LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED , NAVI MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX 15 (2) (1), MUMBAI

MA 75/MUM/2018

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 6759 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 15-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2012-2013
• Appeal Filed On: 01-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Keywords: Related party transaction; Business income; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Question of law; Right to appeal
• Section: 92C; 143(3); 260A; 12A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) MA NO. 75/MUM/2018 (ITA NO. 1291/MUM/2017) ASSESSMENT YEAR: 2012 - 13 LIONBRIDGE TECHNOLOGIES PVT. LTD. 3 RD FLOOR, RELIABLE TECH PARK OFF. THANE - BELAPUR ROAD AIROLI NAVI MUMBAI - 400078. VS. ASST. COMMISSIONER OF INCOME TAX - 15(2)(1) ROOM NO. 403, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. PAN NO. AABCT3380Q APPELLANT RESPONDENT ASSESSEE BY : MR. PARAS SAVLA , AR REVENUE BY : MR. SAURABH DESHPANDE , SR. DR DATE OF HEARING : 23/03 /2018 DATE OF PRONOUNCEMENT : 15/06/2018 ORDER PER N.K. PRADHAN, AM BY THIS MISCELLANEOUS APPLICATION (MA) , THE APPLICANT/ ASSESSEE SEEKS RECTIFICATION OF THE MISTAKE APPARENT FROM RECORD/SET ASIDE/ RECALL OF THE ORDER OF THE TRIBUNAL DATED 07.11.2017 IN ITA NO. 1291/MUM/2017 ( HEREAFTER REFERRED AS THE O RDER) . CYBERMATE INFOTEK LTD IS REFERRED HERE AS CIL. WE BEGIN WITH THE CONTENTIONS OF THE APPLICANT. THEN WE PROCEED TO GIVE REASONS IN RESPONSE TO IT. CONTENTIONS OF THE APPLICANT 2. THE APPLICANT FILES A WRITTEN SUBMISSION DATED 30.01.2018 SUBMITTING THAT CERTAIN INADVERTENT MISTAKES HAVE CREPT IN THE ORDER LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 2 DATED NOVEMBER 7, 2017 AND THEREFORE THE ORDER OF THE TRIBUNAL MAY BE RECTIFIED AND BE RECALLED. 1 . IT IS STATED THAT THE FOLLOWING ARE THE MISTAKES APPARENT ON RECORD AS REGARDS THE IMPORTANT FACT S AND CIRCUMSTANCES WHICH GIVE RISE TO THE PRESENT MA : A. MISTAKE OF NOT FOLLOWING JUDICIAL PRECEDENTS : IT IS STATED THAT THE ITAT BENCH HAS FAILED TO FOLLOW THE DECISION OF THE JURISDICTIONAL HIGH COURT AND THE A PPLICANT'S OWN ORDER FOR A PREVIOUS YEAR. ( PARA 6.1.1 AND 6.1.2 OF THE ORDER) B. MISTAKE OF N OT A DJUDICATING O N ALL A RGUMENTS OUT FORTH BY THE APPLICANT: IT IS STATED THAT THAT T HE A PPLICANT HAD SUBMITTED VARIOUS ARGUMENTS FOR EXCLUSION OF ONE COMPANY SELECTED BY THE TRANSFER PRICING OFFICER. HOWEVER, THE ITAT HAS FAILED TO ADJUDICATE ON ALL THE ARGUMENTS SUBMITTED BY THE A PPLICANT. (PARA 4.1 AND PARA 6 OF THE ORDER) C. DECIDING ON ARGUMENTS NOT PUT FORTH AT THE TIME OF HEARING (PARA 6.1 AND 6.2 - 6.2.3 OF THE ORDER) D. MISTAKE OF NOT PASSING A S PEAKING ORDER A ND PASSING C ONTRADICTORY S TATEMENTS WITHIN THE SAME ORDER ( PARA 6.1.3 AND 6.3 OF THE ORDER) E. MISTAKE THAT THE COUNSEL ARGUED ONLY EXCLUSION OF CYBERMATE INFOTEK LTD. (PARA 2 OF THE ORDER) THEN THE FOLLOWING FACTS HAVE BEEN MENTIONED AT PARA 4 - 10 OF THE ABO VE WRITTEN SUBMISSION: LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 3 2 . THE APPLICANT IS A CAPTIVE SERVICE PROVIDER AND IS ENGAGED IN THE PROVISION OF ROUTINE, LOW - END SOFTWARE DEVELOPMENT AND RELATED SERVICES TO ITS ASSOCIATED ENTERPRISES ('AES'). IT PROVIDED LOCALIZATION SOFTWARE SERVICES, INCLUDING E - LEARNING, CONTENT DEVELOPMENT AND USER SUPPORT SERVICES. LOCALIZATION SERVICES INVOLVE TAKING A PRODUCT AND MAKING IT LINGUISTICALLY AND CULTURALLY APPROPRIATE TO THE TARGET LOCALE. CONTENT DEVELOPMENT INCLUDES UPDATING AND MANAGEMENT OF CLIENTS ' LOCALIZED SOFTWARE AND WEB CONTENT. APPLICATION MAINTENANCE INCLUDES MINOR MODIFICATIONS AND CHANGES, MAINTENANCE OF ALREADY EXISTING SOFTWARE DEPENDING ON THE CUSTOMER'S REQUIREMENTS. IT WAS REMUNERATED FOR ITS SERVICES AT COST PLUS MARK - UP OF 16.37%. 3 . FOR THE IMPUGNED YEAR, THE APPLICANT SELECTED TRANSACTIONAL NET MARGIN METHOD (TNMM'J AS THE MOST APPROPRIATE METHOD. THE PROFIT LEVEL INDICATOR THAT WAS SELECTED WAS NET PROFIT/OPERATING COST ('OP/OC'). AS PER ITS TRANSFER PRICING STUDY REPORT, THE MARG IN OF THE A PPLICANT WAS 16.87%, AND THE WEIGHTED AVERAGE MARGIN OF THE 9 COMPANIES SELECTED BY IT AS COMPARABLE WAS 13.73%, WHILE THE SINGLE - YEAR AVERAGE MARGIN OF THE 9 COMPANIES WAS 15.95%. SINCE THE MARGIN OF THE A PPLICANT WAS HIGHER THAN THE AVERAGE MA RGIN OF THE COMPANIES, THE A PPLICANT SUBMITTED THAT THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT WERE AT ARM'S LENGTH. 4 . THE COMPANIES SELECTED BY THE APPLICANT IN ITS TRANSFER PRICING STUDY REPORT WERE AS UNDER: SR . NO. COMPANY NAME OPERATING MARGIN (OP/TC) 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 9.87% 2. CG VAK SOFTWARE & EXPORTS LTD. 16.1 8 % 3. CYBERMATEINFOTEK LTD. 56.97% LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 4 4. FIRSTOBJECT TECHNOLOGIES LTD. 0.93% 5 GOLD STONE TECHNOLOGIES LTD. 11.01% 6 RS SOFTWARE (INDIA) LTD. 15. 21% 7. R SYSTEMS INTERNATIONAL LID. 1.72% 8. VIRINCHI TECHNOLOGIES LTD. 12.98% 9 . YBRANT DIGITAL LTD. (FORMERLY KNOWN AS LGS GLOBAL LID.) 18.70% AVERAGE MARGIN 15.95% 5 . DURING THE COURSE OF THE TRANSFER PRICING ASSESSMENT PROCEEDINGS, THE TRANSFER PRICING OFFICER ('TPO') CONTENDED THAT OUTSOURCING COST INCURRED BY THE A PPLICANT WAS NOT A PASS - THROUGH COST AND HAD TO BE INCLUDED IN THE OPERATING COST OF THE A PPLICANT. ACCO RDINGLY, THE TPO DETERMINED T HAT THE MARGIN OF THE A PPLICANT AT 14.33%. WITH REGARD TO COMPANIES SELECTED IN THE TP STUDY REPORT, THE TPO REJECTED 4 COMPANIES AND RETAINED 5 COMPANIES AND ADDED 5 NEW COMPANIES. THE AVERAGE MARGIN OF THE FINAL SET OF 10 COM PANIES WAS COMPUTED BY THE TPO AS 22.62% AND HE PROPOSED AN ADJUSTMENT OF RS.7,09,24,015/ - . 6 . THE FINA L SET OF COMPANIES SELECTED BY T HE LEARNED TPO WERE AS UNDER: SR. NO. COMPANY NAME OPERATING MARGIN ( OP/TC) 1 AKSHAY SOFTWARE TECHNOLOGIES LTD. 9.87% 2. CYBERMATEINFOTEK LTD, 56.97% 3. RS SOFTWARE (INDIA) LTD. 15.21% 4. VIRINCHI TECHNOLOGIES LTD. 12.98% LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 5 E. YBRANT DIGITAL LTD. (FORMERLY KNOWN AS LGS GLOBAL LTD.) 18.70% 6. ACROPETAL TECHNOLOGIES LTD. (IT SEG) 13.54% 7. ASPIRE SYSTEMS LTD. 22.17% 8. INDIUM SOFTWARE LTD. 28.95% 9. PERSISTENT SYSTEMS LTD. 26.94% 10. ZYLOG SYSTEMS LTD. 30.70% MEAN 22.62% 7 . THE APPLICANT PREFERRE D AN APPEAL BEFORE THE DISPUTE RESOLUTION PANEL ('DRP' ) . THE DRP UPHELD THE ORDER OF THE TPO AND CONSEQUENTLY, THEASSESSING OFFICER ('AO'J MADE AN ADDITION OF RS.7,09,24,015/ - IN THE FINAL ORDER PASSED U/S 143(3) R.W.S 144C(13) OF THE INCOME - TAX ACT, 1961 ('ACT'). 8 . A FURTHER APPEAL WAS PREFERRED BY THE A PPLICANT BEFORE THE ITAT . 9 . IT IS STATED THAT THE MATTER WAS POSTED FOR HEARING ON AUGUST 10, 2017.ON THE SAID DATE, THE HON'BLE MEMBERS INITIALLY ADJOURNED THE MATTER TO AUGUST 17, 2017 DUE TO OTHER LENGTHY STAY GRANTED APPEALS, WHICH WERE TO TAKE TIME. HOWEVER, AT AROUND 12.00 NOON, AFTER OTHER MATTERS GOT HEARD, THE A PPLICANT'S MATTER WAS CALLED OUT FOR HEARING. THE COUNSEL, IN REPLY TO THE INQUIRY OF THE HON'BLE MEMBERS, STATED THAT THAT MATTER MAY TAKE LONG IF ALL GROUNDS WERE ARGUED, BUT IF THE BENCH WAS CONVINCED ON EXCLUSION OF ONE COMPARABLE (NAMELY, CYBERMATE INFOTEK LTD.) SELECTED BY THE TPO, THEN THE APPEAL WOULD BE IN FAVOUR OF THE A PPLICANT AND THE REMAINING GROUNDS WOULD BE ACADEMIC IN NATURE. THE HON'BLE BENCH PROCEEDED TO HEAR THE APPEAL AND THE MATTER WAS CONSIDERED AS HEARD ON AUGUST 10, 2017, AFTER HEARING ON THE COUNSEL ON ONE COMPARABLE ONLY. HOWEVER, THE COUNSEL LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 6 SUBMITTED A BRIEF CHART WHICH INCLUDED ARGUMENTS FOR ALL COMPARABLE COMPANIES. 10 . IT IS STATED THAT DURING THE COURSE OF HEARING, THE A PPLICANT, THROUGH IT S COUNSEL, MR. PARAS S. SAVLA, SUBMITTED A CHART ENCAPSULATING ITS ARGUMENTS FOR THE SAID APPEAL. BROADLY, THE CHART CONTAINED ARGUMENTS ON EXCLUSION OF INCOMPARABLE COMPANIES, INCLUSION OF COMPARABLE COMPANIES AND INCORRECTLY CONSIDERING PASS - THROUGH COST S AS OPERATING COSTS WHILE COMPUTING THE MARGIN OF THE A PPLICANT. 1 1 . IT IS FURTHE R STATED THAT IN THE AFORESAID ORDER DATED NOVEMBER 7, 2017, IT HAS BEEN HELD THAT CYBERMATEINFOTEK LTD IS FUNCTIONALLY COMPARABLE TO THE A PPLICANT AND HAS BEEN CORRECTLY RET AINED BY THE TPO. FURTHER, THE BENCH REFRAINED FROM ADJUDICATING ON ANY OTHER GROUND RAISED BY THE APPELLANT. 1 2 . THE APPLICANT SUBMITS THAT THE SAID ORDER IS FRAUGHT WITH THE FOLLOWING MISTAKES, WHICH ARE APPARENT ON RECORD, AND HENCE SUBMITS THAT THE ORDER BE RECALLED OR RECTIFIED ACCORDINGLY . 1 3 . THE APPLICANT HAD RELIED ON BOMBAY HIGH DECISION IN CASE OF CIT V PTC SOFTWARE (I) (P.) LTD. [2016]75 TAXM A NN.COM 31 (BOM) , WHEREIN AT PARAGRAPH 10 THE HON'BLE COURT HAS HELD THAT A COMPANY ENGAGED IN SELLING SOFTWARE PRODUCTS IS FUNCTIONALLY DIFFERENT FROM A COMPANY RENDERING SOFTWARE DEVELOPMENT SERVICES. 1 4 . THE APPLICANT THEREAFTER RELIED ON MUMBAI TRIBUNAL CASE IN ITS OWN CASE FOR EARLIER YEAR I.E. LIONBRIDGE TECHNOLOGIES (P.) LTD. V. ITO [2015] 64 TAXMAN N.COM461 (MUM) WHEREIN AT PARAGRAPH 82, THE HON'BLE TRIBUNAL HAS HELD THAT THE A PPLICANT IS INTO SOFTWARE LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 7 DEVELOPMENT AND CANNOT BE COMPARED WITH A COMPANY ENGAGED IN SOFTWARE PRODUCTS. 1 5 . THE ABOVE DECISIONS MAKE IT CLEAR THAT THAT A COMPANY WHICH IS INT O PRODUCTS IS NOT FUNCTIONALLY COMPARABLE TO A COMPANY WHICH PURELY DEVELOPS SOFTWARE AND RENDERS ONLY SOFTWARE DEVELOPMENT SERVICES. BOTH THE ABOVEMENTIONED DECISIONS MAKE IT AMPLY CLEAR THAT PRODUCT DEVELOPMENT CANNOT BE COMPARED TO SOFTWARE DEVELOPMENT SERVICES. 1 6 . RELYING ON THE ABOVE J UDICIAL PRINCIPLES, THE APPLICANT STATED THAT THE FACTS OF CYBERMATE INFOTEK LTD. ('CYBERMATE') FELL WITHIN THE TEETH OF BOMBAY HIGH COURT DECISION AND MUMBAI TRIBUNAL DECISION AND HENCE WAS NOT COMPARABLE. 1 7 . FURTHER I T IS STATED THAT THE APPLICANT EXPLAINED AS UNDER: CYBERMATE - FUNCTIONALLY NOT COMPARABLE: A. AS PER THE ANNUAL REPORT OF CYBERMATE, IT WAS INTO THE BUSINESS OF PROVIDING CUSTOM BUILT SOFTWARE DEVELOPMENT, PRODUCT DEVELOPMENT AND IT SERVICES. IT HAD DEVELOPED OVER 39 PRODUCTS, INCLUDING HEALSOFT, AHOSPITAL MANAGEMENT SOFTWARE. THE ANNUAL REPORT ALS O LISTED DOWN 12 OTHER PRODUCTS. HOWEVER, THE A PPLICANT WAS A LOW - END SOFTWARE DEVELOPER AND DID NOT OWN ANY PRODUCTS . HENCE, THE A PPLICANT WAS HENCE NOT COMPARABLE TO CYBERMATE. B. FURTHER, THE COMPANY ALSO REPORTED 'INTANGIBLE ASSETS UNDER DEVELOPMENT' AND ALSO CAPITALIZED 'WEB DEVELOPMENT EXPENSES' IN ITS BALANCE SHEET, THE COMPANY HAD INTANGIBLES, WHILE THE ASSESSEE DID NOT OWN ANY INTANGIBLE ASSETS. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 8 LOW EMPLOYEE COST: C. THE PERCENTAGE OF EMPLOYEE COST TO TOTAL OPERATING COST OF CYBERMATE WAS ONLY 11.10%, HOWEVER, THE A PPLICANT'S CORRESPONDING PERCENTAGE OF EMPLOYEE COST WAS 48%. THIS I MPLIED THAT CYBERMATE WAS NOT A SERVICE ORIENTED COMPANY, WHILE THE ASSESSEE WAS ONE. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN RAMPGREEN SOLUTION S PVT. LTD. V. CIT [2015] 377 ITR 533 (DELHI HC) , WHEREIN IT HAS BEEN HELD T HAT COMPANIES WHICH HAVE A LESS PERCENTAGE OF EMPLOYEE COST MAY BE OUTSOURCING MOST OF THEIR ACTIVITY AND HENCE NOT COMPARABLE TO A COMPANY WHICH DEVELOPS IN - HOUSE. 1 8 . IT IS STATED THAT THE MATTER WAS CONSIDERED AS HEARD ON AUGUST 10, 2017, AFTER HEARING ON THE COUNSEL ON THIS ONE COMPARABLE ONLY. HOWEVER, IN THE ORDER, THE HON'BLE TRIBUNAL HAS USED THE WORDS SERVICES AND PRODUCTS INTERCHANGEABLY AND FURTHER THAT THE SER VICES / PRODUCTS RENDERED AND FUNCTIONS UNDERTAKEN BY THE APPLICANT AND CYBERMATE FALL BROADLY IN SIMILAR DOMAIN AND ARE HENCE COMPARABLE. 1 9 . IT IS FURTHER STATED THAT IN PAGE 7, PAR AGRAPH 6.1.1 OF THE ORDER, THE TRIBUNAL HAS OBSERVED THAT IN PTC SOFTWARE (I) (P)LTD. (SUPRA) , IT WAS HELD THAT COMPANIES HAVING SAME FINANCIAL YEAR HAVE TO BE COMPARED AND THE SERVICES RENDERED BY KPO AND LPO ARE INHERENTLY DIFFERENT FROM NATURE OF SERVICES RENDERED BY A BPO. THE TRIBUNAL HELD THAT IN THE PRESENT CASE, THE DAT A FOR THE SAME FINANCIAL YEAR HAS BEEN USED FOR COMPARABILITY ANALYSIS. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 9 THE APPLICANT SUBMITS THAT THE TRIBUNAL HAS RELIED ON THE WRONG PARAGRAPH OF THE HIGH COURT DECISION AND HENCE CONSEQUENTLY COME TO AN INCORRECT CONCLUSION. THE A PPLICANT HAD RELIED ON FINDINGS ON QUESTION NO.(II) RAISED BEFORE THE HIGH COURT. IT WAS FOR THE PRINCIPLE THAT A COMPANY, WHICH OWNED AND SELLS SOFTWARE PRODUCTS, WAS NOT COMPARABLE TO A COMPANY WHICH RENDERS SOFTWARE SERVICES TO ITS HOLDING COMPANY. IT IS EMPHASIZED THAT IN T HE ABOVE ORDER, THE BENCH HAS REFERRED TO ONLY THE HEADNOTE OF THE SAID JUDGMENT WHICH DOES NOT REFER TO ALL THE QUESTIONS RAISED BEFORE THE HIGH COURT. THE TRIBUNAL MISSED TO REFER TO PAGE 6, PARAGRAPH 10(A) TO (D) WHEREIN IT HAS BEEN HELD THAT KALS INFOR MATION SOLUTIONS LTD., A COMPANY WHICH WAS ENGAGED IN THE BUSINESS OF SELLING SOFTWARE PRODUCTS, WAS NOT COMPARABLE TO A COMPANY INTO SOFTWARE SERVICES. 20 . IT IS ALSO STATED THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF PTC SOFTWARE (I) (PJ LTD . (SUPR A) HAS CLEARLY HELD THAT A COMPANY, WHICH EARNS INCOME OUT OF SOFTWARE PRODUCTS, IS NOT COMPARABLE TO A COMPANY INTO SOFTWARE DEVELOPMENT SERVICES . REFERENCE OF WRONG QUESTION AND NOT FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT AMOUNTS TO MISTAKE APPARENT FROM RECORD AND HENCE MAY BE RECTIFIED. VARIOUS COURTS HAVE HELD THAT A LOWER COURT SHOULD FOLLOW THE PRINCIPLE OF PRECEDENCE AND FOLLO W THE ORDER OF A HIGHER JURISDICTIONAL COURT AND NOT FOLLOWING THE SAME IS A MISTAKE APPARENT ON RECORD AND OUGHT TO BE RECTIFIED. 2 1 . ALSO IT IS STATED THAT SIMILARLY, IN PAGE 8, PARAGRAPH 6.12 OF THE ORDER, THE TRIBUNAL HAS OBSERVED THAT IN LIONBRIDGE TECHNOLOGIES (P.) LTD. (SUPRA) , CYBERMALE WAS NOT A COMPARABLE IN THOSE ASSESSMENT YEARS I.E. AY 2009 - 10 AND 2010 - 11. HOWEVER, IN EARLIER YEAR, THE LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 10 PRINCIPLE HAS BEEN DECIDED, THOUGH ALBEIT FOR A DIFFERENT COMPARABLE. THE A PPLICANT HAD RELIED ON THE ORDER OF THE TRIBUNAL IN ITS OWN CASE FOR THE PROPOSITION THAT A COMPANY WHICH IS INTO SOFTWARE PRODUCTS IS NOT COMPARABLE TO IT, WHICH IS SOLELY INTO SOFTWARE DEVELOPMENT. IN THE SAID EARLIER YEAR DECISION, ON PAGE 13, PARAGRAPH 25, PAGE 22, PARAGRAPH 73 AND PAG E 25, PARAGRAPH 82, HAS CLEARLY HELD THAT THE A PPLICANT WAS NOT INTO SOFTWARE PRODUCTS AND CANNOT BE COMPARED TO A COMPANY WHICH IS INTO SALE OF SOFTWARE PRODUCTS. 2 2 . IT IS ARGUED THAT IN THE IMPUGNED ORDER DATE NOVEMBER 7, 2017, THE BENCH HAS HELD THAT T HE SERVICES / PRODUCTS AND FUNCTIONS RENDERED BY THE A PPLICANT AND CYBERMATE FALL BROADLY IN SIMILAR DOMAIN AND ARE HENCE COMPARABLE IN NATURE. AS SUBMITTED ABOVE, CYBERMATE IS A COMPANY INTO SELLING SOFTWARE PRODUCT. THE IMPUGNED ORDER IS COMPLETELY CONTR ADICTORY TO THE ORDER OF THE HON'BLE TRIBUNAL IN THE A PPLICANT'S OWN CASE FOR AY 2009 - 10 AND 2010 - 11, MORE SO WHEN THERE ARE NO CHANGE IN FACTS OR IN LAW. IT HAS BEEN HELD IN NUMEROUS JUDGMENTS THAT A COURT HAS TO FOLLOW ITS OWN ORDER FOR AN EARLIER YEAR, UNLESS THERE HAS BEEN CHANGE IN FACTS OR IN LAW, AND NOT FOLLOWING THE SAME WILL BE A MISTAKE APPARENT ON RECORD. INADVERTENTLY, THERE IS A GROSS VIOLATION OF SETTLED PRINCIPLES OF JURISPRUDENCE AND MAY BE RECTIFIED. 2 3 . THE APPLICANT SUBMITS THAT THE BENC H HAS REPEATEDLY AND INTERCHANGEABLY USED THE PHRASE 'SERVICES/PRODUCTS' ARE FUNCTIONALLY COMPARABLE IN THE IMPUGNED ORDER. THIS IS IN BLATANT CONTRADICTION OF THE JURISDICTIONAL HIGH COURT AND THE ORDER OF THE TRIBUNAL FOR THE PREVIOUS YEAR. THE ACTIVITIE S IN THE NATURE OF SERVICES AND PRODUCTS ARE ENTIRELY DIFFERENT FROM EACH OTHER AND CANNOT BE COMPARED AT ALL. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 11 2 4 . THROUGH THE ABOVE WRITTEN SUBMISSION, THE APPLICANT WOULD LIKE TO SUBMIT THAT THE ACTION OF NOT FOLLOWING THE JURISDICTIONAL HIGH COURT AND THE HON'BLE TRIBUNAL'S OWN ORDER FOR THE PRECEDING YEARS, IS A MISTAKE APPARENT ON RECORD AND HAS TO BE RECTIFIED. MISTAKE OF N OT A DJUDICATING ON ALL A RGUMENTS PUT FORTH BY THE APPLICANT: 2 5 . THE APPLICANT HAD ARGUED THAT CYBERMATE WAS NOT COMPARABLE TO IT, BECAUSE: A. IT WAS FUNCTIONALLY DIFFERENT; IT WAS INTO CUSTOM BUILT SOFTWARE DEVELOPMENT, PRODUCT DEVELOPMENT AND IT SERVICES. AS SEEN FROM THE FINANCIAL S , IT DEVELOPED OVER 39 PRODUCTS, INCLUDING HEALSOFT, WHEREAS THE A PPLICANT WAS NOT INTO PRODUCT DEVELOPME NT ( PAGE 211, 215 OF PAPER BOOK FILED ON JULY 3, 2017) B. IT DID NOT PROVIDE SEGMENTAL INFORMATION ON SOFTWARE DEVELOPMENT ACTIVITY (PAGE 243 OF PAPER BOOK FILED ON JULY 3, 2017) C. IT DEVELOPED INTANGIBLES, WHEREAS THE A PPLICANT DID NOT DO SO (PAGE 231, 238 OF PAPER BOOK FILED ON JULY 3, 2017) D. ITS PERCENTAGE OF EMPLOYEE COST TO TOTAL COST WAS ONLY 11.10%, WHEREAS THAT OF THE A PPLICANT WAS 48.38%. (REFER TO CALCULATION FILED AT THE TIME OF HEA R IN G ) . 2 6 . THE APPLICANT SUBMITS THAT THE TRIBUNAL IN THE IMPUGNED ORDER HAS NOT DEALT WITH OTHER CONTENTIONS OF THE A PPLICANT. THE ORDER HAS FAILED TO ADJUDICATE ON THE CONTENTIONS OF THE A PPLICANT THAT CYBERMATE WAS INTO PRODUCT DEVELOPMENT AND OWNED MORE THAN 39 P RODUCTS, IT DEVELOPED INTANGIBLES AND LASTLY, THAT ITS PERCENTAGE OF EMPLOYEE COST LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 12 WAS MUCH LOWER THAN THAT OF THE A PPLICANT. IT HAS MERELY HELD THAT THE A PPLICANT AND CYBERMATE WERE FUNCTIONALLY COMPARABLE. 2 7 . IT IS STATED THAT AT THE TIME OF HEARING, TH E A PPLICANT HAD PLACED RELIANCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT M THE CASE OF RAMPGREENSOLUTIONS PVT. LTD . (SUPRA), WHICH HAS HELD IN PAGE 19, PARAGRAPH 38 THAT A BUSINESS MODEL WHERE SERVICES ARE RENDERED BY EMPLOYING OWN EMPLOYEES AND USI NG ONE'S OWN INFRASTRUCTURE WOULD HAVE A DIFFERENT COST STRUCTURE AS COMPARED TO A BUSINESS MODEL WHERE SERVICES ARE OUTSOURCED AND CONSEQUENTLY, SUCH COMPANIES HAVING DIFFERENT BUSINESS MODELS CANNOT BE COMPARED WITH EACH OTHER. 2 8 . IT IS FURTHER SUBMITTED THAT IN FACT, IN THE IMPUGNED ORDER DATED NOVEMBER 7, 2017 THE DECISION OF RAMP GREEN SOLUTIONS PVT. LTD. (SUPRA), HAS BEEN QUOTED FOR THE PROPOSITION THAT THOUGH TNMM IS LESS SENSITIVE TO DISSIMILARITIES, A HIGHER PRODUCT AND FUNCTIO NAL SIMILARITY WOULD STRENGTHEN THE EFFICACY OF A METHOD. HOWEVER, THE TRIBUNAL FAILED TO TAKE INTO COGNIZANCE OF THE FACT THAT RAMPGREEN SOLUTIONS PVT. LTD. (SUPRA) HAD ITSELF EXCLUDED A COMPANY DUE TO FUNCTIONAL DISSIMILARITY I.E. NOT HAVING SUFFICIENT P ERCENTAGE OF EMPLOYEE COST. THE DECISION WAS RELIED UPON BY THE A PPLICANT FOR THE PRINCIPLE OF PERCENTAGE OF EMPLOYMENT COST IS A RELEVANT FACTOR TO DECIDE COMPARABILITY. 2 9 . IT IS FURTHER SUBMITTED THAT THE TRIBUNAL IN ITS ORDER DATED NOVEMBER 7, 2017 HAS SIMPLICITER HELD THAT THE A PPLICANT AND CYBERMATE ARE FUNCTIONALLY COMPARABLE SINCE BOTH ITS ACTIVITIES ARE BROADLY SIMILAR. THE HON'BLE TRIBUNAL IN THE IMPUGNED ORDER HAS SE LECTIVELY DEALT WITH O NLY ONE OUT OF FOUR ARGUMENTS OF THE A PPLICANT. IT HAS NEITHER DEALT WITH OTHER ARGUMENTS OF THE A PPLICANT ON LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 13 CYBERMATE, NOR HAS IT DISTINGUISHED THE JUDGMENTS REFERRED TO BY THE A PPLICANT. NOT ADJUDICATING VARIOUS ARGUMENTS RAISED BY THE A PPLICANT AMOUNTS TO MISTAKE APPARENT ON RECORD AND HENCE MAY BE RECTIFIED. MISTAKE OF NOT PASSING A SPEAKING ORDER: 30 . THE APPLICANT SUBMITS THAT THE TRIBUNAL IN ITS ORDER DATED NOVEMBER 7, 2017, VIDE PARAGRAPH 6.1.1 AND 6.1.3 HAS SIMPLICITER HELD T HAT THE A PPLICANT AND CYBERMATE ARE FUNCTIONALLY COMPARABLE SINCE BOTH ITS ACTIVITIES ARE NOT BROADLY SIMILAR. THIS HAS BEEN REITERATED IN PARAGRAPH 6.1.4 AND 6.4. 3 1 . IT IS STATED THAT HOWEVER, THE TRIBUNAL HAS NOT GIVEN REASONS FOR ITS RATIO. IN PAGE 7, PARAGRAPH 6, IT STATES THE FUNCTIONS OF THE A PPLICANT AND CYBERMATE AND THEN IN PARAGRAPH 6.1.1, ON PAGE 8, IT HOLDS THAT THEY ARE COMPARABLE SINCE THEIR ACTIVITIES FALL UNDER IN SIMILAR DOMAIN. THE TRIBUNAL HAS NOT P ASSED A SPEAKING ORDER ON HOW A COMPANY LIKE CYBERMATE. WHICH IS INTO PRODUCT DEVELOPMENT, INTER ALIA, IS COMPARABLE TO THE A PPLICANT, WHICH IS PURELY INTO LOW - END ROUTINE SOFTWARE DEVELOPMENT AND LOCALIZATION SERVICES. IT HAS NOT DISTING UISHED THE DECISIONS RELIED UPON BY THE A PPLICANT NOR HAS IT GIVEN REASONS FOR ITS CONCLUSION. 3 2 . IT IS FURTHER STATED THAT THE TRIBUNAL OUGHT TO PASS ED A SPEAKING ORDER DEALING WITH THE CONTENTIONS RAISED BY THE A PPLICANT. TH I S AMOUNTS TO MISTAKE APPAREN T ON RECORD AND HENCE MAY BE RECTIFIED. DECISION ON A RGUMENTS NOT PUT FORTH AT THE TIME OF H EARING: 3 3 . IT IS SUBMITTED THAT THE TRIBUNAL IN PAGE 9 - 10, PARAGRAPH 6.2 - 6.2.3 HAS HELD THAT CYBERMATE AND THE APPLICANT ARE COMPARABLE SINCE THEY HAVE SIMILAR REVENUE RECOGNITION POLICY IN THEIR NOTES TO ACCOUNTS LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 14 IN THEIR FINANCIAL STATEMENTS. THE A PPLICANT DOES NOT RECOLLECT ANY SUCH ARGUMENT TAKEN BY ITS COUNSEL OR THE DEPARTMENT'S REPRESENTATIVE RELYING UPON THE REVENUE RECOGNITION POLICY OF THE A PPLICANT AND CYBERMATE. 3 4 . IT IS FURTHER STATED THAT IN PAGE 7, PARAGRAPH 6.1., IT HAS BEEN STATED THAT AS PER THE HON 'BLE SUPREME COURT IN PADMAUSUNDARA RAO V. STATE OF TN 255 ITR147, A COURT SHOULD RELY ON A DECISION ONLY AFTER DISCUSSING HOW IT ARE FACTUALLY RELEVANT TO A CASE. THIS CASE WAS NOT QUOTED AT THE TIME OF HEARING BY EITHER THE COUNSEL OR THE DEPARTMENT, AND WAS NOT REFERRED TO AT THE TIME OF HEARING. IF FACT APPLYING THE PRINCIPLE, BOMBAY HIGH COURT DECISION IN CASE OF PTC SOFTWARE (SUPRA) SHOULD HAVE BEEN CONSIDERED IN TOTALITY. 3 5 . IT IS STATED THAT AS PER SECTION 254(1) OF THE ACT, THE HON'BLE TRIBUNAL HA S TO PASS AN ORDER AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO BOTH THE APPELLANT AND RESPONDENT. IN CASE THE HON'BLE BENCH WISHES TO RELY ON ANY DECISION WHICH WAS NOT REFERRED TO AT THE TIME OF HEARING, THEN AN OPPORTUNITY TO REBUT THE SAME OUGHT TO HA VE BEEN GIVEN TO T HE A PPLICANT. THIS IS THE BASIS OF PRINCIPLE OF NATURAL JUSTICE AND AN ACTION OF DENYING THE A PPLICANT THE SAME IS BAD IN LAW AND OUGHT TO BE RECTIFIED. MISTAKE OF PASSING CONTRADICTORY STATEMENTS WITHIN THE S AME ORDER 3 6 . IT IS FURTHER STAT ED THAT IN PAGE 8, PARAGRAPH 6.1.3 OF THE ORDER, THE HON'BLE BENCH HAS RELIED ON RAMPGREEN SOLUTIONS PVT. LTD . ( SUPRA ) TO HOLD THAT: 'COMPARABILITY ANALYSIS BY TNMM METHOD MAY BE LESS SENSITIVE TO CERTAIN DISSIMILARITIES BETWEEN THE TESTED PARTY AND THE COMPARABLE S. HOWEVER, LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 15 THAT CANNOT BE THE CONSIDERATION FOR DILUTING THE STANDARDS OF SELECTING COMPARABLE TRANSACTIONS/ENTITIES. A HIGHER PRODUCT AND FUNCTIONAL SIMILARITY WOULD STRENGTHEN THE EFFICACY OF THE METHOD IN ASCERTAINING A RELIABLE ALP. THEREFOR E, AS FAR AS POSSIBLE, THE COMPARABLES MUST BE SELECTED KEEPING IN VIEW THE COMPARABILITY FACTORS AS SPECIFIED. WIDE DEVIATIONS IN PLI MUST TRIGGER FURTHER INVESTIGATIONS/ANALYSIS.' 3 7 . IT IS ALSO STATED THAT IN PAGE 10, PARAGRAPH 6.3 THE HON'BLE BENCH HAS RELIED ON MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. V. ACIT (2014) 147ITD 83 (MUMBAI - SB), WHEREIN IT WAS HELD THAT 'THE TRIBUNAL OBSERVED THAT THE NET PROFIT I NDICATORS SUCH AS 'OPERATING PROFIT TO OPERATING COST OR TOTAL COST OR TOTAL SALES ARE LESS AFFECTE D BY TRANSACTIONAL DIFFERENCES, AND THE SAME BEING MORE TOLERANT TO SOME FUNCTIONAL DIFFERENCES CONTROLLED AND UNCONTROLLED TRANSACTIONS, BROAD FUNCTIONALITY CAN BE TAKEN CONSIDERATION FOR SELECTING TO POTENTIAL COMPARATORS WHEN TNMM IS APPLIED.' 3 8 . IT IS STATED THAT RELYING MAERSK GLOBAL CENTRES (SUPRA) , THE HON'BLE BENCH HELD IN PARAGRAPH 6.3 THAT 'TNMM REQUEST ONLY BROAD FUNCTIONAL AND PRODUCT/SERVICES COMPARABILITY . TNMM IS LESS DEPENDENT ON PRODUCT COMPARABILITY AND FUNCTIONAL COMPARABILITY THAN THE TRADITIONAL TRANSACTION METHODS.' 3 9 . THE APPLICANT SUBMITS THAT THE HON'BLE BENCH IN ONE PARAGRAPH HAS REFERRED TO THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN RAMGR EEN(SUPRA), WHICH HAD HELD THAT THOUGH TNMM IS BROAD BASED, A HIGHER PRODUCT AND FUNCTIONAL SIMILARITY WOULD STRENGTHEN THE EFFICACY OF THE METHOD TO DETERMINE THE ARM'S LENGTH PRICE, WHILE SUBSEQUENTLY, THE HON'BLE BENCH RELIES ON THE DECISION OF HON'BLE MUMBAI BENCH IN THE CASE OF MAERSK (SUPRA), AND HELD THAT TNMM DOES NOT REQUIRE PRODUCT COMPARABILITY. THIS IS AN APPARENT INCONGRUITY WHICH LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 16 NECESSITATES THE ORDER TO BE RECTIFIED. IN FACT, THE HON'BLE DELHI HIGH COURT IN PARAGRAPH 34, PAGE 18, OF RAMGREEN (SUPRA) HAS SPECIFICALLY OVERRULED MAERSK (SUPRA) ON CERTAIN ASPECTS, AND HAS HELD THAT EVEN IN TNMM, ALL COMPANIES BROADLY INTO INFORMATION TECHNOLOGY ENABLED SERVICES CANNOT BE COMPARED AND ONE HAS TO LOOK AT THE SPECIFIC SERVICES BEING RENDERED BY EACH OF THEM. 40 . IT IS STATED THAT SINCE THERE ARE CONTRADICTORY OBSERVATIONS WITHIN THE SAME ORDER IT MAY BE RECTIFIED. MISTAKE THAT THE COUNSEL ARGUED ONLY E XCLUSION OF CYBERMATEINFOTEK LTD.: 4 1 . THE APPLICANT SUBMITS THAT IN PAGE 2, PARAGRAPH 2 OF THE SAID ORDER OF THE HON'BLE TRIBUNAL, IT HAS BEEN STATED THAT THE APPLICANT'S COUNSEL ARGUED ONLY AGAINST THE EXCLUSION OF CYBERMATEINFOTECK LTD. CONSEQUENTLY, THE BENCH HAS RESTRICTED TO ADJUDICATE ONLY ON THE SAID COMPANY. 4 2 . THE APPLICANT SUBMITS THAT THE MA TTER WAS POSTED FOR HEARING ON AUGUST 10, 2017. ON THE SAID DATE, THE MATTER WAS INITIALLY ADJOURNED TO AUGUST 17, 2017 DUE TO OTHER LENGTHY STAY GRANTED APPEALS, WHICH WERE TO TAKE TIME . HOWEVER, AT AROUND 12.00 NOON, AFTER OTHER MATTERS GOT HEARD, THE A PPLICANT'S MATTER WAS AGAIN CALLED OUT FOR HEARING. THE COUNSEL, IN REPLY TO THE INQUIRY OF THE HON'BLE MEMBERS, STATED THAT THAT MATTER MAY TAKE LONG IF ALL GROUNDS WERE ARGUED, BUT IF THE BENCH WAS CONVINCED ON EXCLUSION OF ONE COMPARABLE SELECTED BY THE TPO, THEN THE APPEAL WOULD BE IN FAVOUR OF THE A PPLICANT AND THE REMAINING GROUNDS WOULD BE ACADEMIC IN NATURE. THE HON'BLE BENCH PROCEEDED TO HEAR THE APPEAL AND THE MATTER WAS CONSIDERED AS HEARD ON AUGUST LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 17 10, 2017, AFTER HEARING ON THE COUNSEL ON ONE COM PARABLE ONLY. HOWEVER, THE COUNSEL SUBMITTED A BRIEF CHART WHICH INCLUDED ARGUMENTS FOR ALL COMPARABLE COMPANIES. 4 3 . THE APPLICANT WOULD LIKE TO RELY ON THE CHART SUBMITTED AT THE TIME OF HEARING, WHICH CONTAINED THE A PPLICANT'S CONTENTIONS ON ALL THE GRO UNDS OF APPEAL. AFFIDAVIT OF THE COUNSEL, IS HEREWITH ATTACHED, TO CONFIRM THE FACTS ENUMERATED IN ABOVE - MENTIONED PARAGRAPH 11. OTHER GROUNDS WERE NEVER MENTIONED AS 'NOT PRESSED'. IN FACT, TO SUPPORT THE CONTENTIONS THE BRIEF CHART WAS FILED FOR ALL THE GROUNDS. 4 4 . THE APPLICANT PRAYS THAT THE OBSERVATION IN PARAGRAPH 2 OF THE SAID ORDER OF THE TRIBUNAL BE RECTIFIED. 4 5 . THE APPLICANT FINALLY SUBMITS THAT THE HON'BLE BENCH HAS STATED ON PAGE 11 THAT THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON NOVEMBER 7, 2017. THE A PPLICANT WOULD LIKE TO BRING ON RECORD THAT ON NOVEMBER 7, 2017, BEING A TUESDAY, NO NOTICE WAS PUT UP TO INFORM ABOUT THE PRONOUNCEMENT OF O RDERS IN OPEN COURT. 4 6 . THUS T HE APPLICANT SUBMITS THAT A. RECTIFY THE MISTAKE APPARENT ON RECORD OF ORDER DATED NOVEMBER 7, 2017 AND GRANT THE RELIEF PRAYED FOR IN THE APPEAL BY PASSING APPROPRIATE ORDER. B. IN THE ALTERNATIVE, THE ORDER DATED NOVEMBER 7, 2017 MAY BE SET ASIDE/RECALLED AND THE A PPEAL MAY BE DECIDED AFRESH BY GIVING REASONABLE OPPORTUNITY. C. ANY OTHER RELIEF WHICH THE HON'BLE BENCH DEEMS FIT AND PROPER CONSIDERING THE FACTS OF THE APPLICANT . LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 18 3. AL ONG WITH THE MA , THE LD. COUNSEL OF THE ASSESSEE FILE S A COPY OF THE DECISION IN CIT V. PTC SOFTWARE (I) (P) LTD. (2016) 75 TAXMANN.COM 31 (BOM), RAMPGREEN SOLUTIONS (P) LTD. V. CIT (2015) 60 TAXMANN.COM 355 (DEL), LIONBRIDGE TECHNOLOGIES (P) LTD. V. ITO ( 2015) 64 TAXMANN.COM 461 (MUMBAI - TRIB). THESE DECISIONS WERE REFERRED TO AND RELIED UPON BY THE LD. COUNSEL DURING THE COURSE OF HEARING BEFORE THE TRIBUNAL ON 10.08.2017. 4. THE LD. COUNSEL ALSO RELIES ON THE DECISION IN SAFARI MERCANTILE (P) LTD. V. ITA T (2016) 73 TAXMANN.COM 287 (BOM), HINDUJA GLOBAL SOLUTIONS LTD . (2015) 59 TAXMANN.COM 456 (BOM) AND ACIT V. SAURASHTRA KUTCH STOCK EXCHANGE LTD. (2008) 173 TAXMAN 322 (SC). 5 . THE LD. COUNSEL OF THE ASSESSEE FILES AN AFFIDAVIT DATED 30.01.2018 CONTAINING THE FOLLOWING: 1. THAT THE COMPANY LIONBRIDGE TECHNOLOGIES PVT. LTD., HAD APPOINTED ME TO REPRESENT THEIR CASE BEFORE THE HONBLE INCOME - TAX APPELLATE TRIBUNAL. 2. THAT THE APPEAL BEARING NUMBER 1291/M/2017 WAS FIXED FOR HEARING BEFORE THE TRIBUNAL AT K BE NCH ON AUGUST 10 TH , 2017. 3. THAT I APPEARED FOR THE APPELLANT, M/S LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ON THE SAID DATE. 4. THAT THE TRIBUNAL INITIALLY ADJOURNED THE MATTER TO AUGUST 17, 2017 DUE TO OTHER LENGTHY STAY GRANTED APPEALS, WHICH WERE TO TAKE TIME. HOWEVER, AT AROUND 12.00 NOON, AFTER OTHER MATTERS GOT HEARD, THE APPLICANT'S MATTER WAS CALLED OUT FOR HEARING. THAT IN REPLY TO THE INQUIRY OF THE HON'BLE MEMBERS, I STATED THAT THAT MATTER MAY TAKE LONG IF ALL GROUNDS WERE ARGUED, BUT IF THE BENCH WAS CONVINCED ON EXCLUSION OF ONE COMPARABLE SELECTED BY THE TPO, THEN THE APPEAL WOULD BE IN FAVOUR OF THE APPLICANT AND THE REMAINING GROUNDS WOULD BE ACADEMIC IN NATURE. THE HON'BLE BENCH PROCEEDED TO HEAR THE APPEAL AND THE LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 19 MATTER WAS CONSIDERED AS HEARD ON AUGUST 10, 2017, AFTER HEARING ONLY ON ONE COMPARABLE ONLY. HOWEVER, I SUBMITTED A BRIEF CHART WHICH INCLUDED ARGUMENTS FOR ALL COMPARABLE COMPANIES FOR THE CONVENIENCE OF THE BENCH. 5. THAT THE APPEAL WAS DEPOSED OF VIDE ORDER DATED NOVEMBER 7, 2017. 6. THAT IN PARAGRAPH 2 OF THE SAID ORDER IT HAS BEEN STATED THAT DURING THE COURSE OF HEARING, I HAD SUBMITTED THAT I WOULD ARGUE ONLY AGAINST THE EXCLUSION OF ONE COMPANY BEING M/S, CYBERMALE INFOTEK LTD. THAT THE ABOVE OBSERVATION IS INCORRECT. I HAD SUBMITTED THE BRIEF CHART WHICH CONTAINED ARGUMENTS FOR ALL THE COMPARABLE COMPANIES. I SAY THAT WHATEVER IS STATED HEREINABOVE IS TRUE TO THE BEST OF MY KNOWLEDGE AND BELIEVE THE SAME TO BE TRUE. 6. ON THE OTHER HAND, THE LD. DR SUBMITS THAT THE SAID ORDER HAS BEEN PASSED BY THE TRIBUNAL ON THE BASIS OF HEARING ON 10.08.2017 AND THE MATE RIALS FILED. THUS HE SUPPORTS THE ABOVE ORDER. ANALYSIS & REASONS FOR THE DECISION 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE DISCUSS BELOW THE ABOVE DECISIONS RELIED ON BY THE LD. COUNSEL. 7 .1 IN PTC SOFTWARE (I) (P) LTD. (SUPRA), THE ASSESSEE WAS ENGAGED IN PROVIDING INFORMATION TECHNOLOGY (IT) SERVICES AND IT ENABLED SERVICES OF ITS HOLDING COMPANY. ASSESSEE DETERMINED THE ARMS LENGTH PRICE (ALP) ON ADOPTION OF TRANSACTION NET MARGIN METHOD (TNMM) AN D DETERMINED THE PROFIT LEVEL INDICATOR (PLI) IN RESPECT OF THE IT SERVICES SEGMENT AT 14.02% WHILE ARITHMETIC MEAN OF THE PLI OF COMPARABLE COMPANIES WAS 10.70%. SIMILARLY, IN RESPECT OF ITS IT E NABLED SERVICES ITS PLI WAS DETERMINED AT 14.23% WHILE THE A RITHMETIC MEAN OF THE PLI OF THE COMPARABLE CASES WAS 10.51%. AS THE PLI OF THE ASSESSEE WAS LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 20 HIGHER/FAVOURABLE THAN THAT OF THE COMPARABLES, NO TRANSFER PRICING ADJUSTMENT WAS CALLED FOR IN TERMS OF ITS TRANSFER PRICING STUDY. THUS THE CONSIDERATION RECEIV ED FROM ITS HOLDING COMPANY IN RESPECT OF IT SERVICES AND IN RESPECT OF IT E NABLE D S ERVICES WAS AT ALP. ACCORDING TO THE TPO, ON COMPARISON WITH APPROPRIATE COMPARABLES , THE ALP IN RESPECT OF ITS IT S ERVICES WAS DETERMINED AT RS.105 CRORES AND IN RESPECT OF IT E NABLED S ERVICES WAS DETERMINED AT RS.6.73 CRORES. THIS RESULTED IN THE TPO PASSING ORDER U/S 92CA(3) DETERMINING THE UPWARD ADJUSTMENT OF INTERNATIONAL TRANSACTION AT RS.10.38 CRORES. THE DRP DID NOT DISTURB THE PROPOSED ADJUSTMENT. THE TRIBUNAL SET A SIDE THE ORDER TO THE EXTENT IT RELATED TO INTERNATIONAL TRANSACTIONS AND RESTORED THE ISSUE TO THE AO TO DETERMINE THE TRANSFER PRICE ADJUSTMENT IN TERMS OF DIRECTIONS CONTAINING IN THE ORDER OF THE TRIBUNAL. ON R EVENUES APPEAL, THE HONBLE HIGH COURT HELD THAT (I) A COMPANY ENGAGED IN SALE OF SOFTWARE PRODUCTS WAS INCOMPARABLE TO THE ASSESSEE WHICH WAS ENGAGED IN PROVIDING IT SERVICES TO ITS HOLDING COMPANY, (II) DATA TO BE USED FOR COMPARABILITY ANALYSIS SHOULD BE OF SAME FINANCIAL YEAR IN WHICH INTER NATIONAL TRANSACTIONS WERE ENTERED INTO BY THE ASSESSEE - COMPANY, (III) COMPANY ENGAGED NOT ONLY IN IT E NABLED SERVICES BUT ALSO IN PROVIDING AGENCY SERVICES BY WAY OF OUTSOURCING ITS WORK TO THIRD PARTY VENDORS, WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE , (IV) SERVICES RENDERED BY KPO AND LPO ARE INHERENTLY DIFFERENT FROM NATURE OF SERVICES BEING RENDERED BY BPO, (V) WHEN INCOME EARNED FROM BPO OPERATIONS WAS 87% OF TOTAL REVENUE EARNED BY COMPARABLE, BPO OPERATION BY COMPARABLE BEING SIMILAR TO THAT REND ERED BY ASSESSEE, IT COULD NOT BE EXCLUDED FROM COMPARABLE LIST. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 21 7 .2 IN RAMPGREEN SOLUTIONS (P.) LTD . (SUPRA) , THE ASSESSEE WAS ENGAGED IN PROVIDING VOICE BASED CUSTOMER CARE SERVICES TO THE CLIENTS OF ITS AES. IT ALSO RENDERED CALL CENTRE SERVICES WHICH FELL WITHIN THE BROAD DESCRIPTION OF INFORMATION TECHNOLOGY ENABLED SERVICES. IN CONSIDERATION FOR THE SERVICES, THE AE REMUNERATED THE ASSESSEE BY PAYMENT OF ALL COSTS INCURRED BY THE ASSESSEE PLUS A MARK UP OF 15% OF THE COSTS. THE ASSESSEE CHOSE 8 COMPA RABLE ENTITIES AND ARITHMETIC AVERAGE OF THE OPERATING PROFIT MARGINS OF THE SAID COMPARABLES WAS COMPUTED AT 15.74%. ACCORDING TO THE ASSESSEE, ITS PLI WAS WITHIN THE ACCEPTABLE RANGE AS INDICATED UNDER THE SECOND PROVISO TO SECTION 92C AND NO ADJUSTMENT WAS REQUIRED. THE TPO IDENTIFIED A DIFFERENT SET OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINING THE ALP AND COMPUTED THE AVERAGE OPERATING PROFIT MARGIN OF THE COMPARABLE COMPANIES AT 28.96% ON THE BASIS OF THE AVERAGE OPERATING PROFIT MARGIN OF 11 COMPANIES SELECTED AND COMPUTED THE TP ADJUSTMENT. ON APPEAL, THE DRP CONFIRMED THE SAID ORDER. THE ASSESSEE APPEALED AGAINST THE FINAL ASSESSMENT ORDER ON THE GROUND THAT TWO COMPARABLES, NAMELY E - CLERX AND VISHAL COULD NOT BE CONSIDERED AS COMPARABLE EN TITIES AS THE SAID COMPANIES WERE ENGAGED IN THE BUSINESS OF KNOWLEDGE PROCESS OUTSOURCING (KPO) AND THUS COULD NOT BE INCLUDED AS COMPARABLES. THE TRIBUNAL REJECTED THE ASSESSEES CONTENTION AND HELD THAT BOTH E - CLERX AND VISHAL WERE ENGAGED IN PROVIDING ITES AND ONCE A SERVICE FELL WITHIN THAT CATEGORY, THEN NO SUB - CLASSIFICATION OF THE SEGMENT WAS PERMISSIBLE. THE TRIBUNAL ALSO HELD THAT KPO IS A TERM GIVEN TO THE B RANCH OF BPO S ERVICES WHERE APART FROM PROCESSING OF DATA, KNOWLEDGE IS ALSO APPLIED. THE ASSESSEES OBJECTION THAT THE SAID TWO COMPANIES HAD ABNORMALLY HIGH LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 22 PROFITS AND THUS OUGHT TO BE EXCLUDED AS COMPARABLES WAS ALSO REJECTED. ON ASSESSEES APPEAL, THE HONBLE HIGH COURT HELD THAT (I) THOUGH ENTITIES RENDERING VOICE CALL CENTER SERVICES A ND A KPO S ERVICE P ROVIDER EMPLOY IT - BASED DELIVERY SYSTEMS, BUT CHARACTERISTIC OF SERVICES, FUNCTIONAL ASPECTS, BUSINESS ENVIRONMENTS, RISKS AND QUALITY OF HUMAN RESOURCE EMPLOYED ARE MATERIALLY DIFFERENT; AND THUS BENCHMARKING INTERNATIONAL TRANSACTIONS ON BASIS OF COMPARISON OF PLI OF KPO SERVICE PROVIDERS WITH PLI OF VOICE CALL CENTRES WOULD BE UNRELIABLE AND POSSIBLY FLAWED, (II) A COMPANY ENGAGED IN DATA ANALYTIC, DATA PROCESSING SERVICES, PRICING ANALYTIC, SALES AND MARKETING SUPPORT AND PRODUCT DATA MANAGEMENT CANNOT BE COMPARED TO A COMPANY PROVIDING VOICE CALL CUSTOMER CARE SERVICES TO ITS AE, (III) A COMPANY OUTSOURCING MOST OF ITS WORK TO OTHER SERVICE PROVIDERS CANNOT BE COMPARED TO COMPANY WHERE SERVICES ARE RENDERED BY EMPLOYING OWN EMPLOYEES, (IV) WHERE SUPERNORMAL PROFITS INDICATE A FUNCTIONAL DISSIMILARITY OR DISSIMILARITY WITH RESPECT TO A FEATURE THAT HAS A MATERIAL BEARING ON PROFITABILITY, IT WOULD BE NECESSARY TO UNDERTAKE FURTHER ANALYSIS TO ELIMINATE POSSIBILITY OF HIGH PROFITS RESULT ING ON ACCOUNT OF ANY MATERIAL DISSIMILARITY BETWEEN THE TESTED PARTY AND CHOSEN COMPARABLE, (V) WHILE USING TNMM, SEARCH FOR COMPARABLES MAY BE BROADEN ED BY INCLUDING COMPARABLES OFFERING SERVICES/PRODUCTS WHICH ARE NOT ENTIRELY SIMILAR TO CONTROLLED TRAN SACTION/ENTITY IF FUNCTIONS PERFORMED BY TESTED PART Y AND SELECTED COMPARABLE ENTITY ARE SIMILAR INCLUDING ASSETS USED AND RISKS ASSUME D AND DIFFERENCE IN SERVICES/PRODUCTS OFFERED HAS NO MATERIAL BEARING ON PROFITABILITY. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 23 7 .3 IN LIONBRIDGE TECHNOLOGIES ( P.) LTD . (SUPRA), THE ASSESSEE - COMPANY WAS ENGAGED IN BUSINESS OF PROVIDING CONTRACT SOFTWARE DEVELOPMENT SERVICES TO ITS AES. THE ASSESSMENT YEARS WERE 2009 - 10 AND 2010 - 11. THE TRIBUNAL HELD (I) WHERE RELATED PARTY TRANSACTION OF A COMPANY WAS MORE THAN 2 5%, SAID COMPANY WOULD BE EXCLUDED FROM FINAL SET OF COMPANIES COMPARABLE TO ASSESSEE, (II) A SOFTWARE PRODUCT MANUFACTURER COULD NOT BE COMPARABLE, (III) A COMPANY ENGAGED IN BUSINESS OF PROVIDING GEOSPATIAL INFORMATION SYSTEM SERVICES NEEDED TO BE EXCLUD ED FROM SET OF COMPARABLES, (IV) A GLOBAL COMPANY THAT WAS SPECIALIZING IN SOFTWARE PRODUCT AND TECHNOLOGY INNOVATION AND UTILIZING ITS PRODUCT ENGINEERING PROCESSES TO DEVELOP SOLUTIONS FOR ITS CUSTOMERS WHO WERE PLAYERS IN TECHNOLOGY, TELECOMMUNICATION, LIFE SCIENCE, HEALTHCARE, BANKING AND CONSUMER PRODUCTS SECTORS AND OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES AND WAS DERIVING ITS REVENUES PRIMARILY COME SALE OF SOFTWARE SERVICES AND SOFTWARE PRODUCTS, IT COULD NOT BE COMPARABLE, (V) A COMPANY THA T PROVIDED END TO END BUSINESS SOLUTIONS THAT LEVERAGE CUTTING - EDGE TECHNOLOGY, THEREBY ENABLING CLIENTS TO ENHANCE BUSINESS PERFORMANCE AS ALSO PROVIDED SOLUTIONS THAT SPAN ENTIRE SOFTWARE LIFE CYCLE ENCOMPASSING TECHNICAL CONSULTING, DESIGN, DEVELOPMENT, RE - ENGINEERING, MAINTENANCE, SYSTEMS INTEGRATION, PACKAGE E VALUATION AND IMPLEMENTATION , TESTING AND INFRASTRUCTURE MANAGEMENT SERVICES; AND ADDITIONALLY, IT ALSO OFFERED SOFTWARE PRODUCTS FOR BANKING INDUSTRY AND IT HAD A STRENGTH OF ABOUT ONE LAKH EMPLO YEES AS AGAINST APPROXIMATELY 4,600 EMPLOYEES OF ASSESSEE, IT WAS NOT FUNCTIONALLY COMPARABLE, (VI) WHERE A COMPANY WAS ENGAGED INTO DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND SEGMENTAL INFORMATION REGARDING ITS SOFTWARE LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 24 DEVELOPMENT SEGMENT WAS NOT AVAILABLE, THIS COMPANY WAS INCOMPARABLE WITH THE ASSESSEE. 8 . THE LD. COUNSEL FILES A COPY OF THE DECISION IN SAFARI MERCANTILE (P) LTD. V. ITAT (2016) 73 TAXMANN.COM 287 (BOM), HINDUJA GLOBAL SOLUTIONS LTD. (2015) 59 TAXMANN.COM 456 (BOM) AND ACIT V. SA URA SHTRA KUTCH STOCK EXCHANGE LTD. (2008) 173 TAXMAN 322 (SC). 8.1 IN SAFARI MERCANTILE (P) LTD . (SUPRA) , THE AO PASSED AN ORDER U/S 140A(3) HOLDING ASSESSEE AS AN ASSESSEE - IN - DEFAULT FOR FAILURE TO PARTIALLY PAY THE SELF - ASSESSMENT TAX ALONG WITH INTEREST. HE PASSED AN ORDER IMPOSING A PENALTY U/S 221. ON APPEAL, THE SAID PENALTY WAS SET ASIDE BY THE CIT(A) ON THE GROUND THAT THE AO HAD NOT ISSUED A PROPER DEMAND NOTICE U/S 156 BEFORE TAKING ACTION TO IMPOSE PENALTY U/S 221. ON FURTHER APPEAL, THE TRIBUNAL ALLOWED THE R EVENUES APPEAL ON THE GROUND THAT THE TAX WHICH WAS NOT PAID WAS UNDISPUTED AND NO REASONA BLE CAUSE FOR NOT PAYING THE TAX WAS MADE OUT. THE ASSESSEE FILED A MISCELLANEOUS APPLICATION U/S 254(2) BEFORE THE TRIBUNAL FOR RECTIFICATION OF THE TRIBUNALS ORDER ON THE GROUND THAT THERE WAS ERROR APPARENT ON RECORD AS THE ASSESSEES CONTENTION REGARD ING NON - SERVICE OF THE DEMAND NOTICE U/S 156 BEFORE TAKING ACTION U/S 221, THOUGH RAISED BEFORE THE TRIBUNAL HAD NOT BEEN CONSIDERED. THIS APPLICATION WAS DISMISSED BY THE TRIBUNAL. FOR THE REASON THAT NO SUBMISSION WITH REGARD TO NON - SERVICE OF A DEMAND N OTICE BEFORE IMPOSING A PENALTY U/S 221 UPON THE ASSESSEE WAS MADE DURING THE HEARING OF THE APPEAL. THE ASSESSEE FILED A WRIT PETITION CHALLENGING THE ORDER OF THE TRIBUNAL IN THE HIGH COURT WHICH ALLOWED THE PETITION HOLDING THAT THE FINDING RECORDED BY THE TRIBUNAL THAT THE PLEA REGARDING NON - SERVICE OF THE DEMAND NOTICE WAS NOT RAISED BEFORE THE TRIBUNAL, COULD NOT SUSTAIN. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 25 ACCORDINGLY, THE WRIT PETITION WAS ALLOWED. THE IMPUGNED ORDER PASSED BY THE TRIBUNAL IN RECTIFICATION APPLICATION WAS SET ASIDE AN D THE TRIBUNAL WAS DIRECTED TO DISPOSE OF THE APPLICATION ON MERITS. THE TRIBUNAL AS PER THE ORDER OF THE HIGH COURT HEARD THE RECTIFICATION APPLICATION FILED BY THE PETITIONER AND DISMISSED IT ON CONSIDERATION OF THE STATUTORY PROVISIONS IN THE CONTEXT OF JUDGMENTS. ON WRIT, T HE HONBLE HIGH COURT HELD (I) NO APPEAL IS ENTERTAINED BY THE HIGH COURT FROM AN ORDER PASSED BY THE TRIBUNAL DISMISSING APPLICATION FOR RECTIFICATION U/S 254(2) AND (II) REJECTION ON MERITS OF CONTENTIONS OF PARTIES BY TRIBUNAL ON A SUBSTANTIAL QUESTION OF LAW IS SUBJECT TO STATUTORY RIGHT OF APPEAL U/S 260A WHICH CANNOT BE BYPASSED BY DEALING WITH MERITS IN AN APPLICATION FOR RECTIFICATION. 8.2 IN HINDUJA GLOBAL SOLUTIONS LTD . (SUPRA), THE ISSUE BEFORE THE TRIBUNAL WAS REGARDING DI SALLOWANCE MADE ON ACCOUNT OF CLAIM FOR DEDUCTION U/S 10A. THIS VERY ISSUE WAS COVERED IN FAVOUR OF THE PETITIONER - ASSESSEE BY THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005 - 06 IN THE ASSESSEES OWN CASE. THE D EPARTMENT BEFORE THE TRIBUNAL ALSO ACCEPTED THE POSITION. IN SPITE OF THE AGREED POSITION BETWEEN THE PARTIES, THE TRIBUNAL BY THE IMPUGNED ORDER YET REMANDED THIS VERY ISSUE TO THE AO FOR FRESH EXAMINATION/DETERMINATION. ON WRIT, THE PETITIONER - ASSESSEE HAD INFORMED THAT THE APPEAL FOR THE SUBSEQUENT YEAR WAS SCHEDULED TO COME UP BEFORE THE TRIBUNAL AND FOR ASSESSMENT YEAR 2010 - 11, THE DATE HAS YET TO BE FIXED BY THE TRIBUNAL. THE PETITIONER - ASSESSEE SERIOUSLY APPREHENDED, AND VIEWS NOT UNJUSTIFIABLY THAT THE TRIBUNAL, WHILE DEALING WITH TH E ASSESSEES APPEAL FOR THE SUBSEQUENT YEARS MAY ALSO RESTORE THE ISSUE TO THE AO FOR DE NOVO EXAMINATION DISREGARDING THE EARLIER ORDER. ALL THIS WOULD HAPPEN WITHOUT THE TRIBUNAL AT ANY LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 26 POINT OF TIME CONSIDERING FOR WHAT REASON IS ITS OWN ORDER FOR THE A Y 2005 - 06 IN RESPECT OF THE PETITIONER ON IDENTICAL FACTS, DID NOT CORRECTLY TO DECIDE THE DISPUTE. THE HONBLE HIGH COURT HELD (I) TO CORRECT THE APPROACH THE TRIBUNAL THAT THE COURT IS CONSTRAINED TO EXERCISE ITS EXTRAORDINARY JURISDICTION AND SET ASIDE THE IMPUGNED ORDER OF THE TRIBUNAL AND RESTORE IT TO THE TRIBUNAL FOR FRESH CONSIDERATION AND DISPOSAL ON MERITS, AFTER ADDRESSING ITSELF TO ITS EARLIER ORDER PASSED FOR THE ASSESSMENT YEAR 2005 - 06 IN RESPECT OF THE PETITIONERS ON MERITS. AS FAR AS THE OTH ER ISSUES DECIDED BY THE IMPUGNED ORDER, ON MERITS, ARE CONCERNED, IT IS OPEN TO THE PARTIES TO ADOPT SUCH REMEDIES AS ARE AVAILABLE TO THEM IN LAW, (II) THE IMPUGNED ORDER IS SET ASIDE TO THE EXTENT IT HAS RESTORED THE ISSUE OF THE PETITIONERS CLAIM OF D EDUCTION U/S 10A TO THE ASSESSING OFFICER. THE ABOVE ISSUE IS RESTORED TO THE TRIBUNAL FOR FRESH DISPOSAL, IN LIGHT OF ABOVE. 8.3 IN SAURASHTRA KUTCH STOCK EXCHANGE LTD (SUPRA), THE ASSESSEE, A STOCK EXCHANGE, MADE AN APPLICATION FOR REGISTRATION U/S 12A OF THE ACT. PENDING THE APPLICATION, IT FILED N IL RETURN CLAIMING EXEMPTION U/S 11. THE RETURN WAS PROCESSED U/S 143(1)(A). SUBSEQUENTLY, A NOTICE WAS ISSUED TO THE ASSESSEE U/S 154 TO SHOW CAUSE WHY EXEMPTION GRANTED U/S 11 SHOULD NOT BE WITHDRAWN. MEANWH ILE, THE COMMISSIONER GRANTED REGISTRATION TO THE ASSESSEE. THE AO, HOWEVER, REJECTED THE CLAIM OF EXEMPTION U/S 11. ON APPEAL, THE COMMISSIONER (APPEALS) UPHELD THE ORDER OF THE AO. THE TRIBUNAL ALSO UPHELD THE ORDER OF THE COMMISSIONER (APPEALS). THE ASS ESSEE FILED AN APPLICATION U/S 254(2) STATING THAT DECISION OF THE JURISDICTIONAL HIGH COURT IN HIRA LAL BHAGWATI V. CIT (2000) 246 ITR 188 (GUJ) HAD NOT BEEN BROUGHT TO NOTICE OF THE TRIBUNAL AND, THUS, THERE WAS A MISTAKE APPARENT FROM RECORD WHICH REQ UIRED RECTIFICATION. THE TRIBUNAL ALLOWED THE LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 27 APPLICATION AND, ACCORDINGLY, RECALLED ITS ORDER. ON WRIT, THE HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL RECALLING ITS EARLIER ORDER. ON APPEAL BY THE R EVENUE, THE HONBLE SUPREME COURT HELD AT PARA 47 THE FOLLOWING : IN THE PRESENT CASE, ACCORDING TO THE ASSESSEE, THE TRIBUNAL DECIDED THE MATTER ON OCTOBER 27, 2000. HIRALAL BHAGWATI WAS DECIDED FEW MONTHS PRIOR TO THE DECISION, BUT IT WAS NOT BROUGHT TO THE ATTENTION OF THE TRIBUNAL. IN OUR OPINION, IN THE CIRCUMSTANCES, THE TRIBUNAL HAS NOT COMMITTED ANY ERROR OF LAW OR OF JURISDICTIONAL IN EXERCISING POWER UNDER SUB - SECTION (2) OF SECTION 254 OF THE ACT AND RECTIFYING MISTAKE APPARENT FROM THE RECORD. SINCE NO ERROR WAS COMMITTED BY THE TRIBUNAL I N RECTIFYING THE MISTAKE, THE HIGH COURT WAS NOT WRONG IN CONFIRMING THE SAID ORDER. BOTH THE ORDERS, THEREFORE, IN OUR OPINION, ARE STRICTLY IN CONSONANCE WITH LAW AND NO INTERFERENCE IN CALLED FOR. 9. NOW WE WOULD EXAMINE THE SUBMISSIONS MADE IN THE MA . IT IS STATED THAT THE BENCH HAS NOT FOLLOWED THE DECISION IN PTC SOFTWARE (I) (P) LTD. (SUPRA), RAMPGREEN SOLUTIONS (P.) LTD . (SUPRA), LIONBRIDGE TECHNOLOGIES (P.) LTD . (SUPRA). 9.1 AT PARA 6. 1. 1 OF THE O RDER, IT HAS BEEN MENTIONED THAT IN PTC SOFTWARE (I) (P.) LTD. (SUPRA) IT HAS BEEN HELD THAT (I) DATA TO BE USED FOR COMPARABILITY ANALYSIS SHOULD BE THE SAME FINANCIAL YEAR IN WHICH INTERNATIONAL TRANSACTIONS WERE ENTERED INTO BY THE TESTED PARTY AND (II) SERVICES RENDERED BY KPO AND LPO ARE INHERENTLY DIFFERENT FRO M NATURE OF SERVICES BEING RENDERED BY BPO. ALSO IT IS CLEARLY STATED IN THE O RDER THAT THE DATA FOR THE SAME FINANCIAL YEAR 2011 - 12 HAS BEEN USED FOR COMPARABILITY ANALYSIS. ALSO THE SERVICES/PRODUCTS AND FUNCTIONS RENDERED BY THE APPELLANT AND CIL FALL BROADLY IN SIMILAR DOMAIN. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 28 9.2 AT PARA 6.1.3 OF THE ORDER , IT HAS BEEN MENTIONED THAT IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (2015) 377 ITR 0533 (DEL.), THE HONBLE DELHI HIGH COURT HAS HELD THAT COMPARABILITY ANALYSIS BY TNMM METHOD MAY BE LESS SENSI TIVE TO CERTAIN DISSIMILARITIES BETWEEN THE TESTED PARTY AND THE COMPARABLES. HOWEVER, THAT CANNOT BE THE CONSIDERATION FOR DILUTING THE STANDARDS OF SELECTING COMPARABLE TRANSACTIONS/ENTITIES. A HIGHER PRODUCT AND FUNCTIONAL SIMILARITY WOULD STRENGTHEN TH E EFFICACY OF THE METHOD IN ASCERTAINING A RELIABLE ALP. THEREFORE, AS FAR AS POSSIBLE, THE COMPARABLES MUST BE SELECTED KEEPING IN VIEW THE COMPARABILITY FACTORS AS SPECIFIED. WIDE DEVIATIONS IN PLI MUST TRIGGER FURTHER INVESTIGATIONS/ANALYSIS. ALSO IT HAS BEEN CLEARLY MENTIONED BELOW PARA 6.1.3 OF THE ORDER THAT THE SERVICES/PRODUCT AND FUNCTIONS RENDERED BY THE APPELLANT AND CIL FALL BROADLY IN SIMILAR DOMAIN. 9.3 FURTHER, IT IS MENTIONED AT PARA 6.1.2 OF THE O RDER THAT IN LIONBRIDGE TECHNOLOGIES (P. ) LTD. (SUPRA), CIL WAS NOT A COMPARABLE DURING THE RELEVANT ASSESSMENT YEAR 2009 - 10 AND 2010 - 11. DURING THE COURSE OF HEARING, THE LD. COUNSEL RELIED ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2009 - 10 AND AY 2010 - 11. WE FIND THAT CIL WAS NOT A COMPARABLE DURING THE ABOVE ASSESSMENT YEARS. THEREFORE, IT WOULD NOT BE ADVISABLE TO DRA W CONCLUSION FROM AY 2009 - 10 AND AY 2010 - 11 FOR AY 2012 - 13. IN THE INCOME TAX ACT, EACH YEAR IS A SELF - CONTAINED SEPARATE PERIOD. IN CIT V. SANJEEV WOOLLEN MILLS (2003) 264 ITR 68, 75 (BOM), KOTAK MAHINDRA FINANCE LTD. V. DCI T (2004) 265 ITR 114, 119 IT H AS LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 29 BEEN HELD THAT UNDER THE INCOME - TAX LAW, EACH YEAR CONSTITUTES A SEPARATE UNIT. IN M.M. IPOH V. C IT, (1968) 67 ITR 106, 118 (SC) , IT HAS BEEN HELD THAT THE ASSESSMENT AND THE FACTS FOUND ARE CONCLUSIVE ONLY IN THE YEAR OF ASSESSMENT: THE FINDINGS ON QUESTIONS OF FACT MAY BE GOOD AND COGENT EVIDENCE IN SUBSEQUENT YEARS, WHEN THE SAME QUESTION FALLS TO BE DETERMINED IN ANOTHER YEAR, B UT THEY ARE NOT BINDING AND CONCLUSIVE. ADMITTEDLY, IN LIONBRIDGE TECHNOLOGIES (P.) LTD. (SUPRA), CIL WAS NOT A COMPARABLE DURING THE RELEVANT ASSESSMENT YEAR 2009 - 10 AND 2010 - 11. THEREFORE, THE INSTANT CASE IS DISTINGUISHABLE FROM THE ABOVE ORDER OF THE TRIBUNAL RELIED ON BY THE LD. COUNSEL. THUS, THERE IS NO MISTAKE ON OUR PART IN RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN PADMASUNDRA RAO V. STATE OF T.N . 255 ITR 147 (SC) WHEREIN IT HAS BEEN HELD THAT CIRCUMSTANTIAL FLEXIBILITY, E.G. ONE A DDITIONAL OR DIFFERENT FACT, MAY MAKE A WORLD OF DIFFERENCE BETWEEN CONCLUSIONS IN TWO CASES. 10. THERE IS NO DISPUTE ON THE RATIO LAID DOWN IN SAFARI MERCANTILE (P) LTD . (SUPRA) . 10. 1 IN HINDUJA GLOBAL SOLUTIONS LTD . (SUPRA), IT HAS BEEN HELD THAT WHERE IN EARLIER APPEAL AND ISSUE IS DECIDED BY TRIBUNAL IN FAVOUR OF THE ASSESSEE AND IN SUBSEQUENT APPEAL, SAME ISSUE IN ASSESSEES OWN CASE IS REMANDED TO THE AO FOR FRESH DETERMINATION, SUCH ORDER OF TRIBUNAL IS TO BE SET ASIDE. AS DELINEATED HEREINBEFORE , IN LIONBRIDGE TECHNOLOGIES (P.) LTD. (SUPRA), CIL WAS NOT A COMPARABLE DURING THE RELEVANT ASSESSMENT YEAR LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 30 2009 - 10 AND 2010 - 11. THEREFORE, THE INSTANT CASE IS DISTINGUISHABLE FROM THE ABOVE DECISION RELIED ON BY THE LD. COUNSEL. 10. 2 IN SAURASHTRA KUTCH S TOCK EXCHANGE LTD . (SUPRA), IT HAS BEEN HELD THAT NON - CONSIDERATION OF A DECISION OF JURISDICTIONAL HIGH COURT OR OF SUPREME COURT CAN BE SAID TO BE A MISTAKE APPARENT FROM RECORD WHICH CAN BE RECTIFIED U/S 254(2). IN THE INSTANT CASE, WE HAVE DISCUSSED THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN PTC SOFTWARE (I) (P.) L TD. (SUPRA) AT PARA 6.1.1 OF THE O RDER AND FOUND THAT THE DATA FOR THE SAME FINANCIAL YEAR 2011 - 12 HAS BEEN USED FOR COMPARABILITY ANALYSIS. WE HAVE MENTIONED THEREIN THAT IN PRESENT CASE THE SERVICES/PRODUCTS AND FUNCTIONS RENDERED BY THE APPELLANT AND CIL FALL BROADLY IN SIMILAR DOMAIN. THUS THERE IS NO QUESTION OF NON - CONSIDERATION OF A DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. 11. NOW WE PROCEED TO ADDRESS THE OTHER SUBMISSIONS MADE IN THE MA THAT THERE IS MISTAKE IN THE ORDER IN NOT ADJUDICATING ON ALL ARGUMENTS PUT FORTH BY THE APPLICANT, DECIDING ON ARGUMENTS NOT PUT FORTH AT THE TIME OF HEARING, MISTAKE IN NOT PASSING THE SPEAKING ORDE R AND PASSING CONTRADICTORY STATEMENTS IN THE SAME ORDER AND MISTAKE THAT THE LD. COUNSEL ARGUED ONLY EXCLUSION OF CIL. DURING THE COURSE OF HEARING ON 10.08.2017 , THE LD. COUNSEL SUBMITTED THAT HE WOULD ARGUE ONLY AGAINST THE INCLUSION OF CIL BY THE ASSE SSING OFFICER (AO). BECAUSE OF THE ABOVE SUBMISSION BY THE LD. COUNSEL, WE RESTRICTED OUR DISCUSSION TO THE CASE OF CIL ONLY. THE SUBMISSION MADE BY THE LD. COUNSEL HAS BEEN SUMMARIZED BY US AT PARA 4, 4.1, 4.2, 4.3 AND 4.4 OF THE ORDER . THE SUBMISSION OF THE LD. DR LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 31 HAS BEEN SUMMARIZED AT PARA 5 OF THE O RDER. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD, WE HAVE NOTED THE FACTS ABOUT THE NATURE OF BUSINESS AS BORNE OUT OF THE PAPER BOOK (P/B) FILED BY THE APPELLANT. AT PAG E 24 OF THE P/B , WE FIND THAT LB INDIA (THE ASSESSEE) PROVIDES LOW - END ROUTINE, SOFTWARE DEVELOPMENT AND LOCALISATION SERVICES TO LB GROUP. LB GROUP COMPANIES UNDERTAKE THE PROJECT WITH OVERSEAS CUSTOMERS AND PART OF THE PROJECT (SOFTWARE DEVELOPMENT/LOCAL ISATION) ARE OUTSOURCED BY LB GROUP TO LB INDIA. THIS HAS BEEN STATED AT PARA 1.2.1 OF THE TRANSFER PRICING STUDY REPORT FILED BY THE APPELLANT . AT PAGE 211 OF THE P/B FILED BY THE APPELLANT , WE FIND THAT CIL IS ENGAGED IN THE BUSINESS OF PROVIDING C UST OM B UILT S OFTWARE DEVELOPMENT, PRODUCT DEVELOPMENT AND IT SERVICES TO CUSTOMERS IN DOMESTIC AND OVERSEAS LOCATIONS. THEN WE HAVE REFERRED TO REVENUE RECOGNITION FOLLOWED BY THE APPELLANT AND CIL AT PARA 6.2 TO UNDERSTAND CLOSELY THE NATURE OF BUSINESS. IT MEANS WHEN THE REVENUE SHOULD BE RECOGNISED IN THE PROFIT AND LOSS ACCOUNT AND ALSO STATES THE CIRCUMSTANCES IN WHICH REVENUE RECOGNITION CAN BE POSTPONED. GENERALLY SPEAKING, R EVENUE MEANS GROSS INFLOW OF CASH, RECEIVABLE AND OTHER CONSIDERATIONS ARIS ING IN THE COURSE OF ORDINARY ACTIVITIES OF AN ENTERPRISE SUCH AS (I) THE SALE OF GOODS, (II) RENDERING THE SERVICES, (III) USE OF THE ENTERPRISE RESOURCES BY OTHERS YIELDING INTEREST, DIVIDEND AND ROYALTIES. WE HAVE ALSO NOTED AT PARA 6.2 OF THE O RDER TH E REVENUE RECOGNITION WHICH IS A PART OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE ASSESSEE AND CIL. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 32 REVENUE RECOGNITION OF THE APPELLANT HAS BEEN MENTIONED IN NOTE - 15 (P.10 OF THE P/B) , WHICH READS AS UNDER: THE COMPANY DERIVES ITS REVENUES PRIMARILY FROM RENDERING SOFTWARE DEVELOPMENT, LOCALISATION AND OTHER RELATED SERVICES. INCOME FROM SERVICES IS RECOGNISED BASED ON THE CONTRACTUAL ARRANGEMENT WITH THE CUSTOMER IN THE PERIOD IN WHICH SUCH SERVICES ARE RENDERED. THE R EVENUE RECO GNITION OF CIL READS AS UNDER: REVENUE FROM THE SOFTWARE DEVELOPMENT ON TIME AND MATERIAL CONTRACTS IS RECOGNISED BASED ON THE SOFTWARE DEVELOPED AND BILLED IN ACCORDANCE WITH THE TERMS AND SPECIFIC CONTRACTS. REVENUE FROM A FIXED PRICE CONTRACT IS RECOG NIZED ON THE BASIS OF MILESTONES ACHIEVED IN THE PERFORMANCE OF THE CONTRACTS ON A PERCENTAGE COMPLETION BASIS. (P.234 OF THE P/B) . IN VIEW OF THE NATURE OF BUSINESS CONDUCTED BY THE APPELLANT (P.24 OF THE P/B) AND CIL (P.211 OF THE P/B) READ ALONG WITH REVENUE RECOGNITION WHICH IS A PART OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE APPELLANT (P.10 OF THE P/B) AND CIL (P. 234 OF THE P/B) , WE CAME TO A FINDING THAT THE SERVICES/PRODUCTS AND FUNCTIONS RENDERED BY THE APPELLANT AND CIL FALL BROADLY IN SIMILAR DOMAIN. WE REFER HERE TO PARA 6.2.1, 62.2 AND 6.2.3 OF THE ORDER. WE HAVE ALSO RELIED AT PARA 6.3 OF THE ORDER , ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. V. ACIT (2014) 147 ITD 83 (ITAT MUMBAI - SB), WHEREIN IT IS OBSERVED THAT THE NET PROFIT INDICATORS SUCH AS OPERATING PROFIT TO OPERATING COST OR TOTAL COST OR TOTAL SALES ARE LESS AFFECTED BY TRANSACTIONAL DIFFERENCES, AND THE SAME BEING MORE TOLERANT TO SOME FU NCTIONAL DIFFERENCES BETWEEN CONTROLLED AND UNCONTROLLED LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 33 TRANSACTIONS, BROAD FUNCTIONALITY CAN BE TAKEN INTO CONSIDERATION FOR SELECTING TO POTENTIAL COMPARABLES WHEN TNMM IS APPLIED. THUS TNMM REQUEST ONLY BROAD FUNCTIONAL AND PRODUCT/SERVICES COMPARABI LITY. TNMM IS LESS DEPENDENT ON PRODUCT COMPARABILITY AND FUNCTIONAL COMPARABILITY THAN THE TRADITIONAL TRANSACTION METHODS. UNLIKE RESALE PRICE METHOD (RPM) AND COMPARABLE UNCONTROLLED PRICE (CUP), TNMM INVOLVES COMPARISON OF MARGINS AT NET PROFIT LEVEL , NOT AT GROSS PROFIT LEVEL. TNMM IS A TRANSACTIONAL PROFIT METHOD; NOT A TRADITIONAL TRANSACTIONAL METHOD LIKE CUP OR RPM. 12. WHAT IS RECTIFIABLE U/S 254(2) IS A MISTAKE WHICH IS APPARENT FROM RECORD. IN THE INSTANT CASE, THERE IS NO MISTAKE APPARENT FRO M RECORD. 12.1 A MISTAKE APPARENT ON THE RECORD MUST BE AN OBVIOUS MISTAKE AND NOT SOMETHING WHICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE MAY BE CONCEIVABLY TWO OPINIONS. A DECISION ON A DEBATABLE POINT OF LAW IS NOT A MISTAKE APPARENT FROM THE RECORD. THIS VIEW IS SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN T.S. BALARAM, ITO V. VOLKART BROS ., (1971) 82 ITR 50 (SC), MASTER CONSTRUCTION CO. P. LTD. V. STATE OF ORISSA , AIR 1966 SC 1047, KARAM CHAND THAP AR & BROS. (COAL SALES) LTD. V. STATE OF U.P. (1976) TAX LR 1921, 1927 (SC) AND CCE V. ASCU LTD ., (2003) 9 SCC 230, 232 . TO SUM UP, THE NATURE OF BUSINESS OF THE APPELLANT (P.24 OF P/B) AND CIL (P.211 OF P/B) COUPLED THE REVENUE RECOGNITION (P.10 OF P/ B) AND CIL (P.234 OF P/B) LED US TO A FINDING THAT THE SERVICES/PRODUCTS AND FUNCTIONS RENDERED BY THE APPELLANT AND CIL FALL BROADLY IN SIMILAR LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 34 DOMAIN. IN VIEW OF THE ABOVE FACTS, WE HAVE UPHELD THE ORDER OF THE AO IN INCLUDING CIL AS A COMPARABLE. W E FOU ND THAT CIL INCLUDED BY THE APPELLANT AS A COMPARABLE INITIALLY STILL REMAINED TO BE A VALID COMPARABLE LATER ON INCLUDED BY THE TPO/AO AS THE SERVICES/PRODUCTS AND FUNCTIONS RENDERED BY THE APPELLANT AND CIL FALL BROADLY IN SIMILAR DOMAIN. AS THERE IS NO MISTAKE APPARENT FROM RECORD, THE MA FILED AGAINST THE INCLUSION OF CIL IS DISMISSED. 13. WE FIND THERE IS NO IRREGULARITY IN PRONOUNCING THE ORDER ON 07.11.2017 AS MENTIONED AT PARA 47 OF THE MA. 14. WE ARE CONCERNED WITH THE SUBMISSION OF THE APPLICANT AT PARA 11 OF THE MA THAT IF THE BENCH WAS CONVINCED ON EXCLUSION OF ONE COMPARABLE (NAMELY, CYBERMATE INFOTEK LTD.) SELECTED BY THE TPO, THEN THE APPEAL WOULD BE IN FAVOUR OF THE APPLICANT AND THE REMAINING GROUNDS WOULD BE ACADEMIC IN NATURE. TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE CASE, WE RECALL OUR ORDER DATED 07.11.2017 FOR THE LIMITED PURPOSE OF ADJUDICATING THE OTHER COMPARABLES ADOPTED BY THE TPO/AO AND THE DRP AND THE OTHER GROUNDS OF APPEAL FILED BY THE APPELLANT AND ACCORDINGLY, T HE REGISTRY IS DIRECTED TO FIX THE CASE TO BE HEARD BY A R EGULAR BENCH. 15. IN THE RESULT, THE PRESENT MA IS PARTLY ALLOWED TO THE EXTENT INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 15/06/2018 SD/ - SD/ - ( MAHAVIR SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 15/06/2018 RAHUL SHARMA, SR. P.S. LIONBRIDGE TECHNOLOGIES MA NO. 75/MUM/2018 35 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI