807, New Delhi House, Circle16(2), Barakhamba Road, New Delhi. New Delhi. PAN: AABCM6358F ITA No.691/Del/2016 Assessment Year : 201112 DCIT, Vs. Microsoft India (R&D) Pvt. Ltd., Circle16(2), 807, New Delhi House, New Delhi. Barakhamba Road, New Delhi. PAN: AABCM6358F (Appellant) (Respondent) Assessee By : Shri Nageshwar Rao, Shri Sandeep S. Karhail & Parth, Advocates Department By : Shri Sanjay I Bara, CIT, DR ITA Nos.1479 & 691/Del/2016 Date of Hearing : 10.09.2018 Date of Pronouncement : 14.09.2018 ORDER PER R.S. SYAL, VP: These cross appeals one filed by the assessee and the other by the Revenue arise out of the final assessment order passed by the Assessing Officer (A.O.) u/s 143(3) read with section 144C of the Incometax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment year 201112. 2. At the outset, it is relevant to mention that when the appeal of the assessee came up for hearing before the Tribunal on 05.06.2018, it raised an additional ground contending that the transfer pricing adjustments made by the TPO are bad in law, inter alia, for the raison d'etre that the TP documentation prepared by the assessee was not rejected by the Officer. Vide interim order dated 23.07.2018, a copy placed on record, the Tribunal rejected the assessee's contention by chiefly observing that the TP study made available by the assessee was found to be not fully in compliance with the provisions of the Act and Rules and further the exclusion of some 2 ITA Nos.1479 & 691/Del/2016 comparables and other adjustments made by the TPO tantamount to its implied rejection. This is how, the appeal is now being taken up for final disposal on all other grounds. PROVISION OF SOFTWARE DEVELOPMENT SERVICES (Hyderabad Unit) 3. The first issue raised by the assessee in its appeal is against the addition on account of transfer pricing adjustment amounting to Rs.197,23,68,765/ made by the Assessing Officer (AO) in the international transaction of ` Provision of Software Development services'. 4. Briefly stated, the facts of the case are that the assessee was set up in India in May, 1998 and is a subsidiary of Microsoft Ireland Research Ltd., Ireland (99.99% shareholding) with the ultimate parent company, Microsoft Corporation, USA. The assessee is engaged, inter alia, in rendering Software development services and Information Technology Enabled Services (ITES). The assessee filed Audit Report in Form no. 3CEB declaring six international transactions. The AO referred the matter of determination of the arm's length price (ALP) of the international transactions to the Transfer Pricing Officer (TPO). The international 3 ITA Nos.1479 & 691/Del/2016 transaction instantly under consideration is 'Provision of software development services (Hyderabad Unit)' with transacted value of Rs.1072,06,63,928/. The assessee was compensated by its AE for such services at cost plus 15%. The assessee employed the Transactional Net Margin Method (TNMM) with the Profit level indicator (PLI) of Operating profit to Operating cost (OP/OC) for demonstrating that the international transaction was at ALP. As the assessee's PLI at 14.34% was shown to be better than 9.50% of comparables, on the basis of multiple year data, the assessee claimed that this international transaction was at ALP. 5. The assessee contended during the course of proceedings before the TPO that its international transaction of Software development services primarily included two things, viz., Contract software development services and Internal information technology support. The assessee explained that it was engaged in writing and testing codes under the direction of MS Corporation, USA requiring comp