ST MICROELECTRONICS PVT. LTD.,NEW DELHI V. ADDL. CIT, SPECIAL RANGE-8, NEW DELHI

CO 144/DEL/2018

AI Insights

The case involves an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals)-44, New Delhi, which had directed the Transfer Pricing Officer (TPO) to exclude certain companies from the set of comparables used for benchmarking the international transactions of ST Microelectronics Pvt. Ltd. The Tribunal examined the functional comparability of various companies and the appropriateness of the TPO's adjustments to the assessee's income. The Tribunal's decision highlighted the complexities of transfer pricing in the context of international transactions and the importance of using appropriate comparables for determining the arm's length price.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314570 (ITAT-DELHI)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DHARMVIR SINGH
• Assessee Lawyers: AJAY VOHRA
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts; Rule of consistency; TDS; Initiation of penalty proceedings; Related party transaction; FORM 26AS
• Section: 143(3); 271(1)(c); 133(6); 15; 10B; 92C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.3688/Del/2018 Assessment Year: 2010-11 Addl. CIT, Special Range-8, New Delhi. Vs ST Microelectronics Pvt. Ltd., D-28, South Extn., Part-I, New Delhi. – 110 049. PAN: AAACS3406M CO No.144/Del/2018 (ITA No.3688/Del/2018) Assessment Year: 2010-11 ST Microelectronics Pvt. Ltd., S-327, Lower Ground Floor, Greater Kailash-II, New Delhi. – 110 048. PAN: AAACS3406M Vs. Addl. CIT, Special Range-8, New Delhi. (Appellant) (Respondent) Assessee by : Shri Ajay Vohra, Sr. Advocate, Shri Neeraj Jain, Advocate, Ms Mansha Bhalla, CA & Shri Ramit Katyal, CA Revenue by : Shri Dharmvir Singh, CIT-DR Date of Hearing : 07.03.2025 Date of Pronouncement : 07.05.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Revenue against the order dated 28.02.2018 of the Commissioner of Income-tax (Appeals)-44, New Delhi ITA No.3688/Del/2018 CO No.144/Del/2018 2 (hereinafter referred to as the ld.CIT(A) or the ld. FAA) in Appeal No.139/2017-18/CIT(A)-44 arising out of the appeal before it against the order dated 28.03.2014 passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the DCIT, Circle-9(1), New Delhi (hereinafter referred to as the Ld. AO). The assessee has filed Cross Objection being CO No.144/Del/2018. 2. Heard and perused the records. The written submissions filed from both the sides are duly taken into consideration. The primary facts asserted by the Assessee are that it is a captive service provider and undertakes Integrated Circuits (“ICs”) design implementation, maintenance and verification services for ST Group entities (“AEs”) based on the guidelines/ instructions provided by the AEs. Thus, the role of the assessee is akin to that of a risk mitigated captive design and development service provider and it is remunerated on a cost plus revenue model. The operating profit margin of the assessee submitted in the Transfer Pricing Documentation for the purpose of benchmarking was 10.40% (Considering FOREX as operating) and for benchmarking the international transaction of provision of I/C design implementation and maintenance services, the assessee considered the following 20 comparable companies with working capital adjusted arithmetic mean of 7.82% and risk adjusted operating profit margin (OP/OC) of 2.12%:- ITA No.3688/Del/2018 CO No.144/Del/2018 3 S. No. Company Name Weighted average risk adjusted OP/TC (%) 1. Akshay Software Technologies Limited 7.85% 2. Ancent Software International Ltd -10.59% 3. Aztecsoft Limited 4.15% 4. CG VAK Software and Exports Limited (Segmental) -1.88% 5. Goldstone Technologies Limited 9.91% 6. Helios & Matheson Information Technology Limited 11.26% 7. Indium Software (India) Limited -6.19% 8. KPIT Cummins Infosystems Limited 10.16% 9. Larsen and Toubro Infotech Limited 16.62% 10. LGS Global Limited 20.01% 11. Mindtree Limited 9.90% 12. Persistent Systems Limited 21.65% 13. Quintegra Solutions Limited 1.14% 14. R S Software (India) Limited 8.99% 15. Sasken Communication Technologies Limited 16.32% 16. SIP Technologies and Exports Limited -50.30% 17. Softsol India Limited -39.46% 18. Thinksoft Global Services Ltd 15.34% 19. TVS Infotech Limited -12.36% 20. Zylog Systems Limited 9.93% Average 2.12% 2.1 However, the TPO cconsidered the following 19 companies as comparable:- S. No. Company Name Working Capital OP/TC (%) 1. Akshay Software Technologies Limited -0.06% 2. E-Infochips Bangalore Limited 66.50% 3. Evoke Technologies Pvt Limited 20.03% ITA No.3688/Del/2018 CO No.144/Del/2018 4 4. E-Zest Solutions Limited 15.17% 5. Infinite Data Systems Pvt Ltd 85.10% 6. Infosys Limited 46.76% 7. Larsen and Toubro Infotech Limited 21.33% 8. LGS Global Limited 8.82% 9. Mindtree Limited 15.85% 10. Persistent Systems Limited 29.21% 11. R S Software (India) Limited 11.53% 12. Sasken Communication Technologies Limited 19.22% 13. Tata Elxsi Limited 18.39% 14. Thinksoft Global Services Ltd 14.98% 15. Thirdware Solutions Limited 39.41% 16. CAT Technologies 5.00% 17. Maveric Systems Limited 16.06% 18. Persistent Systems and Solutions Limited (merged) 13.20% 19. Sankhya Infotech 6.07% Average 23.82% 2.2. The TPO, for the purpose of benchmarking the transaction of provision of I/C design implementation and maintenance services considered the FOREX fluctuation and provision of doubtful debts as non-operating in nature and computed the operating margins of the assessee at 7.38%. The TPO accordingly, made an adjustment of Rs 52,57,03,976 in respect of international transaction of provision of IC Design and Software Development Services undertaken by the assessee. 2.3. The CIT(A) vide impugned order dated 28.02.2018 directed the TPO to exclude the following companies from the set of comparables; a) E-Info Chips Bangalore Ltd ITA No.3688/Del/2018 CO No.144/Del/2018 5 b) Infinite Data Systems Private limited c) Infosys Technologies Limited d) Persistent Systems Limited e) Sasken Communication Technologies ltd f) Larsen and Toubro Infotech Ltd 2.4 The CIT(A) also directed the TPO to consider FOREX fluctuation as operating income/expense and include “Caliber Point Business Solutions Ltd” as comparable if company passes all the filters applied by the Ld TPO. 2.5. The TPO vide impugned effect giving order considered following companies after giving effect to CIT(A) order; S. No. Company Name Working Capital OP/TC (%) 1. Akshay Software Technologies Limited -2.12% 2. Evoke Technologies Pvt Limited 19.68% 3. E-Zest Solutions Limited 17.49% 4. LGS Global Limited 7.05% 5. Mindtree Limited 22.60% 6. R S Software (India) Limited 11.16% 7. Tata Elxsi Limited 15.56% 8. Thinksoft Global Services Ltd 9.54% 9. Thirdware Solutions Limited 34.13% 10. CAT Technologies 6.16% 11. Maveric Systems Limited 15.44% 12. Persistent Systems and Solutions Limited (merged) 9.32% 13. Sankhya Infotech 6.16% Average 13.24% ITA No.3688/Del/2018 CO No.144/Del/2018 6 2.6. Since the operating margin of the assessee at 7.87% (after considering gain/loss on account of foreign exchange fluctuation as operating) was within 5% range of the average margins of 13.24% of the aforesaid comparable companies, the adjustment was deleted pursuant to the order of the CIT(A). 2.7. Now vide ITA 3688/DEL/2018 Department is in appeal raising following grounds:- “1. Whether on the fact and circumstances of the case the Ld. CIT was justified in excluding E-Info Chips Bangalore Ltd as comparable when it was shown in annual report of the company that company was engaged in software development services?\" 2. \"Whether the Ld. CIT was justified in laying down stringent standards of comparability and attempting to identify exact replica of the taxpayer for comparability analysis, whereas the Indian law and the international jurisprudence recognize the reality that there cannot be an exact comparable in a given situation without any differences without appreciating that such stringency will defeat the purpose of flexibility provided in comparability analysis for determination of ALP\" 3. Whether on the fact and circumstances of the case Ld. CIT was justified in excluding Infinite Data System Pvt. Ltd on the basis that this company is functionally dissimilar disregarding the facts that the TPO has already established the functional similarity between Infinite Data System Pvt. Ltd. and assessee?\" 3. Whether on the fact and circumstances of the case Ld. CIT was justified in excluding Infosys Technologies Ltd. on the basis that this company is functionally dissimilar and is an Industry giant/brand value disregarding the facts that the TPO has already established the functional similarity and that the profitability margin is not affected by high or low turnover or brand value?\" 5. Whether on the facts and circumstances of the case Ld. CIT was justified in excluding Persistent System Ltd. as comparable when major part of its income was derived from Software Development services and the said comparable was itself selected by the assessee in its TP study?\" 6. Whether on the facts and circumstances of the case Ld. CIT was justified in excluding Sasken Communication Technologies Ltd as comparable when there is main functional similarity between the assessee and Sasken ITA No.3688/Del/2018 CO No.144/Del/2018 7 Communication Technologies Ltd and the said comparable was itself selected by the assessee in its TP study?\" 7. Whether on the facts and circumstances of the case Ld. CIT was justified in excluding Larsen and Tubro Infotech Ltd as comparable when major part of income derived from Software Development services and the said comparable was itself selected by the assessee in its TP study?\" 8. Whether the Ld. CIT erred in not appreciating that the Arm's Length Price of an international transaction, as defined in Section 92F(ii) of the Income Tax Act, 1961, is the price applied or proposed to be applied in an uncontrolled transaction, and consequently must remain un- influenced by extraneous factors and post-transaction events like foreign exchange fluctuation which are likely to materially affect the actual receipt or payment but do not impact the price intended to be charged or paid? 9. Whether the Ld. CIT erred in not appreciating the fact that the TPO followed the provisions of Rule 10B(3) by similarly treating foreign exchange fluctuation as non-operating cost/revenue of the tested party as well as of the comparables to eliminate the differences, thereby leading to a consistent and reliable basis for comparison? 10. \"The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal.\" 2.8 The assessee has filed cross objections raising following grounds:- “Transfer Pricing Grounds 1. The Hon'ble Commissioner of Income-tax (Appeals) [\"CIT(A)\"]/ Joint Director of Income Tax, Transfer Pricing Officer II(2) (\"learned TPO\") has erred, both in laws and on facts: 1.1 by considering Thirdware Solutions Ltd, Persistent System and Solutions Ltd and E-Zest Solutions Ltd as comparable companies to the Respondent without undertaking detailed functional analysis of these companies; 1.2 by rejecting CG-Vak Software & Exports Ltd as a comparable company to the Respondent even though the Company passes the employee filter as applied by the Ld. TPO; 1.3 while computing the operating margin of the Respondent and comparable companies for determining the arm's length price of international transaction; ITA No.3688/Del/2018 CO No.144/Del/2018 8 1.3.1 by aggregating cost and revenue of the domestic related parties' transactions with cost and revenue of transactions with associated enterprises while determining operating margin of the Respondent; 1.3.2 by not considering provision for bad and doubtful debts as operating expense in nature while computing the operating margin of the comparable companies; 1.4 by not allowing the risk adjustment on account of differences in the risk profile of the Respondent vis-à-vis the comparable companies; 1.5 by not considering Caliber Point Business Solutions Ltd as a comparable to the Respondent though financial results of the Company can reasonably be extrapolated for computing operating margin for the year under consideration; Corporate Tax Grounds 1.6 in confirming the addition amounting to INR 72,314 made by the learned Assessing Officer (\"learned AO\") on account of difference in TDS reconciliation; General Grounds 1.7 in confirming the initiation of penalty proceedings under section 271(1)(c) of the Act as made by the learned AO. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Respondent prays for leave to add, alter, amend and/or modify any ground of appeal at or before the hearing of the appeal. The Respondent prays for appropriate relief based on the said ground of appeal and the facts and circumstances of the case.” 3. Before adventing to decide the grounds arising out of inclusion and exclusion of comparable, we consider it beneficial to adjudicate the ground no. 2 of the Revenue’s appeal where by the Revenue asserts that Ld. CIT(A) was not justified in laying down stringent standards of comparability and attempting to identify exact replica of the taxpayer for comparability analysis, whereas the Indian law and the international jurisprudence recognize the reality that there ITA No.3688/Del/2018 CO No.144/Del/2018 9 cannot be an exact comparable in a given situation without any differences and ld. CIT(A) has fallen in error in not appreciating that such stringency will defeat the purpose of flexibility provided in comparability analysis for determination of ALP. Further ld. DR relied Steria (India) Ltd. [2020] 122 taxmann.com 267 (Delhi - Trib.) for the proposition that inclusion or exclusion of a comparable in an earlier year or in some other case cannot be basis for inclusion or exclusion of that comparable in the case of an assessee for another year or in another case. 3.1. In this context at outset we deal with the contention of Ld. DR whereby referring to Para 1.01, 4.02 (Page 17) of T.P. Study Report (TPSR) including block diagrams on page 18 of the TPSR whereby he has emphasized that the assessee’ s functional profile was of the nature of Integrated Circuit (IC) design and connected software development, which formed sub-part of ‘product design and development’ for Integrated Circuits. Based on the comments made in sub Para 6 of Para 4.02.2 of TPSR, as the assessee had argued that it performs low value adding functions of coding and testing in India, the ld. DR submitted that such functions are sub-part of ‘product design (IC) and development’ as mentioned in TPSR itself. It was submitted by ld. DR that testing a design prepared and based on output, further modification/ improvement and re-testing are integral part of any ‘design and development’ process, which is performed by the assessee. Thus according to ld. DR, due to the said reasons, in the TPSR ITA No.3688/Del/2018 CO No.144/Del/2018 10 (in above referred paras of TPSR), there are multiple categorical mentions that the assessee is engaged in the field of ‘IC design and development’. According to ld. DR, the study of the functional profile of the assessee as given in TPSR make it amply evident that during the stage of designing and development of Integrated Circuits (IC), which is high tech field involving semiconductors technologies, assessee is developing software codes for running of such I.Cs, carrying out testing regarding efficacy ICs with such code and based on output of such test, modifies the codes or more importantly, will make suggestion for modification in IC design to get intended output. Thus, the assessee is required to work in close coordination with other teams of the assessee in different geographies for designing and development of ICs. As such, in modern technological era, designing or development of a new product is outcome of synergized efforts of multiple skilled teams. Thus according to ld. DR, it would not be prudent to classify any of such design teams as carrying out low-end work, particularly when technology involved is relating to semiconductors and Integrated Circuits, which very few nation have. To augment above point, during the course of hearing, copy of Para 3.1.2.4 ( Research and Development in the area of new products) of Annual report for 2010 of ST Microelectronic N.V. was produced before Bench to bring on record that as per the said report of assessee group, India hosts ‘Advanced R & D Center’ of the group and to highlight that functions of the assessee are of the nature of ‘advanced R &D activities’ in a high-tech emerging field. Besides the above, copy of some of the ITA No.3688/Del/2018 CO No.144/Del/2018 11 screen shots from website of the assessee group giving details of job profile at Greater Noida, India Center was also submitted before Bench, to show that some of the technical skills for engineers requirements for Greater Noida Center as mentioned on website were of the nature of ‘Digital Verification Engineer’, SRAM Design Architect, functional safety and Cyber Security Expert’ among others. According to ld. DR, such description also supports that the functions being performed in India by the assessee company are of high-end and not of the nature of routine software development or low end ITES services. 3.2. In regard to this contention of ld. DR as countered by ld. Sr. Counsel we find that profile as stated by the assessee in the TP documentation has actually been accepted by the TPO. It can be observed that TPO has noted the functional profile of the assessee as under: “PROFILE OF THE ASSESSEE AND GROUP As per the TP report, STM is a subsidiary of ST Microelectronics Pte. Limited and ST Microelectronics NV, Netherlands (\"ST NV\") The Company is a 100 percent Export Oriented Unit engaged in integrated Circuit (\"IC\") Design and software development for ST group only. As mentioned in para 4.02 2 of the TP report, it is mentioned that ST India is one of the design centers for the ST group. ST Micro India performs low value adding functions of coding and testing in India It is further mentioned that ST India works only on this specifications given by the ST group and its limited functions in the design and development stage of semiconductor chip manufacturing is merged with the rest of the implementation performed by other centres of ST Group in order to complete the designing and development of particular product. As per the TP study the role of ST India is stated to be that of a contract captive design and development centre.\" 3.3. We also find that on page 900 of the CC there is extract of TP study wherein the aforesaid profile of the respondent has not been narrated showing ITA No.3688/Del/2018 CO No.144/Del/2018 12 that the assessee performs activities involving implementation, verification & maintenance services for ST group entities. The relevant extract from TP study report is as under: \"Stage 1 Identification of customer needs (ST Group only) The ST Group identifies the customer requirements for the ICs from the customer surveys. feedbacks and technological advancements in the industry. Stage 2 Product concept and specifications (ST Group only) With all these inputs, it conceptualizes the product idea and lays down the product specifications after much of brain storming and considering other technical aspects of the forthcoming products. Once the specifications of product are finalized, the next step is to design the product/chip Till this stage of the value chain ST India is nowhere involved and all the above mentioned activities are performed by other ST group companies Stage 3 Design and development (ST Group & ST India) The next step involves design and development of the product/chip This part of the value chain also involves research and development activities related to the product. The Research and Development (R&D) activities of the ST group focus on the very large scale integration (VLSI) technology platform, new systems architectures, new product developments and emerging technologies in microsystems, nanotechnologies and photonics. The development of the technology platform (VLSI technologies and design tools) is conducted by Central Research and Development (\"CRD\") while new systems architectures are studied in the Advanced System Technology (AST) units. New product research and development is conducted within each product group in conjunction with customers. The highest concentration of ST Group's CRD activities is located in the two main VLSI facilities of Crolles, ITA No.3688/Del/2018 CO No.144/Del/2018 13 France and Agrate Italy Other important R&D activities are located in Italy (Castelletto and Catania). France (Grenoble Rousset. Tours) United States (Berkeley, Carrollton, Phoenix, San Diego). United Kingdom (Bristol. Edinburgh): Switzerland (Geneva); Tunisia (Tunis). Morocco (Rabat): China (Beijing, Hong Kong. Shenzen. Shanghai), Singapore. 6. Role of ST India at Stage 3 of the Value Chain ST India is also one of the design centres for the ST Group. The design and development cycle can be further subdivided in the following three activities. • The Product Architecture, a high end activity is performed by the ST Group entities outside of India in which STMicro India does not play any role. • Implementation & maintenance is the outcome of the product architecture which is passed on to India and other such design centres in other countries ST Micro India performs low value adding functions of coding and testing in India, which corresponds primarily to level 2 of the value chain of the Software Industry. • The third step in this activity is output validation which is also performed by the ST Group outside India (primarily Europe) and involves receiving inputs from various design centres across the globe and validating if the complete design is as per the planned architecture. ST India performs limited functions in the design and development stage of the semiconductor chip manufacturing ST India works only on the specifications given to it by the ST Group. The role of ST India in the total value chain is limited to this stage only. The part performed at ST India is then merged with the rest of the Implementation performed by other centers of ST group in order to complete the designing & development of a particular product. Stage 4 Product testing and verification (ST Group only) ITA No.3688/Del/2018 CO No.144/Del/2018 14 The product designing is followed by the product testing and verification stage. This is a critical stage which requires high infusion of capital in order to test the designed product. Stage 5 Manufacturing and fabrication (ST Group only) Once the product is successfully tested and verified, it is put to large scale manufacturing and fabrication process, which is very high capital intensive. The manufacturing processes are highly complex require advanced and increasingly costly equipment and are continuously being modified or maintained with an effort to improve yields and product performance Stage 6 Sales marketing and customer support (ST Group only) The manufacturing of the products is followed by the sales and marketing function including customer support. 9. Conclusion From the above description it is evident that the products life cycle of a semiconductor chip is very complex. Also it is clear that ST India is involved it the implementation phase of the Research & development stage with a very limited scope of work. It is not involved in the process of conceptualization of any product and works only on the specifications provided by the ST Group for the implementation of I/C design/Software development. Hence, the role of ST India is that of contract captive design and development centre.\" 3.4 Thus from the aforesaid it can be concluded that the Research and Development (R&D) activities of the ST group focus on the very large scale integration (VLSI) technology platform, new systems architectures, new product developments and emerging technologies in microsystems, nanotechnologies and photonics. The development of the technology platform ITA No.3688/Del/2018 CO No.144/Del/2018 15 (VL. SI technologies and design tools) is conducted by Central Research and Development (CRD) while new systems architectures are studied in the Advanced System Technology (\"AST\") units. 3.5 Here for this issue and for further analysis of all the grounds, it is important to understand an important aspect that Very Large Scale Integration (VLSI) technology is the designing of micro chips using large number of transistors. VLSI chips are designed to perform a specific task using a software which is then incorporated into an embedded systems to perform a task. At the same time some aspects of integrated circuit (IC) design, particularly for digital circuits, might involve software tools and programming, the core process of IC design is fundamentally about hardware, not software. IC design focuses on the physical layout and functionality of electronic circuits, whereas software development is primarily concerned with creating programs and applications that run on those circuits. The software component in an integrated circuit (IC) refers to the code and data that define how the IC operates and interacts with other parts of a system. It's essentially the instructions that tell the hardware what to do, allowing the IC to perform specific tasks like processing data, controlling peripherals, or managing communication. 3.6 Thus what is relevant for the purpose of present case is to understand that since the assessee is not into software development in conventional for being used by customers on their hardware or customized network or user, by using ITA No.3688/Del/2018 CO No.144/Del/2018 16 coding languages like C and C++ etc. but into VLSI design, which uses Hardware Descriptive Languages (HDLs) like VHDL and Verilog to create and simulate the hardware of ICs. Therefore the software development referred in the functional profile of the assessee is limited in scope for the purpose of creating programs and applications that run on the integrated circuits conceptualized, designed and developed out of India at other centre of ST Group. 3.7 This reinforces the description of functions of assessee given at page 20 of the TP documentation where it is clearly mentioned that \"ST India performs limited functions in the design and development stage of the semiconductor chip manufacturing. ST India works only on the specifications given to it by the ST group. (Page 901 of the convenience compilation). Hence, the role of the respondent is that of a contract captive design implementation centre. 3.8 In relation to Ld. DR's argument that India hosts as a \"Advance R&D centre\", there is substance in the contention of ld. Sr. Counsel that R&D centre is a generic term that is being used for the all the group entities under the implementation and maintenance stage. Obviously for the reasons to signify the innovation carried out at these location. The said nomenclature cannot be used to neglect the activities performed by the respondent, which are low end activities under the entire value chain. ITA No.3688/Del/2018 CO No.144/Del/2018 17 3.9 Further, the argument of the Ld. DR that the employees of the respondent are providing high end services cannot be sustained by mere reference to their designation. 3.10 Furthermore, Tribunal in the assessee’s own case for assessment year 2008-09, at para 16 of the order, noted that the respondent operates as a captive software service provider. Thus there is no force in the contention of ld. DR that assessee is providing high end services relating to designing of Semi-conductor chips. 3.11 Then ld. DR has raised another issue concerning three comparables and same also needs to be adjudicated here before proceeding to examine the submission on comparability of disputed comparables. As with regard to the three comparables namely Larson and Tubro infotech, Persistence System Ltd. and Sasken Communication Technologies Ltd., excluded by the CIT(A) on request of the assessee, it was submitted that they are assessee’s own comparable. They were included as comparable by the assessee itself for the purpose of benchmarking of the international transaction of provision of ‘IC Design and Software Development Services by using TNMM as the Most Appropriate Method and were, thus forming part of the T.P. Study Report (TPSR) of the assessee. However, subsequently, the assessee objected to their inclusion before Ld.CIT(A), who acceded to the said request of the assessee. ITA No.3688/Del/2018 CO No.144/Del/2018 18 3.12 It was argued that the Ld. A.O. was not provided any opportunity to controvert the claim of the assessee on this point by way of some remand report or in some other ways. ld. DR relied Steria (India) Ltd. [2020] 122 taxmann.com 267 (Delhi - Trib.) for the proposition that inclusion or exclusion of a comparable in an earlier year or in some other case cannot be basis for inclusion or exclusion of that comparable in the case of an assessee for another year or in another case. 3.13 It was submitted in regard to these three comparables that from perusal of TP Study Report (TPSR) (Para 9, Para 12 and Para 15 of Annexure 3), it can be noted that the assessee had considered above 3 companies as comparable holding that they were engaged in similar functions as the assessee itself. In “Accept Reject Matrix” (referring to Annexure 2 page 93-108 of TPSR), it was pointed that the reason for acceptance of these companies as comparable is mentioned as “Engages in similar functions” (reference was made to line item no. 695, 921 and 1022 of “Accept Reject Matrix”). Further, ld. DR contended that while mentioning the business descriptions of these comparable companies in Annexure 3, page 109 of TPSR (page 957-960 of convenience compilation filed by the assessee, the assessee has given description of functions being performed by above companies too. It is nowhere mentioned in such description that these companies are having different functions or do not qualify as valid comparable due to some other reasons. Ld. DR submitted that the acceptance of ITA No.3688/Del/2018 CO No.144/Del/2018 19 above companies as comparable by the assessee in TPSR of the assessee is unconditional. Ld. DR thus firmly argued that in light of such a factual situation, how could have the assessee taken a complete opposite stand before Ld. CIT(A) and sought exclusion of said three comparable? In this context the ld. DR has further, mentioned that the ratio of operating profit to operating cost (OP/OC) of these 3 companies (in terms of percentage) had gone up significantly when the TPO denied benefit of risk adjustment used/adopted by the assessee for benchmarking carried out in its TPSR. The comparable chart in this regard was provided as under: Sr. No. Company name Weighted average of OP/OC after risk adjustment as determined by assessee OP/TC as determined by TPO without risk adjustment 1 Larson &Tubro Infotech 16.62% 21.33% 2 Persistence System Ltd. 21.65% 29.21% 3 Sasken Communication Technologies Ltd. 16.32% 19.22% 3.14 Ld. DR submitted that the figure of OP/TC worked out by the TPO are after giving effect to working capital adjustment. Thus, revised working of OP/TC consequent to denial of risk adjustment by the Ld. TPO had led to significant increase in average value of OP/TC. Such an increase in PLI (OP/TC) may be the main reason for seeking exclusion of above three comparable by the assessee before Ld.CIT(A) despite the fact that the assessee on its own had included them for benchmarking in its TPSR. He further ITA No.3688/Del/2018 CO No.144/Del/2018 20 emphasizes that the TP Study Report is prepared by expert after due study and analysis and it is assessee’s own document. 3.15 Further, the ld. DR submitted there would always remain some difference between any two companies and they can never be exact replica of each other. He referred to I.T. Rule 10B, and submitted that what is required to be seen is whether the difference between tested party and a comparable are of such nature and extent that they are likely to materially affect profit margins. Reference was also made to I.T. Rule 10B(1)(e)(iii) and Rule 10B(3). He submitted that the use of word ‘materially’ in the said rules is of significance and clearly indicate that a comparable can not be discarded just because of any kind of difference if both tested party and comparable are having similar kind of FAR. Ld. DR contended that even for making out a case for ‘likely’ impact, there should be some material in form of data, reports etc. brought on record by the assessee or available in public domain. Ld. DR relied the observation of Hon’ble Delhi High Court in case of Chryscapital Advisors India Pvt. Ltd (2015) 56 Taxmann.com 417 (Del). 3.16 As per ld. DR there should be proper cogent and sufficient reasons coming from the side of the assessee for exclusion of a comparable if a comparable is assessee’s own comparable and sought to be excluded by taking a contradictory stand at appellate level. It is submitted that onus cast upon the assessee in this regard will also include onus to explain the reasons or cause due ITA No.3688/Del/2018 CO No.144/Del/2018 21 to which a particular comparable was considered suitable for inclusion in first place based on which a legal document (like TPSR) having legal implications had been prepared. The assessee has failed to discharge such onus. The assessee can not be allowed to blow hot and cold at the same time or use pick and choose policy just because as a result of denial of risk adjustment by the TPO, profit margins of such comparable had gone up. In this regard, Reliance is placed upon observation of Tribunal decision in following cases; (a) Hon’ble ITAT Mumbai in the case of Capgemini India Pvt. Ltd vs. ACIT (2013), 33 Taxmann.com 5 ( Mumbai -Trib) – Para 5.3.8 (b) Hon’ble ITAT Hyderabad in the case of Deloitte Consulting India Pvt. Ltd.(2011), 12 taxmann.com 500 (Hyderabad) – Para 34 3.17 Ld. Sr. Counsel has primarily relied decisions supporting his contention that there is no estoppels against the assessee company to withdraw any comparable which was mistakenly relied in TP study. 3.18 We acknowledge the contention of ld. Sr. Counsel that there is no Estoppel against the assessee in seeking to exclude companies selected in TP documentation as comparable as long as justifiable reasons are demonstrated. We are of considered view that an assessee can be permitted to deviate from the TP study report in appropriate circumstances on justifiable grounds. In a case like present where the comparability is not ascertainable with direct evidences of relevant segments, in which the assessee and comparable companies operate ITA No.3688/Del/2018 CO No.144/Del/2018 22 and assessee has taken broad parameter of IC software products to determine comparability, there the assessee is certainly in rights to seek exclusion of comparables originally selected in the TP study. Thus we are of the considered view that in given set of developments post TP study prepared by the assessee the assessee can resile from a position taken in TP study. Reliance in this regard is also placed on the following decisions cited by the ld. Sr. Counsel: - CIT vs. C. Parekh & Co. (India) Ltd. 29 ITR 661-SC - Bharat General Reinsurance Co. Ltd.81 ITR 303- Delhi HC - HCL Technologies vs. ACIT: 377 ITR 483- Delhi HC - CIT vs. Verizon India (P) Ltd.: 360 ITR 342- Delhi HC - Decision of the Special Bench of the Tribunal in the case of Quark Systems Private Limited v. DCIT: (2010) 38 SOT 307. The aforesaid decision was upheld by the Hon'ble Punjab and Haryana High Court in CIT vs. Quark Systems Pvt. Ltd.: 244 CTR 542. 3.19. Then ld. DR has submitted that the assessee had challenged inclusion of some of the comparables on the general ground that they had intangibles and high turn-over vis-à-vis the assessee. Ld. DR submitted that the assessee could not produce any details, analysis or evidences to show as to how such variations, if any, had impact on the operation profit margins of the comparable. No study or analysis was produced by the assessee and on this point, the assessee had just made a plain statement. In this regard, while rebutting the argument of the assessee, ld. DR has pointed out that intangibles or high turn- ITA No.3688/Del/2018 CO No.144/Del/2018 23 over did not have any kind of relationship with the profit margins and on their own, they alone can not be basis for exclusion of any comparable. In this regard, a chart has been cited to claim that such variations on account of intangibles or turn over don’t have any bearing on profit margin of comparable. As per ld. DR, in fact, they are not even likely to have any kind of bearing on profit margins. There is no study presented by the assessee to suggest such co- relationship. As for convenience the said chart is reproduced below; S.NO Company Name Turnover ( Rs. In Crores) Intangible (Rs. In Cr.) Working Capital Adj. OP/OC (%) 1 Larsen & Toubro Infotech Ltd. 1776 Software- 107.61 Business Right-9.80 21.33 2 Persistent Systems Ltd. 504.4 Computer- 70.3 Software – 57.0 29.21 3 Infinite Data Systems Private ltd. 38.31 Nil 85.10 4 Thirdware Solution ltd 67.56 ---- 39.41 5 E-Infochips Bangalore Ltd 43.04 Computer :1.31 66.50 6 Infosys Ltd. 21140 IPR : 12 46.76 7 E-Zest Solutions Ltd. 10.23 No intangible Except Computer – Software & Hardware 15.17 8 Sasken Communication Tech Ltd 401.50 Not available 19.22 9 Persistent System & Solution Limited 6.67 Nil 13.20 3.20 Relying the aforesaid Ld. DR, submitted that from the table of comparables above it can be seen that Turnover has no correlation with Net Margins (OP/OC). He submitted that the Ld. TPO has also discussed this aspect ITA No.3688/Del/2018 CO No.144/Del/2018 24 in para-12 of order to emphasize that higher value of working capital adjusted OP/OC are not necessarily in respect of those companies, which are having high turnover or higher value of intangibles. For example, as seen from above table, Persistence System Ltd. is having lower turnover than Larson and Turbo Infotech Ltd., but its profit margin is higher than L&T Infotech Ltd. Similarly, E-Infochips Bangalore ltd. is having very low turnover and tangible in comparison to L&T Infotech Ltd or even persistence System Ltd., still its margin are higher than these companies. 3.21 To support foresaid contentions the Ld. DR has relied decision in Capgemini India (P.) Ltd. [2013] 33 taxmann.com 5 (Mumbai - Trib.) for supporting the contention for exclusion of Assessee’s own comparable rejected and on point that high turn over is not a criterion to exclude an otherwise comparable company. Decision in Navisite India Pvt. Ltd., Gurgaon vs ITO ITA No. 5329/Del/2012 Assessment Year: 2008-09 is relied for the proposition that if comparable is affected by brand value, the assessee has to demonstrate it. Mere presence of brand value is not a criterion to exclude an otherwise comparable company. Decision in Willis Processing Services (I) (P.) Ltd. [2013] 30 taxmann.com 350 (Mumbai - Trib.) was relied for contenting that Marketing intangible is not relevant to decide exclusion of a comparable and that High Turnover and brand value has no correlation with higher margins in Software industry. Then Deloitte Consulting India (P.) Ltd. [2011] 12 ITA No.3688/Del/2018 CO No.144/Del/2018 25 taxmann.com 500 (Hyderbad) was relied on point of exclusion of earlier included comparable by assessee itself (exclusion of assessee’s own comparable rejected in this case) and that Intangibles would not materially affect the profit. Further, no two comparables can be replica of each other and application of Rule 10B should be carried out and judged on a broader perspective. Further ld. DR relied Steria (India) Ltd. [2020] 122 taxmann.com 267 (Delhi - Trib.) for the proposition that inclusion or exclusion of a comparable in an earlier year or in some other case cannot be basis for inclusion or exclusion of that comparable in the case of an assessee for another year or in another case.( Para 26) and also that L& T Infotech Ltd. is not engaed in sale of product. ( Para 70). Further, Persistent Systems Ltd was held to be a software service company only and not a software product company ( Para 115-118). Then Deloitte Consulting India (P.) Ltd. [2011] 12 taxmann.com 500 (Hyderbad) was relied on point of exclusion of earlier included comparable by assessee itself (exclusion of assessee’s own comparable rejected in this case) and that Intangibles would not materially affect the profit. Further, no two comparables can be replica of each other and application of Rule 10B should be carried out and judged on a broader perspective. Further ld. DR relied Steria (India) Ltd. [2020] 122 taxmann.com 267 (Delhi - Trib.) for the proposition that inclusion or exclusion of a comparable in an earlier year or in some other case cannot be basis for inclusion or exclusion of that comparable in the case of an assessee for another year or in another case and also that L& T Infotech Ltd. is not engaged in sale of product. ITA No.3688/Del/2018 CO No.144/Del/2018 26 Further, Persistent Systems Ltd was held to be a software service company only and not a software product company. In addition to the above, reliance is placed on decision of Delhi High Court in case of Chryscapital Advisors India Pvt. Ltd , 82 Taxmann.com 167 (Del), wherein Hon’ble High court has held that High Turn-over ipso facto does not lead to conclusion that a company which is otherwise comparable on FAR analysis can be excluded. Effect of such High turnover on margin is required to be seen. In addition to the above, reliance is placed on decision of Delhi High Court in case of Chryscapital Advisors India Pvt. Ltd , 82 Taxmann.com 167 (Del), wherein Hon’ble High court has held that High Turn-over ipso facto does not lead to conclusion that a company which is otherwise comparable on FAR analysis can be excluded. Effect of such High T.O. On margin is required to be seen. 3.22 Ld. Sr. Counsel has however relied on various judicial pronouncements to support the plea that turnover and tangibles are relevant factors which effect profitability. 3.23 In this context, we are of considered view that both the side will agree that what is more important than choosing a calculation method is admitting that Transfer Pricing is not an exact science, and that there will hardly ever be identical and comparable operations. The OECD recognizes that Transfer Pricing is not an exact science. As transfer pricing is not an exact science there is no one size fits all approach for determining a transfer price. Application of ITA No.3688/Del/2018 CO No.144/Del/2018 27 the arm’s length principle is usually based on a comparison of the conditions of a controlled transaction with the conditions of transactions between independent enterprises. The comparison is only useful if the economically relevant circumstances of the controlled and uncontrolled transactions being compared are sufficiently similar, i.e. if they are in fact comparable. Comparability adjustments should be considered only if the adjustment will increase the reliability of the results. 3.24 However, endeavor of all the parties should be to come as close as possible to the parameters of comparability. It is not the amount in figures which is relevant but the impact on comparability as per human prudence. When there is no strict jacket formula to determine how far Intangibles and Turnover then where we are dealing with case of a captive software service provider, certainly the intangibles or high turnover with varied set of revenue from different segments will effect the profit margins. 3.25 We are of considered view that there are catena of judicial precedents where in it is held that a company cannot be selected as a comparable for the purpose of benchmarking analysis on the basis of high turnover and significant intangible assets. Reliance can be placed on the decision of the Mumbai Tribunal in the case of Capita India Private Ltd vs ACIT (ITA No.: 356/Mum/2016) rejected a company on account of owning huge intangibles as ITA No.3688/Del/2018 CO No.144/Del/2018 28 compared to the respondent. Relevant reading from the said ruling is reproduced below : \".... That apart, it is seen that, this company is a part of Tata Group and has a huge brand value across the world and also owns huge intangibles. Thus, there is a huge difference in the assets employed by this Company as compared to the assessee which also reflects in its revenue and profit margin. Its intangible assets itself is more than Rs. 3337.4 crores as on 1st April, 2010 and additions during the year were more than Rs.756.24 crores. Thus, this company having huge intangibles assets cannot be compared with the assessee who has no significant intangibles.\" 3.26 In M/s. Telelogic India Pvt., Ltd. C/o IBM India Pvt. Ltd. Versus Asst. Commissioner of Income-tax, Circle 12(4), Bangalore IT(TP)A No.22/Bang/2012 order dated 16/03/16 the law with regard to three relevant factors like related party transactions (RPT), intangibles and turnover, were consider and relevant findings are reproduced below; “12.3. Thus, the law is fairly well settled to the extent that the companies having in related party transactions more than 15% cannot be considered as comparable. Accordingly, we are of the opinion that the ld.CIT(A) was not justified in holding that only the companies having no RPT should alone be considered. Therefore, we hold that Allsec Technologies, Transworks Information and Ace Software can be considered as comparable. However, Wipro BPO cannot be considered as a comparable on account of fact that it is substantial intangibles and enjoying huge goodwill. This comparable was considered by the co-ordinate bench in the case of DCIT vs. M/s.Akamai IT(TP)A No.22 & 30/B/2012 Technologies India Pvt.Ltd in IT(TP)A No.879/Bang/2013 wherein it has been held as follows: \"10.1 We heard the rival submissions and perused the material on record. The Hon'ble Bombay High Court in the case of CIT vs.Pentair Water India ITA No.3688/Del/2018 CO No.144/Del/2018 29 Pvt. Ltd. (381 ITR 216) had held that the turnover was a relevant factor for the purpose of comparability of two entities. However, without going into this issue, as rightly submitted by the learned AR of the respondent- assessee-company, it was held by the co-ordinate benches of Hyderabad and Mumbai benches in the cases cited supra, Wipro BPO Solutions Ltd., cannot be considered as a comparable entity in view of the fact that it is gigantic company owning intangibles and having substantial brand value. Co-ordinate bench (Hyderabad) of the Tribunal, in the case of M/s.Market Tools Research Pvt.Ltd., (supra) held as follows: \"20. It is a fact that WIPRO BPO is a big company owning intangibles and having substantial brand value. It had generated considerable goodwill, reputation and brand value in the market. It is also a fact that it earns substantial revenue from products which are sold at a premium unlike the assessee which is only a contract service provider to its AE. Another relevant factor which cannot be lost sight of is, as can be seen from para 14.5 of his order, the TPO applying the turnover filter has excluded companies having turnover from ITES at less than 1 crore. Applying the same logic he should also have excluded companies having extraordinarily high turnover. While the assessee's turnover is about 5 crores, turnover of WIPRO BPO is 617.71 crores i.e almost 120 times more. Considering the aforesaid facts we are of the view that WIPRO BPO cannot be considered to be a comparable to the assessee.\" 10.2 In the case of Maersk Global Services Centre (India) P. Ltd.(supra), Mumbai bench of the Tribunal held that: \"Insofar as WIPRO BPO Solutions Limited is concerned, we find that their turnover is eleven times greater than that of the assessee. This company having such a higher brand value along with much higher turnover, in our considered opinion, has been rightly excluded by the ld.CIT(A).\" 3.27 Thus we are of considered view that the company with exceptionally high turnover as compared to the respondent or holding intangibles cannot be ITA No.3688/Del/2018 CO No.144/Del/2018 30 considered as comparable to the respondent. Accordingly we find no substance in ground no. 2 in appeal of Revenue. 4. Keeping in mind the discussion on aforesaid ground no. 2, in appeal of revenue, we now take up the issues arising out of alleged incorrect selection of comparable companies by the TPO. It is submitted by ld. Sr. Counsel that the following companies have been incorrectly selected by the TPO and have rightly been excluded by the CIT(A) for which the Revenue is in appeal raising aforesaid grounds. Each of the comparable sought to be included by revenue by way of separate grounds is taken up independently hereinafter by referring to respective ground in revenue’s appeal. 5. E-Infochips Bangalore Limited: (Ground no. 1 of revenue’s appeal). The comparable has been excluded by the ld. CIT(A). Ld. DR has submitted that this company is engaged in software development and his emphasis was on assertion that there is overlap between software development and ITES services. The ld. DR has primarily contended that this company is only engaged in the software development and has referred to the annexures to Director’s Report of this company available at page No.3 of the paper book. Profit & Loss Account for the year ending 31st March, 2010, copy of which is available at page 8 of the paper book and Schedule 11 to notes forming part of accounts para 9 at page 15 of the convenience compilation to submit that as alleged, this company is not ITA No.3688/Del/2018 CO No.144/Del/2018 31 an ITeS company. It was submitted that the income reported is only income from software services and software development. 5.1. On the other hand ld. Sr. Counsel has submitted on behalf of the assessee that the nature of operations of this company is Software Development and I.T. enabled Services, which is the only reportable segment. Reference was made to Page 63 of AR/ Pg 930 of PB Vol 2/Pg no. 16 of Con. PB, whereas the assessee is only engaged in provision of software development services and does not provide ITES services. It is submitted that specific characteristics of ITES services provided by this company is altogether different from the characteristics of software services provided by the assessee and therefore, this company has rightly been rejected by the CIT(A) as comparable to the assessee. 5.2 The relevant extract of the CIT(A) order is reproduced as under: “(c) It is seen that the above mentioned company cannot be selected as comparable for TP analysis, because it is engaged in both software development as well as I'TES and segmental information is not available. The CIT(A) in AY 2011-12 in ITA No. 10566/15-16/CIT(A)-19 dated 30.06.2017 has also rejected the said company. In accordance with the principle of consistency and respectfully following the order of the Hon'ble Delhi ITAT in the case of Sun Life India Service (supra) the contention of appellant is accepted”. 5.3. Ld. Sr. Counsel has submitted that in the case of Aptiv Components India Private Limited (ITA No.1361/Del/2015; AY 2010-11), E-Infochips Bangalore Limited was rejected by the Tribunal as comparable to a software service provider. Decision of Hon’ble High Court of Punjab & Haryana in the case of ITA No.3688/Del/2018 CO No.144/Del/2018 32 the Pr. Commissioner of Income Tax, Gurgaon vs. Comverse Network System India Pvt. Ltd. [ITA no. 551/2017] is relied to submit that E-Infochips has been excluded as comparable on the basis of functional dissimilarity. Reliance is also placed on the decision of Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax-6 vs. Nokia Seimens Networks India Pvt. Ltd. [ITA 48/2020] wherein the Hon’ble Court upheld the decision of the Hon’ble Tribunal excluding the E- infochips as a comparable. A catena of decisions for similar outcome has been relied which are not reproduced. 5.4. In regard to this comparable, at outset we are of considered view that in the discussion in ground no. 2 we have reached a conclusion that assessee is captive service provider in VLSI design software focusing on designing and defining the ICs itself, while what we find is that the segmental information relied by the ld. Sr. Counsel available at page No.16 and as part of the notes forming part of accounts mention specifically that the company is primarily engaged in software development and IT Enabled services. We find that in Clause 9 at page 15 of the paper book, it is mentioned that the company is engaged in the development and maintenance of computer software and production and sales of software cannot be expressed in any generic unit. Hence, it is not possible to give quantitative details of sales and certain other information as required under para 3, 4C, 4D of part II of Schedule VI to the Companies Act, 1956. Thus, we are of the considered view that development ITA No.3688/Del/2018 CO No.144/Del/2018 33 and maintenance of computer software has to be given a broad understanding. We find that as part of these annual reports, it is mentioned that the company has earning in foreign currency from software development and consultancy charges. On page 13 of the paper book as notes forming part of the accounts, in clause (f)(i), it is mentioned that the revenue from software services is recognized as per the terms of relevant agreements/development contracts. In the clause 9 of the same, in sub-clause (i), it is mentioned that comparables (of consultancy charges) are recorded when the supply of services, consultancy are communicated. On page No.16 of the convenience compilation, the related party disclosures mentions that the company has earned a consultancy income of Rs.59,078,374 which constitutes 14% of the turnover of the company. 5.5. Coming to the assertion of the ld. DR that software services and ITeS services overlap in fact benefits the assessee as the financials of the assessee and the annual report as brought on record show that the company is not exclusively into software development and has other sources of revenue from Software services which are IT enabled. We are of the considered view that specific characteristics of services rendered should be sufficiently established by the revenue to take into consideration a comparable for the purpose of benchmarking analysis. The following judicial precedents Reliance is placed on following decisions by the ld. Sr. Counsel for assessee, also helps the case of ITA No.3688/Del/2018 CO No.144/Del/2018 34 assessee as determined by Ld. CIT(A), wherein this company was rejected as comparable to a software service provider:- (i) PCIT vs United Health Group Information Services Pvt Ltd: ITA 1180/2017 (Del HC); (ii) Aptiv Components India Private Limited (ITA No.l361/Del/2015; AY 2010-11) (Page no. 1511-1514 of case law PPB Vol III); (iii) Kaplan India Pvt. Ltd. vs. ITO [ITA No. 1481/Del/2015] [Pg 215-217 of case law PB Vol. I]; (iv) Motherson Sumi Infotech Limited vs. DCIT [ITA No. 175 l/Del/2015] [Pg no. 755-756 of case law PPB Vol. II]; (v) Freescale Semiconductor India Pvt. Ltd. vs. CIT [ITA No. 1263/Del/2015] [Pg no. 246 of case law PPB of Vol I]; (vi) Delhi ITAT in case of ST-Ericsson India Pvt Ltd (AY 2010-11) [Pg no. 69 of case law PPB of Vol I]; (vii) Delhi ITAT in case of Sun Life India Service Centre Pvt Ltd (ITA 750/Del/2015) (AY2010-11) [Pg no.119-120 of case law PPB of Vol. I]; (viii) Hyderabad ITAT in case of DE Shaw India Software Private Limited vs ACIT (ITA No.304/Del/2015); (ix) IVY Comptech Pvt. Ltd. for AY 2010-11 ITA Nos. 222 & 334/Hyd/15; (x) Lab advantage Solution Pvt Ltd (ITA 1051/Kol/2015); ITA No.3688/Del/2018 CO No.144/Del/2018 35 (xi) Pr. Commissioner of Income Tax, Gurgaon vs. Comverse Network System India Pvt. Ltd. [ITA no. 551/2017] [ Page 1658-1660 of case law PPB Vol III] [ Punjab & Haryana High Court]; (xii) Pr. Commissioner of Income Tax-6 vs. Nokia Seimens Networks India Pvt. Ltd. [ITA 48/2020] [ Page 1652 of Case law PPB Vol III] 5.6. Thus we find no reasons to interfere in findings of ld. CIT(A). The ground no. 1 in appeal of Revenue has no substance. 6. Infinite Data Systems Private Limited. (Ground no. 3 in appeal of Revenue). The comparable was rejected by ld. CIT(A). Ld. DR has relied the order of ld. AO and further relied page 31 of the CC to contend that the functions of this company are similar to assessee’s. 6.1. On the other hand Ld. Sr. Counsel has submitted this company has high related party transactions and was rightly rejected by ld. CIT(A). Relying annual report of this company for financial year 2008-09, it was submitted that the company was formed to execute the contract entered into by the parent company with Fujitsu service ltd. It is submitted that since the entire turnover has been derived by this company from transactions entered into with related parties in terms of section 92B(2) of the Act at the direction and instructions of the parent company, the said company cannot be regarded as an appropriate comparable for the purpose of undertaking benchmarking analysis. It was also submitted that this was extra-ordinary year of operation. It is submitted that the ITA No.3688/Del/2018 CO No.144/Del/2018 36 company is not comparable to the assessee because of the incomparable financial results arising out of the exceptional circumstances in the financial year ending on 31st March, 2010 and succeeding financial years. It is submitted that the company is earning abnormal profits during the financial year 2009-10 and succeeding financial years shown as under:- Year 2009 2010 2011 2012 OP/OC (%) 28.35 % 88.25% 116.00 % 96.19% Sales (in crores) 4.74 38.32 52.75 43.31 6.2. It is further submitted that during the year ending March 31, 2010, the turnover of the company increased by 708%, i.e. from Rs. 47,407,301 to Rs. 383,160,901 in the preceding year, increasing the operating profit margin from 28.35% to 88.25%. It is further submitted that the TPO has also rejected companies incurring persistent losses as well as companies having exceptional year of operations. Accordingly, it is submitted by ld. Sr. Counsel that the aforesaid company cannot be considered as comparable to the assessee, not being representing the normal industry trend and operating in a different market condition. It was further submitted that this company is functionally different. It is submitted that the company is engaged in providing a diverse set of services which inter-alia include technical consulting and infrastructure management services. Further, the note on Revenue Recognition states that the company ITA No.3688/Del/2018 CO No.144/Del/2018 37 derives its revenue primarily from technical support and infrastructure management services. (Pg 13 of annual report/ Pg no. 31 of Con. PB). Accordingly, it is submitted that this company cannot be regarded as comparable to the assessee, engaged in providing software development services. 6.3. The relevant extract of the CIT(A) order is reproduced as under: “(c) It is also seen that the judgement in the case of Sun Life India Service (supra) pertains to assessment year 2010 -11, i.e. the year under reference. The above mentioned company is functionally different from that of the appellant as it is engaged in diversified activities. In accordance with the principle of consistency and respectfully following the order of the Hon'ble Delhi ITAT in the case of Sun Life India Service (supra) the contention of the appellant is accepted.” 6.4. Ld. Sr. Counsel has relied the decision of the Hon’ble Delhi High Court in the case of Pr. CIT vs. Open Solutions Software Services Pvt. Ltd. (ITA No. 201/2018) to contend that under similar circumstances the Hon’ble High Court had directed to exclude one comparable, Wipro Technologies Ltd., on account of significant related party transactions under section 92B(2) of the Act. The company was also rejected by the Hon’ble Delhi High Court in PCIT vs United Health Group Information Services Pvt Ltd: ITA 1180/2017 (Del HC). Ld. Sr. Counsel has also relied the Delhi Bench of the Tribunal decision in the case of ST Ericsson India Pvt Ltd for AY 2010-11 (ITA No. 609/Del/2015) to contend that on the basis of functional dissimilarity, the company was rejected as comparable by the Tribunal. It is further submitted that ITA No.3688/Del/2018 CO No.144/Del/2018 38 in the case of Aptiv Components India Private Limited (ITA No.1361/Del/2015; AY 2010-11) Infinite Data Services Private Limited was directed to be excluded on the ground of high related party transactions. According to by ld. Sr. Counsel this company has been rejected by the Hon’ble Courts and Benches of Tribunal for AY 2010-11 in the case of –  Kaplan India Pvt Ltd. vs ITO (ITA No 1481/Del/2015)  Labvantage Solutions vs DCIT (ITA No. 599/Kol/2015)  Freescale Semiconductor India vs DCIT (ITA No. 1263/Del/2015)[  Lime Labs India Pvt Ltd vs ITO (ITA No. 1703/Del/2015)  JCIT vs. Steria India P. Ltd., [ITA No. 511 & 512/Del/2016]  Sun Life India Service Centre Pvt Ltd (ITA 750/Del/2015) (AY 2010- 11) 6.5. Reliance is also placed on the following decisions wherein the Hon’ble Benches of Tribunal have held that extreme cases cannot be regarded as comparable to a captive service provider:  Sap Labs India Pvt Ltd vs ACIT (ITA no 418/Bang/2008)  Mentor Graphics (Noida) Pvt Ltd vs DCIT ( ITA no 1969/D/2006) 6.6. Ld. Sr. Counsel has submitted that in the case of Sapient Corporation Pvt Ltd vs DCIT (ITA No 5263/Del/2010) the Delhi Bench of the Tribunal has held that, in cases where loss making companies are being rejected, in order to perform an objective and unbiased benchmarking analysis it is imperative that high profit companies should also be rejected. Decision of Hon’ble High Court of Punjab & Haryana in the case of the Pr. Commissioner of Income Tax, ITA No.3688/Del/2018 CO No.144/Del/2018 39 Gurgaon vs. Comverse Network System India Pvt. Ltd. [ITA no. 551/2017] is relied where Infinite Data System Private Limited has been excluded as comparable on the basis of functional dissimilarity. 6.7. In regard to this, though ld. DR has primarily relied the TP order however, it is sufficiently established by the ld. Sr. Counsel that the company was formed to execute the contract entered into by the parent company. Further, the schedule forming part of the financial statement establish that the entire turnover has been derived by this company from transaction entered into with related parties. Further, the company is engaged in diverse support services including technical, consulting and infrastructure management services. In this regard, the revenue recognition note (para 17.1.3 at page 31 of CC) states that the company derives its revenue primarily from technical support and infrastructure management services. Ld. Sr. Counsel has sufficiently established that the relevant year has been an extraordinary year of operation as the company’s turnover increased by 708% from Rs.4,74,07,301/- to Rs.38,31,60,901/-. Thus we are of considered view that the rejection of this company as comparable by the CIT(A) needs no interference. The limited ground of appeal of the revenue has no substance. 7. Infosys Technologies Limited. (Ground no. 4 in appeal of revenue). The comparable has been deleted by ld. CIT(A). The ld. DR has relied the findings of AO and by referring to page No.105 of the convenience compilation ITA No.3688/Del/2018 CO No.144/Del/2018 40 contended that the revenue earned from software products is only 4.37% of the sales and, referring to pages 183 to 187 of the convenience compilation, submitted that there is no intangibles and in the asset held by the company. It was contended that company derives 97.3% of the revenue from repeat business. He stressed on the fact that the margins for onsite software services than for off shore software services. So presence of onsite revenue is in fact favourable to the assessee and having similar FAR. It was stated that slow growth of revenue in case of this company indicates that there is no effect of intangible. Referring to page No. 107 of CC it was submitted that there are segments for different geographies and industries of clients, indicating how insignificant software products are being considered by Infosys Ltd. As they constitute only 4% of revenue. It was further submitted by relying page number 183 and 187, being part of balance sheet fixed assets, there are meager intellectual property rights. It was submitted assessee itself is a part of reputed MNC group engaged in high-tech field. Thus, had the assessee provided software services to any third party, it would have got benefited due to reputation of its parent group. The ld. DR has relied the decision of the Tribunal in the case of Capgemini India Pvt. Ltd vs. ACIT (2013), 33 Taxmann.com 5 (Mumbai -Trib) and in the case of Deloitte Consulting India Pvt. Ltd.(2011), 12 taxmann.com 500 (Hyderabad). ITA No.3688/Del/2018 CO No.144/Del/2018 41 7.1. In regard to this comparable, ld. Sr. Counsel has submitted that this company is functionally different with regard to ownership of products and performance of related entrepreneurial functions. It is submitted that the company is inter-alia engaged in development and sale of software products such as Finacle, Flypp, Infosys mConnect, Infosys Trade origination System etc. Further, it is submitted that the company undertakes entrepreneurial functions such as R&D and brand development (reference was made to Page 93 of convenience compilation). It was submitted by ld. Sr. Counsel that in the annual report that the company has spent Rs 440 crore on R&D which constitutes more than 2% of it’s turnover (reference was made to Pg 99 of convenience compilation). Accordingly, it is submitted that since the company develops and owns proprietary products and is also undertakes risk bearing entrepreneurial functions, it cannot be regarded as an appropriate comparable to the appellant, a captive service provider. Attention was drawn to the fact that this company has oownership of intangibles/brand. It is submitted that the company owns and exploits a valuable trade mark namely ‘Infosys’ and therefore, cannot be regarded as an appropriate comparable for the purpose of benchmarking the international transactions undertaken by a captive service provider. It is submitted that companies owning/exploiting valuable intangibles such as patents, brand etc cannot be compared with a routine captive service provider such as the assessee. It is submitted by ld. Sr. Counsel that companies owning and exploiting valuable intangibles such as patents, brands etc. enjoys ITA No.3688/Del/2018 CO No.144/Del/2018 42 significant competitive advantage in the form of premium pricing and/or higher volume of business leading to higher profitability. Ld. Counsel has submitted that abnormal margins are usually a result of abnormal circumstances or availability of intangible asset as a distinct advantage to the company which is not available to its competitors operating in the same industry. Ld. Sr. Counsel has submitted that the assessee does not own such similar intangible assets to enable it to earn higher margins. Further, Infosys Ltd is inter-alia engaged in development and sale of software products. The software products developed by the company includes Finacle TM, Finacle core banking solution (reference as made to page15 of annual report/Page no. 93of Con. PB). 7.2. The ld. CIT(A) has rejected the Infosys Technologies Limited with following observation: “(c) It is also seen that the company is functionally incomparable to the appellant as it owns IPs, invests in R & D and has large marketing expenditure. Respectfully following the order of the jurisdictional High Court in the case of Saxo India (supra) and Agnity India (supra), Infosys Technologies Ltd is excluded from the final set of comparables” 7.3. It is submitted by ld. Sr. Counsel that the company was rejected as comparable by the Tribunal in the assessee’s own case for AY 2008-09 in ITA No 6169/Del/2012 and appeal of the Revenue was dismissed by the Hon’ble High Court in ITA 715 of 2023. It is further submitted that in the assessee’s own case for AY 2012-13 and 2017-18 and 2018-19 the company was directed to be excluded as comparable by the DRP. It is submitted that the Hon’ble ITA No.3688/Del/2018 CO No.144/Del/2018 43 Delhi High Court in the recent case of Alcatel Lucent India Limited (ITA 220/2022) has held that companies engaged in development and sale of software products cannot be regarded as appropriate comparable to the companies engaged in provision of software services. The Delhi Bench of the Tribunal decision in the case of Steria India Ltd. For AY 2015-16 (ITA No 6687/Del/2019) is relied to submit that Tribunal has rejected Infosys BPO Ltd. on the basis that the company enjoys the benefits associated with brand Infosys. Reliance, in this regard, is also placed on the decision of the Delhi Bench of the Tribunal in the case of Agnity India Technologies Pvt. Ltd vs. ITO (ITA No. 3856/Del/2010), wherein appeal filed by the Revenue was dismissed by the Hon’ble Delhi High Court in ITA No. 1204/2011. Tribunal had held as under: “It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the latter is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the case of aforesaid Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in this order” 7.4. In regard to Infosys Ltd., at outset we are of considered view that in the discussion in ground no. 2 we have reached a conclusion that assessee is captive service provider in VLSI design software focusing on designing and defining the ICs itself, while Infosys Ltd. is established to be a company inter alia engaged in development and sale of software products with definite and open ITA No.3688/Del/2018 CO No.144/Del/2018 44 market. It is engaged in entrepreneurial functions. This company by its own research and development spending like 440 Crore in R&D, creates own intangible adding to its own brand. Ld. Sr. Counsel has sufficiently established the extent of ownership of intangibles. In an assessee’s own case the company has been not found to comparable to the DRP. Various judicial precedents cited by ld. Sr. Counsel also support the findings of ld. CIT(A). Thus we find no reason to interfere in the findings of Ld. CTI(A). The ground as no substance. 8. Persistent System Ltd. (Ground no 5 of Revenue’s appeal). The company was rejected as comparable by ld. CIT(A). Ld. DR has submitted that this was assessee’s own comparable and the aspect has been already considered and not found a reason to non-suit the assessee. Further ld. DR has submitted that the intellectual property driven revenue only constitute 7.2% and the IP is owned by customers not Persistent. It was submitted that company provides outsourced product development services to independent software vendors and enterprises. The company derives a significant portion of its revenue from export of software services and products. Referring to the paper book it was submitted there are no intangibles other than computers and software so as to impact net margins. Reference was made to page 959 of CC being part of TPSR to submit that Persistent is predominantly engaged in outsourced product development (OPD) services for independent software vendors on the same include a bouquet of services. It was thus contended that that shows product ITA No.3688/Del/2018 CO No.144/Del/2018 45 developed were not owned but were developed for the customers only by using software services. Ld. DR cited that suppose a customer required company to develop a “Mobile App” as per its specifications. Development of such App will require functions of holding and testing i.e functions associated with rendering of software services, even though final outcome will be a product. The company does not have any title on such product which will be property of customer. 8.1. It is countered by ld. Sr. Counsel submitting that this company is functionally different, as it is engaged in the business of development and sale of software products and therefore, cannot be regarded as comparable to the assessee, a captive software service provider. Reliance is placed on Pg 16, 82 and 99 of the Annual report (Pg no. 331, 397 and 414 of Con. PB) of this company to point out that it is stated that the company specializes in software products and services and is deriving income from sale of software products. Further the segmental profitability of this company from provision of software services is not available in the annual report and accordingly, it cannot be regarded as an appropriate comparable for the purpose of benchmarking analysis. 8.2. The CIT(A) has rejected the Persistent Systems Limited. The relevant extracts of the CIT(A) order is reproduced as under: “(a) The CIT(A) in AY 2011-12 in ITA No. 10566/15-16/CIT(A)-19 dated 30.06.2017 had rejected the above mentioned company on the ground that \"since the company sites development of software also deals in its own products, segmental data whereof is not available will stop the same is ITA No.3688/Del/2018 CO No.144/Del/2018 46 rejected for insufficient data\". It is also seen that the Hon'ble Delhi High Court has rejected the above mentioned company as a comparable in the case of Cash Edge India Private Limited ITA No. 279/2016 on the same ground. The above view was also upheld by the Delhi High Court in the case of Fiserv India Private Limited ITA in 602/2016. The material facts of the case at the same in the instant year also. In accordance with the principle of consistency and respectfully following the order of the Delhi High Court referred to above, the contention of the appellant is accepted. The AO/TPO is directed to exclude Persistent Systems Ltd from the final set of comparables.” 8.3. Ld. Sr. Counsel has submitted that Persistent System Ltd. was rejected in the appellant’ own case for AY 2008-09 (ITA No.6169/Del/2022) on the basis of functional dissimilarity. The appeal of the Revenue was dismissed by the Hon’ble High Court in ITA 715 of 2023. It is submitted by ld. Sr. Counsel that the Hon’ble Delhi High Court in the recent case of Alcatel Lucent India Limited (ITA 220/2022) held that companies engaged in development and sale of software products cannot be regarded as appropriate comparable to the companies engaged in provision of software services. Reliance is also placed on the decision of Delhi Bench of the Tribunal in the case of Saxo India Pvt. Ltd. vs. ACIT (ITA No. 6148/Del/2015), wherein, Persistent Systems Limited has been directed to be excluded on account of functional dissimilarity. Similarly reliance is 8.4. Reliance is placed on the decision of Delhi Tribunal in the case of Alcatel-Lucent India Ltd vs DCIT (ITA No. 6856/Del/2015); Pyramid IT Consulting Private vs. ITO (ITA No. 5401/Del/2012); Equant Solutions India ITA No.3688/Del/2018 CO No.144/Del/2018 47 Pvt. Ltd. vs. DCIT (ITA No. 1202/Del/2015); NEC Technologies India Pvt Ltd (ITA No 6283/Del/2015). Cash Edge India (Pvt.) Ltd. vs. ITO (ITA No. 64/Del/2015) where Bench has directed to exclude the company on account of functional dissimilarity and appeal preferred by the Revenue was dismissed by the Hon’ble Delhi High Court vide order dated 04.05.2016 (ITA No. 279/2016). The Hon’ble Delhi High Court decision in the case of Freescale Semiconductor India Private Limited (Delhi High Court) (ITA 613/2015), is relied where court directed to reject this company from the set of comparable companies on the basis that it is engaged in sale of software products and no segmental information is available. Reliance is also placed on the decision of the Hon’ble Delhi High Court in the case of Pr CIT vs Open Solutions Software Services Pvt Ltd (ITA 201/2018 where appeal filed by the Revenue was dismissed by the Hon’ble Delhi High Court in ITA No. 515/2017. It is further submitted that in the case of Aptiv Components India Private Limited (ITA No.1361/Del/2015) Persistent System Limited has been excluded by the Tribunal from final set of comparable for the purpose of benchmarking of international transaction in software segment. Reliance is placed on the decision of Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax-6 vs. Nokia Seimens Networks India Pvt. Ltd. [ITA 48/2020 wherein the Hon’ble Court upheld the decision of the Tribunal excluding the Persistent System Ltd. as a comparable. ITA No.3688/Del/2018 CO No.144/Del/2018 48 8.5. In regard to Persistent, at outset we are of considered view that in the discussion in ground no. 2 we have reached a conclusion that assessee is captive service provider in VLSI design software focusing on designing and defining the ICs itself, while Persistent is established to be a company inter alia engaged in development and sale of software products with definite and open market. The annual report available at pages 332 mentions that this company is a leader in Outsourced Software Product Development (OPD) which is actually different from IT services only in relation to time of delivery of product and money are variable in case of IT Services but fixed in OPD. Information at page 397 and 414 of CC as part of annual report establishes that said company specialises in outsourced product development services. It is claimed by company that it has significant revenue from exports of software services and products. 8.6. Further we find that Ld. CIT(A) has rejected this comparable also for reasons that segmental data was not available and ld. DR could not counter the same as well. 8.7. The annual report at page 416 of CC establishes this company has been investing in creating its own intangibles. Ld. DR himself admits that a portion of revenue is from risk sharing/risk reward wherein the company launches new products together in the new markets and owns the IP rights and products. The judicial precedent, including in assessee’s own case, cited on behalf of assessee ITA No.3688/Del/2018 CO No.144/Del/2018 49 also established that in various cases it was rejected from the set of comparable companies on the basis that it is engaged in sale of software products and no segmental information is available. Thus we are not inclined to interfere in the findings of ld.CIT(A). The ground has no substance. 9. Sasken Communications Technologies Ltd. (Ground no. 6 in appeal of Revenue). This comparable was rejected by ld. CIT(A). Ld. DR has submitted that this was assessee’s own comparable which cannot be retracted and the aspect has been already considered and not found a reason to non-suit the assessee. Further relying on ld. AO’s conclusion the ld. DR has submitted that segmental revenue of software services and products as available at page no 960 of TPSR show that 94% revenue was derived from software services. 9.1. In regard to this company ld. Sr. Counsel has submitted that this company is functionally different as it develops and sells software products. Ld. Sr. Counsel pointed out that the company derives its revenues from provision of software services as well as sale of software products. Further, during the relevant year, the company acquired the product portfolio of Ingenient Technologies Inc. Attention was drawn by the ld. Sr. Counsel on the fact that the company has an in-house research & development unit which is registered with department of scientific and industrial research. The R&D is specifically directed towards development of software products. In the directors’ report of the company it is stated that during the relevant year the ITA No.3688/Del/2018 CO No.144/Del/2018 50 company developed IsatPhonePro which was result of R&D activity undertaken by the company. However, assessee does not incur any R&D expenses. 9.2. The ld. CIT(A) has rejected the Sasken Communicaitons Tech. Ltd and the relevant extracts of the CIT(A) order is reproduced as under: “(a) The appellant has objected to the use of this comparable on the ground that the company was engaged in providing software products, its R&D expenses was 30.91% of the sales and that it was functionally dissimilar as it provided variety of services to the telecommunication industry. It was pointed out that the company had been excluded from the final set of comparables by the CIT(A) in AY 2011-12 in ITA No. 10566/15- 16/CIT(A)-19 dated 30.06.2017. The Hon’ble ITAT Delhi in the case of Saxo India (supra) which has been now upheld by the Delhi High Court. (b) The material facts of the case are the same in the instant year also as the company derives income from both software services and software products and segmental data is not available. Respectfully following the order of the jurisdictional High Court in the case of Saxo India (supra), Sasken Communications Technologies Ltd is excluded from the final set of comparables” 9.3. Ld. Sr. Counsel has placed reliance on decisions in Freescale Semiconductor India Private Limited (ITA No.5865/Del/2012); Electronics for Imaging India (P.) Ltd for the AY 2010-1; Bangalore ITAT in the case of Softtek India Pvt. Ltd.,for the AY 2010-11; Saxo India Private Limited (ITA No.6148/Del/2015);Motorola Solutions India Private Limited (ITA No. 5637/Del/2011) to contend that Sasken is not considered a valid comparable with companies exclusively engaged in software development. ITA No.3688/Del/2018 CO No.144/Del/2018 51 9.4. In regard to Sasken, at outset we are of considered view that in the discussion in ground no. 2 we have reached a conclusion that assessee is captive service provider in VLSI design software focusing on designing and defining the ICs itself, while Susken is established to be a company inter alia engaged in development and sale of software products with definite and open market. Further company has in-house R&D which was registered with Department of Scientific and Industrial research resulting into development of IsatPhonePro, a handheld satellite phone. The judicial precedents cited on behalf of assessee also establish that it is not good comparable for companies exclusively in revenue from software services. Thus we find no reason to interfere in the findings of ld. CIT(A). The ground has no substance. 10. Larsen and Tuobro Infotech Ltd. ( Ground no. 7 in revenue’s appeal). The comparable was deleted by ld. CIT(A). Ld. DR has submitted that this was assessee’s own comparable which cannot be retracted and the aspect has been already considered and not found a reason to non-suit the assessee. Further relying TPSR and the order of ld. AO the ld. DR has contended that during the year the revenue of this assessee is exclusively from IT Services. It has no revenue from subscription or license. It is not a software product company. The off-site operation actually relates to exports. 10.1. In regard to this comparable company ld. Sr. Counsel has submitted that this company is functionally different as it also develops and sells software ITA No.3688/Del/2018 CO No.144/Del/2018 52 products. ld. Sr. Counsel submitted that the company apart from rendering software development services has also derived revenue from sale of software products. In the profit and loss account the company has also disclosed cost of bought out items for resale under the head Software Development Expenses. Reference was made to financials of the company for the same. 10.2. Ld. Sr. Counsel submitted that the company earns revenue from onshore (51%) and offshore (49%) services and reference was made to Page S-1584 of AR/Pg 561 of PB Vol 2/ Pg no. 635 of Con. PB whereas the assessee has no onsite operations. It was then submitted that the said company has presence of Brand and other intangible. The company owns brand and intangibles such as business rights whereas the assessee does own any brand or intangible. Referring to the annual report available at page 636 of Conv. PB it was pointed that same stated that the company has taken decisive steps to strengthen it’s brand globally and during the relevant year the company won the marketing excellence award. 10.3. The CIT(A) has rejected the L&T Infotech Ltd.. The relevant extracts of the CIT(A) order is reproduced as under:- “(a) The appellant has objected to the choice of this company on the ground that it was engaged in diversified services and had significant intangible assets. It was pointed out that the company had been excluded from the final set of comparables by the CIT(A) in AY 2011-12 in ITA No.10566/15-16/CIT(A)-19 dated 30.06.2017. Perusal of the Audit Report of the company for the year under reference shows that the company is also ITA No.3688/Del/2018 CO No.144/Del/2018 53 engaged in the sale of products apart from rendering software development services, in this year also. The company has been rejected as a comparable by the Hon’ble Delhi High Court in the case of Saxo India (supra). Respectfully following the order of the jurisdictional High Court in the case of Saxo India (supra), Larsen and Toubro Infotech Ltd. is excluded from the final set of comparables.” 10.4. Ld. Sr. Counsel has relied assessee’s own case for AY 2012-13, AY 2017-18 and AY 2018-19 decision of DRP where this company was directed to be deleted. Further reliance is placed on the decision of Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax-6 vs. Nokia Seimens Networks India Pvt. Ltd. [ITA 48/2020] wherein the Hon’ble Court upheld the decision of the Hon’ble Tribunal excluding the Larsen & Tuobro as a comparable. Decision of Hon’ble Delhi High Court in Alcatel Lucent India and PCIT versus Oracle BPO Services Ltd. 303 CTR 284 are relied where this company was not found a suitable comparable for holding significant brand presence and value. 10.5. In regard to this comparable at outset we are of considered view that in the discussion in ground no. 2 we have reached a conclusion that assessee is captive service provider in VLSI design software focusing on designing and defining the ICs itself, while L&T apart from rendering software development has derived revenue from sale of software products. In the P&L ( page 645/652 of CC) company discloses cost of bought out items from resale under the head software development. Ld. Sr. Counsel has established that there is component ITA No.3688/Del/2018 CO No.144/Del/2018 54 of both on shore and off shore revenue in almost equal proportion. The presence of brand of the company and holding of intangibles is also established from material on record. At page 636 CC the annual report is available which establishes the claim of company to strengthen its brand globally. At page 654 of CC, as part of annual report we find the company has stated that computer software developed in house is capitalized at cost and same establishes the company is engaged in developing proprietary software. Also the fact that in assessee’s own case it is not found a suitable comparable lead us to conclude there is no error in finding of CIT(A) to delete the same. The ground has no substance. 11. E-Zest Solutions Limited (Ground no.1.1 in assessee’s CO). Ld. Sr. Counsel has contested the inclusion of this company as a comparable by the ld. CIT(A), by submitting that as with regard to the nature of services it can be seen that company is engaged in development of software products in addition to provision of niche services such as data engineering, digital commerce, cloud computing, business intelligence and mobility. Referring to the Draft Red Herring Prospectus (Copy available at Pg 96 of CC) filed by company with SEBI the ld. Sr. Counsel submitted that the same mentioned that the company is engaged in development of software products in addition to provision of niche services such as cloud computing, business intelligence and mobility. It was pointed out that the assessee, on the other hand is only engaged in provision of ITA No.3688/Del/2018 CO No.144/Del/2018 55 routine software services. It is submitted that specific characteristics of services provided by this company are altogether different from the characteristics of software services provided by the assessee and therefore, this company cannot be regarded as an appropriate comparable to the assessee. Reference was made to Rampgreen Solutions Pvt. Ltd. (supra) PCIT vs Open Solutions Software Services Pvt Ltd (supra); Omniglobe Information Technologies India Pvt. Ltd. (supra). Further reliance was placed on the decision in Motherson Sumi Infotech Limited vs. DCIT [ITA No. 1751/Del/2015] JCIT vs. Steria India P. Ltd., [ITA No. 511 & 512/Del/2016] Cadence Design Systems (I) Pvt. Ltd vs ACIT (ITA No. 6315/Del/2015) ACIT vs Mobileum (India) Pvt. Ltd. (ITA No. 945/Mum/2016) Clear 2 Pay India Pvt. Ltd. vs ITO (ITA No. 2788/Del/2017) ST-Ericsson India Private Limited (ITA 609/Del/2015) for AY 2010-11 (Delhi ITAT) Pune bench of ITAT in the Symphony Services Pune (P) Ltd. vs. ITO Ward 1(4), Pune [ITA No. 257(PN)/2013 and 3DPLM Software Solutions Ltd.v. Dy. CIT [2014] 42 taxmann.com 333. 11.1. It is further submitted that in the case of Aptiv Components India Private Limited (ITA No.1361/Del/2015) (Page no.1523-1525 of case law compilation vol III), E-Zest Solutions Limited was rejected as a comparable to a routine software service provider. 11.2. Ld. DR has contested the same by submitting that the revenue is from operation which is mainly software services. Presence of increase/decrease in ITA No.3688/Del/2018 CO No.144/Del/2018 56 stock is just 1.1% of total revenue and inventories. That the principal business of company is computer software development. 11.3. In regard to this comparable at outset we are of considered view that in the discussion in ground no. 2 we have reached a conclusion that assessee is captive service provider in VLSI design software focusing on designing and defining the ICs itself, while this company is established to be engaged in multifarious computing and software activity, including niche services and cloud based services. It holds inventory which establishes that it is not a mere software service providing company. The judicial precedents cited also support the contention of ld. Sr. Counsel that it has been consistently held that this company is not good comparable with captive service provider. Thus not being a good comparable same deserves to be taken rejected and accordingly the ground is sustained in favour of assessee. 12. Thirdware Solutions Ltd. (Ground no.1.1 of assessee’s CO) Ld. Sr. Counsel has contested the inclusion of this company as a comparable by the ld. CIT(A), by submitting that it is functionally different. It was submitted by referring to schedule 12 of the annual report of this company that in the report it is stated that the company is earning income from subscription and sale of license (reference was made to page 712 of convenience PB). Therefore, it was submitted that the company is owning and deriving income from proprietary products and accordingly, cannot be regarded as an appropriate comparable for ITA No.3688/Del/2018 CO No.144/Del/2018 57 the purpose of benchmarking the international transaction of provision of software services undertaken by the assessee. It was specifically argued that the company has developed software product currently named as “PAPA”( Pg no. 1103 of PB Vol 3/ Pg no. 746 of Con. PB) whereas the assessee is not engaged in product development. Then referring to ‘Schedule 14: Purchases’ of Profit and Loss Account, it was submitted that the company has incurred expenses on procurement of software services amounting to Rs. 11,40,23,224 which constitutes17% of the turnover of the company [Pg. 712 of Convenience Compilation]. The assessee on the other hand does not outsource any work to outside services providers and renders services through it’s own employees and using it’s own infrastructure. Accordingly, it is submitted that the business model of this company is significantly different from that of the assessee and therefore, it cannot be regarded as an appropriate comparable. Referring to the Hon’ble Delhi High Court decision in the case of Rampgreen Solutions 377 ITR 533 (Del) it was submitted that Hon’ble Delhi High Court has held that a company outsourcing it’s work to other service providers cannot be regarded as an appropriate comparable. Reliance is also placed on following judicial precedents:-  Delhi High Court in case of Pr. CIT vs. Open Solutions Software Services Pvt. Ltd. for AY 2010-11 (ITA No. 201/2018)  Delhi ITAT in case of NEC Technologies India Ltd vs DCIT for AY 2010-11  Delhi High Court in case of Fiserv India Pvt Ltd (ITA 17/2016)[ ITA No.3688/Del/2018 CO No.144/Del/2018 58  ST- Ericsson Private Ltd. [ITA No.609/Del/2015] for AY 2010-11  Delhi ITAT in the case of Open Solutions Software Services Pvt Ltd (ITA 7078/Del/2014) for the AY 2010-11  Delhi ITAT in case of Sun Life India Service Centre Pvt Ltd (ITA 750/Del/2015) for the AY 2010-11  ST- Ericsson Private Ltd. [ITA No.1672/Del/2014][Page 1020- 1021 of Case law PPB Vol II] 12.1. Further, it was contended by the ld. Sr Counsel that the company was directed to be excluded in the case of STMicroelectronics Private Ltd., (formerly Genesis Microchip (India) Pvt. Ltd. [IT(TP)A No.949/Bang/2011], a company which was subsequently merged into the assessee. 12.2. It is also submitted that the Hon’ble Delhi High Court in the case of Alcatel Lucent India Limited (ITA 220/2022) held that companies engaged in development and sale of software products cannot be regarded as appropriate comparable to the companies engaged in provision of software services. It is further submitted that in the case of Aptiv Components India Private Limited (ITA No. 1361/Del/2015) for AY 2010-11, Thirdware Solutions Limited was rejected as a comparable to a routine software service provider on the ground of functional dissimilarity. 12.3. Ld. DR has defended the decision of ld. CIT(A) by submitting that the said company has only one segment reporting of Software services. It was submitted it has no inventories and same also shows the company is not into software products. It was submitted that revenue from sales is very negligible at ITA No.3688/Del/2018 CO No.144/Del/2018 59 .002% of total revenue. The FAR of software services provided through SEZ and STPI units is similar to FAR of the assessee and hence it is not a valid criteria for exclusion. 12.4. In regard to this comparable at outset we are of considered view that in the discussion in ground no. 2 we have reached a conclusion that assessee is captive service provider in VLSI design software focusing on designing and defining the ICs itself, while this company is established to be engaged in providing services remunerated by subscription. The extent of revenue from same is not much relevant in present case as it is established that the said company anyhow owns some proprietary products unlike captive nature of assessee. Then company developing software product by name “PAPA” is very much on record. As per financials (page 712 of CC) company has incurred expenditure on procurement of software services of around 11.40.Cr. which constitutes like 17% of the turnover of the company. The sales components include export from SEZ, exports from STOI unit, revenue from subscription, sales of license and software services. There is no force in contention of ld. DR that as the percentage of revenue from sale of license is less than 5% same should be ignored. The percentage of revenue may be less but shows company has proprietary products or intangibles to earn income form subscription and license fee. Ld. Sr. Counsel has also successfully relied on judicial precedents, including in case of group company, where this company has been held not a ITA No.3688/Del/2018 CO No.144/Del/2018 60 good comparable with software service base company as this is engaged in development and sale of software products. Thus we are inclined to sustain the ground and directed that said company be deleted from list of comparable approved by ld. CIT(A). 13. Persistent Systems and Solutions Limited (Ground no.1.1 of assessee’s CO) Ld. Sr. Counsel has contested the inclusion of this company as a comparable by the ld. CIT(A), by submitting that it is functionally different. It was submitted that the company is engaged in software product design and development.(Page no. 992 of Con. PB).Further, in the profit and loss account of the company it is stated that the company has derived revenue from sale of software products (reference was made to Pg 1002 of CC). Accordingly, it is submitted that the company cannot be regarded as an appropriate comparable for the purpose of benchmarking the international transaction of provision of software services undertaken by the assessee. Further the company undertakes Research & Development activities for development of new products ( reference was made to Pg 992 of convenience compilation). Reliance is placed on the following decisions where for being into R&D, this company was not found good comparable with company engaged in software development:  Alcatel-Lucent India Ltd vs DCIT (ITA No. 6856/Del/2015) (Delhi Tribunal)[Pg no. 537-538 of case law PPB Vol I] ITA No.3688/Del/2018 CO No.144/Del/2018 61  Ikanos Communication India Pvt Ltd vs DCIT (ITA 137/Bang/2015) (Bangalore ITAT)[Pg no. 604-605 of case law PPB Vol I]  Bangalore ITAT in the case of Electronics for Imaging India (P.) Ltd for the AY 2010-11 (approved by the Hon’ble Karnataka High Court in (ITA No 538/2016). 13.1. It is submitted for the assessee that the Hon’ble Delhi High Court in the case of Alcatel Lucent India Limited (ITA 220/2022) held that companies engaged in development and sale of software products cannot be regarded as appropriate comparable to the companies engaged in provision of software services. 13.2. Ld. DR has defended finding of ld. CIT(A) by asserting that the company has revenue from software services and it services. It has nil inventory. It was submitted that the company provides software development, consultancy and system integrated services to the group. 13.3. In regard to this comparable at outset we are of considered view that in the discussion in ground no. 2 we have reached a conclusion that assessee is captive service provider in VLSI design software focusing on designing and defining the ICs itself, while this company is engaged in R&DE of software product design and development (reference can be made to page 992 of CC) and at page 1002 of CC, income is shown form the head ‘ sale of software services and products’. It is also established that company undertakes R&D to develop ITA No.3688/Del/2018 CO No.144/Del/2018 62 new product. Then ld. Sr. Counsel has successfully relied judicial precedents including assessee’s own case for AY 2008-09 where on the basis of functional dissimilarity it was rejected as comparable by this Tribunal and the appeal of revenue stands dismissed. Thus the ground deserves to be sustained and findings of ld.CIT(A) are reversed. This company is directed to be deleted from comparables. 14. CG-VAK Software & Exports Limited (Ground no.1.2 of the CO of assessee). Ld. Sr. Counsel has submitted that this company was wrongly excluded by CIT(A). It was submitted that the company has been incorrectly rejected by the TPO and CIT(A) on account of employee cost filter. The relevant extracts of the CIT(A) order is reproduced as under:- “(a) The main contention of the TPO for rejecting the above mentioned company was that it did not pass the employee cost filter......... (b) In view of the above, it is clear that the contention of the appellant is based on surmises and conjectures and hence it is not acceptable. Moreover, the company does not pass the employee cost filter by the appellant. Hence, the contention of the appellant is dismissed.” 14.1. Ld. Sr. Counsel submitted that the company can’t be rejected on account of employee cost filter. Ld. Sr. Counsel relied the Annual Report of CG-VAK suggests that no expenses by name of ‘employee compensation’ have been booked in the financial statements of CG-VAK, despite expenses in the nature of staff welfare, training, contribution to PF and ESI, gratuity etc. However, ITA No.3688/Del/2018 CO No.144/Del/2018 63 given the nature of operations i.e. software development activity, it is submitted that expenditure under the head “cost of services” would comprise of employee compensation expenses. Accordingly, computation of total employee cost of CG-VAK for FY 2009-10 is provided as under: Particulars Amount (in INR) Total employee cost (A) 45,602,240 Total operating cost (B) 66,849,995 Employee cost as a % of cost C = (A/B) 68.22% 14.2. Thus, it was submitted that the employee cost constitutes approx. 68.22 percent of total costs, thereby passing the said criterion and therefore, CG-VAK should not be excluded from the list of comparables. Further, the company is functionally comparable, passes all the filters applied by the TPO and segmental information is also available. Hence, it ought to be included in the final set of comparable companies. Reliance is placed on the decision of Hon’ble Delhi High Court in the case of the Pr. Commissioner of Income Tax-9 vs.XL India Business Services Pvt. Ltd. [ITA 978/2019] wherein Hon’ble Court directed to include the company in the final set of comparable. Further as per ld. Sr. Counsel, the company has been accepted as comparable to a software service provider in the following cases:  IVY Comptech Pvt. Ltd. for AY 2010-11 ITA Nos. 222 & 334/ Hyd/15  Ness Technologies (India) Pvt. Ltd. for AY 2010-11 IT(TP) A no.943/Mum./2015 ITA No.3688/Del/2018 CO No.144/Del/2018 64 14.3. Ld. DR on the contrary submitted that this company is through its P&L A/c shows very high cost of services while there are no details given for salary payments. Ld. DR thus submitted that this indicates that the assessee company outsources major part of its work to third parties and the cost associated with such outsourcing has been shown as cost of services. Thus company failed the employee cost filter. It was submitted that here also nothing is brought on record to show that cost of services are employees cost only. 14.4. In regard to this comparable it is not disputed that the company is functionally comparable and has passed all the filters applied by the TPO. There is force in the contention of ld. DR that there is lack of evidence to show that cost of services indicate only the employees cost. No other head of expenditure reflects that employees were engaged on whole time basis and were accordingly remunerated. Thus the claim that employees cost constitute like 68.22 percent of total costs is not substantiated. However, the company is admittedly otherwise passing all the filters, so ends of justice require that assessee should be given an opportunity to justify the cost of services, as employees cost. The ld. TPO/AO shall give opportunity to assessee to submit relevant and necessary evidences on this account and thereafter the ld. TPO/AO shall determine the admissibility of this company as valid comparable. The ground is sustained for statistical purposes. ITA No.3688/Del/2018 CO No.144/Del/2018 65 15. Caliber Point Business Solutions Ltd. (Ground no.1.5 of the CO of assessee). Ld. Sr. Counsel has submitted that the TPO rejected this company on the basis of different financial year. However, the CIT(A) had directed the TPO to include the company in the final set of comparables. The relevant extracts of the CIT(A) order is reproduced as under: “b) The above mentioned company is functionally similar to that of the appellant. In view of the same the AO/TPO is directed to include the above mentioned company in the final set of comparables if it passes all the filters applied by the TPO and if from the available data on record, the results for financial year can reasonably be extrapolated. The appellant is directed to submit a copy of the Annual Report to the AO/TPO. The AO/TPO is directed to calculate the margins on the basis of the Annual Report. The contention of the appellant is accordingly disposed off.” 15.1. In this regard, it is submitted by ld. Sr. Counsel that a company otherwise functionally comparable to the assessee cannot be rejected merely on the basis that it is following a different financial year. Reliance is placed in this regard on the decision of the Hon’ble Delhi High Court in the case of CIT vs Mckinsey Knowledge Centre India Pvt Ltd (ITA No. 217/2014) wherein the Hon’ble High Court held as under: “There is nothing shown to the Court that supports the Revenue’s argument that the ITAT fell into error in holding that if a comparable is following different financial year then the same cannot be included in the list of comparables selected for benchmarking the international transaction. Therefore, the ITAT has held that if the comparable is functionally same as that of the tested party then same cannot be rejected merely on the ground that the data for entire financial year is not available. If from the available data on record, the results for financial year can be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings.” ITA No.3688/Del/2018 CO No.144/Del/2018 66 15.2. Ld. DR has submitted in this regard that this company was not used as comparable in TP study report. As this company has different financial year ending no quarterly results, therefore it is not possible to work out financial results for the same period as that of the assessee. He also relied Honeywell Automation India Ltd v. DCIT Circle 7, Pune ITAT Pune Bench ITA No. 4/PN/08 February 10, 2009 for the preposition that Comparable with different financial year ending should not be considered. 15.3. Admittedly the company otherwise passes other filters of comparability. In I.T.A. No.6313/Mum/2017 for (Assessment year 2013-14), case titled Jardine Lloyd Thompson Private Limited vs Assistant Commissioner of Income tax- 15(2)(1), Mumbai, vide order dated 12.05.23 the Mumbai Bench of this Tribunal has accepted the contention of assessee in that case that “Contention of the assessee has been that this company files return of income and such parties prepare the accounts as required under the Income-tax Act and, therefore, it is within competency of the ld. AO to seek requisite information by invoking the powers u/s 133(6) of the Act, so long as the company is functionally comparable with the assessee.” The bench had held as follows; “We have gone through the order and also the facts involved in this matter. The rejection of this comparable is not on the ground of functional dissimilarity, but only because of a different accounting period. Facts being similar, we are of the considered opinion that it is a fit case to direct the ld. AO to consider the quarterly results and work out the proportionate profit margin for this purpose, we remand the matter to the file of the ld. TPO/AO for compliance of our direction.”. ITA No.3688/Del/2018 CO No.144/Del/2018 67 15.4 Therefore as the company is admittedly otherwise passing all the filters, so ends of justice require that assessee should be given an opportunity to justify comparability in terms of profit margins, from the available data on record or the results for financial year. If same can be extrapolated, to satisfaction of ld. TPO, then this comparable be included. The ld. TPO/AO shall give opportunity to assessee to submit relevant and necessary evidences on this account and thereafter the ld. TPO/AO shall determine the admissibility of this company as valid comparable. The ground is sustained for statistical purposes. 16. Ground no. 1.3.2 of CO of assessee; The ground is raised due to treatment of provision for bad and doubtful debts as operating expenditure by the TPO. It is submitted by ld. Sr. Counsel that provision for bad debts is a routine expenditure linked to the operations of a company and cannot be regarded as non-operating in nature. The ld. CIT(A) has rejected the contention of the appellant to consider provision for doubtful debts as operating expense following the order of the ld. CIT(A) order in AY 2011-12 in ITA No. 10566/15-16/CIT(A)-19 dated 30.06.2017. Ld. Sr. Counsel has submitted that the Tribunal in the assessee’s own case for AY 2007-08 in ITA No. 4888/Del/2011 held that provision for doubtful debts shall be considered as operating expenditure (ref. Sony India Pvt Ltd 114 ITD 448 (Del) and Suessen Asia Pvt Ltd (ITA No 1629/PUN/2011). Though ld. DR has supported the findings of ld. TPO, we are of considered view that by judicial precedents, in ITA No.3688/Del/2018 CO No.144/Del/2018 68 assessee’s own case and in decision like from Hon’ble Karnataka High Court in the case of Pr Commissioner Of Income Tax vs M/S Business Process decided on 28 June, 2018 vide I.T.A.No.322/2017 has held that provision for bad and doubtful debts should be taken as operating expenses. Ld. Sr. Counsel has demonstrated before us that if same is done it will substantially effect the working capital OP/TC of some admitted comparables like Mindtree and Tata Elxsi. Thus allowing this ground ld. TPO is directed to rework the adjustment, if any. 17. Ground no 1.3.1 in CO of assessee. The issue arises out of aggregation of AE and Non AE segment of the assessee. It is submitted by ld. Sr. Counsel that the ld. TPO has considered the aggregated financials of the assessee which also includes revenue and cost pertaining to the domestic Non AE segment of the assessee by stating that segmental information in respect of non AE and AE transaction is not appearing in the financial statements of the assessee. The segmental profitability of the assessee is at Page no. 963 of Conv. Compilation as part of annexure 5 summary of financial statement. It is submitted that in terms of section 92C of the Act the TPO is required to determine the arm’s length price of an international transaction undertaken by the Appellant applying the most appropriate method. Further, Rule 10B(1)(e) of the Income Tax Rules provide for determination on arm’s length price under Transactional Net Margin Method (“TNMM”) required benchmarking of net profit margin ITA No.3688/Del/2018 CO No.144/Del/2018 69 realize by the enterprise from an international transaction entered into with the associated enterprise computed in relation to cost incurred or sales effected for asset employed by the enterprise having regard to any other relevant base. Therefore, as per ld. Sr. Counsel, in terms of Rule 10B(1)(e) for undertaking the benchmarking analysis, it is incumbent to determine the net profit from the international transaction entered into with associated enterprise. In other words, in terms of Rule 10B(1)(e) for undertaking the benchmarking analysis of international transaction the TPO was required to consider only the profit margin of the relevant segment. Ld. Sr. Counsel submitted that benchmarking of the operating results from the international transactions of rendering software development and related services to AEs as well as non AEs by applying TNMM, cannot be disregarded on account of lack of segmental reporting. According to ld. Sr. Counsel the aforesaid was affirmed by the Tribunal in the case Birlasoft India Ltd. vs. DCIT (44 SOT 664) and the decision of the Tribunal was affirmed by the Hon’ble Delhi High Court in ITA 44/2015. Attention is also invited to the decision of Delhi Bench of Tribunal in the case of Lummus Technology Heat Transfer BV vs. DCIT (ITA No. 6227/Del/2012) Reliance is also placed on the following decisions wherein benchmarking analysis on the basis of profitability of the relevant segment has been upheld by various Benches of Tribunal:  Technimount ICB India Pvt Ltd vs ACIT (ITA No 7098/Mum/2010)  UCB India Pvt. Ltd. v ACIT 121 ITD 131 (Mum) ITA No.3688/Del/2018 CO No.144/Del/2018 70  Lionbridge Technologies Pvt. Ltd. vs. DCIT (ITA no. 9032/Mum/2010)  DDIT vs Corning SA (ITA No 2564/Del/2011)  Star India Pvt Ltd (ITA No 3585/Mum/2006)  Addl CIT vs Tej Diamonds (ITA No 5034/Mum/2007)  Genisys Integrated Systems (India) Pvt Ltd (ITA No 1231/Bang/2010) 17.1. Accordingly, it was submitted that the ld. TPO ought to consider the operating margins of the assessee at 10.40% as against 7.87% considered in the order passed for giving effect to the order of the CIT(A). 17.2. Though, ld DR relied the impugned orders, but in view of the aforesaid contentions duly supported by the judicial precedents we are inclined to hold that the ld. TPO erred in not considering the margins of the assessee from the services provided to the associated enterprises only. In terms of above the ground is allowed. 18. Ground No. 1.6 of CO of assessee. This addition of Rs. 72,314 arises on account of difference in TDS reconciliation. It is submitted by ld. Sr. Counsel that the assessee follows accrual system of accounting and for the relevant assessment year, the assessee recognized interest income amounting to Rs. 631,595 in respect of deposit with Noida Power Company Ltd. The assessee claimed TDS amounting to Rs.1,29,148 deducted on the said income. However, TDS was deducted by Noida Power Company Limited on the aforesaid amount ITA No.3688/Del/2018 CO No.144/Del/2018 71 of interest during financial year 2008-09 i.e. previous year relevant to assessment year 2009-10. Similarly, the assessee recognized income of Rs. 5,68,342 for assessment year 2011-12 on which TDS of Rs 56,834 was claimed by the assessee. However, TDS on the said income was deducted by Noida Power Company Limited during the financial year relevant to assessment year 2010-11. The assessing officer, added a sum of Rs 72,314 being the difference between the TDS of 1,29,148 claimed by the assessee and Rs 56,834 being the amount of TDS reflecting in form 26AS for AY 2010-11. It is submitted by ld. Sr. Counsel that in terms of Rule 37BA(3) of the Rules, the credit for tax is allowable in the year in which the income is assessable. It is thus submitted that since the interest income of Rs. 631,595 has been offered to tax by the assessee during assessment year 2010-11 and the same has been accepted by the assessing officer, the assessing officer was not justified in making the disallowance of Rs 72,314. Reliance is placed in this regard on the decision of the Hon’ble Rajasthan High Court in the case of Bhura Mal Raj Mal vs. CIT 220 ITR 636 (Rajasthan), wherein the Hon’ble High Court held that the credit for tax deducted at source should not be denied on the ground that the assessment year of the payer in which the deduction is made is different from that of the recipient. Relying upon the decision of the Hon’ble Rajasthan High Court, the Ahmedabad Bench of the Tribunal in the case of Adroit Structural Engineers Pvt Ltd (ITA 494/Ahd/2023) held that: ITA No.3688/Del/2018 CO No.144/Del/2018 72 “assessee has not claimed double deduction of credit of TDS, then the assessee is entitled to claim deduction of TDS in the year in which the corresponding income has been offered to tax by the assessee” 18.1. In view of the aforesaid, since the assessee claims to have offered to tax the interest income amounting to Rs 631,595 during assessment year 2010-11 and the credit for TDS of Rs 129,148 on the said income has not been claimed in any other year, the credit for said TDS was rightly claimed by the assessee in the relevant assessment year. We are inclined to sustain the ground with direction to ld. AO to verify the assertion and give the credit in fresh computation. 19. As a sequel to aforesaid determination of the grounds, the appeal of Revenue is dismissed and the CO of the assessee is partly allowed with consequences to follow as per the directions above. Order pronounced in the open court on 07.05.2025. Sd/- Sd/- (PRADIP KUMAR KEDIA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 07th May, 2025. dk ITA No.3688/Del/2018 CO No.144/Del/2018 73 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "