1. On recommendations dated 4-5-2009 made by the Division Bench of this Tribunal. Hon’ble President has constituted this Special Bench. Initially the reference was made for deciding a particular question but pursuant to the request made by both the parties. Hon’ble President referred both the appeals in its entirety to be decided by the Special Bench. That is how we have come to in-seisin of matter.

2. These cross-appeals are directed against the order dated 28-11-2008 passed by learned CIT(A), Chandigarh in the matter of assessment under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) for the assessment year 2004-05. The issue in dispute relates to the determination of Arm’s Length Price under section 92C(2) of the Act.

3. The relevant material facts are like this. The assessee before us is an Indian company which is a fully owned subsidiary of a Switzerland based company by the name of Quark Systems SARL, Switzerland (QSSS). If is a captive unit working exclusively for its parent company. On 1-4-2001, the assessee entered into a service contract with its parent company which, inter alia, provided that the assessee will render following technical services to the parent company :

3.1-1 Advisory services in relation to business systems and processes, data processing data integration, system integration, system upgradation, system planning, installation and other modification, network services, add-on systems, off site and on site projects, telecom and electronic communication, facilities management, evaluation, programming, software and system implementations, software development and software services.

3.1-2 Feasibility study for the projects from time to time, including market survey, and preparation of project reports.

3.1-3 Explore for adaptation the requisite local technology, expertise and skill.

3.1-4 Assist in the manufacture, development and modification of Software according to the required standards and technology.

3.1-5 Assist in research and development.

3.1-6 Advise proper marketing, selling and distribution techniques.

3.1-7 Advise introduction of the operation and maintenance system suitable for the computer hardware, machinery to be used in the development/manufacture, to ensure safe and efficient normal life.

3.1-8 Assist and advise appropriate safety measures and appropriate appliances to comply with the statutory requirements and otherwise.

3.1-9 Assist in conducting constant market research and advise change in the designs, or other techniques according to the changed demands of the customers.

4. The parent company is in the business of making specialized software for the Media Companies, which is generally used for layout of news-papers and periodicals. The assessee-company assists the parent company by way of providing help to customers facing technical problems and is a dedicated service provider for the said purpose. In consideration of the services so rendered, the assessee receives a fees computed with reference to associated costs plus 13.5 per cent mark up thereon, it may be stated that in the original agreement, mark up as only 10 per cent but with effect from 1-9-2001, the mark up was increased to 13.5 per cent.

5. In the course of assessment proceedings, a reference was made by the Transfer Pricing Officer (TPO) for determination of arm’s length price in respect of the international transactions with the assessee entered into with its parent company. The TPO took note of the fact that the assessee has employed Transactions Net Margin Method for the purpose of computing arm’s length price and did not dispute the same. He, however, noted that the one of the comparable independent comparable selected by the assessee included in the computation of arm’s length price is M/s. Imercius Technologies India Pvt. Ltd., which shows a net loss at the rate of 73.48 per cent in response to, the Transfer Pricing Officer requiring the assessee to show cause as to why this comparable not be excluded, on t