SHARP SOFTWARE DEVELOPMENT INDIA PVT. LTD. vs. DCIT,

Per Sunil Kumar Yadav, Judicial Member

These cross appeals are preferred by the revenue as well as the assessee against the order passed by the CIT(A). Against the Revenue’s appeal, assessee

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Page 2 of 18 has also filed the cross objection. Since the appeals and cross objections were heard together, they are being disposed off through this consolidated order.

This appeal is preferred by the Revenue against the order of the CIT(A) inter alia on the following grounds: 1. The order of the learned CIT(A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable, and accordingly erred in directing the TPO to exclude comparable companies having turnover more than Rs 200 Crores. 3. On the facts and in the circumstances of the case the learned CIT(A) erred in law in directing the TPO to exclude companies which are functionally dissimilar based on the guidelines of another appellate order. 4. On the facts and in the circumstances of the case the learned CIT(A) erred in directing that bad debts are to be included as operating expenses without appreciating the fact that the bad debts are not related to the operating expenses even if it recurs continuously for the last three financial years. 5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 6. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above.

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Page 3 of 18 iii. Satyam Computer Services Limited iv. Larsen & Toubro Infotech Limited v. Xcelvision Technologies Limited

The learned DR invited our attention to the judgment of Chryscapital 4.

Investment Vs. DCIT (2015) 56 Taxmann.com 417, in which it has been held

that turnover filter cannot be applied unless and until it is established that it

effects the profitability of the comparables. The CIT(A) has out rightly applied

the turnover filter as to 1:200 crores and excluded the aforesaid 5

comparables. She has also placed reliance upon the various orders of the

Tribunal in which it has been held that in the light of judgment of Delhi High

Court in the case of Chryscapital Investment (supra), the turnover filter is not a

good filter, therefore the other filter can also be examined for excluding

comparables. Since the CIT(A) has excluded these comparables by applying

the turnover filter, these comparables should be restored to the CIT(A) for re-

examination of the applicability of the other filters.

The learned counsel for the assessee did not object to the contention of

the Revenue.

judgment of Hon’ble Delhi High Court in the case of Chryscapital Investment,

the Tribunal has taken a consistent view that turnover filter cannot be applied

unless and until it is established that it effects the profitability of the

comparables. In the instant case, the CIT(A) has excluded the aforesaid 5

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Page 4 of 18 comparables by applying the turnover filter. The action of the CIT(A) does not

appear to us to be correct. Accordingly we set aside his order in this regard

and restore this matter back to his file with a direction to re-examine the

aforesaid 5 comparables in the light of other filters, as it cannot be excluded

by applying the turnover filter alone.

expenses. In this regard, learned DR has submitted that this issue should

also be restored to the CIT(A) to find out whether in the assessee’s case, bad

debts are to be included as operating expenses. The same treatment should

be given in the case of assessee as well as in the case of comparables.

issue to the CIT(A) on the ground that in this case there is no provision for bad

debts. Having carefully examined the rival submissions and careful perusal of

the record, we find that inclusion of provision of bad debts as operating

expenses are to be examined afresh by the CIT(A) after making the necessary

verification and the treatment given to the bad debts in the case of assessee

as well as comparables. Accordingly, the order of the CIT(A) is set aside in

this regard and matter is restored to his file for re-examination of the issue.

This appeal is preferred by the assessee against the order of the CIT(A) inter alia on the following grounds:

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Page 5 of 18

The Appellant submits that each of the above grounds is independent and without prejudice to one another. Further, the Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before, or at the time of, hearing of the appeal.

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verification, the AO could not come to the conclusion that the assessee company

manufactured or produced the required items as required u/s. 10A of the Act.

Aggrieved, the assessee preferred an appeal before the CIT(A) with the submission

that assessee company is 100% export oriented undertaking and is obligated to

export its entire production outside India. In the course of its activities, it utilizes the

services of other enterprises to carry out testing services that goes into engineering

the final product delivered by the assessee to group companies. The assessee

contracts with Stag Software Pvt. Ltd., that provides software testing services to the

assessee. The total cost incurred by the assessee on job work outsourced to Stag

Software is a very small percentage of total costs incurred by the assessee on

development of software. It was further contended that even if the assessee

company makes use of services of third party, the major activity of software

development is still carried on by the assessee company.

furnish the quantitative details with respect to manufacture of software carried on by

the assessee as well as Stag Software. Assessee provided the exchange of e-mails

and correspondence with its AEs. The details were not furnished before the CIT(A).

In the absence of quantitative details, the CIT(A) upheld the action of the AO. Now

the assessee is in appeal before the Tribunal and reiterated its contentions as raised

before the CIT(A). During the course of hearing, the assessee has invited our

attention to the P & L account to demonstrate that it received income from software

development services at Rs.11,72,96,748/-. He has also filed the agreement with

M/s. Stag Software Pvt. Ltd., and copy of the ledger account of

M/s. Stag Software in its account to demonstrate that he has only paid a sum of

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Page 7 of 18

Rs.99,43,350/- to M/s. Stag Software. Therefore, the major part of software were

developed by the assessee and not by M/s. Stag Software. The learned DR on the

other hand placed reliance upon the order of the CIT(A).

rival submissions, we find that lower authorities have disallowed the claim of

exemption under section 10A primarily on the basis that software was not developed

by the assessee himself and it was procured from M/s. Stag Software, whereas from

the documents filed before us it appears that major part of the software were

developed by the assessee himself. Since the assessee has not filed the relevant

evidence before the CIT(A) despite his asking, the CIT(A) could not appreciate these

facts. Since all these facts requires verification we set aside the order of the CIT(A)

in this regard and restore this matter to his file for readjudication of the issue afresh

after obtaining complete quantitative details from the assessee. Assessee is also

directed to extend all sort of co-operation and furnish required details to CIT(A) to

arrive at a proper conclusion.

AO on verification of the statement furnished by the assessee has noticed that a sum

of Rs.14.29 lakhs was claimed as deduction on transaction wherein the assessee

has taken motor-vehicles under the Finance Lease Agreement from the lessors. The

specified sum was paid to the lessor on account of repayment towards the principal

component of the value of motor vehicles. A sum of Rs.5.10 lakhs was paid towards

interest charges of the finance lease. The AO was of the opinion that the sum of

Rs.14.29 lakhs was capital in nature and hence not allowable. The assessee

preferred an appeal before the CIT(A) with the submission that vehicles have been

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Page 8 of 18

used by the assessee for the purpose of the business and the lessor was the

exclusive owner of the vehicles and therefore, the assessee has not claimed

depreciation and the finance lease payment are in the nature of rent and therefore,

allowable as revenue expenditure. The CIT(A) has considered all these facts in the

terms of the leased agreement in question. Having carefully examined the details,

the CIT(A) came to the conclusion that assessee is actual owner of the vehicles and

lease rentals payable amount to capital expenditure which is not allowable under

section 37(1) of the Act. He accordingly upheld the action of the AO and also held

that assessee will be entitled to claim depreciation on the assets taken on the

finance lease.

reiterated its contentions as raised before the CIT(A). The learned counsel for the

assessee has also placed reliance upon the judgment in the case of

Mysore Minerals Ltd., Vs. CIT [(1999) 106 Taxman 166 (SC)] and ICDS Vs. CIT

[(2013) 29 taxmann.com 129 (SC)] with the submission that in the case of finance

lease, the vehicle owned by the financers and the lessee only pays the lease rent.

Therefore entire lease rent paid by the assessee should be allowable as revenue

expenditure under section 37(1) of the Act. The learned DR on the other hand has

contended besides placing reliance upon the order of the CIT(A) that in the instant

case assessee is the owner of the vehicle and simply finance was given by the

financer. Therefore assessee is entitled for depreciation and the entire lease rent

cannot be allowed to be a revenue expenditure as it includes component of cost of

the vehicle.

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Page 9 of 18 14. Having carefully examined the order of lower authorities in the light of rival

submission and various judicial pronouncements referred to by the assessee we find

that nature of expenditure depends upon the nature of the lease. In case of finance lease the vehicle is owned by the lessee and lessor is entitled to recover the cost of

asset as well as interest accrued thereon. During the course of hearing a specific query was raised from the learned counsel for the assessee as to in whose name the

vehicle is registered. The learned counsel for the assessee admitted that vehicles

are registered in the name of the assessee though it was hypothecated with the financer. It means that assessee is the owner and simply it was pledged with the

financer till the entire payment of asset as well as the interest is made. Under these circumstances, we are of the view that the instalment paid by the assessee consists

of 2 components, one is part of the cost of asset and the other is interest accrued on the outstanding dues. In such circumstances the assessee can claim the interest

paid on the outstanding dues as revenue expenditure and on the part payment of the

cost of the asset the depreciation can be claimed. In the light of these propositions we find that CIT(A) has not properly examined the issue as he has disallowed the

entire payment of lease instalment. We, however, extract relevant portion of the CIT(A) order as under:

“I have considered the facts of the case, the key terrns of the lease agreement in question are as under :-

“(a) The Lessor(s)had purchased the motor vehicles (such as Honda Accord, Santro Xing, Accent, etc.) (The 'Vehicles) from the third party vendor 's and leased out the same to the SSDI (Le. lessee) under the finance lease agreement. (b) The Vehicles have been used by SSDI(assessee) for the purpose of its business. (c) The Lessor would be the exclusive owner of the vehicles at all points of time (refer Para 8, Page 3 of the lease agreement).

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Page 10 of 18 (d) The Lessee would have no right, title, or interest to mortgage, hypothecate or sell the same as bailee (refer Para 8, Page 3 of the lease agreement) (e) The Lessor shall have the right at all reasonable time to inspect and / or test the equipment and / or observe its use (refer Para 10, Page 3 of the lease agreement). (f) If the Lessee makes default in payment of lease rentals, lessor has right to recover compensation (refer Para 16, Para 17, Page 5 of the lease agreement). (g) The Lessor would have the right of repossession of the Vehicles on default of Lessee in payment of lease rentals (refer Para 17(a) Page 5 of the lease agreement). (h) On the expiry of the lease, the Lessee is obliged to return the Vehicles to Lessor (refer Para 15, Page 5 of the lease agreement). (i) The lease is classified by SSDI(assessee) in its books as a finance lease. (j) Regular lease rental payments have been made by SSDI(assessee) to the Lessors as per the terms of the lease agreement. (k) SSDI(assessee) claimed the lease rental payments as revenue expenditure during the subject AY. This includes both, payment towards principal repayment of lease obligation as well as payment towards interest component of the lease obligation. (l) SSDI (assessee), being a lessee, had not claimed the tax depreciation on the vehicles taken under the finance lease agreement ; and (m) Further, in the books of accounts of SSDI(assessee), the Vehicles acquired on finance lease are capitalised and book depreciation is provided on the same in compliance with the 'Accounting Standard 19 — Accounting for leases' issued by the Institute of Chartered Accountants of India. The corresponding value is credited as liability due to the Lessor. The lease rental payments are split up into principal and interest components. The interest component is debited as expense to the Profit and Loss Account whereas the principal component is reduced from the liability due to the Lessor."

4.1 The term "Finance Lease" vis-a-vis actual owner was examined by a Special Bench, constituted at Mumbai,of the Hon'ble Tribunal in Indusind Bank Ltd. v. Additional Commissioner of Income-tax (15 ITR (Trib) 089). In this case, for the assessment years 1998-99 and 1999-2000, the assessee-bank claimed 100 per cent. depreciation on certain assets purchased and leased under lease agreements. The Assessing Officer held that the assessee was not the owner of the assets and was ineligible for depreciation. He disallowed the depreciation. He, however, accepted the assessee's alternative contention that if depreciation on the leased assets was to be disallowed treating it as a loan transaction, the capital recovery embedded in the lease rentals should not be charged to tax. The Commissioner (Appeals) dismissed the assessee's appeals. On further appeals : Held, accordingly, dismissing the appeals, on the facts, (i) that all the criteria of finance lease were fully satisfied in this case. The lease agreement was non-

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Page 11 of 18 cancellable for a period of seven years and thereafter the leased asset had been pre-decided to be sold at 1 per cent. of the original cost to the lessee. While deciding the lease rental and the period of lease, the assessee's investment had been duly taken into consideration to ensure that the full cost of the asset leased out by the assessee together with interest was recouped within the period of seven years. It was the sole responsibility of the lessee to bear repairs and maintenance cost and insurance premium. The equipment had been chosen by the lessee who had taken the delivery of it. It was the lessee who had to pay all the taxes. Features of bailment were completely absent. The risks and rewards incidental to the ownership were vested with The lessee. What the assessee as a lessor owned was not any asset but the contracted stream of payments in the shape of lease rental covering its entire investment plus interest. Such lease rentals had been ensured by way of the assessee taking post-dated cheques for the entire lease period. On the other hand, what the lessee had got was not just a rented boiler but a fixed non-terminable agreement under which it was obliged to pay the rentals. These factors strongly indicated that whereas the lessee was the actual or real owner, the assessee, the lessor, was only nominal or symbolic or the so-called perceived owner. Except for naming the lessor as owner at some places in the agreement and inserting certain cosmetic clauses to give the colour of operating lease, there was nothing in substance which satisfied the inherent requisites of an operating lease. When the cumulative effect of all the factors for and against the operating lease were considered, in pith and substance this agreement was nothing but a finance lease. (ii). That the assessee had claimed depreciation on the leased asset and also shown the full amount of lease rental as income in contravention of para 1(v) of the Reserve Bank of India Circular dated February 14, 1994. When the Assessing Officer concluded that the lease cannot be characterised as finance lease, the assessee requested him not to charge to tax the capital recovery embedded in the lease rental and the Assessing Officer had excluded the portion of capital recoveries from the rental income. The action of the Assessing Officer was fully in consonance with the Reserve Bank circular which stated that in case of equipment leasing the entire lease rental should not be treated as bank's income but only that component of such lease rental which represents finance charges. 4.2. The Hon'ble Bench had occasion to examine finance lease and operating lease. In a nutshell, the highlights from its decision can be summarised as, the general meaning of a word or phrase or expression as assigned by the Supreme Court under one enactment without reference to any specific provision therein is binding under another enactment which again does not specifically define such word or phrase or expression. When the Supreme Court has interpreted or explained a particular term or phrase under one enactment, it is not open to lower authorities to interpret such term or phrase in a different manner under another enactment unless the context of such other enactment otherwise requires.

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Page 12 of 18 There is no definition of "operating lease" or "finance lease" in the Income- tax Act, 1961. The meaning ascribed to finance lease by the Supreme Court in the case of Asea Brown Boveri Ltd. v. Industrial Finance Corporation of India [2005] 126 Comp Cas 332 is of universal application and the Tribunal is duty bound to consider and al piy such meaning of finance lease given by the Supreme Court under the income-tax Act, 1961.

The concepts of finance and operating lease, which are implicit under the Income-tax Act, 1961 have been made explicit under the Direct Tax Code Bill, 2010. The Direct Tax Code Bill, 2010 does not provide anything contrary or in contradistinction to the provisions under the Act on this subject.

In the case of an operating lease, the lessor provides the asset for the use a certain period of time to the lessee for rent. On the expiry of such lease period, the lessor has to inevitably repossess the asset. On the other hand, a case of finance lease is in essence for an arrangement of borrowing. The role of the lessor is limited to that of financier only. In an operating lease, it is the lessor who bears the loss and obsolescence of the asset leased, whereas in the case of a finance lease it is the lessee who always bears such loss. In the case of an operating lease, the lessor remains the owner of the asset throughout the lease period and thereafter also, whereas in a finance lease it is the lessee who becomes the real owner. The lessor’s title over the asset is only symbolic to serve as security for the rentals, which are nothing but the return of his investment with interest. An operating lease is cancellable, whereas a finance lease is always non-cancellable. In a case of finance lease, the lessor is i.nterested in lease rentals and not the asset. In the case of an operating lease, substantial risks and rewards of ownership of the asset remain with the lessor, whereas in the case of finance lease these ab initio vest with the lessee. In the case of an operating lease, the fixation of lease rental bears no symmetry with economic life of the asset and the possibility of the asset reverting back to the lessor can never be ruled out. However in the case of a finance lease, the lease period is ordinarily equal to the economic life of the asset and lease rentals are fixed in such a way so as to recover the investment with interest during the lease period itself. The possibility of the asset reverting back to the lessor is never there. In the case of an operating lease, the asset is ordinarily a common use utility whereas in the case of a finance lease the asset is normally selected by the lessee himself so as to suit his particular requirements. Normally an operating lease is non payout whereas a finance lease is full payout. A full payout lease means that the lessor recovers the full value of the eased asset plus the finance cost over the period of the first lease. A full payout ease is peculiar to a finance lease. On the other hand, a non payout lease is one wilere the lessor is not interested in recovering his principal investment plus ^terest from one lessee only because he may lease out the same asset

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Page 13 of 18 over and over again. Though no single lease recovers the principal amount plus interest component of the lessor but all the leases taken together make it a full payout. That is why the non payout lease is peculiar to operating lease. Whereas in a use of operating lease, the lessor is both the de facto and the de jure owner, in the case of a finance lease, the lessee is the de facto owner and the lessor is the only de jure owner. Therefore, in a case of finance lease it is the lessee who is the owner of the property for all practical purposes and he is entitled to depreciation at law the one and not the lessor.

There is an underlying basic distinction between advancing a simple loan as against a finance lease. Whereas financing is the genus, a finance lease is its species. In the case of a loan simpliciter, the lender only advances the loan without acquiring even a nominal title in the asset against which the loan is given. The very nature of finance lease presupposes that existence of the lender as a lessor. The essence of finance lease and loan simpliciter is the same, that is, to advance money to the borrower by the lender. To provide sanctity to the finance lease, the lessor acts as a nominal or symbolic owner. If the lessor as a nominal owner is removed, the transaction of financing will go out of the ambit of "finance lease" and fall within the overall category of a simple loan.

If there is some overlapping in the contents of the clauses of an greement, then it becomes necessary to examine the pith and substance of the agreement. It can be done by seeing as to whether it predominantly satisfies the conditions of operating lease or finance lease. The crux is that it should find out the substance of the agreement. Allowability of depreciation is governed by section 32. The twin conditions of ownership and user of asset for the purpose of business are required to be cumulatively satisfied so as to allow depreciation. For the purposes of section 32(1) the word "owner" is to be assigned a wider meaning so that anyone in possession of such property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having a right in his own right would be the owner for the purpose of section 32(1) notwithstanding the fact that a formal deed of title may not have been executed and registered in his name. Sale and lease back is a transaction in which the asset is transferred to the lessor first and the seller of the asset becomes the lessee subsequently. It is in contradistinction to a finance lease in which there is no such transfer of the same asset first to the lessor. The Legislature in its wisdom has treated the lessor as the owner of the asset in the case of a sale and lease back transaction by specifically mandating that the written down value of the asset in the case of the lessee shall be treated as the actual cost to the lessor. In the case of a genuine sale and lease back of an asset, the admissibility of

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Page 14 of 18 depreciation in the hands of the lessor is beyond the pale of doubt. However, there is nothing in the language of this provision which extends its scope to finance lease as well. The lessor, who is not the real owner of the property in the case of a finance lease, cannot be granted depreciation merely for the reason that the lessee had not claimed depreciation on the leased asset. It is only the right person entitled under law, who can get the benefit of depreciation allowance. Parties cannot, in disregard of the law, mutually decide who out of them will be allowed the depreciation and then offer such proposal to the Assessing Officer for implementation. It is the duty of the Assessing Officer to find out whether the assessee before him is entitled to depreciation in accordance with the law. Courts, or for that matter, the authorities, must have due regard to the reality of a transaction before taking a final decision on its true nature. Reality can be gathered Tom the intention of the parties and such intention, in turn, can be inferred from the facts and circumstances of the case rather than the way in which it has been presented. The nomenclature or a description given to a particular agreement cannot and should not be allowed to change the true nature of transaction. Thus the true erect of a transaction can be determined by looking into the terms of the agreement seen in the light of the inherent intention of the parties and also the attending cum stances. 4.3. The Mumbai Bench of the Hon'ble Tribunal in J. M. Shares and Stock Brokers v. Deputy Commissioner of Income-tax (311 ITR (A.T.) 115) ruled in a case where the assessee entered into an agreement with SIL, whereunder it leased out vehicles for certain value. On this amount, the assessee claimed depreciation at 40 per cent. since, according to the assessee, the vehicles were ultimately used for hiring purposes. In the course of assessment proceedings, the Assessing Officer examined the terms of the lease deed and found that 50 per cent. of the invoice value was received as security deposit and rental value payable was fixed at 2.2 per cent. per month of the invoice value for the lease period of 36 months. The Assessing Officer found that there was neither any stipulation in the lease agreement that the vehicles would only be used in the business of running them on hire nor was there any actual physical control of the assessee over the manner of utilization of the vehicles. In view of this, he opined that depreciation was allowable at 25 per cent. The Commissioner (Appeals) held that the assessee was entitled to depreciation to the extent of 50 per cent. of the cost of assets. On appeal to the Tribunal : Held, (i) that ownership of the asset is a condition precedent for allowing the depreciation under section 32 of the Income-tax Act, 1961. In CIT v. Shaan Finance Ltd., the Supreme Court had held that where the assessee was engaged in the business of leasing, then the lessor was entitled to depreciation allowance. However, in Asea Brown Boveri Ltd. v. IFCI, it had been held that in case of finance lease, it was the lessee who, for all

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Page 15 of 18 practical purposes, was the owner of the assets and not the lessor. The Supreme Court observed that : "(1) The asset is use-specific and is selected for the lessee specifically. Usually, the lessee is allowed to select it himself (2) The risks and rewards incident to ownership are passed on to the lessee. The lessor only remains the legal owner of the asset. (3) Therefore, the lessee bears the risk of obsolescence. (4) The lessor is interested in his rentals and not in the asset. He must get his principal back along with interest. Therefore, the lease is non-cancellable by either party. (5) The lease period usually coincides with the economic life of the asset and may be broken into primary and secondary period. (6) The lessor enters into the transaction only as a financier. He does not bear the costs of repairs, maintenance or operation. (7) The lessor is typically a financial institution and cannot render specialised service in connection with the asset. (8) The lease is usually full- pay-out, that is, the single lease repays the cost of the asset together with the interest". Even after the judgment of the Supreme Court in Asea Brown Boveri Ltd. v. IFCI, a clear distinction has to be made between the normal lease and financial lease. If the agreement is a financial lease, then the consequences would be governed by the earlier judgment in CIT Vs. Shaan Finance P. Ltd. In the instant case a reading of the terms of the lease agreement clearly revealed that all the features of the finance lease existed in the agreement between the parties. The assessee was not the owner of the leased vehicles as the agreement was an agreement of financial lease and not a normal lease. Consequently, the assessee was not entitled to any depreciation. 4.4. The principles emerging from the decisions of the Special as well as Division Bench of the Mumbai Tribunal read with that of the Apex court are that in case of a finance lease, the actual owner of the leased asset is the Lessee and not the Lessor. The Lessor cannot claim depreciation on such assets. But however, the situation reverses in case of a operating lease. it is needless to mention that this view is fortified by the decision of the Hon'ble Supreme Court in Asea Brown Boveri Ltd. v. IFCI (126 Comp Cas 332) (SC). In light of these emerging principles, the Lessee is assessee who has entered into a Finance Lease Agreement with Infrastructure Leasing & Financial Services Ltd. and Orix Auto Limited (Lessors), wherein the Lessors had purchased motor-vehicles and leased the same to the assessee. While the former has provided the finance, the latter has provided the leased assets. The assessee pays EMI which includes part principal and part interest on the loan advanced by the first Lessor. The period of lease is 60 months from the date of rentals. Thus, at the end of the period of lease, the entire principal amount of loan along with interest is recovered by the Lessors.All expenses related to the leased assets is to be borne by the lessee.Although the agreement has been drafted in a manner to depict that the Lessors are the actual owners of the vehicle, there can be no two opinions that the lease in question is not an operating lease, but a finance lease.

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Page 16 of 18 In such case, applying the principles laid down by the Apex Court (supra), the assessee is the actual owner of the vehicles and the lease rentals payable amount to capital expenditure which is not allowable u/s. 37(1) of the Act. Hence, the action of the AO is upheld, but however the assessee will be entitled to claim depreciation on the assets taken on finance lease. The AO shall look into this matter and allow entitled depreciation as per law while giving effect to this appellate order.”

Through this CO, assessee has raised the following grounds:

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Page 17 of 18 were having different accounting year (other than March 31 or companies whose financial statements were for a period other than 12 months)is not an appropriate comparability criterion: c. the learned CIT(A) has erred, in law and in facts, by not accepting the Respondent's plea that rejection of comparable companies identified by the Assessee as having economic performance contrary to the industry behavior (e.g. companies which showed a diminishing revenue trend) is not an appropriate comparability criterion; d. the learned CIT(A) has erred, in law and in facts, by not accepting the Respondent's plea that rejection of comparables considered by the Assessee in the comparability analysis using foreign exchange earnings greater than 75% as a comparability criterion; 4. The learned CIT(A) has erred, in law and in facts, by accepting certain comparable companies using unreasonable comparability criteria. 5. The learned CIT(A) has erred, in law and in facts, by not considering the plea of the Assessee to consider foreign exchange fluctuations as operating in nature 6. The learned CIT(A) has erred, in law and in facts, by not considering the plea of the Assessee to rectify erroneous margin and working capital adjustment computed by the learned AO/TPO. 7. The learned CIT(A) has erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Respondent vis-à-vis the comparables 8. The learned CIT(A) has erred, in law and in facts, in confirming the computing the arms length price without giving benefit of +/- 5 percent under the proviso to section 92C of the Act; 9. The learned CIT(A) erred in confirming the imposition of interest under section 234B of the Act; The Respondent submits that each of the above grounds is independent and without prejudice to one another. The Respondent craves leave to add, alter, vary, omit, amend or delete one or more of the above grounds of Cross-objections at any time before, or at the time of, hearing of the appeal, so as to enable the Appellate Tribunal to decide this response according to law.

IT(TP)A No.1819,1826/Bang/2013, CO No.9/Bang/2016 Page 18 of 18 Pronounced in the open court on this 27th day of September, 2017.

Sd/- Sd/- (A. K. GARODIA) (SUNIL KUMAR YADAV) Accountant Member Judicial Member

Bangalore. Dated: 27th September, 2017. /NShylu/*

Copy to:

By order

Assistant Registrar, ITAT, Bangalore.