Flextronics Software Systems Ltd., New Delhi V. DCIT, New Delhi

ITA 5550/DEL/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2799 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 09-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Share purchase agreement; Principle of natural justice; International transaction; Additional evidence; Question of law; Fair market value; Bad and doubtful debts; Benefit of exemption; Revenue expenditure; Capital expenditure
• Section: 92C; 143(3); 234B; 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI S.V.MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.5550/DEL./2011 (ASSESSMENT YEAR : 2007-08) M/S. FLEXTRONICS SOFTWARE SYSTEMS LTD, VS. DCIT, (NOW ARICENT TECHNOLOGIES (HOLDINGS) LTD, CIRCLE- 11 (1), 5, JAIN MANDIR MARG (ANNEX), NEW DELHI CONNAUGHT PLACE NEW DELHI. (PAN : AAACH0152P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA SR. ADVOCATE REVENUE BY : O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 30. 10.2011 PASSED U/S 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT , 1961 (HEREINAFTER ALSO CALLED THE ACT) FOR THE ASSESSMENT YEAR 2007-08. BEFORE WE PROCEED TO DECIDE THIS APPEAL, WE MAY POINT OUT THAT AFTER THE HEARIN G OF THE APPEAL WAS OVER ON 09.10.2015, LD. CIT DR (ADMN.) FORWARDED A LETTER R ECEIVED BY HIM, FROM THE ADDL.CIT DR THAT HER NAME MAY NOT BE INCLUDED IN TH E BODY OF THE ORDER BECAUSE SHE WAS THERE ONLY TO SEEK ADJOURNMENT. HO WEVER, WE WERE MADE TO 2 ITA NO.5550/DEL/2011 UNDERSTAND THAT THE ISSUES INVOLVED IN THE APPEAL A RE COVERED, SO WE PROCEEDED WITH THE HEARING AND DECIDE NOT TO AFFIX THE NAME O F ADDL. CIT DR. 2. THE GROUNDS RAISED BY THE APPELLANT IN THIS APPE AL ARE AS UNDER: 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN PROPOSING TO COMPLETE THE ASSESSMENT UNDER SECTION 144C/143(3) O F THE INCOME TAX ACT, 1961 (THE ACT) AT AN INCOME OF RS.243,55,56, 670/- AS AGAINST THE INCOME OF RS.17,64,76,208/- RETURNED BY THE ASSESSE E. 2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN PROPOSING AN ADJUSTMENT OF RS. 8,96,40,636 TO THE ARMS LENGT H PRICE OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF CORPORAT E CHARGES ON THE BASIS OF THE ORDER PASSED UNDER SECTION 92CA(3) OF THE AC T BY THE TRANSFER PRICING OFFICER(TPO). 2.1 THAT THE ASSESSING OFFICER/THE TPO ERRED ON FAC TS AND IN LAW IN HOLDING THAT ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS REGARDING PAYMENT OF CORPORATE CHARGES IS AT NIL ALLEGEDLY CO NCLUDING THAT NO RECOGNIZABLE BENEFIT HAS BEEN PASSED TO THE ASSESSE E AND THEREFORE THERE IS NO RATIONALE FOR PAYING CORPORATE CHARGES THE AE. 2.2 THAT THE ASSESSING OFFICER/THE TPO ERRED ON FAC TS AND IN LAW IN NOT APPRECIATING THAT THE PAYMENT OF CORPORATE CHARGES WAS VALIDLY BENCHMARKED APPLYING TNMM AS MOST APPROPRIATE METHO D AND THAT NO ADVERSE INFERENCE COULD BE DRAWN ON THIS ACCOUNT. 2.3 THAT THE ASSESSING OFFICER/THE TPO ERRED ON FAC TS AND IN LAW IN COMPUTING ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TR ANSACTION OF PAYMENT OF CORPORATE CHARGES WITHOUT APPLYING ANY PRESCRIBE D METHODS, THEREBY, VIOLATING THE BASIC PRINCIPLES OF TP REGULATIONS. 2.4 THAT THE ASSESSING OFFICER/THE TPO ERRED ONE FA CTS AND IN LAW IN HOLDING THAT THE ENTIRE ARRANGEMENT OF THE PAYMENT OF CORPORATE CHARGES IS DESIGNED TO SHIFT PROFITS OUTSIDE INDIA. 2.5 THAT THE ASSESSING OFFICER/THE TPO GROSSLY MISU NDERSTOOD AND MISINTERPRETED THE FACTS OF THE COST ALLOCATION AGR EEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE (ARICENT INC.) 2.6 THAT THE ASSESSING OFFICER/THE TPO ERRED ON FAC TS AND IN LAW IN NOT APPRECIATING THAT THE EXPENDITURE ON THE PAYMENT OF CORPORATE CHARGES WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 3 ITA NO.5550/DEL/2011 2.7 THAT THE ASSESSING OFFICER ERRED IN LAW IN NOT AGGREGATING THE TRANSACTION OF PAYMENT OF CORPORATE CHARGES WITH OT HER SIMILAR INTERNATIONAL TRANSACTIONS AND ERRONEOUSLY BENCHMAR KING IT SEPARATELY. 3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE OF PROJECT EXPENSES AMOUNTING TO RS. 3 9,15,46,619/- ALLEGEDLY TREATING THE SAME TO BE CAPITAL EXPENDITU RE INCURRED ON PROJECTS WHICH WERE YET TO TAKE OFF. 3.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN NOT APPRECIATING THAT PROJECT EXPENSES AMOUNTING TO RS. 39,15,46,619/- ARE ROUTINE EXPENDITURE INCURRED IN THE COURSE OF CARRY ING ON OF BUSINESS AND ARE ALLOWABLE AS DEDUCTION. 3.2 WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION ON THE SAID ALLEGED CA PITAL EXPENDITURE. 3.3 WITHOUT PREJUDICE THE ASSESSING OFFICER ERRED O N FACTS AND IN LAW IN NOT RE-COMPUTING THE DEDUCTION ADMISSIBLE UNDER SECTION 10B OF THE ACT ON ACCOUNT OF THE DISALLOWANCE OF TRAINING EXPENSES OF RS.3915,46,619/-. 4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING DEDUCTION UNDER SECTION 10B OF THE ACT AMOUNTING TO RS.1,77,78,3,207/- GIVING EFFECT TO THE ORDER PASSED UNDER SECTION 263 OF THE ACT BY THE COMMISSIONER OF INCOME TAX FOR ASSESSMENT YEAR 2003 -04. 4.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN NOT APPRECIATING THAT THE CLAIM OF DEDUCTION UNDER SECT ION 10B OF THE ACT BY THE ASSESSEE WAS IN ACCORDANCE WITH THE PROVISIONS OF THAT SECTION AND THE DISALLOWANCE OF DEDUCTION UNDER THAT SECTION BY THE ASSESSING OFFICER WAS UNLAWFUL. 5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 234B AND SECTION 234C OF THE ACT. 6 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 3. GROUND 1 IS GENERAL IN NATURE AND THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. 4 ITA NO.5550/DEL/2011 4. GROUND NO. 2 TO 2.7 RELATE TO ADJUSTMENT OF RS. 8,96,40,636/- TO THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSA CTION OF PAYMENT OF CORPORATE CHARGES UNDER THE COST ALLOCATION AGR EEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE (ARICENT INC.) 5. BRIEFLY STATED THE FACTS ARE THAT ASSESSEE WAS F ORMERLY KNOWN AS HUGHES SOFTWARE SERVICES LTD. IT IS A CLOSELY HELD PUBLIC LIMITED COMPANY INCORPORATED ON DECEMBER 30, 1991. IT WAS PROMOTED BY HUGHES NETWORK SYSTEMS CORPORATION INC. USA AND ITS SUBSIDIARIES. THE ERSTWHILE PROMOTERS OF THE ASSESSEE COMPANY, I. E., HNS MAURITIUS HOLDINGS AND HUGHES NETWORK SYSTEMS INC., ENTERED I NTO A SHARE PURCHASE AGREEMENT WITH FLEXTRONICS SALES & MARKETI NG I(L-A) LIMITED, MAURITIUS, WHEREBY THE ENTIRE SHAREHOLDING WAS ACQUIRED BY FLEXTRONICS SALES & MARKETING (L-A) LIMITED, MAURIT IUS. FLEXTRONICS SOLD ALL THE SOFTWARE ENTITIES GLOBALLY THROUGH A E QUITY CONSORTIUM. THEIR CONSORTIUM WAS SOLD TO KKR AND SEQUIA CAPITAL AND WAS NAMED AS ARICENT. ARICENT DID NOT EXIST PRIOR TO YEAR 2006. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROD UCTION OF COMPUTER SOFTWARE PRODUCTS AND PROVISION OF SOFTWAR E DEVELOPMENT SERVICES FOR COMMUNICATION INDUSTRY, THROUGH THE VA RIOUS 100% 5 ITA NO.5550/DEL/2011 EXPORT ORIENTED UNIT (EOUS) SET UP IN SOFTWARE TECH NOLOGY PARK AT GURGAON AND BANGALORE. THE ASSESSEE IN THE COURSE OF CARRYING ON OF ITS SOFTWARE DEVELOPMENT BUSINESS HAS ENTERED INTO THE VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AES. THE INTE RNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE ESTABL ISHED TO BE AT ARMS LENGTH APPLYING TRANSACTIONAL NET MARGIN METH OD (TNMM), AS THE MOST APPROPRIATE METHOD. FOR APPLICATION OF TNMM, OPERATING PROFIT TO TOTAL COST (OP/TC) WAS CONSIDERED AS THE BASE OR THE PROFIT LEVEL INDICATOR. THE RESULT OF BENCHMARKING ANALYSI S IS SUMMARIZED AS UNDER: AVERAGE OF PLI OF 28 COMPARABLE COMPANIES 13.69% PLI OF APPELLANT 27.01% 6. SINCE THE OPERATING PROFIT MARGIN OF APPELLANT A T 27.01% WAS HIGHER THAN THE AVERAGE OF OPERATING PROFIT RATIO O F 13.69% COMPARABLE COMPANIES, ALL THE INTERNATIONAL TRANSAC TIONS ENTERED INTO BY THE ASSESSEE WERE, THEREFORE CONSIDERED AT ARMS LENGTH APPLYING TNMM. THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR P AID A SUM OF RS. 8,96,40,636/- TO ARICENT, USA TOWARDS CORPORATE CHA RGES. THE ARICENT INC. USA CAYMAN ISLANDS ENTITY, WAS FORMED IN AUGUST 2006 6 ITA NO.5550/DEL/2011 TO BE THE PARENT AND HOLDING COMPANY FOR A NUMBER O F OPERATING ENTITIES THAT WERE THEN OWNED BY FLEXTRONICS INTERN ATIONAL LTD. THESE OPERATING ENTITIES ARE ENGAGED IN THE BUSINESS OF S OFTWARE ENGINEERING DEVELOPMENT AND CONSULTING AND THE SELLING AND MARK ETING THEREOF. THE BASIS OF THE PAYMENT IS UNDER AN AGREEMENT FOR THE ALLOCATION OF COST DATED 28.9.2010 BETWEEN APPELLANT AND ARICENT INC. UNDER THE AGREEMENT, ACCORDING TO THE APPELLANT ARICENT USA P ROVIDED THE FOLLOWING CORPORATE MANAGEMENT SUPPORT SERVICES TO THE GROUP COMPANIES INCLUDING THE ASSESSEE: A) ACCOUNTING & FINANCE-FINANCIAL REVIEWS, GROUP FI NANCIAL PROJECTS/FORECASTING, ETC. B) TAX-TAX, REGULATORY COMPLIANCE C) LEGAL-CUSTOMER CONTRACTS, GLOBAL COMPLIANCE ASSU RANCE D) TREASURY-CASH MANAGEMENT, BANKING (LOAN SYNDICAT ION), DEBT MANAGEMENT E) CORPORATE MARKETING-DEVELOPING MARKETING CONTENT , PR ROAD SHOWS WEBSITE DESIGN ETC. F) INSURANCE FOR GLOBAL OPERATIONS 7. AS PER THE APPELLANT THE CORPORATE MANAGEMENT CO STS INCURRED BY THE ARICENT USA RELATE TO THE ENTIRE GROUP AND NOT SPECIFICALLY TO THE OPERATIONS IN USA. IT HAS BEEN CLAIMED THAT NATURE OF COSTS BEING INCURRED BY ARICENT USA FOR THE AFORESAID SERVICES ARE PAYROLL, 7 ITA NO.5550/DEL/2011 INSURANCE, GENERAL OFFICE RUNNING EXPENSES, ETC AND IN TERMS OF COST SHARING ARRANGEMENT WITH THE ASSESSEE, THE AFOREMEN TIONED COSTS ARE ALLOCATED TO VARIOUS GROUP ENTITIES INCLUDING THE A PPELLANT COMPANY. AS PER THE APPELLANT, THE ALLOCATION OF COST IS ON A RATIONAL BASIS TO RESULT IN ALLOCATION OF EXPENSES IN PROPORTION TO T HE BENEFIT ACCRUING TO EACH GROUP ENTITY AND, SUCH ALLOCATION IS ALSO CONS ISTENT WITH THE US TRANSFER PRICING REGULATIONS. 8. THE TPO IN HIS ORDER, HAS HELD THAT THERE WERE N O RENDERING OF SUCH SERVICES BY THE AE TO THE APPELLANT FOR WHICH ANY PAYMENT WAS REQUIRED TO BE MADE AND THEREFORE, THE PAYMENT MADE BY THE APPELLANT TO ITS AE WAS WITH A MOTIVE TO SHIFT PROFITS OUT OF INDIA. HENCE, APPLYING CUP METHOD, THE ARMS LENGTH PRICE OF THE T RANSACTION OF PAYMENT OF CORPORATE CHARGES WAS TAKEN AT NIL. THE RELEVANT EXTRACT OF THE ORDER OF THE TPO IS REPRODUCED BELOW: 1 THE ASSESSEE HAS NOT AVAILED SUCH SERVICES FROM AN INDEPENDENT PARTY. THE AE HAS NOT PROVIDED SUCH SE RVICES TO AN UNRELATED ENTITY. HENCE A COMPARISON FROM AN INDEP ENDENT PERSPECTIVE IS NOT AVAILABLE. 2 AS FOR THE COST BENEFIT TEST, THE ASSESSEE HAS NO T BEEN ABLE TO PROVIDE ANY EVIDENCE THAT HE HAS RECEIVED A BENEFIT THAT HE WOULD NOT HAVE ACHIEVED ON HIS OWN. 8 ITA NO.5550/DEL/2011 3 THE ASSESSEE CARRIES OUT MOST OF THE SOFTWARE DEV ELOPMENT FOR THE GROUP. HENCE THE REMAINING GROUP HAS MORE TO D EPEND ON THE ASSESSEE THAN THE OTHER WAY ROUND 4 THE FUNCTIONS AND RISKS OF THE ASSESSEE SHOW THAT THE ASSESSEE IN ANY CASE CARRIES OUT ALL THE FUNCTIONS THAT THE GLOBAL MANAGEMENT TEAM IS STATED TO BE DOING. HENCE, THE ASSESSEE SH OULD NOT BE EXPECTED TO PAY FOR A DUPLICATE OF ITS EFFORTS. IT MAY BE MENTIONED FINALLY THAT THE AE IS A CAYMAN ISLANDS ENTITY. BE ING IN A TAX HEAVEN, THE ENTIRE ARRANGEMENT APPEARS TO BE DESIGN ED TO TRANSFER PROFITS OUT OF INDIA. HENCE BY THE APPLICATION OF C UP THE ARMS LENGTH PRICE IN RESPECT OF THE TRANSACTION OF AVAILING OF CORPORATE SUPPORT SERVICES IS HELD TO BE NIL. THE ASSESSING OFFICER SHALL ACCORDINGLY ENHANCE THE INCOME OF THE ASSESSEE BY RS. 8,96,40,6 36/-. 9. THE TPO THEREFORE VIDE ORDER U/S 92CA(3) OF THE ACT DATED 27.9.2010 PROPOSED AN ADDITION OF RS. 8,96,40,636/- ON THE GROUND THAT, ADMINISTRATIVE/CORPORATE CHARGES PAID BY THE ASSESSEE TO ITS AE HAS NO RECOGNIZABLE VALUE AND THE ARMS LENGTH PRICE IN RESPECT OF THE TRANSACTION WAS TAKEN AT NIL. 10. BEFORE THE DRP, THE APPELLANT CONTENDED THAT AD DITION PROPOSED BY THE TPO IS NOT SUSTAINABLE FOR THE FOLLOWING REA SONS: I) CHANGE IN GLOBAL BUSINESS MODEL AND SCOPE OF SE RVICES PROVIDED BY THE AE SCOPE OF SERVICES CORPORATE MANAGEMENT SUPPORT SERVICES: IT IS RESPECTFULLY SUBMITTED THAT, THE US ASSOCIATE D ENTERPRISE, VIZ., ARICENT USA PROVIDED THE FOLLOWING CORPORATE MANAGEMENT SUPPORT SERVICES TO THE GROUP COMPANIES INCLUDING THE ASSESSEE: G) ACCOUNTING & FINANCE FINANCIAL REVIEWS, GROUP FINANCIAL PROJECT FORECASTING ETC. H) TAX TAX, REGULATORY COMPLIANCE. 9 ITA NO.5550/DEL/2011 I) LEGAL CUSTOMER CONTRACTS, COMPLIANCE ASSURANCE . J) TREASURY CASH MANAGEMENT, BANKING (LOAN SYNDIC ATION), DEBT MANAGEMENT. K) CORPORATE MARKETING DEVELOPING MARKETING CONTE NT, PR, ROAD SHOWS WEBSITE DESIGN, ETC. L) INSURANCE FOR GLOBAL OPERATIONS. THE CORPORATE MANAGEMENT COST INCURRED BY THE ARICE NT USA RELATE TO THE ENTIRE GROUP AND NOT SPECIFICALLY TO THE OPERATIONS IN USA . NATURE OF COSTS BEING INCURRED BY ARICENT USA FOR THE AFORESAID SERVICES, ARE, PAYROLL, INSURANCE, GENERAL OFFICE RUNNING EXPENSES, ETC. IN TERMS OF C OST SHARING ARRANGEMENT WITH FSS, THE AFOREMENTIONED COSTS ARE CHARGED OUT ON AL LOCATION BASIS TO THE VARIOUS GROUP ENTITIES INCLUDING FSS. THE ALLOCATION OF COS T IS ON A RATIONAL BASIS TO RESULT IN ALLOCATION OF EXPENSES IN PROPORTION TO T HE BENEFIT ACCRUING TO EACH GROUP ENTITY. SUCH ALLOCATION IS ALSO CONSISTENT WI TH THE US TRANSFER PRICING REGULATIONS. .. THE TPO CONTENTION THAT THE AE HAS POOL OF THE INDI AN MANAGEMENT, THE TOP MANAGEMENT, I.E. CEO, CFO, CORPORATE FINANCE DIRECT OR, HEAD HR, VP-IT ETC. , IS INCORRECT AND INCONSISTENT WITH THE FACT ON RE CORD, IN AS MUCH AS, THE AFORESAID TEAM OF SENIOR MANAGEMENT OF WAS ENGAGED IN LOOKING AFTER THE DAY- TO-DAY AFFAIRS OF THE GROUP COMPANIES INCLUDING THE ASSESSEE COMPANY. IT WOULD ALSO BE NOTED THAT THE ASSOCIATED ENTERPRI SES, ARICENT US INC. DID NOT UNDERTAKE ANY BUSINESS ACTIVITY OF ITS OWN AND WAS SOLELY ENGAGED IN THE MANAGEMENT OF THE DAY-TO-DAY AFFAIRS OF THE ASSESSE E COMPANY. FURTHER IT WOULD ALSO BE APPRECIATED THAT THESE SENIOR MANAGERIAL PE RSONNEL WOULD OTHERWISE HAVE BEEN ON THE ROLL OF THE ASSESSEE COMPANY AND T HE ENTIRE COST OF SUCH EMPLOYEES WOULD, IN ANY CASE, HAVE BEEN INCURRED BY THE ASSESSEE. IT IS RESPECTFULLY SUBMITTED THAT ALL FUNCTIONAL HE ADS OF THE ASSESSEE COMPANY ARE ON THE PAY ROLL OF ARICENT INC. USA, WHO PARTICIPAT E IN THE DAY-TO-DAY MANAGEMENT OF THE COMPANY AND UNDERTAKE MAJOR STRAT EGIC DECISIONS. THE CONCERNED DEPARTMENT IN INDIA ENGAGED IN THE VARIOU S OPERATIONS, REPORT TO THESE FUNCTIONAL HEADS FROM TIME TO TIME AND THE PE RFORMANCE OF THE COMPANY IS REVIEWED PERIODICALLY BY THE FUNCTIONAL HEADS. APA RT FROM PERFORMING MAJOR STRATEGIC MANAGEMENT FUNCTIONS, THESE KEY PERSONNEL ARE GUIDING THE OVERALL MANAGEMENT OF THEIR FUNCTIONAL AREAS: THE ASSESSEE HAS PLACED ON RECORDS, A COPY OF REPOR T DATED 12.2.2007 PREPARED BY AN INDEPENDENT CONSULTANT, VIZ. DELOITTE TAX LLP , USA DETAILING THE ADMINISTRATIVE SERVICES RENDERED BY ARICENT INC. US A AND EXPLAINING THE BASIS OF ALLOCATION OF COST AMONGST THE GROUP COMPANIES. TH E SERVICES RENDERED BY ARICENT USA INC. ARE EXPLAINED IN DETAIL IN THE REP ORT ISSUED BY DELOITTE TAX LLP, USA. IN ADDITION, THE ASSESSEE ALSO SUBMITTED VIDE LETTER DATED 17.9.2010, SOME OF THE COMMUNICATIONS TO DEMONSTRATE THE SERVI CES RENDERED BY THE AE. 10 ITA NO.5550/DEL/2011 IT WOULD ALSO BE APPRECIATED THAT AS PER THE COST S HARING AGREEMENT BETWEEN THE ASSESSEE AND THE AE, ARICENT USA, THE CORPORATE CHA RGES IS CALCULATED ON ACTUAL BASIS ONLY EXPECT FOR PERSONNEL RELATED EXPENSES ON WHICH THE AE CHARGES 10% MARK-UP OF THE COST. THE RELEVANT EXTRACT OF COST SHARING AGREEMENT IS REPRODUCED HEREUNDER: 4 ALLOCATION OF COSTS 4.1 THE RECIPIENT AGREES TO SHARE THE COSTS AS UNDE R; A ALL ACTUAL COSTS OTHER THAN THOSE REFERRED TO IN SUB-CLAUSE (B) BELOW RELATING TO ACCOUNTING AND FINANCE, EXECUTIVE MANAG EMENT, TAX, LEGAL, TREASURY AND CORPORATE MARKETING SERVICES SHALL BE SHARED ON THE BASIS OF SALES FOR THE RELEVANT PERIOD/QUARTER OF THE PARTICIPANTS. B ALL COSTS ON PERSONNEL RELATED EXPENSES VIZ, SALA RIES AND BENEFITS INCURRED BY ARICENT IN PROVIDING THE ACCOUNTING AND FINANCE, EXECUTIVE MANAGEMENT, TAX, LEGAL TREASURY AND CORPORATE MARKE TING SERVICES WOULD BE SHARED ON THE BASIS OF SALES PLUS A MARKUP OF 10% O F SUCH COSTS. C INSURANCE COSTS RELATEABLE TO A PARTICULAR GEOGRA PHICAL AREA SHALL BE ALLOCATED TO THAT AREA AND THEN SHARED BETWEEN ALL PARTICIPANTS LOCATED IN THAT AREA ON THE BASIS OF SALES. THE COSTS NOT IDENTIFI ABLE TO ANY PARTICULAR AREA SHALL BE SHARED ON THE BASIS OF SALES OF THE PARTICIPANTS . COST SPECIFICALLY IDENTIFIABLE TO THE RECIPIENT WILL BE CHARGED ONLY TO THE RECIPI ENT. IT WOULD BE APPRECIATED FROM THE COST SHARING AGREE MENT, THAT THE AE IS CHARGING A NOMINAL AMOUNT OF MARKUP FORM THE ASSESS EE AND FURTHER ONLY FROM THE EMPLOYEE COST. ON THE OTHER SIDE, THE ASSESSEE IS AVAILING WIDE RANGE OF EXPERT MANAGERIAL AND ADMINISTRATIVE SERVICES FROM THE AE ON A COST SHARING BASIS, AS THE ACTUAL COST IS SHARED BETWEEN A NUMBE R OF SUBSIDIARY COMPANIES OF ARICENT, USA. FURTHER, A COPY OF INCOME STATEMENT OF AE I.E. ARIC ENT, USA, ALSO CLEARLY STATES THAT THE INCOME PROFIT OF THE COMPANY COMPROMISES O NLY THE MARK-UP EARNED ABOVE THE SERVICES RENDERS BY IT TO ITS GROUP COMPA NIES AND THAT TOO AT A REASONABLE MARGIN AS CALCULATED IN THE REPORT OF IN DEPENDENT CONSULTANT VIZ., DELLOITE TAX LLP, USA. II) BENEFIT TO THE ASSESSEE FROM CORPORATE SERVICE S RENDERED BY THE AE IT WOULD ALSO BE APPRECIATED THAT MORE THAN40% BUSI NESS COMES FROM US, SO MANAGEMENT TEAM BEING IN US AND NOT IN INDIA IS CLO SER TO THE CUSTOMER LOCATION THEREBY RESULTING IN BETTER RELATIONSHIP F OR CUSTOMERS OF THE ASSESSEE COMPANY. IT WOULD FURTHER BE NOTED THAT DURING THE RELEVANT PREVIOUS YEAR THE TOTAL REVENUE OF THE ASSESSEE INCREASED TO RS. 871,78,93,100/- FR OM RS. 635,03,17,939/- IN THE PRECEDING PREVIOUS YEAR GIVING AN INCLINATION OF 37 % IN A SHORT SPAN OF TIME. CONSEQUENTLY, THE NET PROFIT MARGIN INCREASED TO RS . 182,36,16,055/- FROM RS. 148,62,48,823/- IN THE PRECEDING PREVIOUS YEAR SHOW ING AN EFFECT OF 23% APPROX. FURTHER, IT WOULD BE APPRECIATED THAT THE ASSESSEE COMPANY, A SOFTWARE DEVELOPMENT SERVICE, PROVIDER, HAS ITS OPERATIONS I N 11 COUNTRIES THROUGH 9 BRANCHES AND 32 SUBSIDIARY COMPANIES. FURTHER, CUS TOMERS OF THE ASSESSEE COMPANY WERE SCATTERED IN 30 COUNTRIES. THE ASSESS EE COMPANY, IT IS REITERATED, AS PART OF THE ARICENT GROUP, IS PROJECTED AS GLOBA L SOFTWARE DEVELOPMENT SERVICES PROVIDER IN THE COMMUNICATIONS DOMAIN INCL UDING TELECOM. IN VIEW OF 11 ITA NO.5550/DEL/2011 THE GLOBAL CUSTOMER BASE AND WIDE FUNCTIONS OF ENGI NEERING SOFTWARE SERVICES, IT WAS IMPERATIVE FOR THE ASSESSEE COMPANY TO STRUCTUR E ITS GLOBAL OPERATION UNDER THE CENTRALIZED MANAGEMENT TEAM LOOKING AFTER ITS A FFAIRS III) COMMERCIAL AND BUSINESS EXPEDIENCY OF INCURRIN G ANY EXPENDITURE IT IS RESPECTFULLY SUBMITTED THAT THERE IS NO BAR U NDER THE ACT TO HAVE TRANSACTIONS WITH THE GROUP COMPANIES. THE ASSESSEE IS FREE TO CONDUCT BUSINESS IN THE MANNER MOST SUITABLE TO IT AND THE COMMERCIAL OR BU SINESS EXPEDIENCY OF INCURRING ANY EXPENDITURE IS TO BE SEEN FROM THE AS SESSEES POINT OF VIEW. RELIANCE WAS DRAWN ON THE FOLLOWING JUDGMENTS: - J K WOOLEN MANUFACTURERS VS. CIT 72 ITR 612 (SC) - CIT VS. DALMIA CEMENT (P) LTD. 254 ITR 377 (DEL) - CIT VS. PADMANI PACKAGING (P) LTD. 155 TAXMANN 268 (DEL) - S.A. BUILDERS LTD. VS. CIT 288 ITR 1 (SC) - UOI VS. AZADI BACHAO ANDOLAN 263 ITR 706 (SC) IV) NO APPLICATION OF TRANSFER PRICING METHOD BY TH E TPO IT IS SUBMITTED THAT THE EXPENDITURE ON PAYMENT OF ADMINISTRATIVE/ CORPORATE FEE OF RS. 89,640,636 WERE INCURRED BY THE ASSESSEE, IN THE COURSE OF ITS BUSINESS OF PROVISION OF SOFTWARE DEVELOPMENT. IN CONSIDERATION OF THE ADMINISTRATIVE AND MARKETING SERVICES RENDERED TO THE ASSESSEE COMPANY , ARICENT, USA CHARGED A CORPORATE FEE CALCULATED ON ACTUAL PLUS 10% MARK-UP . THE SAID TRANSACTION WAS BENCH MARKED BY THE ASSESSEE APPLYING TNMM AS THE M OST APPROPRIATE METHOD AND OP/TC AS THE PLI. THE OP/TC MARGIN OF THE ASSES SEE IS 27.01% AGAINST THE AVERAGE OF OP/TC OF 28 COMPARABLES USING CURRENT YE AR DATA AT 13.69%. HOWEVER, IN THE PRESENT CASE, THE TPO DISALLOWED TH E PAYMENT OF THE CORPORATE CHARGES ON AD HOC BASIS WITHOUT APPLYING ANY OF THE PRESCRIBED METHOD FOR BENCHMARKING THE AFORESAID INTERNATIONAL TRANSACTIO N . RELIANCE IS ALSO PLACED ON THE DECISION OF MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF CA COMPUTER ASSOCIATED PVT. LTD. VS. DCIT ( ITA NOS. 5420 AND 5421/MUM/2006), WHEREIN, WHILE DELETING THE ADJUSTM ENT MADE BY THE TPO BY HOLDING PAYMENT OF ROYALTY TO BE UNJUSTIFIED, THE H ONBLE TRIBUNAL HELD AS UNDER: 8. THE MANNER IN WHICH THE A.L.P IS TO BE DETERMIN ED BY ANY OF THE METHOD PRESCRIBED IN SEC. 92C IN PROVIDED IN RULE 10B OF T HE I.T. RULES, 2961. AFTER EXAMINING THE PARAMETERS PRESCRIBED IN RULE 10B, IT CAN BE SEEN THAT BAD DEBTS WRITTEN OFF CANNOT BE FACTOR TO DETERMINE THE ARMS LENGTH PRICE OF ANY INTERNATIONAL TRANSACTION. IN OUR OPINION, THE TPO HAS EXCEEDED HIS LIMITATION BY FOLLOWING THE METHOD WHICH IS NOT AUTHORIZED UNDER THE ACT OR RULES. WE, THEREFORE, HOLD THAT THE ARMS LENGTH PRICE DETERMI NED BY THE TPO AND ADOPTED BY THE ASSESSING OFFICER TO THE EXTENT OF ROYALTY P AYABLE T THE CA INC MANAGEMENT, USA IS NOT AS PER THE PROCEDURE PRESCRI BED AND SAME CANNOT BE SUSTAINED. WE, THERE, DIRECT THE ASSESSING OFFICER TO ADOPT THE ARMS LENGTH PRICE OF THE ROYALTY PAYABLE TO CA INC MANAGEMENT, USA AS DECLARED BY THE ASSESSEE IN BOTH THE YEAR. THEREFORE, IT IS SUBMITTED THAT, AS PER THE TRANSFE R PRICING REGULATION, THE MANDATE FOR THE TPO IS TO DETERMINE THE ARMS LENGT H PRICE OF THE INTERNATIONAL TRANSACTION APPLYING THE MOST APPROPRIATE METHOD OF THE FIVE METHODS PRESCRIBED UNDER REGULATION. IN OTHER WORDS, UNDER THE TRANSFE R PRICING REGULATIONS, THE TPO IS REQUIRED TO DETERMINE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION CONSIDERING THAT SUCH TRANSACTION HAS A CTUALLY BEEN UNDERTAKEN BY THE ASSESSEE. 12 ITA NO.5550/DEL/2011 IN THE PRESENT CASE THE TPO DISALLOWED THE PAYMENT OF THE CORPORATE CHARGE AN AD HOC BASIS WITHOUT APPLYING PROPERLY METHOD FOR B ENCHMARKING THE AFORESAID INTERNATIONAL TRANSACTION. THE BENCHMARKING OF SHARE OF ADMINISTRATIVE EXPENSE S, THEREFORE, IS TO BE UNDERTAKEN WITHIN THE AFORESAID FRAMEWORK OF THE TR ANSFER PRICING REGULATION, IN INDIA. IN OTHER WORDS, THE BENCHMARKING ANALYSIS OF THE SHARE ADMINISTRATIVE EXPENSES SHOULD BE UNDER TAKEN AFTER APPLYING ANY O F THE FIVE PRESCRIBED METHODS. IN IS FURTHER SUBMITTED THAT THE ASSESSEE HAS APPLI ED TRANSACTIONAL NET MARGIN METHOD (TNMM) FOR DETERMINING THE ARMS LENGTH PRIC E OF PAYMENT OF TO ARICENT INC., USA, BEING THE MOST APPROPRIATE METHOD IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AFORESAID PAYMENTS AR E ESTABLISHED TO BE ARMS LENGTH APPLYING SUCH MOST APPROPRIATE METHOD. I) PAYMENT OF ADMINISTRATIVE/CORPORATE FEES TO BE B ENCHMARKED AGGREGATING IT WITH CLOSELY LINKED TRANSACTIONS IN THIS REGARD, IT WOULD BE APPRECIATED THAT ARICEN T USA CHARGED A SHARE OF ADMINISTRATIVE EXPENSES AS CORPORATE CHARGES FROM T HE ASSESSEE ONLY ON ACTUAL BASIS PLUS 10% MARK UP AND THE ASSESSEE IS MAKING SUCH PAYMENT IN LIEU OF RECEIVING A WIDE SCOPE OF SERVICES FROM ARICENT, US A. THE ALL SUCH SERVICES AS RENDERED BY ARICNET USA IS A NECESSARY EXPENSE FOR THE BUSINESS OF ASSESSEE FOR DEVELOPMENT OF COMPUTER SOFTWARE PRODUCTS. THE OECD GUIDELINES PROVIDE THAT IN ORDER TO ARRIVE AT THE MOST PRECISE APPROXIMATION OF FAIR MARKET VALUE, THE ARMS LENGT H PRINCIPLE SHOULD, IDEALLY BE APPLIED ON A TRANSACTION- BY- TRANSACTION BASIS. HO WEVER, THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTION ARE SO CLOSEL Y LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE B ASIS. VII) ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE CAN NOT EXCEED THE MAXIMUM ARMS LENGTH PRICE IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSEE HAS PAID MARKUP OF 10% ONLY ON SALARY COST AND NO MARK UP HAS BEEN PAID ON OTHER E XPENSES. THE AFORESAID MARKUP OF 10% ON THE SALARY COST HAS BEEN PAID IN T ERMS OF BENCHMARKING ANALYSIS UNDERTAKEN BY THE CONSULTANT HAVING REGARD TO US TRANSFER PRICING REGULATIONS. THE ALLOCATION OF COST AMONGST THE GROUP COMPANIES FROM ARICENT US INC. IS AS UNDER: ALLOCATED EXPENSES (US$) MARK UP (US$) ALLOCATED AMOUNT (US$) FSS 19,41,565 1,20,799 20,62,364 FUTURESOFT INDA 1,56,090 9,712 1,65,802 SSH MAURITIUS 83,241 5,179 88,420 SWS AZISA 27,750 1,727 29,477 SFT CYPRUS -- -- -- FROG GERMANY 56,592 3,521 60,113 FROG ITALY 7,350 457 7,807 AVNISOFT 10,745 669 11,414 SWS EMUZED 1,13,389 7,055 1,20,444 FROG US 4,20,895 26,187 4,47,082 13 ITA NO.5550/DEL/2011 28,17,617 1,75,305 29,92,922 USD INR ALLOCATED EXPENSES 19,41,565 8,43,90,108 MARK UP 1,20,799 52,50,528 TOTAL AMOUNT 20,62,364 8,96,40,636 RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS: - GLOBAL VANTEDGE (P) LTD. VS. DCIT ITA NO. 2763 AND 2764/D/2009 (DEL) - KYUNGSHIN INDUSTRIAL MOTHERSON LTD. VS. DCIT ITA NN O. 1396/D/2009 WITHOUT PREJUDICE, IN THE CASE OF THE ASSESSEE SINC E THE ASSOCIATED ENTERPRISE EARN/RETAINED ONLY USD 120799 EQUIVALENT TO RS. 52, 50,528/- IN RESPECT OF INTERNATIONAL TRANSACTIONS OF ALLOCATION OF COST FO R THE ADMINISTRATIVE SERVICES, IN TERMS OF THE AFORESAID DECISION OF THE HONBLE TRIB UNAL, THE ADJUSTMENT ON ACCOUNT OF THE DIFFERENCE IN THE ARMS LENGTH PRICE OF SUCH INTERNATIONAL TRANSACTIONS AT BEST IS TO BE RESTRICTED TO RS.52,5 0,528 11. THE DRP HOWEVER REJECTED THE CLAIM OF THE APPEL LANT ON THE FOLLOWING BASIS: THE DRP HAS CONSIDERED ALL THE OBJECTION IN TOTALI TY. FOR ACCEPTING PAYMENTS RELATING TO INTRA GROUP COSTS, CERTAIN CON DITIONS MUST BE FULFILLED. THE DRP HAS PERUSED THE SUBMISSION MADE DURING THE HEARING AND TPOS CONCLUSIONS. WE FIND THAT THESE PAYMENTS HAVE BEEN EVALUATED ON FOUR BROAD PARAMETERS VIZ. 1 EVIDENCE THAT SERVICES HAVE BEEN RENDERED 2 WHETHER THE ASSESSEE HAS BENEFITTED FROM THEM 3 ARE THEY DUPLICATE IN NATURE 4 WHETHER THE ASSESSEE WOULD HAVE PAID THE SAME CHA RGES TO AN UNRELATED PARTY ON ALL FOUR GROUNDS WE FIND THAT THE ASSESSEE HAS N OT BEEN ABLE TO ESTABLISH ITS CASE AND THUS FIND NO REASON TO DISTU RB THE ORDER OF TPO. THE OBJECTIONS ARE REJECTED. 12. BEFORE US DURING THE COURSE OF HEARING THE LEAR NED COUNSEL MOVED AN APPLICATION FOR ADMISSION OF ADDITIONAL EV IDENCE IN TERMS OF RULE 29 OF THE INCOME TAX RULES 1963 WHEREIN IT HAS BEEN STATED AS UNDER: 14 ITA NO.5550/DEL/2011 IN THIS REGARD, THE ASSESSEE SEEKS TO PLACE ON REC ORD THE FOLLOWING BY WAY OF ADDITIONAL EVIDENCES: 1. AFFIDAVIT OF MR. RICHARD KATZ, VICE PRESIDENT FINANCE, ARICENT GROUP DECLARING THE WORK PERFORMED BY HIM D URING THE YEAR 2007-08 FOR THE ASSESSEE- ANNEXURE-1 2. AFFIDAVIT OF MR. LYDIA BROWN, VICE PRESIDENT G LOBAL CONTROLLER FINANCE DECLARING THE WORK PERFORMED BY HIM DURING THE YEAR 2007-08 FOR THE ASSESSEE ANNEXURE-II 3. AFFIDAVIT OF MR. ERIC D BUHRFEIND, SENIOR VICE P RESIDENT HUMAN RESOURCES, ARICENT GROUP DECLARING THE WORK P ERFORMED BY HIM DURING THE YEAR 2007-08 FOR THE ASSESSEE ANNE XURE-III 4. AFFIDAVIT OF MR. AMIT SHASHANK, EXECUTIVE VICE P RESIDENT LEGAL, ARICENT GROUP DECLARING THE WORK PERFORMED B Y HIM DURING THE YEAR 2007-08 FOR THE ASSESSEE ANNEXURE-IV IT IS RESPECTFULLY SUBMITTED IN THIS REGARD AS UNDE R:- ARICENT US INC. WAS FORMED IN AUGUST 2006 TO BE THE PARENT AND HOLDING COMPANY FOR A NUMBER OF OPERATING ENTITIES THAT WERE THEN OWNED BY FLEXTRONICS INTERNATIONAL LTD. AND WERE IN THE PROCESS OF BEING SOLD TO A PRIVATE EQUITY CONSORTIUM COMPOSED OF KKR AND SEQUOIA CAPITAL. ARICENT US INC., IT IS SUBMITTED, WAS FORMED WHOLLY FOR THE PURPOSE OF MANAGING BUSINESS OF GROUP OPERA TING ENTITIES, WHICH WERE ENGAGED IN THE BUSINESS OF SOFTWARE ENGI NEERING DEVELOPMENT AND CONSULTING AND THE SELLING AND MARK ETING THEREOF. THE OPERATING COMPANIES WERE LOCATED IN A NUMBER OF COUNTRIES THROUGHOUT THE WORLD, WITH INDIA AND THE UNITED STA TES BEING THE LARGEST JURISDICTION. THE SALE OF THE OPERATING ENT ITIES WAS EFFECTIVE AS OF SEPTEMBER 1, 2006. KKR AND SEQUOIA CAPITAL HOLD THEIR RESPECTIVE OWNERSHIP STAKES DIRECTLY IN ARICENT INC . AND THE OPERATING ENTITIES ARE STRUCTURED AS WHOLLY- OWNED SUBSIDIARIES INCLUDE ARICENT NOMENCLATURE. THESE INDIRECT WHOLLY OWNED SUBSIDIARIES INCLUDE ARICENT TECHNOLOGIES (HOLDINGS ) LTD (ATHL OR ASSESSEE INDIA), ARICENT TECHNOLOGIES (BEIJI NG) LTD, ARICENT JAPAN LTD., ARICENT SOUTH AFRICA (PTY) LTD., ARICEN T UKRAINE LTD., ARICENT UK LTD., ARICENT COMMUNICATIONS US, ARICENT TECHNOLOGIES US, ARICENT COMMUNICATIONS PRIVATE LTD(INDIA) AND IN SUBSEQUENT YEARS ALSO INCLUDED ARICENT MEXICO, ARICENT TECHNOL OGIES UK, ARICENT TECHNOLOGIES DENMARK APS, AND DATALINX CORP ORATION (US) (COLLECTIVELY, OPERATING SUBSIDIARIES). THE MAJOR ITY OF THESE 15 ITA NO.5550/DEL/2011 OPERATING SUBSIDIARIES EMPLOY SOFTWARE ENGINEERS SK ILLED IN THE AREA OF TELECOMMUNICATIONS AS WELL AS SELLING AND MARKET ING PERSONNEL. EACH OF THE ENTITIES RESPECTIVE CHARTERS IS TO PRO VIDE SOFTWARE ENGINEERING AND CONSULTING SERVICE CHATTERS IS TO P ROVIDE SOFTWARE ENGINEERING AND CONSULTING SERVICES TO TIER ONE GLO BAL EQUIPMENT MANUFACTURERS, DEVICE MANUFACTURERS AND/ OR SERVICE PROVIDERS. HOWEVER, POST THE SALE OF THE OPERATING SUBSIDIARIE S, ARICENT US INCS GOAL, WAS TO CENTRALIZE THESE OPERATING SUBSI DIARIES UNDER ONE ORGANIZATIONAL CHARTER HEADED BY A MANAGEMENT TEAM PRIMARILY LOCATED IN THE US. THIS RESTRUCTURING WAS UNDERTAKE N TO PROVIDE TO A GLOBAL CUSTOMER BASE ENGAGED IN THE COMMUNICATIONS SECTOR A COMPELLING VALUE PROPOSITION AS UNDER: A) AN EXPERIENCED MANAGEMENT TEAM BASED IN THE US, B) A WIDE OFFERING OF ENGINEERING SOFTWARE SERVICES GI VEN THE COMBINED OFFERING OF SKILLS PROVIDED BY EACH OPERAT ING SUBSIDIARY, C) THE SCALE OF RESOURCES, AND D) THE CHOICE OF A VARIETY OF LOCATIONS AROUND THE WOR LD (LOW- COST AND/ OR NEAR SHORE AT WHICH SERVICES COULD BE PERFORMED FOR CUSTOMERS) CONSEQUENTLY, THE US ASSOCIATED ENTERPRISE, VIZ. AR ICENT INC. USA WAS FORMED ON 1 ST SEPTEMBER, 2006 FOR THE PROVIDING FOLLOWING CORPORATE MANAGEMENT SUPPORT SERVICES TO THE GROUP COMPANIES INCLUDING THE ASSESSEE: I) BUSINESS DEVELOPMENT SERVICES: II) CORPORATE MANAGEMENT SERVICES III) FINANCE SERVICES: IV) HR SERVICES: V) IT SERVICES: VI) LEGAL SERVICES: VII) MARKETING SERVICES: VIII) SALES SUPPORT SERVICES: IT IS RESPECTFULLY SUBMITTED THAT, ARICENT USA HAS THE CEO,CFO, GENERAL COUNSEL, VP OF WORLDWIDE SALES, VP OF MARKE TING, TREASURE, VP OF BUSINESS DEVELOPMENT, VP OF IT ON I TS PAYROLL WHO ARE ENGAGED IN FOR PROVISION OF SUCH SERVICES. THE EXECUTIVES IN INDIA ARE, IN TURN, THE VICE PRESIDENTS FOR THE VARIOUS D EPARTMENTS/ FUNCTIONS WHICH WERE REPORTING TO THESE FUNCTIONAL HEADS. 16 ITA NO.5550/DEL/2011 THE TPO, HOWEVER, CONCLUDED THAT THERE WAS NO EVIDE NCE FOR RENDERING OF SUCH MANAGEMENT SUPPORT SERVICES BY TH E ASSOCIATED ENTERPRISES TO THE ASSESSEE AND AN INDEPENDENT PART Y WOULD NOT HAVE MADE SUCH A PAYMENT IN AN ARMS LENGTH SITUATION. T HE TPO, ACCORDINGLY, APPLYING CUP METHOD DETERMINED THE ARM S LENGTH PRICE OF MARKETING SUPPORT SERVICE AS NIL AND ACCOR DINGLY THE INCOME OF THE ASSESSEE WAS ADJUSTED BY A SUM OF RS. 8,96,40,636. IN ORDER TO REBUT THE AFORESAID CONCLUSION ARRIVED AT BY THE TPO, THE ASSESSEE BY WAY OF ADDITIONAL EVIDENCE HAS SOUGHT T O PLACE ON RECORD AFFIDAVIT OF THE SENIOR MANAGEMENT OF AICENT GROUP NAMELY MR. RICHARD KATZ, MR. LYDIA BROWN, MR. ERIC D BUHRFEIND AND MR. AMIT SHASHANK AFFIRMING AND DECLARING WORK DONE BY THEM PURSUANT TO THE AGREEMENT BETWEEN THE ASSESSEE AND THE ASSOCIATED E NTERPRISE I.E. ARICENT US INC. FROM PERUSAL OF THE AFFIDAVITS, IT WOULD BE NOTED THAT, FOLLOWING SERVICES WERE RENDERED BY THEM TO T HE ASSESSEE: A) REVIEWING BUDGETS AND VARIANCE ANALYSIS; B) PROPOSE COST- OPTIMIZATION STRATEGIES AND TARGETS; C) REVIEWING CASH POSITION AND ENSURE THAT THERE IS NO DISRUPTION IN OPERATIONS, D) RESPONSIBLE FOR CURRENCY HEDGING AND RISK POSITIONS E) REVIEWING ALL MATERIAL EXPENDITURE BY FINANCE, IT, ADMINISTRATION AND PROCUREMENT FUNCTIONS; F) PARTICIPATE IN ALL STRATEGIC DISCUSSIONS AND DECISI ONS FOR THE GROUP; G) REVIEWING FINANCIAL ANALYSIS, ACCOUNTING, PROFITABI LITY AND FINANCIAL RATIOS; H) EXPLORE AREAS OF FOCUS WITH INTERNAL AUDITORS FOR A RICENT INDIA AND PREPARE ACTION PLAN BASED ON THE FINDINGS IN TH E INTERNAL AUDIT REPORT; I) OVERSEEING ACTIVITIES OF SHARED SERVICES GROUP, WHI CH IS POOL OF RESOURCES RESPONSIBLE FOR EXPENSES BOOKING, ACCO UNTS PAYABLE, FIXED ASSETS ACCOUNTING, AUDITING, FINANCIAL REPORT ING, REVENUE RECOGNITION ETC. J) ENSURING IMPLEMENTATION OF FINANCIAL POLICIES FOR A RICENT INDIA; K) OVERSEEING FINANCIAL PROCESSES, REVIEWING AND APPRO VING ANY EXCEPTIONS TO THE POLICY; AND L) OVERSEEING STATUTORY COMPLIANCES. FROM PERUSAL OF THE AFFIDAVIT, IT WOULD BE APPRECIA TED THAT THE ASSOCIATED ENTERPRISE HAS PROVIDED WIDE SPECTRUM OF CORPORATE 17 ITA NO.5550/DEL/2011 MANAGEMENT AND STRATEGIC SERVICES TO THE ASSESSEE. ON THE BASIS OF SUCH AFFIDAVITS, IT WOULD BE APPRECIATED THAT THE A SSESSEE HAS RECEIVED SERVICES FROM THE ASSOCIATED ENTERPRISE IN TERM OF MANAGEMENT SUPPORT SERVICES AGREEMENT ENTERED BETWE EN THE PARTIES AND THE ALLEGED FINDING OF THE TPO THAT THERE WAS N O EVIDENCE OF RECEIPT OF SUCH SERVICES BY THE ASSESSEE DOES NOT H OLD GOOD. THE AFORESAID AFFIDAVIT OF THE KEY MANAGERIAL PERSO NNEL, ON THE PAY ROLL OF ARICENT INC., USA, IS BEING PLACED ON RECOR D BY WAY OF ADDITIONAL EVIDENCE IN ORDER TO REBUT THE FINDING O F THE TPO AND TO DEMONSTRATE THAT FACTS THAT THE ENTIRE ACTIVITIES O F SUCH INDIVIDUALS BASED IN US, WERE DEVOTED TO BUSINESS OPERATION OF THE ASSESSEE IN INDIA. IT WOULD BE APPRECIATED THAT THE ASSESSEE IN ORDER TO REBUT THE FINDING OF THE ASSESSING OFFICER/ TPO AND TO SUPPOR T THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION OF PAYMENT OF CO RPORATE CHARGES TO THE ASSOCIATED ENTERPRISE HAS COLLECTED THE AFORESA ID ADDITIONAL EVIDENCE FROM ITS ASSOCIATED ENTERPRISE, WHICH IS N OW PLACED BEFORE THE HONBLE PANEL BY WAY OF ADDITIONAL EVIDENCE. PRAYER: IT IS RESPECTFULLY SUBMITTED THAT IF SUBSEQUENT EVE NTS OCCUR, THE APPELLATE AUTHORITY HAS TO EXAMINE AND EVALUATE THE SAME AND MOULD THE RELIEF ACCORDINGLY (REF. PASUPULETI VENKATESWAR LU VS. THE MOTOR & GENERAL TRADERS. AIR 1975 SC 1409). RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE HIGH COURT IN THE MATTER OF TEXT HUNDRED INDIA PVT. LTD. VS. CIT (ITA NO. 2077, 2061 AND 2065/2010), WHEREIN THE PLEA FOR ADMISSION OF A DDITIONAL EVIDENCE BEFORE THE TRIBUNAL WAS ACCEPTED BY THE HO NBLE HIGH COURT. YOUR HONOURS ATTENTION IS ALSO INVITED TO THE DECI SION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF UCB INDIA PVT. LTD. VS. ACIT, CIRCLE 7(3), MUMBAI, 121 ITD 131, WHEREIN IT IS HEL D AS UNDER: ATTENTION IS FURTHER INVITED TO THE DECISION OF THE HONBLE TRIBUNAL IN THE CASE OF NIT LTD. VS. ACIT: (ITA NO. 1871/DEL/20 09) WHEREIN THE FRESH SEARCH SUBMITTED BY THE ASSESSEE EVEN BEFORE THE TRIBUNAL WAS ACCEPTED. 18 ITA NO.5550/DEL/2011 IT IS RESPECTFULLY SUBMITTED THAT THE AFORESAID ADD ITIONAL EVIDENCES SOUGHT TO BE PLACED ON RECORD IN THE FORM OF AFFIDA VITS, HAVE BEARING ON TRANSFER PRICING DISPUTE INVOLVED. IN ORDER TO C OMPLY WITH THE PRINCIPLES OF NATURAL JUSTICES AND AFFORDING THE AS SESSEE TO DEFEND/ REPRESENT HIS CASE, IT IS RESPECTFULLY PRAYED THAT THE ADDITIONAL EVIDENCE IN QUESTION CALLED FOR BEING ADMITTED IN T ERMS OF RULE 29 OF THE INCOME TAX APPELLATE TRIBUNAL RULES AND TAKEN INTO CONSIDERATION WHILE ADJUDICATING AFORESAID GROUNDS OF APPEALS. 13. IT IS SUBMITTED THAT THE LEARNED AR FURTHER SUB MITTED IDENTICAL WAS A SITUATION IN THE CASE OF HUGHES SYSTIQUE INDI A (P) LTD. ITA NO. 5420/D/2011 AND 6057/D/2012 A.YS 2007-08 AND 2008-0 9 WHEREIN TOO ADDITIONAL EVIDENCE WAS FILED AND SUCH WAS ADMI TTED THEREAFTER ISSUE WAS RESTORE TO THE FILE OF AO FOR FRESH CONSI DERATION. 15. WE HAVE CONSIDERED THE SUBMISSION AND PERUSED TH E MATERIAL PLACED ON RECORD. A COORDINATE BENCH OF THE TRIBU NAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE IN THE CASE OF HUGHE S SYSTIQUE INDIA (P) LTD. VS. ACIT IN ITA NO. 5420/D/2011 AND 6057/D/201 2 A.Y. 2007- 08 AND 2008-09 DATED 5.7.2013 HAD ADMITTED ADDITION AL EVIDENCE AND HELD AS UNDER: 14. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. FIRSTLY, WE SHOULD ADJUDICATE WHETHER THE ADDITIONAL EVIDENCE SHOULD BE ADMITTED OR NOT. THE CLAIM OF THE ASSESSEE IS THAT THESE DOCUMENTS CAME IN ITS POSSES SION AFTER THE ASSESSMENT. IN OUR VIEW, THE ASPECT OF APPLICABILIT Y OF CUP METHOD 19 ITA NO.5550/DEL/2011 HAS NOT BEEN PROPERLY DEALT WITH BY DRP AND TPO ALS O DID NOT CONSIDER CUP METHOD FOR BENCH MARKING OF INTERNATIO NAL TRANSACTION. AS THE FACTS EMERGE, THE ORDER OF DRP DOES NOT THROW EFFECTIVE LIGHT TO REJECT THE ASSESSEES CUP METHOD . THE PLEA OF THE ASSESSEE IS THAT THE DOCUMENTS HAVE BEEN SUBSEQUENT LY PROCURED AND ARE NECESSARY FOR PROPER ASCERTAINMENT OF T.P. ADJU STMENT. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT ASSESS EES APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE DESERVES TO BE ADMITTED. THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE AS THESE DOCUMENTS COULD NOT BE PROCURED BEFORE THE ASSESSMENT PROCEEDINGS. AFTER HAVING ADMITTED THE ADDITIONAL EVIDENCE, THE QUESTION BEFO RE US IS WHETHER TO CONSIDER THE ADDITIONAL EVIDENCE AT OUR LEVEL OR SE ND IT BACK TO TPO FOR CONSIDERATION OF THIS MATERIAL AND DECIDE THE I SSUE AFRESH. ON THIS SCORE, WE FIND MERIT IN THE ALTERNATE PLEA RAISED B Y LD. CIT(DR) THAT IN THIS EVENTUALITY THE ISSUE ABOUT T.P. ADJUSTMENT S SHOULD BE RESTORED BACK TO THE FILE OF TPO. ASSESSEE HAS NO O BJECTION ON THAT. IN VIEW THEREOF, WE SET ASIDE GROUND NOS. 2 & 3 ABO VE IN RESPECT OF T.P. ADJUSTMENTS FOR BOTH THE YEARS BACK TO THE FIL E OF TPO TO DECIDE THE ISSUES AFRESH AFTER GIVING THE ASSESSEE AN OPPO RTUNITY OF BEING HEARD AND GIVE PROPER REASONS IF THE CUP METHOD IS PROPOSED TO BE NOT CONSIDERED. 16. ACCORDINGLY WE SET ASIDE THE ISSUE IN RESPECT O F TP ADJUSTMENT TO THE FILE OF TPO FOR DENOVO ADJUDICATION. NEEDLE SS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY O F BEING HEARD IN SUCH PROCEEDINGS. THUS GROUNDS RAISED ARE THEREFOR E ALLOWED FOR STATISTICAL PURPOSES. 17. GROUND NO. 3 TO 3 RELATE TO DISALLOWANCE OF PRO JECT EXPENSES AMOUNTING TO RS.39,15,46,619/- BY HOLDING THE SAME TO BE CAPITAL EXPENDITURE. 20 ITA NO.5550/DEL/2011 18. THE AO HAS NOTED THAT APPELLANT VIDE LETTER DAT ED 17.11.2010 SUBMITTED THAT AFORESAID EXPENDITURE WAS INCURRED O N VARIOUS SOFTWARE DEVELOPMENT PROJECTS AND, WAS NOT INCURRED FOR ACQU ISITION OF ANY CAPITAL ASSET OF AN ENDURING BENEFIT TO THE APPELLA NT. IT WAS STATED THAT EXPENSES ARE ROUTINE EXPENSES INCURRED IN THE COURS E OF BUSINESS. HOWEVER THE ASSESSING OFFICER HELD THAT SUCH AN EXP ENDITURE PERTAINS TO PROJECT WHICH ARE YET TO TAKE OFF AND, THEREFORE ARE TO BE CAPITALIZED. 19. BEFORE THE DRP, APPELLANT POINTED OUT THAT AFOR ESAID ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF ASSESSEE FOR ASSESSMENT YEAR 2003-04, 2004-05 AND 2006-07 AND, NO DISALLOWA NCE HAS BEEN MADE FOR ASSESSMENT YEAR 2005-06. THE DRP HOWEVER REJECTED THE OBJECTION ON THE BASIS THAT THE APPEAL FILED BY DEP ARTMENT BEFORE HIGH COURT HAS NOT ACQUIRED A LEGAL FINALITY. 20. HAVING CONSIDERED THE SUBMISSION, WE TAKE NOTE THAT COORDINATE BENCH IN THE CASE OF ASSESSEE IN ITA NO. 4699/DEL/2 010 A.Y. 2006- 07 BY AN ORDER DATED 21.1.2011 IN THE CASE OF APPEL LANT HAS HELD AS UNDER: 10. THE LAST ISSUE IS THAT THE AO ERRED IN MAKING DISALLOWANCE OF PROJECT EXPENSES AMOUNTING TO ` 1,93,12,834 HOLDING THE SAME TO BE CAPITAL EXPENDITURE INCURRED ON PROJECTS WHICH WERE YET TO TAKE OFF. IT HAS FURTHER BEEN URGED THAT ASSESSING OFFICER DID N OT APPRECIATE THAT 21 ITA NO.5550/DEL/2011 THE SAID PROJECT EXPENSES WERE ROUTINE EXPENDITURE INCURRED ON TRAINING IN THE COURSE OF CARRYING ON OF BUSINESS A ND ARE ALLOWABLE AS DEDUCTION. 11. ON THIS ISSUE, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS CLAIMED EXPENDITURE OF ` 1,93,12,834 ON ACCOUNT OF PROJECT EXPENSES. ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE CAPITALIZED. ASSESSEE SUBMITTED THAT COMPANY HAS INCURRED THE EXPENSES IN RESPECT OF VARIOUS SOFTWAR E DEVELOPMENT PROJECTS. SUCH EXPENSES WERE ROUTINE BUSINESS EXPEN SES INCURRED IN THE COURSE OF SOFTWARE BUSINESS. SUCH EXPENSES WERE NOT INCURRED FOR ACQUISITION OF ANY CAPITAL ASSET NOR RESULTED IN EN DURING BENEFIT OF CAPITAL FIELD TO BE RECORDED AS CAPITAL EXPENDITURE . THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE SUBMISSION. HE PRO CEEDED TO HOLD THE SAME TO BE CAPITAL EXPENDITURE AND DISALLOWED T HE SAME. 12. AGAINST THIS ORDER, ASSESSEE IS IN APPEAL BEFOR E US. 13. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORD. WE FIND THAT ASSESSEE VIDE ITS LETTER DATED NOVEMBER 6, 2009 SUB MITTED IN THE PAPER BOOK PAGE NO.229 AND DULY EXPLAINED THAT ` 1, 93,12,834 WAS IN RESPECT OF TRAINING OF VARIOUS PERSONNEL AND SUCH E XPENSES WERE ROUTINE EXPENSES INCURRED IN THE COURSE OF CARRYING ON SOFTWARE BUSINESS. IN THIS CONNECTION, ASSESSEE ALSO REFERRE D TO HON'BLE APEX COURT DECISION IN THE CASE OF EMPIRE JUTE MILLS, 22 4 ITR 1, AND SEVERAL OTHER CASE LAWS. WE HAVE CAREFULLY CONSIDER ED THE SUBMISSIONS. IT IS UNDISPUTED THAT THE AFORESAID AM OUNT WAS SPENT FOR TRAINING OF THE PERSONNEL. BY ANY STRETCH OF IMAGIN ATION, THESE EXPENSES CANNOT BE SAID TO HAVE RESULTED IN ENDURIN G BENEFIT TO BE CLASSIFIED AS CAPITAL EXPENDITURE. HENCE, WE SET AS IDE THE ORDER OF THE ASSESSING OFFICER ON THE ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 21. WE ALSO TAKE NOTE THAT IN THE CASE OF ASSESSEE F OR ASSESSMENT YEAR 2003-04 THE AO ALLOWED THE PROJECT EXPENSES AS REVENUE EXPENDITURE. HOWEVER CIT U/S 263 HELD THE SAME TO BE ERRONEOUS, WHICH ORDER WAS CANCELLED BY TRIBUNAL BY AN ORDER D ATED 16.1.2009 AND APPEAL FILED BEFORE HONBLE HIGH COURT BY REVEN UE ALSO STANDS 22 ITA NO.5550/DEL/2011 DISMISSED IN ORDER DATED 30.9.2011 IN ITA NO. 738/2 011. FURTHER, SLP FILED BY REVENUE BEFORE APEX COURT STANDS DISMI SSED. WE FURTHER NOTE THAT APPEAL FILED BY REVENUE BEFORE HO NBLE HIGH COURT IN ITA NO. 1071/2011 FOR ASSESSMENT YEAR 2006-07 STAND S DISMISSED BY ORDER DATED 20.12.2011. THUS RESPECTFULLY FOLLOWIN G THE ABOVE DECISIONS, WE ALLOW THE CLAIM OF THE APPELLANT AND DELETE THE DISALLOWANCE MADE IN THE ORDER. THE GROUNDS RAISED ARE ACCORDINGLY ALLOWED. 22. GROUNDS 4 TO 4.1 RELATE TO DISALLOWANCE OF DEDU CTION OF RS. 1,77,78,93,207/- UNDER SECTION 10B OF THE ACT. 23. THE FACTS IN BRIEF AS RELEVANT TO THE INSTANT Y EAR ARE THAT UNITS OF THE ASSESSEE COMPANY ARE SET UP IN SOFTWARE TECHNOL OGY PARK OF INDIA. THESE UNITS HAVE BEEN CLAIMING PROVISION UN DER SECTION 80HHE OF THE ACT AND FROM ASSESSMENT YEAR 2002-03 U NDER SECTION 10B OF THE ACT. THE AO FOLLOWING THE ORDER PASSED FOR ASSESSMENT YEAR 2003-04 GIVING EFFECT THE ORDER U/S 263 OF THE ACT PASSED BY THE COMMISSIONER OF INCOME TAX IN THAT YEAR HAS DENIED DEDUCTION U/S 10B OF THE ACT. IN THE SAID ORDER UNDER SECTION 26 3 OF THE ACT FOR ASSESSMENT YEAR 2003-04, DEDUCTION UNDER SECTION 10 B WAS DENIED ON 23 ITA NO.5550/DEL/2011 THE BASIS THAT SINCE THE ASSESSEE HAD CLAIMED DEDUC TION UNDER SECTION 80HHE FOR CERTAIN STPI UNITS, THE ASSESSEE WAS DEBA RRED FROM CLAIMING EXEMPTION UNDER SECTION 10B OF THE ACT IN THE ASSESSMENT YEAR 2003-04 OR ANY OTHER SUBSEQUENT ASSESSMENT YEA R(S) FOR OTHER STPI UNITS BY RELYING UPON THE PROVISIONS OF SUB-SE CTION (5) OF SECTION 80HHE OF THE ACT. 24. BEFORE DRP THE APPELLANT RELIED UPON THE JUDGME NT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. LE GATO SYSTEMS INDIA (P) LTD. VS. ITO 203 CTR 101 AND, DECISION OF TRIBU NAL IN THE CASE OF APPELLANT FOR ASSESSMENT YEAR 2003-04, 2004-05 AND 2006-07. THE DRP HOWEVER REJECTED THE OBJECTION ON THE GROUND TH AT APPEAL BEFORE HIGH COURT HAS NOT ACQUIRED LEGAL FINALITY. 25. HAVING CONSIDERED THE SUBMISSION, WE TAKE NOTE THAT IN THE CASE OF APPELLANT FOR ASSESSMENT YEAR 2006-07, IDENTICAL ISSUE WAS REMITTED TO THE FILED AO BY OBSERVING IN ORDER DATED 21.1.20 11 AS UNDER: 8. IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. LEGATO SYSTEMS INDIA PVT. LIMITED, 203 CTR 24 ITA NO.5550/DEL/2011 101 (DEL.). THE ORDER OF HON'BLE HIGH COURT IN THIS REGARD IS AS UNDER :- THE TRIBUNAL HAS RECORDED A FINDING OF FACT THAT T HE RESPONDENT ASSESSEE WAS NOT AN OLD UNIT ALREADY IN EXISTENCE SO AS TO BE DISENTITLED TO THE BENEFIT OF EXEMPTION UNDER S.10A OF THE IT ACT. IT HAS, ON THAT FINDING, REMIT TED THE MATTER BACK TO THE AO WITH THE FOLLOWING DIRECTIONS : WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW EXEMPTION UNDER S. 10A IN BOTH THE YEARS IN CASE THE ASSESSEE IS FOUND TO HAVE SATISFI ED ALL OTHER REQUISITES ENVISAGED IN THE SCHEME OF S. 10A OF THE ACT. IN CASE THE EXEMPTION UNDER S. 10A CANNOT BE ALLOWED F OR THE REASONS OF NOT SATISFYING THE REQUISITES, THE CLAIM OF DEDUCTION UNDER S. 80HHE SHALL BE ALLOWED AFTER PRO VIDING OPPORTUNITY TO MEET THE REQUISITES. 2. THE ABOVE D IRECTION IS, IN OUR VIEW, JUST AND PROPER HENCE DOES NOT CAL L FOR ANY INTERFERENCE ESPECIALLY WHEN THE QUESTION (WHETHER THE ASSESSEE) SATISFIES THE PRE-REQUISITES STIPULATED F OR THE PURPOSE OF GETTING BENEFIT UNDER S. 10A IS A MATTER LEFT TO BE DETERMINED BY THE AO. SO ALSO THE ENTITLEMENT OF TH E ASSESSEE TO SEEK DEDUCTION UNDER S. 80HHE HAVING BE EN LEFT TO BE DETERMINED BY THE AO, SUBJECT TO ASSESSEES S ATISFYING THE PRE-REQUISITES STIPULATED FOR THE GRANT OF SUCH A BENEFIT UNDER THE SAID PROVISION. NO QUESTION OF LAW MUCH L ESS A SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDER ATION IN THIS APPEAL TO WARRANT ITS ADMISSION. THE APPEAL IS ACCORDINGLY DISMISSED IN LIMINE. 9. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, W E SET ASIDE THE ORDER OF ASSESSING OFFICER AND REMIT THE ISSUE BACK TO HIS FILE TO CONSIDER THE ISSUE AFRESH IN LIGHT O F THE ABOVE DISCUSSION. NEEDLESS TO ADD ASSESSEE SHOULD BE GRAN TED ADEQUATE OPPORTUNITY OF BEING HEARING. 25 ITA NO.5550/DEL/2011 26. FURTHER APPEAL FILED BY REVENUE IN ITA NO. 1071 /2011 FOR ASSESSMENT YEAR 2006-07 STANDS DISMISSED BY HONBLE HIGH COURT IN AN ORDER DATED 20.12.2011. ACCORDINGLY, WE SET ASI DE THE ASSESSMENT ORDER AND RESTORE THE ISSUE TO THE FILE OF ASSESSIN G OFFICER TO CONSIDER THE ISSUE AFRESH IN LIGHT OF THE ABOVE DISCUSSION. THE AO SHOULD PROVIDE ADEQUATE PROPER ADEQUATE OPPORTUNITY TO THE APPELLANT COMPANY. GROUNDS RAISED ARE ACCORDINGLY ALLOWED FO R STATISTICAL PURPOSES. 27. GROUND 5 RELATING TO LEVY OF INTEREST U/S 234B AND U/S 234C IS CONSEQUENTIAL. 28. GROUND 6 RELATES TO INITIATION OF PENALTY U/S 2 71(1)(C) IS PREMATURE AND IS THEREFORE DISMISSED. 29. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF JANUARY, 2016. SD/- SD/- (S. V. MEHROTRA) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 7 TH DAY OF JANUARY, 2016 TS 26 ITA NO.5550/DEL/2011 COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A)-IX, NEW DELHI. 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI