M/s. First Advantage Offshore Services Pvt. Ltd.,, Bangalore v. DCIT, Bangalore

ITA 1252/BANG/2010 | 2006-2007
Pronouncement Date: 30-03-2012 | Result: Allowed

Appeal Details

RSA Number 125221114 RSA 2010
Assessee PAN AAACZ1029M
Bench Bangalore
Appeal Number ITA 1252/BANG/2010
Duration Of Justice 1 year(s) 4 month(s) 14 day(s)
Appellant M/s. First Advantage Offshore Services Pvt. Ltd.,, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-03-2012
Date Of Final Hearing 01-03-2012
Next Hearing Date 01-03-2012
Assessment Year 2006-2007
Appeal Filed On 16-11-2010
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A BANGALORE BEFORE SMT P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI JASON P BOAZ ACCOUNTANT MEMBER I.T.A. NO.1252(BANG.)/2010 (ASSESSMENT YEAR : 2006-07) M/S FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD. (FORMERLY KNOWN AS ZAP APP INDIA PVT.LTD. ) LEVEL-1 EXPLORER BUILDING INTERNATIONAL PARK WHITEFIELD BANGALORE-560 066 PAN NO.AAACZ1029M APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(3) BANGALORE RESPONDENT ASSESSEE BY : SHRI VIJAYARAGHAVAN ADVOCATE REVENUE BY : SHRI ETWA MUNDA CIT-I II DATE OF HEARING : 01-03-2012 DATE OF PRONOUNCEMENT : 30-03 -2012 O R D E R PER SMT. P. MADHAVI DEVI JM; THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR : 2006-07. IN THIS APPEAL THE ASSESSEE HAS RAISED V ARIOUS GROUNDS OF APPEAL AGAINST THE ORDER OF THE AO AS AP PROVED BY THE DRP. THE ISSUES RAISED IN THIS APPEAL ARE IN C ONNECTION WITH THE TRANSFER PRICING ADJUSTMENT AND ALSO THE ITA NO.1252(B)2010 2 COMPUTATION OF DEDUCTION U/S 10A OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED AT THE TIME OF H EARING THAT THE ASSESSEE DOES NOT WISH TO PRESS GROUND NOS.12 & 13 RELATING TO NOT CONSIDERING THE FOREIGN EXCHANGE FL UCTUATION GAIN/LOSS AND ALSO THE PROVISION WRITTEN BACK AS PA RT OF THE OPERATING INCOME WHILE COMPUTING THE OPERATING MARG IN WHITE DETERMINING THE ALP. THEY ARE ACCORDINGLY R EJECTED. 2. AS REGARDS THE COMPUTATION OF DEDUCTION U/S 10A IS CONCERNED THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE AO HAS EXCLUDED COMMUNICATION CHARGES OF RS.4 68 88 483/- ATTRIBUTABLE TO THE DELIVERY OF C OMPUTER SOFTWARE OUTSIDE INDIA FROM THE EXPORT TURNOVER WIT HOUT REDUCING FROM THE SAME FROM THE TOTAL TURNOVER ALSO FOR THE PURPOSE OF DEDUCTION U/S 10A OF THE IT ACT. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TAT A ELXSI LIMITED IN ITA NO.70 OF 2009 WHEREIN IT WAS HELD TH AT WHEN CERTAIN EXPENSES INCURRED TOWARDS TELECOMMUNICATION CHARGES ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTE R SOFTWARE OUTSIDE INDIA ARE REDUCED FROM THE EXPORT TURNOVER THEN THEY ITA NO.1252(B)2010 3 ARE TO BE REDUCED FROM THE TOTAL TURNOVER ALSO. RES PECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT THIS GROUND OF APPEAL NO.4 IS ALLOWED. 4. AS REGARDS TRANSFER PRICING ADJUSTMENT THE BRIE F FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGE D IN PROVIDING SOFTWARE DEVELOPMENT SERVICES AND IT ENAB LED SERVICES TO ITS ASSOCIATED ENTERPRISES OUTSIDE INDI A. AS THEY WERE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES DURING THE FY: 2005 -06 THE ASSESSING AUTHORITY REFERRED THE ASSESSEES CASE TO THE TPO FOR THE DETERMINATION OF ARMS LENGTH PRICE (ALP). THE TPO AFTER CONSIDERING THE TP STUDY UNDERTAKEN BY THE ASSESSEE OBSERVED THAT THE TNMM IS THE MOST APPROPRIATE METH OD FOR DETERMINING THE ALP. THE TPO HAS ALSO CONDUCTED TH E SEARCH ON THE AVAILABLE DATA BASES AND ARRIVED AT CERTAIN OTHER COMPARABLES. HE ALSO OBTAINED THE INFORMATION FROM CERTAIN OTHER COMPARABLES U/S 133(6) OF THE IT ACT. THE TP O REJECTED SOME OF THE COMPARABLE COMPANIES CONSIDERED BY THE ASSESSEE AND ADOPTED SOME OTHER COMPANIES WHOSE DAT A WAS COLLECTED U/S 136(6) OF THE IT ACT. THE ASSESSEE W AS GIVEN AN OPPORTUNITY TO SUBMIT ITS OBJECTIONS IF ANY ON TH E ITA NO.1252(B)2010 4 COMPARABLES SELECTED BY THE TPO. THE ASSESSEE SUBMI TTED ITS OBJECTIONS TO THE SELECTION OF A FEW COMPANIES WHI LE IT REMAINED SILENT ON CERTAIN OTHER COMPANIES. AFTER T AKING THE SAID OBJECTIONS INTO CONSIDERATION AND AFTER PROVI DING AN ADJUSTMENT TOWARDS WORKING CAPITAL OF 2.05% AND 1.9 9% FOR SOFTWARE SERVICES AND ITES RESPECTIVELY THE TPO DE TERMINED THE ARMS LENGTH ADJUSTMENT AT 18.63% AND 22.01% ON OPERATING COST OF SOFTWARE SERVICES AND ITES RESPEC TIVELY AND FURNISHED THE REPORT TO THE AO. THE ASSESSING AUTH ORITY FORWARDED THE TRANSFER PRICING REPORT AND THE DRAFT ASSESSMENT ORDER TO THE ASSESSEE CALLING FOR ITS OBJECTIONS IF ANY. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP. THE DRP HOWEVER CONFIRMED THE ORDER OF THE ASSESSING A UTHORITY AND AGGRIEVED BY THE ADJUSTMENTS MADE BY THE AO IN THE ASSESSMENT ORDER TO THE ARMS LENGTH PRICE THE ASS ESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI VIJAYARAGHAVAN WHILE REITERATING THE SUBMISSIONS M ADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW SUBMITTE D THAT THE TPO HAS NOT ADOPTED A UNIFORM AND CONSISTENT POLICY FOR ADOPTING OR REJECTING THE COMPARABLES FOR BOTH THE SOFTWARE ITA NO.1252(B)2010 5 SERVICES AND THE IT ENABLED SERVICES. HE DREW OUR ATTENTION TO THE COMPARABLES TAKEN BY THE TPO FOR THE SOFTWARE DEVELOPMENT SERVICES WHEREIN HE HAD REJECTED COMPA RABLES SUCH AS VMF SOFT TECH LTD. ON THE GROUND THAT THE EMPLOYEE COST WAS LESS THAN 25% WHEREAS FOR THE IT ENABLES S ERVICES HE ADOPTED THE COMPARABLES BY USING THE SAME FILTER . HE ALSO DREW OUR ATTENTION TO THE FACT THAT THE TPO HAS REJ ECTED SOME OF THE COMPARABLES ADOPTED BY THE ASSESSEE FOR THE SOFTWARE SERVICES SUCH AS MELSTAR INFORMATION TECHNOLOGIES L TD. GOLDSTAR INFRATECH LTD. ON THE GROUND THAT THEIR R EVENUE WAS DIMINISHING YEAR AFTER YEAR. ACCORDING TO HIM THI S APPROACH IS NOT CORRECT AS THE DIMINISHING REVENUE IS NOT TH E ONLY FACTOR TO BE CONSIDERED FOR REJECTING A COMPARABLE. ACCORD ING TO HIM THE COMPANIES HAVING DIMINISHING REVENUE ALSO SHOUL D BE TAKEN INTO CONSIDERATION AFTER TAKING INTO CONSIDE RATION THE FACTORS WHICH ARE RESPONSIBLE FOR SUCH DIMINISHING REVENUE. HE FURTHER SUBMITTED THAT THE OTHER OBJECTIONS RAIS ED BY THE ASSESSEE BEFORE THE DRP AND THE TRIBUNAL ARE COVERE D BY THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT.LTD. VS DCIT(ITA NO.1231(BNG)/2010 AND THEREFORE HE PRAYED THAT THE MATTER ITA NO.1252(B)2010 6 MAY BE REMANDED TO THE AO FOR RE-CONSIDERATION IN T HE LIGHT OF THE GUIDELINES ISSUED BY THIS TRIBUNAL IN THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. (CITE D SUPRA). 6. THE LEARNED DR HOWEVER SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND OBJECTED TO THE REMAND OF THE ISSUES TO THE AO. HE SUBMITTED THAT BOTH THE TPO AS WELL AS DRP HAVE EXTENSIVELY CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE AND THAT THE ASSESSING AUTHORITY HAS ARRIVED AT THE ALP IN AN OBJECTIVE MANNER AND THEREFORE IT NEEDS NO INTERFE RENCE AT THIS STAGE. HE ALSO SUBMITTED THAT IN THE CASE OF M /S GENISYS INTEGRATING SYSTEMS (INDIA) PVT.LTD. THE TRIBUNAL HAS DIRECTED THE TPO TO GIVE AN OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE IF IT SO DESIRES OF THE PARTIES WHOSE STA TEMENTS U/S 133(6) OF THE IT ACT HAVE BEEN USED AGAINST THE ASS ESSEE BY THE TPO. AS REGARDS THIS DIRECTION THE LEARNED DR EXPRESSED DIFFICULTY IN IMPLEMENTATION OF THIS DIRECTION STAT ING THAT BY CALLING THE DIRECTORS OF THE COMPANIES WHOSE STATEM ENTS WERE CALLED FOR U/S 133(6) OF THE IT ACT THE TRANSFER P RICING ADJUSTMENT WOULD NEVER BE COMPLETED AS THE RISK OF NON- COMPLIANCE WAS MORE. HE SUBMITTED THAT THE DIRECTO RS OF THE COMPANIES WHO ARE IN NO WAY CONCERNED WITH THE ALP ITA NO.1252(B)2010 7 ADJUSTMENT OF THE ASSESSEES TRANSACTION CANNOT BE ASKED TO BE PRESENT AND BE SUBJECTED TO CROSS EXAMINATION IN EACH AND EVERY CASE AS IT WOULD CONSUME LOT OF TIME AND THEI R ABSENCE FROM THE BUSINESS WOULD ADVERSELY AFFECT THEIR BUSI NESS ACTIVITIES. HE THUS SUBMITTED THAT IF THE ASSESSE ES OBJECTIONS RELATING TO THE INFORMATION OBTAINED BY THE TPO WER E CLARIFIED BY CALLING FOR FURTHER INFORMATION U/S 133(6) OF TH E IT ACT THE PURPOSE WOULD BE SERVED. HE FURTHER SUBMITTED THAT SOME OF THE COMPARABLES TAKEN BY THE TPO WERE NEVER OBJECTE D TO BY THE ASSESSEE BEFORE THE TPO BUT IS OBJECTING TO BEF ORE THE TRIBUNAL FOR THE FIRST TIME WHICH IS NOT ACCEPTABLE . 6.1 HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THEIR RIVAL CONTENTIONS WE FIND THAT TH E BASIC AND MAIN GRIEVANCE OF THE ASSESSEE IS THAT THE COMPARAB LES ADOPTED BY THE ASSESSEE HAVE NOT BEEN CONSIDERED BY THE TPO IN PROPER PERSPECTIVE AND THAT THE COMPARABLES ADOP TED BY THE TPO WERE NOT EXACTLY COMPARABLES. WE FIND THAT IN THE CASE OF SOME OF THE COMPARABLES THEY ARE STATED TO BE IN THE BUSINESS ACTIVITY OF SOFTWARE DEVELOPMENT BUT THEY HAVE NOT GIVEN ANY DETAILS OR ANY BIFURCATION OF THEIR DEVEL OPMENT AND TRADING ACTIVITIES SEPARATELY. IN SUCH A CASE IF THE ACTIVITY OF ITA NO.1252(B)2010 8 PRODUCT DEVELOPMENT WOULD BE COMPARED WITH THE SOFT WARE DEVELOPMENT SERVICES OFFERED BY THE ASSESSEE WHICH ARE BOTH FUNCTIONALLY DIFFERENT WE ARE OF THE OPINION THAT GRAVE INJUSTICE WOULD BE DONE. ACCORDING TO US THE COMP ARISON SHOULD BE AMONGST THE EQUALS ON THE SAME FOOTING AN D FOR THIS PURPOSE STANDARD COMPARISON FILTERS SHOULD BE USED FOR SIMILAR THE TYPE OF ACTIVITIES. THE TPO CANNOT ADOP T OR PICK AND CHOOSE DIFFERENT METHODOLOGY OR DIFFERENT FILTE RS FOR ANALYZING THE TRANSFER PRICING ADJUSTMENT FOR THE S AME OR SIMILAR TYPE OF ACTIVITIES. SIMILARLY IT CANNOT A LSO BE SAID THAT THE SAME SET OF FILTERS WOULD SUFFICE FOR ANOTHER S ET OF ACTIVITIES HAVING DIFFERENT FUNCTIONS NATURE AND CHARACTERISTICS. HOWEVER IF THE NATURE OF ACTIVITY IS ONE AND THE SAME IS HAVING THE SAME FUNCTIONS SUCH AS SOFTW ARE DEVELOPMENT & IT ENABLES SERVICES THE TPO HAS TO AD OPT THE SAME OR SIMILAR SET OF FILTERS AND CANNOT ADOPT ONE FILTER FOR REJECTING SOME COMPARABLES FOR SOFTWARE DEVELOPMENT & ADOPT THE SAME FILTER FOR SELECTING THE COMPARABLES FOR I T ENABLED SERVICES. 7. AS REGARDS THE OBJECTION OF THE ASSESSEE REGARD ING THE COMPARABLES REJECTED BY THE TPO ON THE BASIS OF ITA NO.1252(B)2010 9 DIMINISHING REVENUE IS CONCERNED WE FEEL THAT IF T HERE IS ANY COMPRARABLE HAVING DIMINISHING REVENUE THE REASONS FOR SUCH DIMINISHING IN REVENUE SHOULD BE TAKEN INTO AC COUNT WHILE REJECTING THE SET OF COMPARABLES AND IF THE A DJUSTMENT FOR THOSE FACTORS CAN BE MADE TO BRING THEM ON PAR WITH THE ASSESSEE THEN SUCH AN EFFORT SHOULD BE MADE BEFORE REJECTING THEM AT THE INITIAL STAGE ITSELF. SIMILARLY IF T HE TPO WANTS TO DEVIATE FROM A SET OF FILTERS ADOPTED BY HIM FOR A SIMILAR TRANSACTION THEN HE HAS TO GIVE REASONS FOR DOING SO. IN THE CASE BEFORE US THE TPO HAS ADOPTED THE FILTER OF E MPLOYEE COST BEING LESS THAN 25% FOR REJECTING CERTAIN COMP ARABLES FOR SOFTWARE DEVELOPMENT WHILE THE SAME FILTER WAS USED FOR ADOPTING THE COMPARABLES FOR IT ENABLED SERVICES. THE TPO HAS NOT GIVEN ANY REASONS FOR SUCH DEVIATION. IN V IEW OF THE SAME WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE AO/TPO TO RECONSIDER THE ALP ADJUSTMENT IN T HE LIGHT OF THESE OBSERVATIONS. HOWEVER WE WOULD LIKE TO M AKE IT CLEAR THAT THE ASSESSEE ALSO CANNOT BE PERMITTED TO TAKE DIFFERENT STAND REGARDING SOME OF THE COMPARABLES BEFORE THE REVENUE AUTHORITIES AND BEFORE US. IT IS SEEN FROM THE RECORD THAT THE TPO HAS ACCEPTED CERTAIN COMPARABLES TAKEN BY THE ITA NO.1252(B)2010 10 ASSESSEE IN ITS TP STUDY AND HAS ALSO CONSIDERED CE RTAIN OTHER COMPARABLES TO WHICH THE ASSESEE DID NOT FILE ANY O BJECTION BUT THE ASSESSEE IS OBJECTING TO ADOPTING THOSE COM PANIES AS COMPARABLES NOW BEFORE US. THE ASSESEE CANNOT BE P ERMITTED TO CHANGE ITS STAND AS PER ITS CONVENIENCE. THUS T HE AO IS DIRECTED TO RESTRICT THE RECONSIDERATION OF THE TP ADJUSTMENTS ONLY TO THOSE COMPARABLES WHICH HAVE NOT BEEN ACCEP TED BY THE ASSESSEE AND HAS RAISED THE OBJECTIONS BEFORE T HE TPO. FURTHER AS REGARDS THE OTHER ISSUES RAISED BY T HE ASSESSEE ON THE TRANSFER PRICING ADJUSTMENT WE FIN D THAT ALL OF THESE GROUNDS ARE COVERED BY THE DECISION OF THI S TRIBUNAL IN THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (IND IA) PVT.LTD. (SUPRA) (TO WHICH ONE OF US I.E JM IS A S IGNATORY) WE DEEM IT FIT AND PROPER TO REMAND THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO RECONSIDER THE TRANSFER PRICING ADJUSTMENT IN THE LIGHT OF THE GUIDELINES GIVEN THE REIN. FOR THE PURPOSE OF CONVENIENCE THE RELEVANT PARAGRAPHS OF THE M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT.LTD. (S UPRA) IS GIVEN AS UNDER; 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND ALSO THE JUDICIAL PRECEDENTS ON THE ISSUE WE FIND THAT THE ITA NO.1252(B)2010 11 TPO HIMSELF HAS REJECTED THE COMPANIES WHICH ARE MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT THERE IS A LIMIT FOR THE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITUATION WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSIDERED. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE IN A POSITION TO BARGAIN THE PRICE AND ALSO ATTRACT MORE CUSTOMERS. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES WHO ARE ABLE TO GIVE BETTER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE THE TURNOVER ALSO WOULD COME DOWN REDUCING PROFIT MARGIN. THUS AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNAL WHEN COMPANIES WHICH ARE LOSS MAKING ARE EXCLUDED FROM COMPARABLES THEN THE SUPER PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUDED. FOR THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER WE FIND THAT A REASONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCENARIO INTO CONSIDERATION WE FEEL THAT THE CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME WE HOLD THAT THE TURNOVER FILTER IS VERY IMPORTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1.00 CORE TO 200 CRORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THAT RANGE HAVING TURNOVER OF 8.15 CRORES ITA NO.1252(B)2010 12 THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200.00 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY. 10. THE NEXT ISSUE RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT WHILE MAKING THE COMPARABILITY ANALYSIS THE TPO CONDUCTED ENQUIRIES FROM CERTAIN COMPANIES BY EXERCISING POWERS CONFERRED ON HIM U/S 133(6) OF THE ACT AND THESE NOTICES AND THE REPLIES HAVE BEEN PROVIDED TO THE ASSESSEE. HE SUBMITTED THAT THE TPO HAS ISSUED NOTICES TO 154 COMPANIES BUT WHY THESE COMPANIES WERE SELECTED IS NOT CLEAR. HE SUBMITTED THAT THE INFORMATION HAD BEEN PROVIDED TO THE ASSESSEE IN THE FORM OF CD BUT IT IS NOT CLE AR AS TO WHETHER ALL THE RESPONSES HAVE BEEN INCORPORATED IN THE CD GIVEN TO THE ASSESSEE. HE SUBMITTED THAT THE ENTIRE PROCESS LACKS TRANSPARENCY AND FAIRNESS BECAUSE SIX COMPANIES WHICH HAVE BEEN FINALLY TAKEN BY THE TPO DO NOT FIND PLACE IN THE INITIAL LIST OF COMPANIES GENERAT ED BY THE LEARNED TPO. HE SUBMITTED THAT THE TPO SELECTED MEGASOFT LTD. AS COMPARABLE AND AS SEEN FROM THE DETAILS PROVIDED TO THE ASSESSEE ALONGWITH THE INITIAL SHOW CAUSE NOTICE HE REJECTE D COMPANIES WHICH FAIL IN RPT AND EMPLOYEE COST FILTERS BUT M/S MEGASOFT LTD. WHICH FAILS RPT FILT ER AND EMPLOYEE COST FILTER WAS ALSO CONSIDERED AND THE TPO HAS ISSUED A NOTICE U/S 133(6) OF THE IT ACT TO M/S MEGASOFT LTD. WHICH CLEARLY SHOWS THE ARBITRARY APPROACH OF THE TPO. HE SUBMITTED THAT THE ASSESSEE HAS RAISED THIS ISSUE BEFORE THE DRP ITA NO.1252(B)2010 13 ALSO BUT THE DRP ONLY STATED THAT NOT PROVIDING COMPLETE INFORMATION RECEIVED FROM THE COMPANIES IN RESPONSE TO NOTICE U/S 133(6) IS INTENTIONAL AS THE DATA AND INFORMATION IS VOLUMINOUS AND THEREFORE ONLY RELEVANT INFORMATION IS GIVEN. THU S ACCORDING TO HIM WITHHOLDING OF SUCH INFORMATION RESULTS IN PREJUDICE TO THE ASSESSEE AND IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. HE FURTHER SUBMITTED THAT RULE 10D PROVIDES THAT INFORMATION SPECIFIED IN SUB-RULE(1) SHALL BE SUPPORTED BY AUTHENTIC DOCUMENTS. BUT THE TPO HAS NOT ESTABLISHED WHETHER THE INFORMATION OBTAINED BY WAY OF NOTICE U/S 133(6) IS AUTHENTIC AND COMPLETE. HE DREW OUR ATTENTION TO PAGE-341 OF PB-1 TO DEMONSTRATE VARIOUS DIFFERENCES BETWEEN THE ANNUAL REPORTS OF THE COMPARABLES AND THE REPLIES RECEIVED TO NOTICES U/S 133(6) OF THE IT AC T. HE SUBMITTED THAT INSPITE OF ALL THE DIFFERENCES T HE TPO HAS COMPLETED THE ASSESSMENT BY RELYING UPON REPLIES RECEIVED TO NOTICES U/S 133(6) IN PREFERENCE TO THE ANNUAL REPORTS OF THE COMPANIES WHICH ARE CERTIFIED BY PROFESSIONALLY QUALIFIED CHARTERED ACCOUNTANTS AND APPROVED BY THE BOARD OF DIRECTORS. 10.1 THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE TPO HAS RELIED ON SEGMENTAL INFORMATION RECEIVED U/S 133(6) WHICH OTHERWISE DOES NOT FORM PART OF ANNUAL REPORT. THE BIFURCATION AND REPORTING OF INCOME AND EXPENSE INTO DIFFERENT SEGMENTS IS DONE BY THE COMPANY AND IS NOT AUDITED BY A CHARTERED ACCOUNTANT AND ITA NO.1252(B)2010 14 IT IS POSSIBLE THAT THE SAME MAY NOT BE AS PER ACCOUNTING STANDARD-17 ISSUED BY THE ICAI AND HENCE EITHER THE INFORMATION IS INCOMPLETE OR UNRELIABLE APART FROM BEING UNVERIFIABLE. TO DEMONSTRATE THIS POINT THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT M/S SANKHYA INFOTECH WAS SELECTED AS COMPARABLE IN THE PRECEDING ASSESSMENT YEAR 2005-06 ON THE GROUND THAT IT IS A SOFTWARE DEVELOPMENT COMPANY ON THE BASIS OF REPLY RECEIVED TO NOTICE U/S133(6) INSPITE OF THE OBJECTION OF THE ASSESSEE THAT THIS COMPANY IS A SOFTWARE PRODUCT COMPANY. BUT DURING THE YEAR UNDER CONSIDERATION THE SAME COMPANY HAS BEEN REJECTED ON THE GROUND THAT IT IS A SOFTWARE PRODUC T COMPANY WHICH IS AGAIN BASED ON REPLY RECEIVED TO NOTICE U/S 133(6) OF THE IT ACT. THUS THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE INCONSISTENCIES IN THE PROCESS OF TPO RAISES DOUBTS REGARDING TRANSPARENCY AND GENUINENESS OF THE ENTIRE PROCESS. ANOTHER POINT ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT THE INFORMATION OBTAINED BY THE TPO BY ISSUING NOTICES U/S 133(6) IS NOT AVAILABLE IN PUBLIC DOMAIN AT THE TIME OF STUDY BY THE ASSESSEE. HE SUBMITTED THAT RULE-10D PRESCRIBES THE DOCUMENTS TO BE KEPT AND MAINTAINED U/S 92D AND SUB-RULE (4) THEREOF DEALS WITH THE PROCESS AND THE METHOD TO BE ADOPTED IN MAKING THE COMPARABILITY ANALYSIS. HE SUBMITTED THAT AS PER THIS SUB-RULE THE INFORMATION AND DOCUMENTS SHOULD AS FAR AS POSSIBLE BE ITA NO.1252(B)2010 15 CONTEMPORANEOUS AND SHOULD EXIST LATEST BY THE SPECIFIED DATE REFERRED TO IN CLAUSE(IV) OF SEC.92F . ACCORDING TO HIM THE DICTIONARY MEANING OF CONTEMPORANEOUS IS EXISTING OR OCCURRING AT THE SAME TIME OF THE SAME HISTORICAL OR GEOGRAPHICAL PERIOD. 10. 2 AS PER RULE 10D THE INFORMATION AND DOCUMENTS PRESCRIBED THERE IN MUST BE KEPT AND MAINTAINED BY THE ASSESSEE LATEST BY THE PRESCRIBED DATE I.E FOR AY: 2006-07 BY 31 ST OCTOBER 2006 AND ACCORDINGLY THE ASSESSEE HAS KEPT AND MAINTAINED THE INFORMATION AND DOCUMENTS. THE TPO IS COLLECTING COLLATING AND COMPILING DATA TWO/THREE YEARS AFTER THE DATE OF THE ASSESSEES DOCUMENTATION IGNORING THE FACT THAT IN CHOOSING THE MOST APPROPRIATE METHOD AVAILABILITY OF DATA IS A RELEVANT FACTOR UNDER /RULE10C(2)(C) OF THE ACT. HE THUS SUBMITTED THAT THE POWER OF THE TPO CANNOT BE USED TO COVER INFORMATION THAT COMES INTO PUBLIC DOMAIN AFTER THE SPECIFIED DATE. HE SUBMITTED THAT THE EXISTENCE OF THE SPECIFIED DATE IS VERY IMPORTANT BECAUSE WHAT WAS CORRECT AND COMPLETE ON THE BASIS OF DATA EXISTING BY A SPECIFIED DATE WOULD BECOME UNRELIABLE OR INCOMPLETE IN THE LIGHT OF THE DATA THAT COMES INTO EXISTENCE SUBSEQUENTLY. HE SUBMITTED THAT IF SUBSEQUENT INFORMATION IS PERMITTED TO BE USED THEN THE ALP WOULD REMAIN FLUID BEFORE THE TPO DRP CIT(A) AND THE ITAT AND THE HIGHER FORUMS AND THIS CAN LEAD TO EVER CHANGING ALP. HE SUBMITTED THAT THE ALP IS NOT ITA NO.1252(B)2010 16 DYNAMIC OR FLUID SUBJECT TO VAGARIES OF FUTURE DATE . HE SUBMITTED THAT THE TP ANALYSIS IS AN ART AND NOT A SCIENCE AND MATHEMATICAL PRECISION ARE NOT DESIRED NOR EXPECTED. WHEN THE ASSESSEE HAS PLACED HIS ENTIRE PROCESS BEFORE THE LEARNED TPO AND THERE IS NO ALLEGATION THAT IT WAS SHORT OF OR THAT THE MATERIAL FACTS HAVE BEEN DODGED OR THAT IT WAS INCOMPLETE THE SAME CANNOT BE BRUSHED ASIDE. HE THUS PRAYED THAT THE DATA AVAILABLE SUBSEQUENTLY OR OBTAINED THROUGH NOTICE U/S 133(6) SHOULD BE REJECTED. 11. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT DEALS WITH THE MANNER IN WHICH THE ALP IS TO BE DETERMINED U/S 92C OF THE ACT AND SUB-RULE(4) THEREOF. SEC.10B PROVIDES THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. THUS HE SUBMITTED THAT NOT ONLY THE COMPARABLES ADOPTED BY THE ASSESSEE BUT INFORMATION RELATING TO OTHER COMPANIES WHICH ARE AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF DETERMINING THE ALP ALSO HAVE TO BE CONSIDERED BY THE TPO WHILE MAKING THE TP ADJUSTMENTS. HE SUBMITTED THAT THE ACT OR RULES DO NOT SPECIFY THE DATE TILL WHICH ONLY THE INFORMATION AVAILABLE IN THE PUBLIC DOMAIN CAN BE UTILIZED. HE SUBMITTED THAT THOUGH SEC.92D AND RULE -10D PRESCRIBES THE INFORMATION AND DOCUMENTS TO BE KEPT AND ITA NO.1252(B)2010 17 MAINTAINED U/S 92D OF THE IT ACT IT IS NOT PROHIBITED NOR IS IT SPECIFIED THEREIN THAT ONLY TH E DOCUMENTS MAINTAINED BY THE ASSESSEE HAVE TO BE TAKEN INTO CONSIDERATION. HE SUBMITTED THAT THE TPO IS UNDER AN OBLIGATION TO VERIFY THE INFORMATIO N AND DOCUMENTS KEPT AND MAINTAINED BY THE ASSESSEE AND WHEREVER HE FEELS THAT SOME MORE INFORMATION IS NECESSARY FOR MAKING THE TP ADJUSTMENT HE MAY ALSO MAKE HIS OWN SEARCH AND USE THE RELEVANT YEARS DATA AVAILABLE IN THE PUBLIC DOMAIN. THUS IN VIEW OF THIS POWER OF TPO THE TPO HAS MADE THE SEARCH OF THE DATABASES AND HAS ISSUED NOTICES TO THE RELEVANT PARTIES U/S133(6) OF THE ACT TO GATHER INFORMATION WHICH IS NOT AVAILABLE IN THE PUBLIC DOMAIN. AFTER CONSIDERING REPLIES TO THE SAID NOTICES THE TPO HA S REJECTED MANY COMPANIES AND HAS SELECTED ONLY THE RELEVANT COMPARABLES AND ALL THE INFORMATION WHICH IS SOUGHT TO BE USED BY THE TPO FOR MAKING THE TP ADJUSTMENTS HAS BEEN SUPPLIED TO THE ASSESSEE AND THE ASSESSEE WAS GIVEN AMPLE OPPORTUNITY OF MAKING ITS OBJECTIONS. HE SUBMITTED THAT THE TPO AFTER CONSIDERING THE ASSESSEES OBJECTIONS ONLY HAS MADE THE TP ADJUSTMENTS AND THEREFORE THERE IS NO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE NOR THERE IS ANY LACK OF TRANSPARENCY OR FAIRNESS. THUS ACCORDING TO HIM THE TPO HAS BEEN REASONABLE IN FOLLOWING THE PROCEDURE LAID DOWN BY THE ACT AND THERE IS NO INFIRMITY IN THE ORDER OF THE TPO WHICH HAS BEEN APPROVED BY THE DRP. ITA NO.1252(B)2010 18 12. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE MATERIAL ON RECORD WE FIND THAT THE FOLLOWING QUESTIONS ARISE FOR OUR CONSIDERATION ON THIS ISSUE; 1.WHAT IS THE DATA TO BE CONSIDERED BY THE TPO AT THE TIME OF DETERMINING ALP ? 2. WHETHER THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO REBUT THE MATERIAL SOUGHT TO BE USED BY THE TPO ? 12.1 AS FAR AS THE DATA TO BE USED BY THE TPO WHILE DETERMINING THE ALP IS CONCERNED WE FIND THAT IT IS COVERED BY THE PROVISIONS OF RULE -10D SUB-RULE-4 OF THE IT RULES 1962. SEC.92C PROVIDES THE METHOD FOR COMPUTATION OF ALP AND PRESCRIBES FIVE METHODS FOR COMPUTING THE ALP AND ALSO ANY OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. SEC.92D PROVIDES THAT EVERY PERSON WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION SHALL MAINTAIN AND KEEP SUCH INFORMATION AND DOCUMENTS IN RESPECT THEREOF AND THE BOARD MAY ALSO PRESCRIBE THE PERIOD FOR WHICH THE INFORMATION AND DOCUMENTS SHALL BE KEPT AND MAINTAINED AND THE AO AND THE CIT(A) MAY IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT REQUIRE ANY PERSON WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION TO FURNISH ANY INFORMATION AND DOCUMENTS IN RESPECT THEREOF. THUS IT CAN BE SEEN THAT THE REQUIREMENT S IS ONLY TO MAINTAIN AND KEEP THE INFORMATION AND DOCUMENTS RELATING TO INTERNATIONAL TRANSACTIONS SO THAT THEY ARE AVAILABLE AS AND WHEN REQUIRED DURING ANY PROCEEDINGS UNDER THE ACT. THE SECTION ITA NO.1252(B)2010 19 DOES NOT PROVIDES THAT THE INFORMATION AND DOCUMENTS ARE TO BE KEPT AND MAINTAINED FOR A PERIOD OF 8 YEARS. RULE 10-D OF SUB-SEC.1 SPECIFIE S THE DOCUMENTS AND INFORMATION WHICH ARE TO BE KEPT AND MAINTAINED BY THE ASSESSEE AND SUB- RULE-2 THEREOF PROVIDES THAT NOTHING CONTAINED IN SUB-RULE-1 SHALL APPLY IN A CASE WHERE THE AGGREGATE VALUE AS RECORDED IN THE BOOKS OF ACCOUNTS THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE DOES NOT EXCEED 1.00 CRORE RUPEES. SUB-RULE-3 PROVIDES THE SUPPORTING AUTHENTIC DOCUMENTS WHICH ARE TO BE KEPT AND MAINTAINED AND SUB-RULE-4 THEREOF PROVIDES THAT THE INFORMATION AND DOCUMENTS SPECIFIED UNDER SUB-RULE 1 & 2 SHOULD AS FAR AS POSSIBLE BE CONTEMPORANEOUS AND SHOULD EXISTS LATEST BY THE SPECIFIED DATE REFERRED TO IN CLAUSE-4 OF 92F. CLAUSE-4 OF SEC.92F GIVES THE DEFINITION OF SPECIFIED DATE TO HAVE THE SAME MEANING AS ASSIGNED TO DUE DATE IN EXPLANATION-2 BELOW SUB- SEC.1 OF SEC.139. EXPLANATION-2 TO SEC.139 DEFINES DUE DATE IN A CASE OF A COMPANY TO BE 30 TH DAY OF SEPTEMBER OF THE ASSESSMENT YEAR. THE ASSESSEE BEFORE US IS A COMPANY AND THEREFORE AS ON 30 TH DAY OF SEPTEMBER OF THE RELEVANT ASSESSMENT YEAR THE ASSESSEE IS SUPPOSED TO MAINTAIN INFORMATION AND DOCUMENTS. AFTER GOING THROUGH THE ABOVE PROVISIONS OF LAW IT IS CLEAR TH AT THE ACT HAS NOT PROVIDED FOR ANY CUT OFF DATE UPTO WHICH ONLY THE INFORMATION AVAILABLE IN PUBLIC DOMAIN HAS TO BE TAKEN INTO CONSIDERATION BY THE ITA NO.1252(B)2010 20 TPO WHILE MAKING THE TP ADJUSTMENTS AND ARRIVING AT ARMS LENGTH PRICE. THE ASSESSEE AS WELL AS THE REVENUE ARE BOTH BOUND BY THE ACT AND THE RULES THERE UNDER AND THEREFORE AS PROVIDED UNDER THE ACT AND RULES THEY ARE SUPPOSED TO BE TAKING INTO CONSIDERATION THE CONTEMPORANEOUS DATA RELEVANT TO THE PREVIOUS YEAR IN WHICH THE TRANSACTION HAS TAKEN PLACE. THE ASSESSEE HAD STRENUOUSLY ARGUED THAT THE PROVISION OF SEC.92D AND RULE-10D IS DEFEATED IF THE TPO TAKES THE DATA WHICH IS AVAILABLE IN THE PUBLIC DOMAIN AFTER THE SPECIFIED DATE AND THE ALP WOULD BE FLUID AND THERE WOULD BE NO CERTAINTY FOR THE SAME. WE ARE UNABLE TO AGREE WITH THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE ALP HAS TO BE DETERMINED BY THE TPO IN ACCORDANCE WITH LAW AND THE ACT PROVIDES THAT THE TPO SHALL TAKE INTO CONSIDERATION THE CONTEMPORANEOUS DATA. THE ASSESSEE IS ONLY REQUIRED TO MAINTAIN THE INFORMATION AND DOCUMENTS AS MAY BE NECESSARY RELATING TO THE INTERNATIONAL TRANSACTIONS SO THAT IT CAN BE MADE AVAILABLE TO THE TPO OR THE AO OR ANY OTHER AUTHORITY IN ANY PROCEEDINGS UNDER THE ACT. BY PROVIDING A SPECIFIED DATE IN THE ACT THE OBLIGATION IS CAST UPON THE ASSESSEE TO KEEP AND MAINTAIN THE DOCUMENTS FOR THAT PERIOD. BUT IT DOES NOT RESTRICT THE TPO FROM MAKING ENQUIRIES THEREAFTER FOR DETERMINING THE CORRECT ALP. HAVIN G HELD SO WE COME TO THE NEXT QUESTION AS TO WHETHER THE TPO CAN MAKE HIS OWN RESEARCH AND CALL FOR INFORMATION FROM VARIOUS ENTITIES WITHOUT ITA NO.1252(B)2010 21 THE KNOWLEDGE OF THE ASSESSEE. UNDER SUB-SEC(3) & (7) OF SEC.92CA THE TPO IS ENTRUSTED WITH ALL THE POWERS UNDER CLAUSES (A) TO (D) OF SUB-SEC.1) OF SEC.(3) OR SUB-SEC.(6) OF SEC.133 TO CALL FOR AND GATHER ANY INFORMATION AS MAY BE REQUIRED. WHEN HE IS MAKING THE SEARCH FOR A RELEVANT COMPARABLE THE TPO CAN ISSUE NOTICES TO THE PARTIES WHOM HE CONSIDERS AS RELEVANT TO GATHER REQUISITE INFORMATION AND ON BEING SATISFIED WITH REGARD TO RELEVANCY OF THE MATERIAL WHICH CAN BE USED AGAINST THE ASSESSEE ONLY THEN THE ASSESSEE HAS TO BE GIVEN AN OPPORTUNITY OF PRESENTING ITS OBJECTIONS. THUS THE TPO NEED NOT INFORM THE ASSESSEE ABOUT THE PROCESS USED BY HIM FOR ISSUING THE NOTICES U/S 133(6) NOR IS HE UNDER ANY OBLIGATION TO FURNISH THE ENTIRE INFORMATION TO THE ASSESSEE. THE PRINCIPLES OF NATURAL JUSTICE REQUIRE S THAT WHEN ANY INFORMATION IS SOUGHT TO BE USED AGAINST THE ASSESSEE THE ASSESSEE SHALL BE GIVEN A FAIR OPPORTUNITY OF HEARING ON THAT MATERIAL. IN THE CASE BEFORE US THE TPO HAS FURNISHED ALL THE INFORMATION TO THE ASSESSEE IN THE FORM OF CD AND THE ASSESSEE AFTER GOING INTO THE SAME HAS SUBMITTED A DETAILED SUBMISSION ALONG WITH ITS OBJECTIONS FOR TAKING VARIOUS COMPANIES AS COMPARABLES. IT IS ANOTHER MATTER IF THE TPO HAS NOT CONSIDERED THE OBJECTIONS OF THE ASSESSEE JUDICIOUSLY. IN SUCH A CASE IT WOULD BE AN ERROR OF JUDGMENT AND NOT VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. THE OBJECTIONS OF THE ASSESSEE IS THAT CERTAIN COMPANIES HAVE BEEN TAKEN INTO ITA NO.1252(B)2010 22 CONSIDERATION BY THE TPO AS COMPARABLES WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY OF PRESENTING ITS OBJECTIONS AND ALSO WITH REGARD TO CERTAIN OTHE R COMPANIES IT HAD SOUGHT OPPORTUNITY TO CROSS EXAMINE THEM BUT THE SAID OPPORTUNITY WAS NOT GIVEN. 13. WE HAVE ALREADY HELD THAT IF ANY INFORMATION IS SOUGHT TO BE USED AGAINST THE ASSESSEE THE SAME HAS TO BE FURNISHED TO THE ASSESSEE AND THEREAFTER TAKING INTO CONSIDERATION THE ASSESSEE S OBJECTIONS IF ANY ONLY THEN CAN THE TPO PROCEED TO TAKE A DECISION. IF THE ASSESSEE SEEKS AN OPPORTUNITY TO CROSS EXAMINE THE PARTY THE ASSESSEE SHALL BE PROVIDED SUCH AN OPPORTUNITY. IT IS ONLY DURING A CROSS EXAMINATION THAT THE ASSESSEE CAN REBUT THE STAND OF THAT PARTICULAR COMPANY. THE ASSESSEE HAS ALSO BROUGHT OUT VARIOUS DEFECTS IN THE ADDITIONAL COMPARABLES SELECTED BY THE TPO AND HAS BROUGHT OUT THE GLARING DIFFERENCES BETWEEN THE FUNCTIONS OF THOSE COMPARABLES AS COMPARED TO ASSESSEE AND ALSO AS TO HOW THE ENTIRE REVENUE OF THE ASSESSEE HAS BEEN TAKEN INTO CONSIDERATION INSPITE OF THERE BEING INCOME FROM UNRELATED PARTY TRANSACTIONS ALSO. ALL THESE OBJECTIONS HAVE BEEN GIVEN IN DETA IL IN THE WRITTEN SUBMISSIONS. WE FIND THAT THE TPO HAS NOT CONSIDERED THESE OBJECTIONS WHILE DETERMINING THE ALP. FURTHER THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO SUBMITTED THAT THE ASSESSEE SHOULD BE GIVEN A STANDARD DEDUCTION OF 5% AS PROVIDED UNDER THE PROVISO TO SEC.92C(2) ITA NO.1252(B)2010 23 BEFORE MAKING ADJUSTMENTS FOR THE TRANSFER PRICE. IN SUPPORT OF HIS CONTENTION HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: 1.M/S SAP LABS INDIA PVT.LTD. VS ACIT 2010-TII-44 ITAT-BANG-TP 2.PHILIPS SOFTWARE CENTRE PVT.LTD. 26 SOT 226 3. MSS INDIA PVT.LTD. 32 SOT 132 4. CUSTOMER SERVICES INDIA PVT.LTD. VS ACIT 30 SOT 486 5. SKODA AUTO INDIA PVT.LTD. VS ACIT 2009-TIOL-21 4- ITAT-PUNE 6. DEVELOPMENT CONSULTANTS PVT.LTD. VS DCIT 23 S OT 455 7. SONY INDIA PVT.LTD. 315 ITR 150 8. CUMINS INDIA LTD. VS DCIT ITA NO.277 & 1412/PN/07 9. TNT INDIA PVT.LTD. VS ACIT 10 TAXMAN.COM 161 10. ABHISHEK AUTO INDUSTRIES LTD VS DCIT 2010-TII-5 4- ITAT-DEL-TP 13.1 THE LEARNED DR HOWEVER RELIED ON THE ORDERS OF THE AUTHORITIES AND SUBMITTED THAT 5% IS NOT THE STANDARD DEDUCTION BUT IT IS THE RANGE WITHIN WHICH IF THE ALP FALLS THEN THE ALP OF THE ASSESSEE HAS TO BE ACCEPTED. 13.2 HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THEIR RIVAL CONTENTION WE FIND THAT THI S ISSUE IS ALREADY COVERED BY THE DECISION RELIED UPON BY THE ASSESSEE. 13.3 IN VIEW OF THE SAME WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF TPO WITH THE FOLLOWING DIRECTIONS; ITA NO.1252(B)2010 24 A) THE OPERATING REVENUE AND THE OPERATING COST OF THE TRANSACTIONS RELATING TO ASSOCIATED ENTERPRISES ONLY SHALL BE CONSIDERED; B) THE COMPARABLES HAVING THE TURNOVER OF MORETHAN 1.00 CRORE BUT LESS THAN 200.00 CRORES ONLY SHALL BE TAKEN INTO CONSIDERATION; C) ALL THE INFORMATION RELATING TO COMPARABLES WHICH ARE SOUGHT TO BE USED AGAINST THE ASSESSEE SHALL BE FURNISHED TO THE ASSESSEE; D) THE ASSESSEE SHALL BE GIVEN AN OPPORTUNITY OF CROSS EXAMINING THE PARTIES WHOSE REPLIES ARE SOUGHT TO BE USED AGAINST THE ASSESSEE IF THE ASSESSEE SO DESIRES; E) TO CONSIDER THE OBJECTIONS OF THE ASSESSEE THAT RELATE TO ADDITIONAL COMPARABLES SOUGHT TO BE ADOPTED BY THE TPO AND PASS A DETAILED ORDER AND F) TO GIVE THE STANDARD DEDUCTION OF 5% UNDER THE PROVISO TO SEC.92C(2) OF THE ACT. 14. SIMILARLY IN THE ITES SEGMENT ALSO THE ASSESSEE HAS RAISED VARIOUS GROUNDS I.E. ADOPTION OF VARIOUS COMPANIES AS COMPARABLES AND ADDITIONAL FILTERS USED BY THE TPO. FOR THE DETAILED REASONING GIVEN BY US FOR THE ABOVE SOFTWARE DEVELOPMENT SERVICE SEGMENT WE DIRECT THE TPO TO CONSIDER THE ASSESSEES OBJECTIONS AND COMPUTE THE ALP AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF HEARING AFTER OBSERVING OUR DIRECTIONS GIVEN ABOVE. ITA NO.1252(B)2010 25 7.1 FURTHER AS REGARDS THE DIRECTION OF THE TRIBU NAL TO THE TPO TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO C ROSS EXAMINE THE PARTIES WHOSE STATEMENTS ARE TO BE USED AGAINST THE ASSESSEE IF THE ASSESSEE SO DESIRES WE WISH T O CLARIFY THE SAID DIRECTION TO THE EFFECT THAT THE TPO SHALL CAL L FOR THE CLARIFICATION FROM THE PARTIES (WHOSE STATEMENTS WE RE CALLED FOR U/S 133(6) OF THE IT ACT AND WERE USED AGAINST THE ASSESSEE) ON THE OBJECTIONS RAISED BY THE ASSESSEE ON SUCH ST ATEMENTS AND THE OPPORTUNITY OF CROSS EXAMINING SHALL BE THE LAST RESORT ONLY IF THE APPROPRIATE CLARIFICATION IS NO T GIVEN BY THESE PARTIES. THUS THE GROUNDS RELATING TO TRANSFER PRI CING ADJUSTMENTS ARE REMITTED BACK TO THE FILE OF THE AO /TPO FOR RECONSIDERATION IN THE LIGHT OF OUR OBSERVATIONS IN THE ABOVE PARAGRAPHS. 8. AS REGARDS THE STANDARD DEDUCTION OF PLUS OR MI NUS 5% TO BE GIVEN TO THE ASSESSEE WHILE MAKING THE TR ANSFER PRICING ADJUSTMENT WE FIND THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S TAT RA VECTRA MOTORS LTD. IN ITA NO.12184(B)/2010 FOR THE AY: 20 06-07 DATED 31-01-2012. RESPECTFULLY FOLLOWING THE SAME THE AO IS ITA NO.1252(B)2010 26 DIRECTED TO GIVE APPROPRIATE RELIEF. THE ASSESSEE SHALL BE GIVEN A FAIR OPPORTUNITY OF HEARING AND THE ASSESSEES AP PEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH MARCH 2012. SD/- SD/- ( JASON P BOAZ) (SMT. P. MAD HAVI DEVI) ACCOUNTANT MEMBER JUDICIAL ME MBER PLACE: BANGALORE DATED: 30-03-2012 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) BY ORDER AR ITAT BANGALORE