DEPUTY COMMISSIONER OF INCOME-TAX vs. M/S. SUNGARD SOLUTIONS (I) PVT. LTD.,, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

2010-11 and the order of DCIT, Circle-6, Pune dated 18.01.2016 for

assessment year 2011-12.

No.540/BAN/2015 for A.Y. 2010-11.

2.1. The relevant facts as culled out from the material on record are

as under :-

Assessee is a Private Limited Company stated to be engaged in

providing hardware and software application and IT-enabled services.

The name of the assessee company was changed to “FIS Solutions

(India) Private Limited w.e.f. 11.11.2016. Assessee filed its original

return of income for A.Y. 2010-11 on 29.09.2010 declaring total

income of Rs.42,86,46,600/-. The case was selected for scrutiny and

accordingly, notice u/s 143(2) of the Act dated 29.08.2011 was issued

and served on the assessee.

It was noticed that assessee had entered into international

transactions with its Associated Enterprises (AEs) during the year

which exceeded Rs.15 crore. Accordingly, a reference was made to the

Transfer Pricing Officer (TPO) u/s 92CA of the Act for determining the

Arms Length Price (ALP) in respect of the international transactions.

The TPO vide order dated 30.01.2014 passed u/s 92CA of the Act

concluded that adjustment of Rs.23,41,57,183/- was required to be

made to the ALP determined by the assessee in respect of international

transactions entered into by it with its AEs during the year.

Thereafter, AO passed draft assessment order u/s 143(3) r.w.s. 144(C)

of the Act vide order dated 28.03.2014 determining the total taxable

income at Rs.70,82,38,187/-. Assessee objected to the additions

proposed by the AO in the draft assessment order and carried the

matter before the Dispute Resolution Panel (DRP). The DRP vide

directions passed u/s 143(3) r.w.s. 144C order dated 15.12.2014

directed the AO to frame the assessment order as per the directions

contained therein. Pursuant to the directions of DRP, AO passed order

u/s 144(C) r.w.s. 143(3) of the Act vide order dated 30.01.2015

determining the total taxable income at Rs.47,40,81,004/-.

Thereafter, AO passed order u/s 154 dt.19.03.2015 wherein the total

taxable income was determined at Rs.47,36,85,859/-. Aggrieved by

the order of AO, assessee is now in appeal before us and has raised the

following grounds :

“1. Disallowance of depreciation on computer software. 1.1. The Learned AO has erred in disallowing the depreciation of INR 2,253,214 under section 40(a)(ia) on software purchased and capitalized in the books of account of INR 3,755,358 while computing the taxable income of the Appellant due to non-submission of details of tax deducted at source and the Learned DRP erred in confirming the same. 1.2 Without prejudice to the ground 1.1 above, the Learned AO and the Learned DRP has failed to appreciate that no liability ought to arise on the Appellant for non-deduction of tax at source as software purchases cannot be construed as 'royalty'. 1.3. Without prejudice to the ground 1.1 above, the Learned AO and the Learned DRP has failed to appreciate that depreciation under section 32 of the Act being a statutory deduction and not a routine expenditure is not governed by the provisions of section 40(a)(ia) of the Act. 1.4. Without prejudice to the ground 1.1 above, the Learned AO and the Learned DRP has failed to appreciate the fact that the Appellant ought not to be penalized for an amendment made later in the law with retrospective effect on which it had no knowledge that tax was to be deductible at the time of making the payment, further causing hardship to the Appellant. 2. Denial of deduction under section 10A of the Act to Unit I, Bangalore. 2.1. The Learned AO has erred in not considering the facts and submission made by the Appellant, and not allowing claim for deduction under section 10A of the Act to Unit I (based in Bangalore) which was inadvertently missed out by the Appellant in its return of income and the Learned DRP erred in confirming the same.

2.2. The Learned AO and the Learned DRP failed to appreciate the provisions of law and natural justice wherein any inadvertent omission of claim by an assessee has to be considered by the assessing officer and be granted to the assessee if the assessee is eligible for such claim on merits.

3.1. The Learned AO has erred in denying the deduction under section 10A of the Act to Unit II of the Appellant following the Learned AO's predecessor's order for AY 2009-10 wherein it was held by the Learned AO's predecessor that Unit II is not a new unit but an expansion of Unit I.

3.2. Without prejudice to the above, if deduction under section 10A of the Act is granted to the Appellant for Unit I, the Learned AO should grant the deduction under section 10A of the Act to Unit II treating it as an expansion of Unit I. 4. Others.

4.1. The Learned AO has erred in levying interest under Section 234B and Section 234C of the Act; 4.2. On the facts and in the circumstances of the case, the Learned AO erred in initiating penalty proceedings under section 271(1)(c) of the Act on the premise that the Appellant has concealed / furnished inaccurate particulars of income, without appreciating the fact that the disallowances made by the Learned AO is not in accordance with the law.

disallowance of depreciation on computer software.

3.1. AO noticed that assessee had purchased software aggregating to

Rs.37,55,358/- but had not deducted TDS u/s 194J of the Act on the

payment for its purchase. The assessee was directed to show cause as

to why the depreciation claimed on computer software not be

disallowed in view of the provisions of Sec.40(a)(ia) of the Act r.w.s.

194J of the Act, to which assessee inter-alia submitted that TDS

provisions are not applicable to the items capitalized in the books of

accounts on which the depreciation is claimed. The submissions of

the assessee were not found acceptable to the AO. AO was of the view

that provisions u/s 40(a)(ia) of the Act are applicable even to

depreciable assets. He accordingly denied the claim of depreciation on

software amounting to Rs.22,53,214/- that was claimed by the

assessee. Aggrieved with the draft order, assessee carried the matter

before DRP, who vide order dated 15.12.2014 upheld the order of AO.

Aggrieved by the order of DRP, assessee is now before us.

and DRP and further submitted that since the assessee has capitalized

the software purchased and has not claimed its deduction while

computing the business profits, the provisions of Sec.40(a)(ia) or

Sec.40(a)(1) of the Act are not applicable. In support of his

contentions, he placed reliance on the decision of Bangalore Tribunal

in the case of Kawasaki Microelectronics Inc., Vs. DDIT reported in

151 ITD 402. He therefore submitted that assessee be allowed the

claim of depreciation. Ld. D.R. on the other hand, supported the order

of lower authorities.

on record. The issue in the present ground is with respect to

disallowance of depreciation on computer software u/s 40(a)(ia) of the

Act. It is an undisputed fact that during the year assessee had

purchased the software and it was capitalized and the purchase of

software has not been claimed as an expenditure. It is also a fact that

no TDS was deducted by the assessee on the purchase price paid by it.

We find that the Bangalore Tribunal in the case of Kawasaki

Microelectronics Inc., (supra) has held that the question of

disallowance of expenses u/s 40(a)(ia) of the Act arises only when an

expenditure is claimed by the assessee and on which the tax at source

as per the provisions of Chapter XVII-B of the Act has not been

deducted. It held that when assessee has not claimed payment as an

expenditure, then the question of disallowance u/s 40(a)(ia) of the Act

does not arise. It further held that when the assessee has once

capitalized the payment and had not deducted TDS on such

payments, Sec.40(a)(ia) of the Act cannot be invoked for disallowance

of depreciation. Before us, Revenue has not pointed out any contrary

binding decision in its support nor has placed any material to

demonstrate that the aforesaid decision of Bangalore ITAT has been

set aside / over ruled / stayed by higher judicial authorities. We are

therefore of the view that the AO had erred in disallowing the claim of

depreciation by invoking the provisions of Sec.40(a)(ia) of the Act. We

therefore direct the AO to grant deduction of depreciation. Thus, the

ground of the assessee is allowed.

respect to Unit No.I, Bangalore.

6.1 AO has noted that assessee has not claimed deduction u/s 10A

of the Act for the Unit I, Bangalore in the return of income but

subsequently, during the assessment proceedings, it was submitted by

the assessee that it has been claiming deduction on Unit-I, Bangalore

since March, 2020 and this is the 10th year, being the last year for

claim of deduction. It was submitted that the assessee had

inadvertently not claimed deduction u/s 10A of the Act in the return of

income but the claim be allowed to assessee. The claim of deduction

during the assessment proceedings was denied by the AO as he was of

the view that no separate claim was furnished in the return of income

and according to him, assessee was either not maintaining his affairs

properly or the claim remained unverified. He accordingly denied the

claim of deduction. When the matter was carried before DRP, DRP

upheld the order of AO by noting that the additional claim can only be

made by way of claim in the return of income which was not done by

the assessee and therefore denied the claim by following the decision

of Hon’ble Supreme Court in Goetze (India) Pvt. Ltd., Vs. CIT.

Aggrieved by the order of DRP, assessee is now before us.

Bangalore was registered since 24.03.2000 and assessee had been

claiming deduction u/s 10A of the Act since A.Y. 2001-02 and

therefore the year under consideration was last year of claim. He

submitted that assessee inadvertently in the return of income missed

the claim u/s 10A of the Act but the claim was made during the

course of assessment proceedings. In support of his contention that

the mistake was inadvertent, he pointed to the computation of income

which is placed at Page No.3 of the Paper Book and from there he

pointed that though the assessee has given the details with respect to

Unit-1, Bangalore and the total profits but due to clerical mistake, the

claim was not made in the return of income. He thereafter submitted

that even if the claim was not made before the AO but it can be made

before the appellate authorities and for this proposition, he placed

reliance on the decision of Bombay High Court in the case of CIT Vs.

Pruthvi Brokers & Shareholders reported in 349 ITR 336. He further

submitted that Hon’ble Bombay High Court in the case Alok Textile

Industries Vs. DCIT order dated 10.07.2018 by following the decision

of Pruthvi Brokers & Shareholders (supra) and after considering the

decision of the Hon’ble Apex Court in the case of Goetze (India) Pvt.

Ltd., (supra) has held that though Hon’ble Apex Court in the case of

Goetze (India) Pvt. Ltd., (supra) has held that AO has no power to

entertain the claim of deduction otherwise than by filing revised return

of income by assessee, but that the same would not fetter the

Appellate authority from entertaining a claim not made before the AO.

He further submitted that the claim for deduction u/s 10A of the Act

was allowed in A.Ys. 2007-08, 2008-09 and 2009-10 and in such a

situation, the DRP was not justified in denying the claim of deduction

for the year under consideration. Ld. D.R. on the other hand,

supported the order of AO and DRP and further submitted that as per

the provisions of 10A(5), the deduction under this section shall not be

admissible for any assessment year beginning on or after the 1st day

of April, 2001, unless the assessee furnishes in the prescribed form,

along with the return of income, the report of an accountant, as

defined in the Explanation below sub-section (2) of section 288,

certifying that the deduction has been correctly claimed in accordance

with the provisions of this section. He submitted that the report was

not filed along with the return of income but was filed later on and

therefore the AO was fully justified in denying the claim of deduction.

on record. The issue in the present ground is with respect to the claim

of deduction u/s 10A of the Act with respect to Unit-I, Bangalore. It is

an undisputed fact that the first year of claim for deduction was in

A.Y. 2001-02 and the assessee has also been allowed the claim of

deduction in A.Ys. 2007-08, 2008-09 and 2009-10. Before us, it is the

claim of the assessee that though in the computation of income, the

working for deduction was made but inadvertently it was missed to

claim the deduction. AO denied the claim of deduction as the claim of

deduction was not made in the return of income. We find that the

claim of deduction was made during the assessment proceedings but

the same was denied by the AO by following the decision of Hon’ble

Apex Court in the case of Goetze (India) Pvt. Ltd., (supra). The fact

that the claim and detail of working of deduction of 10A has been

made in the computation of income is evident from the computation

filed by the assessee in the Paper Book. In such a situation, the claim

of the assessee that the assessee had through oversight missed to

claim the deduction cannot be brushed aside without there being any

material to demonstrate to the contrary. We also find that the Hon’ble

Bombay High Court in the case of Pruthvi Brokers (supra) has held

that the jurisdiction of the appellate authorities to entertain the claim

which has not been made before the AO but before the appellate

authorities has not been rejected by the Hon’ble Apex Court in the

case of Goetze India Pvt. Ltd., (supra). It observed that the Hon’ble

Apex Court in the case of Goetze India Pvt. Ltd., (supra) held that the

issue in the case was limited to the power of assessing authority and

does not impinge on the powers of Income Tax Appellate Tribunal u/s

254 of the Act. We further find that the Hon’ble Bombay High Court in

the case of Alok Textile Industries Vs. DCIT (supra) after considering

the decision of Hon’ble Bombay High Court in the case of Pruthvi

Brokers (supra) has held that the claim can be made before the

appellate authorities for the first time by the assessee. Before us,

Revenue has not pointed out any contrary binding decision in its

support. In such a situation, we following the aforesaid decisions of

Hon’ble Bombay High Court in the case of Pruthvi Brokers (supra)

hold that AO was not justified in denying the claim of deduction u/s

10A of the Act with respect to Unit No.1 of Bangalore. We therefore

direct the AO to grant deduction subject to the assessee complying

with other conditions of deduction. Thus, the ground No.2 of the

assessee is allowed.

10A of the Act with respect to Unit No.II in Bangalore.

9.1. AO noted that assessee had claimed deduction u/s 10A of the

Act for Unit No.II, Bangalore. He noted that during the scrutiny

proceedings for A.Y. 2009-10, in Form 56F for Unit –II that was

produced by the assessee, it was mentioned that it was 2nd year of the

claim. It was also noted that in A.Y. 2008-09, assessee had also not

made any claim for deduction. AO was of the view that the claim for

deduction for Unit – II should have made for the first time in A.Y.

2009-10. AO in the order concluded that assessee had not started a

new unit but it was extension of the unit and hence, assessee was not

eligible for deduction u/s 10A of the Act. He accordingly denied the

claim of deduction. Aggrieved by the order of AO assessee carried the

matter before DRP, who upheld the order of AO.

Aggrieved by the order of DRP, assessee is now before us.

arose in assessee’s own case for A.Y. 2009-10 before the Tribunal

wherein the Ld.CIT(A) had given the relief to the assessee and the

Revenue had carried the matter before the Tribunal. The Tribunal vide

order dated 22.01.2020 in ITA No.2049/PUN/2017 held that assessee

was eligible to claim deduction u/s 10A of the Act on the profits of

Unit-II, Bangalore. He therefore submitted that following the decision

of Tribunal in assessee’s own case for the earlier year i.e., for A.Y.

2009-10, the claim of the assessee be allowed. Ld. D.R. on the other

hand supported the order of lower authorities.

on record. The issue in the present ground is with respect to claim of

deduction u/s 10A of the Act on Unit No-II, Bangalore. We find that

identical issue arose in A.Y. 2009-10, wherein the Ld.CIT(A) had

allowed the claim of assessee and against the order of Ld.CIT(A),

Revenue carried the matter before ITAT. The Co-ordinate Bench of the

Tribunal in ITA No.2049/PUN/2017 vide order dated 22.01.2020

wherein the Tribunal allowed the claim of the assessee dismissing the

ground of Revenue by observing as under :

“7. We have perused the case records and heard the rival contentions. We have also analyzed the facts and circumstances of this case. That on perusal of the remand report placed on record, it is absolutely clear that there were existence of two units i.e. Unit 1 is for creating products for higher education industry and Unit 2 is for creating products for banking and finance industry. That apart, the STPI has confirmed that Unit 2 exists separate and independent of Unit 1 of which approval, the Assessing Officer in his remand report arrived at findings that the same is free for any mistakes. The Ld. AR further submitted that STPI being an independent authority would accord its approval to a new unit only after due verification of the application and credentials of an applicant. In the case of the assessee, the approval was granted by STPI only after due verification of the facts of the case. The Ld. AR addressed another objection raised by the Assessing Officer that most of the employees of both units are same and with regard to this, the Ld. AR submitted that the skill set/qualification required by the software developers for the finance and banking industry are completely different as compared to that required for higher education industry. The Ld. AR further submitted that as on 31st March, 2008 (end of first financial year), out of 32 employees in Unit II, only 7 were old employees. This further justifies the contention of the assessee that Unit II was to be a new and independent unit. It is admitted fact as appearing in the remand report of the Assessing Officer that STPI itself has held Unit 2 to be a new unit and granted requisite approval. The facts herein further demonstrate that Unit 1 and Unit 2 are basically two different and distinct units of the assessee. There is neither expansion nor splitting one unit into another. The Ld. DR was unable to bring on record any material/document in support of the Revenue substantiating that both units are one and the same. The Ld. DR relied on the observation of the Assessing Officer that Master Service Agreement was not furnished but how that agreement could have helped the revenue additionally was not substantiated by the Ld. DR because of the fact that as on record in the order of the Ld. CIT(Appeals) at Para 5.3.2 and Para 5.3.3, it is mentioned by the First Appellate Authority that various documents/returns such as separate custom bonded warehouse licenses, separate annual reports filed with STPI, separate monthly reports submitted to Superintendent of Customs for Unit I and Unit II further confirm that Unit II is separate and independent from Unit I. These facts were not disputed by the Ld. DR before us.

case and in assessee’s own case for A.Y. 2009-10 have been brought

by Ld. D.R. Before us, Revenue has also not brought any material to

demonstrate that the Tribunal order in assessee’s own case for A.Y.

2009-10 has been set aside / stayed by higher Judicial Forum.

Hence, following the order of Tribunal in assessee’s own case for A.Y.

2009-10 and for similar reasons, we are of the view that there was no

justification in denying the claim of deduction u/s 10A of the Act with

respect to Unit No.II of Bangalore by the lower authorities. We

therefore direct that the assessee be granted deduction u/s 10A of the

Act with respect to Unit No.II of Bangalore. Thus, the ground No.3 of

assessee is allowed.

12.1. Ground No.4 being consequential in nature and ground No.4.1

being premature in nature, requires no adjudication. Hence, the

same are dismissed.

No.540/BAN/2015 for A.Y. 2010-11 is partly allowed.

A.Y. 2010-11.

14.1. Assessee filed original return of income for A.Y. 2010-11 on

29.09.2010 showing the total taxable income u/s 42,86,46,600/-. The

case was selected for scrutiny and thereafter, notice u/s 143(1) of the

Act was issued and served on the assessee. It was noticed that

assessee had entered into international transactions with it’s

Associated Enterprises (AEs) during the year which exceeded Rs.15

crore. Accordingly a reference was made to TPO for determining the

Arms Length Price (ALP) in respect of those international transactions.

The Transfer Pricing Officer (TPO) vide order dated 30.01.2014 passed

order u/s 92CA of the Act concluding that adjustment of

Rs.23,41,57,183/- was required to be made to ALP determined by the

assessee in respect of international transactions entered into it. The

AO in the draft assessment order dated 28.03.2014 passed u/s 143(3)

r.w.s. 144(C) of the Act after incorporating the adjustment proposed by

TPO determined the total income of Rs.70,82,38,183/-. Against the

draft assessment order of AO, assessee filed objections before the

Dispute Resolution Panel (DRP). The DRP passed order on 15.12.2014

and subsequently rectification order on 31.12.2014 whereby it issued

certain directions to the TPO. Consequent to the directions of DRP,

ALP was revised to Nil as per the TPO’s revised order dt.29.01.2015 as

against Rs.23,41,57,183/- mentioned in the draft assessment order.

Aggrieved by the order of DRP, Revenue is now before us and has

raised the following grounds :

“1. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in holding that the size, turnover and brand of the company are the deciding factors for treating a company as a comparable and accordingly erred in excluding Infosys Ltd., as comparable. 2. On the facts and in the circumstances of the case, the Disputes Resolution Panel erred in excluding uncontrolled comparables having turnover more than Rs. 400 crores in the absence of Turnover criterion prescribed in Rule 10B of Income Ta Rules and also there being no correlation between turnover and profit margin.

raised in C.O., reads as under :

“1. On the facts and in the circumstances of the case and in law, the Ld. Transfer Pricing Officer ('TPO') / Assessing Officer ('AO') have erred and the Hon’ble DRP has further erred in not accepting the upper turnover filter of Rs. 400 crores applied by the Respondent;

alleged comparable companies selected by the learned AO/TPO;

appeal is dismissed then the C.O of the assessee will be rendered

academic and therefore will not require any adjudication. We therefore

proceed to dispose of the appeal of Revenue.

processing solutions for financial services, higher education and public

sector. TPO noted that in the transfer pricing document assessee had

selected 12 comparables by applying certain filters & TNMM was

applied as the most appropriate method. TPO after examining the

transfer pricing document concluded that some of the comparables

selected by the assessee did not pass its own filters and consequently

its own FAR analysis. Therefore in view of provisions of Sec.92C(3)(C),

TPO held the data used in computation of ALP by the assessee to be

not reliable / correct and the TPO proceeded to determine ALP by

conducting independent search of comparables. The final set of

comparables selected by TPO are as under :-

Sl.No. Name 1 ICR A Techno Analytics Ltd. (seg) 2 Infosys Ltd 3 Kals Information Infotech Ltd. 4 Larsen & Toubro Infotech Ltd. 5 Mindtree Ltd. (seg) 6 Persistent Systems & Solutions Ltd. 7 Persistent Systems Ltd. 8 R S Software (India) Ltd. 9 Sasken Communication Technologies 10 Tata Elxsi (seg) 11 Thinksoft Global Services Ltd.

Based on the final set of comparables, TPO determined the average

margin of comparables @ 22.7% and after adjustment of 0.81%

towards working capital adjustment, worked out the adjusted margin

of comparables @ 21.90% and thereafter worked out the adjustment

required to be made to ALP transactions at Rs.23,41,57,183/- which

was suggested by TPO vide order dated 30.01.2014 passed u/s 92CA

of the Act. When the matter was carried before DRP, DRP after

considering the submissions of assessee, granted certain directions

against which Revenue is now before us and has raised the grounds

mentioned hereinabove.

for A.Y. 2010-11 are with respect to directions to exclude Infosys Ltd.,

as a comparable by TPO.

18.1. TPO while finalizing the list of comparables had included Infosys

Ltd., as a comparable. Assessee objected to its inclusion inter-alia on

the ground that its turnover was quite high as compared to the

assessee. The objections of assessee were brushed aside by TPO.

When the matter was carried before DRP, DRP while directing to

exclude Infosys as comparable noted that Hon’ble Bangalore ITAT in

the case of Genisys Integrity Systems (ITA No.1231/BAN/2010 had

provided a guidelines in the matter of Turnover Filter by suggesting

that the categorization of software companies in the Dun & Broad

Street Study be adopted as a method of classification of comparables

by size. It further noted that since the turnover of the assessee was

Rs.342.21 crore, it would fall in the category of a “medium” seized firm

as per Dun & Brad Street categorization compared to Infosys Ltd.,

which would fall in large company with turnover greater than

Rs.2000 crore. It therefore directed its exclusion.

Aggrieved by the directions of DRP, Revenue is now before us.

other hand, reiterated the submissions before lower authorities and

further submitted that identical issue arose in assessee’s own case in

A.Y. 2008-09 in IT(TP)A No.1487/BAN/2012 and the issue was

decided in assessee’s favour by order dated 30.07.2015. He pointed to

the relevant findings of Tribunal and therefore submitted that no

interference to the order of DRP is called for.

on record. The issue in the present ground is with respect to inclusion

of Infosys Ltd., as comparable company. We find that DRP by

following the ratio of decision cited in the order held that Infosys Ltd.,

cannot be considered to be a comparable with the assessee. We also

find that issue of exclusion of Infosys Ltd., also arose in assessee’s own

case for A.Y. 2008-09. The Co-ordinate Bench of the Tribunal held

that it cannot be considered to be a comparable with the assessee.

Before us, no fallacy has been pointed out by Ld. D.R. in the order of

DRP nor he has pointed to any contrary binding decision in its

support. Revenue has also not placed any material to demonstrate

that the Tribunal order for A.Y. 2008-09 in assessee’s own case is

distinguishable on facts or the order for A.Y. 2008-09 has been set

aside / over turned / stayed by higher Judicial Forum. In such a

situation, we find no reason to interfere with the order of DRP and

thus, the grounds of Revenue are dismissed.

directions of DRP in granting of percentage of risk adjustment.

21.1. Before TPO assessee had submitted that risk adjustment

should be allowed to the assessee as it takes limited risk and cannot

be compared with the comparables who take full entrepreneurial risk.

TPO denied the risk adjustments as he was of the view that assessee

facing single customer risk which brings the assessee almost at par to

the uncontrolled comparables and risk levels and therefore no

adjustment was necessary. Aggrieved by the order of TPO, assessee

carried the matter before DRP who after considering the submissions

of assessee noted that after considering the various decisions cited in

the order directed the TPO to decide the percentage of risk adjustment

to be calculated and also noted that in case of DCIT Vs. Hello Soft Pvt.

Ltd., reported in 32 taxmann.com, 1% adjustment to the average

margin was provided towards the risk differential.

Aggrieved by the directions of DRP, Revenue is now before us.

supported his order. Ld.A.R. on the other hand reiterated the

submissions made before lower authorities and further placing

reliance on the decision of Tribunal in the case of DCIT Vs. Hello Soft

Pvt. Ltd., (supra) submitted that the Tribunal in that case has upheld

the direction of allowing the benefit of risk adjustment at 1%. He

further submitted that even otherwise if the Infosys Ltd., is deleted

out of the comparables then the assessee is at Arms Length and

therefore also no adjustment would be required in the present case.

available on record. The issue in the present case is with respect to

granting of percentage of risk adjustment by DRP. We find that DRP

after considering various decisions cited in his order has directed the

TPO to decide the percentage of risk adjustment. Before us, Revenue

has not pointed any contrary binding decision in its support nor has

pointed out any fallacy in the findings of DRP. Before us, Ld.A.R. has

further submitted that if Infosys Ltd., is excluded from the list of

comparables then the assessee would be within the arms length as

compared to that of comparables and no adjustment to ALP would be

required. Since we have hereinabove upheld the order of DRP in

excluding the Infosys Ltd. from the list of comparables and for the

reasons cited herein above, we are of the view that no interference to

the order of DRP is called for. Thus, grounds 4 to 8 of Revenue are

dismissed.

computation of deduction u/s 10A of the Act.

24.1. AO noted that assessee had claimed deduction u/s 10A of the

Act at Rs.35.93 crores (rounded off) of Pune Unit. AO was of the view

that the expenditure incurred in foreign currency in connection with

export of software and expenditure incurred towards communication

for delivery of software outside India needs to be excluded only from

export turnover. He was further of the view that though the Hon’ble

Karnataka High Court in the case of Tata Elxsi Ltd., Vs. ACIT reported

in 349 ITR 98 has taken a view in favour of the assessee but Revenue

had not accepted the decision of Hon’ble Karnataka High Court and

filed appeal before the Hon’ble Apex Court, which is pending for

decision. He therefore held that the expenditure is only required to

be reduced from export turnover alone. Aggrieved by the order of

TPO/AO, assessee carried the matter before DRP, who noted that the

issue is squarely covered by the decision of Hon’ble Karnataka High

Court in the case of Tata Elxsi Ltd., (supra) and therefore directed the

AO to re-compute the deduction in accordance with the ratio of

judgment in Tata Elxsi Ltd., (supra).

Aggrieved by the directions of DRP, Revenue is now before us.

other hand, reiterated the submissions made before TPO and DRP and

further submitted that identical issue arose in assessee’s own case for

A.Y. 2009-10 wherein the Co-ordinate Bench of the Tribunal after

relying on the decision of Hon’ble Supreme Court in the case of CIT Vs.

HCL Technologies reported in 404 ITR 719 held that for the

computation of deduction u/s 10A of the Act, expenses have to be

excluded both from the export turnover and the total turnover. He

pointed to the relevant findings of the Tribunal which are placed at

Page 949 of the Paper Book. He therefore submitted that no

interference to the order of DRP is called for.

on record. The issue in the present grounds are with respect to the

method of computation of deduction u/s 10A of the Act. We find that

identical issue arose before the Tribunal in assessee’s own case for

A.Y. 2009-10 wherein the Co-ordinate Bench of the Tribunal by

following the decision of Hon’ble Apex Court in the case of CIT Vs. HCL

Technologies (supra) held that to calculate deduction u/s 10A of the

Act, the expenses should be reduced from the export turnover and

total turnover also. Before us, Revenue has not pointed out any

contrary binding decision in its support. We therefore find no reason

to interfere with the order of DRP. Thus, the grounds of Revenue

are dismissed.

No.519/BAN/2015 for A.Y. 2010-11 is dismissed.

dismissed then the Cross-Objections of assessee in

C.O.No.134/BAN/2015 of the assessee would be rendered academic.

Since we have dismissed the appeal of Revenue in ITA

No.519/BAN/2015 hereinabove, in view of the submissions of the

Ld.A.R., the C.O. is also dismissed as being academic.

the assessee are dismissed.

No.338/PUN/2016 for A.Y. 2011-12.

30.1. The only effective ground raised by the assessee in ITA

No.338/PUN/2016 reads as under :

“The learned AO has erred in denying the deduction under section 10A of the Act to Unit II of the appellant following the learned AO’s predecessor’s order for A.Y. 2009-10 and A.Y. 2010-11 wherein it was held by the learned AO’s predecessor that Unit II is not a new unit but an expansion of Unit I, Bangalore.”

present appeal is identical to ground No.3 of assessee’s appeal for A.Y.

2010-11 and the arguments made while arguing the appeal for A.Y.

2010-11 would be applicable to the present appeal also.

on record. Before us, both the parties have admitted that the ground

raised in the present appeal is identical to ground No.3 raised in

assessee’s appeal for A.Y. 2010-11. In view of the aforesaid submission

of both the parties and for the reasons stated herein while deciding the

ground No.3 in assessee’s appeal for A.Y. 2010-11 in assessee favour

and for similar reasons, decide the issue in favour of the assessee and

thus, the ground of the assessee is allowed.

No.338/PUN/2016 for A.Y. 2011-12 is allowed.

for A.Y. 2011-12.

34.1. The modified grounds raised by the Revenue reads as under :

“1. Whether the DRP was right in law and on facts in excluding functionally comparable companies. 2. Whether the DRP was right in law and on facts in including companies which are not functionally comparable. 3. Whether the DRP was right in law and on facts in excluding functionally comparable companies on the ground of non availability of segmental data, when the entire range of activity of the comparable was in the field of software services. 4. Whether the DRP was right in law and on facts for not considering that onsite and offsite revenue differences are material for deciding the functional comparability of a company and that assets and risk profile, pricing as well as prevailing market conditions are different in predominantly onsite companies from predominantly offshore companies. 5. Whether the DRP was right in law and on facts in excluding companies which are considered as functionally comparable by the assessee himself. 6. Did the DRP fall into error in not appreciating the term of rules 10B(2) of the Income- tax Rules, 1962 regarding functional comparability.

has raised various grounds but no specific grievance has been raised.

In such a situation, the appeal of the Revenue should be held to be not

maintainable. Ld. D.R. on the other hand, submitted that grounds 5

and 6 are general in nature which requires no separate adjudication

and ground No.4 is the sub-ground of ground No.2.

36.1. AO noted that in the TP document assessee had selected 12

comparables in respect of software activities by applying certain filters

and Transactional Net Margin Method (TNMM) was considered to be

the most appropriate method. Out of the various comparables selected

by assessee, TPO noted that assessee was not justified in selecting

Akshay Software Technologies Ltd., as comparable. TPO was of the

view that Akshay Software Technologies Ltd., was functionally different

and its functions were not clear and that it was engaged in provision

of professional services and not software development services. TPO

therefore held that Akshay Software Technologies Ltd., cannot be

taken as comparable and excluded it from the list of comparables.

TPO thereafter included various companies including ICRA Techno

Analytics Ltd., and Infosys Ltd., being comparables and after

including the same, the average margin was worked out and

adjustment was made to the ALP. Aggrieved by the order of TPO

including the ICRA Techno Analytics Ltd., and Infosys Ltd., as

comparable companies, the matter was carried by the assessee before

DRP.

DRP noted that on perusal of Annual Report of Akshay Software

Technologies Ltd., it was seen from the financial results mentioned

under Director Report that income stream of the company was shown

as income from Software Services and Products. Since the activities of

Akshay Software Technologies were comparable to that of assessee,

DRP directed the AO for its inclusion as comparable company in the

list of comparable.

With respect to ICRA Techno Analytics Ltd., DRP noted that it

was engaged in development of software and that it being a market

player with big market value, it cannot be compared with assessee

and accordingly directed the AO for its exclusion as comparable

company with the assessee from the list of comparables. With respect

to Infosys Ltd., DRP noted that as against the international

transactions of the assessee of Rs.427 crore, turnover of Infosys was

to the tune of Rs.25,385 crore which was more than 60 times to the

assessee’s turnover and therefore it cannot be compared with

assessee and accordingly directed the AO for its exclusion as

comparable company with the assessee from the list of comparables.

Aggrieved by the order of DRP, Revenue is now before us.

other hand, reiterated the submissions made before lower authorities

and further with respect to exclusion of ICRA Techno Analytics Ltd.,

he submitted that various Tribunals have held that in the absence of

separate segment data, the company cannot be considered to be a

comparable. He thus supported the order of DRP.

on record. The issue in the present case is with respect to directions

of DRP for inclusion of Akshay Software Technologies Ltd., as

comparable with the assessee in the list of comparables and exclusion

of ICRA Techno Analytics Ltd., and Infosys Ltd., as non-comparables

with the assessee from the list of comparables. We find that DRP

after considering various decisions in the order has held that ICRA

Techno Analytics Ltd., and Infosys Ltd., are not comparables and

Akshay Software Technologies to be the comparable company with the

assessee. Before us, no fallacy has been pointed out by Ld. D.R. in

the order of DRP. In such a situation, we find no reason to interfere

with the order of DRP. Thus, the grounds 1 to 4 of Revenue are

dismissed.

adjudication and hence, the same are dismissed.

No.463/PUN/2016 for A.Y. 2011-12 are dismissed.

partly allowed and appeal in ITA No.338/PUN/2016 is allowed and

both the appeals of Revenue in ITA No.519/BAN/2015 and ITA

No.463/PUN/2016 and the C.O., of assessee vide CO

No.134/BAN/2015 are dismissed.

Order pronounced on 14th day of February, 2020.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 14th February, 2020. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A) – 13, Pune. 4. Pr.CIT-5, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “सी” / DR, ITAT, “C” Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER, // True Copy //

/ / TRUE COPY / / व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.