RBS India Development Centre Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 5443/DEL/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7090 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 10-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 05-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Transfer pricing; International transaction; Rule of consistency; Additional evidence; Question of law; Working capital adjustments
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I, NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.5538/DEL/2010 ASSESSMENT YEAR : 2006-07 RBS INDIA DEVELOPMENT CENTRE PVT. LTD., PLOT NO.7B, FIRST FLOOR, DLF CYBER CITY, DLF PHASE-III, GURGAON. VS. ACIT, CIRCLE- 1(1), GURGAON. PAN : AAACC 2526 J (APPELLANT) (RESPONDENT) ITA NO.5443/DEL/2011 ASSESSMENT YEAR : 2007-08 RBS INDIA DEVELOPMENT CENTRE PVT. LTD., PLOT NO.7B, FIRST FLOOR, DLF CYBER CITY, DLF PHASE-III, GURGAON. VS. ACIT, CIRCLE- 1(1), GURGAON. PAN : AAACC 2526 J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ATUL JAIN, CA RESPONDENT BY : SHRI AMRENDRA KUMAR, CIT(DR) DATE OF HEARING : 10-11-2016 DATE OF PRONOUNCEMENT : 10-01-2017 O R D E R PER S.V. MEHROTRA, A.M : BOTH THE CAPTIONED APPEALS PREFERRED BY THE SAME AS SESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 ITA NO.5538/DEL/2010 (A.Y. 2006-07): 2. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER DATED 27.10.2010 PASSED BY THE ASSESSING OFFICER U/S 144C /143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) RELATING TO ASSE SSMENT YEAR 2006-07 PURSUANT TO THE DIRECTION OF THE DISPUTE RE SOLUTION PANEL-II, NEW DELHI. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPAN Y, IN THE RELEVANT ASSESSMENT YEAR, WAS PRIMARILY ENGAGED IN PROVIDING SOFTWARE PROGRAMMING SERVICES AND IT ENABLES SERVICES TO CMIL. THE ASSE SSEE HAD FILED ITS RETURN OF INCOME DECLARING TOTAL TAXABLE INCOME OF RS.10,7 7,60,011/-. THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION S FOR PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISES OF RS.60,29,46,396/-. ACCORDINGLY, A REFERENCE U/S 92CA WAS MADE BY THE A SSESSING OFFICER FOR DETERMINING THE ARMS LENGTH PRICE U/S 92CA(3) OF T HE ACT. THE ASSESSEE HAD USED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH OP/OC AS THE PROFIT LEVEL I NDICATOR (PLI) IN TRANSFER PRICING (TP) STUDY. THE ASSESSEE HAS USED ITSELF AS TESTED PARTY. IT HAD EARNED AN OPERATING MARGIN OF 14.53% ON COST AS AGAINST THE WEIGHTED AVERAGE MARGIN OF 50 COMPARABLES, CONSIDERED IN TP STUDY, AT 12.50%. ON THE BASIS OF UPDATED MARGIN (CURRENT YEAR DATA), TH E AVERAGE MARGIN OF 3 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 COMPARABLES WAS ARRIVED AT 11.83% FOR MARCH, 2006. LD. TPO REJECTED THE ASSESSEES CONTENTION FOR USE OF DATA IN RESPECT OF COMPARABLES FOR THE YEAR 2004-05 AND 2005-06 AND CONSIDERED THE DATA FOR THE YEAR 2006-07 ONLY. ON THIS BASIS 25 COMPARABLES WERE REJECTED ON THE B ASIS OF RELATED PARTIES TRANSACTIONS AND ON THE GROUND OF PERSISTENT LOSS M AKING. LD. TPO HAS ALSO ASSIGNED CERTAIN OTHER REASONS FOR REJECTING THE 2- 3 COMPARABLES. HE ALSO SHOW-CAUSED FOR INCLUDING THE FOLLOWING COMPARABLES :- (A) CAMBRIDGE TECHNOLOGY ENTERPRISES LTD. (B) POWERSOFT GLOBAL SOLUTIONS LTD. (C) SIP TECHNOLOGIES & EXPORT LTD. (D) SYSTEMLOGIC SOLUTIONS LTD. 4. THE FINAL SET OF COMPARABLES IS GIVEN IN PARA 10 AT PAGES 17 AND 18 OF HIS ORDER IN WHICH HE CONSIDERED 30 COMPARABLES INC LUDING THE FOUR NOTED ABOVE AND COMPUTED THE ARITHMETIC MEAN AT 20.94% AS COMPARED TO 14.53 OF THE ASSESSEE AND, THUS, DIRECTED FOR MAKING AN UPWA RD ADDITION OF RS.3,45,08,163/- AS UNDER :- TOTAL COST OF PROVISION OF SERVICES BY THE ASSESSEE (A) RS. 52,70,83,314 OP/OC 20.94 MARGIN @ 20.94% AS DISCUSSED ABOVE (B) RS. 11,07 ,71,245 ARMS LENGTH PRICE A (A+B) RS. 63,74,54,559 PRICE AT WHICH INTERNATIONAL TRANSACTION HAS BEEN UNDERTAKEN B RS. 60,29,46,396 DIFFERENCE A - B RS. 3,45,08,163 % OF DIFFERENCE WITH B ABOVE 5.72% 4 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 5. LD. DRP, AFTER CONSIDERING THE ASSESSEES OBJECT IONS ONLY DIRECTED FOR EXCLUSION OF SATYAM COMPUTER SERVICES LTD. FROM THE LIST OF COMPARABLES ADOPTED BY LD. TPO AND, THUS, THE AVERAGE MARGIN WA S COMPUTED AT 20.26%. ACCORDINGLY, THE ASSESSING OFFICER MADE AN ADDITION OF RS.3,09,23,997/- AS UNDER :- TOTAL COST OF PROVISION OF SERVICES BY THE ASSESSEE (A) 52,70,83,314/- OP/OC 20.26% MARGIN @ 20.26% (B) 10,67,87,079/ - ARMS LENGTH PRICE (A) (A+B) 63,38,70,393/- PRICE AT WHICH INTERNATIONAL TRANSACTION HAS BEEN UNDERTAKEN B 60,29,46,396/- DIFFERENCE A-B 3,09,23,997/- 6. BEING AGGRIEVED WITH THE ASSESSMENT ORDER PASSED U/S 144C/143(3), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS TAKEN VARIOUS GROUNDS OF APPEAL. HOWEVER, AT THE TIME OF HEARING , LD. COUNSEL FOR THE ASSESSEE HAS ONLY PRESSED GROUND NOS.1.4 AND 1.8, W HICH ARE REPRODUCED HEREUNDER :- 1.4 BY MAKING MODIFICATION TO THE SET OF COMPARABL E COMPANIES BY INCLUDING FOUR ADDITIONAL COMPANIES TO THE SET OF COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT WITHOUT MAKING AN ATTEMPT TO APPRECIATE T HE FACT THAT THESE COMPANIES ARE OPERATIONALLY/ FUNCTIONALLY DISSIMILAR TO THE A PPELLANT. 1.8 BY ERRONEOUSLY COMPUTING THE % DIFFERENCE WITH ALP' BY NOT TAKING INTO CONSIDERATION THE AMOUNT OF OTHER INCOME REPORTED IN THE PROFIT AND LOSS ACCOUNT OF THE APPELLANT. 7. APART FROM THE ABOVE TWO EFFECTIVE GROUNDS, THE ASSESSEE HAS ALSO TAKEN FOLLOWING ADDITIONAL GROUNDS OF APPEAL :- 5 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 1.10 THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, M/S INFOSYS TECHNOLOGIES LIMITED, WIPRO LIMITED, KALS INFO SYSTEMS LIMITED, HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED AND TATA CONSULTANCY SERVICES LIMITED MAY BE REJECTED FOR THE PURPOSES OF COMPARABILITY ANALYSIS AS THESE COMPANIES ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS P ERFORMED, ASSETS EMPLOYED AND RISK ASSUMED. 1.11 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, WORKING CAPITAL ADJUSTMENT AS SPECIFIED UNDER RULE 10B(1)(E)(III) A ND RULE 10B(3) OF THE INCOME TAX RULES, 1962 MAY BE ALLOWED FOR THE PURPOSE OF D ETERMINATION OF ARM'S LENGTH PRICE TO ACCOUNT FOR THE DIFFERENCE IN WORKING CAPI TAL EMPLOYED BY THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES. 8. FIRST, WE CONSIDER GROUND NO.1.4 AND 1.8. APROP OS GROUND NO.1.4, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN REGARD T O (I) CAMBRIDGE TECHNOLOGY ENTERPRISES LTD., (II) POWERSOFT GLOBAL SOLUTIONS LTD., (III) SIP TECHNOLOGIES & EXPORT LTD., HAVE TO BE COMPUTED COR RESPONDING TO ASSESSEES FINANCIAL YEAR BECAUSE THE ACCOUNTS ARE IN RESPECT OF 15 MONTH IN THE CASE OF CAMBRIDGE TECHNOLOGY ENTERPRISES LTD.; UPTO SEPTEMBER, 2006 IN RESPECT OF POWERSOFT GLOBAL SOLUTIONS LTD. AND F OR 18 MONTHS IN RESPECT OF SIP TECHNOLOGIES & EXPORT LTD.. HE SUBMITTED TH AT IF THIS COMPUTATION CAN BE MADE THEN ONLY THESE COMPARABLES SHOULD BE I NCLUDED OTHERWISE THEY COULD NOT BE INCLUDED. AS REGARDS THE SYSTEMLOGIC SOLUTIONS LTD., LD. COUNSEL POINTED OUT THAT THIS IS A SUBSIDIARY OF HE LIOS & MATHESON INFORMATION TECHNOLOGY LTD., THE RESULTS FOR WHICH HAVE ALREADY BEEN INCLUDED BY LD. TPO IN THE FINAL LIST OF COMPARABLE SELECTED BY HIM AND, THEREFORE, INCLUSION OF SYSTEMLOGIC SOLUTIONS LTD. RESULTS TO DUPLICATION. IN 6 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 THIS REGARD, HE REFERRED TO PAGE 68 OF ANNUAL REPOR T OF HELIOS & MATHESON INFORMATION TECHNOLOGY LTD.. LD. DR SUBMITTED THAT THE RESULTS CORRESPONDING TO ASSESSEES FINANCIAL YEAR MAY BE D RAWN FROM THE FINANCIAL STATEMENTS OF THREE COMPARABLES FOR WHICH RESULTS F OR DIFFERENT FINANCIAL YEAR ARE AVAILABLE AND, THEREFORE, THEY HAVE TO BE INCLU DED. AS REGARDS THE SYSTEMLOGIC SOLUTIONS LTD., LD. DR SUBMITTED THAT T HE MATTER NEEDS TO BE RE- EXAMINED BY LD. TPO. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RECORD OF THE CASE. IN OUR OPINION, TH E MATTER NEEDS TO BE RESTORED TO THE FILE OF LD. ASSESSING OFFICER/TPO F OR FRESH ADJUDICATION IN REGARD TO AFOREMENTIONED COMPARABLES. IN THIS REGA RD, IN THE LIGHT OF SUBMISSIONS ADVANCED BY BOTH THE PARTIES, IF RESULT IN RESPECT OF THREE COMPARABLES VIZ. (I) CAMBRIDGE TECHNOLOGY ENTERPRIS ES LTD., (II) POWERSOFT GLOBAL SOLUTIONS LTD., (III) SIP TECHNOLOGIES & EXP ORT LTD. CAN BE DRAWN CORRESPONDING TO THE FINANCIAL YEAR ENDING ON MARCH , 2006 THEN ONLY THESE THREE COMPARABLES SHOULD BE INCLUDED OTHERWISE THEY HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. SIMILARLY, IN REGARD TO SYSTEMLOGIC SOLUTIONS LTD., LD. TPO SHOULD EXAMINE THE ASSESSEES CONTENT IONS, AS NOTED ABOVE. IF THE SAME IS FOUND TO BE CORRECT THEN TO EXCLUDE THI S COMPARABLE FROM THE LIST 7 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 OF COMPARABLES. IN THE RESULT, THIS GROUND IS ALLO WED FOR STATISTICAL PURPOSES IN TERMS OF AFOREMENTIONED OBSERVATIONS. 10. NOW, COMING TO GROUND NO.1.8, THE GRIEVANCE OF THE ASSESSEE IS THAT WHILE COMPUTING THE MARGIN OF TESTED PARTY I.E. ASS ESSEE, THE TPO DID NOT TAKE INTO CONSIDERATION OTHER INCOME, WHICH WAS IN THE NATURE OF OPERATING INCOME. IN THIS REGARD, LD. COUNSEL FURTHER POINTE D OUT THAT WHILE ARRIVING AT ADVANCE PRICING AGREEMENT DATED 24.08.2016, THE DEP ARTMENT ITSELF HAS CONSIDERED THE OTHER INCOME AS OPERATING INCOME AS IS EVIDENT FROM CLAUSE (F) OF APA, WHICH IS REPRODUCED HEREUNDER :- (F) OPERATING REVENUE MEANS THE REVENUE EARNED B Y THE APPLICANT IN THE PREVIOUS YEAR IN RELATION TO THE COVERED TRANSACTIO N DURING THE COURSE OF ITS NORMAL OPERATIONS INCLUDING THE NET FOREIGN EXCHANG E DIFFERENCE (IF GAIN) AND GAIN ON FORWARD CONTRACTS BUT DOES NOT INCLUDE THE FOLLOWING, NAMELY :- (I) INCOME ON TRANSFER OF ASSETS OR INVESTMENTS; (II) REFUNDS RELATING TO INCOME-TAX; (III) EXTRAORDINARY INCOMES; AND (IV) OTHER INCOMES NOT RELATING TO NORMAL OPERATIONS OF THE APPLICANT. THE OPERATING INCOME INCLUDES INTEREST RECEIVED ON DEPOSITS FOR PREVIOUS YEARS 2013-2014 AND 2014-2015 AND ROLL BACK YEARS. 11. AFTER HEARING BOTH THE PARTIES, THIS ISSUE IS R ESTORED BACK TO THE FILE OF LD. ASSESSING OFFICER/TPO FOR VERIFICATION OF ASSES SEES CLAIM AS PER PAGE 165 OF PAPER BOOK READ WITH THE CHART FILED AT THE TIME OF HEARING, WHICH IS REPRODUCED HEREUNDER :- 8 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 RBS INDIA DEVELOPMENT CENTRE PRIVATE LIMITED ASSESSMENT YEAR 2006-07 PARTICULARS AMOUNT NATURE AMOUNT OTHER INCOME - PROVISIONS WRITTEN BACK 733,420 EXCESS EXPENSES PROVIDED TOWARDS REIMBURSEMENT OF SECONDEES, SUBSEQUENTLY REVERSED 366,000 REIMBURSEMENT EXPENSES INCORRECTLY CHARGED TO EXPENSES 5,866 EXCESS PROVISION OF COST MADE FOR EMPLOYEES WHO HAVE RESIGNED 282,690 WRITE OFF OF EXCESS PROVISION CREATED FOR EXPENSES 78,864 TOTAL 733,420 - MISCELLANEOUS INCOME 9,484 EXCESS SUMS PAID TO EMPLOYEES IN THE FORM OF TRAVEL ADVANCES RECEIVED BACK AND ACCOUNTED FOR AS OTHER INCOME 9,484 IN THE RESULT, GROUND NO.1.8 IS ALLOWED FOR STATIST ICAL PURPOSES. 12. AT THE TIME OF HEARING, LD. COUNSEL HAS FILED A N APPLICATION FOR ADMISSION OF ADDITIONAL UNDER RULE 11 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. THE APPLICATION IS REPRODUC ED HEREUNDER :- 01 JUNE 2016 THE REGISTRAR INCOME TAX APPELLANT TRIBUNAL LOK NAYAK BHAWAN, KHAN MARKET NEW DELHI DEAR SIR, RE: RBS INDIA DEVELOPMENT CENTRE PRIVATE LIMITED ( 'THE APPELLANT') [MERGED INTO RBS SERVICES INDIA PRIVATE LIMITED (FORMERLY K NOWN AS RBS BUSINESS SERVICES PRIVATE LIMITED) WITH EFFECT FROM 1 APRIL 2015) ASSESSMENT YEAR ('AY') 2006-07, PAN: AAACC2526J SUB: APPLICATION UNDER RULE 11 OF THE INCOME TAX ( APPELLANT TRIBUNAL) RULES, 1963 ('THE ITAT RULES') FOR FILING OF ADDITIONAL GR OUNDS WITH REGARD TO APPEAL NO. ITA 5538/DE1/2010 THE APPELLANT HAS FILED THE CAPTIONED APPEAL AGAINS T THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIT-I, GURGAO N ['LD. ASSESSING OFFICER' 9 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 OR 'THE AO'], DATED 27 OCTOBER 2010. THE SUBJECT AP PEAL IS LISTED FOR HEARING BEFORE YOUR HONOURS ON 06 JUNE 2016. IN REFERENCE TO THE CAPTIONED APPEAL, THE APPELLANT MAY PLEASE BE ALLOWED TO RAISE ADDITIONAL GROUNDS OF APPEAL WITH YOUR HONOUR S. YOUR HONOURS WILL APPRECIATE THAT THE ADDITIONAL GROUNDS WOULD BE ESS ENTIAL FOR DUE DISPENSATION OF SUBSTANTIAL JUSTICE. GIVEN THE EVOLVING NATURE OF T HE TRANSFER PRICING SUBJECT IN INDIA, RECENT DEVELOPMENTS AND PRINCIPLES LAID DOWN BY JUDICIAL PRONOUNCEMENTS, THE APPELLANT HEREBY REQUESTS YOUR HONOUR TO PROVID E DUE OPPORTUNITY OF PRESENTING ADDITIONAL GROUNDS. IN THE LIGHT THEREOF , WE HUMBLY REQUEST YOUR HONOURS TO EXERCISE THE POWERS PROVIDED IN RULE 11 OF THE ITAT RULES AND ADMIT THE ABOVE ADDITIONAL GROUNDS OF APPEALS. IN THIS RE GARD, WE ENCLOSE FORM NO. 36B, ALONG WITH THE ADDITIONAL GROUNDS, IN DUPLICAT E. IN THIS CONTEXT, RELIANCE IS ALSO PLACED ON THE DEC ISION IN THE CASE OF JUTE CORPORATION OF INDIA LTD. [187 ITR 688 (HON'BLE SUP REME COURT)]. IN THIS CASE, THE HON'BLE APEX COURT, OBSERVED AS UNDER: '5 .... EVEN OTHERWISE, AN APPELLATE AUTHORITY WHIL E HEARING THE APPEAL AGAINST THE ORDER OF A SUBORDINATE AUTHORITY, HAS A LL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DECIDING THE QUESTIO N BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATIONS, IF ANY, PRESCRIBED BY THE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISI ON, THE APPELLATE AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS, WH ICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. ' FURTHER, IN CASE OF QUARK SYSTEMS INDIA (P.) LTD [I TA NO. 594/2020], THE HIGH COURT OF PUNJAB & HARYANA OBSERVED AS UNDER: '4. THE ISSUE INVOLVED IN THIS CASE IS WHETHER THE TRIBUNAL WAS JUSTIFIED IN ENTERTAINING THE ADDITIONAL GROUND FOR EXCLUSION OF M/S. DATAMATICS TECHNOLOGIES AS COMPARABLE AND REMANDING THE CASE T O THE ASSESSING OFFICER WHEREBY IT HAD DIRECTED THAT THE ASSESSEE S HALL BE ENTITLED TO PRODUCE ALL RELEVANT MATERIAL FOR DETERMINATION OF PROPER ARM'S LENGTH PRICE AND SHALL CO-OPERATE FOR EXPEDITIOUS DISPOSAL OF THE MATTER. XXXX XXXX XXXX XXXX 6. IN VIEW OF THE OBSERVATIONS OF THE TRIBUNAL WHER EBY AN OPPORTUNITY WAS PROVIDED TO THE ASSESSEE TO PRODUCE MATERIAL BEFORE THE ASSESSING OFFICER AND THE FACT THAT AFTER THE REMAND AND CONSIDERATIO N OF THE MATERIAL PRODUCED BY THE ASSESSEE IN TERMS OF THE ORDER OF T HE TRIBUNAL, AN ORDER IN FAVOUR OF THE ASSESSEE HAS BEEN PASSED, NO QUESTION OF LAW MUCH LESS A SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPEAL F OR CONSIDERATION OF THIS COURT. ACCORDINGLY, THE PRESENT APPEAL IS DISMISSED . ' ALSO, IN THIS REGARD, RELIANCE IS ALSO PLACED ON TH E FOLLOWING DECISIONS: NATIONAL THERMAL POWER CO. LTD VS CIT [1998] 229 IT R 383 (SC) CIT VS. NELLIAPPAN (S.) [1967] 66 ITR 722 (SC) AHEMDABAD ELECTRICITY CO. LTD VS CIT [1993] 199 ITR 351 (BOM) ASHOK VARDHAN BIRLA VS. CWT [1994] 208 ITR 958 (BOM ) INAROO LTD. VS. CIT [1993] 204 ITR 312 (BOM) CIT VS. GOVINDRAM BROS. PVT. LTD. [1983] 141 ITR 62 6 (BOM) 10 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 IN THE LIGHT OF THE ABOVE, THE APPELLANT MOVES THE ADDITIONAL GROUNDS APPENDED HEREWITH IN ANNEXURE A FOR DUE ADJUDICATION BY YOUR HONOURS. IT IS HUMBLY SUBMITTED THAT THE APPELLANT MAY PLEASE BE ALLOWED TO RAISE THE AFOREMENTIONED ADDITIONAL GROUNDS AS THE SAME ARE ESSENTIAL FOR PR OPER DISPENSATION OF SUBSTANTIAL JUSTICE. FOR THIS ACT OF KINDNESS THE A PPELLANT SHALL BE EVER GRATEFUL. HOPE YOUR HONOURS WILL ACCEDE TO OUR REQUEST. THE APPELLANT IS SEPARATELY PROVIDING A COPY OF THE ADDITIONAL GROUNDS TO THE DEPARTMENT REPRESENTATIVE. THANKING YOU YOURS FAITHFULLY FOR RBS SERVICES INDIA PRIVATE LIMITED SD/- (JOINT MANAGING DIRECTOR) 13. LD. DR OPPOSED THE ADMISSION OF THESE ADDITIONA L GROUNDS POINTING OUT THAT NO SUBSTANTIAL REASONS HAVE BEEN ASSIGNED BY THE ASSESSEE WHICH PREVENTED IT FROM PRODUCING NECESSARY EVIDENCE/PLEA BEFORE LD. TPO. 14. AFTER HEARING BOTH THE PARTIES, WE CONSIDER IT IN THE INTERESTS OF JUSTICE IN VIEW OF THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF QUARK SYSTEMS INDIA (P.) LTD. (SUPRA), THE RELEV ANT PARA FROM WHICH HAS BEEN REPRODUCED BY ASSESSEE IN ITS APPLICATION UNDE R RULE 11 OF THE INCOME TAX RULES, 1963 NOTED ABOVE, TO ADMIT THESE ADDITIO NAL GROUNDS AS THE SAME ARE ESSENTIAL FOR IMPARTING SUBSTANTIAL JUSTICE TO ASSESSEE. THE ASSESSEE HAS FILED DETAILED ANALYSIS IN THIS REGARD WHICH ASSESS ING OFFICER WILL CONSIDER. THE MATTER IS RESTORED BACK TO THE FILE OF LD. ASSE SSING OFFICER/TPO TO EXAMINE THE ASSESSEES CONTENTIONS IN THIS REGARD. IN THE RESULT, THE ADDITIONAL GROUND NO.1 IS ALLOWED FOR STATISTICAL P URPOSES. 11 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 15. AS REGARDS THE ADDITIONAL GROUND NO.2, LD. COUN SEL POINTED OUT THAT WORKING CAPITAL ADJUSTMENT HAS BEEN ALLOWED BY LD. DRP IN ASSESSMENT YEAR 2007-08 AND IN THE ADDITIONAL GROUND THE ASSESSEE H AS GIVEN ALL DETAILS AND, THEREFORE, THIS MATTER MAY BE RESTORED BACK TO THE FILE OF LD. ASSESSING OFFICER/TPO FOR EXAMINING THE ASSESSEES PLEA AND T O ALLOW THE WORKING CAPITAL ADJUSTMENTS. AFTER HEARING BOTH THE PARTIE S, THIS ADDITIONAL GROUND IS ADMITTED FOR EXAMINING THE ASSESSEES CONTENTIONS. THIS GROUND IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.5538/DEL/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.5443/DEL/2011 (A.Y. 2007-08): 17. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 27.09.2011 PASSED BY THE ASSESSING OFFICER U/S 144C /143(3) OF THE ACT RELATING TO ASSESSMENT YEAR 2007-08 PURSUANT TO THE DIRECTION OF THE DISPUTE RESOLUTION PANEL-II, NEW DELHI. 18. THE ASSESSEE HAS FILED APPLICATION UNDER RULE 1 1 OF THE INCOME TAX RULES FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL , WHICH IS REPRODUCED HEREUNDER :- 2.11 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, M/S INFOSYS TECHNOLOGIES LIMITED, WIPRO LIMITED, KALS INFO SYSTEMS LIMITED A ND HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED MAY BE REJECTED FOR THE PURPOSES OF 12 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 COMPARABILITY ANALYSIS AS THESE COMPANIES ARE NOT C OMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AN D RISK ASSUMED. 19. THE ASSESSEE HAS ALSO FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE IN SUPPORT OF ADDITIONAL GROUNDS. 20. AT THE TIME OF HEARING, LD. COUNSEL POINTED OUT THAT THE ADDITIONAL GROUND IS IDENTICAL TO GROUND RAISED IN APPEAL FOR ASSESSMENT YEAR 2006-07 EXCEPT THAT TCS IS NOT THERE IN THE ADDITIONAL GROU ND. AFTER HEARING BOTH THE PARTIES, THE ADDITIONAL GROUND RAISED BY THE ASSESS EE IS ADMITTED AS THE REASONS ARE IDENTICAL FOR RAISING THE SAME AS IN AS SESSMENT YEAR 2006-07. FOLLOWING THE OBSERVATIONS MADE IN THE ASSESSMENT Y EAR 2006-07, THIS ADDITIONAL GROUND IS RESTORED TO THE FILE OF THE LD . ASSESSING OFFICER/TPO FOR CONSIDERING THE ASSESSEES CONTENTIONS. IN THE RES ULT, THE ADDITIONAL GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 21. THE MAIN GRIEVANCE OF ASSESSEE IN THIS APPEAL I S IN REGARD TO DIRECTIONS ISSUED BY LD. DRP WHILE DISPOSING OF 154 PETITION. THE ASSESSEE WAS PRIMARILY AGGRIEVED BY INCLUSION OF HELIOS & MA THESON INFORMATION TECHNOLOGY LTD. AND EXCLUSION OF VMF SOFT TECH LTD. . LD. COUNSEL POINTED OUT THAT VMF SOFT TECH LTD. HAS BEEN REJECTED BY LD . DRP ON THE GROUND THAT IT WAS FOLLOWING DIFFERENT BUSINESS MODEL OBSE RVING THAT THE COMPANY HAD OUTSOURCED ITS ACTIVITY. LD. COUNSEL POINTED O UT THAT THIS IS FACTUALLY INCORRECT BECAUSE IN ASSESSMENT YEAR 2008-09, LD. D RP HAS ACCEPTED THIS 13 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 COMPANYS BUSINESS AS COMPARABLE TO ASSESSEES BUSI NESS. THE SAME IS ALSO EVIDENT FROM THE RESPONSE OF VMF SOFT TECH LTD. SEN T U/S 133(6) OF THE ACT WHICH WAS ANNEXED ALONG WITH THE ORDER PASSED UNDER RULE 13 OF INCOME TAX (DRP) RULES, 2009. AFTER HEARING BOTH THE PART IES, WE RESTORE THIS MATTER BACK TO THE FILE OF THE LD. ASSESSING OFFICE R/TPO TO EXAMINE THE ASSESSEES CONTENTION AND IF IT IS FOUND THAT VMF S OFT TECH LTD. HAS NOT OUTSOURCED ITS ACTIVITY THEN TO INCLUDE IN THE LIST OF COMPARABLE COMPANIES. 22. THE NEXT GROUND NO.2.1 PRESSED AT THE TIME OF H EARING IS REPRODUCED HEREUNDER :- 2.1 BY MAKING MODIFICATION TO THE SET OF COMPARABL E COMPANIES IDENTIFIED BY THE APPELLANT BY REJECTING COMPARABLES ON GROUNDS O F FUNCTIONAL DISSIMILARITY. IN THIS REGARD, THE LD. TPO/ DRP HAVE REJECTED COMPARA BLE ON ERRONEOUS BASIS WITHOUT FOLLOWING A COGENT ECONOMIC BASIS. 23. LD. COUNSEL POINTED OUT THAT THE MAIN CONTENTIO N OF ASSESSEE IS THAT THE FOLLOWING TWO COMPARABLES HAVE WRONGLY BEEN REJ ECTED BY TPO : (A) GOLDSTONE TECHNOLOGIES LIMITED AND (B) COMPUTECH IN FORMATION LTD.. HE POINTED OUT THAT BOTH THESE COMPARABLES HAVE BEEN A CCEPTED BY LD. TPO AND DRP IN ASSESSMENT YEAR 2006-07 AS IS EVIDENT FROM P AGE 30-31 OF THE PAPER BOOK. LD. DRP REJECTED THESE COMPARABLES OBSERVING THAT FUNCTIONAL SIMILARITY HAS TO BE EXAMINED IN PARTICULAR YEAR. 24. WE HAVE CONSIDERED SUBMISSIONS OF BOTH THE PART IES. FROM THE TPOS ORDER FOR THE ASSESSMENT YEAR 2006-07, IT IS EVIDEN T THAT GOLDSTONE 14 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 TECHNOLOGIES LIMITED AND COMPUTECH INFORMATION LTD. WERE INCLUDED IN THE FINAL LIST OF COMPARABLES. HOWEVER, NO REASON HAS BEEN ASSIGNED FOR EXCLUDING THESE COMPARABLES FROM THE FINAL LIST OF COMPARABLES FOR ASSESSMENT YEAR 2007-08. UNLESS ANY FUNCTIONAL DIS SIMILARITY HAD ARISEN IN ASSESSMENT YEAR 2007-08 IN RESPECT OF THESE TWO COM PARABLES, WHICH WARRANTED EXCLUSION OF THESE TWO COMPARABLES, THEY SHOULD NOT HAVE BEEN EXCLUDED PARTICULARITY IN VIEW OF THE PRINCIPLE OF CONSISTENCY. WE, THEREFORE, RESTORE THIS MATTER TO THE FILE OF THE L D. ASSESSING OFFICER/ TPO TO EXAMINE THE ASSESSEES CONTENTIONS IN THE LIGHT OF FUNCTIONAL DISSIMILARITY OF THESE COMPARABLES AND, IF, THE SAME ARE FOUND TO BE IN LINE WITH THE ASSESSEE THEN THESE TWO COMPARABLES HAVE TO BE INCLUDED TO T HE LIST OF COMPARABILITY. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTIC AL PURPOSES. 25. THE NEXT ISSUE PRESSED AT THE TIME OF HEARING I S IN REGARD TO GROUND NO.2.8, WHICH IS REPRODUCED HEREUNDER :- 2.8 BY USING AN INCORRECT COMPUTATION OF NET COST PLUS (NCP) MARGIN OF SELECTED COMPARABLE COMPANIES AND ACCORDINGLY ERRED IN COMPUTING THE AMOUNT OF ADJUSTMENT ON ACCOUNT OF TRANSFER PRICE. 26. LD. COUNSEL POINTED OUT THAT FOREIGN EXCHANGE G AIN HAS BEEN TAKEN AS NON-OPERATING INCOME WHILE COMPUTING THE OPERATING PROFIT THOUGH FOREIGN EXCHANGE LOSS, IN ASSESSMENT YEAR 2006-07, HAS BEEN CONSIDERED AS OPERATING LOSS. FURTHER, IN ASSESSMENT YEAR 2008-0 9, THIS HAS BEEN 15 ITA NO.5538/DEL/2010 ITA NO.5443/DEL/2011 CONSIDERED AS OPERATING INCOME AND IN ADVANCE PRICI NG AGREEMENT IT HAS BEEN CONSIDERED AS OPERATING INCOME. 27. AFTER HEARING BOTH THE PARTIES, WE DIRECT THE L D. ASSESSING OFFICER/TOP TO COMPUTE THE OPERATING INCOME OF ASSE SSEE BY INCLUDING FOREIGN EXCHANGE GAIN AS OPERATING INCOME OF ASSESS EE. THUS, THIS GROUND IS ALLOWED. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.5443/DEL/2011 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 29. RESULTANTLY, BOTH THE CAPTIONED APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JANUARY, 2017. SD/- SD/- (SUCHITRA KAMBLE) ( S.V. MEHROTRA) JUDICIAL MEMBER ACCOUN TANT MEMBER DATED : 10-01-2017. SUJEET COPY OF ORDER TO: - 1) THE APPELLANT; 2) THE RESPONDENT; 3) THE DRP-II, NEW DELHI; 4) THE DR, I.T.A.T., NEW DELHI; BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI