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TMI Blog2019 (10) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... the AMP expenditure. In the present case, the only ground on which the Ld. TPO and the Ld. DRP have concluded that the AMP expenditure constitutes an international transaction is the excessive quantum of expenditure which is stated to be much above the bright line of the average AMP spend of the comparable companies. This approach, to our mind, is contrary to law and untenable. A perusal of the terms of the MDF agreement shows that the reimbursement of a portion of the advertising and marketing expenditure incurred by the assessee by its AE is on a preapproval basis and under an annual budget decided solely by the AE. The nature of reimbursement received is a form of assistance or subsidy and does not arise on account of any service rendered by the assessee. There is no obligation on the AE to approve any particular item of expenditure. It is solely on its own volition that the AE determines the activity it wants to finance/reimburse/assist. Therefore, it is not possible to infer the existence of an international transaction beyond what has been reimbursed. The arrangement and understanding were limited to the amounts agreed to be paid as assistance under the MDF Agreement. The amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween AMP expenditure and brand-value. Brand value is a far more complex concept than mere AMP expenditure. Brand is an intangible asset that encapsulates the reputation of an entity and a reputation is built over a long period of time primarily on the basis of trust it invokes. Year to year AMP expenditure may vary due to market conditions, but the brand value does not get altered in proportion to expenditure. AMP function itself is a complex activity involves several nuanced aspects of marketing management targeted towards increasing sales. Such an exercise is sometimes premised on product promotion and sometimes brand messaging and occasionally for brand familiarization. But the core of brand value is not determined by the quantum of expenditure incurred but the overall level of trust inspired in the minds of the consumers. If the Indian distributor has been deprived of the opportunity of recovering its investment in AMP, it could be a valid reason for a transfer pricing adjustment because third parties would not agree to a premature termination of this kind without demanding compensation. Therefore, the question of compensating the taxpayer for any loss suffered due to excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e due to paucity of data or comparables, the RPT threshold may have to be relaxed upwards for reasons of practicality. However, in situations where sufficient numbers of comparables are available by applying a lower threshold, the same should be preferred as the results are likely to be more accurate. The same view has been expressed by the coordinate Bench in the case of Motorola Solutions India Pvt. Ltd [ 2014 (10) TMI 358 - ITAT DELHI] . We accordingly hold that since in the given situation sufficient numbers of comparables are available even by following the lower level of threshold of 15%, the same should be followed. Deferred revenue expenditure - AO held that the benefit of expenditure on recruitment and training of employees is not restricted to one year and accordingly has to be apportioned over 6 years - HELD THAT:- The said issue is covered by decision of Hon ble Delhi High Court in Assessee s own case for AY 1999-2000, 2002-03 and AY 2003-04 wherein the Delhi High Court affirmed the decision of this Hon ble Tribunal allowing the deduction of expenditure incurred on recruitment and training of employees. The Ld. Counsel submitted that the Ld. AO erred in treating it as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not allowable under the Act. Therefore, in the current year, on the reversal of the said amount, the same should be allowed to be reduced in computing the total income else it would lead to double taxation of the same. The decision of the coordinate Bench in the case of Johnson Matthey India Pvt. Ltd. [2013 (8) TMI 830 - ITAT DELHI] cited by the appellant is applicable to the present facts - we allow this ground and direct the AO to allow this deduction. X X X X Extracts X X X X X X X X Extracts X X X X ..... R&D expenses Purchase of sales promotion material Resale Price Method ('RPM') Gross Profit/Sales 14.48% 6.45% Class III - Sales and Post-sales support Service Income Transactional Net Margin Method('TNMM') Operating Profit /Total Cost 20.43% .12% Class IV - Contract Software Development Software development services Transactional Net Margin Method ('TNMM') Operating Profit / Total Cost 15% 13% Class V Reimbursement of expenses Comparable Uncontrolled Price Method ('CUP') NA NA NA Class VI Payment of royalty Comparable Uncontrolled Price Method ('CUP') NA NA NA Class VII - Miscellaneous expenses/transactions Import of capital goods and spare parts Payment of IT related fees Payment of service expenses Payment of technical assistance fees Payment for service fee, training fees etc Comparable Uncontrolled Price Method ('CUP') NA NA NA 4. The dispute in the appeals for the A.Y. 2005-06 filed by the appellant and the cross appeal filed by the Revenue pertains to the international transactions grouped under Class-I (manufacturing) segment and Class-II (distribution) segment. There is no dispute in respect of the ALP of the international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for determining of arm's length price. Under the TNMM, he selected operating profit margin on revenues (OP/OR; OP = operating profit/ OR = operating revenue) as the profit level indicator for both the segments. Further, the TPO while computing the PLI of the assessee for manufacturing and distribution segments increased the quantum of operating expenditure for computing the operating profit by ₹ 142.39 crores. The aforesaid amount of ₹ 142.39 crores had been received by the assessee during the relevant financial year from its parent company as a reimbursement under an assistance agreement referred to as Marketing Development Fund (MDF) Agreement. In terms of MDF agreement, the assessee had received the assistance from its parent company to conduct certain marketing activities. This amount has been shown as reimbursement in the Form 3CEB and in the transfer pricing study report and was reduced from the expenditure shown under the head "advertisement". Accordingly, in the profit and loss account of the financial statement under head "advertisement" expenditure only the net amount was shown, though the gross amount expended for advertisement was ₹ 306.38 crores, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, Marketing and Promotion ("AMP") expenses incurred by the assessee company as he was of the view that the assessee has provided certain services in respect of creation of marketing intangibles, to its AE. The TPO was of the view that any AMP expenditure incurred by the assessee over and above the average AMP spentby the comparable companies was extraordinary in nature and incurred for the benefit of the AE which owned the "Samsung" brand. The TPO worked out the average AMP spend by the comparables at 1.05% of the Sales, whereas the assessee was at 7.71% of the Sales and treated the difference as the value for the brand promotion service which the assessee had provided to its AE. He accordingly proposed that, this amount should have been recovered by the assessee from its AE. The approach followed by the TPO in respect of this adjustment was as under: Particulars Amount (Rs.) Total Income (A) 39,741,026,611 Advertisement and sales promotion expenses incurred (B) 3,063,811,643 AMP / Total Income of SIEL (C) = (B)/(A) 7.7094% Bright Line (AMP/total income of comparables) (D) 1.05% AMP as per bright line ('E) = (A)*(D) 417,280,779 Excess Amount Spent on Advertisement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances, the CIT(A) has followed the prior year's order; (d) The CIT(A) ordered the exclusion of four companies, namely, Khaitan Electricals Ltd, Hotline Teletube & Components Ltd, Samtel India Ltd and Samtel Colour Ltd. from the list of comparables for the Class I Manufacturing segment as these companies had substantial related party transactions. The value of transactions as a percentage of sales was in excess of the generally accepted limit of 15%.; (e) In the Class II segment, the CIT(A) ordered the exclusion of Control Print (India) Ltd. from the list of comparable companies as in the prior assessment year 2004-05 on identical facts it had been held by his predecessor that this company is functionally dissimilar to the appellant's distribution business; (f) Similarly, another company Gemini Communication Ltd. was also held to be incomparable to the appellant's Class II distribution business on account of functionally dissimilarity. This company was found to be engaged in end to end IT solutions and provision of services; (g) The CIT(A) held that the TPO's approach of relying on three years' average data to determine the average profit margin of the comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ALP of the excess AMP expenditure. He held as below: "Now, since the ground of appeal regarding upward adjustment of TP has been allowed by taking a view that he reimbursement of marketing expenses shall form part of operating profits, the issue of excess of advertisement expenses has to be decided separately. The AO has not made separate addition on this account because this addition already stands included in upward adjustment of TP and therefore this addition was in effect eclipsed by the addition made on account of TP. Now since the eclipse caused by the TP addition has been removed, the addition on account of excess advertisement expenses becomes apparent. As it is not a new addition made by the AO on account of TP, no notice of enhancement is required to be given to the appellant. The appellant has not submitted any substantial argument on this issue and has simply argued that since the products that were advertised in India were not dealt with anyone else in India therefore benefit of such expenditure enures to no one else. TPO has already taken care of this argument. TPO has worked out excess advertisement expenses by making proper comparative analysis. I therefore ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , one common issue permeating in all the appeals (i.e. AY 2005-06, 2007-08 to 2011-12), except for AY 2006-07, pertains to the transfer pricing adjustment on account of AMP expenditure which we will deal firstly, as it is one of the core issues contested by the parties before us. The remainder of the issues shall be dealt with appeal wise subsequently in this order. Adjustment made in respect of Advertising and Marketing Promotion (AMP) Expenditure involved in Assessee's appeals for AY 2005-06 (Ground No. 3.1 to 3.6); 2007-08 (Ground No. 1.1 to 1.3); 2008-09 (Ground No. 2.1 to 2.12); 2009-10 (Ground No. 1 to 12); 2010-11 (Ground No. 1 to 11); and 2011-12 (Ground No. 2 to 12) 14. Grounds 3.1 to 3.6 taken by the appellant in its appeal for AY 2005-06 are as below: GROUND NO. 3.1: The AO/CIT(A) has erred by not providing reasons for rejecting the analysis undertaken by the appellant for benchmarking the international transaction pertaining to reimbursement of advertisement expenses. GROUND NO. 3.2: The CIT(A) has erred in not providing an opportunity of being heard to the appellant and mechanically accepting the secondary analysis (of determining the arm's length price of mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12, wherein the TPO applied the BLT to benchmark the AMP expenditure. In AY 2007-08, the TPO made an addition on account of excess AMP expenditure of ₹ 131,13,25,080/- after applying a mark-up of 12%. In AY 2008-09, the TPO proposed an adjustment of ₹ 454,94,35,445/- which was revised to ₹ 48,40,26,768/- by the Dispute Resolution Panel (DRP). In AY 2009-10, the TPO worked out the average AMP/Sales of the comparables at 3.66% as against 9.19% in the case of the Appellant (rectified to 9.03% of sales vide rectification order dated 06 March 2013) and considered this difference as the value of the service which the Appellant had provided to its AE and he proposed an adjustment of ₹ 455,53,39,101/-. In AY 2010-11, the TPO proposed an adjustment of ₹ 740,15,52,834/- (₹ 102,15,61,275/- under the IT business and ₹ 637,99,91,559/- under the Non-IT business) with respect to AMP expenses. In AY 2011-12, the TPO proposed an adjustment of ₹ 1188,41,38,456/- (₹ 122,22,38,922/- under the IT business and ₹ 1066,18,99,534/- under the Non-IT business) which was reduced to ₹ 39,43,68,561/- (i.e. ₹ 31,31,05,771/- under the non-IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the same Indian entity, it would be illogical for the Revenue to contend that such an entity should be treated in the same manner as an Indian distributor which distributes goods imported from a foreign manufacturer under a brand owned by an AE on the ground that by incurring "excessive" AMP expenditure, the brand-owner AE stands to gain at the expense of the Indian entity. 19. He submitted that Samsung is a globally well-known name in consumer goods industry and the strength of the brand enhances the sale of consumer goods by it in India, while competing with other domestic and global brands operating in the Indian market. It is the assessee, an Indian Company, who is actually benefitted by being able to exploit the license for the use of brands granted by the licensor. Had the taxpayer sold these goods under an unknown brand name, products could not have stood in competition against other reputed brands in the market. The primary benefit is of the assessee who is selling the goods in India and the benefit obtained by the licensor is only incidental. As per the Ld. Counsel, after the decisions of Maruti Suzuki, Whirlpool and Bausch & Lomb (supra), there is no room for any conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a capped budget set by the AE. It is a pure assistance or subsidy received by the appellant and does not arise from a service rendered by the appellant. The appellant as a matter of right cannot demand this assistance. The AE in its own discretion determines the annual budget and approves specific marketing activities for the appellant. Therefore, the only international transaction with an ascertainable price is limited to the reimbursement received by the appellant under the MDF agreement. Not even a single rupee beyond the amount received as reimbursement can be treated as an international transaction. 22. The Ld. CIT (DR) Mr. Chaudhary, on the other hand, argued that the existence of the MDF agreement between the appellant and the AE clearly demonstrated that there existed an understanding between the two parties that AMP expenditure would be incurred by the appellant on behalf of the AE for the promotion of the brand owned by the AE. He further argued that on account of this agreement, the value of this international transaction cannot be limited to the amount of reimbursement received (₹ 142.39 crores for AY 2005-06) but extended to the entire quantum of AMP expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chapter which contains the official position of the Indian Govt. on marketing intangibles, it has been clearly stated that instead of applying the bright line test, it would be better to focus on the marketing function of the Indian entity vis-a-vis the comparables chosen for benchmarking. He further contended that the Hon'ble Delhi High Court in the decisions of Maruti Suzuki, Whirlpool (supra) and others has recognised the fact that AMP expenditure are incurred in respect to third party costs insofar as these represent amounts paid or payable to unrelated parties (media houses, advertising agencies, marketing bodies etc.) and cannot be treated as related party transactions merely because some incidental benefit is said to accrue to the AEs. 24. The Ld. Counsel also made a without prejudice argument regarding the quantum and composition of AMP expenditure taken by the TPO. The TPO while determining the value of international transaction of AMP and its ALP has taken into account expenditure which is purely selling and operational expenses and have no nexus with brand promotion or advertising in any manner. These expenses include purely operational expenses incurred in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High Court in Sony Ericsson (supra) has held that, once the profit margin of the manufacturing and distribution segments are tested under TNMM, all the international transactions which are clubbed in the segment stand fully covered by the TNMM analysis. In such a situation, it would be illogical and incongruous to treat AMP expenditure as a separate transaction and subject the same to a Bright line test on a stand-alone basis. Under TNMM, the net margin of the segment is tested and since the net margin is computed after taking into account the entire AMP expenditure, the impact of AMP is fully captured in the TNMM analysis. Furthermore, he argued that the TPO has changed the comparables used in the TNMM benchmarking analysis which implies that he has applied his mind on the comparability of the companies chosen for the comparison under TNMM. The TPO not only had changed the comparables but had also changed the method of computation of the profit level indicator. The CIT (A) further had an occasion to examine both the aspects and has given his clear findings on both these aspects. Once the TNMM analysis has been subject matter of analysis at the hands of TPO and the CIT (A), it wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value has gone up over a long period of time and a portion of this enhancement is attributable to successful AMP campaigns conducted by the Indian affiliate. Even in these situations, the benefit to the brand owner AE has to be treated as incidental and not a guiding force for the AMP expenditure incurred by the Indian assessee. The Ld. Counsel further submitted that if an assessee exercises long-term distribution and long-term licensing manufacturing rights, it is implicit that any investment in AMP whether high or low is towards its own sales. The return on investment is expected to be reaped over a period of time as SIEL as an exclusive distributor/licensed manufacturer in India is alone entitled to benefit from this investment. 30. The Ld. Counsel submitted that empirical and scholarly studies have shown that within a sector or industry there is huge variation of AMP expenditure among competitors. Various competitors place differing levels of importance on advertising and brand promotion depending upon their understanding and belief regarding the impact of advertising on sales. Empirical studies have shown that there is no positive correlation between advertising and increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the determination of the ALP of the same has been remanded to the TPO in view of the principles laid down in Sony Ericsson decision of the High Court (supra). In this case, in an agreement between BMW India and its AE BMW Germany, it was found that the BMW India represented the interests of BMW Germany. It was found that BMW India was responsible for the sale promotion and full utilization of the market potential for the Contract Goods in India. Further, it was found that BMW India undertook the performance of adequate advertisement and sales promotion as well as public and media relations activities for BMW Germany and not on its own volition. Under these circumstances, it was held that there is an Agreement between BMW India and BMW Germany for promoting BMW brand in India which constituted an international transaction. He further submitted that even in the present case there is an agreement between the assessee and its AE whereby the assessee is undertaking marketing and advertising activity at an extensive level and this activity is being carried out at the behest of the AE and the brand development benefit is solely derived by the AE itself. Such an arrangemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mark-up on the excess AMP expenses. He submitted that no mark-up must be charged on the same as the consumer electronics and IT hardware industry is highly competitive in nature, featured by aggressive marketing strategies undertaken by various players in the industry due to various factors such as price sensitivities, different preferences in urban and rural markets etc. to create/retain the customer base. It is extremely important for the players in this industry to undertake such strategies to create/maintain their market position. He contended that payments made to third parties such as advertisement agencies, printing press etc. should be excluded from the cost base while computing a mark-up and the same does not reflect the value addition/ efforts of the assessee and are merely third-party costs. In this regard, he has placed his reliance on ITAT decision in the case of Cheil Communications India Private Limited (2011) 46 SOT 60. Protective Assessment in AY 2005-06 35. As regards the approach of the TPO to make a "protective assessment", the ld. Counsel submitted that such an approach is impermissible in law. Protective assessment cannot be made in the hands of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of an "international transaction" within the meaning of Section 92B unless the conditions laid down in the provision are met. Section 92B covers transactions between AEs having cross-border element (i.e., involving a non-resident). Section 92B also contemplates existence of international transactions where the parties are not related to each other and don't qualify as AEs under Section 92A of the Act. These situations are those where though in form the transaction is entered into between unrelated parties the substance of the same is governed by an understanding or arrangement between AE of one party with another enterprise.Therefore, for any transaction of AMP entered into between the assessee and another enterprise which is not an AE u/s 92A of the Act, this understanding or arrangement has to be shown to exist. If the assessee denies having any such arrangement or understanding with its AE or when there is no apparent material on record to show that there exists any agreement, arrangement or action in concert between the two related parties, the onus rests on the Revenue to demonstrate the same before it can apply the provisions of Chapter X on the AMP expenditure. In the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further there was an agreement to enter into an international transaction concerning AMP expenses". (Para 37). (e) As regards the presumption for imposing a transfer pricing adjustment in relation to AMP, the Court held that "37. The provisions under Chapter X do envisage a 'separate entity concept'. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that AMP expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA." (Para 37) (f) There is no machinery provision in the Act to bring an international transaction involving AMP expense under the ambit of transfer pricing provision if it cannot be shown that such an international transaction was entered into by the assessee. In Court's words, "It is in this context that it is submitted and rightly by the Assessee that there must be a machinery provision in the Act to bring an international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. In the present facts, we find that this transaction of having received assistance /reimbursement has already been shown by the assessee in its Form 3CEB as an international transaction. It has been contended by the Revenue that by virtue of this agreement, the entire AMP expenditure incurred by the assessee should be treated as an international transaction and subject to the provisions of Chapter X of the Act. 41. We find that the Appellant-assessee has entered into an understanding with its AE in respect of a portion of the AMP expenditure by way of the MDF agreement. Under this agreement, the AE of the assessee gives assistance to the assessee for carrying out certain advertising and marketing activities in India. Varying amounts have been received by the assessee from its AE under this agreement as reimbursements in all the assessment years impugned before us. The amounts received as assistance under this agreement in all these years have also been indisputably disclosed and explained in the Form 3CEB and in the TP study. The question that requires our adjudication is whether by virtue of this agreement, the so-called "excessive" AMP expenditure of the assessee (which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsor, intent ad PR Marketing infrastructure Market research, consulting, market data subscription database Other marketing infrastructure activities Promotion Sales promotion activities Dealer support activities (dealer convention, product training, incentive tour) Exhibition, trade, roadshow Sales kit and POP materials Shop display Samsung shop corner Rack & shop light box Other store display activities A perusal of the aforesaid terms of the MDF agreement shows that the reimbursement of a portion of the advertising and marketing expenditure incurred by the assessee by its AE is on a preapproval basis and under an annual budget decided solely by the AE. The nature of reimbursement received is a form of assistance or subsidy and does not arise on account of any service rendered by the assessee. There is no obligation on the AE to approve any particular item of expenditure. It is solely on its own volition that the AE determines the activity it wants to finance/reimburse/assist. Therefore, it is not possible to infer the existence of an international transaction beyond what has been reimbursed. 42. In a similar situation, coordinate Bench of this Tribunal has examined th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to show the existence of any agreement, understanding or arrangement between the assessee company and AE regarding the quantum of AMP spent or it was spent on behest of AE. The TPO has not recorded or identified any such separate arrangement or agreement that AMP expenses incurred by the assessee company are in pursuance of any agreement or arrangement. It is also not the case of the Department that the expenses which has been incurred by the assessee company during the course of its business have any bearing whatsoever on any other international transaction with the AE, other than reimbursement of expenditure of ₹ 33.60 crores as discussed above. 53. Section 92B defines the international transaction in the following manner: - "(1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall be classified as international transaction. From the above, definition, apart from transaction relating to purchase, sale or lease of tangible or intangible property, services lending or borrowing money, etc. functions having bearing on the profits, income, losses or assets is reckoned as international transaction. Besides this, if such a transaction is based on any mutual agreement or arrangement between the AEs for allocation or any contribution to any cost or expenditure incurred or to be incurred for the benefit, service or facility, then also such an agreement or arrangement is treated as international transaction. Clause (v) of Section 92F reads as under: "92F (v). "transaction' includes an arrangement, understanding or action in concert, - (A) Whether or not such arrangement, understanding or action is formal or in writing; or (B) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings." This definition of transaction has to be read in conjunction with the definition given in section 92B, which means that the transaction has to be first in the nature given in Section 92B (1); and then when such transaction includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , firstly, the transaction involved was between the AE, one of which is resident and other a non-resident was involved; and secondly, the transaction of AMP expenses has taken place between the two AEs (except for reimbursement of ₹ 33.60 crore). Now it has been well settled by the Hon'ble Jurisdictional High Court in the case of Maruti Suzuki India Pvt. Ltd. (supra) that onus is upon the Revenue to demonstrate that there existed an arrangement between the assessee and its AE under which assessee was obliged to incur excess amount of AMP expenses to promote the brands owned by the AE. The relevant observation and the finding of the Hon'ble High Court in paragraph 60 reads as under: "60……Even if the resort is had to the residuary part of clause (b) to contend that the AMP spend of MSIL is "any other transaction having a bearing" on its "profits, income or losses" for a 'transaction' there has to be two parties. Therefore, for the purposes of the 'means' part of clause (b) and the 'includes' part of clause (c,) the revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between MSIL and SMC whereby MSIL is obliged to spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the scope and value of international transaction cannot be expanded beyond the reimbursements received under MDF agreement to cover the entire gamut of AMP expenditure incurred by the assessee during the year. 45. Now the second issue before us is, whether: "Bright Line Test" a valid test that can be used by the TPO to determine the existence of an international transaction and also for the determination of its arm's length value? In all the years under appeal, the TPO has applied the "Bright Line" Test to determine the "excessive" AMP expenditure incurred by the Appellant. This "excessive" amount has been treated as a separate international transaction and subject to transfer pricing adjustment. The "bright line" test which was first approved by a Special Bench of this Tribunal in LG Electronics now stands rejected by the Delhi High Court decision in Sony Ericsson. In Sony Ericsson, the Hon'ble High Court examined the concept of "bright line" in the context of domestic law and international jurisprudence and arrived at a conclusion that such an approach is untenable and contrary to law and not sanctioned by international jurisprudence. The concluding remarks of the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of all the transactions that are accounted for within the net profit margin stand fully accounted for. In the present case, the reimbursement received by the Appellant from its AE under the MDF Agreement for a part of the AMP expenditure forms part of the operating income as well as expenditure which goes into the computation of the net profit margin (which is profit level indicator). Once a group of transactions pertaining to operating income and expenditure are being tested under TNMM, it would not be open for the Revenue to segregate one item of expenditure/income for a separate benchmarking unless for cogent reasons it is of the view that a TNMM is not the most appropriate method to test all the international transactions together. In such a situation the Revenue would have to test each of the transactions separately and not leave any of the transactions untested leading to an incongruous situation. We are fortified in our view by the decision of the Hon'ble Delhi High Court in the case of Sony Ericsson (supra) wherein the Court observed as below: "101. However, once the Assessing Officer/TPO accepts and adopts TNM Method, but then chooses to treat a particular expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to market conditions, but the brand value does not get altered in proportion to expenditure. AMP function itself is a complex activity involves several nuanced aspects of marketing management targeted towards increasing sales. Such an exercise is sometimes premised on product promotion and sometimes brand messaging and occasionally for brand familiarization. But the core of brand value is not determined by the quantum of expenditure incurred but the overall level of trust inspired in the minds of the consumers. The Hon'ble Delhi High Court in the case of Sony Ericsson (supra) has examined this aspect in detail. The relevant observations are extracted below: "103. Brand has been described as a cluster of functional and emotional values. It is a matter of perception and reputation as it reflects customers' experience and faith. Brand value is not generated overnight, but is created over a period of time, when there is recognition that the logo or the name guarantees a consistent level of quality and expertise. Leslie de Chernatony and McDonald have described "a successful brand is an identifiable product, service, person or place, augmented in such a way that the buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which it is said to be composed. The goodwill of a business is one whole, and in a case like this it must be dealt with as such. For my part, I think that if there is one attribute common to all cases of goodwill it is the attribute of locality. For goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again………. " 104. "Brand" has reference to a name, trademark or trade name. A brand like 'goodwill', therefore, is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. To use words from CIT v. Chunilal Prabhudas& Co. AIR 1971 Cal 70, it would mean: '& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfrastructure, know-how, ability to compete with the established market leaders. Brand value, therefore, does not represent trademark as a standalone asset and is difficult and complex to determine and segregate its value. Brand value depends upon the nature and quality of goods and services sold or dealt with. Quality control being the most important element, which can mar or enhance the value. 106. Therefore, to assert and profess that brand building as equivalent or substantial attribute of advertisement and sale promotion would be largely incorrect. It represents a coordinated synergetic impact created by assortment largely representing reputation and quality. There are a good number of examples where brands have been built without incurring substantial advertisement or promotion expenses and also cases where in spite of extensive and large scale advertisements, brand values have not been created. Therefore, it would be erroneous and fallacious to treat brand building as counterpart or to commensurate brand with advertisement expenses. Brand building or creation is a vexed and complexed issue, surely not just related to advertisement. Advertisements may be the quickest and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 44 of AS-26, it is stated that intangible asset arising from development will be recognised only and only if amongst several factors, it can demonstrate a technical feasibility of completing the intangible asset so that it will be available for use or sale and the intention is to complete the intangible asset for use or sale is shown or how the intangible asset will generate probable future benefits, etc. 109. The aforesaid position finds recognition and was accepted in CIT v. B.C. Srinivasa Setty [1981] 2 SCC 460, a decision relating transfer to goodwill. Goodwill, it was held, was a capital asset and denotes benefits arising from connection and reputation. A variety of elements go into its making and the composition varies in different trades, different businesses in the same trade, as one element may pre-dominate one business, another element may dominate in another business. It remains substantial in form and nebulous in character. In progressing business, brand value or goodwill will show progressive increase, but in falling business, it may vain. Thus, its value fluctuates from one moment to another, depending upon reputation and everything else relating to business, per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit earning machinery in motion or not for earning profits." (Also see, CIT v. Spice Distribution Ltd. [2015] 229 Taxman 400/54 taxmann.com 325 (Delhi) by the Delhi High Court on 19th September, 2014; and CIT v. Salora International Ltd. [2009] 308 ITR 199 111. Accepting the parameters of the 'bright line test' and if the said parameters and tests are applied to Indian companies with reputed brands and substantial AMP expenses, would lead to difficulty and unforeseen tax implications and complications. Tata, Hero, Mahindra, TVS, Bajaj, Godrej, Videocon group and several others are both manufacturers and owners of intangible property in the form of brand names. They incur substantial AMP expenditure. If we apply the 'bright line test' with reference to indicators mentioned in paragraph 17.4 as well as the ratio expounded by the majority judgment in L.G. Electronics India (P) Ltd case (supra) in paragraph 17.6 to bifurcate and segregate AMP expenses towards brand building and creation, the results would be startling and unacceptable. The same is the situation in case we apply the parameters and the 'bright line test' in terms of paragraph 17.4 or as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when 86 marketing its products using the trade mark and the brand of AE. Even otherwise also, the value of the brand which has been created in India by the assessee company will only be relevant when at some point of time the foreign AE decides to sell the brand, then perhaps that would be the time when brand value will have some significance and relevance. But to make any transfer pricing adjustment simply on the ground that assessee has spent advertisement, marketing expenditure which is benefitting the brand/trademark of the AE would not be correct approach. Thus, this line of reasoning given by the TPO is rejected." 49. In PepsiCo (supra), this Tribunal, while examining the AMP issue examined the implications of the recent developments in transfer pricing spearheaded by OECD in its Base Erosion and Profit Shifting (BEPS) project and observed as below: "61. Further in the final report of Action 8-10 of Base Erosion and Profit Shifting Project (BEPS) of OECD titled as "Aligning Transfer Pricing Outcomes with Value Creation'. It has been suggested that no adjustment is required on AMP expenditure incurred by full-fledged manufacturers. The report contains various examples per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally developed intangible, if the legal owner performs no relevant 88 functions, uses no relevant assets, and assumes no relevant risks, but acts solely as a title holding entity, the legal owner will not ultimately be entitled to any portion of the return derived by the MNE group from the exploitation of the intangible other than arm's length compensation, if any, for holding title." From the above quoted passage, it can be seen that the guidelines clearly envisage that legal ownership of intangibles, by itself, does not confer any right ultimately to retain returns derived by MNE group from exploiting the intangibles, even though such returns is initially accruing to the legal owner as a result of its legal/contractual right to exploit the intangible. The return depends upon the functions performed by the legal owner, assets it uses, and the risks assumed; and if the legal owner does not perform any relevant function, uses no relevant assets, and assumes no relevant risks, but acts solely as a title holding entity, then the legal owner of the intangible will not be entitled to any portion of the return derived by the MNE group from the exploitation of the intangible other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome is unclear. The following observations made by the coordinate bench in MSD Pharmaceuticals Pvt. Ltd. (supra) make this amply clear: "The very concept of protective addition is relevant only when an income is to be added in the hands of more than one taxpayer, in a situation in which there is an element of ambiguity as to in whose hands the said income can be rightly brought to tax. That's not the case before us. In our humble understanding, therefore, the concept of 'protective assessment', as is known to the income tax law, has no application in the cases like the one before us." 52. The last issue before us is: If AMP expenditure incurred by the Appellant is held to be an international transaction, can it include selling costs within its ambit? Further, would the Appellant be eligible to receive a mark-up on the AMP expenditure to capture the arm's return on the cost? Since we have held that there is no international transaction in the nature of AMP expenditure which needs to be subjected to Chapter X analysis, these issues are rendered infructuous and academic. 53. Thus, in view of our finding given above we hold that, no adjustment can be made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil 55. The Ld. Counsel submitted that no adjustment to the ALP could be made as under the Proviso to Section 92C(3), if the difference between the price recorded in the books and the ALP determined was less than 5%, no adjustment could be made. The Ld. CIT (DR) relied on the orders of the TPO and the CIT(A). 55. In view of the details submitted by the assessee which have not been disputed or controverted by the Ld. CIT(DR), it is apparent that by applying the permissible 5% margin under the second Proviso to Section 92C(2), no adjustment is warranted. Accordingly, this ground is allowed and the adjustment made by the Ld. CIT (A) is directed to be deleted. 56. GROUND NO. 5: This Ground has not been pressed by the assessee and is accordingly dismissed. GROUNDS IN DEPARTMENT'S APPEAL (ITA No. 3410/Del/12) FOR AY 2005-06 GROUND NO. 1: The Ld. CIT (A) has erred in excluding certain comparables while benchmarking international transactions under Class I - Manufacturing and Class II - Distribution Segment. 57. The Assessee is engaged in manufacturing of consumer electronics, home appliances &colour monitors (known as Class IManufacturing segment) which includes the import of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case from AY 2004-05 and AY 2005-06. The functional description of this company and that of the appellant has remained the same and hence the decision of the prior year should be followed. (c) The company is engaged in backward integration and indigenous manufacturing of components (glass shells) and derives sizeable portion of income from manufacture of glass shells, funnels and panels which are used in manufacturing of colour TV. Videocon enjoys cost benefits due to captive manufacturing of CTV shells. The Ld. Counsel relied on the decision of this Tribunal in the case of Sony India P. LTD V DCIT [2008] 114 ITD 448 (Del) in this regard where on similar facts Videocon was held to be incomparable to Sony India, a company that was engaged in the manufacture of TVs and other consumer goods, on the ground that it undertakes manufacturing of components for CTV units which renders it functionally incomparable to companies which import the same parts. 61. We have analyzed the functional and product profile of Videocon and find that it is a component manufacturer, whereas the assessee's manufactured goods are in the category of finished goods. Though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able companies are available for determination of arm's length price, then such tolerance limit is proper.The Ld. Counsel for the Assessee placed reliance on LSI Technologies India Private Limited vs. ITO (IT (TP)A Nos.1380 & 1381/Bang/ 2010) and Textron India Pvt. Ltd. v. DCIT (IT(TP)ANo.1228/Bang/2010, etc). 66. We have heard the parties and also perused the relevant finding and the material referred to before us. The exercise of determination of arm's length price u/s 92 of the Act entails finding comparable uncontrolled transactions/entities for the purpose of comparison. If the levels of related party transactions are higher the "uncontrolled" nature of the comparable transaction or entity is diluted and the comparability is compromised. Therefore, in principle, lower the level of RPT, more accurate the result is likely to be. However, if sufficient number of comparables is not available due to paucity of data or comparables, the RPT threshold may have to be relaxed upwards for reasons of practicality. However, in situations where sufficient numbers of comparables are available by applying a lower threshold, the same should be preferred as the results are likely to be more a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree of divergence is acceptable both in respect of product difference and functional difference. 71. The Ld. Counsel for the Assessee submitted that the company should not be taken as a comparable due to following reasons: (a) ________________________________ The same was included by the TPO by merely relying on his own order for AY 2004- 05 without conducting any functional analysis. This was excluded as a comparable by CIT(A) in AY 2004-05 as well. And the Department did not file an appeal on this issue against the order of the CIT(A) for AY 2004-05. (b) ________________________________ The company is not a trader but a manufacturer cum assembler of solvents, inkrolls, coding machines. It has a completely different functional profile as it is engaged manufacturing of marking and coding machines. Not only the activity is different, the products are also completely dissimilar. 72. We have perused the Annual Report of this company and we find that this company is engaged in manufacturing activity. The products are also very dissimilar to those traded by the assessee in its Class II segment. The financials of this company state that it has a single segment comprising of, "C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ells communication equipment as well. The solutions comprise of LAN and WAN designs, ITeS consulting solutions, data center design solutions, security consulting solutions etc. Entire revenue has been reported under a single segment of network products and services. These facts show that the CIT (A) has rightly ordered its exclusion on account of functional dissimilarity. The assessee in its Class II segment is engaged in pure trading/distribution of consumer electronics, home appliances, monitors and other products. The factors of comparability provided in Rule 10B (2) are not satisfied at all and accordingly we hold that the Ld. CIT (A) has rightly ordered its exclusion. GROUND NO. 2: DISALLOWANCE OF EXPENDITURE ON RECRUITMENT AND TRAINING 77. The Ld. Counsel submitted that the said issue is covered by decision of Hon'ble Delhi High Court in Assessee's own case for AY 1999-2000, 2002-03 and AY 2003-04 wherein the Delhi High Court affirmed the decision of this ITAT of allowing the deduction of expenditure incurred on recruitment and training of employees. The Ld. AO erred in treating it as a deferred revenue expenditure on the assumption that recruitment expenses will result in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import of finished goods, import of stores and service spares, service income from hand held phones RPM GPM 10.15% 9 8.69% 80. The dispute in the present appeal (ITA No. 5856/DEL/2010) filed by the appellant pertains to the international transactions grouped under Class-I and Class-III (manufacturing) segment and Class-II and Class-IV (trading) segments. There is no dispute with respect to Class V (contract software development and reimbursement of expenses) transactions. 81. In Class-I (manufacturing segment) the appellant was engaged in the manufacturing of consumer electronic goods and home appliances and in Class-III (manufacturing segment), the appellant was engaged in the manufacturing of colour monitors. Transactional Net Margin Method was chosen as the most appropriate method in its transfer pricing study for both these segments. The profit level indicator taken was operating profit/operating revenue. For the benchmarking exercise in Class-I and Class-III segments, an economic analysis was carried out in the TP study leading to identification of 6 and 5 uncontrolled comparable companies respectively. Since the appellant had earned profit margin of 2.22% and 6.8% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement". Accordingly, in the profit and loss account of the financial statement under head "advertisement" expenditure only the net amount was shown. Though the gross amount expended for advertisement was ₹ 229.84 crores, on account of reimbursement received of ₹ 86.22crores, the net amount of ₹ 229.84-₹ 86.22 crores = 143.61 crores was shown as the net advertisement expenditure. The TPO concluded that this was an erroneous approach and was of the view that the entire amount of ₹ 229.84 crores incurred under the head "advertisement" should be taken into account to compute operating profit and the operating profit margin. This approach and calculation of the TPO was based on a similar approach adopted in the prior assessment years. Accordingly, while the operating expenditure under the head advertisement was increased from ₹ 143.61 crores to ₹ 229.84 crores leading to fall in operating profit and margin, the corresponding reimbursement of ₹ 86.22 crores received from the appellant's parent company was not included as part of the revenue. Based on this approach, the operating profit margin (OP/OR) of Class-I and Class-III manufacturing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In pursuance to the DRP Directions, the AO passed the final assessment order dated 19th October 2010. Aggrieved by the order of the AO (impugned order), the assessee has preferred the present appeal and has prayed for adjudication of the following grounds of appeal. GROUNDS IN APPELLANT'S APPEAL (ITA No. 5856/DEL/10) FOR AY 2006-07 GROUND NO. 1 & 2: These are general in nature. GROUND NO. 3 & 4.1: These Grounds have not been pressed by the assessee. These grounds are accordingly dismissed as not being pressed. GROUND NO. 4.2: That on facts and in law, the TPO/AO has erred in rejecting Voltas Limited as a comparable company for benchmarking the international transactions under Class II (trading of consumer electronics and home appliances segment) 89. The Ld. TPO has rejected Voltas Ltd. on the sole ground that the company is persistently making losses with declining net margins and the Ld. DRP has upheld the Ld. TPO's reasoning. The Ld. Counsel for the Appellant submitted that this comparable has been accepted by the Ld. TPO in AYs. 2004-05 and 2008-09. The Ld. Counsel submitted that Voltas has 4 segments i.e. Electromechanical Projects and Services, Engineering Produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurring losses, the comparable cannot be excluded. The Hon'ble Ahmedabad ITAT reiterated the above position by relying on Quark Systems supra in the case of Erhardt+Leimer (India) Private Limited vs ACIT (ITA Nos. 3298/Ahd/2011 & 2880/Ahd/2012; (c) ________________________________ In the case of Chryscapital Investment Advisors (India) Pvt. Ltd. Vs. DCITDelhi)/[2015] 376 ITR 183 (Delhi), the Hon'ble jurisdictional High Court reiterated the same position supra that it is a settled law that comparables cannot be excluded merely on the ground that it is making abnormally high profits or losses. 91. The Ld. Counsel further relying on 24/7 Customer.Com (P.) Ltd. v. DCIT [2013] 21 ITR (Trib) 514 (Bangalore) submitted that when in a particular assessment year, if Arithmetic Mean Method has been applied, comparables with abnormal profits/losses cannot be excluded. This is for the reason that up until April 1, 2014, Indian transfer pricing regulations followed the Arithmetic Mean Method which took into account all comparables irrespective of their margin variance and calculates the average of all comparables for calculating the ALP. In contrast to this, post April 1, 2014, Indian t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin of 4% in the relevant segment. It has also been contended that its net worth has not been rendered negative and has shown consistent increase in turnover from F.Y. 2003-04 onwards for five years in a row. In our view while examining whether a company can be excluded on the ground of persistent losses, a long term trend has to be seen and at least a period of 3 years (current year and two prior years) is mandatory under Rule 10B(4). This is an exercise which has not been carried out by the TPO. We accordingly set aside this matter to the file of the TPO to determine whether Voltas had shown losses in the three years covered under Rule 10B (4) and whether its net worth had been rendered negative. If both the conditions are found to have been met, i.e., three years continuous losses leading to erosion of net worth, Voltas would have to be excluded. If it is found to have failed either or both of the conditions, it shall be retained as a comparable. While determining this, the TPO shall take into account only that segment of Voltas which is comparable to that of the assessee, i.e., cooling products. This ground is therefore disposed off in terms of the above directions. GROUND N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied vehemently on the orders of the Ld. TPO and DRP and submitted that the company was functionally comparable to the appellant and was rightly included in the list of comparables by the Ld. TPO. He further submitted that Bajaj Electricals was chosen by the assessee itself as a comparable and it cannot now ask for its exclusion. The Ld. CIT (DR) further submitted that fans as a product falls under the category of home appliances and though the assessee is not trading in fans, it is engaged in trading of other home appliances and under TNMM broad level of product similarity is required. 99. We have perused the order of the Ld. TPO and the DRP in this regard as well as examined the Annual Report of Bajaj Electricals. While it is correct that the assessee itself had selected Bajaj Electricals as a comparable, the same was done under Resale Price Method which requires comparison at gross profit level. Further, the assessee in its TP report had taken only the "Appliances" category as a comparable category and had excluded the gross profit margin earned from manufacturing of fans. Whereas, the TPO has discarded RPM and has adopted TNMM which is a comparison of net profit margins and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... communication equipment. In order to maintain consistency with the approach approved by us in the prior year, in the absence of change of facts, we order the exclusion of these two companies. GROUND NO. 5:That on facts and in law, the TPO/AO has erred in law and facts by grossing up the advertisement and sales promotion expenses and not including the advertising reimbursements as part of income received by the appellant from its associated enterprises while computing the operating margins of the respective segments 102. The Ld. Counsel for the Appellant contends that the Ld. DRP has merely stated that the reasons given by the TPO in his order are correct and has failed to take into account the decision rendered by Hon'ble ITAT in the case of Sony India Private Limited 114 ITD 448 on this issue. The Ld. Counsel pointed out that after the Ld. DRP issued its directions, the Hon'ble ITAT rendered a decision on this issue in favour of the assessee in its own case for AY 2002-03 to 2004-05 wherein it was held that the assessee has a prior agreement for reimbursement of specific AMP expenses and genuineness or bona fide of the said agreement cannot be disputed. Further, it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating income as well as operating expenditure while computing the net profit margin under TNMM analysis. This ground is therefore allowed. GROUND NO. 6:That on facts and in law, the TPO/AO has erred in not restricting the transfer pricing adjustment in proportion to the value of impugned international transactions with the associated enterprise vis-à-vis the total cost base of the various business segments which included the cost of uncontrolled transactions with independent third parties also. 106. The Ld. Counsel argued that the Ld. TPO erred in not granting the proportionate adjustment to the Appellant. It is settled law that the adjustment is to be made only on international transactions and not on other unrelated transactions. He placed reliance on the following case laws for grant of proportionate adjustment: (a) ________________________________ IL Jin Electronics (I) (P.) Ltd. v. ACIT ITA NO. 438/DEL/2008, [2010] 36 SOT 227 DELHI) (para 15) (b) ________________________________ CIT v. Keihin Panalfa Ltd. ITA No. 11 and 12/2015 (Del HC) (para 12) (c) ________________________________ CIT v. Thyssen Krupp Industries India (P.) Ltd. ITA No. 2201 OF 2013, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10/Del/12) in assessee's favour relying on the orders of the Hon'ble Delhi High Court on this issue. Orders dated 9.06.2013 and 15.05.2017 in the appeals for A.Yrs. 1999-2000 and 2003-04 respectively of the Delhi High Court have been placed before us. Respectfully following the decision of the Delhi High Court we allow this ground of appeal. GROUND NO. 8.1: That on facts and in law, the AO has erred in disallowing deduction in respect of depreciation on UPS amount to ₹ 7,72,086 by classifying them to be plant and machinery instead of computers GROUND 8.2: That on facts and in law, the AO has erred in computing the amount of the depreciation disallowance. 111. The AO allowed 15% depreciation on UPS stating that it is covered under the head 'plant and machinery'. Thus, 60% depreciation claimed by the assessee was disallowed. In this aspect, the Ld. Counsel submits that this issue is no longer res integra as there are numerous decisions of the High Courts and Tribunal where it has been held that depreciation on UPS is to be allowed at 60% and not 15%. The Ld. Counsel contends that UPS were purchased for the purpose of running the computer uninterruptedly during power cut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets, Service income from hand held phones Transactional Net Margin Method ("TNMM") OP/OR 0.17% 6 1.82% 114. The other international transactions pertain to Classes I (Manufacturing of Consumer Electronics and Home Appliances), Class IV (Trading of Colour monitors) and class V (Contract software development). There is no dispute in respect of these transactions. The dispute in the present AY (ITA No. 5315/DEL/2011) filed by the appellant pertains to the international transactions grouped under Class-II (Trading of Consumer Electronics and Home Appliances) segment and Class- III (Manufacturing of Colour monitors) segment. 115. In respect of Class -II (Trading of Consumer Electronics and Home Appliances) segment, the following transactions have been grouped together by the appellant in its transfer pricing study prepared under rule 10B of the Income Tax Rules 1962 (Rules); i) Import of finished goods; ii) Import of stores and service spares; iii) Export of service spares; iv) Service income from hand held phones. The appellant is engaged in the trading of consumer electronic goods and home appliances. Resale Price Method was chosen as the most appropriate meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of Class-III segment, the adjustment to the arm's length was worked out to be at ₹ 291,019,708/-. The TPO also carried out an adjustment with respect to the Advertisement, Marketing and Promotion ("AMP") expenses incurred by the appellant company as he was of the view that the appellant has provided certain services in respect of creation of marketing intangibles, to its AE. The TPO was of the view that any AMP expenditure incurred by the Appellant over and above the average AMP spend of the comparable companies was extraordinary in nature and incurred for the benefit of the AE which owned the "Samsung" brand. The TPO worked out the average AMP spend of the comparables at 6.55% of Sales and that of the Appellant at 10.44% of Sales and treated the difference as the value of the brand promotion service which the Appellant had provided to its AE. He accordingly held that this amount should have been recovered by the Appellant from its AE. The approach followed by the TPO in respect of this adjustment is as follows: Particulars Amount (Rs.) Total Income (A) 44,89,80,86,000 Advertisement and sales promotion expenses incurred (B) 469,10,06,942 AMP / Total Income of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e international transactions under Class II segment (trading of consumer electronics and home appliances segment)- 120. The inclusion of this comparable came up for our consideration in the appeal no. ITA No. 5856/Del/2010 under Ground no. 4.2 (and has been discussed at length above). As the facts and circumstances of this year remain the same (and the arguments of the two parties remain the same), we hold that the direction given by us in the prior year would apply for this year as well. The examination of this comparable company is, therefore, remanded to the file of the TPO with a direction to determine whether the twin conditions of persistent loss for three years and erosion of net worth are met. If a clear three years' trend of persistent loss coupled with negative net worth is found, it can be excluded from the list of comparables. This ground is therefore allowed in terms of the above directions. GROUND NO. 3.2: That, on facts and in law, the ld. TPO/ AO has erred in considering Bajaj Electricals Limited as a comparable company while applying the transactional net margin method to benchmark the international transactions under Class II segment (trading of consumer elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of 2010): In both these cases, it was held that exclusion of a comparable merely on the ground that the comparable is incurring abnormal profit margin or persistent losses without considering the applicable law under Rule 10B of the Income Tax Rule, 1962 (Rules) is untenable under law; (b) DCIT vs. Quark Systems (P.) Ltd [2010] 38 SOT 307 (CHD.) (SB): In this case, it was held that if the company is functionally comparable and the turnover does not show declining trend then, merely on the basis that the comparable company is incurring losses, the comparable cannot be excluded; (c) Erhardt+Leimer (India) Private Limited vs. ACIT (ITA Nos. 3298/Ahd/2011 & 2880/Ahd/2012): Relying on the special bench decision in the case of Quark Systems (supra) the Hon'ble Tribunal has held as below: "…consistent loss-making entities cannot be per se excluded merely in view of the negative income figures thereof." (d) Chryscapital Investment Advisors (India) Pvt. Ltd. Vs. DCIT (ITA 417/2014): [2015] 376 ITR 183 (Delhi), the Hon'ble jurisdictional High Court reiterated the same position supra that it is a settled law that comparables cannot be excluded merely on the ground that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case to check whether this trend persists over a period of at least three years (current year and two prior years as specified in Rule 10B (4)). Furthermore, as loss and profit cycles are normal incident of the market, in order to check whether the persistent loss situation has arisen from an extraordinary economic situation which is not representative of the sector in which it operates, one has to see whether the net worth of the company has been eroded. If the twin conditions are fulfilled, the comparable can be excluded. In this case, though a chart of trend analysis has been furnished, it has not been examined by the TPO. The details of net worth are not placed before us. We accordingly remit this issue to the file of the TPO with a direction to apply the aforesaid principles to determine the suitability of this comparable. This ground is therefore disposed off in terms of the above observations. PCS Technology Ltd. 128. Ld. Counsel contends that the TPO and the DRP committed an error in rejecting PCS Technology on the ground that it has a different financial year ending. He contends that different financial year is not a criterion to reject a comparable company. He contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financials if the company is performing manufacturing operations. The Ld. DRP upheld order of the TPO on the same reasoning. Ld. Counsel submitted that the company has 2 segments - IT segment and mobile segment. In the IT segment, the company is engaged in the business of manufacturing of computer systems and printers. Sales from computer systems and printers amount to ₹ 37.01 crore out of total sales of ₹ 52.1 crore in the IT segment. This works out to be 71% of the total revenue. The balance 29% is derived from trading, installation and networking. The calculated as submitted by the Ld. Counsel from the Annual Report is as below: Particulars Amount in INR -thousands Turnover of IT segment 521,912 Passbook printers (manufactured) 234,423 Computer Systems (manufactured) 135,728 Sale from manufactured goods 370,151 Ratio of sales from manufacturing goods to turnover of IT segment 71% 132. The Ld. CIT (DR) submitted that Spice Mobile was rightly excluded from the list of comparables because it was not functionally comparable. Further, he contended that from the financials of the relevant segment, it was not clear if Spice Mobile was manufacturing comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponents India Private Limited v. DCIT ITA No. 120/PN/2011, [2012] 144 TTJ 320 (Pune) (para 31) (c) ________________________________ M/s Nevis Network (India) Pvt. Ltd v. ITO ITA No.338/PN/2012, [2015] 55 taxmann.com 519 (Pune - Trib.) (paras 11 and 13) (d) ________________________________ Nortel Networks India Private Limited v. ACIT ____________ ITA No. 4765/DEL/2011, [2015] 40 ITR(T) 102 (Delhi - Trib.) (para 11.8) (e) ________________________________ M/s Motorola Solutions India Private Limited v. ACIT Circle-2 ITA No. 5637/Del/2011, [2014] 35 ITR(T) 546 (Delhi - Trib.) (para 162.1) (f) ________________________________ Qualcomm India Pvt. Ltd. v. ACIT Circle 14(1) ITA No.5239/DEL/ 2010, [2014] 147 ITD 17 (Delhi - Trib.) (para 41) (g) ________________________________ Mentor Graphics (Noida) (P) Ltd. (109 ITD 101) 135. The Ld. CIT (DR) relied on the orders of the lower authorities. 136. The issue of grant of adjustment for difference in levels of working capitals between the assessee and the comparable companies is now well recognized by this Tribunal and is no longer res-integra. Differences in inventory levels, credit period allowed by the suppliers and credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6th of the total expenditure in the current year and deferring the balance to be allowed in next five years Without prejudice to the above, the Ld. AO has erred in not allowing in the year under assessment, 1/6th of the expenditure on this account that was similarly disallowed in the preceding five assessment years. 138. These grounds are identical to Ground no. 2 in ITA No.3410/Del/2012 for A.Y. 2005-06 and Ground nos. 7.1 and 7.2 in ITA no. 5856/Del/2010 for A.Yr.2006-07 and we have allowed these grounds in the two years by following the orders of the Hon'ble Delhi High Court in prior years. Following the same, these grounds are therefore allowed. GROUND NO. 9: That, on facts and in law, the Ld. AO has erred in not treating UPS connected to computers as 'computers' and instead regarding it as an item of general 'plant and machinery' for the purpose of allowing deprecation GROUND NO. 9.1: Without prejudice to the above ground, the Ld. AO has also erred in not regarding said ups as 'electrical equipment being automatic voltage controllers', eligible for depreciation @80% under Item III(8)(ix)(e)(c) of Part A of Appendix I to the Income Tax Rules, 1962 ('the Rules') 139. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign currency at a pre-agreed rate of exchange, on a certain future date. Due to binding nature of agreement, the liability of the Appellant accrued the moment it entered into forward contract. It was mandatory for the Appellant to measure the MTM losses on the unexpired forward contracts at the end of the year in accordance with the method of accounting consistently followed by it with respect to the effects of changes in foreign exchange rates. The Ld. Counsel stated that this issue is now well settled in view of the Hon'ble Supreme Court decisions of CIT v. Woodward Governor India Private Ltd. 312 ITR 254 (SC) and Bharat Earth Movers v CIT: [2000] 245 ITR 428(SC). He further submitted that in the assessee's own case in ITA no. 6508/Del/2012 this Tribunal has examined this issue and given a finding that such MTM losses are allowable u/s 37 of the Act. 142. We have heard both the sides and examined the orders of the lower authorities. We observe that the losses have been recognized in accordance with applicable accounting standards/consistent accounting policy. The Hon'ble SC judgment of CIT v. Woodward Governor India Private Ltd. 312 ITR 254 (SC) has settled the issue of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling of technical services, Reimbursement of Marketing expenditure by AEs Transactional Net Margin Method ('TNMM') Operating Profit / Operating Revenue 4.43% 7 2.77% Class II - Trading (Consumer electronics, home appliances and mobile phones) Import of finished goods, Import of stores and service spares, Service income, Reimbursement of marketing expenses by AEs TNMM Operating Profit / Operating Revenue 2.22% 7 1.78% Class III - Manufacturing (Colour monitors) Import of raw material, Import of stores and service spares, Export of raw material and service spares, Import of fixed assets, Reimbursement of marketing expenses by AEs TNMM Operating Profit / Operating Revenue -1.55% 5 -2.50% Class IV - Trading (Colour monitors and other IT products) Import of finished goods, Import of stores and services spares, Reimbursement of marketing expenses by AE TNMM Operating Profit /Operating Revenue 3.37% 9 -0.52% Class V - Contract Software Development Services (Provision of contract software development services) TNMM Operating Profit /Operating Cost 17.60% 23 14.65% 144. The dispute in the present appeal (ITA No. 52/DEL/2013) filed by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant because he was of the view that the appellant has provided certain services in respect of creation of marketing intangibles, to its AE. Computation of TP adjustment (In Rs.) Value of gross sales 55,784,998,000/- AMP/Sales of the comparables 2.07% Amount that represents bright line 1,154,749,458/- Expenditure on AMP by assessee 5,542,768,817/- Expenditure in excess of bright line 4,338,019,359/- Mark-up at 15% 658,202,903/- Reimbursement that assessee should have received 5,046,222,262/- Reimbursement actually received 496,786,817/- Adjustment to assessee's income 4,549,435,445/- 147. The assessee being aggrieved by the orders of the TPO and AO filed objections before the DRP, New Delhi contesting the aforesaid transfer pricing adjustments. The DRP disposed of the objections filed by the assessee vide its directions under section 144C of the Income Tax Act, 1961 dated 27 September 2012 and directed as follows: (a) ________________________________ The DRP directed the exclusion of Spice Mobiles Ltd. as a comparable for Class II segment and arrived at a final list of 6 comparables. The arithmetic mean of the Net Profit Margin of these 6 compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d servers was restricted to 15% as against 60% claimed by the appellant leading to a disallowance of ₹ 7,24,741. 150. Aggrieved by the order of the AO, the assessee has preferred the present appeal and has prayed for adjudication of the following grounds of appeal. GROUNDS IN APPELLANT'S APPEAL (ITA NO. 52/DEL/13) FOR AY 2008-09 GROUND NO. 1 & 2: These grounds are general in nature. 151. GROUND NO. 2.1 to 2.12: These grounds pertain to the issue of AMP expenditure being treated as an international transaction and adjustment being made on the basis of the "bright line" test. We have already decided this issue in favour of the appellant in ITA no. 3248/Del/2012 for the A.Y. 2005-06 by examining this issue in detail. These grounds for this year are accordingly allowed and disposed-off on the lines of our findings and observations made while deciding Grounds no. 3.1 to 3.6 of ITA no. 3248/Del/2012. GROUND NO. 3: That on facts and in law, the Ld. AO/TPO erred in rejecting Shyam Telecom Limited as a comparable company for determining the ALP of international transactions under Class II segment (trading of consumer electronics, home appliances and mobile phones) 152. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O and argued that Shyam Telecom was correctly excluded. He argued that since Shyam Telecom is a persistently loss-making company and it has a different functional profile, it cannot be included in the list of comparables to determine arm's length price. The Ld. CIT (DR) pointed out that the quantum of revenue derived from turnkey project was INR 1.85 crores out of total segment revenue of INR 158.93 crores which was a material amount and cannot be ignored. 156. We have examined and perused the orders of the lower authorities and also the Annual Report of Shyam Telecom Ltd. While the basis of the claim that this company is a persistent lossmaking one is not very clear, it is manifest that the product profile of this entity is very dissimilar to that of the assessee's. The relevant segment which is being sought to be taken for comparison is called the "Turnkey" segment. In this segment, predominant part of the revenues is derived from trading of GSM sets and communication network. Only a very small portion of revenue is derived from turnkey projects. However, the breakup of sales and profit margins of GSM phones and other equipment is not available in the Annual Report. In such a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese comparables for this year as well as the facts and circumstances remain the same. Accordingly, Ground nos. 4 and 5 are partly allowed. GROUND NO. 6: That, on facts and in law, the Ld. AO/TPO has erred by not making appropriate adjustments to account for differences in working capital employed by the appellant vis-à-vis the comparables- GROUND NO. 7: That, on facts and in law, the Ld. AO/TPO has erred in not restricting the TP adjustment in proportion to the value of international transactions with the associated enterprises vis-àvis the total cost base of the various business segments which included cost of uncontrolled transactions with independent third parties as well 159. Ground no. 6 pertains to the issue of allowability of economic adjustment to account for differences in working capital between the assessee and the comparables chosen for TNMM analysis and the same has already been adjudicated by us under Ground no. 5 for the appeal for A.Y. 2007-08 (ITA No. 5315/Del/2011). We have held that this issue of working capital adjustment is now no longer res integra and has to be allowed. This would be equally applicable for this year as well and this grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11: That, on facts and in law, the Ld. AO has erred in holding that loss on exchange fluctuation amounting to ₹ 1,74,38,690 debited to P&L account is a notional loss and in not allowable as a deduction under the provisions of the Act GROUND 11.1: Without prejudice to the above ground, the Ld. AO has erred in not excluding ₹ 2,06,77,205 from the taxable income of current year being marked to market losses incurred in respect of foreign exchange contracts which were outstanding as on 31st March 2007 and written back during the year as same was not allowed as deduction in the assessment proceedings for AY 2007-08 163. This ground pertains to allowability of loss arising from revaluation of forward forex contracts on the last date of the balance sheet on account of restatement of amounts payable and receivable in foreign exchange. This issue has already been decided by us in ITA No. 5315/Del/2011 for A.Y. 2007-08 under Ground no. 10 wherein we have allowed the ground in view of the law being settled by the Hon'ble Supreme Court in CIT v. Woodward Governor India Pvt. Ltd. 312 ITR 254 (SC) in this regard. Following the same, this Ground is allowed. AY 2009-10 (ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost appropriate method in its transfer pricing study. The profit level indicator taken was operating profit/operating cost. For the benchmarking exercise, an economic analysis was carried out in the TP study leading to identification 21 uncontrolled comparable companies having margin of 14.33%. Since the appellant had earned profit margin of 15% which was higher than the profit margin earned by the comparables, it was concluded that the international transactions were at arm's length. 167. The dispute in the present appeal filed by the appellant primarily pertains to the transfer pricing adjustments made by the TPO vide order dated 30 January 2013 on account of: (a) alleged international transaction of Advertising, Marketing and Promotion (AMP) expenses; and (b) software development segment. 168. The first adjustment relates to adjustment made on account of AMP expenses: The TPO was of the view that the Appellant has provided certain services in respect of creation of marketing intangibles to its AE by spending huge AMP expenses and worked out the average AMP/Sales of the comparables at 3.66% as against 9.19% in the case of the Appellant (rectified to 9.03% of sales vide rectif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: S. No Name of the company AMP/ Sales (%) 1. Home Solutions Retail (India) Ltd. 4.77% 2. Vivek Ltd. 3.59% 3. Infiniti Retail Ltd. 4.64% 4. CCS Infotech Ltd. 0.72% 5. Iris Computers Ltd. 0.44% 6. Cellucom Retail India Pvt. Ltd. 8.16% 7. General Sales Ltd. 10.18% 8. Allied Photographics India Ltd. 0.49% 9. VXL Instruments Ltd. 2.83% 10. ACI Infocom Ltd. 0.79% Arithmetic Mean 3.66% Further, for computation of the mark-up for computing the TP adjustment on AMP, the TPO selected two comparables as under: S.No Name of the company NCP (%) 1. Crystal Hues Ltd. 8.03% 2. Cyber Media Research Ltd. 10.89% Arithmetic Mean 9.46% This mean of NCP 9.46% has been increased by an ad-hoc 6% (i.e. half of 12%, being the nominal rate of interest to cover the return on the funds that has been blocked), thereby, arriving at a markup of 15.46%. 171. In so far as adjustments in the software development segment, the Appellant in its Transfer Pricing Report computed its margins at 15% NCP as against an ALP of 14.33% (arithmetic mean earned by 21 comparables companies). The TPO after making certain alterations to the quantit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions of Ld. DRP, the AO passed the final assessment order dated 28 January 2014 incorporating the transfer pricing adjustment on account of AMP expenses of ₹ 455,53,39,101 and on account of software development segment of ₹ 7,30,77,701. The AO also made the following additions to total income: (a) Recruitment and training expense of ₹ 4,61,16,829/- was treated as capital expenditure and not allowable as a revenue expenditure u/s 37 of the Act; (b) Foreign exchange fluctuation loss of ₹ 2,99,52,597/- was not allowed as a deduction; (c) Depreciation on UPS, printers and servers was restricted to 15% as against 60% claimed by the appellant leading to a disallowance of ₹ 2,87,820/- (d) Denied deduction claimed under section 10A of the Act amounting to ₹ 27,74,04,907/-. Aggrieved by the order of the AO (impugned order), the assessee has preferred the present appeal and has prayed for adjudication of the following grounds of appeal. GROUNDS IN APPELLANT'S APPEAL(ITA NO. 1567/DEL/14) FOR AY 2009-10 174. GROUND NO. 1 to 12: These grounds pertain to the issue of AMP expenditure being treated as an international transaction and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating in nature while computing the profit margin of the appellant. GROUND NO. 22: The Ld. TPO/AO/DRP have erred in not making appropriate adjustments to account for differences in working capital employed by the appellant vis-à-vis the comparable companies. GROUND NO. 23: The Ld. TPO/AO/DRP have erred in not allowing appropriate adjustments to account for differences in risk profile of the appellant vis-à-vis the comparables. 175. The Ld. Counsel submitted that in this segment, out of final set of 17 comparables, the appellant is aggrieved by 5 comparables (namely Cat Technologies Ltd., Infosys Tecnhologies Ltd, Thirdware Solutions Ltd, Tata Elxi Ltd, Tata Consultancy Services Ltd.). Further, the appellant is also aggrieved by the erroneous exclusion of 9 comparable companies (namely Ancent Software International Ltd, Helios and Matheson IT Ltd, Indium Software (India) Ltd, KPIT Cummins Info Ltd, Maars Software International Limited, Qunitegra Solutions Ltd, SIP Technologies and Exports Ltd, Softsol India Limited, Zylog Systems Limited). Further, the appellant has also raised grounds of appeal in respect of denial of adjustment for risk, denial of working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. He listed out the judgments as follows: * CIT vs. Agnity India Technologies Pvt. Ltd. (ITA 1204/2011 dated July 10, 2013) * UT Starcom Inc. (India Branch) (ITA No.5848/Del./2011) * Toluna India Pvt.Ltd. (ITA 393/2016 & ITA 394/2016) * Sumtotal Systems India Pvt. Ltd. (I.T.T.A. NO.660 OF 2014) * Adaptec India Limited (I.T.T.A. No.638 of 2014) * Virtusa (India) Private Limited [ITA No. 1962/Hyd/2011] * Telcordia Tech nologies India Pvt. Ltd [ITA No.7821 /Mum/2011] * Agnity India Technologies Pvt. Ltd. v. DCIT TS-265- ITAT-2013(DEL)-TP * Mercedes Benz Research & Development India Pvt. Ltd. [IT(TP)A No. 1222/Bang/2011] * Transwitch India Pvt. Ltd. [IT(TP)A No. 948/Bang/2011] * Yodlee Infotech Private Limited [ITA No. 1397/Bang/2010] * Meritor LVS India (P) Ltd. [ITA No. 405/Bang/2011] * Patni Telecom Solutions Pvt.Ltd.[ITA No. 1846/Hyd/2011] * Sonata Software Ltd. [ITA No. 3514/Mum/2010] * Agilent Technologies International Pvt. Ltd. [ITA No. 6047/Del/2012] * Cincom Systems India P.Ltd. [ITA no. 761/Del/2012] * Insilica Semiconductors India P. Ltd Vs. ITO [ITA No.1399/Bang/2010] * Frost &Suvilian (I) Pvt. Ltd. [ITA No. 207 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has significant R & D activities and has significantly higher assets of ₹ 2669.08 crores (Net book value as on 31 March 2009) as against ₹ 44.90 crores of the appellant. (d) The Ld. Counsel also submitted that Tata has a significantly higher turnover of ₹ 21535.75 cras against ₹ 123.20 Cr. in the case of the Appellant i.e. 175 times more than the latter. e) The Ld. Counsel contended that this company has to be rejected as a comparables also because it has on-site revenue of 51.19% of the total revenue. He submitted that the comparables 'Maars Software International Ltd.' and 'Zylog Systems Ltd.' have been excluded by the Ld. TPO in AY 2008- 09 on the ground that they had on-site revenue of 42%. f) The Ld. CIT (DR) vehemently opposed the exclusion of the said comparables. The Ld. CIT (DR) submitted that there is no correlation between branding and profit margin. Similarly, he contended that for service companies the turnover does not have a material bearing on the profit margin as long as the company is functionally similar, it should be retained as a comparable under TNMM because size, scale and brand name do not impact the profit margin though thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices) together as these two are similar in many respects. As per their profile, function and volume of scale, they are reckoned as the leaders of the Indian IT sector and are often considered to be the most prestigious brands in this space. The process of selection of appropriate comparables under TNMM is to be guided by Rule 10B (2) which lays down the factors of comparability. These factors are functions, assets and risks, nature of the services, contractual terms, level of the market and other relevant economic parameters which have a material effect on profitability. The 'OECD Transfer Pricing Manual 2017' in Para 3.43 and the 'UN Transfer Pricing Manual 2017' in Para B.2.3.4.40 also provide guidance in this respect, which for sake of ready reference are extracted below: "3.43. In practice, both quantitative and qualitative criteria are used to include or reject potential comparables. Examples of qualitative criteria are found in product portfolios and business strategies. The most commonly observed quantitative criteria are: * Size criteria in terms of Sales, Assets or Number of Employees. The size of the transaction in absolute value or in proportion to the activities o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cited above by the Ld. Counsel also). Infosys Technology Ltd. is one of India's leading IT companies have presence worldwide. Its turnover is in excess of ₹ 20,000 crore (as against ₹ 125 crore of the appellant) and its functions are highly diversified. One of the important attributes that sets Infosys apart from small captive IT companies is the presence of highly valuable IPRs by way of brand and software products which generate licensing revenues. It invests significant amounts in R&D and advertising every year. Its head count is significantly larger than that of the appellant company. The diversified nature of its business has been stated on Page 78 of the Annual Report - ".end to end business solutions.. the solutions span the entire software life cycle encompassing technical consulting, design development, re-engineering, maintenance, systems integration, package evaluation and implementation, and testing and infrastructure management services. In addition, the Company offers software products for the banking industry". A perusal of the Annual Report further reveals that it owns a well149 known proprietary product used by the banks called "Finnacle". The Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. On this basis, he stated that it is not justified to allow WC on 3 components. The Ld. DRP upholding the action of the Ld. TPO directed that the working capital adjustment is difficult to make due to lack of accurate and reliable data. It held that the Appellant has failed to demonstrate that difference in working capital deployed is making difference in the margin earned by the taxpayer and the comparables. 181. The Ld. Counsel pointed out that detailed submissions and calculations have been submitted by the Appellant before the Ld. DRP. He argued that WC adjustment has been granted by the Ld. TPO in subsequent years i.e. AYs 2010-11 and 2011-12. He submitted that the difference in working capital position has a bearing on the ALP. Further, he drew our attention to rule 10B(1)(e) and rule 10B (3) which allows for making reasonably accurate adjustment to arrive at the ALP. The Ld. Counsel also placed reliance on the OECD Guidelines 2017, UNTP Manual 2017 and ICAI Guidelines in this regard. 182. Further the Ld. Counsel relied on the following judicial decisions where working capital adjustment has been held to be a permissible and desirable adjustment to improve comparabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceed with a working capital adjustment." UN TP Manual 2017 "…5.3.2.14. …x..x..Adjustment might be required to ensure consistency of accounting standards between the controlled transaction and the comparable. Differences in the use of assets can be eliminated or reduced to a significant extent by making comparability adjustments on account of working capital or capacity utilization." 185. Further, the issue of allowability of economic adjustment to account for differences in working capital between the assessee and the comparables chosen for TNMM analysis has already been adjudicated by us under Ground no. 5 for the appeal for A.Y. 2007-08 (ITA No. 5315/Del/2011); and Ground no. 6 for the appeal for A.Y. 2008-09 (ITA No. 52/DEL/13). We have held that this issue of working capital adjustment is now well settled proposition and has to be allowed. This would be equally applicable for this year as well and this ground is accordingly allowed. The TPO is directed to allow the WC adjustment while determining the arm's length price of the international transactions in the software segment under TNMM. It would, however, be open to the TPO to verify the figures given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,99,52,597 debited to P&L account is a notional loss and is not allowable as a deduction under the provisions of the Act. GROUND NO. 30: Without prejudice to the above ground, the Learned AO/DRP has erred in not excluding ₹ 1,74,38,690 from the taxable income of current year being marked to market losses incurred in respect of foreign exchange contracts which were outstanding as on 31st March 2008 and written back during the year as same was not allowed as deduction in the assessment proceedings for AY 2008-09. GROUND NO. 31: Without prejudice to the above ground, the Learned AO/DRP erred in not excluding ₹ 7,559,120 from the taxable income of current year being marked to market losses incurred by Samsung Telecommunications India Private Limited (now amalgamated with the appellant) in respect of foreign exchange contracts which were outstanding as on 31st March 2008 and written back during the year by the appellant as same was not allowed as deduction in the assessment proceedings for AY 2008- 09. 189. This ground pertains to allowability of loss arising from revaluation of open forward forex contracts on the last date of the balance sheet on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cator (PLI) as per TP study Margin earned by the Appellant as per TP study No. of comparables considere d as per TP study Arm's Length Margin as per TP study Class I - Manufacturing (Consumer electronics, Home Appliances, Mobile Phones and Colour Monitors) Import of raw material, Import of stores and service spares, Export of raw material, service spares and finished goods, Payment of royalty, Import of fixed assets, Import of spares for repair and maintenance, Availing of services, Provision of intragroup services, Reimbursement of marketing expenses by AEs Transactional Net Margin Method ("TNMM") Operating Profit/ Operating Revenue ("OP/ OR") 8.14% 10 1.26% Class II - Trading (Consumer electronics, Home Appliances, Mobile Phones, Colour Monitors and other IT products) Import of finished goods, Import of stores and service spares, Export of raw material, service spares and finished goods, Service income, Reimbursement of marketing expenses by AEs TNMM OP/ OR -0.05% 17 0.43% Class III - (Contract software development services) Provision of contract software development services, Reimbursement of expenses by AEs, Rental income TNMM Operating Profit / Oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable for benchmarking of international transaction are reproduced in the table below: S.No. Name of Comparable Working capital adjusted NPM for AY 2010-11 (%) 1 Akshay Software Technologies Ltd. -2.93% 2 e-Infochips 63.63% 3 Evoke Technologies Pvt Ltd 17.16% 4 E-Zest Solutions 12.30% 5 Infinite Data Systems Pvt. Ltd 82.23% 6 Infosys Ltd. 43.89% 7 Larsen & Toubro Infotech Ltd. 18.47% 8 LGS Global Limited 5.95% 9 Mindtree Ltd. 12.98% 10 R S Software (India) Ltd 8.66% 11 Sasken Communication Technologies Ltd 16.35% 12 Tata Elxsi Ltd. 15.52% 13 Thinksoft Global Services Limited 12.11% 14 Thirdware Solutions Ltd. 36.54% 15 Cat Technologies Limited 2.13% 16 Maveric Systems Limited 13.19% 17 Persistent Systems and Solutions Ltd. 10.33% Arithmetic Mean (Page 61 of TP Order) 21.68% NPM of Samsung India (Page 5 of TP Order) 14.84% Adjustment (Rs.) 109,395,995 197. The Ld. DRP vide order dated 21 October 2014 upheld the action of TPO with respect to the adjustment made on account of AMP expenses. However, for the adjustment made on account of software development segment, the Ld. DRP directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain comparable companies identified by the appellant using turnover less than INR 5 crores' as a comparability criterion. GROUND NO. 15: The Learned TPO/AO/DRP have erred in rejecting certain comparable companies identified by the appellant using 'export earnings less than 75 percent of operating revenues' as a comparability criterion. GROUND NO. 16: The Learned TPO/AO/DRP have erred, in rejecting certain comparable companies identified by the appellant on account of showing diminishing revenues trend GROUND NO. 17: The Learned TPO/AO/DRP have erred in rejecting certain comparable companies identified by the appellant using 'employee cost greater than 25 percent of total cost' as a comparability criterion GROUND NO. 18: The Learned TPO/AO/DRP have erred in wrongly rejecting certain companies from and adding certain companies to the final set of comparables for the said transaction on an ad-hoc basis, thereby resorting to cherry picking of comparable for benchmarking GROUND NO. 19: The Learned TPO/AO/DRP have erred in selecting certain companies (which are earning supernormal profits) as comparable to the appellant to benchmark the said transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Steria India Ltd. (ITA No.107/Del/2016) wherein it has been held that the company is not functionally comparable as it is engaged in both software development and IT enabled services for which no bifurcation is available (as segmental information is not available). This judgment has also been upheld by the Hon'ble Delhi High Court (ITA 762/2017). (d) The Ld. Counsel also placed reliance on the coordinate Bench ruling in the case of Headstrong Services (India) Pvt. Ltd. (ITA No. 714/Del/2015). (e) The Ld. Counsel further placed reliance on the following judgments wherein E-Infochips has been held to be functionally dissimilar and non-comparable to a software development company: * Pegasystems worldwide India Pvt Ltd. (ITA No. 1758/Hyd/2014) * Intoto Software India Pvt. Ltd. (1921/Hyd/2014 & 25/Hyd/2015) * Allscripts India Pvt. Ltd. (ITA No. 771/Ahd/2014) * Freescale Semiconductor India Pvt Ltd (ITA No1263 /Del/2015) * Headstrong Services (India) Pvt. Ltd. (ITA No.714/Del/2015) * Stryker Global Technology Center Pvt Ltd v DCIT (ITA No. 6866/Del/2014) 204. The Ld. CIT (DR) emphasized the fact that the communication expenses of this company are at a very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' and the international transaction of ITES is separate which has also been benchmarked distinctly. In our considered opinion, e- Infochips Bangalore Ltd. having a pool of both software developments and ITES segments into the overall segment designated as `Software development', cannot be considered as comparable on entity level with the international transaction of `Software development' of the assesse. We, therefore, order for the exclusion of this company from the list of comparables." 206. We also do not find merit in the contention raised by the Revenue that since the communication expenses shown in the P&L account is at a low level, the Company should be presumed to be not be engaged in ITeS. Such a conclusion is not based on evidence but is a mere speculation. In the face of a clear disclosure in the Annual Report, a speculative approach is to be discarded. We, accordingly, hold that E-Infochips Bangalore is to be excluded from the list of comparables for the software segment. Infosys Technologies Limited- 207. The Ld. Counsel submitted that the facts pertaining to this comparable and the Appellant remain the same as in the prior year i.e. A. Yr. 2009-10: (a) As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure management services. In addition, the Company offers software products for the banking industry. 208. The Ld. CIT(DR) relied on the orders of the Ld. TPO and DRP and contended that scale, size, brand may impact profits but not profit margins. He reiterated that there is no positive correlation between turnover and profit margin. 209. We have heard both the parties, perused the orders of the TPO and the DRP and analysed the Annual Report of Infosys Technologies Ltd. The facts pertaining to the assessee's software segment and the business results of Infosys remain the same as in prior year. In appeal of the prior A.Y. 2009-10 (ITA No.1567/Del/2014) we have analyzed the suitability of this company as a comparable to the appellant's software segment and held that it has to be excluded from the set of comparables. Following the same, we hold that Infosys Technologies Ltd is to be excluded. Infinite Data Systems Private Limited 210. The Ld. Counsel argued that this company is functionally dissimilar to the Appellant. He pointed out that as per the Annual Report, the company is a full-fledged IT consulting organization and provides services in the nature of technical consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 212. We have heard the two sides and perused the orders of the TPO and the DRP. We have also perused the Annual Report of Infinite Data Systems Ltd. The business activity of the Company has been provided at Page 13 of the Annual Report as: full-fledged IT consulting organization and provides services in the nature of technical consulting, design and development of software, maintenance, systems integration, implementation, testing and infrastructure management services. The Annual Report further states that, "Revenue is primarily derived from technical support and infrastructure management services. The company has entered into contracts with customers where the pricing is on time and material basis. Revenues from these contracts are recognized as and when the related services are rendered and related costs are incurred. Revenue from the end of the last billing to the Balance Sheet Date is recognized as unbilled revenues." The fact that this company is deriving most of its revenue from technical support and infra management services make it clear that software development activity is a minor and subsidiary activity of this company. Further, the Annual Report does not contain se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue expenditure in the year in which it is incurred. There being no enduring benefit it cannot be treated as capital expenditure or deferred revenue expenditure. Ground no. 25 is, therefore, allowed and Ground no. 26 is dismissed as being infructuous. GROUND NO. 27: The Learned AO/DRP has erred in holding that loss on exchange fluctuation amounting to ₹ 4,86,59,085 debited to P&L account is a notional loss and is not allowable as a deduction under the provisions of the Act. GROUND NO. 28: Without prejudice to the above ground, the Learned AO/DRP has erred in not excluding INR 29,952,597 from the taxable income of current year being marked to market losses incurred in respect of foreign exchange contracts which were outstanding as on 31st March 2009 and written back during the year as same was not allowed as deduction in the assessment proceedings for AY 2009-10. 215. This ground pertains to allowability of loss arising from revaluation of open forward forex contracts the last date of the balance sheet on account of restatement of amounts payable and receivable in foreign exchange under the marked to market (MTM) policy mandated under accounting norms. This issue has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts) Import of finished goods, Import of stores and service spares, Service income, Reimbursement of marketing expenses by AEs TNMM OP/OR 1.39% 19 0.67% Class III - Provision of contract software development services TNMM Operating Profit /Operating Cost (OP/OC) 15.01% 22 8.97% 218. The dispute in the present appeal filed by the appellant pertains to the international transactions grouped under Class-III (Contract software development) segment. The other international transactions pertain to Classes I (Manufacturing - Consumer electronics, home appliances, mobile phones and colour monitors) and Class II (Trading - Consumer electronics, home appliances, mobile phones, colour monitors and other IT products). There is no dispute in respect of these transactions. In Class-III (Contract software development) segment, the appellant was engaged in the provision of contract software development services. Transactional Net Margin Method was chosen as the most appropriate method in its transfer pricing study. The profit level indicator taken was operating profit/operating cost. For the benchmarking exercise, an economic analysis was carried out in the TP study leading to ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 Celstream Technologies Pvt. Ltd. 15.27% 14 Acropetal Technologies Ltd. (Seg) 21.34% 15 Mindtree Ltd.(Seg) 11.22% 16 Sankhya Infotech Limited(Seg) 24.13% 17 Tata ElxsiLtd(Seg) 13.34% 18 Thirdware Sol (Seg) 19.54% 19 Zylog Systems Limited 27.56% Arithmetic Mean (Page 84 of TP Order) 24.62% NCP of Samsung India (Page 5 of TP Order) 15.01% Adjustment (Rs.) 216,107,588 220. The Ld. DRP vide order dated 23 December 2015 upheld adjustments made by the Ld. TPO and stated that incurring AMP expenses constitutes an international transaction. The Ld. DRP directed for exclusion of routine selling and distribution expenses while computing the AMP adjustment of comparables. The Ld. DRP also directed for imputing the said adjustment using AMP to gross profit ('GP') ratio and the mark-up on excessive AMP expense to be as per sub-clause (ii) to Rule 10(1)(c) i.e. the GP/Sales of comparable companies, thus selected. As a consequence, the Ld. TPO passed an order dated 28 January 2016, giving effect to the directions of the Ld. DRP, wherein the adjustment was reduced to ₹ 394,368,561 (i.e. ₹ 313,105,771 under the non-IT segment and ₹ 81, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Revision in the AMP/ GP ratio of SIEL to 22.82% from 27.55%. 225. ALP determination for Provision of contract software development services (Class III): The Ld. TPO re-computed the operating margin of SIEL by treating foreign exchange gain as operating income instead of adjusting the same against operating expenses. In the re-computation of operating margins of comparable companies, he further treated foreign exchange gain and amounts written back as operating. Accordingly, the adjustment under this segment was enhanced from ₹ 189,797,464 to ₹ 220,348,249. 226. The AO passed an order dated 30 March 2018 incorporating the above revised adjustments made by the Ld. TPO vide his rectified order and enhanced the assessed income to ₹ 500,44,30,490. Aggrieved by the order passed by the AO, the Assessee has preferred the present appeal and has prayed for adjudication of the following grounds of appeal. GROUNDS IN APPELLANT'S APPEAL (ITA NO. /DEL/16) FOR AY 2011-12 227. GROUND NO. 1 to 12 and all the Grounds in ITA No. 2511/DEL/2018 arising out of order passed u/s 154): These grounds pertain to the issue of AMP expenditure being treated as an international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies (which are functionally dissimilar or which are earning super normal profits) as comparable to the appellant to benchmark the said transaction GROUND NO. 19: The Learned TPO/AO/DRP have erred in wrongly rejecting certain companies from and adding certain companies to the final set of comparables for the said transaction on an adhoc basis (including functional comparability), thereby resorting to cherry picking of comparable for benchmarking 228. At the outset, the Ld. Counsel submitted that despite there being numerous grounds against the adjustment made in the software segment, the appellant was primarily aggrieved by the inclusion and exclusion of certain comparables by the TPO. However, if only 2 comparables are excluded namely E-Infochips Ltd and Wipro Technologies Services Ltd and 2 comparables are included namely, R Systems International Ltd and Caliber Point Business Solutions Limited, then the assessee's international transaction would be at arm's length and the rest of the grounds will be rendered academic. Accordingly, we proceed to examine the validity of these four comparables. 229. The Ld. Counsel made his submissions with respect to the following compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (ITA No. 1196/HYD/2010); iii) Conexant Systems India Pvt. Ltd. (ITA No. 1429/HYD/2010 and 1978/HYD/2011); iv) Virtusa India Private Limited (ITA No. 1962/HYD/2011; v) EMC Software and Services (India) Private Limited (IT(TP)A No. 273/Bang/2016); vi)Philips India Ltd (ITA No.863 & 539/Kol/2016) wherein it was held that the company is not functionally comparable as it is engaged in diversified business (software development, hardware maintenance, IT consultancy), does not have segmental information (to carve out its ITeS), was involved in R&D, and had an exceptional year (grew at rate 5 times more than industry average). 230. Ld. CIT (DR) submitted that E-Infochips was included by the Ld. TPO for the reason that it is engaged in software development. The Ld. TPO was of the view that revenue from IT consultancy and software development taken together satisfy the service income filter. The Ld. CIT (DR) vehemently defended the order of Ld. TPO/DRP and contended that E-Infochips was rightly included for the reasons mentioned in their orders. 231. We have heard both the sides and perused the material on record. We find that this company (E-Infochips) fails the filters appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. of FY 2009-10, Wipro Limited, the holding company of the Wipro Technologies Ltd., has acquired all the interest held by Citigroup Inc. in Citi Technology Services Limited (Subsequently renamed as Wipro Technology Services Limited) with effect from 21 January 2009. On the same date, Wipro Limited entered a master service agreement with Citigroup Inc., erstwhile holding company of Wipro Technology for providing technology infrastructure services and application development and maintenance services for a period of six years. Therefore, all the transactions between Wipro Technologies Ltd and Citigroup Inc. would qualify as an international transaction within the meaning of Section 92B(2) of the Act. The Ld. Counsel placed reliance on Saxo India Pvt. Ltd. (ITA No. 6148/Del/2015) which has further been upheld by the Hon'ble jurisdictional High Court vide order dated 28.09.2016 in ITA No. 682/2016 (Pr.CIT, Delhi-8 v. Saxo India Pvt. Ltd.): In this case, the relevant para is reproduced below for ready reference: "16.5. Adverting to the facts of the instant case, we find that Wipro Technology Services Ltd. earned a revenue from Master services agreement with Citigroup Inc. for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dimension of "controlled" transactions between related parties within the meaning of Section 92B(2) of the Act. This issue was first examined and adjudicated by a coordinate bench of this Tribunal in Saxo India Pvt. Ltd. wherein the Tribunal observed as below: "16.5. Adverting to the facts of the instant case, we find that Wipro Technology Services Ltd. earned a revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. This agreement was, in fact, executed between the assessee's AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds that the transaction of earning revenue from software development support and maintenance services by Wipro Technology Services Ltd., is an international transaction because of the application of section 92B(2) i.e., there exists a prior agreement in relation to such transaction between Citigroup Inc. (third person) and Wipro Ltd. (associated enterprise). In the light of this structure of transaction, it ceases to be uncontrolled transaction and, hence, Wipro Technology Services Ltd., disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion in the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding March 2011 has been computed at 6.55% for the software development and customization service segment from the quarterly statements filed by this company with the stock exchanges. 239. The Ld. CIT (DR) vehemently defended the order of Ld. TPO and contended that Caliber and R System were rightly rejected for the reasons mentioned in his order. He further submitted that the extrapolated annual figures are not reliable because these have been computed based on weighted average basis and not on actual quarterly results which are not available in the public domain. 240. The issue of different financial year ending in the context of rejection of comparables has been examined by us in ITA no. 5315/Del/2011 (appeal for A.Yr 2007-08) while determining the suitability of PCS Technology Ltd. as a comparable under Ground no.4. We have already held that it is mandatory under Rule 10B (4) to use current year data for purpose of comparison under TNMM. Use of data from different financial years would result in an inaccurate comparison and may erode the credibility of the benchmarking exercise. We had also taken note of the Tribunal decision in the case of McKinsey Knowledge Centre (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A.Y. 2010-11 under Ground no. 27 & 28 wherein we have allowed the ground in view of the law being settled by the Hon'ble Supreme Court in CIT v. Woodward Governor India Pvt. Ltd. 312 ITR 254 (SC) in this regard. Following the same, this Ground is allowed. GROUND NO. 25: In the facts and circumstances of the case and in law, the Ld. AO/DRP has erred in making a disallowance/addition of ₹ 88,99,84,961 in terms of section 40(a)(i)/(ia) of the Act GROUND NO. 26: The Ld. AO/DRP erred in disallowing ₹ 88,99,84,961 being the reversal of excess provision which was already disallowed in AY 2010-11 GROUND NO. 27: The Ld. DRP failed to acknowledge the facts that appellant had clearly submitted that reversal was of excess provision and accordingly, it erred in observing that the provisions have been reversed without clarifying whether payments were made or not and if made, the status of TDS on such payments GROUND NO. 28: The Ld. AO/DRP has factually erred in stating that the appellant has not credited the profit and loss account in the current year with the amount of expenses of the previous years which have been so reversed, without appreciating that the reversal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40(a)(i)/(ia) is not available as the assessee has merely reversed the entries of expenses and has not actually deducted the tax and deposited the same. The Ld. DRP upheld the reasoning and action of the Ld. AO. 243. The Ld. Counsel for the appellant submitted that the reversal of the provision in the books of accounts of ₹ 889,984,971 was claimed as a deduction in computing the total income of AY 2011-12 because the same had already been taxed in the prior AY 2010-11. He further submitted that the action of the AO amounts of double taxation of the same amount. The Ld. Counsel pointed out that the deduction on account of reversal of the provision was mistakenly described as a deduction under section 40(a)(i) of the Act in the computation of income. This deduction was merely on the account of a reversal of a provision which had already been subject to tax in the prior year. The relevant details of reversal had been placed before the Ld. AO and have also been placed before us. The Ld. Counsel placed reliance on Johnson Matthey India Pvt. Ltd. [I.T.A. No. 4397/Del/2011] where in similar circumstances the Tribunal had deleted the disallowance made by the AO. It has been submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction that is claimed on the basis of alignment of the books of accounts with the taxable income. Therefore, the reasoning of the Ld. AO that as no tax has been deducted and deposited the said reversal of provision should not be allowed to be reduced from taxable income is on completely wrong footing because claim of the assessee pertains to reversal of excess provision created in preceding year for which vendors were not identifiable, and thus the question of deducting tax on the same does not arise. 247. Accordingly, we hold that the Ld. AO and the DRP have erred in not appreciating that in the preceding year at the time of creation of the said provision, the same was already suo-moto added back to the income under the head "Profits and Gains of business or Profession," for the reason that it is not allowable under the Act. Therefore, in the current year, on the reversal of the said amount, the same should be allowed to be reduced in computing the total income else it would lead to double taxation of the same. The decision of the coordinate Bench in the case of Johnson Matthey India Pvt. Ltd. [I.T.A. No. 4397/Del/2011] cited by the appellant is applicable to the present fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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