Asst. CIT, Circle-6, Pune V. Sas Research & Development (India) Pvt. Ltd., Pune

ITA 811/PUN/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0349 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-07-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 05-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M P LOHIA RAJENDRA AGRIWAL
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 81 1 /PN/201 3 / ASSESSMENT YEAR : 20 0 5 - 0 6 THE DY . COMMISSIONER OF I NCOME TAX, CIRCLE 6, PUNE . / APPELLANT VS. SAS RESEARCH & DEVELOPMENT (INDIA) PVT. LTD., LEVEL 2A & LEVEL - 3, CYBERCITY, TOWER - 5, MAGARPAT TA CITY, HADAPSAR, PUNE 41101 3 . / RESPONDENT PAN NO.AA ECS8099L / APPELLANT BY : SHRI SUHAS KULKARNI / RESPONDENT BY : S /S HRI M.P. LOHIA , RAJENDRA AGRIWAL / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - IT/TP, PUNE DATED 21.01. 201 3 RELATING TO ASSESSMENT YEAR 2005 - 06 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - / DATE OF HEARING : 24 . 1 0 .201 6 / DATE OF PRONOUNCEMENT: 29 . 12 .201 6 2 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 1. THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF TH E CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME - TAX (APPEA L S) ERRED IN DIRECTING THE AO TO CONSIDER THE AGGREGATE MARGIN OF THE ASSESSEE FROM ONSITE AS WELL AS OFFSHORE SERVICES FOR COMPUTING THE ALP DESPITE THE FACT THAT THE MARK UP FOR ONSITE AND OFFSHORE SERVICES WERE DIFFERENT FORM EACH OTHER. 3 . THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED ON FAC T S AND IN LAW IN NOT APPRECIATING THE FACT THAT DIFFERENT MARKUPS FOR ONSITE AND O FFSHORE SERVICE S INDICATE TOWARDS FUNCTIONAL AND RISK PROFILE BEING DIFFERENT FOR ONSITE & OFFSHORE SEGMENTS. 4 . THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED ON FACTS AND IN LAW, IN DIRECTING THE A.O. TO INCLUDE FUNCTIONALLY DIFFERENT COMPANY IN THE FINAL SET OF COMP ARABLES. 5. FOR THIS AND SUCH OTHER REASONS AS MAY BE URGED AT TH E TIME OF HEARING THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) MAY BE VACATED AND THAT OF THE AO BE RESTORED. 3. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS NOT PRESSED AN D HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 4. THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE REVENUE ARE AGAINST 4. THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE REVENUE ARE AGAINST DIRECTIONS OF CIT(A) IN CONSIDERING THE AGGREGATE MARGINS OF ASSESSEE FROM ONSITE AS WELL AS OFFSHORE SERVICES FOR COMPUTING ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEARS 2004 - 05 AND 2005 - 06 AND THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE. 5. BRI EFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO SAS GROUP ENTITIES. THE ASSESSEE WAS WHOLLY OWNED SUBSIDIARY OF SAS INSTITUTE INC, USA. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD UNIT REGIS TERED UNDER SOFTWARE TECHNOLOGY PARK SCHEME OF GOVERNMENT OF INDIA. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 13 , 82 , 5 40/ - . 3 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. THE ASSESSEE WAS PROVIDING SOFTWARE DEVELOPMENT SERVICES TO THE SAS GR OUP COMPANIES OVERSEAS. THE ASSESSEE WAS ENTITLED TO CLAIM THE DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF PUNE UNIT. REFERENCE UNDER SECTION 92CA(1) OF THE ACT WAS MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER (IN SHORT THE TPO ) FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION. THE TPO NOTED THAT THE ASSESSEE HAD PROVIDED SEVERAL SERVICES TO ITS ASSOCIATE ENTERPRISES AS TABULATED AT PAGE 2 OF THE ORDER OF TPO. THE ASSESSEE WAS PROVIDING BOTH ON - S ITE AND OFF - SITE SERVICES. THE TPO ALSO NOTED THAT THE ASSESSEE IN ITS TRANSFER PRICING REPORT HAD PREPARED SEGMENTAL PROFITABILITY FOR SOFTWARE DEVELOPMENT AND SOFTWARE CONSULTANCY SERVICES. THE TNMM METHOD WAS APPLIED USING OPERATING MARGIN OVER OPERAT ING COST AS THE PROFIT LEVEL INDICATOR (PLI), IN ORDER TO TEST THE ARMS LENGTH NATURE OF ITS INTERNATIONAL TRANSACTIONS. THE ASSESSEE IN THE TP STUDY REPORT HAD REPORTED THAT IT HAD EARNED MARK - UP OF 7.50% OF COST FOR THE SOFTWARE DEVELOPMENT ACTIVITY DU RING THE YEAR. THE AVERAGE MARK - UP EARNED BY THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE WERE 9.97%. HOWEVER, THE TPO REJECTED MANY OF THE SAID COMPANIES SELECTED AS COMPARABLE BY THE ASSESSEE ON ACCOUNT OF ABNORMAL RESULTS SHOWN BY THE SAID COMPAN IES INCLUDING GOLDSTONE TECHNOLOGIES LTD. AND VJIL CONSULTING LTD. AND THE ARITHMETIC MEAN OF MARGINS OF BALANCE COMPANIES WORKED OUT TO 22 . 26 %. THE ASSESSEE WAS CONFRONTED WITH THE SAID DETAILS AND WAS ASKED TO EXPLAIN AS TO WHY AN ADJUSTMENT SHOULD NOT BE MADE TO ARM'S LENGTH PRICE OF TRANSACTIONS BY TAKING THE REVISED MARGINS OF COMPARABLES. THE ASSESSEE IN TURN, EXPLAINED ITS CASE WHICH WA S NOT ACCEPTED BY THE TPO. THE TPO CONCLUDED BY HOLDING AS UNDER: - 9. THE ARITHMETIC MEAN OF THE PLIS WAS ARRIVE D AT 22.26% AND ADJUSTMENT AS WORKED OUT FOR THE WORKING CAPITAL IS TO BE ALLOWED AT 4.17% AND THUS ADJUSTED ARITHMETIC MEAN OF PLIS OF THE SET OF COMPARABLES COMES TO 18.09%. THE OPERATING PROFIT OVER TOTAL COST IN RESPECT OF SOFTWARE DEVELOPMENT SERVICE S 4 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. OF THE ASSESSEE COMPANY IS 7.5% AND ACCORDINGLY TO DETERMINE ARM'S LENGTH PRICE OF THE ASSESSEES INTERNATIONAL TRANSACTION, AN ADJUSTMENT OF AN AMOUNT CORRESPONDING TO THE DIFFERENCE OF THE ADJUSTED ARITHMETIC MEAN OF THE PLIS OF THE SET OF COMPARABLES AND PLI OF THE ASSESSEE COMPANY HAS TO BE MADE. WORKING OF THE ADJUSTMENT IS GIVEN AS UNDER: - THE TOTAL VALUE OF INTERNATIONAL TRANSACTION RELATING TO PROVISION OF IT SERVICES : RS.18,91,53,929/ - DIFFERENCE IN THE ADJUSTED MEAN OF PLI OF THE COMPARABL ES AND THE ASSESSEE : 18.09% - 7.5% = 10.59% ADJUSTMENT REQUIRED TO COMPUTE ARM'S LENGTH PRICE: 10.59% OF RS.18,91,53,929/ - = RS.2,00,31,401/ - ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION = VALUE OF INTERNATIONAL TRANSACTION AS PER BOOKS + ADJUS TMENT WORKED OUT ABOVE I.E. RS.18,91,53,929/ - + RS.2,00,31,401/ - = 20,91,85,330/ - . AS THE ASSESSEE HAS COMPUTED THE ARM'S LENGTH PRICE OF THE TRANSACTION AT ITS BOOK VALUE AN ADJUSTMENT OF RS.2,00,31,401/ - IS MADE TO THE VALUE OF INTERNATIONAL TRANSACTIO N RELATING TO PROVISION OF SOFTWARE SERVICES TO ARRIVE AT THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. AS A CONSEQUENCE OF THIS ADJUSTMENT THE INCOME OF THE ASSESSEE SHALL BE INCREASED BY RS.2,00,31,401/ - . 10. THE INTERNATIONAL TRANSACTION PE RTAINING TO PROVISION OF ONSITE SERVICES TO OVERSEAS SAS GROUP COMPANIES HAS BEEN ACCEPTED TO BE AT ARM'S LENGTH PRICE. THE OTHER TRANSACTIONS BEING BASICALLY REIMBURSEMENT OF EXPENSES AND THAT TOO BEING THIRD PARTY COSTS HAVE ALSO BEEN ACCEPTED TO BE AT ARM'S LENGTH. 6. THE SAID PROPOSAL MADE UNDER SECTION 92CA OF THE ACT WAS ADOPTED BY THE ASSESSING OFFICER WHILE PASSING ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT, AGAINST WHICH THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 7. THE CIT(A) DIRECT ED THE ASSESSING OFFICER TO CONSIDER THE AGGREGATE MARGINS OF ASSESSEE BOTH FROM ONSITE AND OFFSHORE SERVICES WHILE COMPUTING ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. 8. THE CASE OF THE REVENUE ON THE OTHER HAND, BEFORE US IS THAT THERE WAS DIFF ERENCE IN THE MARK - UP FOR ONSITE AND OFFSHORE SERVICES AND HENCE, THE SAME CANNOT BE AGGREGATED TO DETERMINE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. 5 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 9. S IMILAR ISSUE OF AGGREGATION OF MARGINS OF ASSESSEE FROM ONSITE AND OFFSHORE SERVICES AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2004 - 05 AND THE TRIBUNAL VIDE PARAS 15 AND 16 HELD AS UNDER: - 15. NOW, COMING TO THE NEXT DIRECTION OF THE CIT(A) IN HOLDING THAT THE MARGINS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND P ROVISION OF ON - SITE SERVICES BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES HAVE TO BE COMPUTED CUMULATIVELY. THE FIRST ASPECT TO BE NOTED IN THE CASE IS THAT WHILE THE ASSESSEE IS PROVIDING SEVERAL SERVICES TO ITS ASSOCIATE ENTERPRISES AND IT HAS RECOGNIZE D THAT IT IS PROVIDING TWO KINDS OF SERVICES I.E. PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND PROVISION OF SOFTWARE CONSULTANCY SERVICES. IN RESPECT OF SOFTWARE DEVELOPMENT ACTIVITY, THE ASSESSEE WAS REIMBURSED AT COST PLUS 7.5% MARK - UP AND IN RESPECT OF SOFTWARE CONSULTANCY SERVICES, IT WAS REIMBURSED AT COST PLUS 15.04%. THE SOFTWARE CONSULTANCY SERVICES WERE OFF - SITE AND THE SOFTWARE CONSULTANCY SERVICES WERE PROVIDED ON - SITE TO THE ASSOCIATE ENTERPRISES. THE FINANCIALS OF THE ASSESSEE PROVIDES SEG MENTAL DETAILS IN RESPECT OF BOTH THESE SERVICES I.E. OFF - SITE AND ON - SITE SERVICES, THE MARGINS AT WHICH THE ASSESSEE IS REIMBURSED BY ITS ASSOCIATE ENTERPRISES IN RESPECT OF OFF - SITE SERVICES IS LOWER AT COST PLUS 7.5% AND IN RESPECT OF ON - SITE SERVICES IS HIGHER AT COST PLUS 15.04%. IN ITS TP STUDY REPORT, THE ASSESSEE HAD BENCHMARKED TWO TRANSACTIONS SEPARATELY AND HAD HELD THEM TO BE AT ARM'S LENGTH PRICE BY TAKING THE MEAN OF LIST OF COMPARABLES. HOWEVER, SINCE THIS WAS THE START OF TRANSFER PRICING STUDY PROVISIONS, THE COMPLETE DETAILS WERE NOT LOOKED INTO BY BOTH THE ASSESSEE AND THE REVENUE. THE FOLLOWING PATTERN APPLIED BY THE ASSESSEE. THE TPO ALSO APPLIED THE MARGINS OF SAME SET OF COMPARABLES BOTH FOR OFF - SITE AND ON - SITE SERVICES. IN VIEW THEREOF, THE CASE OF ASSESSEE BEFORE US IS THAT MARGINS OF BOTH THE SERVICES SHOULD BE CLUBBED IN ORDER TO BENCHMARK THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES VIS - - VIS THE MEAN MARGIN SHOWN BY THE COMPARABLES. W E FIND NO MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD AND WE ARE AT VARIANCE WITH THE ORDER OF CIT(A) IN THIS REGARD. THE LAW HAS DEVELOPED IN THE FIELD OF TRANSFER PRICING PROVISIONS. THE ISSUE AS TO WHETHER AN ACTIVITY BEING PROVIDED BY A CONCERN ON ACCOUNT OF OFF - SITE SERVICES AND ON - SITE SERVICES HAVE BEEN COMPARED AND IT HAS BEEN HELD THAT THE COMPANY ENGAGED IN PROVIDING ON - SITE SERVICES IS UN - COMPARABLE TO THE COMPANY ENGAGED IN PROVIDING OFF - SHORE SERVICES. THE SAID RATIO HAS BEEN LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN TIBCO SOFTWARE INDIA (P.) LTD. VS. DCIT RELATING TO ASSESSMENT YEAR 2008 - 09 (SUPRA) AND TIBCO SOFTWARE (INDIA) (P.) LTD. VS. DCIT RELATING TO ASSESSMENT YEAR 2009 - 10 (SUPRA). 16. IN VIEW OF THE SAID PROPOSITION, WHEREIN IT HAS BEEN HELD THAT THE COMPANY PROVIDING OFF - SHORE SERVICES TO ITS ASSOCIATE ENTERPRISES STAND ON A DIFFERENT FOOTING FROM THE COMPANY RENDERING ON - SITE SERVICES TO ITS CLIENTS, THEN EVEN IN A CASE WHERE ONE COMPANY ITSELF PROVIDING BOTH THE SAID SERVICES, THE SAME HAVE TO BE CONSIDERED SEPARATELY WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS. THE BASIS ON WHICH THE ASSESSEE BEFORE US IS BEING REIMBURSED ON ACCOUNT OF ITS OFF - SITE SERVICES IS COST PLUS 7.5% AND FOR ON - SITE SERVICES, IT IS BEING REIMBUR SED AT COST PLUS 15.04%, WHICH ITSELF ESTABLISH THAT THE TWO SERVICES PROVIDED BY THE ASSESSEE ARE DIFFERENT AND THE SAME CANNOT BE CLUBBED FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS. WE REVERSE THE ORDER OF CIT(A) IN THIS REGARD AND D IRECT THE ASSESSING OFFICER TO RE - COMPUTE THE SAME. WHERE THE MARK - UP EARNED BY THE ASSESSEE IS DIFFERENT FROM TWO ACTIVITIES CARRIED ON BY IT THAT ESTABLISHED THAT THE ACTIVITIES UNDERTAKEN WERE DIFFERENT ON ACCOUNT OF FUNCTIONAL AND RISK PERSPECTIVE. S INCE THE ASSESSEE IN THE PRESENT CASE WAS BEING REMUNERATED AT SEPARATE MARK - UP FOR EACH OF THE ACTIVITY, THEN BOTH THE ACTIVITIES HAVE TO BE CONSIDERED SEPARATELY WHILE BENCHMARKING ARM'S LENGTH PRICE OF TRANSACTIONS PERSE. MERELY BECAUSE THE 6 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. SAME SET OF COMPARABLES HAVE BEEN UTILIZED DOES NOT JUSTIFY THE CASE OF ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES I.E. OFF - SITE SERVICES INDEPENDENTLY FROM ON - SITE SERVICES P ROVIDED BY WAY OF CONSULTANCY SERVICES PROVIDED BY THE ASSESSEE. THE ASSESSING OFFICER IS ALSO DIRECTED TO ADOPT THE SEGMENTAL DETAILS OF COMPARABLES, IF AVAILABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF ASSESSEE. ACCORDINGLY, THIS ASPECT OF T RANSFER PRICING ADJUSTMENT, IF ANY, IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER, WHO IS DIRECTED TO ADOPT ONLY THE MARGINS OF SOFTWARE CONSULTANCY SERVICES I.E. OFF - SITE SERVICES IN ORDER TO COMPUTE THE ADDITION, IF ANY, ON ACCOUNT OF TRANSFER PRICIN G ADJUSTMENT. ACCORDINGLY, THE GROUNDS OF APPEAL NO.3 AND 4 RAISED BY THE REVENUE ARE THUS, ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, PARTLY ALLOWED. 10. FOLLOWING THE SAME PARITY OF REASONING, WE REMIT THIS ASPECT OF TRANSFER PRI CING ADJUSTMENT BACK TO THE FILE OF ASSESSING OFFICER / TPO TO ADOPT ONLY THE MARGINS OF SOFTWARE CONSULTANCY SERVICES I.E. OFFSHORE SERVICES IN ORDER TO COMPUTE ADDITION, IF ANY, ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE ASSESSING OFFICER IS DIRECTE D TO FOLLOW THE DIRECTIONS IN ASSESSMENT YEAR 2004 - 05 TO COMPUTE THE ADJUSTMENT, IF ANY, IN THE HANDS OF ASSESSEE. ACCORDINGLY, THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE REVENUE ARE THUS, ALLOWED. 11. NOW, COMING TO THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.4 AND 5 BY THE REVENUE , WHEREIN THE REVENUE IS IN APPEAL AGAINST THE DIRECTIONS OF CIT(A) TO INCLUDE FUNCTIONALLY DIFFERENT COMPANIES IN THE FINAL SET OF COMPARABLES I.E. GOLDSTONE TECHNOLOGIES LTD. AND VJIL CONSULTING LTD. 12. THE LEARNED DEPAR TMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ASSESSEE WAS CAPTIVE SERVICE PROVIDER IN IT SERVICES, WHEREIN THE TPO SELECTED SIX COMPARABLES AND THE CIT(A) EXCLUDED COMPUCOM SOFTWARE ON ACCOUNT OF RPT FILTER, AGAINST WHICH THERE IS NO APPEAL FILED BY THE REVENUE. HOWEVER, THE CIT(A) VIDE PARA 29 DIRECTED THAT THE MARGINS OF GOLDSTONE TECHNOLOGIES LTD. SHOULD BE INCLUDED IN THE FINAL SET OF COMPARABLES. HE FURTHER POINTED OUT THAT GOLDSTONE TECHNOLOGIES LTD. WAS ENGAGED IN ITES SERVICES AS HE LD BY BANGALORE BENCH OF TRIBUNAL IN M/S. TRILOGY E - BUSINESS SOFTWARE INDIA 7 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. PVT. LTD. VS. DCIT IN ITA NO.1054/BANG/2011, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 23.11.2012 AND HENCE, THE MARGINS OF SAID COMPANY COULD NOT BE INCLUDED IN THE FINAL S ET OF COMPARABLES. WITH REGARD TO OTHER COMPANY VJIL CONSULTING LTD., REFERRING TO THE OBSERVATIONS OF CIT(A) AT PAGES 32 AND 33, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE SAID CONCERN WAS PRODUCT COMPANY AS IS EVIDENT F ROM THE EVIDENCE FILED AT PAGES 82 TO 84 OF THE PAPER BOOK AND HENCE, THE SAME IS NOT TO BE INCLUDED IN THE FINAL SET OF COMPARABLES. 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT AS PER RULE 10C(2 )( C) , THE AVAILABILITY AND RELIABILITY OF DATA IS TO BE CONSIDERED. HE FURTHER REFERRED TO THE FINANCIALS OF SAID CONCERN AND POINTED OUT THAT THE INCOME WAS SHOWN UNDER HEAD SOFTWARE DEVELOPMENT BY THE SAID CONCERN AND EVEN THE REVENUE WAS RECOGNIZED ACCORDINGLY. HE REFERRED T O THE PAGES 75 TO 81 OF THE PAPER BOOK IN THIS REGARD. HE STRESSED THAT THE DECISION IN M/S. TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. VS. DCIT (SUPRA) WAS IN RELATION TO ASSESSMENT YEAR 2007 - 08 AND THE YEAR UNDER APPEAL WAS 2005 - 06. IN RESPECT OF OTHE R CONCERN VJIL CONSULTING LTD., THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SOURCE OF INCOME OF SAID CONCERN WAS SOFTWARE DEVELOPMENT. HE FURTHER POINTED OUT THAT THE INVENTORY WAS ALMOST THE SAME AND STOCK WAS OF CONSUMABL E SOFTWARE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN WAS DEVELOPING SOFTWARE AND THE REVENUE WAS FROM SOFTWARE SERVICES. HE ADMITTED THAT THE SAID CONCERN WOULD BECOME PRODUCT COMPANY IN THE SUBSEQUENT YEAR . HE FURTHER POINTED OUT THAT IN ASSESSMENT YEAR 2004 - 05, BOTH THE CONCERNS WERE SELECTED AS COMPARABLES. 8 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES FOR ADJUDICATION IN THE PRESENT APPEAL IS THE REJECTION AND ACCEPTANCE OF COMPARABLE COMPANIES WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION. AS POINTED OUT EARLIER, THE ASSESSEE WAS WHOLLY OWNED SUBSIDIARY OF SAS INSTITUTE INC, USA AND WAS ENGAGED IN SOFTWARE DEVELOPMENT AND PROVIDING SOFTWARE DEVELOPMENT SERV ICES TO SAS GROUP OF COMPANIES OVERSEAS. THE ASSESSEE WAS CAPTIVE SERVICE PROVIDER ENGAGED IN IT SERVICES. FOR BENCHMARKING THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE , THE ASSESSEE INITIALLY HA D SELECTED CERTAIN COMPANIES WHILE APPLYING TNN M METHOD WHICH WERE NOT ACCEPTED BY THE TPO. HE MADE ANOTHER SEARCH AND INCLUDED NEW SET OF CONCERNS AND REJECTED CERTAIN CONCERNS. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) IN THIS REGARD. HOWEVER, THE LIMITED ISSUE WHICH ARISES IN THE PRESENT APP EAL BEFORE US IS ONLY AGAINST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO INCLUDE THE MARGINS OF GOLDSTONE TECHNOLOGIES LTD. AND VJIL CONSULTING LTD. IN THE FINAL SET OF COMPARABLES IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTION. THE RE VENUE IS AGGRIEVED BY THE SAID DIRECTIONS OF CIT(A). NO APPEAL HAS BEEN FILED BY THE ASSESSEE. SO, WE PROCEED TO DECIDE THE PRESENT APPEAL ONLY WITH REGARD TO THE ISSUE OF INCLUSION OF GOLDSTONE TECHNOLOGIES LTD. AND VJIL CONSULTING LTD. BOTH THE LEARNE D AUTHORIZED REPRESENTATIVES HAVE PUT FORWARD THEIR CONTENTIONS AND REFERRED TO THE FINANCIAL RESULTS OF TWO CONCERNS. 15. THE FIRST CONCERN WHICH HAS BEEN DIRECTED TO BE INCLUDE D IS GOLDSTONE TECHNOLOGIES LTD. IT MAY BE POINTED OUT AT THE OUTSET THAT THE SAID CONCERN WAS REJECTED BY THE BANGALORE BENCH OF TRIBUNAL IN M/S. TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. VS. DCIT (SUPRA) WHILE DECIDING THE ISSUE OF BENCHMARKING THE INTERNATIONAL TRANSACTION OF CONCERN ENGAGED IN IT SERVICES RELATING TO 9 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. ASSES SMENT YEAR 2007 - 08. IT WAS HELD IN THE SAID CASE, THAT GOLDSTONE TECHNOLOGIES LTD. WAS ENGAGED IN ITES SERVICES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS DRAWN A DISTINCTION THAT THE YEAR UNDER APPEAL IS ASSESSMENT YEAR 2005 - 06 AND ALSO POINTED OUT THAT THE SAID CONCERN HAS SHOWN INCOME AS SOFTWARE DEVELOPMENT. IT MAY BE POINTED OUT THAT ASSESSMENT YEAR 2005 - 06 WAS INITIAL YEAR OF TRANSFER PRICING AND THE LAW HAD NOT DEVELOPED BUT THE REPORTING AND ANALYZING OF TRANSACTION HAS UNDERGONE SEA CHANGE . IN THE INTEREST OF JUSTICE AND FOLLOWING THE PRINCIPLE OF AUDI ALTERAM PARTEM , WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY WHETHER GOLDSTONE TECHNOLOGIES LTD. IS ENGAGED IN ITES SERVICES OR IS IN SOFTWARE SERVICES. TH E HONBLE HIGH COURT OF DELHI IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT IN ITA NO.102/2015, VIDE JUDGMENT DATED 10.08.2015 WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION HAS LAID DOWN THE PROPOSITION THAT BOTH IT AND ITES WORK ON DIFFERENT FOOTING AND THE SAME ARE NOT COMPARABLE. THE ASSESSEE BEFORE US IS CAPTIVE SERVICE PROVIDER AND IS PROVIDING SERVICES TO ITS PRINCIPAL ASSOCIATE ENTERPRISES AND IS RECEIVING MARK UP ON ITS SERVICES. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DECIDE THE ISSUE IN A CCORDANCE WITH LAW AND THE SETTLED PRINCIPLES AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE HOLD SO. 1 6 . NOW, COMING TO THE OTHER CONCERN VJIL CONSULTING LTD., WHEREIN ADMITTEDLY, THE SAID CONCERN HAS SHOWN AN INVENTORY AND HAS AL SO PAID VAT ON ITS SALES. THE CONTENTION OF ASSESSEE IN THIS REGARD IS THAT INVENTORY IS ALMOST SAME AS IN THE LAST YEAR AND THE INVENTORY OF CONSUMABLES IN COMPUTER SOFTWARE, WHERE THE SAID CONCERN WAS DEVELOPING SOFTWARE AND IS ENGAGED IN SIMILAR BUSINE SS AS IN THE EARLIER YEARS. HE ALSO CONTENDED THAT THE SAID CONCERN WAS SELECTED AS COMPARABLE IN ASSESSMENT YEAR 2004 - 05 IN ASSESSEES 10 ITA NO. 81 1 /PN/20 1 3 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. OWN CASE. WE FIND NO MERIT IN THE SAID CONTENTION OF ASSESSEE AS EACH YEAR IS AN INDEPENDENT YEAR. THE DATA WHICH WAS INITIALLY AVAILABLE IN THE EARLIER YEARS WAS ON A LIMITED SCALE BUT NOW WITH THE PASSING OF YEARS COMPLETE DATA IS AVAILABLE . SINCE THESE FACTUAL ASPECTS WERE NOT CONSIDERED BY THE ASSESSING OFFICER / TPO WHILE APPLYING TRANSFER PRICING PROVISIONS, IN TH E INTEREST OF JUSTICE, WE REMIT THIS ISSUE OF VERIFICATION BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL DECIDE THE SAME AFTER VERIFYING THE FUNCTIONAL PROFILE OF THE SAID CONCERN VJIL CONSULTING LTD. THE GROUND OF APPEAL NO.4 RAISED BY THE REVENUE IS THUS, ALLOWED FOR STATISTICAL PURPOSES . 1 7 . IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF DECE MBER , 2016 SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 29 TH DECE MBER , 2016 GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RE SPONDENT; 3. ( ) / THE CIT(A) - I T/TP , PUNE; 4. / THE CIT I I I / DIT(TP/IT) , PUNE; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE