ST- Ericsson India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 6247/DEL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5153 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 24-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S D KAPILA; R R MOURYA
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Question of law; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 92D; 92B; 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : FRIDAY I-2 : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.6247/DEL/2015 ASSESSMENT YEAR: 2011-12 ST-ERICCSON INDIA PVT. LTD., D-28, SOUTH EXTENSION PART I, NEW DELHI. PAN: AAMCS1022K VS ACIT, CIRCLE-24(2), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.D. KAPILA, ADVOCATE & SHRI R.R. MOURYA, ADVOCATE REVENUE BY : SHRI SARABJEET SINGH, SR. DR DATE OF HEARING : 28.02.2019 DATE OF PRONOUNCEMENT : 28.05.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30.09.2015 PASSED U/S 143(3) R.W. SECTION 144C OF THE IT ACT, 1961 RELATING TO ASSESSMENT YEAR 2011-12. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF DEVELOPMENT OF INTEGRATED CIRCUIT DESIG N AND OTHER ACTIVITIES RELATED TO WIRELESS BUSINESS. IT FILED ITS RETURN OF INCOME O N 28.11.2011 DECLARING THE TOTAL ITA NO.6247/DEL/2015 2 INCOME AT RS.27,38,53,917/-. SINCE THE ASSESSEE HAD UNDERTAKEN INTERNATIONAL TRANSACTIONS WITH ITS AE WHICH EXCEEDS MORE THAN RS .15 CRORES, THE ASSESSING OFFICER REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) UNDER THE PROVISIONS OF SECTION 92CA OF THE IT ACT FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. THE TPO, VIDE ORDER DATED 6 TH JANUARY, 2015, PROPOSED UPWARD ADJUSTMENT OF RS.35,31,33,463/- TO THE VALUE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE COMPANY. THE ASSESSING OFFICER, ACCORDING LY PASSED THE DRAFT ORDER MAKING ADDITION OF THE SAME. THE ASSESSEE FILED OBJECTION S AGAINST THE DRAFT ORDER PASSED BY THE ASSESSING OFFICER. THE DRP, VIDE ORDER DATED 1 2 TH AUGUST, 2015, DIRECTED THE TPO TO VERIFY THE CORRECTNESS OF THE COMPUTATION OF THE OPERATING MARGIN OF THE COMPARABLE COMPANIES AND THE ASSESSEE FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF T HE ACT. SUBSEQUENTLY, THE TPO, VIDE ORDER DATED 14 TH SEPTEMBER, 2015, RECTIFIED THE COMPUTATION AS PER THE CORRECTED MARGIN OF THE COMPARABLES AS PER THE DIRECTION OF T HE DRP AND MADE AN UPWARD ADJUSTMENT OF RS.26,32,08,740/-. THE ASSESSING OFF ICER ACCORDINGLY MADE ADDITION OF THE SAME IN THE FINAL ASSESSMENT ORDER. THE ASSESS ING OFFICER FURTHER HELD THAT THE PURCHASE OF TIME LICENCE OF COMPUTER SOFTWARE OF RS .69,45,581/- IS A CAPITAL EXPENDITURE AS AGAINST THE CLAIM AS REVENUE EXPENDI TURE MADE BY THE ASSESSEE. AFTER ALLOWING DEPRECIATION @ 60% ON THE SAME WHICH COMES TO RS.41,67,348/-, THE ASSESSING OFFICER MADE ADDITION OF RS.27,78,233/- I N THE DRAFT ASSESSMENT ORDER WHICH WAS UPHELD BY THE DRP. THE ASSESSING OFFICER ACCOR DINGLY MADE ADDITION OF THE SAME IN THE FINAL ASSESSMENT ORDER. SIMILARLY, THE TRAINING EXPENSES OF RS.9,85,574/- ITA NO.6247/DEL/2015 3 CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER TREATING THE SAME AS CAPITAL EXPENDITURE IN THE DRAFT ASSESSMENT ORDER WHICH WAS UPHELD BY THE DRP. THE ASSESSING OFFICER ACCOR DINGLY MADE ADDITION OF THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSE SSING OFFICER ACCORDINGLY DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.5 4,08,26,460/- AS AGAINST THE RETURNED INCOME AT RS.27,38,53,917/-. 3. AGGRIEVED WITH SUCH ORDER OF THE ASSESSING OFFIC ER/TPO/DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOW ING GROUNDS:- 1. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ASSESSMENT ORDER PASSED BY THE ASSISTANT COMMISSION ER OF INCOME TAX, CIRCLE 24(2), NEW DELHI (LD. AO) BASED ON THE DIRECTIONS GIVEN BY THE LEARNED DISPUTE RESOLUTION PANEL - 2 (LD. DRP) MAKING A T RANSFER PRICING ADJUSTMENT OF RS. 26,32,08,740/- AND CORPORATE TAX ADJUSTMENT OF RS. 37,63,807 TO THE RETURNED INCOME IS BAD IN LAW AND VOID-AB-INITIO. TRANSFER PRICING GROUNDS 2. THE LD. DRP ERRED IN CONFIRMING THE LD. AO/LD. T RANSFER PRICING OFFICER (TPO) APPROACH OF DETERMINING THE ARMS L ENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION O F INTEGRATED CIRCUIT (IC) DESIGN AND SOFTWARE DEVELOPMENT SERVICES WHEREIN, THE LD. AO/LD. TPO HAS GROSSLY ERRED IN: 2.1 DISREGARDING THE USE OF MULTIPLE YEAR DATA, AS ADOPTED BY THE APPELLANT IN ITS TRANSFER PRICING (TP) DOCUMENTATION AND DETERMI NING THE ALP USING DATA PERTAINING ONLY TO FINANCIAL YEAR (FY) 2010-11 WH ICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING TP DOCUMENTATION ; 2.2 DISREGARDING THE ALP DETERMINED BY THE APPELLAN T IN THE TP DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE INCOME TAX ACT, 1961 (THE ACT) BY NOT ACCEPTING THE ECONOMIC ANAL YSIS UNDERTAKEN BY THE APPELLANT AND CONDUCTING A FRESH ECONOMIC ANALYSIS AND IN PARTICULAR MODIFYING/REJECTING THE FILTERS APPLIED BY THE APPE LLANT; ITA NO.6247/DEL/2015 4 2.3 NOT APPROPRIATELY CONSIDERING THE FUNCTIONS, AS SETS AND RISK PROFILE OF THE COMPANIES USED FOR COMPARISON WITH THE APPELLANT, T HEREBY INCLUDING IN THE FINAL COMPARABLE SET CERTAIN COMPANIES WITH COMPLETELY DI FFERENT FUNCTIONAL PROFILE; 2.4 ERRONEOUSLY INTRODUCING COMPANIES HAVING ABNOR MAL MARGINS IN THE FINAL COMPARABLE SET THAT SIGNIFY HIGH ELEMENT OF ENTREPR ENEURIAL RISK AS OPPOSED TO THE APPELLANT WHO IS A CAPTIVE SERVICE PROVIDER BEARING LIMITED RISK; 2.5. EXCLUDING CERTAIN COMPARABLES CONSIDERED BY TH E APPELLANT IN ITS TP DOCUMENTATION/ FRESH SEARCH ON ARBITRARY/FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS P ERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 2.6 RESORTING TO ARBITRARY REJECTION OF LOSS MAKING COMPANIES BASED ON ERRONEOUS AND INCONSISTENT REASONS ON ACCOUNT OF DECLINING RE VENUE/ PERSISTENT LOSS; 2.7 THE LD. DRP ERRED IN CONFIRMING THE LD. AO/TPO S APPROACH IN RELYING ON COMPLETELY NEW FACTS WITHOUT GIVING THE APPELLANT A NY OPPORTUNITY OF BEING HEARD. 3. LD. DRP ERRED IN CONFIRMING THE LD. AO/LD. TPOS APPROACH OF CONSIDERING BANK CHARGES, PROVISION FOR DOUBTFUL DE BTS AND PROVISION NO LONGER REQUIRED WRITTEN BACK AS NON-OPERATING EXPENDITURE/ INCOME WHILE COMPUTING THE OPERATING MARGINS OF THE APPELLANT AND COMPARABLE C OMPANIES. 4. THE LD. DRP ERRED IN NOT APPRECIATING THE DIFFER ENCE IN THE RISK PROFILE OF THE APPELLANT FOR RENDERING SERVICES TO ITS AES VIS-A-VIS THAT OF THE COMPARABLES AND NOT ALLOWING THE RISK ADJUSTMENT TO THE APPELLANT; CORPORATE TAX GROUNDS 5. THE LD. AO/ LD. DRP HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN TREATING THE SOFTWARE EXPENSES AMOUNTING TO RS. 69,45,581 AS CAPITAL IN NATURE AND ALLOWING DEPRECI ATION THEREON AND MAKING AN ADDITION OF RS. 27,78,233. 6. WITHOUT PREJUDICE TO THE ABOVE AND ASSUMING WITH OUT ACCEPTING THE ABOVE SOFTWARE EXPENDITURE IS TO BE CAPITALIZED, TH E LD. DRP/LD. AO HAS ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE AMOUNT EXPENDED ON SOFTWARE EXPENSES CAPITALIZED IN THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2009-10 AND ASSESSME NT YEAR 2010-11. 7. THAT THE LD. AO/ LD. DRP HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN TREATING THE EXPENDITU RE ON TRAINING OF EMPLOYEES AMOUNTING TO RS. 985,574 LEADS TO ENDURING BENEFIT TO THE APPELLANT AND IS CAPITAL IN NATURE. ITA NO.6247/DEL/2015 5 8. WITHOUT PREJUDICE TO THE ABOVE AND ASSUMING WITH OUT ACCEPTING THAT THE ABOVE TRAINING EXPENDITURE IS TO BE CAPITALIZED, TH E LEARNED AO HAS ERRED IN NOT ALLOWING DEPRECIATION ON THE SAME. 9. WITHOUT PREJUDICE TO THE ABOVE AND ASSUMING WITH OUT ACCEPTING THE ABOVE TRAINING EXPENDITURE IS TO BE CAPITALIZED, TH E LD. DRP/LD. AO HAS ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION ON TH E WRITTEN DOWN VALUE OF THE AMOUNT EXPENDED ON TRAINING EXPENSES CAPITALIZED IN THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2009-10 AND ASSESSMENT YEAR 2010-11. 10. LD. AO/ LD. DRP HAS ERRED IN LAW AND ON THE FAC TS AND CIRCUMSTANCES OF THE CASE IN NOT GRANTING DEPRECIATION ON GOODWILL A MOUNTING TO RS 24,501,457 WHICH WAS CLAIMED BY THE APPELLANT DURING THE COURS E OF ASSESSMENT PROCEEDINGS IN ACCORDANCE WITH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD. [2012] 24 TAXMANN.COM 222 (SC) GENERAL GROUNDS 11. THAT ON FACTS OF THE CASE AND IN LAW, THE LD. A .O. HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234D OF THE ACT WHI LE COMPLETELY DISREGARDING THE PROVISIONS OF THE ACT AND THE JUDICIAL PRECEDEN CE IN THIS REGARD. 12. WITHOUT PREJUDICE TO THE ABOVE AND ASSUMING WIT HOUT ACCEPTING THE LEVY OF INTEREST UNDER SECTION 234D, THE LD. AO HAS ERRE D IN THE FACTS AND IN LAW IN COMPUTING EXCESS INTEREST UNDER SECTION 234D OF THE ACT OF RS. 56,805. 13. THAT ON FACTS OF THE CASE AND IN LAW, THE LD. A O HAS GROSSLY ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(L) (C) OF THE ACT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTE R, AMEND, VARY OR RESCIND ANY OF THE ABOVE GROUNDS EITHER BEFORE OR AT THE TIME O F HEARING IN THE INTEREST OF NATURAL JUSTICE. 4. THE ASSESSEE HAS ALSO FILED AN APPLICATION UNDER RULE 11 OF THE ITAT RULES FOR FILING AN ADDITIONAL GROUND. THE ADDITIONAL GROUND READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.A.O./DRP WERE NOT CORRECT IN INCLUDING THE FOLLOWING ENTITIES IN THE LIST OF APPROPRIATE COMPARABLE:- I) LARSEN & TOUBRO INFOTECH LIMITED; II) SASKEN COMMUNICATIONS TECHNOLOGIES LIMITED; III) PERSISTENT SYSTEMS LIMITED; IV) PERSISTENT SYSTEMS AND SOLUTIONS LIMITED; V) THIRDWARE SOLUTIONS LIMITED; AND VI) TATA ELXSI LIMITED. ITA NO.6247/DEL/2015 6 5. THE LD. COUNSEL FOR THE ASSESSEE, RELYING VARIOU S DECISIONS, SUBMITTED THAT IT IS THE SETTLED LAW THAT THERE IS NO ESTOPPEL AGAINST T HE STATUTE. FOR THE ABOVE PROPOSITION, HE RELIED ON THE FOLLOWING DECISIONS:- I) KEDARNATH JUTE MFG. CO. LTD. VS. CIT, 82 ITR 363 ( SC); II) CWT VS. MEATTLES (P) LTD., 156 ITR 569; III) CIT VS. MRS. V. CHANDRA, 245 ITR 619; IV) DIRECTOR OF INSPECTION OF INCOME-TAX (INV.) VS. PO ORAN MALL & SONS, 96 ITR 390 V) PV DOSHI VS. CIT, 113 ITR 22 (GUJ) VI) CIT VS. CONTINENTAL COMMERCIAL CORP., 110 ITR 170 (MAD) VII) PULLANGODE RUBBER PRODUCE CO. LTD VS. STATE OF KERA LA, 91 ITR 18 VIII) CIT VS. MAHALAXMI TEXTILE MILLS, 66 ITR 710 (SC); IX) NTPC VS. CIT, 229 ITR 383 (SC) X) STREAM INTERNATIONAL SERVICES (P) LTD. VS. ADIT, I TA NO.8997/MUM/2010 XI) GE BE (P) LTD. (2014) 164 TTJ 40 (BANG.) XII) NAVISITE INDIA PRIVATE LTD. (ITA NO.5329/DEL/2012) XIII) PANASONIC AVC NETWORKS INDIA CO. LTD. (ITA NO.4620/ DEL/2011); XIV) VERIZON INDIA PVT. LTD. (ITA NO.2766/DEL/2010) XV) LUBRIZOL ADVANCED MATERIALS INDIA PVT. LTD. (ITA NO .3320/AHD/2010) XVI) MCI COM INDIA PVT. LTD. (ITA NO.4187/DEL/2010) XVII) NTT DATA GLOBAL DELIVERY SERVICES LTD. ITA NO.1382/ DEL/2012 ITA NO.6247/DEL/2015 7 6. AFTER HEARING THE RIVAL ARGUMENTS MADE BY BOTH T HE SIDES AND CONSIDERING THE FACT THAT THE MATERIAL FACTS ARE ALREADY AVAILABLE ON RECORD AND NO FURTHER INVESTIGATION IS NEEDED FOR ADJUDICATING THE SAME, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ADMITTED. 7. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS G ROUNDS OF APPEAL NOS.11,12 AND 13 FOR WHICH THE LD. DR HAS NO OBJECTION. ACCORDIN GLY, THE ABOVE GROUNDS ARE DISMISSED AS NOT PRESSED. 8. GROUND OF APPEAL NO.1 BEING GENERAL IN NATURE IS DISMISSED. 9. SO FAR AS GROUNDS OF APPEAL NOS.2 TO 2.7 ARE CON CERNED, THESE ALL RELATE TO THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUNDS OF APPEAL NOS.2.1 AND 2.7 OF THE TRANSFER PRICING GROUNDS FOR WHICH THE LD. DR HAS NO OBJECTION. ACCORDINGLY THE SE GROUNDS ARE DISMISSED AS NOT PRESSED. 10. SO FAR AS THE REMAINING GROUNDS ARE CONCERNED, I.E., GROUNDS OF APPEAL NOS.2 AND 2.2 TO 2.6, THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR HAS ENTERED INTO INTERNATI ONAL TRANSACTION WITH ITS AE IN RESPECT OF PROVISION OF IC DESIGN AND SOFTWARE DEVE LOPMENT SERVICES TOTALING TO RS.2,14,75,27,845/-. THE ASSESSEE HAD ADOPTED TNMM AS THE MOST APPROPRIATE METHOD AND THE PLI WAS DETERMINED BY OP/OC. THE AS SESSEE USED 23 COMPARABLES AND THE AVERAGE ARITHMETIC MEAN OF THE COMPARABLES WAS 8.68% WHEREAS THE ARITHMETIC MEAN OF THE ASSESSEE WAS 5.43%. IT WAS ACCORDINGLY SUBMITTED BEFORE THE TPO THAT THE ITA NO.6247/DEL/2015 8 ALP OF THE INTERNATIONAL TRANSACTION IS AT ARMS LE NGTH PRICE. HOWEVER, THE TPO DISREGARDED THE SAME AND USED 19 COMPARABLES WITH A VERAGE OP/OC AT 21.49% AND DETERMINED AN ADJUSTMENT OF RS.35,31,33,463/-. THE ASSESSEE OBJECTED THE COMPARABLES BEFORE THE DRP AND THE DRP, VIDE ORDER DATED 7 TH AUGUST, 2015, DIRECTED THE TPO TO TREAT THE FOREIGN EXCHANGE LOSS/GAIN AS OPERATING ITEM, DIRECTED AMORTIZATION OF GOODWILL TO BE TREATED AS NON-OPERA TING ITEM, DIRECTED THE EXCLUSION OF INFOSYS LTD. AND ZYLOG SYSTEMS LTD. FROM THE LIST O F COMPARABLE COMPANIES AND DIRECTED THE TPO TO VERIFY AND RECTIFY NET MARGINS OF THE COMPANY. THE REST OF THE FILTERS APPLIED BY THE TPO WERE UPHELD BY THE DRP. ACCORDINGLY, AS PER THE DIRECTIONS ISSUED BY THE DRP, THE FOLLOWING 17 COMPANIES WERE FINALLY CONSIDERED AS COMPARABLES: ' PARTICULARS WORKING CAPITAL OP/TC (%) 1 ACROPETAL TECHNOLOGIES LIMITED (SEGMENTAL) 18.21% 2 AKSHAY SOFTWARE TECHNOLOGIES LIMITED 0.46% 3 CELSTREAM TECHNOLOGIES PVT. LIMITED 11.70% 4 E-INFOCHIPS LIMITED 59.43% 5 EVOKE TECHNOLOGIES PVT. LTD 7.10% 6 E-ZEST SOLUTIONS LIMITED 36.93% 7 LARSEN & TOUBRO INFOTECH LIMITED 17.46% 8 LGS GLOBAL LIMITED 10.30% 9 MINDTREE LIMITED (SEG) 9.19% 10 PERSISTENT SYSTEMS & SOLUTIONS LTD 19.67% 11 PERSISTENT SYSTEMS LTD 24.57% 12 R S SOFTWARE INDIA LIMITED 14.92% 13 SANKHYA INFOTECH LIMITED (SEG) 21.00% 14 SASKEN COMMUNICATION TECHNOLOGIES LIMITED 26.02% 15 TATA ELXSI LTD. (SEG) 10.98% ITA NO.6247/DEL/2015 9 16 THIRDWARE SOLUTION LTD (SEG) 16.25% 17 WIPRO TECHNOLOGY SERVICES LIMITED 53.28% AVERAGE 21.03% APPELLANTS MARGIN 7.82% 11. THE ASSESSING OFFICER ACCORDINGLY DETERMINED TH E ADJUSTMENT OF RS.26,32,08,740/- THE DETAILS OF WHICH ARE AS UNDER :- PARTICULARS POST DRP DIRECTIONS (PAGE 439/VOL-I) OPERATING COST 2,02,81,19,445 ARMS LENGTH MARGIN(%) 21.03% ARMS LENGTH MARGIN(RS.) 42,65,13,519 ARMS LENGTH PRICE (ALP) 2,45,46,32,964 PRICE CHARGED BY THE APPELLANT 2,18,66 ,31,535 INTERNATIONAL TRANSACTION 2,14,75,27,845 DIFFERENCE BETWEEN ALP AND PRICE CHARGED 26,80,01,429 PERCENTAGE OF SERVICE TO AE TO TOTAL REVENUE 98.21% PROPORTIONATE ADJUSTMENT 26,32,08,740 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ST-ERICSSON INDIA PRIVATE LIMITED (STE) IS ENGAGED IN PROVISION OF SERVICES O F INTERMEDIATE STAGE OF DESIGN AND DEVELOPMENT OF SOFTWARE OF PARTS OF INTEGRATED CIRC UITS (ICS) INVOLVING IMPLEMENTATION, VERIFICATION, MAINTENANCE SERVICES. THE ASSESSEE COMPANY WORKS AS PER THE SPECIFICATION PROVIDED BY THE GROUP ON A CO ST PLUS BASIS AS PER THE MASTER SERVICE AGREEMENT DATED 3 AUGUST 2008 WITH ST-ERICS SON SA (PG 350/VOL-I). IT PERFORMS THE LIMITED FUNCTIONS IN THE INTERMEDIATE STAGE OF THE DESIGN AND SOFTWARE DEVELOPMENT FOR THE ASSOCIATED ENTERPRISES (AES). ITA NO.6247/DEL/2015 10 13. REFERRING TO THE ORDERS OF THE TRIBUNAL FOR ASS ESSMENT YEARS 2009-10, 2010-11 & 2013-14 THE LD. COUNSEL DREW THE ATTENTION OF THE B ENCH TO THE RELEVANT PARAS OF THE ORDERS OF THE TRIBUNAL WHICH READS AS UNDER:- ITA NO.1672/DEL/2014 FOR A.Y. 2009-10 (P.B. PAGE 19 22, VOL.V) 30..., A CAPTIVE SERVICE PROVIDER INVOLVED AT THE DESIGN AND DEVELOPMENT STAGE ONLY WITH A LIMITED SCOPE OF WORK AND IS NOT INVOLV ED IN THE PROCESS OF CONCEPTUALIZATION OF ANY PRODUCTS OR WORKS AND WORK S ONLY ON THE SPECIFICATION PROVIDED BY THE STE GROUP FOR THE IMPLEMENTATION OF 1C DESIGN, ITS MAINTENANCE, VERIFICATION AND SOFTWARE DEVELOPMENT. SO, THE ROLE OF STE IS THAT OF A CONTRACT CAPTIVE DESIGN CENTRE AND AS SUCH, TH E FINDINGS OF THE TPO IN THIS REGARD CANNOT BE INTERFERED WITH.. ITA NOS.609& 168/DEL/2015 FOR A.Y. 2010-11 (P.B. PA GE 1861, VOL.V) 9. UNDISPUTEDLY THE FACTS OF THE CASE UNDER CONSID ERATION ARE IDENTICAL TO THAT OF AY 2009-10. IN AN ORDER PASSED BY THE TRIBUNAL IN A SSESSEES OWN CASE IN 1TA NO.L672/DEL/2014 FOR AY 2009-10 ORDER DATED 22.02.2 017, AVAILABLE AT PAGES 1966 TO 2001OF VOL. 5 OF THE PAPER BOOK, RELEVANT P AGE 1982, ASSESSEE HAS BEEN TREATED AS A CAPTIVE SERVICE PROVIDER INVOLVED AT T HE DESIGN AND DEVELOPMENT STAGE ONLY WITH A LIMITED SCOPE OF WORK AND IS NOT INVOLVED IN THE PROCESS OF CONCEPTUALIZATION OF ANY PRODUCT OR WORKS AND WORKS ONLY ON THE SPECIFICATION PROVIDED BY THE STE GROUP FOR THE IMPLEMENTATION OF 1C DESIGN, ITS MAINTENANCE, VERIFICATION AND SOFTWARE DEVELOPMENT. SO, FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS, THE AS SESSEE IS TO BE TREATED AS A CONTRACT CAPTIVE DESIGN CENTRE. 14. HE SUBMITTED THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE IS ALSO SAME DURING THIS YEAR AS IT WAS IN ASSESSMENT YEARS 2009-10, 2010-11 AND 2013-14. 15. SO FAR AS THE INCLUSION OF THIRDWARE SOLUTIONS LTD. AS A COMPARABLE IS CONCERNED, HE SUBMITTED THAT THIS COMPANY WAS REJEC TED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11 AND 2013-14. R EFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT, HE SUBMITTED THAT THIS CO MPANY WAS REJECTED BY THE TRIBUNAL DURING ASSESSMENT YEAR 2009-10 IN ASSESSEE S OWN CASE AND ON APPEAL BY THE ITA NO.6247/DEL/2015 11 REVENUE, THE HON'BLE HIGH COURT IN ITA NO.821/2017, ORDER DATED 31 ST JANUARY, 2018 , DISMISSED THE APPEAL FILED BY THE REVENUE. HE ACCO RDINGLY SUBMITTED THAT THIRDWARE SOLUTIONS LTD. BE EXCLUDED FROM THE LIST OF COMPARA BLES. 16. SO FAR AS WIPRO TECHNOLOGY SERVICES AND E-ZEST SOLUTIONS LTD. ARE CONCERNED, HE SUBMITTED THAT THE TRIBUNAL, IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2010-11 HAS EXCLUDED THESE COMPANIES FROM THE LIST OF COMPARABL ES. THEREFORE, THESE TWO COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPA RABLES. 17. SO FAR AS THE TATA ELXSI LTD. IS CONCERNED, HE SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 HA D EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES AND ON APPEAL BY THE REVENUE, T HE HON'BLE HIGH COURT VIDE ITA NO.821/2017, ORDER DATED 31 ST JANUARY, 2018 , HAS UPHELD THE ACTION OF THE TRIBUNAL. THEREFORE, HE SUBMITTED THAT THE ABOVE FIVE COMPANI ES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 18. SO FAR AS ACROPETAL TECHNOLOGIES LTD. (ACROPETA L) IS CONCERNED, HE SUBMITTED THAT THIS COMPANY SHOULD BE REJECTED SINCE IT HAS G OT DIVERSIFIED BUSINESS OPERATIONS SUCH AS PROVISION OF ENGINEERING DESIGN SERVICES, I NFORMATION LIFE CYCLE, IT INFRASTRUCTURE MANAGEMENT, CLOUD SERVICE ENTERPRISE SOFTWARE SOLUTIONS, ETC., WHICH CAN BE VERIFIED FROM THE ANNUAL REPORT OF THE COMPA NY, COPY OF WHICH IS PLACED IN THE PAPER BOOK. FURTHER, THIS COMPANY FAILS EMPLOYEE C OST FILTER SINCE THE SAME IS 13.74% FOR THIS YEAR. IT HAS ALSO INCURRED EXPENDITURE ON R&D EXPENSES AND HAS UNRELIABLE SEGMENT INFORMATION. RELYING ON VARIOUS DECISIONS, HE SUBMITTED THAT THIS COMPANY ITA NO.6247/DEL/2015 12 WAS EXCLUDED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S ELECTRONIC IMAGING INDIA PVT. LTD. VIDE ITA NO.1506/BANG/2015, ORDER DATED 14 TH JULY, 2017 FOR ASSESSMENT YEAR 2011-12. THIS COMPANY HAS ALSO BEE N EXCLUDED AS A COMPARABLE IN THE CASE OF PHILIPS INDIA LTD. VIDE ITA NO.863 & 539/KOL/2016, ORDER DATED 15 TH DECEMBER, 2017 AND ALSO BY THE MADRAS BENCH OF THE TRIBUNAL IN TH E CASE OF M/S SYMANTEC SOFTWARE & SERVICES INDIA PVT. LTD. VIDE I TA NO.614/MDS/2016, ORDER DATED 20 TH JANUARY, 2017. REFERRING TO THE VARIOUS OTHER DECISIONS OF THE TR IBUNAL, HE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE L IST OF COMPARABLES. 19. SO FAR AS E-INFOCHIPS LIMITED IS CONCERNED, HE SUBMITTED THAT THIS COMPANY SHOULD ALSO BE EXCLUDED SINCE IT OPERATES AS A FULL -FLEDGED RISK TAKING ENTREPRENEUR WHEREAS THE ASSESSEE COMPANY OPERATES AT MINIMAL RI SK AS 100% SERVICES ARE PROVIDED TO ITS AES ONLY AND IS A CAPTIVE UNIT AND IS REMUNE RATED ON A COST PLUS BASIS. HE SUBMITTED THAT E-INFOCHIPS HAS INCOME FROM THE FOLL OWING:- A) SOFTWARE SERVICES; B) HARDWARE; AND C) CONSULTANCY CHARGES. 20. HOWEVER, THE ASSESSEE IS MAINLY ENGAGED IN PROV ISION OF SOFTWARE DEVELOPMENT SERVICES RELATED TO DESIGN, IMPLEMENTATION, MAINTEN ANCE WITH RESPECT TO ICS AS PER THE SPECIFICATIONS PRESCRIBED BY THE AES. FURTHER, E-I NFOCHIPS BEARS ENTREPRENEURIAL RISKS AND OTHER BUSINESS RISKS WHEREAS NO RISK IS UNDERTA KEN BY THE ASSESSEE IN THIS BEHALF. HE SUBMITTED THAT THE TPO HIMSELF IN ASSESSMENT YEA R 2012-13 AND 2013-14 HAS ITA NO.6247/DEL/2015 13 ACCEPTED THE REJECTION OF THIS COMPANY IN THE TRANS FER PRICING STUDY REPORT. RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ALCATEL-LUCENT INDIA LTD. VS. DCIT, VIDE ITA NO.6856/DEL/2015, ORDER DATED 24.08.2016 , HE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES BY THE TRIBUN AL ON THE GROUND THAT IT EARNS INCOME FROM SOFTWARE PRODUCTS AND SERVICES AND NO S EGMENTAL DATA IS AVAILABLE. HE SUBMITTED THAT THE ABOVE DECISION WAS UPHELD BY THE HON'BLE DELHI HIGH COURT VIDE ITA NO.515/2017, ORDER DATED 18 TH JULY, 2017 . HE ALSO RELIED ON THE FOLLOWING DECISIONS WHERE E-INFOCHIPS WAS EXCLUDED FROM THE L IST OF COMPARABLES:- A) NESS TECHNOLOGIES (INDIA) PVT. LTD. VS. DCIT, ITA N O.696/MUM/2016, ORDER DATED 11.11.2016; B) PHILIPS INDIA LIMITED VS. DCIT AND VICE VERSA VIDE ITA NO.893 & 539/KOL/2016, ORDER DATED 15 TH DECEMBER, 2017, FOR ASSESSMENT YEAR 2011- 12; C) M/S ELECTRONIC IMAGING INDIA PVT. LTD. VS. DCIT, IT A NO.1506/BANG/2015, ORDER DATED 14 TH JULY, 2015 FOR ASSESSMENT YEAR 2011-12; AND VARIOU S OTHER DECISIONS. HE ACCORDINGLY SUBMITTED THAT THIS COMP ANY SHOULD BE REJECTED FROM THE LIST OF COMPARABLES. 21. SO FAR AS SANKHYA INFOTECH LIMITED IS CONCERNED , HE SUBMITTED THAT THIS COMPANY ALSO SHOULD BE EXCLUDED FROM THE LIST OF CO MPARABLES AS IT IS FUNCTIONALLY DISSIMILAR. IT PROVIDES END TO END SIMULATION SOLU TIONS WHICH ARE CUSTOMIZED TO THE END USER AND THE COMPANY HAS DEVELOPED CUSTOMIZABLE PRODUCTS FOR IMPARTING TRAINING WHICH CAN CATER TO ANY INDUSTRY. DURING THIS YEAR, SANKHYA INFOTECH LTD. HAS RECORDED ITA NO.6247/DEL/2015 14 A SUCCESSFUL EXECUTION OF ITS SILICON SUITE OF PROD UCTS FOR THE INDIAN ARMY FOR WHICH THE COMPANY OWNS THE FOLLOWING PRODUCTS:- I) LEARNING MANAGEMENT PRODUCTS; II) TRAINING MANAGEMENT PRODUCTS; III) SIMULATOR PRODUCTS; IV) KNOWLEDGE BASED CONTENT; V) OPTIMIZATION PRODUCTS; VI) SAGE CRM SERVER 200; VII) SERVICE CAPTURE; VIII) TALLY 9 GOLD MULTI USER; IX) TEAMPRISE / ECLIPSE 3.0; X) VSTUDIO TEAM ED (5 USERS); XI) ADOBE NOG ELIXIR WITH MEDIA KIT; XII) DEVICE LOCK SOFTWARE; AND XIII) LOGITEK G 25 MAMING WHEEL. 22. HE SUBMITTED THAT THE SEGMENTS OF SANKHYA INFOT ECH ARE UNRELIABLE SINCE EXPENSES SUCH AS DEPRECIATION AND INTEREST WHICH FO RM A SIGNIFICANT COMPONENT OF TOTAL EXPENSES, ARE NOT SPECIFICALLY ALLOCABLE TO SPECIFI C SEGMENT AS THE UNDERLYING SERVICES ARE USED INTERCHANGEABLY. THE COMPANY HAS ALSO RES EARCH AND DEVELOPMENT ACTIVITIES WHEREAS THE ASSESSEE DOES NOT HAVE SUCH R&D. HE SU BMITTED THAT THE TPO HIMSELF DID NOT SELECT THIS COMPANY AS A COMPARABLE FOR ASSESSM ENT YEAR 2012-13 AND 2013-14 AND ACCORDINGLY HAD ACCEPTED THE ASSESSEES APPROACH OF REJECTION OF THIS COMPANY IN ITS TP STUDIES. REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ALCATEL-LUCENT INDIA LTD. (SUPRA), HE SUBMITTED THA T THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES AND ON APPEAL BY REVENUE, T HE HON'BLE HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL ON THIS ISSUE.. HE ACCORDING LY SUBMITTED THAT THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. ITA NO.6247/DEL/2015 15 23. SO FAR AS LARSEN & TOUBRO INFOTECH LIMITED (L&T ) IS CONCERNED, HE SUBMITTED THAT THERE IS MATERIAL DIFFERENCE IN THE FAR ANALYS IS BETWEEN THE TWO COMPANIES. WHILE L&T OPERATES AS A FULL-FLEDGED RISK TAKING EN TREPRENEUR, THE ASSESSEE COMPANY OPERATES AT MINIMAL RISK AS THE 100% SERVICES ARE P ROVIDED TO AES AND IS REMUNERATED ON A COST PLUS BASIS. L&T HAS GOT SOFTWARE DEVELOP MENT SERVICES AND PRODUCTS WHEREAS THE ASSESSEE IS MAINLY ENGAGED IN SOFTWARE DEVELOPMENT RELATED DESIGN, IMPLEMENTATION AND MAINTENANCE AS PER SPECIFICATION S PROVIDED BY AE. THE ASSESSEE DOES NOT HAVE ANY BRAND/PROPRIETARY PRODUCTS WHILE L&T EARNS SIGNIFICANT REVENUE FROM ONSHORE (53%) AND OFFSHORE (47%) SERVICES. TH E ASSESSEE HAS NO ONSITE OPERATIONS. L&T HOLDS INTANGIBLE ASSETS SUCH AS SO FTWARE, BUSINESS RIGHT, CAPITAL WORK-IN-PROGRESS AMOUNTING TO RS.103.83 CRORE WHERE AS THE ASSESSEE DOES NOT OWN ANY BRAND. HE SUBMITTED THAT L&T DURING THE IMPUGN ED FINANCIAL YEAR HAS STRENGTHENED ITS BUSINESS IN CANADA BY ACQUIRING A TRANSFER AGENCY BUSINESS FOR CANADIAN $ 62.3 MILLION FROM A GLOBALLY REPUTED BAN K SERVICING LOCAL CLIENTS REPRESENTED BY ASSET MANAGEMENT COMPANIES, BANKS, I NSURANCE COMPANIES, ETC., WHEREAS THE ASSESSEE HAS NO SUCH ACQUISITION. FURT HER L&T BEARS ENTREPRENEURIAL RISK AND OTHER BUSINESS RISKS WHEREAS THE ASSESSEE HAS N OT UNDERTAKEN ANY RISK. REFERRING TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2010-11, HE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE L IST OF COMPARABLES. FURTHER, THE HON'BLE DELHI HIGH COURT IN THE CASE OF ALCATEL-LUCENT (SUPRA ) HAS UPHELD THE ORDER OF THE TRIBUNAL IN EXCLUDING THIS COMPANY FROM THE LIS T OF COMPARABLES. RELYING ON ITA NO.6247/DEL/2015 16 VARIOUS OTHER DECISIONS PLACED IN THE SYNOPSIS, HE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. HE ACCORDINGLY SUBMITTED THAT THIS COMPANY ALSO SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 24. SO FAR AS PERSISTENT SYSTEMS AND SOLUTIONS LTD. IS CONCERNED, HE SUBMITTED THAT THIS COMPANY ALSO OUGHT TO BE REJECTED ON ACCOUNT O F FUNCTIONAL DISSIMILARITY, HUGE RESEARCH AND DEVELOPMENT EXPENDITURE AND ABNORMAL Y EAR OF OPERATIONS. 25. REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ALCATEL-LUCENT INDIA LIMITED (ITA NO.6856/DEL/2015 ), HE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUN T OF FUNCTIONAL DISSIMILARITY AND ON FURTHER APPEAL BY THE REVENUE, THE HON'BLE HIGH COURT IN ITA NO.515/2017 , HAS UPHELD THE ACTION OF THE TRIBUNAL IN EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLES. 26. SO FAR AS INCLUSION OF PERSISTENT SYSTEMS LTD. (PERSISTENT) IS CONCERNED, HE SUBMITTED THAT HERE ALSO THIS COMPANY IS FUNCTIONAL LY DISSIMILAR. WHILE PERSISTENT OPERATES AS A FULL-FLEDGED RISK TAKING ENTREPRENEUR , THE ASSESSEE COMPANY OPERATES AT MINIMAL RISK AS 100% SERVICES ARE PROVIDED TO AES A ND IS REMUNERATED ON A COST PLUS BASIS. PERSISTENT SYSTEMS LTD. IS PREDOMINANTLY EN GAGED IN OUTSOURCED SOFTWARE DEVELOPMENT SERVICES. IT HAS GOT INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS WHEREAS THE ASSESSEE IS MAINLY ENGAGED IN SOFTWARE DEVELOPMENT RELATED TO DESIGN, IMPLEMENTATION AND MAINTENANCE WITH RESPECT TO ICS AS PER SPECIFICATIONS PROVIDED BY ITA NO.6247/DEL/2015 17 THE AE. HE SUBMITTED THAT PERSISTENT HAD ENTERED I NTO ACQUISITION OF OPD BUSINESS OF INFOSPECTRUM INDIA PVT. LTD. AND HAS ENTERED INTO J V WITH SPRINT NEXTEL CORPORATION WHICH HAS BENEFITTED THE COMPANY TO GROW ITS OPERAT IONS. HOWEVER, THE ASSESSEE COMPANY HAS NOT ENTERED INTO ANY SUCH EXTRAORDINARY ACTIVITY DURING THE YEAR. THEREFORE, ON THIS ISSUE ALONE, THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. HE SUBMITTED THAT PERSISTENT HAS HUGE INTANGIBLES WHEREAS THE ASSESSEE DOS NOT OWN BRAND/PROPRIETARY PRODUCTS. WHILE PERS ISTENT BEARS ENTREPRENEURIAL RISK AND OTHER BUSINESS RISK, THE ASSESSEE HAS NOT UNDER TAKEN ANY RISK IN THIS BEHALF. REFERRING TO THE DECISION OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2013-14 AND 2010-11, HE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES. REFERRING TO THE DECISION OF THE HON' BLE DELHI HIGH COURT IN THE CASE OF ALCATEL-LUCENT (SUPRA), HE SUBMITTED THAT THE HON'B LE HIGH COURT HAS UPHELD THE ACTION OF THE TRIBUNAL IN EXCLUDING PERSISTENT SYSTEMS LTD . FROM THE LIST OF COMPARABLES. HE ACCORDINGLY SUBMITTED THAT THIS COMPANY SHOULD BE E XCLUDED FROM THE LIST OF COMPARABLES. 27. SO FAR AS SASKEN COMMUNICATION TECHNOLOGIES LTD . (SASKEN) IS CONCERNED, HE SUBMITTED THAT THIS COMPANY ALSO HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. WHILE SASKEN OPERATES AS A FULL-FLEDGED RISK TAKING ENTREPRENEUR, THE ASSESSEE COMPANY OPERATES AT MINIMAL RISK AS THE 100% OF THE SERVICES ARE PROVIDED TO AES AND IS REMUNERATED ON A COST PLUS BASIS. SASKEN HAS REVENUE EARNING FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS AND NO SEGMENTAL INFORMATION IS AVAILABLE AND HOLDS INVENTORY OF 0.9 5 CRORE AS ON 31 ST MARCH, 2011 ITA NO.6247/DEL/2015 18 WHEREAS THE ASSESSEE IS MAINLY ENGAGED IN SOFTWARE DEVELOPMENT RELATED TO DESIGN, IMPLEMENTATION AND MAINTENANCE WITH RESPECT TO ICS. THE ASSESSEE DOES NOT OWN ANY BRAND OR PROPRIETARY PRODUCTS. HE SUBMITTED THAT S ASKEN HAS INVESTED IN R&D DURING THE YEAR IN MULTI-MEDIA WIRELESS AND BROADBAND AND MOBILE VALUE ADDED SERVICES WHEREAS THE ASSESSEE HAS NOT INCURRED ANY EXPENDITU RE ON R&D. WHILE SASKEN BEARS ENTREPRENEURIAL RISK AND OTHER RISKS, THE ASSESSEE HAS NOT UNDERTAKEN ANY RISK IN THIS BEHALF. REFERRING TO THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S ELECTRONIC IMAGING INDIA PVT LTD., HE SUBMITTED THAT SASKEN WAS EXCLUDED FROM THE LIST OF COMPARABLES. RELYING ON VARIOUS OTHER D ECISIONS COPIES OF WHICH ARE PLACED IN THE PAPER BOOK, HE SUBMITTED THAT SASKEN WAS EXC LUDED FROM THE LIST OF COMPARABLES. 28. SO FAR AS EXCLUSION OF CERTAIN COMPANIES BY THE TPO/DRP IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE OBJECTED TO THE EXCLUSION OF THE FOLLOWING COMPANIES FROM THE LIST OF COMPARABLES BY THE TPO/DRP:- I) R. SYSTEMS INTERNATIONAL LIMITED II) CG-VAK SOFTWARE & EXPORTS LTD. III) CAT TECHNOLOGIES LTD. IV) THINKSOFT GLOBAL SERVICES LTD. V) CALIBER POINT BUSINESS SOLUTIONS LTD. VI) MAVERIC SYSTEMS LTD. ITA NO.6247/DEL/2015 19 29. SO FAR AS R. SYSTEMS INTERNATIONAL LTD. IS CONC ERNED, HE SUBMITTED THAT THIS HAS BEEN EXCLUDED BY THE TPO SOLELY ON THE GROUND OF IT S FINANCIAL YEAR BEING CALENDAR YEAR. REFERRING TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11, HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT THE COMPARABLES CANNOT BE REJECTED MERELY ON THE GROUND THAT FINANCIAL YEAR FOLLOWED IS DIFFERENT. REFERRING TO THE DECISION OF THE HON'BL E DELHI HIGH COURT IN THE CASE OF MCKINSEY KNOWLEDGE IN ITA NO.217/2014, ORDER DATED 27 TH MARCH, 2015 AND IN THE CASE OF BAXTER INDIA PVT. LTD., ITA 260/2018, ORDER DATED 2 7 TH FEBRUARY, 2018 , HE SUBMITTED THAT THIS COMPANY WAS DIRECTED TO BE INCL UDED ON THE GROUND THAT IF FROM THE AVAILABLE DATA ON RECORD, THE RESULTS FOR FINANCIAL YEAR CAN REASONABLY BE EXTRAPOLATED, THEN, THE COMPANIES CANNOT BE EXCLUDED. HE ACCORDI NGLY SUBMITTED THAT R. SYSTEMS INTERNATIONAL LTD. SHOULD BE DIRECTED TO BE INCLUDE D IN THE LIST OF COMPARABLES. 30. SO FAR AS CG VAK SOFTWARE & EXPORTS LTD. IS CON CERNED, HE SUBMITTED THAT THE TPO HAS REJECTED THIS COMPANY AS IT IS MAKING PERSI STENT LOSSES IN SOFTWARE SERVICES SEGMENT. HE SUBMITTED THAT THIS COMPANY IS NOT MAK ING PERSISTENT LOSSES AND HAS EARNED PROFIT IN ONE OF THE TWO PRECEDING YEARS. F URTHER, THIS COMPANY WAS ACCEPTED BY THE TPO AS A COMPARABLE FOR ASSESSMENT YEARS 200 9-10 AND 2013-14. 31. SO FAR AS CAT TECHNOLOGIES LTD. IS CONCERNED, H E SUBMITTED THAT THE COMPANY EARNED REVENUE FROM INFORMATION TECHNOLOGY SERVICES AND, THEREFORE, SHOULD BE ACCEPTED AS A COMPARABLE. REFERRING TO THE DECISIO N OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10, HE SUBMITTED THAT THIS COMPANY WAS ACCEPTED AS A ITA NO.6247/DEL/2015 20 COMPARABLE BY THE TRIBUNAL. ON APPEAL BY THE REVENU E, THE HON'BLE HIGH COURT HAS UPHELD THE ORDER OF THE TRIBUNAL. FURTHER, THE COM PANY IS ALSO SELECTED AS A COMPARABLE BY THE TPO FOR ASSESSMENT YEAR 2010-11. HE ACCORDINGLY SUBMITTED THAT THIS COMPANY SHOULD BE INCLUDED IN THE LIST OF COMP ARABLES. 32. SO FAR AS THINKSOFT GLOBAL SERVICES LTD. IS CON CERNED, HE SUBMITTED THAT THE TPO REJECTED THE SAME ON THE GROUND THAT IT IS FUNC TIONALLY DISSIMILAR AS IT PROVIDES SOFTWARE VALIDATION AND VERIFICATION SERVICES WHICH IS PART OF SOFTWARE DEVELOPMENT SERVICES WHEREAS THE FUNCTIONS OF THE ASSESSEE ARE HIGH IN FUNCTIONAL HIERARCHY. HE SUBMITTED THAT THE ASSESSEE IS NOT ENGAGED IN HIGH END ACTIVITY AND IS A ROUTINE AND INTERMEDIARY AS IT PROVIDES SOFTWARE DEVELOPMENT AN D DESIGN SERVICES AS PER THE SPECIFICATIONS PROVIDED BY THE AE. THEREFORE, THIS COMPANY SHOULD BE CONSIDERED AS A COMPARABLE. REFERRING TO THE DECISION OF THE BANGA LORE BENCH OF THE TRIBUNAL IN THE CASE OF FINASTRA SOFTWARE SOLUTIONS LTD. VIDE IT(TP)A NO.529/BANG/2016 , HE SUBMITTED THAT THIS COMPANY WAS ACCEPTED AS A COMPA RABLE. SIMILAR VIEW HAS BEEN TAKEN BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S MARVELL INDIA PVT. LTD., ITA NO.384/BANG/2016, ORDER DATED 28 TH JUNE, 2017 FOR ASSESSMENT YEAR 2011- 12 . HE SUBMITTED THAT THIS COMPANY IS ACCEPTED BY TH E TPO AS A COMPARABLE FOR ASSESSMENT YEAR 2010-11. HE ACCORDINGLY SUBMITTED THAT THIS COMPANY SHOULD BE RETAINED AS A COMPARABLE. 33. SO FAR AS CALIBER POINT BUSINESS SOLUTIONS LTD. IS CONCERNED, HE SUBMITTED THAT THE TPO REJECTED THIS COMPANY FROM THE LIST OF COMP ARABLES ON THE GROUND THAT IT ITA NO.6247/DEL/2015 21 PROVIDES BPO SERVICES AND, THEREFORE, IS NOT COMPAR ABLE. FURTHER, THIS COMPANY DOES NOT PASS THE DIFFERENT FINANCIAL YEAR ENDING FILTER . HE SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 HAS HELD THAT THE COMPARABLE CANNOT BE REJECTED MERELY ON THE GROUND THAT FINANCIAL YEA R FOLLOWED IS DIFFERENT. REFERRING TO THE VARIOUS DECISIONS INCLUDING THAT OF HON'BLE DE LHI HIGH COURT IN THE CASE OF MCKINSEY KNOWLEDGE CENTRE INDIA (P) LTD., ITA NO.21 7/2014 , HE SUBMITTED THAT THIS COMPANY SHOULD BE RETAINED AS A COMPARABLE SINCE FR OM THE AVAILABLE DATA ON RECORD, THE RESULTS FOR F.Y. CAN REASONABLY BE EXTRAPOLATED . 34. SO FAR AS MAVERIC SYSTEMS LTD. IS CONCERNED, HE SUBMITTED THAT THE TPO REJECTED THE SAME ON THE GROUND THAT THIS COMPANY HAS INCURR ED HIGHER INDIRECT COST IN THIS YEAR AND ALSO INCURRED COST ON ESTABLISHING DELIVERY MEC HANISMS. HE SUBMITTED THAT THE TPO HAS NOT DEMONSTRATED THAT ANY INDIRECT COST IS INVOLVED AND ITS IMPACT ON THE NET MARGIN. HE SUBMITTED THAT THE REVENUE OF THE COMPAN Y HAS INCREASED IN THE YEAR OVER THE PREVIOUS YEAR. FURTHER, THE COMPANY PASSES ALL THE FILTERS APPLIED BY THE TPO HIMSELF AND, THEREFORE, THIS COMPANY SHOULD BE TAKE N AS A COMPARABLE. HE SUBMITTED THAT THE TPO HIMSELF IN ASSESSEES OWN CASE FOR ASS ESSMENT YEAR 2010-11 HAS ACCEPTED MAVERIC SYSTEMS LTD. AS A COMPARABLE. HE ACCORDING LY SUBMITTED THAT THIS COMPANY SHOULD BE ACCEPTED AS A COMPARABLE COMPANY. 35. SO FAR AS BENEFIT OF RISK ADJUSTMENT IS CONCERN ED AS PER GROUND OF APPEAL NO.4, HE SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2010-11 HAS GRANTED THE BENEFIT OF RISK ADJUSTMENT FOR ASSESSME NT YEAR 2010-11 AND 2013-14. ITA NO.6247/DEL/2015 22 FURTHER, THE DELHI BENCH OF THE TRIBUNAL IN THE CAS E OF HYUNDAI ROTEM COMPANY VIDE ITA NO.510/DEL/2016, ORDER DATED 22.11.2017 , HAS HELD THAT THE ASSESSEE IS ENTITLED FOR RISK ADJUSTMENT TO THE NET MARGIN OF COMPARABLES FO R BRINGING THEM AT PAR WITH THE TAX PAYER. RELYING ON VARIOUS OTHER DECISIONS, HE SUBM ITTED THAT THE ASSESSEE IS ENTITLED TO RISK ADJUSTMENT. HE, HOWEVER, SUBMITTED THAT HE HA S NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS AS PER ASSESSMENT YEAR 2010-11 AND 2013-14. 36. SO FAR AS GROUND OF APPEAL NO.5 IS CONCERNED, T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 AND 2010-11 HAS DECIDED ON THE TREATMENT OF TIME BASED SOFTWARE LICENCE IN FAVOUR OF THE ASSESSEE HOLDING THAT THE EXPENSES OF TIME BASED SO FTWARE LICENCE ARE REVENUE IN NATURE WHICH ARE INCURRED FOR THE PURPOSE OF BUSINESS. FU RTHER, THE TRIBUNAL HAS ALSO HELD THAT THE AFORESAID ONE TIME EXPENDITURE CANNOT BE DEFERR ED AS SUCH AND ARE REVENUE EXPENSES TO RUN THE BUSINESS. HE SUBMITTED THAT IF THE GROUND OF APPEAL NO.5 IS DECIDED IN FAVOUR OF THE ASSESSEE, THEN, GROUND OF APPEAL NO.6 BECOME INFRUCTUOUS. 37. SO FAR AS GROUND OF APPEAL NO.7 IS CONCERNED, H E SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 AND 2010-11 HAS DECIDED THE ISSUE OF ALLOWABILITY OF TRAINING EXPENSES AS REVENUE IN NAT URE. WHILE DOING SO, THE TRIBUNAL HAS RELIED UPON THE DECISION OF THE HON'BLE DELHI H IGH COURT IN THE CASE OF CIT VS. MUNJAL SHOWA LTD. REPORTED IN 329 ITR 449 . HE ACCORDINGLY SUBMITTED THAT THE EXPENDITURE ON TRAINING OF EMPLOYEES AMOUNTING TO R S.9,85,574/- SHOULD BE ALLOWED AS ITA NO.6247/DEL/2015 23 REVENUE EXPENDITURE. HE SUBMITTED THAT IF THE SAME IS ALLOWED AS REVENUE EXPENDITURE, THEN, GROUNDS OF APPEAL NO.8 AND 9 BECOME INFRUCTUO US. 38. SO FAR AS GROUND OF APPEAL NO.10 IS CONCERNED, HE SUBMITTED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON GOODWILL AMOUNTING TO R S.2,45,01,457/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN ACCORDANCE WITH THE D ECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD. REPORTED IN 24 TAXMANN.COM 22 2 . HE SUBMITTED THAT THE DRP FOLLOWING THE DECISION OF HO N'BLE SUPREME COURT IN GOETZE (INDIA) LTD. REPORTED IN 284 ITR 323 , REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT CLAIM SUCH DEPRECIATION O N GOODWILL IN ITS RETURN OF INCOME. HE SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2009-10 AND 2010-11, HAS DECIDED THE ISSUE REGARDING THE NO N-APPLICABILITY OF THE HON'BLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD . AND HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE-EXA MINE THE ISSUE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD. HE ACCORDINGLY SUBM ITTED THAT HE HAS NO OBJECTION IF THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS. 39. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORT ED THE ORDER OF THE ASSESSING OFFICER/TPO/DRP. HE SUBMITTED THAT THE DRP, AFTER CONSIDERING THE VARIOUS ARGUMENTS ADVANCED BY THE ASSESSEE DURING THE COURS E OF HEARING HAS GIVEN CATEGORICAL FINDINGS AS TO WHY CERTAIN COMPARABLES ARE TO BE IN CLUDED OR TO BE EXCLUDED. SO FAR AS THE OTHER ISSUES ARE CONCERNED, THE LD. DR HEAVILY RELIED ON THE ORDER OF THE DRP AND SUBMITTED THAT THEY HAVE GIVEN JUSTIFIABLE REASONS FOR REJECTING VARIOUS CONTENTIONS ITA NO.6247/DEL/2015 24 RAISED BY THE ASSESSEE WHICH IS SELF EXPLANATORY. HE ACCORDINGLY SUBMITTED THAT THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 40. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONS IDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE DURING THE IMPUGNE D ASSESSMENT YEAR HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS AE AMOUNTING TO RS.2,14,75,27,845/- BEING PROVISION OF IC DESIGN AND SOFTWARE DEVELOPMENT SERVICES. TH E ASSESSEE ADOPTED TNMM AS THE MOST APPROPRIATE METHOD AND THE PLI WAS DETERMINED AT OPERATING PROFIT (OP)/OPERATING COST (OC) OF 8.68% WHEREAS OP/OC OF THE ASSESSEE WAS AT 5.43%. ACCORDINGLY, IT WAS ARGUED THAT THE ALP OF THE INTE RNATIONAL TRANSACTION IS AT ARMS LENGTH. HOWEVER, THE TPO, REJECTING THE VARIOUS AR GUMENTS OF THE ASSESSEE APPLIED CERTAIN OTHER FILTERS AND EXCLUDED CERTAIN COMPARAB LES FOR BENCHMARKING THE INTERNATIONAL TRANSACTION AND ARRIVED AT AN AVERAGE OF 21.49% AND ACCORDINGLY PROPOSED AN ADJUSTMENT OF RS.35,31,33,463/- BEING T HE ALP OF THE INTERNATIONAL TRANSACTION. WE FIND THE DRP GAVE CERTAIN DIRECTIO NS BASED ON WHICH THE ASSESSING OFFICER FINALLY TOOK 17 COMPARABLES WITH AVERAGE MA RGIN OF 21.03% AND AFTER CONSIDERING THE MARGIN OF THE ASSESSEE AT 7.82% FIN ALLY MADE ADJUSTMENT OF RS.26,32,08,740/- TO THE ALP OF THE INTERNATIONAL T RANSACTION. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE COMPANY WORKS AS PER THE SPECIFICATION PROVIDED BY THE GROUP ON A COST PLUS BASIS AS PER THE MASTER SERVICE AGREEMENT DATED 31 ST AUGUST, 2008 WITH ST-ERICSSON SA. IT PERFORMS THE LIMITED ITA NO.6247/DEL/2015 25 FUNCTIONS IN THE INTERMEDIATE STAGE OF THE DESIGN A ND SOFTWARE DEVELOPMENT FOR THE AES. SINCE THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY HAS BEEN ACCEPTED BY THE COORDINATE BENCHES OF THE TRIBUNAL IN ASSESSEES OW N CASE FOR ASSESSMENT YEAR 2009- 10 AND 2010-11 AND SINCE THE FACTS OF THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS OF THE ASSESSEE FOR ASSESSMENT YEAR 2009- 10, THEREFORE, IN VIEW OF THE DECISION OF THE TRIBUNAL, CERTAIN COMPARABLES INCLU DED BY THE ASSESSING OFFICER/TPO/DRP SHOULD BE EXCLUDED. SIMILARLY, IT I S ALSO HIS ARGUMENT THAT CERTAIN COMPARABLES WHICH WERE EXCLUDED BY THE TPO/DRP SHOU LD NOT HAVE BEEN EXCLUDED AND SHOULD BE RETAINED. 41. WITH THE ABOVE BACKGROUND, WE WILL CONSIDER EAC H COMPARABLE. 42. SO FAR AS PERSISTENT SYSTEMS LTD. IS CONCERNED, WE FIND FROM THE DETAILS PRODUCED BY THE ASSESSEE IN THE PAPER BOOK THAT THI S COMPANY OPERATES AS A FULL- FLEDGED RISK TAKING ENTREPRENEUR AND IS PREDOMINANT LY ENGAGED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES. IT HAS GOT INCOME FR OM SALE OF SOFTWARE SERVICES AND PRODUCTS AND THE COMPANY HAS DISCLOSED SEGMENT INFO RMATION ONLY ON THE BASIS OF THE CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE PRESENT ED TOGETHER WITH THE UNCONSOLIDATED FINANCIAL STATEMENTS. FURTHER IT HA S ACQUIRED THE OPD BUSINESS OF INFOSPECTRUM INDIA PVT. LTD. AND HAS ENTERED INTO J V WITH SPRINT NEXTEL CORPORATION. THE ABOVE COMPANY FURTHER HOLDS HUGE INTANGIBLES AN D ALSO BEARS ENTREPRENEURIAL RISK AND OTHER BUSINESS RISKS. HOWEVER, THE ASSESSEE CO MPANY OPERATES AT MINIMAL RISK AS THE 100% SERVICES ARE PROVIDED TO AES AND IS REMUNE RATED ON A COST PLUS BASIS. FURTHER, THE ASSESSEE IS MAINLY ENGAGED IN SOFTWARE DEVELOPMENT RELATED TO DESIGN, ITA NO.6247/DEL/2015 26 IMPLEMENTATION AND MAINTENANCE WITH RESPECT TO ICS AS PER SPECIFICATIONS PROVIDED BY THE AE. IT HAS NOT ENTERED INTO ANY EXTRAORDINARY ACTIVITY AND DOES NOT OWN ANY BRAND OR PROPRIETARY PRODUCTS. FURTHER, NO RISK HAS BEEN UNDERTAKEN BY THE ASSESSEE DURING THE YEAR. IN VIEW OF THE ABOVE, WE ARE OF THE CONS IDERED OPINION THAT PERSISTENT SYSTEMS LTD. CANNOT BE CONSIDERED AS A COMPARABLE. WE FURTHER FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-14 AND 2010-11 HAS DIRECTED THE ASSESSING OFFICER/TPO/ TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. THE HON'BLE DELHI HIGH COURT IN THE CASE OF ALCATEL LUC ENT INDIA LTD. HAS ALSO UPHELD THE ACTION OF THE TRIBUNAL IN EXCLUDING PERSISTENT SYST EMS LTD. AS A COMPARABLE FOR THE PURPOSE OF DETERMINATION OF THE ALP OF THE INTERNAT IONAL TRANSACTION ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES WHEN COMPARED WITH THE A SSESSEE. IN VIEW OF THE ABOVE, WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE PERSIST ENT SYSTEMS LTD. FROM THE LIST OF COMPARABLES. 43. SO FAR AS THIRDWARE SOLUTIONS LTD. IS CONCERNED , A PERUSAL OF THE SCHEDULE-12 SALES, COPY OF WHICH IS PLACED AT PAGE 1510, VOLUME III OF THE PAPER BOOK, SHOWS THE FOLLOWING DETAILS:- SCHEDULE 12: SALES EXPORT FROM SEZ UNIT 617,464,837 475,840,447 EXPORT FROM STPI UNIT 70,626,764 112,090,633 REVENUE FROM SUBSCRIPTION 19,602,931 15,313,736 SALE OF LICENCE 33,814,861 15,138,618 SOFTWARE SERVICES 47,509,261 57,223,072 44. THIS COMPANY IS ENGAGED IN IMPLEMENTATION AND C ONSULTING SERVICES OF SOFTWARE BASED ON ERP AND BUSINESS INTELLIGENCE. WE FIND U NDER IDENTICAL CIRCUMSTANCES THIS ITA NO.6247/DEL/2015 27 COMPANY WAS EXCLUDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 BY OBSERVING AS UNDER:- THIRDWARE SOLUTIONS LTD. (THIRDWARE) 47. THE TAXPAYER SOUGHT EXCLUSION OF THIRDWARE ON G ROUND OF FUNCTIONAL DISSIMILARITY BEING ENGAGED INTO SALE OF SOFTWARE P RODUCTS AND ON THE GROUND THAT THIRDWARE HAS BEEN ORDERED TO BE EXCLUDED BY THE CO ORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER'S OWN CASE FOR AY 2009-10 (SUP RA). UNDISPUTEDLY, THERE IS NO CHANGE IN THE FUNCTIONAL PROFILE OF THE TAXPAYER SINCE AY 2009-10. COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER'S OWN CASE FOR AY 2009-10 ORDERED TO EXCLUDE THIRDWARE BY RETURNING FOLLOWING FINDINGS :- '47. THIS IS AGAIN TPO'S OWN COMPARABLE AND ASSESSE E SOUGHT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND OF NON-COMPARABLE SERVICES I.E APPLICATION IMPLEMENTATION, MANAGEMENT AND DEVE LOPMENT SERVICES. TPO REJECTED OBJECTIONS RAISED BY THE ASSESSEE BY OBSER VING THAT SOFTWARE DEVELOPMENT, IMPLEMENTATION AND SUPPORT SERVICES AR E VARIOUS SUB-SEGMENTS OF SOFTWARE DEVELOPMENT SERVICES ONLY AND REQUIRE EMPL OYMENT OF SOFTWARE ENGINEERS AND RETAINED THIS COMPANY AS A COMPARABLE FOR BENCHMARKING INTERNATIONAL TRANSACTIONS. 48. HOWEVER, PERUSAL OF THE ANNUAL REPORT OF THIS C OMPANY, AVAILABLE AT PAGE 1735 TO 1782 OF THE PAPER BOOK VOL.IV, GOES TO PROV E THAT THE SUBSTANTIAL REVENUE OF THIS COMPANY IS FROM SALES AND OPERATING SALES OF LICENCE; SOFTWARE SERVICES, EXPORT FROM SEZ UNIT, EXPORT FROM STPI UN IT AND REVENUE FROM SUBSCRIPTION. IT IS ALSO APPARENTLY CLEAR THAT SOFT WARE SERVICES SEGMENT ACCOUNTS FOR RS.8.91 CRORES OUT OF THE TOTAL SALES OF RS.77 CRORES WHEREAS SEGMENTAL RESULTS ARE NOT AVAILABLE. SO, WHEN THIS COMPANY'S SUBSTANT IAL REVENUE IS FROM OTHER VARIOUS BUSINESS SEGMENTS LIKE SALE OF LICENCE, SOF TWARE SERVICES AND SEGMENTAL RESULTS ARE NOT AVAILABLE, THIS COMPANY CANNOT BE A VALID COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTION, HENCE O RDERED TO BE EXCLUDED.' 48. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, IN TH E FACE OF THE FACT THAT THIRDWARE IS HAVING SUBSTANTIAL REVENUE FROM SALES AND OPERATING SALES OF LICENCE; SOFTWARE SERVICES; EXPORT FROM SEZ UNIT; E XPORT FROM STPI UNIT; AND REVENUE FROM SUBSCRIPTION AND ITS SEGMENTAL RESULTS ARE NOT AVAILABLE, IT IS FUNCTIONALLY INCOMPARABLE, SO IT CANNOT BE TAKEN AS A VALID COMPARABLE. HENCE, WE ORDER TO EXCLUDE THE SAME. ITA NO.6247/DEL/2015 28 45. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE, WE HOLD THAT THIRDWARE SOLUTIONS LTD. CANNOT BE CONSID ERED AS A COMPARABLE. WE ACCORDINGLY DIRECT THE TPO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. 46. SO FAR AS WIPRO TECHNOLOGY SERVICES LTD. IS CON CERNED, WE FIND THIS COMPANY WAS REJECTED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 BY OBSERVING AS UNDER:- WIPRO TECHNOLOGY SERVICES LTD. (WIPRO) 36. THE TAXPAYER SOUGHT EXCLUSION OF WIPRO ON THE G ROUND THAT IT INVOLVED IN PROVIDING SOFTWARE RELATED SERVICES TO ITS SOLE CUS TOMER CITI GROUP ENTITIES WHICH WERE ACQUIRED BY WIPRO AND HAS SIGNED A MASTER SERV ICE AGREEMENT WITH CITI GROUP FOR THE DELIVERY OF SERVICES FOR A PERIOD OF SIX YEARS; THAT WIPRO'S TRANSACTION WITH CITI GROUP FALLS WITHIN THE AMBIT OF SECTION 92B (2) AND AS SUCH, IS DEEMED INTERNATIONAL TRANSACTION AND HAS RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN CASHEDGE INDIA PVT. LTD. IN ITA 279/2016 ORDER DATED 04.05.2015, DECISIONS RENDERED BY THE TRIBUNAL IN O PEN SOLUTIONS SOFTWARE SERVICES PVT. LTD. FOR AY 2010-11 (ITA NO.7078/DEL/ 2014) AND EQUANT SOLUTIONS INDIA PVT. LTD. FOR AY 2010-11. 37. BARE PERUSAL OF THE ANNUAL REPORT OF WIPRO, AVA ILABLE AT PAGE 1545 OF PAPER BOOK-III, SHOWS THAT WIPRO IS PROVIDING SOFTWARE RE LATED SERVICES TO ITS SOLE CUSTOMER CITI GROUP AS PER MASTER SERVICE AGREEMENT (MSA) DATED 21.01.2009. MSA PROVIDES FOR THE DELIVERY OF AT LEAST $ 500 MI LLION IN SERVICE REVENUES OVER THE PERIOD OF THE CONTRACT. SO, THE WIPRO IS INTO C ONTROLLED TRANSACTIONS WITH ITS SOLE CUSTOMER. FURTHERMORE, WHEN WE EXAMINE BUSINES S TRANSACTIONS BETWEEN WIPRO AND CITI GROUP COMPANIES IN THE LIGHT OF THE MSA, SUCH TRANSACTIONS ARE DEEMED INTERNATIONAL TRANSACTIONS U/S 92B (2) OF TH E ACT. 38. HON'BLE DELHI HIGH COURT IN CASE OF CASHEDGE IN DIA PVT. LTD. (SUPRA) CONFIRMED THE FINDINGS RETURNED BY COORDINATE BENCH OF THE TRIBUNAL DIRECTING TO EXCLUDE WIPRO AS A COMPARABLE VIS-- VIS CASHEDGE W HICH IS ALSO INTO BUSINESS OF SOFTWARE DEVELOPMENT BY RETURNING FOLLOWING FINDING S :- '6. ......AS FAR AS THE WIPRO TECHNOLOGY SERVICES G OES, IT WAS PART OF THE CITI GROUP AND WAS DURING THE FINANCIAL YEAR IN QUESTION ACQUIRED ON 21.01.2009 BY THE WIPRO LTD. AS A SUBSIDIARY. AS A PART OF THE AR RANGEMENT, THE EXISTING CONTRACTS PERTAINING TO THE WORK OF THE CITI GROUP CONTINUED TO BE WITH THE NEWLY CREATED ENTITY, I.E., WIPRO TECHNOLOGY SERVICES. EQ UALLY IMPORTANTLY, IS THAT THERE ITA NO.6247/DEL/2015 29 WAS NO PUBLISHED SEGMENTED DATA AS FAR AS SOFTWARE DEVELOPMENT OR ITS FINANCES WERE CONCERNED WITH RESPECT TO WIPRO TECHNOLOGY SER VICES. IN THESE CIRCUMSTANCES, THE FINDINGS OF THE ITAT ARE PURELY FACTUAL AND CANNOT BE GONE INTO AS NO SUBSTANTIAL QUESTION OF LAW ARISES FOR C ONSIDERATION.' 39. SIMILARLY, COORDINATE BENCH OF THE TRIBUNAL IN CASE CITED AS OPEN SOLUTIONS SOFTWARE SERVICES PVT. LTD. (SUPRA) EXAMINED THE CO MPARABILITY OF WIPRO AVIS- AVIS OPEN SOLUTIONS SOFTWARE SERVICES PVT. LTD. ENG AGED IN SOFTWARE DEVELOPMENT, RESEARCH AND OTHER RELATED SERVICES AN D FOUND THE SAME TO BE INVALID COMPARABLE IN THE LIGHT OF THE PROVISIONS C ONTAINED U/S 92B(2) OF THE ACT BY RETURNING FOLLOWING FINDINGS :- 'THE AFORESAID PROVISION CLEARLY ENVISAGES THAT, IF A TRANSACTION HAS BEEN ENTERED INTO BY AN ENTERPRISE WITH UNRELATED PARTY, THEN FO R THE PURPOSE OF SECTION 92B(1) IT IS DEEMED TO BE TRANSACTION ENTERED INTO BETWEE N RELATED PARTIES (TWO A.ES) IF THERE EXISTS PRIOR AGREEMENT IN RELATION T O THE RELEVANT TRANSACTION BETWEEN THIRD PARTY AND THE A.E. IN OTHER WORDS, AS PER TERMS OF SECTION 92B(2) , EVEN IF THE TRANSACTION IS BETWEEN UNRELATED PARTY AND AN ENTERPRISE, THEN, IT WOULD BE DEEMED TO BE AN INTERNATIONAL TRANSACTION IF THERE WAS ANY PRIOR AGREEMENT BETWEEN THE RELATED PARTIES ON THE BASIS OF WHICH PRESENT TRANSACTION IS BEING UNDERTAKEN.' 40. SO, WHEN WIPRO HAS RECEIVED THE REVENUE BY VIRT UE OF MSA WITH CITI GROUP ON ACCOUNT OF PRE-ARRANGEMENT, IT IS DEEMED TO BE I NTERNATIONAL TRANSACTIONS AND IN THESE CIRCUMSTANCES, WIPRO FAILS RPT FILTER APPL IED BY THE TPO. 41. LD. DR FOR THE REVENUE IN ORDER TO REPEL THE AR GUMENTS ADDRESSED BY THE LD. AR FOR THE ASSESSEE CONTENDED THAT IN THE ANNUAL RE PORT IN THE RELATED PARTY TRANSACTIONS, NOWHERE THE NAME OF CITI GROUP ENTITI ES HAVE BEEN MENTIONED AS RELATED PARTY AND AS SUCH, THIS COMPARABLE DOES NOT FAIL RPT FILTER BY VIRTUE OF PROVISIONS OF SECTION 92B(2) OF THE ACT. 42. HOWEVER, THIS CONTENTION OF THE LD. DR IS NOT S USTAINABLE BECAUSE THIS ISSUE HAS ALREADY BEEN EXAMINED AT LENGTH BY THE COORDINA TE BENCH OF THE TRIBUNAL IN OPEN SOLUTIONS SOFTWARE SERVICES PVT. LTD. (SUPRA) AND IN THE LIGHT OF THE MSA ENTERED INTO BETWEEN WIPRO AND CITI GROUP W.E.F. 21 .01.2009, RELATED PARTY TRANSACTION IS PROVED AND PROVISIONS CONTAINED U/S 92B(2) ARE ATTRACTED. SO, THERE IS NO COGENT FACTUAL AND LEGAL REASON TO DEPART FRO M THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN OPEN SOLUTIONS SOFTWARE SERVICES PVT. LTD. (SUPRA). 43. SO, WHEN THE ENTIRE REVENUE IS RECEIVED BY THE TAXPAYER BY VIRTUE OF MSA ENTERED INTO WITH CITI GROUP SERVICES WHICH IS ALSO ITS SUBSIDIARY, THE BENEFIT ACCRUING TO THIS COMPANY ON THE BASIS OF BRAND NAME OF WIPRO CANNOT BE DENIED. SO, IN THESE CIRCUMSTANCES, WE FIND WIPRO AS UNSUIT ABLE COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS AND EXC LUDE THE SAME FROM THE FINAL SET OF COMPARABLES. ITA NO.6247/DEL/2015 30 47. SINCE WIPRO TECHNOLOGY SERVICES LTD. IS ENGAGED IN SOFTWARE RELATED SUPPORT SERVICES, PRIMARILY INFORMATION TECHNOLOGY SOFTWARE SOLUTIONS/MAINTENANCE AND TECHNOLOGY INFRASTRUCTURE SUPPORT SERVICES TO CITI GROUP ENTITIES GLOBALLY, THEREFORE, THIS COMPANY, IN OUR OPINION, CANNOT BE CONSIDERED AS A COMPARABLE. FURTHER, THE HON'BLE DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. VIDE ITA NO.447/2018, ORDER DATED 13.04.2018 , HAS OBSERVED AS UNDER:- THE QUESTION OF LAW URGED BY THE REVENUE WITH RESP ECT TO THE EXCLUSION OF A COMPARABLE I.E. WIPRO TECHNOLOGY SERVICES LIMITED I N THE ARMS LENGTH PRICE (ALP) DETERMINATION, OF THE ASSESSEE IS THAT THE SA ID ENTITY REPORTED ABNORMALLY HIGH PROFITS AND HAD A LARGE TURNOVER AND HAD THE B ENEFIT OF STRONG BRAND PRESENCE. IT IS ALSO FOUND THAT THE ENTITY (WIPRO T ECHNOLOGY) HAD UNDERGONE RESTRUCTURING WHICH HAD A SIGNIFICANT IMPACT UPON I TS RETURN AND PROFITABILITY. LEARNED COUNSEL SOUGHT TO RELY UPON THE DECISION OF THIS COURT IN CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD. V. DEPUTY COM MISSIONER OF INCOME TAX ( 2015) 376 ITR 183 DEL. THIS COURT IS OF THE OPINION THAT THE ITAT CONCLUSIONS WERE REASONABLE AND JUSTIFIED. A STRONG BRAND PRESE NCE AND UNUSUAL EVENTS SUCH AS AMALGAMATION, MERGER, ETC. WHICH CAN HAVE A MI SERABLE IMPACT AND ARE DISCERNING FROM THE RECORD, ARE REASONABLE GROUNDS FOR EXCLUDING A PARTICULAR COMPARABLE; WHICH WAS A CASE OF WIPRO TECHNOLOGY. T HE TRIBUNAL ALSO NOTED THAT IN SUCH CASES THE ISSUE OF COMPARABLE HAS TO B EEN SEEN FROM THE ROBUST MARKET PRACTICE AS WELL. 48. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT W IPRO TECHNOLOGY SERVICE LTD. CANNOT BE CONSIDERED AS A COMPARABLE. 49. SO FAR AS E-ZEST SOLUTIONS LTD. IS CONCERNED, W E FIND THIS COMPANY WAS REJECTED AS A COMPARABLE BY THE TRIBUNAL IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2010-11 ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. SINCE DU RING THE IMPUGNED ASSESSMENT YEAR ALSO E-ZEST SOLUTIONS LTD. DEALS IN SOFTWARE PRODUC TS AND HOLDS INVENTORY OF RS.1.64 CRORES AND HAS DIVERSIFIED SERVICES, THEREFORE, THI S COMPANY, IN OUR OPINION, CANNOT BE CONSIDERED AS A COMPARABLE AS THERE IS NO CHANGE IN THE FACTS OF E-ZEST FOR ASSESSMENT ITA NO.6247/DEL/2015 31 YEAR 2011-12 VIS--VIS ASSESSMENT YEAR 2010-1. WE FIND, THE TRIBUNAL, WHILE EXCLUDING E-ZEST SOLUTIONS LTD. FOR ASSESSMENT YEAR 2010-11 HAS OBSERVED AS UNDER:- E-ZEST SOLUTIONS LTD. (E-ZEST) 55. THE TAXPAYER SOUGHT EXCLUSION OF E-ZEST ON GROU ND OF FUNCTIONAL DISSIMILARITY BEING INTO BROAD PORTFOLIOS OF SERVIC ES (DIVERSIFIED SERVICES) WITH NO SEGMENTAL REPORTING. PERUSAL OF PROFIT & LOSS ACCOU NT FOR THE YEAR ENDING 31.03.2010, AVAILABLE AT PAGE 1946 OF THE PAPER BOO K - IV SHOWS THAT THE E-ZEST HAS SUBSTANTIAL INCOME FROM OPERATIONS WHEREAS IT H AS THREE BUSINESS SEGMENTS VIZ. PRODUCT ENGINEERING SERVICES/ OUTSOURCED PRODU CT DEVELOPMENT SERVICES, ENTERPRISE APPLICATION DEVELOPMENT AND IT SERVICES. HOWEVER, NO SEGMENTAL INFORMATION IS AVAILABLE. 56. COMPARABILITY OF E-ZEST WAS EXAMINED BY THE COO RDINATE BENCH OF THE TRIBUNAL IN CASE OF ST MICROELECTRONICS PRIVATE LTD . (FORMERLY GENESIS MICROCHIP (INDIA) PVT. LTD. IN IT (TP) A.NO.949/BAN G./2011 ORDER DATED 06.01.2017, AVAILABLE AT PAGE 2459 OF PAPER BOOK - V VIS--VIS ST MICROELECTRONICS PRIVATE LTD., A SOFTWARE DEVELOPME NT SERVICE PROVIDER AND ORDERED TO EXCLUDE THE SAME BY RETURNING FOLLOWING FINDINGS :- '14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES ONLY ON THE BASI S OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMP ANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOF TWARE DEVELOPMENT SERVICES, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., IS RENDERING PR ODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER TH E CATEGORY OF KPO SERVICES. IT HAS BEEN HELD BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINAT E BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS C OMPANY, I.E. E-ZEST SOLUTIONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O. / TPO IS ACCORDINGLY DIR ECTED.' 57. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT E-ZEST CANNOT BE A VALID COMPARABLE ON GROUND OF FU NCTIONAL DISSIMILARITY BEING INTO THREE SEGMENTS WITH NO SEGMENTAL INFORMATION A VAILABLE. SO, WE ORDERED TO EXCLUDE E- ZEST FROM THE FINAL SET OF COMPARABLES. ITA NO.6247/DEL/2015 32 50. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT E-ZEST SOLUTIONS LTD. CANNOT BE CONSIDERED AS A COMPARABLE ON ACCOUNT OF FUNCTIONAL DISSIMILARITY AND ABSENCE OF SEGMENTAL DETAILS. TH E VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IN THE PAPER BO OK ALSO SUPPORTS HIS CASE. ACCORDINGLY, E-ZEST SOLUTIONS LTD. IS DIRECTED TO B E EXCLUDED FROM THE LIST OF COMPARABLES. 51. SO FAR AS TATA ELXSI LTD. IS CONCERNED, WE FIN D THIS COMPANY WAS EXCLUDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 AS WELL AS FOR ASSESSMENT YEAR 2010-11 ON ACCOUNT OF FUNCTIONAL DI SSIMILARITIES. ON FURTHER APPEAL BY THE REVENUE, THE HON'BLE HIGH COURT IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009-10 DISMISSED THE APPEAL FILED BY THE REVENUE. SINCE THIS COMPANY IS ENGAGED IN HIGH END SERVICES, THEREFORE, IT CANNOT BE COMPARED WITH THAT OF THE ASSESSEE COMPANY. IN VIEW OF THE ABOVE AND IN VIEW OF THE CONSISTENT VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10, 2010-11 AND 2 011-12, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 52. SO FAR AS ACROPETAL TECHNOLOGIES LIMITED (SEG.) IS CONCERNED, WE FIND THIS COMPANY IS ENGAGED IN DIVERSIFIED OPERATIONS SUCH A S PROVISION OF ENGINEERING DESIGN SERVICES, INFORMATION LIFE CYCLE, IT INFRASTRUCTURE MANAGEMENT, CLOUD SERVICES ENTERPRISE SOFTWARE SOLUTIONS, ETC. WHICH IS VERIF IABLE FROM THE ANNUAL REPORT. ITS EMPLOYEE COST RATIO FOR THE IMPUGNED ASSESSMENT YEA R IS AT 13.74% AND, THEREFORE, IT FAILS THE EMPLOYEE COST FILTER. WE FIND THIS COMPA NY WAS EXCLUDED AS A COMPARABLE BY ITA NO.6247/DEL/2015 33 THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF PHILIPS INDIA LIMITED VS DCIT VIDE ITA NO.8963 & 539/KOL/2016, ORDER DATED 15 TH DECEMBER, 2017 FOR ASSESSMENT YEAR 2011-12. SIMILARLY, MADRAS BENCH OF THE TRIBUNAL I N THE CASE OF M/S SYMANTEC SOFTWARE & SERVICES INDIA PVT. LTD. (SUPRA) HAS ALS O DIRECTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTION AL DISSIMILARITY. THE VARIOUS OTHER DECISIONS RELIED ON BY LD. COUNSEL ALSO SUPPORTS HI S CASE. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT ACROPETAL TECHNOLOGIES LTD . CANNOT BE CONSIDERED AS A COMPARABLE AND, THEREFORE, THE SAME HAS TO BE EXCLU DED FROM THE LIST OF COMPARABLES. WE HOLD AND DIRECT ACCORDINGLY. 53. SO FAR AS E-INFOCHIPS IS CONCERNED, WE FIND THI S COMPANY OPERATES AS A FULL- FLEDGED RISK TAKING ENTREPRENEUR AND HAS REVENUE FR OM SOFTWARE SERVICES, HARDWARE AND CONSULTANCY CHARGES. IT BEARS ENTREPRENEURIAL RISK S AND OTHER BUSINESS RISKS WHEREAS THE ASSESSEE COMPANY OPERATES AT MINIMAL RISK AS TH E 100% SERVICES ARE PROVIDED TO AES ONLY. THE ASSESSEE IS A CAPTIVE UNIT AND IS R EMUNERATED ON A COST PLUS BASIS. FURTHER, THE ASSESSEE IS MAINLY ENGAGED IN PROVISIO N OF SOFTWARE DEVELOPMENT SERVICES RELATED TO DESIGN, IMPLEMENTATION, MAINTENANCE WITH RESPECT TO ICS AS PER THE SPECIFICATIONS PRESCRIBED BY THE AES. THE ASSESSEE ALSO DOES NOT UNDERTAKE ANY BUSINESS RISK. FURTHER, THE TPO HIMSELF HAS NOT SE LECTED THIS COMPANY AS A COMPARABLE FOR ASSESSMENT YEAR 2012-13 AND 2013-14 AND ACCEPTE D THE REJECTION OF THE COMPANY IN THE TRANSFER PRICING STUDY REPORT. WE FIND THE DELHI BENCH OF THE TRIBUNAL IN ITA NO.6247/DEL/2015 34 ALCATEL-LUCENT INDIA LTD. VS. DCIT VIDE ITA NO.6856 /DEL/2015, ORDER DATED 24 TH AUGUST, 2016 FOR ASSESSMENT YEAR 2011-12 HAS OBSERVED AS UNDER:- '11.1 AS FAR AS GROUND NO. 3.6 OF THE ASSESSES APP EAL IS CONCERNED, THE COMPARABLES ARE BEING TAKEN UP ONE BY ONE AS UNDER (II) E-LNFOCHIPS LTD. - THE ID. AR HAS SUBMITTED TH AT E-LNFOCHIPS IS ENGAGED IN DIVERSIFIED SERVICES LIKE IT ENABLED SERVICES, DEVE LOPMENT OF SOFTWARE PRODUCTS AND SOLUTIONS FOR PRODUCT DESIGN AND DEVELOPMENT, Q UALITY ASSISTANCE AND CERTIFICATION, REENGINEERING, SUSTENANCE AND VOLUME PRODUCTION, SOFTWARE CONSULTING AND MANUFACTURING EVM AND VDB ELECTRONIC BOARD ETC AND IS FUNCTIONALLY DISSIMILAR. THE ID. AR HAS RELIED ON T HE DECISION RENDERED BY THE IT AT DELHI BENCH IN SAXO INDIA PRIVATE LIMITED (ITA N O. 6148/DEL/2015), WHEREIN THE 1TAT DELHI BENCH HAS HELD THAT E-LNFOCH IPS IS TO BE REJECTED AS A COMPARABLE ON THE GROUND THAT IT EARNS INCOME FROM SOFTWARE PRODUCTS AND SERVICES AND NO SEGMENTAL DATA IS AVAILABLE. WE DO FIND FROM THE FAR ANALYSIS THAT ASSESSEE COMPANY IS FUNCTIONALLY DISSIMILAR TO E- LNFOCHIPS AND HENCE FINDING SUPPORT FROM THE DECISION RENDERED BY THE 1 TAT DELHI BENCH IN SAXO INDIA PRIVATE LIMITED (ITA NO. 6148/DEL/2015), WE D IRECT THE TPO TO EXCLUDE THIS COMPARABLE. 54. WE FIND THE HON'BLE DELHI HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL BY HOLDING AS UNDER:- 2.THE QUESTION URGED BY THE REVENUE IS WHETHER THE ITAT ERRED IN DIRECTING THE TPO TO EXCLUDE M/S. E-INFOCHIPS LTD., M/S. LARSEN & TOUBRO LTD., M/S. PERSISTENT SYSTEMS LTD., M/S. INFOSYS LIMITED, SAXO INDIA LTD. AND ZYLOG LTD. FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF DE TERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ON ACCOUNT O F FUNCTIONAL DISSIMILARITY WHEN COMPARED WITH THE ASSESSEE? 3. HAVING HEARD THE LEARNED COUNSEL FOR THE PARTIES , THE COURT FIND THAT THE ITAT HAS ASSIGNED CLEAR AND COGENT REASONS THAT THE ABOV E ENTITIES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. THE FINDINGS ARE FACT UAL AND BASED ON PROPER ANALYSIS AND DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW 55. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD . COUNSEL FOR THE ASSESSEE ALSO SUPPORTS ITS CASE THAT THIS COMPANY HAS TO BE EXCL UDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF NON-AVAILABILITY OF SEGMENTAL REPORT AND HUGE EXPENDITURE INCURRED ON ITA NO.6247/DEL/2015 35 ACCOUNT OF RESEARCH & DEVELOPMENT ACTIVITIES. IN VI EW OF THE ABOVE DISCUSSION, WE HOLD THAT E-INFOCHIPS CANNOT BE CONSIDERED AS A COM PARABLE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. 56. SO FAR AS LARSEN & TOUBRO INFOTECH LTD. (L&T) I S CONCERNED, WE FIND THIS COMPANY OPERATES AS A FULL-FLEDGED RISK TAKING ENTR EPRENEUR AND HAS INCOME FROM SOFTWARE DEVELOPMENT AND SERVICES PRODUCTS. L&T EA RNS SIGNIFICANT REVENUE FROM ON SHORE (53%) AND OFFSHORE (47%) AND IT HOLDS INTANGI BLE ASSETS SUCH AS SOFTWARE BUSINESS RIGHT, CAPITAL WORK-IN-PROGRESS AMOUNTING TO RS.103.83 CRORE. THE COMPANY DURING THE CURRENT FINANCIAL YEAR HAS ACQUIRED A TR ANSFER AGENCY BUSINESS FOR CANADIAN DOLLAR 62.3 MILLION FROM A GLOBALLY REPUTED BANK SE RVICING LOCAL CLIENTS REPRESENTED BY ASSET MANAGEMENT COMPANIES, BANKS, INSURANCE COMPAN IES, ETC. HOWEVER, WE FIND THE ASSESSEE DOES NOT BEAR ENTREPRENEURIAL RISK AND OTH ER BUSINESS RISKS. FURTHER, THE ASSESSEE COMPANY OPERATES AT A MINIMAL RISK AS THE 100% SERVICES ARE PROVIDED TO AES AND IS REMUNERATED ON A COST PLUS BASIS. THE ASSES SEE IS MAINLY ENGAGED IN SOFTWARE DEVELOPMENT RELATED TO DESIGN, IMPLEMENTATION AND M AINTENANCE AS PER SPECIFICATIONS PROVIDED BY AE. THE ASSESSEE DOES NOT OWN ANY BRAN D OR PROPRIETARY PRODUCES AND HAS NO ON SITE OPERATIONS. THE ASSESSEE COMPANY HA S NOT ACQUIRED ANY BUSINESS DURING THE IMPUGNED ASSESSMENT YEAR NOR HAS UNDERTAKEN ANY RISK. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 HAS DISCUSSED THE ISSUE OF EXCLUSION OF L&T AS A COMPARABLE AND HAS RESTORED THE ISSUE T O THE FILE OF ASSESSING OFFICER/TPO FOR DECIDING THE ISSUE AFRESH. RESPECT FULLY FOLLOWING THE DECISION OF THE ITA NO.6247/DEL/2015 36 TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE TPO FOR CONSIDERING THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. THE ASSESSING OFFICER SHALL KEEP IN MIND THE VARIOUS DECISIONS RELIED ON BY THE ASSESSE E INCLUDING THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ALCATEL-LUCENT (SUP RA) AND THE FAR ANALYSIS AND DECIDE THE ISSUE AS PER FACT AND LAW AFTER GIVING D UE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 57. SO FAR AS PERSISTENT SYSTEMS LTD. IS CONCERNED, WE FIND THE COMPANY OPERATES AS A FULL-FLEDGED RISK TAKING ENTREPRENEUR AND IS PRED OMINANTLY ENGAGED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES. IT HAS INCO ME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS AND ALSO ENTERED INTO ACQUISITION OF O PD BUSINESS OF OF INFOSPECTRUM INDIA PVT. LTD. AND HAS ENTERED INTO JV WITH SPRINT NEXTEL CORPORATION WHICH HAS BENEFITTED THE COMPANY TO GROW ITS OPERATIONS. IT OWNS HUGE INTANGIBLES AND ALSO ENTREPRENEURIAL RISK AND OTHER BUSINESS RISKS. HOW EVER, THE ASSESSEE COMPANY OPERATES AT MINIMAL RISK AS THE 100% SERVICES ARE PROVIDED T O AES AND IS REMUNERATED ON A COST PLUS BASIS. IT IS MAINLY ENGAGED IN SOFTWARE DEVEL OPMENT RELATED TO DESIGN, IMPLEMENTATION AND MAINTENANCE WITH RESPECT TO ICS AS PER SPECIFICATIONS PROVIDED BY THE AE. IT HAS NOT ENTERED INTO ANY EXTRAORDINARY ACTIVITY DURING THE YEAR AND DOES NOT OWN ANY BRAND OR PROPRIETARY PRODUCTS. FURTHER, NO ENTREPRENEURIAL OR BUSINESS RISK HAS BEEN UNDERTAKEN BY THE ASSESSEE DURING THE YEAR . WE FURTHER FIND THAT THIS COMPANY WAS EXCLUDED BY THE TRIBUNAL FROM THE LIST OF COMPARABLES IN ASSESSEES OWN ITA NO.6247/DEL/2015 37 CASE FOR ASSESSMENT YEAR 2013-14 VIDE ITA NO.4434/DEL/2018 A ND FOR ASSESSMENT YEAR 2010-11 VIDE ITA NO.609/DEL/2015 . WE FURTHER FIND THE HON'BLE DELHI HIGH COURT IN THE CASE OF ALCATEL-LICENT INDIA LTD. (SUPRA) HAS U PHELD THE DECISION OF THE TRIBUNAL IN DIRECTING THE TPO TO EXCLUDE PERSISTENT SYSTEMS LTD . FROM THE LIST OF COMPARABLES. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. CO UNSEL FOR THE ASSESSEE IN THE CASE LAW CITATIONS ALSO SUPPORTS ITS CASE. WE, THEREFORE, D IRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES O N ACCOUNT OF FAR DIFFERENCES. 58. SO FAR AS PERSISTENT SYSTEMS AND SOLUTIONS LTD. IS CONCERNED, WE FIND THIS COMPANY IS FUNCTIONALLY DIFFERENT SINCE IT PROVIDES SUPPORT IN SOFTWARE DEVELOPMENT, CONSULTANCY AND SYSTEMS INTEGRATION SERVICES TO PER SISTENT GROUP OF COMPANIES AND ALSO ENJOYS THE BENEFIT BEING A PART OF THE SPECIAL ECONOMIC ZONE SCHEME IN INDIA. IT HAS INCURRED HUGE EXPENDITURE ON ACCOUNT OF RESEARC H &DEVELOPMENT ACTIVITIES AND HAS ABNORMAL PROFIT DURING THE YEAR SINCE ITS TURNO VER HAS INCREASED BY 184% AND THE NET PROFIT HAS INCREASED BY 250% FOR THE YEAR ENDIN G 2011. THIS COMPANY WAS EXCLUDED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ALCATEL-LUCENT INDIA LTD. BY OBSERVING AS UNDER:- 10.9 WE HEARD BOTH THE PARTIES AND PERUSED THE REC ORDS. THIS COMPANY IS ENGAGED IN SOFTWARE PRODUCT AND IS DEALING IN OUTSO URCING OF SOFTWARE PRODUCT DEVELOPMENT. BUT, THE ASSESSEE COMPANY IS ENGAGED I N THE BUSINESS OF DIGITAL SWITCHING EQUIPMENT AND RELATED SOFTWARE, CELLULAR EXCHANGE / TRANSMISSION EQUIPMENT AND PROVIDES RELATED SERVICES, INTELLIGEN T NETWORK AND BROADBAND SOLUTIONS, EQUIPMENT AND RELATED SERVICES. THUS, TH E FUNCTIONS OF BOTH THE COMPANIES ARE DIFFERENT. IN FACT IN EARLIER ASSESSM ENT YEAR THE ITAT ALREADY EXCLUDED THIS COMPANY AS COMPARABLE IN ASSESSEES O WN CASE ON ACCOUNT OF FUNCTIONAL DIFFERENCE WHICH WAS CONFIRMED BY THE HO NBLE HIGH COURT. THIS COMPANY WAS MERGED WITH ITS PARENT COMPANY PERSISTE NT SOLUTIONS LIMITED IN ITA NO.6247/DEL/2015 38 THIS YEAR WHICH WAS AN EXTRA ORDINARY EVENT. THEREF ORE, THIS COMPANY HAS TO BE EXCLUDED. WE, THEREFORE, DIRECT TPO TO EXCLUDE THIS COMPANY FROM COMPARABLE. 59. WE FIND THE HON'BLE DELHI HIGH COURT HAS UPHELD THE DECISION OF THE TRIBUNAL ON THIS ISSUE. FURTHER THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ELECTRONIC IMAGING INDIA PVT. LTD. HAS ALSO EXCLUDED THIS COMP ANY FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. THE VARI OUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WHICH ARE PLACED IN TH E PAPER BOOK ALSO SUPPORTS THE CASE THAT PERSISTENT SYSTEMS AND SOLUTIONS LTD. CANNOT BE CONSIDERED AS A COMPARABLE. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER/TPO TO EXC LUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 60. SO FAR AS SANKHYA INFOTECH LTD. IS CONCERNED, W E FIND THIS COMPANY ALSO IS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE CO MPANY. THE COMPANY OVERVIEW AS MENTIONED IN THE NOTES TO ACCOUNTS FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDING 31 ST MARCH, 2011 READS AS UNDER:- SANKHYA INFOTECH LTD. ('SANKHYA) AND ITS 100% OWN ED AND CONTROLLED SUBSIDIARIES, SANKHYA US CORPORATION, SANKHYA SARL, FRANCE AND MAHASENA INFO TECHNOLOGIES INDIA PVT. LTD. (FORMERLY KNOWN A S SANKHYA INFORMATION TECHNOLOGIES INDIA PVT LTD) IS A LEADING SIMULATION AND TRAINING COMPANY. SANKHYA PROVIDES END TO END SIMULATION SOLUTIONS WH ICH ARE CUSTOMIZED TO THE END USER AND THE COMPANY HAS DEVELOPED CUSTOMIZABLE PRODUCTS FOR IMPARTING TRAINING WHICH CAN CATER TO ANY INDUSTRY. 61. FURTHER, THIS COMPANY HAS SIGNED A MEMORANDUM O F UNDERSTANDING WITH DEFENSE PUBLIC SECTOR COMPANY BHARAT ELECTRONICS L IMITED TO COLLABORATE IN THE FIELD OF SIMULATION AND VIRTUAL TRAINING AND HAS ALSO REC ORDED A SUCCESSFUL EXECUTION OF ITS ITA NO.6247/DEL/2015 39 SILICON SUITE OF PRODUCTS FOR THE INDIAN ARMY. WE FURTHER FIND THE COMPANY OWNS VARIOUS PRODUCTS SUCH AS I) LEARNING MANAGEMENT PRODUCTS; II) TRAINING MANAGEMENT PRODUCTS; III) SIMULATOR PRODUCTS; IV) KNOWLEDGE BASED CONTENT; V) OPTIMIZATION PRODUCTS; VI) SAGE CRM SERVER 200; VII) SERVICE CAPTURE; VIII) TALLY 9 GOLD MULTI USER; IX) TEAMPRISE / ECLIPSE 3.0; X) VSTUDIO TEAM ED (5 USERS); XI) ADOBE NOG ELIXIR WITH MEDIA KIT; XII) DEVICE LOCK SOFTWARE; AND XIII) LOGITEK G 25 MAMING WHEEL. 62. WE FURTHER FIND THE EXPENSES SUCH AS DEPRECIATI ON AND INTEREST WHICH FORM A SIGNIFICANT COMPONENT OF TOTAL EXPENSES, ARE NOT SP ECIFICALLY ALLOCATED TO SPECIFIC SEGMENT AS THE UNDERLYING SERVICES ARE USED INTERCH ANGEABLY. IT HAS INCURRED HUGE RESEARCH AND DEVELOPMENT EXPENSES. FURTHER, THE TP O HIMSELF HAS NOT SELECTED THIS COMPANY AS A COMPARABLE FOR ASSESSMENT YEAR 2012-13 AND 2013-14 AND ACCORDINGLY HAS ACCEPTED THE ASSESSEES APPROACH OF REJECTION O F THIS COMPANY IN THE TP STUDY REPORT. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ALCATEL-LUCENT INDIA LTD. (SUPRA), HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER:- (VII) SANKHYA LNFOTECH LIMITED (SERVICE SEGMENT) - IT IS SEEN THAT THIS COMPANY IS A LEADING SIMULATION AND TRAINING SOLUTIONS PROV IDER WHICH PROVIDES END TO END SIMULATION SOLUTIONS. THIS COMPANY ALSO DEVELOPS CU STOMIZABLE PRODUCTS FOR TRAINING PURPOSES. IT IS FURTHER SEEN THAT THE SCHE DULE PERTAINING TO SEGMENT REPORTING IN THE ANNUAL REPORT, TO WHICH THE TPO HA S ALSO REFERRED TO, IS INCOMPLETE BECAUSE DEPRECIATION AND INTEREST HAVE N OT BEEN SPECIFICALLY ALLOCATED TO ANY SPECIFIC SEGMENT AS THE UNDERLINE SERVICES A RE USED INTERCHANGEABLY. THUS, ITA NO.6247/DEL/2015 40 THIS SEGMENTAL INFORMATION IS INCOMPLETE AND CANNOT BE CONSIDERED FOR COMPARABILITY PURPOSES. IT IS ALSO SEEN THAT SANKHY A LNFOTECH LIMITED HAS BEEN REJECTED ON THE GROUND THAT IT OWNS SOFTWARE PRODUC TS IN THE FOLLOWING CASES - COLT TECHNOLOGY SERVICES INDIA PRIVATE LIMITED [(TS -774-ITAT- 2012(DEL)], INTEGRATED DECISIONS & SYSTEMS INDIA (PRIVATE) LIMI TED [(TS-629-1TAT- 2011(JPR)], NTT DATA INDIA ENTERPRISE APPLICATION S ERVICES PRIVATE LIMITED [IT-293-ITAT-2013(HYD-TP), ADAPTECH INDIA (PRIVATE) LIMITED (ITA NO. 481/HYD./2011), SUNQUEST INFORMATION SYSTEMS (TS-29 9-1TAT-2015 (BANG)- TP).FURTHER, NON AVAILABILITY OF SEGMENTAL INFORMAT ION IN CASE OF DIVERSIFIED OPERATIONS RENDERS A COMPANY NOT COMPARABLE, HAS BE EN HELD IN THE FOLLOWING DECISIONS - TELCORDIA TECHNOLOGIES INDIA P. LTD. (I TA NO. 7821/MUM/2011), TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. VS. DCI T (ITA NO. 1054/BANG/2011, TRANSWITCH INDIA P. LTD. VS. DCIT [ ITA NO. 948/BANG/2011, TS-105- ITAT-2012(BANG)-TP], FIRST ADVANTAGE OFFSHO RE SERVICES PVT. LTD. (ITA NO. 1252(BANG)/2010), CSR INDIA (P) LTD. VS. I TO [IT(TP)A (REFERENCE NO. NO. 1119/BANG/2011)], INTOTOSOFTWARE INDIA PVT. LIM ITED, HYDERABAD (ITA NO. 233 OF 2014). RESPECTFULLY FOLLOWING THESE JUDICIAL PRECEDENTS, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE FINAL SET OF C OMPARABLES. 63. THIS DECISION OF THE TRIBUNAL HAS BEEN UPHELD B Y THE HON'BLE DELHI HIGH COURT IN ITA NO.515/DEL/2017. IN VIEW OF THE ABOVE DISCU SSION, WE HOLD THAT SANKHYA INFOTECH LTD. HAS TO BE EXCLUDED FROM THE LIST OF C OMPARABLES. 64. SO FAR AS SASKEN COMMUNICATION TECHNOLOGIES LTD . (SASKEN) IS CONCERNED, THIS COMPANY OPERATES AS A FULL-FLEDGED RISK TAKING ENTR EPRENEUR AND HAS REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS. NO SEGMEN TAL INFORMATION IS AVAILABLE AND THE COMPANY ALSO HOLDS INVENTORY OF 0.95 CRORE AS O N 31 ST MARCH, 2011. THE COMPANY CONTINUE TO INVEST IN R&D DURING THE YEAR IN MULTI- MEDIA WIRELESS AND BROADBAND AND MOBILE VALUE ADDED SERVICES. THE COMPANY BEARS ENTR EPRENEURIAL RISK AND OTHER RISKS. HOWEVER, THE ASSESSEE COMPANY OPERATES AT MINIMAL R ISK AS THE 100% SERVICES ARE PROVIDED TO AES AND IS REMUNERATED ON A COST PLUS B ASIS. THE ASSESSEE IS MAINLY ENGAGED IN SOFTWARE DEVELOPMENT RELATED TO DESIGN, IMPLEMENTATION AND MAINTENANCE ITA NO.6247/DEL/2015 41 WITH RESPECT TO ICS AND IT DOES NOT OWN ANY BRAND O R PROPRIETARY PRODUCTS. IT HAS NOT INCURRED ANY R&D AND DOES NOT BEAR ANY ENTREPRENEU RIAL RISK AND OTHER BUSINESS RISKS. THE VARIOUS BENCHES OF THE TRIBUNAL HAS EXCLUDED SA SKEN FROM THE LIST OF COMPARABLES ON ACCOUNT OF MATERIAL FAR DIFFERENCES. IN VIEW OF THE ABOVE DISCUSSION WE HOLD THAT SASKEN CANNOT BE CONSIDERED AS A COMPARABLE WITH TH AT OF THE ASSESSEE COMPANY AND HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. W E HOLD AND DIRECT ACCORDINGLY. 65. THE NEXT GRIEVANCE OF THE ASSESSEE IS REGARDING EXCLUSION OF CERTAIN COMPARABLES BY THE A.O./TPO/DRP WHICH WERE CONSIDERED AS COMPAR ABLE BY THE ASSESSEE. 66. SO FAR AS R. SYSTEMS INTERNATIONAL LTD. IS CONC ERNED, WE FIND THAT THIS HAS BEEN EXCLUDED BY THE TPO SOLELY ON THE GROUND OF ITS FIN ANCIAL YEAR BEING CALENDAR YEAR. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASS ESSMENT YEAR 2010-11, HAS HELD THAT THE COMPARABLES CANNOT BE REJECTED MERELY ON T HE GROUND THAT FINANCIAL YEAR FOLLOWED IS DIFFERENT. THE HON'BLE DELHI HIGH COUR T IN THE CASE OF MCKINSEY KNOWLEDGE IN ITA NO.217/2014, ORDER DATED 27 TH MARCH, 2015 AND IN THE CASE OF BAXTER INDIA PVT. LTD., ITA 260/2018, ORDER DATED 2 7 TH FEBRUARY, 2018, DIRECTED TO INCLUDE THIS COMPANY AS COMPARABLE ON THE GROUND TH AT IF FROM THE AVAILABLE DATA ON RECORD, THE RESULTS FOR FINANCIAL YEAR CAN REASONAB LY BE EXTRAPOLATED, THEN, THE COMPANIES CANNOT BE EXCLUDED. WE, THEREFORE, RESTO RE THIS ISSUE TO THE FILE OF A.O./TPO WITH A DIRECTION TO INCLUDE R. SYSTEMS INT ERNATIONAL LTD. IN THE LIST OF COMPARABLES AFTER EXTRAPOLATION OF THE FINANCIAL RE SULTS. WHILE DOING SO THE TPO SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . ITA NO.6247/DEL/2015 42 67. SO FAR AS CG VAK SOFTWARE & EXPORTS LTD. IS CON CERNED, WE FIND THE TPO REJECTED THIS COMPANY AS IT IS MAKING PERSISTENT LO SSES IN SOFTWARE SERVICES SEGMENT. IT IS THE SUBMISSION OF THE LD. COUNSEL THAT THIS COMP ANY IS NOT MAKING PERSISTENT LOSSES AND HAS EARNED PROFIT IN ONE OF THE TWO PRECEDING Y EARS. FURTHER, THIS COMPANY WAS ACCEPTED BY THE TPO AS A COMPARABLE FOR ASSESSMENT YEARS 2009-10 AND 2013-14. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE A. O./TPO TO EXAMINE THE RECORD AND DECIDE THE ISSUE AFRESH AND AS PER LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 68. SO FAR AS CAT TECHNOLOGIES LTD. IS CONCERNED, W E FIND THE COMPANY EARNED REVENUE FROM INFORMATION TECHNOLOGY SERVICES AND, T HEREFORE, SHOULD BE ACCEPTED AS A COMPARABLE. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009- 10, HAS ACCEPTED THIS COMPANY AS A COMPARABLE. ON A PPEAL BY THE REVENUE, THE HON'BLE HIGH COURT HAS UPHELD THE ORDER OF THE TRIB UNAL. FURTHER, THE COMPANY IS ALSO SELECTED AS A COMPARABLE BY THE TPO FOR ASSESSMENT YEAR 2010-11. WE, THEREFORE, DIRECT THE A.O./TPO TO INCLUDE THIS COMPANY AS A C OMPARABLE. 69. SO FAR AS THINKSOFT GLOBAL SERVICES LTD. IS CONCERNED, WE FIND THE TPO REJECTED THE COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALL Y DISSIMILAR AS IT PROVIDES SOFTWARE VALIDATION AND VERIFICATION SERVICES WHICH IS PART OF SOFTWARE DEVELOPMENT SERVICES WHEREAS THE FUNCTIONS OF THE ASSESSEE ARE HIGH IN F UNCTIONAL HIERARCHY. IT IS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT T HE ASSESSEE IS NOT ENGAGED IN HIGH END ACTIVITY AND IS A ROUTINE AND INTERMEDIARY AS I T PROVIDES SOFTWARE DEVELOPMENT AND ITA NO.6247/DEL/2015 43 DESIGN SERVICES AS PER THE SPECIFICATIONS PROVIDED BY THE AE. THEREFORE, THIS COMPANY SHOULD BE CONSIDERED AS A COMPARABLE. WE FIND THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF FINASTRA SOFTWARE SOLUTIONS LTD. VIDE IT(TP)A NO.52 9/BANG/2016 , HAS ACCEPTED THIS COMPANY AS A COMPARABLE. SIMILAR VIE W HAS BEEN TAKEN BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S MARVELL INDIA PVT. LTD., ITA NO.384/BANG/2016, ORDER DATED 28 TH JUNE, 2017 FOR ASSESSMENT YEAR 2011-12 . FURTHER, THIS COMPANY IS ACCEPTED BY THE TPO AS A COMPARABLE FOR ASSESSMENT YEAR 2010-11. IN VIEW OF THE ABOVE DISCUSSIONS, WE DIRECT THE A.O./T PO TO INCLUDE THIS COMPANY AS A COMPARABLE. 70. SO FAR AS CALIBER POINT BUSINESS SOLUTIONS LTD. IS CONCERNED, WE FIND THE TPO REJECTED THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT PROVIDES BPO SERVICES AND, THEREFORE, IS NOT COMPARABLE. FURTHE R, THIS COMPANY DOES NOT PASS THE DIFFERENT FINANCIAL YEAR ENDING FILTER. WE FIND TH E TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 HAS HELD THAT THE COMPARABL E CANNOT BE REJECTED MERELY ON THE GROUND THAT FINANCIAL YEAR FOLLOWED IS DIFFEREN T. WE FIND THE HON'BLE DELHI HIGH COURT IN THE CASE OF MCKINSEY KNOWLEDGE CENTRE INDIA (P) LTD., ITA NO.21 7/2014, HAS HELD THAT THIS COMPANY SHOULD BE RETAINED AS A COMP ARABLE SINCE FROM THE AVAILABLE DATA ON RECORD, THE RESULTS FOR F.Y. CAN REASONABLY BE EXTRAPOLATED. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE A.O./TPO TO D ECIDE THE ISSUE AFRESH BY EXTRAPOLATING THE RESULT AFTER GIVING DUE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. ITA NO.6247/DEL/2015 44 71. SO FAR AS MAVERIC SYSTEMS LTD. IS CONCERNED, WE FIND THE TPO REJECTED THIS COMPANY ON THE GROUND THAT THIS COMPANY HAS INCURRE D HIGHER INDIRECT COST IN THIS YEAR AND ALSO INCURRED COST ON ESTABLISHING DELIVERY MEC HANISMS. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TPO HAS NOT D EMONSTRATED THAT ANY INDIRECT COST IS INVOLVED AND ITS IMPACT ON THE NET MARGIN. IT IS HI S SUBMISSION THAT THE REVENUE OF THE COMPANY HAS INCREASED IN THE YEAR OVER THE PREVIOUS YEAR. FURTHER, THE COMPANY PASSES ALL THE FILTERS APPLIED BY THE TPO HIMSELF A ND, THEREFORE, THIS COMPANY SHOULD BE TAKEN AS A COMPARABLE. IT IS ALSO HIS SUBMISSIO N THAT THE TPO HIMSELF IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 HAS ACCEPTED M AVERIC SYSTEMS LTD. AS A COMPARABLE. WE, THEREFORE, RESTORE THIS ISSUE TO T HE FILE OF THE A.O./TPO WITH A DIRECTION TO ADJUDICATE THE ISSUE AFRESH AS PER FAC T AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 72. GROUND OF APPEAL NOS.2 TO 2.6 ARE ACCORDINGLY A LLOWED AS INDICATED ABOVE. 73. SO FAR AS GROUND OF APPEAL NO.3 IS CONCERNED, I T IS CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT BANK CHARGES, PROVISION FOR DOUBTFUL DEBTS AND PROVISION NO LONGER REQUIRED WRITTEN BACK CANNOT BE CONSIDERED AS NON-O PERATING EXPENDITURE/INCOME WHILE COMPUTING THE OPERATING MARGIN OF THE ASSESSE E AND COMPARABLE COMPANIES. 74. AFTER HEARING BOTH THE SIDES, WE FIND THE TPO H ELD THAT BANK CHARGES ARE USUALLY NOT SEPARATELY REPORTED BY THE COMPANY AND ARE CLUB BED ALONG WITH THE INTEREST CHARGES AND, HENCE, THESE ARE TO BE TREATED IN THE SAME MANNER AS INTEREST. SIMILARLY, ITA NO.6247/DEL/2015 45 PROVISION FOR BAD DEBT BEING IN THE NATURE OF UNASC ERTAINED LIABILITY, HAS TO BE TREATED AS NON-OPERATING INCOME. THE DRP SIMPLY UPHELD THE ACTION OF THE ASSESSING OFFICER/TPO. IT IS THE SUBMISSION OF THE LD. COUNS EL FOR THE ASSESSEE THAT BANK CHARGES AND INTEREST CAN BE SEPARATELY COMPUTED. RELYING O N VARIOUS DECISIONS IT IS HIS SUBMISSION THAT THE LOWER AUTHORITIES HAVE NOT GIVE N ANY VALID REASON TO NEGATE THE CLAIM OF THE ASSESSEE. WE FIND THE FACTS ARE NOT CO MING OUT CLEARLY FROM THE ORDERS OF THE TPO/DRP. WE, THEREFORE, REMIT THIS ISSUE BACK T O THE FILE OF THE ASSESSING OFFICER/TPO WITH A DIRECTION TO ADJUDICATE THE ISSU E AFRESH AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE AS SESSING OFFICER/TPO SHALL DECIDE THE ISSUE AS PER FACT AND LAW. WE HOLD AND DIRECT ACCORDINGLY. GROUND OF APPEAL NO.3 OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTI CAL PURPOSES. 75 GROUND OF APPEAL NO.4 RELATES TO RISK ADJUSTMENT . AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIB UNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 AND THE ISSUE WAS RESTORED TO THE FILE OF THE TPO WITH THE FOLLOWING DIRECTIONS:- '21. SO, FOLLOWING THE DECISION RENDERED BY THE COO RDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED FOR R ISK ADJUSTMENT TO THE NET MARGIN OF THE COMPARABLES FOR BRINGING THEM AT PAR WITH THE TAXPAYER ON SUPPLYING THE COMPLETE DATA BY THE ASSESSEE. SO, GR OUND NO. 12 IS DETERMINED IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSES.' 76. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THIS GRO UND IS RESTORED TO THE FILE OF THE A.O./TPO FOR DECIDING THIS ISSUE AFRESH AND IN ACCO RDANCE WITH THE LAW, AFTER GIVING ITA NO.6247/DEL/2015 46 DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. TH E GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 77. GROUND OF APPEAL NO.5 RELATES TO TREATMENT OF S OFTWARE EXPENSES OF RS.69,45,581/- AS CAPITAL EXPENDITURE AND THEREBY M AKING ADDITION OF RS.27,78,233/- AFTER ALLOWING DEPRECIATION. 78. AFTER HEARING BOTH THE SIDES, WE FIND THE TPO/A .O. TREATED THE SOFTWARE EXPENSES AMOUNTING TO RS.69,45,581/- AS CAPITAL IN NATURE AND AFTER ALLOWING DEPRECIATION ON THE SAME, MADE ADDITION OF RS.27,78 ,233/- WHICH WAS UPHELD BY THE DRP. WE FIND IDENTICAL ISSUED HAD COME UP BEFORE T HE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 AND 2010-11 AND TH E TRIBUNAL HAS DECIDED THE ISSUE ON THE TREATMENT OF TIME BASED SOFTWARE LICENCE IN FAVOUR FO THE ASSESSEE HOLDING THAT THE EXPENSES ON TIME BASED SOFTWARE LICENCE ARE REV ENUE IN NATURE WHICH ARE INCURRED FOR THE PURPOSE OF BUSINESS. THE TRIBUNAL FURTHER HELD THAT THE ONE TIME EXPENDITURE SO INCURRED CANNOT BE DEFERRED AS SUCH AND ARE REVENUE EXPENSES TO RUN THE BUSINESS. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 55 O F THE ORDER READS AS UNDER:- 55. ASSESSEE IN THE PROFIT AND LOSS ACCOUNT HAS DE BITED AN AMOUNT OF RS.3,84,651/- BEING EXPENDITURE ON TIME BASED LICEN CES. AO TREATED THE SOFTWARE TIME BASED LICENCE EXPENSES OF RS.3,84,651/- AS CAP ITAL IN NATURE AND THEREBY DISALLOWED THE SAME. HOWEVER, THE AO ALLOWED THE AS SESSEE TO DEPRECIATION THEREON @ 60% WHICH IS RS.2,30,791/- AND ADDED BACK THE REMAINING AMOUNT OF RS.1,53,860/- TO THE RETURNED INCOME. DRP ALSO AFFI RMED THE DECISION RENDERED BY AO. 56. LD. AR FOR THE ASSESSEE CONTENDED THAT SINCE ON E TIME REVENUE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE THE SAME CANNOT B E DEFERRED AND RELIED UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN CASE OF DIRECTOR OF INCOME-TAX VS. ITA NO.6247/DEL/2015 47 INFRASOFT LTD . - (2013) 39 TAXMANN.COM 88 (DELHI). HOWEVER, ON T HE OTHER HAND, LD. DR FOR THE REVENUE BY RELYING UPON THE ORDER PA SSED BY AO/DRP CONTENDED THAT SINCE 60% DEPRECIATION HAS ALREADY BEEN GIVEN TO THE ASSESSEE, THE CONTENTION OF THE ASSESSEE IS NOT SUSTAINABLE. 57. ASSESSEE HAS BROUGHT ON RECORD THAT ASSESSEE HA S INCURRED AN AMOUNT OF RS.3,84,651/- FOR RUNNING THE LICENCE ONLY AND ANNU AL MAINTENANCE CHARGES FOR OPERATING, TROUBLE SHOOTING OF THE SOFTWARE AND NOT FOR PURCHASE/ACQUISITION OF THE SOFTWARE AND THE PERIOD FOR RUNNING OF THESE LI CENCES / AMC WAS MOSTLY ONE YEAR OR LESS THAN ONE YEAR. 58. IN THE GIVEN CIRCUMSTANCES, WHEN THE AFORESAID FIXED LICENCES WERE RENTED FOR A LIMITED PERIOD ONLY WHICH IS LESS THAN ONE YEAR, NO ENDURING BENEFIT ACCRUES TO THE ASSESSEE NOR ANY OWNERSHIP RIGHT VESTS IN THE A SSESSEE. ISSUE IN CONTROVERSY HAS ALREADY BEEN DEALT WITH BY THE HON'BLE JURISDIC TIONAL HIGH COURT IN DIRECTOR OF INCOME-TAX VS. INFRASOFT LTD . (SUPRA), THE RATIO OF WHICH IS THAT :- 'WHAT IS TRANSFERRED IS NEITHER THE COPYRIGHT IN TH E SOFTWARE NOR THE USE OF THE COPYRIGHT IN SOFTWARE, BUT WHAT IS TRANSFERRED IS T HE RIGHT TO USE THE COPYRIGHTED MATERIAL OR ARTICLE WHICH IS CLEARLY DISTINCT FROM THE RIGHT IN THE COPYRIGHT WHICH IS TOO FOR ONLY LIMITED PERIOD.' 59. SO, THESE EXPENSES, TO OUR MIND, ARE IN THE NAT URE OF REVENUE EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS. MOREOVER, ONE TIME EXPENDITURE TO PURCHASE TIME BASED SOFTWARE LICENSES CANNOT BE DEFERRED AND AS SUCH, ARE REVENUE EXPENSES TO RUN THE BUSINESS. SO, THE AO IS DIRECTE D TO RE-EXAMINE THE ISSUE ACCORDINGLY AND AS SUCH, THIS GROUND IS DETERMINED IN FAVOUR OF THE ASSESSEE . 79. WE FIND, FOLLOWING THE ABOVE DECISION, THE TRIB UNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 HAS TREATED THE SOFTWARE EX PENSES AS REVENUE IN NATURE. THEREFORE, FOLLOWING THE DECISION OF THE TRIBUNAL I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 AND 2010-11 AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURE BROUGHT BEFORE US BY THE REVENUE, WE DIRECT THE ASS ESSING OFFICER TO TREAT THE EXPENSES ON RENTAL OF TIME BASED SOFTWARE LICENCE A S REVENUE IN NATURE. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. IN VIEW OF OUR ABOVE DECISION, GROUND OF APPEAL NO.6 BECOMES INFRUCTUOUS. ITA NO.6247/DEL/2015 48 80. GROUND OF APPEAL NO.7 RELATES TO EXPENDITURE ON TRAINING OF EMPLOYEES AMOUNTING TO RS.9,85,574/- AS CAPITAL IN NATURE. 81. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSES SING OFFICER/TPO/DRP HAVE TREATED THE EXPENDITURE OF RS.9,85,574/- CLAIMED BY THE ASSESSEE AS EXPENDITURE ON TRAINING OF EMPLOYEES AS CAPITAL IN NATURE BEING GI VING ENDURING BENEFIT TO THE ASSESSEE. WE FIND IDENTICAL ISSUE HAD COME UP BEFOR E THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 AND THE TRIBUNAL VIDE ITA NO.609/DEL/2015, ORDER DATED 3 RD JULY, 2018 , HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE B Y OBSERVING AS UNDER:- 72. AO/DRP HAVE TREATED EXPENDITURE OF RS.13,84,08 4/- CLAIMED BY THE TAXPAYER AS EXPENDITURE ON TRAINING OF EMPLOYEES AS CAPITALIZED IN NATURE BEING OF ENDURING BENEFIT TO THE TAXPAYER. THE LD. AR FOR TH E TAXPAYER CONTENDED THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE TAX PAYER IN ITS OWN CASE FOR AY 2009-10 (SUPRA). OPERATIVE PART THEREOF IS EXTRACTE D AS UNDER:- '60. ASSESSEE DEBITED AN AMOUNT OF RS.38,09,220/- I N HIS PROFIT & LOSS ACCOUNT ON ACCOUNT OF TRAINING EXPENSES AND CLAIMED THE SAM E AS REVENUE EXPENDITURE. HOWEVER, AO BEING NOT SATISFIED WITH THE EXPLANATIO N GIVEN BY THE ASSESSEE CAME TO THE CONCLUSION THAT THESE EXPENSES HAVE BEE N INCURRED FOR PROVIDING VARIOUS TRAINING WHICH IS IN THE NATURE OF GIVING E NDURING BENEFIT TO THE ASSESSEE AND TREATED THE SAME AS CAPITAL EXPENDITURE AND THE N ADDED TO THE INCOME OF THE ASSESSEE. 61. HOWEVER, LD. AR FOR THE ASSESSEE CONTENDED THAT THE PAYMENT OF TRAINING EXPENSES IS IN THE NATURE OF REVENUE EXPENSES AND R ELIED UPON THE DECISION RENDERED BY HON'BLE HIGH COURT OF DELHI IN JUDGMENT CITED AS COMMISSIONER OF INCOME- TAX-II VS. MUNJAL SHOWA LTD . - (2010) 329 ITR 449 (DELHI). 62. THE RATIO OF THE JUDGMENT IN CASE OF COMMISSIONER OF INCOME-TAX-II VS. MUNJAL SHOWA LTD . (SUPRA) RENDERED BY HON'BLE DELHI HIGH COURT IS T HAT :- '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 THE PROFIT OF THE COMPANY ON WHICH IT WILL PAY THE TAXES, SUCH ITA NO.6247/DEL/2015 49 EXPENDITURE CANNOT BE TREATED AS CAPITAL IN NATURE RATHER THEY ARE REVENUE IN NATURE.' 63. WE ARE OF THE CONSIDERED VIEW THAT IN THE LIGHT OF THE JUDGMENT IN CASE OF COMMISSIONER OF INCOME-TAX-II VS. MUNJAL SHOWA LTD . (SUPRA), THE AO IS DIRECTED TO RE-EXAMINE THE ISSUE AFRESH AFTER PROVI DING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE.' 73. SINCE, UNDISPUTEDLY, THE TAXPAYER HAS NOT UNDER GONE ANY CHANGE IN ITS BUSINESS MODEL AND THE ISSUE IS IDENTICAL, THE EXPE NSES OF RS.13,84,084/- ARE ORDERED TO BE TREATED AS REVENUE IN NATURE BY FOLLO WING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL RENDERED IN TAXPAY ER'S OWN CASE IN AY 2009-10 (SUPRA). HENCE, GROUND NO.18 IS DETERMINED IN FAVOU R OF THE TAXPAYER. 82. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ORDER OF THE TRIBUNAL, THIS GROUND OF THE ASSESSEE IS ALLOWED. 83. IN VIEW OF THE ABOVE DISCUSSION GROUNDS OF APPE AL NOS.8 AND 9 OF THE ASSESSEE BECOME INFRUCTUOUS. 84. GROUND OF APPEAL NO.10 RELATES TO DEPRECIATION ON GOODWILL AMOUNTING TO RS.2,45,01,457/- 85. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSES SEE CLAIMED DEPRECIATION ON GOODWILL AMOUNTING TO RS.2,45,01,457/- DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, IN ACCORDANCE WITH THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD. WE FIND THE LD. DRP, RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD (SUPRA) REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT MADE SUCH CLAIM IN THE RETURN OF INCOME. WE FIND THIS ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR ITA NO.6247/DEL/2015 50 2010-11 AND THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE ISSUE AFRESH BY OBSERVING AS UNDER:- 75. LD. AO/DRP HAVE DENIED THE DEPRECIATION ON GOO DWILL AMOUNTING TO RS.2,64,53,670/- CLAIMED BY THE TAXPAYER DURING THE COURSE OF PROCEEDINGS BY RELYING UPON THE DECISION RENDERED BY HON'BLE SUPRE ME COURT IN GOETZE INDIA LIMITED - (2006) 284 ITR 323 (SC). HOWEVER, THE IDE NTICAL ISSUE HAS ALREADY BEEN DECIDED BY REMANDING THE CASE BACK TO THE AO A FTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER IN TAXPA YER'S OWN CASE FOR AY 2009- 10 BY RETURNING FOLLOWING FINDINGS :- '64. ASSESSEE CLAIMED DEPRECIATION ON GOODWILL AMOU NTING TO RS.1,38,93,062/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS BY RELY ING UPON DECISIONS RENDERED BY HON'BLE SUPREME COURT IN CASE OF SMIFS SECURITI ES LTD. - (TS-639-SC-2012) (SUPREME COURT) BUT THE AO REMAINED SILENT ON THIS ISSUE. 65. HOWEVER, DRP BY APPLYING THE DECISIONS RENDERED BY HON'BLE SUPREME COURT IN GOETZE (INDIA) LTD. - (2006) 284 ITR 323 ( SC) REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT ASSESSEE DID NOT CLAIM SUCH DEPRECIATION ON GOODWILL IN ITS RETURN OF INCOME. HOWEVER, IT HAS NOT BEEN D ISPUTED BY BOTH THE LD. REPRESENTATIVES OF THE PARTIES THAT THE JUDGMENT CI TED AS GOETZE (INDIA) LTD. AS RELIED UPON BY DRP IS NOT APPLICABLE TO THE FACTS A ND CIRCUMSTANCES OF THE CASE AND WHEN THE ISSUE HAS BEEN RAISED DURING ASSESSMEN T PROCEEDINGS, THOUGH NO DEPRECIATION WAS CLAIMED IN THE RETURN OF INCOME, A O WAS DUTY BOUND TO DECIDE THIS ISSUE. SO, WE HEREBY RESTORE THIS GROUND TO TH E AO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. ACCORDINGLY, THIS GROUND IS DETERMINED IN FAVOUR OF THE ASSESSEE.' 76. FOLLOWING THE FINDINGS RETURNED BY THE COORDINA TE BENCH OF THE TRIBUNAL IN AY 2009-10 (SUPRA), THIS ISSUE IS ORDERED TO BE REM ANDED BACK TO THE AO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER IN THE LIGHT OF THE DIRECTIONS ISSUED IN AY 2009-10. 86. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11, WE RESTORE THIS ISSUE TO T HE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACCOR DANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOL D AND DIRECT ACCORDINGLY. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. ITA NO.6247/DEL/2015 51 87. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 8.05.2019. SD/- SD/- (BEENA A. PILLAI) (R.K. PANDA) JUDICIAL MEMBER AC COUNTANT MEMFBER DATED: 28 TH MAY, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI