ACIT, Circle-14(1), Kolkata, Kolkata V. M/s Lexmark International India Pvt. Ltd., Kolkata

ITA 89/KOL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3228 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 18-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P K SRIHARI
• Assessee Lawyers: MANONEET DALAL; G P SRIVASTAV
• Keywords: Transfer pricing; International transaction; Additional evidence; Assessment record; Revenue expenditure; Capital expenditure
• Section: 92C; 143(3); 37(1); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI P.M.JAGTAP, VICE-PRESIDENT AND SHRI S.S.GODARA, JUDICIAL MEMBER ITA NO.89 & 391/KOL/2017 ASSESSMENT YEAR:2007-08 ACIT, CIRCLE-14(1) AAYAKAR BHAWAN POORVA, 110, SHANTIPALLY, KOLKATA- 107 M/S LEXMARK INTERNATIONAL (INDIA) PVT. LTD., DLF IT PARK, BLOCK-1, 5 TH FLOOR, 8, MAJOR ARTERIAL ROAD, KOLKATA-700156 / V/S . M/S LEXMARK INTERNATIONAL INDIA PVT. DLF IT PARK, BLOCK-1, 5 TH FLOOR, 8, MAJOR ARTERIAL ROAD, KOLKATA- 156 ACIT, CIRCLE-14(1) AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 /APPELLANT .. /RESPONDENT ITA NO.1208/KOL/2018 ASSESSMENT YEAR:2014-15 M/S LEXMARK INTERNATIONAL (INDIA) PVT. LTD., DLF IT PARK, BLOCK-1, 5 TH FLOOR, 8, MAJOR ARTERIAL ROAD, KOLKATA-700156 [ PAN NO.AAACL 6752 B ] / V/S . DCIT, CIRCLE-14(1) ROOM NO. 616, 6 TH FLOOR, AAYAKAR BHAWAN, POORVA, 110, SHANTI PALLY, KOLKATA-107 /APPELLANT .. /RESPONDENT /BY ASSESSEE SHRI MANONEET DALAL & SHRI G.P. SRIVASTAV, AR /BY REVENUE SHRI P.K. SRIHARI, CIT-DR /DATE OF HEARING 30-11-2018 /DATE OF PRONOUNCEMENT 27-02-2019 /O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 2 THIS BATCH OF THREE CASES PERTAINS TO A SINGLE ASS ESSEE M/S LEXMARK INTERNATIONAL (INDIA) PVT. LTD. FORMER ASSESSMENT Y EAR 2007-08 INVOLVES REVENUES AND ASSESSEES CROSS-APPEALS NO. 89 & 391/KOL/2017 ARISING AGAINST COMMISSIONER OF INCOME TAX (APPEALS)-22 KOLKATAS ORDER DATED 01 .11.2016, PASSED IN CASE NO.183/CIT(A)-22/CIR-11/2007-08/2014-15/KOL. INVOLV ING PROCEEDINGS U/S 143(3) R.W.S 144C(3) R.W.S. 144C(4) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. LATTER ASSESSMENT YEAR 2014-15 COMPRISES ONLY THE TAXPAYER S APPEAL ITA NO.1208/KOL/2018 DIRECTED AGAINST THE DCIT CIRCLE-1 4(1) KOLKATAS ASSESSMENT ORDER DATED 27.04.2018 FRAMED IN FURTHERANCE TO THE DRP-2 NEW DELHIS DIRECTION DATED 21.03.2018 IN PROCEEDINGS U/S 144C(5) OF THE ACT. WE PROCEED ASSESSMENT YEAR-WISE FOR THE SAKE OF CON VENIENCE AND BREVITY . ASSESSMENT YEAR: 2007-08 . THE REVENUE AND ASSESSEES CROSS-APPEAL ITA NO.89/K OL/2017 AND 391/KOL/2017. 2. WE COME TO REVENUES APPEAL 89/KOL/2017 RAISING VARIOUS GROUNDS SEEKING TO REVERSE THE CIT(A)S ACTION INTER ALIA DELETING GRATUITY PROVISION WRITE BACK, OBSOLETE STOCK WRITTEN BACK, WARRANTY WRITTEN BACK, PROVISIO N FOR WARRANTY OF EXPENDITURE DISALLOWANCE(S) INVOLVING SUMS OF 1.86 LAC, 62,71,671/-, 6,67,157/- & 2,99,936/-; RESPECTIVELY MADE BY THE ASSESSING OFFICER DURING T HE COURSE OF IMPUGNED ASSESSMENT FRAMED ON 28.02.2011. ITS FURTHER CASE IS THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE DISALLOWANCE(S) AFTER ADMITTI NG ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962 THEREBY N OT GIVING OPPORTUNITY OF HEARING TO THE ASSESSING OFFICER. 3. WE COME TO REVENUES FIRST SUBSTANTIVE GRIEVANCE SEEKING TO REVIVE GRATUITY PROVISION WRITTEN BACK DISALLOWANCE OF 1.86 LAC. THE ASSESSING OFFICER DECLINED THE SAME QUOTING ASSESSEES FAILURE IN PRODUCING THE RE LEVANT DETAILS. THE CIT(A) DELETES THE IMPUGNED DISALLOWANCE VIDE FOLLOWING DETAILED D ISCUSSION:- 08. GROUND NO.11 RELATES TO THE ACTION OF THE LD AO IN ADDING BACK AN AMOUNT OF RS.1,86,000/- ON GROUNDS THAT NO EVIDENCE WAS PRODU CED IN REGARD TO THE CLAIM FOR DEDUCTION MADE IN THE RETURN OF INCOME. 09.DURING THE CRUSE OF THE APPEAL PROCEEDINGS, THE LEARNED. ARS FOR THE APPELLANT- COMPANY HAVE SUBMITTED AS FOLLOWS: DISALLOWANCE OF GRATUITY PROVISION WRITTEN BACK OF RS.186,000. 1. FACTS ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 3 1.1 DURING THE AY UNDER CONSIDERATION, THE APPELLANT CL AIMED RS.186,000 AS DEDUCTION ON ACCOUNT OF GRATUITY PROVISION NO LONG ER REQUIRED WRITTEN BACK SINCE THE SAME WAS OFFERED TO TAX IN THE EARLIER AY S. 1.2 IN THE ORDER UNDER SECTION 143(3) READ WITH SECTION 144C(1) OF THE ACT, THE AO HAS DISALLOWED THE GRATUITY PROVISION NO LONGER REQUIRED WRITTEN BACK OF R S.186,000 BY CONTENDING THAT NO EVIDENCE WAS PROD UCED IN REGARD TO CLAIM FOR DEDUCTION MADE IN THE RETURN OF INCOME WITHOUT APPRECIATING THAT THE SAME WAS OFFERED TO TAX IN THE PASTE AYS AND THE DE TAILS OF WHICH HAVE ALREADY BEEN FILED. 2. SUBMISSION 2.1 IN THE RETURN OF INCOME FOR AY 2007-08, AN AMOUNT O F RS.186,000 HAS BEEN REDUCED FROM THE COMPUTATION OF TOTAL INCOME ON ACC OUNT OF GRATUITY PROVISION NO LONGER REQUIRED WRITTEN BACK. SUCH PRO VISION FOR GRATUITY WAS OFFERED TO TAX IN THE FOLLOWING AYS: PARTICULARS AMOUNT (RS) REFERENCE AY 2003-04 200,000 ANNEXURE 1 AY 2004-05 450,000 ANNEXURE 2 AY 2005-06 201,000 ANNEXURE 3 AY 2006-07 541,000 ANNEXURE 4 TOTAL ADDITION 1,392,00 LESS: WRITTEN BACK IN AY 06-07 76,000 ANNEXURE 4 LESS: WRITTEN BACK IN AY 07-08 186,000 BALANCE 1,1,30,000 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AP PELLANT VIDE LETTER DATED 7 DECEMBER 2010 SUBMITTED THAT THE GRATUITY PROVISI ON WRITTEN BACK OF RS.186,000 WAS OFFERED TO TAX IN THE PAST AYS A COP Y OF THE LETTER IS ENCLOSED AS ANNEXURE 5. 2.3 IT MAY ALSO BE NOTED THAT SIMILAR CLAIM WAS ALSO MA DE IN AY 2006-07, WHEREIN AN AMOUNT OF RS.76,000 WAS REDUCED FROM THE COMPUTA TION OF TOTAL INCOME ON ACCOUNT OF GRATUITY PROVISION NO LONGER REQUIRED W RITTEN BACK. THE SAID CLAIM WAS ALLOWED IN THE SAID AY. COPY OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144(13) OF THE ACT FOR AY 2006-07 IS ENCLOSED FOR YOUR READY REFERENCE AS ANNEXURE 6. 2.4 IT IS HUMBLY SUBMITTED THAT THE ABOVE DISALLOWANCE LEAD TO DOUBLE TAXATION OF THE SAME AMOUNT IN THE HANDS OF THE APPELLANT COMPA NY AND THE SAME IS NOT PERMISSIBLE UNDER THE ACT. 3. PRAYER IN VIEW OF THE SUBMISSION MADE HERE-IN-ABOVE, IT IS PRAYED THAT THE ADDITION MADE BY THE AO, BEING GROSSLY ERRONEOUS, BE DELETED. 10. DECISION: HAVING EXAMINED THE MATTER CAREFULLY, I FIND THAT THE LD AO HAS RECORDED THAT NO RELEVANT EVIDENCE HAS BEEN FILED B Y THE APPELLANT-ASSESSEE DURING THE COURSE OF THE HEARING BEFORE HIM. HOWEVER FORM THE ANNEXURE 1 TO 4 FILED BEFORE THIS FORUM [DETAILS OF WHICH WERE ALSO AVAIL ABLE WITH THE LD AO, AS THEY RELATE TO EARLIER YEARS] IT IS SEEN THAT THE OBSERV ATION OF THE LD AO APPEARS TO BE INCORRECT. MOREOVER, THE APPELLANT HAD CLEARLY SUBM ITTED BEFORE TH4E LD. AO THAT ON 7 TH DECEMBER, 2010 THAT THE GRATUITY PROVISION WRITTEN BACK OF RS.186,000 WAS OFFERED TO TAX IN THE PAT AYS. THE SAID EVIDENCE BE ING AVAILABLE AT ANNEXURE 5, I FIND THAT THE ADD-BACK BY THE LD. AO WAS NOT JUSTIF IED, AND CANNOT BE SUSTAINED IN ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 4 THE FACTS OF THE CASE. THE SAME IS THEREFORE DELETE D, AND THIS GROUND OF APPEAL ALLOWED IN FAVOUR OF THE APPELLANT . 4. IT THUS CLEAR THAT THE CIT(A) HAS NOWHERE ADMITT ED ANY ADDITIONAL EVIDENCE IN ALLOWING ASSESSEES GRATUITY PROVISION WRITTEN BACK CLAIM. HE HAS RATHER REFERRED TO THE TAXPAYERS LETTER DATED 07.10.2010 SUBMITTED DURING SCRUTINY TO HOLD THAT ALL THE RELEVANT PARTICULARS INDICATING THE VERY SUMS TO HA VE BEEN ASSESSED IN PRECEDING ASSESSMENT YEARS ALREADY FORMED PART OF ASSESSMENT RECORD BEFORE THE ASSESSING OFFICER. THIS CLINCHING FACT HAS GONE UNREBUTTED FR OM THE REVENUES SIDE DURING THE COURSE OF HEARING BEFORE US. WE THUS AFFIRM THE CIT (A)S ACTION UNDER CHALLENGE DELETING THE IMPUGNED DISALLOWANCE. 5. NEXT COMES THE REVENUES SECOND SUBSTANTIVE GROU ND THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING OBSOLETE STOCK WRI TTEN BACK DISALLOWANCE AMOUNTING TO 6,271,671/-. THE ASSESSING OFFICER HELD QUA THIS IS SUE AS WELL THAT THE ASSESSEE HAD NOT PLACED ON RECORD THE RELEVANT DETAILS OF ITS OB SOLETE STOCK WRITTEN BACK CLAIM. THE CIT(A) IS OF THE VIEW THAT ASSESSEE HAD ALREADY FIL ED ANNEXURE 1 TO 4 RELATING TO ASSESSMENT YEAR(S) 2003-04 TO 2006-07 INDICATING R ESPECTIVE PROVISIONS OFFERED TO TAX TO THE EXTENT OF 9,81,902/-, 6,578,199/-, 3,438,689/-, 1,463,113; AGGREGATING TO 12,461,903/- AS AGAINST THE IMPUGNED SUM OF 6,271,671/- WRITTEN BACK IN THE RELEVANT PREVIOUS YEAR. WE THEREFORE DECLINE REVENU ES INSTANT SECOND SUBSTANTIVE GROUND AS WELL IN VIEW OF THE ABOVE FACTUAL POSITIO N. 6. THE REVENUES THIRD SUBSTANTIVE GROUND SEEKS TO REVIVE THE ASSESSING OFFICERS ACTION DISALLOWING WARRANT WRITTEN BACK AMOUNT OF 6,67,157/- AS DELETED IN THE LOWER APPELLATE PROCEEDINGS. THE ASSESSING OFFICER HELD Q UA THE ASSESSEES INSTANT CLAIM AS WELL THAT IT DID NOT PLACE ON RECORD THE RELEVANT P ARTICULARS DURING THE COURSE OF SCRUTINY. THE TAXPAYER ON THE OTHER HAND PLACED ITS LETTER DATED 07.10.2010 ADDRESSED TO THE ASSESSING AUTHORITY THAT ITS CORRESPONDING S UMS OF 7,11,823/-, 33,83,402/- AND 71,962/- IN ASSESSMENT YEARS 2004-05 TO 2006-07; RE SPECTIVELY ALREADY FORMED PART OF RECORD AS ANNEXURE 9 TO 11 AND 4. THE CIT(A) HAS DE LETED THE IMPUGNED DISALLOWANCE IN THESE FACTS AND CIRCUMSTANCES ONLY. THE REVENUE FAILS IN ITS THIRD SUBSTANTIVE GROUND AS WELL THEREFORE. ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 5 7. LASTLY COMES REVENUES FOURTH AND LAST SUBSTANTI VE GROUND THAT CIT(A) HAS ERRED IN LAW ON FACTS IN DELETING THE WARRANTY PROV ISION EXPENDITURE OF 2,99,936/- VIDE IN FOLLOWING DETAILED DISCUSSION:- 17. GROUND NO.14, RELATES TO THE ACTION OF THE LD. AO IN THE DISALLOWANCE OF PROVISION FOR WARRANTY EXPENDITURE OF RS.2,99,936/-, ON GROUNDS T HAT NO EVIDENCE WAS PROCURED IN REGARD TO THE CLAIM FOR DEDUCTION MADE IN THE RETURN OF IN COME. 18. DURING THE COURSE OF THE APPEAL PROCEEDINGS, TH E LD ARS FOR THE APP-COMPANY HAVE SUBMITTED AS FOLLOWS:- GROUND NO. 14 DISALLOWANCE OF WARRANTY EXPENDITURE OF RS.299,936 1. FACTS 1.1 DURING THE AY UNDER CONSIDERATION, EXPENDITURE ON W ARRANTY OF RS.299,936 HAS BEEN CLAIMED SEPARATELY IN THE COMPUTATION OF T OTAL INCOME SINCE THE SAME WAS NOT ROUTED THROUGH THE PROFIT AND LOSS ACC OUNT. 1.2 IN THE ORDER UNDER SECTION 143(3) READ WITH SECTIO N 144C(1) OF THE ACT, THE AO HAS DISALLOWED THE SAME BY CONTENDING THAT NO EV IDENCE WAS PRODUCED IN REGARD TO CLAIM FOR DEDUCTION MADE IN THE RETURN OF INCOME WITHOUT APPRECIATING THAT THE SAID EXPENDITURE PERTAINS TO THE AY UNDER CONSIDERATION AND HAS BEEN INCURRED EXCLUSIVELY FOR THE PURPOSE O F THE BUSINESS. 2. SUBMISSION 2.1 EXPENDITURE ON WARRANTY OF RS.299,936 HAS BEEN CLAIMED SEPARATELY SINCE THE SAME WAS NOT ROUTED THROUGH THE P&L ACCOUNT. THE SA ID EXPENDITURE PERTAINS TO THE AY UNDER CONSIDERATION AND HAS BEEN INCURRED EX CLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 3. PRAYER IN VIEW OF THE SUBMISSION MADE HERE-IN-ABOVE, IT I S PRAYED THAT THE ADDITION MADE BY THE AO, BEING GROSSLY ERRONEOUS, BE DELETED. 19. DECISION: IN THE COURSE OF THE ASSESSMENT PROCE EDINGS, IT HAS BEEN BROUGHT TO NOTICE BY THE LD. ARS THAT DURING THE SUBJECT ASSESSMENT YEAR , THE IMPUGNED EXPENDITURE ON WARRANTY OF RS.2,99,936 HAS BEEN CLAIMED SEPARATELY IN THE C OMPUTATION OF TOTAL INCOME SINCE THE SAME WAS NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT. THEREFORE, THERE IS MERIT IN SUCH CONTENTION AS THE SAME HAS BEEN CLAIMED EXCLUSIVELY FOR BUSINESS, AND NOT ROUTED THROUGH THE P&L ACCOUNT. IN THE SAID CIRCUMSTANCES, I FIND THAT THE ACTION OF THE LD AO. IS NOT SUSTAINABLE, AND THE ADDITION OF RS.2,9,936/- IS AC CORDINGLY ORDERED TO BE DELETED. THE GROUND THEREFORE STANDS ADJUDICATED IN FAVOUR OF THE APPEL LANT-COMPANY. 8. IT IS CRYSTAL CLEAR IN VIEW OF THE ABOVE EXTRACT ED DISCUSSION THAT THE ASSESSING OFFICER HAD DECLINED THE ASSESSEES INSTANT WARRANT Y PROVISION FOR LACK OF EVIDENCE ONLY. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO DISPUTE THE BASIC FACT FIRST OF ALL THAT THE ASSESSEE HAD CLAIMED THE IMPUGNED WARRANTY PROVISION SEPARATELY IN COMPLIANCE OF TOTAL INCOME THAN ROUTING IT THROUGH PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER HIMSELF HAS BEEN VERY FAIR IN NOT DISPUTING THE LIABILITY OF THE IMPUGNED WARRANTY CLAIM BASED ON PAST LIABILITY FOL LOWED BY SCIENTIFIC ESTIMATION ALLOWABLE AS A DEDUCTION AS PER HON'BLE APEX COURT S DECISION IN (2009) 314 ITR 62 (SC) ROTORK CONTROLS INDIA P. LTD. VS. CIT . WE FIND NO MERIT IN REVENUES ARGUMENT ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 6 THEREFORE THAT IMPUGNED WARRANTY PROVISION IS REQUI RED TO BE DISALLOWED ONLY BECAUSE THE TAXPAYER HAS NOT ROUTED THE SAME THROUGH ITS PR OFIT AND LOSS ACCOUNT. THE REVENUE FAILS IN ITS INSTANT LAST SUBSTANTIVE GROUND AS WEL L MAIN APPEAL ITA NO.89/KOL/2017. 9. WE NOW COME TO ASSESSEES CROSS APPEAL ITA NO.39 1/KOL/2017. ITS PLEADINGS IN VARIOUS SUBSTANTIVE GROUNDS SEEK TO DELETE THE U PWARD ARMS LENGTH PRICE ALP ADJUSTMENT OF 3,20,66,916/- RELATING TO PROVISION FOR SOFTWARE SE RVICES ON VARIOUS FACETS. 10. WE COME TO THE BASIC RELEVANT FACTS. THIS ASSES SEE IS A COMPANY PRIMARILY ENGAGED IN PRINTERS TRADING BUSINESS. IT ALSO PROVI DED FOR THE SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE HAD ENTERED INTO ITS INTERNA TIONAL TRANSACTIONS OF SOFTWARE DEVELOPMENT SERVICES WITH ITS OVERSEAS ASSOCIATE EN TERPRISES AE INVOLVING TO RECEIPTS OF 246,615,444/- IN THE RELEVANT PREVIOUS YEAR. THE AS SESSING OFFICER MADE SEC. 92CA(1) REFERENCE FOR ASCERTAINING ALP THERE OF. 11. THE TRANSFER PRICING OFFICER (TPO) TOOK UP CONS EQUENTIAL PROCEEDINGS. HE CAME ACROSS ASSESSEES TRANSFER PRICING DOCUMENTATI ON ADOPTING THE TRANSACTIONAL NET MARGIN METHOD TNMM WHILST DECLARING PROFIT @ 9.17 % AS PER OPERATING PROFIT / OPERATING COST OP/OC CALCULATION. CASES FILE SUGGE STS THAT ASSESSEE HAD TAKEN EIGHT ENTITIES M/S GOLDSTONE TECHNOLOGIES LTD., (2) LANCO GLOBAL SYSTEMS LTD, (3) PRITHVI INFORMATION SOLUTIONS LTD. (4) R. S. SOFTWARE (INDI A) LTD., (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. (6) TATA ELXSI LTD., (7) VJIL CON SULTING LTD., (8) VISUALSOFT TECHNOLOGIES LTD. (MERGED) (9) VISUALSOFT TECHNOLO GIES LTD. FOR THREE ASSESSMENT YEARS 2004-05 TO 2006-07 AS 10.64%, 8.54%, 8,02%, 1 1.64%, 12.07%, 9.07%, 21.80%, 7.94% AND 14.54% RESPECTIVELY AVERAGING TO 11.54%. IT HAS CLAIMED THEREFORE THAT ITS PLI @ 9.17% (SUPRA) FELL VERY WE LL WITHIN TOLERANCE MARGIN OF 5% 12. THE TPO ISSUED HIS SHOW-CAUSE NOTICE DATED 04.1 0.2010. HE WAS OF THE VIEW THAT THE RELEVANT PREVIOUS YEAR 2006-07 SAW MAIN PR OFIT AND LOSS IN CASE ABOVE NINE COMPARABLES WAS @ 19.8% COMING TO 270,549,684/- AS AGAINST MINIMUM TOLERANCE MARGIN PRICE OF 257,022,200/- TO 284,077,168/-. 13. THE TPO PROCEEDED FURTHER TO NOTE THAT ASSESSEE S LAST COMPARABLE ENTITY M/S VISUALSOFT TECHNOLOGIES LTD. (SUPRA)S DETAILS WERE NOT AVAILABLE IN THE PROWESS DATABASE. THE ASSESSEE HAD TURNOVER OF 24.65 CRORES AS AGAINST ITS ASSET BASE OF 3.97 ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 7 CRORES AS PER ITS TRANSFER PRICING REPORT. THE TPO TOOK INTO CONSIDERATION THESE FACTORS TO HOLD THAT OUT OF FOUR OF THE COMPARABLE ENTITIES M/S GOLDSTONE TECHNOLOGIES LTD., R.S. SSOFTWARE (INDIA) LTD., SASKEN COMMUNICATION T ECHNOLOGIES LTD., TATA ELXSI LTD., (SUPRA) HAVING TURNOVER OF 41.03, 101.05, 306.31 AND 307.91 WITH NON FIXED ASSETS OF 4.3, 97.1, 355.34, 216.92 AND EXPORT FIGURE OF 25.72/, 12.85, 10.09/- & 24.64 (CRORES); RESPECTIVELY M/S GOLDSTONE TECHNO LOGIES LTD., ONLY COULD BE TAKEN AS A COMPARABLE. HE THEREFORE PROPOSED TO ADOPT AVE RAGE PROFIT AND LOSS OF M/S GOLDSTONE TECHNOLOGIES LTD., (SUPRA) @ 25.72% TO BE THE BENCHMARK FOR ALP AT 28,39,09,605/-. 14. THE ASSESSEE FILED ITS REPLY DATED 13.10.2010 B EFORE THE TPO. IT RAISED MANIFOLD SUBMISSIONS INTER ALIA PLEADING THEREIN THAT IT HAD CONSIDERED THREE YEAR S DATA SINCE THERE WAS NO CHANGE IN SOFTWARE SERVICES BUSINESS B OTH AT ITS OWN AS WELL AS THE INDUSTRY TWO M/S GOLDSTONE TECHNOLOGIES LTD., AND V ISUALSOFT TECHNOLOGIES LTD. (SUPRA) STOOD ALREADY REJECTED AS COMPARABLES IN PR ECEDING ASSESSMENT YEAR 2006-07, ASSET BASES COULD NOT BE TAKEN AS THE RELEVANT CRIT ERIA FOR SELECTION OF COMPARABLES IN VIEW OF THE FACT THAT MANPOWER AND TECHNOLOGY ARE T HE MAIN FACTORS FOR PRODUCTION OF SOFTWARE INDUSTRIES WHEREAS FIXED ASSETS ARE FURNIT URE, FIXTURES AND COMPUTERS THE ASSETS ARE IN THE NATURE OF PLANT AND MACHINERY, TY PE OF ASSETS NEEDED TO BE ANNUALIZED BEFORE TAKEN AS THE BASIS OF THE COMPARABILITY AND THAT THE TURNOVER OUGHT NOT TO BE TAKEN AS THE FOUNDATION FOR SELECTING COMPARABLE AS IT MAY ALSO INCLUDES DOMESTIC SALES. 15. IT EMERGES FROM A PERUSAL OF THE CASE FILE THAT ASSESSEES ALL OF THE ABOVE PLEADINGS FAILED TO CONVENIENCE THE TPO WE FIRST OF ALL OBSERVED THAT RULE 10B(4) OF THE INCOME TAX RULES, 1962 MADE IT EXPRESSLY CLEAR THAT RELEVANT DATA TO BE USED FOR ANALYZING COMPARABILITY OF THE INTERNATIONAL TRANSA CTIONS OUGHT TO BE RELATING TO FINANCIAL YEAR OF THE INTERNATIONAL TRANSACTIONS HA VING TAKEN PLACE FOLLOWED BY THE STATUTORY PROVISO THAT DATA RELATING TO A PERIOD NO T TOO BE MORE THAN TWO YEARS PRIOR TO THE FINANCIAL YEAR MAY ALSO BE CONSIDERED IF IT REV EALS FACTORS HAVING INFLUENCE OVER DETERMINATION OF TRANSFER PRICE IN RELATION TO TRA NSACTIONS BEING COMPARED. THE TPO THUS CONCLUDED THAT ABOVE FOUR ENTITIES PROFIT AND LOSS (SUPRA) FOR THE FINANCIAL YEAR 2006-07 ONLY DESERVED TO BE CONSIDERED AS PER THE R ELEVANT STATUTORY MECHANISM. ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 8 16. THE TPO THEN COME TO ASSESSEES PLEA REGARDING REJECTION OF M/S GOLDSTONE TECHNOLOGIES LTD., VISUALSOFT TECHNOLOGIES LTD., IN ASSESSMENT YEAR 2006-07. HE REITERATED THAT RULE 10B(4) MANDATES ONLY AVAILABIL ITY OF THE VERY FINANCIAL YEARS DATA. HE FURTHER OBSERVED THAT A COMPARABLE MAY OR MAY NOT SATISFY FAIR ANALYSES IN EACH AND EVERY ASSESSMENT YEAR. COMING TO TURNOVER ASPECT, THE TPO OBSERVED THAT THE TURNOVER FILTER IS AN ATTEMPT TO IRON OUT THE D IFFERENCE BETWEEN THE COMPANIES HAVING SAME ASSET BASE BUT INVOLVING VARYING IDLE C APACITY. HE CONCLUDED IN VIEW OF ALL THESE FACTS THAT ASSESSEES FIRST COMPARABLE M/ S GOLDSTONE TECHNOLOGIES LTD., (SUPRA) SATISFIES THIS LAST TURNOVER FILTERED IN TH E RANGE OF 10 TO 15 CRORES AS AGAINST ITS INTERNATIONAL TRANSACTIONS OF 24.65 CRORES IN THE RELEVANT FINANCIAL YEAR 2006-07 . HE ACCORDINGLY PROPOSED THE IMPUGNED ADJUSTMENT IN THE SEC. 92CA(3) ORDER DATED 28.10.2010. THE ASSESSING OFFICER FRAMED CONSEQUENT DRAFT ASSES SMENT ORDER ON 28.12.2011 BASED ON THE SAID ADJUSTMENT. 17. THE ASSESSEE PREFERRED APPEAL CHALLENGING CORRE CTNESS OF THE ABOVE IMPUGNED ADJUSTMENT RAISING VARIOUS CONTENTIONS. THE CIT(A) HAS DECLINED THE SAME IN HIS LOWER APPELLATE ORDER AS FOLLOWS:- 07. DECISION: 1. I HAVE CAREFULLY EXAMINED THE ACTION OF THE TPO, AN D THE VARIOUS ARGUMENTS ADVANCED BY THE ASSESSEE-COMPANY, LD ARS FOR THE APPELLANT. IN THE FIRST ISSUE OF THE APPELLANT REGARDING NON-CONSIDERATION OF THE COMPARABLE SET O F THE APPELLANT PRESENTED IN ITS TRANSFER PRICING DOCUMENTATION , IT TO BE STATED TH AT THE MATTER IS COVERED AGAINST THE ASSESSEE-APPELLANT BY THE ADJUDICATION FOR THE AY 2 008-09, WHICH IS DISCUSSED IN THE LATTER PART OF THIS PARA, WHEN CONSIDERING THE MATT ER RELATING TO THE CONSIDERATION OF DATA RELATING TO MULTIPLE YEARS. 2. MULTIPLE YEAR DATA OUGHT TO BE CONSIDERED: ON THIS PARTICULAR ISSUE, I FIND THAT THE SIMILAR MATTER AROSE IN THE CASE OF THE ASSESSEE-APPELLANT FOR THE AY 2008-09, [THE SUCCEEDING YEAR OF ASSESSMENT] IN APPEAL. NO.527/CIT(A)-10/CIR -11/2012-13/2014-15 DATED 6 TH OCTOBER, 2016. IN THAT YEAR, AFTER DULY CONSIDERING THE MATTER, THE ISSUE HAS BEEN HELD AGAINST THE APPELLANT. THE RELEVANT PART OF THE DEC ISION IS AS UNDER: 1. HAVING ANALYSED THE ACTION OF THE TPO AND THE SUBM ISSIONS OF THE APPELLANT, I FIND THAT THE LD. TPO HAS CONSIDERED ALL THE SUBMIS SIONS MADE BY THE APPELLANT, AND HAS FINALLY HELD THAT MULTIPLE YEAR DATA CANNOT BE ENCOURAGED AS A MATTER OF RULE AND IS TO BE RESORTED TO ONLY IN EXCEPTIONAL A ND WELL DOCUMENTED CIRCUMSTANCES. MOREOVER, IT IS ABSOLUTELY REQUIRED IN LAW TO USE THE CURRENT YEARS DATA, SOMETHING THAT THE ASSESSEE HAS FAILED TO DO. THEREAFTER THE LD. TPO HAS RECORDED THAT THE TRO NOT ONLY HAS THE POWER, BUT H E IS ALSO DUTY BOUND TO DETERMINE THE ALP BY USING THE CURRENT FINANCIAL DA TA IN THE COMPARABILITY ANALYSIS, EVEN OF THE SAID DATA WAS NOT AVAILABLE T O THE ASSESSEE IN THE PUBLIC ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 9 DATABASE AT THE TIME OF PREPARATION OF THE TRANSFER PRICING REPORT. WHILE SAYING SO, THE LD TPO HAS RELIED ON THE DECISION IN THE CA SE OF CIT VS. BRITISH PAINTS INDIA LTD [1991 AIR 1338] [188 ITR 44] [1990 SCR SU PL. (3) 525] WHEREIN HON'BLE APEX COURT HAS HELD THAT IT IS NOT ONLY THE RIGHT BUT THE DUTY OF THE ASSESSING OFFICER TO ACT IN EXERCISE OF HIS STATUTO RY POWERS, FOR DETERMINING WHAT IN HIS OPINION IS THE CORRECT TAXABLE INCOME. THE L D AO HAS ALSO RELIED ON THE FOLLOWING DECISIONS OF THE HON'BLE ITAT FOR FURTHE RING THE VIEW THAT THE CURRENT YEARS DATA ONLY IS TO BE CONSIDERED WHILE DETERMIN ING THE ALP. A. ST MICROELECTRONICS PVT LTD VS. CIT, NEW DELHI REPO RTED IN [2013] 33 TAXMANN.COM 688 (DELHI TRIB.) B. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), HYD ERABAD V. DELOITTE CONSULTING INDIA (P.) LTD, 2. HAVING CAREFULLY CONSIDERED THE ISSUE, I FIND THAT THE APPELLANT HAS NOT BEEN ABLE TO ADEQUATELY COUNTER THE LAW AS IT EMANATED FROM THES E DECISIONS AND THAT BY MERELY STATING THAT CERTAIN INFORMATION ABOUT CURRENT YEAR COMPARABLES WAS NOT AVAILABLE AT THE TIME OF PREPARATION OF THE TRANSFER PRICING REPORT, THE APPELLANT WAS NOT ABSOLVED OF SUCH MANDATORY REQUIREMENT. IN MY CONSI DERED VIEW OF THE MATTER, THE APPELLANT WAS TO USE CURRENT YEARS DATA FIRST, AND THEN ONLY IF REQUIRED HE COULD USE THE DATA RELATING TO THE TWO PRECEDING YEARS. I FIND THAT WHILE CONSIDERING SUCH AN IDENTICAL ISSUE IN THE CASE OF DCIT,. CIRCLE-1(2 ), HYDERABAD V. DELOITTE CONSULTING INDIA (P.) LTD., REPORTED INN [2010] 12 TAXMANN.COM 500 ((HYDERABAD TRIB.), THE HON'BLE BENCH, BY THEIR ORDER DATED 2 2.07.2011, HAVE OBSERVED AS: SECTION 92C OF THE INCOME-TAX ACT, 1961, READ WITH RULE 10B OF THE INCOME- TAX RULES, 1962 TRANSFER PRICING COMPUTATION OF ARMS LENGTH PRICE ASSESSMENT YEAR 2004-05 WHETHER FOR PURPOSE OF DET ERMINING ALP, TRANSACTIONS ENTERED INTO WITH ASSOCIATE ENTERPRISE S ARE TO BE COMPARED WITH UNCONTROLLED TRANSACTIONS CARRIED ON BY AN ENTITY D URING SAME PERIOD AS THAT THE ASSESSEE-COMPANY AS PROVIDED UNDER RULE 10B(4) HE LD, YET WHETHER, THEREFORE, IT IS MANDATORY TO USE CURRENT YEAR DATA FIRST AND IF ANY CIRCUMSTANCES REVEAL AN INFLUENCE ON DETERMINATION OF ALP IN RELATION TO TRANSACTION BEING COMPARED, THEN OTHER DATES FOR PE RIOD NOT MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY BE USED HE LD, YES - WHETHER TOLERANCE BAND OF 5 PER CENT PROVIDED IN PR OVISO TO SECTION 92C CANNOT BE TAKEN AS A STANDARD DEDUCTION HELD, YES WHETHER, THEREFORE, IF ARITHMETICAL MEAN FALLS WITHIN TOLERANCE BAND THEN THERE SHOULD NOT BE ANY ALP ADJUSTMENT AND, IF IT EXCEEDS SAID TOLERANCE BA ND, THEN ALP ADJUSTMENT IS NOT REQUIRED TO BE COMPUTED AFTER ALLOWING DEDUCTIO N AT 5 PER CENT HELD YES WHETHER, IN VIEW OF ABOVE, ACTUAL WORKING IS TO B E TAKEN FOR DETERMINING ALP WITHOUT GIVING DEDUCTION OF 5 PER CENT HELD Y ES WHETHER ONE CRITERION FOR SELECTION/REJECTION OF COMPARABLES IS FAR ANALYSIS AND, THEREFORE, COMPANY WHOSE FUNCTIONS, RISKS AND ASSETS ARE ENTIR ELY DIFFERENT, SAID COMPANY CANNOT BE CONSIDERED AS A COMPARABLE COMPANY FOR DE TERMINING ALP HELD, YES [PARTLY IN FAVOUR OF ASSESSEE] SECTION 10A OF THE INCOME -TAX ACT, 1961 FREE TRA DE ZONE ASSESSMENT YEAR 2004-05 WHETHER TELECOMMUNICATION CHARGES IN CURRED BY ASSESSEE- COMPANY, WHICH HAD BEEN EXCLUDED BY ASSESSING OFFIC ER FROM EXPORT TURNOVER, HAD TO BE EXCLUDED FROM TOTAL TURNOVER AL SO, WHILE COMPUTING ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 10 ADMISSIBLE DEDUCTION UNDER SECTION 10A HELD, YES [PARTLY IN FAVOUR OF ASSESSEE] 3. SIMILARLY, IN THE CASE OF ST MICROELECTONICS PVT L TD. VS CIT, NEW DELHI REPORTED IN [2013] 333 TAXMANN.COM 688 (DELHI TRIB.), AND RELIED UPON BY THE LEARNED.TPO, THE HON'BLE DELHI BENCH OF THE ITAT, B Y THEIR ORDER DATED 03.06.2011, HAVE OBSERVED, IN SUMMARY AS FOLLOWS: 1. SECTION 37(1) OF THE INCOME-TAX ACT, 1961 BUSINES S EXPENDITURE ALLOWABILITY OF ASSESSMENT YEAR 2006-07 EXPENSE S INCURRED BY ASSESSEE FOR OBTAINING LICENSE TO USE SOFTWARE WERE REVENUE EXPENDITURE [IN FAVOUR OF ASSESSEE] THE ASSESSEE INCURRED EXPENDITURE FOR ACQUIRING THE LICENSE TO USE SOFTWARE FOR A PERIOD OF ONE YEAR OR LESS THAN TWO YEARS AND CLAIM ED SAME AS REVENUE EXPENDITURE. THE ASSESSING OFFICER HELD THAT LICENS E FOR USE OF SOFTWARE TAKEN BY THE ASSESSEE WOULD GIVE ENDURING BENEFIT AND, HENCE , IT DESERVED TO BE TREATED AS CAPITAL EXPENDITURE. THE DRP ACCEPTED THE PROPOSAL OF THE ASSESSING OFFICER. HELD THAT THE ASSESSEE HAD NOT ACQUIRED ANY OWNERSH IP IN THE ALLEGED LICENSE AND THE LICENSES SELF-LIFE WAS LESS THAN TWO YEARS. TH E NATURE OF ASSESSEES BUSINESS WAS SUCH THAT IT REQUIRED COMPUTER SOFTWARE. THEREF ORE, THE EXPENSES INCURRED BY THE ASSESSEE FOR OBTAINING THE LICENSE TO USE THE S OFTWARE WERE TO BE TREATED AS REVENUE EXPENDITURE. II. SECTION 92C OF THE INCOME-TAX ACT, 1961, READ W ITH RULE 10B OF THE INCOME - TAX RULES, 1962 TRANSFER PRICING COMPUTING OF A RMS LENGTH PRICE ASSESSMENT YEAR 2006-07 FOR DETERMINING ALP, IT I S MANDATORY TO FIRST USE CURRENT YEAR DATA [IN FAVOUR OF REVENUE] RULE 10B(4) USES THE EXPRESSION SHALL WHICH MAKES IT MANDATORY TO FIRST USE THE CURRENT YEAR DATA. IF CERTAIN OTHER CIRCUMSTANCES R EVEAL AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICING IN RELATION TO T HE TRANSACTION BEING COMPARED, THEN OTHER DATA FOR PERIOD NOT MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY BE USED. III. SECTION 92C OF THE INCOME-TAX ACT, 1961, READ WITH RULE 10B OF THE INCOME- TAX RULES, 1962 TRANSFER PRICING COMPUTATION OF ARMS LENGTH PRICE ASSESSMENT YEAR 2006-07 IF ARITHMETIC MEAN OF CO MPARABLES FALLS WITHIN RANGE OF ALLEGED TOLERANCE BAND, THEN THERE MAY NOT BE AN Y ADJUSTMENT UNDER PROVISO TO SECTION 92C TOLERANCE BAND PROVIDED IN THE PROVISO TO SECTION 9 2C IS NOT TO BE CONSTRUED AS A STANDARD DEED. IF ARITHMETIC MEAN OF COMPARABLES FA LLS WITHIN THE RANGE OF ALLEGED TOLERANCE BAND, THEN THREE MAY NOT BE ANY ADJUSTMEN T BUT IF IT EXCEEDS, THEN ULTIMATE ADJUSTMENT IS NOT REQUIRED TO BE COMPUTED AFTER REDUCING THE ARITHMETIC MEAN BY 5 PER CENT. THE ACTUAL WORKING IS TO BE TAK EN. IV. SECTION 92C OF THE INCOME-TAX ACT, 1961, READ W ITH RULE 10B OF THE INCOME-TAX RULES, 1962 TRANSFER PRICING COMPUTA TION OF ARMS LENGTH PRICE ASSESSMENT YEAR 2006-07 TPO IS NOT SUPPOSED TO R4 ECORD SPECIFIC FINDING BEFORE PROCEEDING TO SELECT FRESH COMPARABLES. THE TPO IS NOT SUPPOSED TO RECORD SPECIFIC FINDING BEFORE PROCEEDING TO SELECT FRESH COMPARABLES. THE IDEA IS TO ARRIVE AT A REASO NABLE CONCLUSION FOR IDENTIFICATION OF COMPARABLES WHICH CAN GOAD ANY A UTHORITY TO DETERMINE THE ALP OF ANY INTERNATIONAL TRANSACTION ENTERED WITH AN AE BY AN ASSESSEE. EVERY EFFORT SHOULD BE MADE WITHIN THE AMBIT OF PROCEDURE PROVID ED IN THE ACT AS WELL AS RULE ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 11 10B OF THE IT RULES. THE APPROACH OF THE ATPO OUGHT TO BE JUDICIOUS. THE COMPARABILITY BETWEEN A CONTROLLED TRANSACTION AND UNCONTROLLED TRANSACTIONS IS A COMPARISON OF CONDITION WHICH IS BROADER THAN A MER E COMPARISON OF PRICE OR MARGIN. WHERE IT IS FOUND THAT THE CONDITIONS WERE IMPOSED WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEPENDENT ENTER PRISES, TRANSFER PRICING ADJUSTMENTS ARE TO BE MADE. V. SECTION 92C OF THE INCOME-TAX ACT, 1961, READ WI TH RULE 10B OF THE INCOME- TAX RULES, 1962 TRANSFER PRICING COMPUTATION OF ARMS LENGTH PRICE ASSESSMENT YEAR 2006-07 WHERE PRODUCT PRODUCED BY ASSESSEE IN ITSELF WAS OF A COMPLEX NATURE, WHICH REQUIRED SKILLED WORK FORCE A ND IT HAD ONE OF LARGEST DESIGN CENTRES OUT OF EUROPE, ASSESSING OFFICER RIGHTLY TE RMED ASSESSEE AS HIGH END PERFORMER IN FIELD OF COMPUTER SOFTWARE FOR PURPOSE OF SELECTING COMPARABLES [IN FAVOUR OF REVENUE] THE ASSESSEE WAS A SUBSIDIARY OF ST GROUP AND WAS E NGAGED IN PRODUCING INTEGRATED SEMI-CONDUCTORS. IN TRANSFER PRICING PRO CEEDINGS, WHILE FINDING OUT THE COMPARABLE ASSESSEES, WHO HAS UNCONTROLLED INTERNAT IONAL TRANSACTIONS OF SIMILAR NATURE, THE ASSESSING OFFICER TERMED THE ASSESSEE A S HIGH END PERFORMER IN THE FIELD OF COMPUTER SOFTWARE WHEREAS ACCORDING TO THE ASSESSEE ITS ACTIVITIES WERE OF LOW END AS MOST OF THE FUNCTIONS IN PRODUCING INTEG RATED SEMI-CONDUCTORS WERE BEING PERFORMED BY ST GROUP AND ITS ROLE WAS ONLY 2 PER CENT OR 3 PER CENT IN COMPARISON TO OVERALL ROLE PERFORMED BY ST GROUP. HELD THAT THE ROLE OF THE ASSESSEE IN PRODUCING SEM I-CONDUCTOR (IC) MIGHT BE LIMITED QUA THE ROLE PERFORMED BY ST GROUP, BUT THA T LIMITED ROLE WAS OF NO SIGNIFICANCE. PRODUCT PRODUCED BY THE ASSESSEE IN I TSELF WAS OF A COMPLEX, NATURE, WHICH REQUIRED SKILLED WORK FORCE. THE ASSESSEE HAD EMPLOYED MORE THAN 1,600 PERSONS AND IT HAD ONE OF THE LARGEST DESIGN CENTRE S OUT OF EUROPE. THE OPERATIONS CARRIED OUT BY THE ASSESSEE WITHIN INDIA WERE TO BE COMPARED WITH OTHER ASSESSEES AND NOT WITH ST GROUP. THE TEST WHICH ASSESSEE WAS ADVOCATING WAS NOT AT ALL RELEVANT FOR DECIDING THE CHARACTER OF THE ASSESSEE , WHETHER IT WAS HIGH END PERFORMER OR A LOW END PERFORMER. THE CRUCIAL ISSUE WHICH OUGHT TO BE EXPLAINED BY THE ASSESSEE WAS WHAT WAS THE IMPORTANCE OF THIS 2 PER CENT ROLE VIS-A-VIS THE ROLE PERFORMED BY SIMILARLY SITUATED COMPANIES IN A N UNCONTROLLED BUSINESS ENVIRONMENT. ON FACTS, THE ASSESSING OFFICER RIGHTL Y TERMED THE ASSESSEE AS HIGH END PERFORMER IN THE FIELD OF COMPUTER SOFTWARE. VI. SECTION 92C OF THE INCOME-TAX ACT, 1961, READ W ITH RULE 10B OF THE INCOME-TAX RULES, 1962 TRANSFER PRICING COMPUTA TION OF ARMS LENGTH PRICE ASSESSMENT YEAR 2006-07 WHERE IN EVERY YEAR, ASSE SSEE WAS SUBMITTING TP REPORT BY USING DIFFERENT FILTERS FOR SELECTING OR ELIMINATING COMPARABLES IN SUCH A WAY THAT WOULD GIVE ONLY UNIFORM RESULT, TPO WAS JU STIFIED IN ELIMINATING COMPARABLES SELECTED BY ASSESSEE AND IN IDENTIFYING NEW COMPARABLES [IN FAVOUR OF REVENUE] WHILE COMPUTING ALP. THE TPO EXCLUDED THE COMPARABL ES SELECTED BY THE ASSESSEE AND SELECTED FRESH COMPARABLES OBSERVING, INTER ALIA, THAT SEARCH STRATEGY OF THE ASSESSEE IN IDENTIFYING THE COMPARABLES WAS NOT SCIENTIFIC; IT WAS NOT BASED ON ANY KEY VALUE DRIVER FOR THE INCOME-TAX INDUSTRY ; AND THAT IT HAD SELECTED CERTAIN COMPARABLES IN FINANCIAL YEAR 2004-05 BUT T HOSE WERE REJECTED IN FINANCIAL YEAR 2005-06. HELD THAT ON PERUSAL OF TP REPORT SUBMITTED BY THE ASSESSEE FOR THREE YEARS IT WAS FOUND THAT IN EVERY YEAR BY ADJUSTING THE FINANCIAL CALCULATION DEPENDING ON DIFFERENT ASPECTS EFFECTING ANY BUSINESS ORGANIZATI ON, ASSESSEE WAS SUBMITTING A ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 12 TP REPORT WHICH WAS COMMENSURATE TO THE RESULT DECL ARED BY IT. IT USED TO SELECT DIFFERENT FILTERS FOR SELECTING OR ELIMINATING THE COMPARABLES IN SUCH A WAY THAT WOULD GIVE ONLY UNIFORM RESULT. THEREFORE, THERE WA S NO ERROR IN THE PROCEDURE ADOPTED BY THE TPO FOR CARRYING OUT THE FRESH SEARC H IN IDENTIFYING THE NEW COMPARABLES. 3. AS REGARDS THE CLAIM ABOUT ERRONEOUS SELECTION / REJECTION OF INDEPENDENT COMPARABLES BY THE LEARNED.TPO BY APPLICATION OF AR BITRARY FILTERS, I FIND THAT THE LD. AO HAS RECORDED THE NECESSARY REASON FOR REJECTION OF THE COMPARABLES OFFERED BY THE APPELLANT, AND HAS GIVEN THE DUE JUSTIFICATION OF T HE TURNOVER FILTERS. 4. IN THE MATTER OF THE CLAIM OF THE APPELLANT THAT THERE WAS NO INTENTION OF THE APPELLANT TO SHIFT PROFITS OUTSIDE INDIA, I AM NOT INCLINED TO ACCEPT THE ARGUMENTS OF THE LD AR IN THE MATTER, AS THE DECIDED VIEW IN SUC H MATTERS IS THAT IN SO FAR AS FAR ARMS LENGTH PRICE ADJUSTMENTS ARE CONCERNED, IT IS IMMATERIAL AS TO WHETHER OR NOT THE INCOME OF THE ASSESSEE WAS EXEMPTED FROM INCOME TA X IN THE COUNTRY. IT WOULD BE RELEVANT TO MENTION THE DECISION OF THE FIVE MEMBER BENCH OF THE HON'BLE ITAT IN THE CASE OF AZTEC SOFTWARE AND TECHNOLOGY SERVICES LTD VS ASSISTANT COMMISSIONER OF INCOME-TAX (294 ITR AT 32) WHEREIN IT HAS HELD THAT , IN ORDER TO INVOKE TRANSFER PRICING PROVISIONS, IT IS NOT NECESSARY FOR THE REV ENUE TO ESTABLISH ANY TAX EVASION. IT IS, THEREFORE, IMMATERIAL WHETHER OR NOT THE ASSESS EE DERIVES ANY TAX ADVANTAGE BY ENTERING INTO TRANSACTIONS WHICH ARE NOT ARMS LENGT H PRICE. AS LONG AS THE TRANSACTIONS ARE NOT AT ARMS LENGTH PRICES, THE ASSESSING OFFICE R CANNOT BE FAULTED FOR MAKING TRANSFER PRICING ADJUSTMENTS AS REGARDS, THE DETERM INATION OF THE APPLICATION OF ARM AO, I FIND THAT HE CANNOT BE FAULTED IN THE FACTS A ND CIRCUMSTANCES EMANATING IN THE CASE. IN SUMMARY, THE GROUNDS TAKEN BY THE APPELLANT-COMP ANY STAND DISMISSED, AND THE ACTION OF THE LEARNED. AO IS CONFIRMED. THIS IS WHAT LEAVES THE ASSESSEE AGREED AGAINST THE IMPUGNED THE ALP ADJUSTMENT. 18. WE HAVE HEARD RIVAL CONTENTIONS AGAINST AND IN SUPPORT OF IMPUGNED ALP ADJUSTMENT OF 37,28,273/- MADE IN THE COURSE OF ASSESSMENT AN UPH ELD IN THE LOWER APPELLATE PROCEEDINGS. THE ASSESSEES FIRST AND FOR EMOST CHALLENGE TO LOWER AUTHORITIES ACTION IS ON THE ISSUE OF NON INCLUSIO N OF M/S LANCO GLOBAL SYSTEMS LTD. AND M/S VJIL CONSULTING LTD. AS COMPARABLES. IT TRA NSPIRES FROM PAGE 3 PARA-6 IN THE TPOS ORDER THAT ALL THE RELEVANT DETAILS OF THESE TWO ENTITIES INCLUDING PER ANALYZE WITH PLI FOR FINANCIAL YEAR ISSUE WERE NOT AVAILABL E EITHER IN PUBLIC DOMAIN OR POWER DATA PAGES. LEARNED COUNSEL TAKES US TO PAPER BOOK PAGES 145 TO 251 CONTAINING THE SAID TWO ENTITIES ANNUAL REPORTS FOR FINANCIAL YEAR 2006-07 RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. HE THEREFORE SUBMITS THAT ASSESSEE HAD FILED ALL THESE PARTICULARS BEFORE CIT(A) DURING LOWER APPELLATE PROCEEDINGS WH EREIN THE SAID FACTS WERE NOT SUBJECTED TO FACTUAL VERIFICATION. THE REVENUE FAIL S TO DISPUTE THESE TWO ENTITIES ANNUAL REPORTS SOUGHT TO BE INCLUDED IN THE ARRAY IN COMPA RABLES PRIMATAISE SATISFY THE RIGOR ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 13 OF RULE 10B(4) (SUPRA) OF THE INCOME TAX RULES SIN CE PERTAINING TO FINANCIAL YEAR IN WHICH ASSESSEES INTERNATIONAL TRANSACTIONS HAD TAK EN PLACE. WE KEEP IN MIND ALL THESE INTERVENING DEVELOPMENTS AND DEEM IT APPROPRIATE TO RESTORE THE INSTANT ISSUE IN LIGHT OF DETAILS OF THE TWO COMPANIES M/S LANCO GLOBAL SY STEMS LTD., AND M/S VIJL CONSULTING LTD., IS TO THE TPO FOR HIS AFRESH ADJUD ICATION / FACTUAL VERIFICATION AS PER LAW. WE MAKE IT CLEAR THAT WE HAVE NOT EXPRESSED AN Y OPINION ON MERITS OF THE ISSUE. LEARNED COUNSEL AT THIS STAGE SUBMITS THAT ASSESSEE IS ENTITLED FOR WORKING CAPITAL ADJUSTMENT WHEREIN ITS PLI COMES TO BE MORE THAN AV ERAGE MARGIN OF THREE COMPANIES M/S GOLDSTONE TECHNOLOGIES LTD., LANCO GLOBAL SYSTE MS LTD., & VJIL CONSULTING LTD. (SUPRA). WE DO NOT FIND ANY MERIT IN ASSESSEE S ARGUMENT AT THIS STAGE AS THE TPO IS YET TO TAKE HIS FINAL CALL ON THE ISSUE AFTER FA CTUAL VERIFICATION. WE THEREFORE DECLINE ASSESSEES INSTANT LATTER ARGUMENT WITH FURTHER CLA RIFICATION THAT IT SHALL BE ENTITLED TO RAISE ALL FACTUAL / LEGAL ARGUMENTS IN CONSEQUENTIA L PROCEEDINGS. THE ASSESSEES APPEAL ITA 391/KOL/2017 IS ACCEPTED FOR STATISTICAL PURPOS ES THEREFORE. ASSESSMENT YEAR: 2014-15 : ASSESSEES APPEAL ITA NO.1208/KOL/2018 19. IT TRANSPIRES DURING THE COURSE OF HEARING THA T THE ASSESSEES SOLE SUBSTANTIVE GRIEVANCE DURING THE COURSE OF HEARING SEEKS TO DEL ETE ALP ADJUSTMENT OF 5,05,40,448/- IN RELATION TO ITS INTERNATIONAL TRA NSACTIONS IN THE NATURE OF PROVISION FOR SOFTWARE DEVELOPMENT SERVICES. LEARNED COUNSEL S PLEADS THAT THE ASSESSING OFFICER HAS NOT GRANTED THE MANDATORY WORKING CAPIT AL ADJUSTMENT WHILST ADOPTING ALP @ 22.41% AS AGAINST ITS TP STUDYING PLI @15.35% . THE REVENUE INVITES OUR ATTENTION TO PARA-6 OF THE ASSESSMENT ORDER MAKING IT CLEAR THAT TAXPAYER HAD NOT FILED ALL REQUISITES PARTICULARS OF THE IMPUGNED WORKING CAPITAL ADJUSTMENT ALONG WITH ANNUAL REPORTS FOR ASSESSMENT YEAR 2012-13 & 2013-1 4 DESPITE THE DRPS FAVOURABLE DIRECTIONS TO THIS EFFECT. LEARNED COUNSEL SUBMITS THAT THE ASSESSING OFFICER NEVER PUT THE ASSESSEE TO NOTICE FOR FILING THE SAID DETAILS FOLLOWED BY SUBSEQUENT TIME FOR NECESSARY COMPLIANCES. BE THAT AS IT MAY, IT IS SUF FICIENTLY CLEAR BY NOW THAT THE TPO HAS TO TAKE UP THE VERY ISSUE IN ASSESSMENT YEAR 20 07-08 IN VIEW OF OUR PRECEDING REMAND DIRECTION. WE THEREFORE RESTORE THIS ALP A S WELL AS WORKING CAPITAL ITA NO.1208/K/18, 89, 391/K/17 AYS 14-1 5, 07-08 M/S LEXMARK INTERNATIONAL (I) PVT. LTD. VS. DCIT/AC IT CIRL. 14(1) KOL. PAGE 14 ADJUSTMENT ISSUE BACK TO HIM FOR AFRESH ADJUDICATIO N AS PER LAW. THE ASSESSEES LATTER APPEAL ITA NO.1208/KOL/2018 IS ALSO ACCEPTED FOR ST ATISTICAL PURPOSES. 20. THE ASSESSEES APPEALS ITA NO.391/KOL/2017 AND ITA NO.1208/KOL/2018 ARE ACCEPTED FOR STATISTICAL PURPOSES AND REVENUES APP EAL ITA NO.89/KOL/2017 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 27/02/2019 SD/- SD/- ( $%) ('( ) (P.M.JAGTAP) (S.S.GODARA) VICE PRESIDENT JUDICIAL MEMBER *DKP-SR.PS * - 27/02/2019 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S LEXMARK INTERNATIONAL (I) PVT. LTD., DLF IT PARK, BLOCK-1 5 TH FL, 8, MAJOR ARTERIAL ROAD, KOLKATA-156 2. /REVENUE-DCIT, CIRCLE-14(1), R.NO.616, 6 TH FLOOR, AAYAKAR BHAWAN, POORVA, 110, SHANTI PA LLY, KOLKATA-107/ACIT, CIR-14(1), AAYAKAR BHAVAN, P-7, CHOWRINGH EE SQUARE, KOLKTA-69 3. - / / CONCERNED CIT 4. / - / CIT (A) 5. 0 ((- , - / DR, ITAT, KOLKATA 6. 4 / GUARD FILE. BY ORD ER/ , /TRUE COPY/ / -,