SCM MICROSYSTEMS (INDIA) PRIVATE LIMITED,CHENNAI V. DCIT CORPORATE CIRCLE 6(1), CHENNAI

ITTPA 25/CHNY/2018

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The case involves M/s. SCM Microsystems (India) Private Limited, a wholly owned subsidiary of M/s. SCM Microsystem Group UK Ltd, which appealed against the order of the CIT(A)-15 Chennai. The primary contention was regarding the treatment of severance pay as an operating expense and the selection of comparable companies for transfer pricing analysis. The Tribunal examined whether severance pay should be classified as an operating or non-operating expense and whether certain companies could be considered comparable to the assessee for the purpose of determining the arm's length price of international transactions. The Tribunal's decision favored the assessee on both counts, leading to a recalibration of the arm's length price.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714744 (ITAT-CHENNAI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2005-2006
• Other Referred Cases: Igarashi Motors India Ltd vs ACIT, Federal Mogul Automotive Products India Pvt. Ltd. vs. DCIT, Chemtex Global Engineers P. Ltd vs DCIT, Tanla Solutions Limited, Datamatics Global Services Ltd, Panoramic Universal Ltd, Persistent Systems Limited
• Laws Referred To: Income-tax Act, 1961, Income-tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A.SASIKUMAR LD.
• Assessee Lawyers: S.P. CHIDAMBARAM LD
• Keywords: Transfer pricing; International transaction; Depreciation; Wholly owned subsidiary
• Section: 10B

Judgement Text

" आयकर अपीलीय अिधकरण “डी ” Ɋायपीठ चेɄई मŐ। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, CHENNAI माननीय ŵी मनोज क ुमार अŤवाल ,लेखा सद˟ एवं माननीय ŵी मनु क ुमार िगįर, Ɋाियक सद˟ क े समƗ। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM आयकर अपील सं./ IT(TP)A No.25/Chny/2018 (िनधाŊरणवषŊ / Assessment Year: 2005-06) M/s. SCM Microsystems (India) Private Limited, 5th floor, Block A, Tecci Park, 173, Rajiv Gandhi Salai (OMR), Sholinganallur, Chennai-600 119. बनाम / Vs. DCIT Corporate Circle-6(1) Chennai. ˕ायीलेखासं./जीआइआरसं./PAN/TAN No. AABCS-3064-Q (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎकीओरसे/ Appellant by : Shri S.P.Chidambaram (Advocate) – Ld.AR ŮȑथŎकीओरसे/Respondent by : Shri A.Sasikumar (CIT) -Ld. Sr.DR सुनवाईकीतारीख/Date of Hearing : 07-05-2025 घोषणाकीतारीख /Date of Pronouncement : 04-08-2025 आदेश / O R D E R Per Manu Kumar Giri, JM: This appeal by the Assessee is directed against the order of the CIT(A)- 15 Chennai dated 28.03.2018. 2. The brief facts of the case are that the Assessee is a wholly owned subsidiary of M/s. SCM Microsystem Group UK Ltd. The Assessee is engaged in prototype design development and related supported activities based on technical specifications and product ideas obtained from the affiliates. The Assessee filed its return of income for the assessment year 2005-06 on 29.10.2005 declaring its Printed from counselvise.com 2 IT(TP)A No. 25/Chny/18 income as 12,89,760/-. Based on the functional, asset, and risk (“FAR”) analysis coupled with the availability of data, the Transactional Net Margin Method (“TNMM”) was selected as the most appropriate method. For the purpose of applying this method, operating profit to total operating costs (“OP/OC”) was considered to be the most appropriate Profit Level Indicator (“PLI”). The Assessee had performed a detailed search for independent comparable companies engaged in provision of similar services in public databases and identified 87 comparable companies. The arithmetic mean OP/OC margins of the 87 comparable companies was 13.1% while the margins of the Assessee was 15.50%. Given the same, since the margin of the Assessee was more than the arithmetic mean margins of the comparable companies, the international transactions were concluded to satisfy the arm’s length criteria from an Indian transfer pricing standpoint for the financial year (‘FY’) 2004-05. 3. The TPO vide order dated 30.7.2008 held that since the Assessee has entered into an agreement with its AE for Cost plus 17% but it has earned only a net margin of 15.5%, the difference of 1.5% was made as an addition to the tune of Rs.55,88,944/- in respect of international transactions. In this TP order, the TPO has considered severance pay as non-operating in nature. The ld.CIT(A) vide order dated 24.01.2011 allowed the appeal of the Assessee on the ground that the margins of the Assessee fell within the accepted range of +/- 5%. Subsequently, the Department filed appeal in ITA.No.774/Mds/2011. This Tribunal vide order dated 15.04.2013 remanded the matter back to the file of the TPO for conducting detailed transfer study by selecting comparables and then determine arm’s length price as per law. 4. In the giving effect order, the TPO had rejected the TP study of the Assessee and performed an independent search to find out the comparable companies determining PLI of the comparable companies at 27.18% as against that of the Assessee’s margin of 8.47% (by treating severance pay as operating expense). The TPO passed order u/s.92CA dated 20.01.2015 with an Printed from counselvise.com 3 IT(TP)A No. 25/Chny/18 adjustment of Rs.1.92 Crores and thereby enhanced the original adjustment of Rs.55,88,944/-. The ld.CIT(A) vide order dated 28.03.2018 upheld the order of the TPO and sustained the adjustment. 5. Being aggrieved, the Assessee raised several grounds. However, the Ld AR submitted that in case four grounds of appeal as under are decided in its favour, the discussion on the other comparables/grounds will only be academic. Accordingly, the Ld.AR argued before us the following grounds of appeal reproduced hereunder: “Erroneous treatment of extra-ordinary expenses in the nature of severance pay as operating in nature: 1. Without prejudice to the above, the ld.CIT(A) ought to have appreciated that the TPO erred in treating severance pay of Rs.64,30,195/- being extraordinary item of expenditure as operating expense while computing the margins of the assessee. 2. The ld.CIT(A) ought to have appreciated that the TPO in the original Transfer Pricing order dated 30.07.2008 had treated severance pay as non-operating in nature and has determined the margin of the Appellant to be at 15.50%. 3. The ld.CIT(A) ought to have appreciated the fact that severance pay being extraordinary / non-recurring in nature should be treated as non- operating for the purpose of determining the margins. Rejecting comparable companies earning super normal profits and also not functionally comparable: 4. The TPO erred in not rejecting the following comparable companies which are into software product development and are also having super normal profits during the year under consideration: a) Tanla Solutions Limited - The Company is into development of proprietary products and earns a margin of 163.70%. Printed from counselvise.com 4 IT(TP)A No. 25/Chny/18 b) Datamatics Global Services Ltd - The Company offers software products and provides Business Process Outsourcing services and earns a margin of 71.70%. c) Panoramic Universal Ltd - The Company offers both software products and services and earns a margin of 57.95%. d) Persistent Systems Limited – The Company is involved in the business of software product development.” 6. Ground No. 1 to 3: Erroneous treatment of severance pay as operating in nature: - The Ld.AR submitted before us that the Assessee has paid severance pay amounting to Rs.64,30,195/- which is an extra ordinary and one-time expense incurred by the Assessee. Hence, the Assessee has treated the same as extraordinary expense / non-operating item while computing the PLI of the Assessee. Further, Severance pay is a form of compensation that employers may choose to provide to employees upon the termination of their employment. It provides financial assistance during the transition period from an individual's previous job to their next opportunity. Given that this is an extraordinary circumstance in the case of the Assessee during the relevant financial year, the same has been considered as extraordinary and accordingly removed from the cost base while charging a mark-up. Also, the TPO in the first round of proceedings has considered severance pay as an extra-ordinary item and excluded the same from the operating expenses while arriving at Assessee’s margin, therefore, in the second round of proceedings, the TPO cannot take a different stand. In this regard, the Ld. AR had also placed reliance on OECD Transfer Pricing guidelines as below: “2.80 Non-operating items such as interest income and expenses and income taxes should be excluded from the determination of the net profit indicator. Exceptional and extraordinary items of a non-recurring nature should generally also be excluded.” Further, the Ld.AR also relied on the following decisions: Printed from counselvise.com 5 IT(TP)A No. 25/Chny/18 1. Igarashi Motors India Ltd vs ACIT (ITA No.2257(Mds)/2012) 2. Federal Mogul Automotive Products India Pvt. Ltd. vs. DCIT (ITA No. 5769/DEL/2011) 3. Chemtex Global Engineers P. Ltd vs DCIT (ITA 3590/Mum/2010) Further, the Ld. AR has placed reliance on the Safe Harbour Rules issued by the Central Board of Direct Taxes (CBDT) and the relevant extract is provided below: (j) \"operating expense\" means the costs incurred in the previous year by the Assessee in relation to the international transaction during the course of its normal operations including [costs relating to Employee Stock Option Plan or similar stock-based compensation provided for by the associated enterprises of the Assessee to the employees of the Assessee, reimbursement to associated enterprises of expenses incurred by the associated enterprises on behalf of the Assessee, amounts recovered from associated enterprises on account of expenses incurred by the Assessee on behalf of those associated enterprises and which relate to normal operations of the Assessee and] depreciation and amortisation expenses relating to the assets used by the Assessee, but not including the following, namely:— i. interest expense; ii. provision for unascertained liabilities; iii. pre-operating expenses; iv. loss arising on account of foreign currency fluctuations; v. extraordinary expenses; vi. loss on transfer of assets or investments; vii. expense on account of income-tax; and viii. other expenses not relating to normal operations of the Assessee: 7. The Ld. DR on the other hand, submitted that both the TPO and ld.CIT(A) having accepted the severance pay as operating in nature, there is no reason to exclude it. 8. We have heard the submissions of both the parties and find merit in the submission of the Ld. AR. Since the service agreement specifies that extraordinary items should be excluded from operating expenses/cost, we are of the considered view that severance pay is non-operating expense in nature. Our view is also supported by the guidelines issued by OECD and the Safe Harbour as well as the jurisdictional Tribunal decision in the case of M/s.Igarashi Motors Ltd. as under: Printed from counselvise.com 6 IT(TP)A No. 25/Chny/18 “In Assessee’s own case for the assessment year 2007-08, through their order dated 31stOctober 2012 passed in ITA No.12(Mds)/2012, the Income- tax Appellate Tribunal, Chennai Bench B, Chennai has considered the very same issue. For that assessment year also, the TPO vis a vis, the Assessing Officer declined to exclude extra-ordinary items while computing the operating profits of the Assessee. In this regard the Tribunal has held as follows at pages 9 and 10 of their order: - 16. Rule 10B of the Income-tax Rules, 1962provides for the determination of ALP under section92C of the Income-tax Act, 1961. Sub-clause(e) of Rule 10B(1) provides for transactional net margin method to determine the ALP. The TNMM employed in the present case by the Assessee has been employed by the TPO. When the TPO has accepted the TNMM adopted by the Assessee, the entire rules relating to TNMM ought to have been applied by the TPO. The net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected, or assets employed or to be employed by the enterprise or having regard to any other relevant base. The rule has provided for the discretionary use of the cost inputs. It is in this context that one has to bear in mind that extraordinary items have to be excluded from the normal realm of computation for the purpose of comparison. Sub-rule(3) of Rule 10B further provides that an uncontrolled transaction shall be comparable to an international transaction if reasonably accurate adjustments can be made to eliminate the material effects of differences between the transactions being compared. 8. In view of the above, we have to see that the TPO ought to have considered the extra-ordinary items while finalizing the Arm’s Length Price (ALP) computation. Therefore, we are of the opinion that proper weightage has to be given for all these extra-ordinary items explained by the Assessee before the TPO. 9. In the list of extra-ordinary items explained by the Assessee, the freight component disallowance comes to 2,10,00,000/-. In paragraph above the amount of ALP adjustment reworked out at the first instance is 40 lakhs. When this single item of freight component amounting to 2,10,00,000/- itself is considered, the said amount of 40 lakhs will be absorbed. Therefore, virtually speaking, there will be no operating profit available for making ALP adjustment when the extra-ordinary items are given due treatment. Therefore, to make the matter simple, we hold that nothing will be remained to make any addition by way of ALP adjustment in the present case. Therefore, we delete the entire ALP adjustment made by the assessing authority in his order.” Printed from counselvise.com 7 IT(TP)A No. 25/Chny/18 9. In view of the above, we hold that severance pay which is an extra- ordinary item of expense should be excluded from the operating cost while computing the margins of the Assessee for the purpose of benchmarking analysis with final set of comparable companies. Thus, this ground of appeal is allowed in favour of the Assessee. 10. Ground No. 4 (a): Tanla Solutions Limited as the comparable company: - The Ld. AR submitted before the TPO that the company is functionally not comparable and having super normal profits. The TPO held that the company was selected as comparable company by the Assessee itself and the Assessee has not submitted any evidences in respect to functional dissimilarity and the objection in respect to super normal profit was also not accepted. The Ld AR submitted that merely because the Assessee selected the company as comparable in transfer pricing report that does not restrict the Assessee from seeking exclusion of such comparable at a later stage when there are compelling data suggesting such incomparability. The Ld. AR further contended that the company had extra-ordinary event during the subject year i.e. it has acquired two new companies during the year viz. Techserv Teleservices Ltd. of UK and Smartnet Communication Systems Pvt. Ltd. This acquisition has given the company a foray into UK markets, consequently, the profits have also increased superficially. In this regard, the Ld.AR relied on the jurisdictional Tribunal decision in the case of Lason India P. Ltd Vs JCIT ITA.No.1026/Mds/2014 Para 4.3.2 as under: “We have heard both the parties and perused the material on record. As seen from the records, M/s. Accentia Technologies Ltd., acquired various companies from year by year. Moreso, in the assessment year under consideration i.e. 2009-10, the Assessee has acquired M/s. Oak Technologies Inc. Being so, as held by Co-ordinate Bench of Hyderabad in the cases of Zavala India (P.) Ltd. v. Dy.CIT [2013] 35 taxmann.com 423 (Hyd. - Trib.) and also by Capital IQ Information Systems (India) (P.) Ltd. v. Dy. CIT (Int. Taxation) [2013] 57 SOT 14/32 taxmann.com 21 (Hyd. - Trib.) that there is an extra-ordinary event like merger/de-merger which will affect profitability of the company in the financial year when such events took place and it cannot be comparable with Assessee. Printed from counselvise.com 8 IT(TP)A No. 25/Chny/18 Accordingly, this ground of Assessee is allowed and M/s.Accentia Technologies Ltd., is to be excluded from comparables.” Further, Ld. AR emphasized on the aspect that this company has earned super normal profit of 159.53% (post work capital adjustment) and therefore cannot be compared with the Assessee. In this regard, the Ld.AR relied on the following decisions: 1. Cameron Manufacturing India Pvt Ltd Vs. DCIT ITA No. 336/CHNY/2018 Para 4 & 7 2. Polaris Consulting & Services Ltd vs DCIT ITA No. 447/Mds/2016 Para 8.1 3. Virtusa India Pvt Ltd Vs DCIT ITA no 1962/Hyd/2011 Para 9 4. BA Continuum India Pvt Ltd Vs ACIT ITA no 1154/Hyd/2011 Para13 5. Hellosoft India Pvt Ltd Vs DCIT ITA no 645/Hyd/2009 and ITA no 1411/Hyd/2010 Para 12. 11. After considering the submissions of both parties, we are of the view that though this comparable was selected by the Assessee initially as a comparable, it will not prevent the Assessee from seeking exclusion provided the Assessee is able to demonstrate at a later stage that there is compelling data. Our view is also supported by the Special bench decision in the case of DCIT Vs Quark Systems (P) Ltd 126 taxmann.com 236 (Delhi – Trib) wherein it was held as under: “Even if the taxpayer or its counsel had taken Datamatics as comparable in its T P Audit, the taxpayer is entitled to point out to the Tribunal that above enterprise has wrongly been taken as comparable.” The Ld. AR has demonstrated that Tanla Solutions Limited cannot be accepted as comparable company because it had extra-ordinary events and Super Normal Profits. The jurisdictional Tribunal decision in the case of Cameron Manufacturing (India) (P.) Ltd Vs. DCIT ITA No. 336/CHNY/2018 Para 4 & 7 as under: “4. We find merit in the submission of the Ld.AR. In the Financial Year 2012-13 relevant to the Assessment year 2013-14, M/s. Acropetal Technologies has Printed from counselvise.com 9 IT(TP)A No. 25/Chny/18 disclosed 57.66% as its margin which seems to be quite abnormal when compared with the margins in the preceding and succeeding financial years. Therefore, as contented by the Ld.AR, we are of the considered view that M/s. Acropetal Technologies Ltd., cannot be accepted as a comparable company.” “7.After considering the issue, we are of the view that when the company is functionally dissimilar and when in a particular year there is an extraordinary profit, then the company cannot be taken as a comparable company. In the case of M/s. Hartron Communication, it is apparent that the company has achieved extraordinary profits during the relevant assessment year.” 12. Accordingly, the TPO is directed to exclude Tanla Solutions Limited from the final list of comparable companies and then determine the arm’s length price. Thus, this ground of appeal is allowed. 13. Ground No. 4(b): Datamatics Global Services Ltd as comparable company: - 14. The Ld AR submitted before the TPO that the company is having super normal profits. The TPO held that the objection in respect to super normal profit is not accepted. The Ld AR wishes to submit to us that the company is engaged in the business of building intelligent solutions enabling data driven businesses to digitally transform themselves through robotics, Artificial intelligence, Cloud mobility and advanced analytics. Further, the company is engaged in a different business segment from that of the Assessee and therefore cannot be considered as a comparable company. Further, the company during the year has earned super normal profit of 66.83% (post work capital adjustment) and therefore cannot be compared with the Assessee. The decisions relied upon by the Ld. AR are as under: 1. RR Donnelley India Outsource Pvt Ltd Vs. DCIT AY 2010-11 (ITA No. 678/Mds/2015) 2. iNautix Technologies India (P.) Ltd Vs. DCIT AY 2010-11 (ITA No. 802/MDS/2015) 3. IVY Comptech (P) Ltd Vs. ACIT AY 2005-06 (ITA No. 1588 (HYD) of 2010) 4. Sysarris Software (P.) Ltd Vs DCIT (IT (TP) Appeal Nos. 1360 (Bang.) of 2011 & 85 (Bang.) of 2012) 5. Broadcom India Research Private Limited Vs DCIT (ITA No. 1180/Bang/2011 6. Polaris Consulting & Services Ltd vs DCIT AY 2007-08 (ITA No. 447/Mds/2016) Printed from counselvise.com 10 IT(TP)A No. 25/Chny/18 7. Cameron Manufacturing India Pvt Ltd Vs. DCIT AY 2013-14 (ITA No. 336/CHNY/2018) 8. Virtusa India Pvt Ltd Vs DCIT AY 2007-08 (ITA No 1962/Hyd/2011) 9. BA Continuum India Pvt Ltd Vs ACIT AY 2005-06 (ITA No 1154/Hyd/2011) 10. Hellosoft India Pvt Ltd Vs DCIT AY 2005-06 & AY 2006-07 (ITA No 645/Hyd/2009 and ITA no 1411/Hyd/2010). 15. The Ld.DR submitted that under TNMM broad comparability is sufficient and therefore, this comparable should be retained. 16. After considering the arguments of both the parties, we are of the view that this company is superior and more advance in the field of software (i.e. AI and Cloud computing) and as such it is not similar to the business model of the Assessee which is into simple software developme nt service such as prototype design, development and related support activities to its AE. Apart from this, this company has also earned extraordinary profits during the relevant assessment year and as held in para 9 of this order and by once again referring to jurisdictional Tribunal decision in the case of Cameron Manufacturing (India) (P.) Ltd (Supra), we hold that this company cannot be considered as comparable to the Assessee and we hereby direct the TPO to exclude this company from the final list of comparables and then determine the arm’s length price for the purpose of benchmarking. Thus, this ground of appeal is decided in favour of the Assessee. 17. Ground No. 4(c): Panoramic Universal Ltd as comparable company: - 18. The Ld.AR submitted before the TPO that the company is having super normal profits. The TPO held that the objection in respect to super normal profit is not accepted. The Ld AR further submitted before us that the company is engaged in the business of providing information technology services as well as hospitality services and operates in 2 different segments. Under the IT Services, the Company develops software products for laundry management, human resource management, warehouse management, sales call management and document management etc. Under the Hospitality services business, the Company has hotels and resorts across several locations. The Company also undertakes significant Printed from counselvise.com 11 IT(TP)A No. 25/Chny/18 research and development activities in connection with the software products developed by it. Further, the Ld AR stated that this company during the year has earned super normal profit of 58.93%(post work capital adjustment) and therefore cannot be compared with the Assessee. The decisions relied upon by the Ld. AR are as under: 1. Symantec Software & Services India (P.) Ltd Vs. DCIT AY 2011-12 (ITA No. 614/MDS/2016) 2. Broadcom India Research Private Limited Vs DCIT (A No. 1180/Bang/2011) 3. Polaris Consulting & Services Ltd vs DCIT AY 2007-08 (ITA No. 447/Mds/2016) 4. Cameron Manufacturing India Pvt Ltd Vs. DCIT AY 2013-14 (ITA No. 336/CHNY/2018) 5. Virtusa India Pvt Ltd Vs DCIT AY 2007-08 (ITA no 1962/Hyd/2011) 6. BA Continuum India Pvt Ltd Vs ACIT AY 2005-06 (ITA no 1154/Hyd/2011) 7. Hellosoft India Pvt Ltd Vs DCIT AY 2005-06 & AY 2006-07 (ITA no 645/Hyd/2009 and ITA no 1411/Hyd/2010). 19. The Ld. DR once again reiterated that under TNMM broad comparability is sufficient and therefore this comparable should be retained. 20. After considering the arguments of both the parties, we are of the view that this company is into diversified activities (i.e. IT and Hospitality segment) and therefore functionally dissimilar to that of the Assessee company which is purely into captive software development service to its AE. Apart from this, this company has also earned extraordinary profits of 58.93% during the relevant assessment year and as held in para 9 of this order and by once again referring to jurisdictional Tribunal decision in the case of Cameron Manufacturing (India) (P.) Ltd (Supra), we hold that this company cannot be considered as comparable to the Assessee and we hereby direct the TPO to exclude this company from the final list of comparables and then determine the arm’s length price for the purpose of benchmarking. Thus, this ground of appeal is decided in favour of the Assessee. 21. Ground No. 5: Rejection of Persistent Systems Limited: - Printed from counselvise.com 12 IT(TP)A No. 25/Chny/18 22. The Ld.AR before the TPO that the company is engaged in software product development and functionally not comparable. The TPO held that the objection of the Assessee cannot be accepted as the same is taken from website of the company. The information related to software testing is taken from website of the company and not from Director report and audited financial statement. The TPO also noted that a company may mention various services in its website for various purposes including advertisement and it cannot be considered as evidence. The Ld AR further submitted before us that the company is engaged in the business of digital strategy and design, software product engineering, CX transformation, Cloud and infrastructure, intelligent automation, enterprise IT Security, data & analytics, application development and management, enterprise integration etc. whereas the Assessee is engaged in software development services and is not a software product company. Further, the AR contended that the observation of the TPO that information in the website is not reliable cannot be accepted unless and until the TPO points any other information contrary to the same. The Ld AR also stressed on the point that information published in the company’s website cannot be simply belittled or disregarded on the basis of surmises and assumptions. Thus the Ld.AR argued that this Company cannot be considered as a comparable company. 23. The Ld.AR also stated that Persistent systems Ltd has been rejected by the Hon’ble ITAT in the Assessee’s own case for AY 2007-08. The relevant extract is provided below: “ 4. We heard the rival submissions. We find from the order relied on by the AR, supra, that the issue involved in that company was in software development services segment and therefore the decisions relied on by the AR is applicable to the facts of this case, as it is also in the software development services. The bangalore Tribunal after due analysis of each of the above comparables directed “exclusion of Avani Cimon Technologies Ltd., Celestial Labs Ltd., E-Zest solutions Ltd, Flextronics Software Systems Ltd (Seg), Helios & Matheson Information Technology Printed from counselvise.com 13 IT(TP)A No. 25/Chny/18 Ltd, Infosys Technologies Ltd, Ishir Infotech Ltd, Kals Information Systems Ltd, Lucid Software Ltd, Persistent Systems Ltd, and Wipro Ltd (Seg), from the list of comparables.” 24. The Ld.DR submitted that res judicata does not apply to income tax proceedings and therefore each A.Y. has to be seen independently. 25. After considering the arguments of both the parties, we are of the view that though res judicata does not apply to income tax proceedings, the principles accepted/admitted in one AY will not change in another AY and therefore when the facts remain the same, we hold that TPO having rejected this company as a comparable in AY 2007-08 will also hold good for the subject AY. We also note that this company is into Software product development as mentioned in the website of the company (Page 86 of paper book) which cannot be ignored or brushed aside and as such we hold that this company cannot be considered as comparable to the Assessee and we hereby direct the TPO to exclude this company from the final list of comparables and then determine the arm’s length price for the purpose of benchmarking. Thus, this ground of appeal is decided in favour of the Assessee. 26. In the result, appeal filed by the assessee is allowed. Order pronounced on 04th August, 2025. Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद˟ / ACCOUNTANT MEMBER Sd/- (MANU KUMAR GIRI) Ɋाियक सद˟ / JUDICIAL MEMBER Vm/- चेɄई Chennai; िदनांक Dated : 04-08-2025 आदेशकीŮितिलिपअŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ/Assessee 2. ŮȑथŎ/Revenue 3. आयकरआयुƅ/CIT Chennai/Madurai 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF Printed from counselvise.com "