Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 3832 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 7 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-11-2020
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Assessment Year
2011-2012
Appeal Filed On
24-03-2016
Judgement Text
IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.476/BANG/2016 ASSESSMENT YEAR: 2011-12 DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE -2(1)(1) BANGALORE PAN NO : AACCN1140K VS. M/S. SYNAMEDIA INDIA PVT. LTD. (EARLIER KNOWN AS M/S. CISCO VIDEO TECHNOLOGIES INDIA PVT. LTD.) BLOCK 9A & 9B, PRITECH PARK SPECIAL ECONOMIC ZONE SURVEY NO.51-64/4, SARJAPUR OUTER RING ROAD, BELLANDUR VILLAGE BANGALORE-560 103 APPELLANT RESPONDENT IT(TP)A NO.597/BANG/2016 ASSESSMENT YEAR: 2011-12 M/S. SYNAMEDIA INDIA PRIVATE LIMITED (FORMERLY KNOWN AS CISCO VIDEO TECHNOLOGIES INDIA PVT. LTD.) VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2(1)(1) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, A.R. RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, D.R. DATE OF HEARING : 22.10.2020 DATE OF PRONOUNCEMENT : 05.11.2020 IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 2 OF 18 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ASSES SMENT ORDER DATED 18-01-2016 PASSED BY THE ASSESSING OFFICER FO R ASSESSMENT YEAR 2011-12 U/S 143(3) R.W.S 144C OF THE ACT IN PU RSUANCE OF DIRECTIONS GIVEN BY LD DISPUTE RESOLUTION PANEL (DR P). 2. THE GROUNDS URGED BY THE ASSESSEE RELATE TO THE FOLLOWING ISSUES:- (A) WHETHER THE EXPENSES INCURRED IN FOREIGN CURRE NCY SHOULD BE REDUCED FROM EXPORT TURNOVER OR NOT. (B) ADDITION MADE TOWARDS TRANSFER PRICING ADJU STMENT (C) NON-GRANTING OF TDS AS CLAIMED BY THE ASSES SEE. 3. THE REVENUE IS IN APPEAL IN RESPECT OF FOLLO WING ISSUES:- (A) WHETHER FOREIGN EXCHANGE GAINS/LOSS ARE OPERAT ING IN NATURE OR NOT? (B) WHETHER THE LD DRP WAS JUSTIFIED IN DIRECTING THE AO TO FOLLOW THE DECISION OF KARNATAKA HIGH COURT RENDERE D IN THE CASE OF TATA ELXSI LTD, I.E., EXCLUSION OF EXPENSES INCURRED IN FOREIGN CURRENCY FROM BOTH EXPORT TURNOVER AND TOTA L TURNOVER. (C) RELIEF GRANTED BY LD DRP IN RESPECT OF ADDITI ON MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 4. THE FACTS RELATING TO THE CASE ARE DISCUSSE D IN BRIEF. THE ASSESSEE COMPANY IS NOW KNOWN AS M/S SYNAMEDIA INDI A PRIVATE LIMITED. EARLIER, IT WAS KNOWN AS M/S CISCO VIDEO TECHNOLOGIES INDIA P LTD AND PRIOR TO THAT, IT WAS KNOWN AS M/S NDS SE RVICES PAY TV TECHNOLOGY P LTD. IT IS PROVIDING FOLLOWING SUPPOR T SERVICES TO ITS AE, M/S NDS UK, AS NARRATED BY TRANSFER PRICING OFFICER (TPO):- IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 3 OF 18 SOFTWARE RESEARCH AND DEVELOPMENT SERVICES:- NDS INDIA PRIMARILY OPERATES AS A DELIVERY R & D C ENTRE WHICH IS A SUB-DIVISION OF THE GLOBAL R & D DIVISIO N OF NDS GROUP. NDS INDIA UNDERTAKES SOFTWARE RESEARCH AND DEVELOPMENT ACTIVITIES ACCORDING TO THE FUNCTIONAL SPECIFICATIONS PROVIDED BY NDS UK FOR EXISTING CLIE NTS. THE DELIVERY R & D TEAMS ARE FOCUSED ON DEVELOPING THE EXISTING TECHNOLOGIES NDS UK FOR DIRECT CUSTOMER APPLICATION . PRE-SALES AND MARKETING SUPPORT SERVICES:- NDS INDIA IS PRIMARILY INVOLVED IN MARKETING THE PRODUCTS OF NDS GROUP, IDENTIFYING POTENTIAL CUSTOM ERS IN INDIA FOR FURTHER BUSINESS DEVELOPMENT AND INFORMAT ION BOTH TO AND FROM THE CUSTOMERS AND NDS UK. 5. THE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ARE (A) PURCHASE OF FIXED ASSETS, (B) PROVISION OF SOFTWARE DEVELOPMENT SERVICES, (C) PROVISION OF PRE-SALES AND MARKETING SERVICES A ND (D) REIMBURSEMENT OF EXPENSES. THE TPO HAS MADE TRANSFER PRICING ADJUSTMENT IN RES PECT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES ONLY. 6. BOTH THE PARTIES ARE IN APPEAL IN RESPECT OF ADDITION RELATING TO TRANSFER PRICING ADJUSTMENT. THE FACTS RELATING TO THE SAME ARE DISCUSSED IN BRIEF. THE ASSESSEE HAS PROVIDED SOFTW ARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISES (AES). THE TURNOVER OF THE ASSESSEE IN THE SEGMENT OF PROVISION OF SOFTWARE DE VELOPMENT SERVICES WAS RS.333.56 CRORES. THE ASSESSEE ADOPTED TRANSAC TIONAL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD. I T ADOPTED IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 4 OF 18 OPERATING PROFIT/OPERATING COST (OP/OC) AS THE PROF IT LEVEL INDICATOR (PLI). THE ASSESSEE DECLARED A MARGIN OF 15.01% IN THE SOFTWARE DEVELOPMENT SEGMENT. 6.1 THE ASSESSEE HAD SELECTED 20 COMPARABLE CO MPANIES IN ITS TRANSFER PRICING STUDY. THE TPO REJECTED THE TRANS FER PRICING STUDY OF THE ASSESSEE AND HE FINALLY SELECTED FOLLOWING 1 3 COMPARABLE COMPANIES, WHOSE AVERAGE MARGIN WORKED OUT TO 24.82 %:- SL. NO. NAME SALES COST PLI 1 ACROPETAL TECHNOLOGIES LTD. (SEG) 814,016,893 616,754,876 31.98% 2 E ZEST SOLUTIONS (FROM CAPITALINE) 112866098 93255341 21.03% 3 E-INFOCHIPS LTD 260384251 166447527 56.44% 4 EVOKE (FROM CAPITALINE) 144869912 133996568 8.11% 5 ICRA TECHNO ANALYTICS LTD. (IN 000) 158401000 126894000 24.83% 6 INFOSYS LTD. 253850000000 177,030,000,000 43.39% 7 LARSEN & TOUBRO INFOTECH LTD. 23318122096 19,764,861,289 19.83% 8 MINDTREE LTD. (SEG) 8,783,000,000 7,937,143,242 1 0.66% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD. 189,490,457 155,172,089 22.12% 10 PERSISTENT SYSTEMS LTD. 6,101,270,000 4,971,860, 000 22.84% 11 R.S. SOFTWARE (INDIA) LTD. 1,882,638,471 1,617,8 04,170 16.37% 12 SASKEN COMMUNICATION TECHNOLOGIES LTD. 3,941,962,000 3,175,616,000 24.13% 13 TATA ELXSI LTD. (SEG) 3,581,985,000 2,962,533,35 2 20.91% AVERAGE MARGIN 24.82% AFTER MAKING NEGATIVE WORKING CAPITAL ADJUSTMENT, T HE TPO ARRIVED AT ADJUSTED MARGIN OF 25.44%. ACCORDINGLY, HE MADE TRANSFER PRICING ADJUSTMENT OF RS.30.24 CRORES. IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 5 OF 18 6.2 THE LD DRP DIRECTED THE AO/TPO TO EXCLUDE FO LLOWING TEN COMPANIES:- (A) ACROPETAL TECHNOLOGIES LIMITED (B) E-ZEST SOLUTIONS LIMITED (C) E-INFOCHIPS LIMITED (D) ICRA TECHNO ANALYTICS LIMITED (E) INFOSYS LIMITED (F) EVOKE TECHNOLOGIES LIMITED (G) R S SOFTWARE (INDIA) LTD (H) MINDTREE LIMITED (I) TATA ELXSI LTD (SEG) (J) LARSEN & TOUBRO INFOTECH THE LD DRP UPHELD THE SELECTION OF FOLLOWING TWO CO MPANIES:- (A) PERSISTENT SYSTEMS & SOLUTIONS LIMITED (B) PERSISTENT SYSTEMS LIMITED HOWEVER, THERE WAS NO DISCUSSION IN THE DRP ORDER O N M/S SASKEN COMMUNICATION TECHNOLOGIES LTD AND THE ASSESSEE HAS SUBMITTED THAT THE ABOVE SAID COMPANY IS ALSO INCLUDED AS A C OMPARABLE COMPANY. 6.3 IN THE APPEAL OF THE ASSESSEE, GROUNDS B-2 TO B-14 RELATE TO THE TRANSFER PRICING ADJUSTMENT. ON PERUSAL OF THO SE GROUNDS, WE NOTICE THAT THE ASSESSEE HAS RAISED ONLY GENERAL CO NTENTIONS AND HENCE THEY DO NOT REQUIRE ADJUDICATION. IN MODIFIE D GROUNDS OF APPEAL, THE ASSESSEE SEEKS EXCLUSION OF FOLLOWING C OMPANIES:- (A) PERSISTENT SYSTEMS & SOLUTIONS LIMITED (B) PERSISTENT SYSTEMS LIMITED (C) SASKEN COMMUNICATION TECHNOLOGIES LTD (D) ACROPETAL TECHNOLOGIES LIMITED (E) E-ZEST SOLUTIONS LIMITED (F) E-INFOCHIPS LIMITED IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 6 OF 18 (G) ICRA TECHNO ANALYTICS LIMITED (H) INFOSYS LIMITED (I) TATA ELXSI LTD (SEG) (J) LARSEN & TOUBRO INFOTECH THE ASSESSEE SEEKS INCLUSION OF FOLLOWING COMPANIES :- (A) AKSHAY SOFTWARE TECHNOLOGIES LIMITED (B) GOLDSTONE TECHNOLOGIES LTD (C) CG VAK SOFTWARE & EXPORTS LTD (D) THINKSOFT GLOBAL SERVICES LIMITED (E) MAVERIC SYSTEMS LTD THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS, WH ICH READ AS UNDER:- THE HONOURABLE DRP ERRED IN EXCLUDING THE FOLLOWIN G COMPANIES, WHICH WERE ACCEPTED BY BOTH THE APPELLAN T AND THE TPO FOR THE PURPOSE OF MAKING TP ADJUSTMENTS:- (A) R S SOFTWARE (INDIA) LIMITED (B) EVOKE TECHNOLOGIES PRIVATE LIMITED (C) MINDTREE LIMITED (SEG.) 6.4 AT THE TIME OF HEARING, THE LD A.R SUBMITTE D THAT (A) THE THREE COMPANIES REFERRED IN ADDITIONAL GROU ND HAVE BEEN EXCLUDED BY LD DRP. HOWEVER, THEY ARE ELIGIBL E TO BE CONSIDERED AS COMPARABLE COMPANIES. (B) ALL THE THREE COMPANIES RETAINED BY LD DRP ARE ALSO LIABLE TO BE DELETED. (C) THE REVENUE IS CONTESTING THE DECISION OF LD D RP IN DELETING THE TEN COMPANIES. THE ASSESSEE SEEKS INCLUSION OF THREE COMPANIES, OUT OF THE TEN, IN THE ADDITIONAL GROUND . THE REMAINING SEVEN WERE RIGHTLY DELETED BY LD DRP. IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 7 OF 18 6.5 AT THE TIME OF HEARING, THE LD A.R DID NOT PR ESS THE MODIFIED GROUND ON INCLUSION OF FOLLOWING COMPANIES:- (A) AKSHAY SOFTWARE TECHNOLOGIES LIMITED (B) GOLDSTONE TECHNOLOGIES LTD (C) CG VAK SOFTWARE & EXPORTS LTD (D) THINKSOFT GLOBAL SERVICES LIMITED (E) MAVERIC SYSTEMS LTD HENCE, THE GROUND RELATING TO FIVE COMPANIES IS NOT ADJUDICATED. 6.6 HE SUBMITTED THAT ALL HIS SUBMISSIONS ARE SUP PORTED BY THE DECISION RENDERED BY CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF (I) M/S AMD INDIA PRIVATE LIMITED VS. ACIT (IT(TP)A NO.1487/BANG/2015 (II) M/S APPLIED MATERIALS INDIA PVT LTD VS. ACIT ( IT(TP)A NO.17/BANG/2016) (III) M/S L G SOFT INDIA P LTD VS. DCIT (IT(TP)A NO.52/BANG/2016 DATED 05 TH AUGUST, 2020) 6.7 THE LD D.R, ON THE CONTRARY, SUBMITTED THAT T HE ASSESSEE HAS ACCEPTED MANY COMPARABLE COMPANIES SELECTED BY THE TPO IN THE PROCEEDINGS BEFORE HIM. HE INVITED OUR ATTENTION T O PAGE NO.10 OF TPOS ORDER, WHEREIN THE ASSESSEE HAD ACCEPTED LARS EN & TOUBRO INFOTECH LTD; MINDTREE LTD, PERSISTENT SYSTEMS & SO LUTIONS LTD, PERSISTENT SYSTEMS LTD, R.S. SOFTWARE (INDIA) LTD, SASKEN COMMUNICATIONS LTD. HENCE THESE COMPANIES SHOULD B E TAKEN AS COMPARABLE COMPANIES. THE THREE COMPANIES RETAINED BY LD DRP ARE PERSISTENT SYSTEMS & SOLUTIONS LTD, PERSISTENT SYST EMS LTD AND M/S SASKEN COMMUNICATIONS LTD ARE INCLUDED IN THE LIST OF COMPANIES ACCEPTED BY THE ASSESSEE BEFORE TPO. ACCORDINGLY, HE SUBMITTED THAT THE ASSESSEE CANNOT GO BACK ON ITS STAND AND NOW CO NTEND THAT THE COMPANIES RETAINED BY LD DRP SHOULD ALSO BE EXCLUDE D. IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 8 OF 18 6.8 THE LD D.R FURTHER SUBMITTED THAT THE ASSES SEE HAS ACCEPTED INCLUSION OF M/S LARSEN & TOUBRO INFOTECH LTD, MIND TREE LIMITED, R.S SOFTWARE (INDIA) LTD IN THE LIST OF COMPARABLE COMP ANIES BY THE TPO. HOWEVER, THE ASSESSEE HAS OBJECTED INCLUSION OF ABO VE SAID THREE COMPANIES BEFORE LD DRP AND THE LD DRP HAS ALSO DIR ECTED EXCLUSION OF ABOVE SAID THREE COMPANIES WITHOUT GIVING OPPORT UNITY TO THE TPO TO EXAMINE THESE COMPANIES. SINCE THE ASSESSEE HA D ACCEPTED THIS COMPANIES AS GOOD COMPARABLE COMPANIES, THERE WAS N O OCCASION FOR THE TPO TO EXAMINE THE OBJECTIONS OF THE ASSESSEE. ACCORDINGLY, HE SUBMITTED THAT THESE THREE COMPANIES SHOULD BE INCL UDED AS COMPARABLE COMPANIES. 6.9 WITH REGARD TO M/S SASKEN COMMUNICATIONS LTD, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS NOT CHALLENGED THIS COMPANY BEFORE LD DRP. HOWEVER, THE ASSESSEE IS SEEKING EXCLUSION OF THE SAME, WHICH SHOULD NOT BE PERMITTED. 6.10 THE LD A.R, IN THE REJOINDER, SUBMITTED TH AT THE ASSESSEE IS NOW ACCEPTING FOR INCLUSION OF M/S R.S. SOFTWARE (I NDIA) LTD, M/S EVOKE TECHNOLOGIES LTD AND M/S MIND TREE LTD. HE F URTHER SUBMITTED THAT THE REMAINING COMPANIES HAVE BEEN HE LD TO BE NOT GOOD COMPARABLE COMPANIES BY HOSTS OF CASE LAWS. H E SUBMITTED THAT THERE IS NO BAR IN OBJECTING TO A COMPANY BEFO RE DRP OR TRIBUNAL, EVEN IF IT HAD BEEN ACCEPTED BEFORE TPO. HE SUBMIT TED THAT THIS PROPOSITION HAS BEEN LAID DOWN BY CHANDIGARH SPECIA L BENCH OF TRIBUNAL IN THE CASE OF QUARK SYSTEMS PVT. LTD. (TAXPAYER) [2010- TIOL-31-ITAT-CHDSB]. 6.11 IN THE APPEAL OF THE REVENUE ALSO, WE NOTI CE THAT GROUND NOS. 3 TO 6 DEAL WITH RELIEF GRANTED BY LD DRP. HOWEVER , THERE IS NO IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 9 OF 18 SPECIFIC GROUND WITH REGARD TO COMPARABLE COMPANIES EXCLUDED BY THE LD DRP. BOTH THE PARTIES AGREED THAT THE REVEN UE IS AGGRIEVED BY THE DECISION OF LD DRP IN EXCLUDING TEN COMPARABLE COMPANIES. 6.12 OUT OF THE TEN COMPARABLE COMPANIES EXCLUDED BY LD DRP, THE ASSESSEE NOW SEEKS INCLUSION OF THREE COMPANIES, VI Z., M/S EVOKE TECHNOLOGIES LTD, M/S R S SOFTWARE (INDIA) LTD AND M/S MINDTREE LIMITED. HENCE THE GRIEVANCE OF REVENUE NOW REMAIN S WITH REGARD TO THE FOLLOWING SEVEN COMPANIES ONLY:- A) ACROPETAL TECHNOLOGIES LIMITED (B) E-ZEST SOLUTIONS LIMITED (C) E-INFOCHIPS LIMITED (D) ICRA TECHNO ANALYTICS LIMITED (E) INFOSYS LIMITED (F) TATA ELXSI LTD (SEG) (G) LARSEN & TOUBRO INFOTECH 6.13 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE LD A.R SUBMITTED THAT ALL THE ABOVE SAID COMPANIES HAVE BEEN DIRECTED TO BE EXCLUDED BY THE CO-ORDINATE BENCH IN THE CASE OF APPLIED MATERIALS INDIA P LTD (SUPRA) AND ALSO IN T HE CASE OF M/S LG SOFT INDIA P LTD (IT(TP)A NO.52/BANG/2016 AND IT(TP )A NO.97/BANG/2016 DATED 05-08-2020. WE NOTICE THAT T HE CO-ORDINATE BENCH, IN THE CASE OF M/S LG SOFT INDIA P LTD (SUPR A) HAS FOLLOWED THE DECISION RENDERED BY ANOTHER CO-ORDINATE BENCH IN T HE CASE OF ELECTRONIC FOR IMAGING (I) PVT LTD (2017)(85 TAXMAN N.COM 124). FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE DISCU SSIONS MADE AND THE DECISION TAKEN BY THE TRIBUNAL IN THE CASE OF L G SOFT INDIA P LTD (SUPRA):- IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 10 OF 18 10. WITH REGARD TO THE OTHER 7 COMPARABLE COMPANIE S, WHOSE EXCLUSION IS CHALLENGED BY THE REVENUE IN GROUND NO.2 OF ITS APP EAL, WE FIND THAT EXCLUSION OF THESE COMPARABLES FROM THE LIST OF COM PANIES SELECTED BY THE TPO HAD COME UP FOR CONSIDERATION BEFORE THE BANGAL ORE ITAT IN THE CASE OF ELECTRONIC FOR IMAGING (I) PVT. LTD. V. DCIT [2017] 85 TAXMANN.COM 124 [BANG. TRIB]. ; SYMANTECH SOFTWARE & SERVICES (I) PVT. LTD. V. DCIT , ITA NO.614/MDS/2016; DCIT V. IKANOS COMMUNICATION PVT. LTD . IN ITA 137/BANG/2015; NESS TECHNOLOGIES (I) PVT. LTD. V. DCIT IN ITA NO.696/MUM/2016 WHICH ARE ALSO DECISIONS RENDERED I N RELATION TO AY 2011- 12 IN THE CASE OF A COMPANIES PROVIDING SWD SERVICE S SUCH AS THE ASSESSEE IN THE PRESENT APPEAL. IT IS ALSO RELEVANT TO POINT OUT THAT THE VERY SAME COMPARABLE COMPANIES CHOSEN BY THE TPO IN THE PRESE NT APPEAL IT(TP)A NOS.52 & 97/BANG/2016 HAD BEEN CHOSEN BY THE TPO AS COMPARABLE COMPANIES IN THE CASE OF ELECTRONIC FOR IMAGING (I) PVT. LTD. (SUPRA). THE TRIBUNAL IN ITS ORDER DATED 14.7.2017 IN THE AFORES AID CASE DEALT WITH THE COMPARABILITY OF THESE COMPANIES. 11. AS FAR AS ACROPETAL TECHNOLOGIES LTD . IS CONCERNED, VIDE PARA 8 OF THE ORDER OF TRIBUNAL IN ELECTRONICS FOR IMAGING (I) PVT. LTD. (SUPRA), EXCLUSION OF ACROPETAL WAS UPHELD ON THE G ROUND THAT THIS COMPANY WAS INTO DEVELOPMENT OF COMPUTER PRODUCTS. THE TRIBUNAL ALSO HELD THAT L&T INFOTECH LTD. HAD RPT AT 18.66% AND SINCE THE RPT WAS BEYOND THE THRESHOLD LIMIT OF 15%, THIS COM PANY WAS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE TRIBUNAL FURTHER EXCLUDED TATA ELXSI LTD. FROM THE LIST OF COMPARABLES ON THE GROUND THAT THIS COMPANY WAS ENG AGED IN DIVERSIFIED ACTIVITIES AND WAS NOT A PURE SWD SERVI CES PROVIDER SUCH AS THE ASSESSEE. IN PARA 9 OF THE AFORESAID ORDER, THE TRIBUNAL HELD E- INFOCHIPS LTD., WAS EARNING REVENUE BOTH FROM THE SOFTWARE SERVICE S AND SOFTWARE PRODUCTS AND THOUGH THE BREAK-UP OF RE VENUE FROM THE TWO SEGMENTS WERE AVAILABLE, BUT THE BREAK-UP OF OP ERATING COST AND NET OPERATING REVENUE AND SEGMENTAL DETAILS WERE NO T AVAILABLE. 12. AS REGARDS E-ZEST SOLUTIONS LTD. , IN THE CASE OF SYMANTECH SOFTWARE & SERVICES (I) PVT. LTD. V. DCIT, ITA NO .614/MDS/2016, THIS COMPANY WAS HELD TO BE ENGAGED IN KNOWLEDGE PROCESS OUTSOURCING (KPO) AND CANNOT BE REGARDED AS A SWD SERVICES COMP ANY. 13. THE TRIBUNAL IN THE CASE OF DCIT V. IKANOS COMMUNICATION PVT. LTD . IN ITA 137/BANG/2015 EXCLUDED THE COMPANY, ICRA TECHNO ANALYTICS LTD. , ON THE GROUND THAT IT WAS ENGAGED IN ENGINEERING AND CONSULTING SERVICES, BESIDES LICENSING AND SUB-LICE NSING AND NO SEGMENTAL INFORMATION WAS AVAILABLE TO COMPARE THE MARGINS OF SWD SERVICES SEGMENT. 14. THE MUMBAI TRIBUNAL IN THE CASE OF NESS TECHNOLOGIES (I) PVT. LTD. V. DCIT IN ITA NO.696/MUM/2016 HELD INFOSYS LTD. TO BE NOT COMPARABLE FOR THE REASON THAT THIS COMPANY WAS ENG AGED IN IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 11 OF 18 MANUFACTURING OF SOFTWARE PRODUCTS AND WAS A GIANT COMPANY ASSUMING VARIOUS RISKS. AS FAR AS LARSEN & TOUBRO INFOTECH LTD ., IS CONCERNED, VIDE PARAGRAPH-8 PAGE-16 OF THE ORDER IN THE CASE OF ELECTRONICS FOR IMAGING INDIA PVT. LTD., (SUPRA) TH IS TRIBUNAL EXCLUDED THIS COMPANY ON THE GROUND OF PRESENCE OF ONSITE RE VENUE OF MORE THAN 50% AND THAT THE RELATED PARTY TRANSACTION WAS MORE THAN 15% (18.66%). 15. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, WE UPHOLD THE EXCLUSION OF THE AFORESAID 7 COMPANIES FROM THE LIST OF COMPA RABLE COMPANIES AND GROUND NO.2 RAISED BY THE ASSESSEE TO THIS EXTENT I S DISMISSED. WE MAY ADD THAT THE OTHER GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE PURELY SUPPORTIVE OF GROUND NO.2 AND ARE GENERAL GROUNDS W ITH NO SPECIFIC REFERENCE TO INSTANCES OF COMPARABLES EXCLUDED AND HENCE DISMISSED. 6.14 FOLLOWING ABOVE SAID ORDER OF CO-ORDINATE B ENCH, WE CONFIRM EXCLUSION OF ABOVE SAID SEVEN COMPANIES. SINCE THE ASSESSEE HAS SOUGHT FOR INCLUSION OF THREE COMPANIES OUT OF THE TEN COMPANIES EXCLUDED BY LD DRP, VIZ., M/S EVOKE TECHNOLOGIES LT D, R.S SOFTWARE INDIA LTD, MINDTREE LIMITED, THE GROUND OF REVENUE IN RESPECT OF ABOVE SAID THREE COMPANIES ARE ALLOWED. 6.15 IN THE APPEAL OF THE ASSESSEE, THE ASSESSE E SEEKS EXCLUSION OF ALL THE THREE COMPANIES RETAINED BY LD DRP, VIZ., M /S PERSISTENT LTD, M/S PERSISTENT SYSTEMS & SOLUTIONS LTD AND M/S SASK EN COMMUNICATIONS LTD. IT IS THE SUBMISSION OF LD DR THAT THE ASSESSEE DID NOT PLEAD TO THE EXCLUSION OF M/S SASKEN COMMUN ICATIONS LTD BEFORE LD DRP. FURTHER, THE ASSESSEE HAS ACCEPTED REMAINING TWO COMPARABLE COMPANIES BEFORE TPO. ACCORDINGLY, THE L D DR STRONGLY OPPOSED THIS PLEA OF THE ASSESSEE. THE LD A.R, ON THE CONTRARY, SUBMITTED THAT THE ASSESSEE IS NOT BARRED FROM RAIS ING CONTENTION FOR EXCLUSION OF ANY COMPARABLE COMPANY, WHICH HAD EARL IER BEEN ACCEPTED BEFORE THE TAX AUTHORITIES. IN THIS REGAR D, HE HAS PLACED HIS RELIANCE ON THE DECISION RENDERED BY CHANDIGARH SPE CIAL BENCH OF TRIBUNAL IN THE CASE OF QUARK SYSTEMS PVT. LTD. (SU PRA). WE NOTICE THAT, IN THE ABOVE SAID CASE, THE SPECIAL BENCH HAS ADDRESSED AN IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 12 OF 18 IDENTICAL ISSUE AND HELD THAT THE ASSESSEE CANNOT B E BARRED TO RAISE CONTENTIONS FOR EXCLUSION OF COMPANIES, WHICH HAD E ARLIER BEEN ACCEPTED BY IT. THE RELEVANT DISCUSSIONS ARE EXTRA CTED BELOW:- 30. LEARNED SPECIAL COUNSEL FOR THE REVENUE SHRI KAPIL A HAS VEHEMENTLY ARGUED THAT 'DATAMATICS' WAS TAKEN AS ONE OF THE CO MPARABLES BY THE TAXPAYER AND NO OBJECTION TO ITS INCLUSION WAS RAIS ED BEFORE THE TPO OR BEFORE THE LEARNED CIT (APPEALS) IN APPEAL. THEREFO RE, THE TAXPAYER SHOULD NOT BE PERMITTED TO RAISE ADDITIONAL GROUND AND ASK FOR EXCLUSION OF THE ABOVE ENTERPRISE IN THE DETERMINATION OF THE AVERAG E MARGINS. WE ARE UNABLE TO ACCEPT ABOVE CONTENTION. IN THE FIRST PLACE, THE SE ARE INITIAL YEARS OF IMPLEMENTATION OF TRANSFER PRICING LEGISLATION IN I NDIA AND TAXPAYERS AS WELL AS TAX CONSULTANTS WERE NOT FULLY CONVERSANT, WITH THIS NEW BRANCH OF LAW WHEN PROCEEDINGS WERE INITIATED OR EVEN AT APPE LLATE STAGE. BESIDES, REVENUE AUTHORITIES, INCLUDING TPO WERE REQUIRED TO APPLY STATUTORY PROVISIONS AND CONSIDER FOR PURPOSES OF COMPARISON FUNCTIONS, ASSETS AND RISKS (TURNOVER), PROFIT AND TECHNOLOGY EMPLOYED BY THE TESTED PARTY AND OTHER ENTERPRISES TAKEN AS COMPARABLE STATUTORY DUT Y IS CAST ON THEM TO UNDERTAKE ABOVE EXERCISE. THIS HAS NOT BEEN DONE IN THIS CASE. WE WOULD ONLY SAY THAT PRIMA FACIE, AS PER THE MATERIAL, TO WHICH REFERENCE HAS BEEN DRAWN BY SHRI AGGARWAL. DATAMATICS DOES NOT APPEAR TO BE COMPARABLE. EVEN IF THE TAXPAYER OR ITS COUNSEL HAD TAKEN DATAMATICS AS COM PARABLE IN ITS I P AUDIT, THE TAXPAYER IS ENTITLED TO POINT OUT TO THE TRIBUN AL THAT ABOVE ENTERPRISE HAS WRONGLY BEEN TAKEN AS COMPARABLE. IN FACT THERE ARE VAST DIFFERENCES BETWEEN TESTED PARTY AND THE DATAMATICS. THE CASE OF DATAMA TICS IS LIKE THAT OF 'IMERCIUS TECHNOLOGIES' REPRESENTING EXTREME POSITI ONS. IF IMERCIUS TECHNOLOGIES HAS SUFFERED HEAVY LOSSES AND, THEREFO RE, IT IS NOT TREATED AS COMPARABLE BY THE TAX AUTHORITIES, THEY ALSO HAVE T O CONSIDER THAT THE DATAMATICS HAS EARNED EXTRAORDINARY PROFIT AND HAS A HUGE TURNOVER. BESIDES DIFFERENCES IN ASSETS AND OTHER CHARACTERIS TICS REFERRED TO BY SHRI AGGARWAL. THE INCOME-TAX APPELLATE TRIBUNAL IS A FA CT-FINDING BODY AND, THEREFORE, HAS TO TAKE INTO ACCOUNT ALL THE RELEVAN T MATERIAL AND DETERMINE THE QUESTION AS PER THE STATUTORY REGULATIONS. 31. IN THE CASE OF CIT V. BHARAT GENERAL REINSURANCE C O. LTD. [1971] 81 ITR 303 , THE HONBLE DELHI HIGH COURT OBSERVED AS UNDER : 'IT IS TRUE THAT THE ASSESSEE ITSELF HAD INCLUDED T HAT DIVIDEND INCOME IN IS RETURN FOR THE YEAR IN QUESTION BUT THERE IS NO EST OPPEL IN THE INCOME-TAX ACT AND THE ASSESSEE HAVING ITSELF CHALLENGED THE V ALIDITY OF TAXING THE DIVIDEND DURING THE YEAR OF ASSESSMENT IN QUESTION IT MUST BE TAKEN THAT IT HAD RESILED FROM THE POSITION WHICH IT HAD WRONG LY TAKEN WHILE FILING THE RETURN. QUIT APART FROM IT, IT IS INCUMBENT ON THE INCOME-TAX DEPARTMENT TO FIND OUT WHETHER A PARTICULAR INCOME WAS ASSESSABLE IN THE PARTICULAR YEAR OR NOT. MERELY BECAUSE THE ASSE SSEE WRONGLY INCLUDED THE INCOME IN ITS RETURN FOR A PARTICULAR YEAR, IT CANNOT CONFER JURISDICTION IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 13 OF 18 ON THE DEPARTMENT TO TAX THAT INCOME IN THAT YEAR E VEN THOUGH LEGALLY SUCH INCOME DID NOT PERTAIN TO THAT YEAR.' 32. IN THE CASE OF R.B. JESSARAM FATEHCHAND V. CIT [19 71] 81 ITR 409 (ALL.), IT HAS BEEN FOUND AND OBSERVED AS UNDER: 'MR. BRIJLAL GUPTA APPEARING FOR THE DEPARTMENT POI NTED OUT THAT THE ASSESSEE ITSELF FILED SEPARATE RETURNS FOR THE TWO PARTS OF A SINGLE ACCOUNTING PERIOD. THE ASSESSEE APPLIED FOR REGISTR ATION FOR THE FIRST PERIOD ONLY. THE ASSESSMENT FOR THE SECOND PERIOD P ROCEEDED AS AGAINST AN UNREGISTERED FIRM. IT WAS, THEREFORE, URGED BY M R. GUPTA THAT IT IS NOT OPEN TO THE ASSESSEE TO URGE NOW THAT A SINGLE ASSE SSMENT UNDER SECTION 26(1) OUGHT TO HAVE BEEN MADE. NOW, THERE CANNOT BE AN ESTOPPEL AGAINST STATUTE. IF IN FACT THE PROCEDURE ADOPTED BY THE IN COME-TAX OFFICER WAS INCORRECT, THE DEFECT IS NOT CURED BY THE ATTITUDE TAKEN UP BY THE ASSESSEE.' 33. IN THE CASE OF CIT V. C. PARAKH & CO. (INDIA) LTD. [1956] 29 ITR 661 , THEIR LORDSHIPS OF SUPREME COURT MADE THE FOLLOWING OBSERVATIONS: 'ON THE QUESTION OF THE ADMISSIBILITY OF THE DEDUCT ION OF RS. 1,23,719, THE CONTENTION OF THE APPELLANT IS THAT AS THE RESPONDE NT HAD ITSELF SPLIT UP THE COMMISSION OF RS. 3,12,699 PAID TO THE MANAGING AGENTS, AND APPROPRIATED RS. 1,23,719 THEREOF TO THE PROFITS EA RNED AT KARACHI AND HAD DEBITED THE SAME WITH IT, IT WAS NOT ENTITLED T O GO BACK UPON IT, AND CLAIM THE AMOUNT AS A DEDUCTION AGAINST THE INDIAN PROFITS. WE DO NOT SEE ANY FORCE IN THIS CONTENTION. WHETHER THE RESPO NDENT IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROV ISION OF LAW RELATING THERETO, AND NOT ON THE VIEW WHICH IT MIGHT TAKE OF ITS RIGHTS, AND CONSEQUENTLY, IF THE WHOLE OF THE COMMISSION IS UND ER THE LAW LIABLE TO BE DEDUCTED AGAINST THE INDIAN PROFITS, THE RESPOND ENT CANNOT BE ESTOPPED FROM CLAIMING THE BENEFIT OF SUCH DEDUCTIO N, BY REASON OF THE FACT THAT IT ERRONEOUSLY ALLOCATED A PART OF IT TOW ARDS THE PROFITS EARNED IN KARACHI. WHAT HAS, THEREFORE, TO BE DETERMINED I S WHETHER, NOTWITHSTANDING THE APPORTIONMENT MADE BY THE RESPO NDENT IN THE PROFIT AND LOSS STATEMENTS, THE DEDUCTION IS ADMISSIBLE UN DER THE LAW.' 34. IN THE CASE OF CIT V. V.MR.P. FIRM, MUAR [1965] 56 ITR 67 , THE FOLLOWING OBSERVATIONS OF THEIR LORDSHIPS OF SUPREM E COURT ARE AS UNDER : 'THE DECISION IN AMARENDRA NARAYAN ROY V. CIT AIR 1 954 CAL. 271 HAS NO BEARING ON THE QUESTION RAISED BEFORE US. THERE THE CONCESSIONAL SCHEME TEMPTED THE ASSESSEE TO DISCLOSE VOLUNTARILY ALL HIS CONCEALED INCOME AND HE AGREED TO PAY THE PROPER TAX UPON IT. THE AGREEMENT THERE RELATED TO THE QUANTIFICATION OF TAXABLE INCOME BUT IN THE PRESENT CASE WHAT IS SOUGHT TO BE TAXED IS NOT A TAXABLE INCOME. THE ASSESSEE IN SUCH A CASE CAN CERTAINLY RAISE THE PLEA THAT HIS INCOME IS NOT TAXABLE UNDER THE ACT. WE, THEREFORE, REJECT THIS PLEA.' IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 14 OF 18 35. IN PARA 4.16 OF LATEST REPORT, THE OECD PROVIDES THE FOLLOWING GUIDELINES : 'IN PRACTICE, NEITHER COUNTRIES NOR TAXPAYERS SHOUL D MISUSE THE BURDEN OF PROOF IN THE MANNER DESCRIBED ABOVE. BECAUSE OF THE DIFFICULTIES WITH TRANSFER PRICING ANALYSIS, IT WOULD BE APPROPRIATE FOR BOTH TAXPAYERS AND TAX ADMINISTRATIONS TO TAKE SPECIAL CARE AND TO USE RESTRAINT IN RELYING ON THE BURDEN OF PROOF IN THE COURSE OF THE EXAMINATIO N OF A TRANSFER PRICING CASE. MORE PARTICULARLY, AS A MATTER OF GOOD PRACTI CE THE BURDEN OF PROOF SHOULD NOT BE MISUSED BY TAX ADMINISTRATIONS OR TAX PAYERS AS A JUSTIFICATION FOR MAKING GROUNDLESS OR UNVERIFIABLE ASSERTIONS ABOUT TRANSFER PRICING. A TAX ADMINISTRATION SHOULD BE PR EPARED TO MAKE GOOD FAITH SHOWING THAT ITS DETERMINATION OF TRANSFER PR ICING IS CONSISTENT WITH THE ARMS LENGTH PRINCIPLE EVEN WHERE THE BURDEN OF PROOF IS ON THE TAXPAYER, AND THE TAXPAYERS SIMILARLY SHOULD BE PRE PARED TO MAKE GOOD FAITH SHOWING THAT THEIR TRANSFER PRICING IS CONSIS TENT WITH THE ARMS LENGTH PRINCIPLE REGARDLESS OF WHERE THE BURDEN OF PROOF LIES.' 36. THE AFORESAID DECISIONS AND GUIDELINES MAY NOT BE EXACTLY ON IDENTICAL FACTS BEFORE US BUT THEY EMPHATICALLY SHOW THAT TAX PAYER IS NOT ESTOPPED FROM POINTING OUT A MISTAKE IN THE ASSESSMENT THOUGH SUC H MISTAKE IS THE RESULT OF EVIDENCE ADDUCED BY THE TAXPAYER. 37. WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATI ONS ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTANTIAL JUSTICE DESERV ES TO BE PREFERRED. FOR THE OTHER SIDE CANNOT CLAIM TO HAVE A VESTED RIGHT IN I NJUSTICE BEING DONE DUE TO SOME MISTAKES ON ITS PART. 38. ACCORDINGLY, ON FACTS AND CIRCUMSTANCES OF THE CAS E, WE HOLD THAT TAXPAYER IS NOT ESTOPPED FROM POINTING OUT THAT DAT AMATICS HAS WRONGLY BEEN TAKEN AS COMPARABLE. WHILE ADMITTING ADDITIONAL GRO UND OF APPEAL RAISED BY THE ASSESSEE TO REQUIRE US TO CONSIDER WHETHER OR N OT DATAMATICS SHOULD BE INCLUDED IN THE COMPARABLE, WE MAKE NO COMMENTS ON MERIT EXCEPT OBSERVING THAT ASSESSEE FROM RECORD HAS SHOWN ITS PRIMA FACIE CASE. FURTHER CLAIM MAY BE EXAMINED BY THE ASSESSING OFFICER. THIS COURSE W E ADOPT AS OBJECTION TO THE INCLUSION OF DATAMATICS AS COMPARABLE HAS BEEN RAISED NOW AND NOT BEFORE REVENUE AUTHORITIES. THEREFORE, WE DEEM IT F IT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR CON SIDERATION OF CLAIM OF THE TAXPAYER AND MAKE A DE NOVO ADJUDICATION OF THE ARM S LENGTH PRICE AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. FOLLOWING THE DECISION RENDERED BY SPECIAL BENCH OF TRIBUNAL (REFERRED SUPRA), WE HOLD THAT THE ASSESSEE CANNOT BE PRECLUDED FROM IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 15 OF 18 CHALLENGING THE INCLUSION OF COMPARABLE COMPANIES, WHICH HAD BEEN ACCEPTED EARLIER BY THE ASSESSEE. 6.16 THE ABOVE SAID THREE COMPANIES, VIZ., M/S P ERSISTENT LTD, M/S PERSISTENT SYSTEMS & SOLUTIONS LTD AND M/S SASKEN COMMUNICATIONS LTD HAVE BEEN DEALT BY THE CO-ORDINA TE BENCH IN THE CASE OF LG SOFT INDIA P LTD (SUPRA) AS UNDER:- 16. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E. THE ASSESSEE IN GROUND NO.13 SEEKS EXCLUSION OF 3 COMPANIES VIZ., PERSISTE NT SYSTEMS & SOLUTIONS LTD., SASKEN COMMUNICATION TECHNOLOGIES LTD. AND PE RSISTENT SYSTEMS LTD. EXCLUSION OF THESE 3 COMPANIES WAS CONSIDERED BY TH E TRIBUNAL IN THE CASE OF ELECTRONICS FOR IMAGING (I) PVT. LTD. (SUPRA). I N PARA 8 OF THE ORDER, THIS TRIBUNAL HELD THAT PERSISTENT SYSTEMS & SOLUTIONS L TD. WAS A COMPANY ENGAGED IN SWD SERVICES AND PRODUCTS WITH NO SEGMEN TAL DETAILS AND EXCLUDED IT. SIMILARLY, PERSISTENT SYSTEMS LTD. WAS ALSO EXCLUDED ON THE GROUND THAT IT WAS ENGAGED IN DIVERSE ACTIVITIES WI TH NO SEGMENTAL BREAK-UP. AS FAR AS SASKEN COMMUNICATION TECHNOLOGIES LTD. IS CONCERNED, THIS TRIBUNAL IN THE CASE OF SYMANTECH SOFTWARE & SERVIC ES (I) PVT. LTD. (SUPRA) HAS EXCLUDED THIS COMPANY ON THE GROUND OF FUNCTION AL IT(TP)A NOS.52 & 97/BANG/2016 DISSIMILARITY VIZ., DEALING WITH MULTI MEDIA PRODUCTS AND R&D ACTIVITIES WITH NO BREAK-UP OF SEGMENTAL INFORMATIO N. 17. FOLLOWING THE AFORESAID DECISIONS, WE DIRECT EX CLUSION OF THE AFORESAID 3 COMPARABLE COMPANIES. THE TPO IS DIRECTED TO COMPUT E THE ALP OF THE INTERNATIONAL TRANSACTION IN ACCORDANCE WITH THE DI RECTIONS GIVEN ABOVE IN THIS ORDER, AFTER AFFORDING ASSESSEE OPPORTUNITY OF BEING HEARD. 6.17 CONSISTENT WITH THE VIEW TAKEN BY THE CO-OR DINATE BENCHES IN THE ABOVE SAID CASES, WE DIRECT EXCLUSION OF AFORES AID THREE COMPARABLE COMPANIES. 6.18 ACCORDINGLY, WE DIRECT THE AO/TPO TO COMPUT E THE ALP OF THE INTERNATIONAL TRANSACTION IN ACCORDANCE WITH THE DI RECTIONS GIVEN ABOVE, AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. 7. THE ASSESSEE HAS RAISED A GROUND AS TO WHET HER THE EXPENSES INCURRED IN FOREIGN CURRENCY ARE REQUIRED TO BE RED UCED FROM EXPORT IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 16 OF 18 TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE A CT. THE REVENUE HAS RAISED A GROUND AS TO WHETHER THE LD DRP WAS JU STIFIED IN DIRECTING THE AO TO FOLLOW THE DECISION OF KARNATAK A HIGH COURT RENDERED IN THE CASE OF TATA ELXSI LTD, I.E., EXCLU SION OF EXPENSES INCURRED IN FOREIGN CURRENCY FROM BOTH EXPORT TURNO VER AND TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE A CT. THE LD A.R SUBMITTED THAT THE ASSESSEE WOULD BE SATISFIED, IF PARITY IS GIVEN IN RESPECT OF DEDUCTION FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER. 7.1 THE HON'BLE SUPREME COURT HAS SETTLED THIS ISSUE IN THE CASE OF CIT VS. HCL TECHNOLOGIES LTD (TS 218 SC -201 8). THE RELEVANT OBSERVATIONS MADE BY HON'BLE SUPREME COURT ARE EXTR ACTED BELOW:- 20. EVEN IN COMMON PARLANCE, WHEN THE OBJECT OF THE FORMULA IS TO ARRIVE AT THE PROFIT FROM EXPORT BUSINESS, EXPENSES EXCLUD ED FROM EXPORT TURNOVER HAVE TO BE EXCLUDED FROM TOTAL TURNOVER ALSO. OTHE RWISE, ANY OTHER INTERPRETATION MAKES THE FORMULA UNWORKABLE AND ABS URD. HENCE, WE ARE SATISFIED THAT SUCH DEDUCTION SHALL BE ALLOWED FROM THE TOTAL TURNOVER IN SAME PROPORTION AS WELL. 21. ON THE ISSUE OF EXPENSES ON TECHNICAL SERVICES PROVIDED OUTSIDE, WE HAVE TO FOLLOW THE SAME PRINCIPLE OF INTERPRETATION AS F OLLOWED IN THE CASE OF EXPENSES OF FREIGHT, TELECOMMUNICATION ETC., OTHERW ISE THE FORMULA OF CALCULATION WOULD BE FUTILE. HENCE, IN THE SAME WA Y, EXPENSES INCURRED IN FOREIGN EXCHANGE FOR PROVIDING THE TECHNICAL SERVIC ES OUTSIDE SHALL BE ALLOWED TO EXCLUDE FROM THE TOTAL TURNOVER. ACCORDINGLY, FOLLOWING THE DECISION RENDERED BY HON 'BLE SUPREME COURT, WE UPHOLD THE ORDER PASSED BY LD DRP ON THIS ISSUE. 8. THE ASSESSEE HAS RAISED A GROUND RELATING TO NON-GRANTING OF TDS CREDIT AS CLAIMED. SINCE THIS MATTER REQUIRES VERIFICATION, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. 9. THE REVENUE IS ASSAILING THE DECISION OF LD DRP IN HOLDING THAT THE GAIN/LOSS ARISING ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE IS OPERATING INCOME/EXPENSES. WE NOTICE THAT THE LD D RP HAS FOLLOWED IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 17 OF 18 THE DECISION RENDERED BY THE TRIBUNAL IN THE CASE O F SAP LABS INDIA (P) LTD (2011)(44 SOT 156) AND CISCO SYSTEMS SERVIC ES BV (IT(TP)A NO.270/BANG/2014) AND ACCORDINGLY HELD THAT THE FOR EIGN EXCHANGE FLUCTUATION GAIN/LOSS ARISING TO THE ASSESSEE ON RE ALIZATION OF TRADE DEBTORS, PAYMENT TO CREDITORS ETC WERE NOTHING BUT OPERATION INCOME. ACCORDINGLY, THE LD DRP HAS DIRECTED THE AO TO CONS IDER THE FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS ON REVENUE ACCOUNT I N RESPECT OF ASSESSEE COMPANY AND ALSO IN RESPECT OF COMPARABLE COMPANIES WHILE DETERMINING THE MARGIN IN THE CASE OF THE ASS ESSEE COMPANY, IF IN THE EARLIER YEARS, THE FOREIGN EXCHANGE FLUCTUAT ION WAS TREATED AS OPERATING IN NATURE FOR THE PURPOSE OF CONSISTENCY. SINCE THE LD DRP HAS FOLLOWED THE DECISION RENDERED BY THE TRIBUNAL IN THIS REGARD, WE DO NOT FIND ANY INFIRMITY IN ITS DECISION RENDERED ON THIS ISSUE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED AND THE APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH NOV, 2020 SD/- (GEORGE GEORGE K. ) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 5 TH NOV, 2020. VG/SPS IT(TP)A NOS.476 & 597/BANG/2016 M/S. SYNAMEDIA INDIA PVT. LTD., BANGALORE PAGE 18 OF 18 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.
