CAPGEMINI INDIA P.LTD,MUMBAI vs. ITO RG 10(2), MUMBAI

1 Capgemini India Private Limited ITA No. 7099/Mum/2012 आयकर अपीलीय अिधकरण “के” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K”, MUMBAI �ी बी. आर. बा�करन, लेखा सद�य एवं �ी अिमत शु�ला, �याियक सद�य के सम� । BEFORE SHRI B R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER

ITA No. : 7099/Mum/2012 (Assessment year: 2008-09) Capgemini India Private Limited, Vs Income Tax Officer –Range 10(2), Plant 2, Block A, Godrej IT Park, Room No. 432, Godrej & Boyce Compound, Aayakar Bhavan, M K Road, LBS Marg, Vikhroli (East), Mumbai -400 020 Mumbai -400 079 �थयी लेखा सं.:PAN: AAACZ 1421 B अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by : Shri M P Lohia/ Shri Lokesh Gupta Respondent by : Shri N K Chand सुनवाई क� तार�ख /Date of Hearing : 11-09-2015 घोषणा क� तार�ख /Date of Pronouncement : 10-12-2015 आदेश ORDER अिमत शु�ला, �या. स.: PER AMIT SHUKLA, AM: The aforesaid appeal has been filed by the assessee against final assessment order dated 30th October, 2012 passed in pursuance of direction given by the Dispute Resolution Panel (DRP) vide order dated 26.09.2012 under section 144C(1) for the assessment year 2008-09. The assessee has raised as much as 15 grounds of appeal challenging the various additions on account of transfer pricing adjustments of Rs.149,22,84,130/- and certain other disallowance and additions made under other corporate heads.

2 Capgemini India Private Limited ITA No. 7099/Mum/2012 issue raised vide ground no. 5 to 8 is on account of transfer pricing adjustment Rs.149,22,84,130/-, which are being taken up first.

Nature of International Amount(Rs) Method Applied Transaction Software Programming Services 15,58,46,96,950 Transaction Net Margin Method (‘TNMM’) Payment for service’ fees 28,25,500 TNMM Licensing of intellectual Property 87,83,495 Comparable Un- controlled Price Method (‘CUP’) Business development support costs 27,39,300 TNMM Marketing support fee 38,77,281 TNMM Allocation of various costs to CG India 29,81,31,795 Not Applicable Reimbursement of expenses incurred by various Capgemini entities on behalf of Assessee 17,43,96,814 Not Applicable Reimbursement of expenses incurred By Various Capgemini entities on behalf of Assessee 2,18,95,43,752 Not Applicable Payment of training charges to Capgemini group entity 1,85,38,031 TNMM Purchase of software and e-training licences from overseas third party vendor under globally negotiated contract 15,76,246 TNMM For the purpose of establishing the arm’s length price of the international transactions with its AEs, the assessee had undertaken a transfer pricing study after analyzing the FAR analysis vis a vis the selected comparables. For the software

3 Capgemini India Private Limited ITA No. 7099/Mum/2012 program service, which is the subject matter of transfer pricing dispute here, the assessee had categorized itself as a ‘risk mitigated captive delivery centre’ and selected itself as a tested party. Considering the FAR analysis, transactional net margin method (TNMM) was determined as the most appropriate method (MAM) to benchmark the ALP. The assessee used operating profit to operating cost (OP/OC) as the Profit Level Indicator (PLI). The assessee’s PLI for the relevant assessment year was worked out to 12.79%. In the transfer pricing study report, the assessee selected 21 comparables having weighted average margin based on 3 years data at 13.78%. Later on, at the stage of the transfer pricing proceedings, the assessee on the basis of single year data of the same set of comparables, worked out the average arithmetic mean at 10.39%. From such a profit margin, the assessee sought marketing adjustment of 0.9% and risk adjustment of 6.50%. The comparables selected by the assessee along with their margin were as under:- Sr. Name of Company Operating No. profits on operating costs for FY 2007-08 (%) 1 Akshay Software Technologies Limited 7.30% 2 Aztecsoft Limited 6.31% 3 Goldstone Technologies Limited 27.03% 4 Helios & Matheson Information Technology 36.05% Limited 5 Indium Software (India) Limited -0.57% 6 Infosys Technologies Limited NC 7 K P I T Cummins Infosystems Limited 12.36% (Consolidated) 8 Lanco Global Systems Limited 26.26% 9 Larsen & Toubro Infotech Limited 17.54% 10 Maars Software International Limited 7.93% (Segmental) 11 Meistar Information Technologies Limited NC 12 Mindtree Limited (Segmental) 17.51%

4 Capgemini India Private Limited ITA No. 7099/Mum/2012 13 Quintegra Solutions Limited 21.48% 14 R S Software (India) Limited 6.71% 15 S I P Technologies and Exports Limited -33.20% 16 Satyam Computers Services Limited NC 17 T V S Infotech Limited NC 18 V J I L Consulting Limited -6.06% 19 V M F Softech Limited 2.51% 20 Visualsoft Technologies Limited (Segmental) NA 21 Zylog Systems Limited 17.00% Arithmetic mean 10.39% Less : Marketing Adjustment 0.90% Less: Risk Adjustment 5.50% Adjustment Arithmetic Mean 2.99%

However, the TPO rejected the assessee’s transfer pricing documentation and the whole exercise of ALP determination by the assessee and carried out a fresh search of the comparables to determine the arm’s length price (ALP) of the provision of software programming services to AE after detailed discussion. In the search process carried out by the TPO, he identified set off 23 comparables companies, the arithmetic mean margin of which were arrived at 24.99%. These comparables were confronted to the assessee to submit its objection. Finally after considering the assessee’s objection/submission, the TPO finally selected set of 17 comparables which included 4 comparables chosen by the assessee company, the arithmetic mean of profit margin of these comparables were arrived at 24.97%. Thereafter, the TPO further allowed the benefit of working capital adjustment to the assessee and accordingly, the adjusted margins of the comparable companies were determined at 23.79%. The final lists of TPO’s comparables with the adjusted margins are as under:- Sr. Name of Companies OP/TC No. 1 Acropetal Technologies Ltd (IT Segment) 27.09% 2 Ancient Technology (Holdings) Ltd (Earlier know 7.03% as Flextronics Software Systems Ltd) 3 Avani Cimcon Technologies Ltd. 25.31% 4 Bodhtree Consulting Ltd. 20.73% 5 E-Infochips Ltd. 29.50% 6 E-Zest Solutions Ltd. 29.59%

5 Capgemini India Private Limited ITA No. 7099/Mum/2012

7 Infosys Technologies Ltd. 41.20% 8 KALS Information Systems Ltd (Application Software Segment) 40.39% 9 LGS Global Ltd. (Formerly Lanco Global 26.53% Systems Ltd) 10 Mindtree Ltd (Earlier Mindtree Consulting Ltd) 15.89% 11 Persistent Systems Ltd. 28.87% 12 Quintegra Solutions Ltd. 8.41% 13 Sasken Communication Technologies Ltd. (Software Services Segment) 13.15% 14 Thirdware Solutions Ltd. (Software Development Services Segment 21.61% 15 V G L Softech Ltd. 15.65% 16 Wipro Ltd (Wipro Technologies Segment) 30.56% 17 Goldstone Technologies Limited 22.96% Arithmetic mean 23.97% Accordingly, he applied the PLI difference of 11% to arrive at a transfer pricing adjustment of Rs. 151,99,19,022/-.

6 Capgemini India Private Limited ITA No. 7099/Mum/2012 Sr. Name of the Company Operating No. margins on costs 1 Infosys Technologies Ltd 41.20% 2 Wipro Ltd (Wipro Technologies Segment) 30.56% 3 Ancient Technology (Holdings) Ltd (Earlier known as Flextronics Software Systems Ltd.) 7.03% 4 Mindtree Ltd. (Earlier Mindtree Consulting Ltd) 15.89% 5 Persistent Systems Ltd 28.87% 6 Sasken Communication Technologies Ltd 13.15% (Software Services Segment) 7 LGS Global Ltd (Formerly Lanco Global Systems 26.53% Ltd) Arithmetic Mean 23.32% 6. Mr. Lohia, submitted that if the lower turnover filter of Rs. 100 crores is accepted in view of Tribunal order, then, the assessee is only challenging the inclusion 2 comparables companies by the TPO, i.e., to exclude Infosys Technologies Ltd and Wipro Ltd. from comparable list and inclusion of one company in the list, i.e., Aztecsoft Ltd.

Firstly, the functional profile of Infosys Technologies Ltd. suggests that, it is engaged into diversified activities and provides solutions to the entire software life cycle encompassing technical consulting, design, development, reengineering, maintenance, systems

7 Capgemini India Private Limited ITA No. 7099/Mum/2012 integration, package evolution and implementation, distinguishing and infrastructure management services;

Secondly, no segmental results with regard to the software results and provision of software programming services are available in public domain, therefore, in absence of the same, the operating margin of the said company cannot be benched mark with the assessee. He also referred to various decisions of the Tribunal, wherein in absence of segmental information, such companies were not considered as comparable.

Thirdly, the company has significant R&D activity which has led to creation of significant intellectual property and has huge intangibles. These factors alone are sufficient to reject the company from comparability analysis, because all these factors are not there in the assessee company which is largely a captive service provider. This company has huge brand value, which has been valued at Rs. 31,863 crores. This factor has a significant impact on its pricing mechanism of its services and products and also on profit margins.

Lastly, Hon’ble Delhi High Court in the case of Agnity India Technologies Private Limited in ITA No. 1204 of 2011 held that Infosys Technologies Ltd. should be excluded as a comparable from the captive service providing company, because Infosys is full risk bearing entrepreneurial entity and cannot be compared with interest mitigated captive unit. Thus, the Infosys should be removed from being comparable company. Catena of various Tribunal decision were also filed wherein the Infosys have not been held to be comparable with the captive software service provider companies.

8 Capgemini India Private Limited ITA No. 7099/Mum/2012 Firstly, the company is engaged in various services, other than software development services like BPO services, consumer products, software products etc.

Secondly, segmental information is also not available in the public domain and whatever information which was made available by the Department that does not match with the revenue details of each stream of the income as provided in the Product Description Schedule of the Annual Report of the company. Further, the annual report of the company shows that, 68% of the revenue comprises of sale of products. Thus, this company cannot be compared with the assessee company.

Lastly, this company like Infosys Technologies Ltd has significant intangibles and has more than 40 registered patents. It is operating as a full risk bearing entrepreneurial entity having huge intangibles and brand value as compared to assessee which is captive service provider.

Mr. Lohia also submitted a chart showing comparative analysis of Infosys and Wipro vis-a-vis the assessee giving the details of various parameters affecting the profit margin. These were summarized as under:- All figures in rupees crores Particulars Infosys Wipro CG India Operating 15,643 11,276 1,675 Revenues Operating 4,442 2,504 190 Profit Head count 91,187 Employees 61,815 Employees 16,400 Employees Net block 3,971 2,239 320.31 of assets Expenditure 201 405 Nil on Research and Development Nature -Software -Software Software of services Development Development Development services + Products services + services -Technology Products* Consulting -Business Process

9 Capgemini India Private Limited ITA No. 7099/Mum/2012 Outsourcing -Technology Consulting *68% of the revenue of India Middle East & Asia Pacific IT Services & Products” comprises of sale of products (Page 880, 884 of the supplementary paperbook) Segmental Separate segmental Separate Not Information information not segmental Applicable available in the information not public domain. available in the public domain. However, the TPO obtained the same under section 133(6) of the Act Brand Value 31,863 Not Available Not (Page 877 of the Applicable supplementary paper book) Profits 3,134 Not Available Not attributable (As per handout) Applicable to brand Risk Profile Operates as a full- Operates as a full- Operates as fledged risk bearing fledged risk a risk entrepreneurial bearing mitigated entity entrepreneurial captive entity service provider.

10 Capgemini India Private Limited ITA No. 7099/Mum/2012 Sr. Tribunal’s observation in AY 2007-08 CG India’s observation No. Grounds on which Relevant extracts of on its relevance to AY the Tribunal has Tribunal order 2008-09 rejected the contentions of CG India 1  Infosys and “We also note that Infosys  In this regard, it is and Wipro were the Wipro were submitted that Wipro comparables selected by selected as Limited was not part comparables the assessee itself on the of the comparables set by CG India basis of its own transfer considered by the pricing study. The in its own TP Appellant in its assessee was fully aware of study transfer pricing report its work profile, while for AY 2008-09.  CG India has selecting Infosys and not raised any  Further, while the Wipro as comparables. The objections Appellant has assessee raised no plea before the considered Infosys either before the TPO or lower Technologies Limited DRP for excluding these authorities as part of the comparables though it had (i.e. comparables set in its added some more TPO/DRP) transfer pricing report comparables" (Refer para for assessment 5.3.8) proceedings (refer para 5.3 on page 6 of the TPO order) 2 Infosys and Wipro “The assessee, therefore,  As mentioned above, were selected as cannot be permitted to CG India had filed a comparables by CG exclude Infosys and Wipro submission with the India in its own TP which were its own ld. TPO for rejection study. comparables. This issue is in Infosys (which was also supported by the part of the decision of the Tribunal in comparable set the case of Kansai Nerolac selected by CG India Paint Ltd. (supra), which in the TP study) from has been relied upon by the final set of the ld. CIT-DR in which it comparables. has been held that the  Moreover, it is assessee itself having observed that for AY selected the comparables, 2008-09, the ld. TPO it cannot turnback and say in para 5.8 of the that they are not order passed by him comparables without has rejected the giving any cogent and transfer pricing convincing reasons.” documentation maintained by the assessee and brought out his own search for comparables in which he has taken Infosys as a comparable. Thus, it is submitted that Infosys can no longer be considered as a comparable selected by the assessee and has to be considered as the TPO’s comparable. Thus, the observation of the Hon’ble

11 Capgemini India Private Limited ITA No. 7099/Mum/2012 members in AY 2007- 08 that the Assessee has rejected its own comparables, shall not apply in the year under consideration.  Accordingly, we humbly request your Honour’s to consider our plea against inclusion the said comparables. 3 The turnover of the “The turnover and margin  The Assessee whishes company should not of Infosys and Wipro are to state that Infosys have an impact on its higher than that of the and Wipro other than profitability assessee whereas the being giant companies turnover of the other two have huge brand comparables are lower. As value and own we have observed earlier, significant intangibles the assessee is a part of a as against the multinational group, well Appellant who is a established in this field routine software and has been rated as one service provider of the top 50 companies in owning no the world as per intangibles. NASSCOM database.  The same has been Therefore, there is no fortified by the Delhi reason that its margin High court in the case should be lower than any of Agnity India Indian company, how big it Technologies Private may be.” (Refer Para Limited (refer page 5.3.10) 909 to 911)  Further, the Assessee also wishes to submit that Infosys and Wipro being risk bearing entities cannot be considered comparable to the Assessee which has the role of a captive delivery centre and hence does not bear any risks. He, further submitted that, now there are umpteen number of decisions wherein it has been held that, Infosys and Wipro cannot be accepted as comparable companies with those of captive service provider company and finally, there is a decision of Delhi High Court in the case of Agnity India Technologies Private Limited (supra), wherein Delhi High Court has rejected the inclusion of Infosys with that of service provider unit. Thus, the Tribunal decision for AY 2007-08 should not be followed as far as inclusion of these two companies is concerned.

12 Capgemini India Private Limited ITA No. 7099/Mum/2012 11. On the other hand, Ld. CIT DR, Mr. Chand, after explaining the entire facts submitted that, so far as inclusion of Aztecsoft Limited, there is no finding given by the DRP on assessee’s objection and also there is no analysis of annual accounts by the authorities below, therefore, this matter should be restored back to the file/stage of DRP to analyse the contention of the assessee and in case it is found that its export turnover is more than 25%, then same can be included in the comparability list.

13 Capgemini India Private Limited ITA No. 7099/Mum/2012 margins, the assessee’s margin fell within the range of ± 5%, hence, the said issue was considered as academic. Thus, he submitted that, in view of the precedence of the earlier years, these two comparable companies have rightly been included in comparable analysis and consistency should be followed.

14 Capgemini India Private Limited ITA No. 7099/Mum/2012 the international transaction of software programming services. If such a filter is applied then finally, there would be 7 comparables companies out of which only 2 have been contested for exclusion and one company, which was selected by the assessee and rejected by the TPO, has been contended for inclusion in the comparable list. If such an exercise would be carried out then average arithmetic mean would worked out to 16.19% and adjustment accordingly, would get reduced.

15 Capgemini India Private Limited ITA No. 7099/Mum/2012 the TPO/AO to remove the comparables having turnover of Rs. 100 crores.

16 Capgemini India Private Limited ITA No. 7099/Mum/2012 precedent in this year. The Ld. Counsel’s submission in this regard has already been incorporated above. Apart from that, the Ld. Counsel has also relied upon catena of decisions wherein these two comparable companies have been held to be excluded from companies providing software programming services, especially in the cases of captive service provider. Some 20 decisions of Tribunal including that of the Delhi High Court in the case of Agnity India Technologies Private Limited (supra) have been filed and relied upon. The department’s case on the inclusion of these two comparables are that, firstly, it is squarely covered by the decision of the Tribunal in the assessee’s own case and there being no change in material facts and circumstances, no different view should be taken and secondly, the decision of Delhi High Court in Aginity’s case would not be applicable on the facts of the present case. From the perusal of the Tribunal order for the assessment year 2007-08, we find major reason for rejecting the assessee’s contention for exclusion of these two comparables was that, they were selected by the assessee itself in its own transfer pricing study report and hence, the assessee was fully aware of their work profile and its own profile while selecting these companies. Further, the assessee has raised no plea either before the TPO/DRP for excluding these comparables. As compared, in this year the assessee has not included Wipro as part of its TP study and comparables and secondly, in the case of Infosys Technologies Ltd., which though was chosen, but had immediately raised objection before the TPO for rejecting the said comparable based on detailed analysis of differences. In this year, the TPO has rejected the entire transfer pricing documentation maintained by the assessee and, therefore, now it cannot be held that assessee is precluded from raising the objection when TPO has selected these comparables for comparability analysis. Another main reason given by the Tribunal was that assessee had strongly contended that these companies have a very high turnover as compared to the

17 Capgemini India Private Limited ITA No. 7099/Mum/2012 assessee, to which Tribunal held that high turnover cannot be the criteria for rejecting the said comparables.

18 Capgemini India Private Limited ITA No. 7099/Mum/2012 analysis or for some other reasons, then the same should be excluded and we do not find any reason in the contention raised by the ld. DR that they should be included simply because the assessee had included the same. The initial onus of duty is cast upon the assessee to carry out the selection of proper comparables based on FAR analysis and by adopting suitable transfer pricing method and then analyse its transaction to show the correct arm’s length result. Thereafter, it is axiomatic that the taxing authorities / TPO, should scrutinize the assessee’s report on arm’s length result and the entire process of arriving at the ALP, whether they are based on transfer pricing principles and statutory provisions or not. If he himself founds some irregularity or mistake in any of the process or the steps undertaken, then he is bound to correct in accordance with the settled principles and law. If the assessee points out some mistake or any irregularity in the arm’s length result, then it is incumbent upon the TPO to examine and consider the same and it the assessee’s contentions are found to be correct or tenable, then he has to accept the same. There cannot be estoppel against correct procedure of law and principles solely on account of acquiescence or mistake of the assessee. The TPO is required under law to analyze every comparables and then only determine the correct ALP based on proper comparability analysis. Hence, we hold that assessee is not precluded from raising objections for exclusion of these two comparables on the ground that they were in the earlier year or in this year have been chosen by the assessee in TP study, more so in the circumstances when the assessee’s TP study documentation has been rejected and assessee has duly objected at the initial stage.

19 Capgemini India Private Limited ITA No. 7099/Mum/2012 however, the high turnover filter alone is not the guiding factor in most of the cases, the qualitative criteria approach for analyzing the comparables has to be seen. Such a qualitative approach has to be examined on FAR analysis. A high turnover company may be functional comparable but at times they differ significantly on assets employed like capital, human resources, marketing intangibles, intellectual property rights, brand names, R&D activities etc. and risks undertaken or assumed because the reward is intimately linked with risk undertaken, all of which have a significant impact on the pricing of the product and services, market penetrations and consequently on the profit margins. While evaluating the qualitative criteria, various factors like intellectual properties associated with the transaction like valuation of brand name, trademark etc. has to be factored and taken into consideration while carrying out the comparability analysis. Even if two companies are chosen based on similar functions having huge variation in turnover, a qualitative analysis has to be carried out for comparability analysis and see the material factors for choosing it as a comparable for benchmarking the controlled transactions. Thus, we are of the opinion that qualitative analysis assumes great significance for selecting or rejecting the comparables. While dealing with the arguments of the ld. Counsel in the foregoing paragraphs, we have already incorporated the analysis of Infosys Technologies Ltd. and Wipro vis-a-vis the assessee giving quantitative and qualitative parameters of difference. The main distinguishing features which can be gauged are firstly, the presence of huge intangibles and brand value in the case of Wipro and Infosys whereas in the case of the assessee which is a captive service provider, there are no such intangibles; secondly, both the comparables are full-fledged risk bearing entrepreneurial entity whereas, the assessee operates as a risk mitigated service provider; thirdly, both these companies also have significant R&D activities which has led to creation of significant intellectual property and branded products. These factors go to affect significantly the

20 Capgemini India Private Limited ITA No. 7099/Mum/2012 pricing mechanism and the profit margins. Such a huge risk bearing entrepreneurial entity cannot be compared with a risk mitigated captive service provider. Further, the other qualitative differences have already been discussed and highlighted while dealing with the contentions raised by the assessee. On such a qualitative level, these two companies cannot be held to be good comparable for benchmarking the assessee’s profit margin. Though we are not applying any upper turnover filter but on qualitative level, we are of the opinion that these companies having huge presence of brand value and intangible R&D activities etc which cannot be chosen for comparability analysis with a captive service provider company like the assessee. Thus, on these reasons, we are deviating from the conclusion reached by the Tribunal, because the material facts as highlighted by the Tribunal is absent in the present year. In view of our above discussion, we hold that, these two companies are to be removed from the final list of comparables. Thus, in all, there would be 6 comparable companies in the final stage of comparables which are as under:-

Sr. Name of the company Operating No. margins on costs 1 Aztecsoft Limited 5.66% 2 Aricent Technology (Holdings) Ltd. (Earlier know as Flextronics Software Systems Ltd) 7.03% 3 Mindtree Ltd. (Earlier Mindtree Consulting Ltd.) 15.89% 4 Persistent Systems Ltd 28.87% 5 Sasken Communication Technologies Ltd (Software Services Segment) 13.15% 6 LGS Global Ltd. (Formerly Lanco Global Systems Ltd) 26.53% Arithmetic Mean 16.19% The adjustment will be thus made from the margins of the aforesaid comparables. Accordingly, we direct the TPO / AO to make the transfer pricing adjustments based on average arithmetical mean of profit margin of aforesaid 6 comparables. Thus, the grounds raised by the assessee on transfer pricing adjustments are treated as partly allowed.

21 Capgemini India Private Limited ITA No. 7099/Mum/2012 21. Now we will take-up other domestic corporate tax grounds. In Ground no. 10, assessee has raised the following ground :-

“ DRP has erred in reducing the losses of Chennai unit at Rs. 11,35,20,100/- and Kolkata unit at Rs. 84,80,844/-, aggregating to Rs. 12,20,00,944/- from the deduction allowable to the Appellant under Section 10A of the Act.

22 Capgemini India Private Limited ITA No. 7099/Mum/2012 software while computing the total income. Further, it was clarified by the amended provisions of section 10A w.e.f. 1.4.2001 that the section 10A provides for a "deduction" of profits derived by the eligible undertaking and no longer provide for an "exemption". It was also clarified by the CBDT circular no.794 dated 9.8.2000 that the deduction under section 10A is in respect of a particular undertaking and not from the total income. There is no provision in section 10A for setting off the loss of other eligible undertakings before arriving at the deduction under section 10A. Prior to Assessment Year 2001-2002, when section 10A was an exemption provision, section 10A(6) provided restriction on set-off and carry forward of business loss and unabsorbed depreciation. However, subsequently, section 10A(6) was amended by Finance Act, 2003, with effect from Assessment Year 2001-2002 and such restriction was withdrawn, which amendment was consistent with the new scheme of section 10A which is a deduction provision and not an exemption provision for Assessment Year 2001-2002. In view of the above amendment, losses of section 10A units have to be adjusted against taxable profits of other units after deduction under section 10A has been allowed in respect of each of the profitable unit under section 10A.

24 It has been admitted by both the parties, that this issue is covered by the Tribunal in the assessee’s own case for the assessment year 2006-07 which has been affirmed by the Hon’ble High Court in ITA No. 2501 of 2011 and ITAT order for AY 2009- 10. Ld. DR also accepted that this issue is covered in favour of the assessee by the order of the Tribunal order. The relevant observation of the Tribunal in the assessment year 2006-07 reads as under:- “We have perused the records and considered the rival contentions carefully. The dispute is regarding set off of loss of a s. 10A unit against the taxable profit of other units. The assessee had four 10A units in respect of which deduction under s. 10A was allowable and one non-s.10A unit wax exempt, loss from s. 10A unit has to

23 Capgemini India Private Limited ITA No. 7099/Mum/2012 be ignored or alternatively the loss has to be adjusted against the profit of another s. 10A unit before allowing deduction under s. 10A. We have gone through the provisions of s. 10A and find that as per the provisions in force prior to asst. yr. 2001-02, the profit and gain from the eligible undertaking was not to be included in the total income which meant that the income from the eligible unit was exempt from tax. However, provisions were amended with effect from asst. yr. 2001-02 and as per the amended provisions, the profit and gain derived by an eligible undertaking are required to be deducted from the total income. Thus asst. yr. 2001-02, s. 10A is no longer an exemption provisions and it allows only deduction from total income. The deduction is to be allowed in respect of each eligible undertaking separately which has also been clarified by the CBDT. We also note that prior to asst. yr. 2001-02 when s. 10A was an exemption provision, s. 10(6) provided restriction on set off and carried forward of business loss and unabsorbed depreciation. However, subsequently, s. 10(6) was amended by Finance Act 2003 with effect from asst. yr. 2001-02 and such restriction was withdrawn which was consistent with the new scheme of s. 10A which is a deduction provision and not exemption provision from asst. yr. 2001-02. Therefore the loss from s. 10A unit has to be adjusted against taxable profits of other units after deduction under s. 10A has been allowed in respect of each eligible unit. Same view has been taken by the Hon’ble High Court of Bombay in case of Hindustan Unilever Ltd. vs. Dy. CIT (supra) in which it has held that deduction has to be allowed in respect of three eligible units and loss of the fourth s. 10A unit has to be set off against the normal business income. The Tribunal in case of Honeywell International (India) (P) ltd. vs Dy. CIT (supra) has also followed the same view. Therefore respectfully following the above judgments, the order of the Addl. CIT cannot be sustained. We accordingly set aside the order of the Addl. CIT and allow the claim of the assessee”. 25. This finding has been affirmed by the Hon’ble Bombay High Court judgment and order dated 30th April, 2014. Wherein, the High Court has held that, this issue is covered by the decision of Hon’ble Bombay High Court in the case of Hindustan Unilever Ltd. wherein it was held as under :-

" ... the first ground relates to the adjustment contemplated by section 10A of the Income Tax Acts 1961. The Tribunal has

24 Capgemini India Private Limited ITA No. 7099/Mum/2012 directed that loss of one unit can he adjusted against the profit of another unit but after allowance of deduction under section 10A of such profitable units. The loss of one unit under section 10A of the Act shall be adjusted against the income liable for deduction under the same but in relation to the income from other unit. As far as that aspect is concerned the counsel agree that the same is answered in favour of the assessee and against the revenue. This controversy has been dealt with by a Division Bench of this Court in the case of Hindustan Unilever Ltd vs Deputy Commissioner of Income Tax & anr., reported in [2010] 325 ITR 102. The parties agree that the discussion of the Division Bench and particularly at paragraph 17 of the judgment covers the point”.

25 Capgemini India Private Limited ITA No. 7099/Mum/2012 reduced in computing the export turnover if such expenses are already included in the turnover. In the present case, CG India's / turnover does not include any such expenses. Hence, it is submitted that the same should not be reduced from the export turnover. Such a legal arguments have been upheld by the Bombay High Court in assessee’s case for AY 2006-07 which for the sake of ready reference is reproduced herein below :- “These expenses have been incurred for the purposes of the business of software development at the software units in India. It is that finding which the Assessing Officer was unable to controvert or unable to bring any contrary material to disprove the same. It is in that light that the Tribunal found that the Assessing Officer could not have insisted on the deduction. It is that exercise undertaken by the Assessing Officer which has not been upheld but rather disapproved by the Tribunal. This is a finding purely on the facts and pertaining to the business of the assessee. The facts pertaining to the assessee's business of software development, the charges and which are claimed to have incurred, are in relation to the business of software development within India. They could not be said to be costs deductible from export turnover for the purposes of Section 10A of the Act. In such circumstances, we are of the opinion that any wider controversy or larger question does not require any answer. We can leave that aspect open for the decision in an appropriate case. In the facts and circumstances of the present case and in relation to the business of the assessee before us, it is not necessary to go into the other contentions raised before us by the revenue ". This order of the High Court has been followed by the Tribunal in ITA No. 540/Mum/2014 for AY 2009-10 also. Thus, respectfully following the same, ground no. 11 is treated as allowed.

26 Capgemini India Private Limited ITA No. 7099/Mum/2012 unit, wherein the Chartered Accountants had certified that CG India's eligible unit was engaged in the development and export of computer software. Before the AO the assessee submitted that wordings "attributable to the delivery of computer software outside India" are not present in the second limb of the definition regarding the expenses incurred in foreign exchange. Therefore, CG India submitted that the second exclusion in respect of expenses incurred in foreign exchange would not be applicable in respect of export turnover from delivery of computer software outside India. Since, the assessee is engaged in development and export of computer software and not in provision of technical services outside India, the second exclusion would not be applicable in CG India's facts at all.

27 Capgemini India Private Limited ITA No. 7099/Mum/2012 earning of exempt income. For the purpose of indirect expenses, the assessee submitted that has calculated the time taken by one of its employee who was an Accountant Manager and attributed the same for managing the investments, accordingly, the assessee offered sum of Rs. 50,000/- as disallowance u/s 14A.

28 Capgemini India Private Limited ITA No. 7099/Mum/2012 assessee’s investments are only in subsidiary companies and mutual funds, then it cannot be held that assessee might have incurred huge expenditure. The assessee had suo moto offered a sum of Rs. 50,000/- for disallowance, which in our opinion, is sufficient for attributing the indirect expenses for earning the exempt income of Rs. 2,83,000/-. Accordingly, the addition made by the AO and confirmed by DRP stands deleted. Accordingly, ground no. 14 raised by the assessee is allowed.