Marlabs Software Pvt. Ltd., Bangalore V. Asst.C.I.T., Bangalore

ITA 544/BANG/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1676 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-03-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Transfer pricing; International transaction; Question of law; Assessment record; Set aside
• Section: 143(3); 10B; 143(1); 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.544/BANG/2015 ASSESSMENT YEAR : 2010-11 M/S MARLABS INNOVATIONS PVT. LTD., (SUCCESSOR OF MARLABS SOFTWARE PVT. LTD., NO.2, 1 ST FLOOR, S.R COMPLEX, TAVAREKERE MAIN ROAD, SG PALYA, BENGALURU-560 029. PAN AACCM 6627 Q. VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(2), BENGALURU. APPELLANT RESPONDENT IT(TP)A NO.430/BANG/2015 ASSESSMENT YEAR : 2010-11 AND CO NO.160/BANG/2015 ASSESSMENT YEAR : 2010-11 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(2), BENGALURU. VS. M/S MARLABS INNOVATIONS PVT. LTD., (SUCCESSOR OF MARLABS SOFTWARE PVT. LTD., NO.2, 1 ST FLOOR, S.R COMPLEX, TAVAREKERE MAIN ROAD, SG PALYA, BENGALURU-560 029. PAN AACCM 6627 Q. APPELLANT RESPONDENT PAGE 2 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 REVENUE BY : SHRI MUZAFFAR HUSSAIN, CIT (DR) ASSESSEE BY : SHRI BHARATH L, C.A DATE OF HEARING : 12-03-2020 DATE OF PRONOUNCEMENT : 13-05-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT CROSS APPEALS AND CROSS OBJECTION HA S BEEN FILED BY ASSESSEE AND REVENUE AGAINST FINAL ASSESSMENT ORDER DATED 22/01/2015 PASSED BY LD.ACIT CIRCLE-4(1)(2) UNDER S ECTION 143(3) READ WITH SECTION 144C(5) OF THE ACT FOR ASS ESSMENT YEAR 2010-11. LD.AR FILED COMMON GROUNDS WITH REFERENCE TO APPEAL AND CROSS OBJECTION PREFERRED BY ASSESSEE WHICH ARE AS UNDER: 1. THE LAO AND LD. TPO ERRED IN NOT CONSIDERING THE SE COND PROVISO TO SECTION 92C(2) OF THE ACT IN RELATION TO (+) / (-) 5% BENEFIT WHILE COMPUTING THE ARM'S LENGTH PRICE OF THE COMPANY. 2. THE HON'BLE DRP AND THE LEARNED AO ERRED IN CONF IRMING THE ORDER OF THE LEARNED TPO WHICH HAS NOT CONSIDERED THE FOLLOWING COMPANIES AS FUNCTIONALLY NOT COMPARABLE: A. WITH RESPECT TO SOFTWARE DEVELOPMENT SERVICES: (A) ICRA TECHNO ANALYTICS LIMITED; (B) KALS INFORMATION SYSTEMS LIMITED; (C) PERSISTENT SYSTEMS & SOLUTIONS LIMITED. B. WITH RESPECT TO IT-ENABLED SERVICES: (A) ACCENTIA T ECHNOLOGIES LIMITED; (B) ICRA ONLINE LIMITED. 3. THE HON'BLE DRP AND THE LEARNED AO ERRED IN CONF IRMING THE ORDER OF THE LEARNED TPO WHICH ARBITRARILY RESTRICTED THE WORKIN G CAPITAL ADJUSTMENT AT 1.98% TO THE SOFTWARE DEVELOPMENT SERVICES AND A T 0.23% TO THE IT- ENABLED SERVICES SEGMENT. 4. THE HON'BLE DRP AND LEARNED AO ERRED IN NOT ALLO WING THE SET-OFF OF THE BROUGHT FORWARD LOSS PERTAINING TO AY 2009-10 OF RS . 1,58,84,554/- (WHICH WAS CLAIMED BY THE APPELLANT IN ITS INCOME-T AX RETURN). PAGE 3 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 ON THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING YOUR APPELLANT PRAYS YOUR HONOUR TO CONSIDER THE FA CTS AND CIRCUMSTANCES OF THE CASE AND RENDER JUSTICE. GROUNDS RAISED BY REVENUE IN ITS APPEAL ARE AS UNDE R: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED DISPUTE RESOLUTION PANEL ERRED IN DIRECTING THE AO TO EXCLU DE THE EXPENDITURE INCURRED TOWARDS BANDWIDTH EXPENSES AND TRAVEL EXPENSES FROM BOTH THE TOTAL TURNOVER AND EXPORT TURNOVER FOR THE PURPOSE OF COM PUTATION OF DEDUCTION U/S 10A OF THE ACT. 2.THE LD. DRP ERRED IN HOLDING THAT THE SIZE AND TU RNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TREATING THE COMPANY AS A COMP ARABLE AND ACCORDINGLY ERRED IN EXCLUDING THE COMPARABLES. 3. THE LD. DRP ERRED IN EXCLUDING UNCONTROLLED COMPARA BLES HAVING TURNOVER MORE THAN RS.200 CRORES IN THE ABSENCE OF TURNOVER CRITERION PRESCRIBED IN RULE 10B OF INCOME TAX RULES AND ALSO THERE BEING NO CORRELATION BETWEEN TURNOVER AND PROFIT MARGIN. 4. THE LD. DRP ERRED IN DIRECTED THE TPO TO COMPUTE RI SK ADJUSTMENT IN THE CASE OF THE TAXPAYER WITHOUT ADDUCING ANY METHO D FOR THE SAME. 5. THE HON'BLE DRP HAS ERRED IN RELYING ON THE DECISIO N OF HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. M/S. TATA ELXSI LTD, WHEREIN, THE LEGISLATURE INTENTIONALLY INCLUDED THE DEFINITION O F EXPORT TURN OVER AND DID NOT INCLUDE DEFINITION OF TOTAL TURN OVER FOR THE P URPOSE OF COMPUTATION OF DEDUCTION U/S 10A. MOREOVER, THE DECISION OF THE HO N'BLE HIGH COURT HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND FURTHER APPEAL BEFORE HON'BLE SUPREME COURT HAS BEEN FILED, WHICH IS PENDING FOR DECISION . THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY AND FILED ITS RETURN OF INCO ME FOR YEAR UNDER CONSIDERATION ON 09/10/2010 DECLARING NIL INC OME UNDER NORMAL PROVISIONS AFTER SETTING OFF BROUGHT FORWARD LOSSES. INCOME OF RS.6,72,87,363/- WAS DECLARED UNDER MAT PROVISIO NS AND RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE AC T. THE CASE WAS SELECTED FOR SCRUTINY LD.AO ACCORDINGLY ISSUED NOTICE UNDER SECTION 142 (1) AND 143 (2) OF THE ACT. IN RESPONSE TO STATUTORY NOTICES ASSESSEE FILED DETAILS AS CALLED FOR. PAGE 4 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 LD.AO OBSERVED THAT ASSESSEE ENTERED INTO INTERNATI ONAL TRANSACTION EXCEEDING RS.15 CRORES WITH ITS ASSOCIA TED ENTERPRISES. ACCORDINGLY CASE WAS REFERRED TO TRANS FER PRICING OFFICER TO DETERMINE ARMS LENGTH PRICE OF SUCH INT ERNATIONAL TRANSACTIONS UNDER SECTION 92CA OF THE ACT. 3. UPON RECEIPT OF REFERENCE, LD.TPO CALLED FOR ECONO MIC DETAILS OF THE INTERNATIONAL TRANSACTION IN FORM 3CEB. FROM DE TAILS FILED BY ASSESSEE, LD.TPO OBSERVED THAT, ASSESSEE HAD FOLLOW ING INTERNATIONAL TRANSACTIONS: S. NO TYPE OF TRANSACTION AMOUNT (RS) 1. SOFTWARE DEVELOPMENT SERVICES 32,04,99,033/- 2. ITES 7,82,60,272/ - 4. LD.TPO OBSERVED THAT ASSESSEE USED TNMM AS MOST APPROPRIATE METHOD AND OP/OC AS PLI TO DETERMINE AR MS LENGTH MARGIN OF BOTH SEGMENTS, BEING SOFTWARE DEVELOPMENT SERVICE SEGMENT AND IT ENABLED SERVICE SEGMENT. 5. ASSESSEE COMPUTED ITS MARGIN AT 15% UNDER BOTH SEGM ENTS BY USING 16 COMPARABLES UNDER SOFTWARE DEVELOPMENT SER VICE SEGMENT AND 15 COMPARABLES UNDER IT ENABLED SERVICE SEGMENT. ON THE BASIS OF AVERAGE MARGIN DETERMINED BY ASSESS EE, TRANSACTIONS WERE HELD TO BE AT ARMS LENGTH AS IT W AS WITHIN +/- 5% RANGE. 6. LD.TPO APPLIED VARIOUS FILTERS TO THE COMPARABLES E NLISTED BY ASSESSEE IN THE TP STUDY FOR BOTH SEGMENTS AND SHOR TLISTED A SET OF 11 COMPARABLES WITH AN AVERAGE MARGIN OF 22.71% AND SET OF PAGE 5 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 10 COMPARABLES WITH AN AVERAGE MARGIN OF 26.86%. TH E DETAILS OF COMPARABLES FINALLY SELECTED BY LD.TPO FOR BOTH SEG MENTS ARE AS UNDER: SOFTWARE DEVELOPMENT SERVICE SEGMENT: SL.NO NAME PLI 1 ICRA TECHNO ANALYTICS LTD.(SEG) 24.94% 2 INFOSYS LTD 44.98% 3 KALS INFORMATION SYSTEMS LTD.(SEG) 34.41% 4 LARSEN & TURBO INFOTECH LTD 19.33% 5 MINDTREE LTD 14.83% 6 PERSISTENT SYSTEMS & SOLUTIONS LTD 15.38% 7 PERSISTENT SYSTEMS 30.35% 8 R S SOFTWARE (INDIA) LTD 10.29% 9 SASKEN COMMUNICATION TECHNOLOGIES 17.36% 10 TATA ELXSI(SEG) 20.93% 11 THINKSOFT GLOBAL SERVICES 17.05% AVERAGE MARGIN 22.71% IT ENABLED SERVICE SEGMENT: SL.NO NAME PLI 1 ACCENTIA TECHNOLOGIES LTD 43.06% 2 ACROPETAL TECHNOLOGIES LTD (PEG.) 22.27% 3 E-CLERX SERVICES LTD 55.97% 4 FORTUNE INFOTECH LTD 22.80% 5 ICRA ONLINE LTD(SE) 43.39% 6 LN1ORNED TECHNOLOGIES INDIA LTD 26.15% 7 INFOSYS BPO 31.23% 8 COSMIC GLOBAL LTD 14.97% PAGE 6 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 9 SUNDARAM BUSINESS SERVICES LTD -12.31% 10 JEEVAN SCIENTIFIC TECHNOLOGY 21.05% AVERAGE 26.86 % 7. LD.TPO THUS PROPOSED ADJUSTMENT BEING SHORTFALL IN THE MARGIN UNDER BOTH SEGMENT AS UNDER: SOFTWARE DEVELOPMENT SERVICES 23,101,653 ITES 15,969,215 TOTAL 39,070,868 LD.TPO RESTRICTED WORKING CAPITAL ADJUSTMENT AT 1.9 8% FOR SOFTWARE DEVELOPMENT SERVICE SEGMENT AND 0.23% FOR IT ENABLED SERVICE SEGMENT. 8. AGGRIEVED BY PROPOSED ADJUSTMENTS AND ADDITIONS MAD E BY LD.AO/TPO, ASSESSEE RAISED OBJECTIONS BEFORE DRP. 8.1. DRP AFTER CONSIDERING SUBMISSIONS RAISED BY ASSESSE E, PARTIALLY ACCEPTED EXCLUSION OF CERTAIN COMPARABLES FOR NOT FULFILLING TURNOVER CRITERIA. DRP DIRECTED LD.AO/TP O TO RECOMPUTE RELIEF UNDER SECTION 10A IN COMPLIANCE WITH RATIO L AID DOWN BY HORNBLE KARNATAKA HIGH COURT IN CASE OF CIT VS M/S.TATA ELXI LTD REPORTED IN 349 ITR 98 . AS REGARDS THE WORKING CAPITAL ADJUSTMENT, OBJECTION RAISED BY ASSESSEE WAS REJECT ED WHEREAS DRP SUO MOTO DIRECTED LD.AO/TPO TO GRANT RISK ADJUSTMENT AT 1% TO THE AVERAGE MARGIN OF COMPARABLES. 9. ON RECEIPT OF DIRECTIONS FROM DRP, LD.AO PASSED FIN AL ASSESSMENT ORDER BY REDUCING TRANSFER PRICING ADJUS TMENT TO PAGE 7 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 RS.1,80,55,479/- AND ALLOWED 10A DEDUCTION AS CLAIM ED BY ASSESSEE. 10. LD.AO WHILE PASSING FINAL ASSESSMENT ORDER DISALLOW ED BANDWIDTH EXPENSES AND TRAVEL EXPENSES IN FOREIGN C URRENCY FROM EXPORT TURNOVER FOR PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 10 A OF THE ACT THEREBY REDUCING THE DEDUCT ION ELIGIBLE TO ASSESSEE AT RS.5,59,89,229/- AS AGAINST RS.5,72,71 573/-. 11. AGGRIEVED BY FINAL ASSESSMENT ORDER, BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US NOW. REVENUES APPEAL: 12. IN APPEAL FILED BY REVENUE, CHALLENGE IS AGAINST EX CLUSION OF CERTAIN COMPARABLES NOT FULFILLING TURNOVER CRITERI A PRESCRIBED IN RULE 10 B OF THE INCOME TAX RULES, 1962. 11.1. REVENUE IS ALSO AGGRIEVED BY DIRECTION OF DRP TO GR ANT AD HOC 1% RISK ADJUSTMENT WITHOUT ANY BASIS. 11.2. IT IS ALSO BEEN SUBMITTED THAT DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS M/S.TATA ELXSI LTD (SUPRA) HAS NOT BEEN ACCEPTED BY DEPARTMENT AND FURTHER APP EAL IS PENDING BEFORE HONBLE SUPREME COURT , REVENUE IS AGGRIEVED BY DEDUCTION GRANTED TO ASSESSEE UNDER SECTION 10A OF THE ACT. 12. GROUND NO.2-3 LD.CIT DR ARGUED THAT REVENUE SEEKS EXCLUSION OF IN FOSYS LTD., LARSON & TUBRO INFOTECH LTD., MINDTREE LTD., PERSIS TENT SYSTEMS LTD., SASKEN TECHNOLOGIES LTD., INFOSYS LTD., AND T ATA ELXSI LTD. BY APPLYING TURNOVER FILTER. 12.1. LD.CIT.DR SUBMITTED THAT WHEN COMPANIES FUNCTIONALL Y SIMILAR TO ASSESSEE, AND IS POTENTIALLY COMPARABLE, THE SAME PAGE 8 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 CANNOT BE EXCLUDED MERELY BECAUSE OF HIGH OR LOW TU RNOVER. LD.CIT DR PLACED RELIANCE UPON DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CHRISCAPITAL INVESTMENT ADVISERS (INDIA) PVT. LTD VS DCIT REPORTED IN 56 TAXMANN.COM 417 (2015). 12.2. LD.AR SUBMITTED THAT AUTHORITIES BELOW APPLIED LOWE R LIMIT OF TURNOVER FILTER OF RS.1 CRORE AND IGNORED APPLYI NG AN UPPER TURNOVER FILTER. IT WAS SUBMITTED THAT, CONSISTENTL Y REVENUE ALWAYS TOOK STAND THAT TURNOVER IS NOT A RELEVANT F ILTER IN SOFTWARE INDUSTRY. IT HAS BEEN CONTENDED BY REVENUE THAT IN SOFTWARE INDUSTRY SIZE HAS NO INFLUENCE ON THE MARGINS EARNE D BY A COMPARABLE COMPANY. WHAT MATTERS IS A HUMAN CAPITAL . IT WAS UNDER THESE CIRCUMSTANCES THAT LD.TPO APPLIED ONLY LOWER LIMIT OF TURNOVER FILTER FOR EXCLUDING COMPANIES HAVING T URNOVER LESS THAN RS.1 CRORE. 12.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE NOTE THAT LD.AO/TPO HAS APPLIED FILTER OF MORE T HAN RS.1 CRORE BUT DID NOT PUT AN UPPER LIMIT TO THE FILTER. THIS TRIBUNAL IN CASE OF GENESIS INTEGRATING SYSTEMS INDIA PVT LTD VS DCIT REPORTED IN (2012) 53 SOT 159 AND VARIOUS OTHER DECISIONS HAVE HELD THAT, COMPANIES HAVING TURNOVER IN EXCESS OF 2 00 CRORES CANNOT BE COMPARED WITH COMPANIES HAVING TURNOVER L ESS THAN RS.200 CRORE. THIS PREPOSITION HAS BEEN ACCEPTED BY HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS PENTAIR WATER PVT.LTD., BY ORDER DATED 16/09/2015 IN ITA NO. 18/2015 . HONBLE COURT UPHELD REJECTION OF COMPANIES HAVING TURNOVER HOLDI NG THAT PAGE 9 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 TURNOVER IS A RELEVANT FACTOR IN CONSIDERING COMPAR ABILITY OF COMPANIES. 12.3.1. THE OBJECTION RAISED BY LD.CIT.DR BY PLACING RELIA NCE UPON DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CHRIS CAPITAL (SUPRA) HAS BEEN DEALT WITH BY THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT.LTD. VS DCIT IN (2018) 96 TAXMANN.COM 263 FOR ASSESSMENT YEAR 2005-06 . THIS TRIBUNAL REVIEWED GAMUT OF CASE LAWS TO CONSIDER, WHETHER COMPANIES HAVING TURNOVER MORE THAN RS.200 CRORES SHOULD BE REGARDED AS COMPARABLE WITH A COMPANY HAVING TURNOVER LESS THAN RS.200 CRORE. THIS TRIBUNAL HELD AS UNDER: 17.7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SUBS TANTIAL QUESTION OF LAW (QUESTION NO.1 TO 3) WHICH WAS FRAMED BY THE HO N'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA ) PVT. LTD., (SUPRA) WAS AS TO WHETHER COMPARABLE CAN BE REJECTED ON THE GROUND THAT THEY HAVE EXCEPTIONALLY HIGH PROFIT MARGINS OR FLUCTUATION PR OFIT MARGINS, AS COMPARED TO THE ASSESSEE IN TRANSFER PRICING ANALYSIS. THEREFOR E AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THE OBSERVATIO NS OF THE HON'BLE HIGH COURT, IN SO FAR AS IT REFERS TO TURNOVER, WERE IN THE NATURE OF OBITER DICTUM. JUDICIAL DISCIPLINE REQUIRES THAT THE TRIBUNAL SHOU LD FOLLOW THE DECISION OF A NON-JURISDICTION HIGH COURT, EVEN THOUGH THE SAID D ECISION IS OF A NON- JURISDICTIONAL HIGH COURT. WE HOWEVER FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PENTAIR WATER INDIA (P.) LTD. (SUPRA) HAS TAKEN THE VIEW THAT TURNOVER IS A RELEVANT CRITERION FOR CHOOSING COMPANIES AS COMPARABLE COMPANIES IN DETERMINATION OF ALP IN TRANSFER PRICI NG CASES. THERE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS I SSUE. IN THE CIRCUMSTANCES, FOLLOWING THE PRINCIPLE THAT WHERE TWO VIEWS ARE AV AILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED, WE RESPECTFULLY FOLLOW THE VIEW OF THE HON'BLE BOMBAY HIGH COURT ON THE ISSUE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE UPHOLD THE ORDER OF THE DRP EXCLUDING 5 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO ON THE BASIS THAT THE 5 COMPANIES TURNOVER WAS MUCH HIGHER COMPARED TO TH AT THE ASSESSEE. 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 WERE ADVAN CED ON THE CORRECTNESS OF THE DECISIONS RENDERED BY THE ITAT MUMBAI AND BANGA LORE BENCHES TAKING A VIEW CONTRARY TO THAT TAKEN IN THE CASE OF GENISYS INTEGRATING SYSTEMS (I) (P.) PAGE 10 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 LTD. (SUPRA), WE PROCEED TO EXAMINE THE SAID ISSUE ALSO. ON THIS ISSUE, THE FIRST ASPECT WHICH WE NOTICE IS THAT THE DECISION RENDERE D IN THE CASE OF GENISYS INTEGRATING SYSTEMS (I) (P.) LTD. (SUPRA) WAS THE E ARLIEST DECISION RENDERED ON THE ISSUE OF COMPARABILITY OF COMPANIES ON THE BASI S 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 LE ARNED DR BEFORE US IN THE CASE OF WILLIS PROCESSING SERVICES (SUPRA) AND CAPEGEMINI INDIA (P.) LTD. (SUPRA) ARE TO BE REGARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING CO-ORDINATE BENCH DECISION. IN THIS REGARD THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS THE P LEA OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS RENDERED IN THE CAS E OF NTT DATA (SUPRA), SOCIETE GENERALE GLOBAL SOLUTIONS (SU PRA) AND LSI TECHNOLOGIES (SUPRA) WERE RENDERED LATER IN POINT O F TIME. THOSE DECISIONS FOLLOW THE RATIO LAID DOWN IN WILLIS PROCESSING SER VICES (SUPRA) AND HAVE TO BE REGARDED AS PER INCURIUM. THESE THREE DECISIONS ALS O PLACE RELIANCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CHRISCAPITAL INVESTMENT (SUPRA). WE HAVE ALREADY HELD THAT THE D ECISION RENDERED IN THE CASE OF CHRISCAPITAL INVESTMENT (SUPRA) IS OBITER D ICTA AND THAT THE RATIO DECIDENDI LAID DOWN BY THE HON'BLE BOMBAY HIGH COUR T IN THE CASE OF PENTAIR (SUPRA) WHICH IS FAVOURABLE TO THE ASSES SEE HAS TO BE FOLLOWED. THEREFORE, THE DECISIONS CITED BY THE LEARNED DR BE FORE US CANNOT BE THE BASIS TO HOLD THAT HIGH TURNOVER IS NOT RELEVANT CRITERIA FOR DECIDING ON COMPARABILITY OF COMPANIES IN DETERMINATION OF ALP UNDER THE TRAN SFER PRICING REGULATIONS UNDER THE ACT. FOR THE REASONS GIVEN ABOVE, WE UPHO LD THE ORDER OF THE CIT(A) ON THE ISSUE OF APPLICATION OF TURNOVER FILTER AND HIS ACTION IN EXCLUDING COMPANIES BY FOLLOWING THE RATIO LAID DOWN IN THE C ASE OF GENISYS INTEGRATING (SUPRA). BASED UPON ABOVE DISCUSSIONS WE ARE OF OPINION THAT OBJECTION RAISED BY REVENUE CANNOT WITHSTAND THE TEST OF LAW. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN EXCLUD ING INFOSYS LTD., LARSON & TUBRO INFOTECH LTD., MINDTRE E LTD., PERSISTENT SYSTEMS LTD., SASKEN TECHNOLOGIES LTD., INFOSYS LTD., AND TATA ELXSI LTD., FOR HAVING HIGH TURNOVER AS COMPARED TO A CAPTIVE SERVICE PROVIDER LIKE ASSESSE E. 13. GROUND NO.4 LD.CIT DR SUBMITTED THAT DRP PROVIDED RISK ADJUSTME NT AT 1% ON AD HOC BASIS WITHOUT HAVING A SCIENTIFIC APPROACH. HE SUBMITTED THAT THERE ARE VARIOUS FACTORS THAT NEEDS TO BE PAGE 11 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 CONSIDERED FOR PROVIDING RISK ADJUSTMENT WHICH ASSE SSEE HAS TO ESTABLISH IN ITS CASE HAVING REGARDS TO COMPARABLES FINALLY SELECTED. 13.1. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE HAVE PERUSED ORDERS PASSED BY AUTHORITIES BELOW ON THE BASIS OF RECORDS PLACED BEFORE US. IT IS NOTED THAT RISK ADJUSTMENT HAS BEEN PROVIDED AT RISK ADJUSTMENT ON AD HOC BASIS AT 1%. LD.CIT DR SUBMITTED THAT THERE IS NO SCIENTIFIC MANNER WHICH HAS BEEN APPLIE D BY DRP. ASSESSEE IS A LOW RISK BEARING COMPANY FOR SWD AND ITES SEGMENT. THEREFORE WHILE COMPUTING RISK ADJUSTMENT, RISK ASSUMED BY COMPARABLES FOR EARNING REVENUE UNDER PA RTICULAR SEGMENT NEEDS TO BE ANALYSED. ASSESSEE IS DIRECTED TO PROVIDE FOR NECESSARY DETAILS IN RESPECT OF ALL COMPARABLES FIN ALLY SELECTED. IF THAT INFORMATION IS INSUFFICIENT, AND IT IS BEYOND THE POWER OF ASSESSEE TO PRODUCE CORRECT INFORMATION ABOUT COMPA RABLE COMPANIES. REVENUE ON THE OTHER HAND HAS SUFFICIENT POWERS U/S.133(6) TO COMPEL PRODUCTION OF REQUIRED DETAILS FROM COMPARABLE COMPANIES. IF THIS POWER IS NOT EXERCISE D TO FIND AND GET INFORMATION REQUIRED, THEN IT IS NO DEFENSE TO SAY THAT ASSESSEE HAS NOT FURNISHED REQUIRED DETAILS TO DENY ANY ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL/RISK DIFFE RENCES. LD.AO/TPO SHALL THEN COMPUTE RISK AS ADJUSTMENT IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NO.4 OF REVENUES APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. PAGE 12 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 14. GROUND NO.5 THIS GROUND IS IN RESPECT OF EXCLUDING BAND WIDTH E XPENSE AND TRAVEL EXPENSE INCURRED IN FOREIGN CURRENCY FROM EX PORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 14.1. LD.AR SUBMITTED THAT, CONSISTENTLY THIS TRIBUNAL FOLLOWING DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF TATA ELXSI LTD VS CIT REPORTED IN 349 ITR 98 HAS BEEN GRANTING DEDUCTION. 14.2. LD.CIT.DR PLACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES BELOW. 14.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED THAT DRP WHILE CONSIDERING THE ISSUE REFERRED TO VIEW OF HONBLE KARNATAKA HIGH COURT IN CASE OF TATA ELXSI LTD VS CIT (SUPRA) , DIRECTED LD.AO TO FOLLOW THE VIEW TAKEN THEREIN, WHILE COMPUTING DEDUCTION UNDER SECTION 10 A OF THE ACT. 14.3.1. WE DO NOT FIND ANY INFIRMITY IN SUCH DIRECTIONS. LD .AO TO RECOMPUTE EXPORT TURNOVER IN THE LIGHT OF RATIO LAI D DOWN BY HONBLE KARNATAKA HIGH COURT IN CASE OF TATA ELXSI LTD VS CIT (SUPRA). ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DI SMISSED. IN THE RESULT APPEAL FILED BY REVENUE STANDS DISMIS SED. ASSESSEES APPEAL ALONG WITH CROSS OBJECTION 15. GROUND NO.1 RAISED BY ASSESSEE IS A CATALYST AND THEREFORE DO NOT REQUIRE ADJUDICATION. 16. GROUND NO.2 RAISED BY ASSESSEE IN REGARDING ALLEGED COMPARABLES INCLUDED BY LD.TPO UNDER SWD SEGMENT AN D ITES, WHICH ARE AS UNDER: PAGE 13 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 A. SWD SEGMENT: SEEKS EXCLUSION OF KALS INFORMATION SYSTEMS LTD., ICRA TECHNO ANALYTICS LTD., PERSISTANT SYSTEM S & SOLUTIONS LTD. B. ITES SEGMENT: ACCENTIA TECHNOLOGIES LTD., ICRA ONLINE LTD. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED, ASSETS OWNED AND RI SKS ASSUMED BY ASSESSEE UNDER BOTH THESE SEGMENTS. AS PER TP DOCUMENTATION ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING IT AND ITES SERVICES TO MARLABS US. IT HA S BEEN RECORDED THAT ASSESSEE AT THE REQUEST OF MARLABS US IN ACCORDANCE WITH PERFORMANCE STANDARDS AND RULES AS SPECIFIED BY MARLABS US PROVIDES SERVICES TO MARLABS US. LD.TPO HAS ANALYSED FUNCTIONS PERFORMED BY IS ASSES SEE UNDER BOTH SEGMENTS AS UNDER: AS PER THE SERVICE AGREEMENT: EXHIBIT A: SERVICES DESCRIPTION OF SERVICES: PROVIDER SHALL, AT CUSTOME RS REQUEST AND IN ACCORDANCE WITH SUCH PERFORMANCE STANDARDS AND RULE S AS CUSTOMER MAKES AVAILABLE TO PROVIDE FROM TIME TO TIME PROVID E SERVICES TO CUSTOMERS. THESE SERVICES INCLUDE BUT ARE NOT LIMIT ED TO PROVIDING SUPPORT SERVICES FOR THE CUSTOMERS STAFFING BUSINESS, SOFTW ARE DEVELOPMENT OR SUPPORT FOR SOFTWARE DEVELOPMENT, VARIOUS BUSINESS PROCESS SUPPORTS, ACCOUNTING AND RELATED SERVICES, ETC,...... AS PER THE TP DOCUMENT: MARLABS INDIA IS ENGAGED IN THE BUSINESS OF PROVIDI NG IT AND ITES SERVICES TO MARLABS US. MARLABS INDIA SHALL, AT THE REQUEST OF MARLABS US AND IN ACCORDANCE WITH SUCH PERFORMANCE STANDARDS AND RULE S AS MARLABS US MAKES AVAILABLE TO MARLABS INDIA FROM TIME TO TIME, PROVI DE SERVICES TO MARLABS U.S. PAGE 14 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 THE SERVICES INCLUDE PROVIDING SOFTWARE DEVELOPMENT OR SUPPORT FOR SOFTWARE DEVELOPMENT SERVICES AND PROCESS OUTSOURCING SERVIC ES AS FOLLOWS: SUPPORT SERVICES FOR MAD LABS U.S. STAFFING BUSINES SES: LEGAL SUPPORT SERVICES: ACCOUNTING SUPPORT SERVICES: HR SUPPORT SERVICES: IT SUPPORT SERVICES: CORPORATE MARKETING SERVICES: AND SALES SUPPORT SERVICES SOFTWARE DEVELOPMENT SERVICES: REQUIREMENTS GATHERING/KNOWLEDGE TRANSFER FACE DESIGN FACE LOW-LEVEL DESIGN CODING QUALITY ASSURANCE/TESTING IMPLEMENTATION SUPPORT OTHER SERVICES-IT ENABLED SERVICES PROFESSIONAL SERVICES LEGAL SUPPORT SERVICES ACCOUNTING SUPPORT SERVICES HR SUPPORT SERVICES CORPORATE MARKETING SERVICES SALES SUPPORT SERVICES IT SUPPORT SERVICES CHARACTERISATION: BASED ON ABOVE FAR ANALYSIS ASSESSEE HAS BEEN CHARA CTERISED AS CAPTIVE SERVICE PROVIDER. IT HAS BEEN SUBMITTED THAT ASSESSEE IS COMPENSATED WITH COST PLUS MARKUP 15% EXCLUDING FOREX VARIATION COMPONENT AS GIVEN IN THE AGREEMENT WITH THE AE FOR PROVISION OF SERVI CES BOTH UNDER SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES. ASSES SEE HAS THEREFORE EXCLUDED FOREX LOSS AS NON-OPERATING IN N ATURE. SWD SEGMENT: A) PERSISTENT SYSTEMS AND SOLUTIONS LTD PAGE 15 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 THIS COMPARABLE HAS BEEN INCLUDED BY LD.TPO THOUGH IT HAS BEEN OBJECTED BY ASSESSEE ON FUNCTIONAL DISSIMILARI TIES. LD.AR SUBMITTED THAT SEGMENTAL INFORMATION IS IN RESPECT OF THIS COMPANY IS NOT AVAILABLE IN ANNUAL REPORT. LD. CIT DR PLACED RELIANCE UPON THE ORDERS OF AUTHO RITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF THE RECORDS PLACED BEFORE US. ANNUAL REPORT OF THIS COMPANY IS PLACED AT PAGE 101 1 TO 1022 OF PAPER BOOK INDEX TO ANNUAL REPORTS VOLUME 1. WE FIN D THAT THIS COMPANY EARNED INCOME FROM SALE OF SOFTWARE SERVICE S AND PRODUCTS AND NO SEGMENTAL DETAILS ARE AVAILABLE IN RESPECT OF THE SAME. IT IS ALSO OBSERVED THAT INCOME GENERATED UND ER BOTH THESE SEGMENTS CUMULATIVELY AMOUNTS TO TUNE OF RS.6.67 CR ORES AND IN SCHEDULE 11, ENTIRE REVENUE HAS BEEN SHOWN UNDER ON E SEGMENT. IT IS ALSO OBSERVED THAT THIS COMPANY IS RENDERING SOFTWARE DEVELOPMENT SERVICES AND LICENSING, AND EARNS ROYAL TY OF SOFTWARE PRODUCTS. THEREFORE IN OUR CONSIDERED OPINION, IN THE ABSENCE OF SEGMENTAL DETAILS WE CANNOT APPRECIATE THE VIEW TAKEN BY AUTH ORITIES BELOW. ACCORDINGLY WE DIRECT LD.TPO TO EXCLUDE THIS COMPAN Y FROM THE FINAL LIST. B) ICRA TECHNO ANALYTICS LTD: LD.AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY N OT COMPARABLE AS THE SERVICE SEGMENT COMPRISES OF SOFT WARE DEVELOPMENT, SOFTWARE CONSULTANCY, ENGINEERING SERV ICES, WEB DEVELOPMENT, WEB HOSTING ETC FOR WHICH NO SEGMENTAL INFORMATION IS AVAILABLE. PAGE 16 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 LD.CIT DR PLACED RELIANCE UPON THE ORDERS PASSED BY AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED THAT THIS COMPANY IS ENGAGED IN DIVE RSE IS FILED ACTIVITIES OF SOFTWARE DEVELOPMENT AND THEREFORE CA NNOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH ASSESSEE T HAT IS RENDERING CAPTIVE SERVICES TO ITS ASSOCIATED ENTERP RISES. WE THEREFORE DO NOT FIND THIS COMPANY TO BE FUNCTIONAL LY COMPARABLE WITH ASSESSEE. ACCORDINGLY THIS COMPARABLE IS DIRECTED TO BE EXCLU DED FROM FINAL LIST. C) KALS INFORMATION SYSTEMS LTD: LD.AR SUBMITTED THAT ASSESSEE HAD OBJECTED FOR INCL USION OF THIS COMPARABLE AS IT DEVELOPS AND SALES SOFTWARE PRODUC TS. IN SUPPORT OF ASSESSEE HAD RELIED UPON DECISION OF THI S TRIBUNAL IN CASE OF DCIT VS M/S.ELECTRONICS FOR IMAGING INDIA PVT.LTD IN ITA (TP) A NO. 212/BANG/2015 BY ORDER DATED 24/02/2016. LD. TPO HOWEVER REJECTED ASSESSEES SUBMISSION ON THE GROUN D THAT ASSESSEE HAS NOT SUBSTANTIATED SALE OF PRODUCTS BY THIS COMPANY DURING THE YEAR AND IT IS NOT CLEAR FROM WHERE ASSE SSEE HAS PICKED UP THE SALE OF PRODUCTS BY THIS COMPANY SINC E NOWHERE IN THE ANNUAL REPORT, IT IS MENTIONED THAT PRODUCTS AR E BEING SOLD. LD.AR HOWEVER SUBMITTED THAT THIS COMPANY HAS INVEN TORIES OF RS.60,47,977/- THAT IS REFLECTED IN THE BALANCE SHE ET FOR YEAR UNDER CONSIDERATION AND THEREFORE OBSERVATIONS OF L D.TPO IS NOT CORRECT. PAGE 17 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 ON THE CONTRARY LD. DR PLACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS NOTED THAT DRP HAS NOT VERIFIED THESE ISSUES, THOUGH THEY HAVE BEEN RAISED BY ASSESSEE IN OBJECTION NO. 5. WE ARE THEREFORE SETTING ASIDE THIS BACK TO DRP FOR PROPER VERIFICAT ION. DRP IS DIRECTED TO VERIFY THE OBJECTIONS RAISED BY ASSESSE E IN RESPECT OF THIS COMPARABLE AND TO PASS A DETAILED ORDER. ACCORDINGLY THIS COMPARABLE IS SENT BACK TO DRP. ITES SEGMENT COMPARABLES SOUGHT FOR EXCLUSION A) ACCENTIA TECHNOLOGIES LTD ASSESSEE HAD OBJECTED FOR INCLUSION OF THIS COMPANY BEFORE AUTHORITIES BELOW. LD.AR SUBMITTED THAT THIS COMPAN Y IS ENGAGED IN SERVICES ARE AKIN TO KNOWLEDGE PROCESS OUTSOURCI NG WHICH IS EVIDENT FROM THE ANNUAL REPORT. IT HAS BEEN SUBMITT ED THAT UNDER THIS SEGMENT ASSESSEE IS RENDERING BACK-OFFICE SERV ICES WHICH IS MERELY SUPPORTIVE IN NATURE. HE ALSO SUBMITTED THAT FURTHER THIS COMPANY DOES ONLY MEDICAL TRANSCRIPTION BUT HAS ALS O VENTURED INTO HEALTHCARE RECEIVABLE CYCLE MANAGEMENT AND HIG H END CONSULTANCY TO START-UPS REQUIRING FIELD EXPERTS. L D.AR SUBMITTED THAT SEGMENTAL DETAILS OF VARIOUS ACTIVITIES CARRIE D OUT BY THIS COMPANY IS NOT AVAILABLE AND ALSO HAS SIGNIFICANT I NTANGIBLES. IN SUPPORT OF HIS CONTENTIONS HE PLACED RELIANCE ON DE CISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF SWISS RE SHARED PAGE 18 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 SERVICES (INDIA) PVT.LTD VS ACIT REPORTED IN (2016) 76 TAXMANN.COM 22. ON THE CONTRARY, LD. CIT DR PLACED RELIANCE UPON TH E ORDERS OF AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US IT IS OBSERVED THAT THOUGH THIS COMPANY WAS INTO MEDICAL TRANSCRIPTION AND OTHER SERVICES I T CAN NEITHER BE HELD TO BE A VERY HIGH-END ACTIVITIES NOR CAN BE HELD TO BE LOW- END SERVICES. HOWEVER IT IS OBSERVED THAT THIS COMP ANY HAD UNDERGONE ACQUISITION WHICH IS AN EXTRAORDINARY EVE NT AND CAN IMPACT THE PROFITS FOR THE YEAR UNDER CONSIDERATION . UNDER SUCH CIRCUMSTANCES WE ARE OF THE OPINION THAT THIS COMPA NY CANNOT BE CONSIDERED TO BE COMPARABLE WITH THAT OF ASSESSEE F OR THE YEAR UNDER CONSIDERATION. ACCORDINGLY DIRECT THIS COMPANY TO BE DELETED FROM THE FINALIST. B) ICRA ONLINE LTD ASSESSEE OBJECTED FOR INCLUSION OF THIS COMPARABLE. LD.AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COM PARABLE UNDER THIS SEGMENT AS IS THEN IN HIGH-END KPO SERVI CES WHEREAS ASSESSEE IS CARRYING OUT BACK OFFICE SERVICES. HE A LSO SUBMITTED THAT THIS COMPANY FAILS RPT FILTER APPLIED BY LD.TP O. ON THE CONTRARY LD. CIT DR PLACED RELIANCE ON VIEW TAKEN BY THIS TRIBUNAL IN CASE OF SWISS RE SHARED SERVICES (INDIA) PVT.LTD VS ACIT (SUPRA). WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. PAGE 19 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 THE ANNUAL REPORT OF THIS COMPANY IS PLACED AT PAGE 1738-1760 OF INDEX TO ANNUAL REPORTS PAPER BOOK VOLUME 2. IT IS OBSERVED THAT THIS COMPANY HAS 3 REPORTABLE SEGMENTS BEING I NFORMATION SERVICES, OUTSOURCED SERVICES, SOFTWARE SERVICES. FURTHER IT IS OBSERVED THAT, THIS TRIBUNAL IN CASE OF SWISS RE SHARED SERVICES (INDIA) PVT.LTD VS ACIT (SUPRA) AND M/S ZYME SOLUTIONS PVT.LTD VS ACIT IN ITA (TP) A NO. 85/B/20 16 FOR ASSESSMENT YEAR 2011-12 REMANDED THIS COMPANY FOR F RESH CONSIDERATION TO LD. AO/TPO. FOLLOWING THE SAME DEC ISIONS WE ALSO DIRECT THIS COMPANY TO BE SET-ASIDE TO LD.AO/T PO FOR FRESH CONSIDERATION OF COMPARABILITY THE LINES INDICATED IN THESE CASES. ACCORDINGLY THIS COMPARABLE STAND SET ASIDE FOR FRE SH CONSIDERATION. ACCORDINGLY WE ALLOW GROUND NO. 2 RAISED BY ASSESSE E IN ITS APPEAL AND CROSS OBJECTION AS INDICATED HEREINABOVE . 17. GROUND NO. 3 IS AGAINST WORKING CAPITAL ADJUSTMENT COMPUTED BY LD.AO/TPO AT 1.98% FOR SOFTWARE DEVELOP MENT SERVICE SEGMENT AND 0.23% FOR IT ENABLED SERVICE SE GMENT. 17.1. LD.AR SUBMITTED THAT WORKING CAPITAL ADJUSTMENT COMPUTED BY AUTHORITIES BELOW ARE UNREASONABLE. IT HAS BEEN SUBMITTED THAT DRP HAD DIRECTED LD.AO TO GRANT WORK ING CAPITAL ADJUSTMENT WHICH WAS NOT FOLLOWED WHILE PASSING FIN AL ASSESSMENT ORDER. LD.AR EMPHASISED THAT IN THE PRES ENT FACTS OF THE CASE ASSESSEE DOES NOT HAVE ANY IMPACT OF WORKI NG CAPITAL ON ITS OWN AND THEREFORE IT IS NECESSARY THAT ADJUSTME NT HAS TO BE PROVIDED IN CASE OF COMPARABLES IN ORDER TO REDUCE THE DIFFERENCES. PAGE 20 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 17.2. LD.CIT.DR SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO LD.AO/TPO FOR RECONSIDERATION. 17.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. ON PERUSAL OF ORDER PASSED BY LD.AO IS OBSERVED THA T THE WORKING CAPITAL ADJUSTMENT HAS BEEN DENIED SINCE AS SESSEE DID NOT FILED REQUISITE DETAILS IN RESPECT OF COMPARABL ES. AS HELD BY VARIOUS DECISIONS OF COORDINATE BENCHES OF THIS TRIBUNAL , WE DIRECT LD.TPO TO RECOMPUTE WORKING CAPITAL ADJUSTMENT IN A CTUAL, AND TO CONSIDER THE SAME FOR PURPOSES OF COMPUTING ARM S LENGTH MARGIN AS PER THE VIEW EXPRESSED BY THIS TRIBUNAL IN CASE OF HUAWEI TECHNOLOGIES INDIA PVT. LTD VS JCIT REPORTED IN (2019) 101 TAXMAN.COM 313 . 17.3.1. ASSESSEE IS DIRECTED TO PROVIDE FOR NECESSARY DETAI LS IN RESPECT OF ALL THE COMPARABLES FINALLY SELECTED. IF THAT INFORMATION IS INSUFFICIENT, IT IS BEYOND THE POWER OF ASSESSEE TO PRODUCE CORRECT INFORMATION ABOUT COMPARABLE COMPANIES. REV ENUE ON THE OTHER HAND HAS SUFFICIENT POWERS U/S.133(6) TO COMPEL PRODUCTION OF REQUIRED DETAILS FROM COMPARABLE COMP ANIES. IF THIS POWER IS NOT EXERCISED TO FIND TO GET INFORMATION R EQUIRED, THEN IT IS NO DEFENCE TO SAY THAT ASSESSEE HAS NOT FURNISHE D REQUIRED DETAILS TO DENY ANY ADJUSTMENT ON ACCOUNT OF WORKIN G CAPITAL. LD.AO/TPO SHALL THEN COMPUTE WORKING CAPITAL ADJUST MENT IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NO.3 OF ASSESSEES APPEAL STAND S ALLOWED FOR STATISTICAL PURPOSES. PAGE 21 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 18. GROUND NO.4 LD.AR SUBMITTED THAT ASSESSEE HAD SET OFF, CARRY FO RWARD LOSSES PERTAINING TO AY 2009-10 AMOUNTING TO RS.1,58,84,55 4/-. ON VERIFICATION OF ASSESSMENT RECORDS FOR AY. 2009-10, LD.AO NOTICED THAT LOSS DERIVED BY ASSESSEE WAS REDUCED AND HAND INCOME WAS DETERMINED AMOUNTING TO RS.1,15,84,554/-. LD.AR SUB MITTED THAT THE SAME HAS BEEN OFFERED TO TAX FOR ASSESSMEN T YEAR 2009- 10. BOTH SIDES SUBMITTED FOR VERIFICATION OF THE IS SUE BY LD. AO/TPO. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS NOTED THAT THE SUBMISSIONS ADVANCED BY ASSESS EE REQUIRES VERIFICATION AND IF FOUND TO THE CLAIM SHALL BE ALL OWED IN ACCORDANCE WITH LAW. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MAY, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 13 TH MAY, 2020. /VMS/* PAGE 22 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL. BANGALORE. PAGE 23 OF 23 IT(TP)A NOS.430, 544/BANG/2015 CO NO.160/BANG/2015 A. Y : 2010 11 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -04-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -04-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -04-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 20-04-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -04-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -05-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -05-2020 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