Global E Business Operations Private Limited, Bangalore V. DCIT, Bangalore

ITA 1092/BANG/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8649 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 16-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Wholly owned subsidiary
• Section: 43B; 133(6); 15

Judgement Text

IT(TP)A.1092/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T(TP).A NO.1092/BANG/2011 (ASSESSMENT YEAR : 2007-08) GLOBAL E-BUSINESS OPERATIONS P. LTD, KALYANI PLATINA, PHASE 2 BUILDING, SURVEY NO.1, 6 & 24, KUNDALAHALLI VILLAGE, KR PURAM, HOBLI, BENGALURU 560 056 .. APPELLANT PAN : AABCG2843D V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -11(3), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. SHARATH RAO, CA REVENUE BY : SHRI. G. R. REDDY, CIT DR-I HEARD ON : 26.10.2016 PRONOUNCED ON : 16 .01.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER PASSED BY THE DCIT, CIRCLE -11(3), BENGALURU, DT.21.09.2011, IN PURSUANCE TO THE DIRECTIONS OF THE DRP FOR THE ASSESSMENT YEAR 2007- 08,. 02. M/S GLOBAL-E BUSINESS OPERATIONS PVT. LTD (GLO BAL EBIZ OR GLOBAL-E) IS PART OF THE HEWLETT- PACKARD GROUP (HP GROUP). I TS ULTIMATE HOLDING COMPANY IS HEWLETT- PACKARD COMPANY, USA. GLOBAL-E BUSINESS OPERATIONS PVT. LTD., IS WHOLLY OWNED SUBSIDIARY OF HP GLOBAL INVESTMENTS BY, IT(TP)A.1092/BANG/2011 PAGE - 2 NETHERLANDS (HP INVESTMENTS). GLOBAL E UNDERTAKES HP'S WORLDWIDE ACCOUNTING AND TRANSACTION PROCESSING WORK AS PART OF HP'S WORLDWIDE STRATEGY OF CONSOLIDATING BACKROOM OPERATIONS. IT M ANAGES OPERATIONS THAT COVER FUNCTIONALITIES LIKE FIXED ASSETS ,INTRA -CORPORATE ACCOUNTING LIKE DEBIT AND CREDIT RECORDS, VENDOR PAYABLES, FIXED AS SET TRACKING AND NON- FINANCE OPERATIONS LIKE DATA PROCESSING & OTHER IT ENABLED SERVICES, FREIGHT COST MANAGEMENT AND ORDER PROCESSING FOR CERTAIN GE OGRAPHIES. THERE IS NO CHANGE IN THE OWNERSHIP STRUCTURE FROM THE PRECEDIN G YEAR. DURING THE FY 2006-07, GLOBAL-E BUSINESS OPERATIONS PVT. LTD, THE ASSESSEE, PROVID ED DATA PROCESSING AND OTHER IT ENABLED SERVICES TO IT S AES LOCATED IN VARIOUS PARTS OF THE WORLD. IT IS REGISTERED UNDER THE SOFTWARE TECHNOLOGY PARKS O F INDIA SCHEME AND IS CLAIMING TAX HOLIDAY BENEFIT IN RESPECT OF THE PROFITS EARNED BY IT FROM THE RESEARCH AND DEVELOPMENT SERV ICES. IT FILED ITS RETURN FOR AY 2007-08 ON 30.10.2007 DECLARING AN INCOME O F RS 1,84,82,610/-. ON A REFERENCE, THE TPO DECIDED THE ADJUSTMENTS TO ARMS LENGTH PRICE AT RS. 85,93,91,410/- TO ITS INTERNATIONAL TRANSACTIO NS. ON THE CORPORATE TAX FRONT, THE AO EXCLUDED RS.20,51,19,242/, THE EXPEND ITURE INCURRED IN FOREIGN CURRENCY ON TRAVEL, FROM EXPORT TURN OVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S10A. THE AO FOUND THAT THE A SSESSEE HAS DEBITED RS.2,62,94,302/ TOWARDS FOREIGN EXCHANGE LOSS AND R EDUCED IT FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER . THE AO HELD THAT IT SHOULD BE REDUCED FROM EXPORT TURN OVER ALONE AND ACCORDINGLY REWORKED THE DEDUCTION U/S10A . THE ASSESSEE INCURRED RS.6, 83,81,220/ TOWARDS LEAVE ENCASHMENT WHICH REMAINED OUTSTANDING AS ON T HE LAST DAY OF THE PY. IT(TP)A.1092/BANG/2011 PAGE - 3 THE AO DISALLOWED IT U/S 43B(F). AGGRIEVED, THE FIL ED ITS OBJECTIONS BEFORE THE DRP. THE DRP UPHELD THE ADDITIONS MADE UNDER TP AS WELL AS THE ON THE CORPORATE TAX FRONT . IN VIEW THAT THE ASSESSEE FIL ED THIS APPEAL WITH VARIOUS GROUNDS BUT ARGUED ON THE FOLLOWING GROUNDS ALONE. IT(TP)A.1092/BANG/2011 PAGE - 4 04. THE ASSESSEE ALSO RAISED THE FOLLOWING ADDITION AL GROUNDS OF APPEAL : 05. REASONS FOR RAISING ADDITIONAL GROUNDS OF APPEAL & THE PLEA FOR THEIR ADMISSION: THE AR SOUGHT OUR ATTENTION TO THE ADDITIONAL GROU NDS OF APPEAL TO REJECT MAPLE ESOLUTIONS LIMITED, TRITON CORP LIMITED, ACCU RATE DATA CONVERTERS PRIVATE LIMITED AND INFOSYS BPO LIMITED AS COMPARAB LE TO THE ASSESSEE , AS THESE GROUNDS HAVE NOT BEEN RAISED BEFORE THE LO WER AUTHORITIES AND ARE BEING RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL . IN THIS REGARD, THE AR SUBMITTED THAT THESE FOUR CO MPANIES SHOULD BE REJECTED AS COMPARABLE TO THE ASSESSEE , AS THEY FA IL TO MEET THE LEGALLY ACCEPTABLE CRITERIA FOR COMPARABILITY. ALL OF THEM WERE CONSIDERED AS COMPARABLES BY THE TPO BASED ON THE FRESH SEARCH PR OCESS UNDERTAKEN BY HIM, HE HAS MENTIONED IN HIS ORDER THAT MAPLE ESOLU TIONS LIMITED AS A COMPARABLE SELECTED BY THE ASSESSEE , THOUGH THE A SSESSEE REJECTED IT AS A COMPARABLE IN THE QUALITATIVE ANALYSIS AS IT WAS ACQUIRED BY TRITON CORPORATION LIMITED IN 2007 AND IT HAS RESULTED IN AN ABNORMAL VARIATION IN THE FINANCIALS OF MAPLE. THUS, THE AR SUBMITTED THA T THE CONTENTION OF THE IT(TP)A.1092/BANG/2011 PAGE - 5 TPO IS FACTUALLY INCORRECT. WITH REGARD TO ACCURATE DATA CONVERTERS LIMITED, TH E ASSESSEE CONTENDED BEFORE THE DRP THAT COMPANY ALONG WITH T HREE OTHER COMPARABLES WAS NOT COMPARABLE TO IT, AS ALL OF TH EM HAD EARNED SUPER PROFITS. IN THE CASE OF LNFOSYS BPO LIMITED, THE AS SESSEE CONTENDED BEFORE THE TPO THAT IT WAS NOT COMPARABLE TO THE AS SESSEE , AS CERTAIN INFORMATION RELATING TO THE COMPANY WHICH WAS NOT A VAILABLE ON THE PUBLIC DOMAIN WAS OBTAINED USING THE POWERS VESTED IN THE TPO UNDER SECTION 133(6) AND ON ACCOUNT OF THE FACT THAT THE SAID CO MPARABLE OPERATED IN MANY COUNTRIES. SIMILARLY, IT WAS CONTENDED THAT M APLE ESOLUTIONS LIMITED AND TRITON CORP LIMITED COULD NOT BE TREATED AS COM PARABLE TO IT ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY AND THE PRESENC E OF PECULIAR BUSINESS CIRCUMSTANCES' OWING TO BUSINESS RESTRUCTU RING RESPECTIVELY. THE AR SUBMITTED THAT SEVERAL RULINGS OF THIS HONOU RABLE TRIBUNAL, PRONOUNCED SUBSEQUENT TO THE ASSESSEE FINALIZING IT S TP STUDY, HAVE REJECTED THE ABOVE MENTIONED COMPANIES AS NOT COMPA RABLE FOR BENCHMARKING ITES BUSINESSES . IT HAS FURTHER BEEN HELD THAT BOTH MAPLE ESOLUTIONS LIMITED AND TRITON CORPORATION LIM ITED CANNOT BE CONSIDERED AS COMPARABLES DUE TO THEIR FINANCIAL ST ATEMENTS BEING UNRELIABLE OWING TO THEIR DIRECTORS' INVOLVEMENT IN FRAUDULENT ACTIVITIES AND PLEADED THAT THESE RULINGS SHOULD EQUALLY APPLY TO ITS CASE AS WELL. THE TPO HAS THEREFORE ERRED IN FINALIZING THE TP ORDER BY RETAINING THEM AS COMPARABLE TO THE ASSESSEE. THUS, THE AR SUBMITTED THAT ADMISSION OF THE ADDITIONAL GROUNDS OF APPEAL RAISED WOULD BE NE CESSARY TO ASSESS THE APPROPRIATE ARM'S LENGTH PRICE OF THE INTERNATI ONAL TRANSACTIONS UNDERTAKEN BY IT, BEING THE SUBJECT MATTER OF APPEA L AND TO RENDER SUBSTANTIAL JUSTICE. WE HAVE CONSIDERED RIVAL CONTENTIONS, FIND THAT THE ABOVE SUBMISSIONS ARE MERITORIOUS AND HENCE ADMIT THE ADDITIONAL GROUNDS. IT(TP)A.1092/BANG/2011 PAGE - 6 06. ON THE TP MATTERS, THE AR SUBMITTED THAT THE FO LLOWING COMPARABLES ARE TO BE REJECTED , AS MANY OF THEM ARE FUNCTIONA LLY DIFFERENT FROM IT, SOME OF THEM HAVE LOW EMPLOYEE COST OR HAVE PECULIA R CIRCUMSTANCES OR UNRELIABLE FINANCIALS ETC . THE GIST OF HIS ARGUMEN TS AND THE CASES RELIED ON ARE AS UNDER: 1. ACCENTIA TECHNOLOGIES LTD (SEG) : A. EXTRA-ORDINARY EVENTS DURING THE YEAR 1. THE COMPANY HAS ACQUIRED 51 PERCENT STAKE IN GEOSOF T TECHNOLOGIES (TRIVANDRUM) LTD - LEADING COMPANY IN HEALTH CARE S EGMENT AN LNDIUM TECHNOLOGIES (INDIA) PVT LTD - EMERGING SOFTWARE PR ODUCTS COMPANY 2. THE COMPANY PLANS TO MERGE THE SUBSIDIARY COMPANIES TO STRENGTHEN THE BUSINESS 3. THE COMPANY HAS INCREASE IN PROFITS DUE TO THE SALE OF INVESTMENTS MADE BY THE COMPANY IN ITS GROUP CONCERNS B. FUNCTIONALLY DIFFERENT 1. THE COMPANY IS ENGAGED IN THE ACTIVITY OF MEDICAL T RANSCRIPTION, BILLING AND CODING, AND SOFTWARE DEVELOPMENT AND IMPLEMENTA TION 2. THE COMPANY OPERATES IN THE BPO, SOFTWARE PRODUCTS AND SERVICES SEGMENT C. LOW EMPLOYEE COST EMPLOYEE COST LESS THAN 25 % (15 PERCENT), LOW EMPL OYEE COST REPRESENTS OUTSOURCE OF SERVICES RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 1. ASIT C MEHTA FINANCIAL SERVICES LTD : A. FUNCTIONALLY DIFFERENT 1. THE COMPANY HAS THREE BUSINESS SEGMENTS ITES AND SO FTWARE DEVELOPMENT, PORTFOLIO MANAGEMENT SERVICES, INVESTM ENTS ACTIVITIES IT(TP)A.1092/BANG/2011 PAGE - 7 2. THE COMPANY ALSO DEVELOPS PRODUCTS - GIS SOFTWARE 3. THE COMPANY OUTSOURCES WORK THE COMPANY HAS INCURRE D DATA PROCESSING CHARGES OF RS 1.23 CRORES B. LOW EMPLOYEE COST THE EMPLOYEE COST OF THE COMPANY IS 24.79 PERCENT O F SALES RELIED ON : 1.MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2.AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A. Y. 2007-08] 3. BODHTREE CONSULTING LTD (SEG) : A. FUNCTIONALLY DIFFERENT 1. THE COMPANY PROVIDES OPEN AND END-TO-END WEB SOLUTI ONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOLUTIONS WH ICH CANNOT BE COMPARED TO BPO COMPANY 2. THE COMPANY PROVIDES DATA CLEANSING SERVICES TO THO SE COMPANIES FOR WHICH THEY HAVE DEVELOPED THE SOFTWARE B. PECULIAR CIRCUMSTANCES 1. THE COMPANY HIVED OFF CERTAIN BUSINESSES WITHOUT HI VING OFF THE REVENUE STREAM 2. THE COMPANY FORMED ANOTHER COMPANY BY NAME LEARNSMA RT (INDIA) PRIVATE LIMITED AND EXPENDITURE OF RS 2.89 CRORES A ND RS 1.09 CRORES HAS BEEN DEBITED TO THIS COMPANY WHICH HAS RESULTED IN GROWTH OF BODHTREE PROFITS 3. THE REVENUE OF THE COMPANY GREW AT 91.63 PERCENT C. ABSENCE OF SEGMENTAL RESULTS THE COMPANY OPERATES IN ONLY ONE SEGMENT - SOFTWARE DEVELOPMENT D. INTANGIBLES THE COMPANY HAS INCURRED TRADE MARK EXPENSES E. SEGMENTAL INFORMATION OBTAINED UNDER 133(6) CONT RARY TO THE ANNUAL REPORT F. FLUCTUATING MARGINS IT(TP)A.1092/BANG/2011 PAGE - 8 RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2.AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A. Y. 2007-08] 4.ECLERX SERVICES LTD : A. FUNCTIONALLY DIFFERENT 1. THE COMPANY PROVIDES INDUSTRY SPECIALIZED SERVICES LIKE DATA ANALYTICS, OPERATIONS MANAGEMENT AND AUDITS & RECONCILIATION S ERVICES WHICH CANNOT BE COMPARED TO A BPO OR AN IT OFFSHORING COMPANY 2. THE COMPANY IS CATEGORIZED AS A KPO RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 5. HCL COMNET SYSTEMS & SERVICES LTD (SEG) : A. FUNCTIONALLY DIFFERENT: 1. THE COMPANY IS A LEADER IN GLOBAL DELIVERY INFRASTR UCTURE MANAGEMENT. THE COMPANY PROVIDES REMOTE IT INFRAST RUCTURE SERVICES 2. THE COMPANY HAS TWO SEGMENT - TELECOMMUNICATION SER VICES AND ITES 3. THE ITES SERVICES COMPRISES OF DATA CENTRE MANAGEME NT SERVICES, END USER COMPUTING SERVICES, MANAGED SECU RITY SERVICES, NETWORKING SERVICES AND TOOLS AND PROCESS CONSULTING SERVICES B. DIFFERENT YEAR ENDING -JUNE YEAR ENDING RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] IT(TP)A.1092/BANG/2011 PAGE - 9 6. INFORMED TECHNOLOGIES INDIA LTD : A. FUNCTIONALLY DIFFERENT 1. THE COMPANY IS ENGAGED IN COLLECTING AND ANALYSI NG THE DATA ON FINANCIAL FUNDAMENTALS, CORPORATE GOVERNANCE, DIREC TOR-EXECUTIVE COMPENSATION AND CAPITAL MARKET 2. EMPLOYEE COST TO SALES IS 21.76 PERCENT SUGGEST ING OUTSOURCE OF WORK 3. BUSINESS PROMOTION EXPENSES IS 15 PERCENT OF SA LES B. ABNORMAL GROWTH THE COMPANY HAS RECORDED A GROWTH OF 132.86 PERCENT OVER THE PREVIOUS YEAR RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 7. INFOSYS BPO LTD : A. FUNCTIONALLY DIFFERENT 1. THE COMPANY PROVIDES DIVERSIFIED SERVICES LIKE E ND-TO-END VOICE DATA AND KNOWLEDGE PROCESS OUTSOURCING SERVICES 2. THE COMPANY IS A MARKET LEADER 3. THE COMPANY ALSO DELIVERS SERVICES FROM ONSHORE LOCATIONS IN BRNO, CHINA AND PHILIPPINES RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 8. ISERVICES INDIA P. LTD : A FUCTIONALLY DIFFERENT B. ABNORMAL PROFITS - 50.27% IT(TP)A.1092/BANG/2011 PAGE - 10 C. USE OF 133(6) DATA - ANNUAL REPORT WAS NOT AVAILABLE D. USE OF NON-CONTEMPORANOEUS DATA RELIED ON: 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 9. MAPLE ESOLUTIONS LTD : A. UNRELIABLE FINANCIALS DIRECTOR INVOLVED IN FRAUD B. EXTRA-ORDINARY EVENT DURING THE YEAR THE COMPANY HA S BECOME A SUBSIDIARY OF TRITON CORP LTD C. EXTRA-ORDINARY GROWTH D. RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 10. MOLD-TEK TECHNOLOGIES LTD (SEG) : A. FUNCTIONALLY DIFFERENT 1. THE COMPANY PROVIDES ENGINEERING DESIGN SERVICES FOR CONSTRUCTION OF BUILDING BY USING DESIGN TOOLS LIKE CAD/CAM, STA DD PRO BY EMPLOYING HIGHLY SKILLED SOFTWARE ENGINEERS B. ABNORMAL GROWTH GROWTH OF 204 PERCENT IN SALES OVER PREVIOUS YEAR AFTER C. EXTRAORDINARY EVENT DURING THE YEAR THE COMPANY ACQUIRED CROSS ROAD DETAILING INC AN EN GINEERING SERVICES KPO IN USA RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A IT(TP)A.1092/BANG/2011 PAGE - 11 NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 11. SPANCO LTD (SEG) : A. FUNCTIONALLY DIFFERENT THE COMPANY IS INVOLVED IN TELECOM BUSINESS, BPO SE RVICES B. LOW EMPLOYEE COST THE COMPANY HAS A EMPLOYEE TO SALES RATIO OF 7.20 P ERCENT SUGGESTING OUTSOURCING OF SERVICES RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 12. TRITON CORP LTD : A. UNRELIABLE FINANCIALS DIRECTOR INVOLVED IN FRAUD B. FUNCTIONALLY DIFFERENT C. TRADING OF IT PERIPHERALS, PROVIDING CALL CENTRE SE RVICES AND SUPPORT SERVICES D. ABSENCE OF SEGMENTAL INFORMATION E. EXTRAORDINARY EVENT DURING THE YEAR THE COMPANY ACQUIRED 100 PERCENT EQUITY OF MAPLE ES OLUTIONS LIMITED RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] IT(TP)A.1092/BANG/2011 PAGE - 12 13. VISHAL INFORMATION TECHNOLOGIES LTD : A. LOW EMPLOYEE COST THE COMPANY HAS EMPLOYEE COT TO SALES RATIO OF 2.30 PERCENT SUGGESTING OUTSOURCE OF SERVICES B. FUNCTIONALLY DIFFERENT THE COMPANY IS ENGAGED IN PROVIDING SOLUTIONS TO PR INT PRODUCTION INDUSTRY WITH SERVICES LIKE E-PUBLISHING, E-BOOK, P RINT ON DEMAND, DATA AND DOCUMENT MANAGEMENT, DATA CONVERSION. RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 3. RAMPGREEN SOLUTIONS P. LTD [ ITA.102/2015 (DEL HC) A. Y. 2008-09] 14. WIPRO LTD (SEG) : A. MARKET LEADER B. EXTRA-ORDINARY EVENT DURING THE YEAR C. OWNS INTANTIBLES D. INCURS R & D EXPENDITURE RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 15. ACCURATE DATA CONVERTERS LTD : FAILS EMPLOYEE COST FILTER : RELIED ON : 1. MAGMA DESIGN AUTOMATION INDIA P. LTD [IT(TP)A NO.1214/BANG/2011 A. Y. 2007-08] IT(TP)A.1092/BANG/2011 PAGE - 13 2. AOL ONLINE INDIA P. LTD [IT(TP)A.1036/BANG/2011 A . Y. 2007-08] 07. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THRO UGH THE ORDER OF THIS TRIBUNAL IN MAGMA DESIGN AUTOMATION INDIA P. L TD IN IT(TP)A NO.1214/BANG/2011 AY 2007-08 DT 29.8.2016. FOLLOW ING THE DECISION IN AOL ONLINE INDIA P. LTD IN IT(TP)A NO.1036/BANG /2011 AY 2007- 08 DT 18.3.2016, THIS TRIBUNAL HELD THAT ALL THE AB OVE COMPARABLES EXCEPT M/S I SERVICES INDIA P LTD SHOULD NOT CONS IDERED AS COMPARABLES WITH REFERENCE CUSTOMER SERVICE SEGMENT . BASED ON THE DECISION OF THIS TRIBUNAL IN M/S E4E BUSINESS SOLUT IONS INDIA P LTD IN IT(TP)A NO.819/BANG/2011 DT 26.05.15 , SINCE THE A NNUAL REPORT AND REQUIRED PARTICULARS WERE NOT AVAILABLE , REMITTED THE COMPARABLE M/S I SERVICES INDIA P LTD TO THE TPO FOR FRESH DECISION. THUS, FOLLOWING THE DECISION OF MAGMA DESIGN AUTOMATION INDIA P. LTD, S UPRA, EXCEPT M/S I SERVICES INDIA P LTD AND ACCURATE DATA CONVERTERS LTD, ALL OTHER COMPARABLES ARE DIRECTED TO BE EXCLUDED FROM THE LI ST OF COMPARABLES. THE TPO IS DIRECTED TO OBTAIN THE ANNUAL REPORT OF M/S I SERVICES INDIA P LTD FOR FY 2006-07 AND FURNISH A COPY OF IT ALO NG WITH THE INFORMATION OBTAINED U/S133(6) TO THE ASSESSEE AND AFTER AFFORDING DUE OPPORTUNITY TO THE ASSESSEE , DECIDE ITS COMPARABI LITY AFRESH. WITH REGARD TO THE COMPARABLE ACCURATE DATA CONVERTERS L TD, THE ASSESSEE PLEADED EXCLUSION ON THE GROUND OF EMPLOYEE COST FI LTER. THIS MATTER IS REMITTED BACK TO THE TPO FOR FRESH DECISION AFTER A FFORDING DUE OPPORTUNITY TO THE ASSESSEE. THUS, THE CORRESPONDIN G APPEAL GROUNDS IT(TP)A.1092/BANG/2011 PAGE - 14 ARE ALLOWED AND TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 08. THE NEXT ISSUE IS ON THE ADJUSTMENTS MADE IN RE SPECT OF COMPUTATION U/S 10A. THE AO EXCLUDED RS. 20,51,19,242/, THE EXPENDITURE INCURRED IN FOREIGN CURRENCY ON TRAVEL, FROM EXPORT TURN OVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.10A . THE ASSESSEE PLEADED THAT IT IS RENDERING BPO SERVICES AND ITES. SINCE IT IS NOT ENGAGED IN RENDERING TECH NICAL SERVICES, THE EXPENDITURE INCURRED IN FOREIGN CURRENCY ON TRAVEL SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTI NG DEDUCTION U/S.10A. FURTHER, THE ASSESSEE HAS DEBITED RS.2,62,94,302/ T OWARDS FOREIGN EXCHANGE LOSS AND REDUCED IT FROM THE EXPORT TURNOV ER AS WELL AS FROM THE TOTAL TURNOVER . THE AO HELD THAT IT SHOULD BE REDU CED FROM EXPORT TURN OVER ALONE AND ACCORDINGLY REWORKED THE DEDUCTION U/S 10A . ON APPEAL , THE DRP CONFIRMED THE ADDITIONS. BEFORE US, IT WAS SUBMITTED THAT AFORESAID EXPENDIT URE NEED NOT BE EXCLUDED FROM THE EXPORT TURNOVER AS PER THE DEFINI TION OF SET OF GIVEN IN SEC.10A OF THE ACT. THE PLEA OF THE ASSESSEE IS TH AT IF THE AFORESAID AMOUNT IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOU LD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER. SIMILAR MATTER CAME UP BEF ORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y. 2008-09 IN IT(TP)A.16 78/BANG/2012. THIS TRIBUNAL BY ITS ORDER DT.04.09.2015 DECIDED AS UNDE R : IT(TP)A.1092/BANG/2011 PAGE - 15 33. THE PLEA OF THE ASSESSEE IS THAT THE AFORESAID EXPENDITURE NEED NOT BE EXCLUDED FROM THE EXPORT TURNOVER AS PE R THE DEFINITION OF SET OF GIVEN IN SEC.10A OF THE ACT. THE PLEA OF THE ASSESSEE IS THAT IF THE AFORESAID AMOUNT IS EXCLUDE D FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE EXCLUDED F ROM THE TOTAL TURNOVER. 34. AS FAR AS THE ALTERNATIVE CLAIM IS CONCERNED, W E FIND THAT THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V TATA ELXSI LTD [(2012) 349 ITR 98 (KAR)] HAS HELD THAT W HILE COMPUTING DEDUCTION U/S.10A OF THE ACT, EXPENDITURE INCURRED BY THE ASSESSEE, IF EXCLUDED FROM THE EXPORT TURNOV ER, SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE HIGH COURT OF KAR NATAKA, THE AO IS DIRECTED TO REDUCE THE EXPENSES INCURRED FOR TRAVELLING AND INTERNET CONNECTION CHARGES FROM THE EXPORT TUR NOVER AS WELL AS THE TOTAL TURNOVER, WHILE COMPUTING DEDUCTI ON U/S.10A OF THE ACT. WE HOLD AND DIRECT ACCORDINGLY. 35. SIMILARLY IN THE ADDITIONAL GROUND, THE ASSESSE E HAS PRAYED THAT THE FOREIGN EXCHANGE LOSS SHOULD ALSO B E ADDED TO THE TOTAL TURNOVER AND EXPORT TURNOVER AS AGAINST T HE ACTION OF THE AO IN EXCLUDING THE SAID LOSS ONLY FROM THE EXP ORT TURNOVER FOLLOWING THE DECISION IN THE CASE OF TATA ELXSI (S UPRA) OF THE HONBLE KARNATAKA HIGH COURT. WE HELD THAT THE SAI D LOSS SHOULD BE EXCLUDED BOTH FROM ETO AND TTO. WE HOLD AND DIRECT ACCORDINGLY. FOLLOWING THE ABOVE DECISION, THE AO IS DIRECTED TO EXCLUDE THE ABOVE EXPENDITURE BOTH FROM ETO AND TTO. THE ASSESSEES APPEAL IN THIS REGARD IS ALLOWED. 09. THE NEXT ISSUE IS THAT THE ASSESSEE INCURRED RS .6,83,81,220/- TOWARDS LEAVE ENCASHMENT WHICH REMAINED OUTSTANDING AS ON THE LAST DAY OF THE PY. THE AO DISALLOWED IT U/S 43B(F). AGGRIE VED, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP. THE DRP UPHELD THE ADDIT IONS. IT(TP)A.1092/BANG/2011 PAGE - 16 10. BEFORE US, THE AR SUBMITTED THAT ORIGINALLY, UN DER SECTION 43B CERTAIN PAYMENTS WERE HELD ALLOWABLE ONLY ON ACTUAL PAYMENT . SECTION 43B WAS AMENDED BY INSERTING CLAUSE (F) TO DISALLOW THE LIA BILITY TOWARDS LEAVE ENCASHMENT ON DUE BASIS. NO REASONS FOR SUCH AMEND MENT WAS DISCLOSED. WHEN A CHALLENGE WAS MADE BEFORE THE HONBLE CALCUT TA HIGH COURT IN EXIDE INDUSTRIES LTD AND ANOTHER V. UOI & OTHERS, I T STRUCK DOWN SECTION 43B(F) BEING ARBITRARY, UNCONSCIONABLE AND DEHORS T HE APEX COURT DECISION IN THE CASE OF BHARATH EARTH MOVERS LTD (2000) 245 ITR 428 AS THE AMENDMENT DID NOT DISCLOSE THE REASONS WHICH WOULD BE CONSISTENT WITH THE PROVISIONS OF THE CONSTITUTION AND THE LAWS OF THE LAND AND NOT FOR THE SOLE OBJECT OF NULLIFYING THE APEX COURT DECISION. ON S LP IN 22889/2008, THE SC ON 08.05.2009 HELD THAT PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL APPEAL, DEPARTMENT IS RESTRAINED FROM RECOVERING PE NALTY AND INTEREST WHICH HAS ACCRUED TILL DATE. IT IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CONCERNED, IT WOULD B E OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APP EAL OF THE DEPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD DU RING THE PENDENCY OF THE CIVIL APPEAL, PAY TAX AS IF SECTION 43B(F) IS O N THE STATUTE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. IT(TP)A.1092/BANG/2011 PAGE - 17 11. WE HEARD THE RIVAL SUBMISSIONS. THE FACTS ARE NOT IN DISPUTE. IN THE CIRCUMSTANCES, THIS ISSUE IS REMITTED BACK TO THE A O TO DECIDE THE ISSUE BASED ON THE OUTCOME OF THE HONBLE SUPREME COURTS DECISION IN THE ABOVE CASE. ORDERED ACCORDINGLY. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D /TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DAY OF JANUARY, 2017. SD/- SD/- (SUNIL KUMAR YADAV) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR