Mphasis Limited, Bangalore V. CIT, Bangalore

ITA 652/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0301 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 13-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEERA MALHOTRA
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing
• Section: 143(3); 10B; 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI A .K. GARODIA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T.A. NO. 652 /BANG/201 4 (ASSESSMENT YEAR : 20 04 - 05 ) M/S. MPHASIS LIMITED, BAGMANE WORLD TECHNOLOGY CENTRE, BLOCK B, 1 ST FLOOR, KR PURAM, MARATHAHALLI, ORR, DODDENEKUNDI, BANGALORE - 560 048 PAN AAACB 6820C VS. COMMISSIONER OF INCOME TAX, BANGALORE III, BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A. RESPONDENT BY : MRS . NEERA MALHOTRA, CIT (D.R) DATE OF H EARING : 20.06.2 016. DATE OF P RONOUNCEMENT : 24. 06.20 1 6 . O R D E R PER SHRI V IJAY P AL RAO, J. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE REVISION ORDER DT.26.2.2014 OF COMMISSIONER OF INCOME TAX, BANGALORE III PASSED UNDER 2 ITA NO. 652 /BANG/ 2014 SECTION 263 OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') FOR THE ASSESSMENT YEAR 2004 - 05. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THE FOLLOWING GROUNDS OF APPEAL ARE INDEPENDENT OF, AND WITHOUT PREJUDICE, TO ONE ANOTHER. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LEARNED C OMMISSIONER OF INCOME - TAX, BANGALORE - I1I ['THE CIT'] UNDER SECTION 263 OF THE ACT IS BAD IN LAW AND VOID AB INITO. THE LEARNED CIT ERRED IN CONCLUDING THAT THE ORDER OF THE ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 12(1), BANGA LORE ('THE ACIT') IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CONDITIONS PRECEDENT FOR ASSUMPTION I EXERCISE OF JURISDICTION UNDER SECTION 263 NOT BEING SATISFIED, THE ORDER PASSED UNDER SECTION 263 IS BAD IN LAW AND LIABLE TO BE QUASHED. 2 THE LEARNED CIT ERRED IN CONCLUDING THAT THE ORDER OF ACIT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHOUT APPRECIATING THE FACT THAT (A) THE IMPUGNED ISSUE FOR WHICH NOTICE WAS ISSUED UNDER SECTION 263 HAD BEEN EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS AND AO HAD PASSED THE RE - ASSESSMENT ORDER AFTER APPLICATION OF MIND (B) THE MATTER WAS STILL PENDING BEFORE THE CIT (APPEALS) AND HAD NOT REACHED FINALITY AT THE TIME T HE ORDER UNDER SECTION 263 WAS PASSED. 3 THE LEARNED CIT ERRED IN CONCLUDING THAT THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION I0A I 10 B IN RESPECT OF ONSITE PORTION OF SOFTWARE DEVELOPMENT SUB CONTRACTED TO ASSOCIATED ENTERPRISES OF THE APPELLANT. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE AND AS HELD BY THE JURISDICTIONAL IT A T IN THE CASE OF MPHASIS SOFTWARE AND SERVICES INDIA PRIVATE LIMITED, APPELLANT IS ELIGIBLE FOR DEDUCTION UNDER SECTION I0A I LOB IN RESPECT OF ONSITE PORTION OF SOFTWARE DEVELOPMENT SUB CONTRACTED TO ASSOCIATED ENTERPRISES. 4 WITHOUT PREJUDICE, THE LEARNED CIT ERRED IN CONCLUDING THAT TOTAL EXPENDITURE IN FOREIGN CURRENCY DEBITED TO PROFIT AND LOSS ACCOUNT HAS TO BE CON SIDERED IN THE DENOMINATOR FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER SECTION 10 A / 10 B WITH NUMERATOR BEING THE SOFTWARE DEVELOPMENT CHARGES PAID TO ASSOCIATED ENTERPRISES. THE RATIONALE I BASIS FOR SUCH CONCLUSION OF THE LEARNED CIT IS INCORRECT, CONTRARY TO FACTS AND CONSEQUENTLY BAD IN LAW AND LIABLE TO BE QUASHED. 5 THE APPELLANT THEREFORE PRAYS THAT THE ORDER PASSED BY THE CIT UNDER SECTION 263 OF THE ACT AND THE CONSEQUENTIAL EFFECT THEREOF IS BAD IN LAW AND CONSEQUENTLY THE SAID ORDER SHOULD BE QUASHED/ANNULLED. THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION OR OTHERWISE, ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APP EAL. 3 ITA NO. 652 /BANG/ 2014 3. WE HAVE HEARD THE LEARNED A.R. AS WELL AS LEARNED D.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSMENT ORDER UNDER SECTION 143(3) RWS 147 OF THE ACT WAS COMPLETED ON 30.12.2011. S UBSEQUENTLY, THE CIT ON PERUSAL OF THE ASSESSMEN T RECORD FOUND THAT THE ASSESSEE HAS CALCULATED DEDUCTION UNDER SECTION 10B EVEN ON THE AMOUNTS PAID TO THE ASSOCIATED ENTERPRISES (AES) FOR SOFTWARE DEVELOPMENT CHARGES. ACCORDINGLY, THE CIT HAS INVOKED THE PROVISIONS OF SECTION 263 AND REVISED THE ASSES SMENT ORDER WHILE PASSING THE IMPUGNED ORDER. THE CIT HAS DIRECTED THE ASSESSING OFFICER TO CONSIDER THE ISSUE OF ALLOWING THE DEDUCTION UNDER SECTION 10B AFTER EXCLUDING THE ON SITE EXPENSES. AT THE OUTSET WE NOTE THAT THE ASSESSING OFFICER IN THE O RIGINAL ASSESSMENT UNDER SECTION 143(3) RWS 147 RESTRICTED THE DEDUCTION UNDER SECTION 10B OF THE ACT IN PROPORTION TO THE ON SITE EXPENDITURE PAID TO THE AE UNDER SUB - CONTRACT AND THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE ORIGINAL ASSE SSMENT WAS CHALLENGED BY THE ASSESSEE BEFORE THE CIT (APPEALS) AND THEREAFTER THE REVENUE CARRIED THE MATTER BEFORE THIS TRIBUNAL. THE TRIBUNAL VIDE ITS ORDER DT.31.7.2015 IN ITA NO.677/BANG/2014 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN PARAS 4 TO 7 AS UNDER : 4 ITA NO. 652 /BANG/ 2014 4. WE HAVE HEARD THE LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT MATERIALS ON RECORD. 5. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. THE ASSESSEE RECEIVED THE WORK ORDER FROM FOREIGN CLIENT FOR SOFTWARE DEVELOPMENT. THE PART OF THE WORK HAS BEEN CARRIED OUT BY THE ASSESSEE IN INDIA AND SOME PART OF DEVELOPMENT OF COMPUTER SOFTWARE ON SITE OF THE CLIENT HAS BEEN PERFORMED BY THE ASSOCIATED ENTERPRISES OF THE ASSESSEE UNDER SUB CONTRACT. THE ASS ESSING OFFICER HAS DENIED THE CLAIM OF DEDUCTION U/S 10B ON THE GROUND THAT THE INCOME RECEIVED BY THE ASSESSEE FROM THE ON SITE DEVELOPMENT OF SOFTWARE THROUGH ITS ASSOCIATED ENTERPRISES IS NOT ELIGIBLE FOR DEDUCTION, AS IT WAS NOT THE WORK OF EXPORT OF SOFTWARE BY THE ASSESSEE. 6. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF OTHER GROUP COMPANY OF THE ASSESSEE NAMELY MPHASIS SOFTWARE SERVICES INDIA LTD., VS . DCIT IN ITA NO.1209 OF 2012 DATED 20/12/2013. WE HAVE GONE THROUGH THE AGREEMENTS AS WELL AS THE WORK ORDERS RECEIVED BY THE ASSESSEE FROM THE CLIENTS AND FOUND THAT THE WORK OF SOFTWARE DEVELOPMENT WAS UNDERTAKEN BY THE ASSESSEE AND RISK AND REWARD UN DER THE AGREEMENTS BELONGS TO THE ASSESSEE AND NOT TO THE ASSOCIATED ENTERPRISES OF THE ASSESSEE. THE ASSESSEE HAS RECEIVED THE ENTIRE CONSIDERATION OF DEVELOPMENT OF SOFTWARE IN FOREIGN EXCHANGE AND EARNED PROFIT ON THAT PART OF THE JOB EXECUTED BY THE A SSOCIATED ENTERPRISES UNDER SUB - CONTRACT AFTER REDUCING THE EXPENSES INCURRED BY THE ASSESSEE. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GROUP CONCERN M/S MPHASIS SOFTWARE SERVICES PVT. LT D., (SUPRA) IN PARA 12 TO 14 AS UNDER : - 12. COMING TO THE MAIN ISSUE IN THE ASSESSEE S APPEAL I.E REDUCTION/DEDUCTION OF THE CLAIM U/S 10A OF THE INCOME - TAX ACT IN RESPECT OF ONSITE SOFTWARE DEVELOPMENT WORK PERFORMED BY THE ASSOCIATED ENTERPRISES OF THE ASSESSEE OUTSIDE INDIA, WE FIND THAT THE ASSESSEE ENTERED INTO A CONTRACT WITH THE END CONSUMERS WHO ARE OUTSIDE INDIA AND TO DISCHARGE ITS LIABILITIES UNDER THE CONTRACT, THE ASSESSE SUB - CONTRACTED THE WORK TO ITS AE OUTSIDE INDIA WHO IN FACT DE VELOP THE SOFTWARE, TEST AND IMPLEMENT THE SOFTWARE AT THE PREMISES OR CUSTOMER S PLACE USING ITS OWN 5 ITA NO. 652 /BANG/ 2014 PERSONNEL AND INFRASTRUCTURE. THE ASSESSEE RECEIVED THE PAYMENT FROM THE END USER I.E THE CUSTOMER AND MAKES THE PAYMENT OF SOFTWARE DEVELOPMENT CHARGE S TO THE AE FOR THE SERVICES RENDERED BY IT. THE CONTRACT DEVELOPMENT CHARGES PAID BY THE ASSESSEE TO THE AE HAVE BEEN HELD TO BE AT ARM S LENGTH BY THE TPO U/S 92CA OF THE INCOME - TAX ACT. WHAT IS SOUGHT TO BE DISALLOWED IS THE CLAIM OF DEDUCTION U/S 10 A OF THE ACT, THE INCOME ARISING OUT OF THE ONSITE DEVELOPMENT OF SOFTWARE BY THE AE. ACCORDING TO THE AUTHORITIES BELOW, THE SOFTWARE IS TO BE DEVELOPED BY THE ASSESSEE AND EVEN THE ONSITE IMPLEMENTATION OR ON SITE DEVELOPMENT WORK TO BE CARRIED OUT AT T HE PREMISES OF THE CUSTOMER ARE TO BE PERFORMED BY THE EMPLOYEES OF THE ASSESSEE COMPANY UNDER ITS DIRECT SUPERVISION AND CONTROL. UNDISPUTEDLY, THE ASSESSEE HAS SUB - CONTRACTED THE ENTIRE WORK OF DEVELOPMENT OF SOFTWARE FOR THE CUSTOMER TO ITS AES OUTSID E INDIA. THE ASSESSEE HAS PLACED RELIANCE UPON THE CIRCULAR NO.694 DATED 23.11.1994 TO SUBMIT THAT THE DEVELOPMENT OF SOFTWARE NEED NOT BE CARRIED OUT AT THE PREMISES OF THE ASSESSEE COMPANY AND IF THE ASSESSEE PERFORMS THE WORK AT THE SITE OF THE CUSTOME R OUTSIDE INDIA, EVEN THEN IT IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE INCOME - TAX ACT. THUS, IT IS CLEAR THAT THE CBDT CIRCULAR NO. 694 ONLY CLARIFIES THAT THE ENTIRE WORK OF DEVELOPMENT OR MANUFACTURE OF THE PRODUCT NEED NOT BE CARRIED OUT BY THE ASSESSE E IN ITS OWN PREMISES IN INDIA. THE MOOT QUESTION BEFORE US IS WHETHER THE ASSESSEE CAN SUB CONTRACT PART OR WHOLE OF ITS DEVELOPMENT OF SOFTWARE WORK TO AN AGENCY OUTSIDE INDIA AND CLAIM THE INCOME THERE - FROM AS ITS INCOME ELIGIBLE FOR DEDUCTION U/S 10A OF THE INCOME - TAX ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HAD PLACED RELIANCE UPON THE DECISIONS OF THIS TRIBUNAL AT DELHI AND MUMBAI IN VARIOUS CASES WHICH ARE CITED IN PARA 3 ABOVE. IN THE CASE OF TECHDRIVE INDIA PVT. LTD. (CITED SUPRA), THE TRIBUNA L WAS CONSIDERING WHETHER EXEMPTION U/S 10B IS ALLOWABLE TO THE ASSESSEE THEREIN WHERE THE PRODUCT WAS PRODUCED BY THE SISTER CONCERN OF THE ASSESSEE. THE TRIBUNAL AT PARA 17 HAS CULLED OUT THE VARIOUS STEPS INVOLVED IN THE DEVELOPMENT/CREATION OR PROD UCTION OF SOFTWARE AND AT PARA 19 HAS ALSO HELD THAT SEC. 10B OF THE ACT ONLY PROVIDES FOR CERTAIN NEGATIVE REQUIREMENTS SUCH AS CLAUSE (III) OF SUB SEC. (2) WHICH SAYS THAT THE UNDERTAKING COULD NOT HAVE BEEN FORMED BY THE TRANSFER TO A NEW BUSINESS OF M ACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. IT WAS HELD THAT THE SECTION DOES NOT PROVIDE FOR A POSITIVE REQUIREMENT THAT THE ASSESSEE WHO CLAIMS THE EXEMPTION SHOULD OWN PLANT AND MACHINERY. THEREFORE, EVEN IF THE MANUFACTURE OR PRODUCTION IS DON E BY AN OUTSIDE AGENCY OR CONTRACTORS 6 ITA NO. 652 /BANG/ 2014 UNDER THE SUPERVISION OR CONTROL OF THE ASSESSE, THE CLAIM FOR DEDUCTION OR EXEMPTION HAS TO BE ALLOWED. SIMILAR VIEW IS EXPRESSED BY THE OTHER BENCHES OF THE TRIBUNAL ON WHICH THE ASSESSEE HAS PLACED RELIANCE UPON. 13. THEREFORE, TO APPLY THE PRINCIPLES LAID DOWN IN THE ABOVE CASES, THE NEXT ISSUE TO BE EXAMINED IS TO WHETHER THE DEVELOPMENT OF SOFTWARE BY THE AE IS UNDER THE SUPERVISION AND THE CONTROL OF THE ASSESSEE? 14. AS SEEN FROM THE MASTER SERVICES AGREEME NT (WHICH IS PLACED AT PAGE 36 OF THE PAPER BOOK) ENTERED INTO BY THE ASSESSEE WITH ITS AE AT USA, THE SCOPE OF THE WORK IS TO PROVIDE ONSITE AND OFFSHORE SERVICES RELATING TO INFORMATION TECHNOLOGY TO THE ASSESSEE COMPANY, WHICH SHALL INCLUDE PRODUCTS DE VELOPED BY THE CONTRACTOR IN ACCORDANCE WITH THE SPECIFICATIONS PROVIDED BY THE ASSESSEE COMPANY AS AGREED FOR THE PURPOSE AND SET OUT IN THE TASK ORDER. CLAUSE (2) OF THE AGREEMENT PROVIDES FOR TASK ORDER FORM OF THE CONTRACT WHILE CLAUSE (3) SETS OUT THE OBLIGATION OF THE ASSESSEE COMPANY. CLAUSE (4) SETSOUT OBLIGATION OF THE CONTRACTOR AND CLAUSE (7) RELATES TO RIGHT OVER THE INTELLECTUAL PROPERTY. THE AO HAS HELD THAT THE INTELLECTUAL PROPERTY RELATING TO DEVELOPMENT OF PRODUCTS IS WITH THE CON TRACTOR AND, THEREFORE, IT CANNOT BE SAID THAT THE WORK IS CARRIED OUT UNDER THE SUPERVISION OF THE ASSESSEE COMPANY. BUT A LITERAL READING OF THE AGREEMENT REVEALS THAT THE RIGHTS AND RESPONSIBILITIES ATTACHED TO THE DELIVERABLES VESTS WITH THE CONTRACT OR, ONLY TILL THE COMPANY HAS PAID THE COMPENSATION PAYABLE FOR SUCH PORTION OF THE DELIVERABLES IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT AND THE APPLICABLE TASK ORDER. THEREFORE, ONCE THE COMPENSATION IS PAID FOR THE DELIVERABLES, IT IS TO BE UNDERS TOOD THAT THE INTELLECTUAL PROPERTY IS OWNED BY THE ASSESSE COMPANY. THE CONTRACTORS ONLY POSSESSES THE INTELLECTUAL PROPERTY RIGHTS WHICH ARE ALREADY OWNED BY IT AND WHERE SUCH INTELLECTUAL PROPERTY RIGHT IS USED FOR THE PRODUCTION OF THE COMPUTER SOFT WARE, IT SHALL GRANT THE ASSESSEE COMPANY A NON - EXCLUSIVE LICENSE TO USE SUCH INTELLECTUAL PROPERTY ENABLING THE COMPANY TO USE SUCH SOURCE CODE FOR FORMING PART OF THE DELIVERABLES DEVELOPED FOR THE COMPANY. THE OTHER DOCUMENT TO BE CONSIDERED IS THE AG REEMENT OF THE ASSESSEE WITH THE CUSTOMER AND IT IS SEEN THEREFROM THAT THOUGH THE ASSESSEE COMPANY IS ENTITLED TO SUB CONTRACT THE WORK, IT SHALL ALONE BE RESPONSIBLE FOR THE RISKS AND REWARDS 7 ITA NO. 652 /BANG/ 2014 ARISING OUT OF THE SUCH SUB - CONTRACT. CLAUSE (23) OF THE AG REEMENT PROVIDES FOR SUB CONTRACTING OF THE WORK, WHEREIN IT IS STATED THAT THE SUPPLIER MAY NOT SUB CONTRACT THE PERFORMANCE OF ANY OF ITS OBLIGATIONS SET OUT THEREIN WITHOUT THE PRIOR WRITTEN CONSENT OF THE CUSTOMERS AND THE APPROVAL OF THE CONTRACTOR OR SUB CONTRACTOR AND THE CUSTOMER SHALL NOT CONSTITUTE A SUPERSEDING OF EVENTS OR WAVIER OF ANY RIGHT OF CUSTOMER TO REJECT WORK WHICH IS NOT IN CONFORMATION WITH THE STANDARD SET FORTH IN THE AGREEMENT AND DOES NOT CONSTITUTE NOR IMPLY AUTHORIZATION OF EXPENSES IN EXCESS OF BUDGET. IT IS ALSO PROVIDED THAT TO THE EXTENT THE SUPPLIER SUBCONTRACTS TO THIRD PARTIES ANY OF ITS OBLIGATIONS TO BE SET OUT IN THE AGREEMENT, THE SUPPLIER SHALL REMAIN FULLY RESPONSIBLE FOR SUCH OBLIGATION AND FOR ALL ACTS OR OMISSIONS OF ITS SUBCONTRACTORS OR AGENTS. FROM THE ABOVE CLAUSES, IT IS CLEAR THAT THE ASSESSEE IS SOLELY RESPONSIBLE FOR THE DISCHARGE OF ITS OBLIGATION UNDER THE AGREEMENT TO THE CUSTOMER AND THE SUBCONTRACTOR HAS NO SAY IN THE MATTER. IT IS SEEN F ROM THE MASTER SERVICES AGREEMENT THAT IT IS THE ASSESSEE WHICH IS UNDER AN OBLIGATION TO DISCHARGE ITS OBLIGATION OF SATISFYING THE REQUIREMENT OF THE CUSTOMERS AND IN PURSUANCE THEREOF TO PASS ON THE SPECIFICATION OF THE PRODUCTS TO THE AE AND ALSO TO R ESERVE RIGHT TO REJECT THE PRODUCT IF THE AE DOES NOT PRODUCE THE PRODUCT IN CONFORMITY WITH THE REQUIREMENT OF PRODUCT AS GIVEN IN THE TASK ORDER. THEREFORE, IT CAN BE SAFELY CONCLUDED THAT THE DEVELOPMENT OF THE SOFTWARE BY THE AE IS UNDER THE SUPERVI SION AND CONTROL OF THE ASSESSEE COMPANY. IN THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, ONLY A PART OF THE DEVELOPMENT OF SOFTWARE WORK WAS OUTSOURED AND IT WAS HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 10B OF THE INCOM E - TAX ACT FOR THE INCOME EARNED OUT OF SUCH JOB WORK DONE. IN THE CASE BEFORE US, EVEN THOUGH THE ASSESSEE HAS OUTSOURCED THE ENTIRE WORK OF DEVELOPMENT OF SOFTWARE TO ITS AE S, IN OUR OPINION, THE DECISIONS OF THE COORDINATE BENCH E S RELIED UPON BY THE LE ARNED COUNSEL FOR THE ASSE S SEE APPLY TO THE CASE ON HAND ALSO. IN VIEW OF THE SAME, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE INCOME - TAX ACT WITH REGARD TO THE INCOME EARNED BY THE ASSESSEE COMPANY FROM THE ONSITE DEVELOPMENT OF SOFTWARE CARRIED OUT BY THE AE. IT IS ALSO NOTEWORTHY TO MENTION THAT THE PAYMENT MADE BY THE ASSESSEE TO THE AE FOR THE WORK DONE BY THE AE AT THE SITE OF THE CUSTOMER HAS BEEN ACCEPTED BY THE TPO TO BE AT ARM S 8 ITA NO. 652 /BANG/ 2014 LENGTH PRICE. THEREFORE, THERE CANNOT BE ANY IMPUTATION THAT THE ASSESSEE HAS BEEN TRYING TO SHIFT THE PROFITS OUT OF INDIA BY OUTSOURCING THE WORK TO THE AE. 7. SINCE THE FACTS AND CIRCUMSTANCES IN THE CASE OF THE ASSESSEE ARE IDENTICAL TO THAT OF THE CASE OF EMPHASIS SOFTWARE SERVICES I NDIA (SUPRA), THEREFORE, FOLLOWING THE ORDER OF THE COORDINATE BENCH (SUPRA), WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF CIT(A) QUA THIS ISSUE. SINCE THE ISSUE ON MERITS REGARDING THE RESTRICTION OF THE DEDUCTION UNDER SECTION 10B O F THE ACT ARISING FROM THE ORIGINAL ASSESSMENT ORDER HAS BEEN DECIDED BY THIS TRIBUNAL THEREFORE , SUBSEQUENT REVISION ORDER BECOMES INFRUCTUOUS. ACCORDINGLY, WE SET ASIDE THE IMPUGNED REVISION ORDER. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 .6. 201 6 . SD/ - (A .K. GARODIA ) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE