M/s Sungard Solutions (India) Private Limited, Pune V. DCIT, Bangalore

ITA 540/BANG/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5754 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-12-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 31-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VIJAY BHASKAR REDDY
• Keywords: Depreciation; Transfer pricing; Rectification of order; Principle of natural justice; International transaction; Retrospective amendment; Non-deduction of tax; TDS; Set aside
• Section: 271(1)(c); 143(3); 92D; 234B; 40(a)(ia); 10B; 143(1); 201; 144C; 143(2); 194J; 13; 22; 92CA; 32; 154

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C , PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI S.S. VISWANETHRA RAVI, JM . / ITA NO.519/BAN/2015 / ASSESSMENT YEAR : 2010-11 THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(1), BANGALORE. . / APPELLANT V/S FIS SOLUTIONS (INDIA) PRIVATE LIMITED, FORMERLY KNOWN AS M/S. SUNGARD SOLUTIONS INDIA PVT. LTD., 14/3, 4 TH FLOOR, RASTROTHANA BHAVAN, (OPP. RBI), NRUPATHUNGA ROAD, BANGALORE - 1, PAN : AAACE7476K. . / RESPONDENT . / ITA NO.540/BAN/2015 / ASSESSMENT YEAR : 2010-11 M/S. SUNGARD SOLUTIONS (INDIA) PVT. LTD., UPPER GROUND FLOOR TO 7 TH FLOOR, WESTEND CENTER, ONE SURVEY NO.169/1, SECTOR II, PUNE 411007, MAHARASHTRA. PAN : AAACE7476K. . / APPELLANT V/S THE DY.COMMISSIONER OF INCOME TAX, PUNE, MAHARASHTRA. . / RESPONDENT . / CO NO.134/BAN/2015 (ARISING OUT OF ITA NO.519/BAN/2015 / ASSESSMENT YEAR : 2010-11 THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2), BANGALORE. . CROSS - OBJECTOR. V/S M/S. SUNGARD SOLUTIONS (INDIA) PVT. LTD., WESTEND CENTER ONE, SURVEY NO.169/1, SECTOR II, AUNDH, PUNE 411007, MAHARASHTRA. PAN : AAACE7476K. . APPELLANT IN THE APPEAL. 2 . / ITA NO.463/PUN/2016 / ASSESSMENT YEAR : 2011-12 THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE. . / APPELLANT V/S M/S. SUN G ARD SOLUTIONS ( INDIA ) PVT. LTD., UPPER GROUND FLOOR TO 7 TH FLOOR, WEST END CENTER, ONE SURVEY NO.169/1, SECTOR II, AUNDH, PUNE 411007, PAN : AAACE7476K. . / RESPONDENT . / ITA NO.338/PUN/2016 / ASSESSMENT YEAR : 2011-12 M/S. SUNGARD SOLUTIONS (INDIA) PVT. LTD., UPPER GROUND FLOOR TO 7 TH FLOOR, WESTEND CENTER, ONE SURVEY NO.169/1, SECTOR II, AUNDH, PUNE 411007, MAHARASHTRA. PAN : AAACE7476K. . / APPELLANT V/S THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE. . / RESPONDENT ASSESSEE BY : SHRI GAUTAM JAIN / SHRI DARPAN KIRPALANI / SMT. MONIKA AGARWAL. REVENUE BY : SHRI T. VIJAY BHASKAR REDDY. / ORDER PER ANIL CHATURVEDI, AM : 1. THESE CROSS APPEALS FILED BY THE ASSESSEE AND REVEN UE ARE EMANATING OUT OF THE ORDERS OF DY. COMMISSIONER OF INCOM E TAX, CIRCLE 6(1)(2), BANGALORE DATED 30.01.2015 FOR THE ASSESSMENT YEAR / DATE OF HEARING : 28.01.2020 / DATE OF PRONOUNCEMENT: 14.02.2020 3 2010-11 AND THE ORDER OF DCIT, CIRCLE-6, PUNE DATED 18.01 .2016 FOR ASSESSMENT YEAR 2011-12. 2. WE FIRST PROCEED WITH ASSESSEES APPEAL IN ITA NO.540/BAN/2015 FOR A.Y. 2010-11. 2.1. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER :- ASSESSEE IS A PRIVATE LIMITED COMPANY STATED TO BE ENGA GED IN PROVIDING HARDWARE AND SOFTWARE APPLICATION AND IT-ENABLED SERVICES. THE NAME OF THE ASSESSEE COMPANY WAS CHANGED TO FIS SOLUTIONS (INDIA) PRIVATE LIMITED W.E.F. 11.11.2016. ASSESSEE FILED ITS ORIG INAL RETURN OF INCOME FOR A.Y. 2010-11 ON 29.09.2010 DECLARING TO TAL INCOME OF RS.42,86,46,600/-. THE CASE WAS SELECTED FOR S CRUTINY AND ACCORDINGLY, NOTICE U/S 143(2) OF THE ACT DATED 29.08.2011 WAS ISSUED AND SERVED ON THE ASSESSEE. IT WAS NOTICED THAT ASSESSEE HAD ENTERED INTO INTERNAT IONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES) DURING T HE YEAR WHICH EXCEEDED RS.15 CRORE. ACCORDINGLY, A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA OF THE ACT FOR DETE RMINING THE ARMS LENGTH PRICE (ALP) IN RESPECT OF THE INTERNATIONAL TR ANSACTIONS. THE TPO VIDE ORDER DATED 30.01.2014 PASSED U/S 92CA O F THE ACT CONCLUDED THAT ADJUSTMENT OF RS.23,41,57,183/- WAS REQUIR ED TO BE MADE TO THE ALP DETERMINED BY THE ASSESSEE IN RESPECT OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT WITH ITS AES DURING THE Y EAR. THEREAFTER, AO PASSED DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S. 144(C) OF THE ACT VIDE ORDER DATED 28.03.2014 DETERMINING THE TO TAL TAXABLE INCOME AT RS.70,82,38,187/-. ASSESSEE OBJECTED TO THE AD DITIONS 4 PROPOSED BY THE AO IN THE DRAFT ASSESSMENT ORDER AND CARRIED THE MATTER BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP VIDE DIRECTIONS PASSED U/S 143(3) R.W.S. 144C ORDER DATED 15 .12.2014 DIRECTED THE AO TO FRAME THE ASSESSMENT ORDER AS PER THE DIRECTIONS CONTAINED THEREIN. PURSUANT TO THE DIRECTIONS OF DRP, AO PASSED ORDER U/S 144(C) R.W.S. 143(3) OF THE ACT VIDE ORDER DATED 30.01.20 15 DETERMINING THE TOTAL TAXABLE INCOME AT RS.47,40,81,004/- . THEREAFTER, AO PASSED ORDER U/S 154 DT.19.03.2015 WHEREIN THE TOTAL TAXABLE INCOME WAS DETERMINED AT RS.47,36,85,859/-. AGGRIE VED BY THE ORDER OF AO, ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. DISALLOWANCE OF DEPRECIATION ON COMPUTER SOFTWAR E. 1.1. THE LEARNED AO HAS ERRED IN DISALLOWING THE D EPRECIATION OF INR 2,253 , 214 UNDER SECTION 40(A)(IA) ON S OFTWARE PURCHASED AND CAPITALIZED IN THE BOOKS OF ACCOUNT OF INR 3,755 , 358 WHILE COMPUTING THE TAXABLE INCOME OF THE APPELLANT DUE TO NON-SUBM ISSION OF DETAILS OF TAX DEDUCTED AT SOURCE AND THE LEARNED DRP ERRED IN CONFIRMING THE SAME. 1.2 WITHOUT PREJUDICE TO THE GROUND 1.1 ABOVE , THE LEARNED AO AND THE LEARNED DRP HAS FAILED TO APPRECIATE THAT NO LI ABILITY OUGHT TO ARISE ON THE APPELLANT FOR NON-DEDUCTION OF TAX AT SOURCE AS SOFTWARE PURCHASES CANNOT BE CONSTRUED AS ' ROYALT Y' . 1.3. WITHOUT PREJUDICE TO THE GROUND 1 . 1 ABOVE, THE LEARNED AO AND THE LEARNED DRP HAS FAILED TO APPRECIATE THAT DEPRE CIATION UNDER SECTION 32 OF THE ACT BEING A STATUTORY DEDUCTION A ND NOT A ROUTINE EXPENDITURE IS NOT GOVERNED BY THE PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT . 1.4. WITHOUT PREJUDICE TO THE GROUND 1.1 ABOVE , THE LEARNED AO AND THE LEARNED DRP HAS FAILED TO APPRECIATE THE FACT T HAT THE APPELLANT OUGHT NOT TO BE PENALIZED FOR AN AMENDMENT MADE LAT ER IN THE LAW WITH RETROSPECTIVE EFFECT ON WHICH IT HAD NO KN OWLEDGE THAT TAX WAS TO BE DEDUCTIBLE AT THE TIME OF MAKING THE PAYM ENT , FURTHER CAUSING HARDSHIP TO THE APPELLANT . 2. DENIAL OF DEDUCTION UNDER SECTION 10A OF THE ACT TO UNIT I, BANGALORE. 2.1. THE LEARNED AO HAS ERRED IN NOT CONSIDERING T HE FACTS AND SUBMISSION MADE BY THE APPELLANT , AND NOT ALLOWING CLAIM FOR DEDUCTION UNDER SECTION 10A OF THE ACT TO UNIT I (B ASED IN BANGALORE) WHICH WAS INADVERTENTLY MISSED OUT BY THE APPELLANT IN ITS RETURN OF INCOME AND THE LEARNED DRP ERRED IN CONFIRMING THE SAME. 5 2.2. THE LEARNED AO AND THE LEARNED DRP FAILED TO APPRECIATE THE PROVISIONS OF LAW AND NATURAL JUSTICE WHEREIN ANY I NADVERTENT OMISSION OF CLAIM BY AN ASSESSEE HAS TO BE CONSIDER ED BY THE ASSESSING OFFICER AND BE GRANTED TO THE ASSESSEE IF THE ASSESSEE IS ELIGIBLE FOR SUCH CLAIM ON MERITS. 3. DENIAL OF DEDUCTION UNDER SECTION 10A OF THE ACT TO UNIT II, BANGALORE 3.1. TH E LEARNED AO HAS ERRED IN DEN Y ING THE DEDUCTION UNDER S ECTION 10A OF THE ACT TO U NIT II OF THE APPELLANT FOLLOWING THE LEARNED AO ' S PREDECESSOR ' S ORDER FOR AY 2009 - 10 WHEREIN IT W AS HELD B Y THE LEARNED AO'S PREDECESSOR THAT UNIT II IS NOT A NEW UNIT BUT AN EXPANSION OF UNIT I . 3.2. WITHOUT PREJUDICE TO THE ABOVE , IF DEDUCTION UNDER SECTION 10A OF THE ACT I S GRANTED TO THE APP E LLANT FOR U NIT I , THE LEARNED AO SHOULD GRANT THE DEDUCTION UNDER SECTION 10A OF THE ACT TO U NIT II TREATIN G IT AS AN EXPANSION OF UNIT I . 4. OTHERS. 4.1. THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B AND SECTION 234C OF THE A C T ; 4.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271(1)(C) OF THE ACT ON THE PREMISE THAT THE APPELLANT HAS CONCEALED / FURNISHED INACCURATE PARTICULARS OF INCOME , WITHOUT APPRECIATING THE FACT THAT THE DISALLO W ANCES MADE B Y THE LEARNED AO IS NOT IN ACCORDANCE WITH THE LAW. 3. GROUND NO.1 AND ITS SUB-GROUNDS ARE WITH RESPECT TO DISALLOWANCE OF DEPRECIATION ON COMPUTER SOFTWARE. 3.1. AO NOTICED THAT ASSESSEE HAD PURCHASED SOFTWARE A GGREGATING TO RS.37,55,358/- BUT HAD NOT DEDUCTED TDS U/S 194J OF TH E ACT ON THE PAYMENT FOR ITS PURCHASE. THE ASSESSEE WAS DIRECTED TO SHOW CAUSE AS TO WHY THE DEPRECIATION CLAIMED ON COMPUTER SOFTWARE NOT BE DISALLOWED IN VIEW OF THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT R .W.S. 194J OF THE ACT, TO WHICH ASSESSEE INTER-ALIA SUBMITTED TH AT TDS PROVISIONS ARE NOT APPLICABLE TO THE ITEMS CAPITALIZED IN THE BOOKS OF ACCOUNTS ON WHICH THE DEPRECIATION IS CLAIMED. THE SUBMISS IONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO WAS OF THE VIEW THAT PROVISIONS U/S 40(A)(IA) OF THE ACT ARE APPLICABLE EVEN T O 6 DEPRECIABLE ASSETS. HE ACCORDINGLY DENIED THE CLAIM OF DEP RECIATION ON SOFTWARE AMOUNTING TO RS.22,53,214/- THAT WAS CLAIMED BY THE ASSESSEE. AGGRIEVED WITH THE DRAFT ORDER, ASSESSEE CARR IED THE MATTER BEFORE DRP, WHO VIDE ORDER DATED 15.12.2014 UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF DRP, ASSESSEE IS NOW BEFORE US. 4. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND DRP AND FURTHER SUBMITTED THAT SINCE THE ASSESSEE HAS CAPITALIZED THE SOFTWARE PURCHASED AND HAS NOT CLAIMED ITS DEDUCTIO N WHILE COMPUTING THE BUSINESS PROFITS, THE PROVISIONS OF SEC.40(A)(IA) O R SEC.40(A)(1) OF THE ACT ARE NOT APPLICABLE. IN SUPPORT OF HIS CONTENTIONS, HE PLACED RELIANCE ON THE DECISION OF BANGALORE TRIBUNAL IN THE CASE OF KAWASAKI MICROELECTRONICS INC., VS. DDIT RE PORTED IN 151 ITD 402. HE THEREFORE SUBMITTED THAT ASSESSEE BE ALLOWED THE CLAIM OF DEPRECIATION. LD. D.R. ON THE OTHER HAND, SUPPORTE D THE ORDER OF LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO DISALLOWANCE OF DEPRECIATION ON COMPUTER SOFTWARE U/S 40(A) (IA) OF THE ACT. IT IS AN UNDISPUTED FACT THAT DURING THE YEAR ASSE SSEE HAD PURCHASED THE SOFTWARE AND IT WAS CAPITALIZED AND THE PURCHASE OF SOFTWARE HAS NOT BEEN CLAIMED AS AN EXPENDITURE. IT IS A LSO A FACT THAT NO TDS WAS DEDUCTED BY THE ASSESSEE ON THE PURCHASE PRICE PAID BY IT. WE FIND THAT THE BANGALORE TRIBUNAL IN THE CASE OF KAWASAK I MICROELECTRONICS INC., (SUPRA) HAS HELD THAT THE QUESTION O F DISALLOWANCE OF EXPENSES U/S 40(A)(IA) OF THE ACT ARISES ONLY WHEN AN EXPENDITURE IS CLAIMED BY THE ASSESSEE AND ON WHICH THE TAX AT SOURCE AS PER THE PROVISIONS OF CHAPTER XVII-B OF THE ACT HAS NOT BEEN 7 DEDUCTED. IT HELD THAT WHEN ASSESSEE HAS NOT CLAIMED PAYMENT AS AN EXPENDITURE, THEN THE QUESTION OF DISALLOWANCE U/S 40(A)(IA) O F THE ACT DOES NOT ARISE. IT FURTHER HELD THAT WHEN THE ASSESSEE HAS ONCE CAPITALIZED THE PAYMENT AND HAD NOT DEDUCTED TDS ON S UCH PAYMENTS, SEC.40(A)(IA) OF THE ACT CANNOT BE INVOKED FOR DISA LLOWANCE OF DEPRECIATION. BEFORE US, REVENUE HAS NOT POINTED OUT ANY CONTRARY BINDING DECISION IN ITS SUPPORT NOR HAS PLACED ANY MATERIAL TO DEMONSTRATE THAT THE AFORESAID DECISION OF BANGALORE ITAT HAS BEEN SET ASIDE / OVER RULED / STAYED BY HIGHER JUDICIAL AUTHO RITIES. WE ARE THEREFORE OF THE VIEW THAT THE AO HAD ERRED IN DISALLOWING THE CLAIM OF DEPRECIATION BY INVOKING THE PROVISIONS OF SEC.40(A)(IA) OF THE A CT. WE THEREFORE DIRECT THE AO TO GRANT DEDUCTION OF DEPRECIAT ION. THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 6. GROUND NO.2 IS WITH RESPECT TO DENIAL OF DEDUCTION U/S 10A WITH RESPECT TO UNIT NO.I, BANGALORE. 6.1 AO HAS NOTED THAT ASSESSEE HAS NOT CLAIMED DEDUCT ION U/S 10A OF THE ACT FOR THE UNIT I, BANGALORE IN THE RETURN OF INCO ME BUT SUBSEQUENTLY, DURING THE ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAS BEEN CLAIMING DEDUCTION ON UNIT -I, BANGALORE SINCE MARCH, 2020 AND THIS IS THE 10 TH YEAR, BEING THE LAST YEAR FOR CLAIM OF DEDUCTION. IT WAS SUBMITTED THAT THE ASSESSEE H AD INADVERTENTLY NOT CLAIMED DEDUCTION U/S 10A OF THE ACT IN THE RETURN OF INCOME BUT THE CLAIM BE ALLOWED TO ASSESSEE. THE CLAIM OF DEDUCTION DURING THE ASSESSMENT PROCEEDINGS WAS DENIED BY THE AO AS HE WAS OF THE VIEW THAT NO SEPARATE CLAIM WAS FURNISHED IN THE RETU RN OF INCOME AND ACCORDING TO HIM, ASSESSEE WAS EITHER NOT MAINTAINING HIS AFFAIRS PROPERLY OR THE CLAIM REMAINED UNVERIFIED. HE ACCORDINGL Y DENIED THE CLAIM OF DEDUCTION. WHEN THE MATTER WAS CARRIED BEFORE DR P, DRP 8 UPHELD THE ORDER OF AO BY NOTING THAT THE ADDITIONAL CLAIM CAN ONLY BE MADE BY WAY OF CLAIM IN THE RETURN OF INCOME WHICH WAS NO T DONE BY THE ASSESSEE AND THEREFORE DENIED THE CLAIM BY FOLLOWING T HE DECISION OF HONBLE SUPREME COURT IN GOETZE (INDIA) PVT. LTD., VS. CIT. AGGRIEVED BY THE ORDER OF DRP, ASSESSEE IS NOW BEFORE US. 7. BEFORE US, LD.A.R. AT THE OUTSET, SUBMITTED THAT UNIT-I , BANGALORE WAS REGISTERED SINCE 24.03.2000 AND ASSESSEE H AD BEEN CLAIMING DEDUCTION U/S 10A OF THE ACT SINCE A.Y. 2001-02 AN D THEREFORE THE YEAR UNDER CONSIDERATION WAS LAST YEAR OF CLAIM. HE SUBMITTED THAT ASSESSEE INADVERTENTLY IN THE RETURN O F INCOME MISSED THE CLAIM U/S 10A OF THE ACT BUT THE CLAIM WAS MADE DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS. IN SUPPORT OF HIS CON TENTION THAT THE MISTAKE WAS INADVERTENT, HE POINTED TO THE COMPUTAT ION OF INCOME WHICH IS PLACED AT PAGE NO.3 OF THE PAPER BOOK AND FROM T HERE HE POINTED THAT THOUGH THE ASSESSEE HAS GIVEN THE DETAILS WITH RESPECT TO UNIT-1, BANGALORE AND THE TOTAL PROFITS BUT DUE TO CLERICAL MISTAKE, THE CLAIM WAS NOT MADE IN THE RETURN OF INCOME. HE THEREAFTE R SUBMITTED THAT EVEN IF THE CLAIM WAS NOT MADE BEFORE THE AO BUT IT CAN BE MADE BEFORE THE APPELLATE AUTHORITIES AND FOR THIS PROPOSITION, H E PLACED RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN THE CAS E OF CIT VS. PRUTHVI BROKERS & SHAREHOLDERS REPORTED IN 349 ITR 336 . HE FURTHER SUBMITTED THAT HONBLE BOMBAY HIGH COURT IN THE CASE A LOK TEXTILE INDUSTRIES VS. DCIT ORDER DATED 10.07.2018 BY FOLLOWING THE DECISION OF PRUTHVI BROKERS & SHAREHOLDERS (SUPRA) AND AFTER CONSI DERING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) PVT. LTD., (SUPRA) HAS HELD THAT THOUGH HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) PVT. LTD., (SUPRA) HAS HELD THAT AO HAS NO P OWER TO ENTERTAIN THE CLAIM OF DEDUCTION OTHERWISE THAN BY FILING REV ISED RETURN 9 OF INCOME BY ASSESSEE, BUT THAT THE SAME WOULD NOT FETT ER THE APPELLATE AUTHORITY FROM ENTERTAINING A CLAIM NOT MADE BE FORE THE AO. HE FURTHER SUBMITTED THAT THE CLAIM FOR DEDUCTION U/S 10A OF THE ACT WAS ALLOWED IN A.YS. 2007-08, 2008-09 AND 2009-10 AND IN SUCH A SITUATION, THE DRP WAS NOT JUSTIFIED IN DENYING THE CLAIM OF DEDUCTION FOR THE YEAR UNDER CONSIDERATION. LD. D.R. ON THE OTHER H AND, SUPPORTED THE ORDER OF AO AND DRP AND FURTHER SUBMITTE D THAT AS PER THE PROVISIONS OF 10A(5), THE DEDUCTION UNDER THIS SECTION S HALL NOT BE ADMISSIBLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR AFTER T HE 1 ST DAY OF APRIL, 2001, UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIB ED FORM, ALONG WITH THE RETURN OF INCOME, THE REPORT OF AN ACCOUNT ANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288, CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. HE SUBMITTED THAT THE REPORT WAS NOT FILED ALONG WITH THE RETURN OF INCOME BUT WAS FILED LATER ON AND THEREFORE THE AO WAS FULLY JUSTIFIED IN DENYING THE CLAIM OF DEDUCTION. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPE CT TO THE CLAIM OF DEDUCTION U/S 10A OF THE ACT WITH RESPECT TO UNIT-I, B ANGALORE. IT IS AN UNDISPUTED FACT THAT THE FIRST YEAR OF CLAIM FOR DEDUCT ION WAS IN A.Y. 2001-02 AND THE ASSESSEE HAS ALSO BEEN ALLOWED THE CLAIM OF DEDUCTION IN A.YS. 2007-08, 2008-09 AND 2009-10. BEFORE US, IT IS THE CLAIM OF THE ASSESSEE THAT THOUGH IN THE COMPUTATION OF IN COME, THE WORKING FOR DEDUCTION WAS MADE BUT INADVERTENTLY IT WA S MISSED TO CLAIM THE DEDUCTION. AO DENIED THE CLAIM OF DEDUCTION AS THE CLAIM OF DEDUCTION WAS NOT MADE IN THE RETURN OF INCOME. WE FIND T HAT THE CLAIM OF DEDUCTION WAS MADE DURING THE ASSESSMENT PROCEE DINGS BUT THE SAME WAS DENIED BY THE AO BY FOLLOWING THE DECISION OF HONBLE 10 APEX COURT IN THE CASE OF GOETZE (INDIA) PVT. LTD., (SUPRA). THE FACT THAT THE CLAIM AND DETAIL OF WORKING OF DEDUCTION OF 10A HAS BEEN MADE IN THE COMPUTATION OF INCOME IS EVIDENT FROM THE COMP UTATION FILED BY THE ASSESSEE IN THE PAPER BOOK. IN SUCH A SITU ATION, THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE HAD THROUGH OVERSIG HT MISSED TO CLAIM THE DEDUCTION CANNOT BE BRUSHED ASIDE WITHOUT THER E BEING ANY MATERIAL TO DEMONSTRATE TO THE CONTRARY. WE ALSO FIND TH AT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS (SUPRA) HAS HELD THAT THE JURISDICTION OF THE APPELLATE AUTHORITIES TO ENTER TAIN THE CLAIM WHICH HAS NOT BEEN MADE BEFORE THE AO BUT BEFORE THE A PPELLATE AUTHORITIES HAS NOT BEEN REJECTED BY THE HONBLE APEX COURT IN THE CASE OF GOETZE INDIA PVT. LTD., (SUPRA). IT OBSERVED THA T THE HONBLE APEX COURT IN THE CASE OF GOETZE INDIA PVT. LTD., (SUPRA) HELD THAT THE ISSUE IN THE CASE WAS LIMITED TO THE POWER OF ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POWERS OF INCOME TAX APPELLATE TRIBUNAL U/S 254 OF THE ACT. WE FURTHER FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ALOK TEXTILE INDUSTRIES VS. DCIT (SUPRA) AFTER CONSIDERING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF P RUTHVI BROKERS (SUPRA) HAS HELD THAT THE CLAIM CAN BE MADE BEFO RE THE APPELLATE AUTHORITIES FOR THE FIRST TIME BY THE ASSESSEE. B EFORE US, REVENUE HAS NOT POINTED OUT ANY CONTRARY BINDING DECISI ON IN ITS SUPPORT. IN SUCH A SITUATION, WE FOLLOWING THE AFORESAID DE CISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKER S (SUPRA) HOLD THAT AO WAS NOT JUSTIFIED IN DENYING THE CLAIM OF DEDUC TION U/S 10A OF THE ACT WITH RESPECT TO UNIT NO.1 OF BANGALORE. W E THEREFORE DIRECT THE AO TO GRANT DEDUCTION SUBJECT TO THE ASSES SEE COMPLYING WITH OTHER CONDITIONS OF DEDUCTION. THUS, THE GROUND NO.2 OF THE ASSESSEE IS ALLOWED. 11 9. GROUND NO.3 IS WITH RESPECT TO DENIAL OF CLAIM OF DEDUCTIO N U/S 10A OF THE ACT WITH RESPECT TO UNIT NO.II IN BANGALORE. 9.1. AO NOTED THAT ASSESSEE HAD CLAIMED DEDUCTION U/S 1 0A OF THE ACT FOR UNIT NO.II, BANGALORE. HE NOTED THAT DURING THE SCRUTINY PROCEEDINGS FOR A.Y. 2009-10, IN FORM 56F FOR UNIT II THAT WAS PRODUCED BY THE ASSESSEE, IT WAS MENTIONED THAT IT WAS 2 ND YEAR OF THE CLAIM. IT WAS ALSO NOTED THAT IN A.Y. 2008-09, ASSESSEE HA D ALSO NOT MADE ANY CLAIM FOR DEDUCTION. AO WAS OF THE VIEW THAT THE CLAIM FOR DEDUCTION FOR UNIT II SHOULD HAVE MADE FOR THE FIRST TIM E IN A.Y. 2009-10. AO IN THE ORDER CONCLUDED THAT ASSESSEE HAD NOT STARTED A NEW UNIT BUT IT WAS EXTENSION OF THE UNIT AND HENCE, ASS ESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. HE ACCORDINGLY D ENIED THE CLAIM OF DEDUCTION. AGGRIEVED BY THE ORDER OF AO ASSESSEE CARRIED THE MATTER BEFORE DRP, WHO UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF DRP, ASSESSEE IS NOW BEFORE US. 10. BEFORE US, LD.A.R. AT THE OUTSET SUBMITTED THAT IDENTIC AL ISSUE AROSE IN ASSESSEES OWN CASE FOR A.Y. 2009-10 BEFORE TH E TRIBUNAL WHEREIN THE LD.CIT(A) HAD GIVEN THE RELIEF TO THE ASSESSEE AND THE REVENUE HAD CARRIED THE MATTER BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ORDER DATED 22.01.2020 IN ITA NO.2049/PUN/2017 HELD THAT ASSESSEE WAS ELIGIBLE TO CLAIM DEDUCTION U/S 10A OF THE ACT ON THE P ROFITS OF UNIT-II, BANGALORE. HE THEREFORE SUBMITTED THAT FOLLOWING T HE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEAR I.E., FOR A.Y. 2009-10, THE CLAIM OF THE ASSESSEE BE ALLOWED. LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 12 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO CLAIM OF DEDUCTION U/S 10A OF THE ACT ON UNIT NO-II, BANGALORE. WE FIND THAT IDENTICAL ISSUE AROSE IN A.Y. 2009-10, WHEREIN THE LD.CIT(A) H AD ALLOWED THE CLAIM OF ASSESSEE AND AGAINST THE ORDER OF LD .CIT(A), REVENUE CARRIED THE MATTER BEFORE ITAT. THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN ITA NO.2049/PUN/2017 VIDE ORDER DATED 22.01.20 20 WHEREIN THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE DISMIS SING THE GROUND OF REVENUE BY OBSERVING AS UNDER : 7. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE RIVAL CONTENTIONS. WE HAVE ALSO ANALYZED THE FACTS AND CI RCUMSTANCES OF THIS CASE. THAT ON PERUSAL OF THE REMAND REPORT PLACED O N RECORD, IT IS ABSOLUTELY CLEAR THAT THERE WERE EXISTENCE OF TWO U NITS I.E. UNIT 1 IS FOR CREATING PRODUCTS FOR HIGHER EDUCATION INDUSTRY AND UNIT 2 IS FOR CREATING PRODUCTS FOR BANKING AND FINANCE INDUSTRY. THAT APA RT, THE STPI HAS CONFIRMED THAT UNIT 2 EXISTS SEPARATE AND INDEPENDE NT OF UNIT 1 OF WHICH APPROVAL, THE ASSESSING OFFICER IN HIS REMAND REPORT ARRIVED AT FINDINGS THAT THE SAME IS FREE FOR ANY MISTAKES. TH E LD. AR FURTHER SUBMITTED THAT STPI BEING AN INDEPENDENT AUTHORITY WOULD ACCORD ITS APPROVAL TO A NEW UNIT ONLY AFTER DUE VERIFICATION OF THE APPLICATION AND CREDENTIALS OF AN APPLICANT. IN THE CASE OF THE ASS ESSEE, THE APPROVAL WAS GRANTED BY STPI ONLY AFTER DUE VERIFICATION OF THE FACTS OF THE CASE. THE LD. AR ADDRESSED ANOTHER OBJECTION RAISED BY TH E ASSESSING OFFICER THAT MOST OF THE EMPLOYEES OF BOTH UNITS ARE SAME A ND WITH REGARD TO THIS, THE LD. AR SUBMITTED THAT THE SKILL SET/QUALI FICATION REQUIRED BY THE SOFTWARE DEVELOPERS FOR THE FINANCE AND BANKING IND USTRY ARE COMPLETELY DIFFERENT AS COMPARED TO THAT REQUIRED F OR HIGHER EDUCATION INDUSTRY. THE LD. AR FURTHER SUBMITTED THAT AS ON 3 1 ST MARCH, 2008 (END OF FIRST FINANCIAL YEAR), OUT OF 32 EMPLOYEES IN UN IT II, ONLY 7 WERE OLD EMPLOYEES. THIS FURTHER JUSTIFIES THE CONTENTION OF THE ASSESSEE THAT UNIT II WAS TO BE A NEW AND INDEPENDENT UNIT. IT IS ADMI TTED FACT AS APPEARING IN THE REMAND REPORT OF THE ASSESSING OFF ICER THAT STPI ITSELF HAS HELD UNIT 2 TO BE A NEW UNIT AND GRANTED REQUIS ITE APPROVAL. THE FACTS HEREIN FURTHER DEMONSTRATE THAT UNIT 1 AND UN IT 2 ARE BASICALLY TWO DIFFERENT AND DISTINCT UNITS OF THE ASSESSEE. THERE IS NEITHER EXPANSION NOR SPLITTING ONE UNIT INTO ANOTHER. THE LD. DR WAS UNABLE TO BRING ON RECORD ANY MATERIAL/DOCUMENT IN SUPPORT OF THE REVE NUE SUBSTANTIATING THAT BOTH UNITS ARE ONE AND THE SAME. THE LD. DR RE LIED ON THE OBSERVATION OF THE ASSESSING OFFICER THAT MASTER SE RVICE AGREEMENT WAS NOT FURNISHED BUT HOW THAT AGREEMENT COULD HAVE HEL PED THE REVENUE ADDITIONALLY WAS NOT SUBSTANTIATED BY THE LD. DR BE CAUSE OF THE FACT THAT AS ON RECORD IN THE ORDER OF THE LD. CIT(APPEA LS) AT PARA 5.3.2 AND PARA 5.3.3, IT IS MENTIONED BY THE FIRST APPELLATE AUTHORITY THAT VARIOUS DOCUMENTS/RETURNS SUCH AS SEPARATE CUSTOM BONDED WA REHOUSE LICENSES, SEPARATE ANNUAL REPORTS FILED WITH STPI, SEPARATE MONTHLY REPORTS SUBMITTED TO SUPERINTENDENT OF CUSTOMS FOR UNIT I AND UNIT II FURTHER CONFIRM THAT UNIT II IS SEPARATE AND INDEPE NDENT FROM UNIT I. THESE FACTS WERE NOT DISPUTED BY THE LD. DR BEFORE US. 13 8. IN VIEW OF THE EXAMINATION OF FACTS ON RECORD, W E ARE OF THE CONSIDERED VIEW THAT UNIT II OF THE ASSESSEE COMPAN Y IS ABSOLUTELY A NEW AND SEPARATE UNIT AND INDEPENDENT FROM UNIT I. THEREFORE, THE LD. CIT(APPEALS) WAS JUSTIFIED IN HOLDING THAT THE ASSE SSEE IS ELIGIBLE TO CLAIM OF DEDUCTION U/S.10A OF THE ACT ON THE PROFIT S OF UNIT II SEPARATE FROM DEDUCTION U/S.10A OF THE ACT ON PROFITS OF UNI T I. THUS, WE DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF THE LD. CIT (APPEALS) AND RELIEF PROVIDED TO THE ASSESSEE BY THE LD. CIT(APPEALS) IS HEREBY SUSTAINED. THUS, GROUND NO.1 RAISED IN APPEAL BY THE REVENUE IS DISM ISSED. 12. BEFORE US, NO DISTINGUISHING FEATURES IN THE FACTS OF THE PRESENT CASE AND IN ASSESSEES OWN CASE FOR A.Y. 2009-10 HAVE BEEN BROUGHT BY LD. D.R. BEFORE US, REVENUE HAS ALSO NOT BROUGHT ANY MATERIAL TO DEMONSTRATE THAT THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR A.Y. 2009-10 HAS BEEN SET ASIDE / STAYED BY HIGHER JUDICIAL F ORUM. HENCE, FOLLOWING THE ORDER OF TRIBUNAL IN ASSESSEES OWN C ASE FOR A.Y. 2009-10 AND FOR SIMILAR REASONS, WE ARE OF THE VIEW THAT THERE WAS NO JUSTIFICATION IN DENYING THE CLAIM OF DEDUCTION U/S 10A OF TH E ACT WITH RESPECT TO UNIT NO.II OF BANGALORE BY THE LOWER AUTHO RITIES. WE THEREFORE DIRECT THAT THE ASSESSEE BE GRANTED DEDUCTIO N U/S 10A OF THE ACT WITH RESPECT TO UNIT NO.II OF BANGALORE. THUS, THE GROUND NO.3 OF ASSESSEE IS ALLOWED. 12.1. GROUND NO.4 BEING CONSEQUENTIAL IN NATURE AND GROU ND NO.4.1 BEING PREMATURE IN NATURE, REQUIRES NO ADJUDICATION. HENCE, THE SAME ARE DISMISSED. 13. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO.540/BAN/2015 FOR A.Y. 2010-11 IS PARTLY ALLOWED . 14. NOW WE TAKE UP REVENUES APPEAL IN ITA NO.519/BAN/2 015 FOR A.Y. 2010-11. 14.1. ASSESSEE FILED ORIGINAL RETURN OF INCOME FOR A.Y. 2010- 11 ON 29.09.2010 SHOWING THE TOTAL TAXABLE INCOME U/S 42,86,46,600 /-. THE 14 CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER, NOTICE U /S 143(1) OF THE ACT WAS ISSUED AND SERVED ON THE ASSESSEE. IT WAS NO TICED THAT ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES) DURING THE YEAR WHICH EXCE EDED RS.15 CRORE. ACCORDINGLY A REFERENCE WAS MADE TO TPO FOR DET ERMINING THE ARMS LENGTH PRICE (ALP) IN RESPECT OF THOSE INTERNATIONAL TRANSACTIONS. THE TRANSFER PRICING OFFICER (TPO) VIDE ORDER DATED 30.01.201 4 PASSED ORDER U/S 92CA OF THE ACT CONCLUDING THAT ADJUSTMENT OF RS.23,41,57,183/- WAS REQUIRED TO BE MADE TO ALP DETER MINED BY THE ASSESSEE IN RESPECT OF INTERNATIONAL TRANSACTIONS ENTERED INTO IT. THE AO IN THE DRAFT ASSESSMENT ORDER DATED 28.03.2014 PASSE D U/S 143(3) R.W.S. 144(C) OF THE ACT AFTER INCORPORATING THE ADJUSTMENT PROPOSED BY TPO DETERMINED THE TOTAL INCOME OF RS.70,82,38,183/-. AGA INST THE DRAFT ASSESSMENT ORDER OF AO, ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP PASSED ORDER ON 1 5.12.2014 AND SUBSEQUENTLY RECTIFICATION ORDER ON 31.12.2014 WHER EBY IT ISSUED CERTAIN DIRECTIONS TO THE TPO. CONSEQUENT TO THE DIREC TIONS OF DRP, ALP WAS REVISED TO NIL AS PER THE TPOS REVISED ORDER DT.29.01.2015 AS AGAINST RS.23,41,57,183/- MENTIONED IN THE DRAFT ASSESSMEN T ORDER. AGGRIEVED BY THE ORDER OF DRP, REVENUE IS NOW BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE DISPUTE RESOLUTION PANEL ERRED IN LAW IN HOLDING THAT THE S IZE, TURNOVER AND BRAND OF THE COMPANY ARE THE DECIDING FACTORS FOR T REATING A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN EXCLUDING INF OSYS LTD., AS COMPARABLE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DISPUTES RESOLUTION PANEL ERRED IN EXCLUDING UNCONTROLLED CO MPARABLES HAVING TURNOVER MORE THAN RS. 400 CRORES IN THE ABSENCE OF TURNOVER CRITERION PRESCRIBED IN RULE 10B OF INCOME TA RULES AND ALSO THERE BEING NO CORRELATION BETWEEN TURNOVER AND PROFIT MARGIN. 15 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTES RESOLUTION PANEL ERRED IN DIRECTING THE AO TO GRANT PERCENTAGE OF RISK ADJUSTMENT AT 1% TO THE AVERAGE MARGIN ON ACCOUNT O F RISK LEVEL ASSUMED BY THE ASSESSEE RELYING 'UPON THE DECISION OF ITAT, HYDERABAD BENCH IN THE CASE OF DCIT VS. HELLO SOFT PVT. LTD. (2013) WITHOUT APPRECIATING THE FACT THAT ASSESSEE IS CAPT IVE SERVICE PROVIDER WITH NO RISK AT ALL SINCE THE SERVICES ARE RENDERED TO THE AES ONLY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN RESTORING THE MATTER TO D ECIDE THE RISK ADJUSTMENT ALLOWABLE TO THE ASSESSEE WHEN NO SUCH P OWER TO SET ASIDE IS AVAILABLE TO THE DRP U/S 144C OF THE ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED I N APPRECIAT I NG THE OBSERVATION OF THE ITAT IN THE CASE OF INTELLINET TECHNOLOGIES INDIA PVT. LTD. (IT A NO.237/BANG/2007) THAT RISKS ARE TWO TYPES, NAMELY, ANT I CIPATED RISKS AND ACTUAL CONTEMPORARY RISKS. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN APPRECIATING THAT RISKS A RE ALWAYS ANTICIPATED RISK AND THERE IS NOTHING LIKE CONTEMPORARY RISK. I F THERE IS CONTEMPORANEOUS, IT CANNOT BE RISK. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E WHETHER THE DISPUTE RESOLUTION PANEL IS JUSTIFIED IN HOLDING TH AT 1% RISK ADJUSTMENT MAY BE CONSIDERED AS GUIDANCE WHEN RISK CANNOT BE A LLOWED ON ESTIMATED BASIS AND AS PER RULE 10B(3) ONL Y REASONABLY ACCURATE ADJUSTMENT CAN BE MADE. 8. 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 C OMPUTATION OF DEDUCTION U/S 10A OF THE INCOME TAX ACT WITHOUT APPRECIATING THE FACT THAT THE STATUTE ALLOWS EXCLUSION OF SUCH EXPENDITU RE ONLY FROM THE EXPORT TURNOVER BY WAY OF SPECIFIC DEFINITION OF EX PORT TURNOVER DEFINED IN THE ACT AND THERE IS NO SPECIF I C PROV I SION IN SECTION 10A WARRANTING EXCLUSION OF ABOVE EXPENSES FROM THE TOT AL TURNOVER ALSO. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E 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 ELXSI LTD. WHICH HAS NOT BECOME FINAL SINCE THE SAME HAS BEEN NOT ACCEPT ED BY THE DEPARTMENT AND SLPS ARE PENDING BEFORE THE HON'BLE SUPREME COUR T. 15. ASSESSEE HAS ALSO FILED C.O.134/BAN/2015 AND THE GROUN DS RAISED IN C.O., READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. TRANSFER PRICING OFFICER ('TPO') / ASSESSING OFFICE R ('AO') HAVE ERRED AND THE HONBLE DRP HAS FURTHER ERRED IN NOT ACCEPTING THE UPPER TURNOVER FILTER OF RS. 400 CRORES APPLIED BY THE RE SPONDENT; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO I AO AS WELL AS THE HON'BLE DRP ERRED IN NOT AL LOWING THE ADJUSTMENT FOR DIFFERENCE IN RISK UNDERTAKEN BY THE RESPONDENT AND THE 16 ALLEGED COMPARABLE COMPANIES SELECTED BY THE LEARNE D AO/TPO; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO / AO HAVE ERRED IN REJECTING THE METHOD ADOPTED BY THE APPELLANT FOR COMPUTATION OF WORKING CAPITAL ADJUSTMENT; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO / AO HAVE ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN NOT REJECTING THE ACTION OF THE LD. TPO / AO IN DISREGA RDING THE BENCHMARKING ANALYSIS AND COMPARABLE COMPANIES SELE CTED BY THE RESPONDENT BASED ON THE CONTEMPORANEOUS DATA IN THE TRANSFER PRICING STUDY REPORT MAINTAINED AS PER SECTION 92D OF THE A CT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 ('THE RULES') AND THE VARIOUS SUBMISSIONS MADE BY THE RESPONDENT; 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO / AO HAVE ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN NOT REJECTING THE ACTION OF THE LD. TPO /AO IN CHERRY P ICKING 11 ADDITIONAL (HIGH MARGIN) COMPANIES TO BENCHMARK THE INTERNATIO NAL TRANSACTIONS OF THE RESPONDENT WITHOUT PERFORMING ANY METHODICAL SE ARCH PROCESS TO SELECT THE ADDITIONAL COMPANIES AND IN APPLYING THE BENCHMARKING CRITERIA INCONSISTENTLY; 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO / AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN NOT REJECTING THE ACTION OF THE LD. TPO / AO IN DISREGA RDING THE COMPARABLE COMPANIES SELECTED BY THE RESPONDENT DESPITE THEM B EING COMPARABLE; 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO / AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN NOT REJECTING THE ACTION OF THE LD. TPO / AO IN APPLYIN G ARBITRARY FILTERS INCONSISTENTLY TO ARRIVE AT A FRESH SET OF COMPANIE S AS COMPARABLES TO THE RESPONDENT. 8. THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. TPO/AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ER RED IN NOT REJECTING THE ACTION OF THE LD. TPO / AO IN REJECTI NG THE USE OF MULTIPLE YEAR DATA; 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO /AO HAS ERRED IN NOT ALLOWING THE RESPONDENT TH E BENEFIT OF 5% VARIATION ENVISAGED IN THE PROVISO TO SECTION 92C(2 ) OF THE INCOME-TAX ACT, 1961; 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. TPO/AO HAS ERRED AND THE HON'BLE DRP HAS FURTHER ER RED IN NOT DEMONSTRATING THAT THE MOTIVE OF THE RESPONDENT WAS TO SHIFT PROFITS OUTSIDE OF INDIA BY MANIPULATING THE PRICES CHARGE D IN THEIR INTERNATIONAL TRANSACTION WHICH IS A PRE - REQUISIT E CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT. 16. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT IF REVE NUES APPEAL IS DISMISSED THEN THE C.O OF THE ASSESSEE WILL BE RE NDERED ACADEMIC AND THEREFORE WILL NOT REQUIRE ANY ADJUDICATION. W E THEREFORE PROCEED TO DISPOSE OF THE APPEAL OF REVENUE. 17 17. TPO IN THE ORDER HAS NOTED THAT ASSESSEE PROVIDES SOFTWARE AND PROCESSING SOLUTIONS FOR FINANCIAL SERVICES, HIGHER EDUCATION A ND PUBLIC SECTOR. TPO NOTED THAT IN THE TRANSFER PRICING DOCUMEN T ASSESSEE HAD SELECTED 12 COMPARABLES BY APPLYING CERTAIN FILTERS & TNMM WAS APPLIED AS THE MOST APPROPRIATE METHOD. TPO AFTER EXAMIN ING THE TRANSFER PRICING DOCUMENT CONCLUDED THAT SOME OF THE COM PARABLES SELECTED BY THE ASSESSEE DID NOT PASS ITS OWN FILTERS AND CONSEQUENTLY ITS OWN FAR ANALYSIS. THEREFORE IN VIEW OF PROVISIONS OF SE C.92C(3)(C), TPO HELD THE DATA USED IN COMPUTATION OF ALP BY THE ASS ESSEE TO BE NOT RELIABLE / CORRECT AND THE TPO PROCEEDED TO DETERM INE ALP BY CONDUCTING INDEPENDENT SEARCH OF COMPARABLES. THE FINAL SE T OF COMPARABLES SELECTED BY TPO ARE AS UNDER :- BASED ON THE FINAL SET OF COMPARABLES, TPO DETERMINED THE AVERAGE MARGIN OF COMPARABLES @ 22.7% AND AFTER ADJUSTMENT OF 0.81 % TOWARDS WORKING CAPITAL ADJUSTMENT, WORKED OUT THE ADJU STED MARGIN OF COMPARABLES @ 21.90% AND THEREAFTER WORKED OUT THE A DJUSTMENT REQUIRED TO BE MADE TO ALP TRANSACTIONS AT RS.23,41,57,18 3/- WHICH WAS SUGGESTED BY TPO VIDE ORDER DATED 30.01.2014 PASSE D U/S 92CA OF THE ACT. WHEN THE MATTER WAS CARRIED BEFORE DRP, D RP AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, GRANTED CERTAIN D IRECTIONS SL.NO. NAME 1 ICR A TECHNO ANALYTICS LTD. (SEG) 2 INFOSYS LTD 3 KALS INFORMATION INFOTECH LTD. 4 LARSEN & TOUBRO INFOTECH LTD. 5 MINDTREE LTD. (SEG) 6 PERSISTENT SYSTEMS & SOLUTIONS LTD. 7 PERSISTENT SYSTEMS LTD. 8 R S SOFTWARE (INDIA) LTD. 9 SASKEN COMMUNICATION TECHNOLOGIES 10 TATA ELXSI (SEG) 11 THINKSOFT GLOBAL SERVICES LTD. 18 AGAINST WHICH REVENUE IS NOW BEFORE US AND HAS RAISED TH E GROUNDS MENTIONED HEREINABOVE. 18. THE GROUNDS 1 AND 2 FILED BY REVENUE IN ITA NO.519/B AN/2015 FOR A.Y. 2010-11 ARE WITH RESPECT TO DIRECTIONS TO EXCLUDE INFOSYS LTD., AS A COMPARABLE BY TPO. 18.1. TPO WHILE FINALIZING THE LIST OF COMPARABLES HAD INCLUDED INFOSYS LTD., AS A COMPARABLE. ASSESSEE OBJECTED TO ITS INCLUSION INTER-ALIA ON THE GROUND THAT ITS TURNOVER WAS QUITE HIGH AS COMPARED TO THE ASSESSEE. THE OBJECTIONS OF ASSESSEE WERE BRUSHED ASID E BY TPO. WHEN THE MATTER WAS CARRIED BEFORE DRP, DRP WHILE DIRECTIN G TO EXCLUDE INFOSYS AS COMPARABLE NOTED THAT HONBLE BANGALO RE ITAT IN THE CASE OF GENISYS INTEGRITY SYSTEMS (ITA NO.1231/BAN/2 010 HAD PROVIDED A GUIDELINES IN THE MATTER OF TURNOVER FILTER BY SUGGESTING THAT THE CATEGORIZATION OF SOFTWARE COMPANIES IN THE DUN & BROAD STREET STUDY BE ADOPTED AS A METHOD OF CLASSIFICATION OF COMPARABLES BY SIZE. IT FURTHER NOTED THAT SINCE THE TURNOVER OF TH E ASSESSEE WAS RS.342.21 CRORE, IT WOULD FALL IN THE CATEGORY OF A MEDIUM S EIZED FIRM AS PER DUN & BRAD STREET CATEGORIZATION COMPARED TO I NFOSYS LTD., WHICH WOULD FALL IN LARGE COMPANY WITH TURNOVER GREATER T HAN RS.2000 CRORE. IT THEREFORE DIRECTED ITS EXCLUSION. AGGRIEVED BY THE DIRECTIONS OF DRP, REVENUE IS NOW BEFORE US. 19. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF TPO. LD.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS BEFORE LOWER AUTHO RITIES AND FURTHER SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 2008-09 IN IT(TP)A NO.1487/BAN/2012 AND THE ISSUE W AS 19 DECIDED IN ASSESSEES FAVOUR BY ORDER DATED 30.07.2015. HE POINTED TO THE RELEVANT FINDINGS OF TRIBUNAL AND THEREFORE SUBMITTED TH AT NO INTERFERENCE TO THE ORDER OF DRP IS CALLED FOR. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO INCLUSION OF INFOSYS LTD., AS COMPARABLE COMPANY. WE FIND THAT DRP B Y FOLLOWING THE RATIO OF DECISION CITED IN THE ORDER HELD THAT INFOSYS LTD., CANNOT BE CONSIDERED TO BE A COMPARABLE WITH THE ASSE SSEE. WE ALSO FIND THAT ISSUE OF EXCLUSION OF INFOSYS LTD., ALSO AROSE IN ASSESSEES OWN CASE FOR A.Y. 2008-09. THE CO-ORDINATE BENCH OF THE TRIBU NAL HELD THAT IT CANNOT BE CONSIDERED TO BE A COMPARABLE WITH TH E ASSESSEE. BEFORE US, NO FALLACY HAS BEEN POINTED OUT BY LD. D.R. IN THE ORDER OF DRP NOR HE HAS POINTED TO ANY CONTRARY BINDING DECISION IN ITS SUPPORT. REVENUE HAS ALSO NOT PLACED ANY MATERIAL TO DE MONSTRATE THAT THE TRIBUNAL ORDER FOR A.Y. 2008-09 IN ASSESSEES OW N CASE IS DISTINGUISHABLE ON FACTS OR THE ORDER FOR A.Y. 2008-09 HAS BEEN SET ASIDE / OVER TURNED / STAYED BY HIGHER JUDICIAL FORUM. I N SUCH A SITUATION, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF DRP AND THUS, THE GROUNDS OF REVENUE ARE DISMISSED. 21. GROUNDS 4 TO 8 ARE INTER-CONNECTED AND ARE WITH RESPE CT TO THE DIRECTIONS OF DRP IN GRANTING OF PERCENTAGE OF RISK ADJUSTMENT. 21.1. BEFORE TPO ASSESSEE HAD SUBMITTED THAT RISK ADJUS TMENT SHOULD BE ALLOWED TO THE ASSESSEE AS IT TAKES LIMITED RISK AND CANNOT BE COMPARED WITH THE COMPARABLES WHO TAKE FULL ENTREPR ENEURIAL RISK. TPO DENIED THE RISK ADJUSTMENTS AS HE WAS OF THE VIEW THAT ASSESSEE FACING SINGLE CUSTOMER RISK WHICH BRINGS THE ASSESSEE ALMOS T AT PAR TO 20 THE UNCONTROLLED COMPARABLES AND RISK LEVELS AND THEREFORE NO ADJUSTMENT WAS NECESSARY. AGGRIEVED BY THE ORDER OF T PO, ASSESSEE CARRIED THE MATTER BEFORE DRP WHO AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE NOTED THAT AFTER CONSIDERING THE VARIOUS DEC ISIONS CITED IN THE ORDER DIRECTED THE TPO TO DECIDE THE PERCENTAGE O F RISK ADJUSTMENT TO BE CALCULATED AND ALSO NOTED THAT IN CASE OF DCIT VS. HELLO SOFT PVT. LTD., REPORTED IN 32 TAXMANN.COM, 1% ADJUSTMENT TO THE A VERAGE MARGIN WAS PROVIDED TOWARDS THE RISK DIFFERENTIAL. AGGRIEVED BY THE DIRECTIONS OF DRP, REVENUE IS NOW BEFORE US. 22. BEFORE US, LD. D.R. TOOK US THROUGH THE ORDER OF TPO A ND SUPPORTED HIS ORDER. LD.A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FURTHER PLACIN G RELIANCE ON THE DECISION OF TRIBUNAL IN THE CASE OF DCIT V S. HELLO SOFT PVT. LTD., (SUPRA) SUBMITTED THAT THE TRIBUNAL IN THAT CASE HAS UPHELD THE DIRECTION OF ALLOWING THE BENEFIT OF RISK ADJUSTMENT AT 1%. HE FURTHER SUBMITTED THAT EVEN OTHERWISE IF THE INFOSYS LTD., IS DELETED OUT OF THE COMPARABLES THEN THE ASSESSEE IS AT ARMS LE NGTH AND THEREFORE ALSO NO ADJUSTMENT WOULD BE REQUIRED IN THE PRESENT CAS E. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO GRANTING OF PERCENTAGE OF RISK ADJUSTMENT BY DRP. WE FIN D THAT DRP AFTER CONSIDERING VARIOUS DECISIONS CITED IN HIS ORDER HAS D IRECTED THE TPO TO DECIDE THE PERCENTAGE OF RISK ADJUSTMENT. BEFOR E US, REVENUE HAS NOT POINTED ANY CONTRARY BINDING DECISION IN ITS SUPPO RT NOR HAS POINTED OUT ANY FALLACY IN THE FINDINGS OF DRP. BEFORE US, LD.A .R. HAS FURTHER SUBMITTED THAT IF INFOSYS LTD., IS EXCLUDED FROM THE LIST OF COMPARABLES THEN THE ASSESSEE WOULD BE WITHIN THE ARMS LENGTH AS 21 COMPARED TO THAT OF COMPARABLES AND NO ADJUSTMENT TO ALP WOULD BE REQUIRED. SINCE WE HAVE HEREINABOVE UPHELD THE ORDER OF D RP IN EXCLUDING THE INFOSYS LTD. FROM THE LIST OF COMPARABLES AND FOR THE REASONS CITED HEREIN ABOVE, WE ARE OF THE VIEW THAT NO IN TERFERENCE TO THE ORDER OF DRP IS CALLED FOR. THUS, GROUNDS 4 TO 8 OF REVENUE ARE DISMISSED. 24. GROUND NOS. 9 TO 10 ARE WITH RESPECT TO THE METHOD OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. 24.1. AO NOTED THAT ASSESSEE HAD CLAIMED DEDUCTION U/S 10A OF THE ACT AT RS.35.93 CRORES (ROUNDED OFF) OF PUNE UNIT. AO WAS O F THE VIEW THAT THE EXPENDITURE INCURRED IN FOREIGN CURRENCY IN CONN ECTION WITH EXPORT OF SOFTWARE AND EXPENDITURE INCURRED TOWARDS COM MUNICATION FOR DELIVERY OF SOFTWARE OUTSIDE INDIA NEEDS TO BE EXCLUDED ONLY FROM EXPORT TURNOVER. HE WAS FURTHER OF THE VIEW THAT THOUG H THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD., VS . ACIT REPORTED IN 349 ITR 98 HAS TAKEN A VIEW IN FAVOUR OF THE ASSESSE E BUT REVENUE HAD NOT ACCEPTED THE DECISION OF HONBLE KARNATAKA HIGH COURT AND FILED APPEAL BEFORE THE HONBLE APEX COURT, WHICH IS PENDING FOR DECISION. HE THEREFORE HELD THAT THE EXPENDITURE IS ONL Y REQUIRED TO BE REDUCED FROM EXPORT TURNOVER ALONE. AGGRIEVED BY TH E ORDER OF TPO/AO, ASSESSEE CARRIED THE MATTER BEFORE DRP, WHO NO TED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE KARN ATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD., (SUPRA) AND THE REFORE DIRECTED THE AO TO RE-COMPUTE THE DEDUCTION IN ACCORDANCE WITH THE RATIO OF JUDGMENT IN TATA ELXSI LTD., (SUPRA). AGGRIEVED BY THE DIRECTIONS OF DRP, REVENUE IS NOW BEFORE US. 22 25. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF TPO. LD.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE TPO A ND DRP AND FURTHER SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE FOR A.Y. 2009-10 WHEREIN THE CO-ORDINATE BENCH OF THE TRIBUNA L AFTER RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS. HCL TECHNOLOGIES REPORTED IN 404 ITR 719 HELD THAT FOR T HE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT, EXPENSES HAVE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND THE TOTAL T URNOVER. HE POINTED TO THE RELEVANT FINDINGS OF THE TRIBUNAL WHICH ARE P LACED AT PAGE 949 OF THE PAPER BOOK. HE THEREFORE SUBMITTED THA T NO INTERFERENCE TO THE ORDER OF DRP IS CALLED FOR. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUNDS ARE WITH RESPECT TO THE METHOD OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. W E FIND THAT IDENTICAL ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2009-10 WHEREIN THE CO-ORDINATE BENCH OF THE TRIBUNA L BY FOLLOWING THE DECISION OF HONBLE APEX COURT IN THE CASE OF C IT VS. HCL TECHNOLOGIES (SUPRA) HELD THAT TO CALCULATE DEDUCTION U/S 10A OF THE ACT, THE EXPENSES SHOULD BE REDUCED FROM THE EXPORT T URNOVER AND TOTAL TURNOVER ALSO. BEFORE US, REVENUE HAS NOT POINTED OUT ANY CONTRARY BINDING DECISION IN ITS SUPPORT. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF DRP. THUS, THE GROUNDS OF REVENUE ARE DISMISSED. 27. IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO.519/BAN/2015 FOR A.Y. 2010-11 IS DISMISSED. 28. BEFORE US, LD.A.R. SUBMITTED THAT IF THE APPEAL OF REVENUE IS DISMISSED THEN THE CROSS-OBJECTIONS OF ASSESSEE IN 23 C.O.NO.134/BAN/2015 OF THE ASSESSEE WOULD BE RENDERED A CADEMIC. SINCE WE HAVE DISMISSED THE APPEAL OF REVENUE IN ITA NO.519/BAN/2015 HEREINABOVE, IN VIEW OF THE SUBMISSIONS OF THE LD.A.R., THE C.O. IS ALSO DISMISSED AS BEING ACADEMIC. 29. IN THE RESULT, THE C.O.NO.134/BAN/2015 FOR A.Y. 201 0-11 OF THE ASSESSEE ARE DISMISSED. 30. NOW WE TAKE UP THE APPEAL OF ASSESSEE IN ITA NO.338/PUN/2016 FOR A.Y. 2011-12. 30.1. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IN ITA NO.338/PUN/2016 READS AS UNDER : THE LEARNED AO HAS ERRED IN DENYING THE DEDUCTION UNDER SECTION 10A OF THE ACT TO UNIT II OF THE APPELLANT FOLLOWING TH E LEARNED AOS PREDECESSORS ORDER FOR A.Y. 2009-10 AND A.Y. 2010- 11 WHEREIN IT WAS HELD BY THE LEARNED AOS PREDECESSOR THAT UNIT II I S NOT A NEW UNIT BUT AN EXPANSION OF UNIT I, BANGALORE. 31. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS IDENTICAL TO GROUND NO.3 OF ASSESSEES A PPEAL FOR A.Y. 2010-11 AND THE ARGUMENTS MADE WHILE ARGUING THE APPE AL FOR A.Y. 2010-11 WOULD BE APPLICABLE TO THE PRESENT APPEAL ALSO. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, BOTH THE PARTIES HAVE ADMITTED TH AT THE GROUND RAISED IN THE PRESENT APPEAL IS IDENTICAL TO GROUND NO.3 R AISED IN ASSESSEES APPEAL FOR A.Y. 2010-11. IN VIEW OF THE AFORESAID SUBMISSION OF BOTH THE PARTIES AND FOR THE REASONS STATED HEREIN W HILE DECIDING THE GROUND NO.3 IN ASSESSEES APPEAL FOR A.Y. 2010-11 IN ASSE SSEE FAVOUR AND FOR SIMILAR REASONS, DECIDE THE ISSUE IN FAVOUR OF THE AS SESSEE AND THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 24 33. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO.338/PUN/2016 FOR A.Y. 2011-12 IS ALLOWED. 34. NOW WE TAKE UP THE APPEAL OF REVENUE IN ITA NO.463/ PUN/2016 FOR A.Y. 2011-12. 34.1. THE MODIFIED GROUNDS RAISED BY THE REVENUE READS AS UNDER : 1. WHETHER THE DRP WAS RIGHT IN LAW AND ON FACTS IN EX CLUDING FUNCTIONALLY COMPARABLE COMPANIES. 2. WHETHER THE DRP WAS RIGHT IN LAW AND ON FACTS IN INCLUDING COMPANIES WHICH ARE NOT FUNCTIONALLY COMPARABLE. 3. WHETHER THE DRP WAS RIGHT IN LAW AND ON FACTS IN EXCLUDING FUNCTIONALLY COMPARABLE COMPANIES ON THE GROUND OF NON AVAILABILITY OF SEGMENTAL DATA, WHEN THE ENTIRE RANGE OF ACTIVITY O F THE COMPARABLE WAS IN THE FIELD OF SOFTWARE SERVICES. 4. WHETHER THE DRP WAS RIGHT IN LAW AND ON FACTS FO R NOT CONSIDERING THAT ONSITE AND OFFSITE REVENUE DIFFERENCES ARE MAT ERIAL FOR DECIDING THE FUNCTIONAL COMPARABILITY OF A COMPANY AND THAT ASSE TS AND RISK PROFILE, PRICING AS WELL AS PREVAILING MARKET CONDITIONS ARE DIFFERENT IN PREDOMINANTLY ONSITE COMPANIES FROM PREDOMINANTLY O FFSHORE COMPANIES. 5. WHETHER THE DRP WAS RIGHT IN LAW AND ON FACTS IN EXCLUDING COMPANIES WHICH ARE CONSIDERED AS FUNCTIONALLY COMP ARABLE BY THE ASSESSEE HIMSELF. 6. DID THE DRP FALL INTO ERROR IN NOT APPRECIATING THE TERM OF RULES 10B(2) OF THE INCOME- TAX RULES, 1962 REGARDING FUNCTIONAL COMPARABILITY. 35. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT THOUGH REVENUE HAS RAISED VARIOUS GROUNDS BUT NO SPECIFIC GRIEVANCE HAS BEEN RAISED. IN SUCH A SITUATION, THE APPEAL OF THE REVENUE SHOULD BE H ELD TO BE NOT MAINTAINABLE. LD. D.R. ON THE OTHER HAND, SUBMITTED THAT GR OUNDS 5 AND 6 ARE GENERAL IN NATURE WHICH REQUIRES NO SEPARATE ADJUDICATION AND GROUND NO.4 IS THE SUB-GROUND OF GROUND NO.2. 36. GROUND NO.1 TO 4 BEING INTER-CONNECTED ARE CONSIDERED TOGETH ER. 25 36.1. AO NOTED THAT IN THE TP DOCUMENT ASSESSEE HAD SELECTED 12 COMPARABLES IN RESPECT OF SOFTWARE ACTIVITIES BY APPLYING CERTAIN FILTERS AND TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS CONSIDE RED TO BE THE MOST APPROPRIATE METHOD. OUT OF THE VARIOUS COMPAR ABLES SELECTED BY ASSESSEE, TPO NOTED THAT ASSESSEE WAS NOT JUSTIFIED IN SELECTING AKSHAY SOFTWARE TECHNOLOGIES LTD., AS COMPARABLE. TPO W AS OF THE VIEW THAT AKSHAY SOFTWARE TECHNOLOGIES LTD., WAS FUNCTIONALL Y DIFFERENT AND ITS FUNCTIONS WERE NOT CLEAR AND THAT IT WAS ENGAGE D IN PROVISION OF PROFESSIONAL SERVICES AND NOT SOFTWARE DEVELOPMENT SER VICES. TPO THEREFORE HELD THAT AKSHAY SOFTWARE TECHNOLOGIES LTD., CA NNOT BE TAKEN AS COMPARABLE AND EXCLUDED IT FROM THE LIST OF COMP ARABLES. TPO THEREAFTER INCLUDED VARIOUS COMPANIES INCLUDING ICRA TECHNO ANALYTICS LTD., AND INFOSYS LTD., BEING COMPARABLES AND AFT ER INCLUDING THE SAME, THE AVERAGE MARGIN WAS WORKED OUT AN D ADJUSTMENT WAS MADE TO THE ALP. AGGRIEVED BY THE OR DER OF TPO INCLUDING THE ICRA TECHNO ANALYTICS LTD., AND INFOSYS LTD., AS COMPARABLE COMPANIES, THE MATTER WAS CARRIED BY THE AS SESSEE BEFORE DRP. 37. ON THE ISSUE OF EXCLUSION OF AKSHAY SOFTWARE TECHNOLOG IES, DRP NOTED THAT ON PERUSAL OF ANNUAL REPORT OF AKSHAY S OFTWARE TECHNOLOGIES LTD., IT WAS SEEN FROM THE FINANCIAL RESULTS M ENTIONED UNDER DIRECTOR REPORT THAT INCOME STREAM OF THE COMPAN Y WAS SHOWN AS INCOME FROM SOFTWARE SERVICES AND PRODUCTS. SINCE THE ACTIVITIES OF AKSHAY SOFTWARE TECHNOLOGIES WERE COMPARABLE TO THAT OF ASSESSEE, DRP DIRECTED THE AO FOR ITS INCLUSION AS COMPARABLE COMPAN Y IN THE LIST OF COMPARABLE. WITH RESPECT TO ICRA TECHNO ANALYTICS LTD., DRP NOTE D THAT IT WAS ENGAGED IN DEVELOPMENT OF SOFTWARE AND THAT IT B EING A MARKET 26 PLAYER WITH BIG MARKET VALUE, IT CANNOT BE COMPARED WITH ASSESSEE AND ACCORDINGLY DIRECTED THE AO FOR ITS EXCLUSION AS COM PARABLE COMPANY WITH THE ASSESSEE FROM THE LIST OF COMPARABLES. WITH RESPECT TO INFOSYS LTD., DRP NOTED THAT AS AGAINST THE INTERNAT IONAL TRANSACTIONS OF THE ASSESSEE OF RS.427 CRORE, TURNOVER OF INFOSYS WAS TO THE TUNE OF RS.25,385 CRORE WHICH WAS MORE THAN 60 TIMES TO THE ASSESSEES TURNOVER AND THEREFORE IT CANNOT BE COMPA RED WITH ASSESSEE AND ACCORDINGLY DIRECTED THE AO FOR ITS EXCLUS ION AS COMPARABLE COMPANY WITH THE ASSESSEE FROM THE LIST OF COMPARABLES . AGGRIEVED BY THE ORDER OF DRP, REVENUE IS NOW BEFORE US. 38. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF TPO. LD.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FURTHER WITH RESPECT TO EXCLUSION OF ICRA TECHNO ANALYTICS LTD., HE SUBMITTED THAT VARIOUS TRIBUNALS HAVE HELD THAT IN THE ABSENCE OF SEPARATE SEGMENT DATA, THE COMPANY CANNOT BE CONSIDER ED TO BE A COMPARABLE. HE THUS SUPPORTED THE ORDER OF DRP. 39. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPEC T TO DIRECTIONS OF DRP FOR INCLUSION OF AKSHAY SOFTWARE TECHNOLOGIES LTD., A S COMPARABLE WITH THE ASSESSEE IN THE LIST OF COMPARABLES AN D EXCLUSION OF ICRA TECHNO ANALYTICS LTD., AND INFOSYS LTD., AS NON- COMPARABLES WITH THE ASSESSEE FROM THE LIST OF COMPARABLES. WE FIND THAT DRP AFTER CONSIDERING VARIOUS DECISIONS IN THE ORDER HAS HELD T HAT ICRA TECHNO ANALYTICS LTD., AND INFOSYS LTD., ARE NOT COMPARAB LES AND AKSHAY SOFTWARE TECHNOLOGIES TO BE THE COMPARABLE COMPA NY WITH THE ASSESSEE. BEFORE US, NO FALLACY HAS BEEN POINTED OUT BY LD. D.R. IN THE ORDER OF DRP. IN SUCH A SITUATION, WE FIND NO REASON TO INTERFERE 27 WITH THE ORDER OF DRP. THUS, THE GROUNDS 1 TO 4 OF REVENUE ARE DISMISSED. 40. GROUNDS 5 AND 6 BEING GENERAL IN NATURE REQUIRES NO ADJUDICATION AND HENCE, THE SAME ARE DISMISSED. 41. IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO.463/PUN/2016 FOR A.Y. 2011-12 ARE DISMISSED. 42. TO SUM UP, APPEALS OF ASSESSEE IN ITA NO.540/BAN/2 015 IS PARTLY ALLOWED AND APPEAL IN ITA NO.338/PUN/2016 IS ALLOWED AND BOTH THE APPEALS OF REVENUE IN ITA NO.519/BAN/2015 AND ITA NO.463/PUN/2016 AND THE C.O., OF ASSESSEE VIDE CO NO.134/BAN/2015 ARE DISMISSED. ORDER PRONOUNCED ON 14 TH DAY OF FEBRUARY, 2020. SD/- SD/- ( S.S. VISWANETHRA RAVI) ( ANIL CHATURVEDI ) !# / JUDICIAL MEMBER $!# / ACCOUNTANT MEMBER PUNE; DATED : 14 TH FEBRUARY, 2020. YAMINI !'%&'()(& / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5. 6. CIT(A) 13, PUNE. PR.CIT-5, PUNE. '#$ %%&',) &', / DR, ITAT, C PUNE; $+,-/ GUARD FILE. / BY ORDER , // TRUE COPY // / / TRUE COPY / / ./0%1&2 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.