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Dy. CIT New Delhi. Vs. M/s Ariba India Pvt. Ltd. (Formerly Free Market Services Pvt. Ltd.) 2nd Floor, Sucheta Bhawan, 11-A Vishnu Digambar Marg, New Delhi.
February, 20th 2015
                   DELHI BENCH: `I' NEW DELHI
                         I.T.A. No. 903/Del/2010
                        Assessment Year: 2004-05

Dy. CIT                              Vs.         M/s Ariba India Pvt. Ltd.
Circle-2(1)                                      (Formerly Free Market
New Delhi.                                       Services Pvt. Ltd.) 2nd Floor,
                                                 Sucheta Bhawan, 11-A
                                                 Vishnu Digambar Marg,
                                                 New Delhi.
                                                 PAN: AAACF4192P
(APPELLANT)                                      (RESPONDENT)

                            C.O. No. 130/Del/2010
                         (in I.T.A. No. 903/Del/2010)
                          Assessment Year: 2004-05

M/s Ariba India Pvt. Ltd.Dy. CIT     Vs.         Dy. CIT
(Formerly Free Market                            Circle-2(1)
Services Pvt. Ltd.) 2nd Floor,                   New Delhi.
Sucheta Bhawan, 11-A
Vishnu Digambar Marg,
New Delhi.
(APPELLANT)                                      (RESPONDENT)

              Revenue by: Shri. Peeyush Jain, CIT.DR.
              Assessee by: Shri. Himanshu Shekhar Sinha, &
                           Sh. Manoneet Dalal, Adv.



      This is an appeal filed by the Revenue directed against the order of the

CIT (Appeals)-XX, New Delhi on the following grounds:

           "1.      The Ld. CIT(A) has erred in law and on facts in
           directing to reduce addition on account of Arms Length
           Price from Rs.65,10,452/- to Rs.18,46,109/- in respect of
           international transaction entered into by the Assessee.
          (a)     by violating the provisions of Rule 46A(3) of the IT
                  Rules, 1962 in not providing any opportunity to the
                  TPO before admitting evidence in the form of
                  Annual Report of Lan Esada and also in allowing
                  the assessee to go back on its own stand of
                  calculation of margin of this company.
          (b)     by calculating the margin of the comparable namely
                  Lan Esada by considering items of expenditure
                  which are non-operating in nature."
2.    Cross-objection is filed by the assessee on the following grounds:

     "1. That on the facts and in law, the Commissioner of Income-
         tax Appeals (`Ld. CIT(A) erred in holding that current year
         financial information of comparable companies, which was
         not available to the assessee company at the time of filling
         its return of income, is to be used for comparability
     2.    Without prejudice to Ground 1 above, the Ld. CIT(A) erred
           in disregarding the results of the fresh search carried out by
           the assessee during the appellate proceedings, using data
           for FY 2003-04.
     3.    That the Ld. CIT(A) erred on facts and law in not excluding
           one company, viz., Kushagra Software Limited, from the
           comparable        set     despite      the      appellant's
           contentions/arguments on the inconsistency in the financial
           data reported by the company for FY 2003-04.
     4.    That the Ld. CIT(A) grossly erred on facts and law by
           including extraordinary expenses in the nature of `Provision
           for doubtful debts' and `Bad debts written off in the
           computation of the assessee's Total Cost, despite the
           objections raised by the assessee.
     5.    That the Ld. CIT(A) grossly erred on facts and law by not
           allowing to the assessee, the benefit of (+/-) 5% range
           mentioned in the proviso to section 92C of the Act before
           computing the adjustment."

3.       Facts are at Para 4.1 & 4.2 of the CIT(A)'s order, which is extracted for

ready reference.

"4.1 Free Markets Services Private Limited (now known as Ariba India

Private Limited and hereinafter referred to as `Ariba India'or `appellant'), is a

wholly owned subsidiary of Free Markets International Holding Inc. USA,

which in turn is a subsidiary of Ariba Inc (formerly known as Free Markets


4.2      During the relevant financial year, the appellant is engaged in the

business of selling online auction solutions along with provision of related

services to its Indian clients. Further, the appellant also provided contract

software development services to Ariba Inc."

4.       The ld. DR Mr. Peeyush Jain, referred to Para 12.4 at page 45 of the ld.

CIT(A)'s order and submitted that there is difference in the financial data, for

the financial year 2003-04, of the company M/s LAN ESADA Industries Ltd. as

the data available in the public domain were at variance with the data available

in the annual report. The assessee relied on the financial data as given in the

annual report of the company and submitted that the financial data in the public

domain is wrong. The ld. CIT(A) agreed with the contention of the assessee.

The ld. DR contends that the issue should go back, to the file of the TPO for

fresh adjudication, for the reason that the annual report was not available to him

at the time of preparation of Transfer Pricing Order. One more reason cited by

the ld. DR for seeking remand is that the assessee submitted financial data of

the company for year ended June 2004 and OP/Sales margin for the relevant

financial year i.e. twelve months, ending March, 2004 was arrived at by taking

pro rata data. He submitted that such pro rata data cannot be adopted as only the

actuals have to be taken, as otherwise the purpose of bench marking would get


5.    The ld. counsel for the assessee Mr. Himanshu Shekhar on the other hand

opposed the contentions of the Revenue and submitted that sending back the

matter to the file of the TPO would be an empty formality for the reason that,

there is no dispute that M/s LAN ESADA Industries Ltd. is a comparable and

the only issue is whether the correct financial data, as per annual report of the

company is to be considered or financial data in public domain which is

admittedly wrong is to be considered. He relied on certain case laws and

submitted that the annual reports are accurate and hence they should be


6.    After hearing rival contentions, we are of the considered opinion that the

submissions of the ld. DR is devoid of merit. When both parties agree that the

company M/s LAN ESADA Industries Ltd. is a comparable, then the correct

financial data of that company as reflected by its annual report, which were not

available before the TPO, has been rightly considered by the ld. CIT(A). We

also do not find any merit in the submission of the ld. DR that pro rata data

should not be taken.

7.      In the result, the appeal of the Revenue is dismissed.

C.O. No.130/Del/2010

8.      Coming to the Cross-objections, the ld. counsel for the assessee submits

that he is not pressing ground no. 1.

9.      In the result, ground no. 1 is dismissed as not pressed.

10.     On ground no. 2 the ld. counsel, for the assessee submitted that additional

comparables were not looked into by the first appellate authority, which as per

the ld. counsel is against the principles of natural justice. Ld. counsel contended

that truth has to be found out and when they are fresh set of comparables, with

current year data, it was the duty of the first appellate authority to consider the


11.     After considered rival submissions, we are of the considered opinion that

the fresh comparables cited by the assessee before the ld. CIT(A) which had

current year data should have been admitted and adjudicated on merits.

12.     In our view, the issue should be set aside to the file of the AO for fresh

adjudication in accordance with law.

13.     In the result, ground no. 2 is allowed for statistical purposes.

14.   On ground no. 3 the ld. counsel argued that the, comparables M/s

Kushagra Software Limited was sought to be excluded by the assessee before

the ld. CIT(A), on the ground that segmental results and data of this company

could not be culled out from the financial statements. The ld. CIT(A) rejected

this contention of the assessee on the ground that the assessee cannot ask for

exclusion of a comparable, when it was the assessee who has included the same

in the T.P. Report.

15.   The ld. DR opposed this contention of the assessee. After hearing both

sides we find that this issue is no more res integra as the Special Bench of the

Tribunal in the case of Quark Systems has held otherwise. This is a binding

judgment and the assessee succeeds in its contentions.

16.   As we have set aside ground no.2, to the file of the TPO, we are of the

considered opinion that this issue, are also be set aside to the file of the AO or

TPO shall follow the decision of Special Bench of the Tribunal.

17.   In the result, this ground is allowed for statistical purposes.

18.   On ground no., 4 ld. counsel submitted that bad debts are extraordinary

items and cannot be considered as operational cost and hence, they should have

been removed before arriving at operational margins. The ld. DR opposed these


19.     Ground no. 4 is allowed, for the reason that while arriving at operational

profit ratio, extraordinary items should be eliminated. Bad debts or provision for

bad debts are extraordinary items and have to be eliminated for arriving at the

operational profit.

20.     In the result, ground no. 4 of the assessee is allowed.

21.     Ground no. 5 is dismissed as not pressed.

22.     In the result, the appeal of the Revenue is dismissed and the Cross-

objection of the assessee is allowed in part.

Order pronounced in the open Court on 19/02/2015.

              Sd/-                                           Sd/-

      (I. C. SUDHIR)                                 (J. S. REDDY)
  JUDICIAL MEMBER                                 ACCOUNTANT MEMBER
Dated: 19/02/2015

Copy forwarded to:

1.    Assessee
2.    Respondent
3.    CIT
4.    CIT(Appeals)
5.    DR: ITAT

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