STMicroelectronics Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6169/DEL/2012

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5909 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 24-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 12-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Transfer pricing; Principle of natural justice; International transaction; Rule of consistency; Working capital adjustments; Revenue expenditure; Capital expenditure; Set aside
• Section: 271(1)(c); 143(3); 234B; 10B; 144C; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.6169/DEL./2012 (ASSESSMENT YEAR : 2008-09) ST MICROELECTRONICS PVT. LTD., VS. DCIT, CIRCLE 9 (1), D 28, SOUTH EXTENSION PART I, NEW DELHI. NEW DELHI 110 049. (PAN : AAACS3406M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SENIOR ADVOCATE SHRI NEERAJ JAIN, ADVOCATE SHRI RAMIT KATYAL, CA REVENUE BY : SHRI ANUPAM KANT GARG, CIT DR DATE OF HEARING : 26.08.2020 DATE OF ORDER : 28.09.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ST MICROELECTRONICS PVT. LTD. (HEREINAF TER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED NIL PASSED BY TH E AO IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TP O UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOM E-TAX ACT, 1961 ITA NO.6169/DEL./2012 2 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2008- 09 ON THE MODIFIED GROUNDS INTER ALIA THAT :- 1. THAT THE IMPUGNED ORDER OF ASSESSMENT FRAMED B Y THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS DRP) UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME -TAX ACT. 1961 (ACT), IS BAD IN LAW, VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE AND VOID AB-INITIO. 1.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN PASSING ORDER UNDER SECTION 143(3) READ WITH SECTIO N 144C OF THE ACT AT AN INCOME OF RS.65,87,47,850 AS AGAINST RETU RNED INCOME OF RS.29,67,61,748. 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS.33,01,81,949 TO THE ARM' S LENGTH PRICE OF THE 'INTERNATIONAL TRANSACTIONS' OF PROVIS ION OF SOFTWARE DEVELOPMENT SERVICES UNDERTAKEN WITH THE ASSOCIATED ENTERPRISE ON THE BASIS OF ORDER PASSED BY THE TRANSFER PRICIN G OFFICER (TPO')/ DISPUTE RESOLUTION PANEL ('DRP'). 2.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN REJECTING THE USE OF MULTIPLE YEAR DATA FOR THE PUR POSE OF UNDERTAKING BENCHMARKING ANALYSIS 2.2 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN RESORTING TO CHERRY PICKING AND CONSIDERING FOLLOWING COMPANI ES IN THE FINAL SET OF COMPARABLE COMPANIES ALLEGEDLY HOLDING THEM TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE: (I) GOLDSTONE TECHNOLOGIES LTD. (II) TATA ELXSI LIMITED (III) HELIOS & MATHESON INFORMATION TECHNOLOGY LT D (IV) SASKEN COMMUNICATIONS TECHNOLOGIES LTD. (V) LANCO GLOBAL SYSTEMS LTD (VI) PERSISTENT SYSTEMS LTD. (VII) INFOSYS TECHNOLOGIES LTD (VIII) KALS INFORMATION SYSTEMS LTD. (IX) LARSEN AND TOUBRO INFOTECH LTD .. 2.3 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE AFORESAID COMPANIES DO NOT SA TISFY THE TEST OF COMPARABILITY AS PROVIDED IN RULE 10B(2) OF THE INCOME TAX RULES AND THEREFORE ARE LIABLE TO BE REJECTED FROM THE SET OF COMPARABLE COMPANIES. 2.4 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN INCORRECTLY REJECTING PSI DATA SYSTEMS LTD. ALLEGED LY ON THE BASIS ITA NO.6169/DEL./2012 3 OF HIGH RELATED PARTY TRANSACTIONS NOT APPRECIATING THAT THE COMPANY HAS RELATED PARTY TRANSACTION OF LESS THAN 25% SALES. 2.5 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING INDIUM SOFTWARE LTD. ON THE BASIS THAT IT IS ENGAGE D IN SOFTWARE TESTING SERVICES AND THEREFORE CANNOT BE REGARDED A S AN APPROPRIATE COMPARABLE 2.6 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING VMF SOFTECH LTD ON THE BASIS THAT THE COMPANY WAS N OT PROPOSED AS COMPARABLE BY THE APPELLANT BEFORE THE TPO. 2.7 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING COMPANIES ON THE BASIS OF DECLINING SALES NOT APPRE CIATING THAT DECREASE IN SALES IS NOT REFLECTIVE OF THE FUNCTION AL PROFILE OF A COMPANY AND IS THEREFORE NOT A RELEVANT CRITERIA FO R THE PURPOSE OF EXAMINING THE FUNCTIONAL COMPARABILITY OF A COMP ANY IN TERMS OF RULE 10B(2). 2.8 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING MAARS INTERNATIONAL SOFTWARE LTD. FROM THE SET OF C OMPARABLE COMPANIES. 2.9 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT ALLOWING APPROPRIATE WORKING CAPITAL ADJUSTM ENT TO ACCOUNT FOR THE DIFFERENCES IN THE WORKING CAPITAL POSITION OF THE APPELLANT AND THE COMPARABLE COMPANIES SELECTED BY THE TPO 2.10 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT ALLOWING APPROPRIATE RISK ADJUSTMENT TO ACCO UNT FOR THE DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT, A LOW RISK CAPTIVE SERVICE PROVIDER AND THE COMPARABLE COMPANIES SELEC TED BY THE TPO. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING EXPENDITURE INCURRED ON RENT FOR SOFTWA RE LICENSES OF RS 3,40,08,682 HOLDING SUCH RENT TO BE OF CAPITAL N ATURE. 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING EXPENDITURE AMOUNTING TO RS.1,82,00,680 INCURRED ON TRAINING HOLDING SUCH EXPENDITURE TO BE OF CAPIT AL NATURE. 5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT FOLLOWING THE DIRECTIONS OF THE DRP BY NOT ALLOWING DEDUCTION UNDER SECTION 10B OF THE ACT ON THE ENHANCED INCOME OF THE APPELLANT. 6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 234A AND 234B OF THE ACT. ITA NO.6169/DEL./2012 4 7. THAT THE FACTS OF THE CASE AND IN LAW, THE LD. A O HAS GROSSLY ERRED IN INITIATING PENALTY PROCEEDINGS UND ER SECTION 271(1)(C) OF THE ACT. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : ST MICROELECTRONICS PVT. LTD. (STMI, INDIA), THE TAXPAYER, IS A SUBSIDIARY OF ST MICROELECTRONIC S PTE. LTD. (ST SINGAPORE) WHICH IN TURN IS A WHOLLY OWNED SUBSIDIA RY OF ST MICROELECTRONICS NV, NETHERLANDS. THE TAXPAYER IS INTO THE BUSINESS OF INTEGRATED CIRCUIT DESIGN, CAD TOOLS AN D SOFTWARE DEVELOPMENT FOR ITS OVERSEAS GROUP CONCERNS. IT AL SO PROVIDES MARKETING SUPPORT SERVICES TO A GROUP COMPANY. THE TAXPAYER IS ALSO ENGAGED IN SOFTWARE DEVELOPMENT SERVICES RELAT ED TO DESIGN IMPLEMENTATION AND MAINTENANCE WITH RESPECT TO INTE GRATED CIRCUITS AS REQUIRED BY GUIDELINES/INSTRUCTIONS. D URING THE YEAR UNDER ASSESSMENT, THE TAXPAYER ENTERED INTO INTERNA TIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) A S UNDER :- S. NO. NATURE OF TRANSACTION METHOD USED BY ASSESSEE VALUE OF TRANSACTION (IN RUPEES) 1. PROVISION OF SOFTWARE DEVELOPMENT SERVICES TNMM 3,438,123,129 2. PROVISION OF MARKETING SUPPORT SERVICES TNMM 50,102,358 3. IMPORT OF EQUIPMENTS TNMM 23,397,292 4. EXPORT OF EQUIPMENTS - 250,371 5. DISTRIBUTION OF FREE SAMPLES - - 6. PURCHASE OF SHARES UNDER ESOP - 39,147,048 7. PROVISION MADE IN RESPECT OF ESOP TNMM 12,665,699 8. REIMBURSEMENT OF EXPENSES CUP 12,872 ITA NO.6169/DEL./2012 5 3. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS QUA PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND QUA PROVISION OF MARKETING SUPPORT SERVICES USED TR ANSACTIONAL NET MARGIN METHOD (TNMM) WITH OPERATING PROFIT/OPERATIN G COST AS THE PROFIT LEVEL INDICATOR (PLI) BEING THE MOST APP ROPRIATE METHOD (MAM), COMPUTED ITS OWN MARGIN AT 11.11% AS AGAINST WEIGHTED AVERAGE ARITHMETIC MEAN MARGIN OF 19 COMPA RABLES AT 11.31% AND FOUND ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. 4. LD. TRANSFER PRICING OFFICER (TPO) BY APPLYING Q UALITATIVE AND QUANTITATIVE FILTERS FINALLY SELECTED 13 COMPAR ABLES AND COMPUTED THEIR MARGIN AT 23.20% AND THEREBY COMPUTE D THE ADJUSTMENT OF RS.38,30,91,011/-. 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D ISPUTES RESOLUTION PANEL (DRP) BY WAY OF FILING OBJECTIONS WHO HAS EXCLUDED ONE COMPARABLE AND INCLUDED ANOTHER COMPAR ABLE IN THE FINAL LIST AND RECOMPUTED THE MARGIN OF KALS INFORM ATION SYSTEMS LTD. AT 30.88% AND CONSEQUENTLY MARGIN OF COMPARABL E COMPANY COMES DOWN TO 21.53%. LD. TPO AFTER GIVING EFFECT TO THE LD. DRPS ORDER REVISED THE ADJUSTMENT AT RS.33,01,81,9 49/-. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIB UNAL BY WAY OF FILING THE PRESENT APPEAL. ITA NO.6169/DEL./2012 6 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 7. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT RE QUIRE SPECIFIC ADJUDICATION. GROUNDS NO.2 TO 2.10 8. UNDISPUTEDLY, LD. TPO IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA SOFTWARE DEVELOPMENT SERVICES ACCEPTED TNMM WITH OP/OC AS PLI AS THE MOST APPROPR IATE METHOD (MAM) APPLIED BY THE TAXPAYER. AFTER GIVING EFFECT TO THE DIRECTIONS ISSUED BY THE LD. DRP, FINAL SET OF COMP ARABLE COMPANIES WITH MEAN MARGIN OF 21.53% IS AS UNDER :- S. NO. NAME OF THE COMPANY OP/OC (%) 1. HELIOS & MATHESON TECHNOLOGIES LTD 36.05 2 PERSISTENT SYSTEMS LTD 27.06 3 TATA ELXSI LTD 18.98 4 LNFOSYS TECHNOLOGIES LIMITED 39.84 5 KALS INFORMATION SYSTEMS LIMITED 30.88 6 GOLDSTONE TECHNOLOGIES LTD. 17.56 7 LANCO GLOBAL SYSTEMS LTD. 25.97 8 MINDTREE CONSULTING LTD. 14.13 9 RS SOFTWARE LTD 6.29 10 R SYSTEMS INTERNATIONAL LTD 16.87 11 SASKEN COMMUNICATION TECHNOLOGIES LTD 20.16 12 LARSEN & TOUBRO LNFOTECH LIMITED 17.90 13 PRITHVI INFORMATION SOLUTIONS LTD 8.20 MEAN 21.53 ITA NO.6169/DEL./2012 7 9. CONSEQUENTLY, LD. TPO PROPOSED TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF PROVISION OF SOFTWARE DEVELOPMENT SER VICES AS UNDER:- PARTICULARS AMOUNT OPERATING COST 3,168,207,308 ARMS LENGTH MARGIN 21.53% ARMS LENGTH MARGIN 682115033.4 ARMS LENGTH PRICE 3,850,322,341 PRICE CHARGED BY ASSESSEE 3,520, 140,392 DIFFERENCE FOR WHICH ADJUSTMENT IS REQUIRED TO BE MADE 330,181,949 10. LD. AR FOR THE TAXPAYER CHALLENGING THE IMPUGNE D ORDER PASSED BY THE AO/DRP/TPO NOW COMPRESSED THE CONTROV ERSY TO THE EXTENT OF SEEKING EXCLUSION OF FIVE COMPARABLES TO BRING THE TAXPAYER TO HOME VIZ. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., TATA ELXSI LTD., INFOSYS TECHNOLOG IES LTD., PERSISTENT SYSTEMS LTD. AND KALS INFORMATION SYSTEM S LTD. . WE WOULD DISCUSS THE SUITABILITY OF AFORESAID COMPARAB LES VIS--VIS THE TAXPAYER ONE BY ONE AS UNDER. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. (HELIOS & MATHESON) 11. THE TAXPAYER SOUGHT EXCLUSION OF HELIOS & MATHE SON AS A COMPARABLE ON THE GROUNDS INTER ALIA THAT IT IS FUN CTIONALLY DISSIMILAR; THAT IT HAS LOW EMPLOYEE COST AND HIGH SOFTWARE SERVICES & DEVELOPMENT EXPENSES; THAT IT IS INTO BRAND DEVEL OPMENT AND ON ITA NO.6169/DEL./2012 8 THE GROUND THAT THIS COMPARABLE WAS ORDERED TO BE E XCLUDED BY THE TRIBUNAL IN TAXPAYERS OWN CASE IN AY 2007-08 IN ITA NO.4888/DEL/2011 , COPY AVAILABLE AT PAGES 2128 TO 2141 OF THE CASE LAW PAPER BOOK VOL.6. 12. PERUSAL OF THE ANNUAL REPORT, AVAILABLE AT PAGE S 993/997 OF THE PAPER BOOK VOL.3, SHOWS THAT HELIOS & MATHESON HAS INCOME OF RS.213.37 CRORES FROM SOFTWARE SALES AND SERVICE S BUT, IN THE NOTES TO ACCOUNTS TO THE COMPANIES, IT IS RECORDED THAT THERE IS NO SEGMENTAL INFORMATION AVAILABLE. FURTHERMORE, INFO RMATION GIVEN AT PAGE 942 OF THE PAPER BOOK VOL.3 SHOWS THAT HELI OS & MATHESON IS INTO PROVIDING CUTTING EDGE SOLUTIONS I N THE HEALTH CARE AND IT VERTICAL SEGMENT. 13. THE DISCLOSURE MADE BY HELIOS & MATHESON IN ITS FINANCIALS, AVAILABLE AT PAGE 993 OF THE PAPER BOOK VOL.3, SHOW S THAT IT HAS INCURRED RS.2.83 CRORES TOWARDS STAFF WELFARE WHICH AMOUNTS TO 1.30% OF THE SALES WHEREAS THE TPO HAS APPLIED FIL TER OF EMPLOYEE COST LESS THAN 25% FOR SELECTION/REJECTION OF THE C OMPARABLES. AT THE SAME TIME, HELIOS & MATHESON DISCLOSED SOFTWARE SERVICES AND DEVELOPMENT EXPENSES TO THE TUNE OF RS.120.18 CRORE S WHICH CONSTITUTED 55% OF THE REVENUE OF THE COMPANY. FUR THERMORE, HELIOS & MATHESON HAS INCURRED AN AMOUNT OF RS.6.71 CRORES ITA NO.6169/DEL./2012 9 TOWARDS ADVERTISEMENT, MARKETING & PROMOTION (AMP) EXPENSES WHICH IS MORE THAN 3% OF THE SALES OF THIS COMPANY. 14. LD. DR FOR THE REVENUE SUPPORTED THE ORDER PASS ED BY THE TPO/DRP QUA RETENTION OF HELIOS & MATHESON AND DREW OUR ATTENTION TO PARA 8.16 AT PAGE 65 ON THE GROUND THA T THIS COMPARABLE HAS NOT BEEN OBJECTED TO BY THE TAXPAYER. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT SINCE THERE IS NO ESTOPPEL AGA INST THE STATUTE IF SOME WRONG LEGAL POSITION HAS BEEN ENUNCIATED AT AN Y POINT OF THE PROCEEDINGS, THE SAME CAN BE RECTIFIED BY THE TAXPA YER AT ANY STAGE. MOREOVER, THE TAXPAYER HAS TAKEN SPECIFIC OBJECTION FOR EXCLUSION OF HELIOS & MATHESON BEFORE THE DRP AS IS EVIDENT F ROM PARA 11 AT PAGE 10 OF THE DRP ORDER. 15. COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE IN AY 2007-08 (SUPRA) REJECTED HELIOS & MATHESON BY RETURNING FOLLOWING FINDINGS :- 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE T HROUGH THE ANNUAL REPORT OF THIS COMPANY. WE NOTED THAT THOUGH THE LD. AR DID NOT CONTROVERT THE CONTENTIONS RAISED BY LD. DR , BUT WE FIND OURSELVES IN AGREEMENT WITH THE CONTENTIONS OF THE ASSESSEE THAT THIS COMPANY IS PRIMARILY ENGAGED IN SALE OF SOFTWA RE PRODUCTS. IT IS A SETTLED POSITION THAT A COMPANY ENGAGED IN DEV ELOPMENT AND SALE OF SOFTWARE PRODUCTS CANNOT BE COMPARED WITH A SOFTWARE SERVICE PROVIDER. THIS COMPANY HAS BEEN EXCLUDED ON THIS BASIS BY THE HONBLE BOMBAY HIGH COURT IN CIT VS PTC SOFT WARE INDIA PVT LTD (ITA NO 732/2014) AND THE DELHI BENCH OF THE TRIBUNAL IN TOLUNA INDIA PVT. LTD. VS. ACIT (ITA NO . 5645/DEL/2011) (FOR THE SAME ASSESSMENT YEAR I.E. A Y 2007-08). ACCORDINGLY, WE DIRECT THE EXCLUSION OF THIS COMPAN Y FROM THE FINAL SET OF COMPARABLES. ITA NO.6169/DEL./2012 10 16. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT ON ACCOUNT OF FUNCTIONAL DISSIMILARITY, HELIOS & MA THESON BEING INTO SOFTWARE SALES AND SERVICES WITH NO SEGMENTAL INFORMATION IS AVAILABLE, ON ACCOUNT OF LOW EMPLOYEE COST, HIGH SO FTWARE SERVICE & DEVELOPMENT EXPENSES AND HAS INCURRED 3% OF ITS S ALES TOWARDS AMP EXPENSES IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER WHICH IS A ROUTINE SOFTWARE DEVELOPMENT SERVICE PRO VIDER WORKING ON COST PLUS MODEL AND A RISK INSULATED ENTITY, HEN CE ORDERED TO BE EXCLUDED. TATA ELXSI LTD. (TATA ELXSI) 17. THE TAXPAYER SOUGHT EXCLUSION OF TATA ELXSI ON GROUND OF FUNCTIONAL DISSIMILARITY AND HAVING BENEFIT OF TATA BRAND. PERUSAL OF ANNUAL REPORT, AVAILABLE AT PAGE 1492 OF THE PAP ER BOOK, SHOWS THAT IT IS ENGAGED IN SPECIALIZED AND NICHE DOMAIN OF SOFTWARE PRODUCTS/SERVICES. IN THE DIRECTORS REPORT OF THI S COMPANY, IT IS ALSO RECORDED THAT IT IS INTO PRODUCT DESIGN SERVIC ES, INNOVATION DESIGN ENGINEERING, AND VISUAL COMPUTING LABS. FUR THERMORE, TATA ELXSI IS HAVING BENEFIT OF A BIG BRAND BEING PART O F THE TATA GROUP. 18. LD. DR FOR THE REVENUE RELIED UPON THE ORDERS O F THE AO/DRP/TPO. ITA NO.6169/DEL./2012 11 19. COORDINATE BENCH OF THE TRIBUNAL IN THE TAXPAYE RS OWN CASE FOR AY 2007-08 (SUPRA) REJECTED TATA ELXSI AS A COMPARABLE ON THE GROUND OF ITS FUNCTIONAL DISSIMILARITY. SO, WE ARE OF THE CONSIDERED VIEW THAT TATA ELXSI IS NOT A SUITABLE COMPARABLE O N ACCOUNT OF FUNCTIONAL DISSIMILARITY BEING INTO SOFTWARE PRODUC T DESIGN SERVICES, INNOVATION DESIGN ENGINEERING AND VISUAL COMPUTING LABS AND ON ACCOUNT OF PART OF THE TATA GROUP HAVING BEN EFITS/RETURNS OF TATA BRAND VIS--VIS THE TAXPAYER WHO IS A CAPTIVE ROUTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER WORKING ON COST PLUS M ODEL AS A RISK INSULATED ENTITY, HENCE ORDERED TO EXCLUDE THE TATA ELXSI FROM THE FINAL SET OF COMPARABLES. INFOSYS TECHNOLOGIES LTD. (INFOSYS) 20. THE TAXPAYER SOUGHT EXCLUSION OF INFOSYS ON THE GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DISSIMILAR; THAT IT HAS SIGNIFICANT BRAND VALUE AND THAT IT HAS SIGNIFICANT HIGH TURNOV ER. LD. AR FOR THE TAXPAYER FURTHER CONTENDED THAT INFOSYS HAS BEE N EXCLUDED BY THE LD. CIT (A) IN TAXPAYERS OWN CASE FOR AY 2011- 12. 21. PERUSAL OF THE FUNCTIONAL PROFILE OF INFOSYS, C OPY OF ANNUAL REPORT AVAILABLE AT PAGES 1545 1696 OF ANNUAL REP ORT PAPER BOOK, SHOWS THAT INFOSYS IS INTO PROVIDING END TO E ND BUSINESS SOLUTION TO ITS CLIENTS INCLUDING CONSULTING, DESIG N, CUSTOM ITA NO.6169/DEL./2012 12 APPLICATION, SOFTWARE REENGINEERING, MAINTENANCE, S YSTEMS INTEGRATION, ETC.. IT IS ALSO PROVIDING FINANCIAL SERVICES, MANUFACTURING, TELECOMMUNICATIONS, RETAIL, UTILITY, LOGISTICS AND OTHER INDUSTRIES TO ITS CLIENTS. PERUSAL OF THE AN NUAL REPORT AT PAGE 1677 OF THE PAPER BOOK SHOWS THAT INFOSYS HAS BRAND VALUE OF RS.31,863 CRORES WHICH ITSELF SHOWS THE VALUE OF IN TANGIBLES; INFOSYS IS ALSO HAVING HIGH TURNOVER FOR AY 2008-09 OF RS.15,648 CRORES, AS IS EVIDENT AT PAGE 1611 OF THE PAPER BOO K, AS AGAINST TURNOVER OF TAXPAYER OF RS.343 CRORES. 22. LD. DR FOR THE REVENUE BY RELYING UPON PARA 8.3 8 OF THE TP ORDER CONTENDED THAT SUBSEQUENT TO THE AGNITY TECHN OLOGY DECISION, ITAT, DELHI BENCH IN CASE OF ST MICRO 2 011-TII-63- ITAT-DEL-TP HAS UPHELD THE INCLUSION OF INFOSYS AS A COMPARABLE AND AS SUCH INFOSYS MAY BE RETAINED AS A COMPARABLE . HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE TRIBUNA L HAS ACCEPTED INFOSYS AS A COMPARABLE VIS--VIS ROUTINE SOFTWARE DEVELOPMENT SERVICES PROVIDER, DECISION OF HONBLE DELHI HIGH C OURT IN CASE OF AGNITY TECHNOLOGIES WAS NOT AVAILABLE, SO CONTENTIO N OF LD. DR FOR THE REVENUE IS NOT TENABLE AS THE TAXPAYER IS A ROU TINE CAPTIVE SOFTWARE DEVELOPMENT SERVICE PROVIDER WORKING ON CO ST-PLUS AND RISK INSULATED ENTITY AND CANNOT BE COMPARED WITH I NFOSYS. ITA NO.6169/DEL./2012 13 23. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. VS. ITO IN ITA NO.3856/DEL/2 010 ORDER DATED 04.11.2010 , COPY AVAILABLE AT PAGES 2280 TO 2290 OF THE CASE LAWS PAPER BOOK, ORDERED TO EXCLUDE INFOSYS AS A CO MPARABLE VIS-- VIS ROUTINE CAPTIVE SOFTWARE DEVELOPMENT SERVICE PR OVIDER ON ACCOUNT OF THE FACT THAT INFOSYS IS A GIANT IN THE AREA OF DEVELOPMENT OF SOFTWARE ASSUMING ALL THE RISKS LEAD ING TO HIGHER PROFIT. APPEAL FILED BY THE REVENUE IN THIS CASE B EFORE THE HONBLE DELHI HIGH COURT HAS BEEN DISMISSED. 24. INFOSYS HAS ALSO BEEN EXCLUDED BY THE TRIBUNAL IN THE CASE OF TOLANA INDIA PVT. LTD. IN ITA NO.5645/DEL/2011 ((20 14) 35 ITR (T) 388 (DELHI)) ON THE GROUND OF FUNCTIONAL DISSIMILARITY WITH A CONTRACT SOFTWARE DEVELOPMENT SERVICE PROVIDER. 25. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT INFOSYS IS NOT A SUITABLE COMPARABLE BEING FUNCTION ALLY DISSIMILAR HAVING HUGE BRAND VALUE AND A GIANT IN THE FIELD OF SOFTWA RE DEVELOPMENT SERVICE ASSUMING ALL THE RISKS WHEREAS TAXPAYER IS CAPTIVE ROUTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER WORKING ON CO ST PLUS MODEL AS A RISK INSULATED ENTITY, HENCE ORDERED TO BE EXCLUDED FROM FINAL SET OF COMPARABLES. ITA NO.6169/DEL./2012 14 PERSISTENT SYSTEMS LTD. (PERSISTENT) 26. THE TAXPAYER SOUGHT EXCLUSION OF PERSISTENT ON THE GROUND OF FUNCTIONAL DISSIMILARITY BEING INTO THE BUSINESS OF SOFTWARE PRODUCTS WHICH IS INCOMPARABLE WITH SOFTWARE DEVELO PMENT SERVICES BEING RENDERED BY THE TAXPAYER. PERUSAL O F THE ANNUAL REPORT OF PERSISTENT AT PAGES 1235 & 1256 OF THE PA PER BOOK SHOWS THAT IT IS IN THE SOFTWARE PRODUCT DEVELOPMENT AND FOUND THE PROFIT & LOSS ACCOUNT. IT IS APPARENT THAT ITS REVENUE CO MES FROM SALES OF SOFTWARE SERVICES AND PRODUCTS BUT NO BIFURCATION I N THE FORM OF SEGMENTAL INFORMATION IS AVAILABLE. IN THE ANNUAL REPORT, AVAILABLE AT PAGES 1166 & 1173 OF THE PAPER BOOK, IT IS ALSO RECORDED THAT PERSISTENT IS A LEADER IN PRODUCT DEVELOPMENT BUSIN ESS AND THIS COMPANY HAS WON AWARDS FOR BEST SHRINK WRAPPED SOFT WARE PRODUCTS. 27. LD. DR FOR THE REVENUE SUPPORTED THE ORDER PASS ED BY THE TPO/DRP QUA RETENTION OF PERSISTENT AND DREW OUR AT TENTION TO PARA 8.16 AT PAGE 65 ON THE GROUND THAT THIS COMPAR ABLE HAS NEITHER BEEN OBJECTED TO BY THE TAXPAYER. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT SINCE THERE IS NO ESTOPPEL AGA INST THE STATUTE IF SOME WRONG LEGAL POSITION HAS BEEN ENUNCIATED AT AN Y TIME OF THE PROCEEDINGS, THE SAME CAN BE RECTIFIED BY THE TAXPA YER AT ANY STAGE. ITA NO.6169/DEL./2012 15 MOREOVER, THE TAXPAYER HAS TAKEN SPECIFIC OBJECTION FOR EXCLUSION OF PERSISTENT BEFORE THE DRP AS IS EVIDENT FROM PAR A 11 AT PAGE 12 OF THE DRP ORDER. 28. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF ST ERICSSON INDIA PVT. LTD. IN ITA NO.609/DEL/2015 REJECTED PERSISTENT AS A COMPARABLE VIS--VIS ROUTINE SOFTWARE SERVICE DEVEL OPMENT PROVIDER ON THE GROUND OF DIFFERENT BUSINESS MODEL WITH NO SEGMENTAL INFORMATION AVAILABLE AND ALSO ON THE GRO UND THAT THIS COMPANY HAS HUGE INTANGIBLES 29. COORDINATE BENCH OF THE TRIBUNAL ALSO REJECTED PERSISTENT IN CASE OF CASH EDGE INDIA PVT. LTD. VS. ITO IN ITO NO.64/DEL/2015, COPY AVAILABLE AT PAGES 2486 TO 2519 OF THE PAPER BOOK, ON GROUND OF FUNCTIONAL DISSIMILARITY AND THE APPEAL PREFERRED BY THE REVENUE HAS BEEN DISMISSED BY THE HONBLE DELHI HIGH COURT IN ITA 279/2016 VIDE ORDER DATED 04.05.2016, COPY AVAILABLE AT PAGES 2482 TO 2485 OF THE PAPER BOOK . 30. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT PERSISTENT IS NOT A SUITABLE COMPARABLE BEING INTO THE BUSINESS OF SOFTWARE PRODUCTS AND ITS REVENUE ARE FROM THE SALE OF SOFTWARE SERVICES AND PRODUCTS HAVING NO SEGMENTAL INFORMATI ON AVAILABLE VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDE D FROM THE FINAL SET OF COMPARABLES. ITA NO.6169/DEL./2012 16 KALS INFORMATION SYSTEMS LTD. (KALS) 31. THE TAXPAYER SOUGHT EXCLUSION OF KALS AS A COMP ARABLE ON GROUND OF FUNCTIONAL DISSIMILARITY, IT BEING INTO T HE BUSINESS OF DEVELOPMENT OF SOFTWARE PRODUCT. WHEN WE EXAMINE A NNUAL REPORT AT PAGE 1714 OF THE ANNUAL REPORT PAPER BOOK, IT IS SPECIFICALLY RECORDED THAT KALS DRIVES ITS REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS BUT NO SEGMENTAL INFORMATION IN R ESPECT OF SERVICES AND PRODUCTS IS AVAILABLE. IN SCHEDULE 16 OF NOTE TO FINANCIAL STATEMENT, IT IS ALSO RECORDED THAT KALS IS INTO DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS SINCE ITS INCEPTION. IT IS ALSO RECORDED THAT KALS HAVING STPI UNIT ALSO ENGAGED IN SOFTWARE DEVELOPMENT AND SOFTWARE SERVICES ENGAGED IN DEVELOPMENT OF SOFTWARE & SOFTWARE PRODUCTS AND A T RAINING CENTRE ENGAGED IN TRAINING OF SOFTWARE PROFESSIONALS ON ON LINE PROJECTS. 32. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF TOLUNA INDIA PVT. LTD. (SUPRA) ALSO REJECTED KALS AS A COMPARABLE ON ACCO UNT OF FUNCTIONAL DISSIMILARITY VIS--VIS ROUTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THE SAID DECISION WAS NOT CHAL LENGED BEFORE THE HONBLE HIGH COURT. 33. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT KALS BEING INTO THE BUSINESS OF DEVELOPMENT OF SOFT WARE PRODUCTS ITA NO.6169/DEL./2012 17 AND SERVICES WITH NO SEGMENTAL FINANCIALS AVAILABLE IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER WHO IS A CAPTIVE ROUTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER WORKING ON COST PLUS M ODEL AS A RISK INSULATED ENTITY, HENCE ORDERED TO BE EXCLUDED. WORKING CAPITAL ADJUSTMENT 34. TPO/DRP HAVE DENIED THE WORKING CAPITAL ADJUSTM ENT TO THE TAXPAYER. IT IS THE CASE OF THE TAXPAYER THAT IN A YS 2007-08, 2010- 11 TO 2013-14 AND 2014-15, WORKING CAPITAL ADJUSTME NT TO THE TAXPAYER WHOSE BUSINESS PROFILE HAS NOT UNDERGONE A NY CHANGE SINCE AY 2007-08, HAS BEEN GIVEN BY THE LD. DRP AND ALSO RELIED UPON THE ORDER PASSED BY THE COORDINATE BENCH OF TH E TRIBUNAL IN THE CASE OF DEMAG CRANES AND COMPONENTS PVT. LTD. VS. DCIT IN ITA NO.120/PN/2011 ORDER DATED 04.01.2012 , COPY AVAILABLE AT PAGES 2819 TO 2845 OF THE PAPER BOOK, WHEREIN WO RKING CAPITAL ADJUSTMENT HAS BEEN GRANTED TO ARRIVE AT THE OPERAT ING NET MARGINS BY RETURNING FOLLOWING FINDINGS :- GROUND 4(A) - WORKING CAPITAL ADJUSTMENT: 18. WE WILL TAKE UP THE ISSUE RELATING TO THE WORK ING CAPITAL RAISED IN SUB GROUND 4(A) OF THE APPEAL. AT THE OUT SET, SRI LOHIA MENTIONED THAT IN PRINCIPLE, THE TP GUIDELINES ADVO CATE IN FAVOUR OF MAKING OF ADJUSTMENTS TO THE UNADJUSTED MARGINS OF THE TESTED PARTIES AND SIX COMPARABLE ON ACCOUNT OF WORKING C APITAL. REFERRING TO THE CONTENTS OF PARA 7.3.1 OF THE DIR ECTIONS OF THE DRP DATED 14.9.2010, GIVEN U/S 144C(5) OF THE ACT, LD COUNSEL MENTIONED THAT THE DRP MERELY AND PASSIVELY RELIED ON THE DETAILED REASONING FOR ADOPTING THE PLI OF THE PRO POSED SET OF COMPARABLES AT 7.18%. DRP FAILED TO PASS DIRECTION S ON THIS ITA NO.6169/DEL./2012 18 ISSUE OF WORKING CAPITAL RELATED ADJUSTMENTS TO BE MADE TO THE MARTINS OF THE TESTED PARTIES. SRI LOHIA DEMONSTRAT ED THE FACT OF RAISING OF THE ISSUE BEFORE THE DRP AND NON ADJUDIC ATION OF THE GROUND BY THE DRP AND TOOK US THROUGH THE CONTENTS OF THE IMPUGNED ORDERS/DIRECTIONS. ON THIS ISSUE OF REQUIR EMENT OF MAKING OF THE WORKING CAPITAL ADJUSTMENTS TO THE MA RGINS OF THE COMPARABLE, LD COUNSEL FOR THE ASSESSEE MENTIONED T HAT THE AO/DRP/TPO HAVE ERRED IN NOT FOLLOWING THE TP GUIDE LINES ON ONE SIDE AND THE EXISTING DECISIONS OF THE TRIBUNAL DIRECTLY ON THIS ISSUE. REFERRING TO THE DECISION OF THE TRIBUN AL IN THE CASE OF MENTOR GRAPHICS (NOIDA) (P) LTD. 109 ITD 101, LD CO UNSEL MENTIONED THAT THE FINAL SET OF COMPARABLES MAY NE ED TO ELIMINATE DIFFERENCES BY MAKING ADJUSTMENTS FOR THE FOLLOWING: (A) WORKING CAPITAL........ (PARA 27). FURTHER, RE FERRING TO THE DECISION OF PUNE BENCH IN THE CASE OF E-GAIN COMMUN ICATION P LTD REPORTED IN 118 ITD 243, LD COUNSEL MENTIONED T HAT WHEN TNMM IS APPLIED TO A CASE, THE DIFFERENCES WHICH A RE LIKELY TO MATERIALLY AFFECT THE PRICE, COST CHARGED OR PAID I N, OR THE PROFIT IN THE OPEN MARKET ARE TO BE TAKEN INTO CONSIDERATI ON WITH THE IDEA TO MAKE REASONABLE AND ACCURATE ADJUSTMENT TO ELIMINATE THE DIFFERENCES HAVING MATERIAL EFFECT. IF THESE D IFFERENCES ARE NOT ELIMINATED OR REMOVED, THE COMPARISON BECOMES U NSOUND AND UNRELIABLE. FURTHER ALSO, THE DECISION OF THE D ELHI BENCH IN THE CASE OF SONY INDIA P LTD (114 ITD 448) WAS CITE D FOR THE PROPOSITION THAT DEDUCTION OF 20% IS ALLOWABLE FOR VARIOUS DIFFERENCES ON ACCOUNT OF INTANGIBLES, R&D, RISK FA CTORS, WORKING CAPITAL, ETC. REFERRING TO CONTENTS OF THE PARA 132 AND 137 OF THE SAID DECISION, SRI LOHIA STATED THAT IN THAT CASE T HE CIT(A) ALLOWED ADJUSTMENT TO THE EXTENT OF 10% AGAINST THE 20% ALLOWED BY THE TPO. TRIBUNAL UPHELD THE VIEWS OF THE TPO IN THE MATER. FURTHER ALSO, REFERRING TO PARA 13.2 OF THE ORDER O F THE TRIBUNAL, BANGALORE BENCH, IN THE CASE OF TNT INDIA P LTD, LD COUNSEL MENTIONED THAT SIMILARLY, THE WORKING CAPITAL ADJU STMENTS ALSO HAVE TO BE CONSIDERED WHILE ARRIVING AT THE OPERATI NG NET MARGINS. 35. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT KEEPING IN VIEW THE FACT THAT IN TAXPAYERS OWN CAS E WHOSE BUSINESS PROFILE HAS NOT UNDERGONE ANY CHANGE SINCE AY 2007-08 AND THE WORKING CAPITAL ADJUSTMENT HAS SINCE BEEN G RANTED SINCE 2007-08, THE TAXPAYER IS ENTITLED FOR WORKING CAPIT AL ADJUSTMENT BY FOLLOWING THE RULE OF CONSISTENCY. SO, TPO IS DIRE CTED TO VERIFY THE ITA NO.6169/DEL./2012 19 DATA SUPPLIED BY THE TAXPAYER AND GRANT WORKING CAP ITAL ADJUSTMENT TO ARRIVE AT THE CORRECT OPERATING NET MARGIN OF TA XPAYER VIS--VIS COMPARABLES. GROUND NO.3 36. AO TREATED THE PURCHASE OF TIME LICENCES OF COM PUTER SOFTWARE OF RS.3,40,08,682/- AS CAPITAL EXPENDITURE OTHERWISE CLAIMED BY THE TAXPAYER AS REVENUE EXPENDITURE. LD . AR FOR THE TAXPAYER CONTENDED THAT THIS ISSUE IS ALREADY COVER ED IN HIS FAVOUR IN HIS OWN CASE FOR AY 2007-08 (SUPRA) PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL. 37. WE HAVE PERUSED THE ORDER PASSED BY THE COORDIN ATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA) VIDE WHICH THIS ADDITION MADE BY THE AO TREATING PA YMENT OF LICENCES OF COMPUTER SOFTWARE AS CAPITAL IN NATURE HAS BEEN DELETED BY TREATING THE SAME AS REVENUE IN NATURE BY RETURN ING FOLLOWING FINDINGS :- 27. WE HAVE GONE THROUGH THE MATERIAL PLACED ON R ECORD BY THE ASSESSEE. IT WAS SUBMITTED THAT THE ABOVE EXPEN SES ARE TO BE REGARDED AS INCURRED ON REVENUE FIELD AS PER THE TE ST LAID DOWN BY THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES, 111 ITD 112 (DEL) (SB) IN AS MUCH AS ( I) SUCH COMPUTER SOFTWARE DOES NOT HAVE UTILITY FOR LONG DU RATION AND HENCE DO NOT RESULT IN ENDURING BENEFIT AND (II) SU CH SOFTWARE DOES NOT CONSTITUTE A PROFIT EARNING APPARATUS AND MERELY ENABLE THE APPELLANT TO EFFICIENTLY CONDUCT ITS BUSINESS. THE AFORESAID DECISION HAS BEEN AFFIRMED BY THE HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS ASAHI INDIA SAFETY GLASS LTD : 3 46 ITR 329. ITA NO.6169/DEL./2012 20 27.1 IT WAS FURTHER SUBMITTED THAT TRIBUNAL WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR AY 2006-07 (ITA NO 5058/ DEL/2010) INVOLVING IDENTICAL ISSUE DELETED THE ADJUSTMENT MA DE BY THE ASSESSING OFFICER HOLDING THAT LICENSE FEE PAID BY THE APPELLANT IS TO BE TREATED AS REVENUE IN NATURE. 28. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS S INCE THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR IMMEDIATELY PRECEDING YEAR, WE DIRECT THE AO TO DELETE THE ADDITION. 38. SO, FOLLOWING THE AFORESAID DECISION RENDERED B Y THE COORDINATE BENCH OF THE TRIBUNAL, WHICH IS BASED UP ON THE DECISION RENDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN CA SE OF AMWAY INDIA ENTERPRISES, 111 ITD 112 (DEL) (SB) AND DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ASA HI INDIA SAFETY GLASS 346 ITR 329, WE ARE OF THE CONSIDERED VIEW THAT SINCE SOFTWARE LICENCES ARE DIFFERENT FROM SOFTWARE WHICH DOES NOT BECOME THE ASSET OF THE TAXPAYER HAVING NO ENDURING BENEFITS AND IT CAN ONLY BE USED DURING THE PERIOD FOR WHICH FEE IS PAID, SO IT FAILS THE TEST OF OWNERSHIP IN CASE OF LICENCES, HENCE WE ORDER TO TREAT THE AMOUNT INCURRED BY THE TAXPAYER FOR PURCHASE OF TIM E LICENCES OF COMPUTER SOFTWARE AS REVENUE EXPENDITURE. SO, GROU ND NO.3 IS DETERMINED IN FAVOUR OF THE TAXPAYER. GROUND NO.4 39. AO ALSO TREATED AN AMOUNT OF RS.1,82,00680/- AS CAPITAL EXPENDITURE CLAIMED BY THE TAXPAYER AS REVENUE EXPE NDITURE AND ITA NO.6169/DEL./2012 21 ADDED THE SAME TO THE INCOME OF THE TAXPAYER. LD. AR FOR THE TAXPAYER CONTENDED THAT WHEN THE TRAINING EXPENSES INCURRED BY THE TAXPAYER ON IMPARTING TRAINING TO ITS EXECUTOR IS N OT PART OF THE ENDURING BENEFITS AS THE TRAINED WORKFORCE MAY MOVE OUT ANY TIME, IT CANNOT BE TREATED AS CAPITAL EXPENDITURE AND REL IED UPON THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TR IBUNAL IN CASE OF SISTER CONCERN OF THE TAXPAYER I.E. ST ERICSSON INDIA PVT. LTD. FOR AY 2010-11 IN ITA NO.609/DEL/2015 AND ALSO PLACED RELIANCE ON HONBLE DELHI HIGH COURT IN CASE OF CIT VS. MUNJAL SHOWA LTD. 329 ITR 449. OPERATIVE PART OF THE DECISION RENDERED BY THE HONBLE HIGH COURT IS AS UNDER :- WHEN THE TRAINING OF THE PERSONNEL OF THE ASSESSEE WAS IMPERATIVE TO RUN THE BUSINESS AND IS IN THE NATURE OF TECHNICAL SUPPORT TO THE ASSESSEE IT WILL CERTAINLY ENHANCE T HE PROFIT OF THE COMPANY ON WHICH IT WILL PAY THE TAXES, SUCH EXPEND ITURE CANNOT BE TREATED AS CAPITAL IN NATURE RATHER THEY ARE REV ENUE IN NATURE.' 40. SO, FOLLOWING THE AFORESAID DECISION RENDERED B Y HONBLE DELHI HIGH COURT, WE ARE OF THE CONSIDERED VIEW THA T WHEN TRAINING IMPARTED BY THE TAXPAYER COMPANY TO ITS EXECUTIVES, THOUGH INCREASED ITS PROFITABILITY, IS NOT OF ANY ENDURING BENEFIT AS THE TRAINED WORKFORCE CAN MOVE OUT ANY TIME AND THE TAX PAYER COMPANY PAYS TAX ON THE ENHANCED INCOME ON ACCOUNT OF ENHANCED EFFICIENCY OF ITS TRAINED STAFF, THIS HAS TO BE TRE ATED AS REVENUE IN NATURE. CONSEQUENTLY, AO IS DIRECTED TO TREAT THE TRAINING EXPENSES ITA NO.6169/DEL./2012 22 AS REVENUE IN NATURE. ACCORDINGLY, THIS GROUND IS DETERMINED IN FAVOUR OF THE TAXPAYER. GROUND NO.5 39. AO HAS FAILED TO FOLLOW THE DIRECTIONS ISSUED B Y THE LD. DRP AND THEREBY DISALLOWED THE DEDUCTION CLAIMED BY THE TAXPAYER U/S 10B OF THE ACT ON THE ENHANCED INCOME OF THE TAXPAY ER. LD. DRP WHILE ALLOWING THE GROUND NO.16 RAISED BY THE TAXPA YER PASSED THE FOLLOWING ORDER :- 16. IN GROUND NO.16, THE ASSESSEE HAS MADE WITHOUT PREJUDICE, CLAIM THAT EVEN IF THE A.O.S CONTENTION IS ACCEPTED IN RESPECT OF GROUND NO.14 AND 15, DEDUCTION U/S 10B O F THE ACT SHOULD BE ENHANCED TO THE EXTENT OF THE ABOVE DISAL LOWANCES AS THE SAME INCREASED THE INCOME OF THE EOU UNDERTAKIN GS. IT WAS SUBMITTED THAT THE COURTS HAVE SETTLED THAT THE DED UCTIONS U/S 10B OF THE ACT SHALL BE COMPUTED ON THE ASSESSED INCOME AFTER CONSIDERING ALL THE DISALLOWANCES/DISALLOWANCES MAD E BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS . IN THIS REGARD, THE ASSESSEE RELIED ON THE FOLLOWING RECENT RULINGS WHEREIN THE HONBLE TRIBUNALS HAVE HELD THAT THE DE DUCTION U/S 10B SHALL BE AVAILABLE ON THE ASSESSED INCOME AFTER CONSIDERING THE DISALLOWANCES/ ADDITIONS MADE BY THE ASSESSING OFFICER IN THE BUSINESS INCOME :- ITO V. SAHASRA ELECTRONICS PRIVATE LIMITED (2010-TO IL-89- ITAT-DEL) GEMPLUS JEWELLERY INDIA LIMITED (2009-TIOL-212-ITAT - MUM) 16.1 WE HAVE CONSIDERED THE ISSUE. THE AO IS DIREC TED TO RECOMPUTE THE DEDUCTION U/S 10B IF THE AO IS SATISF IED THAT THE NATURE OF ADDITIONS/DISALLOWANCES IN RESPECT OF GRO UND NO.14 AND 15 ABOVE ENHANCE THE ASSESSEES BUSINESS INCOME WHI CH IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE INCOME TAX AC T, 1961. THIS GROUND OF OBJECTION IS DISPOSED OFF ACCORDINGLY. 40. IN VIEW OF THE MATTER, WE DIRECT THE AO TO COMP LY WITH THE DIRECTIONS ISSUED BY THE LD. DRP ACCORDINGLY. ITA NO.6169/DEL./2012 23 GROUNDS NO.6 & 7 41. GROUNDS NO.6 & 7 NEED NO SPECIFIC FINDING BEING CONSEQUENTIAL IN NATURE. 41. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF SEPTEMBER, 2020. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 28 TH DAY OF SEPTEMBER, 2020. TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A). 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.