TaxTMI 
TaxTMI 
2023 (4) TMI 75
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act incorporating a transfer pricing adjustment on software services of Rs.2,35,51,065/-. Upon appeal to the Tribunal in its order dt.23.06.2017 in IT(TP)A No.1414/Bang/2010 has held on this issue as reproduced hereunder: ''5......Accordingly, the assessment order on entire TP issue is set aside and the matter is restored back to the file of AO/TPO for fresh decision after providing adequate opportunity of being heard to the assessee.'' 2.1 In the set aside proceedings, the assessee filed its submissions on this issue vide its letter dt.12.09.2018. The TPO in the impugned order u/s 254 r.w.s 92CA dt.25.10.2019 has arrived at an adjustment of Rs.2,42,58,140/-. In arriving at the said adjustment, the TPO in para 3.1 has erred in assuming that the Tribunal has only set aside the issue of comparability of the comparable companies selected by the TPO but not objected to the filters adopted by the TPO for selection of comparables. Perusal of the grounds of appeal extracted in the Tribunal order shows that the assessee has raised grounds on filters, comparables among others. Since the Tribunal has set aside the entire matter to the file of AO/TPO for fresh decision, the TPO ought to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 144C(1) dated 20.12.2019 was passed by the AO by making the addition of Rs.2,42,58,140/- in respect of TP adjustment in Software segment. Against the Draft assessment order, the assessee filed its objections before the DRP on 17.01.2020. The assessee vide written submissions dated 07.01.2021 filed before DRP on 08.01.2021 has contested for rejection of following comparables interalia its objections on various filters. List of comparable companies contested by the Assessee on various grounds for rejection Sl.No. Name of the Company Grounds of Appeal 1 Aztech Software Ltd * Fails RPT filter 2 Geometric Software Limited * Fails RPT filter 3 Infosys Ltd * Functionally dissimilar - engaged in product development and provision of software developments services * Ownership of brand and IPR * Turnover exceeds 200 crores 4 Kals Information Systems Ltd (seg) * Functionally dissimilar - engaged in software products development * KALS should not be selected based on information received through 133 (6) route 5 Mindtree Consulting Ltd * Fails turnover filter - Turnover exceeds 200 crores * Functionally dissimilar - engaged in R&D activities 6 Persistent ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1) on 29.05.2021 retaining the addition of Rs. 2,42,58,140/- as per draft assessment order ignoring and without giving effect to the directions of the DRP. 2.9 Against the orders of the authorities, the Assessee has preferred the above appeal before this Tribunal on 15.07.2021 raising the following grounds of appeal. 1. That the order of the Assessing Officer (AO), Transfer Pricing Officer (TPO) and the directions of the Dispute Resolution Panel (DRP) in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. That the AO/TPO/DRP erred in not providing adequate and sufficient opportunity as required under law thus violating the principle of natural justice, hence on this ground alone the orders requires to be annulled. 4. The DRP erred in not considering the relevant materials, evidences, data and relevant law. The directions issued are without application of mind. 5. That the Orders of AO / TPO and the Directions of the DRP violates the principles of judicial discip....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(seg) k) Megasoft Limited l) Igate Global Solutions Ltd 23. With prior permission of the ITAT, the appellant reserves the right to add/delete/amend any or all the ground stated above. 24. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered. 2.10 During the course of hearing the appellant has submitted a chart seeking for exclusion of the following comparables on various grounds (Ground 22): a) Aztech Software Ltd b) Geometric Software Limited c) Infosys Ltd d) Mindtree Consulting Ltd e) Persistent Systems Limited f) R Systems International Limited (Seg.) - Not pressed g) Sasken Communication Ltd (Seg) h) Tata Elxsi Ltd (Seg) i) Accel Transmatics (Seg.) j) Flextronics Software Systems Ltd (seg) k) Megasoft Limited l) Igate Global Solutions Ltd 2.1.1. Ground Nos.1 to 9 and 11 to 21 are general in nature which do not require any adjudication. Ground 10 - 3. The Ld. A.R. submitted that on the issue of turnover filter, the TPO has excluded companies having turnover of less than 1crore. It is t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld as under:..'' 3.2 Applying the said decision, the companies having turnover more than Rs.200 crores should be eliminated from the list of comparables as the assessee's turnover is Rs.29.91crores. 3.3 The assessee is seeking exclusion of the following 6 comparables on account of turnover filter. a) Infosys Ltd - Turnover Rs.9028 crores b) Mindtree Consulting Ltd - Turnover Rs.448.79 crores c) Persistent Systems Limited- Turnover Rs.209.17 crores d) Sasken Communication Ltd (Seg) - Turnover Rs.240.03 crores e) Flextronics Software Systems Ltd (seg) - Turnover Rs.595.12 crores f) Igate Global Solutions Ltd- Turnover Rs.527.91 crores 3.4 The turnover of the above companies are far higher than that of the assessee company. Since the assessee falls under category of companies having turnover less than Rs.200crores, the above comparables needs to be excluded. 4. The Ld. D.R. relied on the order of lower authorities. 5. We have heard the rival submissions and perused the materials available on record. The Ld. D.R. submitted that high turnover is not a relevant criterion to record a company as not comparable, so long as the two companies are functionally comparab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he RPT transactions from the annual report are provided below for ease of reference 6.4 The TPO has considered threshold limit of 25% for Related party transactions. The DRP has upheld the reasoning of the TPO and stated that the limit of 25% is appropriate and rational. The threshold limit adopted by the Bangalore ITAT is 15% of the sales. The Bangalore Tribunal in the case of FCG Software Services (India) (P) Ltd vs ITO in ITA No.1447/Bang/2010 dt.08.01.2016 for AY 2006-07 - 176 TTJ 145 has excluded the above comparables as the RPT exceeded 15%. Relevant para 21 of the said decision is extracted hereunder: ''21. As far as comparable companies chosen by the TPO viz., Aztec Software Limited and Geometric Software Ltd. (Seg.) and Megasoft Ltd., are concerned, it is not in dispute before us that the related party transaction in the case of companies exceeds 15% and in view of the decision of the Tribunal in the case of 24 X 7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010, followed by this Tribunal in the case of Logica Private Ltd. (supra) wherein it was held that where the RPT exceeds 15%, such companies should not be taken as comparable companies. Following the said decision, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ominantly engaged in product designing services and not software development services provider. Hence, Tata Elxsi cannot be compared to the Assessee. Although the Company has a segment called software development segment, the segment is engaged in embedded product design services and Animation Visual Effect Services, which are different from software development services. The TPO himself in the latest round of transfer audit for the Company has not considered the Company as a comparable. The two segments of the Company along with the activities undertaken under them is provided as follows: 1) Software development & services: a) Industrial design and engineering - Mechanical design with a focus on industrial design b) Animation and visual effects - 3D computer graphics, animation and visual effects c) Embedded product design services - design and development of hardware and software 2) Systems integration & support - integrated hardware and packaged software solutions (Page 19, Annual Report 2005-06) (Page 31, Annual Report 2005-06) 11.2 The following extracts of Ld. A.R. provide more insights on the embedded product development segment: (Page 20, Annual Report 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any is functionally different from a pure software development service provider such as the Assessee and it should be excluded for comparability purposes. 18. In view of the aforesaid decision, we hold that Tata Elxsi has to be excluded from the list of comparable chosen by the TPO.'' FCG Software Services (India) (P) Ltd vs ITO in ITA No.1447/Bang/2010 dt.08.01.2016 for AY 2006-07 - 176 TTJ 145 11.9 Thus, he submitted that in view of the decisions of the Tribunal mentioned supra, this comparable needs to be rejected and removed from the list of comparables. 12. The Ld. D.R. relied on the order of the Ld. DRP. 13. We have heard both the parties and perused the materials available on record. In our opinion, this issue came for consideration before Coordinate Bench in the case of FCG Software Services (India) (P) Ltd vs ITO in ITA No.1447/Bang/2010 dt.08.01.2016 for AY 2006-07 - 176 TTJ 145 - relevant paras 22 & 23 is extracted hereunder: ''22. As far as comparable company chosen by the TPO viz., Tata Elxsi Ltd., is concerned, the comparability of the aforesaid company with that of the software service provider such as the Assessee was considered by the Mumbai Bench of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Hardware and networking enterprise. The screenshot of the annual report of Accel is provided as below: 14.2 From the above screen shot, it is clear that Accel is engaged in the business of software development services as well as media solutions and services. 14.3 The company under the "Ushus technology" (Software segment) has mentioned that it has sold its IPR & earns royalty. 14.4 Further, the revenue from software services segment of Accel only comprises 27.59% of the total operating revenue (Page No. 46 AR 2006) [i.e. 809.6 Cr/ 2934.34 Cr]. This does not satisfy the filter requirement of minimum 75% of operating sales to be software services revenue, as suggested by the TPO. * Abnormally high margins and fluctuating margins 14.5 The SWD service segment of Accel Transmatics has grown from 1.33 Crores in 2004 to 4.06 Crores in 2005 to 8.09 in 2006. This represents abnormally high growth rates [CAGR of 146%] even going by the TPO's own metrics vis-à-vis the software development industry. The TPO in the TP Order has rejected companies with diminishing revenue, i.e. companies that are growing slower than the industry. Accordingly, the TPO, by the same logic ought to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h the parties and perused the materials available on record. This comparable considered as not comparable in the case of Tesco Hindustan Service Centre Pvt Ltd vs The Deputy Commissioner of Income-Tax in IT(TP).A No.1317/Bang/2010 dt.26.05.2015 for AY 2006-07 - relevant paras 11 to 13 extracted hereunder: ''11. Improper selection of comparables: It was submitted by the learned counsel for the Assessee that the following 2 companies are not functionally comparable with that of the Assessee. a) KALS Information Systems Limited b) Accel Transmission Limited. In this regard our attention was drawn to the decision of the ITAT Bangalore Bench in the case of Trilogy E-Business Software India Pvt.Ltd. (supra) wherein these companies were held to be not functionally comparable with that of a pure software developer like the Assessee. 12. The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Trilogy E-Business Software India Pvt.Ltd.(supra), which was followed by the ITAT Bangalore Bench in the case of 3DPLM Software Solutions Ltd. IT (TP)A.No.1109/Bang/2010 for AY 2006-07 order dated 10.5.2013: "(d) KALS Informatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable." "(e) Accel Transmatic Ltd. 48. With regard to this company, the complaint of the assessee is that this company is not a pure software development service company. It is further submitted that in a Mumbai Tribunal Decision of Capgemini India (F) Ltd v Ad. CIT 12 Taxman.com 51, the DRP accepted the contention of the assessee that Accel Transmatic should be rejected as comparable. The relevant observations of DRP as extracted by the ITAT in its order are as follows: IT(TP)A No.1317/Bang/2010 "In regard to Accel Transmatics Ltd. the assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve decision of the Tribunal, we inclined to direct the AO/TPO to exclude Accel Transmatics (Seg) from the list of comparables. Ground 18 : 17. The authorities ought to grant the benefit of +/- 5% variances deduction as envisaged in the section 92C(2) of the Act and as per circular no.12 of 2001 dt.23.08.2001. It is requested that the same be granted in the interest of justice. 17.1 The assessment year involved is 2006-07, as such provisions of section 92C(2) of the Act is applicable for this assessment year. Accordingly, directed the AO/TPO to grant benefit of +/- 5% variances deduction as envisaged under this provision and as per Circular No.12/2001 dated 23.8.2001 issued by the CBDT for the AY 2006-07. 18. In the result, assessee's appeal in IT(TP)A No.344/Bang/2021 is partly allowed. ITA No.703/Bang/2021 for AY 2012-13: 19. Ground Nos.1 to 11 are general in nature, which do not require any adjudication. Ground No.12 is with regard to the TP adjustment of distribution segment at Rs.91,39,62,617/-. The assessee came in appeal before this Tribunal against the Ld. DRP order. In this assessment the Tribunal vide order dated 340/Bang/2017 dated 31.8.2017 set aside the issue re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aler Commission 138500000 138500000 Miscellaneous expenses 99700000 99700000 28.10.2019- The TPO passed order u/s 92CA making TP adjustments amounting to Rs.113,56,25,171/- as listed above. 30.12.2019 - The Draft assessment order dated was passed by the AO by making the additions as listed above. 27.01.2020 - Against the Draft assessment order, the assessee filed its objections before the DRP. 11.02.2021 - The DRP gave its directions to the objections of the assessee. 30.03.2021 - Without following the directions of the DRP, the AO passed the final assessment order reiterating the draft assessment order. 17.12.2021 - Against the orders of the authorities, the Assessee has preferred the above appeal before this Tribunal. A. SUBMISSIONS ON ADDITIONS/DISALLOWANCES : I. TRANSFER PRICING ADJUSTMENTS: Ground No 13 - Royalty - Rs. 12,64,67,850/- 22. The assessee has paid royalty of Rs.12,64,67,850/-. Royalty has been paid having regard to the support services by the Group company. The assessee is in the business of advanced diagnostic equipment. After sales support becomes a critical component for the equipment sold. The assessee's group affiliates have extended a unique c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emark licensed to it. Due to lack of comparable transaction, ex-facie the companies cannot be considered as a comparable with the assessee. The adoption of CUP method is also not as per law in the absence of comparable transaction. Hence in the impugned case, there are no comparables identified as required in law by the TPO. In the absence of comparable transaction, the Tribunal has held as extracted supra that the royalty payment be considered as operating cost in the Trading segment. The TPO has adopted M/s. Maestros Mediline Systems Ltd and M/s Advanced Micronic Devices Ltd as comparables in the Trading (Equipment) segment. By applying the same, the assessee has worked out the margin by considering royalty as part of the trading segment. The margin of the assessee in the trading segment works out to 46.69% after considering royalty as operating cost. 22.4 The margin of the comparables M/s. Maestros Mediline Systems Ltd and M/s Advanced Micronic Devices Ltd in the trading segment worked out by TPO is at 18.43%. Sl No. Name of the comparable OR OC OP OP/OC OP/OR 1 Maestros Medline Systems Ltd (Seg) 21,89,93,850 19,64,84,245 8,25,09,605 41.99% 29.57% 2 Advanced Mic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 702/Bang/2021 dated 5.8.2022. In view of the above order of the Tribunal, we remit this issue in this assessment year also to the file of AO/TPO on similar direction as reproduced in para 22.6 of this order. Ground No 14 - Interest in Intra group trade advances - Rs. 51,81,085/- 25. The alleged sum of Rs.11,05,00,000/- was a trade advance given in the earlier year to its overseas subsidiary GE Medical System Ltd, Bangladesh and outstanding balance at the year end is NIL. It may be noted that the assessee has not advanced any sum during the year and the sum advanced in the earlier year has been treated as not recoverable and suitable provision has been made in the books of account. 25.1 The TPO has calculated interest even on the advance considered as doubtful and provision made in the books. The facts above though mentioned in the original proceedings have been overlooked by the TPO. Even on these facts the adjustment made is erroneous and requires to be deleted. 25.2 The TPO in his order has stated as hereunder: ''Based on the above discussion and consideration of submission made by the Taxpayer, the Arm's Length Price of the International Transaction entered into by the T....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ld. AR is that deferred receivables would not constitute a separate international transaction and need not be benchmarked while determining the ALP of the international transaction. In our opinion, this issue was considered by the Tribunal in assessee's own case for AY 2014-15 and in para 23 to 23.9 of the order dated 21.5.2020 this Tribunal held as under:- "23. Ground No. 14-17 alleged by assessee against adjustment of notional interest on outstanding receivables. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that working capital subsumes sundry creditors and therefore separate addition is not called for. 23.1. Ld.TPO computed interest on outstanding receivables under weighted average method using LIBOR + 300 basis points applicable for year under consideration that worked out to 3.3758% on receivables that exceeded 30 days. It has been argued....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her debt arising during the course of business;. . . . ' 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an international transaction. Referring to discussion in said order, it was stated that Hon'ble Delhi Bench in this case noted a decision of the Hon'ble Bombay High Court in the case of CIT v. Patni Computer Systems Ltd. [2013] 33....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est on outstanding receivables and loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that: "There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon'ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd v. DCIT [2017] 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT(TP)A 340/Bang/2017 dated 31.08.2017 has restored the matter for re-adjudication of all the issues in the light of the findings given in earlier years. However, the order of the lower authorities violates the principles of judicial discipline as the binding nature of the orders of the higher appellate authorities have been totally ignored. Margin of the Assessee as computed by the TPO in the TP Order: Particulars Rs. Revenue 1388,87,76,432 Cost 1341,57,47,576 Profit 47,30,28,856 OP/OC 3.52% OP/OR 3.41% 28.2 Comparables selected by Assessee in TP report and their arithmetic mean: Sl. No. Name of the company ( %) 1 ADS Diagnostic Limited 8.41 2 Advanced Micronic Devices Ltd 2.07 3 Central Scientific Supplies Co. Ltd -0.15 4 Frontline Electro Medical Ltd 0.01 5 Kusum Electrical Inds Ltd 9.84 6 Softouch Hygiene Products Ltd 10.41 Arithmetical Mean 5.10 28.3 Out of the 6 comparables selected by the Assessee, the TPO accepted the 1 highlighted above, viz. Advanced Micronic Devices Ltd and rejected the other 5 comparables. 28.4 Final Comparables selected by TPO and their arithmetic mean: Sl No Company Name (OP/OR) (in%) 1 Maestors Medli....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AE and sale price realized offers a simple and reliable basis. Accordingly, TPO will do so. This decision takes care of the guidance offered in rule 10(c) of the rules." 28.8 The said ruling by the ITAT has been accepted by the department and no further appeal has been made to the High Court. The Order giving effect to ITAT order passed by the TPO dt.09.07.2013 for AY 2002- 03 to 2004-05 wherein the TPO accepted the margin computation/results of the assessee and deleted the TP adjustment. The issue stands concluded in this manner. The same is extracted hereunder: 28.9 Similarly, the Tribunal in assessee's own case for the AY 2005-06 vide order dt.21.04.2017 in IT(TP)A 40/Bang/11 and 1647/Bang/2013 held that the adjustment on account of transfer pricing can be made only in respect of the international transaction and in this case to be confined to the purchases made from AE. Relevant portion is extracted hereunder: ''15. Having considered the rival submissions as well as the relevant material on record, we find that the TPO while computing the ALP has apparently taken the gross profit margin of the AMDL at entity level by assuming that the entire activity of AMDL is only tradi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng RPM method and restricting the adjustment only in respect of the international transactions and thus held that no adjustment was required. Relevant portion is extracted hereunder: 28.11 For AY 2006-07, similar computation considering RPM method, AE purchases and AMDL as comparable was made in line with the direction of ITAT for earlier years and the Learned CIT-A vide order dated 18.09.2013 deleted the TP adjustment in trading segment as the margin of the assessee was higher compared to that of the comparable. There has been no appeal by the department against the CIT-A order on this issue and thus stands concluded. Thus, for the earlier years the lower authorities have followed the binding decision of the Tribunal in assessee's own case. 28.12 It may be noted that the same TPO i.e, DCIT, TP-2(2)(1), Bangalore passed the Order giving effect for both AY 2005-06 and AY 2012-13 on the same day 28.10.2019. Though TPO followed the specific direction of the ITAT for AY 2005-06, the same was not followed for the AY 2012-13. Thus the TPO has been inconsistent in her own approach. The TPO is in error in not following the orders of the Tribunal in assessee's own case which is a binding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning the TP adjustment in the trading segment is to be deleted. 29. The Ld. D.R. relied on the order of the lower authorities. 30. We have heard both the parties and perused the materials available on record. The main grievance of the Ld. A.R. on this issue is that AO/TPO/DRP has not considered the earlier decision of Tribunal in A.Y. 2002-03 to 2004-05, 2005-06, 2006-07, as such order passed by the lower authorities is bad in law. The Judicial discipline requires consistency in its proceedings. The AO/TPO what criteria followed in earlier year for determining the ALP, the same to be followed in next assessment year unless and until there is a change in facts of the case. In the present case, the Ld. D.R. not brought on record any change in circumstances to deviate from earlier order of the Tribunal for the assessment year especially 2005-06 and 2006-07 in IT(TP)A No.40/Bang/2011 & 1647/Bang/2013 dated 21.4.2017 wherein the Tribunal followed the earlier order of the Tribunal for the AY 2002-03 and 2004-05, which has been reproduced in earlier para of this order. Being so, we direct the AO/TPO to pass fresh order in the light of above observation of the Tribunal in AY 2005-06 and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Ltd 4.80 11 Spry Resources India Pvt Ltd 33.28 12 Tata Elxsi Ltd 12.78 Arithmetic Mean 12.12 31.4 Out of the 12 comparables selected by the assessee, the TPO accepted the 5 highlighted above and rejected 7 other comparables. 31.5 The final list of Comparables selected by TPO and their arithmetic mean are as under: Sl No. Name of the comparable Unadjusted margin (%) 1 Datamatics Global Services Ltd 16.35 2 Infosys Ltd 43.10 3 Larsen & Toubro Infotech Ltd 22.18 4 Mindtree Ltd 20.02 5 Persistent Systems Ltd 28.13 6 R S Software (India) Ltd 15.28 7 Spry Resources India Pvt Ltd 26.09 Average 24.45 31.6 The Computation of arm's length price by the TPO and the adjustment made is as under: Particulars Rs. Arm's length price 101,79,28,836 Price received 92,79,15,217 Shortfall 9,00,13,619 31.7 The adjustment made by the TPO of Rs. 9,00,13,619/- in the Software Development Segment has been adopted by the AO in the Draft assessment order u/s 143(3) r.w.s. 254 r.w.s. 144C(1) of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 11.01.2021 seeking inclusion and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... correct law on the application of turnover filter. In the case of Genisys the Tribunal has held that companies having turnover in the range of Rs.1crore to Rs.200 crores cannot be compared with companies having turnover above Rs.200 crores. The relevant observations of the Tribunal in the case of Fulcrum is extracted as hereunder: ''7.3. We have given a careful consideration to the rival submissions. The Bangalore Bench of the ITAT had an occasion to deal with an identical issue in the case of DCIT Vs. M/s. Northern Operating Services (supra), wherein the Tribunal came to the conclusion that - turnover was relevant criteria in choosing comparable companies and that a company, whose turnover is more than Rs. 200 Crores, cannot be compared with the company, whose turnover is less then Rs. 200 Crores. In Coming to the aforesaid conclusion, the Tribunal relied on the decision rendered by the ITAT, Bangalore Bench in the case of Autodesk India P. Ltd., Vs. DCIT (2018) [96 taxmann.com 263] (Bangalore-Trib) reviewing all the conflicting decisions on the point, and concluding that the application of turnover filter still holds good and has not been in any manner diluted by the decision ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e effect to the same in the final assessment order. There is no appeal by the department against the direction of the DRP. Thus this comparable fails both on account of turnover filter and functional dissimilarity. Hence Ld. A.R. requested that the same be removed from the list of comparables. 37. After hearing both the parties, we direct the AO/TPO to pass fresh order in conformity with the direction of the Ld. DRP. 38. Regarding the comparable Spry Resources India Pvt Ltd, the assessee submitted before TPO and DRP that the company is functionally dissimilar as it is engaged in software development as well as sale of software products. However, the TPO included the company in the final list of comparables for the reason that it is engaged in software development. The DRP rejected the objections of the assessee and held as extracted hereunder: 38.1 The assessee relied on the decision of the Bangalore Tribunal in the case of Applied Materials India Private Limited vs ITO - IT(TP)A No. 1838/Bang/2016 dated 05.02.2020 for the AY 2012-13 (58 CCH 106) wherein the DRP itself had rejected Spry Resources India Pvt Ltd and there was no appeal by the department. Relevant portion is extrac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r AY 2012-13. 41.5 In view of the decision of the Bangalore Tribunal for very same assessment year, it is requested that the company should be considered as a comparable. 42. The Ld. D.R. relied on the order of lower authorities. 43. We have heard the both the parties on this issue and perused the record. As rightly pointed out by the Ld. A.R., the coordinate bench in the case of NXP India Pvt Ltd vs DCIT - IT(TP)A 2861/Bang/2017 dt.27.04.2020 for AY 2012-13. Relevant portion can be found in para 32 of the order and is extracted as hereunder: ''IV. AKSHAY SOFTWARE TECHNOLOGIES LIMITED 32. It was rejected by the TPO for the reason that the function of this company appears to be more in the nature of support services and I.T. enabled services. However, this company is engaged in providing professional services, implementation, support and maintenance of ERP products and other services. These are nothing but software development services, as is evident from Notes forming part of the financial statement, which is placed at paper book page No.1825. Further, the revenue from software services accounts for 99.45% of the total revenue of the company as evident from the financial st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the TP adjustment made requires to be deleted in the interest of justice and render justice. 45. The Ld. D.R. relied on the order of lower authorities. 46. We have heard the both the parties on this issue and perused the record. As rightly pointed out by the Ld. A.R., the coordinate bench in the case of DCIT vs Applied Micro Circuits India Private Limited - ITA 1250/Pun/2015 dt.24.11.2017, as comparable. Relevant portion can be found in para 17 of the order and is extracted as hereunder: ''17. We have heard the rival contentions and perused the record. The limited issue which has been raised vide ground of objection No.2.1 by the assessee is restricted to inclusion of one concern i.e. Cades Digitech Pvt. Ltd. in final set of comparables. The case of the assessee before us is that the figures for the said assessment year were available in annual report for the succeeding year. The assessee also claimed that the financial data for the financial year 2009-10 was available and could be relied upon from the annual report of financial year 2010-11. The assessee had furnished the annual report for financial year 2010-11 before the TPO and the CIT(A). However, in the absence of annual ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The DRP rejected the objections of the assessee and upheld the action of the AO. 47.1 The submission of the assessee in this regard is that there is no distinction between provision and write off when it comes to treatment in the books of accounts and the issue of obsolescence of stock. Legally there is no requirement. The assessee has consistently followed the same in all the earlier years. Further the claim has been based on proper well laid out procedure and after technical evaluation and as per the consistently followed method of evaluation i.e, market or cost whichever is lower. In this regard kindly refer to para 1.4 of the significant accounting policies of the financial statements. 47.2 The disallowance has been deleted by the Tribunal in Assessee's own case for AY 2004-05 in ITA 810 to 812/B/2007 dt.16.05.2008. The Revenue appeal before High Court of Karnataka in ITA 912/2008 dt.07.06.2016 on this issue is answered in favour of the assessee. 47.3 Further the assessee relies on the following case laws in support of its claim: Decision of Supreme Court in the case of Rotork Controls India (P)Ltd vs CIT - 314 ITR 62- PB-III page 616 to 632. Decision of ITAT Pune Benc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of the assessee. Relevant portion is extracted as hereunder: ''6. The aforesaid would now lead us to examine question (b). We may record that the relevant discussion of the A.O. to the aforesaid question are at para 4.1 in the order of the assessment, which reads as under : "4.1 It is seen that the assessee had written off obsolete stock to the extent of Rs.1,18,69,458/-. The details regarding the items, date of purchase, etc. was called for vide Q.No.3 of this office letter dated 6.7.2006. The assessee vide letter dated 29.11.2006 has furnished the details of the break up of obsolete stock written off. In the letter, the assessee has stated that the stock has been written off as obsolete due to technological changes and lack of market for the products. The assessee's reply has been examined. The assessee has not furnished the date of purchase of the stock and also how these stocks became obsolete due to technological change. In the absence of date of purchase of these stock, it is not possible to come to a conclusion whether the particular stock has become obsolete due to technological change or lack of market for the produce. In the absence of the relevant details, the cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... stock has been done on the advice of the technical team and audit team shows that experts opinion has been taken before the same is written off. It is also a fact that the obsolete stock written off when compared with the turnover of the company is very negligible and miniscule. Accordingly, we uphold the order of the Id. CIT(A) on this issue and dismiss the grounds." 9. If the question is examined in the light of the above discussion of the earlier authority, one may say that whether the stock has become obsolete or not, is a question of fact for which the Tribunal is the ultimate fact finding authority. 10. However, Mr. Aravind, the learned Counsel appearing for the appellants, contended that A.O. during the course of enquiry, called for the date of purchase of the stock which was declared as obsolete, but the assessee having failed to submit the document, the A.O. was within his power to disallow the writing off of the obsolete stock. He submitted that neither the CIT (A) nor the Tribunal appreciated the said aspect, and therefore, the discussion made by the A.O. ought to have been maintained. 11. In our view, the judicial scrutiny in the present appeal is limited to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le \Account payable ,Due to\due from, A report generated from Oracle which shows the exchange rate differential being gain or loss for which manual accrual entry is passed on monthly basis which gets auto reversed subsequent month Total 13,85,26,037 50.2 Perusal of the above table brings out the fact that in this year the assessee incurred a loss(realised) amounting to Rs.16,89,96,379/- being the loss as a result of its business and trading while making payments and receiving revenue and collections from debtors. The said loss is inextricably and undeniably linked to the regular business of the assessee with underlying trade related transaction. In so far as the above sum is concerned it is neither a case of speculative nor it is a case of mark to market. In so far as the above sum is concerned the reason given by the AO is erroneous and the above claim should be allowed. The assessee has recognized mark to market gain of Rs.3,04,70,342/- and offered for tax by setting off the realised loss. If the argument of the AO is to be accepted then the said Rs.3,04,70,342/- cannot be taxed and realised loss of Rs.16,89,96,379/- has to be allowed. However, the assessee has been co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....000 17.08.2007 13.04.2012 1,55,50,000 2 SBI 8,54,00,000 26.07.2007 26.04.2012 1,97,95,000 3 SBI 8,74,00,000 17.08.2007 11.05.2012 1,98,00,000 4 SBI 8,74,00,000 17.08.2007 13.06.2012 2,43,50,000 5 SBI 8,54,00,000 26.07.2007 27.06.2012 2,88,80,000 6 SBI 8,74,00,000 17.08.2007 13.07.2012 2,39,40,000 7 SBI 8,54,00,000 26.07.2007 27.07.2012 2,54,80,000 8 SBI 8,74,00,000 17.08.2007 13.08.2012 2,31,70,000 Total 69,32,00,000 20,67,40,000 13. As per definition of Section 43(5) of the Act trading of shares which is done by eking delivery does not come under the purview of the said Section. Similarly in: clause (d) of Section 43(5) derivative transaction in shares is also not speculation transaction as defined in the said section. Therefore, both profit/ loss from all the share delivery transactions and derivative transaction are having the same meaning, so far as Section 45(3) of the Act is concerned. In view of the fact that both delivery transactions and derivative transactions are having the same meaning, so far as section 43(5) of the Act. Again,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by CBDT Instruction No.03/2010 dated 23.03.2010 has recognized the loss out of forex derivatives on actual settlement/conclusion of contracts as allowable business loss, however they have directed the Revenue to examine whether the transactions would fall U/s. 43(5)(d) of the Act, and if so to treat the same as non-speculative transaction. By the above directions, it appears that though the CBDT has recognized the loss arising out of forex derivatives on actual settlement of the contracts, directed the Revenue to treat the same as speculative transaction when they are transacted through nationalized banks and as not speculative, when these transactions are transacted through recognized stock exchange. (vii) It is pertinent to note here that the bankers act as an advisory agent to in order to protect them from foreign exchange exposure their expertise and these services cannot be obtained by the stock exchange where their scope of service is very limited. (viii) In the present case the assessee has taken a hedging position as mentioned in these assessment years based on the RBI guidelines. The guidelines permitted hedging to the extent of last three years annual average tur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ese derivatives. 15. Thus in the present case before us, the assessee is an exporter of iron who 'has entered into forex derivative transactions through its bankers with a view to effectively hedge its foreign currency risk. Therefore, these forex derivative transactions have a close proximity or rather incidental to the export business of the assessee, which cannot be considered as speculative. Moreover, in the case of the assessee foreign currency contracts cannot be treated as wagering contracts for the reasons discussed herein above. Section-43(5) of the Act is applicable to transactions in commodity or stocks and shares. If currency is treated as commodity, then according to Section 43(5) (a) of the Act, such transaction shall not be deemed to be speculative transaction. Further currency cannot be treated as stock or shares because inherently they have different characteristic. Further, in the case of the assessees, the foreign exchange exposure for the "relevant period" specified by "R.B.I" regulations is quiet substantial in order to justify the forex derivative transactions made by the assessee through Government recognized channel, otherwise the RBI would not have e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yable by the assessee as an employer in lieu of any leave at the credit of his employee cannot be allowed as deduction unless this amount is paid by the assessee on or before the due date for furnishing the return of income u/s 139(1) of the Act. In view of this legislative amendment nullifying the ratio of the decision in the case of Bharat Earth Movers (supra), the amount of such provision can be claimed as deduction only on actual payment and not on the simple creation of provision. However, when we peruse the mandate of Explanation 1 to section 115JB, it becomes clear that clause (c) talks of making addition to book profit for 'the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or'. If we consider the judgment of the Hon'ble Supreme Court holding such a provision as an ascertained liability and clause (f) of section 43B on one hand and clause (c) of Explanation 1 to section 115JB on the other, it becomes vivid that computation of income under the normal provisions debars deduction for the ascertained liability towards provision for leave encashment etc., unless the amount is actually paid before the due date. However,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... TDS details which are placed in paperbook-II page 389 to 392. The assessee has also placed the TDS certificates at paperbook -II pages 398 to 401 and Sample copies of invoices (Paperbook-II page 402 to 536). The disallowance has been made inspite of submitting all the details and particulars which has been duly noted by the AO and DRP. The AO did not ask for any other evidence or detail. The notice u/s 142(1) on this issue does not bring out any lapse on the part of the assessee to submit any detail/evidence. This is a case wherein the AO has made an addition without any justification and for no lapse on the part of the assessee. The details furnished by the assessee are self-explanatory and has been incurred wholly and exclusively for the purpose of business and is allowable u/s 37 of the Act. Hence the addition has to be deleted. 56. The Ld. D.R. relied on the order of the lower authorities. 57. After hearing both the parties, we are of the opinion that assessee has to establish the genuineness of the expenditure by filing the requisite details. In the present case, assessee produced the recipient's details along with details of TDS and other evidence supporting the claim. Had....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see has to establish the genuineness of the expenditure/provisions by filing the requisite details and details of TDS. If the assessee furnishes these details, the claim of assessee to be allowed. In the present case, it is not the case of revenue that this expenditure is bogus. The assessee has furnished the details called for by AO u/s 142(1) of the Act. There is no failure on the part of the assessee to substantiate the claim, we allow the ground taken by the assessee. Ground No 23 - Dealer Commission - Rs. 13,85,00,000/- 61. The assessee has debited expenditure towards dealer commission and was asked to provide details of the same. The assessee in the written submissions made on 26.12.2019 submitted as under: "The details Dealers Commission and the TDS made thereon is enclosed as Annexure-6. It may be noted that the dealer commission debited to profit and loss account is Rs. 9,45,00,000/- and not Rs. 13,85,00,000/-. The assessee submits that the applicable tax at source has been deducted wherever the TDS provisions are applicable. Further the statutory auditors after going through the books and records have in their Tax audit report have certified that TDS has been deducte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing reliance on the earlier order of the Tribunal for the assessment year 2005-06 in ITA No.701/Bang/2021 dated 5.8.2022, wherein held as under:- ''4.4. We have heard the rival submissions and perused the materials available on record. The assessee claimed that it has paid a sum of Rs.2,42,33,641/- towards commission to dealers and according to the assessee, it is wholly and exclusively incurred for the purpose of business. Further, assessee submitted the list of payments made to various parties and also furnished the details of deductions of TDS at the time of payment of commission to various dealers. It was also noted that in the case of receipt of this commission by those parties, the department has accepted it. However, in the hands of assessee it was treated as not incurred by the assessee, which is incorrect. Further, the books of accounts of the assessee is not rejected by challenging the entries in the books of accounts. On this point also, we are of the opinion that the claim of assessee is to be allowed as genuine. Accordingly, we allow this ground of appeal taken by the assessee.'' 63.1 In view of the above discussion, we allow the ground taken by the assessee. Grou....