Unit A4, 'A' Wing, 2nd Floor, Income Tax, Divyashree Chambers, Langford Road, Circle 11(1), Bangalore 560 025. Bangalore. PAN: AABCA 6924B APPELLANT RESPONDENT IT(TP)A Nos. 616 & 617/Bang/2013 Assessment years : 200506 & 200809 The Deputy Commissioner of Vs. Autodesk India Private Ltd., Income Tax, Bangalore 560 025. Circle 11(1), PAN: AABCA 6924B Bangalore. APPELLANT RESPONDENT Assessee by : Shri T. Suryanarayana, Advocate Respondent by : Shri B.R. Ramesh, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 13.06.2018 Date of Pronouncement : 06.07.2018 ORDER Per N.V. Vasudevan, Judicial Member IT(TP)A Nos.540/B/13 and 616/B/13 are cross appeals filed by the assessee and revenue respectively for the assessment year 200506, while IT(TP)A Nos.541/B/13 and 617/B/13 are cross appeals filed by the assessee and revenue respectively for the assessment year 200809. The former cross appeals are directed against the order of the CIT(Appeals)IV, Bengaluru dated 20.02.2013, while the latter cross appeals are also ITA Nos. 540 & 541, 616 & 617/Bang/2013 Page 2 of 43 directed against the order of the same CIT(Appeals)IV dated 21.02.2013. All these appeals were heard together and are being disposed of by this consolidated order for the sake of brevity and convenience. 2. The brief facts relating to all these appeals are that the Assessee was set up as a subsidiary of Autodesk Inc., USA ('Autodesk US' for short), in October 1998 and is engaged in the business of providing software development (technical support) services and marketing support services to its overseas Associated Enterprises ('AE' for short). Being a captive service provider, the Assessee assumes less than normal risks and all significant business and entrepreneurial risks are borne by the AEs. It is not in dispute that the transaction of rendering of software development services by the Assessee to its AE was an international transaction and in view of the provisions of sec. 92 of the Income Tax Act, 1961 (Act), income arising from such international transaction has to be determined having regard to Arms Length Price (ALP). The issues to be decided in the cross appeals for both the AYs 200506 and 200809 is the determination of ALP of the international transaction of providing software development services by the Assessee to its AE. IT(TP)A Nos.540/B/13 and 616/B/13 (AY 200506) 3. During the previous year 200405 relevant to the assessment year 200506, the Assessee rendered software development (technical support) to its AEs. As regards the international transaction of provision of software development (SWD) services to its AEs, the Assessee received consideration of Rs.10,64,79,286/ for rendering Software Development Services from its AE. In support of its claim that the price charged by it in the international transaction is at Arm's Length, the Assessee filed a Transfer Pricing study (TP Study) in which the Assessee adopted Transaction Net Margin Method (TNMM) as the Most Appropriate Method ITA Nos. 540 & 541, 616 & 617/Bang/2013 Page 3 of 43 (MAM) for determination of ALP. The profit level indicator (PLI) chosen for the purpose of comparison of profit margin of comparable companies was operating profit to operating cost (OP/OC). The price charged in the international transaction by the Assessee from its AE was Rs.10,64,79,286. The Operating cost of the Assessee was Rs.9.67,99,350/. The operating profit was thus Rs.96,79,936 (Rs.10,64,79,286 Rs.9,67,99,350). OP/OC was 10%. The Assessee in its TP Study had chosen 18 companies as comparable companies, after applying the following filters Filters applied by the Assessee in its TP study: Step