John Deere India Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 518/PUN/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7629 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-04-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 23-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AND OTHER
• Keywords: Transfer pricing; International transaction; Additional evidence; Non-deduction of tax; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / ITA NO.518/PUN/15 / ASSESSMENT YEAR : 2010-11 M/S.JOHN DEERE INDIA PVT. LTD., CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE 411 028 PAN : AAACJ4233B VS. ACIT, CIRCLE-14, PUNE (APPELLANT) (RESPONDENT) . / ITA NO.575/PUN/15 / ASSESSMENT YEAR : 2010-11 ACIT, CIRCLE-14, PUNE VS. M/S.JOHN DEERE INDIA PVT. LTD., CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE 411 028 PAN : AAACJ4233B (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE - ARE DIRECTED AGAINST THE FINAL ASSESSMENT ORD ER DATED ASSESSEE BY SHRI NIKHIL PATHAK REVENUE BY SHRI SARDAR SINGH MEENA & SHRI AJAY DHOKE DATE OF HEARING 25-04-2019 DATE OF PRONOUNCEMENT 25-04-2019 M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 2 26-02-2015 PASSED BY THE ASSESSING OFFICER (AO) U/S.143 (3) R.W.S.144C (13) OF THE INCOME-TAX ACT, 1961 (HEREINAFT ER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2010-11. 2. THERE IS A DELAY OF ONE DAY IN THE FILING OF THE APP EAL BY THE REVENUE. THE LD. AR DID NOT OBJECT TO THE CONDONATION OF THE DELAY. RESULTANTLY, THE DELAY IN CONDONED AND THE APPEAL IS ADMITTED FO R DISPOSAL. 3. THE LD. AR DID NOT PRESS GROUND NO. 1 CONCERNIN G DEDUCTION U/S 10A AND GROUND NO. 4 REGARDING THE TREATMENT OF FOR EIGN EXCHANGE LOSS/ GAIN. THESE GROUNDS ARE, THEREFORE, D ISMISSED AS NOT PRESSED. 4. THE FIRST EFFECTIVE ISSUE RAISED IN THE ASSESSEES APPEA L IS AGAINST THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADDITION AMOUNTING TO RS.6,37,64,290/- MADE IN RESPECT OF INTERNATIO NAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE (AE). 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E, AN INDIAN COMPANY, IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMEN T SERVICES AND SALES SUPPORT SERVICES TO DEERE AND COMPANY, U SA AND OTHER GROUP ENTITIES. THE ASSESSEE FILED ITS RETURN DECLAR ING TOTAL M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 3 INCOME OF RS.1,05,28,198/-. CERTAIN INTERNATIONAL TRANSACTION S WERE REPORTED IN FORM NO. 3CEB. THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LE NGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. THE ASSESSEE REPORTED THE FIRST INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO DEERE & COMPANY WITH TRANSACTED VA LUE OF RS.1,07,58,57,364/-. THE ASSESSEE APPLIED THE TRAN SACTIONAL NET MARGIN METHOD (TNMM) FOR DEMONSTRATING THAT THIS TRANSACTION WAS AT ALP. IT SELECTED 21 COMPANIES AS COMPARABLE WITH M ULTIPLE YEAR DATA. THE TPO DID NOT DISPUTE THE CORRECTNESS OF THE APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD. HE, HOWEVER, REJECTED THE ASSESSEES VERSION OF SELECTING COMP ARABLES WITH MULTIPLE YEAR DATA. AFTER ENTERTAINING OBJECTIONS FROM THE ASSESSEE, THE TPO SELECTED 11 COMPANIES, OUT OF WHICH 7 CO MPANIES WERE FROM THE LIST OF THE ASSESSEE AND 4 NEW COMPANIES W ERE ADDED. THE DISPUTE RESOLUTION PANEL (DRP) DIRECTED TO EXCLUDE INFOSYS TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES DRAWN BY THE TPO. THE PANEL FURTHER DIRECTED TO INCLUDE 5 NEW COMPANIES, WHICH BROUGHT TOTAL OF COMPARABLE COMPANIES TO 15. THE REVENUE IS AGGRIEVED BY CERTAIN DIRECTIONS GIVEN BY THE DRP, WHICH WE W ILL ADVERT TO A LITTLE LATER. THE ASSESSEE IS AGGRIEVED ONLY BY THE M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 4 INCLUSION OF THREE COMPANIES IN THE FINAL TALLY OF COMPARABLES, NAMELY, (A) KALS INFORMATION TECHNOLOGY SYSTEMS LTD. (SEGMEN T); (B) THIRDWARE SOLUTIONS LTD.; AND (C) ACROPETAL TECHNOLOGIES LTD. (SEGMENT). 6. IN ORDER TO ANALYZE AS TO WHETHER THE COMPANIES DISPUTED BY THE ASSESSEE ARE IN FACT COMPARABLE OR NOT, WE NEED TO AS CERTAIN THE TRUE NATURE OF THE ACTIVITIES DONE BY THE ASSESSEE UNDER THIS INTERNATIONAL TRANSACTION. THE TPO HAS RECORDED ON PAGE 3 OF HIS ORDER THAT THE ASSESSEE RENDERED SOFTWARE DEVELOPMENT SERVIC ES TO DEERE & COMPANY. THE SOFTWARE DEVELOPMENT SERVICES ARE MAINLY IN THE NATURE OF COMPUTER PROGRAMMING AND CODE DEVELOPMENT BASED ON THE BUSINESS KNOWLEDGE PROVIDED BY THE RECIPIENT OF THE SERVICE. THE SERVICES PROVIDED BY THE ASS ESSEE ARE SOFTWARE APPLICATION DEVELOPMENT AND SUPPORT FOR VARIOUS BUSINESS DIVISIONS OF DEERE AND COMPANY; DATA AND APPLICATIO N MANAGEMENT SERVICES TO VARIOUS BUSINESS UNITS OF DEERE & COMPANY; DESIGNING NEW BUSINESS SOLUTIONS BY USING EXISTING AN D NEW TECHNOLOGIES; DEVELOPMENT AND ENHANCEMENT; MAINTENANC E; AND PRODUCT SUPPORT. THE OVERALL FUNCTIONS PERFORMED BY THE ASSESSEE AND DEERE & COMPANY IN RENDERING SOFTWARE DEV ELOPMENT SERVICES HAVE BEEN SUMMED UP AT PAGES 3 AND 4 OF THE T POS ORDER. M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 5 THE CONCEPTUALIZATION AND DESIGN OF THE SOFTWARE IS DONE BY THE DEERE & COMPANY. THE ASSESSEE HAS A VERY LIMITED ROLE IN OVERALL DESIGNING OF THE SOFTWARE. FUNCTIONAL SPECIFICATIONS AND REQUIREMENT ANALYSIS OF THE SOFTWARE IS ALSO DONE BY DEERE & COMPANY, WHICH IS THEN COMMUNICATED TO THE ASSESSEE AND THE ASSESSEES ROLE IN THIS FUNCTION IS ALSO VERY LIMITED. THEREA FTER, STARTS THE ROLE OF THE ASSESSEE WITH DEVELOPMENT OF CODES AN D DOCUMENTATION; TESTING AND QUALITY CONTROL. WHEN THE SOFTWARE DEVELOPED BY THE ASSESSEE IS PASSED OVER TO DEERE & COM PANY, THE SAME IS INTEGRATED BY THE DEERE & COMPANY INTO THE BIG OVERA LL SOFTWARE DEVELOPED BY THE LATTER. THE ASSESSEE ENTERED IN TO SERVICES AGREEMENT WITH DEERE & COMPANY ON 26.5.2005, W HICH IS VALID FOR THE YEAR UNDER CONSIDERATION AS WELL. THIS AGREEME NT PROVIDES THAT THE ASSESSEE WILL RENDER, INTER ALIA , THE INFORMATION TECHNOLOGY SERVICES FOR JOHN DEERE BUSINESS APPLICATIONS. THE SERVICES INCLUDE THE DEVELOPMENT AND SUPPORT OF THE APPLIC ATIONS USED IN THE BUSINESS OUTSIDE INDIA, WHICH ARE WHOLLY OWNED OR AFFILIATED WITH DEERE. DEVELOPMENT OF APPLICATIONS INCLUDES PROVIDING COMPUTER PROGRAMMING AND CODE DEVELOPMENT ETC. WITH THE BUSINESS KNOWLEDGE PROVIDED BY THE RECIPIENT OF THE SER VICES. WITH THE ABOVE BACKGROUND OF THE NATURE OF SERVICES PROVID ED BY M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 6 THE ASSESSEE UNDER THIS SEGMENT, WE WILL ENDEAVOUR TO SEE IF THE DISPUTED COMPANIES ARE IN FACT, COMPARABLE OR NOT. KALS INFORMATION TECHNOLOGY SYSTEMS LTD. (SEG.) : 7. THE TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES . THE ASSESSEE OBJECTED TO THE SAME BY CONTENDING THAT IT IS FUNCTIONA LLY DIFFERENT AS IT IS ALSO ENGAGED IN PROVIDING SOFTWARE PRODUCTS SINCE ITS INCEPTION. THE ASSESSEE FURTHER POINTED OUT SOME CALCULA TION MISTAKES IN THE OPERATING MARGIN OF THIS COMPANY. THE TPO REJECTED THE ASSESSEES CONTENTION BY OBSERVING THAT NOTHING W AS MENTIONED IN THE PROFIT AND LOSS ACCOUNT OF THE COMPANY ABO UT THE SALE OF PRODUCTS. THE DRP UPHELD THE ACTION OF THE AO IN THE DRAFT ORDER, INCORPORATING THE INCLUSION OF THIS COMPANY IN THE FINA L SET OF COMPARABLES BY THE TPO. AGGRIEVED THEREBY, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMPANY, A COPY OF WHICH IS AVAILABLE AT PAGE 475 ONWARDS OF THE PAPER BOOK. NOTE NO.14 TO THE NOTES TO FINANCIAL STATEMENTS PROVIDES BACKGROUND OF THIS COMPANY BY STATING THAT : THE COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 7 PRODUCTS SINCE ITS INCEPTION. THIS COMPANY HAS TWO MAJOR SEGMENTS, NAMELY, (A) STPI UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND (B) TRAINING CENTRE ENGAGED IN TRAINING OF SOFTWARE PROFESSIONALS ON ONLINE PRO DUCTS. SEGMENTAL INFORMATION HAS BEEN GIVEN AT PAGE 497 OF THE PA PER BOOK, WHICH SHOWS REVENUES FROM THE AFORENOTED TWO SEGM ENTS, NAMELY, APPLICATION SOFTWARE AND TRAINING. PROFIT AND LOSS ACCOUNT OF THIS COMPANY HAS BEEN SET OUT AT PAGE 492 OF TH E PAPER BOOK. FIRST ITEM UNDER THE HEAD INCOME IS SALES, SERVICES AND TRAINING WITH THE FIGURE OF RS.2,30,45,144/-. BREAK-UP OF THIS AMOUNT HAS BEEN GIVEN IN SCHEDULE NO.10 SHOWING `INCOME F ROM SOFTWARE DEVELOPMENTEXPORT RS.2,16,92,935/-; `TRAN SLATION AND INTERPRETATION RS.10,84,248/-; AND `TRAINING RECEIPTS RS.2,67,971/- UNDER THE HEAD OPERATING EXPENSES, AN ITEM OF RS.11,00,000/- HAS BEEN SHOWN WITH NARRATION OF SOFTWAR E CONSUMPTION FROM INVENTORY. BALANCE SHEET OF THIS COMPAN Y SHOWS `INVENTORIES AT RS.60,47,977/-. THE ABOVE INFOR MATION CLEARLY DECIPHERS THAT KALS INFORMATION TECHNOLOGY SYSTEMS L TD. IS NOT ONLY ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES BUT IS ALSO DEALING IN SOFTWARE PRODUCTS UNDER THE RELEVANT SEGMEN T. AS THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF SOFTWARE PRO DUCTS BUT M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 8 IS RENDERING ONLY SOFTWARE SERVICES ON CAPTIVE BASIS, IN OUR CONSIDERED OPINION, THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. PTC SOFTWARE (I) PVT. LTD. (2017) 395 ITR 0176 (BOM) HAS HELD THAT A SOFTWARE PRODUCT COMPANY CANNOT BE COMPARED WITH A COMPA NY PROVIDING SOFTWARE SERVICES. AS KALS INFORMATION TECHNOLOGY SYSTEMS LTD. WAS ENGAGED IN SELLING OF SOFTWARE PRODUCTS WH ICH WAS DIFFERENT FROM ACTIVITY UNDERTAKEN BY ASSESSEE IN THAT C ASE, NAMELY, RENDERING OF SOFTWARE SERVICE TO ITS HOLDING COMPANY , THE SAME WAS HELD TO BE RIGHTLY EXCLUDED FROM THE LIST OF COMPARA BLES. IN VIEW OF THE FOREGOING DISCUSSION, WE ORDER TO EXCLUDE TH IS COMPANY FROM THE FINAL LIST OF COMPARABLES. THIRDWARE SOLUTIONS LTD. : 9. THE TPO SELECTED THIS COMPANY AS COMPARABLE. THE AS SESSEE OBJECTED TO ITS INCLUSION BY CONTENTING THAT IT WAS FUNCTIONALLY DIFFERENT AND ALSO A SUPER PROFIT MAKING COMPANY. THE AS SESSEE CLAIMED THAT THIS COMPANY WAS ENGAGED IN OFFERING COMPREHE NSIVE IMPLEMENTATION AND APPLICATION MANAGEMENT SUPPORT SERVICES IN ENTERPRISE APPLICATION. THE TPO REJECTED THE ASSESSEES CONTENTIONS. THE DRP APPROVED THE ACTION OF THE TPO IN INCLUDIN G M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 9 THIS COMPANY IN THE LIST OF COMPARABLES. THE ASSESSEE HAS COME UP IN APPEAL AGAINST THE INCLUSION OF THIS COMPANY. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE ANNUAL REPORT OF THIS COM PANY IS AVAILABLE AT PAGE 415 ONWARDS OF THE PAPER BOOK. PROFIT A ND LOSS ACCOUNT OF THIS COMPANY SHOWS `SALES OF RS.67,56,06,5 05/-. BREAK-UP OF SUCH SALE HAS BEEN GIVEN IN SCHEDULE 12, WH ICH RECORDS `EXPORT FROM SEZ UNITS RS.47,58,40,447/-; `E XPORT FROM STPI UNITS RS.11,20,90,633; `REVENUE FROM SUBSCRIPTION RS.1,53,13,736/-; `SALE OF LICENCE RS.1,51,38,618/-; AND `SOFTWARE SERVICES RS.5,72,23,072/-. THIS COMPANY H AS SEGMENTS ONLY ON GEOGRAPHICAL BASIS AND NOT ON FUNCTIONAL LE VEL. AS SUCH, THERE IS NO BIFURCATION OF OPERATING PROFIT FROM SOF TWARE SERVICES AND OTHERS INCLUDING SALE OF LICENCE AND REVENUE FR OM SUBSCRIPTION ETC. EVEN THE FIRST TWO MAJOR ITEMS OF `EXPORTS FROM SEZ UNITS AND `EXPORT FROM STPI UNITS DO NOT SHOW AS TO WHETHER THESE WERE EXPORTS OF SOFTWARE PRODUCTS OR SOFTWARE SERVICES . IN THE ABSENCE OF THE AVAILABILITY OF ANY CONCRETE INFORMATION IN RESPECT OF SOFTWARE SERVICES, WE FAIL TO COMPREHEND AS TO HOW THIS COMPANY, ALSO HAVING SOFTWARE PRODUCTS IN ITS PORTFOLIO, CAN BE M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 10 CONSTRUED AS COMPARABLE. THE SAME IS ACCORDINGLY DIRECTED TO BE EXCLUDED. ACROPETAL TECHNOLOGIES LTD. (SEG.) : 11. THIS COMPANY WAS ALSO INCLUDED BY THE TPO IN THE LIST O F COMPARABLES. THE ASSESSEE RAISED OBJECTIONS TO ITS INCLUSION BY CONTENDING THAT APART FROM OTHERS, THIS COMPANY WAS ENGAGED IN PROVIDING ON-SITE SERVICES WHICH MADE IT FUNCTIONALLY DIFFERENT. THE TPO OBSERVED THAT ON-SITE DEVELOPMENT EXPENSES WERE LESS TH AN 50% OF TOTAL EXPENSES AND HENCE, IT WAS NOT A SIGNIFICANT FA CTOR. HE, THEREFORE, PROCEEDED TO INCLUDE IT IN THE LIST OF COMPARABLES. THE DRP DIRECTED THE TPO TO TAKE ONLY THE IT SERVICE SEGMENT OF TH IS COMPANY AS COMPARABLE. THE ASSESSEE IS AGGRIEVED BY TH IS DIRECTION OF THE DRP INCORPORATED IN THE FINAL ASSESSMENT ORDER. 12. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD, WE FIND THAT THE ANNUAL REPORT OF THIS C OMPANY IS AVAILABLE AT PAGE 353 ONWARDS OF THE PAPER BOOK. INFO RMATION REGARDING SEGMENTAL REPORTING HAS BEEN GIVEN AT PAGES 376 AND 377 OF THE PAPER BOOK. THERE ARE ONLY THREE SEGMENTS, NA MELY, (A) ENGINEERING DESIGN SERVICES, (B) INFORMATION TECHNOLOGY SER VICES AND (C) HEALTH CARE. PURSUANT TO THE DIRECTION OF THE DRP, THE TPO M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 11 HAS INCLUDED ONLY INFORMATION TECHNOLOGY SERVICES SEGMENT IN THE FINAL SET OF COMPARABLES. DIRECTORS REPORT OF THIS COMPAN Y RECORDS THAT THE COMPANY IS UNIQUELY PLACED WITH READYMADE SOFTWARE PRODUCTS TO CATER TO THE NEEDS OF HOSPITALS AND HEALTHCARE C ENTRES BOTH IN INDIA AND ABROAD ESPECIALLY IN THE USA. PROFIT AND LO SS ACCOUNT OF THIS COMPANY APPEARS AT PAGE 367 OF THE PAPE R BOOK, WHICH RECORDS `DECREASE IN INVENTORIES BY (RS.1,50,80, 060/-) UNDER THE HEAD EXPENDITURE. BALANCE SHEET OF THIS COMP ANY ALSO HAS A FIGURE OF `INVENTORIES. APART FROM THIS COMPANY B EING ENGAGED IN SOFTWARE PRODUCTS ALSO, IT IS PERTINENT TO NOTE THAT IT HAS RENDERED ON-SITE SERVICES OF A GREATER MAGNITUDE. IT CAN B E SEEN FROM EXPENSES OF RS.55,85,57,169/- INCURRED UNDER THE HEAD EMPLOYEE RELATED AND ON-SITE DEVELOPMENT CHARGES, THIS COMPANY INCUR RED ON-SITE DEVELOPMENT EXPENSES AT RS.42,32,55,491/-, WHIC H TRANSPIRES THAT EMPLOYEES RELATED COSTS INCURRED BY THE COM PANY ON ON-SITE DEVELOPMENT IS ROUGHLY AT 75% OF TOTAL EMPLOYEES RELA TED COSTS. AS AGAINST THIS, THE ASSESSEE IS NOT ENGAGED IN RE NDERING ANY ON-SITE SERVICES. A COMPANY ENGAGED IN PROVIDING ON-SITE S ERVICES CANNOT BE COMPARED WITH A COMPANY PROVIDING SIMILAR SERVICE S FROM ITS OWN PREMISES (IN-HOUSE) DUE TO SEVERAL SIGNIFICA NT DIFFERENCES IN OPERATING COSTS AND ALSO THE REVENUES APART FROM VITAL M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 12 DIFFERENCES IN THE LEVEL OF ASSETS EMPLOYED AND RISKS UNDE RTAKEN. IN VIEW OF THE FOREGOING, WE ARE SATISFIED THAT THIS COMPANY CAN NOT BE CONSIDERED AS COMPARABLE AS IT IS NOT ONLY ENGAGED IN THE B USINESS OF SOFTWARE PRODUCTS BUT IS ALSO PROVIDING ON-SITE SERVICES, W HICH MAKE IT DISTINGUISHABLE FROM THE ASSESSEE COMPANY. WE, THER EFORE, ORDER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 13. NOW WE TURN TO THE DEPARTMENTAL GRIEVANCE IN THE SEGME NT OF SOFTWARE DEVELOPMENT SERVICES. THE DRP DIRECTED TO INCLUDE 5 NEW COMPANIES IN THE LIST OF COMPARABLES WHICH, INTER ALIA, INCLUDED (A) AKSHAY SOFTWARE TECHNOLOGIES LTD. (B) R.S. SOF TWARE SYSTEMS RENDERING ON-SITE SERVICES. THE TPO HAD REJECTED THESE COMPANIES BECAUSE THEY WERE RENDERING ON-SITE SERVICES. THE DRP, HOWEVER, DID NOT FIND ANYTHING AMISS IN INCLUDING THESE COMP ANIES DESPITE THOSE BEING ENGAGED IN RENDERING ON-SITE SERVICES. THE REVENUE IS AGGRIEVED BY THE INCLUSION OF SUCH COMPANIES. 14. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RE LEVANT MATERIAL ON RECORD. WHILE DISCUSSING THE NON-COMPARABILITY OF ACROPETAL TECHNOLOGIES LTD. ABOVE, WE HAVE HELD THAT A COM PANY RENDERING ON-SITE SERVICES CANNOT BE COMPARED WITH A COMPA NY RENDERING IN-HOUSE SERVICES. THE LD. AR HAS FAIRLY BROUG HT TO OUR M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 13 NOTICE AN EARLIER ORDER PASSED BY THE PUNE BENCH OF THE T RIBUNAL IN THE CASE OF TIBCO SOFTWARE (INDIA) PVT. LTD. VS. DCIT (2015) 58 TAXMANN.COM 215 (PUNE-TRIBUNAL) IN WHICH A COMPANY RENDERING ON-SITE SERVICES HAS BEEN HELD TO BE NON-COMPARABLE WITH CO MPANY RENDERING IN-HOUSE SERVICES. INCIDENTALLY, AKSHAY SOFTWARE AND ZYLOG SYSTEMS LTD. WERE PART OF THE COMPANIES CONSIDERED B Y THE PUNE BENCH IN THE AFORENOTED ORDER WHICH WERE HELD TO BE NOT COMPARABLE. RESPECTFULLY FOLLOWING THE PRECEDENT AND ADOPTIN G OUR REASONING GIVEN ABOVE WHILE DEALING WITH ACROPETAL TECHNOLOGIES LTD., WE OVERTURN THE IMPUGNED ORDER ON THIS SCORE AND D IRECT THAT SUCH COMPANIES PROVIDING ON-SITE SERVICES CANNOT BE CONSIDE RED AS COMPARABLE. THE DEPARTMENTAL GROUND IS ALLOWED. 15. VIDE GROUND NO.2, THE REVENUE HAS OBJECTED TO THE DIR ECTION OF THE DRP TO INCLUDE CERTAIN COMPANIES WHICH WERE INITIALLY NOT INCLUDED BY THE ASSESSEE IN ITS LIST OF COMPARABLES BECAUSE TH E RELEVANT FINANCIAL DATA WAS NOT AVAILABLE. HOWEVER, DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO, THE ASSESSEE COULD LAY ITS HANDS ON THE DATA AND CAME UP WITH CONTENTION TO INCLUDE THE M IN THE LIST OF COMPARABLES, WHICH WAS NOT ACCEDED TO BY THE TPO. HERE IT IS PERTINENT TO MENTION THAT SIMILAR COMPANIES ARE APPEARING IN OTHER SEGMENTS OF THE ASSESSEE AS WELL. THE DRP DIRECTED TH E AO TO M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 14 EXAMINE AS TO WHETHER SUCH COMPANIES INCLUDING THREE IN THE EXTANT SEGMENT, NAMELY, (A) E-ZEST SOLUTIONS LTD. (B) EVOKE TECH NOLOGIES PVT. AND (C) MAVERIC SYSTEMS LTD. WERE PART OF ACCEPT-R EJECT MATRIX OF THE ASSESSEE. IF THE SAME WERE FOUND TO BE PART OF THE SAME, THEN IT WAS DIRECTED TO CONSIDER THESE COMPANIES AS COMPARABLES IN CASE THEY MEET ALL THE RELEVANT FILTERS. 16. THE LD. DR CONTENDED THAT THE DRP COULD NOT HAVE DIRE CTED TO CONSIDER SUCH COMPANIES FOR INCLUSION AS THE SAME WERE NO T ORIGINALLY INCLUDED IN THE LIST OF COMPARABLES BY THE ASSESSEE. 17. WE ARE DISINCLINED TO SUSTAIN THE OBJECTION TAKEN BY THE LD. DR THAT THE ASSESSEE SHOULD BE PROHIBITED FROM TAKING A STAN D CONTRARY TO THE ONE WHICH WAS TAKEN AT THE STAGE OF THE PREP ARATION OF THE TP STUDY REPORT. IT GOES WITHOUT SAYING THAT THE OBJECT OF ASSESSMENT IS TO DETERMINE CORRECT INCOME IN RESPECT OF WH ICH THE ASSESSEE IS CHARGEABLE TO TAX. AS THE INCOME NOT ORIGINALLY O FFERED FOR TAXATION, IF OTHERWISE CHARGEABLE, IS REQUIRED TO BE INC LUDED IN THE TOTAL INCOME, IN THE SAME BREATH, ANY INCOME WRONGLY INCLU DED IN THE TOTAL INCOME, WHICH IS OTHERWISE NOT CHARGEABLE, SHOULD BE EXCLUDED. THERE CAN BE NO ESTOPPEL AGAINST THE PROVISIONS OF THE ACT. EXTENDING THIS PROPOSITION FURTHER IN THE CONTEXT OF THE TRA NSFER M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 15 PRICING, IF THE ASSESSEE FAILS TO REPORT AN OTHERWISE COMPARA BLE CASE, THEN THE TPO IS OBLIGED TO INCLUDE IT IN THE LIST OF COMPARABLES, AND IN THE SAME MANNER, IF THE ASSESSEE FAILED TO REPORT AN OTHE RWISE COMPARABLE CASE IN ITS TP STUDY DUE TO ONE REASON OR THE OTHER AND LATER ON CLAIMS THAT IT SHOULD BE CONSIDERED, THEN, THERE SH OULD BE NOTHING TO FORBID THE ASSESSEE FROM CLAIMING SO, PROVIDED THE COMPANY SO REPORTED IS, IN FACT, COMPARABLE. SIMPLY BEC AUSE A COMPANY WAS WRONGLY IGNORED BY THE ASSESSEE AS COMPARA BLE, CANNOT TIE ITS HANDS IN CONTENDING BEFORE THE AUTHORITIES THAT A PARTICULAR COMPANY WAS WRONGLY EXCLUDED FROM THE LIST OF COMPARABLE, WHICH IS, IN FACT, COMPARABLE. THERE IS NO Q UALITATIVE DIFFERENCE IN A SITUATION WHERE THE ASSESSEE CLAIMS THAT A W RONG COMPANY INADVERTENTLY INCLUDED FOR THE PURPOSE OF COMPARISO N SHOULD BE EXCLUDED AND THE SITUATION IN WHICH THE REVENUE DOE S NOT ACCEPT A PARTICULAR COMPARABLE COMPANY CHOSEN BY THE ASSE SSEE, ALBEIT LATER, AS COMPARABLE. THE UNDERLYING OBJECT OF THE ENTIR E EXERCISE IS TO DETERMINE THE CORRECT ARMS LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. SIMPLY BECAUSE A COMPANY WAS WRO NGLY NOT CONSIDERED BY THE ASSESSEE AS COMPARABLE, CANNOT, AC T AS A DETERRENT FOR CLAIMING THAT THIS COMPANY IS, IN FACT, COMPARA BLE AND BE CONSIDERED FOR EVALUATION. THE SPECIAL BENCH OF THE TRIBUNAL IN M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 16 DCIT VS. QUARK SYSTEMS PVT. LTD. (2010) 132 TTJ (CHD) (SB) 1 HAS HELD THAT A COMPANY WHICH WAS WRONGLY INCLUDED BY THE ASSES SEE AND ALSO BY THE TPO IN THE LIST OF COMPARABLES AT THE TIME OF COMPUTING ALP, CAN BE EXCLUDED BY THE TRIBUNAL, IF THE ASSES SEE PROVES THAT THE SAME WAS WRONGLY INCLUDED. SIMILAR VIEW HAS BEEN LATER ON TAKEN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. TATA POWER SOLAR SYSTEMS LTD. (2017) 298 CTR 0197 (BOM) HOLDING THAT A PARTY IS NOT BARRED IN LAW FROM WITHDRAWING FROM ITS LIST OF COMPARABLES, A COMPANY INCLUDED ON ACCOUNT OF MISTAKE. TH IS RATIO ALSO APPLIES IN THE REVERSE DIRECTION, THAT IS, WHERE THE ASSE SSEE WRONGLY EXCLUDED A GOOD COMPARABLE FROM THE LIST OF COMPA RABLES AND THEN PLEADS FOR ITS INCLUSION IN THE FINAL LIST OF COMPARAB LES. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. REUTERS INDIA PVT. LTD. 288 CTR 741 (BOM.) HAS HELD THAT THERE CAN BE NO ESTOPPEL IN POINTING OUT THE CORRECT FACTS BEFORE THE APPELLATE AUTHORITIES PARTICULARLY WHEN ALL FACTS ARE ON RECORD. IN VIEW OF THE F OREGOING DISCUSSION, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE D IRECTION GIVEN BY THE DRP ON THIS COUNT IN SO FAR AS THE OBJECTION OF THE REVENUE IS CONCERNED. THE LD. DRP HAS SIMPLY DIRECTED TO EXAMINE THE COMPARABILITY OF THESE COMPANIES AND DID NOT, AT THE TH RESHOLD, THROW THE ASSESSEE OUT SIMPLY ON THE REASONING THAT THE RELEV ANT M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 17 INFORMATION WAS FILED IN RESPECT OF THESE COMPANIES ONLY DUR ING THE COURSE OF PROCEEDINGS BEFORE THE TPO. IN VIEW OF THE FO REGOING DISCUSSION, WE ARE SATISFIED THAT THE DIRECTION GIVEN BY THE DRP CANNOT BE INTERFERED. THIS GROUND IS, THEREFORE, NOT ALLOWE D. 18. GROUND NO.3 OF THE DEPARTMENTAL APPEAL IS AGAINST TH E DIRECTION OF THE DRP TO EXCLUDE THE INFOSYS TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES. THE TPO INCLUDED INFOSYS TECHNOLOGY LTD. IN THE FINAL TALLY OF COMPARABLES. THE ASSESSEE OBJECTED TO S UCH INCLUSION BY CONTENDING, INTER ALIA , THAT IT IS ENGAGED IN NOTEWORTHY R&D ACTIVITIES APART FROM HAVING SIGNIFICANT INTANGIBLE ASSETS AN D EXCEPTIONALLY HIGH TURNOVER. THE ASSESSEE ALSO SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE AS IT IS ALSO HAVING REVENUES FROM SOFTWARE PRODUCTS. NOT CONVINCED, THE TPO HELD THIS COMPANY TO BE COMPARABLE. THE LD. DRP DIRECTED TO EXCLUDE TH IS COMPANY, WHICH HAS BEEN ASSAILED BY THE REVENUE BEFORE US. 19. HAVING HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD, WE FIND THAT INFOSYS IS ALSO EARNING REVENUE S FROM LICENSING OF SOFTWARE PRODUCTS. THE EXTENT OF PROFIT FROM SOFTWARE SERVICES, IN THE OVERALL KITTY OF PROFITS FROM SOFTWARE SERVIC ES AND SOFTWARE PRODUCTS, CANNOT BE SEPARATED BECAUSE OF THE ME RGED M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 18 EXPENSES. IN VIEW OF THE FACT THAT THE TOTAL PROFIT OF THIS COM PANY INCLUDES PROFIT FROM SOFTWARE DEVELOPMENT SERVICES AS WELL AS SOFTWARE PRODUCTS AND THERE IS NO SEPARATE PROFIT AVAILABLE F OR THE SOFTWARE DEVELOPMENT SERVICES, WE ARE UNABLE TO FIND ANY COMPARABILITY OF THIS COMPANY. IT IS FURTHER SEEN THAT THE ASS ESSEE IS A CAPTIVE UNIT RENDERING SERVICES TO ITS AE ALONE WITHOUT ACQUIRIN G ANY INTELLECTUAL PROPERTY RIGHTS IN THE WORK DONE BY IT IN THE DEVELOPMENT OF SOFTWARE, WHICH ALSO MAKES IT DISTINGUISHABLE FR OM INFOSYS. THE HONBLE DELHI HIGH COURT IN CIT VS. AGNITY INDIA TECHNOLOGIES (P) LTD. (2013) 219 TAXMANN 26 (DEL) CONSIDERED THE GIANTNESS OF INFOSYS LTD., IN TERMS OF RISK PROFILE, NATURE OF SERVICES, NUMBER OF EMPLOYEES, OWNERSHIP OF BRANDED PRODUCTS AN D BRAND RELATED PROFITS, ETC. IN COMPARISON WITH SUCH FACTORS NOT PRE VAILING IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD., BEING, A CA PTIVE UNIT PROVIDING SOFTWARE DEVELOPMENT SERVICES WITHOUT HAVING A NY IP RIGHTS IN THE WORK DONE BY IT. AFTER MAKING COMPARISON OF VARIOUS FACTORS AS ENUMERATED ABOVE, THE HONBLE DELHI HIGH COURT H ELD INFOSYS TO BE NOT COMPARABLE WITH AGNITY INDIA TECHNOLOGIES P VT. LTD. THE FACTS OF THE INSTANT CASE ARE MORE OR LESS SIMILAR INASMUCH AS THE EXTANT ASSESSEE IS ALSO A SERVICE PROVIDER WITH A LIMI TED NUMBER OF EMPLOYEES AT ITS DISPOSAL AND ALSO NOT OWNING ANY M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 19 BRANDED PRODUCTS WITH NO EXPENDITURE ON R&D ETC. WHEN W E CONSIDER ALL THE ABOVE FACTORS IN A HOLISTIC MANNER, THERE RE MAINS ABSOLUTELY NO DOUBT THAT INFOSYS TECHNOLOGIES LTD. IS INCOMPA RABLE TO THE ASSESSEE COMPANY. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN AGNITY INDIA (SUPRA) , WE HOLD THAT INFOSYS TECHNOLOGIES LTD. CANNOT BE TREATED AS COMPARABLE WITH THE ASSESSEE COMPANY AND THE LD. DRP WAS JUSTIFIED IN DIRECTING ITS EXCLUSION. 20. GROUND NO.5 OF THE REVENUES APPEAL IS AGAINST THE DIRECTION OF THE DRP TO THE AO FOR ALLOCATING UNALLOCABLE EXPENSES TO EAC H SEGMENT IN PROPORTION TO SEGMENTAL TURNOVER TO TOTAL TURNOVER. 21. THE FACTS OF THIS GROUND ARE THAT THE TPO INCLUDED CERTA IN COMPANIES ON SEGMENTAL BASIS IN THE LIST OF COMPARABLES IN THE SOFTWARE DEVELOPMENT SERVICES SEGMENT AS WELL AS THE OTHER SEGMENTS OF THE ASSESSEE. FOR EXAMPLE, UNDER THE SOFTWA RE DEVELOPMENT SERVICES SEGMENT, THE TPO CONSIDERED R SYSTEMS INTERNATIONAL LTD., KALS INFORMATION TECHNOLOGY SYSTEMS LTD., AND ACROPETAL TECHNOLOGIES LTD. ON SEGMENTAL BASIS. HOWEVER, W HILE CALCULATING THE OPERATING PROFITS OF THE RELEVANT SEGMENTS OF THE SE COMPANIES, THE TPO DID NOT TAKE INTO CONSIDERATION THEIR UNALLOCATED EXPENSES. THE DRP DIRECTED THE AO TO ALLOCATE M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 20 UNALLOCABLE EXPENSES TO ALL SEGMENTS IN PROPORTION TO SEGMENTA L TURNOVER TO TOTAL TURNOVER AND THEREAFTER COMPUTE MARGINS. THE REVENUE IS AGGRIEVED BY SUCH DIRECTION. 22. HAVING HEARD BOTH THE SIDES, WE NOTICE THAT CERTAIN C OMPANIES INCLUDED BY THE TPO IN THE FINAL LIST OF COMPARABLES UNDER ALL THE SEGMENTS OF THE ASSESSEE, INCLUDING SOFTWARE DEVELOPMENT SEGMENT, HAVE BEEN TAKEN ON SEGMENTAL LEVEL. COMMON UNA LLOCATED OPERATING EXPENSES OF SUCH COMPANIES WERE NOT TAKEN INTO CONSIDERATION IN DETERMINING THEIR RESPECTIVE PROFIT MARGINS. IT IS BUT NATURAL THAT WHILE CALCULATING OPERATING PROFIT MARGIN OF SUCH COMPANIES, EFFECT OF UNALLOCATED OPERATING EXPENSES QUA RELEVANT SEGMENTS HAS TO BE GIVEN. IT IS SO BECAUSE THE ASSESSEE S CORRESPONDING PROFIT MARGIN HAS BEEN DETERMINED AFTER CONS IDERING ALL THE RELEVANT OPERATING EXPENSES AND THE COMPARISON CAN B E DONE ONLY ON LEVEL PLAYING FIELD. WE, THEREFORE, AGREE IN PRINCIPLE WITH THE LD. DRP THAT ALLOCATION OF COMMON UNALLOCATED EXPENSES IS REQUIRED TO BE MADE. HOWEVER, WE DO NOT SUBSCRIBE TO THE VIEW CANVASSED BY THE DRP THAT ALL SUCH COMMON UNALLOCATED EXPEN SES SHOULD BE APPORTIONED ON THE BASIS OF SEGMENTAL TURNOVER TO TOTAL TURNOVER. M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 21 23. UNALLOCATED EXPENSES OBVIOUSLY COMPRISE SEVERAL ITEM S OF DISTINCT NATURE AND HENCE THERE CANNOT BE A UNIFORM KEY OF APPORTIONMENT. FOR EXAMPLE, `RENT PAID BY AN ASSESSEE CAN NOT BE BIFURCATED ON THE BASIS OF SALES OR REVENUE FROM DIFFEREN T SEGMENTS, SUCH AS, MANUFACTURING, TRADING AND SERVICES. THE EXTENT OF AREA USED BY EACH BUSINESS SEGMENT VARIES AS PER THE NATURE O F TRANSACTION, WHICH MAY HAVE NO RELATION WITH THE GROSS REVE NUE. FOR EXAMPLE, A MANUFACTURING UNIT WILL NEED RELATIVELY MORE SPACE THAN A TRADING UNIT. SIMILARLY, A SERVICE UNIT WILL NEED STILL LESSER SPACE . IN SUCH A SCENARIO, APPORTIONING COMMON RENT EXPENDITURE ON TH E BASIS OF SALES OR GROSS REVENUE FROM SUCH VARIED DIVISION S, WILL GIVE SKEWED RESULTS OF SEGMENT PROFITABILITY. SIMILARLY, CONTRIBUTION OF VARIOUS SEGMENTS TO OTHER ITEMS OF EXPENSES VARIES DEPEND ING UPON THE NATURE OF TRANSACTION, EXTENT OF CAPITAL EMPLOYED AND LABOU R REQUIRED ETC. ETC. SO ALL COMMON EXPENSES CANNOT BE APPOR TIONED IN THE UNIVERSAL RATIO OF SALES OR GROSS REVENUE FROM DIFFERE NT SEGMENTS, EACH HAVING ITS OWN SEPARATE FEATURES AND CHARA CTERISTICS. ONE CAN LOGICALLY MAKE ALLOCATION DEPENDING UPON THE NATURE OF EXPENSES AND APPROPRIATE ALLOCATION KEY. AS THE ASSESSEE IS NOT AGGRIEVED BY THE OTHERWISE INCLUSION OF SUCH COMPANIES ON TH E GROUND OF ALLOCATION OF UNALLOCATED EXPENSES, WE SET ASIDE THE M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 22 IMPUGNED ORDER AND DIRECT THE AO/TPO TO ALLOCATE COMMON UNALLOCATED EXPENSES ON THE BASIS OF RELEVANT KEYS AS THE CASE MAY BE AFTER ALLOWING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. DESIGN ENGINEERING SEGMENT : 24. THE ASSESSEE, THROUGH GROUND NO. 3 OF ITS APPEA L, IS AGGRIEVED BY THE TRANSFER PRICING ADDITION OF RS.21,31,640/- IN RESPE CT OF INTERNATIONAL TRANSACTION OF DESIGN ENGINEERING AND TESTING SERVICES PROVIDED BY THE ASSESSEE COMPANY TO ITS AE . 25. SHORN OFF UNNECESSARY DETAILS, IT IS FOUND AS AN A DMITTED POSITION THAT THE ASSESSEE DECLARED MARGIN OF 14.10%, WHICH AFTER THE DIRECTIONS GIVEN BY THE DRP, STOOD COMPUTED AT ARMS LEN GTH MARGIN OF 14.24%. THOUGH THE ASSESSEE HAS RAISED CERT AIN GROUNDS AGAINST DIFFERENCE IN ITS DECLARED MARGIN AND THAT OF COMPAR ABLES, BUT THE SAME WAS ADMITTED TO HAVE BECOME ACADEMIC IN VIEW O F SUCH DIFFERENCE IN THE OPERATING MARGINS, BEING WITHIN THE PERMISSIBLE RANGE NOT WARRANTING ANY TRANSFER PRICING ADDITION. THE LD. AR FURTHER CONCEDED THAT EVEN IF THE GROUND OF THE ASS ESSEE IN THIS REGARD IS REJECTED AND ALL THE GROUNDS TAKEN BY THE REV ENUE FOR THIS SEGMENT ARE ALLOWED, STILL THE ASSESSEES OPERATING MARGIN WOULD BE WITHIN THE PERMISSIBLE RANGE. WITHOUT GOING INTO THE M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 23 MERITS OF THE GROUND TAKEN BY THE ASSESSEE, WE DISMISS THE SAME AS HAVING BECOME ACADEMIC. 26. THE REVENUES GROUND NOS. 2 AND 5 ARE RELEVA NT IN SO FAR AS THIS SEGMENT IS CONCERNED. GROUND NO. 2 IS AGAINST THE DIR ECTION OF THE DRP TO CONSIDER CERTAIN COMPANIES WHOSE FINAL ACCOUNTS WERE NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF PREPARATION OF TRANSFER PRICING STUDY REPORT AND SUCH COMPANIES WERE EX CLUDED AFTER INCLUSION OF THE ACCEPT-REJECT MATRIX. DURING THE COUR SE OF PROCEEDINGS BEFORE THE TPO, ANNUAL ACCOUNTS OF SUCH COMP ANIES CAME INTO BEING WHICH WERE RELIED UPON BY THE ASSESSEE AND A PRAYER WAS MADE FOR THE INCLUSION OF SUCH COMPANIES IN TH E LIST OF COMPARABLES. THOUGH THE TPO REFUSED TO OBLIGE, THE LD. DR P DIRECTED THE TPO TO EXAMINE THE COMPARABILITY OF ONLY SUCH COMPANIES FROM SUCH A LIST WHICH WERE FOUND IN THE ACCEPT- REJECT MATRIX OF THE ASSESSEE. 27. WE HAVE DEALT WITH THIS ISSUE WHILE DEALING WITH SOFTWARE DEVELOPMENT SERVICE SEGMENT. FOLLOWING OUR VIEW TAKEN HEREINABOVE, WE HOLD THAT THERE CAN BE NO ESTOPPEL AGAIN ST THE ASSESSEE IN CONTENDING BEFORE THE AUTHORITIES THAT A PARTICULAR COMPANY OR COMPANIES MAY BE CONSIDERED AS COMPARABLE. IT IS THEN M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 24 FOR THE AUTHORITIES TO EXAMINE THE COMPARABILITY AND DECIDE AS TO WHETHER THESE ARE COMPARABLE OR NOT. WE, THEREFORE, REJE CT THE VIEW POINT TAKEN BY THE DEPARTMENT IN GROUND NO.2 OF ITS APPEAL. 28. GROUND NO.5, IN SO FAR AS IT IS RELEVANT FOR THIS SE GMENT, IS AGAINST THE DIRECTION OF THE LD. DRP TO ALLOCATE COMMON UNALLOCATE D EXPENSES TO THE RELEVANT SEGMENT IN PROPORTION OF SEGMENTAL TURNOVER TO TOTAL TURNOVER. WE HAVE DISCUSSED THIS ASPECT W HILE DEALING WITH SOFTWARE DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. THE SAME VIEW IS FOLLOWED HERE ALSO. BUSINESS SUPPORT SERVICES SEGMENT : 29. THE ASSESSEE REPORTED, INTER ALIA, THE INTERNATIONAL TRANSACTION OF PROVISION OF BUSINESS SUPPORT SERVICES TO DEERE & COMP ANY WITH TRANSACTED VALUE OF RS.8,81,33,662/-. THE TNM METHO D WAS APPLIED FOR EXHIBITING THAT THIS TRANSACTION WAS AT ALP. THE TPO CONSIDERED 7 COMPANIES, INCLUDING ASIAN BUSINESS EXHIBITION AN D CONFERENCE LTD., AS COMPARABLE, WHICH HAVE BEEN LISTED AT PAGE 47 OF HIS ORDER. THE ASSESSEES OBJECTION THAT ASIAN BUSINESS EXHIBITION AND CONFERENCE LTD. WAS FUNCTIONALLY DIFFERENT DID NOT FIND FAVOUR WITH THE TPO WHO HELD THAT THIS COMPANY IS ENGAG ED IN A SINGLE SEGMENT, I.E. EXHIBITIONS AND EVENT MANAGEMENT AND M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 25 HENCE, COMPARABLE. ON THE BASIS OF THEIR OVERALL OPERATING MARGIN OF 24.13%, THE TPO RECOMMENDED A TRANSFER PRICING ADJU STMENT OF RS.89,85,865/-. THE AO PASSED THE ORDER MAKING THE AB OVE ADDITION. THE LD. DRP GAVE CERTAIN DIRECTIONS, INCLUDING THE EXCLUSION OF ASIAN BUSINESS EXHIBITION AND CONFERENCE LTD. FROM THE LIST OF COMPARABLES BY OBSERVING THAT IT WAS ENGAGED ONLY IN ORGANIZATION OF EXHIBITIONS AND CONFERENCES WHICH WAS DIFFER ENT FROM THE ASSESSEES BUSINESS OF PROVIDING SALES SUPPORT SER VICES. THE REVENUE IS AGGRIEVED BY SUCH DIRECTION OF THE LD. DRP. 30. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH T HE RELEVANT MATERIAL ON RECORD. IN ORDER TO APPRECIATE THE COMPARABILITY OR OTHERWISE OF ASIAN BUSINESS EXHIBITION AND CONFERENCE LTD., IT IS SINE QUA NON TO CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE UNDER THIS SEGMENT. IT HAS BEEN RECORDED ON PAGE 14 OF THE T POS ORDER THAT DEERE & COMPANY DEVELOPS A BUSINESS PLAN IN ORDER TO ASCERTAIN ITS REQUIREMENTS WHICH INVOLVES MARKET DEMAND AND SUPPLY ANALYSIS. THEREAFTER, DEERE & COMPANY INTIMATES TO TH E ASSESSEE ABOUT THE MATERIALS REQUIRED BY IT FROM TIME TO TIME . THE ASSESSEE, IN TURN, DISCUSSES AND CONFIRMS ITS UNDERSTANDING OF THE REQUIREMENTS AND THE TYPE OF MATERIAL WITH THE RESPECTIVE DEE RE & COMPANY BEFORE COMMENCING WORK TO IDENTIFY THE SUPPLIER. T HE M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 26 ASSESSEE IS RESPONSIBLE FOR CO-ORDINATING AND LIAISING WITH THE SUPPLIERS AFTER UNDERTAKING A DETAILED ENQUIRY ABOUT THEM AND THEIR DUE DILIGENCE. THEREAFTER, DEERE & COMPANY CARRIES OUT INQ UIRIES TO A LIMITED EXTENT ABOUT THE QUALITY AND RATES ETC. AND THEN CONDU CTS ITS OWN EVALUATION BEFORE UTILIZING THE SERVICES OF A SPECIFIC SUP PLIER. DEERE & COMPANY PROCURES THE MATERIAL FROM THE SUPPLIERS A ND MAKES PAYMENT DIRECTLY TO THEM WITHOUT ANY INVOLVEMENT OF THE ASSESSEE EXCEPT FOR FOLLOW UP WITH THE SUPPLIERS TO ENSURE TH AT A DELIVERY TO DEERE & COMPANY IS MADE ON TIME. APART FROM THIS, THE ASSESSEE IS ALSO PROVIDING ACCOUNT PAYABLE AND OTHER S ERVICES UNDER THIS SEGMENT WHICH INCLUDE PROVIDING TRANSACTIONAL SERVICE S FOR PAYING INVOICE FOR THEIR ACTIVITIES OUTSIDE INDIA AND OTHER SERVICES INCLUDING PAYROLL, EMPLOYEES RECORD KEEPING, HEALTH CARE TRANSACTIONS. 31. WITH THE ABOVE UNDERSTANDING OF THE NATURE OF THE TRANSACTION UNDERTAKEN BY THE ASSESSEE UNDER THIS SEGMENT, WE NOW P ROCEED TO EXAMINE AS TO WHETHER THE DRP WAS JUSTIFIED IN DIRECTING TO EXCL UDE ASIAN BUSINESS EXHIBITION AND CONFERENCE ETC. WHICH WAS INCLU DED BY THE TPO IN THE LIST OF COMPARABLES. WE HAVE GONE THROUG H THE ANNUAL REPORT OF THE COMPANY WHICH IS AVAILABLE AT PAGE 503 ONWARDS OF THE PAPER BOOK. IN THE DIRECTORS REPORT, IT HAS BEEN M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 27 MENTIONED THAT THE MAIN AREA OF OPERATIONS OF THE COMPANY IS ORGANIZING EXHIBITIONS AND CONFERENCES. PROFIT AND LOSS A CCOUNT OF THIS COMPANY HAS BEEN PLACED AT PAGE 514 OF THE PAPER BOOK, WHICH SHOWS DIRECT INCOME OF RS.53,18,30,655/-. BIFU RCATION OF THE INCOME HAS BEEN GIVEN IN SCHEDULE 12 WHICH REVEALS THAT TH E REVENUE FROM EXHIBITIONS AND EVENTS IS RS.50,94,41,029/ -; `DELEGATE FEE IS RS.7,000/-; `SPONSORSHIP/PROMOTIONAL CHARGES ARE RS.88,67,639/-; `MISCELLANEOUS RECEIPTS ARE RS.7,57, 747/- AND `ENTRY CHARGES ARE RS.1,27,57,240/-. IT IS OBVIOUS FRO M THE BIFURCATION OF THE `DIRECT INCOME THAT THE ENTIRE INCOME PERTAIN S TO EXHIBITIONS AND EVENTS AS HAS ALSO BEEN ACCEPTED BY THE TPO IN HIS ORDER. THE REVENUE RECOGNITION OF THIS COMPANY HAS BEE N GIVEN ON PAGE 523 OF THE PAPER BOOK, WHICH MENTIONS THAT IT IS EARNIN G REVENUE FROM SALE OF STALL SPACE IN EXHIBITIONS AND EVENTS. ON GOING THROUGH THE FUNCTIONAL PROFILE OF THIS COMPANY, IT BECOMES E XPLICITLY CLEAR THAT IT IS NOWHERE CLOSE TO THE ASSESSEES ACTIVITIES UNDE R THIS SEGMENT, WHICH ARE CONFINED TO MAINTENANCE/UPDATION OF SU PPLIERS RECORD AND PROVIDING PAY ROLL SERVICES ETC. IN OUR CONS IDERED OPINION, THE LD. DRP WAS FULLY JUSTIFIED IN DIRECTING TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 28 32. OTHER GROUNDS OF THE REVENUE IN SO FAR AS THE SE LECTION OF COMPARABLES BY THE ASSESSEE DURING THE COURSE OF TRANSFE R PRICING PROCEEDINGS, WHICH WERE EARLIER EXCLUDED BECAUSE OF THE NON- AVAILABILITY OF THE RELEVANT FINANCIAL DATA AND ALLOCATION OF UNALLOCATED EXPENSES ARE SIMILAR TO THOSE DISCUSSED IN THE C ONTEXT OF SOFTWARE DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. WE ADOPT OUR VIEW TAKEN HEREINABOVE ON THESE TWO ASPECTS IN THE CON TEXT OF THIS INTERNATIONAL TRANSACTION AS WELL. 33. THE ONLY ISSUE WHICH REMAINS IN THE ASSESSEES AP PEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE U/S.40(A)(I) OF THE A CT IN RELATION TO PAYMENTS OF RS.24,88,60,369/- MADE TO DEERE & COMPANY, USA TOWARDS INFORMATION SYSTEM CHARGES; TELECOMMUNICATION CHARGES; AND ALSO IT SOFTWARE LICENSES; INTERNET ACCESS CHARGES; AND IT SUPPORT SERVICES. SIMILARLY , THERE IS ANOTHER CONFIRMATION OF DISALLOWANCE U/S.40(A)(IA) AMOUNTING TO RS.75,48,813/- ON ACCOUNT OF FAILURE TO DEDUCT TAX AT SOUR CE. 34. BRIEFLY STATED, THE FACTS OF THESE GROUNDS ARE THA T THE ASSESSEE PAID A TOTAL SUM OF RS.24,88,60,369/- TOWARDS INFORMATION SYSTEMS AND TELECOMMUNICATIONS ETC. WITHOUT ANY DEDUCTION OF TAX AT SO URCE TO ITS FOREIGN/AE. ON BEING CALLED UPON TO EXPLAIN AS TO WHY M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 29 DISALLOWANCE SHOULD NOT BE MADE FOR THE FAILURE TO ON THE PA RT OF THE ASSESSEE TO DEDUCT TAX AT SOURCES BEFORE MAKING SUCH PA YMENTS, THE ASSESSEE SUBMITTED THAT IT RECEIVED IT SUPPORT SERVICES AND A LSO PAID FOR USE OF SOFTWARE LICENSES AND LEASE RENT CHARGE S TO DEERE & COMPANY WITHOUT ANY DEDUCTION OF TAX AT SOURCE AS THERE W AS NO SUCH REQUIREMENT. SIMILAR POSITION WAS STATED IN RESPECT OF PAYMENTS MADE IN INDIA AMOUNTING TO RS.75,48,813/- WITHOUT DEDUCTION OF TAX AT SOURCE. THE AO HELD THAT THE AMOUNT PAID BY THE ASSESSEE WAS CHARGEABLE TO TAX IN THE HANDS OF THE REC IPIENTS AS ROYALTY. HE, THEREFORE, DISALLOWED THE SAID AMOUNT U/S.40(A) (I)/(IA) OF THE ACT BECAUSE THE ASSESSEE FAILED TO DEDUCT TAX AT SO URCE ON SUCH PAYMENTS. THE DRP DID NOT INTERFERE WITH THE ORDER PA SSED BY THE AO. 35. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. THE LD. AR, AT THE VERY OUTSET, SUBMIT TED THAT THE ASSESSEE MADE PAYMENTS PURSUANT TO CERTAIN AGREEMENTS, SOME OF WHICH WERE FILED BY HIM AS ADDITIONAL EVIDENCE. HE FURTH ER STATED THAT SIMILAR ISSUE CAME TO BE CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.YRS. 2007-08 AND 2008- 09 IN WHICH THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE LD. AR SUBMITTED THAT HE WOULD BE SATISFIED IF THE IMPUGNED ORDER IS S ET M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 30 ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO FOR DECID ING THIS ISSUE AFRESH IN THE LIGHT OF THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. THE LD. DR DID NOT RAISE ANY OBJECTION TO THE RES TORATION OF THE ISSUE. 36. IN VIEW OF THE RIVAL BUT COMMON SUBMISSIONS, WE S ET-ASIDE THE IMPUGNED ORDER ON THE QUESTION OF DISALLOWANCE U/S.40( A)(I)/(IA) AND REMIT THE MATTER TO THE FILE OF AO FOR DECIDING IT AFRESH A S PER LAW IN THE LIGHT OF ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED REASONABLE OPP ORTUNITY OF HEARING. 37. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH APRIL, 2019. SD/- SD/- (VIKAS AWASTHY) (R.S.SYAL ) JUDICIAL MEMBER VICE PRESIDENT PUNE; DATED : 25 TH APRIL, 2019. M/S. JOHN DEERE INDIA PVT. LTD., A.YR. 2010-11 31 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-13, PUNE 4. 5. THE PR. CIT-5, PUNE , , / DR C, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 25-04-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 25-04-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *