NESS TECHNOLOGIES INDIA P.LTD, MUMBAI V. DCIT CEN CIR 6(1), MUMBAI

ITA 943/MUM/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3159 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 11-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Transfer pricing; International transaction; Question of law; Initiation of penalty proceedings
• Section: 143(3); 234B; 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY , JUDICIAL MEMBER IT (TP) A NO. 943 /MUM./ 2015 ( ASSESSMENT YEAR : 20 10 11 ) NESS TECHNOLOGIES (INDIA) PVT. LTD. UNIT 501, INTERFACE, N EW LINK ROAD MALAD (W), MUMBAI 400 064 PAN AAACA9649L .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 6(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : SHRI M.P. LOHIA A/W SHRI NIKHIL TIWARI REVENUE BY : SHRI N.K. CHAND DATE OF HEARING 14 .09.2015 DATE OF ORDER 30.09.2015 O R D E R PER SAKTIJIT DEY, J.M. THE INSTANT APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 9 TH JANUARY 2015, PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) , IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL II (DRP) FOR THE ASSESSMENT YEAR 2010 11. 2. BRIEFLY STATED THE FACTS ARE , THE ASSESS EE IS AN INDIAN COMPANY. ASSESSEES ASSOCIATED ENTERPRISES (IN SHORT A.E ) NESS TECHNOLOGIES , IS A NESS TECHNOLOGIES (INDIA) PVT. LTD. 2 LEADING INTERNATIONAL COMPREHENSIVE END TO END I.T. SERVICES AND SOLUTION PROVIDER . THE ASSESSEE, ON ITS PART, IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVI CES TO ITS A.ES INCLUDING INFORMATION TECHNOLOGY ENABLED SERVICES (IT E S). FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH SEPTEMBER 2010, DECLARING TOTAL INCOME OF ` 34,99,90,400. DURING THE ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS A.E., MADE A REFERENCE TO THE TRANSFER PRICING OFFICER FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ENTERED WITH THE A.E. I N THE COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER, AFTER EXAMINING VARIOUS DOCUMENTS SUBMITTED BEFORE HIM INCLUDING THE TRANSFER PRICING STUDY PREPARED BY ASSESSEE FOUND THAT THE ASSESSEE HAS ADOPTED TRANSACTIONS NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD WITH OPERATING PROFIT TO OPERATING COST (OP/OC) AS PROFIT LEVEL INDICATOR (PLI) FOR BENCH MARKING THE ARM'S LENGTH MARGIN OF THE INTERNATIONAL TRANSACTION WITH THE A.E. HE FURTHER FOUND THAT ASSESSEE CONDUCTING A SEARCH IN THE D ATA BASES HAS IDENTIFIED 19 COMPANIES AS COMPARABLE WITH AVERAGE ARITHMETIC MEAN OF 8.94% CONSIDERING FINANCIAL RESULTS OF THE CURRENT YEAR AND PRECEDING TWO YEARS AND PROFIT MARGIN OF 10.52% IN CASE OF 11 COMPANIES BY USING DATA FOR THE FINANCIAL YEAR 200 9 10 ALONE. SINCE IN BOTH THE CASES, THE PROFIT MARGIN OF THE COMPARABLE COMPANIES WERE LESS THAN THE PROFIT MARGIN DECLARED BY THE ASSESSEE AT 13.50%, THE PRICE CHARGED TO THE A.E. FOR THE INTERNATIONAL TRANSACTION WAS FOUND TO BE WITHIN ARM'S LENGTH. THE TRANSFER PRICING OFFICER, HOWEVER, DID NOT FIND THE T.P. STUDY OF THE ASSESSEE NESS TECHNOLOGIES (INDIA) PVT. LTD. 3 ACCEPTABLE. HE WAS OF THE VIEW THAT THE ASSESSEE HAS WRONGLY SELECTED SOME OF THE COMPARABLES WHEREAS SOME OF THE COMPARABLES WHICH WERE FUNCTIONALLY SIMILAR TO THE ASSESSEE HA VE BEEN OMITTED. HE, THEREFORE, REJECTING THE TRANSFER PRICE STUDY OF THE ASSESSEE PROPOSED TO INCLUDE SOME COMPANIES AS COMPARABLE WHICH, ACCORDING TO HIM, WERE FUNCTIONALLY SIMILAR TO THE ASSESSEE. THOUGH THE ASSESSEE OBJECTED TO SUCH ACTION OF THE TRANS FER PRICING OFFICER BUT THE TRANSFER PRICING OFFICER REJECTING THE OBJECTIONS OF THE ASSESSEE, UNDERTOOK A SEARCH PROCESS HIMSELF AND SELECTED FRESH SET OF COMPARABLES BY USING CONTEMPORANEOUS DATA, WHICH ALSO INCLUDED CERTAIN COMPARABLES SELECTED BY THE A SSESSEE. IN THE PROCESS, THE TRANSFER PRICING OFFICER REJECTED SOME OF THE COMPARABLES SELECTED BY THE ASSESSEE WHILE INCLUDING CERTAIN NEW COMPARABLES. THE FINAL COMPARABLE SELECTED BY THE TRANSFER PRICING OFFICER WERE 17 IN NUMBER WITH ARITHMETIC MEAN PL I OF 20.88% . BY APPLYING THE ARITHMETIC MEAN PLI OF COMPARABLE S AT 20.88%, THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION WAS DETERMINED AT ` 337,95,54,521 AS AGAINST ` 317,32,25,001, DECLARED BY THE ASSESSEE. AS A RESULT, THERE WAS AN UP WARD ADJUSTME NT OF ` 20,63,29,520 TO THE ARM'S LENGTH PRICE DECLARED BY ASSESSEE. IN TERMS WITH THE ORDER PASSED UNDER SECTION 92 C A(3) OF THE ACT BY THE TRANSFER PRICING OFFICER, THE ASSESSING OFFICER PASSED A DRAFT ASSESSMENT ORDER INCORPORATING THE TRANSFER PRICING A DJUSTMENT. 3. BEING AGGRIEVED OF THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP CHALLENGING THE ARM'S LENGTH PRICE DETERMINED BY NESS TECHNOLOGIES (INDIA) PVT. LTD. 4 THE TRANSFER PRICING OFFICER RAISING VARIOUS GROUNDS INCLUDING GROUNDS RELATING TO SELECTION AND REJEC TION OF COMPARABLES. THE DRP, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD, ACCEPTED ASSESSEES CONTENTION IN RESPECT OF REJECTION OF ON E OF THE COMPARABLE BY THE TRANSFER PRICING OFFICER, NAMELY, R.S. SOFTWA RE INDIA LTD., AND DIRECTED THE TRANSFER PRICING OFFICER TO INCLUDE TH E SAME . AS FAR AS THE OBJECTIONS OF THE ASSESSEE RELATING TO SELECTION OF CERTAIN COMPARABLES BY THE TRANSFER PRICING OFFICER, THE DRP ACCEPTING THE OBJECTIONS OF THE ASSESSEE, DIRECTED THE TRANSFER PRICING OFFICER TO EXCLUDE THE FOLLOWING COMPANIES FROM THE LIST OF COMPARABLES: I) BO D H TREE CONSULTING LTD. II) K ALS INFORMATION SYSTEM LTD. III) IG ATE GLOBAL SOLUTION LTD. IV) TATA ELXSI LTD. V) WIPRO LTD. VI) INFOSYS LTD. 4. THE DRP, HOWEVER, REJECTED THE ASSESS EES CONTENTIONS FOR INCLUDING CG VAK SOFTWARE AND EXPORTS LTD. AS COMPARABLE AND FOR EXCLUDING THIRD WARE SOLUTIONS LTD. AND PERSISTENT SYSTEMS LTD., FROM THE LIST OF COMPARABLE. THAT BESIDES, THE DRP ON ITS OWN , FOUND SOME COMPANIES TO BE FUNCTIONALLY SI MILAR TO THE ASSESSEE , HENCE, DIRECTED THE TRANSFER PRICING OFFICER TO CONSIDER THEM AS COMPARABLE S . THUS, THE FINAL LIST OF COMPARABLE SELECTED BY THE DRP WITH AVERAGE OPERATING MARGIN OF 21.04% IS AS UNDER: NESS TECHNOLOGIES (INDIA) PVT. LTD. 5 S.NO. NAME OF COMPANY OPERATING MARGIN FOR F .Y. 2009 10 1. R.S. SOFTWARE (INDIA) LIMITED 9.16% 2. THIRDWARE SOLUTIONS LIMITED 32.09% 3. PERSISTENT SYSTEMS LIMITED 30.56% 4. LARSEN & TOUBRO INFOTECH 19.94% 5. MINDTREE LIMITED 20.79% 6. SASKEN COMMUNICATION TECHNOLOGIES LIMITED 26.53% 7. ZYLOG SYSTEMS LIMITED 19.08% 8. LGS GLOBAL LIMITED 10.21% AVERAGE 21.04% 5. OF COURSE, THE DRP ALSO PASSED SOME DIRECTIONS ON OTHER CORPORATE ISSUES WITH WHICH WE ARE NOT CONCERNED AT PRESENT. IN TERMS WITH THE DIRECTION OF THE DRP, THE IMPUGNED ASSESSMENT OR DER WAS PASSED. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US RAISING AS MANY AS 23 GROUNDS: 6. GROUNDS NO.1 AND 2, BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT HE D OES NOT WANT TO PRESS GROUNDS NO.3, 4, 5 AND 11. IN VIEW OF THIS, THESE GROUNDS ARE DISMISSED AS NOT PRESSED . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, GROUND NO.18 BEING OF ACADEMIC NATURE NEED NOT BE ADJUDICATED UPON. CONSIDERING SUCH SUBMISSION, WE ARE DISMISSING GROUND NO.18. NESS TECHNOLOGIES (INDIA) PVT. LTD. 6 8. AS FAR AS THE REMAINING GROUNDS ARE CONCERNED , IN GROUNDS NO.21 AND 22, THE ISSUE RELATES TO LEVY OF INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT. LEVY OF INTEREST UNDER THE SAID PROVISION BEING CONSEQUENTIAL IS NOT REQUIR ED TO BE ADJUDICATED AT THIS STAGE. 9. IN GROUND NO.24, THE ASSESSEE HAS CHALLENGED INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THIS GROUND BEING PRE MATURE AT THIS STAGE OF THE PROCEEDINGS, IS NOT REQUIRED TO ADJUDICAT E UPON , HENCE , DISMISSED. 10. THIS LEAVES US WITH GROUNDS NO.6, 7, 8, 9, 10, 12, 13, 14, 15, 16 AND 17 AS FAR AS TRANSFER PRICING ISSUES ARE CONCERNED. APART FROM THE TRANSFER PRICING ISSUES, THERE ARE COUPLE OF OTHER ISSUES RAISED IN GROUNDS NO.19 AND 20, WHI CH WE WILL DEAL AT A LATER STAGE. 11. INSOFAR AS GROUND NO.6, WHICH IS CORRESPONDING TO GROUND NO.14, IS CONCERNED, THEY RELATE TO REJECTION OF CG VAK SOFTWARE AND EXPORTS LTD. (SUPRA) AS A COMPARABLE. THE LEARNED COUNSEL FOR THE ASSESSEE, INITIATING HIS ARGU MENTS, SUBMITTED , THE TRANSFER PRICING OFFICER HAS REJECTED THIS COMPANY ON THE GROUND THAT IT IS A CONSISTENTLY LOSS MAKING COMPANY. IT WAS SUBMITTED BY THE LEARNED COUNSEL THAT THOUGH THE DRP, AFTER CONSIDERING THE RELEVANT FACTUAL DETAILS WAS CONVINCED WITH THE FACT THAT THIS COMPANY IS NOT A CONSISTENT LOSS MAKING COMPANY AND THERE , IN FACT , IS A FOREIGN EXCHANGE GAIN EARNED BY THE COMPANY IN THE IM MEDIATELY PRECEDING YEAR WHICH W AS NOT TAKEN INTO ACCOUNT WHILE COMPUTING SEGMENTAL REVENUE , H OWEVER, THE NESS TECHNOLOGIES (INDIA) PVT. LTD. 7 DRP REJECTED THIS COMPANY ON A TOTALLY DIFFERENT GROUND BY OBSERVING THAT THE TURNOVER OF THE COMPANY DURING THE RELEVANT PREVIOUS YEAR WA S ONLY ` 7.16 CRORES COMPARED TO ASSESSEES TURNOVER OF ` 317 CRORES. THEREFORE, IN TERMS OF SIZE AND LEVEL OF OPERATI ON, IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. IN THIS CONTEXT, THE DRP OBSERVED THAT THE TURNOVER OF CG VAK SOFTWARE AND EXPORTS LTD. IS LESS THAN 1/20 TH OF THE ASSESSEES TURNOVER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , IT IS A SET TLED PRINCIPLE OF LAW THAT TURNOVER HAS NO IMPACT OR E FFECT OVER THE PROFIT MARGIN OF A COMPANY. HENCE, A COMPANY WHICH IS OTHERWISE FUNCTIONALLY SIMILAR CANNOT BE EXCLUDED MERELY ON THE BASIS OF TURNOVER. MORESO WHEN NEITHER THE ASSESSEE NOR THE TRANSFER PRICING OFFICER HAS APPLIED THE TURNOVER FILTER FOR SELECTING COMPARABLE. FOR SUCH PROPOSITION, THE LEARNED COUNSEL RELIED UPON THE FOLLOWING DECISIONS: I) TECH BOOKS INTERNATIONALS PVT. LTD. V/S DCIT, ITA NO.240/DEL./2015, ORDER DATED 6 TH JULY 2015; II) NORTEL NETWORKS INDIA PVT. LTD. V/S ACIT, ITA NO.4765/DEL./2011 AND ITA NO.472/DEL./2013, ORDER DATED 25 TH FEBRUARY 2014; AND III) CIT V/S NORTEL NETWORKS INDIA PVT. LTD., ITA NO.448 OF 2015, ORDER DATED 24 TH FEBRUARY 2015 (DELHI HIGH COURT). 12. THE LEARNE D DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELYING UPON THE REASONING OF THE DRP SUBMITTED BEFORE US , THE TURNOVER OF CG VAK SOFTWARE AND EXPORTS LTD. IS ONLY ` 7.16 CRORES COMPARED TO ASSESSEES HUGE TURNOVER OF ` 317 CRORES. HE SUBMITTED , THE ASSESSEE HAS ALSO NOT INDICATED WHETHER ANY OTHER COMPANY SELECTED BY IT IS HAVING LESS ER NESS TECHNOLOGIES (INDIA) PVT. LTD. 8 TURNOVER THAN CG VAK SOFTWARE AND EXPORTS LTD. . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THOUGH , THERE M AY BE CO RELATION BETWEEN THE TURNOVER AND PRO FIT BUT A RELATIVELY SMALL COMPANY CANNOT BE COMPARED TO A BIG COMPANY. AS FAR AS THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, IT WAS SUBMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE , THE RATIO LAID DOWN IN THE DECISIONS ARE FACT BASED AND CANNOT BE APPLIED TO ALL CASES. IN THIS CONTEXT, HE RELIED UPON THE DECISION OF THE TRIBUNAL, DELHI BENCH, IN INTRA INFORMATION TECHNOLOGIES (I) PVT. LTD. V/S DCIT, [2012] 27 TAXMAN.COM 1 (DEL.). THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERR ING TO THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN CAP GEMINI INDIA PVT. LTD. V/S ACIT, 147 ITD 330 (DEL.) SUBMITTED , SINCE THE ASSESSEE IS PART OF A MULTINATIONAL GROUP AND WELL ESTABLISHED IN THE FIELD HAVING MORE BARGAINING POWER THAN THE COMPARABLE COMP ANY, WHICH IS RELATIVELY A SMALL COMPANY, IT CANNOT BE CONSIDERED AS A COMPARABLE. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. ON A PERUSAL OF ASSESSEES TRANSFER PRICING STUDY AS WELL AS THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT BY THE TRANSFER PRICING OFFICER, IT IS VERY MUCH EVIDENT THAT NEITHER THE ASSESSEE NOR THE TRANSFER PRICING OFFICER HAVE APPLIED THE TURNOVER FILTER WHILE SELECTING COMPARABLES. IN FACT, IT IS PE RTINENT TO MENTION HERE THAT THE TRANSFER PRICING OFFICER, WHILE REJECTING THE CG VAK SOFTWARE AND EXPORTS LTD. , HAS STATED THAT IT IS A LOSS MAKING COMPANY, HENCE, CANNOT BE TREATED AS A COMPARABLE. WHEREAS, THE DRP, ON EXAMINATION OF THE FACTS AND MATERI ALS BROUGHT ON RECORD BY THE ASSESSEE, HAS FOUND THE AFORESAID NESS TECHNOLOGIES (INDIA) PVT. LTD. 9 REASONING OF THE TRANSFER PRICING OFFICER TO BE FACTUALLY INCORRECT. NEVERTHELESS, DRP REJECTED THIS COMPANY ONLY ON THE REASONING THAT THE TURNOVER OF CG VAK SOFTWARE AND EXPORTS LTD. BEING ` 7.61 CRORES AS COMPARED TO ASSESSEES TURNOVER BEING ` 317 CRORES, IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. IN OUR VIEW, WHEN NEITHER THE ASSESSEE NOR THE TRANSFER PRICING OFFICER HA VE APPLIED THE TURNOVER FILTER WHILE SELECTING THE COMPARA BLE, IT IS NOT AT ALL RELEVANT TO APPLY THE FILTER FOR REJECTING OR SELECTING ANY COMPARABLE. MOREOVER, IT IS A PRINCIPLE WELL SETTLED IN A NUMBER OF DECISIONS OF THIS TRIBUNAL , LOW TURNOVER ALONE MAY NOT HAVE AN IMPACT ON PROFITABILITY UNLESS THERE ARE OT HER FACTORS IMPACTING THE PROFITABILITY. IN THE PRESENT CASE, NOTHING HAS BEEN BROUGHT BY THE DRP ON RECORD TO SHOW THAT ALONG WITH THE TURNOVER THERE ARE OTHER RELEVANT FACTORS ALSO WHICH MAY HAVE IMPACTED THE PROFIT MARGIN OF THE COMPANY. THE TRIBUNAL, D ELHI BENCH, IN TECHBOOKS INTERNATIONALS PVT. LTD. (SUPRA), WHILE CONSIDERING THE COMPARABILITY OF THE VERY SAME COMPANY FOR THE SAME ASSESSMENT YEAR BY APPLYING THE TURNOVER FILTER, HAS OBSERVED IN THE FOLLOWING MANNER: 12.3.2 WE DO NOT FIND ANY REASON TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES MERELY ON THE GROUND THAT ITS TURNOVER IS LESS. THE REASONS GIVEN ABOVE WHILE CONSIDERING THE COMPARABILITY OF CG VAK SOFTWARE AND EXPORTS APPLY TO THIS COMPANY AS WELL. WE, THEREFORE, ORDER FOR THE INCL USION OF THIS COMPANY IN THE LIST OF COMPARABLES. HOWEVER, THE TRANSFER PRICING OFFICER IS DIRECTED TO VERIFY THE CORRECTNESS OF OP/OC OF THIS COMPANY BEFORE ITS INCLUSION IN THE SET OF COMPARABLES. NESS TECHNOLOGIES (INDIA) PVT. LTD. 10 14. SIMILARLY, THE TRIBUNAL, DELHI BENCH, AGAIN IN NORTEL NET WORKS INDIA PVT. LTD. (SUPRA), CONSIDERING THE ISSUE RELATING TO REJECTION OF CG VAK SOFTWARE AND EXPORTS LTD. AS A COMPARABLE ON THE VERY SAME REASONING HELD AS UNDER: 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON REC ORD. APROPOS CAPITAL TRUST COMPARABLE, THE TPO HAS OBSERVED THAT PRIMARY BUSINESS OF THIS COMPANY IS AUTOMOBILES SALES AND SERVICE. WE ARE OF THE CONSIDERED VIEW THAT A COMPANY CANNOT BE EXCLUDED FROM THE COMPARABLES MERELY FOR THE REASON OF HAVING LOW TUR NOVER. IT IS TO BE APPRECIATED THAT NO TURNOVER FILTER WAS APPLIED BY EITHER OF THE PARITIES. THE COMPARABLE HAS BEEN EXCLUDED BECAUSE THE TOTAL TURNOVER OF THIS COMPARABLE IS RS. 13.92 CRORES. THE ANALYSIS NEEDS TO BE CARRIED OUT ON THE BASIS OF FUNCTIONA L PROFILE AND NOT ON AN ARBITRARY OR ADHOC CRITERIA. FROM THE FACTS ON RECORD AND ARGUMENT ADVANCED BEFORE US, IT EMERGES THAT THE FUNCTIONAL PROFILE OF CAPITAL TRUST LIMITEDS CONSULTANCY SEGMENT IS SIMILAR TO THAT OF NORTEL INDIA THE SAME NEEDS TO BE INC LUDED IN THE FINAL COMPARABLES FOR WORKING THE ALP. THE AO WILL ACCORDINGLY APPLY THIS COMPARABLE WHILE WORKING OUT THE ALP, THIS GROUND OF ASSESSEE IS ALLOWED. WHILE AFFIRMING THE AFORESAID VIEW OF THE TRIBUNAL, THE HON'BLE DELHI HIGH COURT HELD AS UND ER: 6. WE ARE OF THE OPINION THAT THE ITATS ORDER DOES NOT RISE A SUBSTANTIAL QUESTION OF LAW. AS OBSERVED IN THE IMPUGNED ORDER, AS TO WHETHER THE TURNOVER FILTER IS AN APPROPRIATE ONE AND APPLICABLE CANNOT BE ANSWERED IN THE ABSTRACT AND IS ENTIRELY FACT DEPENDENT. IN THE GIVEN FACTS OF THIS CASE, THE RECORD INDICATES THAT THE TRANSFER PRICING OFFICER CHOSE TO APPLY THAT FILTER BUT USED IT TO EXCLUDE THE DATA PERTAINING TO M/S. CAPITAL TRUST LTD. THIS INCONSISTENCY WENT UNNOTICED EVEN BY THE DRP. THE ITAT CORRECTED THE POSITION AND NOTICED THAT NOT HAVING APPLIED THE TURNOVER FILTER AT THE INITIAL STAGE, THE REVENUE CANNOT TAKE ADVANTAGE, IN THE FACTS OF THE CASE, PARTICULARLY WHEN THE TURNOVER FILTER IS NOT A TEST EVEN IN RESPECT OF THE SURVIVING COMP ARABLE WHICH ARE CONCEDEDLY PART OF THE RECORD. FOR THE ABOVE REASONS, NO QUESTION OF LAW ARISES. NESS TECHNOLOGIES (INDIA) PVT. LTD. 11 AS COULD BE SEEN IN THE PRESENT CASE ALSO, NEITHER THE ASSESSEE NOR THE ASSESSING OFFICER APPLIED THE TURNOVER FILTER FOR SELECTING / REJECTING COMPARABLES . NO SPECIFIC FACT HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO TO SHOW THAT APART FROM TURNOVER, THERE ARE ANY OTHER RELEVANT FACTORS WHICH COULD HAVE IMPACTED THE PROFIT MARGIN OF CG VAK SOFTWARE AND EXPORTS LTD. OR WHET HER IT IS FUNCTIONALLY DIS SIMILAR TO THE ASSESSEE , HENCE, CANNOT BE CONSIDERED AS COMPARABLE. THEREFORE, KEEPING IN VIEW THE PRINCIPLES LAID DOWN IN THE DECISION S REFERRED TO ABOVE, WE FIND NO REASON TO SUSTAIN THE ORDER OF THE DRP IN REJECTING CG VAK SOFT WARE AND EXPORTS LTD. AS A COMPARABLE. ACCORDINGLY, WE DIRECT THE TRANSFER PRICING OFFICER TO INCLUDE THIS COMPANY AS COMPARABLE AND DETERMINE THE ARM'S LENGTH PRICE. IN THE COURSE OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED A WORKING INDICATING THE MARGIN OF COMPARABLE S FINALLY SELECTED AFTER INCLUDING CG VAK SOFTWARE AND EXPORTS LTD. AS COMPARABLE . IT WAS SUBMITTED , IF CG VAK SOFTWARE AND EXPORTS LTD. IS INCLUDED AS A COMPARABLE, THEN THE ARITHMETIC MEAN OF COMPARABLE COMPANIES W OULD BE 17.60% COMPARED TO ASSESSEES 13.50%. HENCE, THERE WOULD BE NO NEED FOR FURTHER ADJUSTMENT T O THE ARM'S LENGTH PRICE, AS ASSESSEES MARGIN WOULD BE WITHIN THE TOLERANCE BAND OF 5%. THUS, HE SUBMITTED, THERE WILL BE NO NEED TO ADJUDICATE OTHER GROUNDS ON T.P. AD JUSTMENT. ON A PERUSAL OF THE WORKING SUBMITTED BEFORE US BY THE LEARNED COUNSEL, WE FIND THE AFORESAID SUBMISSIONS OF LEARNED COUNSEL FOR THE ASSESSEE TO BE CORRECT. IN VIEW OF THE AFORESAID, AS WE HAVE DIRECTED THE TRANSFER PRICING OFFICER TO INCLUDE CG VAK SOFTWARE AND EXPORTS LTD. AS A NESS TECHNOLOGIES (INDIA) PVT. LTD. 12 COMPARABLE, BY VIRTUE OF WHICH ASSESSEES MARGIN COMES WITHIN THE RAN G E OF 5% OF AVERAGE ARITHMETIC MEAN OF COMPARABLES REQUIRING NO FURTHER ADJUSTMENT, THERE IS NO NEED TO ADJUDICATE THE OTHER GROUNDS RELATING TO SELECTI ON / REJECTION OF COMPARABLES AS WELL AS RISK AND WORKING CAPITAL ADJUSTMENT RAISED BY THE ASSESSEE AS THEY ARE OF MERE ACADEMIC INTEREST. HOWEVER, WE LEAVE THE ISSUE RAISED IN THE SE GROUNDS OPEN FOR ADJUDICATION IF THEY ARISE IN FUTURE IN ANY OTHER ASSESSMENT YEAR. 15. IN GROUND NO.19, ASSESSEE HAS RAISED THE ISSUE OF GIVING SHORT CREDIT OF TDS TO THE TUNE OF ` 6,64,856, WHILE COMPUTING THE TAX LIABILITY. 16. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US , THE ASSESSING OFFICER, WHILE COMPUTING THE TAX LIAB ILITY, HAS NOT GIVEN EFFECT TO TDS OF ` 6,64,856. HE SUBMITTED , THE ASSESSEE HAS ALSO MOVED AN APPLICATION UNDER SECTION 154 FO THE ACT, ENCLOSING A COPY OF FORM NO.26AS, SHOWING DEDUCTION OF TAX AT SOURCE. HE, THEREFORE, PLEADED THAT A DIRECTION MAY BE IS SUED TO THE ASSESSING OFFICER TO VERIFY AND GIVE CREDIT. 17. SIMILARLY, IN GROUND NO.20, THE ASSESSEE RAISED THE ISSUE OF NOT GIVING EFFECT TO FOREIGN TAX CREDIT OF ` 20,28,803. 18. IT WAS SUBMITTED BEFORE US THAT IN THIS REGARD ALSO, THE ASSESSEE HAS RAISED TH E ISSUE IN AN APPLICATION FILED UNDER SECTION 154 OF THE ACT BEFORE THE ASSESSING OFFICER FURNISHING ALL NECESSARY DETAILS. THUS, IT WAS SUBMITTED NECESSARY DIRECTIONS MAY BE ISSUED TO ASSESSING OFFICER FOR GIVING EFFECT. NESS TECHNOLOGIES (INDIA) PVT. LTD. 13 19. THE LEARNED DEPARTMENTAL REPRESEN TATIVE HAS NO OBJECTION IF DIRECTIONS ARE ISSUED TO THE ASSESSING OFFICER TO GIVE EFFECT TO TAX CREDIT IF IT IS ACTUALLY DUE TO THE ASSESSEE. 20. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD, WE ARE OF THE OPINION, WE CA NNOT DIRECT THE ASSESSING OFFICER TO GIVE TAX CREDITS TO THE ASSESSEE WITHOUT VERIFYING THE FACTUAL DETAILS. HOWEVER, CONSIDERING THE FACT THAT ASSESSEE HAS FILED PETITION UNDER SECTION 154 OF THE ACT BEFORE THE ASSESSING OFFICER RAISING THE AFORESAID ISSU ES WHICH IS STILL PENDING, WE DIRECT THE ASSESSING OFFICER TO CONSIDER ASSESSEES PETITION UNDER SECTION 154 OF THE ACT ON MERITS AND IN ACCORDANCE WITH LAW. 21. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 30.09.2015 SD / - D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED : 30.09.2015 NESS TECHNOLOGIES (INDIA) PVT. LTD. 14 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI