Income Tax Appellate Tribunal Delhi Birlasoft (India) Ltd., New Delhi vs Acit, Circle 5(1), New Delhi on 9 August, 2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "I2", NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. Nos. 1028 & 7180/Del//2017 A.Yrs. : 201213 & 201314 M/S BIRLASOFT (INDIA) LTD., vs. ASSTT. COMMISSIONER OF BIRLA TOWER, 8TH FLOOR, INCOME TAX, Circle5(1), 25, BARAKHAMBA ROAD, New Delhi NEW DELHI 110 001 (PAN: AAACB2769E) (Appellant ) (Respondent) Assessee by : Sh. Ajay Vohra, Sr. Adv., Sh. Neeraj Jain, Adv., Sh. Abhishek Aggarwal, CA Department by : Sh. H.K. Choudhary, CIT(DR) ORDER PER KUL BHARAT : JM These two appeals by the Assessee are directed against the impugned Orders dated 16.01.2017 & 26.10.2017 passed by the AO u/s. 143(3) read with section 144C of the Incometax Act, 1961 (for short 'the Act') in consonance with the orders passed by the Ld. DRP/TPO qua the assessment years 201213 & 201314 respectively. Since the issues are common and connected, these are being 1 consolidated and disposed of by this common order for the sake of convenience, by first dealing with assessment year 201213. 2. The Assessee has raised the following grounds in respect of assessment year 201213: 1. That the assessing officer erred on facts and in law in completing the assessment under section 144C read with section 143(3) of the Incometax Act (the Act) at income of Rs. Nil after adjusting brought forward business losses of Rs. 54,37,55,822, as against returned income of Rs. Nil after setting off of brought forward losses of Rs. 4,87,99,289. 2. That the assessing officer erred on facts and in law in making adjustment of Rs. 48,29,39,813 to the income of the appellant on account of the alleged difference in the arm's length price of the international transaction of provision of software development services undertaken during the previous year on the basis of order passed by Transfer Pricing Officer ('TPO') under section 92CA(3) of the Act. 2.1 That the Dispute Resolution Panel ('DRP')/TPO erred on facts and in law in disregarding the internal benchmarking undertaken by the appellant for determining the arm's length price of the international transactions, applying TNMM, holding that: 2 (i) the appellant did not maintain segmental accounts for the related and nonrelated transactions and there was no segregation of these activities in the audited financials. (ii) in the segmental accounts prepared by the appellant, expenses which cannot be directly allocated are apportioned on the basis of respective turnover and is not reliable at all. (iii) The segmental accounts were created by the assessee artificially. (iv) that the characteristics of services transferred, functions performed, asset employed and risk assumed by assessee in providing services to related and unrelated party are different. 2.2 That the DRP/ TPO erred on facts and in law in holding that the internal comparability does not provide meaningful benchmarking, even after accepting that, FAR of the segments are identical and concurrent transactions of both the segments are homogeneous. 2.3 That the DRP/ TPO erred on facts and in law in disregarding the internal benchmarking analysis applying TNMM undertaken by the appellant, without pointing out any error or mistake in the segmental profitability in relation to revenue earned from AE 3 and non AEs transactions worked out by the appellant and also certified by independent Chartered Accountants. 2.4 Without prejudice, while benchmarking the international transaction of provision of software development services with external comparables, the DRP/ TPO erred on facts and in law in considering the following companies which does not pass comparability criteria provided under Rule 10B(2) of the Income Tax Rules: i. Acropetal Technologies Limited ii. Infosys Ltd. iii. Larsen & Toubro Infotech