTATION MECHANISM PRESCRIBED IN SECTION 10A, HO WEVER, THE VOLUNTARY TRANSFER PRICING ADJUSTMENT MADE BY THE A SSESSEE TO FORMS PART OF THE PROFITS OF THE BUSINESS FOR THE PURPOSES OF CLAIMING DEDUCTION U/S.10A OF THE INCOME TAX ACT. PAGE 29 OF 55 IT(TP)A NO.517 & 570/BANG/2015 46. IT IS AN ADMITTED FACT THAT THE VOLUNTARY TP AD JUSTMENT HAS BEEN MADE THROUGH A DISCLOSURE IN FORM 3CEB AND IS NOT AN AD- HOC ADDITION IN THE REVISED RETURN OF INCOME. THE L D.COUNSEL SUBMITTED THAT THIS FACT IS VERIFIABLE, AS THE AMOU NT VOLUNTARILY DISCLOSED IS SUPPORTED BY INVOICES ISSUED TO THE AE , AGAINST WHICH MONEY HAS BEEN RECEIVED IN INDIA. 47. THE OBSERVATIONS OF THE DRP THAT, THE VOLUNTARY TP ADJUSTMENT OFFERED BY ASSESSEE HAS BEEN ALLOCATED A S IN ELIGIBLE EXPENDITURE TO STPI UNITS, ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THE RELEVANT COMPUTATION OF DEDUCTI ON U/S.10A HAS BEEN REPRODUCED BY THE DRP IN PARA 3.1.1.4 WHIC H HAS BEEN REPRODUCED HEREIN ABOVE. WE NOTE THAT SUBMISSION NE EDS TO BE VERIFIED BY LD.AO. ON ONE HAND LD.COUNSEL SUBMITTED ADDITIONAL INCOME IS SUPPORTED BY INVOICES RAISED BY ASSESSEE ON AE, ON THE OTHER HAND, ASSESSEE HAS DECLARED THE ADDITIONAL IN COME OFFERED AS INADMISSIBLE EXPENDITURE. WE ACCORDINGLY, D IRECT THE LD.AO TO VERIFY THE CLAIM IN THE LIGHT OF SUPPORTIN G DOCUMENTS. THE LD.AO SHALL VERIFY THE BASIC REQUIREMENTS THAT NEEDS TO BE QUALIFIED FOR THE VOLUNTARY TP ADJUSTMENT TO BE ELI GIBLE FOR DEDUCTION UNDER SECTION 10 A OF THE ACT, EVEN THOUG H ASSESSEE HAS LOCATED IT AS INADMISSIBLE EXPENSES TO THE RE SPECTIVE STPI UNITS. 47.1 IN THE EVENT ASSESSEE IS ABLE TO ESTABLISH THE FOREIGN EXCHANGE HAVING RECEIVED IN INDIA TO THE EXTENT OF VOLUNTARY TP ADJUSTMENT MADE BY ASSESSEE, THE DEDUCTION CANNOT B E DENIED ON PAGE 30 OF 55 IT(TP)A NO.517 & 570/BANG/2015 SUCH VOLUNTARY ADJUSTMENT. IN SUPPORT WE RELY ON TH E DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS YOKOGAWA, (SUPRA) AND DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF KARLE INTERNATIONAL PVT.LTD., VS ACIT (SUPRA) AND TO GRANT DEDUCTION IN ACCORDANCE WITH LAW HAVING REGARD TO THE RATIO LAID DOWN BY VARIOUS (HIGH COURTS) AND COORDINATE BENCHES OF THIS TRIBUNAL IN THE DECISIONS RELIED ON HEREINABOVE. ASSESSEE IS DI RECTED TO FILE ALL RELEVANT INFORMATION/DETAILS IN SUPPORT OF ITS CLAI M BASED ON WHICH THE LD.AO SHALL CARRY OUT NECESSARY VERIFICAT ION. NEEDLESS TO SAY THAT ASSESSEE SHALL BE GRANTED PROP ER OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH LAW. ACCORDINGLY THIS ISSUES NO.2 ALLEGED BY ASSESSEE ST ANDS ALLOWED FOR STATISTICAL PURPOSES. 48. GROUND 4 (B) AND ADDITIONAL GROUND 1 IS SEEKING EXCLUSION OF LARSEN AND TOUBRO INFOTECH LTD. AND ICRA TECHNO ANALYTICS LTD. LARSEN AND TOUBRO INFOTECH LTD. 49. IT WAS SUBMITTED THAT LARSEN AND TOUBRO INFOTE CH LTD. INCLUDED WITHOUT CONSIDERING THE FACT THAT, THESE C OMPARABLES ARE FUNCTIONALLY NOT SIMILAR WITH THAT OF ASSESSEE AND ALSO THAT THEY FAIL THE TURNOVER FILTER. THE LD.AR SUBMITTED THAT APPLYING THE UPPER LIMIT FOR TURNOVER FILTER WHILE CARRYING OUT THE BENCHMARKING ANALYSIS IS NECESSARY AS ASKED LD.TPO HAS EXCLUDED COMPARABLES WHICH IS LESS THAN RS.1CRORE T URNOVER. HE SUBMITTED THAT, LARSEN AND TOUBRO INFOTECH LTD., HA VING HIGH PAGE 31 OF 55 IT(TP)A NO.517 & 570/BANG/2015 TURNOVER OF MORE THAN 200 CRORES DESERVES TO BE EXC LUDED BY APPLYING AN UPPER TURNOVER LIMIT. 50. THE LD.COUNCEL SUBMITTED THAT FOR THE SAME YEAR UNDER CONSIDERATION THIS TRIBUNAL EXCLUDED THIS COMPARABLES FOR HAVING HIGH TURNOVER. HE SUBMITTED THAT COORDINATE BENCH O F THIS TRIBUNAL IN CASE OF GENESIS INTEGRATING SYSTEMS VS.DCIT REPORTED IN (2012) 20 TAXMANN.COM 715 , SUGGESTED GUIDELINE REGARDING CONSIDERING TURNOVER FILTER AND THE CATEGORISATION OF SOFTWARE COMPANIES. THIS TRIBUNAL TOOK VIEW THAT THE DUNN AND BRADSTREET STUDY TO BE ADOPTED AS A METHOD OF CLASS IFICATION OF COMPANIES BY SIZE. IT WAS SUBMITTED THAT THE 3 CATE GORIES OF FIRMS WERE IDENTIFIED THAT IS SMALL WITH TURNOVER LESS TH AN 200 CRORE, MEDIUM WITH TURNOVER RS. 200 TO 2000 CRORE AND LARG E WITH TURNOVER GREATER THAN 2000 CRORE. THE LD.AR FURTHER SUBMITTED THAT, ITAT MUMBAI TRIBUNAL IN CASE OF CAPGEMINI INDIA PVT.LTD., VS ACIT REPORTED IN (2015) 58 TAXMANN.COM 175 HAS HELD THAT THE CONCEPT OF ECONOMIC UPSCALE CANNOT BE APPLIED TO SE RVICE DELIVERING COMPANIES AND THAT THERE IS NO EMPIRICAL EVIDENCE TO SUGGEST THAT MARGINS ARE RELATED TO TURNOVER. HENCE IT WAS SUBMITTED BY THE LD.COUNSEL THAT COMPANY HAVING HUG E BRAND VALUE AND INTANGIBLES WITH DIVERSIFIED ACTIVITIES O F SOFTWARE DEVELOPMENT, CONSULTANCY, ENGINEERING SERVICES EXCE PT RACK CANNOT BE COMPARED WITH THE CAPTIVE SERVICE PROVIDE R LIKE THAT OF ASSESSEE THAT EARNS REVENUE ON COST PLUS BASIS. PAGE 32 OF 55 IT(TP)A NO.517 & 570/BANG/2015 51. THE LD.COUNSEL EVEN OTHERWISE SUBMITTED THAT, T HIS COMPARABLE IS NOT FUNCTIONALLY SIMILAR WITH THAT OF ASSESSEE, AS THEY ARE INVOLVED IN SOFTWARE PRODUCTS AS HAS BEEN OBSERVED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF DCIT VS ELECTRONICS FOR IMAGING INDIA PVT.LTD., REPORTED IN (2016) 70 TAXMANN.COM 299 FOR ASSESSMENT YEAR 2010-11, AND VARIOUS OTHER DECI SIONS IN SUPPORT OF HER CONTENTIONS. 52. ON THE CONTRARY, THE LD.CIT.DR RELIED ON ORDERS PASSED BY AUTHORITIES BELOW. 53. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 54. DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT. LTD., VS DCIT REPORTED IN (2018) 96 TAXMANN.COM 263 HAS ANALYSED EVERY CONFLICT IN VIEW AND CONCLUDED THAT THE LAW LAID DOWN IN CASE OF GENESIS INTEGRATING SYSTEMS INDIA PVT. LTD., (SUPRA) HAS TO BE FOLLOWED. THE RELEVANT OBSERVATIONS OF THIS TRIBUNAL ARE AS UNDER: 17.8 IN VIEW OF THE ABOVE CONCLUSION, THERE MAY NOT BE ANY NECESSITY TO EXAMINE AS TO WHETHER THE DECISION RENDERED IN THE CASE OF GENISYS INTEGRATING SYSTEMS (I) (P.) LTD. (SUPRA) BY THE IT AT BANGALORE BENCH SHOULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WER E ADVANCED ON THE CORRECTNESS OF THE DECISIONS RENDERED BY THE ITAT M UMBAI AND BANGALORE BENCHES TAKING A VIEW CONTRARY TO THAT TA KEN IN THE CASE OF GENISYS INTEGRATING SYSTEMS (I) (P.) LTD. (SUPRA ), WE PROCEED TO EXAMINE THE SAID ISSUE ALSO. ON THIS ISSUE, THE FIR ST ASPECT WHICH WE NOTICE IS THAT THE DECISION RENDERED IN THE CASE OF GENISYS INTEGRATING SYSTEMS (I) (P.) LTD. (SUPRA) WAS THE EARLIEST DECI SION RENDERED ON THE ISSUE OF COMPARABILITY OF COMPANIES ON THE BASIS OF TURNOVER IN TRANSFER PRICING CASES. THE DECISION WAS RENDERED AS EARLY A S 5.8.2011. THE DECISIONS RENDERED BY THE ITAT MUMBAI BENCHES CITED BY THE LEARNED DR BEFORE US IN THE CASE OF WILLIS PROCESSING SERVICES (SUPRA) PAGE 33 OF 55 IT(TP)A NO.517 & 570/BANG/2015 AND CAPEGEMINI INDIA (P.) LTD. (SUPRA) ARE TO BE RE GARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING CO-ORD INATE BENCH DECISION. IN THIS REGARD THE DECISIONS REFERRED TO BY THE LEA RNED COUNSEL FOR THE ASSESSEE SUPPORTS THE PLEA OF THE LEARNED COUNSEL F OR THE ASSESSEE. THE DECISIONS RENDERED IN THE CASE OF NTT DATA (SUPRA), SOCIETE GENERALE GLOBAL SOLUTIONS (SUPRA) AND LSI TECHNOLOGIES (SUPR A) WERE RENDERED LATER IN POINT OF TIME. THOSE DECISIONS FOLLOW THE RATIO LAID DOWN IN WILLIS PROCESSING SERVICES (SUPRA) AND HAVE TO BE REGARDED AS PER INCURIUM. THESE THREE DECISIONS ALSO PLACE RELIANCE ON THE DE CISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRISCAPITAL INVEST MENT (SUPRA). WE HAVE ALREADY HELD THAT THE DECISION RENDERED IN THE CASE OF CHRISCAPITAL INVESTMENT (SUPRA) IS OBITER DICTA AND THAT THE RAT IO DECIDENDI LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PEN TAIR (SUPRA) WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. THER EFORE, THE DECISIONS CITED BY THE LEARNED DR BEFORE US CANNOT BE THE BAS IS TO HOLD THAT HIGH TURNOVER IS NOT RELEVANT CRITERIA FOR DECIDING ON C OMPARABILITY OF COMPANIES IN DETERMINATION OF ALP UNDER THE TRANSFE R PRICING REGULATIONS UNDER THE ACT. FOR THE REASONS GIVEN AB OVE, WE UPHOLD THE ORDER OF THE CIT(A) ON THE ISSUE OF APPLICATION OF TURNOVER FILTER AND HIS ACTION IN EXCLUDING COMPANIES BY FOLLOWING THE RATI O LAID DOWN IN THE CASE OF GENISYS INTEGRATING (SUPRA). 55. FOR THE ABOVE REASONS WE DIRECT LD. AO/TPO TO E XCLUDE LARSEN AND TOUBRO INFOTECH LTD., ON THE ISSUE OF AP PLICATION OF UPPER TURNOVER FILTER FROM THE FINALIST. ICRA TECHNO ANALYTICS LTD. 56. THE LD.COUNSEL SUBMITTED THAT THIS COMPARABLE W AS INCLUDED IN THE FINAL LIST WITHOUT CONSIDERING THE FACT THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERENT. SHE SUBMITTED THAT THIS COMPARABLE IS ENGAGED IN DIVERSIFIED BUSINESS ACTIV ITIES AND EARNS REVENUE FROM SUBLICENSING. THE LD.COUNSEL PLACED RE LIANCE ON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF ELECTRONICS FOR IMAGING INDIA PVT.LTD., (SUPRA) AND APPLIED MATERIALS INDIA PVT.LTD., (SUPRA) FOR ASSESSMENT YEAR 2010-11 WHERE THIS PAGE 34 OF 55 IT(TP)A NO.517 & 570/BANG/2015 COMPARABLE HAS BEEN EXCLUDED AS NOT COMPARABLE WITH A CAPTIVE SERVICE PROVIDER LIKE ASSESSEE. 57. ON THE CONTRARY, LD.CIT.DR PLACED RELIANCE ON O BSERVATIONS OF ORDERS PASSED BY AUTHORITIES BELOW. 58. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 59. COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF ELECTRONICS FOR IMAGING INDIA PVT.LTD., (SUPRA) HAS ANALYSED THE OBJECTIONS RAISED BY ASSESSEE BEFORE US HAVING REGARDS TO THE ANNUAL REPORT OF THIS COMPARABLE 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 COMPANY WAS ALSO FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICES S EGMENT OF THE ASSESSEE. THE DRP HAS GIVEN ITS FINDING AT PAGES 13 TO 14 AS UNDER: 'HAVING HEARD THE CONTENTION, ON PERUSAL OF THE ANN UAL REPORT, IT IS NOTICED BY US THAT THE SEGMENTAL INFORMATION IS AVAILABLE FOR TWO SEGMENTS I.E., SERVICES AND SALES. HOWEVER, IT IS EVIDENT FROM THE ANNUAL R EPORT THAT THE SERVICE SEGMENT COMPRISES OF SOFTWARE DEVELOPMENT, SOFTWARE CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPMENT, WEB HOSTING, ETC. FOR WHICH NO SEGMENTAL INFORMATION IS AVAILABLE AND THEREFORE, T HE OBJECTION OF THE ASSESSEE 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. THEREFORE, WHEN THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES OF SOFTWARE DEVELOPMENT A ND CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPMENT & HOSTING AND SUBSTANTIAL LY DIVERSIFIED ITSELF INTO DOMAIN OF BUSINESS ANALYSIS AND BUSINESS PROCESS OU TSOURCING, THEN THE SAME CANNOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE WHO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS A E. 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 FUNCTIONAL LY NOT COMPARABLE WITH THAT OF A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER 60. THE ASSESSEE BEFORE US IS A CAPTIVE SERVICE PRO VIDER WHO PERFORMS SOFTWARE DEVELOPMENT SERVICES ONLY FOR ITS AE UNDER A PAGE 35 OF 55 IT(TP)A NO.517 & 570/BANG/2015 SPECIFIED CONTRACT THE COMPARABLE ALLEGED FOR EXCLU SION IS IN DIVERSIFIED ACTIVITIES FOR WHICH SEGMENTAL DETAILS ARE NOT AVAILABLE. UNDER SUCH CIRCUMSTANCES WE DO NOT FIND IT TO BE A FIT COMPARABLE FOR COMPUTING ALP OF THE INTERNATIONAL T RANSACTION WITH A CAPTIVE SERVICE PROVIDER. RESPECTFULLY FOLLO WING THE ABOVE VIEW, WE DIRECT LD.TPO TO EXCLUDE THIS COMPARABLE F ROM FINAL LIST. ACCORDINGLY GROUND 4(B) AND ADDITIONAL GROUND NO. 1 RAISED BY ASSESSEE STANDS ALLOWED. 61. GROUND 4(C ) HAS BEEN ALLEGED BY ASSESSEE SEEKING INCLUSION OF AKSHAY SOFTWARE TECHNOLOGIES LTD. AND QUINTEGRA SOLUTIONS LTD. AKSHAY SOFTWARE TECHNOLOGIES LTD.: 62. THE LD.COUNSEL SUBMITTED THAT THE LD.TPO REJECT ED THIS COMPANY STATING THAT IT HAS RELATED PARTY TRANSACTI ONS FOR MORE THAN 25% HOWEVER AS PER THE AUDIT REPORT THE RATIO COMES TO ONLY 4.33%. SHE SUBMITTED THAT ON AN OBJECTION HAVING RA ISED BEFORE DRP THE DRP UPHELD EXCLUSION BY OBSERVING THAT COMP ANY IS PREDOMINANTLY ENGAGED IN DEVELOPMENT OF ON-SITE SOF TWARE SINCE THE OPERATING EXPENSES INCURRED DURING THE YEAR INC LUDE FOREIGN CURRENCY EXPENSES INCURRED. THE DRP ALSO NOTICE THA T EMPLOYEE COST AGAINST THE TOTAL REVENUE WORKS OUT TO 87%. QUINTEGRA SOLUTIONS LTD 63. AS REGARDS THIS COMPARABLE, THE LD. COUNSEL SUB MITTED THAT TPO RATE REJECTED THIS COMPARABLE BY APPLYING RPT F ILTER HOWEVER AS PER THE AUDIT REPORT THIS COMPANY DO NOT HAVE AN Y RELATED PAGE 36 OF 55 IT(TP)A NO.517 & 570/BANG/2015 PARTY TRANSACTIONS. SHE SUBMITTED THAT DRP UPHELD E XCLUSION BY APPLYING ON-SITE REVENUE FILTER. 64. THE LD.COUNSEL SUBMITTED THAT DRP HAS APPLIED F ILTER WHICH HAS NOT BEEN CONSIDERED BY THE LD.TPO. SHE SUBMITTE D THAT THIS COMPARABLE HAS NOT BEEN REJECTED FOR FUNCTIONAL DIS SIMILARITIES BY TPO/DRP. IT HAS BEEN SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE WITH THAT OF ASSESSEE AND S ATISFIES THE EMPLOYEE COST FILTER. 65. ON THE CONTRARY, THE LD.CIT DR PLACED RELIANCE ON OBSERVATIONS OF AUTHORITIES BELOW. 66. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 67. WE NOTE THAT ADMITTEDLY THESE COMPARABLES HAVE NOT BEEN OBJECTED BY AUTHORITIES BELOW FOR FUNCTIONAL DISSIM ILARITIES. DRP HAS APPLIED ON-SITE REVENUE FILTER SUO MOTO WHICH H AS NOT BEEN APPLIED BY THE LD.TPO AND HENCE CANNOT BE CONSIDERE D FOR PURPOSES OF UPHOLDING THE EXCLUSION. AS REGARDS THE RPT FILTER, IN OUR OPINION THIS NEEDS VERIFICATION BY THE LD.TPO. 68. ACCORDINGLY, WE REMAND THESE COMPARABLES BACK T O THE LD.TPO FOR VERIFYING THE RELATED PARTY TRANSACTION. IN THE EVENT IT IS FOUND LESS THAN 25% THIS COMPARABLE EASE TO BE I NCLUDED IN THE FINALIST. ACCORDINGLY GROUND 4 (C) STANDS ALLOWED FOR STATIST ICAL PURPOSES. PAGE 37 OF 55 IT(TP)A NO.517 & 570/BANG/2015 69. GROUND NO.10& ADDITIONAL GROUND NO.2 RAISED BY ASSESSEE IS ON NEGATIVE WORKING CAPITAL ADJUSTMENT GRANTED BY LD. AO. 70. THE LD.COUNSEL SUBMITTED THAT THE LD.AO WHILE D ISCUSSING WORKING CAPITAL ADJUSTMENT ERRED IN ADDING TO THE A VERAGE ARITHMETIC PROFIT MARGIN OF THE COMPARABLE COMPANIE S NEGATIVE WORKING CAPITAL ADJUSTMENT OF (-) 0.61%. THE LD.COU NSEL SUBMITTED THAT, ASSESSEE DO NOT BEAR ANY WORKING CA PITAL RISK SINCE IT IS BEEN FULLY FUNDED BY ITS AE FROM ITS IN CEPTION AND HAS NO WORKING CAPITAL CONTINGENCIES. SHE ALSO SUBMITTE D THAT ASSESSEE IS A CAPTIVE SERVICE PROVIDER AND DOES NOT STAND TO LOSE ANYTHING AS IT IS COMPENSATED ON THE TOTAL COST PLU S BASIS. HOWEVER IT HAS BEEN SUBMITTED BY HER THAT, THOUGH A SSESSEE IS WORKING WITHOUT ANY WORKING CAPITAL RISK, THE COMPA RABLE COMPANIES HAVE SUCH RISK FOR THEM. IT HAS THUS BEEN SUBMITTED BY HER THAT IF AT ALL ANY WORKING CAPITAL ADJUSTMEN T IS TO BE MADE ONLY A POSITIVE ADJUSTMENT COULD TO BE MADE TO THE COMPARABLES SO THAT THEY ARE BROUGHT ON PAR WITH THE ASSESSEE. 71. ON THE CONTRARY THE LD.CIT DR PLACED RELIANCE O N ORDERS PASSED BY AUTHORITIES BELOW. 72. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ADVANC ED BY BOTH SIDES ON THIS ISSUE IN THE LIGHT OF RECORDS PLACED BEFORE US. RULE 10B(3) OF THE INCOME-TAX RULES, 1962, SUPPORTS THE SAID ACTION OF THE LD.TPO IN GRANTING WORKING CAPITAL AD JUSTMENT. IN THE FOLLOWING DECISIONS RENDERED BY COORDINATE BENC H OF THIS PAGE 38 OF 55 IT(TP)A NO.517 & 570/BANG/2015 TRIBUNAL IN CASE OF, TNT INDIA (P.) LTD. REPORTED IN (2011) 10 TAXMANN.COM 169 (PARA 13), B EARING POINT BUSINESS CONSULTING (P.) LTD. REPORTED IN (2013) 33 TAXMANN.COM 92 (PARA 5.4) AND APIGEE TECHNOLOGIES (INDIA) (P.) LTD. REPORTED IN (2015) 63 TAXMANN.COM 129 (PARAS 17 TO 19) IT HAS BEEN HELD THAT POSITIVE ADJUSTMENT TOWARDS WORKING CAPITAL DIFFERENCES BETW EEN THE ASSESSEE AND THE COMPARABLES SHOULD BE CONSIDERED A ND APPROPRIATE ADJUSTMENT GRANTED IN ARRIVING AT THE P ROFIT MARGINS OF COMPARABLE COMPANIES FOR THE PURPOSE OF COMPARIS ON. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE LD.A O/TPO TO GRANT POSITIVE WORKING CAPITAL ADJUSTMENT IN ACTUAL S FOR DETERMINED IN THE PROFIT MARGIN OF COMPARABLES. ACCORDINGLY, GROUND NO.10 & ADDITIONAL GROUND NO.2 RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES . CORPORATE TAX ISSUES (ASSESSEES APPEAL) 73. GROUND 1-2 IS RAISED BY ASSESSEE AS THE LD.AO DID NOT GRANT SETTING OFF OF BUSINESS LOSS AMOUNTING TO RS.5,14,0 1,852/- PERTAINING TO NOIDA UNIT AGAINST INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFES SION AFTER THE CLAIM OF DEDUCTION UNDER SECTION 10 A FOR BANGALORE AND PUNE UNITS. 74. IN REGARDS TO SET-OFF OF LOSSES, THE LD.AO FOLL OWED THE DECISION OF HONBLE KARNATAKA IN CASE OF YOKOGAVA, INDIA LTD. REPORTED IN 341 ITR 385 WHICH IS SEQUENTIALLY REVERSED BY HONBLE SUPREME COURT . THE LD.COUNSEL SUBMITTED THAT HONBLE SUPREME PAGE 39 OF 55 IT(TP)A NO.517 & 570/BANG/2015 COURT IN CASE OF CIT VS YOKOGAWA , REPORTED IN (2017) 77 TAXMANN.COM 41 , HAS HELD THAT SECTION 10 A THE DEDUCTION PROVISION AND THE DEDUCTION BEING AT THE STAGE OF C OMPUTATION OF BUSINESS PROFITS INTER-UNIT SET OF IS ALLOWABLE. 75. THE LD.SR.DR PLACED RELIANCE ON ORDERS PASSED B Y AUTHORITIES BELOW. 76. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 77. ADMITTEDLY, THE UNITS ARE ELIGIBLE UNITS UNDER SECTION 10A OF THE ACT. LD.AO DISALLOWED THE CLAIM OF ASSESSEE OF SET OF 78. THE DECISION BASED ON WHICH THE LD.AO DISALLOWE D THE CLAIM OF THE ASSESSEE HAS BEEN REVERSED BY HONBLE SUPREME COURT IN CASE OF CIT VS YOKOGAWA, (SUPRA), BY OBSERVING AS UNDER: 16. FROM A READING OF THE RELEVANT PROVISIONS OF SECTI ON 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLATED T HEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON-ELIGIBLE UNI TS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCULAR NO. 794 DAT ED 9.8.2000 WHICH STATES IN PARAGRAPH 15.6 THAT, 'THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LO CATED IN SPECIFIED ZONES OR 100% EXPORT ORIENTED UNDERTAKING S, AS THE CASE MAY BE, AND THIS SHALL NOT HAVE ANY MATERIAL RELATI ONSHIP WITH THE OTHER BUSINESS OF THE ASSESSEE OUTSIDE THESE ZONES OR UNITS FOR THE PURPOSES OF THIS PROVISION.' 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIR ST PROVISO TO SECTIONS 10A(1); 10A (1A) AND 10A (4)] THAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO. 794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NA TURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THERE FORE, IMMEDIATELY PAGE 40 OF 55 IT(TP)A NO.517 & 570/BANG/2015 AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOT AL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDAN T USE OF THE EXPRESSION 'TOTAL INCOME OF THE ASSESSEE' IN SECTIO N 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFO LDED BY THE PROVISIONS OF SECTION 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION 'TOTAL INCOME OF THE ASSESSEE' IN SECTIO N 10A AS 'TOTAL INCOME OF THE UNDERTAKING'. 18. FOR THE AFORESAID REASONS WE ANSWER THE APPEALS AN D THE QUESTIONS ARISING THEREIN, AS FORMULATED AT THE OUTSET OF THI S ORDER, BY HOLDING THAT THOUGH SECTION 10A, AS AMENDED, IS A PROVISION FOR DEDUCTION, THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAPTER VI. A LL THE APPEALS SHALL STAND DISPOSED OF ACCORDINGLY. 79. THE LD.COUNSEL SUBMITTED THAT SUBSEQUENT DECISI ON OF HONBLE KARNATAKA HIGH COURT IN CASE OF KARLE INTERNATIONAL PVT.LTD., VS ACIT REPORTED IN (2020) 120 TAXMANN.COM 264, FOLLOWING THE ABOVE DECISION BY HONBLE SUPREME COURT HAS HELD AS UNDER: 6. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LEA RNED COUNSEL FOR THE PARTIES AND HAVE PERUSED THE RECORD. BEFORE PROCEEDING FURTHER, IT IS APPOSITE TO TAKE NOTE OF THE RELEVANT STATUTO RY PROVISIONS NAMELY SECTION 10B(I), 10B(5), 10B(6)(II), AND SECTION 70 AS WELL AS THE PARA 5.2 OF THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES SECTION 10B(1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCT ION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPO RT-ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BE GINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALL OWED FROM THE TOTAL INCOME OF THE ASSESSEE. SECTION 10B(5) PAGE 41 OF 55 IT(TP)A NO.517 & 570/BANG/2015 THE DEDUCTION UNDER SUB-SECTION (1) SHALL NOT BE AD MISSIBLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR AFTER THE 1ST DAY O F APRIL 2001, UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FOR M, ALONG WITH THE RETURN OF INCOME, THE REPORT OF AN ACCOUNTANT, AS D EFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 28 8, CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDA NCE WITH THE PROVISIONS OF THIS SECTION. SECTION 10B(6)(II) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SU CCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEAR, OR OF ANY PRE VIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR- (I) XXXXX (II) NO LOSS REFERRED TO IN SUB-SECTION (1) OF SECTION 7 2 OR SUB- SECTION (1) OR SUB-SECTION (3) OF SECTION 74, IN SO FAR AS SUCH LOSS RELATES TO THE BUSINESS OF THE UNDERTAKING, SH ALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS ENDING BEFORE THE 1ST DAY OF APRIL 2001. SECTION 70(1) SAVE AS OTHERWISE PROVIDED IN THIS ACT, WHERE THE N ET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FALLING UN DER ANY HEAD OF INCOME, OTHER THAN 'CAPITAL GAINS', IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AG AINST HIS INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. (2) WHERE THE RESULT OF THE COMPUTATION MADE FOR AN Y ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY SHOR T-TERM CAPITAL ASSET IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS AR RIVED AT UNDER A SIMILAR COMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET. (3) WHERE THE RESULT OF THE COMPUTATION MADE FOR AN Y ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY CAPI TAL ASSET (OTHER THAN A SHORT-TERM CAPITAL ASSET) IS A LOSS, THE ASS ESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AG AINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASS ET NOT BEING A SHORT-TERM CAPITAL ASSET. PARA 5.2 OF CIRCULAR DATED 10-7-2013 THE INCOME COMPUTED UNDER VARIOUS HEADS OF INCOME I N ACCORDANCE WITH THE PROVISIONS OF CHAPTER IV OF THE IT ACT SHA LL BE AGGREGATED IN PAGE 42 OF 55 IT(TP)A NO.517 & 570/BANG/2015 ACCORDANCE WITH THE PROVISIONS OF CHAPTER VI OF THE IT ACT, 1961. THIS MEANS THAT FIRST THE INCOME/LOSS FROM VARIOUS SOURCES I.E., ELIGIBLE AND INELIGIBLE UNITS, UNDER THE SAME HEAD ARE AGGREGATED IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 70 OF THE ACT. THEREAFTER, THE INCOME FROM ONE AHEAD IS AGGRE GATED WITH THE INCOME OR LOSS OF THE OTHER HEAD IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71 OF THE ACT. IF AFTER GIVING EFFECT TO TH E PROVISIONS OF SECTIONS 70 AND 71 OF THE ACT THERE IS ANY INCOME ( WHERE THERE IS NO BROUGHT FORWARD LOSS TO BE SET OFF IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 72 OF THE ACT) AND THE SAME IS ELIGIBLE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER VI-A OR SECTIONS 10A, 10B ETC. OF THE ACT, THE SAME SHALL BE ALLOWED IN COMPUTING THE TOTAL IN COME OF THE ASSESSEE. 7. SECTION 10B OF THE ACT WAS SUBSTITUTED BY FINANCE ACT, 2000 W.E.F. 1-4-2001. SECTION 10B AS IT STANDS IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUCTION OF SUCH PROFIT AND GAINS AS ARE DERIVED BY 100% EXPORT ORIENTED UN DERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWA RE FOR 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASS ESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE. SECTION 10B DOES NOT CONTAI N ANY PROHIBITION TO PREVENT AN ASSESSEE FROM SETTING OFF LOSSES FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME AS PRESCRIBED UNDER SECTION 70 OF THE ACT. S ECTION 10B(6)(II) OF THE ACT RESTRICTS CARRY FORWARD AND SET OFF OF LOSS UNDER SECTIONS 72 AND 74 OF THE ACT BUT DOES NOT PROVIDE ANYTHING REG ARDING INTRA-HEAD SET OFF UNDER SECTION 70 AND INTER-HEAD SET OFF UND ER SECTION 71 OF THE ACT. THE BUSINESS INCOME CAN BE COMPUTED ONLY A FTER SET OFF OF BUSINESS LOSS AGAINST THE BUSINESS INCOME IN THE YE AR AS PER PROVISIONS OF SECTION 70 OF THE ACT. SECTION 10A OF THE ACT IS A CODE BY ITSELF AND IT IS PERTINENT TO NOTE THAT SECTION 10A (6)(II) DOES NOT PRECLUDE THE OPERATION OF SECTIONS 70 AND 71 OF THE ACT. PARA 5.2 OF THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES DATED 16-7- 2013 CLEARLY PROVIDES THAT INCOME/LOSS FROM VARIOUS SOURCES I.E. ELIGIBLE AND INELIGIBLE UNITS UNDER TH E SAME HEAD ARE AGGREGATED IN ACCORDANCE WITH PROVISIONS OF SECTION 70. 8. IT IS EQUALLY WELL SETTLED LEGAL PROPOSITION THAT WHERE THE ASSESSEE DOES NOT WANT THE BENEFIT OF DEDUCTION FROM THE TAX ABLE INCOME, THE SAME CANNOT BE THIRST UPON IT. THERE IS NO PROVISIO N WHICH MAKES COMPULSORY ON THE PART OF INCOME TAX OFFICER TO MAK E DEDUCTION IN ALL CASES. (SEE: 'CIT V. MAHINDRA MILLS' [2000]/109 TAX MAN 25/243 ITR 56 (SC). FROM THE RETURN OF INCOME FOR THE ASSESSME NT YEAR 2008-09 IN SCHEDULE BP, SL.NO.35(III), THE ASSESSEE HAS SHO WN THE DEDUCTION UNDER SECTION 10B OF THE ACT AS ZERO. SIMILARLY, AT SL.NO.57 THE PAGE 43 OF 55 IT(TP)A NO.517 & 570/BANG/2015 ASSESSEE HAS FILED THE DEDUCTION UNDER SECTION 10B AS NOT APPLICABLE. THUS, FROM PERUSAL OF RETURN OF ASSESSM ENT YEAR 2008-09 IT IS EVIDENT THAT THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION UNDER SECTION 10B OF THE ACT IN RESPECT OF ANY OF THE THR EE UNITS OF THE ASSESSEE. IT IS PERTINENT TO MENTION HERE THAT SECT ION 10B(5) READ WITH RULE 16E MANDATES THAT THE ASSESSEE HAS TO FIL E AUDIT REPORT IN FORM-56G FOR CLAIMING DEDUCTION UNDER SECTION 10B O F THE ACT. ADMITTEDLY, IN THE INSTANT CASE, THE ASSESSEE HAS N OT FILED ANY AUDIT REPORT IN FORM-56G WHICH IS A MANDATORY REQUIREMENT FOR CLAIMING DEDUCTION UNDER SECTION 10B OF THE ACT. THEREFORE, THE DEDUCTION UNDER SECTION 10B OF THE ACT CANNOT BE THIRST UPON THE ASSESSEE. 9. ADMITTEDLY, IN THE INSTANT CASE, TWO UNITS OF THE ASSESSEE NAMELY UNIT NO. II AND UNIT NO. III WERE EXPORT ORIENTED U NITS AND WERE ELIGIBLE FOR EXEMPTION. THE ASSESSEE HAD SUSTAINED LOSS IN RESPECT OF UNIT NO. I AND THEREFORE, THE ASSESSEE HAD CLAIMED SET OFF, AS PERMISSIBLE UNDER SECTION 70 OF THE ACT AND HAD OFF ERED THE BALANCE AS INCOME TAXABLE UNDER THE HEAD INCOME FROM BUSINE SS OF RS. 12,89,762/- WHICH HAS BEEN DECLARED IN THE RETURN. THE PROVISIONS OF SECTION 70 OF THE ACT HAVE TO BE GIVEN EFFECT TO. I T IS PERTINENT TO MENTION HERE THAT INCOME-TAX APPELLATE TRIBUNAL HAD TAKEN A SIMILAR VIEW IN MINDTREE CONSULTING (P.) LTD., SUPRA, WHICH WAS UPHELD BY A DIVISION BENCH OF THIS COURT IN YOKOGAWA INDIA LTD. (SUPRA). SIMILAR VIEW HAS BEEN TAKEN BY BOMBAY HIGH COURT IN GALAXY SURFACTANTS LTD. (SUPRA). WE RESPECTFULLY AGREE WITH THE VIEW T AKEN BY THE DIVISION BENCH OF THIS COURT AS WELL AS BOMBAY HIGH COURT. IT IS PERTINENT TO MENTION HERE THAT DECISION OF TH E SUPREME COURT IN YOKOGAWA, SUPRA IS NOT AN AUTHORITY FOR THE PROP OSITION THAT AN ASSESSEE CANNOT CLAIM SET OFF UNDER SECTION 70 OF T HE ACT AND THEREFORE, THE AFORESAID DECISION HAS NO APPLICATIO N TO THE FACTS OF THE CASE. SINCE WE HAVE DEALT WITH THE ISSUES INVOLVED IN THIS APPEAL WITH REFERENCE TO THE RETURN FILED FOR THE ASSESSME NT YEAR 2008-09 ON 30-8-2009, THEREFORE, IT IS NOT NECESSARY FOR US TO DEAL WITH THE CONTENTION RAISED BY THE LEARNED COUNSEL FOR THE RE VENUE THAT THE RETURN HAD FILED BEYOND PRESCRIBED PERIOD AND THERE FORE, HAS NO LEGAL SANCTITY. IN VIEW OF PRECEDING ANALYSIS, THE SUBSTANTIAL QUES TION OF LAW FRAMED BY THIS COURT ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THE RESULT, THE ORDER OF TH E INCOME TAX APPELLATE TRIBUNAL DATE 12-10-2012 IN SO FAR AS IT CONTAINS THE FINDING AGAINST THE ASSESSEE IS HEREBY QUASHED. RESPECTFULLY FOLLOWING THE AFORESAID VIEWS, WE ARE OF THE OPINION THAT ASSESSEE HAS TO BE ALLOWED INTER-UNIT SET OFF OF LOSS. PAGE 44 OF 55 IT(TP)A NO.517 & 570/BANG/2015 ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED. NOW COMING TO TRANSFER PRICING ISSUES IN THE APPEA L FILED BY REVENUE GROUND NO.2-5 80. WE NOTE THAT REVENUE SEEKS INCLUSION OF INFOSYS LTD., KALS INFORMATION SYSTEMS LTD. (SEG), PERSISTENT SYSTEMS LTD. AND TATA ELXI LTD. (SEG), SASK AND COMMUNICATIONS TECHN OLOGY LTD, RS SOFTWARE INDIA LTD. 81. AT THE OUTSET, THE LD.COUNSEL SUBMITTED THAT TH ESE COMPARABLES ANYWAYS ARE TO BE EXCLUDED FOR FUNCTION AL DISSIMILARITIES AND ALSO FOR HAVING HIGH TURNOVER O F MORE THAN 200 CRORES. 82. THE LD.SR.DR PLACED RELIANCE ON THE OBSERVATION S OF LD.AO/TPO. 83. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 84. WHILE CONSIDERING THE COMPARABLES FOR EXCLUSION IN ASSESSEES APPEAL ON TURNOVER FILTER, WE HAVE MADE CATEGORICAL OBSERVATION REGARDING APPLICABILITY OF UPPER TURNOV ER FILTER BASED ON THE SUGGESTIONS RENDERED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF GENESIS INTEGRATING (SUPRA) . 85. THE OBSERVATIONS BY US IN THE PARAGRAPHS HEREIN ABOVE ARE APPLICABLE FOR THESE COMPARABLES AS THESE COMPARABL ES HAVE TURNOVER MORE THAN 200 CRORES AND THEREFORE CANNOT BE PAGE 45 OF 55 IT(TP)A NO.517 & 570/BANG/2015 CONSIDERED WITH A CAPTIVE SERVICE PROVIDER LIKE ASS ESSEE THAT WORKS ON COST PLUS BASIS. 86. FURTHER IT IS ALSO OBSERVED BY US THAT FUNCTION ALLY THIS COMPARABLE IS ARE NOT SIMILAR WITH THAT OF ASSESSEE AS IT HAS HUGE INTANGIBLES, AND CARRIES OUT SERVICES IN DIVERSIFIE D, AREAS WHICH IS NOT AKIN TO THE SERVICES RENDERED BY ASSESSEE TO IT S AE. 87. WE THEREFORE UPHOLD THE OBSERVATION OF DRP IN E XCLUDING INFOSYS LTD., KALS INFORMATION SYSTEMS LTD. (SEG), PERSISTENT SYSTEMS LTD. AND TATA ELXI LTD. (SEG), SASK AND COM MUNICATIONS TECHNOLOGY LTD, FROM THE FINALIST. R.S SOFTWARE INDIA LTD.: 88. IT IS SUBMITTED THAT ASSESSEE DO NOT HAVE ANY O BJECTION FOR THIS COMPANY TO BE INCLUDED IN THE FINAL LIST OF CO MPARABLE. IT HAS BEEN SUBMITTED THAT, THIS COMPANY IS FUNCTIONALLY C OMPARABLE AND QUALIFIES ALL FILTERS. 89. WE ACCORDINGLY DIRECT THIS COMPARABLE TO BE INC LUDED IN THE FINALIST. ACCORDINGLY GROUND NO. 2-5 RAISED BY REVENUE STANDS PARTLY ALLOWED. 90. GROUND NO. 6 IS IN RESPECT OF DISALLOWANCE DELETED MADE UNDER SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTIO N OF TDS TOWARDS PURCHASE OF SOFTWARE. 91. THE LD.SR.DR RELIED ON THE ORDERS PASSED BY THE LD.AO AND THE DRAFT ASSESSMENT ORDER. PAGE 46 OF 55 IT(TP)A NO.517 & 570/BANG/2015 92. AT THE OUTSET THE LD.COUNSEL SUBMITTED THAT, TH IS ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN IT(TP)A NO.305 & 248/BAN G/2014 BY ORDER DATED 12/02/2020 AS UNDER: 42. AS FAR AS GROUND NO.4 IS CONCERNED, THE ISSUE IS WHETHER DEPRECIATION CAN BE DENIED ON SOFTWARE ON THE GROUND THAT THERE HAS BEEN NO TAX DEDUCTION AT SOURCE WHILE MAKING PAYMENT TO THE SEL LER. THE FACTS ARE THAT DURING THE ASSESSMENT YEAR, THE ASSESSEE HAD PURCHA SED SOFTWARE FOR BANGALORE AND PUNE UNIT FOR RS287,823I AND RS26,000 IRESPECTIVELY. THE ASSESSEE CAPITALIZED THE SAME AND CLAIMED DEPRECIAT ION @ 60% ON THE SAME. THE AO DISALLOWED THE DEPRECIATION CLAIMED AM OUNTING TO RS.1,72,693 AND RS,15,600 ON PURCHASE OF COMPUTER S OFTWARE IN RESPECT OF THE UNITS LOCATED AT BANGALORE AND PUNE RESPECTI VELY ON ACCOUNT OF NON- DEDUCTION OF TAXES AT SOURCE IN RESPECT OF SUCH PAY MENTS. HE HELD THAT THE PAYMENTS FOR THE PURCHASE OF COMPUTER SOFTWARE COME S WITHIN THE PURVIEW OF 'ROYALTY' AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AND ARE LIABLE TO TAX DEDUCTION AT SOURCE. THE DRP HAS HELD THAT DEPRECIATION BEING A STATUTORY ALLOWANCE, CANNOT BE DISALLOWED UNDER SECTION 40(A)(I)I(IA) OF THE ACT. ACCORDINGLY THE D RP DIRECTED THE LEARNED AO TO DELETE THE DISALLOWANCE IN THIS REGARD. 43. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR N OTICE THAT IDENTICAL ISSUE HAD BEEN CONSIDERED AND DECIDED BY THE ITAT BANGALO RE BENCH IN THE CASE OF WINTAC LTD. V. DCIT, ITA NO.834/BANG/2016. THE QUESTION THAT AROSE FOR CONSIDERATION IN THE AFORESAID DECISION W AS WITH RESPECT TO THE DISALLOWANCE OF DEPRECIATION BY INVOKING THE PROVIS IONS OF SECTION 40(A)(I) OF THE ACT. THERE WAS NO DISPUTE IN THAT CASE THAT THE ASSESSEE HAS MADE THE PAYMENT IN QUESTION FOR PURCHASE OF SOFTWARE AN D THE SAID PAYMENT HAS BEEN CAPITALIZED BY THE ASSESSEE IN THE BLOCK O F COMPUTER ASSET. ONCE THE ASSESSEE CAPITALIZED THE PAYMENT AND HAS NOT CL AIMED THE SAME AS AN EXPENDITURE AGAINST THE PROFITS OF THE BUSINESS OF THE ASSESSEE, THEN, THE QUESTION ARISES WHETHER THE DEPRECIATION WHICH IS A STATUTORY DEDUCTION AS PER THE SECTION 32 OF THE ACT CAN BE D ISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THE TRIBUNAL HELD THAT SINCE THE ASSESSEE HAS NOT CLAIMED THE ENTIRE AMOUNT AS R EVENUE EXPENDITURE; BUT HAS CAPITALIZED THE SAME AND CLAIMED ONLY DEPRE CIATION U/S 32(1)(II); THEREFORE, PROVISIONS OF SEC. 40(A)((I) SHALL NOT A PPLY. SECTION 40(A)(I) CONTEMPLATES THAT ANY INTEREST, ROYALTY, FEE FOR TE CHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE OUT SIDE INDIA AS IT IS RELEVANT FOR THE CASE IN HAND ON WHICH TAX IS DEDUC TIBLE AT SOURCE UNDER CHAPTER XVII -B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID, THE AMOUNT OF INTEREST, ROYALTY, FEE FOR TECHNICAL PAGE 47 OF 55 IT(TP)A NO.517 & 570/BANG/2015 SERVICES AND OTHER SUM SHALL NOT BE DEDUCTED IN COM PUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS & GAINS OF BUSIN ESS OR PROFESSION'. THIS CONDITION OF DEDUCTIBILITY HAS BEEN STIPULATED U/S 40 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 30 TO 38 OF THE ACT. SEC. 40 BEGINS WITH NON-OBSTANTE CLAUSE; THEREFORE, IT HAS AN OVERRIDIN G EFFECT TO THE PROVISIONS OF SEC. 30 TO 38 OF THE I.T. ACT. THE QUESTION ARIS ES IS WHETHER ANY AMOUNT PAID OUTSIDE INDIA OR TO THE NON RESIDENT WITHOUT D EDUCTION OF TAX AT SOURCE AND THE ASSESSEE HAS CAPITALIZED THE SAME IN THE FIXED ASSETS AND CLAIMED ONLY DEPRECIATION IS SUBJECTED TO THE PROVI SIONS OF SEC. 40(A)(I) OR NOT? THE TRIBUNAL HELD THAT IT WAS MANIFEST FROM TH E PLAIN READING OF PROVISIONS OF SEC. 40(A)(I) THAT AN AMOUNT PAYABLE TOWARDS INTEREST, ROYALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUMS C HARGEABLE UNDER THIS ACT SHALL NOT BE DEDUCTED WHILE COMPUTING THE INCOME UN DER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION ON WHICH TAX IS DEDUCTIBLE AT SOURCE; BUT SUCH TAX HAS NOT BEEN DEDUCTED. THE EXPRESSION 'AMOUNT PAYABLE' WHICH IS OTHERWISE AN ALLOWABLE DEDUCTION REFERS TO THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E AND THEREFORE, THE SAID EXPENDITURE IS A DEDUCTIBLE CLAIM. THUS, SECTI ON 40 REFERS TO THE OUTGOING AMOUNT CHARGEABLE UNDER THIS ACT AND OBJEC T TO TDS UNDER CHAPTER XVII-B. THERE IS A DIFFERENCE BETWEEN THE A ND OTHER KIND OF DEDUCTION. THE OTHER KIND OF DEDUCTION WHICH INCLUD ES ANY LOSS INCIDENTAL TO CARRYING ON THE BUSINESS, BAD DEBTS ETC., WHICH ARE DEDUCTIBLE ITEMS ITSELF NOT BECAUSE AN EXPENDITURE WAS LAID OUT AND CONSEQUENTIALLY ANY SUM HAS GONE OUT; ON THE CONTRARY THE EXPENDITURE R ESULTS A CERTAIN SUMS PAYABLE AND GOES OUT OF THE BUSINESS OF THE ASSESSE E. THE SUM, AS CONTEMPLATED UNDER SEC. 40(A)(I) IS THE OUTGOING AM OUNT AND THEREFORE, NECESSARILY REFERS TO THE OUTGOING EXPENDITURE. DEPRECIATION IS A STATUTORY DEDUCTION AND AFTER THE INSERTION OF EXPLANATION 5 TO SEC. 32, IT IS OBLIGATORY ON THE P ART OF THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF DEPRECIATION ON T HE ELIGIBLE ASSET IRRESPECTIVE OF ANY CLAIM MADE BY THE ASSESSEE. THE REFORE, DEPRECIATION IS A MANDATORY DEDUCTION ON THE ASSET WHICH IS WHOLLY OR PARTLY OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS O R PROFESSION WHICH MEANS THE DEPRECIATION IS A DEDUCTION FOR AN ASSET OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS AND N OT FOR INCURRING OF ANY EXPENDITURE. THE DEDUCTION U/S 32 IS NOT IN RES PECT OF THE AMOUNT PAID OR PAYABLE WHICH IS SUBJECTED TO TDS; BUT IS A STATUTORY DEDUCTION ON AN ASSET WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION OF DEPRECATION. DEPRECIATION IS NOT AN OUTGOING EXPENDITURE AND THE REFORE, THE PROVISIONS OF SEC. 40(A)(I) OF THE ACT ARE NOT ATTRACTED ON SU CH DEDUCTION. THE PROVISIONS OF SECTION 40(A) IS ONLY AN ADDITIONAL M EASURE TO ENFORCE THE COMPLIANCE OF CHAPTER XVIIB OF THE ACT, BY DISALLOW ING AN EXPENDITURE WHICH IS OTHERWISE ALLOWABLE UNDER THE PROVISIONS O F THE ACT. PAGE 48 OF 55 IT(TP)A NO.517 & 570/BANG/2015 THEREFORE, THE QUESTION OF DISALLOWANCE UNDER SECTI ON 40(A) ARISES ONLY WHEN AN EXPENDITURE IS CLAIMED BY THE ASSESSEE WITH OUT DEDUCTING THE TAX AT SOURCE AS PER THE PROVISIONS OF CHAPTER-XVII B OF THE ACT, 1961. IN THE CASE ON HAND, WHEN THE ASSESSEE HAS NOT CLAIMED , THE SAID PAYMENT AS AN EXPENDITURE THEN THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(1) DOES NOT ARISE. THE ONLY REMEDY WHICH MIGH T HAVE BEEN RESORTED TO BY THE ASSESSING OFFICER IS THE ACTION UNDER SEC TION 201 AND 201A OF THE ACT. FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL, WE A RE OF THE CONSIDERED ONCE THE ASSESSEE HAS CAPITALIZED THE PAYMENT IN QUESTIO N, THEN EVEN THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON SUCH PAY MENT, THE PROVISIONS OF SECTION 40(IA) CANNOT BE INVOKED FOR DISALLOWANC E OF THE CLAIM OF DEPRECIATION. 93. IT HAS BEEN SUBMITTED THAT FACTUALLY THERE IS N O CHANGE FOR YEAR UNDER CONSIDERATION AS COMPARED TO ASSESSMENT YEAR 2009- 10. 94. RESPECTFULLY FOLLOWING THE VIEW TAKEN HEREINABO VE, WE DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE LD.AO IN DE LETING THE DISALLOWANCE MADE UNDER SECTION 40 (A) (IA). ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DI SMISSED. 95. GROUND NO. 7 HAS BEEN RAISED BY REVENUE AGAINST THE DELETION OF DISALLOWANCE MADE FOR NON-DEDUCTION OF TDS ON PAYMENTS TOWARDS PROFESSIONAL AND LEGAL FEES. THE LD.SR.DR PLACED RELIANCE ON ORDERS PASSED BY TH E LD.AO AND THE DRAFT ASSESSMENT ORDER. 96. AT THE OUTSET THE LD.COUNSEL SUBMITTED THAT DRP DIRECTED ASSESSEE TO FILE THE DETAILS IN RESPECT OF THE SAME BEFORE THE LD. AO FOR DUE VERIFICATION, BASED ON WHICH THE LD.AO W AS CONSIDER THE CLAIM OF ASSESSEE. HE SUBMITTED THAT, THE DETAI LS WERE ACTUALLY FILED BEFORE THE DRP WHICH IS PLACED AT PA GE 181-185 OF THE PAPER BOOK REGARDING THE TDS HAVING DEDUCTED IN RESPECT OF PAGE 49 OF 55 IT(TP)A NO.517 & 570/BANG/2015 THE PAYMENTS MADE. THE LD.AO WHILE PASSING THE FINA L ASSESSMENT ORDER CARRIED OUT VERIFICATION IN RESPEC T OF THE SAME AND GRANTED RELIEF TO ASSESSEE. 97. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOT H SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE LD.AO AS RELIEF GRANTED TO ASSE SSEE IS BASED ON VERIFICATION OF MATERIALS/EVIDENCES PRODUCED BY ASS ESSEE BEFORE THE DRP. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DI SMISSED. 98. GROUND NO. 8 IS RAISED BY REVENUE AGAINST THE DIRECTION BY DRP TO THE LD.AO TO GRANT THE SUBLEASE EXPENSES AS DEDUCTION UNDER SECTION 57 (III) FROM THE SUBLEASE INCOME UND ER THE HEAD INCOME FROM OTHER SOURCES. 99. THE LD.COUNSEL SUBMITTED THAT ASSESSEE HAS A PA RT OF SPACE IN THE LEASED BUILDING FOR THE STPI UNIT AT BANGALO RE WHICH WAS NOT UTILISED BY ASSESSEE AND THEREFORE WAS SUBLEASE D, AGAINST WHICH INCOME OF RS.21,73,081/- WAS RECEIVED. ASSESS EE INCURRED EXPENDITURE TOWARDS LEASE RENT PAID OF RS.24,73,45 0/- WHICH WAS REDUCED FROM THE LEASE RENTAL EARNED. THE LD. A O WHILE PASSING DRAFT ASSESSMENT ORDER, DISALLOWED THE SUBL EASE EXPENDITURE IN RELATION TO THE PREMISES FROM WHICH SUBLEASE RENTAL INCOME WAS EARNED. THE LD. AO ALSO DENIED TH E EXPENSES TO BE REDUCED FROM THE PROFITS AND GAINS OF BUSINES S AND PROFESSION. PAGE 50 OF 55 IT(TP)A NO.517 & 570/BANG/2015 100. THE DRP WHILE CONSIDERING THIS ISSUE DIRECTED THE LD. AO TO GRANT THE SUBLEASE EXPENSES AS DEDUCTION UNDER SECT ION 57 (III) OF THE ACT FROM THE SUBLEASE INCOME UNDER THE HEAD IN COME FROM OTHER SOURCES. 101. BEFORE US THE LD.CIT.DR RELIED ON THE ORDERS P ASSED BY AUTHORITIES BELOW. 102. THE LD.COUNSEL ON THE CONTRARY, SUBMITTED THAT THE SUBLEASE EXPENDITURE WAS INCURRED IN RELATION TO TH E PREMISES OCCUPIED BY ASSESSEE FROM ASSESSEE, WHICH RENTAL IN COME WAS EARNED, AND THEREFORE IS DIRECTLY RELATED TO THE IN COME DERIVED FROM SUCH PROPERTY. SHE SUBMITTED THAT, THE SAME WA S ALLOWABLE DEDUCTION UNDER SECTION 57 (III) OF THE ACT, UNDER THE HEAD, INCOME FROM OTHER SOURCES. SHE ALSO SUBMITTED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 SUC H EXPENSES HAS BEEN ALLOWED AGAINST THE RENTAL INCOME. 103. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. 104. IT HAS BEEN SUBMITTED THAT PART OF THE SPACE I N THE LEASED BUILDING OF STPI UNIT AT BANGALORE REMAINED UNUTIL ISED BY ASSESSEE AND THEREFORE WAS SUB LEASED, AGAINST WHIC H INCOME OF RS.21,73,081/-WAS RECEIVED. ASSESSEE ADJUSTED THIS INCOME AGAINST THE RENT PAID ON THE LEASED PREMISES AMOUNT ING TO RS.24,73,405/- THEREBY INCURRING LOSS OF RS.3,00,32 4/- UNDER THE HEAD, INCOME FROM HOUSE PROPERTY. PAGE 51 OF 55 IT(TP)A NO.517 & 570/BANG/2015 LD.COUNSEL DO NOT OBJECT TO THE SAID INCOME TO BE CONSIDERED UNDER THE HEAD INCOME FROM OTHER SOURCES HOWEVER IT WAS CONTENDED THAT THE SAME HAS TO BE ALLOWED AS DE DUCTION UNDER SECTION 57 (III) OF THE ACT. THE DRP ON APPRE CIATING THE FACTS WAS OF THE OPINION THAT ANY EXPENDITURE INCUR RED IN RELATION TO SUCH INCOME FROM OTHER SOURCES HAS TO BE ALLOWED AS DEDUCTION AS PER PROVISIONS OF SECTION 57(III) OF T HE ACT, AS THERE WAS A DIRECT CONNECTION BETWEEN THE INCOME AND EXPE NDITURE INCURRED. 105. WE NOTE THAT IDENTICAL ISSUE AROSE BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE IN IT(TP)A NO.305&248/B/2014 FO R ASSESSMENT YEAR 2009-10. THIS TRIBUNAL VIDE ORDER DATED 12/02/2020 OBSERVED AND HELD AS UNDER: 25. AS REGARDS GROUND NO.5, THE FACTS ARE THAT TH E ASSESSEE SUBLET A PORTION OF THE PREMISES OF WHICH IT WAS A LESSEE AND EARNED RENTAL INCOME OF RS,1,31,20,320. THE INCOME SO EARNED WAS OFFERED BY THE ASSESSEE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' . AGAINST THE AFORESAID INCOME, THE ASSESSEE CLAIMED DEDUCTION U/ S. 57(III) OF THE ACT OF THE LEASE RENT WHICH THE ASSESSEE PAID TO ITS LESSO R VIZ., A SUM OF RS,1,81,11,130. IT IS THE PLEA OF THE ASSESSEE THAT THE PROPORTIONATE RENT OF THE PORTION OF THE SUB-LEASE WAS NOT CLAIMED AS DED UCTION WHILE COMPUTING ITS INCOME UNDER THE HEAD 'PROFITS & GAINS OF BUSIN ESS OR PROFESSION'. IN THIS BACKGROUND, THE AO EXAMINED THE CLAIM OF ASSES SEE AND REJECTED THE CLAIM OF ASSESSEE FOR DEDUCTION ON RENTS PAID TO TH E LANDLORD OBSERVING AS FOLLOWS:- '12.1 AS SEEN FROM COMPUTATION OF TOTAL INCOME, THE ASSESEE HAS RECEIVED RENTAL INCOME OF RS.1,31,20,320/- BUT SET IT OFF AG AINST RENTAL EXPENDITURE OF RS. 1,81,1 1,130/- RESULTING IN LOSS UNDER THE H EAD HOUSE PROPERTY OF RS.49,90,810/-. IN THIS REGARD IT MAY BE NOTED THAT THE RENTAL INCOME OF THE ASSESSEE IN RESPECT OF HOUSING THE STPI UNIT AT BAN GALORE WOULD REDUCE THE PROFIT OF STP UNIT BEING THE BUSINESS EXPENDITU RE. ON THE OTHER HAND, THE ENTIRE AMOUNT OF RENTAL INCOME WOULD FALL EITHE R UNDER THE HEAD HOUSE PROPERTY OR INCOME UNDER THE HEAD OTHER SOURCES, BE ING SUB LEASED RENTAL INCOME, AND THE SUBLEASED RENTAL INCOME IS TAXABLE WITHOUT ANY PAGE 52 OF 55 IT(TP)A NO.517 & 570/BANG/2015 ADJUSTMENT AGAINST THE BUSINESS EXPENDITURE OF STPI UNITS. ACCORDINGLY A SUM OF RS.1,31,20,320/- IS BROUGHT TO TAX UNDER THE HEAD OTHER SOURCES.' 26. THE ASSESSEE PREFERRED OBJECTIONS AGAINST THE A CTION OF THE AO IN NOT ALLOWING THE AFORESAID DEDUCTION BEFORE THE DRP, WH ICH CONFIRMED THE ORDER OF AO. THE ADDITION WAS INCORPORATED IN THE F INAL ORDER OF ASSESSMENT AGAINST WHICH THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 27. THE ID. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF EAST WEST HO TELS LTD. V. DCIT [2011] 13 TAXMANN.COM 167 (KAR) WHEREIN THE FACTS W ERE IDENTICAL TO THE FACTS IN THE ASSESSEE'S CASE AND THE QUESTION BEFOR E THE HON'BLE HIGH COURT WAS, WHETHER THE ASSESSEE WAS ENTITLED TO CLAIM DED UCTION U/S. 57(III) OF THE ACT ON THE RENTS PAID TO THE LESSOR AGAINST THE INCOME DERIVED FROM SUB- LETTING? THE HON'BLE HIGH COURT HELD THAT DEDUCTION WAS ADMISSIBLE U/S. 57(III) OF THE ACT. THE ID. DR, HOWEVER, SUBMITTED THAT THE CASE OF THE AO IS THAT THE SUM CLAIMED AS DEDUCTION WOULD GO TO REDUC E THE PROFITS ON WHICH DEDUCTION U/S. 10A OF THE ACT IS CLAIMED BY THE ASS ESSEE AND THEREFORE THE QUESTION WHETHER THIS SUM WAS CLAIMED AS A DEDUCTIO N WHILE COMPUTING THE BUSINESS OF STPI UNIT ALSO NEEDS TO BE LOOKED I NTO. 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E OF THE VIEW THAT IN THE LIGHT OF THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF EAST WEST HOTELS LTD. (SUPRA), THE DEDUCTION CLA IMED BY THE ASSESSEE HAS TO BE ALLOWED. WE, HOWEVER, DIRECT THE AO TO EX AMINE AS TO WHETHER THE SUM CLAIMED AS A DEDUCTION HAS ALSO BEEN CLAIME D AS DEDUCTION WHILE COMPUTING PROFITS OF THE STPI UNIT. THE AO WILL VER IFY THIS ASPECT AND DECIDE ON WHETHER THE CLAIM OF ASSESSEE FOR DEDUCTI ON CAN BE ALLOWED AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. 106. RESPECTFULLY FOLLOWING THE ABOVE OBSERVATION, WE ALSO DIRECT THE LD. AO TO EXAMINE AS TO WHETHER THE SUM CLAIMED AS DEDUCTION HAS ALSO BEEN CLAIMED AS DEDUCTION WHILE COMPUTING PROFITS OF THE STPI UNIT. THE AO SHALL VERIFY THIS ASPECT THEN DECIDE ON WHETHER THE CLAIM OF ASSESSEE FOR DEDUCTI ON CAN BE ALLOWED AFTER AFFORDING PROPER OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH LAW. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS AL LOWED FOR STATISTICAL PURPOSES. PAGE 53 OF 55 IT(TP)A NO.517 & 570/BANG/2015 GROUND NO. 2 (RAISED UNDER CORPORATE TAX BY ASSESSE E IN ITS APPEAL): 107. AS WE HAVE ALREADY REMANDED THIS ISSUE, GROUND NO. 2 RAISED BY ASSESSEE UNDER THE CORPORATE TAX REGARDIN G SET-OFF OF LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES AGAIN ST INCOME CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM PROFIT AND GAINS WOULD BECOME CONSEQUENTIAL. ACCORDINGLY THIS GROUND ALSO STANDS REMANDED TO LEA RNT AO TO BE CONSIDERED IN ACCORDANCE WITH LAW. 108. GROUND NO. 9 AND 10 IS IN RESPECT OF REDUCTION OF COMMUNICATION EXPENSES, INSURANCE EXPENSES AND EXPE NDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER. 109. IT HAS BEEN SUBMITTED THAT THE LD.AO ON DIRECT ION OF DRP CONSIDERED COMMUNICATION EXPENSES, INSURANCE EXPENS ES AND EXPENSES INCURRED IN FOREIGN CURRENCY IS ATTRIBUTAB LE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA THEREBY EXCLUDING THE SAME FROM EXPORT TURNOVER FOR PURPOSES OF COMPUTATI ON OF DEDUCTION UNDER SECTION 10A OF THE ACT. 110. THE LD. CIT DR PLACED RELIANCE ON ORDERS PASSE D BY AUTHORITIES BELOW. 111. ON THE CONTRARY, THE LD.COUNSEL SUBMITTED THAT THE ISSUE NOW STANDS SETTLED IN FAVOUR OF ASSESSEE BY VIRTUE OF DECISION BY HONBLE SUPREME COURT IN CASE OF CIT VS HCL TECHNOLOGIES LTD. , REPORTED IN (2018) 404 ITR 719. PAGE 54 OF 55 IT(TP)A NO.517 & 570/BANG/2015 112. WE HAVE CONSIDERED THE SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. RESPECT FULLY FOLLOWING THE VIEW TAKEN BY HONBLE SUPREME COURT IN CASE OF HCL TECHNOLOGIES LTD. (SUPRA) WE ARE OF THE VIEW THAT COMMUNICATION EXPENSES, INSURANCE EXPENSES AND EXPENDITURE INCURR ED IN FOREIGN CURRENCY ARE TO BE EXCLUDED BOTH FROM THE E XPORT TURNOVER AND TOTAL TURNOVER. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DI SMISSED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED AS INDICATED HEREINABOVE AND APPEAL FILED BY REVENUE S TANDS ALLOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST APRIL, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 1 ST APRIL, 2021. /VMS/ COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 55 OF 55 IT(TP)A NO.517 & 570/BANG/2015 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -4-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -4-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -4-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -4-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -4-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -4-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -4-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS