Cadence Design Systems (India) Pvt. Ltd., Noida V. ACIT, New Delhi

ITA 86/DEL/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5204 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 05-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Wholly owned subsidiary; Valuation report
• Section: 92C; 92B; 142(1); 234B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I - 1, NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 8 6 /DEL/201 7 AY: 201 2 - 13 M/S CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. {;PT MPS/ 57A, B & C NOIDA SPECIAL ECONOMIC ZONE, PO:NEPZ NOIDA 201 305 PAN: AAAC C1138Q VS . ACIT, CIRCLE 5 (2) NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. NAGESWAR RAO, AD V. DEPARTMENT BY : SH. SAN JAY I BARA, CIT - D.R. DATE OF HEARING : 21/05/2019 DATE OF PRONOUNCEMENT : 29 /05/2019 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER P RESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER PASSED BY LD. ACIT , C IRCLE 5 (2), NEW DELHI FOR ASSESSMENT YEAR 2012 - 13 ON FOLLOWING GROUNDS OF APPEAL: GROUNDS 1. THE FINAL ASSESSMENT ORDER DATED 30 NOVEMBER 2016 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5(2), NEW DELHI (LEARNED AO) (IMPUGNED ORDER) PURSUANT TO THE DIRECTIONS OF THE HONBLE DISPUTE RESOLUTION PANEL (LEARNED DRP) DATED 18 OCTOBER 2016 AND THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, TRANSFER PRICING OFFICER - 1(2)(1) & 1 (2)(2), NEW DELHI (LEARNED TPO), IS BAD IN LAW AND VOID - AB - INITIO. 2. THAT ON FACTS AND IN LAW, THE LEARNED AO HAS ERRED IN COMPUTING THE TOTAL INCOME OF THE APPELLANT AT INR 54,21,67,892/ - AS AGAINST THE RETURNED INCOME OF INR 49,56,97,610/ - BY MAKING AN UPWARD ADJUSTMENT OF INR 4,64,70,282/ - ON ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 2 ACCOUNT OF TRANSFER PRICING MATTERS. THE ABOVE ADJUSTMENT OF INR 4,64,70,282/ - COMPRISES OF THE FOLLOWING: A. ADJUSTMENT OF INR 3,36,00,559/ - PERTAINING TO THE INTERNATIONAL TRANSACTION INVOLVING PROVISION OF IT ENABLED BACK OFFICE SUPPORT SERVICES (ITES) TO ASSOCIATED ENTERPRISE (A E); AND B. ADJUSTMENT OF INR 1,28,70,223/ - PERTAINING TO THE INTERNATIONAL TRANSACTION INVOLVING PURCHASE OF FIXED ASSETS FROM AE. 3. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP/TPO/AO HAVE ERRED IN REJECTING THE ECONOMIC ANALYSIS UNDERTAKEN BY T HE APPELLANT BY CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE IMPUGNED INTERNATIONAL TRANSACTIONS INVOLVING (I) PROVISION OF ITES TO AE AND (II) PURCHASE OF FIXED ASSETS FROM AE. 4. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP/TPO/AO HAVE ERRED IN REJECTING CERTAIN COMPARABLES AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF ALLEGED COMPARABLES ON AN AD - HOC BASIS, THEREBY RESORTING TO CHERRY PICKING OF COMPARABLES FOR BENCHMARKING THE TRANSACTION INVOLVING PROVISION OF ITES. 5. THE LEARNED TPO/AO HAS ERRED BOTH ON FACTS AND IN LAW AND HAS VITIATED THE PRINCIPLES OF NATURAL JUSTICE BY: A. NOT GIVING DUE COGNIZANCE TO THE DETAILED ANALYSIS AND TECHNICAL ARGUMENTS SUBMITTED BY THE APPELLANT; AND B. ISSUING THEIR RESPECTIVE ORDERS AFTER RELYING ON COMPLETELY NEW FACTS WITHOUT GIVING THE ASSESSEE A PROPER OPPORTUNITY OF BEING HEARD . 6. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP HAS GROSSLY ERRED IN GIVING A DIRECTION TO RECTIFY THE ARITHMETICAL ERRORS IN THE COMPUTATION OF THE OPERATING MARGINS OF ALLEGED COMPARABLE COMPANIES IN COMPLIANCE WITH THE INCOME TAX ACT (THE ACT) WITHOUT APPRECIATING THAT INDIAN REGULATIONS DO NOT PRESCRIBE THE METHODOLOGY FOR COMPUTING OPERATING MARGINS WHICH MAY APPLY TO THE APPELLANT. THE LEARNED DRP HAS ERRED IN DIRECTING THE LEARNED TPO/ AO TO RE - COMPUTE MARGINS OF COMPARABLES USING SAFE HARBOUR RULES WITHOUT APPRECIATING THAT: A. APPELLANT HAS NOT APPLIED FOR BEING ASSESSED UNDER SAFE HARBOR PROVISIONS ; B. SAFE HARBOUR PROVISIONS DO NOT REFLECT ARMS LENGTH NATURE OF MARGINS; AND C. SAFE HARBOUR RULES CANNOT BE APPLIED RETROSPECTIVELY AND ARE ONLY APPLICABLE FOR ASSESSMENT YEAR (AY) 2013 - 14 AND FOUR ASSESSMENT YEARS IMMEDIATELY FOLLOWING AY 2013 - 14 ON SPECIFIC APPLICATION BY A TAXPAYER. 7. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP/TPO/AO HAVE ERRED IN CONDUCTING A FRESH ECONOMIC ANALYSIS BY USING ARBITRARY FILTERS FOR IDENTIFYING COMPANIES COMPARABLE TO THE ITES PROVIDED BY THE APPELLAN T. THE ARBITRARY FILTERS APPLIED BY THE LEARNED TPO AND CONFIRMED BY THE LEARNED DRP/AO INTER - ALIA INCLUDE THE FOLLOWING: A. REJECTING COMPANIES HAVING TURNOVER LESS THAN INR 1 CRORES; ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 3 B. REJECTING COMPANIES HAVING DIFFERENT ACCOUNTING YEAR THAN THAT OF THE APPELLANT; C. REJECTING COMPANIES HAVING EMPLOYEE COST LESS THAN 25 PERCENT OF THE SALES; D. COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES WHICH ARE NOT IN LINE WITH THE INDUSTRY TREND, - COMPANIES WHICH SHOWED DIMINISHING REVENUE TREND; AND E. REJECTING COMPANIES HAVING EXPORT REVENUE LESS THAN 75 PERCENT OF SALES. 8. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP/ TPO/AO HAVE ERRED BY SELECTING CERTAIN COMPANIES WHICH ARE EARNING SUPER NORMAL PROFITS AS COMPARABLE TO THE APPELLANT FOR THE IMPUGNED TRANSACTIONS. 9. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP/TPO/AO HAVE FAILED TO MAKE APPROPRIATE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCE IN RISK PROFILE OF THE APPELLANT VIS - A - VIS THE COMPARABLES FOR THE TRANSACTION INVOLVING PROVISION OF ITES, AND IN THIS PROCESS I NTER - ALIA NEGLECTED THE INDIAN TRANSFER PRICI NG REGULATIONS, INTERNATIONAL GUIDELINES ON T RANSFER PRICING AND JUDICIAL PRECEDENCE IN THIS REGARD. 10. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP/ TPO/AO HAVE ERRED IN USING SINGLE YEAR DATA FOR FINANCIAL YEAR (FY) 2011 - 12 OF ALLEGED COMPARABLE COMPANIES WITHOUT CONSIDERING THE FACT THAT THE SAME WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS AND DISREGARDING THE APPELLANTS CLAIM FOR USE OF MULTIPLE YEAR DATA FOR COMPUT ING THE ARM'S LENGTH PRICE. 11. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP/TPO/AO HAVE ERRED IN BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINING TO PURCHASE OF FIXED ASSETS ON STANDALONE BASIS AND REJECTING THE COMBINED TRANSACTION APPROACH ADOPTED BY THE ASSESSEE TO BENCHMARK THE SAID IMPUGNED TRANSACTION WHEREIN THE ASSESSEE CONSIDERED THE TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOST APPROPRIATE METHOD. 12. THAT ON FACTS OF THE CASE AND IN LAW, THE LEARNED DRP/TPO/AO HAVE ERRED IN DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO PURCHASE OF FIXED ASSETS: A. BY COMPLETELY IGNORING RELEVANT FACTS AND CIRCUMSTANCES OF CASE; B. IN FAILING TO UNDERSTAND THAT DEPRECIATION CHARGED ON THE FIXED ASSET FORMS PART OF THE COST BASE OF POST SALES TECHNICAL SUPPORT SERVICES SEGMENT WHEREIN THE APPELLANT HAS EARNED A MARGIN OF 12.23 PERCENT WHICH WAS CONSIDERED TO BE AT ARMS LENGTH BY THE LEARNED TPO/ AO; AND C. BY NOT APPRECIATING THE FACT THAT A VALUATION HAS BEEN UNDERTAKEN BY THE CUSTOM AUTHORITIES IN RELATION TO THE SUBJECT FIXED ASSETS AND THE SUCH VALUATION CAN BE CONSIDERED AS THE ARMS LENGTH PRICE UNDER INDIAN TRANSFER PRICING REGULATIONS. ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 4 GENERAL GROUN DS 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN INITIATING PENALTY UNDER SECTION 271(1 )(C) OF THE ACT. 14. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN CHA RGING INTEREST UNDER SECTION 234A, 234B AND 234C OF THE ACT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE & WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, VARY, OMIT OR SUBSTITUTE ANY OF SAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER : FOR YEAR UNDER CONSIDERATION ASSESSEE FILED IT S RETURN OF I NCOME DECLARING TOTAL INCOME OF RS.49,56,97,610/ - ON 26/11/12. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) WAS ISSUED AND SERVED ON ASSESSEE ALONG WITH QUESTIONNAIRE AND NOTICE UNDER SECTION 142(1) OF THE INCOME TAX ACT, 1961 ( THE AC T). IN RESPONSE TO STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD. AO AND FILED NECESSARY DETAILS AS CALLED FOR. 2.1. IT HAS BEEN SUBMITTED THAT, ASSESSEE IS WHOLLY OWNED SUBSIDIARY OF CADENCE DESIGN SYSTEMS INC., AND WAS ESTABLISHED I N INDIA IN ORDER TO UNDERTAKE SOFTWARE DEVELOPMENT AND RESEARCH SERVICES, RELATED INFORMATION TECHNOLOGY, BACK OFFICE SUPPORT SERVICES AND RELATED PRE - SALES MARKETING AND POST - SALES TECHNOLOGICAL SERVICES IN INDIA. IT IS ALSO SUBMITTED THAT ASSESSEE PROVID ES R&D SERVICES AND IT E S SERVICES FROM ITS UNIT, LOCATED IN NOIDA S PECIAL E CONOMIC Z ONE (SEZ) AND S OFTWARE T ECHNOLOGY P ARKS U NIT LOCATED IN BANGALORE. FURTHER ASSESSEE PROVIDES SYSTEM SUPPORT SERVICES TO ALL CADENCE GROUP, ACROSS THE WORLD AND DERIVE INC OME IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF COMPUTER SOFTWARE AND PROVIDING TECHNICAL SUPPORT AND TRAINING SERVICES. ASSESSEE HAS BEEN THEREFORE CATEGORISED AS A CAPTIVE SERVICE PROVIDER AND RISK MITIGATED ENTITY WH ICH IS COMPENSATED ON A COST PLUS MARKUP BASIS FOR THE SERVICES RENDERED BY ASSESSEE TO ITS A SSOCIATED E NTERPRISES (AE) IN THE T.P.STUDY. ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 5 2.2. LD. AO ACCORDINGLY REFERRED THE CASE TO TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARM S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY ASSESSEE FOR YEAR UNDER CONSIDERATION. UPON RECEIPT OF SUCH REFERENCE, LD. TPO ISSUED NOTICE UNDER SECTION 92 CA (1) OF THE A CT AND DIRECTED ASSESSEE TO PROVIDE ECONOMIC ANALYSIS AS PRESCRIBED UNDER R ULE 10 D OF R ULES. 2.3. L D.T PO OBSERVED THAT ASSESSEE HAD ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTION WITH ITS AE: SL. NO. INTERNATIONAL TRANSACTIONS AMOUNT (IN RS.) 1. PROVISION OF SOFTWARE R&D SERVICES 2,219,623,967 2. PROVISION OF SOFTWARE R&D SERVICES 540,854,522 3. PROVISION OF PRE - SALE MARKETING SUPPORT SERVICES 145,404,538 4. PROVISION OF POST - SALE TECHNICAL SUPPORT SERVICES 295,714,258 5. PURCHASE OF FIXED ASSETS 21,450,372 6. LET OUT OF MACHINE TO A PERSON OTHER THAN AE PURSUANT TO A GLOBAL AGREEMENT TO GLOBAL AGREEMENT BETWEEN AE AND THIRD PARTY 10,490,201 2.4. AFTER CONSIDERING SUBMISSIONS ADVANCED BY ASSESSEE IN RESPONSE TO NOTICE ISSUED BY LD. TPO, AN ADJUSTMENT WAS PROPOSED AMOUNTING TO RS.5,32,83,934/ - TO THE TOTAL INCOME OF ASSESSEE FOR INTERNATIONAL TRANSACTIONS PERTAINING TO IT BACK OFFICE SUPPORT SERVICES. LD.TPO ALSO DIRECTED LD. AO TO DISALLOW AMOUNT OF DEPRECIATION ON PURCHASE OF FIXED ASSETS AMOUNTING TO RS.2,14,50,372/ - . 3. AGGRIEVED BY PROPOSED ADJUSTMENT, ASSESSEE FILED GROUNDS OF OBJECTIONS BEFORE DRP WHO PARTLY ALLOWED APPEAL OF ASSESSEE BY DIRECTING LD.AO TO RECTIFY COMPUTATIONAL ERRORS AND RESTRICTED DEPRECIATION ON FIXED ASSET TO 60%. 3.1. O N RECEIPT OF DRP DIRECTIONS, LD. TPO PASSED ORDER GIVING EFFECT DATED 17/11/16 , WHEREBY FINAL ADJUSTMENT PROPOSED WAS AMOUNTING TO RS.4,64,70, 28 2/ - AND FINAL COMPARABLES SELECTED FOR BENCHMARKING INTERNATIONAL TRANSACTION PERTAI NING TO PROVISIONS OF ITES WAS AS UNDER: ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 6 SL. NO. NAME OF THE COMPANY OP/OC AS COMPUTED IN THE TPO ORDER (WORKING CAPITAL ADJUSTED) F.Y. 2011 - 12 CORRECTED OP/OC (WORKING CAPITAL ADJUSTED) F.Y. 2011 - 12 1. ACCENTIAL TEHCNOLOGIES LTD. 8.32% 6.47% 2. ACLERX SERVICES LIMITED 57.15% 56.54% 3. INFORMED TECHNOLOGIES LTD. 17.90% 4/41% 4. JINDAL INTELLICOM LIMITED - 1.35% - 1.35% 5. TCS E - SERVE LTD. 61.33% 61.33% 6. EXCEL INFOWAYS LTD. (SEGMENTAL) 38.00% 20.94% 7. R SYSTEMS INTERNATIONAL LTD.(SEG) - 2.58% - 5.13% 8. INDOAYA BPO LTD. 34.15% 32.94% 9. AEROPETAL TECHNOLOGIES LTD. (SEG.) 15.02% 15.02% 10. BNR UDYOG LTD. 45.83% 33.65% 11. E4E HEALTHCARE BUSINESS 18.64% 18.64% 12. MICROGENETICS SYSTEMS LTD. 5.30% 5.30% AVERAGE 24.81% 20.73% 3.2. LD. AO THEREAFTER PASSED FINAL ASSESSMENT ORDER BY MAKING ADJUSTMENT OF RS.4,64,70,282/ - . 4. AGGRIEVED BY FINAL ASSESSMENT ORDER PASSED BY LD. AO, ASSESSEE IS IN APPEAL BEFORE US NOW. 4.1. LD.COUNSEL AT THE OUTSET, SUBMITTED THAT ONLY ISSUE ALLEGED BY ASSESSEE IS IN RESPECT OF CERTAIN COMPARABLES BEING WRONGLY INCLUDED BY LD.TPO IN RESPECT OF ITES SERVICE PROVIDED BY ASSESSEE TO ITS AE. HE SUBMITTED THAT IN THE EVENT COMPARABLES SOUGHT TO BE EXCLUDED BY ASSESSEE ARE CONSIDERED, OTHER GROUNDS BECOMES ACADEMIC IN NATURE. 4.2 . LD. C OUNSEL SUBMITTED THAT ASSESSEE HAS USED TNMM AS MOST APPROPRIATE METHOD WITH OP/OC AS PLI FOR COMPUTING ARMS LENGTH PRICE OF TRANSACTION UNDER DISPUTE AND AS PER TP STUDY , ASSESSEE BEING THE TESTED PARTY, THE MARGIN WAS COMPUTED AT 14.83%. HE SUBMITTED THAT IN THE EVENT, ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 7 FOLLOWING COMPARABLES ARE EXCLUDED, ASSESSEE WOULD BE WITHIN THE MARGIN OF +/ - 5%: ECLERX SERVICES LTD TCS E - SERVE LTD INFOSYS BPO LTD 4.3 . REFERRING TO ORDER PASSED BY THIS TRIBUNAL IN ITA NO. 6315/DEL/2015 DATED 02/04/2018 FOR ASSESSMENT YEAR 2011 - 12 IN ASSESSEES OWN CASE, LD. C OUNSEL SUBMITTED THAT THIS TRIBUNAL HAS EXCLUDED THE ABOVE REFERRED COMPARABLES IN ASSESSEE S OWN CASE. IT HAS ALSO BEEN SUBMITTED THAT THERE IS NO FACTUAL DIFFERENCE IN TERMS OF FAR, OF ASSESSEE FOR YEAR UNDER CONSIDERATION VIS - A - VIS ASSESSMENT YEAR 2011 - 12. 4.4. LD.CIT DR ON THE CONTRARY , PLACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES B ELOW. 5. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS , IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED BY ASSESSEE, ASSETS OWNED AND RISK ASSUMED FOR YEAR UNDER CONSIDERATION. DRP HAS REPRODUCED FAR OF ASSESSEE FOR YEAR UNDER CONSIDERATION WHICH IS AS UNDER: FUNCTIONAL ANALYSIS THE FUNCTIONS PERFORMED BY CADENCE INDIO AND ITS ASSOCIATED ENTERPRISE WITH REGARD TO THE IDENTIFIED TRA NSACTION ARE OUTLINED BELOW: DE TERMINING THE SCOPE OF SERVICES THE BROAD SCOPE OF WORK TO BE UNDERTAKEN BY CADENCE INDIA IN CONNECTION WITH THE IT BACK OFFICE SU PPORT SERVICE TRANSACTION IS OUTLINED IN A SERVICE AGREEMENT BETWEEN CADENCE INDIA AND CDS. CDS PRO VIDES GUIDELINES TO CADENCE INDIA FOR PROVISION OF IT BACK OFFICE SUPPORT SERVICES BY CADENCE INDIA. PR OVISION OF SERVICES CADE NCE INDIA IS RESPONSIBLE TO PROVIDE THE AGREED SERVICES AS AND WHEN REQUESTED BY OVERSEAS GROUP ENTITIES AS PER TERMS LAID OUT IN THE SERVICE AGR EEMENT. THE IT ENABLED BACK OFFICE SUPPORT SERVICES RE NDERED BY CADENCE INDIA TO CDS INCLUDE BROADLY TWO CATEGORIES OF SERVICES: VOICE B ASED IT ENABLED CALL CENTRE SERVICES I T SUPPORT CENTRE WHICH RENDERS THE FOLLOWING GAMUT OF SUPPORT SERVICES IT ENABLED VENDOR MANAGEMENT SERVICES ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 8 IT ENABLED ASSET MANAGEMENT SERVICES REMOTE INFRA STRUCTURE MANAGEMENT SERVICES APPLICATION MAINTENANCE AND SUPPORT SERVICES ANY REQUISITION FOR NEW HARDWARE OR SOFTWARE IS ENTERED INTO AN ONLINE SYSTEM, WHICH IS THEN VETTED ELECTRONICALLY AND PROCESSED FURTHER BY THE ASSET MANAGEMENT SUPPORT TEAM BASED IN CADENCE INDIA. THESE NEW SOFTWARE /HARDWARE ARE FINALLY PROCURED BY CDS US FROM THIRD PARTY VENDORS. THE IT BACK OFFICE TEAM I S NOT RESPONSIBLE FOR PROCURING THE HARDWARE AND/OR SOFTW A RE. IN VERY FEW CASES WHERE . SUCH REQUEST IS NOT MET OUT OF CDS AND THIS IS WHEN THE SAME HAS TO BE CARRIED OUT BY THE FACILITIES DEPARTM ENT IN INDIA TO ENABLE CADENCE INDIA AVAIL WARRANTY BENEFITS LOCALLY FROM THIRD PARTY VENDORS. FUNCTION S RELATED TO NICHE FUNCTIONS LIKE SAS AND CLOUD COMPUTING ARE WHOLLY CARRIED OUT OF THE CDS. THE MAIN ACTIVITIES CARRIED OUT BY THE IT BACK OFFICE TEAM OF CADENCE INDIA PERTAIN TO CUSTOMER HELPDESK, SERVER MAINTENANCE, STORAGE MAINTENANCE ETC. QUALITY ASSURANCE CADENCE INDIA IS REQUIRED TO ENSURE THAT SERVICES PROVIDED ORE OF A CERTAIN REQUISITE QUALITY AND ADHERE TO ESTABLISHED INTERNATIONAL GROUP STANDARDS. HOWEVER, CADENCE INDIA DOES NOT FACE ANY PENALTY FOR A LAPSE IN QUALITY. MANPOWER PLANNING CADENCE INDIA MAINTAINS A MANPOWER POOL TO ENSURE PROVISION OF SERVICES TO ITS AE. BASED ON DIRECTIONS IF THE AE AND ESTIMATION OF WORK RECEIVED FROM THE AE, CADENCE INDIA MAINTAINS THE NECESSARY MAN POWER TO EXECUTE WORK OF PROVIDING IT BACK OFFICE SUPPOR T SERVICES. CADENCE INDIA IS GUIDED BY ITS AE TO ESTIMATE ITS RESOURCE REQUIREMENTS. THE FUNCTIONAL ANALYSIS FOR THIS TRANSACTION HAS BEEN SUMMARIZED BELOW: TYPE OF FUNCTIONS CADENCE INDIA CDS D ETERMINING THE SCOPE OF SERVICES LIMITED YES PROVISION OF SERVICES YES LIMITED* QUALITY ASSURANCE LIMITED NO MANPOWER PLANNING YES YES RI SK A NALYSIS BRIEFLY SUMMARISED BELOW ARE SOME OF THE KEY BUSINESS RISKS, WHICH WOULD BE APPLICABLE TO CADENCE INDIA AND CDS IN RELATION TO THE IT BACK OFFICE SUPPORT SERVICES TRANSACTION. BUSINESS RISK/MARKET RISK ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 9 BUSINESS RISK ARISES WHEN A FIRM IS SUBJECT TO ADVERSE SALES CONDITIONS DUE TO EITHER INCREASED COM PETITION IN THE MARKETPLACE, ADVERSE DEMAND CONDITIONS WI THIN THE MARKET, OR THE INABILITY TO DEVELOP MARKETS OR POSITION PRODUCTS TO SERVICE TARGETED CUSTOMERS. CADENCE INDIA BEARS NO BUSINESS RISK AS IT RENDERS IT BACK OFFICE SUPPORT SERVICES ONLY TO CDS AND IS ASSURED OF A SPECIFIED RETURN ON ITS COSTS. C DS IS EXPOSED TO OPEN MARKET CONDITIONS THAT DIRECTLY IMPACT ITS BUSINESS AND THUS IT BEARS MARKET RISK. CREDIT AND COLLECTION RISK CREDIT AND COLLECTION RISK ARISES WHEN AN ENTITY SUPPLIES PRODUCTS OR SERVICES TO A CUSTOMER IN ADVANCE C F CUSTOMER PAYMENT AND RUNS THE RISK OF DEFAULT OF SUCH PAYMENT. CADENCE INDIA DOES NOT BEAR ANY CREDIT AND COLLECTION RISK SINCE IT TRANSACTS WITH ITS AE I.E. CDS AND RECEIVES PAYMENT FOR SERVICES FROM ITS AE. SERVICE LIA BILITY RISK SERVICE LIA BILITY RISK IS BORNE BY A COMPANY WHEN ITS SERVICE OFFERINGS FAIL TO PERFORM AT ACCEPTED OR ADVERTISED STANDARDS AND THE COMPANY IS REQUIRED TO COMPENSATE THE CUSTOMER OR UNDERTAKE DEFECT RESOLUTION ON ITS OWN COST. CDS IS THE ULTIMATE CONTRACTING ENTITY AND THERE FORE ASSUMES THE OVERALL RESPONSIBILITY FOR THE QUALITY OF THE SERVICES RENDERED BY CADENCE INDIA. THEREFORE, CDS BEARS THE ULTIMATE SERVICE LIABILITY RISK. UTILIZATION RISK UTILIZATION RISK RELATES TO THE POSSIBILITY OF NON - RECOVERY OF FIXED COSTS BEING INCURRED. THIS MAY HAPPEN DUE TO CIRCUMSTANCES SUCH AS LACK OF PRODUCTION, LACK OF DEMAND, INABILITY TO RECOVER PRICES, ETC. PROVISION OF SERVICES REQUIRES SUBSTANTIAL INVESTMENT IN INFRAST RUCTURE, IN TERMS OF PREMISES, EQUIPMENT, CONNECTIVITY , ETC. THE RISK OF OPTIMAL UTILIZATION OF CAPACITY IS BORNE BY THE ENTITY MAKING THE INVESTMENT. SINCE CADENCE INDIA IS COMPENSATED ON A TOTAL COST PLUS MARK - UP BASIS BY CDS, IT IS ASSURED OF THE RECO VERY OF COSTS OF ANY UNDER - UTILISED / UN - UTILISED RESOURCES. THUS, CADENCE INDIA IS NOT EXPOSED TO UTILIZA TION RISK AND THE SAME IS BORNE BY CDS. RE - W ORK RISK RE - WORK RISK ARISES IN A SITUATION WHERE THE PRODUCT SOLD/SERVICE PROVIDED DOES NOT MEET THE REQ UISITE QUALITY/DELIVERY STANDARDS AND REQUIRES RE - WORK. IN CASE THE SERVICES PROVIDED BY CADENCE INDIA DO NOT MEET THE REQUISITE STANDARDS, THE SAME MAY REQUIRE RE - WORK. HOWEVER, CADENCE INDIA IS REIMBURSED FOR ALL COSTS INCLUDING RE - WORK COSTS ALONG WITH THE SPECIFIED MARK - UP WHICH MITIGATES CADENCE INDIA FROM ANY RISK ON ACCOUNT OF RE - WORK. F OREIGN EXCHANGE RISK ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 10 EXCHANGE RATE RISK RELATES TO THE POTENTIAL VAR IABILITY OF PROFITS THAT CAN ARISE BECAUSE OF CHANGES IN FOREIGN EXCHANGE RATES AND ARISES WHENEVER THE TRANSACTING CURRENCY OF AN ENTITY IS DIFFERENT FROM ITS F UNCTIONAL CURRENCY. CADENCE INDIA INVOICES CDS FOR ITS SERVICES IN USD, WHICH IS DIFFERENT FRO M ITS OWN FUNCTIONAL CURRENCY. THEREFORE, CADENCE INDI A ASSUMES THE RISK OF FOREIGN EXCHANGE FLUCTUATIONS. HOWEVER, THE COST BASE FOR THE PURPOSE OF MARK - UP INCLUDES ANY LOSS ARISING TO CADENCE INDIA FROM FOREIGN EXCHANGE TRANSLATIONS AND THEREFORE ULTIMA TELY THE FOREIGN EXCHANGE RISK WOULD BE BORNE BY CDS. CADENCE INDIA DOES NOT BEAR ANY RISK ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS. THE RISK ANALYSIS FOR THIS TRANSACTION HAS BEEN SUMMARIZED BELOW: T YPE OF RISKS CADENCE INDIA CDS BU SINESS RISK NO YES CREDIT AND COLLECTION RISK NO YES SERVICE LIABILITY RISK NO YES UTILISATION RISK NO YES RE - W ORK RISK NO YES TYPE OF RISKS CADENCE INDIA CDS FOREIGN EXCHANGE RISK NO YES 6. WE SHALL NOW TAKE UP COMPARABILITY ANALYSIS OF ALLEGED COMPARABLES WITH THAT OF ASSESSEE. ECLERX SERVICES LTD: 7 . LD.COUNSEL SUBMITTED THAT THIS COMPARABLE IS SOUGHT TO BE EXCLUDED FOR YEAR UNDER CONSIDERATION FOR THE REASON THAT, THEY ARE OPERATING IN ENTIRELY DIFFERENT DOMAIN, AND NOT A GOOD COMPARABLE. HE SUBMITTED THAT, FOR ASSESSMENT YEAR 2010 - 11 DRP ITSELF EXCLUDED THIS COMPARABLE FROM FINAL LIST, AND THERE IS NO DIFFERENCE IN FUNCTIONS PERFORMED BY THIS COMPARABLE FOR ASSESSMENT YEAR 2010 - 11, WITH THAT OF YEAR UNDER CONSIDERATION. HE SUBMITTED THAT CONSIDERING TH E A FORESTATED FACTS THIS TRIBUNAL HAD EXCLUDED THIS COMPARABLE FOR ASSESSMENT YEAR 2011 - 12 . ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 11 7.1. O N THE CONTRARY LD. CIT DR SUBMITTED THAT BOTH ASSESSEE AS WELL AS THIS COMPARABLE ARE PROVIDING SIMILAR SERVICES AND LD.TPO WAS JUSTIFIED IN INCLUSION OF THIS COMPANY. 8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 8.1. IT IS OBSERVED THAT IN IMMEDIATELY PRECEDING ASSESSMENT YEAR, THIS T RIBUNAL HAS EXCLUDED THIS COMPANY BY OBSERVING AS UNDER: 81. WE HAVE GONE THROUGH THE RECORD. THERE IS NO CHANGE IN THE FUNCTIONALITY OF EITHER OF THE COMPANIES FROM THE EARLIER YEARS AND IT IS UNDISPUTABLE THAT FOR THE AY 2009 - 10, A COORDINATE BENCH OF THIS TRIBUNAL CONSIDERED THE CONTENTIONS ON EITHER SIDE WHICH ARE SIMILAR TO THE CONTENTIONS NOW ADVANCED BEFORE US AND REACHED A CONCLUSION THAT ECLERX IS A BEST KPO COMPANY, OUTSOURCING SUBSTANTIAL WORK TO THIRD PARTIES DURING THAT YEAR WHEREAS THE ASSESSEE WAS PROVIDING BACK OFFICE SUPPORT SERVICES WITH THEIR OWN HUMAN RESOU RCE. ON THAT SCORE APPLYING THE RATIO OF RAMPGREEN SOLUTION (SUPRA), ECLERX WAS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 82. FURTHER FOR AY 2010 - 11, VIDE ITEM NO.5 OF PARAGRAPH NO.6.9.25 AT PAGE NO.44 AND 45 LD. DRP CONSIDERED THE FUNCTIONALI TY OF ECLERX SERVICES LTD. AT LENGTH AND IN DETAIL TO HELD THAT THE ECLERX OPERATES IN AN ENTIRELY DIFFERENT DOMAIN AND NOT A GOOD COMPARABLE. IN THE ABSENCE OF ANY EXPLANATION AS TO THE NON APPLICABILITY OF THESE FINDINGS FOR THE CURRENT YEAR, WE DO NOT FIND ANY REASON NOT TO ACCEPT THE SAME OR TO TAKE A DIFFERENT VIEW. WE, THEREFORE, DIRECT THE LD. AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 8.2. FROM ORDER PASSED BY LD.TPO, THIS COMPARABLE HAS BEEN CONSIDERED AT PAGE 220 TO BE CARRYING OUT ACTIVITIES IN FINANCIAL SECTOR LIKE TRADE PROCESSING, REFERENCE DATA, ACCOUNTING AND FINANCE AND EXPENSE MANAGEMENT ACTIVITIES. IT HAS ALSO BEEN RECORDED BY L D.TPO THAT PROFESSIONAL SERVICE PRACTICE INCLUDES CONSULTING, BUSINESS ANALYSIS AND SOLUTION TESTING. THE ACTIVITIES PROVIDED BY THIS COMPARABLE IN MANUFACTURING VERTICALS ARE ONLINE OPERATIONS AND WEB ANALYTICS, CRM AND BUSINESS INTELLIGENCE DATA MANAGE MENT AND REPORTING COMPETENT BENCHMARKING AND PRICING QUALITY AND COMPLIANCE BUSINESS PROCESS CONSULTING. 8.3. ON ANALYSIS OF AFORESTATED FUNCTIONS PERFORMED BY THIS COMPARABLE, WE AGREE WITH THE VIEW EXPRESSED BY THIS T RIBUNAL FOR ASSESSMENT YEAR 2011 - 12 ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 12 THAT THIS COMPARABLE IS A BEST KPO COMPANY OUTSOURCING SUBSTANTIAL WORK TO 3 RD PARTIES AND THAT ASSESSEE IS ONLY PROVIDING BACK - OFFICE SUPPORT SERVICES WITH ITS OWN HUMAN RESOURCE TO THE AES. FURTHER IT HAS NOT BEEN DISPUTED THAT THERE IS ANY CHANGE IN TH E FUNCTIONALITY OF EITHER COMPANIES FROM EARLIER YEARS. UNDER SUCH CIRCUMSTANCES WE DIRECT LD. TPO TO EXCLUDE THIS COMPARABLE FROM THE FINALIST. INFOSYS BPO LTD AND TCS E - SERVE LTD: 9. A SSESSEE HAS SUBMITTED THAT THESE COMPARABLES ARE FUNCTIONALLY DISSIMIL AR WITH THAT OF ASSESSEE AS INFOSYS BPO LTD IS PROVIDING HIGH END INTEGRATED SERVICES FOR BUSINESS PLATFORMS, CUSTOMER SERVICES OUTSOURCING, FINANCE AND ACCOUNTING, HUMAN RESOURCE OUTSOURCING, LEGAL PROCESS OUTSOURCING, SALES AND FULFIL L MENT SOURCING AND P ROCUREMENT OUTSOURCING ETC., AND TCS E - S ERVE IS ENGAGED IN BUSINESS PROCESS SERVICE TO BANKING AND FINANCIAL SERVICES INDUSTRY WHEREAS ASSESSEE IS A CAPTIVE SERVICE PROVIDER WHO PROVIDES EXCLUSIVE SERVICES TO ITS AE S ONLY ON COST PLUS BASIS. LD. C OUNSEL SU BMITTED THAT THESE COMPARABLES HAS ALSO BEEN EXCLUDED BY THIS T RIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011 - 12 (SUPRA) ON SIMILAR GROUNDS AND THAT THERE IS NO CHANGE IN FUNCTIONS OF THESE COMPARABLES AND THAT OF ASSESSEE DURING ASSESSMENT YEAR 2 011 - 12 WITH THAT OF YEAR UNDER CONSIDERATION. 9.1 . ON THE CONTRARY LD.CIT DR PLACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES BELOW. 10. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF THE RECORDS PLACED BEFORE US. 10.1 . IT IS OBSERVED THAT THE SEGMENTAL INFORMATION IN CASE OF TCS E - S ERVE SHOWS THAT THIS COMPANY IS ENGAGED IN BUSINESS PROCESS SERVICES TO THE BANKING AND FINANCIAL SERVICES INDUSTRIES WHICH IS CONSIDERED AS THE PRIMARY SEGMENT.. IT IS OBSERVED THAT THE OWNERSHIP O F TCS E - SERVICES WITH CITIBANK GROUP AND WHICH IS A HIGH BRAND VALUE. 10.2. IT IS OBSERVED THAT THESE COMPARABLES HAS BEEN EXCLUDED BY THIS T RIBUNAL IN ASSESSEES OWN CASE BY OBSERVING AS UNDER: ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 13 87. IT IS, THEREFORE, CLEAR NOW THAT IN SPITE OF A CLOSE FUNCTIONAL SIMILARITY BETWEEN THE ASSESSEE AND THE TCS E - SERVE, IN VIEW OF THE CLOSE CONNECTION BETWEEN TVS E - SERVE AND TATA CONSULTANCY SERVICES LTD., WHICH IS A HIGH BRAND VALUE; THAT DISTINGUISHED IT AND MARKED IT OUT FOR EXCLUSION. THE RATIONALITY FOR EXCLUSION ADOPTED BY THE TRIBUNAL BASING ON THE BRAND VALUE ASSOCIATED WITH TCS CONSULTANCY WHICH REFLECTED AN IMPACTED TCS E - SERVE PROFITABILITY IN A POSITIVE MANNER IS UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT WHICH IS BINDING ON THIS TRIBUNAL. M ERELY BECAUSE THE BINDING PRECEDENT OF THE HONBLE HIGH COURT IN THIS ORDER DATED 28.11.2017 WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL WHEN IT PRONOUNCED ITS ORDER ON 5.11.2018 DOES NOT MAKE ANY DIFFERENCE ON THE BINDING NATURE OF THIS DECISION OR I TS APPLICABILITY TO THE FACTS OF THE PRESENT CASE. AS A MATTER OF LAW, HAD SUCH DECISION BEEN BROUGHT TO THE NOTICE OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2010 - 11, STILL IT WOULD HAVE BOUND THE TRIBUNAL TO FOLLOW THE SAME. IN THE CIRCUMSTAN CES, WE FIND NO OPTION BUT TO FOLLOW THE BINDING PRECEDENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF B.C. MANAGEMENT SERVICES P. LTD. (SUPRA) AND TO HOLD THAT. INFOSYS BPO LIMITED AND TCS E - SERVE LIMITED ARE NOT GOOD COMPARABLES TO THE ASSESSEE AND BOTH THESE COMPANIES DESERVE TO BE DELETED FROM THE LIST OF COMPARABLES FROM BENCH MARKING THE INTERNATIONAL TRANSACTIONS. 10.3 . UNDER SUCH CIRCUMSTANCES WE FIND NO REASON TO DIFFER FROM THE BINDING PRECED ENT . IT IS ALSO OBSERVED THAT THIS T RIBUNAL WHILE CONSIDERING THESE COMPARABLES HAS FOLLOWED THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF B.C MANAGEMENT SERVICES PVT. LTD., IN ITA NO. 1064 AND 1083/2017 WHEREIN, THESE COMPARABLES WERE HELD TO BE NOT GOOD COMPARABLES. RESPECTFULLY FOLLOWING THE SAM E, WE ALSO DIRECT LD.TPO TO EXCLUDE THESE COMPARABLES FROM THE FINA L LIST. 11. ACCORDINGLY GROUNDS 2 (A) RAISED BY ASSESSEE STANDS ALLOWED AND GROUNDS 3, 4, 5, 7, 8, 9, 10 AND 12 BECOMES ACADEMIC IN NATURE AS PER THE SUBMISSIONS MADE BY LD. C OUNSEL. 12. GROUND NO. 2 (B), 11 IS IN RESPECT OF BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINING TO PURCHASE OF FIXED ASSETS AT NIL . 12.1 . LD. C OUNSEL SUBMITTED THAT THE FIXED ASSETS HAS BEEN PURCHASED BASED UPON THE CUSTOMS REGULATION AND THE PRI C E OF THE ASSETS ARE AS PER THE PRICE DETERMINED BY THE CUSTOMS AUTHORITIES. HE SUBMITTED THAT DIFFERENCE IN HANDS OF ASSESSEE AS PER BOOK VALUE OF AS SETS IN BOOKS OF AE AND PURCHASE PRICE OF ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 14 ASSETS AS SUBMITTED BY ASSESSEE. HE SUBMITTED THAT THE GENUINENESS OF TRANSACTION HAS NOT BEEN QUESTIONED BY THE AUTHORITIES BELOW. PLACING RELIANCE UPON CUSTOMS VALUATION REPORT AND INVOICES RAISED BY AE, ASSESSEE SUBMITTED THAT THE TRANSACTION WAS AT ARM S LENGTH PRICE. 12.2 . ON THE CONTRARY LD. CIT DR SUBMITTED THAT ACTUAL COST OF BLOCK OF ASSETS IN CASE OF TRANSFER FROM HOLDING COMPANY TO A SUBSIDIARY WOULD BE THE WRITTEN DOWN VALUE OF THE ASSETS IN THE HANDS OF THE TRANSFEROR COMPANY HAS REDUCED BY THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED IN RELATION TO THE SAID ASSETS IN THE PREVIOUS YEAR. HE SUBMITTED THAT THEREFORE LD. TPO WAS RIGHT IN CONSIDERING THE BOOK VALUE OF A S SETS AS PER BOOKS OF AE AND ADJUSTMENT PROPOSED BY TAKING ALP AT NIL IS CORRECT. HE SUBMITTED THAT ASSESSEE HAS BEEN GRANTED DEPRECIATION ONL Y TO THE EXTENT OF ACTUAL EXPENSES INCURRED ON PAYMENT OF CUSTOMS DUTY AND OTHER INCIDENTAL EXPENSES ON IMPORT OF FIXED ASSETS TO INDIA. 13 . WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 13.1 . ASSESSEE PURCH ASED CERTAIN FIXED ASSETS FROM ITS AE WHEREIN IT HAD DECLARED CERTAIN VALUE. AND THE SAME HAS BEEN RIGHTLY REPORTED AS PURCHASE OF FIXED ASSETS WITH THE TRANSACTED VALUE AMOUNTING TO RS.2,14,50,372/ - , AS INTERNATIONAL TRANSACTION. THIS TRANSACTION IS DEFIN ITELY COVERED WITHIN THE DEFINITION OF SECTION 92B (1) AND FOR ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION ARM S LENGTH PRICE HAS TO BE DETERMINED IN ACCORDANCE TO SECTION 92C OF THE A CT. WE OBSERVE THAT ASSESSEE HAS APPLIED TNMM AS MOST APPROPRIA TE METHOD FOR SHOWING THAT THE INTERNATIONAL TRANSACTION IS AT ARM S LENGTH PRICE . 13.2. IT IS OBSERVED FROM RECORDS THAT THE MATTER NEEDS TO BE RESTORED BACK TO FILE OF LD.TPO BECAUSE MARKUP CANNOT BE TAKEN AS ZERO AS HAS BEEN DONE BY LD.TPO. ADM ITTEDLY ASSESSEE GETS DEPRECIATION AS WELL AS COST PLUS MARKUP ON THE FIXED ASSETS PURCHASED FROM AE. FROM ORDER PASSED BY LD.TPO AT PAGE 225, IT IS OBSERVED THAT ASSESSEE, HAS NOT FILED DOCUMENTS/EVIDENCES/PROOF ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 15 SHOWING VALUE OF ASSETS AS APPEARING IN BOOKS OF AES TO SATISFACTION OF LD.TPO. 13.3. THUS WE DIRECT LD.TPO TO DETERMINE THE ALP BASED UPON FAR ANALYSIS AND ON CONTEMPORANEOUS DOCUMENT FILED BY ASSESSEE. ASSESSEE IS DIRECTED TO FILE ALL REQUISITE DETAILS IN RESPECT OF PRICE FOR DETERMIN ING THE ARM S LENGTH PRICE OF THE TRANSACTION. 13.4. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND NO. 13 IS PREMATURE AT THIS STAGE AND GROUND NO. 14 IS CONSEQUENTIAL HENCE DO NOT REQUIRE ANY ADJUDICATI ON. 15. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 2 9 /05/2019. S D / - S D / - (R.K.PANDA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 2 9 T H MAY, 2019 GMV COPY FORWARDED TO: - APPELLANT RESPONDENT CIT CIT(A) DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENC HES ITA NO.86/DEL/2017 A.Y. 2012 - 13 CADENCE DESIGN SYSTEMS (INDIA) PVT.LTD. 16 DATE DRAFT DICTATED ON 2 8 /05/19 DRAFT PLACED BEFORE AUTHOR 2 8 /05/19 29/05/19 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 2 9 / 5 / 1 9 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 2 9 / 5 / 1 9 APPROVED DRAFT COMES TO THE SR.PS/PS 2 9 / 5 / 1 9 KEPT FOR PRONOUNCEMENT ON & ORDER UPLOADED ON : 2 9 / 05/19 FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.