M/S THOMSON REUTERS INDIA SERVICES PRIVATE LIMITED,BANGALORE vs. ADDL.C.I.T., BANGALORE

PER S. JAYARAMAN, ACCOUNTANT MEMBER :

This is an appeal filed by the assessee against the order of the Addl.

CIT, Range-II, Bengaluru, passed u/s.143(3) r.w.s.144C(13),

dt.03.10.2011, in pursuance to the directions of the DRP, for the a y 2007-

08.

wholly owned subsidiary of Worldscope Disclosure LLC, US, is a

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part of the worldwide Thomson group of companies, providing

contract software development services (SWD services for short) and

Information Technology enabled services ('ITE services' for short) to

Thomson Financial Inc., US, its Associated Enterprise . It runs it business

from two units, viz Pinnacle Unit & UB Plaza Unit. The TPO rejected the

assessee’s TP study and made an adjustment of Rs. 12,61,34,044/- &

Rs.13,53,00,046/-towards providing SWD Services & ITE Services to

its AEs, respectively.

10A for the Pinnacle Unit for the reason that the tax holiday period

ended last year. It acquired the UB Plaza Unit in Bengaluru which is

registered with the STPI authorities, from Thomson Business

Information India Private Limited (TBIIPL) with effect from

01.07.2005 pursuant to a Business Transfer Agreement dated

15.06.2005 on a slump sale basis. The UB Plaza Unit was admittedly, an

eligible unit for deduction u/s 10A from its formation, i.e. on 24.03.2004,

and TBIIPL had been allowed the deduction u/s 10A from the first year of

its formation till it held the Unit, i.e. till 30.06.2005. Since it has

acquired that Unit, the assessee claimed deduction u/s 10A for the

balance period of eligibility, i.e. from a y 2006-07 onwards. The AO did

not allow this claim for this a y, although its claim in a y 2006-07 ie ., for

the immediately preceding year and the first year after the Unit's

acquisition, was allowed by the A O in his order dated 13.09.2010.

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recruitment expenses and management fees and apportioned them

between Pinnacle and UB plaza units based on the head count. The AO

examined and found that the management fees has been debited against

Pinnacle Unit alone and the assessee could not explain why this

expenditure is not apportioned at all as per it’s own method. On

examination, the AO held that the head count is not a fair basis for

apportionment. Since the turnover indicated activity level, he apportioned

them on the basis of turnover which resulted in increased income of the

Pinnacle Unit and reduction of income of UB plaza Unit.

depreciation relating to ays 1996-97 & 1999-2000, totaled at

Rs.16,14,643/- as a set-off in this a y . The A O denied it on the

ground that the Pinnacle Unit was a profit making unit in all the years prior

to a y 2007-08 and therefore, the above unabsorbed depreciation is

deemed to have been set-off in those years when the deduction

under Section 10A was computed. Further, the A O has also denied the

claim for set-off contending that the same was allowed in the assessment

order for a y 2006-07.

Dispute Resolution Panel ('the DRP'), which, vide its directions dated

26.09.2011, upheld the draft assessment order . Thereafter, the A O

passed the final assessment order dated 03.10.2011 in accordance with

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the DRP’s directions in which the above TP adjustments as well as well

as the disallowances u/s.10A and of the set –off of unabsorbed depreciation were incorporated. Aggrieved by the final assessment order,

the assessee is on appeal with the following grounds:

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and inclusion of Megasoft Ltd . Out of those 17 comparables, 15 are

sought to be rejected on the basis functional dissimilarity, one on the basis

of the RPT filter and the last one, both on the basis of the employee filter

& the RPT filter . Fourteen comparables at SI. Nos. 1, 2, 3, 5, 6, 8, 10,

12, 14, 18, 22, 24, 25, and 26 in the table, supra , are sought to be

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excluded on the basis of this Tribunal decision in Meritor LVS India (P.)

Ltd. v. ACIT [(2015) 64 taxmann.com 136 (Bang-Trib.) and Ishir Infotech

Ltd is being sought to be rejected as it is failing the TPO’s own filter of

25% employee cost relying on this Tribunal's decision in Meritor LVS

India (P.) Ltd. v. ACIT [(2015) 64 taxmann.com 136 (Bang-Trib.)] and

also in view of its RPT exceeding 15% of sales as per this Tribunal

decision in 24/7 Customer Com P Ltd v DCIT 2012, 28 taxmann.com 258

Bang.Trib. Quintegra Solutions Ltd is sought to be rejected as a

functionally dissimilar one based on this Tribunal's decision in NXP

Semiconductors India P. Ltd v ACIT [dated 14.11.2014 in IT(TP) A No.

1174/Bang/2011]. Geometric Ltd (seg) & Ishir Infotech Ltd , supra, are

being sought to be rejected as its RPT exceeds 15% as per this Hon'ble

Tribunal's decision in 24/7 Customer Corn Private Ltd. V. DCIT[(2012) 28

taxmann.com 258 (Bang-Trib.)]. Let us examine them as under. The

relevant portion from Meritor LVS India (P.) Ltd. v. ACIT [(2015) 64

taxmann.com 136 (Bang-Trib.), for AY.2007-08 is extracted as under :

“12. We have perused the orders and heard the rival contentions. Assessee is seeking exclusion of 16 comparables out of 26 companies selected by the TPO. For this it has placed reliance on the decision of coordinate bench in the case of Hewlett- Packard (India) Globalsoft P. Ltd, (supra). We find that issues before this Tribunal in the case of Hewlett- Packard (India) Globalsoft P. Ltd, (supra) was also with regard to software development services segment, that too for the very same assessment year. Services rendered by both the assessee as well as HPIGPL fell within the software development services segment, and therefore in our opinion the decision of the coordinate bench in Hewlett- Packard (India) Globalsoft P. Ltd, (supra) can be taken as a good precedent. Findings of the Tribunal

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in the case Hewlett- Packard (India) Globalsoft P. Ltd, (supra) in so far as the comparables sought to be excluded by the assessee were as under :

“Celestial Labs Ltd.

An amount of Rs. 11,692,020/- has been debited to the Profit and Loss Account as “Deferred Revenue Expenditure” (page 30 of PB-II). This amounts to nearly 8.28 percent of the sales of this company.

It was therefore submitted that the acceptance of this company as a comparable for the reason that it is into pure software development activities and is not engaged in R&D activities is bad in law. 43. Further reference was also made to the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT – ITA No.6623/Mum/2011 (for AY 2007-08) in which the comparability of this company for clinical trial research segment. The relevant extract of discussion regarding this company is as follows: “The learned D.R. however drew our attention to page-389 of the paper book which is an extract from the Directors report which reads as follows:

‘The Company has developed a de novo drug design tool “CELSUITE” to drug discovery in, finding the lead molecules for drug discovery and protected the IPR by filing under the copy if sic (of) right/patent act. (Apprised and funded by Department of Science and Technology New Delhi) based on our insilico expertise (applying bio-informatics tools). The Company has developed a molecule to treat Leucoderma and multiple cancer and protected the IPR by filing the patent. The patent details have been discussed with Patent officials and the response is very favorable. The cloning and purification under wet lab procedures are under progress with our collaborative Institute, Department of Microbiology, Osmania University, Hyderabad. In the industrial biotechnology area, the company has signed the Technology transfer agreement with IMTECH CHANDIGARH (a very reputed CSIR organization) to manufacture and market initially two Enzymes, Alpha Amylase and Alkaline Protease in India and overseas. The

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company is planning to set up a biotechnology facility to manufacture industrial enzymes. This facility would also include the research laboratories for carrying out further R & D activities to develop new candidates’ drug molecules and license them to Interested Pharma and Bio Companies across the GLOBE. The proposed Facility will be set up in Genome Valley at Hyderabad in Andhra Pradesh.’

According to the learned D.R. celestial labs is also in the field of research in pharmaceutical products and should be considered as comparable. As rightly submitted by the learned counsel for the Assessee, the discovery is in relation to a software discovery of new drugs. Moreover the company also is owner of the IPR. There is however a reference to development of a molecule to treat cancer using bio-informatics tools for which patenting process was also being pursued. As explained earlier it is a diversified company and therefore cannot be considered as comparable functionally with that of the Assessee. There has been no attempt made to identify and eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustment, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the Assessee in this regard.”

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dated 29.3.2010 has given details of employees working in software development but it is not clear as to whether any segmental data was given or not. Besides the above there is no other detail in the TPO’s order as to the nature of software development services performed by the Assessee. Celestial labs had come out with a public issue of shares and in that connection issued Draft Red Herring Prospectus (DRHP) in which the business of this company was explained as to clinical research. The TPO wanted to know as to whether the primary business of this company is software development services as indicated in the annual report for FY 06- 07 or clinical research and manufacture of bio products and other products as stated in the DRHP. There is no reference to any reply by Celestial labs to the above clarification of the TPO. The TPO without any basis has however concluded that the business mentioned in the DRHP are the services or businesses that would be started by utilizing the funds garnered though the Initial Public Offer (IPO) and thus in no way connected with business operations of the company during FY 06-07. We are of the view that in the light of the submissions made by the Assessee and the fact that this company was basically/admittedly in clinical research and manufacture of bio products and other products, there is no clear basis on which the TPO concluded that this company was mainly in the business of providing software development services. We therefore accept the plea of the Assessee that this company ought not to have been considered as comparable.”

2) “E-Zest Solutions Ltd.

14.1 This company was selected by the TPO as a comparable. Before the TPO, the assessee had objected to the inclusion of this company as a comparable on the ground that it was functionally different from the assessee. The TPO had rejected the objections raised by the assessee on the ground that as per the information received in response to notice under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters.

14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in ‘e-Business Consulting Services’, consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing (‘KPO’) services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company’s website which should be considered while evaluating the company’s functional profile. It is also submitted by the learned Authorised Representative that KPO

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services are not comparable to software development services and therefore companies rendering KPO services ought not to be considered as comparable to software development companies and relied on the decision of the co- ordinate bench in the case of Capital IQ Information Systems (India) (P) Ltd. in ITA No.1961(Hyd)/2011 dt.23.11.2012 and prayed that in view of the above reasons, this company i.e. e-Zest Solutions Ltd., ought to be omitted from the list of comparables.

14.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparables by the TPO.

14.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the list of comparbales only on the basis of the statement made by the company in its reply to the notice under section 133(6) of the Act. It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate bench of this Tribunal in the case of Capital I-Q InformationSystems (India) (P) Ltd. Supra) that KPO services are not comparable to software development services and are therefore not comparable. Following the aforesaid decision of the co-ordinate bench of the Hyderabad Tribunal in the aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O. /TPO is accordingly directed.”

3) Infosys Technologies Ltd. 12.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 12.2 Before us, the assessee contended that this company is not functionally comparable to the assessee and in this context has cited various portions of the Annual Report of this company to this effect which is as under :- (i) The company has an Intellectual Property (IP) Cell to guide its employees to leverage the power of IP for their growth. In 2008, this company generated over 102 invention disclosures and filed an aggregate 10 patents in India and the USA. Till date this company has filed an aggregate of 119 patent applications (pending) in India and USA out of which 2 have been granted in the US. (ii) This company has substantial revenues from software products and the break-up of the software product revenues is not available.

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(iii) This company has incurred huge research and development expenditure to the tune of approximately Rs.200 Crores. (iv) This company has a revenue sharing agreement towards acquisition of IPR in AUTOLAY, a commercial software product used in designing high performance structural systems. (v) The assessee also placed reliance on the following judicial decisions :- (a) ITAT, Delhi Bench decision in the case of Agnity India Technologies India Pvt. Ltd. (ITA No.3856/Del/2010) and (b) Trilogy E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011) 12.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the operating margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 12.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis- similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. The argument put forth by assessee's is that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly.”

4) KALS Information Systems Ltd.

“46. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual repot, the salary cost debited under the software development expenditure was Q 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal’s decision of the ITAT in the case of Bindview India Private Limited Vs. DCI, ITA No. ITA No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: “16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is

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explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds.”

Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limited should be rejected as a comparable. 47. We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable.”

5) & 6) M/S.Ishir Infotech Ltd. And Lucid Software Ltd :

“20. As far as comparable companies listed at Sl.No.11 & 14 of the final list of comparable companies chosen by the TPO viz., M/S.Ishir Infotech Ltd. And Lucid Software Ltd., is concerned, this Tribunal in the case of First Advantage Offshore Services Pvt.Ltd. Vs. DCIT IT (TP) No.1086/Bang/2011 for AY 07-08 held that the aforesaid companies are not comparable companies in the case of software development services provider. The nature of services rendered by the Assessee in this appeal and the Assessee in the case of First Advantage Offshore Services Pvt.Ltd.(supra) are one and the same. This fact would be clear from the fact that the very same 26 companies were chosen as comparable in the case of the Assessee as well as in the case of First Advantage Offshore Services Pvt.Ltd.(supra). The following were the relevant observations in the case of First Advantage Offshore Services Pvt.Ltd.(supra): 22. The learned counsel for the assessee submitted that these two companies are also to be excluded from the list of comparables on the basis of the finding of this Tribunal in the case of Mercedes Benz Research & Development India Pvt. Ltd. dt 22.2.2013, wherein at pages 17 and 22 of its order the distinctions as to why these companies should be excluded are brought out. He submitted that the facts of the case before us are similar and, therefore, the said decision is applicable to the assessee's case also. 23. The learned DR however objected to the exclusion of these two companies from the list of comparables. On a careful perusal of the material on record, we find that the Tribunal in the case of Mercedes Benz Research &

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Development India Pvt. Ltd. (cited supra) has taken a note of dissimilarities between the assessee therein and Lucid Software Ltd. As observed therein Lucid Software Ltd. company is also involved in the development of software as compared to the assessee, which is only into software services. Similarly, as regards Ishir Infotech Ltd., the Tribunal has considered the decision of the Tribunal in the case of 24/7 Co. Pvt. Ltd to hold that Ishir Infotech is also out- sourcing its work and, therefore, has not satisfied the 25% employee cost filter and thus has to be excluded from the list of comparables. As the facts of the case before us are similar, respectfully following the decision of the co- ordinate bench, we hold that these two companies are also to be excluded. 21. Respectfully following the decision of the Tribunal referred to above, we direct the AO/TPO to exclude the aforesaid companies from the final list of comparable companies for the purpose of determining ALP.”

7) Wipro Limited “13.1 This company was selected as a comparable by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables or several grounds like functional dis-similarity, brand value, size, etc. The TPO, however, brushed aside the objections of the assessee and included this company in the set of comparables. 13.2 Before us, the assessee contended that this company is functionally not comparable to the assessee for several reasons, which are as under : (i) This company owns significant intangibles in the nature of customer related intangibles and technology related intangibles and quoted extracts from the Annual Report of this company in the submissions made. (ii) The TPO had adopted the consolidated financial statements for comparability purposes and for computing the margins, which contradicts the TPO’s own filter of rejecting companies with consolidated financial statements. 13.3. Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the set of comparables. 13.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. 13.4.2 We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of

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patents. In this regard, the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co- ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration.”

8) Accel Transmatic Ltd.

(i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system

(ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development

(iii) Accel IT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/BPO

(iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development.

4.3 On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with the assessee that the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee’s claim that this company was functionally different was accepted. DRP therefore directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin.”

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the assessee was that if the above company should not be considered as comparable. The ld. DR, on the other hand, relied on the order of the TPO. 50. We have considered the submissions and are of the view that the plea of the assessee that the aforesaid company should not be treated as comparables was considered by the Tribunal in Capgemini India Ltd (supra) where the assessee was software developer. The Tribunal, in the said decision referred to by the ld. counsel for the assessee, has accepted that this company was not comparable in the case of the assessees engaged in software development services business. Accepting the argument of the ld. counsel for the assessee, we hold that the aforesaid company should be excluded as comparables.” 20. Respectfully following the decision of the Tribunal in similar set of facts, these companies are directed to be excluded from the list of comparables.”

9) Avani Cimcon Technologies Ltd.

“39. As far as this company is concerned, the plea of the Assessee has been that this company is functionally different from the assessee. Based on the information available in the company’s website, which reveals that this company has developed a software product by name “DXchange”, it was submitted that this company would have revenue from software product sales apart from rendering of software services and therefore is functionally different from the assessee. It was further submitted that the Mumbai Bench of the Tribunal to the decision in the case of Telcordia Technologies Pvt. Ltd. v. ACIT – ITA No.7821/Mum/2011 wherein the Tribunal accepted the assessee’s contention that this company has revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software development services only and it was held as follows:- “7.8 Avani Cincom Technologies Ltd. (‘Avani Cincom’):

Here in this case also the segmental details of operating income of IT services and sale of software products have not been provided so as to see whether the profit ratio of this company can be taken into consideration for comparing the case that of assessee. In absence of any kind of details provided by the TPO, we are unable to persuade ourselves to include it as comparable party. Learned CIT DR has provided a copy of profit loss account which shows that mainly its earning is from software exports, however, the details of percentage of export of products or services have not been given. We, therefore, reject this company also from taking into consideration for comparability analysis.”

It was also highlighted that the margin of this company at 52.59% which represents abnormal circumstances and profits. The following figures were placed before us:-

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Particulars FYs 05-06 06-07 07-08 08-09

Operating Revenue 21761611 35477523 29342809 28039851

Operating Expns. 16417661 23249646 23359186 31108949

Operating Profit 5343950 12227877 5983623 (3069098)

Operating Margin 32.55% 52.59% 25.62% - 9.87%

10) Flextronics Software Systems Ltd (seg) : “26. Now taking up the question of exclusion of Flextronics Software Systems Ltd (seg), it is true that the decision of Motorola Solutions (India) P. Ltd (supra) also was for the very same year and also on software development services sector. This Tribunal held as under : “97.2 For a company to be included in the list of comparables, it is necessary that credible information is available about the company. Unless this basic requirement is fulfilled, the company cannot be taken as a comparable. It is true that ld. TPO is entitled to obtain information us/ 133(6), the object of which is primarily only to supplement the information already available on record, but not, as rightly submitted by ld. Counsel for the assessee, to replace the information. If there is a complete contradiction between the information obtained u/s 133(6) and annual report then the said information cannot be substituted for the information contained in annual report. We, therefore, are in ITA No. 5637/D/2011 149 agreement with ld. counsel for the assessee that this company cannot be included as a comparable in the set of comparables selected by ld. TPO on account of clear contradiction between contents of annual report and information obtained u/s 133(6).

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domain except for agreements and contracts to which assessee is privy. Once the annual report of a company is for a year different from the financial year ending 31st March, then without doubt, it will cease to be a good comparable, unless the information received in pursuance to a notice u/s.133(6) of the Act from such company, is reconciled with the figures available in such annual report. 28. In the case of Flextronics Software Systems Ltd (seg), no doubt the annual report was for the year ending 31.03.2007. However it was only for a nine months period. No reconciliation was attempted by the lower authorities between the figures given in such annual report with the figures which were made available by the said company to the TPO pursuant to notice issued to them u/s.133(6) of the Act. No doubt at page 123 of TP order, TPO has stated that the software development service revenues were more than 75% based on the following figures :

But how this segmentation was done by the TPO and the reconciliation of the said segmentation with the annual report of the assessee was never attempted or done. In such a situation we are of the opinion that Flextronics Software Solutions Ltd (seg) could not be considered as a proper comparable. We direct exclusion thereof.”

11) Helios & Matheson Information Technology Ltd :

“16. The next point made out by the assessee is with regard to the inclusion of items at (9) and (11) namely Helios & Matheson Information Technology Ltd., and KALS Information Solutions Ltd. (Seg). The primary plea raised by the assessee to assail the inclusion of the aforesaid two companies from the list of comparables is to be effect that they are functionally incomparable and therefore, are liable to be excluded. In sum and substance, the plea set up by the assessee is that both the aforesaid concerns are engaged in development and sale of software products which is functionally different from the services undertaken by the assessee in its IT-services segment.

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perusal of the Annual Report of the said concern for F.Y. 2006-07 reveals that the application software segment is engaged in the business of sale of software products and software services. The assessee pointed out this to the TPO in its written submissions, copy of which is placed in the Paper book at page 420.3 to 420.4. The assessee further pointed out that there was no bifurcation available between the business of sale of software products and the business of software services, and therefore, it was not appropriate to adopt the application software segment of the said concern for the purposes of comparability with the assessee’s IT-Services Segment. The TPO however, noticed that though the application software segment of the said concern may be engaged in selling of some of the software products which are developed by it, however, the said concern was not into trading of software products as there were no cost of purchases debited in the Profit & Loss Account. Though the TPO agreed that the quantum of revenue from sale of products was not available as per the financial statements of the said concern, but as the basic function of the said concern was software development, it was includible as it was functionally comparable to the assessee’s segment of IT-Services.

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KALS Information Solutions Ltd. (Seg). We have perused the relevant para of the order of the TPO i.e., 6.3.21, in terms of which the said concern has been included as a comparable concern. The assessee pointed out that as in the case of KALS Information Solutions Ltd. (Seg), in the instant case also for A.Y. 2006-07 the said concern was found functionally incomparable by the assessee in its Transfer pricing study and the said position was not disturbed by the TPO. The relevant portion of the Transfer pricing study, placed at page 432 of the Paper book has been pointed out in support. Considered in the aforesaid light, on the basis of the discussion in relation to KALS Information Solutions Ltd. (Seg), in the instant case also we find that the said concern is liable to be excluded from the list of comparables.”

12) Persistent Systems Ltd.

“17.1.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable for the reasons that this company being engaged in software product designing and analytic services, it is functionally different and further that segmental results are not available. The TPO rejected the assessee's objections on the ground that as per the Annual Report for the company for Financial Year 2007-08, it is mainly a software development company and as per the details furnished in reply to the notice under section 133(6) of the Act, software development constitutes 96% of its revenues. In this view of the matter, the Assessing Officer included this company i.e. Persistent Systems Ltd., in the list of comparables as it qualified the functionality criterion.

17.1.2 Before us, the assessee objected to the inclusion of this company as a comparable submitting that this company is functionally different and also that there are several other factors on which this company cannot be taken as a comparable. In this regard, the learned Authorised Representative submitted that :

(i) This company is engaged in software designing services and analytic services and therefore it is not purely a software development service provider as is the assessee in the case on hand.

(ii) Page 60 of the Annual Report of the company for F.Y. 2007-08 indicates that this company, is predominantly engaged in ‘Outsourced Software Product Development Services’ for independent software vendors and enterprises.

(iii) Website extracts indicate that this company is in the business of product design services.

(iv) The ITAT, Mumbai Bench in the case of Telecordia Technologies India Pvt. Ltd.(supra) while discussing the comparability of another company, namely Lucid Software Ltd. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available.

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The learned Authorised Representative prays that in view of the above, this company i.e. Persistent Systems Ltd. be omitted from the list of comparables.

17.2 Per contra, the learned Departmental Representative support the action of the TPO in including this company in the list of comparables.

17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly.

13) Sasken Communication Technologies Ltd.: “109. Ld TPO noticed that the company was rejected in the TP document on the ground that the company fails its filter of business review and R&D to sales was more than 3%. However, no reasons were given for the business review. 109.1 Ld. TPO pointed out that R&D to sales being more than 3% is not acceptable for which detailed discussion has already been made earlier. He further noticed that the company has software services segment and segmental results are available for software services. He further pointed out that on the basis of information obtained u/s 133(6), the company qualifies onsite revenue filter (onsite revenues were to the extent 27.27% of its export revenues). After considering the assessee’s reply, ld. TPO included this company in the list of comparables. Ld. counsel pointed out that this company has incurred significant expenditure on research and development activity the same being 6.07% of sales. He further submitted that the company had significant intangible inasmuch as it develops siskin branded products. The company owns IPR Further it was pointed out before TPO that during the year the company had acquired Botnia Hightech F. and its two subsidiaries and thus, it had under gone significant restructuring. However, ld. TPO ignored these facts He relied on the following decisions: • IQ Information System (I) Pvt. Ltd., ITA No. 1961/Hyd./2012 (para no. 11 & 23, page 25); • Amerson Process Management India Pvt. Ltd., ITA No. 8118/Mum./2010 (para 16 page 15). 110. Ld. DR relied on the order of TPO and submitted that TPO considered the companies software services segment details only. We have considered the rival submissions and have perused the record of the case.

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However, since this adjustment was not possible, therefore, this company should not have been included in the list of comparables. Further, we find that the company owns IPR and has branded products which also distinguishes it from the assessee and, therefore, keeping in view the decision of Hon’ble Delhi High Court in the case of Agnity India Technologies Pvt. Ltd.(supra), we direct the ld. TPO to exclude this comparable from the list of comparables.

If we follow the coordinate bench decision in the case of Motorala Solution (India) P. Ltd, Sasken Communication Technologies Ltd needs to be excluded. However, as mentioned by us at para 24 above, where the contested comparable formed part of assessee’s own study, then the AO / TPO has to be given a chance for verification, in view of judgment of Hon’ble Pun jab & Haryana High Court in the case of Quark Systems India P. Ltd (supra). Accordingly we remit the issue of comparability of Sasken Communication Technologies Ltd back to the AO / TPO for consideration afresh as per law. Ordered accordingly.”

14) Tata Elxsi Ltd. 14.1 This company was a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on several counts like, functional dis-similarity, significant R&D activity, brand value, size, etc. The TPO, however, rejected the contention put forth by the assessee and included this company in the set of comparables.

14.2 Before us, it was reiterated that this company is not functionally comparable to the assessee as it performs a variety of functions under the software development and services segment namely (a) Product design services (b) Innovation design engineering and (c) visual computing labs. In the submissions made the assessee had quoted relevant portions from the Annual Report of the company to this effect. In view of this, the learned Authorised Representative pleaded that this company be excluded from the list of comparables. 14.3 Per contra, the learned Departmental Representative supported the stand o the TPO in including this company in the list of comparables. 14.4.1 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this

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company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment “software development services” relates to design services and are not similar to software development services performed by the assessee. 14.4.2 The Hon'ble Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. V ACIT (ITA No.7821/Mum/2011) has held that Tata Elxsi Ltd. is not a software development service provider and therefore it is not functionally comparable. In this context the relevant portion of this order is extracted and reproduced below :- “ …. Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned Authorised Representative that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm’s length price for the assessee, hence, should be excluded from the list of comparable portion.” As can be seen from the extracts of the Annual Report of this company produced before us, the facts pertaining to Tata Elxsi have not changed from Assessment Year 2007-08 to Assessment Year 2008-09. We, therefore, hold that this company is not to be considered for inclusion in the set of comparables in the case on hand. It is ordered accordingly.”

15) Thirdware Solutions Ltd. (Segment) :

“15.1 This company was proposed for inclusion in the list of comparables by the TPO. Before the TPO, the assessee objected to the inclusion of this company in the list of comparables on the ground that its turnover was in excess of Rs.500 Crores. Before us, the assessee has objected to the inclusion of this company as a comparable for the reason that apart from software development services, it is in the business of product development and trading in software and giving licenses for use of software. In this regard, the learned Authorised Representative submitted that :-

(i) This company is engaged in product development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services.

(ii) In the case of E-Gain communications Pvt. Ltd. (2008-TII-04-ITAT-PUNE- TP), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company.

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The learned A.R. prayed that in the light of the above facts and in view of the afore cited decision of the Tribunal (supra), this company ought to be omitted from the list of comparables.

15.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables.

15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and subscription. However, the segmental profit and loss accounts for software development services and product development are not given separately. Further, as pointed out by the learned Authorised Representative, the Pune Bench of the Tribunal in the case of E-Gain Communications Pvt. Ltd. (supra) has directed that since the income of this company includes income from sale of licenses, it ought to be rejected as a comparable for software development services.

In the case on hand, the assessee is rendering software development services. In this factual view of the matter and following the afore cited decision of the Pune Tribunal (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand.”

the above case was as under :

“Megasoft Ltd. : 24. This company was chosen as a comparable by the TPO. The objection of the assessee is that there are two segments in this company viz., (i) software development segment, and (ii) software product segment. The Assessee is a pure software services provider and not a software product developer. According to the Assessee there is no break up of revenue between software products and software services business on a standalone basis of this comparable. The TPO relied on information which was given by this company in which this company had explained that it has two divisions viz., BLUEALLY DIVISION and XIUS-BCGI DIVISION. Xius-BCGI Division does the business of product software. This company develops packaged products for the wireless and convergent telecom industry. These products are sold as packaged products to customers. While implementing these standardized products, customers may request the company to customize products or reconfigure products to fit into their business environment. Thereupon the company takes up the job of customizing the packaged software. The company also explained that 30 to 40% of the product software would constitute packaged product and around 50% to 60% would constitute customized capabilities and expenses related to travelling, boarding and lodging expense. Based on the above reply,

IT(TP)A.1206/Bang/2011 Page - 25

the TPO proceeded to hold that the comparable company was mainly into customization of software products developed (which was akin to product software) internally and that the portion of the revenue from development of software sold and used for customization was less than 25% of the overall revenues. The TPO therefore held that less than 25% of the revenues of the comparable are from software products and therefore the comparable satisfied TPO’s filter of more than 75% of revenues from software development services. The basis on which the TPO arrived at the PLI of 60.23% is given at page-115 and 116 of the order of the TPO. It is clear from the perusal of the same that the TPO has proceeded to determine the PLI at the entity level and not on the basis of segmental data.

IT(TP)A.1206/Bang/2011 Page - 26

Accordingly we hold that Megasoft Ltd can be considered as a good comparable after segmentation as directed in the above order is done.

under :

Semiconductors India P. Ltd v ACIT [dated 14.11.2014 in IT(TP) A No.

1174/Bang/2011], for AY.2007-08 is extracted as under :

“18. Quintegra Solutions Ltd.

18.1 This case was selected by the TPO as a comparable. Before the TPO, the assessee objected to the inclusion of this company in the set of comparables on the ground that this company is functionally different and also that there were peculiar economic circumstances in the form of acquisitions made during the year. The TPO rejected the assessee's objections holding that this company qualifies all the filters applied by the TPO. On the issue of acquisitions, the TPO rejected the assessee's objections observing that the assessee has not adduced any evidence as to how this event had an any influence on the pricing or the margin earned.

18.1.2 Before us, the assessee objected to the inclusion of this company for the reason that it is functionally different and also that there are other factors for which this company cannot be considered as a comparable. It was submitted that,

(i) Quintegra solutions Ltd., the company under consideration, is engaged in product engineering services and not in purely software development services.

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The Annual Report of this company also states that it is engaged in preparatory software products and is therefore not similar to the assessee in the case on hand.

(ii) In its Annual Report, the services rendered by the company are described as under :

“ Leveraging its proven global model, Quintegra provides a full range of custom IT solutions (such as development, testing, maintenance, SAP, product engineering and infrastructure management services), proprietary software products and consultancy services in IT on various platforms and technologies.”

(iii) This company is also engaged in research and development activities which resulted in the creation of Intellectual Proprietary Rights (IPRs) as can be evidenced from the statements made in the Annual Report of the company for the period under consideration, which is as under :

“ Quintegra has taken various measures to preserve its intellectual property. Accordingly, some of the products developed by the company …………… have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks.”

(iv) The TPO has applied the filter of excluding companies having peculiar economic circumstances. Quintegra fails the TPO’s own filter since there have been acquisitions in this case, as is evidenced from the company’s Annual Report for F.Y. 2007-08, the period under consideration.

The learned Authorised Representative prays that in view of the submissions made above, it is clear that inter alia, this company i.e. Quintegra Solutions Ltd. being functionally different and possessing its own intangibles / IPRs, it cannot be considered as a comparable to the assessee in the case on hand and therefore ought to be excluded from the list of comparables for the period under consideration.

18.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the set of comparables to the assessee for the period under consideration.

18.3.1 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e.Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The co- ordinate bench of this Tribunal in thecase of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010 dt.9.11.2012) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to

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one that does not own intangibles and requires to be omitted form the list of comparables, as in the case on hand.

18.3.2 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where extraordinary events have taken place, which has an effect on the performance of the company, then that company shall be removed from the list of comparables.

18.3.3 Respectfully following the decision of the co-ordinate bench of the Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (supra), we direct that this company i.e. Quintegra Solutions Ltd. be excluded from the list of comparables in the case on hand since it is engaged in proprietary software products and owns its own intangibles unlike the assessee in the case on hand who is a software service provider.”

Customer.com Private Ltd. V. DCIT [(2012) 28 taxmann.com 258 (Bang-

Trib.)], for AY.2004-05 is extracted as under :

“Related Party Transactions

".....We are further of the view that an entity can be taken as uncontrolled if its related party transactions do not exceed 10 to 15% of total revenue. Within the above limit, transactions cannot be held to be significant to influence the profitability of the comparables. For the purpose of comparison what is to be judged is the impact of the related party transactions vis-à-vis sales and not profit since profit of an enterprise is influenced by large number of other factors....."

Respectfully following the decision of the Tribunal in the case of Sony India (P) Ltd. (supra), the Assessing Officer/TPO are directed to exclude after due verification those comparables from the list with related party transactions or controlled transactions in excess of 15% of total revenues for the financial year 2003-04. ”

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comparables elaborately, supra, in those decisions, following them we

direct exclusion of Celestial Labs Ltd, E-Zest Solutions Ltd, Infosys

Technologies Ltd, Kals Information Systems Ltde (seg), Lucid Software Ltd,

Wipro Ltd (seg), Accel Transmatic Ltd (seg), Avani Cimcon Technologies

Ltd, Flextronics Software Systems Ltd (seg), Helios & Matheson Information

Technology Ltd, Ishir Infotech Ltd, Persistent Systems Ltd, Sasken

Communication Technologies Ltd (Seg), Tata Elxsi Ltd (seg) , Thirdware

Solutions Ltd and Quintegra Solutions Ltd as they are functionally

different from the assessee. In so far as Megasoft Solutions Ltd is

concerned, we direct the AO / TPO to rework its segmental results and

consider its comparability only with regard to the software development

services segment. The Assessing Officer/TPO is also directed to exclude

after due verification those comparables from the list with related party

transactions or controlled transactions in excess of 15% of total revenues .

Ordered accordingly.

the arithmetic mean of the working capital adjusted margins of the

remaining 9 comparables (10.73%) is lower than the NCP margin of the

assessee for its international transaction of provision of SWD services to its

AE in a y 2007-08 (10.85%), and hence its international transaction can

be concluded as being at arm's length. Thus, the TP adjustment made by

the TPO is liable to be set aside. Therefore, the other grounds raised in

IT(TP)A.1206/Bang/2011 Page - 30

the memorandum of appeal with reference to the SWD services provided

to its AEs in a y 2007-08 are not pressed at this stage and hence they

are not dealt with.

Rs.88,69,75,049/-. Out of 12 comparables selected by the assessee,

the TPO accepted 4 comparables, namely, Cosmic Global ltd, Maple

Esolutions Ltd, Transworks Information Services Ltd and Triton Corp Ltd

and rejected the remaining eight comparables. The TPO’s final set

comprised of 27 comparables. Out of which, the assessee is seeking

rejection of 13 comparables , 6 being functionally dissimilar, the RPT’s

exceed 15% on 4 comparables & three comparables may be remanded to

the AO /TPO for fresh examination relying on this Tribunal’s decision in

the case of Pole to Win India P. Ltd v DCIT , IT(TP) A No 1053(Bang) 2011

dt 08.06.2016 , ( 2016) 70 Taxmann.com318 (Bang.Trib) for ay 2007-08.

Let us examine them by extracting the relevant portion as under:

“8. Bodhtree Consultancy Ltd. 8.1 The learned Authorised Representative of the assessee submitted that this company is engaged in the business of development of software product and highly fluctuating margin, this company is also functionally dis-similar to the assessee as it is engaged in providing open and end-to-end web solution, software consultancy, design and development of solution by using latest technology. This company is also engaged in the development of software products. He has referred to the Annexure to the Directors Report and submitted that this company is following the method of revenue recognition from software development based on software developed and billed to client whereas the expenditure is recognized when it is incurred towards software development. Therefore, there is no match between the expenditure and the revenue from software development segment. Thus once this company is in the software development, the same cannot be compared with the assessee being ITES provided to its AEs.

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8.2 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and further submitted that the co-ordinate bench of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra) found this company to be comparable. 8.3 We have considered the rival submissions and the relevant material on record. In case of Ariba Technologies India (P.) Ltd. (supra), the objections against this company was on the ground of extra-ordinary profit and therefore the Tribunal has no occasion to examine the functional comparability of this company except the ground raised by the assessee regarding extra-ordinary profit margin. The learned Authorised Representative of the assessee has referred to the Annexure to the Directors Report wherein segment- wise and product-wise performance has been reported as under : "Segment-wise and product-wise performance Bodhtree has only one segment, namely software development, being a software solutions company, it is engaged in providing open and end-to-end web solutions, software consultancy, design and development of solutions, using the latest technology. Outlook Given the steady growth in the niche areas like data cleansing and software development, and the new initiatives in the areas of e-publication and e-learning, the management has reason to be optimistic about the future growth. Revenue Recognition Revenue from software development is recognized based on software developed and billed to clients." Thus it is clear that this company is having one segment namely software development under which this company is providing software solutions including open and end-to- end web solution, software consultancy, design and development of solution. Further, the company is also providing data cleansing and software development. These services are in the category of software development services and not in ITES. Accordingly, we are of the view that the software development segment cannot be compared with ITES segment and hence this company cannot be compared with the assessee's ITES segment. Accordingly, we direct the A.O./TPO to exclude this company from the list of comparables. 9. e-clerx Services Ltd. We have considered the rival submissions and the relevant material on record. At the outset, we note that the comparability of this company has been considered by the co- ordinate bench of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra). From the finding of the co-ordinate bench it is clear that the comparability of this company was also considered by the Special Bench of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. v. Asstt CIT [2014] 43 taxmann.com

IT(TP)A.1206/Bang/2011 Page - 32

100/147 ITD 83. Thus in view of the decision of the co-ordinate bench, we find that this company is engaged in providing data analysis and process solutions and recognized as expert in market financial services, retail and manufacturing. Thus this company was providing complete business solutions which are in different field of services. Therefore this company cannot be considered as comparable with the low end service provider. Accordingly, we direct the A.O./TPO to exclude this company from the list of comparables. ............................................................................................................................................. ........................ 10. Infosys Ltd. : As it is clear from the finding of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra), this company is deriving revenue from the software product and has a huge intangible assets apart from the brand value and a leader in the market. Accordingly, by following the earlier orders of this Tribunal, we direct the A.O./TPO to exclude this company from the list of comparables. ............................................................................................................................................. ............................................................................................................................................. ....................................................... 12.1 Mold-tek Technology Ltd. (Seg.) : Having considered the rival submissions as well as the relevant material on record, we find that the functional comparability has been considered by this Tribunal in a series of decision including the decision of Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (supra). The co-ordinate bench of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra) has held that this company is engaged in the engineering services being the nature of producing designs, drawings, detailed structure of engineering drawings using 2D and 3D software cannot be compared with the assessee and consequently the A.O./TPO is directed to exclude this company from the set of comparables. ............................................................................................................................................. .......................................................... 14. Vishal Information Technology Ltd. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that the comparability of this company has been examined by this Tribunal in the case of Ariba Technologies India (P.)Ltd. (supra) and it was found that this company was out sourcing its job and therefore it fails the employee cost filter. Even otherwise when this is getting its work done through-out sourcing then the business model of this company is different from the assessee. Accordingly, we direct the A.O./TPO to exclude this company from the list of comparables. 15. Wipro Limited : We have considered the rival submissions as well as the relevant material on record. At the outset, we note that the comparability of this company has been examined by this Tribunal in the case of Ariba Technologies India (P.)Ltd. (supra), it is clear from the

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finding of the co- ordinate bench that this company is having significant investment in business acquisition as well as engaged in the innovation activities of various fields including technology innovation, there was innovation and delivery innovation. This company is also having huge brand value and R&D activity. Therefore in view of the judgment of Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26/36 taxmann.com 289, this company cannot be considered as a good comparable with a low end and captive service provider in ITES segment. Accordingly, we direct the A.O./TPO to exclude this company form the list of comparables.” 14.1 On comparables exceeding RPT at 15% :

“7.5 We have heard the ld. A.R. & ld. D.R. and considered carefully the relevant material on record. We find that in the case of Ariba Technologies India (P.) Ltd. (supra), the TPO has selected the same set of 27 comparable companies as in the case of the assessee before us. We further note that in the case of the assessee, the TPO has accepted that the assessee is in the ITES segment which was also accepted in the case of Ariba Technologies India (P.) Ltd. (supra). We further find that most of the comparable companies are required to be excluded by applying the filter of RPT at 15%. Therefore, to the extent of the exclusion of the companies on the ground of RPT filter. We need not go into the functional comparability of those companies. The Tribunal while considering the same set of 27 comparables in the case of Ariba Technologies India (P.) Ltd. (supra) has given the finding in para 15 as under : '15. We shall deal with each and every comparable which has been challenged by the assessee and exclusion of some of the comparables has been challenged by the revenue one by one as under : .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .............

(v) Apollo Health Street Ltd. : This company was selected by the TPO/A.O though the assessee did not contest the inclusion of this company either before the TPO/A.O or before the CIT (Appeals). However, the CIT (Appeals) excluded this company on turnover filter. We find that the RPT revenue of this company is 17.77%. Therefore this company fails RPT filter of 15% and accordingly, we upheld the exclusion of this company from the list of comparables. (vi) Asit C Mehta Financial Services Ltd. : This company was selected by the TPO/A.O though the assessee did not contest the inclusion of this company either before the TPO/A.O or before the CIT (Appeals). However, the CIT (Appeals) excluded this company on turnover filter. We find that the RPT revenue of this company is 15.76%. Therefore this company fails RPT filter of 15% and

IT(TP)A.1206/Bang/2011 Page - 34

accordingly, we upheld the exclusion of this company from the list of comparables. .................................................................................................................................... ................................................................................................ 9.1 M/s. HCL Comnet Systems & Services Ltd. and Informed Technologies India Ltd. : These companies were found to be having more than 15% RPT revenue. Accordingly, we direct the A.O./TPO to exclude these companies from the set of comparables.”

14.2 On 3 comparables being pleaded for fresh examination : “11.1 I-services India Pvt. Ltd. : The learned Authorised Representative of the assessee has submitted that the complete financial details are not available in the public domain in respect of this company despite the TPO has selected this company for the purpose of computing the ALP. He has pointed out that an identical issue has been considered by the co-ordinate bench of this Tribunal in the case of sister concern of the assessee i.e. e4e Business Solutions India (P.) Ltd. v. Dy. CIT [2016] 69 taxmann.com 73 wherein the Tribunal has remanded the issue to the record of the A.O./TPO. Thus the learned Authorised Representative has submitted that the assessee be given the complete financial information of this company for filing its objections and comments against the comparability of this company. 11.2 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that the TPO has called the relevant information under Section 133(6) of the Act. Thus the TPO has considered this company after examination of the entire relevant record. 11.3 We have considered the rival submissions as well as the relevant material on record. At the outset we note that the TPO in para 33.18 of the impugned order has stated that the Annual Report was not available for the year under consideration. Thus the notice under Section 133(6) was issued to the company. The company made available its Annual Report to the TPO and on the basis of the information received under Section 133(6), the TPO has concluded that this company is comparable with the assessee. The co-ordinate bench of this Tribunal in the case of e4e Business Solutions India (P.) Ltd. (supra) has considered this issue in para 30 as under : " 30. The assessee has not raised any specific ground on adopting this company as a comparable before the DRP. Before us, the learned counsel for the assessee has submitted that the TPO did not furnish the information obtained from this company in exercise of his powers u/s.133(6) of the Act. It was further pointed out that even as per the TPO, the annual report of this company for F. Y. 2006- 07 was not available. The TPO has gone by the data available on capita line data base. The learned counsel for the assessee therefore made a prayer that the question of considering the aforesaid company as a comparable should be

IT(TP)A.1206/Bang/2011 Page - 35

remanded back to the TPO / Assessing Officer for fresh consideration and the issue decided in the light of the published annual report for F. Y. 2006-07 and also on the basis of the information furnished by this company to the Assessing Officer in response to notice u/s.133(6) of the Act. We have considered the submissions and are of the view that the same deserves to be accepted. The TPO / Assessing Officer will obtain the annual report of the company for F. Y. 2006- 07 and also furnish the assessee copies of the same together with the information obtained by the TPO pursuant to issue of notice u/s.133(6) of the Act. The assessee will thereafter furnish its reply as to why this company should not be considered as a comparable company. The TPO / Assessing Officer will thereafter decide the question of considering this company as a comparable company after affording opportunity of being heard to the assessee." Thus the Tribunal has observed that the TPO/A.O has to furnish the copies of the information to the assessee and thereafter the assessee has to furnish its reply as to why this company should not be considered as a comparable company. In view of the order of the co-ordinate bench, we set aside this issue to the record of the A.O./TPO for deciding the comparability of the same after considering the reply of the assessee on furnishing of the information received under Section 133(6) of the Act.”

............................................................................................................................................. ............................................................................................................................................. ............................................... Accentia Technology Ltd. : 13.1 The learned Authorised Representative of the assessee has submitted that there is an extra-ordinary event of amalgamation during the year under consideration as this company has amalgamated its subsidiary namely Geo Soft Technologies Ltd. and Iridium Technologies India Pvt. Ltd. w.e.f. 1.4.2006 as per the respective orders of the Hon'ble High Court. He has further submitted that this fact has also been mentioned in the notes to accounts. Thus the learned Authorised Representative has submitted that due to the extra-ordinary event during the year under consideration, this company cannot be considered as good comparable. The learned Authorised Representative has relied upon the decision dt.29.4.2016 of Delhi Bench of ITAT in the case of Sony Mobile Communications International AB Ltd. v. Dy. DIT [2016] 69 taxmann.com 404 in support of his contention. 13.2 On the other hand, the learned Departmental Representative has submitted that the assessee has not raised this issue before the authorities below. Further it is not clear whether the amalgamation of the subsidiaries has changed business profile of this company from its stand alone. He has relied upon the orders of the authorities below. 13.3 We have considered the rival submissions and the relevant material on record. At the outset we note that as per the Directors Report of this company, there was an

IT(TP)A.1206/Bang/2011 Page - 36

amalgamation of its two subsidiaries during the year under consideration w.e.f. 1.4.2006 which is reported as under : "Company's business growth and prospects :- During the year Mr. Pradeep Viswambharan took over the management of the company. As per the Business plans to consolidate the company has filed petition for amalgamation of two of its subsidiaries namely Geosoft Technologies (Trivandrum) Ltd. and Iridium Technologies (India) Pvt. Ltd. and successfully amalgamated them with the company with effect from 1.4.2006 as per the respective High Court orders. The company has with the permission of the ROC Mumbai has extended the holding of the AGM to facilitate the consolidation of accounts." There is no dispute that amalgamation, merger or acquisition is considered as extra- ordinary event for the purpose of considering a particular entity as comparable. The co- ordinate bench of this Tribunal in the case of Sony Mobile Communications International AB (India Branch Office) (supra) in para 7.3 has observed as under : " 7.3. Significantly, page 23 of the Annual report of this company divulges that: 'During the year 2008- 09, the company has acquired Citigroup Inc.'s (Citi) 96.26% interest in TCS e-Serve Ltd. (formerly known as Citigroup Global Services Ltd.), the India-based capital BPO, for a total consideration of USD 504.54 million.' This indicates that this company made acquisition during the year in question which is an extraordinary financial event. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. v. DCIT (2013) 154 TTJ (Mum) 176, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers. Similar view has been adopted by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. v. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. The ld. DR contended that the mere fact of acquisition and merger should not be considered as a decisive test for exclusion of a company unless it has affected the profitability due to such merger etc. We are not inclined to accept this contention for the obvious reason that once acquisition and merger etc. has taken place, it is always likely to affect the profitability of such a company in the year of acquisition etc. There cannot be any standard yardstick to measure the impact of such a factor on the overall profitability of such a company. It is relevant to highlight that we are considering the exclusion of a company on this score. In our considered opinion, when other comparables are available, the exclusion of a probable comparable company cannot have much significance in contrast to a situation of inclusion of a probable incomparable. Respectfully following the above referred decisions, we hold that TCS Ltd. cannot be considered as comparable with the assessee. The same is directed to be excluded." Therefore, for limited purpose of considering the said record, we set aside this issue to the record of A.O/TPO and then decide the issue of comparability of this company in the light of the above observations.”

IT(TP)A.1206/Bang/2011 Page - 37

............................................................................................................................................. .................................................................................................................................. 16. Accurate Data Convertors Pvt. Ltd. : 16.1 The learned Authorised Representative of the assessee has referred to the Directors Report of this company and submitted that this company earns revenue from software development as it is reported in the Directors Report. 16.2 On the other hand, the learned Departmental Representative has submitted that no such objection was taken by the assessee before the authorities below and therefore the assessee is bringing a new fact at this stage. 16.3 Having considered the rival submissions as well as the relevant material on record, we note that this company was selected by the TPO and Annual Report as well as Directors Report are the primary documents for analyzing functional comparability of a particular company. Therefore, we do not find any substance in the objections raised by the D.R. We note that in the Directors Report, the working of the company is reported as under : "WORKING OF THE COMPANY Income from software development during the year under review was Rs.4,33,46,996 as against Rs.431,71,568 for the year ended 31.3.2006. The net profit after taxes amounted to Rs.66,87,665 as against Rs.100,50,544 in the previous year." Thus it is clear that this company has earned income from software development during the year under consideration and the composite data has been considered. In view of the above facts brought to our notice, we set aside this issue to the record of the TPO/A.O for further verification and examination of the relevant record and financial data of this company. We make it clear that if this company is generating revenue from software development activity which is part of the operating revenue / margins of this company considered for the purpose of ALP then this company shall be excluded from the set of comparables.”

excluded the comparables Bodhtree Consultancy Ltd, e-clerx Services

Ltd, Infosys Ltd, Mold-tek Technology Ltd. (Seg.) , Vishal Information

Technology Ltd and Wipro Limited . Found that the comparables , Apollo

Health Street Ltd, Asit C Mehta Financial Services Ltd, M/s. HCL Comnet

Systems & Services Ltd and Informed Technologies India Ltd exceeded RPT

IT(TP)A.1206/Bang/2011 Page - 38

at 15% and hence directed to excluded them. Set aside the issues in

connection with comparables I-services India Pvt. Ltd, Accentia

Technology Ltd. and Accurate Data Convertors Pvt. Ltd to the A.O/TPO with

a direction to re-examine them in the light of their observations /directions,

supra. Following the above decision, the assessee’s plea is allowed in

respect of the above 6+4 comparables on functional dissimilarity + RPT

exceeding 15%. The issues in connection with the last 3 comparables are

set aside for re-examination on the similar lines in which this Tribunal

directed in the above case.

comparables are excluded , the arithmetic mean of the working capital

adjusted margins of the remaining 14 comparables (16.56%) is within +

or - 5% of the NCP margin of the assessee (12.07%), and hence its

international transaction can be concluded as being at arm's length.

Thus, the TP adjustment made by the TPO towards the ITE services to its

AE in a y 2007-08 is liable to be set aside. Therefore, the other

grounds raised in the memorandum of appeal insofar as it relates to

the ITE services are not pressed at this stage and hence they are not

dealt with.

IT(TP)A.1206/Bang/2011 Page - 39

III. Corporate Tax issues :

A. Disallowance of deduction claimed u/s 10A of the profits of business of UB Plaza Unit in BANGALORE [Ground No.6 in its appeal]-

is registered with the STPI authorities, from TBIIPL with effect from

01.07.2005 pursuant to a Business Transfer Agreement dated

15.06.2005 on a slump sale basis. UB Plaza Unit was, admittedly, a eligible

unit for deduction u/s 10A from its formation, i.e. on 24.03.2004, and

TBIIPL had been allowed the deduction u/s.10A from the first year of its

formation till the period it held the Unit, i.e. till 30.06.2005. Once it

acquired the UB Plaza Unit, it claimed deduction u/s 10A for the balance

period of eligibility, i.e. from assessment year 2006-07 onwards.

Pertinently, its claim for deduction u/s 10A for the said Unit for the

immediately preceding year, being the first year after the Unit's acquisition,

was allowed by the A O vide the assessment order dated 13.09.2010.

Accordingly, it claimed in its return of income for the present a y

Rs.10,25,52,834/- as the deduction u/s 10A. Despite, the AO disallowed

its claim on the ground that it did not fulfill the conditions necessary for

claiming deduction u/s 10A(2)(iii) and also on the ground that the

provisions of Section 10A(7A) are applicable only in the cases of an

amalgamation or demerger and thus do not apply in cases of a slump sale.

The DRP upheld the disallowance in its entirety.

IT(TP)A.1206/Bang/2011 Page - 40

that the deduction u/s 10A is undertaking / unit specific and that,

therefore, an undertaking otherwise eligible for deduction u/s 10A cannot

be denied only because its ownership has changed. Further, as regards the

AO's action in denying the deduction on the ground that the condition

stated in Section 10A (2)(iii) has not been fulfilled, it is submitted that the

word "formed" in the said clause is of crucial importance. Once a unit

has been held to be eligible in the year of its formation, then the

deduction under the said section cannot be denied. Further, since section

10A is an incentive provision, its provisions have to be interpreted in a

beneficial or purposive manner so as to give effect to the benefit sought

to be conferred thereby on assessees. It is now settled-law that the

provisions of an incentive provision have to be construed liberally and

that, furthermore in cases where there is an ambiguity in the wording of

a section, such a provision would have to be interpreted in such a manner

so as to favour of the assessee.

nothing in law to suggest that an undertaking which is sold on slump sale

basis can be denied the benefit of deduction u/s 10A. In fact, the

CBDT, having regard to the true purport and intention behind the said

section, has vide its Circular No. 1/2013 dated 17.01.2013, categorically

clarified that the claim of deduction under the section cannot be denied

purely because of change in ownership due to a slump sale. The

IT(TP)A.1206/Bang/2011 Page - 41

assessee placed reliance on the said CBDT Circular. Reliance is also

placed on the decision of the Hon'ble High Court of Bombay in CIT v.

Sonata Software Ltd., reported in [2012] 21 taxmann.com 23

(Bombay), as well as the decisions of this Hon'ble Tribunal in Woco

Motherson Elastomer Ltd. v. DCIT, reported in [2013] 36 taxmann.com

534 (Delhi - Trib.), and /TO v. Veto Electropowers, reported in [2012]

20 taxmann.com 279 (Jaipur)].

assessee’s plea. Deduction u/s 10A cannot be denied to the UB Plaza

Unit, which is otherwise undisputedly an eligible unit, merely on the

ground that it was acquired via a slump sale. Deduction u/s 10A is

undertaking / unit specific and that, therefore, an undertaking otherwise

eligible for deduction u/s 10A cannot be denied only because its owner has

changed . The AO has rightly allowed the deduction in the earlier year. The

AO is directed to allow the deduction for the balance period of

eligibility.

B. Re-computation of deduction claimed u/s I0A by reduction of

telecommunication charges and travel expenses in foreign currency only

from export turnover [Ground No.7 in its appeal] -

proceeded to state that should the assessee be granted the deduction u/s

10A with respect to the said UB Plaza Unit by the appellate

IT(TP)A.1206/Bang/2011 Page - 42

authorities, the deduction should be re-computed by: (1) reducing

the travel expenses of Rs.3,02,64,964/- incurred in foreign

currency; and (2) telecommunication charges of Rs.3,84,56,327/- from

only its export turnover without making a corresponding reduction in its

total turnover of the said amounts.

In its objections before the DRP, the assessee contended that, in the

first place, since it was not engaged in the provision of technical services

outside India, no part of the travel expenses incurred in foreign currency

should be reduced from its export turnover while computing the deduction

allowable to it u/s 1OA. Similarly, it contended that no part of the

telecommunication charges were attributable to the delivery of computed

software outside India and, hence, the said charges ought not to be reduced

from its export turnover. In the alternative, it contended that if the travel

expenses and telecommunication charges were to be reduced from its

export turnover, then they should also be reduced from its total

turnover. However, the DRP rejected the assessee’s contentions in toto.

The assessee submitted that for the above reasons, neither

the travel expenses in foreign currency nor the

telecommunication charges ought to be reduced from its export

turnover. In the alternative, it pleaded that while computing the

deduction allowable u/s 10A. If any item is excluded from the export

turnover, then it should also be excluded from the total turnover as well.

IT(TP)A.1206/Bang/2011 Page - 43

We heard the rival submissions. The assessee’s plea is supported by the

binding decision of the Hon'ble High Court of Karnataka in CIT v. Tata Elxsi

Ltd. [2012] 349 ITR 98 (Karn). Hence, Consistent with the above decision,

the AO is directed to exclude the above expenditure both from ETO and

TTO. The assessee’s appeal in this regard is allowed.”

C. Re-computation of deduction allowable u/s 10A by the re-

apportionment of certain expenses between its U B P la za U n it &

it s P in n ac le U n it [Ground No.8 in its appeal] :-

recomputed by the re-apportionment of certain expenses between the

aforesaid UB Plaza Unit and its Pinnacle Unit, being the unit ineligible for

deduction u/s 10A with effect from AY 2007-08, on the ground that the

appellant's basis of apportionment was erroneous. The said expenses are:

(i) Legal and professional charges; (ii) Staff recruitment expenses; and (iii) Management fees.

In this regard, the assessee submitted that the allocation of the above

expenses is done as under: Bill

• The invoices directly identifiable to a particular Unit (based on the nature of services received, particulars of the invoice, address on such invoice, etc.) are booked as cost of that particular Unit; • For common invoices which are not directly identifiable / attributable to any one Unit, the same are apportioned between the Units on the basis of average head count in each Unit every month;

IT(TP)A.1206/Bang/2011 Page - 44

• The management fees have been allocated entirely towards the Pinnacle Unit i.e. the ineligible 10A unit. • The AO , however, reallocated the above expenses in the ratio of the two units’ turnovers. The appellant objected to the same before the DRP. However, the DRP rejected the Appellant's contentions in toto and thereby confirmed the AO’s above protective disallowance. • The Appellant submits that its above basis of allocation has been consistently followed by it as it is clearly indicative of the size of its business, besides also ensuring that unrepresentative fluctuations in the amounts allocated are mitigated. Also, this basis of allocation is based on similar industry trends which are on a scientific and practical basis. Hence, it is submitted that the AO was not justified in holding the basis of allocation as incorrect and, further, the DRP erred in agreeing with the AO's approach of distributing these expenses on the basis of the two Units' turnovers. • In this regard, it is pertinent to note that in the final assessment order (para 10), the AO has observed that, 'Unlike the manufacturing and export of tangible goods wherein whole of the costs in the form of raw materials and labour incurred in the native country along with profit element are embedded in the invoice amount, software development and export involves mainly expertise and technical knowhow of specialised engineers who are employed partly in the native country and partly overseas'. Thus, it is clear that the AO has himself tacitly accepted that number of employees is the correct basis for allocation of such expenses in the services industry.

• Also, the Appellant submits that it operates on a cost plus mark-up model. Therefore, since the revenue is recognized in its books of account on that basis, the legal and professional charges, staff recruitment charges and management fees have, accordingly, been allocated between the two Units on the same basis while arriving at the total cost for the purposes of applying such mark-up. The total costs would have to first be identified and the mark-up would then have to be applied on the same to arrive at its revenue. Consequently, as its revenue is determined on the basis of the total costs identified, the allocation of underlying costs on the basis of its revenue / turnovers would be impractical and baseless. • In any event, the fact that the TPO has accepted the total cost computed by the Appellant for the purposes of applying the mark-up would itself go to show that an adjustment for the same cannot be made while computing the deduction under Section 10A of the Act.

IT(TP)A.1206/Bang/2011 Page - 45

It is trite that different bases of allocation of expenses cannot be used for TP purposes and for computation of the deduction under Section 10A of the Act. • Further, without prejudice to the above, the Appellant submits that even if it is assumed but not admitted that the above expenses have been allocated to the ineligible 10A Unit in excess, the Appellant submits that the same has, in turn, resulted in additional revenue in the said Unit given that the Appellant operates on a

Cost plus mark-up model which, in turn, has resulted in an increase of the profits of the said unit on which it has duty discharged tax. In that view of the matter, it is submitted that in case the above expenses are re-apportioned between the aforesaid UB Plaza and Pinnacle Units, then the corresponding mark-up, i.e. the profit, should also be appropriately adjusted.

legal, professional charges, staff recruitment expenses and management

fees and apportioned them between Pinnacle and UB plaza units based on

the head count. The AO examined and found that the management fees has

been debited against Pinnacle Unit alone and the assessee could not

explain why this expenditure is not apportioned at all as per it’s own

method. On examination, the AO held that the head count is not a fair

basis for apportionment. Since the turnover indicated activity level, he

apportioned them on the basis of turnover which resulted in increased

income of the Pinnacle Unit and reduction of income of UB plaza Unit. The

DR submitted that the assessee has to establish its claim before the AO .

We are of the view that this issue requires minutest examination and

verification of facts, vis a vis units and hence remit the issue to the AO/TPO.

The AO/TPO shall give due opportunity to the assesssee and decide the

issues in accordance with law.

IT(TP)A.1206/Bang/2011 Page - 46

D. Disallowance of claim for set-off of unabsorbed

Depreciation : [Ground No.9 in its appeal] -

of Rs.16,14,643/- claimed as a set-off in this assessment year, and as

was carried forward from ay 2006-07, pertains to ays 1996-97 and 1999-

2000. A table indicating the year-wise amount is provided below for quick

reference:

Particulars Assessment Year Amount (Rs.) Unabsorbed depreciation 1996-1997 3,58,207/- Unabsorbed depreciation 1999-2000 12,56,436/-

However, the AO denied the set-off of the above unabsorbed

depreciation on the ground that the Pinnacle Unit was a profit making unit

in all years prior to a y 2007-08 and that, therefore, the above unabsorbed

depreciation is deemed to have been set-off in such years of profit

before computing the deduction under Section 10A for those years.

Further, the A O has also denied the claim for set-off contending that the

same was allowed in the assessment order for AY 2006-07. The DRP, too,

upheld the same.

In this regard, the assessee submitted that the unabsorbed

depreciation could not be claimed in any of the preceding assessment years

as there were no profits available for such set-off after computing deduction

u/s 10A in those assessment years. Further, it submitted that the AO

, while computing the tax payable for a y 2006-07, had given effect to

the brought forward business losses and unabsorbed depreciation of the

IT(TP)A.1206/Bang/2011 Page - 47

assessee relating to earlier assessment years before giving effect to the

deduction u/s 10A . The assessee submitted that the above

action of the AO in the assessment order for a y 2006-07 is liable to be

set aside in view of the binding decision pronounced on 16.12.2016 by the

Hon'ble Supreme Court in CIT v. Yokogawa India Ltd. in C.A. Nos.

8498/2013 and others. Since the set-off of the above unabsorbed

depreciation of Rs.16.14.6431- in ay 2006-07 is erroneous and illegal

the said amount is available for set-off in the present assessment year.

Hence, the final assessment order, to the extent it denies the set-off of the

above unabsorbed depreciation of Rs.16,14,643/- is erroneous and liable to

set aside by the Tribunal.

entitled for set off of depreciation in view of the binding decision dt.

16.12.2016 of the Hon'ble Supreme Court in CIT v. Yokogawa India Ltd. in

C.A. Nos. 8498/2013 and others, it appears , the assessee is seeking relief

in the earlier assessment year on which appeal is not lying before the

Tribunal. From the orders, it is seen that the AO denied the set-off of

the above unabsorbed depreciation on the ground that the Pinnacle Unit

was a profit making unit in all years prior to a y 2007-08 and that,

therefore, the above unabsorbed depreciation is deemed to have been set-

off in such years of profit before computing the deduction under

Section 10A for those years. Further, the A O has also denied the claim for

set-off contending that the same was allowed in the assessment order for

IT(TP)A.1206/Bang/2011 Page - 48

AY 2006-07. In the absence of the corresponding facts and figures, it is

apparent that AO has decided this issue on surmise. Hence, this issue is

remitted to the AO for re-examination and due decision in accordance with

the Hon'ble Supreme Court decision in CIT v. Yokogawa India Ltd. in C.A.

Nos. 8498/2013 and others .

for statistical purpose.

Order is pronounced in the open court on 6th day of April, 2017.

Sd/- Sd/- (SMT. ASHA VIJAYARAGHAVAN) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER

MCN*

Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income Tax 4. The Commissioner of Income Tax (A) 5. DR 6. GF, ITAT, Bangalore By Order

Assistant Registrar