Dy. CIT, Circle-8, Pune V. M/s. Behr (India) Ltd., Pune

ITA 647/PUN/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8506 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Assessee Lawyers: R D ONKAR
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Revenue expenditure; Capital expenditure
• Section: 92B; 10B; 92

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIALMEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 1376/PN/2010 (A.Y: 2006-07) BEHR INDIA LIMITED 29,MILESTONE, PUNE NASIK HIGHWAY VIL KURULI, TAL. KHED PUNE 410501 PAN: AABCB2186L APPELLANT VS. ADDL.CIT,RANGE-8,PUNE RESPONDENT ITA NO. 568/PN/2013 (A.Y: 2008-09) BEHR INDIA LIMITED 29,MILESTONE, PUNE NASIK HIGHWAY VIL KURULI, TAL. KHED PUNE 410501 PAN: AABCB2186L APPELLANT VS. ADDL.CIT, RANGE-8,PUNE RESPONDENT ITA NOS. 647 & 648/PN/2013 (A.YS.: 2007-08 & 2008-09) DCIT, CIRCLE-8 , PUNE APPELLANT VS. BEHR INDIA LIMITED 29,MILESTONE, PUNE NASIK HIGHWAY VIL KURULI, TAL. KHED PUNE 410501 PAN: AABCB2186L RESPONDENT 2 ASSESSEE BY : SHRI R.D.ONKAR DEPARTMENT BY : SMT. M.S. VERMA, CIT ORDER PER SHAILEBDRA KUMAR YADAV, J.M: TWO APPEALS FILED BY THE ASSESSEE AND OT HER TWO APPEALS FILED BY THE REVENUE AGAINST THE RESPECTIVE ORDERS OF COM MISSIONER OF INCOME TAX, PUNE FOR A.YS 2006-07, 2007-08, AND 200 8-09. FOR THE SAKE OF CONVENIENCE, ALL APPEALS ARE BEING DECIDED IN THIS CONSOLIDATED ORDER. 2. IN ITA NO. 1376/PN/2010, THE ASSESSEE HAS F ILED THE APPEAL ON THE FOLLOWING GROUNDS. 1. THE LEARNED A.O. ERRED IN CONFIRMING ADDITION OF RS . 38,41,754/- BY WAY OF UPWARD ADJUSTMENT TO THE PRIC ES CHARGED BY THE APPELLANT IN RESPECT OF APPELLANTS INTERNATIONAL TRANSACTIONS NAMELY RENDERING OF IT ENABLED DESIGN ENGINEERING SERVICES TO ITS ASSOCIATED ENTERPRISES. 2. THE LEARNED A.O. ERRED IN CONFIRMING DISALLOWANCE O F REVENUE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY BY THE APP ELLANT ON PRODUCT DEVELOPMENT RS. 2,20,03,000/- IN THE ORDINA RY COURSE AND FOR THE PURPOSE OF ITS BUSINESS DURING THE RELE VANT PREVIOUS YEAR AND IN HOLDING THE SAID EXPENSES AS C APITAL EXPENDITURE. 3. YOUR APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND , MODIFY OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL, IF NECES SARY. 2.1 THE ASSESSEE IS ENGAGED IN PROVIDING IT ENABL ED DESIGN ENGINEERING SERVICES IN THE FIELD OF AUTOMOTIVE PRO DUCTS AND COMPONENTS VIZ. HEATING VENTILATION AIR CONDITIONIN G (HVAC), COOLING MODULE, EGR AND COMPONENTS THEREOF IN AUTOM OTIVE SECTOR TO ITS PARENT COMPANY BEHR GMBH, GERMANY AND/ITS A FFILIATES. IT IS IN RESPECT OF THE SAID INTERNATIONAL TRANSACTION VI Z. EXPORTS OF THE 3 SAID SERVICES, THAT AN UPWARD ADJUSTMENT OF RS. 38, 41,754/- TO THE OPERATING PROFIT HAS BEEN MADE BY THE TPO AND CONFI RMED BY THE DRP. 2.2 THE FIRST ISSUE IS WITH REGARD TO ALLOWING OF ADJUSTMENT IN RESPECT OF THE ADVERSE IMPACT ON THE OPERATING PROF IT OF EXCESS DEPRECIATION RS. 12.87 LAKHS CHARGED BY THE ASSESSE E DUE TO CHANGE IN ITS ACCOUNTING POLICY IN RESPECT OF CHARGING OF DEPRECIATION ON FIXED ASSETS FOR THE SAID A.Y. 2006-07. THE TRANSFE R PRICING OFFICER (TPO) DID NOT ALLOW THE ADJUSTMENT ASKED FOR BY WAY OF REDUCTION OF EXCESS DEPRECIATION CHARGED ON THE FIXED ASSETS AT RATES HIGHER THAN THE RATES PRESCRIBED IN SCHEDULE XIV TO THE COMPANI ES ACT IN PURSUANCE OF CHANGE IN POLICY BROUGHT IN FOR THE FI RST TIME IN THE RELEVANT PREVIOUS YEAR AND WHICH RESULTED IN EXCESS CHARGE OF DEPRECIATION IN THE HANDS OF THE ASSESSEE VIS-A-VIS DEPRECIATION CHARGED BY THE EXTERNAL COMPARABLES. THE TPO STATED THAT THE ADJUSTMENT SHOULD HAVE BEEN MADE TO THE PROFIT MARG IN OF COMPARABLES AND NOT THAT OF PROFITS OF THE ASSESSEE . 2.3 IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE T HAT DISPUTE RESOLUTION PANEL (DRP) HAS NOT DEALT WITH THIS ISSU E IN ITS DIRECTION. THE STAND OF THE ASSESSEE BEFORE US HAS BEEN THAT T HE EXTERNAL COMPARABLES INCLUDING THE ONES SELECTED BY THE TPO HAVE FOLLOWED THE POLICY OF CHARGING DEPRECIATION AS PER THE RATE S PRESCRIBED IN SCHEDULE XIV TO THE COMPANIES ACT AND IT IS CLEAR F ROM THE NOTES TO ACCOUNT IN THE AUDITED ANNUAL REPORTS OF SUCH COMPA RABLES. THE ASSESSEE HAS CLAIMED THAT DURING THE RELEVANT PREVI OUS YEAR IT CHANGED ITS POLICY OF CHARGING DEPRECIATION AND HAS ADOPTED HIGHER RATES OF DEPRECIATION THAN THE RATES PRESCRIBED IN SCHEDULE XIV TO THE COMPANIES ACT. SUCH A CHANGE HAS RESULTED INTO EXCESS CHARGE OF DEPRECIATION OF RS. 12.87 LAKHS FOR THE RELEVANT PREVIOUS YEAR AND ADVERSELY AFFECTED THE PROFIT OF THE ASSESSEE COMPA NY. THE ASSESSEE THEREFORE ASKED FOR ADJUSTMENT TO REDUCE THE IMPACT OF SAID EXCESS DEPRECIATION ON ITS PROFIT OF THE PREVIOUS YEAR REL EVANT TO THE A.Y. 2006-07. THE TPO HAS STATED THAT SUCH AN ADJUSTMENT IS 4 CONTEMPLATED TO BE MADE TO THE PROFITS OF THE EXTER NAL COMPARABLES AND NOT TO THE PROFITS OF THE ASSESSEE. THE STAND O F THE ASSESSEE HAS BEEN THAT DEPRECIATION, WHICH CAN HAVE VARIED BASIS AND IS ALLOWED AT DIFFERENT RATES IS NOT AN EXPENDITURE WHICH MUST BE DEDUCTED IN ALL SITUATIONS. THE OBJECT AND PURPOSE OF THE TRANS FER PRICING IS TO COMPARE LIKE WITH THE LIKE AND TO ELIMINATE DIFFERE NCES, IF ANY, BY SUITABLE ADJUSTMENTS. IN THIS REGARDS, THE STAND OF THE ASSESSEE HAS BEEN THAT RULE 10 B (1) (E ) (III) REQUIRES ADJUST MENT TO BE MADE TO THE PROFIT MARGINS UNDER TNMM AND IS NOT SOMETHING WHICH IS UNREASONABLE. IN THIS REGARDS, THE ASSESSEE HAS PLA CED RELIANCE ON THE DECISION OF ITAT, PUNE IN THE CASE OF AMDOCS BU SINESS SERVICES PRIVATE LIMITED WHEREIN IDENTICAL ISSUE RAISED BY T HE LEARNED TPO THAT MARGINS OF COMPARABLE PARTIES ARE TO BE ADJUST ED AND NOT OF THE TESTED PARTY. THE TRIBUNAL IN SUCH A SITUATION HAS UPHELD THE VALIDITY OF SUCH AN ADJUSTMENT TO THE PROFITS OF TH E ASSESSEE. IT WAS ALSO CLAIMED THAT THE DRP HAS NOT ADJUDICATED THIS ISSUE. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLEDGE ON BEHAL F OF THE REVENUE. SO, IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO THE DRP WITH A DIRECTION TO DECIDE THE SAME AS PER FACT AND LAW AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. 3. THE NEXT ISSUE RAISED UNDER TRANSFER PRICING IS AS UNDER: DRP AND THE AO/TPO OUGHT NOT TO HAVE COMPARED THE GIANT COMPANIES WITH THE APPELLANT BEING A PIGMY COMPANY AND ALL THE THREE COMPANIES CHOSEN BY THE TPO DID NOT SATIS FY THE COMPARABILITY CRITERIA AS LAID DOWN IN RULE 10 B (2 ) VIZ. FUNCTIONS PERFORMED, RISKS ASSUMED AND ASSETS EMPLO YED AND SIZE OF THE COMPARABLE COMPANIES. 3.1 THE TPO REJECTED THE EXTERNAL COMPARABLES SELEC TED BY THE ASSESSEE FOR THE FOLLOWING REASONS: NAME OF COMPARABLE REASON FOR REJECTION 5 ACE SOFTWARE EXPORTS LTD. FUNCTIONALLY NOT COMPARABLE FEDERAL TECHNOLOGIES LTD. DATA FOR FY 2005 - 06 (A.Y. 2006-07) NOT AVAILABLE INFOTECH ENTERPRISES LTD., WTI ADVANCE TECHNOLOGY LTD. AND PENTASOFT TECHNOLOGIES LTD. DATA FOR PRECEDING YEARS VIZ. FY 2003-04 AND 2004-05 USED. IN THE RELEVANT PREVIOUS YEAR I.E. FY 2005-06 (AY 2006-07) THE PARTIES HAD TRANSACTIONS EXCEEDING 25% WITH THEIR RELATED PARTIES. THE TPO REJECTED THE EXTERNAL COMPARABLES MAINLY ON THREE PARAMETERS NAMELY : A) THE ASSESSEE DID NOT USE DATA OF THE RELEVANT FINAN CIAL YEAR I.E. 2005-06. B) ONE OF THE COMPARABLES VIZ. ACE SOFTWARE EXPORTS LT D. NOT FUNCTIONALLY COMPARABLE AND THE REMAINING COMPARABLES HAD RELATED PARTY TRANSACTIONS. 3.2 THE TPO MADE HIS OWN SEARCH AND SELECTED THREE EXTERNAL COMPARABLES VIZ. ROLTA INDIA LIMITED, KLG SYSTEL LTD. AND POWERSOFT GLOBAL SOLUTIONS LTD. THE TPO TH EREAFTER BENCHMARKED THE AVERAGE PLI OF OPERATING PROFIT TO TOTAL COST OF THE SAID THREE COMPARABLES CHOSEN BY HIM AN D COMPARED THE SAME WITH THE PLI OF THE ASSESSEE COMP ANY WITHOUT TAKING INTO ACCOUNT ADJUSTMENT FOR EXCESS DEPRECIATION ASKED FOR BY THE ASSESSEE. THE TPO ACC ORDINGLY MADE UPWARD ADJUSTMENT OF RS. 38,41,754/- TO THE EX PORT PRICE OF THE SERVICES RENDERED RS. 1.31 CR. BY THE ASSESSEE TO ITS AE DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y . 2006- 07. 3.4 WE FIND THAT THE ASSESSEE HAS ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR 6 COMPARING THE PROFIT LEVEL INDICATOR (PLI) OF OPERA TING PROFIT TO TOTAL COST WITH THE PEER COMPANIES SELECTED BY I T. THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER OF ITES CATE RING TO AUTOMOTIVE SECTOR. IT DOES NOT OWN INTELLECTUAL PRO PERTY. IT DOES NOT PROVIDE SERVICES TO OWNER-OPERATORS OF INFRASTRUCTURE, CONSTRUCTION , OIL AND OTHER SECTOR S. IT BEARS LIMITED RISK. IT HAS LIMITED SCALE OF OPERATI ONS. A. THE STAND OF THE ASSESSEE HAS BEEN THAT ALL THE T HREE COMPANIES CHOSEN BY THE TPO AS COMPARABLES FOR BENCHMARKING DID NOT SATISFY THE COMPARABILITY CRIT ERIA VIZ. FUNCTIONS PERFORMED, RISKS ASSUMED, SIZE OF THE COM PANY IN TERMS OF SALES REVENUE AND ASSETS DEPLOYED IN CONSO NANCE WITH RULE 10B (2) (B) OF THE INCOME TAX RULES 1962. THE STAND OF THE ASSESSEE HAS BEEN THAT EACH OF COMPARABLE CH OSEN BY THE TPO ARE HAVING THE DISTINGUISHING FEATURES AS U NDER: A. ROLTA INDIA IS A WELL DIVERSIFIED COMPANY ENGAGED I N PROVIDING INTEGRATED ENGINEERING, DESIGN, PROCUREME NT AND CONSTRUCTION MANAGEMENT SERVICES FOR THE POWER, PROCESS, INFRASTRUCTURE AND MARINE BUSINESS LINES. IT IS ENGAGED PREDOMINANTLY IN PROVIDING SERVICES IN THE ENGINEERING DESIGN AUTOMATION DOMAIN FOR OWNER OPERATORS IN THE AFORESAID BUSINESS SEGMENT VIZ. OI L, POWER, INFRASTRUCTURE AND CONSTRUCTION MANAGEMENT. THE COMPANY IS ENGAGED PREDOMINANTLY IN PROJECT BUSINES S AND THE AFORESAID SERVICES COMPRISE OF DESIGNING OF EQUIPMENTS, PREPARATION OF TECHNICAL SPECIFICATIONS FOR PROCUREMENT OF EQUIPMENT, GENERATION OF FABRICATION DRAWINGS, TECHNICAL BID EVALUATION, VENDOR CO ORDIN ATION AND FOLLOW UP. THE AFORESAID CONTRACTS ARE FIXED PR ICE FIXED TIME FRAME CONTRACTS OR TIME AND MATERIAL BASIS. TH E REVENUE ON SUCH LONG TERM CONTRACTS IS RECOGNISED O N 7 PERCENTAGE OF COMPLETION BASIS. ROLTA FOR THAT PURP OSE IS PURCHASING BOUGHTOUTS I.E. HARDWARE AND PERIPHERAL ITEMS AND THE MATERIAL COST PREDOMINANTLY INVOLVES COST OF SUB CONTRACTED THIRD PARTY COSTS. THE SAID EXPENSES ARE THEREFORE GROUPED BY ROLTA UNDER COST OF TRADED SOF TWARE PACKAGES IN THE PROFIT & LOSS STATEMENT FOR THE YEA R ENDED 30TH JUNE 2006. THE EXPENSES ON MATERIAL CONSUMED ARE THEREFORE MORE THAN EMPLOYEE COSTS. IT IS STATED IN THE ANNUAL REPORT THAT ROLTA HAS OVER THE YEARS THROUGH INVESTMENTS IN PEOPLE, TECHNOLOGY RESEARCH & DEVELOPMENT BUILT A CRITICAL MASS OF INTELLECTUAL P ROPERTY (IP) IN GEO SPATIAL/ GIS, ENGINEERING DESIGN AUTOMA TION AND EBUSINESS SOLUTIONS. COST DRIVERS IN CASE OF RO LTA ARE A DISTINCTIVE SET CONSISTING OF ITS SCALE OF OPERAT IONS, SCOPE, PAST EXPERIENCE, WORK FORCE SKILLS, TECHNOLO GY AND LAST BUT NOT THE LEAST OWN INTELLECTUAL PROPERTY VI Z. TECHNOLOGY RESEARCH & DEVELOPMENT. BUSINESS MODEL O F ROLTA IS COMPLETELY DIFFERENT AND DISTINCT FROM THA T OF THE ASSESSEE. B. KLG AND POWERSOFT ARE ENGAGED IN TRADING OF SOFTWAR E PACKAGES AND THE SAID FACT HAS BEEN CLEARLY BORNE B Y THE INFORMATION DISCLOSED IN THE AUDITED FINANCIAL STATEMENTS OF THE SAID COMPANIES FOR THE RELEVANT F .Y. 2005-06. THE SAID TWO COMPANIES ARE EMPLOYING COMPLETELY DIFFERENT BUSINESS MODEL AND INSTEAD OF HAVING THEIR OWN SKILLED PERSONNEL THEY ARE BUYING SOFTWARE LICENSES AND PACKAGES AND THEREFORE THE SIGNIFICANT PORTION OF OPERATING COSTS VIZ. MANPOWE R COST IS VERY LOW VIS-A-VIS THE ASSESSEE COMPANY. IN CASE OF KLG SYSTEL THE COST OF SALES WHICH COMPRISED THE CO ST OF BOUGHT OUT SOFTWARE EXCEEDED THE MANPOWER COST ALMO ST BY 9 TIMES FOR THE FINANCIAL YEAR ENDED 31ST MARCH, 2006 IN THE AUDITED PROFIT AND LOSS ACCOUNT. WHICH IS PL ACED AT PAGE 38 OF THE PAPER BOOK FILLED BY THE ASSESSEE . KLG 8 SYSTEL ALSO HAS INVENTORY DISCLOSED UNDER CURRENT A SSETS IN THE BALANCE SHEET. THE AUDITORS REPORT CLEARLY STATES THAT THE COMPANY HAS MAINTAINED PROPER RECORDS OF INVENTORY OF SOFTWARE LICENSES AND PACKAGES AND THE Y HAVE BEEN PHYSICALLY VERIFIED. AS DETAILED IN PAGE NO 37 OF PAPER BOOK FILED BY THE ASSESSEE, KLG IS IN THE BUS INESS OF PROVIDING PLANT/PRODUCT LIFE CYCLE SOLUTIONS IN POWER SECTOR AND AUTOMATION OF PROCESSES. IN CASE OF POWERSOFT GLOBAL THE COST OF SALES IS AL MOST 81% OF THE TOTAL EXPENSES AND DID NOT HAVE MANPOWER COST IN THE AUDITED PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDED 30TH SEPTEMBER, 2006. POWERSOF T GLOBAL IS OPERATING IN PROVIDING PRODUCTS AND SERVI CES FOR FINANCIAL SERVICES SEGMENT. IN THE AUDITORS REPORT IT IS STATED THAT POWERSOFT GLOBAL HAS INVENTORY OF SOFTW ARE RIGHTS AND SEMI FINISHED SOFTWARE PACKAGE AND THAT THE INTERNAL CONTROL PROCEDURES NEED TO BE STRENGTHENED WITH REGARD TO PURCHASE OF SOFTWARE AND SALE OF SOFTWARE PACKAGES AND SERVICES AS REFERRED ON PAPES 41 & 42 OF THE PAPER BOOK FILED BY THE ASSESSEE. IN THIS BACKG ROUND, IT WAS SUBMITTED THAT POWERSOFT HAS ACQUIRED CADGIS CONSULTANTS FOR EXPANDING INTO BUSINESS SEGMENTS DU RING THE RELEVANT PREVIOUS YEAR. IN VIEW OF THIS, POWERS OFT GLOBAL OUGHT TO HAVE BEEN EXCLUDED BY THE TPO.IN TH IS REGARDS, THE ASSESSEE HAS RELIED ON THE DECISIONS O F DECISIONS DELHI TRIBUNAL IN THE CASE OF AGILENT TECHNOLOGIES INTERNATIONAL PRIVATE LTD. TAX SUTRA T S-165- ITAT-2013(DEL) AND HYDERABAD TRIBUNAL IN ZAVATA IND IA P. LTD. IN BOTH THE AFORESAID CASES HONBLE TRIBUNA L HAS HELD THAT COMPANIES HAVING MERGER/ACQUISITION WITH ANOTHER COMPANY IN THE RELEVANT PREVIOUS YEAR SHOUL D BE EXCLUDED FROM THE COMPARABLES. POWERSOFT GLOBAL HAD DRAWN UP ITS ACCOUNTS UPTO 30TH SEPTEMBER 2006 AS I T 9 HAD ADOPTED OCTOBER TO SEPTEMBER AS ITS ACCOUNTING YEAR. IN THE LIGHT OF THIS FACT THE FINANCIAL RESUL TS OF POWERSOFT ARE NOT COMPARABLE WITH THOSE OF THE ASSE SSEE COMPANY FOR ITS FINANCIAL YEAR ENDED 31ST MARCH, 20 06. B. IT WAS FURTHER SUBMITTED THAT THE FUNCTIONS PERFORM ED BY ALL THE AFORESAID SO CALLED COMPARABLES SELECTED BY THE TPO WERE SUBJECT TO DISTINCTIVE SET OF COST DRIVERS AS DIFFERENT FUNCTIONS WERE PERFORMED DIFFERENTLY. THE DIFFERENCE IN PLI OF OPM TO OPERATING COST THEREFOR E REFLECTED IN TERMS OF MARGINS EARNED BY THE AFORESA ID PURPORTED PEER COMPANIES VIS-A-VIS THAT OF THE ASSE SSEE COMPANY. IN CASE OF THE SO CALLED COMPARABLES CHOSE N BY THE TPO THE ENTREPRENEURIAL RISK IS BORNE BY THEM B EING INDEPENDENT ENTITIES WHEREAS THE ASSESSEE COMPANY I S COMPENSATED AS CAPTIVE SERVICE PROVIDER. THE FOLLOW ING ARE THE COMPARATIVE FIGURES OF THE PARTIES WITH THA T OF THE ASSESSEE. NAME OF THE COMPANY SALES RS. CR. CAPITAL EMPLOYED RS. CR. ROLTA INDIA LTD. 456.73 787.14 KLG SYSTEL LTD. 51.30 58.70 POWERSOFT 9.11 6.23 BEHR INDIA 1.31 1.00 3.5 IT WAS IS THAT THE FIGURES OF CAPITAL EMPLOYED EXCLUDE INVESTMENTS. THE EXTERNAL COMPARABLES CHOSEN BY THE TPO HAVE BEEN EXCLUDED ON SIMILAR SET OF FACTS IN THE SUCCEE DING YEARS A.Y. 2007-08 AND 2008-09 BY THE CIT(A) IN THE ASSESSEES OWN CASE. MATERIAL DIFFERENCES EXIST IN TERMS OF FUNCTIONS PE RFORMED, ASSETS DEPLOYED AND RISKS BORNE. IT BEARS VITAL NOTICE THA T ROLTA INDIA BEING ONE OF THE THREE NEW COMPARABLES HAD NOT BEEN CHOSEN 10 SUO MOTU BY THE ASSESSEE AND THE TPO HAS IMOSED IT ON THE ASSESSEE WITHOUT HAVING REGARD TO THE DIFFERENCES M ANIFEST IN THE FUNCTIONS PERFORMED TAKING INTO ACCOUNT ASSETS EMPL OYED AND RISKS ASSUMED (FAR ANALYSIS) AND WHICH FAR ANALYSIS FORMS THE VERY BASIS OF COMPARABILITY AS LAID DOWN IN THE RUL E 10 B (2) (B) AND OTHER TP REGULATIONS. THE ASSESSEE HAD REJECTED ROLTA INDIA AS COMPARABLE ON THE BASIS OF SAID FAR ANALYSIS AND NOT ON THE BASIS OF TURNOVER CRITERIA ONLY. A SIMILAR VIEW HAS BEEN TAKEN BY ITAT, PUNE IN THE CASE OF E GAIN COMMUNICATION PRIV ATE LIMITED 118 ITD 243 WHEREIN ON PAGE 272, THE TRIBUNAL HAS H ELD AS UNDER: OECD GUIDELINES ON APPLICATION OF TNMM LAY DOWN TH E SAME PRINCIPLES AS ARE REFLECTED IN RULE 10D. IF TH ERE ARE MATERIAL DIFFERENCES, THEN THOSE DIFFERENCES ARE TO BE CONSIDERED AND SUITABLE ADJUSTMENTS ARE TO BE MADE. THE REVENUE AUTHORITIES WERE IN ERROR IN NOT MAKING THO SE ADJUSTMENTS. NOW THE ASSESSEE HAS PLACED CLINCHING EVIDENCE TO SHOW THAT THE ABOVE TWO COMPANIES HAD INCOME FROM OTHER SOURCES LIKE INTEREST ON DEPOSIT; DIVIDEND INCOME AND INCOME FROM SALE OF LICENSES, W HICH JACKED UP PROFIT MARGIN OF THESE COMPANIES. THUS LI NE OF BUSINESS OF THESE COMPANIES WAS DIFFERENT FROM THE BUSINESS OF THE ASSESSEE WHICH WAS INVOLVED EXCLUSI VELY IN THE DEVELOPMENT OF SOFTWARE FOR ITS PARENT COMPANY. THEREFORE, THESE TWO COMPANIES COULD NOT BE TAKEN A S COMPARABLE COMPANIES AND WERE REQUIRED TO BE EXCLUD ED. 3.6 A SIMILAR VIEW HAS BEEN TAKEN BY ITAT, DELHI IN CASE OF VEDARIS TECHNOLOGY P. LTD 41 DTR 73, WHEREIN THE TR IBUNAL HAS HELD AS UNDER: RULE 10B SPECIFICALLY MENTIONS THAT THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR T O BE 11 EMPLOYED AND RISK ASSUMED, BY RESPECTIVE PARTIES TO THE TRANSACTION SHALL BE ONE OF THE CRITERIA FOR THE PU RPOSE OF COMPARABILITY. THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF DEVELOPMENT OF SOFTWARE WHILE KUSHAL SOFTWARE LT D. IS ENGAGED IN THE BUSINESS OF TRADING IN SOFTWARE. THE TWO COMPANIES ARE PERFORMING TOTALLY DIFFERENT FUNCTION S AND, THEREFORE, THIS CASE IS NOT A VALID COMPARABLE CASE. THE DIFFERENCES IN THE BUSINESS MODELS ARE IRRECONC IABLY DIFFERENT AND NO REASONABLY ACCURATE ADJUSTMENT CAN BE MADE TO MAKE THEM COMPARABLE CASES. THE LD. AR WAS NOT ABLE TO FURNISH ANY VALID REASON FOR TAKING THI S TO BE A COMPARABLE CASE UNDER RULE 10-B. IN VIEW OF THE B ASIC DIFFERENCE IN BUSINESS MODELS, WE NEED NOT REFER TO THE CASE LAW TO COME TO THE CONCLUSION THAT THE AFORESA ID KUSHAL IS NOT A VALID COMPARABLE CASE. THEREFORE, W E ARE OF THE VIEW THAT THE LD. DR RIGHTLY ARGUED THAT THI S CASE WAS NOT A COMPARABLE CASE. COMING TO THE ANNUAL ACCOUNTS OF TERA SOFTWARE LTD. FOR FINANCIAL YEAR 2 001- 02, IT IS SEEN THAT THE COMPANY HAS TAKEN THREE ACT IVITIES OF SALES, TECHNICAL SERVICES AND SALES OF SOFTWARE. THE SALES AMOUNTED TO ABOUT RS. 5.60 CRORE, TECHNICAL SERVICE RECEIPTS STOOD AT ABOUT RS. 3.44 CRORE AND SALE OF SOFTWARE AMOUNTED TO RS. 57.02 LAKH. THE COMPANY HA D OTHER INCOME OF ABOUT RS. 54.94 LAKH. IT IS FURTHER SEEN THAT THE COMPANY PURCHASED SOFTWARE OF ABOUT RS. 51 .34 LAKH. THE MATERIAL CONSUMED AMOUNTED TO ABOUT RS. 5.19 CRORE AND THE PERSONNEL COST WAS ABOUT RS. 40. 78 LAKH. FROM THE NARRATION ABOVE, IT CAN BE SEEN THAT THIS COMPANY IS ALSO TRADING IN SOFTWARE AND IT IS NOT A SOFTWARE DEVELOPMENT COMPANY. FROM THE DIRECTORS REPORT, IT IS SEEN THAT THE COMPANY IS MAINLY ENGAG ED IN THE BUSINESS OF PROVIDING INTEGRATED SOLUTIONS AND ALSO UNDERTAKES THE MAN-POWER SUPPLY. THEREFORE, THE SAL ES OF ABOUT RS. 5.59 CRORE APPEAR TO BE IN RESPECT OF 12 PROVIDING INTEGRATED SOLUTIONS, WHICH MAY BE IN THE NATURE OF PROJECT DEVELOPMENT RATHER THAN SOFTWARE DEVELOPMENT. THE TECHNICAL SERVICES RECEIPTS ARE IN RESPECT OF THE MAN-POWER SUPPLY. THUS, THIS COMPANY IS ENGAGED IN PROVIDING TECHNICAL SERVICES, INTEGRATED SOLUTIONS AND SALE OF SOFTWARE. THEREFORE, THE BUSI NESS MODEL OF THIS COMPANY IS ALSO DIFFERENT FROM THAT O F THE ASSESSEE, WHICH IS STATED TO BE DEVELOPMENT OF SOFT WARE FOR THE VEDARIS, U.K. IN THE LIGHT OF THIS DISCUSSI ON, THE MENTION ABOUT FUTURE FOCUS OF THE COMPANY REGARDING COMPUTER EDUCATION IN GOVERNMENT SCHOOLS BECOMES OF NO SIGNIFICANCE. THUS, WE FIND THAT THE ARGUMENT TA KEN BY THE LD. DR IS VALID THAT THIS CASE SHOULD BE EXC LUDED FROM THE CONSIDERATION AS A COMPARABLE, MAINLY FOR THE REASONS DISCUSSED IN THE CASE OF KS LTD. 3.7 ONE OF THE EXTERNAL COMPARABLES SELECTED BY US VIZ. ACE SOFTWARE EXPORTS LTD. IS HAVING SIMILAR FUNCTIONALI TY AND SINCE TNMM HAS BEEN CHOSEN TO BE MOST APPROPRIATE METHOD FOR BENCHMARKING THE PLI IT IS TOLERANT TO PRODUCT/SERV ICE DISSIMILARITY. THE SAID COMPARABLE THEREFORE SHOULD HAVE BEEN CONSIDERED BY THE TPO. THE STAND OF THE ASSESSEE HA S BEEN THAT ALL THE THREE COMPARABLES CHOSEN BY THE TPO ARE NOT COMPARABLE CONSIDERING THE FUNCTIONS PERFORMED, RISKS ASSUMED, SIZE OF THE COMPANY IN TERMS OF SALES REVENUE AND ASSETS DEPLOY ED IN CONSONANCE WITH RULE 10B (2) (B) OF THE INCOME TAX RULES 1962 WHICH SHOULD NOT BE INVOKED. 3.8 WITH REGARD TO THE CRITERIA TO BE APPLIED IN SELECT ING EXTERNAL COMPARABLES HAD COME UP FOR CONSIDERATION OF BANGALORE BENCH IN THE CASE OF 24/7 CUSTOMER.COM P. LTD. 144 ITD 344 AND 3DPLM SOLUTIONS LTD. 42 TAXMANN.COM 333 , WHEREIN IN BOTH CASES IT WAS HELD THAT COMPARABLES VIZ. INFOSYS 13 TECHNOLOGIES LTD. AND WIPRO LIMITED SELECTED BY TPO ARE GIANTS, FUNCTIONALLY NOT COMPARABLE AND ARE FULL FLEDGED RI SK BEARERS OWNING INTELLECTUAL PROPERTY RIGHTS BOTH RELATED TO TECHNOLOGY AND BRAND NAME VIS--VIS THE ASSESSEE WHO WAS ONLY A RESTRICTED SERVICE PROVIDER. THE TRIBUNAL HAS EXCLUDED THE SAI D COMPANIES AS COMPARABLES ON THE SAID CRITERIA. THE RATIO OF 2 4/7 CUSTOMER.COM (SUPRA) AND 3DPLM SOLUATIONS LTD (SUPR A) SUPPORTS THE CASE OF THE ASSESSEE BECAUSE THE ASSES SEE IS ONLY THE RESTRICTED SERVICE PROVIDER. 3.9 IN VIEW OF THE ABOVE DISCUSSION THE AO/TPO IS DIREC TED TO OMIT THESE THREE COMPANIES CHOSEN BY THE TPO FROM T HE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION AND TH E MATTER IS RESTORED BACK TO THE TPO/AO WHO SHALL CARRY THE SEA RCH OF COMPARABLES AFRESH IN TERMS OF CRITERIA LAID DOWN I N RULE 10B(2) OF INCOME TAX RULES 1962 AFTER GIVING AN OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. 4. IN NON TRANSFER PRICING ISSUE IN A.Y. 2006-07 ASSES SEES APPEAL NO. 1376/PN/10, THE ASSESSEE HAS RAISED THE SECOND GROUND AS UNDER: THE LEARNED AO ERRED IN CONFIRMING DISALLOWANCE OF REVENUE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY BY THE APP ELLANT ON PRODUCT DEVELOPMENT EXPENDITURE RS. 2,20,03,000/- I N THE ORDINARY COURSE AND FOR THE PURPOSE OF ITS BUSINESS DURING THE RELEVANT PREVIOUS YEAR AND IN HOLDING THE SAID EXPE NDITURE AS CAPITAL EXPENDITURE. A. IN RESPECT OF PRODUCT DEVELOPMENT EXPENSES RS. 2,20,03,000/- THE DRP HAS GIVEN THE FINDING AT PARA 6.3 PAGE 19 THAT PERUSAL OF THE DETAILS SHOWS THAT THE EXPEN SES RELATE TO QUALITY TESTING AND VALIDATION, SOFT TOOLING FOR TE STING, PROTO 14 SAMPLES. THE DRP AND THE A.O. HAVE DISALLOWED THE EXPENDITURE ON THE PREMISE THAT IT IS OF ENDURING N ATURE. THE STAND OF THE ASSESSEE HAS BEEN THAT IN RESPECT OF D ISALLOWANCE OF PRODUCT DEVELOPMENT EXPENSES IT WAS SUBMITTED TH AT IDENTICAL ISSUE HAD COME UP BEFORE THE ITAT, PUNE I N ASSESSEES OWN CASE FOR THE A.Y. 2001-02, A.Y. 2004 -05 AND A.Y. 2005-06, WHEREIN THE TRIBUNAL HAS HELD THAT PR IMA FACIE THE EXPENDITURE IS TOWARDS TESTING OF PRODUCTS MANU FACTURED BY THE ASSESSEE AND HAS REMITTED THE MATTER BACK TO THE A.O. FOR VERIFICATION OF FACTS IN SUPPORT OF CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE IS FOR TESTING OF PRODUCTS AND IS ENTIRELY REVENUE EXPENDITURE FULLY DEDUCTIBLE IN THE RELEVAN T PREVIOUS YEAR. THE RELEVANT PORTION OF THE SAME IS REPRODUCE D AS UNDER: 10. IN THIS CONNECTION, IT APPEARS FROM THE RECORD THAT BOTH THE AUTHORITIES BELOW HAVE PROCEEDED ON THE BASIS T HAT THE EXPENDITURE WAS INCURRED ON PAYMENT TO BEHR GMBH & CO. GERMANY FOR PREPARATION OF DESIGN, DRAWINGS AND DEVELOPMENT OF PROTOTYPE SAMPLES. OSTENSIBLY, THE S AID ASSUMPTION OF FACTS BY THE ASSESSING OFFICER IS ON THE BASIS OF THE STATEMENTS MADE BY THE ASSESSEE. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) AND, IN A MORE DETAILED MANNER BEFORE US, IT HAS BEEN PLEADED THAT THE EXPENDITURE WAS ON ACCOUNT OF PRODUCT TESTING AND VALIDATION AND WAS DISTINCT FROM THE EXPENDITURE FO R PREPARATION OF DESIGN AND DRAWINGS AND DEVELOPMENT OF PROTOTYPE SAMPLES. IN OUR CONSIDERED OPINION, BEFOR E ADDRESSING THE LEGAL ASPECTS OF THE CONTROVERSY, IT IS IMPERATIVE THAT THE COMPLETE AND TRUE PARTICULARS O F THE EXPENDITURE ARE CULLED OUT. BEFORE US, THE ASSESSEE HAS SUBMITTED PHOTOCOPIES OF INVOICES RAISED BY BEHR GM BH & CO. GERMANY, WHICH HAVE BEEN PLACED AT PAGES 26 TO 67 OF THE PAPER BOOK, WHICH PRIMA FACIE SUPPORT THE ASSER TION OF THE ASSESSEE THAT THE EXPENDITURE IS TOWARDS TESTIN G OF THE 15 PRODUCTS MANUFACTURED BY THE ASSESSEE. SO, HOWEVER, IT IS APPARENT THAT THE AFORESAID FACTUAL ASSERTION WAS N OT MADE BEFORE THE ASSESSING OFFICER. SUCH A PLEA, THOUGH I N A GENERALIZED FORMULATION, WAS MADE BEFORE THE COMMIS SIONER OF INCOME-TAX (APPEALS) AS IT APPEARS FROM PARA 17 OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS). OF- COURSE THERE IS NO DETERMINATION ON THIS ASPECT MAD E BY THE COMMISSIONER OF INCOME-TAX (APPEALS) WHO HAS PROCEE DED ON THE SAME BASIS AS THAT OF THE ASSESSING OFFICER. BE THAT AS IT MAY, IN OUR VIEW, IT IS IMPERATIVE THAT THE C OMPLETE PARTICULARS OF THE EXPENDITURE ARE CULLED OUT AND S INCE THE SAME REQUIRES FACTUAL APPRECIATION, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER TO THE FILE OF THE ASS ESSING OFFICER. THE ORDERS OF THE AUTHORITIES BELOW ARE AC CORDINGLY SET ASIDE AND THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL CULL OUT THE APPROPRIA TE FACTS AND THEREAFTER, DETERMINE THE NATURE OF THE EXPENDI TURE IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION, THE ASSES SING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPOR TUNITY OF BEING HEARD IN SUPPORT OF ITS CLAIM OF TREATING THE AMOUNT OF EXPENDITURE REPRESENTED BY RS 42,21,665/- AS A REVE NUE EXPENDITURE. THE ASSESSING OFFICER SHALL CONSIDER T HE SUBMISSIONS AND MATERIAL THAT MAY BE PUT-FORTH BY T HE ASSESSEE AND THEN ADJUDICATE THE MATTER IN ACCORDAN CE WITH LAW. WE HOLD SO. 4.1 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNO WLEDGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, SO F OLLOWING THE SAME REASONING, WE REMIT THE ISSUE BACK TO THE ASSESSING OFFICER WITH DIRECTION TO DECIDE THE ISSU E AS PER FACT AND LAW AFTER PROVIDING AN OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. 16 5. REVENUE FOR THE A.Y. 2007-08 AND A.Y. 2008-09 IN ITA NOS.647 & 648/PN/2013 REGARDING TRANSFER PRICING IS SUE THAT THE THREE EXTERNAL COMPARABLES CHOSEN BY THE TPO VI Z. ROLTA INDIA LIMITED, KLG SYSTEL LTD. AND POWERSOFT GLOBAL SOLUTIONS LTD. SHOULD BE RETAINED FOR BENCHMARKING THE PLI OF THE ASSESSEE. THE TPO REJECTED THE EXTERNAL COMPARABLES MAINLY ON FOLLOWING PARAMETERS: A. THE ASSESSEE DID NOT USE DATA OF THE RELEVANT FINAN CIAL YEAR B. SOME OF THE COMPARABLES WERE NOT FUNCTIONALLY COMPARABLE 5.1 THE TPO HAS FOR THE A.Y. 2007-08 RETAINED ONLY ONE COMPARABLE VIZ. ONWARD TECHNOLOGIES LTD. AFTER REJE CTING FOUR COMPARABLES VIZ. ACE SOFTWARE EXPORTS LTD., FEDERAL TECHNOLOGIES LTD., GENESYS INTERNATIONAL LTD., PENT ASOFT TECHNOLOGIES LTD. FOR THE A.Y. 2008-09 THE TPO HAS RETAINED THREE EXTERNAL COMPARABLES SELECTED BY THE ASSESSEE VIZ. CALIBER POINT BUSINESS SOLUTIONS LTD., COSMIC GLOBAL LTD. A ND INFORMED TECHNOLOGIES INDIA LTD. HOWEVER THE LEARNED TPO HAS MADE HIS OWN SEARCH ONCE AGAIN AND CHOSEN THREE EXTERNAL COM PARABLES VIZ. ROLTA INDIA LIMITED, KLG SYSTEL LTD. AND POWER SOFT GLOBAL SOLUTIONS LTD. FOR BOTH THE YEARS VIZ. A.Y. 2007-08 AND A.Y. 2008-09. 5.2. IN APPEALS, THE CIT(A) HAS GIVEN THE FINDING I N FAVOUR OF THE ASSESSEE THAT THE THREE NEW COMPARABLES CHOSEN BY THE TPO NAMELY ROLTA INDIA LTD., KLG SYSTEL LTD. AND POWERS OFT GLOBAL SOLUTIONS LTD. ARE NOT COMPARABLE FOR THE FOLLOWING REASONS. A. ROLTA INDIA LTD HAS HUGE TURNOVER DIFFERENCE. B. POWERSOFT GLOBAL SOLUTIONS LTD HAS FINANCIAL YEAR O F THE COMPANY DIFFERS BY SIX MONTHS. C. KLG SYSTEL LTD IS FUNCTIONALLY NOT COMPARABLE. 17 5.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS S UPPORTED THE ORDER OF TPO AND SUBMITTED THAT FOR RETAINING R OLTA INDIA IN THE SET OF COMPARABLES ON THE GROUND THAT THE LEARN ED CIT A IN A.Y. 2007-08 AND 2008-09 HAD OBSERVED THAT ROLTA IN DIA WAS FUNCTIONALLY COMPARABLE BUT HAD EXCLUDED IT ON THE BASIS OF HUGE DIFFERENCE IN TURNOVER AND TURNOVER FILTER COULD NO T BE APPLIED. THE STAND OF THE ASSESSEE HAS BEEN THAT ALL THE THR EE COMPANIES CHOSEN BY THE TPO AS COMPARABLES FOR BENCHMARKING D ID NOT SATISFY THE COMPARABILITY CRITERIA VIZ. FUNCTIONS P ERFORMED, RISKS ASSUMED, SIZE OF THE COMPANY IN TERMS OF SALES REVE NUE AND ASSETS DEPLOYED IN CONSONANCE WITH RULE 10B (2) (B) OF THE INCOME TAX RULES 1962. 5.4 THE ISSUE STANDS COVERED BY OUR DECISION IN THE ASSESSEES APPEAL NO. 1376 FOR A.Y. 2006-07 AND ON THE BACKDROP OF SAME SET OF FACTS AND REASONS STATED TH EREIN WE DIRECT THAT THE SAID THREE COMPANIES CHOSEN BY THE TPO BE OMITTED FROM THE SET OF COMPARABLES FOR THE SAID TW O YEARS UNDER OUR CONSIDERATION. WE HOLD ACCORDINGLY. 6. WITH REGARD TO THE ASSESSEE`S APPEAL NO 568/PN /2013 FOR A.Y. 2008-09 WHEREIN VIDE MODIFIED GROUND PRAYS FOR DIRECTION TO EXCLUDE CALIBER POINT BUSINESS SOLUTIONS LIMITED FR OM THE SET OF INDEPENDENT COMPARABLES AS THE SAID COMPANY IS HAVI NG RELATED PARTY TRANSACTIONS OF 30% OF ITS GROSS OPERATING RE VENUE FOR THE IMPUGNED A.Y. 2008-09 AS REFERRED IN PAGES 39 AND 6 7 OF THE PAPER BOOK FILED BY THE ASSESSEE. AT THE TIME OF FU RNISHING THE UPDATED PLI THE ASSESSEE INADVERTENTLY DID NOT APPL Y THE SAID FILTER OF RPT IN THE CASE OF CALIBER POINT BUSINESS SOLUTIONS LTD. AND THE SAID COMPANY WAS TAKEN AS COMPARABLE BY THE TPO. THE SAID GROUND WAS NOT TAKEN BEFORE THE CIT APPEALS DU E TO INADVERTENCE. HOWEVER IT IS SUBMITTED THAT RELEVANT FACTS ARE ON RECORD AS EVIDENT FROM PARA 7(6) PAGE 4 OF TPO`S OR DER AND IN TERMS OF TP REGULATIONS AS WELL AS OECD GUIDELINES SUCH RPT CANNOT BE CONSIDERED AS UNCONTROLLED TRANSACTION AN D INCLUSION 18 OF COMPARABLE HAVING RPT OF MORE THAN 25% OF GROSS REVENUE WOULD BE AN ERROR. IN THIS REGARD, THE ASSESSEE HAS SUBMITTED THAT HE MAY BE ALLOWED TO POINT OUT THE ERROR. IN T HIS REGARD, THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF SPE CIAL BENCH OF CHANDIGARH TRIBUNAL IN THE CASE OF QUARK SYSTEMS P. LTD. REPORTED IN 132 TTJ 1, WHEREIN, THE TRIBUNAL HELD A S UNDER: APPEAL (TRIBUNAL) ADDITIONAL GROUND ADMISSIBIL ITY GROUND RAISED BY THE ASSESSEE THAT ONE OF THE INDEP ENDENT COMPARABLE WHICH HAS BEEN INCLUDED BY THE ASSESSEE AS ALSO BY THE TPO WHILE COMPUTING ALP HAS BEEN WRONGLY INC LUDED IN THE COMPARABLE ADMITTED BY THE TRIBUNAL- TAXPAYE R IS NOT STOPPED FROM POINTING OUT A MISTAKE IN THE ASSESSME NT THROUGH SUCH MISTAKE IS THE RESULT OF EVIDENCE ADDU CED BY THE TAXPAYER. 6.1 IN THIS BACKGROUND, THE ASSESSEE HAS SUBMITTED THAT CALIBER POINT BUSINESS SOLUTIONS LTD BE ALLOWED TO BE EXCLUDED FROM THE SET EXTERNAL COMPARABLES AS IT IS HAVING RPT OF 30% OF GROSS REVENUE FOR THE A.Y. 2008-09. I N THIS REGARD, THE RELIANCE PLACED ON THE DECISION OF MUMB AI BENCH IN THE CASE OF THYSSEN KRUPP INDUSTRIES LTD W HEREIN, THE TRIBUNAL HELD AS UNDER: THE RELATED PARTY TRANSACTION IN THIS CASE ARE ADMITTEDLY A LITTER MORE THAN 20% BUT LESS THAN 25% . FROM THE ORDER PASSED BY THE TPO, IT CAN BE SEEN TH AT HE ADOPTED FILTER OF RELATED PARTY TRANSACTION AT 2 5 PERCENT. IN THE CASE OF ACPIS ADVISORS ( P) LTD VS DY. CIT (2011) 10 TAXMANN.COM 24 THE DELHI BENCH OF TRIBUNAL HAS HELD THAT A CASE CAN BE TAKEN AS UNCONTROLLED IF ITS RELATED PARTIES TRANSACTIONS DO NOT EXCEEDS 25 PERCENT OF THE TOTAL REVENUE. IN REACHIN G THIS CONCLUSION, THE TRIBUNAL TOOK ASSISTANCE FROM VARIOUS PROVISIONS OF THE ACT. THIS, NOT EXPRESSLY, SET 19 OUT IN THE STATUTE, CANNOT AT THE SAME TIME BE BRAN DED AS AD HOC. THE DELHI BENCH OF TRIBUNAL HAS TAKEN ASSISTANCE FROM CERTAIN OTHER PROVISIONS OF THE ACT FOR THE ADOPTION OF SUCH LIMIT. FOLLOWING THE PRECEDENT , THE TPO IS APPROVED IN PREFERENCE TO 10 PERCENT AS APPL IED BY THE ASSESSEE ON AD HOC BASIS. GOING BY THIS FILT ER, IT IS FOUND THAT SINCE THE RELATED PARTY TRANSACTIONS IN CASE OF TRF LTD ARE LESS THAN 25 PERCENT, THE TPO W AS JUSTIFIED IN ADMITTING THIS CASE IN THE LIST OF COM PARABLE CASES. 6.2. AND IN THE CASE OF STREAM INTERNATIONAL SERVIC ES P.LTD VS ASST. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATIO N) 7(2), MUMBAI, THE ITAT, MUMBAI HAS HELD AS UNDER: SINCE THE TPO APPLIED THE FILTER OF HAVING COMPANI ES LESS THAN 25 PER CENT RELATED PARTY TRANSACTIONS, IT IS NOT O PEN TO ARGUE THAT THE TRANSACTIONS OF REIMBURSEMENT OF THE EXPEN SES DULY REPORTED BY D AS AN INTERNATIONAL TRANSACTION WIT HIN THE MEANING OF SECTION 92B SHOULD BE IGNORED SIMPLY BEC AUSE THEY REPRESENT REIMBURSEMENT OF EXPENSES. IF THE CONTENT ION OF THE REVENUE THAT THE REIMBURSEMENT OF EXPENSE NOT INVOL VING PROFIT ELEMENT SHOULD NOT BE CONSTRUED AS TRANSACTION, IS TAKEN TO A LOGICAL CONCLUSION, IT WOULD MEAN THAT ALL SUCH DEA LING WILL CEASE TO BE TRANSACTION FOR THE PURPOSE OF CHAPTER X. ONCE THESE DEALINGS ARE NOT CONSIDERED AS TRANSACTION, THESE WILL ALSO CEASE TO BE INTERNATIONAL TRANSACTIONS, GOING OUT OF THE PURVIEW OF SECTION 92 ITSELF. SUCH VIEW POINT IS CO NTRARY TO THE CLEAR INTENTION AND THE LANGUAGE OF THE RELEVANT PR OVISION. A PURE REIMBURSEMENT OF EXPENSES BY ONE AE TO ANOTH ER AE IS VERY MUCH A TRANSACTION AS PER SECTION 92F(V) AND , CONSEQUENTLY, IS EQUALLY IN INTERNATIONAL TRANSACTI ON AS PER SECTION 92B REQUIRING CONSIDERATION AS PER SECTION 9. THE REVENUE COULD NOT DEMONSTRATE THE FACT THAT SUCH 20 REIMBURSEMENT OF EXPENSES WAS WITHOUT ANY MARK-UP. D IS LIABLE TO BE EXCLUDED FROM THE FINAL LIST OF COMPAR ABLES AS IT INVOLVES RELATED PARTY TRANSACTIONS AT A MUCH HIGHE R LEVEL AS AGAINST THE FILTER ADOPTED BY THE TPO HIMSELF, BEIN G COMPANIES WITH LESS THAN 25 PER CENT RELATED PARTY TRANSACTIO NS . IN THE LIGHT OF THE FACTS AND THE DECISIONS OF THE CO ORDINATE BENCHES CITED BEFORE US WE FIND THAT ONE OF THE COM PARABLES CALIBER POINT BUSINESS SOLUTIONS HAS RELATED PARTY TRANSACTIONS OF 30% OF REVENUE AND GOING BY THE THR ESHOLD FILTER OF 25% OF THE RELATED PARTY TRANSACTIONS THE SAID COMPARABLE CANNOT BE SAID TO BE UNCONTROLLED COMPAR ABLE AND OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. WE DIRECT THE TPO/AO TO EXCLUDE THE SAID COMPARABLE FROM THE LIST OF COMPARABLES TAKEN FOR THE PURPOSE OF BENCHMARKING F OR THE SAID A.Y. 2008-09. 7. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE AL LOWED AS INDICATED ABOVE AND THE APPEALS FILED BY THE REVENU E ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF SEPTEMBER 2014. SD/- SD/- (G. S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED : 30 TH SEPTEMBER, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE DRP 4) THE DR, A BENCH, I.T.A.T., PUNE. 5) GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE