TMI Blog2014 (6) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the TPO ought to have given risk adjustment to the margins of the comparables for bringing them on par with the assessee and remanded the issue back to the file of the TPO. Following the decisions in the aforementioned cases of the co-ordinate benches of this Tribunal (supra), we remand the issue of market risk adjustment to the file of the Assessing Officer/TPO for examining the issue in the light of the decisions cited. Reimbursement of Expenses not to be marked up - Held that:- On examination, the receipts are mere recovery of expenses without any service element, then the same should not be added back to the cost base for the purpose of mark-up. Having so decided, we are of the view that it would be in the fitness of things to remit the issue to the file of the Assessing Officer / TPO for detailed examination and verification of the said expenses, as to whether it was incurred on behalf of the AE, as was done in the earlier year. Provision for outstanding forward exchange contracts - Held that:- Admittedly, this issue has not been examined earlier by the TPO or the DRP. Since the DRP, in the subsequent year, has rendered a finding that the foreign exchange loss due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... South Korea is engaged in the provision of software development services to its group companies. For Assessment Year 2008-09, the assessee filed its return of income on 29.9.2008 declaring income of ₹ 11,72,47,400. The return of income was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. 2.2 In the period under consideration, the assessee had reported the following international transactions :- (i) Software Development Services ₹ 92,47,87,026 (ii) Recovery of Expenses ₹ 3,50,05,590 In view of the above international transactions entered into by the assessee, the Assessing Officer made a reference to the Transfer Pricing Officer ('TPO') for determining the Arms Length Price ('ALP') of these international transactions, after obtaining the necessary approval of the CIT-I, Bangalore. The TPO vide order under section 92CA of the Act dt.31.10.2011 proposed a T.P. Adjustment of ₹ 10,59,69,209 to the ALP of international transactions in respect of software development services rendered by the assessee. The Assessing Officer then issued a draft assessment order on 7.12.2011 under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the Appellant is exposed to single customer risk without evaluating the business arrangement of the Appellant. 5. The learned TPO and the learned AO erred in not allowing the benefit of range of +/- 5% as provided in proviso to Section 92C(2) of the Act to the Appellant, while determining the arm's length price. 6. On the facts and circumstances of the case, the learned AO and the learned TPO erred in rejecting the Transfer Pricing ( TP ) documentation without appreciating the contentions, arguments, and evidentiary data put forward by the Appellant during the course of the proceedings before them, and in doing so have grossly erred: 6.1 in rejecting the comparability analysis carried in the TP documentation and conducting a fresh comparability analysis for determining the arm 's length price by the learned TPO. 6.2 in adopting the arm's length mark up to be 23.65%, in respect of the international transaction pertaining to the rendering of software development services by the Appellant; 6.3 in completely relying on the unaudited data requisitioned and consequently obtained by taking recourse to the provisions of Section 133(6) of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Limited, Sasken Communications Technologies Limited, Wipro Limited and R Systems International Limited without taking into consideration the peculiar economic circumstances surrounding their operations during the year under review; 6.12 in accepting companies having Related Party Transactions exceeding 10% such as Softsol India Limited and Infosys limited. In doing so the learned AO has disregarded the Delhi ITAT ruling in case of Sony India Pvt. Ltd. (reference ITA No.1189/Del/2005); 6.13 in upholding the actions of the learned TPO in applying the export filter for selection of software comparables. In doing so, the learned TPO erred in rejecting Aarman Software Private Limited and VMF Soft Tech Limited. 6.14 in applying the onsite filter for selection of software comparables with the use of the data obtained under section 133(6) of the Act, is not economically valid. In doing so, the learned TPO erred in rejecting companies such as Akshay Software Technologies Limited, Prithvi Information Solutions Limited, Silverline Technologies Limited, Zylog Systems Limited and VJIL Consulting Limited. 6.15 in not maintaining consistency in applying the filters of reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d exchange contracts - ₹ 55,18,335. (a) The learned A.O. has erred in holding that the provision for loss on marked to market (MTM) valuation of the forward exchange contracts is notional or contingent in nature and that the same cannot be claimed as an expense. (b) The learned ACIT ought to have appreciated that the liability has crystalised at the time of entering into the contract itself. Hence, mere postponement of the payment to a different date cannot extinguish the liability and render it notional or contingent. (c) The learned ACIT ought to have appreciated that the main ingredient of a contingent liability is to depend upon happening or non-happening of a certain event, whereas in the instant case, the 'event', i.e. the change in the value of foreign currency in relation to Indian currency, has already taken place and accordingly the loss incurred thereof is an actual loss not a notional one. (d) The learned ACIT further ought to have appreciated that what should be certain is the incurring of the liability and it being estimated with reasonable certainty, even if the exact qualification is not feasible. (e) Notwithstanding and without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited case (supra) is exactly the same as those selected in the case on hand and therefore he relies on the decisions in the cited case. 4.4 In the light of the above observations, we now briefly examine the grounds of appeal raised at S.Nos.1 to 8. Ground Nos.1 and 2 : These grounds being general in nature, no adjudication is called for thereon. Ground Nos.3 4 : These grounds are raised in respect of the grant of suitable adjustments towards differences in the risk profile between the assessee and the comparable companies. This ground was argued before us by the learned Authorised Representative and this issue is separately discussed in the later part of this order. Ground No.5 : This ground raised by the assessee is in respect of being given the benefit of + / - 5% while computing the ALP. Before us this ground was not pressed. Even otherwise, the retrospective amendment to section 92C(2A) of the Act brought about by the Finance Act, 2012 has settled the issue and therefore the benefit of 5% is not allowable to the assessee. In this view of the matter, this ground raised by the assessee is dismissed. Ground No.6.1 : This ground is raised in respect of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative has specifically stated that the ground raised at S.No.6.5 in respect of turnover filter is not pressed and is therefore dismissed as not pressed. 5. Assessee's List of Comparables 5.1 As per the T.P. Study carried out by the assessee, adopting TNMM as the most appropriate method (MAM) and taking itself to be the tested party, the assessee selected the following 18 companies as its set of comparables. Sl.No. Name of the company Average Margin 1. Akshay Software Technologies Ltd. 5.93 % 2. Aarman Software Pvt. Ltd. 57.64 % 3. ApplabsTechnologies Pvt. Ltd. 18.25 % 4. Computech International Ltd. 5.20 % 5. Core Projects Technologies Ltd. 38.85 % 6. I-gate Global Solutions Ltd. 5.10 % 7. Mind Tree Ltd. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Celestial Biolabs 87.94 4. e-zest Solutions Ltd. 29.81 5. Flextronics (Aricent) 7.86 6. iGate Global Solution Ltd. 13.99 7. Infosys 40.37 8. Kals Information Systems Ltd (Seg) 41.94 9. LGS Global Ltd. 27.52 10. Mindtree Ltd (seg) 16.41 11. Persistent Systems Ltd. 20.31 12. Quintegra Solution Ltd. 21.74 13. R Systems International (Seg) 15.30 14. R S Software (India) Ltd. 7.41 15. Sasken Communication Technologies Ltd. (Seg) 7.58 16. Tata Elxsi (Seg) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiries carried out under section 133(6) of the Act for collecting information about the company directly. 7.2 Before us, the learned Authorised Representative reiterated the assessee's objections for the inclusion of this company from the list of comparable companies on the ground that this company is not functionally comparable to the assessee as it is into software products. It is also submitted that the segmental details of this company are not available and the Annual Report available in the public domain is not complete. It was further contended that the information obtained by the TPO under section 133(6) of the Act, on the basis of which the TPO included this company in the final list of comparable companies, has not been shared with the assessee. In support of this contention, the learned Authorised Representative placed reliance on the following judicial decisions : (i) Trilogy E-Business Software India (P.) Ltd. v. Dy. CIT 140 ITD 540 (Bang.) (ii) Telcordia Technologies India (P.) Ltd. v. Asstt. CIT [2012] 137 ITD 1 It was also submitted that this company has been held to be functionally not comparable to the assessee by a co-ordinate bench of this T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been selected by the TPO as an additional comparable only on the ground that this company was selected in the earlier year. Even in the earlier year, it is seen that this company was not selected on the basis on any search process carried out by the TPO but only on the basis of information collected under section 133(6) of the Act. Apart from placing reliance on the judicial decision cited above, including the assessee's own case for Assessment Year 2007-08, the assessee has brought on record evidence that this company is functionally dis-similar and different from the assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change during the year under consideration which fact has been demonstrated by the assessee, following the decisions of the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013, and in the case of Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011), we di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The rejection / exclusion of this company as a comparable for Assessment Year 2007-08 for software service providers has been upheld by the co-ordinate benches of this Tribunal in the cases of LG Soft India (P.) Ltd. v. Dy. CIT [2013] 35 taxmann.com 202 (Bang.), CSR India (P.) Ltd. v. ITO [2013] 31 taxmann.com 265 (Bang.) and by the ITAT, Delhi Bench in the case of Transwitch India (P.) Ltd. v. Dy. CIT [2012] 53 SOT 151/21 taxmann.com 257 (Delhi). (v) The facts pertaining to this company has not changed from Assessment Year 2007-08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability in the instant case and hence ought to be rejected. In support of this contention, the assessee has also referred to and quoted from various parts of the Annual Report of the company. (vi) The learned A.R. submitted that the co-ordinate bench of the Tribunal in its order in the case of 3DPLM Software Solutions Ltd. (supra) has held that this company has to be omitted from the list of comparables. 8.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparable companies. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this company have not changed in this year under consideration, which fact has also been demonstrated by the assessee, following the decision of the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 and Triology E-Business Software India Pvt. Ltd. in ITA No.1054/Bang/2011, we hold that this company ought to be omitted from the list of comparables. The A.O./TPO are accordingly directed. 8.5 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in 3DPLM Software Solutions Ltd. (supra), we direct the Assessing Officer /T.P.O to exclude this company form the list of comparables. 9. KALS Information Systems Ltd. 9.1 This is a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on grounds of functional differences and that the segmental details have not been provided in the Annual Report of the company with respect to software services revenue and software products revenue. The TPO, however, rejected the objections of the assessee observing that the software products and training constitutes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he list of comparables. 9.3 Per contra, the learned Departmental Representative contended that the decision of the co-ordinate bench of the Tribunal in the case of Trilogy E-Business Software India (P.) Ltd. (supra) was rendered with respect to F.Y.2006-07 and therefore there cannot be an assumption that it would continue to be applicable to the year under consideration i.e. A.Y. 2008-09. To this, the counter argument of the learned Authorised Representative is that the functional profile of this company continues to remain the same for the year under consideration also and the same is evident from the details culled out from the Annual Report and quoted above (supra). 9.4 We have heard both parties and carefully considered the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company be omitted from the set of comparables, holding as under at para 10.4 of its order :- 10.4 We have heard both parties and perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities, whereas the assessee is merely a software service provider operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com (P.) Ltd. v. Dy. CIT [2013] 140 ITD 344 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee ; (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies (P.) Ltd. v. ITO [IT Appeal No.3856 (Delhi) of 2010, dated 4-11-2010] at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered as comparable to captive service providers assuming limited risk ; (iii) the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. 10.5 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the Assessing Officer / TPO to omit this company form the list of comparable companies. 11. Wipro Ltd. 11.1 This company was selected as a comparable by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables on several grounds like functional dis-similarity, brand value, size, etc. The TPO, however, brushed aside the objections of the assessee and included this company in the set of comparables. 11.2 Before us, the learned Authorised Representative of the assessee contended that this company i.e. Wipro Ltd., is not functionally comparable to the assessee for the following reasons :- (i) This company owns significant intangibles in the nature of customer related intangibles and technology related intangibles, owns IPRs and has been granted 40 registered patents and has 62 pending applications a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. 12.4.2 We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of patents. In this regard, the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion design engineering and (c) visual computing lab as is reflected in the annual report of the company; (vi) The learned Authorised Representative submitted that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) has held that this company is to be omitted from the list of comparable companies. The learned Authorised Representative pleads that in view of the above reasons, Tata Elxsi Ltd. is clearly functionally different / dis-similar from the assessee and therefore ought to be omitted from the list of comparables. 12.3 Per contra, the learned Departmental Representative supported the stand of the TPO in including this company in the list of comparables. 12.4 We have carefully considered the submissions made and the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables, holding as under at paras 13.4.1 and 13.4.2 of the order :- 13.4.1 We have heard both parties and carefully perused and considered the material on record. From the details on record, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 13.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing (KPO') services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company's website which should be considered while evaluating the company's functional profile. It is also submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case on hand. The A.O. / TPO is accordingly directed. 13.5 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 14. Thirdware Solutions Ltd. (Segment) 14.1 This company was proposed for inclusion in the list of comparables by the TPO. Before the TPO, the assessee objected to the inclusion of this company in the list of comparables on the ground that its turnover was in excess of ₹ 500 Crores. Before us, the assessee has objected to the inclusion of this company as a comparable for the reason that apart from software development services, it is in the business of product development and trading in software and giving licenses for use of software. In this regard, the learned Authorised Representative submitted that :- (i) This company is engaged in product development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 15. Lucid Software Ltd. 15.1 This company was selected as a comparable by the TPO. Before us, the assessee has objected to the inclusion of this company as a comparable on the grounds that it is into software product development and therefore functionally different from the assessee. In this regard, the learned Authorised Representative submitted that - (i) This company is engaged in the development of software products. (ii) This company has been held to be functionally different and therefore not comparable to software service providers by the order of a co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2007-08 (IT(TP)A No.845/Bang/2011), following the decision of Mumbai Tribunal in the case of Telcordia Technologies India (P.) Ltd. (iii) The rejection of this company as a comparable to software service providers has been upheld by the co-ordinate benches of this Tribunal in the cases of LG Soft India (P.) Ltd. (supra) and CSR India (P.) Ltd. (supra) and by the Delhi Bench of the Tribunal in the case of Transwitech India (P.) Ltd. (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since this company, is engaged in the software product development and not software development services, it is functionally different and dis-similar and is therefore to be omitted from the list of comparables for software development service providers. The assessee has also brought on record details to demonstrate that the factual and other circumstances pertaining to this company have not changed materially from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008-09. In this factual matrix and following the afore cited decisions of the co-ordinate benches of this Tribunal and of the ITAT, Mumbai and Delhi Benches (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand. 15.4 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 16. Persistent Systems Ltd. 16.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omitted from the list of comparables. 16.3 Per contra, the learned Departmental Representative support the action of the TPO in including this company in the list of comparables. 16.4 We have carefully considered the submissions made and the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be excluded from the list of comparables, by holding as under at para 17.3 thereof :- 17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve its intellectual property. Accordingly, some of the products developed by the company have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks. (iv) The TPO has applied the filter of excluding companies having peculiar economic circumstances. Quintegra fails the TPO's own filter since there have been acquisitions in this case, as is evidenced from the company's Annual Report for F.Y. 2007-08, the period under consideration. (v) The learned Authorised Representative further submitted that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) has held that this company is to be excluded from the list of comparables. The learned Authorised Representative prays that in view of the submissions made above, it is clear that inter alia, this company i.e. Quintegra Solutions Ltd. being functionally different and possessing its own intangibles/ IPRs, it cannot be considered as a comparable to the assessee in the case on hand and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.5 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 18. Softsol India Ltd. 18.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable on the grounds that this company is functionally different and dis-similar from it. The TPO rejected the assessee's objections on the ground that as per the company's reply to the notice under section 133(6) of the Act, the company has categorized itself as a pure software developer and therefore included this company as a comparable as the assessee was also a provider of software development services. Before us, in addition to the plea that the company was functionally different, the assessee submitted that this company was excluded from the list of comparables by the order of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (ITA No.845/Bang/2011) on the ground that the 'Related Party Transactions ('RPT) is in excess of 15%. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that it is essential for appropriate risk adjustments to be made to bridge the disparities in the risk profile between a risk free entity like the assessee and risk bearing entities among the comparables selected by the TPO. 19.1.1 The learned Authorised Representative submitted that in similar factual positions, different co-ordinate benches of this Tribunal in the case of Intellinet Technologies India (P.) Ltd. v. ITO [2012] 53 SOT 92 (Bang.)(URO) and Bearing Point Business Consulting (P.) Ltd. v. Dy. CIT [2013] 33 taxmann.com 92 (Bang.) have held that the single customer risk borne by a captive service provider is only an 'anticipated risk' vis- -vis the 'existing' market risk borne by independent comparables. It is submitted that in the aforesaid decisions, it has been held that the TPO ought to have given risk adjustment to the margins of the comparables for bringing them on par with the Assessing Officer and this matter was remanded back to the file of the TPO with the direction to consider all the contentions of the assessee and the material on record before coming to a decision in the matter. It was submitted that the aforesaid decisions of the ITAT h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the case on hand. Before us, the learned Authorised Representative further submitted that the co-ordinate bench of this Tribunal, in the assessee's own case for Assessment Year 2007-08, in IT(TP)A No.1121/Bang/2011 dt.22.3.2013 has decided this issue in favour of the assessee. A copy of this decision was placed on record. 20.3 We have heard both the learned Authorised Representative and the learned Departmental Representative in the matter, and have perused and carefully considered the material on record, including the judicial decision cited (supra). As contended by the learned Authorised Representative of the assessee, it is seen that the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in IT(TP)A No.1121/Bang/2011 dt.22.3.2013 in para 4.5 of the order has held as under : 4.5. We have heard the rival submissions and perused the materials on record. We have noticed that the details of reimbursement expenses are given at page 334 of the paper book filed by the assessee. The break-up of the said expenses are not given in detail and it is not clear whether it is the reimbursement of expenses incurred on behalf of the AE. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional ground. 21.3 Admittedly, this issue has not been examined earlier by the TPO or the DRP. Since the DRP, in the subsequent year, has rendered a finding that the foreign exchange loss due to forward contracts is a non-operating expenditure while dealing with the order of the Assessing Officer, we are of the view that it would be in the interest of equity and justice that this additional ground be admitted for adjudication and the issue be remitted back to the file of the Assessing Officer /T.P.O. for consideration in the light of the decision of the DRP in Assessment Year 2009-10 in this regard, after affording the assessee adequate opportunity of being heard and make submissions required. It is ordered accordingly. CORPORATE TAX ISSUES 22. Provision for loss on Mark to Market ('MTM') Valuation of foreign exchange forward contracts. 22.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee has debited an amount of ₹ 55,18,335 as 'provision for outstanding foreign exchange forward contracts'. The Assessing Officer disallowed the amount because, as per the Assessing Officer, it is an unascertained liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a contractual obligation and hence qualifies for a deduction in computation of taxable income. (iv) The above losses have accrued as at the year-end in accordance with the method of accounting regularly adopted by the assessee and such losses are not notional or contingent in nature. (v) The impugned losses have arisen out of a contractual obligation existing as of the reporting date. It is further submitted that the value of the contract is as per a valuation document given by the contracting banker and therefore the quantum of loss is not arbitrarily determined. 22.3.2 The learned Authorised Representative of the assessee also placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT v. Woodward Governor India (P.) Ltd. [2007] 294 ITR 451 wherein it was held that the increase in liability on account of the fluctuation in the rate of foreign exchange remaining on the last day of the financial year is not notional or contingent and therefore, can be allowed as a deduction, which decision was affirmed by the Hon'ble Apex Court in CIT v. Woodward Governor India (P.) Ltd. [2009] 312 ITR 254/179 Taxman 326. It is the contention of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts. The Assessing Officer did not agree with the contentions, of the assessee that these software purchased was revenue in nature; being application software and held them to be capital expenditure since he was of the opinion that they result in giving the assessee an enduring benefit. While disallowing the same, the Assessing Officer allowed depreciation @ 60% on these amounts, as per the directions of the DRP. 23.2 It is the contention of the learned Authorised Representative of the assessee that the impugned expenses on software are revenue in nature. It is submitted that the software purchased are in the nature of application software and that the assessee has merely acquired the license to use the software and there is no outright purchase of the same, giving ownership to the assessee. As per the assessee, the said application software did not result in any benefit as their life is short as they become technically obsolete. In support of this proposition, the learned Authorised Representative of the assessee has cited and placed reliance on several judicial pronouncements. 23.3.1 We have heard the rival arguments and perused and carefully considered the material ..... X X X X Extracts X X X X X X X X Extracts X X X X
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