M/s. Continuous Computing India Pvt. Ltd.,, Bangalore v. ITO, Bangalore

ITA 1343/BANG/2010 | 2006-2007
Pronouncement Date: 30-03-2012 | Result: Allowed

Appeal Details

RSA Number 134321114 RSA 2010
Assessee PAN AACCC3169M
Bench Bangalore
Appeal Number ITA 1343/BANG/2010
Duration Of Justice 1 year(s) 4 month(s)
Appellant M/s. Continuous Computing India Pvt. Ltd.,, Bangalore
Respondent ITO, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-03-2012
Date Of Final Hearing 07-03-2012
Next Hearing Date 07-03-2012
Assessment Year 2006-2007
Appeal Filed On 30-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K. JUDICIAL MEMBER ITA NO.1343/BANG/2010 ASSESSMENT YEAR : 2006-07 M/S. CONTINUOUS COMPUTING INDIA PVT. LTD. 4 TH FLOOR PANE VALLEY EMBASSY GOLF LINK BUSINESS PARK OFF INTERMEDIATE RING ROAD KORAMANGALA BANGALORE 560 071. PAN : AACCC 3169M VS. THE INCOME TAX OFFICER WARD 11(1) BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI MAHAVEER JAIN C.A. RESPONDENT BY : SHRI ETWA MUNDA CIT-III(DR) DATE OF HEARING : 07.03.2012 DATE OF PRONOUNCEMENT : 30.03.2012 O R D E R PER N.K. SAINI ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 06.10.2010 OF THE ASSESSING OFFICER PASSED U/S. 143(3) R.W. SE C. 144C OF THE INCOME- TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT]. ITA NO.1343/BANG/10 PAGE 2 OF 31 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L: GROUND NO. 1 : TREATMENT OF COMMUNICATION EXPENSES UNDER SECTION 1 0A : THE LEARNED ASSESSING OFFICER (HEREINAFTER REFERRED TO AS AC) HAS GROSSLY ERRED IN LAW BY NOT DEDUCTING THE COMMU NICATION EXPENSES AMOUNTING TO RS.19 60 808/- FROM THE TOTA L TURNOVER WHILE REDUCING THE SAME FROM EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 10A THEREBY R EDUCING THE CLAIM OF DEDUCTION UNDER SECTION 10A BY RS.1 46 131 /- AND THE HONBLE DISPUTE RESOLUTION PANEL (HEREINAFTER REFER RED TO AS DRP) HAS ERRED IN CONFIRMING THE SAME. GROUND NO. 2 : RE-COMPUTATION OF ARMS LENGTH PRICE WHICH HAS RESU LTED IN AN ADDITION OF RS. 98 20 024/-. UNDER THIS GROUND OF APPEAL WE HAVE THE FOLLOWING SPECIFIC GROUNDS OF APPEALS: A. THE LEARNED AC HAS ERRED IN MAKING A REFERENCE W ITHOUT RECORDING ANY REASONS BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS EXPEDIENT AND NECESSARY TO REFER THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF THE ARMS LENGTH PRICE AS IS REQUIRED UNDER SECTION 92CA(1) AND HONBLE DRP HAS ERRED IN UPHOLDING THE SAME. B. THE LEARNED TPO HAS ERRED ON FACTS AND LAW BY RE JECTING THE TRANSFER PRICING (TP) DOCUMENTATION MAINTAINED BY T HE APPELLANT AS PER RULES AND HONBLE DRP HAS ERRED IN UPHOLDING THE SAME. C. THE LEARNED TPO HAS ERRED ON LAW BY UNDERTAKING THE FRESH SEARCH FOR COMPARABILITY ANALYSIS (FY 2005-06) AS O N DECEMBER 03 2008 WHICH IS BEYOND THE DATE OF COMPLIANCE I. E. OCTOBER 31 2006 RESULTING IN IMPOSSIBILITY OF PERFORMANCE AN D AGAINST THE PREMISE OF MAINTENANCE OF CONTEMPORANEOUS DOCUMENT ATION. THE SAME IS ALSO VIOLATES THE LAW RULE L0B(4) READ WITH READ 10D(4) AND HONBLE DRP HAS ERRED IN UPHOLDING THE S AME. D. THE LEARNED TPO HAS ERRED ON FACTS BY DISREGARDI NG THE FUNCTIONAL AND RISK PROFILE OF THE APPELLANT AND CO MPARING IT WITH COMPANIES WHICH HAVE AN ENTIRELY DIFFERENT FUNCTION AL AND RISK PROFILE AND HONBLE DRP HAS ERRED IN UPHOLDING THE SAME. E. THE LEARNED TPO HAS ERRED ON FACTS BY REJECTION OF THE FILTERS APPLIED BY THE APPELLANT IN SEARCH FOR COMPARABLES PARTICULARLY THE TURNOVER FILTER AND HONBLE DRP HAS ERRED IN UPHOLDING THE SAME. ITA NO.1343/BANG/10 PAGE 3 OF 31 F. THE LEARNED TPO HAS ERRED ON LAW AND FACTS BY AR BITRARY ADOPTION OF THE ADDITIONAL FILTERS IN THE SEARCH PR OCESS CARRIED OUT BY HIM PARTICULARLY THE EMPLOYEE COST FILTER AND HONBLE DRP HAS ERRED IN UPHOLDING THE SAME. G. THE HONBLE DRP HAS GROSSLY ERRED ON FACTS AND L AW BY IMPLICITLY ACCEPTING THE COMPARABLES HAVING ABNORMA L / SUPER PROFITS SELECTED BY THE LEARNED TPO. H. THE LEARNED TPO HAS ERRED ON FACTS AND LAW BY EX ERCISING HIS POWERS UNDER SECTION 133(6) TO OBTAIN SELECTIVE INF ORMATION WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AND BY RELYING ON THE SAME FOR COMPARABILITY PURPOSES THIS BEING AGA INST THE PRINCIPALS OF NATURAL JUSTICE AND CONTRARY TO THE O CED GUIDELINES THAT ADVOCATE AGAINST THE USE OF SECRET COMPARABLES AND HONBLE DRP HAS ERRED IN UPHOLDING THE SAME. I. THE LEARNED TPO HAS ERRED ON LAW BY USING SING LE YEAR DATA FOR COMPUTATION OF MARGIN OF COMPARABLE COMPANIES B Y REJECTING THE MULTIPLE YEAR DATA USED BY THE APPELLANT AND HO NBLE DRP HAS ERRED IN UPHOLDING THE SAME. J. THE LEARNED TPO HAS ERRED ON FACTS BY WRONG COMP UTATION OF NCP RELATED PARTY TRANSACTIONS AND ARITHMETICAL ER RORS EVEN THOUGH THE SAME WAS BEEN BOUGHT TO THE NOTICE OF LE ARNED TPO. K. THE LEARNED TPO HAS ERRED ON FACTS AND LAW BY CO MPARING THE APPELLANT WHICH IS IN THE SECOND YEAR OF OPERATION WITH THE ESTABLISHED COMPANIES ON THE ONE HAND AND HAS NOT E XCLUDED THE START UP RELATED COST OF RS.91.31 LAKHS INCURRED BY THE APPELLANT FROM THE OPERATING COST WHILE COMPUTING THE NCP OF THE APPELLANT EVEN THOUGH THE SAME WAS EXCLUDED BY THE LEARNED TPO FROM THE OPERATING COST WHILE COMPUTING THE NCP OF THE APPELLANT IN THE ASSESSMENT YEAR 2007-08. L. THE LEARNED TPO HAS ERRED ON FACTS BY NOT APPRE CIATING THE RISK FREE NATURE OF THE APPELLANT AND NOT GRANTING ADJUS TMENT ON ACCOUNT OF DIFFERENTIAL RISK BORNE BY THE COMPARABL ES. HOWEVER THE LEARNED TPO HAS ALLOWED WORKING CAPITAL ADJUSTM ENT OF 2% CONSIDERING THE NATURE OF RISK FREE BUSINESS OF THE APPELLANT IN THE ASSESSMENT YEAR 2007-08. M. THE LEARNED TPO HAS ERRED ON LAW BY NOT GRANTING THE APPELLANT THE OPTION TO CHOSE A PRICE THAT FALLS WI THIN +/- 5% RANGE OF THE ARITHMETIC MEAN OF THE COMPARABLES AS CONTEMPLATED UNDER THE PROVISO TO SECTION 92C(2) AS IT STOOD AT THE TIME OF PREPARING THE TP DOCUMENTATION. ACCORDINGLY THIS H AS RESULTED IN ITA NO.1343/BANG/10 PAGE 4 OF 31 HARDSHIP FOR APPELLANT HAVING REGARD TO THE PRINCI PLE OF NATURAL JUSTICE AND HONBLE DRP HAS ERRED IN UPHOLDING THE SAME. N. THE LEARNED TPO ERRED ON FACTS BY ADDING THE AMO UNT OF RS.1 77 221/- TO THE OPERATING COST WHICH WAS RECE IVED AS REIMBURSEMENT ON COST TO COST BASIS FROM THE ASSOCI ATED ENTERPRISE TOWARDS COST DIRECTLY INCURRED ON BEHALF OF THE ASSOCIATED ENTERPRISE. ALSO THE LEARNED TPO HAS NOT GIVEN AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT ON THIS MATTER AS THE SAME WAS CORRECTLY TREATED BY NOT INCLUDING IN THE OPERATING COST IN THE SHOW-CAUSE NOTICE ISSUED TO THE APPELLANT. T HE LEARNED AO HAS GROSSLY ERROR BY NOT FOLLOWING THE DIRECTIONS G IVEN BY THE HONBLE DRP BEFORE PASSING THE FINAL ORDER. THAT THE ABOVE GROUNDS OF OBJECTION ARE WITHOUT PRE JUDICE TO EACH OTHER. THE APPELLANT PRAYS THAT THE ORDER UNDER SECTION 14 3(3) READ WITH SECTION 144C OF THE ACT PASSED BY THE LEARNED AO MA Y PLEASE BE SET-ASIDE IN TOTO. THE APPELLANT CRAVES LEAVE TO ADD OMIT OR ALTER GR OUNDS OF APPEAL BEFORE OR DURING THE HEARING OF THE APPEAL. 3. GROUNDS NO.2 (L) AND (N) WERE NOT PRESSED SO TH ESE ARE DISMISSED AS NOT PRESSED. 4. VIDE GROUND NO.1 THE ASSESSEE CONTENDED THAT TH E COMMUNICATION EXPENSES ARE TO BE REDUCED FROM TOTAL TURNOVER AS W ELL AS FROM THE EXPORT TURNOVER. 5. THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSEE FILED RETURN OF INCOME ON 30.11.2006 DECLARING AN INCOME OF RS.40 911AFTER CLAIMING DEDUCTION U/S. 10A OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT] AMOUNTING TO Q 1 04 22 814. THE SAID RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER DURIN G THE COURSE OF ITA NO.1343/BANG/10 PAGE 5 OF 31 ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HA S DEDUCTED A SUM OF Q 37 57 530 TO THE PROFIT & LOSS ACCOUNT TOWARDS COMM UNICATION EXPENSES. THE AO ALSO NOTICED THAT THE ASSESSEE HAD REDUCED A N AMOUNT OF Q 19 60 808 FOR LEASE LINE CHARGES FROM EXPORT TURNOV ER AS WELL AS FROM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S . 10A OF THE ACT. THE AO HELD THAT THE LEASE LINE CHARGES OF Q 19 60 808 ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE INDIA WAS TO BE REDUCE D FROM EXPORT TURNOVER ONLY. HE ACCORDINGLY REWORKED THE DEDUCTION U/S. 1 0A OF THE ACT. NOW THE ASSESSEE IS IN APPEAL. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHILE THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND FURTHER SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT CHENNAI (SPECIAL BENCH) I N THE CASE OF ITO VS. M/S.SAK SOFT LTD. (2009) 313 ITR (AT) 353 AND JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2010) 330 ITR 175 (BOM) . 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE CLAIME D DEDUCTION UNDER SECTION 10A OF THE ACT HOWEVER THE ASSESSING OFFICER WHIL E FRAMING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT COMPUTED THE DEDUCTION UNDER SECTION 10A OF THE ACT BY REDUCING LEASE LINE CHARG ES FROM EXPORT TURNOVER BUT NOT FROM THE TOTAL TURNOVER. ITA NO.1343/BANG/10 PAGE 6 OF 31 8. THIS ISSUE NOW HAS BEEN SETTLED BY THE SPECIAL B ENCH OF ITAT CHENNAI IN THE CASE OF ITO VS. M/S.SAK SOFT LTD. (2009) 313 ITR (AT) 353 (CHENNAI (SB) BY HOLDING AS UNDER : TO SAY THAT IN THE ABSENCE OF ANY DEFINITION OF TOTAL TURNOVER FOR THE PURPOSE OF SECTION 10B THERE IS NO AUTHORI TY TO EXCLUDE ANYTHING FROM THE EXPRESSION AS UNDERSTOOD IN GENER AL PARLANCE WOULD BE WRONG AS THERE HAS TO BE AN ELEMENT OF TU RNOVER IN THE RECEIPT IF IT HAS TO BE INCLUDED IN THE TOTAL TURNO VER. THAT ELEMENT IS MISSING IN THE CASE OF FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE GOODS OUTSIDE I NDIA AND EXPENSES INCURRED IN FOREIGN EXCHANGE IN CONNECTION WITH THE PROVISION OF TECHNICAL SERVICES OUTSIDE INDIA. THES E RECEIPTS CAN ONLY BE RECEIVED BY THE ASSESSEE AS REIMBURSEMENT O F SUCH EXPENSES INCURRED BY HIM. MERE REIMBURSEMENT OF EX PENSES CANNOT HAVE AN ELEMENT OF TURNOVER. IT IS ONLY IN RECOGNITION OF THIS POSITION THAT IN THE DEFINITION OF EXPORT TUR NOVER IN SECTION 10B THE AFORESAID TWO ITEMS HAVE BEEN DIRECTED TO B E EXCLUDED. SECONDLY THE DEFINITION OF EXPORT TURNOVER CONTEMP LATES THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN CONVERTIBLE FORE IGN EXCHANGE SHOULD REPRESENT CONSIDERATION IN RESPECT OF THE EXPORT. ANY REIMBURSEMENT OF THE TWO ITEMS OF EXPENSES MENTIONE D IN THE DEFINITION CAN UNDER NO CIRCUMSTANCES BE CONSIDERED TO REPRESENT CONSIDERATION FOR THE EXPORT OF THE COMPUTER SOFT WARE OR ARTICLES OR THINGS. THUS THE EXPRESSION TOTAL TUR NOVER WHICH IS NOT DEFINED IN SECTION 10B SHOULD ALSO BE INTERPRET ED IN THE SAME MANNER. THUS THE TWO ITEMS OF EXPENSES REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER CANNOT FORM PART OF THE TOTAL TURNOVER SINCE THE RECEIPTS BY WAY OF RECOVERY OF S UCH EXPENSES CANNOT BE SAID TO REPRESENT CONSIDERATION FOR THE G OODS EXPORTED SINCE TOTAL TURNOVER IS NOTHING BUT THE AGGREGATE O F THE DOMESTIC TURNOVER AND THE EXPORT TURNOVER. IN THE FORMULA P RESCRIBED BY SECTION 10B(4) THE FIGURE OF EXPORT TURNOVER HAS TO BE THE SAME BOTH IN THE NUMERATOR AND IN THE DENOMINATOR OF THE FORMULA. IT FOLLOWS THAT THE TOTAL TURNOVER CANNOT INCLUDE THE TWO ITEMS OF EXPENSES RECOVERED BY THE ASSESSEE AND REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER. IT HAS FURTHER BEEN HELD THAT THE COMMON THREAD RUNNING THROUGH SECTIONS 80HHC 80HHE AND 80HHF IS THAT THEY ARE ALL PROVISIONS GRANTING RELIEF TO THE ASSESSEES IN RESPECT OF PROFITS DERIVED FROM EXPORT . THE DIFFERENCE BETWEEN CHAPTER III IN WHICH SECTION 10B FALLS AND CHAPTER VI-A IN WHICH THESE SECTIONS FALL IS THAT WHILE THE ITA NO.1343/BANG/10 PAGE 7 OF 31 FORMER EXCLUDES THE INCOME IN QUESTION TOTALLY FROM THE PURVIEW OF TOTAL INCOME AND GIVES TOTAL EXEMPTION FROM TAX THE LATTER GIVES DEDUCTION OF A PART OF THE PROFITS AND GAINS OF THE CONCERNED BUSINESS FROM THE GROSS TOTAL INCOME. BOTH HOWEVE R ARE CHAPTERS WHICH GIVE RELIEF TO ASSESSEES FROM TAXATI ON SUBJECT TO THE CONDITIONS BRING FULFILLED AND IN THAT SENSE TH EY ARE OF THE SAME GENRE. THE OBJECT OF THESE SECTIONS IS TO ENC OURAGE THE EARNING OF FOREIGN EXCHANGE AND PROVIDE INCENTIVE T O PROMOTE EXPORTS. IF SOME OF THE SECTIONS SUCH AS SECTIONS 80HHE AND 80HHF PROVIDE FOR A FORMULA FOR CALCULATING THE DE DUCTION WHICH IS IDENTICAL WITH THE FORMULA PRESCRIBED BY S ECTION 10B IT WOULD BE INCONGRUOUS TO INTERPRET SECTION 10B IN A MANNER DIFFERENT FROM THOSE TWO SECTIONS MERELY BECAUSE TH ERE IS NO DEFINITION OF TOTAL TURNOVER IN THAT SECTION. E XPORT TURNOVER AS DEFINED IN THESE SECTIONS EXCLUDES FREIGHT TELE COM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE COMPU TER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY INCURRED IN FORE IGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THUS S TATUTORY PARITY IS MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TUR NOVER IN THESE SECTIONS. THERE IS NO REASON WHY SUCH PARITY CANNO T BE MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOV ER IN SECTION 10B JUST BECAUSE TOTAL TURNOVER HAS NOT BEEN DEFI NED IN THAT SECTION. 9. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2010) 330 I TR 175 (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER : UNDER SUB-SECTION 10A OF THE INCOME TAX ACT 196 1 A DEDUCTION IS ALLOWED FROM THE TOTAL INCOME OF THE A SSESSEE OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTA KING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE F OR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS COMMENCING FROM TH E ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS MANUFACTURE OR PRODUCTION. SUB- SECTION (4) OF SECTION 10A PROVIDES THE MANNER IN WHICH THE PRO FITS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER S OFTWARE SHALL BE COMPUTED. UNDER SUB-SECTION (4) THE PROPORTION BET WEEN THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES OR THING S OR AS THE CASE MAY BE COMPUTER SOFTWARE EXPORTED TO THE TOTAL TU RNOVER OF THE BUSINESS CARRIED OVER BY THE UNDERTAKING IS APPLIED TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN COMPUTING THE PROFITS DERIVED FROM EXPORT. IN OTHER WORDS THE PROFITS O F THE BUSINESS ITA NO.1343/BANG/10 PAGE 8 OF 31 OF THE UNDERTAKING ARE MULTIPLIED BY THE EXPORT TUR NOVER IN RESPECT OF THE ARTICLES THINGS OR AS THE CASE MAY BE COMPUTER SOFTWARE AND DERIVED BY THE TOTAL TURNOVER OF THE B USINESS CARRIED ON BY THE UNDERTAKING. THE EXPRESSION TOTAL TURNO VER HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF SECTION 10A. HOWEVER THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGH T AND INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FREIGHT AND IN SURANCE THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFEREN T MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNO VER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. A CON STRUCTION OF A STATUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDIT Y MUST BE AVOIDED. MOREOVER A RECEIPT SUCH AS FREIGHT AND I NSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLU DED IN THE TOTAL TURNOVER. FREIGHT AND INSURANCE CHARGES DO N OT HAVE ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER P ARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRIPTION TO THE CO NTRARY. 10. A SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA ELEXI (2011) TIO L 684 (KARN.) AND THE RELEVANT FINDING GIVEN THEREIN READS AS UNDER : THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY T HE UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT AND THE T URNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE N UMERATOR IN THE FORMULA PRESCRIBED BY SUB-SECTION (4). EXPORT TURN OVER ALSO FORMS A CONSTITUENT ELEMENT OF THE DENOMINATOR IN A S MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. T HE EXPORT TURNOVER IN THE NUMERATOR MUST HAVE THE SAME MEANI NG AS THE EXPORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TURNOVER IN EXPLN.2 TO S.10 A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES THINGS OR CO MPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE I N CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALI A FREIGHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES THINGS OR SOFTWARE OUTSID E INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGI SLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE RE VENUE IS THAT ITA NO.1343/BANG/10 PAGE 9 OF 31 WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO B E EXCLUDED IN COMPUTING EXPORT TURNOVER A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSI ON OF THE REVENUE HOWEVER MISSES THE POINT THAT THE EXPRESS ION TOTAL TURNOVER HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOWEVER THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOV ER EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS B EEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT AND INSURANCE THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY IT WAS OPEN TO PARLIAMENT TO MAKE A PR OVISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERP RETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REV ENUE WERE TO BE ACCEPTED THE SAME EXPRESSION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE S AME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUA TION WHERE FREIGHT AND INSURANCE THOUGH THESE HAVE BEEN SPECI FICALLY EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE EXPOR T TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROV ISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOV ER A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NOT HAVE A NY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. F REIGHT AND INSURANCE CHARGES DO NOT HAVE ANY ELEMENT OF TURNOV ER. FOR THIS REASON IN ADDITION THESE TWO ITEMS WOULD HAVE TO B E EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRIPTION TO THE CONTRARY CIT V SUDARSHAN CHEM ICALS INDUSTRIES LTD. (2000) 163 CTR (BOM) 596: (2000) 24 5 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE WORKS (2007) 2 10 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARM A (INDIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON. 11. FROM THE RATIO LAID DOWN IN THE AFORESAID JUDIC IAL PRONOUNCEMENTS BY THE HON'BLE JURISDICTIONAL HIGH COURT AND HON'BLE H IGH COURT OF BOMBAY IT IS CRYSTAL CLEAR THAT IF AN ITEM IS EXCLUDED FROM T HE EXPORT TURNOVER THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVE R TO MAINTAIN PARITY BETWEEN THE NUMERATOR AND DENOMINATOR WHILE CALCULA TING THE DEDUCTION ITA NO.1343/BANG/10 PAGE 10 OF 31 UNDER SECTION 10A OF THE ACT. IN VIEW OF THE ABOVE WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES ON THIS ISSUE AND DIRECT T HE ASSESSING OFFICER TO REDUCE THE LEASE LINE CHARGES AMOUNTING TO RS.19 60 808 BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. 12. THE NEXT ISSUE VIDE GROUND NO.2(A) TO (K) RELA TES TO ADDITION ON ACCOUNT OF RECOMPUTATION OF ARMS LENGTH PRICE ( ALP ). THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE AO DURING THE COUR SE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD INTERNATI ONAL TRANSACTIONS DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YE AR UNDER CONSIDERATION. HE THEREFORE REFERRED THE CASE TO THE TRANSFER PRIC ING OFFICER ( TPO ) TO DETERMINE THE ALP AFTER OBTAINING NECESSARY APPROVA L FROM THE LD. CIT BANGALORE-I BANGALORE U/S. 92CA OF THE ACT AND THE TPO VIDE ORDER DATED 30.10.2009 INFORMED THE AO THAT AN ADJUSTMENT OF RS .98 83 653 IS REQUIRED TO BE MADE TO THE INCOME OF THE ASSESSEE CONSEQUENT TO THE DETERMINATION OF ALP AS UNDER: OPERATING COST (RS.11 17 26 443 + RS.1 77 221) RS.11 19 03 664/- ARMS LENGTH MARGIN 18.86% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @ 118.86% OF OPERATING COST RS.13 30 08 695/- PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS (RS.12 29 47 821 + RS.1 77 221) RS.12 31 25 042/- SHORTFALL BEING ADJUSTMENT U/S. 92CA RS.98 83 653/- 13. THE ASSESSING OFFICER POINTED OUT THAT THE TPO HAD TAKEN INTO CONSIDERATION THE FACTS OF THE CASE AND THE OBJECTI ONS OF THE ASSESSEE BEFORE PASSING THE ORDER U/S. 92CA OF THE ACT. THE AO FORWARDED THE DRAFT ITA NO.1343/BANG/10 PAGE 11 OF 31 ASSESSMENT ORDER DATED 10.12.09 TO THE ASSESSEE ON 17.12.09. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DISPUTE RE SOLUTION PANEL ( DRP ) ON 15.01.2010 AND THE DRP DIRECTED THE AO TO COMPLETE THE ASSESSMENT AFTER TAKING INTO CONSIDERATION THE DETAILED DISCUSSION O N VARIOUS ISSUES VIDE ITS DIRECTIONS DATED 27.09.2010 ISSUED UNDER SUB-SEC. ( 5) OF SECTION 144C R.W. SUB-SEC.(8) OF SECTION 144C OF THE ACT. THE DRP DI RECTED THE AO TO MODIFY THE ASSESSMENT ORDER AFTER REWORKING THE PROFIT LEV EL INDICATOR (PLI) AT 51.73% AS AGAINST 52.74% ADOPTED IN THE DRAFT ASSES SMENT ORDER. THE AO THEREAFTER REQUESTED THE ADIT (TP)-IV TO REWORK TH E PLI AS PER THE DIRECTIONS OF THE DRP. THEREAFTER THE DCIT(TP)-IV VIDE LETTER DATED 04.10.2004 INDICATED THE CORRECT AMOUNT OF ADJUSTME NT TO BE ADOPTED AS Q 98 20 024 AS AGAINST THE EARLIER ADJUSTMENT AMOUNT OF Q 98 83 653. THE AO ACCORDINGLY COMPLETED THE ASSESSMENT AND WORKED OUT THE ADJUSTMENT U/S. 92CA OF THE ACT AS UNDER: COST INCURRED FOR SOFTWARE DEVELOPMENT ACTIVITY RS.11 19 03 664/- ARMS LENGTH MARK UP ON COST (ARITHMETIC MEAN PLI) 18.80% OF THE OPERATING COST ARMS LENGTH INCOME @ 118.80% OF COST RS.13 29 45 116/- INCOME ACTUALLY RECEIVED RS.12 31 25 092/- SHORTFALL BEING ADJUSTMENT U/S. 92CA RS.98 20 024/- 14. NOW THE ASSESSEE IS IN APPEAL. 15. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD FURNISHED ALL THE DOCUMENTS DESIRED BY THE TPO AND WHILE CONDUCTING COMPARABILITY ANALYSIS FOR THE INTERNATIONAL TRANSA CTION WITH ITS ASSOCIATED ITA NO.1343/BANG/10 PAGE 12 OF 31 ENTERPRISES ( AE S) THE ASSESSEE HAD RELIED ON THE DATA AVAILABLE I N PROWESS AND CAPITALINE DATABASES UPDATED AS ON MAY 12 2006 AND HAD TAKEN INTO CONSIDERATION THE FINANCIAL RESULTS OF T HE COMPARABLES HAVING FINANCIAL YEARS ENDING DURING THE PERIOD 31.03.2004 TO 31.03.2006. IT WAS FURTHER STATED THAT THE ASSESSEE SELECTED TRANSACTI ONAL NET MARGIN METHOD ( TNMM ) AS THE MOST APPROPRIATE METHOD WITH OPERATING PRO FIT TO TOTAL COST AS ITS PROFIT LEVEL INDICATOR ( PLI ) FOR PROVIDING ITS SOFTWARE DEVELOPMENT SERVICES. IT WAS FURTHER STATED THAT THE ASSESSEE APPLIED THE FOLLOWING QUANTITATIVE FILTERS FOR CONDUCTING THE COMPARABILI TY ANALYSIS FOR SOFTWARE DEVELOPMENT SERVICES:- (A) COMPANIES NOT HAVING FINANCIAL INFORMATION FOR THE ABOVE SPECIFIED RANGE OF PERIOD ARE REJECTED. (B) COMPANIES HAVING NIL SALES OR SALES LESS THAN RS.1 CRORE ARE REJECTED. (C) COMPANIES HAVING SALES MORE THAN RS.200 CRORE ARE REJECTED. (D) COMPANIES OPERATING IN DIFFERENT INDUSTRY/PROD UCTS /SERVICES ARE REJECTED. (E) COMPANIES HAVING INSUFFICIENT INFORMATION ABOUT PRODUCTS OR FUNCTIONS OR FINANCIALS ARE REJECTED. (F) RESTRUCTURING SICK AND LOSS MAKING COMPANIES ARE REJECTED. 16. AFTER APPLICATION OF ALL THE ABOVE FILTERS THE ASSESSEE SELECTED 32 COMPANIES AS BROADLY COMPARABLE COMPANIES. THE WEI GHTED AVERAGE NET OPERATING PROFIT ON COST (NCP) MARGINS OF THOSE BRO ADLY COMPARABLE COMPANIES RANGED FROM 11.83% TO 30.36% WITH ARITHME TIC MEAN OF 8.54% TRANSLATING THE ARMS LENGTH RANGE OF 3.54% TO 13.5 4%. IT WAS EXPLAINED ITA NO.1343/BANG/10 PAGE 13 OF 31 THAT THE ASSESSEE EARNED NCP MARGIN OF 19.80% (AFTE R EXCLUDING START-UP COST FROM THE TOTAL COST) / 10.04% (BEFORE EXCLUDIN G THE START-UP COST FROM THE TOTAL COST) WHICH EXCEEDS / WAS WITHIN THE ARMS LENGTH RANGE OF 3.54% TO 13.54%. THEREFORE THE INTERNATIONAL TRANSACTION WITH THE AES WERE AT ARMS LENGTH. IT WAS CONTENDED THAT THE TPO REJECT ED ALL THE ASSESSEES COMPARABLES EXCEPT 3 COMPARABLES AND SELECTED FRESH 17 COMPARABLE COMPANIES AND BASED ON THE NCP OF THE ABOVE 20 COMP ARABLE COMPANIES ARRIVED AT AN ADJUSTED ARITHMETIC MEAN OF 18.86% AN D CONSEQUENTLY PROPOSED TO ADJUSTMENT OF RS.98 83 653 TO THE ARMS LENGTH PRICE. IT WAS CONTENDED THAT THE TPO WHILE COMPUTING THE NCP MADE ARITHMETICAL ERRORS AND WHEN THE ASSESSEE BROUGHT TO HIS NOTICE IT WAS NOT CONSIDERED WHILE PASSING THE TRANSFER PRICING ORDER. THE FOLLOWING INSTANCES WERE QUOTED:- SL. NO. COMPANY NAME NCP AS PER TPO REVISED NCP REMARKS 1 SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG.) 13.90% 13.44% AMORTISATION OF EXPENSES IN THE SEGMENTAL P&L IS NOT ALLOCATED 2 TATA ELXSI LTD. (SEG.) 27.65% 22.75% UNALLOCATED EXPENDITURE IN THE SEGMENTAL P&L IS NOT ALLOCATED 17. IT WAS FURTHER SUBMITTED THAT THE TPO WHILE SEL ECTING THE COMPARABLE VIZ. MEGASOFT LIMITED OBTAINED INFORMATION USIN G THE POWER U/S. 133(6) OF THE ACT WHEREIN THE NCP OF BLUEALLY DIVISION WAS 16.97%. IT WAS FURTHER SUBMITTED THAT ANOTHER COMPARABLE SELECTED BY THE TPO VIZ. ACCEL TRANSMATIC LTD. WHICH WAS INTO MANY BUSINESSES AND THE RELATED PARTY TRANSACTIONS FOR THE SERVICE SEGMENT WERE IN EXCESS OF 25% BEING THE ITA NO.1343/BANG/10 PAGE 14 OF 31 THRESHOLD FOR REJECTING COMPANIES HAVING RELATED PA RTY TRANSACTIONS ADOPTED BY THE TPO. THEREFORE THIS COMPANY SHOULD ALSO HAV E BEEN EXCLUDED. IF THAT WAS TO BE DONE THEN THE AVERAGE NCP WOULD COM E DOWN FROM 18.62% TO 17.28% BEFORE GIVING EFFECT OF WORKING CAPITAL A DJUSTMENT. 18. IT WAS FURTHER SUBMITTED THAT THE TPO WHILE DEC IDING UPON THE SALES TURNOVER AS A QUANTITATIVE FILTER HAD ADOPTED THE M INIMUM TURNOVER AS THE THRESHOLD LIMIT WHEREAS IGNORING THE MAXIMUM TURNOV ER LIMIT ALTOGETHER WHICH HAD LED TO A SITUATION WHERE THE COMPARABLES AS IDENTIFIED BY THE TPO CONSISTED OF COMPANIES WHICH HAD TURNOVER RANGI NG FROM Q 1.02 CRORE TO Q 9 028 CRORES AS AGAINST THE TURNOVER OF THE ASSESS EE AT Q 12.29 CRORES. THEREFORE BY NON-CONSIDERATION OF MAXIMUM TURNOVER LIMIT THE TPO HAD OVERLOOKED ONE OF THE MOST IMPORTANT CRITERIA OF CO MPARABILITY SCALE OF OPERATIONS. 19. IT WAS CONTENDED THAT THE TPO HAD CLASSIFIED CO MPANIES BY RELYING ON THE STUDY CONDUCTED BY DUN AND BRADSTREET IN THE FOLLOWING MANNER:- - COMPANIES WITH TURNOVER GREATER THAN Q 2000 CRORES AS LARGE FIRMS. - COMPANIES WITH TURNOVER BETWEEN Q 2000 CRORES TO Q 200 CRORES AS MEDIUM SIZED FIRMS. - COMPANIES WITH TURNOVER LESS THAN Q 200 CRORES AS SMALLER FIRMS. THE AVERAGE NCP OF 20 COMPARABLE COMPANIES SELECTED BY THE TPO WHEN INDEXED ON THE BASIS OF THE SAID STUDY CLEARLY DEPI CTED THAT THE SCALE OF OPERATIONS HAD CLEAR NEXUS WITH THE OPERATING MARGI N AS UNDER:- - LARGE FIRMS (ONE) 40.38% - MEDIUM FIRMS (FIVE) 19.13% - SMALL FIRMS (FOURTEEN) 17.06% ITA NO.1343/BANG/10 PAGE 15 OF 31 BUT THE ASSESSEES CASE WAS OF A CATEGORICALLY SMAL L SIZED COMPANY SINCE THE TURNOVER OF THE ASSESSEE WAS Q 12.29 CRORES. THEREFORE 7 COMPANIES HAVING TURNOVER OF MORE THAN Q 200 CRORES SHOULD HAVE BEEN EXCLUDED IN WHICH CASE THE AVERAGE NCP WOULD COME DOWN FROM 17. 28% TO 14.13% BEFORE GIVING EFFECT OF WORKING CAPITAL ADJUSTMENT. 20. IT WAS EXPLAINED THAT THE TPO HAD GIVEN ADJUST MENT FOR WORKING CAPITAL TO THE EXTENT OF 1.89% OF NCP HOWEVER IF T HE 8 COMPANIES ARE REJECTED THEN THE WORKING CAPITAL ADJUSTMENT WOULD WORK OUT TO 2.18% AND CONSEQUENTLY THE FINAL NCP AFTER CONSIDERING THE EF FECT OF WORKING CAPITAL ADJUSTMENT WOULD BE COMPUTED AS PER THE FOLLOWING D ETAILS:- SL COMPANY NAME . FINAL NCP 1 BODHTREE CONSULTING LTD. 15.99% 2 GEOMETRIC LTD. 6.70% 3 R S SOFTWARE (INDIA) LTD. 15.69% 4 KALS INFORMATION SYSTEMS LTD. 39.75% 5 R SYSTEMS INTERNATIONAL LTD. 22.20% 6 AZTECSOFT LTD. 18.09% 7 MEDIASOFT SOLUTIONS PVT. LTD. 6.29% 8 SIP TECHNOLOGIES LTD. 3.06% 9 SYNFOSYS BUSINESS SOLUTIONS LTD. 10.61% 10 L G S GLOBAL LTD. 5.27% 11 MEGASOFT LTD. 16.97% 12 LUCID SOFTWARE LTD. 8.92% AVERAGE 14.13% WORKING CAPITAL ADJUSTMENT 2.18% AVERAGE WC ADUSTMENT 11.9 5% 21. IT WAS FURTHER STATED THAT THE ASSESSEE IS IN I TS SECOND YEAR OF OPERATION AND THE TPO HAD COMPARED THE ASSESSEE WIT H THE ESTABLISHED COMPANIES WHICH WERE IN EXISTENCE FOR A LONG PERIOD OF TIME RANGING FROM 6 YEARS TO 25 YEARS I.E. UPTO 2006 AVERAGING TO 14 YE ARS AND THE ASSESSEE WAS IN ITS NASCENT STAGES AND HAD INCURRED SOME STA RT-UP COST TO THE EXTENT ITA NO.1343/BANG/10 PAGE 16 OF 31 OF Q 91.31 LAKHS WHICH WAS NOT REDUCED FROM THE OPERATIN G COST BY THE TPO. IT WAS POINTED OUT THAT THE EXCLUSION OF THE START-UP COST FROM TOTAL COST TO ARRIVE AT OPERATING COST FOR THE PURPOSE OF COMPUTATION OF NCP WAS ACCEPTED BY THE TPO IN THE SUCCEEDING ASSESSMENT YE AR I.E. 2007-08 BUT THE SAME WAS NOT ALLOWED IN THE YEAR UNDER CONSIDER ATION THEREFORE THE TPO HAD BEEN INCONSISTENT AND IF THE START-UP COST IS EXCLUDED THEN THE NCP OF THE ASSESSEE WOULD BE 19.80%. 22. IT WAS FURTHER POINTED OUT THAT THE TPO ARBITRA RILY ADOPTED EMPLOYEE COST FILTER SINCE THE ASSESSEES RATIO OF EMPLOYEE COST TO SALES WAS AROUND 60% AND THE SOFTWARE INDUSTRY EMPLOYEE COST RATIO C AME TO 48% WHILE THE TPO HAD ADOPTED EMPLOYEE COST FILTER AT 25% OF SALE S. SIMILARLY THE TPO HAD NOT EXCLUDED ABNORMALLY HIGH PROFITS LIKE ACCEL TRANSMATIC LTD. AND KALS INFORMATION SYSTEMS LTD. WHERE THE NCP WAS 44. 07% AND 39.75% RESPECTIVELY. IT WAS ALSO CONTENDED THAT THE TPO H AD NOT CONSIDERED RISK FREE NATURE OF THE ASSESSEE WHILE DEALING WITH THE ISSUE OF RISK ADJUSTMENT. IT WAS CONTENDED THAT ALL COMPARABLE COMPANIES PERF ORMED MARKETING FUNCTIONS HAVING AN AVERAGE MARKETING SPEND OF 3.87 % WHEREAS THE ASSESSEE DID NOT PERFORM ANY MARKETING FUNCTION. 23. IT WAS CONTENDED THAT THE AO HAD NOT RECORDED A NY REASONS TO REACH THE CONCLUSION THAT IT WAS EXPEDIENT AND NECESSARY TO REFER THE MATTER TO THE TPO FOR COMPUTATION OF THE ALP. IT WAS FURTHER CONTENDED THAT THE TPO CONSIDERED THE FRESH SEARCH FOR COMPARABILITY ANALY SIS AS ON 03.12.2008 WHICH WAS BEYOND THE DATE OF COMPLIANCE I.E. 31.10 .2006 RESULTING IN IMPOSSIBILITY OF PERFORMANCE AND AGAINST THE PREMIS E OF MAINTENANCE OF CONTEMPORANEOUS DOCUMENTATION AND ALSO EXERCISED HI S POWER U/S. 133(6) ITA NO.1343/BANG/10 PAGE 17 OF 31 OF THE ACT TO OBTAIN SELECTIVE INFORMATION WHICH WA S NOT AVAILABLE IN THE PUBLIC DOMAIN. FURTHERMORE THE TPO USED SINGLE YE AR DATA FOR COMPUTATION OF MARGIN OF COMPARABLE COMPANIES AND R EJECTED THE MULTIPLE YEAR DATA USED BY THE ASSESSEE. 24. IT WAS FURTHER CONTENDED THAT THE TPO WHILE DEC IDING UPON THE SALES TURNOVER AS A QUANTITATIVE FILTER HAD ONLY CONSIDER ED MINIMUM TURNOVER AS BEING VALID AND HAD NOT KEPT ANY LIMIT ON THE TURNO VER FOR COMPARABILITY WHICH HAD LED TO A SITUATION WHERE THE COMPARABLE S ET AS IDENTIFIED BY THE TPO CONSISTED OF COMPANIES WHICH HAD A TURNOVER RAN GE FROM Q 1.02 CRORES (LUCID SOFTWARE LTD.) TO Q 9028 CRORES (INFOSYS TECHNOLOGIES LTD.) AS AGAINST THE TURNOVER OF THE ASSESSEE AT Q 12.29 CRORES WHICH INDICATED THAT THE TPO HAD OVERLOOKED ONE OF THE MOST IMPORTA NT CRITERIA OF COMPARABILITY SCALE OF OPERATIONS. IT WAS CONTEN DED THAT THE ITAT BANGALORE BENCH IN THE CASE OF GENESIS INTEGRATING SYSTEMS PVT. LTD. V. DCIT IN ITA NO.1231/BANG/2010 REMANDED BACK THE MATTER TO THE TPO WITH A CLEAR DIRECTION TO RECOMPUTE THE AVERAGE NCP OF THE COMPARABLE TURNOVER OF MORE THAN Q 1 CRORE AND LESS THAN Q 200 CRORES THEREFORE THE TPO WAS NOT JUSTIFIED WHILE SELECTING THE COMPARABL E OF LARGE TURNOVER COMPANY LIKE INFOSYS TECHNOLOGIES LTD. HAVING TURNO VER OF Q 9028 CRORES. IT WAS FURTHER STATED THAT THE TPO EXERCISED THE PO WER U/S. 133(6) OF THE ACT SELECTIVELY I.E. OUT OF TOTAL NUMBER OF COMPAN IES AVAILABLE IN PROWESS AND CAPITALINE DATABASE THE TPO SENT NOTICES ONLY TO 167 COMPANIES WHICH CLEARLY SHOWED THAT THE TPO HAD NOT FOLLOWED OBJECTIVITY IN HIS SEARCH PROCESS BUT HAD USED SELECTIVE MEANS OF COL LECTING THE INFORMATION AS PER HIS DISCRETION. IT WAS SUBMITTED THAT THE S ELECTED INFORMATIONS ITA NO.1343/BANG/10 PAGE 18 OF 31 OBTAINED BY THE TPO WERE NOT AVAILABLE IN THE PUBLI C DOMAIN. THEREFORE RELYING ON THE SAME FOR COMPARABILITY PURPOSES WAS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND CONTRARY TO OCED GUIDELINES WHICH ADVOCATES AGAINST THE USE OF SECRET COMPARABLES. IT WAS FURTHER SUBM ITTED THAT EVEN THE DETAILS RECEIVED VIDE ENQUIRIES MADE U/S. 133(6) OF THE ACT BY THE TPO ON CERTAIN COMPANIES WERE NOT IN CONFORMITY WITH THE S TATUTORY FILINGS MADE BY SUCH COMPANIES. IT WAS CONTENDED THAT THE TPO WHIL E SELECTING THE SET OF 20 COMPANIES HAD INCLUDED SEVERAL COMPANIES WITH CO NTROLLED TRANSACTIONS AND HAD STATED THAT IN CASE THE COMPARABLES HAD CON TROLLED TRANSACTIONS UPTO 25% ON THEIR TURNOVER THEY CAN BE ACCEPTED AS COMPARABLES. IT WAS POINTED OUT THAT THE TPO SELECTED M/S. ACCEL TRANSM ATIC LTD. AS A COMPARABLE DESPITE THE FACT THAT IT HAD RELATED PAR TY TRANSACTION IN EXCESS OF 25%. IT WAS CONTENDED THAT THE TPO HAD JUST REL IED ON THE DATA PROVIDED BY THE COMPANY IN ITS REPLY U/S. 133(6) OF THE ACT AND HAD COMPLETELY IGNORED THE FINANCIALS HAD THE RELATED PARTY TRANS ACTIONS BEEN RELEVANT TO ANY OTHER SEGMENT IT WOULD HAVE BEEN SPECIFIED ACC ORDINGLY. IT WAS POINTED OUT THAT IN THE LIST OF PROBABLE COMPARABLE S ONE COMPANY SUNDARAM INFOTECH SOLUTIONS LTD. HAD BEEN REJECTE D ON THE GROUND THAT IT IS INCORPORATED IN THE FINANCIAL 2005-06 AND HAD BE EN INCURRING LOSSES WHILE FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD TO INCUR A LOT OF TRAVELING EXPENSES ON TRAINING ITS STAFF IN USA AND ALSO INCURRED HEAVY EXPENDITURE ON TRAINING AND RECRUITMENT WHICH WERE PECULIAR ONLY TO A START- UP COMPANY AND NOT TO BE FOUND IN ANY ESTABLISHED C OMPANY IF THE START-UP EXPENSES WERE EXCLUDED THEN THE NCP OF THE ASSESSE E WOULD HAVE BEEN 19.80% BUT THE TPO IGNORED THE START-UP COST. IT WAS POINTED OUT THAT THE ITA NO.1343/BANG/10 PAGE 19 OF 31 TPO REJECTED CERTAIN COMPARABLES SELECTED BY THE AS SESSEE HAD THE ANALYSIS BEEN MODIFIED INCORPORATING THE COMPARABLE S SELECTED BY THE ASSESSEE THE RESULT ALP WOULD INCREASINGLY SKEW IN FAVOUR OF THE ASSESSEE. 25. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: (A) DCIT V. QUARK SYSTEMS (P) LTD. [ 2010-(132)-TTJ-0 001- TCHDS] (B) DHL EXPRESS (INDIA) PVT. LTD. V. ACIT MUMBAI IN ITA NO.7360/MUM/2010 (C) DCIT V. DELLOITTE CONSULTING INDIA PVT LTD. IN IT A NO.1082/HYD/2010 (D) AGNITY INDIA TECHNOLOGIES PVT. LTD. (2010) ITA NO.3856/DEL/2010 (E) CIT V. RAKHRA TECHNOLOGIES PVT. LTD. (ITA NO.169 OF 2011 (P&H) (F) SOUTH EASTERN LTD. V. JT. CIT (2003-(260)-ITR-001 -ITAT) (G) ITO V. LIC (2001-(079)-ITD-0278-ITCAL) (H) ACIT V. JINDAL IRRIGATION SYSTEMS LTD. (1996-(056 )-ITD-0164- THYD) (I) QUARK SYSTEM V. DCIT (2010) 38 SOT 307 (J) ADOBE SYSTEM INDIA (P) LTD. V. ACIT: ITA NO.5043/ DEL/2010 (K) MENTOR GRAPHICS (NOIDA) PVT. LTD.: 109 ITD 101 (L) E-GAIN COMMUNICATION PVT. LTD. V. ACIT: 119 TTJ 7 21 (M) ITO V. SUNAY JEWELS PVT. LTD. ITA NO.5758/MUM/2007 (N) SAPIENT CORPORATION PVT. LTD. V. DCIT ITA NO.5263 /DEL/2010 26. IN HIS RIVAL SUBMISSIONS THE LD. CIT(DR) STRON GLY SUPPORTED THE ORDER PASSED BY THE AO AND REITERATED THE OBSERVATIONS MA DE IN THE ASSESSMENT ORDER. HE FURTHER SUBMITTED THAT ONLY AFTER CONSID ERING THE OBJECTIONS OF THE ASSESSEE THE DRP WORKED OUT THE ARMS LENGTH PRICE THEREFORE THE ADDITION MADE BY THE AO WAS JUSTIFIED. 27. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE IT IS NOTICED THAT A SIMILAR ISSUE HAVING SIM ILAR FACTS HAS BEEN ITA NO.1343/BANG/10 PAGE 20 OF 31 ADJUDICATED BY THIS BENCH OF THE TRIBUNAL IN THE CA SE OF M/S. INSILICA SEMICONDUCTORS INDIA PVT. LTD. V. ITO IN ITA NO.139 9/BANG/2010 FOR THE A.Y. 2006-07 ORDER DATED 29.02.2012 AND THE ISSUE HAS BEEN REMANDED BACK TO THE AO / TPO. THE RELEVANT FINDINGS ARE GI VEN IN PARAS 18 & 19 OF THE SAID ORDER WHICH READ AS UNDER: 18. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE O N RECORD. IN THE PRESENT CASE IT IS NOTICED THAT THE ASSESSEE S ELECTED 10 COMPARABLES OUT OF WHICH 2 VIZ. VISUAL SOFT TECHNO LOGIES LTD. AND VJIL CONSULTANCY LTD. WERE REJECTED BY THE TPO. HOWEVER THE TPO INCLUDED ANOTHER COMPANY M/S. INFOSYS TECHN OLOGIES LTD. WHICH WAS CLAIMED TO BE 906 TIMES BIGGER THAN THE ASSESSEE. IN OUR OPINION THE SAID COMPANY BEING SIGNIFICANTLY DISSIMILAR IN SIZE SHOULD NOT HAVE BEEN CONSIDERED AS COMPARABLE. IN THE PRESENT CASE THE TPO INCLUDED CERTAIN COMPANIES AS COMPARABLE ON THE BASIS OF INFORMATION OBTAINED BY WAY OF NOTI CE U/S. 133(6) OF THE ACT BUT WITHOUT PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE THE TPO ISSUED A SHOW CAUSE NOTICE DA TED 30.04.09 COPY OF WHICH IS PLACED ON PAGES 95 TO 125 OF THE A SSESSEES PB AND PROPOSED TO REDETERMINE THE ALP ON THE BASIS OF 20 COMPARABLES AND SUBSEQUENTLY ISSUED ANOTHER NOTICE ON 20.07.09 AND PROPOSED TO ADOPT 14 COMPANIES AS COMPARABLES BUT IN THE FINAL ORDER THE TPO SELECTED 22 COMPANIES AS COMPAR ABLES. IN OTHER WORDS 8 ADDITIONAL COMPANIES WERE CONSIDERED AS COMPARABLES APART FROM THOSE WHICH WERE PROPOSED IN THE NOTICE DATED 20.07.09 COPY OF WHICH IS PLACED AT PAGES 30 5 TO 355 OF THE ASSESSEES COMPILATION. IT THEREFORE APPEARS T HAT NEW COMPANIES WERE ADOPTED BY THE TPO AS COMPARABLES WI THOUT AFFORDING OPPORTUNITY TO THE ASSESSEE TO PRESENT IT S OBJECTIONS TO THEIR ADOPTION. IT IS WELL SETTLED THAT NOBODY SHO ULD BE CONDEMNED UNHEARD AS PER THE MAXIM AUDI ALTERAM PARTEM BUT IN THE PRESENT CASE NOTHING IS BROUGHT ON RECORD TO SUBSTANTIATE THAT THE TPO/AO WHILE ADOPTING ADDITIONAL COMPARABL ES HAD PROVIDED OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THEREFORE THIS ISSUE DESERVES TO BE SET ASIDE TO BE DECIDED A FRESH AT THE LEVEL OF THE ASSESSING OFFICER. FOR THE AFORESAID VIEW WE ARE FORTIFIED BY THE ORDER DATED 31.01.2012 OF THE ITAT A BENCH BANGALORE IN THE CASE OF GENESIS MICROCHIP (I) PVT. LTD. BANGALORE V. DCIT CIRCLE 11(3) BANGALORE IN ITA NO.1254/BANG/2 010 FOR THE A.Y. 2006-07 . ITA NO.1343/BANG/10 PAGE 21 OF 31 19. IN THE PRESENT CASE THE AO ADOPTED M/S. INFOS YS TECHNOLOGIES LTD. KALS INFORMATION SYSTEM LTD. AC CEL TRANSMATIC LTD. AND TATA ELXSI LTD. AS COMPARABLES ON THE BASIS OF DATA WHICH WAS OBTAINED BY HIM IN RESPONSE OF TH E NOTICES ISSUED U/S. 133(6) OF THE ACT HOWEVER NO OPPORTUNI TY OF BEING HEARD WAS PROVIDED TO THE ASSESSEE FOR REBUTTAL TH EREFORE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CONSIDERING THOSE COMPARABLES WHILE WORKING OUT THE ALP IN ASSESSEES CASE. IN THAT VIEW OF THE MATTER WE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE A O/TPO IS ALSO DIRECTED TO ALLOW THE OPPORTUNITY TO CROSS-EXAMINE THE COMPARABLES WHOSE REPLIES WERE OBTAINED U/S. 133(6) OF THE ACT AND WERE SOUGHT TO BE USED AGAINST THE ASSESSEE IF THE ASSESSEE SO DESIRES. 28. SINCE THE FACTS OF THE PRESENT CASE ARE SIMILA R TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE OF M/S. INSILICA SEMICONDUCTORS PVT. LTD. IN ITA NO.1399/BANG/2010 FOR THE A.Y. 2006-07 SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER WE REMAND THIS ISSUE B ACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDA NCE WITH THE LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. 29. VIDE GROUND 2(N) GRIEVANCE OF THE ASSESSEE REL ATES TO GRANTING THE OPTION TO CHOOSE THE PRICE THAT FALLS WITHIN +/- 5% RANGE OF ARITHMETICAL MEAN OF THE COMPARABLES. 30. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSEE HAD INTERNATIONAL TRANSACTIONS DURING THE FINANCIAL YEA R 2005-06 THEREFORE THE CASE WAS REFERRED TO THE TPO TO DETERMINE THE ALP. THE TPO VIDE ORDER DATED 30.10.2009 STATED THAT AN ADJUSTMENT OF RS.98 83 653 WAS REQUIRED TO BE MADE TO THE INCOME OF THE ASSESSEE CONSEQUEN T TO DETERMINATION OF THE ALP. THE AO FORWARDED THE DRAFT ORDER DATED 10 .12.09 TO THE ASSESSEE ITA NO.1343/BANG/10 PAGE 22 OF 31 TO FILE ITS OBJECTIONS BEFORE THE DRP. THE DRP DI RECTED THE AO TO COMPLETE THE ASSESSMENT AFTER TAKING INTO CONSIDERA TION THE DETAILED DISCUSSION ON VARIOUS ISSUES VIDE DIRECTIONS UNDER SUB-SECTIONS (5) & (8) OF SECTION 144C OF THE ACT DATED 27.09.10. THE DRP DI RECTED THE AO TO MODIFY THE ASSESSMENT ORDER AFTER REWORKING THE COR RECT MARGIN AT 51.73% AS AGAINST 52.74% ADOPTED IN THE DRAFT ASSESSMENT O RDER. THE AO ADOPTED THE ADJUSTMENT AT RS.98 20 024 AS AGAINST T HE EARLIER ADJUSTMENT OF RS.98 83 653. NOW THE ASSESSEE IS IN APPEAL. 31. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE SHOULD HAVE BEEN GIVEN A STANDARD DEDUCTION OF 5% AS PROVI DED UNDER PROVISO TO SECTION 92C(2) OF THE ACT BEFORE MAKING ADJUSTMENT FOR THE TRANSFER PRICE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. M/S. GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT ITA NO.1231/BANG/2010 2. M/S. TATRA VECTRA MOTORS LTD. V. DCIT ITA NO.1284/BANG/2010 DTD. 31.01.2012. 32. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE CONTENTION OF THE ASSESSEE WAS REJECTED BY THE DRP ON THE GROUND THAT AMENDMENT TO PROVISO TO SECTION 92C WAS CLARIFICATORY IN NATURE AND THEREFORE RETROSPECTIVE IN EFFECT. IT WAS CONTENDED THAT THE AMENDMENT TO PROVISO TO SECTION 92C WAS NOT RETROSPECTIVE AS CLARIFIED BY T HE CBDT BY WAY OF LETTER NO.F.142/13/2010-SO(TPL) DATED 30.09.2010. IT WAS FURTHER CONTENDED THAT A DEEMING PROVISION HAS BEEN CREATED TO ADOPT AN ARMS LENGTH PRICE IF THE PRICE ACTUALLY UNDERTAKEN BY THE ASSESSEE DOES NOT EXCEED 5% OF THE AMOUNT AT WHICH INTERNATIONAL TRANSACTION HAS ACTUA LLY BEEN UNDERTAKEN INSTEAD OF RECKONING THE PRICE WHICH IS DETERMINED BY THE TPO WHICH WAS THE POSITION UNDER UNAMENDED PROVISO TO SECTION 92C (2) OF THE ACT. IT WAS ITA NO.1343/BANG/10 PAGE 23 OF 31 ACCORDINGLY SUBMITTED THAT THE BENEFIT OF STANDARD DEDUCTION OF 5% SHOULD HAVE BEEN GIVEN TO THE ASSESSEE. 33. IN HIS RIVAL SUBMISSIONS THE LD. CIT(DR) SUBMI TTED THAT NO BENEFIT OF 5% BE GIVEN TO THE ASSESSEE PARTICULARLY WHEN THE P ROVISO TO SECTION 92C(2) OF THE ACT HAS BEEN AMENDED W.E.F. 1.10.2009 . 34. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND MATERIAL ON RECORD IT IS NOTICED THAT A SIMILAR ISSUE HAS BEEN ADJUDICATED BY THE ITAT A BENCH BANGALORE HAVING THE SAME CONSTITUTION IN THE CASE OF M/S. TATRA VECTRA MOTORS LTD. V. DCIT ITA NO.1284/BANG/2010 F OR THE A.Y. 2006-07 WHEREIN THE RELEVANT FINDING HAS BEEN GIVEN IN PARA S 12 TO 17 OF THE ORDER DATED 31.01.2012 WHICH READ AS UNDER: 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE O N RECORD. IN THE PRESENT CASE THE ASSESSEE HAS NOT DISPUTED THE ADJUSTMENTS U/S. 92CA OF THE ACT BUT CHALLENGING THE WORKING O F ALP WITHOUT GIVING BENEFIT OF THE OPTION AVAILABLE UNDE R THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT SO IT BECOMES RELEVANT TO DISCUSS THE PROVISIONS CONTAINED IN THE ERSTWHILE P ROVISO TO SECTION 92C(2) OF THE ACT WHICH WAS INSERTED BY FI NANCE ACT 2002 W.E.F. 1-4-2002 AND READS AS UNDER: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD THE ARMS LENGTH PR ICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION OF THE ASSESSEE A PRICE WHICH MA Y VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDI NG FIVE PER CENT OF SUCH ARITHMETICAL MEAN. 13. FROM THE PLAIN READING OF THE ABOVE PROVISO I T IS CLEAR THAT THE OPTION IS AVAILABLE TO THE ASSESSEE FOR ADJUSTM ENT OF +/- 5% VARIATION FOR THE PURPOSES OF COMPUTING ALP. AS PE R THE SAID PROVISO WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD THE ALP SHALL BE TAKEN TO BE TH E ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION OF THE ASSES SEE A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMO UNT NOT EXCEEDING FIVE PER CENT OF SUCH ARITHMETICAL MEAN. IN OUR ITA NO.1343/BANG/10 PAGE 24 OF 31 OPINION THE BENEFIT OF OPTION I.E. ADJUSTMENT OF +/- 5% VARIATION AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT IS AVAILABLE TO THE ASSESSEE. 14. ON A SIMILAR ISSUE THE ITAT DELHI BENCH IN T HE CASE OF SONY INDIA PVT. LTD. V. DCIT (2009) 315 ITR (AT) 15 0 HAS HELD AS UNDER: THE PROVISO TO SECTION 92C(2) OF THE ACT CONSISTS MAINLY OF TWO PARTS: (A) WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD THEN THE ARMS LENGTH PRICE SHA LL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICE; OR (B) AT THE OPTION OF THE ASSESSEE A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING 5 PER CENT OF SUCH ARITHMETICAL MEAN. THE FIRST LIMB OF THE PROVISO HAS GENERAL APPLICATION. THERE IS NO OPTIO N WITH NOR ANY SORT OF CONCESSION ALLOWED TO THE ASSESSEE. THE ARMS LENGTH PRICE SO DETERMINED MAY BE ACCEPTED OR CONTESTED BY THE ASSESSEE OR BY ANY AGGRIEVED PERSO N IN ACCORDANCE WITH THE STATUTORY PROVISIONS. IT IS A STATUTORY LEVY WITHOUT ANY OPTION. THE SECOND LIMB OF THE PR OVISO GIVES AN OPTION TO THE ASSESSEE TO TAKE THE ARMS LENGTH PRICE WHICH MAY VARY FROM THE ARITHMETIC MEAN BY AN AMOUNT NOT EXCEEDING 5 PER CENT OF SUCH ARITHMETIC MEAN. THE WORD OPTION IS SYNONYMOUS WITH CHOICE OR PREFERENCE. THEREFORE IT IS THE CHOICE OF THE A SSESSEE TO TAKE THE ARMS LENGTH PRICE WITH A MARGINAL BENE FIT AND NOT THE ARITHMETICAL MEAN DETERMINED AS THE MOST APPROPRIATE METHOD. THERE IS NOTHING IN THE LANGUA GE TO RESTRICT THE APPLICATION OF THE PROVISION ONLY TO M ARGINAL CASES WHERE THE PRICE DISCLOSED BY THE ASSESSEE DOE S NOT EXCEED 5 PER CENT OF THE ARITHMETIC MEAN. THE ARM S LENGTH PRICE DETERMINED ON APPLICATION OF THE MOST APPROPRIATE METHOD IS ONLY AN APPROXIMATION AND IS NOT A SCIENTIFIC EVALUATION. THEREFORE THE LEGISLATURE THOUGHT IT PROPER TO ALLOW MARGINAL BENEFIT TO ASSESSEES WHO O PT FOR SUCH BENEFIT. IN THE CASE OF AN ASSESSEE WHO EXERC ISES THE OPTION AND ACCEPTS THE ARMS LENGTH PRICE EVEN EXCE EDING 5 PER CENT OF THE ARITHMETIC MEAN DETERMINED BY THE TAX AUTHORITY AS CORRECT AND IS READY TO PAY TAX ON THE DIFFERENCE BETWEEN THE PRICE DISCLOSED BY HIM AND T HE ARMS LENGTH PRICE THE APPLICATION OF THE PROVISO I S NOT EXCLUDED. THE LEGAL POSITION CANNOT BE DIFFERENT I N A CASE WHERE MINOR VARIATION OF 5 PER CENT IS NOT ACCEPTED AND THE ARMS LENGTH PRICE IS FURTHER CHALLENGED IN APP EAL. ITA NO.1343/BANG/10 PAGE 25 OF 31 THE MERE FACT OF ACCEPTANCE OR NON-ACCEPTANCE OF TH E ARITHMETIC MEAN CANNOT BE TAKEN TO BE THE DETERMINI NG FACTOR RELATING TO THE RIGHT TO CONTEST THE ARMS L ENGTH PRICE IN APPEAL. SUCH INFERENCE IS NOT SUPPORTED B Y THE LANGUAGE OF THE PROVISION. BOTH IN THE FIRST AS ALS O IN THE SECOND LIMB THE IMPLICATIONS OF THE DETERMINED THE ARMS LENGTH PRICE ARE THE SAME EXCEPT FOR THE MARGINAL B ENEFIT ALLOWED TO THE ASSESSEE UNDER THE SECOND LIMB. HEN CE THE SECOND LIMB OF THE PROVISO IS APPLICABLE EVEN TO CA SES WHERE THE ASSESSEE INTENDS TO CHALLENGE THE ARMS L ENGTH PRICE TAKEN AS ARITHMETIC MEAN AND DETERMINED THROU GH THE MOST APPROPRIATE METHOD. THEREFORE THE BENEFI T OF SECOND LIMB IS AVAILABLE TO ALL ASSESSEES IRRESPECT IVE OF THE FACT THAT THE PRICE OF INTERNATIONAL TRANSACTION DI SCLOSED BY THEM EXCEEDS THE MARGIN PROVIDED IN THE PROVISIO N. 15. IN THE PRESENT CASE IT APPEARS THAT THE BENEF IT OF +/- 5% ADJUSTMENT HAS NOT BEEN GIVEN TO THE ASSESSEE FOR T HE REASON (AS MENTIONED BY THE TPO) THAT SALES MADE BY THE ASSESS EE TO THIRD PARTIES WERE HIGHER IN COMPARISON TO THE RATES OF S ALE BY AES TO THE ASSESSEE. BUT NOTHING IS BROUGHT ON RECORD TO SUBSTANTIATE THE AFORESAID OBSERVATIONS OF THE TPO. THE AO HAD ACCE PTED THE RECOMMENDATION OF THE TPO IN HIS REPORT DATED 30.8. 2000 AND MADE THE ADDITION OF RS.1 76 56 164 HOWEVER WHILE DOING SO HE DID NOT ALLOW THE BENEFIT OF THE ADJUSTMENT AS PROV IDED IN THE PROVISO TO SECTION 92C(2) OF THE ACT AND THE CONTEN TION OF THE LD. CIT(DR) WAS THAT SINCE THE IMPUGNED ASSESSMENT WAS MADE AFTER 1.10.2009 THE AMENDED PROVISO TO SECTION 92C(2) OF THE ACT SHALL APPLY IN THIS CASE WHICH ARE APPLICABLE FROM W.E.F . 1.10.2009. AND SHALL ACCORDINGLY APPLY TO THE CASES IN WHICH T HE PROCEEDINGS WERE PENDING BEFORE THE TPO ON OR AFTER SUCH DATE. THEREFORE THE BENEFIT OF +/- 5% INTENDED BY THE ERSTWHILE PRO VISO TO SECTION 92C(2) OF THE ACT WAS NOT AVAILABLE TO THE ASSESSEE . ACCORDINGLY THE LD. CIT(DR) HAD STRONGLY DEFENDED THE ASSESSMEN T FRAMED BY THE AO AND HIS METHOD OF DETERMINING THE ALP. 16. AS REGARDS TO THE APPLICABILITY OF THE AMENDED PROVISIONS IN PROVISO TO SECTION 92C(2) OF THE ACT WHICH IS AP PLICABLE W.E.F. 1.10.2009 IS CONCERNED IT IS NOTICED THAT THIS ISS UE HAS BEEN ADJUDICATED BY THE ITAT PUNE BENCH A PUNE IN ITA NO.1350/PN/2010 IN THE CASE OF STARNET NETWORKS (INDIA) P. LTD. V. DCIT (SUPRA) WHEREIN THE RELEVANT FINDINGS HAS BEEN GIVEN IN PARAS 20 TO 23 OF THE ORDER DATED 03.10.2011 AND RE AD AS UNDER: 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CASE A PERTINENT ISSUE WHICH HAS BEEN VEHEMENTLY AGITATED BY THE APPELLANT IS WITH REGARD TO ITS ITA NO.1343/BANG/10 PAGE 26 OF 31 CLAIM OF SEEKING BENEFIT OF THE OPTION AVAILABLE UN DER THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT. THE ERSTWHILE PROVISO WHICH WAS INSERTED BY FINANCE ACT 2002 WITH EFFECT FROM 1.4.2002 READ AS UNDER: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMI NED BY THE MOST APPROPRIATE METHOD THE ARMS LENGTH PR ICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION OF THE ASSESSEE A PRICE WHICH MA Y VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDI NG FIVE PERCENT OF SUCH ARITHMETICAL MEAN. AS PER THE SAID PROVISO AN OPTION IS AVAILABLE TO THE ASSESSEE FOR ADJUSTMENT OF +/-5% VARIATION FOR THE PURPOSES OF COMPUTING ALP. AS PER THE PROVISO WHER E MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPRO PRIATE METHOD THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION O F THE ASSESSEE A PRICE WHICH MAY VARY FROM THE ARITHMETI CAL MEAN BY AN AMOUNT NOT EXCEEDING 5% OF SUCH ARITHMET ICAL MEAN. THE POINT MADE OUT BY THE ASSESSEE IS BASED O N THE LATTER PART OF THE PROVISO WHEREBY AN OPTION IS GIV EN TO THE ASSESSEE TO TAKE AN ALP WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING 5% OF SUCH ARITHMETICAL MEAN. FIRSTLY THE CLAIM OF THE REVENU E IS THAT SUCH BENEFIT IS NOT AVAILABLE TO THE PRESENT ASSESS EE BECAUSE THE PRICE OF INTERNATIONAL TRANSACTION DIS CLOSED BY THE ASSESSEE EXCEEDS THE MARGIN PROVIDED IN THE PRO VISO. THIS ASPECT OF THE CONTROVERSY IN OUR VIEW IS NO LONGER GERMANE IN VIEW OF THE PLETHORA OF DECISIONS OF OUR CO- ORDINATE BENCHES NAMELY SONY INDIA (P) LTD. (SUPR A); ELECTROBUG TECHNOLOGIES LTD. (SUPRA) AND DEVELOPME NT CONSULTANT P LTD V DCIT 115 TTJ 577 (KOL.) WHEREIN IT HAS BEEN OBSERVED THAT THE BENEFIT OF THE OPTION CO NTAINED IN THE LATTER PART OF THE PROVISO TO SECTION 92C(2) IS AVAILABLE TO ALL ASSESSEES IRRESPECTIVE OF THE FAC T THAT PRICE OF THE INTERNATIONAL TRANSACTION DISCLOSED BY THEM EXCEEDS THE MARGIN PRESCRIBED IN THE PROVISO. 21. SO HOWEVER THE OTHER ARGUMENT SET UP BY THE REVENUE AND WHICH HAS BEEN MORE POTENTLY ARGUED IS TO THE EFFECT THAT THE BENEFIT OF SUCH PROVISO IS NOT AVAILABLE TO THE ASSESSEE IN THE INSTANT CASE BECAUSE THE SA ID PROVISO HAS BEEN AMENDED BY THE FINANCE (NO 2) ACT 2009 WI TH EFFECT FROM 1.10.2009 WHICH READS AS UNDER: ITA NO.1343/BANG/10 PAGE 27 OF 31 PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMI NED BY THE MOST APPROPRIATE METHOD THE ARMS LENGTH PR ICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN DOES NOT EXCEED FIVE PER CENT OF THE LATTER THE PR ICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BE EN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH P RICE. THE CASE SET UP BY THE REVENUE IS THAT THE AMENDED PROVISO SHALL GOVERN THE DETERMINATION OF ALP IN TH E PRESENT CASE INASMUCH AS THE AMENDED PROVISIONS WE RE ON STATUTE WHEN THE PROCEEDINGS WERE CARRIED ON BY THE TRANSFER PRICING OFFICER (TPO). AS PER THE REVENUE THE AMENDED PROVISO WOULD HAVE A RETROSPECTIVE OPERATIO N AND IN ANY CASE WOULD BE APPLICABLE TO THE PROCEED INGS WHICH ARE PENDING BEFORE THE TPO ON INSERTION OF TH E AMENDED PROVISO WHICH HAS BEEN INSERTED BY THE FIN ANCE (NO. 2) ACT 2009 WITH EFFECT FROM 1.10.2009 AND I N THIS CASE THE TPO HAS PASSED HIS ORDER ON 30.10.2009. T HE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO REFERR ED TO THE CBDT CIRCULAR NO 5/2010 (SUPRA) READ WITH CORRIGENDUM DATED 30.9.2010 ISSUED BY THE CBDT IN T HIS REGARD. PER CONTRA THE STAND OF THE ASSESSEE IS TH AT THE AMENDED PROVISO WOULD BE APPLICABLE PROSPECTIVELY A ND WOULD NOT APPLY IN RESPECT OF THE STATED ASSESSMENT YEAR WHICH IS PRIOR TO THE INSERTION OF THE AMENDED PROV ISO WITH EFFECT FROM 1.10.2009. 22. WE HAVE CAREFULLY EXAMINED THE RIVAL STANDS ON THIS ASPECT. THE AMENDED PROVISO HAS BEEN BROUGHT O N THE STATUTE BY THE FINANCE (NO. 2) ACT 2009 WITH EFFEC T FROM 1.10.2009. THE EXPLANATORY NOTES TO THE PROVISIONS OF FINANCE (NO 2) ACT 2009 CONTAINED IN CIRCULAR NO 5 OF 2010 (SUPRA) PROVIDES THE OBJECTIVE BEHIND THE AMEN DMENT OF THE PROVISO. THE LEGISLATURE NOTICED THE CONFLIC TING INTERPRETATION OF THE ERSTWHILE PROVISO BY THE ASSE SSEE AND THE INCOME-TAX DEPARTMENT. THE ASSESSEES VIEW WAS THAT THE ARITHMETICAL MEAN SHOULD BE ADJUSTED BY 5% TO A RRIVE AT ALP WHEREAS THE DEPARTMENTAL VIEW WAS THAT NO S UCH ADJUSTMENT IS REQUIRED TO BE MADE IF THE VARIATION BETWEEN THE TRANSFER PRICE AND THE ARITHMETICAL MEAN IS MOR E THAN 5% OF THE ARITHMETICAL MEAN. WITH A VIEW TO RESOLVI NG THIS CONTROVERSY THE LEGISLATURE SOUGHT TO AMEND THE PR OVISO TO SECTION 92C(2) WHICH HAS BEEN REPRODUCED BY US IN THE ITA NO.1343/BANG/10 PAGE 28 OF 31 EARLIER PART OF THIS ORDER. IN THE SAID CIRCULAR I T HAS ALSO BEEN ELABORATED THAT THE ABOVE AMENDMENT HAS BEEN M ADE APPLICABLE WITH EFFECT FROM 1.4.2009 AND WILL ACCOR DINGLY APPLY IN RESPECT OF ASSESSMENT YEAR 2009-10 AND SUBSEQUENT YEARS. IN ANY CASE THE PROVISO CONTAIN S A PRESCRIPTION TO DETERMINE THE ALP AND QUITE CLEARLY IT IS A SUBSTANTIVE PROVISION ENCOMPASSING THE EVENTUAL DETERMINATION OF AN ASSESSEES TAX LIABILITY. THUS IT CAN BE SAID THAT THE PROVISO IS NOT A PROCEDURAL PIECE OF LEGISLATION AND THEREFORE UNLESS IT IS SO CLEARLY INTENDED THE NEWLY AMENDED PROVISO CANNOT BE UNDERSTOOD TO B E RETROSPECTIVE IN NATURE. IN FACT IT IS A WELL-SETT LED PROPOSITION THAT THE STATUTORY PROVISIONS AS THEY S TAND ON THE FIRST DAY OF APRIL OF THE ASSESSMENT YEAR MUST APPLY TO THE ASSESSMENT OF THE YEAR AND THE MODIFICATION OF THE PROVISIONS DURING THE PENDENCY OF ASSESSMENT WOULD NOT GENERALLY PREJUDICE THE RIGHTS OF THE ASSESSEE. FURTHERMORE WE ARE FORTIFIED BY THE INTENTION OF T HE LEGISLATURE AS FOUND FROM CIRCULAR NO 5 OF 2010 (SU PRA) WHEREBY IN PARA 37.5 THE APPLICABILITY OF THE ABOV E AMENDMENT HAS BEEN STATED TO BE WITH EFFECT FROM 1.4.2009 SO AS TO APPLY IN RESPECT OF ASSESSMENT YE AR 2009-10 AND SUBSEQUENT YEARS. IN THIS REGARD WE AL SO FIND THAT THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V UE TRADE CORPORATION INDIA (P) LTD. VIDE ITA NO 4405(DEL)/2009 DT 24.12.2010 HAS OBSERVED THAT THE PROVISO INSERTED BY THE FINANCE (NO 2) ACT 2009 WO ULD NOT APPLY TO AN ASSESSMENT YEAR PRIOR TO ITS INSERT ION. IN THIS VIEW OF THE MATTER WE THEREFORE FIND NO JUSTI FICATION TO DENY THE BENEFIT OF +/-5% TO THE ASSESSEE IN TER MS OF THE ERSTWHILE PROVISO FOR THE PURPOSES OF COMPUTING THE ALP. 23. HOWEVER BEFORE PARTING WE MAY ALSO REFER TO A CORRIGENDUM DATED 30.9.2010 BY THE CBDT BY WAY OF WHICH PARA 37.5 OF THE CIRCULAR NO 5/2010 (SUPRA) H AS BEEN SOUGHT TO BE MODIFIED. THE CORRIGENDUM READS A S UNDER: CORRIGENDUM IN PARTIAL MODIFICATION OF CIRCULAR NO. 5/2010 DATE D 03.6.2010 (I) IN PARA 37.5 OF THE SAID CIRCULAR FOR THE LINE S THE ABOVE AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1 ST APRIL 2009 AND WILL ACCORDINGLY APPLY IN ITA NO.1343/BANG/10 PAGE 29 OF 31 RESPECT OF ASSESSMENT YEAR 2009-10 AND SUBSEQUENT YEARS. THE FOLLOWING LINES SHALL BE READ; THE ABOVE AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1 ST OCTOBER 2009 AND SHALL ACCORDINGLY APPLY IN RELATION TO ALL CASES IN WHICH PROCEEDINGS ARE P ENDING BEFORE THE TRANSFER PRICING OFFICER (TPO)ON OR AFTE R SUCH DATE. (II) IN PARA 38.3 FOR THE DATE 1ST OCTOBER 2009 THE FOLLOWING DATE SHALL BE READ: 1ST APRIL 2009. IN TERMS THEREOF IT IS CANVASSED THAT THE AMENDED PROVISO HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1.10.2009 AND SHALL APPLY EVEN TO CASES WHERE PROCEEDINGS WERE PE NDING BEFORE THE TPO ON OR AFTER SUCH DATE IRRESPECTIVE OF THE ASSESSMENT YEAR INVOLVED AND THEREFORE IN THE INS TANT CASE THE BENEFIT OF THE ERSTWHILE PROVISO CANNOT BE EXTENDED TO THE ASSESSEE. WE HAVE CAREFULLY PONDERE D OVER THE ASSERTION MADE BY THE APPELLANT THAT THE CORRIG ENDUM IS UNTENABLE IN THE EYES OF LAW. FIRSTLY THE SAID CORRIGENDUM DOES NOT BRING OUT ANY PREAMBLE SO AS T O THROW LIGHT ON THE CIRCUMSTANCES AND THE BACKGROUND IN WHICH THE SAME HAS BEEN ISSUED. SECONDLY IT IS WEL L UNDERSTOOD THAT THE EXPLANATORY NOTES TO THE PROVIS IONS OF A FINANCE ACT PASSED BY THE PARLIAMENT SEEKS TO EXP LAIN THE SUBSTANCE OF THE PROVISIONS OF THE ACT AS INTEN DED BY THE LEGISLATURE. IN FACT THE HONBLE SUPREME COURT IN THE CASE OF K.P VARGHESE V ITO 131 ITR 597 (KER) EMPHASIZED THE SANCTITY OF THE STATEMENTS CONTAINED IN THE EXPLANATORY NOTES OF THE PROVISIONS AND STATED THAT THE INTERPRETATION PLACED IN SUCH DOCUMENTS IS BINDING INTERPRETATION OF LAW. THE CONTENTS OF THE CORRIGEN DUM ARE QUITE INEXPLICABLE. NOTWITHSTANDING THE AFORESAID A ND WITHOUT GOING INTO THE VALIDITY OF THE CORRIGENDUM DATED 30.9.2010 (SUPRA) WE ARE OF THE VIEW THAT THE SAME WOULD NOT OPERATE TO THE DETRIMENT OF THE ASSESSEE SINCE AT THE RELEVANT POINT OF TIME THE CONTENTS OF THE CIRCULAR NO 5/2010 (SUPRA) WERE IN OPERATION. IN OTHER WORDS T HE WITHDRAWAL OF THE INTERPRETATION PLACED IN CIRCULAR NO 5 /2010 (SUPRA) ON THE APPLICABILITY OF THE AMENDED P ROVISO IS SOUGHT TO BE DONE AWAY BY THE CORRIGENDUM DATED 30.9.2010 AND THEREFORE SUCH WITHDRAWAL SHALL BE EFFECTIVE ONLY AFTER 30.9.2010 EVEN IF SUCH CORRIG ENDUM IS ACCEPTED AS VALID. WE MAY NOTE HERE THAT THE APP ELLANT HAS ASSAILED THE VALIDITY OF THE CORRIGENDUM ITSELF ON WHICH WE HAVE NOT MADE ANY DETERMINATION. THEREFORE ITA NO.1343/BANG/10 PAGE 30 OF 31 THE CORRIGENDUM DATED 30.9.2010 IN OUR CONSIDERED OPINION HAS NO BEARING SO AS TO DIS-ENTITLE THE AS SESSEE FROM ITS CLAIM OF THE BENEFIT OF +/-5% IN TERMS OF THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT. IN COMING TO THE AFORESAID WE HAVE BEEN GUIDED BY THE PARITY OF REASONING LAID DOWN IN THE JUDGMENTS OF THE HONBLE BOMBAY HIGH COURT IN THE CASES OF BASF (INDIA) LTD. V CIT 280 ITR 136 (BOM); SHAKTI RAJ FILMS DISTRIBUTOR S V CIT 213 ITR 20 (BOM); AND UNIT TRUST OF INDIA & AN RS. V ITO 249 ITR 612 (BOM). THE HONBLE HIGH COURT HAS OPINED IN THE CASE OF BASF (INDIA) LTD. (SUPRA) THA T THE CIRCULARS WHICH ARE IN FORCE DURING THE RELEVANT PE RIOD ARE TO BE APPLIED AND THE SUBSEQUENT CIRCULARS EITHER WITHDRAWING OR MODIFYING THE EARLIER CIRCULARS HAVE NO APPLICATION. MOREOVER THE CIRCULARS IN THE NATURE OF CONCESSION CAN BE WITHDRAWN PROSPECTIVELY ONLY AS H ELD BY THE HONBLE SUPREME COURT IN THE CASE OF STATE B ANK OF TRAVANCORE V CIT 50 CTR 102 (SC). CONSIDERING AL L THESE ASPECTS WE THEREFORE FIND NO JUSTIFICATION I N THE ACTION OF THE LOWER AUTHORITIES IN DISENTITLING THE ASSESSEE FROM ITS CLAIM FOR THE BENEFIT OF +/-5% TO COMPUTE ALP IN TERMS OF THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT. WE ORDER ACCORDINGLY. 17. WE THEREFORE CONSIDERING THE TOTALITY OF THE FA CTS AND RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO OR DERS OF THE CO- ORDINATE BENCHES OF THE ITAT AT DELHI & PUNE DIREC T THE ASSESSING OFFICER TO ALLOW THE BENEFIT OF +/-5% TO THE ASSESSEE WHILE COMPUTING THE ALP IN TERMS OF THE ERSTWHILE P ROVISO TO SECTION 92C(2) OF THE ACT. 35. SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE OF M/S. TATRA VECTRA MOTORS LTD. V. DCIT IN ITA NO.1284/BANG/2010 ORDER DATED 31.01.2012 SO RESPECTFULLY FOLLOWING THE SAID ORDER WE DIRECT THE AO TO ALLOW THE BENEF IT OF +/- 5% TO THE ASSESSEE WHILE COMPUTING THE ALP. 36. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1343/BANG/10 PAGE 31 OF 31 PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF MARCH 2012. SD/- SD/- ( GEORGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 30 TH MARCH 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.