Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 1289 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 9 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-12-2020
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
C
Next Hearing Date
24-11-2020
Assessment Year
2012-2013
Appeal Filed On
07-03-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, PUN E (THROUGH VIRTUAL COURT) BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.544/PUN/2017 / ASSESSMENT YEAR : 2012-13 EGAIN COMMUNICATIONS PVT. LTD., OFFICE NO.702, 7 TH FLOOR, B-1, THE CEREBRUM IT PARK, VADGAON SHERI, KALYAN NAGAR, PUNE 41 014. PAN : AAACN9946R. ....... / APPELLANT / V/S. THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE. / RESPONDENT ASSESSEE BY : MR. MADHUR AGRAWAL. REVENUE BY : SHRI MAHADEVAN A.M. KRISHNAN. / DATE OF HEARING : 14.12.2020 / DATE OF PRONOUNCEMENT : 17.12.2020 / ORDER PER PARTHA SARATHI CHAUDHURY, JM: THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-13, PUNE DATED 11.01.2 017 FOR THE ASSESSMENT YEAR 2012-13 AS PER THE FOLLOWING GROUNDS OF APPEAL ON RECORD. 1. GROUND NO. 1 : ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 1.1. THE LEARNED COMMISS I ONER OF INCOME TAX (APPEALS) [ ' LD. CIT(A) ) GROSSLY ERRED , IN FACTS AND I N LAW, IN UPHOLDING THE ORDER OF LEARNED TRANSFER P RICING OFFICER ('LD . TPO') U/S 92CA(3) OF T HE INCOME TAX ACT , 1961 ( ' ACT ' ) AND CONSEQUENTIAL ASSESSMENT ORDER OF LEARNED A S SESSING OFF I CER ( 'LD . AO ' ) WHICH IS BAD IN LAW AND VOID AB INITIO AS THE SAME IS I N BREACH OF PR I NC I PLE OF NATURAL J US TI CE AND I S W I THOUT COMPLYING W I TH THE MANDATORY CONDIT I ONS OF SECT I ON 92CA ( 3 ) R . W . S . 92C (3) OF THE AC T . 2 ITA NO.544/PUN/2017 1.2 THE LEARNED CIT(A) GROSSLY ERRED , IN FACTS AND IN LAW,: 1 . 2.1 IN UPHOLDING LD . TPO/AO ' S ACTION OF REJECTING FOLLOWING COMPAN I ES TAKEN BY THE APPELLANT AS COMP A RABLES : I. AKSHAY SOFTWARE TECHNOLOGIES LTD . I I . CAT TECHNOLOGIES LTD. III . C G-V A K SOFTWARE & EXPORTS LTD . I V . CHERRYTEC INTELISOLVE LTD . V . INFOTECH ENTERPRISES INFORMATION TECHNOLOGY SERVICE S PVT. LTD . VI. NUCSOFT LTD . VII. WINFOWARE TECHNOLOGIES LTD . 1.2 . 2 IN COMPUTING EXPORT TURNOVER RATIO OF INFOTECH E NTERPRISES INFORMATION TECHNOLOGY SERV I CES PVT. LTD AT 66 . 36% ON THE BASIS OF FINANC I AL DATA OF SUCCEEDING FINANCIAL YEAR I.E . FY 2012 - 13 IN S T EAD OF COMPUTING THE SAME ON THE BASIS OF CURRENT YEAR ' S FINANCIAL DATA WH I CH COME TO 95 . 1 % AND THEREBY REJECTING IT AS COMPARABLE ON THE GROUND OF INCORRECT EXPORT TURNOVER RATIO . 1.2 . 3 I N UPHOLDING LD . TPO/AO ' S ACTION OF SELECTING FOLLOWING AS COMPA R ABLE COMPANIES OR COMPANY ' S SEGMENT WH I CH ARE FUNCTIONALLY OR OTHERWISE NOT COMPARABLE TO T HE APPELLAN T . I. VAMA INDUSTRIES LTD . (SEGMENT) II. CYBERMATE INFOTEK LTD. III. INFOBEANS SYSTEMS INDIA PVT. LTD . IV. CYBERCOM DATAMAT I CS INFORMATION SOLUT I ONS LTD . V . THIRDWARE SOLUTIONS LTD . 1 . 2.4 IN NOT ADJUDICATING GROUND AGAINST LD. TPO/AO ' S ACTION OF REJECTING THE TURNOVER CRITERION / FILTER OF RS . 5 CRORES TO RS . 25 CRORES ADOPTED BY APPELLANT WHEN S U CH CR IT E RI O N/ F IL TER ( RS. 5 CRO R ES TO RS . 25 CRORES ) I S CONS I S T ENT L Y APP LI E D BY A P PELLANT I N A L L PREV I OUS YEA R S , A N D MOREO V ER W H EN S U C H CR IT ER I ON WAS ALSO UPHELD BY HON ' BLE ITAT I N APPELLANT ' S OWN CASE V I Z . E - GA I N CO M M UNI CATIO N ( P ) LTD . V . ITO (2008) 23 SOT 385 , PUNE . 1.2.5. IN NOT ADJUD I CAT I NG GROUND AGAINST LD . TPO/AO ' S ACT I ON OF R E J EC T I N G TH E C RI TE R IO N F OR E X CLU S I O N ' O F START U P CO M PA N I E S I .E . COM P A NI ES I N CO RP O R A T ED BE TW EE N 01/04/2010 TO 31/03/2012, APPLIED BY THE APPELLAN T. 1.2.6 IN NOT ADJUDICATING GROUND AGAINST LD. TPO/AO ' S ACTION OF REJECTING THE FI L TER OF THE EMPLOYEE COST GREATER THAN 50% OF TOTAL COST APPLIED BY THE APPELLANT . 1.2.7 IN NOT ADJUDICATING GROUND AGAINST THE APPLIC ATION OF CRITERION OF 'COMPANIES WITH A NET WORTH LESS THAN ZERO' ADOPTED BY THE LD. TPO FOR EXCLUSION OF COMPARABLE COMPANIES. 1.2.8. IN UPHOLDING THE APPLICATION OF FILTER OF EX PORT TURNOVER GREATER THAN 75% OF TOTAL TURNOVER IN SELECTION OF COMPARABLE COMPAN IES. 1.2.9 IN UPHOLDING THE ACTION OF LD. TPO/AO OF NOT GRANTING APPELLANT'S CLAIM FOR ADJUSTMENT FOR MATERIAL DIFFERENCES IN THE DEPRECIA TION RATES CHARGED BY THE APPELLANT VIA-A-VIE COMPANIES SELECTED AS COMPARABL E COMPANIES, THOUGH THE ACT READ WITH RULE 10B(1)(E)(III) AND 10B(3) PROVID E FOR CARRYING OUT SUCH COMPARABILITY/ACCOUNTING ADJUSTMENTS AND SAME WAS A LSO UPHELD BY HON'BLE ITAT IN THE APPELLANT ' S OWN CASE VIZ . E-GAIN COMMUNICATION (P) LTD . V. ITO (2008) 23 SOT 385, PUNE. 3 ITA NO.544/PUN/2017 1 . 2 . 10 I N UPHOLDING THE ACTION OF LD . TPO/AO OF NOT GRANTING APPELLANT'S CLAIM FOR ADJUSTMENT FOR MATERIA L DIFFERENCES IN THE RISK / FUNCTIONAL PROFILE OF THE APPELLANT VIA-A-VIS COMPANIES SELECTED AS COMPARABL E COMPANIES , THOUGH THE ACT READ WITH RULE 10B(1)(E)(III) AND 10B(3) PROV I DE FOR CARRYING OUT SUCH COMPARABILITY ADJUSTMENTS AND SUCH ADJUSTMENT WAS ALS O APPROVED BY HON ' BLE ITAT IN APPELLANT ' S OWN CASE VIZ . E-GAIN COMMUNICATION (P) LTD . V. ITO (2008) 23 SOT 385 , PUNE. 1 . 3 THE APPELLANT CRAVES LEAVE TO CONTEND THAT THE F OLLOWING ADDITIONAL NINE (9) COMPANIES IDENTIFIED BY THE APPELLANT APPLYING THE SAME SEARCH FILTERS/CRITERIA AS ADOPTED BY LD . TPO IN H I S SHOW CAUSE NOT I CE DATED 06.01 . 2016 , ARE COMPARABLE TO THE APPELLANT AND SHALL BE TAKEN AS COMPARABLE I N CASE THE LD . TPO UPON THEIR EXAMINATION CONCLUDES THAT ALL OR SO ME OF THE AFORESAID COMPANIES ARE NOT COMPARABLE TO THE APPEL LANT. I. ACE SOFTWARE EXPORTS LTD . II . C T I L LTD. III . CELSTREAM TECHNOLOQIES PVT . LTD . IV . F C S SOFTWARE SOLUTIONS LTD . V . GOLDSTONE TECHNOLOGIES LTD. VI . KALS INFORMATION SYSTEMS LTD . (SEGMENTAL) VII . R SYSTEMS INTERNATIONAL LTD (SEGMENTAL) VIII . S Q S IND I A 8 F S I LTD. (FORMERLY KNOWN AS THINKSOFT GLOBAL SERVICES LTD . ) IX. SILVERLINE TECHNOLOG I ES LTD . 2. GROUND NO. 2 : DISALLOWANCE OF LEASED LINE /DATA LINK CHARGES OF RS. 2,77,754/- UNDER SECTION 40 (A)(IA) OF THE ACT ON ACCOUNT OF N ON DEDUCTION OF TAX AT SOURCE 2.1. THE L EARNED CIT(A) GROSSLY ERRED , IN FACTS AND I N LAW , I N HOLD I NG THE TREATMENT OF THE LEASED LI NE/ I NTERNET SERV I CE CHARGES PA I D TO SERV I CE PROV I DE R S AS ' ROYA L TY ' . 2.2. THE LEAR N ED CIT(A) GROSSLY ERRED , I N FACTS AND IN LAW , I N U PHOLD I NG THE DISAL L OWANCE OF L EASED LI NE / I NTE R NET SE R VICE CHA R GES U NDER SECT I ON 4 0 ( A ) (IA) OF THE AC T ON ACCOUNT OF NON DEDUCT I ON OF TAX AT SOURCE UNDER SECTION 194J OF THE ACT. GROUND NO. 3 : INITIATION O F PENALTY PROCEEDINGS U /S. 271 ( 1) (C) OF THE ACT. THE LEARNED CIT(A) GROSSLY ERRED , I N FACTS A N D IN L AW , I N UPHOLDI N G THE P RO POS I T I ON OF INI T I A TI ON O F PENALTY PROCEED I NG U/S 27 1 ( 1 )(C) OF THE ACT WITHOUT APP R EC I ATING THAT THE APPELLAN T HAS A CT ED I N GOO D FA I TH. 2. AT THE VERY OUTSET, THE LEARNED COUNSEL FOR THE AS SESSEE SUBMITTED THAT IN THIS CASE, BEFORE US, THE ASSESSEE HAS DISPUTED THE INC LUSION OF CERTAIN COMPANIES BY THE ASSESSING OFFICER (AO) / TRANSFER PRICING OFFIC ER (TPO) IN THE FINAL SET OF COMPARABLES AND THE LD.A.R. FURTHER SUBMITTE D THAT IF THESE COMPANIES ARE EXCLUDED FROM THE FINAL LIST OF COMPARABLES THE N THERE WILL BE 4 ITA NO.544/PUN/2017 NO FURTHER GRIEVANCE LEFT FOR THE ASSESSEE IN THIS APPEAL AND HE WOULD BE HOME. 3. THE FIRST COMPANY WHICH THE ASSESSEE WANTS TO BE EX CLUDED IS VAMA INDUSTRIAL LIMITED. THE ASSESSEES OBJECTION WITH REGARD TO THIS COMPANY IS TWO-FOLD. 1. THE INCOME FROM SOFTWARE SERVICE SEGMENT A THIS COMPANY MAINLY CONSISTS OF INCOME FROM SOFTWARE DEVELOPMENT SERVICES AND ENGIN EERING SERVICES AS IT IS APPARENT FROM NOTE NO. 31 SEGMENT REPORTING AT PAGE #50 OF AR READ WITH NOTE NO. 33 - 'EARNING IN FOREIGN CURRENCY' APPEARI NG ON PAGE #51 OF AR. AS EVIDENT, THE INCOME FROM ENGINEERING SERVICE OF RS .3,22,64,105/- CONSTITUTE 98.17% OF THE TOTAL REVENUE (RS. 3,28,66,174) FROM SOFTWARE SERVICE SEGMENT. THE ENGINEERING SERVICES ARE IN THE NATURE OF PRODU CT DESIGN SERVICES WITH THE HELP OF COMPUTER SOFTWARE SPECIALLY FOR AUTOMOTIVE SECTOR (SEE PG 9 OF AR). SUCH ENGINEERING SERVICES ARE NOT AT ALL SOFTWARE DEVELO PMENT SERVICES. THUS, THIS SEGMENT OF THE COMPANY IS MAINLY INTO DESIGN ENGINE ERING SERVICES WHICH ARE FUNCTIONALLY DIFFERENT THAN SOFTWARE DEVELOPMENT SE RVICE BUSINESS. THUS, THIS SEGMENT OF VAMA INDUSTRIES LTD. IS NOT FUNCTIONALLY COMPARABLE TO SOFTWARE DEVELOPMENT SERVICE BUSINESS OF THE ASSESSEE. 4. YOUR GOOD SELF HAS APPLIED FILTER OF R&D EXPENSE S TO SALES < 3% WHILE SELECTING THE COMPARABLE COMPANIES. HOWEVER, AS EVI DENT FROM PAGE 22 OF AR THIS COMPANY HAS SPENT MORE THAN 3% ( 3.67% TO BE P RECISE) ON R& D. THUS, THE COMPANY FAILS THE CRITERION APPLIED BY YOUR GOOD SE LF AND REQUIRED TO BE DROPPED FROM THE LIST OF COMPARABLE COMPANIES. 4. THE ASSESSEE HAD FURTHER SUBMITTED AS FOLLOWS : 1. LD. TPO'S SWEEPING OBSERVATION THAT COMPARABLE PASSES ALL THE FILTERS WITHOUT EXAMINING THE DETAILED SUBMISSION MADE BY T HE APPELLANT IS FACTUALLY INCORRECT. THE APPELLANT VIDE ANNEXURE # D TO ITS R EPLY DATED 14.01.2016 TO SHOW CAUSE NOTICE WHICH IS PLACED AS ANNEXURE # 5 I N PB HAS BROUGHT OUT THE FACT THAT THIS COMPANY DID NOT PASS R&D FILTER APPL IED BY THE LD. TPO. AS EVIDENT FROM PAGE # 22 (RELEVANT EXTRACT IS REPRODU CED BELOW) OF AR, THIS COMPANY HAS SPENT MORE THAN 3% (3.67% TO BE PRECISE ) ON R&D. (RS. IN LAKHS) EXPENDITURE ON R & D 2011-12 2010-11 CAPITAL 51.39 NIL RECURRING NIL 43.95 TOTAL 51.39 43.95 TOTAL R & D EXPENDITURE AS % OF TOTAL TURNOVER 3.67% 4.36% THUS THIS COMPANY HAS SPENT MORE THAN THE 3% THRESH OLD SET BY THE LD. TPO FOR THIS FILTER AND THUS IT IS NOT COMPARABLE AS PER TH E LD. TPO'S OWN STANDARD. FURTHER, THE EARNING FROM EXPORT OF THIS COMPANY IS RS 3,28,66,174 (RELEVANT 'EXTRACT IS REPRODUCED BELOW) AS SHOWN ON PAGE # 51 OF AR WHEREAS THE TOTAL REVENUE IS RS. 14,01,76,936 AS EVIDENT FROM PAGE # 42 AR. THUS, THE EXPORT EARNING IS 23.41 % ONLY. 5 ITA NO.544/PUN/2017 NOTE NO: 33 EARNING IN FOREIGN CURRENCY PARTICULARS AS AT 31.03.2012 (RS) AS AT 31.03.2011 (RS) FROM ENGINEERING SERVICES 3,22,64,105 2,88,64,954 FROM SOFTWARE DEVELOPMENT 6,02,069 17,45,989 TOTAL EARNINGS FROM FOREIGN CURRENCY 3,28,66,174 3,06,10,943 THUS THIS COMPANY ALSO FAILS THRESHOLD OF 75% OF EX PORT FILTERS ADOPTED BY THE LD.TPO HIMSELF. AS SEEN THIS COMPANY DOES NOT PASS MANY OF THE FIL TERS ADOPTED BY THE LD. TPO. THUS, IT IS NOT COMPARABLE AS PER THE SEARCH P ROCESS ADOPTED BY THE TPO HIMSELF. HENCE, THE LD. TPO ERRED IN STATING THAT T HE COMPANY PASSES ALL THE FILTERS ADOPTED BY HIMSELF ALTHOUGH THE APPELLANT H AS BROUGHT OUT THESE FACTS IN ITS SHOW CAUSE REPLY AS WELL BUT THE LD.TPO DID NOT TAKE COGNIZANCE OF THE SAME WHILE PASSING HIS ORDER. 2. IT IS NOT CLEAR IN WHAT CONTEXT THE LD. TPO COMM ENTED THAT APPELLANT CONTENTION IS REJECTED BOTH ON COMPUTATION AND FORE X FILTER. THE LD. TPO DID NOT ELABORATE ON THIS COMMENT ANY FURTHER. 3. THE LD. TPO'S REFERENCE TO PERSONNEL COST TO EMP LOYEE COST IS MISPLACED AS THE APPELLANT DID NOT SUBMIT ANY ARGUMENT ON THIS F RONT IT IS NOT CLEAR FROM THE LD, TPO'S COMMENT HOW THIS ARGUMENT WILL MAKE THIS C OMPANY COMPARABLE. 4. THE LD. TPO IS ERRED IN STATING THAT THE APPELLA NT HAS OVERLOOKED THE SEGMENTAL INFORMATION. ON THE CONTRARY, THE APPELLA NT HIMSELF HAS DRAWN ATTENTION TO NOTE # 31 REGARDING SEGMENTAL INFORMAT ION IN ITS SHOW CAUSE REPLY WHICH IS PLACED AS ANNEXURE # 5 IN PB. 5. WHAT IS REALLY CONTENDED BY THE APPELLANT IS THA T WITHIN SOFTWARE SERVICE SEGMENT, THE MAJORITY OF THE REVENUE IS DERIVED FRO M ENGINEERING SERVICES WHICH IS NOT REALLY COMPARABLE WITH THE APPELLANT'S BUSIN ESS. THE SOFTWARE DEVELOPMENT SERVICE SEGMENT OF THIS COMPANY WHICH T HE LD.TPO IS TRYING TO COMPARE WITH APPELLANT'S BUSINESS IS FUNCTIONALLY D IFFERENT FROM THAT OF APPELLANT'S BUSINESS AS EVIDENT FROM THE SUBMISSION IN THE ENSUING PARAGRAPHS. 6. THE INCOME FROM SOFTWARE SERVICE SEGMENT OF THIS COMPANY MAINLY CONSISTS OF INCOME FROM SOFTWARE DEVELOPMENT SERVICES AND ENGIN EERING SERVICES AS IT IS APPARENT FROM NOTE NO. 31 -SEGMENT REPORTING' AT PA GE # 50 OF AR READ WITH NOTE NO. 33 -EAMING IN FOREIGN CURRENCY' APPEARING ON PAGE # 51 OF AR . AS EVIDENT, THE INCOME FROM ENGINEERING SERVICE OF RSJ ,22,64,105 CONSTITUTE 98.17% OF THE TOTAL REVENUE (RS. 3,28,66,174) FROM SOFTWARE SERVICE SEGMENT. THE ENGINEERING SERVICES ARE IN THE NATURE OF PRODU CT DESIGN SERVICES WITH THE HELP OF COMPUTER SOFTWARE SPECIALLY FOR AUTOMOTIVE SECTOR (SEE PAGE # 9 OF AR). SUCH ENGINEERING SERVICES ARE NOT AT ALL SOFTWARE D EVELOPMENT SERVICES. THUS, THIS SEGMENT OF THE COMPANY IS MAINLY INTO DESIGN E NGINEERING SERVICES WHICH ARE FUNCTIONALLY DIFFERENT THAN SOFTWARE DEVELOPMEN T SERVICE BUSINESS. THUS, THIS SEGMENT OF VARNA INDUSTRIES LTD. IS NOT FUNCTI ONALLY COMPARABLE TO SOFTWARE DEVELOPMENT SERVICE BUSINESS OF THE APPELLANT. 7. THE TOTAL TURNOVER OF THE SOFTWARE DEVELOPMENT S ERVICE WHICH MAY BE COMPARED WITH APPELLANT'S BUSINESS IS MEAGRE RS. 6, 02,069/-AND THIS AMOUNT IS INCLUDED IN THE ENGINEERING SERVICES. THERE IS N O FURTHER DETAILS ABOUT PROFITABILITY OF THIS SMALL PORTION OF REVENUE FROM SOFTWARE SERVICES. 6 ITA NO.544/PUN/2017 8. EVEN IF THE INCOME FROM ENGINEERING SERVICE IS I NCLUDED, THE TOTAL INCOME FROM SOFTWARE SERVICE SHOWN IS RS. 3,28,66,174/- WHICH I S MUCH BELOW THE THRESHOLD LIMIT OF RS. 5 CRORES THE APPELLANT HAS APPLIED TO S ELECT THE COMPARABLE COMPANIES IN ITS TPSR. THEREFORE, EVEN ON TERMS OF LEVEL OF OPERATION ALSO, THIS SEGMENT OF THE COMPANY IS NOT COMPARABLE TO THE APP ELLANT. 9. THE LD. TPO, IN A Y 201011, HIMSELF HAS REJECTE D THIS COMPANY ON THE GROUND OF EXPORT FILTER. IT IS STRANGE THAT IN SPIT E OF THIS COMPANY NOT PASSING EXPORT FILTER IN THE CURRENT YEAR AS MENTIONED ABOV E, THE LD, TPO CHOSE TO INCLUDE THIS COMPANY AS COMPARABLE AS IT IS YIELDIN G HIGH-PROFIT MARGIN. THIS CONFIRMS APPELLANT'S CLAIM THAT THE LD, TPO HAS CHE RRY PICKED THE COMPARABLE WHICH DOES NOT AUGUR WELL WITH FAIR PLAY AND EQUITY . YOUR HONOUR HAS ALSO HELD THIS COMPANY NOT COMPARABLE ON EXPORT FILTER GROUND IN THE A Y 2010-11. THE CIT(A)'S ORDER FOR A Y.20 10-11 IS PLACED AS ANNEXU RE # 12 OF PB. 10. BASED ON THE ABOVE CONTENTIONS, IT IS SUBMITTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES. 5. THEREFORE, THE ASSESSEE HAD SUBMITTED IN SUPPORT OF EX CLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES SINCE VAMA INDU STRIAL LTD., IS MAINLY INTO DESIGN ENGINEERING SERVICES WHICH ARE FUNCTIONAL LY DIFFERENT THAN THE SOFTWARE DEVELOPMENT SERVICES BUSINESS. THAT FURTHER IN THIS COMPANY WITHIN SOFTWARE SERVICES SEGMENT, THE MAJORITY OF THE REVE NUE IS DERIVED FROM ENGINEERING SERVICES WHICH IS NOT REALLY COMPARABLE WITH TH AT OF ASSESSEES BUSINESS. 6. WE HAVE PERUSED THE RELEVANT DOCUMENTS PLACED ON RE CORD, SPECIFICALLY THE ANNUAL REPORT AND THE STATEMENT OF ACCOUNTS OF VAM A INDUSTRIAL LTD., AND WE CONCUR WITH THE SUBMISSION OF THE ASSESSEE BASED ON THE EVIDENCES FILED BEFORE US. WE THEREFORE, DIRECT THE AO/TPO TO DROP T HIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES IN RESPECT OF THE ASSESSEE. 7. THE 2 ND COMPANY WHICH THE ASSESSEE WANTS TO EXCLUDE FROM THE FINAL LIST OF COMPARABLES IS CYBERMATE INFOTEK LIMITED. IT IS THE CONTENTION OF THE ASSESSEE THAT THE BUSINESS ACTIVITIES OF THIS COMPANY CA NNOT BE COMPARED WITH THE ASSESSEES SOFTWARE DEVELOPMENT SERVICES BECAU SE OF THE FOLLOWING REASONS : 7 ITA NO.544/PUN/2017 1. THE COMPANY IS A SOFTWARE PRODUCT COMPANY (SEE PG 13 OF AR). IT IS INTO SOFTWARE PRODUCT SELLING AND NOT IN SOFTWARE DEVELO PMENT SERVICES. THE SAME IS EVIDENT FROM PAGE # 13 OF AR WHERE VARIOUS PRODUCTS IN WHICH COMPANY IS DEALING IN ARE LISTED. THIS CLEARLY SHOWS THAT THE COMPANY DEVELOPS ITS PRODUCTS AND SELLS THEM. 2. NOTE NO. 21 AS APPEARING ON PAGE # 38 OF AR WHER E INVENTORY OF WORK IN PROGRESS AT THE BEGINNING AND CLOSE OF THE YEAR ARE SHOWN FURTHER CONFIRMS THE FACT THAT IT'S A SOFTWARE PRODUCT COMPANY. 3.RATIO OF EMPLOYEE COST TO TOTAL OPERATING COST OF THIS COMPANY IS ONLY 10.67% (I.E. RS.86,16,000/ RS.8,07,55,388). SO LOW AND NEG LIGIBLE RATIO OF EMPLOYEE COST TO TOTAL COST CLEARLY INDICATES THAT IT IS A S OFTWARE PRODUCT COMPANY. IT IS NOT ENGAGED IN MAN POWER DRIVEN SOFTWARE DEVELOPMENT SE RVICES BUSINESS, WHEREIN GENERALLY RATIO OF EMPLOYEE COST TO TOTAL COST IS GENERALLY HIGHER THAN 50%. IN CASE OF ASSESSEE, THIS RATIO IS 74.95%. 4. THE VIEW THAT IT IS A SOFTWARE PRODUCT COMPANY I S ALSO CORROBORATED AND FORTIFIED ON PERUSAL OF COMPOSITION OF FIXED ASSET OF THE COMPANY. ON PERUSAL OF FIXED ASSET SCHEDULE (I.E. NOTE NO.10&11 ON PG 36 O F AR), A COPY OF WHICH IS ENCLOSED AS SUB-ANNEXURE #D1, IT CAN BE S EEN THAT COMPANY HAS INTANGIBLE ASSET OF RS.11,17,77,945 AND WEB DEVELOP MENT EXPENSE OF (CAPITALISED) RS.11,95,44,216 AS ON 31/03/2012, TOT ALING TO RS. 23,13,22,161/- . THUS, INTANGIBLE ASSETS CONSTITUTE 73% OF TOTAL G ROSS BLOCK OF FIXED ASSETS (I.E. RS.23.13 CR / RS.31.68 CR. SUCH A HIGH LEVEL OF INT ANGIBLE ASSETS CAN BE FOUND ONLY IN A SOFTWARE PRODUCT COMPANY. IN ADDITION TO AFORESAID, DUE TO SUCH HIGH INTANGIBLE ASSETS, THE ASSET BASE OF THIS COMPANY I S QUITE DIFFERENT FROM THE ASSETS OF THE ASSESSEE. THUS, ON FUNCTIONS & ASSETS , THIS COMPANY IS NOT AT ALL COMPARABLE TO ASSESSEE. 8. THE ASSESSEE HAS FURTHER CONTENDED AS FOLLOWS : 1. BEFORE MAKING OUR SUBMISSION ON VARIOUS GROUNDS TAKEN BY THE LD. TPO TO REJECT APPELLANTS SUBMISSION IN REPLY TO S HOW CAUSE NOTICE, THE APPELLANT STATES THAT THE LD. TPO'S COMMENTS ON FOR EX FILTER AND ABNORMAL PROFIT ARE MISPLACED AS THE APPELLANT NEVER TAKEN OBJECTIO N ON THE GROUND OF HIGH PROFITABILITY IN ITS SUBMISSION IN THE CONTEXT OF T HE SUBJECT COMPANY AND IT IS BEYOND COMPREHENSION WHY THE LD. TPO IS MAKING R EFERENCE OF FOREX-FILTER AS THERE IS NO MENTION OF' FOREX FILTER IN APPELLANT'S REPLY TO SHOW CAUSE NOTICE FOR THIS COMPANY. 2. THE BUSINESS ACTIVITIES OF THIS COMPANY CANNOT B E COMPARED WITH THE APPELLANT'S SOFTWARE DEVELOPMENT SERVICES OWING TO FOLLOWING REASONS: I. THE COMPANY IS A SOFTWARE PRODUCT COMPANY (SEE PAGE # 13 OF AR). IT IS INTO SOFTWARE PRODUCT SELLING AND NOT IN SOFTWARE D EVELOPMENT SERVICES. THE SAME IS EVIDENT FROM PAGE # 13 OF AR WHERE VARI OUS PRODUCTS IN WHICH COMPANY IS DEALING IN ARE LISTED. THIS CLEARL Y SHOWS THAT THE COMPANY DEVELOPS ITS PRODUCTS AND SELLS THEM. APART FROM HEALSOFT YOUR COMPANY HAS ABOUT 38 PROD UCTS OUT OF WHICH THE FOLLOWING 12 PRODUCTS ARE RECEIVING HIGHE R TRACTION. ASSET MANAGEMENT HUMAN RESOURCES MANAGEMENT RECRUITMENT MANAGEMENT CUSTOMER RELATIONSHIP MANAGEMENT CONTRACT MANAGEMENT 8 ITA NO.544/PUN/2017 FOOD COURT MANAGEMENT INVENTORY MANAGEMENT PHARMACY MANAGEMENT CORPORATE INFORMATION MANAGEMENT ONLINE BILLING PURCHASE MANAGEMENT ERP FOR SMALL BUSINESS II. NOTE NO. 21 AS APPEARING ON PAGE # 38 OF AR WHE RE INVENTORY OF WORK IN PROGRESS AT THE BEGINNING AND CLOSE OF THE YEAR ARE SHOWN FURTHER CONFIRMS THE FACT THAT IT'S A SOFTWARE PRODUCT COMPANY. THE RELEVANT EXTRACT IS GIVEN BELOW: NOTE NO.21 CHANGE IN INVENTORIES & WIP S. NO. PARTICULARS 31.03.2012 (RS) 31.03.2011 (RS) 1 WORK IN PROGRESS WORK IN PROGRESS AT THE BEGINNING OF THE YEAR 30,28,58,856 26,78,86,500 29,83,56,503 30,28,58,856 LESS: WORK IN PROGRESS AT THE END OF YEAR SUB-TOTAL (B) 3,49,72,356 (45,02,353) (INCREASE)/DECREASE INVENTORIES 3,49,72,356 (45,02,353) III. RATIO OF EMPLOYEE COST TO TOTAL OPERATING COST OF THIS COMPANY IS ONLY 10.67% (I.E. RS.86.16,000/- RS.8,07,55,388). SO LOW AND NEGLIGIBLE RATIO OF EMPLOYEE COST TO TOTAL COST CLEARLY INDICATES TH AT IT IS A SOFTWARE PRODUCT COMPANY. IT IS NOT ENGAGED IN MANPOWER D6VEN SOFTWA RE DEVELOPMENT SERVICES BUSINESS, WHEREIN GENERALLY RATIO OF EMPLO YEE COST TO TOTAL COST IS GENERALLY HIGHER THAN 50%. IN CASE OF APPELLANT. TH IS RATIO IS 74.95%. THE LD. TPO DID NOT TAKE COGNIZANCE OF THIS SUBMISSION OF THE APPELLANT WHILE PASSING HIS ORDER. IV. THE VIEW THAT IT IS A SOFTWARE PRODUCT COMPANY IS ALSO CORROBORATED AND FORTIFIED ON PERUSAL OF COMPOSITION OF FIXED AS SET OF THE COMPANY. ON PERUSAL OF FIXED ASSET SCHEDULE (I.E. NOTE NO.10 & 11 ON PAGE # 36 OF AR), A COPY OF WHICH IS ENCLOSED AS SUB-ANNEXURE # D1, O F REPLY TO SHOW CAUSE PLACED AS ANNEXURE # 5 OF PB, IT CAN BE SEEN THAT COMPANY HAS INTANGIBLE ASSET OF RS.11,17,77,945 AND WEB DEV ELOPMENT EXPENSE OF (CAPITALISED) RS.11,95,44,216 AS ON 31/0312012, TOT ALLING TO RS. 23,13,22,161/-. THUS, INTANGIBLE ASSETS CONSTITUTE 73% OF TOTAL GROSS BLOCK OF FIXED ASSETS (I.E, RS.23.13 CR / RS.31.68 CR.) SUCH A HIGH LEVEL OF INTANGIBLE ASSETS CAN BE FOUND ONLY I N A SOFTWARE PRODUCT COMPANY. IN ADDITION TO AFORESAID, DUE TO SUCH HIGH INTANGIBLE ASSETS, THE ASSET BASE OF THIS COMPANY IS QUITE DIFFERENT FROM THE ASSETS OF THE APPELLANT. THUS, ON FUNCTIONS & ASSETS, THIS COMPAN Y IS NOT AT ALL COMPARABLE TO APPELLANT AS EVIDENT, THE APPELLANT T RIED TO DEMONSTRATE PRESENCE OF SIGNIFICANT INTANGIBLE IN T HE ASSETS OF THIS COMPANY BY TAKING GROSS BLOCK AS DENOMINATOR. THE L D. TPO IS FACTUALLY ERRED IN STATING THAT NET FIXED ASSET HAS BEEN CONS IDERED FOR THIS PURPOSE. 3. WHILE IT IS TRUE THAT STRICT PRODUCT COMPARABILI TY IS NOT DESIRED UNDER 1NMM BUT THE FUNCTIONAL COMPARABILITY CANNOT BE IGN ORED. THUS, THE LD. TPO'S COMMENT THAT STRICT PRODUCT COMPARABILITY UND ER TNMM IS NOT REQUIRED WITHOUT MENTIONING ANYTHING ON FUNCTIONAL COMPARABILITY IS 9 ITA NO.544/PUN/2017 DEVOID OF ANY MERIT. IN THE JUDGEMENT QUOTED BY THE LD. TPO OF GE INDIA TECHNOLOGY CENTER PRIVATE 141 ITD 245 (BANG.), EMPH ASIS IS LAID NOT ONLY ON BROAD PRODUCT COMPARABILITY BUT ALSO ON FUNCTION AL COMPARABILITY. HENCE, THE LD, TPO'S VIEW IS NOT SUPPORTED BY EVEN JUDICIAL DECISION CITED BY HIM. 4. IF THE LD. TPO'S VIEW THAT UNDER TNMM STRICT COM PARABILITY IS NOT REQUIRED, IS TO BE ACCEPTED THEN ALL SOFTWARE PRODU CT COMPANY SHALL BE TAKEN AS COMPARABLE INCLUDING AKSHAY SOFTWARE TECHN OLOGIES LTD EVEN IF IT IS CONSIDERED AS A RESELLER OF ERP SOFTWARE. 9. WE HAVE PERUSED THE ANNUAL REPORT OF THE SAID COMPAN Y ALONG WITH RELATED NOTES ON ACCOUNT. THE BUSINESS ACTIVITIES OF TH IS COMPANY CANNOT BE COMPARED WITH THAT OF THE ASSESSEES SOFTWARE DEVELOPME NT SERVICES AND WE AGREE WITH THE CONTENTIONS RAISED BY THE ASSESSEE AND PRIMA FACIE THIS COMPANY IS IN SOFTWARE PRODUCT SERVICES AND NOT IN SOFTW ARE DEVELOPMENT SERVICES. THIS IS EVIDENT FROM PAGE NO.13 OF THE ANNUAL RE PORT WHERE VARIOUS PRODUCTS IN WHICH COMPANY IS DEALING ARE LISTED AND IT CLEAR LY SHOWS THAT THE COMPANY DEVELOPS AND PRODUCES AND SELLS THEM. THAT FUR THER THE NOTE NO.21 APPEARING AT PAGE NO.38 OF THE ANNUAL REPORT WHERE INVEN TORY OF WORK-IN- PROGRESS AT THE BEGINNING AND CLOSE OF THE YEAR ARE GIVEN FURTHER C ONFIRMS THAT IT IS A SOFTWARE PRODUCT COMPANY. WE THEREFORE, DIRECT TH E AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES IN RESPECT OF THE ASSESSEE. 10. THE THIRD COMPANY WHICH THE ASSESSEE WANTS TO EXC LUDE FROM THE FINAL LIST OF COMPARABLES IS INFOBEANS SYSTEMS INDIA PRIVATE LIMITED . THE ASSESSEE HAS OBJECTED WHILE STATING THAT DURING THE YEA R UNDER CONSIDERATION, SOFTWARE BUSINESS OF SEEDS ENTERPRISES PVT. LIMITED IS DEM ERGED AND TRANSFERRED TO INFOBEANS SYSTEMS INDIA PVT. LTD. THIS A RRANGEMENT HAS BEEN GIVEN EFFECT IN THE FINANCIAL STATEMENT. IN VIEW OF THIS EXTR A-ORDINARY AND PECULIAR EVENT, THE FINANCIAL STATEMENT AND PROFIT MARGIN O F THE COMPANY IS NOT COMPARABLE TO THAT OF THE ASSESSEE. THEREFORE, THIS COMPARABLE COMPANY 10 ITA NO.544/PUN/2017 DESERVES TO BE EXCLUDED SOLELY ON THIS GROUND. THE AS SESSEE HAS FURTHER SUBMITTED AS FOLLOWS : 1. THE LD. TPO IS FACTUALLY ERRED IN STATING THAT THE DATE OF THE MERGER IS 26/09/2012. THE DATE OF MERGER IS 1ST APRIL 2011 AS EVIDENT FROM PAGE # 3 OF AR AND THE DATE MENTIONED BY THE LD.TPO IS THE DATE HIGH COURT ORDER APPROVING THE MERGER AS EVIDENT FROM PAGE # 24 OF A R. 2. IT IS NOT CLEAR HOW THE LD. TPO CAME TO CONCLUSI ON THAT IT IS A TECHNICAL MERGER WHEREAS IT IS A CASE OF DEMERGER AS EVIDENT FROM TH E SUBMISSION MADE IN THE ENSUING PARAGRAPHS. 3. SOFTWARE BUSINESS OF SEED ENTERPRISES PVT. LTD I S DEMERGED AND TRANSFERRED TO INFOBEANS SYSTEMS INDIA PVT. LTD. THIS ARRANGEME NT HAS BEEN GIVEN EFFECT TO IN THE FINANCIAL STATEMENT. IN VIEW OF THIS EXTRA O RDINARY AND PECULIAR EVENT, THE FINANCIAL STATEMENT AND PROFIT MARGIN OF THE COMPAN Y IS NOT COMPARABLE TO THAT OF ASSESSEE. THEREFORE, THIS COMPARABLE DESERVES TO BE EXCLUDED SOLELY ON THIS GROUND. THIS FACT IS EVIDENT FROM EXTRACT REPRODUCE D BELOW FROM THE DIRECTORS' REPORT AND AUDITOR'S REPORT OF AR. A SCHEME OF ARRANGEMENT ('SCHEME') BETWEEN THE COMP ANY INFOBEANS SYSTEMS INDIA PRIVATE LIMITED ('THE DEMERGED COMPANY', CURRE NTLY KNOWN AS SEED ENTERPRISES PRIVATE LIMITED), TO INFOBEANS SOFTWARE SOLUTIONS PRIVATE LIMITED ('RESULTING COMPANY, CURRENTLY KNOWN AS INFOBEANS S YSTEMS INDIA PRIVATE LIMITED). UNDER THE SCHEME, THE RESULTING COMPANY H AD ACQUIRED THE SOFTWARE BUSINESS OF THE DEMERGED COMPANY ALONG WITH ALL THE ASSETS AND LIABILITIES PERTAINING TO THAT BUSINESS WITH RETROSPECTIVE EFFE CT FROM 1ST APRIL 2011 (APPOINTED DATE), THE SCHEME HAD ACCORDINGLY BEEN G IVEN EFFECT TO THE FINANCIAL STATEMENT. WE STATE THAT 'SOFTWARE BUSINESS' OF THE INFOBEANS SYSTEMS INDIA PVT. LTD. (CURRENTLY KNOWN AS SEED ENTERPRISES PRIVATE LIMITE D) IS DEMERGED AND TRANSFERRED TO THE COMPANY IN PURSUANCE TO THE SCHE ME OF ARRANGEMENT AS APPROVED BY THE HON'BLE MADHYA PRADESH HIGH COURT D ATED 26109/2012 VIDE APPOINTED DATED 1ST APRIL 2011. ACCORDINGLY THESE A RE THE REVISED FINANCIAL STATEMENTS INCLUDING THE FINANCIAL STATEMENTS OF TH E SAID 'SOFTWARE BUSINESS' OF DEMERGED COMPANY. 4. THE LD. TPO IS PLACING RELIANCE ON THE JUDGMENT OF GOOGLE (I) PVT. LTD FOR THE PROPOSITION THAT COMPANY CANNOT BE REJECTED AS COMP ARABLE MERELY BECAUSE OF EXTRA ORDINARY EVENT WITHOUT DEMONSTRATING HOW EXTR A ORDINARY EVENT HAS INFLUENCED THE PROFIT MARGIN OF THE COMPARABLE COMP ANY. IN THIS CONTEXT, IT IS SUBMITTED THAT THE APPELLANT ALSO AGREE ON 'THIS PR OPOSITION THAT MERE PRESENCE OF EXTRA ORDINARY EVENT DOES NOT CALL FOR REJECTION OF COMPARABLE. HOWEVER, IN THE SAME JUDGMENT THE HON'BLE ITAT FURTHER LAID DOWN TH AT ADJUSTMENTS FOR SUCH EXTRA ORDINARY EVENT HAVE TO BE MADE TO THE PROFITS OF THE POTENTIAL COMPARABLE COMPANY TO BRING THEM ON PAR WITH TESTED PARTY BEFO RE COMPARING THE POTENTIAL COMPARABLE COMPANY WITH TESTED PARTY. WHAT IT ESSEN TIALLY MEAN THAT EVEN IF THE COMPANY IS SELECTED AS COMPARABLE DESPITE EXTRA ORDINARY EVENT, ADJUSTMENT NEEDS TO BE MADE IN THE PROFIT MARGIN FOR SUCH EXTRA ORDINARY EVENT FOR THE PURPOSE OF BENCHMARKING. IN THE INSTANT CAS E, EVEN IF THE LD. TPO'S CONTENTION IS ACCEPTED, IN THE ABSENCE OF DETAILS O F SUCH ADJUSTMENT IT IS NOT POSSIBLE TO MAKE ADJUSTMENT IN PROFIT MARGIN OF COM PARABLE. HENCE, THIS COMPANY CANNOT BE SELECTED IN THE ABSENCE OF RELIAB LE INFORMATION ON ADJUSTMENT FOR EXTRA ORDINARY EVENT. 5. BASED ON THE ABOVE CONTENTIONS, IT IS SUBMITTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES. 11 ITA NO.544/PUN/2017 6. SIMILARLY, THE LD. TPO IS PLACING RELIANCE ON TH E CASE OF TCL HOLDINGS PVT. LTD. FOR THE PROPOSITION THAT COMPANY CANNOT BE REJ ECTED AS COMPARABLE MERELY ON THE GROUND THAT THEY WERE LOSS MAKING AND THAT I T WAS NECESSARY TO EXAMINE IF THE LOSS HAD OCCURRED DUE TO EXTRAORDINARY FACTO RS WHICH HAVE AFFECTED THE COMPARABILITY OF THE TRANSACTIONS OF THE COMPARABLE COMPANY. IN THIS CONTEXT, IT IS SUBMITTED THAT THE COMPARABLE COMPANY UNDER CONS IDERATION IS NOT LOSS MAKING YET THE APPELLANT ALSO AGREES ON THIS PROPOS ITION THAT MERELY LOSSES SUFFERED BY THE COMPANY DOES NOT CALL FOR REJECTION OF COMPARABLE. HOWEVER, AS LAID DOWN BY THE HON'BLE IT AT IN THE CASE CITED BY THE LD. TPO , EXAMINATION NEEDS TO CONDUCT FOR FINDING WHETHER THE LOSS IS SU FFERED DUE TO EXTRAORDINARY FACTORS OR IN THE NORMAL COURSE OF BUSINESS IN ORDE R TO SELECT THE SAID COMPANY AS COMPARABLE. WHAT IT ESSENTIALLY MEAN THAT EVEN I F THE COMPANY IS SELECTED AS COMPARABLE DESPITE EXTRA ORDINARY EVENT, FURTHER EX AMINATION IS CALLED FOR TO FIND IF THE ABNORMALITY IN PROFITABILITY IS ON ACCO UNT OF THIS EXTRA ORDINARY EVENT. IN THE INSTANT CASE, THE LD. TPO DID NOT BRING MATE RIAL ON RECORD TO SUBSTANTIATE THAT PROFITABILITY IS NOT AFFECTED BY THIS EXTRA ORDINARY EVENT IN THE ABSENCE OF SUCH SUBSTANTIATION BY THE LD. TPO, THIS COMPANY CANNOT BE SELECTED AS COMPARABLE. 7. FURTHER, IN THE CASE OF AGILENT TECHNOLOGIES INT ERNATIONAL P. LTD. THE HON'BLE ITAT HAS CONFIRMED THAT EVENT OF MERGER OF TWO FUNC TIONALLY SIMILAR COMPANIES DOES NOT CALL FOR REJECTION OF THE COMPANY AND THE MATTER WAS SENT BACK TO THE ASSESSING OFFICER FOR FURTHER EXAMINATION. EVEN IF THIS PROPOSITION IS ACCEPTED ,IT IS BE NOTED THAT IN VARIOUS OTHER DECISIONS CITED B Y THE LD. TPO HIMSELF IT WAS HELD THAT UNLESS EVENT OF EXTRAORDINARY NATURE DOES NOT AFFECT THE PROFITABILITY OF THE COMPANY, THE COMPARABLE CANNOT BE CONSIDERED. W E SUBMIT THAT AN EVENT OF MERGER OR DEMERGER IS UNDERTAKEN TO REAP THE BENEFI TS OF INTEGRATION AND THEREBY IMPROVE THE PROFITABILITY. SUCH EVENTS/ ARR ANGEMENTS ARE ALSO MADE TO RATIONALISE AND BENEFIT FROM THE OPERATING COST. AL L THESE HAVE DIRECT INFLUENCE ON THE PROFITABILITY. FOR THESE ECONOMIC REASONS, A COMPANY HAVING SUCH EVENT OF EXTRAORDINARY NATURE IS NOT TAKEN AS COMPARABLE IN THE YEAR IN WHICH SUCH EXTRA ORDINARY EVENT OCCURS. AS ALREADY MENTIONED, THE LD. TPO DID NOT BRING MATERIAL ON RECORD TO SUBSTANTIATE THAT PROFITABILI TY IS NOT AFFECTED BY THIS EXTRA ORDINARY EVENT. IN THE ABSENCE OF SUCH SUBSTANTIATI ON BY THE LD. TPO, THIS COMPANY CANNOT BE SELECTED AS COMPARABLE. 11. THE ASSESSEE HAD ALSO RELIED ON THE DECISION OF ITAT IN THE CASE OF AGILENT TECHNOLOGIES INTERNATIONAL PVT. LTD., WHEREIN IT WAS OBSERVED THAT IN THE EVENT OF MERGER OF TWO FUNCTIONALLY SIMILAR COMPANIES DO ES NOT CALL FOR REJECTION OF THE COMPANY AND THE MATTER WAS SENT BAC K TO THE AO/TPO FOR FURTHER EXAMINATION. THE STRONG CONTENTION OF THE ASSESS EE IS THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE COMPANY BEC AUSE IT UNDERWENT DE-MERGER WHICH IS AN EXTRA-ORDINARY EVENT. 12. WE HAVE EXAMINED THE RELEVANT DOCUMENTS PLACED BEFOR E US AND WE FIND AT PAGE 720 OF THE PAPER BOOK, THE OBSERVATION MAD E BY THE CHARTERED ACCOUNTANT AND THEREIN AT CLAUSE 2, IT IS WRITTEN AS FOLLOWS : 12 ITA NO.544/PUN/2017 2. WE STATE THAT 'SOFTWARE BUSINESS' OF THE INFOBEANS SYSTEMS INDIA PVT. LTD. (CURRENTLY KNOWN AS SEED ENTERPRISES PRIVATE L IMITED) IS DEMERGED AND TRANSFERRED TO THE COMPANY IN PURSUANCE TO THE SCHE ME OF ARRANGEMENT AS APPROVED BY THE HON'BLE MADHYA PRADESH HIGH COURT D ATED 26/09/2012 VIDE APPOINTED DATE 1 ST APRIL 2011. ACCORDINGLY THESE ARE THE REVISED FINANCIAL STATEMENTS INCLUDING THE FINANCIAL STATEM ENTS OF THE SAID 'SOFTWARE BUSINESS' OF DEMERGED COMPANY. 13. THAT FURTHER, IN THE AUDITORS REPORT AT PAGE 739 IN THE PAPER BOOK AT CLAUSE VIII, IT IS WRITTEN AS FOLLOWS : VIII. A SCHEME OF ARRANGEMENT ( ' SCHEME') BETWEEN (HE COMPANY, INFOBEANS SYSTEMS INDIA PVT. LTD. LIMITED ('THE DEMERGED COMPA NY ' , CURRENTLY KNOWN AS SEED ENTERPRISES PVT . CO . ) , INFOBEANS SOFTWARE SOLUTIONS PRIVATE LIMITED ('RESULTING COMPANY, CURRENTLY KNOWN AS INFOBEANS SYSTEMS INDIA PVT . LTD.) AND THEIR RESPECTIVE SHAREHOLDERS UNDER SECTIONS 39 1 TO 394 READ W I TH SECTION 100 TO 103 OF THE ACT WAS SANCTIONED BY THE HON'BLE HIGH COURT OF JUDICATURE AT MADHYA PRADESH ON 26TH SEPTEMBER 2012, A CERTIFIED COPY WHEREOF WAS ISSUED ON 5TH OCTOBER, 2012.THE SCHEME HAD BECOME EFFECTIV E FROM 26TH SEPTEMBER 2012 ('EFFECTIVE DATE) (WITH APR I L 1, 2011 AS APPOINTED DATE) ON FILLING THE CERTIFIED COPY OF THE HIGH COURT ORDER WITH THE REG ISTRAR OF COMPANIES. UNDER THE SCHEME , THE RESULTING COMPANY HAD ACQUIRED THE SOFTWARE BUS INESS OF THE DEMERGED COMPANY ALONG WITH ALL ASSETS AND LIABILIT IES PERTAINING TO THAT BUSINESS W I TH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2011 (APPOI NTED DATE) . THE SCHEME HAD, ACCORDINGLY, BEEN GIVEN EFFECT TO IN TH E FINANCIAL STATEMENTS. FROM THE READING OF ABOVE CLAUSES, IT IS EVIDENT THAT TH ERE WAS A DE-MERGER. WE THEREFORE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES IN RESPECT OF THE ASSESSEE. 14. THE FOURTH COMPANY WHICH THE ASSESSEE WANTS TO BE EXCLUDED IS CYBERCOM DATAMATICS INFORMATION SOLUTIONS LIMITED. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY TO BE INCLUDED AS A COMPARABLE COMPANY TO THAT OF ASSESSEE BECAUSE, THIS COMPANY IS MAINLY INTO THE BUSINES S OF PROVIDING TECHNICAL AND CONSULTING SERVICES RATHER THAN SOFTWARE DE VELOPMENT SERVICES. THUS, THE BUSINESS OF THIS COMPANY IS NOT AT A LL COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES OF THE ASSESSEE. THE ASSE SSEE HAS FURTHER SUBMITTED AS FOLLOWS : 1. THE LD. TPO'S CONTENTION THAT THE COMPANY IS PA SSING ALL THE FILTERS PROVIDED IN THE SHOW CAUSE NOTICE CANNOT BE A REASON TO DISM ISS THE CONTENTIONS OF THE APPELLANT SPECIFICALLY WHEN, THE FILTERS PROPOSED I N THE SHOW CAUSE NOTICE ARE CHALLENGED BY THE APPELLANT. 13 ITA NO.544/PUN/2017 2. THE REVENUE RECOGNITION EXTRACT GIVEN ON PAGE # 8 OF AR OF THE COMPANY AND ALSO BY THE LD. TPO IS GIVEN BELOW: (C) REVENUE RECOGNITION REVENUE FROM TECHNICAL AND SOFTWARE SERVICES IS REC OGNIZED WHEN NO SIGNIFICANT UNCERTAINLY EXISTS AS TO ITS ULTIMATE REALIZATION O R COLLECTION. DIVIDEND INCOME IS RECOGNIZED WHEN THE RIGHT TO REC EIVED IS ESTABLISHED. WHAT IS STATED ABOVE IS A POLICY ON HOW THE REVENUE IS RECOGNIZED FOR TECHNICAL AND SOFTWARE SERVICES. HOWEVER, NATURE OF THESE TEC HNICAL AND SOFTWARE SERVICES ARE DIFFERENT FROM THE SOFTWARE DEVELOPMEN T SERVICES PROVIDED BY THE APPELLANT AS MENTIONED IN PARA # 1 BELOW. HENCE, TH E LD. TPO'S RELIANCE ON REVENUE RECOGNITION POLICY IS MISPLACED. 3. THE APPELLANT HAS NOT TAKEN ANY SUCH CONTENTIONS LIKE ABNORMAL TREND, LOW EMPLOYEE COST ETC. SO, IT IS NOT CLEAR WHY THE LD. TPO IS BRINGING UP ALL THESE CONTENTIONS. IT SEEMS THAT THE LD. TPO IS GENERATIN G IDEAS OUT OF THIN AIR. FURTHER, THE APPELLANT HAS APPLIED EMPLOYEE COST FI LTER. THUS, THE LD. TPO IS FACTUALLY ERRED IN STATING THAT EMPLOYEE COST FILTE R HAS NOT BEEN APPLIED AND THE APPELLANT CANNOT TAKE A DIFFERENT STAND FOLLOWING T HE PRINCIPLE OF 'THEORY OF ESTOPPELS'. 4. IT IS NOT CLEAR WHY THE LD. TPO IS TALKING ABOUT 'THEORY OF ESTOPPEL', TNMM, OECD GUIDELINES ETC. AT THIS STAGE WHEN THE APPELLA NT HAS NOT AT ALL CONTENDED ON ANY OF THESE GROUNDS IN ITS REPLY TO SHOW CAUSE NOTICE OR OTHERWISE. 5. THE APPELLANT HAS NOT CHALLENGED THE EXPORT FILT ER. 6. THE APPELLANT NEVER SOUGHT WORKING CAPITAL ADJUS TMENT IN ITS TPSR OR DURING TRANSFER PRICING PROCEEDINGS AND THE LD. TPO NEVER GRANTED WORKING CAPITAL ADJUSTMENT. THUS, THE LD. TPO IS FACTUALLY INCORREC T IN STATING THAT THE APPELLANT HAS BEEN GRANTED WORKING CAPITAL ADJUSTMENT. 7. THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO A PPELLANT OWING TO FOLLOWING REASONS: I. THIS COMPANY IS MAINLY IN THE BUSINESS OF PROVID ING TECHNICAL AND CONSULTING SERVICES IN THE FIELD OF INFORMATION TEC HNOLOGY AND CONNECTIVITY. IT IS NOT ENGAGED IN-THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES. THE AFORESAID IS EVIDENT FROM PERUSAL OF COMPANY'S WEBSITE (WWW.CYBERCOM.COM). THE RELEVANT EXTRACT FROM COMPA NY'S WEBSITE ON ITS BUSINESS ACTIVITY ARE ENCLOSED HEREWITH AS SUB-ANNE XURE # D2 OF REPLY TO SHOW CAUSE PLACED AS ANNEXURE # 5 OF PB. II. ON PERUSAL OF THESE EXTRACT OF WEBSITE, IT CAN BE SEEN THAT THIS COMPANY PROVIDES CONSULTING SERVICES IN THE FOLLOWI NG FIELDS: A) CONNECTIVITY SOLUTIONS, B) CONNECTIVITY MANAGEMENT, C) MANAGED CLOUD SERVICES, D) ORGANIZATIONAL INFORMATION SECUR ITY, E) CONNECTIVITY INFRASTRUCTURE, F) MEASURING CUSTOMER EXPERIENCE ET C. III. IT ALSO PROVIDES ADVISORY SERVICES RELATED TO MODELLING OF THE BUSINESS. ADDITIONALLY, THIS COMPANY PROVIDES PRODUCT TESTING SERVICES AND CONNECTED INFRASTRUCTURE. IV. IN VIEW OF AFORESAID, IT CAN BE SEEN THAT IT IS A CONSULTING AND TECHNICAL SERVICE COMPANY, RATHER THAN, SOFTWARE DE VELOPMENT SERVICE 14 ITA NO.544/PUN/2017 PROVIDER. THUS, THE BUSINESS OF THIS COMPANY IS NOT AT ALL COMPARABLE TO SOFTWARE DEVELOPMENT SERVICE OF THE APPELLANT. HOWEVER, THE LD. TPO DID NOT ADDRESS ANY OF THE CON TENTIONS OF THE APPELLANT RAISED ON FUNCTIONAL COMPARABILITY WHILE PASSING TP ORDER. 8. BASED ON THE ABOVE CONTENTIONS, IT IS SUBMITTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES. 15. THE LD.A.R. AT THE TIME OF HEARING BEFORE US SUBMITTED TH AT THIS COMPANY WAS INDEPENDENTLY INCLUDED BY THE AO/TPO IN THE LIST OF COMPARABLE COMPANIES AND THAT THE INFORMATION AVAILABLE ON RECORD ABOUT THIS COMPANY IN THE PUBLIC DOMAIN IS NOT SUFFICIENT AND PRIMA FACIE, THEREFORE, SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARAB LE COMPANIES. LD.D.R. ALSO CONCEDED TO THE SUBMISSION PLACED FORTH BEFORE US. 16. WE HAVE PERUSED THE RELEVANT DOCUMENTS PLACED ON R ECORD BEFORE US AND ALSO PAGE 755 IN THE PAPER BOOK I.E. NOTES FORMING PART OF THE FINANCIAL STATEMENTS OF THIS COMPANY FOR THE YEAR ENDING 31.03.2012 . NOTE 1A - THE PROFILE OF THE COMPANY HAS DEPICTED AND THEREIN IT IS CLEARL Y MENTIONED THAT THE PRINCIPAL OBJECT OF THE COMPANY IS TO ACT AS CONSULT ING AND ADVISORS ON INFORMATION / INTERNET SYSTEM AND SURVEYORS OF INFORMATION SERVICES ETC. WE HAVE ALSO CONSIDERED THE PROFIT AND LOSS ACCOUNT OF THIS COMPANY AT PAGE 761 IN THE PAPER BOOK AS WELL AS THE DIRECTORS REPORT AT PAGE 742 IN THE PAPER BOOK. ON PERUSAL OF THE SAME, WE FIND STRENGTH IN THE ARGUMENT OF THE ASSESSEE THAT THE BUSINESS OF THIS COMPANY IS NOT AT ALL COMPARABLE TO THE SOFTWARE DEVELOPMENT SERVICES OF THE ASSESSEE. WE THERE FORE, DIRECT THE AP/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S IN RESPECT OF THE ASSESSEE. 17. THAT HAVING OBSERVED THAT THE AFORESAID COMPANIES S HALL BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES IN RESPECT OF THE ASSESSEE , THEREFORE, THIS MATTER IS REMITTED BACK TO THE FILE OF AO/TPO DIRECTING HIM TO EXCLUDE THE 15 ITA NO.544/PUN/2017 AFORESAID COMPANIES AND FRESHLY DETERMINE THE ASSESSEE S ARMS LENGTH PRICE (A.L.P.). THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 18. THE NEXT ISSUE FOR ADJUDICATION IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 19. THAT AT THE ASSESSMENT STAGE ON VERIFICATION OF THE E XPENSES WHICH WERE FOUND BY THE AO/TPO THAT THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.11,33,431/- AS LEASED LINE / DATE LINK CHARGES. IT WAS FURTHER REVEALED THAT THE ASSESSEE HAS NOT DEDUCTED TDS OF RS.2,77,754/- OUT OF THE TOTAL AMOUNT OF RS11,33,431/-. IT WAS THE SUBMISSION OF THE ASS ESSEE THAT INTERNET CHARGES ARE NOT COVERED UNDER SEC.194J OF T HE ACT. THE ASSESSEE SUBMITTED THAT AMOUNT PAID TO INTERNET COMPANIES IS NEIT HER ANY TECHNICAL SERVICE COVERED UNDER SEC.9(1)(VII) NOR ANY PROFESSIONAL SERVIC ES COVERED U/S 194J OF THE ACT DIRECTLY. THE SAID PAYMENTS ARE ALSO NO T ROYALTY AS PER SECTION 9(1)(VI) OF THE ACT. THE ASSESSEE FURTHER RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT, DELHI VS. BHART I CELLULAR LTD., REPORTED IN 330 ITR 239 SC WHEREIN IT WAS HELD THAT TH E PAYMENT OF CHARGES WOULD NOT FALL UNDER TECHNICAL SERVICES. THE ASSESSEE ALSO SUBMITTED THAT AS PER THE DEFINITION OF PROFESSIONAL SERVICES AS PROVIDED UND ER SEC.194J OF THE ACT, IT WOULD MEAN SERVICES RENDERED IN THE COURSE OF LEGA L, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR ADVERTISING OR SUCH OTHER PROFESSIONS AS IS NOTIFIED BY THE GOVERNMENT FOR THE PURP OSE OF SEC.44AA OF THE ACT. 20. THE LD.CIT(A) AT PARA 2.10.7 OF HIS ORDER WHILE UPHOLDING T HE ADDITION MADE BY THE AO/TPO ON THIS ISSUE OBSERVED AS FOLLOWS : 16 ITA NO.544/PUN/2017 2.10.7 I HAVE CONSIDERED THE APPELLANTS ARGUMENTS . I DO NOT AGREE WITH THE APPELLANT BECAUSE SUCH PAYMENT IS CONSIDERED TO HAV E BEEN MADE TOWARDS ROYALTY UNDER THE PROVISIONS OF THE EXPLANATION-6 TO SECTION 9(1)(VI). IT MAY BE MENTIONED THAT THE PAYMENT OF 'ROYALTY' IS CONSIDER ED AS 'FEES FOR PROFESSIONAL OR TECHNICAL SERVICES' U/S. 194J(1)(C). THE TERM 'ROYA LTY' HAS THE SAME MEANING AS PROVIDED IN THE EXPLANATION-2 TO SECTION 9(1)(VI) A S STATED IN THE CLAUSE (BA) OF THE EXPLANATION TO SECTION 194J. FURTHER, EXPLANATI ON-6 TO SECTION 9(1)(VI) CLARIFIES THE WORD 'PROCESS' USED IN THE CLAUSE (II ) OF THE EXPLANATION-2 AND PROVIDES FOR DEEMING THE PAYMENT MADE FOR LEASED LI NE CHARGES AS 'ROYALTY'. THEREFORE, TAX SHOULD BE DEDUCTED U/S.194J ON ROYAL TY PAID FOR LEASED LINE CHARGES. ACCORDINGLY, THE APPELLANT OUGHT TO HAVE D EDUCTED TAX U/S.194J ON THE PAYMENT MADE FOR LEASED LINE CHARGES. 21. THE LD.A.R. OF THE ASSESSEE PLACING RELIANCE ON THE DECIS ION IN THE CASE OF CHANNEL GUIDE INDIA LIMITED VS. ACIT (ITA NO.1221/MUM/20 06) REPORTED IN 139 ITD 49 AND ALSO THE DECISION IN THE CASE OF GUPSH UP TECHNOLOGY INDIA (P) LTD., VS. DCIT (TDS) (ITA NO.848 & 850 OF 2015) REPORTED IN 162 ITD 643 SUBMITTED THAT THESE PAYMENTS MADE FOR LEASE LINE CHARGE S WERE NEITHER COMES UNDER PROFESSIONAL SERVICES NOR UNDER TECHNICAL SER VICES U/S 194J OF THE ACT. 22. WE FIND IN THE DECISION OF CHANNEL GUIDE INDIA LIMITED (SUPR A) WHEREIN IT WAS OBSERVED AND HELD AS FOLLOWS : 25. IN OUR OPINION, THE ISSUE INVOLVED IN THE PRES ENT CASE HOWEVER, IS RELATING TO DISALLOWANCE MADE U/S.40(A)(I) FOR NON- DEDUCTION OF TAX- AT- SOURCE FROM THE PAYMENT MADE BY THE ASSESSEE TO SSA AND AS HELD BY AHMEDABAD BENCH OF THIS TRIBUNAL IN THE CASE OF STE RLING ABRASIVES LTD. BY ITS ORDER DATED 23.12.2010 CITED BY THE LD. COUN SEL FOR THE ASSESSEE, THE ASSESSEE CANNOT BE HELD TO BE LIABLE TO DEDUCT TAX AT SOURCE RELYING ON THE SUBSEQUENT AMENDMENTS MADE IN THE ACT WITH R ETROSPECTIVE EFFECT. IN THE SAID CASE, EXPLANATION TO SEC.9(2) WAS INSER TED BY THE FINANCE ACT, 2007 WITH RETROSPECTIVE EFFECT FROM 1.6.1976 AND IT WAS HELD BY THE TRIBUNAL THAT IT WAS IMPOSSIBLE FOR THE ASSESSEE TO DEDUCT TAX IN THE FINANCIAL YEAR 2003-04 WHEN AS PER THE RELEVANT LEG AL POSITION PREVALENT IN THE FINANCIAL YEAR 2003-04, THE OBLIGATION TO DE DUCT TAX WAS NOT ON THE ASSESSEE. THE TRIBUNAL BASED ITS DECISION ON A LEGA L MAXIM LEX NON COGIT AD IMPOSSIBLIA MEANING THEREBY THAT THE LAW CANNOT POSSIBLY COMPEL A PERSON TO DO SOMETHING WHICH IS IMPOSSIBLE TO PERFO RM AND RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KR ISHNA SWAMY S. PD AND ANOTHER VS. UNION OF INDIA AND OTHERS 281 ITR 3 05 WHEREIN THE SAID LEGAL MAXIM WAS ACCEPTED BY THE HON'BLE APEX COURT. 26. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE AMOUNT IN QUESTION PAID BY THE ASSESSEE TO SSA WAS NOT TAX ABLE IN INDIA IN THE HANDS OF SSA EITHER U/S.9(1)(VI) OR 9(1)(VII) AS PE R THE LEGAL POSITION PREVALENT AT THE RELEVANT TIME AND THE ASSESSEE THE REFORE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID AMOUNT PAID T O M/S. SSA AND THERE WAS NO QUESTION OF DISALLOWING THE SAID AMOUNT BY I NVOKING THE 17 ITA NO.544/PUN/2017 PROVISIONS OF SEC.40(A)(I). IN THAT VIEW OF THE MAT TER, WE DELETE THE DISALLOWANCE MADE BY THE AO U/S.40(A)(I) AND CONFIR MED BY LD. CIT (A) AND ALLOW GROUND NO. 1 OF THE ASSESSEE'S APPEAL. 23. THAT FURTHER IN CASE OF GUPSHUP TECHNOLOGY INDIA (P) LT D., VS. DCIT (SUPRA) WHEREIN IT WAS OBSERVED AND HELD AS FOLLOWS : 7. THE MAIN ISSUE IN DISPUTE IS THAT, WHETHER THE ASSESSEE SHOULD HAVE DEDUCTED THE TDS UNDER SECTION 194C OR 194J WHILE M AKING THE PAYMENT MADE TO TATA TELE SERVICES LTD. FOR CONNECTIVITY CH ARGES. THE ASSESSEE IS IN THE BUSINESS OF SENDING BULK SMSS AND FOR SENDIN G THIS SMS, IT AVAILS THE SERVICES OF TELECOM OPERATORS LIKE, TATA TELE S ERVICES LTD. ONCE THE AGREEMENT IS ENTERED INTO BETWEEN THE ASSESSEE AND THE TELECOM OPERATOR, THE TELECOM OPERATOR CREATES CUSTOMERS AC COUNT FROM THEIR END AND PROVIDES IP ADDRESS, USER NAME AND PASS WORD TO THE ASSESSEE. THE ASSESSEE THEN INTEGRATE SUCH DETAILS IN ITS APPLICA TION PROGRAMMING INTERFACE SYSTEM FOR TRANSMITTING BULK MESSAGES TO THE TELECOM OPERATOR WITHOUT ANY ACCESS OR CONTROL OVER ANY OF THE CONNE CTIVITY FACILITIES OR TATA TELE SERVICES SERVER OR NETWORK WHICH ARE ONLY USED BY THE TATA TELE SERVICES FOR TRANSMITTING THE MESSAGES. THE AS SESSEE RECEIVES THE CONTENT OF THE MESSAGE WHICH REQUIRED TO BE SENT AS BULK SMSS FROM ITS CLIENT FOR WHICH ASSESSEE USED ITS OWN SOFTWARE AND COMPUTER SYSTEM TO CONVERT IT IN A FORM THAT COULD BE TRANSMITTED TO T HE CUSTOMERS OF THE VARIOUS TELECOM OPERATORS. ONCE THE SMS IS READY FO R TRANSMISSION, THE ASSESSEE CAUSES ITS SYSTEM TO CONNECT WITH THE SYST EM OF THE TELECOM OPERATORS TO SEND THE MESSAGES IN BULK. HENCE, THE ASSESSEE HAS NEITHER ANY ACCESS NOR CONTROL OVER THE EQUIPMENTS NOR THER E IS USAGE OF ANY PROCESS OR EQUIPMENT WHICH CAN BE SAID TO HAVE BEEN MADE AVAILABLE TO THE ASSESSEE. IT IS A KIND OF A STANDARD CONNECTIVI TY FACILITY WHICH HAS BEEN PROVIDED BY THE TELECOM OPERATOR, NOTHING ELSE . THE AGREEMENT IS MORE IN THE NATURE OF WORKS CONTRACT WITH THE TELEC OM OPERATOR FOR WHICH THE ASSESSEE HAS RIGHTLY DEDUCTED THE TDS UNDER SEC TION 194C. EVEN, THE ASSESSEE FROM ITS CUSTOMERS, LIKE INCOME-TAX DE PARTMENT FOR PROVIDING SUCH SERVICES HAS RECEIVED THE PAYMENT WH ICH HAS BEEN SUBJECTED' TO TDS UNDER SECTION 194C. THUS, IT CANN OT BE HELD THAT THE ASSESSEE IS MAKING ANY PAYMENT FOR USE OR RIGHT TO USE ANY EQUIPMENT. FURTHER, THE CONCEPT OF 'USE' OR 'RIGHT TO USE ANY EQUIPMENT' ALLUDES TO THE CONCEPT OF 'LEASING', WHICH HERE IN THIS CASE ADMIT TEDLY IS NOT THERE. MUCH EMPHASIS HAS BEEN LAID BY THE LD DR AS WELL AS BY T HE CIT (A) THAT, IT IS A KIND OF A 'PROCESS' AND, THEREFORE, IN VIEW OF EXPL ANATION 6 BROUGHT WITH RETROSPECTIVE EFFECT BY THE FINANCE ACT, 2012 WHERE BY THE 'PROCESS' INCLUDES TRANSMISSION BY SATELLITE, CABLE, OPTIC FI BER OR BY ANY OTHER SIMILAR TECHNOLOGY WHETHER OR NOT SUCH PROCESS IS N OT SECRET. EVEN IF SUCH A CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED, T HEN WHETHER AT THE TIME OF MAKING THE PAYMENT WHERE NO SUCH AMENDMENT WAS BROUGHT IN THE STATUTE, CAN ASSESSEE BE ACCEPTED TO DEDUCT THE TDS? HERE, THE MAXIM OF 'LEX NON COGIT AD IMPOSSPLIA, THAT IS, THE LAW OF THE POSSIBLY COMPELLING A PERSON TO DO SOMETHING WHICH IS IMPOSS IBLE, THAT IS, WHEN THERE IS NO PROVISION FOR TAXING AN AMOUNT IN INDIA THEN HOW IT CAN BE EXPECTED THAT A TAX SHOULD BE DEDUCTED ON SUCH A PA YMENT. THIS VIEW HAS-BEEN UPHELD BY IN CATENA OF DECISIONS INCLUDING THE ITAT MUMBAI BENCHES IN THE CASE OF CHANNEL GUIDE INDIA LTD, V. ASSTT. CIT [2012] 139 ITD 49/25 TAXMANN.COM 25, WHEREIN, IT HAS BEEN HELD THAT, ASSESSEE CANNOT HELD TO BE LIABLE FOR DEDUCTING TDS IN VIEW OF THE RETROSPECTIVE AMENDMENT WHICH HAS COME AT A MUCH LATER DATE. THUS , WE HOLD THAT ASSESSEE WAS NOT LIABLE TO DEDUCT TDS BY TREATING T HE PAYMENT IN THE NATURE OF 'ROYALTY' IN TERMS OF SECTION 194J OR IN TERMS OF RETROSPECTIVE 18 ITA NO.544/PUN/2017 AMENDMENT BROUGHT FROM SUBSEQUENT DATE. ACCORDINGLY , ASSESSEE CANNOT BE TREATED AS ASSESSEE IN DEFAULT WITHIN SECTION 20 1(1). IN THE RESULT, ORDER OF THE CIT(A) IS SET ASIDE AND THE GROUNDS RA ISED BY THE ASSESSEE ARE ALLOWED. 24. THAT ON PERUSAL OF THE DECISIONS CITED ABOVE, WE FIND S TRENGTH IN THE CONTENTIONS OF ASSESSEE AND WE ALLOW THE GROUNDS OF APPEAL OF ASSESS EE. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 17 TH DAY OF DECEMBER, 2020. SD/- SD/- (R.S. SYAL) (PARTHA SARATHI CHAUDHURY) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 17 TH DECEMBER, 2020. YAMINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-13, PUNE. 4. THE PR.CCIT 1, PUNE. 5. , , , / DR, ITAT, C BENCH, PUNE. 6. ! / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.
