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TMI Blog2016 (9) TMI 1488X X X X Extracts X X X X X X X X Extracts X X X X ..... n 67 Taxman.com 159(Bang.Trib.). He submitted a copy of the Tribunal order and drawn our attention to para-10 on pages-11 to 26, as per which the Tribunal has held that these 12 comparables are not good comparables. 5. Regarding ground no.5, he placed reliance on the Tribunal order rendered in the case of M/s Sony India (P) Ltd. Vs. DCIT 114 ITD 448 (Del.). He also placed reliance on the Tribunal order rendered in the case of ACIT Vs M/s Conexant Systems Pvt. Ltd., in ITA No.4359(Del/2009 dated 27-11-2015 and also on another Tribunal order rendered in the case of M/s Petro Araldite Pvt. Ltd., Vs DCIT in ITA No.1538/Mum/2014 dated 19-09-2014 and he submitted copy of these three Tribunal orders. 6. As against this, the ld. DR of the revenue supported the orders of the authorities below. Regarding ground no. 5 of the assessee's appeal, he placed reliance on the Tribunal order rendered in the case of M/s LG Soft India Pvt. Ltd. in IT(TP)A No.1121/Bang/2011 dated 22-03- 2013 and he submitted a copy of this Tribunal order and in particular our attention was drawn to para-4.5 of this Tribunal order and it was pointed out that as per the Tribunal order, the matter was restored back to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of this company as a comparable on the ground that this company is not functionally comparable to the assessee as it is into software products whereas the assessee offers software development services to its AEs. The TPO had rejected the objections of the assessee on the ground that this comparable company has categorized itself as a pure software developer, just like the assessee, and hence selected this company as a comparable. For this purpose, the TPO had relied on information submitted by this company in response to enquiries carried out under section 133(6) of the Act for collecting information about the company directly. 7.2 Before us, the learned Authorised Representative reiterated the assessee's objections for the inclusion of this company from the list of comparable companies on the ground that this company is not functionally comparable to the assessee as it is into software products. It is also submitted that the segmental details of this company are not available and the Annual Report available in the public domain is not complete. It was further contended that the information obtained by the TPO under section 133(6) of the Act, on the basis of which the TPO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to the facts of the assessee's case also. Unless the facts and the FAR analysis of Triology case is comparable to that of the assessee in the case on hand, comparison between the two is not tenable. (ii) After demonstrating the similarity and the comparability between the assessee and the Triology case, the assessee also needs to demonstrate that the facts applicable to the Assessment Year 2007-08, the year for which the decision in case of Triology E-Business Software India Pvt. Ltd. (supra) was rendered are also applicable to the year under consideration i.e. Assessment Year 2008-09. 9.5.3 It is a well settled principle that the assessee is required to perform FAR analysis for each year and it is quite possible that the FAR analysis can be different for each of the years. That being so, the principle applicable to one particular year cannot be extrapolated automatically and made applicable to subsequent years. To do that, it is necessary to first establish that the facts and attendant factors have remained the same so that the factors of comparability are the same. Viewed in that context, the assessee has not discharged the onus upon it to establish that the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tra, the learned Departmental Representative supported the order of the TPO / DRP for inclusion of this company Avani Cincom Technologies Ltd. in the final set of comparables. 7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In these circumstances, it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. No furnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable. 7.6.2 We also find substantial merit in the contention of the learned Authorised Representative that this company has been selected by the TPO as an additional comparable only on the ground that this company was selected in the earlier year. Even in the earlier year, it is seen that this company was not selected IT(TP)A 1380/Bang/2012 Page 7 of 34 on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as SaaS (Software as a Service). 8.3 Per contra, the learned Departmental Representative opposed the exclusion of this company from the list of comparable companies. The learned Departmental Representative contended that since the assessee had accepted the TPO's proposal for inclusion of this company in the set of comparables and had not objected to its inclusion even before the DRP, the objections raised by the assessee in this regard, at this stage, ought to be rejected. 8.4.1 We have heard both parties and perused and carefully considered the material on record. Admittedly, there is no disputing the fact that the assessee had never objected to the inclusion of this company in the set of comparbales in earlier proceedings before the TPO and the DRP. It is also seen that even in the grounds of appeal raised before us, the assessee has not raised any grounds challenging the inclusion of this company in the list of comparbales. In fact in the assessee's own case for Assessment Year 2007-08, this company was selected as a comparable by the assessee itself. We, therefore, find no merit in the contentions raised by the learned Authorised Representative of the assessee in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustments, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the assessee in this regard." (iv) The rejection / exclusion of this company as a comparable for Assessment Year 2007-08 for software service providers has been upheld by the co-ordinate benches of this Tribunal in the cases of LG Soft India Pvt. Ltd. in ITA No.112/Bang/2011, CSR India Pvt. Ltd. in IT(TP)A No.1119/Bang/2011 and by the ITAT, Delhi Bench in the case of Transwitch India Pvt. Ltd. in ITA No.6083/Del/2010. (v) The facts pertaining to this company has not changed from Assessment Year 2007- 08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability in the instant case and hence ought to be rejected. In support of this contention, the assessee has also referred to and quoted from various parts of the Annual Report of the company. 9.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparable comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to be omitted from the list of comparables. The A.O./TPO are accordingly directed. 10. KALS Information Systems Ltd. 10.1 This is a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on grounds of functional differences and that the segmental details have not been provided in the Annual Report of the company with respect to software services revenue and software products revenue. The TPO, however, rejected the objections of the assessee observing that the software products and training constitutes only 4.24% of total revenues and the revenue from software development services constitutes more than 75% of the total operating revenues for the F.Y. 2007- 08 and qualifies as a comparable by the service income filter. 10.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee and ought to be rejected /excluded from the list of comparables for the following reasons:- (i) This company is functionally different from the software activity of the assessee as it is into software products. (ii) This company has been held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s.133(6) of the Act. This information which was not in the public domain ought not to have been used by the TPO, more so when the same is contrary to the Annual Report of the company, as pointed out by the learned Authorised Representative. We also find that the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) and in the case of Triology E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of coordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company's Annual Report to establish that this company is IT(TP)A 1380/Bang/2012 Page 9 of 34 functionally dis-similar and different form the assessee and that since the findings rendered in the decisions of the coordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining these items and in allowing relief to the taxpayer. Accordingly, she insisted upon afresh examination and an external auditor certification be carried out and revenue be allowed to rebut the claim of the taxpayer. 106.2 After considering the facts and circumstances of the case, we do not see any good ground for not permitting the taxpayer to raise the ground before the Income Tax Appellate Tribunal which is clearly arising out of the impugned order. As noted earlier, the revenue has not challenged relevant part of the order of the CIT(A). Therefore, the objection now being taken by the ld. DR is not justified. On merit, we see no good reason to exclude provisions written back as not forming part of computing operating profit of the taxpayer. In our considered opinion, exclusion of above provision is based upon misconception of real nature of the entry generating income. It is not practically possible for a businessman to actually disburse all expenses incurred by it in the financial year and therefore, a large number of business liabilities (manufacturing included) are provided in the accounts of a given year. It is elementary that there is no difference between actual dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises are making and writing back liabilities as a normal incident of operating business. The expenses for which provisions were originally made were considered operating in nature and allowed in assessment. These provisions no longer required by the taxpayer during the year under review were reversed in the books of account as per mercantile system of accounting and shown as income. Therefore, on facts we do not see any jurisdiction for excluding provisions written back in profit and loss account as not forming part of the operating profit of the taxpayer. Accordingly, claim of the taxpayer is accepted". 10. By respectfully following the Tribunal order, we direct the AO/TPO that excess provision written back in the P&L account should be accepted as forming part of operating profit of the assessee. Ground no.5 of the assessee is also allowed. 10. Before parting, we consider the applicability of the Tribunal order rendered in the case of LG Soft India Pvt. Ltd., Vs DCIT (Supra) on which reliance has been placed by the ld. DR of the revenue. We find that the ld. DR of the revenue has drawn our attention to para-4.5 of this tribunal order, but in this Para of the Tribunal order, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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