TMI Blog2016 (9) TMI 1488X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the matter was restored back to the file of the AO/TPO for detailed verification. In the present case, this is not in dispute that full details are not available and therefore, this Tribunal order in LG SOFT INDIA (P.) LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 12(2) [2013 (9) TMI 191 - ITAT BANGALORE] is not relevant in the present case. - ITA No.1227/Bang/2012 - - - Dated:- 30-9-2016 - SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER For The Assessee : Shri T. Suryanarayana. Advocate For The Revenue : Ms. Neera Malhotra, CIT ORDER This is an assessee s appeal directed against the order passed by the AO u/s 143(3) r.w.s.144C of the Act, 1961 as per the directions of the DRP. 2. The grounds raised by the assessee are as under; 3. It was submitted by the learned AR of the assessee that ground No.1, 2, 6 9 are general and consequential and hence, no separate adjudication is required in respect of these grounds. 4. Regarding ground no.3 4, he submitted that there are 20 comparables selected by the TPO out of which the assessee is requesting for exclusion of 12 comparables on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Kodiak Network India Pvt. Ltd. (supra) in paras 21 to 25 as under : 21. We have considered the rival submissions and relevant material available on record. As we have narrated the facts in the foregoing paras that the TPO has determined the ALP by taking into consideration the set of 20 comparables. The assessee has raised objection regarding 13 comparables out of 20 selected by the TPO. The companies against which the assessee raised objections are as under: S. N Name of the Company 1 AvaniCimcon Technologies Ltd 2 Bodhtree Ltd 3 Celestial Biolabs Ltd 4 E-Zest Solutions Ltd 5 Infosys Technologies Ltd 6 KALS Information Systems Ltd (Seg.) 7 Lucid Software Ltd 8 Persistent Systems Ltd 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d V ACIT (ITA No.7821/Mum/2011) 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 Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013. 7.3 The learned Authorised Representative further submitted that the facts pertaining to this company has not changed from the earlier year (i.e. Assessment Year 2007-08) to the period under consideration (i.e. Assessment Year 2008-09). In support of this contention, it was submitted that :- ( i) The extract from the Website of the company clearly indicates that it is primarily engaged in development of software products. The extract mentions that this company offers customised solutions and services in different areas; ( ii) The Website of this company evidences that this company develops and sells customizable software solutions like DX Change, CARMA, etc. 7.4 The learned Authorised Representative submitted that a co-ordinate bench of the Tribunal in its order in Curram Software International Pvt. Ltd., in its order in ITA No.1280/Bang/2012 dt.31.7.2013 has remanded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) are identical to the facts of the case on hand and that the profile of the assessee for the year under consideration is similar to that of the earlier Assessment Year 2007-08. In view of facts as discussed above, we deem it fit to remand the matter back to the file of the Assessing Officer / TPO to examine the comparability of this company afresh by considering the above observations. The TPO is directed to make available to the assessee information obtained under section 133(6) of the Act and to afford the assessee adequate opportunity of being heard and to make its submissions in the matter, which shall be duly considered before passing orders thereon. It is ordered accordingly. The learned Authorised Representative submits that this company was selected as a comparable by the TPO not by any FAR analysis or as per the search process conducted by the TPO, but only as an additional comparable for the reason that it was selected as a comparable in the earlier year i.e. Assessment Year 2007-08 on the basis of information obtained under section 133(6) of the Act. In this regard, the learned Authorised Representative took us through the relevant portions of the TP ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 coordinate 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 direct the A.O./TPO to omit this company from the list of comparables. 8.0 Bodhtree Consulting Ltd. 8.1 This company has been selected as a comparable company to the assessee by the TPO; the inclusion of which was not objected to by the assessee before both the TPO and the DRP. The assessee has not objected to the inclusion of this company in the list of comparables, as can be seen from the grounds of appeal raised in Form 36B before this Tribunal. 8.1 However i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n itself, cannot be reason enough to establish differences in functional profile or any clinching factual reason warranting the exclusion of this company from the list of comparables. In this view of the matter, the contentions of the assessee are rejected and this company is held to be comparable to the assessee and its inclusion in the list of comparable companies is upheld. 9. Celestial Biolabs Ltd. 9.1 This comparable was selected by the TPO for inclusion in the final list of comparables. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables for the reasons that it is functionally different form the assessee and that it fails the employee cost filter. The TPO, however, brushed aside the objections raised by the assessee by stating that the objections of functional dissimilarity has been dealt with in detail in the T.P. order for Assessment Year 2007-08. As regards the objection raised in respect of the employee cost filter issue, the TPO rejected the objections by observing that the employee cost filter is only a trigger to know the functionality of the company. 9.2 Before us, the learned Authorised Represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore there cannot be an assumption that it would continue to be applicable for the period under consideration i.e. Assessment Year 2008-09. 9.4.1 We have heard both the parties and perused and carefully considered the material on record. While it is true that the decisions cited and relied on by the assessee were with respect to the immediately previous assessment year, and there cannot be an assumption that it would continue to be applicable for this year as well, the same parity of reasoning is applicable to the TPO as well who seems to have selected this company as a comparable based on the reasoning given in the TPO s order for the earlier year. It is evidently clear from this, that the TPO has not carried out any independent FAR analysis for this company for this year viz. Assessment Year 2008-09. To that extent, in our considered view, the selection process adopted by the TPO for inclusion of this company in the list of comparables is defective and suffers from serious infirmity. 9.4.2 Apart from relying on the afore cited judicial decisions in the matter (supra), the assessee has brought on record IT(TP)A 1380/Bang/2012 Page 8 of 34 substantial factua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate bench of this Tribunal in the assessee's own case. This company has been held to be different from a software development company in the decision of the Tribunal in the case of Bindview India Pvt. Ltd. V DCIT in ITA No.1386/PN/2010. ( iii) The rejection of this company as a comparable has been upheld by co-ordinate benches of the Tribunal in the case of ( a) Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011). ( b) LG Soft India Pvt. Ltd.IT(TP)A No.112/Bang/2011) ( c) CSR India Pvt. Ltd.IT(TP)A No.1119/Bang/2011) and ( d) Transwitch India Pvt. Ltd.ITA No.6083/Del/2010) ( iv) 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 case on hand and hence ought to be excluded from the list of comparables. In support of this contention, the learned Authorised Representative drew our attention to various parts of the Annual Report of this company. ( v) This company is engaged not only in the development of software products but also in the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted from the list of comparable companies. It is ordered accordingly. 8. Since the ld. DR of the revenue could not point out any difference in facts in the present case and in the case of Telelogic India (P)Ltd.(Supra), by respectfully following this Tribunal order, we direct the AO/TPO to exclude these 12 comparables from the list of final comparables. Accordingly, ground no.3 4 of the assessee s appeal are allowed. The AO/TPO should work out the TP adjustment, if any, after excluding these 12 comparables. 9. Regarding ground no.5, we find that in para-no.106.1 106.2 of this Tribunal order rendered in the case of M/s Sony India (P)Ltd., Vs DCIT (Supra), it was held by the Tribunal that the excess provision written back in the P L account is forming part of operating profit of the assessee. For the sake of ready reference these paras 106.1 106.2 of this Tribunal order rendered in the case of M/s Sony India (P)Ltd., Vs DCIT (Supra) are reproduced herein below; 106.1 The first of these items is, provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference between actual disbursement of an expenditure of provision thereof. However, recovery of liability provided may become barred by limitation or for some other reasons, liability gets unenforceable or is reduced or ceases to exist with the passage of time. Therefore, it may be necessary to write back such a liability. But it cannot follow that the liability was not expenditure of business or operating expense. Cessation of a liability is taxable income under section 41 of the IT Act. The underlying principle behind above provision is that revenue takes back a benefit which it granted earlier, but which, due to subsequent events or changed circumstances should be charged to tax as income . Statutory provision overrides general understanding that mere creation of a benefit to a taxpayer by admission or cessation of a debt or liability should not result in an income. Thus, creation of unpaid liability and its write back is a normal incident of a business operation which is carried everywhere in accounts to have true picture of profits of the relevant period. If a liability has ceased to exist and is require to be accounted for and shown as income by the taxpayer and, in case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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