M/s. Motorola Solutions India Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 5797/DEL/2012

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6850 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 19-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARACIT
• Keywords: Related party transaction; Capital asset; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Additional evidence; Corroborative evidences; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 92D; 133(6); 10B; 144C; 64; 263; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER, ITA NO.5797/DEL/2012 [ASSESSMENT YEAR: 2008-09] M/S MOTOROLA SOLUTIONS INDIA PVT. LTD.(FORMERLY KNOWN AS MOTOROLA INDIA PVT. LTD.), 415/2, MEHRAULI GURGAON ROAD, GURGAON-122001 DCIT, CIRCLE-2, 4 TH FLOOOR, VANIJYA KUNJ, HSIIDC BUILDING, UDYOG VIHAR, PHASE V, NR. SHANKAR CHOWK, N.H.-8 GURGAON PAN-AAACM9343D APPELLANT RESPONDENT APPELLANT BY SHRI HIMANSHU S. SINHA, MS. VRINDA TULSHAN, SHRI YASH VARMANI, SHRI MANONEET DALAL, SHRI YOGESH ARORA, MS. SHRADHA GUPTA SHRI VIPIN SHARMA RESPONDENT BY SHRI SANJAY I BARA-CIT -DR DATE OF HEARING 07/08/2019 DATE OF PRONOUNCEMENT 31/10/2019 ORDER PER SUCHITRA KAMBLE, JUDICIAL MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE DCIT- CIRCLE-II, GURGAON, DATED 08/11/2012 U/S 143(3) REA D WITH SECTION 144C OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEAR 200 8-09. 2. GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSMENT ORDER PASSED BY THE LD. ASSESSING OFFICER ('AO') IS BAD I N LAW. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO AND LD TPO HAVE ERRED IN RE-DETERMINING THE ARMS L ENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REFERENCE MADE BY THE LD. AO SUFFERS FROM JURISDICTIONAL ERRO R AS THE LD. AO DID NOT 2 RECORD ANY REASONS IN THE DRAFT ASSESSMENT ORDER BA SED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS EXPEDIENT AND N ECESSARY TO REFER THE MATTER TO THE LD. TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF THE ARMS LENGTH PRICE, AS IS REQUIRED UNDER SECTION 92 CA(1) OF THE INCOME TAX ACT, 1961 (ACT). 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ LD. TPO AND LD. DRP ERRED IN ENHANCING THE INC OME OF THE APPELLANT BY RS. 2,17,04,89,288 AS THE COMPENSATION FOR ITS ADVERTISEMENT MARKETING AND PROMOTION (AMP) SERVI CES BY HOLDING THAT THE APPELLANT INCURS EXCESSIVE AMP EXPENSES IN RE LATION TO ITS DISTRIBUTION ACTIVITIES THEREBY QUALIFYING AS SERV ICES AS PER THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT, AND IN DO ING SO HAVE GROSSLY ERRED IN: 4.1 DISREGARDING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT REPRESENT PURELY DOMESTIC TRANSACTION(S) UNDERTAKE N TOWARDS THIRD PARTIES, NOT COVERED UNDER THE PURVIEW OF SECTION 9 2 OF THE ACT AND THAT THE ANALYSIS OF DOMESTIC TRANSACTIONS UNDERTAKEN WITH THIRD PARTIES, IN RESPECT OF WHICH NO TP REFERENCE HAS BEEN MADE BY T HE LD. AO TO THE LD. TPO. IS BEVOND THE POWERS VESTED WITH THE TPO UNDER SECTION 92CA OF THE ACT; 4.2. INCORRECTLY APPLYING THE 'BRIGHT LINE- CONCE PT TO THE APPELLANT'S MANUFACTURING SEGMENT/ OPERATIONS; 4.3. IGNORING THE FACT THAT ONCE THE APPELLANTS I NTERNATIONAL TRANSACTIONS ARE ACCEPTED TO BE AT ARMS LENGTH A FTER APPLICATION OF TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOS T APPROPRIATE METHOD, CHALLENGING/' ANALYSING INDIVIDUAL ELEMENTS OF COSTS (LIKE THE AMP EXPENSES) IS INCONSISTENT WITH THE TENETS OF TH E APPLICATION OF TNMM; 4.4. COMPLETELY DISREGARDING THE BUSINESS AND PRICI NG MODEL OF THE APPELLANT IN RELATION TO ITS DISTRIBUTION ACTIVITIE S WHICH COMPENSATES THE APPELLANT FOR THE ALLEGED EXCESS AMP EXPENSES, IF ANY; 4.4.1 IGNORING THE FACT THAT THE AMP EXPENSES INCUR RED BY THE APPELLANT WERE IN RESPECT OF ITS OWN BUSINESS REQUIREMENTS CO NSIDERATIONS/ PURPOSES AND THAT ALL AND ANY BENEFIT RESULTING FRO M -NICH EXPENDITURE ARE TO ITS OWN ACCOUNT (IN THE FORM OF INCREASED SA LES AND MARKET SHARE I AND BENEFIT, IF ANV. TO THE OVERSEAS AKS. WAS PUREL Y INCIDENTAL: 4.5. IN INCORRECTLY COMPUTING THE AMP EXPENSES SALE S 4.6. INCORRECTLY HOLDING THE .AMP EXPENSES INCURRED BV THE APPELLANT TO BE 'EXCESSIVE ON THE BASIS OF A 'BRIGHT LINE LIMIT ARRIVED AT BV CONSIDERING INAPPROPRIATE COMPARABLES- WHICH DO NOT OPERATE ON THE SAME LEVEL ON THE BUSINESS VALUE CHAIN AS THE APPEL LANT AND ARE NOT COMPARABLE TO THE LEVEL OF ADVERTISEMENT AND MARKET ING ACTIVITIES UNDERTAKEN AND COSTS INCURRED BY THE APPELLANT: 4.6.1 IN REJECTING THE COMPARABLES PROVIDED AS A RESULT OF FRESH SEARCH CARRIED OUT BY THE APPELLANT TO IDENTIFY SUC H COMPANIES WHICH 3 ARE COMPARABLE TO IT IN TERMS OF THE VALUE CHAIN AN D POSITION OF THE BRAND / BRAND PROFILE; 4.6.2 IN REJECTING COMPARABLE COMPANIES, VIZ., SPICE MOB ILES LTD.. BHARTI TELETECH LTD AND GENERAL SALES LTD. FROM THE COMPARABLE SET USED TO DETERMINE THE 'BRIGHT LINE LIMIT IN THE AP PELLANTS CASE BASED ON ERRONEOUS/ INAPPROPRIATE REASONING; 4.7. ERRONEOUSLY HOLDING THAT THE APPELLANT HAS REN DERED SERVICES TO THE AES BY INCURRING EXCESSIVE AMP EXPENSES A ND BY HOLDING THAT A MARK-UP HAS TOBE EARNED BY THE APPELLANT IN RESPE CT OF THE 'ALLEGED EXCESSIVE' AMP EXPENSES; 4.8. IN APPLYING A MARK-UP OF 15% ON THE 'ALLEGED E XCESSIVE AMP EXPENSES, FOR DETERMINING THE COMPENSATION/ SERVICE FEE TOWARDS 'ALLEGED AMP SERVICE' BY THE APPELLANT TO ITS AHS: 4.9 THAT THE LD. AO AND LD. TPO, ON THE FACTS AND C IRCUMSTANCES OF THE CASE AND IN LAW HAVE ERRED IN NOT FOLLOWING THE BIN DING DIRECTION ISSUED BY THE LD. DRP REGARDING THE INCLUSION OF M/S SPICE MOBILITY LTD., M/S GENERAL SALES LTD AS COMPARABLES OF THE APPELLANT F OR THE PURPOSE OF COMPUTING THE ARMS LENGTH PRICE OF THE ALLEGED INT ERNATIONAL TRANSACTION OF 'EXCESSIVE AMP EXPENSES. 5. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD TPO/ LD AO AND LD DRP ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY RS. 1,01,18.80,848 WHILE RECOMPUTING THE ARMS L ENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO ITS CONTRA CT SOFTWARE DEVELOPMENT (CSD) SERVICES AND IN DOING SO HAVE GROSSLY ERRED IN: 5.1 DISREGARDING THE ALP AS DETERMINED BY THE APPELLAN T IN THE TP DOCUMENTATION 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 PARTICULAR MODIFYING/ REJECTIN G THE FILTERS APPLIED BY THE APPELLANT; 5.2 REJECTING THE TP DOCUMENTATION MAINTAINED BY THE A PPELLANT UNDER SECTION 92D OF THE ACT AND RULE 10D OF THE RU LES AND DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE TP DOCUMENTATION; DISREGARDING MULTIPLE YEAR/ PRIOR YEARS DATA AS US ED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FY 2007-08) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABL E TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 5.4 IGNORING THE FACT THAT THE APPELLANT IS ENTITLED T O TAX HOLIDAY UNDER SECTION 10A /10B OF THE ACT ON PART OF ITS PR OFITS FROM CSD SERVICES AND THEREFORE WOULD NOT HAVE ANY UNTOWARD MOTIVE OF DERIVING A TAX ADVANTAGE BY MANIPULATING TRANSFER P RICES OF ITS INTERNATIONAL TRANSACTIONS; 4 5.5 COLLECTING INFORMATION OF THE COMPANIES BY EXERCIS ING POWER GRANTED TO HIM UNDER SECTION 133(6) OF THE ACT THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DOMAIN AND RELYING O N SELECTIVE INFORMATION FOR COMPARABILITY PURPOSES (AND TO THE EXTENT OF COMPLETELY IGNORING RELIABLE DATA AVAILABLE IN PUBL IC DOMAIN/ ANNUAL REPORTS IN NUMEROUS CASES); 5.5.1 AND IN DOING SO VIOLATING THE FUNDAMENTAL PRINCIPL ES OF NATURAL JUSTICE BY RELYING ON THE INFORMATION SOURCED UNDER SECTION 133(6); AND ALSO BY 5.5.2 NOT SHARING WITH THE APPELLANT, IN CASE OF A NUMBE R OF COMPARABLES, THE INFORMATION/ REPLY RECEIVED BY THE TPO/ AO U/S 133(6) DURING THE ASSESSMENT PROCEEDINGS. 5.6 REJECTING COMPARABILITY ANALYSIS IN THE TP DOCUMENT ATION/ APPELLANTS FRESH SEARCH AND IN CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF THE FOLLOWING ADDI TIONAL/ REVISED FILTERS IN DETERMINING THE ALP FOR THE CSD SEGMENT; 5.6.1 EXCLUSION OF COMPANIES WHOSE DATA FOR FY 2007-08 WA S NOT AVAILABLE; 5.6.2 EXCLUSION OF COMPANIES WITH RELATED PARTY TRANSACTI ONS (RPT) GREATER THAN 25% OF THEIR SALES; 5.6.3 EXCLUSION OF COMPANIES WITH EXPORT SALES THAT ARE LESS THAN 25% OF THEIR TOTAL REVENUE; 5.6.4 EXCLUSION OF COMPANIES WITH DIMINISHING REVENUES/ PERSISTENT LOSSES FOR LAST THREE YEARS UPTO AND INCLUDING FY 2 007-08; 5.6.5 EXCLUSION OF COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E. NOT MARCH 31, 2008); 5.6.6 ADOPTING EMPLOYEE COST TO REVENUES GREATER THAN 25% OF THEIR TOTAL REVENUES AS A SEARCH CRITERIA FOR SHORT LISTI NG AND EVALUATING COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICES; 5.6.7 EXCLUSION OF COMPANIES WITH ONSITE REVENUES GREATE R THAN 75% OF THEIR EXPORT REVENUES FOR SELECTING COMPARABLES FOR CONTRACT SOFTWARE DEVELOPMENT SERVICES; AND REJECTING, IN PA RTICULAR, THE FOLLOWING FILTERS APPLIED BY THE APPELLANT IN ITS T P DOCUMENTATION/ FRESH SEARCH: 5.6.8 COMPANIES HAVING OTHER OPERATING INCOME (IE INCOME OTHER THAN MANUFACTURING AND TRADING INCOME) TO SALES GREATER THAN 50% WERE ACCEPTED; 5.6.9 COMPANIES WITH NET WORTH LESS THAN ZERO WERE REJEC TED; 5.6.10 COMPANIES HAVING RESEARCH & DEVELOPMENT COSTS TO S ALES LESS THAN 3% WERE ACCEPTED; AND 5.6.11 COMPANIES HAVING ADVERTISING, MARKETING AND DISTRI BUTION COSTS TO SALES LESS THAN 3% WERE ACCEPTED. 5.7 IGNORING THE FACT THAT THE APPELLANT RECEIVES PAYM ENTS FOR 5 SERVICES WITHIN STIPULATED PERIOD OF TIME AND HENCE ENJOYS A FAVOURABLE WORKING CAPITAL POSITION. ACCORDINGLY, A WORKING CAPITAL ADJUSTMENT VIS-A-VIS THE COMPARABLES IS ESSENTIAL I N THE INSTANT CASE FOR THE CSD SERVICES SEGMENT; 5.8 INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES' SET FOR BENCHMARKING A LOW RISK CAPTIV E UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMENTS ON THE ISSUE), THUS DEMONSTRATING AN INTENTION TO ARRIVE AT A PRE-FORMU LATED OPINION WITHOUT COMPLETE AND ADEQUATE APPLICATION OF MIND W ITH THE SINGLE- MINDED INTENTION OF MAKING AN ADDITION TO THE RETUR NED INCOME OF THE APPELLANT; 5.9 INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPARABL E TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS E MPLOYED AND RISKS ASSUMED; 5.10 RESORTING TO ARBITRARY REJECTION OF LOW-PROFIT/ LO SS MAKING COMPANIES BASED ON ERRONEOUS, AND INCONSISTENT REAS ONS; 5.11 EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED: 5.12 EXCLUSION OF CERTAIN COST SUCH AS PROVISION FOR DOU BTFUL DEBTS FROM THE TOTAL COST AND INCLUSION OF FOREIGN EXCHAN GE LOSS OR GAIN IN COMPUTATION OF MARK-UP OF CERTAIN COMPARABLE COMPAN IES; AND 5.13 IGNORING THE BUSINESS/ COMMERCIAL REALITY THAT SINCE THE APPELLANT FOR ITS CSD SERVICES SEGMENT IS REMUNERAT ED 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 A NALYSIS, THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAI NST COMPARABLE COMPANIES THAT ARE FULL-FLEDGED RISK TAKING ENTREPR ENEURS, AND BY NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT ON ACCO UNT OF THIS FACT; AND 5.14 COMMITTING A NUMBER OF FACTUAL ERRORS IN ACCEPT-REJ ECT OF COMPARABLES AND/ OR IN THE COMPUTATION OF THE OPERA TING PROFIT MARGINS OF THE COMPARABLES; 5.15 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO AND LD. AO ERRED IN NOT FOLLOWING THE BINDI NG DIRECTIONS ISSUED BY THE LD. DRP IN RESPECT OF RE-COMPUTING TH E MARGINS FOR M/S SOFTSOL LIMITED AND IN RESPECT OF RE COMPUTING THE MARGINS BY KEEPING OUT THE FOREX COMPONENT OUT OF THE PLI FOR BOTH THE APPELLANT AS WELL AS THE COMPARABLES 6 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CA SE AND IN LAW-, THE LD AO/TPO AND THE LD DRP ERRED IN ENHANCING THE INCOME FROM ADMINISTRATIVE AND MARKETING SUPPORT SERVICES BUSIN ESS SEGMENT OF THE APPELLANT BY RS 16,62,27,059 ON ACCOUNT OF AN ARMS LENGTH ADJUSTMENT AND IN DOING SO GROSSLY ERRED IN: 6 6.1. REJECTING COMPARABILITY ANALYSIS IN THE TP DOCUMENT ATION/ APPELLANTS FRESH SEARCH AND IN CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF THE FOLLOWING ADDI TIONAL/REVISED FILTERS IN DETERMINING THE ALP FOR THE ADMINISTRATI VE AND MARKETING SUPPORT SERVICES SEGMENT; 6.1.1 COMPANIES HAVING OTHER OPERATING INCOME (IE INCOME OTHER THAN MANUFACTURING AND TRADING INCOME) TO SALES GREATER THAN 75% WERE ACCEPTED 6.1.2 EXCLUSION OF COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (IE NOT MARCH 31, 2008); 6.1.3 EXCLUSION OF COMPANIES WITH RELATED PARTY TRANSACT IONS GREATER THAN 25% OF THEIR SALES; AND REJECTING, IN PARTICULAR, THE FOLLOWING FILTERS APPLIED BY THE APPELLANT IN ITS TP DOCUMENTATION/ FRESH SEARCH: 6.1.4 COMPANIES HAVING OTHER OPERATING INCOME (IE INCOME OTHER THAN MANUFACTURING AND TRADING INCOME) TO SALES GREATER THAN 50% WERE ACCEPTED; 6.1.5 COMPANIES WITH NET WORTH LESS THAN ZERO WERE REJEC TED; AND 6.1.6 COMPANIES HAVING RESEARCH & DEVELOPMENT COSTS TO S ALES LESS THAN 3% WERE ACCEPTED; 6.1.7 COMPANIES HAVING ADVERTISING, MARKETING AND DISTRI BUTION COSTS TO SALES LESS THAN 3% WERE ACCEPTED. 6.2. IGNORING THE FACT THAT THE APPELLANT RECEIVES PAYM ENTS FOR SERVICES WITHIN STIPULATED PERIOD OF TIME AND HENCE ENJOYS A FAVOURABLE WORKING CAPITAL POSITION. ACCORDINGLY, A WORKING CAPITAL ADJUSTMENT VIS-A-VIS THE COMPARABLES IS ESSENTIAL F OR THE ADMINISTRATIVE AND MARKETING SUPPORT SERVICES SEGME NT; 6.3. INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES' SET FOR BENCHMARKING A LOW RISK CAPTIV E UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMENTS ON THE ISSUE), THUS DEMONSTRATING AN INTENTION TO ARRIVE AT A PRE-FORMU LATED OPINION WITHOUT COMPLETE AND ADEQUATE APPLICATION OF MIND W ITH THE SINGLE- MINDED INTENTION OF MAKING AN ADDITION TO THE RETUR NED INCOME OF THE APPELLANT; 6.4. INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS E MPLOYED AND RISKS ASSUMED; 6.5. RESORTING TO ARBITRARY REJECTION OF LOW-PROFIT/ LO SS MAKING COMPANIES BASED ON ERRONEOUS AND INCONSISTENT REASO NS; 6.6. EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIVOLOU S GROUNDS 7 EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED; 6.7. EXCLUSION OF CERTAIN COST SUCH AS PROVISION FOR DO UBTFUL DEBTS FROM THE TOTAL COST AND INCLUSION OF FOREIGN EXCHAN GE LOSS OR GAIN IN COMPUTATION OF MARK-UP OF CERTAIN COMPARABLE COMPAN IES; AND 6.8. IGNORING THE BUSINESS/ COMMERCIAL REALITY THAT SIN CE THE APPELLANT FOR ITS ADMINISTRATIVE AND MARKETING SUPP ORT SERVICES SEGMENT IS REMUNERATED ON AN ARM'S 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 UND ERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL-FLEDGED RISK TAKING ENTREPRENEURS, AND BY NOT ALLOWING A RI SK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FACT; AND 6.9. COMMITTING A NUMBER OF FACTUAL ERRORS IN ACCEPT-RE JECT OF COMPARABLES AND/ OR IN THE COMPUTATION OF THE OPERA TING PROFIT MARGINS OF THE COMPARABLES; 7 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO / TPO AND THE ID DRP ERRED IN DETERMINING THE AL P OF THE APPELLANTS INTERNATIONAL TRANSACTIONS PERTAINING TO PAYMENT TO WARDS SERVICES AVAILED FEES/REIMBURSEMENTS TO ITS ASSOCIATED ENTER PRISES (AES) AS NIL AGAINST THE SUM OF RS. 91,21,40,262/- INCURRED BY T HE APPELLANT AND IN DOING SO HAVE GROSSLY ERRED: 7.1. BY NOT ISSUING A SHOW CAUSE NOTICE TO THE APPELLANT BEFORE DISALLOWING THE PAYMENT TOWARDS SERVICES AVAILED AN D REIMBURSEMENT PAID AND NOT GIVING REASONABLE OPPORTUNITY TO THE A PPELLANT OF REFUTING/ REBUTTING THE BASIS ON WHICH ADJUSTMENT W AS MADE IN THE TP ORDER, THUS VIOLATING THE CARDINAL PRINCIPLE OF NATURAL JUSTICE; 7.2. IN HOLDING THAT NEITHER THE APPELLANT HAS RECEIVED ANY SERVICE AND/ OR BENEFIT IN LIEU OF THE PAYMENT MADE BY IT F OR SERVICES AVAILED AND REIMBURSEMENT OF EXPENSES NOR WAS THERE WAS ANY NEED FOR SUCH SERVICES/ PAYMENTS; THEREBY CHALLENGING THE COMMERC IAL WISDOM OF THE APPELLANT IN MAKING SUCH PAYMENTS WHILE PASSING THE ORDER IN CONTRAST WITH THE RECENT JUDICIAL PRONOUNCEMENTS IN THIS REGARD; 7.3. B Y HOLDING THAT THE APPELLANT HAS NOT FURNISHED DOCU MENTARY EVIDENCE TO DEMONSTRATE THE BENEFITS RECEIVED FROM THE AES IGNORING THE FACT THAT NO OPPORTUNITY OF BEING HEARD WAS PRO VIDED TO THE APPELLANT ON THIS ISSUE DURING THE ASSESSMENT PROCE EDINGS: 7.4. IN HOLDING THAT REIMBURSEMENT OF EXPENSES PAID B\ THE APPELLANT TO ITS AES ON COST TO COST BASIS ARE ALSO IN THE NATURE OF INTRA GROUP SERVICE CHARGES PAID TO ITS AES: 7.5. IN ASSERTING THAT THE APPELLANT HAS NOT IDENTIFIED PAYMENT FOR EACH AND EVERY SERVICE AND HOLDING THAT IDENTIFICAT ION OF SEPARATE PAYMENT FOR EACH SERVICE IS NECESSARY TO DETERMINE THE ARMS LENGTH NATURE; 7.6. IN HOLDING THAT THE BENCHMARKING DONE BY THE APPEL LANT IN 8 RESPECT OF INTERNATIONAL TRANSACTION RELATING TO PA YMENT TOWARDS SERVICE FEES/REIMBURSEMENTS IS NOT IN ACCORDANCE WI TH THE LAW AND IN DOING SO HAVE GROSSLY ERRED IN (I) DISREGARDING THE ALP, AS DETERMINED BY THE APPELLANT IN THE TP DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE RU LES; (II) NOT APPRECIATING THAT PAYMENT TOWARDS SERVICE FEES/REIM BURSEMENTS IS CLOSELY LINKED TO THE PRIMARY BUSINESS SEGMENTS/ FU NCTIONS OF THE APPELLANT AND ERRED IN ANALYSING THE TRANSACTION SE PARATELY FOR THE DETERMINATION OF ARMS LENGTH PRICE; (III) REJECTIN G THE TRANSACTIONAL NET MARGIN METHOD F'TNMM) ADOPTED BY THE APPELLANT, AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE SAID TRANSA CTIONS; 7.7. IN HOLDING THAT THE APPELLANT HAS NOT FURNISHED AN Y EVIDENCE AS TO COST BENEFIT ANALYSIS WITH REGARD TO COST OF SER VICES AND BENEFITS RECEIVED FROM AES VIS-A-VIS INDEPENDENT PARTIES AND THAT NO INDEPENDENT VERIFICATION WAS CONDUCTED BY THE APPEL LANT TO SUBSTANTIATE THE COSTS INCURRED BY THE AE. 7.8. IN APPLYING CUP METHOD MERELY BASED ON PRESUMPTION S AND WITHOUT FURNISHING DETAILS OF PRICE CHARGED IN ANY COMPARABLE UNCONTROLLED TRANSACTION WHICH IS IN CONTRAVENTION OF THE PROVISIONS OF RULE 10B OF THE INCOME TAX RULES, 1962. 8 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. THE LD AO/TPO AND THE LD DRP ERRED IN DENYING THE BENEFIT OF (+/-) 5 PERCENT RANGE MENTIONED IN PROVISO TO SECTION 92C(2) OF THE ACT WHILE COMPUTING THE ALP 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO/TPO AND THE LD DRP ERRED IN DISREGARDING JUDICIA L PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE ADJUSTMENT WHILE COMPUT ING THE ALP 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO AND LD. DRP ERRED IN DISALLOWING THE PROVISI ON FOR LIQUIDATED DAMAGES AMOUNTING TO RS, 4,32,06,463/-. 10.1 THE LD. AO AND LD. DRP ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT THE CLAIM FOR LIQUIDATED DAMAGES IS A LIABILITY OF FUTURE AND NOT LIABILITY OF PRESENT AND THUS DOES NOT REPR ESENT LIABILITY FOR AY 2008-09. 11. THAT THE LD. AO AND THE LD. DRP IN COMPLETE DISREG ARD TO THE FACTS AND LEGAL POSITION ERRED IN DISALLOWING THE C OMPUTER SOFTWARE EXPENSES OF RS. 2,63,02,168/- (RS. 1,05,20,867/- NE T OF DEPRECIATION) ON THE GROUND THAT THESE ARE CAPITAL IN NATURE. 12. THE LD. AO GROSSLY ERRED IN DISALLOWING THE CLAIM OF THE APPELLANT UNDER SECTIONS 10A AND 10B TO THE TUNE OF RS. 5,59,22,700/- AND 4,56,88,686/-, RESPECTIVELY 12.1. THE LD. AO HAS ERRED IN HOLDING THAT THE ABOVE DED UCTION U/S 10A/10B CLAIMED ON ACCOUNT OF SUO-MOTO TRANSFER PRI CING ADJUSTMENTS MADE BY THE APPELLANT IN RETURN OF INCO ME ARE NOT ALLOWABLE 9 13. THE LD. AO HAS ERRED ON THE FACTS AND THE CIRCUMST ANCES OF THE CASE AND IN LAW IN ARBITRARILY INITIATING A PENALTY PROCEEDINGS U/S 271(L)(C) AGAINST THE APPELLANT FOR FURNISHING INAC CURATE PARTICULARS OF INCOME. 3. THE ASSESSEE COMPANY IS A SUBSIDIARY OF MOTOROLA INTERNATIONAL CAPITAL LLC, USA AND MOTOROLA INC., USA IS THE ULTI MATE HOLDING COMPANY. THE ASSESSEE IS IN THE BUSINESS OF SALE, SUPPLY, MA RKETING AND DISTRIBUTION OF TELECOMMUNICATIONS INFRASTRUCTURE EQUIPMENT, PRO DUCTS, HANDSETS, RADIOS, ACCESSORIES, SUPPORT AND SERVICES FOR INSTA LLATION, OPTIMIZATION, OPERATION AND MAINTENANCE OF THE TELECOMMUNICATIONS INFRASTRUCTURE EQUIPMENT AND PRODUCTS AND SOFTWARE DEVELOPMENT SER VICES. THE ASSESSEE E-FILED ITS ORIGINAL RETURN DECLARING INCOME OF RS. 9,42,01,184/- ON 30.09.2008. THEREAFTER, THE COMPANY E-FILED ITS REV ISED RETURN OF INCOME ON 31.03.2010 DECLARING INCOME OF RS. 9,42,01,184/- . A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) TO DETER MINE THE ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTIONS UNDE RTAKEN BY THE ASSESSEE. THE TPO VIDE ORDER U/S 92CA(3) DATED 31.10.2011 PRO POSED AN ARMS LENGTH ADJUSTMENT OF RS. 4,52,35,80,353/-. THE DRAF T ASSESSMENT ORDER WAS PASSED ON 22.12.2011 U/S 144C OF THE INCOME TAX ACT, 1961. THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLU TION PANEL (DRP). THE DRP ISSUED DIRECTIONS UNDER SECTION 144C(5) ON 21.0 9.2012 AND DIRECTED THE TPO TO RE-COMPUTE THE ALP OF INTERNATIONAL TRAN SACTIONS AFTER TAKING INTO ACCOUNT THE DIRECTIONS OF THE DRP. THE TPO PAS SED ORDER DATED 19.10.2012 GIVING EFFECT TO THE DIRECTIONS OF THE D RP. THE ASSESSING OFFICER VIDE ORDER DATED 08.11.2012 PASSED ASSESSMENT ORDER COMPUTING THE ASSESSED INCOME AT RS. 440,86,65,970/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED PRESENT APPEAL. 5. THE LD. AR SUBMITTED THAT GROUND NOS. 1 TO 3 ARE GENERAL IN NATURE. AS REGARDS TO GROUND NOS. 5.1 TO 5.5, 6.1.1 , 6.1.2, 6.1.4 AND 10 6.1.5 ARE NOT PRESSED BY THE LD. AR. THEREFORE, GRO UND NOS. 1 TO 3, 5.1 TO 5.5, 6.1.1, 6.1.2, 6.1.4 AND 6.1.5 ARE DISMISSED. 6. AS RELATES TO GROUND NO. 4 REGARDING ADDITION OF RS. 217.05 CRORES MADE ON ACCOUNT OF ADVERTISING, MARKETING AND PROMO TIONAL ('AMP) EXPENSES, THE LD. AR SUBMITTED THAT THE TPO PROPOSE D A TRANSFER PRICING ADJUSTMENT OF RS. 217,04,89,288 ON ACCOUNT OF AMP E XPENSES. THE TPO COMPUTED THE AMP/SALES OF MSIPL AT 28.78% AS AGAINS T AVERAGE OF 0.29% OF COMPARABLES AND DETERMINED THE EXCESS AMP EXPENS ES AT 28.49% OF SALES. HE ALSO PROPOSED A MARK-UP OF 15%. AT THE O UTSET, THE LD. AR SUBMITTED THAT THE APPROACH ADOPTED BY THE TPO AND THE DRP IN RESPECT OF THE AMP EXPENDITURE HAS COME TO BE KNOWN AS THE 'BRIGHT LINE TEST' WHICH HAS BEEN SUBJECT MATTER OF EXTENSIVE LITIGATI ON BEFORE THE TRIBUNAL AND THE HONBLE HIGH COURTS. THE SPECIAL BENCH OF T HIS TRIBUNAL IN THE CASE OF L.G. ELECTRONICS [2013] 140 ITD 41 HELD THA T EXCESSIVE EXPENDITURE COULD BE TREATED AS A SEPARATE INTERNATIONAL TRANSA CTION THAT COULD BE SUBJECTED TO ARMS LENGTH EXERCISE ON ITS OWN. WHIL E HOLDING SO, THE SPECIAL BENCH LAID DOWN EXTENSIVE GUIDELINES TO DET ERMINE THE VALUE OF THE INTERNATIONAL TRANSACTION AND THE ALP OF THE SAME. SUBSEQUENTLY, THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSS ON [2015] 374 ITR 118 HELD THAT THE 'BRIGHT LINE TEST WAS NOT A VALID TE ST OF DETERMINING THE ALP OF THE AMP TRANSACTION, AS IT WAS NOT STATUTORILY M ANDATED. THE HONBLE HIGH COURT FURTHER LAID DOWN NUMEROUS GUIDELINES AN D PRINCIPLES TO DETERMINE THE ALP OF AMP TRANSACTION. SUBSEQUENT TO THIS, THE HONBLE DELHI HIGH COURT EXPANDED THE JURISPRUDENCE IN THIS REGARD IN CASES OF MARUTI SUZUKI [2016] 381 ITR 117, WHIRLPOOL [2016] 381 ITR 154 AND BAUSCH & LOMB [2016] 381 ITR 227 BY HOLDING THAT EX ISTENCE OF AN INTERNATIONAL TRANSACTION MERELY ON THE GROUND OF E XCESS AMP EXPENDITURE CANNOT BE PRESUMED. IT HAS TO BE SHOWN TO BE EXISTI NG BASED ON MUTUAL UNDERSTANDING OR ARRANGEMENT BETWEEN THE ASSESSEE A ND ITS ASSOCIATED ENTERPRISE. THE HONBLE HIGH COURT FURTHER HELD AMP WAS A FUNCTION AND NOT A TRANSACTION. SONY ERICSSON (SUPRA) WAS A BATC H OF APPEALS DEALING 11 WITH ASSESSEES WHO WERE DISTRIBUTORS AND THE SUBSEQ UENT DECISIONS OF MARUTI SUZUKI AND WHIRLPOOL (SUPRA) DEALT WITH MANU FACTURERS AND THE TWO CATEGORIES OF ASSESSEE'S STAND ON A DIFFERENT F OOTING. THE LICENSED MANUFACTURERS WHO OPERATE AS RISK BEARING ENTITIES CANNOT BE EXAMINED UNDER THE SO-CALLED AMP FRAMEWORK AS THEIR INVESTME NTS IN MANUFACTURING AND MARKETING ARE FULLY REFLECTED IN THEIR PROFIT MARGINS AND THERE CANNOT BE A SEGREGATION OF RETURNS ON MAN UFACTURING AND RETURNS ON MARKETING AS BOTH GO HAND IN HAND AND AR E INEXTRICABLY LINKED. WHEN GOODS ARE MANUFACTURED AND MARKETED BY THE SAME INDIAN ENTITY, IT WOULD BE ILLOGICAL FOR THE REVENUE TO CO NTEND THAT SUCH AN ENTITY SHOULD BE TREATED IN THE SAME MANNER AS AN INDIAN D ISTRIBUTOR WHICH DISTRIBUTES GOODS IMPORTED FROM A FOREIGN MANUFACTU RER UNDER A BRAND OWNED BY AN AE ON THE GROUND THAT BY INCURRING EXC ESSIVE AMP EXPENDITURE, THE BRAND-OWNER AE STANDS TO GAIN AT T HE EXPENSE OF THE INDIAN ENTITY. A LICENSED MANUFACTURER MAKES AND SE LLS PRODUCTS IN ITS LICENSED TERRITORY UNDER LICENSE OF INTELLECTUAL PR OPERTY (IP), IN THE FORM OF TECHNOLOGY AND BRAND OWNED BY THE LICENSOR. IT WOUL D TYPICALLY IMPORT SOME RAW MATERIALS AND SPARE PARTS FROM THE LICENSO R (OR OTHER FOREIGN GROUP COMPANIES) AND ALSO PAY ROYALTY TO THE LICENS OR OF IP FOR THE EXPLOITATION OF TECHNOLOGY AND BRAND. THE LICENSED MANUFACTURER RETAINS A FAIR SHARE OF THE ENTREPRENEURIAL PROFITS, COMMENSU RATE WITH THE CONTRIBUTIONS MADE TOWARDS DEVELOPING OF THE NON-RO UTINE MARKETING INTANGIBLES IN INDIA FOR ITSELF AND ALSO MAKES ARM S LENGTH COMPENSATION TO THE LICENSOR FOR EXPLOITING THE IP. A LICENSED M ANUFACTURER THUS INCURS AMP EXPENSES TO BENEFIT ITSELF IN THE CAPACITY OF T HE ECONOMIC OWNER OF THE BRAND AND NOT THE LEGAL OWNER OR LICENSOR OF THE BR AND. INTENSITY OF FUNCTIONS PERFORMED BY THE LICENSED MANUFACTURER AR OUND AMP HAS A RELEVANCE ON OTHER RELATED INTERNATIONAL TRANSACTIO NS ENTERED INTO BY THE LICENSEE WITH THE OVERSEAS LICENSOR E.G. PAYMENTS M ADE TO THE LICENSOR UNDER THE LICENSE AGREEMENT. PARTICULARLY IF THE PA YMENT OF ROYALTY AND IMPORT OF RAW MATERIALS IS INDEPENDENTLY TESTED FOR ARMS LENGTH, THERE IS NO ADDITIONAL BENEFIT FLOWING TO THE LICENSOR BY WA Y OF AMP EXPENSE. SUCH AMP EXPENSES CANNOT BE AN ITEM FOR BEING SUBJECT TO A SEPARATE 12 ADJUSTMENT ON A STANDALONE BASIS. MOTOROLA IS A GLO BALLY WELL-KNOWN NAME IN CONSUMER GOODS INDUSTRY AND THE STRENGTH OF THE BRAND ENHANCES THE SALE OF CONSUMER GOODS BY IT IN INDIA, WHILE CO MPETING WITH OTHER DOMESTIC AND GLOBAL BRANDS OPERATING IN THE INDIAN MARKET. IT IS THE ASSESSEE, WHO IS ACTUALLY BENEFITTED BY BEING ABLE TO EXPLOIT THE LICENSE FOR THE USE OF BRANDS GRANTED BY THE LICENSOR. HAD THE TAXPAYER SOLD THESE GOODS UNDER AN UNKNOWN BRAND NAME, PRODUCTS COULD N OT HAVE STOOD IN COMPETITION AGAINST OTHER REPUTED BRANDS IN THE MAR KET. THE PRIMARY BENEFIT IS OF THE ASSESSEE WHO IS SELLING THE GOODS IN INDIA AND THE BENEFIT OBTAINED BY THE LICENSOR IS ONLY INCIDENTAL. AFTER THE DECISIONS OF MARUTI SUZUKI, WHIRLPOOL AND BAUSCH & LOMB (SUPRA), THERE IS NO ROOM FOR ANY CONFUSION REGARDING THE TREATMENT OF AMP EXPENDITUR E AS A SEPARATE INTERNATIONAL TRANSACTION. THE HONBLE DELHI HIGH C OURT IN THESE DECISIONS HAS CATEGORICALLY HELD THAT FOR AN INTERNATIONAL TR ANSACTION TO EXIST WITHIN THE MEANING OF SECTION 92B, THE REVENUE HAS TO SHOW THAT THERE EXISTED AN AGREEMENT OR UNDERSTANDING OR ARRANGEMENT, THAT THE INDIAN ENTITY WOULD INCUR AMP EXPENDITURE FOR OR ON BEHALF OF THE AE WHICH OWNS THE BRAND. IN THE ABSENCE OF SUCH ACTION IN CONCERT', NO INTERNATIONAL TRANSACTION CAN BE SAID TO EXIST. IF THE EXISTENCE OF INTERNATIONAL TRANSACTION CANNOT BE ESTABLISHED WITH ANY DEGREE O F CERTAINTY, THE QUESTION OF DETERMINING THE ALP OF THE SAME WOULD N OT ARISE. THE LD. AR RELIED UPON THE RECENT DECISION OF CASIO INDIA COMP ANY PVT. LTD. VS. DCIT I.T.A. NO.1764/DEL/2015 WHEREIN THE TRIBUNAL DELETE D THE ENTIRE AMP ADJUSTMENT MADE BY THE TPO BY HOLDING THAT THERE WA S NO SEPARATE INTERNATIONAL TRANSACTION OF AMP SINCE THE REVENUE FAILED, TO BRING ON RECORD ANY MATERIAL OR ANY KIND OF ARRANGEMENT EXIS TING BETWEEN THE AE AND ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT IF AN ASSESSEE EXERCISES LONG-TERM DISTRIBUTION AND LONG-TERM LICENSING MANU FACTURING RIGHTS, IT IS IMPLICIT THAT ANY INVESTMENT IN AMP WHETHER HIGH OR LOW IS TOWARDS ITS OWN SALES. THE RETURN ON INVESTMENT IS EXPECTED TO BE REAPED OVER A PERIOD OF TIME AS MOTOROLA AS AN EXCLUSIVE DISTRIBU TOR/LICENSED MANUFACTURER IN INDIA IS ALONE ENTITLED TO BENEFIT FROM THIS INVESTMENT. IT IS CLEARLY MANDATED IN INTERNATIONAL GUIDANCE OF OE CD-TP GUIDELINES AND 13 THE UN-TP MANUAL THAT IF NO WRITTEN TERM EXISTS, TH E CONTRACTUAL RELATIONSHIPS OF THE PARTIES MUST BE DEDUCED FROM T HEIR CONDUCT AND THE GENERALLY APPLICABLE PRINCIPLES GOVERNING RELATIONS HIP BETWEEN INDEPENDENT ENTERPRISES. FURTHER, EVEN IF THE PARTI ES PREMATURELY TERMINATE THE ARRANGEMENT, THE QUESTION OF COMPENSA TING THE TAXPAYER FOR ANY LOSS IS SUFFERED DUE TO EXCESS AMP SPEND WOULD ARISE ONLY AT THE TIME OF SUCH PREMATURE TERMINATION AND NOT DURING THE PE NDENCY OF THE DISTRIBUTORSHIP ARRANGEMENT THUS, IN CASE OF A ROUT INE DISTRIBUTOR, DISALLOWANCE/ADJUSTMENT ON ACCOUNT OF AMP SPEND ON THE MERE ASSUMPTION THAT THE SUPPLIER MAY TERMINATE THE AGRE EMENT IN THE FUTURE IS NOT SUSTAINABLE. A TAXPAYER CANNOT BE PENALIZED ON THE PRESUMPTION OF A FUTURE EVENT (WHICH MAY NOT EVEN OCCUR) WHILE IGN ORING THE PRESENT FACTS AND CIRCUMSTANCES. IF DURING THE COURSE OF TRANSFER OF THE LEGAL RIGHTS IN THE BRAND, THE LICENSE ENJOYED BY THE DISTRIBUTOR I S NOT TERMINATED OR IMPAIRED IN ANY WAY, BY THE NEW LEGAL OWNER OF THE BRAND, THEN THE DISTRIBUTOR SHOULD NOT IDEALLY BE ENTITLED TO A COM PENSATION FOR SUCH TRANSFER. ALSO, IN SUCH CIRCUMSTANCES, THE PRICE PA YABLE BY THE BUYER OF THE BRAND TO THE SELLER MIGHT BE ON THE LOWER SIDE, IN CASE A SIGNIFICANT VALUE STANDS ASSOCIATED WITH THE ECONOMIC OWNERSHIP THEREOF IN THE HANDS OF THE DISTRIBUTOR. ON THE OTHER HAND, IF DURING TH E COURSE OF TRANSFER OF THE LEGAL RIGHTS IN THE BRAND, THE LICENSE ENJOYED BY THE DISTRIBUTOR IS TERMINATED OR IMPAIRED IN ANY WAY, THEN THE DISTRIB UTOR MIGHT SEEK COMPENSATION FROM THE LEGAL OWNER OF THE BRAND, DEP ENDING UPON THE TERMS OF THE CONTRACT, LEVEL OF INVESTMENT PUT IN B Y THE DISTRIBUTOR UNDER THE ASSUMPTION OF LONG-TERM RIGHTS IN THE LICENSE, PRACTICE/ CUSTOM FOLLOWED IN THE RELEVANT COUNTRY, ETC. THIS IS THE KEY ASPECT OF EXIT CHARGE, WHICH TAX ADMINISTRATIONS ACROSS THE WORLD WIDE FOR IN THE CONTEXT OF BUSINESS RESTRUCTURING TRANSACTIONS, ON WHICH TH E OECD AND AUSTRALIAN TAX OFFICE HAVE BROUGHT OUT DETAILED GUI DELINES. ANY SUCH CONSIDERATION WOULD ARISE ONLY WHEN ONE WOULD NEED TO CROSS THE BRIDGE, NAMELY THAT IF AT ANY FUTURE STAGE, THE RIGHTS OF T HE LICENSEE WERE IMPAIRED; AND NOT AT ANY TIME BEFORE THAT. THE LD. AR SUBMITTED THAT EMPIRICAL AND SCHOLARLY STUDIES HAVE SHOWN THAT WIT HIN A SECTOR OR 14 INDUSTRY THERE IS HUGE VARIATION OF AMP EXPENDITURE AMONG COMPETITORS. VARIOUS COMPETITORS PLACE DIFFERING LEVELS OF IMPOR TANCE ON ADVERTISING AND BRAND PROMOTION DEPENDING UPON THEIR UNDERSTANDING AND BELIEF REGARDING THE IMPACT OF ADVERTISING ON SALES. EMPIR ICAL STUDIES HAVE SHOWN THAT THERE IS NO POSITIVE CORRELATION BETWEEN ADVERTISING AND INCREASE IN SALES AND NO SPECIFIC RETURN ON INVESTM ENT (ROI) CAN BE INFERRED IN RESPECT OF EXPENDITURE INCURRED ON ADVE RTISEMENT. TO SUPPORT THIS PROPOSITION REFERENCE IS MADE TO A SCHOLARLY A RTICLE AUTHORED BY JUSTIN M. RAO OF MICROSOFT AND RANDALL A. LEWIS OF GOOGLE TITLED 'THE UNFAVORABLE ECONOMICS OF MEASURING THE RETURNS TO A DVERTISING' PUBLISHED IN THE QUARTERLY JOURNAL OF ECONOMICS (2 015) 1941-1973, OXFORD UNIVERSITY PRESS WHICH CONTAINS A RIGOROUS A NALYSIS OF CORRELATION BETWEEN ADVERTISING SPEND AND INCREASE IN SALES. TH E CONCLUSION DRAWN IN THIS ARTICLE IS THAT IT IS NOT POSSIBLE TO QUANTIFY THE EXTRA SALES THAT CAN BE GENERATED BASED ON INCREMENTAL AMP SPEND. IT ALSO C ONTAINS EMPIRICAL DATA SHOWING WIDE VARIATION OF AMP SPEND AMONG COMP ETITORS IN THE SAME SECTOR OR INDUSTRY. BASED ON THE ABOVE, IT IS SUBMI TTED THAT IT IS NOT POSSIBLE TO DETERMINE THE IMPACT OF INCREASED INTEN SITY OF ADVERTISING FUNCTION ON PROFIT MARGIN BECAUSE THE IMPACT OF ADV ERTISING ON SALES CANNOT BE DETERMINED AND QUANTIFIED. IN THE ABSENCE OF A QUANTIFIABLE MEASUREMENT, IT IS NOT POSSIBLE TO MAKE A REASONAB LY ACCURATE ADJUSTMENT TO THE PROFIT MARGINS OF THE COMPARABLE COMPANIES AS MANDATED UNDER LAW. IN VIEW OF THE ABOVE, IT WAS SU BMITTED THAT IT WOULD BE ERRONEOUS TO TREAT AMP AS A SEPARATE INTERNATION AL TRANSACTION AND ANY ATTEMPT TO BENCHMARK SUCH AN IMAGINARY TRANSACTION IN ANY MANNER (WHETHER AS BUNDLED TRANSACTION OR ON A STAND-ALONE BASIS) WOULD BE AN EXERCISE IN FUTILITY. THE LD. AR RELIED UPON THE DE CISION IN CASE OF M/S. MOET HENNESSY INDIA PRIVATE LTD. VS. ACIT (ITA NO.8 5/DEL/2015) IN WHICH ALP ADJUSTMENT ON ACCOUNT OF AMP EXPENDITURE WAS DE LETED BECAUSE NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE APART FROM APPLYING THE BRIGHT LINE TEST AND BY TAKING THE VIEW THAT THE TA XPAYER HAD INCURRED HUGE AMP/ SALES EXPENSES TO THE TUNE OF 18.14%. NO COGENT MATERIAL WAS THERE TO TREAT THE INCURRING OF AMP EXPENSES AS INT ERNATIONAL TRANSACTION 15 MORE PARTICULARLY WHEN BASIS FOR TREATING THE AMP E XPENSES AS INTERNATIONAL TRANSACTIONS I.E. BLT WAS NOT SUSTAIN ABLE METHOD. FURTHER, BLT AS A METHOD WAS DISREGARDED IN THE CASE OF NIKO N INDIA PVT. LTD. VS. DCIT (ITA NO.6870/DEL/2018). THE HONBLE DELHI HIGH COURT IN SONY ERICSSON (SUPRA) HAS ALSO LAID DOWN THE PERMISSIBIL ITY AND DESIRABILITY OF SET-OFF BETWEEN ALP OF VARIOUS INTERNATIONAL TRAN SACTIONS. THE HONBLE HIGH COURT HELD THAT IN CASES WHERE AMP IS TREATED AS A SEPARATE INTERNATIONAL TRANSACTION ON A STAND-ALONE BASIS, A NY ADJUSTMENT MADE ON THIS ACCOUNT BY DETERMINING THE ALP HAS TO BE NECES SARILY SET-OFF AGAINST ANY EXTRA PROFIT THAT IS EARNED BY THE ASSESSEE WHI CH IS OVER AND ABOVE THE MEAN PROFIT MARGIN OF THE COMPARABLES. THE LD. AR R ELIED UPON THE FOLLOWING DECISIONS OF THE TRIBUNAL WHERE EXISTENCE OF AN INTERNATIONAL TRANSACTION OF AMP EXPENDITURE HAS BEEN NEGATED: YAKULT DANONE INDIA P LTD. V. DCIT: ITA NO. 996/DEL /2016 (DELHI- TRIB.) PEPSICO INDIA HOLDINGS (P.) LTD. V. ACIT: [2018] 10 0 TAXMANN.COM 159 (DELHI TRIB.) L.G. ELECTRONICS INDIA PVT. LTD. V. ACIT: ITA NO. 6 253/2012 (DELHI- TRIB.) BMW INDIA PRIVATE LTD. V DCIT ITA NO. 1514/2016 (DE LHI-TRIB.) M/S LOREAL INDIA PVT. LTD V. ACIT: ITA NO. 1417/20 17 (MUM- TRIB.) NIPPON PAINT INDIA (P) LTD V ACIT: [2017] 79 TAXMAN N.COM 8 (CHENNAI-TRIB.) WIDEX INDIA (P)LTD V ACIT: [2017] 78 TAXMAN.COM 348 (CHANDIGARH- TRIB.) MSD PHARMACEUTICALS(P) LTD V ACIT: 2017] 88TAXMANN. COM 54 (DEL- TRIB) PHILIPS INDIA LTD V ACIT: [2G18] 90 TAXMANN.COM 357 (KOLKATA- TRIB.) CIT V JOHNSON & JOHNSON LTD: [2017] 80 TAXMANN.COM 269 (BOMBAY HC) ACIT V COLGATE PALMOLIVE (INDIA) LTD: ITA NO. 6073/ MUM/2014 16 (MUM-TRIB.) THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE HAS NOT PAID ANY ROYALTY TO ITS FOREIGN AE WHO OWNS THE 'MOTOROLA' BRAND AND OT HER MARKETING INTANGIBLES FOR THE USE OF THE BRAND AND OTHER INTA NGIBLES. THUS, THE TPO SHOULD HAVE ACCOUNTED FOR AN APPROPRIATE BRAND ROYA LTY RATE AND TECHNICAL KNOW-HOW ROYALTY RATE BASED ON BENCHMARKI NG STUDY WHILE COMPUTING THE VALUE OF THE AMP TRANSACTIONS. THE LD . AR POINTED OUT THAT THIS CONTENTION WAS ACCEPTED BY THE TRIBUNAL IN ASS ESSEE'S OWN CASE FOR AY 2007- O8 (ITA NO. 5637/DEL/2011). THE LD. AR SUB MITTED THAT THE PRICING MODEL OF THE ASSESSEE WITH ITS AES SUITABLY COMPENSATES THE ASSESSEE FOR THE ALLEGED EXCESS AMP EXPENSES. THI S FACT WAS SUBMITTED BEFORE THE TPO VIDE SUBMISSION DATED 05 AUGUST 2011 TO TPO. PURSUANT TO THE GROUPS GLOBAL TRANSFER PRICING POLICY, DURI NG FY 2007-08, THE ASSESSEE RECEIVED CREDIT NOTES OF RS. 3,465,141,270 AS A COST CREDIT/ PURCHASE PRICE ADJUSTMENT FROM ITS AES. THE ASSESSE E HAS SUPPORTING EVIDENCE FOR CREDIT NOTES OF RS. 3,465,141,270 IN T HE FORM OF CREDIT NOTES / VOUCHERS/ COPIES OF THE FOREIGN INWARD REMITTANCE C ERTIFICATES. AN APPLICATION UNDER RULE 18 READ WITH RULE 29 OF THE ITAT RULES HAS BEEN FILED REQUESTING ADMISSION OF ADDITIONAL EVIDENCE W HICH COMPRISED OF SAMPLE CREDIT NOTES AND FOREIGN INWARD REMITTANCE C ERTIFICATES. AGAIN, ATTENTION IS DRAWN TO THE ORDER OF THE TRIBUNAL FOR AY 2007-08 IN ASSESSEES OWN CASE (ITA NO. 5637/DEL/2011) WHEREIN THIS CONTENTION WAS ACCEPTED BY THE TRIBUNAL. FURTHER, THE CONTENTION O F THE ASSESSEE IN RESPECT OF CREDIT NOTES WAS RECORDED BY THE TPO IN THE ORDER AND WAS NOT CONTROVERTED (OR COMMENTED UPON) EITHER BY HIM OR T HE DRP. 7. THE LD. DR RELIED UPON THE ORDER OF THE TPO, DRP AND THE ASSESSMENT ORDER. THE LD. DR SUBMITTED THAT THE TPO RIGHTLY POINTED OUT THAT ARRANGEMENT BETWEEN TWO AES FOR ALLOCATION OR APPORTIONMENT OF OR ANY CONTRIBUTION TO ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROV IDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES IS AN INTERNATI ONAL TRANSACTION. IN THIS CASE, ADMITTEDLY, THE ASSESSEE HAS INCURRED TH E COST OF AMP FOR THE 17 BENEFITS OF ITS AE; & THUS THE TPO RIGHTLY HELD AMP EXPENDITURE AS INTERNATIONAL TRANSACTIONS. THE LD. DR FURTHER SUB MITTED THAT THE ASSESSEE WHO IS IN THE BUSINESS OF DISTRIBUTION OF GOODS MANUFACTURED BY ITS FOREIGN CONTROLLING PARENT AND DID NOT OWN ANY TRADEMARK OR BRAND, HAD PERFORMED SIGNIFICANT FUNCTIONS LIKE BRAND DEVE LOPMENT, MARKET DEVELOPMENT, MARKETING CUSTOMER SUPPORT, TECHNICAL AND ADMINISTRATIVE SUPPORT ON BEHALF OF ITS AES IN INDIA BEARING COST, INVESTING HUGE SUM AND USING ITS SKILLED MANPOWER AND TIME. THESE FACT S CLEARLY PROVE THAT THE ASSESSEE HAD DEVELOPED MARKETING INTANGIBLE FOR BRAND OWNED AND GOODS MANUFACTURED BY ITS FOREIGN AES BY BEARING SI GNIFICANT COST AND RISK. ACCORDINGLY, THE ASSESSEE WAS ENTITLED TO GET REIMBURSEMENT OF THE COST INCURRED BY IT AND WAS ENTITLED TO RETAIN INTA NGIBLE INCOME IN INDIA. AS NO INDEPENDENT PERSON WOULD UNDERTAKE SUCH ACTIV ITIES WITHOUT BEING COMPENSATED FOR THIS KIND OF EFFORT. THE ASSESSING OFFICER/TPO FURTHER OBSERVED THAT SINCE THE ASSESSEE DEVELOPED MARKETIN G INTANGIBLE AND IS IN THE PROCESS OF MAKING THE INTANGIBLE MORE VALUAB LE BY INCURRING HUGE AMP COST, BEARING RISK AND USING ITS BOTH TANGIBLE AND HUMAN ASSETS INTANGIBLES (SKILLED AND TRAINED MANPOWER), OWNERSH IP OF THE MARKETING INTANGIBLE LIES WITH THE ASSESSEE. HOWEVER THE AES ARE DERIVING HUGE BENEFIT FROM THIS INTANGIBLE DEVELOPED BY THE ASSES SEE BY WAY OF ENHANCED SALE OF THEIR PRODUCTS IN INDIA WHICH LED TO INCREASED PROFITABILITY OF PARENT COMPANY AND THE ASSESSEE WA S LEFT WITH ONLY SMALL AND LIMITED RETURNS. THE TPO/AO HELD THAT THE ASSES SEE THOUGH ASSERTED THAT THE ASSESSEE COMPANY IS ALREADY GETTING REIMBU RSEMENT FOR ANY EXCESS MARKETING (IF ANY) IN ITS AE SEGMENTS TO SUS TAIN A CONSISTENT ARMS LENGTH PROFIT MARGIN, BUT THE ASSESSEE DID NO T ABLE TO SHOW ANY EVIDENCE OF RECEIVING SUCH SUPPORT IN AMP SEGMENT. THUS, THE ASSESSEE CANNOT BE ALLOWED TO CLAIM ANY OTHER REIMBURSEMENT RECEIVED IN ANY OTHER SEGMENT AGAINST THE AMP SUPPORT. THEREFORE, T HE LD. DR SUBMITTED THAT THE TPO HAS RIGHTLY MADE ADDITION OF RS. 217.0 5 CRORES ON ACCOUNT OF ADVERTISEMENT, MARKETING AND PROMOTION (AMP). 18 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT IN ASSESSEES OWN CASE FOR A.Y. 2007-08, THIS ISSUE HAS BEEN REMANDED BACK BY THE TRIBUNAL. THE TRIBUNAL HELD AS UNDER: 10. IT IS NOTICED THAT THE TRIBUNAL, AT THE TIME O F PASSING THE ORDER, HAD BENEFIT OF SPECIAL BENCH DECISION IN THE CASE O F LG ELECTRONICS (SUPRA). FOLLOWING SUCH DECISION, THE TRIBUNAL REST ORED THE ISSUE OF AMP EXPENSES TO THE TPO/AO TO BE DECIDED AFRESH IN THE LIGHT OF THE RATIO LAID DOWN BY THE SPECIAL BENCH DECISION AND ALSO GI VING CERTAIN SPECIFIC DIRECTIONS. THUS, IT IS VIVID THAT THE ENTIRE AMP I SSUE WAS NOT THROWN OPEN AT LARGE BEFORE THE TPO TO BE DECIDED DE NOVO. BUT THERE WAS A SPECIFIC DIRECTION TO DEAL WITH THE ISSUE IN A PART ICULAR MANNER. IT IS BUT NATURAL THAT WHEN THE TRIBUNAL RESTORED THE MATTER TO THE TPO/AO FOR DECIDING CERTAIN ISSUES CONCERNING AMP EXPENSES IN A PARTICULAR WAY, WHILE HOLDING IT TO BE AN INTERNATIONAL TRANSACTION , THE AUTHORITIES COULD NOT HAVE ENTERTAINED THE ARGUMENT OF THE ASSESSEE T HAT THE AMP EXPENSES BE TREATED AS NOT AN INTERNATIONAL TRANSAC TION. SUCH A CONTENTION, IF ACCEPTED, WOULD HAVE MADE THE ORDER OF THE TRIBUNAL UNWORKABLE, WHICH THE LOWER AUTHORITIES WERE RIGHTL Y NOT COMPETENT TO DO. IN OUR CONSIDERED OPINION THE DRP HAS RIGHTLY F OLLOWED THE TRIBUNAL ORDER IN THE ASSESSEES OWN CASE HOLDING THAT EXCES SIVE AMP SPEND IS AN INTERNATIONAL TRANSACTION. IN SUCH CIRCUMSTANCES , THE ARGUMENT OF THE ASSESSEE AGAIN BEFORE US THAT AMP EXPENSES IS N OT AN INTERNATIONAL TRANSACTION, DOES NOT REQUIRE CONSIDERATION AS THE SAME DOES NOT ARISE FROM THE ORDER PASSED BY THE TRIBUNAL PURSUANT TO W HICH THESE PROCEEDINGS HAVE ARISEN. SUCH ISSUES HAVE BEEN CHAL LENGED BY THE ASSESSEE BEFORE THE HONBLE HIGH COURT, WHICH IS TH E RIGHT FORUM TO DEAL WITH THE SAME. WE THEREFORE, APPROVE THE VIEW OF TH E AO IN NOT EXAMINING ANY FRESH CONTENTIONS DE HORS THE REMIT O RDER BY THE TRIBUNAL. 11. THE LD. AR SUBMITTED THAT THE ASSESSEE DID NOT PAY ANY ROYALTY TO ITS AE. IT WAS POINTED OUT THAT THE TRIB UNAL IN THE FIRST ROUND 19 NOTED THIS FACT IN PARAS 18.3 AND 18.4 OF ITS ORDER AND THEREAFTER DIRECTED THE TPO TO CONSIDER THE IMPACT OF THIS FAC TOR ON THE DETERMINATION OF TRANSFER PRICING ADJUSTMENT TOWARD S AMP EXPENSES IN THE LIGHT OF DECISION OF THE SPECIAL BENCH IN THE C ASE OF LG ELECTRONICS (SUPRA). IT IS OBSERVED THAT ALBEIT A SPECIFIC DIRE CTION WAS GIVEN BY THE TRIBUNAL FOR CONSIDERING THE IMPACT OF NON-PAYMENT OF ROYALTY ON THE QUESTION OF DETERMINING THE TRANSFER PRICING ADJUST MENT OF AMP EXPENSES, THE TPO DID NOT EXAMINE SUCH ISSUE. UNDER THESE CIRCUMSTANCES, WE ARE LEFT WITH NO OPTION BUT TO SE ND MATTER BACK TO THE AO/TPO FOR CONSIDERING THE EFFECT OF NON-PAYMENT OF ROYALTY ON THE TRANSFER PRICING ADJUSTMENT IN THE LIGHT OF THE DEC ISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF LG ELECTRONICS (SUPRA) . 12. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER ON T HE TRANSFER PRICING ADDITION ON ACCOUNT OF AMP EXPENSES AND SEN D THE MATTER BACK TO THE TPO/AO FOR DETERMINING ITS ALP AFRESH IN THE LIGHT OF OUR ABOVE DISCUSSION. NEEDLESS TO SAY, THE ASSESSEE WILL BE A LLOWED AN OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. AS PER THE CONTENTIONS OF THE LD. AR, THE ASSESSEE HAS NOT PAID ANY ROYALTY TO ITS FOREIGN AE WHO OWNS THE 'MOTOROLA' B RAND AND OTHER MARKETING INTANGIBLES FOR THE USE OF THE BRAND AND OTHER INTANGIBLES. THUS, THE TPO SHOULD HAVE ACCOUNTED FOR AN APPROPRI ATE BRAND ROYALTY RATE AND TECHNICAL KNOW-HOW ROYALTY RATE BASED ON B ENCHMARKING STUDY WHILE COMPUTING THE VALUE OF THE AMP TRANSACTIONS. THE LD. AR POINTED OUT THAT THIS CONTENTION WAS ACCEPTED BY THE TRIBUN AL IN ASSESSEE'S OWN CASE FOR AY 2007- O8 (ITA NO. 5637/DEL/2011). FURTH ER THE LD. AR SUBMITTED THAT THE PRICING MODEL OF THE ASSESSEE WI TH ITS AES SUITABLY COMPENSATES THE ASSESSEE FOR THE ALLEGED EXCESS A MP EXPENSES. THIS FACT WAS SUBMITTED BEFORE THE TPO VIDE SUBMISSION D ATED 05 AUGUST 2011 TO TPO. PURSUANT TO THE GROUPS GLOBAL TRANSFE R PRICING POLICY, DURING FY 2007-08, THE ASSESSEE RECEIVED CREDIT NOT ES OF RS. 3,465,141,270 AS A COST CREDIT/ PURCHASE PRICE ADJU STMENT FROM ITS AES. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS SUPPORTING EVIDENCE 20 FOR CREDIT NOTES OF RS. 3,465,141,270 IN THE FORM O F CREDIT NOTES / VOUCHERS/ COPIES OF THE FOREIGN INWARD REMITTANCE C ERTIFICATES. AN APPLICATION UNDER RULE 18 READ WITH RULE 29 OF THE ITAT RULES HAS BEEN FILED REQUESTING ADMISSION OF ADDITIONAL EVIDENCE W HICH COMPRISED OF SAMPLE CREDIT NOTES AND FOREIGN INWARD REMITTANCE C ERTIFICATES. AGAIN, ATTENTION IS DRAWN TO THE ORDER OF THE TRIBUNAL FOR AY 2007-08 IN ASSESSEES OWN CASE (ITA NO. 5637/DEL/2011) WHEREIN THIS CONTENTION WAS ACCEPTED BY THE TRIBUNAL. FURTHER, THE CONTENTI ON OF THE ASSESSEE IN RESPECT OF CREDIT NOTES WAS RECORDED BY THE TPO IN THE ORDER AND WAS NOT CONTROVERTED (OR COMMENTED UPON) EITHER BY HIM OR T HE DRP. AS PER THE LD. DRS CONTENTIONS, ADMITTEDLY, THE ASSESSEE INCU RRED THE COST OF AMP FOR THE BENEFITS OF ITS AE; & THUS THE TPO RIGHTLY HELD AMP EXPENDITURE AS INTERNATIONAL TRANSACTIONS. THE ASSESSEE WHO IS IN THE BUSINESS OF DISTRIBUTION OF GOODS MANUFACTURED BY ITS FOREIGN C ONTROLLING PARENT AND DID NOT OWN ANY TRADEMARK OR BRAND, HAD PERFORMED S IGNIFICANT FUNCTIONS LIKE BRAND DEVELOPMENT, MARKET DEVELOPMENT, MARKETI NG CUSTOMER SUPPORT, TECHNICAL AND ADMINISTRATIVE SUPPORT ON BE HALF OF ITS AES IN INDIA BEARING COST, INVESTING HUGE SUM AND USING IT S SKILLED MANPOWER AND TIME. THESE FACTS CLEARLY PROVE THAT THE ASSESS EE HAD DEVELOPED MARKETING INTANGIBLE FOR BRAND OWNED AND GOODS MANU FACTURED BY ITS FOREIGN AES BY BEARING SIGNIFICANT COST AND RISK. A CCORDINGLY, THE ASSESSEE WAS ENTITLED TO GET REIMBURSEMENT OF THE C OST INCURRED BY IT AND WAS ENTITLED TO RETAIN INTANGIBLE INCOME IN INDIA. ALL THESE CONTENTIONS OF BOTH THE LD. AR AND LD. DR HAS NOT BEEN TAKEN INTO ACCOUNT BY THE TPO/AO WHICH NEEDS TO BE VERIFIED BY THE REVENUE. T HEREFORE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ENTIRE ISSUE TO THE FILE OF THE TPO/AO FOR ADJUDICATION ON MERIT AS WELL AS IN LIGHT OF THE DE CISIONS OF THE HONBLE HIGH COURT AND THE SPECIAL BENCH IN CASE OF L G ELE CTRONICS (SUPRA). NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 4 IS PART LY ALLOWED FOR STATISTICAL PURPOSE. 9. AS REGARDS TO GROUND NOS. 5.6 TO 5.15 RELATING T O ADJUSTMENT OF RS. 21 101.18 CRORES IN RESPECT OF SOFTWARE DEVELOPMENT SE RVICES SEGMENT (SDS), THE LD. AR SUBMITTED THAT THE ASSESSEE COMPA NY PERFORMS ACTIVITIES RELATING TO SOFTWARE DEVELOPMENT/CODING, RELATED TO QUALITY CONTROL AND DOCUMENTATION, TESTING, IMPLEMENTATION AND MAINTENANCE. THE WORK CARRIED OUT BY THE ASSESSEE COMPANY IS IN ACCORDANCE WITH THE GUIDELINES PROVIDED BY THE AES. AS PER THE FUNCTION AL ANALYSIS DOCUMENTED IN THE TRANSFER PRICING (TP) DOCUMENTATI ON, THE ASSESSEE COMPANY IS CHARACTERIZED AS A CAPTIVE SOFTWARE DEVE LOPMENT SERVICE PROVIDER, WHICH ASSUMES LESS THAN NORMAL RISKS ASSO CIATED WITH CARRYING OUT SUCH BUSINESS. BENCHMARKING OF SDS IN THE TP DO CUMENTATION: THE LD. AR SUBMITTED THAT THERE IS NO CHANGE IN THE FUNCTIONS UNDERTAKEN BY THE ASSESSEE COMPANY, APPLICATION OF FILTERS AND BENCHMARKING ANALYSIS UNDERTAKEN BY THE ASSESSEE COMPANY FROM TH E PREVIOUS YEAR. THE ASSESSEE IDENTIFIED 16 COMPARABLE COMPANIES WITH TH E MEAN OP/TC MARGIN OF 11.66% AGAINST THE MARGIN OF THE ASSESSEE COMPANY AT 8.22%. (5.10% BEFORE VOLUNTARY ADJUSTMENT). THUS, THE INTE RNATIONAL TRANSACTIONS WITH RESPECT TO 'SDS SEGMENT WERE CONSIDERED TO BE AT ARMS LENGTH. THE LD. AR SUBMITTED THAT THE TPO REJECTED THE TP STUDY PREPARED BY THE ASSESSEE COMPANY STATING THAT THE QUANTITATIVE FILT ERS ARE NOT CORRECT, SELECTION/REJECTION OF COMPARABLES BASED ON QUALITA TIVE FILTER OF FUNCTIONALLY DIFFERENT IS NOT OBJECTIVE AND UNIFO RM, DATA FOR THE CURRENT YEAR IS NOT USED, NON-APPLICATION OF FILTERS SUCH A S ONSITE REVENUE, EMPLOYEE COST AND EXPORT SALES. THE TPO REJECTED TH E MULTIPLE YEAR DATA ADOPTED BY THE ASSESSEE IN HIS TP STUDY. BASED ON T HE ADDITIONAL/MODIFIED FILTERS THE TPO CONDUCTED A FRE SH COMPARABILITY ANALYSIS TO IDENTIFY COMPARABLE COMPANIES. THERE HA S BEEN NO CHANGE IN THE APPROACH ADOPTED BY THE TPO WITH RESPECT TO THE APPLICATION OF FILTERS NATURE OF INTERNATIONAL MOST APPROPRIATE VALUE OF INTERNATIONAL TRANSACTIONS SOFTWARE DEVELOPMENT SERVICES TNMM OP/TC 6,35,07,41,416 22 FROM THE PREVIOUS YEAR. IN CONDUCT OF THE FRESH COM PARABILITY ANALYSIS, THE TPO USED INFORMATION RECEIVED VIDE EXERCISE OF ITS POWERS U/S 133(6) FROM COMPANIES WHICH WAS OTHERWISE NOT AVAILABLE IN THE PUBLIC DOMAIN. BASED ON THE FRESH COMPARABILITY ANALYSIS CARRIED OUT BY THE TPO, HE IDENTIFIED 19 COMPARABLE COMPANIES (INTRODUCED 16 NEW COMPARAB LES AND ACCEPTED 3 COMPARABLE I.E. BODHTREE CONSULTING LTD, LGS GLOB AL LTD AND MINDTREE LTD (SEG) SELECTED BY THE ASSESSEE) WITH THE MEAN M ARGIN TO BE AT 26.20% (WITHOUT ALLOWING WORKING CAPITAL ADJUSTMENT) AND P ROPOSED A TRANSFER PRICING ADDITION OF INR 127,47,23,744. PURSUANT TO THE OBJECTIONS FILED BY THE ASSESSEE BEFORE THE DRP, THE DRP DIRECTED THE T PO TO EXCLUDE CELESTIAL BIOLABS FROM THE LIST OF THE COMPARABLE C OMPANIES AND TO RE- COMPUTE THE MARGIN OF SOFTSOL INDIA LIMITED (AFTER EXCLUDING RENTAL INCOME AND RENTAL EXPENSES). THUS, THE REVISED MEAN MARGIN CAME TO BE 21.85% AND TRANSFER PRICING ADDITION WAS RE-COMPUTED AT RS . 1,01,18,80,848. 10. THE LD. AR SUBMITTED THAT THE FILTERS WERE WRON GLY APPLIED BY THE TPO/DRP. THIS ASPECT IS ALREADY COVERED BY THE TRIB UNALS ORDER IN ASSESSEES OWN CASE FOR A.Y. 2007-08 (ITA NO. 5637/ DEL/2011). 10.1 AS REGARDS TO COMPANIES HAVING ONSITE REVENUE MORE THAN 75% OF THE EXPORT REVENUES WERE EXCLUDED, THE LD. AR SUBMI TTED THAT THE ISSUE IS DECIDED IN FAVOUR OF THE REVENUE IN A.Y. 2007-08. T HE LD. DR RELIED UPON THE ORDER OF THE TPO AND THE DIRECTIONS OF THE DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENU E AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 10.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE DID NOT DISPUTE THE PROFIT MARGIN IN CASE OF ON-SITE WORK WHICH IS NORMALLY LO W AS COMPARED TO OFFSHORE WORK. IN THE PRESENT YEAR ALSO THE TPO DEM ONSTRATED WITH FACTS AND FIGURES THAT THERE IS CONSIDERABLE DIFFERENCE B ETWEEN THE AVERAGE RATE PER HOUR IN THE CASE OF OFFSHORE PROJECTS VIS--VIS ON SITE PROJECTS. THE TPO WAS RIGHT IN APPLYING THE ON-SITE REVENUES FILTER CONSIDERING THE 23 COMPANIES GENERATING MORE THAN 75% OF THEIR EXPORT REVENUES FROM ON- SITE OPERATION. THEREFORE, THIS FILTER WAS RIGHTLY APPLIED. 10.3 AS REGARDS TO FILTER RELATING TO EMPLOYEE COST MORE THAN 25% OF SALES AND COMPANIES FALLING LESS THAN THIS THRESHOLD HAVE BEEN EXCLUDED, THE SAID ISSUE IS HELD IN FAVOUR OF THE ASSESSEE IN ASS ESSEES OWN CASE FOR A.Y. 2007-08 WHEREIN IT HAS BEEN HELD THAT THE EMPLOYEE COST/SALES OF THE ASSESSEE IS 65% AND HENCE A RANGE OF 50% TO 80% SHO ULD BE APPLIED INSTEAD OF THE THRESHOLD LIMIT OF 25% AS APPLIED BY THE TPO. IN A.Y. 2008- 09, THE EMPLOYEE COST RATIO OF THE ASSESSEE FOR THE SDS SEGMENT IS 45% AND HENCE A RANGE OF 30% TO 60% SHOULD BE APPLIED I NSTEAD OF 25% THRESHOLD FILTER AS APPLIED BY THE TPO AS PER THE S UBMISSIONS OF THE LD. AR. THE LD. DR RELIED UPON THE ORDER OF THE TPO AND THE DIRECTIONS OF THE DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REA SONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 10.4 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AL L THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE SITUATION REMAINS SAME IN THIS ASSESSMENT YEAR AS WELL, THEREFORE, THIS FILTER IS WRONGLY APPLIED BY THE REVENUE. HENCE WE DIRECT THE TPO/AO TO APPLY A RANG E OF 30% TO 60% AS IT WILL BE MOST APPROPRIATE RATIO FOR THE SDS SEGME NT. 10.5 AS REGARDS TO FILTER APPLIED THAT OF COMPANIES WITH DIMINISHING REVENUE/COMPANIES CONSISTENTLY INCURRING LOSSES WER E REJECTED, THE SAID ISSUE IS HELD IN FAVOUR OF REVENUE IN ASSESSEES OW N CASE FOR ASSESSMENT YEAR 2007-08. THE LD. DR RELIED UPON THE ORDER OF T HE TPO AND THE DIRECTIONS OF THE DRP AND FURTHER SUBMITTED THAT TH E FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 10.6 WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE COMPANIES HAVING DIMINISHING REVENUE 24 OR CONSISTENT LOSSES ARE DEFINITELY CANNOT BE COMPA RED WITH THE ASSESSEE COMPANY. THUS, THIS FILTER WAS RIGHTLY REJECTED. 10.7 AS REGARDS TO RELATED PARTY TRANSACTIONS (BOTH INCOME AND EXPENDITURE) BEING MORE THAN 25% OF SALES WERE EXCL UDED AS AGAINST THE THRESHOLD OF 10% CHOSEN BY THE ASSESSEE. THE TRIBUN AL HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR A .Y. 2007-08 WHEREIN IT HAS BEEN HELD THAT THE THRESHOLD LIMIT OF 15% OUGHT TO BE APPLIED INSTEAD OF 25% APPLIED BY THE TPO. THE LD. DR RELIED UPON T HE ORDER OF THE TPO AND THE DIRECTIONS OF THE DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 10.8 WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FACTS REMAIN SIMI LAR IN THE PRESENT ASSESSMENT YEAR, THEREFORE, WE DIRECT THE TPO TO TA KE INTO CONSIDERATION ONLY THOSE COMPARABLES WHERE RELATED PARTY TRANSACT IONS ARE TO THE EXTENT OF 15% BECAUSE IT IS NOT THE CASE OF REVENUE THAT B Y APPLYING THE THRESHOLD LIMIT OF 15%, IT WILL NOT GET SUFFICIENT NUMBER OF COMPARABLES. 10.9 AS REGARDS TO APPROPRIATE FILTERS APPLIED BY T HE ASSESSEE IN TP DOCUMENTATION BUT WAS REJECTED BY THE TPO/AO, FIRST LY THE LD. AR SUBMITTED THAT FILTER RELATING TO RESEARCH AND DEVE LOPMENT SALES WHICH IS LESS THAN/EQUIVALENT TO 3% (<=3%) WERE ACCEPTED BY THE ASSESSEE. THE LD. AR SUBMITTED THAT THE TRIBUNAL PARTLY HELD IN FAVOU R OF THE ASSESSEE IN ASSESSEES OWN CASE FOR A.Y. 2007-08. THE LD. DR RE LIED UPON THE ORDER OF THE TPO AND THE DIRECTIONS OF THE DRP AND FURTHER S UBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORI TIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 10.10 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2007-08 HELD AS UNDER: 25 81.1 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE ARE IN AGRE EMENT WITH LD. TPOS OBSERVATIONS THAT FOR CREATING INTELLECTUAL PROPERT Y RIGHTS, R&D IS REQUIRED BUT THE CONVERSE IS NOT TRUE I.E. EACH COM PANY SPENDING ON R&D AUTOMATICALLY IS NOT TOWARDS CREATING AN IPR. WE AR E ALSO IN AGREEMENT WITH THE OBSERVATION OF LD. TPO THAT R&D ACTIVITY I N A SOFTWARE DEVELOPMENT COMPANY IS TO IMPROVE THE PROCESSES IN DELIVERING THE SOFTWARE DEVELOPMENT SERVICES AND NOT FOR CREATING AN INTANGIBLE. BUT AT THE SAME TIME THE SUBMISSIONS OF LD. COUNSEL FOR TH E ASSESSEE THAT PROFITABILITY OF COMPANIES HAVING INTANGIBLE IS MOR E CANNOT BE LOST SIGHT OFF. IF A COMPANY IS HAVING BRAND THEN IT IS DEFINI TELY IN A BETTER POSITION TO COMMAND HIGHER PROFITS. LD. COUNSEL IN HIS SUBMI SSIONS HAS POINTED OUT THAT COMPANIES HAVING PATENT HAD INCURRED SUBST ANTIAL SUMS ON R&D TO DEVELOP ITS OWN PRODUCTS. THUS, BOTH SIDES HAVE THEIR LOGICAL VIEW POINT. UNDER SUCH CIRCUMSTANCES, THE BALANCE HAS TO BE DRAWN KEEPING IN VIEW THE PRIMARY OBJECT OF TRANSFER PRICING STUD Y. THE OBJECT OF SELECTION OF COMPARABLES IS TO FIND OUT COMPANIES W HICH ARE PERFORMING SIMILAR FUNCTIONS AS ASSESSEE WITH ALMOST SIMILAR A SSET BASE AND SIMILAR RISKS. THESE COMPARABLES ARE TO BE CONSIDERED FOR F INDING OUT THE ARMS LENGTH PRICE. IF BY APPLYING A PARTICULAR FILTER MA NY, OTHERWISE COMPARABLES, GETS EXCLUDED THEN SUCH A FILTER SHOUL D BE APPLIED AFTER MAKING NECESSARY ADJUSTMENTS FOR MATERIAL FACTORS. THUS, IF A COMPARABLE HAS DEVELOPED ITS OWN INTELLECTUAL PROPE RTY RIGHT RESULTING INTO DEVELOPMENT OF A PATENTED PRODUCT BY INCURRING HUGE EXPENDITURE ON R&D THEN EVEN IF IT IS PERFORMING SOFTWARE DEVELOPM ENT FUNCTIONS, IT HAS TO BE EXCLUDED. HOWEVER, IF A COMPANY IS INCURRING HUGE EXPENDITURE ON R&D ONLY FOR IMPROVING THE PROCESSES IN DELIVERING THE SOFTWARE DEVELOPMENT SERVICES THEN THE SAID COMPARABLE CANNO T BE REJECTED MERELY BECAUSE IT IS INCURRING R&D EXPENDITURE MORE THAN 3% OF ITS TOTAL SALES REVENUE BECAUSE SUFFICIENT NUMBER OF COMPARAB LES ARE TO BE FOUND FOR DETERMINING ALP. AN OBJECTIVE DECISION HAS TO B E TAKEN IN EACH CASE. LD. TPO HAS CLEARLY DEMONSTRATED THAT BY APPLYING T HIS FILTER EVEN FUNCTIONALLY SIMILAR COMPANIES GETS EXCLUDED. THIS WILL RESULT IN LIMITING 26 THE NUMBER OF COMPARABLES TO A VERY SMALL NUMBER. T HUS, THIS WILL ENTIRELY FRUSTRATE THE OBJECT OF DETERMINATION OF T HE ARMS LENGTH PRICE. THE CONTENTION OF ASSESSEE THAT COMPANIES INCURRING EXPENDITURE GREATER THAN 3% ON R&D WERE NECESSARILY CREATING IP PRODUCT S IS DEVOID OF ANY MERIT. THEREFORE, THIS FILTER IS TO APPLIED SUBJECT TO PROPER ANALYSIS AS OBSERVED EARLIER. IN THE RESULT THIS GROUND IS PART LY ALLOWED IN TERMS OF AFOREMENTIONED OBSERVATIONS. THEREFORE, IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS REMAINS IDENTICAL, HENCE THIS FILTER CAN BE APPLIED SUBJECT TO PROPER ANALYSIS MENTIONED IN ORDER OF THE TRIBUNAL IN A.Y. 2007-08. 10.11 AS REGARDS TO ADVERTISEMENT, MARKETING AND DI STRIBUTION COST LESS THAN/EQUIVALENT TO (<=) 3% WERE ACCEPTED THE TRIBUN AL PARTLY HELD IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR A .Y. 2007-08 AND HELD THAT APPLICATION OF THIS FILTER WILL HAVE TO BE SEE N ON A CASE BY CASE BASIS. THE LD. DR RELIED UPON THE ORDER OF THE TPO AND THE DIRECTIONS OF THE DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONI NG GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 10.12 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AL L THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FACTUAL ASPECT IS IDENTICAL WITH THAT OF A.Y. 2007-08 IN THE PRESENT ASSESSMENT YEAR. THEREF ORE, IN SIMILAR LIKE APPLICATION OF THIS FILTER WILL HAVE TO BE SEEN CAS E BY CASE BASIS IN THIS YEAR. HENCE THIS FILTER CAN BE APPLIED SUBJECT TO P ROPER ANALYSIS MENTIONED IN ORDER OF THE TRIBUNAL IN A.Y. 2007-08 (PARA 81.1 ). 11. THUS, GROUND NO. 5.6 IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSE. 12. AS REGARDS TO GROUND NO. 5.7 RELATING TO DENIAL OF ECONOMIC ADJUSTMENT FOR DIFFERENCE IN WORKING CAPITAL, THE L D. AR SUBMITTED THAT THE TPO HAS GIVEN THE BENEFIT OF WORKING CAPITAL AD JUSTMENT IN THE PREVIOUS YEAR. HENCE, IT SHOULD BE PROVIDED IN THE CURRENT YEAR ALSO AS THERE ARE NO CHANGE OF FACTS. THE LD. AR FURTHER PO INTED OUT THAT THE TPO 27 HAD HIMSELF OFFERED TO PROVIDE THE WORKING CAPITAL ADJUSTMENT IN SHOW CAUSE NOTICE, HOWEVER, THE SAME WAS NOT PROVIDED IN THE FINAL ORDER. THE LD. AR RELIED UPON THE DECISION IN CASE OF NOKIA IN DIA PRIVATE LIMITED (ITA 551/DEL/2011) WHEREIN IN WAS HELD THAT: WHEN THERE IS NO MATERIAL CHANGE IN FACT, SITUATION OR LAW IN THE CURRENT YEA R THEN WORKING CAPITAL ADJUSTMENT CANNOT BE DENIED IF ALLOWED IN PREVIOUS ASSESSMENT YEAR. THE LD. AR RELIED UPON THE DECISION OF THE HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE CIT VS. DALMIA PROMOTERS DEVELOPERS (P) LT D. 281 ITR 346]. THE SAID JUDGMENT WAS FOLLOWED BY THE DELHI ITAT IN NOK IA INDIA (P.) LTD. V. DCIT IT A 4559 OF 2011 (A.Y. 2007-08) AND NOKIA IND IA (P.) LTD. V. DCIT IT A NO. 2445 OF 2010 (A.Y. 2003-04). THE DELHI HIGH C OURT DISMISSED THE APPEAL FILED BY THE DEPARTMENT AGAINST THE CASE FOR A.Y.2007-08 IN PCIT V. NOKIA INDIA (P.) LTD. ITA 955 OF 2018. THE LD. AR ALSO RELIED UPON THE FOLLOWING DECISIONS: PCIT V. M/S. CITRIX R & D INDIA PVT. LTD. (PARA 4-6 ) ITA 533 OF 016 (KARNATAKA HC). THE SLP AGAINST THIS DECISION WAS D ISMISSED BY THE SUPREME COURT IN SLP (CIVIL) DIARY NO. 6045/ 2019; BROCADE COMMUNICATION IT(TP)A NO. 71/BANG/2014. APP EAL AGAINST THIS DECISION WAS DISMISSED BY KARNATAKA HIGH COURT IN PCIT V. M/S BROCADE COMMUNICATIONS PVT. LTD. ITA 309/2017; INDIGRA EXPORTS (P.) LTD. V. DCIT [2016] 176 TTJ 38 4 (BANGALORE - TRIB.). APPEAL AGAINST THIS DECISION WAS DISMISSED BY KARNA TAKA HIGH COURT IN INDIGRA EXPORTS (P.) LTD. V. DCIT [2018] 4 07 ITR 396 (KARNATAKA); MARUBENI-LTOCHU STEEL INDIA (P.) LTD. V. DCIT [2016 ] 177 TTJ 539 (DELHI - TRIB.) - DCIT V. IMSOFER MANUFACTURING INDIA (P.) LTD. ITA 5 155 & 5158 (DELHI) OF 2015; FEDERAL MOGUL AUTOMOTIVE PRODUCTS (INDIA) LTD. V. D CIT ITA NO. 5881 (DELHI) OF 2012; M/S. METRICSTREAM INFOTECH (INDIA) PVT. LTD. V, ACI T IT(TP)A NO. 493 OF 2016 28 CIT VS. DALMIA PROMOTERS DEVELOPERS (P) LTD. 281 IT R 346 QUALCOMM INDIA PVT. LTD. VS. ACIT (ITA NO. 5239/DEL /2010) MENTOR GRAPHICS (NOIDA) PVT. LTD. ITA 196/D/2006 PHILIPS SOFTWARE CENTRE (P) LTD ITA NO. 218 (BNG)/0 8 13. THE LD. DR RELIED UPON THE ORDER OF THE TPO AS WELL AS THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THE TPO HAS GIVEN THE BENEFIT OF WORKING CAPITAL ADJUSTMENT IN THE PR EVIOUS YEAR AND THERE IS NO CHANGE IN THE FACTUAL ASPECT IN THE PRESENT ASSE SSMENT YEAR AS WELL. THEREFORE, GROUND NO. 5.7 IS ALLOWED. 15. GROUND NO. 5.8 TO 5.11 ARE RELATING TO INAPPROP RIATE COMPARABLE COMPANIES SELECTED BY THE TPO/AO IN RESPECT OF SOFT WARE DEVELOPMENT SERVICES SEGMENT WHICH ARE CHALLENGED BY THE ASSESS EE. THE LD. AR SUBMITTED THAT AS REGARDS TO SOFTWARE DEVELOPMENT S ERVICES SEGMENT, THE ASSESSEE IS CONTESTING 15 COMPARABLES WHICH SHOULD BE REJECTED. NOW WE TAKE UP EACH OF THE COMPARABLES. 15.1 KALS INFORMATION SYSTEMS LTD. (SEG.) :- THE TRIBUNAL IN ASSESSEES OWN CASE REJECTED THE COMPARABLE ON ACCO UNT OF DIFFERENT ASSET BASE IN A.Y. 2007-08. ASSETS BASE OF THE COMPANY IN THIS YEAR ALSO IS ONLY RS. 40.26 LAKHS WHICH IS VERY MINISCULE AS COMPARED TO ASSESSEE WHICH IS RS. 288.2 CRORES. THIS IS A PRODUCT BASED COMPANY A S WELL. AS PER THE ANNUAL REPORT, KALS IS ENGAGED IN THE BUSINESS OF S OFTWARE SERVICES AND SOFTWARE PRODUCTS. IT FURTHER SHOWS THAT THERE IS CONSUMPTION OF SOFTWARE INVENTORY AS AN EXPENDITURE WHICH IMPLIES THAT THE COMPANY IS INTO TRADING OF SOFTWARE. THUS, THE LD. AR SUBMITTED THA T THIS IS FUNCTIONALLY DIFFERENT COMPANY. THE LD. AR RELIED UPON THE HONB LE DELHI HIGH COURT DECISION IN CASE OF TOLUNA INDIA PVT. LTD. ITA NO. 393/2016 AND 394/2016 29 AS WELL AS THE DECISION OF THE TRIBUNAL IN CASE OF MENTOR GRAPHICS (INDIA) PVT. LTD. VS. DCIT FOR A.Y. 2008-09 AND 2009-10 (IT A NO. 410/DEL/2013 AND ITA NO. 1484/DEL/2014). 15.2 THE LD. DR RELIED UPON THE ORDER OF THE TPO AN D DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AL L THE RELEVANT MATERIAL AVAILABLE ON RECORD. THIS IS A PRODUCT BAS ED COMPANY AS WELL. AS PER THE ANNUAL REPORT, KALS IS ENGAGED IN THE BUSIN ESS OF SOFTWARE SERVICES AND SOFTWARE PRODUCTS. IT IS PERTINENT TO NOTE THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT COMPANY. BESIDES THAT ASSETS BASE OF THE COMPANY IN THIS YEAR IS RS. 40.26 LAKHS WHICH IS VERY MINIS CULE AS COMPARED TO ASSESSEE COMPANY WHICH IS RS. 288.2 CRORES. THEREFO RE, THE TPO IS DIRECTED TO EXCLUDE THIS COMPANY FROM THE LIST OF C OMPARABLES. 15.4 INFOSYS LTD. :- THE TRIBUNAL IN ASSESSEES OWN CASE REJECTED THE COMPARABLE IN A.Y. 2007-08. IN THIS YEAR ALSO INFOS YS HAS A DIVERSIFIED BUSINESS PROFILE AND OWNS VARIOUS SOFTWARE PRODUCTS . THE COMPANY POSSESSES BRAND VALUE WHICH TENDS TO INFLUENCE THE PRICING POLICY OF THE COMPANY AND THEREBY DIRECTLY IMPACTING THE MARGINS EARNED BY THE COMPANY. WITHOUT PREJUDICE TO THE ABOVE, IF AT ALL INFOSYS TECHNOLOGIES LTD. IS TO BE CONSIDERED AS A COMPARABLE IT IS NECE SSARY TO ELIMINATE THE BRAND PROFITS (CALCULATED AT RS. 3,134 CRORES BY IN FOSYS) IN DETERMINING THE PROFITABILITY OF THE COMPANY FOR TRANSFER PRICI NG PURPOSES. IN DOING SO, THE MARGIN WOULD BE 11.43%. THIS COMPANY HAS TANGIB LE ASSETS WHICH IS MANY TIMES OF THAT OF THE ASSESSEE. THE RISK LEVELS FOR INFOSYS ARE QUITE HIGH AS AGAINST MINIMAL FOR THE ASSESSEE. THE COMPA NY HAS INCURRED SIGNIFICANT EXPENDITURE ON RESEARCH AND DEVELOPMENT ACTIVITIES. THE COMPANYS EXPENDITURE ON ADVERTISEMENT AND MARKETIN G IS 4.66% ON SALES, I.E. WHICH EXCEEDS 3% OF SALES FILTER APPLIE D BY THE ASSESSEE. THUS, THE LD. AR SUBMITTED THAT THIS IS FUNCTIONALLY DIFF ERENT COMPANY. THE LD. 30 AR RELIED UPON THE HONBLE DELHI HIGH COURT DECISIO N IN CASE OF TOLUNA INDIA PVT. LTD. ITA NO. 393/2016 AND 394/2016 AS WE LL AS THE DECISION OF THE TRIBUNAL IN CASE OF MENTOR GRAPHICS (INDIA) PVT . LTD. VS. DCIT FOR A.Y. 2008-09 AND 2009-10 (ITA NO. 410/DEL/2013 AND ITA N O. 1484/DEL/2014). 15.5 THE LD. DR RELIED UPON THE ORDER OF THE TPO AN D DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.6 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AL L THE RELEVANT MATERIAL AVAILABLE ON RECORD. INFOSYS HAS A DIVERSI FIED BUSINESS PROFILE AND OWNS VARIOUS SOFTWARE PRODUCTS. THE COMPANY POSSESS ES BRAND VALUE WHICH TENDS TO INFLUENCE THE PRICING POLICY OF THE COMPANY AND THEREBY DIRECTLY IMPACTING THE MARGINS EARNED BY THE COMPAN Y. THIS COMPANY HAS TANGIBLE ASSETS WHICH IS MANY TIMES OF THAT OF THE ASSESSEE. THE RISK LEVELS FOR INFOSYS ARE QUITE HIGH AS AGAINST MINIMAL FOR T HE ASSESSEE. THE COMPANY HAS INCURRED SIGNIFICANT EXPENDITURE ON RES EARCH AND DEVELOPMENT ACTIVITIES. THE COMPANYS EXPENDITURE O N ADVERTISEMENT AND MARKETING IS 4.66% ON SALES, I.E. WHICH EXCEEDS 3% OF SALES FILTER APPLIED BY THE ASSESSEE. THEREFORE, THIS COMPANY CANNOT BE HELD AS COMPARABLE TO THE ASSESSEE COMPANY. THEREFORE, THE TPO IS DIRECTE D TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 15.7 E-ZEST SOLUTIONS LTD. :- THE TRIBUNAL IN CASE OF VERIFONE INDIA TECHNOLOGY PVT. LTD. FOR A.Y. 2008-09 (ITA NO. 1/BA NG/2014 & 73/BANG/2014), THIS COMPANY IS ENGAGED IN RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S WHICH FALLS UNDER THE CATEGORY OF KPO SERVICES AND HENCE, NOT COMPARA BLE. FURTHER IN POINT NO. 2 OF THE AUDITORS REPORT, IT HAS BEEN MENTIONE D THAT THERE IS NO INVENTORY WITH THE COMPANY, HOWEVER, IN POINT NO. 4 IT HAS BEEN MENTIONED THAT THERE ARE ADEQUATE INTERNATIONAL CON TROL FOR PURCHASE OF INVENTORY. ALSO, INVENTORY IS APPEARING IN BALANCE SHEET AND PROFIT AND 31 LOSS ACCOUNT OF COMPANY. THUS, THERE IS CONTRADICT ION IN THE INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. THE LD. AR RE LIED UPON THE DECISION IN CASE OF DCIT VS. VERIFONE INDIA TECHNOLOGY PVT. LTD. (SUPRA) AS WELL AS MENTOR GRAPHICS (INDIA) PVT. LTD. VS. DCIT FOR A.Y. 2008-09 AND 2009-10 (ITA NO. 410/DEL/2013 AND ITA NO. 1484/DEL/2014). 15.8 THE LD. DR RELIED UPON THE ORDER OF THE TPO AN D DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.9 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AL L THE RELEVANT MATERIAL AVAILABLE ON RECORD. THIS COMPANY IS ENGAG ED IN RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH FALLS UNDER THE CATEGORY OF KPO SERVICES AND HENCE, NOT C OMPARABLE. BESIDES THIS, THERE IS CONTRADICTION IN THE INFORMATION PRO VIDED IN THE FINANCIAL STATEMENTS. THUS, THIS COMPANY DOES NOT SATISFY THE CRITERIA TO BE HELD AS COMPARABLE. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FORM THE LIST OF COMPARABLES. 15.10 WIPRO LTD. (SEG) :- THE TRIBUNAL IN ASSESSEES OWN CASE REJECTED THE COMPARABLE IN A.Y. 2007-08 AS FUNCTION ALLY DIFFERENT, FOLLOWING THE RULING OF AGNITY INDIA. THIS YEAR ALSO WIPRO HA S UNDERTAKEN R&D ACTIVITIES FOR DEVELOPMENT OF IP AND PRODUCTS. FURT HER, COMPANY OWNS SUBSTANTIAL PATENTS, TRADEMARKS AND RIGHTS IN THE F ORM OF INTANGIBLE ASSETS TO THE TUNE OF RS. 175 CRORE. INDEPENDENT STUDY DON E BY FORRESTER RESEARCH WHERE COMPANIES VIZ. INFOSYS, TATA CONSULT ANCY SERVICES AND WIPRO TECHNOLOGIES HAVE BEEN IDENTIFIED AS THE TOP THREE COMPANIES REPORTING SUPERLATIVE PERFORMANCE WITH HIGH REVENUE GROWTH AND SKY ROCKETING PROFITABILITY. THE ANNUAL REPORT OF THE C OMPANY FOR AY 2007-08 PROVIDES THE ABRIDGED FINANCIAL DATA WHICH DOES NOT PROVIDE THE DETAILED FINANCIAL INFORMATION. WIPRO HAS A DIVERSIFIED BUSI NESS PROFILE AND OWNS VARIOUS SOFTWARE PRODUCTS. THUS, IT IS FUNCTIONALLY DIFFERENT COMPARABLE THAN THE ASSESSEE COMPANY. WIPRO HAS SUBSTANTIAL IN TANGIBLE ASSETS IN 32 FORM OF GOODWILL WHICH IS VALUED BY THE COMPANY AT RS.42209 CRORE. DURING THE YEAR UNDER CONSIDERATION THERE WAS MERGE R OF WIPRO INFRASTRUCTURE ENGINEERING LIMITED, WIPRO HEALTHCAR E IT LIMITED, QUANTECH GLOBAL SERVICES LIMITED WITH WIPRO LIMITED . THE LD. AR RELIED UPON THE HONBLE DELHI HIGH COURT DECISION IN CASE OF TOLUNA INDIA PVT. LTD. ITA NO. 393/2016 AND 394/2016, CIENA INDIA PVT . LTD. VS. DCIT (ITA NO. 3324/DEL/2013 FOR A.Y. 2008-09) AS WELL AS THE DECISION OF THE TRIBUNAL IN CASE OF MENTOR GRAPHICS (INDIA) PVT. LT D. VS. DCIT FOR A.Y. 2008-09 AND 2009-10 (ITA NO. 410/DEL/2013 AND ITA N O. 1484/DEL/2014). 15.11 THE LD. DR RELIED UPON THE ORDER OF THE TPO AND DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.12 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. WIPRO HAS UNDERTAKEN R&D ACTIVITIES FOR DEVELOPMENT OF IP AND PRODUCTS. FURTHER, COMPANY OW NS SUBSTANTIAL PATENTS, TRADEMARKS AND RIGHTS IN THE FORM OF INTAN GIBLE ASSETS TO THE TUNE OF RS. 175 CRORE. INDEPENDENT STUDY DONE BY FORREST ER RESEARCH WHERE COMPANIES VIZ. INFOSYS, TATA CONSULTANCY SERVICES A ND WIPRO TECHNOLOGIES HAVE BEEN IDENTIFIED AS THE TOP THREE COMPANIES REP ORTING SUPERLATIVE PERFORMANCE WITH HIGH REVENUE GROWTH AND SKY ROCKET ING PROFITABILITY. THE ANNUAL REPORT OF THE COMPANY FOR AY 2007-08 PROVIDE S THE ABRIDGED FINANCIAL DATA WHICH DOES NOT PROVIDE THE DETAILED FINANCIAL INFORMATION. WIPRO HAS A DIVERSIFIED BUSINESS PROFILE AND OWNS V ARIOUS SOFTWARE PRODUCTS. THUS, IT IS FUNCTIONALLY DIFFERENT COMPAR ABLE THAN THE ASSESSEE COMPANY. WIPRO HAS SUBSTANTIAL INTANGIBLE ASSETS IN FORM OF GOODWILL WHICH IS VALUED BY THE COMPANY AT RS.42209 CRORE. D URING THE YEAR UNDER CONSIDERATION THERE WAS MERGER OF WIPRO INFRASTRUCT URE ENGINEERING LIMITED, WIPRO HEALTHCARE IT LIMITED, QUANTECH GLOB AL SERVICES LIMITED WITH WIPRO LIMITED. THUS, THIS COMPARABLE COMPANY I S NOT ONLY FUNCTIONALLY DIFFERENT BUT ALSO IN THE PRESENT ASSE SSMENT YEAR IT HAD 33 MERGER WHICH IS AN EXTRA ORDINARY EVENT. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLE S. 15.13 TATA ELXSI LTD. (SEG) :- THE TRIBUNAL IN ASSESSEES OWN CASE REJECTED THE COMPARABLE IN A.Y. 2007-08 AS FUNCTIONALLY DIFF ERENT. THIS YEAR ALSO THE COMPANY IS IN THE BUSINESS OF HARDWARE DESIGN . IT IS NOTABLE THAT THE COMPANY EMPLOYS A WIDE VARIETY OF PERSONNEL SUCH AS HARDWARE ENGINEERS, STYLING AND MECHANICAL DESIGNERS, GRAPHIC DESIGNERS , ANIMATORS AND SPECIAL EFFECTS ARTISTS. THUS IS AMPLE TESTIMONY TO THE FACT THAT THE COMPANY IS NOT ENGAGED IN PURE SOFTWARE DEVELOPMENT ACTIVITY UNLIKE THE ASSESSEE. R&D ACTIVITIES UNDERTAKEN BY THE TATA ELX SI RESULTED IN THE CREATION OF THE INTELLECTUAL PROPERTIES (I). FURTHE R, THE COMPANYS R&D EXPENSES OF 3.39% ON SALES FAILS THE R&D FILTER OF 3% APPLIED BY THE ASSESSEE IN THE TP DOCUMENTATION. NET FIXED ASSETS TO SALES RATIO IN CASE OF TATA ELXSI IS 246% (APPROX.). THE LD. AR RELIED UPO N THE HONBLE DELHI HIGH COURT DECISION IN CASE OF TOLUNA INDIA PVT. LT D. ITA NO. 393/2016 AND 394/2016 AS WELL AS THE DECISION OF THE TRIBUNA L IN CASE OF MENTOR GRAPHICS (INDIA) PVT. LTD. VS. DCIT FOR A.Y. 2008-0 9 AND 2009-10 (ITA NO. 410/DEL/2013 AND ITA NO. 1484/DEL/2014). 15.14 THE LD. DR RELIED UPON THE ORDER OF THE TPO AND DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.15 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE COMPANY IS IN THE BUSINESS OF HARDWARE DESIGN AND EMPLOYS A WIDE VARIETY OF PERSONNEL SUC H AS HARDWARE ENGINEERS, STYLING AND MECHANICAL DESIGNERS, GRAPHI C DESIGNERS, ANIMATORS AND SPECIAL EFFECTS ARTISTS. THUS THE COMPANY IS NO T ENGAGED IN PURE SOFTWARE DEVELOPMENT ACTIVITY UNLIKE THE ASSESSEE. BESIDES THAT R&D ACTIVITIES UNDERTAKEN BY THE TATA ELXSI RESULTED IN THE CREATION OF THE INTELLECTUAL PROPERTIES (I). FURTHER, THE COMPANYS R&D EXPENSES OF 3.39% ON SALES FAILS THE R&D FILTER OF 3% APPLIED BY THE ASSESSEE IN THE TP 34 DOCUMENTATION. NET FIXED ASSETS TO SALES RATIO IN C ASE OF TATA ELXSI IS 246% (APPROX.). THUS, THIS COMPARABLE COMPANY IS NOT ONL Y FUNCTIONALLY DIFFERENT BUT ALSO IT ALSO FAILS THE FILTERS APPLIED BY THE T PO. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COM PARABLES. 15.16 SASKEN COMMUNICATION TECHNOLOGIES LTD.(SEG) :- THE TRIBUNAL IN ASSESSEES OWN CASE REJECTED THE COMPARABLE IN A.Y. 2007-08 ON ACCOUNT OF DEVELOPMENT AND OWNERSHIP OF IPR. THIS YEAR ALSO SASKEN HAD APPLIED AND ACQUIRED PATENTS. AS PER THE ANNUAL REPORT FOR AY 2008-09, THE COMPANY HAS FILED FOR 41 PATENT APPLICATIONS OUT OF WHICH 19 HAS BEEN GRANTED (4 HAVE BEEN GRANTED DURING CURRENT YEAR). THE LD. AR SUBMITTED THAT THIS COMPARABLE BE REJECTED AS IT HAS OWNERSHI P OF IPR WHICH IS NOT THE ACTIVITY OF THE ASSESSEE COMPANY. 15.17 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.18 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN ASSE SSEES OWN CASE REJECTED THE COMPARABLE IN A.Y. 2007-08 ON ACCOUNT OF DEVELO PMENT AND OWNERSHIP OF IPR. THIS YEAR ALSO SASKEN HAD APPLIED AND ACQUI RED PATENTS. AS PER THE ANNUAL REPORT FOR AY 2008-09, THE COMPANY HAS FILED FOR 41 PATENT APPLICATIONS OUT OF WHICH 19 HAS BEEN GRANTED (4 HA VE BEEN GRANTED DURING CURRENT YEAR). THIS FACT IS NOT DENIED BY TH E LD. DR. THUS, THE SASKEN HAS A DIFFERENT PROFILE WHICH CANNOT BE COMP ARED WITH THE ASSESSEE COMPANY. THEREFORE, WE DIRECT THE TPO TO E XCLUDE THIS COMPARABLE FROM THE LIST OF THE COMPARABLES. 15.19 AVANI CINCOM TECHNOLOGIES :- THE TRIBUNAL IN ASSESSEES OWN CASE REJECTED THE COMPARABLE IN A.Y. 2007-08 AS FUNCTION ALLY DIFFERENT. THIS YEAR ALSO THE COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE PRODUCT DEVELOPMENT AND OWNS PRODUCTS LIKE DXCHANGE TRAVEL SOLUTIONS, 35 INSURANCE SOLUTIONS, CUSTOMER APPRECIATION AND RELA TIONSHIP MANAGEMENT APPLICATION AND CONTENT MANAGEMENT SYSTE M. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS NOT BEEN PROVIDED W ITH THE INFORMATION OBTAINED BY TPO USING SECTION 133(6) OF THE ACT. TH E LD. AR FURTHER SUBMITTED THAT THE COMPLETE ANNUAL REPORT IS NOT AV AILABLE IN PUBLIC DOMAIN. THE LD. AR RELIED UPON THE DECISION IN CASE OF DCIT VS. VERIFONE INDIA TECHNOLOGY PVT. LTD. (SUPRA) AS WELL AS MENTO R GRAPHICS (INDIA) PVT. LTD. VS. DCIT FOR A.Y. 2008-09 AND 2009-10 (ITA NO. 410/DEL/2013 AND ITA NO. 1484/DEL/2014). 15.20 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.21 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THIS COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE PRODUCT DEVELOP MENT AND OWNS PRODUCTS. BESIDES THIS, THE COMPLETE ANNUAL REPORT IS NOT AVAILABLE IN PUBLIC DOMAIN. THE TRIBUNAL IN MENTOR GRAPHICS (IND IA) PVT. LTD. VS. DCIT FOR A.Y. 2008-09 HAS ALSO EXCLUDED THIS COMPARABLE. THUS, IT WILL BE APPROPRIATE TO EXCLUDE THIS COMPARABLE IN THE PRESE NT ASSESSEES CASE AS WELL. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF FINAL COMPARABLES. 15.22 PERSISTENT SYSTEMS LTD. : THIS COMPARABLE IS REJECTED BY THE DRP IN ASSESSEES OWN CASE FOR A.Y. 2007-08 WHICH I S CONFIRMED BY THE TRIBUNAL. THE COMPANY HAS BEEN REJECTED BECAUSE THE RE WAS RESTRUCTURING IN THE BUSINESS OF PERSISTENT SYSTEMS, IN LIGHT OF THE SAME THIS COMPANY SHOULD BE REJECTED. ITS A PRODUCT COMPANY. THE COM PANY DERIVES ITS INCOME FROM THE SALE OF SOFTWARE SERVICES AS WELL A S PRODUCTS. FURTHER, IN NUMEROUS DECISIONS CITED THIS COMPANY HAS BEEN REJE CTED ON THE GROUND THAT IT IS SOFTWARE PRODUCT COMPANY WHICH IS DIFFER ENT FROM SOFTWARE DEVELOPMENT SERVICE COMPANY. THE LD. AR RELIED UPON THE DECISION OF THE 36 HONBLE HIGH COURT IN CASE OF CASH EDGE INDIA PVT. LTD. (ITA 279/2016 ORDER DATED 04.05.2016 AS WELL AS MENTOR GRAPHICS ( INDIA) PVT. LTD. VS. DCIT FOR AY 2008-09 AND AY 2009-10 (ITA NO. 410/DEL /2013 AND 1484/DEL/2014). 15.23 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.24 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THIS IS PRODUCT BASED COMPANY AND THE ASSESSEE COMPANY DO NOT DEAL INTO BUSINESS OF PRODUCT. THEREFORE, WE DIRECT THE TPO TO EXCLUDE TH IS COMPARABLE FROM THE FINAL LIST OF COMPARABLES. 15.25 LGS GLOBAL LTD. :- THIS COMPARABLE COMPANY HAS ABNORMAL INCREASE IN REVENUE FROM THE PREVIOUS YEAR I.E. 200 %. THE LD. AR SUBMITTED THAT TPO HAS USED DIMINISHING FILTER TO R EJECT COMPANIES WITH DIMINISHING RETURN AND ON OTHER SIDE SELECTED THIS COMPANY AS COMPARABLE WITH SUCH A HUGE INCREASE IN REVENUE. TH E COMPANY IS ENGAGED IN MULTIFARIOUS ACTIVITIES INCLUDING AN END TO END SERVICE PROVIDER AND OFFERS VARIETY OF SERVICES. IT IS INVOLVED IN P RODUCT EVALUATION, DESIGN & DEVELOPMENT ETC. OF THE PRODUCTS. FURTHER, IT ALSO RENDERS BPO SERVICES IN THE FIELD OF HUMAN RESOURCES, LIFE SCIENCES, LEGAL SERVICES, SUPPLY CHAIN MANAGEMENT, SALES AND CUSTOMER SUPPORT ETC. FURTHER , THE FINANCIAL STATEMENTS LACKS IN PROVIDING THE SEGMENTAL RESULTS AS WELL. THE LD. AR RELIED UPON THE DECISION IN CASE OF M/S NOKIA SIEME NS NETWORKS INDIA VS. ACIT (ITA NO. 333/DEL/2013 FOR A.Y. 2008-09), NAVIS ITE INDIA PVT. LTD. (ITA NO. 5329/DEL/2012) AND SAPIENT CORPN. (P.) LTD . VS. DCIT (ITA NO. 5263/DEL/2010). 15.26 THE LD. DR RELIED UPON THE ORDER OF THE TPO /AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE 37 AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.27 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THIS COMPARABLE COMPANY IS ENGAGED IN VARIOUS KINDS OF ACTIVITIES A ND DOES NOT HAVE SEGMENTAL RESULTS IN ITS FINANCIALS. BESIDES THAT T HE TPO HAS NOT CONSIDERED THAT THIS COMPANY HAS ABNORMAL INCREASE IN REVENUE. THEREFORE, WE DIRECT TO THE TPO TO EXCLUDE THIS COM PARABLE COMPANY FORM THE FINAL LIST OF COMPARABLES. 15.28 BODHTREE CONSULTING LTD. :- AS PER THE DECISION OF THE TRIBUNAL IN CASE OF AIRCOM INTERNATIONAL (INDIA) PVT. LTD. (AY 2008-09 ITA NO. 6402/DEL/2012), THE COMPANY IS ENGAGED IN PROVIDING OPEN AND END TO END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOLUTIONS. ALSO, THE TRIBUNAL HAS NOTED THE FAULTY REVENUE RECOGNITION APPROACH OF THE COMPANY WHICH MAKES IT NON-COMPARAB LE TO THE ASSESSEE. FURTHER, AS RECOGNIZED BY THE TRIBUNAL IN DIALOGIC NETWORKS (INDIA) PVT. LTD. (AY 2008-09 ITA NO. 7280/MUM/2012), COMPANY IS ENGAGED IN PROVIDING DATA MANAGEMENT AND DATA WAREHOUSING SERV ICES WHICH ARE CLASSIFIED AS ITES AND ALSO, DURING THE YEAR THE CO MPANY HAS UNDERGONE RESTRUCTURING ACTIVITY BY HIVING OFF ITS E-PAPER BU SINESS. THUS, IT IS FUNCTIONALLY NON COMPARABLE. THE LD. AR ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN CASE OF MENTOR GRAPHICS (INDIA) PVT . LTD. VS. DCIT (SUPRA). 15.29 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.30 WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THIS COMPARABLE COMPANY IS FUNCTIONALLY DIFFERENT AS THE SAID COMPA NY IS ENGAGED IN PROVIDING OPEN AND END TO END WEB SOLUTIONS AND VAR IOUS OTHER ACTIVITIES WHICH ARE TOTALLY DIFFERENT FROM THE ASSESSEE COMPA NYS PROFILE. THUS, WE 38 DIRECT THE TPO TO EXCLUDE THIS COMPARABLE FROM THE FINAL LIST OF THE COMPARABLES. 15.31 SOFTSOL INDIA LTD. :- AS PER THE WEBSITE, THE COMPANY PROVIDES HIGH- END SERVICES AND IS ENGAGED IN DIVERSIFIED OPERATIO NS INCLUDING DEVELOPMENT OF PRODUCTS. THERE IS ERROR IN COMPUTIN G THE MARGIN OF THIS COMPANY. THE CORRECT MARGIN OF SOFTSOL AFTER EXCLUD ING RENTAL INCOME COMES TO BE 15% (AS DIRECTED BY THE DRP) INSTEAD OF 25.59% AS COMPUTED BY THE TPO IN THE REVISED ORDER. THE RATIO OF RELAT ED PARTY TRANSACTIONS TO SALES IS MORE THAN 15%. THE LD. AR RELIED UPON THE DECISION IN CASE OF DCIT VS. VERIFONE INDIA TECHNOLOGY PVT. LTD. (AY 20 08-09 ITA NO. 1/BANG/2014 & 73/BANG/2014). 15.32 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.33 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THIS COMPANY IS A PRO DUCT DEVELOPMENT COMPANY. ITS MARGIN WERE INCORRECTLY COMPUTED BY TH E TPO. THE TPO HAS ALSO NOT TAKEN INTO ACCOUNT THAT THE RATIO OF RELAT ED PARTY TRANSACTIONS TO SALES IS MORE THAN 15% WHICH CANNOT BE APPLIED IN T HE PRESENT ASSESSEE COMPANYS CASE. THEREFORE, WE DIRECT THE TPO TO EXC LUDE THIS COMPARABLE FROM FINAL LIST OF COMPARABLES. 15.34 QUINTEGRA SOLUTIONS LTD. :- THIS COMPARABLE IS REJECTED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2003-04 AS W ELL AS RECENTLY DECIDED ON 27.04.2018 WHEREIN IT HAS BEEN HELD THAT THE COM PANY IS FUNCTIONALLY NOT COMPARABLE TO ASSESSEE. THIS YEAR THE COMPANY A CQUIRED PA CORPORATION INC. A US BASED IT COMPANY HENCE THE RE SULTS MAY BE IMPACTED BY THE SAID ACQUISITION. THE COMPANY OWNS INTANGIBLES IN FORM OF COPYRIGHTS AND SOFTWARE WHICH IS BEING USED BY T HE COMPANY FOR RENDERING OF SERVICES UNLIKE ASSESSEE. THE COMPANY IS ENGAGED IN 39 RESEARCH AND DEVELOPMENT ACTIVITIES AS WELL. THE LD . AR RELIED UPON THE DECISION OF THE TRIBUNAL IN CASE OF AIRCOM INTERNAT IONAL (INDIA) PVT. LTD. VS. DCIT FOR AY 2008-09 (ITA NO. 6402/DEL/2012). 15.35 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.36 WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIAL AVAILABLE ON RECORD. THERE IS ACQUISITION DURING TH E YEAR WHICH IS AN EXTRA ORDINARY EVENT AND HAS A FINANCIAL IMPACT. BESIDES THAT THIS COMPANY IS ALSO INVOLVED IN R&D ACTIVITIES WHICH ARE DIFFERENT FROM WHAT THE ASSESSEE COMPANY IS DOING. THEREFORE, WE DIRECT THE TPO TO E XCLUDE THIS COMPARABLE FROM FINAL LIST OF COMPARABLES. 15.37 THIRDWARE SOLUTIONS LTD. :- THIS COMPARABLE IS FUNCTIONALLY DIFFERENT. THIS COMPANY IS ENGAGED IN DIVERSIFIED B USINESS INCLUDING SOFTWARE PRODUCTS AND SEGMENTAL IS NOT AVAILABLE. T HE COMPANY IS ENGAGED IN PURCHASE OF SALE OF LICENSES. THE LD. AR RELIED UPON THE DECISION OF THE TRIBUNAL IN CASE OF AIRCOM INTERNATIONAL (INDIA) PV T. LTD. VS. DCIT (SUPRA). 15.38 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.39 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THIS COMPARABLE COMPANY IS ENGAGED IN SOFTWARE PRODUCT AND HAVE DIV ERSIFIED BUSINESS. BESIDES THIS THE COMPANY DOES NOT HAVE SEGMENTAL DE TAILS AVAILABLE. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPAR ABLE COMPANY FROM THE FINAL LIST OF COMPARABLES. 15.40 R SYSTEMS INTERNATIONAL LTD. (SEG) : THIS COMPARABLE COMPANY 40 FOLLOWS DIFFERENT FINANCIAL YEAR ENDING I.E. DECEMB ER. DESPITE THIS THE TPO HAS OBTAINED DATA USING SECTION 133(6), THE SAME CA NNOT BE RELIED UPON IN THE ABSENCE OF AUDITED DATA AS PER THE LD. AR. 15.41 THE LD. DR RELIED UPON THE ORDER OF THE TPO/A O/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.42 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AL L THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THIS COMPARABLE COMPANY FOLLOWS DIFFERENT FINANCIAL YEAR ENDING AND THERE IS NO AVAILABILITY OF THE AUDITED DATA. THUS, THIS COMPANY CANNOT BE T AKEN INTO ACCOUNT AS COMPARABLE. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE COMPANY FROM THE FINAL LIST OF COMPARABLES. 15.43 IGATE GLOBAL SOLUTION LTD. :- THIS COMPARABLE IS FUNCTIONALLY DIFFERENT. THIS COMPANY IS ENGAGED IN DIVERSIFIED B USINESS INCLUDING CONTRACT SERVICES, IT SERVICES AND IT ENABLED SERVI CES. AS RECOGNIZED BY THE TRIBUNAL IN DIALOGIC NETWORKS (INDIA) PVT. LTD. (SU PRA), THE COMPANY IS ENGAGED IN APPLICATION DEVELOPMENT, APPLICATION MAN AGEMENT, BUSINESS PROCESS MANAGEMENT, IT GOVERNANCE, WEB TECHNOLOGY S OLUTIONS, ENTERPRISE INTEGRATION, CIS AND BPO, INFRASTRUCTURE MANAGEMENT, CLOUD SERVICES. THE COMPANY ALSO PROVIDES BUSINESS INTELL IGENCE AND DATA WAREHOUSING SOLUTIONS. THUS, IT IS FUNCTIONALLY DIF FERENT FROM THE ASSESSEE COMPANY. 15.44 THE LD. DR RELIED UPON THE ORDER OF THE TPO/A O/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 15.45 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AL L THE RELEVANT MATERIAL AVAILABLE ON RECORD. THIS COMPANY IS ENGAG ED IN VARIOUS ACTIVITIES AND FUNCTIONALLY DIFFERENT THAN THE ASSESSEE COMPAN Y. THEREFORE, WE DIRECT 41 THE TPO TO EXCLUDE THIS COMPARABLE COMPANY FROM THE FINAL LIST OF COMPARABLES. 15.46 WE FURTHER NOTE THAT SINCE THERE IS ONLY TWO COMPARABLE LEFT IN THE FINAL LIST OF THE COMPARABLES SELECTED BY THE T PO/DRP. HENCE, THE MATTER IS REMANDED BACK TO ASSESSING OFFICER /TPO T O DECIDE AFRESH BY GIVING NEW SET OF COMPARABLES (INCLUDING TWO COMPAR ABLES WHICH ARE NOT CHALLENGED BY THE ASSESSEE) WHICH ARE FUNCTIONALLY SIMILAR TO THE ASSESSEE COMPANY AND THE SEGMENTAL DATA INCLUDING OTHER FILT ERS OF THE TPO ARE MET WITH. NEEDLESS TO SAY, THE ASSESSEE WILL PROVIDE TH E NEW SET OF COMPARABLES WHICH WILL BE VERIFIED BY THE TPO AND THEREAFTER AD JUDICATE THE ISSUES AT LENGTH. 15.47 THUS, GROUND NO. 5.8 TO 5.11 ARE PARTLY ALLO WED FOR STATISTICAL PURPOSE. 16. AS REGARDS TO GROUND NO. 5.13 RELATING TO DENIA L OF ECONOMIC ADJUSTMENT FOR DIFFERENCE IN RISK PROFILE, THE LD. AR SUBMITTED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE FOR A.Y. 2007-08 (ITA NO. 5637/DEL/2011) WHEREIN THE AO /TPO WAS DIRECTED TO CONSIDER COMPUTATION OF RISK ADJUSTMENT AS PER C APM MODEL BY AVAILING THE SERVICES OF TECHNICAL EXPERTS. FURTHER , EXPERTS OF THE FIELD WERE DIRECTED TO BE APPOINTED BY BOTH THE SIDES TO COME TO AN ACCEPTABLE SOLUTION. MSIPL, BEING A CAPTIVE SERVICE PROVIDER, IS INSULATED FROM VIRTUALLY ALL RISKS DUE TO ITS CONTRACTUAL ARRANGEM ENTS, WHEREAS THE COMPARABLE COMPANIES ARE FULL RISK BEARING ENTITIES AND THEREFORE THERE SHOULD BE SOME ADJUSTMENTS MADE TO NULLIFY THIS DIF FERENCE IN RISK PROFILE. 17. THE LD. DR RELIED UPON THE ORDER OF THE TPO AS WELL AS THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 42 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE FACTUAL ASPECT IN THE PRESENT ASSESSMENT YEAR IS SIMILAR TO THAT O F A.Y. 2007-08, THEREFORE, WE HEREBY DIRECT THE AO/TPO TO CONSIDER COMPUTATION OF RISK ADJUSTMENT AS PER CAPM MODEL BY AVAILING THE SERVIC ES OF TECHNICAL EXPERTS WHICH SHOULD BE APPOINTED BY BOTH THE SIDES TO COME TO AN ACCEPTABLE SOLUTION. THUS, GROUND NO. 5.13 IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE. 19. AS REGARDS TO GROUND NO. 5.12, 5.14 & ADDITIONA L GROUND FILED ON 5 MAY 2015 BY THE LD. AR., THE LD. AR SUBMITTED THAT THERE IS ERROR IN MARGIN COMPUTATION. THE TPO WHILE COMPUTING THE ADJ USTMENT AMOUNT IN SDS SEGMENT HAS INCORRECTLY TAKEN MARGIN OF ASSESSE E AS 5 10% INSTEAD OF 8.22%. IN DOING SO, THE TPO HAS ERRED BY NOT CON SIDERING THE VOLUNTARY TAX ADJUSTMENT MADE BY THE ASSESSEE IN ITS RETURN O F INCOME. A CALCULATION OF THE SAME IS PROVIDED BELOW : PARTICULARS REFERENCE AMOUNT OF ADDITION AS COMPUTED BY THE LD. TPO/AO CORRECT COMPUTATION OF ADDITION (PAGE 29 OF THE APPEAL SET) OPERATING COST A 6,042,365,420 6,042,365,420 ARMS LENGTH MARGIN B 21.85% 21.85% ARMS LENGTH PRICE C=A*B+A 7,362,622,264 7,362,622,264 PRICE CHARGED BY THE ASSESSEE D 6,350,741,416 PRICE CHARGED BY THE ASSESSEE (AFTER MAKING VOLUNTARY ADJUSTMENT OF INR 188,124,307 IN THE RETURN OF INCOME) D 6,538,865,723 AMOUNT OF ADJUSTMENT E=C-D 1,011,880,848 823,756,541 43 20. THE LD. DR RELIED UPON THE ORDER OF THE TPO AS WELL AS THE ASSESSING OFFICER. 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE RECORDS IT CAN BE SEEN THAT THERE IS ERROR IN THE MARGIN COMPUTATION WHICH NEEDS TO BE VERIFIED. THEREFORE, WE REMAND BACK THIS ISSUE TO T HE FILE OF THE AO/TPO FOR VERIFYING THE SAID COMPUTATION AND QUANTIFYING THE SAME CORRECTLY. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 5.12, 5.1 4 AND ADDITIONAL GROUND ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 22. AS REGARDS TO GROUND NO. 6.1 TO 6.8 RELATING TO ADJUSTMENT OF RS 16.62 CRORES MADE IN RESPECT OF PROVISION OF ADMINI STRATIVE SUPPORT SERVICES AND MARKET SUPPORT SERVICES SEGMENT (MSS), THE LD. AR SUBMITTED THAT MSIPL COORDINATES AND MONITORS GLOBA L SUPPORT PROVIDED BY INDIAN VENDORS FOR IT SERVICES AND 'IT SYSTEMS, IDENTIFIES POTENTIAL DOMESTIC VENDORS THAT CAN PROVIDE IT SUPPORT TO THE GROUP MSIPL PROVIDES LIMITED INPUT ON BUSINESS OPPORTUNITIES IN THE INDI A MARKET. BENCHMARKING OF MSS IN THE TP DOCUMENTATION NATURE OF INTERNATIONAL MOST APPROPRIATE VALUE OF INTERNATIONAL TRANSACTIONS MARKETING SUPPORT SERVICES TNMM OP/TC 568,540,150 THE LD. AR FURTHER SUBMITTED THAT THERE HAS BEEN NO CHANGE IN THE FUNCTIONS UNDERTAKEN BY MSIPL, APPLICATION OF FILTE RS AND BENCHMARKING ANALYSIS UNDERTAKEN BY MSIPL FROM THE PREVIOUS YEAR . THE ASSESSEE IDENTIFIED 4 COMPARABLE COMPANIES WITH THE MEAN OP/ TC MARGIN OF 4 18% AGAINST THE MARGIN OF MSIPL AT 3.53%. (4.04% AFTER CONSIDERING FOREIGN EXCHANGE GAIN AS OPERATING) THUS, THE INTERNATIONAL TRANSACTIONS WITH RESPECT TO 'MSS' SEGMENT WERE CONSIDERED TO BE AT A RMS LENGTH. THE TPO 44 REJECTED THE TP STUDY PREPARED BY MSIPL STATING THA T THE QUANTITATIVE FILTERS ARE NOT CORRECT, SELECTION/REJECTION OF COM PARABLES BASED ON QUALITATIVE FILTER OF FUNCTIONALLY DIFFERENT IS N OT OBJECTIVE AND UNIFORM, DATA FOR THE CURRENT YEAR IS NOT USED AND RPT FILTE R WAS NOT APPLIED. THE TPO REJECTED AIL THE 4 COMPARABLES SELECTED BY THE ASSESSEE AND BASED ON THE FRESH COMPARABILITY ANALYSIS, IDENTIFIED 10 NEW COMPARABLE COMPANIES WITH A MEAN MARGIN OF 21.76% (WITHOUT ALLOWING WORK ING CAPITAL ADJUSTMENT) AND PROPOSED A TRANSFER PRICING ADDITIO N OF RS. 16,62,27,059. 23. AS REGARDS TO GROUND NO. 6.1 RELATING TO RPT FI LTER MORE THAN (>) 25%, THE LD. AR SUBMITTED THAT THIS IS WRONGLY APPL IED BY THE TPO / DRP AS THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE I N ASSESSEES OWN CASE FOR AY 2007-08 (ITA NO. 5637/DEL/2011). THE LD. DR RELI ED UPON THE ORDER OF THE TPO/AO/DRP AND FURTHER SUBMITTED THAT THE FI NDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVENUE BEFORE US. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FACTS REMAIN SIMI LAR IN THE PRESENT ASSESSMENT YEAR, THEREFORE, WE DIRECT THE TPO TO TA KE INTO CONSIDERATION ONLY THOSE COMPARABLES WHERE RELATED PARTY TRANSACT IONS ARE TO THE EXTENT OF 15% BECAUSE IT IS NOT THE CASE OF REVENUE THAT B Y APPLYING THE THRESHOLD LIMIT OF 15%, IT WILL NOT GET SUFFICIENT NUMBER OF COMPARABLES. THUS, GROUND NO. 6.1 IS PARTLY ALLOWED. 25. AS REGARDS TO GROUND NO. 6.1.6 AND 6.1.7 RELATI NG TO APPROPRIATE FILTER OF R&D <=3% APPLIED BY ASSESSEE IN TP DOCUME NTATION BUT WRONGLY REJECTED BY THE TPO/AO IS COVERED BY THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08. THE LD. AR SU BMITTED THAT THE TRIBUNAL PARTLY HELD IN FAVOUR OF THE ASSESSEE IN A SSESSEES OWN CASE FOR A.Y. 2007-08. THE LD. DR COULD NOT CONTROVERT THE S UBMISSIONS OF THE LD. AR. 45 26. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE IN THE PRES ENT ASSESSMENT YEAR IS IDENTICAL THEREFORE, THE FINDINGS RECORDED HEREINAB OVE IN PARA 10.10 IS APPLIED. HENCE THIS FILTER CAN BE APPLIED SUBJECT T O PROPER ANALYSIS MENTIONED IN ORDER OF THE TRIBUNAL IN A.Y. 2007-08. GROUND NO. 6.1.6 AND 6.1.7 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 27. AS REGARDS TO GROUND NO. 6.2 RELATING TO DENIAL OF WORKING CAPITAL ADJUSTMENT, THE LD. AR SUBMITTED THAT THE SUBMISSIO NS ARE IDENTICAL FOR GROUND NO. 5.7 MADE HEREIN. THEREFORE, GROUND NO. 6 .2 IS ALLOWED. 28. GROUND NO. 6.3, 6.4, 6.5 AND 6.6 ARE RELATING T O INAPPROPRIATE COMPARABLE COMPANIES SELECTED BY THE TPO/AO IN RESP ECT OF MARKETING SUPPORT SERVICES SEGMENT WHICH ARE CHALLENGED BY TH E ASSESSEE. THE DISCUSSIONS AND FINDINGS OF THE COMPARABLES ARE AS FOLLOWS. 28.1 RITES LTD. (SEG) :- THIS COMPARABLE IS REJECTED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2007-08 AS FUNCTIONALLY DIFFERENT. THIS YEAR ALSO THE COMPANY HAS SAME FUNCTIONAL PROFILE AND PR OVIDES COMPREHENSIVE ENGINEERING, CONSULTANCY AND PROJECT MANAGEMENT SER VICES IN THE TRANSPORT INFRASTRUCTURE SECTOR. THE COMPANY PROVID ES SERVICES LIKE PRE- PROJECT PLANNING, PROJECT SUPPORT ACTIVITIES, PROJE CT PREPARATION ACTIVITIES OF DETAILED ENGINEERING, PROJECT IMPLEMENTATION / MANA GEMENT COVERING, COMMISSIONING, OPERATION, MAINTENANCE OF ROLLING ST OCK & WORKSHOP MANAGEMENT, TRAINING ETC. THE CONSULTANCY FEES RECE IVED BY COMPANY ALSO INCLUDES SUPPLIES. APART FROM THAT, THE COMPANY IS IN CONSTRUCTION MANAGEMENT/SUPERVISION CONTRACTS, LEASING SERVICES , RECEIVES MOBILIZATION FEES. THERE IS NO SEPARATE SEGMENTAL I NFORMATION AND ALL THE RECEIPTS HAVE BEEN CLASSIFIED UNDER THE PRIMARY SEG MENT OF CONSULTANCY SERVICES. THE COMPANY HAS A TURNOVER OF 353.14CR A ND IS NOT COMPARABLE TO THE ASSESSEE. THE COMPANY IS GOVERNMENT OF INDIA ENTERPRISE, THUS, CANNOT BE COMPARED WITH THE ASSESSEE. THE LD. AR RE LIED UPON THE DECISION OF THE TRIBUNAL IN CASE OF ROLLS ROYCE IND IA PVT. LTD. VS. DCIT (ITA 46 NO. 1310/DEL/2015) AND YUM RESTAURANTS INDIA PVT. L TD. VS. ITO FOR A.Y. 2008-09 (ITA NO. 6168/DEL/2012) AS WELL AS M/S SHEL L INDIA MARKETS PVT. LTD. VS. ACIT FOR A.Y. 2008-09 (ITA NO. 193/MUM/201 3). 28.2 THE LD. DR RELIED UPON THE ORDER OF THE TPO/AO /DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 28.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE COMPANY IS GOVERN MENT OF INDIA ENTERPRISE AND HAS A TURNOVER OF 353.14CR. THERE IS NO SEPARATE SEGMENTAL INFORMATION AND ALL THE RECEIPTS HAVE BEEN CLASSIFI ED UNDER THE PRIMARY SEGMENT OF CONSULTANCY SERVICES. THUS, THIS COMPA NY CANNOT BE TAKEN AS COMPARABLE AS IT IS FUNCTIONALLY DIFFERENT. BESIDES THIS, THERE IS NO SEPARATE SEGMENTAL INFORMATION AVAILABLE. THEREFORE , WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE FROM THE FINAL LIST OF COMP ARABLES. 28.4 IDC (INDIA) LTD. :- THE TRIBUNAL ASSESSEES OWN CASE IN A.Y. 2007-08 REMANDED BACK THIS COMPARABLE COMPANY TO THE FILE O F THE TPO. THE TPO ACCEPTED THE CONTENTION OF THE ASSESSEE AND VIDE OR DER DATED 21.01.2016 REJECTED THE SAID COMPARABLE AS FUNCTIONALLY DIFFER ENT TO THAT OF THE ASSESSEE COMPANY. THIS YEAR ALSO THE COMPANY HAS SA ME FUNCTIONAL PROFILE AND IS ENGAGED IN PROVIDING CONSULTING SERV ICES IN ASIA/PACIFIC REGION. IT PROVIDES THE MOST RIGOROUS AND EXHAUSTIV E PRIMARY RESEARCH. IT ALSO PROVIDES SERVICES LIKE, CMO ADVISORY RESEARCH, INVESTMENT RESEARCH SERVICES, IT ADVISORY TOOLS, ETC. AS PER THE REVENU E RECOGNITION SCHEDULE IN ANNUAL REPORT OF COMPANY, ITS OPERATIONAL INCOME IS CLASSIFIED AS INCOME FROM SALE OF SERVICE AND PRODUCT. THE COMPANY IS A RESEARCH COMPANY, PRIMARILY DEALING IN RESEARCH AND SURVEY SERVICES A ND PRODUCTS. THUS, NOT ONLY THE NATURE OF SERVICES RENDERED BY THIS COMPAN Y IS DIFFERENT, BUT, IT IS ALSO ENGAGED IN SELLING PRODUCTS, WHICH IS ABSENT I N THE CASE OF THE ASSESSEE. FURTHER, SEGMENTAL IS NOT AVAILABLE. THE LD. AR RELIED UPON THE 47 DECISION OF THE BROWN FORMAN WORLDWIDE LLC INDIA VS . DDIT FOR A.Y. 2007-08 AND 2008-09 (ITA NO. 433 & 6139/DEL/2012. 28.5 THE LD. DR RELIED UPON THE ORDER OF THE TPO/AO /DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 28.6 WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THE COMPANY IS A RESEARCH COMPANY, PRIMARILY DEALING IN RESEARCH AND SURVEY SERVICES AND PRODUCTS WHICH ARE TOTALLY DIFFERENT FROM THE ASSES SEE COMPANY. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE FROM T HE FINAL LIST OF COMPARABLES. 28.7 TECHNICOM-CHEMIE (INDIA) LTD. :- THIS COMPARABLE IS REJECTED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2007-08 AS FUNCTIONALLY DIFFERENT. THE COMPANY HAS EARNED INCOME FROM COMMI SSION, CONSULTANCY AND SERVICES. THIS YEAR ALSO THE COMPANY HAS THE SA ME FUNCTIONAL PROFILE. THE LD. AR RELIED UPON THE DECISION OF THE BROWN FO RMAN WORLDWIDE LLC INDIA VS. DDIT FOR A.Y. 2007-08 AND 2008-09 (ITA NO . 433 & 6139/DEL/2012). 28.8 THE LD. DR RELIED UPON THE ORDER OF THE TPO/AO /DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 28.9 WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THE COMPANY HAS EARNED INCOME FROM COMMISSION, CONSULTANCY AND SERV ICES. THUS, THE COMPANY CANNOT BE COMPARED WITH THE ASSESSEE COMPAN Y. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPARABLE FROM THE FINAL LIST OF COMPARABLES. 48 28.10 APITCO LTD. :- THE COMPANY OPERATES IN THE DIVERSIFIED ACTIVITI ES WHICH INCLUDES ASSET RECONSTRUCTION AND MANAGEMENT SERVICES, PROJECT RELATED SERVICES, MICRO ENTERPRISE DEVELOPMENT, INF RASTRUCTURE PLANNING AND DEVELOPMENT, RESEARCH STUDIES & TOURISM, SKILL DEVELOPMENT, ENVIRONMENT. THE LD. AR RELIED UPON THE DECISIONS O F THE TRIBUNAL IN CASE OF ALCATEL LUCENT INDIA LTD. VS. ITO FOR A.Y. 2008- 09 (ITA NO. 2154/DEL/2014), CORNING SAS-INDIA BRANCH OFFICE VS. DDIT FOR A.Y. 2008- 09 (ITA NO. 5713/DEL/2012), FUJITSU INDIA PVT. LTD. VS. DCIT FOR A.Y. 2008-09 (ITA NO. 6280/DEL/2012) AND CIENA INDIA PVT . LTD. VS. DCIT FOR A.Y. 2008-09 (ITA NO. 3324/DEL/2013). 28.11 THE LD. DR RELIED UPON THE ORDER OF THE TPO/A O/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 28.12 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE COMPANY OPERATES IN THE DIVERSIFIED ACTIVITIES WHICH INCLUDES ASSET RECONSTRUCTION AND MANAGEMENT SERVICES, PROJECT RELATED SERVICES, MICRO ENTERPRISE DEVELOPM ENT, INFRASTRUCTURE PLANNING AND DEVELOPMENT, RESEARCH STUDIES & TOURIS M, SKILL DEVELOPMENT, ENVIRONMENT. FURTHER AS HELD IN THE CA SE OF FUJITSU INDIA PVT. LTD. (SUPRA) FOR THE SAME ASSESSMENT YEAR, THE TRIBUNAL HELD THAT THIS COMPANY HAS ALSO EARNED REVENUE FROM RESEARCH STUDI ES AND TOURISM AMOUNTING TO RS.1.26 CRORE. FROM A CLOSE LOOK AT TH E ACTIVITIES CARRIED ON BY THIS COMPANY, IT BECOMES CLEAR THAT EXCEPT FOR 'RES EARCH STUDIES', WHICH PARTLY RESEMBLES WITH THE ASSESSEE'S MARKETING RESE ARCH ACTIVITY, THERE IS NO MATCH BETWEEN ALL THE OTHER ACTIVITIES CARRIED O UT BY THIS COMPANY AND WHAT THE ASSESSEE IS DOING. THERE IS NO SEGMENTAL I NFORMATION AVAILABLE ON THIS BUSINESS SEGMENT AND THE COMPANY HAS COMPUTED PROFIT ON A CONSOLIDATED BASIS. IN VIEW OF THE PATENT MISMATCHI NG FUNCTIONS PERFORMED BY THIS COMPANY ON A HOLISTIC BASIS VIS--VIS THE A SSESSEE, WE CANNOT DEEM THIS COMPANY AS COMPARABLE ON ENTITY LEVEL. THIS CO MPANY IS, THEREFORE, ORDERED TO BE EXCLUDED FROM THE LIST OF COMPARABLES . THUS, IT WILL NOT BE 49 PROPER TO INCLUDE THIS COMPARABLE. THEREFORE, WE DI RECT THE TPO TO EXCLUDE THIS COMPARABLE FROM THE FINAL LIST OF COMPARABLES. 28.13 WAPCOS LTD. (SEG) :- THE COMPANY IS ENGAGED IN THE PROVISION OF CONSULTANCY SERVICES IN ALL FACETS OF WATER RESOURC ES, POWER AND INFRASTRUCTURE SECTORS. THE SERVICES/ PROJECTS UNDE RTAKEN BY THE COMPANY INCLUDE IRRIGATION, DRAINAGE AND WATER MANAGEMENT, GROUND WATER EXPLORATION, DEVELOPMENT OF WELLS AND MINOR IRRIGAT ION, DRYLAND FARMING, DAM AND RESERVOIR ENGINEERING ETC. THE MAJOR SOURCE OF INCOME FOR THE COMPANY IS FROM CONSULTANCY INCOME AND CONTRACT INC OME. FURTHER, THIS COMPANY IS PUBLIC SECTOR COMPANY WHOLLY OWNED BY TH E GOVT. OF INDIA AND SUCH COMPANIES CANNOT BE COMPARED WITH THE ASSE SSEE. IN FACT THE DRP IN A.Y. 2007-08 HAS EXCLUDED ONE OF THE COMPARA BLES VAPI WASTE AND AFFLUENT MANAGEMENT COMPANY ON THE GROUND THAT IT I S A NON-PROFIT COMPANY. THE LD. AR RELIED UPON THE DECISIONS IN CA SE OF ACTIS ADVISORS PVT. LTD. (DEL. HC) (ITA NO. 952/2015) AS WELL AS C ORNING SAS-INDIA BRANCH OFFICE VS. DDIT FOR A.Y. 2008-09 (ITA NO. 57 13/DEL/2012), FUJITSU INDIA PVT. LTD. VS. DCIT FOR A.Y. 2008-09 (ITA NO. 6280/DEL/2012) AND CIENA INDIA PVT. LTD. VS. DCIT FOR A.Y. 2008-09 (IT A NO. 3324/DEL/2013). 28.14 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 28.15 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE COMPANY IS MAJORL Y ENGAGED INTO CONSULTANCY SERVICES. THE MAJOR SOURCE OF INCOME FO R THE COMPANY IS FROM CONSULTANCY INCOME AND CONTRACT INCOME. FURTHER, TH IS COMPANY IS PUBLIC SECTOR COMPANY WHOLLY OWNED BY THE GOVT. OF INDIA A ND SUCH COMPANIES CANNOT BE COMPARED WITH THE ASSESSEE COMPANY. THERE FORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF FINAL COMPARABLES. 50 28.16 CHOKSI LABORATORIES LTD. :- THE COMPANY IS A COMMERCIAL TESTING HOUSE ENGAGED IN TESTING OF VARIOUS PRODUCTS, OFFER S SERVICES IN THE FIELD OF POLLUTION CONTROL AS ALLIED ACTIVITY AND PRODUCES E FFLUENT TREATMENT PLANTS. FURTHER, FROM THE FIXED ASSETS SCHEDULE OF THE COMP ANY, IT IS EVIDENT THAT MAJOR ASSETS ARE INSTRUMENTS. THUS, THE COMPANY IS PROVIDING TESTING SERVICES WITH THE HELP OF THESE INSTRUMENTS. THE LD . AR RELIED UPON THE DECISIONS IN CASE OF BROWN FORMAN WORLDWIDE LLC IND IA VS. DDIT FOR A.Y. 2007-08 AND 2008-09 (ITA NO. 433 & 6139/DEL/2012), CORNING SAS-INDIA BRANCH OFFICE VS. DDIT FOR A.Y. 2008-09 (ITA NO. 57 13/DEL/2012) AND CIENA INDIA PVT. LTD. VS. DCIT FOR A.Y. 2008-09 (IT A NO. 3324/DEL/2013). 28.17 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 28.18 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THE COMPANY IS A COMMERCIAL TESTING HOUSE ENGAGED IN TESTING OF VARI OUS PRODUCTS, OFFERS SERVICES IN THE FIELD OF POLLUTION CONTROL AS ALLIE D ACTIVITY AND PRODUCES EFFLUENT TREATMENT PLANTS WHICH ARE ALTOGETHER DIFF ERENT FUNCTIONS FROM THE ASSESSEE COMPANY. FURTHER, FROM THE FIXED ASSETS SC HEDULE OF THE COMPANY, IT IS EVIDENT THAT MAJOR ASSETS ARE INSTRU MENTS. THUS, THE COMPANY CANNOT BE TAKEN AS COMPARABLE. WE DIRECT TH E TPO TO EXCLUDE THIS COMPARABLE FROM THE FINAL LIST OF THE COMPARAB LES. 28.19 VAPI WASTE & EFFLUENT MGMT. CO. LTD. :- THE COMPANY DEALS IN THE INFRASTRUCTURE SECTOR AND IS ENGAGED IN UNDERTAKING HIGH END TECHNICAL SERVICES AND PROJECT IMPLEMENTATION ON VARIED NATUR E OF INFRASTRUCTURE PROJECTS. THE COMPANYS REVENUE STREAMS INCLUDE EFF LUENT TREATMENT, COMMON SOLID WASTE TREATMENT AND MANAGEMENT. THE MA JORITY OF THE REVENUE EARNED BY COMPANY IS FROM ITS MEMBERS IN FO RM OF CHARGES FOR DEPOSITION. THEREFORE, THE PRICE OF THIS COMPANY CA NNOT BE TREATED AS AN INDEPENDENT AND UNCONTROLLED PRICE. THIS COMPARABLE IS REJECTED BY THE 51 DRP IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 -08 AS THE COMPANY IS NON PROFIT MAKING COMPANY. THE LD. AR RELIED UPO N THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF ACTIS ADVISORS PVT. LTD. (ITA NO. 952/2015) AND M/S INTERCONTINENTAL HOTELS GROUP [IN DIA] PVT. LTD. VS. DCIT FOR A.Y. 2009-10 (ITA NO. 5809/DEL/2014). 28.20 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 28.21 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF R ECORDS IT CAN BE SEEN THAT THE COMPANY DEALS IN THE INFRASTRUCTURE SECTOR AND IS ENGAGED IN UNDERTAKING HIGH END TECHNICAL SERVICES AND PROJECT IMPLEMENTATION ON VARIED NATURE OF INFRASTRUCTURE PROJECTS. THE COMPA NYS REVENUE STREAMS INCLUDE EFFLUENT TREATMENT, COMMON SOLID WASTE TREA TMENT AND MANAGEMENT. THUS, IT IS FUNCTIONALLY DIFFERENT THAN THE ASSESSEE COMPANY. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THIS COMPAN Y FROM THE FINAL LIST OF COMPARABLES. 28.22 INDUS TECHNICAL AND FINANCIAL CONSULTANTS LTD. :- AS PER THE WEBSITE OF THE COMPANY, THE COMPANY IS ENGAGED IN P ROVIDING HIGH-END TECHNICAL SERVICES IN THE AREAS OF ENVIRONMENT & PO LLUTION CONTROL, TECHNOLOGY MANAGEMENT, FINANCIAL SERVICES, ADMINIST RATIVE & LEGAL SERVICES, PROJECT SELECTION & PROJECT IMPLEMENTATIO N SERVICES, ENERGY & POWER SERVICES, ETC. AND MANUFACTURING OF TMT BARS. ITS COMMISSION EXPENSE CONSTITUTES APPROX 30% OF ITS SALES. FURTHE RMORE, THIS COMPANY HAS A VERY SMALL ASSET BASE OF JUST 44.58 LAKHS AND ITS TURNOVER IS 1.13 CRORES. 28.23 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 52 28.24 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THIS COMPANY IS ENGAG ED IN PROVIDING HIGH- END TECHNICAL SERVICES IN THE AREAS OF ENVIRONMENT & POLLUTION CONTROL, TECHNOLOGY MANAGEMENT, FINANCIAL SERVICES, ADMINIST RATIVE & LEGAL SERVICES, PROJECT SELECTION & PROJECT IMPLEMENTATIO N SERVICES, ENERGY & POWER SERVICES, ETC. AND MANUFACTURING OF TMT BARS. THUS, THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY . BESIDES THAT COMMISSION EXPENSES AND APPROXIMATELY 30% OF ITS SA LES WHICH IMPACTED THE LARGE PORTION OF THE REVENUE. THEREFORE, THIS C OMPANY CANNOT BE TAKEN AS COMPARABLE. WE DIRECT THE TPO TO EXCLUDE THIS CO MPARABLE FROM THE LIST OF FINAL COMPARABLES. 28.25 BEST MULYANKAYAN CONSULTANTS LTD. :- THIS COMPARABLE COMPANY IS FUNCTIONALLY DIFFERENT. THIS COMPANY IS ENGAGED IN PROVIDING PREMIER VALUATION CONSULTING, REAL ESTATE ADVISORY AND CHAR TERED ENGINEERING CERTIFICATION COMPANY IN INDIA. THERE IS INCORRECT MARGIN COMPUTATION. THE TPO INCLUDED OTHER INCOME OF RS. 7.86 LACS AS OPERA TING AND EXCLUDED BANK CHARGES OF RS. 0.13 LACS AND COMPUTED THE MARG INS AT 12.85% INSTEAD OF 4.97%. THE COMPANY DID NOT HAVE ANY EMPL OYEES DURING THE YEAR UNDER CONSIDERATION. THE LD. AR RELIED UPON TH E DECISION OF THE TRIBUNAL IN CASE OF FUJITSU INDIA PVT. LTD. VS. DCI T (ITA NO. 6280/DEL/2012 FOR AY 2008-09) 28.26 THE LD. DR RELIED UPON THE ORDER OF THE TPO/ AO/DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING G IVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 28.27 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A LL THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF T HE ANNUAL REPORT OF THE COMPANY IT CAN BE SEEN THAT THIS COMPANY IS ENGAGED IN PROVIDING PREMIER VALUATION CONSULTING, REAL ESTATE ADVISORY AND CHAR TERED ENGINEERING CERTIFICATION COMPANY IN INDIA WHICH IS TOTALLY DIF FERENT FROM THE ASSESSEE 53 COMPANY. IN FACT, THERE IS INCORRECT MARGIN COMPUTA TION AND THE TPO INCLUDED OTHER INCOME OF RS. 7.86 LACS AS OPERATING AND EXCLUDED BANK CHARGES OF RS. 0.13 LACS AND COMPUTED THE MARGINS A T 12.85% INSTEAD OF 4.97%. BESIDES THIS, THE COMPANY DID NOT HAVE ANY E MPLOYEES DURING THE YEAR UNDER CONSIDERATION. THEREFORE, IT WILL BE APP ROPRIATE TO EXCLUDE THIS COMPARABLE. WE DIRECT THE TPO TO EXCLUDE THIS COMPA RABLE FROM THE FINAL LIST OF COMPARABLES. 28.28. WE FURTHER NOTE THAT SINCE THERE IS ONLY ONE COMPARABLE LEFT IN THE FINAL LIST OF THE COMPARABLES SELECTED BY THE T PO/DRP. HENCE, THE MATTER IS REMANDED BACK TO ASSESSING OFFICER /TPO T O DECIDE AFRESH BY GIVING NEW SET OF COMPARABLES (INCLUDING THE ONE WH ICH IS NOT CHALLENGED BY THE ASSESSEE) WHICH ARE FUNCTIONALLY SIMILAR TO THE ASSESSEE COMPANY AND THE SEGMENTAL DATA INCLUDING OTHER FILTERS OF T HE TPO ARE MET WITH. NEEDLESS TO SAY, THE ASSESSEE WILL PROVIDE THE NEW SET OF COMPARABLES WHICH WILL BE VERIFIED BY THE TPO AND THEREAFTER AD JUDICATE THE ISSUES AT LENGTH. 28.28 GROUND NO. 6.3, 6.4, 6.5 AND 6.6 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 29. AS REGARDS TO GROUND NO. 6.8 RELATING TO DENIAL OF ECONOMIC ADJUSTMENT FOR DIFFERENCE IN RISK PROFILE, THE SAME IS COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 200 7-8 (ITA NO. 5637/DEL/2011). THE LD. DR COULD NOT CONTROVERT THI S ASPECT. THEREFORE WE FIND THAT THIS ISSUE TO BE RESTORED TO THE FILE OF THE AO/TPO TO CONSIDER THE COMPUTATION OF RISK ADJUSTMENT AS PER CAPM MODE L BY AVAILING THE SERVICES OF TECHNICAL EXPERTS. THE EXPERTS OF THE F IELD ARE TO BE APPOINTED BY BOTH THE SIDES TO COME TO AN ACCEPTABLE CONCLUSI ON. THUS, GROUND NO. 6.8 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 30. AS REGARDS TO GROUND NO. 7.1 TO 7.8 RELATING TO ADDITION MADE BY THE TPO ON ACCOUNT OF CORPORATE RECHARGES (RS. 622,140, 262/-) AND 54 REIMBURSEMENTS PAID (RS. 290,000,000/-) IN THE NATU RE OF INTRA GROUP SERVICES, DURING FY 2007-08, THE ASSESSEE RECEIVED SERVICES AMOUNTING TO RS. 62.21 CRORES FROM ITS AES IN THE NATURE OF TRAINING, IT I NFRASTRUCTURE AND SUPPORT, ETC AND MAJORITY OF SUCH AMOUNTS HAVE BEEN CHARGED TO THE ASSESSEE BASED ON ACTUAL COST INCURRED BY SUCH OVER SEAS GROUP COMPANIES (ALLOCABLE TO INDIA). FURTHER, IN SOME CA SES, THE AES HAVE CHARGED A MARK-UP OF 5% ON THEIR COSTS FOR THESE SE RVICES. ALSO, REIMBURSEMENT OF EXPENSES OF INR 29 CRORES PAYABLE BY THE ASSESSEE TO ITS AES REPRESENTS ACTUAL COSTS INCURRED BY THE AES, WH ICH WERE SUPPORTED BY THIRD PARTY BILLS/ BACK-UPS. DETAILED INTER-COMP ANY AGREEMENT WAS PROVIDED BY THE ASSESSEE . THESE CORPORATE CHARGES/ REIMBURSEMENTS HAVE BEEN ALLOCATED TO THE VARIOUS BUSINESS/ TP SEGMENTS AND HAVE BEEN BENCHMARKED ALONG WITH RELEVANT SEGMENTS. THE TPO M ADE AN ADDITION OF INR 91.21 CRORES AS NO DETAILS/ JUSTIFICATION FOR T HESE PAYMENTS TO AES WERE MADE BY THE ASSESSEE. THE TPO HELD THAT IN ABS ENCE OF THE INFORMATION, IT APPEARS THAT THE AES HAVE IMPOSED U PON THE ASSESSEE CERTAIN COSTS PERTAINING TO THEMSELVES AND WITHOUT PASSING ON EITHER ANY SERVICES OR ANY BENEFITS OUT OF ABOVE. THEREFORE, B Y APPLICATION OF CUP, THE ARMS LENGTH PRICE OF THIS TRANSACTION IS DETERMINE D TO BE NIL. THE DRP UPHELD THE DECISION OF TPO. 31. THE LD. AR SUBMITTED THAT AN OPPORTUNITY TO FIL E ADDITIONAL EVIDENCE WAS NOT GIVEN TO THE ASSESSEE BY THE TPO/DRP. THE R EMAND REPORT REFERRED IN THE DRP ORDER WAS NEVER PROVIDED TO THE ASSESSEE FOR REBUTTAL. THE LD. AR FURTHER SUBMITTED THAT ADDITIONAL EVIDEN CE WAS SUBMITTED BEFORE THE TRIBUNAL ON 08.04.2013 AND 13.11.2013. T HE LD. AR SUBMITTED THAT PART OF THIS COST HAS BEEN RECOVERED THROUGH C OST PLUS (SDD AND MSS). THE LD. AR FURTHER SUBMITTED THAT IF THIS ADJ USTMENT IS UPHELD, THEN THIS WOULD LEAD TO DOUBLE ADDITION IN THE RESPECTIVE SEGMENTS OF SDD AND MSS. AN APPROXIMATE ANALYSIS IS PROVIDED BELOW: SEGMENT AMOUNT ALLOCATED FOR AMOUNT ALLOCATED FOR 55 CORPORATE RECHARGES REIMBURSEMENTS TOTAL AMOUNT IN THE CURRENT YEAR 622,140,262 290,000,000 SOFTWARE DEVELOPMENT SEGMENT (A) 368,386,758 33,582,060 ADMINISTRATIVE AND MARKETING SUPPORT SERVICES SEGMENT (B) 207,918,476 827,435 TOTAL (A) +(B) 576,305,234 34,409,495 BALANCE AMOUNT TO BE CONSIDERED 45,835,028 255,590,505 THE ABOVE EXPENSES ALLOCATED TO THE SDS AND MSS SEG MENTS HAVE BEEN RECOVERED BY THE ASSESSEE FROM THE AE WITH MARK UP OF 8.22% AND 3.53% RESPECTIVELY AMOUNTING TO A TOTAL OF RS. 65 C RORES APPROXIMATELY OUT OF A TOTAL EXPENSE OF RS. 90 CRORES. IN THE CAS E OF CIENA INDIA (P.) LTD. V. ITO ITA 1453 (DELHI) OF 2014, IT WAS HELD T HAT NO ADDITION IS WARRANTED IN RESPECT OF INTERNATIONAL TRANSACTION, THE COST OF WHICH IS RECOVERED FROM THE AE UNDER A COST-PLUS APPROACH. T HE LD. AR SUBMITTED THAT THIS IS BECAUSE REDUCTION OF SUCH CO ST LEADS TO A REDUCTION IN INCOME. THE TPO HAS NOT CHALLENGED THE APPLICABILITY OF TNMM FOR BOTH SEGMENTS. THE LD. AR FURTHER SUBMITTE D THAT THE TPO HAS DISREGARDED AN IMPORTANT FACT I.E. UNDER THE GL OBAL TP POLICY, THE ASSESSEE IS ASSURED ADEQUATE PROFIT MARGINS IN INDI A BY VALUE OF ADJUSTMENT/ CREDIT NOTES IN DISTRIBUTION SEGMENT. P ART OF THIS COST HAS BEEN BENCHMARKED UNDER TNMM (DISTRIBUTION AND MANUF ACTURING SEGMENTS). THE LD. AR SUBMITTED THAT THE ISSUE INVO LVED IS THAT MSIPL HAS AVAILED CERTAIN SUPPORT SERVICES FROM ITS AES I NCLUDING MINC. THE ASSESSING OFFICER, YEAR ON YEAR, HOLDS THAT SUCH SE RVICES DO NOT ADD ANY 56 BENEFIT TO MSIPL AND THEREFORE EFFECTIVELY NO SERVI CES HAVE BEEN RENDERED BY MINC TO MSIPL. HOWEVER, IN THE CASE OF MINC, THE ASSESSING OFFICER OF MINC HELD THAT THESE SERVICES ARE TECHNICAL SERVICES IN WHICH TECHNOLOGY IS MADE AVAILABLE AND ARE TAXED AS FEES FOR TECHNICAL SERVICES ('FTS) UNDER THE DOUBLE TAXATIO N AVOIDANCE AGREEMENT (DTAA) AND INCOME TAX ACT, 1961. THUS, THE LD. AR SUBMITTED THAT THERE IS A CLEAR DICHOTOMY THAT ON O NE SIDE, IN CASE OF MINC, THE INDIAN TAX DEPARTMENT ALLEGED THAT SERVIC ES RENDERED ARE HIGHLY TECHNICAL IN NATURE AND ON THE OTHER HAND, I N THE CASE OF ASSESSEE, THE INDIAN TAX DEPARTMENT ALLEGED THAT TH E SAME SERVICES DO NOT ADD ANY VALUE TO THE RECIPIENT. THE LD. AR POIN TED OUT THAT THE DRP HAS NOT CONTROVERTED THE FACT THAT THE SERVICES WER E RECEIVED. THE DRP HAS MERELY STATED THAT THE EVIDENCE AND ARGUMENTS A RE NOT PERSUASIVE WITHOUT PROVIDING ANY SPEAKING REASONS. THE LD. AR ALSO POINTED OUT THAT THE DRP HAS NOT RECORDED A FINDING THAT THE SE RVICES RECEIVED ARE NOT IN THE NATURE OF SHAREHOLDER SERVICES. HENCE, O NCE IT HAS BEEN ESTABLISHED THAT THE SERVICES HAVE BEEN RECEIVED AN D ARE NOT IN THE NATURE OF SHAREHOLDER SERVICES, THEN THE SERVICES A RE ADMITTEDLY UNDER THE CRITERIA OF CHARGEABLE INTRA GROUP SERVICES. AN APPLICATION UNDER RULE 18 READ WITH RULE 29 OF THE ITAT RULES HAS BEE N FILED REQUESTING ADDITIONAL EVIDENCE COMPRISING OF INVOICES, EVIDENC E ON RECEIPT OF THIRD PARTY CHARGES ON COMMUNICATION NETWORK AND OTHER RE LEVANT THIRD PARTY EXPENSES THAT FORM A PART OF THESE RECOVERY OF EXPE NSES FROM THE ASSESSEE ETC. THE DRP AS WELL AS THE TPO HAVE NOT P ROVIDED ANY COMPARABLE COMPANIES OR DATA FOR ARRIVING AT THE AR MS LENGTH PRICE TO BE NIL. THIS IS IN VIOLATION OF THE RULES THAT PRES CRIBE AS TO HOW EACH METHOD IS TO BE APPLIED. THE LD. AR FURTHER SUBMITT ED THAT A PART OF THE EXPENSES CLAIMED TO BE VALUED AS 'NIL ARE IN THE NATURE OF COST REIMBURSEMENTS. THE TPO HAS NOT CONTROVERTED THIS F ACT. IT HAS BEEN ACCEPTED THAT THE COST TO COST TRANSACTIONS AMOUNTI NG TO INR 290,000,000 ARE WITHOUT ANY MARK-UP. THE LD. AR SUB MITTED THAT THESE ARE THIRD PARTY EXPENSES THAT HAVE BEEN RECHA RGED ON A COST TO COST BASIS. NO ADVERSE FINDING HAS BEEN RECORDED BY THE TPO/DRP ON 57 THIS. HENCE, IN THIS SCENARIO, IT CANNOT BE ARMS L ENGTH BEHAVIOUR THAT THE ANY INDEPENDENT COMPANY WOULD INCUR EXPENSES TH ROUGH UNRELATED ENTERPRISES AND WOULD NOT CHARGE THESE EXPENSES BAC K TO THE BENEFICIARY ENTITY. 32. THE LD. DR RELIED UPON THE ORDER OF THE TPO/AO/ DRP. THE LD. DR FURTHER SUBMITTED THAT SINCE THE TPO/AO/DRP DOES NOT HAVE ACCESS TO THESE ADDITIONAL EVIDENCE, IT WILL BE APPROPRIAT E TO REMAND BACK THE ISSUE TO THE FILE OF TPO/AO. 33. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF T HE RECORDS IT CAN BE SEEN THAT THE ADDITIONAL EVIDENCES FILED BEFORE US AND BEFORE THE DRP HAS A RELEVANCE IN DECIDING THIS ISSUE. THE TPO DID NOT HAVE THESE DOCUMENTARY EVIDENCES AT THE TIME OF DECIDING, THER EFORE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE O F THE TPO/AO FOR VERIFYING THESE EVIDENCES AND TAKING COGNIZANCE IN RESPECT OF THE CLAIM MADE BY THE ASSESSEE ON MERIT. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF N ATURAL JUSTICE. GROUND NO. 7.1 TO 7.8 ARE PARTLY ALLOWED FOR STATISTICAL P URPOSE. 34. AS REGARDS TO GROUND NO. 10 RELATING TO ADDITIO N OF RS. 43,306,463/- ON ACCOUNT OF DISALLOWANCE OF PROVISIO N OF LIQUIDATED DAMAGES, THE LD. AR SUBMITTED THAT THE SAME IS COVE RED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-0 8 (ITA NO. 5637/DEL/2011). THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR AY 2007-08 HELD THAT PROVISION FOR LIQUIDATED DAMAGES IS ALLOW ABLE AS REVENUE EXPENDITURE. THE TRIBUNAL ALSO HELD THAT EVEN IF LI ABILITY IS REDUCED AS A RESULT OF NEGOTIATION THAT DOES NOT ABSOLVE THE LIA BILITY FOR LIQUIDATED DAMAGES WHICH CRYSTALLIZED UPON DELAY IN EXECUTION OF CONTRACTS. FACTS INVOLVED IN AY 2007-08 ARE SIMILAR TO THE FACTS OF THE CAPTIONED YEAR AND ARE PRODUCED BELOW: THE AGREEMENTS OF THE ASSESSEE WITH CUSTOMER CONTAI N CLAUSES THAT IN CASE OF DELAYS / DEFAULTS IN EXECUTION OF THE PR OJECTS, DAMAGES WOULD BE LEVIED. THE ASSESSEE HAS BEEN CLAIMING THE PROVISION FOR 58 DAMAGES AS DEDUCTIBLE AT THE TIME OF PROVISION. AS PER THE DRP, THE PROVISION IS TO BE ALLOWED ON THE BASIS OF ACTUAL D ETAILS. DURING THE YEAR, A PROVISION ON RS. 4 32 CRORES WAS MADE TOWARDS LIQUIDATED DAMAGES ON PROJECTS EXECUTED FOR BSNL. T HIS AMOUNT HAS BEEN DEDUCTED BY BSNL FROM PAYMENTS TO THE ASSESSEE AND IS NO LONGER RECOVERABLE. ACCOUNTING TREATMENT IS ALSO THE SAME. THE LD. AR FURTHER SUBMITTED THAT PROVISION IS MADE WHEN DELAYS HAPPEN OR THERE IS NON-COMPLIANCE WITH THE TERMS OF THE CO NTRACTS. PROVISION IS MADE ON MANAGEMENT ESTIMATES. ESTIMATES ARE ON THE BASIS OF CONTRACTUAL TERMS, PAST EXPERIENCE AND ACTUAL DEDUCTIONS MADE B Y THE RESPECTIVE CUSTOMERS. THE PARTIES DEDUCT DAMAGES FROM THE PAYM ENTS TO THE ASSESSEE. WHEN THE ASSESSEE IS SURE THAT NO FURTHER NEGOTIATION WITH THE CUSTOMERS CAN BE MADE ON THE DAMAGES, THE AMOUNT IS SHOWN AS UTILIZED IN THE PROVISION ACCOUNT. ANY AMOUNT OF PROVISION W HICH REMAINS UNUTILIZED IS REVERSED SUBSEQUENTLY AND IS OFFERED TO TAX AS INCOME. 35. THE LD. AR SUBMITTED THAT THE FACT THAT OUTFLOW HAS HAPPENED TOWARDS DAMAGES LEVIED ON THE CONTRACT ITSELF SHOWS THAT THE PROVISIONS MADE ARE GENUINE. THE LD. AR SUBMITTED THAT THE ASS ESSING OFFICER IS INCORRECT IN STATING THAT PROVISION FOR LIABILITY I S A LIABILITY DE FUTURE AND NOT A LIABILITY DE PRAESENTI. THE ASSESSEE HAS A PRESENT LIABILITY BECAUSE THE EVENT I.E. DEFAULT IN EXECUTION OF THE CONTRACT HAS HAPPENED DUE TO WHICH OUTFLOW OF RESOURCE IS EXPECTED AND AN ESTIMA TE OF SUCH OUTFLOW CAN BE MADE. HENCE, IT IS AN ALLOWABLE EXPENDITURE. IN THE CONTRACTS ENTERED INTO BY THE ASSESSEE, THE CLAUSE ON LIQUIDATED DAMA GES CLEARLY FIXES AMOUNT OF LIQUIDATED DAMAGES IN DELAY AND THEREFORE LIABILITY OF THE ASSESSEE TO PAY ACCRUES IMMEDIATELY UPON DELAY AND SUCH LIABILITY IS FULLY ASCERTAINABLE. 36. THE LD. DR RELIED UPON THE ORDER OF THE TPO/AO/ DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE 59 AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 37. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.Y. 2007-08 HELD AS UNDER: 169.1 WE HAVE CONSIDERED THE RIVAL SUBMISSION AND HAVE PERUSED THE RECORD OF THE CASE. ADMITTEDLY THE CONTRACT ENTERED INTO BY THE ASSESSEE WITH ITS CUSTOMER CONTAINED A SPECIFIC CLAUSE ON LI QUIDATED DAMAGES WHICH DEFINE TERMS AND CONDITIONS OF LIQUIDATED DAM AGES INCLUDING THE METHOD OF CALCULATION AS NOTED EARLIER. IT IS NOT D ISPUTED THAT ASSESSEE HAS CREATED THE PROVISION ONLY IN THOSE CASES WHERE THE DELAY HAD ACTUALLY OCCURRED AND ON THE BASIS OF TERMS AND CON DITIONS OF CONTRACT. THE TERMS OF CONTRACT CONTEMPLATED THAT THE MOMENT DELAY OCCURS IN THE EXECUTION OF CONTRACT THEN ASSESSEE WILL BECOME LIA BLE FOR PAYMENT OF LIQUIDATED DAMAGES. THE LIABILITY, THUS, CRYSTALLIZ ED WITH THE OCCURRENCE OF EVENT OF DELAY IN THE EXECUTION OF CONTRACT. THE ASSESSEE MIGHT, AFTER ENTERING INTO NEGOTIATION WITH THE PARTY, GET A WAI VER OR PARTIAL DEDUCTION IN ITS LIABILITY BUT THAT DOES NOT ABSOLVE THE ASSE SSEE FROM BEING LIABLE TO LIQUIDATED DAMAGES ON OCCURRENCE OF THE EVENT OF DE LAY IN EXECUTION OF THE CONTRACT. 170. LD. DR HAS RELIED ON THE DECISION OF HONBLE K ERALA HIGH COURT IN THE CASE OF N. SUNDARESWARAN (SUPRA). IN THIS CA SE THE ASSESSEE HAD ENTERED INTO CONTRACT WITH FOREIGN BUYERS FOR THE S UPPLY OF CASHEW KERNELS. HOWEVER, THE ASSESSEE COULD NOT FULFILL TH E OBLIGATIONS UNDER THE CONTRACT DUE TO THE SHORTAGE IN THE SUPPLY OF RAW C ASHEW NUTS AND CONSEQUENT HIGH IN PRICES. DUE TO THE FAILURE TO SU PPLY THE CASHEW NUTS AS PER THE TERMS OF THE CONTRACT, THERE WAS BREACH OF CONTRACT AND THE ASSESSEE, THEREFORE, CLAIMED A DEDUCTION OF RS. 12, 51,625/- TOWARDS DAMAGES PAYABLE TO THE FOREIGN COMPANIES. THE CLAIM WAS REJECTED BY TRIBUNAL AGAINST WHICH ASSESSEE PREFERRED APPEAL WH ICH WAS DISMISSED AS THE ASSESSEE FAILED TO ESTABLISH ITS CLAIM. THE HONBLE HIGH COURT, INTER-ALIA, OBSERVED THAT THE DETAILS REGARDING THE PERIOD OF CONTRACTS, THE MANNER OF THEIR PERFORMANCE, QUANTIFICATION OF DAMA GES ETC. WERE NOT SPECIFICALLY BROUGHT TO THEIR NOTICE. ONLY THE FACT REGARDING ARBITRATION 60 PROCEEDINGS WAS BROUGHT TO THE HONBLE COURTS NOTI CE. UNDER THESE FACTS, IT WAS HELD THAT THE DAMAGES HAD NOT CRYSTAL LIZED PARTICULARLY BECAUSE THERE WAS NO STIPULATION IN CONTRACT AND AS SESSEE HAD DENIED ITS LIABILITY. IN THE PRESENT, CASE, HOWEVER, AS NO TICED EARLIER, THE PROVISION HAD BEEN MADE ON THE BASIS OF SPECIFIC TE RMS OF CONTRACT IN REGARD TO LIQUIDATED DAMAGES. THEREFORE, THIS DECIS ION IS OF NO ASSISTANCE TO THE REVENUE. 170.1 THE NEXT DECISION RELIED UPON BY LD. DR IS IN THE CASE OF NAVJIVAN ROLLAR FLOUR & PULSE MILLS LTD. (SUPRA). I N THIS CASE, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MAN UFACTURING OF DAL, BESAN, SUJI ETC. ON 23/07/1986, THE ASSESSEE H AD ENTERED INTO A CONTRACT WITH A FOREIGN COMPANY FOR THE IMPORT OF Y ELLOW GRAM. UNDER THE CONTRACT LETTER OF CREDIT WERE TO BE OPENED LATEST BY 14/08/1986. THE ASSESSEE, FAILED TO OPEN LETTER OF CREDIT. PROTRACT ED LITIGATION ENSUED. THE FOREIGN PARTY CLAIMED DAMAGES FOR BREACH OF THE CON TRACT. THE ASSESSEE DISPUTED THE PAYMENT OF DAMAGES. THERE WAS NO STIPU LATION IN THE CONTRACT NOTES REGARDING THE DAMAGES TO BE PAID BY THE PARTY BREACHING THE TERMS OF THE CONTRACT. THE ARBITRATOR ON 25 TH MAY, 1987 AWARDED CERTAIN DAMAGES UNDER THE ARBITRATION AGREEMENT. TH E ASSESSEE CHALLENGED THE LEGALITY OF THE ARBITRATION AWARD AN D PREFERRED APPEAL BEFORE THE BOARD OF APPEAL CONSTITUTED BY THE GRAIN AND FREE TRADE ASSOCIATION, WHICH GAVE DECISION AGAINST THE ASSESS EE ON 20/03/1989. FOR THE A.Y. 1988-89 THE ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF DAMAGES AND CERTAIN AMOUNT ON ACCOUNT OF EXPENDITUR E FOR LEGAL FEES. THE AO ALLOWED THE ASSESSEES CLAIM, HOWEVER, THE C OMMISSIONER INITIATED PROCEEDINGS U/S 263 AND SET ASIDE THE ASS ESSMENT WITH THE DIRECTION TO THE AO TO REDO THE ASSESSMENT FRESH. T HE AO, ACCORDINGLY, MADE THE ADDITION WHICH WAS DELETED BY CIT(A) ON TH E GROUND THAT THE LIABILITY ON ACCOUNT OF DAMAGES ON BREACH OF CONTRA CT ACCRUED ON 28 TH MAY, 1987 WHEN THE AWARD OF ARBITRATION WAS PASSED. THE TRIBUNAL UPHELD THE REVENUES CONTENTION, INTER-ALIA, OBSERV ING AS UNDER: . 170.2 THUS, IN THIS CASE ALSO THE PROVISION WAS NOT MADE ON THE BASIS 61 OF SOME CONTRACTUAL OBLIGATIONS BUT ON ACCOUNT OF A RBITRATORS AWARD WHICH HAD NOT BECOME FINAL. 171. FROM THE ANALYSIS OF THE TWO DECISIONS RELIED UPON BY LD. DR, IT IS EVIDENT THAT BOTH ARE NOT APPLICABLE TO THE FACT S OF THE CASE. 172. ON THE OTHER HAND, WE FIND THAT THE CASE LAWS RELIED UPON BY LD. COUNSEL FOR THE ASSESSEE CLEARLY SUPPORT THE AS SESSEES CASE PARTICULARLY BECAUSE TERMS AND CONDITIONS OF AGREEM ENT WITH CUSTOMERS CONTAINED DELAYED DELIVERY CLAUSE WHEREUNDER SPECIF IED PENALTY WAS TO BE PAID BY ASSESSEE FOR DELAY IN DELIVERY. WE FIND THAT HYDERABAD ITAT SPL. BENCH IN THE CASE OF KCP LTD. (SUPRA) IN PARA 8, INTER-ALIA, OBSERVED AS UNDER:- . 173. SIMILAR VIEW HAS BEEN TAKEN IN OTHER CASES ALS O. IN THE CASE OF F.F.E. MINERALS (P.) LTD. (SUPRA), WHILE ALLOWING T HE PROVISION FOR LIQUIDATED DAMAGES, INTER-ALIA, OBSERVED IN PARA 13 THAT THE DECISION OF HONBLE KERALA HIGH COURT IN N. SUNDERESWARN (SUPRA ) IS NOT RELEVANT IN DECIDING THE ISSUE. 174. WE FURTHER NOTICE THAT PUNE ITAT IN THERMAX BE BCOCK & WILCOX LTD. (SUPRA) PARA 24.5 TO PARA 25, HAS OBSERVED AS UNDER: 33. . APPLYING THE SAME ANALOGY TO THE PRES ENT CASE, WE FIND THAT THE ASSESSEE HAS IMPORTED A LIABILITY ON ITSELF TO PAY LIQUIDATED DAMAGES FOR THE DELAY IN COMPLETING THE WORK WITHIN THE SPECIFIED TIME, AND AS SUCH, THE ESTIMATED EXPENDIT URE WHICH WOULD BE INCURRED TOWARDS LIQUIDATED DAMAGES WOULD BE DED UCTIBLE FROM THE RECEIPTS OF THE YEAR. THIS CERTAIN ACT OR EVENT OF NOT COMPLETING THE WORK WITHIN STIPULATED TIME HAS IMPORTED A DEFINITE AND ABSOLUTE LIABILITY ON THE ASSESSEE AND MERELY BECAUSE OF THE FACT THAT LIABILITY WOULD BE DISCHARGED AT A FUTURE DATED AND, THERE IS DIFFICULTY IN ESTIMATING THE CORRECT AMOUNT THEREOF WOULD NOT CON VERT THIS DEFINITE AND ABSOLUTE LIABILITY INTO CONDITIONAL ONE AS HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CALCUTTA CO. L TD. V. CIT (1959) 37 ITR 1 (SC), METAL BOX COMPANY INDIA LTD. V. THEI R WORKMENT [1969] 73 ITR 53 (SC) AND BHARAT EARTH MOVERS V. CI T [2000] 245 ITR 62 428 (SC). . IN THE PRESENT CASE, THE WORKS HAVE BEEN EXECUT ED AFTER THE EXPIRY OF THE STIPULATED PERIOD. THE STIPULATION AS TO THE PAYMENT OF LIQUIDATED DAMAGES TOWARDS DELAY IN EXECUTING THE C ONTRACT WORK IS RELATED TO THE CONTRACT WORK, REVENUE THEREOF HAS BEEN ACCOUNTED FOR IN THE YEAR UNDER CONSIDERATION. ALTHOUGH EXACT QUA NTIFICATION OF THE CLAIM OF LIQUIDATED DAMAGES MAY BE MADE AT A FUTURE DATED, THE ASSESSEE PAYER WAS, IN OBLIGATION TO PAY LIQUIDATED DAMAGES FOR THE DELAY IN WORK DID ACCRUE ON THE DATE WHEN THE DELAY WAS FIRST OCCURRED AND CONTINUED UPTO THE DATE OF COMPLETION OF THE WORK, AND THUS, IN COMPUTING THE PROFIT AND GAINS DERIVED BY THE TAXPAYER FROM SUCH CONTRACT WORKS IN THE PRESENT YEAR, THE ASSESS EE TAX PAYER IS ENTITLED TO DEDUCT FROM THE PROFITS FROM THE AFORES AID CONTRACT WORKS A PROVISION, FOR THE COST OF THE ANTICIPATED LIQUIDAT ED DAMAGES IN SO FAR AS THE SAME IS RELATED TO THE PERIOD OF DELAY FALLI NG WITHIN THE YEAR UNDER CONSIDERATION. 174.1 IT HAS ALSO ALLOWED THE ASSESSEES CLAIM OF L IQUIDATED DAMAGES FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CALCUTTA CO. LTD. V. CIT [1959] 37 ITR 1 AND BHARAT EARTH MO VERS (SUPRA). 175. IN VIEW OF ABOVE DISCUSSION, THIS GROUND IS AL LOWED FOR STATISTICAL PURPOSES. THUS, IN PRESENT YEAR AS WELL THE FACTS ARE IDENTI CAL. IN THE CONTRACTS ENTERED INTO BY THE ASSESSEE, THE CLAUSE ON LIQUIDA TED DAMAGES CLEARLY FIXES AMOUNT OF LIQUIDATED DAMAGES IN DELAY AND THE REFORE LIABILITY OF THE ASSESSEE TO PAY ACCRUES IMMEDIATELY UPON DELAY AND SUCH LIABILITY IS FULLY ASCERTAINABLE. THUS, PROVISIONS MADE IN THAT RESPE CT IS ALLOWABLE. GROUND NO. 10 IS ALLOWED. 38. AS REGARDS TO GROUND NO. 11 RELATING TO ADDITIO N OF RS. 10,520,867 ON ACCOUNT OF DISALLOWANCE OF CAPITALIZATION OF SOF TWARE PURCHASES, THE SAME IS COVERED BY THE ORDER OF THE TRIBUNAL IN ASS ESSEES OWN CASE FOR A.Y. 2007-08 (ITA NO. 5637/DEL/2011) WHEREIN THE MA TTER WAS RESTORED 63 TO THE FILE OF ASSESSING OFFICER TO DECIDE IT IN LI GHT OF GUIDELINES LAID DOWN BY SPECIAL BENCH OF DELHI TRIBUNAL IN AMWAY INDIA E NTERPRISES. 39. THE LD. AR SUBMITTED THAT FACTS INVOLVED IN AY 2007-08 ARE SIMILAR TO THE FACTS OF THE CAPTIONED YEAR. 40. THE LD. DR RELIED UPON THE ORDER OF THE TPO/AO/ DRP AND FURTHER SUBMITTED THAT THE FINDINGS AND REASONING GIVEN BY THE REVENUE AUTHORITIES BE TAKEN AS THE SUBMISSIONS OF THE REVE NUE BEFORE US. 41. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD AS UNDER : 178. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED SOFTWARE EXPENSES (PRICING OF AMCS, SOFTWARE PURCHASES WITH LESS THAN ONE YEAR LIFE AND SOFTWARE UPGRADES) AMOUNTING TO RS. 1,10,0 0,000/- AS REVENUE EXPENDITURE. THE AO DISALLOWED THE ASSESSEES CLAIM TREATING THE SAME AS CAPITAL EXPENDITURE. 178.1 HAVING HEARD BOTH THE PARTIES, WE RESTORE THI S ISSUE TO THE FILE OF AO TO DECIDE THIS IN THE LIGHT OF GUIDELINES LAI D DOWN BY SPL. BENCH OF ITAT DELHI IN THE CASE OF AMWAY INDIA ENTERPRISES V . DY. CIT [2008] 21 SOT. 179. IN THE RESULT, THIS GROUND IS ALLOWED FOR STAT ISTICAL PURPOSE. THE ASSESSEE CLAIMED SOFTWARE EXPENSES (COMPRISING OF AMCS, SOFTWARE PURCHASES WITH LESS THAN 1 YEAR LIFE AND SOFTWARE U PGRADES) AMOUNTING TO RS. 2,63,02,168/- AS REVENUE EXPENDITURE WHILE COMP UTING ITS TAX LIABILITY FOR THE YEAR. THE ASSESSING OFFICER DISALLOWED THE ABOVE EXPENDITURE ALLEGING IT TO BE CAPITAL IN NATURE BUT ALLOWED DEP RECIATION. FURTHER, THE DRP HAS NOT GIVEN ANY FINDING ON THIS ISSUE. IT IS THE ASSESSEES CASE THAT THESE SOFTWARE EXPENSES DO NOT HAVE A BENEFIT OF PE RMANENT OR ENDURING NATURE AND, THEREFORE, ARE NOT A CAPITAL ASSET. THE SE ARE ONLY FOR UPDATING AND MAINTAINING THE EXISTING SOFTWARE. IT IS PERTIN ENT TO NOTE THAT ISSUE IS IDENTICAL. THEREFORE IT WILL BE APPROPRIATE TO REMA ND BACK THIS ISSUE TO THE FILE OF THE TPO/AO. NEEDLESS TO SAY, THE ASSESSEE B E GIVEN OPPORTUNITY OF 64 HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 42. GROUND NO. 12 IS RELATING TO ADDITION OF RS. 10 1,611,386 ON ACCOUNT OF DISALLOWANCE OF DEDUCTION UNDER SECTION 10A/10B. THE LD. AR SUBMITTED THE FOLLOWING PARTICULARS AS PER THE UNIT -WISE CLAIM: PARTICULARS HYDERABAD UNIT (10B UNIT) BANQALORE - II UNIT (10A UNIT) TOTAL 10A/10B AS PER C A CERTIFICATE 7,63,41,509 8,61,19,914 16,24,61,423 SUO-MOTO ALP ADJUSTMENT MADE IN INCOME TAX 4,56,88,686 10,16,11,387 5,59,22,700 REVISED CLAIM U/S 10A/10B MADE BEFORE THE AO 12,20,30,195 14,20,42,614 26,40,72,809 THE LD. AR SUBMITTED THAT THE ASSESSEE CLAIMED DEDU CTION U/S 10A/10B OF INR 16.25 CRORES ON THE BASIS OF THE CA CERTIFI CATE. HOWEVER, IN THE RETURN OF INCOME, THE ASSESSEE HAD ALSO MADE SUO-MO TO ADJUSTMENT OF RS.18.81 CRORES ON ACCOUNT OF ALP FOR THE SOFTWARE SEGMENT BEING LOWER THAN TP MARGIN REQUIRED AS PER LAW. OUT OF THE SAID ADJUSTMENT OF INR 18.81 CRORES, INR 10.16 CRORES PERTAIN TO THE 10A/1 0B UNITS ALLOCATE IN PROPORTION TO THE TURNOVER. THE POWERS OF THE ASSE SSING OFFICER ENVISAGED IN THE CIRCULAR SHOULD INCLUDE THE POWER TO GIVE HI GHER DEDUCTION THAN THE AMOUNT AS PER THE CA CERTIFICATE. WHAT SECTION 10A STATES IS THAT A CA CERTIFICATE TO THIS EFFECT SHOULD BE PRODUCED. HOWE VER, IT DOES NOT SAY THAT THE ASSESSING OFFICER CANNOT ALLOW ANY HIGHER DEDUC TION THAN WHAT IS PERMISSIBLE AS PER LAW AND WHICH IS RIGHTFULLY DUE TO THE ASSESSEE. SECTION 292B OF THE INCOME TAX ACT PROVIDES THAT IF THE ASS ESSE HAS MADE SUBSTANTIAL COMPLIANCE WITH THE LAW THEN TECHNICAL DEFECTS IF ANY CANNOT RENDER THE ASSESSEES COMPLIANCE AS DEFECTIVE AND S UCH TECHNICAL OMISSION SHOULD BE IGNORED. THE LD. AR FURTHER SUBMITTED THA T THE ISSUE OF ALLOWABILITY OF SECTION 10A/10B CLAIM ON SUO MOTO T RANSFER PRICING 65 ADJUSTMENTS HAS BEEN DECIDED IN FAVOUR OF THE ASSES SEE IN THE FOLLOWING CASES: I) ACIT V. GS ENGINEERING & CONSTRUCTION INDIA (P) LTD. [2018] 93 TAXMANN.COM 154 (DEL. TRI.) II) APOORVA SYSTEMS (P.) LTD. V. DCIT (IT APPEAL NO . 1051(PUNE) OF 2015) III) AGILISYS IT SERVICES INDIA (P) LTD. V. ITO [20 15] 69 SOT (MUM. TRI. AFFIRMED IN PCIT V. AGILISYS IT SERVICES INDIA (P) LTD. [2018] 96 TAXMANN.COM 374 (BOM. HC) IV) AUSTIN MEDICAL SOLUTIONS PVT. LTD. VS. ITO (TS- 348-ITAT-2015, BANG. TRI.) V) IGATE GLOBAL SOLUTIONS LTD. (ITA NO. 453/2008 KA RN. HC 2014) VI) IGATE GLOBAL SOLUTIONS LTD. V ACIT (24 SOT 3, 2 008, BANG. TRI.) THE LD. AR FURTHER SUBMITTED THAT DELAY IN FILING C A CERTIFICATE IS A MERE PROCEDURAL DELAY AND THE CLAIM OF THE ASSESSEE (IF OTHERWISE ALLOWABLE) MAY NOT BE DENIED ON THIS GROUND. THE LD. AR RELIED UPO N THE FOLLOWING DECISIONS: I) ITO V LEPIDE SOFTWARE PVT. LTD. (ITA NO. 5455/DE L/2012) 2013 (DEL.TRI) II) CIT VS. MANTEC CONSULTANTS (P) LTD. (178 TAXMAN 429) (DEL. HC) III) CIT VS. AMERICAN DATA SOLUTIONS INDIA (P.) LTD . [2014] 223 TAXMAN 143 (KAR.) IV) ITO VS. COM LAB INDIA [2015] 41 ITR (T) 641 (HY D. TRI.) V) CLOUD SOFTECH INDIA (P) LTD. V. ITO (IT APPEAL N O. 483(HYD) OF 2013) VI) WORLEY PARSONS INDIA (P.) LTD. VS. DCIT (IT APP EAL NO. 273 (HYD) OF 2016) 43. THE LD. DR RELIED UPON THE ORDER OF THE TPO/AO/ DRP. 44. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NO TE THAT THE ASSESSING OFFICER REJECTED THIS CLAIM ON THE BASIS THAT REVIS ED CA CERTIFICATE WAS NOT ISSUED. THE LD. AR SUBMITTED BEFORE US THAT IN THE RETURN OF INCOME, THE 66 ASSESSEE HAD ALSO MADE SUO-MOTO ADJUSTMENT OF RS.18 .81 CRORES ON ACCOUNT OF ALP FOR THE SOFTWARE SEGMENT BEING LOWER THAN TP MARGIN REQUIRED AS PER LAW. OUT OF THE SAID ADJUSTMENT OF RS. 18.81 CRORES, RS. 10.16 CRORES PERTAIN TO THE 10A/10B UNITS ALLOCATE IN PROPORTION TO THE TURNOVER WHICH IS NOW REFLECTED IN THE REVISED CA C ERTIFICATE. THEREFORE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO TH E FILE OF THE ASSESSING OFFICER FOR VERIFYING WHETHER THE CLAIM OF THE ASSE SSEE IS PROPER OR NOT AND ADJUDICATE THE SAME ON MERIT AFTER CONSIDERING THE REVISED CA CERTIFICATE. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 12 IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. SD/- 45. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 /10/2019. SD/- SD/- [N.K.BILLAIYA] [SUCHITRA KAMBLE] ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI; DATED: 31/10/2019. SHEKHAR, SR. P.S COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 67 DATE OF DICTATION 19/08/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19/08/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER