TaxTMI 
TaxTMI 
2014 (6) TMI 924
X X X X Extracts X X X X
X X X X Extracts X X X X
.... For Assessment Year 2008-09, the assessee filed its return of income on 29.9.2008 declaring income of Rs. 11,72,47,400. The return of income was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. 2.2 In the period under consideration, the assessee had reported the following international transactions :- (i) Software Development Services Rs. 92,47,87,026 (ii) Recovery of Expenses Rs. 3,50,05,590 In view of the above international transactions entered into by the assessee, the Assessing Officer made a reference to the Transfer Pricing Officer ('TPO') for determining the Arms Length Price ('ALP') of these international transactions, after obtaining the necessary approval of the CIT-I, Bangalore. The TPO vide order under section 92CA of the Act dt.31.10.2011 proposed a T.P. Adjustment of Rs. 10,59,69,209 to the ALP of international transactions in respect of software development services rendered by the assessee. The Assessing Officer then issued a draft assessment order on 7.12.2011 under section 143(3) r.w.s. 144C of the Act proposing the incorporation of the T.P. Adjustment of Rs. 10,59,69,209 to the ALP of int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....learned AO erred in not allowing the benefit of range of +/- 5% as provided in proviso to Section 92C(2) of the Act to the Appellant, while determining the arm's length price. 6. On the facts and circumstances of the case, the learned AO and the learned TPO erred in rejecting the Transfer Pricing ("TP") documentation without appreciating the contentions, arguments, and evidentiary data put forward by the Appellant during the course of the proceedings before them, and in doing so have grossly erred: 6.1 in rejecting the comparability analysis carried in the TP documentation and conducting a fresh comparability analysis for determining the arm 's length price by the learned TPO. 6.2 in adopting the arm's length mark up to be 23.65%, in respect of the international transaction pertaining to the rendering of software development services by the Appellant; 6.3 in completely relying on the unaudited data requisitioned and consequently obtained by taking recourse to the provisions of Section 133(6) of the Income-tax Act, 1961 ('the Act), which in many instances are inconsistent with the data disclosed in audited reports. In doing so the learned TPO has erred in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... surrounding their operations during the year under review; 6.12 in accepting companies having Related Party Transactions exceeding 10% such as Softsol India Limited and Infosys limited. In doing so the learned AO has disregarded the Delhi ITAT ruling in case of Sony India Pvt. Ltd. (reference ITA No.1189/Del/2005); 6.13 in upholding the actions of the learned TPO in applying the export filter for selection of software comparables. In doing so, the learned TPO erred in rejecting Aarman Software Private Limited and VMF Soft Tech Limited. 6.14 in applying the onsite filter for selection of software comparables with the use of the data obtained under section 133(6) of the Act, is not economically valid. In doing so, the learned TPO erred in rejecting companies such as Akshay Software Technologies Limited, Prithvi Information Solutions Limited, Silverline Technologies Limited, Zylog Systems Limited and VJIL Consulting Limited. 6.15 in not maintaining consistency in applying the filters of rejecting companies with abnormal fluctuating margin, diminishing revenue/ persistent losses for the period under consideration, companies with peculiar economic circumstances, companies w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in nature and that the same cannot be claimed as an expense. (b) The learned ACIT ought to have appreciated that the liability has crystalised at the time of entering into the contract itself. Hence, mere postponement of the payment to a different date cannot extinguish the liability and render it notional or contingent. (c) The learned ACIT ought to have appreciated that the main ingredient of a contingent liability is to depend upon happening or non-happening of a certain event, whereas in the instant case, the 'event', i.e. the change in the value of foreign currency in relation to Indian currency, has already taken place and accordingly the loss incurred thereof is an actual loss not a notional one. (d) The learned ACIT further ought to have appreciated that what should be certain is the incurring of the liability and it being estimated with reasonable certainty, even if the exact qualification is not feasible. (e) Notwithstanding and without prejudice to the above, should the provision for MTM losses on forward exchange contracts be disallowed in the current financial year, the same should be allowed as deduction in the financial year in which it is reverse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al raised at S.Nos.1 to 8. Ground Nos.1 and 2 : These grounds being general in nature, no adjudication is called for thereon. Ground Nos.3& 4 : These grounds are raised in respect of the grant of suitable adjustments towards differences in the risk profile between the assessee and the comparable companies. This ground was argued before us by the learned Authorised Representative and this issue is separately discussed in the later part of this order. Ground No.5 : This ground raised by the assessee is in respect of being given the benefit of + / - 5% while computing the ALP. Before us this ground was not pressed. Even otherwise, the retrospective amendment to section 92C(2A) of the Act brought about by the Finance Act, 2012 has settled the issue and therefore the benefit of 5% is not allowable to the assessee. In this view of the matter, this ground raised by the assessee is dismissed. Ground No.6.1 : This ground is raised in respect of the TPO rejecting the assessee T.P. Study and conducting a fresh search for deciding the comparable companies. As the learned Authorised Representative had submitted the assessee would not press the general grounds, no separate a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rried out by the assessee, adopting TNMM as the most appropriate method (MAM) and taking itself to be the tested party, the assessee selected the following 18 companies as its set of comparables. Sl.No. Name of the company Average Margin 1. Akshay Software Technologies Ltd. 5.93 % 2. Aarman Software Pvt. Ltd. 57.64 % 3. ApplabsTechnologies Pvt. Ltd. 18.25 % 4. Computech International Ltd. 5.20 % 5. Core Projects & Technologies Ltd. 38.85 % 6. I-gate Global Solutions Ltd. 5.10 % 7. Mind Tree Ltd. 15.61 % 8. Nihar Info Global Ltd. (-) 3.23 % 9. Orient Information Technology Ltd. (-) 21.85 % 10. Prithvi Information solutions Ltd. 14.09 % 11. R S Software (India) Ltd. 14.58% 12. R Systems International Ltd. 18.08 % 13. SIP Technologies & Exports Ltd. 18.10 % 14. Silverline Technologies Ltd. (-) 26.25 % 15. Sonata Software 7.38 % 16. VJIL Consulting Ltd. 8.46 % 17. VMF S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... international transactions entered into by the assessee in the period relevant to Assessment Year 2008-09. 6. As mentioned in para 4.2 to 4.4 of this order, in the course of proceedings before us, the learned Authorised Representative submitted that he would make and put forth arguments / contentions only on the comparability or otherwise of individual companies, which in his opinion, are incorrectly included by the TPO in the set of comparable companies, or are incorrectly excluded by the TPO from out of the set of comparable companies chosen by the assessee in its TP Study. The learned Authorised Representative also submitted a chart, schematically explaining the assessee's position regarding the acceptability or otherwise of each of the companies selected or rejected by the TPO as comparable companies to the assessee. We now proceed to examine and consider each of the comparable companies so highlighted by the assessee in its chart. Companies incorrectly adopted as comparables by the TPO as per the contention of the assessee. 7. Avani Cincom Technologies Ltd. 7.1 This company was selected by the TPO as a comparable. The assessee objects to the inclusion of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s that this company develops and sells customizable software solutions like "DX Change, CARMA, etc. 7.4 The learned Authorised Representative submitted that a co-ordinate bench of the Tribunal in its order in 3DPLM Software Solutions Ltd. (supra) has held that this company be omitted from the list of comparable companies. 7.5 Per contra, the learned Departmental Representative supported the order of the TPO / DRP for inclusion of this company Avani Cincom Technologies Ltd. in the final set of comparables. 7.6 We have carefully perused and considered the submissions made and the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company be omitted from the set of comparables by making the following observations at paras 7.6.1 and 7.6.2 of the order which are extracted hereunder :- "7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In these....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee by stating that the objections of functional dissimilarity has been dealt with in detail in the T.P. order for Assessment Year 2007-08. As regards the objection raised in respect of the employee cost filter issue, the TPO rejected the objections by observing that the employee cost filter is only a trigger to know the functionality of the company. 8.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable, as the company is into bio-informatics software product / services and the segmental break up is not provided. It was submitted that :- (i) This company is engaged in the development of products in the field of bio-technology, pharmaceuticals, etc. and therefore is not functionally comparable to the assessee; (ii) This company has been held to be functionally incomparable to software service providers by the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra); (iii) The co-ordinate bench of this Tribunal in its order in the case of Trilogy E-Business Software India (P.) Ltd. (supra) at para 43 thereof had observed about this company t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....1 We have heard both the parties and perused and carefully considered the material on record. While it is true that the decisions cited and relied on by the assessee were with respect to the immediately previous assessment year, and there cannot be an assumption that it would continue to be applicable for this year as well, the same parity of reasoning is applicable to the TPO as well who seems to have selected this company as a comparable based on the reasoning given in the TPO's order for the earlier year. It is evidently clear from this, that the TPO has not carried out any independent FAR analysis for this company for this year viz. Assessment Year 2008-09. To that extent, in our considered view, the selection process adopted by the TPO for inclusion of this company in the list of comparables is defective and suffers from serious infirmity. 9.4.2 Apart from relying on the afore cited judicial decisions in the matter (supra), the assessee has brought on record substantial factual evidence to establish that this company is functionally dis-similar and different from the assessee in the case on hand and is therefore not comparable and also that the findings rendered in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate bench of this Tribunal in the assessee's own case. This company has been held to be different from a software development company in the decision of the Tribunal in the case of Bindview India (P.) Ltd. v. Dy. CIT [2013] 145 ITD 436). (iii) The rejection of this company as a comparable has been upheld by co-ordinate benches of the Tribunal in the case of - (a) Trilogy E-Business Software India (P.) Ltd. (supra). (b) LG Soft India (P.) Ltd. (supra) (c) CSR India (P.) Ltd. (supra) (d) Transwitech India (P.) Ltd. (supra) (iv) The facts pertaining to this company has not changed from Assessment Year 2007-08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability in the case on hand and hence ought to be excluded from the list of comparables. In support of this contention, the learned Authorised Representative drew our attention to various parts of the Annual Report of this company. (v) This company is engaged not only in the development of software products but also in the provision of training services as can be seen from the website and the Annual Report of the company for the year ended 31.3.2008. (vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on record evidence from various portions of the company's Annual Report to establish that this company is functionally dis-similar and different form the assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted from the list of comparable companies. It is ordered accordingly." 9.5 Respectfully following the aforesaid decision of the co-ordinate bench in the case of 3DPLM Software Solutions Ltd. (supra), we direct the Assessing Officer/TPO to omit this company from the list of comparables. 10. Infosys Technologies Ltd. 10.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not mat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded from the list of comparable companies. 10.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 10.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company be omitted from the list of comparables by holding as under in para 11.4 of its order :- "11.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not compara....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lopment and product development services. No information is available on the segmental bifurcation of revenue from sale of products and software services. (vi) the TPO has adopted consolidated financial statements for comparability purposes and for computing the margins, which is in contradiction to the TPO's own filter of rejecting companies with consolidated financial statements. (vii) the learned Authorised Representative submitted that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) has held that this company is to be omitted from the list of comparables. 11.3 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 11.4 We have heard the rival submissions and perused and considered the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables holding as under at paras 12.4.1 and 12.4.2 of its order :- "12.4.1 We have heard both parties and carefully perused and considere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ative that this company is not functionally comparable to the assessee as it performs a variety of functions under software development and services segment namely - (a) product design, (b) innovation design engineering and (c) visual computing labs as is reflected in the annual report of the company. The learned Authorised Representative submitted that, (i) The co-ordinate bench of the Mumbai Tribunal in the case of Telcordia Technologies India (P.) Ltd. (supra) has held that Tata Elxsi Ltd. is not a functionally comparable for a software development service provider. (ii) The facts pertaining to Tata Elxsi Ltd. have not changed from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008-09 and therefore this company cannot be considered as a comparable to the assessee in the case on hand. (iii) Tata Elxsi Ltd. is predominantly engaged in product designing services and is not purely a software development service provider. In the Annual Report of this company the description of the segment 'software development services' relates to design services and are not to software services provided by the assessee. (iv) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the assessee company. We agree with the contention of the learned Authorised Representative that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm's length price for the assessee, hence, should be excluded from the list of comparable portion. As can be seen from the extracts of the Annual Report of this company produced before us, the facts pertaining to Tata Elxsi have not changed from Assessment Year 2007-08 to Assessment Year 2008-09. We, therefore, hold that this company is not to be considered for inclusion in the set of comparables in the case on hand. It is ordered accordingly." 12.5 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the TPO. 13.4 We have carefully considered the submissions made and the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables, holding as under at paras 14.4of the order :- "14.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the list of comparbales only on the basis of the statement made by the company in its reply to the notice under section 133(6) of the Act. It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate bench of this Tribunal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtmental Representative supported the action of the TPO in including this company in the list of comparables. 14.3 We have carefully considered the submissions made and the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be excluded from the list of comparables, by holding as under at para 15.3 thereof :- "15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and subscription. However, the segmental profit and loss accounts for software development services and product development are not given separately. Further, as pointed out by the learned Authorised Representative, the Pune Bench of the Tribunal in the case of E-Gain Communications Pvt. Ltd. (supra) has directed that since the income of this company includes income from sale of licenses, it ought to be rejected as a comparable for software development services. In the case on hand, the assessee is rendering so....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Tribunal in the assessee's own case for Assessment Year 2007-08 and other cases cited above, it is clear that this company being into product development cannot be considered as a comparable to the assessee in the case on hand who is a software service provider and therefore this company i.e. Lucid Software Ltd., ought to be omitted from the list of comparables. 15.2 Per contra, the learned Departmental Representative supported the action and finding of the TPO in including this company in the list of comparables. 15.3 We have carefully considered the submissions made and the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be excluded from the list of comparables, by holding as under at para 16.3 thereof :- "16.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the company i.e. Lucid Software Ltd., is engaged in the development of software products whereas the assessee, in the case on hand, is in the business of providing software develo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pany is functionally different and also that there are several other factors on which this company cannot be taken as a comparable. In this regard, the learned Authorised Representative submitted that : (i) This company is engaged in software designing services and analytic services and therefore it is not purely a software development service provider as is the assessee in the case on hand. (ii) Page 60 of the Annual Report of the company for F.Y. 2007-08 indicates that this company, is predominantly engaged in 'Outsourced Software Product Development Services' for independent software vendors and enterprises. (iii) Website extracts indicate that this company is in the business of product design services. (iv) The ITAT, Mumbai Bench in the case of Telcordia Technologies India (P.) Ltd. (supra) while discussing the comparability of another company, namely Lucid Software Ltd. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s company qualifies all the filters applied by the TPO. On the issue of acquisitions, the TPO rejected the assessee's objections observing that the assessee has not adduced any evidence as to how this event had an any influence on the pricing or the margin earned. 17.2 Before us, the assessee objected to the inclusion of this company for the reason that it is functionally different and also that there are other factors for which this company cannot be considered as a comparable. It was submitted that, (i) Quintegra solutions Ltd., the company under consideration, is engaged in product engineering services and not in purely software development services. The Annual Report of this company also states that it is engaged in preparatory software products and is therefore not similar to the assessee in the case on hand. (ii) In its Annual Report, the services rendered by the company are described as under : "Leveraging its proven global model, Quintegra provides a full range of custom IT solutions (such as development, testing, maintenance, SAP, product engineering and infrastructure management services), proprietary software products and consultancy services in IT on var....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010 dt.9.11.2012) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted from the list of comparables, as in the case on hand. 18.3.2 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where extraordinary events have taken place, which has an effect on the performance of the company, then that company shall be removed from the list of comparables. 18.3.3 Respectfully following the decision of the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. (supra), for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables, holding as under at para 19.3 of the order :- "19.3 We have heard both parties and perused and carefully considered the material on record. We find that the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 has excluded this company from the set of comparables for the reason that RPT is in excess of 15% following the decision of another bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2011. As the facts for this year are similar and material on record also indicates that RPT is 18.3%, following the afore cited decisions of the co-ordinate benches (supra), we hold that this company is to be omitted from the list of comparables to the assessee in the case on hand." 18.4 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 19. Risk Adjustment 19.1 In the grounds of appeal at S.Nos.3 &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded the issue back to the file of the TPO. Following the decisions in the aforementioned cases of the co-ordinate benches of this Tribunal (supra), we remand the issue of market risk adjustment to the file of the Assessing Officer/TPO for examining the issue in the light of the decisions cited. ADDITIONAL GROUNDS OF APPEAL 20. Reimbursement of Expenses not to be marked up. 20.1 The assessee vide letter dt.25.2.2014 has raised the additional ground that the TPO ought to have appreciated that reimbursements received by the assessee from its AEs are not in respect of any services rendered and hence should not be added back to the cost base for the purposes of a mark-up. It is submitted that this ground has been raised by the assessee in its objections before the DRP but has been inadvertently missed out in the grounds of appeal filed along with Form No.36. It is prayed that since this is a ground related to legal principles, it may kindly be admitted. On due consideration thereof, we admit this additional ground for adjudication. 20.2 It is submitted by the learned Authorised Representative that in the T.P. Order under section 92C of the Act, while computing the ALP, the T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailed examination and verification of the said expenses, as to whether it was incurred on behalf of the AE, as was done in the earlier year. It is ordered accordingly. 21. Provision for outstanding forward exchange contracts-Grounds No.10 (a) to (e). 21.1 The assessee vide letter dt.25.2.2014 has raised the additional ground that the TPO erred in computing the return on total operating cost of the assessee by treating the provision for forward exchange as operating expenditure. It was submitted by the learned Authorised Representative that the DRP, in the assessee's own case for Assessment Year 2009-10 has considered the provision for loss from forward contracts as non-operating expenditure. It is prayed that since the DRP has rendered a favourable decision in the assessee's own case for the subsequent year, the additional ground be admitted and allowed. 21.2 We have considered the submissions made and the material on record. While computing the ALP, the TPO has considered the total operating expenditure, including the foreign exchange loss due to forward contracts. The DRP, in the year under consideration, has held these losses to be part of operating expenditure ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the expiry of the period of forward contract or its termination. In this view of the matter, the DRP held that the impugned loss, being a contingent and unascertained liability, is to be disallowed under section 37 of the Act. 22.3.1 Before us, the learned Authorised Representative submitted that the Assessing Officer has erred in disallowing the provision for valuation of the foreign exchange forward contracts as on the date of the balance sheet i.e. 31.3.2008 holding that the provision represents notional loss and the same is contingent in nature. It was submitted that :- (i) the main ingredient of a contingent liability is that it depends upon the happening of a certain event. In the case on hand, the 'event' that is, change in the value of foreign currency in relation to Indian currency had already taken place. Therefore, the loss incurred as a result of the fluctuation of foreign exchange rates is a fiat accompli and not a notional one. (ii) In computing the income chargeable under the head 'profits and gains' of business or profession, the Act allows a deduction of any expenditure, not being in the nature of a capital expenditure or personal expenses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee the moment it entered into forward exchange contracts; (ii) a consistent method of accounting followed by the assessee could not be disregarded only on the ground that a better method could be adopted; (iii) the assessee has consistently followed the same method of accounting in regard to recognition of profit or loss; (iv) the liability is determinable with reasonable certainty and therefore cannot be said to be a contingent liability. (v) the assessee's claim is allowable in terms of the decision of the Hon'ble Apex Court in the case of Woodward Governor India (P.) Ltd. (supra). (vi) the accounting treatment adopted by the assessee is practically without any revenue effect and it is only the timing of taxation of profit or loss. Though the DRP, in the assessee's own case in the subsequent year, has allowed the expenses, we are of the opinion that it will be in the fitness of things to remit this issue back to the DRP to examine the issue afresh by considering its findings in the subsequent year. It is ordered accordingly. 23. Capital Expenditure-Disallowance of Software Expenses-Ground Nos.9(a) to (c). 23.1 In the course of assessment proc....