Alcatel Lucent India Ltd., Gurgaon V. DCIT, New Delhi

ITA 5553/DEL/2011

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8424 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 03-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Related party transaction; Capital asset; Transfer pricing; Principle of natural justice; International transaction; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 92D; 80HHC; 133(6); 144C; 72; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 5553/DEL/2011: ASSTT. YEAR: 2007-08 ALCATEL LUCENT INDIA LTD., (ERSTWHILE ALCATEL LUCENT TECHNOLOGIES INDIA PVT. LTD.), 15 TH FLOOR, TOWER-C, DLF CYBER GREENS, DLF CITY, PHASE-III, GURGAON-122002 VS DCIT, CIRCLE-1(1), NEW DELHI (APPELLANT T (RESPONDENT) PAN NO. AACCA8667N ITA NO. 5554/DEL/2011 : ASSTT. YEAR: 2007-08 ALCATEL LUCENT INDIA LTD., (ERSTWHILE ALCATEL DEVELOPMENT INDIA PVT. LTD.), 15 TH FLOOR, TOWER-C, DLF CYBER GREENS, DLF CITY, PHASE-III, GURGAON-122002 VS DCIT, CIRCLE-1(1), NEW DELHI (APPELLANT T (RESPONDENT) PAN NO. AACCA8667N ASSESSEE BY : SH. NAGESHWAR RAO, ADV. REVENUE BY : SH. SURENDERPAL, CIT DR DATE OF HEAR ING: 2 7 . 07 .20 21 DATE OF PRONOUNCEMENT: 16 .0 8 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSE E AGAINST THE ORDERS DATED 31.10.2011 PASSED BY THE A O U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 2 2. IN ITA NO. 5553/DEL/2011, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THE LD. DISPUTE RESOLUTION PANEL (DRP) ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE LD. AO/ TPOS ACTION OF MAKING AN ADJUSTMENT OF RS. 57,29,49,678 TO THE INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELL ANT IN DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISA GED UNDER THE INCOME-TAX ACT 1961 (ACT). IN DOING SO THE LD. DRP HAS GROSSLY ERRED IN AGREEING WITH THE LD. TPOS ACTION OF; 1.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 920(3) OF THE ACT ARE SATISFIED IN T HE PRESENT CASE; 1.2. IGNORING THE FACT THAT THE APPELLANT IS ENTIT LED TO TAX HOLIDAY UNDER SECTION 10A OF THE ACT ON ITS PROFITS AND THEREFORE WOULD NOT HAVE ANY UNTOWARD MOTIVE OF DERIVING A TAX ADVANTAGE BY MANIPULATING TRANSFER PRICES OF ITS INTERNATIONAL TRANSACTIONS; 1.3. DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING ('TP') DOCUMENTAT ION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 (RULES) AS WELL AS FRESH SEARCH; AND IN PARTICULA R MODIFYING/ REJECTING THE FILTERS APPLIED BY THE APPELLANT; 1.4. DISREGARDING MULTIPLE YEAR/ PRIOR YEARS DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FY 2006-07) DATA FO R COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FAC T THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 1.5. COLLECTING SELECTIVE INFORMATION OF THE COMPANIES BY EXERCISING POWER GRANTED TO HIM UNDER SECTION 133(6) OF THE ACT THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DOMAIN AND RELYING ON THE S AME FOR COMPARABILITY PURPOSES (AND TO THE EXTENT OF ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 3 COMPLETELY IGNORING RELIABLE DATA AVAILABLE IN PUBL IC DOMAIN/ ANNUAL REPORTS IN NUMEROUS CASES); 1.5.1. AND IN DOING SO VIOLATING THE FUNDAMENTAL PRINCIPLES OF NATURAL JUSTICE BY RELYING ON THE INFORMATION SOURCED UNDER SECTION 133(6); AND ALSO BY 1.5.2. NOT SHARING WITH THE APPELLANT, IN CASE OF A NUMBER OF COMPARABLES, THE INFORMATION/ REPLY RECEIVED BY THE TPO/ AO U/S 133(6). 1.6. REJECTING COMPARABILITY ANALYSIS IN THE TP DOCUMENTATION/ APPELLANTS FRESH SEARCH AND IN CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF THE FOLLOWING ADDITIONAL/ REVISED FI LTERS IN DETERMINING THE ALP FOR THE INTERNATIONAL TRANSACTIONS; 1.6.1. EXCLUSION OF COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E. NOT MARCH 31, 2007) 1.6.2. EXCLUSION OF COMPANIES WITH EXPORT SALES TH AT ARE LESS THAN 25% OF THEIR TOTAL REVENUE; 1.6.3. EXCLUSION OF COMPANIES WITH DIMINISHING REVENUES/ PERSISTENT LOSSES FOR LAST THREE YEARS UP TO AND INCLUDING FY 2006-07; 1.6.4. RETAINING COMPANIES WITH RELATED PARTY TRANSACTIONS UPTO 25% OF THEIR SALES; 1.6.5. ADOPTING EMPLOYEE COST TO REVENUES GREATER T HAN 25% OF THEIR TOTAL REVENUES AS A SEARCH CRITERIA FO R SHORT LISTING AND EVALUATING COMPARABLES FOR SOFTWA RE DEVELOPMENT SERVICES; 1.6.6. EXCLUSION OF COMPANIES WITH ONSITE REVENUES GREATER THAN 75% OF THEIR EXPORT REVENUES FOR SELECTING COMPARABLES FOR CONTRACT SOFTWARE DEVELOPMENT SERVICES; AND REJECTING, IN PARTICULAR, THE FOLLOWING FILTERS APPLIED BY THE APPELLANT IN ITS TP DOCUMENTATION/ F RESH SEARCH: ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 4 1.6.7. COMPANIES HAVING OTHER OPERATING INCOME (I.E . INCOME OTHER THAN MANUFACTURING AND TRADING INCOME) TO SALES GREATER THAN 50% WERE ACCEPTED; 1.6.8. COMPANIES WITH NET WORTH LESS THAN ZERO WERE REJECTED; 1.6.9. COMPANIES HAVING RESEARCH & DEVELOPMENT COST S TO SALES LESS THAN 3% WERE ACCEPTED; AND 1.6.10. COMPANIES HAVING ADVERTISING, MARKETING AND DISTRIBUTION COSTS TO SALES LESS THAN 3% WERE ACCEPTED. 1.7. INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES SET FOR BENCHMARKING A LOW RISK CAPTIVE UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMENTS ON THE ISSUE), THUS DEMONSTRATING AN INTENTION TO ARRIVE AT A PRE- FORMULATED OPINION WITHOUT COMPLETE AND ADEQUATE APPLICATION OF MIND WITH THE SINGLE-MINDED INTENTIO N OF MAKING AN ADDITION TO THE RETURNED INCOME OF THE APPELLANT; 1.8. INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERM OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 1.9. RESORTING TO ARBITRARY REJECTION OF LOW-PROFI T/ LOSS MAKING COMPANIES BASED ON ERRONEOUS AND INCONSISTENT REASONS; 1.10. EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE T O THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSE TS EMPLOYED AND RISKS ASSUMED; 1.11. IGNORING THE BUSINESS/ COMMERCIAL REALITY TH AT SINCE THE ASSESEE IS REMUNERATED ON AN ARMS LENGTH COST PLUS BASIS, I.E. IT IS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE-AGREED MARK-UP BASED ON A BENCHMARKING ANALYSIS, THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL FLEDGED RISK TAKING ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 5 ENTREPRENEURS, AND BY NOT ALLOWING A RISK ADJUSTMEN T TO THE APPELLANT ON ACCOUNT OF THIS FACT; 1.12. COMMITTING A NUMBER OF FACTUAL ERRORS IN ACCEPT-REJECT OF COMPARABLE COMPANIES INCLUDED IN/ EXCLUDED FROM THE FINAL SET OF COMPANIES.; 1.13. BY FOLLOWING AN INCONSISTENT APPROACH WHILE COMPUTING THE OP/ TC MARGIN OF THE APPELLANT BY TREATING FOREIGN EXCHANGE LOSS AS OPERATING WHEREAS TREATING THE SAME AS NON-OPERATING IN SOME CASES AN D OPERATING IN OTHERS IN CASE OF COMPARABLES; AND 1.14. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDI A IN UNDERTAKING THE TP ADJUSTMENT. 2. THE LD. AO ERRED IN FACTS AND IN LAW IN INITIATI NG THE PENALTY U/S 271(1)(C). 3. IN ITA NO. 5554/DEL/2011, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THE LD. DISPUTE RESOLUTION PANEL (DRP) ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE LD. AO/ TPOS ACTION OF MAKING AN ADJUSTMENT OF RS. 24,34,79,416 TO THE INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELL ANT IN DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISA GED UNDER THE INCOME-TAX ACT 1961 (ACT). IN DOING SO THE LD. DRP HAS GROSSLY ERRED IN: 1.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS S ET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN T HE PRESENT CASE; 1.2. IGNORING THE FACT THAT THE APPELLANT IS ENTITL ED TO TAX HOLIDAY UNDER SECTION 10A OF THE ACT ON ITS PRO FITS AND THEREFORE WOULD NOT HAVE ANY UNTOWARD MOTIVE OF DERIVING A TAX ADVANTAGE BY MANIPULATING TRANSFER PRICES OF ITS INTERNATIONAL TRANSACTIONS; 1.3. DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING ('TP') DOCUMENTAT ION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 6 READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 (RULES) AND IN PARTICULAR MODIFYING/ REJECTING TH E FILTERS APPLIED BY THE APPELLANT; 1.4. COMMITTING CERTAIN FACTUAL ERRORS IN ACCEPT- REJECT OF COMPARABLES INCLUDED IN/ EXCLUDED FROM IN THE FINAL SET OF COMPANIES; 1.5. DISREGARDING MULTIPLE YEAR/ PRIOR YEARS DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FY 2006-07) DATA FO R COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FAC T THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 1.5.1. WITHOUT PREJUDICE, IN CASE THE CURRENT YEAR DATA IS USED, THE APPELLANT SHOULD BE ALLOWED TO SUBMIT A FRESH SEARCH SO THAT ALL COMPANIES (FOR WHOM DATA F OR FY 2006-07 IS NOW AVAILABLE, BUT WHICH WAS NOT NECESSARILY AVAILABLE AT THE TIME OF PREPARING TP DOCUMENTATION, INCLUDING COMPANIES NOW REPORTED IN THE DATABASES, BUT WHICH WERE NOT REPORTED IN THE DATABASES AT THE TIME OF PREPARING TP DOCUMENTATION ) ARE APPROPRIATELY CONSIDERED. 1.6. COLLECTING SELECTIVE INFORMATION OF THE COMPAN IES BY EXERCISING POWER GRANTED TO HIM UNDER SECTION 133(6) OF THE ACT THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DOMAIN AND RELYING ON THE S AME FOR COMPARABILITY PURPOSES (AND TO THE EXTENT OF COMPLETELY IGNORING RELIABLE DATA AVAILABLE IN PUBL IC DOMAIN/ ANNUAL REPORTS IN NUMEROUS CASES); 1.6.1. AND IN DOING SO VIOLATING THE FUNDAMENTAL PRINCIPLES OF NATURAL JUSTICE BY RELYING ON THE INFORMATION SOURCED UNDER SECTION 133(6); AND ALSO BY NOT SHARING WITH THE APPELLANT, THE INFORMATION/ RE PLY RECEIVED BY THE TPO/ AO U/S 133(6). 1.7. REJECTING COMPARABILITY ANALYSIS IN THE TP DOCUMENTATION AND IN CONDUCTING A FRESH COMPARABILI TY ANALYSIS BASED ON APPLICATION OF THE FOLLOWING FILT ERS IN DETERMINING THE ALP FOR THE INTERNATIONAL TRANSACTI ONS; ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 7 1.7.1. EXCLUSION OF COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E. NOT MARCH 31, 2007); 1.7.2. EXCLUSION OF COMPANIES WITH EXPORT SALES TH AT ARE LESS THAN 25% OF THEIR TOTAL REVENUE; 1.7.3. RETAINING COMPANIES WITH RELATED PARTY TRANSACTIONS UPTO 25% OF THEIR SALES; 1.7.4. ADOPTING EMPLOYEE COST TO REVENUES GREATER THAN 25% OF THEIR TOTAL REVENUES AS A SEARCH CRITER IA FOR SHORT LISTING AND EVALUATING COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICES; 1.7.5. EXCLUSION OF COMPANIES WITH ONSITE REVENUES GREATER THAN 75% OF THEIR EXPORT REVENUES FOR SELECTING COMPARABLES FOR CONTRACT SOFTWARE DEVELOPMENT SERVICES; AND REJECTING, IN PARTICULAR, THE FOLLOWING FILTERS APP LIED BY THE APPELLANT IN ITS FRESH SEARCH: 1.7.6. SERVICE INCOME (I.E. INCOME OTHER THAN MANUFACTURING AND TRADING INCOME) TO SALES GREATER THAN 50% FILTER WERE ACCEPTED; 1.7.7. COMPANIES WITH NET WORTH LESS THAN ZERO WERE REJECTED; 1.7.8. COMPANIES HAVING RESEARCH & DEVELOPMENT COST S TO SALES LESS THAN 3% WERE ACCEPTED; AND 1.7.9. COMPANIES HAVING ADVERTISING, MARKETING AND DISTRIBUTION COSTS TO SALES LESS THAN 3% WERE ACCEP TED. 1.8. INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES SET FOR BENCHMARKING A LOW RISK CAPTIVE UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMENTS ON THE ISSUE), THUS DEMONSTRATING AN INTENTION TO ARRIVE AT A PRE- FORMULATED OPINION WITHOUT COMPLETE AND ADEQUATE APPLICATION OF MIND WITH THE SINGLE-MINDED INTENTIO N OF MAKING AN ADDITION TO THE RETURNED INCOME OF THE APPELLANT; ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 8 1.9. INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 1.10. RESORTING TO ARBITRARY REJECTION OF LOW-PROF IT/ LOSS MAKING COMPANIES BASED ON ERRONEOUS AND INCONSISTENT REASONS; 1.11. EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE T O THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSE TS EMPLOYED AND RISKS ASSUMED; 1.12. IGNORING THE BUSINESS/ COMMERCIAL REALITY TH AT SINCE THE ASSESEE IS REMUNERATED ON AN ARMS LENGTH COST PLUS BASIS, I.E. IT IS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE-AGREED MARK-UP BASED ON A BENCHMARKING ANALYSIS, THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL FLEDGED RISK TAKING ENTREPRENEURS, 1.12.1. THAT DUE TO THE FACT THAT THE APPELLANT IS A CAPTIVE CONTRACT SOFTWARE DEVELOPMENT SERVICES PROVIDER UNDERTAKING MINIMAL RISKS, ADJUSTMENTS SUC H AS RISK ADJUSTMENT IS IMPERATIVE IN APPELLANTS CAS E; 1.13. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT. 2. CAPITALIZATION OF SOFTWARE EXPENSES 2.1. THE DRP AND AO BOTH ON FACTS AND IN LAW ERRED IN NOT APPRECIATING THE FACT THAT THE SOFTWARE ACQU IRED IS OF REVENUE IN NATURE. 2.2. THE DRP AND AO BOTH ON FACTS AND IN LAW ERRED IN NOT APPRECIATING THE FACT THAT THE NATURE OF SOF TWARE ACQUIRED IS PRIMARILY APPLICATION SOFTWARE WHICH HA S NO ENDURING BENEFIT. 3. EXCLUSION OF COMMUNICATION CHARGES FROM EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 9 3.1. THE DRP AND AO BOTH ON FACTS AND IN LAW ERRED IN NOT APPRECIATING THE FACT THE DEFINITION OF EXPO RT TURNOVER DOES NOT INTEND TO EXCLUDE EXPENDITURE INCURRED IN DOMESTIC CURRENCY FROM EXPORT TURNOVER. 4. EXCLUSION OF EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A 4.1. THE DRP AND AO FAILED TO APPRECIATE THE NATURE OF BUSINESS OF THE APPELLANT AND ERRED IN PRESUMING TH AT THE APPELLANT IS ENGAGED IN PROVIDING THE TECHNICAL SERVICES AND THEREBY ERRED IN REDUCING EXPENSES IN FOREIGN EXCHANGE FROM EXPORT TURNOVER. 5. EXCLUSION OF TOTAL TURNOVER 5.1. WITHOUT PREJUDICE TO GROUND 3 AND 4 ABOVE, THE DRP AND AO ERRED IN NOT EXCLUDING AMOUNTS EXCLUDED FROM EXPORT TURNOVER (I.E. COMMUNICATION CHARGES AN D EXPENDITURE IN FOREIGN CURRENCY) FROM TOTAL TURNOVE R AS WELL. 5.2. THE DRP AND AO ERRED IN NOT FOLLOWING ORDER OF HONBLE TRIBUNAL IN APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2005-06 & 2006-07. 6. THE LD. AO ERRED IN FACTS AND IN LAW IN INITIATI NG THE PENALTY U/S 271(1)(C). 4. ALCATEL DEVELOPMENT INDIA PRIVATE LIMITED (ADIP L) WAS ORIGINALLY INCORPORATED AS A PRIVATE LIMITED COMPAN Y IN THE NAME OF ALCATEL DEVELOPMENT CENTER CHENNAI PRIVATE LIMITED ON 3 RD MARCH 1998. UNTIL THE FINANCIAL YEAR 2002-03, ADIP L HAD ONLY ONE CAPTIVE BUSINESS UNIT UNDER FIXED COMMUNIC ATION GROUP, ALCATELS INDIAN DEVELOPMENT CENTERS, LOCATE D IN GURGOAN & CHENNAI, HAVE ESTABLISHED A STRONG PROCES S CAPABILITY; IN ORDER TO DELIVER RELIABLE SOFTWARE P ACKAGES. THE SOFTWARE CENTRE AT GURGAON IS COMPLETELY FOCUSED ON DEVELOPMENT OF APPLICATION SOFTWARE WITH A SIGNIFIC ANT NUMBER ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 10 OF DEDICATED SOFTWARE PROFESSIONALS WORKING WITH PA RTNER ORGANIZATIONS ALL OVER INDIA. 5. THE DETAILS OF ASSOCIATED ENTERPRISES AND THE IN TERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSED ARE AS UND ER: S. NO. INTERNATIONAL TRANSACTION ASSOCIATED ENTERPRISE AMOUNT 1 SERVICE INCOME ALCATEL-LUCENT, BELGIUM 50,88,95.804 2 ALCATEL-LUCENT, GERMANY 48,04,71,130 3 ALCATEL CIT, FRANCE 54,61,55.950 4 ALCATEL, USA 5,40,28.616 5 ALCATEL USA SOURCING INC 28,13,11,368 6 GENESIS TELECOMMUNICATIONS 6,58,87,719 7 ALCATEL, AUSTRALIA 8,87,83,545 8 ALCATEL, CHINA 81,16,793 9 ALCATEL, SPAIN 20,20,71,314 10 ALCATEL ITALY 99,57,597 11 ALCATEL, DENMARK 20,42,740 12 CONNECTIVITY AND BAND WIDTH CHARGES ALCATEL, FRANCE 6,37,63,934 13 REIMBURSEMENT OF EXPENSES ALCATEL, BELGIUM 2,46,667 14 PURCHASE OF FIXED ASSETS ALCATEL, FRANCE 1,51,14,683 15 ALCATEL GERMANY 10,67,206 16 ALCATEL SPAIN 1,78,013 17 ALCATEL, USA SOURCING INC. 3,09,48,774 18 ALCATEL, FRANCE 1,55,18,964 19 ALCATEL, BELGIUM 4,21,22,311 20 ALCATEL, CANADA 6,74,922 2! ALCATEL, CHINA 82,74,424 22 ALCATEL, CHINA(HK) 534 23 ALCA NET, FRANCE 1,64,48,080 24 REIMBURSEMENT OF EXPENSES ALCATEL, FRANCE 87,73,882 ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 11 6. FUNCTIONS, ASSETS AND RISK ANALYSIS OF THE ASSESSEE FUNCTIONS: ADIPL IS A DEDICATED CAPTIVE SOFTWARE DEVELOPMENT F ACILITY CENTRE FOR ALCATEL-LUCENT GROUP COMPANIES. IT DEVEL OPS THE SOFTWARE, BASED ON THE CORE R&D PROVIDED BY THE EUR OPEAN AND THE US R&D CENTERS, WHICH IS INTEGRATED INTO THE EX CHANGE NETWORK PRODUCTS. ADIPL IS A ROUTINE SOFTWARE DEVEL OPMENT COMPANY, WHICH CARRIES OUT ROUTINE FUNCTIONS AND AS SUMES LESS THAN NORMAL RISKS ASSOCIATED WITH CARRYING OUT SUCH BUSINESS, THE ADIPL'S FIXED SOLUTION DIVISION (FSD) CONSISTS OF LOCAL COMPETENCE AREA MANAGERS (LCAM) UNDER IMPLEMENTATIONS, INDUSTRIALIZATION, DEVELOPMENT, TE STING, PROJECT OFFICE AND CUSTOMER SATISFACTION & QUALITY (CSQ) TEAMS. THE LOCAL COMPETENCE AREA MANAGER (LCAM) FOR THE IMPLEMENTATION AND INDUSTRIALIZATION TEAMS ARE RESP ONSIBLE FOR MANAGING RESOURCES IN EACH OF THESE TEAMS, TRAI NING THEM IN THE SKILL SETS REQUIRED FOR EACH PROJECT. W HEN A SOFTWARE DEVELOPMENT PROJECT COMES UP, THE CONCERNE D PROJECT LEADER REQUESTS FOR RESOURCES FROM LCAMS OF THE IMPLEMENTATION AND INDUSTRIALIZATION TEAMS. THE LCA M OF THE IMPLEMENTATION AND INDUSTRIALIZATION TEAMS ALLO CATE THEIR RESOURCES TO THESE PROJECTS BASED ON ESTIMATE D TIME REQUIRED FOR EACH PROJECT. IMPLEMENTATION TEAM: THE IMPLEMENTATION TEAM OF EACH PROJECT IS RESPONSIBLE FOR DESIGN, DEVELOPMENT, COD ING AND TESTING FUNCTIONS BASED ON THE FUNCTIONAL SPECIFICA TIONS RECEIVED FROM THE PRODUCT MANAGEMENT TEAM OF THE ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 12 RESPECTIVE COUNTRY OF THE CUSTOMER, THE EMPLOYEES I N THE IMPLEMENTATION TEAM ARE EXPECTED TO HAVE SOUND KNOWLEDGE IN THE TELECOM FIELD, BESIDES THEIR EXPER TISE IN THE FIELD OF SOFTWARE. ADIPL USUALLY RECRUITS ENGIN EERS WITH EXPERTISE IN NETWORKS AND COMMUNICATIONS. (A) DESIGN: THE FIRST STEP IN THE SOFTWARE DEVELOPMENT LIFE CYCLE FOR ADIPL BEGINS WITH THE TECHNICAL DESI GN BASED ON THE FUNCTIONAL SPECIFICATIONS RECEIVED. TH E TECHNICAL DESIGN PROCESS TRANSLATES THE FUNCTIONAL REQUIREMENTS INTO A REPRESENTATION OF THE SOFTWARE WHICH ULTIMATELY IS TO BE CODED INTO MACHINE READAB LE FORM. (B) CODING: THE NEXT STEP IS TO WRITE THE CODE. ADIPL USES THE CHILL PROGRAMMING LANGUAGE TO WRITE THE CODE ON THE UNIX OPERATING SYSTEM. (C) TESTING: THE IMPLEMENTATION TEAM DOES UNIT TESTING AT THE WORKSTATION LEVEL, UNIT TESTING INVOLVES THE DEVELOPER TO TEST HIS MODULE INDEPENDENTLY. INDUSTRIALIZATION TEAM: A TELEPHONE EXCHANGE DEALS WITH AN ENORMOUS VOLUME OF DATA, ESPECIALLY RELATING TO DETAILS OF THEIR SUBSCRIBERS, LIKE NUMBERS, FEATURES AVAILA BLE TO EACH SUBSCRIBER, ETC. THE ENTIRE OPERATIONS OF A TE LEPHONE EXCHANGE ARE DATA DRIVEN. THE INDUSTRIALIZATION TEA M IS INVOLVED WITH EVERYTHING ASSOCIATED WITH THE DATA. IT IS THE NEW DATA CREATED BY THIS TEAM WHICH WILL DRIVE THE NEW FEATURES BUILT BY THE IMPLEMENTATIONS TEAM. THE CUSTOMER, I.E. TELEPHONE EXCHANGES, PROVIDES TH E DATA IN A SPECIFIC FORMAT, WHICH THE PRODUCT MANAGEMENT TEAM ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 13 HANDS OVER TO ADIPL. THE INDUSTRIALIZATION TEAM IS RESPONSIBLE FOR CONVERSION OF THIS DATA INTO REQUIR ED FORMAT, SO THAT THIS COULD BE INTEGRATED WITH THE C ODE DEVELOPED BY THE IMPLEMENTATION TEAM, FOR DELIVERY TO THE CUSTOMER. THE DATA RELATING TO EACH EXCHANGE WOULD BE .UNIQUE WITH RESPECT TO THAT MARKET. THE INDUSTRIAL IZATION TEAM USES SOME SPECIFIC TOOLS TO CARRY OUT THEIR TA SKS, AND REQUIRE KNOWLEDGE IN PROGRAMMING LANGUAGES LIKE C, C++, ETC. TO MANIPULATE THE DATA RECEIVED. THE FINAL NEW SET OF DATA PRODUCED IS CALLED A DATA PACKAGE. INTEGRATION: THE BUILD MANAGER (BM) INTEGRATES THE CODE AND THE DATA PACKAGE TO GENERATE A SYSTEM LOAD PACK AGE (SLP). THE BM GENERATES DIFFERENT SLPS AT DIFFERENT STAGES FOR TESTING PURPOSES. INTEGRATION TESTING: THERE AR E 2 LEVELS OF TESTING WHICH TAKES PLACE (A) FEATURE INTEGRATION TEST: THE NEW FEATURES AND DATA MAY HAVE AN IMPACT ON DIFFERENT OTHER MODULES. THIS TEST ENSURES THAT THE DESIRED RESULTS ARE OBTAINED AT THE AREA LEVEL. (B) FEATURE TEST: THE FEATURE TEST IS DONE BY TESTERS IN EACH IMPLEMENTATION TEAM. ADIPL HAS A SCALE DOWN VERSION OF 3 TELEPHONE EXCHANGES FOR TESTING PURPOSES. THE FEATURE TEST IS DONE AT THE EXCHANGE LEVEL. MOST OF THE BUGS AT THE FUNCTIONAL LEVEL ARE RESOLVED AT THIS STAGE. DELIVERY AND FINAL TESTING: AT THIS STAGE, THE FINAL PACKAGE IS DELIVERED TO AN INDEPENDENT QUALIFICATIO N TEST (IQT) TEAM IN STUTTGART, GERMANY OR IN BELGIUM. THE IQT ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 14 TEAM PERFORMS COMPREHENSIVE TESTS ON THE FINAL PROD UCT. THIS STAGE AIMS TO TEST PERFORMANCE RELATED ISSUES LIKE NUMBER OF LINES IT COULD HANDLE, ETC. THE FINAL PRO DUCT IS THEN DELIVERED TO THE EXCHANGE IN THE FORM OF AN OP TICAL DISK. A PILOT TESTING TAKES PLACE IN ONE EXCHANGE B EFORE IT IS FULLY IMPLEMENTED. MINIMUM SHUTDOWN TIME OF THE EXCHANGES IS PLANNED FOR UPDATION OF THE NEW FEATUR ES. QUALITY: THE CUSTOMER SATISFACTION AND QUALITY TEAM (CSQ) DOES QUALITY CHECKS AT ALL LEVELS TO ENSURE T HAT INTERNAL STANDARDS AND PROTOCOLS ARE MET. ADIPL HAS OBTAINED CAPABILITY MATURITY MODEL (CMM) LEVEL 3 CERTIFICATION. MAINTENANCE. & SUPPORT: AS PER ITS SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT DATED MAY 25TH 19 98, ADIPL PROVIDES TECHNICAL ASSISTANCE, MAINTENANCE & SUPPORT THROUGH ITS TECHNICAL ASSISTANCE CENTRE (TA C). ADIPL PROVIDES THESE SERVICES TO ALCATEL BELL NV WI THOUT ADDITIONAL CHARGE FOR THE WARRANTY PERIOD MENTIONED IN THE AGREEMENT TO CORRECT ANY ERRORS, DEFECTS OR MALFUNC TIONS IN THE SOFTWARE IT HAS DELIVERED. IN CASE OF SUPPORT B EYOND THE WARRANTY PERIOD OR NOT RELATED TO THE WARRANTY PERFORMANCE, ADIPL BILLS AT THE NORMAL RATES. THE TAC PROVIDES ROUTINE TELEPHONE ASSISTANCE IN INVESTIGATING, DIAGNOSING AND TROUBLESHOOTING PROBL EMS IN THE COVERED SOFTWARE PRODUCT. ADIPL ALSO PROVIDES 'REMOTE CONSOLE INTERVENTION USING A MODEM CONNECT ION TO DIRECTLY OPERATE THE SYSTEM AND SOFTWARE, IN CAS ES WHERE THE PROBLEM CANNOT BE RESOLVED THROUGH THE RO UTINE TELEPHONE ASSISTANCE. EMERGENCY TELEPHONE ASSISTANC E IS ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 15 ALSO PROVIDED BY THE TAC PERSONNEL ON A 24/7 BASIS. ADIPLS RESPONSE TIME IS BASED ON A CATEGORY OF FAU LTS IT PRODUCES DEPENDING ON THE CRITICALITY OF THE BUGS. THE DELIVERY OF THE MAINTENANCE RELEASE IS THROUGH TIRE PRODUCT MANAGEMENT OPERATIONS TEAM IN THE RESPECTIVE MARKET . GENERAL MANAGEMENT FUNCTIONS THE FUNCTIONS ADDRESSED BELOW ARE COMMON FUNCTIONS THAT ARE CARRIED OUT BY ANY BUSINESS IRRESPECTIVE OF THEIR S IZE AND TYPE. THESE FUNCTIONS ARE DRIVERS OF EVERY BUSINESS AND A RE INDISPENSABLE IN THE ECONOMIC ENVIRONMENT. (A) CORPORATE STRATEGY DETERMINATION: GENERALLY, ALL POLICIES WITHIN ADIPL ARE DETERMINED BY ITS OWN MAN AGEMENT WHO CONTINUOUSLY MONITOR THE ECONOMIC ENVIRONMENT SURROUNDING THE INDIAN ENTITY, ASSESS THEIR STRATEG IC POSITION WITHIN THE INDUSTRY AND TARGET TO ACHIEVE ITS CORPO RATE OBJECTIVE WITH GUIDANCE FROM THE ALCATEL- LUCENT GROUP. (B) FINANCE, ACCOUNTING, TREASURY AND LEGAL FUNCTION: THE MANAGEMENT OF ADIPL IS RESPONSIBLE FOR MANAGING THE FINANCE, TREASURY, LEGAL AND ACCOUNTING FUNCTIONS. IN CERTAIN AREAS, WHEREVER NECESSARY, ADIPL IS GUIDED BY THE A LCATEL- LUCENT GROUP, ADIPL IS ALSO RESPONSIBLE FOR ALL LOC AL STATUTORY COMPLIANCE. (C) HUMAN RESOURCE MANAGEMENT FUNCTION: THE HR FUNCTION AT ADIPL IS COORDINATED BY ITS MANAGEMENT, WHICH IS RESPONSIBLE FOR RECRUITMENT, DEVELOPMENT AND TRAINING OF THE PE RSONNEL ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 16 INCLUDING THE EMOLUMENT STRUCTURE. IN THIS RESPECT, WHERE APPROPRIATE, IT IS GUIDED BY ALCATEL-LUCENT GROUP P OLICIES. ASSETS: ADIPL DEPLOYS ASSETS NECESSARY FOR CARRYING OUT THE SOFTWARE DEVELOPMENT FUNCTION. HOWEVER, ADIPL DOES NOT OWN A NY VALUABLE NON-ROUTINE INTANGIBLES. ADIPL DOES NOT SP END ANY SIGNIFICANT AMOUNT ON RESEARCH AND DEVELOPMENT ON I TS ACCOUNT THAT LEADS TO THE DEVELOPMENT OF NON-ROUTINE INTANG IBLES. ADIPL USES THE TRADEMARK, PROCESS, KNOW-HOW, TECHNICAL DA TA SOFTWARE, OPERATING / QUALITY STANDARDS ETC. DEVELO PED / OWNED BY ALCATEL-LUCENT GROUP. ALL COMPANIES OF THE ALCAT EL-LUCENT GROUP LEVERAGE FROM THESE INTANGIBLES FOR CONTINUED GROWTH IN REVENUES AND PROFITS. ACCORDINGLY, ADIPL DOES NOT O WN ANY SIGNIFICANT NON-ROUTINE INTANGIBLES. RISKS: THE VARIOUS RISKS ASSOCIATED WITH THIS INTERNATIONA L TRANSACTION ARE AS UNDER: MARKET RISK: ADIPL DOES NOT HAVE ANY SIGNIFICANT EXPOSURE TO THI S RISK BECAUSE IT RENDERS SERVICES EXCLUSIVELY FOR ALCATEL -LUCENT GROUP AND THEREFORE CAN FORECAST ITS REVENUES WITH FAIR D EGREE OF CERTAINTY. ALI MARKET RISKS WITH RESPECT TO THE PRODUCT INCLUD ING CUSTOMER ACCEPTANCE ARE BORNE BY ALCATEL-LUCENT GROUP. IT IS EXPOSED TO ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 17 THE INTENSELY COMPETITIVE CONDITIONS IN THE TELECOM INDUSTRY AND IMPACT OF TECHNOLOGICAL ADVANCES. PRODUCT LIABILITY RISK: ADIPL'S RISK IS MINIMAL AS IT DOES NOT HAVE ANY INT ERFACE WITH THE ULTIMATE CUSTOMER. HOWEVER, IT WOULD PROVIDE TE CHNICAL SUPPORT AND MAINTENANCE UNDER THE WARRANTY PERIOD T O ALCATEL BELL NV FOR THE SOFTWARE IT HAS DEVELOPED. ALL RISKS WITH RESPECT TO PRODUCT WARRANTY, CLAIMS SUFFERED OR DAMAGES AWARDED IN FAVOUR OF END CUSTOMERS ARISING FROM ANY INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY IN CONSEQUENCE OF THE USE OF ITS PRODUCTS ARE BORNE BY ALCATEL- LUCENT GROUP, AS THE OWNER OF THE INTELLECTUAL PROP ERTY RIGHTS. TECHNOLOGY OBSOLESCENCE RISK: ADIPL AS A CONTRACT SERVICE PROVIDER DOES NOT BEAR ANY RISK IN THIS REGARD BECAUSE THE SERVICES ARE PERFORMED AS P ER ALCATEL- LUCENT GROUP'S SPECIFICATIONS. IT USES CERTAIN TECH NOLOGY OF THE ALCATEL-LUCENT GROUP TO UNDERTAKE ITS DEVELOPMENT W ORK. ALCATEL-LUCENT GROUP AS THE OWNER OF THE PRODUCT AN D SOLUTIONS AND THE ASSOCIATED TECHNOLOGY, BEARS THE RISKS OF O BSOLESCENCE OF ITS PRODUCTS. RESEARCH AND DEVELOPMENT RISK: ADIPL DOES NOT CARRY ON ANY CORE R&D ACTIVITY. IT D EVELOPS SOFTWARE AS PER SPECIFICATIONS PROVIDED BY THE ALCA TEL-LUCENT GROUP. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 18 ALCATEL- LUCENT GROUP ENGAGES IN SIGNIFICANT R&D ON THEIR OWN ACCOUNT FOR DEVELOPING NEW PRODUCTS AND INTRODUCING NEW TECHNOLOGIES. ALL RESEARCH AND DEVELOPMENT RELATED WORK ARE COLLATED AND OWNED BY ALCATEL-LUCENT GROUP. ACCORDI NGLY, IT HAS SIGNIFICANT EXPOSURE TO THIS RISK. CREDIT RISK: AS ADIPL REGULARLY RECEIVES ITS PAYMENTS FROM ALCAT EL-LUCENT GROUP IRRESPECTIVE OF COLLECTIONS MADE BY THE GROUP COMPANIES FROM THE ULTIMATE CUSTOMERS, ITS CREDIT RISK IS MIT IGATED. ALCATEL-LUCENT GROUP BEARS THE RISK OF BAD DEBTS AS IT SELLS ITS PRODUCTS TO A NUMBER OF CUSTOMERS WORLDWIDE ON VARY ING PAYMENT TERMS. MANPOWER RISK: ADIPL BEARS THE MANPOWER RISK OF RECRUITING AND RET AINING THE RIGHT PERSONNEL AND ALL THE ASSOCIATED COSTS AND OB LIGATIONS. ADIPL'S SUCCESS DOES DEPEND ON THE QUALITY OF ITS P ERSONNEL AND ITS ABILITY TO RETAIN SUCH TRAINED PERSONNEL TO MEE T THE GROUP'S INTERNAL QUALITY STANDARDS. ALCATEL-LUCENT GROUP ULTIMATELY BEARS THE COST OF U NDER UTILIZATION OF MANPOWER RESOURCES. FOREIGN EXCHANGE FLUCTUATION RISK: ADIPL INVOICES ITS ASSOCIATED ENTERPRISES IN EUROS. THEREFORE, FOREIGN EXCHANGE FLUCTUATION RISK IS BORNE BY ADIPL AS ITS ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 19 REVENUES ARE IN FOREIGN CURRENCY WHEREAS ITS EXPENS ES ARE IN INDIAN RUPEES. FURTHER, THOSE ASSOCIATED ENTERPRISES WHO DEAL IN C URRENCY OTHER THAN EURO ALSO BEAR THE FOREIGN EXCHANGE RISK IN RE SPECT OF THIS TRANSACTION. INVENTORY RISK: ADIPL DEVELOPS MODULES OF THE SOFTWARE WHICH FORM P ART OF THE FINAL PRODUCT / SERVICE DELIVERED TO THE FINAL CUST OMER BY THE ALCATEL-LUCENT GROUP. BEING ONLY A SERVICE PROVIDER , ADIPL DOES NOT CARRY ANY INVENTORY. ALCATEL-LUCENT GROUP BEARS THE RESPONSIBILITY FOR T HE SECURITY, MAINTENANCE AND INVENTORY OF ALL ITS PRODUCTS, BOTH HARDWARE AND SOFTWARE, AND BEARS THE FULL COST OF MAINTAININ G THE STORAGE OF THE INVENTORY. IN EFFECT, ADIPL IS INSULATED FROM MOST OF THE RISK S IN RESPECT OF ITS INTERNATIONAL TRANSACTION ENTERED WITH ITS ASSO CIATED ENTERPRISES. PAYMENT FOR BANDWIDTH AND CONNECTIVITY CHARGES FUNCTION: ADIPL HAS ENTERED INTO A MASTER CONTRACT WITH ALCAT EL FRANCE, FOR BANDWIDTH, CONNECTIVITY, HOSTING, DATA NETWORK AND CONFERENCING SERVICES. AS PER THE AGREEMENT ADIPL S HOULD PLACE AIL RESOURCES, PREMISES AND ENERGY AND CONNECTION M EANS, ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 20 DOCUMENTATION AND ALL ELEMENTS NECESSARY FOR PERFOR MANCE OF THE SERVICES BY ALCATEL FRANCE. RISK ANALYSIS: THERE ARE NO INHERENT EXTERNAL RISKS INVOLVED IN TH IS INTERNATIONAL TRANSACTION EXCEPT FOREIGN EXCHANGE F LUCTUATION RISK WHICH IS BORNE BY ADIPL AS IT HAS MADE THE PAY MENT FOR BANDWIDTH AND CONNECTIVITY CHARGES IN FOREIGN CURRE NCY. PURCHASE OF FIXED ASSETS FUNCTION: ADIPL PURCHASES FIXED ASSETS LIKE SERVERS, MODEMS, ETC. FROM ASSOCIATED ENTERPRISES TO PERFORM TESTING FUNCTIONS OF THE CODE DEVELOPED IN-HOUSE. ADIPL EVEN EMPLOYS USED ASSETS APART FROM HIRING THESE ASSETS. USED ASSETS ARE EMPLOYED AS TH E SPECIFICATION OF THE ASSET IS IMPRACTICABLE TO OBTA IN AT A REASONABLE COST. THESE ARE SUPPORTED BY AN INDEPEND ENT VALUER'S REPORT. THE ALCATEL-LUCENT GROUP COMPANIES IDENTIFY THE ASSETS REQUIREMENT OF AD1PL AND PROCURE IT IF REQUI RED AND PASS IT TO ADIPL. FURTHER, ADIPL HAS ALSO OBTAINED FIXED ASSETS FROM ITS ASSOCIATED ENTERPRISES ON LOAN BASIS. HOWEVER, BASE D ON OUR DISCUSSION WITH THE COMPANY MANAGEMENT, WE UNDERSTA ND THAT OBTAINING THESE FIXED ASSETS ON LOAN BASIS WILL NOT HAVE ANY BEARING ON ADIPL'S PROFIT. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 21 RISK ANALYSIS: THE FOLLOWING ARE THE VARIOUS RISKS ASSOCIATED WITH THIS INTERNATIONAL TRANSACTION: OBSOLESCENCE RISK ADIPL BEARS ALL THE RISK RELATING TO THESE FIXED ASSETS BECOMING OBSOLE TE AS A RESULT OF DEVELOPMENT OF NEW TECHNOLOGY REQUIRING MORE SOPHISTICATED/NEW EQUIPMENT FOR TESTING PURPOSES. FOREIGN EXCHANGE FLUCTUATION RISK ADIPL BEARS THE FOREIGN EXCHANGE FLUCTUATION RISK I N RELATION TO THIS TRANSACTION AS IT MAKES THE PAYMENT FOR PURCHA SING OF FIXED ASSETS IN FOREIGN CURRENCY. PAYMENT OF TRAINING EXPENSES FUNCTION: DURING THE YEAR UNDER CONSIDERATION, ADIPL HAS PAID CERTAIN OPERATING EXPENSES TO ITS ASSOCIATED ENTERPRISES. T HESE ARE IN THE NATURE OF TRAINING EXPENSES. RISK: THERE ARE NO INHERENT EXTERNAL RISKS INVOLVED IN TH IS INTERNATIONAL TRANSACTION EXCEPT FOREIGN EXCHANGE F LUCTUATION RISK WHICH IS BORNE BY ADIPL AS IT HAS MADE THE PAY MENT FOR THESE EXPENSES IN FOREIGN CURRENCY. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 22 7. BRIEF DESCRIPTION OF THE METHOD ADOPTED BY THE ASSESSEE FOR TP STUDY: FOR ALL THE TRANSACTIONS GIVEN ABOVE, THE ASSESSEE HAS ADOPTED THE TNMM AS THE METHOD FOR BENCH MARKING ITS TRANSA CTIONS WITH IT'S A.E'S. THE FINAL LISTS OF COMPARABLE CHOSEN BY THE COMPANY ARE AS FOLLOWS: SL. NO. NAME OF THE COMPANY NCP 2004-05 (%) NCP 2005- 06 (%) NCP 2006-07 (%) WEIGHTED AVERAGE (%) 1. INTERTEC COMMUNICATIONS LTD. 8.54 5.62 NA 6.68 2. PSI DATA SYSTEMS LTD. 0.05 1.64 5.97 3.01 3 PRITHVI INFORMATION SOLUTIONS LTD. 10.49 13.68 14.11 13.24 4 R SYSTEMS INTERNATIONAL LTD. 5.16 22.35 7.35 11.28 5 SQL STAR INTERNATIONAL LTD. 1.28 -16.18 -1.86 -3.32 6 SASKEN COMMUNICATION TECHNOLOGIES LTD. 11.41 7.58 11.47 10.22 7 SONATA SOFTWARE LT D. 15.59 5.66 19.99 13.63 8 VISESH INFOT ECNICS LTD. 9.12 21.10 18.86 17.76 ARITHMETIC MEAN 7.70 7.68 10.84 9.06 8. AS PER THIS LIST THE AVERAGE OP TO COST OF THE C OMPARABLE COMPANIES IS 9.06%, AS AGAINST THIS, THE CONSOLIDAT ED P & L ACCOUNT GIVEN IN THE ANNUAL REPORT FOR THE FINANCIA L YEAR 2006- 07 IN THE CASE OF ASSESSEE COMPANY SHOWS AN OP TO C OST OF 10.57%. A SEPARATE SEARCH WAS CONDUCTED BY THE TPO WHICH YIELDED 28 COMPARABLE COMPANIES AND THE OP MARGIN O F THE COMPARABLES IS 27.96% AS AGAINST THE ASSESSE'S MARG IN OF 10.57%. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 23 ACTION OF TPO: 9. THE SEARCH RESULTED IN 28 COMPARABLE COMPANIES A ND THE AVERAGE OP MARGIN OF COMPARABLES IS 27.96% AS AGAIN ST THE COMPANYS MARGIN OF 10.57%. THE LIST OF COMPARABLES AND THE SEARCH PROCESS AND THE FILTERS ADOPTED BY THE TPO A RE FURNISHED BELOW: SL. NO. COMPANY NAME SALES (RS.CR.) OP TO TOTAL COST % 1. ACCEL TRANSMATLC LTD (SEG.) 9.68 21.11% 2.. AVANI CLMCON TECHNOLOGIES LTD 3.55 52.59% 3 BODHTREE CONSULTING LTD (SEG.) 7.40 109.79% 4 CELESTIAL LABS LTD. 14.13 58.35% 5 DATAMATLCS LTD. 54.51 7.27% 6 E-ZEST SOLUTIONS LTD. 6.26 38.12% 7 FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG.) 848.66 25.31% 8 GEOMETRIC LTD. (SEG.) 158.38 10.71% 9 HELLOS & MATHESON INFORMATION TECHNOLOGY LTD. 183.51 40.35% 10 IGATE GLOBAL SOLUTIONS LTD. 747.27 7.49% 11 INFOSYS TECHNOLOGIES LTD. 13149 40.30% 12 ISHIR INFOTECH LTD. 7.42 30.12% 13 KALS INFORMATION SYSTEMS LTD. (SEG.) 2.00 30.55% 14 LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS LTD.) 45.39 15.75% 15 LUCID SOFTWARE LTD. 1.70 54.85% 16 MEDIASOFT SOLUTIONS LTD. 1.85 3.66% 17 MEGASOFT LTD. (SEG.) 63.71 23.11% 18 MINDTREE LTD. 590.35 16.90% 19 PERSISTENT SYSTEMS LTD. 293.75 24.52% 20 QUINTEGRA SOLUTIONS LTD. 62.72 12.56% 21 R S SOFTWARE (INDIA) LTD. 101.04 13.47% 22 R SYSTEMS INTERNATIONAL LTD. (SEG.) 112.01 15.07% 23 SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) 343.57 22.16% 24 SIP TECHNOLOGIES & EXPORTS LTD. 3.80 13.90% ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 24 25 TATA ELXI LTD. (SEG.) 262.58 26.51% 26 THIRDWARE SOLUTIONS LTD. 36.08 25.12% 27 TVS INFOTECHY LTD. 7.24 11.61% 28 WIPRO LTD. (SEG.) 9616.09 33.65% 27.96% 10. BEFORE US, THE LD. AR OBJECTED TO THE SELECTION OF COMPARABLES RELIED UPON BY THE TPO. AVANI CINCOME TECHNOLOGIES LTD. 11. THE TPO HELD THAT THE COMPARABLE IS ENGAGED IN PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND CLEARS ALL THE FILTERS. THE LD. DRP AGREED TO OBSERVATION OF THE TPO AND FOUND THAT THE COMPANY HAS STATED THAT IT IS DEALING PURELY IN SOF TWARE DEVELOPMENT. THE LD. AR ARGUED THAT THE COMPARABLE IS FUNCTIONALLY DIFFERENT AND THERE WAS NO SEGMENTAL D ATA AVAILABLE FOR THE REVENUE FROM THE SALE OF SOFTWARE DEVELOPME NT SERVICES AND THE SOFTWARE PRODUCTS. WE FIND THAT THIS WAS NO T ALLOWED AS A COMPARABLE FOR THE SIMILARLY PLACED COMPANIES OWI NG TO HIGH OPERATING MARGINS AND DIFFERENT ASSET BASE WITH REG ARD TO MOTOROLA SOLUTIONS INDIA PVT. LTD. DURING THE YEAR WITH REGARD TO THE ASSESSEE, WE FIND THAT THE COMPARABLE HAS RE PLIED THAT THEY ARE INTO SOFTWARE DEVELOPMENT ONLY. WE FIND TH AT 97% OF THE REVENUE OF THE COMPARABLE IS FROM SOFTWARE DEVE LOPMENT WHICH IS SIMILAR TO THE FUNCTIONS OF THE ASSESSEE W HO IS ALSO HAVING A SOFTWARE DEVELOPMENT FACILITY CENTRE. HENC E, THE CONTENTION OF THE LD. AR THAT IN THE ABSENCE OF SEG MENTAL DATA, THE AVANI CT LTD. IS NOT A RIGHT COMPARABLE, CANNOT BE ACCEPTED. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 25 CELESTIAL LABS LTD. 12. THE TPO SELECTED THE COMPARABLE BASED ON THE RE PLY RECEIVED IN RESPONSE TO THE NOTICE U/S 133(6) THAT THE COMPANY IS ENGAGED IN PROVISION OF SOFTWARE DEVELOPMENT WHI CH IS AFFIRMED BY THE LD. DRP. THE LD. AR HAS TAKEN OBJEC TION ON TWO GROUNDS NAMELY, THE COMPARABLE IS FUNCTIONALLY DIFF ERENT AND AS PER THE DRHP THE COMPANY IS ENGAGED IN THE AREAS OF IT /BIO- INFORMATICS AND CONSULTANCY WORK. HE RELIED ON THE CASE OF INFOGAINS PVT. LTD. 13. THE PART OF THE ANNUAL REPORT READS AS UNDER: THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TOO L 'CELSUITE' TO DRUG DISCOVERY IN FINDING THE LEAD MOLECULES FOR DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY RIGH T/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND T ECHNOLOGY, NEW DELHI). BASED ON OUR IN SILICO EXPERTISE (APPLYING BIO-INF ORMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERM A AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE R ESPONSE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET L AB PROCEDURES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DE PARTMENT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY H AS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGAR H (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKE T INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN IND IA AND OVERSEAS. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 26 FROM THE ABOVE, WE FIND THAT THE ABOVE COMPARABLE I S DISSIMILAR TO THE FUNCTIONS PERFORMED BY THE ASSESSEE COMPANY. E-ZEST SOLUTIONS LTD. 14. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1112/DEL/2007 FOR TH E ASSESSMENT YEAR 2012-13. THE RELEVANT PORTION OF TH E ORDER IS AS UNDER: THE LD. AR SUBMITS THAT THIS COMPANY FAILS THE SER VICE INCOME FILTER APPLIED BY THE TPO I.E. SERVICE INCOME / TOT AL INCOME 75%. THIS COMPANY IS ENGAGED IN PROVIDING DIVERSE S ERVICES LIKE BPO, PRODUCT ENGINEERING, SOFTWARE PRODUCT DEVELOPM ENT AND KPO. THE SEGMENTAL DATA IS ALSO NOT AVAILABLE. THE INVENTORY RATIO TO TOTAL REVENUE IS 19.90%, WHEREAS THE ASSES SEE COMPANY DOES NOT HOLD ANY INVENTORY. BESIDES THIS, E-ZEST IS INTO PROFESSIONAL SERVICES AND FULL RISK BEARING EN TREPRENEUR, WHEREAS THE ASSESSED COMPANY IS LIMITED RISK CAPITA L COMPANY DEALING IN SOFTWARE DEVELOPMENT AND IS PERFORMING L IMITED FUNCTIONS LIKE CODING, TESTING. 10.14 THE LD. DR SUBMITTED THAT THE TPO HAS RIGHTLY SELECTED THIS COMPARABLE AND RELIED UPON THE ORDER OF THE TP O. 10.15 WE HEARD BOTH THE PARTIES AND PERUSED THE REC ORDS. THE FUNCTIONS OF BOTH THE COMPANIES ARE DIFFERENT. THER E IS NO SEGMENTAL DATA AVAILABLE IN THE ANNUAL REPORT OF TH E COMPANY. THE SERVICE INCOME FILTER WHICH WAS APPLIED BY THE TPO CLEARLY HAS NOT BEEN FOLLOWED BY THE TPO IN THIS COMPANY WH ILE ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 27 SELECTING AS COMPARABLE. THEREFORE, THIS COMPANY HA S TO BE EXCLUDED. WE, THEREFORE, DIRECT TPO TO EXCLUDE THIS COMPANY FROM COMPARABLE. 15. HENCE, WE HOLD THAT THIS MAY NOT BE CONSIDERED AS A RIGHT COMPARABLE. FLEXTRONICS SOFTWARE SYSTEMS LTD. 16. ON GOING THROUGH THE RECORD, WE FIND THAT THIS IS NOT A CORRECT COMPARABLE OWING TO THE DIVERSIFIED SEGMENT OF SOFTWARE SERVICES AND PRODUCTS ARE GROUPED TOGETHER. HELIOS AND MOTHERSON (IT) LTD. 17. WE FIND THAT THIS COMPARABLE FAILS THE EMPLOYEE COST FILTER IMPLIED BY THE TPO HIMSELF AND ALSO THE FACT THAT T HE COMPANY IS ENGAGED IN THE SERVICES LIKE ITES/BPO/OFF-SHORE DELIVERY/PROJECT MANAGEMENT AND MARITIME PRACTICES MAKES IT FUNCTIONALLY DISSIMILAR TO BE A RIGHT COMPARABLE. KALS INFORMATION SYSTEMS LTD. 18. THE REPLY OF THE COMPANY THAT THE USE OF READY MADE OBJECT LABORATORIES IS ONLY TO THE TUNE OF ABOUT (0 .33 TO 3) % IN THE YEAR 2005-06 AND 2006-07' HAS BEEN EXAMINED BY THE TRIBUNAL AND CAME TO THE CONCLUSION THAT WHAT HAS BEEN WRITTEN IS THAT THE COMPANY'S USE THE READYMADE OBJECT LABO RATORIES IS ONLY TO THE TUNE OF MAXIMUM 3% AND IT DOESNT CONVE Y THAT THE SOFTWARE PRODUCTS' REVENUE STANDS AT 3%. ON EXAMIN ATION OF THE REPLY IN DETAIL, THE TRIBUNAL REJECTED THE COMP ARABLE ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 28 HITHERTO. HENCE, WE DIRECT THAT THIS COMPARABLE NEE DS TO BE EXCLUDED. PERSISTENT SYSTEMS LTD. 19. THIS COMPANY WAS DIRECTED TO BE DELETED FROM TH E LIST OF COMPARABLE IN THE CASE OF INFOGAINS INDIA PVT. LTD. (ITA5870/DEL/2011) OWING TO AMALGAMATION OF THE COM PANY. SINCE, THE FACTS REMAIN UNDISPUTED, OWING TO THE IN CIDENCE OF THE EXTRAORDINARY EVENT, THE SAME CANNOT BE CONSIDE RED AS A RIGHT COMPARABLE. INFOSYS TECHNOLOGIES LTD. 20. THIS COMPANY HAS SET UP A NETWORK OF RESEARCH L ABS AND GRANTED PATENTS WHICH ARE INTANGIBLE ASSETS ON WHIC H REVENUE IS GENERATED. INFOSYS IS A GIANT RISK TAKING COMPANY. BESIDES THAT, IT IS ENGAGED IN DEVELOPMENT & SALE OF SOFTWARE PRO DUCTS AND ALSO OWNS INTANGIBLE ASSETS. THE ASSESSEE COMPANY I S ENGAGED IN THE BUSINESS OF DIGITAL SWITCHING EQUIPMENT AND RELATED SOFTWARE, CELLULAR EXCHANGE / TRANSMISSION EQUIPMEN T AND PROVIDES RELATED SERVICES, INTELLIGENT NETWORK AND BROADBAND SOLUTIONS, EQUIPMENT AND RELATED SERVICES. THUS, TH E FUNCTIONS OF BOTH THE COMPANIES ARE DIFFERENT. THERE IS NO SE GMENTAL BIFURCATION AVAILABLE OF INFOSYS LIMITED. HENCE, TH E COMPARABLE MAY BE SCORED THROUGH THE LIST OF COMPARABLE. SIMIL AR OBSERVATION IS APPLICABLE TO WIPRO LTD. THIRDWARE SOLUTIONS LTD. 21. THE COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT A ND EARNS REVENUE FROM TRADING OF SOFTWARE LICENSES AND SUBSC RIPTION. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 29 FURTHER, THE SEGMENTAL INFORMATION OF DIFFERENT STR EAMS OF REVENUE IS NOT AVAILABLE. MEGASOFT LTD. 22. THE TPO WHILE DETERMINING THE ALP USED THE ENTI TY WISE MARGINS INSTEAD OF SEGMENTAL MARGINS. HENCE, NEEDS TO BE OBLITERATED. 23. WITH REGARD TO THE AKSHAY SOFTWARE TECHNOLOGIES LTD. AND SQL STAR INTERNATIONAL LTD., THE SAME CANNOT BE CON SIDERED AS THE REVENUE FILTER AND THE EXPORT TURNOVER FILTER H AVE NOT BEEN MET. ISHIR INFOTECH LTD. 24. THE ASSESSEE CONTENDED THAT THE COMPARABLE FAIL S THE EMPLOYEE COST FILTER AS PER ANNUAL REPORT. HOWEVER, THE INFORMATION PROVIDED U/S 133(6) CLEARS THE EMPLOYEE FILTER. LUCID SOFTWARE LTD. 25. THE COMPANY SUBMITTED THAT IT IS A PURE SOFTWAR E DEVELOPMENT COMPANY AND DOES NOT HAVE ANY REVENUE F ROM SALE OF PRODUCTS OR LICENSE. HENCE, THE APPELLANTS CONT ENTION ON THE SIMILARITY OF THE FUNCTIONS IS OVER RULED. SIMILARL Y, THE CONTENTION THAT AMOUNT INCURRED IN PRODUCT DEVELOPM ENT AND OWING OF THE SOFTWARE PRODUCT DOESNT INFLUENCE THE PROFIT LEVELS ON ANNUAL BASIS. HENCE, WE DECLINE TO INTERFERE WIT H THIS COMPARABLE. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 30 GROUND NO. 2: CAPITALIZATION OF SOFTWARE EXPENSES: 26. THE ASSESSEE DEBITED SOFTWARE EXPENSES TO ITS P &L ACCOUNT WHEREAS THE AO ALTERED THE EXPENSES TO CAPITAL EXPE NDITURE. THE RATIONALE GIVEN BY AO AND THE RELIANCE ON THE D IFFERENT JUDGMENTS IS AS UNDER: I. OUTLAY IS DEEMED TO BE CAPITAL WHEN IT IS MADE FOR THE INITIATION OF A BUSINESS, FOR EXTENSION OF A BUSINE SS OR FOR A SUBSTANTIAL REPLACEMENT OF EQUIPMENT. II. EXPENDITURE MAY BE TREATED AS PROPERLY ATTRIBUT ABLE TO CAPITAL WHEN IT IS MADE NOT ONCE AND FOR ALL, BUT W ITH A VIEW TO BRINGING INTO EXISTENCE AS ASSET OR AN ADVANTAGE FO R THE ENDURING BENEFIT OR A TRADE. THE ENDURING BENEFITS OR THE PERMANENT CHARACTER MEANS ACQUISITION OF THE ASSETS OR THE RIGHT HAVING ENOUGH DURABILITY TO JUSTIFY ITS BEING TREATED AS CAPITAL ASSETS. III. WHETHER THE EXPENDITURE INCURRED WAS A PART OF FIXED CAPITAL OF THE BUSINESS OR A PART OF ITS CIRCULATING CAPITA L. AO HELD THAT THE ENDURING BENEFIT OR THE PERMANENT CHARACTER MEANS ACQUISITION OF THE ASSETS OR THE RIGHT HAVING ENOUGH DURABILITY. A DIVISION BENCH OF THE MADRAS HIGH COU RT IN CIT VS ASHOK LEYLAND LTD. (1969) 72 ITR 137 HAS RULED THAT THE WORD CAPITAL CONNOTES PERMANENCY AND CAPITAL EXPENDITURE AND CAPITAL EXPENDITURE INCLUDES SECURING TANGIBLE AND INTANGIBLE PROPERTY, SO LONG AS THERE IS LASTING OR ENDURING B ENEFIT, AS AGAINST A REVENUE EXPENDITURE WHICH IS OPERATIONAL IN ITS PERSPECTIVE AND IS SOLELY INTENDED FOR FURTHERANCE OF THE ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 31 ENTERPRISE. FOLLOWING THE HONBLE SUPREME COURT DEC ISION IN M/S ASSAM BENGAL CEMENT CO. LTD. VS CIT (1955) 27 ITP 3 4, THE ENDURING BENEFIT OR THE PERMANENT CHARACTER MEANS A CQUISITION OF THE ASSETS OR THE RIGHT HAVING ENOUGH DURABILITY . 27. BEFORE US, DURING THE ARGUMENTS, THE LD. AR REL IED ON THE FOLLOWING JUDGMENTS: CIT VS SOUTHERN ROADWAYS LTD. 288 ITR 15 (MADRAS) L&T RAMBOLL CONSULTING ENGINEERS LTD. VS ACIT IN IT A NO.886/MDS/2006 (CHENNAI ITAT) CIT VS G.E. CAPITAL SERVICES LTD. (2007) 164 TAXMAN 46 (DEL.) AMWAY INDIA ENTERPRISES VS DCIT & SQL STAR INTERNAT IONAL LTD. VS ACIT (2008) 111 ITD (DELHI -SB) IBM INDIA LTD. VS CIT (2006) 290 ITR 183 (BANG.) CIT VS K & CO. (2003) 181 CTR 378 (DEL.) ADDL. CIT VS ASAHI INDIA SAFETY GLASS (2006) 6 SOT 656 (DEL.) ITO VS SHIVANI LOCKS LTD. (2008) 22 SOT 122 (DEL.) 28. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 29. WE HAVE GONE THROUGH THE VARIOUS JUDGMENTS RELI ED UPON BY BOTH THE PARTIES. WE HAVE ALSO GONE THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. 1980 AIR 1946. FROM THE FACTS, RELEVANT TO THE INSTANT CASE, WE FI ND THAT THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET OF ENDU RING IN NATURE WITH REGARD TO THE SOFTWARE PURCHASES. IT IS THE USER RIGHTS WHICH HAS BEEN PURCHASED BY THE ASSESSEE AND REQUIRES UPDATION AND MODIFICATION AT REGULAR INTERVALS. HEN CE, IT CANNOT BE SAID THAT THE ASSESSEE HAS ACQUIRED ANY ASSET CA PITAL IN NATURE BY WAY OF PAYMENT OF SOFTWARE EXPENSES. HENC E, THE ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 32 COMPUTATION OF DEDUCTION U/S 10A: 30. THE ASSESSEE HAS RAISED GROUNDS WITH REGARD TO COMPUTATION OF DEDUCTION U/S 10A PERTAINING TO EXCL USION OF COMMUNICATION CHARGES, EXPENDITURE INCURRED IN FORE IGN EXCHANGE FROM THE EXPORT TURNOVER. THE ISSUE OF COM PUTATION OF DEDUCTION U/S 10A HAS REACHED A FINALITY IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CI T VS HCL TECHNOLOGIES LTD. 404 ITR 719. THE RELEVANT PORTION OF THE SAID ORDER DEALING WITH THE SIMILAR ISSUES RAISED BY THE ASSESSEE IN THE PRESENT APPEAL IS REPRODUCED FOR THE SAKE OF RE ADY REFERENCE: 5. THE ONLY POINT FOR CONSIDERATION BEFORE THIS COURT IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE SOFTWA RE DEVELOPMENT CHARGES ARE TO BE EXCLUDED WHILE WORKING OUT THE DE DUCTION ADMISSIBLE UNDER SECTION 10A OF THE IT ACT ON THE G ROUND THAT SUCH CHARGES ARE RELATABLE TOWARDS EXPENSES INCURRED ON PROVIDING TECHNICAL SERVICES OUTSIDE INDIA? RIVAL CONTENTIONS:- 6. AT THE OUTSET, LEARNED SENIOR COUNSEL FOR THE REVE NUE SUBMITTED THAT WHEN THE TOTAL TURNOVER IS NOT DEFINED UNDER S ECTION 10A OF THE IT ACT, THE ORDINARY MEANING OF THE WORDS IS TO BE ADOPTED. AS IT WAS A TECHNICAL TERM, THE TECHNICAL MEANING OF TOTAL TU RNOVER, WHICH DOES NOT ENVISAGE THE REDUCTION OF ANY EXPENSE FROM THE TOTAL AMOUNT, WAS TO BE TAKEN INTO CONSIDERATION FOR COMPUTING DE DUCTION UNDER SECTION 10A OF THE IT ACT. HENCE, THE FACT THAT THE RESPONDENT HAS CLAIMED EXPENSES LIKE FREIGHT, TELECOMMUNICATION AN D INSURANCE ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE IN DIA TOTAL TURNOVER ALSO, WHILE CALCULATING DEDUCTION UNDER SECTION 10A OF THE IT ACT, DESPITE THE FACT THAT THERE IS NO SUCH PROVISION IN SECTION 10A OF THE IT ACT, IS NOT SUSTAINABLE IN THE EYES OF LAW. THER EFORE, THE IMPUGNED DECISION OF THE HIGH COURT IS LIABLE TO BE SET ASID E. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 33 7. ON THE OTHER HAND, LEARNED SENIOR COUNSEL APPEARIN G FOR THE RESPONDENT SUBMITTED THAT THE EXPORT TURNOVER IS TH E NUMERATOR WHEREAS THE TOTAL TURNOVER IS THE DENOMINATOR IN TH E FORMULA FOR COMPUTING PROFIT FROM EXPORTS. THE EXPORT TURNOVER AS DEFINED IN SECTION 10A OF THE IT ACT WOULD NOT INCLUDE FREIGHT , TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF GOODS OUTSIDE INDIA AND THE EXPENSES INCURRED IN FOREIGN EXCHANGE FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE SAME CANNOT BE INCLUDED IN THE TOTAL TURNOVER AS IF NUMERATOR INCL UDED THE AFORESAID AMOUNT, WHICH THE DENOMINATOR DOESN'T INCLUDE, THE FORMULA WOULD RENDER UNDESIRABLE RESULTS. THEREFORE, THE RESPONDE NT IS LEGALLY ENTITLED TO EXCLUDE THE ABOVE SAID EXPENSES FROM TH E TOTAL TURNOVER AS WELL. HENCE, THESE APPEALS DESERVE TO BE DISMISS ED AT THE OUTSET. DISCUSSION:- 8. THE WHOLE CONTROVERSY REVOLVES AROUND THE CLAIM OF CERTAIN EXPENSES ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE O UTSIDE INDIA OR IN PROVIDING TECHNICAL SERVICES FROM 'TOTAL TURNOVER' BY THE RESPONDENT UNDER SECTION 10A OF THE IT ACT. IT IS AN UNDISPUTE D FACT THAT NEITHER SECTION 10A NOR SECTION 2 OF THE IT ACT DEFINE THE TERM 'TOTAL TURNOVER'. HOWEVER, THE TERM 'TOTAL TURNOVER' IS GI VEN IN CLAUSE (BA) OF THE EXPLANATION TO SECTION 80 HHC OF THE IT ACT WHICH DEFINES THE MEANING OF TOTAL TURNOVER AS FOLLOWS: '(BA) 'TOTAL TURNOVER' SHALL NOT INCLUDE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS OR MERCH ANDISE BEYOND THE CUSTOMS STATIONS AS DEFINED IN THE CUSTOMS ACT, 196 2 (52 OF 1962). PROVIDED THAT IN RELATION TO ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1991, THE EXPRESSION 'TOTAL TURNOVER ' SHALL HAVE EFFECT AS IF IT ALSO INCLUDED ANY SUM REFERRED TO IN CLAUSES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28;' 9. IT IS ALSO PERTINENT TO MENTION HERE THE RELEVANT TERMINOLOGIES WHICH ARE AS UNDER: 'EXPORT TURNOVER: EXPLANATION 2(IV) OF SECTION 10A OF THE IT ACT DEFI NES 'EXPORT TURNOVER' TO MEAN THE CONSIDERATION THAT HAS BEEN R ECEIVED FOR EXPORT OF ARTICLES/THINGS/COMPUTER SOFTWARE. NORMAL LY THE ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 34 CONSIDERATION WILL INCLUDE THE FREIGHT/TELECOMMUNIC ATION CHARGES/INSURANCE WHICH HAD BEEN INCURRED TO DELIVE R THE ARTICLE/THINGS/COMPUTER SOFTWARE OUTSIDE INDIA. HOW EVER, THE EXPLANATION 2(IV) SPECIFICALLY SEEKS TO EXCLUDE THE SE THREE CATEGORIES OF EXPENDITURE INCURRED FOR DELIVERING THE EXPORT O F ARTICLES/THINGS/COMPUTER SOFTWARE. IT ALSO SEEKS TO EXCLUDE EXPENSES FOR PROVIDING TECHNICAL SERVICE, ETC. OUTSIDE INDIA . THEREFORE, WHERE AN INDIAN TECHNICIAN GOES ABROAD AND RECEIVES FEES FOR SERVICE, THE FOREIGN CLIENT WILL NORMALLY BE REQUIRED TO REIMBUR SE THE EXPENSES AS WELL. THEREFORE, OUT OF THE CONSIDERATION RECEIVED, THE PORTION REPRESENTING REIMBURSEMENT OF EXPENDITURE HAS TO BE EXCLUDED. EXPORT TURNOVER AND TOTAL TURNOVER: THE 'TOTAL TURNOVER' HAS BEEN DEFINED IN SECTIONS 8 0HHC AND 80HHE ONLY TO EXCLUDE ADDITIONAL ITEMS GIVEN UNDER SECTIO N 28. BUT FOR THIS ADDITIONAL EXCLUSION, THERE WAS NO NEED TO DEFINE ' TOTAL TURNOVER'. EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER. I F THE ENTIRE TURNOVER REPRESENTS EXPORT PROCEEDS, THEN THE EXPOR T TURNOVER AND THE TOTAL TURNOVER ARE IDENTICAL. IT IS CLEAR THAT ANY EXCLUSION IN THE EXPORT TURNOVER IN THE NUMERATOR WILL AUTOMATICALLY IMPLY EXCLUSION IN THE DENOMINATOR AS WELL BECAUSE EXPORT TURNOVER IS ALWAYS A COMPONENT OF TOTAL TURNOVER. EXPORT TURNOVER/TOTAL TURNOVER/BUSINESS: FORM 56F PRESCRIBES THE REPORT UNDER SECTION 10A FO R AND ANNEXURE- A THERETO REFERS TO 'EXPORT PROCEEDS' AND 'SALE PRO CEEDS'. BOTH TOGETHER FORM THE TOTAL TURNOVER OF THE UNDERTAKING .' 10. THE QUESTION ARISES HERE THAT WHEN THE PARTICULAR TERM HAS NOT BEEN DEFINED IN ANY PARTICULAR SECTION, IS IT ALLOW ED TO IMPORT THE MEANING OF SUCH TERM FROM THE OTHER PROVISIONS OF T HE SAME ACT? SECTION 10A OF THE IT ACT IS A SPECIAL BENEFICIAL P ROVISION AND THE PURPOSE OF DEDUCTION UNDER SUCH SECTION IS TO ENCOU RAGE AND BOOST THE NEW BUSINESS UNDERTAKINGS SITUATED IN THE FREE TRADE ZONE OF THIS NATION BY PROVIDING SUITABLE DEDUCTIONS TO SUCH BUS INESS ENTITIES. SOMETIMES, WHILE CALCULATING THE DEDUCTION, DISPUTE S ARISE REGARDING THE METHODOLOGY OF DEDUCTION WHICH OUGHT TO BE FOLL OWED. UNDISPUTEDLY, IT IS A MATTER OF RECORD THAT THE RES PONDENT IS ENGAGED IN THE ACTIVITY OF TRADING OF GENERIC SOFTWARE AND PROVIDING ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 35 CUSTOMIZED SOFTWARE DEVELOPMENT SERVICES FOR DOMEST IC AS WELL AS FOR FOREIGN CLIENTS THROUGH ITS TWO UNITS SITUATED IN SOFTWARE TECHNOLOGY PARK, GURGAON (NOW GURUGRAM) WHICH FALLS UNDER THE DEFINITION OF THE SECTION 10A OF THE IT ACT. THE CO NTENTION OF THE RESPONDENT IS THAT IT INCURRED EXPENDITURE IN FOREI GN EXCHANGE IN SENDING PROFESSIONALS ABROAD AS PER THE AGREEMENTS WITH THE FOREIGN CONSTITUENTS. 11. ON AN ANALYSIS OF THE RESPONDENT'S ACTIVITY TAKEN FROM ITS WEBSITE, ASSESSING OFFICER ARRIVED AT A CONCLUSION THAT RESPONDENT HAS BEEN RENDERING TECHNICAL SERVICES OUTSIDE INDIA AND, THEREFORE, EXPENSES INCURRED ON SUCH ACTIVITY ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER WHILE WORKING OUT THE DEDUCTION ADMISSIBLE UNDER SECTION 10A OF THE IT ACT. THE ASSESSING OFFI CER ESTIMATED 60% OF THE SOFTWARE DEVELOPMENT CHARGES REQUIRED TO BE ATTRIBUTED TOWARDS EXPENSES INCURRED FOR PROVIDING TECHNICAL S ERVICES OUTSIDE INDIA. ON APPEAL, LEARNED CIT (APPEALS) AGAIN MADE A DETAILED ANALYSIS OF THE ACTIVITY OF THE RESPONDENT AND ARRI VED AT A CONCLUSION THAT THE ASSESSING OFFICER FAILED TO BRING ANY EVID ENCE WHICH CAN INDICATE THAT RESPONDENT WAS PROVIDING TECHNICAL SE RVICES OUTSIDE INDIA AND IT HAS INCURRED EXPENSES TOWARDS SALARY E TC. ON RENDERING SUCH SERVICES. INSPITE THAT, LEARNED CIT (APPEALS), ESTIMATED 10% OF SOFTWARE DEVELOPMENT CHARGE AS CHARGES INCURRED FOR TECHNICAL SERVICES PROVIDED OUTSIDE INDIA. 12. IT IS UNDISPUTED FACT THAT THE RESPONDENT WAS ENGA GED IN THE BUSINESS OF SOFTWARE DEVELOPMENT FOR ITS CUSTOMERS ENGAGED IN DIFFERENT ACTIVITIES AT SOFTWARE DEVELOPMENT CENTRE S OF THE RESPONDENT. HOWEVER, IN THE PROCESS OF SUCH CUSTOMI ZED SOFTWARE DEVELOPMENT, CERTAIN ACTIVITIES WERE REQUIRED TO BE CARRIED OUT AT THE SIGHT OF CUSTOMERS ON SITE, LOCATED OUTSIDE INDIA F OR WHICH THE EMPLOYEES OF THE BRANCHES OF THE RESPONDENT LOCATED IN THE COUNTRY OF THE CUSTOMERS ARE DEPLOYED. IT IS TRUE THAT IT I S NOT DEFINED THAT WHICH ACTIVITY WILL BE TERMED AS PROVIDING TECHNICA L SERVICES OUTSIDE INDIA. MOREOVER, AFTER DELIVERY OF SUCH SOFTWARES A S PER REQUIREMENT, IN ORDER TO MAKE IT FULLY FUNCTIONAL AND HASSLEFREE FUNCTIONING SUBSEQUENT TO THE DELIVERY OF SOFTWARES IN MANY CAS ES, THERE CAN BE REQUIREMENT OF TECHNICAL PERSONNEL TO VISIT THE CLI ENT ON SITE. THE ASSESSING OFFICER COULD NOT BRING ANY EVIDENCE THAT THE RESPONDENT WAS ENGAGED IN PROVIDING SIMPLY TECHNICAL SERVICES INDEPENDENT TO SOFTWARE DEVELOPMENT FOR THE CLIENT FOR WHICH THE E XPENDITURES WERE INCURRED OUTSIDE INDIA IN FOREIGN CURRENCY. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 36 13. THE RESPONDENT COMPANY HAS CLAIMED DEDUCTION UNDER SECTION 10A AS PER CERTIFICATES FILED ON FORM NO. 56F. THE RESPONDENT, WHILE COMPUTING THE DEDUCTION, HAS TAKEN THE SAME FIGURE OF EXPORT TURNOVER AS OF TOTAL TURNOVER. THE RESPONDENT CITED VARIOUS JUDICIAL CASES BUT ALL THESE CASES PERTAIN TO DEDUCTION UNDE R SECTION 80HHC. FURTHER, THE DEFINITION OF TOTAL TURNOVER HAS BEEN DEFINED IN SECTION 80HHC AND 80HHE OF THE IT ACT. AS DISCUSSED EARLIER , THE DEFINITION OF TOTAL TURNOVER HAS NOT BEEN DEFINED UNDER SECTIO N 10A OF THE IT ACT. 14. IN THE ABOVE BACKDROP, WE ARE OF THE OPINION THAT THE DEFINITION OF TOTAL TURNOVER GIVEN UNDER SECTIONS 80HHC AND 80 HHE CANNOT BE ADOPTED FOR THE PURPOSE OF SECTION 10A AS THE TECHN ICAL MEANING OF TOTAL TURNOVER, WHICH DOES NOT ENVISAGE THE REDUCTI ON OF ANY EXPENSES FROM THE TOTAL AMOUNT, IS TO BE TAKEN INTO CONSIDERATION FOR COMPUTING THE DEDUCTION UNDER SECTION 10A. WHEN THE MEANING IS CLEAR, THERE IS NO NECESSITY OF IMPORTING THE MEANI NG OF TOTAL TURNOVER FROM THE OTHER PROVISIONS. IF A TERM IS DE FINED UNDER SECTION 2 OF THE IT ACT, THEN THE DEFINITION WOULD BE APPLICABLE TO ALL THE PROVISIONS WHEREIN THE SAME TERM APPEARS. AS TH E TERM 'TOTAL TURNOVER' HAS BEEN DEFINED IN THE EXPLANATION TO SE CTION 80HHC AND 80HHE, WHEREIN IT HAS BEEN CLEARLY STATED THAT 'FOR THE PURPOSES OF THIS SECTION ONLY', IT WOULD BE APPLICABLE ONLY FOR THE PURPOSES OF THAT SECTIONS AND NOT FOR THE PURPOSE OF SECTION 10 A. IF DENOMINATOR INCLUDES CERTAIN AMOUNT OF CERTAIN TYPE WHICH NUMER ATOR DOES NOT INCLUDE, THE FORMULA WOULD RENDER UNDESIRABLE RESUL TS. 15. A STATUTE IS THE INTENTION OF THE LEGISLATURE WHO ENACTS IT AFTER HAVING REGARD TO VARIOUS FACTS AND CIRCUMSTANCES. I T IS A CARDINAL PRINCIPLE OF LAW THAT THE INTERPRETATION BY THE COU RT SHALL BE DONE IN SUCH A WAY THAT THE INTENTION OF THE LEGISLATURE SH ALL PREVAIL AND NO INJUSTICE OCCURRED WITH THE PARTIES. THE RULE OF HA RMONIOUS CONSTRUCTION IS THE THUMB RULE TO INTERPRETATION OF ANY STATUTE. AN INTERPRETATION WHICH MAKES THE ENACTMENT A CONSISTE NT WHOLE, SHOULD BE THE AIM OF THE COURTS AND A CONSTRUCTION WHICH A VOIDS INCONSISTENCY OR REPUGNANCY BETWEEN THE VARIOUS SEC TIONS OR PARTS OF THE STATUE SHOULD BE ADOPTED. 16. IN CIT V. J.H. GOTLA [1985] 23 TAXMAN 14J/156 ITR 323 (SC) THIS COURT HAS HELD AS UNDER: ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 37 '46. WHERE THE PLAIN LITERAL INTERPRETATION OF A ST ATUTORY PROVISION PRODUCES A MANIFESTLY UNJUST RESULT WHICH COULD NEV ER HAVE BEEN INTENDED BY THE LEGISLATURE, THE COURT MIGHT MODIFY THE LANGUAGE USED BY THE LEGISLATURE SO AS TO ACHIEVE THE INTENT ION OF THE LEGISLATURE AND PRODUCE A RATIONAL CONSTRUCTION. TH E TASK OF INTERPRETATION OF STATUTORY PROVISION IS AN ATTEMPT TO DISCOVER THE INTENTION OF THE LEGISLATURE FROM THE LANGUAGE USED . 47 .IF THE PURPOSE OF A PARTICULAR PROVISION IS EA SILY DISCERNIBLE FROM THE WHOLE SCHEME OF THE ACT WHICH, IN THE PRES ENT CASE, WAS TO COUNTERACT, THE EFFECT OF THE TRANSFER OF ASSETS SO FAR AS COMPUTATION OF INCOME OF THE RESPONDENT WAS CONCERN ED, THEN BEARING THAT PURPOSE IN MIND, THE INTENTION SHOULD BE FOUND OUT FROM THE LANGUAGE USED BY THE LEGISLATURE AND IF ST RICT LITERAL, CONSTRUCTION LEADS TO AN ABSURD RESULT, I.E. RESULT NOT INTENDED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION FOUND OUT IN THE MANNER INDICATED ABOVE, THEN IF OTHER CONSTRUCTION IS POSSIBLE APART FROM STRICT LITERAL CONSTRUCTION, THEN THAT C ONSTRUCTION SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCTION. TH OUGH EQUITY AN TAXATION ARE OFTEN STRANGERS, ATTEMPT SHOULD BE MAD E THAT THESE DO NOT REMAIN SO ALWAYS SO AND IF A CONSTRUCTION RE SULTS IN EQUITY RATHER THAN IN INJUSTICE , THEN SUCH CONSTRUCTION S HOULD BE PREFERRED TO THE LITERAL CONSTRUCTION. FURTHERMORE, IN THE INSTANT CASE, WE ARE DEALING WITH AN ARTIFICIAL LIABILITY C REATED FOR COUNTERACTING THE EFFECT ONLY OF ATTEMPTS BY THE AS SESSEE TO REDUCE TAX LIABILITY BY TRANSFER.' 17. THE SIMILAR NATURE OF CONTROVERSY, AKIN THIS CASE, AROSE BEFORE THE KARNATAKA HIGH COURT IN CIT V. TATA ELXSI LTD. [2012] 204 TAXMAN 321/17/TAXMANN.COM 100/349 ITR 98 . THE ISSUE BEFORE THE KARNATAKA HIGH COURT WAS WHETHER THE TRIBUNAL WAS C ORRECT IN HOLDING THAT WHILE COMPUTING RELIEF UNDER SECTION10 A OF THE IT ACT, THE AMOUNT OF COMMUNICATION EXPENSES SHOULD BE EXCL UDED FROM THE TOTAL TURNOVER IF THE SAME ARE REDUCED FROM THE EXP ORT TURNOVER? WHILE GIVING THE ANSWER TO THE ISSUE, THE HIGH COUR T, INTER-ALIA, HELD THAT WHEN A PARTICULAR WORD IS NOT DEFINED BY THE L EGISLATURE AND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO IT, THE SAI D ORDINARY MEANING IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. HENCE, WHAT IS EXCLUDED FROM 'EXPORT TURNOVER' MUST ALSO B E EXCLUDED FROM 'TOTAL TURNOVER', SINCE ONE OF THE COMPONENTS OF 'T OTAL TURNOVER' IS EXPORT TURNOVER. ANY OTHER INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND WOULD BE IMPERMISSIBLE. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 38 18. ACCORDINGLY, THE FORMULA FOR COMPUTATION OF THE DE DUCTION UNDER SECTION 10A OF THE ACT WOULD BE AS FOLLOWS: EXPORT PROFIT = TOTAL PROFIT OF THE BUSINESS EXPORT TURNOVER AS DEFINED IN EXPLANATION 2 (IV) OF SECTION 10A OF IT ACT EXPORT TURNOVER AS DEFINED IN EXPLANATION 2(IV) OF SECTION 10A OF THE IT ACT + DOMESTIC SALE PROCEEDS 19. IN THE INSTANT CASE, IF THE DEDUCTIONS ON FREIGHT, TELECOMMUNICATION AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE UNDER SECTION10A OF THE IT ACT AR E ALLOWED ONLY IN EXPORT TURNOVER BUT NOT FROM THE TOTAL TURNOVER THE N, IT WOULD GIVE RISE TO INADVERTENT, UNLAWFUL, MEANINGLESS AND ILLO GICAL RESULT WHICH WOULD CAUSE GRAVE INJUSTICE TO THE RESPONDENT WHICH COULD HAVE NEVER BEEN THE INTENTION OF THE LEGISLATURE. 20. EVEN IN COMMON PARLANCE, WHEN THE OBJECT OF THE FO RMULA IS TO ARRIVE AT THE PROFIT FROM EXPORT BUSINESS, EXPENSES EXCLUDED FROM EXPORT TURNOVER HAVE TO BE EXCLUDED FROM TOTAL TURN OVER ALSO. OTHERWISE, ANY OTHER INTERPRETATION MAKES THE FORMU LA UNWORKABLE AND ABSURD. HENCE, WE ARE SATISFIED THAT SUCH DEDUC TION SHALL BE ALLOWED FROM THE TOTAL TURNOVER IN SAME PROPORTION AS WELL. 21. ON THE ISSUE OF EXPENSES ON TECHNICAL SERVICES PRO VIDED OUTSIDE, WE HAVE TO FOLLOW THE SAME PRINCIPLE OF INTERPRETAT ION AS FOLLOWED IN THE CASE OF EXPENSES OF FREIGHT, TELECOMMUNICATION ETC., OTHERWISE THE FORMULA OF CALCULATION WOULD BE FUTILE. HENCE, IN THE SAME WAY, EXPENSES INCURRED IN FOREIGN EXCHANGE FOR PROVIDING THE TECHNICAL SERVICES OUTSIDE SHALL BE ALLOWED TO EXCLUDE FROM T HE TOTAL TURNOVER. 31. HENCE, FOLLOWING THE JUDGMENT OF HONBLE APEX C OURT, WE HEREBY ALLOW THE APPEAL OF THE ASSESSEE ON GROUND N OS. 3 & 4. ITA NOS. 5553& 5554/DEL/2011 ALCATEL LUCENT INDIA LTD. 39 32. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/08/2021. SD/- SD/- (AMIT SHUKLA) (D R. B. R. R. KUMAR) JUDICIAL MEMBER ACCOU NTANT MEMBER . DATED: 16/08/2021 *SUBODH KUMAR, SR. PS* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR