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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
Per N.V. Vasudevan, Judicial Member
IT(TP)A.No.532/Bang/2013 is an appeal by the Revenue against the order dated 09.01.2009 of CIT(A)-LTU, Bangalore, relating to AY 2005-06. The Assessee has filed Cross-Objection, C.O.No.119/Bang/2015, against the very same order of the CIT(A).
2. The issue that arises for consideration in the appeal by the Revenue and the C.O. by the Assessee are relating to the addition made to the total income consequent to determination of Arm’s Length Price (ALP) in respect of international transaction entered into by the Assessee with it’s Associated Enterprises (AE) u/s.92 of the Income Tax Act, 1961 (Act). The addition made consequent to determination of ALP by the TPO and addition on account of transfer pricing adjustment was a sum of Rs.2,12,76,048. The CIT(A) gave partial relief to the Assessee. Aggrieved by the relief allowed by the CIT(A), the revenue is in appeal before the Tribunal. Aggrieved by the order of CIT(A) in not applying certain filters while choosing comparable companies the Assessee has filed C.O.
The assessee is a wholly owned subsidiary of Kodiak, US. and it provides software development and support services to its AE. The Assessee is a “routine service provider” for the group. works as a contract software development service provider. During the financial year 2004-05
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 3 of 38 relevant to the assessment year 2005- 06, one of the international transaction that took place between the Assessee and its AEs was provision of software development and support services at a price of Rs. 16,23,64,188/-.
In support of the assessee’s claim that the price charged by it for services rendered to its AE was at arms’ length, the assessee filed a report as required by the provisions of section 92E of the Act in Form 3EB together with detailed analysis. The assessee adopted Transaction Net Margin Method (TNMM) as the most appropriate method for determining the ALP. Operating profits to cost was adopted as the Profit Level Indicator (“PLI”). The PLI of the assessee was arrived at as follows:
Revenue Rs.16,23,64,188
PBIT Rs. 1,48,73,837 Operating Profit (Op.Income – Op.Expenses) PBIT on cost 10.08% Op.Profit/Total cost (OP/TC)
The Assessee selected a set of 45 comparable companies and arrived at an arithmetic profit mean margin of 9.97% of those comparables and compared the same with the Assessee’s profit margin of 10.08% and claimed that the price paid in the international transaction with AE was at Arm’s length. The Transfer Pricing Officer (TPO) rejected the TP study as above done by the Assessee. He arrived at a final set of 17 comparable companies in which 10 companies chosen by the Assessee in its TP Study
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 4 of 38 were also included. The set of 17 comparable companies is given as Annexure-I to this order.
The assessee raised various objections to the methodology adopted and the reasons assigned by the TPO for rejecting the comparable chosen by the assessee in its TP study. The TPO finally passed an order u/s. 92CA of the Act and on the basis of the profit margins of comparable companies set out in Annexure-I to this order, arrived at arithmetic mean of 24.51% after working capital adjustment and 26.59% before working capital adjustment. The computation of the ALP by the TPO in this regard was as follows:-
“17.6 Computation of Arms Length Price: The arithmetic mean of the Profit Level indicators is taken as the arms length margin. (Please see Annexure B for details of computation of PLI of the comparables). Based on this, the arms length price of the software development services rendered by the taxpayer to its AE(s) is computed as under: Arithmetic mean PLI 26.59% Less: Working capital Adjustment (Annexure-C) 2.08% Adj.Arithmetic mean PLU 24.51% Arm’s Length Price: Operating Cost Rs.14,74,90,531*/- Arms Length Margin 24.51% of the operating cost Arms Length Price (ALP) Rs.18,36,40,236/- At 125.53% of operating cost *after excluding the advances written off.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 5 of 38 17.7 Price received vis-à-vis the Arms Length Price: The price charged by the tax payer to its Associated Enterprises is compared to the Arms Length Price as under: Arms Length Price (ALP) Rs.18,36,40,236 At 124.51% of operating cost Price charged in the Rs.16,23,64,188 international transactions Shortfall being adjustment Rs. 2,12,76,048 u/s.92CA
……………….”
7. On appeal by the Assessee, the CIT(A) partly allowed the appeal of the Assessee. The following were the key findings of the CIT(A):-
(i) Out of the 17 companies chosen by the TPO as the final set of comparable companies, the CIT(A) excluded 2 companies for the reason that these companies had related party transaction of more than 10%. The CIT(A) applied the filter of related party transaction by holding that to be chosen as a comparable company, the comparable companies should not have related party transaction of more than 10% of its turnover. By doing so, the CIT(A) excluded Geometric Software solutions co. Ltd., and Foursoft Ltd. From the final list of 17 comparable companies chosen by the TPO as the RPT in these two companies according to the CIT(A) was more than 10% of its turnover. In coming to the above conclusion, the CIT(A) followed the decisions of this Hon’ble Tribunal in the case of Sony
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 6 of 38 India Pvt. Ltd. VS. DCIT 819/Del/2007 &
820/Del/2007 & Mentor Graphics (Noida) (P.) Ltd. vs DCIT (2007] 109 lTD 101 (Del). (ii) Two companies, Exensys Software Solutions Ltd., and Thirdware
Solutions Ltd., were excluded because they were functionally not comparable and were also having abnormal profits. In coming to the above conclusion, the CIT(A) followed the decision of the ITAT
Bangalore Bench in the case of SAP India Pvt. Ltd v. ITO [ITA No. 398/8/2008 and E-gain Communications (P) Ltd. Vs. ITO Ward 1(4),
Pune (2008) (23) SOT- 385 (Pune-Trib.).
(iii) The CIT(A) held that Satyam Computer Services Ltd.,, L & T Infotech Ltd., Infosys Ltd., Flexotronics Software System (seg) and I gate Global Solutions (Seg.) have to be excluded from comparable companies because these companies had turnover of more than
Rs.200 crores and cannot be compared with the Assessee whose turnover is only Rs.16.24 Crores (Approx.). In coming to the above conclusion, the CIT(A) placed reliance on the decision of the ITAT
Bangalore in the case of M/S.Genesys Integrating Systems (I) Pvt.Ltd. Vs. DCIT wherein it was held that companies having high turnover cannot be compared with companies have low turnover.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 7 of 38 iv) Tata Elxsi Ltd. Was excluded by the CIT(A) on the ground it was functionally not comparable with the Assessee which is a pure software development service provider whereas Tata Elxsi Ltd., was engaged in development of niche products and services, which was entirely different from the Assessee company. In coming to the above conclusion, the CIT(A) placed reliance on the decision of the ITAT
Mumbai in the case Telcordia Technologies Pvt.Ltd. Vs. ACIT ITA
No.7821/Mum/2011.
The CIT(A) also held that the Assessee would be entitled to 5% standard deduction under the proviso to Sec.92CA(2) of the Act. After giving effect to the findings given above, the Arithmetic mean of the profit margins of the seven remaining comparable companies viz., Bodhtree Consulting Ltd., Lanco Global Solutions Ltd., Sankhya Infotech Ltd., Sasken Network Systems Ltd., R.S.Software (India) Ltd., Sasken Communication Ltd., and M/s. Visual soft Technologies Ltd., would be 15.91% after working capital adjustment. After 5% standard deduction under proviso to Sec.92CA(2) allowed by the CIT(A), the arithmetic mean would be 10.91% as against the Assessee’s profit margin of 10.08%. Therefore there would still be a very negligible addition that will be sustained even after the CIT(A)’s order.
The Revenue is in appeal before against the order of the CIT(A). The Assessee has filed cross objection before the Tribunal to emphasis the IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 8 of 38 stand of the Assessee that some of the filters which the Assessee submitted should be applied in choosing some comparable companies have not been accepted by the CIT(A).
The Revenue is in appeal on the following grounds (relevant grounds relating to TP adjustment)
“1. The order of the Learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case.
The learned CIT(A) erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding M/s. Satyam Computer Services Ltd , M/s. Flextronics Software Services Ltd, iGate Global Solutions Ltd, Infosys Technologies Ltd. M/s. L & T Infotech Ltd, as comparables.
3. The Ld. CIT(A) erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend.
4. The Ld. CIT(A), in facts and circumstances of the case, erred in holding that M/s. Exensys Software Solutions Ltd. cannot be taken as a comparable being functionally different.
5. The Ld. CIT(A), in facts and circumstances of the case, erred in holding that M/s. Exensys Software Solutions Ltd. and M/s Thirdware Solutions Ltd. cannot be taken as a comparables, being functionally different.
6. The Ld. CIT(A), in facts and circumstances of the case, erred in holding that M/s. Geometric Software Solution Ltd. being functionally different, cannot be taken as a comparables.
The Ld. CIT(A), in facts and circumstances of the case, erred in holding that M/s. Tata Elxsi Ltd. being functionally different, cannot be taken as a comparable.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 9 of 38 8. The Ld. CIT(A), in facts and circumstances of the case, erred in holding that the TPO ought to have excluded comparables having any related party transactions and not just only those with more that 25% related party transactions on sales.
9. The learned CIT(A) erred in holding that the assessee is eligible for a standard deduction of 5% from the Arm’s Length Price (ALP) under the proviso of Section 92C(2) of the Income- tax Act.
10. The CIT(A) erred in not appreciating that if any filter or criteria applied by the taxpayer for search of comparables is accepted or any filter or criteria applied by the TPO is relaxed, the entire accept / reject matrix changes resulting in a new comparable set including those companies which are not taken either by the taxpayer or by the TPO in its final comparable set and which may not be finding place in the TP order u/s 92CA(1).
11. The CIT(A) erred in not appreciating that, in essence, any disturbance in any one of the criteria of the taxpayer or the TPO results in fresh comparability analysis and therefore a piecemeal approach negates the whole concept of comparability analysis.
12. The CIT(A) erred in not appreciating that the entire set of TPO’s comparables needed to considered in toto.”
11. The grounds raised by the Assessee in the cross objection are as follows:
“1. The Order of the learned Commissioner of Income Tax (Appeals) — Large Tax Payers Unit, Bangalore [CIT (Appeals)], to the extent prejudicial to the Respondent is bad in law. 2. The learned CIT (Appeals) has erred in confirming the action of the Assessing officer in making a reference to Transfer Pricing Officer for determining the arm’s length price without demonstrating as to how or why it was necessary and expedient to do so.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 10 of 38 3. The learned CIT(Appeals), has erred in confirming the action of the Assessing officer and Transfer Pricing Officer in: a. Passing the order without demonstrating that the Respondent had motive of tax evasion; b. Relying upon reply received under section 133(6) without giving an opportunity to comment on such replies or cross examine the parties involved, thus violating the principles of natural justice; and c. Not appreciating that the charging or computation provision relating to income under the head “Profits & Gains of Business or Profession” do not refer to or include the amounts computed under Chapter X and therefore the addition made under Chapter X is bad in law.
4. The learned CIT(Appeals) has erred in confirming the action of the Assessing officer and Transfer Pricing Officer in: a. Rejecting the transfer pricing analysis undertaken by the Respondent on unjustifiable grounds; b. Rejecting the comparables selected by the Respondent under TNMM on unjustifiable grounds; c. Rejecting Orient Information Technology Ltd., Goldstone Technologies Ltd and Akshay Software Technologies Ltd on the ground that they are predominantly onsite software development companies; and d. Rejecting VJIL Consulting Ltd on the ground that it is functionally different.
5. The learned CIT(Appeals) has erred in confirming the action of the Assessing officer and Transfer Pricing Officer in: a. Conducting a fresh transfer pricing analysis despite absence of any defects in the transfer pricing analysis submitted by the Respondent; b. Computing the arm’s length price based on the data for the Financial Year 2004-05 of the comparables, which was not IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 11 of 38 available when the Respondent undertook transfer pricing documentation and reporting obligations; c. Adopting onsite in the process of selecting comparables; and d. Adopting companies like Bodhtree Consulting Ltd., Sankhya Infotech Ltd. as comparables even though they are not comparable in terms of functions performed, risks assumed, assets utilized, size, etc.
6. The learned CIT(Appeals) has erred in confirming the action of the Assessing officer and Transfer Pricing Officer in: a. Not making appropriate adjustments for qualitative and quantitative difference between the business of the Respondent and those of the comparable companies; and b. Not appreciating that the Respondent is insulated from certain risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account.”
12. We have heard the rival submissions. As far as the grounds of appeal of the Revenue are concerned, ground No.8 with regard to improper application of the RPT filter by the CIT(A), it is not in dispute before us that this Tribunal, in the cases of 24/7 Customer Pvt. Ltd. (ITA No.227/Bang/2010), Sony India Private Ltd. reported in (2009) 315 ITR (80) 150 (Del.) and various other cases has taken a view that comparable companies having RPT of upto 15% of total revenues can be considered. In view thereof, the Revenue’s grievance on this issue as projected in ground No.8 has to be partly allowed. By applying RPT filter at 10% of the sales, the CIT(A) excluded Four Soft Ltd., and Geometric Software Solutions Co. Ltd. As far as Four Soft Ltd. Is concerned, the RPT % to IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 12 of 38 sales is 19.89 and even if RPT filter of 15% of the sales is applied, the same will get excluded. However Geometric Software Solutions Co. Ltd., as per the TPO has RPT of 11.49% of sales and therefore it would get included in the list of comparable companies.
The learned counsel for the Assessee filed before us a chart showing the percent of RPT to sales in the case of Geometric Software Solutions Co. Ltd. According to him the RPT transactions to sales in the case of this company was 22.52% and the percentage of RPT to sales as given in the order of the TPO in the chart Annexed to this order is wrong.
To support his contention, the learned counsel for the Assessee has filed profit and loss account of and schedules forming part of the Profit & Loss Account to substantiate his contention as above. We are of the view that this aspect was never raised or considered by the TPO/DRP and therefore the claim made by the Assessee has to be examined by the TPO/AO.
Accordingly the issue to determine the correct RPT percentage to sales of this company is remanded to the AO/TPO. If the RPT is found to be more than 15% of sales than this company has to be excluded from the list of comparable companies. It is held that the CIT(A) ought to have adopted a threshold limit of 15% of the total revenue attributable to related party transaction as ground for rejecting comparable companies. Consequently it is held that comparable companies having RPT upto 15% of the total revenues can be excluded.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 13 of 38 14. As regards ground No.1 raised by the Revenue the same is general and calls for no specific adjudication. As regards ground No.2 raised by the revenue is concerned, the CIT(A) followed the decision of the ITAT Bangalore in the case of Genesys Integrating Systems India Pvt. Ltd. (supra) in coming to the conclusion that size and turnover of a company are deciding factors for treating a company as a comparable. The ITAT Bangalore Bench in the case of Trilogy E-Business (ITA No.1338/Bang/2010) for assessment year (07-08) on the application of turnover filter following the decision rendered in the case of Genesis (supra) have applied turnover filter and excluded comparable companies from the final list of comparable selected by the TPO. In the case of Trilogy E-Business Software India (P) Ltd. (supra), this Tribunal on application of the turnover-filter while selecting comparable companies for comparability analysis held as follows:
“(1) Turnover Filter
The ld. counsel for the assessee submitted that the TPO has applied a lower turnover filter of Q 1 crore, but has not chosen to apply any upper turnover limit. In this regard, it was submitted by him that under rule 10B(3) to the Income-tax Rules, it was necessary for comparing an uncontrolled transaction with an international transaction that there should not be any difference between the transactions compared or the enterprises entering into such transaction, which are likely to materially affect the price or cost charged or paid or profit arising from such transaction in the open market. Further it is also necessary to see that wherever there are some differences such differences should be capable of reasonable accurate IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 14 of 38 adjustment in monetary terms to eliminate the effect of such differences. It was his submission that size was an important facet of the comparability exercise. It was submitted that significant differences in size of the companies would impact comparability. In this regard our attention was drawn to the decision of the Special Bench of the ITAT Chandigarh Bench in the case of DCIT v. Quark Systems Pvt. Ltd. 38 SOT 207, wherein the Special Bench had laid down that it is improper to proceed on the basis of lower limit of 1 crore turnover with no higher limit on turnover, as the same was not reasonable classification. Several other decisions were referred to in this regard laying down identical proposition. We are not referring to those decisions as the decision of the Special Bench on this aspect would hold the field. Reference was also made to the OECD TP Guidelines, 2010 wherein it has been observed as follows:- “Size criteria in terms of Sales, Assets or Number of Employees: The size of the transaction in absolute value or in proportion to the activities of the parties might affect the relative competitive positions of the buyer and seller and therefore comparability.”
The ICAI TP Guidelines note on this aspect lay down in para 15.4 that a transaction entered into by a Rs. 1,000 crore company cannot be compared with the transaction entered into by a Rs. 10 crore company. The two most obvious reasons are the size of the two companies and the relative economies of scale under which they operate. The fact that they operate in the same market may not make them comparable enterprises. The relevant extract is as follows [on Rule 10B(3)]: “Clause (i) lays down that if the differences are not material, the transactions would be comparable. These differences could either be with reference to the transaction or with reference to the enterprise. For instance, a transaction entered into by a Rs 1,000 crore company cannot be compared with the transaction entered into by a Rs 10 crore company. The two most obvious reasons are the size of the two companies and the relative economies of scale under which they operate.”
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 15 of 38 13. It was further submitted that the TPO’s range (Rs. 1 crore to infinity) has resulted in selection of companies like Infosys which is 277 times bigger than the Assessee (turnover of Rs. 13,149 crores as compared to Rs. 47.47 crores of Assessee). It was submitted that an appropriate turnover range should be applied in selecting comparable uncontrolled companies.
Reference was made to the decision of the ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, wherein relying on Dun and Bradstreet’s analysis, the turnover of Q 1 crore to Q 200 crores was held to be proper. The following relevant observations were brought to our notice:- “9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which .ire (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 16 of 38 classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study.”
15. It was brought to our notice that the above proposition has also been followed by the Honourable Bangalore ITAT in the following cases:
1. 1. M/s Kodiak Networks (India) Private Limited Vs. ACIT (ITA No.1413/Bang/2010) 2. M/s Genesis Microchip (I) Private Limited Vs. DCIT (ITA No.1254/Bang/20l0).
3. Electronic for Imaging India Private Limited (ITA No. 1171/Bang/2010).
16. It was finally submitted that companies having turnover more than Rs. 200 crores ought to be rejected as not comparable with the Assessee.
17. The ld. DR, on the other hand pointed out that even the assessee in its own TP study has taken companies having turnover of more than Q 200 crores as comparables. In these circumstances, it was submitted by him that the assessee cannot have any grievance in this regard.
18. We have considered the rival submissions. The provisions of the Act and the Rules that are relevant for deciding the issue have to be first seen. Sec.92. of the Act provides that any income arising from an international transaction shall be computed having regard to the arm’s length price. Sec.92-B provides that “international transaction” means a transaction between two or more associated enterprises, either or both of IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 17 of 38 whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. Sec.92-A defines what is an Associated Enterprise. In the present case there is no dispute that the transaction between the Assessee and its AE was an international transaction attracting the provisions of Sec.92 of the Act. Sec.92C provides the manner of computation of Arm’s length price in an international transaction and it provides:- (1) that the arm’s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely :— (a)comparable uncontrolled price method; (b)resale price method; (c)cost plus method; (d)profit split method; (e)transactional net margin method; (f)such other method as may be prescribed by the Board.
(2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed: Provided that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices:
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 18 of 38 Provided further that if the variation between the arm’s length price so determined and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm’s length price.
(3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that— (a) the price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm’s length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm’s length price in relation to the said international transaction in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him: Rule 10B of the IT Rules, 1962 prescribes rules for Determination of arm’s length price under section 92C:- “10B. (1) For the purposes of sub-section (2) of section 92C, the arm’s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :— (a)……. to (d)……..
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 19 of 38 (e) transactional net margin method, by which,— (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base;
(ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base;
(iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;
(iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii);
(v) the net profit margin thus established is then taken into account to arrive at an arm’s length price in relation to the international transaction.
(2) For the purposes of sub-rule (1), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:— (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions;
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 20 of 38 (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.
(3) An uncontrolled transaction shall be comparable to an international transaction if— (i)none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii)reasonably accurate adjustments can be made to eliminate the material effects of such differences.
(4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into :
Provided that data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared.”
A reading of the provisions of Rule 10B(2) of the Rules shows that uncontrolled transaction has to be compared with international transaction having regard to the factors set out
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 21 of 38 therein. Before us there is no dispute that the TNMM is the most appropriate method for determining the ALP of the international transaction. The disputes are with regard to the comparability of the comparable relied upon by the TPO. In this regard we find that the provisions of law pointed out by the ld. counsel for the assessee as well as the decisions referred to by the ld. counsel for the assessee clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables. The assessee’s turnover is Q 47,46,66,638. It would therefore fall within the category of companies in the range of turnover between 1 crore and 200 crores (as laid down in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, . Thus, companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by the ld. counsel for the assessee. Applying those tests, the following companies will have to be excluded from the list of 26 comparables drawn by the TPO viz.,
Turnover Q (1)Flextronics Software Systems Ltd. 848.66 crores (2) iGate Global Solutions Ltd. 747.27 crores (3) Mindtree Ltd. 590.39 crores (4) Persistent Systems Ltd. 293.74 crores (5) Sasken Communication Technologies Ltd. 343.57 crores (6) Tata Elxsi Ltd. 262.58 crores (7) Wipro Ltd. 961.09 crores. (8) Infosys Technologies Ltd. 13149 crores”
15. Respectfully following the aforesaid decision of the Tribunal in the case of Triology E-Business Software India Pvt.Ltd. (supra), we hold that IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 22 of 38 the CIT(A) was justified in applying the turnover filter and excluding companies whose turnover was beyond Rs.200 Crores.
16. As far as ground No.3 is concerned there is no company which was included by the CIT(A) on the basis of the filter of diminishing revenue and therefore the grievance projected by the Revenue in ground No.3 is found to be without any basis and hence dismissed.
As regards ground No.9, the standard deduction of 5% of the arm’s length price allowed to the Appellant by the CIT(A), which is challenged in ground No.5 by the Revenue before the Tribunal, it is not in dispute before us that in view of the substitution of the Second proviso to Section 92C(2) of the Income-tax Act by the Finance (No.2) Act, 2009, the second ground of appeal (Ground No.3 in the appeal filed by the Revenue) may have to be allowed. Consequently it is held that if the difference between the arithmetic mean of the profit margins comparable companies ultimately retained and the profit margin of the Assessee is more than 5% than no deduction under the proviso to Sec.92C(2) of the Act could be allowed to an Assessee.
18. As regards ground No.7, TATA Elxsi Ltd., has to be excluded as this company was held to be not comparable with an Assessee such as the Assessee in the present case providing software development services by the ITAT Hyderabad Bench in the case of CNO IT Services (India) Pvt. Ltd. (Formerly known as Conseco Data Services (India) Pvt. Ltd.) Hyderabad
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 23 of 38 vs. DCIT, Circle 1(2) Hyderabad, in ITA.No.1280/Hyd/2010 Assessment Year 2005-2006 order dated 12.2.2014. The ITAT Hyderabad Bench on identical facts, held on comparability of TATA Elxsi Ltd. as follows:
“15.7. TATA ELXSI LIMITED : The objection of the assessee is that TATA Elxsi operating two segments – system communication services and software development services. The TPO accepted the software development services segment in his T.P. analysis and assessee’s objection is that the software development services segment itself comprises of three sub-services namely (a) product design services (b)design engineering services and (c) visual computing labs. It was submitted that these services are not akin to assessee software services and segmental information of only product design services could have been accepted by the TPO as a comparable but not the entire software development service. Since company’s operations are functionally different as such, the same is not comparable. Further, assessee is also objecting on the basis of intangible scale of operations. The coordinate bench in the case of Intoto (supra) considered the issue as under in para 22: "22 Tata Elxsi Limited : As regards this company, the learned Counsel appearing on behalf of the assessee, filed before us the reply of Tata Elxsi Limited to the Addl. CIT (Transfer Pricing), Hyderabad, wherein the concerned Officer has been informed that Tata Elxsi Limited is specialised Embedded Software Development Service Provider and that it cannot be compared with any other software development company. It was submitted that because of the specialisation and also because of diverse nature of its business, it is very difficult to scale-up the operations of Tata Elxsi Limited. In view of this, Tata Elxsi Limited has informed that it is not fair to use its financial numbers to compare it with any other company. The communication dated 25th August, 2009 to the TPO is placed before us. As this communication was not before the TPO at the time of transfer pricing adjustment we deem it fit and proper to remand this issue also to the file of the TPO to reconsider adopting this company as the comparable in the light of observations of this company to IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 24 of 38 the TPO in the case of another assessee. In the result, the Assessing Officer/TPO is directed to reconsider the issue in accordance with law, after affording a reasonable opportunity of being heard to the assessee.”
Keeping the assessee’s objections and the decisions of the Coordinate Bench, prima facie, we are of the view that TATA Elxsi Limited is functionally different and has incomparable size to that of the assessee. Further, we are unable to verify whether the segmental profits adopted by the TPO pertain to entire software development services or pertain to limited service akin to assessee services. Since, these aspects are not clear from the data furnished before us, we direct the TPO to examine and in case, the segmental profits of a particular service is not available, then, to exclude the TATA Elxsi Limited from the list of comparables. Accordingly, this issue is restored to the file of TPO for examination and to decide in accordance with law and facts, after affording reasonable opportunity of being heard to assessee.”
In view of the aforesaid decision rendered on identical facts and circumstances, we are of the view that TATA Elxsi Ltd., was rightly excluded from the list of comparable companies.
As regards grounds No. 3 to 6 are concerned, Thirdware Solutions Ltd., and Geometric Software Solutions Ltd., are concerned, were held to be functionally different from a company rendering software development services such as the Assessee in the case of Sunquest Information Systems (I) Pvt.Ltd. by the ITAT Bangalore for AY 05-06 order dated 11.6.2015. The following were the relevant observations of the Tribunal.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 25 of 38 “ 22. We have considered his submission and find that the ITAT Hyderabad Bench on identical facts, held that the aforesaid two companies viz., Four Soft Ltd., and Thirdware Solutions Ltd., are not comparable companies in Software Development Services companies. The following were the relevant observations:- “15.4. FOURSOFT LIMITED : This comparable is objected on the same reason as this company is involved in product development and owns products namely 4S eTrans and 4S eLog. These products are used in Sun Microsystems Inc, in an Application Verification Kit Certified for Enterprises and assessee have been investing continuously on product developments. Since assessee is in the product development, having I.P. rights, the same is not comparable. 15.5. THIRDWARE SOFTWARE SOLUTIONS LIMITED : This company is objected to by the assessee on the reason that the said Thirdware Software Solutions Ltd. is engaged in sale of software licence and related services and not a service provider. Referring to the annual report, it was submitted that this comparable was rejected by the ITAT, Pune in the case of Egain Communications Ltd. This company having revenue from product license and earning extraordinary profit due to intangible owns. 15.6. These three comparable above Flextronics Software Limited, Foursoft Limited and Thirdware Software Solution Limited were analysed by the Coordinate Bench of the Tribunal in the case of Intoto Software Solutions Pvt. Ltd. (supra) wherein it has been held as under : "23. The other companies which are objected to by the assessee are Flextronics Software Limited, Foursoft Limited and Thirdware Software Solution Limited. As far as these three companies are concerned, the learned Counsel appearing on behalf of the assessee submitted that they are into both software as well as product development. He submitted that the TPO has taken note of the fact these companies are also into product development but has selected these companies as comparables
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 26 of 38 by applying the filter of more than 70% of its revenue being from software development services. The learned Counsel submitted that the functions of these companies are different from the assessee who was into sole activity of software development for its associated enterprise. He submitted that the TPO has allocated the expenditure in the proportion of the revenue of these companies from software services and software products and has adopted the figure as segmental margin of the company and has taken these companies as comparables. He submitted that by taking the proportionate expenditure, the correct financial results would not emerge. He submitted that nothing prevented the Assessing Officer/TPO from obtaining the segmental details from the respective comparable companies before adopting them as comparable companies and before taking the operating margin for arriving at the arms length price. He submitted that wherever the segmental details are not available, then the said companies should not be taken as comparables. For this purpose, he placed reliance upon the decision of the Bangalore Tribunal in the case of First Advantage Offshore Services Pvt. Ltd. vs. The DCIT in ITA.No.1252/Bang/2010 wherein these companies were directed to be excluded from the list of comparables.
The learned D.R. however, supported the Orders of the authorities below.
Having heard both the parties and having gone through the material on record, we find that the TPO at page 37of his order has brought out the differences between a product company and a software development services provider. Thus, it is clear that he is aware of the functional dissimilarity between a product company and a software development
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 27 of 38 service provider. Having taken note of the difference between the two functions, the Assessing Officer ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available. Even if he has adopted the filter of more than 75% of the revenue from the software services for selecting a comparable company, he ought to have taken the segmental results of the software services only.
The percentage of expenditure towards the development of software products may differ from company to company and also it may not be proportionate to the sales from the sale of software products. Under section 133(6) of the I.T. Act, the TPO has the power to call for the necessary details from the comparable companies. It is seen that the Assessing Officer/TPO as exercised this power to call for details with regard to the various companies. As seen from the annual report of Foursoft Limited which is reproduced at page 7 of the TPO’s Order, the said company has derived income from software licence also and AMCs.
As far as Thirdware Software Solution Limited is concerned, we find from the information furnished by the said company that though the said company is also into product development, there are no software products that the company invoiced during the relevant financial year and the financial results are in respect of services only. Thus, it is clear that there is no sale of software products during the year but the said company might
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 28 of 38 have incurred expenditure towards the development of the software products.
In view of the aforesaid decision, we do not find any infirmity in the action of the CIT(A) in excluding the aforesaid two companies from the list of comparable companies for determining ALP.
As far as the comparable company M/S.Exensys Software Solutions Ltd., is concerned, this tribunal in the case of M/S.Vendio Technologies (I)
Pvt.Ltd. IT (TP) A.No.1374/Bang/2011 for AY 05-06 vide para 11.8 of its order dated 19.9.2014 held that this company has to be excluded for the reason that it is functionally different from a software development service provider such as the Assessee because it operates three business segments viz., provision of software services, BPO services and software products.
For the reasons given above, we do not find any merit in grounds No.4 to 6 raised by the revenue in its appeal.
As far ground No.10 to 12 are concerned, we are of the view that the ground is vague and does not project any real grievance. Neither the TPO or the CIT(A) have carried out any new analysis and the exercise is restricted only to the correctness of the claim of the Assessee and the TPO. The ground of appeal is a general statement with no reference to any particular aspect which changes and results in any prejudice to the IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 29 of 38 revenue. Therefore this ground is dismissed as not calling for any specific adjudication.
As far as the cross objection filed by the Assessee is concerned, the learned counsel for the Assessee seeks exclusion of one comparable chosen by the TPO as a comparable viz., Sankhya lnfotech Limited.
Sankhya Infotech Limited (‘Sankhya’)
It was submitted by the learned counsel for the Assessee that Sankhya is engaged in the business of development of software products & services and training. The company focuses on the development of niche products for the transport and aviation industry. However, segmental information in relation to the above mentioned activities is not available in public domain. Therefore, as Sankhya engages itself in products and services as well as software training, it cannot be considered as a comparable of the Appellant. The products developed and owned by Sankhya are listed below:
(1) SILICONTM Training Suite of Products: The products are a comprehensive enterprise wide training platform that covers the entire spectrum of training in a paperless environment. It comprises of four products:- - SILICONTM LMS (Training Management Information - SILICONTM QT (Online Assessment System) - SILICONTM LCMS (Learning Content Management System)
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 30 of 38 - IRMAQTM : This is an integrated resource planning, management tracking system exclusively developed for Airline operations. It is an end-to-end solution for all Flight Operations. - Sakai CLE : This is a widely used and popular open source LMS used in many leading educational institutions and corporate. The relevant extract from the Annual report substantiating that the company also engages in different activities is reproduced below: “2. Activities The company as engaged in the business of development of Software Products & Services and training. The production of software is not capable of being expressed in any generic unit and hence 11 is riot possible to give the information as required by certain clauses of paragraphs 3.4C and 4 D of Part II of Schedule VI of the Companies Act, 1956.”
It was also brought to our notice that the Delhi Tribunal in ITO v. Colt Technology Services India Pvt. Ltd. (judgment dated 23.10.2012 in for the assessment year 2005-06) has held that the said company is not a comparable to the assessee therein which was also in the business of software development.
The submissions made by the learned counsel for the Assessee are considered. The activities set out above and the decision of the Delhi ITAT rendered in the context of a software development company such as the Assessee makes it amply clear that this company Sankhya cannot be regarded as a comparable. The same is directed to be excluded from the list of comparable companies.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 31 of 38
In the C.O. the Assessee has also prayed for exclusion of Bodhtree Consulting Ltd., which was considered as a comparable company by the TPO/DRP. Bodhtree Consulting Ltd. was chosen as a comparable company by the assessee in its TP study and same was accepted as a comparable by the TPO also. Even before the DRP, the assessee did not challenge the inclusion of this company as a comparable. However, in the CO filed before the Tribunal, the assessee has sought to challenge the inclusion of this company as a comparable in ground No.5(d). The law by now is well settled that assessee is entitled to raise an objection regarding comparability at any stage of proceedings and even in a case where the assessee has not raised objection for including the same as a comparable before the lower authorities, or the assessee had chosen in its TP study a company which it seeks to exclude as a comparable. The Special Bench of Chandigarh Tribunal in DCIT v. Quark Systems P. Ltd. (2010) 38 SOT 307 has held that the Tribunal is a fact finding body and therefore has to take into account all the relevant material and determine the question as per the statutory regulations and that tax payer is not estopped from pointing out a mistake in the assessment, though such mistake is a result of evidence adduced by the tax payer. We therefore proceed to determine the comparability of Bodhtree Consulting Ltd. In this regard, we find that ITAT Hyderabad Bench in Ivy Computech (P) Ltd. v. ACIT, (2014) 43 taxman.com 183 (Hyd) Trib. Has taken the view that Bodhtree Consulting
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 32 of 38 Ltd. should not be regarded as a comparable in the case of software development service provider. The ld. counsel for the assessee also brought to our notice that comparability of this company with software development provider was considered by this Tribunal in Mindtech India Ltd. v. DCIT, for AY 2009-10, order dated 21.8.2014 and it was held as under:-
“14. The next aspect that was canvassed by the learned counsel for the assessee was with regard to the exclusion of the following comparables from the list of final comparables chosen by the TPO : 1. Bodhtree Consulting Ltd : As far as this company is concerned, the submission of the learned counsel for the assessee was that this company made extra ordinary profits during the previous year. Our attention was drawn to the fact that the operating profit / operating cost of this company jumped from 17% for F Y 2007-08 to 56% in FY 2008- 09. It dipped in FY 2009-10 to 40% and in FY 2010-11 it became (-) 2% and 5% in FY 2011-12 and finally touched (-) 9% in FY 2012-13. Our attention was drawn to the fact that the Special Bench of the Tribunal, Mumbai, in the case of Maersk Global Centres (India) P. Ltd., in ITA.7466/Mum/2012, dt 07.03.2014 for AY 2008-09 had an occasion to consider the question as to whether companies having abnormal profits should be excluded as a comparable. The Special Bench took the view that it has to be shown that the high profit margin does not reflect the normal business conditions and only in such circumstances, high profit margin companies can be excluded. Our attention was drawn to the DRP's observation in its order on the issue which is as follows : "Bodhtree : The assessee has objected to selection of this entity on the basis of following objections:
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 33 of 38 • The entity has fluctuating margins • The company is more of a product company rather than software service company. The Panel has considered the objections of the assessee. Insofar as the contention regarding the rejection of this entity on the basis of fluctuating margin is concerned, in order to appreciate the compatibility or otherwise of this entity, it is important to first note that the Indian software industry uses two different models for revenue recognition. The first is the Time and Material (T&M) Contracts model in which Customer are billed on the basis of hours worked by the employees of supplier software companies. Hourly rates are agreed on by both parties and are applied to the total hours worked to arrive at the revenue that is to be recognized. The second is the Fixed Price Project Model (FPP). Under the Fixed Price Project Model, the total contract price is agreed upon between the parties. Billing may be done either at the end of the contract or over the period of the contract on the basis of the agreed milestone for billing. In this respect, the basis of revenue recognition by this entity can be seen from the annual report as below: 3. Revenue Recognition : Revenue from software development is recognised based on software developed and billed to clients. From perusal of the above, it is seen that this entity is engaged in building revenues through Fixed Price Project model. As is a natural corollary in such type of revenue recognition, some part of the expenditure may be booked in one year, for which the revenue may have been recognised in the earlier or subsequent year. Therefore, it is but natural that there is some fluctuation in the profitability margin of such entity. Merely because of such fluctuations, an entity engaged in the development of software, being functionally comparable to the assessee, cannot be rejected only on this ground."
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 34 of 38 14. The learned counsel for the assessee drew our attention to the fact that Bodhtree Consulting admittedly follows a fixed price project model whereby revenues from software development is recognized based on software and billed to clients. In such business model expenditure for developing software would be billed in an earlier year but the revenue would be recognized in a subsequent year. It was his submission that this fact is recognized by the DRP in its order. According to him this circumstance would be sufficient to show that the margin reflected of this company does not reflect the normal business condition.
The learned DR placed reliance on the reason given by the DRP in its order.
We have considered the rival submissions. The Special Bench of the ITAT in the case of Maersk Global Centres (supra) had an occasion to deal with the question as to whether high profit margin making companies should be excluded as a comparable. The Special Bench after considering several aspects held in para 88 of its order that the potential comparable companies cannot be excluded merely on the ground that their profit is abnormally high. The Special bench held that in such cases it would require further investigation to ascertain the reasons for unusually high profit and in order to establish whether the entities with such high profits can be taken as comparable or not. In the light of the aforesaid decision of the Special Bench and in view of the admitted position that the assessee follows Fixed Price Project model where revenues from software development is recognized based on software developed and billed to clients, there is a possibility of the expenditure in relation to the revenue being booked in the earlier year. The results of Bodhtree from FY 2003 to 2008 excluding FY 2007 as given by the learned counsel for the assessee were also perused. Perusal of the same shows, that there has been a consistent change in the operating margins. The chart filed by the assessee in this regard is given as an annexure to this order. It appears to us that the revenue recognition method followed by the assessee is the reason for the drastic variation in the profit margins of this company. In the given circumstances, we are of the view that it would be safe to exclude Bodhtree Consulting from the final list
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 35 of 38 of comparables chosen by the assessee. We hold and direct accordingly.”
The ld. counsel for the assessee filed before us a chart showing the fluctuation margins of Bodhtree Consulting Ltd., which are as follows:-
As can be seen from the above analysis, this company has erratic margins and growth over the years. The margins of Bodhtree are consistently changing. This reflects that the revenue recognition policy followed by Bodhtree is not proper and is resulting in consistent change in margins. Further, the growth rate over the years is also fluctuating to extremes. Further, growth in revenues is not supported by growth in expenses. In some cases, expense growth is higher than the revenue growth. Also salary cost ratio is widely fluctuating. These circumstances are peculiar in nature and require further analysis, without which this company should be rejected as a comparable.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 36 of 38
We are of the view that the basis on which the assessee seeks to exclude Bodhtree Consulting Ltd. in this year is acceptable and accordingly Bodhtree Consulting Ltd. is directed to be excluded from the list of comparable companies. We hold accordingly.
The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. According to the learned counsel for the Assessee, if the submissions of the assessee are accepted, then the arithmetic mean of the comparables retained would be within the range of +/- 5% of the Assessee’s Net Margin. Therefore, the other grounds raised in the cross objection not pressed at this stage. He has however sought liberty to urge the said grounds in any future proceeding, appellate or otherwise, and in these proceedings at a future point in time. The prayer sought by the learned counsel for the Assessee in this regard is accepted.
Ground No.13 to 15 raised by the Revenue in its appeal is with regard to method of computation of deduction u/s.10A of the Act. The Assessee was entitled to claim deduction u/s.10A of the Act. While computing deduction u/s.10A of the Act, the AO excluded telecommunication expenses from export turnover on the ground that these expenses are incurred in delivery of computer software outside India and therefore to be excluded from the export turnover while computing
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 37 of 38 deduction under section 10A. The Assessee prayed that the aforesaid expenditure are not of the nature set out in Explanation 2(iv) to Sec.10A of the Act which defines “Export Turnover”. The Assessee also made an alternate prayer that expenses that are reduced from the export turnover should also be reduced from the total turnover and in this regard has placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn) wherein the Hon’ble Court held that whatever is excluded from the export turnover should also be excluded from the total turnover for the purpose of computing deduction u/s.10A of the Act. The main prayer as well as the alternate prayer was rejected by the AO but the alternative prayer was allowed by the CIT(A).
We have heard the ld. counsel for the assessee and the ld. DR on the issues raised in ground No.13 to 15 raised by the Revenue. Taking into consideration the decision rendered by the Hon’ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn), we are of the view that the order of the CIT(A) is just and proper and calls for no interference. Consequently ground No.13 to 15 are dismissed.
IT(TP)A No.1302/Bang/2011 & CO No.92/Bang/2012 Page 38 of 38 39. In the result, the appeal by the Revenue and cross-objection by the Assessee are partly allowed.
Pronounced in the open court on this 30th day of July, 2015.