Oracel (OFSS) BPO Services Limited (formerly known as Equinox Global Services Pvt. Ltd.), Haryana V. DCIT, Circle - 2, Kolkata, Kolkata

ITA 1111/KOL/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1650 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 02-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 24-08-2011
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, KOLKATA (BENCH- C) BEFORE SHRI N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI M. BALAGANESH ACCOUNTANT MEMBER, ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORDER PER M. BALAGANESH, AM 1. THIS IS AN APPEAL PREFERRED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 AGAINST THE ORDER OF THE LEARNED DISPUTE RESOLUTION PANEL (LD. DRP IN SHORT) U/S 144C(5) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ON 19.4.2011 AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER (LD. AO IN SHORT) . M/S. ORACLE (OFSS) BPO SERVICE (FORMERLY KNOWN AS EQUINOX GLOBAL SERVICES PVT. LTD.) [PAN : AABCE1201F ] -VS- D.C.I.T., CIRCLE-2, KOLKATA (APPELLANT) (RESPONDENT) FOR THE ASSESSEE SHRIR.N. BAJORIA, SR. ADVOCATE FOR THE REVENUE SHRIG. MALLIKARJUNA, CIT, DR. DATE OF HEARING 02/05/2017 DATE OF PRONOUNCEMENT 02/06/2017 2 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. DRP IS JUSTIFIED IN ENHANCING THE ADDITION TO RS 7,21,92,932/- BY MAKING ADJUSTMENT TO ARMS LENGTH PRICE (ALP), IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE ASSESSEE HAD FILED THE FOLLOWING REVISED GROUNDS OF APPEAL :- 1. FOR THAT THE ADDITION OF RS. 7,21,92,932/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS WHOLLY WITHOUT ANY BASIS AND IS NOT SUPPORTED BY ANY MATERIAL AND IS LIABLE TO BE DELETED. 2. FOR THAT FURTHER AND IN ANY EVENT, THE SUM OF RS.2,92,51,866/- RECEIVED AND A SUM OF RS.2,47,63,804 SPENT FOR AND ON ACCOUNT OF REIMBURSEMENT OF EXPENSE ACTUALLY INCURRED FOR AND ON BEHALF OF THE ASSOCIATED ENTERPRISE (AE) WHICH HAD NO RELATIONSHIP WITH THE APPELLANT' BUSINESS WITH THE SAID AE COULD NOT BE TAKEN INTO CONSIDERATION FOR THE TRANSFER PRICING ADJUSTMENT. 3. FOR THAT FURTHER AND IN ANY EVENT, THE ORDER OF ASSESSMENT AND THE ORDER OF THE DISPUTE RESOLUTION PANEL ('DRP') ERRONEOUSLY AND WRONGFULLY REJECTED AND/OR IGNORED THE CONTENTION OF THE APPELLANT IN MAKING THE TRANSFER PRICING ADJUSTMENT A TO - IGNORING THE DOME TIC ALE WHILE TAKING INTO CONSIDERATION THE ENTIRE EXPENDITURE; IGNORING LOW PROFIT MAKING COMPANIES; CONSIDERING NON-COMPARABLE COMPANIES HAVING ALTOGETHER DIFFERENT FUNCTION, ASSETS & RISK PROFILE, INVOLVED IN FRAUD AND MONEY LAUNDERING, RESTRUCTURING AND HAVING FLUCTUATING MARGIN; NOT CONSIDERING MULTIPLE YEAR DATA; NOT ALLOWING APPROPRIATE ADJUSTMENTS RELATING TO MARKETING EXPENDITURE AND DIFFERENCE IN TURNOVER; IGNORING THE FACT THAT EVEN THE AE SUFFERED A 10 ; IGNORING 10 MAKING COMPANIES ETC. 4. FOR THAT THE ORDER OF ASSESSMENT MAKING TRANSFER PRICING ADJUSTMENT OF RS.7,21,92,932/- OTHERWISE ERRONEOUS ON FACTS AND IN LAW AND I LIABLE TO BE QUASHED. 3 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED 4. THE BRIEF FACTS OF THIS APPEAL IS THAT THE ASSESSEE IS IN THE BUSINESS OF PROVIDING CALL CENTRE SERVICES / BUSINESS PROCESS OUTSOURCING SERVICES TO THE CLIENTS OF ITS PARENT COMPANY, EQUINOX CORPORATION, 10 CORPORATE PARK, SUITE-130, IRVINE, CA 92606, THE UNITED STATES OF AMERICA. ISP INTERNET (MAURITIUS) COMPANY LIMITED HOLDS MORE THAN 26% OF THE EQUITY SHARES OF BOTH EQUINOX CORPORATION, USA (HENCEFORTH CALLED, EQUINOX) AND EQUINOX GLOBAL SERVICES P LTD. (THE ASSESSEE). SINCE EQUINOX CORPORATION, USA HAD 100% SHARE IN THE ASSESSEE COMPANY, THE TWO ENTITIES ARE ASSOCIATED ENTERPRISE UNDER SECTION 92A(2)(B) OF THE ACT. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08, THE ASSESSEE ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE EQUINOX: SI NO. NATURE OF TRANSACTION AMOUNT RECEIVED BY ASSESSEE (RS.) 1 SALE OF CALL MANAGER PHONES 76,686/- 2 BPO SERVICES PROVIDED 31,21,86.866/- 3 RECOVERY OF EXPENSES 2,92,51,866/- TOTAL 34,15,15,418/- 4.1. THE ASSESSEE SUBMITTED THAT AFTER DUE STUDY, TWO ISSUES WERE FOUND TO HAVE INTERNATIONAL TRANSACTIONS. THESE ISSUES WERE REQUIRED TO BE CONSIDERED FOR DETERMINATION OF THE ARMS LENGTH PRICE AS PER THE PROVISIONS OF SECTION 92CA OF THE ACT. THESE ISSUES ARE: A) RECOVERY OF EXPENSES B) BPO SERVICE PROVIDED 4 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED 4.2. RECOVERY OF EXPENSES ON PAGE 33 OF THE TP REPORT SUBMITTED BY THE ASSESSEE ON 02.09.2010, IT WAS FOUND THAT THE ASSESSEE HAD MADE PAYMENTS ON BEHALF OF EQUINOX. THESE AMOUNTS, AS PER THE REPORT SUBMITTED BY THE ASSESSEE, WERE RECOVERED ON COST-TO-COST BASIS. THE ASSESSEE ALSO STATED IN THIS RESPECT THAT THIS DID NOT INCLUDE ANY PROVISION OF SERVICE AND HAD NO ELEMENT OF PROFIT IN IT AND SO, THE TRANSACTION SHOULD NOT BE CONSIDERED FOR DETERMINATION OF THE ALP. 5. FOR BPO SERVICES , THE ASSESSEE ITSELF HAD SUBMITTED A TRANSFER PRICING REPORT, SELECTING ITSELF AS THE TESTED PARTY. THE ASSESSEE FOR THE PURPOSE HAD SELECTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM). PROFIT LEVEL INDICATOR (PLI) USED BY THE ASSESSEE FOR DETERMINATION OF THE ALP WAS OPERATING PROFIT / TOTAL COST (OP / TC) , WHERE OPERATING PROFIT = TOTAL OPERATING INCOME (-) TOTAL OPERATING EXPENSES. THE OPERATING INCOME DID NOT INCLUDE INTEREST INCOME & DIVIDEND INCOME. THE OPERATING EXPENSE DID NOT INCLUDE INTEREST PAYMENTS AND THE OTHER FINANCIAL CHARGES. 5.1. FOR THE ABOVE DETERMINATION OF THE ARMS LENGTH PRICE, THE ASSESSEE USED TWO DATABASES: PROWESS AND CAPITA LINE. USING THE TWO DATABASES, 22 COMPARABLE COMPANIES AND THEIR FINANCIAL RESULTS WERE SELECTED BY THE ASSESSEE TO COMPUTE ALP OF TRANSACTION RELATING TO BPO SERVICES. THE DATA USED AS SEEN BELOW IN TABLE 1 WERE FOR THREE FINANCIAL YEARS I.E. FY, 2004-05 AND 2006-0. THE MEAN OF THE PLI FOR ALL COMPANIES FOR THE THREE FYS WAS COMPUTED AT 12.51%. THE RESULTS AS FURNISHED BY THE ASSESSEE ARE REPRODUCED BELOW IN TABLE 1. 5 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED SI NO. NAME OF COMPANY 2004- 05 2005- 06 2006- 07 WEIGHTED AVERAGE 1 ALLSEC TECHNOLOGIES LTD. 25-97 29.06 27.93 27.89 2 ASK ME INFO HUBS LTD. -13.98 4.67 0 -1.75 3 B 2 K CORP. PVT. LTD. -12 -25.03 NA -18.89 4 B N R UDYOG LTD. 16.33 24.14 36.91 25.85 5 CMC LIMITED 1.31 2.17 31.92 17.49 6 COSMIC GLOBAL LTD 18.75 16.85 NA 17.56 7 DATAMATICS TECHNOLOGIES LTD. 14.13 7.09 NA 10.62 8 FIRSTSOURCE SOLUTIONS LTD. 3.59 7.13 19.39 11.05 9 FORTUNE INFOTECH LTD. 15.25 NA NA 15.25 10 GALAXY COMMERCIALS LTD. 21.73 19.72 NA 20.47 11 HCL TECHNOLOGIES LTD. 18.11 16.73 NA 17.28 12 KPIT CUMMINS GLOBAL BUSINESS SOLUTIONS LTD. NA -18.83 NA -18.83 13 M C S LTD. 11.06 13.95 16.41 13.65 14 MAPLE ESOLUTIONS LTD. 39.45 35.83 NA 36.43 15 MPHASIS LTD. 13.71 10.17 11.31 11.63 16 NIIT SMARTSERVE LTD. -15.05 NA NA -15.05 17 SPANCOTELESYSTEMS& SOLUTIONS P LTD. 13.56 21.40 NA 18.36 18 SUTHERLAND GLOBAL SERVICES P LTD. 13.22 NA NA 13.22 19 T S R DARASHAW LTD. 15.38 NA NA 15.38 20 TRAMSWORKS INFORMATION SERVICES LTD. 2.15 20.36 NA 12.40 21 TRITON CORP. LTD. 18.57 20.39 25.12 22.11 22 WIPRO LIMITED 22.68 16.11 29.82 23.12 ARITHMETICAL MEAN 11.62 12.33 22.09 12.51 5.2. THE ASSESSEE TOOK THE ABOVE MEAN OF THE PLIS FOR THREE FYS COMPUTED AT 12.51% AND MADE CERTAIN ADJUSTMENTS AND ARRIVED AT THE PLI OF 11.61%. THE ADJUSTMENT WAS FOR PARTIAL UTILIZATION OF THE INSTALLED CAPACITY. THE ADJUSTMENT ARRIVED AT BY THE ASSESSEE WAS TAKING INTO ACCOUNT THE REVENUE AND THE EXPENSES (REVENUE = RS.34,70,28,935/-, EXPENSE= RS. 31,09,36,578/-). THE ASSESSEE ALSO 6 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED SUBMITTED THAT A VARIATION OF 5% BE ALLOWED IN ALP AS PER RULE 10B OF THE IT RULES, TAKING THE ALLOWABLE RANGE OF ALP TO BE BETWEEN 6.88% TO 18.14%. BASED ON THE ABOVE DETERMINATION, THE PLI OF THE ASSESSEE AT 11.61% WAS FOUND BY THE ASSESSEE TO BE WITHIN THE RANGE OF 6.88% TO 18.14%, AND SO NO ADJUSTMENT WAS REQUIRED TO BE MADE IN TRANSACTION VALUE ACCORDING TO THE ASSESSEE. 6. THE LD. AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE STATING THE FOLLOWING:- A) THE MEAN OF PLI OF COMPARABLE COMPANY IS 12.51%. ALLOWING 5% VARIATION MEANS THE RANGE ALLOWABLE IS 11.88% TO 13.13%. THE PLI FOR THE ASSESSEE COMPANY WAS 11.61. THIS VALUE IS BEYOND THE RANGE HENCE THE BENEFIT OF 5% VARIATION FROM MEAN OF PLI IS NOT ALLOWABLE TO ASSESSEE. HENCE THE ADJUSTMENT OF 12.51 LESS 11.61 = 0.90% IS TO BE MADE. THE ASSESSEE IN ITS DISCUSSION HAD TAKEN ABSOLUTE ADJUSTMENT OF 5% INSTEAD OF 5% OF MEAN. B) IT IS SEEN THAT THREE YEARS DATA HAVE BEEN TAKEN FOR THE COMPARISON. IT ACT MANDATES USE OF SAME F Y DATA. PREVIOUS TWO YEAR DATA CAN BE USED IF SUCH DATA REVEALS THE FACTS WHICH COULD HAVE AN INFLUENCE ON THE DETERMINATION OF THE TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPARED. IN THE ABSENCE OF ANY SUBMISSION PLEASE EXPLAIN WHY DATA ONLY FOR FY 2006-07 BE NOT CONSIDERED FOR COMPARISON OF PLIS. THE NEW MEAN WILL BE 22.09 AND WILL REQUIRE AN ADJUSTMENT OF 10.48%. PLEASE EXPLAIN AS TO WHY THIS ADJUSTMENT BE NOT DONE. 7. THE ASSESSEE REPLIED ON 21.9.2010 THAT WITH REGARD TO 5% VARIATION, THE BENEFIT OF THE VARIATION / REDUCTION OF ABSOLUTE 5% FROM THE ARITHMETIC MEAN SHOULD BE GIVEN WHILE DETERMINING ALP AND NOT 5% OF THE ARITHMETIC MEAN. WITH REGARD 7 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED TO THE SECOND OBJECTION FOR USAGE OF MULTIPLE YEAR DATA, THE ASSESSEE SUBMITTED THAT THERE WAS LACK OF SUFFICIENT DATA FOR THE FY 2006-07 AT THE TIME OF PERFORMING THE SEARCH IN DATA BASE. SINCE RULE 10C(2)(C ) STATES THAT THE AVAILABILITY , COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPLICATION OF THE METHOD HAD TO BE CONSIDERED IN SELECTING THE MAM, THE ASSESSEE ARGUED THAT SINCE COMPLETE DATA FOR FY 2006-07 WAS NOT AVAILABLE, THE DATA FOR FY 2004-05 AND 2005-06 AND PARTIAL DATA FOR FY 2006-07 WAS USED BY IT. THE ASSESSEE ALSO STATED THAT RULE 10D(4) STATES THAT THE INFORMATION AND DOCUMENTS SPECIFIED UNDER SUB-RULES (1) AND (2) , SHOULD, AS FAR AS POSSIBLE, BE CONTEMPORANEOUS AND SHOULD EXIST LATEST BY THE SPECIFIED DATE REFERRED TO IN CLAUSE (IV) OF SECTION 92F, IN THE PRESENT CASE, THE LATEST DATE WAS 31-10-2007, AND AS THE DATA THAT DID NOT EXIST BY 31-10-2007 IT COULD NOT BE USED FOR COMPARABILITY PURPOSE. 8. THE LD. TRANSFER PRICING OFFICER (TPO) STATED THAT THE SUBMISSIONS OF THE ASSESSEE CANNOT BE ACCEPTED DUE TO THE FOLLOWING REASONS :- A) REGARDING THE FIRST ISSUE AS MENTIONED IN THE SHOW CAUSE NOTICE DATED 6.9.2010 , IT MAY BE MENTIONED THAT THE PROVISO IN THE ACT WAS SUBSTITUTED BY THE FINANCE ACT (NO.2) ACT. 2009 WITH EFFECT FROM 1.10.2009. PRIOR TO ITS SUBSTITUTION, THE FINANCE ACT, 2002, WE F 1-042002 READ AS UNDER: 'PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARM'S LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETIC MEAN OF SUCH PRICES, OR, AT THE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETIC MEAN BY AN AMOUNT NOT EXCEEDING FIVE PER CENT OF SUCH ARITHMETIC MEAN.' 8 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED SINCE THE FY UNDER CONSIDERATION IS 2006-07, THE PROVISO AS MENTIONED IN THE FINANCE ACT, 2002, W.E.F 1.4.2002 WOULD BE APPLICABLE IN THE CASE OF THE ASSESSEE. THE PROVISO STATED BY ASSESSEE IS ACTUALLY APPLICABLE W.E.F. 1.10.2009. THE METHODOLOGY AS OUTLINED QUOTED ABOVE WOULD MEAN THAT FIRST ARM'S LENGTH PRICE FOR EACH COMPARABLES SHOULD BE CALCULATED. THEN MEAN OF SUCH PRICE HAD TO BE TAKEN. THEN THE PRICE AT THE OPTION OF ASSESSEE WILL BE WITH VARIATION OF 5% OF SUCH MEAN. IN THE METHODOLOGY ADOPTED BY THE ASSESSEE, IT HAD TAKEN MEAN OF PLL AND NOT MEAN OF THE ALP. IT HAD TAKEN 5 % FROM THIS MEAN OF PLI. THERE ARE TWO ERRORS IN THIS METHODOLOGY. FIRSTLY, THE MEAN SHOULD HAVE BEEN OF ALP AND NOT PLI. SECONDLY, THE 5 % VARIATION WAS TAKEN ABSOLUTELY FROM THIS MEAN PLI BY THE ASSESSEE INSTEAD OF 5% OF MEAN OF ALP. IF BOTH THESE ERRORS IN CALCULATION IS RECTIFIED ON THE BASIS OF THE PROVISO AS STATED ABOVE, THE MEAN OF ALP WILL BE AS BELOW: ALP FOR EACH COMPARABLE SHOULD HAVE BEEN COMPUTED AND THEN ITS MEAN SHOULD HAVE BEEN TAKEN. BUT THE RESULT WILL BE UNCHANGED EVEN IF MEAN OF PLI IS TAKEN TO ARRIVE AT MEAN ALP. MEAN OF PLI OF COMPARABLES COMPUTED BY ASSESSEE = 12.51%. HENCE OP/TC FOR THE TESTED PARTY WOULD BE 12.51% TO COMPUTE MEAN OF ALP. THUS ALP = 31,09,36,578 * ( 1 + 0.1251) = RS34,98,34,744/-. THE TRANSACTION UNDERTAKEN BY ASSESSEE WAS AT RS. 34,70,28,935/-. THE ABOVE CALCULATION IS JUST TO VERIFY WHETHER THE METHOD OF CALCULATION WOULD HAVE ANY BEARING ON THE ALP DETERMINATION. ON THE BASIS OF THE ABOVE 9 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED CALCULATION, IT IS SEEN THAT THE DIFFERENCE BETWEEN THE TWO APS ARRIVED HAVE A DIFFERENCE. B) REGARDING THE SECOND ISSUE OF USE OF MULTIPLE YEAR DATA, THE CONTENTIONS OF ASSESSEE ARE NOT ACCEPTED FOR FOLLOWING REASONS: (I) THE ASSESSEE SUBMITTED THAT THERE WAS LACK OF SUFFICIENT DATA FOR FY 2006- 07 AT THE TIME OF PERFORMING THE SEARCH IN THE DATA BASE. WHAT IS THE LACK OF DATA IS A VERY GENERAL TERM. ANALYSIS HAS TO BE DONE ON BASIS OF WHAT IS AVAILABLE. WHAT IS NOT AVAILABLE CANNOT DETERMINE THE DUE PROCEDURE PRESCRIBED BY ACT AND RULES. THE ACT AND RULES ARE THE DECIDING FACTORS. IF LAW LAYS DOWN THE PROCEDURE THAT DATA SHOULD BE OF SAME FY IN WHICH INTERNATIONAL TRANSACTION HAS TAKEN PLACE, THE SAME PRINCIPLE HAS TO BE APPLIED ON THE DATA AVAILABLE. THE DATA WHICH IS NOT AVAILABLE IS OF NO CONSEQUENCE. IN FACT IF THE CIRCUMSTANCES SO COMPEL THAT DATA FOR EARLIER YEARS HAVE AN IMPORTANT BEARING, THE PROVISO FOR SAME HAS BEEN PROVIDED IN THE RULES. BUT IT HAS TO BE DEMONSTRATED BY THE ASSESSEE THAT THE DATA FOR EARLIER TWO YEARS COULD BE USED. THE ONUS, IN THIS CASE, THAT SUCH USAGE OF DATA WOULD HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICE IN RELATION TO THE TRANSACTIONS BEING COMPARED, IS ON THE ASSESSEE. THIS EXCEPTION TO THE GENERAL RULE THAT ONE YEAR DATA SHOULD BE USED COMES INTO PLAY ONLY WHEN PROOF OF SUCH INFLUENCE IS BROUGHT ON RECORD. BUT IN THIS CASE, NO SUCH STUDY WAS DONE BY THE ASSESSEE. FURTHER THE SOURCE OF DATA BASE PRESCRIBED UNDER LAW IS VERY WIDE AND EXHAUSTIVE. THE CHOICE OF DATA BASE CANNOT ONLY BE LIMITED BY PROWESS OR CAPITAL LINE DATA BASES. THE NON-AVAILABILITY OF DATA IN PROWESS AND CAPITAL LINE CAN BE NOT A LIMITING FACTOR IN DETERMINING ALP, AND SO CANNOT JUST BE APPROPRIATE AS THE MAIN OBJECTIVE IS TO DETERMINE ALP BY APPLYING THE SPECIFIED METHODS. 10 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED (II) RULE 10C(2)(C) OF THE IT RULES DISCUSSES THE AVAILABILITY OF DATA FOR THE MOST APPROPRIATE METHOD. IT DOES NOT DISCUSS THE AVAILABILITY OF DATA FOR SELECTION OF COMPARABLES, FIRSTLY, COMPARABLES HAVE TO BE SELECTED. AMONG THE SELECTED COMPARABLES, THE AVAILABILITY OF DATA WILL DETERMINE THE MOST APPROPRIATE METHOD. CHOICE OF COMPARABLES IS NOT TO BE LIMITED BY THE RULE 10C(2). THE SELECTION OF COMPARABLES IS TO BE DECIDED BY RULE 10B(2), AND NOT RULE 10C(2). (III) SIMILARLY RULE-10D(4) IS FOR DATA AVAILABLE OF COMPARABLES SELECTED BY APPLYING RULE 10B(2). FIRSTLY COMPARABLES HAVE TO BE SELECTED. AMONG THE SELECTED COMPARABLES THE AVAILABLE DATA WILL HAVE TO BE CONTEMPORANEOUS AS FAR AS POSSIBLE. CHOICE OF COMPARABLES IS NOT BE LIMITED BY THE RULE 10D(4). THE SELECTION OF COMPARABLES IS TO BE DECIDED BY RULE 10B(2)-AND NOT RULE 10D(4).THE REQUIREMENT OF RULE 10D(4) OF EXISTENCE OF INFORMATION AND DOCUMENTATION BY SPECIFIED DATE DOES NOT OVERRIDE THE REQUIREMENT OF RULE 10B(2}. (IV) THERE IS NO QUESTION OF THE SITUATION ARISING WHERE ACT REQUIRES ASSESSEE TO PERFORM WHAT IS NOT POSSIBLE. ACT MERELY STATES THAT OUT OF DATA AVAILABLE FOR F Y 2006-07 SELECT THE COMPARABLES. ASSESSEE HAS EXTENDED THIS TO APPLY TO EVEN THOSE CASES WHERE DATA IS NOT AVAILABLE. THE INTENT OF ACT IS NOT SO. IT IS NOT SO THAT THERE IS NO DATA AVAILABLE SINCE ASSESSEE HIMSELF HAS TAKEN MANY COMPARABLES WHERE DATA FOR F Y 2006-07 IS AVAILABLE. WHAT THE ACT MERELY REQUIRES IS THAT ASSESSEE SHOULD RESTRICT TO DATA WHICH IS AVAILABLE. THE SELECTION OF PREVIOUS YEAR DATA CAN BE USED IN SEPARATE SET OF CIRCUMSTANCES WHICH IS MENTIONED UNDER RULE 10B. NON AVAILABILITY OF DATA NOT THE BASIS OF DEVIATING FROM PRESCRIBED PROCEDURES IN ACT AND RULES. 11 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED (V) ASSESSEE HAD SUBMITTED THAT USE OF MULTIPLE YEAR DATA ENSURED THAT THE OUTCOME FOR RELEVANT YEAR WOULD NOT BE NOT UNDULY INFLUENCED BY ABNORMAL FACTORS AS ONE YEAR DATA MAY BE DISTORTED BY DIFFERENCES IN ECONOMIC OR MARKET CONDITIONS, FEATURES AND OPERATION OF ENTERPRISE. BUT AS STATED EARLIER, THE ONUS OF HOW THIS STATEMENT WAS APPLICABLE IN PRESENT CASE WAS ON THE ASSESSEE. THE ASSESSEE DID NOT DISCHARGE THAT ONUS. IT DID NOT BRING OUT HOW ONE YEAR DATA WAS DISTORTED BY THE DIFFERENCES IN ECONOMIC OR MARKET CONDITIONS, FEATURES AND OPERATION OF ENTERPRISE. (VI) IT WAS STATED BY THE ASSESSEE THAT PARTICIPANTS IN INDUSTRY MAY BE UNIFORMLY AFFECTED BY BUSINESS AND PRODUCT CYCLE AND THEREFORE DIFFERENCE BETWEEN DEALINGS MAY REFLECT DIFFERENCES IN CIRCUMSTANCES AND NOT THE DIFFERENCES IN ARMS LENGTH DEALING. BUT THERE IS A PROVISION FOR ADJUSTMENT FOR ANY DIFFERENCES IN THE CONTROLLED TRANSACTION AND UNCONTROLLED TRANSACTION UNDER RULE 10B. IF ASSESSEE FELT THAT THERE WAS A DIFFERENCE OTHER THAN ARMS LENGTH, SUITABLE ADJUSTMENTS COULD HAVE BEEN MADE. THIS APPEARS TO BE A GENERAL REMARK TO RATIONALIZE THE USE OF MULTIYEAR DATA. (VII) ASSESSEE CONCLUDED THAT ALP REQUIRED MULTIPLE YEAR DATA WHICH WOULD ELIMINATE DIFFERENCES DUE TO BUSINESS OR PRODUCT CYCLES. MERE CLAIM IS NOT SUFFICIENT. WHEREVER A CLAIM IS PUT FORWARD REGARDING EXISTENCE OF CYCLE AND THEREBY JUSTIFYING THE USE OF MULTIYEAR DATA, THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE SAME EFFECT ON THE BASIS OF TYPE OF CYCLE, DURATION OF CYCLE, EXTENT OF IMPACT OF CYCLE, AND ALSO HOW MULTIYEAR DATA ELIMINATES THE IMPACT OF CYCLES. THE ASSESSEE FAILED TO DEMONSTRATE THAT THE MULTIYEAR DATA USAGE WAS ABSOLUTELY IMPORTANT. ASSESSEE ALSO DID NOT BRING OUT ON RECORD ANY COGENT, 12 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED RELEVANT AND RELIABLE FACTS TO SHOW THAT THERE DID EXIST A BUSINESS OR PRODUCT CYCLE. IN SUM, THE ASSESSEE DID NOT DEMONSTRATE HOW THE MULTIYEAR DATA WAS NECESSARY. 8.1. ANALYSIS OF THE ABOVE SHOWS THAT THE ASSESSEE DID NOT PROVIDE ANY JUSTIFICATION OR THE REASONS FOR USING THE MULTIYEAR DATA. CONSIDERING THAT, IT IS IMPERATIVE TO DETERMINE THE ALP BY USE OF DATA OF SAME FY IN WHICH INTERNATIONAL TRANSACTION HAS TAKEN PLACE. SUCH USE OF DATA OF SAME F Y IN WHICH INTERNATIONAL TRANSACTION HAS TAKEN PLACE HAS ALSO BEEN UPHELD BY HON'BLE ITAT, DELHI IN CASE OF CUSTOMER SERVICES INDIA P LTD VS ACIT. 9. DETERMINATION OF ARM'S LENGTH PRICE THE LD. TPO OBSERVED THAT TO DETERMINE ALP, IT WOULD BE APPROPRIATE TO LOOK AT THE DATA SUBMITTED BY THE ASSESSEE TO COMPUTE ALP FOR AY 2007-08 AS GIVEN IN TABLE- I ABOVE. THE PLI COMPUTED BY THE ASSESSEE FOR THE YEAR IN WHICH THE INTERNATIONAL TRANSACTION TOOK PLACE, THAT IS THE DATA FOR FY 2006-07 INSTEAD OF THREE YEARS DATA IS ACCEPTABLE. BASED ON THIS DATA CHOICE AS SUBMITTED BY THE ASSESSEE, THE ARITHMETIC MEAN OF PLI OF COMPARABLES, AS SUBMITTED BY THE ASSESSEE IS 22.09%. THIS PLI (OP /TC) OF 22.09% FOR THE TESTED PARTY CAN BE USED TO COMPUTE MEAN OF ALP. BASED ON THIS, ALP WOULD BE RS.31,09,36,578 * (1+0.2209) = RS.37,96,22,468/-. VARIATION OF 5% OF THIS MEAN OF ALP WOULD BE RS.1,89,81,123. 40. THUS THE ALLOWABLE RANGE OF ALP, WHICH CAN BE CHOSEN BY ASSESSEE, WOULD BE FROM RS. 36,06,41,344.60 TO RS. 39,86,03,591.40. THE TRANSACTION UNDERTAKEN BY ASSESSEE IS AT RS. 34,70,28,935/- WHICH IS NOT WITHIN THE RANGE AS ARRIVED AT ABOVE, I.E., FROM RS. 36,06,41.344.60 TO RS. 39,86,03,591.40. ALLOWING THE ABOVE 5 % VARIATION BENEFIT TO ASSESSEE, THE 13 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED UPWARD ADJUSTMENT REQUIRED TO BE MADE TO THE TRANSACTION WOULD BE RS 1,36,12,409.60 (36,06,41,344.60 34,70,28,935). THE REVENUE OF THE ASSESSEE FOR FY 2006-07 WOULD BE RS.36,06,41,344.60 INSTEAD OF RS.34,70,28,935/-. 10. THE ASSESSEE PREFERRED OBJECTIONS BEFORE THE HONBLE DRP WHICH AGREED TO THE VIEW OF THE LD. TPO THAT ONLY CONTEMPORANEOUS DATA FOR FY 2006-07 SHOULD BE ADOPTED BY THE ASSESSEE FOR THE COMPARABLES INSTEAD OF MULTIPLE YEAR DATA CHOSEN BY THE ASSESSEE. BEFORE THE LD. DRP, THE ASSESSEE SUBMITTED THE AUDITED FINANCIALS OF THE 13 COMPARABLES WHICH DATA WAS NOT AVAILABLE BEFORE THE LD. TPO AND HENCE NOT CONSIDERED THEREON. THE ARITHMETIC MEAN WAS ACCORDINGLY ARRIVED AT 18.94%. THE ASSESSEE PLEADED FOR EXCLUSION OF CERTAIN COMPARABLES ON THE GROUND THAT THEY HAVE VARIED AND FLUCTUATING MARGINS OVER THE YEARS. THE ASSESSEE ALSO REQUESTED THE LD. DRP TO INCLUDE ONE COMPARABLE ASK ME INFO HUBS LTD (PRESENTLY KNOWN AS SHREEJAL INFO HUBS LTD) AND AFTER EXCLUSION OF THE 9 COMPARABLES AND INCLUSION OF ONE COMPARABLE, THE ARITHMETIC MEAN WAS ARRIVED AT 13.99% AS AGAINST THE ASSESSEES PLI OF 11.61%. HENCE IT WAS PLEADED THAT THE PLI OF COMPARABLES SO WORKED OUT AT 13.99% IS WELL WITHIN THE RANGE OF +- 5% TOLERANCE LIMIT AND ACCORDINGLY THE PRICING DONE BY THE ASSESSEE SHOULD BE CONSIDERED AT ARMS LENGTH. 10.1. THE LD. DRP REJECTED THE INCLUSION OF ASK ME INFO HUBS LTD AS A COMPARABLE AS NO REASONABLY ACCURATE ADJUSTMENTS COULD BE MADE TO ACCOUNT FOR UNDER UTILIZATION OF ASSETS AND HUMAN RESOURCES IN THE SAID COMPARABLE. THE LD. DRP ALSO REJECTED THE EXCLUSION OF 9 COMPARABLES ON THE GROUND OF VARIED AND FLUCTUATING MARGINS OVER THE YEARS IN THE ABSENCE OF ASSESSEE SHOWING ANY PECULIAR ECONOMIC CIRCUMSTANCES OR NON-COMPARABLE EVENTS FOR THE YEAR UNDER 14 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED CONSIDERATION. THE LD. DRP ALSO SUGGESTED THAT THESE 9 COMPARABLES WERE INDEED CONSIDERED AS COMPARABLES BY THE ASSESSEE ITSELF IN ITS TP STUDY. THE LD. DRP ALSO EXCLUDED B 2 K CORP PVT LTD AND NIIT SMARTSERVE LTD AS COMPARABLES AS IT WAS MAKING LOSSES CONSISTENTLY BEYOND A REASONABLE PERIOD OF TIME AND HAD SIGNIFICANT RELATED PARTY TRANSACTIONS. FINALLY THE LD. DRP CONSIDERED THE FOLLOWING 18 COMPARABLES UNDER TNMM AS MAM IN RESPECT OF IT ENABLED SERVICES AND WORKED OUT THE ARITHMETIC MEAN AS FOLLOWS:- SI NO. NAME OF THE COMPANY MARGIN BASED ON THE DATA FOR THE FY 2006-07 REMARKS 1 ALLSEC TECHNOLOGIES LTD 27.39% CONSIDERED BY THE TPO 2 B N R UDYOG LTD. 27.54% CONSIDERED BY THE TPO 3 CMC LIMITED(SEG.) 31.93% CONSIDERED BY THE TPO 4 COSMIC GLOBAL LTD 11.31% NOT CONSIDERED BY THE TPO 5 DATAMATICS TECHNOLOGIES LTD. 6.03 NOT CONSIDERED BY THE TPO 6 FIRSTSOURCE SOLUTIONS LTD. 19.47% CONSIDERED BY THE TPO 7 FORTUNE INFOTECH LTD. 17.64% NOT CONSIDERED BY THE TPO 8 GALAXY COMMERCIALS LTD. 14.75% NOT CONSIDERED BY THE TPO 9 HCL TECHNOLOGIES LTD. 31.73% NOT CONSIDERED BY THE TPO 10 KPIT CUMMINS GLOBAL BUSINESS SOLUTIONS LTD. 31.95% NOT CONSIDERED BY THE TPO 11 M C S LTD. 16.23% CONSIDERED BY THE TPO 12 MAPLE ESOLUTIONS LTD. 34.09% NOT CONSIDERED BY THE TPO 13 MPHASIS LTD.(SEG.) 11.31% CONSIDERED BY THE TPO 14 SPANCOTELESYSTEMS& SOLUTIONS P LTD. 30.31% NOT CONSIDERED BY THE TPO 15 T S R DARASHAW LTD. 35.86% NOT CONSIDERED BY THE TPO 16 TRANSWORKS INFORMATION SERVICES LTD. 13.76% NOT CONSIDERED BY THE TPO 17 TRITON CORP. LTD. 34.52% CONSIDERED BY THE TPO 18 WIPRO LIMITED 29.32% CONSIDERED BY THE TPO ARITHMETICAL MEAN 23.62% 10.2. THE ASSESSEE ALSO SOUGHT FOR APPROPRIATE ADJUSTMENTS TO BE MADE TO THE MARGINS OF THE COMPARABLES AS REQUIRED AS PER RULE 10B(1)(E)(III) OF THE RULES ON ACCOUNT OF DIFFERENCES IN THE SALES AND MARKETING EFFORTS UNDERTAKEN BY THE 15 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED COMPARABLE COMPANIES. THE LD. DRP HELD THAT AS THE TAX PAYER AS WELL AS THE LD. TPO HAD CONSIDERED TNMM AS THE MAM , THESE SORT OF EXPENSES ARE NETTED OUT AT NET MARGIN LEVEL. THE LD. DRP OBSERVED THAT THE ASSESSEE HAD ALSO NOT GIVEN ANY DETAILS AS TO WHAT EXTENT THE PROFITABILITY OF THE COMPARABLES IS AFFECTED ON ACCOUNT OF THESE EXPENSES BASED ON THE DATA PERTAINING TO FY 2006-07 AND HENCE IN THE ABSENCE OF SUCH EVIDENCE, THE CLAIM OF THE ASSESSEE WAS REJECTED. 10.3. THE LD. DRP FINALLY DETERMINED THE ALP AS UNDER:- ARITHMETIC MEAN PLI : 23.62% ON COST OPERATING COST RS.31,09,36,579/-* ARMS LENGTH MEAN MARGIN 23.62% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @ 123.62% OF OPERATING COST RS.38,43,79,798/- *AS PER THE ORDER OF THE TPO PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE: THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATED ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE @ 123.62% OF OPERATING COST RS.38,43,79,798/ - PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS* RS.31,21,86,866/ - SHORTFALL BEING ADJUSTMENT U/S 92CA RS.7,21,92,932/ - ([*] THE TPO HAD WRONGLY TAKEN THE PRICE OF INTERNATIONAL TRANSACTIONS AT RS.34,15,15,418/- WHICH INCLUDED ALL INTERNATIONAL TRANSACTIONS. VIZ. SALE OF CALL MANAGER PHONES, RECOVERY. HENCE THE PRICE OF INTERNATIONAL TRANSACTIONS FOR ALP PURPOSE IS TAKEN AS RS.31,21,86,866/-) 16 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED ACCORDINGLY THE LD. DRP ENHANCED THE ALP ADJUSTMENT TO RS 7,21,92,932/- AS AGAINST RS 1,36,12,409/- ARRIVED AT BY THE LD. TPO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREINABOVE ARE NOT REITERATED FOR THE SAKE OF BREVITY. THE SELECTION OF MAM AS TNMM IS NOT IN DISPUTE. THE PLI OF OP / TC IS NOT IN DISPUTE. WE HOLD THAT THE CONTEMPORANEOUS DATA SHOULD BE CONSIDERED FOR THE PURPOSE OF ARRIVING AT THE ARITHMETIC MEAN AND ACCORDINGLY THE LD. TPO AND LD. DRP WAS RIGHT IN CONSIDERING ONLY THE DATA FOR FY 2006-07 FOR ARRIVING AT THE ARITHMETIC MEAN IGNORING THE MULTIPLE YEAR DATA. THE SHORT POINT THAT ARISES FOR OUR CONSIDERATION IS TWO FOLD:- A) WHETHER THE LD. DRP WAS JUSTIFIED IN IGNORING THE OTHER TWO INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE VIZ SALE OF CALL MANAGER PHONES AMOUNTING TO RS 76,686/- AND RECOVERY OF EXPENSES AMOUNTING TO RS 2,92,51,866/- AND CORRESPONDINGLY NOT REDUCING THE SAME FROM THE TOTAL COST INCURRED BY THE ASSESSEE AS THE RECOVERY OF EXPENSES HAD BEEN MADE COST TO COST, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. B) WHETHER THE LD. DRP WAS JUSTIFIED IN EXCLUSION OF CERTAIN COMPARABLES IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR ARRIVING AT THE ARITHMETIC MEAN AND COMPARING THE SAME WITH THE PLI OF THE ASSESSEE WHILE DETERMINING THE ALP. 17 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED 11.1. WITH REGARD TO THE FIRST QUESTION RAISED HEREINABOVE, WE FIND THAT THE ASSESSEE HAD ENTERED INTO THREE INTERNATIONAL TRANSACTIONS AS BELOW:- SI NO. NATURE OF TRANSACTION AMOUNT RECEIVED BY ASSESSEE (RS.) 1 SALE OF CALL MANAGER PHONES 76,686/- 2 BPO SERVICES PROVIDED 31,21,86.866/- 3 RECOVERY OF EXPENSES 2,92,51,866/- BUT THE LD. DRP HAD CONSIDERED ONLY THE INTERNATIONAL TRANSACTION IN RESPECT OF BPO SERVICES PROVIDED BY THE ASSESSEE IN THE SUM OF RS 31,21,86,866/- AND IGNORED THE RECOVERY OF EXPENSES (ANOTHER INTERNATIONAL TRANSACTION) WHICH WAS ON COST TO COST BASIS AND WAS STATED TO BE INCLUDED IN THE TOTAL COST OF THE ASSESSEE AT RS 31,09,36,578/-. WE FIND THAT THE ASSESSEE HAD DULY REPORTED THIS FACT BEFORE THE LD. TPO THAT THE RECOVERY OF EXPENSES WAS ON COST TO COST BASIS WITHOUT ANY PROFIT ELEMENT THEREON AND IT DID NOT INVOLVE ANY RENDERING OF SERVICE AND THE LD. TPO HAD ACCEPTED THE SAME IN THE PROCEEDINGS BEFORE HIM. WITH REGARD TO THE AMOUNT RECEIVED TOWARDS CALL MANAGER PHONES AMOUNTING TO RS 76,686/-, THE SAME WOULD BE VERY INSIGNIFICANT COMPARED TO THE VOLUME OF TRANSACTIONS AND WOULD NOT IN ANY WAY AFFECT THE PLI OF THE ASSESSEE. WE FIND THAT THE LD. DRP HAD OBSERVED THAT THE TP STUDY WAS ONLY FOR BPO SERVICES AND ACCORDINGLY CONSIDERED THE INTERNATIONAL TRANSACTIONS AT RS 31,21,86,866/-. HAVING DONE SO, THE LD. DRP OUGHT TO HAVE REDUCED THE RECOVERY OF EXPENSES (ON COST TO COST BASIS) AMOUNTING TO RS 2,92,51,866/- AND RECOVERY TOWARDS CALL MANAGER PHONE AMOUNTING TO RS 76,686/-FROM THE TOTAL COST OF RS 31,09,36,578/- IN THE INTEREST OF JUSTICE. THIS IN OUR CONSIDERED OPINION, NEED TO BE DONE AND IF 18 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED THE SAME IS DONE, THE TOTAL COST WOULD BE RS 28,16,08,026/- ( 31,09,36,578 2,92,51,866 76,686). 11.2. WITH REGARD TO THE SECOND QUESTION RAISED HEREINABOVE, WE FIND THAT THE LD. AR BEFORE US SUBMITTED THAT OUT OF 18 COMPARABLES CHOSEN BY THE LD. DRP , SOUGHT FOR THE EXCLUSION OF CERTAIN COMPARABLES ON THE FOLLOWING GROUNDS:- A) COMPANIES HAVING RELATED PARTY TRANSACTIONS (RPT) MORE THAN 25% ; B) COMPANIES NOT FUNCTIONALLY COMPARABLE AS THEY ARE ENGAGED IN BUSINESS OF REGISTRAR AND SHARE AGENTS ; C) COMPANIES HAVING IRREGULAR BUSINESS OPERATIONS ; AND D) COMPANY HAVING HUGE BRAND VALUE . THE DETAILS OF THE SAME ARE SUMMARIZED AS UNDER:- (I) COMPANIES HAVING RPT MORE THAN 25% (COMPUTED FROM ANNUAL REPORT) B N R UDYOG LTD - RPT OF 359.35% C M C LTD IN ITES SEGMENT RPT OF 59.14% DATAMATICS TECHNOLOGIES LTD - RPT OF 66.91% FIRSTSOURCE SOLUTIONS LTD - RPT OF 173.44% FORTUNE INFOTECH LTD - RPT OF 99.96% H C L TECHNOLOGIES LTD - RPT OF 66.90% MPHASIS LTD (BPO SERVICES SEGMENT) - RPT OF 80.55% K P I T CUMMINS GLOBAL BUSINESS SOLUTIONS LTD- RPT OF 42.46% THE LD. DR VEHEMENTLY OPPOSED TO THE EXCLUSION OF THE AFORESAID COMPARABLES BASED ON THE RPT FILTER MORE THAN 25%. WE FIND THAT THE CO-ORDINATE BENCH OF 19 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED DELHI TRIBUNAL IN THE CASE OF ACTIS ADVISERS PVT LTD IN ITA NO. 5277/DEL/2011 FOR ASSESSMENT YEAR 2007-08 AND ITA NO. 958/DEL/2012 FOR ASSESSMENT YEAR 2006-07 DATED 12.10.2012 HAD HELD THAT THE COMPARABLES HAVING RELATED PARTY TRANSACTIONS MORE THAN 25% OF TOTAL REVENUE HAD TO BE EXCLUDED BY APPLYING RPT FILTER. HENCE RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT THE AFORESAID 8 COMPARABLES HAVING RPT OF MORE THAN 25% SHOULD BE EXCLUDED FOR ARRIVING AT THE ARITHMETIC MEAN. (II) COMPANIES NOT FUNCTIONALLY COMPARABLE M C S LTD - REGISTRAR AND SHARE TRANSFER AGENTS T S R DARASHAW LTD - REGISTRAR AND SHARE TRANSFER AGENTS WE FIND THAT THESE COMPANIES ARE ENGAGED IN THE BUSINESS OF REGISTRAR AND SHARE TRANSFER ACTIVITIES AND HENCE ARE FUNCTIONALLY NOT COMPARABLE. WE FIND FORCE IN THE ARGUMENT OF THE LD. AR IN THIS REGARD. WE FIND THAT THE CO-ORDINATE BENCH OF BANGALORE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT LTD REPORTED IN (2013) 140 ITD 344 (BANG TRIB) HAD HELD THAT THE COMPANIES ENGAGED IN SHARE TRANSFER ACTIVITIES CANNOT BE EQUATED / COMPARED WITH COMPANIES RENDERING ITES AND HENCE THE SAME IS TO BE EXCLUDED AS COMPARABLES AS THEY ARE FUNCTIONALLY DIFFERENT. HENCE RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT THE AFORESAID 2 COMPARABLES HAVING FUNCTIONAL DISSIMILARITIES SHOULD BE EXCLUDED FOR ARRIVING AT THE ARITHMETIC MEAN. (III) COMPANIES HAVING IRREGULAR BUSINESS OPERATIONS MAPLE ESOLUTIONS LTD TRITON CORP LTD 20 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED WE FIND THAT THE LD. TPO DID NOT DIFFERENTIATE BETWEEN VOICE-BASED AND NON-VOICE BASED BPO UNITS AND BOTH ARE NOT COMPARABLE. WE FIND THAT THE CO-ORDINATE BENCH DECISION OF KOLKATA TRIBUNAL IN THE CASE OF ACCLARIS BUSINESS SOLUTIONS PVT LTD REPORTED IN 59 TAXMANN.COM 332 (KOLTRIB) FOR ASSESSMENT YEAR 2007-08 ; HYDERABAD TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT LTD REPORTED IN 32 TAXMANN.COM 21 (HYDTRIB) FOR ASSESSMENT YEAR 2007-08 AND DELHI TRIBUNAL IN THE CASE OF CRM SERVICES INDIA (P) LTD REPORTED IN 14 TAXMANN.COM 96 (DEL TRIB) HAD HELD THAT MAPLE ESOLUTIONS LTD COULD NOT BE SELECTED AS COMPARABLE FOR THE PURPOSE OF BENCHMARKING WHILE APPLYING TNMM METHOD AS THEY ARE ENGAGED IN DIFFERENT BUSINESSES ALTOGETHER. MOREOVER, IT WAS ALSO OBSERVED THAT THE SAID COMPARABLES WERE ALSO INVOLVED IN FRAUD AND THE BUSINESS REPUTATION CAME UNDER SERIOUS INDICTMENT. FOR THIS EXTRANEOUS REASON ALSO, THEY DESERVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. HENCE RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE HOLD THAT THE AFORESAID 2 COMPARABLES HAVING IRREGULAR BUSINESS OPERATIONS SHOULD BE EXCLUDED FOR ARRIVING AT THE ARITHMETIC MEAN. (IV) COMPANY HAVING BRAND VALUE WIPRO LTD (BPO SERVICES SEGMENT) WE FIND THAT THE CO-ORDINATE BENCH OF HYDERABAD TRIBUNAL IN THE CASES OF A) VIRTUSA (INDIA) PVT LTD REPORTED IN 38 TAXMANN.COM 166 FOR ASSESSMENT YEAR 2007-08 B) LGS GLOBAL LTD REPORTED IN 151 ITD 242 FOR ASSESSMENT YEAR 2007-08 21 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED C) CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT LTD REPORTED IN 32 TAXMANN.COM 21 FOR ASSESSMENT YEAR 2007-08 HAD HELD AS BELOW:- THIS COMPANY IS ALSO A GLOBAL IT COMPANY HAVING VARIETIES OF SERVICE AND PRODUCTS AND LOOKING TO THE MAGNITUDE OF ITS OPERATIONS, SALES AND EXPENSES, THE SAME CANNOT BE TAKEN INTO CONSIDERATION FOR COMPARABILITY ANALYSIS. MOREOVER, 67% OF ITS SALES RELATES TO ITS PRODUCT WHICH ARE SOLD ON PREMIUM RESULTING INTO HIGHER PROFITABILITY, THEREFORE, CANNOT BE COMPARED WITH THE ASSESSEE COMPANY AT ALL. THERE ARE SEVERAL JUDGEMENTS OF ITAT WHICH HAVE BEEN REFERRED IN PARA 6.5 ABOVE, THAT WIPRO CANNOT BE TAKEN AS COMPARABLE CASE FOR COMPARABLE CASE WITH THE COMPANY LIKE ASSESSEE. IN VIEW OF THESE FACTS AND THE REASONING GIVEN IN THE CASE OF INFOSYS, WE HOLD THAT WIPRO ALSO CANNOT BE CONSIDERED AS A COMPARABILITY ANALYSIS, HENCE, WOULD NOT BE INCLUDED IN THE LIST OF THE COMPARABLE ENTITIES AS IDENTIFIED BY THE TPO. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE HOLD THAT THE AFORESAID COMPARABLE HAVING HUGE BRAND VALUE SHOULD BE EXCLUDED FOR ARRIVING AT THE ARITHMETIC MEAN. 11.2.1. WE FIND THAT THE ASSESSEE HAD ALSO PRAYED FOR INCLUSION OF ONE COMPARABLE VIZ ASK ME INFO HUBS LTD WHICH HAS BEEN EXCLUDED BY THE LD. DRP WITHOUT ANY COGENT REASONS. WE FIND THAT THE CO-ORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF TECH BOOKS ELECTRONICS PVT LTD REPORTED IN 176 TTJ 20 (DELHI TRIB) FOR ASSESSMENT YEAR 2007-08 HAD OBSERVED THAT THE LD. TPO REFUSED TO ACKNOWLEDGE THIS COMPANY AS A COMPARABLE BY NOTICING THAT THERE WAS A DECLINING TURNOVER AND DECLINING PROFITABILITY OF THIS COMPANY WHICH INDICATED THAT IT WAS IN A NEGATIVE PHASE OF ECONOMIC CYCLE. THE TRIBUNAL HELD THAT THIS VIEW POINT OF THE LD. TPO IS CONTRARY TO THE FACTUAL POSITION STATED BEFORE HIM ABOUT THIS COMPANY WHICH IS AS UNDER:- 22 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED FINANCIAL YEAR SALES OPERATING MARGINS 2003-04 RS 99,17,965 1.34% 2004-05 RS 2,39,63,134 (-) 13.92% 2005-06 RS 4,70,65,140 5.05% 2006-07 RS 2,97,76,679 0.67% IT WAS OBSERVED BY THE TRIBUNAL THAT FROM THE AFORESAID TABLE, IT BECOMES EVIDENT THAT THERE IS NO NEGATIVE PHASE OF THIS COMPANY EITHER IN TERMS OF TURNOVER OR OPERATING PROFIT MARGIN. IT WAS HELD AS UNDER:- 8.3. WE ARE UNABLE TO FIND ANY NEGATIVE PHASE OF ECONOMIC CYCLE OF THIS COMPANY WHICH IS , IN FACT, IN SYNC WITH THE INCREASE AND DECREASE OF THE ASSESSEES TURNOVER AND PROFITABILITY IN THE EARLIER TWO YEARS VIS--VIS THE YEAR UNDER CONSIDERATION AS HAS BEEN NOTICED BY THE LD. CIT(A) ON PAGE 8 OF THE IMPUGNED ORDER. UNDER THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE VIEW TAKEN BY THE LD.CIT(A) IN ORDERING THE INCLUSION OF THIS COMPANY CANNOT BE INTERFERED WITH. WE, THEREFORE, UPHOLD THE SAME AND DISMISS THE GROUND TAKEN BY THE REVENUE. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE HOLD THAT THE AFORESAID COMPARABLE SHOULD BE INCLUDED FOR ARRIVING AT THE ARITHMETIC MEAN. 11.2.2. WE FIND THAT IF THE AFORESAID 13 COMPARABLES ARE EXCLUDED (IE COMPARABLES HAVING RPT MORE THAN 25%, FUNCTIONALLY NOT COMPARABLE, IRREGULAR BUSINESS OPERATIONS AND HAVING BRAND VALUE AS STATED SUPRA) AND ONE COMPARABLE IS INCLUDED (I.E. ASK ME INFO HUBS LTD), THEN THE PLI AS PER THE ANNUAL REPORT (AUDITED RESULTS) FOR THE RELEVANT PERIOD WOULD WORK OUT AS UNDER:- SR. NO. NAME OF THE COMPARABLE OP/TC AS PER DRP DIRECTIONS OP/T C AS PER THE ANNUAL REPORT 1 ALLSEC TECHNOLOGIES LTD 27.39% 27.31 2 COSMIC GLOBAL LTD. 11.31% 11.31 3 GALAXY COMMERCIALS LTD. 14.75 14.22 23 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED 4 SPANCOTELESYSTEMS& SOLUTIONS LTD. 30.31 24.49 5 TRANSWORKS INFORMATION SERVICES LTD. 13.76 12.34 6 ASK ME INFO HUBS LTD 0.31 0.31 ARITHMETIAL MEAN 16.30 15.00 NOW IF THE ABOVE ARITHMETIC MEAN OF 15% IS APPLIED ON THE REDUCED OPERATING COST OF RS 28,16,08,026/- ( I.E. 31,09,36,578 2,92,51,866 76,686) AS DISCUSSED ABOVE, THEN THE ALP @ 115% OF OPERATING COST WOULD BE RS. 32,38,49,230/-. IF THE 5% TOLERANCE LIMIT IS APPLIED ON THE SAME (I.E. 32,38,49,230 * 5% = 1,61,92,462) , THEN THE PRICE CHARGED BY THE ASSESSEE ON ITS INTERNATIONAL TRANSACTIONS COULD RANGE BETWEEN RS 30,76,56,768 TO RS 34,00,41,692/-. IN THE INSTANT CASE, THE PRICE CHARGED BY THE ASSESSEE FOR ITS BPO SERVICES (INTERNATIONAL TRANSACTION) WAS RS 31,21,86,866/-. HENCE WE HOLD THAT THE PRICE CHARGED BY THE ASSESSEE FOR ITS INTERNATIONAL TRANSACTION IS AT ARMS LENGTH AS IT FALLS WITHIN THE PERMITTED RANGE AS SUPRA AND HENCE NO ADJUSTMENT IS REQUIRED TO BE MADE TO ITS ALP. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 02.06.2017. SD/- SD/- [N. V. VASUDEVAN] [M. BALAGANESH] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :02.06.2017 {SC SPS} 24 ITA NO. 1111/KOL/2011 ASSESSMENT YEARS: 2007-08 ORACLE (OFSS) BPO SERVICES LIMITED COPY OF THE ORDER FORWARDED TO: 1. APPELLANT/ASSESSEE ORACLE (OFSS) BPO SERVICES LIMITED [FORMERLY KNOWN AS EQUINOX GLOBAL SERVICES PVT. LTD.] DLF INFINITY TOWER A, 3 RD FLOOR, DLF CYBER CITY, PHASE-II, GURGAON HARYANA 122022. 2. REVENUE/RESPONDENT- DCIT-2, KOLKATA. 3. CIT(A)- KOLKATA. 4. CIT , KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE, DDO, KOLKATA BENCHES, KOLKATA. DATE INITIAL 1. DRAFT PREPARED BY HONBLE AM 05 .0 5 .17 SR.PS 2. DRAFT SENT AFTER REPRODUCTION AND EDITING BY SR. P.S. ON 06.05. 17 (DICTATION PAD HAS BEEN ENCLOSED ALONG WITH ORIGINAL FILE) SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE H.C. 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER.