CGI Information Systems and Management, Bangalore v. DCIT, Bangalore

ITA 1227/BANG/2012 | 2008-2009
Pronouncement Date: 30-09-2016 | Result: Partly Allowed

Appeal Details

RSA Number 122721114 RSA 2012
Assessee PAN AAACI1994C
Bench Bangalore
Appeal Number ITA 1227/BANG/2012
Duration Of Justice 4 year(s) 6 day(s)
Appellant CGI Information Systems and Management, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 30-09-2016
Date Of Final Hearing 09-08-2016
Next Hearing Date 09-08-2016
Assessment Year 2008-2009
Appeal Filed On 24-09-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BANGALORE BEFORE SHRI A. K. GARODIA ACCOUNTANT MEMBER AND SMT ASHA VIJAYARAGHAVAN JUDICIAL MEMBER ITA NO.1227(BANG) 2012 (ASSESSMENT YEAR : 2008-09) M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD. ELECTRONICS CITY TOWER-2 NO.95 AND 95/2 ELECTRONIC CITY PHASE-I (WEST) BANGALORE -560 100 PAN NO.AAACI1994C APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(2) BANGALORE RESPONDENT ASSESSEE BY : SHRI T. SURYANARAY ANA. ADVOCATE REVENUE BY : MS. NEERA MALHOTRA CIT DATE OF HEARING : 09-08-2016 DATE OF PRONOUNCEMENT: : -09-201 6 O R D E R PER SHRI A.K.GARODIA AM THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE O RDER PASSED BY THE AO U/S 143(3) R.W.S.144C OF THE ACT 1961 AS PE R THE DIRECTIONS OF THE DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER; IT(TP)A NO.1227(B)2012 2 IT(TP)A NO.1227(B)2012 3 3. IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESS EE THAT GROUND NO.1 2 6 & 9 ARE GENERAL AND CONSEQUENTIAL AND HE NCE NO SEPARATE ADJUDICATION IS REQUIRED IN RESPECT OF THESE GROUND S. 4. REGARDING GROUND NO.3 & 4 HE SUBMITTED THAT T HERE ARE 20 COMPARABLES SELECTED BY THE TPO OUT OF WHICH THE AS SESSEE IS REQUESTING FOR EXCLUSION OF 12 COMPARABLES ON THE BASIS OF FUN CTIONAL DISSIMILARITY AND RELIANCE HAS BEEN PLACED IN THIS REGARD ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF TELELOGIC INDIA (P) LTD. VS . DCIT REPORTED IN 67 TAXMAN.COM 159(BANG.TRIB.). HE SUBMITTED A COPY OF THE TRIBUNAL ORDER AND DRAWN OUR ATTENTION TO PARA-10 ON PAGES-11 TO 2 6 AS PER WHICH THE TRIBUNAL HAS HELD THAT THESE 12 COMPARABLES ARE NOT GOOD COMPARABLES. 5. REGARDING GROUND NO.5 HE PLACED RELIANCE ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S SONY INDIA (P) LT D. VS. DCIT 114 ITD 448 (DEL.). HE ALSO PLACED RELIANCE ON THE TRIBUNA L ORDER RENDERED IN THE CASE OF ACIT VS M/S CONEXANT SYSTEMS PVT. LTD. IN ITA NO.4359(DEL/2009 DATED 27-11-2015 AND ALSO ON ANOTH ER TRIBUNAL ORDER RENDERED IN THE CASE OF M/S PETRO ARALDITE PVT. LTD . VS DCIT IN ITA NO.1538/MUM/2014 DATED 19-09-2014 AND HE SUBMITTED COPY OF THESE THREE TRIBUNAL ORDERS. 6. AS AGAINST THIS THE LD. DR OF THE REVENUE SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW. REGARDING GROUND NO. 5 OF THE ASSESSEES APPEAL HE PLACED RELIANCE ON THE TRIBUNAL ORDER RE NDERED IN THE CASE OF M/S LG SOFT INDIA PVT. LTD. IN IT(TP)A NO.1121/BANG /2011 DATED 22-03- 2013 AND HE SUBMITTED A COPY OF THIS TRIBUNAL ORDER AND IN PARTICULAR IT(TP)A NO.1227(B)2012 4 OUR ATTENTION WAS DRAWN TO PARA-4.5 OF THIS TRIBUNA L ORDER AND IT WAS POINTED OUT THAT AS PER THE TRIBUNAL ORDER THE MAT TER WAS RESTORED BACK TO THE FILE OF THE AO/TPO FOR DETAILED VERIFICATION . 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGAR DING GROUND NO.3 & 4 WE FIND FORCE IN THE SUBMISSIONS OF THE L D. AR OF THE ASSESSEE THAT THE ISSUE REGARDING EXCLUSION OF 12 COMPARABLE S I.E. 1) M/S AVANICIMCON TECHNOLOGIES LTD. 2) M/S CELESTIAL BIOL ABS LTD. 3) M/S E- ZEST SOLUTIONS 4) M/S INFOSYS TECHNOLOGIES LTD. 5) .M/S KALS INFORMATION SYSTEMS LTD. (SEG.) 6) PERSISTENT SYSTEMS LTD. 7) M/S QUINTEGRA SOLUTIONS LTD. 8) TATA ELXSI LTD. (SEG.) 9)M/S THIR DWARE SOLUTIONS LTD. (SEG.) 10) M/S WIPRO LTD. 11) SOFTSOLE INDIA LTD. 12)LUCID SOFTWARE LTD. IS COVERED IN FAVOUR OF THE ASSESSEE BY THE T RIBUNAL ORDER RENDERED IN THE CASE OF M/S TELELOGIC INDIA (P)LTD. (SUPRA) . FOR THE SAKE OF READY REFERENCE WE REPRODUCE PARA-10 OF THE TRIBUNAL ORD ER WHICH IS AS UNDER; 10. AT THE OUTSET WE NOTE THAT ALL THE FUNCTIONAL COMPARABILITY OF ALL THESE 13 COMPARABLES WHICH ARE SOUGHT TO BE EXCLUDED BY THE ASSESSEE WERE ALSO CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF KODIAK NETWORK INDIA PVT. LTD. (SUPRA) IN PARAS 21 TO 25 AS UNDER : 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL AVAILABLE ON RECORD. AS WE HA VE NARRATED THE FACTS IN THE FOREGOING PARAS THAT THE TPO HAS DETERMINED THE ALP BY TAKING INTO CONSIDERATION THE SET OF 20 COMPARABLES. THE ASSESSEE HAS RAISE D IT(TP)A NO.1227(B)2012 5 OBJECTION REGARDING 13 COMPARABLES OUT OF 20 SELECTED BY THE TPO. THE COMPANIES AGAINST WHICH T HE ASSESSEE RAISED OBJECTIONS ARE AS UNDER: S.N O. NAME OF THE COMPANY 1 AVANICIMCON TECHNOLOGIES LTD 2 BODHTREE LTD 3 CELESTIAL BIOLABS LTD 4 E-ZEST SOLUTIONS LTD 5 INFOSYS TECHNOLOGIES LTD 6 KALS INFORMATION SYSTEMS LTD (SEG.) 7 LUCID SOFTWARE LTD 8 PERSISTENT SYSTEMS LTD 9 QUINTEGRA SOLUTIONS LTD 10 SOFTSOLE INDIA LTD 11 TATA ELXSI LTD (SEG.) 12 THIRDWARE SOLUTIONS LTD (SEG 13 WIPRO LTD (SEG.) 22. WE NOTE THAT THE COMPARABILITY OF THESE 13 COMPANIES HAVE BEEN EXAMINED BY THIS TRIBUNAL IN SERIES OF DECISION AS REFERRED BY THE LD. AR. IN TH E CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) THE CO - ORDINATE BENCH OF THIS TRIBUNAL HAS CONSIDERED TH E COMPARABILITY OF THESE COMPANIES IN PARAS 7 TO 19.3 OF THE ORDER WHICH HAVE BEEN REPRODUCED BELOW: 7.0 AVANI CINCOM TECHNOLOGIES LTD. 7.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. THE ASSESSEE OBJECTS TO THE INCLUSION O F THIS COMPANY AS A COMPARABLE ON THE GROUND THAT THI S COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS WHEREAS TH E ASSESSEE OFFERS SOFTWARE DEVELOPMENT SERVICES TO IT S AES. THE TPO HAD REJECTED THE OBJECTIONS OF THE ASSESSEE ON THE GROUND THAT THIS COMPARABLE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER JUST LIKE THE ASSESSEE AND HENCE SELECTED THIS COMPANY AS A COMPARABLE. FOR THIS PURPOSE THE TPO HAD RELIED ON INFORMATION SUBMITTED BY THIS COMPANY IN RESPONSE TO ENQUIRIES CARRIED OUT UNDER SECTION IT(TP)A NO.1227(B)2012 6 133(6) OF THE ACT FOR COLLECTING INFORMATION ABOUT THE COMPANY DIRECTLY. 7.2 BEFORE US THE LEARNED AUTHORISED REPRESENTATI VE REITERATED THE ASSESSEES OBJECTIONS FOR THE INCLUS ION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS. IT IS ALSO SUBMITTED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND THE ANNUAL REPORT AVAILABLE IN TH E PUBLIC DOMAIN IS NOT COMPLETE. IT WAS FURTHER CONTENDED THAT THE INFORMATION OBTAINED BY THE TPO UNDER SECTION 133(6) OF THE ACT ON THE BASIS OF WH ICH THE TPO INCLUDED THIS COMPANY IN THE FINAL LIST OF COMPARABLE COMPANIES HAS NOT BEEN SHARED WITH THE ASSESSEE. IN SUPPORT OF THIS CONTENTION THE LEARNE D AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS: I) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V DCIT (ITA NO.1054/BANG/2011) II) TELECORDIA TECHNOLOGIES INDIA PVT LTD V ACIT (I TA NO.7821/MUM/2011) IT WAS ALSO SUBMITTED THAT THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY NOT COMPARABLE TO THE ASSES SEE BY A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013. 7.3 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE FACTS PERTAINING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER YEAR (I.E. ASSESSM ENT YEAR 2007-08) TO THE PERIOD UNDER CONSIDERATION (I. E. ASSESSMENT YEAR 2008-09). IN SUPPORT OF THIS CONTENTION IT WAS SUBMITTED THAT :- (I) THE EXTRACT FROM THE WEBSITE OF THE COMPANY CLEARLY INDICATES THAT IT IS PRIMARILY ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS. THE EXTRACT MENTIONS THAT THIS COMPANY OFFERS CUSTOMISED SOLUTIONS AND SERVICES IN DIFFERENT AREAS; (II) THE WEBSITE OF THIS COMPANY EVIDENCES THAT THI S COMPANY DEVELOPS AND SELLS CUSTOMIZABLE SOFTWARE SOLUTIONS LIKE DX CHANGE CARMA ETC. IT(TP)A NO.1227(B)2012 7 7.4 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT A CO-ORDINATE BENCH OF THE TRIBUNAL IN ITS ORD ER IN CURRAM SOFTWARE INTERNATIONAL PVT. LTD. IN ITS ORD ER IN ITA NO.1280/BANG/2012 DT.31.7.2013 HAS REMANDED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY MAKING THE FOLLOWING OBSERVATIONS AT PAR AS 9.5.2 AND 9.5.3 THEREOF :- 9.5.2 AS REGARDS THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE WE ARE UNABLE TO AGREE THAT THIS COMPANY HAS TO BE DELETED FROM THE LIST O F COMPARABLES ONLY BECAUSE IT HAS BEEN DELETED FROM T HE SET OF COMPARABLES IN THE CASE OF TRIOLOGY E-BUSINE SS SOFTWARE INDIA PVT. LTD. (SUPRA). NO DOUBT THIS COMPANY HAS BEEN DELETED AS A COMPARABLE IN THE CAS E OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SU PRA) AND THIS CAN BE A GOOD GUIDANCE TO DECIDE ON THE COMPARABILITY IN THE CASE ON HAND ALSO. THIS ALONE HOWEVER WILL NOT SUFFICE FOR THE FOLLOWING REASON S :- (I) THE ASSESSEE NEEDS TO DEMONSTRATE THAT THE FAR ANALYSIS AND OTHER RELEVANT FACTS OF THE TRIOLOGY CASE ARE EQUALLY APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE ALSO. UNLESS THE FACTS AND THE FAR ANALYSIS OF TRIOLOGY CASE IS COMPARABLE TO THAT OF THE ASSESSEE IN THE CASE ON HAND COMPARISON BETWEEN TH E TWO IS NOT TENABLE. (II) AFTER DEMONSTRATING THE SIMILARITY AND THE COMPARABILITY BETWEEN THE ASSESS EE AND THE TRIOLOGY CASE THE ASSESSEE ALSO NEEDS TO DEMONSTRATE THAT THE FACTS APPLICABLE TO THE ASSESSMENT YEAR 2007-08 THE YEAR FOR WHICH THE DECISION IN CASE OF TRIOLOGY E-BUSINESS SOFTWARE IN DIA PVT. LTD. (SUPRA) WAS RENDERED ARE ALSO APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.5.3 IT IS A WELL SETTLED PRINCIPLE THAT THE ASSES SEE IS REQUIRED TO PERFORM FAR ANALYSIS FOR EACH YEAR AND IT IS QUITE POSSIBLE THAT THE FAR ANALYSIS CAN BE DIFFERENT FOR EACH OF THE YEARS. TH AT BEING SO THE PRINCIPLE APPLICABLE TO ONE PARTICULAR YEAR CANNOT BE EXTRAPOLATED AUTOMATICALLY AND MADE APPLICABLE TO SUBSEQUENT YEARS. TO DO THAT IT IS NECESSARY TO FI RST IT(TP)A NO.1227(B)2012 8 ESTABLISH THAT THE FACTS AND ATTENDANT FACTORS HAVE REMAINED THE SAME SO THAT THE FACTORS OF COMPARABIL ITY ARE THE SAME. VIEWED IN THAT CONTEXT THE ASSESSEE HAS NOT DISCHARGED THE ONUS UPON IT TO ESTABLISH THAT T HE DECISION RENDERED IN THE CASE OF TRIOLOGY E-BUSINES S SOFTWARE INDIA PVT. LTD. (SUPRA) CAN BE APPLIED TO THE FACTS OF THE CASE AND THAT TOO OF AN EARLIER YEAR I .E. ASSESSMENT YEAR 2007-08. THE ASSESSEE IN OUR VIEW HAS NOT DEMONSTRATED THAT THE FACTS OF TRIOLOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE IDENT ICAL TO THE FACTS OF THE CASE ON HAND AND THAT THE PROFI LE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SI MILAR TO THAT OF THE EARLIER ASSESSMENT YEAR 2007-08. IN VIEW OF FACTS AS DISCUSSED ABOVE WE DEEM IT FIT TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY CONSIDERING THE ABOVE OBSERVATIONS. THE TPO IS DIRECTED TO MAKE AVAILABLE TO THE ASSESSEE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER WHICH SHALL BE DULY CONSIDERED BEFORE PASSING ORDERS THEREON. IT I S ORDERED ACCORDINGLY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TP O NOT BY ANY FAR ANALYSIS OR AS PER THE SEARCH PROCES S CONDUCTED BY THE TPO BUT ONLY AS AN ADDITIONAL COMPARABLE FOR THE REASON THAT IT WAS SELECTED AS A COMPARABLE IN THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 ON THE BASIS OF INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT. IN THIS REGARD THE LEAR NED AUTHORISED REPRESENTATIVE TOOK US THROUGH THE RELEVANT PORTIONS OF THE TP ORDER UNDER SECTION 92C A OF THE ACT AND THE SHOW CAUSE NOTICES FOR BOTH THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 AND FOR T HIS YEAR AND CONTENDED THAT THE SELECTION OF THIS COMPA NY AS A COMPARABLE VIOLATES THE PRINCIPLE ENUNCIATED I N CURRAM SOFTWARE INTERNATIONAL PVT. LTD. (SUPRA) THA T A COMPANY CAN BE SELECTED AS A COMPARABLE ONLY ON THE BASIS OF FAR ANALYSIS CONDUCTED FOR THAT YEAR AND THEREFORE PLEADED FOR ITS EXCLUSION. THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT HE H AS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO SHOW THAT THE FUNCTIONAL PROFILE OF THIS COMPANY REMAINS UNCHANGE D IT(TP)A NO.1227(B)2012 9 FROM THE EARLIER YEAR AND HENCE THE FINDINGS RENDER ED BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AND IN OTHER CASES LIKE TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE APPLICABLE TO THE YEAR UNDER CONSIDERATION AS WELL. 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. 7.6.1 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 CIRCUMSTANCES IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY FURNISHED THE INFORMATION S O GATHERED TO THE ASSESSEE AND TAKEN ITS SUBMISSIONS THEREON INTO CONSIDERATION BEFORE DECIDING TO INCLU DE THIS COMPANY IN ITS FINAL LIST OF COMPARABLES. NO FURNISHING THE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASSESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARABLE. 7.6.2 WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTENT ION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMPARABLE ONLY ON THE GROUND THAT THIS COMPANY WAS SELECTED IN THE EARLIER YEAR. EVEN IN T HE EARLIER YEAR IT IS SEEN THAT THIS COMPANY WAS NOT SELECTED IT(TP)A 1380/BANG/2012 PAGE 7 OF 34 ON THE BASIS ON ANY SEARCH PROCESS CARRIED OUT BY THE TPO BUT ONLY ON THE BASIS OF INFORMATION COLLECTED UNDER SECTION 133(6) OF THE ACT. APART FROM PLACING RELIA NCE ON THE JUDICIAL DECISION CITED ABOVE INCLUDING THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 TH E ASSESSEE HAS BROUGHT ON RECORD EVIDENCE THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT F ROM THE ASSESSEE AND HENCE IS NOT COMPARABLE. THEREFORE THE FINDING EXCLUDING IT FROM THE LIST OF COMPARABL ES RENDERED IN THE IMMEDIATELY PRECEDING YEAR IS APPLICABLE IN THIS YEAR ALSO. SINCE THE FUNCTIONAL PROFILE AND OTHER PARAMETERS BY THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR UNDER CONSIDERATION WHICH FACT HAS BEEN DEMONSTRATED BY THE ASSESSEE FOLLOWING THE DECISIONS OF THE CO- ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN IT(TP)A NO.1227(B)2012 10 CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013 AND IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011) WE DIRECT THE A.O./TPO TO OMIT THIS COMPANY FROM THE LIST OF COMPARABLES. 8.0 BODHTREE CONSULTING LTD. 8.1 THIS COMPANY HAS BEEN SELECTED AS A COMPARABLE COMPANY TO THE ASSESSEE BY THE TPO; THE INCLUSION O F WHICH WAS NOT OBJECTED TO BY THE ASSESSEE BEFORE BO TH THE TPO AND THE DRP. THE ASSESSEE HAS NOT OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES AS CAN BE SEEN FROM THE GROUNDS OF APPEAL RAISED IN FORM 36B BEFORE THIS TRIBUNAL. 8.1 HOWEVER IN THE COURSE OF PROCEEDINGS BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE FOLLOWING REASONS : (I) THIS COMPANY HAS REPORTED ABNORMALLY FLUCTUATIN G MARGINS IN THE PERIOD FROM 2005 TO 2011 WHICH INDICATE ABNORMAL BUSINESS FACTORS AND ABNORMAL PROFIT MARGINS AND HENCE SHOULD NOT BE CONSIDERED A S COMPARABLE TO THE ASSESSEE. (II) THE ABNORMALLY FLUCTUATING MARGINS INDICATE T HAT THIS COMPANY BEARS HIGHER RISK IN CONTRAST TO THE ASSESSEE WHO HAS EARNED CONSISTENT MARGINS OVER THE YEARS INDICATING DIFFERENCE IN THE RISK PROFILE BE TWEEN THIS COMPANY AND THE ASSESSEE. (III) THIS COMPANY HAS REGISTERED EXPONENTIAL GROWT H OF 67% IN TERMS OF REVENUE AND 41% IN TERMS OF PROFITS OVER THE IMMEDIATELY PRECEDING YEAR WHICH C AN BE ATTRIBUTED TO THE DEVELOPMENT OF A SOFTWARE APPLICATION MIDAS (MULTI INDUSTRY DATA ANOMALY) WHICH WAS MADE AVAILABLE FOR CUSTOMERS AS SAAS (SOFTWARE AS A SERVICE). 8.3 PER CONTRA THE LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED THE EXCLUSION OF THIS COMPAN Y FROM THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT SINCE TH E ASSESSEE HAD ACCEPTED THE TPOS PROPOSAL FOR INCLUS ION OF THIS COMPANY IN THE SET OF COMPARABLES AND HAD N OT OBJECTED TO ITS INCLUSION EVEN BEFORE THE DRP THE OBJECTIONS RAISED BY THE ASSESSEE IN THIS REGARD A T THIS STAGE OUGHT TO BE REJECTED. IT(TP)A NO.1227(B)2012 11 8.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ADMITTEDLY THERE IS NO DISPUTING THE FACT THAT THE ASSESSEE HAD NEVER OBJECTED TO THE INCLUSION OF THI S COMPANY IN THE SET OF COMPARBALES IN EARLIER PROCEEDINGS BEFORE THE TPO AND THE DRP. IT IS ALSO SEEN THAT EVEN IN THE GROUNDS OF APPEAL RAISED BEFO RE US THE ASSESSEE HAS NOT RAISED ANY GROUNDS CHALLENGING THE INCLUSION OF THIS COMPANY IN THE L IST OF COMPARBALES. IN FACT IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE ASSESSEE ITSELF. WE THEREFO RE FIND NO MERIT IN THE CONTENTIONS RAISED BY THE LEAR NED AUTHORISED REPRESENTATIVE OF THE ASSESSEE IN RESPEC T OF THIS COMPANY AT THIS STAGE OF PROCEEDINGS. 8.4.2 IT IS ALSO SEEN FROM THE SUBMISSIONS MADE BEFORE US THAT THE ASSESSEE HAS ONLY POINTED OUT FLUCTUATING MARGINS IN THE RESULTS OF THIS COMPANY OVER THE YEARS. THIS IN ITSELF CANNOT BE REASON ENOUGH TO ESTABLISH DIFFERENCES IN FUNCTIONAL PROFILE OR ANY CLINCHING FACTUAL REASON WARRANTING THE EXCLUSION O F THIS COMPANY FROM THE LIST OF COMPARABLES. IN THIS VIEW OF THE MATTER THE CONTENTIONS OF THE ASSESSEE ARE REJECTED AND THIS COMPANY IS HELD TO BE COMPARABLE TO THE ASSESSEE AN D ITS INCLUSION IN THE LIST OF COMPARABLE COMPANIES I S UPHELD. 9. CELESTIAL BIOLABS LTD. 9.1 THIS COMPARABLE WAS SELECTED BY THE TPO FOR INCLUSION IN THE FINAL LIST OF COMPARABLES. BEFORE THE TPO THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES FOR THE REASONS THAT IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AND THAT IT FAILS THE EMPLOYEE COST FILTER. THE TPO HO WEVER BRUSHED ASIDE THE OBJECTIONS RAISED BY THE ASSESSEE BY STATING THAT THE OBJECTIONS OF FUNCTIONAL DISSIMILA RITY 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. 9.2 BEFORE US THE LEARNED AUTHORISED REPRESENTATIV E CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY IT(TP)A NO.1227(B)2012 12 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 FUNCTION ALLY 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 TRIOLOGY EBUSINESS SOFTWARE INDIA PV T. LTD. (SUPRA) AT PARA 43 THEREOF HAD OBSERVED ABOUT THIS COMPANY THAT .. AS EXPLAINED EARLIER IT IS A DIVERSIFIED COM PANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WITH THE ASSESSEE. THERE HAS BEEN NO ATTEMPT TO IDENTIFY ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTI ONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING T O SUCH A PROCESS OF MAKING ADJUSTMENTS THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. (IV) THE REJECTION / EXCLUSION OF THIS COMPANY AS A COMPARABLE FOR ASSESSMENT YEAR 2007-08 FOR SOFTWARE SERVICE PROVIDERS HAS BEEN UPHELD BY THE CO-ORDINAT E BENCHES OF THIS TRIBUNAL IN THE CASES OF LG SOFT IN DIA PVT. LTD. IN ITA NO.112/BANG/2011 CSR INDIA PVT. L TD. IN IT(TP)A NO.1119/BANG/2011 AND BY THE ITAT DELHI BENCH IN THE CASE OF TRANSWITCH INDIA PVT. LTD. IN ITA NO.6083/DEL/2010. (V) 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 COMPARABILI TY IN THE INSTANT CASE AND HENCE OUGHT TO BE REJECTED. IN SUPPORT OF THIS CONTENTION THE ASSESSEE HAS ALSO REFERRED TO AND QUOTED FROM VARIOUS PARTS OF THE ANNUAL REPORT OF THE COMPANY. 9.3 PER CONTRA THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE INCLUSION OF THIS IT(TP)A NO.1227(B)2012 13 COMPANY IN THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE A RE FOR ASSESSMENT YEAR 2007-08 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO B E APPLICABLE FOR THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AN D 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 TPOS ORDER FOR THE EARLIER YEAR. IT IS EVIDENTLY CLEAR FROM THIS THAT THE TPO HAS N OT 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 SELECTI ON 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 JUDICIA L DECISIONS IN THE MATTER (SUPRA) THE ASSESSEE HAS BROUGHT ON RECORD IT(TP)A 1380/BANG/2012 PAGE 8 OF 34 SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH THAT T HIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT F ROM THE ASSESSEE IN THE CASE ON HAND AND IS THEREFORE N OT COMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN T HE CITED DECISIONS FOR THE EARLIER YEARS I.E. ASSESSME NT YEAR 2007-08 IS APPLICABLE FOR THIS YEAR ALSO. WE A GREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE . IT HAS ALSO BEEN SO HELD BY CO-ORDINATE BENCHES OF THI S TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AS WELL AS IN THE CASE OF TRIO LOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). IN VIE W OF THE FACT THAT THE FUNCTIONAL PROFILE OF AND OTHER PARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDERATION WHICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESSEE FOLLOWING THE DECISIO N OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 AND TRIOLOGY E-BUSINESS IT(TP)A NO.1227(B)2012 14 SOFTWARE INDIA PVT. LTD. IN ITA NO.1054/BANG/2011 WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. THE A.O./TPO ARE ACCORDING LY DIRECTED. 10. KALS INFORMATION SYSTEMS LTD . 10.1 THIS IS A COMPARABLE SELECTED BY THE TPO. BEFO RE THE TPO THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON GROUNDS O F FUNCTIONAL DIFFERENCES AND THAT THE SEGMENTAL DETAI LS HAVE NOT BEEN PROVIDED IN THE ANNUAL REPORT OF THE COMPANY WITH RESPECT TO SOFTWARE SERVICES REVENUE AND SOFTWARE PRODUCTS REVENUE. THE TPO HOWEVER REJECTED THE OBJECTIONS OF THE ASSESSEE OBSERVING T HAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTES ONLY 4.24% OF TOTAL REVENUES AND THE REVENUE FROM SOFTWARE DEVELOPMENT SERVICES CONSTITUTES MORE THAN 75% OF THE TOTAL OPERATING REVENUES FOR THE F.Y. 20 07- 08 AND QUALIFIES AS A COMPARABLE BY THE SERVICE INC OME FILTER. 10.2 BEFORE US THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND OUGHT TO BE REJECTED /EXCLUDED FROM THE LIST OF COMPARABLES FOR THE FOLLOWING REASONS:- (I) THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE SOFTWARE ACTIVITY OF THE ASSESSEE AS IT IS INTO SOF TWARE PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY NOT COMPARABLE TO SOFTWARE SERVICE PROVIDERS FOR ASSESSMENT YEAR 2007-08 BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE. THIS COMP ANY HAS BEEN HELD TO BE DIFFERENT FROM A SOFTWARE DEVELOPMENT COMPANY IN THE DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. V DCIT IN I TA NO.1386/PN/2010. (III) THE REJECTION OF THIS COMPANY AS A COMPARABLE HAS BEEN UPHELD BY CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF (A) TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (I TA NO.1054/BANG/2011). (B) LG SOFT INDIA PVT. LTD.IT(TP)A NO.112/BANG/2011 ) (C) CSR INDIA PVT. LTD.IT(TP)A NO.1119/BANG/2011) AND (D) TRANSWITCH INDIA PVT. LTD.ITA NO.6083/DEL/2010) IT(TP)A NO.1227(B)2012 15 (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 COMPARABILI TY 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 TH E YEAR ENDED 31.3.2008. (VI) THIS COMPANY HAS TWO SEGMENTS; NAMELY A) APPLICATION SOFTWARE SEGMENT WHICH INCLUDES SOFTWARE PRODUCT REVENUES FROM TWO PRODUCTS I.E. VIRTUAL INSURE AND LA-VISION AND B) THE TRAINING SEGMENT WHICH DOES NOT HAVE ANY PRODUCT REVENUES. 10.3 PER CONTRA THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE DECISION OF THE C O- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TRIOL OGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED WITH RESPECT TO F.Y.2006-07 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINU E TO BE APPLICABLE TO THE YEAR UNDER CONSIDERATION I. E. A.Y. 2008-09. TO THIS THE COUNTER ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE IS THAT THE FUNCTIONAL PROFILE OF THIS COMPANY CONTINUES TO REM AIN THE SAME FOR THE YEAR UNDER CONSIDERATION ALSO AND THE SAME IS EVIDENT FROM THE DETAILS CULLED OUT FROM TH E ANNUAL REPORT AND QUOTED ABOVE (SUPRA). 10.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIN D FROM THE RECORD THAT THE TPO HAS DRAWN CONCLUSIONS AS TO THE COMPARABILITY OF THIS COMPANY TO THE ASSESSE E BASED ON INFORMATION OBTAINED U/S.133(6) OF THE ACT . THIS INFORMATION WHICH WAS NOT IN THE PUBLIC DOMAIN IT(TP)A NO.1227(B)2012 16 OUGHT NOT TO HAVE BEEN USED BY THE TPO MORE SO WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF T HE COMPANY AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE. WE ALSO FIND THAT THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AND IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA ) HAVE HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE SERVICE PROVIDER. APART FROM RELYING OF THE ABOVE C ITED DECISIONS OF COORDINATE BENCHES OF THE TRIBUNAL (SUPRA) THE ASSESSEE HAS ALSO BROUGHT ON RECORD EVIDENCE FROM VARIOUS PORTIONS OF THE COMPANYS ANNUAL REPORT TO ESTABLISH THAT THIS COMPANY IS IT(TP)A 1380/BANG/2012 PAGE 9 OF 34 FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FORM THE ASSESSEE AND THA T SINCE THE FINDINGS RENDERED IN THE DECISIONS OF THE COORDINATE 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 FRO M IT(TP)A NO.1227(B)2012 17 THE LIST OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 8. SINCE THE LD. DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT CASE AND IN THE CASE OF TELELOGIC INDIA (P)LTD.(SUPRA) BY RESPECTFULLY FOLLOWING THIS TRI BUNAL ORDER WE DIRECT THE AO/TPO TO EXCLUDE THESE 12 COMPARABLES FROM T HE LIST OF FINAL COMPARABLES. ACCORDINGLY GROUND NO.3 & 4 OF THE A SSESSEES APPEAL ARE ALLOWED. THE AO/TPO SHOULD WORK OUT THE TP ADJUSTME NT IF ANY AFTER EXCLUDING THESE 12 COMPARABLES. 9. REGARDING GROUND NO.5 WE FIND THAT IN PARA-NO. 106.1 & 106.2 OF THIS TRIBUNAL ORDER RENDERED IN THE CASE OF M/S SONY INDIA (P)LTD. VS DCIT (SUPRA) IT WAS HELD BY THE TRIBUNAL THAT THE EXCESS PROVISION WRITTEN BACK IN THE P&L ACCOUNT IS FORMING PART OF OPERATING PROFIT OF THE ASSESSEE. FOR THE SAKE OF READY REFERENCE THESE PAR AS 106.1 & 106.2 OF THIS TRIBUNAL ORDER RENDERED IN THE CASE OF M/S SON Y INDIA (P)LTD. VS DCIT (SUPRA) ARE REPRODUCED HEREIN BELOW; 106.1 THE FIRST OF THESE ITEMS IS PROVISION WRITTEN BACK AMOUNTING TO RS.57 02 000/-. FOR EXCLUSION OF ABOVE ITEM AND FOR BALANCES WRITTEN BACK INTEREST RECEIVED FROM CUSTOMERS AND OTHER MISCELLANEOUS REVENUE RECEIPTS THE LD.CIT(A) GAVE THE FOLLOWING CONSOLIDATED REASONS IT(TP)A NO.1227(B)2012 18 A) I FIND THAT INTEREST RECEIVED IS A FINANCIAL INCOME AND AS SUCH CANNOT BE CONSIDERED AS OPERATIONAL RECEIPTS. B) THE ITEMS WHICH HAVE BEEN WRITTEN BACK AS MENTIONED IN SUB-PARAS (I) & (II) OF THIS PARA ARE NOTHING BUT MERELY ACCOUNTING ENTRIES AND ARE NOT CONNECTED TO THE OPERATIONS OF THE APPELLANT. C) THE EXACT CONSTITUTION OF THE ITEM MISCELLANEOUS INCOME IS NOT EXPLAINED AND SO IT IS NOT POSSIBLE TO CONSIDER IT OPERATIONAL REVENUE. HENCE THE SAME IS BEING TREATED AS NON- OPERATIONAL. HENCE THE AOS ACTION OR EXCLUSION OF THESE ITEMS FOR CALCULATING THE MARGIN OF THE APPELLANT ARE UPHELD. GENERAL REMARKS OF THE TPO ON WHAT ARE NON- OPERATING PROFIT ITEMS HAVE ALREADY BEEN NOTED. NO SPECIFIC REASON FOR NOT TREATING THESE ITEMS AS PART OF BUSINESS PROFIT IS AVAILABLE IN THE ORDERS OF THE TYPO/AO. THE LD. DR SUBMITTED THAT CLAIM WAS NOT RAISED BEFORE THE TPO AND HE HAD NO OCCASION TO EXAMINE THESE ITEMS. THE LD. CIT(A) WAS WRONG IN EXAMINING THESE ITEMS AND IN ALLOWING RELIEF TO THE TAXPAYER. ACCORDINGLY SHE INSISTED UPON AFRESH EXAMINATION AND AN EXTERNAL AUDITOR CERTIFICATION BE CARRIED OUT AND REVENUE BE ALLOWED TO REBUT THE CLAIM OF THE TAXPAYER. 106.2 AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT SEE ANY GOOD GROUND FOR NOT PERMITTING THE TAXPAYER TO RAISE IT(TP)A NO.1227(B)2012 19 THE GROUND BEFORE THE INCOME TAX APPELLATE TRIBUNAL WHICH IS CLEARLY ARISING OUT OF THE IMPUGNED ORDER. AS NOTED EARLIER THE REVENUE HAS NOT CHALLENGED RELEVANT PART OF THE ORDER OF THE CIT(A). THEREFORE THE OBJECTION NOW BEING TAKEN BY THE LD. DR IS NOT JUSTIFIED. ON MERIT WE SEE NO GOOD REASON TO EXCLUDE PROVISIONS WRITTEN BACK AS NOT FORMING PART OF COMPUTING OPERATING PROFIT OF THE TAXPAYER. IN OUR CONSIDERED OPINION EXCLUSION OF ABOVE PROVISION IS BASED UPON MISCONCEPTION OF REAL NATURE OF THE ENTRY GENERATING INCOME. IT IS NOT PRACTICALLY POSSIBLE FOR A BUSINESSMAN TO ACTUALLY DISBURSE ALL EXPENSES INCURRED BY IT IN THE FINANCIAL YEAR AND THEREFORE A LARGE NUMBER OF BUSINESS LIABILITIES (MANUFACTURING INCLUDED) ARE PROVIDED IN THE ACCOUNTS OF A GIVEN YEAR. IT IS ELEMENTARY THAT THERE IS NO DIFFERENCE BETWEEN ACTUAL DISBURSEMENT OF AN EXPENDITURE OF PROVISION THEREOF. HOWEVER RECOVERY OF LIABILITY PROVIDED MAY BECOME BARRED BY LIMITATION OR FOR SOME OTHER REASONS LIABILITY GETS UNENFORCEABLE OR IS REDUCED OR CEASES TO EXIST WITH THE PASSAGE OF TIME. THEREFORE IT MAY BE NECESSARY TO WRITE BACK SUCH A LIABILITY. BUT IT CANNOT FOLLOW THAT THE LIABILITY WAS NOT EXPENDITURE OF BUSINESS OR OPERATING EXPENSE. CESSATION OF A LIABILITY IS TAXABLE INCOME UNDER SECTION 41 OF THE IT ACT. THE UNDERLYING PRINCIPLE BEHIND ABOVE PROVISION IS THAT REVENUE TAKES BACK A BENEFIT WHICH IT GRANTED EARLIER BUT WHICH DUE TO SUBSEQUENT EVENTS OR CHANGED CIRCUMSTANCES SHOULD BE IT(TP)A NO.1227(B)2012 20 CHARGED TO TAX AS INCOME. STATUTORY PROVISION OVERRIDES GENERAL UNDERSTANDING THAT MERE CREATION OF A BENEFIT TO A TAXPAYER BY ADMISSION OR CESSATION OF A DEBT OR LIABILITY SHOULD NOT RESU LT IN AN INCOME. THUS CREATION OF UNPAID LIABILITY AND ITS WRITE BACK IS A NORMAL INCIDENT OF A BUSINESS OPERATION WHICH IS CARRIED EVERYWHERE IN ACCOUNTS TO HAVE TRUE PICTURE OF PROFITS OF THE RELEVANT PERIOD. IF A LIABILITY HAS CEASED TO EXI ST AND IS REQUIRE TO BE ACCOUNTED FOR AND SHOWN AS INCOME BY THE TAXPAYER AND IN CASE IT IS NOT SO SHOWN THE TAXPAYER CAN BE SUBJECTED TO A PENAL ACTION UNDER INDIAN REGULATIONS. IN THIS CONNECTION WE CAN REFER TO DECISION OF SUPREME COURT IN THE CASE OF CIT V S.TEJA SINGH (1959) 35 ITR 408. HAVING REGARD TO STATUTORY PROVISIONS IT CANNOT BE SAID THAT PROVISIONS OR WRITING BACK TO LIABILITY IS NOT PART OF OPERATING PROFIT OR WOULD NOT BE TAKEN INTO CONSIDERATION FOR COMPUTING THE SAME. THE ASPECT OF LIABILITIES WRITTEN OFF WAS IGNORED WITHOUT CONSIDERING NATURE AND CHARACTER OF SUCH LIABILITIES. IT WOULD HAVE BEEN DIFFERENT IF A FINDING WAS RECORDED THAT PROVISION WRITTEN BACK DID NOT RELATE TO BUSINESS OPERATIONS OF THE TAXPAYER. THERE IS NO SUGGESTION ON THE ABOVE LINES. FURTHER IT IS NOT THE CASE OF THE REVENUE THAT LIABILITIES WRITTEN BACK WERE WRONGLY PROVIDED FOR. IT IS A SETTLED AND WELL ACCEPTED PROPOSITION THAT ADJUSTMENT CAN BE MADE ONLY ON ACCOUNT OF DIFFERENCES. IT IS NOT POSSIBLE TO BELIE VE THAT OTHER COMPARABLE ENTITIES TAKEN INTO IT(TP)A NO.1227(B)2012 21 CONSIDERATION ARE NOT MAKING AND WRITING BACK PROVISION OF LIABILITIES NO MORE REQUIRED. THERE I S NO MATERIAL NOR THERE IS ANY FINDING TO SUPPORT ACTION OF THE REVENUE AUTHORITIES. WE CAN THEREFORE MAKE A GENERAL OBSERVATION THAT ALL BUSINESS ENTERPRISES ARE MAKING AND WRITING BACK LIABILITIES AS A NORMAL INCIDENT OF OPERATING BUSINESS. THE EXPENSES FOR WHICH PROVISIONS WERE ORIGINALLY MADE WERE CONSIDERED OPERATING IN NATURE AND ALLOWED IN ASSESSMENT. THESE PROVISIONS NO LONGER REQUIRED BY THE TAXPAYER DURING THE YEAR UNDER REVIEW WERE REVERSED IN THE BOOKS OF ACCOUNT AS PER MERCANTILE SYSTEM OF ACCOUNTING AND SHOWN AS INCOME. THEREFORE ON FACTS WE DO NOT SEE ANY JURISDICTION FOR EXCLUDING PROVISIONS WRITTEN BACK IN PROFIT AND LOSS ACCOUNT AS NOT FORMING PART OF THE OPERATING PROFIT OF THE TAXPAYER. ACCORDINGLY CLAIM OF THE TAXPAYER IS ACCEPTED. 10. BY RESPECTFULLY FOLLOWING THE TRIBUNAL ORDER W E DIRECT THE AO/TPO THAT EXCESS PROVISION WRITTEN BACK IN THE P&L ACCOU NT SHOULD BE ACCEPTED AS FORMING PART OF OPERATING PROFIT OF THE ASSESSEE. GROUND NO.5 OF THE ASSESSEE IS ALSO ALLOWED. 10. BEFORE PARTING WE CONSIDER THE APPLICABILITY OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF LG SOFT INDIA PVT. LT D. VS DCIT (SUPRA) ON WHICH RELIANCE HAS BEEN PLACED BY THE LD. DR OF THE REVENUE. WE FIND THAT THE LD. DR OF THE REVENUE HAS DRAWN OUR ATTENT ION TO PARA-4.5 OF THIS TRIBUNAL ORDER BUT IN THIS PARA OF THE TRIBUN AL ORDER THE ISSUE IN IT(TP)A NO.1227(B)2012 22 DISPUTE WAS REGARDING REIMBURSEMENT OF EXPENSES AND SINCE FULL DETAILS WERE NOT AVAILABLE ON RECORD REGARDING THESE EXPENS ES IN THAT CASE THE MATTER WAS RESTORED BACK TO THE FILE OF THE AO/TPO FOR DETAILED VERIFICATION. IN THE PRESENT CASE THIS IS NOT IN D ISPUTE THAT FULL DETAILS ARE NOT AVAILABLE AND THEREFORE THIS TRIBUNAL ORDE R IS NOT RELEVANT IN THE PRESENT CASE. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. (SMT ASHA VIJAYARAGHAVAN (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : .09.2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR ITAT BANGALORE. 6 GUARD FILE BY ORDER AR ITAT BANGALORE IT(TP)A NO.1227(B)2012 23 1. DATE OF DICTATION 2. DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. !' # . $ %# / $ %# # & DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. ''() & * + DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. * . %# / # . . %# # + DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 * !' + DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. ! !' ' - ) IF NOT UPLOADED FURNISH THE REASON FOR DOING SO . 8. .% / 0 + DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. * 1'2 / 34 & 5 + DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. 0 6 / + DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. * 7 & 0 8 + THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. !) * 9() & 0 9() /#5 . + THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. * 9() + DATE OF DESPATCH OF ORDER .