ACIT, Bangalore v. M/s. Timken Engineering & Research India Pvt. ltd.,, Bangalore

ITA 983/BANG/2008 | 2004-2005
Pronouncement Date: 24-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 98321114 RSA 2008
Assessee PAN AABCT2265L
Bench Bangalore
Appeal Number ITA 983/BANG/2008
Duration Of Justice 3 year(s) 7 month(s) 14 day(s)
Appellant ACIT, Bangalore
Respondent M/s. Timken Engineering & Research India Pvt. ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 24-02-2012
Date Of Final Hearing 24-02-2012
Next Hearing Date 24-02-2012
Assessment Year 2004-2005
Appeal Filed On 10-07-2008
Judgment Text
PAGE 1 OF 31 ITA NO.974 & 983/BANG /2008 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BEFORE SHRI N K SAINI ACCOUNANT MEMBER AND SHRI GEORGE GEORGE K JUDICIAL MEMBER ITA NO.974/BANG/2008 (ASST. YEAR 2004-05) TIMKEN ENGINEERING & RESEARCH INDIA PVT. LTD. SY.NO.(S) 39(P) 41(P) 42(P) ELECTRONIC CITY PHASE II DODDATHOGUR VILLAGE BEGUR HOBLI TALUK BANGALORE SOUTH DISTRICT BANGALORE-560 100. PA NO.AABCT2265L V S THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE- 12(3) BANGALORE. (APPELLANT) (RESPONDENT) ITA NO.983/BANG/2008 (ASST. YEAR 2004-05) THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE- 12(3) BANGALORE. VS TIMKEN ENGINEERING & RESEARCH INDIA PVT. LTD. SY.NO.(S) 39(P) 41(P) 42(P) ELECTRONIC CITY PHASE II DODDATHOGUR VILLAGE BEGUR HOBLI TALUK BANGALORE SOUTH DISTRICT BANGALORE-560 100. PA NO.AABCT2265L (APPELLANT) (RESPONDENT) DATE OF HEARING : 24.02.2012 DATE OF PRONOUNCEMENT : 24.02.2012 ASSESSEE BY : SHRI KUNJ VAIDYA C.A. REVENUE BY : SHRI ETWA MUNDA CIT-II PAGE 2 OF 31 ITA NO.974 & 983/BANG /2008 2 O R D E R PER BENCH : THESE APPEALS INSTITUTED BY THE ASSESSEE AND THE R EVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IV BA NGALORE DATED 28.04.2008. THE RELEVANT ASSESSMENT YEAR IS 2004-05 . 2. SINCE THESE APPEALS PERTAIN TO THE SAME ASSESSE E THEY ARE HEARD TOGETHER AND DISPOSE OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST WE SHALL CONSIDER THE ASSESSEES APPEAL. ITA NO.974/BANG/2008 (ASSESSEES APPEAL) 3. THE GROUNDS RAISED BY THE ASSESSEE READS AS FOLL OWS:- I) THAT THE ORDER PASSED BY THE LEARNED CIT(A) TO THE EXTENT PREJUDICIAL TO THE APPELLANT IS BAD IN LAW A ND LIABLE TO BE QUASHED. II) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) ERRED IN UPHOLDING THE ASSESSING OFFICERS ACTION IN INVOKING THE PROVISIONS OF SECT ION 92CA(1) OF THE I T ACT 1961 AND REFERRING THE COMPUTATION OF THE ARMS LENGTH PRICE TO THE TRANSF ER PRICING OFFICER. III) THAT THE LEARNED CIT(A) ERRED IN NOT HOLDING THAT I N ABSENCE OF A CHARGING PROVISION IN THE ACT ADDITIO N TO CHARGEABLE INCOME CANNOT BE MADE MERELY THROUGH A TRANSFER PRICING ADJUSTMENT (DIFFERENCE BETWEEN TRANSACTION PRICE OF THE APPELLANT AND ALLEGED ARM S LENGTH PRICE DETERMINED BY THE ASSESSING OFFICER/TRANSFER PRICING OFFICER). PAGE 3 OF 31 ITA NO.974 & 983/BANG /2008 3 IV) THAT THE LEARNED CIT(A) ERRED IN NOT QUASHING THE ADJUSTMENT TO THE TRANSFER PRICE OF THE APPELLANT AS MADE BY THE ASSESSING OFFICER WITHOUT APPLICATION O F MINE BY PURELY RELYING ON THE ORDER OF THE TRANSFER PRICING OFFICER. V) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) ERRED IN HOLDING THAT THE MARK-U P ON TOTAL COST (OPERATING PROFIT TO TOTAL COST RATIO OF COMPARABLES CONSIDERING TRANSACTIONAL NET MARGIN METHOD (TNMM) BEING THE APPROPRIATE METHOD) IN THE CASE OF THE APPELLANT FOR THE PURPOSE OF DETERMINI NG ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS IN PROVISION OF RESEARCH AND DEVELOPMENT SERVICES (R&D SERVICES) SHOULD BE 31.73% AS AGAINST THE 5% DETERM INED BY THE APPELLANT. VI) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) ERRED IN HOLDING THAT THE MARK-U P ON TOTAL COST (OPERATING PROFIT TO TOTAL COST RATIO OF COMPARABLES CONSIDERING TRANSACTIONAL NET MARGIN METHOD (TNMM) BEING THE APPROPRIATE METHOD) IN THE CASE OF THE APPELLANT FOR THE PURPOSE OF DETERMINI NG ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS IN PROVISION OF INFORMATION TECHNOLOGY SERVICES (IT SERVICES) SHOULD BE 25.35% AS AGAINST THE 5% DETERMINED BY THE APPELLANT. VII) THAT THE LEARNED CIT(A) ERRED IN NOT HOLDING THAT COMPARABLES HAVE TO BE SELECTED ON THE BASIS OF DAT A AVAILABLE AT THE TIME OF PREPARATION OF THE TRANSFE R PRICING DOCUMENTATION AND NOT AS OF ANY SUBSEQUENT D ATE. VIII) THAT EVEN ASSUMING BUT NOT ADMITTING THAT DATA SUBSEQUENTLY AVAILABLE CAN BE USED SUCH DATA IS TO BE RESTRICTED TO COMPARABLES ORIGINALLY SELECTED BY THE APPELLANT. IX) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) ERRED (WHILE DETERMINING THE MAR K-UP ON TOTAL COST OF COMPARABLES UNDER TNMM) IN NOT INCLUDING THE DATA OF CERTAIN COMPARABLE COMPANIES IN THE LIST OF COMPARABLES SELECTED/CONSIDERED BY THE APPEL LANT PAGE 4 OF 31 ITA NO.974 & 983/BANG /2008 4 IN SUPPORT OF THE ARMS LENGTH NATURE OF ITS TRANSF ER PRICE. X) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) ERRED IN REINSTATING THE FOLLOWI NG COMPANIES NAMELY INTERTEC COMMUNICATIONS PRIVATE LIMITED AND IGATE GLOBAL SOLUTIONS LIMITED AS COMPARABLES FOR THE PURPOSE OF DETERMINING THE ARM S LENGTH PRICE OF IT SERVICES. XI) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTI ON OF THE ASSESSING OFFICER/TRANSFER PRICING OFFICER IN MAKING A PRESUMPTIVE ADJUSTMENT FOR NORMALIZATION O F EXPENSES FOR THE UNCONTROLLED COMPARABLE COMPANIES. XII) THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT IT WA S MANDATORY FOR THE ASSESSING OFFICER/TRANSFER PRICING OFFICER TO USE ONLY THE DATA OF COMPARABLE COMPANIES FOR THE SAME FINANCIAL YEAR AS UNDER APPEAL WHILE DETERMINING THE MARK-UP ON TOTAL COST OF COMPARABLE S UNDER TNMM. XIII) THAT THE LEARNED CIT(A) ERRED IN NOT CONSIDERING TH E RISK FREE NATURE OF THE APPELLANTS BUSINESS WHILE DETER MINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSAC TIONS. XIV) THAT THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE B ENEFIT OF +/-5% AS PROVIDED IN PROVISO TO SECTION 92C(2) O F THE ACT WHILE RECOMPUTING THE ARMS LENGTH PRICE. XV) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE CHAR GING OF INTEREST UNDER SECTION 234B AND 234D OF THE ACT. XVI) THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR AL TER AMEND RESCIND OR MODIFY THE GROUNDS TAKEN HEREINABO VE BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3.1 THE FACTS IN RELATION TO ASSESSEES APPEAL ARE AS FOLLOWS:- THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF THE TIMKEN COMPANY USA (ASSOCIATED ENTERPRISES). THE A SSESSEE UNDERTAKES THE FOLLOWING SERVICES TO ITS ASSOCIATED ENTERPRISE S:- RESEARCH AND DEVELOPMENT (R&D) SERVICES; INFORMATION TECHNOLOGY (IT) SUPPORT SERVICES; PAGE 5 OF 31 ITA NO.974 & 983/BANG /2008 5 CORPORATE SHARED SERVICES (BACK OFFICE SUPPORT SERV ICES); GLOBAL SOURCING SERVICES. FOR THE ABOVE SERVICES ACCORDING TO THE ASSESSEE IT WAS COMPENSATED ON A COST PLUS 5 PERCENT BASIS. 3.1.1 THE ASSESSEE FILED RETURN OF INCOME ON 30/10 /2004 DECLARING AN INCOME OF RS.54 70 420/-. THE ASSESSMENT WAS CO MPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 28/12/2006 FIXIN G THE TOTAL INCOME AT RS.5 24 37 710/-. THE ASSESSING OFFICER IN TRANSFE R PRICING ADJUSTMENT ADDED A SUM OF RS.4 52 05 820/- (ALP DIFFERENCE IN IT SERVICES RS.4 00 66 493/- + ALP DIFFERENCE IN R&D SERVICES O F RS.51 36 327/-). 3.2 ON APPEAL THE LEARNED CIT(A) RE-COMPUTED THE ADJUSTMENT TO ARMS LENGTH PRICE (ALP) UNDER SECTION 92CA BY ADOPT ING PLI (OPERATING PROFIT AS A PERCENTAGE OF OPERATING COSTS) AT 31.73 % FOR THE R&D SEGMENT AND 25.35% FOR THE IT SERVICES SEGMENT BEING THE AR ITHMETICAL MEAN AS AGAINST 30.09% AND 26.23% DETERMINED BY THE TPO. T HE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS:- I RECOMPUTED THE ADJUSTMENT TO THE ARMS LENGTH PR ICE UNDER SECTION 92CA BY ADOPTING THE PLI (OPERATING PR OFIT AS A PERCENTAGE OF OPERATING COSTS) AT 31.73% FOR R &D SEGMENT AND 25.35% FOR THE IT SERVICES SEGMENT BEIN G THE ARITHMETICAL MEAN AS AGAINST 30.09% AND 26.23% DETERMINED BY THE TPO. DESPITE ADOPTING THE ARITHME TIC MEAN AT A LOWER PERCENTAGE AS COMPARED TO THAT OF T HE TPO WITH REGARD TO THE IT SERVICES SEGMENT THE ADJUSTMENT TO THE ALP IS A HIGHER FIGURE DUE TO AN ARITHMETICAL ERROR WHICH SEEMS TO HAVE BEEN COMMITT ED IN THE TPOS COMPUTATION OF ALP ADJUSTMENT FOR THE IT PAGE 6 OF 31 ITA NO.974 & 983/BANG /2008 6 SERVICES SEGMENT WHICH THE ASSESSING OFFICER IS DIRECTED TO RECTIFY IN THE MANNER LAID DOWN BELOW: IT SERVICES SEGMENT : TABLE : 17 PARTICULARS AMOUNT IN (RS.) A) TOTAL OPERATING COST (EXCLUDING NON-OPERATING EXPENSES SUCH AS FOREX LOSS INTEREST ETC.) 19 96 33 798 B) NET MARGIN OF THE COMPARABLES IN TNMM AS DISCUSSED AFTER MAKING ADJUSTMENTS 25.35% C) ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS APPLYING THE NET MARGIN (19 96 33 798 X 125.35/100) 25 02 40 965 D) ALP OF THE INTERNATIONAL TRANSACTIONS AS PER THE BOOKS OF ACCOUNT 20 96 15 489 (E) ADJUSTMENT TO ALP UNDER SECTION 92CA (C-D) 4 06 25 476 R&D SERVICES SEGMENT: TABLE : 18 PARTICULARS AMOUNT IN (RS.) A) TOTAL OPERATING COST (EXCLUDING NON-OPERATING EXPENSES SUCH AS FOREX LOSS ETC.) 2 04 83 570 B) NET MARGIN OF THE COMPARABLES IN TNMM AS DISCUSSED AFTER MAKING ADJUSTMENTS 31.73% C) ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS APPLYING THE NET MARGIN (2 04 83 570 X 131.73/100) 2 69 83 006 D) ALP OF THE INTERNATIONAL TRANSACTIONS AS PER THE BOOKS OF ACCOUNT 2 15 07 749 (E) ADJUSTMENT TO ALP UNDER SECTION 92CA (C-D) 54 75 257 PAGE 7 OF 31 ITA NO.974 & 983/BANG /2008 7 3.3 THE DETAILED DETERMINATION OF ARMS LENGTH PRI CE (MARK-UP) BY THE ASSESSEE THE TPO AND THE CIT(A) WITH REFERENCE TO IT SUPPORT SERVICE AND R&D SERVICE ARE AS FOLLOWS:- 1. IT SUPPORT SERVICES: DETERMINATION OF ARMS LENGTH PRICE (MARK-UP) FOR F Y 2003-04 PARTICULARS THE APPELLANT THE TPO THE CIT(A) IT SUPPORT SERVICES MOST APPROPRIATE METHOD TRANSACTIONAL NET MARGIN MET HOD PROFIT LEVEL INDICATOR (PLI OPERATING PROFIT/TOTAL C OST FILTERS ADOPTED I) PROWESS & CAPITALINE DATABASE UPDATED UNTIL MAY 21 2004 II) KEYWORD SEARCH QUERY WAS APPLIED RESULTING IN 705 COMPANIES III) REJECTED COMPANIES FOR WHICH SUFFICIENT FINANCIAL DATA WAS NOT AVAILABLE. IV) REJECTED COMPANIES FOR WHICH SUFFICIENT DESCRIPTIVE INFORMATION IS NOT AVAILABLE TO DETERMINE COMPARABILITY. V) REJECTED COMPANIES THAT HAVE BEEN DECLARED SICK. VI) REJECTED COMPANIES THAT HAVE CEASED BUSINESS OPERATIONS OR ARE CURRENTLY INACTIVE. VII) REJECTED COMPANIES THAT HAVE EXPERIENCED EXCEPTIONAL YEAR OF OPERATION. I) REJECTED COMPANIES HAVING RELATED PARTY TRANSACTIONS > 25% OF TOTAL REVENUE. II) REJECTED COMPANIES HAVING FOREIGN EXCHANGE EARNING < 25% OF TOTAL REVENUE. III) REJECTED COMPANIES BASED ON FICTIONAL COMPARABILITY. IV) REJECTED COMPANIES INCURRING CONTINUOUS LOSSES. PAGE 8 OF 31 ITA NO.974 & 983/BANG /2008 8 VIII) REJECTED COMPANIES THAT ARE ENGAGED IN ACTIVITIES OTHER THAN PROVISION OF SERVICES. IX) REJECTED COMPANIES THAT ARE ENGAGED IN PROVISION OF SERVICES NOT COMPARABLE TO R&D SERVICES. X) REJECTED COMPANIES WHICH THEMSELVES HAD SUBMITTED TRANSACTION WITH RELATED PARTIES. XI) REJECTED COMPANIES FOR WHICH SEGMENTAL INFORMATION WAS NOT AVAILABLE/INSUFFICIENT TO UNDERTAKE ANALYSIS. XII) REJECTED COMPANIES THAT EXPERIENCE PERSISTENT OPERATING LOSSES. NUMBER OF COMPARABLES 24 12 14 FINANCIAL DATA OF COMPARABLES FINANCIAL DATA FOR FY 2001-02 FY 2002-03 AND FY 2003-04 (TO THE EXTENT AVAILABLE FOR THE LATEST YEAR) FY 2003-04 FY 2003-04 ARITHMETICAL MEAN OPERATING MARK UP ON COST 6.56% (POST WORKING CAPITAL ADJUSTMENT) 28.23% (WITHOUT WORKING CAPITAL ADJUSTMENT) 26.23% (WITH WORKING CAPITAL ADJUSTMENT) 28.10% (WITHOUT WORKING CAPITAL ADJUSTMENT) 25.35% (WITH WORKING CAPITAL ADJUSTMENT) ADJUSTMENT AMOUNT RS.4 00 66 493 RS.4 06 25 476 PAGE 9 OF 31 ITA NO.974 & 983/BANG /2008 9 II. RESEARCH & DEVELOPMENT SERVICES: DETERMINATION OF ARMS LENGTH PRICE (MARK-UP) FOR F Y 2003-04 PARTICULARS THE APPELLANT THE TPO THE CIT(A) IT ENABLED SERVICES MOST APPROPRIATE METHOD TRANSACTIONAL NET MARGIN MET HOD PROFIT LEVEL INDICATOR (PLI OPERATING PROFIT/TOTAL C OST NUMBER OF COMPARABLES 9 7 7 FINANCIAL DATA OF COMPARABLES FINANCIAL DATA FOR FY FY 2003-04 FY 2003-04 2001-02 FY 2002-03 AND FY 2003-04 (TO THE EXTENT AVAILABLE FOR THE LATEST YEAR) ARITHMETICAL MEAN OPERATING MARK UP ON COST 7.56% (POST WORKING 32.09% (WITHOUT 33.95% (WITHOUT CAPITAL ADJUSTMENT) WORKING CAPITAL WORKING CAPITAL ADJU STMENT) 30.09% ADJUSTMENT) (WITH WORKING CAPITAL 31.73% (WITH ADJU STMENT) WORKING CAPITAL ADJUSTMENT) ADJUSTMENT AMOUNT RS. 51 39 327/- RS.54 75 257/- 3.4 THE ASSESSEE BEING AGGRIEVED BY THE RE-COMPUTA TION OF ADJUSTMENT TO THE ALP IS IN APPEAL BEFORE US. 3.5 ALTHOUGH THE ASSESSEE HAS TAKEN 16 GROUNDS OF APPEAL IN THE COURSE OF HEARING OF THE APPEAL THE LEARNED AR SUB MITTED THAT THE INSTANT CASE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. (ITA NO .1231/BANG/2010 DATED 5 TH AUGUST 2011). HE CONFINED HIS ARGUMENT TO THREE A SPECTS NAMELY PAGE 10 OF 31 ITA NO.974 & 983/BAN G/2008 10 (I) THE COMPANY WHICH IS HAVING TURNOVER MORE THAN R S.1 CRORE BUT LESS THAN RS.200 CRORES ONLY SHALL BE TAKEN INTO CONSIDER ATION AS COMPARABLE SINCE THE ASSESSEE WAS HAVING A TURNOVER RANGE OF 20 CRORES; (II) TO GIVE THE STANDARD DEDUCTION OF 5% UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT; (III) WHEN COMPANIES WHICH ARE LOSS MAKING ARE EXCL UDED FROM THE COMPARABLES THEN SUPER PROFIT MAKING COMPANY SHOULD ALSO BE EXCLUDED. IT WAS SUBMITTED THAT THE ABOVE ISSUES WERE DELIBER ATED IN THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S GENISYS INTEGRATING SYSTE MS (INDIA) PVT. LTD. AND SPECIFIC DIRECTIONS WERE INCORPORATED IN THE OR DER THOUGH THE CASE WAS REMANDED BY THE TRIBUNAL TO THE ASSESSING OFFICER. 3.5.1 THE ASSESSEE ALSO FILED A PETITION FOR ADMIS SION OF ADDITIONAL DOCUMENTS. THE ADDITIONAL DOCUMENTS WERE FILED IN THE FORM OF A PAPER BOOK FILED ON 29/11/2011. THE PETITION FILED BY THE ASSE SSEE FOR ADMISSION OF THE ADDITIONAL EVIDENCE READS AS FOLLOWS:- THE APPELLANT WOULD LIKE TO SUBMIT THAT THE FOLLOW ING DOCUMENTS WHICH CAME IN THE PUBLIC DOMAIN SUBSEQUEN T TO THE PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS)-IV BANGAL ORE IS NOW SUBMITTED TO THE HONBLE TRIBUNAL SINCE IT IS VERY MUCH NECESSARY FOR THE DISPOSAL OF THE APPEAL AND RE NDER JUSTICE TO THE APPELLANT. PAGE 11 OF 31 ITA NO.974 & 983/BAN G/2008 11 SL. NO. CONTENTS PAGE NO. IN THE PAPER BOOK SUBMITTED ON NOVEMBER 29 2011 FROM TO 1 ANNEXURE C : CHAIRMANS LETTER TO THE BOARD OF DIRECTORS IN THE CASE OF SATYAM COMPUTERS SERVICES LTD. DATED JANUARY 7 2009 39 43 2 ANNEXURE G : EXCERPTS OF INTERVIEW WITH COO OF INFOSYS TECHNOLOGIES LTD. ON BRAND VALUE DATED JANUARY 12 2011 212 213 THE HONBLE TRIBUNAL WOULD NOTE THAT THE FINANCIAL OF SATYAM COMPUTER SERVICES LTD. CANNOT BE RELIED UPON AS THE SAME IS FALSIFIED OVER THE YEARS. THIS FACT CAM E TO THE NOTICE OF THE APPELLANT VIDE THE ABOVE MENTIONE D LETTER FROM CHAIRMAN OF SATYAM COMPUTER SERVICES LTD . DATED JANUARY 7 2009. HENCE THE SAME IS NOW RELI ED UPON BY THE APPELLANT FOR THE REJECTION OF THE COMPA NY AS COMPARABLE. ALSO AS SUBMITTED BEFORE THE HONBLE TRIBUNAL INF OSYS TECHNOLOGIES LTD. A COMPANY SELECTED AS COMPARABLE CHARGES PREMIUM IN THE PRICING FOR ITS SERVICES OVE R THE PEERS IN THE INDUSTRY DUE TO THE BRAND VALUE AND THE LEADING POSITION THAT IT ENJOYS. THEREFORE INFOSYS CANNOT BE COMPARED WITH THE CAPTIVE OPERATIONS OF T HE APPELLANT. THIS CLAIM OF THE APPELLANT IS SUBSTANT IATED BY THE ABOVE ARTICLE CAME IN THE PUBLIC DOMAIN ON JANU ARY 12 2011. AS MENTIONED EARLIER APART FROM THE ABOVE DOCUMENT S THE APPELLANT HAD ALSO SUBMITTED COPIES OF THE ANNU AL REPORTS OF THE COMPARABLES CONTESTED IN THE SYNOPSIS IN THE PAPER BOOK SUBMITTED ON NOVEMBER 29 2011. THE SE ANNUAL REPORTS CONTAIN FACTS WHICH CAME TO THE NOT ICE OF THE APPELLANT SUBSEQUENTLY AND NOW NECESSARY FOR THE DISPOSAL OF THE APPEAL EQUITABLY. FOR EASE OF REFERE NCE OF PAGE 12 OF 31 ITA NO.974 & 983/BAN G/2008 12 THE HONBLE TRIBUNAL FOLLOWING COPIES OF ANNUAL REP ORTS ARE SUBMITTED IN THE PAPER BOOK ON NOVEMBER 29 201 1. SL. NO. CONTENTS PAGE NO. IN THE PAPER BOOK SUBMITTED ON NOVEMBER 29 2011 FROM TO 1 ANNEXURE A : ANNUAL REPORT OF I-POWER SOLUTIONS INDIA LTD. FOR FY 2003-04. 13 37 2 ANNEXURE B : COMPUTATION OF MARK UP ON COST FOR I-POWER SOLUTIONS INDIA LTD. 38 38 3 ANNEXURE D : ANNUAL REPORT OF VMF SOFT TECH LTD. FOR FY 2003-04 44 73 4 ANNEXURE E : COMPUTATION OF BAD DEBTS AS A PERCENTAGE OF REVENUE IN THE CASE OF VMF SOFT TECH LTD. 74 74 5 ANNEXURE F : ANNUAL REPORT OF INFOSYS TECHNOLOGIES LTD. FOR FY 2003-04 75 211 6 ANNEXURE H : ANNUAL REPORT OF MAHINDRA CONSULTING LTD. FOR FY 2003-04 214 298 7 ANNEXURE I : ANNUAL REPORT OF CHERRYSOFT TECHNOLOGIES LTD. FOR FY 2003-04 300 321 8 ANNEXURE J : ANNUAL REPORT OF VIMTA LABS LTD. FOR FY 2003-04 322 365 SINCE THESE DOCUMENTS ARE NECESSARY FOR THE DISPOSAL OF THE APPEAL BEFORE THE HONBLE TRIBUNAL IT IS HUMBL Y PRAYED BEFORE THE HONBLE TRIBUNAL TO CONSIDER THESE DOCUMENTS AND AN OPPORTUNITY SHALL BE PROVIDED TO TH E APPELLANT TO PRESENT ITS ARGUMENTS IN RELATION TO T HE ABOVE COMPARABLES BEFORE DISPOSING THE MATTER. 3.5.2 THE LEARNED AR ESSENTIALLY SUBMITTED THAT THE SPECIFIC DIRECTIONS CONTAINED IN THE ORDER OF THE TRIBUNAL I N THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. (SUPRA) MAY BE INCORPORATED IN THIS PAGE 13 OF 31 ITA NO.974 & 983/BAN G/2008 13 CASE ALSO WHEREVER THE FACTS ARE FOUND IDENTICAL WH ILE REMANDING THE CASE TO THE AO. 3.6 THE LEARNED DR OPPOSED THE ADMISSION OF ADDITI ONAL EVIDENCE AND SUBMITTED THAT THE ASSESSEE OUGHT TO HAVE FILED THESE DOCUMENTS BEFORE THE AUTHORITIES BELOW. IT WAS CONTENDED THA T SINCE THESE DOCUMENTS WERE NOT FURNISHED EARLIER THEY SHALL NOT BE ADMITTE D. ALTERNATIVELY IT WAS STATED THAT IF THESE ARE ADMITTED IN EVIDENCE THEN AN OPPORTUNITY NEED TO BE GIVEN TO THE ASSESSING OFFICER FOR REBUTTAL. 3.7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE TRIBUNAL IN THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. (ITA NO.1231/BANG/2010 DATED 5 TH AUGUST 2011) HAD GIVEN SPECIFIC DIRECTION TO BE FOLLOWED BY THE TRANSFER PR ICING OFFICER. THE SPECIFIC DIRECTIONS ISSUED BY THE TRIBUNAL IN THE CA SE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. ARE REPRODUCE D BELOW FOR READY REFERENCE:- A) THE OPERATING REVENUE AND THE OPERATING COST OF THE TRANSACTIONS RELATING TO ASSOCIATED ENTERPRISES ONL Y SHALL BE CONSIDERED; B) THE COMPARABLES HAVING THE TURNOVER OF MORE THAN 1. 00 CRORE BUT LESS THAN 200.00 CRORES ONLY SHALL BE TAKE N INTO CONSIDERATION; C) ALL THE INFORMATION RELATING TO COMPARABLES WHICH A RE 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 B E USED AGAINST THE ASSESSEE IF THE ASSESSEE SO DESIRES; PAGE 14 OF 31 ITA NO.974 & 983/BAN G/2008 14 E) TO CONSIDER THE OBJECTIONS OF THE ASSESSEE THAT REL ATE TO ADDITIONAL COMPARABLES SOUGHT TO BE ADOPTED BY THE T PO AND PASS A DETAILED ORDER; AND F) TO GIVE THE STANDARD DEDUCTION OF 5% UNDER THE PROV ISO TO SECTION 92C(2) OF THE ACT. 3.7.1 THE ASSESSING OFFICER SHALL CONSIDER THE ABO VE DIRECTIONS CONTAINED IN THE ORDER OF THE TRIBUNAL IN M/S GENIS YS INTEGRATING SYSTEMS (INDIA) PVT. LTD. AND DECIDE WHETHER IT IS APPLICAB LE TO THE FACTS OF THE INSTANT CASE. ACCORDING TO THE LEARNED AR IF THE DICTUM LAID DOWN BY THE TRIBUNAL WITH REFERENCE TO THE TURNOVER FILTER IN T HE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. IS APPLIED TO THE FACTS OF THIS CASE MANY COMPANIES WHICH ARE SELECTED AS COMPARABLES IN THE TRANSFER PRICING ADJUSTMENT (SOFTWARE DEVELOPMENT SERVICE SEGMENT) W OULD BE REJECTED. ACCORDING TO THE LEARNED AR ADOPTING THE TURNOVER FILTER BETWEEN 1 CRORE TO 200 CRORES THE FOLLOWING COMPANIES SELECTED BY T HE CIT(A) WOULD BE REJECTED:- I-POWER SOLUTIONS INDIA LTD. IGATE GLOBAL SOLUTIONS LTD. (MASCOT SYSTEMS) INFOSYS TECHNOLOGIES LTD. LARSEN AND TOUBRO INFOTECH LTD. SATYAM COMPUTER SERVICES LTD. VMF SOFT TECH LTD. 3.7.2 THE ISSUE OF STANDARD DEDUCTION OF 5% AS PRO VIDED UNDER THE PROVISO TO SECTION 92A(2) BEFORE MAKING ADJUSTMENT FOR PRICE IS SQUARELY COVERED BY VARIOUS ORDERS OF THE TRIBUNAL NAMELY M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. M/S SAP LABS INDIA PVT. L TD. V ACIT 2010-TII-44- PAGE 15 OF 31 ITA NO.974 & 983/BAN G/2008 15 ITT-BANG-TP PHILIPS SOFTWARE CENTRE PVT. LTD. 26 S OT 226 AND MSS INDIA PRIVATE LIMITED 32 SOT 132. 3.7.3 THE ASSESSEE HAS FILED A PETITION FOR ADMISS ION OF ADDITIONAL DOCUMENTS. AS PER THE PROVISIONS CONTAINED IN RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES 1963 THE PARTIES SHALL NOT BE ENTITLED TO PRODUCE ADDITIONAL DOCUMENTS EITHER ORAL OR DOCUMENTARY BEFO RE THE TRIBUNAL. THE PROVISIONS CONTAINED IN THE SAID RULE ARE PARI MATERIA WITH THE ORDER 41 RULE 27 OF THE CODE OF CIVIL PROCEDURE 1908 WHICH ALSO DOES NOT ALLOW THE PARTIES TO APPEAL TO ADDUCE ANY ADDITIONAL EVIDENCE UNLESS A ND UNTIL SUCH EXCEPTIONAL CIRCUMSTANCES ARE SET OUT. IN THE PRESENT CASE TH E ASSESSEE HAD MOVED A PETITION FOR ADMISSION OF ADDITIONAL EVIDENCE. THE SE DOCUMENTS WERE NOT AVAILABLE WHEN THE PROCEEDINGS WERE PENDING BEFORE THE TPO AND THE CIT(A). IT CAME INTO THE PUBLIC DOMAIN SUBSEQUENT TO THE PROCEEDINGS BEFORE THE AUTHORITIES BELOW. THEREFORE THE ASSES SEE WAS PREVENTED FROM PRODUCING THE SAME. FOR PROPER APPRECIATION OF FAC TS AND FOR EQUITABLE DISPOSAL OF THE CASE THESE DOCUMENTS ARE VERY MATER IAL/ESSENTIAL AND GO TO THE ROOT OF THE CONTROVERSY. 3.7.4 AS REGARDS TO THE ADMISSION OF THE ADDITIONA L EVIDENCE THE HONBLE MADRAS HIGH COURT IN THE CASE OF ANAIKAR TR ADE AND ESTATES (P) LTD (NO.2) VS. CIT 186 ITR 313 HAS HELD AS UNDER: THE TRIBUNAL HAS DISCRETION TO ALLOW THE PRODUCTIO N OF ADDITIONAL EVIDENCE UNDER RULE 29 OF THE ITAT RULES 1963 IF THE TRIBUNAL REQUIRES ANY DOCUMENT TO BE PRODUCED OR AFFIDAVIT TO BE FILED TO ENABLE IT TO PASS ORDERS O R FOR ANY OTHER SUBSTANTIAL CAUSE IT MAY ALLOW THE DOCUMENT T O BE PAGE 16 OF 31 ITA NO.974 & 983/BAN G/2008 16 PRODUCED OR THE AFFIDAVITS TO BE FILED. EVEN IF THE RE WAS A FAILURE TO PRODUCE THE DOCUMENTS BEFORE THE ITO AND THE A.A.C THE TRIBUNAL HAS THE JURISDICTION IN THE INT ERESTS OF JUSTICE TO ALLOW THE PRODUCTION OF SUCH VITAL DOCUM ENTS. 3.7.5 IN THE PRESENT CASE ALSO THE DOCUMENTS FURN ISHED BY THE ASSESSEE ARE VITAL WHICH GO TO THE ROOT OF THE PRES ENT CONTROVERSY SO THESE ARE TO BE ADMITTED IN THE INTEREST OF NATURAL JUSTI CE BUT THESE DOCUMENTS ARE REQUIRED TO BE EXAMINED AND CONSIDERED AT THE L EVEL OF THE AO. WE THEREFORE SET ASIDE THE IMPUGNED ORDER AND REMAND THE PRESENT ISSUE BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH IN ACCOR DANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 3.7.6 FOR THE AFORESAID VIEW WE ARE ALSO FORTIFIE D BY THE DECISION OF THE ITAT DELHI BENCH F IN THE CASE OF UOP LIC V A DDITIONAL DIRECTOR OF INCOME-TAX INTERNATIONAL TAXATION CIRCLE 2(2) NEW DELHI (2007) 108 LTD 186 WHEREIN RELEVANT FINDINGS GIVEN IN PARAS NO 30 31 33 48 52 READ AS UNDER: 30. IT IS A SETTLED POSITION THAT PRODUCTION OF ADDITIONAL EVIDENCE AT THE APPELLATE STAGE IS NOT A MATTER OF RIGHT TO LITIGATING PUBLIC AND ALLOWING OF PRODUCTION OF ADD ITIONAL EVIDENCE IS IN THE DISCRETION OF THE TRIBUNAL. THE SAID DISCRETION HOWEVER IS TO BE EXERCISED JUDICIALLY A ND NOT ARBITRARILY. AS HELD BY HONBLE MADHYA PRADESH HIGH CO URT IN THE CASE OF CIT V. KUM. SATYA SETIA (1983) 143 IT R 486 IT IS WITHIN THE DISCRETION OF THE APPELLATE AUTHOR ITY TO ALLOW PRODUCTION OF ADDITIONAL EVIDENCE IF THE SAID AUTHO RITY REQUIRES ANY DOCUMENT TO ENABLE IT TO PASS ORDERS OR FOR ANY OTHER SUBSTANTIAL CAUSE. THE TRIBUNAL IS THE FINAL FACT FINDING BODY UNDER THE SCHEME OF THE INCOME TAX ACT PAGE 17 OF 31 ITA NO.974 & 983/BAN G/2008 17 1961 AND POWERS THEREFORE HAVE NECESSARILY TO BE EXERCISED BY IT FOR DECIDING THE QUESTIONS OF FACT. WHILE EXERCISING ITS POWERS IF THE TRIBUNAL IS OF THE OP INION THAT ADDITIONAL EVIDENCE IS MATERIAL IN THE INTEREST OF JUSTICE FOR DECIDING A PARTICULAR ISSUE ITS DISCRETION CANNOT BE INTERFERED WITH UNLESS IT HAS BEEN EXERCISED ON NON EXISTING OR IMAGINARY GROUNDS. IN THE CASE OR MAHAVIR SINGH ( SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE IT WAS HEL D THAT SECTION 107 OF CPC ENABLES AN APPELLATE COURT TO TA KE ADDITIONAL EVIDENCE OR TO REQUIRE SUCH OTHER EVIDEN CE TO BE TAKEN SUBJECT TO SUCH CONDITIONS AND LIMITATIONS AS ARE PRESCRIBED UNDER ORDER 41 OF RULE 27 OF CPC. IT WAS ALSO HELD THAT THE PARTIES ARE NOT ENTITLED AS OF RIGHT TO THE ADMISSION OF SUCH EVIDENCE AND THE MATTER IS ENTIRE LY IN THE DISCRETION OF THE COURT WHICH IS OF COURSE TO BE EX ERCISED JUDICIALLY AND SPARINGLY. IT WAS OBSERVED THAT ORDER 41 RULE 27 OF CPC ENVISAGES CERTAIN CIRCUMSTANCES WHEN ADDI TIONAL EVIDENCE CAN BE ADDUCED AND ONE OF SUCH CIRCUMSTANC ES IS WHERE THE APPELLATE COURT REQUIRES ANY DOCUMENT TO BE PRODUCED OR ANY WITNESS TO BE EXAMINED TO ENABLE IT TO PRONOUNCE JUDGMENT OR FOR ANY OTHER SUBSTANTIAL CAUS E. IT WAS ALSO CLARIFIED THAT THE EXPRESSION TO ENABLE I T TO PRONOUNCE JUDGMENT CONTEMPLATES A SITUATION WHEN T HE APPELLATE COURT FINDS ITSELF UNABLE TO PRONOUNCE JU DGMENT OWING TO A LACUNA OR DEFECT IN THE EVIDENCE AS IT S TANDS. IN THE CONTEXT IT WAS FURTHER CLARIFIED THAT THE ABIL ITY TO PRONOUNCE A JUDGMENT IS TO BE UNDERSTOOD AS THE ABI LITY TO PRONOUNCE A JUDGMENT SATISFACTORY TO THE IT MIND OF COURT DELIVERING IT. THIS POSITION WAS REITERATED AGAIN B Y THE HONBLE SUPREME COURT IN THE CASE OF SYED ABDUL KHAD ER VS. RAMI REDDY AIR 1979 S.C. 553 CITED BY THE LD. COUNSEL FOR THE ASSESSEE. IN THE CASE OF MUNICIPAL CORP. OF GREATER BOMBAY VS. LALA PANCHAN AIR 1965 S.C. 1008 CITED BY THE LD. COUNSEL FOR THE ASSESSEE IT WAS OBSERVED BY THE HONBLE SUPREME COURT THAT THE POWER TO ADMIT ADDITIONAL EVIDENCE DOES NOT ENTITLE THE APPELLATE COURT TO LET IN FRESH EVIDENCE ONLY FOR TH E PURPOSE OF PRONOUNCING JUDGMENT IN A PARTICULAR WAY PAGE 18 OF 31 ITA NO.974 & 983/BAN G/2008 18 AND IT IS ONLY FOR REMOVING A LACUNA IN THE EVIDENCE THAT THE APPELLATE COURT IS EMPOWERED TO ADMIT ADDITIONA L EVIDENCE. IN THE CASE OF ARJAN SINGH V. KARTAR SING H AIR 1951 S.C. 193 IT WAS HELD THAT THE DISCRETION GIVEN TO THE APPELLATE COURT BY ORDER 41 RULE 27 OF CPC T O RECEIVE AND ADMIT ADDITIONAL EVIDENCE IS NOT AN ARB ITRARY ONE BUT IS A JUDICIAL ONE CIRCUMSCRIBED BY THE LIMIT ATIONS SPECIFIED IN THAT RULE. IT WAS ALSO HELD THAT THE L EGITIMATE OCCASION FOR THE APPLICATION OF THE SAID RULE IS WH EN ON EXAMINING THE EVIDENCE AS IT STANDS SOME INHERENT LACUNA OR DEFECT BECOMES APPARENT. TO THE SIMILAR EFFECT IS ANOTHER DECISION OF HONBLE SUPREME COURT IN THE CASE OF NATHA SINGH VS. FINANCIAL COMMISSIONER TAXATION ALR 1976 S.C. 1053. 31. AS PER RULE 29 OF THE APPELLATE TRIBUNAL RULES 1963 THE TRIBUNAL HAS THE POWER TO ALLOW ADDITIONA L EVIDENCE NOT ONLY IF IT REQUIRES SUCH EVIDENCE TO E NABLE IT TO PRONOUNCE JUDGMENT BUT ALSO FOR ANY OTHER SUBSTANTIAL CAUSE. THERE MAY BE CASES WHERE EVEN THOUGH THE TRIBUNAL FINDS THAT IT IS ABLE TO PRONOU NCE JUDGMENT ON THE STAGE OF RECORD AS IT IS AND SO IT CANNOT STRICTLY SAY THAT IT REQUIRES ADDITIONAL EVIDENCE TO ENABLE IT TO PRONOUNCE JUDGMENT IT STILL CONSIDERS THAT IN THE INTEREST OF JUSTICE SOMETHING WHICH REMAINS OBSCUR E SHOULD BE FILED UP SO THAT IT CAN PRONOUNCE THE JUD GMENT IN A MORE SATISFACTORY MANNER. SUCH REQUIREMENT OF THE TRIBUNAL IS LIKELY TO ARISE ORDINARILY WHEN SOME INHE RENT LACUNA OR DEFECT BECOMES APPARENT UPON ITS APPRECIATION OF THE EVIDENCE. THE POWER OF THE TRIB UNAL TO ADMIT ADDITION EVIDENCE IN SUPPORT OF THE CLAIM IN APPEAL IS DISCRETIONARY AND NO FETTERS CAN BE IMPOSE D ON THE EXERCISE OF SUCH POWER. HOWEVER AS HELD BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF RAM PRA SAD SHARMA VS. CIT (1979) 119 ITR 867 AND BY THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF A. K. BABU KHAN VS. CWT (1976) 102 ITR 756 IT IS NOT AN ARBITRARY PO WER BUT IT IS A JUDICIAL ONE CIRCUMSCRIBED BY THE LIMITA TIONS GIVEN PAGE 19 OF 31 ITA NO.974 & 983/BAN G/2008 19 IN RULE 29 OF THE APPELLATE TRIBUNAL RULES 1963. T HE CONDITIONS PRECEDENT FOR THE EXERCISE OF POWER UNDE R RULE 29 MUST THEREFORE BE FOUND TO HAVE BEEN ESTABLISHED. HOWEVER WHERE THERE IS NO L ACK OF EVIDENCE BUT YET THE PLEA IN SUPPORT OF ADMITTING THE EVIDENCE IS SO DECISIVE AND OF CLINCHING VALUE WITH REFERENCE TO THE POINTS AT ISSUE IT IS OPEN TO THE TRIBUNAL TO INVOKE ITS POWER OF ALLOWING ADDITIONAL EVIDENCE TO RENDER SUB STANTIAL JUSTICE AND NOT TO DEPRIVE THE PARTY OF SUCH JUSTICE ON TECHNICAL GROUNDS. FURTHER AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF VELJI DOORAJ & CO. VS. CIT (19 68) 68 ITR 708 WHEN THE EVIDENCE WAS AVAILABLE TO THE PAR TY AT THE INITIAL STAGE AND HAD NOT BEEN PRODUCED BY HIM THE MERE FACT THAT EVIDENCE SOUGHT TO BE PRODUCED IS VITAL AND IMPORTANT DOES N OT PROVIDE A SUBSTANTIAL CAUSE TO ALLOW ITS ADMISSION AT THE APPELLATE STAGE. THE ADMISSIBILITY OF ADDITIONAL EVI DENCE DEPENDS ON WHETHER OR NOT THE SUBSTANTIAL CAUSE AND NOT TO ENABLE THE ASSESSEE OR THE DEPARTMENT TO TENDER FRESH EVIDENCE TO SUPPORT A NEW POINT OR TO MAKE OU T A NEW CASE. IN THE CASE OF N. KAMALAM (SUPRA) IT WAS HELD THAT THE PROVISIONS OF RULE 27 OF ORDER 41 OF CPC 1908 ARE NOT DESIGNED TO HELP PARTIES TO PATCH UP W EAK POINTS AND MAKE UP FOR OMISSIONS EARLIER MADE. 33. IT IS ALSO WELL SETTLED THAT ONCE ADDITIONAL EV IDENCE IS TAKEN INTO CONSIDERATION IT HAS TO BE READ AS P ART OR THE RECORD AND BEFORE DRAWING ANY INFERENCE ON THE BASIS OF CONTENTS OF THAT DOCUMENT ADMITTED AS ADDITIONAL EVIDENCE AN OPPORTUNITY HAS TO BE GIVEN TO THE OTHER SIDE TO EXPLAIN OR REBUT THE SAME. AS HEL D BY HONBLE MADRAS HIGH COURT IN THE CASE OF RSS SHANMUGAM PILLAI & SONS (SUPRA) IF THE TRIBUNAL FI NDS THAT THE DOCUMENTS FILED ARE QUITE RELEVANT AND FOR THE PURPOSE OF DECIDING THE ISSUE BEFORE IT IT WOULD B E WELL WITHIN ITS POWERS TO ADMIT THE EVIDENCE CONSIDER T HE SAME ON MERITS OR REMIT THE MATTER TO THE LOWER AUTHORITIES FOR EXAMINING THE SAME. IN THE CASE OF SMT. URMILA RATILAL (SUPRA) HONBLE GUJARAT HIGH COURT HAS PAGE 20 OF 31 ITA NO.974 & 983/BAN G/2008 20 HELD THAT WHEN THE ADDITIONAL EVIDENCE FIELD BY THE REVENUE WAS ADMITTED BY THE TRIBUNAL OVERRULING THE OBJECTION RAISED BY THE ASSESSEE INTEREST OF JUSTIC E DEMANDED THAT THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO EXPLAIN OR REBUT THE ADDITIONAL EVIDENCE BEFORE RELYING ON THE SAME. IN THE CASE OF CHARBHAI BIRI WORKS VS. ASSTT CIT (2003) 87 ITO 189 CITED BY THE LD. COUNSEL FOR THE ASSESSEE IT WAS HELD BY THE PUNE BENCH OF I TAT IN IT THIRD MEMBER DECISION THAT WHEN THE DOCUMENTS WHICH WERE NOT AVAILABLE BEFORE THE ASSESSING OFFIC ER WERE PRODUCED BEFORE THE TRIBUNAL FOR THE FIRST TIM E AND THE SAME WERE ADMITTED AS ADDITIONAL EVIDENCE BEING MATERIAL TO BE RESTORED TO THE FILE OF THE ASSESSIN G OFFICER TO VERIFY CORRECTNESS AND AUTHENTICITY OF SUC H DOCUMENTS AND TO ADJUDICATE THE MATTER AFRESH AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BE ING HEARD. 48. AS ALREADY NOTED THE ADDITIONAL EVIDENCE WOULD BE RELEVANT TO CONSIDER AND DECIDE THE CASE ALREADY MADE OUT BY THE REVENUE AND IT IS THEREFORE NOT A CASE OF TENDERING OF FRESH EVIDENCE BY THE DEPARTMENT TO SUPPORT A NEW POINT OR TO MAKE OUT A NEW CASE. ACCORDING TO US THE ADDITIONAL EVIDENCE FILED BY TH E REVENUE IS QUITE RELEVANT FOR THE PURPOSE OF DECIDI NG THE ISSUE BEFORE US AND THE SAME THEREFORE CAN BE ADM ITTED AS PER RULE 29 OF APPELLATE TRIBUNAL RULES 1963 AS HELD BY HONBLE MADRAS HIGH COURT IN THE CASE OF RSS SHANMU GAM PI1LAI & SONS (SUPRA). THE SAID ADDITIONAL EVIDENCE ALSO NEEDS TO BE TAKEN INTO CONSIDERATION IN THE INTEREST OF J USTICE FOR DECIDING THE ISSUE RELATING TO THE PE. 52. AS ALREADY NOTED THE ASSESSEE WAS GIVEN AN OPPOR TUNITY DURING THE COURSE OF HEARING TO ADVANCE THE ARGUMEN TS ON THE ADMISSION OF ADDITIONAL EVIDENCE AS WELL AS ON MERITS OF THE ISSUE TAKING INTO CONSIDERATION THE SAID ADDITI ONAL EVIDENCE AND AVAILING THIS OPPORTUNITY LD. COUNSEL FOR THE ASSESSEE HAS NOT ONLY RAISED ELABORATE ARGUMENTS ON BOTH THESE ASPECTS BUT HAS ALSO FILED A DETAILED WRITTE N PAGE 21 OF 31 ITA NO.974 & 983/BAN G/2008 21 SUBMISSION. IN THE SAID WRITTEN SUBMISSION AN ATTEM PT HAS BEEN MADE BY HIM TO EXPLAIN EACH AND EVERY DOCUMENT SOUGHT TO BE FILED BY THE REVENUE AS ADDITIONAL EVI DENCE IN ORDER TO REBUT THE CASE SOUGHT TO BE MADE OUT BY THE REVENUE RELYING ON THE SAME ON MERITS. KEEPING IN VI EW THE FACT THAT THE ADDITIONAL EVIDENCE SO PRODUCED BY THE REVENUE AS WELL AS ELABORATE EXPLANATION OFFERED BY HIM ASSESSEE TO REBUT THE SAME IS VOLUMINOUS RUNNING IN TO SEVERAL PAGES WHICH REQUIRES IN-DEPTH EXAMINATION WE FIND THAT IT WOULD BE FAIR AND PROPER AND IN THE INTERES T OF JUSTICE TO RESTORE THE ISSUE RELATING TO PE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH AFTE R EXAMINING THE ADDITIONAL EVIDENCE AS WELL AS EXPLAN ATION OFFERED BY THE ASSESSEE WHILE REBUTTING THE SAME. TH E ASSESSEE SHALL ALSO BE AT LIBERTY TO ADDUCE FURTHER EVIDENCE TO SUPPORT ITS CASE BEFORE THE ASSESSING OFFICER WH O SHALL TAKE INTO CONSIDERATION THE SAME IN ACCORDANCE WITH LAW. SINCE THE OTHER ISSUES RAISED IN THIS APPEAL RELATE D TO THE MAIN ISSUE OF PE WE DEEM IT APPROPRIATE TO RESTORE THESE ISSUES ALSO TO THE FILE OF THE ASSESSING OFFICER FO R FRESH DECISION ALONG WITH THE MAIN ISSUE. IN SO FAR AS T HE ISSUE RELATING TO THE LEVY OF INTEREST U/S 234B IS CONCERN ED THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED BEFORE US THAT THE SAME IS SQUARELY COVERED IN FAVOUR OF THE ASSES SEE BY THE DECISION OF DELHI SPECIAL BENCH OF ITAT IN THE CASE OF MOTOROLA INC. VS. DY. CIT (2005) 95 ITD 269. WE THEREFORE DIRECT THE ASSESSING OFFICER TO DECIDE T HE ISSUE RELATING TO LEVY OF INTEREST U/S 234B IN THE LIGHT OF THE DECISION OF SPECIAL BENCH IN THE CASE OF MOTORO LA INC (SUPRA). THE IMPUGNED ORDER OF THE LD. CIT(A) O N ALL THE ISSUES INVOLVED IN THE PRESENT APPEAL IS ACCORD INGLY SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION AS PER THE DIRECTIONS GIVEN HEREINABOVE. 3.7.7 IN VIEW OF THE ABOVE THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) IS SET ASIDE AND THE ISSUE IS REMANDED BACK TO THE FILE OF THE PAGE 22 OF 31 ITA NO.974 & 983/BAN G/2008 22 AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW A FTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. AS STATED EARLIER THE ASSESSING OFFICER SHALL CONSIDER WHETHER THE IS SUE THAT IS RAISED IN THE INSTANT CASE IS COVERED BY THE DICTUM LAID DOWN BY TH E TRIBUNAL IN THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. IT IS ORDERED ACCORDINGLY. 3.7.8 IN THE RESULT THE APPEAL FILED BY THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.983/BANG/2008 (REVENUES APPEAL) 4. THE EFFECTIVE GROUNDS RAISED BY THE REVENUE READ S AS FOLLOWS:- 2) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A. 3) THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE EXPENSES INCURRED FOR PURCHASE OF SOFTWARE ARE REVENUE IN NATURE WITHOUT CONSIDERING THE FACT THAT THE SOFTWARE IS GIVING ENDURING BENEFIT TO THE ASSESSEE. 4.1 THE FACTS IN RELATION TO GROUND NO.2 MENTIONED ABOVE ARE AS FOLLOWS:- THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT TO THE EXTENT OF RS.51 39 238/-. THE ASSESSING OFFICER RECALCULATED THE DEDUCTION BY REDUCING FROM THE EXPORT TURNOVER THE COMMUNICATION EXPENSES. THE ASSESSING OFFICER WHILE DOING SO HAD PLACED RELIANCE ON THE PAGE 23 OF 31 ITA NO.974 & 983/BAN G/2008 23 EXPLANATION 2(III) TO 10B. THE ASSESSING OFFICER A LSO REJECTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT IF THE COMMUNICATION EXPENSES ARE REDUCED FROM THE EXPORT TURNOVER WHILE CALCULAT ING DEDUCTION UNDER SECTION 10B OF THE ACT THE SAME SHOULD ALSO BE RED UCED FROM THE TOTAL TURNOVER. 4.2 THE CIT(A) ON APPEAL ACCEPTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO REDUCE THE COMMUNICATION EXPENSES BOTH FROM THE EXPORT TURNOVE R AS WELL AS FROM THE TOTAL TURNOVER. THE CIT(A) HAD PLACED RELIANCE ON THE ORDERS OF THE TRIBUNAL IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS (ITA NO.315/BANG/2006) & DCIT V BINARY SEMANTICS LTD. (10 9 TTJ 556). 4.3 AT THE VERY OUTSET IT WAS POINTED OUT BY THE LEARNED AR THAT THE ORDER OF TRIBUNAL RELIED ON BY THE FIRST APPELLA TE AUTHORITY HAS BEEN AFFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS (2011-TIOL-684-HC-KAR-II). 4.4 THE LEARNED DR WAS UNABLE TO CONTROVERT THE SU BMISSIONS MADE BY THE LEARNED AR. 4.5 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE HONBLE KARNATAKA HIGH COURT IN THE C ASE OF CIT V M/S TATA ELXSI LTD. & OTHERS HAD HELD THAT WHILE COMPUTING T HE EXEMPTION U/S 10A IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIV ED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT PAGE 24 OF 31 ITA NO.974 & 983/BAN G/2008 24 TURNOVER AS IT IS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT READS AS FOLLOWS:- ..SECTION 10A IS ENACTED AS AN INCENTIVE TO EXP ORTERS TO ENABLE THEIR PRODUCTS TO BE COMPETITIVE IN THE G LOBAL MARKET AND CONSEQUENTLY EARN PRECIOUS FOREIGN EXCHAN GE FOR THE COUNTRY. THIS ASPECT HAS TO BE BORNE IN MIN D. WHILE COMPUTING THE CONSIDERATION RECEIVED FROM SUC H EXPORT TURNOVER THE EXPENSES INCURRED TOWARDS FREI GHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABL E TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVIC ES OUTSIDE INDIA SHOULD NOT BE INCLUDED. HOWEVER THE WORD TOTAL TURNOVER IS NOT DEFINED FOR THE PURPOSE OF TH IS SECTION. IT IS BECAUSE OF THIS OMISSION TO DEFINE TOTAL TURNOVER THE WORD TOTAL TURNOVER FALLS FOR INTERPRETATION BY THIS COURT; ..IN SECTION 10A NOT ONLY THE WORD TOTAL TURNOVE R IS NOT DEFINED THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER. HOW EVER WHILE INTERPRETING THE PROVISIONS OF SECTION 80HHC THE COURTS HAVE LAID DOWN VARIOUS PRINCIPLES WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THERE SHOU LD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A I S A BENEFICIAL SECTION WHICH INTENDS TO PROVIDE INCENTI VES TO PROMOTE EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSIN ESS THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCER TAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNO VERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER W AS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN PAGE 25 OF 31 ITA NO.974 & 983/BAN G/2008 25 THE CASE OF SECTION 80HHC THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSXCESSEE WHEREAS IN SECTION 10-A THE EXPORT PRO FIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERT AKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS IN O THER WORDS EXPORT TURNOVER AND DOMESTIC TURNOVER. TO T HE EXTENT OF EXPORT TURNOVER THERE WOULD BE A COMMONA LITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERATOR I S TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TUR NOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR . THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TUR NOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERA TOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TU RNOVER IN SECTION 10A THERE IS NOTHING IN THE SAID SECTIO N TO MANDATE THAT WHAT IS EXCLUDED FROM THE NUMERATOR T HAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. WHEN THE STATUTE PRESCRIBED A FORMULA AND IN THE SAID FORMULA EXPORT TURNOVER IS DEFINED AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING TH E MEANING OF THE TOTAL TURNOVER WHEN THE TOTAL TURNO VER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARR IVING AT THE TOTAL TURNOVER WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. THUS THERE IS NO ERROR COMMITTED B Y THE TRIBUNAL IN FOLLOWING THE JUDGEMENTS RENDERED IN TH E CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. PAGE 26 OF 31 ITA NO.974 & 983/BAN G/2008 26 4.6 THE HONBLE MUMBAI HIGH COURT IN THE CASE OF G EM PLUS JEWELLERY INDIA LTD. (SUPRA) IN IDENTICAL CIRCUMSTA NCES HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVER I F AN ITEM IS EXCLUDED FROM THE EXPORT TURNOVER THE SAME SHOULD ALSO BE R EDUCED FROM THE TOTAL TURNOVER TO MAINTAIN PARITY BETWEEN NUMERATOR AND DE NOMINATOR WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELE VANT FINDING OF THE HONBLE MUMBAI HIGH COURT READS AS FOLLOWS:- THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPO RT AND THE TURNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE NUMERATOR IN THE FORMULA PRESCRIBED BY SUB-SECTION (4). EXPORT TURNOVER ALSO FORMS A CONS TITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPO RT 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 TUR NOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERT AKING OF ARTICLES THINGS OR COMPUTER SOFTWARE RECEIVED I N OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FO REIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGH T TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGI SLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURA NCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BE HALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHA RGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE HOWEVER MISSES THE POINT THAT THE EXPRESSION TOTAL TURNOVER HAS NOT BEEN D EFINED PAGE 27 OF 31 ITA NO.974 & 983/BAN G/2008 27 AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOW EVER THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AN D INSURANCE. SINCE EXPORT TURNOVER HAS BEEN 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 PROVISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PR EVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OT HER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE C ONTENTION OF THE REVENUE WERE TO BE ACCEPTED THE SAME EXPRES SION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNO TATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSIO N OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE THOUGH THESE HAVE BEEN SPECIFICALLY EXCLU DED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUME RATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMIN ATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISIO N WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVE R A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NO T HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTA L TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAV E ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURN OVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRI PTION TO THE CONTRARY CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 163 CTR (BOM) 596: (2000) 245 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE WORKS (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARMA (IN DIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON 4.7 IN THE CASE OF SAK SOFT LTD. (SUPRA) THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTWARE AND CLAIMED DEDUCTION U/S PAGE 28 OF 31 ITA NO.974 & 983/BAN G/2008 28 10B OF THE ACT. IN COMPLETING THE ASSESSMENT U/S 1 43(3) OF THE ACT THE AO REDUCED THE EXPENDITURE INCURRED IN FOREIGN EXCH ANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA FROM THE EXPORT T URNOVER WITHOUT CORRESPONDING REDUCTION FROM TOTAL TURNOVER THEREB Y REDUCING THE DEDUCTION CLAIMED BY THE ASSESSMENT U/S 10B OF THE A CT. 4.8 IN LIGHT OF THE ABOVE FACTS THE SPECIAL BENCH HELD AS UNDER:- FOR THE ABOVE REASONS WE HOLD THAT FOR THE PURPOS E OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTIO N 10B THE FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTA BLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE OUTSIDE INDIA OR THE EXPENSES IF ANY INCURRED IN F OREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AN D FROM THE TOTAL TURNOVER WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEAL S FILED BY THE DEPARTMENT ARE THUS DISMISSED. 4.9 IN THE LIGHT OF THE ABOVE JUDGEMENTS OF THE HO NBLE HIGH COURTS AND THE ORDER OF THE SPECIAL BENCH WE ARE O F THE VIEW THAT THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFI CER TO EXCLUDE THE ABOVE MENTIONED EXPENDITURE BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION UNDER SE CTION 10A OF THE ACT. THEREFORE THE ORDER OF THE CIT(A) IS CORRECT AND I N ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED FOR. IN THE RESULT G ROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 5. THE FACTS IN RELATION TO GROUND NO.3 IN REVENUE S APPEAL ARE AS FOLLOWS:- PAGE 29 OF 31 ITA NO.974 & 983/BAN G/2008 29 THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.52 02 93 4/- AS EXPENDITURE FOR PURCHASE OF DIFFERENT SOFTWARE LICE NCES. IT WAS DISALLOWED BY THE ASSESSING OFFICER SINCE ACCORDING TO HIM; THE SE LICENCES WERE VALID FOR MORE THAN ONE YEAR AND IT PROVIDE AN ENDURING BE NEFIT TO THE ASSESSEE. IT WAS CONCLUDED BY THE ASSESSING OFFICER THAT THESE EXPENSES ARE TO BE TREATED AS CAPITAL EXPENDITURE AND DEPRECIATION ON THE SAME WAS ALLOWED. 5.1 THE CIT(A) ON APPEAL PLACED RELIANCE ON THE OR DER OF THE TRIBUNAL IN THE CASE OF M/S SOFTWARE & SILICON SYSTE MS INDIA PVT. LTD. V ITO (ITA NO.44/BANG/2006 DATED 26/10/2007) AND DECI DED THE MATTER IN FAVOUR OF THE ASSESSEE. 5.2 AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 5.3 THE LEARNED DR SUBMITTED THAT THE ISSUE OF ALL OWANCE OF EXPENDITURE WITH REFERENCE TO PURCHASE OF SOFTWARE LICENCES HAS BEEN CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V M/S TOYOTA KRILOSKAR MOTORS PVT. LTD. (ITA NO.174/2009 D ATED 23 RD MARCH 2011). THE LEARNED DR ALSO RELIED ON THE ORDER OF THE SPECIAL BENCH IN THE CASE OF AMWAY INDIA ENTERPRISES V DCIT (301 ITR (AT) 1) AND STATED THAT THE CIT(A) HAD NOT ANALYSED THE VARIOUS TESTS THAT H AS BEEN LAID DOWN BY THE HONBLE SPECIAL BENCH TO DETERMINE WHETHER THE EXPENDITURE INCURRED FOR THE PURCHASE OF COMPUTER SOFTWARE IS CAPITAL OR REVENUE. 5.4 THE LEARNED AR ON THE OTHER HAND SUPPORTED THE ORDER OF THE FIRST APPELLATE AUTHORITY. PAGE 30 OF 31 ITA NO.974 & 983/BAN G/2008 30 5.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT V M/S TOYOTA KRILOSKAR MOTORS PVT. LTD. (ITA NO.174/2009 D ATED 23 RD MARCH 2011) HAS CONSIDERED WHETHER THE EXPENDITURE IN RES PECT OF PURCHASE OF SOFTWARE IS CAPITAL OR REVENUE. THE HONBLE HIGH C OURT AT PARA 3 OF ITS JUDGEMENT HELD AS FOLLOWS :- AS RIGHTLY POINTED OUT BY THE AUTHORITIES WHEN THE LIFE OF A COMPUTER OR SOFTWARE IS LESS THAN TWO YEARS AND AS SUCH THE RIGHT TO USE IT IS FOR A LIMITED PERIOD THE FEE PAID FOR ACQUISITION OF THE SAID RIGHT IS ALLOWABLE AS REVENUE EXPENDITURE AND THESE SOFTWARE IF THEY ARE LICENCED FOR A PARTICULAR PERIOD FOR UTILISING THE SAME FOR THE SUBSEQUENT YEARS FRESH LICENCE FEE IS TO BE PAID . THEREFORE WITHOUT RENEWING THE LICENCE OR WITHOUT PAYING THE FEE ON SUCH RENEWAL IT IS NOT POSSIBLE T O USE THOSE SOFTWARE. IN THOSE CIRCUMSTANCES THE FINDIN GS RECORDED BY THE AUTHORITIES THAT THE FEE PAID FOR OBTAINING THE SOFTWARE AND THE LICENCE AND FOR RENE WING THE SAME IS TO BE CONSTRUED AS ONLY REVENUE EXPENDIT URE DO NOT CALL FOR INTERFERENCE BY THIS COURT. 5.6 THE SPECIAL BENCH IN THE CASE OF AMWAY INDIA EN TERPRISES V DCIT (301 ITR (AT) 1) HAD LAID DOWN VARIOUS TESTS T O DETERMINE WHETHER THE EXPENDITURE INCURRED FOR PURCHASE OF COMPUTER SOFTW ARE IS CAPITAL OR REVENUE. IN THE INSTANT CASE THE CIT(A) DID HAVE THE BENEFIT OF THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT V M/S TOYOTA KRILOSKAR MOTORS PVT. LTD. (SUPRA) WHEN SHE P ASSED THE IMPUGNED ORDER. THE CIT(A) HAS ALSO NOT REFERRED TO THE OR DER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRIS ES (SUPRA). THE SPECIAL PAGE 31 OF 31 ITA NO.974 & 983/BAN G/2008 31 BENCH HAD LAID VARIOUS PRINCIPLES TO DETERMINE WHET HER THE EXPENDITURE INCURRED FOR THE PURCHASE OF A SOFTWARE LICENCE IS CAPITAL OR REVENUE. THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT AND THE ORDER OF THE SPECIAL BENCH CITED SUPRA ARE DIRECTLY APPLICABLE TO THE FAC TS OF THE INSTANT CASE. SINCE THE IMPUGNED ORDER OF THE CIT(A) DID NOT CONS IDER THE JUDGEMENT OF THE HONBLE HIGH COURT AND THE ORDER OF THE SPECIAL BENCH WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER TO THE ASSESSING O FFICER FOR AN ELABORATE DISCUSSION ON THE SAME. THE ASSESSEE SHALL PRODUCE THE DETAILS WITH REFERENCE TO THE EXPENDITURE INCURRED AND SHALL COO PERATE WITH THE ASSESSING OFFICER FOR EXPEDITIOUS DISPOSAL OF THE M ATTER. IT IS ORDERED ACCORDINGLY. THEREFORE GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF FEBRUARY 2012 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR ITAT BANGALORE.