Navisite India Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 6384/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82110 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 30-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 02-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Principle of natural justice; International transaction; Question of law; Wholly owned subsidiary
• Section: 143(3); 92D; 234B; 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.6384/DEL /2013 ASSESSMENT YEAR : 2009 - 2010 NAVISITE INDIA PVT. LTD. VIPUL PLAZA, FIRST FLOOR, GOLF COURSE ROAD, SUNCITY, SECTOR 54, GURGAON. VS. ACIT, CIRCLE 13(1), NEW DELHI. ( PAN AA CCN 0289 R ) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHIT TIWARI, C.A. RESPONDENT BY: SHRI PEEYUSH JAIN, CIT.D.R. PER: GEORGE GEORGE K., J.M. 1. THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE COMPANY, IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER (AO) PASSED U/S 143(3) R.WS. 144C(13) OF THE ACT DATED 31.10.2013. THE RELEVANT ASSESSMENT YEAR IS 2009 - 10. 2. BRIEF FACTS OF THE CASE ARE AS FOLL OWS: NAVISITE INDIA PRIVATE LIMI T ED [THE ASSESSEE] IS A WHOLLY OWNED SUBSIDIARY OF NAVISITE INC. USA [NAVISITE US]. IT PROVIDES CONTRACT SOFTWARE DEVELOPMENT SERVICES TO NAVISITE US ENABLING NAVISITE US TO FULFIL ITS CUSTOMER CONTRACTS. IT IS A CAPTIVE C ONTRACT SERVICE PROVIDER AND FOR PROVIDING THE SOFTWARE DEVELOPMENT SERVICES, IT IS REMUNERATED ON COST PLUS BASIS WHERE ALL COST INCURRED BY THE ASSESSEE COMPANY IS RECOVERED ALONG WITH A MARK - UP FROM THE AE. DURING THE YEAR UNDER DISPUTE, THE INTERNATIO NAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE COMPANY WITH ITS ASSOCIATED ENTERPRISES ARE AS FOLLOWS: NATURE OF TRANSACTIONSVALUE IN RS. (I) PROVISION OF SOFTWARE DEVELOPMENT SERVICES 23,46,16,590 (II) REIMBURSEMENT OF EXPENSES TO AE 9,19,228 (III)REIMBURSEMENT OF EXPENSES BY AE 65,80,319 TOTAL 24,21,16,1 37 2 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 3. WITH RESPECT TO INTERNATIONAL TRANSACTIONS OF REIMBURSEMENT OF EXPENSES TO AE OF RS.9 ,19,228 / - AND RS . 65 ,80,319 / - , THE SAME WAS ACCEPTED BY THE DEPARTMENT AND NO TP ADJUSTMENT WAS MADE. WITH REFERENCE TO SOFTWARE DEVELOPMENT SERVICES, THE BENCH MARKING ANALYSIS CONDUCTED BY THE ASSESSEE IS AS FOLLOWS: PARTICULARS SOFT WARE D EVELOPMENT S ERVICES MOST APPROPRIATE METHOD TRANSACTIONAL NET MARGIN METHOD ( TNMM ) PROFIT LEVEL INDICATOR (PLI) USED O PERATING PROFIT ( OP)/TOTAL COST ( OC)) NO OF COMPARABLE 21 COMPARABLE MEAN MARK - UP 9.30% ASSESSEE S MARK - UP 14% 4. THE TPO ISSUED A SHOW - CAUSE NOTICE TO THE ASSESSEE PROPOSING TO MODIFY THE RESULTS OF ASSESEE S ECONOMIC ANALYSIS WITH THE RESULTS OF A SEARCH UNDERTAKEN BY HIMSELF BY APPLYING HIS OWN SET OF QUANTITATIVE AND QUALITATI VE FILTERS AND REJECTING/MODIFYING THE FILTERS APPLIED BY THE ASSESSEE. THE FOLLOWING FILTERS WERE APPLIED BY THE TPO: REJECT COMPANIES WHOSE DATA FOR FY 2008 - 09 IS NOT AVAILABLE; REJECT COMPANIES HA VING A FINANCIAL YEAR ENDING I.E., OTHER THAN 31 ST MARCH ; REJECT COMPANIES HAVING A TURNOVER OF LESS THAN INR 5 CRORES; REJECT COMPANIES HAVING SERVICE INCOME OF OPERATING REVENUES LESS THAN 75 PERCENT OF TOTAL OPERATING REVENUES; REJECT COMPANIES HAVING INCOME FROM EXPORT SALES LESS THAN 75 PER CENT OF INCOME; REJECT COMPANIES HAVING RELATED PARTIES TRANSACTIONS IN EXCESS OF 25 PER CENT; REJECT COMPANIES HAVING EMPLOYEE COSTS TO TOTAL COSTS LESS THAN 25 PER CENT; AND REJECT COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES LIKE PERSISTENT LOSSES, DECLINING SALE S, MERGERS AND ACQUISITIONS ETC., 5. THE TPO RECOMPUTED THE ASSESSEE S OP / OC MARGIN AS 10.53% INSTEAD OF 14% CONSIDERING THE FOREIGN EXCHANGE FLUCTUATION LOSS AS NON - OPERATING. THE TPO 3 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 ARRIVED AT A SET OF 16 COMPANIES WITH A MEAN OP/OC MARGIN OF 28.74% AND, ACCORDINGLY, PROPOSED AN ADJUSTMENT OF RS.3, 8 6,44,368 / - TO THE TRANSFER PRICE OF THE ASSSESSEE . BASED ON THE AVERAGE PLI OF COMPARABLE, THE ARM S LENGTH PRICE OF THE SOFTWARE DEVELOPME NT SERVICES RENDERED BY THE TAX - PAYER WAS COMPUTED BY THE TPO AS UNDER: OPERATING COST RS.21,22,58,007 ARM S LENGTH MARGIN 2 8.74 % OF OP. COST ARM S LENGTH PRICE (ALP) RS. 27 , 32 , 60 ,9 5 8 PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS RS.23,46,16,590 SHORT - FALL BEING ADJUSTMENT U/S 92CA RS. 3,86 , 44 ,3 6 8 6. BASED ON T HE ORDER U/S 92CA ( 3) OF THE ACT OF THE TPO, THE AO ISSUED A DRAFT ASSESSMENT ORDER. THE ASSESSEE HAD FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL [DRP]. THE DRP HAD SELECTED 17 COMPARABLE AT MEAN MARGIN OF 25.55%. THE COMPUTATION OF ALP AFTER GIVING EFFECT TO TH E DRP S DIRECTION IS AS FOLLOWS: OPERATING COST RS.21,22,58,007 ARM S LENGTH MARGIN 25.55% OF OP. COST ARM S LENGTH PRICE (ALP) RS.26,64,89,928 PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS R S.23,46,16,590 SHORT - FALL BEING ADJUSTMENT U/S 92CA RS.3,18,73,338 7. ACCORDINGLY, THE AO HAD PASSED THE FINAL ORDER ON 31.10.2013 U/S 143(3) R.W.S 144C (13) OF THE ACT BY INCORPORATING THE TP ADJUSTMENT OF RS.3,18,73,338/ - . 8. BEIN G AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US RAISING VARIOUS GROUNDS. DURING THE COURSE OF HEARING, BOTH SIDES SUBMITTED THAT MOST OF THE GROUNDS RAISED ARE IDENTICAL TO THE GROUNDS RAISED BY THE ASSESSEE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, NAMELY, AY 2008 - 09 WHICH WERE ELABORATELY ANALYSED AND DECIDED BY THE EARLIER BENCH OF THIS TRIBUNAL VIDE ITS ORDER IN ITA NO.5329/DEL/2012 DATED 31.5.2013. ON THE OTHER GROUND, THE LEARNED DR SUBMITTED THAT THE ISSUES RAISED BY THE ASSESSEE HAVE SINCE BEEN DELIBERATED BY THE 4 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 TPO, AO AND DRP IN GREAT DETAILAND ARRIVED AT A CORRECT CONCLUSION AND, THEREFORE, THE SAME REQUIRE TO BE SUSTAINED IN FULL. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT MATERIALS ON RECO RD, THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE (SUPRA). TAKING ALL THE FACTS INTO CONSIDERATION, WE SHALL DISPOSE OF THIS APPEAL , GROUND - WISE AS UNDER: GROUND NO.1 : THE ASSESSMENT ORDER PASSED BY THE AO PURSUANT TO THE DIRECTIONS OF DRP WAS BAD IN LAW AND VOID AB - INITIO. GROUND NO.2 : BOTH THE DPO AND THE AO ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION TO THE EXTENT OF RS.3,18,73,338/ - TO THE INCOME OF THE ASSESSEE AS PROPOSED BY THE TPO/AO IN THE ASSESSMENT ORDER U/S 143(3) R. W.S. 144C OF THE ACT BY HOLDING THAT ITS INTERNATIONAL TRANSACTIONS DO NOT SATISFY THE ARM S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT ETC., GROUND NO. 3.1 : NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN S.92C(3) OF THE ACT WERE NOT SATISFIED IN THE PRESENT CASE. 10. HOWEVER, DURING THE COURSE OF HEARING, THE LEARNED COUNSEL SUBMITTED THAT GROUND NOS.1, 2 AND 3.1 WERE NOT PRESSED. ACCORDINGLY,GROUND NOS. 1, 2 AND 3.1 ARE DISMISSED AS NOT PRESSED . GROUND NO. 3.2 : D ISREGARDING THE ALP, AS DETERMINED BY THE ASSESSEE IN THE TP DOCUMENTATION MAINTAINED BY IT IN TERMS OF S. 92D R.W. RULE 10D OF THE RULES AND ALSO WHILE SUBMITTING THE UP - DATED COMPARABLE ANALYSIS, AND IN PARTICULARLY CONDUCTING A FRESH ECONOMIC ANALYSIS, BY APPLYING ADDITIONAL FILTERS THAN THOSE APPLIED BY THE ASSESSEE FOR THE DETERMINATION OF ALP OF THE ASSESSEE S INTERNATIONAL TRANSACTIONS AND HOLDING THAT THE IT ARE NOT AT ARMS LENGTH. 11. AN IDENTICAL GROUND TO THAT OF THE PRESENT ONE WAS RAISED BY THE ASSESSEE BEFORE THE EARLIER BENCH (SUPRA) FOR THE AY 2008 - 09. AFTER TAKING INTO ACCOUNT THE ASSESSEE S CONTENTIONS, THE EARLIER BENCH HAD DISMISSED THE ASSESSEE S GROUND FOR THE FOLLOWING REASONING, NAMELY: 10 WE FIND THAT TPO HAS GIVEN DETAILED REASONING FOR REJECTING THE TP DOCUMENT MAINTAINED U/S 92D READ WITH RULE 10D OF THE INCOME - TAX RULES. WE, THEREFORE, DO NOT FIND ANY SUBSTANCE IN THIS GROUND PARTICULARLY 5 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 BECAUSE THE TPO S ORDER HAS BEEN ASSAILED ON VARIOUS COUNTS IN GROUND NOS. 3.4.TO 3.10. THEREFORE , THIS GROUND IS DISMISSED. 12. IN THIS INSTANT CASE ALSO, THE TPO HAS GIVEN A DETAILED REASONING FOR REJECTING THE ASSESSEE S TP DOCUMENT. THEREFORE, IN CONSONANCE WITH THE FINDING OF THE EARLIER BENCH (SUPRA) ON AN IDENTICAL ISSUE IN THE ASSESSEE S OWN CASE, WE DECIDE THE ISSUE AGAINST THE ASSSESSEE. IT IS ORDERED ACCORDINGLY. GROUND NO. 3.3 : DISREGARDING MULTIPLE YEAR/ PRIOR YEARS DATA AS USED BY THE ASSESSEE IN THE TP DOCUMENTATION AND HOLD THAT CURRENT YEAR [I.E., FY 2008 - 09] DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE ASSESSEE AT THE TIME OF PREPARING ITS TP DOCUMENTATION AND IN DOING SO HAVE GROSSLY ERRED IN. GROUND NO. 3 . 3. 1 : INTERPRETING THE REQUIREMENT OF CONTEMPORANEOUS DATA IN THE RULES TO NECESSARILY IMPLY CURRENT/SINGLE YEAR (I.E., FY 2008 - 09) DATA; AND GROUND NO. 3.3.2 : HOLDING THAT AT THE TIME OF CREATING / MAINTAINING THE TP DOCUMENTATION, THE ASSESSEE COULD HAVE PROCU R ED CURRENT/SINGLE YEAR DATA (I.E., FY 2008 - 09 DATA) FROM SOURCES OTHER THAN THE ELECTRONIC DATA - BASES, WHEN IN FACT PRACTICALLY NO SUCH OTHER SOURCES WERE AVAILABLE IN CASE OF MOST COMPANIES 13. SIMILAR ISSUE WAS ALSO BEFORE THE EARLIER BENCH FOR ADJUDICATION IN THE ASSESSEE S OWN CASE FOR THE AY 2008 - 09. AFTER DUE CONSIDERATION OF THE ASSESSEE S SUBMISSION, THE BENCH HAD DISMISSED THE ASSESSEE S GROUND FOR THE FOLLOWING REASONS, NAMELY: 13 ..WE FIND THAT AS PER RULE 10B(4), THE DATA TO BE UTILISED AND ANALYSING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BE EN ENTERED INTO. AS PER PROVISO TO RULE 10D EARLIER YEAR DATA CAN BE USED IN ADDITION TO THE DATA PERTAINING TO THE RELEVANT FINANCIAL YEAR ONLY FOR TAKING A DECISION ON HOW MUCH OF THE FACTORS IN EARLIER YEARS HAVE IMPACT ON THE PROFIT OF THE CURRENT YEA R FOR BOTH THE TAX PAYER AND THE COMPARABLE. THEREFORE, IT HAS TO BE DEMONSTRATED AS TO HOW THE EARLIER YEAR CONDITIONS HAVE INFLUENCED THE PROFIT OF THE RELEVANT FINANCIAL YEAR. SINCE ASSESSEE HAD NOT GIVEN DETAILS IN THIS REGARD, THEREFORE, THE TPO S A CTION WAS JUSTIFIED ON THIS COUNT. FURTHER, IN PARA 5.6 OF HIS ORDER, THE TPO HAS GIVEN A DETAILED LIST OF CASES WHEREIN IT HAS BEEN HELD THAT THE CURRENT YEAR DATA IS TO BE UTILIZED FOR THE 6 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 PURPOSE OF COMPARABILITY. IN VIEW OF ABOVE DISCUSSION, WE DO NO T FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE AO/TPO ON THIS COUNT. 14. IN THIS ASSESSMENT YEAR ALSO, THE ASSESSEE WAS UNABLE TO GIVE ANY DETAILS THAT MULTIPLE YEAR DATA HAVE INFLUENCED THE PROFIT OF THE RELEVANT AY FOR THE TESTED PARTY AND THE CO MPARABLE. THEREFORE, FOLLOWING THE REASONING OF ORDER OF THE TRIBUNAL FOR THE AY 2008 - 09 (SUPRA), WE DECIDE GROUND NOS. 3.3., 3.3.1 AND 3.3.2 AGAINST THE ASSESSEE. GROUND N O. 3.4: REJECTING COMPARABILITY ANALYSIS IN THE TP DOCUMENTATION/ASSESSEE DOCUMENT ATION/ASSESSEE S UP - DATED COMPARABLE ANALYSIS AND IN CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF THE FOLLOWING ADDITIONAL/REVISED FILTERS IN DETERMINING THE COMPARABLE COMPANIES: GROUND NO. 3.4.1: EXCLUSION OF COMPANIES HAVING TURNOVER < RS.5 CRORES; GROUND NO. 3.4.2: EXCLUSION OF COMPANIES HAVING ECONOMIC PERFORMANCE CONTRARY TO THE INDUSTRY BEHAVIOUR/WITNESSING PECULIAR ECONOMIC CIRCUMSTANCES (E.G. COMPANIES HAVING DIMINISHING REVENUES/PERSISTENT LOSSES, DECLINING SALES, EXTRA ORDINARY INCOME OR EXPENSES, MERGERS AND ACQUISITIONS OR SUCH OTHER FACTORS); GROUND NO. 3.4.3: EXCLUSION OF COMPANIES HAVING DIFFERENT ACCOUNTING YEAR I.E.,HAVING ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPANIES WHOSE FINANCIAL STATEMENTS WERE FOR A PE RIOD OTHER THAN 12 MONTHS); & GROUND NO. 3.4.4 : EXCLUSION OF COMPANIES WITH EMPLOYEE COST LESS THAN 25% OF THE TOTAL COST. 15. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL SUBMITTED THAT GROUND NO.3.4.3 IS NOT PRESSED. THEREFORE, GROUND NO. 3.4.3 IS DISMISSED AS NOT PRESSED . IN RESPECT OF GROUND NOS. 3.4.1, 3.4.2 AND 3.4.4 , WE FIND THAT IDENTICAL ISSUE THAT OF THE ISSUE UNDER CONSIDERATION WAS BEFORE THE EARLIER BENCH FOR ADJUDICATION FOR THE AY 2008 - 09 IN THE ASSESSEE S OWN CASE. AFTER TAKING INTO ACCOUNT THE ASSESSEE S CONTENTIONS, THE FINDINGS RECORDED BY THE EARLIER BENCH [ REPRODUCED BELOW FOR READY REFERENCE] AND ALSO OUR REASONING FOR COMING TO A CONCLUSION ON THE ABOVE GROUNDS ARE AS UNDER : 7 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 (I) EXCLUSION OF COMP ANIES HAVING TURNOVER LESS THAN RS.1 CRORE: 17 THIS FILTER WAS APPLIED BY TPO ON THE GROUND THAT WHERE THE TURNOVER AND COST BASE IS VERY SMALL, IT IS MORE THAN LIKELY THAT THE MARGINS WELL BE ERRATIC. THE TPO WAS OF THE OPINION THAT A COMPANY WHICH IS VERY SMALL IN SIZE DOES NOT HAVE SUFFICIENT ECONOMIC SIGNIFICANCE THAT IT BE USED AS A BENCH MARK. THE ASSESSEE OBJECTED TO THE FILTER ON THE GROUND THAT TURNOVER FILTER SHOULD NOT BE USED AND IF IT IS USED THEN THE HIGH TURNOVER FILTER SHOULD ALSO BE USED. AST THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR EXCLUSION OF COMPANIES ON THE GROUND OF HIGH TURNOVER FILTER. AS FAR AS THE ASSESSEE S CLAIM FOR INCLUSION OF COMPARABLES WHERE TURNOVER IS LESS THAN 1 CRORE IS CONCERNED, WE D O NOT FIND ANY SUBSTANCE IN THE SAME BECAUSE IN SERVICE SECTOR TURNOVER HAS NO RELEVANCE PARTICULARLY WHEN TNMM METHOD HAS BEEN SELECTED AS THE MOST APPROPRIATE METHOD. IN THE CASE OF COMPANIES WITH LOW LEVEL OF SALES/OPERATING INCOME, THE COMPANIES MAY B E OPERATING WITH ALTOGETHER DIFFERENT MANAGEMENT MODEL INCLUDING LACK OF HUMAN RESOURCES. THEREFORE, THE MARGIN OF COMPANIES HAVING TURNOVER OF LESS THAN 1 CRORE FLUCTUATE TO EXTREME BECAUSE OF THE NARROW BASE. 16. FOLLOWING THE FINDINGS OF THE EARLIER BENCH OF THE TRIBUNAL IN THE CASES OF (I) M/S. HAWORTH INDIA (P) LTD (2011 - TII - 64 - ITAT - DEL - TP) AND (II) M/S. CRM SERVICES INDIA LTD (2001 - TII - 86 - ITAT - DEL - TP) WHICH REJECTED COMPARABLE AS ITS TURNOVER WAS LESS THAN RS.1 CRORE, THE TRIBUNAL FOUND THERE WAS NO REASON TO INTERFERE WITH THE ORDER OF DRP ON THIS COUNT. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS FOR THE AY UNDER DISPUTE, THE TPO DID NOT CONCUR WITH THE ASSESSEE S RATIONALE OF NOT APPLYING TURNOVER FILTER AND P ROCEEDED TO APPLY A QUANTITATIVE FILTER OF REJECTING COMPANIES WITH TURNOVER LESS THAN RS.5 CRORES. AGGRIEVED BY THE TPO S STAND, THE SUBMISSION MADE BY THE ASSESSEE BEFORE U S IS THAT THERE WAS AN INCONSISTENCY IN THE APPROACH OF THE TPO WHILE APPLYING THE TURNOVER FILTER, IN THE CASE OF THE ASSESSEE ITSELF IN THE IMMEDIATELY PRECEDING YEAR WHEREIN THE TPO HAD APPLIED A TURNOVER FIL TER OF LESS THAN RS. 1 CRORE AS A COMPARABILITY CRITERION. IN THIS REGARD, IT WAS SUBMITTED BY THE ASSESSEE THAT THE TPO HAD NOT PROVIDED ANY ECONOMIC RATIONAL OR LOGIC FOR RAISING THE SAID LIMIT TO RS.5 CRORES AS AGAINST RE.1 CRORE ADOPTED IN THE IMMEDIATELY PRECEDING YEAR, GOING BY THE SAID LOGIC, AN APPROPRIATE LIMIT COULD BE RS. 10 CRORES INSTEAD OF RS.5 CRORE. IT WAS THE S TAND OF THE ASSESSEE THAT SUCH AN APPROACH ADOPTED BY THE TPO WAS NOT IN ACCORDANCE WITH LAW AND ALSO AGAINST THE PRINCIPLES OF APPLICATION OF TP REGULATIONS. THE ASSESSEE HAD FURTHER CONTENDED THAT THE TPO WORKED ON MERE ESTIMATES / GUESS WORK AND FAILED TO PROVIDE ANY COGENT REASONING TO DEVIATE FROM THE POSITION ADOPTED IN THE 8 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 EARLIER YEARS. TO SUPPORT ITS CONTENTION, THE ASSESSEE HAS RELIED ON THE FINDINGS OF THE (I)ITAT, PUNE BENCH IN THE CASE OF BRINTONS CARPETS ASIA PRIVATE LIMITED [ITA NO.1321/PN /2011] AND (II) ITAT, BANGALORE BENCH IN THE CASE OF LENOVO (INDIA) PRIVATE LIMITED [ITA NO.1457/BANG/2010]. 17. WE HAVE CAREFULLY PERUSED THE SUBMISSIONS OF THE ASSESSEE. WE FIND THAT THERE WAS AN INCONSISTENCY IN THE APPROACH OF THE TPO WHILE APPLYING T HE TURNOVER FILTER, IN THE CASE OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR WHEREIN THE TPO HAD APPLIED A TURNOVER FILTER OF LESS THAN RS. 1 CRORE AS A COMPARABILITY CRITERION. THE TPO HAD ALSO NOT PROVIDED ANY ECONOMIC RATIONAL OR LOGIC FOR RAISI NG THE SAID LIMIT TO RS.5 CRORES AS AGAINST R S .1 CRORE ADOPTED IN THE IMMEDIATELY PRECEDING YEAR. IN VIEW OF THE AFORE - SAID REASONING, WE DIRECT THE TPO TO EXCLUDE ONLY THOSE FROM THE COMPARABLE LIST WHICH WERE HAVING TURNOVER OF LESS THAN R S . 1 CRORE INST EAD OF RS. 5 CRORES. IT IS ORDERED ACCORDINGLY. (II) WITH REGARD TO APPLYING OF A FILTER OF EXCLUDING COMPANIES WITH EMPLOYEE COST OF LESS THAN 25% OF THE TOTAL COST : 20 ..THE TPO APPLIED THIS FILTER ON THE GROUND THAT THE COMPANIES WHICH ARE ENGAGED IN SOFTWARE DEVELOPMENT REQUIRE A MINIMUM LEVEL OF EXPENDITURE ON PERSONNEL EXPENSES. HE REFERRED TO CERTAIN JUDICIAL PRONOUNCEMENTS IN SUPPORT OF HIS CONTENTION THAT EXPENSE ON PERSONNEL BEING EXTREMELY LOW MAY LEAD TO THE CONCLUSION THAT COMPANY IS NOT ENGAGED IN SOFTWARE DEVELOPMENT. THE TPO OBSERVED THAT EXTREMELY LOW EXPENDITURE ON SALARY/EMPLOYEE COST IS AN INDICATION THAT THE COMPANY IS EITHER INTO FURTHER OUTSOURCING OF THE WORK OR IS A SOFTWARE PRODUCT DEVELOPER OR A SOFTWARE TRADING COMPANY. TH E ASSESSEE S CONTENTION WAS THAT THERE ARE NO GENERAL ACCOUNTING NORMS THAT GOVERN THE DISCLOSURE OF EMPLOYEE COST IN THE PROFIT AND LOSS ACCOUNT. IT WAS, FURTHER, CONTENDED THAT SOME COMPANIES MAY CHOOSE TO OUTSOURCE THEIR SOFTWARE DEVELOPMENT. THE CLAI M OF THE ASSESSEE WAS THAT THERE WAS NO COMPREHENSIVE AND EXHAUSTIVE WAY IN WHICH THESE EXPENSES CAN BE TRACKED. THE TPO AFTER CONSIDERING THESE SUBMISSIONS OBSERVED THAT THIS FILTER IS JUST A TRIGGER TO SEE THE FUNCTIONALITY OF THE COMPARABLE COMPANY. H E POINTED OUT THAT HE HAD NOT OUT - RIGHTLY APPLIED THIS FILTER. HE REFERRED TO THE DECISION IN THE CASE OF VIDARIS TECHNOLOGIES LTD BY THE ITAT, DELHI WHEREIN IT WAS HELD THAT COMPANIES THAT HAVE LOWER LEVELS OF EMPLOYEE COST MAY NOT BE SOFTWARE DEVELOPERS . THEY MAY BE INVOLVED IN OTHER ACTIVITIES LIKE TRADE OF SOFTWARE PRODUCT ETC. HE POINTED OUT THAT THIS FILTER MAY BE DESCRIBED AS DIAGNOSTIC TOOL ONLY. THE OBJECT OF SUCH TOOL IS TO ARRIVE AT A SET OF COMPARABLE I.E., CLOSEST TO THE TAX PAYER IN FUNCTIONS. HIS CONTENTION WAS THAT THIS QUANTITATIVE FILTER ESSENTIALLY CONTROLS THE 9 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 SUBJECTIVE ELEME NT IN THE QUALITATIVE ANALYSIS. LD. DRP CONFIRMED THE TPO S ACTION, INTER ALIA, OBSERVING THAT VERY LOW EMPLOYEE COST, VIZ., LESS THAN 25% OF TOTAL COST, INDICATES THAT COMPANY IS EITHER ENGAGED IN SOME OTHER BUSINESS OR IT HAS OUTSOURCED THE SERVICE FUNC TIONS TO A THIRD PARTY, I.E., IT IS NOT RENDERING SERVICES ON ITS OWN. 21 WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF LD. DRP ON THIS COUNT BECAUSE IN ORDER TO CONSIDER THE FUNCTIONAL SIMILARITY OF TWO COMPARABLE, IT IS NECESSARY THAT SU CH QUANTITATIVE FILTERS ARE APPLIED TO REACH A REASONABLE CONCLUSION REGARDING FUNCTIONAL SIMILARITY. AS RIGHTLY POINTED OUT BY LD. TPO THIS FILTER ESSENTIALLY WORKS AS A DIAGNOSTIC TOOL IN DECIDING THE FUNCTIONAL SIMILARITY OF TWO COMPARABLE. 