Income Tax Appellate Tribunal - Delhi
Birla Soft India Ltd., New Delhi vs Department Of Income Tax on 26 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : I : NEW DELHI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
AND
SHRI A.D. JAIN, JUDICIAL MEMBER
ITA No.4713/Del/2011
Assessment Year : 2005-06
Dy. Commissioner of Income Tax, Vs. Birla Soft India Ltd.,
Circle 3 (1), 8th Floor, Birla Towers,
New Delhi. 25, Barakhamba Road,
New Delhi.
PAN : AAACB2769E
(Appellant) (Respondent)
Assessee By : Shri Ajay Vohra & Shri Neeraj
Jain, Advocates,&
Shri Puneet Chugh, CA
Department By : Shri Peeyush Jain, CIT, DR
ORDER
PER A.D. JAIN, JUDICIAL MEMBER:
This is Department's appeal for AY 2005-06 against the order dated 26.08.2011 passed by the CIT (A)-XX, New Delhi, taking the following grounds "1. The order of the Ld. CIT (A) is erroneous & contrary to facts & law.
2. On the facts and in the circumstances of the case and in law, learned CIT (Appeals) has erred in directing the A.O. to allow deduction u/s 10A in respect of GE-GDC STP Unit.
3. On the facts and in the circumstances of the case and in law, learned CIT (Appeals) has erred in directing the A.O. to allow the set off of losses arising out of STP units against the income from the STP units.
ITA No.4713/Del/20114. On the facts and in the circumstances of the case and in law, learned CIT (Appeals) has erred in directing the A.O. to allow carry forward of unabsorbed losses and depreciation of STP unit.
5. On the facts and in the circumstances of the case and in law, learned CIT (Appeals) has erred in directing the A.O. to allow travelling expenses of Rs.11,07,62,619/-.
5.1 The Ld. CIT (A) has inter-alia ignored the fact that in spite of being specifically required the assessee did not file bills/vouchers of travelling expenses exceeding Rs.1,00,000/- and that in the absence of the bills and vouchers the genuineness of the expenses cannot be accepted.
6. On the facts and in the circumstances of the case and in law, learned CIT (Appeals) has erred in directing the A.O. to treat the miscellaneous income in the shape of recovery of notice pay as income of the unit eligible for deduction u/s 10A of the IT Act.
7. On the facts and in the circumstances of the case and in law, learned CIT (Appeals) has erred in deleting the addition of Rs.8,59,418/- made on account of excess claim of depreciation on computer peripherals.
8. On the facts and in the circumstances of the case and in law, learned CIT (Appeals) has erred in directing the A.O. to allow credit for taxes paid in Australia. Since this claim has not been examined by the AO, the CIT (A) should have held the claim may be allowed after examination of the same by the AO.
9. On the facts and in the circumstances of the case and in law, learned CIT (Appeals) has erred in deleting the addition of Rs.7,25,40,785/- made u/s 92 CA (3) of the IT Act on account of TP adjustments."
2. As per the record, the assessee is engaged in the activities of software development and related services. It is a 100% subsidiary of Birla Soft Enterprises, India, which, in turn, is a 100% subsidiary of Birla Soft Inc., USA. The assessee provides customized software to its related parties. It does offshore, i.e., on site delivery of the software also. It is paid at the cost plus agreed mark up and reimbursement of overhead expenses by its AEs. It entered into the following international transactions:-
Related Unrelated Total
NOIDA unit I Revenue 67502710 10128297 81983020
Total Cost 151955943 43812111 193768054
Operating Profit (84453233) (33683814) (113785034)
OP/TC -55.58% -76.88% 58.12%
GE-GDC Revenue 446188705 75924401 522113106
2
ITA No.4713/Del/2011
NOIDA STP
Total Cost 334451977 86386255 420838232
Operating Profit 111736728 (10461854) 101274874
OP/T 33.41% -12.11% 24.07%
NOIDA UNIT 2 Revenue 184856979 18957315 210339132
Total Cost 185551703 33041904 218593607
Operating Profit (694724) (14084589) (8254475)
OP/TC -0.37% -42.63% -3.78%
Chennai Revenue 171075757 64143704 26525l83
Total Cost 210078815 53680864 2637596791
Operating Profit (39003058) 10462840 1491904
OP/TC -18.57% 19.49% 0.57%
Non STP Revenue NIL 51775401 517754018
Total Cost NIL 493678670 493678670
Operating Profit NIL 2407538 2407538
OP/TC NIL 4.88% 4.88%
Company as a Revenue 869624151 686907736 1598448572
whole
Total Cost 882018439 710599803 1593597143
Operating Profit (12414287) (23692067) 4851429
OP/TC -1.41% -3.33% 0.30%
3. The assessee benchmarked its international transactions using the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) with operating profit/operating cost (OP/OC) as the profit level indicator (PLI). It had related party transactions as well as unrelated party transactions in the same line of business. As such, internal TNMM was employed, i.e., margin on cost earned from the unrelated party transactions was compared with the margin on cost earned from the related parties. The TP documentation of the assessee concluded that the operating margin of the assessee from software services to unrelated parties was 2.51%, whereas the 3 ITA No.4713/Del/2011 margin of the assessee from associated enterprises was 2.04% and the operating profit earned by the assessee being, according to the assessee, within (-) 2.62% and 7.63%, i.e., (+)/(-) 5% range, the transactions between the assessee and its AEs were considered at arm's length, as per the Proviso to Section 92C (2) of the IT Act. The AO made reference to the TPO for the year under consideration, i.e., AY 2005-06 to determine the arm's length price u/s 92CA (3) of the IT Act in respect of international transactions entered into by the assessee during the relevant financial year, i.e., FY 2004-05.
4. Ground No.1 is general.
5. Apropos Ground No.2, the assessee had initially set up an undertaking at 2nd Floor, Block-III, Ganga Shopping Complex, Sector 29, Noida in the year 1995, vide STPI Approval No.5 (7)/94/17/2260 dated 29th November, 1994. In the year 1999, however, there came about changes in the equity holding structure of the assessee and GE took equity participation in Birlasoft Inc, the parent company of the assessee. As a result of GE picking up a stake in the ultimate parent company, aggressive business plans were prepared for growth, as substantial business was expected from the overseas affiliates of GE. For rendering software services to this new client base, a new independent and integrated unit was proposed to be set up. Consequently, the assessee applied for the registration of a new STP undertaking (the GE-GDC undertaking) in November, 2000. The approval to this new unit was granted by Software Technology Parks of India, an autonomous body under the Ministry of Information Technology, Government of India on 4th December, 2000 vide approval No. Ref. No. PCMG/PSE/05/025-STPN/518. On these facts, it was submitted by the assessee before the AO that the new GE-GDC unit was a separate undertaking for the purpose of deduction under Section 10A of the Act. The AO has held that the new business started by the assessee company was an extension of the existing business, since both the units were situated in the same building and doing the same business, i.e. both the units were producing software items and exporting the same. This order of the AO is similar to the earlier order of the AO for the AY 2003-04. The finding of the AO for that year was that the old and the new units were identical even as per the submission of the 4 ITA No.4713/Del/2011 assessee before the AO that the sitting capacity at the existing facility was limited and therefore the assessee started the new unit to meet the increased client base. As such, the AO came to the conclusion that it was an extension of the existing business.
6. The Ld. CIT(A) directed the AO to give the benefit of Section 10A of the Act to the GE-GDC Unit of the assessee.
7. Aggrieved, the department has raised Ground No.2.
8. The Ld. DR has contended that the ld. CIT (A) has erred in directing the AO to allow deduction u/s 10A to the assessee in respect of its GE-GDC STP Unit; that the ld. CIT (A) has failed to take into consideration that the new unit started by the assessee was situated in the same building as housed the assessee's existing unit; that the ld. CIT (A) also failed to appreciate that both the units were doing the same business; that in this manner, the ld. CIT (A) failed to comprehend that the old unit and the new unit of the assessee were identical and that as such, the new business started by the assessee company was but an extension of its existing business.
9. The ld. Counsel for the assessee, on the other hand, has placed strong reliance on the impugned order . It has been contended that the issue stands squarely covered in favour of the assessee in the assessee's own case, by the Tribunal orders for AYs 2003-04, 2006-07 and 2008-09. It has further been submitted that the department's appeal on this very issue also stands dismissed by the Hon'ble Delhi High Court. Copies of these orders have been placed on record.
10. While coming to the conclusion that the new business of the assessee was only an extension of its existing business, the AO followed the assessment order in the assessee's case for AY 2003-04. It was held that since both the units were situated in the same building and were doing the same business, i.e., production of software items and export thereof, both the units were identical. However, for AY 2003-04, the matter travelled upto the Tribunal and the Tribunal held that the first STP and the second STP undertakings of the assessee were to be treated as separate undertakings in accordance with the parameters laid down in Section 10A of the Act. A copy of the said order has been placed at pages 557-578 of the assessee's paper book. Therein (APB 5 ITA No.4713/Del/2011 572-573, para 2.10), it was held that various judicial pronouncements, as relied on by the assessee, had held that where a new undertaking has been formed with fresh capital and investment with a motive to increase the production capacity and expand the business, it cannot be said that the new undertaking was not a new industrial unit by itself; and that establishment of a new industrial unit as a part of already existing industrial establishment may result in an expansion of the industry, but if the only established unit itself is an integrated unit in which new plant and machinery are put up and the same itself, independently of the old unit, is capable of production of goods, then it can be classified as a newly established industrial undertaking. On this basis, the Tribunal held that even if a new unit was established by the assessee company as expansion of its existing unit, substantial fresh capital having been invested in the said unit and it was capable of doing business of its own, independent of the old unit, the same was eligible to be treated as a newly established undertaking; and that therefore, the CIT (A) was not correct in holding that both the units were liable to be treated as one unit for the purpose of computing deduction u/s 10A of the Act.
11. The aforesaid Tribunal decision for AY 2003-04 in the assessee's case was followed by he Tribunal in the assessee's case for AY 2006-07. A copy of the Tribunal order in the assessee's case for AY 2006-07 has been placed at APB 585-597. It is reported as 136 TTJ 505 (Del). Therein (para 5.7, at page 512 of the report, as contained at APB 589), the Tribunal followed its aforesaid order for AY 2003-04 and again decided the issue in favour of the assessee, holding that the new unit of the assessee was to be treated as separate and independent unit for the purpose of computing deduction u/s 10A of the Act. The AO was directed to allow deduction u/s 10A in respect of the assessee's new unit set up at Third Floor, Block-3, Sector 29, Noida. It is the aforesaid two Tribunal orders in the assessee's own case, i.e., for AYs 2003-04 and 2006-07, which have been followed by the CIT (A) in allowing the assessee's ground of appeal in this regard and directing the AO to give the benefit of Section 10A of the Act to the GE-GDC STP Unit of the assessee.
12. Before us, the ld. Counsel for the assessee has placed further reliance on the Tribunal orders in the assessee's case for AYs 2007-08 and 2008-09. The order for AY 6 ITA No.4713/Del/2011 2007-08 is at APB 598-617, whereas that for AY 2008-09 is to be found at APB 624-
632.
13. In the order for AY 2007-08, the Tribunal, in para 8 (APB 611) of the order, has, following the Tribunal order (supra) for AY 2006-07, held that the Tribunal, for AY 2006- 07, had accepted the assessee's claim and had held that the new unit was to be treated as a separate and independent unit for the purpose of computing deduction u/s 10A of the Act, following the ITAT order for AY 2003-04; that the facts obtaining for AY 2007-08 were similar to the facts and circumstances in the preceding assessment years; that the revenue had not placed any material before the Tribunal for taking a different view in the matter for the year under consideration (AY 2007-08); and that therefore, the claim of the assessee u/s 10A of the Act was being allowed.
14. In the order for AY 2007-08, vide paras 19 and 20 (APB -629), the Tribunal has, following the aforesaid Tribunal order for AY 2006-07, held that the GEDC-STP Unit, situated at Third Floor, Block 3, Sector 29, Noida, was to be treated as a separate unit, and, accordingly, deduction u/s 10A of the Act was allowable.
15. In the 'Chart on the Issues' dated 13.03.2014 filed before us by the assessee, the assessee has contended that vide order dated 06.01.2011 (APB 618), passed in ITA No.71/2010, the Hon'ble Delhi High Court has dismissed the department's appeal on the aforesaid issue. However, a perusal of the said High Court order shows that it does not deal with this issue at all. The order reads as follows:-
"In this appeal, following question of law is proposed:-
Whether ITAT was correct in law in allowing depreciation to the assessee at the higher rate of 60% on computer accessories and peripherals?
This issue stands decided against the Revenue and in favour of the assessee by a judgment of this Court in ITA 1266/2010, dated 31st August, 2010 categorically holding that the depreciation on computer accessories and peripherals would be admissible at the rate of 60%.
This appeal is accordingly dismissed."
16. Be that as it may, for AYs 2003-04 and 2006-07 to 2008-09, this issue stands decided in favour of the assessee by the afore-noted Tribunal orders. The CIT (A) has 7 ITA No.4713/Del/2011 followed the Tribunal orders for AYs 2003-04 and 2006-07. Before us, the obtaining facts have not been shown to be any different from, besides AYs 2003-04 and 2006-07, AYs 2007-08 and 2008-09 also. Therefore, finding no error therein, the order of the ld. CIT (A) in this regard is upheld. Ground No.2 is, accordingly rejected.
17. Ground Nos.3 and 4 relate to the action of the ld. CIT (A) in directing the AO to allow the set off of losses arising out of the assessee's STP unit against the income from its non-STP units (mistakenly typed as 'STP Units' in Ground No.3) and in directing the AO to allow carry forward of unabsorbed losses and depreciation of the assessee's STP units.
18. As per the record, during the previous year relevant to the assessment year under consideration, the assessee was engaged in the activities of software development and related services. The software services were being carried out from its undertakings at Noida and Chennai set up in accordance with the Software Technology Park ('STP') Scheme notified by the Government of India, Ministry of Commerce and Industry and branch offices in Australia and Singapore (hereinafter referred to as 'Non STPI undertakings'). The assessee company has incurred business loss amounting to Rs 152,333,790 in its various STP and Non STP undertakings. The details of the losses incurred have been given as under:
(i) Noida-I (first STP Undertaking) - Rs. (104,937,372)
(ii) Noida- II (STP undertaking) - Rs. (31,826,734)
(iii) Chennai (STP Undertaking) - Rs. (6,383,402)
(iv) Singapore (Non-STP undertaking) - Rs. (9,186,282)
19. The AO did not allow the carry forward and set off of losses arising out of the business operations of 10A units from the income from non 10A units. While doing so, the AO has relied on the order dated 13.04.07 of the ITAT in the assessee's own case for the AY 1999-2000 in ITA No. 838/Del/2003.
20. The AO has observed as follows:
8 ITA No.4713/Del/2011"The assessee's unit under question is entitled to 'tax holiday' by way of deduction u/s 10A. Had the assessee co. been generating profits from such unit, it would have been entitled for such 'tax holiday' by way of deduction u/s 10A. It is thus clear that profits and gains from such unit would have been exempt from tax. However in the case of instant assessee co., losses are suffered in respect of such unit, which is entitled for deduction u/s 10A of the act. As stated above, as per the provisions of IT Act, loss from such source/ unit, which is exempt from tax cannot be set off against income chargeable to tax.....
On the same observations and findings the assessee's claim of carry forward of losses of undertaking claiming the exemption u/s 10A is rejected and the claim of Rs. 53,732,227 of business loss and Rs. 42,927,772 of the unabsorbed depreciation is disallowed from being carry forwarded."
21. While holding that the assessee should be allowed to set off the losses arising out of its STP units against the income of its non-STP units and allowing the assessee to carry forward unabsorbed losses and depreciation of its STP units, the CIT (A) followed the Tribunal orders of the assessee for AYs 2003-04 and 2006-07.
22. In this regard, the department has challenged the action of the ld. CIT (A) and has contended that the ld. CIT (A) has failed to take into consideration the categorical finding recorded by the AO that had the assessee company been generating profits from its STP Unit, this unit would have been entitled for a tax holiday by way of deduction u/s 10A and the profits and gains from such units would have been exempt from tax, but since the STP Unit of the assessee had suffered losses, the losses from such unit could not be set off against income chargeable to tax; and that the same was the position with regard to the claim of carry forward of unabsorbed depreciation.
23. The ld. Counsel for the assessee, on the other hand, has submitted that this issue is covered in favour of the assessee by the Tribunal orders for AYs 2006-07 to 2008-09 (supra). It has been further contended that moreover, recently, the CBDT, vide Circular No.7/2013 dated 16.07.2013, clarified that irrespective of their continued placement in Chapter III, Sections 10A and 10B of the Act, as substituted by Finance Act, 2000, provide for deduction of profits and gains derived from the export of articles or things or computer software; that tax benefit u/s 10B of the Act is in the nature of deduction; that income/loss from various sources, i.e., eligible and ineligible units, under the same head have to be aggregated in accordance with the provisions of Section 70 9 ITA No.4713/Del/2011 of the Act; and that therefore, loss from ineligible unit would have to be set off against the profits of the non-eligible unit.
24. In this regard, it is seen that the AO, while deciding this issue against the assessee, relied on the Tribunal order for AY 99-00. Section 10A of the Act was modified by the Finance Act, 2000. The pre-amended Section stated that 'any profits and gains derived by an assessee from an industrial undertaking to which this Section applies shall not be included in the total income of the assessee.' This provision stands changed by the aforesaid amendment, w.e.f. 01.04.2001. Section 10A(1) now states that 'subject to the provisions of this Section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning from the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee........" (emphasis supplied).
25. In the assessee's case for AY 99-00, vide its order dated 13.04.07 (relevant portion produced in the assessment order at pages 5 and 6 thereof), in ITA No.838/Del/2003, the Tribunal had held that as per Section 10A (1) of the Act, any profits and gains derived from an industrial undertaking, to which this Section applies, shall not be included in the total income of the assessee; that thus, the profits of the eligible industrial undertaking did not form part of the total income at all; that it did not enter the computation provision; that thus, what was to be computed was the profits of the eligible industrial undertaking and not the resultant business income after set off of loss in other activities; and that the loss from other business activities should not be set off against profits derived from eligible industrial undertaking.
26. Evidently, since the aforesaid order of the Tribunal was for AY 99-00, it pertained to the pre-amended provisions of Section 10A of the Act. The assessment year at hand is AY 2005-06. Undisputedly, it is the amended provision of Section 10A of the Act which apply hereto and not the erstwhile provisions. Therefore, as rightly contended on behalf of the assessee, the said Tribunal order for AY 99-00 is not applicable for the year under consideration.
10 ITA No.4713/Del/201127. For AY 2006-07, the Tribunal (APB 589 & 590), restored the matter to the file of the AO for fresh adjudication by treating the provisions of Section 10A of the Act to be in the nature of a deduction provision and not an exemption provision. While doing so, the Tribunal followed the decisions in 'Mindtree Consulting (P) Ltd. vs. ACIT' 102 TTJ (Bangalore) 691, 'Honeywell International (India) (P) Ltd. vs. DCIT', 108 TTJ (Del) 924, Naveen Bharat Industry vs. DCIT', 90 ITD 1 (Mum) TM, 'Hindustan Unilever vs. DCIT and Another' 325 ITR 102 (Bom) and 'Scientific Atlanta India Technology (P) ltd. vs. ACIT', 37 DTR (Chennai) (Trib) (SB) 46. For AY 2007-08, the Tribunal followed (APB 613-614) its order for AY 2006-07, noting that for that year, even the DRT had referred to the ITAT decision for AY 2006-07 and remanded the matter to the AO for fresh adjudication with similar directions as issued for AY 2006-07.
28. For AY 2008-09, the Tribunal (APB 631, para 26), followed the Tribunal orders for AYs 2006-07 and 2007-08 in restoring the issue to the file of the AO for fresh adjudication.
29. Further, in 'Sovika Infotek Ltd. vs. ITO', 23 SOT 271 (Mum), it has been held that the assessee is entitled to set off the loss incurred in a Section 10B undertaking against the other incomes earned by him. There is no dispute that the provisions of Section 10B are in pari materia with those of Section 10A of the Act. Further, in 'A.V. Thomas Leather and Allied Products Ltd.' 2009 TIOL 434 ITAT (Madras), the Chennai Bench of the Tribunal took the same view of the matter while relying on 'Honeywell International India (P) Ltd. vs. DCIT' (supra), 'Mindtree Consulting (P) Ltd. vs. ACIT' (supra) and 'Naveen Bharat Industries Ltd. vs. DCIT' (supra).
30. The facts remaining the same for the year under consideration also, there is no reason for us to differ from the action of the CIT (A) in directing the AO to recompute the total income of the assessee after allowing the set off of the losses arising out of the STP units of the assessee against the income of its non-STP undertakings and to allow carry forward of unabsorbed losses and depreciation as per law. Therefore, Ground Nos.3 and 4 are rejected.
11 ITA No.4713/Del/201131. Ground No.5 is against the action of the CIT (A) in directing the AO to allow travel expenses of Rs.11,07,62,619/-.
32. For the year, the assessee claimed travelling expenses to the tune of Rs.23,20,33,587/-. The AO noted that for AY 2004-05, such expense was of Rs.12,12,70,968/- and that therefore, there was an increase of close to 100%. The assessee, vide reply dated 24.09.2008, submitted the details for the last four years, as follows:-
F.Y. Amount (Rs.)
04-05 232033587/-
03-04 121270968/-
02-03 2052812/-
01-02 2890097/-
33. Vide reply dated 31.10.08, the assessee submitted details of travelling advances for the last five years along with comparison to the total revenue for that year, as follows:-
F.Y. Amount (Rs.) Turnover (Rs.)
04-05 114000667 1580856777
03-04 9758868 1688939505
02-03 18185256 1062840865
01-02 19758868 326492064
00-01 6905578 149401616
34. The assessee also submitted, as noted at page 11 of the assessment order, the details of foreign travel expenses of more than Rs.1 lac. The AO observed that no other details were provided by the assessee, nor any justification for such a huge increase in the expenses was provided; that besides, even bills and vouchers pertaining to travelling expenses of more than Rs.1 lac, which were specifically asked for, were also not filed. From this, the AO observed that the assessee had failed to discharge its onus to substantiate the claim of the expenses and to justify the same. The travelling expenditure in excess of the amount claimed in the earlier year was disallowed by the 12 ITA No.4713/Del/2011 AO as such, also for the reason that the turnover of the assessee company had decreased in comparison to the earlier year.
35. The ld. CIT (A), while directing the AO to delete the addition, held that the disallowance made was purely ad hoc; that the assessee had produced books of account before the AO, which books were audited; and that there was nothing on record to show that the AO had asked the assessee for further evidence to justify the claim of expenses. Besides, the ld. CIT (A) followed the Tribunal order in the assessee's case for AY 2006-07 in this regard.
36. The ld. DR has challenged the CIT (A)'s action, alleging that the CIT (A) ignored the fact that in spite of being specifically required to do so, the assessee did not file bills/vouchers for travelling expenses exceeding Rs.1 lac and that in the absence thereof, the genuineness of the expenses was rightly not accepted by the AO.
37. The ld. Counsel for the assessee, on the other hand, has placed strong reliance on the impugned order.
38. Here, the observations of the AO with regard to the assessee not having produced the relevant documentary evidence in the shape of bills/vouchers concerning the travelling expenses claimed, have been found by the ld. CIT (A) to be incorrect. This finding of the ld. CIT (A) has not been successfully refuted before us by the department. Therefore, there is nothing for us to differ from the CIT (A)'s conclusion that the assessee had, in fact, produced the concerned evidence before the AO. On merit, the Tribunal (APB 591), for AY 2006-07, observed as follows:-
"At this stage, it is pertinent to note the settled proposition that when once an outlay is made for the purpose of the business, it need not turn out to be profitable. It is a mistake to suppose that any deductible expenditure must not only be incurred for the purpose of business or trade but must also be profitably laid out. The deductible expenditure incurred for the purpose of business does not require the presence of a receipt on the credit side to justify deduction of an expense. It is not as if the expenditure should be co-related to profits or turnover and it is deductible only if profit is made or turnover is increased. It is well-settled that expenditure wholly and exclusively for the purpose of business cannot be disallowed merely because the assessee's income or the turnover would be very much reduced thereby. In the present case, the AO has not brought any material 13 ITA No.4713/Del/2011 or evidence on record to show and establish that the travelling expenses incurred by the assessee during the year under consideration have not been expended for the purpose of assessee's business or have not been incurred in the course of carrying of any business activity of the assessee. In the light of the discussions made above, we delete the disallowance of traveling expenses made by the AO. In other words, this issue is decided in favour of the assessee."
39. The facts for the year under consideration remaining the same as that before the Tribunal for AY 2006-07, we uphold the CIT (A)'s order on this ground and reject ground No.5.
40. As per ground No.6, the ld. CIT (A) has erred in directing the AO to treat the miscellaneous income earned by the assessee in the shape of recovery of notice pay as income of its unit eligible for deduction u/s 10A of the Act.
41. The AO asked the assessee to show as to why the said income should not be treated as income from other sources and be included for the computation of deduction u/s 10A of the Act. The assessee, vide reply dated 28.08.08, stated that the miscellaneous income consisted of notice pay recovered from its employees, which income was incidental to the software export and hence, it formed part of the normal business profit and loss account of the assessee. However, the AO treated the miscellaneous income as income from other sources.
42. The ld. CIT (A) relied on the Tribunal decision in the assessee's case for AY 2006-07 and gave the impugned direction to the AO.
43. The ld. DR has contended that the ld. CIT (A) has failed to consider that the miscellaneous income of the assessee was not of the same nature as interest income and was rightly treated by the AO as income from other sources.
44. The ld. Counsel for the assessee has placed reliance on the impugned order. Reliance has also been placed on the Tribunal orders for AY 2007-08 and 2008-09.
45. For AY 2006-07 (APB 590, para 7.3), the Tribunal, following the Delhi ITAT decision in the case of 'Jubilant Empro (P) Ltd. vs. DCIT', (2007) TIOL 458 Del, held that the amount received by the assessee towards notice period was to be treated as income derived from the eligible undertaking and that deduction u/s 10A of the Act shall 14 ITA No.4713/Del/2011 be allowed accordingly. The CIT (A) followed this order to hold that the miscellaneous income should be treated as income from business.
46. For AY 2007-08 (APB 616, para 18), the ITAT decision for AY 2006-07 was followed by the Tribunal. For AY 2008-09 (APB 631-632), a similar view was taken by the Tribunal.
47. Here again, the facts for the year under consideration remain the same as those present in the earlier years. In accordance with the Tribunal orders for those years (supra), we hold that the amount received by the assessee towards notice period is to be treated as income derived from the eligible undertaking and deduction u/s 10A of the Act is to be allowed accordingly. The finding of the ld. CIT (A) to this effect is, accordingly, upheld. Ground No.6 is rejected.
48. Ground No.7 challenges the action of the ld. CIT (A) in deleting the addition of Rs. 8,59,418/- made on account of excess claim of depreciation on computer peripherals. The CIT (A) followed the Tribunal order for AY 2006-07 in the assessee's case and deleted the addition. The Tribunal, for AY 2006-07 had followed the decision dated 31.8.10 of the Hon'ble Delhi High Court in the case of 'CIT vs. BSES Rajadhani Power Ltd.' in ITA No.1266/2010, wherein it was held that the Tribunal had rightly allowed depreciation on computer peripherals at 60%.
49. Finding no infirmity in the CIT (A)'s order in this regard also, Ground No.7 is also rejected.
50. As per Ground No.8, the ld. CIT (A) has erred in directing the AO to allow credit for taxes paid for assessee in Australia.
51. The assessee had paid taxes amounting to Rs.59,71,754/- in Australia in respect of profits earned by its Branch Office situated in Australia. Out of this amount, a credit of Rs.12,61,811/-, corresponding to the income-tax liability of the assessee, was claimed in accordance with Section 90 of the Act, read with para 4 of Article XXIV of the DTAA between India and Australia. The AO asked the assessee to justify its claim.
15 ITA No.4713/Del/2011However, the AO rejected the claim of the assessee and disallowed the credit of taxes paid in Australia against the Indian tax liability of the assessee company.
52. The CIT (A) has observed as follows:-
"The aforesaid claim of Rs 1,261,811 made by the appellant was duly allowed by the Ld. AO in his assessment order. However, AO failed to take cognizance of the fact that after taking into consideration 'he additions made in the assessment order, the taxable income of the appellant, had increased and therefore the Ld. AO should have granted an enhanced credit of the taxes paid in Australia.
In view of the above, there seems to be no dispute in principal between the AO and the appellant about the credit, of taxes paid in Australia by the appellant. The AO is directed to give credit to the taxes paid as per the DTAA between India and Australia.
53. The ld. DR has contended that while wrongly directing the AO to allow the credit for taxes paid in Australia, the ld. CIT (A) has failed to consider that this claim had not been examined by the AO and once this was so, the ld. CIT (A) ought to have remitted the issue to the file of the AO, to be allowed after examination by the AO.
54. The ld. Counsel for the assessee, on the other hand, has contended that the AO failed to appreciate the fact that after taking into consideration the addition made in the assessment order, the taxable income of the assessee has increased and, therefore, the assessee is to be granted enhanced credit of taxes paid in Australia.
55. Here, we find that indeed, considering the additions made, the taxable income of the assessee has increased. As such, enhanced credit of taxes paid in Australia needs to be granted to the assessee. As such, the CIT (A) has rightly remitted the matter to the file of the AO to allow this claim of the assessee on examination. Ground No.8 stands rejected.
56. Ground No.9 states that the ld. CIT (A) has erred in deleting the addition of Rs.7,25,40,785/- made u/s 92CA (3) of the Act, on account of transfer pricing adjustment. In this matter, the facts as per the record are that the assessee company is engaged in software development and related services to its Associated Enterprises (AEs). The assessee is a 100% subsidiary of Birlasoft Enterprises India which, in turn, is a 100% subsidiary of Birlasoft Inc., USA. The assessee provides customized software 16 ITA No.4713/Del/2011 to its related parties. It does offshore, i.e. on site delivery of the software also. The assessee is paid at the cost plus agreed markup and reimbursement of over head expenses by its AEs. The company entered into the following international transactions:
S. No. Description of transaction Method Value (in Rs.)
1. Software development and TNMM 86,42,08,521/-
related services
2. Reimbursement of - 3,71,44,544/-
expenses paid
3. Reimbursement of - 7,67,535/-
expenses received
56.1 The assessee benchmarked its international transaction using the Transactional
Net Margin Method (TNMM) as the most appropriate method with Operating Profit/ Operating Cost (OP/OC) as the Profit Level Indicator (PLI). It had related party as well as unrelated party transactions under the same line of business. Therefore, internal TNMM was employed, i.e., margin on cost earned from the unrelated party transactions was compared with the margin on cost earned from the related parties. The TP documentation of the assessee concluded that the operating margin of the assessee from software services to unrelated parties was 2.51%, whereas the margin of the assessee from associated enterprises was 2.04% and since the operating profit, which the assessee earns was within -2.62% and 7.63% (i.e., +/- 5% range), the transaction between the assessee and its associated enterprise had been considered to be at arm's length. In other words, on comparison, the assessee found that the international transactions fell within the proviso to section 92C(2) of the IT Act and, therefore, maintained that its transactions are at arm's length.
56.2. Neither there is any dispute about the most appropriate method used by the assessee, nor on the PLI. However, the TPO did not accept the comparison at the entity level. The assessee had various STPI units. The TPO asked for Form No. 56F in respect of each of the units and also to provide unit-wise details of related and unrelated 17 ITA No.4713/Del/2011 party transactions, which were submitted by the assessee on 08.10.2008 to the TPO, as below:
Related Unrelated Total
NOIDA Revenue 67502710 10128297 81983020
unit I
Total Cost 151955943 43812111 193768054
Operating (84453233) (33683814) (113785034)
Profit
OP/TC -55.58% -76.88% 58.12%
GE-GDC Revenue 446188705 75924401 522113106
NOIDA
STP
Total Cost 334451977 86386255 420838232
Operating 111736728 (10461854) 101274874
Profit
OP/T 33.41% -12.11% 24.07%
NOIDA Revenue 184856979 18957315 210339132
UNIT 2
Total Cost 185551703 33041904 218593607
Operating (694724) (14084589) (8254475)
Profit
OP/TC -0.37% -42.63% -3.78%
Chennai Revenue 171075757 64143704 26525l83
Total Cost 210078815 53680864 2637596791
Operating (39003058) 10462840 1491904
Profit
OP/TC -18.57% 19.49% 0.57%
Non STP Revenue NIL 51775401 517754018
Total Cost NIL 493678670 493678670
Operating NIL 2407538 2407538
18
ITA No.4713/Del/2011
Profit
OP/TC NIL 4.88% 4.88%
Company Revenue 869624151 686907736 1598448572
as a whole
Total Cost 882018439 710599803 1593597143
Operating (12414287) (23692067) 4851429
Profit
OP/TC -1.41% -3.33% 0.30%
56.3 The TPO observed that the international transactions of the assessee were emanating from three STP units, which had distinct identity and were easily distinguishable, both, in the form of functions, and financials, and that merely because all of them were into an activity of providing software services, only on this account, the transactions from each one of them did not become 'closely linked'. According to the TPO, the assessee was not able to distinguish between the functional profile of related and unrelated party products, so as to justify losses in the unrelated segment and profits in the related segment. Moreover, according to the TPO the assessee was not able to furnish complete and credible information about related and unrelated accounts. Therefore, the results of each STP unit were benchmarked by the TPO without segregating them between related and unrelated parties.
56.4. In this way, the TPO compared the margin, i.e. OP/TC of each unit independently. He compared the margin of unrelated transaction with the related party transactions of each unit separately. The OP/TC earned by the Chennai unit in its related party transaction was lower than the margin earned from unrelated party transaction. The TPO held that the international transactions of other unit was at arm's length, but made adjustment to the international transaction undertaken by the Chennai unit, based on revised accounts of the Chennai unit, as submitted by the assessee. The unrelated party transaction resulted into a margin of 19.47% as against -4.27% from the related party transaction. As a result, the difference of Rs. 7,25,40,785/- was added to the international transaction to bring it at arm's length.
19 ITA No.4713/Del/201157. In the impugned order, the ld. CIT (A) has observed:
14.8. The TPO had benchmarked the international transaction unit wise instead of entity wise in the AY 2004-05. This matter had travelled to the Hon'ble ITAT and it pronounced its decision on 11.06.2011 deciding in favor of the appellant. For the AY 2006-07 also the appellant benchmarked its international transaction at the entity wise under TNMM using OP/TC as the PLI. Dispute Resolution Panel (DRP) concurred with the approach of the TPO who had done unit wise benchmarking. The matter travelled up to the ITAT and ITAT decided the matter through its pronouncement on 20.01.2011 deciding in favor of the appellant. It is important to note that on the issue of what should be the unit or level of comparison between related and unrelated transactions are common for the AY 2004-05, 2005-06 and 2006-07. The Hon'ble ITAT has decided this issue for both earlier and subsequent assessment years. The issues are identical. The contention of the appellant is that the related party transactions should be aggregated at the entity level and in the same way the transactions with unrelated party also should be aggregated at the entity level and then the resultant PLI should be compared. Whereas, the contention of the TPO is that each unit of the appellant company should be benchmarked separately based on the unit's transactions with related and unrelated parties. There are no dispute on other issues like most appropriate method and PLI to be used.
................................................................................................... ................................................................................................... 14.10. I have examined the issues carefully after going through the record. I am of the view that the TPO has not done any separate evaluation of the unit wise assets employed, functions performed and risk undertaken. There is no distinguishable feature in the facts or nature of the controversy as compared to the past assessment year i.e. 2004-05 or the next assessment year i.e. 2006-07. The Hon'ble ITAT in both the years has held that the segments as created by the appellant are acceptable even though there are not to be maintained by the appellant as such under accounting standards. Allocations of the costs are based on rational principles. Wisdom of the higher authorities are available in the form of the two above mentioned judgments of the Hon'ble ITAT in the earlier as well as next assessment years in the case of the assessee itself. Therefore, respectfully following the decisions of the Hon'ble ITAT and also for the reasons mentioned above, I come to the conclusion that the benchmarking should be based on the aggregation at the entity level and not at the unit level. As the PLI of the international transaction falls within +/-5% as computed by the appellant, the benefit of proviso to section 92C(2) is available to the appellant. Therefore, this ground of the appellant is allowed. The AO/ TPO is directed to delete the adjustment made to international transaction."
20 ITA No.4713/Del/201158. Thus, the CIT (A) observed that whereas the TPO had benchmarked the international transaction unitwise, instead of entitywise, for AYs 2004-05 and 2006-07, the Tribunal, for both these years, had decided this issue in favour of the assessee, holding that the benchmarking of the international transactions had to be done entitywise. He, following the said Tribunal orders, directed the AO/TPO to delete the adjustment made to the international transactions. While doing so, he also observed that the TPO had not done any separate evaluation of the unitwise assets employed and functions performed and risks undertaken.
59. The ld. DR has contended that the ld. CIT (A) has erred in deleting the addition correctly made by the AO; that the assessee is into software services; that the assessee has four units, all of which have different profitability; that the assessee employed the TNMM, whereas the TPO went unitwise; that external comparables were used (reference made to the Tribunal order for AY 2004-05 at APB 583-584, 587, 593 and
594). It has been contended that there, internal benchmarking was not done. It has also been contended that the analysis done this year, as compared to that in AY 2004-05, is different, inasmuch as for the year under consideration, the analysis is superior. It has been contended that this was never done by the TPO in AYs 2004-05 and 2006-07.
60. On the other hand, the ld. Counsel for the assessee has placed reliance on the impugned order and it has been contended that as in the earlier two years, i.e., AYs 2004-05 and 2006-07, for the year at hand also, the profit of each of the STP units of the assessee cannot be evaluated separately and independently of one another; that the Tribunal orders for AYs 2004-05 and 2006-07 have been relied on by the Tribunal for AYs 2007-08 and 2008-09 too, holding that the assessee was justified in undertaking internal benchmarking analysis for determining the arm's length price. Contending that Rule 10B (e) of the Rules provides that preference shall be given to internally comparable uncontrolled transactions vis-à-vis externally comparable uncontrolled transactions, reliance has been placed on the Third Member decision dated 13.7.12 of the Mumbai Tribunal in the case of 'Technimont ICB Pvt. Ltd. vs. ACIT' (copy at APB 635-654), rendered in ITA Nos. 4608 and 5085/Mum/2010. Reliance has also been placed on:
21 ITA No.4713/Del/2011i) 'Destination of the World vs. DCIT', rendered by the Delhi Bench of the Tribunal in ITA No.5534/Del/2010, order dated 08.07.11 (copy at APB 655-
675);
ii) 'Interra Information Technologies India (P) Ltd. vs. DCIT', rendered by the Delhi Bench of the Tribunal in ITA No.5568 & 5680/Del/2011 (copy at APB 676-729);
iii) 'Honeywell India Ltd. vs. ACIT', rendered by the Chennai bench of the Tribunal in ITA No.2152/Mds/2011, order dated 12.12.13 (copy at APB 737-
764); and
iv) 'Lummus Technology Heat Transfer B.V. vs. DCIT', rendered by the Delhi Bench of the Tribunal in ITA No.6227/Del/12, order dated 21.02.14 (copy at APB 730-736)
61. Having considered the rival contentions in the light of the material placed on record qua this issue, we find that during the year, the assessee had entered into international transactions of software development and related services with its associated enterprises (AE's), i.e., Birla Soft Inc., USA and Birla Soft (UK) Ltd. It applied the TNMM for benchmarking the international transactions of provision of software development services as the most appropriate method, with OP/OC as the profit level indicator (PLI). It aggregated the margin from the provision of software development services from all its STP units. The TPO, however, benchmarked each of the STP units on a stand alone basis. The assessee considered its international transactions to be at arm's length, taking the operating profit margin earned from the services rendered to its AEs, computed at 2.04%, rather than the operating profit margin earned by it from rendering of services to unrelated parties, computed at 2.51%, to be within the safe harbour range of (+)/(-) 5%. The TPO, however, considered the related margin of the assessee's Chennai STP unit at (-) 4.27%, arriving at an arm's length margin of 30.26%, thus making an addition of Rs. 7,25,40,785/-. Therefore, the TPO did not accept the comparison at the entity level, observing that the three STP units of the assessee, to which the international transactions of the assessee were related, had distinct identities. The TPO observed that the OP/TC earned by the assessee's Chennai 22 ITA No.4713/Del/2011 Unit in its related party transaction [(-) 18.57%] was lower than the margin earned from unrelated party transaction (19.49%).
62. The CIT (A), however, disagreed with the TPO's conclusion that the benchmarking ought to be based on the aggregation at the unit level and not at the entity level, as contended by the assessee. For this, the ld. CIT (A) followed the Tribunal decisions in the assessee's case for AYs 2004-05 (supra) and 2006-07 (supra).
63. For the department, it has been contended before us that for AYs 2004-05 and 2006-07, external comparables were used and the analysis done for the year under consideration is different from those years, inasmuch as such analysis for the year under consideration is superior, which was not done for AYs 2004-05 and 2006-07.
64. As noted by the ld. CIT (A), the relevant observations of the ITAT for AYs 2004- 05 and 2006-07 are as follows, respectively:-
"ACIT vs. Birla Soft. Ltd. ITA No. 4001/Del/2009 AY, 2004-05 "13. The terms and conditions for rendering such services by each of STP unit was governed by one single agreement entered u to between Birla Soft India and Birla Soft Inc. US. The learned TPO has assured that functions, assets and risk undertaken by each of the STP Unit are distinct from each other and is comparable with the function, assets and risk undertaken by existing comparables. In other words, learned TPO has totally ignored the unity of the business, administrative control and unity of funds etc. The independent FAR analysis of each unit with existing comparables is practically not possible there is a common management, interlacing of the funds etc.
14. Thus, on due consideration of the order of the Learned CIT(Appeals), we are satisfied that Learned First Appellate Authority rightly did not concur with the conclusion of the TPO for segregating the each STP Unit and considering the result of each STP unit as a stand-alone for the purpose of determining the ALP relating to international transaction."
Birlasoft (India) Ltd. vs. DCIT ITA No. 3839/ Del/2010 AY 2006-07 ''17. In the light of the discussions made above we therefore, hold that the assessee was justified in undertaking internal bench marking analysis on standalone basis by placing on record working of operating profit margin from international transactions with AEs and transactions with unrelated parties undertaken in similar functional and economic scenario, and the same should be the basis for determination of arm's length, price in respect of international transactions undertaken with the associated enterprise. In the light of the facts of the present case as discussed above, we therefore, hold that the Transfer Pricing Officer had no mandate to have recourse to external comparables when, in the 23 ITA No.4713/Del/2011 present case, internal comparables were available, which could be applied for determining the arm's length price of international transactions with AEs. We therefore, direct the Assessing Officer, Transfer Pricing Officer to determine arm's length price of international transactions with AEs by making internal comparison of the net margin earned by the assessee from the international transactions with associated enterprises and the profit earned by the assessee from the international transactions with unrelated parties. In this respect, the assessee has already given his working by allocating revenue and expenses to both the segmental and determined separate profitability."
65. Evidently, therefore, for AYs 2004-05 and 2006-07 also, as for the year under consideration presently, the TPO had not accepted the comparison at the entity level. The Tribunal, however, for both these years, accepted the assessee's stand that the related party transactions as well as the unrelated party transactions should be aggregated at the entity level and then the resultant PLI should be compared.
66. For AY 2006-07, it is noteworthy, the TPO had rejected the method of internal comparison adopted by the assessee, for the reason that the assessee had not maintained segmental accounts and had not reported segmental results in its audited financial statements. The Tribunal, however, held that the Guidelines provided under AS-17, which is the Accounting Standard requiring reporting of financial information or result about the different types of products and services that the concerned business segment produces, were not applicable to the assessee's case, since the assessee company was providing the same software related services to both, its AEs and unrelated parties, and so, the lack of segmental reporting could not be made a basis for rejecting the assessee's method of computing the ALP by way of internal comparison made between the transactions and AE's unrelated parties.
67. The above is not the issue before us. However, despite thereof, the fact remains that for AY 2006-07, the Tribunal held that the assessee was justified in undertaking internal benchmarking analysis on a stand alone basis by placing on record the working of the operating profit margin from international transactions with its AEs and transactions with unrelated parties, undertaken in a similar functional and economic scenario, and that the same ought to be the basis for determination of the arm's length price in respect of the international transactions undertaken by the assessee with its associated enterprises.
24 ITA No.4713/Del/201168. For AY 2004-05, while deciding in favour of the assessee, the Tribunal found that there was no significant functional difference in the software development and maintenance services rendered by the assessee to its related and unrelated parties. The services rendered by the STP units of the assessee were rendered to the same AEs of the assessee, i.e., Birla Soft Inc. and Birla Soft UK, on a continuing basis (the position remains the same for the year under consideration also). It was observed that there was unity of business, administrative control and funds, etc., in each of the STP units of the assessee, and that because of such commonness of management and interlacing of funds, etc., or software development services, it was not practically possible to carry out an independent FAR analysis of each unit with the existing comparables. It remains undisputed that the position, as above, remains the same for the year under consideration also. The Tribunal orders for the earlier years have not been shown to have been upset, or even stayed, on appeal. Therefore, since there continues to be unity of business and administrative control and interlacing of funds amongst the units of the assessee company, for this year also, it is not possible to carry out an independent FAR analysis of each unit with existing comparables. The assessee had provided various kinds of software related services, such as software development services, software maintenance and repair services and quality testing services, etc., from each of its STP units located in Noida and Chennai. These services were rendered to the same two AEs of the assessee. It was a single agreement qua each of the assessee's AEs, which governed the terms and conditions thereof, as well as the consideration for the rendering of such services. The services were provided on a continuous basis from each of the STP units of the assessee company. Therefore, the assessee is correct in contending that such services are of the same or similar nature amongst all three of its STP units, inter se, and they should be combined and evaluated by adopting a combined transaction approach, rather than employing the unitwise approach, as adopted by the TPO.
69. In 'Technimont ICB Pvt. Ltd.' (supra) (authored by one of us - the ld. AM, sitting as Third Member), it has been held in this regard that Rule 10B (e)(ii) of the Income-tax Rules provides that the net profit margin realized by the enterprise or by an unrelated enterprise, from a comparable uncontrolled transaction, or a number of such 25 ITA No.4713/Del/2011 transactions, is computed having regard to the same base, as is referred to in Rule 10B
(e) (i), with reference to cost incurred, or sales effected, or assets employed, or to be employed; that in Clause (ii) of the said Rule, reference is made to internal and external comparables; that as per this Rule, what is to be compared is profit from a comparable uncontrolled transaction; that the word 'comparable' may encompass internal comparable or external comparable; that the Rule provides that preference is to be given to internally comparable uncontrolled transactions vis-à-vis externally comparable uncontrolled transactions; that this is so, because the Rule refers first to the net profit margin realized by the enterprise (internal) from a comparable uncontrolled transaction and thereafter, it talks of new profit margin realized by an unrelated enterprise (external) from a comparable uncontrolled transaction; that thus, where a potential comparable is available in the shape of an uncontrolled transaction of the same assessee, it is likely to have a higher degree of comparability vis-à-vis comparables identified amongst the uncontrolled transactions of third parties; that the underlying object behind computing the ALP of an international transaction is to find out the profits which such enterprise would have earned, if the transaction had been with some third party, instead of the related party; that when data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case; that the reason for this I,s that various factors having bearing on the quality of output, assets employed, input cost, etc., continue to remain, by and large the same in the case of an internal comparable; that the effect of difference due to such inherent factors on the comparison made with the third parties gets neutralized when comparison is made with internal comparables; and that therefore, an internally comparable uncontrolled transaction is more noteworthy than an externally comparable uncontrolled transaction.
70. In 'Destination of the World Pvt. Ltd.' (supra), it has been held, inter alia, that the OECD Guidelines mention that net margin of the tax payer from the controlled transactions should be established with reference to the net margin which the same tax payer earns in comparable uncontrolled transactions; that where this is not possible, the net margin that would have been earned in comparable transactions by an independent enterprise, may serve as a guide; that thus, these Guidelines suggest preference for 26 ITA No.4713/Del/2011 internal comparables and reference has to be made to the result of independent enterprises only when the former course of action is not possible; that in the case of Birla Soft (India) Ltd., in ITA No.3839/Del/00, it has been clearly held that the assessee was justified in undertaking internal comparison on a stand alone basis, by placing on record the working of operative profit margin from international transactions with AEs and transactions with uncontrolled parties, undertaken in a similar functional and economic scenario; that such an internal comparison is valid in all the methods; and that therefore, the attempt should be to determine arm's length price of controlled transactions on comparing the same with internal uncontrolled transactions undertaken in the same or similar economic scenario.
71. In view of the above, we hold that the assessee is right in contending that since the profit of each of the STP units of the assessee company cannot be evaluated separately and independently of one another, they cannot be segregated and the approach of the TPO in considering the result of each STP unit, on a stand alone basis, for the purpose of determining the ALP relating to the assessee's international transactions, was incorrect. The action of the CIT (A) in accepting this contention of the assessee is hereby upheld and confirmed. The ld. CIT (A), in our considered opinion, for the above discussion, has rightly concluded that the benchmarking of the transactions should be based on the aggregation at the entity level and not at the unit level. This finding of the ld. CIT (A) is endorsed. Accordingly, Ground No.9 is rejected.
72. In the result, the appeal filed by the department is partly allowed, as indicated.
The order pronounced in the open court on 06.05.2014.
Sd/- Sd/-
[R.S. SYAL] [A.D. JAIN]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 06.05.2014.
dk
27
ITA No.4713/Del/2011
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
28