M/s Unisys India Private Limited, Bangalore V. DCIT, Bangalore

CO 97/BANG/2015

• Counselvise Citation: [2017] 112 COUNSELVISE.COM (IT) 4509 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 16-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P K PRASAD; UMASHANKAR GAUTAM
• Keywords: Depreciation; Opportunity of being heard; Set aside
• Section: 133(6); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT (TP) A NO. 279 /BANG/201 3 ASSESSMENT YEAR : 20 0 7 - 0 8 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 12(5), BANGALORE. VS. M/S. UNISYS INDIA PRIVATE LIMITED, 4 TH & 5 TH FLOOR, BLOCK WARP, SJR I PARK, WHITEFIELD AREA, # 13, 14 & 15, K R PURAM, BANGALORE 560 066. PAN: AA A CU 1502G APPELLANT RESPONDENT C.O. NO. 97/BANG/2015 (IN IT(TP)A NO. 279 /BANG/2013 ASSESSMENT YEAR : 2007 - 08 M/S. UNISYS INDIA PRIVATE LIMITED, 4 TH & 5 TH FLOOR, BLOCK WARP, SJR I PARK, WHITEFIELD AREA, # 13, 14 & 15, K R PURAM, BANGALORE 560 066. PAN: AAACU 1502G VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 3(1)(1), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI P.K. PRASAD, ADVOCATE & SHRI UMASHANKAR GAUTAM, ADVOCATE RE VENUE BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 05 .0 9 .201 7 DATE OF PRONOUNCEMENT : 28 .09 .2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AND THE CO IS F ILED BY THE ASSESSEE AND THESE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)- IV, BANGALORE DATED 31.12.2012 FOR ASSESSMENT YEAR 2007-08. IT(TP)A NO. 279/BANG/2013 & C.O. NO. 97/BANG/2015 PAGE 2 OF 9 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER. 1.THE ORDER OF THE LEARNED CIT (A) IS OPPOSED TO LA W AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 10A WITHOUT SETTING OFF OF LOSS OF NON-STPI UNIT AGAINS T THE PROFIT OF STPI UNIT, BY PLACING RELIANCE ON THE DECISION OF H ON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S YOKOGAWA INDI A LTD., BUT WITHOUT APPRECIATING THE FACT THAT AS PER AMENDED P ROVISIONS OF SECTION 10A, DEDUCTION U/S 10A HAS TO BE ALLOWED FR OM THE TOTAL INCOME OF THE ASSESSEE, AND AS PER SECTION 2(45) OF THE IT ACT, THE TOTAL INCOME SHOULD BE COMPUTED FROM VARIOUS SO URCES AFTER SET OFF OF LOSSES FROM ONE SOURCE AGAINST INCOME FR OM OTHER SOURCE UNDER THE SAME HEAD OF INCOME IN TERMS OF SE CTION 70(1). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) ERRED IN LAW IN DIRECTING THE AO TO EXCLUDE THE REIMBURSEMENT OF EXPENSES INCURRED TOWARDS TELECOMMUNICATION AND EXPENSES INCURRED IN FOREIGN CURRENCY TOWARDS TRAVELING BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S 10A WITHOUT APPRECIATING THE FACT THAT THE STATUTE ALLO WS EXCLUSION OF SUCH OF EXPENDITURE ONLY FROM EXPORT TURNOVER BY WA Y OF SPECIFIC DEFINITION OF EXPORT TURNOVER AS ENVISAGED BY SUB-C LAUSE (4) OF EXPLANATION 2 BELOW SUB-SECTION (8) OF SECTION 10A AND THE TOTAL TURNOVER HAS NOT BEEN DEFINED IN THIS SECTION . 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) ERRED IN HOLDING THAT HE TPO WAS NOT JUSTIFI ED IN APPLYING WAGES (EMPLOYEES COST) TO COST FILTER AND DIRECTED TO INCLUDE THE COMPARABLE COMPANIES. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND TH AT OF THE ASSESSING OFFICER MAY BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. FIRST, WE TAKE UP THE APPEAL OF REVENUE. IT WAS FAIRLY AGREED BY BOTH SIDES THAT GROUND NO. 1 OF APPEAL OF REVENUE IS GENERAL A ND THE ISSUE INVOLVED IN GROUND NO. 2 IS COVERED IN FAVOUR OF THE ASSESSEE B Y THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS . YOKOGAWA INDIA LTD. AS REPORTED IN 341 ITR 385 WHEREIN IT WAS HELD THAT EX EMPTION U/S. 10A HAS TO BE IT(TP)A NO. 279/BANG/2013 & C.O. NO. 97/BANG/2015 PAGE 3 OF 9 ALLOWED WITHOUT SETTING OFF BROUGHT FORWARD UNABSOR BED LOSSES AND THE DEPRECIATION FROM EARLIER ASSESSMENT YEAR OR CURREN T ASSESSMENT YEAR EITHER IN THE CASE OF NON-STP UNITS OR IN THE CASE OF THE VERY SAME UNDERTAKING. 4. REGARDING THE ISSUE INVOLVED IN THE GROUND NO. 3 OF THE REVENUES APPEAL, BOTH SIDES AGREED THAT THIS ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE ANOTHER JUDGMENT OF HONBLE KARNATAKA HIGH COURT RE NDERED IN THE CASE OF CIT VS. TATA ELXSI LTD. AS REPORTED IN 349 ITR 98. 5. REGARDING THE ISSUE INVOLVED IN GROUND NO. 4 OF THE REVENUES APPEAL IN RESPECT OF APPLYING EMPLOYEES COST FILTER, THE LD. DR OF REVENUE SUPPORTED THE ORDER OF TPO WHEREAS THE LD. AR OF ASSESSEE SUPPORT ED THE ORDER OF CIT (A). HE ALSO PLACED RELIANCE ON THE TRIBUNAL ORDER RENDE RED IN THE CASE OF MENTOR GRAPHICS (NOIDA) (P.) LTD. VS. DCIT AS REPORTED IN 109 ITD 101. RELIANCE WAS ALSO PLACED ON ANOTHER TRIBUNAL ORDER RENDERED IN THE CASE OF ITO VS. M/S. INFINERA INDIA LTD. IN ITA NO. 294/BANG/2013 D ATED 20.01.2016 COPY SUBMITTED. HE ALSO PLACED RELIANCE ON ANOTHER TRIB UNAL ORDER RENDERED IN THE CASE OF DCIT VS. M/S. HELLOSOFT INDIA PVT. LTD. IN ITA NO. 645/HYD/2009 DATED 15.01.2013. HE SUBMITTED A COPY OF THIS ORDER ALSO . 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGARD ING GROUND NOS. 2 AND 3, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) BECAUSE THESE TWO ISSUES ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THESE TWO JUDGMENTS OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS . YOKOGAWA INDIA LTD. (SUPRA) AND CIT VS. TATA ELXSI LTD. (SUPRA). RESPE CTFULLY FOLLOWING THESE TWO JUDGMENTS, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THESE TWO ISSUES. HENCE GROUND NOS. 2 AND 3 ARE REJECTED. 7. REGARDING GROUND NO. 4, WE FIND THAT THE ISSUE O N THIS ASPECT WAS DECIDED BY CIT(A) AS PER HIS FINDING IN PARA NO. 26 OF HIS ORD ER WHICH IS REPRODUCED BELOW FOR READY REFERENCE. 26. AS A FRESH TP ANALYSIS IS NOT BEING CONDUCTED I N THE CASE, I AM REQUIRED TO EXAMINE THE TPO'S ORDER ON MERITS. S INCE ALL THE 10 COMPARABLES FINALLY SELECTED BY THE TPO IN THE T WO SEGMENTS ARE THOSE CHOSEN BY THE APPELLANT ITSELF, THE OBJEC TION OF THE APPELLANT IS ONLY TO THE REJECTION OF 17 COMPARABLE S IN THE IT(TP)A NO. 279/BANG/2013 & C.O. NO. 97/BANG/2015 PAGE 4 OF 9 SOFTWARE SERVICES SEGMENT AND OF 15 COMPARABLES IN THE ITES SEGMENT, AS EVEN THESE COMPANIES WERE ALSO CHOSEN U SING THE SAME CRITERIA AS THOSE USED IN SELECTING THE 10 COM PARABLES ACCEPTED BY THE TPO. I FIND FROM THE TPO'S ORDER TH AT 11 OUT OF 17 COMPANIES (65%) REJECTED IN THE SOFTWARE DEVELOP MENT SEGMENT AND 8 OUT OF 15 COMPANIES (53%) REJECTED IN THE ITES SEGMENT WERE REJECTED ON APPLICATION OF THE WAGES T O COST RATIO OR EMPLOYEE COST FILTER. ON THE WHOLE, SINCE ABOUT 6O% OF REJECTION WAS OWING TO THE APPLICATION OF THE EMPLO YEE COST FILTER, I CONSIDER IT APPROPRIATE TO EXAMINE THE ME RITS OF THIS FILTER FIRST. 8. WE FIND THAT CIT(A) HAS MAINLY FOLLOWED THE TRIB UNAL ORDER RENDERED IN THE CASE OF MENTOR GRAPHICS (NOIDA) (P.) LTD. VS. DCIT (SUPRA) AND OBSERVED IN PARA NO. 34 OF HIS ORDER THAT IT WAS HELD BY THE TR IBUNAL IN THAT CASE THAT INSISTING ON LOW EMPLOYEE COST IS NOT A VERY CREDIB LE OR A RATIONAL SELECTION CRITERIA AND SINCE, EMPLOYEES COST IS LOW OR SIMILA R THROUGHOUT INDIA, THIS IS NOT ACCEPTABLE THAT IT WOULD MAKE A MAJOR DIFFERENCE. AS PER THE ORDER OF TPO, WAGES / COST RATIO OF ASSESSEE COMPANY IS 42% AND T HE TPO HAS REJECTED ONLY THOSE COMPARABLES WHERE THIS RATIO FALLS OUTSI DE THE RANGE OF 25% TO 65%. HENCE IT IS SEEN THAT THE TPO HAS NOT ADOPTED A STATIC PERCENTAGE OF EMPLOYEES COST RATIO BUT IT HAS ADOPTED A WIDE RANG E RANGING FROM 25% TO 65%. NOW IN THE LIGHT OF THESE FACTS, WE EXAMINE T HE APPLICABILITY OF VARIOUS JUDGMENTS FOLLOWED BY LD. CIT(A) AND RELIED UPON BY THE LD. AR OF ASSESSEE. 9. FIRST OF ALL, WE CONSIDER THE TRIBUNAL ORDER REN DERED IN THE CASE OF MENTOR GRAPHICS (NOIDA) (P.) LTD. VS. DCIT (SUPRA). IN PA RA NO. 39.3 OF THIS TRIBUNAL ORDER, IT WAS A SUBMISSION OF THE ASSESSEE BEFORE T HE TRIBUNAL THAT INSISTING ON LOW EMPLOYEE COST IS NOT A VERY CREDIBLE RATIONAL S ELECTION CRITERION AND TPO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS DID NOT POINT OUT WITH REFERENCE TO ANY MATERIAL, AS TO WHAT IS THE ECONOMIC RATIONA LE FOR USING THIS CRITERIA. THEREAFTER IN PARA NO. 44 OF THIS TRIBUNAL ORDER, T HE TRIBUNAL HAD HELD THAT ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, IT IS HELD THAT CONTENTION ADVANCED BY LD. DR CANNOT BE ACCEPTED. HENCE IT IS SEEN THAT THERE IS NO SPECIFIC FINDING GIVEN BY THE TRIBUNAL IN THIS CASE REGARDING ACCEPTABILITY OR OTHERWISE OF EMPLOYEES COST FILTER AND THEREFORE, THIS TRIBUNAL ORDER IS NOT RELEVANT IN THE PRESENT CASE. IT(TP)A NO. 279/BANG/2013 & C.O. NO. 97/BANG/2015 PAGE 5 OF 9 10. ANOTHER TRIBUNAL ORDER ON WHICH RELIANCE PLACED BY LD. AR OF ASSESSEE IS TRIBUNAL ORDER RENDERED IN THE CASE OF ITO VS. M/S. INFINERA INDIA LTD. (SUPRA). IN THIS CASE, THE TRIBUNAL HAD REPRODUCED PARA NOS. 146 TO 148 OF THE ORDER OF CIT(A) IN THAT CASE IN PARA NO. 18 OF TRIBUNAL ORDE R. AS PER THIS ORDER OF CIT(A), THE TRIBUNAL ORDER RENDERED IN THE CASE OF MENTOR GRAPHICS (NOIDA) (P.) LTD. VS. DCIT (SUPRA) WAS FOLLOWED BY HIM AND THE TRIBUNAL HAD UPHELD THIS ORDER OF CIT(A) WITHOUT ANY SPECIFIC FINDING A ND THEREFORE, THIS TRIBUNAL ORDER IS ALSO NOT RELEVANT IN THE PRESENT CASE. 11. THE THIRD TRIBUNAL ORDER ON WHICH RELIANCE HAS BEEN PLACED IS RENDERED IN THE CASE OF DCIT VS. M/S. HELLOSOFT INDIA PVT. LTD. (SU PRA). PARA NO. 34 OF TRIBUNAL ORDER IS RELEVANT AND THEREFORE, THE SAME IS REPROD UCED HEREINBELOW. 34. THE ACCEPT/REJECT MATRIX OF THE COMPARABLES ADO PTED BY THE TPO BY APPLYING 'EMPLOYEE COST TO SALE' FILTER AND 'ONS ITE INCOME' FILTER ALSO CANNOT BE ACCEPTED IN VIEW OF OUR OBSERVATION IN DEPARTMENT'S APPEAL NO. 645/HYD/09. THESE FACTORS HAVE NOT AT AL L BEEN CONSIDERED BY THE DRP IN ITS ORDER PASSED U/S 144C (5) OF THE I T ACT. IN AFORESAID VIEW OF THE MATTER, WE CONSIDER IT PROPER TO SET ASIDE THE ORDER PASSED BY THE DRP AS WELL AS ASSESSMENT ORDER PASSED IN CONSEQUENCE THERETO AND REMIT THE MATTER BACK TO TH E TPO WHO SHALL RE-COMPUTE THE ALP IN ACCORDANCE WITH THE OBSERVATI ONS MADE BY US HEREIN ABOVE AND ALSO IN THE DEPARTMENT'S APPEAL IN ITA NO.645/HYD/09 (SUPRA). NEEDLESS TO MENTION HERE THA T THE TPO SHALL AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. BEFORE PARTING, WE WOULD LIKE TO OBSERVE THAT THOUGH THE T PO IS EMPOWERED UNDER THE PROVISIONS OF THE ACT TO COLLECT INFORMAT ION U/S 133(6) OF THE ACT. BUT, AT THE SAME TIME, PRINCIPLES OF NATURAL J USTICE DEMAND THAT THE INFORMATION SO COLLECTED, IF PROPOSED TO BE UTI LISED, THEN THE SAME HAS TO BE CONFRONTED TO THE ASSESSEE. 12. IN PARA NO. 12 OF THIS TRIBUNAL ORDER, IT IS HE LD THAT CIT (A) IS JUSTIFIED IN NOT SUSTAINING THE REJECTION OF COMPARABLES SELECTED BY THE ASSESSEE BY APPLYING EMPLOYEE COST TO SALE FILTER AS RELEVANT DATA / I NFORMATION FOR THIS FILTER IS NOT AVAILABLE BECAUSE IT IS A FACT THAT PART OF THE EMP LOYEES COST IS INCLUDED BY MANY COMPANIES UNDER DIFFERENT OTHER HEADS. AS PER THIS LOGIC, IF A COMPANY IS INCLUDING EMPLOYEES COST IN OTHER HEADS OF EXPE NSES THEN THE EMPLOYEES COST WILL GO DOWN AND IF IN SPITE OF THAT THE EMPLO YEES COST IS MORE THAN 65% OF TOTAL COST THEN BY APPLYING THIS LOGIC, IT CANN OT BE SAID THAT THIS FILTER CANNOT IT(TP)A NO. 279/BANG/2013 & C.O. NO. 97/BANG/2015 PAGE 6 OF 9 BE APPLIED. IN RESPECT OF THOSE COMPANIES WHERE EM PLOYEES COST IS FOUND TO BE LESS THAN 25%, IT MAY BE THAT THE ACTUAL EMPLOYE ES COST IS MORE THAN 25% BECAUSE OF THE DIVERSION OF SUCH COST TO OTHER HEAD S OF EXPENSES AND IT IS APPEARING THAT EMPLOYEES COST IS LESS THAN 25% OF T OTAL COST. AS PER THE CHART AVAILABLE ON PAGES 30 TO 32 OF THE ORDER OF TPO, IN ONE CASE I.E. GOLDSTONE TELESERVICES LTD. THE EMPLOYEES COST RATIO IS 71.26 %. IN THE CASE OF TWINSTAR INDUSTRIES LTD. THE EMPLOYEES COST RATIO IS 1.11% O NLY, SIMILARLY IN THE CASE OF ACE SOFTWARE EXPORTS LTD. 7.10% ONLY, SIMILARLY IN THE CASE OF ASK ME INFO HUBS LTD. ONLY 8.16% AND IN THE CASE OF SPANCO LTD. ONLY 7.75%. HENCE, IT IS SEEN THAT THERE IS VERY WIDE DIFFERENCE WITH THE EM PLOYEES COST OF THE ASSESSEE COMPANY AT 42% AS AGAINST BELOW 10% IN SEV ERAL COMPANIES AND ABOVE 70% IN ONE COMPANY. IT IS SEEN THAT THESE CO MPANIES ARE DEFINITELY NOT COMPARABLE EVEN IF SOME PART OF THE EMPLOYEES COST HAS BEEN BOOKED BY THESE COMPANIES IN SOME OTHER HEADS OF EXPENSES. MO REOVER THIS IS NOT THE CASE OF THE ASSESSEE THAT A SIGNIFICANT AMOUNT HAD BEEN DEBITED TO OTHER HEADS OF EXPENSES WHICH MAY BE IN THE NATURE OF EMP LOYEES COST. IF THE EMPLOYEES COST RATIO IS ABNORMALLY LOW OR HIGH AS C OMPARED TO THE EMPLOYEES COST RATIO OF THE TESTED PARTY THEN IT HAD TO BE AC CEPTED THAT THE FUNCTIONAL PROFILE OF THE TESTED PARTY AND OF THE COMPARABLES IS NOT COMPARABLE BECAUSE IF THE EMPLOYEES COST RATIO IS VERY LOW THEN THE NA TURE OF WORK BEING DONE BY THAT COMPARABLE COMPANY IS OF A VERY LOW STANDARD A ND IF IT IS VERY HIGH THEN IT IS OF VERY HIGH STANDARD. WE ALSO FIND THAT EVEN A FTER APPLYING THE EMPLOYEES COST FILTER OF 25% TO 65%, THE REMAINING COMPARABLE S ARE 6 IN NUMBERS AS NOTED BY THE TPO IN PARA NO. 17 OF HIS ORDER AND TH EREFORE, EVEN IF SOME COMPARABLES ARE EXCLUDED FOR THIS REASON THAT THE E MPLOYEES COST IN PART HAS BEEN DEBITED TO SOME OTHER HEADS OF EXPENSES, SUFFI CIENT NUMBER OF COMPARABLES ARE AVAILABLE TO COMPUTE THE ALP AND TH EREFORE, ON THIS ISSUE, WE REVERSE THE ORDER OF CIT(A) AND RESTORE THAT OF THE AO. GROUND NO. 4 OF REVENUES APPEAL IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. IT(TP)A NO. 279/BANG/2013 & C.O. NO. 97/BANG/2015 PAGE 7 OF 9 14. NOW WE TAKE UP THE CO FILED BY THE ASSESSEE. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ONLY GROUND NOS. 2.8 AND 3 ARE TO BE DECIDED. 15. THESE TWO GROUNDS FROM THE CONCISE GROUNDS OF C O ARE REPRODUCED HEREIN BELOW AND THE REMAINING GROUNDS OF CO ARE REJECTED AS NOT PRESSED. 2.8. UPHOLDING THE REJECTION OF DATAMATICS FINANCIA L SERVICES LIMITED WHICH ARE OTHERWISE COMPARABLE TO THE INFOR MATION TECHNOLOGY ENABLES SEGMENT OF THE RESPONDENT ON THE GROUND THAT THERE WAS A DIFFERENCE IN THE COMPUTATION OF M ARK UP ON COST MADE BY THE RESPONDENT AND BY THE LEARNED TPO AND THEREFORE THE COMPARABLE CANNOT BE ACCEPTED. [CORRE SPONDING TO ORIGINAL GO A NO. 2.7] 3. THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE A PPROACH OF THE LEARNED TPO IN DENYING APPROPRIATE ADJUSTMENT T OWARDS THE WORKING CAPITAL DIFFERENCE BETWEEN THE RESPONDE NT AND THE ENTREPRENEURIAL COMPANIES SELECTED AS COMPARABLES I N DETERMINATION OF ARM'S LENGTH PRICE. [CORRESPONDING TO ORIGINAL GO A NO. 2.8] 16. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT IN PARA NO. 11 ON PAGE NO. 4 OF HIS ORDER, IT IS NOTED BY LD. CIT (A) THAT AS PER T HE 16 TH GROUND RAISED BY THE ASSESSEE, IT IS THE GRIEVANCE OF THE ASSESSEE THAT THE TPO HAS ERRED IN REJECTING M/S. DATAMATICS FINANCIAL SERVICES LTD. W HICH IS OTHERWISE A COMPARABLE COMPANY. HE SUBMITTED THAT THIS ISSUE R AISED BY THE ASSESSEE AS PER GROUND NO. 16 BEFORE CIT (A) WAS NOT DECIDED BY CIT (A). 17. REGARDING GROUND NO. 3 RAISED BEFORE US, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THIS ISSUE WAS RAISED BY THE ASSESSEE BEFORE CIT(A) AS PER GROUND NO. 7 BUT THE SAME WAS NOT DECIDED BY CIT(A) BY STATING THAT THIS IS A GENERAL GROUND WHICH DO NOT REQUIRE ADJUDICATION. HE SUBMITTED THAT THE ISSUE INVOLVED IN THESE TWO GROUNDS SHOULD BE RESTORED BA CK TO THE FILE OF CIT(A) FOR DECISION. THE LD. DR OF REVENUE SUPPORTED THE ORDER OF CIT(A). 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND FORCE IN THESE SUBMISSIONS OF LD. AR OF ASSESSEE BECAUSE WE FIND T HAT THE ISSUE REGARDING EXCLUSION OF M/S. DATAMATICS FINANCIAL SERVICES LTD . WAS VERY MUCH RAISED BY THE ASSESSEE BEFORE THE CIT (A) AS PER GROUND NO. 1 6 AND THIS ISSUE WAS DECIDED AS PER PARA NOS. 22 AND 23 BUT THERE IS NO FINDING REGARDING EXCLUSION IT(TP)A NO. 279/BANG/2013 & C.O. NO. 97/BANG/2015 PAGE 8 OF 9 OF THIS COMPARABLE I.E. M/S. DATAMATICS FINANCIAL S ERVICES LTD. FFOR THE SAKE OF READY REFERENCE, WE REPRODUCE PARA NOS. 22 AND 23 F ROM THE ORDER OF CIT (A). 22.IN THE ITES SEGMENT, THE APPELLANT OBJECTED TO T HE REJECTION BY THE TPO OF M/S DATAMATICS FINANCIAL SERVICES LTD . AS A COMPARABLE HOLDING THAT THERE WAS A HUGE DIFFERENCE BETWEEN THE OPERATING PROFIT MARGIN COMPUTED BY THE APPELLA NT AND BY THE TPO AND AS THE ISSUE OF COMPUTATION OF MARGIN W AS IN DISPUTE, THE COMPARABLE WAS LIABLE TO BE REJECTED. IT WAS APPARENT THAT THIS COMPANY WAS REJECTED MERELY ON A CCOUNT OF A DIFFERENCE IN THE COMPUTATION OF MARGIN. DATAMATICS WAS NOT A PERSISTENT LOSS MAKING COMPANY AS SEEN FROM ITS MAR GINS FOR FYS 2004-05 TO 2006-07 AS SHOWN IN THE COMPANY'S AN NUAL REPORTS AND REPRODUCED BELOW: PARTICULARS 31.03.2005 31.03.2 006 31.03.2007 TOTAL OPERATING INCOME (RS.) 87,631,218 83,559, 104 87,317,642 TOTAL OPERATING COST (RS.) 83,004,300 96,486, 776 104,865,815 OPERATING PROFIT (RS.) 4,628,043 (12,899 ,939) (17,548,113) OP/TC (%) 5.58 -13.37 -16.73 23.1 HAVE CAREFULLY CONSIDERED THE RIVAL ARGUMENTS. THE TPO HAS, AFTER DISCUSSING THE FILTERS USED AND COMPARAB LES SELECTED BY THE APPELLANT IN BOTH THE SEGMENTS, FINALLY SELE CTED FOUR COMPANIES IN THE SOFTWARE SERVICES SEGMENT AND SIX COMPANIES IN THE ITES SEGMENT AS COMPARABLES, AS SHOWN IN THE TABLE BELOW. SL.NO. COMPANY OP/TC (%) I. SOFTWARE SERVICES SEGMENT 1 ICRA TECHNO ANALYTICS LTD. 10.96 2 SCIENTIFIC ATLANTA INDIA TECHNOLOGY PVT. LTD. 17.17 3 SONATA SOFTWARE LTD. 21.76 4 SIP TECHNOLOGIES & EXPORTS LTD. 14.46 ARITHMETIC AVERAGE 16.09 II. ITES (BPO) SEGMENT 1 MAPLE E SOLUTIONS LTD. 34.32 2 TRITON CORP. LTD. 18.86 3 GALAXY COMMERCIAL LTD. 16.09 4 NATIONAL SECURITIES DEPOSITORY LTD. 36.63 5 SPARSH BPO LTD. 04.97 6 AMERICAN EXPRESS INDIA LTD. 15.96 ARITHMETIC AVERAGE 21.14 19. IN VIEW OF THIS, WE RESTORE THIS MATTER BACK TO THE FILE OF CIT(A) FOR PASSING A SPEAKING AND REASONED ORDER ON THIS ASPECT. SIMILA RLY REGARDING GROUND NO. 7 RAISED BY THE ASSESSEE BEFORE THE CIT (A), IT IS ST ATED BY CIT (A) THAT THIS IS A GENERAL GROUND AND DOES NOT REQUIRE ADJUDICATION. BUT WHEN ASSESSEE IS IT(TP)A NO. 279/BANG/2013 & C.O. NO. 97/BANG/2015 PAGE 9 OF 9 RAISING GROUNDS REGARDING GRANTING OF APPROPRIATE A DJUSTMENT TOWARDS WORKING CAPITAL DIFFERENCE, IT CANNOT BE SAID THAT THIS IS A GENERAL GROUND AND THEREFORE, THIS ISSUE ALSO IS RESTORED BACK TO THE FILE OF CIT (A) FOR FRESH DECISION. SO THESE GROUNDS OF ASSESSEES CO ARE ALLOWED FOR STATISTICA L PURPOSES. 20. IN THE RESULT, THE CO FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE COMBINED RESULT, THE APPEAL FILED BY THE REVENUE AND CO FILED BY THE ASSESSEE ARE PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (VIJAY PAL RAO) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 28 TH SEPTEMBER, 2017. /MS/ COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.