22. IN VIEW OF ABOVE DISCUSSION, THIS GROUND IS DISMISSED. 18. THE FACTS FOR THE PRECEDING AND CURRENT AYS BEING IDENTICAL, WE SEE NO REASON TO INTERFERE WITH THE ORDERS OF TPO AND DRP IN APPLYING FILTER OF E XCLUDING COMPANIES WITH COMPANIES WITH EMPLOYEE COST OF LE SS THAN 25% OF TOTAL COST . (III) IN RESPECT OF COMPANIES HAVING DIMINISHING REVENUES/PERSISTENT LOSSES ETC. : 25 ..WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. DRP/AO BECAUSE THE DIMINISHING REVENUE/PERSISTENT LOSSES ARE NOT IN CONFORMIT Y WITH THE NORMAL OPERATIONAL RESULTS IN THIS LINE OF ACTIVITY. THEY MAY BE INDICATOR OF THE COMPANY ON THE VERGE OF CLOSER ON ACCOUNT OF UNDER - UTILIZATION OF ASSETS OR HUMAN RESOURCES WHICH HAD BEEN CREATED/RECRUITED EARLIER. THESE EXCEPTIONAL CIRCUMSTA NCES ARE NOT QUANTIFIABLE AND, THEREFORE, THESE COMPANIES CANNOT BE TAKEN AS COMPARABLE. WE, THEREFORE, REJECT THIS GROUND OF APPEAL. 19. I T WAS SUBMITTED BY THE LEARNED AR THAT THE ABOVE ISSUE OF EXCLUDI N G COMPANIES AS COMPARABLE ON THE BASIS OF DIMINISHING REVENUE/PERSISTENT LOSSES ETC., THOUGH IDENTICAL TO THE LAST YEARS, THE ASSESSEE HAD FILED AN APPEAL TO THE HON BLE HIGH COURT U/S 260A OF THE ACT AND THE HON BLE COURT ADMITTED THE PLEA OF THE ASSESSEE AS SUBSTANTIAL QUESTION OF LAW IS INVOLVED. HOWEVER, IN ORDER TO MAINTAIN CONSISTENCY, WE FOLLOW THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE AY 2008 - 09 AND DECIDE THE ISSUE AGAINST THE ASSESSEE. THEREFORE, GROUND NO.3.4.1 IS PARTLY ALLOWED SINCE THE TPO HAS BEEN DIRECTED TO EXCLUDE ONLY THOSE COMPANIES FROM THE COMPARABLE LIST HAVING TURNOVER OF LESS THAN R S . 1 CRORE INSTEAD OF RS.5 CRORES. HOWEVER, GROUND NOS.3.4.2 AND 3.4.4 ARE DECIDED AGAINST THE ASSESSEE. 10 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 GRO UND NO. 3.5 : EXC LUSION OF COMPANIES WITH EXPORT EARNINGS OF LESS THAN 75% OF T HE OPERATING REVENUES INCLUDING CERTAIN COMPANIES WHICH HAVE E ARNED SUPERNORMAL PROFITS AS COMPARED TO THE ASSESSEE AND INCLUDING VOLATILE/ HIGH PROFIT MAKING COMPANIES IN THE FINAL COMPARABLE SET FOR BENCH - M A RKING A LOW RISK CAPTIVE UNIT SUCH AS T HE ASSESSEE, THUS DEMONSTRATING AN INTENTION TO ARRIVE AT A PRE - F ORMULATED OPINION WITHOUT COMPLETE AND ADEQUATE APPL ICATIO N OF MIND WITH SINGLE - MINDED INTENTION OF MAKING ADDITION TO THE RETURNINCOME OF THE ASSESSEE ETC: 20. HOWEVER, DURING THE COURSE OF HEARING, NO SPECIFIC ARGUMENT WAS PUT - FORTH WITH REGARD TO EXCLUSION OF COMPANIES WITH EXPORT EARNING OF LESS THAN 75% OF THE OPERATING REVENUES. THEREFORE, GROUND NO.3.5 WAS NOT TAKE N UP FOR ADJUDICATION. GROUND NO. 3. 6 : INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPARABLE TO THE ASSESSEE IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED : & GROUND NO. 3.7 : EXCLUDING CERTAIN COMPANIES ON ARBITRARY / FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE ASSESSEE IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED: 21. T HESE GROUNDS RELATE TO THE ISSUE OF INCLUSION / EXCLUSION OF CERTAIN COMPANIES BY THE TPO IN THE LIST OF COMPARABLE. AS MENTIONED IN THE EARLIER PART OF THIS ORDER, AFTER THE DIRECTIONS OF THE DRP, THE FINAL LIST OF COMPARABLE WAS 17 COMPANIES WITH MEAN M ARGIN OF 25.55% COMPARED TO THE ASSESSEE S MARGIN OF 10.53% AFTER EXCLUDING FOREIGN EXCHANGE LOSS AS NON - OPERATING. THE DETAILS OF FINAL LIST OF COMPARABLE ARE AS FOLLOWS: (1) AKSHAY SOFTWARE TECHNOLOGIES LIMITED (2) AZTECSOFT LIMITED (CONSOLIDATED) (3) BOTHTREE CONS ULTING (STANDALONE) (4) CAT TECHNOLOGIES (5) CG - VAK SOFTWARE & EXPORTS LIMITED (SEG.) (6) GOLDSTONE TECHNOLOGIES LIMITED (7) INFOSYS (8) LARSEN & TOUBRO INFOTECH LIMITED (9) LGS GLOBAL LIMITED (10) MINDTREE LIMITED (11) PERSISTENT SYSTEMS LIMITED (12) RS SOFTWARE (I) LIMITED (13) SASKEN COMMUNICATION TECHNOLOGIES LIMITED (14) TATA ELXSI LIMITED (SEG) (15) TATA CONSULTANCY SERVICES LIMITED (CONSOLIDATED) 11 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 (16) THINKSOFT GLOBAL SERVICES LIMITED (17) THIRDWARE SOLUTIONS LIMITED 22. THE ASSESSEE, OUT OF THE ABOVE SET OF COMPARABLE, IS AGGRIEVED THE INCLUSION OF THE FOLLOWING COMPANIES AS COMPARABLE, NAMELY: (1) BODHTREE CONSUL. (2) CAT TECH. (3) INFOSYS (4) L & T INFOTECH (5) MINDTREE (6) PERSISTENT SYS TEMS LIMITED (7) TATA ELXSI (8) TCS & (9) THIRDWARE SOLUTIONS LTD 23. OUT OF THE 9 COMPANIES, THE ASSESSEE IS AGGRIEVED FOR THEIR INCLUSION IN THE FINAL LIST OF COMPARABLE, FOUR COMPANIES WAS ALSO INCLUDED AS COMPARABLE COMPANIES IN THE PRECEDING ASSESSMENT YEAR [2008 - 09], NAMELY: (1) BODHTREE CONSUL. (2) CAT TECH. (3) INFOSYS (4) TATA ELXSI 24. THE EARLIER BENCH OF THIS TRIBUNAL, FOR THE AY 2008 - 09 IN THE ASSESSEE S OWN CASE, RESTORED THE ISSUE OF INCLUSION OF THESE COMPANIES TO THE TPO FOR DE NOVO CONSIDERATION. THE RELEVANT FINDINGS OF THE TRIBUNAL READ AS FOLLOWS: 59. GROUND NO.3.6 & 3 .7 PRIMARILY ASSAILS THE INCLUSION/EXCLUSION OF CERTAIN COMPANIES ON THE BASIS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED. IN THIS REGARD, MAIN CONTENTION OF LD. COUNSEL FOR THE ASSESSEE IS THAT LD. TPO / DRP HAVE NOT CORRECTLY APPRECIATED THE DIFFERENCE IN FU NCTIONAL PROFILE OF COMPANIES. HE SUBMITTED THAT THE DISTINCTION HAS TO BE KEPT BETWEEN THE SOFTWARE DEVELOPMENT SERVICE PROVIDER AND SOFTWARE PRODUCT COMPANY . 60. LD. COUNSEL VEHEMENTLY SUBMITTED THAT A SOFTWARE PRODUCT COMPANY CANNOT BE COMPARED WITH A PURE SOFTWARE SERVICE PROVIDER. HE EXPLAINED THAT A SOFTWARE PRODUCT COMPANY UNDERTAKES ALL THE STEPS INVOLVED IN CREATING SOFTWARE FROM DOMAIN ANALYSIS TO TEST ING. IN THIS CASE, INTELLECTUAL PROPERTY BELONGS TO THE COMPANY. THE PRODUCTS ARE SOLD GENERALLY ON LICENSE BASIS WHEREIN RIGHT TO USE THE SOFTWARE IS TRANSFERRED WITHOUT GIVING THE SOURCE CODE. HOWEVER, A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER IMPAR TS A PART OF THE ENTIRE SOFTWARE DEVELOPMENT 12 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 PROCESS. IT DOES NOT GENERATE ANY INTELLECTUAL PROPERTY FOR ITS OWN. THE INTELLECTUAL PROPERTY GENERATED BELONGS TO THE CUSTOMER AND NOT TO THE SERVICE PROVIDER. WITH REFERENCE TO THIS DISTINCTION LD. COUNSEL SUBMITTED THAT IN THE CASE OF TESTED PARTY I.E., THE ASSESSEE, A COMPARABLE CAN BE SELECTED WHICH IS PRIMARILY CARRYING OUT THE FUNCTIONS OF AS SOFTWARE SERVICE PROVIDER. HE, THEREFORE, SUBMITTED THAT IF A COMPARABLE IS BOTH SOFTWARE PRODUCT AS WELL AS S OFTWARE DEVELOPMENT SERVICE PROVIDER THEN UNLESS THE SEGMENTAL DETAILS ARE AVAILABLE, THE COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLE. 61. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES ON THIS COUNT AND FIND CONSIDERABLE FORCE IN THE A RGUMENT OF LD. COUNSEL FOR THE ASSESSEE BECAUSE UNLESS THERE IS FUNCTIONAL COMPARABILITY BETWEEN TESTED PARTY AND THE COMPARABLE SELECTED, THE SAME CANNOT BE TAKEN AS A COMPARABLE FOR BENCH MARKING THE ARM S LENGTH PRICE. THE ARGUMENTS OF LD. COUNSEL FOR THE ASSESSEE IN REGARD TO SOFTWARE PRODUCT COMPANY DO NOT REQUIRE DETAILED ELABORATION. THE INTELLECTUAL PROPERTY IN THIS CASE BELONGS TO THE COMPANY. THE COMPANY PRIMARILY DEALS IN SOFTWARE PRODUCES PER SE. WHENEVER IT SELLS ITS PRODUCT IT WILL ONLY GRA NT LICENSE TO USE THE SOFTWARE BUT WILL NOT PART WITH THE SOURCE CODE. THE PAYMENT RECEIVED BY THIS COMPANY ARE (IS) THE PAYMENTS FOR THE USE OF ITS COPYRIGHT AND, ACCORDINGLY, TAXED AS ROYALTY. HOWEVER, AS FAR AS SOFTWARE DEVELOPMENT SERVICE PROVIDER IS CONCERNED, IN OUR OPINION, IT IMPARTS TWIN SERVICES FIRSTLY AS SOFTWARE DEVELOPER AND SECONDLY AS SOFTWARE SERVICE PROVIDER. AS FAR AS SOFTWARE DEVELOPER COMPANIES ARE CONCERNED THEY PRIMARILY DEVELOP THE SOFTWARE DEPENDING UPON THE NEED OF ITS CLIENTS WHICH IS PRIMARILY A CUSTOMIZED SERVICE. HOWEVER, A SERVICE PROVIDER MAINLY IMPARTS CONSULTANCY REGARDING SOFTWARE. IN COMMON PARLANCE, HOWEVER, THIS DISTINCTION OFTEN GETS BLURRED AND BOTH ARE TAKEN AS PERFORMING SIMILAR FUNCTIONS AND, THEREFORE, CATEG ORIZED IN ONE CATEGORY ONLY. THEREFORE, AT LEAST THE SEGMENTAL DETAILS IN THE CASE OF A COMPANY WHICH IS BOTH SOFTWARE PRODUCT AS WELL AS SOFTWARE DEVELOPMENT SERVICE PROVIDER HAVE TO BE AVAILABLE IN RESPECT OF BOTH THESE SEGMENTS. WHILE SELECTING THE CO MPARABLE LD. TPO / LD. DRP IN PRINCIPLE WERE AGREEABLE THAT SOFTWARE PRODUCT COMPANY CANNOT BE COMPARED WITH SOFTWARE SERVICE PROVIDER. THIS IS EVIDENT FROM THE FACT THAT TPO WHILE APPLYING THE FILTERS HAD ACCEPTED THE ASSESSEE S FILTER OF REJECTING COMPA NIES UNDERTAKING SIGNIFICANTLY DIFFERENT FUNCTIONS COMPARED TO ASSESSEE. IN PARA 8(3) O HIS SHOW - CAUSE NOTICE LD. TPO APPLIED FOLLOWING FILTER STATING AS UNDER: 8. HOWEVER, THESE ARE CURABLE DEFECTS. THIS LEADS US TO THE NEXT QUESTION AS TO WHAT WILL B E THE CORRECT SET OF FILTERS TO BE USED IN YOUR CASE. COMPANIES IN YOUR SET WERE SUBJECTED TO FOLLOWING FILTERS: (III) SELECT COMPANIES WHERE THE RATIO OF SERVICE INCOME TO TOTAL INCOME IS AT LEAST 75%: THE USE OF THIS FILTER IS TO ENSURE THAT WE CHOOSE COMPANIES THAT ARE PRIMARILY IN THE SERVICE SECTOR. THE APPLICATION OF THIS FILTER WILL ENSURE THAT COMPANIES WITH SIGNIFICANT INCOME FROM MANUFACTURING AND TRADING ARE NOT SELECTED. YOU HAVE ARGUED FOR 13 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 PLACING THIS THRESHOLD AT 50%. THIS WILL BE AN INAPPROPRIATE LIMIT AS THIS WILL ALLOW COMPANIES THAT HAVE SIGNIFICANT INCOMES FROM MANUFACTURING AND TRADING ACTIVITIES TO BE USED AS COMPARABLE. IN YOUR CASE, YOUR ENTIRE INCOME IS FROM PROVISION OF SERVI CES. IT WOULD NOT BE RIGHT TO ALLOW YOU TO BE BENCHMARKED AGAINST A COMPANY THAT HAS 50% OF ITS INCOME FROM MANUFACTURING OR TRADING ACTIVITIES. THIS WILL ENSURE INTEGRITY OF ALL COMPARABLE DATA. 62. FROM THE ABOVE, IT IS EVIDENT THAT THOUGH ASSESSEE W AS CLAIMING THE THRESHOLD OF REVENUE FROM SERVICE SECTOR AT 50% BUT LD. TPO TOOK IT AT 75%. THIS DEMONSTRATES THAT TPO WAS GIVING MORE WEIGHTAGE TO FUNCTIONAL PROFILE. THEREFORE, THE SEGMENTAL INFORMATION ABOUT REVENUE FROM SOFTWARE SERVICES WAS SINCE QU A NON BEFORE CONSIDERING A PARTICULAR COMPANY IN THE SET OF COMPARABLE. WE FIND THAT LD. TPO / LD. DRP HAVE PRIMARILY RELIED UPON THE INFORMATION CONTAINED IN THE ANNUAL REPORT BUT THE FINANCIAL STATEMENTS HAVE NOT BEEN EXAMINED IN THIS REGARD. THE ASSES SEE HAS ASSAILED THE INCLUSION OF FOLLOWING COMPARABLE ON THIS COUNT: (1) E INFOCHIPS BANGALORE LTD.; (2) E INFOCHIPS LTD.; (3) KALS INFORMATION SYSTEMS LTD (SEG); (4) BODHTREE CONSULTING LTD.; (5) SOFTSOL INDIA LTD.; (6) CAT TECHNOLOGIES LTD.; (7) GOLDSTONE TECHNOLOGIES LTD.; (8) I NFOSYS TECHNOLOGIES LTD.; (9) TATA ELXSI LTD. (SEG). 63. THE INFORMATION CONTAINED IN ANNUAL REPORT CANNOT BE TAKEN AS SACROSANCT UNLESS THE SAME IS DULY CORROBORATED WITH THE FINANCIAL STATEMENTS 64. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF AO / TPO FOR VERIFICATION OF DETAILS WITH REFERENCE TO FINANCIAL STATEMENTS AND OTHER RELEVANT DOCUMENTS / INFORMATION. WHILE EXAMINING THE AFORE - MENTIONED ISSUE LD. TPO WILL ALSO EXAMINE THE ABNORMAL FACTORS, IF ANY, BROUGHT TO HIS NOTICE BY ASSESSEE WHICH WAS THE REAL CAUSE OF HIGH VOLATILITY OF MARGINS FOR MAKING NECESSARY ADJUSTMENTS. IN VIEW OF ABOVE DISCUSSION, GROUND NOS. 3.6 AND 3.7 ARE ALLOWED FOR STATISTICAL PURPOSES. 25. IN ORDER TO MAINTAIN CONSISTENCY AND ALSO WHEN THE MATTER FOR THE AY 2008 - 09 IS PENDING DE NOVA CONSIDERATION BEFORE THE TPO, WE RESTORE THIS ISSUE OF INCLUSION OF ABOVE FOUR COMPANIES NAMELY, BODHTREE CONSUL. , CAT TECH., INFOSYS AND TATA ELXSI TO THE TPO FOR FRESH CONSIDERATION. THE TPO SHALL KEEP IN MIND THE DIRECTIONS OF THE EARLIER BENCH AT PARAS 61 TO 64 OF ITS ORDER FOR THE PRECEDING ASSESSMENT YEAR 14 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 (2008 - 09) IN THE ASSESSEE S OWN CASE. WE ARE LEFT WITH FIVE COMPANIES, FOR WHICH THE ASSESSEE IS AGGRIEVED FOR THEIR INCLUSION AS COMPARABLE, NAMELY : (1) PERSISTENT SYS TEM S LIMITED , (2) THIRDWARE SOLUTIONS LTD (3) TCS (4) L&T INFOTECH & (5) MINDTREE WE SHALL DEAL WITH THE ABOVE FIVE COMPANIES IN THE FOLLOWING MANNER: (1) PERSISTENT SYSTEMS LIMITED : 26. THIS COMPANY WAS INCLUDED BY THE ASSESSEE ITSELF AS A COMPARABLE. HOWEVER, IN VIEW OF THE ORDER OF THE SPECIAL BENCH IN THE CASE OF DCIT V. QUARK SYSTEMS (P) LTD REPORTED IN (2010) 132 TTJ (CHD) (SB) 1, THE ASSESSEE CAN RESCIND FROM ITS EARLIER ADMISSION PROVIDED THE ASSESSEE IS ABLE TO POINT OUT ANY MATERIAL DIFFERENCE WITH THE ASSESSEE AND COMPARABLE COMPANIES AND SUITABLE ADJUSTMENT COULD NOT BE MADE TO IRON OUT THE DIFFERENCES. IN CASE OF PERSISTENT SYSTEMS LIMITED, THE ASSESSEE OBJECTS TO ITS INCLUSION FOR THE REASONING THAT (I) THE COMPANY DERIVE ITS INCOME FROM THE SALE OF SOFTWARE SERVICES AS WELL AS PRODUCTS, (II) SINCE THE ANNUAL REPORT DOES NOT PROVIDE ANY FURTHER BREAK - UP OF INCOME INTO PRODUCTS AND SERVICES; AND (III) HI GH TURNOVER AND ALSO ABNORMAL HIGH PROFIT MARGIN. IT WAS, THEREFORE, CONTENDED THAT PERSISTENT SYSTEMS LIMITED CANNOT BE TREATED AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. 27. WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS PUT - FORTH BY THE ASSESSEE. HIGH TURNOVER AND ABNORMAL HIGH PROFIT MARGIN PER SE CANNOT BE A REASON FOR REJECTING A COMPANY AS COMPARABLE, UNLESS, THE R E ARE OTHER CUMULATED REASONS WHICH DO NOT SATISFY THE FAR ANALYSIS. WE FIND FROM THE ANNUAL REPORT OF PERSISTENT SYSTEMS LIMITED THAT IT HAS BEEN DERIVING INCOME FROM SALE OF SOFTWARE SERVICE AND SOFTWARE PRODUCTS AND THE SEGMENTAL DETAILS WERE NOT AVAILABLE. SINCE THIS COMPANY WAS INCLUDED AS COMPARABLE BY THE ASSESSEE ITSELF AND NOT CONTESTED BEFORE THE TPO/DRP AND IN THE INTEREST OF TH E PRINCIPLES OF NATURAL JUSTICE AND FAIRNESS, WE DIRECT THE TPO TO EXAMINE AS TO WHETHER THE INCOME DERIVED FROM SALE OF PRODUCTS 15 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 CAN BE EXCLUDED WHILE WORKING OUT THE MARGIN OF THIS COMPANY. IT IS ORDERED ACCORDINGLY. (2) THIRDWARE SOLUTIONS LTD : 28. THE ASSESSEE OBJECTS TO THE INCLUSION OF THIS COMPANY AS COMPARABLE FOR THE REASON THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE SINCE AS PER THE ANNUAL REPORT FOR THE AY 2009 - 10 - , THIRDWARE WAS DERIVING INCOME FROM VARIOUS SOURCES SUCH AS SALE OF LICENSE, SOFTWARE SERVICES, EXPORT FROM SEZ UNIT, REVENUE FROM SUBSCRIPTION. FURTHER, IT WAS SUBMITTED THAT IT WAS ENGAGED IN DIVERSIFIED BUSINESS INCLUDING SOFTWARE PRODUCTS AND, HENCE, IT CANNOT BE CONSIDERED AS A COMPARABLE. HOWEVER, THE TPO HAD OBSERVED IN HIS ORDER THAT THE TAXPAYER HAD NOT CONSIDERED EXPORT FROM SEZ UNIT AND STPI UNIT AS SOFTWARE SERVICE EXPORT AND THAT ITS ANNUAL REPORT IN ITS ENTIRETY MAKES IT CLEAR THAT THESE EXPORTS WERE SOFTWARE SERVICE EXPORTS. AFTER ANALYSING TH E DETAILS OF PURCHASE, THE TPO HAD OBSERVED THAT MAJORITY OF EXPENSES WERE IN THE FORM OF SOFTWARE SERVICE CHARGES AND SALARIES WHICH CLEARLY ESTABLISH THAT THE EXPORTS WERE SOFTWARE SERVICE EXPORTS. ACCORDING TO THE TPO, THE DETAILED UNIT - WISE BREAK - UP O F INCOME AND EXPENSES CLEARLY ESTABLISH THAT THE COMPANY WAS PROVIDING SOFTWARE DEVELOPMENT SERVICES. AFTER ANALYSING (I) THE FOREIG N EXCHANGE EARNINGS AND OUTGOING, (II) TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION, (III), QUANTITATIVE DETAILS AND (I V) SEGMENT REPORTING IN THE ANNUAL REPORT, THE TPO CAME TO THE CONCLUSION THAT THIRDWARE SOLUTIONS LTD. WAS COMPARABLE AND, THUS, REJECTED THE ASSESSEE S CONTENTION [REFER: PAGES 68 TO 70 OF TPO S ORDER] . THE DRP , IN ITS DIRECTIONS , HAD ALSO REJECTED THE ASSESSEE S OBJECTION FOR THE REASON THAT THE ANNUAL REPORT IS VERIFIED AND IT IS OBSERVED THAT AS PER PAGE 54 OF ANNUAL REPORT: 23)SEGMENT REPORTING: THE COMPANY S OPERATION COMPRISES OF SOFTWARE DEVELOPMENT, IMPLEMENTATION AND SUPPORT SERVICES . SOFTWA RE DEVELOPMENT, IMPLEMENTATION AND SUPPORT SERVICES ARE VARIOUS SUB - SEGMENTS OF SOFTWARE DEVELOPMENT SERVICES ONLY AND REQUIRE EMPLOYMENT OF SOFTWARE ENGINEERS. [SOURCE: PAGE 13 OF DR P S DIRECTIONS] . 29. WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE ASSESSEE AND ALSO PERUSED THE TPO S REASONING AND THE DIRECTIONS OF DRP IN REJECTING THE ASSESSEE S CLAIM. IN THE ABSENCE OF ANY DOCUMENTARY MATERIALS, THE CLAIM OF THE ASSESSEE THAT 16 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 THE FUNCTIONING OF T HIRDWARE SOLUTIONS LIMITED WAS DIFFERENT FROM THAT OF THE ASSESSEE IS REJECTED. WE ARE IN AGREEMENT WITH THE DRP S OBSERVATION THAT SOFTWARE DEVELOPMENT, IMPLEMENTATION AND SUPPORT SERVICES ARE VARIOUS SUB - SEGMENTS OF SOFTWARE DEVELOPMENT SERVICES ONLY AN D REQUIRE EMPLOYMENT OF SOFTWARE ENGINEERS . IN VIEW OF THE ABOVE, THE TPO IS DIRECTED TO INCLUDE THIS COMPANY AS COMPARABLE WITH A RIDER TO EXCLUDE THE FIGURE OF SALE AND PURCHASE OF LICENSE. FOR THIS LIMITED PURPOSE, THIS ISSUE IS RESTORED ON THE FILE OF THE TPO TO CARRY OUT THE ABOVE DIRECTION. IT IS ORDERED ACCORDINGLY. (3) TCS: 30. THE ASSESSEE S OBJECTION FOR THE INCLUSION OF THIS COMPANY IS THAT THE SERVICE AND OFFERINGS OF TCS IS WIDE ENCOMPASSING IT SOLUTIONS AND SERVICES WHICH INCLUDES ASSURANCE (TESTING) AND SYSTEMS INTEGRATIONS SERVICES, ENTERPRISE SOLUTIONS, IT INFRASTRUCTURE SERVICES, BUSINESS PROCESS OUT - SOURCING, IT ENABLED SERVICES, ENGINEERING AND INDUSTRIAL SERVICES, ASSET BASED SOLUTIONS ETC. IT WAS ALSO ARGUED THAT THE COMPANY PROVIDES A WIDE RANGE OF R & D AND PRODUCT DEVELOPMENT SOLUTIONS. IT WAS, FURTHER, SUBMITTED THAT TCS HAS (I) SIGNIFICANT R & D ACTIVITIES, (II) SIGNIFICANT INTELLECTUAL PROPERTY, (III) SIGNI FICANT INTANGIBLE ASSETS, (IV)HIGH TURNOVER, INDUSTRY GIANT AND SIGNIFICANT BRAND VALUE AND (V) INSUFFICIENT SEGMENTAL INFORMATION. IT WAS, THEREFORE, PLEADED THAT TCS SHOULD NOT HAVE BEEN INCLUDED AS A COMPARABLE COMPANY BY THE IT AUTHORITIES . 31. THE TPO IN HIS ORDER OBSERVED THAT THE ASSESSEE HAD CONSIDERED THE ENGINEERING AND INDUSTRIAL SERVICES OF TCS AS SEPARATE SERVICES. ACCORDING TO THE TPO, THESE WERE VERY MUCH SOFTWARE SERVICE THOUGH IN THE VERTICAL OF ENGINEERING AND AFTER CONSIDERING THE SE SERVICES AS PART OF SOFTWARE SERVICES, SERVICE REVENUE WAS 77.62% WHICH ALSO IN CONFORMITY WITH THE DISCUSSION MADE BY THE MANAGEMENT ON PAGES 55 & 56 OF THE ANNUAL REPORT OF THE COMPANY AND ACCORDINGLY SELECTED TCS AS A COMPARABLE. [REFER: PAGES 73 & 74 OF TPO S ORDER]. THE DRP, IN ITS DIRECTIONS, HAD REJECTED THE ASSESSEE S OBJECTION ON THE GROUND THAT AS PER ANNUAL REPORT, OUT OF TOTAL SALES OF RS.27385 CRORES ONLY RS.1919 CRORES WAS FROM BPO AND RS.2225 CRORES FROM IT INFRASTRUCTURE SERVICES AND OUT OF TOTAL TURNOVER, THOSE SEGMENTS (BPO) CONSTITUTE ONLY 15% OF THE TOTAL REVENUE. BESIDES, IT WAS OBSERVED 17 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 BY THE DRP, THE PROFIT MARGINS IN THESE SEGMENTS WERE LOWER AND, HENCE, BY INCLUDING THE PERFORMANCE OF THESE SEGMENTS, NO PREJUDICE IS BEING CA USED TO THE ASSESSE E. FURTHER, SALE OF EQUIPMENT AND SOFTWARE LICENSE CONSTITUTES ONLY 3.76% OF TOTAL SALES AND, HENCE, IT WAS STILL PREDOMINANTLY A SOFTWARE DEVELOPMENT SERVICE PROVIDER. QUOTING THE ANNUAL REPORT (PAGE 30), THE DRP HAD JUSTIFIED THE REJ ECTION OF THE ASSESSEE S CONTENTION FOR THE REASON THAT THE PATENTS RECEIVED WERE MAINLY IN RESPECT OF SERVICES, PROCESSES AND SOME MINOR APPARATUS AND IN RESPECT OF SOFTWARE PRODUCTS. [SOURCE: PAGES 13 & 14 OF DRP S ORDER]. 32. WE HAVE CAREFULLY CONSIDER ED THE ASSESSEE S SUBMISSION AND ALSO PERUSED THE OBSERVATION OF THE TPO AND THE DIRECTIONS OF DRP ON THE ISSUE. T HE FUNCTIONING OF TCS WAS DISSIMILAR TO THAT OF THE ASSESSEE . T HE SERVICE AND OFFERINGS OF TCS WAS WIDE ENCOMPASSING IT SOLUTIONS AND SERVICES WHICH INCLUDED ASSURANCE (TESTING) AND SYSTEMS INTEGRATIONS SERVICES, ENTERPRISE SOLUTIONS, IT INFRACTURE SERVICES, BUSINESS PROCESS OUTSOURCING, IT ENABLED SERVICES, ENGINEERING AND IND USTRIAL SERVICES ETC. FURTHER TCS WAS ENGAGED IN SIGNIFICANT R & D A CTIVITIES WHICH HAD ENABLED IT TO INFLUENCE CUSTOMERS AND FACILITATE BUSINESS WINS IN SEVERAL VERTICALS. ALSO TCS HAD SIGNIFICANT INTELLECTUAL PROPERTY [IP] WHICH WAS EVIDENT FROM THE ANNUAL REPORT, ACCORDING TO WHICH, FY 2008 - 09 WAS A WATERSHED YEAR WITH RESPECT TO IP CREATION IN TCS. TCS WAS ALSO AMONGST THE TOP REPUTED SOFTWARE COMPANIES IN THE GLOBE WHICH ENABLED IT TO ENJOY A GREATER POSITION IN THE SOFTWARE MARKET. IT HAD A SIGNIFICANT BRAND VALUE AND MARKET LEADERSHIP POSITION WHICH ENABLED IT TO C HARGE PREMIUM FEE FROM THE CLIENTS AS AGAINST OTHER SOFTWARE SERVICE PROVIDERS. 33. TAKING INTO ACCOUNT THE ABOVE FEATURES, WE ARE OF THE VIEW THAT TCS CANNOT BE CONSIDERED AS COMPARABLE AND, ACCORDINGLY, THE TPO IS DIRECTED TO EXCLUDE TCS FROM THE LIST OF COMPARABLE. IT IS ORDERED ACCORDINGLY. (4) L & T INFOTECH& (5) MINDTREE : 34. THE STAND OF THE ASSESSEE IS THAT THE COMPANIES, AS IN THE CASES OF (I) L & T INFOTECH& (II) MINDTREE LIMITED, HAVING EXTRAORDINARILY HIGH TURNOVERS CANNOT BE INCLUDED AS COMPARABLE TO THE ASSESSEE. IT WAS, FURTHER, SUBMITTED THAT DURING THE 18 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 FY 2009 - 10, THE ASSESSEE HAD A TURNOVER OF RS. 23 CRORES (APPROX.) WHICH CANNOT BE COMPARED WITH (I) L & T INFOTECH AND (II) MINDTREE LTD HAVING TURNOVERS OF RS.1950.84 CRORES AND RS. 1012.57 CRORES RESPECTIVELY. IN THIS REGARD, IT WAS SUBMITTED BY THE ASSESSEE THAT THE IMPORTANCE OF TURNOVER / SIZE AS A QUANTITATIVE FILTER FOR COMPARABILITY ANALYSIS CAN NOT BE UNDER - ESTIMATED. GREATER SIZE IMPLIES ECONOMIES OF SCALE AND MORE BARGAINING POWER THAT MAY IMPACT PROFITABILITY OF A COMPANY. IT WAS, FURTHER, CONTENDED THAT THE SIZE OF A COMPANY ALSO MATTERS WHILE RAISING FINANCIAL RESOURCES FOR INVESTMENT/EXPA NSION PURPOSES. IT WAS, THEREFORE, PLEADED THAT OVER - SIZED COMPANIES SUCH AS L & T INFOTECH AND MINDTREE LIMITED CANNOT BE CONSIDERED FOR COMPARISON WITH THE ASSESSEE. 35. WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS PUT - FORTH BY THE ASSESSEE. THE SOLE C ONTENTION OF THE ASSESSEE IS THAT COMPANIES HAVING HIGH TURNOVER OF MORE THAN RS.1000 CRORES CANNOT BE COMPARED WITH A COMPANY HAVING A LESS TURNOVER OF AROUND RS.25 CRORES. IN THIS CONNECTION, WE WOULD LIKE TO POINT OUT THAT A COMPANY OTHERWISE FOUND TO BE FUNCTIONALLY COMPARABLE CANNOT BE EXCLUDED ON THE GROUND OF HIGHER PROFIT RATE OR MERELY HIGHER TURNOVER. THERE IS NO MENTION IN THE LANGUAGE OF THE PROVISIONS FOR THE EXCLUSION OF POTENTIAL COMPARABLE COMPANIES SIMPLY BECAUSE OF HIGH TURNOVER OR PROFI T RATE. IN THIS CONNECTION, WE WOULD LIKE TO REFER TO THE FINDINGS OF THE SPECIAL BENCH OF THE HON BLE MUMBAI TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P) LTD V. ACIT REPORTED IN (2014) 147 ITD 83 (MUM)(SB) WHEREIN IT WAS HELD THAT POTENTIAL COMPARABLE CANNOT BE EXCLUDED MERELY ON THE GROUND THAT THEIR PROFIT IS ABNORMALLY HIGHER. THERE CAN BE NO JUSTIFIABLE REASON TO EXCLUDE SUCH HIGH PROFIT COMPANIES UNLESS IT IS SHOWN THAT SUCH PROFIT WAS DUE TO ABNORMAL FACTORS. SAME LOGIC APPLIES TO THE HIGH TURNOVER COMPANIES ALSO. THE MERE FACT THAT A COMPANY HAS A HIGH TURNOVER CAN BE NO REASON TO JUSTIFY ITS EXCLUSION IF IT IS OTHERWISE FUNCTIONALLY COMPARABLE. THE EXCLUSION OF COMPANIES ON SUCH AS RATIONALE RUNS CONTRARY TO THE EXPRESS PROVISIONS OF THE ACT. WE ALSO REFER TO THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. AGNITY INDIA TECHNOLOGIES (P) LTD REPORTED IN (2013) 219 TAXMAN 26 (DEL). IN THAT CASE, THE ASSESSEE WAS A CAPTIVE UNIT PROVIDING SOFTWARE SERVICES TO IT S ASSOCIATED ENTERPRISES. AFTER ANALYSING THE ISSUE AT LENGTH, THE HON BLE COURT DIRECTED THE EXCLUSION OF INFOSYS LIMITED FROM THE LIST OF COMPARABLE WHICH LIST OTHERWISE INCLUDED 19 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 SEVERAL COMPANIES WITH HUGE TURNOVERS [INCLUDING L & T INFOTECH ] . THE EXCL USION OF INFOSYS WAS ORDERED BY THE HON BLE COURT ON ACCOUNT OF ITS GIANT - NESS WHICH WAS, IN TURN, DETERMINED BY SEEING THE CUMULATIVE EFFECT OF SEVERAL FACTORS INCLUDING RISK PROFILE, NATURE OF SERVICES, TURNOVER, OWNERSHIP OF BRANDED/PROPRIETARY PRODUCTS , ONSITE VS . OFF - SHORE SERVICES, EXPENDITURE ON ADVERTISEMENT AND R & D ETC. THE HIGHER TURNOVER WAS ONLY ONE OF THE CRITERION S T AND NOT THE SOLE CRITERIA FOR THE EXCLUSION OF INFOSYS. THEREFORE, NO POTENTIALLY COMPARABLE COMPANY CAN BE EX CLUDED FROM THE LIST OF COMPARABLE SIMPLY BECAUSE OF ITS HIGH TURNOVER. 36. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT THE TPO WAS JUSTIFIED IN INCLUDING L & T INFOTECH AND MINDTREE LIMITED AS COMPARABLE. IT IS ORDERED ACCORDINGLY. GROUND NO. 3.8 : IGNORING THE BUSINESS / COMMERCIAL REALITY THAT SINCE THE ASSESSEE IS REMUNERATED ON AN ARM S LENGTH COST PLUS BASIS, I.E., IT WAS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE - AGREED MARK - UP BASED ON A BENCH - MARKING ANALYSIS, THE ASSESSEE UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES WHICH WERE FULL FLEDGED RISK TAKING ENTREPRENEURS AND BY NOT ALLOWING A RISK ADJUSTMENT TO THE ASSESSEE ON ACCOUNT OF THIS FACT: 37. A SIMILAR GROUND TO THAT OF THE PRESENT ONE WAS RAISED BY THE ASSESSEE BEFORE THE EARLIER BENCH (SUPRA) FOR THE AY 2008 - 09. AFTER TAKING INTO ACCOUNT THE ASSESSEE S CONTENTIONS, THE EARLIER BENCH HAD DISMISSED THE ASSESSEE S GROUND FOR THE FOLLOWING REASONING, NAMELY: 65. AS FAR AS GROUND NO.3.8 IS CONCERNED REGARD ING RISK ADJUSTMENT, WE FIND THAT ASSESSEE HAS NOT QUANTIFIED THE SAME AND, THEREFORE, IT HAS NOT CLAIMED ANY RISK ADJUSTMENT. THEREFORE, THIS GROUND IS MISCONCEIVED AND, ACCORDINGLY, DISMISSED. 38. IN THIS INSTANT CASE ALSO, WE FIND THAT THE ASSESSEE HAS N OT COME UP WITH THE CALCULATION OF QUANTIFIED RISK ADJUSTMENT AS POINTED OUT BY THE TRIBUNAL FOR THE PRECEDING AY. THEREFORE, IN CONSONANCE WITH THE FINDING OF THE EARLIER BENCH (SUPRA) ON AN IDENTICAL ISSUE, WE DECIDE THE ISSUE AGAINST THE ASSSESSEE. IT IS ORDERED ACCORDINGLY. 20 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 GROUND NO.3.9 : NOT CONSIDERING THE GAINS/LOSSES ARISING OUT OF FOREIGN EXCHANGE FLUCTUATIONS WHILE C OMPUTING THE OPERATING MARGIN OF THE ASSESSEE AS WELL AS THE COMPARABLE COMPANIES: 39. HOWEVER, DURING THE COURSE OF HEARING, NO SPECIFIC ARGUMENT WAS PUT - FORTH WITH REGARD TO GAINS/LOSSES ARISING OUT OF FOREIGNEXCHANGE FLUCTUATIONS WHILE COMPUTING THE OPERATING MARGIN OF THE ASSESSEE AS WELL AS THE COMPARABLE COMPANIES . THEREFORE, THIS GROUND WAS NOT TAKEN UP FOR ADJUDICATION. GROUND NO. 3.10 : MAKING COMPUTATIONAL ERRORS IN MARGINS OF THE ASSESSEE AND CERTAIN COMPARABLE COMPANIES FOR DETERMINATION OF ARM S LENGTH MARGIN IN RESPECT OF THE IMPUGNED TRANSACTION: 40. HOWEVER, DURING THE CO URSE OF HEARING, THE LEARNED COUNSEL SUBMITTED THAT THIS GROUND WAS NOT PRESSED. ACCORDINGLY, THIS GROUND IS DISMISSED AS NOT PRESSED . GROUND NO. 3.11 : DENYING A WORKING CAPITAL ADJUSTMENT TO THE OPERATING PROFIT MARGINS OF THE COMPARABLE: 41. INCIDENTALLY AN IDENTICAL ISSUE TO THAT OF THE PRESENT ONE HAD COME UP BEFORE THE EARLIER BENCH OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE PRECEDING AY FOR ADJUDICATION. AFTER ANALYSING THE ISSUE AT LENGTH AND ALSO TAKING INTO ACCOUNT THE RIVAL S UBMISSIONS, THE EARLIER BENCH HAD RESTORED THE MATTER TO THE FILE OF TPO FOR MAKING THE WORKING CAPITAL ADJUSTMENT TO THE PROFIT MARGINS OF COMPARABLE SUBJECT, OF COURSE, TO ASSESSEE DEMONSTRATING THAT THERE WAS DIFFERENCE IN THE LEVELS OF WORKING CAPITAL EMPLOYED VIZ - A - VIZ THE COMPARABLE [REFER: PARA 73 ON PAGE 54 OF TRIBUNAL S ORDER]. 42. IN CONFORMITY WITH THE FINDINGS OF THE EARLIER BENCH ON A SIMILAR ISSUE IN THE ASSESSEE S OWN CASE (SUPRA), THE MATTER IS RESTORED ON THE FILE OF THE TPO FOR A SIMILAR ACTION AS DIRECTED BY THE EARLIER BENCH. IT IS ORDERED ACCORDINGLY. 21 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 GROUND NO. 3.12 : DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT: 43. HOWEVER, DURING THE COURSE OF HEARING, NO SPECIFIC ARGUMENT WAS PUT - FORTH IN RESPECT OF D ISREGARDING OF JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT . THEREFORE, THIS GROUND WAS NOT TAKEN UP FOR ADJUDICATION. GROUND NO. 4 : DRP AND THE AO ERRED IN ADDING FBT PAID FOR COMPUTING THE BOOK PROFIT U/S 115 JB OF THE ACT: 44. AN IDENTICAL GROUND TO THAT OF THE PRESENT ONE WAS RAISED BY THE ASSESSEE BEFORE THE EARLIER BENCH (SUPRA) FOR THE AY 2008 - 09. AFTER TAKING INTO ACCOUNT THE ASSESSEE S CONTENTIONS, THE EARLIER BENCH HAD DISMISSED THE ASSESSEE S GROUND FOR THE FOLLOWING REASONING, NAMELY: 79. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. DRP BECAUSE AS PER SEC. 115 WA FRINGE BENEFIT TAX IS AN ADDITIONAL INCOME - TAX AND, THEREFORE, IT IS TO BE TREATED AT PAR WITH INCO ME - TAX FOR COMPUTING BOOK PROFITS. 45. IN CONSONANCE WITH THE FINDING OF THE EARLIER BENCH (SUPRA) ON AN IDENTICAL ISSUE IN THE ASSESSEE S OWN CASE, WE D ECIDE THE ISSUE AGAINST THE ASS ESSEE. IT IS ORDERED ACCORDINGLY. G ROUND NO.5 46. THE ABOVE GROUND RELATES TO THE ISSUE OF LEVY OF INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT. LEVY OF INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT IS MANDATORY AND CONSEQUENTIAL IN NATURE AND, HENCE, THIS GROUND IS NOT MAINTAINABLE. GROUND NO.6 47. GROUND NO.6 IS INADMISSIBLE AS INITIATION OF PENAL PROCEEDINGS U/S 271(1)(C) OF THE ACT CANNOT BE CHALLENGED UNLESS PENALTY IS IMPOSED. HENCE, THIS GROUND IS DISMISSED AS NOT MAINTAINABLE. 22 ITA NO.6384/DEL /2013 ASSESSMENT YEAR: 2009 - 2010 48. IN THE RESULT , THE ASSESSEE S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ( ORDER PRONOUNCED IN THE OPEN COURT ON 14TH NOVEMBER , 2014. ) SD/ - SD/ - ( R.S. SYAL ) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 TH NOVEMBER , 2014. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI