M/s Smart Analyst India Pvt. Ltd., Gurgaon V. ACIT, New Delhi

CO 181/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4340 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-10-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 06-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MAIMUN ALAN
• Keywords: Transfer pricing; Rectification of order; International transaction; Wholly owned subsidiary
• Section: 115JB; 250; 201; 64; 43; 48; 13; 22; 92CA; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.3779/DEL/2017 (ASSESSMENT YEAR-2011-12) ASST. CIT, CIRCLE-24(1), NEW, DELHI. VS. M/S SMART ANALYST INDIA PVT. LTD. 14 TH FLOOR, TOWER- D, DLF PHASE- III, GURGAON, HARYANA-122002 PAN: AAICS 6117P (APPELLANT) (RESPONDENT) ITA NO.3989/DEL/2017 (ASSESSMENT YEAR-2011-12) M/S SMART ANALYST INDIA PRIVATE LIMITED. 90/31B 1 ST FLOOR, MALVIYA NAGAR, NEW DELHI-110017 PAN: AAICS 6117P VS. DY. CIT CIRCLE-24(1) NEW DELHI. (APPELLANT) (RESPONDENT) C.O. NO.181/DEL/2017 ARISING OUT OF ITA NO.3779/DEL/2017 (ASSESSMENT YEAR-2011-12) ASST. CIT, CIRCLE-24(1), NEW DELHI. VS. M/S SMART ANALYST INDIA PRIVATE LIMITED. 90/31B 1 ST FLOOR, MALVIYA NAGAR, NEW DELHI-110017 PAN: AAICS 6117P (APPELLANT) (RESPONDENT) 2 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 ITA NO.2745/DEL/2018 (ASSESSMENT YEAR-2012-13) M/S SMAR T ANALYST INDIA PRIVATE LIMITED 90/31B 1 ST FLOOR, MALVIYA NAGAR, NEW DELHI-110017 PAN: AAICS 6117P VS. ASST . CIT CIRCLE-24(1) NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. RAHUL YADAV, ADV. SH. SUYASH SINHA, ADV. RESPONDENT BY MS. MAIMUN ALAN, SR.DR DATE OF HEARING 16.10.2020 DATE OF PRONOUNCEMENT 27.10.2020 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: ITA NO. 3779/DEL/2017 IS DEPARTMENTS APPEAL PREFER RED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-44, NEW DELHI {(CIT (A)} VIDE ORDER DATED 22.12.2016 WHEREAS ITA NO.3989/DEL/2017 IS THE ASSESSEES CROSS APPEAL AGAINST THE SAID ORDER AND CROSS OBJECTION NO.181/D EL/2017 IS PREFERRED BY THE ASSESSEE IN SUPPORT OF THE ORDER O F LD. CIT (A). THESE TWO APPEALS AND THE CROSS OBJECTION PERTAINS T O ASSESSMENT YEAR: 2011-12 AND ITA NO.2745/DEL/2018 IS PREFERRED BY THE 3 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 ASSESSEE AGAINST ORDER DATED 31.01.2018 PASSED BY T HE LD. CIT (A)- 44, NEW DELHI FOR ASSESSMENT YEAR: 2012-13. THE THRE E APPEALS AND THE CROSS OBJECTION WERE HEARD TOGETHER AND THEY ARE BEING DISPOSED THROUGH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIAN COMPANY AND DURING THE TWO YEARS UNDER CONSID ERATION IT WAS A WHOLLY OWNED SUBSIDIARY OF SMART ANALYST INC., USA (SA INC.). AS PER THE RECORDS, THE ASSESSEE IS BACK EN D CAPTIVE-SERVICE PROVIDER TO SMART ANALYST INC. AND RENDERS BACK OFF ICE RESEARCH SUPPORT SERVICES FOR THE CLIENT ENGAGEMENTS OWNED B Y SMART ANALYST INC. THE SERVICES PROVIDED ARE IN THE NATUR E OF ITES/BPO SERVICES AND INCLUDE SERVICES SUCH AS ORGANIZING TH E DATA INTO A CONVENIENT AND NAVIGATIONAL FORMAT, DISTILLING AND SYNTHESIS OF INFORMATION INTO USER FRIENDLY FORMATS, DEVELOPING BRIEFS FROM ONLINE DATABASES AND PUBLIC DOMAIN INTERNET, AND RE LATED SUPPORT SERVICES TO SMART ANALYST INC. THE SERVICES ALSO IN CLUDE ADDRESSING QUERIES RAISED BY SMART ANALYST INC., ANALYZING DAT A AND STATISTICS, REVIEW OF KEY PLAYERS, COMPARISON OF BUSINESS AND PR ODUCT STRATEGIES, PREPARING BRIEFING REPORTS FOR BUSINESS DECISION SUPPORT 4 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 AND PERIODIC UPDATES TO SMART ANALYST INC. THE PROV ISION OF SERVICES BY THE ASSESSEE IS PURSUANT TO A SERVICE A GREEMENT DATED 31.05.2010 EFFECTIVE FROM 01.04.2009 FOR BOTH THE A SSESSMENT YEARS UNDER CONSIDERATION. IN VIEW OF ITS SERVICES T HE ASSESSEE IS REMUNERATED AT COST PLUS MARK-UP OF 15%. THE SERVIC ES PROVIDED BY THE ASSESSEE AS PER THE FUNCTIONAL ANALYSIS ARE AS UNDER: ORGANIZING THE DATA INTO A CONVENIENT AND NAVIGATIO NAL FORMAT; DISTILLING AND SYNTHESIS OF INFORMATION INTO USER F RIENDLY FORMATS; DEVELOPING BRIEFS FROM ONLINE DATABASES AND PUBLIC DOMAIN INTERNET; DEVELOPING CHARTS/TABLES AND OTHER GRAPHICS FROM TH E DATA AFTER ANALYSIS; ASSISTING IN DEVELOPING FOCUSED INTELLIGENCE BRIEFI NG; ASSISTING IN DEVELOPING VARIETY OF REPORTS, MODELS AND DATABASES; 2.1 FOR ASSESSMENT YEAR: 2011-12, THE ASSESSEE FIL ED ITS RETURN OF INCOME DECLARING AN INCOME OF RS.11,43,60 8/- UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 (HERE INAFTER CALLED AS THE ACT) AND OF RS.1,58,38,247/- UNDER THE PROVIS IONS OF SECTION 115JB OF THE ACT. THE RETURN OF INCOME WAS REVISED T HE DECLARING 5 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 THE SAME FIGURES OF INCOME. THE CASE WAS SELECTED FO R SCRUTINY UNDER CASS. SINCE THE ASSESSEE HAD ENTERED INTO INT ERNATIONAL TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION, A REFERENCE U/S 92CA (1) OF THE ACT WAS MADE BY THE ASSESSING OFFICE R (AO) TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF THE FOLLOWING INTERNATIO NAL TRANSACTIONS: INTERNATIONAL TRANSACTION VALUE (RS. IN CRORES) METHOD ARMS LENGTH RESULTS (AS PER TRANSFER PRICING DOCUMENTS PROVISION OF BACK OFFICE RESEARCH SUPPORT SERVICES 13.4 TRANSACTIONAL NET MARGIN METHOD (TNMM) - NET PROFIT MARGIN BASED ON COSTS (NCP), BEING OP/OC FOR 6 COMPARABLES:6.65% -PLI OF ASSESSEE 14.81% RECOVERY OF COST INCURRED TOWARDS MAINTAINING EXTRA FLOOR AREA 0.55 COST - TO COST N.A. REIMBURSEMENT OF EXPENSES (RECEIVED/RECEIVABLE) 0.05 C OST - TO - COST N.A. 2.2 THE ASSESSEE SELECTED SIX COMPARABLES TO BENC HMARK ITS TRANSACTION WITH RESPECT TO ITES/BPO SERVICES WITH AR ITHMETIC MEAN AVERAGE OF 6.65% WHEREAS THE MARGIN EARNED BY THE AS SESSEE WAS SHOWN AT 14.81%. SINCE THE MARGIN EARNED BY THE ASSE SSEE 6 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 COMPANY WAS HIGHER THAN THE AVERAGE MARGIN OF THE S IX COMPARABLES, THE ASSESSEE DECLARED THAT THE TRANSAC TION OF PROVISION OF ITES/BPO SERVICES TO SMART ANALYST INC . WAS AT ARMS LENGTH. THE FOLLOWING CHART DEPICTS COMPARABLES SELE CTED BY THE ASSESSEE, THEIR MARGINS AND THE MARGIN EARNED BY TH E ASSESSEE: S. NO. NAME OF THE COMPANY UNADJUSTED 3 YEARS AVERAGE (OP/OC) 1. DATAMATICS FINANCIAL SERVICES LTD. - 2.61% 2. CALIBER POINT BUSINESS SOLUTION LTD. 21.65% 3. COSMIC GLOBAL LTD. 24.79 4. INFORMED TECHNOLOGIES INDIA LIMITED 19.87% 5. E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. 9.14% 6. R SYSTEMS INTERNATIONAL LIMITED - 6.61% AVERAGE [ARITHMETIC MEAN] 6.65% OP/OC MARGIN EARNED BY ASSESSEE 14.81 % 2.3 AS PER THE TRANSFER PRICING STUDY (TP STUDY ) OF THE ASSESSEE, THE ASSESSEE WAS PERFORMING LOW END BACK OFFICE RESEARCH SUPPORT SERVICES FOR SMART ANALYST INC. AN D IT BORE VERY LIMITED RISK IN CONNECTION WITH THE SAME. HOWEVER, T HE TPO WAS OF THE OPINION THAT THE ASSESSEE WAS ENGAGED IN PRO VIDING SERVICES THAT WERE NOT MERELY ROUTINE SERVICES BUT ALSO PROVI DED A WHOLE 7 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 RANGE OF IT ENABLED SERVICES TO CARRY OUT THE MAIN WORK OF ITS ASSOCIATED ENTERPRISES (AE). THE TPO PROCEEDED TO R EJECT 5 OUT OF 6 COMPARABLES AND RETAINED ONLY E4E HEALTH CARE BUSIN ESS SERVICES PVT. LTD. OUT OF THE ASSESSEES SIX COMPARABLES AND INCLUDED 8 ADDITIONAL COMPARABLE COMPANIES BASED ON A FRESH SE ARCH. ORDER U/S 92CA(3) OF THE ACT WAS PASSED BY THE TPO PROPOSI NG TRANSFER PRICING ADJUSTMENT OF RS.2,10,42,834/-. THIS ADJUST MENT WAS SUBSEQUENTLY REVISED TO RS.1,88,99,953/- BY PASSING A RECTIFICATION ORDER U/S 154 OF THE ACT ON ACCOUNT OF CERTAIN ERRO RS APPARENT FROM THE RECORD. THEREAFTER, THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER INCORPORATING THIS TRANSFER PRICIN G ADJUSTMENT. 2.4 AGGRIEVED, THE ASSESSEE APPROACHED T HE LD. FIRST APPELLATE AUTHORITY WHO WAS PLEASED TO CONFIRM THE TR ANSFER PRICING ADJUSTMENT IN PRINCIPLE BUT GRANTED PARTIAL RELIEF IN TERMS OF THE FOLLOWING DIRECTIONS: TO EXCLUDE COMPARABLE COMPANIES, VIZ. E-CLERX SERVI CES LTD., ICRA TECHNO ANALYTICS LTD. AND INFOSYS BPO LT D. FROM THE FINAL SET OF COMPARABLES. 8 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 TO INCLUDE ONLY THE HEALTHCARE SEGMENT OF ACROPETAL TECHNOLOGY LTD. (AND NOT ENGINEERING DESIGN SERVICE S SEGMENT) IN THE FINAL SET OF COMPARABLES. 2.5 THE TPO PASSED ORDER DATED 23.06.2017 GI VING EFFECT TO THE FIRST APPELLATE AUTHORITYS ORDER AND COMPUTING THE PLI (OP/OC) MARGIN OF THE REMAINING COMPARABLES AS UNDER: S. NO. NAME OF THE COMPANY PLI% (AFTER WORKING CAPITAL ADJUSTMENT) 1. ACCENTIA TECHNOLOGY LTD. 27.93 2. ACROPETAL TECHNOLOGY LTD. (SEGMENTAL) 13.56 3. E4E HEALTH C ARE BUSINESS SERVICES PVT. LTD. 11 . 30 4. JINDAL INTELLICOM LTD. 16.61 5. MASTIFF TECH PVT. LTD. 20.25 6. TCS SYSTEMS INTERNATIONAL LIMITED 71.44 7 . R SYSTEMS INTERNATIONAL LIMITED - 3 . 80 ARITHMETIC MEAN 22.47 2.5.1 THUS THE TRANSFER PRICING ADJUSTMENT WAS REV ISED TO RS.1,06,06,685/-. 2.6 NOW THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT IN ITA NO.3779/DEL/2017 BY RAISING THE FOLLOWING GROUND S OF APPEAL: 9 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 1. 'WHETHER LD. CIT (A] WAS JUSTIFIED TO DIRECT THE TPO FOR INCLUSION OF ACROPETAL TECHNOLOGY LTD. AS COMPARABLE WITH HEALTH CARE SEGMENT ONLY DISREGARDING HIS OWN DECISION IN THE CASE. M/S SYNOPSIS INDIA LTD. (ITA NO.41/2016-17(CIT(A)- 44) FOR THE SAME ASSESSMENT YEAR I.E. AY 2011- 12.' 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) WAS JUSTIFIED TO DIRECT THE TPO FOR EXCLUSION OF M/S ECLERX SERVICES LTD. AS COMPARABLE WHEN THE ASSESSEE AND M/S ECLERX SERVICES LTD. BOTH ARE IN SAME ITES SEGMENT?' 3. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) WAS JUSTIFIED TO DIRECT THE TPO FOR EXCLUSION OF M/S ICRA TECHNO ANALYTICS LTD. AS COMPARABLE WHEN THE ASSESSEE AND M/S ICRA TECHNO ANALYTICS LTD. BOTH ARE IN SAME ITES SEGMENT?' 4. 'WHETHER LD. CIT(A) WAS JUSTIFIED ON THE FACTS AND IN LAW BY EXCLUDING INFOSYS LTD. FROM THE FINAL LIST OF COMPARABLES BY WRONGLY RELYING ON OTHER CASES, WHEN THE FACTS AND CIRCUMSTANCES ARE TOTALLY DIFFERENT?' 5. 'THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY OF THE GROUND(S) OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL.' 2.7 THE ASSESSE HAS ALSO FILED CROSS OBJECTIO NS BEARING C.O. NO.181/DEL/2017 AND THE GROUNDS RAISED IN THE MEMORANDUM OF CROSS OBJECTIONS ARE AS UNDER: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE RESPONDENT COMPANY RESPECTFULLY CRAVES TO PREFER A MEMORANDUM OF CROSS-OBJECTIONS BEFORE YOUR LORDSHIP S 10 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 AGAINST THE APPEAL BY THE APPELLANT ON THE FOLLOWIN G GROUNDS. CORRECT INCLUSION OF CERTAIN COMPANIES AS COMPARABL E 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT (APPEALS) WAS JUSTIFIED BY CORRECTLY INCLUDING 'AEROPETAL TECHNOLOGY LIMITED' AS COMPARABLE, IN TH E FINAL SET OF COMPARABLES. CORRECT EXCLUSION OF CERTAIN COMPANIES AS COMPARABL E 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT (APPEALS) WAS JUSTIFIED BY CORRECTLY EXCLUDING 'ECLERX SERVICES LIMITED' AS COMPARABLE, IN THE FINAL SET O F COMPARABLES. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE L EARNED CIT (APPEALS) WAS JUSTIFIED BY CORRECTLY EXCLUDING 'ICRA TECHNO ANALYTICS LIMITED' AS COMPARABLE, IN THE FIN AL SET OF COMPARABLES. 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT (APPEALS) WAS JUSTIFIED BY CORRECTLY EXCLUDING 'INFOSYS LIMITED' AS COMPARABLE, IN THE FINAL SET O F COMPARABLES. GENERAL 5. THE ABOVE GROUNDS OF CROSS-OBJECTIONS ARE WITHOUT PREJUDICE TO EACH OTHER AND THE RESPONDENT (CROSS- OBJECTOR) CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, S UBSTITUTE OR AMEND THE ABOVE GROUNDS OF CROSS-OBJECTIONS, AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL . 2.8 THE ASSESSEES CROSS APPEAL FOR ASSESSME NT YEAR 2011-2012 IS CAPTIONED ITA NO.3989/DEL/2017 AND TH E GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 11 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT COMPANY RESPECTFULLY CRAVES TO PREFER AN APPEAL BEFORE YOUR LORDSHIPS AGAINST THE APPELLATE ORDER I SSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 44, NEW DELHI (HEREINAFTER REFERRED TO AS THE 'CIT - APPEALS') UN DER SECTION 250 OF THE INCOME-TAX ACT, 1961 ('THE ACT') ON THE FOLLOWING GROUNDS: NO INTENTION OF REDUCING TAX INCIDENCE IN INDIA 1. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN UPHOLDING THE ADJUSTMENT TO THE VALUE OF THE INTERNATIONAL TRANSACTION MADE BY AO/TPO WITHOUT ESTABLISHING THAT THERE WAS ANY INTENTION OF REDUCI NG TAX INCIDENCE IN INDIA. ERRONEOUS APPLICATION OF 'TURNOVER FILTER' 2. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN NOT APPLYING THE TURNOVER FILTER CORRECTLY A ND THEREBY THE COMPANIES WITH HUGE TURNOVER HAVE BEEN INCORRECTLY ACCEPTED IN THE FINAL SET OF COMPARABLE S. WRONGLY CONSIDERING 'EXCHANGE FLUCTUATION' AS OPERA TIONAL 3. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN UPHOLDING THE CONTENTION OF THE AO/TPO BY CONSIDERING THE 'EXCHANGE FLUCTUATION LOSS/GAIN' AS OPERATIONAL ITEM. ERRONEOUS EXCLUSION OF CERTAIN COMPANIES AS COMPARA BLE 4. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY INCLUD ING 'ACCENTIA TECHNOLOGIES LIMITED 7 , IN THE FINAL SET OF COMPARABLES. 5. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY INCLUD ING 'MASTIFF TECH PRIVATE LIMITED 7 , IN THE FINAL SET OF COMPARABLES. 12 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 6. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY INCLUD ING 7 TCS E-SERVE LIMITED 7 , IN THE FINAL SET OF COMPARABLES. ERRONEOUS EXCLUSION OF CERTAIN COMPANIES AS COMPARA BLE 7. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY NOT INCLUDING 'CALIBER POINT BUSINESS SOLUTION LIMITED 7 , IN THE FINAL SET OF COMPARABLES. 8. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY NOT INCLUDING 'COSMIC GLOBAL LIMITED 7 , IN THE FINAL SET OF COMPARABLES. 9. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY NOT INCLUDING 'INFORMED TECHNOLOGIES INDIA LIMITED 7 , IN THE FINAL SET OF COMPARABLES. NOT GRANTING OF RISK ADJUSTMENT 10. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY NOT ALLOWING THE RISK ADJUSTMENT. GENERAL 11. THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE T O EACH OTHER AND THE APPELLANT CRAVES LEAVE TO ADD, A LTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS O F APPEAL, AT ANY TIME BEFORE OR AT THE TIME OF HEARIN G OF THE APPEAL. 3.0 THE LD. AUTHORIZED REPRESENTATIVE (AR) S UBMITTED THAT GROUND NO. 3 OF THE ASSESSEES APPEAL CHALLENG ED THE ACTION OF THE LD. CIT (A) IN CONSIDERING THE FOREIGN EXCHANG E FLUCTUATION 13 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 GAIN/LOSS AS NON-OPERATING. IT WAS SUBMITTED THAT FOREIGN EXCHANGE GAINS OR LOSS ARISING DIRECTLY FROM THE NORMAL COUR SE OF BUSINESS TRANSACTION OF IMPORT/EXPORT SHOULD BE TAKEN AS OPE RATING INCOME/EXPENDITURE BUT THE TPO HAD ERRONEOUSLY CONS IDERED THE SAME AS NON-OPERATING ITEM RESULTING IN CHANGING TH E PLI OF THE ASSESSEE FROM 14.81% TO 9.59%. IT WAS ALSO SUBMITTED THAT THE TPO HAD ALSO PLACED RELIANCE ON THE SAFE HARBOR RULES W HILE HOLDING THAT THE FOREIGN EXCHANGE GAIN/LOSS WAS NON-OPERATING. I T WAS ALSO SUBMITTED THAT THE LD. CIT (A) HAD HELD THAT THE DE TERMINATION OF OPERATING REVENUE/EXPENSES SHOULD BE AS PRESCRIBED IN RULE 10TA OF THE INCOME-TAX RULES, 1962 IGNORING THE FACT THA T RULE 10TA WAS EFFECTIVE FROM 18.09.2013 AND WAS NOT APPLICABLE FOR ASST. YEAR 2011-12. IT WAS ALSO SUBMITTED THAT THIS ISSUE WAS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.410/DEL/ 2014 VIDE ORDER DATED 20.02.2015 WHEREIN IT WAS HELD THAT FOREI GN EXCHANGE FLUCTUATION GAIN/LOSS WAS OPERATIONAL ITEM. 3.1 WITH RESPECT GROUND NO.4 OF THE ASSESSEE S APPEAL CHALLENGING THE INCLUSION OF ACCENTIA TECHNOLOGY LT D. (ACCENTIA), 14 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 THE LD. AR SUBMITTED THAT THE TPO CONSIDERED THIS C OMPANY AS A COMPARABLE ERRONEOUSLY HOLDING THAT THIS COMPANY WAS NOT ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND THE ONLY ACT IVITIES DURING THE YEAR WERE MEDICAL TRANSCRIPTION, BILLING AN D CODING WHICH WERE ITES/BPO ACTIVITIES. THE LD. AR SUBMITTED THAT THIS WAS AN INCORRECT OBSERVATION BY THE TPO. THE LD. AR ALSO S UBMITTED THAT THE TPO WRONGLY RECORDED IN HIS ORDER THAT THIS COMP ANY WAS SELECTED BY THE ASSESSEE AS A COMPARABLE WHEREAS THI S COMPANY HAD BEEN REJECTED BY THE ASSESSEE ON ACCOUNT OF FUN CTIONAL DISSIMILARITY. THE LD. AR FURTHER SUBMITTED THAT IT WAS EVIDENT FROM THE ANNUAL REPORT OF ACCENTIA TECHNOLOGY LTD. THAT THIS COMPANY WAS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AS IT RE NDERED KPO SERVICES IN THE HEALTHCARE SECTOR BY WAY OF OFFERING SOFTWARE AS A SERVICE (SAAS) AND IS ALSO ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS. IT WAS FURTHER SUBMITTED THAT ON T HE OTHER HAND THE ASSESSEE IS ENGAGED IN PROVIDING LOW-END ROUTIN E ITES SERVICES WHEREAS THE ACCENTIA OFFERED COMPLETE HEALTHCARE DOC UMENTATION AS WELL AS RECEIVABLES MANAGEMENT SERVICES INCLUDING IN STALLATION AND MAINTENANCE OF ALL SOFTWARE, HARDWARE AND BANDWIDTH 15 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 INFRASTRUCTURE, WHICH WERE IN THE NATURE OF SOFTWARE SUPPORT SERVICES AND NOT ITES. IT IS ALSO ENGAGED IN DEVELO PMENT AND SALE OF SOFTWARE PRODUCTS. IT WAS ALSO SUBMITTED THAT SEGMENT AL INFORMATION WAS NOT AVAILABLE IN RESPECT OF 4 STREAM S OF REVENUE OF THIS COMPANY VIZ. MEDICAL TRANSPORTATION, BILLING & COLLECTION, CODING AND FIXED DEPOSITS. IT WAS ALSO HIGHLIGHTED T HAT THIS COMPANY HAD ACQUIRED 16% STAKE IN SOFTWARE DEVELOPME NT COMPANY, STRATEGIC TANGENT CORPORATION BUT THE LD. CIT (A) HAD REJECTED THE ASSESSEES ARGUMENTS AND HAD INCLUDED THIS COMPANY ON THE GROUND THAT 16% STAKE ACQUISITION WAS NOT AN EXTRAORDINARY EVENT BUT IN SUBSEQUENT ASSESSMENT YEAR: 2012-13, T HE LD. CIT (A) HIMSELF HAD EXCLUDED ACCENTIA ON THE GROUND THAT TH ERE WAS AN EXTRAORDINARY EVENT SINCE IT HAD ACQUIRED 17.85% IN ACCENTIA PHYSICIAN SERVICES. THE LD. AR ALSO PLACED HIS RELI ANCE ON NUMEROUS CASE LAWS WHEREIN ACCENTIA HAD BEEN EXCLUDED ON GROUND OF FUNCTIONAL DISSIMILARITY. 3.2 WITH RESPECT TO GROUND NO.5 CHALLENGING THE INCLUSION OF THE COMPANY MASTIF TECH PVT. LTD. (MASTIF), IT WAS SUBMITTED THAT THE ORDER OF THE TPO AND THE LD. CIT (A) WERE NON-S PEAKING IN AS 16 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 MUCH AS THE TPO HAD NOT DEALT WITH THE OBJECTION OF THE ASSESSEE AGAINST INCLUSION OF THIS COMPANY. IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE THAT THIS COMPANY WAS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE AS THIS COMPANY WAS AN E MERGING CONSULTING SERVICE PROVIDER IN CONSUMER INTERNET PR ODUCT DOMAIN. IT WAS SUBMITTED THAT THIS COMPANY WAS A COMPLETE ONLINE MEDIA SOLUTION PROVIDER PROVIDING END-TO-END SERVICES AND WAS ENGAGED IN ONLINE CONTENT SHARING, CONTENT DELIVERING AND SOCI AL NETWORKING DOMAIN AS COMPARED TO THE ASSESSEES ACTIVITY OF PR OVIDING LOW-END ITES SERVICES. IT WAS ALSO SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, 100% OF THE SHARES OF THIS COMPANY WE RE SOLD TO TRICOM INDIA LTD. ON 13.08.2010 RESULTING IN CHANGE IN MANAGEMENT OF THE COMPANY. IT WAS ALSO SUBMITTED THA T THIS COMPANY HAD BEEN EXCLUDED BY THE ITAT HYDRABAD BENC H FOR THE SAME ASST. YEAR ON ACCOUNT OF HUGE INFLUENCE IN PRO FIT MARGINS DUE TO UNCERTAINTY OF RECEIVABLES IN THE CASE OF S&P CAPITAL IQ INDIA PVT. LTD. [TS-564-ITAT-2016 (HYD)-TP]. 3.3 WITH RESPECT OF GROUND NO.2 & 6, THE LD. AR SUBMITTED THAT THESE GROUNDS CHALLENGED THE ERRONEO US APPLICATION 17 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 OF TURNOVER FILTER AND INCLUSION OF TCS E-SERVE L IMITED (TCS) RESPECTIVELY. IT WAS SUBMITTED THAT TCS E-SERVE LIMI TED WAS INCLUDED ERRONEOUSLY IN THE FINAL SET BY THE TPO ON THE REASONING THAT THE SERVICE FILTER TURNOVER DOES NOT HAVE A BE ARING ON THE MARGINS. THE LD. AR SUBMITTED THAT TCS E-SERVE LIMI TEDS TURNOVER WAS MORE THAN 107 TIMES OF THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT THIS COMPANY WAS NOT COMPARABLE TO TH E ASSESSEE COMPANY BECAUSE THIS COMPANY WAS FUNCTIONALLY DIFFER ENT AS IT WAS ENGAGED IN PROVIDING TECHNICAL SERVICES WHICH INCLUD ED SOFTWARE TESTING, VERIFICATION AND VALIDATION, DATA CENTRE M ANAGEMENT ACTIVITIES, ETC. IN ADDITION TO ITES. IT WAS ALSO S UBMITTED THAT THE LD. CIT (A) HAD HELD THAT THIS COMPANY WAS TO BE IN CLUDED AS A COMPARABLE ON THE GROUND THAT THIS COMPANY HAD SING LE SEGMENT OF HIGH END ITES/BPO SERVICES AND WAS FUNCTIONALLY COMP ARABLE TO THE ASSESSEE WHICH WAS FACTUALLY INCORRECT. THE LD. A R ALSO POINTED OUT THAT ALTHOUGH THE LD. CIT (A) HAD HELD THAT THE ASSESSEE PROVIDED HIGH END SERVICES, HE HAD REJECTED E-CLERX WHICH ALSO PROVIDED HIGH END SERVICES AND HENCE WAS NOT COMPARA BLE TO THE ASSESSEE. THE LD. AR ALSO SUBMITTED THAT THE SEGMEN TAL DATA 18 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 BETWEEN ITES/SOFTWARE DEVELOPMENT SERVICES WAS NOT A VAILABLE WITH RESPECT TO THE COMPANY TCS E-SERVICES LTD. IT WA S SUBMITTED THAT THE PRESENCE OF BRAND VALUE OF THE TATA BRAND IN THE CASE OF TCS E-SERVE LIMITED INFLUENCED THE PRICING POLICY D IRECTLY IMPACTING THE MARGINS EARNED BY TCS WHICH PROVIDED SUPPORT IN TERMS OF LARGE SCALE OPERATIONS AND CLIENTELE. IT WAS SUBMIT TED THAT THIS COMPANY WAS TAKEN OVER BY TCS LTD IN THIS YEAR AND, THUS, THERE WAS AN ABNORMAL PROFITABILITY TREND POST ACQUISITION . THE LD. AR PLACED RELIANCE ON NUMEROUS JUDICIAL PRECEDENTS FRO M THE ITAT WHEREIN TCS E-SERVE LTD. HAD BEEN DIRECTED TO BE EXC LUDED FROM THE FINAL SET OF COMPARABLES. 3.4 WITH RESPECT OF GROUND NO.7 CHALLENGING TH E EXCLUSION OF CALIBER POINT BUSINESS SOLUTIONS LIMITED (CALIB ER), IT WAS SUBMITTED BY THE LD. AR THAT THE TPO REJECTED THIS COMPANY ON THE GROUND OF DIFFERENT FINANCIAL YEAR ENDING ALTHOUGH THE TPO HAD DISPUTED THE COMPARABLE ON THE BASIS OF FUNCTIONAL COMPARABILITY. IT WAS SUBMITTED THAT THE QUARTERLY FINANCIAL STATEMENT S FOR MARCH, 31, 2011 WERE AVAILABLE ON COMPANYS WEBSITE AND, T HEREFORE, FUNCTIONALLY COMPARABLE COMPANY SHOULD NOT BE REJEC TED MERELY ON 19 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 THE GROUND THAT IT HAD A DIFFERENT FINANCIAL YEAR E NDING. RELIANCE WAS PLACED ON NUMEROUS CASE LAWS WHEREIN THE TRIBUNAL HAD DIRECTED THAT SUCH COMPANIES NEED TO BE INCLUDED WHI CH WERE FUNCTIONALLY SIMILAR ALTHOUGH HAVING A DIFFERENT FI NANCIAL YEAR ENDING IF THE QUARTERLY DATA WAS AVAILABLE. 3.5 WITH RESPECT TO GROUND NO.8 CHALLENGING THE EXCLUSION OF COSMIC GLOBAL LIMITED (COSMIC), IT WAS SUBMITTE D BY THE LD. AR THAT THE TPO HAD EXCLUDED THIS COMPANY ON THE GROUN D THAT IT FAILED EXPORT TURNOVER FILTER OF 75% BUT THE TPO HA D NOT RAISED ANY OBJECTION REGARDING THE FUNCTIONALLY SIMILARITY. IT WAS ALSO SUBMITTED THAT THERE WAS NO CONSISTENCY IN THE APPROACH OF THE TPO DURING DIFFERENT YEARS IN THE ASSESSEES OWN CASE AS IN ASS T. YEAR 2009-10 THE TPO HAD APPLIED AN EXPORT TURNOVER FILTER OF 25 % WHEREAS IN THIS YEAR 75% EXPORT TURNOVER FILTER HAD BEEN APPLI ED. IT WAS ALSO SUBMITTED THAT THE ITAT, IN ASSESSEES OWN CASE FOR ASST. YEAR 2009-10, HAD HELD THAT THE EXPORT TURNOVER FILTER O F 25% WAS NOT AN APPROPRIATE FILTER. IT WAS ALSO SUBMITTED THAT THE A SSESSEE HAS USED FOREIGN EXCHANGE FILTER WHICH, WHICH AUTOMATICALLY EL IMINATES ALL COMPANIES NOT HAVING FOREIGN EXCHANGE EARNINGS. 20 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 3.6 WITH RESPECT TO GROUND NO.9, IT WAS SUBMITTE D THAT THIS GROUND CHALLENGED THE EXCLUSION OF THE COMPANY INFO RMED TECHNOLOGIES INDIA LIMITED (ITIL). THE LD. AR SUB MITTED THAT THE TPO HAD EXCLUDED THIS COMPANY AND THE LD. CIT (A) H AD AFFIRMED THE ACTION OF THE TPO BY ERRONEOUSLY APPLYING A TUR NOVER FILTER OF RS. 5 CRORES. IT WAS SUBMITTED THAT THAT THE TPO AND THE LD. CIT (A) HAVE NOT DISPUTED THAT THIS COMPANY IS OTHERWISE COM PARABLE TO THE ASSESSEE COMPANY BECAUSE THIS COMPANY IS ALSO OPERA TING AS A BACK-END ITES PROVIDER IN THE BPO SEGMENT. THE LD. AR ALSO SUBMITTED THAT IN ASSESSEES OWN CASE FOR ASST. YEAR 2009-10, THE TURNOVER FILTER OF RS. 5 CRORES HAD BEEN REJECTED B Y THE ITAT. 3.7 WITH RESPECT TO GROUND NO.10 CHALLENGING T HE NON- PROVIDING OF RISK ADJUSTMENT, THE LD. AR SUBMITTED THAT THIS GROUND WAS NOT BEING PRESSED. 3.8 WITH RESPECT TO GROUND NOS.1 & 11, THE LD. AR SUBMITTED THAT THEY WERE GENERAL IN NATURE AND DID NOT REQUIRE ANY SPECIFIC ARGUMENT OR ADJUDICATION. 21 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 4.0 IN RESPONSE TO THE EXTENSIVE ARGUMENTS OF THE LD. AR, THE LD. SR. DEPARTMENTAL REPRESENTATIVE (DR) PLACED EXTENSIVE RELIANCE ON THE ORDERS OF THE LD. CIT (A) AND THE T PO. SHE READ OUT FROM THE RELEVANT PARAGRAPHS OF THE ASSESSMENT ORDE R, THE TRANSFER PRICING ORDER AND THE ORDER OF THE LD. CIT (A) AND SUBMITTED THAT THERE WAS NO ERROR IN ORDERS OF THE AUTHORITIES BELO W IN RESPECT OF INCLUSION/EXCLUSION OF THE COMPARABLES AS WELL AS I N APPLICATION OF FILTERS AND NOT IN CONSIDERING THE FOREIGN EXCHANGE LOSS/GAIN AS OPERATIONAL. 5.0 WITH RESPECT TO THE DEPARTMENTS APPEAL BEAR ING ITA NO.3779/DEL/2017, THE LD. DR SUBMITTED THAT THE DEP ARTMENTS APPEAL CHALLENGED THE ACTION OF THE LD. CIT (A) IN DIRECTING THE TPO FOR INCLUDING THE COMPANY ACROPETAL TECHNOLOGIES LT D. (ACROPETAL) AS A COMPARABLE WITH ONLY THE HEALTHCARE SEGMENT. IT WAS ALSO SUBMITTED THAT THE DEPARTMENT WAS ALSO CHALLENGING THE ACTION OF THE LD. CIT (A) IN DIRECTING THE TPO FOR EXCLUDING M/S E-CLERX SERVICES LTD. AS A COMPARABLE WHEN THE ASSESSEE AS W ELL AS M/S E- CLERX SERVICES LTD WERE BOTH IN THE SAME ITES SEGME NT. IT WAS ALSO SUBMITTED THAT THE DEPARTMENT WAS CHALLENGING THE AC TION OF THE 22 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 LD. CIT (A) IN DIRECTING THE TPO FOR EXCLUSION OF M /S ICPA AS A COMPARABLE WHEN THE ASSESSEE AS WELL THIS COMPANY WERE BOTH IN THE SAME ITES SEGMENT. THE LD. SR. DR ALSO SUBMITTE D THAT THE LD. CIT (A) HAD ERRED IN DIRECTING THE EXCLUSION OF INF OSYS BPO LTD. FROM THE FINAL LIST OF COMPARABLES BY WRONGLY PLACIN G RELIANCE OF THOSE CASES WHERE THE FACTS AND CIRCUMSTANCES WERE T OTALLY DIFFERENT. THE LD. SR. DR PLACED EXTENSIVE RELIANCE ON THE ORDER OF THE TPO/ASSESSING OFFICER AND SUBMITTED THAT THE LD . CIT (A) HAD WRONGLY DIRECTED INCLUSION OF M/S ICRA TECHNO ANALYT ICS LTD. WITH HEALTHCARE SEGMENT ONLY AND HAD ERRONEOUSLY DIRECTE D EXCLUSION OF E-CLERX SERVICES LTD. AND IN SUPPORT OF HER CONENTI ON SHE QUOTED FROM THE OBSERVATIONS AND FINDINGS OF THE TPO AND T HE ASSESSING OFFICER AND PRAYED THAT THE ERRORS COMMITTED BY THE LD. CIT (A) BE SET RIGHT. 6.0 IN RESPONSE TO THE ARGUMENTS ADVANCED BY THE LD. SR. DR, THE LD. AR SUBMITTED THAT AS FAR AS THE INC LUSION OF ACROPETAL TECHNOLOGY LTD. CONCERNED, THE TPO HAD CO NSIDERED THE COMPANYS ENGINEERING DESIGN SERVICES (EDS) SEGMEN T AS A COMPARABLE SEGMENT WHEREAS THE LD. CIT (A) HAD CORRE CTLY HELD THAT 23 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 THIS SEGMENT WAS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. IT WAS SUBMITTED THAT ENGINEERING DESIGN SERVICES ARE H IGH-END KPO SERVICES AND INVOLVE RESEARCH AND DEVELOPMENT ACTIV ITIES WHICH RESULTS IN CREATING INTANGIBLES. FOR THIS PROPOSITI ON, THE LD. AR PLACED RELIANCE ON NUMEROUS JUDICIAL PRECEDENTS FRO M THE CO- ORDINATE BENCHES OF THE TRIBUNAL. 6.1 WITH RESPECT TO THE DEPARTMENTS GROUND CHALLENGING THE EXCLUSION OF E-CLERX SERVICE LIMITE D, THE LD. AR ALSO SUBMITTED THAT THIS HAD BEEN ERRONEOUSLY INCLUDED A S A COMPARABLE BY THE TPO ON THE GROUND THAT ONCE A SERVICE FALLS UNDER THE ITES, THERE CANNOT BE ANY FURTHER DIFFERENTIATION BASED O N KPO VS. BPO. IT WAS SUBMITTED THAT THIS COMPANY HAS BEEN CORRECTLY D IRECTED TO BE EXCLUDED AS THIS COMPANY WAS NOT FUNCTIONALLY COMPAR ABLE AS IT PROVIDED SERVICES THROUGH TWO BUSINESS SEGMENTS, FIN ANCIAL SERVICES AND SALES AND MARKETING SERVICES. IT WAS SU BMITTED THAT SEGMENTAL DATA FOR FINANCIAL SERVICES SEGMENT AND M ARKETING SEGMENT WERE NOT AVAILABLE. IT WAS ALSO SUBMITTED TH AT THIS COMPANY WAS ENGAGED IN DATA ANALYTICS AND PROCESS OU TSOURCING, COMPUTER-AIDED DESIGN, ETC. AND AS PER ITS ANNUAL R EPORT IT WAS 24 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 PROVIDING HIGH-END KPO SERVICES. IT WAS ALSO SUBMITT ED THAT THERE WERE EXTRAORDINARY PROFITS EARNED BY THIS COMPANY FR OM ACQUISITIONS IN F.Y.2007-08, 2008-09, 2009-10 & 201 0-11 WHICH WAS ALSO A REASON FOR EXCLUSION. THE LD. AR ALSO HIG HLIGHTED THAT THIS COMPANY HAD BEEN REJECTED IN ASST. YEAR: 2012- 13 BY THE LD. CIT (A) AND THE DEPARTMENT HAD NOT PREFERRED ANY AP PEAL AGAINST SUCH EXCLUSION. THE LD. AR PLACED RELIANCE ON NUMER OUS JUDICIAL PRECEDENTS IN SUPPORT OF HIS CONTENTION THAT THIS C OMPANY HAD BEEN CORRECTLY EXCLUDED. 6.2 WITH RESPECT TO GROUND NO.3 IN THE DEPARTM ENTS APPEAL CHALLENGING THE EXCLUSION OF COMPANY M/S ICR A TECHNO ANALYTICS LTD. (ICRA), THE LD. AR SUBMITTED THAT THIS COMPANY HAD BEEN ERRONEOUSLY INCLUDED BY THE TPO BY HOLDING THA T THIS COMPANY WAS FUNCTIONALLY SIMILAR TO THE ASSESSEE IGNORING TH E ASSESSEES CONTENTION THAT THIS WAS ENGAGED IN SOFTWARE DEVELOPM ENT SERVICES. THE LD. AR SUBMITTED THAT THIS COMPANY CANNOT BE TA KEN AS A COMPARABLE BECAUSE THIS WAS ENGAGED IN SOFTWARE DEVEL OPMENT AS WELL AS IN CONSULTANCY, ENGINEERING SERVICES, WEB DE VELOPMENT AND HOSTING SERVICES, BUSINESS ANALYTICS AND BPO SERVIC ES AND FURTHER 25 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 SEGMENTAL INFORMATION IN RESPECT OF BPO SERVICES WA S NOT SEPARATELY AVAILABLE. IT WAS HIGHLIGHTED THAT THIS COMPANY ALSO DEALS IN PURCHASE AND RE-SALE OF BRANDED COMPUTER SOFTWARE AN D THEREFORE, THIS COMPANY HAD BEEN RIGHTLY EXCLUDED. 6.3 WITH RESPECT TO DEPARTMENTS GROUND NO .4 CHALLENGING THE EXCLUSION INFOSYS BPO LTD. (INFOSY S), IT WAS SUBMITTED THAT THIS HAD BEEN EXCLUDED BY THE TPO ON THE GROUND THAT HIGH TURNOVER AND PRESENCE OF BRAND VALUE DOES NOT AFFECT THE PROFIT MARGIN. IT WAS SUBMITTED THAT THIS COMPANY CA NNOT BE TAKEN AS A COMPARABLE IN VIEW OF THE FACT THAT THIS COMPAN Y HAD A TURNOVER WHICH WAS MORE THAN 87 TIMES OF THE ASSESSE E COMPANY. IT IS ALSO SUBMITTED THAT THIS COMPANY WAS FUNCTIONALL Y NOT COMPARABLE SINCE IT PROVIDED SERVICE IN THE NICHE A REAS AND HAS PRESENCE OF BRAND AND HIGH TURNOVER. IT WAS SUBMITTE D THAT THIS COMPANY IS AN ESTABLISHED MARKET LEADER, ENJOYING H UGE BRAND VALUE WITH HUGE ECONOMIES OF SCALE, DIVERSITY AND GE OGRAPHICAL DISTRIBUTION OF CUSTOMERS. THE LD. AR ALSO HIGHLIGH TED THE FACT THAT THIS COMPANY WAS REJECTED AS A COMPARABLE IN ASST. Y EAR 2012-13 ALSO BY THE LD. CIT (A) AND THE DEPARTMENT HAD NOT FILED ANY APPEAL 26 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 AGAINST SUCH REJECTION. RELIANCE WAS PLACED ON NUME ROUS JUDICIAL PRECEDENTS IN SUPPORT OF THE CONTENTION THAT THIS C OMPANY DESERVES TO BE EXCLUDED. 7.0 WITH RESPECT TO CROSS OBJECTION NO.181/DEL/20 17, THE LD. AR SUBMITTED THAT THE CROSS OBJECTION PREFE RRED BY THE ASSESSEE BROADLY SUPPORTED THE ORDER OF THE LD. CIT (A) AS WAS EVIDENT FROM THE GROUNDS RAISED IN THE MEMORANDUM O F CROSS OBJECTIONS AND, THEREFORE, THE ARGUMENTS ADVANCED B Y THE LD. AR WOULD COVER THE GROUNDS OF CROSS OBJECTIONS ALSO. IT WAS SUBMITTED THAT NO SEPARATE ARGUMENTS WERE REQUIRED TO BE MADE IN THIS REGARD. ITA 2745/DEL/2018: 8.0 THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE S FOR ASST YEAR: 2012-13. 8.1 THE BRIEF FACTS FOR THIS YEAR ARE THAT TH E RETURN OF INCOME WAS FILED DECLARING INCOME AT RS.1,20,55,020/ -. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER AS THE ASSESSE E HAD 27 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 ENTERED INTO INTERNATIONAL TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION. THE FOLLOWING TRANSACTIONS, AMONGST O THERS TRANSACTIONS, WERE ENTERED INTO DURING THE YEAR UND ER CONSIDERATION: INTERNATIO NAL TRANSACTION VALUE (RS.IN CRORES) METHOD ARMS LENGTH RESULT (AS PER TRANSFER PRICING DOCUMENTATION) PROVISION OF BACK OFFICE RESEARCH SUPPORT SERVICE 13.09 TRANSACTIONAL NET MARGIN METHOD (TNMM) - NET PROFIT MARGIN BASED ON COSTS (NCP), BEING OP/OC FOR 6 COMPARABLES: 11.78% -PLI OF ASESSEE:15.40% RECOVERY OF COST INCURRED TOWARDS MAINTAINING EXTRA FLOOR AREA 0.39 COST - TO - COST N.A REIMBURSEMENT OF EXPENSES (RECEIVED/RECEIVABL E) 0.008 COST - TO - COST N.A 8.2 THE FINAL SET OF COMPARABLES OF THE ASSESSEE H AD SIX COMPARABLES AS UNDER: S. NO. NAME OF THE COMPANY UNADJUSTED 3 YEARS AVERAGE MARGIN (OP/OC CURRENT YEAR (OP/OC UPDATED MARGINS VIDE SUBMISSION DATED 21.12.2015 BEFORE TPO 1. INFORMED TECHNOLOGIES INDIA LIMITED 14.14% 6.59% 2. JEEVAN SCIENTIFIC TECHNOLOGY LTD 14.75% 14.64% 3. JINDAL INTELLICOM LIMITED 13.19% 1.72% 28 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 4. COSMIC GLOBAL LTD. 11.52% 10.50% 5. CALIBER POINT BUSINESS SOLUTION LTD. (SEGMENTAL) 16.10% - 4.29% 6. R SYSTEMS INTERNATIONAL LIMITED (SEGMENTAL) - 6.61% 41.53% AVERAGE [ARITHMETIC MEAN] 10.51% 11.78% OP/OC MARGIN EARNED BY SAIPL 15.40% 8.3 THE TPO REJECTED 4 OUT OF 6 COMPARABLES AND INCLUDED CERTAIN ADDITIONAL COMPARABLE COMPANIES BA SED ON HIS OWN QUANTITATIVE FILTER ARRIVING AT A SET OF 11 COMP ARABLES AND PROPOSED A TRANSFER PRICING ADJUSTMENT OF RS.1,36,7 2,619/-. THEREAFTER, AFTER THE PASSING OF THE DRAFT ASSESSME NT ORDER AND THE FINAL ASSESSMENT ORDER, THE ASSESSEE APPROACHED THE LD. FIRST APPELLATE AUTHORITY AND THE LD. CIT (A) DIRECTED TH E TPO TO EXCLUDE THE COMPANIES ACCENTIA TECHNOLOGY LTD., ACROPETAL TECHNOLOGIES LTD, E-CLERX SERVICES LTD., AND INFOSYS BPO LTD., F ROM THE FINAL SET OF COMPARABLES. ACCORDINGLY, THE TPO PASSED ORDER D ATED 03.05.2018 GIVING EFFECT TO THE DIRECTIONS OF THE L D. CIT (A) AND COMPUTED THE MARGINS OF THE REMAINING COMPARABLES A S UNDER: 29 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 S. NO. PARTICULARS ADJUSTED MARGIN (OP/OC)% 1 E4E HEALTHCARE SERVICES PVT. LTD. 17.12 2 INFORMED TECHNOLOGIES INDIA LTD. 23.68 3 R SYSTEM INTERNATIONAL LTD. 2.65 4 MICROGENETIC SYSTEMS LTD. 10.59 5 TCS E - SERVE LTD. 67.91 6 BNR UDYOG LTD. ( MEDICAL TRANSCRIPTION SEGMENT) 34.85 7 JINDAL INTELLICOM 5.46 AVERAGE [ARITHMETIC MEAN] 23.18% 8.3.1 THUS, THE TRANSFER PRICING ADJUSTMENT CAME TO BE REVISED AT RS.88,64,407/-. 8.4 NOW, THE ASSESSEE IS IN APPEAL BEFORE US AND H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: BY RAISING THE FOLLOWING GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT COMPANY RESPECTFULLY CRAVES TO PREFER AN APPEAL BEFORE YOUR LORDSHIPS AGAINST THE APPELLATE ORDER I SSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-44, NEW DE LHI (HEREINAFTER REFERRED TO AS THE 'CIT - APPEALS') UN DER SECTION 250 OF THE INCOME-TAX ACT, 1961 ('THE ACT') ON THE FOLLOWING GROUNDS: NO INTENTION OF REDUCING TAX INCIDENCE IN INDIA 1. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN UPHOLDING THE ADJUSTMENT TO THE VALUE OF THE INTERNATIONAL TRANSACTION MADE BY AO/TPO WITHOUT ESTABLISHING THAT THERE WAS ANY INTENTION OF REDUCI NG TAX INCIDENCE IN INDIA. ERRONEOUS APPLICATION OF 'TURNOVER FILTER' 30 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 2. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN NOT APPLYING THE INAPPROPRIATE APPLICATION O F THE TURNOVER FILTER BY THE AO/TPO; AND CONSEQUENTLY, T HE COMPANIES WITH HUGE TURNOVER HAVE BEEN INCORRECTLY ACCEPTED IN THE FINAL SET OF COMPARABLES. ERRONEOUS APPLICATION OF EXPORT TO TURNOVER FILTER 3. THE LEARNED CIT(APPEALS) HAS ERRED BOTH ON FACTS AN D IN LAW IN UPHOLDING THE INAPPROPRIATE APPLICATION OF THE EXPORT TO TURNOVER FILTER BY THE AO/TPO; AND CONSEQUENTLY, C ERTAIN COMPANIES VIZ. ICRA ONLINE LIMITED AND DATAMATIC S FINANCIAL SERVICES LIMITED HAVE BEEN INCORRECTLY R EJECTED IN THE FINAL SET OF COMPARABLES. ERRONEOUS INCLUSION OF CERTAIN COMPANIES AS COMPARA BLE 4. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY INCLUDING TCS E- SERVE LIMITED, IN THE FINAL SET OF COMPARABLE . ERRONEOUS EXCLUSION OF CERTAIN COMPANIES AS COMPARABLE 5. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY NOT INCLUD ING TCRA ONLINE LIMITED', IN THE FINAL SET OF COMPARABLES. 6. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY NOT INCLUD ING 'DATAMATICS FINANCIAL SERVICES LIMITED', IN THE FIN AL SET OF COMPARABLES. 7. THE LEARNED CIT (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE CONTENTION OF AO/TPO BY NOT INCLUD ING 'ACE BPO SERVICES LIMITED', IN THE FINAL SET OF COMPARAB LES. GENERAL 8. THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE T O EACH OTHER AND THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 31 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 9.0 THE LD. AUTHORIZED REPRESENTATIVE ARGUED F OR THE EXCLUSION/ INCLUSION OF COMPARABLES WHICH ARE AS UND ER: (I) TCS E-SERVICE LIMITED. IT WAS SUBMITTED THAT THIS COMPARABLE WAS OBJECTED TO IN ASST. YEAR, 2011-12 ALSO. IT WAS S UBMITTED THAT THIS COMPANY SHOULD NOT BE EXCLUDED BECAUSE OF HIGH TURNOVER AND FUNCTIONAL DISSIMILARITY. IT WAS SUBMITTED THAT THE LD. CIT (A) HAS NOT GIVEN ANY INDEPENDENT FINDING IN THIS REGARD AN D HAS SIMPLY FOLLOWED HIS ORDER FOR ASST. YEAR: 2011-12. THE LD. AR SUBMITTED THAT THE LD. CIT (A) HAS HAD EXCLUDED INFOSYS BPO L TD. ON ACCOUNT OF HIGH TURNOVER, PRESENCE OF GOODWILL AND FUNCTIONA L DISSIMILARITY BUT HAD DISREGARDED IDENTICAL REASONING IN THE CASE OF THIS COMPANY AND HAD DIRECTED THAT THIS COMPANY SHOULD REMAIN IN CLUDED. IT WAS ALSO SUBMITTED THAT THE COMPANY HAD EARNED SUPER NO RMAL PROFITS IN THIS YEAR AND IT HAD A TURNOVER WHICH WAS 106 TIME S MORE THAN THAT OF THE ASSESSEES COMPANY. IT WAS ALSO HIGHLIGH TED THAT THIS COMPANY ENJOYS A VERY HIGH BRAND VALUE DUE TO THE T ATA BRAND WHICH TENDS TO INFLUENCE THE PRICING POLICY AND DIRE CTLY IMPACTS THE MARGIN EARNED BY THIS COMPANY. IT WAS PRAYED THAT TH IS COMPANY BE 32 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 EXCLUDED AND RELIANCE WAS PLACED ON NUMEROUS JUDICI AL PRECEDENTS WHEREIN THIS COMPANY WAS ORDERED TO BE EXCLUDED. (II) ICRA ONLINE LTD. - IT WAS SUBMITTED THAT THE ASSESSEE HAD USED FOREIGN EXCHANGE FILTER WHILE SELECTING COMPAR ABLES AND HAD ALREADY REJECTED COMPANIES WHICH WERE NOT HAVING ANY FOREIGN EXCHANGE EARNINGS AND, THEREFORE, LIMITING EXPORT E ARNINGS TO 75% WAS NOT WARRANTED BY THE LOWER AUTHORITIES GIVEN THAT THE NATURE OF SERVICES RENDERED DID NOT CHANGE. IT WAS SUBMITTED T HAT IF AT ALL THERE WAS A CHANGE BETWEEN THE COMPARABLE AND THE T ESTED PARTY IT WAS ON ACCOUNT OF RISK UNDERTAKEN IN RESPECT OF THE SERVICES RENDERED. IT WAS SUBMITTED THAT IN THE ABSENCE OF DE TAILED INFORMATION ON THE GEOGRAPHICAL MARKETS WHERE EXPORT S WERE MADE, APPLICATION BY THIS FILTER WAS MEANINGLESS. IT WAS A LSO SUBMITTED THAT THE ITAT IN ASST. YEAR: 2009-10 IN ASSESSEES OWN CASE HAD REMITTED THE USE OF THIS FILTER TO THE TPO BUT IN T HAT YEAR THE TPO HAD APPLIED THE FILTER OF 25% TO EXPORT TURN OVER W HEREAS IN THIS YEAR IT WAS ENHANCED TO 75% WITHOUT ANY BASIS. (III) DATAMATICS FINANCIAL SERVICES LTD :- IT WAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN TRANSACTION PROCESSING A ND BACK-OFFICE 33 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 OUT SOURCING OFFERING CUSTOMER CARE SERVICES. IT WAS ALSO SUBMITTED THAT IT IS THE LEADING PROVIDER OF BUSINESS RESEARC H TRANSFORMATIONAL OUTSOURCING OF SERVICES AND HENCE, FUNCTIONALLY COM PARABLE AND THE TPO HAS NOT OBJECTED TO THE FUNCTIONAL SIMILARITY B UT IT WAS EXCLUDED BECAUSE IF FAILED THE 75% EXPORT TURNOVER FILTER. IT WAS SUBMITTED THAT USE OF THIS TURNOVER FILTER WAS NOT WA RRANTED AND THAT THIS COMPARABLE DESERVED TO BE INCLUDED. (IV) ACE BPO SERVICES LIMITED - THE LD. AR SUBMITTED THAT THE LD. CIT (A) HAS ERRONEOUSLY EXCLUDED THE COMPANY EV EN THOUGH HE ACCEPTED THAT THIS COMPANY IS FUNCTIONALLY COMPARAB LE TO THE ASSESSEE. FOR THIS HE DREW OUR ATTENTION TO PAGE NO .83 OF THE LD. CIT (A)S ORDER. IT WAS ALSO SUBMITTED THAT THIS COM PANY IS A HEALTH CARE FOCUSED ITES PROVIDER PROMOTED BY HEALTHCARE A ND MANAGEMENT PROFESSIONALS AND SINCE THE COMPANY PROV IDED ITES, SEGMENTAL INFORMATION WAS NOT REQUIRED. IT WAS SUBMIT TED THAT EVEN THE TPO HAS NOT OBJECTED TO THE FUNCTIONAL COMPARAB ILITY. IT WAS PRAYED THAT THIS COMPANY BE INCLUDED IN THE FINAL S ET OF COMPARABLES. 34 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 10.0 IN RESPONSE, THE LD. SR. DR PLACED RELI ANCE ON THE ORDER OF THE LD. CIT (A) AND SUBMITTED THAT THE LD. CIT (A) HAD ADJUDICATED THE APPEAL BY GIVING WELL REASONED FIND INGS AFTER HAVING DULY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND , THEREFORE, NO INTERFERENCE WITH THE ORDER OF THE LD. CIT (A) WAS WAR RANTED. 11.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIAL ON RECORD. FIRST OF ALL, WE TAK E UP THE ISSUES RAISED BY BOTH THE PARTIES IN ASSESSMENT YEAR 2011- 12 FOR OUR CONSIDERATION. WE TAKE UP THE ASSESSEES APPEAL BEA RING NO. ITA NO.3989/DEL/2017 FIRST: 11.1 GROUND NO.1 IN ASSESSEES APPEAL BEING GENER AL IN NATURE DOES NOT CALL FOR ANY SEPARATE ADJUDICATION. 11.2 GROUND NOS. 2 & 6 OF THE ASSESSEES APPEAL CHALLENGE THE ACTION OF THE LD. CIT (A) IN UPHOLDIN G THE INCLUSION OF TCS E-SERVE LTD. IN THE FINAL SET OF COMPARABLES. T HE GROUND ALSO CHALLENGES THE APPLICATION OF TURN-OVER FILTER. IT IS THE CONTENTION OF THE ASSESSEE THAT TCS E-SERVE LTD. WAS INCLUDED ON T HE ERRONEOUS REASONING THAT THE SERVICE TURNOVER FILTER DOES NOT HAVE A BEARING ON THE MARGINS. THE LD. CIT (A) HAS HELD THAT THIS COM PANY WAS TO BE 35 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 INCLUDED IN THE FINAL SET OF COMPARABLES ON THE GRO UND THAT THIS COMPANY WAS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND ALSO BECAUSE THIS COMPANY HAD SINGLE SEGMENT OF HIGH END ITES/BPO SERVICES. THE ASSESSEE HAS CHALLENGED THE INCLUSION OF THIS COMPANY ON THE GROUND OF FUNCTIONAL COMPARABILITY AS WELL A S ON THE GROUND OF HAVING A HUGE TURN OVER, PRESENCE OF BRAND VALUE AS WELL AS NON AVAILABILITY OF SEGMENTAL DATA. WE HAVE GONE THROUG H THE ANNUAL REPORT OF THE COMPANY TCS E-SERVE LTD. AND AS PER T HE ANNUAL REPORT THIS COMPANY IS ENGAGED IN PROVIDING TECHNOL OGY SERVICES INCLUDING SOFTWARE TESTING, VERIFICATION AND VALIDAT ION, DATA CENTER MANAGEMENT ACTIVITIES ETC. IN ADDITION TO ITES. ON THE OTHER HAND THE ASSESSEE COMPANY IS ENGAGED IN PROVIDING ITES S ERVICE AND IS A BACK END CAPTIVE SERVICE PROVIDER. WE NOTE THAT THI S COMPANY WAS EXCLUDED BY THE DELHI BENCH OF ITAT IN THE CASE OF B. C. MANAGEMENT SERVICE PVT. LTD. VS. DCIT FOR ASSESSMEN T YEAR 2011- 12 REPORTED IN [2017] 83 TAXAMAN.COM 346 (DELHI TRI B.). WHILE REJECTING THIS COMPANY AS A COMPARABLE IN THE CASE OF B.C. MANAGEMENT SERVICE PVT. LTD. WHICH WAS PROVIDING IT A ND FINANCIAL BACK OFFICE SUPPORT SERVICES TO VARIOUS ENTITITIES, THE CO-ORDINATE 36 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 BENCH OF THE TRIBUNAL HELD THAT THE OPERATION OF TC S E-SERVE LTD. BROADLY COMPRISED OF TRANSACTION PROCESSING AND TEC HNOLOGY SERVICES INCLUDING SOFTWARE TESTING, VERIFICATION AN D VALIDATION FOR WHICH NO SEGMENTAL BIFURCATION WAS AVAILABLE. THE CO- ORDINATE BENCH HELD THAT IN ABSENCE OF SUCH VITAL INFORMATIO N OF THE MARGINS OF THE VARIOUS SEGMENTS, THE COMPANY COULD NOT BE C ONSIDERED A GOOD COMPARABLE BECAUSE OF THE DIFFICULTY IN BENCH MARKING THE CORRECT PROFIT MARGIN. THE CO-ORDINATE BENCH ALSO N OTED THAT THE PRESENCE OF HIGH BRAND VALUE OF THE TATA BRAND ALSO MADE TCS E- SERVE LTD. NOT A GOOD COMPARABLE. THE RELEVANT OBSE RVATIONS OF THE TRIBUNAL ARE CONTAINED IN PARAGRAPH -18 OF THE SAID ORDER AND THE SAME ARE BEING REPRODUCED HEREIN UNDER FOR A READY REFERENCE: '18. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDING GIVING IN THE IMPUGNED ORDERS AS W ELL AS THE MATERIAL PLACED ON RECORD. ONE OF THE MAIN POINTS O F DISTINCTION WHICH IS QUITE OSTENSIBLE IS THAT THE T CS E-SERVE' IS A SUBSIDIARY OF TATA CONSULTANCY SERVICES LIMITE D', WHICH IS ONE OF THE LEADING AND GIANT COMPANY IN THE WORL D AND HAS AN INHERENT ELEMENT OF VERY HIGH BRAND VALUE AS SOCIATED WITH IT. SUCH A HIGH BRAND VALUE DEFINITELY HAS AN IMPACT ON THE PRICING POLICY, NICHE MARKET, CONTRACTUAL TERMS , ETC. AND THEREBY AFFECTING THE PROFIT MARGINS. ANNUAL REPORT OF THIS COMPANY REFLECTS THAT HUGE PAYMENTS HAVE BEEN MADE BY TCS E-SERVE TO TCS LIMITED' FOR THE USE OF THE BRAN D AS A 'ROYALTY'. THIS FACT ITSELF SHOWS THE EFFECT OF BRA ND VALUE IN THE PRICING MECHANISM. ON A FURTHER ANALYSIS IT IS SEEN THAT 37 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 THE EMPLOYEE COST BASE IS MORE THAN 64 TIMES THAN T HE ASSESSEE AND EVEN THE TURNOVER IS ALSO MORE THAN 67 TIMES AS COMPARED TO THE ASSESSEE. THIS ONLY GOES TO SUGG EST THAT ASSETS EMPLOYED BY TCS E-SERVE' ALONGWITH HUGE INTANGIBLES IN THE FORM OF BRAND VALUE DEFINITELY H AS A HUGE EFFECT IN PLI AND VITIATES THE COMPARABILITY UNDER FAR ANALYSIS WITH A COMPANY LIKE ASSESSEE WHICH IS A CA PTIVE SERVICE PROVIDER WITHOUT MUCH INTANGIBLES AND RISKS . ANOTHER IMPORTANT THING WHICH HAS BEEN POINTED OUT BY LEARN ED COUNSEL IS THAT, THE OPERATION OF TCS E-SERVE' BROA DLY COMPRISE OF TRANSACTION PROCESSING AND TECHNICAL SE RVICES INCLUDING SOFTWARE TESTING, VERIFICATION AND VALIDA TION FOR WHICH NO SEGMENTAL BIFURCATION IS AVAILABLE. IN ABS ENCE OF SUCH VITAL INFORMATION OF THE MARGINS OF SUCH VARIE D SEGMENTS IT BECOMES QUITE DIFFICULT TO PUT SUCH COM PANY IN THE COMPARABILITY BASKET SO AS TO BENCH MARK THE CO RRECT PROFIT MARGIN. ALL THE AFORESAID FACTORS HAVE BEEN HELD SO IN VARIOUS DECISIONS OF THIS TRIBUNAL IN SEVERAL CASES AS RELIED UPON BY THE LD. COUNSEL, INCLUDING THE DECISION OF AMERIPRISE INDIA (P.) LTD. {SUPRA). THUS, IN OUR OP INION TCS E-SERVE' CANNOT BE HELD TO BE A GOOD COMPARABLE FOR THE PURPOSE OF BENCH MARKING THE ASSESSEE'S PLI AND ACCORDINGLY, WE DIRECT THE LD. AO/TPO TO EXCLUDE TC S E- SERVE FROM THE COMPARABILITY LIST. 11.2.1 THEREFORE, RESPECTFULLY FOLLOWING THE ADJUD ICATION BY THE CO-ORDINATE BENCH AS ABOVE AND ON THE FACTS OF THIS CASE FOR THE SAME ASSESSMENT YEAR, TCS E-SERVE CANNOT BE HELD TO BE A GOOD COMPARABLE FOR THE PURPOSES OF BENCH MARKING THE AS SESSEES PLI. ACCORDINGLY, WE DIRECT THAT THIS COMPANY BE EXCLUDE D FROM THE FINAL SET OF COMPARABLES. 38 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 11.3 GROUND NO.3 OF THE ASSESSEES APPEAL CHALLEN GES THE ACTION OF THE LD. CIT (A) IN CONSIDERING THE FOREIG N EXCHANGE GAIN/LOSS AS NON-OPERATIONAL. THE LD. AUTHORIZED RE PRESENTATIVE HAS ARGUED AT LENGTH FOR THE PROPOSITION THAT FOREI GN EXCHANGE GAIN/LOSS IN THE ASSESSEES CASE ACCRUES DIRECTLY F ROM THE NORMAL COURSE OF BUSINESS TRANSACTIONS ON IMPORT/EXPORT AN D, THEREFORE, THE SAME SHOULD BE TAKEN AS OPERATING INCOME/EXPEND ITURE. IT HAS ALSO BEEN BROUGHT TO OUR NOTICE THAT THIS ISSUE WAS DECIDED BY A CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSMENT YEAR 2 009-10 IN ASSESSEES OWN APPEAL IN ASSESSEES FAVOUR. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2009-1 0 IN ASSESSEES OWN CASE IN ITA NO.410/DEL/2014 VIDE ORDER DATED 20 TH FEB.,2015. WE FIND THAT THE CONTENTION OF THE LD. AUTHORIZED R EPRESENTATIVE IS CORRECT IN THIS REGARD IN AS MUCH AS THE CO-ORDINAT E BENCH OF THE TRIBUNAL, IN PARAGRAPH 20 OF THE SAID ORDER HAS HEL D THAT FOREIGN EXCHANGE FLUCTUATION CANNOT BE SEEN AS INDEPENDENT OF THE OPERATING INCOME. RESPECTFULLY FOLLOWING THE SAME, O N IDENTICAL SET OF FACTS, WITHOUT THE DEPARTMENT HAVING POINTED OUT ANY DISTINGUISHING FACTOR ON THE FACTS, WE DIRECT THAT T HE FOREIGN 39 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 EXCHANGE/FLUCTUATION (LOSS OR GAIN) WE TREATED AS B EING OPERATIONAL IN NATURE AND PLI SHOULD BE COMPUTED ACCORDINGLY AF TER GIVING EFFECT TO THE TREATMENT OF FOREIGN EXCHANGE/LOSS AS OPERAT IONAL. 11.4 GROUND NO.4 OF THE ASSESSEES APPEAL CHALLEN GES INCLUSION OF ACCENTIA TECHNOLOGIES LTD. AS A COMPAR ABLE COMPANY. IT IS THE ASSESSEES CONTENTION THAT THIS COMPANY I S FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPANY AS IT RENDERS KP O SERVICES IN THE HEALTHCARE SECTOR BY WAY OF OFFERING SOFTWARE AS A SERVICE (SAAS) MODEL AND IS ALSO ENGAGED IN DEVELOPMENT AND SALE O F SOFTWARE PRODUCTS. WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMPANY AND WE NOTE THAT ACCENTIA TECHNOLOGIES LTD. OFFERS COMPL ETE HEALTHCARE DOCUMENTATION AS WELL AS RECEIVABLES MANAGEMENT SER VICES INCLUDING INSTALLATION AND MAINTENANCE OF ALL SOFTWA RE, HARDWARE AND BANDWIDTH INFRASTRUCTURE. IT IS ALSO SEEN THAT T HIS COMPANY IS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS . ON THE OTHER HAND, THE ASSESSEE IS UNDISPUTEDLY A LOW END CAPTIVE SERVICE PROVIDER. WE ALSO NOTE THAT DURING THE YEAR UNDER C ONSIDERATION THIS COMPANY ACQUIRED 16% STAKES IN SOFTWARE DEVELOPMENT COMPANY, STRATEGIC TANGENT CORPORATION HAVING EXPERTISE IN D EVELOPMENT OF 40 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 SOFTWARE RELATED TO EMR AND SAAS. WE NOTE THAT THIS COMPANY WAS DIRECTED TO BE EXCLUDED BY A CO-ORDINATE BENCH OF T HIS TRIBUNAL IN THE CASE OF AGILENT TECHNOLOGIES (INTERNATIONAL PVT . LTD.) VS. ITO [2018] 91 TAXMANN.COM 59 (DELHI-TRIB.) IN THIS CASE AGILENT TECHNOLOGIES (INTERNATIONAL PVT. LTD) WAS PROVIDING BACK OFFICE SUPPORT SERVICE TO ITS AES AND ACCENTIA HAD BEEN IN CLUDED AS A COMPARABLE BY THE TPO. HOWEVER, THE TRIBUNAL HELD T HAT THIS COMPANY RENDERED KEY SERVICES IN THE HEALTHCARE SEC TOR FROM THE SOFTWARE AS A SERVICE (SAAS) MODEL AND ENABLED IT FOR MANAGING OF HEALTH CARE DOCUMENTATION NEEDS, RECEIVABLE MANAGEM ENTS NEEDS, PERFORMANCE TRACKING AND REPORTING ETC. WHILE ENUME RATING THE MULTIFARIOUS FUNCTIONS BEING CARRIED OUT BY ACCENTI A TECHNOLOGIES PVT. LTD., THE TRIBUNAL HELD THAT THESE FUNCTIONS C ANNOT BE HELD TO BE SIMILAR WITH THOSE OF THE FUNCTIONS CARRIED OUT A S PART OF BACK OFFICE SUPPORT SERVICE BY THE ASSESSEE. THE TRIBUNA L ALSO NOTED THAT MERGER BY WAY OF AMALGAMATION WAS ALSO A GROUND FOR EXCLUSION OF THIS COMPANY FOR THE PURPOSES OF COMPARABILITY ANAL YSIS. A SIMILAR VIEW WAS TAKEN BY THE DELHI BENCH OF THE ITAT IN THE OKS SPAN TAKE PVT. LTD. VS. DCIT IN ITA NO.1551/DEL/2015 VID E ORDER DATED 41 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 23.08.2018. A SIMILAR DIRECTION FOR EXCLUSION OF AC CENTIA TECHNOLOGY LTD. WAS GIVEN BY THE DELHI BENCH OF THE ITAT IN THE CASE OF ORANGE BUSINESS SERVICE INDIA SOLUTIONS PVT. LTD. VS. DCIT IN ITA NO.869/DEL/2016 VIDE ORDER DATED 31.05.2016. ACCORD INGLY, IN OUR CONSIDERED VIEW THE FUNCTIONAL PROFILE OF THE ASSESS EE BEING DIFFERENT FROM THE FUNCTIONAL PROFILE OF ACCENTIA TECHNOLOGIE S PVT. LTD., THIS COMPANY CANNOT BE CONSIDERED A GOOD COMPARABLE. ACC ORDINGLY, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. 11.5 GROUND NO.5 OF THE ASSESSEES APPEAL CHALLENGES INCLUSION OF THE COMPANY MASTIF TECH PVT . LTD. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS COMPANY IS FUN CTIONALLY DISSIMILAR TO THE ASSESSEE COMPANY. IT HAS ALSO BEE N CONTENDED BY THE LD. AUTHORIZED REPRESENTATIVE (AR) THAT THE OBJ ECTIONS OF THE ASSESSEE AGAINST INCLUSION OF THIS COMPANY IN THE F INAL SET OF COMPARABLES HAS NOT BEEN DEALT WITH EITHER BY THE TP O OR BY THE LD. CIT (A). IN SUCH A SITUATION, IT IS OUR CONSIDERED VIEW THAT IN THE INTEREST OF SUBSTANTIAL JUSTICE, THE TPO SHOULD CON SIDER THE OBJECTIONS OF THE ASSESSEE AGAINST THE INCLUSION OF THIS COMPANY 42 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 AND THEREAFTER PASS A SPEAKING ORDER AFTER GIVING D UE OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. THUS, GROUND NO.5 STANDS ALLOWED FOR STATISTICAL PURPOSES. 11.6 GROUND NO.7 OF THE ASSESEEES APPEAL CHALLEN GES THE TPOS ACTION OF EXCLUSION OF THE COMPARABLE CALIBER POINT BUSINESS SOLUTION LTD. ON THE GROUND THAT IT HAD A DIFFERENT FINANCIAL YEAR ENDING. IT IS THE ARGUMENT OF THE LD. AUTHORIZED RE PRESENTATIVE THAT ALL THE QUARTERLY FINANCIAL STATEMENTS FOR THE YEAR ENDING 31 ST MARCH, 2011 WERE AVAILABLE ON THE COMPANYS WEBSITE AND, THEREFORE, THIS COMPANY BEING A FUNCTIONALLY COMP ARABLE COMPANY SHOULD NOT BE REJECTED MERELY ON THE GROUND THAT IT HAD A DIFFERENT FINANCIAL YEAR ENDING. WE AGREE WITH THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE IN THIS REGARD. WE NOTE T HAT THE ISSUE OF EXCLUSION OF A COMPARABLE COMPANY ONLY ON THE BASIS OF A DIFFERENT FINANCIAL YEAR ENDING IS A SETTLED ISSUE AND THE TR IBUNAL HAS TIME AND AGAIN HELD THAT COMPANIES HAVING DIFFERENT A FI NANCIAL YEAR ENDING BUT BEING OTHERWISE SIMILAR ON FUNCTIONALITY, CANNOT BE EXCLUDED. WE NOTE THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MCKINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. VI DE ORDER DATED 43 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 27.03.2015 IN ITA NO.217/2014 HAS UPHELD THE ORDER OF THE ITAT HOLDING THAT IF THE COMPARABLE IS FUNCTIONALLY THE SAME AS THAT OF THE TESTED PARTY, THEN THE SAME CANNOT BE REJECTED MERELY ON THE GROUND THAT DATA FOR THE ENTIRE FINANCIAL YEAR WAS N OT AVAILABLE. THE HONBLE DELHI HIGH COURT WENT TO HOLD THAT IF FROM THE AVAILABLE DATA, THE RESULTS FOR FINANCIAL YEAR CAN BE COMPILE D, THE COMPARABLE CANNOT BE EXCLUDED SOLELY ON THE GROUND THAT THE CO MPARABLE WAS HAVING A DIFFERENT FINANCIAL YEAR ENDING. A PERUSAL OF THE ORDER OF THE TPO AS WELL AS OF THE LD. CIT (A) SHOWS THAT ON LY BASIS FOR THE EXCLUSION OF CALIBER POINT BUSINESS SOLUTION LTD. I S THAT IT WAS HAVING A DIFFERENT FINANCIAL YEAR ENDING. THERE IS NO COMMENT BY EITHER OF THE LOWER AUTHORITIES ON THE ISSUE OF FUN CTIONAL SIMILARITY OR OTHERWISE. IN SUCH A SITUATION, RESPECTFULLY FOLL OWING THE ORDER OF THE HONBLE DELHI HIGH IN THE CASE OF CIT VS. MCKIN SEY KNOWLEDGE CENTRE INDIA PVT. LTD., WE DIRECT THE TPO TO RECONSI DER THE INCLUSION OF THIS COMPARABLE AFTER DULY CONSIDERING AS TO WHET HER THE DATA FOR THE FINANCIAL YEAR ENDING CAN BE EASILY COMPILED AN D AFTER DULY CONSIDERING AND VERIFYING WHETHER CALIBER POINT BUSI NESS SOLUTION LTD. CAN BE CONSIDERED FUNCTIONALLY SIMILAR TO THE ASSESSEE 44 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 COMPANY. THE TPO SHALL GIVEN PROPER OPPORTUNITY TO THE ASSESSEE BEFORE ADJUDICATING THIS ISSUE IN ACCORDANCE WITH LA W. ACCORDINGLY, GROUND NO.7 OF THE ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. 11.7 COMING TO GROUND NO.8 OF ASSESSEES APPEAL WH ICH CHALLENGES THE EXCLUSION OF COSMIC GLOBAL LTD., IT IS THE SUBMISSION OF THE LD. AUTHORIZED REPRESENTATIVE THAT THE TPO H AS EXCLUDED THIS COMPANY ON THE GROUND THAT IT FAILS THE EXPORT TURN OVER FILTER OF 75% ALTHOUGH THE TPO HAS NOT RAISED ANY OBJECTION REGAR DING FUNCTIONAL SIMILARITY. IT HAS ALSO BEEN SUBMITTED THAT IN ASSE SSMENT YEAR 2009-10, THE TPO HAD APPLIED AN EXPORT TURNOVER FIL TER OF 25% WHEREAS IN THIS YEAR 75% EXPORT TURNOVER FILTER HAS BEEN APPLIED. IT HAS ALSO BEEN SUBMITTED THAT THE ITAT HAD AGREED WIT H THE ASSESSEES CONTENTION IN ASSESSMENT YEAR 2009-10 TH AT EXPORT TURN OVER FILTER OF 25% WAS NOT AN APPROPRIATE FILTER. WE NOTE THAT THE TPO HAS EXCLUDED THIS COMPANY SOLELY ON THE GROUND THAT IT FAILS THE EXPORT TURN OVER FILTER OF 75%. THE TPO HAS, HO WEVER, NOT COMMENTED ON THE FUNCTIONAL ASPECT OF THIS COMPANY. IT IS ALSO A FACT ON RECORD THAT THE ITAT HAD REJECTED THE EXPOR T TURN OVER FILTER 45 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 OF 25% IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 200 9-10 BY FOLLOWING THE TRIBUNALS ORDER IN BHARTI AIRTEL LTD. VS. ACIT [2014]161 TTJ 428 (DEL.) AND HAD REMANDED THE ISSUE TO THE TPO FOR FRESH EXAMINATION. IN THIS YEAR UNDER APPEAL, T HE TPO HAS NOT SPECIFIED ANY REASON FOR APPLYING THE EXPORT TURNOV ER FILTER OF 75% AS COMPARED TO EXPORT TURN OVER FILTER OF 25% APPLI ED IN ASSESSMENT YEAR 2009-10. THEREFORE, IT IS OUR CONSIDERED VIEW THAT THIS COMPARABLE NEEDS TO BE EXAMINED AFRESH BY THE TPO A ND THE TPO IS DIRECTED TO DO SO AFTER CONSIDERING THE ARGUMENTS O F THE ASSESSEE WITH RESPECT TO THE FUNCTIONAL SIMILARITY OF THIS CO MPANY AS WELL AS AFTER DULY CONSIDERING THE OBJECTIONS OF THE ASSESS EE AGAINST THE APPLICATION OF EXPORT TURN OVER FILTER AND ALSO THE FACT THAT THE ITAT HAD FOUND THE TURNOVER FILTER OF EVEN 25% AS INAPPR OPRIATE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009-10. THE TPO SHALL PROVIDE PROPER OPPORTUNITY TO THE ASSESSEE PRIOR TO PASSING A SPEAKING ORDER ON THIS COMPARABLE IN ACCORDANCE WITH LAW. THUS, GROUND NO.8 OF ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. 46 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 11.8 GROUND NO.9 OF ASSESSEES APPEAL CHALLENGES THE EXCLUSION OF COMPANY INFORMED TECHNOLOGIES INDIA LT D. (ITIL). IT IS SEEN THAT THE TPO HAS EXCLUDED THIS COMPANY BY APPL YING A TURNOVER FILTER OF RS. 5 CRORES AND THE LD. CIT (A) HAS UPHELD THE EXCLUSION. IT IS THE ASSESSEES CONTENTION THAT THI S COMPANY IS OTHERWISE COMPARABLE TO THE ASSESSEES COMPANY BECAU SE THIS COMPANY IS ALSO OPERATING AS A BACK-END ITES PROVID ER IN THE BPO SEGMENT. WE NOTE THAT IN ASSESSES OWN CASE FOR ASSE SSMENT YEAR 2009-10, A CO-ORDINATE BENCH OF TRIBUNAL HAS REJECT ED THE TURNOVER FILTER OF RS.5 CRORES IN PARA 15 OF THE SAID ORDER. THEREFORE, ON A SIMILAR REASONING AND ON IDENTICAL FACTS, WE ALSO H OLD THAT THE TURNOVER FILTER OF RS.5 CRORES CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE. WHAT ONLY REMAINS TO BE SEEN IS WHETHER TH E COMPANY INFORMED TECHNOLOGIES INDIA LIMITED IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE OR NOT. ACCORDINGLY, THIS COMPARABLE I S RESTORED TO THE FILE OF THE TPO FOR EXAMINING THE ASSESSEES CLAIM OF FUNCTIONAL SIMILARITY WITH THE COMPANY INFORMED TECHNOLOGIES IN DIA LTD. THE TPO SHALL GIVE ADEQUATE OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS ARGUMENTS IN FAVOUR OF THE INCLUSION OF THIS COMPAN Y IN THE FINAL SET 47 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 OF COMPARABLES. THUS, GROUND NO.9 STANDS ALLOWED FO R STATISTICAL PURPOSES. 11.9 IT HAS BEEN SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE THAT GROUND NO.10 CHALLENGING NOT PR OVIDING THE BENEFIT OF RISK ADJUSTMENT IS NOT BEING PRESSED. AC CORDINGLY, GROUND NO.10 OF THE ASSESSEES APPEAL STANDS DISMIS SED AS BEING NOT PRESSED. 11.10 GROUND NO.11 IS GENERAL IN NATURE NOT REQUIR ING ANY SPECIFIC ADJUDICATION. 12.0 IN THE RESULT, THE ASSESSEES APPEAL BEARING ITA NO.3989/DEL/2017 FOR ASSESSMENT YEAR 2011-12 STANDS PARTLY ALLOWED. 13.0 COMING TO THE DEPARTMENTS APPEAL BEARING I TA NO.3779/DEL/2017, THE DEPARTMENT IS CONTESTING THE DIRECTION OF THE LD. CIT (A) FOR INCLUDING THE COMPANY ACROPETAL TECHNOLOGIES LTD. AS A COMPARABLE WITH ONLY THE FINANCIALS OF HE ALTHCARE SEGMENT. THE LD. AUTHORIZED REPRESENTATIVE WHILE SU PPORTING THE ORDER OF THE LD. CIT (A) HAS ARGUED THAT ACROPETAL TECHNOLOGIES LTD. IS ENGAGED IN SOFTWARE DEVELOPMENT AND ENGINEERIN G DESIGN 48 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 SERVICES (EDS) AND THAT THE EDS SEGMENT OF THE COM PANY WAS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE BECAUSE THI S SEGMENT INVOLVES RESEARCH AND DEVELOPMENT ACTIVITIES RESULT ING IN CREATION OF INTANGIBLES. IT IS SEEN THAT THE DELHI BENCH OF ITAT IN THE CASE OF ITO VS. OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. IN ITA NO.1380/DEL./2016, VIDE ORDER DATED 15.04.2019, REL YING ON ANOTHER ORDER OF CO-ORDINATE BENCH IN THE CASE OF SWISS RE SHARED SERVICES (INDIA) PVT. LTD . OBSERVED THAT THE ENGINEERING DESIGN SERVICES SEGMENT OF ACROPETAL TECHNOLOGIES LTD. IS FUNCTIONALLY DIFFERENT AND HENCE CANNOT BE CONSIDERED AS A GOOD COMPARABLE TO THE ASSESSEE WHICH PROVIDES ONLY ITES SERVICES TO IT S AES. A PERUSAL OF THE ANNUAL REPORT OF ACROPETAL TECHNOLOG IES LTD. FOR ASSESSMENT YEAR 2010-11 SHOWS THAT THE MAJOR SOURCE OF INCOME FROM THIS COMPANY IS FROM PROVIDING ENGINEERING DES IGN SERVICES AND INFORMATION TECHNOLOGIES SERVICES. ENGINEERING DESIGN SERVICES ARE ESSENTIALLY IN THE NATURE OF PROVIDING HIGH END SERVICE AMONGST THE BPO WHEREAS THE SERVICES PERFORMED BY THE ASSESS EE ARE ROUTINE LOW END ITES SERVICES. THEREFORE, WE ARE OF THE CONSI DERED OPINION, THAT THE LD. CIT (A) WAS CORRECT IN DIRECTING THAT O NLY THE ITES 49 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 SEGMENT OF THIS COMPANY BE INCLUDED FOR THE PURPOSE S OF COMPARABILITY ANALYSIS AND THAT THE ENGINEERING DES IGN SERVICES SEGMENT TO BE EXCLUDED. ACCORDINGLY, WE DISMISS THE GROUND NO.1 OF THE DEPARTMENTS APPEAL WHILE UPHOLDING THE DIREC TIONS OF THE LD. CIT (A) IN THIS REGARD. 13.1 GROUND NO.2 OF THE DEPARTMENTS APPEAL CHALLENGES THE ACTION OF THE LD. CIT (A) IN DIRECTI NG THE TPO TO EXCLUDE E-CLERX SERVICES LTD. AS A COMPARABLE. IT I S THE DEPARTMENTS CONTENTION THAT THE ASSESSEE AS WELL A S M/S E-CLERX SERVICES LTD IS PROVIDING HIGH-END ITES NAMELY KPO SERVICES. HOWEVER, THE LD. CIT (A) DIRECTED THE EXCLUSION OF THIS COMPANY ON THE GROUND THAT E-CLERX SERVICES LTD. PROVIDED HIGH END ITES SERVICES WHICH WAS NOT COMPARABLE TO THE ASSESSEE WHIC H WAS PROVIDING ONLY LOW-END SERVICES. UNDISPUTEDLY, THE ASSESSEE IS PROVIDING LOW END BACK OFFICE SERVICES TO ITS AE WHER EAS E-CLERX SERVICES LTD. IS PROVIDING KPO RELATED SERVICES AS HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGRE EN SOLUTION PVT. LTD. VS. CIT REPORTED IN 377 ITR 533 (DELHI). THE RELEVANT OBSERVATIONS OF THE HONBLE DELHI HIGH COURT ARE CO NTAINED IN 50 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 PARAGRAPH 37 OF THE SAID ORDER WHICH IS REPRODUCED H EREUNDER FOR A READY REFERENCE: 37. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS ONCE AGAIN CLEAR THAT BOTH VISHAL AND E CLERX COULD NOT BE TAKEN AS COMPARABLES FOR DETERMINING THE ALP. VI SHAL AND ECLERX, BOTH ARE INTO KPO SERVICES. IN MAERSK GLOBA L CENTERS (INDIA) PVT. LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAD NOTED THAT ECLERX IS ENGAGED IN DATA ANALYTICS, DAT A PROCESSING SERVICES, PRICING ANALYTICS, BUNDLING OPTIMIZATION, CONTENT OPERATION, SALES AND MARKETING SUPPORT, PRODUCT DAT A MANAGEMENT, REVENUE MANAGEMENT. IN ADDITION, ECLERX ALSO OFFERED FINANCIAL SERVICES SUCH AS REAL TIME CAPITA L MARKETS, MIDDLE AND BACK-OFFICE SUPPORT, PORTFOLIO RISK MANA GEMENT SERVICES AND VARIOUS CRITICAL DATA MANAGEMENT SERVI CES. CLEARLY, THE AFORESAID SERVICES ARE NOT COMPARABLE WITH THE SERVICES RENDERED BY THE ASSESSEE. FURTHER, THE FUN CTIONS UNDERTAKEN (I.E. THE ACTIVITIES PERFORMED) ARE ALSO NOT COMPARABLE WITH THE ASSESSEE. IN OUR VIEW, THE TRIB UNAL ERRED IN HOLDING THAT THE FUNCTIONS PERFORMED BY THE ASSE SSEE WERE BROADLY SIMILAR TO THAT OF ECLERX OR VISHAL. THE OP ERATING MARGIN OF ECLERX, THUS, COULD NOT BE INCLUDED TO ARRIVE AT AN ALP OF CONTROLLED TRANSACTIONS, WHICH WERE MATERIALLY DIFF ERENT IN ITS CONTENT AND VALUE. IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAD NOTE D THE SAME AND HAD, THUS, EXCLUDED ECLERX AS A COMPARABLE. IT IS FURTHER OBSERVED THAT THE COMPARABILITY OF ECLERX HAD ALSO BEEN EXAMINED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P.) LTD. V. ADDITIONAL COMMISSIONER OF INCOME-TAX (SUPRA), WHEREIN, THE TR IBUNAL DIRECTED THE EXCLUSION OF ECLERX AS A COMPARABLE FO R THE REASON THAT IT WAS ENGAGED IN PROVIDING KPO SERVICES AND F URTHER THAT IT HAD ALSO RETURNED SUPERNORMAL PROFITS. 51 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 13.1.1 THEREFORE, RESPECTFULLY FOLLOWING THE JUDGME NT OF HONBLE DELHI HIGH COURT, WE FIND NO REASON TO INTE RFERE WITH THE FINDINGS OF THE LD. CIT (A) IN DIRECTING THE EXCLUS ION OF THE COMPANY E-CLERX SERVICES LTD. THUS, GROUND NO.2 OF THE DEPA RTMENTS APPEAL ALSO STANDS DISMISSED. 13.2 GROUND NO.3 OF THE DEPARTMENTS APPEAL CHALL ENGES THE ACTION OF THE LD. CIT (A) IN DIRECTING THE EXCL USION OF ICRA TECHNO ANALYTICS LTD. THE TPO HAD INCLUDED THIS COM PANY AS A COMPARABLE ON THE GROUND THAT THIS COMPANY WAS BROAD LY FUNCTIONALLY SIMILAR TO THE ASSESSEE COMPANY WHEREAS THE ASSESSEES CONTENTION WAS THAT THIS COMPANY WAS ALSO ENGAGED IN SOFTWARE DEVELOPMENT SERVICES. THE LD. CIT (A) DIRECTED THE EXCLUSION OF THIS COMPANY ON THE GROUND THAT IT WAS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND SEGMENTAL DATA OF ITES AND SOFTWARE DEVELOPMENT SERVICES WAS NOT AVAILABLE. WE HAVE GONE THROUGH THE ANNUAL REPORT OF THIS COMPANY AND WE NOTE THAT AS P ER THE ANNUAL REPORT IT IS ENGAGED IN SOFTWARE DEVELOPMENT AND CON SULTANCY, ENGINEERING SERVICES, WEB DEVELOPMENT AND HOSTING S ERVICES, BUSINESS ANALYTICS AND BPO SERVICES. WE ALSO NOTE T HAT SEGMENTAL 52 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 INFORMATION IN THIS RESPECT OF BPO SERVICES IS NOT SEPARATELY AVAILABLE. IT IS ALSO TO BE NOTED THAT THIS COMPANY ALSO DEALS IN PURCHASE AND RE-SALE OF BRANDED COMPUTER SOFTWARE AS IS EVIDENT FROM THE ANNUAL REPORT. THE DELHI BENCH OF ITAT IN THE CASE OF CIT VS. B.C. MANAGEMENT SERVICES PVT. LTD., [2018] 403 ITR 45 (DELHI) HAS HELD THAT THIS COMPANY WAS ENGAGED IN SOFTWARE D EVELOPMENT AND CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPM ENT AND PROVIDING BUSINESS PROCESS OUTSOURCING SERVICES WHER EAS B.C. MANAGEMENT SERVICES PVT. LTD. WAS A COMPANY PROVIDIN G ONLY BACK OFFICE SERVICES. THE ITAT WENT ON RULE THAT ON FUNC TIONAL LEVEL ITSELF THIS CANNOT BE HELD TO BE A COMPARABLE. THE TRIBUNA L ALSO NOTED THAT THERE WAS NO SEGMENTAL INFORMATION AND BIFURCAT ION BETWEEN ITES AND SOFTWARE DEVELOPMENT SEGMENTS. FOR THIS REA SON, THIS COMPANY WAS DIRECTED TO BE EXCLUDED FROM THE FINAL S ET OF COMPARABLES. ON SIMILAR REASONING, WE UPHOLD EXCLUSI ON OF THIS COMPANY BY THE LD. CIT (A). THUS, GROUND NO.3 OF TH E DEPARTMENTS APPEAL STANDS DISMISSED. 13.3 GROUND NO.4 OF THE DEPARTMENTS APPEAL CHALL ENGES ACTION OF THE LD. CIT (A) IN DIRECTING THE EXCLUSIO N OF THE COMPANY 53 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 INFOSYS BPO LTD. ON THE GROUND THAT IT WAS A GIANT I N THE AREA OF SOFTWARE DEVELOPMENT. THE LD. CIT (A) ALSO NOTED THA T THIS COMPANY HAD SUBSTANTIAL INTANGIBLES IN THE FORM OF GOODWILL AND HAD A DIFFERENT FUNCTIONAL AND RISK PROFILE. WE HAVE PERU SED THE ANNUAL REPORT OF INFOSYS BPO FOR THE YEAR UNDER CONSIDERAT ION AND NOTE THAT THIS COMPANY HAS A SALES TURNOVER RS.1129 CROR ES I.E., MORE THAN 87 TIMES OF THAT THE ASSESSEE COMPANY WHICH WAS A MERE 13.48 CRORES. THE HONBLE DELHI HIGH COURT, WHILE UP HOLDING THE ORDER OF THE TRIBUNAL, IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856/DEL/2010 VIDE ORDER DATED 10 TH JULY, 2013 HAS HELD THAT INFOSYS BPO LTD. HAD BEEN RIGHTLY EXCLUDE D FROM THE LIST OF COMPARABLES FOR THE REASON THAT IT WAS A GIANT COMPA NY IN THE AREA OF DEVELOPMENT OF SOFTWARE AND IT ASSUMED ALL RISKS LEADING TO HIGHER PROFITS WHEREAS THE RESPONDENT ASSESSEE WAS A CAPTIVE UNIT OF THE PARENT COMPANY AND ASSUMED ONLY A LIMITED RI SK. APART FROM THIS, INFOSYS BPO LTD. HAS ALSO BEEN EXCLUDED BY TH E BANGALORE BENCH OF ITAT IN THE CASE OF E4E BUSINESS SOLUTIONS INDIA PVT. LTD. [TS-13-ITAT-2017 (BENG)-TP] FOR ASSESSMENT YEAR 201 1-12, ON THE GROUND THAT IT WAS FUNCTIONALLY DIFFERENT BEING AN E STABLISHED 54 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 MARKET LEADER, ENJOYING HUGE BRAND VALUE WITH HUGE E CONOMIES OF SCALE, DIVERSITY AND GEOGRAPHICAL DISTRIBUTION OF C USTOMERS. WE ALSO NOTE THAT THIS COMPANY WAS EXCLUDED BY THE LD. CIT ( A) IN ASSESSMENT YEAR 2012-12 ALSO AND IT HAS BEEN ACCEPT ED BY THE DEPARTMENT AND THE SAME HAS NOT BEEN AGITATED BEFOR E THIS TRIBUNAL. ACCORDINGLY, FOR THE REASONS AS STATED AB OVE, WE UPHOLD THE FINDINGS OF THE LD. CIT (A) IN DIRECTING THE EX CLUSION OF INFOSYS BPO LTD. FROM THE FINAL SET OF COMPARABLES. GROUND NO.4 OF THE DEPARTMENTS APPEAL, THUS, STAND DISMISSED. 14.0 IN THE RESULT, THE APPEAL OF THE DEPARTMENT BEARING ITA NO.3779/DEL/2017 STANDS DISMISSED. 15.0 CROSS OBJECTION NO.181/DEL/2017 FOR ASSESSME NT YEAR 2011-12 BROADLY SUPPORTS THE ORDER OF THE LD. CIT (A) AND NO FRESH GROUND HAS BEEN AGITATED IN THE SAID CROSS OB JECTION. IN VIEW OF OUR UPHOLDING THE ORDER OF THE LD. CIT (A) IN TE RMS OF THE ISSUES CHALLENGED BY THE DEPARTMENT IN ITA NO.3779/DEL/201 7 AND IN VIEW OF THE DISMISSAL OF THE SAID APPEAL OF THE DEPA RTMENT, THE CROSS OBJECTION NO.181/DEL/2017 PREFERRED BY THE AS SESSEE BECOMES IN FRUCTUOUS. 55 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 16.0 IN THE RESULT, THE CROSS OBJECTION OF THE ASSESSE IS DISMISSED AS HAVING BECOME IN FRUCTUOUS . 17.0 COMING TO THE ASSESSEES APPEAL BEARING ITA NO.2745/DEL/2018 FOR ASSESSMENT YEAR 2012-13, IT IS SEEN THAT THE ASSESSEE IS CHALLENGING THE INCLUSION OF TCS E-SERV ICES LTD. IN GROUNDS NO. 2 & 4, APPLICATION OF EXPORT TURNOVER F ILTER AND EXCLUSION OF ICRA ONLINE LTD. AND DATAMATICS FINANC IAL SERVICES LTD. IN GROUND NOS.3,5,6. THE ASSESSEE IS ALSO CHAL LENGING EXCLUSION OF ACE BPO SERVICES LTD. IN GROUND NO.7. 17.1 GROUND NO.1 IS GENERAL IN NATURE NOT REQUIR ING ANY SEPARATE ADJUDICATION. 17.2 IN GROUND NOS. 2 & 4, THE ASSESSEE HAS CHALLENGED THE INCLUSION OF THE COMPARABLE TCS E-SE RVICE LTD. WE HAVE ALREADY DIRECTED THE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES FOR ASSESSMENT YEAR 2010-11 IN T HE PRECEDING PARAGRAPHS OF THIS ORDER. ON SIMILAR REASONING, FOR ASSESSMENT YEAR 2012-13 ALSO, THIS COMPANY IS DIRECTED TO BE EXCLUD ED FROM THE FINAL SET OF COMPARABLES. 56 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 17.3 THE ASSESSEE HAS CHALLENGED THE EXCLUSION OF THE COMPARABLE ICRA ONLINE LTD. IT IS SEEN THAT THIS C OMPANY HAS BEEN EXCLUDED BY THE TPO BY APPLYING EXPORT TURNOVER FIL TER OF 75%. IT IS THE ASSESSEES CONTENTION THAT THIS COMPANY IS FUNC TIONALLY COMPARABLE TO THE ASSESSEES COMPANY AND THAT THE A SSESSEE HAD ALREADY APPLIED FOREIGN EXCHANGE FILTER WHILE SELECT ING COMPARABLES AND, THEREFORE, RESTRICTING EXPORT EARNINGS TO 75% WAS NOT WARRANTED AS THE NATURE OF SERVICES WERE IDENTICAL. IT HAS ALSO BEEN BROUGHT TO OUR NOTICE THAT THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009-10 HAD REMITTED THE USE OF THI S FILTER TO THE TPO WHEREIN IN THAT YEAR THE EXPORT TURNOVER FILTER OF 25% HAD BEEN APPLIED. WE NOTE THAT IN THIS YEAR THE EXPORT TURNO VER FILTER HAS BEEN ENHANCED TO 75% BY THE TPO WITHOUT ASSIGNING ANY RE ASON AND THERE IS NO FINDING BY EITHER OF THE LOWER AUTHORIT IES ON THE ASPECT OF THE FUNCTIONAL SIMILARITY OF THE ASSESSEE COMPAN Y WITH THIS COMPANY. WE ALSO NOTE THAT THE ITAT IN ASSESSMENT Y EAR 2009-10, IN ASSESSES OWN CASE, HAD REMITTED THE ISSUE OF THI S FILTER TO THE TPO BY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH IN THE CASE OF BHARTI AIRTEL LTD. VS. ACIT [2014] 101 ITR TRIBUNAL 121. 57 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 ACCORDINGLY, IT WILL BE IN THE FITNESS OF THINGS TO RESTORE THIS COMPARABLE TO THE FILE OF THE TPO FOR FRESH ADJUDIC ATION AFTER CONSIDERING THE ASSESSEES ARGUMENTS SUPPORTING FUN CTIONAL SIMILARITY AND ALSO AFTER DULY CONSIDERING THE NECE SSITY OF APPLICATION OF EXPORT TURNOVER FILTER GIVEN THE FAC T THAT THE ASSESSEE HAS ALREADY USED FOREIGN EXCHANGE FILTER. 17.4 SIMILARLY, DATAMATICS FINANCIAL SERVICES LTD . HAS BEEN EXCLUDED ON THE GROUND THAT IT FAILS THE 75% E XPORT TURNOVER FILTER. FOR THIS COMPARABLE ALSO, IT IS THE ASSESSE ES CONTENTION THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE TO THE ASSE SSEE COMPANY AND, THEREFORE, THE SAME SHOULD HAVE BEEN INCLUDED IN THE FINAL SET OF COMPARABLES AND THAT THE USE OF EXPORT TURNOVER FILTER WAS NOT WARRANTED. THE OBSERVATIONS, WE HAVE MADE IN RESPECT OF ICRA ONLINE LTD. WOULD ALSO APPLY TO THIS COMPARABLE AND WE RESTORE THIS COMPARABLE ALSO TO THE FILE OF THE TPO FOR CONSIDE RING THE ARGUMENTS OF THE ASSESSEE FOR ITS INCLUSION ON THE BASIS OF FUNCTIONAL SIMILARITY WHILE DULY CONSIDERING THE ASS ESSEES OBJECTIONS AGAINST APPLICATION OF EXPORT TURNOVER F ILTER OF 75%. NEEDLESS TO SAY, THE TPO SHALL GIVE PROPER OPPORTUN ITY TO THE 58 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 ASSESSEE WHILE CONSIDERING THE TWO COMPARABLES I.E. I CRA ONLINE LTD. AND DATAMATICS FINANCIAL SERVICES LTD. AFRESH. THUS, GROUND NOS. 3, 5, 6 STAND ALLOWED FOR STATISTICAL PURPOSES . 17.5 GROUND NO.7 CHALLENGES THE ACTION OF THE LD . CIT (A) IN DIRECTING THE EXCLUSION OF BPO SERVICE L TD. IT IS THE ASSESSEES CONTENTION THAT THIS COMPANY WAS FUNCTION ALLY SIMILAR TO THE ASSESSEES COMPANY AS IT IS A HEALTHCARE FOCUSE D ITES PROVIDER PROMOTED BY HEALTHCARE MANAGEMENT PROFESSIONALS. IT IS ALSO BEEN SUBMITTED THAT NEITHER THE TPO NOR THE LD. CIT (A) HAVE OBJECTED TO ITS INCLUSION ON THE GROUND OF FUNCTIONAL COMPARABI LITY. IT IS OUR CONSIDERED OPINION THAT THIS COMPARABLE SHOULD ALSO BE RE- EXAMINED BY THE TPO FOR THE PURPOSE OF INCLUSION/EX CLUSION FROM THE FINAL SET OF COMPARABLES AFTER DULY EXAMINING T HE ASSESSEES CLAIM OF FUNCTIONAL SIMILARITY. THE TPO IS DIRECTED TO GIVE ADEQUATE OPPORTUNITY TO THE ASSESSEE WHILE DECIDING ON THE INCLUSION/EXCLUSION OF THIS COMPARABLE. THUS, GROUN D NO.7 ALSO STANDS ALLOWED FOR STATISTICAL PURPOSES. 59 ITA NO.3779 & 3989 /DEL/2017 C.O NO.181/DEL/2017 ITA NO.2745/DEL/2018 18.0 IN THE RESULT, THE ASSESSEES APPEAL BEARING ITA NO.2745/DEL/2018 FOR ASSESSMENT YEAR 2012-12 STANDS ALLOWED FOR STATISTICAL PURPOSES. 19.0 IN THE FINAL RESULT, ITA NO.3989/DEL/2017 ST ANDS PARTLY ALLOWED, ITA NO.3779/DEL/2017 STANDS DISMISS ED, C.O. NO.181/DEL/2017 STANDS DISMISSED, WHEREAS ITA NO.2745/DEL/2018 STANDS ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED ON 27/10/2020 SD/- SD/- (N.K.BILLAIYA) (SUDHANSHU SRIVASTAVA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27/10/2020 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI