M/s. Transcend India Pvt. Ltd., Bangalore V. DCIT, New Delhi

CO 446/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0096 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S S TOMAR S
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Earning of tax free income; Additional evidence; Wholly owned subsidiary; Avoidance of tax
• Section: 234B; 14A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-2 : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.2754/DEL/2015 ASSESSMENT YEAR: 2007-08 DCIT, CIRCLE-25(2), NEW DELHI. VS. TRANSCEND INDIA PVT. LTD., B-4, SAGAR TOWER, JANAK PURI, DISTRICT CENTRE, NEW DELHI. PAN: AAGCS9759K CO NO.446/DEL/2015 (ITA NO.2754/DEL/2015) ASSESSMENT YEAR: 2007-08 TRANSCEND INDIA PVT. LTD., 1/1, ARAKERE, BANNERGHATTA ROAD, BANGALORE. PAN: AAGCS9759K VS. DCIT, CIRCLE-25(2), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VISHAL KALRA & SHRI S.S. TOMAR, ADVOCATES REVENUE BY : SHRI SARABJEET SINGH, SR. DR DATE OF HEARING : 03.12.2018 DATE OF PRONOUNCEMENT : 10.12.2018 ORDER PER R.K. PANDA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29 TH JANUARY, 2015 OF THE CIT(A)-44, NEW DELHI RELATING TO ASSESS MENT YEAR 2007-08. THE ASSESSEE ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 2 HAS FILED A CO AGAINST THE APPEAL FILED BY THE REVE NUE. FOR THE SAKE OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE AS SESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF RENDERING MEDICAL TRANSCRIPTION SERVICE S. IT FILED ITS RETURN OF INCOME ON 31 ST OCTOBER, 2007 DECLARING TOTAL INCOME OF RS.2,75,91 ,249/-. SINCE THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, HAD UNDERTAKEN INTERNATIONAL TRANSACTIONS WITH ITS AE, THE VALUE OF WHICH WAS MORE THAN RS.15 CRORE, T HE ASSESSING OFFICER REFERRED THE MATTER TO THE TPO U/S 92CA(3) OF THE IT ACT, 1961 T O DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION CARRIED OUT BY IT. 3. DURING THE COURSE OF TP ASSESSMENT PROCEEDINGS, THE TPO OBSERVED THAT THE ASSESSEE IS IN THE BUSINESS OF RENDERING MEDICAL TR ANSCRIPTION SERVICES AND IS A WHOLLY OWNED SUBSIDIARY OF SPRYANCE INC. THE MEDICAL TRANS CRIPTION WORK IS OUTSOURCED TO EITHER INDEPENDENT SERVICE PROVIDERS IDENTIFIED BY SPRYANCE INC. OR TO INDEPENDENT HOME BASED MEDICAL TRANSCRIPTIONISTS (HMTS) IDENTIF IED BY SPRYANCE INDIA AS PER GUIDELINES LAID DOWN BY SPRYANCE INC. HE OBSERVED THAT DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE COMPANY HAS UNDERTAKE N QUALITY CHECK IN RELATION TO MEDICAL TRANSCRIPTION WORK PERFORMED BY INDEPENDENT SUPPLIERS AND COORDINATION AND QUALITY CONTROL ACTIVITIES IN RELATION TO THE WORK OUTSOURCED TO IT BY SPRYANCE INC. WHICH SPRYANCE INDIA PASSES ON TO THIRD PARTY HMTS FOR EXECUTION AS PER GUIDELINES LAID DOWN BY SPRYANCE INC. HE OBSERVED THAT THE AS SESSEE DURING IMPUGNED ASSESSMENT YEAR HAS UNDERTAKEN THE FOLLOWING INTERN ATIONAL TRANSACTION:- ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 3 S.NO. DESCRIPTION OF TRANSACTION METHOD VALUE (IN R S.) 1. MEDICAL TRANSCRIPTION, QUALITY ASSURANCE AND RELATED SERVICES TNMM 33,92,30,295/- 2. REIMBURSEMENT OF EXPENSES CUP 14,20,388/- 4. HE OBSERVED THAT THE ASSESSEE IN ITS TP STUDY RE PORT HAS CONSIDERED ALL THE INTERNATIONAL TRANSACTIONS AS RELATED TO IT ENABLED ACTIVITIES AND HAS BENCHMARKED BY USING TNMM. PROFIT LEVEL INDICATOR (PLI) USED IS O P/TC. IN THE TP REPORT, THE OP/TC OF THE ASSESSEE WAS SHOWN AT 14.64%. THE ASS ESSEE HAS SELECTED FOUR COMPARABLES WHOSE AVERAGE WEIGHTED MARGIN WAS SHOWN AT 11.01%. SINCE THE ASSESSEE HAS USED MULTIPLE YEAR DATA, THE TPO REJEC TED THE SAME AND APPLIED THE CURRENT YEAR DATA. FURTHER, SINCE THE ASSESSEE IN THE ORIGINAL TP STUDY HAD USED FOUR COMPARABLES TO BENCHMARK THE TRANSACTIONS, THE TPO RETAINED THE TWO COMPARABLES, NAMELY, R. SYSTEMS INTERNATIONAL AND FIRSTSOURCE SO LUTIONS AND PROPOSED FIVE MORE COMPARABLES AND DETERMINED THE ARITHMETIC MEAN AT 1 6.15%. AFTER CONSIDERING THE OBJECTIONS FILED BY THE ASSESSEE, THE TPO FINALLY S ELECTED THE FOLLOWING COMPARABLES AND COMPUTED THE ALP AT 28.63%, THE DETAILS OF WHIC H ARE AS UNDER:- S.NO. COMPANY NAME OP/TC (%) 1. CAT TECHNOLOGIES LTD. 82.88 2. COSMIC GLOBAL LTD. 11.75 3. CAMEO CORPORATE SERVICES LTD. 9.75 4. ACCENTIA TECHNOLOGIES LTD. 33.4 5. R. SYSTEMS INTERNATIONAL LTD. 14.58 6. FIRSTSOURCE SOLUTIONS LTD. 19.41 ARITHMETIC MEAN 28.63 ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 4 5. WHILE DOING SO, THE TPO DID NOT ALLOW RISK ADJUS TMENT OR WORKING CAPITAL ADJUSTMENT. THE ASSESSING OFFICER, THEREAFTER, PAS SED THE ORDER MAKING AN UPWARD ADJUSTMENT OF RS.4,14,08,031/- AS SUGGESTED BY THE TPO. SIMILARLY, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.3,65,386/- U/S 1 4A AND RS.1,82,711/- ON ACCOUNT OF SALE OF ASSETS. 6. THE ASSESSEE APPROACHED THE CIT(A) CHALLENGING T HE TP ADJUSTMENT AS WELL AS THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A AND LOSS ON SALE OF ASSETS. SO FAR AS THE TP ADJUSTMENT IS CONCERNED, THE LD.CIT(A ) DIRECTED THE ASSESSING OFFICER TO EXCLUDE M/S ACCENTIA TECHNOLOGIES LTD. AND CAT TECH NOLOGIES LTD., FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITY. SO FAR AS THE OTHER DISALLOWANCES ARE CONCERNED, HE REJECTED THE GROUNDS RAISED BY TH E ASSESSEE BEFORE HIM. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS:- '1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO EXCLUDE M/S ACCENTIA TECHNOLOGIES LTD. AS A COMPARABLE IGNO RING THE FUNCTIONAL SIMILARITY OF THE COMPARABLE. THE MEDICAL TRANSCRIP TION SERVICES FORMS THE FOREMOST SEGMENT AND IS AN INTEGRAL PART OF THE ENT IRE GAMUT OF SERVICES.' '2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AD MITTING THE ADDITIONAL EVIDENCES IN CASE OF ACCENTIA TECHNOLOGIES LTD. REG ARDING ACQUISITION ETC., WITHOUT GIVING ANY OPPORTUNITY TO THE TPO WHICH IS IN VIOLATION OF RULE 46A OF THE INCOME TAX RULE, 1962.' 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO EXCLUDE M/S CAT TECHNOLOGIES LTD. AS A COMPARABLE IGNORING THE FUNCTIONAL SIMILARITY OF THE COMPARABLE. THE TRAINING AND MEDICAL TRANSCRIPT ION SERVICE WAS A MAJOR PART OF THE INCOME OF CAT TECHNOLOGIES LTD. IN THE A.YRS. 2006-07, 2007-08 & 2008-09. ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 5 'THE APPELLANT CRAVES, LEAVE FOR RESERVING THE RIGH T TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND (S) OF APPEAL AT ANY TIME BEFO RE OR DURING THE HEARING OF APPEAL.' 8. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE CO FILED BY IT:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN PARTIALLY UPHOLDING THE ORDER OF THE ASSESSING O FFICER (AO) / TRANSFER PRICING OFFICER (TPO) WHICH IS ARBITRARY, BAD IN LAW AND VOID AB-INITIO. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLD ING THE ACTION OF THE AO IN INVOKING THE PROVISIONS OF CHAPTER X - SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX OF THE ACT, WITHOUT APPRECIATING THAT THE INCOME OF THE APPELLANT WAS EXEMPT UNDER SECTIONS10A/10B OF THE A CT, AND THEREFORE, THERE COULD NOT HAVE BEEN ANY EROSION OF TAX REVENUE FROM INDIA. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UP HOLDING THE ACTION OF THE AO IN INVOKING THE PROVISIONS OF CHAPTER X - SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX OF THE ACT, WITHOUT APPRECIATING THAT THERE WOULD H AVE BEEN NO PROFIT SHIFTING FROM INDIA. 4. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE ORDER PASSED UNDER SECTION 92CA OF THE ACT IS WITHOUT JUR ISDICTION, AND THEREFORE, CONSEQUENTIAL TRANSFER PRICING ADJUSTMENT MADE BY T HE AO, IS NULL AND VOID AB- INITIO. 5. THAT THE CIT(A) ERRED ON FACTS AND IN LAW, IN N OT APPRECIATING THAT THE REFERENCE MADE BY THE AO TO THE TPO WAS BAD IN LAW AND VOID AB-INITIO AS THE AO FAILED TO PROVIDE A COPY OF THE APPROVAL GRANTED IN THIS REGARD BY THE COMMISSIONER OF INCOME-TAX AND AFFORDING ANY OPPORT UNITY OF BEING HEARD TO THE ASSESSEE, IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. GROUNDS RELATING TO TRANSFER PRICING (TP) ADJUSTM ENTS: 6. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN U PHOLDING THE ORDER OF THE AO / TPO REJECTING THE TRANSFER PRICING STUDY OF THE ASS ESSEE. 7. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN U PHOLDING THE ORDER OF THE AO/TPO WHICH HAS NOT PROVIDED ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN RISK ASSUMED BY THE ASSESSE VIS-A-VIS THE COMPARABLE COM PANIES. 8. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING INR 3,65,386 UNDER SECTION 14A OF THE A CT. 9. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO WHICH MADE DOUBLE DISALLOWANCE OF INR 1,82,711 BEIN G LOSS ON SALE OF FIXED ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 6 ASSETS, IGNORING THE FACT THAT THE SAID LOSS WAS SUO MOTO DISALLOWED BY THE ASSESSEE. 10. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLD ING LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. EACH OF THE ABOVE GROUND IS INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS OF CROSS OBJECTION PREFERRED BY THE ASSESSE E. THE ASSESSEE PRAYS FOR LEAVE TO ADD, ALTER, VARY, O MIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT TH E TIME OF HEARING OF THE APPEAL. 9. THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDIT IONAL GROUND IN THE CROSS OBJECTION:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A)/AO/TPO ERRED IN NOT GRANTING WORKING COMPARA BILITY ADJUSTMENT TO THE OPERATING MARGINS OF THE COMPARABLE COMPANIES TO AC COUNT FOR DIFFERENCE IN WORKING CAPITAL OF ASSESSEE VIS-A-VIS THE COMPARABL E COMPANIES. 10. REFERRING TO THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF NTPC LTD. VS. CIT, 229 ITR 383 (SC) AND CIT VS. NELLIAPP AN (S), 66 ITR, 722 (SC), HE SUBMITTED THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IN THE CO SHOULD BE ADMITTED. AFTER HEARING BOTH THE SIDES, THE ADDITI ONAL GROUND RAISED BY THE ASSESSEE IN THE CO IS ADMITTED FOR ADJUDICATION. 11. SO FAR AS THE APPEAL FILED BY THE REVENUE IS CONCER NED, THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE TPO. HE SUBMITTED THAT LD.CIT(A), WITHOUT PROPERLY APPRECIATING THE FACTS, HAS DIRECTED THE ASSESSING OFFICER TO EXCLUDE ACCENTIA TECHNOLOGIES LTD. AND CAT TECHNOLOGIES LTD. FROM TH E LIST OF COMPARABLES. HE ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 7 SUBMITTED THAT THE ABOVE TWO COMPARABLES BE INCLUDE D AND THE ARITHMETIC MEAN BE COMPUTED ACCORDINGLY SO AS TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION. 12. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , STRONGLY SUPPORTED THE ORDER OF THE CIT(A). SO FAR AS ACCENTIA TECHNOLOGIES LTD . IS CONCERNED, HE DREW THE ATTENTION OF THE BENCH TO THE COPY OF THE ANNUAL RE PORT OF THE SAID COMPANY, COPY OF WHICH IS PLACED AT PAGES 269 TO 314 OF THE PAPER BO OK. REFERRING TO PAGE 311 OF THE PAPER BOOK (INTERNAL PAGE 51 OF THE ANNUAL REPORT), HE DREW THE ATTENTION OF THE BENCH TO THE INCOME FROM OPERATIONS WHICH IS FROM THREE S OURCES, I.E., (A) MEDICAL TRANSCRIPTION, (B) CODING, AND (C) SOFTWARE DEVELOP MENT. REFERRING TO CLAUSE (19) OF THE NOTES TO ACCOUNTS, HE SUBMITTED THAT THE AUDITORS H AVE STATED THAT THE COMPANY HAS ONLY ONE SEGMENT OF ACTIVITY, NAMELY, HEALTHCARE R ECEIVABLES MANAGEMENT AND, THEREFORE, SEGMENT REPORTING AS DEFINED IN AS-17 DO ES NOT APPLY. HE ACCORDINGLY SUBMITTED THAT IT IS NOT KNOWN AS TO HOW MUCH MARGI N IS AFFECTED BY TRADING IN SOFTWARE. THE FINANCIALS OF THE COMPANY CANNOT BE REPRESENTATIVE OF THE MEDICAL TRANSCRIPTION BUSINESS. THEREFORE, ON ACCOUNT OF N ON-AVAILABILITY OF SEGMENTAL INFORMATION, THE COMPANY CANNOT BE COMPARED WITH TH AT OF THE ASSESSEE. REFERRING TO CLAUSE (2) OF THE NOTES TO ACCOUNTS, HE SUBMITTED T HAT DURING THE YEAR UNDER CONSIDERATION, ACCENTIA TECHNOLOGIES LTD. HAS UNDER TAKEN SIGNIFICANT ACQUISITIONS, I.E., IT ACQUIRED 51% STAKE IN GEO-SOFT TECHNOLOGIES (TRI VANDRUM) LTD. AND 51% STAKE IN IRIDIUM TECHNOLOGIES INDIA PVT. LTD.. DUE TO THIS THE REVENUE OF THIS COMPANY HAS GONE UP SIGNIFICANTLY. REFERRING TO THE FOLLOWING DECISIONS, HE SUBMITTED THAT ACCENTIA ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 8 TECHNOLOGIES LTD. HAVE BEEN DIRECTED TO BE EXCLUDED ON ACCOUNT OF UNAVAILABILITY OF SEPARATE SEGMENT IN FINANCIALS AND EXTRAORDINARY EV ENTS IMPACTING PROFITABILITY:- (I) AMERICAN EXPRESS INDIA PRIVATE LIMITED VS. DCIT, IT A NO.1674/DEL/2015 (DELHI- TRIB.) FOR A.Y. 2007-08 AT PARA 40 OF THE O RDER. (II) SAMSUNG HEAVY INDUSTRIES INDIA PRIVATE LTD. VS. DC IT, ITA NO.576/DEL/2015 (DELHI- TRIB.) FOR A.Y. 2010-11 AT PARAS 29 TO 31 O F THE ORDER. (III) VODAFONE INDIA SERVICES (P) LTD. VS. DCIT (2014) 14 6 ITD 78 (MUMBAI) FOR A.Y.2007-08 AT PARA 21.1 OF THE ORDER. (IV) DCIT VS. MONSTER.COM INDIA PVT. LTD. (2017) 56 ITR( T) 1 (HYDERABAD-TRIB.) FOR A.Y. 2007-08 AT PARA 36 & 36.1 OF THE ORDER. (V) ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT. LTD. VS. DCIT, ITA NO. 869/DEL/2016 (DELHI-TRIB.) FOR A.Y. 2011-12 AT PARA S 4.1 & 4.3 OF THE ORDER. (VI) NTT DATA GLOBAL DELIVERY SERVICES VS. ITO, ITA NO.5 339/DEL/2011 (DELHI-TRIB.) 13. SO FAR AS THE CAT TECHNOLOGIES LTD. IS CONCERNED, T HE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE COPY OF THE AUDITED ACCOUNTS, COPY OF WHICH IS PLACED AT PAGE 220-244 OF THE PAPER BOOK. REFERRIN G TO PAGE 235 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO SCHEDULE-9 I.E., INCOME FROM OPERATIONS AND SUBMITTED THAT THE ASS ESSEE HAS DERIVED INCOME FROM THREE SOURCES, NAMELY, TRAINING INCOME RS.12.14 LAK HS, SOFTWARE DEVELOPMENT AND CONSULTING SERVICES RS.339.90 LAKHS AND MEDICAL TRA NSCRIPTION RECEIPTS RS.53.58 LAKHS. REFERRING TO CLAUSE (7) OF THE NOTES FORMING PART O F ACCOUNTS PLACED AT PAGE 239 OF THE ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 9 PAPER BOOK, LD. COUNSEL OF THE ASSESSEE DREW THE AT TENTION OF THE BENCH TO THE FOLLOWING:- 7. SEGMENT REPORTING THE COMPANYS EXCLUSIVE BUSINESS IS MEDICAL TRANSCR IPTION, TRAINING SOFTWARE DEVELOPMENT AND CONSULTING SERVICES AS SUCH THIS IS THE ONLY REPORTABLE SEGMENT AS PER ACCOUNTING STANDARD -17 ON SEGMENT REPORTING ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. AS THE COMPANY CONS IDER WHOLE OF INDIA AS A- SINGLE GEOGRAPHICAL SEGMENT, THE DISCLOSURES RELATE D TO SECONDARY SEGMENTS ARE NOT RELEVANT FOR THE COMPANY. 14. HE ACCORDINGLY SUBMITTED THAT CAT TECHNOLOGIES LTD. , HAS NOT DISCLOSED ANY SEGMENTS. FURTHER, THIS COMPANY IS HAVING MAJORITY OF ITS REVENUE FROM SOFTWARE DEVELOPMENT AND, THEREFORE, THIS COMPANY IS PRIMARI LY A SOFTWARE DEVELOPMENT COMPANY. THEREFORE, IN ABSENCE OF SEGMENTAL INFORM ATION, THE SAME CANNOT BE CONSIDERED AS A GOOD COMPARABLE. REFERRING TO THE F OLLOWING DECISIONS, HE SUBMITTED THAT CAT TECHNOLOGIES LTD. HAVE BEEN DIRECTED TO BE EXCLUDED ON ACCOUNT OF UNAVAILABILITY OF SEPARATE SEGMENTS IN FINANCIALS:- I) NOKIA SIEMENS NETWORKS INDIA VS. ACIT, ITA NO.333/ DEL/2013 (DEL-TRIB); II) OPERA SOLUTIONS MANAGEMENT CONSULTING SERVICES PVT. LTD. VS. ITO, ITA NO.5761/DEL/2014 (DELHI-TRIB.); III) VIRAGE LOGIC INTERNATIONAL INDIA BRANCH OFFICE VS. JDIT, ITA NO.6919/DEL/2014 (DELHI-TRIB.) 15. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ONLY DISPUTE TO B E CONSIDERED IN THE APPEAL FILED BY THE REVENUE IS REGARDING THE EXCLUSION OF THE TWO C OMPARABLES NAMELY, ACCENTIA ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 10 TECHNOLOGIES LTD. AND CAT TECHNOLOGIES LTD. SO FAR AS ACCENTIA TECHNOLOGIES LTD., IS CONCERNED, WE FIND THIS COMPANY IS HAVING ITS REVEN UE FROM THREE SOURCES, NAMELY, MEDICAL TRANSCRIPTION, CODING AND SOFTWARE DEVELOPM ENT. HOWEVER, NO SEGMENTAL DETAILS ARE GIVEN AND IT HAS BEEN CLASSIFIED UNDER A SINGLE SEGMENT NAMELY HEALTHCARE RECEIVABLES MANAGEMENT. WE, THEREFORE, FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT IS NOT KNOWN AS TO HOW MUC H MARGIN IS AFFECTED BY TRADING IN SOFTWARE AND THE FINANCIALS OF THE COMPANY CANNOT B E REPRESENTATIVE OF THE MEDICAL TRANSCRIPTION BUSINESS. FURTHER, WE FIND THIS COMP ANY DURING THE IMPUGNED ASSESSMENT YEAR HAS UNDERTAKEN SIGNIFICANT ACQUISITIONS. CLAU SE 2 OF THE NOTES TO ACCOUNTS READS AS UNDER:- 2. PURSUANT TO THE ORDER PASSED BY THE HON'BLE HI GH COURT OF THE JUDICATURE AT BOMBAY AND ERNAKULAM THE ERSTWHILE SU BSIDIARIES OF THE COMPANY NAMELY GEOSOFT TECHNOLOGIES (TRIVANDRUM) LIMITED (G TTL) AND IRIDIUM TECHNOLOGIES (INDIA) PRIVATE LIMITED (ITIPL) HAVE MERGED WITH THE COMPANY WITH EFFECT FROM APRIL 1, 2006. 16. WE, THEREFORE, FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT DUE TO NON-AVAILABILITY OF SEGMENTAL INFORMATI ON AND EXTRAORDINARY EVENTS OCCURRED DURING THE YEAR, THIS COMPANY CANNOT BE CO NSIDERED AS COMPARABLE. THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ALSO SUPPORTS HIS CASE. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE CIT(A) IN DIRECTING TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ACCORDINGLY, THE SAME IS UPHELD. ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 11 17. SO FAR AS CAT TECHNOLOGIES LTD. IS CONCERNED, HERE ALSO WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT HAS REVENUE FROM THR EE SOURCES, NAMELY, MEDICAL TRANSCRIPTION; SOFTWARE DEVELOPMENT AND CONSULTANCY SERVICES; AND TRAINING INCOME. HOWEVER, WE FIND NO SEGMENTAL DETAILS ARE AVAILABLE . A PERUSAL OF THE AUDITED ACCOUNTS SHOWS THAT THIS COMPANY IS HAVING MAJORITY OF ITS REVENUE FROM SOFTWARE DEVELOPMENT SINCE, AS AGAINST THE TOTAL INCOME FROM OPERATIONS AT RS.4,05,61,280/-, THE REVENUE FROM SOFTWARE DEVELOPMENT AND CONSULTING SE RVICES IS RS.3,39,89,551/-, TRAINING INCOME IS ONLY RS.12,14,225/- AND MEDICAL TRANSCRIPTION RECEIPTS IS RS.53,57,504/-. WE, THEREFORE, FIND MERIT IN THE A RGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY IS PRIMARILY A SOFTWARE DEVELOPMENT COMPANY AND, THEREFORE, IN ABSENCE OF SEGMENTAL INFORMATION, THI S CANNOT BE COMPARED WITH THE ASSESSEE COMPANY AS A COMPARABLE. THE VARIOUS DECI SIONS RELIED ON BY THE LD. COUNSEL ALSO SUPPORTS HIS CASE. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLES. SO FAR AS THE GROUND RAISED BY THE REVENUE THAT LD.CIT(A) HAS NOT GIVEN ANY OPPORTUNITY TO THE TPO BEFORE ADMITTING THE ADDITIONAL EVIDENCE IN CAS E OF ACCENTIA TECHNOLOGIES LTD., REGARDING ACQUISITION, ETC., WE FIND THE SAME IS WI THOUT ANY MERIT. ALL THESE DETAILS ARE VERY MUCH AVAILABLE IN THE AUDITED ACCOUNTS IN THE FORM OF NOTES TO ACCOUNTS, THEREFORE, THERE WAS NO NECESSITY OF GIVING ANY OPP ORTUNITY TO THE ASSESSING OFFICER. THEREFORE, THE GROUND NO.2 RAISED BY THE REVENUE IS ALSO DISMISSED. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 12 19. NOW, COMING TO THE CO FILED BY THE ASSESSEE, LD. CO UNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NOS.1, 4 AND 5 FOR WHICH THE LD. D R HAS NO OBJECTION. ACCORDINGLY, THESE GROUNDS ARE DISMISSED. 20. SO FAR AS GROUND OF APPEAL NOS.2 AND 3 OF THE CO AR E CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THESE GROUND S HAVE BEEN DECIDED AGAINST THE ASSESSEE BY VARIOUS DECISIONS OF THE COORDINATE BEN CHES OF THE TRIBUNAL AS WELL AS THE HIGH COURT. ACCORDINGLY, GROUND OF APPEAL NOS.2 AN D 3 ARE DISMISSED. 21. GROUND OF APPEAL NO.6 BEING ACADEMIC IN NATURE IS D ISMISSED. SO FAR AS GROUND OF APPEAL NO. 8 IS CONCERNED, THE SAME RELATES TO D ISALLOWANCE OF RS.3,65,386/- U/S 14A OF THE IT ACT. 22. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.3,65,386/- SINCE THE ASSESSEE HAS EARN ED DIVIDEND INCOME OF RS.2,52,976/- AND HAS INVESTED AN AMOUNT OF RS.87,6 9,780/- TOWARDS SHARES IN VARIOUS COMPANIES AND HAS NOT MADE ANY DISALLOWANCE FOR EAR NING SUCH EXEMPT INCOME. WHILE DOING SO, HE APPLIED THE PROVISIONS OF SECTIO N 14A READ WITH RULE 8D. IN APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. IT IS A N ADMITTED FACT THAT THE ASSESSMENT YEAR INVOLVED IN A.Y. 2007-08. THEREFORE, IN VIEW OF VARIOUS DECISIONS, THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE FOR ASSESSMENT YEAR 2 007-08. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN APPLYING THE PROVISIONS OF RULE 8D IS INCORRECT. HOWEVER, SINCE THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS .2,52,976/- AND HAS SUBSTANTIAL ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 13 INVESTMENT IN SHARES OF VARIOUS COMPANIES, THEREFOR E, IT CANNOT BE SAID THAT NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR M AKING THE INVESTMENT AND EARNING THE EXEMPT DIVIDEND INCOME. CONSIDERING THE TOTALI TY OF THE FACTS, WE ARE OF THE CONSIDERED OPINION THAT DISALLOWANCE OF RS.30,000/- ON ESTIMATE FOR THIS YEAR UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE WILL MEET THE E NDS OF JUSTICE. WE, THEREFORE, MODIFY THE ORDER OF THE CIT(A) AND DIRECT THE ASSES SING OFFICER TO DISALLOW AN AMOUNT OF RS.30,000/- U/S 14A OF THE IT ACT. GROUND NO.8 IS ACCORDINGLY PARTLY ALLOWED. 23. SO FAR AS GROUND NO.9 IS CONCERNED, IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE IS DOUBLE DISALLOWANCE OF RS.1, 82,711/- BEING LOSS ON SALE OF FIXED ASSETS SINCE THE SAID LOSS WAS SUO MOTO DISALLOWED BY THE ASSESSEE. WE, THEREFORE, RESTORE THIS MATTER TO THE FILE OF ASSESSING OFFICE R WITH A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND ADJUDICATE THE ISSUE AFRESH. NE EDLESS TO SAY, THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE AND DECIDE THE ISSUE AS PER THE FACT AND LAW. GROUND OF APPEAL NO.9 IS ACCORDI NGLY ALLOWED FOR STATISTICAL PURPOSES. 24. GROUND OF APPEAL NO.10 RELATES TO LEVY OF INTEREST U/S 234B WHICH IS MANDATORY AND CONSEQUENTIAL IN NATURE. THEREFORE, THIS GROUN D IS DISMISSED. 25. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE BECOME S ACADEMIC IN NATURE IN VIEW OF THE DISMISSAL OF THE APPEAL FILED BY THE RE VENUE. THEREFORE, THIS GROUND IS DISMISSED. ITA NO.2754/DEL/2015 CO NO.446/DEL/2015 14 26. IN THE RESULT, THE APPEAL FILED BY THE RE VENUE IS DISMISSED AND THE CO FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURP OSES. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 10.12.2018. SD/- SD/- (BEENA A. PILLAI) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMFBER DATED: 10 TH DECEMBER, 2018 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI