No.- I.T.A. No. 6161/Del/2013 & I.T.A. No. 6261/Del/2015

SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

For the Appellant: Sh.Deepak Chopra, Adv., Sh. Aditya Gupta, Adv. & Ms. Ananya Kapoor, Adv.
For the Respondent: Sh.Amrendra Kumar, CIT.DR

ORDER

DIVA SINGH, JM-By the present appeals the assessee assails the correctness of the separate orders dated 10.10.2013 and 24.12.2014 of CIT(A), New Delhi pertaining to 2009-10 & 2010-11 assessment years respectively. Both these appeals are being decided by a common order for the sake of convenience.

ITA No.6161/Del/2013

2. Although various grounds have been raised by the assessee in the appeal filed however at the time of hearing, Ld. AR inviting attention to the grounds originally raised and relying upon the chart summing up the issues and the synopsis filed submitted that the assessee would be agitating for relief only on the following grounds in the appeal:-

1. “The Assessing Officer (“AO”)/ Dispute Resolution Panel (“DRP”) /Transfer Pricing Officer [TPO) has erred in making an addition of Rs. 45,525,896 to the total income of the appellant on account of various transfer pricing adjustments.

2. The AO/DRP has erred by not accepting the economic analysis undertaken by the appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules").

10. The AO/DRP has erred in wrongly rejecting certain companies and adding certain companies to the final set of comparable companies for the software development services transaction on an adhoc basis.
11. The AO/TPO has erred in not giving effect to the DRP directions in respect of the following:-

a. TPO is directed to verify whether Quintegra Solutions Limited has export sales of 95.06% of revenues and include it if it is found to be correct.

b. TPO is directed to work out the working capital adjustment by apporting the debtors/ creditors on the basis of the segments of the assessee and provide working capital adjustment and re-compute margins accordingly.

14. The AO / DRP / TPO has erred by holding inter-company receivables to constitute an international transaction and proceeding to benchmark the same by application of Comparable Uncontrolled Price ("CUP") method.

15. The AO / DRP has erred in rejecting the combined transaction approach of benchmarking adopted by the appellant in its TP documentation and proceeding to determine the arm's length price of the international transaction pertaining to availing of intra-group services from its associated enterprise on a standalone basis.

16. The AO / DRP has erred in determining the Comparable Uncontrolled Price method as the most appropriate method to benchmark the international transaction pertaining to availing of intra-group services.

17. The AO /DRP has erred by assuming that 'no benefit' has been conferred on the appellant from availing of intra-group services from its associated enterprises and disregarding the submissions and documents presented by the appellant during the assessment and DRP proceedings.”

3. Addressing the above grounds it was submitted that Ground Nos.-1 & 2 were general in nature and may not require any specific adjudication. Referring to the synopsis and the chart capturing the issues the Ld. AR submitted that the assessee does not want to press Grounds Nos.3 to 9 raised in the present appeal. Further the issues raised in Ground Nos.12 & 13 it was stated also are not being pressed. The issues which are agitated by the assessee it was reiterated in the present proceedings are highlighted by Ground Nos.10, 11 and 14 to 17.

4. Before we address the arguments of the parties in the context of the above grounds, we propose first to refer to certain facts on record. A perusal of the record shows that the assessee is a wholly owned subsidiary of Bentley Systems Inc. (Bentley Inc.) Incorporated USA, Bentley USA. Bentely India was established as the sales and distribution entity for Bentley USA’s products in the Indian market. A perusal of the synopsis filed in the present proceedings shows that the assessee also claims on the basis of its transfer pricing study (specific pages 276 to 387 of the paper Book filed) that it was providing low end software development testing and quality assurance services to Bentley USA.

The assessee in the year under consideration returned an income of Rs. 4,47,76,639/- by e-filing its return on 29.09.2009. The said return was subsequently revised by returning an income of Rs. 5,31,25,920/-. The return was processed u/s 143(1). After issuance of notice u/s 143(2)/142(1) etc. the assessment was closed at an income of Rs. 9,81,51,816/- consequent to the additions made on account of arm’s length price on international transaction totaling to Rs. 4,55,25,896/-.

4.1. A reading of the transfer pricing study specific pages 279 to 280 and internal page 2 of the TPO’s order would show that the following international transactions were entered into by the assessee (these have been culled out in the synopsis in the following manner):-

4.2. The record shows that the TPO after carrying out the FAR Analysis in the software Development Segment and the Software Distribution Segment finally proposed the following adjustment at internal page 117 of his order :-

5. The issue was carried in appeal before the DRP wherein part relief was given to the assessee as would be discussed in detail in the following paras. The assessee in the appeal filed qua the grounds raised is before the ITAT on two broad sets of grounds first being that the TPO may be directed to carry out the directions of the DRP and grant necessary relief; the second set of grounds assails the correctness of the order of the DRP.

Software Development Segment

6. The issues agitated qua the software development segment as brought out in page 2 of the synopsis filed it was submitted have been formulated by us in the present proceedings in the following manner where the assessee prays:-
a) that the TPO be directed to give effect to the Directions of the DRP to give working capital adjustment to the assessee;
b) that the TPO be also directed to give effect to the Directions of the DRP to include Quintegra Solutions Ltd. as a comparable after verification;
c) that Bodh Tree and Infosys Ltd. taken as comparables be directed to be excluded; and
d) that the addition made by re-characterizing the inter company receivables as unsecured loans be deleted.

7. The background justifying the prayers addressed in (a), (b) and (c) may be allowed as highlighted by the Ld. AR is reproduced from the synopsis filed and is extracted so as to ensure that nothing is lost in recapitulating the same:-

5. Provision of Software Development services-INR 75,66,993/-  

The appellant entered into an agreement with its AE for certain software development, software testing and software quality assurance activities vide agreement dated 01.04.2006. Under the terms of the agreement, the Appellant was to be remunerated at cost plus 12% mark up (Calculated at per the terms of the agreement). Further the agreement also stipulated that the appellant shall be invoiced on quarterly basis and shall be paid within 30 days as per ht instructions in the invoice. (Copy of agreement is enclosed as ANNEXURE-A of this synopsis).

During the year under consideration, TNMM was applied as the most appropriate method and OP/OC of the Appellant was taken to be the Profit Level Indicator (“PLI”) (pg 317 of the TP Study-PB-1). The method has not been disputed by the TPO. THE PLI calculation of the Appellant is mentioned at pg. 325 of the TP-Study-PB-1 and PLI for the year under consideration of the Appellant is 12.09%. The arithmetic mean of the comparables finally selected by the Appellant was 14.13% (pg 325 read with 385 of PB-1).

The TPO determined the ALP at 20.97% with a final set of 14 comparables (pg.165 of appeal set) .”

7.1. Addressing the prayer set out in (a) above the Ld. AR submitted that the directions given by the DRP are at internal page 10 of the order in para 3.12.

7.2. In the said background the Ld. AR inviting attention to the past history on the issue submitted that pursuant to similar directions given by the DRP in 2007-08, 2008-09 & 2010-11 assessment years, the TPO has given a working capital adjustment to the assessee. The working capital adjustment details requested for in the year under consideration it was submitted were provided to the TPO and are available at pages 390 to 392 of the Paper Book. It was submitted that the basis for denying the working capital adjustment adopted by the TPO is available at (page 145 of the appeal set) internal page 96 of the TPO’s order and is based on the OECD Guidelines as considered at internal page 98.

The DRP considering these facts it was submitted was pleased to give the following directions to the TPO:-

3.12. “Ground of objection 11-That the learned TPO has failed omake appropriate adjustment on account for differences in working capital employed by the assessee vis-à-vis the comparables and in process also ignored the provisions of the India transfer Pricing Regulations and judicial pronouncements of the Honourable Income Tax Appellant Tribunal (ITAT) on this subject.

DRP’s Observation
The DRP directs the TPO to work out the WCA by apportioning the debtor/creditors on the basis of segments of the assessee and provide working capital adjustment and re-compute margins accordingly.”  

7.3. Addressing the prayer made in (b) above attention was invited to page 8 (appeal page 33) of the DRP’s order directing the TPO to verify and include Quintegra Solutions if the facts as claimed by the assessee are found to be correct. Inviting attention to the impugned order it was his submission that the said direction was never carried out by the TPO. It was his submission that if relief on these two issues is granted on verification then the OP/OC of the comparables would come to 11.49% and would be very much within the OP/OC of the assessee which is 12.09%. The relevant extracts of the Audited accounts of Quintegra Solutions Ltd. it was submitted is at page 388 & 389 of the Paper Book. Based on these financials it was submitted that a letter had been filed with the TPO requesting that the directions of the DRP may be carried out. Copy of this letter it was submitted is at pages 393 to 395 of the Paper Book.

7.4. The CIT DR on both the issues stated that he would have no objections if the directions of the DRP are carried out.

7.5. Considering the grievance posed qua the working capital adjustments directed by the DRP, we are of the view that in the peculiar facts and circumstances of the case in the face of the above quoted speaking directions the TPO in judicial propriety had no occasion to ignore the directions of the higher forum and was bound to follow the directions issued by the DRP whatever his personal opinion may be. The issue accordingly is restored back to the TPO/AO with the direction to decide the issue in terms of the speaking direction of the DRP and pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

7.6. Addressing the next grievance of the assessee wherein the directions given by the DRP qua the inclusion of Quintegra Solutions Ltd. which have not been carried out by the TPO, we find on facts that the said comparable was taken by the assessee in its transfer pricing study; this fact is borne out from page 385 of the Paper Book. On a reading of the TPO’s order it is seen that the TPO proposed various filters including the filter to exclude those comparables companies whose revenues from exports of software segment was less than 75% of their total sales. This fact is borne out from internal page 51 of the TPO’s order of the appeal set wherein rationale for introducing the said filter had been justified with the following observations:-  

· “Companies who have export sales less than 75% of the sales from software development are excluded.

This has been done primarily to exclude predominantly domestic companies which cannot be compared with you having entire transactions with your AE. This is because economic circumstances of such companies are different. Rule 10B(2) also supports this view.”

7.6.1. The record would show that applying this filter Quintegra Solutions Ltd. was excluded as a comparable as per internal page 53. The said position was objected to by the assessee before the DRP vide objection No.7. The DRP upheld the application of the said filter, however on facts, considering the assessee’s claim that export sales of Quintegra Solutions Ltd. constitute 95.06% of its revenue from software development activity, the DRP at internal page 8 of its order (page 33 of the appeal set) is found to have given the following directions to the TPO:-

· “TPO is directed to verify the correctness of the statement and if it qualifies the filter of export turnover, then, this company should be included.”

7.6.2. In the said background, the Ld. AR has inviting attention to the relevant extracts of the Audited accounts at pages 388 & 389 of the Paper Book has made a prayer that the TPO be directed to follow the direction of the DRP. The Ld. CIT DR has submitted that he had no objection to the claim of the assessee being verified by the TPO. We find that having already observed in the earlier part of this order that the TPO as per judicial discipline was bound to give effect to the directions of the DRP and in judicial propriety had no occasion to sit on judgement on the directions of a higher forum which admittedly the DRP is, we restore the issue back to the TPO for a decision after verifying the facts.

Needless to say that a reasonable opportunity of being heard shall be granted tto the assessee.

7.7. Accordingly the Grounds No.11(a) relatable to the said issue and Ground No.11(b) related to the working capital adjustment are allowed for statistical purposes.

8. In order to address the grievance posed by the assessee in Ground No.10 raised in the present proceedings wherein the assessee prays for the exclusion of Infosys Ltd. and BodhTree Consulting Ltd. which prayer has been rejected by the DRP, we find that the assessee in the present proceedings in support of its prayer has relied upon the decision dated 24.04.2015 in the case of Cienna India Pvt. Ltd. of the Co-ordinate Bench in ITA No.1453/Del/2014 pertains to 2009-10 assessment year.

8.1. A perusal of the said order shows that the assessee was a wholly owned subsidiary of Cienna Corporation, USA and was engaged in the business of provision of software development services and marketing support services to its overseas group companies. In the facts of the said case also apart from other comparables Bodh Tree Consulting Ltd. and Infosys Technology Ltd. with OP/TC of 40.94 & 68.63 respectively were selected as comparables companies in its software development services segments. The exclusion of the said comparable sought by the assessee was not agreed to either by the TPO or by the DRP. The issue travelled to the ITAT and the Co-ordinate Bench in the facts of that case directed the exclusion of the Infosys Technologies Ltd. as a comparable vide para 8.2 of the order. The same is extracted hereunder for ready-reference:-

8.2. “We have considered the rival submissions and perused the relevant material on record. It can be seen that the TPO has included this company in the list of comparables by rejecting the assessee’s contention about the brand of this company helping in earning huge profits and also the brand-related profits swelling the ultimate profit rate of this company. We find that the assessee is only a captive unit rendering services to its AE alone without acquiring any intellectual property rights in the work done by it in the development of software.

The Hon’ble Delhi High Court in CIT vs. Agnity India Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the giantness of Infosys Ltd., in terms of risk profile, nature of services, number of employees, ownership of branded products and brand related profits, etc. in comparison with such factors prevailing in the case of Agnity India Technologies Pvt. Ltd., being, a captive unit providing software development services without having any IP rights in the work done by it. After making comparison of various factors as enumerated above, the Hon’ble Delhi High Court held Infosys Ltd. to be incomparable with Agnity India Technologies Pvt. Ltd. The facts of the instant case are more or less similar inasmuch as the extant assessee is also a captive service provider with a limited number of employees at its disposal and also not owning any branded products but, rendering only offshore services with no expenditure on R&D etc.

When we consider all the above factors in a holistic manner, there remains absolutely no doubt in our mind that Infosys Technologies Ltd. is incomparable to the assessee company. Respectfully following the judgment of the Hon’ble jurisdictional High Court in Agnity India (supra), we hold that Infosys Technologies Ltd., cannot be held as comparable with the assessee company. This company is, therefore, directed to be excluded from the list of comparables.” (emphasis provided) 

8.2. Considering the facts of the present case and the facts of the Cienna India Pvt. Ltd. it is seen that both the companies are wholly owned subsidiaries of US Companies and qua the segment are captive units rendering services for its AE only. Both the companies are rendering the services without acquiring any intellectual property rights in the work done by it in the development of softwares. Thus on a similarity of the functional profiles of these companies as canvassed before us we find in the absence of any rebuttal on facts or any contrary argument assailing the claim of similarity of material facts in the case of the assessee with Cienna India Pvt. Ltd. we hold that Infosys Technology Ltd. as a comparable company has to be excluded from the list of comparables.
8.3. Since even for the purposes of exclusion of Bodh Tree Consulting Ltd. the reliance had been placed on the decision of the Co-ordinate Bench in the case of Cienna India Pvt. Ltd. it is seen that the discussion is available at para 9.4 to 9.6 of the aforesaid order wherein after a detailed discussion the Co-ordinate Bench was pleased to hold that the profits of Bodh Tree Consulting Ltd. do not represent fair profitability on a year to year basis and thus the said comparable was held to have lost its tag of being an effective comparable and consequently its exclusion was directed. In the absence of any arguments to the contrary in the face of jurisprudence available we find the exclusion of the said comparable is warranted on facts. The relevant discussion is reproduced hereunder:-

9.4. “The ld. AR submitted that Bodhtree Consulting Ltd. cannot be considered as comparable because of a different model of revenue recognition. He invited our attention towards the Annual report of this company, in which it has been specifically reported that revenue from software development is recognized based on software developed and billed to clients. He submitted that the costs incurred by this company in respect of the projects pending completion at the end of the year are booked at the time of incurring, but, the income is recognized on the raising of bills in subsequent year, thereby distorting the figure of operating profit for a particular year. In contrast to that, the ld. AR submitted that the assessee was recognizing revenue from software development side by side without waiting for the completion of the project.

9.5. Under the mercantile system of accounting, income is recognized at the time of its accrual and the expenses become deductible when liability to pay is incurred. The dates of actual payment of expenses or receipt of income become insignificant. This is also called 'Matching concept’, as per which income is recognized with the incurring of expenses. To put it simply, if income does not accrue from a particular transaction, the expenses incurred for such transaction are excluded from the Trading and Profit & loss account by carrying them to Balance sheet. To illustrate, if there is an incomplete contract worth Rs. 100 for doing a particular work, and the assessee has incurred Rs. 60 on this project till the close of the year, but the income is to be recognized only on the completion of the project which event will take place in the subsequent year, then, the amount of Rs. 60 is not considered as expenditure for that year, but is taken to the Balance sheet as closing work-in-progress, which becomes opening stock for the subsequent year and the income is finally computed from such project/contract in the next year on the raising of bill of Rs. 100/- after allowing deduction for the expenses incurred in the earlier year at Rs. 60 and the further expenses incurred in the year of raising of the bill. In this way, the profit for the earlier year of incurring expenses of Rs. 60 and the next year of raising invoice of Rs. 100 gives true and fair view of the profitability of that enterprise for both the years. If this enterprise, instead of capitalizing Rs. 60 in the first year, claims deduction in the year of incurring itself but recognizes income of Rs. 100 in the next year, then profit of both the years, namely, the first and the second, will not give a fair view.

9.6. Coming back to the facts of the instant case, we find from Schedule 12 that there is a mention of Significant accounting policy at Sl. no.3, which provides that : “Revenue from software development is recognized based on software development and billed to clients.” If some software development project is incomplete at the end of the year, this Note may entail two situations , viz., the first, in which the expenses incurred in respect of such software development may be capitalized, which appears to be a more rational manner of depicting the true and fair view of the profitability of the enterprise; and the second, in which such expenses may be straightway taken as revenue cost for the year of its incurring itself, which may not reflect a true and fair view of the profits on year to year basis. The contention of the ld. AR is that whereas Bodhtree fell into the second situation, the assessee was in the first situation. Though this contention about Bodhtree accounting for expenses in the year of incurring but considering income only on the conclusion of the project in the subsequent year sounded a little awkward, we attempted to find out the amount of capitalized expenses in respect of incomplete projects at the end of the year. Apparently, we could not find out any such capitalized value of work-in-progress in the balance sheet of the company on standalone basis. We directed the ld. DR to examine the Annual report of this company and point out the amount of expenses capitalized in respect of incomplete work at the end of the year. On the next date of hearing, the ld. DR failed to specifically point out any amount of such capitalized expenses with the opening or closing balance. This prima facie shows that the expenses incurred in respect of incomplete projects of software development at the end of the year, but billed in the subsequent year, were, in fact, treated as expenses for the current year alone. In the same manner, expenses incurred in the preceding year for the contracts of software development remaining incomplete at the end of the year, also must have been included in the expenses of the last year alone, but, the income getting recognized on the raising of bills in the current year. This albeit, patently deforms the correct profitability on year to year basis, yet, but we cannot help the situation. When the position of accounts of Bodhtree is such that it does not properly match expenses with revenue, it loses its credibility for making a logical comparison with a company that accounts for expenses matching with the revenue. Once it is held that the profits of Bodhtree Consulting Ltd. do not represent fair profitability on year to year basis, this company loses its tag of an effective comparable. We, therefore, order for the exclusion of this company from the final list of comparables.”

9. Addressing the next issue agitated by the assessee, attention was invited to Paper Book page 302 which incorporates the economic analysis of the assessee. Referring to the same it was highlighted that in the Software Development Services the assessee performs certain services as incorporated in the Service Agreement effective from 01.04.2006 for its AE where the assessee is reimbursed by the AE on a cost plus mark up where the assessee invoices the AEs on a quarterly basis in USD and allows a credit period of 30 days. The Ld. AR carrying us through the discussion in the TPO at pages 59 to 69 vide paras 6 to 6.2.10 submitted that the TPO re-characterized the receivables shown by the assessee as unsecured loans and after obtaining information u/s 133(6) of the Income Tax Act, 1961 from M/s Cirisil Limited imputed that the interests rate @ 15.77%. Carrying us through the objections advanced on behalf of the assessee assailing this before the DRP wherein it was argued that the assessee does not charge any interests on receivables from the AE where the assessee was captive service provider the Ld. AR made various submissions assailing the departmental stand.

9.1. Reliance was placed on the order dated 31.03.2015 in the case of Kusum Health Care in ITA No.6814/Del/2014. At the same time attention was invited to a contrary view taken in order dated 14.08.2015 in ITA No.2010/Del/2014 & 2575/Del/2014 in the case of Amriprise India Pvt. Ltd. wherein though Kusum Health Care was relied upon, however the Co-ordinate Bench held it to be a case of international transaction. It was his submission that since on facts the departmental appeal was dismissed the issue was not agitated by the assessee.

Thus it was his submission that if the Bench is not in agreement with the main submissions advanced then the alternate argument would be to consider on fact allowability on the basis of net outstanding. Referring to the record it was submitted that it would show that the payable every month in the year is always more and the receivable is much less thus on account of this fact as evidenced from paper Book page 396, the adjustment was not warranted. The audited accounts reflecting year end balance it was submitted is at Paper Book page 269.

9.2. Without prejudice to this argument, it was submitted the claim may be considered in the light of the decision of the Hon’ble Mumbai High Court dated 08.01.2013 in the case of CIT vs Indo-American Jewellery Ltd. ITA (L) No.1053 of 2012. Attention was invited to specific para 5 of page 3 of the same. For ready-reference it is reproduced hereunder:-

“5. On appeal filed by the Revenue, the ITAT upheld the order of CIT(A). While, upholding the order of CIT(A) the ITAT held that interest income is associated only with the lending or borrowing of money and not in caseof sale. We express no opinion on the above reasoning of the ITAT and keep that reasoning open for debate in an appropriate case. However, in the facts of the present case, the specific finding of the ITAT is that there is complete uniformity in the act of the assessee in not charging interest from both the Associated Enterprises and Non Associated Enterprises-debtors and the delay in realization of the export proceeds in both the cases is same. In these circumstances the decision of the Tribunal in deleting the notional interest on outstanding amount of export proceeds realized belatedly cannot be faulted.”

9.3. Objections it was submitted were also made as would be found at pages 108 to 110 & 124 of the Paper Book so as to canvass that the financial statement of the assessee may be considered which would demonstrate that the assessee is not charging interest on the outstanding balances from its AE nor is the assessee paying any such interest. Referring to the Paper Book page 396 which was placed before the TPO as well as DRP it was submitted that the alternate prayer was made that the adjustment if any at best could be limited to net outstanding receivables and not on the basis of gross outstanding receivables.

9.4. Inviting attention to Paper Book page 397 of Paper Book 2 it was submitted that the average number of debtor days allowed by the comparables are 107 days thus adjustment if any should be restricted to days in excess of 107 days and not 30 days as stipulated in the agreement.

10. The Ld. CIT DR relying on the order of the ITAT in Ameriprise India Pvt. Ltd. submitted that as per the Amendment made by Finance Act, 2012 in terms of insertion of Explanation to Section 92B with retrospective effect from 01.04.2003 considering “any other debt arising during the course of business” and relying on the order dated 06.07.2015 in Techbooks International Pvt. Ltd. vs DCIT [ITA No.240/Del/2015] has correctly held it to be a separate international taxation. Accordingly it was his submission that the decision of the Hon’ble Bombay High Court in Indo-American Jewellery relied upon by the assessee is of no relevance as the Amendment has not been considered therein.

11. We have heard the rival submissions and perused the material available on record. On a consideration of the entire factual matrix where the issue of Amendment by Finance Act, 2012 in terms of insertion of Explanation to Section 92B with retrospective effect from 01.04.2003 as considered by the Co-ordinate Bench in the decision of Ameriprise India Pvt. Ltd. is relied upon by the ld. CIT DR and considering the proposition of law as laid down by the Hon’ble Bombay High Court in the case of Vodafone Shell 268 ITR 1 and followed in Shell India Markets Pvt.Ltd. 369 ITR 516 (Bom.) which issue has not been argued by the Ld. AR and consequently not addressed by the Ld. DR accordingly in the facts of the present case, we deem it appropriate to restore the issue back to the TPO allowing the alternate prayer of the assessee directing the TPO to restrict the addition if any to the net outstanding receivables and not gross outstanding receivables.

Software Distribution Segment

12. Addressing the last issue agitated by the assessee vide ground 15 to 17 it was the submission of the Ld. AR while referring to page 297 of the Paper Book that the transaction is closely linked to software distribution segment wherein TNMM approach has been followed. Carrying us through the show-cause notice dated 14.1.2.2012 issued by the TPO extracted at page 69 to 70 by the TPO and the reply of the assessee dated 24.12.2012 as per page 403 and 410 of the Paper Book the Ld. AR submitted that the TPO rejecting the assessee’s claim concluded the issue as per page 76 to 95 of the appeal set. Aggrieved by this the issue was agitated before the DRP on the following points:-

Objection on TNMM vs CUP Page 137 of PB-1
Objection on No benefit Page 154 of PB-1
Table on need vs Benefit Page 167 of PB-1

13. Referring to page 37 of the appeal set (internal page 12 of the DRP) it was submitted that the Objections raised by the assessee were rejected. Assailing this position it was submitted that the ITAT vide order dated 18.02.2015 in ITA No.6160/Del/2013 in assessee’s case for 2007-08 assessment year was pleased to restore an identical issue back to the file to the TPO. In the facts of that case it was his submission that additional evidences were filed before the DRP which were not taken on record by the DRP and the ITAT directed the Revenue to consider the evidences filed and restored the issue. Carrying us through Paper book pages 279-292, 307 and 434 and Agreement pertaining to IGS at pages 411 to 423. It was his submission that in the facts of the present case the evidences were made available before the TPO. It was his submission that following the earlier years, the claim of the assessee was not accepted by the tax authority. Accordingly following the view taken in the earlier year, it was submitted the issue may be restored or considering the facts and evidences on record relief may be granted at this Forum itself.

14. Ld. CIT DR relying upon the TPO and DRP’s order submitted that the assessee has not provided the facts and figures on record. The following details as per page 413 which as per record the assessee was maintaining it was submitted have not been provided and the assessee may be directed to place on record:-

* A copy of the actual fee calculation;
* Detail of the calculation of allocation factors; and
* A narrative of the actual services that were provided.

15. We have heard the rival submissions and perused the material available on record. On consideration of the discussion on the issue in the transfer pricing order and the Objections made before the DRP demonstrate we find on facts that the issue necessarily has to be restored back to the TPO. On considering the evidences filed, we hold that the evidence relied upon in the Paper Book before us cannot be said to be sufficient and complete to address the issue and as per the agreement dated NIL stated to be effective from 01.01.2001 found placed at pages 411-412 it is seen that the documents described as “copy of Inter Company Agreements for availing of Corporate services” signed on 04.06.2003 by Mr.Ian Heming on behalf of the assessee and on 15.04.2003 by Mr. James A. King, Vice President financed for Bentley System, Incorporated has been placed on record alongwith Paper Book page 413 titled as “Addendum to the Transfer Price Agreement” in effect as on 01.04.2004. The said document records that the following documents would be maintained:-

“Now therefore parties wish to confirm their existing mutual understanding as follows:-

Bentley US shall supply such documentary evidence as Bentley India may reasonably require as substantiation of the level of the charges in support of the actual fee. The documentation will include (where applicable):

* A copy of the actual fee calculation;
* Detail of the calculation of allocation factors; and
* A narrative of the actual services that were provided.
This memorandum is to confirm the understanding between the parties from 1st April 2004.”

15.1. Thus from a reading of the above, it is evident that the above documentation was required to be maintained and it is seen that it has not been placed on record. The assessee is directed to place the necessary supporting evidences on record. While so holding, we deem it appropriate to hold that the queries made in the show cause notice dated 14.12.2012 requiring the assessee to demonstrate the need and necessity for obtain the services is not a domain which is open to the Revenue to question as settled by the Hon’ble Delhi High Court in the case of Cushman & Wakefield.

15.2. Accordingly, in view of the above considering the submission of the parties before the Bench the impugned order on this count is set aside and the issue is restored back to the TPO/AO with the direction to pass a speaking order in accordance with law considering the view taken in the earlier years on the issue.
The assessee is permitted to file fresh evidences before the TPO/AO in support of its claim.

16. Accordingly in view of the fact where various grounds have not been pressed the appeal of the assessee is partly allowed for statistical purposes in terms of the above detailed order.

ITA No.6261/Del/2015
17. The sole issue agitated by the assessee in ITA No.-6261/Del/2015 is the intra-group services wherein the assessee only wants to highlight Ground No.-4 which reads as under:-

4. “The AO/TPO/DRP has erred in determining the comparable Uncontrolled Price method as the most appropriate method without rejecting Transactional Net Margin method (“TNMM”) adopted by the Appellant to benchmark the international transaction pertaining to availing of intra-group services.”

18. Since it was the stand of the parties before the Bench that the arguments addressed in 2009-10 assessment year would address the issues herein also, however the Ld. AR submitted that the view taken by the authorities in the earlier years would decide the issue. It was clarified on query that herein also evidences were filed before the TPO & the DRP and the deficiency in the evidences pointed out in page 413 in the earlier Paper Book is also there. The Ld. CIT DR relied upon the arguments advanced in ITA No.6161/Del/2013.

19. Having heard the submission and perused the material available on record, we are of the view that for the reasons set out in the earlier order the issue herein also with similar direction is restored to the file of the TPO/AO.

The TPO/AO shall accept fresh evidences filed by the assessee and pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

20. In the result the appeal of the assessee is allowed for statistical purposes.

21. In the result, the appeals of the assessee are partly allowed for statistical purposes.

The order is pronounced in the open court on 04TH of November, 2015.